A Breakdown of Red Hat’s Increased Cash Flow in 2Q16



Currency fluctuations and deferred earnings

Red Hat’s (RHT) 2Q16 earnings report shows that the company increased its cash flow from operations to $120 million from $107 million in the corresponding quarter one year prior—an 11.64% rise. To a large extent, the company reduced its prepaid expenses, which was reflected in 2Q16 as a surplus of $13 million, compared to the $2.4 million deficit in the previous quarter.

Currency fluctuations had a severe impact on the company’s deferred revenues of $1.4 billion, which increased by 13% on a YoY (year-over-year) basis. But if the currency been constant throughout this period, deferred revenues would have increased by 21%. The company has returned part of these cash earnings to its shareholders through a $70 million share repurchase program.

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The company reported a 5.33% reduction in cash and cash equivalents compared to the previous quarter. It also reported a 36% decline in receivables—$302 million, down from $468 million in the previous quarter. As Red Hat is solely dependent on equity financing, this quarter it increased its book value to $1.37 billion from $1.29 billion the previous year—an increase of 6.19%.


The company is expecting that its 3Q16 revenues will be between $519 million to $523 million. Its Non-GAAP operating margin and non-GAAP EPS (earnings per share) are estimated to fall at 23% and $0.47, respectively.

The First Trust ISE Cloud Computing Index Fund (SKYY) includes 36 stocks. The top four stocks are Amazon.com (AMZN), Netflix (NFLX), Facebook (FB), and Google (GOOG), which constitute 4.98%, 4.54%, 4.54%, and 4.52%, respectively, of the ETF.

In the next part of this series, we’ll look at Absolute Software and its plans in Europe.


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