Vitria Announces Third Quarter Results

SUNNYVALE, Calif., Oct. 24  /PRNewswire-FirstCall/ -- Vitria (NASDAQ:VITR), an award-winning provider of business process integration solutions, today announced financial results for the third quarter ending September 30, 2006.

   --   For the third quarter of 2006, total revenue was $14.6 million,
        compared with $11.2 million for the second quarter of 2006 and $13.5
        million for the third quarter of 2005.

   --   License revenue for the third quarter of 2006 was $5.6 million,
        compared with $2.7 million for the second quarter of 2006 and $3.9
        million for the third quarter of 2005.  One customer accounted for
        $3.7 million of the total in the third quarter of this year.

   --   Service and other revenue for the third quarter of 2006 was $9
        million, compared with $8.5 million for the second quarter of 2006
        and $9.6 million for the third quarter of 2005.

   --   Gross profit was $11.1 million for the third quarter of 2006,
        compared to $7.4 million for the second quarter of 2006 and $8
        million for the third quarter of 2005.

   --   Total operating expenses were $10.9 million for the third quarter of
        2006, compared with $11.7 million for the second quarter of 2006,
        and $10.4 million for the third quarter of 2005.

   --   Excluding charges for restructuring, severance and non-cash stock
        based compensation including (SFAS 123R), and $862 thousand in
        expenses related to the recently announced going-private transaction
        total operating expenses were $9 million for the third quarter of
        2006, compared with $10.2 million for the second quarter of 2006,
        and $10.1 million for the third quarter of 2005.

   --   The net profit for the third quarter of 2006 was $781 thousand, or
        $0.02 per share, compared with a net loss of $3.6 million, or $0.11
        per share, for the second quarter of 2006 and a net loss of $1.9
        million, or $0.06 per share, for the third quarter of 2005.

   --   Total cash and short term investment balances as of September 30,
        2006, were $50.9 million, compared to $54 million as of June 30,
        2006.



The company announced in August that it would reduce its expense structure by between 20% and 25%.  Most of those reductions occurred by September 30, and the company recorded a charge of $394 thousand in the third quarter related to these reductions.

Detailed comparative statements of operations and balance sheets are attached, and the company will host a conference call to discuss these results today at 5:00 p.m. EDT/ 2:00 p.m. PDT.  To listen, please dial one of the following numbers at least five minutes prior to the start of the call:

   -- From the U.S. and Canada:  [phone]
   -- From international calling areas:  [phone]



The confirmation code for both call-in numbers is 5045711 followed by the pound (#) sign.

Non-GAAP Financial Measures (Regulation G)

Vitria continues to provide all information required in accordance with GAAP, but it believes that evaluating its ongoing operating results may be difficult if limited to reviewing only GAAP financial measures. Accordingly, Vitria uses non-GAAP financial measures of its performance internally to evaluate its ongoing operations and to allocate resources within the organization. Vitria's management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The non-GAAP financial measures used by Vitria may not be consistent with the presentation of similar companies in Vitria's industry. However, Vitria presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate Vitria's operating results in a manner that focuses on what it believes to be its ongoing business operations. Vitria's management believes it is useful for itself and investors to review both GAAP information that includes the expenses and charges mentioned below and the non-GAAP measure of operating expenses that excludes such charges to have a better understanding of the overall performance of Vitria's business and its ability to perform in subsequent periods.

Vitria computes its non-GAAP financial measures of operating expense by adjusting GAAP operating expense to exclude, as applicable, the impact of restructurings, non-cash stock based compensation charges, severance charges and expenses related to going-private transaction announced in September of 2006. Management believes that the inclusion of this non-GAAP financial measure provides consistency and comparability with past reports of financial results and has historically provided comparability to similar companies in Vitria's industry, many of which present the same or similar non-GAAP financial measures to investors. Whenever Vitria uses such a non-GAAP financial measure, it provides a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measure. Vitria's management believes it is useful for itself and investors to review both GAAP information that includes such charges and non-GAAP measures of operating expenses that exclude these charges to have a better understanding of the overall performance of Vitria's ongoing business operations and its performance in the periods presented. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure.

Vitria excludes restructuring charges, including (i) employee severance and other termination benefits, and (ii) lease termination costs and other expenses associated with exiting facilities, from its non-GAAP financial measures of operating expenses. Expenses related to restructuring have, in some cases, had a significant cash impact and effect on operating expenses as measured in accordance with GAAP. However, Vitria's management believes such restructuring charges are periodic costs incurred to realign its operating expenses with its anticipated future revenues and consequently, does not consider these restructuring costs as a normal component of its expense related to ongoing operations.

Vitria excludes transaction costs associated with the going-private transaction announced in September 2006.  Vitria's management believes that these transaction costs have been incurred only as a result of that transaction, and does not consider these costs to be a normal component of its expense related to ongoing operations.

In accordance with GAAP, Vitria incurs non-cash stock based compensation charges. However, these charges result in no ongoing cash expenditures and otherwise have no material impact on Vitria's ongoing business operations. Vitria believes that if it did not provide such non-GAAP financial information, investors would not have all the necessary data to analyze Vitria's ongoing operations.

About Vitria

Vitria Technology, Inc., an award-winning provider of award-winning business process integration products and solutions, combines technology leadership with industry expertise in healthcare and insurance, financial services, telecommunications and manufacturing to dramatically improve strategic business processes across systems, people and trading partners. With 11 offices around the world, Vitria's customer base includes blue chip companies such as AT&T, Bell Canada, BellSouth, The Blue Cross Blue Shield Association, British Petroleum, British Telecom, DaimlerChrysler Bank, Generali, Nissan, The Goodyear Tire & Rubber Company, PacifiCare Health Systems, Reynolds & Reynolds, Royal Bank of Canada, Sprint, Trane and the U.S. Departments of Defense and Veterans Affairs. For more information, call [phone], email  or visit http://www.vitria.com/.

NOTE:  Vitria and BusinessWare are trademarks or registered trademarks of Vitria Technology, Inc. All other products and company names mentioned are the property of their respective owners and are mentioned for identification purposes only.

Cautionary Note Regarding Forward-looking Statements: This press release includes forward-looking statements, including statements relating to new products, goals and future business opportunities that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those referred to in the forward-looking statements. Such factors include, but are not limited to: failure to meet financial and product expectations of analysts and investors: risk related to market acceptance of Vitria's products and alliance partners' products; deployment delays or errors associated with these and other products of Vitria and partners; hardware platform incompatibilities; the need to maintain and enhance certain business relationships with system integrators and other parties; the ability to manage growth; activities by Vitria and others regarding protection of proprietary information; release of competitive products and other actions by competitors; risks associated with possible delisting from the stock market on which Vitria's securities are listed; and economic conditions in domestic and foreign markets. These and other risks related to Vitria are detailed in Vitria's Annual Report on Form 10-K for the year ended Dec. 31, 2005, filed with the SEC on March 31, 2006. Vitria does not undertake an obligation to update forward-looking statements.

  Vitria Technology, Inc.
  Condensed Consolidated Statements of Operations
  (in thousands, except per share information)

                          Three Months  Three Months  Nine Months
                              Ended        Ended         Ended
                          September 30,   June 30,    September 30,
                         2006     2005     2006      2006     2005
                          (Unaudited)   (Unaudited)   (Unaudited)

  Revenues
     License             $5,616   $3,929   $2,701   10,838   $11,497
     Service and other    8,978    9,559    8,465   25,636    30,882
  Total revenues         14,594   13,488   11,166   36,474    42,379

  Cost of revenues
     License                107      797      106      336     1,204
     Service and other    3,365    4,711    3,614   10,929    15,685
  Total cost of
   revenues               3,472    5,508    3,720   11,265    16,889

  Gross profit           11,122    7,980    7,446   25,209    25,490


  Operating expenses
     Sales and
      marketing           3,983    4,806    4,320   12,421    14,679
     Research and
      development         3,994    3,878    4,383   12,590    13,256
     General and
      administrative      3,084    1,644    2,087    8,269     8,199
     Restructuring
      charges/(credit)     (121)      38      950      974       645
  Total operating
   expenses              10,940   10,366   11,740   34,254    36,779

  (Loss)/gain from
   operations               182   (2,386)  (4,294)  (9,045)  (11,289)

     Other income, net      646      556      655    2,043     1,135

  Net (loss)/gain
   before income taxes      828   (1,830)  (3,639)  (7,002)  (10,154)

     Provision for
      income taxes           47       55        5       86       157

  Net (loss)/gain          $781  $(1,885) $(3,644)  (7,088) $(10,311)

  Basic net (loss)/gain
   per share              $0.02   $(0.06)  $(0.11)   (0.21)   $(0.31)

  Diluted net
   (loss)/gain per
   share                  $0.02   $(0.06)  $(0.11)   (0.21)   $(0.31)

  Weighted average
   shares used in
   calculating
     Basic net
      (loss)/gain per
      share              33,575   33,524   33,613   33,593    33,459
     Diluted net
      (loss)/gain per
      share              33,590   33,524   33,613   33,596    33,459

  Reconciliation of
   GAAP and non-GAAP
   information:
                          Three Months  Three Months  Nine Months
                              Ended        Ended         Ended
                          September 30,   June 30,    September 30,
                          2006     2005     2006     2006      2005


  Total operating
   expenses             $10,940  $10,366  $11,740  $34,254   $36,779
     Stock-based
      compensation         (834)     (22)    (560)  (1,819)     (105)
     Restructuring
      charges               121      (38)    (950)    (974)     (645)
     Severance charges     (367)    (200)     -       (442)     (845)
     Going-private
      charges              (862)     -        (60)  (1,001)      -
          Total non-
           GAAP
           operating
           expenses      $8,998  $10,106  $10,170  $30,018    35,184


  Vitria Technology, Inc.
  Condensed Consolidated Balance Sheets
  (in thousands)

                                             September 30,      December 31,
                                                 2006              2005
                                              (Unaudited)            *
  Assets
     Current assets
        Cash and cash equivalents                $34,497           $26,503
        Short-term investments                    16,407            34,979
        Accounts receivable, net                  11,715             7,846
        Other current assets                       1,451             2,181
           Total current assets                   64,070            71,509

     Property and equipment, net                     891             1,136
     Other assets                                    993               743
                  Total assets                   $65,954           $73,388


  Liabilities and Stockholders' Equity
     Current liabilities
        Accounts payable                            $929            $1,051
        Accrued payroll and related                2,535             3,059
        Accrued liabilities                        3,613             4,184
        Accrued restructuring expenses             2,297             3,460
        Deferred revenue                          10,851            10,242
           Total current liabilities              20,225            21,996

     Long-term liabilities
        Accrued restructuring expenses             3,698             3,960
        Other long-term liabilities                1,012             1,330
           Total long-term liabilities             4,710             5,290

     Stockholders' Equity
        Common stock                                  34                34
        Additional paid-in capital               277,967           275,857
        Accumulated other comprehensive
         income                                      410               515
        Accumulated deficit                     (236,896)         (229,808)
        Treasury stock                              (496)             (496)
           Total stockholders' equity             41,019            46,102
                                                 $65,954           $73,388

  * Derived from audited financial statements


DATASOURCE: Vitria Technology, Inc.



CONTACT:  Eric Boduch, VP Marketing, [phone], or

, or Michael D. Perry, Sr. VP and CFO, [phone], or





Web site:  http://www.vitria.com/

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