Red Hat Reports Double-Digit Revenue Growth for Q1 FY 2019

But investors aren't impressed, sending stock into a nosedive.

Subscription News: Red Hat Reports Double-Digit Revenue Growth for Q1 FY 2019

Source: Red Hat

For the first quarter of fiscal year 2019, Red Hat, Inc. (NYSE: RHT) reports double-digit growth in a number of categories, including total revenue and subscription revenue. Total revenue for the quarter was $813.5 million. Representing 87.5 percent of total revenue, subscription revenue for Q1 FY 2019 was $711.5 million, a 19 percent increase year-over-year. This is broken down into infrastructure-related offerings at $522 million, a 14 percent increase year-over-year, and application development-related and other emerging technology offerings at $189 million, a 37 percent increase. Training and services revenue of $102.0 million makes up the remaining 12.5 of revenue.

‘The move to hybrid cloud architecture continues to be a strategic priority for our customers. We again delivered strong revenue growth in Q1 as customers continued to adopt our cloud enabling technologies for their applications,’ said Red Hat president and CEO Jim Whitehurst in a June 21 news release. “For instance, we are driving strong growth in both subscription and services revenues for our OpenShift technologies as more customers modernize their applications in Linux containers for their hybrid cloud and digital transformation initiatives.”

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Subscription News: Red Hat Reports Double-Digit Revenue Growth for Q1 FY 2019

Source: Red Hat

Other financial highlights for the quarter, for the period ended May 31, 2018, include:

  • Annualized revenue run rate close to $800 million.
  • Operating cash flow was $346 million, a 34 percent increase year-over-year.
  • Quarter-end deferred revenue balance was $2.4 billion, a 19 percent increase year-over-year.
  • GAAP operating income for the quarter was $112 million, a 25 percent increase year-over-year.
  • GAAP net income for the quarter was $113 million, or $0.59 diluted earnings per share, compared to $75 million, or $0.41 diluted earnings per share, for the same period last year.
  • Total cash, cash equivalents and investments as of May 31, 2018 was $2.5 billion after the repurchase of approximately 949,000 shares at $150 million.

Operational highlights for Q1 include the following:

  • A 48 percent increase in deals over $1 million
  • Addition of 100+ new customers of OpenShift, Red Hat’s Linux container platform
  • Had 27 percent higher demand for their services business, driven by additional consulting demand for Ansible and OpenShift
  • Exceeded 1,000 customers for Ansible subscribers, a 70 percent increase
  • Expanded its collaboration with Microsoft

‘Our overall growth is being driven by our ability to deliver next generation platforms to help our customers address some of the most pressing challenges they are facing when creating, deploying and managing applications that run their businesses,’ said Whitehurst during the company’s earnings call.

‘We believe this type of momentum around our end-to-end suite of next generation technologies and related services will enable us to deliver choice and innovation for our customers as they develop, deploy and manage their applications,’ Whitehurst added.

Red Hat offered the following guidance for Q2 of fiscal year 2019:

  • Revenue between $822 million to $830 million
  • GAAP operating margin of approximately 15.1 percent
  • Diluted GAAP earnings per share of $0.50, assuming 191 million diluted shares outstanding

Red Hat provided the following guidance for the full fiscal year 2019:

  • Revenue between $3.375 billion to $3.410 billion
  • GAAP operating margin of approximately 16.4 percent
  • Diluted GAAP earnings per share between $2.36 and $2.40, assuming 191 million diluted shares outstanding
  • Operating cash flow between $1.035 billion and $1.045 billion

Despite the positive financials, Red Hat investors were disappointed in the company’s first quarter results. Red Hat stock opened the day (June 21) at $169.22 per share which dropped to $165.73 by day’s end, to $142.14 on June 22, to $139.77 on June 25 and $138.46 as of 7:35 p.m. EDT yesterday.

Subscription News: Red Hat Reports Double-Digit Revenue Growth for Q1 FY 2019

Source: Google

Insider Take:

According to Investor’s Business Daily, Red Hat’s guidance missed expectations and investors reacted negatively, sending stock plummeting. When providing guidance for the full year, Red Hat lowered its revenue guidance by $50 million due to negative exchange rates. CNBC reports that June 22 was Red Hat’s worst trading day since 2006. In an interview with Mad Money host Jim Cramer, Whitehurst said the following, ‘If I could change anything, I would encourage investors to look long-term.’ Whitehurst also told Cramer that it was hard to beat last year’s strong results. While Red Hat delivered what it said it would, investors were looking for more ‘and that created a bit of a disappointment.’