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Red Hat (RHT)

F3Q10 Earnings Call

December 22, 2009; 5:00 pm ET


Jim Whitehurst - President & Chief Executive Officer

Charlie Peters - Executive Vice President & Chief Financial Officer

Tom McCallum - Vice President of Investor Relations


Adam Holt - Morgan Stanley

Kash Rangan - Merrill Lynch

John Difucci - JP Morgan

Michael Turits - Raymond James

Richard Williams - Cross Research

Nabil Elsheshai - Pacific Crest Securities

Steve Ashley - Robert W. Baird

Tim Klasell - Thomas Weisel

Todd Raker - Deutsche Bank Securities

Heather Bellini - ISI

Trip Chowdhry - Global Equities

Robert Breza - RBC Capital Market

Brent Williams - The Benchmark Co.

Katherine Egbert - Jeffries

Mark Murphy - Piper Jaffray

Sarah Friar - Goldman Sachs

Brad Whitt - Broadpoint



Good afternoon. My name is Sarah and I will be your conference operator today. At this time I would like to welcome everyone to the Red Hat Q3 fiscal year 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator instructions)

Mr. McCallum, Vice President of Investor Relations. You may begin you conference.

Tom McCallum

Thank you, Sarah. Hello, everyone and welcome to Red Hat’s earnings call for the third quarter of fiscal 2010. Speakers for today’s call will be Jim Whitehurst, President and CEO; and Charlie Peters, Executive Vice President and CFO.

Our earnings press release was issued after the market closed today and maybe downloaded from on the Investor Relations page. Also on this page you will be able to find an historic reconciliation schedule of GAAP to non-GAAP financial metrics, as well as a schedule on currency rates.

Various remarks that we may make about the company’s future expectations, plans and prospects including the statements containing the words believe, anticipate, plan, project, estimate, expect, intend or will constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those discussed in the company’s most recent Quarterly Report on Form 10-Q filed with the SEC.

In addition, any forward-looking statements represent our view or estimates as of today, December 22, 2009 and these estimates or views may change. While the company may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates or views do change and therefore you should not rely on these forward-looking statements as representing our estimates or views as any date subsequent to today.

With that, I’d like to turn this over to Jim.

Jim Whitehurst

Thank you, Tom and let me add my welcome to all of you for joining us on today’s call today. I am very pleased with the strong performance the company delivered in our third fiscal quarter. Among the financial highlights this quarter where revenues of $194 million an increase of 18% year-over-year and above the high end of our guidance.

Deferred revenue growth of 23% year-over-year and continued strong operating income growth and margin expansion that contributed to non-GAAP EPS that was above our guidance. Throughout this economic downturn we have continue to deliver solid result, because our value proposition to customers as present to be superior to that our competitors. In addition we continue to execute on our key initiatives and investing growth areas that improve our strategic position in the datacenter.

Let me highlight some of our key milestones in the quarter that illustrate of execution in investment. 1 November, we launched our Red Hat enterprise virtualization management solution or RHEV as part of our virtualization portfolio solution. RHEV delivers expanded virtualization management capabilities on top of the Red Hat hypervisor built into Red Hat Enterprise Linux. As an alternative to expensive proprietary solutions in the marketplace, RHEV is designed to be a cost effective solution that also addresses customers’ performance, security and scalability concern.

Importantly, RHEV also allows customers to leverage our broad well certified ecosystem. This message is resonating well with customers across many market verticals and after only one month in the marketplace, we are seeing strong interest in our server virtualization solution. Our cloud initiatives are also progressing well.

We have several wins, which include a large private cloud implementation project with a major movie studio. As six for year deal was in application vendor, who joined our on-ramp of cloud ISV program, but we are enabling this vendor to provide fast business model on the Amazon EC2 public files using RHEV

Lastly, NTT in Japan announced the data of its public crowd offering with RHEV as the virtualization substrate and RHEV has the management tool. In addition to our growing moment in virtualization in cloud computing, open stores Linux and Red Hat continue to gain mind share and recognition around the globe from industry analysis and customers.

The Linux foundation recently marked the 18 year of Linux noting a number of accomplishment including the massive adoption of Linux in the super computing space were nearly 90% of the worlds 500 fastest computers use Linux. Just from less than 1% just eight years ago.

The Linux foundation also noted that the list of contributors to the Linux kernel is now over 500 companies and Red Hat remains the No. 1 contributor. In October, the U.S. Department of Defense released the minimal calling for deeper deployment of open source solution in defense agency.

The DoD recognizes the importance of speed and legibility and they see the benefits of open stores that means to achieve these goals and their infrastructure. The DoD memo is a strong endorsement from one of our top vertical and preceded the White House announcement that it is now running on the NASDAQ with RHEL has the operating system.

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