UPDATED: Shares of Red Hat went for a rough ride Tuesday after the number one Linux distributor announced it would restate three years of financial results and start recognizing revenue from subscriptions on a daily rather than monthly basis.
The company’s stock price tumbled after the announcement, closing down 22 percent at $15.73. In after hours trading, it was off by about 1 percent. Volume was heavy all day.
Red Hat said that it would restate its books after discussions with its auditor, PricewaterhouseCoopers.
As a result, Red Hat said it determined it would stop recognizing revenue for subscription agreements on a monthly basis. Instead, it will count them on a daily basis over the particular term of the contracts. The company also said the restatement was confined to its revenue recognition for subscription agreements.
Before the change, Red Hat said it recognized revenues from subscriptions as if the subscription commenced on the first day of the month in which the subscription was sold. For example, it continued, it would have recognized one-twelfth of the revenue of a twelve-month subscription in the calendar month during which the subscription commenced. The remaining revenue would be booked over the next eleven calendar months.
But auditors said it should consider recognizing revenue from a subscription over the term of the subscription.
The news came weeks after Red Hat’s CFO, Kevin Thompson, abruptly resigned on June 14th. He is still with the company as it searches for a
replacement.