Last week Red Hat, Inc. (NYSE: RHT), an open source solutions provider, delivered strong results in its fourth quarter and year-end financials for fiscal year 2018 ended February 28, 2018. Total revenue for the fourth quarter was $772 million, a 23 percent increase over the same period last year. Subscription revenue for Q4 was $683 million, a 22 percent increase year-over-year. Year-end deferred revenue was $2.6 billion, a 25 percent increase.
‘The fourth quarter was a strong finish to the year for Red Hat. We maintained strong subscription revenue growth in both of our major technology categories during the year, enabling Red Hat to exceed a $3 billion annualized revenue run-rate exiting the year,’ said Jim Whitehurst, president and CEO, in a news release.
‘Red Hat continued to expand its position with customers as a trusted adviser and strategic technology partner, enabling initiatives focused on digital transformation and cloud computing. This position helped drive a 50 percent year-over-year increase in the number of deals over $1 million during the fourth quarter, as we benefited from strong cross selling and high renewal rates within our top deals,’ Whitehurst added.
Other fourth quarter highlights include:
Subscription revenue from infrastructure-related offerings was $510 million, a 17 percent increase. Subscription revenue from application development-related and other emerging technology offerings was $173 million, a 39 percent increase.
- Total backlog, which includes non-cancellable subscription and service agreements and total deferred revenue, was $3.4 billion, a 24 percent increase year-over-year.
- Operating cash flow was $362 million, a 14 percent increase year-over-year.
- GAAP operating income was $132 million, a 40 percent increase.
- GAAP operating margin was 17.1 percent.
- GAAP net loss for the quarter was $13 million, or $0.07 per diluted share, compared to GAAP net income of $66 million, or $0.36 per diluted share, for the same period last year.
Eric Shander, executive vide president and CFO for Red Hat, also commented on the company’s fourth quarter and year end results.
‘We are pleased to deliver 21% revenue growth during fiscal year 2018, up from 18% growth in the prior year. In addition, a strong performance in the fourth quarter enabled the company to exit the year with a total backlog increase of 24% year-over-year. We believe our total backlog, along with continued demand for our technologies, will enable us to deliver strong growth in fiscal year 2019,’ Shander said.
Full-year financial highlights include:
- Total revenue was $2.9 billion, a 21 percent increase. Subscription revenue was $2.6 billion, a 21 percent increase. At year end, subscription revenue totaled 88 percent of total revenue.
- Subscription revenue from infrastructure-related offerings was $2.0 billion, a 15 percent increase. Subscription revenue from application development-related and other emerging technology offerings was $624 million, a 42 percent increase.
- GAAP operating income was $472 million, a 42 percent increase.
- GAAP operating margin was 16.2 percent.
- GAAP net income was $259 million, or $1.40 diluted earnings per share, compared to $254 million, or $1.39 diluted earnings per share, for the previous fiscal year.
- The company experienced a one-time tax charge of $123 million related to the Tax Cuts and Jobs Act of 2017. While this was a big hit, it reduces Red Hat’s corporate income tax rate from 35 percent to 21 percent.
- Total cash, cash equivalents and investments as of February 28, 2018 was $2.5 billion.
Red Hat provided the following outlook for the first quarter of fiscal year 2019:
- Revenue will range between $800 million and $810 million.
- GAAP operating margin will be about 13.4 percent, and non-GAAP operating margin will be about 20.5 percent.
- Diluted GAAP earnings per share will be about $0.42.
Red Hat provided the following outlook for its fiscal year 2019:
- Revenue will range between $3.425 billion and $3.460 billion.
- GAAP operating margin will be about 16.6 percent, and non-GAAP operating margin will be about 23.9 percent.
- Diluted GAAP earnings per share will range between $2.25 and $2.28.
- Operating cash flow will range between $1.035 billion and $1.045 billion.
The financials do not specifically mention Red Hat’s acquisition of CoreOS for $250 million. The deal was expected to close in January. In ‘cash flows from investing activities,’ shows $231.2 million in the ‘acquisition of businesses, net of cash acquired’ category. According to the company’s January 30 press release, the transaction was not expected to have a material impact on the company’s guidance for the fourth quarter 2018 or year-end fiscal year 2018 results.
Since financials were reported on March 26, 2018, Red Hat’s stock value has fluctuated. On March 26, stock was $153.09 per share. As of 4:58 PM EDT on March 29, stock was valued at $149.51. During that period, the low point was March 28 when stock was valued at $146.20 per share.
Despite the huge one-time charge and investors’ fickleness toward Red Hat, the company produced solid fourth quarter and year-end results for its fiscal year 2018. The company saw double-digit increases in every category. It is experiencing steady growth, and there is no reason to believe the company won’t have a strong fiscal year 2019.