Red Hat Invests and Supports its Way to Another Solid Quarter

by Ostatic Staff - Jun. 25, 2009

Even as the economy has stayed in the doldrums, Red Hat continues to post strong quarterly financial results. Late Wednesday, the company reported first quarter revenues of $174.4 million, up 11 percent from $156.6 million a year earlier. Profits were also up, with quarterly earnings of $18.5 million, or 10 cents a share, up from a profit of $17.3 million, or 8 cents a share, for the same quarter last year.

"Red Hat’s growth is driven in part by our ability to help enterprise customers save money in a challenging IT spending environment," said CEO Jim Whitehurst. "Our open source solutions drive new capabilities, efficiencies and functionality into the mission critical infrastructure of our customers.” Red Hat's total cash, cash equivalents and investments as of May 31, 2009 sat at a whopping $884.5 million, which is more evidence of the investment savvy that Whitehurst and Red Hat's top brass have.

On the topic of investments, Charlie Peters, Executive Vice President and CFO of Red Hat said this:

"While we remain focused on managing discretionary costs and improving efficiencies, we also continue to invest in growth opportunities in middleware, virtualization and cloud computing. These efforts combined with solid top line growth contributed to non-GAAP operating income growth of 19% year-over-year and healthy cash flow. In the quarter, we repurchased $47 million of common stock while strengthening our balance sheet with a 5% sequential increase in cash and investments. On a year-over-year basis, we have reduced our diluted shares outstanding by approximately 11%."

The $884.5 million cash war chest that Red Hat has accumulated is in no small part due to the fact the company gets a substantial part of its earnings from fixed income and similar types of investments. In this post, we took note of Savio Rodrigues' observation that Red Hat derives much more of its earnings from "Other Income," listed on its income statements, than other software companies do. In fact, in some quarters, nearly half of Red Hat's profits come from sound fixed income-style investments.

In the latest quarter, Charlie Peters notes "a 5% sequential increase in cash and investments"--nothing to shake a stick at for one quarter's performance when the company was also repurchasing healthy amounts of its own common stock. Red Hat's investment results remain as consistent as its focus on providing top support and services for its open source software offerings. Subscription revenue for support and services was up 14 percent year over year to $148.8 million for the first quarter. With Sun Microsystems being subsumed by Oracle, and Novell posting erratic results, Red Hat is the only public open source company that continues to deliver steadily growing, consistent results.