Practical Technology

Anyone under the delusion that you can’t make money from open source and Linux should have been on Red Hat’s 2008 fiscal year earnings call on March 27.

If they had been, they would have heard Red Hat executives report that the Linux giant posted net income of $76.7 million, or $0.36 per diluted share, for the year, compared with $59.9 million, or $.29 per diluted share, in the prior year.

According to the Raleigh, N.C., company’s financial statement, Red Hat‘s non-GAAP (Generally Accepted Accounting Principles) “adjusted net income for the year was $152.9 million, or $0.72 per diluted share, compared to $115.9 million and $0.56 per diluted share the year before.”

The 2008 fiscal year’s non-GAAP operating cash flow totaled $71.6 million, or approximately 50 percent of revenue for the quarter and $264.3 million for the full year. At year end, the company’s total deferred revenue balance was $472.9 million, an increase of 40 percent on a year-over-year basis and 12 percent sequentially. Total cash, cash equivalents and investments as of Feb. 29, 2008 were $1.3 billion.

That number–$1.3 billion–may not be a lot to Microsoft, but by almost any other corporate standard it’s great.

During the conference call, Charlie Peters, Red Hat’s executive vice president and chief financial officer, said, “It was an outstanding year. Our annual revenue grew over 30 percent, our deferred revenue grew 40 percent, and we produced operating cash flow margins of 50 percent. The company’s performance was driven by growing demand for our open-source solutions and the convincing value which we are able to demonstrate with our customers. We are also realizing returns on the increased investment which we have made over the past year in engineering [and] sales and marketing, combined with solid execution by our associates.”

Specifically, that “increased investment” was increases in sales and marketing of 31 percent year over year while research and development costs rose 32 percent. As Peters pointed out, though the return on investment was excellent, the company still has room to grow.

Red Hat’s fourth quarter showed a company that is still growing. The financial report stated: “Total revenue for the quarter was $141.5 million, an increase of 27 percent from the year-ago quarter and 5 percent from the prior quarter. Subscription revenue for the quarter was $121.9 million, up 27 percent year-over-year and 5 percent sequentially. For the full year, total revenue was $523.0 million, an increase of 31 percent over fiscal 2007 revenue, and subscription revenue was $449.8 million, up 32 percent from the prior year.

“Net income for the quarter was $22.0 million, or $0.10 per diluted share, compared with $20.3 million, or $0.10 per diluted share, for the prior quarter and $20.5 million, or $0.10 per diluted share, in the year-ago quarter. Non-GAAP adjusted net income for the quarter was $42.7 million, or $0.20 per diluted share, after adjusting for stock compensation and tax expenses. This compares to non-GAAP adjusted net income of $39.7 million, or $0.19 per diluted share in the prior quarter.”

The company presented great results even though Red Hat faced the unexpected resignation of its longtime CEO Matthew Szulik due to family health matters in December 2007. Under new CEO Jim Whitehurst, a former Delta chief operating officer, the company has continued to do well.

Looking ahead, Whitehurst said during the earnings call that “the momentum of open-source solutions is strong and growing, and we believe there is a significant opportunity to expand our presence with existing customers and the many companies and industries that have only just begun to adopt open-source solutions in a meaningful way.” The economy, although in a decline with such failures as the collapse of Bear Stearns, may actually be good news for open-source companies.

A version of this story was first published in Linux-Watch.