Red Hat’s stable gross margin
Red Hat (RHT), a leading provider of open source solutions, announced its 2Q16 earnings on September 21, 2015. The company reported revenues of $504 million—an increase of 13.06% over the corresponding period last year and of 4.81% over the previous quarter. But currency fluctuation had an adverse impact on Red Hat’s revenue. Europe’s currency fluctuations have been less severe than the APAC (Asia-Pacific) and Americas regions, and so the company reported a 21% increase in revenues on a constant currency basis.
In 2Q16, the company made progress in cloud deployment across multiple footprints and achieved an annualized run-rate of $2 billion in revenues this quarter. There was no change in the company’s gross margin compared to the corresponding quarter last year—86.3%. But its gross margin from subscriptions increased by one basis point compared to in the corresponding quarter last year, whereas its gross margin fell by 1.5 percentage points for training and services.
Non-cash expenses, currency fluctuations, and the bottom line
Red Hat reported a GAAP (generally accepted accounting principle) operating income of $76 million and a non-GAAP of $123 million in 2Q16. The majority of its non-cash expenses—share-based compensation expenses of $40 million and amortization of $6 million—remained between these two figures. However, there was no change in the company’s non-GAAP operating margin of 24.4% compared to the previous year quarter. Compared to its revenue generated in the prior quarter, 1Q16, Red Hat improved its bottom line by 47 basis points, which increased non-GAAP diluted earnings per share to $0.47 from $0.41 in the corresponding quarter one year prior.
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Read the next part of this series for a look into Red Hat’s increased cash flow in 2Q16.