Entrust Reports Q3 Results in Line with Company Guidance

22 Oct 2002

• Revenue $24 million - a decrease of 9% sequentially and 14% year-over-year
• Pro forma loss of $0.07 per share - versus a loss of  $0.06 in Q2, 2002 and $0.08 in Q3, 2001
• Balance sheet - $143 million in cash and marketable securities, with no debt
• Transactions grew to 86 - an increase of 18% sequentially, highest quarter of the year
• Entrust GetAccess software grows - an increase of 185% sequentially and 155% year-over-year

DALLAS - Entrust, Inc. [Nasdaq: ENTU], a leading global provider of Internet security solutions and services, today announced financial results for the September 30, 2002 quarter.  The third quarter, 2002 pro forma loss from operations applicable to common shares (note "a") was $4.7 million, or $0.07 per share, a $0.6 million, or $0.01 per share, improvement from the third quarter of 2001 and compared to a $0.06 per share loss in the second quarter of 2002.  For the nine months ended September 30, 2002, the pro forma loss from operations applicable to common shares (note "a") was $11.5 million, or $0.18 per share, an improvement of  $28.5 million, or $0.45 per share, over the corresponding nine-month period of 2001.

Entrust recorded a third quarter, 2002 net loss of $5.2 million, or $0.08 per share, compared to a Q3, 2001 net loss of $6.1 million, or $0.10 per share. For the nine months ended September 30, 2002, Entrust reported a net loss of $13.3 million, or $0.21 per share, compared to a net loss of $478.0 million, or $7.56 per share, over the corresponding nine-month period of 2001.

Revenues were $24.0 million in the quarter ended September 30, 2002, a 14% decrease from the third quarter of 2001 and a 9% decrease from the second quarter of 2002.  Revenues for the nine months ended September 30, 2002 were $78.0 million, a 13% decrease from the comparable nine-month period of 2001.

"I'm pleased with the improvement in our underlying business fundamentals despite the fact that our revenue only met the low end of our targeted guidance," said Bill Conner, Entrust chairman, president and chief executive officer.  "We increased software transaction volume to the highest level of the year through momentum in our key growth solutions, such as Entrust Secure Web Portal and Secure VPN.  Our extended government revenue shifted from software to services as key departments and agencies deployed earlier purchases of Entrust's broad suite of solutions."

Business Metrics:

• Total software transactions increased to 86 as both governments and enterprises continue to deploy our Internet security solutions.   This represents an 18% improvement from last quarter and is the highest quarterly level the Company has attained this year. 
• The largest five transactions decreased to 15% of revenue from 26% last quarter.   Entrust's five largest customers included: Hutchison 3G (via partner SchlumbergerSema), a global telecommunications provider, a major U.S. federal government agency, a U.S.-based insurance company and Caixa (an international financial institution). 
• The Company's extended government vertical decreased to 23% of software revenue, down from 61% last quarter.
• Secure Web Portal revenues increased to 48 percent of software for the quarter, essentially equal to the revenue last quarter. One key application driving Secure Web Portal continues to be coupling strong authentication and authorization into one solution.  Entrust delivered this first converged PKI and PMI solution for third generation wireless infrastructure for SchlumbergerSema and H3G in the quarter.   Underpinning Secure Web Portal revenue was the strength of Entrust GetAccess software sales, which increased 185% sequentially and increased 155% year-over-year, best software revenue performance ever.
• Entrust Secure VPN increased 150% sequentially and 185% year-over-year.  Basic Web certificates and Web server certificates increased 21% sequentially and 521% year-over-year.  Growth in both markets was driven primarily by customer requirements for cost-effective solutions that provide a good return on investment over a short payback period.
• Services revenue increased to the highest level of the year as the Company saw a rise in the utilization of its global professional services organization, which assists governments and enterprises plan, architect and deploy their Internet security solutions.  Cygnacom Solutions, the U.S. government service group, delivered its best revenue quarter in almost two years.

Financial Metrics:

• Global revenues: $24.0 million in global revenue includes $8.5 million in software, or 35 percent of the total, and $15.5 million in Professional Services, or 65 percent of the total.  The $24.0 million in revenue compares to $28.0 million in Q3, 2001 and $26.5 million in Q2, 2002.  International revenue accounted for 36% this quarter, an increase from 28% in Q2, 2002.  The increase was driven primarily by two of the Company's top five deals from outside North America and gains in Entrust Japan and Asia Pacific.
• Gross margins: Gross margins at 63 percent were up two-percentage points year-over-year due primarily to efficiency gains in Professional Services.  Gross margins fell by one point compared to the prior quarter due to the lower software mix of total revenue. 
• Operating expenses: Pro forma operating expenses of $20.4 million (sales & marketing, research & development, administrative) improved by $3.4 million, or 14 per cent, from Q3, 2001 and a further $1.0 million, or four percent, from Q2, 2002.
• Earnings: The pro forma loss from operations (note "a") of $4.7 million, or $0.07 per share, represents a $.6 million, or $0.01 per share, year over year improvement.  The GAAP loss of  $5.2 million, or $0.08 per share, compares to year over year $6.1 million loss, or $0.10 per share.
• Asset management: Entrust closed the quarter with $142.6 million in cash and marketable securities and no debt, down $3.7 million from the previous quarter.  The DSO was 70 days, versus 72 year-over-year and 68 the previous quarter.

"We are pleased with this quarter's operating performance and the underlying financial fundamentals of our business," said David Thompson, Entrust chief financial officer. "Even though we finished the quarter at the low end of the revenue range, we essentially sustained a gross margin percent flat to last quarter, drove an additional $1 million of operating expense improvements and maintained a strong balance sheet and cash position in what continues to be a challenging economic environment." 

Technology and Industry Highlights:

• The Company launched a significant, new product suite providing open, standards-compliant security capabilities for Web services applications. The Entrust Secure Transaction Platform helps enable organizations to securely integrate automated business processes while leveraging the return on investment and efficiencies inherent in using Web services.  http://www.entrust.com/news-archives/files/10_07_02.htm
• Entrust introduced the newest extension to its Secure Messaging Solution.  The Entrust Messaging Server providing server-based, end-to-end secure messaging capabilities enabling communications securely within the organization as well as to external businesses, government agencies and customers. http://www.entrust.com/news-archives/files/10_15_02.htm
• In conjunction with the White House Strategy to Secure Cyberspace, the General Services Administration (GSA) delivered a secure communications capability by cross-certifying a number of federal agencies in the Federal Bridge Certification Authority (FBCA). The FBCA, or Federal Bridge, is a multi-agency program powered by Entrust expertise and public-key infrastructure (PKI) technology that is "up and running". It links the Department of Treasury, NASA, NFC, Department of Defense and other government users to securely communicate and share information. http://www.entrust.com/news-archives/files/09_18_02.htm
• The Department of Energy (DOE) announced the deployment of a government-wide license of a digital signature solution developed by Entrust. In a public ceremony, DOE Secretary Spencer Abraham and Office of Management and Budget Director Mitch Daniels digitally signed and validated an Adobe digital copy of the Department of Energy's (DOE's) e-Government Strategic Action Plan. http://www.entrust.com/news-archives/files/10_16_02.htm
• The Company submitted a set of security standards proposals for Web services to the Organization for the Advancement of Structured Information Standards (OASIS).  These standards proposals specify open, XML protocols for digital signature and timestamping services operating in a Web services context.  Leading Enterprise Application Integration vendors including TIBCO and webMethods supported Entrust's submission of these proposed interfaces to OASIS. http://www.entrust.com/news-archives/files/10_07_02_2.htm
• Entrust announced a cooperative program with Sun Microsystems to integrate its products with the Sun? ONE Platform, providing customers increased flexibility in building trusted transactions with Internet-based services.  As part of the strategic alliance, Entrust has already ported Entrust TruePass?, Entrust Authority? and Entrust GetAccess? software to the Sun ONE Web Server and Sun ONE Directory Server. http://www.entrust.com/news-archives/files/09_19_02.htm
• Entrust awarded Entrust Ready status for interoperability with Entrust Internet Security Solutions to Novell e-Directory, IBM  Embedded Security Subsystem, Intercede Edifice, DataKey CIP330, Rainbow iKey and Aladdin eToken among others.

Conner added, "We further solidified our leadership position within extended enterprises and extended governments globally.  Our major deployment and service initiatives included the U.S. Federal Bridge, the U.S. Department of Treasury, the U.S. Department of Energy, Hutchison 3G and the Government of Canada's Secure Channel.  We also increased our penetration in the Secure Web Portal market, driven by our largest Entrust GetAccess software quarter since we entered the single sign-on and entitlement market space."

Financial Outlook:
For the upcoming fourth quarter of 2002, Entrust is currently targeting a pro forma operating loss per share (note "a") in the range of $0.07 to $0.02 per share on revenues in a targeted range of $24 to $28 million.  Entrust is targeting to maintain cash and marketable securities at $130 million or greater, while continuing the share buyback program announced and commenced last quarter.

Thompson added, "We look forward to sharing more details around our recently announced product capabilities and business strategy at our upcoming Financial Analyst Day in New York City on Thursday, November 14."

Entrust will host a Webcast featuring Chairman and CEO Bill Conner and CFO David Thompson discussing Entrust's Q3 results on Tuesday October 22, 2002 at 5:00 p.m. Eastern.
For a listen-only Web cast please visit:

http://webevents.broadcast.com/cnw/entrust20021022, about 15 minutes prior to the call, to register, download and install any necessary audio software. The Web cast will be accessible until Sunday, January 19, 2003.