Last week, open source solutions provider Red Hat (NYSE: RHT) reported double digit revenue growth for the first quarter of its fiscal year 2020 for the period ended May 31, 2019. Total first quarter revenue was $934 million, a 15% increase year-over-year. Of this total, $815 million came from subscription revenue and $119 million came from training and services revenue. Subscription revenue now represents 87% of total of revenue.

We continue to unlock the potential of developers and enterprises, enabling our customers to succeed in building next generation IT infrastructure and applications, said Jim Whitehurst, Red Hat president and CEO in a June 20 news release. Customer interest in Red Hat technologies is robust, evidenced by a record attendance of nearly 9,000 attendees at Red Hat Summit, our marquee user event.

Eric Shander, executive vice president and CFO, also commented on the companys successful first quarter.

Our large deal momentum remained strong, as we doubled the number of deals over $5 million and saw 15% growth in the number of deals over $1 million from the year-ago quarter. Many of these deals contained emerging technologies, including an OpenStack deal for over $5 million and our largest ever storage and hyperconverged deal for over $15 million. The breadth of our success demonstrates that customers can realize significant value across our product portfolio, said Shander.

Other highlights from the quarter include:

• Subscription revenue from infrastructure-related offerings was $580 million, an 11% increase year-over-year.
• Subscription revenue from application development-related and other emerging technology offerings was $235 million, a 24% increase year-over-year.
• Deferred revenue balance at the end of the quarter was $2.8 billion, a 14% increase year-over-year.
• GAAP operating income for Q1 was $132 million, an 18% increase year-over-year.
• GAAP operating margin was 14.1% and non-GAAP operating margin was 21.7%.
• GAAP operating cash flow was $460 million for the first quarter, a 33% increase year-over-year.
• GAAP net income was $141 million, $0.76 diluted earnings per share, compared to $113 million, or $0.59 diluted earnings per share, for the same period last year.

Because of the pending acquisition by IBM, Red Hat did not host an earnings call to report its quarterly results. The U.S. Department of Justice has given approval for the acquisition to move forward, reports ZDNet. It is expected to close in the second half of 2019.

Red Hat and IBM, who have partnered for 20 years, announced the acquisition last October. IBM agreed to acquire all of Red Hats issued and outstanding common stock for $190.00 per share in cash, for an estimated deal with $34 billion.

The acquisition of Red Hat is a game-changer. It changes everything about the cloud market, said Ginni Rometty, IBM chairman, president and CEO, in the announcement. IBM will become the worlds #1 hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.

Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs,” Rometty added. The next 80 percent is about unlocking real business value and driving growth. This is the next chapter of the cloud. It requires shifting business applications to hybrid cloud, extracting more data and optimizing every part of the business, from supply chains to sales.

Whitehurst also commented on the deal.

Joining forces with IBM will provide us with a greater level of scale, resources and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience – all while preserving our unique culture and unwavering commitment to open source innovation, said Whitehurst.

Once the acquisition closes, Red Hat will join IBMs hybrid cloud team as a separate business unit, allowing Red Hat to remain independent. Whitehurst will continue to lead Red Hat operations and join IBMs senior management team. Red Hat will continue to operate out of Raleigh, North Carolina.

Though Red Hats first quarter results were strong, they had little affect on the companys stock value. As of 4:51 a.m. EDT yesterday, Red Hats stock was valued at $187.45 per share, compared to $188.25 per share on June 20, the day the financial report was released.

Insider Take:

According to IBMs first quarter report, as of March 31, 2019, the company had total revenue of $18.2 million, down from $19.1 million the prior year. IBMs first quarter revenue was nearly 20 times the quarterly revenue of Red Hat. Clearly, the initial value to IBM will not be the quarterly revenue, but rather Red Hats expertise in open source solutions, helping IBM gain market share in the hybrid cloud market and reducing IBMs costs. Red Hat, on the other hand, gets a huge payday and an opportunity to scale its operations that would have taken years for it to achieve on its own.