Product Announcements
-- SafeNet's SafeEnterprise(TM) SONET/SDH Encryptors were shown to deliver better performance for high-speed, low-latency applications such as disaster recovery, storage area networks, and metro and campus applications than one of the industry's highest performing IPSec routers. The testing, conducted by Rochester Institute of Technology's Golisano College of Computing and Information Sciences, confirms that SafeNet's network security devices provide high speed encryption without compromising fiber optic speed or performance. Dr. Luther Troell from RIT's Golisano College of Computing and Information Sciences said of the results, "The SafeNet SONET Encryptor outperformed in all areas we tested."
-- SafeNet announced the launch of Sentinel Hardware Keys, a software rights management token that protects software vendors from unauthorized use or distribution of their products. Sentinel Hardware Keys are the first and only hardware tokens to incorporate public key cryptography, AES encryption and internal authentication. The result is an ultra-secure hardware token that still offers the highly flexible licensing for which the SafeNet Sentinel product line is known.
-- SafeNet announced QuickSec(R) Unified, the market's first integrated security platform for network equipment manufacturers. OEM's can now build complete unified threat management appliances for small to medium enterprises that provide high-performance, real-time protection against network security threats in a single device. According to industry analysts, the Compound Annual Growth Rate of unified threat management security appliances between 2003 and 2008 is forecasted to exceed 80%, with security solutions being delivered via appliances to reach 80% by 2007.
-- SafeNet announced its SafeXcel-5140, the market's first Enterprise Security Processor specifically designed for network equipment manufacturers targeting the fast-growing small and medium-sized enterprise (SME) market. Pre-integrated with SafeNet's QuickSec Unified security software, the Enterprise Security Processor enables OEMs to build complete VPN gateways, broadband access devices and home networking equipment, while significantly reducing time-to-market.
Current Outlook for Fourth Quarter and Full Year 2005
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not reflect the potential impact of any mergers, acquisitions or other business combinations that may be completed after the date of this release.
For the quarter ending December 31, 2005, SafeNet currently expects to achieve revenues in the range of $78 to $82 million. The non-GAAP net income is expected to be in the range of $0.55 to $0.60 per diluted share. Non-GAAP guidance excludes various integration expenses and non-recurring charges, which are expected to be approximately $1 million.
For the year ending December 31, 2005, the Company reiterates its prior revenue guidance to achieve revenues in the range of $255 to $275 million. Non-GAAP net income guidance for 2005 is being updated and expected to be between $1.45 and $1.55 per diluted share. Non-GAAP guidance excludes various integration expenses and non-recurring charges.
For the year ending December 31, 2006, the Company is establishing revenue guidance of $295 to $315 million, and non-GAAP net income guidance of between $1.70 and $1.90 per diluted share.
Conference Call
As previously announced, SafeNet is hosting a conference call today at 5:00 pm EDT. To join SafeNet in the conference call, dial 1-866-831-6267 and use passcode 78476382 within the United States. If you are calling from outside the U.S., please dial 617-213-8857 and use the same passcode. The conference call will also be available via live webcast on SafeNet's Investor Relations web site at www.safenetinvestor.com. A replay of the conference call will be immediately available via webcast on SafeNet's Investor Relations site.
About SafeNet, Inc.
SafeNet is a global leader in information security. Founded more than 20 years ago, the company provides complete security utilizing its encryption technologies to protect communications, intellectual property and digital identities, and offers a full spectrum of products including hardware, software, and chips. ARM, Bank of America, Cisco Systems, the Departments of Defense and Homeland Security, Adobe, Samsung, Texas Instruments, the U.S. Internal Revenue Service and scores of other customers entrust their security needs to SafeNet. For more information, visit www.safenet-inc.com.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995
Statements contained in this document that are not historical facts could be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on management's current expectations and beliefs, are not guarantees of future performance and are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those described in the forward-looking statements, such as, among others, economic, business, competitive, and/or regulatory factors affecting SafeNet's business generally, including those set forth in SafeNet's Annual Report on Form 10-K for the fiscal year ended December 31, 2004 and its other filings with the Securities and Exchange Commission, including its Quarterly Reports on Form 10-Q and its Current Reports on Form 8-K. If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, SafeNet's results could differ materially from the expectations in these statements. SafeNet assumes no obligation and does not intend to update or alter these forward-looking statements, whether as a result of new information, future events, or otherwise.
Editor's Note: SafeNet, Sentinel, iKey and QuickSec are registered trademarks and SafeXcel is a trademark of SafeNet. All other trademarks are the property of their respective owners.
SAFENET, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
September 30, December 31,
2005 2004
------------- ------------
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 71,577 $ 74,751
Restricted cash - 150
Short term investments 91,585 93,310
Accounts receivable, net of allowance for
doubtful accounts of $1,879 and $2,264 49,110 55,286
Inventories, net of reserve of $1,042 and
$726 19,261 18,168
Unbilled costs and fees 1,793 1,259
Deferred income taxes 11,360 9,694
Other current assets 6,336 4,190
------------- ------------
Total current assets 251,022 256,808
Equipment and leasehold improvements, net
of accumulated depreciation of $9,337 and
$6,388 20,669 18,313
Computer software development costs, net of
accumulated amortization of $2,237 and
$2,619 4,185 2,349
Goodwill 325,165 305,311
Intangible assets, net of accumulated
amortization of $45,971 and $28,223 124,232 139,192
Other assets 1,707 2,005
------------- ------------
$ 726,980 $ 723,978
============= ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 10,705 $ 11,615
Accrued salaries and commissions 11,310 13,046
Advance payments and deferred revenue 8,479 11,319
Accrued warranty 2,875 3,192
Other accrued expenses 8,322 8,159
Accrued income taxes 11,312 6,818
------------- ------------
Total current liabilities 53,003 54,149
Deferred tax liability 43,713 50,922
Other long-term liabilities 6,346 6,321
------------- ------------
Total liabilities 103,062 111,392
Stockholders' equity:
Preferred stock, $.01 par value per
share.
Authorized 500 shares, none issued and
outstanding - -
Common stock, $.01 par value per share.
Authorized 50,000 shares, issued 25,158
and 24,401 shares 252 244
Additional paid-in capital 650,317 633,882
Unearned compensation (3,716) (6,719)
Accumulated other comprehensive income 2,647 9,309
Accumulated deficit (25,582) (24,130)
------------- ------------
Net stockholders' equity 623,918 612,586
------------- ------------
$ 726,980 $ 723,978
============= ============
SAFENET, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - In thousands, except per share amounts)
Three Months Ended Nine Months Ended
----------------------------- -------------------
Sept. 30, Sept. 30, June 30, Sept. 30, Sept. 30,
2005 2004 2005 2005 2004
--------- --------- --------- --------- ---------
Revenues (1)
Licenses and
royalties $ 3,672 $ 2,449 $ 4,272 $ 11,923 $ 7,300
Products 51,680 51,892 53,389 154,854 116,563
Service and
maintenance 8,015 5,109 5,837 19,900 13,948
--------- --------- --------- --------- ---------
63,367 59,450 63,498 186,677 137,811
Cost of revenues 33,953 30,591 32,998 95,511 68,586
--------- --------- --------- --------- ---------
Gross profit 29,414 28,859 30,500 91,166 69,225
--------- --------- --------- --------- ---------
Restructuring
charges - 100 1,960 1,865 1,585
Research and
development
expenses 7,521 5,650 8,123 23,799 17,034
Sales and marketing
expenses 13,811 8,548 13,166 36,528 19,967
General and
administrative
expenses 5,167 4,175 5,179 15,524 12,056
Write-off of
acquired in-process
research and
development
costs (2) (1,196) - 2,316 1,120 -
Costs of integration
of acquired
companies 739 4,573 2,404 6,568 7,935
Amortization of
unearned
compensation 1,119 1,867 1,153 3,616 4,173
Amortization of
acquired intangible
assets 2,290 2,304 2,100 6,656 6,173
--------- --------- --------- --------- ---------
Total operating
expenses 29,451 27,217 36,401 95,676 68,923
--------- --------- --------- --------- ---------
Operating (loss)
income (37) 1,642 (5,901) (4,510) 302
Interest and other
income, net 1,185 825 2,399 4,090 2,049
--------- --------- --------- --------- ---------
Income (loss)
before income
taxes 1,148 2,467 (3,502) (420) 2,351
Income tax expense (24) (1,471) (311) (1,032) (1,403)
--------- --------- --------- --------- ---------
Net income (loss) $ 1,124 $ 996 $ (3,813) $ (1,452) $ 948
========= ========= ========= ========= =========
Income (loss) per
common share:
--------- --------- --------- --------- ---------
Basic $ 0.04 $ 0.04 $ (0.15) $ (0.06) $ 0.05
========= ========= ========= ========= =========
--------- --------- --------- --------- ---------
Diluted $ 0.04 $ 0.04 $ (0.15) $ (0.06) $ 0.04
========= ========= ========= ========= =========
Shares used in
computation:
Basic 25,009 23,976 24,652 24,719 20,998
Diluted 25,935 24,558 24,652 24,719 21,686
(1) Certain prior period amounts were reclassified to conform to
current period presentation.
(2) The Company has reduced the write-off of in-process research and
development based on a preliminary valuation performed by a third
party expert.
SAFENET, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS, AS ADJUSTED
(Unaudited - In thousands, except per share amounts)
Three Months Ended Nine Months Ended
----------------------------- -------------------
Sept. 30, Sept. 30, June 30, Sept. 30, Sept. 30,
2005 2004 2005 2005 2004
--------- --------- --------- --------- ---------
Revenues (1)
Licenses and
royalties $ 3,672 $ 2,449 $ 4,272 $ 11,923 $ 7,300
Products 51,680 51,892 53,389 154,854 116,563
Service and
maintenance 8,015 5,109 5,837 19,900 13,948
--------- --------- --------- --------- ---------
63,367 59,450 63,498 186,677 137,811
Cost of revenues 30,300 27,143 29,122 84,381 60,538
--------- --------- --------- --------- ---------
Gross profit 33,067 32,307 34,376 102,296 77,273
--------- --------- --------- --------- ---------
Research and
development
expenses 7,158 5,650 7,393 22,706 17,034
Sales and marketing
expenses 12,282 8,548 11,746 33,579 19,967
General and
administrative
expenses 4,820 4,175 4,718 14,716 12,056
--------- --------- --------- --------- ---------
Total operating
expenses 24,260 18,373 23,857 71,001 49,057
--------- --------- --------- --------- ---------
Operating income 8,807 13,934 10,519 31,295 28,216
Interest and other
income, net 1,185 825 2,399 4,090 2,049
--------- --------- --------- --------- ---------
Income before
income taxes 9,992 14,759 12,918 35,385 30,265
Income tax expense (3,497) (5,166) (4,521) (12,385) (10,593)
--------- --------- --------- --------- ---------
Net income $ 6,495 $ 9,593 $ 8,397 $ 23,000 $ 19,672
========= ========= ========= ========= =========
Income per common
share:
--------- --------- --------- --------- ---------
Basic $ 0.26 $ 0.40 $ 0.34 $ 0.93 $ 0.94
========= ========= ========= ========= =========
--------- --------- --------- --------- ---------
Diluted $ 0.25 $ 0.39 $ 0.33 $ 0.90 $ 0.91
========= ========= ========= ========= =========
Shares used in
computation:
Basic 25,009 23,976 24,652 24,719 20,998
Diluted 25,935 24,558 25,489 25,625 21,686
(1) Certain prior period amounts were reclassified to conform to
current period presentation.
Reconciliation to
GAAP:
------------------
Amortization of
acquired
intangibles -
cost of
revenues 3,488 3,287 3,489 10,468 7,674
Amortization of
unearned
compensation -
cost of
revenues 93 161 94 297 374
Cost of goods
sold - non-
recurring 72 - 293 365 -
--------- --------- --------- --------- ---------
Total cost of
goods sold
adjustments 3,653 3,448 3,876 11,130 8,048
Restructuring
charges - 100 1,960 1,865 1,585
Write-off of
acquired in-
process R&D (1,196) - 2,316 1,120 -
Research and
development -
non-recurring 363 - 730 1,093 -
Sales and
marketing -
non-recurring 1,529 - 1,420 2,949 -
General and
administrative
- non-recurring 347 - 461 808 -
Integration
costs 739 4,573 2,404 6,568 7,935
Amortization of
unearned
compensation -
operating
expenses 1,119 1,867 1,153 3,616 4,173
Amortization of
acquired
intangibles -
operating
expenses 2,290 2,304 2,100 6,656 6,173
--------- --------- --------- --------- ---------
Total operating
expense
adjustments 5,191 8,844 12,544 24,675 19,866
Variance in
income tax (3,473) (3,695) (4,210) (11,353) (9,190)
--------- --------- --------- --------- ---------
Total
Adjustments 5,371 8,597 12,210 24,452 18,724
========= ========= ========= ========= =========
