Press Release Index

VA Linux Reports Record Revenues

SUNNYVALE, Calif. August 23, 2000 VA Linux Systems, Inc. (Nasdaq: LNUX) today reported record revenues of $50.7 million for the fiscal fourth quarter ended July 28, 2000, an increase of 547% compared to the same period of fiscal 1999 and an increase of 46% compared to the prior fiscal quarter. VA Linux also reported a fourth quarter net loss, excluding non-cash items, of ($0.10) per share. This compares favorably to First Call consensus analyst estimates of ($0.15) per share and represents a significant improvement from ($0.34) per share in the fourth quarter of fiscal 1999 and ($0.13) in the prior fiscal quarter. Net loss per share, excluding non-cash items, improved sequentially in every quarter during fiscal 2000. (Per share loss amounts for historical quarters were calculated using pro-forma shares).

For the full fiscal year 2000, VA Linux revenues totaled $120.3 million, an increase of 579% over fiscal year 1999 revenues of $17.7 million.

"We have continued to demonstrate, quarter after quarter, strong revenue growth and improved financial results," said Dr. Larry M. Augustin, President and Chief Executive Officer. "We improved our gross margins to 22% and reduced our net loss, excluding non-cash charges, to 8.1% of revenue. Our differentiation as a full solution provider of Linux and Open Source products became more visible this month with the launch of our Build-to-Order Software Selector (BOSSTM) and our launch of the Open Source Development Network (OSDNTM). It is gratifying to see the positive response our products and services have received in the Internet Infrastructure market."

Other Notable Highlights

On June 7, VA Linux closed its acquisition of Andover.Net for shares of VA Linux common stock. The transaction was valued at approximately $342 million. Andover.Net's and VA Linux's web properties have been integrated and re-launched as the Open Source Development Network-the leading Open Source destination on the Internet-generating in excess of 80 million page views per month. OSDN will serve as the entry point for individuals and companies new to Open Source and a central resource for the development, distribution, and discussion of Open Source software. Compaq, EMC, Hewlett-Packard, Intel, IBM, and Sun, among others, have joined OSDN as technology partners.

On August 14, VA Linux announced its new Build-to-Order Software Selector (BOSS) enabling online customization of the operating system and applications ordered by VA Linux customers. BOSS from VA Linux is a unique, groundbreaking solution that makes it possible for customers to point, click, select and save the specific software components they want pre-installed at the factory and delivered on their servers - all via the Web. BOSS is available on and offers a selection of over 700 software packages - an unprecedented level of online configurability - with hundreds more expected to be offered in the coming months. By providing Build-to-Order Software, VA Linux Systems helps engineering and IT departments dramatically reduce the time and resources spent manually re-installing and re-configuring systems individually.

Additional Highlights for the Quarter:

  • Systems. During the fourth quarter, VA Linux expanded its product line-the industry's broadest selection of 1U (1.75") and 2U (3.5") rackmount Linux servers-to include the high-density VA Linux 9008 2U storage enclosure system. The 9008 storage system features eight hot-swappable SCSI disk drives in only two rack units of space. The 9008 extends VA's current storage options, and will be a component of larger network-attached storage products due out in the first quarter of fiscal 2001. Other new systems introduced during the fiscal fourth quarter included the VA Linux 1150, an entry-level 1U server, and the 2130, an entry-level 2U server-two products that complement VA's high- performance Linux server offerings.
  • Professional Services. In June, VA Linux named Kyle Spencer, an EDS veteran, to the newly established position of General Manager of Worldwide Professional Services. VA Linux Professional Services continued to expand its service offerings in two key areas of expertise: Internet infrastructure services and Open Source software development and consulting. In July, VA Linux Professional Services and Hewlett-Packard hosted the world's first Open Source Printing Summit, bringing together more than ten vendors-including HP, VA Linux, IBM, Sun, Canon, Epson, Lexmark, Okidata, Xerox and Microsoft-and over fifteen Open Source projects for an historic industry event.
  • Partners. In May, the company launched the VA Linux Service Provider Program, a comprehensive initiative that enables Internet hosting providers and service providers to leverage VA's systems, services and expertise. Companies in the program include Exodus, SiteSmith and NonStopNet.
  • International. VA Linux recently opened new offices in France, Germany, the Netherlands, Switzerland and the United Kingdom. VA also plans to enter additional global markets during fiscal 2001.
  • SourceForgeTM. The cornerstone of OSDN, SourceForge is the world's largest Open Source software development center. Formally launched in January, VA Linux estimates that SourceForge now hosts over 76 percent of the world's known Open Source software, with 8,000 software projects and over 53,000 registered users. The number of software projects hosted on SourceForge increased by more than 21% during the last thirty days.
  • IA-64 Development. In May, VA Linux introduced the SourceForge IA-64 CompileFarm, offering developers access to Intel® ItaniumTM processor prototype systems via the Web on a broad scale for the first time.

About VA Linux Systems

VA Linux Systems (Nasdaq: LNUX) is the world's Linux leader. The expert provider of Linux and Open Source solutions for the Web, VA Linux offers a single point of contact for highly customized Linux servers-featuring the industry's first build-to-order software-as well as professional consulting services and support. VA Linux Systems' mission is to make its customers successful through the use of Linux and Open Source- whether they are e-businesses rapidly expanding their Internet infrastructures, or technology companies leveraging the power and methodology of Open Source software development. As part of its commitment to expanding the Open Source community, VA Linux Systems operates the Open Source Development Network (OSDN). A network of the leading Internet sites for Open Source development, distribution and discussion, OSDN includes SourceForge,, Slashdot and Founded in 1993 and headquartered in Sunnyvale, California with offices across North America and Europe, VA Linux is located on the Web at

International Data Corporation (IDC) recently ranked VA Linux Systems as a top four Linux server vendor in Q1 2000. VA Linux Systems was selected as one of Fortune Magazine's top "Cool Companies," Red Herring's "Top 100 Companies of the Electronic Economy" and Upside's "Hot 100 Companies" in 1999. VA Linux was awarded the 1999 Linux Journal Editors' Choice Award for Best New Hardware, and was the only company to win multiple "Show Favorite" awards at LinuxWorld Conference & Expo in March 1999 (in Computers and Science/Engineering) and again in February 2000 (in Hardware and Peripherals/Support Services).

Safe Harbor Statement Under Private Securities Litigation Reform Act of 1995.

This press release contains forward looking statements, including, without limitation, statements regarding future financial performance; management's strategy, plans and objectives for future operations, including additional offices in foreign markets; VA Linux's product plans, including the expected and planned performance and demand therefor; the future functionality, business potential and adoption of build- to-order software, the Build- to-Order Software Selector (BOSS), and the Open Source Development Network (OSDN); growth in adoption and support of the Open Source development model; the expansion of the range of Open Source software applications, and management's assessment of market factors. Actual results may differ materially from those projected in such statements due to various factors, including: are forward-looking statements that are subject to risks and uncertainties that could cause results to be materially different from those projected in such statements due to various factors, including: the rate of growth and acceptance of Linux and the Open Source software development model; VA Linux's ability to continue to introduce new products and expand its business focus and operations, particularly internationally; the fact that VA Linux has incurred and expects to continue to incur substantial losses; the risks associated with VA Linux's dependence upon an open source business model, independent third-party Linux developers, and a single source contract manufacturer; VA Linux's reliance on sales of server products and the expansion of its services line of business; VA Linux's reliance upon strategic relationships and ability to implement specific terms relating to them; the scarcity of Linux-based applications; competition with and pricing pressures from larger and more established companies; VA Linux's dependence on its Internet-based businesses; the enforceability of the GNU General Public License; VA Linux's ability to attract and retain qualified personnel especially in the areas of professional services and overseas; and the ability of VA Linux to successfully integrate Andover.Net into its operations.

Investors should consult VA Linux's registration statement on Form S-4 and Quarterly Report on Form 10-Q for the period ended April 28, 2000, and VA Linux's other and future filings with the Securities and Exchange Commission, for further information regarding these and the other risks of VA Linux's business. The above mentioned documents contain important information and you are urged to review them carefully. These documents are available at the SEC Website at or from the contacts listed above.

VA Linux Systems, Build-to-Order Software Selector (BOSS), Open Source Development Network (OSDN), SourceForge, Slashdot and Freshmeat are trademarks of VA Linux Systems, Inc. Linux is a registered trademark of Linus Torvalds. All other trademarks are property of their respective owners.

Consolidated Statements of Operations
(In thousands, except per share data)

  Three Months Ended
Year Ended
  July 28, 2000 July 31, 1999 July 28, 2000 July 31, 1999
Net Revenues $ 50,662 $ 7,835 $ 120,296 $ 17,710
Cost of Revenues 39,499 8,094 98,181 17,766
Gross Profit 11,163 (259) 22,115 (56)
Operating Expenses
Sales and Marketing 9,711 3,274 29,479 5,183
Research and Development 4,173 2,515 12,363 3,189
General and Administrative 3,760 1,855 8,985 3,791
Amortization of deferred stock compensation 5,178 1,318 16,877 2,312
Amortization of compensation expense related to acquisitions 16,967 - 22,623 -
Amortization of goodwill and intangible assets 16,286 - 18,175 -
Write-off of in-process research and development 5,000 - 9,000 -
Total Operating Expenses 61,075 8,962 117,502 14,475
Loss from Operations (49,912) (9,221) (95,387) (14,531)
Interest and other income, net 2,398 33 5,629 19
Net loss $ (47,514) $ (9,188) $ (89,758) $ (14,512)
Dividend related to convertible preferred stock - - (4,900) -
Net loss attributable to common stockholders $ (47,514) $ (9,188) $ (96,658) $ (14,512)
Basic and diluted net loss per share $ (1.15) $ (1.17) $ (3.52) $ (2.62)
Pro forma basic net loss per share N/A $ (0.40) $ (2.802) $ (1.01)
Weighted-average shares outstanding:
Basic and diluted 41,172 7,845 26,863 5,530
Pro forma basic N/A 22,962 33,821 14,317

Pro forma Consolidated Statements of Operations
(Excluding non-cash expenses (1); In thousands, except per share data)

  Three Months Ended
Year Ended
  July 28, 2000 July 31, 1999 July 28, 2000 July 31, 1999
Net Revenues $ 50,662 $ 7,835 $ 120,296 $ 17,710
Cost of Revenues 39,499 8,094 98,181 17,766
Gross Profit 11,163 (259) 22,115 (56)
Operating Expenses
Sales and Marketing 9,711 3,274 29,479 5,183
Research and Development 4,173 2,515 12,363 3,189
General and Administrative 3,760 1,855 8,985 3,791
Total Operating Expenses 17,644 7,644 50,827 12,163
Loss from Operations (6,481) (7,903) (28,712) (12,219)
Interest and other income, net 2,398 33 5,629 19
Net loss $ (4,083) $ (7,870) $ (23,083) $ (12,200)
Pro forma basic net loss per share (2) $ (0.10) $ (0.34) $ (0.68) $ (0.85)
Pro forma basic weighted-average shares outstanding: 41,172 22,962 33,821 14,317
(1) Excludes write-off of in-process research and development, amortization of goodwill and intangible assets, amortization of compensation expense related to acquisitions, amortization of deferred stock compensation, and the dividend related to convertible preferred stock.
(2) Pro forma basic net loss per share includes the conversion of convertible preferred stock using the if-converted method into an equivalent number of common shares as if the shares had been converted on the dates of issuance.

Condensed Balance Sheets
(In thousands)

  July 28, 2000
July 31, 1999
Current Assets
Cash and cash equivalents $ 123,849 $ 18,653
Marketable securities 52,433 -
Accounts receivable, net 31,842 4,033
Inventories 1,018 1,971
Prepaid expenses and other assets 2,156 381
Total current assets 211,298 25,038
Property and equipment, net 10,316 1,759
Goodwill and intangible assets, net 362,744 645
Other assets 741 153
  $585,099 $27,595
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 26,715 $ 6,243
Accrued liabilities and other 11,285 1,806
Current portion of loans and notes payable 1,568 759
Total current liabilities 39,568 8,808
Notes payable, net of current portion 1,104 160
Other long-term liabilities 552 264
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock - 19
Common stock 52 15
Additional paid-in capital 763,175 45,461
Stockholder note receivable - (50)
Contingent shares in escrow (90,482) -
Deferred stock compensation (19,204) (12,121)
Accumulated other comprehensive loss (47) -
Accumulated deficit (109,619) (14,961)
Total stockholders' equity 543,875 18,363
  $585,099 $27,595


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