Virage Logic Reports Third Quarter Fiscal 2007 Financial Results

Virage Logic Corporation (Nasdaq: VIRL), the semiconductor industry's trusted IP partner and pioneer in Silicon Aware IPTM, today reported financial results for the third quarter and the nine-month period of fiscal year ended June 30, 2007. Revenue for the third quarter of fiscal 2007 was $11.3 million, compared with $15.3 million for the comparable quarter of fiscal 2006 and $10.6 million in the prior quarter. License revenue for the third quarter of fiscal 2007 was $8.2 million compared to $11.1 million in the third quarter of fiscal 2006 and $7.8 million in the previous quarter. Royalties for the third quarter of fiscal 2007 were $3.1 million, compared with $4.2 million for the third quarter of fiscal 2006 and $2.8 million in the prior quarter. As reported under U.S. generally accepted accounting principles (GAAP), net loss for the third quarter of fiscal 2007 was $1.2 million, or $0.05 per share, compared with a net loss of $1.6 million, or $0.07 per share, for the same period a year ago and with a net loss of $1.8 million, or $0.08 per share, for the second quarter of fiscal 2007. During the quarter the company incurred $0.6 million of restructuring charges in connection with consolidation of some of our operations, including the closing of our Seattle R&D site. Excluding the effects of FAS123R stock-based compensation expense and the restructuring charges, the company would have reported a net loss of $94,000, or $0.00 per share. Net loss for the third quarter of fiscal 2007 included $0.7 million of FAS123R stock-based compensation expense and $0.6 million of restructuring expense. Dan McCranie, president and chief executive officer of Virage Logic, said, "While we were able to grow revenue 7% sequentially to $11.3 million, we did not meet our minimum revenue guidance of $11.5 million. That said, the company did make significant improvements in securing new multi-year licensing contracts, particularly in the most advanced 45nm and 65nm process nodes. These contract wins resulted in our again achieving sequential total license backlog growth. And, looking into the intermediate future, we are seeing several positive indicators that lead us to believe we are making strong progress on our goal to transform the company. Specifically, our opportunity pipeline is larger and increasing. We believe that these opportunities are a direct result of our focus over the past six months to develop new memory compilers and logic libraries at the most advanced process nodes, and our continuous improvement in product quality and delivery against agreed upon schedules. This combination of being first to market with next-generation product, superior quality and strict adherence to promised delivery schedules are among the essential elements in Virage Logic becoming the trusted IP partner for the semiconductor industry. As a result of these efforts, we have been able to re-engage with several key customers as well as engage with new customers at a more strategic level.” The company has a goal to drive toward a superior cost structure for development and delivery of its IP. On the operational side, therefore, initiatives have been launched to improve operational efficiencies and lower operating expenses. In fiscal Q2, the Engineering and Development organization was restructured to drive next-generation IP product. Also, during this past quarter, the decision was made to close the Seattle R&D office and consolidate the functions in the Company’s other global R&D centers. The impact of these changes will benefit both engineering efficiencies as well as lower overall cost of operation. Mr. McCranie continued, "With the increase in license booking activity in the past quarter, we are entering our fiscal Q4 with a higher backlog than last quarter. With this backlog increase, coupled with our projected turns business for the coming quarter, we anticipate total revenues to increase to approximately $12.0 million to $13.0 million in the fourth quarter of fiscal 2007. License revenues are expected at $9.1 million to $9.9 million and royalty revenues are expected at $2.9 million to $3.1 million. With these revenue numbers, and with the recent reduction in operating costs, the company expects to report a GAAP net loss of approximately $0.01 to $0.04 per share. The company also expects $1.0 million of stock-based compensation expense per FAS123R. Without the impact of stock-based compensation expense, the company would expect earnings to be between a loss per share of $0.01 and a profit of $0.01 per share.” Mr. McCranie concluded, "In summary, we are making clear and quantifiable progress on multiple fronts. The efforts of our advanced technology group as well as strong performance from certain elements of our demand creation team were particularly noteworthy this past quarter. We now need to continue this progress at an accelerated pace.” Conference Call Virage Logic's management will hold a teleconference on third-quarter 2007 results at 1:30 p.m. PACIFIC / 4:30 p.m. EASTERN today, August 1, 2007. Participants can access the call by dialing (888) 413-9033 (domestic) or (706) 679-5076 (international) or can listen via a live Internet webcast, which can be found on the Investor Relations page of the Virage Logic website at www.viragelogic.com. A replay of the call will be available at (800) 642-1687 (domestic) or (706) 645-9291 (international), access number 7209688 through August 4, 2007; and the webcast can be accessed at www.viragelogic.com for 30 days. About Virage Logic Corporation Founded in 1996, Virage Logic Corporation (Nasdaq: VIRL) rapidly established itself as a technology and market leader in providing advanced embedded memory intellectual property (IP) for the design of complex integrated circuits. Today, as the semiconductor industry's trusted IP partner, the company is a leading provider of embedded memories, logic, and I/Os, and is pioneering the development of a new class of IP called Silicon Aware IP™. Silicon Aware IP tightly integrates Physical IP (memory, logic and I/Os) with the embedded test, diagnostic, and repair capabilities of Infrastructure IP to help ensure manufacturability and optimized yield at the advanced process nodes. Virage Logic's highly differentiated product portfolio provides higher performance, lower power, higher density and optimal yield to foundries, integrated device manufacturers (IDMs) and fabless customers who develop products for the consumer, communications and networking, hand-held and portable, and computer and graphics markets. The company uses its FirstPass-Silicon Characterization Lab™ for certain products to help ensure high quality, reliable IP across a wide range of foundries and process technologies. The company also prides itself on providing superior customer support and was named the 2006 Customer Service Leader of the Year in the Semiconductor IP Market by Frost & Sullivan. Headquartered in Fremont, California, Virage Logic has R&D, sales and support offices worldwide. For more information, visit www.viragelogic.com. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements made in this news release, other than statements of historical fact, are forward-looking statements, including, for example, statements relating to industry and company trends, business outlook and products. Forward-looking statements are subject to a number of known and unknown risks and uncertainties, which might cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include Virage Logic's ability to improve its operations; its ability to forecast its business, including its revenue, income and order flow outlook; Virage Logic's ability to execute on its strategy to become a provider of semiconductor IP platforms; Virage Logic's ability to continue to develop new products and maintain and develop new relationships with first-party foundries and integrated device manufacturers; adoption of Virage Logic's technologies by semiconductor companies and increases or fluctuations in the demand for their products; the company's ability to overcome the challenges associated with establishing licensing relationships with semiconductor companies; the company's ability to obtain royalty revenues from customers in addition to license fees, to receive accurate information necessary for calculating royalty revenues and to collect royalty revenues from customers; business and economic conditions generally and in the semiconductor industry in particular; competition in the market for semiconductor IP platforms; and other risks including those described in the company's Annual Report on Form 10-K for the period ended September 30, 2006, and in Virage Logic's other periodic reports filed with the SEC, all of which are available from Virage Logic's website (www.viragelogic.com) or from the SEC's website (www.sec.gov), and in news releases and other communications. Virage Logic disclaims any intention or duty to update any forward-looking statements made in this news release. Reconciliation of GAAP to Non-GAAP Financial Results Statement of Operations Reconciliation (in thousands) ThreeMonthsEnded June 30, 2007 ThreeMonthsEnded June 30, 2006 NineMonthsEnded June 30, 2007 NineMonthsEnded June 30, 2006 GAAP net loss $ (1,236 ) $ (1,590 ) $ (4,229 ) $ (1,656 ) Stock-based compensation expense charged to operating expense (includes SSARs, RSUs, etc.) 780 1,618 3,413 5,368 Stock-based compensation expense (benefit) related to custom contracts (106 ) 3 246 31 Restructuring charges 580 -- 580 -- Tax effect   (112 )   1,411     (1,233 )   (1,066 ) Non-GAAP net(loss) income $ (94 ) $ 1,442   $ (1,223 ) $ 2,677   Virage Logic Corporation Unaudited GAAP and Non-GAAP Consolidated Statements of Operations (In thousands, except per-share amounts) For the Three Months Ended June 30, 2007 For the Three Months Ended June 30, 2006 GAAP   Adjust-ments   Non-GAAP   GAAP   Adjust-ments   Non-GAAP   Revenue: License $ 8,207 $ -- $ 8,207 $ 11,084 $ -- $ 11,084 Royalties   3,079     --     3,079     4,262     --     4,262 Total revenues 11,286 -- 11,286 15,346 -- 15,346 Cost and expenses: Cost of revenues 2,869 (53 ) 2,816 4,151 (279 ) 3,872 Research and development 5,301 (246 ) 5,055 5,473 (351 ) 5,122 Sales and marketing 4,050 (287 ) 3,763 4,027 (389 ) 3,638 General and administrative 1,789 (88 ) 1,701 2,150 (602 ) 1,548 Restructuring charges   580     (580 )   --     --     --     -- Total cost and expenses   14,589     (1,254 )   13,335     15,801     (1,621 )   14,180 Operating income (loss) (3,303 ) 1,254 (2,049 ) (455 ) 1,621 1,166 Interest income and other, net   961     --     961     924     --     924 Income (loss) before taxes (2,342 ) 1,254 (1,088 ) 469 1,621 2,090 Income tax provision (benefit)   (1,106 )   112     (994 )   2,059     (1,411 )   648   Net income (loss) $ (1,236 ) $ 1,142   $ (94 )   ($1,590 ) $ 3,032   $ 1,442   Earnings per share: Basic $ (0.05 ) $ 0.05   $ (0.00 ) $ (0.07 ) $ 0.13   $ 0.06 Diluted $ (0.05 ) $ 0.05   $ (0.00 ) $ (0.07 ) $ 0.13   $ 0.06   Shares used in computing per share amounts: Basic   23,076     23,076     23,076     22,384     22,384     22,384 Diluted   23,076     23,076     23,076     22,384     23,046     23,046 Virage Logic Corporation Unaudited GAAP and Non-GAAP Consolidated Statements of Operations (In thousands, except per-share amounts) For the Nine Months Ended June 30, 2007 For the Nine Months Ended June 30, 2006 GAAP   Adjust-ments   Non-GAAP   GAAP   Adjust-ments   Non-GAAP   Revenue: License $ 24,433 $ -- $ 24,433 $ 31,852 $ -- $ 31,852 Royalties   8,945     --     8,945     12,415     --     12,415 Total revenues 33,378 -- 33,378 44,267 -- 44,267 Cost and expenses: Cost of revenues 9,972 (883 ) 9,089 11,367 (945 ) 10,422 Research and development 15,201 (863 ) 14,338 16,429 (1,357 ) 15,072 Sales and marketing 11,467 (922 ) 10,545 12,585 (1,343 ) 11,242 General and administrative 6,871 (991 ) 5,880 7,615 (1,754 ) 5,861 Restructuring charges   580     (580 )   --     --     --     -- Total cost and expenses   44,091     (4,239 )   39,852     47,996     (5,399 )   42,597 Operating income (loss) (10,713 ) 4,239 (6,474 ) (3,729 ) 5,399 1,670 Interest income and other, net   2,878     --     2,878     2,208     --     2,208 Income (loss) before taxes (7,835 ) 4,239 (3,596 ) (1,521 ) 5,399 3,878 Income tax provision (benefit)   (3,606 )   1,233     (2,373 )   135     1,066     1,201   Net income (loss) $ (4,229 ) $ 3,006   $ (1,223 ) $ (1,656 ) $ 4,333   $ 2,677   Earnings per share: Basic $ (0.18 ) $ 0.13   $ (0.05 ) $ (0.07 ) $ 0.19   $ 0.12 Diluted $ (0.18 ) $ 0.13   $ (0.05 ) $ (0.07 ) $ 0.19   $ 0.12   Shares used in computing per share amounts: Basic   23,096     23,096     23,096     22,393     22,393     22,393 Diluted   23,096     23,096     23,096     22,393     23,022     23,022 Virage Logic Corporation Unaudited Consolidated Balance Sheets (In thousands)   June 30,2007 September 30,2006 ASSETS: Current assets: Cash and cash equivalents $ 14,666 $ 20,815 Short-term investments 43,796 49,253 Accounts receivable, net 9,431 15,935 Costs in excess of related billings on uncompleted contracts 1,070 656 Deferred tax assets - current 1,527 1,527 Prepaid expenses and other current assets 3,782 3,369 Taxes receivable   2,105     1,711   Total current assets 76,377 93,266   Property, equipment and leasehold improvements, net 3,938 4,842 Goodwill 9,782 9,782 Other intangible assets, net 1,706 1,990 Deferred tax assets 13,236 8,562 Long-term investments 20,438 7,533 Other long-term assets   481     300     Total assets $ 125,958   $ 126,275     LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 829 $ 446 Accrued expenses 4,756 4,797 Deferred revenue 7,801 8,896 Income taxes payable   2,680     2,626   Total current liabilities 16,066 16,765 Deferred tax liabilities   692     692   Total liabilities 16,758 17,457   Stockholders’ equity: Common stock 23 23 Additional paid-in capital 134,667 130,620 Accumulated other comprehensive income 873 309 Accumulated deficit   (26,363 )   (22,134 ) Total stockholders’ equity   109,200     108,818     Total liabilities and stockholders’ equity $ 125,958   $ 126,275