Red Hat Grows Earnings by Upselling

Red Hat (NYSE:RHT) is continuing to grow its revenues even in the midst of the current macroeconomic climate. Red Hat is growing for a number of reasons, not the least of which is the fact that they’re growing the number of deals worth more than $1 million.

Red Hat reported second quarter fiscal 2012 results with revenues reported at $281.3 million, which is a 28 percent year-over-year gain. Net Income also grew, coming in at $40.0 million which stands in contrast to the $23.7 million reported for the second quarter of fiscal 2011.

Moving forward Red Hat provided third quarter revenue guidance to be in the range of $288 million to $290 million. Red Hat’s performance so far this year, coupled with a positive outlook is leading the company to raise their full year revenue guidance by $45 million, to a range of $1.12 billion to $1.13 billion.

Jim Whitehurst, CEO of Red Hat said during the company’s earning call that all of his company’s top 25 deals that were up for renewal in the second quarter renewed, at a total value of over 150 percent of the original value.

“This was our strongest upsell percentage since we started tracking this metric, which is usually in the 120 percent to 130 percent range,” Whitehurst said. “Customers across a variety of segments and geographies contributed to this record.”

Red Hat’s CFO, Charlie Peters provided some additional color on the deals that closed during the quarter. Peters said that the top 30 deals at Red Hat were all over $1 million and three of them exceed $5 million. He added that approximately 40 percent of the top 30 deals included a JBoss middleware component with 2 being stand-alone middleware deals

The ability of Red Hat’s sales team and partner channel to push more products all starts with Red Hat Enterprise Linux (RHEL) as the base.

“What’s happening is companies start with RHEL, they see its value and start adding additional products,” Whitehurst said. “Some of that’s virtualization and a lot of that’s middleware as well.”

Whitehurst also noted that Red Hat’s platform-as-a-service (PaaS) offering is getting great feedback so far, but it’s still early and not yet a product that is driving revenues.

“So obviously, because it is not for sale, I’ll really believe all the kudos when people start writing these checks, right?” Whitehurst said.

In terms of where future growth will come from, Whitehurst noted that Red Hat is taking share from other players.

“We’re in the take share game and we certainly continue to take share from UNIX,” Whitehurst said. “We continue to take share from free Linux and other paid Linux’s and we take share from Windows.”

Sean Michael Kerner is a senior editor at, the news service of, the network for technology professionals.

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