Tuesday, December 21, 2010

Red Hat, Inc. (NYSE: RHT): Q3 Earnings Preview

Red Hat, Inc. (NYSE: RHT) is scheduled to release its third-quarter financial results after the market close on Tuesday, December 21, 2010. Analysts, on average, expect the company to report earnings of 20 cents per share on revenue of $227.27 million. In the year ago quarter, the company reported earnings of 17 cents per share on revenue of $194.35 million.

Red Hat, Inc., together with its subsidiaries, provides open source software solutions to enterprises worldwide. The Company employs an open source software development and licensing model that uses the collaborative input of an international community of contributors to develop and enhance software.

In the precedent fiscal second-quarter, the Raleigh, North Carolina based company's net income was $23.7 million, or 12 cents a share, compared to $28.9 million, or 15 cents a share, in the year-earlier quarter. On an adjusted basis, the company earned 19 cents per share in the latest quarter.  Revenue rose 20% to $219.8 million from $183.63 million. Analysts, on average, expected the company to report earnings of 14 cents per share on revenue of $211.49 million.

At its last earnings call in September, the company raised its revenue guidance for the full year from $835 million to $850 million to a tighter range of $877 million to $885 million. The company expects to grow non-GAAP operating income by 22% to 24% year-over-year, while continuing to invest in growth initiatives. The company expects non-GAAP EPS to be in the range of 76 cents to 77 cents per share. The company continues to expect operating cash flow for the full year between $280.0 million and $290.0 million.

For the third quarter, revenue is estimated to be approximately $226 million to $228 million. Operating margin is estimated to be between 24.5% to 25% and non-GAAP EPS for the third quarter is estimated to be $0.19 to $0.20 assuming the same 35% tax rate.

Red Hat remains focused on managing discretionary costs effectively while increasing investments simultaneously in growth areas such as middleware, virtualization and cloud computing. 

During the quarter in review, Red Hat acquired Makara, a developer of deployment and management solutions for applications in the cloud. Makara's technologies will accelerate the development of Red Hat's comprehensive Platform-as-a-Service (PaaS) solution as part of its Cloud Foundations portfolio.

Among other development, Red Hat announced a partnership with Eucalyptus Systems, creators of the Eucalyptus private cloud platform, to offer cross-cloud compatibility and expanded platform choice in the cloud. The two companies are working together to provide Eucalyptus support for Red Hat Enterprise Virtualization and Eucalyptus compatibility with the Apache Deltacloud application programming interface (API).

In terms of stock performance, Red Hat shares have gained nearly 55% since the beginning of the year. 

Full Disclosure: None.
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