ALDN Aladdin Knowledge Systems Ltd (MM)

Aladdin Knowledge Systems Reports Third Quarter 2004 Financial Results Record Revenues Increase 26% Year-Over-Year to $16.90 Million and Net Income Grows 248% Year-Over-Year to $2.34 Million; Both Exceed Guidance NEW YORK and TEL AVIV, Israel, Oct. 20 /PRNewswire-FirstCall/ -- Aladdin Knowledge Systems, Ltd. (NASDAQ:ALDN), a leader in digital security providing solutions for software digital rights management and Internet security, today announced financial results for the third quarter of fiscal 2004 and the nine- month period ended September 30, 2004. (Logo: http://www.newscom.com/cgi-bin/prnh/20040416/CGALADDINLOGO ) Revenues for the third quarter were $16.90 million, an increase of 26 percent over revenues of $13.45 million for the third quarter of 2003. The increase in revenues exceeded the top end of the guidance range provided by management. Revenue expansion occurred across both major product groups with demand for Aladdin's Enterprise Security products especially strong. Aladdin's Enterprise Security sales jumped 75 percent over the year ago period to $4.90 million, while Software Security (DRM) sales rose 13 percent over the year ago period to $12.00 million. Revenues for the first nine months of 2004 were $50.30 million, an increase of 27 percent from the $39.63 million in revenue recorded during the same period in 2003. Net income for the third quarter was $2.34 million, or $0.20 per basic share and $0.18 per diluted share, compared with net income of $673,000 or $0.06 per basic and diluted share for the third quarter of 2003. Third quarter 2004 net income per basic and diluted shares also exceeded the previously announced guidance range. For the first nine months of 2004, net income was $6.16 million or $0.52 per basic share and $0.48 per diluted share, as compared with net income of $1.55 million or $0.14 per basic share and $0.13 per diluted share for the first nine months of 2003. Cash, cash equivalents and marketable securities totaled $24.81 million at the end of the third quarter, up $7.7 million from $17.11 million reported as of September 30, 2003. Cash flow from operations during the third fiscal quarter 2004 was $1.77 million while total cash usage was $158,000. The major use of cash in the third quarter fiscal 2004 was the acquisition of the Company's Spanish subsidiary. Yanki Margalit, Chairman and CEO of Aladdin Knowledge Systems said, "I am pleased to report that Aladdin exceeded its stated revenue and EPS guidance, as well reported its seventh sequential quarter of net income growth. Our enterprise security business continued to gather momentum in the third quarter on the back of strong demand for integrated, proactive content security solutions and stronger market recognition for our comprehensive security products. In our core software digital rights management business we expanded our market leadership position driven by continued demand for solutions to protect against software piracy." Financial and Operating Highlights -- Record sales quarter. -- Profitability: The third quarter of 2004 marked the seventh sequential quarter with increased profitability. -- Total cash, cash equivalents and marketable securities reached $24.81 million. -- On July 16, Aladdin Spain, the Company's ninth subsidiary, was opened to bolster Aladdin's position in this key European market. -- Aladdin began trading on the Tel Aviv Stock Exchange (TASE) on July 28th, joining the Tel Aviv 100 and Tel-Tech indices. Product Highlights -- Software Security (DRM) -- Aladdin established a 'Software Digital Rights Management' (DRM) business unit combining the Company's software protection, licensing and distribution products, HASP(R) and Privilege(TM). The combination of the HASP(R) and Privilege(TM) products under a unified 'HASP Software DRM' name strengthens and simplifies Aladdin's strategic branding of these complementary products. -- Aladdin launched HASP HL, the most innovative and secure software/intellectual property protection and licensing key available today. HASP HL prevents unauthorized use of software applications, protects software copyright and intellectual property and supports multiple software licensing models. -- Remsoft Inc., a leading provider of software for forest management, chose Aladdin's HASP as its licensing and anti-piracy solution. -- Signpost, Europe's largest educational download portal, chose HASP SL to secure its software downloads. -- eSafe(R) Integrated Proactive Content Security Solution -- U.S.-based Provident Bank, deployed Aladdin's eSafe4's advanced anti-spam module and new AppliFilter(TM) technology for vandal and virus protection, application filtering, anti-hacking tool, Web filtering, anti-spam and email protection across its network of more than 146 banking offices in Maryland, Virginia and southern Pennsylvania. -- eSafe4 Feature Release 2 (FR2), the latest version of Aladdin's award-winning gateway-based content security solution, received OPSEC(TM) (Open Platform for Security) certification from Check Point Software Technologies Ltd. OPSEC is the industry's open, multi-vendor security framework. -- eToken(TM) User Authentication Solution -- Aladdin announced results of a global survey of more than 350 security and IT managers covering topics ranging from deployment of Public Key Infrastructure (PKI) to their use of two-factor authentication. The survey found a strong trend toward PKUI usage and that PKI is becoming a strong driver for USB authentication tokens. -- Aladdin was granted two U.S. patents. The first covers USB-based authentication devices using on-board smartcard chips, allowing Aladdin to fortify its leading position in the fast-growing worldwide USB authentication token market. The second patent covers utilization of USB-based portable devices to store unique personal information, which can than be used for authenticating to a network or application. -- In a first-of-a-kind implementation, the city of Madison, Wisconsin provided Aladdin eTokens to local police in order to authenticate officers accessing vital city and police files via the Internet. 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.ealaddin.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 management believes revenues for the fourth quarter of 2004 will be in the area of $17.5 million to $18.3 million and basic and diluted earnings per share are expected to be in the range of $0.17 to $0.20. For comparison, the Company reported $15.09 million in revenue and basic and diluted earnings per share of $0.10 for the fourth quarter of 2003. Earnings Teleconference The Company will hold a teleconference today, October 20th, at 9:00 a.m. EDT to discuss the quarterly results. To participate in the call, please dial (800) 399-0427 in North America, or (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.ealaddin.com/ . Please visit the Web site at least 15 minutes early 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 on October 20th through 11:59 p.m. on October 27th by calling (800) 642-1687 in North America, or (706) 645-9291 internationally, and entering the following access code: 1307558. A Web cast replay of the call will also be made and can be accessed on the Aladdin Web site at http://www.ealaddin.com/ . About Aladdin Knowledge Systems Aladdin (NASDAQ:ALDN) is a leader in digital security, providing solutions for software digital rights management and Internet security since 1985. Serving more than 30,000 customers worldwide, Aladdin products include: the USB-based eToken(TM) device for strong user authentication and e-commerce security; the eSafe(R) line of integrated content security solutions that protect networks against malicious, inappropriate and nonproductive Internet- borne content; and the HASP(R) family of hardware- and software-based products that flexibly protect, license and distribute software and intellectual property. Visit the Aladdin Web site at http://www.ealaddin.com/ . Safe Harbor Statement Except for the statements of historical fact, the information presented herein constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve 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 consumer buying habits and other factors over which Aladdin Knowledge Systems Ltd. has little or no control. Aladdin Knowledge Systems Ltd. Consolidated Statement of Income (U.S. dollars, in thousands - except for per-share amount) Three months period Nine months period ended September 30 ended September 30 2004 2003 2004 2003 Sales: Software Security (DRM) 12,004 10,639 37,127 31,790 Enterprise Security 4,904 2,808 13,177 7,841 Total Sales 16,908 13,447 50,304 39,631 Cost of sales 3,249 2,468 9,893 7,225 Gross profit 13,659 10,979 40,411 32,406 Research & development 2,711 3,178 8,947 9,496 Selling & marketing 6,086 5,465 17,637 16,237 General & administrative 2,151 1,951 6,732 5,385 Total operating expenses 10,948 10,594 33,316 31,118 Operating income 2,711 385 7,095 1,288 Financial income (expenses), net (42) 406 (211) 317 Other income (expenses) 4 - (36) 8 Income before taxes 2,673 791 6,848 1,613 Taxes on income 331 118 685 (34) 2,342 673 6,163 1,647 Equity in loss of affiliate, net of taxes - - - 100 Net income 2,342 673 6,163 1,547 Basic earnings per share 0.20 0.06 0.52 0.14 Diluted earnings per share 0.18 0.06 0.48 0.13 Weighted average number of shares outstanding for Basic EPS 12,000 11,275 11,845 11,261 Weighted average number of shares outstanding for Diluted EPS 12,954 12,089 12,946 11,782 Aladdin Knowledge Systems Ltd. Condensed Consolidated Balance Sheets (U.S. dollars, in thousands) September 30, December 31, 2004 2003 Assets Current assets: Cash & cash equivalents 23,276 18,287 Marketable securities 1,537 1,229 Trade receivable, net of allowance for doubtful accounts 11,583 9,766 Other accounts receivable 3,540 2,892 Inventories 4,919 5,795 Total current assets 44,855 37,969 Severance pay fund 2,412 2,322 Fixed assets, net 2,083 2,447 Other long term assets, net 16,096 12,730 Total Assets 65,446 55,468 Liabilities and shareholders' equity Current liabilities: Trade payables 2,653 2,306 Deferred revenues 4,167 3,415 Other current liabilities 5,514 5,623 Total current liabilities 12,344 11,344 Accrued severance pay 3,181 3,168 Shareholders' Equity 49,931 40,956 Total Liabilities and shareholders' equity 65,446 55,468 http://www.newscom.com/cgi-bin/prnh/20040416/CGALADDINLOGO http://photoarchive.ap.org/ DATASOURCE: Aladdin Knowledge Systems, Ltd. CONTACT: Press, Matthew Zintel of Zintel Public Relations, +1-310-574-8888, ; or Investors, Mark Jones of Global Consulting Group, +1-646-284-9414, Web site: http://www.ealaddin.com/ http://www.ealaddin.com/about/pressroom.asp

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