Contact: John R. Polchin
Chief Financial Officer
Convera
703.761.3700
jpolchin@convera.com
Convera Reports Third Quarter Financial Results
Company Launches Excalibur Web Search
Vienna, Va., November 30, 2005 - Convera Corporation (NASDAQ: CNVR), a leading
provider of search technologies to commercial enterprises and government
agencies, today announced financial results for the three-month period ended
October 31, 2005.
Revenue for the third quarter of fiscal 2006 totaled $4.5 million, a 26%
decrease when compared to the year-ago quarter. The timing of certain government
opportunities within the U.S. and U.K. were the primary cause of the third
quarter revenue shortfall, however the Company believes the majority of these
opportunities remain within the pipeline for future periods. One transaction for
the quarter, the Department of Homeland Security, represented more than 10% of
total reported revenue for the period. Gross profit for the three-month period
ended October 31, 2005 totaled $3.0 million, resulting in a gross margin of 67%
which equaled the gross margin for the prior-year period.
The net loss for the three-month period ended October 31, 2005 was $2.5 million
or $0.05 per share, compared to a net loss of $4.5 million, or $0.13 per share,
for the comparable year-ago quarter. During the third quarter, approximately
$3.4 million of research and development costs related to Excalibur, the
Company's Web indexing initiative, were capitalized in accordance with the
requirements of FAS 86. The Company adopted FAS 86, as discussed further below,
during the first quarter of fiscal 2006.
Cash and investments as of October 31, 2005 totaled $42.6 million, which
reflects a $2.4 million decrease from the prior quarter.
"While our third quarter revenue performance was below expectations, we remain
committed to attaining net income neutrality for our software products group as
our government pipeline remains sound", stated Patrick C. Condo, Convera's
President and Chief Executive Officer. "The quarter also witnessed the official
launch of Excalibur, our emerging Web search technology, and we followed this
event by executing our second Excalibur contract, an annual agreement with the
FBI. Looking ahead, we will continue to focus on leveraging our technology
expertise within the government sector, managing our cost infrastructure
prudently while also seeking to create additional distribution channels,
including opportunities within the commercial arena, to expand our Excalibur
offering" Condo concluded.
Excalibur, the Company's emerging Web search technology, presently contains more
than 4 billion pages of textual Web content, approximately 500 million images,
20 million audio components and 5 million videos. The Company has completed the
build-out of its second data center, thereby affording prospective customers a
fully redundant hosting environment. Capital outlays to date, in connection with
developing the Web search technology, remain limited to equipment, personnel and
general operating costs, which are expected to increase as the technology
progresses. The Company will continue to assess future capital requirements for
this Web offering and may elect to seek additional funding sources over the
coming quarters.
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Page 2 - Convera Reports Third Quarter Financial Results
FAS 86
FAS 86 governs the practice by which newly developed technology (e.g., software
in this case), is accounted for once "technological feasibility" has been
determined. Excalibur, Convera's Web search technology, was determined to have
reached technological feasibility during the first quarter of fiscal 2006 with
the attainment of a one billion page Web index. Once technological feasibility
was achieved, the Company began capitalizing software development costs and will
continue to do so until such time as "commercial availability" is determined. At
the time of commercial availability, capitalization of the Web indexing related
research and development costs will cease and amortization of the capitalized
costs will commence over a yet to be determined timeframe. As of November 1,
2005, the Company determined that commercial availability for Excalibur was
achieved and therefore capitalized Excalibur software development costs will
begin to be amortized during the fourth quarter of fiscal 2006 over a yet to be
determined period.
The attached financial information compares the results of operations for the
three-month and nine-month periods ended October 31, 2005 to the same periods in
2004 and the balance sheet as of October 31, 2005 to the balance sheet as of
January 31, 2005.
About Convera
Convera is a leading provider of search technologies to commercial enterprises
and government agencies. Through its two offerings, ExcaliburTM a newly
developed Web search solution and RetrievalWare(R), its "flagship" enterprise
search product, Convera offers unique search technology capable of providing an
integrated results page derived from both intranet and Internet content.
Convera's technologies strive to manage vast stores of structured and
unstructured information that exist within internal repositories and on the Web
by providing highly scalable, fast, accurate and secure search capabilities
across text, video, image and audio information, in multiple languages. More
than 900 customers in 40 countries rely on Convera search solutions to power a
broad range of mission-critical applications. For more information, contact
Convera at 800-788-7758, via e-mail at info@convera.com or on the Web at
www.convera.com
This release, including any statements from Convera personnel, contains
statements about Convera's future expectations, performance, plans, and
prospects, as well as assumptions about future events. The reader is cautioned
not to put undue reliance on these forward-looking statements, as these
statements are subject to numerous factors and uncertainties, including without
limitation, business and economic conditions and trends; continued success in
technological advances and development including the Web search initiative
(e.g., Excalibur); possible disruption in commercial activities caused by
terrorist activity and armed conflict, such as changes in logistics and security
arrangements; reduced customer demand relative to expectations; competitive
factors; and other risk factors listed from time to time in the company's SEC
reports. Actual results may differ materially from our expectations as the
result of these and other important factors relating to Convera's business and
product development efforts, which are further described in Convera's filings
with the Securities and Exchange Commission. These filings can be obtained from
the SEC's website located at www.sec.gov. Any forward-looking statements are
based on information available to Convera on the date of this release, and
Convera assumes no obligation to update such statements. The Convera design logo
and the following are worldwide trademarks of Convera: Convera(R),
RetrievalWare(R), Excalibur(TM) and Screening Room(R). The names of actual
companies and products mentioned herein may be the trademarks of their
respective owners.
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Page 3 - Convera Reports Third Quarter Financial Results
The unaudited, condensed, consolidated statements of operations for the Company
appear below and are presented in accordance with accounting principles
generally accepted in the United States. All amounts, except per share amounts,
are expressed in thousands of U.S. dollars.
Three Months Ended Nine Months Ended
October 31, October 31,
2005 2004 2005 2004
Revenues:
License $ 1,914 $ 3,043 $ 9,331 $ 11,096
Services 516 1,274 1,947 2,898
Maintenance 2,082 1,813 6,117 5,373
------------- ------------ ------------ -------------
4,512 6,130 17,395 19,367
------------- ------------ ------------ -------------
Cost of revenues:
License 365 516 962 1,643
Services 887 1,074 2,529 2,591
Maintenance 254 428 763 1,387
------------- ------------ ------------ -------------
1,506 2,018 4,254 5,621
------------- ------------ ------------ -------------
Gross margin 3,006 4,112 13,141 13,746
------------- ------------ ------------ -------------
Operating expenses:
Sales and marketing 1,851 2,931 6,406 12,246
Research and product development 4,651 3,039 12,403 10,311
Capitalized R&D costs (3,403) - (8,081) -
General and administrative 2,640 2,187 7,796 7,109
Restructuring charge (1) 518 (57) 518
------------- ------------ ------------ -------------
5,738 8,675 18,467 30,184
------------- ------------ ------------ -------------
Operating loss (2,732) (4,563) (5,326) (16,438)
Interest income (expense), net 241 45 341 112
Net loss $ (2,491) $ (4,518) $ (4,985) $ (16,326)
============= ============ ============ =============
EPS $ (0.05) $ (0.13) $ (0.12) $ (0.47)
============= ============ ============ =============
Weighted average number of common
shares outstanding - basic and diluted 46,170 35,824 41,812 34,605
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Page 4 - Convera Reports Third Quarter Financial Results
The condensed, consolidated balance sheets for the Company appear below and are
presented in accordance with accounting principles generally accepted in the
United States. All amounts are expressed in thousands of U.S. dollars.
ASSETS October 31, 2005 January 31, 2005
(unaudited)
Current Assets
Cash and cash equivalents $ 42,521 $ 17,766
Short term investments 71 71
Accounts receivable, net 5,627 6,530
Prepaid expenses and other 2,739 2,390
--------------------- -------------------
Total current assets 50,958 26,757
Other assets, net 10,942 6,696
Goodwill & Other intangible assets 2,639 2,841
Capitalized research and development costs 8,081 -
--------------------- -------------------
Total Assets $ 72,620 $ 36,294
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,150 $ 1,967
Accrued expenses 3,330 4,055
Deferred revenues 3,890 4,288
Restructuring reserve - current - 835
--------------------- ------------------
Total current liabilities 9,370 11,145
Other long-term liabilities 5,000 -
--------------------- ------------------
Total long-term liabilities 5,000 -
--------------------- ------------------
Total Liabilities 14,370 11,145
--------------------- ------------------
Shareholders' Equity 58,250 25,149
Total Liabilities & Shareholders'
Equity $ 72,620 $ 36,294
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