Red Hat Inc. (RHT - Free Report) reported non-GAAP earnings of 96 cents per share in third-quarter fiscal 2019, comfortably surpassing the Zacks Consensus Estimate of 87 cents. The figure also increased 31.5% on a year-over-year basis.

Revenues increased 13.2% year over year to $846.8 million, primarily driven by strong demand for hybrid cloud technology solutions as well as aggressive cross-selling. However, the figure lagged the Zacks Consensus Estimate of $854 million.

Revenues, adjusted for currency impact, increased 15.3% year over year to $862.3 million.

Americas; Europe, Middle East & Africa (EMEA); and Asia-Pacific (APAC) revenues increased 11.8%, 14.4% and 17.8%, respectively. After adjusting for currency impact, Americas, EMEA and APAC revenues increased 13.1%, 17.5% and 21.6%, respectively.

Almost 62.3% of the bookings came from Americas, 23.5% from EMEA and 14.3% from APAC. Additionally, total backlog grew 22% from the year-ago quarter to $3.5 billion.

Red Hat, Inc. Price, Consensus and EPS Surprise

Red Hat, Inc. Price, Consensus and EPS Surprise | Red Hat, Inc. Quote

Quarter Details

Subscription revenues (87.5% of revenues) increased 12.8% year over year to $740.7 million. When adjusted for currency impact, revenues increased 14.6% to $752.5 million.

Infrastructure-related subscription revenues increased 7.9% from the year-ago quarter to $534.1 million. After adjusting for currency impact, revenues increased 9.4% to $541.5 million. Moreover, Application Development-related and other emerging technology subscription revenues increased 27.6% from the year-ago quarter to $206.6 million. After adjusting for currency impact, revenues increased 30.3% to $210.9 million.

Training & services revenues (12.5% of revenues) increased 16.4% from the year-ago quarter to $106 million. When adjusted for currency impact, revenues increased 20.5% to $109.8 million.

Red Hat inked 100 deals worth more than $1 million in the quarter. Moreover, the company’s Certified Cloud and Service Providers (CCSP) program reached an annualized run-rate of $300 million, recording 25% year-over-year growth of “Red Hat Enterprise Linux on-demand in the public clouds.” Further, Red Hat OpenShift and Red Hat Ansible Automation experienced strong customer growth, adding more than 100 customers in the quarter.

On Oct 28, 2018, International Business Machines Corporation (IBM - Free Report) entered into a definitive agreement to acquire Red Hat for approximately $34 billion in cash. Following this, Red Hat set a special meeting on Jan 16, 2019 for its stockholders to vote on the proposed agreement.

Operating Details

Non-GAAP gross profit increased 13.7% year over year to $733.3 million. Non-GAAP gross margin expanded 40 basis points on a year-over-year basis to 86.6%.

Non-GAAP operating expenses increased 13.9% from the year-ago quarter to $530.5 million.

Non-GAAP operating expenses increased 13.9% from the year-ago quarter to $530.5 million.

Non-GAAP operating income increased 13.3% from the year-ago quarter to $202.9 million, while non-GAAP operating margin almost remained flat at 24%.

Balance Sheet & Cash Flow

Red Hat ended the quarter with cash, cash equivalents & investments of $1.9 billion compared with $2.2 billion at the end of the second quarter of fiscal 2019.

The company generated operating cash flow of almost $136.7 million compared with $165.4 million in the fiscal second quarter.

At the end of the third quarter, total deferred revenue balance was $2.5 billion, up 20% year over year.

Zacks Rank and Stocks to Consider

Red Hat currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader computer technology sector are Twitter (TWTR - Free Report) and Alteryx, Inc. (AYX - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). 

Long-term earnings growth for Twitter and Alteryx is pegged at 22% and 8%, respectively.