1
EXHIBIT 99.1
VA LINUX SYSTEMS REPORTS RESULTS FOR THIRD FISCAL QUARTER, 2001
FREMONT, Calif.--(BUSINESS WIRE)--May 22, 2001--VA Linux Systems, Inc. (NASDAQ:
LNUX news), 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
2
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
SourceForge.net, 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(R)-compatible file and print server for UNIX(R)used in
corporate networks worldwide.
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 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(TM)). A network of the leading Internet
sites for Open Source development, distribution and discussion, OSDN includes
SourceForge.net, Freshmeat.net, Slashdot.org, ThinkGeek and Linux.com. 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
www.valinux.com.
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 SourceForge.net
and expected benefits of SourceForge OnSite; successful adoption of Open Source
technologies by large
3
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:
www.sec.gov.
4
VA LINUX SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Excluding pro forma adjustments
(In thousands, except per share data)
Three Months Ended Nine Months Ended
----------------------------- ----------------------------
April 28, April 28, April 28, April 28,
2001 2000 2001 2000
--------- --------- --------- ---------
(unaudited) (unaudited)
Net revenues $ 20,334 $34,595 $118,909 $69,634
Cost of revenues
(2)(6) 21,721 28,439 100,831 58,682
-------- ------- -------- -------
Gross margin (1,387) 6,156 18,078 10,952
Operating expenses:
Sales and
marketing (3) 9,690 7,593 32,715 18,772
Research and
development 4,817 2,985 14,389 8,191
General and
administrative
(4) 4,787 2,071 15,751 5,224
-------- ------- -------- -------
Total
operating
expenses
(1)(6) 19,294 12,649 62,855 32,187
-------- -------- -------- --------
Loss from
operations (20,681) (6,493) (44,777) (21,235)
Interest and other
income, net 1,701 1,996 5,394 3,233
-------- -------- -------- --------
Net loss $(18,980) $ (4,497) $(39,383) $(18,002)
======== ======== ======== ========
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) 49,629 35,313 47,686 31,367
(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 a 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 the 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.
5
VA LINUX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
April 28, April 28, April 28, April 28,
2001 2000 2001 2000
--------- --------- --------- ---------
(unaudited) (unaudited)
Net revenues $ 20,334 $ 34,595 $ 118,909 $ 69,634
Cost of revenues 25,129 28,439 118,239 58,682
--------- -------- --------- --------
Gross margin (4,795) 6,156 670 10,952
Operating expenses:
Sales and
marketing 9,690 7,593 32,715 19,769
Research and
development 4,817 2,985 14,389 8,191
General and
administrative 4,787 2,071 18,251 5,224
Restructuring
costs and other
special charges 43,386 -- 43,386 --
Amortization of
deferred stock
compensation 2,694 4,586 8,082 11,699
Amortization of
compensation
expense related
to acquisitions 17,217 5,656 53,008 5,656
Amortization of
goodwill and
intangible assets 23,970 1,889 71,383 1,889
Write-off of
in-process
research
and development -- 4,000 -- 4,000
--------- -------- --------- --------
Total operating
expenses 106,561 28,780 241,214 56,428
--------- -------- --------- --------
Loss from operations (111,356) (22,624) (240,544) (45,476)
Interest and other
income, net 1,701 1,996 5,394 3,233
--------- -------- --------- --------
Net loss $(109,655) $(20,628) $(235,150) $(42,243)
========= ======== ========= ========
Dividend related to
convertible
preferred stock -- -- -- (4,900)
--------- -------- --------- --------
Net loss
attributable to
common
stockholders $(109,655) $(20,628) $(235,150) $(47,143)
========= ======== ========= ========
Basic and diluted
net loss per share $ (2.21) $ (0.58) $ (4.93) $ (2.14)
Weighted-average
shares
outstanding:
Basic and diluted 49,629 35,313 47,686 22,029
6
VA LINUX SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
April 28, 2001 July 28, 2000
-------------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 67,002 $ 123,849
Marketable securities 32,099 52,433
Accounts receivable, net 14,847 31,842
Inventories 8,268 1,018
Prepaid expenses and
other current assets 8,931 2,156
--------- ---------
Total current assets 131,147 211,298
Property and equipment, net 20,116 10,316
Goodwill and intangible assets, net 296,554 362,744
Other assets 1,355 741
--------- ---------
$ 449,172 $ 585,099
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,530 $ 26,715
Accrued liabilities and other 15,186 11,285
Current portion of loans
and notes payable 863 1,568
--------- ---------
Total current liabilities 32,579 39,568
Notes payable, net of
current portion 294 1,104
Other long-term liabilities 1,406 552
Stockholders' equity:
Common stock 54 52
Additional paid-in capital 772,862 763,175
Deferred stock compensation (11,969) (109,686)
Accumulated other
comprehensive loss (1,285) (47)
Accumulated deficit (344,769) (109,619)
--------- ---------
Total stockholders' equity 414,893 543,875
--------- ---------
$ 449,172 $ 585,099
========= =========