ALDN Aladdin Knowledge Systems Ltd (MM)

Fourth Quarter Revenue Rises to $21.8 Million, Up 16% Year-Over-Year CHICAGO and TEL AVIV, Israel, Jan. 23 /PRNewswire-FirstCall/ -- Aladdin Knowledge Systems Ltd. (NASDAQ:ALDN), the worldwide leader in Software Digital Rights Management (DRM) and USB-based authentication solutions, and a leading innovator in enterprise secure content management (Enterprise Security), today announced financial results for the fourth quarter and fiscal year ended December 31, 2005. (Photo: http://www.newscom.com/cgi-bin/prnh/20040416/CGALADDINLOGO ) Revenues for the fourth quarter of 2005 increased 16 percent to a record $21.8 million from $18.8 million for the same period in 2004. Software DRM revenues for the fourth quarter increased 4 percent to $14.1 million from $13.5 million in the same period in 2004. Enterprise Security revenues for the fourth quarter of 2005 increased 45 percent to $7.7 million from $5.3 million in the same period in 2004. Revenues for the fiscal year 2005 were a record $81.8 million, an increase of 18 percent from the $69.1 million recorded for fiscal year 2004. Software DRM revenues for fiscal year 2005 were $56.6 million, an increase of 12 percent from the $50.7 million recorded in 2004. Enterprise Security revenues for fiscal year 2005 increased 36 percent to $25.2 million from $18.5 million in 2004. GAAP net income for the fourth quarter of 2005 was a record $3.9 million, or $0.27 per basic share and $0.26 per diluted share, a 48 percent improvement year-over-year. GAAP net income for the fourth quarter of 2004 was $2.6 million or $0.21 per basic share and $0.20 per diluted share. For the fiscal year 2005, GAAP net income was $12.4 million, or $0.89 per basic share and $0.85 per diluted share, as compared with net income of $8.8 million or $0.74 per basic share and $0.68 per diluted share for fiscal year 2004, a 41 percent improvement year-over-year. Full year 2005 net income, excluding a $2.0 million one-time charge to settle a patent lawsuit, was a record $14.4 million or $1.03 per basic share and $0.99 per diluted share, a 63 percent improvement year-over-year. The one-time charge reduced fiscal year 2005 GAAP net income per basic and diluted share by $0.14. Cash, cash equivalents and marketable securities totaled $77.2 million at December 31, 2005, up $51.3 million from $25.9 million reported at December 31, 2004, with no outstanding debt. The increase is related to positive cash flow generated from operating activities and the receipt of $38.8 million in net proceeds, following the successful completion of the Company's offering of ordinary shares which closed on March 30, 2005. Yanki Margalit, Chairman and CEO of Aladdin Knowledge Systems, stated, "Fiscal year 2005 was an exceptional year for Aladdin as we generated record levels of revenue, cash flow and profitability while expanding sequential and year-over-year growth in our core Software DRM and Enterprise Security segments. I was particularly pleased with our ability to drive bottom line profitability at a significantly faster pace than our healthy top line growth rate as well as the year end momentum in our Enterprise Security business which was driven by strong demand by enterprise customers for our eSafe and eToken products. With worldwide threats from software piracy, spam and malicious content undiminished, we see room for further growth in 2006 as we build upon our leadership position in the software DRM market and our expanding enterprise customer base." Financial and Operating Highlights -- Record quarterly and annual revenues and net income -- Cash flow from operating activities totaled $4.0 million in fourth quarter and a record $14.6 million for the full year 2005 -- Aladdin expanded its global presence by opening a new office in Italy and gaining new distributors in South Korea and Argentina -- IDC confirmed that Aladdin strengthened its leadership of the global software licensing authentication token market in 2004, with a market share of 37.2 percent and grew its share of the worldwide USB authentication token market to 21.7 percent (IDC, Worldwide Hardware Authentication Token 2005-2009 Forecast and 2004 Vendor Shares, #34452, December 2005) -- Aladdin was awarded ISO 14000 environmental certification Product Highlights -- Software Security (DRM) - Aladdin announced that its HASP(R) solution prevented more than $500 billion in software piracy over its 20-year history. - Aladdin HASP(R) HL added full support for software vendors developing applications on a Windows x64 operating system. -- eToken(TM) User Authentication Solution - Aladdin announced that one of the world's leading entertainment and media enterprises had chosen eToken hardware and software solutions for secure network access and password management. - Aladdin eToken named as finalist in "Best Authentication Solution" category for the 2006 SC magazine awards. -- eSafe (R) Integrated Proactive Content Security System - Aladdin announced the launch of eSafe SecureSurfing(TM) a tiered solution that provides ISPs with the ability to offer their home and small business customers a true "clean pipe" Internet connection. - Aladdin launched the eSafe Mobile Content Security Gateway designed specifically for cellular providers to offer multi-layered protection against mobile viruses and spam. - Aladdin eSafe named as finalist in four categories for the 2006 SC magazine awards. For further information on product highlights, please refer to the press room on the Company's Web site which can be found at http://www.aladdin.com/about/pressroom.asp. Future Business Outlook Aladdin continues to provide a business outlook on a quarterly basis. The Company undertakes no obligation to update its estimates. Based on current business activities and general economic conditions, Aladdin's management believes revenues for the first quarter of fiscal 2006 will be in the range of $21.3 million to $23.3 million. The Company reported $20.3 million in revenue in the first quarter of 2005. First quarter 2006 diluted earnings per share are expected to be in the range of $0.25 to $0.28, excluding stock-based compensation expense related to the Company's adoption of Financial Accounting Standard (FAS) No. 123R. The Company reported diluted earnings per share of $0.23 in the first quarter of 2005, excluding a $2.0 million one-time charge to settle a patent lawsuit. Earnings Teleconference The Company will hold a teleconference today, January 23, at 9:00 a.m. Eastern Time to discuss the quarterly results. To participate in the call, please dial (800) 399-0427 in North America, or +1 (706) 643-1624 internationally, approximately five minutes prior to the scheduled call start time. The call is being simultaneously Web cast and can be accessed on the Aladdin Web site at http://www.aladdin.com/investor. Please visit the Web site at least 15 minutes prior to the scheduled call time to register for the Web cast and download any necessary audio software. A replay of the call can also be accessed via telephone from 11:00 a.m. Eastern Time on January 23, 2006 through 11:59 p.m. Eastern Time on January 30, 2006 by calling (800) 642-1687 in North America, or +1 (706) 645-9291 internationally, and entering the following access code: 3957173. A Web cast replay of the call will also be made and can be accessed on the Aladdin Web site at http://www.aladdin.com/investor. About Aladdin Knowledge Systems Aladdin Knowledge Systems Ltd. is a global provider of security solutions that reduce software theft, authenticate network users and protect against unwanted Internet and e-mail content, including spam, viruses and spyware. Its security products are organized into two segments: Software Digital Rights Management (DRM) and Enterprise Security. Aladdin's Software DRM products allow software publishers to protect their intellectual property and increase revenues by reducing losses from software theft and piracy. Its Enterprise Security solutions enable organizations to secure their information technology assets by controlling who has access to their networks (authentication) and what content their users can utilize (content security). Visit the Aladdin Web site at http://www.aladdin.com/. Safe Harbor Statement Certain information presented herein constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include general economic and business conditions, the loss of market share, changes in the competitive landscape and other factors over which the company has little or no control. Aladdin Knowledge Systems Ltd. Consolidated Statements of Income (U.S. dollars, in thousands - except for per-share amount) Three month periods ended Twelve month periods ended December 31 December 31 2005 2004 2005 2004 (Unaudited) (Unaudited) Revenues: Software Security (DRM) 14,100 13,523 56,578 50,650 Enterprise Security 7,651 5,294 25,195 18,471 Total Revenues 21,751 18,817 81,773 69,121 Cost of revenues 4,862 3,888 16,971 13,781 Gross profit 16,889 14,929 64,802 55,340 Research & development 3,375 3,081 12,131 12,028 Selling & marketing 6,970 7,040 26,952 24,677 General & administrative 2,794 2,073 11,169 8,805 One time lawsuit charge - - 2,000 - Total operating expenses 13,139 12,194 52,252 45,510 Operating income 3,750 2,735 12,550 9,830 Financial income, net 505 264 1,038 53 Other income (expenses), net (3) (102) 14 (138) Income before taxes 4,252 2,897 13,602 9,745 Taxes on income 371 272 1,246 957 Net Income 3,881 2,625 12,356 8,788 Basic earnings per share 0.27 0.21 0.89 0.74 Diluted earnings per share 0.26 0.20 0.85 0.68 Weighted average number of shares outstanding for Basic EPS 14,436 12,217 13,899 11,940 Weighted average number of shares outstanding for Diluted EPS 15,019 13,153 14,580 13,000 Aladdin Knowledge Systems Ltd. Condensed Consolidated Balance Sheets (U.S. dollars, in thousands) December 31, December 31, 2005 2004 (Unaudited) Assets Current assets: Cash & cash equivalents 28,426 17,313 Marketable securities 48,815 8,598 Trade receivables, net of allowance for doubtful accounts 13,957 12,637 Other accounts receivable 4,676 4,319 Inventories 6,998 5,788 Total current assets 102,872 48,655 Severance pay fund 2,455 2,357 Property and equipment, net 3,081 2,234 Other long-term assets, net 17,470 17,648 Total Assets 125,878 70,894 Liabilities and Shareholders' Equity Current liabilities: Trade payables 4,454 3,546 Deferred revenues 5,645 4,793 Other current liabilities 7,799 5,989 Total current liabilities 17,898 14,328 Accrued severance pay 3,243 3,129 Shareholders' Equity 104,737 53,437 Total Liabilities and Shareholders' Equity 125,878 70,894 Aladdin Knowledge Systems Ltd. Condensed Consolidated Statements of Cash Flows (U.S. dollars, in thousands) Three month Twelve month period ended period ended December 31, December 31, 2005 2005 (Unaudited) Cash flow from operating activities: Net income 3,881 12,356 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 547 1,962 Increase in trade and other receivables, net (1,446) (1,807) Decrease (Increase) in inventory 525 (1,277) Increase in trade payables and accrued liabilities 247 3,442 Other adjustments 230 (51) Net cash provided by operating activities 3,984 14,625 Cash flow from investing activities: Purchase of property and equipment (517) (2,269) Investment in available-for-sale marketable securities, net 799 (40,465) Investment in other companies - (850) Proceeds from return on investment in other companies - 910 Net cash provided by (used in) investing activities 282 (42,674) Cash flow from financing activities: Proceeds from issuance of shares, net - 38,778 Proceeds from exercise of options 241 485 Net cash provided by financing activities 241 39,263 Effect of exchange rate on cash and cash equivalents 105 (101) Increase in cash and cash equivalents 4,612 11,113 Cash and cash equivalents at the beginning of the period 23,814 17,313 Cash and cash equivalents at the end of the period 28,426 28,426 Press Contact: Investor Relations Contact: Matthew Zintel Mark Jones Zintel Public Relations Global Consulting Group 310.574.8888 646.284.9414 First Call Analyst: FCMN Contact: http://www.newscom.com/cgi-bin/prnh/20040416/CGALADDINLOGO http://photoarchive.ap.org/ DATASOURCE: Aladdin Knowledge Systems Ltd. CONTACT: Press - Matthew Zintel, Zintel Public Relations, +1-310-574-8888, ; Investor Relations - Mark Jones, Global Consulting Group, +1-646-284-9414, Web site: http://www.aladdin.com/ http://www.aladdin.com/investor http://www.aladdin.com/about/pressroom.asp

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