Last week Red Hat, Inc. (NYSE: RHT), a cloud-based open source technology provider, delivered a strong third quarter for fiscal year 2018 for the period ended November 30, 2017, reporting total Q3 revenue of $748 million, a 22 percent increase year-over-year, and subscription revenue of $657 million, a 21 percent increase year-over-year. The remaining revenue of $91.1 million comes from training and services.

Subscription revenue, which represented 88 percent of total revenue for the third quarter, is broken down into two segments, infrastructure-related offerings accounting for $495 million in revenue, a 15 percent increase year-over-year, and application development-related and other emerging technology accounting for $162 million, a 44 percent increase year-over-year.

‘We again delivered over 20 percent year-over-year growth in both subscription revenue and total revenue due to strong customer demand for hybrid cloud technologies, including our core technologies, container platforms and solutions that enable and manage multiple cloud and private cloud environments,’ said Red Hat president and CEO Jim Whitehurst in a statement.

‘Our growing strategic position within enterprise IT organizations is evidenced by the strong cross selling of our broad portfolio of technologies, which led to 30 percent year-over-year growth in deals over $1 million and over 40 percent growth in Application Development-related and other emerging technology subscription revenue,’ Whitehurst added.

Other financial highlights for the quarter include:

• Total deferred revenue at the end of Q3 was$2.11 billion, a 23 percent increase year-over-year.
• Operating cash flow was $160 million, an increase of 18 percent year-over-year.
• Total cash, cash equivalents and investments as of November 30 was $2.32 billion.
• GAAP operating income was $118 million, a 47 percent increase year-over-year.
• GAAP net income for Q3 was $101 million, or $0.54 per diluted share, compared to $68 million, or $0.37 per diluted share, for the same period last year.

Operational highlights for the third quarter include:

• All 25 out of 25 of Red Hat’s top deals that were up for renewal renewed during the quarter at more than 120 percent of their previous values.
• Red Hat had 94 deals over $1 million, a 30 percent increase year-over-year. Of these, 17 were greater than $5 million, four were greater than $10 million, and one was over $20 million.
• More than 60 percent of the company’s top deals over $1 million included one or more components from Red Hat’s application-development and emerging technology offerings.
• Consistent subscription revenue growth, both in infrastructure-related offerings and application development-related and other emerging technology offerings.
• Red Hat expanded its partnerships with Amazon Web Services and Alibaba Cloud.
• Company announced the release of OpenStack Platform 12, the most recent version of its scalable cloud IaaS.

For the full fiscal year 2018, Red Hat raised its total revenue to between $2.906 billion and $2.911 billion, operating cash flow between $900 million and $910 million, a GAAP operating margin of approximately 16.1 percent, and fully diluted GAAP earnings per share of approximately $2.02 per share.

For the fourth quarter, Red Hat estimates total revenue between $758 million and $763 million, a GAAP operating margin of approximately 16.7 percent, and fully diluted GAAP earnings per share of approximately $0.54 per share.

‘In Q3, we delivered strong results that reflect the continued adoption of the technologies that address the opportunities around digital transformation and hybrid cloud computing,’ said executive vice president and CFO Eric Shander on the earnings call. ‘This momentum will enable us to finish the year with high growth across revenue, non-GAAP operating income and cash flow. We’re also optimistic that the executive this year will position us well for future growth.’

In spite of the earnings report beating expectations, investors did not appear to be impressed with Red Hat’s Q3 results. On December 19, the day the company’s financials came out, Red Hat stock closed at $128.86 per share. In after hours trading yesterday, Red Hat was valued at $120.61, a drop of $8.25. The Motley Fool speculated that the drop was due to shareholders’ wanting to lock in their gains before year end.

Insider Take:

Red Hat continues to impress with its strong financial results and its solid subscription growth, quarter after quarter. In this quarter, total revenue and subscription revenue were both up more than 20 percent with and application development-related and other emerging technology revenue up by 44 percent. Coupled with 23 percent growth in deferred revenue, Red Hat stands to finish fiscal year 2018 on a high note, while positioning itself for a prosperous 2019.