Red Hat Reports Revenue of $65.7 million up 42% year-over-year

Red Hat, Inc. , the world's leading provider of open source solutions to the enterprise, today announced financial results for its fiscal second quarter ended August 31, 2005.

Total revenue for the quarter was $65.7 million, a year-over-year increase of 42% and a sequential increase of 8%. Subscription revenue was $54.3 million, an increase of 56% year-over-year and 10% sequentially.

The company reported operating income of $12.8 million, representing a 68% increase from the prior quarter and 90% from the year ago period. Net income for the quarter was $16.7 million, a sequential increase of 35% and year-over-year increase of 42%. Earnings per diluted share were $0.09 for the quarter, an increase from $0.07 in the prior quarter and $0.06 in the year ago period.

The company reported $45.8 million in cash flow from operations during the second quarter, a 48% year-over-year increase. After repurchasing $11.6 million of common stock and $20.0 million face value of the Company's convertible bonds during the quarter, cash and investments totaled $966 million at the end of August 2005.

At quarter end, the company's total deferred revenue balance was $184.0 million, an increase of 85% on a year-over-year basis and 17% on a sequential basis.

Other highlights from the quarter included:

-- Billings, as approximated by the sum of revenue and quarterly change in deferred revenue, was $91.8 million, up 58% year-over year.

-- Gross margin improved to 83% from 80% in the prior quarter.

-- Operating margin grew to 20% from 13% last quarter.

"Our second quarter results show strong growth in revenue and cash flow," stated Charlie Peters, Executive Vice President and Chief Financial Officer of Red Hat. "We continue to focus on operational improvements and solid execution in all areas of our business. Our investments in people and systems have improved our productivity, positively impacting our results."

About Red Hat, Inc.

Red Hat, the world's leading open source and Linux provider, is headquartered in Raleigh, NC with satellite offices spanning the globe. Red Hat is leading Linux and open source solutions into the mainstream by making high quality, low cost technology accessible. Red Hat provides operating system software along with middleware, applications and management solutions. Red Hat also offers support, training and consulting services to its customers worldwide and through top-tier partnerships. Red Hat's open source strategy offers customers a long term plan for building infrastructures that are based on and leverage open source technologies with focus on security and ease of management. Learn more: http://www.redhat.com

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