Press Release Index

VA Linux Systems Reports Results for Third Fiscal Quarter, 2001

FREMONT, Calif. May 22, 2001 VA Linux Systems, Inc. (Nasdaq: LNUX), the expert provider of Linux and Open Source solutions, today reported revenue of $20.3 million for its third fiscal quarter, 2001, ended April 28, compared to revenue of $34.6 million in the same quarter of fiscal 2000. Net loss for the quarter, on a pro forma basis, excluding non-cash and non-recurring charges, was ($0.38) per share. In the same quarter last year the Company reported a pro forma loss per share of ($0.13). Revenue and net loss per share results were slightly better than indicated in the Company's press release dated April 26.

VA Linux Systems also reported a non-recurring restructuring charge of $46.8 million in the quarter. $33.8 million related to the acceleration of deferred stock compensation amortization, $4.9 million of the charge represented cash expenditures and the balance was comprised of other non-cash charges. VA Linux Systems had approximately $100 million of cash and marketable securities at the end of the quarter.

"The difficult current market environment has significantly impacted our financial results," said VA Linux Systems CEO Larry M. Augustin. "The market is very challenging and the competitive environment is very aggressive. Our focus is on ensuring that we come out of this slowdown strong and well positioned to resume growth. We are balancing cost reductions and management structure improvements with the introduction of exciting new products and services. We have a strong cash position and are confident that we will successfully navigate the current business conditions."

Notable Quarterly Highlights:

  • Servers. VA Linux introduced its next generation of high-performance 2U servers in the VA Linux 2200 series in April. The three new servers offer advanced remote management capabilities using VACM[tm], VA's Open Source cluster management software, and augment VA's industry-leading line of ultradense 1U and 2U rack-optimized Linux servers. Also, on May 1, VA Linux announced availability of the ultradense VA Linux 1221 server -- a full-featured, high-performance 1U Linux server, also offering remote management capabilities with VACM.

  • Clusters. In March VA Linux introduced the VA Linux 100 -- a powerful remote management solution for 1U server farms. Leveraging VACM, the VA Linux 100 turns racks of VA Linux 1U servers into unified server arrays and enables systems administrators to manage them securely from anywhere in the world.

  • Storage. In late April, VA Linux announced its 9450 NAS, a robust, scalable Network Attached Storage appliance. The 9450 NAS delivers a convenient cost-effective solution for online data archiving, application server storage, and shared data storage across heterogeneous corporate networks.

  • Professional Services. In February, VA Linux's SourceForge Onsite won the Show Favorite Award for Best Productivity Application at the LinuxWorld Conference and Expo held in New York City. SourceForge Onsite is a ground-breaking subscription service, installed behind customers' corporate firewalls. It is built on the Web-based collaborative development system powering, the world's largest Open Source development center.

  • Open Source Development Network (OSDN). OSDN and BRIE, the Berkeley Roundtable on the International Economy, held a successful symposium "Rethinking Business in Light of Open Source" in April in San Francisco. Panelists and attendees examined and debated the Open Source movement and how it is challenging current notions of competition, collaboration and intellectual property in businesses across the globe. OSDN, a subsidiary of VA Linux, is the leading Linux and Open Source destination on the Internet.

  • Management. In February, Ali Jenab was named President and Chief Operating Officer of VA Linux. Mr. Jenab now has day-to-day operational responsibility for VA Linux's business. Also in February, Greg Orzech was promoted to Senior Vice President of worldwide sales. Mr. Orzech reports directly to Mr. Jenab. In March, VA Linux announced the expansion of the VA Linux NAS team with the addition of Andrew Tridgell and Jeremy Allison, the leaders of the Samba team, as well as other key Open Source developers. Samba is a popular, highly acclaimed Windows®-compatible file and print server for UNIX® used in corporate networks worldwide.

About VA Linux Systems

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 network-attached storage, 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. 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,,, ThinkGeek and Founded in 1993 and headquartered in Fremont, California with offices across North America, Europe, Japan and Australia, 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.

Note Regarding Forward-Looking Statements: This press release contains forward-looking statements that involve risks and uncertainties, including: statements regarding VA Linux's future financial performance and results of operations; the Company's ongoing 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; VA Linux's ability to benefit from large corporation's adoption of Open Source technologies; demand for the Company's consulting services and Open Source Development Network; and anticipated benefits from cost-cutting and other restructuring actions. Actual results may differ materially from those expressed or implied 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; VA Linux's reliance on sales of server products and its success in expanding its services business; the effectiveness of VA Linux's ongoing restructuring; VA Linux's ability to successfully attract and retain enterprise customers; market acceptance of the SourceForge collaborative development system; the possibility of further deterioration in the general economy; manufacturing and sourcing risks; 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; 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 reliance upon strategic relationships with other companies and its ability to negotiate and implement specific terms relating to them; the scarcity of Linux-based applications; the enforceability of the GNU General Public License; and rapid technological and market change. Investors should consult VA Linux's filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q for the quarter ended January 27, 2001, for further information regarding these and the other risks of the Company's business. These documents are available at the SEC Web site:

Note to Editors: VA Linux Systems, VACM, OSDN 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.

Excluding pro forma adjustments
(In thousands, except per share data)

  Three Months Ended Nine Months Ended
  April 28, 2001 April 28, 2000 April 28, 2001 April 28, 2000
  (unaudited) (unaudited)
Net Revenues 20334 34595 118909 69634
Cost of Revenues (2) (6) 21721 28439 100831 58682
Gross margin (1387) 6156 18078 10952
Operating expenses:
Sales and marketing (3) 9690 7593 32715 18722
Research and development 4817 2985 14389 8191
General and administrative (4) 4787 2071 15751 5224
Total operating expenses (1) (6) 19294 12649 62855 32187
Loss from operations (20681) (6493) (44777) (21235)
Interest and other income, net 1701 1996 5394 3233
Net loss (18980) (4497) (39383) (18002)
Pro forma basic and diluted net loss per share $(0.38) $(0.13) $(0.83) $(0.57)
Pro forma basic and diluted weighted-average shares outstanding (5) 49629 35313 47686 31367
(1) Excludes amortization of goodwill and intangible assets, amortization of compensation expense related to acquisitions, amortization of deferred stock compensation, restructuring costs and other special charges, the write-off of in-process research and development, and the dividend related to convertible preferred stock.

(2) Excludes a one-time inventory provision of $14 million in the nine months ended April 28, 2001 to establish reserve for excess material.

(3) Excludes $997,000 of non-cash expense for stock grants to consultants in the nine months ended April 28, 2000.

(4) Excludes a one-time provision for bad debt of $2.5 million in the nine months ended April 28, 2001.

(5) Pro forma basic and diluted weighted-average shares for the nine months ended April 28, 2000 includes the conversion of convertible preferred stock using hte if-converted method into an equivalent number of common shares as if the shares had been converted on the dates of issuance.

(6) Excludes a total of $46.8 million of restructuring costs and other special charges, of which $3.4 million was in cost of revenues and $43.4 million was in operating expenses. $41.9 million out of the $46.8 million was for non-cash charges.


(In thousands, except per share data)

  Three Months Ended Nine Months Ended
  April 28, 2001 April 28, 2000 April 28, 2001 April 28, 2000
  (unaudited) (unaudited)
Net revenues 20334 34595 118909 69634
Cost of revenues 25129 28439 118239 58682
Gross margin 4795 6156 670 10952
Operating expenses:
Sales and marketing 9690 7593 32715 19769
Research and development 4817 2985 14389 8191
General and administrative 4787 2071 18251 5224
Restructuring costs and other special charges 43386 - 43386 -
Amortization of deferred stock compensation 2694 4586 8082 11699
Amortization of compensation expense related to acquisitions 17217 5656 53008 5656
Amortization of goodwill and intangible assets 23970 1889 71383 1889
Write-off of in-process research and development - 4000 - 4000
Total operating expenses 106561 28780 241214 56428
Loss from operations (111356) (22624) (240544) (45476)
Interest and other income, net 1701 1996 5394 3233
Net loss (109655) (20628) (235150) (42243)
Dividend related to convertible preferred stock - - - (4900)
Net loss attributable to common stockholders (109655) (20628) (235150) (47143)
Basic and diluted net loss per share $(2.21) $(0.58) $(4.93) $(2.14)
Weighted-average shares outstanding:
Basic and diluted 49629 35313 47686 22029


(In thousands)

  April 28, 2001 April 28, 2000
Current assets:
Cash and cash equivalents 67002 123849
Marketable securities 32099 52433
Accounts receivable, net 14847 31842
Inventories 8268 1018
Prepaid expenses and other current assets 8931 2156
Total current assets 131147 211298
Property and equipment, net 20116 10316
Goodwill and intangible assets, net 296554 362744
Other assets 1355 741
  $449172 $585099
Current liabilities:
Accounts payable 16530 26715
Accrued liabilities and other 15186 11285
Current portion of loans and notes payable 863 1568
Total current liabilities 32579 39568
Notes payable, net of current portion 294 1104
Other long-term liabilities 1406 552
Stockholders' equity:
Common stock 54 52
Additional paid-in capital 772862 763175
Deferred stock compensation (11969) (109686)
Accumulated other comprehensive loss (1285) (47)
Accumulated deficit (344769) (109619)
Total stockholders' equity 414893 543875
  $449172 $585099

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