Red Hat Reports Strong Quarter, Acquires Sistina

Red Hat reports strongest-ever revenue growth in third fiscal quarter as well as increases in profit, Linux licensing. Company also acquires storage virtualization vendor Sistina.

Open source and Linux provider Red Hat Inc. on Thursday reported its financial results for the third quarter of its fiscal year, continuing the trend of the second quarter when it reported the strongest results since its inception as a listed company.

The company also announced that it was acquiring Minneapolis-based Sistina Software Inc., a storage infrastructure software company, for some $31 million, to be paid through the issuance of Red Hat common stock.

"Concurrent with Red Hats Open Source Architecture strategy, the acquisition will provide Enterprise Linux customers a path to virtualization and vendor-independent storage solutions. The acquisition of the Sistina technology and world class development team, in close collaboration with the open-source community, will greatly accelerate the availability and advancement of open-source storage solutions for the enterprise," said Paul Cormier, Red Hats executive vice president of Engineering at Red Hat.

Sistinas solutions include Sistina GFS, a scalable file system; Logical Volume Manager, a building block in Linux that enables enterprise-level disk-volume management by grouping arbitrary physical disks into virtual disk volumes; and Sistina GFS for Oracle9i RAC, a solution designed to specifically reduce the complexity of implementing and maintaining an Oracle9i RAC system.

/zimages/6/28571.gifBackup vendor CommVault Systems offers a bundle with Sistinas Linux-based clustering software. To read more about the combo, click here.

Red Hat also on Thursday reported a 36 percent year-on-year rise in revenue to $33.1 million, which is a 15 percent gain on the $28.8 million posted in the second quarter of fiscal 2004.

The company also reported net income of $4.1 million, or $0.02 per share, which is just slightly better than the $3.3 million, or $0.02 per share, reported in the prior quarter, but significantly better than the net income of $305,000, or break-even per share, posted in the same quarter a year ago.

Red Hat also reported a five-fold increase in net operating profit to $1.5 million from the $300,000 in the prior quarter. A year ago the company had a net operating loss of $2.9 million.

Continuing positive cash flows from operations helped push that figure to $27.9 million for the nine months ended November 30, 2003. The company also ended the third quarter with a cash-and-investments balance of $329 million, a sequential increase of $22 million and a year-over-year increase of $42 million.

During the quarter under review, sales of annual subscriptions for the Red Hat Enterprise Linux family of technologies grew by 7,000 subscriptions, or 27 percent, to some 33,000 subscriptions, with renewal rates for Red Hat Enterprise Linux remaining at around 90 percent for the second consecutive quarter.

"Our revenue growth accelerated in the third quarter, which translated to increased operating income and cash flows from operations," said Kevin Thompson, Red Chief Financial Officer, in a statement released after the financial markets closed.

"The subscription revenue model has developed sufficient maturity to enable us to drive consistent sequential increases in quarterly revenue," he said.

Meanwhile, Red Hats acquisition of Sistina today follows several other moves in the virtualization technology space. Earlier this week, EMC Corp. announced that it had acquired Palo Alto, Calif.-based VMware Inc., which specializes in bringing mainframe-class virtual machine technology to industry-standard computers, in a deal valued at $635 million.

/zimages/6/28571.gifClick here, for more information about the EMC-VMware acquisition.

And, In February, Microsoft Corp. acquired the assets of Connectix Corp., a privately held company in San Mateo, Calif., that had been involved in virtual machine technology since its inception in 1988.