Internet Security Systems Reports Second Quarter Results and Business Outlook; Revenues Increased

Internet Security Systems, Inc. (ISS) (Nasdaq: ISSX), a leading global provider of preemptive enterprise security solutions, today announced financial results for the second quarter ended June 30, 2005. ISS also provided its business outlook for the third quarter and 2005, and announced a stock repurchase program for up to $100 million.

Second Quarter Revenues

Revenues were $79,100,000 for the second quarter of 2005, a 14 percent increase compared with second quarter 2004 revenues of $69,540,000.

GAAP Earnings

Reported net income under generally accepted accounting principles (GAAP) for the second quarter of 2005 was $8,261,000, or $0.18 per diluted share, compared to reported net income of $5,460,000, or $0.11 per diluted share, in the second quarter of 2004.

Non-GAAP Earnings

Non-GAAP net income for all periods in 2005 and 2004 excludes the after-tax impact of non-cash acquisition expense for amortization of intangibles and acquisition related compensation charges for unvested stock options. Non-GAAP net income for the second quarter of 2005 was $9,401,000, or $0.20 per diluted share, compared to $6,636,000, or $0.14 per diluted share, in the second quarter of 2004.

"The solid growth of revenue and earnings during the second quarter demonstrates ISS' leadership position and competitive advantage in the global marketplace," said Tom Noonan, chairman, president and CEO of Internet Security Systems. "We are well positioned as the premier enterprise security vendor of choice and we believe this will become more apparent as enterprises consolidate their security platforms with fewer vendors. When facing the ever-evolving threat landscape, our unique, preemptive approach to security enables us to meet the complex needs of our customers and partners."

Business Outlook

The following Business Outlook is based on current expectations. The statements in this Business Outlook are forward-looking, and actual results may differ materially. These statements do not reflect the potential impact of any mergers, acquisitions or other business combinations that may be completed after the date of this press release.

During the quarter, ISS' corporate representatives may reiterate the company's published Business Outlook during private meetings with investors, investment analysts, the media and others. At the same time, ISS will keep its most current earnings release and any subsequent press releases containing the then current Business Outlook publicly available on its Web site at www.iss.net. Prior to the start of ISS' quiet period for the third quarter of 2005, the public can continue to rely on the Business Outlook set forth in this press release as being ISS' current expectations on matters covered, unless ISS publishes a notice stating otherwise. During the quiet period, ISS and its corporate representatives will not comment concerning the previously published Business Outlook. During the quiet period, the company's press releases and filings with the SEC should be considered historical, speaking as of prior to the quiet period only and not subject to update by the company. ISS' quiet period at the end of the third quarter is expected to run from September 15, 2005 until financial results are released in October 2005.

This business outlook assumes that the enterprise spending environment remains stable and the competitive landscape will not change significantly, recognizing that there will continue to be competitive alternatives to our product offerings. In providing this guidance, we have assumed that foreign exchange for the euro and the yen compared to the dollar remains stable at current rates. The dollar strengthened during the second quarter and into July against both the euro and the yen. Compared to exchange rates at the time of our prior guidance in April, foreign exchange rate changes have negatively impacted expected EMEA and Asia/Pac results for 2005 by more than $5 million in revenues and $2 million of operating income.

For the quarter ending September 30, 2005, ISS currently expects to achieve revenues in the range of $80,000,000 to $84,000,000. GAAP net income is expected to be in the range of $0.17 to $0.20 per diluted share. Non-GAAP net income is expected to be in the range of $0.20 to $0.22 per diluted share.

For the year ending December 31, 2005, ISS currently expects to achieve revenues in the range of $325,000,000 to $335,000,000. GAAP net income is expected to be in the range of $0.71 to $0.75 per diluted share. Non-GAAP net income is expected to be in the range of $0.81 to $0.85 per diluted share.

Non-GAAP net income excludes non-cash acquisition related charges, consisting of amortization of intangibles and compensation charges for unvested stock options and the tax effect of these adjustments, estimated to be $1,150,000 for the quarter ending September 30, 2005 and $4,600,000 for the year ending December 31, 2005.

Non-GAAP financial measures used in this press release are reconciled to the appropriate GAAP measures in the schedule following the Consolidated Statements of Operations and the Business Outlook Reconciliation schedule included with this press release. Reconciliation information can also be found in ISS' Form 8-K filed today with the Securities and Exchange Commission and available through ISS' Web site at www.iss.net or the Securities and Exchange Commission Web site at www.sec.gov.

Stock Repurchase Program

The ISS Board of Directors has also approved a new stock repurchase program. Under the new stock repurchase program, ISS may repurchase up to $100 million of its outstanding common stock over the 12 months ending July 19, 2006. Purchases under the program may be made from time to time in private transactions or open market purchases as permitted by securities laws and other legal requirements. The program may be discontinued at any time.

Earnings Conference Call

The Company's conference call regarding this press release is being held Wednesday, July 27, 2005 at 4:30 p.m. Eastern Time and can be accessed as follows:

DATE/TIME: Wednesday, July 27, 2005 at 4:30 p.m. EDT

DIAL IN: Domestic 800-374-0557
International +1-706-679-7320
Pass code 7442489


A live Webcast of this conference call will be available at
www.iss.net and the archived Webcast will remain accessible on the ISS
Web site for one year. An audio rebroadcast of the teleconference will
be available through August 3, 2005.

REBROADCAST DIAL IN:
Domestic 800-642-1687
International +1-706-645-9291
Pass code 7442489


Additional investor information can be accessed on the Internet Security Systems Web site or by contacting the Investor Relations department at +1-404-236-4053.

About Internet Security Systems, Inc.

Internet Security Systems is the trusted expert to global enterprises and world governments providing products and services that protect against Internet threats. An established world leader in security since 1994, ISS delivers proven cost efficiencies and reduces regulatory and business risk across the enterprise for customers worldwide. ISS products and services are based on the proactive security intelligence conducted by ISS' X-Force(R) research and development team - the unequivocal world authority in vulnerability and threat research. Headquartered in Atlanta, Internet Security Systems has additional operations throughout the Americas, Asia, Australia, Europe and the Middle East. For more information, visit the Internet Security Systems Web site at www.iss.net or call 800-776-2362.

Forward-Looking Statements

This press release, other than historical information, includes forward-looking statements made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Some of these forward-looking statements appear in our Business Outlook - specifically, our revenue and GAAP and non-GAAP income estimates for the third quarter and full year 2005, and assumption that foreign exchange for the euro and yen compared to the dollar will remain stable at current rates. The risks and uncertainties which could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following: the level of demand for ISS' products; customer budgets; the volume and timing of orders; the mix of products sold and whether revenue is recognized upon sale or deferred to subsequent periods; product and price competition; ISS' ability to develop and timely introduce new and enhanced products; acceptance of new and enhanced products by customers; whether enterprises consolidate their security platforms with fewer venders and whether ISS benefits from this; ISS' ability to accurately forecast and produce demanded quantities of its appliance products and models; ISS' ability to integrate acquisitions or investments; ISS' ability to attract and retain key personnel; reliance on distribution channels through which ISS' products are sold; reliance on contract manufacturers to produce ISS appliance products; availability of component parts of appliance products; ISS' ability to produce products that successfully operate in complex environments and avoid serious product errors and defects; changes in accounting policies, standards, guidelines or principles that may be adopted by regulatory agencies or the Financial Accounting Standards Board; the assertion of infringement claims with respect to ISS' intellectual property; foreign currency exchange rates; risks concerning the rapid change of technology; and general economic factors. These risks and others are discussed in ISS' periodic filings with the Securities and Exchange Commission, including ISS' 2004 Annual Report on Form 10-K. These filings can be obtained either by contacting ISS Investor Relations or through ISS' Web site at www.iss.net or the Securities and Exchange Commission's Web site at www.sec.gov.

Non-GAAP Financial Measures

ISS believes that non-GAAP income measures, which exclude the after-tax effect of non-cash acquisition related expenses, are additional meaningful measures of operating performance. Non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be used as a substitute for, or considered superior to, measures of financial performance prepared in accordance with generally accepted accounting principles. ISS believes that its presentation of non-GAAP income measures provide useful information to investors as a measure of operating performance basic to its ongoing operations, which is more comparable from period to period without the charges related to occasional acquisition activity. ISS uses non-GAAP net income measures to evaluate its internal performance, including as a basis for calculating incentive compensation.

Internet Security Systems and Proventia are trademarks, and X-Force is a registered trademark of Internet Security Systems, Inc.

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