SOURCE: VA Software

February 21, 2006 16:15 ET

VA Software Reports First Profitable Quarter on 57% Year-Over-Year Revenue Growth

EPS Grows to $0.17, With $0.02 EPS From Continuing Operations

FREMONT, CA -- (MARKET WIRE) -- February 21, 2006 -- VA Software Corporation (NASDAQ: LNUX), the online media, software and e-commerce leader in community-driven Open Source innovation, today announced financial results for its second quarter fiscal year 2006, ended January 31, 2006.

Total second quarter fiscal 2006 revenue from continuing operations grew 57%, to $14.7 million, compared to second quarter fiscal 2005 total revenue of $9.4 million. For the six months ending January 31, 2006, total revenue from continuing operations grew 41% to $22.3 million, compared to $15.8 million for the six months ending January 31, 2005.

On a GAAP basis, the second quarter fiscal 2006 net income/(loss) was $10.5 million, or $0.17 per share, compared to second quarter fiscal 2005 GAAP net of ($0.7) million, or ($0.01) per share. As previously announced, VA Software sold the assets of Animation Factory, Inc. in late December 2005. Net income on a GAAP basis from continuing operations for the second quarter fiscal 2006 was $1.1 million, or $0.02 per share, compared to the second quarter fiscal 2005 net from continuing operations, of ($0.9) million, or ($0.01) per share. The company generated $3.8 million in cash from operations during the second quarter. The cash generated from operations, combined with net cash proceeds from the sale of Animation Factory assets, yielded a cash and investments balance of $47.8 million as of January 31, 2006.

"We are proud to announce our first profitable quarter ever, a direct result of solid execution across all three of our continuing businesses. Revenue growth was led by the software business, with second quarter revenue of $3.0 million, up 94% compared to $1.5 million in the second quarter of fiscal 2005. The E-commerce business revenue grew 56%, to $9.1 million and online media's second quarter fiscal 2006 revenue grew to $2.7 million, or 34%," said Ali Jenab, president and CEO. "We are very excited about the growth prospects for our media and software businesses. Traffic on the OSTG network increased to over 30 million unique visitors and over 270 million page views monthly and advertiser interest in reaching the communities served by our sites continues to grow. Our software and media businesses have strong sales pipelines and we are encouraged by early interest in our software products being offered by ASERVO AG in central Europe."

As specified in the attached reconciliation of net income/(loss) as reported to pro forma net income/(loss), the second quarter fiscal 2006 net income was $1.2 million, or $0.02 per share, compared to the second quarter fiscal 2005 net of ($1.0) million, or ($0.02) per share.

A conference call to review results will be held at 5:00 pm (Eastern) today. The call may be accessed via webcast at or by dialing (800) 895-1715 or (785) 424-1059. A replay of the call will be available for 30 days by dialing (800) 688-7036 or (402) 220-1346.

Recent Highlights

--  Customers.  Through second quarter fiscal 2006, VA Software sold the
    SourceForge® solution to a total of 147 customers.  During the quarter,
    CapGemini Service S.A.S, Objectif Lune, Windemere Information
    Technology Systems, JasperSoft, Avago Technologies and a number of
    entities in Japan were added to the installed base.  In addition,
    existing customers, including Cornell University, USDA Forest Service,
    3Soft and Cadence Design Systems, purchased additional SourceForge
    licenses or services.

--  ASERVO AG partnership.  VA Software announced a relationship with
    ASERVO AG, a German-based IT services company. As an authorized
    reseller of SourceForge Enterprise Edition, ASERVO provides valuable
    sales, marketing, technical support and post-sales customer support for
    central Europe, including Germany, Austria and Switzerland.  A
    significant number of SourceForge Enterprise Edition sales leads are
    generated from central Europe; through this partnership, VA Software
    will be able to more aggressively pursue these opportunities and better
    serve its existing customer base.

--® announced in January 2006 that it
    will provide support for the Subversion Software Configuration
    Management (SCM) system, in addition to the CVS (Concurrent Versions
    System) currently provided. Subversion is an Open Source version
    control system designed to serve as a compelling alternative for CVS
    by providing directories, renames and file meta-data, plus other key
    features.  In addition to announcing Subversion support, during the
    second quarter enhanced its service monitoring and
    uptime monitoring capabilities.  These improved monitoring
    capabilities, coupled with upcoming hardware upgrades for its web,
    search, CVS and database servers, are intended to enable to better serve its vast and growing user base.

    In late January 2006, updated the back-end of its
    search offering, which utilizes the Apache Lucene Open Source solution.
    The search enhancements will be followed by improved presentation of
    the site's software map categorization and search results. These
    enhancements are being made to improve's functionality
    and user experience.

--  OSTG.  OSTG sites, and, continued to be
    recognized by the media, advertisers and the community as the online
    media leader in what is increasingly known as the  "Participation Age."
    Through innovative, bi-directional publishing that enables the audience
    to collaborate with one another and actively participate in the content
    on the sites, these sites have recently been acknowledged as web
    heavyweights by key media outlets, Fortune ("Future of Media") and
    Forbes ("Best of the Web" and "Top Blog").

    OSTG continues to see measurable success with scalable, innovative
    custom publishing programs for major clients such as AMD, HP, IBM,
    Citrix, and Rackspace. Recent programs have included AMD's
    large-scale audience outreach initiatives and portals on Slashdot and, and the long-term renewal of the HP Linux Reference
    Architectures microsites. This past quarter, OSTG also managed several
    programs for IBM, including a large-scale worldwide program for IBM to
    promote downloads of Apache Geronimo server as part of IBM's branding
    initiatives around WebSphere® Application Server Community Edition.

    According to Nielsen//NetRatings @Plan Winter 2006 report, OSTG once
    again ranked number one among visitors who went online to seek
    technology news -- a spot the network has held since 2003. OSTG also
    ranks number one for delivering visitors in the computer software

    On the technical and operational side, OSTG recently outsourced its
    site measurement and metrics services to Google Analytics.  According
    to Google Analytics, the OSTG network of sites serves more than 30
    million unique visitors and more than 270 million page views monthly.

--  ThinkGeek.  ThinkGeek® set records for traffic, orders and revenue
    this holiday season.  For the quarter, traffic increased to 6.3 million
    unique visitors and orders topped 140,000, up 52% compared to the
    comparable period last year.  Top sellers included Star Wars Force FX
    Lightsabers, PowerSquid Outlet Multiplier, LED Binary Watch and Plush
Use of Non-GAAP Financial Information

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, VA Software uses non-GAAP financial results. Non-GAAP net loss and loss per share exclude amortization of intangible assets and stock-based compensation expense. These non-GAAP adjustments are provided to enhance the user's overall understanding of current financial performance and prospects for the future. Specifically, VA Software believes the non-GAAP results provide useful information to both management and investors by excluding certain unusual expenses that VA Software believes are not indicative of core operating results. In addition, because VA Software has historically reported non-GAAP results to the investment community, VA Software believes the inclusion of non-GAAP numbers provides consistency in financial reporting. Further, these non-GAAP results are one of the primary indicators management uses for planning and forecasting in future periods. The method VA Software uses to produce non-GAAP results is not computed according to GAAP, is likely to differ from the methods used by other companies and should not be regarded as a substitute for results prepared in accordance with accounting principles generally accepted in the United States.

About VA Software

VA Software Corporation (NASDAQ: LNUX) is at the center of today's technology revolution and incites innovation by empowering the IT and developer communities with information, community support and software. VA Software is the parent company of OSTG, Inc. (Open Source Technology Group), and the creator of SourceForge. SourceForge Enterprise Edition optimizes distributed development for Fortune 500 companies.

OSTG, Inc., the cornerstone of the Open Source movement, is the leading online network for IT managers and development professionals. OSTG technology-focused sites include,,,, and is the global nexus for the Open Source community with more than 110,000 Open Source projects and over 1.2 million registered users. OSTG also runs, an online retailer of technology products. OSTG receives more than 270 million page views and over 30 million unique visitors monthly.*

For more information about VA Software, visit For more information about OSTG, visit

Slashdot, freshmeat, ThinkGeek and are trademarks or registered trademarks of OSTG, Inc., in the United States and/or other countries. VA Software, OSTG, and SourceForge are trademarks or registered trademarks of VA Software Corporation in the United States and/or other countries. All other product or brand names herein are the properties of their respective owners.

* Google Analytics for the period ending February 5, 2006.

NOTE REGARDING FORWARD-LOOKING STATEMENTS: This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations, and involve risks and uncertainties. Forward-looking statements, include statements regarding our business and sales pipeline, our prospects for fiscal year 2006, expected benefits of the ASERVO AG reseller agreement, the acceptance of our online advertising programs, growth prospects for our media and software businesses, and ongoing improvements to and any expected benefits therefrom. Actual results may differ materially from those expressed or implied in such forward-looking statements due to various factors, including: VA Software's success in expanding its SourceForge enterprise software business; customer adoption of SourceForge solutions; the size and timing in executing enterprise-level licenses; VA Software's reliance upon strategic relationships with other companies; VA Software's success in designing and offering innovative online advertising programs; decreases or delays in online advertising spending; VA Software's ability to achieve and sustain higher levels of revenue; VA Software's ability to protect and defend its intellectual property rights; rapid technological and market change; future guidelines and interpretations regarding software revenue recognition; unforeseen expenses that VA Software may incur in future quarters; and competition with, and pricing pressures from more established competitors. Investors should consult VA Software's filings with the Securities and Exchange Commission,, including the risk factors sections of its Annual Report on Form 10-K for the fiscal year ended July 31, 2005 and Form 10-Q for the fiscal quarter ended October 31, 2005, for further information regarding these and other risks of VA Software's business. All forward-looking statements included in this press release are based upon information available to VA Software as of the date hereof, and VA Software does not assume any obligations to update such statements or the reasons why actual results could differ materially from those projected in such statements.

                             VA Software Corporation
                      (In thousands, except per share data)

                             Three Months Ended       Six Months Ended
                            --------------------    --------------------
                            Jan. 31,    Jan. 31,    Jan. 31,    Jan. 31,
                              2006        2005        2006        2005
                            --------    --------    --------    --------

Software revenues           $  2,970    $  1,531    $  4,391    $  3,462
Online Media revenues          2,694       2,008       5,275       3,857
E-commerce revenues            9,062       5,820      12,648       8,514
                            --------    --------    --------    --------
     Net revenues             14,726       9,359      22,314      15,833

Software cost of revenues        311         288         587         520
Online Media cost of revenues    937         838       1,800       1,640
E-commerce cost of revenues    6,529       4,359       9,371       6,713
                            --------    --------    --------    --------
     Cost of revenues          7,777       5,485      11,758       8,873
                            --------    --------    --------    --------
     Gross margin              6,949       3,874      10,556       6,960

Operating Expenses:
     Sales and marketing       2,771       2,349       5,002       4,718
     Research and development  1,621       1,480       3,135       2,852
     General and
      administrative           1,733       1,281       3,345       2,691
      costs and other
      special charges              -        (101)          -        (101)
     Amortization of
      intangible assets            1           5           2           8
                            --------    --------    --------    --------
        Total operating
         expenses              6,126       5,014      11,484      10,168
                            --------    --------    --------    --------
 from operations                 823      (1,140)       (928)     (3,208)
Interest and other, net          249         216         527         471
                            --------    --------    --------    --------
Income/(loss) from continuing
 operations                    1,072        (924)       (401)     (2,737)
Income from
 discontinued operations       9,431         222       9,670         419
                            --------    --------    --------    --------
Net Income/(loss)           $ 10,503    $  (702)    $  9,269    $ (2,318)
                            ========    ========    ========    ========

Income/(loss) per share
 from continuing
      Basic                 $   0.02    $  (0.01)   $  (0.01)   $  (0.04)
                            ========    ========    ========    ========
      Diluted               $   0.02    $  (0.01)   $  (0.01)   $  (0.04)
                            ========    ========    ========    ========
Income per share
 from discontinued
      Basic                 $   0.15    $     --    $   0.16    $     --
                            ========    ========    ========    ========
      Diluted               $   0.15    $     --    $   0.16    $     --
                            ========    ========    ========    ========
Net income/(loss)
 per share:
      Basic                 $   0.17    $  (0.01)   $   0.15    $  (0.04)
                            ========    ========    ========    ========
      Diluted               $   0.17    $  (0.01)   $   0.15    $  (0.04)
                            ========    ========    ========    ========
 shares outstanding:
      Basic                   61,727      61,412      61,698      61,403
                            ========    ========    ========    ========
      Diluted                 62,984      61,412      62,837      61,403
                            ========    ========    ========    ========

                         VA Software Corporation
                  (In thousands, except per share data)

Reconciliation of net
 income/(loss) as reported to
 pro forma net income/(loss):      Three Months Ended    Six Months Ended
                                    -----------------   -----------------
                                    January   January   January   January
                                   31, 2006  31, 2005  31, 2006  31, 2005
                                    -------   -------   -------   -------
Net income/(loss) from continuing
 operations - as reported           $ 1,072   $  (924)  $  (401)  $(2,737)
Non-cash charges:
   Stock-based compensation expense
    included in cost of goods             6         -        20         -
   Stock-based compensation expense
    included in operating expenses      144         -       344         -
   Restructuring cost and other
    special charges                       -      (101)        -      (101)
   Amortization of intangible
    assets                                1         5         2         8
                                    -------   -------   -------   -------
Net income/(loss) from continuing
 operations before non-cash charges $ 1,223   $(1,020)  $   (35)  $(2,830)
                                    =======   =======   =======   =======

Basic net income/(loss) per share -
 pro forma                          $  0.02   $ (0.02)  $     -   $ (0.05)
                                    =======   =======   =======   =======
Diluted net income/(loss) per share
 - pro forma                        $  0.02   $ (0.02)  $     -   $ (0.05)
                                    =======   =======   =======   =======
Weighted-average shares outstanding:
   Basic                             61,727    61,412    61,698    61,403
                                    =======   =======   =======   =======
   Diluted                           62,984    61,412    62,837    61,403
                                    =======   =======   =======   =======

                         VA Software Corporation
                             (In thousands)

                                            January 31,        July 31,
                                                2006             2005
                                            -----------      -----------
Current assets:
   Cash, cash equivalents and short-term
    investments                             $    43,122      $    36,614
   Accounts receivable, net                       4,021            4,306
   Inventories                                    1,491              773
   Prepaid expenses and other assets              2,118            1,014
                                            -----------      -----------
      Total current assets                       50,752           42,707
Long-term investments and long-term
 restricted cash                                  4,701            2,806
Property and equipment, net                         579              736
Other assets                                      1,117            1,132
                                            -----------      -----------
Total assets                                $    57,149      $    47,381
                                            ===========      ===========


Current liabilities:
   Accounts payable                         $     2,089      $     1,574
   Accrued restructuring liabilities              1,592            1,748
   Deferred revenue                               2,153            2,134
   Accrued liabilities and other                  3,175            2,882
                                            -----------      -----------
      Total current liabilities                   9,009            8,338
Accrued restructuring liabilities, net of
 current portion                                  5,311            6,107
Other long-term liabilities                       1,225            1,271
                                            -----------      -----------
Total liabilities                                15,545           15,716
                                            -----------      -----------

Stockholders' equity:
   Common stock                                      62               62
   Additional paid-in capital                   784,377          783,891
   Accumulated other comprehensive gain             (47)            (231)
   Accumulated deficit                         (742,788)        (752,057)
                                            -----------      -----------
      Total stockholders' equity                 41,604           31,665
                                            -----------      -----------
Total liabilities and stockholders' equity  $    57,149      $    47,381
                                            ===========      ===========

Contact Information

  • Contact:
    Investor Relations
    VA Software Corp.
    (510) 687-8731
    Email Contact