Entrust Achieves Breakeven Goal for Fourth Quarter 2003

Revenues were $23.7 million in Q4, 2003, compared to $20.0 million in Q3, 2003 and $24.7 million in Q4, 2002. The company also reported cash and marketable investments of $105 million, with no debt. Business Metrics: -- The largest transaction in the quarter involved a new strategic partner and an existing UK government customer who selected Entrust for its strong authentication capabilities. This healthcare agency will utilize the Entrust Entelligence portfolio for the protection and privacy of healthcare information of UK residents. Two of the top five customers in the quarter purchased Entrusts Secure Identity Management Solution to provide access management and provisioning for internal and external use. The remaining top five deals were for Entrusts Entelligence Security Provider, a new thin-client security platform that provides enhanced security for Microsoft Windows environments. All of the top five deals in the quarter involved new products and solutions that Entrust launched within the last nine months. -- The top five transactions accounted for 20% of Q4, 2003 revenues compared to 13% in Q3, 2003. The average purchase size this quarter was $121,000, an increase of 53% from Q3, 2003. This increase was driven primarily by two deals that were worth over $1 million in the quarter. This figure represents Entrusts highest average transaction size of the year. -- Secure Web Portal and Secure Identity Management Solutions revenue increased by 44% from Q3, 2003. These solutions made up a total of 39% of the fourth quarter software revenue. Entrust GetAccess 7.0 (with Entrusts new server based pricing model) coupled with Entrusts Secure Identity Management Solution were key drivers of revenue in the quarter. -- Entrusts Secure Desktop Applications revenue increased by 76% from Q3, 2003. These solutions made up a total of 43 percent of the fourth quarter software revenue. Entrusts new Secure Messaging solution, Secure File Transfer and Secure E-forms were the applications driving acceptance of the companys PKI-based solutions in the quarter. -- Extended Enterprise accounted for 57% and extended government accounted for 43% of the software revenue in the quarter. Entrust continues to see increasing customer interest from both extended governments and enterprises globally. -- Global revenues: Total revenues increased to $23.7 million in Q4, 2003, which includes $7.8 million in software, or 33% of total revenue in the quarter, and $15.9 million in services, or 67% of total revenue in the quarter. The Q4, 2003 software revenue of $7.8 million represents an increase of 52% from Q3, 2003, as Entrust had two deals over $1 million in Q4 compared to none over $1 million in Q3, 2003. Services revenue of $15.9 million was the highest Entrust has achieved in over 2 years. The increase in services revenues was due to strong demand for Entrusts architecture and deployment services and record support and maintenance revenue. -- Gross margins: Gross margins at 62% were up six percentage points from Q3, 2003 and up one percentage point from Q4, 2002. The increase from Q3, 2003 resulted from the higher mix of software revenue attained in Q4, 2003. Services gross margins at 51%, were up four percentage points from Q3, 2003 and were up seven percentage points from Q4, 2002. This was due to the increase in services revenue and cost savings measures associated with the Q2, 2003 restructuring initiatives. -- Operating expenses: Operating expenses of $14.7 million in Q4, 2003 were down from $20.2 million in Q3, 2003 and $19.9 million in Q4, 2002. The $20.2 million of operating expenses in Q3, 2003 included approximately $2.2 million of expenses related to the May 2003 restructuring plan. Q4, 2003 and Q4, 2002 operating expenses included no restructuring expenses. The decrease from Q3, 2003 and Q4, 2002 t