Red Hat Conference Call Highlights

Red Hat

reported its second quarter earnings on Thursday. Shares of the company are up 11%. • This quarter marks the 11th straight quarter of mid-to-high-teens growth in total revenue, despite a 300 basis point FX headwind to Q3 revenue. • Application development and emerging technology subscription revenue achieved 48% constant currency growth, the highest growth rate since we began to break out the measure. • We have also generated strong cash flow growth of 40% - operating cash flow growth of 40%, free cash flow growth of 48%, the highest growth rate in both those measures in the past three years. • First, our customers. The significant expansion of our relationships with customers demonstrates Red Hat's increasing strategic position as they look to modernize their data centers. • I'm pleased to announce that we again successfully renewed all 25 of our top 25 deals during the quarter. • Moreover, those deals grew at approximately 120% of their previous annualized amount. • Looking at the 30 largest deals that we closed in the quarter, these 30 deals continue to get bigger as customers entrust more of their data center needs to our open source solutions. • First, all of the top 30 deals in Q3 were greater than $1 million, as was the case in each of the last six quarters. • We also had 12 deals that were in excess of $5 million, a record for us in any quarter and three of these deals were greater than $10 million, a record for us in the third quarter. • Cross-selling was strong with 55% of the deals including one or more components from our application development and emerging technologies offerings, which includes Middleware, OpenStack, OpenShift, CloudForms and Storage. • Of note, Storage was a component of 20% of the top 30 deals and thatincluded both Red Hat Inktank Ceph as well as Red Hat Storage. • Q3 non-GAAP operating expense came in at $283 million, up 16% year-over-year. • Sales and marketing expenses grew 20% in part due to our sponsorship of key industry events. • We ended the quarter with cash and investments of $1.65 billion after the impact of the convertible debt, foreign hedge, accelerated stock repurchase and FeedHenry transactions. • Total deferred revenue at quarter-end was $1.3 billion, an increase of $177 million or 16% over the same quarter a year ago. • Q4 revenue is estimated to be approximately $456 million to $459 million.