Verisity Announces Record Revenue and EPS for Fourth Quarter and Fiscal 2002

2002 Highlights:

• Net Income Grew 184% on Revenue Growth of 36%
• Generated $18 Million in Cash from Operations
• Verisity Named Functional Verification Automation Market Leader by Gartner Dataquest

MOUNTAIN VIEW, Calif.--(BUSINESS WIRE)--Jan. 22, 2003-- Verisity Ltd. (Nasdaq:VRST), the leading supplier of essential technology and methodology for functional verification, today announced financial results for the fourth fiscal quarter and year ended December 31, 2002. Revenue for the quarter was $14.6 million, a 28% increase from revenue of $11.4 million for the quarter ended December 31, 2001, and a 5% increase from revenue of $14.0 million for the quarter ended September 30, 2002.

The Company's net income under generally accepted accounting principles (GAAP) for the quarter ended December 31, 2002 was $4.0 million, or $0.19 per diluted share, compared to a net income of $1.9 million, or $0.09 per diluted share, for the quarter ended December 31, 2001, and net income of $3.9 million, or $0.18 per diluted share, for the quarter ended September 30, 2002. GAAP and non-GAAP (which excludes stock-based compensation expense) net income per share were not materially different in the period.

Revenue for the year ended December 31, 2002 was $52.5 million, a 36% increase from revenue of $38.7 million for the year ended December 31, 2001.

For the year ended December 31, 2002, the Company's net income per GAAP was $13.4 million, or $0.63 per diluted share, compared to a net income of $4.7 million, or $0.24 per diluted share, for the year ended December 31, 2001. Excluding stock-based compensation expense, non-GAAP net income was $13.7 million, or $0.65 per diluted share, for the year ended December 31, 2002, compared to a non-GAAP net income of $5.5 million, or $0.28 per diluted share, for the year ended December 31, 2001.

"Fiscal 2002 was a year of significant accomplishments for Verisity particularly in light of the difficult economic environment. We achieved record revenue and profits, generated $18 million in cash from operations, continued to gain market share and were named the Functional Verification Automation Market Leader by Gartner Dataquest," said Moshe Gavrielov, Chief Executive Officer of Verisity. "While the timing of the electronics industry recovery remains uncertain, we are confident in our strategy to grow the business in the long-term and maintain our technology leadership position through continued development and enhancement of our verification solutions."

The following statements are based on current expectations. These statements are forward-looking and actual results may differ materially. We do not plan to update, confirm or change this guidance until our next earnings conference call except by press release in the case of material events.

• Revenue in the first quarter of 2003 is expected to be approximately $11.5 to 11.7 million
• Non-GAAP earnings (which excludes stock-based compensation expense) per fully diluted share in the first quarter of 2003 is expected to be approximately $0.06 to $0.07
• Revenue for fiscal 2003 is expected to grow to be between $55 and $57 million
• Non-GAAP earnings (which excludes stock-based compensation expense) per fully diluted share for fiscal 2003 is expected to be between $0.45 and $0.50

Verisity's earnings call will be webcast today at 4:10 p.m. Eastern Time / 1:10 p.m. Pacific Time, and may be accessed at http://www.verisity.com. Following the conclusion of the webcast, a replay will be available via Verisity's web site at http://www.verisity.com through January 31, 2003. For those without access to the Internet, a replay of the call will be available from 5:00 p.m. Pacific Time on January 22, 2003 through January 31, 2003. To listen to a replay, call (719) 457-0820, access code 701506. The Company plans to include a business outlook in the conference call.

About Verisity
Verisity, Ltd. (Nasdaq:VRST), is the leading supplier of essential technology and methodology for the functional verification market. The company addresses customers' critical business issues with its market-leading software and intellectual property (IP) that effectively and efficiently verify the design of electronic systems and complex integrated circuits for the communications, computing, and consumer electronics global markets. Verisity's Specman Elite(R) testbench automation solution automates manual processes and detects critical flaws in hardware designs enabling delivery of the highest quality products and accelerating time to market. The company's strong market presence is driven by its proven technology, methodology, and solid strategic partnerships and programs. Verisity's customer list includes leading companies in all strategic technology sectors. Verisity is a global organization with offices throughout Asia, Europe, and North America. Verisity's principal executive offices are located in Mountain View, California, with its principal research and development offices located in Rosh Ha'ain, Israel. For more information, visit www.verisity.com.

Forward-Looking Statements
To the extent statements contained herein are not purely historical, they are forward-looking statements. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed in the company's filings with the Securities and Exchange Commission. Words such as "anticipate," "estimate," "expects," "projects," "intends," "plans," "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. All forward-looking statements represent only management's present expectations of future events and are subject to a number of factors and uncertainties that could cause actual results or performance to differ materially from those described in the forward-looking statements. In particular, these include the Company's ability to accurately forecast the company's short term and long operating performance, predict customer demand due to the continued economic uncertainty and the affect on customers budgets, maintain market leadership position, and predict the timing of significant orders. Verisity Ltd. is not under any obligation, and expressly disclaims any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

Note to Editors: Verisity and Specman Elite are either registered trademarks or trademarks of Verisity Design, Inc. in the United States and/or other jurisdictions. All other trademarks are the property of their respective holders.

Click here for the Consolidated Statements of Operations and Consolidated Balance Sheet.