July 2, 2005
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Red Hat reported on Wednesday that first-quarter revenue climbed 46% as more companies and governments opened their wallets for its open-source tools and support services.
By Alorie Gilbert
Revenue for the quarter, which ended May 31, was $60.8 million, representing record sales for the company. Revenue from enterprise subscriptions, or contracts with big corporate and government clients, increased 63% in the quarter and now makes up 80% of the company's revenue. Wall Street has been eager to see the company grow that business.
Red Hat, based in Raleigh, N.C., grew profits too. First-quarter net income climbed to $12.4 million, or 7 cents per share, up from $10.9 million, or 6 cents per share, a year ago. Revenue and profits for the quarter were within the range expected by most analysts.
Red Hat Chief Executive and Chairman Matthew Szulik called the financial performance the company's best to date and promised continued growth based on plans to expand the company's offerings and geographic reach and to tap growing global demand for open-source systems.
"The result should be steadily improving revenue, earnings and cash flow growth," Szulik said in a teleconference with securities analysts.
Szulik ticked off a number of accomplishments that bolstered the company's quarter. One was a high rate of subscription renewals from enterprise customers. Of the 25 largest contracts that were up for renewal in the quarter, 100% renewed, he said. In addition, distribution agreements with Hewlett-Packard, Dell and others appear to be paying off. Sales through such partners reached 60% of total sales in the quarter, up from 56% in the previous quarter. Szulik said the company is on track to reach its 70% goal.
The company sold 190,000 new Linux subscriptions in the quarter, Szulik said in an interview. That compares with 98,000 in the year-ago quarter.
He declined to say what fraction of existing customers renew subscriptions when their one-year terms expire, though he did say all of Red Hat's 25 top customers renewed.
"Our goal remains building best-in-class open-source infrastructure for the enterprise," Szulik said.
Red Hat also continues to expand the number of products and services it sells, Szulik said. In addition to its flagship Linux operating system product, it now offers security, storage and directory server software and plans to add more.
The company is concentrating its efforts in several areas, including further development of storage, security, and virtualization systems as well as expanding internationally, he said. Red Hat is especially interested in growing its presence in Latin America and China, he added.
Red Hat finance chief Charlie Peters provided financial guidance for the second quarter and full year. The company expects to report second-quarter earnings per share of 6 to 7 cents on $64 million to $65 million in revenue, increasing revenue by 38% to 40%. He reduced full-year revenue estimates from previous forecasts to $265 million to $275 million, citing pressure from exchange rates. However, he maintained an earnings-per-share forecast of 28 to 32 cents for the year.
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