COMPANY PRESS RELEASE: Entrust has reported revenues for the quarter ended December 31, 2001 of $28.4 million, resulting in a pro forma net loss from operations applicable to common shares of $0.04 per share.
The pro forma net loss from operations applicable to common shares for the fourth quarter of 2001 was $2.5 million, or $0.04 per share, a 50 percent improvement of $2.8 million in operating earnings, or $0.04 per share from the third quarter of 2001. Entrust recorded a GAAP net loss of $5.7 million, or $0.09 per share, compared with a net loss applicable to common shares of $8.3 million, or $0.13 per share, recorded in the third quarter of 2001, and compared with a net loss applicable to common shares of $27.9 million, or $0.44 per share, recorded in the fourth quarter of 2000, an 80% improvement year-over-year.
We are pleased to close 2001 with our strongest software revenue quarter of the year, which helped drive operating earnings to a per share improvement of 50% over the 3rd quarter, said Bill Conner, Entrust president and chief executive officer. 2001 was clearly a rebuilding year for Entrust, and we are now positioned for a return to growth and breakeven in 2002. Our Secure Web Portal solution, which grew by 60% this quarter, coupled with our targeted marketing programs and a sharp focus on customer needs, strongly positions us to capitalize on the heightened Internet security requirements of Governments and Enterprises worldwide.
Our solid financial and commercial performance in the fourth quarter of 2001 represents a major milestone in the recovery plan we announced this past June. Clearly the measures we undertook in 2001 to re-focus Entrust back to key verticals and partners, re-align corporate resources in support of this strategy, and eliminate non-core activities have successfully gained traction and generated financial returns, despite the economic turbulence, said David Thompson, Entrust chief financial officer. We enter 2002 with our resources and expense base aligned, our balance sheet the strongest it has been all year, and revenue visibility clearer than we have experienced in previous quarters.
The $28.4 million global revenues in the fourth quarter increased by $0.4 million from the third quarter of 2001. The increase was driven primarily by stronger software sales of Entrust enhanced Internet security solutions into Government vertical markets both in Europe/Middle East/Africa (EMEA) and in North America. Software revenues increased to $12.6 million, with the fourth quarter representing the highest software revenue quarter for the year 2001. Service revenues stabilized at $15.8 million, essentially equal to the third quarter.
Gross margins at 63 percent for the fourth quarter, were up two percentage points from the third quarter of 2001. Strong software revenues and operating efficiency gains in Professional Services drove gross margins to 63 percent, the highest level for any quarter of the year 2001.
Overall pro forma operating expenses of $21.6 million in the fourth quarter of 2001 (sales & marketing, administrative, research & development) decreased by $2.2 million or 9 percent, from the $23.8 million expenditure level in the third quarter of 2001. The $21.6 million operating expense level in the fourth quarter of 2001 is the lowest quarterly level for the year 2001. Entrust continued to increase investment in global marketing programs targeted to Government and Enterprises in the fourth quarter.
The pro forma loss from operations of $2.4 million, or $0.04 per share, represents a $2.8 million, or $0.04 per share, improvement from the third quarter of 2001, which equates to a 50% operating EPS improvement. Revenue volume increases, improvement in sales mix, and continued expense management focus helped deliver the operating earnings improvement and operating earnings per share improvement.
The fourth quarter fully diluted loss of $5.7 million, or $0.09 per share, represents a $2.6 million, or $.04 per share, improvement from the third quarter of 2001 and a $22.1 million, or $0.35 per share, improvement from the fourth quarter of 2000.
Asset management performance: Days sales outstanding (DSO) at 75 increased by 3 from the previous quarter. The 75 DSO is substantively down from the 87 DSO during the fourth quarter of 2000. The $163 million year-end cash and marketable securities position, with no debt, results from continued working capital diligence and the operating expense efficiencies realized through the June 2001 restructuring.
Thompson added, For the first quarter of 2002, Entrust is currently targeting a pro forma operating loss per share of $.04, essentially flat to this quarter, on continued modest revenue growth. Entrust is targeting revenue growth in the 3% to 6% range for the first half of 2002 over that delivered in the second half of 2001, when we restructured and re-focused the Company. As the market for enhanced Internet security solutions recovers, and our market and product programs further position the Company, we expect continued financial improvement and progress towards breakeven operating earnings in the second half of 2002.