Trusted Information growth topped 200% in '96 Spending on expansion ate into revenue, leaving earnings as predicted

March 06, 1997|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

Trusted Information Systems Inc. said sales of its computer security products rose 218 percent last year, exceeding Wall Street expectations. The Glenwood company spent the money on faster-than-planned growth, putting yesterday's earnings report about where analysts initially predicted.

Trusted said it lost $757,535, or 7 cents a share, in the fourth quarter of 1996 and almost $2.2 million, or 25 cents per share, for the year. In 1995, the company earned a profit of $384,256 in the fourth quarter and $1.3 million (15 cents a share) for the year.

Yearly sales rose 46 percent to $26.4 million. Overall revenue grew less than product sales because Trusted's government-consulting business is growing much more slowly. Trusted sells firewall software and a line of products and services called RecoverKey that computer owners use in tandem with systems to encrypt computer files.

Shares of Trusted, which went public in October at $13 a share, rose briefly yesterday before retreating to close at $15.25, down 87.5 cents.

"The earnings were right in line with our estimate but the real positive side was they beat our revenue estimate by over 20 percent," J. P. Morgan & Co. analyst John R. Walsh said. "It's a growth company and they're still growing their top line. They're in an investment phase and properly spending their money right now for future earnings growth."

Trusted Chief Executive Stephen T. Walker attributed the extra revenue to three major corporate contracts for firewall software, including one with DuPont that Trusted first announced Tuesday. He said the company also got about $700,000 more government consulting revenue than it had expected during the fourth quarter, when total sales were $9.4 million.

"You're always working on [corporate sales], and you don't know when they'll show up," said Walker, who added that the company is not projecting whether it can repeat the sales gain in the first quarter of 1997. "It comes in spurts."

He said the company's extra spending went for projects such as speeding up the introduction of a new security product to protect computers that contain World Wide Web pages whose owners want to invite the general public to visit but don't want to let hackers wreak mischief, and investment in "key recovery centers" to serve customers of Trusted's encryption support systems who want to recover and decode encrypted computer files in an emergency.

U.S. export policy does not allow state-of-the-art encryption to be exported unless the exporter is working on a key-recovery system, an area where Trusted is a leader in part because it has strong patents on leading research.

Those patents have been essential to Trusted forming alliances with major computer makers such as Hewlett-Packard Co., which will begin building Trusted's key-recovery systems into its computers this year, and IBM Corp.

Pub Date: 3/06/97

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