Red Hat, Inc. Q4 2009 Earnings Conference Call Summary - Thomson StreetEvents

Red Hat, Inc. Q4 2009 Earnings Conference Call Summary

Red Hat, Inc. Q4 2009 Earnings Conference Call Summary - Thomson StreetEvents
Red Hat, Inc. Q4 2009 Earnings Conference Call Summary
Published Mar 25, 2009
23 pages (9975 words) — Published Mar 25, 2009
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Abstract:

Edited Brief of RHT earnings conference call or presentation, 25-Mar-09 5:00pm ET

  
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Brief

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RHT
Time
5:00pm ET
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The following is excerpted from the question-and-answer section of the transcript.

(Questions from industry analysts are provided in full, but answers are omitted - download the transcript to see the full question-and-answer session)

Question: Steve Ashley - Robert W. Baird & Co. - Analyst: Thanks. I would actually like to talk about the virtualization business. You talked about the strong renewals, 132% being driven by the virtualization. Is there anything more you could tell us about what kind of adoption rates you are seeing for virtualization and what is driving that in the customer's eyes? Thanks.

Answer By: Jim Whitehurst - Red Hat, Inc. - CEO


Question: Steve Ashley - Robert W. Baird & Co. - Analyst: And just a quick follow up on the free to fee business, we are trying to understand the opportunity there. Is this a situation where someone is using Rel and they're supposed to be paying for it and they're not paying for it? Or is this something why why they're using Fedora and you are simply pointing out the value proposition of migrating them over to the paid route? Thanks.

Answer By: Charlie Peters - Red Hat, Inc. - CFO

Answer By: Jim Whitehurst - Red Hat, Inc. - CEO


Question: Steve Ashley - Robert W. Baird & Co. - Analyst: Thanks.


Question: Unidentified Participant - - Analyst: This is [Apai] for Heather. You talked about -- I think about half of the renewal customers upgraded to the AP version. Now, what percent of your total install base has moved to this product and at what level of communication do you think you can get to that?

Answer By: Jim Whitehurst - Red Hat, Inc. - CEO


Question: Unidentified Participant - - Analyst: Got you. Now you have less than 70% on ES and more on AP?

Answer By: Jim Whitehurst - Red Hat, Inc. - CEO


Question: Unidentified Participant - - Analyst: Okay. Thanks.

Answer By: Tom McCallum - Red Hat, Inc. - IR


Question: Katherine Egbert - Jefferies & Co. - Analyst: Good afternoon. I want to talk about your non-GAAP operating margin. It was up pretty nicely here in February. You are down a little bit for the May-quarter. Can you tell us what you think steady state is and if steady state is going to continue its improvement or not? Thanks.

Answer By: Charlie Peters - Red Hat, Inc. - CFO


Question: Katherine Egbert - Jefferies & Co. - Analyst: Okay. Thanks, Charlie. That's perfect. Just as a follow up, can you talk about the opportunity in VDI? Jim, you mentioned in our prepared comments some wins around that and maybe just make a comment on what you think about the net book market? Thanks.

Answer By: Jim Whitehurst - Red Hat, Inc. - CEO


Question: Katherine Egbert - Jefferies & Co. - Analyst: Okay. Thanks. Good job.

Answer By: Tom McCallum - Red Hat, Inc. - IR


Question: Kash Rangan - Merrill Lynch - Analyst: Thankyouverymuch.Iapologizeforoverheadnoisehereandsorryifthisquestionhasbeenasked.JimandCharlie, I was wondering if you could comment about how you -- what is your take on the IBM proposed acquisition of [LaSun]? And how that might impact your relationship with IBM and strengthen it or really not change it at all, given the open initiative that Sun has got going on for some time? And also secondly, assuming that you probably looked at server unit growth rate that [IDC] has been putting out. I know they have certain other levers that can help you model, but I am wondering what the underpinning assumption is behind your billings and cash flow projections as you model out server unit growth. What server unit growth rate decline are we modeling behind your cash flow and bookings assumption? Just curious. Thank you very much.

Answer By: Jim Whitehurst - Red Hat, Inc. - CEO


Question: Kash Rangan - Merrill Lynch - Analyst: No, I understand. But assuming that it were to go through, what are your thought process -- your game plan? If it goes through, how would you approach the industry?

Answer By: Jim Whitehurst - Red Hat, Inc. - CEO

Answer By: Tom McCallum - Red Hat, Inc. - IR


Question: Brent Thill - Citigroup - Analyst: Thanks. Charlie if you can go back to the deferred revenue and billings, you have seen a pretty sharp decline year-over-year in the growth rate. Can you just give a sense -- you grew 25% last year and now you're guiding 10% to 13%. But where you look at the billings and your pipeline, do you expect this to stabilize now and grow from this level? Or how do you reconcile what is happening with the growth rate on both deferred and -- ?

Answer By: Charlie Peters - Red Hat, Inc. - CFO


Question: Brent Thill - Citigroup - Analyst: Okay. And Jim, a number of tech companies have indicated in the last couple of months that they are seeing some form of stabilization in the environment versus what we saw last fall when markets were -- are in free flow. Can you comment at a very high level what customers are saying to you at this point versus what you saw last fall?

Answer By: Jim Whitehurst - Red Hat, Inc. - CEO


Question: Brent Thill - Citigroup - Analyst: Great. Thanks.

Answer By: Tom McCallum - Red Hat, Inc. - IR


Question: Adam Holt - Morgan Stanley - Analyst: Good afternoon. You mentioned you had a lot of success renewing the largest customers that came up for you in the quarter. I was hoping you could comment on what renewal rates were like outside of the top 25 for the rest of the companies that came up for renewal, both in terms of the percentages and the dollar value as well. And then just if you look at the quarter, what was the rough mix between renewals and new billings in the fourth quarter? www.streetevents.com Contact Us 13 ¬ 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

Answer By: Charlie Peters - Red Hat, Inc. - CFO


Question: Adam Holt - Morgan Stanley - Analyst: If I could just ask one quick follow up on some of the large sales you are getting from converting people from free to paid, particularly around the customer audit program. Now that you are into that a couple of months, I know it is still early but do you have any sense for how big you think the opportunity is within your install base of people that are either using and not fully paying or can be converted to a bigger contract?

Answer By: Charlie Peters - Red Hat, Inc. - CFO


Question: Adam Holt - Morgan Stanley - Analyst: Terrific. Thank you.


Question: Mark Murphy - Piper Jaffray - Analyst: Thank you. Just a follow up question on the free to pay conversion rates, any sense for what that conversion rate is? Is 10% a descent guess? And then any sense on how that would trend in this fiscal year and what types of actions can you take to accelerate that pace?

Answer By: Charlie Peters - Red Hat, Inc. - CFO


Question: Mark Murphy - Piper Jaffray - Analyst: Charlie I actually mean -- sorry I wasn't clear on that. If you look at the number of unpaid Rel servers in the marketplace, what percentage of those do you think are converting to paid annually?

Answer By: Charlie Peters - Red Hat, Inc. - CFO


Question: Mark Murphy - Piper Jaffray - Analyst: And then, Charlie, as a follow up, what is the expected FX impact to revenue in FY '10 in percentage terms? Or in other words, the spread between cost and currency and US dollar growth?

Answer By: Charlie Peters - Red Hat, Inc. - CFO


Question: Mark Murphy - Piper Jaffray - Analyst: Okay. Charlie, if you net that out for the year, what is that a couple or a few points?

Answer By: Charlie Peters - Red Hat, Inc. - CFO


Question: Mark Murphy - Piper Jaffray - Analyst: Okay. Thank you.

Answer By: Tom McCallum - Red Hat, Inc. - IR


Question: Sarah Friar - Goldman Sachs - Analyst: Thanks for taking my question. Charlie, just a quick question on duration of deals. I know you don't normally call it out unless there was a change, but are you seeing any shifting in customers maybe wanting to either buy a bigger amount for a longer period to lock in a price or alternatively to try and save some up front cash by trying to go shorter.

Answer By: Charlie Peters - Red Hat, Inc. - CFO


Question: Sarah Friar - Goldman Sachs - Analyst: Got it. Very helpful. A quick follow up on VDI, what do you think that -- as you look at 2009 in terms of deployments, what gets people from pilots into large scale deployments? Maybe the other way to ask it is what is the gating factor? Is it costs or we don't have budget yet? Or is it that the technology is still too --

Answer By: Jim Whitehurst - Red Hat, Inc. - CEO


Question: Sarah Friar - Goldman Sachs - Analyst: Got it. Okay. That's helpful. Thank you.

Answer By: Tom McCallum - Red Hat, Inc. - IR


Question: John Debuchi - JPMorgan - Analyst: Thank you. Charlie, it sounds like business momentum was good this quarter, especially given the macro backdrop. But what accounted for the big sequential increase in prepaid expenses and other long term liabilities? It doesn't look like it is a seasonal effect. And again, business looks like it was good, but it doesn't -- especially with what's happening out there -- but on a seasonal basis, it doesn't look like it was that much better. You would expect that. www.streetevents.com Contact Us 16 ¬ 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

Answer By: Charlie Peters - Red Hat, Inc. - CFO


Question: John Debuchi - JPMorgan - Analyst: But even on the commissions, you had a -- it looks like about a $21 million sequential uptick in prepaid and other. It is a lot more than -- last year it was flattish, the year before up a little bit, $5 million the year before actually down or no, not down, up $1 million or so. Is there anything else in there that is -- anything happening there to help us understand that a little better?

Answer By: Charlie Peters - Red Hat, Inc. - CFO


Question: John Debuchi - JPMorgan - Analyst: Okay.

Answer By: Tom McCallum - Red Hat, Inc. - IR


Question: Nabil Elsheshai - Pacific Crest - Analyst: First on the JBoss, you talked about tax rates for the large deals. But I was wondering if you can talk a little bit about standalone sales for JBoss and what traction you are getting there.

Answer By: Jim Whitehurst - Red Hat, Inc. - CEO


Question: Nabil Elsheshai - Pacific Crest - Analyst: Okay.Youmentionedpricingbeingstabilized,butIbelieve[Novelle]mentionedthepossibilityofyougettingmore aggressive on the pricing in [Susay]. Have you seen that? How much do you guys compete or overlap with them where that could cause some short-term pricing pressure?

Answer By: Charlie Peters - Red Hat, Inc. - CFO

Answer By: Tom McCallum - Red Hat, Inc. - IR


Question: Brent Williams - Benchmark Co. - Analyst: Wanted to look at -- you mentioned the JBoss migration package that is open source and is being developed in conjunction with [community]. What specific platforms do you think are the lead choices and where are the pieces already built? How much of that depends on contributions from the community? In other words, is this signaling that you are moving more aggressively to migrate potentially customers from non-open source application servers -- ?

Answer By: Jim Whitehurst - Red Hat, Inc. - CEO


Question: Brent Williams - Benchmark Co. - Analyst: Okay. The follow up is you mentioned that one of your free to pay deals, the large one was somebody who had their own Linux distribution and moved to a commercial one. Would that be perhaps a very quiet civilian agency in Maryland or Virginia that's affiliated with the defense department? If it is a government agency, does that really have any broader implications for Linux adoption in the government? www.streetevents.com Contact Us 18 ¬ 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

Answer By: Charlie Peters - Red Hat, Inc. - CFO


Question: Brent Williams - Benchmark Co. - Analyst: Right. I am just looking at -- given the expense and difficulty there's somebody who has pretty good technical chops to maintain their own distribution. I am trying to figure out if there's -- among that relatively small number of customers doing that, is that a trend that we should look for more of.

Answer By: Charlie Peters - Red Hat, Inc. - CFO

Answer By: Tom McCallum - Red Hat, Inc. - IR


Question: Tim Klasell - Thomas Weisel Partners - Analyst: Good afternoon and congrats on the quarter. I wonder if you could give us a little better color on the Qumranet acquisition -- how that did during the quarter as far as revenues are concerned. I will pick that up, Tim. First of all, the integration has gone very well. You've heard a series of virtualization announcements from us over the last month or so which is indicative of a lot of the progress made by the [cash permanent] and others. But we do not break out anything specific about the results of Qumranet. Then a follow-on to the final question, has there been a change in your JBoss pipeline per se? When you're talking about making migration off of other proprietary application servers -- in the past, was it primarily a greenfield opportunity, new applications being deployed and now are we beginning to see more migration? Is that a signal there?

Answer By: Charlie Peters - Red Hat, Inc. - CFO


Question: Tim Klasell - Thomas Weisel Partners - Analyst: Okay. www.streetevents.com Contact Us 19 ¬ 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

Answer By: Jim Whitehurst - Red Hat, Inc. - CEO


Question: Tim Klasell - Thomas Weisel Partners - Analyst: Okay. Then percentage of bookings greater than a year -- ?

Answer By: Tom McCallum - Red Hat, Inc. - IR


Question: Brent Williams - Benchmark Co. - Analyst: Hi. Thanks for taking the question. Could you give us a little more color on the geographies, please?

Answer By: Charlie Peters - Red Hat, Inc. - CFO


Question: Brent Williams - Benchmark Co. - Analyst: Okay. As a follow up, have you seen any significant change in the length of the sales cycle? Thank you.

Answer By: Charlie Peters - Red Hat, Inc. - CFO

Answer By: Tom McCallum - Red Hat, Inc. - IR

Answer By: Jim Whitehurst - Red Hat, Inc. - CEO

Answer By: Tom McCallum - Red Hat, Inc. - IR


Question: Michael Turits - Raymond James - Analyst: Hey, guys. Thanks. Charlie, when you talked about the offsetting factors or the decline in server shipments -- about four of them, maybe four or five. Can -- you order them and tell us which are really the major ones that are contributing? Some of them are there, but maybe not as big?

Answer By: Charlie Peters - Red Hat, Inc. - CFO


Question: Michael Turits - Raymond James - Analyst: And what about the repurposing as well as free to pay, are those next in line and are they material or are they just --

Answer By: Charlie Peters - Red Hat, Inc. - CFO

Answer By: Jim Whitehurst - Red Hat, Inc. - CEO


Question: Michael Turits - Raymond James - Analyst: And although you mentioned attach rates on AP, what about an aggregate? What in aggregate is happening with ASPs per server? Are we seeing that flat, increase"? Where is that going? www.streetevents.com Contact Us 21 ¬ 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

Answer By: Charlie Peters - Red Hat, Inc. - CFO

Answer By: Jim Whitehurst - Red Hat, Inc. - CEO

Answer By: Tom McCallum - Red Hat, Inc. - IR

Table Of Contents

Red Hat, Inc. Q1 2010 Earnings Conference Call Summary – 2009-06-24 – US$ 54.00 – Edited Brief of RHT earnings conference call or presentation, 24-Jun-09 5:00pm ET

Red Hat, Inc. Q1 2010 Earnings Conference Call Transcript – 2009-06-24 – US$ 54.00 – Final Transcript of RHT earnings conference call or presentation, 24-Jun-09 5:00pm ET

Red Hat, Inc. at Morgan Stanley Cloud Computing Symposium Transcript – 2009-05-28 – US$ 54.00 – Final Transcript of RHT presentation, 28-May-09 8:30am ET

Red Hat, Inc. at Robert W. Baird & Co., Inc. Growth Stock Conference Transcript – 2009-05-12 – US$ 54.00 – Final Transcript of RHT presentation, 12-May-09 3:30pm ET

Red Hat, Inc. Q4 2009 Earnings Conference Call Transcript – 2009-03-25 – US$ 54.00 – Final Transcript of RHT earnings conference call or presentation, 25-Mar-09 5:00pm ET

Red Hat, Inc. Q3 2009 Earnings Conference Call Summary – 2008-12-22 – US$ 54.00 – Edited Brief of RHT earnings conference call or presentation, 22-Dec-08 5:00pm ET

Red Hat, Inc. Q3 2009 Earnings Conference Call Transcript – 2008-12-22 – US$ 54.00 – Final Transcript of RHT earnings conference call or presentation, 22-Dec-08 5:00pm ET

Red Hat, Inc. at Goldman Sachs Software Conference Transcript – 2008-11-05 – US$ 54.00 – Final Transcript of RHT presentation, 5-Nov-08 1:15pm ET

Red Hat, Inc. Analyst Meeting Transcript – 2008-10-07 – US$ 54.00 – Final Transcript of RHT corporate analyst meeting, 7-Oct-08 9:00am ET

Red Hat, Inc. Q2 2009 Earnings Conference Call Summary – 2008-09-24 – US$ 54.00 – Edited Brief of RHT earnings conference call or presentation, 24-Sep-08 5:00pm ET

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Thomson StreetEvents. "Red Hat, Inc. Q4 2009 Earnings Conference Call Summary" Mar 25, 2009. Alacra Store. Jun 30, 2022. <http://www.alacrastore.com/thomson-streetevents-transcripts/Q4-2009-Red-Hat-Inc-Earnings-Conference-Call-B2119363>
  
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Thomson StreetEvents. (2009). Red Hat, Inc. Q4 2009 Earnings Conference Call Summary Mar 25, 2009. New York, NY: Alacra Store. Retrieved Jun 30, 2022 from <http://www.alacrastore.com/thomson-streetevents-transcripts/Q4-2009-Red-Hat-Inc-Earnings-Conference-Call-B2119363>
  
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