Shares of Linux software company Red Hat fell as much as 9 percent in after-hours trading Monday even though the company reported quarterly revenue and net income that exceeded Wall Streets expectations.
Investors apparently were fixated on the companys billings, which fell below analysts forecasts, and the companys disappointing revenue projection for its fiscal third quarter.
Raleigh-based Red Hat released its quarterly results Monday afternoon after the markets closed. Earlier in the day, Red Hat shares closed at $52.95, down 27 cents. The companys shares have remained flat so far this year.
Revenue for the fiscal second quarter that ended Aug. 31 totaled $374.4 million, up 16 percent from a year earlier. Analysts had projected revenue of $372.1 million, according to Bloomberg News.
Revenue was 17 percent higher after adjusting for currency fluctuations.
Net income for the quarter was $67.9 million, or 35 cents per share, after excluding certain expenses, including stock compensation and amortization, versus 33 cents per share anticipated by analysts. Net income a year ago was $54.9 million, or 28 cents per share.
Charlie Peters, the companys chief financial officer, told analysts during a conference call that revenue for the fiscal third quarter is expected to range from $381 million to $384 million, compared to $391.5 million projected by analysts polled by Bloomberg.
Peters said in a phone interview afterward that analysts estimates didnt take into account adjustments in currency fluctuations, which could account for up to $4 million, and most were about $4 million too high on services revenue. Those two items combined accounted for most of the difference between the companys guidance and analysts forecasts, he said.
A sales strategy change
With regard to the services revenue, Peters noted that Red Hat is pursuing a strategy of conceding training and consulting services revenue to corporate partners that sell its software because it provides them with an incentive to sell more Red Hat software.
The profit we make on software is significantly higher than what we make on services, he said.
Peters said that sales strategy also impacted billings, which rose 8 percent in the quarter. Some analysts had been anticipating billings would jump 13 percent or more, according to Bloomberg.
In addition, two of the top three customers who signed multi-year contracts during the quarter accounted for just $3 million in revenue during the quarter.
A normal billing (for those customers) would have been $7 million or more, Peters said.
Red Hats open-source software is free. The company makes money by charging customers for maintenance and support and for services such as training and consulting.
This summer Red Hat completed the shift of its headquarters from N.C. State Universitys Centennial Campus to downtown Raleigh, where it has more than 900 employees. The company has about 6,000 employees worldwide.
The company forecast at the outset of the fiscal year that its employee ranks would swell by about 600 worldwide during the year, but after adding nearly 200 in the latest quarter Peters said that the number of net new hires for the year could be as much as 800.