Red Hat Earnings Call Insights: Cloud Service Producers and Sheet Billings

Red Hat (NYSE:RHT) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Cloud Service Producers

Raimo Lenschow – Barclays: Quick question, you mentioned the cloud service providers as one of the strong guys for this quarter. (Pick the base) with investors about how those guys were playing out in terms of will they long-term take the support from you guys on that, what are you seeing in your discussions with them, especially after the event last week?

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Charlie Peters – EVP and CFO: Yeah. So, we’ve got a good business with the public cloud providers. We provide infrastructure to many of the public cloud providers and we also sell instances of Red Hat in the public cloud that are consumed by their customers and we get a recurring revenue stream. We believe that the technologies that we are offering are the technologies that are needed for the public cloud, and we think it’s a good business for us. And just to recap, as I said and as you mentioned Raimo, the public cloud providers, two of them were in the top 30 deals this quarter and that vertical was one of the top two verticals for the quarter, the second one being the financial services.

Sheet Billings

Kash Rangan – Bank of America-Merrill Lynch: I’m just curious given that we had some weakness in the software group over the last couple of months, wondering if you could talk about the linearity of how things stranded in the months of March, April and May. Did the (seat) business get better progressively in the May as we came out of the sequester? And also Charlie, I think you might have alluded that you talked about an off-balance sheet backlog metric that grew – the off-balance sheet billings grew significantly faster than your reported billings last quarter. Wondering if that’s still the shape of things to come and should we expect the reported billings growth factor to improve as the year progresses?

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Charlie Peters – EVP and CFO: On the first question, about linearity, the linearity this quarter was more sort of a 20, 20, 60 kind of linearity. As we described in the past for us, generally we are in a range of – a really good linear quarter would be 25, 25, 50 and less linear is 20, 20, 60. Last several quarters have been more sort of 20, 20, 60. The second part of the question about the off-balance sheet backlog as you recall, I mean, off-balance sheet is a statistic that we disclosed at our year-end, and we had a nice increase on off-balance sheet backlog at the end of last year and probably the relevance to your question, Kash, is the portion which is billable within 12 months. And that portion that was billable within 12 months at the end of February over $80 million. It was a substantial increase from the prior year. So that should help us probably when we get to our fourth quarter. The only other thing I guess I would add is we saw the normal seasonality of our Q1 compared to prior Q1s.

A Closer Look: Red Hat Earnings Cheat Sheet>>