Red Hat Q1 revenue jumps 18 percent

The Red Hat Tower in downtown Raleigh, N.C. has new signage atop its headquarters at 100 E. Davie Street in downtown.
The Red Hat Tower in downtown Raleigh, N.C. has new signage atop its headquarters at 100 E. Davie Street in downtown.

Open source software company Red Hat continued its string of double-digit revenue hikes with a better-than-expected 18 percent jump in its fiscal first quarter.

Adjusted net income for the quarter that ended May 31 totaled $92 million, or 50 cents per share, up from $81 million, or 44 cents per share, a year ago. Net income was in line with what Wall Street analysts polled by Bloomberg News were expecting.

Revenue totaled $568 million, compared to $562.7 million anticipated by analysts.

“We are seeing very good momentum in our business and solid execution,” Chief Financial Officer Frank Calderoni said during a conference call with analysts. He also noted that “although some companies have pointed to geographic weakness, we continue to see strong growth across all of our major geographies.

The Raleigh-based company also announced it has agreed to acquire a small San Francisco company whose technology is used to develop software applications, and unveiled a new stock repurchasing program that is double the size of the one it replaced.

Red Hat’s board has authorized it to repurchase up to $1 billion of the company’s stock. The previous authorization was for $500 million worth of stock, which resulted in $329 million actually purchased.

Repurchasing shares boosts a company’s net income on a per-share basis.

Red Hat released its earnings report after the markets closed Wednesday. Earlier in the day, the company’s shares closed at $79.75, down 64 cents. Shares have fallen 4 percent this year.

Despite Red Hat’s strong top-line and bottom-line results, its shares fell as much as 7 percent in after-hours trading.

One possibility for the decline was the company’s billings, a leading indicator of future revenue.

Mizuho Securities analyst Abhey Lamba noted billings came in ahead of consensus at $522 million, up 11 percent and $5 million more than anticipated. “However,” he wrote in a research note, “based on our conversations with investors, we think expectations had moved higher to above $525 million.”

In addition, Red Hat reported that its pending acquisition of 3scale, which was founded in 2007 and has about 40 employees, would reduce adjusted earnings per share by 3 cents in the current fiscal year.

Red Hat has been partnering with 3scale since early last year “but we thought we needed to own it,” said Tom McCallum, vice president of investor relations.

“My thoughts are that this is going to be another growth driver for Red Hat and is a great tie-in with their mobile offering,” IDC analyst Al Hilwa wrote in an email.

CEO Jim Whitehurst remains quite bullish about the future.

When an analyst asked whether the company could continue its streak of mid-teens annual revenue growth over the next few years, Whitehurst replied: “I think there’s better odds of it accelerating rather than decelerating.”

Red Hat’s open source software is available for free; it makes money by charging its business customers for maintenance, support and related services. The company added more than 500 employees during the quarter, boosting its work force to more than 9,000 worldwide, including more than 1,600 in the Triangle.

David Ranii: 919-829-4877, @dranii