Revenues exceeded expectations for the company's second fiscal quarter, and the net loss was in line with predictions, said Walter Winnitzki of Chase Hambrecht & Quist. Nonetheless, the results caused confusion on Wall Street because of unusual charges, differing methods used by analysts to calculate VA Linux's outstanding shares, and the fact that VA went public during the middle of the quarter. Unlike Winnitzki, some believed that VA had deeper than expected losses.
"I'm very pleased (with) the sales momentum and the quality of the numbers," said Winnitzki, who had anticipated revenues of $16 million. "The net income number, when you factor out all the other stuff, was pretty much in line with expectations."
VA was successful in attracting new customers, moving to a model with no inventory and beginning a planned shift toward selling services as well as hardware, he added.
But in after-market trading, investors had a different interpretation, sending VA stock down to $119.75 from its closing price of $124.75.
One of the bellwethers of the nascent industry built around the Linux operating system, VA manufactures computers using the Linux operating system. It went public in December, setting a record gain in first-day share price. The stock at one point hit a high of $298.
VA Linux reported that its pro forma net loss was 36 cents per share, and its diluted net loss came to 50 cents per share. The two numbers differ because VA went public roughly halfway through the quarter, a VA representative said. That changed the weighted number of shares.
"I'm hearing on the Web site postings that these guys really missed the earnings numbers, and that's really not the case here," Winnitzki said.
The confusion about whether VA met expectations isn't surprising. A First Call consensus report, using another set of charges and another number of outstanding shares, predicted a loss of 21 cents per share.
What is clear is that sales rose. Revenues grew 576 percent over the same quarter the year before, when the company garnered $3.2 million.
Chief executive Larry Augustin was optimistic during a conference call. "The demand for Linux solutions is strong and accelerating," he said. "Our revenue growth is faster than any other public Linux company."
A total of 49 percent of the revenue came from new customers, Augustin said.
The company had an operating loss of $8.4 million, a figure that excludes deferred compensation charges of $4.2 million but that includes $1 million in nonrecurring noncash charges for stock options issues for recruiting and consulting services, VA said.
While the bulk of the company's revenues currently derives from selling Linux-equipped hardware, the company is making a faster-than-expected transition to selling services such as installation and customization, said chief financial officer Todd Schull.
For the most recent quarter, services accounted for about $300,000, or 1.5 percent, of total revenue. By the end of this year, services should be at 5 percent, Schull said, in line with the company's three-year goal of having 10 percent of revenues come from services.
Analysts expressed concern over the company's plan to acquire Andover.Net, a Linux and programmer information site, for approximately $1 billion.
"It's a company with very, very small revenues, and you put a lot of money into it," Lehman Brothers analyst George Elling told VA during the conference call.
But the acquisition positions VA to be at the nexus of how software is created in the future, Augustin said. "The combination of Andover.Net and VA creates a company that's at the center of...software development over the Internet," he said.
Schull said that VA hasn't figured out yet exactly how the acquisition will change VA's revenues. "Our motivation was strategic in nature and revenue opportunity-oriented," he said.
Augustin said the company expects more acquisitions as well as growth of its existing business.
VA is beginning its international expansion, looking for offices and employees in Europe, Schull said.