Red Hat reports 13% growth in the second quarter, improved cloud and emerging technology sales, and an expanded revenue estimate for third quarter.

Charles Babcock, Editor at Large, Cloud

September 24, 2015

3 Min Read
<p align="left">(Image: Red Hat)</p>

8 Linux Security Improvements In 8 Years

8 Linux Security Improvements In 8 Years

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Red Hat turned in solid financial results this week as its quarterly subscription revenue rose 13% or $504 million for the second quarter of its fiscal 2016 as CEO Jim Whitehurst and the company's new CFO, Frank Calderoni, staked out a future for the company in the cloud operations.

"We are thrilled to be the first open source company to achieve an annualized run-rate of $2 billion," said Whitehurst during the Sept. 21 earnings call. Red Hat became the first open source company to reach a billion in revenues in 2012.

Earnings for the second quarter were $51.4 million or $.28 a share, compared to $46.8 million or $.25 a share during the same quarter a year earlier, according to the earnings call Sept. 21.

Trading in the company's shares the day after the announcement left the stock price flat at $72.72 at the close of markets Sept. 22. It was generally a day of declines for equities; the Dow fell 180 points.

During the call, Whitehurst noted two developments during the quarter: "We exceeded the half billion mark in quarterly revenues, for a run rate of over $2 billion annually. Second, we achieved an annualized run rate of $100 million from our Certified Cloud and Service Provider program."

The latter puts Red Hat's version of cloud software, Enterprise Linux OpenStack, in the hands of customers and third parties intent on building out a cloud service. The program also includes Red Hat's OpenShift platform-as-a-service and Gluster clustering software.

Whitehurst cited the cloud revenues, a small fraction of its total, as a sign that Red Hat has a firm grip on future revenues based on cloud computing. Some of them will come from direct sales of cloud software subscriptions and some will come from IT departments ' expanded utilization of Red Hat Enterprise Linux to run cloud production workloads.

Calderoni, the new executive vice president of operations, as well as CFO, projected third-quarter revenues of $519 to $523 million during the call. Projected revenues for the full 2016 fiscal year have been increased to the range of $2.034 to $2.044 billion.

"Our outlook assumes similar business conditions and foreign exchange rates as of Sept. 18, 2015," Calderoni said during the call.

Calderoni said Red Hat's top 30 deals in the second quarter were all for a minimum of $1 million or more. Four were in excess of $5 million and one was over $10 million, he said. Sixty-five percent of Red Hat's deal now includes a JBoss middleware, RHEL OpenStack cloud platform, or OpenShift development platform or storage component, and these cross-selling items will continue to drive growth, he said.

Financial services companies continue to provide the largest share of Red Hat revenue as a vertical industry group, followed by the healthcare, transportation, and retail industries. "Once again we renewed all of the top 25 deals that were up for renewal" with a 15% increase in the total amount of the deals.

[Want to learn more about how Red Hat crossed the $1 billion barrier? See Red Hat: First $1 Billion Open Source Company.]

Red Hat ended the quarter with $2 billion in cash and investments after using $70 million to repurchase 895,000 shares of common stock.

Red Hat appears to have regained its footing versus cloud computing, virtualization, and containers as it feeds its core Red Hat Enterprise Linux customer base with ways to work with each from either inside the Red Hat product line or with other pieces of open source code.

Whitehurst also said during his part of the earning call that at its annual summit in Boston would kick off June 23. In addition, Red Hat announced that Forrester Research gave Red Hat its highest cumulative score for vendor strategy in its Forrester Wave Mobile Infrastructure Services report.

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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