Financials

2007 Fourth-Quarter Financial Statements

ENTRUST, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Three Months Ended
December 31st

Year Ended
December 31st

2007

2006

2007

2006

(unaudited)

(unaudited)

Revenues:

Product

$10,123

$12,733

$36,267

$35,487

Services and maintenance

16,543

15,266

63,298

59,696

Total revenues

26,666

27,999

99,665

95,183

Cost of revenues:

Product

2,011

3,159

7,796

7,579

Services and maintenance

7,947

7,579

30,359

29,279

Amortization of purchased product rights

368

337

1,400

1,075

Total cost of revenues

10,326

11,075

39,555

37,933

Total gross profit:

16,340

16,924

60,110

57,250

Operating expenses

Sales and marketing

8,255

9,457

34,368

33,888

Research and development

4,586

5,709

20,176

19,857

General and administrative

3,074

3,686

12,521

14,340

Restructuring charges and adjustments

-

-

-

2,765

Total operating expenses

15,915

18,852

67,065

70,850

Loss from operations

425

(1,928)

(6,955)

(13,600)

Other income (expense):

Interest income

144

232

688

2,177

Foreign exchange gain (loss)

(313)

26

(331)

(249)

Loss from equity investments

-

(101)

(77)

(445)

Gain and Sale of long-term strategic investments

793

-

793

-

Writedown of long-term strategic and equity investments

-

-

-

(3,016)

Total other income (expense)

624

157

1,073

(1,533)

Loss before income taxes

1,049

(1,771)

(5,882)

(15,133)

Provision for income taxes

80

(25)

308

284

Net loss

$969

$(1,746)

$(6,190)

$(15,417)

Weighted average common shares used

Basic

61,066

60,064

60,804

59,877

Diluted

61,066

60,064

60,804

59,877

Net income (loss) per share

Basic

$0.02

($0.03)

($0.10)

($0.26)

Diluted

$0.02

($0.03)

($0.10)

($0.26)
         
         
         

ENTRUST, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

Dec. 31, 2007

Dec. 31, 2006

ASSETS

Cash and marketable investments

$20,485

$22,527

Accounts receivable, net of allowance for doubtful accounts

20,773

21,117

Other current assets

4,079

2,904

Property and equipment, net

1,490

2,721

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

11,543

13,843

Goodwill, net

60,214

60,214

Long-term strategic and equity investment

91

169

Other long-term assets, net

3,479

4,321

Total assets

$122,154

$127,816

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable and accruals

$16,330

$20,268

Accrued restructuring charges

19,266

24,518

Deferred revenue

27,894

23,575

Long-term liabilities

218

231

Total liabilities

63,708

68,592

Shareholders' equity

56,446

59,224

Total liabilities and shareholders' equity

$122,154

$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 January 29, 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
December 31st

Year Ended
December 31st

2007

2006

2007

2006

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

GAAP net loss

$969

$(1,746)

$(6,190)

$(15,417)

Adjustments for share-based compensation expense:
Cost of revenues

61

92

286

283

Sales and marketing

346

342

1,279

977

Research and development

28

214

602

476

General and administrative

189

544

1,639

1,655

Amortization of other purchased intangibles:
Cost of revenues

39

39

153

90

Sales and marketing

211

228

877

479

Amortization of purchased product rights

368

337

1,400

1,075

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

$2,211

$50

$46

$(4,601)

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

($0.03)

($0.10)

($0.26)

Adjustments for share-based compensation expense

0.01

0.02

0.06

0.06

Amortization of other purchased intangibles:

-

-

0.02

0.01

Amortization of purchased product rights

0.01

0.01

0.02

0.02

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

0.03

0.10

0.18

Non-GAAP income (loss) per diluted share

$0.04

$0.00

$0.00

($0.08)

Weighted average common shares used

61,066

60,064

60,804

59,877

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

$(1,642)

$(2,553)

$(4,529)

$4,339

Net change in accrued restructuring charges

1,312

1,199

5,252

1,431

Non-GAAP cash flow from operations before the net change in restructuring accruals

$(330)

$(1,354)

$723

$5,770

         
Forward Looking Guidance
Earnings Per Share
First Half 2008 Full Year 2008

U.S. GAAP measure

($0.01)

$0.02

Adjustments to exclude the effects of amortization of purchased intangible assets

$0.02

$0.03

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

$0.02

$0.05

Non-GAAP figures

$0.03

$0.10
     
     
     

Forward Looking Guidance
Total Quarterly Costs

Range
Q1 2008

U.S. GAAP measure

$26.4

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

$0.8

Non-GAAP figures

$25.0

Forward Looking Guidance
Cash Flow from Operating Activities

Full Year
2008

U.S. GAAP measure

$4.6

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

$5.4

Non-GAAP figures

$10.0
   
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