Open source solutions provider Red Hat Inc. (RHT), Wednesday said its second quarter profit increased from last year, driven by continuing demand for its source products, and strong performance across all of its key metrics. Following the news, the company's shares gained more than 3% in the after-hours trading.
The Raleigh, North Carolina-based company posted GAAP net income of $28.9 million or $0.15 per share for the second quarter, up from $21.1 million or $0.10 per share in the prior year quarter.
Excluding items, non-GAAP adjusted net income rose to $39.4 million or $0.20 per share from $30.1 million or $0.14 per share in the year-ago quarter.
Both GAAP and non-GAAP net income for the quarter include a discrete tax benefit of $7.3 million, adding about $0.04 per share. Excluding this tax benefit, GAAP earnings would have been $0.11 per share, and non-GAAP earnings would have been $0.16 per share for the latest quarter.
On average, 23 analysts polled by Thomson Reuters expected the company to report earnings of $0.15 per share for the second quarter. Analysts' estimates typically exclude special items.
Operating income for the quarter grew by 29% to $27.5 million from $21.4 million in the previous year quarter. After adjusting for stock compensation and amortization expenses, non-GAAP operating income was $43.6 million, up 21% year-over-year.
Second quarter total revenue increased 12% to $183.6 million from $164.4 million in the same quarter last year. Twenty-one analysts had a consensus revenue estimate of $179.10 million for the second quarter.
Jim Whitehurst, president and chief executive officer of Red Hat, said, "IT organizations continue to move ahead with purchases of high value solutions, and Red Hat is capitalizing on this demand as a result of our strong customer relationships and proven value proposition. These factors contributed to our better than expected total revenue in the second quarter, and drove annual subscription revenue growth of 15% for both the quarter and first half of fiscal year 2010."
Subscription revenue rose 15% to $156.3 million, while training and services revenue fell 4.6% to $27.4 million over a year earlier.
Total operating expense for the second quarter grew to $127.7 million from $115.5 million in the prior year quarter.
At the end of the second quarter, the company's total deferred revenue balance increased 17% to $580.9 million.
During the quarter, Red Hat repurchased $47 million of its common stock or 2.3 million shares of its common stock. Total cash, cash equivalents and investments as of August 31, 2009 were $911.8 million.
Also, in the quarter, Red Hat became the newest component to be added in the S&P 500, which is considered to be the bellwether stock market index.
For the first half of fiscal year 2010, Red Hat reported net income of $47.5 million or $0.25 per share, compared to $40.2 million or $0.18 per share in the year-ago period.
Non-GAAP adjusted net income grew to $68.1 million or $0.35 per share from $57.9 million or $0.26 per share in the prior year period.
Total revenue for the period increased to $358.0 million from $321.0 million in the previous year period.
Last month, Red Hat's rival, Waltham, Massachusetts-based Novell Inc. (NOVL) reported a profit for the third quarter, as the company cut its operating expenses significantly. Looking ahead, Novell, which is world's second largest seller of Linux software, said it continues to see double-digit non-GAAP operating margins for the full fiscal year 2009, barring unforeseen circumstances.
Red Hat closed Wednesday's regular trading session at $24.88, down 52 cents or 2.05% on a volume of 3.24 million shares. However, in the after-hours, the shares gained 77 cents or 3.09%.
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