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Red Hat (NYSE: RHT), the leader in open source Linux software, announced earnings that beat street estimates after the market closed Monday. In addition, Red Hat issued a strong outlook for Q4. Shares rose 6 percent in afterhours trading.

“Our solid financial results this quarter reflect our strong market position as the low-cost, high-value provider of infrastructure solutions,” stated Red Hat CEO Jim Whitehurst. “Purchasing decisions for IT have changed dramatically for CIOs. In this budget-constrained environment, IT professionals are adopting open source and, more specifically, Red Hat to save money and enhance their competitiveness.”

The company stated its net profit in the fiscal third quarter rose to $24.3 million, up from $20.3 million from the same quarter last year. Revenue rose 22 percent to $165.3 million, versus the $166.4 million average forecast. Red Hat said “devaluations in most foreign currencies” limited reported revenue.
Red Hat distributes its software for free, and then charges subscribers for bug fixes, upgrades and support. Currently, 82 percent of Red Hat’s revenue is recurring in its subscription base. Subscription revenue for the quarter was $135.5 million, up 17 percent year-over-year and flat sequentially.

“Because we sell a subscription, all of our revenue is recurring,” Whitehurst said. “We don’t start from zero—we start from last year’s base.”