SafeNet Reports Second Quarter 2005 Financial Results

Record Revenue Grows by 17 Percent; Adjusted EPS at $0.33; DSOs Down by 11 days

BALTIMORE, Maryland — July 28, 2005 — SafeNet (NASDAQ: SFNT), setting the standard for information security, today announced results for the second quarter ended June 30, 2005.

Revenues for the three-month period ended June 30, 2005 increased 17 percent to $63.5 million, compared to $54.3 million for the same period in 2004.

Adjusted net income (a non-GAAP measure) for the 2005 second quarter was $8.5 million, or $0.33 per diluted share, compared to $7.4 million, or $0.29 per diluted share, for the quarter ended June 30, 2004. The quarterly adjusted net income and per share information excludes acquisition and non-recurring expenses and assumes a 35 percent effective income tax rate.

The net loss calculated on a GAAP (Generally Accepted Accounting Principles) basis for the quarter ended June 30, 2005, was a net loss of $3.0 million or ($0.12) per diluted share, which compares to GAAP net income of $408,000, or $0.02 per diluted share, for the same period of 2004. The GAAP results for the three months ended June 30, 2005 include various integration expenses and non-recurring charges. Please see the GAAP reconciliation table for details.

Anthony Caputo, Chairman and CEO of SafeNet, stated, "We are very pleased with SafeNet's strong revenue growth in Q2, which represents an increase of 17 percent from the same quarter last year. This growth is exciting because it is being driven by sales of all our commercial grade products which, as a result of recent new product introductions and stronger sales and marketing efforts, grew by 29 percent year over year."

"We also made great strides forward in our Type 1, or Top Secret grade, encryption business during the quarter. Highlights include the announcement and demonstration of our KIV-7M encryptor for the Cryptographic Modernization Program and a major new contract with a commercial technology company which is highlighted below. As a result, we are now confident that the Top Secret business will resume its growth in the third quarter as planned."

"Two notable events this quarter reflect our continuing commitment to Rights Management: we closed the DMDSecure acquisition, and acquired and closed MediaSentry. MediaSentry places SafeNet in a new and exciting market segment, forecasted to grow nearly 40 percent through 2007. This managed services business offers piracy protection, scanning and notification, litigation support and business/market intelligence for the world's largest motion picture studios, entertainment and software industry associations and record labels. We believe our combined Rights Management products and solutions makes us the leader in this market space."

Caputo continued, "As part of our on-going acquisition activity we continued to analyze our operations and concluded that further integration of acquired products, facilities and staff was possible, and necessary, in order to achieve our profit goals. Therefore, management took steps in the quarter which will result in further cost savings in future quarters. The combination of our on-going strong revenue growth and the expense control resulting from further integration of prior acquisitions gives us confidence to expect strong Q3 performance as well as confirm our prior full year guidance."

Business Updates
Customer Wins and Partnerships

• SafeNet has signed an agreement with a major commercial equipment vendor that will lead to new Type 1 products, and a unique market position for SafeNet and this commercial partner. Current plans are that the products will be ready late next year, and that revenue from this project should exceed $50 million, over the next 5 years past that.
  
• Applied Micro Circuits Corporation (AMCC) licensed SafeNet's SafeXcel IP cores to enable secure communications in their next generation PowerPC processors for networking and pervasive applications. SafeNet's applicable technology is a silicon-proven cryptographic accelerator for Internet Protocol Security (IPsec), Secure Socket Layer (SSL), Transport Layer Security (TLS), and Secure Real-Time Transport Protocol (SRTP).
  
• Guangzhou Railway Group (GRG), China's most important transportation service, selected SafeNet's Borderless iKey USB authentication tokens to launch its online ticketing service this year. GRG set up the online ticketing service system, using SafeNet's iKey as its two-factor authentication, to install personal credentials and all necessary data for purchasing tickets in an efficient manner. GRG will offer this service to large enterprise companies, who can apply for an online account with GRG. These companies will receive SafeNet's iKey to access the system and reserve tickets for their employees.

Product Announcements

• SafeNet subsidiary Mykotronx, Inc. began beta testing its new KIV-7M at U.S. Government sites. The KIV-7M is among the first products available that are fully compliant with the U.S. Government's Cryptographic Modernization Initiative, which is the effort to upgrade the security infrastructure of its communication architectures. SafeNet estimates that the KIV-7M could represent approximately $540 million to $860 million in revenue through 2011. General availability to the U.S. Government continues to be expected in the third quarter of 2005.
  
• The National Security Agency certified the most recent version of SafeNet's classified-grade family of satellite ground station products. During the last five years, over 800 units of the legacy family of products have been delivered and are in U.S. Government service. Deliveries of the latest versions began earlier this year. SafeNet estimates that the satellite opportunity associated with the Cryptographic Modernization Initiative could represent approximately $30 million to $50 million in revenue through 2011.
  
• SafeNet's Digital Rights Management (DRM) Solutions were among the first to demonstrate interoperability with leading device manufacturers at the first Open Mobile Alliance's (OMA) TestFest for DRM V2.0. This important standard is a critical milestone in the adoption of DRM technology as a vehicle to deliver high-value content to consumer electronic devices.
  
• SafeNet launched Sentinel RMS, a software rights management solution that streamlines the license management process. Sentinel RMS dramatically reduces or eliminates many of the costs normally associated with license management by automating this process and integrating it with back-office systems. Sentinel RMS includes components for design, automated fulfillment, and ongoing management. This product is also the only software licensing solution that provides secure role-based management, allowing software vendors to easily separate the functions of license creation, generation, and delivery.

Acquisitions

• SafeNet completed the acquisition of MediaSentry, Inc., a global provider of anti-piracy and business management services for the recording and motion picture industries. The acquisition will expand SafeNet's anti-piracy offering to include the protection of copyrighted content on peer-to-peer networks, while gaining a new competency in managed services.

Current Outlook for Third Quarter and Full Year 2005
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.

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 various integration expenses and non-recurring charges. The GAAP net income per share guidance for 2005 is between $0.38 and $0.48 per diluted share.

For the quarter ending September 30, 2005, SafeNet currently expects to achieve revenues in the range of $67 to $72 million. The adjusted net income is expected to be in the range of $0.41 to $0.45 per diluted share. Adjusted guidance excludes various integration expenses and non-recurring charges. The GAAP net income is expected to be in the range of $0.15 to $0.19 per diluted share.

Related Links:
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS, AS ADJUSTED
CONSOLIDATED BALANCE SHEETS

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 1-800-561-2731 and use passcode 12902373 within the United States. If you are calling from outside the U.S., please dial 1-617-614-3528 and use passcode 12902373. 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.

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.

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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.