SafeNet Reports First Quarter 2006 Financial Results; Board Authorizes $50 Million Stock Repurchase; Company Updates FY 2006 Guidance

BALTIMORE—(BUSINESS WIRE)—May 4, 2006— SafeNet (NASDAQ: SFNT), setting the standard for information security, today announced results for the first quarter ended March 31, 2006. The Company also announced that its Board of Directors has authorized the use of $50 million for stock repurchases.

Revenues for the three-month period ended March 31, 2006, increased 6% to $63.5 million, compared to $59.8 million for the same period in 2005.

Non-GAAP net income for the quarter ended March 31, 2006 was $3.9 million, or $0.16 per diluted share, compared to $8.1 million, or $0.32 per diluted share, for the same period of 2005. Non-GAAP net income excludes acquisition related charges, integration costs, and the expensing of stock options in accordance with FAS 123R. The assumed effective income tax rate is 35%. Reconciliations of Non-GAAP to GAAP financial measures used in this press release are contained in the Consolidated Statements of Operations, Non-GAAP table.

Net loss under generally accepted accounting principles (GAAP) for the quarter ended March 31, 2006 was $2.4 million or $0.10 per share, which compares to a GAAP net income of $1.2 million, or $0.05 per diluted share, for the same period of 2005. For the first time, financial results for 2006 include stock-based compensation expenses as required by FAS 123R. For the quarter ended March 31, 2006 this expense was $2 million.

Share Repurchase Program - The Company's Board of Directors has approved a share repurchase program that authorizes the repurchase of up to $50 million of the Company's common stock. The program will be implemented using cash on hand through purchases made from time to time in either the open market or privately negotiated transactions at the Company's discretion, subject to market conditions and compliance with the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

First Quarter 2006 Financial Highlights

-- Cash, cash equivalents, and short term investments were $354 million as of March 31, 2006, an increase of $11.5 million from December 31, 2005.

-- In the first quarter of 2006, operating cash flow was $12.3 million as compared to $7.1 million in the same quarter of 2005.

-- As of March 31, 2006, advance payments and deferred revenue was $14.1 million, an increase of $3.1 million sequentially.

-- As of March 31, 2006, DSOs were 79 days as compared to 74 days for the same quarter of 2005.

Anthony Caputo, Chairman and CEO of SafeNet, stated, "We are taking steps to increase shareholder value, starting with the $50 million stock repurchase program that has now been approved by SafeNet's Board of Directors. This program will be funded through our existing cash balance, which we expect to be augmented through strong quarterly cash flow as it was this quarter when we generated $12 million in cash."

Mr. Caputo continued, "Three of our business areas, Classified Government, Digital Rights Management and OEM, are performing well. Together they represent approximately 75% of our revenue, have good growth, and very strong profitability. We are pleased that our backlog is building, led by our subsidiary Mykotronx Inc.'s KIV-7M link encryptor, which Mykotronx began shipping late last year. Our consistent performance in Rights Management is demonstrating the appeal of SafeNet's comprehensive approach to this market while our strength in OEM continues to validate our leading technology that not only powers our solutions but also many other vendors who seek to incorporate among the industry's strongest encryption. We continue to expect strong performance from these businesses as we work diligently to improve the results from our High Speed Encryption and Borderless Security business units. In addition to the organizational changes being made, we believe the recent launch of our new high speed Ethernet encryptors, the complementary Data at Rest product suite, and the macro trends around our upcoming next generation authentication tokens and upgraded Hardware Security Modules, bode well for momentum as we move through 2006."

First Quarter 2006 Business Highlights

Product Developments and Customer Wins

-- Mykotronx's KIV-7M encryptor was certified by the U.S. Government. The KIV-7M is the first encryption product that was certified and fully compliant with the U.S. Government's Cryptographic Modernization Initiative administered by the National Security Agency (NSA).

-- British Telecom licensed SafeNet's Digital Rights Management software for the UK's first ever wholesale mobile broadcast entertainment back-end infrastructure. SafeNet will provide the technology to encrypt radio and television channels over Digital Audio Broadcasting (DAB) and manage the access and usage of the content.

-- Hewlett Packard selected SafeNet's QuickSec VPN security software and SafeXcel-1141 security co-processor to provide networking security functionality for the Gigabit-class HP Jetdirect 635n internal print server. The HP Jetdirect 635n is designed to enable IT organizations to securely share supported peripherals on a Gigabit or Fast Ethernet network, with data transmission at Gigabit speeds.

-- SafeNet's OMA DRM Server Toolkit is being incorporated into Motricity's Fuel offering, the industry's leading mobile content delivery platform. SafeNet's technology will enable Motricity to rights-protect the more than 600,000 titles contained in its digital catalog and safely distribute that content to over 120 million mobile subscribers worldwide. Motricity partners with companies such as Cingular Wireless, Verizon Wireless, China Unicom, O2,, Palm, BET and a network of consumer Web sites, including and

Awards and Recognitions

-- SafeNet attained Gold Certified Partner status in the Microsoft Partner Program, recognizing SafeNet's expertise and total impact in the security technology marketplace.

-- SafeNet's Sentinel RMS and Sentinel Hardware Keys were named by the Software & Information Industry Association (SIIA) as finalists in the 2006 CODiE Awards for Best DRM Software Solution.

-- SafeNet launched its Security Partner Alliance program, an award-winning Channel Partners Program in the Asia Pacific region.

Current Business Outlook for Second Quarter and Full Year 2006

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not reflect the potential impact of any mergers, acquisitions or other business combinations that may be completed after the date of this release.

During the quarter, SafeNet's corporate representatives may reiterate the company's published Business Outlook during private meetings with investors, investment analysts, the media and others. Prior to the start of SafeNet's quiet period for the second quarter of 2006, the public can continue to rely on the Business Outlook set forth in this press release as being SafeNet's current expectations unless SafeNet publishes a notice stating otherwise. During the quiet period, SafeNet and its corporate representatives will not comment concerning the previously published Business Outlook and previously published guidance should no longer be considered the Company's then current Outlook. During the quiet period, the Company's press releases and filings with the SEC on Forms 10-K and 10-Q should be considered historical, speaking as of prior to the quiet period only and not subject to update by the Company. SafeNet's quiet period at the end of the second quarter is expected to run from June 19, 2006 until financial results are released in July 2006.

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