620: When People Matter Most | Laurie Krebs, CFO, Red Hat

It was October 2019. Red Hat, Inc., was preparing to submit its latest quarterly results to its new parent, IBM Corp., and Laurie Krebs had just been named Red Hat software’s new CFO.

As a senior vice president of finance for Red Hat, Krebs had worked closely with the former CFO and more or less assumed that the acquiring company would likely prefer to fill C-suite spots from its “home team” talent bench of senior executives.

In fact, Krebs says that during the course of her career she had never truly aspired to be a CFO: “I often wondered who would want all of that responsibility, especially after Sarbanes-Oxley came in. And then, at the time, I realized that IBM had just acquired us for $34 billion and that it was going to be up to us to deliver the results that were needed.”  

Krebs says that the finance team at Red Hat, like many executive teams within newly acquired companies, had experienced some attrition and was perhaps not as highly functioning as it had been prior to its acquisition.  

As the first quarterly close for the newly acquired Red Hat approached, Krebs sought to reassure her CEO that she would continue to lead the team. “I’ll help you out until you get a legit CFO,” Krebs recalls saying—to which her CEO replied: “No, no, no—we want you to be it.”

The CEO then reassured Krebs that it had been a unanimous opinion across Red Hat’s and IBM’s leadership teams that she should become Red Hat’s next CFO.

Still, the pressure was on, and Krebs had to not only deliver the company’s first post-acquisition quarterly results but also activate the collaborative processes required to satisfy a giant parent company.  

“I did what I always do. I surrounded myself with the right talent and strong skillsets and created a team out of it,” comments Krebs, who says that her team today includes a seasoned “IBM finance partner” now tasked as sort of a go-between and translator for Red Hat and its parent.

Echoing the executive’s words, Krebs relays his guidance: “Here are the deliverables that IBM’s looking for. Here’s why they look for them. When they ask for this, this is typically what CFO’s look for.”

Krebs adds: “He has been what I call a ‘gift’ on our team.” –Jack Sweeney

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Guest: Laurie Krebs

Company: Red Hat, Inc.

Connect: www.redhat.com

Headquarters: Raleigh, NC

…a storm that is not just the storm of COVID.

CFOTL: Which metrics matter more than others for your business, and why?

Krebs: The metrics that matter to Red Hat as a stand-alone company are different from those that IBM as a corporation has typically focused on and from what their investors look for. Red Hat is a growth company. Always has been. Always, and hopefully will be for some time. The market is not anywhere near penetrated, and we feel that we’re rightly positioned to help on this hybrid cloud journey. So, so much potential lies ahead for us. At the same time, IBM is positioned to take us on this journey. So it’s a great marriage.

We are a subscription business, so we measure our results in single-year bookings and multiyear bookings, and we amortize the revenue for those subscriptions over time. This means that if things go sideways in a particular quarter, there are not a lot of triggers that we can pull to just—poof!—create revenue.

We might have a lot more booking sales, but they don’t translate to revenue because we’re recording this revenue over the period of the subscription, which could be 1, 2, or 3 or more years.

This has been an interesting continual dialogue with IBM because they have a subset for a subscription business, but it’s not predominantly their business. They’re used to having a lot of levers that they can use to generate revenue when they need revenue and that kind of thing. So, it’s just a lot of understanding each other’s business and really trying to make them complementary. At Red Hat, we bill up front for our subscriptions. Thus cash flow for us has been generally pretty positive, and this is something of which IBM is of course appreciative as well.

It’s really just a different way of looking at our business. Even as we continue to go forward, Red Hat has been making a lot of acquisitions through which we acquire a lot of technologies for the sole purpose of taking them, open-sourcing them, and putting them into this ecosystem of an open-source community so that everybody can benefit from the technology that was acquired.

What this means is that this doesn’t translate into revenue. There’s a very small ROI on a lot of our investments. But this technology that we’ve acquired and put in our platforms has helped our enterprise business to grow as well. This is very different from IBM, right? If they’re going to acquire something, they look at the return on investment. jb