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Red Hat Software Businesses

Red Hat In The Black 205

Posted by Hemos
from the good-work-all dept.
Cycon writes "Red Hat has just announced that they have finally achieved a positive cash flow! Today they announced that in the quarter ending May 31, 2001, they have seen $25.6 million in revenue, with an adjusted net income of $600,000. Congradulations to everyone at RHAT!"
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Red Hat In The Black

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  • by Anonymous Coward
    This, of course, means that they are WAY ahead of every other internet startup. Not that I use Redhat, but I'd root for them at least until Slackware goes IPO (not bloody likely)
  • Copyright (C) 2001 The Canadian Press (CP), All rights reserved

    Yup, and look at how well you followed that.
  • by Anonymous Coward
    Read the numbers--they had an operating loss of $3.8M and interest income of $4.4M, which is how they got a profit of $600K. Compared to the same quarter last year, their revenue was up about $4M, and their costs declined by about $2M. That's definitely movement in the right direction, as opposed to the bizarre numbers coming out of Caldera.

    RH is still bleeding, just at a slightly lower rate than last year. When they post a true operating profit it will be time to celebrate.

  • by Anonymous Coward
    Sometimes linux is a POS, all right. 8-)
  • by Anonymous Coward
    So far I have burned and installed no fewer than FIFTEEN Red Hat systems, many of them at work. This was from downloading the ISO images and burning them. I didn't pay a penny.

    I can't decide if I should feel guilty or not. On the one hand, I'm getting all sorts of people interested in Linux, but on the other hand it's not helping Red Hat pay one cent of wages or rent.

    On the third hand, they're really just mostly packaging the work of a cast of thousands, but on the fourth hand doing that on that scale costs real money.

    Help! What do I do?

  • by Anonymous Coward
    Help them! Buy at least one CD, and then make your copies. It is like public radio here in the US. You can listen for free, but it is nice to support them by becoming a member.
  • The reported net loss includes one time expenses such as purchases of companies. Thus you can't say they're worse off.
  • by Anonymous Coward
    try congraTulations.....
  • How can you know so much about finance, yet so little about the damned english language?
  • by Anonymous Coward on Wednesday June 20, 2001 @05:04AM (#137888)
    Red Hat remains in red: Linux software maker posts $27.6M quarterly net loss

    RESEARCH TRIANGLE PARK, N.C., Jun 19, 2001 (The Canadian Press via COMTEX) -- Linux software packager Red Hat Inc. said Tuesday it broke even on an operating basis in the quarter ended May 31, meeting Wall Street estimates.

    Red Hat reported adjusted net income of $600,000 US, or break even per share, in the first three months of its financial year. That compared with an adjusted net loss of $3.7 million, or two cents per share, a year earlier.

    Before adjustments, the net loss was $27.6 million, or 16 cents a share, compared with a net loss of $17.4 million, or 11 cents a share, in the first quarter of the previous year.

    Red Hat reported revenue of $25.6 million, down five per cent from the previous quarter but up 18 per cent from the year-earlier period.

    Red Hat, which has yet to report a profit since it went public, markets a CD-ROM version of the open-source Linux operating system and provides customers with technical support.

    The online source for news sports entertainment finance and business news in Canada

    Copyright (C) 2001 The Canadian Press (CP), All rights reserved

  • by Wakko Warner (324) on Wednesday June 20, 2001 @04:56AM (#137889) Homepage Journal
    Now maybe we'll get Direct Deposit again! I'm tired of trying to cash these "stock options" things in at the foodstamp redemption center...

    --
    Forget Napster. Why not really break the law?

  • Of course, using your IPO wealth to ensure profitability by purchasing companies that (a) make money and (b) are a good fit is a sign of good management. As opposed to some companies [valinux.com] who spent their IPO wealth on collections of crack monkies [slashdot.org].

  • by rodgerd (402)

    You could try this one [greenspun.com] which provides some interesting material. One thing about professional advice: it's been shown time and time again that professional fund managers, advisors, brokers and the like are collectively underperformers. You can almost always get better returns off index linked funds, or, for that matter, monkys with a dartboard.

  • Assuming that they don't have any retention problems, they should keep a small core of people who are certified in Solaris, HP-UX, AIX, and/or Tru64 ostensibly for "integration issues."

    I also hope that they have Oracle and DB2 people on staff now, especially since DB2 certification is free until September (and DB2 has put the first Linux score on the TPC site).

    But then again, if they have lousy managers of the type that drove away Raster, then don't even bother with this.

  • ...and argue that a large percentage of technically-minded people are "wackjobs."

    However, as I age and my career becomes more solid, I see less and less "wackjobs," and I tend to act like less of one myself (boy do I have a long way to go!).

    Still, a great manager can handle a "wackjob."

  • by Don Negro (1069) on Wednesday June 20, 2001 @09:18AM (#137895)
    Watch carefully. In real dollar terms it can't go much lower, but this close to zero even a small downtick can wipe out a lot of equity.

    If your intent is to buy Redhat, buy it after it has begun to trend up, and after it has a down day. And decide beforehand exactly how much you are willing to lose and place a stop order for that amount at the time of purchase. If you are right and Redhat continues up, move your stop order up along with it, to protect your investment. It's too low to the ground to not to be super cautious.

    And for the love of God, please don't interpret this as investment advice. It's not investment advice, it's merely a suggestion of things to think about and study before you make any investment decisions.

    Don Negro

  • Hah! I sold my RedHat stock at $125. Unfortunately I used the profit to buy Corel stock, so that proved I was just lucky with RedHat.


    --
  • by Per Abrahamsen (1397) on Wednesday June 20, 2001 @06:40AM (#137897) Homepage
    I wonder how much come from the "old" Red Hat, and how much come from the always profitable Cygnus Solutions. Buying profitable companies is one way to become profitable.

    Of the wins listed, about half would be typical Cygnus Solutions contracts (GNUPro), and half would be typical Red Hat contracts (Linux). A few could be either or neither, maybe made possible by the merger.
  • Can't help thinking that RH is really benefitting from their system integration and consultancy skills. If they did the same stuff for Solaris and other nixes, they'd probably be making alot more money!

    Still, things like this have to be good news for Linux:

    "Contract signed with BP Oil for support renewal for POS rollout to 2,500 petrol stations across Europe. "

    Assuming that the POS systems actually _are_ Linux....
  • Fear: When you see B8 00 4C CD 21 and know what it means

    The other guy who responded isn't old enough to know. :-) AX=0x4c00 is the old MS-DOS handler for program termination. AH=0x4c is the code and AL=0x00 is the return value. int 21h is the MS-DOS command vector.

    It took me a couple minutes (gee that looks familliar!) but I did finally remember. Thanks for the trip down memory lane. :-)

  • Nobody will probably see this, but:

    http://news.cnet.com/news/0-1007-200-6333426.htm l? tag=mn_hd

    Cnet is saying the SEC is going to start investigating the type of reporting that RedHat just did. i.e. basically claiming they made a profit by ignoring the dollars spent out on mergers, etc.
  • Looks like all those warnings [linuxworld.com] have proven true. They obviously have cut back like the rest of the Linux vendors. Looks like they can only afford an email [linuxone.com] account now ;-)
  • Of course, I am one who believes that making money should be difficult. i.e. - we should have to _work_ for a living. So the fact that money didn't just flow in a pipeline to free software companies actually encouraged me, because it showed that free software companies actually have to continually provide increasing value to their customers, instead of just forcing them to pay money.

    It's obvious when money just flows out of someone's ears without hard work that something is amiss.
  • Well...realizing that it would be SILLY to compare RHATs current reported earnings w/ those of MSFT...the earliest thing I could find on MSFT is their prospectus from 1986 when they were preparing for IPO [microsoft.com].
    Peace.
    ~ELH~
  • by larien (5608) on Wednesday June 20, 2001 @05:03AM (#137904) Homepage Journal
    They reported a net profit, which is different from a positive cash flow. A company can have a positive cash flow (eg, just after a rights issue) but still be making a loss and it can have a negative cash flow (eg, large capital purchases which don't fully affect profit in the year of purchase) and still make a profit.

    A full look at the finances would reveal if they do have a positive cash flow, but the two don't go hand-in-hand.
    --

  • by Ed Avis (5917) <ed@membled.com> on Wednesday June 20, 2001 @05:30AM (#137905) Homepage
    Did you notice how many of the deals they trumpeted in the press release are actually from the Cygnus side of the business? I wonder whether the Linux half of things is profitable.
  • are they just supercooling their red hat boxen down there?

    They don't run linux in hell. They run DOS 4. (plus a little AIX for their e-business solutions)

    buck

  • Uhhh... Load a register (presumably AX) with 004C and call int 21? But I don't remember what function 4C does...would looking it up be cheating? I assume that the 00 is necessary, otherwise you'd just have loaded AL. What takes a single one-byte parameter? Hmm...Program terminate with result code? Is that it?

    -Graham
  • All this means is that there is a subtle bug in his logic.

    A subtle bug in Bill Gates' logic? .. Well, that's just DOS and Windows all through isn't it?

    --
    Delphis
  • Huge, I'm sure. But then they're a much older and established company. The relevant comparison might be to MS at this stage in it's development....
  • by woggo (11781) on Wednesday June 20, 2001 @06:34AM (#137910) Journal
    Imagine someone at a computer security firm telling the boss that he/she wants to become a "Black Hat" user.
    Well, the OpenBSD zealots would have you believe that the reaction wouldn't be any worse than if someone at a security firm told her boss that she wanted to be a "Red Hat" user. *rimshot*

    (Disclaimer: I use and like Red Hat)

  • by Zico (14255) on Wednesday June 20, 2001 @08:06AM (#137912)

    Yo! How 'bout waiting until RedHat turns a real profit before spewing that nonsense? See, RedHat actually spent a lot more money than it took in for the past quarter. About two more years worth of "success" like this quarter, and the company's going to be taking a dirt nap.

    Sorry, but RedHat's announcement hasn't seemed to have fooled anybody but some people around here desperate for any good news about Linux. That's why W.R. Hambrecht today downgraded RedHat's and a reason why the stock is down from where it closed yesterday. The revenue for the quarter was 7% less than what RedHat told Wall Street to expect, revenue is 5% down from last quarter, revenue from their network consulting services are already dropping, and they're now refusing to give analysts any guidance for RHAT performance in future quarters. Maybe they've run out of book-keeping tricks? :) "None of the other companies I cover have refused to give guidance," Prakesh Patel, analyst with WR Hambrecht and Co. "It definitely is troubling. Regardless of the economic environment, the company has a sales pipeline and should have estimates of closing deals that's the job of management."

    And that doesn't even address the big gun aimed right at them that goes by the name IBM. If IBM ever decides to sell their own Linux distribution, it's bye-bye RedHat.


    Cheers,

  • I think I've had to work with a few of these.
    Why is Red Hat trying to make something like
    THIS? POS terminals are frustration, and nothing
    but peices of .... of.... something.... wait
    a sec, it'll come to me....

    i

    --
  • Not when you're selling them for less than they cost you.
  • by Badgerman (19207) on Wednesday June 20, 2001 @05:56AM (#137916)
    Forget the M$/Linux thing, forget the fact that 600K doesnt seem significant compared to other companies, forget the dot-com hype and fall.

    A company using OS as its base has managed to make a profit in a few years and survive. That may not legitimate the business model, but it gives us some hope that it is legitimate or can be legitimate.

    And that, all things aside, is pretty damn neat and inspiring. So congrats to the Red Hat people.

  • Yup. That's exactly what I figured. Effectively RH borrows against future earnings to fund purchases today (borrowing meaning issuing shares, options, real loans etc.).

    No, as other posters have pointed out, that's not it. So, for example, yes, they bought Cygnus with stock, and, yes, that act did dilute the stock, but the dilution was essentially immediate as soon as the shares go out. What you're seeing now is something very different.

    If you buy a company, that company has a "book value" that is supposed to be a dollar figure that represents what the company would be worth if we stopped it from being a going concern and just sold everything in sight. For some kinds of companies, this could be a lot: they might hold lots of real estate, or be a closed end mutual fund, or have a lot of cash hanging around (Think Apple or Microsoft here)... For something like Cygnus, it could get down to "gee, so how much could we get for that used workstation over there and the change underneath the coke machine?" :-) Obviously, Cygnus is "worth" more than the random bits of tangible stuff you might find lying around at the work place, but a lot of that value depends on the so-called "good will" of the firm (the brand name, the likelihood that Cygnus programmers will continue to write good code, basically everything that's valuable about Cygnus). Clearly, this kind of intangible value is a bit squishier and harder to evaluate than the cost of the espresso machine. Now, on the one hand, the value of an asset is assumed to be what you paid for it, but on the other hand, the "hard" value might be a lot less, and the difference between the two might, in the worst case, be very large. In any case, you have to write it off (if you follow GAAP) over time. Obviously, if something like Cygnus really does have value, it will contribute to your revenue in an obvious way down the line and in a form that you can easily value: money. On the other hand, if one dotcom buys another for a billion in stock and the second dotcom only does $400K in revenue before every trace of it is gone, then the "goodwill" portion of the purchase price is huge, the loss is obvious, and the system again works just fine.

    What RedHat did this quarter was make money on what they were really doing (selling software while paying people to write/market/distribute the software) while having to write down some more goodwill from previous acquistions. But no cash left the firm because of the loss, nor will any cash ever do so.

    Which takes me back to my original point - if a company is going forward in cash flow, but significantly backward in book value (ie the "reported" value in the press release) then it's like borrowing a whole stack of money then saying you are better off because you have more in your wallet than you used to.

    Not really. The money is already spent. The only way you can go forward in cash flow is to...wait for it...get proportionately more money than you spend. I mean, suppose you buy a MacDonald's franchise for (making up a number) $5 million. It wouldn't surprise me if the book value of one restaurant is something horrible like $1 million (i.e., the value of the land and the building and a few other trinkets). But the restaurant should reliably crank out $500K in profit per year. Now, if you were accounting for this transaction (let's keep it all cash for simplicity), then you'd start with $5 million, fork that over for the franchise, and say (originally) that your asset is worth $5 million. But much of that is good will. So let's say you write down $1 million of that goodwill every year for the first five years, while making your expected $500K per year. On paper, your cash flow is +$500K per year, but you'd be losing $500K per year due to the write-down of the goodwill. But after 5 years...you get the picture. (And, yes, this is drastically simplified.)

    So, if I were an analyst looking at RedHat, I'd be much more interested in what I thought their revenue growth would be (it was pretty darn good given the dotcom meltdown), how aggressively they were controlling expenses (pretty aggressively, apparently), and whether I thought their previous company buys made sense (nobody wants to buy a company that pisses away stock and cash on useless things). As far as I can tell, RedHat ain't in bad shape at all by these standards, although they arguably overpaid for some of those acquisitions at the height of the bubble. Oh well, that does suck, and is accounted for, but doesn't change their cash flow any or their future prospects (unless management habitually makes poor investments).

  • Free round of install images on me!

    it's a nice bonus for the AWESOME job they did on RH7.1


  • Ummm... Microsoft had a totally different market (and an extremely small one) when they started. RedHat has a semi-matured market and a large one at that. It's useless to try and compare the two in parallel.
  • what do Microsoft's financials look like this quarter?

    In this quarter, their stock is up but starting from their lowest level in three years (e.g. ~48 dollars on Jan 3rd 2001) the previous quarter. They are expected to miss their profit forecasts (which were already down).

  • They actually had a viable buisness model :)


  • Not when you forget to include things like S&H and other overhead in your cost, and then insist that your building brand name (which is much less meaningful on-line), and that what you lack in margin by selling below cost, you'll make up with in volume.

    Lots of companies had some bad buisness ideas.

    What RedHat is doing is essentially selling a non-managed service. They have put together a CD of Linux related stuff. Integrated it together, and, for a price, will ship you a copy. Their costs stem from integration, documentation, and package/production fees, but there is a tremendous amount of value that they (and other Distros) provide in terms of integration. This is what they charge you for (and what a fair number of us will pay varying amounts for).
  • It could always be eCos that they picked up from cygnus.
  • by macdaddy (38372)
    So would people recommend buying RH stock now?

    --

  • That's good to know. I've been thinking about sinking a few $k in the stock market. I need to find a good HOWTO on the subject because I don't really know squat about investing. Maybe I should seek some professional help before I loose too much.

    --

  • when will LinuxOne show a profit? :)
  • What it is commonly called is doctoring the figures.

    Amortized money directly affects cashflow when they actually paid the money. If they've only just taken it off the books then that means their previous year's figures are out.

    Goodwill and intangibles affect future cashflow because sooner or later someone is going to cash in on them.

    Stock options are effectively a loan to the employees in leiu of pay, so again that doesn't affect cash flow but is a debt that will be called in at some stage.

    One time expenses are still expenses and directly affect cash flow. The interesting thing about one time expenses is that there always seem to be more of them each year, just for different things.

    What this really smacks of is someone taking out a cash loan and then claiming that they made a profit because they have more cash now than they did before they took the loan.

    Overall, I'd still be very wary of Red Hat until they can report a profit on non-adjusted numbers.
  • So let me get this straight.

    They pay $30m for a company worth $2m, don't include the $28m loss and everyone is ok with that?

    I still don't get how paying $28m doesn't affect cash flow - where did the cash come from to pay for that? Even if they issued more stock, then that is effectively a net outflow of cash.

    I know I'm not an accountant, but as an engineer this sounds highly suspicious.
  • I'm vaguely pro-Microsoft, in the sense that I'm not exclusively Linux or Mac. I just use the system that works best for me at the time.

    I don't care if Red Hat makes a profit - in fact I sincerely hope they do because I hate seeing businesses fail and people's dreams go up in Chapter 11 smoke.

    In the case of Red Hat, I'll believe it when I see it. I'm still dubious as to their business model and long term viability. I can see how commercial software and vendor lock-in will generate a profit. I'm having problems with simply providing support for a GPL'd system though.
  • Yup. That's exactly what I figured. Effectively RH borrows against future earnings to fund purchases today (borrowing meaning issuing shares, options, real loans etc.).

    Which takes me back to my original point - if a company is going forward in cash flow, but significantly backward in book value (ie the "reported" value in the press release) then it's like borrowing a whole stack of money then saying you are better off because you have more in your wallet than you used to.

    Most financial advisors I know seem to take a dim view of people that keep taking more and more loans and hence decreasing their net worth despite an outward show of affluence. This seems to be exactly what RH is doing and is exactly why I'm more than a little worried.

    Remember 3dfx seemed to be having a big turnaround with it's Voodoo 5500/6000 cards until they all of a sudden went under...
  • Ok, makes sense to some degree as far as cash flow goes. Still sounds like incurring a debt (to the shareholders) and calling it a profit when you have more cash in the hand.

    The thing that really does bother me is leaving out the issuing of stock options, which is a *real* debt because they can be called in at any time and the company must buy them at the price they issued at.

    Of course, if RHAT's stock continues on the slightly negative trend then this isn't a problem. If it starts to pick up on the other hand then I can see a lot of options serving to hammer the stock straight back down again as they incur significant negative cashflow.

    In the end, I simply don't believe a company that says they are making a profit when their net worth is significantly below what is was a year ago. Even if the core business is making a little money, the acquisitions, options and other "abnormals" much be taken into account and you have to ask whether they were worth the price incurred.
  • It's not really the good will that bothers me (and thanks for the good illustrations - they helped a lot). What bothers me is the fact that other things have been left out:

    Stock options should never be left out. These are in a very real sense loans to the employees and can make up a big component of a company's outgoing wages - especially for someone like RHAT. Detailing exactly how much these options were would be useful to an analyst.
  • by throx (42621) on Wednesday June 20, 2001 @05:53AM (#137936) Homepage
    It can't be written off because it is, in fact, money that they don't have any more. As pointed out by other in this thread though, it does NOT include stock options which are a going to be a major hit to that income figure.

    Realistically, Red Hat isn't in the black and still won't be for some time. Don't go spending your hard earned cash on RHAT just yet...
  • by throx (42621) on Wednesday June 20, 2001 @04:59AM (#137937) Homepage
    With the SEC investigating the occurance of Tech companies not reporting employee stock options as part of the company's liabilities, how much faith can we put in this statement when you look at the full quote:

    "Adjusted" net income of $600,000 (up from a loss of $3.7m last year).
    "Reported" net loss of $27.6m (from a loss of $17.4m last year).

    If I'm correct, doesn't this mean that at the end of the day they are actually worse off than they were last year and just putting PR spin on the figure?
  • Well, if you listen to Gates, since Linux is mostly GPL, "Red" Hat fits (think communism).
  • by Chalst (57653) on Wednesday June 20, 2001 @06:15AM (#137944) Homepage Journal
    The announcement is that Red Hat are showing a profit for the first time: they certainly will have shown positive cashflow already (ie. cash going into their money accounts minus cash going out) when they were floated.
  • Just because a cost is a one time expense doesn't mean it is irrelevant.

    Yes. But I think we're talking about the difference between "pro-forma" and "reported" here.

    Pro-forma excludes several things, in order to get a measure of how the underlying business is actually doing.

    Some of them are actual one-time costs that you're concerned about. But the main components are "amortized good-will" from merger accounting and "deferred compensation" from stock options. Now IANAnAccountant, but if I understand them correctly, those last two are taking advantage of provisions in the tax law to avoid the shareholders being double-taxed on a couple things.

    Here's my understanding of this - which may be flawed, so you HAVE been warned.

    Amortized good-will avoids double-taxing the shareholders of the acquired company (typically people who got their stock near the founding when it was almost free, then busted their butts and risked their houses during the startup period) for the appreciation of their stock from the acquisition.

    When a merger is accounted as an acquisition, extra stock in the "surviving" company is printed to replace the retired stock of the "acquired" company. What really happens is the two pies are merged and everybody gets a proportional piece of the bigger pie. But it's accounted as if the company that printed the stock actually sold it, then spent the money to buy the other company's stock. The amount they paid will be at a premium over what the other company was worth on the open market. So the difference is treated as if the acquired company had an asset called "good will" which makes up the difference. Uncle lets the acquiring company act as if they "spent the money" to "buy the good-will", and then treat like any other capital expense and "amortize" it - deducting the cost in little chunks over a number of years. (Uncle eventually gets his cut - but only ONCE - when the former holders of the stock in the "absorbed" company finally sell it. Their stock price went up by the premium paid - the value of the good-will asset - as a result of the merger.)

    "Deferred compensation" is similar, but relates to stock options. What actually happens is that the company offered the employees some stock when it was cheap. The employees don't actually get the shares into their hands and have the right to sell it until it's "vested" - once they've been around for a while. (And of course they might not actually bother to exercise the option - especially if the stock goes down.) When they sell it they'll be taxed on the difference between what they paid for it and what it sold for.

    But it's accounted roughly as if the company sold the stock on the open market at the exercise price, then had to buy it back at the higher price to give to the employee once it's vested. So the company gets to write off the difference against profits on ITS taxes. If you think of it the way it's accounted that's what happened - the company had an expense and deducted it. But if you think of it as the company selling the stock to the employee at the lower price, the company got credited for the taxes the option-holder paid (in return for not making the money from the stock's price change for itself).

    Pro-forma accounting treats the stock as being sold at the exercise price (what you and I would think of as having happened), but the reported income treats it as if the company paid the employee the difference. The latter is another valid way of looking at it: The company was trying to pay the guy extra by letting him assume some of the risk in return for sharing the rewards, and if it had actually paid cash instead it could have deducted THAT and everybody would have been in the same tax situation. But if you're evaluating the health of the company's business you want to look at things the pro-forma way, not the reported income way.
  • So let me get this straight.

    They pay $30m for a company worth $2m, don't include the $28m loss and everyone is ok with that?


    No.

    They pay $30m for a company that is worth $30m. But $2m of that is desks and chairs and computers and office supplies, and $28m is that it's Cygnus Support, a money-making (or potentially money-making) company, which is worth a lot more than the desks and chairs in its office.

    Now they didn't really "pay" anything but printing-press stock (which dilutes the stock in their shareholders hands, so it's not really nothing). But the combined pie got bigger, so it's appropriate that each piece of stock is a smaller part of the bigger pie.

    But they paid more stock for it than if they'd gone to the market and somehow sold stock at the Red Had market price (without driving that into the ground) and bought the stock of Cygnus Support (without blasting that into the stratosphere). So the difference is treated as an expense over the next several years. That means the part of the company profits that support the valuation of the stock only gets taxed once (when the former Cygnus Support shareholders sell their Red Had stock), not twice (also when Red Hat makes the money in the first place).

    If what you're interested in is whether the basic business of Red Hat + Cygnus is actually making a profit, ignoring the financial noise from the stock-certificate printing press, you need to look at the "adjusted" numbers, not the "reported" ones.
  • by ProfDumb (67790) on Wednesday June 20, 2001 @05:32AM (#137950)

    Red Hat remains in red: Posts $27.6M net loss



    If you go look at the actual figures, you will see that most of that loss is "depreciated goodwill" -- when Red Hat acquires a company they put "goodwill" on their books as an asset and then depreciate it according to very arbitrary accounting rules. In reality, Red Hat did not buy depreciating physical assets, but rather the skills and reputations, which are not depreciating.

    On the other hand, the loss also contains several million in stock options, which really are an expense to the company. The "cash flow" number in headline ignores stock options. Therefore, Red Hat really is losing money, but nothing like $27 million.

  • ...by accounting geeks! Run for the hills! Hide the children, before they get amortized and written off!
    ---
  • by selectspec (74651) on Wednesday June 20, 2001 @05:26AM (#137954)
    Red hat is in the black actually. They had a posative cash flow this year. In otherwords more cash came in than went out. The net loss is attributable to the ammortization of aquistions from prior years. Ammoritzations are not attributable to cash flows only to balance sheets and income statements. When one asks whether a company is in the red or the black, it is implicit that they are refering to cash flows and/or the operating budget (which like cash flows doesn't include ammortizations).
  • by EXTomar (78739) on Wednesday June 20, 2001 @06:46AM (#137955)
    ...(the previous posted topic [slashdot.org])companies that want to make a profit are supposed to stay the hell away from GPL code. Go figure.

  • by bish (84411) on Wednesday June 20, 2001 @04:55AM (#137960)
    to change the Company Name?

    And you were doing so well.
  • ...but as long as we're pooh-poohing M$ (how clever!) and rooting for GPL and Linux and whatever... what do Microsoft's financials look like this quarter? Not that facts should mean anything around here.
  • Bill Gates himself said that it isn't possible for commercial companies to use GPL code.

    Well, they ARE only making $600,000 compared to M$'s billions, and Gates does have a point: closed source software makes MORE money. From a software developer's standpoint this is a pretty strong agruement.

    But then I think some of the best open source products come from people who are not doing it for the money anyway. It's either a labor of love or something that helps them get their "real" job done easier.
  • by swordgeek (112599) on Wednesday June 20, 2001 @05:40AM (#137971) Journal
    Not bad--they beat Amazon!

  • I am sure "the real geeks" don't account for any noteworthy percentage of red hat's revenue.
  • These are intangable assets. Things like, perhaps, market share, location, reputation. In short, things that no company can go out and buy, and thus do not have a dollar value of their own.

    Intangible assets? Yes. But why aren't they included in the value of the trademarks purchased along with the company? Aren't market share and reputation the very things a trademark is supposed to represent?

  • this is really good news.

    i only wish so many programmers weren't losing their jobs right now ... the 'dot crash' has certainly taken its toll.

    redhat 7.1 is the best release i've seen ... 2.4 kernel, xfree 4.0, etc.


    Treatment, not tyranny. End the drug war and free our American POWs.
  • Selling things isn't a viable business model?
    --
  • Consultancy is exactly what they're trying to do. If they can continue to turn a profit, they will be the first to validate the predictions about viable open source business plans: give away razors, give away razor blades, sell styptic pencils :-)

    /Brian
  • This event (Redhat in the Black) contrasts well with the recent statement of Gates, as noted in the previous Slash story:

    The GPL, he continued, "breaks that cycle--that is, it makes it impossible for a commercial company to use any of that work or build on any of that work."

    This, taken to the logical end, would make the success of Redhat impossible. All this means is that there is a subtle bug in his logic.

    which is somehow appropriate.

    It is my view that the MS proprietary accomplishes the exact thing that Gates accuses the GPL of. It makes it impossible for a commercial company to use any of that work or build on any of that work, except with the permission of Microsoft.

    Redhat obviously does not have this as an issue, as they are continuing to grow nicely.

    Congratulations, Redhat!

    Check out the Vinny the Vampire [eplugz.com] comic strip

  • Minor correction... B8 00 4C = MOV AX,4C00h (load 4C00 hex into register AX--remember that the x86 is little-endian).

    And the scary thing is, I knew what those bytes meant without having to read the answer...

    --
    BACKNEXTFINISHCANCEL

  • Actually, the problem is that they do not post *any* loss on their reported income statement. (They do have some tax loss, but unless you're the IRS, you do not get to see the tax books.) And, although doing a secondary is a pain in the ass, the amount raised is usually more than 90% of the market value. You are correct that stock options do not cost the company money, rather they cost the shareholders money.

    As an aside, I have an investor friend who no longer looks at reported profit, he only looks at taxes paid and then grosses up to income. He thinks it is easier to fool the auditors than to fool the IRS.

  • The press release always comes out a few weeks before the 10Q. The Q has to be filed within 45 days of the end of the quarter (unless an extension is granted.) Their quarter ends on May 31, so the Q probably won't be available until July.
  • ....I though anyone using the GPL couldn't make money as it's not practical for business.
    At least that's what my friend from Redmond said.

  • by 91degrees (207121) on Wednesday June 20, 2001 @04:57AM (#138008) Journal
    Red Hat can't make a profit. That would make them a commercial company. Bill Gates himself said that it isn't possible for commercial companies to use GPL code. I think those Red Hat GPL hippies really ought to start reading Slashdot before making such ludicrous claims about profitability.
  • With the bleak rumors about VA running amok it's good to see that there is a market and money to be made. When the tech recession subsides Red Hat will be a major contender. I hope other ditribs are up and about to keep them honest.

    Congradulations to everyone at RHAT!"

    Congratulations on your new Spell Checker, spelling on here seems to be reaching rediculous proportions.

    --
    All your .sig are belong to us!

  • by C0vardeAn0nim0 (232451) on Wednesday June 20, 2001 @05:04AM (#138023) Journal
    IIRC M$ said that the free sotware movement was a "comunist" thing, and that it was a threat to the american way of life and for capitalism.

    Well, if free software is communism or no, I don't know, but a company making profit with something IS capitalism in it's most pure form and is nice to see Red Hat proving that a capitalism company can make money with free stuff.

    Time to eat some of your words Microsoft...

    --
  • I can't help saying this when seeing your sig.

    It doesn't need 5 monkeys to make up that law. You are insulting the monkeys.
    &nbsp_
    /. / &nbsp&nbsp |\/| |\/| |\/| / Run, Bill!
  • So, about 15 more years then? Remember Microsoft was the cool, quirky, little company in a niche market (Home OSs) that stood up to the big imperialist (making Windows on their own, not for IBM).

    Maybe 15 more years. Maybe never. It's really hard to tell. I will dispute what you've said above though. MS wasn't about making a "Home OS" and standing up to the big imperialist. Microsoft was abut money from the beginning, pure and simple. The originial MS boys were very shrewd players of the game. They intentionally hitched their wagon to the biggest, strongest horse they could find (IBM) so that when it took off it would take them with it. They weren't fighting IBM. They were working with them. It wasn't until around 1990 that they actually started "fighting," and by then it was too late.

    The big difference between MS and RedHat, however, is that RedHat's product is GPL'd and open source. They can't hide devious little "big brother" bits of code in their OS because we get the code with the OS. If RedHat gets too big and MS-like for the open source community, then we can take the RedHat source and modify it in ways that provide new functionality without breaking compatibility with "the chosen standard." If RedHat becomes that big (which I doubt), it will be by selling services, not products. The products will probably always be freely available to us.

    Other than that minor quibble, I really liked your post. I hereby volunteer to sacrifice a couple of my mod points from it to you.

    (And yes, I do use primarily MS Office at work, but only because that's what I'm given and that's what everybody else at my site uses. I wish it weren't true, but that's one decision that I don't get to make for the company.)
  • Yeah. I remember you. The guy who's depending on other people to find his holes for him. And since you haven't built your own compiler, there may not be any visible holes; they could be built into your compiler.

    So I'm not hardcore enough to be allowed to use Linux because I couldn't have written it myself and I don't have the time to learn how? Would you prefer that we all go back to the stoneage? The point of technology is that we can use it to stand on the shoulders of giants and reach farther than we could before. The point of open source is that it is available to everybody. It isn't to prove that "I'm more hardcore than you and therefore better."

    You don't like a company, you say it wth your wallet.

    Absolutely. And I do. I haven't personally bought a Microsoft product in the last decade. When I get the chance to recommend non-MS products at work, I do so. But when I'm at work I'm still stuck with what they give me, and there's little that I can do about it other than "jawing about how bad" MS is. Education must come before action.
  • by ocbwilg (259828) on Wednesday June 20, 2001 @06:42PM (#138032)
    You've got the source code; have you personally audited it from top to bottom, and verified that there are no back doors? Even if you have, have you also made your own compiler to rebuild everything?

    No, I haven't. I have neither the time nor the inclination. Remember me? The guy who's still stuck using the shitty and insecure MS products at work?

    But the point is that I could if I wanted to. And there are people out there that do comb the code looking for bugs and backdoors. They can do this because all of the Linux code is out in the open where we can get at it if we want to. If every person who used a computer had to audit the source code for their OS and apps before using it, we'd still all be using typewriters. But this isn't about paranoia, it's about control. Linux isn't better because I can see if there are backdoors (though it is an added bonus). Linux is better because we all own it and can do (almost) whatever we want with it so long as we keep it in the community.

    If you've ever heard the phrase "security by obscurity", don't pretend that openness is a magic bullet;

    Closed source products are by very definition "security through obscurity." All that means is that the bugs and backdoors are there, clever people can still find them without the source code, but you aren't allowed to fix them yourself if you so choose. Now how is that security at all?

    Of course openness isn't a magic bullet, but it is the first step. Vigilance is more likely the magic bullet. Just like having an open government (like we have in the US via FOIA and public elections) isn't protection against abuses of power. We must still make use of that openness. We must be on the lookout for abuses, and we need to point them out and correct them when we can. The GPL allows this with its code. MS does not. With Microsoft you have a closed government, meeting in smoky back-rooms and making deals behind closed doors. With MS you have a government that is not open to public scrutinization by the populace from which it derives its power. That is the true difference between closed and open source (of any kind).

    For what it's worth, MS releases code to large clients; if there were glaring holes in there, well. I'd say they'd be released to the public,

    Yes it does, for what it's worth (not much). If you are a big enough company and you can convince MS that you have a legitimate need for the source code for parts of the OS you can license it from them, for a fee, under NDA and without the right to make any changes. Now how is that open? Only the largest companies ever get to see the code, and they can't use it for anything except to optimize their own programs. Even if there were backdoors or seriously critical bugs in the code they can't talk about them.

    It's been said before, many times, many ways: Microsoft's "code sharing" with major OEMs/vendors has absolutely none of the benefits of open source. It is pure marketing.
  • by ocbwilg (259828) on Wednesday June 20, 2001 @06:45AM (#138033)
    ...but as long as we're pooh-poohing M$ (how clever!) and rooting for GPL and Linux and whatever... what do Microsoft's financials look like this quarter? Not that facts should mean anything around here.

    Don't be ridiculous. You're actually suggesting that that we compare numbers from a smallish, niche-market company that has been in business for 5 years with those of a vicious, multinational, multi-billion dollar, anticompetitive monopolist that has been in business for 20 years? I've never heard such lunacy.

    If you think that this is about money then you are very sadly mistaken. It is about ideology. It is about the fact that you don't have to be an extortionist or a monopolist or a tyrant in order to be a successful company. It is a testament to the power of open source that such a small (dare I say nearly insignificant) company can actually survive to operational profitability while competing against a company the size of Microsoft.

    Do you remember what has happened to the rest of Microsoft's competitors over the past 20 years? They've been either acquired by The Beast, run out of business by The Beast, or beaten so badly into submission by The Beast that they've had to seek government protection. The only real exceptions to this are companies who were already multinational multibillion dollar companies before they began competing with Microsoft. RedHat (and open source in general) hasn't had any of those things happen to them. This is a great day for open source. Free speech for everyone!
  • Goodwill dosn't quite work like that but ok. Say company X buys company Y for $5.0x10^9. Now, if we sit down and count all of company Y's assets and they come up to be, say, $3.6x10^9 the remainder is something called "goodwill." These are intangable assets. Things like, perhaps, market share, location, reputation. In short, things that no company can go out and buy, and thus do not have a dollar value of their own. Now the thing is, goodwill, must, under GAAP (Generaly Accecpted Accounting Principles) be ammortized off over a period not to exceed 40 years. Because it's always nice to have assets sticking around most companies use 40 years as their ammortization period.

    So yes, ammortization of old expenses, especialy those having to do with the depreciation of goodwill is going to play a huge roll in this.

    When we say a company is "in the red" or "in the black" the meaning differs depending on the period we are talking about. If we're refering to a year in general, the statement usualy refers to the income statement and or the statement of cash flows. The key portion of this is to ballance Revenue against COGS (cost of good sold). For Red Hat, COGS will include R&D work and will thus be very high. Revenue from goods sold will of course be close to zero due to the nature of open source. This leaves Red Hat makign it's money from Tech support and subscription servies as was so aptly pointed out above. Here's the other key, R&D expenses can be ammortized as well by a sufficiently creative accountant. Afterall, if this R&D is going to benefit the company over the next 10 years, then the expensce of that research can be spread out over those 10 years.

    What this amounts to is this. We rather need a good solid stock holders report from RHAT to pour over until we can get some answers. Never trust what a company claims to the media, trust what it is required by law to report to the IRS. (And not even that in some cases)

    This has been another useless post from....
  • You are right but, the problem is not that options aren't part of the liabilites, its that the cost of these options are excluded in the calculation of net income. In fact follwing the table link you see that These results "Exclude amortization of goodwill and intangibles, stock based compensation, and merger and acquisition costs"
  • This is true. But they way that the accounting rules work is that they recognize a portion of the cost of these options over the time that they vest. That is if the options are worth $10 each when they are issued but only vest over 5 years then $2 is recognized as a cost each year. Its a little strange that Red Hat recognizes stock compensation costs at all. Most firms do not. And the account rules let you avoid recognizing the costs as long as you are carful about how you structure the options.
  • Example:

    Last year, I had $1,000. I spent $500 of it and made returns of $300, meaning that at the beginning of this year, I have $800, and that last year, I had negative cash flow. With my $800, I spend $100 and earn $150, meaning I have positive cash flow, but only $950, or less than what I had last year.

    I'm guessing this is what happened to Red Hat.

  • adjust that to "I spend $100 and earn $250" OR "but only $850" to make it correct. I originally meant to have it say "I spend $100 and earn $250" but I made a typo.

    Slow down cowboy!

    Slashdot requires you to wait 2 minutes between each submission of /comments.pl in order to allow everyone to have a fair chance to post.

    It's been 1 minute since your last submission!

    Ugh.
  • change the Company Name?

    ... to "Black Hat"? Imagine someone at a computer security firm telling the boss that he/she wants to become a "Black Hat" user.

  • There are lots of posts out there questioning whether it's really a profit or really positive cash flow, or whether they took a different slant on the numbers to make it look good. Just remember that non-tech businesses all do the same crap. Regardless of what the angle, they have shown that there are valid business models based largely on GPLed software. They have thrown a big "eat your words" into the face of M$. This comes at a critical time where evidence like this can be used to defuse some of the M$ propaganda. Way to go Red Hat!

    GreyPoopon
    --

  • Congranulations! You just won a pound of sugar.

    --
  • Well technically noone is really making money right now... besides what, maybe IBM, Microsoft and Oracle. Sun is hurting, and lets not forget the dot-coms. The thing about the open source companies is that they are new, where in the US I think its 1/10 success rate for new companies. And we're not talking mom and pop corner stores, we're talking about trying to create million dollar corporations. So yeah they destined to fail. However, I promise you that the failure rate of Open Source companies (your Redhats, VAs, Mandrakes, etc) is probably not all that far off from the failure rates of Commercial Companies. Its easy to look at microsoft the king of commercial software and then look at Red Hat the king of open source (sorry to anyone that dislikes redhat, but redhat is the most successful so far) and laugh and doom Open Source to failure. But I have a suspicion that now that Red Hat has gotten its foot in the door, that it should continue to turn a profit. Ultimately thats what corporations need to do, make money. And that is why companies such as IBM, Microsoft, etc are still around... because they some how managed to be that 1 company that was able to make some money.
  • Free software and open source projects shouldn't be aimed at making money... it is a nice side benefit of making good software for everyone.

    RedHat and every other GNU/Linux distro and probably every other company developing software of this type understands this; money is NOT the issue as M$ always claims it to be. boo-hoo we can't make huge profits from open-source/free software therefore it is evil and makes for a terrible business model.

    Forgive me father for I have sinned...I installed windows 98

  • If I had several thousand dollars available I would invest in Redhat on the basis that

    1) Redhat has turned a profit. With the prospect of future profit, their is now more reason to invest in it.

    2) Microsoft is rolling out WinXP. Although this is a "consumer" OS, their will be problems with it. Major problem is installation. Everytime you wish to reinstall WinXP you're going to have to call MS. This isn't a problem with home consumers but is for businesses. If you bought a thousand brand-new spanking compuers with XP on it, that is a thousand phone calls you're going to have to make and one to two day wages for someone to make that call. If you're a techie and have to reinstall OSes all day long, this will become an extreme pain in the butt. This will ultimately lead to more businesses searching for alternatives to this problem.

    3) With respect to other OSes, XP is massively overpriced. This will lead businesses and home consumers to look for alternatives for their needs.

    4) When XP comes out, MS is going to force increase sales of XP w/ respect to other MS OSes. OEMs have seen this before and will only take Microsoft's shit for so long before they start to look for alternatives.

    5) Linux is really cool and returns the power to the user. Red Hat helps provide this.

    6) As Red Hat decreases the Learning Curve and more apps become available for Linux, it will become more and more viable solution to the end consumer. In other words, as total price/item becomes lower(including tech. support), it will become a better alternative for businesses and home consumers alike.

    7) RH increases competition in a dominately closed market. People see and recognize this and so, more money will go into RH in order to decrease OS prices, increase competition and selection, resulting in better deals for end users.

    8) As recorded by History, the world is statistically better when more then one person rules it, resulting in something that is more efficient and better for its citizens overall. This applies here. What would happen if the world had only one electic company who happened to be unregulated. It would give electricity to those in Rich Metropolitan areas, jacking up the price so that only a select few can afford it, leaving everybody else behind, and become unbelievably rich.


    ----
  • ...but I didn't mean five regular monkeys. I meant George W. Bush-quality monkeys. I think you'll agree that's valid.

    In response to your own .sig, I actually mentioned my own 50 karma at a college interview. The interviewer was not impressed.

  • Why do they need to manage e-business solutions? You'd think that hell would be a nonprofit for tax purpose. They might need something to help them organize housing, torture, etc. for each client, but regular DOS spreadsheets could do that quite nicely. Especially when you consider that they probably have a relatively small number of people assigned to each demon for housing and torture. In other words, the master list would only have to say who is assigned to which demon. That demon, in turn, would have no difficulty keeping charge of his 30 or so clients. Yes, I know that's a lot of demons, but I think it's reasonable. After all, before computers they would have needed a sizeable staff just to keep new arrivivals up to date in hard-copy lists...

  • by ColGraff (454761) <maron1&mindspring,com> on Wednesday June 20, 2001 @06:09AM (#138080) Homepage Journal
    Has hell frozen over? Or are they just supercooling their red hat boxen down there?
  • Purchases of companies have to be 'accounted for'. Since I don't know what RH paid for Cygnus, and I don't want to look it up, lets assume $30 Million. Also let's assume that the accounting 'books' for Cygnus says that their net worth is $2 Million.

    So now they just paid $30 Million (could be in stock or cash), yet they can only add $2 in net worth to their books. In order to balance the books they must right off the $28 Million difference.

    They can do it all at once, or spread it out over many quarters(i.e. get a tax benefit from it). They call this good will write-off. Even though RHat believes the company is worth $30 Million to buy, the difference between this purchase price and the accuired company's net worth have to be written off.

    It doesn't impact the cash flow, which is critical. For cash flow they were generated postive $1.5 M, i.e. they now have $1.5 M more in the bank...

The most exciting phrase to hear in science, the one that heralds new discoveries, is not "Eureka!" (I found it!) but "That's funny ..." -- Isaac Asimov

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