Virage Announces Record First Quarter Revenues Up 118% Year-To-Year And 16% Sequentially

Increased Adoption in Enterprise Market Including New Blue Chip Customers Citigroup, Deutsche Bank, Houghton Mifflin, Pfizer, Williams Energy

SAN MATEO, Calif. - July 17, 2001 - Virage, Inc. [Nasdaq: VRGE], a leading provider of video content management and publishing solutions, today reported record revenues for its first fiscal quarter ended June 30, 2001.

Total pro forma revenues for the quarter were up 16% to $4.2 million from $3.6 million in the prior quarter ended March 31, 2001 and 118% over the same quarter last year. License revenues totaled $1.9 million, a 72% increase from the same quarter in the prior year. Pro forma service revenues totaled $2.3 million, a 176% increase from the same quarter in the prior year. Pro forma service and pro forma total revenues exclude a non-cash, stock-based charge of $216,000 resulting from the issuance of a common stock warrant to Major League Baseball. This charge reduces revenues in the Company's statements of operations prepared in accordance with generally accepted accounting principles for the quarter ended June 30, 2001 to $4.0 million and $2.0 million for total and service revenues, respectively. Gross margins for the quarter were 35%, up from 13% in the same quarter of the prior year.

Pro forma net loss, which excludes $1.2 million of non-cash, stock-based charges was $6.0 million, or $0.30 per share (based on 20.1 million weighted-average shares outstanding). This compares to a pro forma net loss of $6.5 million, or $0.48 per share (based on 13.5 million pro forma, weighted-average shares outstanding), for the same quarter in the prior year.

Including non-cash, stock-based charges in accordance with generally accepted accounting principles, net loss was $7.2 million, or $0.36 per share (based on 20.1 million weighted-average shares outstanding). This compares to a net loss of $7.7 million or $2.41 per share (based on 3.2 million weighted-average shares outstanding) for the same quarter in the prior year.

"Virage continues to deliver solid performance in this challenging economic environment. I am especially pleased with our traction in the enterprise market with new customer wins in the energy, financial services and pharmaceutical sectors. These wins further validate our ability to deliver enhanced communication and productivity solutions to a wide variety of corporations," stated Paul G. Lego, chairman and CEO of Virage. "In addition to these new wins, Virage benefited from significant repeat business from our existing customers including Cisco, CNET, CNN, Discovery Channel, Princeton University and Schlumberger. We also executed and delivered on several complex and demanding customer projects, including the successful launch of a major streaming video initiative with Major League Baseball."

"Virage continues to grow revenues in a tough economic environment due to both increased acceptance of our value proposition and our excellent win-rate against competitors," said Al Castino, CFO of Virage. "Our financial position remains strong and we have a solid pipeline for the current quarter."

Cash and short-term investments totaled $42.4 million as of June 30, 2001 versus $48.1 million as of March 31, 2001. Accounts receivable totaled $2.5 million, representing 54 days sales outstanding. The company had no debt as of June 30, 2001.

Other First Quarter Highlights

Virage Adds 24 New Customers During the first quarter, Virage added 24 new customers, bringing its total number of customers to over 275. Virage saw increasing demand from new enterprise customers deploying Virage software and services to deliver video enhanced communication and productivity solutions to a wide variety of corporations including CacheFlow, Citigroup's Corporate and Investment Bank, Coherent, Deutsche Bank, Houghton Mifflin, Pfizer and Williams Energy Services. New media and entertainment customers adopting the Virage platform included E! Networks, Globe Interactive and Home and Garden TV. Virage also saw continued growth in the government market with the addition of Federal Judicial Center and Goodfellow Air Force Base.

Virage Scores Key Wins in Financial Services Market

Deutsche Bank and Citigroup join a growing list of financial service customers that are selecting Virage to deploy on-demand and interactive access to daily financial market video briefings on their corporate intranet. Other financial service related customers include Bear Stearns, Bloomberg and the New York Stock Exchange.

Significant Growth in Repeat Business

In Q1, Virage experienced a significant increase in revenue generated by repeat business to both current license software customers and application services customers, confirming the strong value proposition of the Virage platform. Repeat media, entertainment and enterprise customers in Q1 included Cisco, CNET, CNN, Discovery Channel, Foundry Networks, PBS, Schlumberger and Williams Communications. Virage also saw repeat business in the education market from customers including the University of Northern Iowa, Princeton University, Stanford University and the University of Wisconsin.

Continued International Growth

In Q1, Virage saw continued growth outside the United States, with major new projects in Europe, Latin America and Asia. In Europe, Virage announced that Channel 4 and Premium TV in the UK, Deutsche Bank, Interactive Video Services GmbH and Telekom Austria will use the Virage Video Application Platform.

In Japan, Virage announced that Sumitomo Corporation, a Virage integrator and distributor, added its first Japanese education customer, Seiko University. Seiko University joins a growing list of Japanese customers that include NEC, NTT, and Toshiba. Virage also added MegaFusion Corporation as a second certified distributor in Japan. Virage further extended its success in Asia by adding Beijing Waresoft Networks and Sobey Digital Technology as its first customers in the Chinese market.

In Q1, Virage also announced the availability of its Audio Recognition plug-in software in five new languages including Japanese, traditional Chinese, simplified Chinese, Brazilian Portuguese and UK English.

Successful Deployment of Web-based Video for Major League Baseball

In partnership with Major League Baseball Advanced Media, with whom Virage announced an agreement in January 2001, the Company successfully launched one of the largest and most ambitious streaming video projects on the Web to date. Between baseball's Opening Day and the mid-season All-Star break, Virage has captured, encoded, and indexed approximately 1,200 Major League Baseball games, or almost 4,000 hours of baseball content. This content is processed daily at Virage's application services facilities in New York and New Jersey.

Since Opening Day, a variety of Virage-enabled streaming video applications have been launched across the MLB.com site. MLB.com's web producers use Virage to quickly create and publish video highlight reels following each game, which are integrated with game reports and online scoreboards throughout the MLB.com site. Virage video was also used to support the online All-Star voting by allowing fans to review 2001 highlights for each All-Star candidate. Most recently, MLB.com introduced Custom Cuts, a breakthrough product that allows fans to search for and view plays from the entire 2001 baseball season.

IBM Joins Growing List of Virage Partners

In an agreement reached in Q1, Virage announced the signing of a global marketing and resale agreement with IBM. IBM will integrate and resell Virage technology, combining Virage's SmartEncode products with IBM's large enterprise digital Content Manager offering - the IBM Media Production Suite. This partnership creates an end-to-end solution that allows companies to manage, archive, assemble and distribute video assets in one comprehensive digital production environment. Other new partners in Q1 included Globix, PacketVideo, the SONY Software Development Center, Telespazio South America and Volera.

Sales Force Expansion in Q1

In Q1, Virage added additional sales personnel in Atlanta, Boston, Dallas, New York and in Berlin, Germany, as well as two new regional sales directors, significantly enhancing both its geographic and industry coverage. "I'm very pleased that we have attracted talented individuals from well-regarded companies who will give us the coverage we need to rapidly grow our business across our target industries," said Michael Lock, senior vice president of worldwide sales for Virage.

Looking Forward

"Despite the uncertainty of the current economic climate, we continue to execute well against our plan," said Paul G. Lego. "We feel good about our outlook for the current quarter, given our backlog and visibility into the Q2 sales pipeline. While there is uncertainty in the economic environment and limited visibility into our pipeline for future quarters, we believe that we are well positioned for growth based on the strength of our products, our recent success in penetrating the corporate market, our excellent win-rate versus the competition, and the recent investments in our sales force and services organization."

Virage First Quarter Webcast

Virage management will host a webcast to discuss first quarter financial performance, operating and strategic developments and forward-looking guidance at 3:00 pm Pacific Standard Time (6:00 pm Eastern Time) today, Tuesday, July 17th, 2001. The webcast will be available live at www.virage.com/ir or www.streetfusion.com and will be available for replay at the same URLs through August 31st, 2001.

About Virage, Inc.

Headquartered in San Mateo, California, Virage is the leading provider of video content management and publishing solutions. The Virage Internet Video Application Platform transforms video into an effective online medium that is easy to publish, manage and distribute on the Internet or corporate intranets. The Virage platform provides content owners with the complete infrastructure for seamlessly integrating streaming video into business, entertainment and information applications. From ABC to Yahoo!, over 250 customers across a broad range of markets have turned to Virage to help them improve production efficiencies and create new revenue opportunities with video. Contact Virage at http://www.virage.com/ or (650) 573-3210.

Forward Looking Statements

This press release contains forward looking statements, including statements about our future sales growth, particularly in the paragraph entitled "Looking Forward." Our forward looking statements are based on currently available information which management has assessed but which is dynamic and subject to rapid and even abrupt change due to risks and uncertainties that affect our business, including the unpredictability of future revenues due to our short operating history and limited visibility into future demand on which to base our forecasts; the current uncertainty in our marketplace which may impact expected demand, customer selection criteria and sales cycle; our ability to execute on service and software deliverables and major customer contracts, and, in particular, our relationship with Major League Baseball; slower economic growth generally, slower adoption of broadband technology, or cutbacks in information technology spending; and factors beyond our control such as power outages or work stoppages at key customers. Our forward looking statements should be considered in the context of these and other risk factors disclosed from time to time in the company's filings with the Securities and Exchange Commission, including its annual report on Form 10-K and Form 10-Q filings.

age is a registered trademark and the Virage logo and SmartEncode are trademarks of Virage, Inc. Other company product and service names may be trademarks or service marks of others, and are hereby acknowledged.

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