Red Hat, Inc. reports 37.2% EBITDA growth in 2018 and 21.1% Revenue growth
03/26/2018 • About Red Hat, Inc. (
$RHT) • By InTwits
Red Hat, Inc. reported FY2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Red Hat, Inc. is a fast growth stock: FY2018 revenue growth was 21.1%, 5 year revenue CAGR was 17.1% at FY2018 ROIC 22.4%
- Red Hat, Inc. spends a lot for Stock Based Compensation (SBC): average SBC/Revenue for FY2014-FY2018 is 7.7%. Average EBITDA Margin for the same period was 18.6%
- Red Hat, Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 3.1%. At the same time it's in pair with industry average of 3.1%
- CAPEX is quite volatile: $622m in FY2018, $345m in FY2017, $253m in FY2016, $215m in FY2015, $241m in FY2014
- In the last 5 years the company invested considerably less than D&A: $321m vs. $409m
- The company has highly profitable business model: ROIC is 22.4%
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue jumped on 21.1%. Revenue growth showed acceleration in FY18Q4 - it increased 22.8% YoY. Despite revenue decline the EBITDA margin expanded. EBITDA Margin increased slightly on 1.9 pp from 32.3% to 34.2% in 2018. During the last 5 years EBITDA Margin bottomed in FY2017 at 17.3%.
Gross Margin showed almost no change in FY2018. SG&A as a % of Revenue decreased on 2.5 pp from 51.6% to 49.1% in FY2018. During the last 5 years SG&A as a % of Revenue topped in FY2017 at 51.6%. Stock Based Compensation (SBC) as a % of Revenue decreased slightly on 1.4 pp from 8.0% to 6.6% in FY2018. During FY2014-FY2018 SBC as a % of Revenue topped in FY2016 at 9.1% and was declining since that time.
Net Income margin decreased slightly on 1.6 pp from 10.5% to 9.0% in FY2018. The efficient tax rate was 45.2% in FY2018 while the average for the last five years was 31.5%.
Investments (CAPEX, working capital and M&A)
In FY2018 the company had CAPEX/Revenue of 2.9%. The company's CAPEX/Revenue showed almost no change from FY2015 to FY2018. It's average level of CAPEX/Revenue for the last three years was 2.6%. During the last 5 years CAPEX as a % of Revenue bottomed in FY2016 at 2.0% and was growing since that time.
Accounts receivable as a % of Revenue increased slightly on 1.3 pp from 26.3% to 27.6% in FY2018.
Red Hat, Inc. has spent
$315m on M&A in FY2018 which accounts for 10.8% of revenue.
Return on investment
The company operates at high and attractive ROIC (22.4%) while ROE is a bit lower (19.2%). ROIC increased on 6.0 pp from 16.4% to 22.4% in FY2018. ROE showed almost no change in FY2018. During FY2014-FY2018 ROIC bottomed in FY2015 at 14.1% and was growing since that time. ROE grew at 2.2 pp per annum in the last 5 years.
Leverage (Debt)
Debt level is -1.7x Net Debt / EBITDA and 1.3x Debt / EBITDA. Debt increased on 3.0% while cash surged on 58.1%.
Red Hat, Inc. has good short term financial stability: Interest coverage ratio (ICR) is 19.4x. Red Hat, Inc. has no short term refinancing risk: cash is higher than short term debt (7,242.4%).
Average interest expence charged on company's debt was 3.2% in FY2018.
Valuation and dividends
Red Hat, Inc.'s trades at EV/EBITDA 43.1x and P/E 97.9x.
Management team
CEO total compensation was
$13,597,466 in FY2018 which included
$1,000,000 salary.
The company has 11,870 employees. The number of employees jumped on 13.0%. Average revenue per employee in FY2018 was
$246,037 and it increased on 7.1%.
Financial and operational results
FY ended 02/28/2018
Red Hat, Inc. ($RHT) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 1,535 | 1,789 | 2,052 | 2,412 | 2,920 | 21.1% |
| Gross Profit | 1,302 | 1,516 | 1,743 | 2,057 | 2,489 | 21.0% |
| SG&A | 750 | 898 | 1,041 | 1,245 | 1,435 | 15.3% |
| EBITDA | 307 | 326 | 364 | 418 | 573 | 37.2% |
| EBIT | 232 | 250 | 288 | 332 | 476 | 43.2% |
| Interest expence | | 9 | 23 | 24 | 25 | 3.1% |
| Tax | 61 | 75 | 76 | 66 | 216 | 225.1% |
| Net Income | 178 | 180 | 199 | 254 | 262 | 3.2% |
| Stock Based Compensation | 114 | 141 | 186 | 193 | 192 | -0.1% |
Balance Sheet
|
|---|
| Cash | 647 | 1,047 | 928 | 1,091 | 1,724 | 58.1% |
| Accounts Receivable | 361 | 468 | 510 | 635 | 807 | 27.1% |
| Short Term Debt | 0 | 0 | 0 | 0 | 24 | |
| Long Term Debt | 0 | 703 | 724 | 746 | 744 | -0.2% |
Cash flow
|
|---|
| Capex | 80 | 46 | 42 | 69 | 85 | 22.9% |
| Acquisitions | | 296 | 126 | 29 | 315 | 999.1% |
Ratios
|
|---|
| Revenue growth | 15.5% | 16.6% | 14.7% | 17.5% | 21.1% | |
| EBITDA growth | 16.4% | 6.4% | 11.6% | 14.7% | 37.2% | |
|
|---|
| Gross Margin | 84.8% | 84.7% | 84.9% | 85.3% | 85.2% | -0.1% |
| EBITDA Margin | 20.0% | 18.2% | 17.7% | 17.3% | 19.6% | 2.3% |
| EBIT Margin | 15.1% | 14.0% | 14.0% | 13.8% | 16.3% | 2.5% |
| SG&A, % of revenue | 48.9% | 50.2% | 50.7% | 51.6% | 49.1% | -2.5% |
| SBC, % of revenue | 7.4% | 7.9% | 9.1% | 8.0% | 6.6% | -1.4% |
| Net Income Margin | 11.6% | 10.1% | 9.7% | 10.5% | 9.0% | -1.6% |
| CAPEX, % of revenue | 5.2% | 2.6% | 2.0% | 2.9% | 2.9% | 0.0% |
|
|---|
| ROIC | 15.1% | 14.1% | 14.2% | 16.4% | 22.4% | 6.0% |
| ROE | 11.6% | 12.7% | 15.2% | 19.7% | 19.2% | -0.4% |
| Net Debt/EBITDA | -2.1x | -1.1x | -0.6x | -0.8x | -1.7x | -0.8x |
| Interest expence / Average debt | | 2.7% | 3.2% | 3.2% | 3.2% | -0.0% |
People
|
|---|
| Employees | 6,300 | 7,300 | 8,800 | 10,500 | 11,870 | 13.0% |
| Revenue/Employee, th. $ | 244 | 245 | 233 | 230 | 246 | 7.1% |
Red Hat, Inc. ($RHT) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 677 | 723 | 748 | 772 | | 19.2% | 20.6% | 21.6% | 22.8% |
| EBITDA | 112 | 159 | 144 | 158 | | 16.1% | 54.2% | 40.6% | 36.5% |
| Net Income | 75 | 97 | 102 | -12 | | 23.1% | 65.2% | 49.6% | -118.5% |
Balance Sheet
|
|---|
| Cash | 1,230 | 1,210 | 1,331 | 1,724 | | 19.3% | 24.7% | 45.2% | 58.1% |
| Short Term Debt | 0 | 0 | 0 | 24 | | | | | |
| Long Term Debt | 751 | 757 | 762 | 744 | | 3.0% | 3.0% | 3.0% | -0.2% |
Ratios
|
|---|
| Gross Margin | 85.1% | 85.2% | 85.1% | 85.4% | | -0.1% | -0.1% | -0.2% | 0.1% |
| EBITDA Margin | 16.5% | 22.0% | 19.3% | 20.5% | | -0.4% | 4.8% | 2.6% | 2.1% |
| Net Income Margin | 11.1% | 13.4% | 13.6% | -1.6% | | 0.4% | 3.6% | 2.5% | -12.0% |
Peers in Systems Software
Below we provide Red Hat, Inc. benchmarking against other companies in Systems Software industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Advantego Corp ($ADGO) | | | | | 973.8% |
| Solbright Group Inc ($SBRT) | | | 286.4% | 25.4% | 414.0% |
| Duos Technologies Group Inc ($DUOT) | | 61.0% | -9.8% | -36.4% | 210.2% |
| Dell Technologies Inc. ($DVMT) | | | | | 145.7% |
| Finjan Holdings, Inc. ($FNJN) | | -6.2% | 292.3% | 174.6% | 63.0% |
| |
|---|
| Median (48 companies) | | 20.6% | 14.6% | 14.0% | 19.0% |
|---|
| Red Hat, Inc. ($RHT) | | 16.6% | 14.7% | 17.5% | 21.1% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| StrikeForce Technologies Inc ($SFOR) | 97.0% | 96.9% | 98.3% | 95.4% | 94.0% |
| Varonis Systems, Inc. ($VRNS) | 90.2% | 90.6% | 90.5% | 90.4% | 89.8% |
| Check Point Software Technologies Ltd. ($CHKP) | 88.2% | 88.5% | 88.5% | 88.6% | 89.6% |
| Tableau Software, Inc. ($DATA) | 91.0% | 88.7% | 88.0% | 87.1% | 87.7% |
| Attunity Ltd. ($ATTU) | 90.7% | 84.9% | 83.9% | 84.1% | 87.5% |
| |
|---|
| Median (53 companies) | 76.1% | 74.5% | 73.1% | 73.9% | 73.5% |
|---|
| Red Hat, Inc. ($RHT) | 84.8% | 84.7% | 84.9% | 85.3% | 85.2% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Check Point Software Technologies Ltd. ($CHKP) | 54.3% | 52.4% | 49.8% | 50.7% | 48.8% |
| SolarWinds Corporation ($SWI) | | | -8.0% | 44.0% | 44.8% |
| Finjan Holdings, Inc. ($FNJN) | -192.1% | -295.2% | 2.2% | 30.2% | 42.0% |
| Oracle Corporation ($ORCL) | 46.2% | 43.8% | 40.8% | 40.2% | 40.8% |
| CA Inc. ($CA) | 33.9% | 36.7% | 37.2% | 36.1% | 35.3% |
| |
|---|
| Median (47 companies) | -2.4% | -6.6% | -9.8% | -5.4% | -4.7% |
|---|
| Red Hat, Inc. ($RHT) | 20.0% | 18.2% | 17.7% | 17.3% | 19.6% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| The Rubicon Project, Inc. ($RUBI) | 15.6% | 11.4% | 12.0% | 26.0% | 16.0% |
| CYREN Ltd. ($CYRN) | 2.4% | 4.4% | 3.2% | 5.8% | 9.2% |
| ServiceNow, Inc. ($NOW) | 8.0% | 8.7% | 7.6% | 7.8% | 8.6% |
| Qualys, Inc. ($QLYS) | 10.4% | 12.2% | 11.7% | 16.4% | 8.2% |
| Zscaler, Inc. ($ZS) | | 12.5% | 7.8% | 6.5% | 8.0% |
| |
|---|
| Median (48 companies) | 2.7% | 2.1% | 2.1% | 2.2% | 2.5% |
|---|
| Red Hat, Inc. ($RHT) | 5.2% | 2.6% | 2.0% | 2.9% | 2.9% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Finjan Holdings, Inc. ($FNJN) | -42.6% | -113.5% | 3.4% | 46.6% | 64.1% |
| Fortinet, Inc. ($FTNT) | 9.2% | 2.1% | 5.3% | 15.0% | 28.0% |
| Check Point Software Technologies Ltd. ($CHKP) | 22.2% | 23.7% | 24.7% | 26.8% | 25.5% |
| MAM Software Group, Inc. ($MAMS) | 13.3% | 19.3% | 21.1% | 24.2% | 25.2% |
| GlobalSCAPE, Inc. ($GSB) | 21.9% | 27.0% | 18.9% | 8.5% | 19.9% |
| |
|---|
| Median (56 companies) | 0.0% | 0.0% | -4.3% | -4.7% | -1.9% |
|---|
| Red Hat, Inc. ($RHT) | 15.1% | 14.1% | 14.2% | 16.4% | 22.4% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| NXT-ID Inc. ($NXTD) | | | | | 9.7x |
| Symantec Corporation ($SYMC) | -3.2x | -1.5x | -5.0x | 10.0x | 4.7x |
| SolarWinds Corporation ($SWI) | | | | 6.2x | 4.1x |
| Oracle Corporation ($ORCL) | 0.4x | 1.2x | 1.6x | 2.4x | 2.4x |
| ServiceNow, Inc. ($NOW) | | | | 9.0x | 0.9x |
| |
|---|
| Median (22 companies) | -2.7x | -1.5x | -1.5x | -0.3x | -0.4x |
|---|
| Red Hat, Inc. ($RHT) | -2.1x | -1.1x | -0.6x | -0.8x | -1.7x |
