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Red Hat (RHT) Q4 Earnings Beat Estimates, Revenues Up Y/Y

Zacks Equity Research

Red Hat Inc. RHT reported fourth-quarter fiscal 2019 non-GAAP earnings of $1.16 per share, which surpassed the Zacks Consensus Estimate by 15 cents. The figure increased 26.1% on a year-over-year basis.

Revenues increased 14% year over year to $879 million, primarily driven by strong demand for hybrid cloud technology solutions as well as aggressive cross-selling. However, the figure lagged the Zacks Consensus Estimate of $886 million.

Revenues, adjusted for currency impact, increased 16.9% year over year to $902.6 million.

Americas, Europe, Middle East & Africa (EMEA), and Asia-Pacific (APAC) revenues increased 13.6%, 12.9% and 16.3%, respectively. After adjusting for currency impact, Americas, EMEA and APAC revenues increased 14.9%, 20.3% and 20.2%, respectively.

Almost 62.6% of the bookings came from Americas, 23.1% from EMEA and 14.3% from APAC. Additionally, total backlog grew 22% from the year-ago quarter to $4.1 billion.

Quarter Details

Subscription revenues (88% of revenues) increased 13% year over year to $774 million. When adjusted for currency impact, revenues increased 16% to $793.5 million.

Infrastructure related subscription revenues increased 8% from the year-ago quarter to $549 million. After adjusting for currency impact, revenues increased 10.2% to $561.8 million.

Application development & emerging technologies (Ansible, OpenShift, OpenStack, Storage and cloud management) subscription revenues surged 30% year over year to $225 million. After adjusting for currency impact, revenues increased 34% to $231.7 million.

Training & services revenues (12% of revenues) increased 18% from the year-ago quarter to $105 million. When adjusted for currency impact, revenues increased 23% to $109.1 million.

Non-GAAP gross profit increased 13.5% year over year to $758.2 million. Non-GAAP gross margin contracted 20 bps to 86.3%.

Non-GAAP operating expenses increased 11.2% from the year-ago quarter to $531.1 million.

Non-GAAP operating margin increased 110 bps to 25.8%, due to lower operating expenses.

Red Hat, Inc. Price, Consensus and EPS Surprise

Red Hat, Inc. Price, Consensus and EPS Surprise | Red Hat, Inc. Quote

Fiscal 2019 in Detail

For fiscal 2019, non-GAAP earnings came in at $3.69 per share compared with $3 per share in fiscal 2018.

Total revenues for Red Hat stood at $3.4 billion, up 15% year-over-year, and 16% in constant currency. While, Subscription revenues for the full fiscal year were $2.9 billion, up 15% year over year and in constant currency.

Red Hat witnessed a 33% year-over-year increase in active subscriptions greater than $5 million in fiscal 2019. This was particularly driven by increasing number of Ansible and OpenShift customers, which totaled 1,300 and 1,000, respectively.

The company continues to strengthen its strategic relationship with enterprise organizations. Notably, the number of deals over $1 million in fiscal 2019 increased 17% year over year.

Further, Red Hat also benefited from 22% increase in cross-selling across its different platforms in fiscal 2019.

Balance Sheet & Cash Flow

Red Hat ended the quarter with cash, cash equivalents & restricted cash of $1.88 billion compared with $1.9 billion at the end of the previous quarter.

The company generated operating cash flow of almost $424 million compared with $136.7 million in the previous quarter.

Furthermore, Red Hat spent $413 million on share repurchase in fiscal 2019. Notably, the remaining balance in the current stock repurchase authorization as of the reported quarter was $737.2 million.

Zacks Rank and Stocks to Consider

Red Hat currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same sector include Symantec Corporation SYMC, eGain Corporation EGAN and Synopsys, Inc. SNPS. All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Symantec, eGain and Synopsys is projected to be 7.9%, 30% and 10%, respectively.

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