Entrust Q2, 2002 Revenue and Earnings Meet Targets

Driven by U.S. Government & Secure Web Portal Wins

24 Jul 2002

• Total revenue at $26.5 million - up 11 percent sequentially post Government of Canada contract
• Pro forma loss of $0.06 per share - better by $0.17 year over year and down $0.02 sequentially
• GAAP loss of $0.07 per share - better by $7.05 year over year and down $0.02 sequentially
• Balance sheet - $146 million in cash and marketable securities, with no debt

DALLAS - Entrust, Inc. [Nasdaq: ENTU], a leading global provider of enhanced Internet security solutions and services, today reported revenues of $26.5 million for the quarter ended June 30, 2002.  The second quarter, 2002 pro forma loss from operations applicable to common shares (note "a") was $4.2 million, or $0.06 per share, a $10.3 million, or $0.17 per share, improvement from the pro forma operating loss recorded in the second quarter of 2001. On a full GAAP basis, Entrust recorded a net loss of $4.8 million, or $0.07 per share, compared to a Q2, 2001, full GAAP net loss adjusted for SFAs No. 142 of $449.9 million, or $7.12 per share.

The second quarter revenue of $26.5 included $11.9 million of software underpinned by the largest five customer wins: two large U.S. federal government departments, a major U.S. nonprofit healthcare company, Hutchison 3G (via partner Schlumberger-Sema) and a global producer of petroleum products.  The extended government vertical, including government and healthcare, accounted for 61 percent of software revenue in the second quarter.  Secure Web Portal revenue was up 126 percent year over year and 29 percent sequentially from Q1, 2002.  Furthermore, the overall average purchase size increased 41 percent year over year and 12 percent sequentially.

"Entrust executed on all fronts this quarter," said Bill Conner, Entrust chairman, president and chief executive officer.  "Our software revenue of $11.9 million effectively grew by 40 percent sequentially after adjusting for the Government of Canada's (GoC) Secure Channel project, which was successfully deployed over the previous four quarters.  This strong revenue performance was driven by Secure Web Portal, secure desktop applications and success with the U.S. Federal government."

Financial Metrics in Q2, 2002:
"Entrust delivered solid overall financial performance this quarter on both a pro forma and GAAP basis," said David Thompson, Entrust chief financial officer. "During the past year, we have stabilized global revenue levels, significantly improved gross margins, reduced total expenses by $24 million per quarter and lowered our break-even point from $55 to $30 million.  These were accomplished while improving asset velocity and preserving our cash position." 

• Global revenues: The $26.5 million in global revenue includes $11.9 million in software, or 45 percent of the total, and $14.6 million in Professional Services, or 55 percent of the total.  The $26.5 million in revenue this quarter compares to $30.0 million in quarter 2, 2001 and $27.5 million in Q1, 2002, with both of the comparable quarters including $3.6 million in software revenue for GoC Secure Channel.  U.S. government and Secure Web Portal fueled the revenue, effectively enabling Entrust to hold software revenue to first quarter levels post the one-year rollout of the Government of Canada Secure Channel phase one. 
• Gross margins: Gross margins at 64 percent were up six-percentage points year over year due to improved software revenue mix and operating efficiency gains in Professional Services.  Gross margins fell by two points compared to the prior quarter due to revenue timing shortfalls in Professional Services. 
• Operating expenses: Pro forma operating expenses of $21.4 million (sales & marketing, general administrative, research & development) improved by $13.1 million over Q2, 2001.  Pro forma operating expenses improved a further $.3 million, or two percent, versus the prior quarter.
• Earnings: The pro forma loss from operations (note "a") of $4.2 million, or $0.06 per share, represents a $10.3 million, or $0.17 per share, improvement over Q2, 2001.  The GAAP loss of  $4.8 million, or $0.07 per share, compares to a $449.9 million loss, or $7.12 per share in Q2, 2001, adjusted for SFAS No. 142.
• Asset management: Entrust closed the quarter with $146 million in cash and marketable securities and no debt.  The second quarter DSO (Days Sales Outstanding) was 68 days, which compares to the 85 days year over year, and the 82 days at the end of the previous quarter.  This is the company's best DSO performance in three years.

Financial Outlook
"Entrust is well positioned for success when the economy strengthens and IT security spending increases," Thompson added. "We have the portfolio, processes and the business model to build on our market leadership."

For Q3, 2002, Entrust is currently targeting a pro forma operating loss (note "a") in the range of $0.04 to $0.08 per share on revenues in the range of $24 to $28 million and total expenses of approximately $30 million.  Entrust is targeting to maintain cash and marketable securities at levels greater than $135 million throughout the year.

Conner added, "I am pleased with our team's performance this quarter and its ability to deliver customer solutions.  Our recent market successes reinforce that we are on the right track with bringing trust and security to extended enterprises and extended governments."

Entrust will host a web cast featuring their Chairman and CEO Bill Conner and CFO David Thompson discussing Entrust's Q2 results on Thursday July 25, 2002 at 8:00 a.m. Eastern.

For a listen-only Web cast please visit:
http://webevents.broadcast.com/cnw/entrust20020725/index.asp?loc=3, about 15 minutes prior to the call, to register, download and install any necessary audio software. The Web cast will be accessible until Sunday, October 20, 2002.

Market & Customer Highlights in Q2, 2002:

• Total revenue increased 11 percent over Q1, 2002, post the Government of Canada Secure Channel Project.
• Average customer purchase was $155,000, up 41 percent from Q2, 2001, and up 12 percent from Q1, 2002.  Transactions numbered 73.
• The largest five customers included: two large U.S. federal government departments, a major U.S. nonprofit healthcare company, Hutchison 3G (via partner SchlumbergerSema) and a global producer of petroleum products.
• Extended government continued to show strength as Entrust drove 61 percent of revenue from this vertical.  A number of U.S. federal agencies, a large state agency and a major French federal agency contributed to the quarter's software revenue.
• Significant financial services customers included the China Financial Certificate Authority (CFCA), Lloyds Bank and a large U.S. consumer lending institution who purchased Entrust GetAccess for Web Single Sign On and authorization.
• Entrust signed a contract with leading IT solutions provider SchlumbergerSema, under which the two companies will deliver infrastructure and security services to Hutchison 3G for its third-generation (3G) services. 
• Secure Web Portal Solutions continued to be a key driver for Entrust sales contributing over one third of this quarter's software revenue.  Secure Web Portal solutions grew 29 percent from the prior quarter and 126 percent year over year with strong authentication as the key driver.
• Entrust TruePass, a thin client PKI product, achieved its highest quarterly revenue with 52 percent growth over Q1, 2002.  The product was recently featured in a review in Network Computing magazine, which touted the benefits of Entrust TruePass in its latest release; the end user testimonial highlighted its ease of deployment and use.
• Entrust Entelligence, Entrust's desktop applications for secure messaging, secure VPN, secure wireless local area networks and file encryption continued to have strong market penetration in the quarter making up 44% of software revenue.  
• Telia, a leading Nordic telecoms company, expanded its registered Internet customer base to 647,000, through the deployment of the secure Web portal solution Entrust GetAccess.  Telia's two portals now reach over 17 percent of Internet users in Sweden.

Technology and Industry Events in Q2, 2002:

• InfoWorld magazine named Entrust Entelligence 6.0 and Entrust Authority 6.0 (formerly called Entrust/PKI 6.0) as the top security product among its readers.
• The 12-city rollout of the Entrust Executive forum successfully reached more than 1,000 customers, prospective customers and other industry leaders to demonstrate how Entrust solutions can protect critical information and enable value-added solutions. The company previewed its next generation security solutions, which will begin shipping by year-end.
• Entrust TruePass 6.0 received the Federal Information Processing Standards and Publication (FIPS) 140-1 certification from the US National Institute for Standards (NIST).    Now, agencies within the U.S. government can take advantage of Entrust TruePass 6.0 to enable users to more securely conduct valuable and sensitive online transactions.
• The Entrust Secure Wireless LAN (WLAN) solution was released to improve workforce productivity and reduce costs, while maintaining a high level of privacy and security. Transactions are secured by strongly identifying users and devices that are accessing the WLAN, so that transactions of higher sensitivity can be sent over the network.
• A marketing program was launched making unmanaged Web site certificates available on a commodity basis to enterprises and governments.  In conjunction, Entrust released Entrust Certificate Administrator for Web Hosters, which provides Web Hosters and ISPs with the ability to conveniently and cost-effectively order and manage SSL Web server certs for customers. 
• Entrust Authority? 6.0 has successfully completed all requirements for certification under the Identrus Compliant Program.  As a result, Entrust Authority 6.0 is certified by Identrus to be "Identrus Compliant" and is authorized to use the Identrus branding. 
• Entrust announced support for a new Web Services Security (WS-Security) specification.  As a member of the Organization for the Advancement of Structured Information Standards (OASIS), Entrust intends to play an active role in establishing and supporting Web Services standards for global Internet security.
• The Liberty Alliance version 1.0 specifications for federated network identification were announced.  Entrust plans to begin integration of Version 1.0 specifications into its product suite in the first half of 2003.

Strategic Partnerships and Channels:

• Entrust Trusted Partner Program was launched giving greater support to System Integrators and System Consultants engaged in providing security solutions to their customers.
• The Business Software Alliance (BSA), with Entrust as a leading spokesperson, unveiled the findings from a major study that is highlighting the vulnerability of the U.S. government's and financial institutions vulnerability to a major cyber attack during the next 12 months.  
• The company added 15 partners in the quarter to the self-serve Entrust Ready Partner Program.  The innovative Web-based program makes it easier and faster for companies to test their solutions for interoperability with Entrust's enhanced Internet security solutions.  The Entrust Ready Partner Program has granted Entrust Ready status to well over 200 software and hardware products since its inception.
• Entrust awarded Entrust Ready status for interoperability with Entrust Internet Security Solutions to Sun One Directory Server, Siemens and Plumtree Corporate Portal, among others.
• Entrust Japan, a partnership between Entrust, SECOM and a number of large Japanese corporations, continued to make progress in the Japanese market in its first quarter under a new capital structure and management team.  New customers wins and strong penetration of Entrust GetAccess were the key highlights.

About Entrust
Entrust Inc. (Nasdaq: ENTU) is a leading global provider of enhanced Internet security solutions and services that make it safer to do business and complete transactions over the Internet.  Entrust has the industry's broadest set of identification, entitlements, verification, privacy and security management capabilities.  More than 1,500 major corporations, service providers, financial institutions and government agencies in more than 40 countries use the privacy, security and trust provided through Entrust's portfolio of award-winning technologies.  For more information, please visit www.entrust.com.

This press release contains forward-looking statements relating to Entrust's projected revenue range, pro forma operating loss and total expenses for the third quarter of 2002, Entrust's cash and marketable securities position for the remainder of 2002,the expected ship date of Entrust's next generation of security solutions and the planned integration of Liberty Alliance Version 1 specifications into Entrust's product suite, and 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, lower demand for technology products and services, general difficulties in leveraging the restructured organization,  difficulties in working with third parties, software errors or bugs, competitive pressures, governmental regulation, terrorist activities, general economic conditions 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 year ended December 31, 2001. While Entrust may elect to update forward-looking statements at some point in the future, Entrust specifically disclaims any obligation to do so, even if its estimates change.
 
Note (a): Pro-forma earnings (loss) from operations applicable to common shares is defined as reported net earnings applicable to common shares before "Acquisition Related Costs" (acquired in-process R&D and the amortization of purchased product rights, goodwill and other intangibles) and other special non-recurring charges.