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Red Hat (RHT) Beats on Q1 Earnings, to Acquire 3scale
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Red Hat Inc. reported better-than-expected first quarter fiscal 2017 results but shares of the company were down 6.7% in aftermarket trading after the company’s guidance for 2016 came below analysts' expectations. The forecast was trimmed owing to the acquisition of 3scale, an application programming interface (API) management technology firm. Management also announced a new $1 billion share repurchase program to replace the existing $500 million plan, which will be terminated on Jun 30, 2016.
Adjusted earnings of 35 cents per share (including stock-based compensation but excluding one-time items) beat the Zacks Consensus Estimate of 33 cents. Earnings improved 12.9% on a year-over-year basis. The company reported non GAAP earnings of 50 cents, up 13.6% year over year.
Revenues increased 18% year over year to $567.9 million and beat the Zacks Consensus Estimate of $563.2 million.
Subscription revenues (88% of revenues) increased 18% year over year to $502 million. Subscription revenues for infrastructure related offerings increased 14% from the year-ago quarter to $403 million. Subscription revenues for application development related and emerging technologies jumped 39% year over year to $98 million.
Training & services revenues (12% of revenues) increased 17.8% from the year-ago quarter to $66.2 million.
Margins
On a non-GAAP basis, gross margin was up 10 basis points (bps) to 86.6%. Operating expenses, as a percentage of revenues, increased 190 bps on a year-over-year basis to 64.8%.
Operating margin, on a non-GAAP basis, decreased 180 bps from the year-ago quarter to 21.8%.
Other Financial Details
At the end of the quarter, total cash and cash equivalents (including investments) were about $2.12 billion, up from $1.20 billion as of Feb 29, 2016.
Cash flow from operating activities was approximately $232.3 million compared with $215.2 million in the prior-year quarter. The company exited the quarter with deferred revenues of $1.69 billion, an increase of 18% on a year-over-year basis.
The company repurchased shares worth $66 million.
Guidance
For the second quarter, Red Hat projects revenues of $587 million to $593 million and non-GAAP earnings per share of 54 cents including 1 cent impact from the 3scale acquisition. Non-GAAP operating margin is expected to be 22.8%.
For 2016, Red Hat reaffirmed its sales expectations. Revenues are expected to be $2.380 billion to $2.420 billion. The company also expects cash flow in the range of $800 million to $820 million.
However, management expects non-GAAP operating margin to be around 23% in fiscal 2016, down from 23.2% projected earlier, given $5 million impact from the 3scale acquisition. Also, non GAAP earnings per share will be in the range of $2.19 and $2.23 compared with the earlier expected range of $2.22 to $2.26 per share. The acquisition is likely to negatively impact 2016 earnings per share by 3 cents.
At present, Red Hat has a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked tech stocks include Facebook Inc , NetEase, Inc. (NTES - Free Report) , and CommVault Systems, Inc. (CVLT - Free Report) . All sport a Zacks Rank #1 (Strong Buy).
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Red Hat (RHT) Beats on Q1 Earnings, to Acquire 3scale
Red Hat Inc. reported better-than-expected first quarter fiscal 2017 results but shares of the company were down 6.7% in aftermarket trading after the company’s guidance for 2016 came below analysts' expectations. The forecast was trimmed owing to the acquisition of 3scale, an application programming interface (API) management technology firm. Management also announced a new $1 billion share repurchase program to replace the existing $500 million plan, which will be terminated on Jun 30, 2016.
Adjusted earnings of 35 cents per share (including stock-based compensation but excluding one-time items) beat the Zacks Consensus Estimate of 33 cents. Earnings improved 12.9% on a year-over-year basis. The company reported non GAAP earnings of 50 cents, up 13.6% year over year.
Revenues increased 18% year over year to $567.9 million and beat the Zacks Consensus Estimate of $563.2 million.
Subscription revenues (88% of revenues) increased 18% year over year to $502 million. Subscription revenues for infrastructure related offerings increased 14% from the year-ago quarter to $403 million. Subscription revenues for application development related and emerging technologies jumped 39% year over year to $98 million.
RED HAT INC Price, Consensus and EPS Surprise
RED HAT INC Price, Consensus and EPS Surprise | RED HAT INC Quote
Training & services revenues (12% of revenues) increased 17.8% from the year-ago quarter to $66.2 million.
Margins
On a non-GAAP basis, gross margin was up 10 basis points (bps) to 86.6%. Operating expenses, as a percentage of revenues, increased 190 bps on a year-over-year basis to 64.8%.
Operating margin, on a non-GAAP basis, decreased 180 bps from the year-ago quarter to 21.8%.
Other Financial Details
At the end of the quarter, total cash and cash equivalents (including investments) were about $2.12 billion, up from $1.20 billion as of Feb 29, 2016.
Cash flow from operating activities was approximately $232.3 million compared with $215.2 million in the prior-year quarter. The company exited the quarter with deferred revenues of $1.69 billion, an increase of 18% on a year-over-year basis.
The company repurchased shares worth $66 million.
Guidance
For the second quarter, Red Hat projects revenues of $587 million to $593 million and non-GAAP earnings per share of 54 cents including 1 cent impact from the 3scale acquisition. Non-GAAP operating margin is expected to be 22.8%.
For 2016, Red Hat reaffirmed its sales expectations. Revenues are expected to be $2.380 billion to $2.420 billion. The company also expects cash flow in the range of $800 million to $820 million.
However, management expects non-GAAP operating margin to be around 23% in fiscal 2016, down from 23.2% projected earlier, given $5 million impact from the 3scale acquisition. Also, non GAAP earnings per share will be in the range of $2.19 and $2.23 compared with the earlier expected range of $2.22 to $2.26 per share. The acquisition is likely to negatively impact 2016 earnings per share by 3 cents.
At present, Red Hat has a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked tech stocks include Facebook Inc , NetEase, Inc. (NTES - Free Report) , and CommVault Systems, Inc. (CVLT - Free Report) . All sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>