VA Linux posts loss, but sales surge

VA Linux (Nasdaq: LNUX) reported fiscal second quarter net loss of $11.5 million, or 50 cents a diluted share, on sales of $20.2 million.

First Call consensus estimates called for a loss of 21 cents a share. A VA Linux spokeswoman said there was some confusion over the shares outstanding altered First Call estimates.

Analysts and the company both said the First Call estimate was compiled using about 38 to 40 million shares outstanding. The actual number of shares outstanding was 11.6 million in its fiscal second quarter.

In a statement, the company said it reported an operating loss of $8.4 million, excluding stock compensation charges. Based on a pro forma share count of 32.3 million shares, the operating loss comes out to be about 26 cents a share. On a basic and diluted share count of 23.3 million, VA Linux had an operating loss of 36 cents a share.

The company also said its operating loss had $1 million in non-recurring non-cash charges associated with stock options issued for recruiting and marketing consulting services prior to its record-breaking IPO.

The sales figures are a lot less confusing. Sales of $20.2 million were up 537 percent from a year ago and 36 percent sequentially.

VA Linux, which primarily sells hardware based on the Linux operating system, said services revenue was $300,000, or 1.5 percent of total revenue. On a conference call, officials said the goal is to make services 10 percent of sales. The projection for the third quarter is that services sales will be about 5 percent of sales, said Todd Schull, chief financial officer, on a conference call.

The company's top 10 customers represented 41 percent of total revenue, down 9 percent from the previous quarter. VA Linux's largest customers for the second quarter were Akamai Technologies, NetLedger, Vstream, Abba Technologies, and CNet.

Margins improved to 14 percent for the second quarter, compared to 13.2 percent in the previous quarter.

VA Linux also noted that it eliminated its manufacturing inventory as it expanded its high velocity contract manufacturing model.

The company, which recently announced plans to acquire Andover.net (Nasdaq: ANDN), said its SourceForge initiative has 13,000 registered developers. Web traffic on VA Linux' other web sites, such as Linux.com and Themes.org, grew 23 percent in pageviews sequentially. The company didn't provide raw figures.

"We beat analysts' estimates on revenue, we beat estimates on gross margins and we were consistent with estimates for expenses," VA Linux founder and chief executive Larry Augustin said in a phone interview. "Linux is growing fairly strong and we are growing faster than Linux."

Reuters contributed to this report.