Financials

2006 Fourth-Quarter Financial Statements

ENTRUST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

(in thousands, except per share data)

Three Months Ended
December 31

Year Ended
December 31

2006

2005

2006

2005

(unaudited)

(unaudited)

(unaudited)

Revenues:

Product

$12,733

$9,081

$35,487

$34,216

Services and maintenance

15,266

15,680

59,696

63,912

Total revenues

27,999

24,761

95,183

98,128

Cost of revenues:

Product

3,148

1,753

7,568

5,153

Services and maintenance

7,616

6,990

29,316

30,495

Amortization of purchased product rights

337

202

1,075

802

Total cost of revenues

11,101

8,945

37,959

36,450

Total gross profit:

16,898

15,816

57,224

61,678

Operating expenses

Sales and marketing

9,364

7,054

33,795

28,534

Research and development

5,647

3,822

19,795

16,439

General and administrative

3,621

2,548

14,275

11,534

Restructuring charges and adjustments

-

-

2,765

-

Total operating expenses

18,632

13,424

70,630

56,507

Income (loss) from operations

(1,734)

2,392

(13,406)

5,171

Other income (expense):

Interest income

232

652

2,177

2,357

Gain on sale of asset

-

-

-

200

Foreign exchange gain (loss)

26

(38)

(249)

(62)

Loss from equity investments

(101)

(99)

(445)

(760)

Writedown of long-term strategic and equity investments

-

-

(3,016)

-

Total other income (expense)

157

515

(1,533)

1,735

Income (loss) before income taxes

(1,577)

2,907

(14,939)

6,906

Provision for income taxes

(25)

(449)

284

532

Net income (loss)

$(1,552)

$3,356

$(15,223)

$6,374

Weighted average common shares used

Basic

60,064

59,949

59,877

60,834

Diluted

60,064

61,750

59,877

62,517

Net income per share

Basic

($0.03)

$0.06

($0.25)

$0.10

Diluted

($0.03)

$0.05

($0.25)

$0.10

ENTRUST, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

Dec. 31, 2006

Dec. 31, 2005
(unaudited)

ASSETS

Cash and marketable investments

$22,527

$82,453

Accounts receivable, net of allowance for doubtful accounts

21,117

20,341

Other current assets

2,904

4,782

Property and equipment, net

2,721

2,677

Purchased product rights and purchased non-contractual customer relationships, net

13,843

2,086

Goodwill, net

60,214

12,713

Long-term equity investment

169

3,630

Other long-term assets, net

4,321

1,767

Total assets

$127,816

$130,449

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable and accruals

$20,268

$13,634

Accrued restructuring charges

24,518

25,949

Deferred revenue

23,575

20,895

Long-term liabilities

231

859

Total liabilities

68,592

61,337

Shareholders' equity

59,224

69,112

Total liabilities and shareholders' equity

$127,816

$130,449

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, 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 January 31, 2007 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,
December 31st

Year Ended,
December 31st

2006

2005

2006

2005

(unaudited)

(unaudited)

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

GAAP net income (loss)

$(1,552)

$3,356

$(15,223)

$6,374

Adjustments for share-based compensation expense:
Cost of revenues

128

-

319

-
Sales and marketing

268

-

903

-
Research and development

152

-

414

-
General and administrative

529

-

1,640

-
Amortization of other purchased intangibles:
Cost of revenues

39

-

90

-
Sales and marketing

228

19

479

75

Amortization of purchased product rights

337

202

1,075

802

Restructuring charges and adjustments

-

-

2,765

-

Write-down of long-term strategic and equity investments

-

-

3,016

-

Tax effect on Non-GAAP adjustments

-

(66)

-

(263)

Non-GAAP income (loss)

$129

$3,511

$(4,522)

$6,988

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

GAAP net income (loss) per diluted share

($0.03)

$0.05

($0.25)

$0.10

Adjustments for share-based compensation expense

0.02

0.05

Amortization of other purchased intangibles:

-

-

0.01

-

Amortization of purchased product rights

0.01

0.01

0.02

0.01

Restructuring charges and adjustments

-

-

0.04

-

Write-down of long-term strategic and equity investments

-

-

0.05

-

Tax effect on Non-GAAP adjustments

-

-

-

-

0.03

0.01

0.17

0.01

Non-GAAP income (loss) per diluted share

$0.00

$0.06

($0.08)

$0.11

Weighted average common shares used

60,064

61,750

59,877

62,517

Forward Looking Guidance
Earnings Per Share Range

First Half
2007

Full Year
2007

U.S. GAAP measure

($0.04)

($0.02)

$0.00

$0.04

Adjustments to exclude the effects of amortization of intangible assets

$0.02

$0.02

$0.04

$0.04

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

$0.04

$0.04

$0.07

$0.07

Non-GAAP figures

$0.02

$0.04

$0.11

$0.15
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