Red Hat Inc. said Wednesday its first-quarter 2009 profit rose 6.6 percent as the software distributor posted an increase in sales led by growth in software-subscription deals.
Even so, the Raleigh-based company is working to expand the footprint of its open-source products with costly internal investments.
"A good indicator of our health in our business is a reflection of the value we deliver to our customer," President and Chief Executive Jim Whitehurst said in an interview with The Associated Press. "Our entire business model is built around serving the customer."
During a call with analysts, Whitehurst said all the company's top 25 customers renewed subscriptions in the quarter.
"We are off to a good start and on pace to deliver more major product releases this year than in any other period in Red Hat's history," Whitehurst said.
Red Hat said it earned $17.3 million, or 8 cents per share, in the first quarter, compared to $16.2 million, also 8 cents per share, in the same period a year earlier.
Revenue rose 32 percent to $156.6 million in the quarter that ended May 31.
Excluding one-time items, Red Hat said it earned $37 million, or 18 cents per share in the second quarter that Whitehurst was leading the company.
By that measure, the earnings report was in line with expectations of analysts polled by Thomson Financial, who on average predicted a profit of 18 cents per share on revenue of $153 million. Analysts' estimates usually exclude one-time items.
In after-hours trading Wednesday, Red Hat shares fell 19 cents, or 0.9 percent, after closing the regular session at $22.30.
Red Hat said sales in its two main business lines grew from last year's first quarter. It recorded subscription revenue of $130.7 million, up 27 percent over a year ago, while training and services sales were up 64 percent to $25.9 million.
However, rising subscriptions and revenue came at the expense of costly internal investments in engineering, sales and marketing. Sales and marketing expenses rose 28 percent to $59.3 million, while research and development costs rose nearly 33 percent to $28.9 million, Red Hat said.
Red Hat makes money by selling subscriptions for service for its software.
Charlie Peters, Red Hat's executive vice president and chief financial officer, said the return on investments indicates the company has room to grow.
"Our value message resonates with customers, and our customer service is contributing to the strong demand we continue to experience," Peters said on a conference call with analysts.
For its second quarter, Peters said Red Hat estimates it will earn 18 cents a share, excluding one-time items, on revenue of $162 million to $164 million. Analysts polled by Thomson Financial had forecast comparable earnings: 19 cents per share on revenue of $163.4 million.
The company maintains its previous yearly earnings revenue forecast of $665 million to $680 million.
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