Entrust Announces Third-Quarter Fiscal Year 2007 Financial Results



    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 ending September 30, 2007.
    "I am pleased to announce today that we were able to return the company
to non-GAAP profitability despite having lighter recognized product revenue
and the ever-increasing Canadian exchange rate impact on expenses," said Bill
Conner, Entrust Chairman, President and Chief Executive Officer.
"Specifically, Entrust IdentityGuard added 28 new customers and 66 total
transactions in the quarter, and we have now crossed over 9 million licensed
users and $10 million in life-to-date sales of Entrust IdentityGuard. One key
win that is not reflected in the third-quarter product revenue is a purchase
order we received in Q3 for a three-year contract for 500,000 tokens and
software for a large Asian financial institution."
    Revenue for the third quarter was $23.9 million, virtually flat to Q3
2006. Revenue for the first three quarters of 2007 was $73.0 million, an
increase of 9 percent from the same period of 2006. Product revenue in the
third quarter was $8.2 million, a decrease of 7 percent from Q3 2006. Product
revenue for the first three quarters of 2007 was $26.2 million, an increase of
15 percent from the same period of 2006. Deferred revenue in the third quarter
increased $3.2 million over Q3 2006 to $28.2 million.
    Services revenue in Q3 2007 was $15.8 million, which is up 3 percent from
Q3 of last year. Services revenue for the first three quarters of 2007 was
$46.8 million, an increase of 5 percent from the same period of 2006. The key
driver for the increase in services revenue was the company's record quarterly
support and maintenance revenue attainment.
    Entrust recorded a Q3 2007 net loss, calculated in accordance with GAAP,
of $1.5 million, or $0.02 per share, compared to Q3 2006 net loss of $3.2
million, or $0.05 per share. On a non-GAAP basis, the company recorded income
of $154 thousand, or $0.00 per share, compared to Q3 2006 loss of $1.7
million, or $0.03 per share. Entrust ended the quarter with cash and
marketable securities of $21.5 million. The non-GAAP figures exclude
amortization of purchased intangibles and stock-option based compensation
expense. See the financial table below reconciling these non-GAAP figures to
GAAP.
    Conner added, "I am equally pleased with our PKI revenue, which
represented 76 percent of our product revenue, grew 50 percent over Q3 of last
year and achieved its fourth consecutive quarter of year-over-year growth. Our
PKI leadership in governments continued to build in the quarter with wins of
the national PKI infrastructures for the Kingdom of Saudi Arabia, Brunei,
Slovenia and the HSPD-12 initiative for the U.S. Government. Also, one of the
largest global banks bought our thin-client PKI solution to rollout in
conjunction with their Vista deployment. We have a strong funnel going into Q4
and a lowered expense base, which will help us deliver on our goal of non-GAAP
profitability for the year."
    
    Financial Outlook:
    
    Entrust continues to target a second half 2007 net loss in accordance
with GAAP of $0.02 per share. On a non-GAAP basis, the company continues to
target a profit of $0.04 per share for the second half of 2007.  Entrust's
second-half earnings per share targets would, on a full-year basis, equate to
a full-year 2007 net loss in accordance with GAAP of $0.12 per share and on a
non-GAAP basis the company would achieve breakeven for the year. The company's
Q4 2007 total expenses on a non-GAAP basis are expected to be approximately
$23.8 million, flat to Q3 2007. See the financial table below reconciling the
non-GAAP figures to GAAP.
    The following charges for the second half and full year of 2007,
reconcile the GAAP and non-GAAP earnings per share targets:

    
    -- A stock-based compensation charge in accordance with SFAS 123R of
       approximately $2.2 million, or $(0.04) per share for the second half of
       2007, and approximately $4.4 million, or $(0.08) per share for the full
       year of 2007.
    -- Amortization charges of intangible assets primarily associated with the
       acquisition of Business Signatures, Orion and AmikaNow of approximately
       $1.2 million, or $(0.02) per share, for the second half of 2007, and
       approximately $2.4 million, or $(0.04) per share, for the full year of
       2007.
    


    Q3 Business and Financial Metrics:

    
    -- Revenue of $23.9 million consisted of 34 percent product revenue ($8.2
       million) and 66 percent services and maintenance revenue
       ($15.8 million).
    -- Product revenue for the quarter was 45 percent Extended Government and
       55 percent Extended Enterprise. Extended Government revenue was driven
       by global credentialing projects and other public key infrastructure
       (PKI) technology-based applications. The financial services vertical
       accounted for approximately 27 percent of product revenue in Q3 2007.
    -- Entrust's top-five product revenue transactions accounted for 9 percent
       of revenue in the quarter.  There was one product deal more than $1.0
       million in the quarter for the national PKI infrastructure for Saudi
       Arabia.
    -- Emerging growth products (Entrust IdentityGuard, Entrust Messaging
       Server and Entrust TransactionGuard) accounted for $1.9 million, or 23
       percent of product revenue, up 15 percent from $1.7 million in Q2 2007.
       Entrust IdentityGuard transactions increased to 66 this quarter, up
       from 23 in Q3 2006.
    -- Public key infrastructure products accounted for $6.2 million, or 76
       percent of product revenue, up 50 percent from $4.1 million in Q3 2006.
       Entrust certificate services increased 35 percent year-over-year and
       accounted for $1.9 million of PKI product revenue in Q3 2007. Entrust
       Entelligence Group Share also continued its revenue ramp with a 79
       percent increase from Q2 2007.
    -- The average purchase size in the second quarter was $51,000, a decrease
       from $83,000 in Q3 2006. The decrease in average deal size from a year
       ago is due to the increase in number of smaller Entrust IdentityGuard
       and Entrust IdentityGuard token transactions. Total transactions in Q3
       2007 reached 115, which is up from 86 in Q3 2006. Thirty-eight, or 33
       percent, of the transactions were from new customers. For the year new
       customers have increased 80 percent over the same period of 2006.
    


    Technology and Industry Highlights:

    
    -- Already an award-winning solution, Entrust released Entrust
       IdentityGuard 9.0, a versatile authentication platform that provides
       one of the widest ranges of authentication options on the market today.
       The latest release expands the platform to include several new
       authentication capabilities, including risk-based authentication based
       on IP-geolocation and the ability to leverage data delivered through
       the Entrust Open Fraud Intelligence Network (OFIN). SC Magazine named
       the solution as a "Best Buy" in their July 2007 authentication group
       test, which featured side-by-side comparisons of the industry's leading
       authentication platforms.
    -- To further the advancement of e-passport technology, Entrust announced
       the development of public key infrastructure (PKI) for the next
       generation of e-passport security, also known as Extended Access
       Control (EAC). EAC provides a higher level of security during the
       verification process of e-passports. These next-generation e-passports
       will be required by all member European Union (EU) nations by June
       2009. Unmatched in PKI deployment experience, Entrust provides
       e-passport security for a number of top e-governments in the world,
       including the U.S., U.K., Slovenia, Singapore and New Zealand.
    -- Entrust announced on its second-quarter results conference call that
       its largest product transaction was with a U.S. federal government
       agency who selected Entrust for their agency-wide HSPD-12 rollout. The
       company's success in HSPD-12 extended this quarter as they were awarded
       the contract as the primary PKI Shared Service Provider (SSP) for the
       GSA Managed Service Offering as a member of the EDS team. Entrust
       received the contract award in July, which will be taken on an annual
       subscription basis. Entrust expects that this subscription revenue
       stream will build as the departments and agencies issue more
       credentials during the government's fiscal 2008 period.
    -- Entrust Entelligence Messaging Server 9.0, Entrust's user-friendly
       e-mail security solution, was improved to provide the capability to
       issue its own industry-standard decryption certificates for external
       recipients to download. This allows recipients to receive secure e-mail
       directly and transparently into their e-mail application of choice,
       such as Lotus Notes or Microsoft Outlook. Entrust Entelligence
       Messaging Server 9.0 appeared in the September 2007 issue of SC
       Magazine and was rated a five-star product. The solution was called
       "one of the best choices for the money."
    -- Slovenia selected Entrust to help move to an e-government service
       model, which includes e-passports based on Entrust solutions. As a
       benefit to citizens of Slovenia, this e-government environment
       leverages Entrust digital certificates to help provide secure
       applications for tax filing, driver's licenses, birth and marriage
       certificate requests, and change of address certifications. Improved
       business applications include corporate and VAT tax filing, business
       registration and customs declarations. The data contained in Slovenian
       e-passports is also digitally signed using Entrust software that is
       specifically designed to protect against fraud.
    -- Entrust introduced Entrust GetAccess 8.0, a proven, scalable Web access
       control solution, which includes the ability to step up authentication
       based on the risk or sensitivity of a transaction. Leveraging a single
       native policy interface, organizations can choose from the wide range
       Entrust IdentityGuard multifactor authentication capabilities to
       dynamically protect access to sensitive online resources. Entrust
       GetAccess 8.0 also includes support for SAML 2.0, enabling commercial
       and government enterprises to easily share identities across different
       Web properties.
    -- In conjunction with the General Services Administration's (GSA)
       E-Authentication Initiative, Entrust GetAccess was lauded during
       official E-Authentication SAML 2.0 Interoperability testing in
       Washington, D.C. During the analysis, Entrust GetAccess met all
       necessary requirements and was again named to the latest Approved
       Technology Providers List for government agencies and organizations.
       The E-Authentication Initiative testing process was developed to
       confirm security leaders' Security Assertion Markup Language (SAML) 2.0
       capabilities during different actions and scenarios within a variety of
       environments.
    
    Entrust will host a live teleconference and web cast on Tuesday, October
23, 2007 at 5 p.m. (Eastern), featuring Chairman, President and CEO Bill
Conner and Chief Financial Officer David Wagner to discuss the company's
fiscal third-quarter results and second-half 2007 outlook. The conference call
audio will be available live via dial-in at 1-800-733-7571 and via the
Internet at
http://phx.corporate-ir.net/playerlink.zhtml?c=73119&s=wm&e=1663227. 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. (Eastern), Tuesday, October 23, 2007 through
Tuesday, October 30, 2007 at 11:59 p.m. (Eastern). The North American replay
number is 1-877-289-8525 and the International replay number is 416-640-1917.
Both numbers have a pass code of 21249002#.
    
    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 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, net income and net loss per share and non-GAAP
income per share for the second half of 2007 and the targeted total non-GAAP
expenses for Q4, 2007.  Such statements 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, unconverted customer opportunities, issues
associated with revenue recognition, issues raised in connection with the
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, 2006. 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 1,650 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.


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

    
                                        Three Months Ended  Nine Months Ended
                                           September 30th,   September 30th,
                                            2007     2006     2007      2006
    

    
    Revenues:
         Product                            8,170   $8,788   26,244   $22,754
         Services and maintenance          15,773   15,243   46,755    44,430
    Total revenues                         23,943   24,031   72,999    67,184
    

    
    Cost of revenues:
         Product                            1,815    1,246    5,785     4,420
         Services and maintenance           7,205    7,252   22,412    21,700
         Amortization of purchased
          product rights                      355      319    1,032       738
    Total cost of revenues                  9,375    8,817   29,229    26,858
    

    Total gross profit                     14,568   15,214   43,770    40,326

    
    Operating expenses:
         Sales and marketing                8,207    9,710   26,113    24,431
         Research and development           4,929    5,505   15,590    14,148
         General and administrative         2,929    3,426    9,447    10,654
         Restructuring charges and
          adjustments                           -      -          -     2,765
    Total operating expenses               16,065   18,641   51,150    51,998
    

    Loss from operations                   (1,497)  (3,427)  (7,380) 
(11,672)

    
    Other income (expense):
         Interest income                      188      363      544     1,945
         Foreign exchange gain (loss)         (88)      (4)     (18)     (275)
         Loss from equity investments           -      (51)     (77)     (344)
         Writedown of long-term strategic
          and equity investments                -        -        -    (3,016)
    Total other income (expense)              100      308      449    (1,690)
    

    Loss before income taxes               (1,397)  (3,119)  (6,931) 
(13,362)

    Provision for income taxes                104      120      228       309

    Net loss                              $(1,501) $(3,239) $(7,159)
$(13,671)

    
    Weighted average common shares used
         Basic                             60,987   59,807   60,717    59,814
         Diluted                           60,987   59,807   60,717    59,814
    

    
    Net loss per share
         Basic                             ($0.02)  ($0.05)  ($0.12)   ($0.23)
         Diluted                           ($0.02)  ($0.05)  ($0.12)   ($0.23)
    



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

    
                                                September 30,     December 31,
                                                     2007              2006
    

    ASSETS

    
      Cash and marketable investments              $21,470            $22,527
      Accounts receivable, net of
       allowance for doubtful accounts              18,336             21,117
      Other current assets                           3,831              2,904
      Property and equipment, net                    1,786              2,721
      Purchased product rights and other
       purchased intangible assets, net             12,154             13,843
      Goodwill                                      60,214             60,214
      Long-term strategic and equity investments        91                169
      Other long-term assets, net                    3,780              4,321
    

    Total assets                             $121,662           $127,816


    LIABILITIES AND SHAREHOLDERS' EQUITY

    
      Accounts payable and accruals                $16,226            $20,268
      Accrued restructuring charges                 20,578             24,518
      Deferred revenue                              28,152             23,575
      Long-term liabilities                            218                231
    

    Total liabilities                          65,174             68,592

    Shareholders' equity                          56,488             59,224

    
         Total liabilities and
          shareholders' equity                    $121,662           $127,816
    
    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, 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, 2007 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,
                                             2007     2006     2007      2006
    

    
    Reconciliation of net loss per GAAP
     to Non-GAAP loss:
    GAAP net loss                         $(1,501) $(3,239) $(7,159) $(13,671)
         Adjustments for share-based
          compensation expense:
            Cost of revenues                   77       68      225       191
            Sales and marketing               305      282      933       635
            Research and development          173      132      574       262
            General and administrative        498      442    1,450     1,111
         Amortization of other purchased
          intangibles:
            Cost of revenues                   38       51      114        51
            Sales and marketing               209      217      666       251
         Amortization of purchased
          product rights                      355      319    1,032       738
         Restructuring charges and
          adjustments                           -        -        -     2,765
         Write-down of long-term
          strategic and equity
          investments                           -        -        -     3,016
         Tax effect on Non-GAAP
          adjustments                           -        -        -         -
    

    
    Non-GAAP loss                            $154  $(1,728) $(2,165)  $(4,651)
    
    Reconciliation of net loss per diluted share according to GAAP to
Non-GAAP loss per diluted share:

    GAAP net loss per diluted share        ($0.02)  ($0.05)  ($0.12)  
($0.23)

    
         Adjustments for share-based
          compensation expense               0.01     0.01     0.05      0.04
         Amortization of other purchased
          intangibles:                          -        -     0.01      0.01
         Amortization of purchased
          product rights                     0.01     0.01     0.02      0.01
         Restructuring charges and
          adjustments                           -        -        -      0.04
         Write-down of long-term
          strategic and equity
          investments                           -        -        -      0.05
         Tax effect on Non-GAAP
          adjustments                           -        -        -         -
                                             0.02     0.02     0.08      0.15
    

    Non-GAAP loss per diluted share         $0.00   ($0.03)  ($0.04)  
($0.08)

    Weighted average common shares used    60,987   59,807   60,717    59,814



    
                                   Forward Looking Guidance
                                     Earnings Per Share
    

    
                                           Second Half         Full Year
                                               2007              2007
    

    U.S. GAAP measure                  ($0.02)           ($0.12)

    
          Adjustments to exclude the
           effects of amortization of
           purchased intangible assets        $0.02             $0.04
    

    
          Adjustments to exclude the
           effects of expenses related
           to stock-based compensation        $0.04             $0.08
    

    Non-GAAP figures                    $0.04             $0.00



    
             Forward Looking Guidance
              Total Quarterly Costs
                                              Range
                                             Q4 2007
    

    U.S. GAAP measure                   $25.5

    
          Adjustments to exclude the
           effects of amortization of
           purchased intangible assets         $0.6
    

    
          Adjustments to exclude the
           effects of expenses related
           to stock-based compensation         $1.1
    

    Non-GAAP figures                    $23.8




For further information:

For further information: David Rockvam, Investor Relations, 
+1-972-713-5824, david.rockvam@entrust.com, or 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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