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Red Hat revenues swell to $209.1m

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Red Hat is not as precisely coupled to the economy as many other IT players. Throughout the Great Recession, Red Hat got its brim a little wet, but it never blew off Wall Street's head and got trampled in the mud like so many other companies. And as the economy recovers, the commercial Linux operating system and JBoss middleware distributor is growing at more or less the same rate – like nothing ever happened.

In the first quarter of Red Hat's fiscal 2011, which ended on May 31, the company's revenues were up 19.9 per cent, to $209.1m. The growth was balanced across software subscriptions (which is how Red Hat makes money off open source software) and ancillary training and professional services (which is just a feather to stick in its fedora). Subscription sales rose by 20.4 per cent, to $179.1m, while training and services sales were up by 17.5 per cent, to just over $30m.

Red Hat's costs were up across the board as it chased more money, but the company was nonetheless able to boost net income by 30 per cent to $24.1m. Bringing 11.5 percent of revenue to the bottom line is good for any IT company and may not be anywhere near the peak that IBM or Microsoft once had (at nearly twice that rate), but it is a far cry better than most public companies without a monopoly are able to do.

Jim Whitehurst, Red Hat's president and chief executive officer, speaking on a call with Wall Street analysts after the market closed, said that the company closed a multi-year, eight-figure deal that was the largest in its history. This deal, which was predominantly for JBoss and Enterprise MRG middleware, was a greenfield installation in the United States, but Red Hat would not say what industry this company was in or exactly what they bought.

Whitehurst said further that the New York Stock Exchange had just announced this week that it would standardize on JBoss middleware and pay Red Hat for support, just as it had done previously for Red Hat Enterprise Linux. Of the top 25 deals that were up for renewal during the quarter, these deals all renewed and at a revenue level that was 120 percent of the original value of the contracts.

As he does on these calls, Charlie Peters, Red Hat's chief financial officer, added a little color for the quarter but did not talk about product lines too much. Of the top 30 deals that Red Hat did in the quarter, one was the above-mentioned eight-figure deal, one was in excess of $5m, and a remaining nine deals were for in excess of $1m. And Peters said Red Hat was encouraged by the fact that that services bookings had rebounded, which is a leading indicator for the tech rebound.

Neither Whitehurst or Peters said much new about RHEL 6, the impending Linux distro from Red Hat that is currently in beta and which probably should have been the star of the Red Hat Summit in Boston this week. Peters did confirm that RHEL 6 would become generally available "in the not-too-distant future" and Whitehurst reminded Wall Street that software releases are not "revenue events" for Red Hat, since any customer with a subscription can access the new code or use the old stuff, whatever suits them.

Giving a little insight into the RHEL business, 19 of the top 30 deals that Red Hat did were for the Advanced Platform variant of RHEL, which has a higher price but which offers unlimited virtualization on the servers that it is loaded upon.

Ten of the top 30 deals in fiscal Q1 had a middleware component. Middleware sales (which means JBoss, Enterprise MRG, and other products, not just JBoss) were strong, according to Peters, both in terms of license sales and services bookings, and as has been the case for the past several quarters, middleware is growing more than twice as fast as the business at large for Red Hat.

Peters said that in fiscal Q1, 46 per cent of revenue bookings came from direct sales and 54 per cent came from the channel, essentially the same as the prior Q4 of fiscal 2010 (which had 44 per cent direct and 56 per cent from the channel). By geography, 62 per cent of bookings came from Americas region, 22 per cent came from EMEA, and 16 per cent came from AP.

Red Hat ended the quarter with $968m in cash and equivalents (after buying back 2.5 million of its shares for $74m) and approximately 3,300 employees worldwide. Peters said that in the past year, Red Hat has been adding between 80 and 100 employees per quarter, with about half of them from outside the United States as it builds up its international business. He said this was about the run rate the company expected for the remainder of the fiscal 2011 year.

Looking ahead to the second fiscal quarter. Peters said Red Hat expected revenues to be in the range of $210m to $212m, which is 15 per cent growth at the midpoint of that range. Non-GAAP earnings per share are expected to be around 18 cents, or roughly what it was in the quarter just ended. ®

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