Red Hat Earnings Solid, but Outlook Just Okay

Red Hat Inc. (NYSE: RHT) reported fourth-quarter and fiscal year 2016 results after markets closed Tuesday. For the quarter, the Linux software distributor reported adjusted diluted earnings per share (EPS) of $0.52 on revenues of $544 million, compared with EPS of $0.43 on revenues of $463.94 million in the same period a year ago. The consensus estimates called for EPS of $0.47 on revenues of $534.6 million.

For the full year, Red Hat reported EPS of $1.91 and revenues of $2.05 billion compared with year-ago results of $1.60 in EPS and revenues of $1.79 billion. Analysts were looking for EPS of $1.86 and revenues of $2.05 billion.

Red Hat reported that subscription revenue jumped 22% (in constant dollars) year over year in the quarter to $480 million, and accounts for about 88% of total revenues. Operating income rose 13% on a non-GAAP basis and non-GAAP net income was up from $81 million in the year-ago quarter to $97 million this year.

For the company’s first fiscal quarter, Red Hat is guiding revenues in a range of $558 million to $566 million and diluted adjusted EPS of approximately $0.50. Analysts were estimating first-quarter EPS at $0.50 on revenues of $554.58 million.
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For the full year, Red Hat forecast revenues of $2.38 billion to $2.42 billion and EPS in a range of $2.22 to $2.26 per share. The consensus estimates called for EPS of $2.19 and revenues of $2.36 billion.

The company’s CFO said:

The fourth quarter was a strong close to the year as our results exceeded our guidance. We maintained a high level of execution throughout the fiscal year which contributed to greater than 20% constant currency revenue growth in each quarter. This performance also drove a record backlog of $2.13 billion in U.S. dollars, up 15% year-over-year, and provides us meaningful visibility into future revenue. Our business momentum also drove record annual cash flow of $716 million, up 15% and representing the 5th straight year of operating cash flow margin of approximately 35%.

Red Hat’s shares closed up about 1.1% Tuesday and traded down about 1.2% in the after-hours market at $74.84. The stock’s 52-week range is $59.59 to $84.44 The consensus price target from Thomson Reuters was around $88.23 before today’s report.