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Red Hat Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: July 6, 2012 04:19PM
Red Hat Inc. (RHT) filed Quarterly Report for the period ended 2012-05-31. Red Hat, Inc. has a market cap of $10.89 billion; its shares were traded at around $52.94 with a P/E ratio of 68.1 and P/S ratio of 9.6. Red Hat, Inc. had an annual average earning growth of 24.7% over the past 5 years.
Highlight of Business Operations:Revenue. For the three months ended May 31, 2012, total revenue increased 18.9% or $50.0 million to $314.7 million from $264.7 million for the three months ended May 31, 2011. Subscription revenue increased 20.9% or $47.0 million, driven primarily by additional subscriptions related to our principal Red Hat Enterprise Linux (RHEL) technologies, which continue to gain broader market acceptance in mission-critical areas of computing, and our expansion of sales channels and geographic footprint. The increase is, in part, a result of the continued migration of enterprises in industries such as financial services, government, technology and telecommunications to our open source solutions from proprietary technologies. Training and services revenue increased 7.5% or $2.9 million for the three months ended May 31, 2012 as compared to the three months ended May 31, 2011. The increase is driven primarily by customer interest in new products and technologies.
Training revenue includes fees paid by our customers for delivery of educational materials and instruction. Services revenue includes fees received from customers for consulting services regarding our offerings, deployment of Red Hat enterprise technologies and for delivery of added functionality to Red Hat enterprise technologies for our major customers and OEM partners. Total training and services revenue increased by 7.5% or $2.9 million to $42.2 million for the three months ended May 31, 2012 from $39.2 million for the three months ended May 31, 2011. Training revenue decreased 5.9% or $0.8 million as some enterprises scaled-back overall spending on discretionary items such as training and related travel in response to the overall economic environment. Our services revenue increased by 14.0% or $3.7 million as a result of increased subscription sales. Combined training and services revenue decreased as a percentage of total revenue to 13.4% for the three months ended May 31, 2012 from 14.8% for the three months ended May 31, 2011.
Cost of training and services revenue is mainly comprised of personnel and third-party consulting costs for the design, development and delivery of custom engineering, training courses and professional services provided to various types of customers. Cost of training and services revenue increased by 3.2% or $0.9 million to $28.1 million for the three months ended May 31, 2012 from $27.2 million for the three months ended May 31, 2011. The cost to deliver training decreased 20.3% or $1.7 million to $6.8 million for the three months ended May 31, 2012 compared to $8.5 million for the three months ended May 31, 2011. The decrease in training costs was primarily due to better utilization of both instructors and class room space as we implemented a contractual arrangement with a global training partner that provides training services on our behalf and bears a portion of the fixed costs of providing such services. Costs to deliver our services revenue increased by 13.9% or $2.6 million and relate to additional employee compensation and travel associated with additions to our staff which increased $2.2 million and $0.3 million, respectively. Total costs to deliver training and services as a percentage of training
Sales and marketing expense consists primarily of salaries and other related costs for sales and marketing personnel, sales commissions, travel, public relations and marketing materials and trade shows. Sales and marketing expense increased by 24.2% or $23.5 million to $120.9 million for the three months ended May 31, 2012 from $97.3 million for the three months ended May 31, 2011. This increase was primarily due to a $16.4 million increase in selling costs, which includes $10.9 million of additional employee compensation expense attributable to the expansion of our sales force from the prior year. The remaining increase relates to marketing costs, which grew $7.1 million or 35.7% for the three months ended May 31, 2012 as compared to the three months ended May 31, 2011. The increase in marketing costs includes $3.6 million related to increased headcount to support our expanding marketing efforts and $1.9 million related to increased advertising. Sales and marketing expense increased as a percentage of revenue to 38.4% for the three months ended May 31, 2012 from 36.8% for the three months ended May 31, 2011 as we continue to invest in our sales and marketing function to expand the breadth of our global sales coverage and depth of our product sales coverage.
Research and development expense consists primarily of personnel and related costs for development of software technologies and systems management offerings. Research and development expense increased by 24.0% or $11.6 million to $59.9 million for the three months ended May 31, 2012 from $48.3 million for the three months ended May 31, 2011. The increase in research and development costs primarily resulted from the expansion of our engineering group through direct hires. Employee compensation increased by $9.2 million. The remaining increase in research and development costs relates primarily to facilities expansion and process and technology infrastructure enhancements, which increased $0.8 million and $0.7 million, respectively. Research and development expense was 19.0% and 18.2% of total revenue for the three months ended May 31, 2012 and May 31, 2011, respectively.
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