Red Had had good earnings and positive conference call.
(Tom McCallum - VP, IR)
The first quarter was a strong start to fiscal '18 and a continuation of last year’s momentum.
Our growth is being driven by high levels of customer interest in our broad portfolio of technologies, as well as our growing position as a trusted partner to enterprise customers. Specifically, IT organizations are looking to modernize their IT infrastructure for the hybrid cloud, and they are increasingly turning to Red Hat as a key partner to help them make this transformation. Let me describe a few highlights that illustrate the growing adoption of Red Hat technologies from the quarter.
First, we delivered our highest Q1 total revenue growth rate in U.S. dollars in four years at 19%. Second, subscription revenue for our infrastructure-related offerings, which is mainly comprised of our flagship RHEL technologies is approaching a $2 billion annual run rate, and grew 14% year-over-year in the first quarter. Third, we drove a 40% growth in our application development-related and other emerging technology subscription revenue, which now has an annual run rate of over $500 million. Fourth, we delivered more than 20% growth in our consulting and training services as our customers prioritize their move towards emerging technologies into production. And fifth, our largest customers continue to expand their commitments with Red Hat. All of our top 25 largest deals renewed during the first quarter, and in aggregate renewed more than 120% of their previous annual purchase. This type of momentum around our technologies and services has enabled us to raise our full-year guidance, which Eric will detail in a few moments.
With that overview of our first quarter results, let me discuss some of our recent business and technology highlights from the quarter. First, with our marquee user event, the Red Hat Summit, that was held in Boston, in May, we had record attendance with over 6,000 users, IT decision-makers, and partners, many of whom came to hear how Red Hat could help them with their hybrid cloud containers and DevOps initiatives.
One key theme coming out of Red Hat Summit this year was the high level of customer participation. We had 13 customer keynotes, followed by 65 customer-led breakout sessions, nearly a dozen press releases with customer references, and a doubling of the number of CIO and IT executives attending our Executive Exchange Summit. These global customers came to Summit so they could discuss how implementing Red Hat solutions helped to achieve significant success from a business as well as a social perspective, ranging from the build out of the largest private cloud based on OpenStack at Sprint, to saving lives through technology and community participation in Singapore.
We also had over 100 partner sponsors, of which 37 were new to the Red Hat summit. A key theme among our partners was our joint commitment in expanding relationships with our public cloud partners. We had a high level of participation from many of the largest public cloud providers of the world, including Amazon Web Services, Google Cloud, IBM SoftLayer, Microsoft Azure, and Rackspace.
In addition to promoting the customer benefits of Red Hat solutions running on the public cloud, we also announced an extended strategic alliance with Amazon Web Services to further integrate OpenShift, our container platform, as a service broker to hybrid cloud users. This unique offering will make AWS services accessible directly within OpenShift, allowing customers to take advantage of the broad portfolio of AWS services whether using them on AWS or in an on-premise environment.
In addition to the expanded partnership announcements with a number of partners, we also were able to showcase a number of diverse use cases of our container platform with customers such as Schiphol Airport in Amsterdam, Barclays Bank, BMW, and Disney. Following our summit event, we were a top sponsor at the OpenStack Summit in Boston. We were pleased to see that some of our OpenStack customers, Paddy Power Betfair and UKCloud, were recognized as Super User Awards at the event.
We also launched our latest version of Red Hat OpenStack Platform 11, which is based on the upstream OpenStack release, Octa, the 15th release of OpenStack. One of the key enhancements of this version is to our deployment tool, Red Hat OpenStack Director, which makes deploying and upgrading enterprise production-ready private clouds even easier.
Recently we announced the acquisition of Codenvy, which is a provider of a leading cloud-native development tool. This technology is built on top of the open source Eclipse Che project, and provides cloud based integrated development environment and a workspace management system that enables developers to get up and running more quickly to create modern container-based and cloud-native applications. Codenvy actually started Eclipse Che in 2014, and it has grown in popularity with more than a hundred contributors, more than 4,000 GitHub stars and one million usage hours per month. With this acquisition, Eclipse Che and the Codenvy enhancements will become central to Red Hat’s developer tooling strategy, and reinforces our commitment to the developer community.
In summary, as we experienced at the Red Hat Summit, customers are looking more and more at their IT platforms to enable them to compete in digital transformation. We believe Red Hat has the solutions and the talent to help them realize the benefits of modern technologies in cloud computing. Our focus on delivering real results and business value for our customers will help to drive Red Hat’s growth into the future.
(Eric Shander - EVP and CFO)
Now, let me turn to subscription revenue, which constituted 88% of total revenue in Q1, this was the largest driver of our growth, at $597 million for the quarter, representing an increase of 19% year-over-year. We also continue to drive growth across our technology portfolio. Subscription revenue for our infrastructure-related offerings was $458 million, an increase of 14% year-over-year. Subscription revenue for our application development related and other emerging technologies was $139 million, an increase of 41% year-over-year. Application development related and emerging technologies revenue represent approximately 20% of total revenue, up 320 basis points from the year-ago quarter.
Our services revenue exceeded our expectations, coming in at more than 20% year-over-year growth. This is the result of several customers prioritizing consulting projects around Ansible, OpenStack, and OpenShift faster than we expected. On a non-GAAP basis, operating income of $139 million grew 12% year-over-year, and non-GAAP operating margin was 20.5%. This quarterly result was slightly higher than the operating margin guidance I provided on our last call due primarily to the higher revenue results.
From question and answer part of conference call.
Hello. Congrats on the great quarter. First of all, looking at your growth, it’s really impressive just emerging technology growth of 41% - 42% in constant currency, but what’s impressive is in the infrastructure-related offering, 44% in constant currency. That’s been accelerating from last year Q1, and then Q4. I’m just wondering, what’s driving at this one, while people are concerned about some kind of slowdown expectation on the Linux side, but it’s very impressive to see this growth. I’m wondering is it that the emerging technology as you see traction, is it dragging more Linux revenue or any other factors that’s driving Linux, and your expectation going forward.
Well, look, I think we feel - and I think we said we feel pretty good about low to mid teens on Linux for a while. Recognize, as applications are being modernized to run either in a cloud or on-premise in a more cloud-like environment, one of the first things you do is you move from Windows to Linux or UNIX to Linux. And so that business of just kind of new applications much more likely to be Linux is continuing to drive a tailwind for us there.
Growth looks to driven by the Cloud and is largely subscription based. Bert likes them too.
I’m not a tech guy and would like to hear what you guys think.