Identix Reports First Quarter Results, Record Biometric Revenues; Revenues Grow 37%; Gross Margin Improves by 17 Percentage Points

Identix Incorporated (Nasdaq:IDNX) today reportedfinancial results for its fiscal 2006 first quarter ended September30, 2005. Fiscal 2006 first quarter revenues increased to a record$22.7 million, up 37% when compared to year-earlier first quarterrevenues of $16.6 million. Driven by strong gross margins, the netloss for the fiscal 2006 first quarter was $579,000, or $0.01 pershare, which includes stock option expense of $337,000 and a $350,000discontinued operations gain related to the sale of Identix PublicSector (IPS) in February 2004. This compares to a net loss of $4.8million, or $0.05 per share, in the fiscal 2005 first quarter.

Product revenues grew 87% to $15.5 million in the fiscal 2006first quarter, versus year earlier first quarter product revenues of$8.3 million. Orders that had been pushed out from the Company'sfiscal 2005 fourth quarter ended June 30, 2005 contributed to thefiscal first quarter's strong product revenues. As expected, servicesrevenues for the 2006 first quarter declined 13% to $7.2 million whencompared to year-earlier services revenues of $8.3 million.

Identix President & CEO Dr. Joseph J. Atick commented, "This wasan excellent all around quarter for Identix where we demonstratedsolid execution on every one of our financial metrics. We continued towin significant contracts during the quarter in every market in whichwe operate, announcing Q1 contract wins with a total potential valuein excess of $13 million. The fiscal first quarter also saw acontribution from revenue on two contracts that had been delayed fromour fiscal 2005 fourth quarter. Both of these contracts involvedhigher margin products and helped drive our record revenues and verystrong product margins.

"Importantly," Atick continued, "our first quarter demonstratesthe dramatic positive impact that additional software-based sales canhave on our operating results. In our first quarter, we began toexperience some of the growth we have been targeting in softwarerevenues, including winning some important ABIS(R) contracts and otherfacial and finger recognition technology awards. As seen in today'sannounced results, these software-based revenues can have an immediateimpact, translating into higher margins and better bottom lineperformance. All of these very positive metrics validate ourcontinuing expectations for solid fiscal 2006 revenue growth andenhanced bottom line performance for our shareholders."

The Company's balance sheet remains solid with no debt and $33.9million in cash, restricted cash and marketable securities as ofSeptember 30, 2005, down $1.9 million from June 30, 2005.

Beginning with the Company's most recent Form 10-K, the Companyhas classified the portion of amortization expense of acquiredintangible assets (amortization expense) related to product revenuesin its product cost of goods sold (COGS). This classification resultsin an increase to product COGS (with a resulting decrease in productgross margin) from previously reported periods and a correspondingdecrease in operating expenses. Operating results for each quarter infiscal years 2004 and 2005 that illustrate the classification fromoperating expense to COGS may be accessed at the Identix website at:www.identix.com/investing/ under "Additional Financial Information" inthe Investor Relations section.

Overall fiscal 2006 first quarter gross margin improved solidly by17 percentage points to 40% of revenues, compared to year earlieroverall gross margin of 23%. Gross margins as a percent of revenuesfor the fiscal 2006 and 2005 first quarters were negatively impacted5% and 6%, respectively, by amortization expense. Fiscal 2006 firstquarter product gross margin increased by approximately 29 percentagepoints to 50% of product revenues, when compared to year-earlierproduct gross margin of 21%. Product gross margins as a percent ofproducts revenues for the fiscal 2006 and 2005 first quarters werenegatively impacted 7% and 12%, respectively, by amortization expense.The increase in product gross margin was due primarily to a shift inthe blend of product revenues, which included higher marginsoftware-based sales. Fiscal 2006 first quarter services gross marginwas 18% of service revenues, down from services gross margin of 26% inthe year-earlier period.

Identix CFO Elissa Lindsoe said, "Last quarter, we discussed ourplans to manage the upgrade and new installation transition by ourinstalled base from legacy live scan systems and maintenance contractsto Identix' latest technology, the TouchPrint(R) Enhanced Definitionseries, which comes with a one year warranty. During the first quarterwe experienced positive results from the implementation of our initialplans, as demonstrated by a 7 percentage point sequential increase inservices gross margin rate when compared to fiscal 2005 fourth quarterservice gross margin of 11%. The legacy transition and resultingdecline in maintenance revenues is proceeding according to ourexpectations and we will continue to take prudent steps to manage thisprocess.

"We are affirming our financial outlook for our fiscal 2006 year,with expected full year-over-year product revenues growth of 35 to 55percent driving expected overall annual revenue growth of 22 to 33percent," Lindsoe said. "We continue to win meaningful orders andcontracts for delivery throughout the fiscal 2006 year and beyond, andwe are seeing increased contribution in our contract wins fromsoftware-based deals. This is excellent news for Identix and based onour fiscal second quarter expectations, positions us for solidexecution on all of our expected financial metrics for the fiscal 2006year.

"We exceeded our previously provided expectations for the firstquarter as we won and delivered on more deals than originallyanticipated," Lindsoe said. "This had an especially large impact asseveral of these were software-based deals. As previously discussed,with the larger wins - and especially the larger software deals -comes the potential for fluctuations in near-term financialperformance based on actual delivery schedules. We experienced thepositive results of these fluctuations in our first quarter but do notexpect that Identix' continued long-term projected improvement infinancial performance will always be linear on a sequentialquarter-to-quarter basis. Looking beyond a given quarter, ourexcellent first quarter results and forward-looking expectations forthe second quarter place us firmly on track for a strong first half ofthe fiscal year and for achieving our expectations for the full year."

Current Fiscal 2006 Financial Outlook for Continued Growth

The Company is providing the following ranges of financialexpectations for its fiscal 2006 second quarter and is affirming thefinancial expectations it provided on August 3 and 4, 2005 for fullfiscal 2006 year revenues of $90-$98 million, with a net loss of$0.02-$0.07 per share, before the impact of expensing stock options.The Company cautions that these financial expectations areforward-looking statements that fall under the Company's Safe Harborstatement below. The Company cautions that delivery on orders, as wellas product mix that may affect gross margin, can move or vary from onequarter to another, which could materially adversely affect theCompany's current expectations.

Fiscal 2006 second quarter ending December 31, 2005:

-- Fiscal 2006 second quarter revenues are expected to increase approximately 13% to 24% to $21 to $23 million, when compared to revenues of $18.6 million in the fiscal 2005 second quarter. This range results in first half expected revenues of $43.7 to $45.7 million, which is approximately 47% to 49% of the Company's full year revenue expectations.

-- Product revenues are expected to increase approximately 40% to 55% over fiscal 2005 second quarter product revenues of $10.3 million and services revenues are expected to be down 16% to 23% from services revenues of $8.4 million in the second quarter of fiscal 2005.

-- The net loss is expected to be between $0.02 and $0.04 per share, including approximately $400,000 in stock option expense. This range results in an expected first half loss per share of $0.03 to $0.05, of which $0.01 is attributable to stock option expense.

-- Overall gross margin is expected to be 33% to 35% of revenues, up by 7 to 9 percentage points from year earlier second quarter gross margin of 26%. Second quarter gross margin expectations and year-earlier gross margin includes the negative impact of approximately 4% to 5% ($1.0 million), and 6%, respectively, in amortization expense. Second quarter gross margin is expected to be down sequentially, as the fiscal first quarter revenue mix included several large software-based sales and as the Company continues to manage the technology transition in its installed legacy live scan base.

-- Operating expenses are expected to be approximately $10.5 million, including stock option expense of approximately $400,000 and $200,000 in amortization of intangible assets.

Additional fiscal 2006 first quarter highlights included:

-- A contract win valued in excess of $2 million for deployment of Identix ABIS biometric matching platform as part of an election identity management system in an unnamed international country. ABIS will be incorporated as part of an identity management system for the country's voter registration and voting process to assist in eliminating voter and identity fraud by reducing duplicates at the ballot box while helping to ensure that each citizens' vote counts.

-- Receipt of purchase orders valued at approximately $1.4 million for deployment of fingerprint biometric authentication solutions into hospitals and healthcare agencies. These orders, which represent more than 35,000 seat licenses, were from channel partner Sentillion, Inc. for Identix BioLogon(R) authentication software, BioEngine(R) authentication technologies and accompanying single finger readers.

-- New orders valued in excess of $2 million from the Department of Homeland Security (DHS) for the delivery of Identix TouchPrint 3000 Enhanced Definition series live scan systems. The devices will be used by DHS for deployment at Immigration Customs Enforcement (ICE) sites to assist in the electronic scanning of fingerprints and to facilitate simultaneous verification from both DHS and FBI fingerprint databases.

-- An award to Identix Identification Services (IIS) of an exclusive three year contract from the Texas Department of Public Safety to provide statewide electronic fingerprinting services and related processing for licensing and employment purposes for the state of Texas. The competitively bid award has a potential value of between $2-$3 million to IIS and is for an initial three-year period with up to two three-year extensions.

-- A contract valued at approximately $1.6 million from the Office of Naval Research (ONR), a Department of Defense agency, to develop applications integrating and capitalizing on recent advances in facial recognition and associated technologies.

-- Announced contracts with a total value of more than $3.1 million for Identix TouchPrint 3000 Enhanced Definition series live scan full hand and 10-print systems to upgrade and expand statewide live scan networks.

The Company will host a webcast tomorrow at 9:00 am EDT. Thewebcast will be broadcast live and may be accessed at the Company'swebsite at http://www.shareholder.com/identix/medialist.cfm. To listento the live webcast, please visit the Identix Investor Relations website and click on the conference call button at least fifteen minutesprior to the start of the call to register, download and install anynecessary audio software. For those who cannot listen to the livewebcast, a replay will be available at the same location shortly afterthe call. For those without Internet access, you may call (800)642-1687, code 1385652, beginning two hours after completion of thecall. The telephonic replay will be available until midnight November1, 2005.

About Identix Incorporated

Identix Incorporated (Nasdaq:IDNX) is the world's leadingmulti-biometric technology company. Identix provides fingerprint,facial and skin biometric technologies, as well as systems, andcritical system components that empower the identification ofindividuals in large-scale ID and ID management programs. TheCompany's offerings include live scan systems and services forbiometric data capture, mobile systems for on-the-spot ID, and backendstandards-based modules and software components for biometric matchingand data mining. Identix products are used to conduct backgroundchecks, speed travel and commerce via secure identification documents,prevent identity fraud in large-scale government and civil IDprograms, and control access to secure areas and networks. With aglobal network of partners, such as leading system integrators,defense prime contractors and OEMs, Identix serves a broad range ofmarkets including government, law enforcement, gaming, finance,travel, transportation, corporate enterprise and healthcare.

Identix, ABIS, TouchPrint, BioLogon and BioEngine are trademarksor registered trademarks of Identix Incorporated in the United Statesand other countries.

More information on Identix can be accessed via the Company website at http://www.identix.com.

Statements in this press release and that relate to future plans,events or performance are forward-looking statements reflectingmanagement's current expectations, assumptions and estimates of futureperformance and economic conditions. All forward-looking statementsare made in reliance on the safe harbor provisions of the SecuritiesAct of 1933 and the Securities Exchange Act of 1934. Identix cautionsinvestors that forward-looking statements involve risks anduncertainties that may cause actual results to differ materially fromthose expressed or implied in such statements. Risks and uncertaintiesinclude, without limitation, those related to: the availability offunding from government and other customers; the readiness ofcustomers to accept delivery and integration of software and hardwarecomponents on a timely basis; the ability of the Company to achievetargeted levels of software and hardware revenue mixes; increasinglevels of competition; and other risks identified in the Company's SECfilings. The Company disclaims any intention or obligation to updateor revise any forward-looking statements, whether as a result of newinformation, future events, or otherwise.
IDENTIX INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited, In Thousands, Except Per Share Amounts)

Three Months
Ended
September 30,
2005 2004
-------- --------
Revenues:
Product revenues $15,501 $8,280
Services revenues 7,166 8,343
-------- --------
Total revenues 22,667 16,623
Cost of revenues:
Cost of product revenue:
Excluding the amortization of acquired
intangible assets 6,746 5,507
Amortization of acquired intangible assets 1,031 1,033
Cost of service revenue 5,874 6,184
-------- --------
Total cost of revenue 13,651 12,724
Gross margin:
Product gross profit 7,724 1,740
Service gross profit 1,292 2,159
-------- --------
Total gross profit 9,016 3,899
Operating expenses:
Selling and marketing 3,315 2,662
Research and development 3,055 2,529
General and administrative 3,565 3,089
Amortization of acquired intangible assets 209 251
Restructuring and other, net --- 451
-------- --------
Total operating expenses 10,144 8,982
-------- --------
Loss from operations (1,128) (5,083)
Interest and other income, net 225 263
Loss from continuing operations before income taxes (903) (4,820)
Provision for income taxes (26) (13)
-------- --------
Loss from continuing operations (929) (4,833)
Discontinued operations:
Gain on sale of IPS 350 ---
-------- --------
Income from discontinued operations 350 ---
-------- --------
Net loss $(579) $(4,833)
======== ========
Basic and diluted loss per share:
Continuing operations $(0.01) $(0.05)
Discontinued operations 0.00 ---
-------- --------
Basic and diluted loss per share $(0.01) $(0.05)
======== ========
Weighted average shares outstanding:
basic and diluted 88,997 88,439
======== ========


IDENTIX INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, In Thousands)

September 30, June 30,
2005 2005
------------- ----------

Assets
Cash and cash equivalents $20,561 $22,445
Marketable securities 9,720 9,753
Restricted cash 2,649 2,649
Accounts receivable, net 19,792 15,376
Inventories, net 6,661 6,340
Prepaid expenses and other assets 891 928
------------- ----------
Total current assets 60,274 57,491

Restricted cash 933 933
Property and equipment, net 1,879 1,738
Goodwill 141,213 141,213
Acquired intangible assets, net 12,423 13,363
Other assets 296 317
------------- ----------
Total assets $217,018 $215,055
============= ==========

Liabilities and stockholders' equity
Accounts payable $6,282 $6,597
Accrued compensation 3,266 3,894
Other accrued liabilities 4,007 3,634
Deferred revenue 9,343 6,738
------------- ----------
Total current liabilities 22,898 20,863

Deferred revenue, net of current portion 1,867 1,947
Other liabilities 149 159
------------- ----------
Total liabilities 24,914 22,969

Stockholders' equity
Common stock 890 889
Additional paid-in capital 553,102 552,507
Accumulated deficit (361,738) (361,159)
Accumulated other comprehensive loss (150) (151)
------------- ----------
Total stockholders' equity 192,104 192,086
------------- ----------
Total liabilities and stockholders' equity $217,018 $215,055
============= ==========