Entrust posts Q4 loss

Revenue for the fourth quarter was $28.0 million, an increase of 13% from $24.8 million in Q4, 2005, and a 17% increase from $24.0 million in Q3, 2006. Revenue in the fourth quarter was driven by product revenue, which increased 40% from Q4, 2005 and 45% from Q3, 2006. Product revenue of $12.7 million is the company's highest attainment since Q4, 2000.

"2006 was a transformation year for Entrust; we dramatically grew our Emerging Growth Products revenue and market share, our PKI products experienced a resurgence at year-end with its highest quarterly revenue in two years," said Bill Conner, Entrust chairman, president and chief executive officer. "We successfully integrated two acquisitions, returned the company to profitability in Q4 and generated positive cash flow from operations for the year."

"In the quarter, both Entrust IdentityGuard and our Boundary Messaging solutions attained their highest quarterly product revenue and both were up well over 100 percent from last year," Conner continued. "This achievement helped us exit the fourth quarter with 31 percent of our product revenue growing at nearly 300 percent year-over-year. I am pleased with the way we finished the second half of 2006 and look forward to building on our growth and profitability in 2007."

Entrust recorded a Q4, 2006 net loss, calculated in accordance with GAAP, of $1.6 million, or $0.03 per share, compared to Q4, 2005 net income of $3.4 million, or $0.05 per share. On a non-GAAP basis the company recorded income of $129 thousand, or $0.00 per share. 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.

For the full year 2006 the company generated over $4.3 million in positive cash flow from operations. The company ended Q4, 2006 with approximately $22.5 million in cash and marketable securities, and no debt.

"As we enter 2007, we are well positionetioned to continue our leadership position in the security market space," Conner added. "Our new capabilities for 2007 include; expanding our IdentityGuard platform to include OTP Tokens, deploying our Extended Validation SSL certificates, extending our PKI offering to a hosted model, increasing our global eGovernment presence, delivering Group Share, our newest solution for helping secure shared data on corporate networks and enhanced offerings in the consumer fraud market. These new capabilities coupled with the success of our emerging growth products positions us to grow product revenue significantly faster than the market."

Financial Outlook:

Revenue:

Entrust is targeting total revenues for the first half of 2007 of between $54.0 and $56.0 million. Entrust is targeting total revenues for the full year of 2007 of between $115.0 and $120.0 million. The high-end of the first half and full year 2007 revenue outlook does not reflect all opportunities that are over $1.0 million as it is difficult to determine sizing, profiling and timing of certain large deals that are in the company's funnel.

Earnings:

Entrust is targeting first half 2007 net loss in accordance with GAAP of between $0.02 and $0.04 per share. On a non-GAAP basis the company is targeting a profit of $0.02 to $0.04 per share for the first half of 2007. Entrust is targeting a full year 2007 net income in accordance with GAAP of between breakeven or $0.00 per share to a net income of $0.04 per share. On a non-GAAP basis the company is targeting a profit of $0.11 to $0.15 per share for the full year 2007.

The following charges for the first half of 2007 and full year 2007, reconcile the GAAP and non-GAAP earnings per share:

• A stock-based compensation charge in accordance with SFAS 123R of approximately $2.2 million, or $(0.04) per share for the first half of 2007 and $4.4 million, or $(0.07) per share for the full year 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 first half of 2007 and $2.4 million, or $(0.04) per share for the full year 2007.

• Revenue of $28.0 million consisted of 45% product revenue ($12.7 million) and 55% services and maintenance revenue ($15.3 million). Product revenue of $12.7 million is the company's highest attainment since Q4, 2000. The top five product transactions accounted for 16% of Q4, 2006 revenues. There were two product transactions of $1 million in Q4, 2006 and one transaction that contributed $1.0 million to total revenue in the quarter.
• Emerging growth products (Entrust IdentityGuard, Boundary Messaging and Fraud Detection) accounted for $3.9 million, or 31% of product revenue, up 289% from $1.0 million in Q4, 2005 and up 15% from $3.4 million in Q3, 2006.
• Entrust IdentityGuard achieved its highest quarterly revenue ever with $2.0 million of product revenue (included in the above Emerging Growth Products revenue). Entrust IdentityGuard transactions also reached their highest level at 38 this quarter, up from 23 in Q3, 2006. Entrust IdentityGuard pilots and trials increased 62 in the quarter, now totaling 288. In the quarter, U.S. Bank became Entrust's first Risk Based Authentication customer with its initial purchase of Entrust IdentityGuard.
• Public Key Infrastructure (PKI) products accounted for $8.1 million, or 63% of product revenue, up 6% from $7.6 million in Q4, 2005 and up 95% from $4.1 million in Q3, 2006. Entrust certificate services accounted for $1.5 million of product revenue, up 22% from $1.2 million in Q4, 2005.
• Product revenue for the quarter was 34% Extended Government and 66% Extended Enterprise. The financial services vertical continued to be strong increasing 100% over Q4, 2005, accounting for approximately 29% of product revenue in Q4, 2006, driven by continued uptake of multi- factor authentication, zero touch fraud detection and boundary messaging.
• The average purchase size in the fourth quarter was $99,000, an increase from $91,000 in Q4, 2005 and an increase from $83,000 in Q3, 2006. Total transactions in Q4, 2006 reached 108, which is up from 84 in Q4, 2005 and is up from 86 in Q3, 2006. Thirty-one, or 29% of the transactions were from new customers. The increase in new customers and total transactions was driven mainly by Entrust IdentityGuard, Boundary Messaging and PKI solutions.
• Deferred revenue of $23.6 million increased $2.7 million over Q4, 2005.

• Entrust Introduced a Five Dollar One-Time-Passcode (OTP) Security Token to disrupts a $500 million security token market. The low price point of the Entrust OTP token will officially commoditize the OTP token market. In addition, Expedia will be the first customer for the Entrust IdentityGuard OTP token. In addition to the OTP token, Entrust customers will get to enjoy a range of authentication mechanisms because Entrust IdentityGuard supports multiple authenticators from a single platform, giving unprecedented flexibility and choice customers currently do not have with the existing OTP token vendors.
• Expedia and Entrust signed a strategic deal in October to leverage a suite of security software from Entrust, including Entrust IdentityGuard, Entrust Entelligence, Entrust GetAccess, Entrust Messaging Server, Entrust Identity Management, Entrust Content Management and mobile workforce protection. Entrust's solutions will now protect the world's leading online travel company, helping them secure customers, employees and partners around the world.
• Entrust and Digital Insight Corp., the leading on-demand banking provider, announced they formed a strategic relationship to further strengthen the layers of security protecting Digital Insight client financial institutions and their end-users. Under terms of the agreement, Digital Insight will offer its clients transaction monitoring using the Entrust TransactionGuard(TM) product.
• Entrust Entelligence Group Share helps organizations protect data stored on corporate networks in a manner that is automatic and transparent to the end-user and persistent. With zero-touch folder administration, Entrust Entelligence Group Share offers unprecedented manageability allowing the ability to change permissions on a shared folder without having to modify the folder or its contents - eliminating the need to re-encrypt data when permissions are changed.
• Entrust's managed PKI service was added to the General Services Administration (GSA) list of approved shared service providers. This status enables Entrust to help federal agencies reap the security benefits of PKI without having to maintain the certification authority (CA) themselves. This status also enables Entrust to service federal government agencies needing to meet HSPD-12 and beyond.
• Entrust announced that it is offering Extended Validation (EV) SSL Certificates for use with the next-generation of EV-aware browsers. Entrust Extended Validation SSL Certificates - commonly referred to as "EV" certificates - are expected to be an effective tool for helping to rebuild consumer confidence in online transactions by enabling strong visual cues that notify a user that a site is secure. The new technology can help increase consumer confidence by displaying prominent and consistent trust indicators in a browser's address bar. In addition, Entrust was the first SSL vendor to activate EV SSL Certificates for Windows XP users with Internet Explorer 7.
• Entrust released Entrust TransactionGuard 3.1.1, the latest iteration of its zero touch software-based monitoring tool that identifies potential fraudulent behavior and access patterns across the online channel. This version is fully integrated with Entrust IdentityGuard, enabling organizations to deploy a complete risk-based authentication solution for protecting end users.
• Entrust and the United Kingdom's Ministry of Defence announced an agreement that will see Entrust Authority(TM) Security Manager deployed in an effort to enforce the MoD's strategy of centrally controlling policy to maintain a trusted network environment. The MoD sought a public key infrastructure (PKI) solution to manage authentication, digital signatures and encryption capabilities.