Linux software company Red Hat posted a 17 percent growth in quarterly revenue that didn’t quite meet Wall Street’s expectations, but it generated significantly more profit than a year ago.
Shares of the Raleigh-based company initially tumbled as much as 13 percent in after-hours trading Wednesday, but then rose and recouped most of those losses. The company reported its results for its fiscal fourth quarter that ended Feb. 28 after the markets closed.
Charlie Peters, the company’s chief financial officer, said in an interview that investors may have been spooked at first by the company’s 9 percent growth in billings for the quarter, versus a 31 percent increase a year ago. Billings represent new orders in which the bill has been sent.
Peters recounted during a conference call with analysts – and reiterated in the interview – that in this case, lower billings doesn’t mean business was down, because Red Hat’s backlog, which represents orders that have been booked but not yet billed, rose 40 percent.
“We had really strong business,” Peters said. “You need to add the billings and the backlog to get the true picture of the strength of the business.”
For example, a three-year contract worth $1 million a year could include $1 million in billings and $2 million in backlog if the customer wants to be billed a year at a time. But if that same customer decides to pay for the entire three years at the outset, it would represent $3 million in billings.
Red Hat posted $347.9 million in revenue in the quarter, compared with $349.3 million that had been projected by analysts polled by Bloomberg News. However, revenue would have been $351 million if not for foreign currency fluctuations, Peters said.
Net income came in at $70 million, or 36 cents per share, up from $57 million a year ago, after excluding stock compensation and amortization. Analysts had projected 30 cents per share.
Red Hat is in the midst of shifting its headquarters from N.C. State University’s Centennial Campus to downtown Raleigh, a move that it expects to complete at the end of May or the beginning of June. The company has about 1,000 employees locally and nearly 5,600 worldwide.
Red Hat’s open-source software is free. The company makes money by charging for maintenance and support and for services such as training and consulting.
Red Hat’s software is significantly cheaper than that of its competitors, which has stood it in good stead in both up and down economies.
“Revenue has grown every quarter for the last 11 years,” or 44 consecutive quarters, Peters said.
For the full fiscal year, revenue totaled $1.33 billion, up 17 percent from a year earlier. Net income totaled $240 million for the year, up from $216 million the prior fiscal year.
Earlier Wednesday, Red Hat shares closed at $49.97, up 72 cents.
On Monday, Red Hat shares fell 4 percent after Raymond James analyst Michael Turtis downgraded the stock from “outperform” to “market perform.”
Turtis wrote in a research note that the company’s growth pace could be hurt by pricing pressures and deceleration of customers migrating from proprietary Unix software to Red Hat’s offerings.
“(Sales) channel reports of migration strength remain mixed, but some thought this year could be the peak,” he wrote.