Red Hat boosts revenue by 46 per cent

Red Hat reported on Wednesday that first quarter revenue climbed 46 per cent as more companies and governments opened their wallets for its open source tools and support services.

Revenue for the quarter, which ended 31 May, was $60.8m, representing record sales for the company. Revenue from enterprise subscriptions, or contracts with big corporate and government clients, increased 63 per cent in the quarter and now comprises 80 per cent of the company's revenue. Wall Street has been eager to see the company grow that business.

Red Hat, based in Raleigh, NC, grew profits too. First-quarter net income climbed to $12.4m, or seven cents per share - up from $10.9m, or six cents per share, a year ago. Revenue and profits for the quarter were within the range expected by most analysts.

Red Hat chief executive and chairman Matthew Szulik called the financial performance the company's best to date and promised continued growth based on plans to expand the company's offerings and geographic reach and to tap growing global demand for open source systems.

"The result should be steadily improving revenue, earnings and cash flow growth," Szulik said in a teleconference with securities analysts.

Szulik ticked off a number of accomplishments that bolstered the company's quarter. One was a high rate of subscription renewals from enterprise customers. Of the 25 largest contracts that were up for renewal in the quarter, 100 per cent renewed, he said. In addition, distribution agreements with Dell, HP and others appear to be paying off. Sales through such partners reached 60 per cent of total sales in the quarter, up from 56 per cent in the previous quarter. Szulik said the company is on track to reach its 70 per cent goal.

The company sold 190,000 new Linux subscriptions in the quarter, Szulik said in an interview. That compares with 98,000 in the same quarter a year ago.

He declined to say exactly what fraction of existing customers renew subscriptions when their one-year terms expire.

"Our goal remains building best-in-class open source infrastructure for the enterprise," Szulik said.

Red Hat also continues to expand the number of products and services it sells, he said. In addition to its flagship Linux operating system product, it now offers security, storage and directory server software and plans to add more.

The company is concentrating its efforts in several areas, including further development of storage, security, and virtualisation systems as well as expanding internationally, he said. Red Hat is especially interested in growing its presence in China and Latin America, he added.

Red Hat finance chief Charlie Peters provided financial guidance for the second quarter and full year. The company expects to report second-quarter earnings per share of six to seven cents on $64m to $65m in revenue, increasing revenue by 38 per cent to 40 per cent. He reduced full-year revenue estimates from previous forecasts to $265m to $275m, citing pressure from exchange rates. However, he maintained an earnings-per-share forecast of 28 to 32 cents for the year.

CNET News.com's Stephen Shankland contributed to this report

Alorie Gilbert writes for CNET News.com