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RSA Security Announces First Quarter Results

RSA Security Announces First Quarter Results

Company generates record quarterly revenue of $87.5 million; growth in enterprise, consumer and developer businesses drives sequential increase in backlog and deferred revenue

SYDNEY: April 18, 2006 – RSA Security Inc. (NASDAQ: RSAS) today reported financial results for the first quarter ended March 31, 2006.

Revenue for the first quarter of 2006 increased 16 percent to $87.5 million from $75.6 million for the first quarter of 2005. Net income in accordance with Generally Accepted Accounting Principles (GAAP) for the first quarter of 2006 was $5.3 million, or $0.07 per diluted share. GAAP net income of $7.2 million, or $0.10 per diluted share, for the comparable period a year ago, did not include stock-based compensation charges. Non-AAP net income for the first quarter of 2006 was $10.5 million, or $0.14 per diluted share.

“The first quarter of 2006 was a record quarter for RSA Security. In addition to generating the highest ever quarterly revenue in the Company’s history, we had our best ever first quarter in terms of bookings,” said Art Coviello, president and chief executive officer of RSA Security. “We built on our strong fourth quarter results in the enterprise and consumer businesses, and we generated significant traction from the successful integration of the Cyota acquisition. With increasing awareness and global regulation driving the continued adoption of strong authentication, I am excited about our prospects for the year to come.”

First-Quarter 2006 Financial Highlights

Revenue and Bookings: RSA Security generated $87.5 million in revenue for the first quarter of 2006, compared to $75.6 million in revenue for the first quarter of 2005. RSA Security’s book-to-bill ratio for the first quarter was approximately 1.1 to 1, compared to a book-to-bill ratio of 1.0 to 1 during the first quarter of 2005.

Net Income: For the first quarter of 2006, the Company generated GAAP net income of $5.3 million, or $0.07 per diluted share, and non-GAAP net income of $10.5 million, or $0.14 per diluted share.

Backlog, Deferred Revenue and Estimated Unrecognised Revenue from Managed Service Contracts: The Company closed the quarter with $119.1 million in combined deferred revenue, backlog and estimated unrecognised revenue from managed service contracts, an 8 percent increase from the $110.8 million balance at December 31, 2005.

Cash Position and Share Repurchase: Cash, cash equivalents, and marketable securities increased to $208.2 million at March 31, 2006 from $187.8 million at December 31, 2005. During the quarter, in accordance with the Company’s approved stock buyback plan, RSA Security repurchased 82,300 shares of its common stock for $1.2 million. Under the board approved share repurchase plan, RSA Security can repurchase an additional 6.4 million shares of RSA Security common stock through June 30, 2006.

First Quarter 2006 Operational Highlights

Customers: RSA Security closed business with more than 6,000 customers in the first quarter, including approximately 800 new customers. The Company shipped over 1.7 million authentication credentials during the first quarter, up 11 percent from the fourth quarter of 2005, the Company’s previous record quarter for credential shipments. Of the authentication credentials shipped during the quarter, approximately 620,000 credentials were consumer related.

Partners: RSA Security introduced a strategy to enable ubiquitous strong authentication by integrating RSA SecurID authentication into everyday devices and software such as mobile phones, PDAs, USB thumb drives and mobile flash memory cards. By transforming these devices into strong authentication platforms, RSA SecurID authentication can move beyond self-contained hardware tokens to an unprecedented array of devices. In the first quarter of 2006, RSA Security announced relationships with several flagship partners including M-Systems, Motorola, SanDisk, Research in Motion (RIM) and others.

Products and Solutions: In February, RSA Security announced RSA SecurID Appliance 2.0, which scales to 50,000 users, making it possible to meet the demands of enterprise customers seeking an appliance-based solution. During the first quarter the Company sold approximately 300 RSA SecurID Appliances, of which 50 percent were to new customers. Since the appliance can be deployed in as few as 15 minutes, with few IT resources, it is becoming a significant driver of growth in the capture of new customers.

The Company also launched the RSA SecurID Toolbar Token, an easy-to-use strong authentication option delivered in the familiar Web browser toolbar format. With the toolbar, users navigate to the Web site protected by RSA SecurID technology, and then utilise the token code appearing in the toolbar, offering consumer-facing organisations a simple way to arm their customers with stronger protection online.

Industry Leadership: RSA Security hosted the 15th annual RSA Conference in San Jose in February. This industry-leading conference drew scores of exhibitors and over 14,000 attendees, with full conference attendance up over 10 percent from the prior year. Keynote speakers included industry leaders such as John Chambers, president and chief executive officer, Cisco Systems; Bill Gates, chairman of the board and chief software architect, Microsoft Corp.; Scott McNealy, chairman and chief executive officer, Sun Microsystems; and John Thompson, chairman of the board and chief executive officer, Symantec Corporation.

Additional conferences to be held during the year include RSA Conference Japan, in Tokyo April 26 and 27, RSA Conference China, in Beijing in November and RSA Conference Europe in Nice, France October 23 through October 25. For more information about RSA Conferences, visit www.RSAConference.com.

Business Outlook

Guidance for the second quarter of 2006 is only current as of today, Monday April 17, 2006; the Company undertakes no obligation to update its estimates.

Second Quarter 2006 Financial Update

The Company anticipates revenue for the second quarter of 2006 to be in the range of $88 million to $92 million.

The Company anticipates non-GAAP earnings per diluted share for the second quarter of 2006 to be in the range of $0.14 to $0.16.

The Company anticipates GAAP earnings per diluted share for the second quarter of 2006 to be in the range of $0.06 to $0.10.

Included in GAAP earnings per diluted share, the Company anticipates the following charges in the second quarter of 2006:

• A stock-based compensation charge in accordance with SFAS 123R in the range of $4 million to $5 million, or $(0.04) to $(0.05) per diluted share.

• Restructuring charges in the range of $500,000 to $1 million, or $(0.00) to $(0.01) per diluted share, related to the Company’s restructuring of its engineering resources.

• Amortisation charges of intangible assets primarily associated with our acquisition of Cyota of $1.3 million, or $(0.01) per diluted share.

Use of Non-GAAP Financial Measures

The Company is providing non-GAAP financial measures as the Company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of RSA Security’s core operations. Further, management from time to time provides guidance with regard to future expectations of the business; both these GAAP and non-GAAP measures will assist investors in reconciling this forward looking guidance to actual results. Additionally, the Company is providing GAAP and non-GAAP measures in order to illustrate the impact of recent changes in accounting regulations, and to assist investors with the comparison of current and prior period results.

The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Management uses both GAAP and non-GAAP measures when evaluating the business internally and therefore felt it important to make these same metrics available to investors.

GAAP earnings per share for the first quarter of 2006 include pre-tax charges as follows: a restructuring charge of $2.6 million related to the Company’s previously announced restructuring of its engineering resources, stock based compensation charges of $2.8 million related to the Company’s adoption of Statement of Financial Accounting Standards No. 123R, “Share Based Payment” (SFAS 123R) and $1.3 million of amortisation of intangible assets primarily related to intangible assets acquired as a result of the Company’s acquisition of Cyota.

First Quarter 2006 Financial Results:
Reconciliation of Earnings per Diluted Share GAAP to Non-GAAP*
(Per diluted share)
Earnings per diluted share (GAAP) $0.07
Restructuring charge $0.03
SFAS 123R stock option expense $0.03
Amortisation of intangible assets $0.01
Earnings per diluted share (non-GAAP)* $0.14
*Figures are per diluted share and are post-tax assuming a GAAP effective tax rate.

About RSA Security Inc.

RSA Security Inc. is the expert in protecting online identities and digital assets. The inventor of core security technologies for the Internet, the company leads the way in strong authentication and encryption, bringing trust to millions of user identities and the transactions that they perform. RSA Security’s portfolio of award-winning identity & access management solutions helps businesses to establish who’s who online – and what they can do.

With a strong reputation built on a 20-year history of ingenuity, leadership and proven technologies, we serve approximately 20,000 customers around the globe and interoperate with more than 1,000 technology and integration partners. For more information, please visit www.rsasecurity.com

# # #

RSA, BSAFE, SecurWorld and SecurID are either registered trademarks or trademarks of RSA Security Inc. in the United States and/or other countries. Microsoft and Outlook are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other countries. All other products and services mentioned are trademarks of their respective companies.

This press release contains forward-looking statements regarding RSA Security's financial performance for the second quarter of 2006. These statements involve a number of risks and uncertainties. Some of the important factors that could cause actual results to differ materially from those indicated by the forward-looking statements are our ability to successfully integrate Cyota’s employees and operations, the ability to realise anticipated synergies and cost savings as a result of the Cyota acquisition, general global economic conditions, changes in our operating expenses, the long and unpredictable nature of the sales cycle for some of our products, the timing of the introduction or enhancement of our products and our competitors' and strategic partners' products, changes in product pricing, including changes in competitors' pricing policies, development and performance of our direct and indirect distribution channels, delays in product development, competitive pressures, changes in customer and market requirements and standards, market acceptance of new products and technologies, technological changes in the computer industry, and the risk factors detailed from time to time in RSA Security's periodic reports and registration statements filed with the Securities and Exchange Commission, including, without limitation, RSA Security's Annual Report on Form 10-K filed on March 16, 2006.


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