SFNT Safenet (MM)

SafeNet (NASDAQ: SFNT), setting the standard for information security, is reiterating its fourth quarter 2006 guidance, setting revenue guidance for the first quarter and full year 2007 and is establishing its approach with respect to non-GAAP measurements. Earnings per share (EPS) guidance will be provided as soon as is practical after the filing of the restatements. The Company also announced today that it filed a Form 8-K disclosing certain revenue recognition restatements for the periods of 2004, 2005 and the first quarter of 2006, the total impact of which is approximately $14 million. Management believes a majority of this revenue will shift to other periods including future periods. While the Company is in the process of completing its work with regard to closing the fourth quarter and year end 2006, management remains comfortable with the revenue range of $78 to $82 million provided earlier, before the impact of the aforementioned revenue recognition restatements. SafeNet also announced today that it will be requesting a listing extension from NASDAQ beyond the January 31, 2007 previously disclosed in order to ensure there is sufficient time to properly complete the restatement process. The current status of the process is as follows: -- The Company has largely completed the stock option accounting review and will be pursuing the process of attaining pre-filing clearance of our accounting conclusions from the U.S. Securities and Exchange Commission (SEC) for these documents. -- Management believes more time may be needed for all parties to respond to any possible SEC communications. -- The Company continues to focus a significant amount of resources to the restatement effort to enable the timeliest possible filing of the documents. The Company intends to release its fourth quarter and year end 2006 financial results and hold its accompanying conference call as soon as is practical in February. However, the Company�s primary focus in its finance department is on advancing and filing the restatements. Consequently, a precise date cannot be determined at this time. Management is working to set that date as soon as possible. Current Business Outlook for Fourth Quarter 2006 and Fiscal Year 2007 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 restatements, 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. SafeNet is in its quiet period, which is expected to run until financial results are released in February 2007. This period may be affected by any delay in the filing of the Company�s financial statements. 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. Please refer to our Form 8-K dated January 9, 2007 pertaining to non-reliance on previously issued financial statements. For the quarter ending March 31, 2007, SafeNet is establishing a revenue range consisting of $67 to $70�million, before the impact of the aforementioned revenue recognition restatements. This range reflects the normal seasonality experienced between SafeNet�s fourth and first quarters, whereby the first quarter revenue results are smaller than the fourth quarter. For the year ending December�31, 2007, SafeNet is establishing a revenue range consisting of $318 to $326�million, before the impact of the aforementioned revenue recognition restatements. Management expects SafeNet�s organic revenue growth in 2007 to slightly exceed industry growth expectations, which the Company�s research indicates is an average of approximately 10 percent. This growth rate excludes the possible impact of the revenue restatements discussed above. For all periods, gross margins are expected to be consistent with the most recently reported results. In addition, management believes there will be opportunity for operating leverage as expense growth is generally expected to be slower than revenue growth during 2007. Further details on these and other metrics will be provided as soon as is practical. Discussion of Non-GAAP Philosophy Management intends to provide non-GAAP EPS financial guidance as soon as is practical after the Company files its restatements. Non-GAAP net income is expected to exclude amortization of acquired intangibles, compensation expense associated with the expensing of stock options in accordance with FAS 123R, and legal and professional fees associated with the stock option granting efforts. The Company does not currently expect to exclude integration charges. SafeNet management has traditionally used non-GAAP measurements to evaluate the Company's operating performance and believes that excluding these items enhances management's and its investors' ability to evaluate SafeNet's comparable historical operating results. The new management team has solicited a number of members of the investment community to gain a current understanding of how a preponderance of investors are evaluating the operating performance of the business. Management believes that a significant number of investors are excluding the legal and professional fees associated with the stock option granting issues when they focus on SafeNet�s operating performance. Management�s decision on how non-GAAP measurements will be reported reflects this belief. Management Presentation to be Webcast Today Management is scheduled to present at the Needham Growth Conference today from 4:30 pm to 5:00 pm ET during which time they intend to speak to much of the information in this press release. Interested parties can listen to the webcast at www.safenetinvestor.com. 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, including, without limitation, statements relating to the estimated impact of expensing stock options under FAS 123R,�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, 2005 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.