Red Hat Profits Keep Rising

The open-source software company announces a revenue increase of 46 percent over last year, driven by Red Hat Enterprise Linux subscriptions.

Red Hat announced on Thursday financial results for its fiscal first quarter ending May 31, 2005, results which beat analyst expectations by two cents a share.

The stock market greeted the good news by pushing Red Hat Inc.s stock up by almost 9 percent by midday Friday. Even though it was the day before the Fourth of July holiday weekend—a date that normally sees low trading volume—Red Hat stock was trading at more than triple its average volume.

Red Hat total revenue for the quarter was $60.8 million. This amounts to a year-over-year increase of 46 percent. The bulk of that came from RHEL (Red Hat Enterprise Linux) subscriptions. RHEL revenue was $48.7 million, an increase of 63 percent year over year.

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The company, based in Raleigh, N.C., reported $36.6 million in cash flow from operations during the first quarter, a 20 percent increase from the prior quarter and the highest level in the companys history.

For the first quarter of fiscal 2006, the company reported net income of $12.4 million or $0.07 per diluted share, up from $11.8 million or $0.06 per diluted share in the prior quarter.

The Linux company realized this net income even though it had repurchased $5.1 million of common stock and $10.0 million face value of debt during the quarter. At quarter end, the companys total deferred revenue balance was $157.9 million, an increase of $20.6 million from the prior quarter and $70.1 million from the year-ago period.

"Our results for the first quarter represent a solid start to the fiscal year," said Charlie Peters, Red Hats chief financial officer, in a statement. "We continue to experience strong customer demand. This quarters record-level billings speak to the continued momentum we are experiencing globally for our open-source solutions."

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"From an operational standpoint," Peters said, "the process improvements we implemented last quarter began to pay off earlier than we expected in terms of shorter cash collection cycles and improved cash flow from operations."

Part of Red Hats gains came from its reseller and integrator partners. Red Hat improved its channel cash flow by increasing its partner bookings to 60 percent of orders, up from 56 percent last quarter. Red Hats stated goal is for its channel bookings to reach 70 percent of orders.

This last quarter also saw the release of a new product line: RHDS (Red Hat Directory Server), which Red Hat has open-sourced. RHDS, which was based on the Netscape Directory Server code, provides LDAP services for enterprises.

Dion Cornett, the former managing director of Decatur Jones Equity Partners LLC, an equity research firm and now Red Hats vice president of investor relations, said, "We are very pleased with the momentum we continue to see in our business and the open-source market place. As this quarters string of new records indicates, our partners and customers remain committed to Red Hat."

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