This week, Red Hat announced new financial results that showed 18% revenue growth, the acquisition of 3Scale, and a $1 billion buy-back of its common stock.

Charles Babcock, Editor at Large, Cloud

June 24, 2016

3 Min Read
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This week, Red Hat reported its revenues were up 18% in the first quarter of its 2017 fiscal year, totaling $568 million. It also announced a $1 billion stock buy-back program and its acquisition of API management software provider 3Scale.

Subscription revenue with subscriptions that run from one to three years amounted to $502 million of the total, according to the company's June 22 earnings announcement,

A bright spot in the report was the first-quarter application development and other emerging technologies revenue of $98 million, up 39%. Emerging technologies would include both the company's OpenShift development platform and the Atomic Host version of Linux used to run multiple containers on a server.

Net income amounted to $61 million, or $0.33 per share, according to generally accepted accounting principles, compared to $48 million or $0.26 per share in the first quarter a year ago. The figure reflects a change in accounting standards that Red Hat adopted in the first quarter -- known as Accounting Standards Update 2016-09. The change benefited the first-quarter net income by $8 million, or $0.04 of the improvement in earnings per share, according to this week's report.

Jim Whitehurst, president and CEO, said during the earnings call that recent releases of OpenShift Online and Red Hat's Open Stack cloud software distribution, Open Stack Platform 8, would allow the company to continue to grow revenues in those areas, according to a transcript posted to the investor website Seeking Alpha.

"We believe that Red Hat Open Stack Platform is increasingly being recognized as the gold standard for large-scale production OpenStack deployments. We have hundreds of production deployments across the globe and even more proof-of-concepts," said Whitehurst.

He cited Verizon and CA Mobile as deployers of OSP into production, and he cited recent sales to Cambridge University, Paddy Power Betfair, FastWeb, NASA JPL, and Produbon, the IT services division of Santander Bank.

Whitehurst also cited the growth of OpenShift Commons to 200 members.

The organizations represented include contributors to the OpenShift platform-as-a-service and collaborations on use of Docker containers and Kubernetes container deployments. OpenShift is one of the few competitors to the Docker Platform. Whitehurst said OpenShift was "the industry's first multi-tenant, public cloud platform" using Docker and Kubernetes. OpenShift Online has had 3 million applications deployed to it, he said.

Red Hat announced that it had spent $66 million to buy back 900,000 shares of its common stock in the first quarter, its last installment in a plan to spend $500 million on buy-backs. It used a total of $329 million.

[Want to see how Red Hat brings together Docker and Kubernetes? Read Red Hat OpenShift Commons Adds Fuel to Cloud Foundry Competition.]

That program will be replaced with a follow-up buy-back plan of $1 billion over the coming year. The buy-back uses up some of the cash accumulated from profitable quarters, and tends to increase the value of the remaining shares in the marketplace, according to Frank Calderoni, executive vice president for operations and CFO.

In addition, Red Hat announced that it was acquiring 3Scale, a firm that produces API managment software. APIs control online access to specified applications and data resources. Effective API management is considered vital to a company's future if it is seeking a broad, online customer base.

3Scale produces a containerized gateway to Red Hat's OpenShift that is useful to developers using OpenShift. No price was disclosed in the announcement of the deal.

About the Author(s)

Charles Babcock

Editor at Large, Cloud

Charles Babcock is an editor-at-large for InformationWeek and author of Management Strategies for the Cloud Revolution, a McGraw-Hill book. He is the former editor-in-chief of Digital News, former software editor of Computerworld and former technology editor of Interactive Week. He is a graduate of Syracuse University where he obtained a bachelor's degree in journalism. He joined the publication in 2003.

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