Verity (VRTY) 8-K Verity Reports Third-Quarter Fiscal 2005 Results

Exhibit 99.1

FOR IMMEDIATE RELEASE
Verity Investor Contact:	Verity Media Contact:
Anne Marie McCauley	Derek van Bronkhorst
Verity, Inc.	Verity, Inc.
408-542-2352	650-315-7856
amccauley@verity.com	derekvb@verity.com

Verity Reports Third-Quarter Fiscal 2005 Results

Third Quarter Revenues Increase 11% Year over Year

Financial Highlights:

• Q3 Revenues: $33.9 million

• Q3 Operating Income/(Loss) as a % of Total Revenues: (0.0%) GAAP; 8% Non-GAAP

• Q3 Earnings Per Share: $0.01 GAAP; $0.06 Non-GAAP

• Q3 End of Quarter Cash and Investments Balance: $202.2 million

Strategic Highlights:

• Acquired Dralasoft, an innovator in business process management technology

• Formed partnership with Yahoo! and introduced Verity® Enterprise Web Search

• Established Verity Italy to expand European capabilities

• Honored by Basex as a ‘leader in technology’ for development of Verity® Collaborative Classifier

• Named to ‘top 100’ lists by DM Review, EContent, KMWorld

SUNNYVALE, Calif. – Mar. 24, 2005 – Verity Inc. (NASDAQ: VRTY), a leading provider of enterprise software that enables organizations to maximize the return on their intellectual capital investment, today reported its financial results for the third quarter fiscal 2005 ended February 28, 2005.

Revenues for the third quarter of fiscal 2005 were $33.9 million, a year over year increase of 11 percent compared to $30.5 million reported in the third quarter of fiscal 2004 and a decrease of 10 percent compared to $37.6 million reported in the second quarter of fiscal 2005.

GAAP results:

For the third quarter, operating loss was $0.1 million or 0.0 percent of total revenue compared to operating income of $7.4 million or 24 percent of total revenue for the third quarter of fiscal 2004.

For the third quarter, net income was $0.6 million, or $0.01 per fully diluted share compared to net income of $4.8 million, or $0.12 per fully diluted share for the third quarter of fiscal 2004. The third quarter GAAP effective tax rate was 35 percent and included a research and development investment tax credit of $304,000 received from the Canadian Revenue Agency for Fiscal Years 2003 and 2004.

Non-GAAP results:

For the third quarter, non-GAAP operating income was $2.8 million or 8 percent of total revenue compared to non-GAAP operating income of $8.0 million or 26 percent of total revenue for the third quarter of fiscal 2004.

For the third quarter, non-GAAP net income was $2.3 million, or $0.06 per fully diluted share compared to non-GAAP net income of $5.1 million, or $0.13 per fully diluted share for the third quarter of fiscal 2004. The third quarter non-GAAP results and related reconciliation, as set forth in the financial tables at the end of this release, exclude the amortization of acquired intangible assets, in process R&D related to the Dralasoft acquisition and Canadian investment tax credits. See “Use of GAAP and Non-GAAP Results” below.

“We are disappointed with our third quarter financial results. As stated in our preliminary earnings announcement, a number of opportunities did not close at the end of the quarter as anticipated,” said Anthony J. Bettencourt, president and chief executive officer. “We remain committed to running a solid and profitable business and strengthening our market position.”

At the end of the third quarter on February 28, Verity’s strong balance sheet included cash and cash equivalents, short-term investments, and long-term investments totaling $202.2 million. Days sales outstanding for the quarter were 82 days.

During the third quarter, Verity repurchased approximately 654,000 shares of its common stock at an average price of $12.15 per share, for a total investment of approximately $7.9 million. For the first nine months of fiscal year 2005, Verity has repurchased approximately 1.9 million shares of its common stock at an average price of $12.60 for an investment of $23.8 million of the $50 million Board approved Fiscal 2005 stock buyback program.

Strategic Acquisitions

During the third quarter, Verity announced and completed the acquisition of Dralasoft. Net cash paid during the quarter was $8.3 million for the transaction. During the first partial quarter of operations this acquisition was accretive, one full quarter ahead of management’s expectations.

Customer Activity

During the third quarter, Verity recorded customer sales transactions with a wide range of leading companies in the consumer products, defense, financial services, government, healthcare, high-technology, manufacturing, professional services, publishing and media, and telecommunications industries. Customer wins included Air Force Portal, Applied Biosystems, Bayer AG, BHP Billiton, Caremark RX, Coles Myer, Drug Enforcement Agency, Fujitsu Services, Janes Information Group, Raytheon and Sun Life Financial. The company also extended its position in the OEM market for enterprise search, categorization and recommendation as well as importing, filtering and viewing software technology through new or extended agreements with existing customers, including IBM NICA and Quest Software.

Business Outlook

The following financial outlook is provided based on information as of March 24, 2005.

Management’s projections for the fourth fiscal quarter ending May 31, 2005 are:

• Total revenues are expected to be in the range of $34 million to $36 million

• GAAP earnings per fully diluted share are expected to be in the range of $0.00 to $0.03

• Non-GAAP earnings per fully diluted share are expected to be in the range of $0.03 to $0.06

• Per-share calculations are based on projections of 38.4 million fully diluted shares

Fourth quarter non-GAAP guidance is adjusted from GAAP guidance by excluding amortization of acquired intangible assets of approximately $2.0 million associated with previous acquisitions, which after adjusting for the tax effects of these exclusions using an effective tax rate of 38.5 percent, results in approximately $0.03 per share based on the projected fully diluted shares.

Management’s projections for the full fiscal year ending May 31, 2005 are:

• Total revenues are expected to be in the range of $140 million to $142 million

• GAAP earnings per fully diluted share are expected to be in the range of $0.19 to $ 0.22

• Non-GAAP earnings per fully diluted share are expected to be in the range of $0.31 to $0.34

• Per-share calculations are based on projections of 38.4 million fully diluted shares

Fiscal 2005 non-GAAP guidance is adjusted from GAAP guidance by excluding amortization of acquired intangible assets of approximately $7.3 million, restructuring charges of $377,000 associated with the closing of the Cardiff UK facility and the consolidation of Verity’s San Diego facility, Canadian investment tax credit of $912,000, and approximately $950,000 for In Process R&D associated with the acquisition of Dralasoft, which, after adjusting for the tax effects of these exclusions using an effective tax rate of 38.5 percent, results in $0.12 per share based on the projected fully diluted shares.

Use of GAAP and Non-GAAP Results

Although GAAP disclosure provides investors and management with an overall view of Verity’s financial performance, Verity believes that it is important for investors to also understand the performance of its ongoing operational business. Consequently, the non-GAAP results exclude charges and benefits management believes are not reflective of Verity’s ongoing operational business, namely, charges for the amortization of acquired intangible assets, in-process R&D write-off, restructuring charges and the Canadian investment tax credit, as set forth in the financial tables at the end of this news release. Management uses the non-GAAP results to assess the financial performance of Verity’s ongoing operational business.

Management Conference Call

All investors are cordially invited to join Verity’s quarterly conference call on Thursday, March 24, 2005, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time). Key members of the management team will review third quarter fiscal 2005 results and discuss the current business outlook.

Interested investors should dial the numbers listed below five (5) minutes prior to the scheduled start time and ask for the Verity Quarterly Earnings Conference Call. Alternatively, investors may access the webcast of the call at the corporate Web site.

Dial-in Numbers:	United States & Canada: 1-800-553-5260
	International: 612-332-0636
Webcast Link:	http://www.verity.com/webcast

A replay of the call will be available through May 2005 at 1-800-475-6701 (United States and Canada) or 320-365-3844 (International) using access code 774779, as well as on the Verity Web site athttp://www.verity.com/webcastuntil the next earnings call.

About Verity

Headquartered in Sunnyvale, California, Verity provides software that enables organizations to maximize the return on their intellectual capital investment. The company’s intellectual capital management (ICM) solutions provide integrated search, classification, recommendation, monitoring and analytics across the real-time flow of enterprise information, along with self-service Q & A. In addition, Verity’s business process management and content capture solutions activate information and accelerate its flow from person to person and between systems. Verity technology also serves as a core component of more than 260 applications from leading independent software vendors.

Around the world, more than 11,500 organizations of all sizes and types rely on Verity to manage their intellectual capital. In the private sector, these include ABB, AT&T, AXA, Bristol-Myers Squibb, Capgemini, CapitalOne, Cisco, Deloitte Consulting, Edgar Online, Ford, GMAC, Hewlett-Packard, Kaiser Permanente, KPMG, Mayo Foundation, PricewaterhouseCoopers, SAP, UBS and Verizon. In the public sector, customers come from all levels and branches of government including the U.S. General Services Administration, the U.S. Air Force and Army, the U.S. Department of Defense, including the armed forces units, and the U.S. Departments of Energy and Justice. Independent software vendors that integrate Verity include EMC Documentum, FileNet, Lotus, Oracle, Stellent and Tibco.

To access Verity’s investor relations Web site, visithttp://investor.verity.com.

Forward-Looking Statements

The statements in this news release under the heading “Business Outlook” are forward-looking statements. These forward-looking statements are expectations and beliefs based on assumptions that may or may not prove to be accurate, and actual financial results could differ materially as a result of many factors. These include: future demand for Verity’s products may not be as strong as Verity predicts; many of Verity’s product orders are large, and a delay in closing a large sale during any quarter could materially reduce Verity’s revenues for that period; transactions accounting for a disproportionate percentage of Verity’s quarterly revenues are frequently closed in the last few weeks or days of a quarter and, accordingly, even a slight delay in the closing of some of these transactions could materially reduce Verity’s revenues for that period; Verity incurs expenses based upon anticipated revenues and, consequently, if the revenues are less than anticipated, Verity will have lower gross margins and operating results; if competitors develop new products that compete favorably against Verity’s products, sales of Verity’s products will be less than projected; a portion of Verity’s sales are in the international market, which exposes Verity to currency fluctuation and other risks; and the effect of any of the foregoing factors may cause Verity to change its business plan. These and other risks relating to Verity and its business and products are set forth under the caption “Risks Relating to Our Operations” in Item 2 of Part I of Verity’s latest Form 10-Q, filed with the Securities and Exchange Commission on January 7, 2005.

# # #

Verity and the Verity logo are registered trademarks or trademarks of Verity, Inc.

All other trademarks are the property of their respective owners.

World Wide Web sitehttp://www.verity.com

VERITY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

THIRD QUARTER FISCAL 2005 VS. THIRD QUARTER FISCAL 2004

	Quarter Ended February 28, 2005							Quarter Ended February 29, 2004
	(unaudited)							(unaudited)
	GAAP			adj		non-GAAP		GAAP		adj		non-GAAP
Revenues:
Software products	$	18,759				$	18,759	$	17,795			$	17,795
Service and other		15,177					15,177		12,746				12,746
Total revenues		33,936					33,936		30,541				30,541
Costs of revenues:
Software products		682					682		368				368
Service and other		5,048					5,048		3,260				3,260
Amortization of purchased intangible assets		1,936		(1,936	)		—		645	(645	)		—
Total costs of revenues		7,666					5,730		4,273				3,628
Gross profit		26,270					28,206		26,268				26,913
Operating expenses:
Research and development		6,020					6,020		4,346				4,346
Marketing and sales		14,919					14,919		12,109				12,109
General and administrative		4,475					4,475		2,451				2,451
In-process research and development		950		(950	)		—		—				—
Restructuring charges		—					—		—				—
Total operating expenses		26,364					25,414		18,906				18,906
Income from operations		(94	)				2,792		7,362				8,007
Other income, net		953					953		564				564
Income before provision for income taxes		859					3,745		7,926				8,571
Provision for income taxes		304		1,138			1,442		3,170	258			3,428
Net income	$	555				$	2,303	$	4,756			$	5,143
Net income per share — basic	$	0.01				$	0.06	$	0.13			$	0.14
Net income per share — diluted	$	0.01				$	0.06	$	0.12			$	0.13
Number of shares — basic		37,443					37,443		37,942				37,942
Number of shares — diluted		38,365					38,365		40,568				40,568

VERITY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

YEAR-TO-DATE

	Nine Months Ended February 28, 2005						Nine Months Ended February 29, 2004
	(unaudited)						(unaudited)
	GAAP		adj		non-GAAP		GAAP		adj		non-GAAP
Revenues:
Software products	$	60,554			$	60,554	$	48,199			$	48,199
Service and other		45,640				45,640		37,843				37,843
Total revenues		106,194				106,194		86,042				86,042
Costs of revenues:
Software products		2,266				2,266		1,135				1,135
Service and other		15,097				15,097		9,936				9,936
Amortization of purchased intangible assets		5,315	(5,315	)		—		1,935	(1,935	)		—
Total costs of revenues		22,678				17,363		13,006				11,071
Gross profit		83,516				88,831		73,036				74,971
Operating expenses:
Research and development		17,560				17,560		14,581				14,581
Marketing and sales		44,854				44,854		35,928				35,928
General and administrative		12,321				12,321		8,051				8,051
In-process research and development		950	(950	)		—		—				—
Restructuring charges		377	(377	)		—		972	(972	)		—
Total operating expenses		76,062				74,735		59,532				58,560
Income from operations		7,454				14,096		13,504				16,411
Other income, net		3,595				3,595		3,520				3,520
Income before provision for income taxes		11,049				17,691		17,024				19,931
Provision for income taxes		3,619	3,192			6,811		6,810	1,163			7,973
Net income	$	7,430			$	10,880	$	10,214			$	11,958
Net income per share — basic	$	0.20			$	0.29	$	0.27			$	0.32
Net income per share — diluted	$	0.19			$	0.28	$	0.26			$	0.30
Number of shares — basic		37,381				37,381		37,675				37,675
Number of shares — diluted		38,391				38,391		39,902				39,902

VERITY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	February 28, 2005			May 31, 2004
	(unaudited)			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	40,502		$	38,995
Short-term investments		85,976			78,506
Trade accounts receivable, net of allowance for doubtful accounts of $1,477 and $2,131		30,890			31,807
Deferred tax assets		2,697			2,482
Prepaid and other current assets		4,693			3,197
Total current assets		164,758			154,987
Property and equipment, net		6,634			4,272
Long-term investments		75,715			84,248
Deferred tax assets		14,053			17,884
Intangible assets, net		24,458			24,854
Goodwill		59,658			55,824
Other assets		2,799			2,012
Total assets	$	348,075		$	344,081
LIABILITIES
Current liabilities:
Accounts payable	$	2,782		$	2,855
Accrued compensation		11,056			10,086
Income tax payable		5,536			4,214
Deferred purchase payment		570			3,066
Other accrued liabilities		7,116			5,043
Deferred revenue		22,827			21,421
Total current liabilities		49,887			46,685
Other non-current liabilities:
Deferred purchase payment		—			570
Total liabilities		49,887			47,255
STOCKHOLDERS’ EQUITY
Common stock		37			37
Additional paid-in capital		253,066			259,245
Accumulated other comprehensive income		2,372			2,249
Deferred stock compensation		(74	)		(88	)
Retained earnings		42,787			35,383
Total stockholders’ equity		298,188			296,826
Total liabilities and stockholders’ equity	$	348,075		$	344,081

VERITY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

MOST RECENT VS. PRIOR QUARTER

	Quarter Ended February 28, 2005							Quarter Ended November 30, 2004
	(unaudited)							(unaudited)
	GAAP			adj		non-GAAP		GAAP		adj		non-GAAP
Revenues:
Software products	$	18,759				$	18,759	$	22,103			$	22,103
Service and other		15,177					15,177		15,533				15,533
Total revenues	$	33,936				$	33,936	$	37,636			$	37,636
Costs of revenues:
Software products		682					682		851				851
Service and other		5,048					5,048		5,075				5,075
Amortization of purchased intangible assets		1,936		(1,936	)		—		1,690	(1,690	)		—
Total costs of revenues		7,666					5,730		7,616				5,926
Gross profit		26,270					28,206		30,020				31,710
Total operating expenses		26,364		(950	)		25,414		25,608	(279	)		25,329
Income from operations		(94	)				2,792		4,412				6,381
Other income, net		953					953		1,591				1,591
Income before provision for income taxes		859					3,745		6,003				7,972
Provision for income taxes		304		1,138			1,442		1,640	1,339			2,979
					��
Net income	$	555				$	2,303	$	4,363			$	4,993
Net income per share — basic	$	0.01				$	0.06	$	0.12			$	0.13
Net income per share — diluted	$	0.01				$	0.06	$	0.11			$	0.13
Number of shares — basic		37,443					37,443		37,517				37,517
Number of shares — diluted		38,365					38,365		38,684				38,684