Virage Announces Record Second Quarter Revenues
up 92% Year-to-Year and 18% Sequentially
Accelerated Federal Government Business and Continued Strength in Global Enterprise, Media & Entertainment and Education Markets Improve Bottom Line
SAN MATEO, Calif. - October 16, 2001 - Virage, Inc. [Nasdaq: VRGE], a leading provider of video content management and publishing solutions, today reported record revenues for its second fiscal quarter ended September 30, 2001.
Pro forma total revenues for the quarter ended September 30, 2001 were up 18% to $5.0 million from $4.2 million in the prior quarter and 92% over the same quarter in the prior year. License revenues totaled $2.9 million, a 56% increase from the prior quarter. Pro forma service revenues totaled $1.9 million, a 17% decrease from the prior quarter. Pro forma gross profit for the quarter was 46% of total revenues, up from 35% in the prior quarter. Pro forma service revenues, total revenues, and gross profit for the current and prior quarter exclude a non-cash, stock-based charge of $216,000 resulting from the issuance of a common stock warrant to Major League Baseball Advanced Media.
Less than five percent of second quarter revenues came from Major League Baseball Advanced Media. Significant additional payments that were due to Virage from Major League Baseball Advanced Media during the second quarter were not received, although a substantial portion of those payments were received in the third quarter. These payments will be recognized as service revenues in the company's third quarter.
Pro forma net loss for the second quarter, which excludes $1.2 million of non-cash, stock-based charges, was $5.2 million or $0.26 per share (based on 20.2 million weighted-average shares outstanding). This compares to a prior quarter pro forma net loss of $6.0 million, which excludes non-cash, stock-based charges of $1.3 million, or $0.30 per share (based on 20.1 million weighted-average shares outstanding).
Including non-cash, stock-based charges in accordance with generally accepted accounting principles, net loss for the quarter was $6.4 million, or $0.31 per share (based on 20.2 million weighted-average shares outstanding). This compares to a net loss of $7.2 million, or $0.36 per share (based on 20.1 million weighted-average shares outstanding), in the prior quarter.
"Virage again has shown its ability to perform in an extremely challenging business climate," said Paul G. Lego, chairman and CEO of Virage. "While the unfortunate events of September 11th did have a short-term impact on us, particularly within our corporate and media client base in the New York City area, we have been able to counter that challenge with strong sales performance in both the government and education sectors. We are confident that Virage is well positioned to benefit from increased defense-related government spending as well as increased spending on corporate streaming video initiatives as an alternative to business travel."
Six Month Results
For the six months ended September 30, 2001, pro forma total revenues were $9.2 million, more than double the revenues of $4.5 million reported for the same period last fiscal year. Pro forma revenues for the six months ended September 30, 2001 exclude a non-cash, stock-based charge of $432,000.
Pro forma net loss was $11.2 million, or $0.55 per share (based on 20.2 million weighted-average shares outstanding), for the six months ended September 30, 2001, versus $12.2 million, or $0.75 per share (based on 16.4 million pro forma, weighted-average shares outstanding) for the six months ended September 30, 2000. Pro forma net loss for the six months ended September 30, 2001 and 2000, excludes $2.4 million and $2.6 million of non-cash, stock based charges, respectively.
Including non-cash, stock-based charges in accordance with generally accepted accounting principles, net loss for the six months ended September 30, 2001 was $13.6 million, or $0.67 per share (based on 20.2 million weighted-average shares outstanding). This compares to a net loss of $14.8 million, or $1.36 per share (based on 10.9 million weighted-average shares outstanding), for the six months ended September 30, 2000.
"The continued diversity of our customer base has helped us to thrive in what we believe to be the most challenging economic environment in our company's history," said Al Castino, CFO of Virage. "We maintained tight expense controls in the second quarter, reducing our operating expenses on a sequential basis, and significantly improved gross margins. With a strong financial position and growing license pipeline, we believe we are well positioned to capitalize on market opportunities in the coming quarters."
Cash and short-term investments totaled $37.1 million as of September 30, 2001 versus $42.4 million as of June 30, 2001. Accounts receivable totaled $2.9 million, representing 52 days sales outstanding. The company had no debt as of September 30, 2001.
Other Second Quarter Highlights
Continued Success in Enterprise, Media & Entertainment, and Education Markets
During the second quarter, Virage added brand-name customers across diverse markets in the United States. New customers in the second quarter included Credit Suisse First Boston, Sprint Labs, DePuy Inc. (a Johnson & Johnson company), KLA Tencor, MPI Media Group, NASCAR, the Carolina Panthers, Bowling Green State University, University of California Berkeley National Laboratory, and Virginia Beach Public Schools. In addition, Virage generated significant repeat business from existing customers in North America including Bear Stearns, Cisco, Delmar Publishing, Kraft, Williams Energy, CNET, Discovery Networks, EXPN, Globe Interactive, and Harvard, Princeton, and Stanford universities. Virage's installed base now includes more than 300 customers.
Acceleration of Federal Government Business
Also in the second quarter, Virage experienced strong growth in its sales to the U.S. federal government, approximately doubling government sales compared to recent quarters. This growth was driven primarily by increased defense funding and acceleration of defense-related projects that include Virage software. The company continues to invest in its relationship with the U.S. government that dates back to seed funding Virage received from the Defense Advanced Research Projects Agency (DARPA) Small Business Innovative Research grant program in 1996. The company was a recent recipient of the Sixth Annual U.S. Small Business Administration Tibbetts Award, honoring the success of its involvement in this program. Virage receives ongoing funding for technology research and development from the Office of Naval Research and DARPA. Second quarter government orders for Virage included Office of the Secretary of Defense through Sarnoff Corporation and the U.S. Senate, as well as several other orders from government agencies.
Continued Success in International Markets
Virage continues to expand its business internationally, maintaining a consistent percentage of its revenue from overseas markets. In the second quarter, the Company experienced strong customer wins in Spain, Italy and Japan. International customers in Q2 included Thomas Cook Travel, NTT Learning, Sogecable, Castillia de la Mancha, Tiscali and Toshiba. Virage also added four resellers in Asia including Tricomtek in Korea, Ideal Systems in Hong Kong, Asia Broadband in Singapore, and New Digital Technology Holdings in People's Republic of China.
Next Generation Products Launched
In September, Virage announced its next-generation SmartEncode™ suite, including VideoLogger® 5.0, Software Developer Kit 5.0 and Virage ControlCenter™ 2.0. This new generation of Virage's flagship SmartEncode product line further automates the video content workflow process and reduces the cost of ownership and deployment for Virage customers. The new SmartEncode suite creates a simultaneous, real-time process for controlling, automating and integrating the workflow surrounding the encoding, indexing and delivery of video. During the quarter, Virage also released local versions of the SmartEncode suite in Chinese, Japanese and German. In addition, Virage released versions of its Video Application Server™ localized in Chinese and Japanese. Finally, as part of its ongoing defense-related government initiatives, Virage released a specialized version of its VideoLogger product incorporating state-of-the-art speech processing technology from BBN Technologies, a wholly-owned subsidiary of Verizon Communications [NYSE: VZ].
Looking Forward
"While we are pleased with our accomplishments last quarter, we now face an even more uncertain economic environment as we move into our third fiscal quarter," said Paul G. Lego. "As a result, we need to be more cautious in our outlook for at least the next quarter. We currently expect revenues for our third fiscal quarter ending in December 2001 to grow slightly from our second quarter. We continue to do well versus our competition, to see strong demand for Virage solutions across a diverse customer base, and to manage our expenses effectively. With these factors in mind, we feel confident in our continued success."
Virage Second Quarter Webcast
Virage management will host a webcast to discuss second 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, October 16th, 2001. The webcast will be available live at www.virage.com/ir or through CCBN's investor distribution network through www.streetevents.com (for institutional investors) and www.companyboardroom.com (for individual investors) and will be available for replay at the same URLs through November 30, 2001.
About Virage, Inc.
Headquartered in San Mateo, CA, Virage is the leading provider of video content management and publishing solutions. The Virage 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! well over 300 customers across a broad range of markets have turned to Virage to help them improve production efficiencies and create new revenue opportunities with video. The determination of when VideoLogger® 5.0, Software Developer Kit 5.0 and ControlCenter™ 2.0 will be made available for general distribution, if ever, remains at the sole discretion of Virage, Inc. Check out Virage at http://www.virage.com.
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 Advanced Media; 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.
Virage and VideoLogger are registered trademarks and the Virage logo, Video Application Server 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. The determination of when VideoLogger® 5.0, Software Developer Kit 5.0 and ControlCenter™ 2.0 will be made available for general distribution, if ever, remains at the sole discretion of Virage, Inc.
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