SafeNet Reports First Quarter 2005 Financial Results; Company Revenue Increases 149% over First Quarter 2004; Adjusted EPS Grows by 88% and Adjusted Net Income Grows by 200% Over Same Period


For the year ended December 31, 2005, the Company reiterates its prior guidance to achieve revenues in the range of $255 to $275 million. Adjusted net income guidance for 2005 is expected to be between $1.55 and $1.65 per diluted share. Adjusted guidance excludes estimated integration costs of $4.0 million, amortization of acquired intangibles of $22.5 million, and amortization of unearned compensation of $5.1 million. These adjustments net of a 35% effective tax rate are expected to increase net income by approximately $22.0 to $26.0 million, or approximately $0.88 to $0.98 per diluted share. The GAAP income per share guidance for 2005 is between $0.64 and $0.74 per diluted share.

For the quarter ending June 30, 2005, SafeNet currently expects to achieve revenues in the range of $60.0 to $64.0 million. The adjusted net income is expected to be in the range of $0.32 to $0.36 per diluted share. Adjusted guidance excludes integration costs of approximately $0.7 million, amortization of acquired intangible assets of $5.6 million, and amortization of unearned compensation of $1.2 million. These adjustments net of a 35% effective tax rate are expected to increase net income by approximately $5.2 million, or $0.20 per diluted share. The GAAP net income is expected to be in the range of $0.12 to $0.16 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 1-888-396-2384 and use passcode 86669843 within the United States. If you are calling from outside the U.S., please dial 1-617-847-8711 and use passcode 86669843. 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.

SafeNet Analyst Briefing

SafeNet will be holding an Analyst Briefing on May 6, 2005 at the NASDAQ MarketSite in New York City. The event will be available through a live webcast on SafeNet's Investor Relations web site at www.safenetinvestor.com beginning at 12:30 p.m. Eastern.

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 is a registered trademark and SafeXcel is a trademark of SafeNet. 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)

                                               March 31,  December 31,
                                                  2005        2004
                                               ----------- -----------
                                               (unaudited)
            Assets
            ------

Current assets:
     Cash and cash equivalents                 $   81,568  $   74,751
     Restricted cash                                    -         150
     Short term investments                        91,521      93,310
     Accounts receivable, net of allowance for
      doubtful accounts of $2,238 in 2005 and 
      $2,264 in 2004                               49,049      56,224
     Inventories, net of reserve of $441 in
      2005 and $726 in 2004                        17,567      18,168
     Unbilled costs and fees                        1,441       1,259
     Deferred income taxes                          9,694       9,694
     Other current assets                           3,679       3,252
                                               ----------- -----------
        Total current assets                      254,519     256,808
Equipment and leasehold improvements, net          18,667      18,313
Computer software development costs, net of
 accumulated amortization of $1,441 in 2005 
 and $2,619 in 2004                                                                  2,198              2,349
Goodwill                                                                                    304,447          305,311
Intangible  assets,  net  of  accumulated
  amortization  of  $34,790  in  2005
  and  $28,223  in  2004                                                            133,516          139,192
Other  assets                                                                                2,252              2,005
                                                                                              -----------  -----------
                                                                                              $    715,599    $    723,978
                                                                                              ===========  ===========

        Liabilities  and  Stockholders'  Equity
        ------------------------------------

Current  liabilities:
          Accounts  payable                                                    $      10,506    $      11,615
          Advance  payments  and  deferred  revenue                    9,788            11,319
          Accrued  salaries  and  commissions                              8,578            13,046
          Other  accrued  expenses                                                  6,483              8,159
          Accrued  warranty                                                              2,851              3,192
          Accrued  income  taxes                                                      8,283              6,818
                                                                                              -----------  -----------
                Total  current  liabilities                                    46,489            54,149

Deferred  tax  liability                                                          48,872            50,922
Other  long-term  liabilities                                                  6,002              6,321
                                                                                              -----------  -----------
                Total  liabilities                                                  101,363          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  24,531
                  and  24,401  shares                                                        245                  244
          Additional  paid-in  capital                                      636,026          633,882
          Unearned  compensation                                                  (5,265)          (6,719)
          Accumulated  other  comprehensive  income                  6,121              9,309
          Accumulated  deficit                                                    (22,891)        (24,130)
                                                                                              -----------  -----------
                Net  stockholders'  equity                                    614,236          612,586
                                                                                              -----------  -----------
                                                                                              $    715,599    $    723,978
                                                                                              ===========  ===========



                                                          SAFENET,  INC.
                                                      AND  SUBSIDIARIES
                                  CONSOLIDATED  STATEMENTS  OF  OPERATIONS
                  (Unaudited  -  In  thousands,  except  per  share  amounts)

                                                                                    Three  Months  Ended
                                                                      -----------------------------------
                                                                        March  31,      March  31,  December  31,
                                                                            2005                2004                2004
                                                                      -----------  -----------  -----------
Revenues  (1)
    Licenses  and  royalties                      $        3,979    $        2,181    $        2,377
    Products                                                          49,785            17,857            55,582
    Service  and  maintenance                              6,048              3,978              5,830
                                                                      -----------  -----------  -----------
                                                                              59,812            24,016            63,789

Cost  of  revenues                                              28,560              9,164            31,209
                                                                      -----------  -----------  -----------

    Gross  profit                                                  31,252            14,852            32,580
                                                                      -----------  -----------  -----------

Restructuring  charges                                              -              1,485                (285)
Research  and  development  expenses              8,155              4,786              7,069
Sales  and  marketing  expenses                        9,550              4,213              8,904
General  and  administrative
  expenses                                                              5,179              2,744              4,263
Costs  of  integration  of  acquired
  companies                                                            3,330                  584              7,974
Amortization  of  unearned
  compensation                                                      1,344                  361              1,378
Amortization  of  acquired
  intangible  assets                                            2,266              1,534              2,502
                                                                      -----------  -----------  -----------
    Total  operating  expenses                          29,824            15,707            31,805
                                                                      -----------  -----------  -----------

    Operating  income  (loss)                              1,428                (855)                775

Interest  and  other  income,  net                        506                (136)                637
                                                                      -----------  -----------  -----------

    Income  (loss)  before  income
      taxes                                                                1,934                (991)            1,412

Income  tax  (expense)  benefit                          (696)                535                (177)
                                                                      -----------  -----------  -----------

Net  income  (loss)                                    $        1,238    $          (456)  $        1,235
                                                                      ===========  ===========  ===========


Income  (loss)  per  common  share:
    Basic                                                        $          0.05    $        (0.03)  $          0.05
                                                                      ===========  ===========  ===========

    Diluted                                                    $          0.05    $        (0.03)  $          0.05
                                                                      ===========  ===========  ===========

Shares  used  in  computation:
    Basic                                                                24,486            15,183            24,252
    Diluted                                                            25,439            15,183            25,277

(1)  Certain  prior  period  amounts  were  reclassified  to  conform  to
        current  period  presentation.



                                                          SAFENET,  INC.
                                                      AND  SUBSIDIARIES
                      CONSOLIDATED  STATEMENTS  OF  OPERATIONS  AS  ADJUSTED
                  (Unaudited  -  In  thousands,  except  per  share  amounts)

                                                                                    Three  Months  Ended
                                                                      -----------------------------------
                                                                        March  31,      March  31,  December  31,
                                                                            2005                2004                2004
                                                                      -----------  -----------  -----------
Revenues  (1)
    Licenses  and  royalties                      $        3,979    $        2,181    $        2,377
    Products                                                          49,785            17,857            55,582
    Service  and  maintenance                              6,048              3,978              5,830
                                                                      -----------  -----------  -----------
                                                                              59,812            24,016            63,789

Cost  of  revenues                                              24,959              8,035            27,264
                                                                      -----------  -----------  -----------

    Gross  profit                                                  34,853            15,981            36,525
                                                                      -----------  -----------  -----------

Research  and  development  expenses              8,155              4,786              7,069
Sales  and  marketing  expenses                        9,550              4,213              8,904
General  and  administrative
  expenses                                                              5,179              2,744              4,263
                                                                      -----------  -----------  -----------
    Total  operating  expenses                          22,884            11,743            20,236
                                                                      -----------  -----------  -----------

    Operating  income                                          11,969              4,238            16,289

Interest  and  other  income,  net                        506                (136)                637
                                                                      -----------  -----------  -----------

    Income  before  income  taxes                      12,475              4,102            16,926

Income  tax  expense                                          (4,366)          (1,436)          (5,924)
                                                                      -----------  -----------  -----------

Net  income                                                  $        8,109    $        2,666    $      11,002
                                                                      ===========  ===========  ===========


Income  per  common  share:
    Basic                                                        $        0.33      $        0.18      $        0.45
                                                                      ===========  ===========  ===========

    Diluted                                                    $        0.32      $        0.17      $        0.44
                                                                      ===========  ===========  ===========

Shares  used  in  computation:
    Basic                                                                24,486            15,183            24,252
    Diluted                                                            25,439            15,993            25,277



Reconciliation  to  GAAP:
-----------------------

    Amortization  of  acquired
      intangibles  -  cost  of  revenues    $        3,491    $        1,129    $        3,429
    Unearned  compensation  -  cost  of
      revenues                                                              110                      -                  516
    Restructuring  charges                                          -              1,485                (285)
    Integration  costs                                          3,330                  584              7,974
    Amortization  of  unearned
      compensation  -  operating
      expenses                                                          1,344                  361              1,378
    Amortization  of  acquired
      intangibles  -  operating
      expenses                                                          2,266              1,534              2,502
    Income  Taxes                                                  (3,670)          (1,971)          (5,747)
                                                                      -----------  -----------  -----------
Total  Adjustments                                    $        6,871    $        3,122    $        9,767
                                                                      ===========  ===========  ===========

GAAP  Net  Income                                        $        1,238    $          (456)  $        1,235

(1)  Certain  prior  period  amounts  were  reclassified  to  conform  to
        current  period  presentation.
 





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