Press Release Index

VA Linux Systems Reports Results for Second Fiscal Quarter, 2001

FREMONT, Calif. February 20, 2001 VA Linux Systems, Inc. (Nasdaq: LNUX) today reported revenue of $42.5 million for the second fiscal quarter, 2001, ended January 27, 2001, an increase of 111% over the same quarter of fiscal 2000. VA Linux also reported a second quarter net loss, on a pro forma basis, excluding non-cash and non-recurring charges, of ($0.28) per share, compared to a loss of ($0.20) per share in the second quarter of fiscal 2000. This net loss per share is within the range indicated in the Company's press release dated January 16, 2001. VA Linux also reported that it established additional reserves for excess inventory and potentially uncollectible accounts receivable of $14 million and $2.5 million, respectively.

A conference call to review results will be held at 2:00 pm (Pacific) today. The call may be accessed via webcast at or by dialing (800) 230-1059 (access code 560387).

"As we indicated on January 16, we have been affected by the overall economic slowdown which has impacted demand for our products and services," said Larry M. Augustin, CEO of VA Linux Systems. "We have recognized the need to adapt to this new economic environment. We have established reserves to address financial exposures and we are restructuring the Company to better compete. We intend to reduce our workforce by 25% from the 556 people we employed at the end of calendar 2000 and will take a restructuring charge in the fiscal third quarter as a result. The amount of that charge will be determined later this quarter. The effect of the restructuring will be to position the Company to achieve profitability at lower revenue levels."

"We believe that the overall slowdown in IT spending will ultimately create more demand for Open Source technologies among enterprise customers as they tighten their IT budgets. Our leadership in Linux and Open Source positions us to benefit from the adoption of those technologies by large corporations."

Notable Quarterly Highlights:

This quarter, D.H. Brown Associates, Inc. (DHBA), a leading research and consulting firm, rated VA as No. 1 in overall Linux strategy in DHBA's multi-client study on "Linux Strategies and Solutions". In a comparison with major competitors, VA Linux Systems was ranked highest in overall vendor positioning, value added and Linux community leadership. The DHBA report recognized VA Linux as a "broad solutions provider" in the Internet server market, highlighting VA Linux Systems' Build-to-Order Software Selector (BOSS) as a feature that "extends customization beyond the alternatives available from other suppliers." D.H. Brown also highlighted VA Linux Systems' leadership in founding and operating the Open Source Development Network (OSDNTM), including SourceForge.netTM, the world's largest Open Source development site.

Additional Highlights for the Quarter:

  • Systems. In January, VA Linux introduced a new series of 1U servers for deployment in large-scale web farms for applications such as web serving, firewalls, DNS or load-balancing.
  • Professional Services. In December, VA Linux announced the availability of "SourceForge OnSite," a ground-breaking subscription service built on the Web-based collaborative development system powering, the world's largest Open Source development center. Installed behind customers' corporate firewalls, SourceForge OnSite provides a turn-key collaboration system--fully customized, implemented and supported by VA Linux Professional Services--for enterprise-class customers that want to leverage Open Source tools and methods for internal software development. Agilent Technologies' central research lab was one of the first VA Linux customers to deploy SourceForge OnSite to support its geographically distributed development teams. SourceForge OnSite also won the Show Favorite Award for Best Productivity Application at the LinuxWorld Conference and Expo held in New York City in February.
  • Open Source Development Network (OSDN). VA Linux announced in January that it named Richard French as senior vice president of its Open Source Development Network division. OSDN also recently announced the highly anticipated release of Freshmeat II, the result of a year-long development effort to enhance freshmeat.netTM. Founded in 1997, is the largest index of Linux and Open Source software on the Web. OSDN, a division of VA Linux Systems, Inc., is the leading Linux and Open Source destination on the Internet.

About VA Linux Systems

VA Linux Systems 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 Linux servers and storage -- 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 software in Internet infrastructure and enterprise-level 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,, SlashdotTM and Founded in 1993 and headquartered in Fremont, California, VA Linux is located on the Web at

In 2000, D.H. Brown Associates rated VA Linux Systems as No. 1 in overall Linux strategy among major systems vendors. Linux Journal awarded VA Linux its 2000 Editors' Choice Award for ``Best Web Server.'' In 2000, Deloitte & Touche named VA Linux as one of the fastest growing technology companies as part of its prestigious Silicon Valley Fast 50 Program and its North America Fast 500 Program, based on percentage growth in revenues from 1995 to1999. International Data Corporation (IDC) ranked VA Linux Systems as a Top 3 Linux server vendor in the US in Q3 2000 based on factory revenue.

Note Regarding Forward-Looking Statements: This press release contains forward looking statements, including statements regarding VA Linux's future financial performance and results of operations; the Company's planned restructuring; the Company's sales strategy and anticipated benefits from such strategy; future growth of and expected benefits of SourceForge OnSite; successful adoption of Open Source technologies by large corporations; and VA Linux's ability to benefit from large corporation's adoption of Open Source technologies. Actual results may differ materially from those projected in such forward-looking statements due to various factors, including: VA Linux's quarterly sales cycle and fluctuation in demand for our products and services, with increased fluctuation due to VA Linux's concentration of customers in the Internet infrastructure industry; competition with, and pricing pressures from, larger, more established companies and smaller, general purpose manufacturers; the fact that VA Linux has incurred and expects to continue to incur substantial losses; VA Linux's reliance on sales of server products; VA Linux's success in expanding its services business; manufacturing and sourcing risks; the effectiveness of VA Linux's ongoing restructuring; the adequacy of VA Linux's additional reserves; the possibility of further deterioration in the general economy; 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 services, and to expand its business and operations, particularly internationally; VA Linux's ability to successfully penetrate international Internet-related and enterprise-level computing markets; market acceptance of the SourceForge collaborative development system; VA Linux's ability to maintain and support the OSDN websites, including and; VA Linux's dependence upon an Open Source business model, independent third-party Linux developers, and its single source contract manufacturer and suppliers; VA Linux's dependence on its Internet-based businesses; the enforceability of the GNU General Public License; VA Linux's ability to attract, retain and motivate qualified personnel; VA Linux's acquisition strategy and its ability to successfully integrate acquired companies into its operations; market acceptance of Linux and Open Source software generally; rapid technological and market change; the impact of rapid evolution of the Linux market on our ability to forecast demand and results; claims and potential damages resulting from information, postings or software available on our Internet sites, or software distributed with our systems; changes in or interpretation of foreign laws or regulations; and risks associated with the Internet infrastructure and regulation. Investors should consult VA Linux's filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q for its fiscal quarter ended October 27, 2000, for further information regarding these and the other risks of the Company's business. These documents are available at the SEC Website:

Note: VA Linux Systems, OSDN,, Slashdot and SourceForge are trademarks of VA Linux Systems, Inc. Linux is a registered trademark of Linus Torvalds. All other trademarks are property of their respective owners.

  Three Months Ended Six Months Ended
  January 27, 2001 January 28, 2000 January 27, 2001 January 28, 2000
  (unaudited) (unaudited)
Net Revenues 42513 20191 98575 35039
Cost of Revenues (2) 35660 17356 79110 30243
Gross profit 6853 2835 19465 4796
Operating expenses:
Sales and marketing (3) 11478 6114 23025 11178
Research and development 4842 2431 9572 5205
General and administrative (4) 5410 1658 10964 3154
Total operating expenses 21730 10203 43561 19537
Loss from operations -14877 -7368 -24096 -14741
Interest and other income, net 1514 1062 3693 1235
Net loss -13363 -6306 -20403 -13506
Pro forma basic and diluted net loss per share $(0.28) $(0.20) $(0.44) $(0.46)
Pro forma basic and diluted weighted-average shares outstanding (5) 47362 32300 46723 29412
(1) Excludes 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) Excludes a one-time inventory provision of $14 million in the fiscal 2001 periods to establish a reserve for excess material.

(3) Excludes $997,000 of non-cash expense for stock grants to consultants in the fiscal 2000 periods.

(4) Excludes a one-time provision for bad debt of $2.5 million in the fiscal 2001 periods.

(5) Pro forma basic and diluted weighted-average shares 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.


(In thousands, except per share data)

  Three Months Ended Six Months Ended
  January 27, 2001 January 28, 2000 January 27, 2001 January 28, 2000
  (unaudited) (unaudited)
Net revenues 42513 20191 98575 35039
Cost of revenues 49660 17356 93110 30243
Gross profit -7147 2835 5465 4796
Operating expenses:
Sales and marketing 11478 7111 23025 12175
Research and development 4842 2431 9572 5205
General and administrative 7910 1658 13464 3154
Amortization of deferred stock compensation 2694 4258 5388 7113
Amortization of compensation expense related to acquisitions 17602 0 35791 0
Amortization of goodwill and intangible assets 23989 0 47413 0
Total operating expenses 68515 15458 134653 27647
Loss from operations -75662 -12623 -129188 -22851
Interest and other income, net 1514 1062 3693 1235
Net loss -74148 -11561 -125495 -21616
Dividend related to convertible preferred stock 0 0 0 -4900
Net loss attributable to common stockholders -74148 -11561 -125495 -26516
Basic and diluted net loss per share $(1.57) $(0.50) $(2.69) $(1.73)
Weighted-average shares outstanding:
Basic and diluted 47362 23325 46723 15372


(In thousands)

  January 27, 2001 January 28, 2000
Current assets:
Cash and cash equivalents 66674 123849
Marketable securities 59652 52433
Accounts receivable, net 33962 31842
Inventories 1393 1018
Prepaid expenses and other current assets 8769 2156
Total current assets 170450 211298
Property and equipment, net 19915 10316
Goodwill and intangible assets, net 326730 362744
Other assets 1450 741
Current liabilities:
Accounts payable 20159 26715
Accrued liabilities and other 24715 11285
Current portion of loans and notes payable 1013 1568
Total current liabilities 45887 39568
Notes payable, net of current portion 1026 1104
Other long-term liabilities 1036 552
Stockholders' equity:
Common stock 53 52
Additional paid-in capital 778440 763175
Deferred stock compensation -71984 -109686
Accumulated other comprehensive loss -799 -47
Accumulated deficit -235114 -109619
Total stockholders' equity 470596 543875
  518545 585099

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