SafeNet Reports Third Quarter 2005 Financial Results

Company Reiterates Full Year 2005 Revenue Guidance and Revises Non-GAAP EPS Guidance
Establishes Full Year 2006 Guidance for Revenue Growth to $295 to $315 million and Non-GAAP EPS of $1.70 to $1.90 per share

BALTIMORE, Maryland — October 27, 2005— SafeNet (NASDAQ: SFNT), setting the standard for information security, today announced results for the third quarter ended September 30, 2005.

Revenues for the three-month period ended September 30, 2005 increased 7 percent to $63.4 million, compared to $59.5 million for the same period in 2004.

Non-GAAP net income for the 2005 third quarter was $6.5 million, or $0.25 per diluted share, compared to $9.6 million, or $0.39 per diluted share, for the quarter ended September 30, 2004. The quarterly non-GAAP net income and per share information excludes acquisition and non-recurring expenses and assumes a 35 percent effective income tax rate.

The net income calculated on a GAAP (Generally Accepted Accounting Principles) basis for the quarter ended September 30, 2005, was $1.1 million or $0.04 per diluted share, which compares to GAAP net income of $996,000, or $0.04 per diluted share, for the same period of 2004. The GAAP results for the three months ended September 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 were able to secure $170 million in new contracts from the U.S. Government - a terrific record. Revenue was consistent with our September guidance. While gross margins did not recover in the third quarter as expected, they are improving in the fourth quarter. As a result, we expect record levels of both revenue and non-GAAP earnings per share in the fourth quarter. Today we are also issuing 2006 financial guidance for what we expect will be a year of strong, profitable growth."

Business Updates
Customer Wins and Partnerships

• U.S. Department of Defense awards SafeNet a $150 Million Indefinite Delivery Indefinite Quantity (IDIQ) contract for its new KIV-7M Link Encryptor, representing the largest contract in SafeNet's history. The Company also received a delivery order in excess of $18 million. SafeNet has estimated the total KIV-7M revenue opportunity to range between $540 million and approximately $860 million from 2006 to 2011, with the overall revenue opportunity relating to the U.S. Government’s classified-grade encryption upgrade cycle at $650 million to approximately $1 billion.


• Liebherr-Werk Ehingen GmbH, one of the world's leading manufacturers of mobile cranes has chosen SafeNet Sentinel® products to secure its computer-based training modules. By implementing SafeNet's Sentinel hardware tokens, the company is able to license and deliver critical training content to its customers in a secure, controlled manner.


• Wavesat, a leading developer of WiMAX silicon and reference designs, selected SafeNet's SafeXcel™-1141 security co-processor to power the WaveSat EvolutiveTM WiMAX DM256 reference design for OEM developers building WiMAX (Worldwide Interoperability for Microwave Access) broadband equipment. WiMAX is the 802.16 standard for wireless broadband networks and is predicted by industry research firms to pick up 70% of the new high speed wireless market segment by 2009, with a reach 12.4 million subscribers by 2010.


• SafeNet and Phoenix Technologies Ltd. partnered to deliver a new and advanced method for ensuring the protection of PCs and other digital devices from unauthorized access. This simple to manage and use capability leverages SafeNet's Borderless iKey® USB authentication tokens and Phoenix's TrustedCore™ technology to protect devices from unauthorized use at the core BIOS level. This solution has particular significance in light of the increasing problem of laptop theft. The FBI has reported that laptop theft losses for 2004 increased to over $6.7 million, and that over 97% of stolen laptops are never recovered.


• K-Micro, a leader in advanced yet affordable ASIC technology used in the consumer electronics, computer, office-automation, networking and storage markets, selected SafeNet's SafeXcel IP Packet Engine technology for its innovative Topaz computing subsystem for Silicon on Ceramic (SoC). The new Topaz subsystem will enable designers to bring applications requiring very high performance computing power – including set-top boxes, printers, routers, and storage devices – to market more easily and quickly.


• SafeNet and Faraday, a leading ASIC and silicon IP provider, entered into a strategic marketing partnership to enable custom security silicon solutions for networking equipment customers. The partnership focuses on high volume applications like office equipment and consumer electronics that require cost effective, yet customized security silicon. In addition, this relationship addresses the specialized high-security high growth applications, such as digital film distribution, where a combination of system-on-chip with a dedicated security engine is the best way to protect valuable content.

-Faraday also licensed SafeNet's SafeXcel IP to implement an ASIC for its customer which would enable next-generation server control functions in data centers. Specifically, Faraday licensed SafeNet IP Packet Engine — a highly integrated cryptographic accelerator for IPSec, SSL, TLS, and SRTP packet processing, as well as SafeNet's SafeXcel IP Content Inspection Engine for high-performance protection against malicious code and intrusion attempts.

• Reef Point Systems, a leader in carrier-class security solutions for converged wireless and wireline networks, selected SafeNet's QuickSec for Telecom to provide Internet Key Exchange v2 (IKEv2) for its massively scalable, multiservice Unlicensed Mobile Access (UMA) Security Gateway for mobile operators. The gateway enables secure WiFi roaming and provides mobile subscribers with maximum confidentiality by encapsulating call and signaling data in secure IPSec tunnels.

Product Announcements

• SafeNet's SafeEnterprise™ SONET/SDH Encryptors were shown to deliver better performance for high-speed, low-latency applications such as disaster recovery, storage area networks, and metro and campus applications than one of the industry's highest performing IPSec routers. The testing, conducted by Rochester Institute of Technology's Golisano College of Computing and Information Sciences, confirms that SafeNet's network security devices provide high speed encryption without compromising fiber optic speed or performance. Dr. Luther Troell from RIT's Golisano College of Computing and Information Sciences said of the results, "The SafeNet SONET Encryptor outperformed in all areas we tested."


• SafeNet announced the launch of Sentinel Hardware Keys, a software rights management token that protects software vendors from unauthorized use or distribution of their products. Sentinel Hardware Keys are the first and only hardware tokens to incorporate public key cryptography, AES encryption and internal authentication. The result is an ultra-secure hardware token that still offers the highly flexible licensing for which the SafeNet Sentinel product line is known.


• SafeNet announced QuickSec® Unified, the market's first integrated security platform for network equipment manufacturers. OEM's can now build complete unified threat management appliances for small to medium enterprises that provide high-performance, real–time protection against network security threats in a single device. According to industry analysts, the Compound Annual Growth Rate of unified threat management security appliances between 2003 and 2008 is forecasted to exceed 80%, with security solutions being delivered via appliances to reach 80% by 2007.


• SafeNet announced its SafeXcel-5140, the market's first Enterprise Security Processor specifically designed for network equipment manufacturers targeting the fast-growing small and medium-sized enterprise (SME) market. Pre-integrated with SafeNet's QuickSec Unified security software, the Enterprise Security Processor enables OEMs to build complete VPN gateways, broadband access devices and home networking equipment, while significantly reducing time-to-market.

Current Outlook for Fourth 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 quarter ending December 31, 2005, SafeNet currently expects to achieve revenues in the range of $78 to $82 million. The non-GAAP net income is expected to be in the range of $0.55 to $0.60 per diluted share. Non-GAAP guidance excludes various integration expenses and non-recurring charges, which are expected to be approximately $1 million.

For the year ending December 31, 2005, the Company reiterates its prior revenue guidance to achieve revenues in the range of $255 to $275 million. Non-GAAP net income guidance for 2005 is being updated and expected to be between $1.45 and $1.55 per diluted share. Non-GAAP guidance excludes various integration expenses and non-recurring charges.

For the year ending December 31, 2006, the Company is establishing revenue guidance of $295 to $315 million, and non-GAAP net income guidance of between $1.70 and $1.90 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 1-866-831-6267 and use passcode 78476382 within the United States. If you are calling from outside the U.S., please dial 617-213-8857 and use the same passcode. 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.

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