SafeNet Reports Second Quarter 2003 Financial Results Company Announces Record Revenues.Business Editors/High-Tech Writers BALTIMORE--(BUSINESS WIRE)--July 7, 2003 SafeNet (Nasdaq: SFNT) today announced results for the second quarter ended June June: see month. 30, 2003. Revenues for the three months ended June 30, 2003 were approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $15.4 million, an increase of 108% compared to approximately $7.4 million for the same period in 2002. On a sequential One after the other in some consecutive order such as by name or number. basis, revenues increased 10%, or approximately $ 1.4 million, from $14.0 million for the three months ended March 31, 2003. The financial results for the second quarter of 2003 reflect a full quarter effect from the operations of Cylink Corporation, which was acquired on February February: see month. 6, 2003, and also reflect a full quarter of development costs from the acquisition of the assets of Raqia Networks, Inc. on February 27, 2003. Net income for the second quarter of 2003, after giving effect to the adjustments for that period discussed below, was approximately $2.2 million, or $0.20 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share ($0.22 per basic share), compared to net income for the second quarter ended June 30, 2002, after giving effect to the adjustments for that period discussed below, of approximately $400,000, or $0.05 per diluted and basic share. On a Generally Accepted Accounting Principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ) basis, the loss from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the and the net loss for the three months ended June 30, 2003 was approximately $2.2 million, or $0.22 per diluted and basic share, versus income from continuing operations of $246,000, or $0.03 per diluted and basic share, and a net loss of approximately $152,000, or $0.02 per diluted and basic share, for the three months ended June 30, 2002. The GAAP results for the three months ended June 30, 2003 included expenses related to the acquisitions of Cylink and Raqia's assets, consisting of integration costs of approximately $1.4 million, write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of acquired in-process research and development costs of approximately $1.8 million and amortization of acquired intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. of approximately $2.1 million (including approximately $800,000 classified as cost of revenues as well as $1.3 million classified as amortization of acquired intangible assets), for a total of approximately $5.2 million. The GAAP results for the three months ended June 30, 2002 included losses from discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. of a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of approximately $398,000 and amortization of acquired intangible assets from the acquisition of Pijnenburg Securealink Inc. of approximately $351,000, for a total of approximately $749,000. Exclusion exclusion /ex·clu·sion/ (eks-kloo´zhun) 1. a shutting out or elimination. 2. surgical isolation of a part, as of a segment of intestine, without removal from the body. of these adjustments, after assuming a 35% income tax rate, increased net income by approximately $4.5 million, or $0.42 per diluted share ($0.44 per basic share), for the three months ended June 30, 2003 and approximately $500,000, or $0.07 per diluted and basic share for the three months ended June 30, 2002. Gross margin was 72% for the three months ended June 30, 2003, and excluding the above-mentioned A`bove´-men`tioned a. 1. Mentioned or named before; aforesaid; mentioned or named earlier in the same text (in written documents). Adj. 1. $800,000 amortization of intangible assets within the cost of revenues, gross margin was 78% for the quarter. Anthony Caputo Caputo is a common Italian surname, specially in the area of Campania. It defives from the latin root of caput or head. Persons with that name include:
(2) A saved copy of a file before it is updated. of our second quarter results. In the quarter, revenue grew by 108% over the same period in 2002 and by 10% on a sequential basis from the first quarter of 2003. Our adjusted gross margins improved to 78%, and we also kept our expenses under control. Cash and investments increased by 23% during the quarter and days sales outstanding In accountancy, Days Sales Outstanding is a company's average collection period. A low figure indicates that the company collects its outstanding receivables quickly. Typically it is looked at either quarterly or yearly (90 or 365 days). declined from the previous quarter to 55 days." "We are continuing to demonstrate the ability to grow revenue through many different channels while keeping our balance sheet strong," he stated. Mr. Caputo noted that, since SafeNet's last quarterly conference call, "SafeNet had announced the availability of its new SafeEnterprise(TM) Security System, a complete WAN and VPN (Virtual Private Network) A private network that is configured within a public network (a carrier's network or the Internet) in order to take advantage of the economies of scale and management facilities of large networks. system for integrated high assurance network security. The SafeEnterprise Security System is comprised of solid security products including VPN clients and appliances, and a central management system--an enterprise security management application that provides a single, dedicated application for securely managing appliances for ATM, Frame, Link, and IP networks. The announcement of the new system included 4 new high assurance gateways--the HighAssurance(TM) 500, 1000, 2000, and 4000 Gateways." "In addition, we previously announced during the second quarter of 2003 a third contract with the Department of Defense (DoD) for the research and development of a High Assurance Internet Protocol See Internet and TCP/IP. (networking) Internet Protocol - (IP) The network layer for the TCP/IP protocol suite widely used on Ethernet networks, defined in STD 5, RFC 791. IP is a connectionless, best-effort packet switching protocol. Interoperability The capability of two or more hardware devices or two or more software routines to work harmoniously together. For example, in an Ethernet network, display adapters, hubs, switches and routers from different vendors must conform to the Ethernet standard and interoperate with each other. Specification (HAIPIS HAIPIS High Assurance Internet Protocol Interoperability Specification ) VPN client based Refers to hardware or software that runs in the user's machine. See client and client download. Contrast with server based. on SafeNet's HighAssurance(TM) Remote software. This initiative will integrate the government's HAIPIS compliant
(2) A user workstation that provides multiple single-level security using off-the-shelf components. (TM) program. The NetTop(TM) program, currently in prototype Prototype A first or original model of hardware or software. Prototyping involves the production of functionally useful and trustworthy systems through experimentation with evolving systems. state, uses virtual machine technology to provide multiple networks on one workstation workstation Computer intended for use by one person, but with a much faster processor and more memory than an ordinary personal computer. Workstations are designed for powerful business applications that do large numbers of calculations or require high-speed graphical . The HAIPIS version of SafeNet's HighAssurance(TM) Remote would provide secure Type I VPN communications for each virtual machine," he concluded. Conference Call SafeNet is hosting a conference call on Tuesday Tuesday: see week. , July July: see month. 8 at 8:15 am EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT , which will be live via webcast. To join SafeNet in the conference call, dial 1-800-378-5713 and use Conference ID # 1587244 within the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . If you are calling from outside the U.S., please dial 1-706-634-7484. To listen to the conference call live, via webcast, visit SafeNet's Investor website at www.safenetinvestor.com. About SafeNet, Inc. SafeNet develops, markets, sells and supports a portfolio of hardware and software network security products and services that enable secure communications and data services. SafeNet's products and services are used to create secure wide area networks (WANs) and virtual private networks over the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the (VPNs) to prevent security breaches that could result in unauthorized access to confidential confidential, adj pertaining to information that is only shared with those directly responsible for patient care. data, invasion of privacy invasion of privacy n. the intrusion into the personal life of another, without just cause, which can give the person whose privacy has been invaded a right to bring a lawsuit for damages against the person or entity that intruded. and financial loss. SafeNet's security solutions allow its customers to lower the cost of deploying and managing secure, reliable WANs and enable the use of the Internet for secure business communications and transactions with customers, suppliers and employees. "Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. " Statement under the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995 Statements in this release concerning SafeNet's future prospects are "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " under the Federal securities laws. There can be no assurance that future results will be achieved, and actual results could differ materially from forecasts, estimates, and summary information contained in this news release. Important factors that could cause actual results to differ materially are included but are not limited to those listed in SafeNet's periodic reports and registration statements filed with the Securities and Exchange Commission. The Company assumes no obligation to update information concerning its expectations. Editor's Note Editor's Note (foaled in 1993 in Kentucky) is an American thoroughbred Stallion racehorse. He was sired by 1992 U.S. Champion 2 YO Colt Forty Niner, who in turn was a son of Champion sire Mr. Prospector and out of the mare, Beware Of The Cat. Trained by D. : SafeNet is a registered trademark and SafeEnterprise and HighAssurance are trademarks of SafeNet, Inc. All other trademarks are the property of their respective owners. (Financial Statements to Follow)
SAFENET, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
June 30, March 31, Dec. 31,
2003 2003 2002
----------- ----------- --------
(unaudited) (unaudited)
Assets
--------
Current assets:
Cash and cash equivalents $30,598 $6,400 $3,399
Short term investments 8,371 25,309 28,763
Accounts receivable, net of
allowance for doubtful accounts
of $833, $708, and $244 9,223 11,759 4,534
Inventories, net of reserve of
$1,367, $1,012, and $958 1,467 1,569 1,008
Insurance receivable 6,404 6,404 -
Other current assets 1,420 1,302 1,002
Current assets of discontinued
operations - - 93
----------- ----------- --------
Total current assets 57,483 52,743 38,799
Equipment and leasehold improvements,
net of accumulated
depreciation of $5,920, $5,105, and
$4,734 3,499 2,538 1,246
Computer software development costs,
net of accumulated
amortization of $1,676, $1,632, and
$1,513 1,375 471 479
Goodwill 38,914 39,599 12,826
Intangible assets, net of accumulated
amortization of $5,240, $3,503, and
$1,640 15,805 19,710 595
Other assets 880 906 1,374
----------- ----------- --------
$117,956 $115,967 $55,319
=========== =========== ========
Liabilities and Stockholders' Equity
--------------------------------------
Current liabilities:
Accounts payable $4,713 $4,391 $1,456
Accrued salaries and commissions 3,569 4,797 2,162
Accrued settlement 6,404 6,404 -
Other accrued expenses 4,377 3,960 1,424
Advance payments and deferred
revenue 3,201 4,182 1,393
Deferred income taxes 2,607 2,855 -
Current liabilities of discontinued
operations - 277 377
----------- ----------- --------
Total current liabilities 24,871 26,866 6,812
Long-term liabilities 7,793 8,547 129
----------- ----------- --------
Total liabilities 32,664 35,413 6,941
Stockholders' equity:
Preferred stock, $.01 par value per
share.
Authorized 500,000 shares, none
issued and outstanding - - -
Common stock, $.01 par value per
share.
Authorized 50,000,000 shares, issued
10,404 and 9,993 shares at June 30
and March 31, 2003 and 7,894 shares
in 2002 104 100 79
Additional paid-in capital 113,714 106,785 65,665
Accumulated deficit (32,124) (29,881) (20,225)
Accumulated other comprehensive
income 3,598 3,550 2,859
----------- ----------- --------
Net stockholders' equity 85,292 80,554 48,378
----------- ----------- --------
$117,956 $115,967 $55,319
=========== =========== ========
SAFENET, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - In thousands, except per share amounts)
Three Months Ended Six Months Ended
------------------
June 30, June 30, March 31, June 30, June 30,
2003 2002 2003 2003 2002
-------- ------- -------- --------- --------
Revenues (1)
Licenses and royalties $1,995 $1,667 $2,403 $4,398 $3,443
Products 10,811 5,089 10,026 20,837 8,610
Service and maintenance 2,619 672 1,585 4,204 1,529
-------- ------- -------- --------- --------
15,425 7,428 14,014 29,439 13,582
Cost of revenues 4,243 2,061 4,455 8,698 4,014
-------- ------- -------- --------- --------
Gross profit 11,182 5,367 9,559 20,741 9,568
-------- ------- -------- --------- --------
Research and development
expenses 3,799 2,214 3,606 7,405 4,273
Sales and marketing
expenses 3,549 1,759 3,066 6,615 3,378
General and administrative
expenses 1,402 821 1,697 3,099 1,634
Write-off of acquired
in-process research and
development costs 1,781 - 7,900 9,681 3,375
Costs of integration of
acquired companies 1,374 - 1,615 2,989 -
Amortization of acquired
intangible assets 1,269 351 767 2,036 702
-------- ------- -------- --------- --------
Total operating expenses 13,174 5,145 18,651 31,825 13,362
-------- ------- -------- --------- --------
Operating (loss) income (1,992) 222 (9,092) (11,084) (3,794)
Interest and other income,
net 146 24 77 223 298
-------- ------- -------- --------- --------
(Loss) income from
continuing operations
before income taxes (1,846) 246 (9,015) (10,861) (3,496)
Income tax expense (397) - (641) (1,038) -
-------- ------- -------- --------- --------
(Loss) income from
continuing operations (2,243) 246 (9,656) (11,899) (3,496)
Loss from operations of
discontinued GDS business
(including loss on
disposal of $0, $398,
$0, $0 and $4,182) - (398) - - (4,182)
-------- ------- -------- --------- --------
Net loss $(2,243) $(152) $(9,656) $(11,899) $(7,678)
======== ======= ======== ========= ========
(Loss) income per common share:
Basic
(Loss) income from
continuing operations $(0.22) $0.03 $(1.06) $(1.23) $(0.46)
(Loss) income from
discontinued
operations (GDS) - (0.05) - - (0.54)
-------- ------- -------- --------- --------
Net (loss) income
per share $(0.22) $(0.02) $(1.06) $(1.23) $(1.00)
======== ======= ======== ========= ========
Diluted
(Loss) income from
continuing operations $(0.22) $0.03 $(1.06) $(1.23) $(0.46)
(Loss) income from
discontinued
operations (GDS) - (0.05) - - (0.54)
-------- ------- -------- --------- --------
Net (loss) income
per share $(0.22) $(0.02) $(1.06) $(1.23) $(1.00)
======== ======= ======== ========= ========
Shares used in
computation:
Basic 10,232 7,689 9,083 9,661 7,683
Diluted 10,232 7,932 9,083 9,661 7,683
(1) Certain amounts were reclassed to conform to current period
presentation.
SAFENET, INC.
AND SUBSIDIARIES
RECONCILIATION OF GAAP RESULTS TO NET INCOME, AS ADJUSTED
(Unaudited - In thousands, except per share amounts)
Three Months Ended
June 30, June 30, March 31,
2003 2002 2003
-------- ------ --------
Net loss from Consolidated Statements of
Operations $(2,243) $(152) $(9,656)
======== ====== ========
Adjustments:
Costs of Revenues:
Amortization of acquired intangible
assets - cost of revenues 817 - 1,076
Operating Expenses:
Loss from discontinued operations (GDS) - 398 -
Costs of integration of acquired
companies 1,374 - 1,615
Write-off of acquired in-process
research and development costs 1,781 - 7,900
Amortization of acquired intangible
assets 1,269 351 767
Income tax expense (1) (791) (209) (179)
-------- ------ --------
Net adjustments 4,450 540 11,179
-------- ------ --------
Net income, as adjusted $2,207 $388 $1,523
======== ====== ========
Income per common share - basic and diluted,
as adjusted
Basic $0.22 $0.05 $0.17
======== ====== ========
Diluted $0.20 $0.05 $0.16
======== ====== ========
Shares used in computation:
Basic 10,232 7,689 9,083
Diluted 10,867 7,932 9,629
See Consolidated Statements of Operations for GAAP information.
(1) Assumes a 35% income tax rate.
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