Red Hat Earnings Call NUGGETS: Tweak to the Annual Guidance, Big Deal Activity

On Monday, Red Hat, Inc. (NYSE:RHT) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Tweak to the Annual Guidance

Adam Holt – Morgan Stanley: Glad we got back here I thought I had lost my marbles on my telecom skills there. I just had two quick questions for you one it looks like a little bit of tweak to the annual guidance could you just walk us through the puts and takes on that?

Jim Whitehurst – President and CEO: We basically tweak the annual guidance a little bit based upon the impact on operating margin and earnings per share from the acquisitions. We brought the top end of the revenue guidance down a shade based upon what’s happening in the service side of the thing and we’ve sort of reaffirmed the high end of guidance on the cash flow. This fall we see year-to-date and based upon the exchange rates that we’re seeing at this point in time.

A Closer Look: Red Hat Earnings Cheat Sheet>>

Adam Holt – Morgan Stanley: So the delta again is principally on the services side?

Charlie Peters – EVP and CFO: Yes, exactly.

Adam Holt – Morgan Stanley: Then my second question is if you could just drill down a little bit on what you saw from an offering perspective what were the relative growth rates between the middleware business and the core and maybe any updates on contributions from rev and/or the new storage offering?

Charlie Peters – EVP and CFO: Just a little bit on – the second quarter report on our subscriptions and service, I will say this that we have talked from time to time about the – particularly the middleware business that continues to grow fast in the core business and Jim commented about proof of concepts growing in the storage area and we’re on track and that we’re still relatively young area for us. That will answer your question. Work also continues along with the latest version of growth.

Jim Whitehurst – President and CEO: Again, just things like storage, given the activity we’ve done is turn into bookings, will turn into revenue until over the next year.

Big Deal Activity

Kash Rangan – Bank of America Merrill Lynch: Couple of small things here to dwell into; one is, you’ve not talked about the two $10 million deals in many – one quarter before. So, Jim maybe you could just walk us through what exactly is driving that large deal activity and also if you could give us some anecdotes on what’s happening in the European theater and also the financial services and government theaters. I know that you commented that the business trends were holding together pretty well, but just given that that is the topic of great scrutiny on Wall Street. I just wanted us to get a little bit more color, and if you have the time, if not don’t worry, I think you commented last time that your bookings were greater than billings. So, I’m wondering if that was the case again this quarter.

Charlie Peters – EVP and CFO: Well, let me start on the big deal. I think what we’re seeing which is really, really nice is our large RHEL customers are starting to significantly use JBoss, and JBoss, it’s a longer sales cycle, but when these things start to come in, they’re just much bigger dollar type of opportunities. So, I think what you see there with our largest deal, is a long time RHEL customer, there’s still growth in RHEL as UNIX to Linux continues, but I would say the significant bite or part of that deal was middleware and the middleware, we’re still in the early days of, so, we’re really leveraging the strength and credibility we’ve got with RHEL. It has been phenomenal. In terms EMEA, EMEA is holding up very, very strong. We’re seeing again on the subscription side. I’d say at least this strong as we’re seeing for the total business well over 20% growth there in euros, which I guess would be the same thing if they’re in constant currency. So, in euros, we’re still seeing shrink and really across all three regions. So, we break Europe out into Northern Europe, Central Europe and Southern Europe, but we saw strength really in all three segments including Southern Europe. So, I feel good about that.