On Wednesday, Sept. 27, longtime Linux leader Red Hat (NASDAQ:RHAT) released Q2 2007 earnings for the period ending Aug. 31, 2006.

  • Back out the $7.2 million of revenues from newly acquired JBoss, and sales grew "only" 40.8% over the year-ago period.
  • I tend to get nervous when net income exceeds operating income, as in this case. Red Hat is making nearly as much of a net profit from interest on its investments as it does from running its business.
  • That cash flow drop is causing all sorts of consternation to investors and analysts, judging by the earnings conference call. Still, free cash flow remains positive and operations should improve as the company digests JBoss over the next few quarters.

(Figures in millions, except per-share data)

Income Statement Highlights

Avg. Est.

Q2 2007

Q2 2006

Change

Sales

$97

$99.7

$65.7

51.7%

Pro Forma Net Profit*

--

$23.7

$17.7

33.6%

Pro Forma EPS*

$0.11

$0.11

$0.09

22.2%

Diluted Shares

219.9

208.6

5.4%
*Pro forma earnings provided by the company, excluding stock options expenses and tax effects thereof.

Get back to basics with a look at the income statement.

Margin Checkup

Q2 2007

Q2 2006

Change*

Gross Margin

83.53%

82.36%

1.17

Operating Margin

9.48%

18.15%

(8.67)

Net Margin

23.78%

26.99%

(3.21)
*Expressed in percentage points.

Margins are the earnings engine. See how they work.

Balance Sheet Highlights

Assets

Q2 2007

Q2 2006

Change

Cash + ST Invest.

$838.0

$517.4

61.9%

Accounts Rec.

$70.3

$59.6

18.1%

Inventory

$0.0

$0.0

0.0%


Liabilities

Q2 2007

Q2 2006

Change

Accounts Payable

$7.6

$4.9

56.2%

Long-Term Debt

$570.0

$570.0

0.0%


Learn the ways of the balance sheet.

Cash Flow Highlights

Q2 2007

Q2 2006

Change

Cash From Ops.

$43.9

$45.8

(4.1%)

Capital Expenditures

$5.1

$4.7

8.3%

Free Cash Flow

$38.8

$41.0

(5.5%)


Find out why Fools always follow the money.

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Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, Fool contributor Anders Bylund had no position in any company mentioned. Fool rules are here.