Virage Logic Reports Third Quarter Fiscal Year 2008 Results

Virage Logic Corporation (NASDAQ:VIRL), the semiconductor industry’s trusted IP partner, today reported its financial results for the third fiscal quarter ended June 30, 2008. Revenues for the third quarter of fiscal 2008 were $15.1 million, compared with $11.3 million for the third quarter of fiscal 2007 and $14.7 million for the second quarter of fiscal 2008. License revenue for the third quarter of fiscal 2008 was $12.3 million, compared with $8.2 million for the same period a year ago and $12.1 million for the prior quarter. Royalties for the third quarter of fiscal 2008 were $2.8 million, compared with $3.1 million for the third quarter of fiscal 2007 and $2.6 million for the second quarter of fiscal 2008. As reported under U.S. generally accepted accounting principles (GAAP), net loss for the third quarter of fiscal 2008 was $1.1 million, or $(0.05) per share, compared with net loss of $1.2 million, or ($0.05) per share for the third quarter of fiscal 2007 and net income of $0.6 million or $0.03 per share for the second quarter of fiscal 2008. Excluding the effects of FAS123R stock compensation expense, restructuring and acquisition related charges, the company would have reported a net income of $1.4 million, or $0.06 per share for the quarter ended June 30, 2008. The reconciliation of GAAP to non-GAAP includes $0.7 million of stock-based compensation expense, approximately $1.9 million of acquisition related charges and restructuring charges of approximately $0.3 million reduced by $0.4 million tax effect for a net total of $2.5 million. Dan McCranie, chairman and chief executive officer (CEO) for Virage Logic, said, "License revenue increased 50% year-over-year while total revenue, which includes royalties, increased 34% year-over-year. We have been able to deliver four consecutive quarters of non-GAAP profitability and this financial performance underscores the significant progress we have made to date in transforming the company. Key initiatives that we made particularly strong progress against in the third quarter include the following: Being first-to-market with next generation advanced technology products. We introduced our 40nm SiWare™ memory compilers and logic libraries and during the quarter we were successful in securing three new customers for our 40nm SiWareTM standard product offering. This is a key leading indicator because in order to create a scalable and profitable business, we must leverage our engineering investment through proliferation of off-the-shelf advanced libraries and compilers. Broadening our product portfolio. Our DDR offerings increased this past quarter with the announcement of our DDR2/3 product and more recently with the introduction of our DDR3 product. With these new offerings, we were able to expand our account base, particularly in the Programmable Logic semiconductor market. In addition to broadening our product portfolio organically, we have also expanded our product portfolio with the purchase of Impinj’s non-volatile memory IP business. Mr. McCranie continued, "In the third quarter, we continued to execute on our goals to transform the company into a high growth, high profit trusted IP provider to the semiconductor industry. Now, let me turn to our business outlook for the fourth quarter of fiscal 2008. While we enjoyed strong quarter-on-quarter license growth for the past five quarters, we remain both cautious and concerned about the near term growth prospects for the semiconductor component suppliers whom we serve. Accordingly, we are forecasting relatively flat license and royalty revenue for the fourth quarter of fiscal 2008 compared to the third quarter of fiscal 2008. As noted in our recent Impinj NVM IP business acquisition announcement, this transaction will have a neutral to slightly negative impact on our earnings in the fourth quarter of 2008, and should contribute approximately $0.03 to $0.06 per share to our earnings in fiscal 2009. Refining this forecast for the near term, we now believe that the Impinj transaction will be dilutive up to approximately $0.03 in the fourth fiscal quarter but should be between $0.01 and $0.03 accretive in the first fiscal quarter of 2009 alone. Mr. McCranie concluded, "In summary, we anticipate fourth quarter fiscal 2008 revenues of $15.0M to $15.5M and a non-GAAP earnings per share of $0.02 to $0.03 per share. The company expects $1.3 million of FAS123R stock compensation expense and $1.2 million acquisition related expenses that include $0.9 million of acquisition related performance based payments linked to predefined sales goals for the fourth quarter of fiscal 2008.” Although this news release will be available on the company’s website, the company disclaims any duty or intention to update these or any other forward-looking statements. GAAP reconciliation We believe the financial figures we include that are not presented in accordance with GAAP assist investors in understanding our business and operating results. This information is intended to provide investors with useful supplemental data regarding the underlying economics of our business operations because operating results presented under GAAP may include items that are nonrecurring or not necessarily relevant to ongoing operations, or are difficult to forecast for future periods. The Company’s management evaluates and makes operating decisions about its business operations primarily based on revenue and the core costs of those business operations. Management believes that the amortization and impairment of intangible assets, stock-based compensation and restructuring charges are not part of its core business operations. Therefore, management presents non-GAAP financial measures, along with GAAP measures, in this earnings release by excluding these items from the period expenses. The income statement line items involved in the adjustment from GAAP to non-GAAP presentation in this earnings release are amortization and impairment of intangible assets and stock-based compensation that are included in cost of revenues, research and development, general and administrative and sales and marketing expenses. To determine our non-GAAP tax provision, the Company recalculates tax based on non-GAAP income before taxes and adjusts accordingly. For each such non-GAAP measure, the adjustment provides management with information about the Company’s underlying operating performance that enables a more meaningful comparison of our finance results in different reporting periods. For example, since the Company does not acquire businesses on a predictable cycle, management excludes acquisition-related charges in order to provide a more consistent and meaningful evaluation of the Company’s operating expenses. Management also excludes the impact of stock-based compensation to help it compare current period operating expenses against the operating expenses for prior periods. In addition, the availability of non-GAAP information helps management track actual performance relative to financial targets. This information also helps investors compare the Company’s performance with other companies in the industry, which use similar financial measures to supplement their GAAP financial information. Management recognizes that the use of these non-GAAP measures has limitations, including the fact that management must exercise judgment in determining which types of charges should be excluded from the non-GAAP financial information. Management believes that providing this non-GAAP financial information, in addition to GAAP information, facilitates consistent comparison of the Company’s financial performance over time. The Company has historically provided non-GAAP information to the investment community, not as an alternative but as an important supplement to GAAP information, to enable investors to evaluate the Company’s core operating performance in the way that management does. Our non-GAAP financial measures are not intended to be performance measures that should be regarded as alternatives to, or more meaningful than, our GAAP financial measures. Non-GAAP financial measures have limitations as they do not include all items of income and expense that affect our operations, and accordingly should always be considered as supplemental to our financial results presented in accordance with GAAP. Conference Call Virage Logic's management will hold a teleconference on third-quarter fiscal year 2008 results at 1:30 p.m. PACIFIC / 4:30 p.m. EASTERN today, July 30, 2008. 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 56456735 through August 2, 2008; and the webcast can be accessed at www.viragelogic.com for 30 days. About Virage Logic Virage Logic is a leading provider of semiconductor intellectual property (IP) for the design of complex integrated circuits. The company's highly differentiated product portfolio of Physical and Application Specific IP includes embedded SRAMs, embedded NVMs, logic libraries, I/Os and DDR memory controller subsystems. As the semiconductor industry’s trusted IP partner, foundries, IDMs and fabless customers rely on Virage Logic to achieve higher performance, lower power, higher density and optimal yield, as well as shorten time-to-market and time-to-volume. 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 company trends, business outlook and technology leadership. 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; Virage Logic’s ability to continue to develop new products and maintain and develop new relationships with third-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, 2007, 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. All trademarks are the property of their respective owners and are protected herein. Reconciliation of GAAP to Non-GAAP Financial Results   Statement of Operations Reconciliation(in thousands) Three Months Ended June 30, 2008   Nine Months Ended June 30, 2008 GAAP net income (loss) $ (1,123 ) $ 601 Stock-based compensation expense charged to operating expense 721 2,133 Stock-based compensation expense related to custom contracts (10 ) 23 In process R&D, amortization of intangibles and expense for earn-outs related to acquisitions 1,935 2,073 Impairment of intangible assets -- 74 Restructuring charges 319 316 Tax effect   (382 )   (1,331 ) Non-GAAP net income $ 1,460   $ 3,889     Earnings per share: Basic $ 0.06   $ 0.17   Diluted $ 0.06   $ 0.16     Shares used in computing per share amounts: Basic   23,542     23,491   Diluted   23,745     23,740   Virage Logic Corporation Condensed Consolidated Statements of Operations (In thousands, except per-share amounts) (Unaudited)   For the Three Months Ended June 30, For the Nine Months Ended June 30,   2008       2007       2008       2007   Revenue: License $ 12,248 $ 8,207 $ 35,122 $ 24,433 Royalties   2,820     3,079     8,695     8,945   Total revenues 15,068 11,286 43,817 33,378 Cost and expenses: Cost of revenues 2,614 2,869 8,182 9,972 Research and development 8,015 5,301 20,048 15,201 Sales and marketing 3,658 4,050 11,115 11,467 General and administrative 2,160 1,789 6,046 6,871 Restructuring charges   319     580     316     580   Total cost and expenses   16,766     14,589     45,707     44,091   Operating loss (1,698 ) (3,303 ) (1,890 ) (10,713 ) Interest income and other, net   706     961     2,640     2,878   Income (loss) before taxes (992 ) (2,342 ) 750 (7,835 ) Income tax (benefit) provision   131     (1,106 )   149     (3,606 )   Net income (loss) $ (1,123 ) $ (1,236 ) $ 601   $ (4,229 )   Earnings per share: Basic $ (0.05 ) $ (0.05 ) $ 0.03   $ (0.18 ) Diluted $ (0.05 ) $ (0.05 ) $ 0.03   $ (0.18 )   Shares used in computing per share amounts: Basic   23,542     23,076     23,491     23,096   Diluted   23,542     23,076     23,740     23,096   Virage Logic Corporation Unaudited Condensed Consolidated Balance Sheets (In thousands)   June 30, 2008   September 30, 2007 ASSETS Current assets: Cash and cash equivalents $ 18,670 $ 14,820 Short-term investments 24,990 42,840 Accounts receivable, net 15,156 12,170 Costs in excess of related billings on uncompleted contracts 1,302 1,134 Deferred tax assets – current 1,938 1,939 Prepaid expenses and other current assets 3,085 4,766 Taxes receivable 2,600     2,320   Total current assets 67,741 79,989   Property, equipment and leasehold improvements, net 3,629 3,643 Goodwill 12,011 11,355 Other intangible assets, net 6,689 2,705 Deferred tax assets 14,227 13,178 Long-term investments 29,578 17,528 Other long-term assets 328     473     Total assets $ 134,203     $ 128,871     LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 476 $ 1,027 Accrued expenses 7,500 4,659 Deferred revenue 7,903 8,996 Income taxes payable 2,867     2,992   Total current liabilities 18,746 17,674 Deferred tax liabilities 978     978   Total liabilities 19,724 18,652   Stockholders’ equity: Common stock 24 23 Additional paid-in capital 139,786 135,926 Accumulated other comprehensive income 807 1,009 Accumulated deficit (26,138 )   (26,739 ) Total stockholders’ equity 114,479     110,219     Total liabilities and stockholders’ equity $ 134,203     $ 128,871