Entrust Announces Third Quarter 2008 Financial Results



    
    - Total Revenues of $24.5 million

    - an increase of $500,000 year-over-year

    - Product Revenues of $9.4 million - an increase of 15% year-over-year

    - Fraud and Risk Based Authentication increased 80% quarter-over-quarter
    and 103% year-to-date

    - GAAP Earnings improvement of $4.3 million or 7 cents per share
    year-to-date

    
    DALLAS, Oct. 23 /CNW/ -- Entrust, Inc. (Nasdaq:   ENTU), a world leader in
securing digital identities and information, today announced financial results
for its fiscal quarter ended September 30, 2008.
    "In this challenging business environment, we grew total revenues by five
hundred thousand dollars, grew product revenue fifteen percent, increased
earnings by two cents per share and were cash flow positive from operations,"
said Bill Conner, Entrust chairman, president and chief executive officer. "We
are pleased with these overall results and the solid position the company is
in as we head into the end of the year."
    Revenue for the third quarter was $24.5 million, an increase of 2 percent
from $23.9 million in Q3, 2007 and flat to Q2, 2008. Product revenue in the
quarter reached $9.4 million, an increase of 15 percent from $8.2 million in
Q3, 2007 and 5 percent from Q2, 2008.  Product revenue increases are
attributed to higher transaction volumes, higher subscription revenues and
success in the company's global financial vertical.
    "In the quarter, we had significant customer wins in online fraud
detection and risk-based authentication, which accounted for three of our top
five product transactions in the quarter," said Conner.  "We also continued to
have success in Public Key Infrastructure (PKI): we captured two additional
ePassport opportunities, successfully demonstrated our PKI leadership at the
Prague ePassport interoperability tests, and grew our subscription SSL
certificate business 34 percent.  Our fast start to the quarter, healthy
funnel and reduced cost structure have us positioned well to achieve our
earnings targets for the fourth quarter."
    Entrust recorded a Q3, 2008 net loss, calculated in accordance with GAAP,
of $1.2 million, or $0.02 per share, compared to Q3, 2007 net loss of $1.5
million, or $0.02 per share. On a non-GAAP basis the company recorded a profit
of $1.0 million, or $0.02 per share, compared to the Q3, 2007 non-GAAP profit
of $154,000, or $0.00 per share. The non-GAAP figures exclude amortization of
purchased intangibles, impairments for long term assets and stock-option based
compensation expense. See the financial table below reconciling these non-GAAP
figures to GAAP.
    Entrust generated $400,000 of positive cash flow from operations
excluding the net change in accrued restructuring charges and has generated
nearly $8.4 million for the full year, excluding the net change in accrued
restructuring charges. The company ended Q3, 2008 with approximately $23.4
million in cash and cash equivalents and no debt.
    "I am pleased that year-to-date we have increased our profitability by
$4.3 million, or seven cents per share, and improved operating cash flow by
$7.3 million," said David Wagner, Entrust senior vice-president and chief
financial officer. "Early this year, we redoubled our focus on managing cash
and expenses and the team has responded.  As a result, we are now able to
target a $2 million year-over-year reduction of quarterly expenses for the
fourth quarter to $23.0 million.  We remain positive on our outlook for the
fourth quarter and are well positioned financially as we head into 2009."
    
    Financial Outlook:
    
    Entrust is targeting fourth quarter 2008 revenue between $24.5 million
and $27.5 million. For the fourth quarter of 2008, the company is targeting a
net income in accordance with GAAP of between $0.02 and $0.04 per share and on
a non-GAAP basis a profit of between $0.04 and $0.06 per share. The high end
of non-GAAP earnings per share for the quarter is in line with the company's
prior guidance of $0.08 per share for the second half of 2008.  The company's
Q4, 2008, total expenses on a non-GAAP basis are expected to be approximately
$23.0 million. The company continues to target cash flow positive from
operations adjusted to exclude the net change in accrued restructuring charges
for the full year by more than $10.0 million. See the financial table below
reconciling the non-GAAP figures to GAAP.
    
    Q3 Business and Financial Metrics:
    
    -- Revenue of $24.5 million consisted of 39% product revenue ($9.4
million) and 61% services and maintenance revenue ($15.0 million). The top
five product transactions accounted for 10% of Q3, 2008 revenues. There were
no product transactions over $1 million in Q3, 2008.
    -- Revenue from subscription-based product and services accounted for 56%
of total revenue for Q3, 2008, up from 54% in Q3, 2007.
    -- Revenue from transactions less than $500,000 increased 23% from Q3,
2007, continuing to drive the company's strategy to be less reliant on large
deals. Transactions less than $500,000 and subscription product revenue
accounted for 93% of product revenue in Q3, 2008.
    -- Emerging growth products (Entrust IdentityGuard, Boundary Messaging
and Fraud Detection) accounted for $3.6 million, or 38% of product revenue, up
88% from $1.9 million in Q3, 2007, and accounted for $8.8 million of product
revenue year-to-date, up 50% from $5.8 million 2007.
    -- Public Key Infrastructure (PKI) products accounted for $5.5 million,
or 58% of product revenue, a decrease of 12% from $6.2 million in Q3, 2007,
but remains roughly flat for entire year.  The decrease in total PKI revenue
was from the movement of customers from perpetual license to subscription
based managed service and the planned decrease in Entrust's full-disk
products, which it resells from Checkpoint.  Entrust Certificate Services (SSL
certificates) increased 34% year-over-year and accounted for $2.5 million of
PKI product revenue in Q3, 2008.
    -- Product revenue for the quarter was 36% Extended Government and 64%
Extended Enterprise. The financial services vertical accounted for
approximately 49% of product revenue in Q3, 2008.  Product revenue from the
financial services vertical increased 92% over Q3, 2007, and is up 40% over
the first three quarters of 2007.
    -- The average purchase size in the third quarter was $50,000, roughly
flat to Q3, 2007 of $51,000.  Total transactions in Q3, 2008 reached 130, an
increase of 13% from Q3, 2007.  Forty-four transactions, or 34% of the total
transactions, were from new customers.  Year-to-date total transactions have
increased 10% over last year driven by new customers, which are up 30% over
last year.
    -- Deferred revenue declined to $27.4 million, a decrease of $700,000
from Q3, 2007 due primarily to a weakening Canadian dollar, which is the
currency in which the majority of the company's deferred revenues are
denominated.
    -- Support and Maintenance revenues increased 2% over Q3, 2007 and have
increased 7% on a year-to-date basis.
    -- Cash flow from operations was positive $400,000 for Q3, 2008 before
the net change in restructuring accruals of $1.4 million.  Year-to-date cash
flow for operations is positive $8.4 million before the net change in
restructuring accruals of $4.2 million.
    
    Technology and Industry Highlights:
    
    -- DnB NOR, the largest financial institution in Norway, aligned its
comprehensive security strategy with Entrust, Inc. and the zero-touch fraud
detection component of the Entrust Risk-based Authentication Solution. With
total assets of more than $308 billion (USD), DnB NOR serves more than 2.5
million customers worldwide. The bank will leverage the Entrust solution --
for more than 1.7 million users -- to protect private-, corporate- and
consumer-banking customers online.
    -- The interoperability test for second-generation ePassports was held in
Prague in September. Entrust demonstrated a flawless public key infrastructure
(PKI) certificate exchange using United Kingdom and Slovenia systems in a
multi-country test environment. Showcasing a "point-and-click" PKI system,
Entrust confirmed that the security infrastructure for second-generation
ePassports, based on Extended Access Control (EAC), is truly ready for global
deployment.
    -- Slovenia selected Entrust to facilitate its government's migration to
a second-generation ePassport solution based on the EAC standard. Slovenia's
second-generation ePassport capabilities, integrated by technology partner
S&T, represent one of the core components of the country's citizen-centric
e-government.
    -- Entrust and 3M announced a partnership to provide an integrated
end-to-end secure ePassport solution, which provides the necessary components
to implement Basic Access Control (BAC) and EAC ePassport security, while also
securing the surrounding data and communications infrastructures.
    -- Entrust announced that they will collaborate with GET Group to provide
comprehensive ePassport solutions. GET Group will integrate Entrust's
ePassport PKI capabilities -- based on both BAC and EAC technology -- to help
complete an efficient, comprehensive end-to-end ePassport solution.
    -- Entrust's PKI was extended as the foundation of a full layered
security model for BNSF to enable employee authentication, secure messaging,
device authentication, secure file and folder capabilities and hard-disk
encryption.
    -- Georgia-based Gwinnett Medical Center selected Entrust IdentityGuard
to comply with HIPAA regulations and protect patient files, sensitive medical
data and clinical information. Facilitated by trusted partner PossibleNOW,
Entrust IdentityGuard grid cards are now used to authenticate GMC doctors and
staff who wish to remotely access the corporate network via SSL VPN.
    -- Austrian-based S&T Group opted to internally deploy the same proven
security technology it sells to its customer base -- specifically Entrust's
PKI and complementary solutions -- to enable authentication to corporate
assets, encryption of sensitive information and the use of digital signatures
to help verify identities.
    Entrust will host a live teleconference and Webcast on Thursday, October
23, 2008, at 5 p.m. EDT, featuring Chairman, President and CEO Bill Conner and
Chief Financial Officer David Wagner to discuss the company's fiscal third-
quarter results and fourth-quarter outlook for 2008. The conference call audio
will be available live via dial-in at 1-800-732-9307 and via the Web at
http://phx.corporate-ir.net/playerlink.zhtml?c=73119&s=wm&e=1988301.  Please
log on approximately 15 minutes before the Webcast begins in order to register
and to download and install any necessary audio software. An archive of the
Webcast will be available for 90 days at the above Internet address.
    For those unable to attend the live conference call, an audio replay will
be available beginning at 7 p.m. EDT, Thursday, October 23, 2008, through
Thursday, October 30, 2008, at 11:59 p.m. EDT. The replay number is
1-877-289-8525 and the pass code is 21285267#.
    
    Use of Non-GAAP Financial Measures
    
    To supplement the financial results that are prepared and presented in
accordance with accounting principles generally accepted in the United States,
Entrust's management prepares and uses non-GAAP financial measures for many of
its internal financial, operating and planning reports. The company's
management believes that by excluding charges such as the purchased
intangibles amortization in cost of goods sold, the amortization of purchased
intangible assets in operating expenses, stock compensation expense,
restructuring charges , impairment of long-term assets and write down of
strategic investments from its GAAP-based results, these non-GAAP financial
measures are more likely to facilitate investors' understanding of the
company's ongoing business operating results. These non-GAAP financial
measures also facilitate comparisons to the operating results of the company's
competitors and provide investors with greater transparency with respect to
the supplemental information used by management in its operational and
financial decision making.
    The non-GAAP measures are included to provide investors with supplemental
information to facilitate their understanding of Entrust's operating results
and future prospects. Management uses these non-GAAP measures to assess its
success in reducing the company's cost structure, to measure its ongoing cash
operating costs, and to establish budgets and operational goals. The
presentation of this additional information should not be considered in
isolation or as a substitute for financial and operating results prepared in
accordance with accounting principles generally accepted in the United States,
as non-GAAP measures are susceptible to varying calculations and they may not
be comparable, as presented, to other similarly titled measures of other
companies.
    This press release contains forward-looking statements relating to
Entrust's projected revenue, the company's planned fourth quarter non-GAAP
total expenses, net income per share, non-GAAP income per share for the fourth
quarter of 2008 and cash flow from operations prior to accrued restructuring
charges for the full year. Such statements are based upon preliminary
estimates which involve a number of risks and uncertainties. Among the
important factors that could cause actual results to differ materially from
those indicated by such forward-looking statements are unforeseen operating
expenses, inaccuracy in preliminary estimates, issues associated with revenue
recognition, issues raised in connection with the internal review of quarterly
financial results, and the risk factors detailed from time to time in
Entrust's periodic reports and registration statements filed with the
Securities and Exchange Commission, including without limitation Entrust's
Annual Report on Form 10-K for the fiscal year ended December 31, 2007. While
Entrust may elect to update forward-looking statements in the future, Entrust
specifically disclaims any obligation to do so, even if its estimates change.
    
    About Entrust
    
    Entrust [NASDAQ:   ENTU] secures digital identities and information for
consumers, enterprises and governments in 1,700 organizations spanning 60
countries. Leveraging a layered security approach to address growing risks,
Entrust solutions help secure the most common digital identity and information
protection pain points in an organization. These include SSL, authentication,
fraud detection, shared data protection and e-mail security. For information,
call 888-690-2424, e-mail entrust@entrust.com or visit http://www.entrust.com.
    Entrust is a registered trademark of Entrust, Inc. in the United States
and certain other countries.  In Canada, Entrust is a registered trademark of
Entrust Limited.  All Entrust product names are trademarks of Entrust.  All
other company and product names are trademarks or registered trademarks of
their respective owners.

    
     Investor Contact:                     Media Contact:
     David Rockvam                         Brooke Hamilton
     Investor Relations                    Media Relations
     972-713-5824                          (972) 713-5915
     david.rockvam@entrust.com             brooke.hamilton@entrust.com
    



    
                                ENTRUST, INC.
                UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
                                  OPERATIONS
                    (in thousands, except per share data)
    

    
                                        Three Months Ended   Nine Months Ended
                                          September 30th,     September 30th,
                                           2008     2007       2008     2007
    

    
    Revenues:
         Product                           9,435   $8,170     28,078  $26,244
         Services and maintenance         15,021   15,773     46,695   46,755
    Total revenues                        24,456   23,943     74,773   72,999
    

    
    Cost of revenues:
         Product                           2,208    1,815      6,688    5,785
         Services and maintenance          7,207    7,205     22,110   22,412
         Amortization of purchased
          product rights                     128      355        788    1,032
    Total cost of revenues                 9,543    9,375     29,586   29,229
    

    
    Total gross profit                    14,913   14,568     45,187   43,770
    

    
    Operating expenses:
         Sales and marketing               7,817    8,207     24,326   26,113
         Research and development          4,271    4,929     13,445   15,590
         General and administrative        2,606    2,929      8,846    9,447
         Write-down of long-term asset     1,518      -        1,518      -
    Total operating expenses              16,212   16,065     48,135   51,150
    

    
    Loss from operations                  (1,299)  (1,497)    (2,948)  (7,380)
    

    
    Other income (expense):
         Interest income                      93      188        322      544
         Foreign exchange gain                81      (88)       156      (18)
         Gain on sale of long-term
          strategic investments              -        -           18      -
         Loss from equity investments        -        -          -        (77)
    Total other income (expense)             174      100        496      449
    

    
    Loss before income taxes              (1,125)  (1,397)    (2,452)  (6,931)
    

    
    Provision for income taxes               114      104        389      228
    

    
    Net loss                             $(1,239) $(1,501)   $(2,841) $(7,159)
    

    
    Weighted average common shares
     used
         Basic                            61,392   60,987     61,283   60,717
         Diluted                          61,392   60,987     61,283   60,717
    

    
    Net loss per share
         Basic                            ($0.02)  ($0.02)    ($0.05)  ($0.12)
         Diluted                          ($0.02)  ($0.02)    ($0.05)  ($0.12)
    



    
                                ENTRUST, INC.
               UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                                (in thousands)
    

    
                                               September 30,      December 31,
                                                   2008               2007
    

    
    ASSETS
    

    
      Cash and marketable investments              $23,400            $20,485
      Accounts receivable, net of
       allowance for doubtful accounts              15,474             20,773
      Other current assets                           3,945              4,079
      Property and equipment, net                    1,451              1,490
      Purchased product rights and other
       purchased intangible assets, net              9,999             11,543
      Goodwill                                      60,214             60,214
      Long-term strategic and equity
       investments                                      91                 91
      Other long-term assets, net                    1,096              3,479
    

    
         Total assets                             $115,670           $122,154
    


    
    LIABILITIES AND SHAREHOLDERS' EQUITY
    

    
      Accounts payable and accruals                $14,548            $16,330
      Accrued restructuring charges                 15,096             19,266
      Deferred revenue                              27,418             27,894
      Long-term liabilities                            826                218
    

    
         Total liabilities                          57,888             63,708
    

    
      Shareholders' equity                          57,782             58,446
    

    
         Total liabilities and
          shareholders' equity                    $115,670           $122,154
    



    
    The following supplemental tables provide non-GAAP financial measures used
    by the company's management to evaluate operational results.  The company
    believes this information may be useful to investors.   In addition to
    disclosing financial results calculated in accordance with U.S. generally
    accepted accounting principles (GAAP), the company's earnings release
    contains non-GAAP financial measures that exclude the income statement
    effects of share-based compensation, amortization of purchase product
    rights and other purchased intangibles, write-down of long-term assets and
    non-recurring restructuring and impairment charges. The non-GAAP financial
    measures disclosed by the company should not be considered a substitute
    for, or superior to, financial measures calculated in accordance with
    GAAP, and the financial results calculated in accordance with GAAP and
    reconciliations to those financial statements should be carefully
    evaluated. The non-GAAP financial measures used by the company may be
    calculated differently from, and therefore may not be comparable to,
    similarly titled measures used by other companies.
    

    
    Set forth below are reconciliations of the non-GAAP financial measures to
    the most directly comparable GAAP financial measures.
    

    
    For additional information regarding these non-GAAP financial measures,
    see the Form 8-K dated October 23, 2008 that Entrust has filed with the
    Securities and Exchange Commission.
    



    
                                ENTRUST, INC.
                                 SUPPLEMENTAL
                 RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
                    (in thousands, except per share data)
    

    
                                        Three Months Ended   Nine Months Ended
                                          September 30th,     September 30th,
                                          2008     2007       2008     2007
    


    
    Reconciliation of net loss
     per GAAP to Non-GAAP income
     (loss):
    GAAP net loss                        $(1,239) $(1,501)   $(2,841) $(7,159)
        Adjustments for share-based
         compensation expense:
          Cost of revenues                    42       77        148      225
          Sales and marketing                136      305        560      933
          Research and development            27      173        183      574
          General and administrative         177      498        759    1,450
        Amortization of other
         purchased intangibles:
          Cost of revenues                    39       38        115      114
          Sales and marketing                211      209        633      666
        Amortization of purchased
         product rights                      128      355        788    1,032
        Write-down of long-term asset      1,518      -        1,518      -
    

    
    Non-GAAP income (loss)                $1,039     $154     $1,863  $(2,165)
    


    
    Reconciliation of net loss per
     diluted share according to GAAP
     to Non-GAAP income (loss) per
     diluted share:
    

    
    GAAP net loss per diluted share       ($0.02)  ($0.02)    ($0.05)  ($0.12)
    

    
        Adjustments for share-based
         compensation expense               0.01     0.01       0.03     0.05
        Amortization of other
         purchased intangibles              0.01      -         0.01     0.01
        Amortization of purchased
         product rights                      -       0.01       0.01     0.02
        Write-down of long-term
         asset                              0.02      -         0.03      -
                                            0.04     0.02       0.08     0.08
    

    
    Non-GAAP income (loss) per
     diluted share                         $0.02    $0.00      $0.03   ($0.04)
    

    
    Weighted average common
     shares used                          61,392   60,987     61,283   60,717
    


    
    Reconciliation of net cash
     flow from operating activities
     per GAAP to Non-GAAP cash flow
     from operations before the net
     change in restructuring accruals:
    

    
    GAAP net cash flow from operating
     activities                            $(989) $(3,009)    $4,193  $(2,887)
        Adjustments to exclude the
         effects of:
          Net change in accrued
           restructuring charges           1,391    1,327      4,170    3,940
    

    
    Non-GAAP cash flow from operations
     before the net change in
     restructuring accruals                 $402  $(1,682)    $8,363   $1,053
    



    
                           Forward Looking Guidance
                           Earnings Per Share Range
    

    
                                                          Fourth Quarter
                                                               2008
           U.S. GAAP measure                         $0.02              $0.04
    

    
           Adjustments to exclude the
            effects of amortization of
            purchased intangible assets               0.01               0.01
    

    
           Adjustments to exclude the
            effects of expenses related
            to stock-based compensation               0.01               0.01
    

    
           Non-GAAP figures                          $0.04              $0.06
    



    
                           Forward Looking Guidance
                            Total Quarterly Costs
                                                    (in millions)
                                                       Q4 2008
           U.S. GAAP measure                            $23.9
    

    
           Adjustments to exclude the
            effects of amortization of
            purchased intangible assets                   0.4
    

    
           Adjustments to exclude the
            effects of expenses related
            to stock-based compensation                   0.5
    

    
           Non-GAAP figures                             $23.0
    



    
                           Forward Looking Guidance
                     Cash Flow from Operating Activities
                                                   (in millions)
                                                      Full Year
                                                        2008
          U.S. GAAP measure                             $4.5
    

    
          Adjustments to exclude the
           effects of the net change
           in accrued restructuring charges              5.5
    

    
          Non-GAAP figures                             $10.0

    




For further information:

For further information: investors, David Rockvam, Investor Relations,
+1-972-713-5824, david.rockvam@entrust.com, or media, Brooke Hamilton, Media
Relations, +1-972-713-5915, brooke.hamilton@entrust.com, both of Entrust, Inc.
Web Site: http://www.entrust.com

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