Verity Announces Record First Quarter Results - Company Financial Information

Edge: Work-Group Computing Report, Sept 20, 1999

Verity, Inc. (Nasdaq: VRTY), a leading provider of knowledge retrieval solutions for the enterprise and Internet, Tuesday reported financial results for its first fiscal quarter ended August 31, 1999. For the sixth consecutive quarter, Verity revenues and net income were at record levels.

In a fiscal quarter that has historically been the Company's weakest quarter, revenues for the first fiscal quarter were $19.8 million, representing a 50% increase over $13.2 million in revenues for the same period last year. Software product revenues, which represented 73% of total revenues for the first quarter, were $14.5 million, which is a 46% increase over the same period last year. Compared to the previous quarter ended May 31, 1999, first quarter revenues increased by 3% and software product revenues remained unchanged.

During the quarter, Verity saw significant sales activity in key markets, including Intranet information access solutions for major retail, telecommunications, banking and financial services, pharmaceutical, business services, consulting and high technology companies. The Company had significant sales to e-commerce sites, online publishers and government agencies, and developed new strategic OEM agreements with major technology vendors.

Net income grew by 315% between the first quarter of fiscal 1999 and the first quarter of fiscal 2000. Net income for the first quarter was $5.1 million, or $0.32 per diluted share, compared with net income of $1.2 million, or $0.10 per diluted share for the same period last year. In the prior quarter ended May 31, 1999, Verity reported net income of $5.0 million, or $0.34 per diluted share.

"The first quarter of fiscal 2000 was our sixth straight quarter of record revenues and net income," said Gary J. Sbona, President and CEO of Verity. "I am especially pleased at our record performance, because our first quarter has historically been our weakest, due to sometimes slower activity in our corporate markets during the summer months. In spite of these market conditions, for the second consecutive year, our first quarter financial performance has exceeded record fourth quarter results. We continue to see strong interest in Verity's products and services across our core Internet, intranet and OEM lines of business." About Verity

Verity is a leading provider of knowledge retrieval solutions. Verity's product suite powers corporate portals, e-commerce sites, online publishing and media sites, customer care applications, and products from market-leading OEMs and ISVs. Verity solutions simplify the management and use of information by indexing, classifying, organizing, searching and retrieving data, as well as providing personalized information delivery and hybrid online and CD publishing.

Verity's products are used by more than 1,000 corporations, e-commerce sites, government agencies, on-line service providers, Internet publishers and software developers worldwide. Verity alliances include Adobe Systems, AT&T, CDNOW, CNET, Cisco, Compaq, Dow Jones, Easy Software, EarthWeb, Ernst & Young, Financial Times, Globe and Mail, IBM, MD Consult, NewsEdge Corporation, Informix, Lotus, NEC, SAP, Siemens, Snap.com, Sybase, Tandem and Time New Media.

This press release contains forward-looking statements relating to management's efforts to achieve improved operations and results and continued strong interest in Verity's products and services. If Company management is unable to manage effectively the Company's operations, identify opportunities in a timely fashion, and effectively evaluate and manage the Company's business and competitive position, or interest in the Company's products declines due to the introduction of competing products or for other reasons, the Company's results of operations and financial condition will be materially and adversely affected. Other risks relating to the Company are as set forth in the Company's Form 10-K and Form 10-Q's as filed with the Securities and Exchange Commission.

For more information, contact Verity at info@verity.com or at World Wide Web site http://www.verity.com/ or by calling 408-541-1500.

                       VERITY, INC.
           CONSOLIDATED STATEMENTS OF OPERATIONS
           (in thousands, except per share data)

                                             Quarter Ended
                                       August 31,     August 31,
                                          1999           1998
                                              (unaudited)
Revenues:
   Software products                     $14,474      $ 9,889
   Service and other                       5,291        3,331
Total revenues                            19,765       13,220
                                         -------      -------
Costs of revenues:
   Software products                         144          437
   Service and other                       1,620        1,082
                                         -------      -------
Total costs of revenues                    1,764        1,519
                                         -------      -------
Gross profit                              18,001       11,701
                                         -------      -------
Operating expenses:
  Research and development                 3,726        3,275
  Marketing and sales                      8,064        5,952
  General and administrative               1,580        1,381
                                         -------      -------
 Total operating expenses                 13,370       10,608
                                         -------      -------
Income from operations                     4,631        1,093
Other income, net                            629          287
                                         -------      -------
Net income before provision for
 income taxes                              5,260        1,380
Provision for income taxes                   150          150
                                         -------      -------
Net income                               $ 5,110      $ 1,230
                                         =======      =======
Net income per share - basic             $  0.38      $  0.11
                                         =======      =======
Net income per share - diluted           $  0.32      $  0.10
                                         =======      =======
Number of shares used in per share
calculation - basic                       13,486       11,627
                                         =======      =======
Number of shares used in per share
calculation - diluted                     15,806       12,882
                                         =======      =======

                       VERITY, INC.
                CONSOLIDATED BALANCE SHEETS
                      (in thousands)

                                         August 31,    May 31,
                                            1999        1999
                                          -------------------
ASSETS

Current Assets:
 Cash and cash equivalents             $   8,275     $   7,907
 Short-term investments                   98,488        28,327
 Trade accounts receivable,
  less allowance for doubtful
  accounts of $850 and $900               17,545        17,174
 Prepaid and other current assets          2,037         1,481
                                       ---------     ---------
  Total current assets                   126,345        54,889

Property and equipment                     5,554         5,693
Long-term investments                      9,023         4,132
Other assets                                 272           312
                                       ---------     ---------
      Total assets                     $ 141,194     $  65,026
                                       =========     =========

LIABILITIES

Current Liabilities:
     Accounts payable                  $   3,789     $   3,786
     Accrued compensation                  6,523         6,665
     Other accrued liabilities             1,809         1,989
     Deferred revenue                      8,193         9,167
                                       ---------     ---------
      Total current liabilities           20,314        21,607

STOCKHOLDERS' EQUITY

Common stock                                  15            13
Additional paid-in capital               171,886        99,425
Unrealized gain (loss) on investments
                                             (86)           27
Accumulated deficit                      (50,935)      (56,046)
                                       ---------     ---------
 Total stockholders' equity              120,880        43,419
                                       ---------     ---------
 Total liabilities
and stockholders' equity               $ 141,194     $  65,026