VRYA Viryanet Ltd. (MM)

ViryaNet (Nasdaq: VRYA), a leading provider of solutions that automate business processes for mobile workforce management and field service delivery, today announced financial results for its fourth quarter and full-year 2005. Total revenues for the fourth quarter, ended December 31, 2005, were $3.1M, an increase of 45% from $2.1M of revenue recorded for the fourth quarter of 2004, and a 22% decrease from $4.0M of revenue recorded for the third quarter of 2005. For the fiscal year 2005, total revenues were $14.2M, an increase of 19% from $11.9M of total revenues recorded in 2004. For the fourth quarter, ended December 31, 2005, the Company reported a net loss of $1.6M, or $0.22 per basic and diluted share, compared to a net loss of $2.2M, or $0.41 per basic and diluted share for the fourth quarter of 2004, and compared to a net loss of $2.0M, or $0.30 per basic and diluted share for the third quarter of 2005. For the fiscal year 2005, the Company reported a net loss of $6.1M, or $0.94 per basic and diluted share, compared to a net loss of $4.2M, or $0.85 per basic and diluted share for the fiscal year 2004. The net loss results for 2005 include a one-time non-cash finance expense of $0.8M related to the accounting for a modification to the terms of an existing convertible note that occurred during the third quarter of 2005. Professional services revenues grew by 40% to $2.9M for the fourth quarter of 2005, compared to $2.1M for the fourth quarter of 2004, and decreased 27% from $3.9M for the third quarter of 2005. For the year ended 2005, professional services revenue grew 42% to $12.5M, compared to $8.8M for the fiscal year 2004. Software license revenues increased to $0.2M for the fourth quarter of 2005, compared to $0.1M for the fourth quarter of 2004, and compared to $0.1M for the third quarter of 2005. For the year ended 2005, software license revenue decreased by 45% to $1.7M, compared to $3.1M for the year ended 2004. The Company reported a gross profit of $1.2M for the fourth quarter of 2005, or a gross margin of 37%, compared to a gross profit of $0.4M, or a gross margin of 17% in the fourth quarter of 2004, and compared to a gross profit of $1.6M, or a gross margin of 40% in the third quarter of 2005. For the fiscal year 2005, the Company reported an increase in gross profit to $6.0M, or a gross margin of 42%, compared to a gross profit of $4.9M, or a gross margin of 41%. Operating expenses for the fourth quarter of 2005 were $2.5M, compared to $2.4M for the fourth quarter of 2004, and compared to $2.7M for the third quarter of 2005. The reduction in expenses from the third quarter to the fourth quarter of 2005 was related to headcount reduction actions the Company undertook as part of an ongoing cost reduction program and organizational realignment, which began in the third quarter of 2005 and has continued into 2006. The Company's cash position on December 31, 2005 was $2.0M, compared to $2.9M on December 31, 2004, and increased slightly from the Company's cash position on September 30, 2005 of $1.9M. The Company's short-term and long-term bank debt position on December 31, 2005 was $2.2M, compared to $2.8M for the same period one year ago, and compared to $1.8M on September 30, 2005. During the fourth quarter of 2005, the Company restructured its bank debt by converting $1.8M of short-term debt to long-term debt payable over three years in quarterly installments of $150,000 with the first payment due on April 1, 2006 and with interest payable quarterly at a rate of LIBOR plus 2.25%. The Days of Sales Outstanding (DSO) for the Company in the fourth quarter of 2005 was 39 days, compared to 40 days in the third quarter of 2005. "During 2005, ViryaNet expanded its market footprint with new deals and in new geographies, continued investing in the integration of its acquired companies, and demonstrated its ability to cross-sell its extended product offering into a consolidated installed base. The Company continued its cost reduction efforts in combination with organizational rebalancing intended to strengthen the Company's focus on providing value to its customers, positively impacting its financial performance, and paving the way towards profitability," stated Memy Ish-Shalom, president and CEO, ViryaNet. "In 2006, we will continue to expand our market share worldwide, with the help of increasingly capable partners, by leveraging our superior technology, high-value solutions, and domain expertise," continued Mr. Ish-Shalom. "We will continue to focus on our core target industries of utilities, telecommunications and retail/grocery, while seeking opportunities to strategically enter new vertical markets. Operationally, we will invest significantly in our sales and marketing efforts and in the quality of deliverables from our customer care and development organizations. Our goal is to provide superior, functionally rich mobile workforce management solutions and, in doing so, build a thriving, healthy, and profitable company." 2005 Accomplishments 2005 saw significant accomplishments, including: New Sales Either through its direct sales force or through the efforts of partnerships, ViryaNet welcomed eight new customers in 2005, including a leading grocer, Integral Energy, JRC, Gold Coast Water, Securicor, two manufacturing companies located in Japan, and a major communications company in the United Kingdom. The Company also demonstrated its ability to cross sell into existing accounts by implementing Service Scheduler, ViryaNet's scheduling and optimization engine, in the gas operations of a tier-one utility company that previously deployed ViryaNet's WorkUP product in its electric business. eWise Acquisition On June 15, 2005, the Company announced the formation of its Australian subsidiary, which acquired substantially all of the assets of eWise Solutions Ltd. of Melbourne, Australia. eWise was focused on selling mobile workforce management solutions to water companies in the utility market. Since the acquisition, ViryaNet extended its position in the Australian market with a new customer win at Gold Coast Water, and increased its concentration of sales and marketing efforts in the Asia Pacific region. Customer Implementations Several of ViryaNet's customers rolled out ViryaNet's products, including Innserve, Alta Gas, two manufacturing companies located in Japan, Jackson Energy, a tier-one utility company mentioned earlier, Penn Telecomm, Vectren, Securicor, Montana Dakota Utilities, Central Maine Power, Duquense, and Con Ed. Product and Solutions In addition to issuing several product releases during the year that improved the functionality and usability of its products, the Company's R&D organization delivered an electronic Vegetation Management Solution (eVMS) for the utility vegetation management industry, received product certification from SAP (to operate on the SAP NetWeaver Application Server), and integrated the ViryaNet product with TomTom technology, an advanced GPS navigation and resource tracking system. Leadership At the beginning of 2006, the Company appointed Memy Ish-Shalom as its new president and CEO. Mr. Ish-Shalom brings more than 20 years of senior management and leadership experience to the Company, serving in past executive positions at high technology and enterprise software companies. As well, the Company promoted Jeff Oskin, former VP, International Sales, to the position of ViryaNet's COO. Mr. Oskin also possesses a strong track record within the field service sector. About ViryaNet ViryaNet is a provider of software applications that improve the quality and efficiency of an organization's service operations. ViryaNet's products enable companies in the utilities, telecommunications, retail, insurance, and general service sectors to manage and optimize mission critical business processes, resulting in increased service revenues, decreased service costs, and maximized customer satisfaction. The robust set of applications help companies improve workforce scheduling, dispatching, and activity reporting; customer contract and entitlement automation; and asset, logistics, and depot repair management. Visit ViryaNet at www.viryanet.com. Safe Harbor Statement Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: The statements contained in this press release that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, including statements regarding ViryaNet's expectations, beliefs, intentions, or strategies regarding the capabilities of its products, its relationships with its customers, its customer purchases, its future operational plans and objectives including integration of other businesses, its future business prospects, its future financial performance, its future cash position, and its future prospects for profitability. All forward-looking statements included in this document are based upon information available to ViryaNet Ltd. as of the date hereof, and ViryaNet Ltd. assumes no obligation to update any such forward-looking statements. Forward-looking statements involve risks and uncertainties, which could cause actual results to differ materially from those projected. These and other risks relating to ViryaNet's business include market acceptance of and demand for the Company's products, risks associated with a slow-down in the economy, risks associated with the financial condition of the company's customers, risks associated with competition and competitive pricing pressures, risks associated with increases in costs and operating expenses, risks in technology development and commercialization, the risk of operating losses, risks in product development, risks associated with international sales, and other risks that are set forth in ViryaNet's reports filed from time to time with the Securities and Exchange Commission. Reported results should not be considered an indication of future performance. You should not place undue reliance on these forward-looking statements, which speak only as the date hereof. ViryaNet disclaims any obligation to publicly update or revise any such forward-looking statements to reflect any change in our expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. -0- *T VIRYANET LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands December 31, -------------------- 2004 2005 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,943 $ 2,040 Trade and unbilled receivables ,net 1,446 1,322 Other accounts receivable and prepaid expenses 890 785 --------- --------- Total current assets 5,279 4,147 ----- --------- --------- SEVERANCE PAY FUND 735 795 --------- --------- PROPERTY AND EQUIPMENT, NET 310 295 --------- --------- CUSTOMER RELATIONSHIP, NET 898 1,099 --------- --------- OTHER INTANGIBLE ASSETS AND DEBT ISSUANCE COST, NET 660 1,072 --------- --------- GOODWILL 6,516 7,048 --------- --------- Total assets $ 14,398 $ 14,456 ----- ========= ========= VIRYANET LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands December 31, -------------------- 2004 2005 --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term bank credit $ 1,513 $ 253 Current maturities of long-term bank loans 1,045 698 Trade payables 1,118 1,074 Deferred revenues 2,729 3,193 Other accounts payable and accrued expenses 2,334 2,241 Loan from related party - 285 Short-term Convertible note - 407 --------- --------- Total current liabilities 8,739 8,151 ----- --------- --------- LONG-TERM LIABILITIES: Long-term bank loan, net of current maturities 261 1,293 Long-term Convertible note 2,500 3,592 Accrued severance pay 1,220 1,237 --------- --------- Total long-term liabilities 3,981 6,122 ----- --------- --------- COMMITMENTS AND CONTINGENT LIABILITIES SHAREHOLDERS' EQUITY: Share capital 1,312 1,769 Additional paid-in capital 108,511 112,789 Deferred stock compensation (50) (135) Accumulated other comprehensive loss (348) (435) Accumulated deficit (107,747) (113,805) --------- --------- Total shareholders' equity 1,678 183 ----- --------- --------- Total liabilities and shareholders' equity $ 14,398 $ 14,456 ----- ========= ========= VIRYANET LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS U.S. dollars in thousands, except share and per share data Three months ended Year ended December 31 December 31 -------------------------------------------- 2004 2005 2004 2005 ---------------------------------------------------------------------- Unaudited --------------------- ---------- Revenues Software licenses $ 90 $ 231 $ 3,114 $ 1,720 Maintenance and services 2,050 2,877 8,806 12,487 ---------- ---------- ---------- ---------- Total revenues 2,140 3,108 11,920 14,207 ----- ---------- ---------- ---------- ---------- Cost of revenues: Software licenses 11 100 288 358 Maintenance and services(1) 1,757 1,857 6,743 7,855 ---------- ---------- ---------- ---------- Total cost of revenues 1,768 1,957 7,031 8,213 ----- ---------- ---------- ---------- ---------- Gross profit 372 1,151 4,889 5,994 ---------- ---------- ---------- ---------- Operating expenses: Research and development, net 674 513 2,069 2,504 Selling and marketing(1) 1,101 1,067 4,398 5,214 General and administrative (1) 609 940 2,214 3,004 ---------- ---------- ---------- ---------- Total operating expenses 2,384 2,520 8,681 10,722 ----- ---------- ---------- ---------- ---------- Operating loss 2,012 (1,369) (3,792) (4,728) Financial expenses, net (195) (202) (363) (1,330) ---------- ---------- ---------- ---------- Net loss $ (2,207) $ (1,571) $ (4,155) $ (6,058) ========== ========== ========== ========== Basic and diluted net loss per share $ (0.41) $ (0.22) $ (0.85) $ (0.94) ========== ========== ========== ========== Weighted average number of shares used in computing basic and diluted net loss per Ordinary share 5,413,718 7,295,486 4,888,062 6,474,169 ========== ========== ========== ========== (1) The breakdown of stock-based compensation over expenses is as follows: Cost of revenues $ - $ - $ 2 $ 1 Selling and marketing 10 10 31 46 General and administrative 13 15 65 74 Total $ 23 $ 25 $ 98 $ 121 ----- ========== ========== ========== ========== *T