Aladdin Knowledge Systems Reports Record Annual Revenues, Net Income and Cash Flow

Record Full Year Revenues of $105.9 Million, Up 19% Year-Over-Year

Record Full Year GAAP Net Income of $14.9 Million, or $1.02 Per Diluted Share, Up 6% Year-Over-Year, Including a Non-Recurring Cost of $2.0 Million

Record Full Year Cash Flow from Operations of $22.1 Million, Up 17% Year-Over-Year

CHICAGO and TEL AVIV, ISRAEL, January 24, 2008 - Aladdin Knowledge Systems Ltd. (NASDAQ: ALDN), an information security leader specializing in authentication, software DRM and content security, today announced financial results for the fourth quarter and full fiscal year 2007, ended December 31, 2007. All results are prepared in accordance with generally accepted accounting principles in the United States, except where noted.

Revenues for the fourth quarter of 2007 were a record $29.1 million, an increase of 20 percent from the $24.3 million reported for the same period in 2006. Software DRM revenues for the fourth quarter of 2007 were a record $17.1 million, an increase of 8 percent from the $15.9 million reported in the same period in 2006. Enterprise Security revenues for the fourth quarter were a record $12.0 million, a 43 percent increase from the $8.4 million recorded in the same period in 2006. Revenues for the full year 2007 were a record $105.9 million, an increase of 19 percent from the $89.0 million recorded in the full year 2006 period.

Net income in accordance with generally accepted accounting principles (GAAP) for the fourth quarter of 2007 was $2.8 million or $0.20 per basic and diluted share compared to GAAP net income for the fourth quarter 2006 of $3.6 million or $0.25 per basic share and $0.24 per diluted share, including stock based compensation expense and the impact of a $2.0 million non-recurring up-front cost associated with production of Video Based Training required for the CIITE project. For the full year 2007, GAAP net income was a record $14.9 million, or $1.04 per basic share and $1.02 per diluted share, compared with GAAP net income of $14.0 million or $0.96 per basic share and $0.93 per diluted share for the full year 2006 period.

Excluding stock based compensation expense and the impact of the $2.0 million non- recurring up-front cost associated with production of Video Based Training required for the CIITE project, the Company reported non-GAAP net income for the fourth quarter of 2007 of $4.8 million, or $0.35 per basic share and $0.34 per diluted share, and full year 2007 non-GAAP net income of $17.6 million, or $1.23 per basic share and $1.20 per diluted share. Refer to the "Use of Non-GAAP Measures" section and accompanying financial table for a reconciliation of GAAP financial information to non-GAAP.

Yanki Margalit, Chairman and CEO of Aladdin Knowledge Systems, stated, "2007 was an exceptional year for Aladdin as we crossed the $100 million mark in annual revenues while driving record levels of operating cash flow and bottom line profitability. Our software security business grew 9 percent year-over-year supported by the launch of HASP SRM, the industry's first software protection and licensing system that offers customers both hardware- and software-based security in a unified solution, while our eToken and eSafe businesses combined to drive enterprise security revenues up a truly impressive 40 percent year-over-year. Overall, Aladdin delivered full year results at the high end of our stated 2007 revenue and net income guidance, excluding the impact of the non-recurring cost recognized in the fourth quarter of 2007."

"From an operational perspective Aladdin made excellent strides in 2007 in terms of leveraging its global presence and driving new customer growth across geographies as well as key business verticals. Overall, demand for content, Internet and enterprise security solutions remains robust, driven by the rising range of IT security threats in mature as well as emerging markets. Based on the combined strength of our portfolio of software and enterprise security solutions, Aladdin has never been better positioned to capitalize on these industry growth trends, building upon our significant financial and operational achievements in 2007," concluded Margalit.

Cash, cash equivalents and marketable securities totaled $90.3 million at December 31, 2007, as compared with $83.4 million as of September 30, 2007 and $90.9 million as of year end 2006. The Company generated record cash flow from operations of $7.2 million during the fourth quarter of 2007 and a record $22.1 million for the full year 2007. Aladdin used approximately $20 million in cash to purchase shares through the Company's share repurchase program during 2007.

Quarterly Financial and Operating Highlights

• Record full year and quarterly revenues of $105.9 million and $29.1 million, respectively.
• Record full year GAAP net income of $14.9 million.
• Record full year and quarterly non-GAAP net income of $17.6 million and $4.8 million respectively, excluding stock based compensation expenses and a non-recurring cost of $2.0 million.
• Software DRM revenues set a new full year record of $66.1 million, up 9 percent.
• Enterprise Security revenues set a new full year record of $39.8 million, up 40 percent.
• Cash flow from operating activities set a new full year and quarterly record of $22.1 million and $7.2 million respectively.
• The Board of Directors approved the Company's third share buy back authorization of 2007, raising the total combined total repurchase authorization for the year to $30 million. To date, a total of 928,697 shares have been repurchased.

Quarterly Product Highlights

• Aladdin announced an initial deployment of 14,000 Aladdin eToken strong authentication devices throughout Thailand's numerous government departments. The Aladdin eToken solution is set to secure each department's access to Thailand's Web-based Government Fiscal Management Information System (GFMIS), allowing employees to access the application securely.
• South Korea's largest online banking community began offering secured banking transactions with Aladdin eToken. The National Agricultural Cooperative Federation (NACF), known locally as NongHyup / NH Bank, will provide more than 10,000 of its customers with the USB-based Aladdin eToken strong authentication device to secure online banking transactions. With more than 5,000 branches and cooperatives throughout the country, the NACF features the largest number of online banking customers in South Korea.
• Aladdin eToken was implemented to assist in securing Continental Airlines network. More than 1,000 Aladdin eToken devices have been distributed worldwide to Continental Airlines employees and business partners.
• The Eugene Water & Electric Board (EWEB), Oregon's largest public utility, selected the Aladdin eToken smart card solution to provide strong authentication for employees who access the organization's data network. Aladdin eToken is set to play an important role in ensuring compliance with security standards mandated by the North American Electric Reliability Corporation (NERC).
• Aladdin signed a partnership with Blue Ridge Networks combining networking services and eToken strong authentication to provide an unparalleled level of security for identity and access management to government and commercial entities. The partnership includes joint collaboration on marketing and field sales activity, as well as new joint solutions development, which combine Aladdin eSafe and BRN's EdgeGuard to address customers' growing need to deploy scalable and unified gateway and endpoint content security solutions.
• COMPUTERLINKS signed on as the latest nationwide distributor for the Aladdin's award-winning eSafe content security solution. The agreement greatly expands the channel presence for Aladdin eSafe and opens significant opportunities among COMPUTERLINKS' North America network of partners.
• Aladdin launched HASP HL for Mac software anti-piracy and licensing USB key solution to support Mac OS® X Leopard, Apple's latest operating system.
• Aladdin eToken strong authentication device was announced as the first hardware product to be certified under the recently established SAFE™ Product Certification Program (SPCP). The program is administered by SAFE-BioPharma Association, a fast-growing industry group that developed and manages the SAFE™ digital identity standard for the pharmaceutical and healthcare industries.
• Aladdin eToken two-factor authentication solution received Federal Information Processing Standards (FIPS) 140-2 Level 2 and 3 validation certificates - a government standard managed by the National Institute of Standards and Technology (NIST). This represents a significant mark for Aladdin eToken, as it sets the Company apart from its competition by meeting the highest possible requirements for its cryptographic module, as well as strict hardware requirements not met by all authentication token vendors. Aladdin eToken underwent a thorough testing process by the accredited cryptographic module testing lab at Electronic Warfare Associates - Canada.

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/news/2008/index.aspx.

Future Business Outlook

Based on current business conditions and expectations, Aladdin management has issued its financial guidance for fiscal year 2008.

Revenues for fiscal year 2008 are expected to be between $123 million and $130 million as compared to the $105.9 million in revenues reported for fiscal year 2007.

Fiscal year 2008 GAAP diluted earnings per share are expected to be in the range of $1.28 to $1.40. The Company reported GAAP diluted earnings per share of $1.02 in fiscal year 2007.

Fiscal year 2008 non-GAAP diluted earnings per share are expected to be in the range of $1.39 to $1.51. The Company reported non-GAAP earnings per diluted share of $1.20 in fiscal year 2007, which excluded stock based compensation expense and the impact of the $2.0 million non-recurring up-front cost associated with production of Video Based Training required for the CIITE project. Non-GAAP earnings per share guidance excludes the projected impact of stock based compensation expenses.

Use of Non-GAAP Measures

This press release provides financial measures for net income, basic and diluted earnings per share that exclude stock based compensation expense and the impact of the $2.0 million non-recurring cost associated with production of Video Based Training required for the CIITE project recorded in the fourth quarter of 2007 and are therefore not calculated in accordance with U.S. generally accepted accounting principles (GAAP). Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding the Company's performance that enhances management's and investor's ability to evaluate the Company's net income and earnings per share as well as to compare it with historical net income and earnings per share.

Earnings Teleconference

The Company will hold a teleconference today, January 24, 2008 at 9:00 a.m. Eastern Time / 4:00 p.m. Israel Time to discuss the fourth quarter and full year results. To participate in the call, dial +1 (888) 642 5032 in North America, or +972 (3) 918 0692 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 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 12:00 p.m. Eastern Time on January 24, 2008 through 11:59 p.m. Eastern Time on February 23, 2008 by calling + 1 (888) 254 7270 in North America, or +972 (3) 925 5948 internationally, using access code 4368718. A Web cast replay of the call will also be made and can be accessed on the Aladdin Web site at www.Aladdin.com/investor.

About Aladdin Knowledge Systems

Aladdin Knowledge Systems' Software Rights Management products are the #1 choice of software developers and publishers to protect intellectual property, increase revenues, and reduce losses from software piracy. Aladdin eToken is the world's #1 USB-based authentication solution. The Aladdin eSafe secure Web gateway provides the most advanced protection against the latest Web-based threats and attacks. Aladdin has offices in 12 countries, a worldwide network of channel partners, and has won numerous awards for innovation. For more information, visit the Aladdin Web site at 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. For more information, please refer to the Company's filings with the Securities and Exchange Commission, which are available on the Commission's website at www.sec.gov.

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Click here to download: Financial Results Q4 2007

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