Red Hat Reports Fourth Quarter Results, Revenue of $13.1 Million, Adjusted Net Loss of $0.04 Per Share: Robust Revenue Growth Fueled by Open Source Solutions for Internet Infrastructure - Company Financial Information

Edge: Work-Group Computing Report, April 3, 2000

Red Hat, Inc. (Nasdaq: RHAT), the leading provider of open source solutions for Internet infrastructure, Monday reported revenue of $13.1 million for the fourth quarter ended February 29, 2000, a 39% increase over revenue of $9.4 million for the fourth quarter last year.

Revenue for the fourth quarter was 24% higher than third quarter revenue of $10.5 million. Results for the quarter and the year are consolidated for the acquisitions of Cygnus Solutions and Hell's Kitchen Systems, Inc., both of which were completed in January, 2000.

Adjusting for non-cash charges and one-time acquisition expenses, the Company reported a net loss for the fourth quarter of fiscal 2000 of $5.6 million, or $0.04 per share. Before these adjustments, the net loss was $24.6 million, or $0.17 per share, compared with a net loss of $1.2 million, or $0.03 per share, for the fourth quarter of fiscal 1999.

Revenue for the year ended February 29, 2000 was $42.4 million, a 28% increase compared to revenue of $33.0 million for fiscal 1999. Adjusting for non-cash charges and one-time acquisition expenses, the Company reported a net loss for fiscal 2000 of $19.2 million, or $0.19 per share. Before these adjustments, the net loss for the year was $39.9 million, or $0.40 per share, compared with a net loss of $5.8 million, or $0.12 per share, for fiscal 1999.

Commenting on the results, Matthew Szulik, president and CEO of Red Hat, Inc., said, "Demand for Red Hat products and services is strong in ISPs, Web hosting companies and manufacturers of Internet devices. Post the consolidation of our recent acquisitions, Red Hat is in position to accelerate revenue and margin growth on a global basis."

Highlights of the fourth quarter include: - Red Hat Linux was awarded "Operating System Product of the Year" for 1999 by InfoWorld magazine for an unprecedented fourth consecutive year.

- Introduced Red Hat Linux Enterprise Solutions, a collaborative effort between Red Hat and industry leading application providers to deliver optimized solutions, incorporating support and simplified configuration, to enterprise customers, including:

- a complete enterprise database platform optimized for Oracle 8i;

- a joint marketing agreement with Computer Associates (CA) under which Red Hat is distributing CA's systems and storage management solutions along with Red Hat Linux enterprise solution and CA is selling Red Hat enterprise support agreements to Unicenter TNG clients; and

- a Red Hat Linux enterprise solution optimized for SAP's R/3.

- Increased the number of total enterprise customers to 140 compared to 60 last quarter, including Home Depot, Cisco Systems, ODS Networks, Kenwood, and Quest Net Corp.

- Signed several new GNU platform porting agreements with Mentor Graphics, Hitachi, Intel, Fujitsu, Cirrus Logic, and Alcatel.

- Continued international expansion with the acquisitions of Sistemi Research Laboratories in Italy and Logiciels du Soleil in France, and established distribution in major markets in the Asia/Pacific region, including Australia, Singapore, Malaysia and Taiwan. - Added retail outlets including Wal-Mart, Amazon.com and Costco.

- Over 500 resellers joined Red Hat's reseller program within the quarter.

Founded in 1994, Red Hat (NASDAQ:RHAT), the leader in open source solutions for Internet infrastructure, delivers the benefits of open source to computing devices ranging from small embedded appliances to workstations and servers. Red Hat plies its technological leadership to create open source solutions for Internet infrastructure and post-PC environments, offers services backed by the best understanding of open source and the most comprehensive resources, delivers the brand of a widely trusted open source leader and corporate partner, and persists in an indelible commitment to the virtues of open source to lead a revolution in the computing industry. Red Hat is based in Durham, N.C. and has offices worldwide. Visit Red Hat on the Web at www.redhat.com.

                         RED HAT, INC.
              Consolidated Statements of Operations

                               Three
                            months ended            Year ended
                             February 29,           February 29,
                        ------------------------------------------
                       2000        1999       2000        1999
                    (Unaudited) (Unaudited)
Revenue
 Subscription        7,500,468   5,764,841  23,960,187  22,102,923
 Services            4,969,881   3,676,725  17,160,678  10,928,759
 Web                   637,754           -   1,306,638           -
                    ----------   ---------  ----------  ----------
  Total revenue     13,108,103   9,441,566  42,427,503  33,031,682
                    ----------   ---------  ----------  ----------
Cost of revenue
 Subscription        4,083,039   2,150,660  13,069,831   6,655,685
 Services            2,742,704   1,592,651   9,071,079   6,059,904
 Web                    69,502           -     696,259           -
                    ----------   ---------- ----------  ----------
Total cost of revenue6,895,245   3,743,311  22,837,169  12,715,589
                    ----------   ---------  ----------  ----------

Gross profit         6,212,858   5,698,255  19,590,334  20,316,093
                    ----------   ---------  ----------  ----------
Operating expense
 Sales and marketing 7,283,506   3,581,483  22,476,272  11,098,616

 Research and
  development        3,346,302   1,962,081  11,173,672   8,363,087

 General and
  administrative     3,467,912   1,041,802   9,088,508   5,732,225

 Amortization of
  goodwill and
  intangibles        3,069,068           -   3,074,307           -

 Stock-based
  compensation       3,385,216     207,760   5,052,998     227,261

 Mergers,
  acquisitions
  and other         12,513,434           -  12,637,321           -
                    ----------   ---------  ----------  ----------
  Total
operating expense  33,065,438   6,793,126  63,503,078  25,421,189
                    ----------   ---------  ----------  ----------
Loss from
 operations        (26,852,580) (1,094,871)(43,912,744) (5,105,096)

Other income
 (expense), net      2,296,445      (2,619)  4,364,703      39,367
                   -----------   ---------  ----------  ----------
Loss before
 income taxes      (24,556,135) (1,097,490)(39,548,041) (5,065,729)

Provision for
 income taxes           53,344     126,882     294,325     722,216
                   -----------   ---------  ----------  ----------

Net loss           (24,609,479) (1,224,372)(39,842,366) (5,787,945)
                   -----------   ---------  ----------  ----------
Accretion on
 mandatorily redeemable
preferred stock             -      23,614      82,473      39,356

Net loss available
 to common
 stockholders      (24,609,479) (1,247,986)(39,924,839) (5,827,301)
                   ===========  ========== ===========  ==========
Net loss per
 common share
Basic                  (0.1689)    (0.0259)    (0.3968)    (0.1224)
Diluted                (0.1689)    (0.0259)    (0.3968)    (0.1224)

Weighted average common
 shares outstanding
Basic              145,694,248  48,209,616 100,610,498  47,628,096
Diluted            145,694,248  48,209,616 100,610,498  47,628,096

                          RED HAT, INC.
                   Consolidated Balance Sheets

                              February 29,           February 28,
                                 2000                   1999
Assets
Current assets:
 Cash and cash equivalents    $242,426,032            $19,485,586
 Short-term investments         27,460,222              2,037,992
 Accounts receivable, net        8,907,897              5,895,173
 Inventory                         488,977                345,630
 Prepaid expenses                1,732,973                812,665
 Other current assets              142,000                      -
                              ------------            ------------
  Total current assets         281,158,101             28,577,046

Property and equipment, net      7,909,103              3,921,798
Goodwill and intangibles, net   58,361,518                      -
Long-term investments           72,354,212                      -
Other assets                     4,765,859                232,379
                              ------------            ------------
 Total assets                 $424,548,793            $32,731,223

Liabilities and
 stockholders' equity

Current liabilities:

 Accounts payable               10,774,546              2,584,489
 Royalties payable                 115,117                144,074
 Accrued expenses                8,585,019              3,209,080
 Deferred revenue               11,030,337              6,096,465
 Short-term notes payable                -              1,509,936

 Current portion of capital
  lease obligations                366,062                139,112
                              ------------            ------------
  Total current liabilities     30,871,081             13,683,156

Capital lease obligations          230,516                482,796
Long-term notes payable                  -                916,667
Commitments and contingencies            -

Mandatorily redeemable
 preferred stock
Series A                                 -              1,992,184
Series B                                 -              6,919,644
Series C                                 -              3,195,591
Series B Cygnus                          -              6,252,000

Stockholders' equity (deficit):
 Preferred stock                         -              7,728,094
 Common stock                       15,334                  4,887
 Additional paid-in capital    477,781,234              5,265,667
 Shareholder receivables           (66,899)            (2,857,355)
 Deferred compensation         (35,159,127)            (1,188,155)
 Accumulated other
  comprehensive income            (515,868)                     -
 Accumulated deficit           (48,607,478)            (9,663,953)
                              ------------            ------------
  Total stockholders'
   equity (deficit)            393,447,196              (710,815)
                              ------------            ------------
  Total liabilities and
   stockholders' equity        424,548,793             32,731,223
                              ============            ============