| Red Hat continues to make big bucks |
Jun. 28, 2006
The first quarter of Red Hat Inc.'s 2007 fiscal year was a great one. But, because it fell short of analysts' expectations, the company's stock fell in after-hours trading.
The total revenue for the quarter, which was reported on June 28, was $84.0 million, an increase of 38 percent from the year ago quarter and 7 percent from the prior quarter. Subscription revenue from RHEL (Red Hat Enterprise Linux) was $71.5 million, up 45 percent year-over-year and 7 percent sequentially.
The company reported operating income of $12.6 million for the quarter, including $7.6 million of non-cash stock compensation expense related to the implementation of FAS123R (Financial Accounting Series). FAS123R is a new set of accounting regulations that requires the expensing of non-cash stock option grants and other equity awards.
GAAP (Generally Accepted Accounting Principles) net income for the quarter was $13.8 million, or seven cents per share. Without the FAS123R expenses, the net income would have been 14 cents per share. Analysts had expected the stock to deliver nine cents a share,
At quarter end, the company's total deferred revenue balance was $254.7 million, an increase of 61 percent on a year-over-year basis and 14 percent sequentially.
The quarterly gross margin improved to 84 percent from 79 percent in the year-ago period. The Raleigh, N.C. company also had a total of $1.1 billion in cash and investments as of the end of May.
Despite this, Red Hat's shares fell $1.37, or 5.5 percent, to $23.64 in the first hour of after-hour trading. However, the stock bounced up to having only lost 33 cents per share, or 1.3 percent, to $25.01 after the Red Hat earnings call.
The reason for this drop, based on the analyst comments, was concerns about the company's recent acquisition of JBoss Inc.
The drop was driven, in part, by the fact that JBoss's revenues turned out to be approximately 10 percent lower than had been expected when the deal was first announced.
Another factor, according to Dion Cornett, Red Hat's VP of investor relations, was an unrealistic expectation from some analysts on the effects of FAS123R on the company's earnings.
"JBoss won't contribute to the profitability of the company for several quarters," said Charlie Peters, executive VP and CFO. It's Red Hat's intention to "make JBoss as profitable as fast as possible."
The JBoss and Red Hat merger is proceeding well, according to Red Hat CEO Matthew Szulik.
JBoss and Red Hat merger integration teams have been formed in both companies. Most financial functions are already being done in-house at Red Hat. Still, "it will take a couple of quarters for the consolidation to be completed," Szulik said.
To date, there has also been no pushback from Red Hat partners, such as BEA, IBM, or Oracle, to Red Hat entering the Java application server market. In addition, Szulik stated that Red Hat would continue to support JBoss on SUSE and other Linuxes, as well as on Windows.
Looking ahead, JBoss's financial results, which were based on a subscription model that was very similar to Red Hat's, will be merged within Red Hat's own financial results.
Based on the continued growth of interest from large companies in the high-value, low-cost proposition of open-source and Linux, Szulik anticipates that the combined company will quickly return to Red Hat's higher margins.
So it is that Peters sees Red Hat's glass as being more than half-full despite a nervous market. "The first fiscal quarter marks a great start to an exciting year for Red Hat," Peters said.
"In particular, we continued to deliver rapid top-line growth and market share gains. While profitability comparisons to prior periods' results are skewed as a result of the implementation of FAS123R and a higher non-cash tax rate, the company's core operations continue to improve in efficiency as evidenced by our growing cash flow. Furthermore, the actual cash that we have to invest back into the business to drive growth is not affected by the accounting treatment."
At the end of the earnings conference call, Cornett also said that when RHEL 5 is released at the year of the end, it would probably come out with two pricing schedules -- one for RHEL without Xen virtualization, and another for the server Linux with Xen virtualization.
-- Steven J. Vaughan-Nichols
Do you have comments on this story?
Talkback here
NOTE: Please post your comments regarding our articles using the above link. Be sure to use this article's title as the "Subject" in your posts. Before you create a new thread, please check to see if a discussion thread is already running on the article you plan to comment on. Thanks!
(Click here for further information)
|
|
|
7 Advantages of D2D Backup
For decades, tape has been the backup medium of choice. But, now, disk-to-disk (D2D) backup is gaining in favor. Learn why you should make the move in this whitepaper.
4 Legal Reasons to Control Internet Access
The Internet is obviously a valuable resource for many organizations. However, many are exposed to legal liability concerns because they fail to control Internet access. Learn if you're safe in this white paper.
Rapidly Resolve J2EE Application Problems
Whether you are in the process of building J2EE applications or have J2EE applications already running in production, you must ensure that they deliver the expected ROI. Learn how in this white paper.
Load Testing 2.0 for Web 2.0
There are many unknowns in stress testing Web 2.0 applications. Find out how to test the performance of Web 2.0 in this white paper.
Build Better Games Online
For the game infrastructure providers, life is complex. Making money from games has become more complicated. Why? Find out in this white paper.
Building a Virtual Infrastructure from Servers to Storage
This white paper discusses the virtual storage solutions that reduce cost, increase storage utilization, and address the challenges of backing up and restoring Server environments.
Gaining Faster Wireless Connections with WiMAX
Welcome to what is quickly becoming the hyperconnected world where anything that would benefit from being connected to the network will be connected. Learn more in this white paper.
Is Your Desktop a Security Threat?
The new wave of sophisticated crimeware not only targets specific companies, but also targets desktops and laptops as backdoor entryways into those business’ operations and resources. Learn how to stay safe in this white paper.
Increasing SAN Reliability by 100 Percent
Storage area networks (SAN) are a strong part of storage plans. Learn how to increase your reliability and uptime by 100 percent in this case study.
|
|
|
|
|
news feed