Entrust (MM)【ENTU】株式ニュース

Form 10-Q for ENTRUST INC

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6-Nov-2008

Quarterly Report

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements that involve risks and uncertainties. The statements contained in this report that are not purely historical are 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, including without limitation statements regarding our expectations, beliefs, intentions or strategies regarding the future. You can find many of these statements by looking for words such as "approximates," "believes," "expects," "anticipates," "estimates," "intends," "plans," "would," "may" or similar expressions in this quarterly report on Form 10-Q. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. All forward-looking statements included in this report are based on information available to us, up to and including, the date of this document, and we assume no obligation to update any such forward-looking statements. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below under "Overview" and "Risk Factors" and elsewhere in this report. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this report.

EXECUTIVE OVERVIEW
As a trusted security expert, Entrust secures digital identities and information through a layered security approach that help provide confidence for consumers, enterprises and governments, enabling them to do transactions more securely. With more than 125 patents granted or pending, our solutions help secure information-sharing among stakeholders and enables compliance with information security and government regulations. More than 1,700 customers in 60 different countries across the globe leverage Entrust's world-class solutions.

We conduct business in one operating segment. We develop, market and sell software solutions that secure digital identities and information. We also perform professional services to architect, install, support, and integrate our software solutions with other applications. All of these activities may be fulfilled in conjunction with partners and are managed through our global organization.

As an innovator and pioneer in the Internet security software and Public Key Infrastructure ("PKI") fields, Entrust's market leadership and expertise in delivering award-winning identity and data protection management software solutions is demonstrated by the diversity of our products, geographic representation, and customer segments. We continue to drive revenue in our key products.

We have three key layered approaches that we take to our customers; our Layered Consumer, Enterprise and Government Security Architectures. These layered approaches to security help give our customers a roadmap for building security across their enterprise and customer facing applications, and for governments, citizens facing applications. The layered approach allows our customers to customize the level of security to the value of the data or transaction. A layered security strategy from a single, trusted vendor affords security-conscious organizations a level of synergy, interoperability and cost-effectiveness unmatched by a collection of third-party products. Further, layered security models foster environments of easy-to-use security solutions that increase end-user acceptance and reduce help-desk calls. Entrust has attractive capabilities in the market to assist our customers with their growing identity and information protection needs.

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Our Layered Consumer Architecture approach consists of six layers:

1. Extended Validation ("EV") SSL Certificates

2. Versatile Authentication & Single Sign-On ("SSO")

3. Fraud Detection & Risk-based Authentication

4. Transaction Signing & Encryption

5. Secure Web & E-mail

6. Open Fraud Intelligence Network

Our Layered Enterprise Architecture approach consists of five layers:

1. Workstation & Network Authentication

2. SSL, Unified Communications Certificates

3. Remote Access Authentication

4. Secure Shared Folders

5. Secure Boundary & End-to-End Messaging

Entrust has three key platforms, Authentication and Transaction Monitoring, Information Protection and Public Key which support our layered security architectures. We have a unique end-to-end platform for securing digital identities and information. This end-to-end software platform is easy to implement, user friendly and cost effective with the ability to evolve over time to grow with our customers needs.

Authentication and Transaction Monitoring came together in 2007 to provide a new level of assurance for both internal and external parties, through Risk-Based Authentication.

Entrust offers a range of authentication capabilities with our authentication platform so that specific methods can be used with specific users and applications. First steps can be as simple as deploying SSL certificates or user name and password. Entrust has long played a key role in this space through our SSL and single sign-on products. Risk-Based Authentication, however, goes much deeper than SSL and single sign-on. Risk-Based Authentication has the ability to judge each individual transaction on its own merits driven by policy level decisions on the level of risk associated with certain transactions. With Entrust's Risk-Based Authentication solution, transactions can be monitored in real time and then a determination can be made on the level of security required for that transaction. This is done through the combination of Entrust IdentityGuard and Entrust TransactionGuard. This combined offering is a modern architecture for consumer authentication which has a layered approach of non-invasive anomaly detection and selective intervention with minimal impact on the user experience.

Product Category Financial Metrics:

� Entrust Emerging Growth Products accounted for 38% ($3.6 million) of product revenues for Q3, 2008.

� Entrust PKI Products accounted for 58% ($5.5 million) of product revenues for Q3, 2008.

� Entrust Single Sign-On Products accounted for 4% ($376 thousand) of product revenues for Q3, 2008.

These three categories are how we report our product revenues externally, but do not directly correlate to our three platforms that we use with customers.

We also provide support and maintenance services to our customers. Support and maintenance revenues increased 7% for the first three quarters of 2008 and now accounts for over $10.0 million of quarterly revenue. It is important to note that we achieved record renewals in the first three quarters of 2008 of over 95% in terms of customer retention rate. We also provide professional services, including architecture, installation, and integration services related to the products that we sell.

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In Q3, 2008, deferred revenues were of $27.4 million, a decrease of $734 thousand from Q3, 2007. The decrease in deferred revenue was due primarily to the impact of the Canadian dollar on the deferred revenue balance. These numbers show the continued strength of our support and maintenance renewals and the growth in our subscription based software bookings.

In the first three quarters of 2008, Entrust increased our profitability by $4.3 million or $0.07 per share. During 2007 and the first three quarters of 2008, we have significantly reduced our total expenses through a combination of managed headcount reductions, lowering of contracting expenses and controlling variable operating costs. Those expense reduction initiatives were somewhat offset by the additional costs we experienced due an unfavorable shift in the exchange rates between the U.S dollar and other major currencies in 2007 and the first three quarters of 2008. This unfavorable shift in exchange rates had cost Entrust $3.5 million in additional reported expense in 2007 and an additional $3.4 million in the first nine months of 2008.

Entrust sells solutions globally, with an emphasis on North America, Europe and Asia. These primary areas have demonstrated the most potential for early adoption of the broadest set of Entrust solutions. Entrust extends to other non-core geographies through strategic partner relationships, which increases the leverage of our direct sales channel worldwide. In North America, Entrust is targeting a return to revenue growth in our software business by leveraging Entrust's historical strength in selling to key verticals such as government (Federal, State, Provincial), financial services and global 1000 enterprises. Europe and the Middle East are regions where Entrust's products and solutions continue to experience strong demand and we believe that this market will provide growth, with increased momentum from governments and enterprises leveraging Entrust's solutions to transform their business processes and to leverage the Internet and networking applications.

We market and sell our products and services in both the enterprise and government market space. In the first three quarters of 2008, the extended Government vertical made up 46% of product revenues, which is virtually flat versus the same period of 2007. This revenue has been driven by key global projects that have started to increase product purchases. In the extended government vertical market, we have a strong penetration in the U.S. Federal government, the governments of Canada, Singapore, Denmark, the United Kingdom, the Kingdom of Saudi Arabia and across continental Europe. In fact, Entrust now counts 17 of the top 22 e-governments, as set forth in a report of Accenture issued in June 2007, as customers.

A key change in the government space has been the movement from purely internal security solutions that our customers require to more external citizen facing applications. These projects include ePassports, national ID programs, eBorders, physical and logical access programs for government employees, and a growing number of citizen facing applications. Security is at the core of all these projects and our wide product set positions Entrust well in this space. We have already announced six ePassport projects that Entrust has won and we have been selected as the infrastructure for a number of national ID and Ministry of Defense programs. In 2007, we won the national PKI infrastructures in the Kingdom of Saudi Arabia, Brunei and Slovenia. Specifically, we had a one million dollar transaction in the third quarter of 2007 for the Saudi Arabia PKI infrastructure, while in the fourth quarter of 2007 their ePortal infrastructure was our largest transaction. Further, in the first quarter of 2008, our largest transaction was for an eBorders project in Europe, while in the second and third quarters, we won our first two Extended Access Control passport deals from European Union countries.

In Q3, 2008, 64% of our product sales were in our extended enterprise vertical market. We continue to see demand from global enterprises as they continue to respond to regulatory and governance compliance demands and extend their internal and external networks to more and more individuals inside and outside their domain. We have experienced a change in the shape of many enterprise deals. Specifically, enterprises are buying for their immediate need and then adding to their purchases as the projects begin roll out.

Our largest vertical within the enterprise market is the financial services vertical. In Q3, 2008 the financial services vertical accounted for approximately 49% of product revenues and was up 40% over the first three

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quarters of 2007. In this quarter of 2008, we had very good success in the financial vertical with our Risk-Based Authentication solutions, where we delivered our largest transaction with a Canadian bank selecting Entrust IdentityGuard and TransactionGuard. Overall, four of our top five product transactions were with financial institutions outside of the U.S. and Great Britain.

A key driver of our product growth has been the recent spotlight on identity theft due to breaches at companies like Choicepoint, LexisNexis and TJX. These breaches have proven that self-regulation over the past few years has been insufficient at addressing the underlying issues. Recent legislation has addressed these concerns. California S.B. 1386 has cast more visibility on the issue for citizens, corporations, and the government. The law requires both corporations and the government to notify California residents if their sensitive data has been breached unless encryption technology is deployed. Additionally, more than 35 states have now passed breach notification requirements.

Entrust, for years, has been a leader in securing digital identities and information. Entrust has built on that heritage to become a leader in the Risk-Based Authentication market. In Q3, 2008, Risk-Based Authentication accounted for 28% of product revenues, up 80% from a year ago. The key drivers for our Risk-Based Authentication platform is Entrust IdentityGuard and our On-line Fraud detection solution, Entrust TransactionGuard. In the third quarter, Entrust IdentityGuard continued to have positive momentum, making up 63 of our 130 transactions.

As of September 30, 2008, we have gone well over 10.0 million licensed users of IdentityGuard and have nearly $16.0 million in total sales of the solution. IdentityGuard's low cost point, its simplicity for the mass market, and its effectiveness in countering online theft and phishing, are the key drivers for the increased revenue growth we are experiencing. Along with the revenue growth for second factor authentication, we are also seeing customers increasingly interested in data protection and encryption. With a combination of Entrust IdentityGuard, GetAccess and TruePass, customers can accomplish authentication and role based access control, digital signature, and encryption from one solution provider.

In the first quarter of 2007, Entrust introduced the industry's first $5 one-time-passcode (OTP) security token. In the second quarter of 2007, we made the product commercially available and delivered our tokens to our first customers. In addition to the OTP token, Entrust IdentityGuard customers enjoy a range of authentication methods from a single platform. This provides unprecedented flexibility and choice customers currently do not have with existing OTP token vendors. We have received a customer commitment on our largest IdentityGuard token deal, which is for 500,000 tokens over the next three years, and this quarter we delivered our first large token shipment.

In April 2006, Entrust introduced a Managed Public Key Infrastructure (PKI) service. This service was launched in response to customer requests for Entrust to offer a hosted service to give them a choice between a service offering for PKI certificates and our traditional PKI software purchase option. Our service offering is designed to help enterprises and government agencies grow and accelerate their core business security, without having to develop PKI expertise internally. In December 2006, the Entrust managed PKI service made 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. Our core PKI, government opportunity and Managed Services offerings have us positioned to continue our leadership position.

Our managed service is not our first entrance into the services business. We have been helping our customers for years design, deploy and manage our solutions. We have also been successful in growing our SSL certificate business, which was up 36% for the first three quarters of the year. Year-to-year comparison showed an increase of 34% for the third quarter of 2008, accounting for $2.5 million of PKI product revenues in Q3, 2008. We are also seeing increased momentum with business development partners and channels to market these offerings.

Entrust, in the past, has relied significantly on large deals, meaning deals of $1 million or more, in each quarter. We have over the past few years reduced this dependence, with no product transactions over $1 million in Q3, 2008. The top five product transactions accounted for 10% of Q3, 2008 revenues. These numbers were at the low end of our historical range, which is generally between 10% and 25% of revenue from the top five customers and zero to two transactions over $1 million. In the quarter, the average purchase size was $50,000, a slight decrease from $51, 000 in Q3, 2007. Total transactions in Q3, 2008 reached 130. Forty-four transactions or 34% of the total transactions were from new customers.

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We may be impacted from time to time on our software revenue by the length and timing of our customers' buying process, which may include proof of concepts, senior management reviews and customer budget delays that sometimes results in longer than anticipated sales cycles. We are also impacted by our customers' buying behavior, which in recent times has been to buy only for immediate need as opposed to making a larger purchase in order to get a better discount. Any of these factors may impact our revenue on a quarterly basis.

Our management uses the following metrics to measure performance:

� Number and average size of product revenue transactions;

� Number of revenue transactions over $1 million and < $500 thousand;

� Top-five product revenue transactions as a percentage of total revenues;

� Product revenue split between extended enterprise and extended government verticals;

� Product revenue split between three key product areas: Emerging Growth Products, Public Key Infrastructure and Single Sign-on;

� Geographic revenue split;

� Product and services revenues as a percentage of total revenues;

� Gross profit as a percentage of services and maintenance revenues; and

� Deferred revenue, cash and cash equivalents, and accounts receivable.

BUSINESS OVERVIEW
During the third quarter of 2008, we continued our strategy of focusing on core vertical and geographic markets. Revenues of $24.5 million represented a 2% increase from the third quarter of 2007, and consisted of 39% product sales and 61% services and maintenance. Services and maintenance revenues decreased 5% from the third quarter of 2007, due to decreased demand for consulting services, while product revenues increased 15% from the third quarter of 2007, driven by improved subscription-based product revenues and improved closure rate for product transactions, despite a lower average purchase value, compared to the same quarter of 2007. Net loss for the third quarter of 2008 was $1.2 million, or $0.02 per share, compared to net loss of $1.5 million, or $0.02 per share for the same period of 2007, with total expenses increasing 1% to $25.8 million, including a $1.5 million write-down of a long-term asset. We used $1.0 million in cash flow from operations in the third quarter of 2008, compared to net cash flow used in operations of $3.0 million in the same quarter of 2007. Entrust Emerging Growth Products (Entrust IdentityGuard, Boundary Messaging and Fraud Detection) accounted for 38% of product revenue, which is an increase of 88% from Q3, 2007 and 38% from Q2, 2008. Entrust PKI Products accounted for 58% of product revenue, which is a decrease of 12% from Q3, 2007 and 11% from Q2, 2008. Entrust Certificate Services revenues, a component of our PKI Product solutions suite, increased 34% over Q3, 2007 and 5% over Q2, 2008. Entrust Single Sign-On Products accounted for 4% of product revenue, which is an increase of 570% from Q3, 2007 and 47% from Q2, 2008. Extended Government accounted for 36% and Extended Enterprise accounted for 64% of the product revenue in the quarter. The financial vertical accounted for approximately 49% of third quarter 2008 product revenues, an increase of 92% from Q3, 2007 and 81% from Q2, 2008.

Other highlights from the third quarter of 2008 included:

� The top five product transactions accounted for 10% of Q3, 2008 revenues. The average purchase size this quarter was $50,000, down from $51,000 in Q3, 2007 and $58,000 in Q2, 2008. Total transactions in Q3, 2008 were 130, which is up from 115 in Q3, 2007, and 103 in Q2, 2008. Forty-four (or 34%) of the transactions were from new customers, an increase of 16% from Q3, 2007.

� Revenue from subscription based product and services accounted for 56% of total revenue for Q3, 2008, an increase of 6% from Q3, 2007 and consistent with Q2 2008.

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� Deferred revenue was $27.4 million, which is a decrease of 3% from Q3, 2007 and 6% from Q2, 2008.
� We ended Q3, 2008 with $23.4 million in cash and cash equivalents, which is up from $21.5 million at the end of Q3, 2007 and down from $25.4 million at the end of Q2, 2008, and no debt.

� We had no product transactions over $1 million in Q3, 2008, compared to one such transaction in Q3, 2007. Revenue from transactions under $500 thousand increased 23% from Q3, 2007, continuing to drive our strategy to be less reliant on large deals. Transactions under $500 thousand accounted for 93% of product revenue in Q3, 2008, compared to 88% in Q3, 2007.

� Entrust and 3M announced a partnership to provide an integrated end-to-end secure ePassport solution, which provides the necessary components to implement Basic Access Control (BAC) and EAC ePassport security, while also securing the surrounding data and communications infrastructures.

� DnB NOR, the largest financial institution in Norway, aligned its comprehensive security strategy with Entrust, Inc. and the zero-touch fraud detection component of the Entrust Risk-based Authentication Solution. With total assets of more than $308 billion (USD), DnB NOR serves more than 2.5 million customers worldwide. The bank will leverage the Entrust solution - for more than 1.7 million users - to protect private-, corporate- and consumer-banking customers online.

� Slovenia selected Entrust to facilitate its government's migration to a second-generation ePassport solution based on the EAC standard. Slovenia's second-generation ePassport capabilities, integrated by technology partner S&T, represent one of the core components of the country's citizen-centric e-government.

CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe our estimates and assumptions are reasonable. However, actual results and the timing of the recognition of such amounts could differ from those estimates.

In the third quarter of 2008, our most complex accounting judgments were made in the areas of software revenue recognition, allowance for doubtful accounts, the provision for income taxes, accounting for uncertain tax positions, valuation of goodwill, purchased intangibles and other long-term assets, and stock-based compensation. These areas are expected to continue to be ongoing elements of our critical accounting processes and judgments.

Software Revenue Recognition

With respect to software revenue recognition, we recognize revenues in accordance with the provisions of the American Institute of Certified Public Accountants' Statement of Position No. 97-2, "Software Revenue Recognition", Statement of Position No. 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions" and related accounting guidance and pronouncements. Due to the complexity of some software license agreements, we routinely apply judgments to the application of software revenue recognition accounting principles to specific agreements and transactions. We analyze various factors, including a review of the specifics of each transaction, historical experience, credit worthiness of customers and current market and economic conditions. Changes in judgments based upon these factors could impact the timing and amount of revenues and cost recognized. Different judgments and/or different contract structures could lead to different accounting conclusions, which could have a material effect on our reported earnings.

Revenues from perpetual software license agreements are recognized when we have received an executed license agreement or an unconditional order under an existing license agreement, the software has been

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shipped (if there are no significant remaining vendor obligations), collection of the receivable is reasonably assured, the fees are fixed and determinable and payment is due within twelve months. Revenues from license agreements requiring the delivery of significant unspecified software products in the future are accounted for as subscriptions and, accordingly, are recognized ratably over the term of the agreement from the first instance of product delivery. License revenues are generated both through direct sales to end users as well as through various partners, including system integrators, value-added resellers and distributors. License revenue is recognized when the sale has occurred for an identified end user, provided all other revenue recognition criteria are met. We are notified of a sale by a reseller to the end user customer in the same period that the product is delivered through to the end user customer. We do not offer a right of return on sales of our software products.

We do not generally include acceptance provisions in arrangements with customers. However, if an arrangement includes an acceptance provision, we recognize revenue upon the customer's acceptance of the product, which occurs upon the earlier of receipt of a written customer acceptance or expiration of the acceptance period.

For all sales, we use a binding contract, purchase order or another form of documented agreement as evidence of an arrangement with the customer. Transactions with our distributors are evidenced by a master agreement governing the relationship, together with binding purchase orders on a transaction-by-transaction basis. We consider delivery to occur when we ship the product, so long as title and risk of loss have passed to the customer. If an arrangement includes undelivered products or services that are essential to the functionality of the delivered product, delivery is not considered to have occurred until these products or services are delivered.

At the time of a transaction, we assess whether the sale amount is fixed or determinable based upon the terms of the documented agreement. If we determine the fee is not fixed or determinable at the outset, we recognize revenue when the fee becomes fixed and determinable. We assess if collection is reasonably assured based on a number of factors, including past transaction history with the customer and the creditworthiness of the customer. If we determine that collection is not reasonably assured, we do not record revenue until such time as collection becomes probable, which is generally upon the receipt of cash.

We are sometimes subject to fiscal funding clauses in our software licensing . . .

Entrust Announces Third Quarter 2008 Financial Results
Thursday October 23, 4:05 pm ET
- Total Revenues of $24.5 million
- an increase of $500,000 year-over-year
- Product Revenues of $9.4 million - an increase of 15% year-over-year
- Fraud and Risk Based Authentication increased 80% quarter-over-quarter and 103% year-to-date
- GAAP Earnings improvement of $4.3 million or 7 cents per share year-to-date

DALLAS, Oct. 23 /PRNewswire-FirstCall/ -- Entrust, Inc. (Nasdaq: ENTU - News), a world leader in securing digital identities and information, today announced financial results for its fiscal quarter ended September 30, 2008.
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"In this challenging business environment, we grew total revenues by five hundred thousand dollars, grew product revenue fifteen percent, increased earnings by two cents per share and were cash flow positive from operations," said Bill Conner, Entrust chairman, president and chief executive officer. "We are pleased with these overall results and the solid position the company is in as we head into the end of the year."

Revenue for the third quarter was $24.5 million, an increase of 2 percent from $23.9 million in Q3, 2007 and flat to Q2, 2008. Product revenue in the quarter reached $9.4 million, an increase of 15 percent from $8.2 million in Q3, 2007 and 5 percent from Q2, 2008. Product revenue increases are attributed to higher transaction volumes, higher subscription revenues and success in the company's global financial vertical.

"In the quarter, we had significant customer wins in online fraud detection and risk-based authentication, which accounted for three of our top five product transactions in the quarter," said Conner. "We also continued to have success in Public Key Infrastructure (PKI): we captured two additional ePassport opportunities, successfully demonstrated our PKI leadership at the Prague ePassport interoperability tests, and grew our subscription SSL certificate business 34 percent. Our fast start to the quarter, healthy funnel and reduced cost structure have us positioned well to achieve our earnings targets for the fourth quarter."

Entrust recorded a Q3, 2008 net loss, calculated in accordance with GAAP, of $1.2 million, or $0.02 per share, compared to Q3, 2007 net loss of $1.5 million, or $0.02 per share. On a non-GAAP basis the company recorded a profit of $1.0 million, or $0.02 per share, compared to the Q3, 2007 non-GAAP profit of $154,000, or $0.00 per share. The non-GAAP figures exclude amortization of purchased intangibles, impairments for long term assets and stock-option based compensation expense. See the financial table below reconciling these non-GAAP figures to GAAP.

Entrust generated $400,000 of positive cash flow from operations excluding the net change in accrued restructuring charges and has generated nearly $8.4 million for the full year, excluding the net change in accrued restructuring charges. The company ended Q3, 2008 with approximately $23.4 million in cash and cash equivalents and no debt.

"I am pleased that year-to-date we have increased our profitability by $4.3 million, or seven cents per share, and improved operating cash flow by $7.3 million," said David Wagner, Entrust senior vice-president and chief financial officer. "Early this year, we redoubled our focus on managing cash and expenses and the team has responded. As a result, we are now able to target a $2 million year-over-year reduction of quarterly expenses for the fourth quarter to $23.0 million. We remain positive on our outlook for the fourth quarter and are well positioned financially as we head into 2009."

Financial Outlook:

Entrust is targeting fourth quarter 2008 revenue between $24.5 million and $27.5 million. For the fourth quarter of 2008, the company is targeting a net income in accordance with GAAP of between $0.02 and $0.04 per share and on a non-GAAP basis a profit of between $0.04 and $0.06 per share. The high end of non-GAAP earnings per share for the quarter is in line with the company's prior guidance of $0.08 per share for the second half of 2008. The company's Q4, 2008, total expenses on a non-GAAP basis are expected to be approximately $23.0 million. The company continues to target cash flow positive from operations adjusted to exclude the net change in accrued restructuring charges for the full year by more than $10.0 million. See the financial table below reconciling the non-GAAP figures to GAAP.

Q3 Business and Financial Metrics:

-- Revenue of $24.5 million consisted of 39% product revenue ($9.4 million) and 61% services and maintenance revenue ($15.0 million). The top five product transactions accounted for 10% of Q3, 2008 revenues. There were no product transactions over $1 million in Q3, 2008.

-- Revenue from subscription-based product and services accounted for 56% of total revenue for Q3, 2008, up from 54% in Q3, 2007.

-- Revenue from transactions less than $500,000 increased 23% from Q3, 2007, continuing to drive the company's strategy to be less reliant on large deals. Transactions less than $500,000 and subscription product revenue accounted for 93% of product revenue in Q3, 2008.

-- Emerging growth products (Entrust IdentityGuard, Boundary Messaging and Fraud Detection) accounted for $3.6 million, or 38% of product revenue, up 88% from $1.9 million in Q3, 2007, and accounted for $8.8 million of product revenue year-to-date, up 50% from $5.8 million 2007.

-- Public Key Infrastructure (PKI) products accounted for $5.5 million, or 58% of product revenue, a decrease of 12% from $6.2 million in Q3, 2007, but remains roughly flat for entire year. The decrease in total PKI revenue was from the movement of customers from perpetual license to subscription based managed service and the planned decrease in Entrust's full-disk products, which it resells from Checkpoint. Entrust Certificate Services (SSL certificates) increased 34% year-over-year and accounted for $2.5 million of PKI product revenue in Q3, 2008.

-- Product revenue for the quarter was 36% Extended Government and 64% Extended Enterprise. The financial services vertical accounted for approximately 49% of product revenue in Q3, 2008. Product revenue from the financial services vertical increased 92% over Q3, 2007, and is up 40% over the first three quarters of 2007.

-- The average purchase size in the third quarter was $50,000, roughly flat to Q3, 2007 of $51,000. Total transactions in Q3, 2008 reached 130, an increase of 13% from Q3, 2007. Forty-four transactions, or 34% of the total transactions, were from new customers. Year-to-date total transactions have increased 10% over last year driven by new customers, which are up 30% over last year.

-- Deferred revenue declined to $27.4 million, a decrease of $700,000 from Q3, 2007 due primarily to a weakening Canadian dollar, which is the currency in which the majority of the company's deferred revenues are denominated.

-- Support and Maintenance revenues increased 2% over Q3, 2007 and have increased 7% on a year-to-date basis.

-- Cash flow from operations was positive $400,000 for Q3, 2008 before the net change in restructuring accruals of $1.4 million. Year-to-date cash flow for operations is positive $8.4 million before the net change in restructuring accruals of $4.2 million.

Technology and Industry Highlights:

-- DnB NOR, the largest financial institution in Norway, aligned its comprehensive security strategy with Entrust, Inc. and the zero-touch fraud detection component of the Entrust Risk-based Authentication Solution. With total assets of more than $308 billion (USD), DnB NOR serves more than 2.5 million customers worldwide. The bank will leverage the Entrust solution -- for more than 1.7 million users -- to protect private-, corporate- and consumer-banking customers online.

-- The interoperability test for second-generation ePassports was held in Prague in September. Entrust demonstrated a flawless public key infrastructure (PKI) certificate exchange using United Kingdom and Slovenia systems in a multi-country test environment. Showcasing a "point-and-click" PKI system, Entrust confirmed that the security infrastructure for second-generation ePassports, based on Extended Access Control (EAC), is truly ready for global deployment.

-- Slovenia selected Entrust to facilitate its government's migration to a second-generation ePassport solution based on the EAC standard. Slovenia's second-generation ePassport capabilities, integrated by technology partner S&T, represent one of the core components of the country's citizen-centric e-government.

-- Entrust and 3M announced a partnership to provide an integrated end-to-end secure ePassport solution, which provides the necessary components to implement Basic Access Control (BAC) and EAC ePassport security, while also securing the surrounding data and communications infrastructures.

-- Entrust announced that they will collaborate with GET Group to provide comprehensive ePassport solutions. GET Group will integrate Entrust's ePassport PKI capabilities -- based on both BAC and EAC technology -- to help complete an efficient, comprehensive end-to-end ePassport solution.

-- Entrust's PKI was extended as the foundation of a full layered security model for BNSF to enable employee authentication, secure messaging, device authentication, secure file and folder capabilities and hard-disk encryption.

-- Georgia-based Gwinnett Medical Center selected Entrust IdentityGuard to comply with HIPAA regulations and protect patient files, sensitive medical data and clinical information. Facilitated by trusted partner PossibleNOW, Entrust IdentityGuard grid cards are now used to authenticate GMC doctors and staff who wish to remotely access the corporate network via SSL VPN.

-- Austrian-based S&T Group opted to internally deploy the same proven security technology it sells to its customer base -- specifically Entrust's PKI and complementary solutions -- to enable authentication to corporate assets, encryption of sensitive information and the use of digital signatures to help verify identities.

Entrust will host a live teleconference and Webcast on Thursday, October 23, 2008, at 5 p.m. EDT, featuring Chairman, President and CEO Bill Conner and Chief Financial Officer David Wagner to discuss the company's fiscal third- quarter results and fourth-quarter outlook for 2008. The conference call audio will be available live via dial-in at 1-800-732-9307 and via the Web at http://phx.corporate-ir.net/playerlink.zhtml?c=73119&s=wm&e=1988301. Please log on approximately 15 minutes before the Webcast begins in order to register and to download and install any necessary audio software. An archive of the Webcast will be available for 90 days at the above Internet address.

For those unable to attend the live conference call, an audio replay will be available beginning at 7 p.m. EDT, Thursday, October 23, 2008, through Thursday, October 30, 2008, at 11:59 p.m. EDT. The replay number is 1-877-289-8525 and the pass code is 21285267#.

Use of Non-GAAP Financial Measures

To supplement the financial results that are prepared and presented in accordance with accounting principles generally accepted in the United States, Entrust's management prepares and uses non-GAAP financial measures for many of its internal financial, operating and planning reports. The company's management believes that by excluding charges such as the purchased intangibles amortization in cost of goods sold, the amortization of purchased intangible assets in operating expenses, stock compensation expense, restructuring charges , impairment of long-term assets and write down of strategic investments from its GAAP-based results, these non-GAAP financial measures are more likely to facilitate investors' understanding of the company's ongoing business operating results. These non-GAAP financial measures also facilitate comparisons to the operating results of the company's competitors and provide investors with greater transparency with respect to the supplemental information used by management in its operational and financial decision making.

The non-GAAP measures are included to provide investors with supplemental information to facilitate their understanding of Entrust's operating results and future prospects. Management uses these non-GAAP measures to assess its success in reducing the company's cost structure, to measure its ongoing cash operating costs, and to establish budgets and operational goals. The presentation of this additional information should not be considered in isolation or as a substitute for financial and operating results prepared in accordance with accounting principles generally accepted in the United States, as non-GAAP measures are susceptible to varying calculations and they may not be comparable, as presented, to other similarly titled measures of other companies.

This press release contains forward-looking statements relating to Entrust's projected revenue, the company's planned fourth quarter non-GAAP total expenses, net income per share, non-GAAP income per share for the fourth quarter of 2008 and cash flow from operations prior to accrued restructuring charges for the full year. Such statements are based upon preliminary estimates which 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, inaccuracy in preliminary estimates, issues associated with revenue recognition, issues raised in connection with the internal review of quarterly financial results, 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 fiscal year ended December 31, 2007. While Entrust may elect to update forward-looking statements in the future, Entrust specifically disclaims any obligation to do so, even if its estimates change.

About Entrust

Entrust [NASDAQ: ENTU] secures digital identities and information for consumers, enterprises and governments in 1,700 organizations spanning 60 countries. Leveraging a layered security approach to address growing risks, Entrust solutions help secure the most common digital identity and information protection pain points in an organization. These include SSL, authentication, fraud detection, shared data protection and e-mail security. For information, call 888-690-2424, e-mail entrust@entrust.com or visit http://www.entrust.com.

Entrust is a registered trademark of Entrust, Inc. in the United States and certain other countries. In Canada, Entrust is a registered trademark of Entrust Limited. All Entrust product names are trademarks of Entrust. All other company and product names are trademarks or registered trademarks of their respective owners.

Investor Contact: Media Contact:
David Rockvam Brooke Hamilton
Investor Relations Media Relations
972-713-5824 (972) 713-5915
david.rockvam@entrust.com brooke.hamilton@entrust.com

ENTRUST, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per share data)

Three Months Ended Nine Months Ended
September 30th, September 30th,
2008 2007 2008 2007

Revenues:
Product 9,435 $8,170 28,078 $26,244
Services and maintenance 15,021 15,773 46,695 46,755
Total revenues 24,456 23,943 74,773 72,999

Cost of revenues:
Product 2,208 1,815 6,688 5,785
Services and maintenance 7,207 7,205 22,110 22,412
Amortization of purchased
product rights 128 355 788 1,032
Total cost of revenues 9,543 9,375 29,586 29,229

Total gross profit 14,913 14,568 45,187 43,770

Operating expenses:
Sales and marketing 7,817 8,207 24,326 26,113
Research and development 4,271 4,929 13,445 15,590
General and administrative 2,606 2,929 8,846 9,447
Write-down of long-term asset 1,518 - 1,518 -
Total operating expenses 16,212 16,065 48,135 51,150

Loss from operations (1,299) (1,497) (2,948) (7,380)

Other income (expense):
Interest income 93 188 322 544
Foreign exchange gain 81 (88) 156 (18)
Gain on sale of long-term
strategic investments - - 18 -
Loss from equity investments - - - (77)
Total other income (expense) 174 100 496 449

Loss before income taxes (1,125) (1,397) (2,452) (6,931)

Provision for income taxes 114 104 389 228

Net loss $(1,239) $(1,501) $(2,841) $(7,159)

Weighted average common shares
used
Basic 61,392 60,987 61,283 60,717
Diluted 61,392 60,987 61,283 60,717

Net loss per share
Basic ($0.02) ($0.02) ($0.05) ($0.12)
Diluted ($0.02) ($0.02) ($0.05) ($0.12)

ENTRUST, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

September 30, December 31,
2008 2007

ASSETS

Cash and marketable investments $23,400 $20,485
Accounts receivable, net of
allowance for doubtful accounts 15,474 20,773
Other current assets 3,945 4,079
Property and equipment, net 1,451 1,490
Purchased product rights and other
purchased intangible assets, net 9,999 11,543
Goodwill 60,214 60,214
Long-term strategic and equity
investments 91 91
Other long-term assets, net 1,096 3,479

Total assets $115,670 $122,154

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable and accruals $14,548 $16,330
Accrued restructuring charges 15,096 19,266
Deferred revenue 27,418 27,894
Long-term liabilities 826 218

Total liabilities 57,888 63,708

Shareholders' equity 57,782 58,446

Total liabilities and
shareholders' equity $115,670 $122,154

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 and other purchased intangibles, write-down of long-term assets and
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 October 23, 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 Nine Months Ended
September 30th, September 30th,
2008 2007 2008 2007

Reconciliation of net loss
per GAAP to Non-GAAP income
(loss):
GAAP net loss $(1,239) $(1,501) $(2,841) $(7,159)
Adjustments for share-based
compensation expense:
Cost of revenues 42 77 148 225
Sales and marketing 136 305 560 933
Research and development 27 173 183 574
General and administrative 177 498 759 1,450
Amortization of other
purchased intangibles:
Cost of revenues 39 38 115 114
Sales and marketing 211 209 633 666
Amortization of purchased
product rights 128 355 788 1,032
Write-down of long-term asset 1,518 - 1,518 -

Non-GAAP income (loss) $1,039 $154 $1,863 $(2,165)

Reconciliation of net loss per
diluted share according to GAAP
to Non-GAAP income (loss) per
diluted share:

GAAP net loss per diluted share ($0.02) ($0.02) ($0.05) ($0.12)

Adjustments for share-based
compensation expense 0.01 0.01 0.03 0.05
Amortization of other
purchased intangibles 0.01 - 0.01 0.01
Amortization of purchased
product rights - 0.01 0.01 0.02
Write-down of long-term
asset 0.02 - 0.03 -
0.04 0.02 0.08 0.08

Non-GAAP income (loss) per
diluted share $0.02 $0.00 $0.03 ($0.04)

Weighted average common
shares used 61,392 60,987 61,283 60,717

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 $(989) $(3,009) $4,193 $(2,887)
Adjustments to exclude the
effects of:
Net change in accrued
restructuring charges 1,391 1,327 4,170 3,940

Non-GAAP cash flow from operations
before the net change in
restructuring accruals $402 $(1,682) $8,363 $1,053

Forward Looking Guidance
Earnings Per Share Range

Fourth Quarter
2008
U.S. GAAP measure $0.02 $0.04

Adjustments to exclude the
effects of amortization of
purchased intangible assets 0.01 0.01

Adjustments to exclude the
effects of expenses related
to stock-based compensation 0.01 0.01

Non-GAAP figures $0.04 $0.06

Forward Looking Guidance
Total Quarterly Costs
(in millions)
Q4 2008
U.S. GAAP measure $23.9

Adjustments to exclude the
effects of amortization of
purchased intangible assets 0.4

Adjustments to exclude the
effects of expenses related
to stock-based compensation 0.5

Non-GAAP figures $23.0

Forward Looking Guidance
Cash Flow from Operating Activities
(in millions)
Full Year
2008
U.S. GAAP measure $4.5

Adjustments to exclude the
effects of the net change
in accrued restructuring charges 5.5

Non-GAAP figures $10.0

--------------------------------------------------------------------------------
Source: Entrust, Inc.

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