Subscriptions boost Red Hat revenue

Open-source enterprise software vendor Red Hat reported fiscal third-quarter revenue up 18 percent from the same quarter last year.

Total revenue for the quarter, which ended Nov. 30, was US$194.3 million, up from $165.3 million a year earlier, the company said.

“We outperformed, in general, relative to most technology companies, but this quarter we really hit our stride,” said CEO Jim Whitehurst .

Subscription revenue powered the growth, as did strong bookings, particularly in North America, Whitehurst said. Subscription revenue grew more than 21 percent, to $164.4 million, and made up about 85 percent of total revenue.

“For the seventh consecutive quarter, all of our top 25 deals that were up for renewal not only renewed but did so at 120 percent of the prior year's value,” Whitehurst said, on a conference call announcing the results.

The company's net income was $16.4 million, or $0.08 per share, down from $24.3 million or $0.12 per share a year earlier. A litigation settlement reduced earnings by $0.03 per share.

Red Hat's top 30 deals included 14 contracts over $1 million, and one over $5 million, said Charlie Peters, Red Hat's executive vice president and chief financial officer. Twenty-three of the deals called for Red Hat Enterprise Linux 5 Advanced Platform, and eight called for Red Hat's JBoss enterprise server software. One deal was primarily for virtualization deployment.

Geographically, 59 percent of the sales came from the Americas, 29 percent from Europe and 15 percent from the Asia-Pacific region. The average length of a subscription purchase from Red Hat is 22 months, the company said.

Red Hat scored a number of contract wins with cloud computing-related projects during this last quarter, Whitehurst said. For one thing, a major movie studio commissioned a large cloud implementation. An application vendor struck a six-figure deal to use Red Hat Enterprise Linux as the operating environment for delivering its software as a service on the Amazon Elastic Cloud service.

Whitehurst expressed confidence that Linux, and open source in general, would continue to make inroads into large enterprise environments. He noted that, in October, the U.S. Department of Defense had issued guidance that clarified permissible use of open-source software within the defense agencies. “The DOD recognizes the importance for speed and agility, and they see the benefits of open source as the means to achieve these goals in its infrastructure,” Whitehurst said.

The company estimated fourth-quarter revenue between $191 million and $193 million. Because of this quarter's performance, the company has increased the revenue estimate for its full 2010 fiscal year by $10 million, to between $743 million and $745 million.

Whitehurst said he sees potential growth in the future with the company's newly released virtualization capabilities, both the new KVM (Kernel-based Virtual Machine) hypervisor in the latest version of Red Hat Enterprise Linux and the Red Hat Enterprise Virtualization set of management tools.

“Our management suite is dramatically less expensive than our competitors',” Whitehurst said.

He expects a limited number of subscriptions to come about this quarter as organizations test out this new software, but he doesn't expect it to be a major contributor to revenue until the next fiscal year.