Red Hat Linux Software Earnings Miss Head of IBM Aquisition

Open source Linux software provider Red Hat, who will be acquired by IBM reported earnings after the close Monday, missing on earnings and on revenue. $RHT new products OpenShift and OpenStack have been ramping up revenue from hybrid cloud computing.

Open source Linux software provider Red Hat, who will be acquired by IBM reported earnings after the close Monday, missing on earnings and on revenue. $RHT new products OpenShift and OpenStack have been ramping up revenue from hybrid cloud computing.

RedHat Cloud

Red Hat Inc NYSE: RHT Reported Earnings After Close Monday

 $0.75 Missed $1.01 EPS Forecast And $879 Misses $883.90 million forecast in revenue. 

Red Hat Earnings

Red Hat reported a net income of $139 million, or 75 per share. Red Hat said non-GAAP earnings for Q4 were $1.16 per share on revenue of $879 million, up 14 percent year over year. Analysts were looking for earnings of $1.01 per share with $883.9 million in revenue.

Net income compared to a loss of $12.16 million or $0.07 per share in the previous year quarter. Adjusted earnings increased by 26.1% to $1.16 per share.

Red Hat Inc NYSE: RHT

Market Reaction After hours $182.07 +0.61 (+0.34%)

Highlights

  • Red Hat subscription revenue was $549 million.
  • The bulk of subscription revenue came from infrastructure-related products, while application-development related technologies accounted for the rest.
  • Red Hat application-development revenue was up 30 percent above last year.
  • Red Hat’s Q4 training and services revenue came to $105 million, up 18 percent from a year ago.
  • Red Hat’s total number of customers with active subscriptions above $5 million increased 33 percent year-over-year.
  • Key to that growth was an uptick in Ansible and OpenShift customers, which now total more than 1,300 and 1,000, respectively, as of the end of fiscal 2019.

Red Hat Q4 2019 Earnings

 

Total backlog for the fiscal year 2019 was in excess of $4.1 billion, up 22% year-over-year. At the end of the fiscal year, the company’s total deferred revenue balance was $3.0 billion, an increase of 15% year-over-year. The negative impact to total deferred revenue from changes in foreign exchange rates was $77 million year-over-year.

The portion of total backlog to be billed in the future not reflected in the company’s financial statements was in excess of $1 billion as of February 28, 2019, compared with the ending balance in excess of $775 million reported for fiscal 2018. The portion of total backlog to be billed during fiscal 2020 was in excess of $490 million as of February 28, 2019, compared with in excess of $450 million last year.

Red Hat didn’t provide an outlook ahead due to the pending IBM transaction.

IBM Takeover

In October, Red Hat agreed to be acquired by International Business Machines (IBM) for $34 billion, in one of the biggest deals in the tech sector in recent times. Shareholders of Red Hat will be voting on the acquisition at a special meeting to be held next month. Owing to the pending buyout deal, the management did not provide its guidance for fiscal 2019.

Red Hat Three Core Business Segments

  • Infrastructure business

Red Hat derives two-thirds of it’s revenues from it’s infrastructure core. This segment continues to grow, up 15% last quarter. The free cash flow from this segment has grown 14 out of the past 15 years, the only fall during the GFC in 2008. This consistency from it’s subscription business model demonstrates a highly stable basis where margins are defensible.

  • Training & Consulting 

This segment has taken off with Red Hat’s growth stategy, growing 27% last quarter. Red Hat has a strong partner base that includes IBM, Intel, Dell Technologies, Google cloud platform, Microsoft Azure and Amazon Web Services (“AWS”) to drive growth. The company’s collaborations with cloud providers like Amazon, Google and Alibaba positions it for significant top-line growth. This is helping Red Hat to cross-sell cloud-based technology across its customer base.

  • Apps and Emerging Technology 

The segment that excites many analysts is apps and emerging technology which surged over 40% last quarter. Morgan Stanley in a note  is looking for “Acceleration of growth in the emerging business segment aided by growing demand for the OpenShift and OpenStack platforms. Rising margins that push cash flow growth above the 20-percent mark.” 

Stifel says that Red Hat’s Q4 report should confirm the company still manages to “elevate its strategic positioning” and can sustain a low-to-mid-teens growth rate, 30-percent emerging product growth and billings growth in the mid-teens.. 

Aquisition Strategy

Complementary acquisitions have led to a favorable product mix which is boosting overall results. Red Hat has made the following complementary acquisitions; 3scale, Ansible, FeedHenry, eNovance, Inktank and Codenvy.

This has enabled an expanded product portfolio into higher-growth segments, such as Hybrid cloud and other emerging technologies including Cloud Management, OpenShift, OpenStack, and Storage.

During Q4 Red Hat acquired CoreOS, an innovator and leader in Kubernetes and container-native solutions, for $250 million. 

Source: Red Hat, Stifel

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