Robert DeFrancesco’s

TechStockProspector.com
March 24, 2011

Red Hat (RHT) Shares Surge 18%

Shares of Red Hat (RHT, $47.26), an open source software provider, surged 18.2%
today on heavy volume following last night’s strong fiscal Q4 (February) earnings
report. The 52-week high stands at $49 from December 7, 2010.

Red Hat came in with EPS of 26 cents, four cents above the consensus estimate, on
revenue of $244.8 million (+25% year over year), above the consensus of $236
million.

Subscription revenue rose 24% to $209.3 million and billings advanced 31% (the
fastest growth rate in 12 quarters) to $318 million. Billings growth accelerated each
quarter in fiscal 2011.

On a geographic basis, 57% of business came from the Americas, while EMEA
accounted for 27% and Asia/Pac made up the remaining 16%.

Deferred revenue was up 13% sequentially to $772.3 million. Red Hat ended
February with cash & investments of $1.2 billion.

During the quarter, the company renewed 24 of its 25 largest contracts up for
renewal, at an average rate of 130% of the prior value. Of the top 30 deals in the
quarter, all were greater than $1 million and one was above $5 million. Eleven of
these deals included a middleware component, with five exclusively middleware.

The average contract duration was just under 21 months. On the conference call,
management said it saw more customers willing to pay for long-term deals up front,
which is a positive sign.

Gross margin was flat sequentially at 84.2%. Operating margin rose 110 basis points
year over year to 24.9%. Cash flow from operations was a record $95 million.

For fiscal Q1 (May), Red Hat sees EPS of 21 cents to 22 cents (the consensus is 21
cents) on revenue of $252 million to $255 million (the consensus is $244.5 million).
Given that 86% of Red Hat’s revenue comes from subscriptions, management sees
little impact from the Japan crisis in the current quarter.

For fiscal 2012 (Feb.), Red Hat looks for EPS of 94 cents to 96 cents (the consensus
is 92 cents) on revenue of $1.05 billion to $1.07 billion (the consensus is $1.03
billion). Management is targeting operating margin of 25.7% and cash flow from
operations of $330 million to $340 million.

For more on Red Hat, see the TechStock Radar blog from February 8, 2011 on
TechStockProspector.com.

Tech-Stock Prospector Managing Editor Rob DeFrancesco has more than 20

years of experience covering the tech sector. He is a former senior writer with
Louis Rukeyser’s Wall Street.

TechStockProspector.com, launched in 2003, is an investment-research service

focused primarily on the networking, storage, wireless and software sectors.
Annual subscription: $350. For more information or to place an order, call 800-
392-0998.