8-K

UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported): March 26, 2018

Red Hat, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation)

001-33162	06-1364380
(Commission File Number)	(I.R.S. Employer Identification No.)

100 East Davie Street, Raleigh, North Carolina	27601
(Address of Principal Executive Offices)	(Zip Code)

(919) 754-3700(Registrant’s Telephone Number, Including Area Code)

Not Applicable(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

⃞ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

⃞ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

⃞ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

⃞ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Item 2.02. Results of Operations and Financial Condition

On March 26, 2018, Red Hat, Inc. announced its financial results for the fiscal fourth quarter and fiscal year ended February 28, 2018. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

In the press release, we disclosed non-GAAP financial information for the three months and fiscal year ended February 28, 2018 and February 28, 2017. These non-GAAP disclosures include non-GAAP revenue growth rates measured on a constant currency basis and a reconciliation of GAAP net income to non-GAAP adjusted net income based on:

• the impact of non-cash share-based compensation expense under FASB ASC Section 718 Compensation-Stock Compensation ("ASC 718") and the related discrete tax benefit or expense;
• the impact of expense associated with the amortization of intangible assets primarily related to business combinations;
• the impact of non-cash interest expense related to the debt discount described below; and
• the impact of transaction costs related to business combinations.

These non-GAAP disclosures should not be used as a substitute for our GAAP results, but rather read in conjunction with our GAAP results. The non-GAAP financial measures we disclosed and the methods we used to calculate non-GAAP results are not in accordance with GAAP and may be materially different from the non-GAAP measures and methods used by other companies

We disclosed non-GAAP revenue growth rates for subscription revenue, training and services revenue and total revenue measured on a constant currency basis for the three months and fiscal year ended February 28, 2018 in an effort to provide a comparable framework for assessing how our business performed when compared to the three months and fiscal year ended February 28, 2017 in light of the effect of exchange rate differences. Approximately 45.6% and 43.6% of our revenue for the three months and fiscal year ended February 28, 2018, respectively, was produced by sales outside the United States. The income statements of our non-U.S. operations are translated into U.S. dollars using the average exchange rates for each month in an applicable period. To the extent the U.S. dollar weakens against foreign currencies, the translation of transactions denominated in foreign currencies results in increased revenue, as stated in U.S. dollars, for our non-U.S. operations. Similarly, revenue, as stated in U.S. dollars, for our non-U.S. operations decreases if the U.S. dollar strengthens against foreign currencies. Using the average foreign currency exchange rates for the three months and fiscal year ended February 28, 2017, our subscription revenue for the three months and fiscal year ended February 28, 2018 would have been lower than we reported by $23.6 million and $29.2 million, respectively, our training and services revenue for the three months and fiscal year ended February 28, 2018 would have been lower than we reported by $3.7 million and $4.6 million, respectively, and our total revenue for the three months and fiscal year ended February 28, 2018 would have been lower than we reported by $27.2 million and $33.7 million, respectively.

We also disclose non-GAAP deferred revenue growth rates measured on a constant currency basis for the fiscal year ended February 28, 2018 and revenue growth rates by geographic segment measured on a constant currency basis for the three months and fiscal year ended February 28, 2018 in an effort to provide a comparable framework for assessing how our business performed when compared to the fiscal year ended February 28, 2017 and the three months and fiscal year ended February 28, 2017, respectively, in light of the effect of exchange rate differences. 

We excluded GAAP share-based compensation expense and the related discrete tax benefit or expense for the purpose of calculating non-GAAP adjusted net income and non-GAAP adjusted net income per share because share-based compensation expense is a non-cash expense which may vary significantly from period to period as a result of changes not directly or immediately related to the particular period’s operational performance. For example, the amount recognized for share-based awards is directly related to the underlying share price of our common stock as of the date of grant, which, in the short-term, may not be directly related to our operational performance. Consequently, management believes that by excluding share-based compensation expense we provide an alternative and useful measure of operating performance. Management also believes that non-GAAP measures of profitability that exclude share-based compensation expense are used by a number of financial analysts in the software industry to compare current performance to prior periods and to forecast future performance. Our reconciliation of GAAP net income to non-GAAP adjusted net income includes GAAP non-cash, share-based compensation expense of $49.3 million and $192.2 million for the three months and fiscal year ended February 28, 2018, respectively, and $51.2 million and $192.5 million for the three months and fiscal year ended February 28, 2017, respectively, versus the non-GAAP exclusion of such expense.

Amortization expense related to intangible assets results primarily from business combinations. These costs are fixed in connection with an acquisition, are then amortized over a number of years after the acquisition and generally cannot be changed or influenced by management after the acquisition. Accordingly, management generally does not consider such costs for the purpose of evaluating the performance of the business or its managers or when making decisions to allocate resources. Management also believes that non-GAAP measures of profitability that exclude amortization expense related to intangible assets are used by a number of financial analysts in the software industry to compare current performance to prior periods and to forecast future performance. Our reconciliation of GAAP net income to non-GAAP adjusted net income includes GAAP non-cash amortization expense of $8.1 million and $31.4 million for the three months and fiscal year ended February 28, 2018, respectively, and $7.2 million and $29.9 million for the three months and fiscal year ended February 28, 2017, respectively, versus the non-GAAP exclusion of such expense.

We also excluded GAAP non-cash interest expense relating to our 0.25% convertible senior notes issued in October 2014 for the purpose of calculating non-GAAP adjusted net income and non-GAAP adjusted net income per share. Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be accounted for as separate liability (debt) and equity (conversion option) components in a manner that reflects the issuer’s non-convertible debt borrowing rate. This results in the debt component being treated as though it was issued at a discount, with the debt discount being accreted as additional non-cash interest expense over the term of the notes using the effective interest method. As a result, management believes that excluding this non-cash interest expense from the accretion of the debt discount in calculating our non-GAAP measures is useful because this incremental interest expense does not represent a cash outflow and is not indicative of our ongoing operational performance. Our reconciliation of GAAP net income to non-GAAP adjusted net income includes GAAP non-cash interest expense related to the debt discount of $5.0 million and $19.7 million for the three months and fiscal year ended February 28, 2018, respectively, and $4.8 million and $19.1 million for the three months and fiscal year ended February 28, 2017, respectively, versus the non-GAAP exclusion of such expense. Additionally, for the purpose of calculating non-GAAP adjusted net income per share, non-GAAP diluted weighted average shares outstanding excludes 4.7 million and 3.4 million shares for the three months and fiscal year ended February 28, 2018, respectively, and less than 1.0 million shares for each of the three months and fiscal year ended February 28, 2017 from our calculation of GAAP diluted weighted average shares outstanding.  We exclude these shares that are issuable upon conversions of our convertible notes because we expect that the dilution from such shares will be offset by the convertible note hedge transactions entered into in October 2014 in connection with the issuance of the convertible notes.  For the three months ended February 28, 2018, non-GAAP diluted weighted average shares outstanding includes 10.7 million shares to adjust for the dilutive effect of outstanding equity awards, convertible notes and warrants due to the GAAP net loss for the three months ended February 28, 2018.

We also excluded GAAP expense relating to costs we incurred in connection with business combinations. These costs include acquisition-related charges such as transaction expenses. As we do not acquire or dispose of businesses on a predictable cycle, the terms of each acquisition are unique and can vary significantly from other acquisitions and significant expense can be incurred in connection with an acquisition that we would not have otherwise incurred in the periods presented as part of our continuing operations, management believes that by excluding such expense we provide an alternative and useful measure of operating performance. Management also believes that non-GAAP measures of profitability that exclude acquisition-related charges are used by a number of financial analysts in the software industry to compare current performance to prior periods and to forecast future performance. Our reconciliation of GAAP net income to non-GAAP adjusted net income includes GAAP acquisition-related expense of less than $1.0 million and $2.0 million for the three months and fiscal year ended February 28, 2018, respectively, and GAAP acquisition-related expenses of $1.8 million for the fiscal year ended February 28, 2017 versus the non-GAAP exclusion of such expense.

Additionally, for the three months and fiscal year ended February 28, 2018, we recorded a one-time tax charge of $122.7 million related to the Tax Cuts and Jobs Act enacted into law in December 2017, and our non-GAAP provision for income taxes excludes this one-time tax charge.  We excluded this charge from our non-GAAP provision for income taxes as it is a non-recurring expense that was the result of a change in U.S. tax law.

Management believes that these adjusted non-GAAP results, when read in conjunction with the GAAP results, offer a useful view of our business performance in that they provide a more consistent means of comparing performance to prior periods in light of the effect of exchange rate differences, potential variations in the amount of expense for share-based awards recognized from period to period due to changes in the price of our common stock and the related tax benefit or expense, the irregularity with which management acquires intangible assets, the non-cash interest expense related to the debt discount, the exclusion of any share dilution that is expected to be offset by the convertible note hedge transactions and transaction costs we incurred in connection with business combinations. Management also uses non-GAAP measures as a component of its regular internal reporting to evaluate performance of the business and compare it to prior performance, to make operating decisions, including internal budgeting and the calculation of incentive compensation, and to forecast future performance. Our disclosure of non-GAAP financial measures allows investors to evaluate the Company's performance using information used by management.

The information furnished pursuant to Item 2.02 of this Form 8-K, including Exhibit 99.1 referenced herein, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 9.01. Financial Statements and Exhibits

(d)	Exhibits
	Exhibit No.	Description
	99.1	Press Release dated March 26, 2018

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:	March 26, 2018	RED HAT, INC.
		By:	/s/ ERIC R. SHANDER
		Name:	Eric R. Shander
		Title:	Executive Vice President, Chief Financial Officer

EX-99.1

Exhibit 99.1

Red Hat Reports Fourth Quarter and Fiscal Year 2018 Results

• Fourth quarter total revenue of $772 million, up 23% year-over-year, or 18% in constant currency; full fiscal year total revenue of $2.9 billion, up 21% year-over-year, or 20% in constant currency
• Fourth quarter subscription revenue of $683 million, up 22% year-over-year, or 18% in constant currency; full fiscal year subscription revenue of $2.6 billion, up 21% year-over-year, or 19% in constant currency
• Year-end deferred revenue balance of $2.6 billion, up 25% year-over-year
• Fourth quarter operating cash flow of $362 million, up 14% year-over-year; full fiscal year operating cash flow of $923 million, up 18% year-over-year

RALEIGH, N.C.--(BUSINESS WIRE)--March 26, 2018--Red Hat, Inc. (NYSE: RHT), the world's leading provider of open source solutions, today announced financial results for the fourth quarter of fiscal year 2018 ended February 28, 2018.

“The fourth quarter was a strong finish to the year for Red Hat. We maintained strong subscription revenue growth in both of our major technology categories during the year, enabling Red Hat to exceed a $3 billion annualized revenue run-rate exiting the year,” stated Jim Whitehurst, President and Chief Executive Officer of Red Hat. “Red Hat continued to expand its position with customers as a trusted adviser and strategic technology partner, enabling initiatives focused on digital transformation and cloud computing. This position helped drive a 50% year-over-year increase in the number of deals over $1 million during the fourth quarter, as we benefited from strong cross selling and high renewal rates within our top deals.”

“We are pleased to deliver 21% revenue growth during fiscal year 2018, up from 18% growth in the prior year. In addition, a strong performance in the fourth quarter enabled the company to exit the year with a total backlog increase of 24% year-over-year. We believe our total backlog, along with continued demand for our technologies, will enable us to deliver strong growth in fiscal year 2019,” stated Eric Shander, Executive Vice President and Chief Financial Officer of Red Hat.

Revenue: Total revenue for the quarter was $772 million, up 23% in USD year-over-year, or 18% measured in constant currency. Constant currency references in this release are detailed in the tables below. Subscription revenue for the quarter was $683 million, up 22% in USD year-over-year, or 18% measured in constant currency. Subscription revenue in the quarter was 88% of total revenue.

Full fiscal year 2018 total revenue was $2.9 billion, up 21% in USD year-over-year, or 20% measured in constant currency. Subscription revenue for the full year was $2.6 billion, up 21% in USD year-over-year, or 19% measured in constant currency. Subscription revenue in the full fiscal year was 88% of total revenue.

Subscription Revenue Breakout: Subscription revenue from Infrastructure-related offerings for the quarter was $510 million, an increase of 17% in USD year-over-year, or 13% measured in constant currency. Subscription revenue from Application Development-related and other emerging technology offerings for the quarter was $173 million, an increase of 39% in USD year-over-year, or 34% measured in constant currency.

Full fiscal year subscription revenue from Infrastructure-related offerings was $2.0 billion, an increase of 15% in USD year-over-year or 14% measured in constant currency. Full fiscal year subscription revenue from Application Development-related and other emerging technology offerings was $624 million, an increase of 42% in USD year-over-year, or 40% measured in constant currency.

Operating Income: GAAP operating income for the quarter was $132 million, up 40% year-over-year. After adjusting for non-cash share-based compensation expense, amortization of intangible assets, and transaction costs related to business combinations, non-GAAP operating income for the fourth quarter was $190 million, up 24% year-over-year. For the fourth quarter, GAAP operating margin was 17.1% and non-GAAP operating margin was 24.6%. Non-GAAP references in this release are detailed in the tables below.

Full fiscal year GAAP operating income was $472 million, an increase of 42% year-over-year. After adjusting for non-cash share-based compensation expense, amortization of intangible assets, and transaction costs related to business combinations, non-GAAP operating income for the full fiscal year was $698 million, up 25% year-over-year. Full fiscal year GAAP operating margin was 16.2% and non-GAAP operating margin was 23.9%.

Provision for Income Taxes: GAAP provision for income taxes for the fourth quarter and full fiscal year included a one-time tax charge of $123 million related to the Tax Cuts and Jobs Act enacted into law in December 2017. The new law includes significant changes to the U.S. corporate income tax system, including a permanent reduction in the corporate income tax rate from 35% to 21%, effective January 1, 2018. The one-time tax charge resulted primarily from re-measurement of deferred tax assets and liabilities and the transition tax associated with deemed repatriation of foreign earnings.

Non-GAAP provision for income taxes excludes the one-time impact related to the Tax Cuts and Jobs Act as well as discrete tax benefits related to share-based compensation.

Net Income/Loss: GAAP net loss for the quarter was $13 million, or $0.07 diluted loss per share, compared with GAAP net income of $66 million, or $0.36 diluted earnings per share (“EPS”), in the year-ago quarter.

After adjusting for non-cash share-based compensation expense, amortization of intangible assets, transaction costs related to business combinations and non-cash interest expense related to the debt discount, non-GAAP net income for the quarter was $167 million, or $0.91 diluted EPS, as compared to $110 million, or $0.61 diluted EPS, in the year-ago quarter. Non-GAAP diluted weighted average shares outstanding excludes dilution that is expected to be offset by our convertible note hedge transactions.

Full fiscal year GAAP net income was $259 million, or $1.40 diluted EPS, compared with $254 million, or $1.39 diluted EPS, in the prior fiscal year. After adjusting for non-cash share-based compensation expense, amortization of intangible assets, transaction costs related to business combinations and non-cash interest expense related to the debt discount, non-GAAP net income for the full fiscal year was $540 million, or $2.98 diluted EPS, as compared to $414 million, or $2.27 diluted EPS, in the prior fiscal year.

Cash: Operating cash flow was $362 million for the fourth quarter, an increase of 14% on a year-over-year basis. Total cash, cash equivalents and investments as of February 28, 2018 was $2.5 billion. The remaining balance in the current repurchase authorization as of February 28, 2018 was approximately $399 million.

Deferred revenue and backlog: Total backlog for fiscal year 2018 was in excess of $3.4 billion, up 24% year-over-year. We defined total backlog as the value of non-cancellable subscription and service agreements, including total deferred revenue, which is billed, plus the value of non-cancellable subscription and services agreements to be billed in the future not reflected in our financial statements. At the end of the fiscal year, the company’s total deferred revenue balance was $2.6 billion, an increase of 25% year-over-year. The full year positive impact to total deferred revenue from changes in foreign exchange rates was $92 million year-over-year. On a constant currency basis, total deferred revenue would have been up 21% year-over-year.

The portion of total backlog to be billed in the future not reflected in our financial statements was in excess of $775 million as of February 28, 2018, compared with the ending balance in excess of $650 million reported for fiscal year 2017. The portion of total backlog to be billed during fiscal year 2019 was in excess of $450 million as of February 28, 2018, compared with in excess of $330 million for the fiscal year ended February 28, 2017.

Outlook: Red Hat’s outlook assumes current business conditions and current foreign currency exchange rates.

For the full year:

• Revenue is expected to be approximately $3.425 billion to $3.460 billion in USD.
• GAAP operating margin is expected to be approximately 16.6% and non-GAAP operating margin is expected to be approximately 23.9%.
• Diluted GAAP EPS is expected to be approximately $2.25 to $2.28, assuming 187 million diluted shares outstanding. Diluted non-GAAP EPS is expected to be approximately $3.38 to $3.41, assuming 185 million diluted shares outstanding. Both GAAP and non-GAAP EPS assume a $4 million per quarter forecast for other income and an estimated annual effective tax rate of approximately 25% before discrete tax items.
• Operating cash flow is expected to be approximately $1.035 billion to $1.045 billion.

For the first quarter:

• Revenue is expected to be approximately $800 million to $810 million.
• GAAP operating margin is expected to be approximately 13.4% and non-GAAP operating margin is expected to be approximately 20.5%.
• Diluted GAAP EPS is expected to be approximately $0.42, assuming 187 million diluted shares outstanding. Diluted non-GAAP EPS is expected to be approximately $0.68, assuming 185 million diluted shares outstanding. Both GAAP and non-GAAP EPS assume a $4 million forecast for other income and an estimated annual effective tax rate of 25% before discrete tax items.

GAAP to non-GAAP reconciliation:

Full year non-GAAP operating margin guidance is derived by subtracting the estimated full year impact of non-cash share-based compensation expense of approximately $215 million and amortization of intangible assets of approximately $38 million. Full year diluted non-GAAP EPS guidance is derived by subtracting the expenses listed in the previous sentence and the full year impact of non-cash interest expense related to the debt discount of approximately $20 million and an estimated annual effective tax rate of approximately 25% before discrete tax items. Additionally, full year diluted non-GAAP EPS excludes approximately $30 million of discrete tax benefits related to share-based compensation that are included in full year diluted GAAP EPS. Full year diluted non-GAAP EPS excludes approximately 2 million diluted shares related to the convertible notes, which are expected to be offset by our convertible note hedge transactions.

First quarter non-GAAP operating margin guidance is derived by subtracting the estimated impact of non-cash share-based compensation expense of approximately $48 million and amortization of intangible assets of approximately $9.5 million. First quarter diluted non-GAAP EPS guidance is derived by subtracting the expenses listed in the previous sentence and non-cash interest expense related to the debt discount of approximately $5 million and an estimated annual effective tax rate of 25% before discrete tax items. Additionally, first quarter diluted non-GAAP EPS excludes approximately $1 million of discrete tax benefits related to share-based compensation that are included in first quarter diluted GAAP EPS. First quarter diluted non-GAAP EPS excludes approximately 2 million diluted shares related to the convertible notes, which are expected to be offset by our convertible note hedge transactions.

Webcast and Website Information

A live webcast of Red Hat's results will begin at 5:00 pm ET today. The webcast, in addition to a copy of our prepared remarks and slides containing financial highlights and supplemental metrics, can be accessed by the general public at Red Hat's investor relations website at http://investors.redhat.com. A replay of the webcast will be available shortly after the live event has ended. Additional information on Red Hat's reported results, including a reconciliation of the non-GAAP adjusted results, are included in the financial tables below.

About Red Hat, Inc.

Red Hat is the world's leading provider of open source software solutions, using a community-powered approach to provide reliable and high-performing cloud, Linux, middleware, storage and virtualization technologies. Red Hat also offers award-winning support, training, and consulting services. As a connective hub in a global network of enterprises, partners, and open source communities, Red Hat helps create relevant, innovative technologies that liberate resources for growth and prepare customers for the future of IT. Learn more at http://www.redhat.com.

Forward-Looking Statements

Certain statements contained in this press release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: risks related to the ability of the Company to compete effectively; the ability to deliver and stimulate demand for new products and technological innovations on a timely basis; delays or reductions in information technology spending; the integration of acquisitions and the ability to market successfully acquired technologies and products; fluctuations in exchange rates; the effects of industry consolidation; uncertainty and adverse results in litigation and related settlements; the inability to adequately protect Company intellectual property and the potential for infringement or breach of license claims of or relating to third party intellectual property; risks related to defects in our offerings and third-party hardware upon which our offerings depend; risks related to the security of our offerings and other data security vulnerabilities; changes in and a dependence on key personnel; the ability to meet financial and operational challenges encountered in our international operations; and ineffective management of, and control over, the Company's growth and international operations, as well as other factors contained in our most recent Quarterly Report on Form 10-Q (copies of which may be accessed through the Securities and Exchange Commission's website at http://www.sec.gov), including those found therein under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". In addition to these factors, actual future performance, outcomes, and results may differ materially because of more general factors including (without limitation) general industry and market conditions and growth rates, economic and political conditions, governmental and public policy changes and the impact of natural disasters such as earthquakes and floods. The forward-looking statements included in this press release represent the Company's views as of the date of this press release and these views could change. However, while the Company may elect to update these forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing the Company's views as of any date subsequent to the date of this press release.

Red Hat and the Shadowman logo are trademarks or registered trademarks of Red Hat, Inc. or its subsidiaries in the U.S. and other countries. Linux® is the registered trademark of Linus Torvalds in the U.S. and other countries.

RED HAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands - except per share amounts)
	Three Months Ended						Fiscal Year Ended
	February 28,			February 28,			February 28,		February 28,
	2018			2017			2018		2017
Revenue:
Subscriptions	$	683,276		$	559,588		$	2,574,178	$	2,135,780
Training and services	89,056			69,252			346,283		276,023
Total revenue	772,332			628,840			2,920,461		2,411,803
Cost of revenue:
Subscriptions	48,105			42,095			185,339		158,977
Training and services	64,520			50,112			246,458		195,401
Total cost of revenue	112,625			92,207			431,797		354,378
Gross profit	659,707			536,633			2,488,664		2,057,425
Operating expense:
Sales and marketing	315,181			272,438			1,198,576		1,036,021
Research and development	153,778			121,918			578,330		480,668
General and administrative	58,886			48,052			239,316		208,491
Total operating expense	527,845			442,408			2,016,222		1,725,180
Income from operations	131,862			94,225			472,442		332,245
Interest income	5,024			3,754			18,493		13,921
Interest expense	6,223			6,002			24,569		23,822
Other income (expense), net	11,368			(304		)	8,335		(2,164		)
Income before provision for income taxes	142,031			91,673			474,701		320,180
Provision for income taxes	154,583			25,870			215,898		66,477
Net (loss) income	$	(12,552	)	$	65,803		$	258,803	$	253,703
Net (loss) income per share:
Basic	$	(0.07	)	$	0.37		$	1.46	$	1.41
Diluted	$	(0.07	)	$	0.36		$	1.40	$	1.39
Weighted average shares outstanding:
Basic	177,034			177,802			177,150		179,642
Diluted	177,034			181,197			184,602		182,961

RED HAT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
	February 28, 2018			February 28, 2017 (1)
ASSETS
Current assets:
Cash, cash equivalents and restricted cash	$	1,724,132		$	1,090,808
Investments in debt and equity securities, short-term	318,358			369,983
Accounts receivable, net	806,744			634,821
Prepaid expenses	260,092			200,609
Other current assets	25,666			19,481
Total current assets	3,134,992			2,315,702
Property and equipment, net	206,105			189,629
Goodwill	1,288,830			1,040,709
Identifiable intangibles, net	224,953			137,767
Investments in debt securities, long-term	430,442			672,440
Deferred tax assets, net	93,300			104,833
Other assets, net	87,924			74,105
Total assets	$	5,466,546		$	4,535,185
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	427,086		$	376,957
Deferred revenue, short-term	1,853,719			1,512,762
Other current obligations	843			1,354
Convertible notes	23,806			—
Total current liabilities	2,305,454			1,891,073
Deferred revenue, long-term	741,453			557,194
Convertible notes	744,194			745,633
Other long-term obligations	205,215			93,965
Stockholders’ equity:
Common stock	24			24
Additional paid-in capital	2,397,097			2,294,462
Retained earnings	1,611,794			1,352,991
Treasury stock, at cost	(2,506,089		)	(2,311,805		)
Accumulated other comprehensive loss	(32,596		)	(88,352		)
Total stockholders’ equity	1,470,230			1,247,320
Total liabilities and stockholders’ equity	$	5,466,546		$	4,535,185
(1) Derived from audited financial statements

RED HAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
	Three Months Ended						Fiscal Year Ended
	February 28,			February 28,			February 28,			February 28,
	2018			2017			2018			2017
Cash flows from operating activities:
Net (loss) income	$	(12,552	)	$	65,803		$	258,803		$	253,703
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	25,597			21,547			97,138			85,309
Amortization of debt discount and transaction costs	5,661			5,480			22,401			21,691
Deferred income taxes	(26,746		)	6,128			(18,915		)	12,327
Share-based compensation expense	49,266			51,157			192,249			192,530
Net amortization of bond premium on debt securities available for sale	1,417			2,669			8,405			12,623
Other	(12,818		)	427			(11,500		)	946
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(266,018		)	(205,598		)	(154,119		)	(119,102		)
Prepaid expenses	(60,779		)	(57,400		)	(86,805		)	(76,787		)
Accounts payable and accrued expenses	179,582			85,862			161,811			71,026
Deferred revenue	461,199			357,399			432,182			348,534
Other	18,254			(15,215		)	21,488			(19,083		)
Net cash provided by operating activities	362,063			318,259			923,138			783,717
Cash flows from investing activities:
Purchase of investment in debt securities available for sale	(14,016		)	(85,053		)	(299,789		)	(500,849		)
Proceeds from maturities of investment in debt securities available for sale	77,789			79,446			426,074			457,710
Proceeds from sales of investment in debt securities available for sale	179,997			13,068			199,614			43,273
Proceeds from sales of strategic equity investments	14,204			—			14,204			—
Acquisition of businesses, net of cash acquired	(231,200		)	—			(315,081		)	(28,667		)
Purchase of developed software and other intangible assets	(3,849		)	(3,062		)	(16,720		)	(11,774		)
Purchase of property and equipment	(16,699		)	(18,687		)	(84,967		)	(69,123		)
Other	—			(500		)	(189		)	(703		)
Net cash provided by (used in) investing activities	6,226			(14,788		)	(76,854		)	(110,133		)
Cash flows from financing activities:
Proceeds from exercise of common stock options	354			556			4,895			3,829
Proceeds from employee stock purchase program	16,809			11,697			50,097			18,852
Payments related to net settlement of share-based compensation awards	(3,276		)	(3,284		)	(89,506		)	(66,529		)
Purchase of treasury stock	—			(139,479		)	(237,002		)	(458,661		)
Payments on other borrowings	(340		)	(1,145		)	(1,547		)	(1,684		)
Other	(30		)	—			(36		)	—
Net cash provided by (used in) financing activities	13,517			(131,655		)	(273,099		)	(504,193		)
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash	11,154			2,314			60,139			(6,361		)
Net increase in cash, cash equivalents and restricted cash	392,960			174,130			633,324			163,030
Cash, cash equivalents and restricted cash at beginning of the period	1,331,172			916,678			1,090,808			927,778
Cash, cash equivalents and restricted cash at end of the period	$	1,724,132		$	1,090,808		$	1,724,132		$	1,090,808

RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS
(Unaudited)
(In thousands - except per share amounts)
	Three Months Ended						Fiscal Year Ended
	February 28,			February 28,			February 28,			February 28,
	2018			2017			2018			2017
Reconciliation items included in Consolidated Statements of Operations:
Non-cash share-based compensation expense:
Cost of revenue	$	4,453		$	4,157		$	16,862		$	16,553
Sales and marketing	22,450			27,952			87,158			93,378
Research and development	14,405			13,639			57,008			52,424
General and administrative	7,958			5,409			31,221			30,175
Total share-based compensation expense	$	49,266		$	51,157		$	192,249		$	192,530
Amortization of intangible assets expense:
Cost of revenue	$	4,214		$	3,861		$	16,705		$	15,562
Sales and marketing	1,561			1,563			6,195			7,078
Research and development	35			35			138			138
General and administrative	2,270			1,787			8,407			7,078
Total amortization of intangible assets expense	$	8,080		$	7,246		$	31,445		$	29,856
Total non-cash interest expense related to the debt discount	$	4,961		$	4,820		$	19,654		$	19,104
Transaction costs related to business combinations	$	728		$	—		$	2,038		$	1,789
Reconciliation of GAAP results to non-GAAP adjusted results:
GAAP net (loss) income	$	(12,552	)	$	65,803		$	258,803		$	253,703
GAAP provision for income taxes	154,583			25,870			215,898			66,477
GAAP income before provision for income taxes	$	142,031		$	91,673		$	474,701		$	320,180
Add: Non-cash share-based compensation expense	49,266			51,157			192,249			192,530
Add: Amortization of intangible assets expense	8,080			7,246			31,445			29,856
Add: Non-cash interest expense related to the debt discount	4,961			4,820			19,654			19,104
Add: Transaction costs related to business combinations	728			—			2,038			1,789
Non-GAAP adjusted income before provision for income taxes	$	205,066		$	154,896		$	720,087		$	563,459
Non-GAAP provision for income taxes (1)	38,077			45,204			180,057			149,608
Non-GAAP adjusted net income (basic and diluted)	$	166,989		$	109,692		$	540,030		$	413,851
Non-GAAP adjusted diluted weighted average shares outstanding:
GAAP diluted weighted average shares outstanding	177,034			181,197			184,602			182,961
Dilutive effect of outstanding equity awards, convertible notes and warrants	10,699			—			—			—
Dilution offset from convertible note hedge transactions	(4,728		)	(492		)	(3,445		)	(292		)
Non-GAAP diluted weighted average shares outstanding	183,005			180,705			181,157			182,669
Non-GAAP adjusted net income per share:
Basic	$	0.94		$	0.62		$	3.05		$	2.30
Diluted	$	0.91		$	0.61		$	2.98		$	2.27

RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS
(Unaudited)
(In thousands - except per share amounts)
	Three Months Ended						Fiscal Year Ended
	February 28,			February 28,			February 28,			February 28,
	2018			2017			2018			2017
(1) Non-GAAP provision for income taxes:
Non-GAAP adjusted income before provision for income taxes	$	205,066		$	154,896		$	720,087		$	563,459
GAAP estimated annual effective tax rate	17.8		%	29.5		%	24.3		%	27.7		%
Provision for income taxes on non-GAAP adjusted income before discrete tax benefits	$	35,925		$	45,698		$	174,981		$	156,010
Discrete tax expense (benefit), excluding discrete benefits related to share-based compensation	2,152			(494		)	5,076			(6,402		)
Provision for income taxes on non-GAAP adjusted income, excluding impact from the Tax Cuts and Jobs Act and discrete tax benefits related to share-based compensation	$	38,077		$	45,204		$	180,057		$	149,608
GAAP gross profit	$	659,707		$	536,633		$	2,488,664		$	2,057,425
Add: Non-cash share-based compensation expense	4,453			4,157			16,862			16,553
Add: Amortization of intangible assets expense	4,214			3,861			16,705			15,562
Non-GAAP gross profit	$	668,374		$	544,651		$	2,522,231		$	2,089,540
Non-GAAP gross margin	86.5		%	86.6		%	86.4		%	86.6		%
GAAP operating expenses	$	527,845		$	442,408		$	2,016,222		$	1,725,180
Deduct: Non-cash share-based compensation expense	(44,813		)	(47,000		)	(175,387		)	(175,977		)
Deduct: Amortization of intangible assets expense	(3,866		)	(3,385		)	(14,740		)	(14,294		)
Deduct: Transaction costs related to business combinations	(728		)	—			(2,038		)	(1,789		)
Non-GAAP adjusted operating expenses	$	478,438		$	392,023		$	1,824,057		$	1,533,120
GAAP operating income	$	131,862		$	94,225		$	472,442		$	332,245
Add: Non-cash share-based compensation expense	49,266			51,157			192,249			192,530
Add: Amortization of intangible assets expense	8,080			7,246			31,445			29,856
Add: Transaction costs related to business combinations	728			—			2,038			1,789
Non-GAAP adjusted operating income	$	189,936		$	152,628		$	698,174		$	556,420
Non-GAAP adjusted operating margin	24.6		%	24.3		%	23.9		%	23.1		%

RED HAT, INC.
RECONCILIATION OF CERTAIN GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS
(Unaudited)
(In thousands - except per share amounts)
	Three Months Ended
	February 28,			February 28,		Year-Over-Year
	2018			2017		Growth Rate
Subscription and services revenue:
GAAP subscription revenue by offering type:
Infrastructure-related offerings	$	510,013		$	435,085	17.2	%
Adjustment for currency impact	(16,622		)	—
Non-GAAP Infrastructure-related subscription revenue on a constant currency basis	$	493,391		$	435,085	13.4	%
Application Development-related and other emerging technology offerings	$	173,263		$	124,503	39.2	%
Adjustment for currency impact	(6,938		)	—
Non-GAAP Application Development-related and other emerging technology subscription revenue on a constant currency basis	$	166,325		$	124,503	33.6	%
GAAP subscription revenue	$	683,276		$	559,588	22.1	%
Adjustment for currency impact	(23,560		)	—
Non-GAAP subscription revenue on a constant currency basis	$	659,716		$	559,588	17.9	%
GAAP training and services revenue	$	89,056		$	69,252	28.6	%
Adjustment for currency impact	(3,674		)	—
Non-GAAP training and services revenue on a constant currency basis	$	85,382		$	69,252	23.3	%
GAAP total subscription and training and services revenue	$	772,332		$	628,840	22.8	%
Adjustment for currency impact	(27,234		)	—
Non-GAAP total subscription and training and services revenue on a constant currency basis	$	745,098		$	628,840	18.5	%
	Fiscal Year Ended
	February 28,			February 28,		Year-Over-Year
	2018			2017		Growth Rate
GAAP subscription revenue by offering type:
Infrastructure-related offerings	$	1,950,396		$	1,696,443	15.0	%
Adjustment for currency impact	(20,016		)	—
Non-GAAP Infrastructure-related subscription revenue on a constant currency basis	$	1,930,380		$	1,696,443	13.8	%
Application Development-related and other emerging technology offerings	$	623,782		$	439,337	42.0	%
Adjustment for currency impact	(9,164		)	—
Non-GAAP Application Development-related and other emerging technology subscription revenue on a constant currency basis	$	614,618		$	439,337	39.9	%
GAAP subscription revenue	$	2,574,178		$	2,135,780	20.5	%
Adjustment for currency impact	(29,180		)	—
Non-GAAP subscription revenue on a constant currency basis	$	2,544,998		$	2,135,780	19.2	%
GAAP training and services revenue	$	346,283		$	276,023	25.5	%
Adjustment for currency impact	(4,552		)	—
Non-GAAP training and services revenue on a constant currency basis	$	341,731		$	276,023	23.8	%
GAAP total subscription and training and services revenue	$	2,920,461		$	2,411,803	21.1	%
Adjustment for currency impact	(33,732		)	—
Non-GAAP total subscription and training and services revenue on a constant currency basis	$	2,886,729		$	2,411,803	19.7	%

RED HAT, INC.
SUPPLEMENTAL INFORMATION
(Unaudited)
(In thousands)
Change in deferred revenue balances:
	Deferred Revenue
	Current			Long-Term			Total
Balance at February 28, 2017	$	1,512,762		$	557,194		$	2,069,956
Constant currency change in deferred revenue (1)	279,293			153,747			433,040
Impact from foreign currency translation	61,664			30,512			92,176
Balance at February 28, 2018	$	1,853,719		$	741,453		$	2,595,172
Year-over-year growth rate	22.5		%	33.1		%	25.4		%
Year-over-year growth rate on a constant currency basis	18.5		%	27.6		%	20.9		%

⁽¹⁾ Change in deferred revenue includes approximately $0.9 million acquired as part of a business combination.

Revenue growth by geographical segment:
	Americas			EMEA			APAC			Consolidated
Total revenue for the three months ended February 28, 2018	$	484,492		$	180,087		$	107,753		$	772,332
Adjustment for currency impact	147			(22,722		)	(4,659		)	(27,234		)
Total revenue on a constant currency basis for the three months ended February 28, 2018	$	484,639		$	157,365		$	103,094		$	745,098
Total revenue for the three months ended February 28, 2017	$	410,449		$	131,308		$	87,083		$	628,840
Year-over-year growth rate	18.0		%	37.1		%	23.7		%	22.8		%
Year-over-year growth rate on a constant currency basis	18.1		%	19.8		%	18.4		%	18.5		%
Total revenue for the fiscal year ended February 28, 2018	$	1,858,004		$	657,197		$	405,260		$	2,920,461
Adjustment for currency impact	(782		)	(33,118		)	168			(33,732		)
Total revenue on a constant currency basis for the fiscal year ended February 28, 2018	$	1,857,222		$	624,079		$	405,428		$	2,886,729
Total revenue for the fiscal year ended February 28, 2017	$	1,555,290		$	515,642		$	340,871		$	2,411,803
Year-over-year growth rate	19.5		%	27.5		%	18.9		%	21.1		%
Year-over-year growth rate on a constant currency basis	19.4		%	21.0		%	18.9		%	19.7		%

CONTACT:
Media Contact:
Red Hat, Inc.
Stephanie Wonderlick, 571-421-8169
swonderl@redhat.com
or
Investor Relations:
Red Hat, Inc.
Tom McCallum, 919-754-4630
tmccallum@redhat.com