Financials

2007 Second-Quarter Financial Statements

ENTRUST, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Three Months Ended
June 30th,

Six Months Ended
June 30th,

2007

2006

2007

2006

Revenues:

Product

$8,930

$7,388

$18,074

$13,966

Services and maintenance

15,563

14,666

30,982

29,187
Total revenues

24,493

22,054

49,056

43,153

Cost of revenues:

Product

2,162

1,230

3,970

3,174

Services and maintenance

7,759

7,407

15,207

14,448

Amortization of purchased product rights

345

212

677

419

Total cost of revenues

10,266

8,849

19,854

18,041

Total gross profit:

14,227

13,205

29,202

25,112

Operating expenses

Sales and marketing

8,813

7,208

17,906

14,721

Research and development

5,312

4,403

10,661

8,643

General and administrative

3,258

3,553

6,518

7,228

Restructuring charges and adjustments

-

(130)

-

2,765

Total operating expenses

17,383

15,034

35,085

33,357

Income (loss) from operations

(3,156)

(1,829)

(5,883)

(8,245)

Other income (expense):

Interest income

176

840

356

1,582

Foreign exchange gain (loss)

(177)

(63)

70

(271)

Loss from equity investments

-

(122)

(77)

(293)

Writedown of long-term strategic and equity investments

-

-

-

(3,016)

Total other income (expense)

(1)

655

349

(1,998)

Loss before income taxes

(3,157)

(1,174)

(5,534)

(10,243)

Provision for income taxes

72

90

124

189

Net loss

$(3,229)

$(1,264)

$(5,658)

$(10,432)

Weighted average common shares used

Basic

60,777

59,741

60,582

59,818

Diluted

60,777

59,741

60,582

59,818

Net income (loss) per share

Basic

($0.05)

($0.02)

($0.09)

($0.17)

Diluted

($0.05)

($0.02)

($0.09)

($0.17)

ENTRUST, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

Jun. 30, 2007

Dec. 31, 2006
(unaudited)

ASSETS

Cash and marketable investments

$24,235

$22,527

Accounts receivable, net of allowance for doubtful accounts

17,011

21,117

Other current assets

3,382

2,904

Property and equipment, net

1,912

2,721

Purchased product rights and purchased non-contractual customer relationships, net

12,713

13,843

Goodwill, net

60,214

60,214

Long-term equity investment

91

169

Other long-term assets, net

4,102

4,321

Total assets

$123,660

$127,816

LIABILITIES AND SHAREHOLDERS’ EQUITY

Accounts payable and accruals

$16,198

$20,268

Accrued restructuring charges

21,905

24,518

Deferred revenue

28,507

23,575

Long-term liabilities

218

231

Total liabilities

66,828

68,592

Shareholders’ equity

56,832

59,224

Total liabilities and shareholders’ equity

$123,660

$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 April 25, 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
June 30th,

Six Months Ended
June 30th,

2007

2006

2007

2006

Reconciliation of net loss per GAAP to Non-GAAP loss:

GAAP net loss

$(3,229)

$(1,264)

$(5,658)

$(10,432)

Adjustments for share-based compensation expense:

Cost of revenues

81

66

148

123

Sales and marketing

339

183

628

353

Research and development

204

70

401

130

General and administrative

511

339

952

669

Amortization of other purchased intangibles:

Cost of revenues

38

-

76

-

Sales and marketing

229

17

457

34

Amortization of purchased product rights

345

212

677

419

Restructuring charges and adjustments

-

(130)

-

2,765

Write-down of long-term strategic and equity investments

-

-

-

3,016

Tax effect on Non-GAAP adjustments

-

252

-

-

Non-GAAP loss

$(1,482)

$(255)

$(2,319)

$(2,923)

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

GAAP net loss per diluted share

($0.05)

($0.02)

($0.09)

($0.17)

Adjustments for share-based compensation expense

0.02

0.01

0.03

0.02

Amortization of other purchased intangibles:

-

-

0.01

-

Amortization of purchased product rights

0.01

-

0.01

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

-

0.01

-

-

0.03

0.02

0.05

0.12

Non-GAAP loss per diluted share

($0.02)

($0.00)

($0.04)

($0.05)

Weighted average common shares used

60,777

59,741

60,582

59,818

Forward Looking Guidance
Earnings Per Share
Second Half 2007

U.S. GAAP measure

($0.02)

Adjustments to exclude the effects of amortization of purchased intangible assets

$0.02

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

$0.04

Non-GAAP figures

$0.04
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