Red Hat Touts Closing 100 $1M+ Deals
December 19, 2018
Hat reported financial results for the third quarter of fiscal year 2019
ended November 30, 2018.
“Adoption of Red Hat’s technologies that enable customers to build and
deploy applications more securely and consistently across hybrid and
multi-cloud environments continued to drive our growth in Q3,” stated
Jim Whitehurst, President and Chief Executive Officer of Red Hat. “For
instance, our Certified Cloud and Service Providers (CCSP) program
reached the $300 million annualized run-rate milestone in Q3 with 25%
year-over-year growth of Red Hat Enterprise Linux on-demand in the
public clouds. In addition, we continue to experience strong customer
growth in Red Hat OpenShift, our enterprise Kubernetes platform, and Red
Hat Ansible Automation, both of which added more than 100 customers in
“In Q3, we closed 100 deals over $1 million and delivered double digit
total revenue growth of 13% year-over-year, or 15% in constant currency
and deferred revenue growth of 20% year-over-year, or 23% in constant
currency despite continued foreign exchange volatility. Moreover, our
total backlog grew 22% year-over-year to approximately $3.5 billion,”
said Eric Shander, Executive Vice President and Chief Financial Officer
for Red Hat. “Strong renewals of our largest deals also helped drive
these results with all of our top 25 deals renewing at an upsell rate
Revenue: Total revenue for the quarter was $847 million, up 13%
year-over-year, or 15% measured in constant currency. Constant currency
references in this release are detailed in the tables below.
Subscription revenue for the quarter was $741 million, up 13%
year-over-year, or 15% measured in constant currency. Subscription
revenue in the quarter was 87% of total revenue.
Subscription Revenue Breakout: Subscription revenue from
Infrastructure-related offerings for the quarter was $534 million, an
increase of 8% year-over-year, or 9% measured in constant currency.
Subscription revenue from Application Development-related and other
emerging technology offerings for the quarter was $207 million, an
increase of 28% year-over-year, or 30% measured in constant currency.
Operating Income: GAAP operating income for the quarter was $109
million, down 8% year-over-year. After adjusting for non-cash
share-based compensation expense, amortization of intangible assets, and
transaction costs related to business combinations, non-GAAP adjusted
operating income for the third quarter was $203 million, up 13%
year-over-year. For the third quarter, GAAP operating margin was 12.9%
and non-GAAP adjusted operating margin was 24.0%. Non-GAAP references in
this release are detailed in the tables below.
Net Income: GAAP net income for the quarter was $94 million, or $0.51
diluted earnings per share (“EPS”), compared with GAAP net income of
$102 million, or $0.55 diluted EPS, in the year-ago quarter.
After adjusting for non-cash share-based compensation expense,
amortization of intangible assets, transaction costs related to business
combinations and non-cash interest expense related to the debt discount,
non-GAAP adjusted net income for the quarter was $175 million, or $0.96
diluted EPS, as compared to $133 million, or $0.73 diluted EPS, in the
year-ago quarter. Non-GAAP adjusted diluted weighted average shares
outstanding excludes dilution that is expected to be offset by our
convertible note hedge transactions.
Cash: GAAP and non-GAAP operating cash flow was $137 million for the
down 15% on a year-over-year basis compared to GAAP operating cash flow.
Non-GAAP operating cash flow adjusts for the impact of our recent
adoption of ASU 2016-15: Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments, which
requires the portion of repayments of convertible notes during the third
quarter that is attributable to debt discount to be classified as
operating cash flow. GAAP and non-GAAP operating cash flow include
approximately $23 million of business combinations expenses paid in the
quarter. Total cash, cash equivalents and investments as of November 30,
2018 was $2.2 billion after repurchasing approximately $13 million, or
approximately 0.1 million shares, of common stock in the third quarter.
The remaining balance in the current repurchase authorization as of
November 30, 2018 was approximately $737 million.
Deferred revenue: At the end of the third quarter, the Company’s total
deferred revenue balance was $2.5 billion, an increase of 20%
year-over-year. The negative impact to total deferred revenue from
changes in foreign exchange rates was $53 million year-over-year. On a
constant currency basis, total deferred revenue would have increased 23%
Due to the pending transaction with International Business Machines
Corporation, Red Hat will not be updating its outlook for fiscal 2019
and will not be hosting a conference call for its third quarter 2019