Red Hat Moves Into the Black - 2

The company reported 3Q net income of $305,000, up from a loss of $15.1 million in the same year-ago quarter.

Red Hat, Inc., the open-source and Linux provider, moved into the black in its third fiscal quarter of this year.

The company on Tuesday reported net income of $305,000 for the quarter ended November 30, up from a loss of $15.1 million in the same year-ago quarter.

This translated into break-even per share, compared to a loss of $0.09 per share in the same year-ago quarter and a net loss of $2 million or $0.01 per share in the second quarter of the year.

The Raleigh, N.C., firm also reported a 21 percent rise in revenue to $24.3 million in the third quarter from a year earlier. This was also the first quarter of GAAP (Generally Accepted Accounting Principles) profitability, Kevin Thompson, Red Hats chief financial officer, said in a media call presenting the results.

"We have also generated our second consecutive quarter of positive cash flow from operations, which was about $1 million in the third quarter, an increase of 74 percent or $400,000 compared to the positive cash flow from operations of $600,000 in the second quarter," he said.

Also addressing the media was Matt Szulik, Red Hats chairman, president and CEO, who said the companys Unix-to-Linux migration campaign, announced a year ago and targeted at the enterprise, continues to deliver results.

This was reflected in the fact that Red Hat Linux Advanced Server notched up sales of more than 12,000 subscriptions in the quarter under review, its second full quarter of release, which marks an increase of 50 percent over the 8,000 subscriptions sold in the second quarter and brings the cumulative subscriptions sold to over 20,000—exceeding the companys expectations, he said.

"Enterprise sales now account for some 92 percent of our revenue, up from 78 percent a year ago, and we gained 1,000 new Advanced Server customers in the third quarter," Szulik said.

Red Hat continued to drive strong sequential revenue growth in its enterprise business, with enterprise revenues increasing to $22.5 million in the third quarter, Thompson said. "This represents an increase of $2.9 million or 15 percent over the enterprise revenues of $19.6 million in the second quarter and an increase of $6.7 million or 43 percent over enterprise revenues of $15.7 million in the same prior year quarter."

Some 55 percent of Red Hats enterprise revenue came from subscriptions, with 45 percent derived from services. This was a shift from the 49 percent revenue reported from subscriptions and 51 percent from services in the second quarter, he said.

"Gross margins remained strong, improving to 66 percent, while enterprise gross margins grew to a record 68 percent, moving strongly towards our 70 percent target.

"By continuing to deliver strong operating performance, Red Hat continues to show solid execution of its business strategy. Accelerating growth of our enterprise subscription revenues and positive operating cash flows are evidence of Red Hats scalable business model," Thompson said.

Red Hat expects to see continued strong sequential growth in the fourth quarter, with total revenue expected to come in at between $26.5 million and $27.5 million—representing growth of between 9 percent and 13 percent over the third quarter.

Enterprise revenue is expected in the range of $25.3 million and $26 million, with subscription revenue totaling some 55 percent to 58 percent of total enterprise revenue, Thompson said.

Tim Buckley, Red Hats COO, told the media that the company also saw record international business in the quarter, with its European business posting its best quarter ever. Another significant deal in the quarter was the companys agreement with Fujitsu to pre-load Red Hat on industry standard Intel servers in Japan, he said.