Verisity Announces Record Revenue and EPS for Second Quarter Fiscal 2002

Sequentially, Net Income Grew 44% on Revenue Growth of 9%

MOUNTAIN VIEW, Calif., July 22, 2002--Verisity Ltd. (Nasdaq: VRST), a leading provider of functional verification automation software tools, today announced financial results for the second fiscal quarter ended June 30, 2002. Revenue for the quarter was $12.5 million, a 38% increase from revenue of $9 million for the second quarter ended June 30, 2001, and a 9% increase from revenue of $11.5 million for the first quarter ended March 31, 2002.

The Company's net income under generally accepted accounting principles (GAAP) for the quarter ended June 30, 2002 was $3.2 million, or $0.15 per diluted share, compared to a net income of $1 million, or $0.05 per diluted share, for the quarter ended June 30, 2001 and net income of $2.2 million, or $0.11 per diluted share, for the quarter ended March 31, 2002.

Excluding stock-based compensation expense, pro forma net income was $3.3 million, or $0.15 per diluted share, for the second quarter of 2002, compared to a pro forma net income of $1.2 million, or $0.06 per diluted share, for the second quarter of 2001, and pro forma net income of $2.4 million, or $0.11 per diluted share for the first quarter of 2002.

Revenue for the six months ended June 30, 2002, was $24 million, a 36% increase from revenue of $17.6 million for the six months ended June 30, 2001. For the six months ended June 30, 2002, the Company's net income was $5.5 million, or $0.26 per diluted share, compared to a net income of $1.6 million, or $0.08 per diluted share, for the six months ended June 30, 2001.

Excluding stock-based compensation expense, pro forma net income was $5.7 million, or $0.27 per diluted share, for the six months ended June 30, 2002, compared to a pro forma net income of $1.9 million, or $0.10 per diluted share, for the six months ended June 30, 2001.

"We are delighted to again deliver strong financial results and achieve record revenues and earnings," said Moshe Gavrielov, Chief Executive Officer of Verisity. "Although the economic environment has not changed, the adoption of our verification solutions continued to deepen within our installed base of key customers."

Verisity's earnings call will be webcast today at 5:00 p.m. Eastern Time / 2:00 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 August 9, 2002. The Company plans to include a business outlook in the conference call.

About Verisity
Verisity is a leading provider of proprietary technologies and software products used to efficiently verify designs of electronic systems and complex integrated circuits that are essential to the communications and other high growth segments of the electronics industry. Verisity's products automate the process of detecting flaws in these designs, enabling customers to deliver higher quality products, accelerate time-to-market and reduce overall product development costs.

Verisity Design, Inc.'s principal executive offices are located in Mountain View, CA. The Company's principal research and development offices are located in Rosh Ha'ain, Israel. For more information, see Verisity's web site at www.verisity.com .

Forward-Looking Statements
To the extent statements contained herein are not purely historical, they are forward-looking statements. 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. 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.

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Verisity is a registered trademark of Verisity Design, Inc. All other trademarks are the property of their respective holders.

VERISITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

	Three Months Ended June 30,		Six Months Ended June 30,
	2002 ---------	2001 ----------	2002 ---------	2001(2) ----------
	(unaudited)		(unaudited)
Revenue:
License	$ 8,005	$ 5,554	$ 14,690	$ 11,393
Maintenance	4,168	2,883	8,382	4,947
Other Services	318	588	898	1,231
Total revenue	---------- 12,491 ----------	---------- 9,025 ----------	---------- 23,970 ----------	---------- 17,571 ----------
Total cost of revenue	675 ----------	938 ----------	1,443 ----------	1,890 ----------
Gross profit	11,816	8,087	22,527	15,681
Operating expenses:
Research and development	2,145	2,051	4,433	4,176
Sales and marketing	4,689	3,883	9,408	7,846
General and administrative	1,462	1,319	2,681	2,355
Stock-based compensation	60	216	209	382
Total operating expenses	---------- 8,356 ----------	---------- 7,469 ----------	---------- 16,731 ----------	---------- 14,759 ----------
Income from operations	3,460	618	5,796	922
Other income, net	206 ----------	466 ----------	414 ----------	721 ----------
Income before income taxes	3,666	1,084	6,210	1,643
Provision for income taxes	440	56	745	85
Net income	---------- $ 3,226 =======	---------- $ 1,028 =======	---------- $ 5,465 =======	---------- $ 1,558 =======
Basic earnings per share:
Basic net income per ordinary share	$ 0.17 =======	$ 0.06 =======	$ 0.29 =======	$ 0.12 =======
Shares used in per share calculation	18,825 =======	17,259 =======	18,702 =======	12,836 =======
Diluted earnings per share:
Diluted net income per ordinary share	$ 0.15 =======	$ 0.05 =======	$ 0.26 =======	$ 0.08 =======
Shares used in per share calculation	21,253 =======	20,703 =======	21,236 =======	18,598 =======
Pro forma earnings per share: (1)
Pro forma net income	$ 3,286 =======	$ 1,244 =======	$ 5,674 =======	$ 1,940 =======
Diluted pro forma net income per ordinary share	$ 0.15	$ 0.06	$ 0.27	$ 0.10
Shares used in pro forma per share calculation	======= 21,253 =======	======= 20,703 =======	======= 21,236 =======	======= 18,598 =======

(1) Pro forma net income excludes the impact of stock-based compensation charges.
(2) Derived from audited financial statements at December 31, 2001.

 

VERISITY LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

	June 30, 2002 ------------	December 31, 2001 (1) ------------
	(Unaudited)
Assets:
Current assets:
Cash and cash equivalents	$ 64,577	$ 58,488
Accounts receivable	11,940	8,498
Other current assets	2,972 ---------	2,511 ---------
Total current assets	79,489	69,497
Property and equipment, net	2,163	2,112
Other assets	215	229
Total assets	--------- $ 81,867 =======	--------- $ 71,838 =======
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable and accrued liabilities	$ 8,148	$ 8,024
Deferred revenue	26,298	26,694
Current portion of long-term debt	9 ---------	9 ---------
Total current liabilities	34,455	34,727
Long-term liabilities	160	197
Long-term portion of deferred revenue	5,387	2,397
Shareholders' equity:
Share Capital	53,712	51,829
Accumulated deficit	(11,847)	(17,312)
Total shareholders' equity	----------- 41,865 -----------	----------- 34,517 -----------
Total liabilities and shareholders' equity	$ 81,867 =======	$ 71,838 =======

(1) Derived from audited financial statements as at December 31, 2001.