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Websense Reports Record First Quarter Billings on Strong TRITON Performance

SAN DIEGO, April 24, 2012 /PRNewswire/ -- Websense, Inc. (NASDAQ: WBSN) today announced financial results for the first quarter of 2012. The company also announced the promotion of Michael A. Newman to executive vice president and chief financial officer.

"This was the fourth consecutive quarter where Websense(®) TRITON((TM)) solutions accounted for the majority of billings. It demonstrates continued success of our sales team in upgrading our filtering customers to our integrated web, email, mobile, and data security offerings," said Gene Hodges, Websense CEO. "Growth in business with new customers accelerated as we closed more enterprise transactions, consistent with the maturity and experience of our sales force. Awareness of the need for data-centric security is increasing, and security experts recognize we have the best solution to protect against modern data-stealing threats."

First Quarter 2012 GAAP Financial Highlights

    --  Revenues of $89.5 million, compared with $88.6 million in the first
        quarter of 2011.
    --  Software and service revenues of $82.0 million, compared with $80.3
        million in the first quarter of 2011.
    --  Appliance revenues of $7.5 million, which consisted of approximately
        $5.8 million in current-period appliance sales and approximately $1.7
        million of deferred appliance revenue from pre-2011 appliance sales,
        compared with $8.3 million of appliance revenues in the first quarter of
        2011, which consisted of approximately $4.8 million in current-period
        appliance sales and the remainder from deferred appliance revenue from
        pre-2011 appliance sales.
    --  Operating income of $10.7 million, compared with $7.8 million in the
        first quarter of 2011.
    --  Provision for income taxes of $11.7 million, which included $8.8 million
        related to an expected settlement of the U.S. Internal Revenue Service
        (IRS) tax audits for the 2005 through 2007 tax years. This matter is
        discussed in more detail later in this news release under "IRS Tax
        Settlement."
    --  A net loss of $1.8 million, or five cents per diluted share, compared
        with net income of $8.1 million, or 20 cents per diluted share, in the
        first quarter of 2011. The net loss of $1.8 million is the result of the
        $8.8 million increase in the tax provision related to the expected
        settlement with the IRS.
    --  Weighted average diluted shares outstanding of 37.6 million, compared
        with 41.4 million in the first quarter of 2011.
    --  Cash flow from operations of $22.4 million, compared with $31.4 million
        in the first quarter of 2011. The decrease in cash flow from operations
        was primarily due to lower cash collections and a $2.3 million increase
        in cash taxes in the first quarter of 2012 compared with the first
        quarter of 2011.
    --  Quarter-end accounts receivable of $61.9 million, compared with $55.4
        million at the end of the first quarter of 2011 and $80.1 million at the
        end of the fourth quarter of 2011.
    --  Days billings outstanding of 69 days, compared with 65 days at the end
        of the first quarter of 2011 and 62 days billings outstanding at the end
        of the fourth quarter of 2011.
    --  Deferred revenue of $384.1 million, an increase of $1.8 million compared
        with deferred revenue of $382.3 million at the end of the first quarter
        of 2011. Deferred revenue at the end of the first quarter of 2012
        included $6.9 million from pre-2011 appliance sales, a decrease of $9.6
        million from the year ago period. Deferred revenue from pre-2011
        appliance sales will continue to decrease quarterly.

First Quarter 2012 Non-GAAP(1) Financial Highlights

    --  Billings of $80.6 million, an increase of five percent compared with the
        first quarter of 2011. Changes in currency exchange rates, compared with
        exchange rates prevailing in the first quarter of 2011, did not
        materially impact first quarter 2012 billings performance.
    --  Non-GAAP operating income of $17.8 million, compared with non-GAAP
        operating income of $17.1 million in the first quarter of 2011. Non-GAAP
        operating margin in the first quarter of 2012, calculated as a
        percentage of revenues, was 19.9 percent, compared with 19.3 percent in
        the first quarter of 2011.
    --  Billings-based operating margin of 11.9 percent, compared with
        billings-based operating margin of 8.8 percent in the first quarter of
        2011. Billings-based operating margin is calculated like revenue-based
        non-GAAP operating margin, but is computed using billings as the
        top-line measure and excludes deferred appliance costs to match current
        period sales activities with current period costs.
    --  A non-GAAP tax provision of $3.2 million, based on a long-term effective
        tax rate of 19 percent, compared with a non-GAAP tax provision of $3.6
        million, based on an effective tax rate of 20 percent, in the first
        quarter of 2011.
    --  Non-GAAP net income of $13.7 million, or 36 cents per diluted share,
        compared with $14.6 million, or 35 cents per diluted share, in the first
        quarter of 2011.

Summary Metrics

    Millions, except percentages,
     duration, number of transactions,
     and days billings outstanding                 Q1'11       Y/Y Chg
                                       Q1'12
    ---                                -----
    Total billings                           $80.6       $76.7           5%
    --------------                           -----       -----         ---
    U.S. billings                            $37.5       $34.4           9%
    -------------                            -----       -----         ---
    International billings                   $43.1       $42.3           2%
    ----------------------                   -----       -----         ---
    TRITON solution billings(2)              $49.0       $34.4          42%
    --------------------------               -----       -----         ---
    Appliance billings                        $6.0        $5.3          13%
    ------------------                        ----        ----         ---
    Number of transactions >$100K              124         101          23%
    -----------------------------              ---         ---         ---
    Average contract duration (months)        25.5        23.6           8%
    ----------------------------------        ----        ----         ---
    Days billings outstanding (DSOs)            69          65 4 days
    -------------------------------            ---         --- ------
    Cash and cash equivalents                $70.3       $79.3         -11%
    -------------------------                -----       -----         ---
    Balance on revolving credit
     facility                                $68.0       $63.0           8%
    ---------------------------              -----       -----         ---
    Share repurchases ($)                    $20.0       $25.0         -20%
    --------------------                     -----       -----         ---
    Shares repurchased                         1.1         1.2          -8%
    ------------------                         ---         ---         ---

                  A detailed description of the company's
                  non-GAAP financial measures appears
                  under "Non-GAAP Financial Measures"
                  and a full reconciliation of GAAP to
                  non-GAAP results is included at the
                  end of this news release in the tables
                  "Reconciliation of GAAP to Non-GAAP
    1.            Financial Measures."
                  TRITON solutions include the TRITON
                  family of security gateways for web,
                  email, mobile, and data security
                  (including related appliances and
                  technical support subscriptions),
                  Websense Data Security Suite and
                  cloud-based security solutions. Non-
                  TRITON solutions include web filtering
                  products, including Websense Web
                  Filtering, Websense Web Security Suite
                  and related appliances, plus
    2.            SurfControl email security products.

Outlook for the Second Quarter and Fiscal Year 2012
Websense provides guidance on anticipated financial performance for the second quarter and the fiscal year based on an assessment of the current business environment, historical seasonal business trends, and prevailing exchange rates between the U.S. dollar and other major currencies. Annual guidance is updated each quarter with the release of quarterly results. In providing guidance, the company emphasizes that all forward-looking statements are based on current expectations, including average contract duration between 23 and 24 months and prevailing currency exchange rates of $1.33 for the Euro and $1.60 for the Pound Sterling. The company disclaims any obligation to update the statements as circumstances change.

    Millions, except percentages and
     per-share amounts               Q2'12 Outlook       2012 Outlook
    -------------------------------- -------------       ------------
    Total billings                             $88 - 92          $373 - 393
    --------------                             --------          ----------
    Appliance billings (% of total
     billings)                                   7 - 8%             7 - 8%
    ------------------------------                -----               -----
    Revenues                                   $89 - 91          $364 - 374
    --------                                   --------          ----------
    Non-GAAP gross profit margin               84 - 85%           84 - 85%
    ----------------------------                -------             -------
    Non-GAAP operating margin                  17 - 19%           19 - 21%
    -------------------------                   -------             -------
    Non-GAAP earnings per diluted
     share                                 $0.34 - 0.37        $1.50 - 1.65
    -----------------------------          ------------        ------------
    Non-GAAP effective tax rate                      19%                 19%
    ---------------------------                     ---                 ---
    Average diluted shares
     outstanding                       37.5 - 38            37 - 38
    ----------------------             ---------            -------
    Cash flow from operations                   $8 - 10            $56 - 67
    -------------------------                   -------            --------
    Capital expenditures                 ~$3.0                     $12 - 14
    --------------------                 -----                     --------

Additionally, outlook ranges for 2012 reflect:

    --  Billings-based non-GAAP operating margin of 22 to 25 percent.
        Billings-based non-GAAP operating margin is calculated like
        revenue-based non-GAAP operating margin, but uses billings as the
        top-line measure and excludes deferred appliance costs to match current
        period sales activities with current period costs.
    --  Expected cash tax payments of:
        --  Approximately $5 million in the second quarter of 2012.
        --  Approximately $21-22 million in the second half of 2012, including
            $15-16 million related to the expected settlement with the IRS for
            tax years 2005 through 2007.
    --  Non-cash items related to the recognition of revenue and costs
        associated with pre-2011 appliance billings:
        --  Remaining deferred revenue of $6.9 million from pre-2011 appliance
            billings (as of March 31, 2012) that will continue to be recognized
            ratably according to the original subscription periods, including
            $1.6 million to be recognized in the second quarter of 2012
            (compared to $3.2 million in the second quarter of 2011).
        --  Remaining deferred costs of $3.2 million from pre-2011 appliance
            billings (as of March 31, 2012) that will continue to be recognized
            ratably according to the original subscription periods, including
            $0.7 million to be recognized in the second quarter of 2012
            (compared to $1.5 million in the second quarter of 2011).
        --  On January 1, 2011, Websense was required to adopt Accounting
            Standards Update (ASU) 2009-13 (Multiple Deliverable Revenue
            Arrangements) and ASU 2009-14 (Certain Revenue Arrangements that
            Include Software Elements), which require the immediate recognition
            of appliance revenues upon sale. Prior to January 1, 2011, the
            company recognized revenue and costs from appliance sales ratably
            according to the original subscription terms. The schedules below
            summarize the actual and expected recognition of remaining deferred
            appliance revenues and costs by quarter for 2011 and 2012:

                2011 Summary of Amounts Related to pre-2011 Appliance Sales
                -----------------------------------------------------------
    Millions                         Deferred balances        2011 Recognition Schedule (actual)  Remaining deferred balances
                                              as of 12/31/10                                            as of 12/31/11
                                         (actual)                                                    (actual)
    ---                                   -------                                                    -------
              Q1'11                   Q2'11                 Q3'11               Q4'11                               2011
                                                                                                                          
               ---
    Revenue                        $20.0     $3.5     $3.2     $2.6     $2.1    $11.4                         $8.6
    -------                        -----     ----     ----     ----     ----    -----                         ----
    Costs                           $9.2     $1.6     $1.5     $1.1     $1.0     $5.2                         $4.0
    -----                           ----     ----     ----     ----     ----     ----                         ----

                         2012 Summary of Amounts Related to pre-2011 Appliance Sales
                         -----------------------------------------------------------
    Millions                     Deferred balances                  2012 Recognition Schedule               Remaining deferred balances
                                      as of 12/31/11                                                         as of 12/31/12 (expected)
                                     (actual)
    ---                               -------
              Q1'12              Q2'12 (expected)                Q3'12                       Q4'12                                   2012
            (actual)                                          (expected)                  (expected)                  (expected)
             -------                                           ---------                   ---------                   ---------
    Revenue                         $8.6      $1.7         $1.6         $1.4         $1.2         $5.9                         $2.7
    -------                         ----      ----         ----         ----         ----         ----                         ----
    Costs                           $4.0      $0.8         $0.7         $0.6         $0.5         $2.6                         $1.4
    -----                           ----      ----         ----         ----         ----         ----                         ----

IRS Tax Settlement
The company announced an agreement in principle to settle an outstanding dispute with the IRS relating to an audit of the company's 2005 through 2007 tax years. During the first quarter of 2010, the company was informed by the IRS that it had completed its audit of the company's tax returns from 2005 through 2007, and the IRS proposed tax adjustments relating to the company's buy-in and cost-sharing arrangement with its Irish subsidiary, the company's research and development tax credits, and income tax deductions for certain equity compensation. The amount of additional tax proposed by the IRS totaled approximately $19.0 million.

As a result of settlement discussions during the first quarter of 2012, the company reached an agreement in principle with the IRS to settle the audit adjustments. Upon entering into a definitive settlement agreement, the company expects to pay approximately $10 million in federal tax, plus $5-6 million in state tax and accumulated interest. The company expects these additional tax amounts to be offset in part by approximately $4 million of future tax benefits. When finalized, the settlement completely resolves the issues in dispute, including issues related to buy-in payments associated with the company's cost-sharing arrangement with its Irish subsidiary.

Newman to Lead Finance and Administration
The company announced the promotion of Michael A. Newman to executive vice president and chief financial officer. Since September 2011, Newman has been serving as interim chief financial officer in addition to his roles as general counsel and chief administrative officer. As chief financial officer, Newman's responsibilities will include finance, accounting, tax, investor relations, human resources, legal, and facilities. He also will continue to serve as the company's corporate secretary. The company has initiated a search to fill the general counsel role.

"Mike knows our business well and is eminently qualified to lead our finance and accounting organizations," said Gene Hodges, Websense CEO. "He played a central role in the development and execution of our transformation strategy. As general counsel and chief administrative officer, he participates in virtually every aspect of our business, from collaborating with sales leadership on sales process to working with engineers in expanding the company's patent portfolio. We have strong leaders in each of the functional areas Mike manages, and he has proven his ability to lead this team since assuming the interim CFO role last fall."

Newman joined the company in 2002 as general counsel and later broadened his areas of responsibility to include human resources, facilities, and administration.

Conference Call Details
Management will host a conference call and simultaneous webcast to discuss the financial results and outlook today, April 24, at 2 p.m. Pacific Daylight Time. To participate in the conference call, investors should dial (866) 757-5630 (domestic) or 707-287-9356 (international) 10 minutes prior to the scheduled start of the call. A simultaneous audio-only webcast of the call may be accessed at www.websense.com/investors. An archive of the webcast will be available on the company's website through June 30, 2012, and a recorded replay of the call will be available for one week at (855) 859-2056 and (404) 537-3406, pass code 68383874.

Non-GAAP Financial Measures
This news release provides financial measures for non-GAAP gross profit, operating expenses, operating margin, income from operations, provision for income taxes, net income, and diluted earnings per share that are not calculated in accordance with GAAP. Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding performance that enhances management's and investors' ability to evaluate the company's operating results, trends, and prospects and to compare current operating results with historic operating results. Reconciliations of the GAAP and non-GAAP financial measures for the first quarters of 2012 and 2011 are provided at the end of this news release.

This news release also includes financial measures for various categories of billings, billings operating margin and other billings-related measures that are not numerical measures that can be calculated in accordance with GAAP. Websense provides these measurements in reporting financial performance because these measurements provide a consistent basis for understanding the company's sales activities in the current period. The company believes that these measurements are useful to investors because the GAAP measurements of revenues and deferred revenue in the current period include subscription contracts commenced in prior periods. The roll forward of deferred revenue (which includes billings and revenues) for the first quarter of 2012 is set forth at the end of this news release.

About Websense, Inc.
Websense, Inc. (NASDAQ: WBSN), a global leader in unified web security, email security, mobile security, and data loss prevention (DLP) solutions, delivers the best content security for modern threats at the lowest total cost of ownership to tens of thousands of enterprise, mid-market and small organizations around the world. Distributed through a global network of channel partners and delivered as software, appliance and Security-as-a-Service (SaaS), Websense content security solutions help organizations leverage web 2.0 and cloud communication, collaboration, and social media while protecting from advanced persistent threats, preventing the loss of confidential information and enforcing internet use and security policies. Websense is headquartered in San Diego, California with offices around the world. For more information, visit www.websense.com.

Follow Websense on Twitter: www.twitter.com/websense

Join the discussion on Facebook: www.facebook.com/websense

This news release contains forward-looking statements that involve risks, uncertainties, assumptions, and other factors which, if they do not materialize or prove correct, could cause Websense's results to differ materially from historical results or those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including financial estimates; the statements of Gene Hodges; statements about our expected continued success selling TRITON solutions; statements about the effectiveness of our products; billings, revenues, and growth trends; statements regarding the expected settlement with the IRS; and statements containing the words "planned," "expects," "believes," "strategy," "opportunity," "anticipates," and similar words. The potential risks and uncertainties that contribute to the uncertain nature of these statements include, among others, risks associated with customer acceptance of the company's products and services, product performance, launching new product offerings, products and fee structures in a changing market, the success of Websense's brand development efforts, the volatile and competitive nature of the internet and security industries, changes in domestic and international market conditions (including in continental Europe), fluctuations in currency exchange rates and impacts of macro-economic conditions on our customers, ongoing compliance with the covenants in the company's credit facility, changes in accounting interpretations, and the other risks and uncertainties described in Websense's public filings with the Securities and Exchange Commission, available at www.websense.com/investors. Websense assumes no obligation to update any forward-looking statement to reflect events or circumstances arising after the date on which it was made.

    INVESTOR CONTACT:       MEDIA CONTACT:
    Kate Patterson          Patricia Hogan
    Websense, Inc.          Websense, Inc.
    (858) 320-8072          (858) 320-9393
    kpatterson@websense.com phogan@websense.com

                              Websense, Inc.
                        Consolidated Balance Sheets
                              (In thousands)


                              March 31, 2012           December 31, 2011
                              --------------           -----------------
    Assets                      (Unaudited)
    Current
     assets:
        Cash and
         cash
         equivalents                          $70,346                  $76,201
        Accounts
         receivable,
         net                                   61,914                   80,147
        Income
         tax
         receivable/
         prepaid
         income
         tax                                      155                      738
        Current
         portion
         of
         deferred
         income
         taxes                                 30,055                   30,021
        Other
         current
         assets                                13,408                   13,793
                                               ------                   ------
           Total
            current
            assets                            175,878                  200,900
    Cash and
     cash
     equivalents
     -
     restricted,
     less
     current
     portion                                      659                      628
    Property
     and
     equipment,
     net                                       17,492                   16,832
     Intangible
     assets,
     net                                       24,294                   26,412
    Goodwill                                  372,445                  372,445
    Deferred
     income
     taxes,
     less
     current
     portion                                    8,667                    8,599
    Deposits
     and
     other
     assets                                     7,906                    8,622
    Total
     assets                                  $607,341                 $634,438
                                             ========                 ========

     Liabilities
     and
     stockholders'
     equity
    Current
     liabilities:
        Accounts
         payable                               $6,319                   $9,026
        Accrued
         compensation
         and
         related
         benefits                              22,356                   22,770
        Other
         accrued
         expenses                              15,390                   16,534
        Current
         portion
         of
         income
         taxes
         payable                               10,819                    3,187
        Current
         portion
         of
         deferred
         tax
         liability                                 87                       86
        Current
         portion
         of
         deferred
         revenue                              242,363                  250,597
                                              -------                  -------
           Total
            current
            liabilities                       297,334                  302,200
    Other
     long
     term
     liabilities                                2,456                    2,600
    Income
     taxes
     payable,
     less
     current
     portion                                   12,235                   11,955
    Secured
     loan                                      68,000                   73,000
    Deferred
     tax
     liability,
     less
     current
     portion                                    2,520                    2,501
    Deferred
     revenue,
     less
     current
     portion                                  141,713                  142,437
                                              -------                  -------
        Total
         liabilities                          524,258                  534,693
     Stockholders'
     equity:
      Common
       stock                                      571                      568
       Additional
       paid-in
       capital                                421,635                  415,573
      Treasury
       stock,
       at cost                               (407,018)                (385,544)
      Retained
       earnings                                70,414                   72,247
       Accumulated
       other
       comprehensive
       loss                                    (2,519)                  (3,099)
        Total
         stockholders'
         equity                                83,083                   99,745
    Total
     liabilities
     and
     stockholders'
     equity                                  $607,341                 $634,438
                                             ========                 ========

                                         Websense, Inc.
                             Consolidated Statements of Operations
                     (Unaudited and in thousands, except per share amounts)

                                      Three Months Ended
                                          March 31,
                                     -------------------
                                                      2012                      2011
                                                      ----                      ----

    Revenues:
    Software and
     service                                       $82,008                   $80,303
    Appliance                                        7,516                     8,331
                                                     -----                     -----
    Total revenues                                  89,524                    88,634
    Cost of
     revenues:
    Software and
     service                                        10,975                    10,426
    Appliance                                        3,187                     4,237
                                                     -----                     -----
    Total cost of
     revenues                                       14,162                    14,663
                                                    ------                    ------
    Gross profit                                    75,362                    73,971
    Operating
     expenses:
    Selling and
     marketing                                      39,027                    40,855
    Research and
     development                                    15,290                    14,160
    General and
     administrative                                 10,318                    11,164
    Total operating
     expenses                                       64,635                    66,179
                                                    ------                    ------
    Income from
     operations                                     10,727                     7,792
    Interest expense                                  (656)                     (426)
    Other (expense)
     income, net                                      (252)                    1,464
                                                      ----                     -----
    Income before
     income taxes                                    9,819                     8,830
    Provision for
     income taxes                                   11,652                       709
                                                    ------                       ---
    Net (loss)
     income                                        $(1,833)                   $8,121
                                                   =======                    ======

    Basic net (loss)
     income per
     share                                          $(0.05)                    $0.20
                                                    ======                     =====
    Diluted net
     (loss) income
     per share                                      $(0.05)                    $0.20
                                                    ======                     =====
    Weighted average
     shares -basic                                  37,630                    40,531
                                                    ======                    ======
    Weighted average
     shares -
     diluted                                        37,630                    41,398
                                                    ======                    ======

    Financial Data:
    Total deferred
     revenue                                      $384,076                  $382,334
                                                  ========                  ========

                                                    Websense, Inc.
                                         Consolidated Statements of Cash Flows
                                             (Unaudited and in thousands)

                                                            Three Months Ended
                                                                 March 31,
                                                           -------------------
                                                                            2012     2011
                                                                            ----     ----
    Operating activities:
    Net (loss) income                                                    $(1,833)  $8,121
    Adjustments to reconcile net
     income (loss) to net cash
     provided by operating activities:
    Depreciation and amortization                                          4,906    6,510
    Share-based compensation                                               5,014    5,505
    Deferred income taxes                                                      -      119
    Unrealized gain on foreign
     exchange                                                                144     (750)
    Excess tax benefit from share-
     based compensation                                                     (130)    (529)
    Changes in operating assets and
     liabilities:
    Accounts receivable                                                   18,968   26,779
    Other assets                                                             321   (1,316)
    Accounts payable                                                      (3,206)    (403)
    Accrued compensation and related
     benefits                                                               (680)  (1,078)
    Other liabilities                                                       (483)  (2,201)
    Deferred revenue                                                      (8,962) (11,974)
    Income taxes payable and
     receivable/prepaid                                                    8,297    2,627
    Net cash provided by operating
     activities                                                           22,356   31,410
                                                                          ------   ------

    Investing activities:
    Change in restricted cash and cash
     equivalents                                                             (17)      38
    Purchase of property and equipment                                    (2,784)  (1,911)
    Purchase of intangible assets                                              -     (275)
    Net cash used in investing
     activities                                                           (2,801)  (2,148)
                                                                          ------   ------

    Financing activities:
    Proceeds from secured loan                                                 -   26,000
    Principal payments on secured loan                                    (5,000) (30,000)
    Principal payments on capital
     lease obligation                                                       (587)    (569)
    Proceeds from exercise of stock
     options                                                               1,383    1,711
    Excess tax benefit from share-
     based compensation                                                      130      529
    Tax payments related to restricted
     stock unit issuances                                                 (1,475)  (1,401)
    Purchase of treasury stock                                           (20,490) (23,969)
    Net cash used in financing
     activities                                                          (26,039) (27,699)
                                                                         -------  -------

    Effect of exchange rate changes on
     cash and cash equivalents                                               629      390
    (Decrease) Increase in cash and
     cash equivalents                                                     (5,855)   1,953
    Cash and cash equivalents at
     beginning of period                                                  76,201   77,390
    Cash and cash equivalents at end
     of period                                                           $70,346  $79,343
                                                                         =======  =======

    Cash paid during the period for:
        Income taxes, net of refunds                                      $2,997     $694
        Interest                                                            $607     $393

    Non-cash financing activities:
        Change in operating assets and
         liabilities for unsettled
         purchase of treasury
             stock and exercise of stock
              options                                                       $313   $1,030

                                       Websense, Inc.
                               Rollforward of Deferred Revenue
                                (Unaudited and in thousands)


              Deferred revenue balance at
              December 31, 2011                                      $393,034
              Net billings during first
              quarter 2012                                             80,567
              Less revenue recognized
              during first quarter 2012                               (89,524)
             Translation adjustment                                        (1)
              Deferred revenue balance at
              March 31, 2012                                         $384,076
                                                                     ========

                                            Websense, Inc.
                        Reconciliation of GAAP to Non-GAAP Financial Measures
                        (Unaudited and in thousands, except per share amounts)

                                          Three Months Ended
                                               March 31,
                                         -------------------
                                                         2012                     2011
                                                         ----                     ----

    GAAP Gross profit                                 $75,362                  $73,971
       Amortization of
        acquired technology
        (2)                                               539                      645
       Share-based
        compensation (1)                                  338                      285
                                                          ---                      ---
         Gross profit
          adjustment                                      877                      930
    Non-GAAP Gross
     profit                                           $76,239                  $74,901
                                                      =======                  =======

    GAAP Operating
     expenses                                         $64,635                  $66,179
       Amortization of
        other intangible
        assets (2)                                     (1,512)                  (3,160)
       Share-based
        compensation (1)                               (4,675)                  (5,220)
                                                       ------                   ------
         Operating expense
          adjustment                                   (6,187)                  (8,380)
    Non-GAAP Operating
     expenses                                         $58,448                  $57,799
                                                      =======                  =======

    GAAP Income from
     operations                                       $10,727                   $7,792
         Gross profit
          adjustment                                      877                      930
         Operating expense
          adjustment                                    6,187                    8,380
    Non-GAAP Income
     from operations                                  $17,791                  $17,102
                                                      =======                  =======

    GAAP Provision for
     income taxes                                     $11,652                     $709
            Provision for income
             taxes adjustment                          (8,433)                   2,931
                                                       ------                    -----
    Non-GAAP Provision
     for income taxes
     (3)                                               $3,219                   $3,640
                                                       ======                   ======

    GAAP Net (loss)
     income                                           $(1,833)                  $8,121
         Gross profit
          adjustment                                      877                      930
         Operating expense
          adjustment                                    6,187                    8,380
         Amortization of
          deferred financing
          fees (4)                                         60                       60
         Provision for income
          tax adjustment                                8,433                     (102)
         Tax related
          adjustments from
          other discrete
          items (5)                                         -                   (2,829)
    Non-GAAP Net income                               $13,724                  $14,560
                                                      =======                  =======

    GAAP Net (loss)
     income per share                                  $(0.05)                   $0.20
       Non-GAAP
        adjustments as
        described above per
        share,                                           0.41                     0.15
          net of tax (1-5)
    Non-GAAP Net income
     per share                                          $0.36                    $0.35
                                                        =====                    =====

    GAAP Diluted common
     shares                                            37,630                   41,398
       Effect of dilutive
        securities                                        540                        -
    Non-GAAP Diluted
     common shares                                     38,170                   41,398
                                                       ======                   ======
    (1) Share-based compensation.
     Consists of non-cash expenses for
     employee stock options, restricted
     stock units and our employee stock
     purchase plan determined in
     accordance with the fair value
     method of accounting for share-
     based compensation. When evaluating
     the performance of our business and
     developing short and long-term
     plans, we do not consider share-
     based compensation charges. Although
     share-based compensation is
     necessary to attract and retain
     quality employees, our consideration
     of share-based compensation places
     its primary emphasis on overall
     shareholder dilution rather than the
     accounting charges associated with
     such grants. Because of varying
     available valuation methodologies,
     subjective assumptions and the
     variety of award types, we believe
     that the exclusion of share-based
     compensation allows for more
     accurate comparison of our financial
     results to previous periods. In
     addition, we believe it is useful to
     investors to understand the specific
     impact of the application of the
     fair value method of accounting for
     share-based compensation on our
     operating results.

    (2) Amortization of acquired
     technology and other intangible
     assets. When conducting internal
     development of intangible assets
     (including developed technology,
     customer relationships, trademarks,
     etc.), GAAP accounting rules require
     that we expense the costs as
     incurred. In the case of acquired
     businesses, however, we are required
     to allocate a portion of the
     purchase price to the accounting
     value assigned to intangible assets
     acquired and amortize this amount
     over the estimated useful lives of
     the acquired intangibles. The
     acquired company, in most cases, has
     itself previously expensed the costs
     incurred to develop the acquired
     intangible assets, and the purchase
     price allocated to these assets is
     not necessarily reflective of the
     cost we would incur in developing
     the intangible asset. We eliminate
     these amortization charges from our
     non-GAAP operating results to
     provide better comparability of pre-
      and post-acquisition operating
      results and comparability to results
     of businesses utilizing internally
     developed intangible assets.

    (3) Non-GAAP effective tax rate. The
     company's annual non-GAAP effective
     tax rate is calculated by dividing
     the company's estimated annual non-
     GAAP tax expense by its estimated
     annual non-GAAP taxable income. The
     company's estimated non-GAAP
     taxable income is determined by
     adjusting its estimated GAAP taxable
     income for its non-GAAP adjustments
     on a country-by-country basis. The
     company determines its annual
     estimated non-GAAP tax expense by
     adding together the estimated non-
     GAAP tax expense for each country
     based on each country's applicable
     tax rate. The company determines its
     interim non-GAAP effective tax
     expense in accordance with the
     general principles of ASC 740,
     Accounting for Income Taxes. In
     2012, the company's effective tax
     rate is based on the company's
     anticipated long term non-GAAP tax
     expense divided by the company's
     long term non-GAAP taxable income
     on a country by country basis.

    (4) Amortization of deferred
     financing fees. This is a non-cash
     charge that is disregarded by the
     company's management when evaluating
     our ongoing performance and/or
     predicting our earnings trends, and
     excluded by us when presenting our
     non-GAAP financial measures.
     Further, we believe it is useful to
     investors to understand the specific
     impact of this charge on our
     operating results.

    (5) Tax related adjustments from
     other discrete items. This amount
     represents the non-recurring tax
     effect from the transfer of customer
     relationship intangible assets and
     the related deferred tax liabilities
     from a higher tax rate jurisdiction
     to a lower tax rate jurisdiction.
     The tax benefit is reflected in the
     first quarter of 2011 upon the
     completion of our global
     distribution restructuring and is
     not expected to recur.

                                                            Websense, Inc.
                                          Non-GAAP Billings Operating Margin Reconciliation
                                           (Unaudited and in thousands, except percentages)


                                                                                    Three Months Ended March 31,
    Billings:                                                                         2012                           2011
                                                                                      ----                           ----
                                 Software and service billings         $74,615                  92.6%             $71,409       93.2%
                                 Appliance billings                      5,952                   7.4%               5,250        6.8%
                                                                         -----
                                   Total billings                       80,567                 100.0%              76,659      100.0%

    Non-GAAP Cost of billings:
                                  Software and service cost of
                                  billings                              10,098                  13.5%               9,496       13.3%
                                 Appliance cost of billings (1)          2,429                  40.8%               2,623       50.0%
                                                                         -----
                                   Non-GAAP Cost of billings            12,527                  15.5%              12,119       15.8%

    Non-GAAP Gross margin:
                                 Software and service gross margin      64,517                  86.5%              61,913       86.7%
                                 Appliance gross margin                  3,523                  59.2%               2,627       50.0%
                                                                         -----
                                   Non-GAAP Gross margin                68,040                  84.5%              64,540       84.2%

    Non-GAAP Operating expenses:
                                 Selling and marketing                  35,734                  44.4%              36,365       47.4%
                                 Research and development               14,019                  17.4%              13,116       17.1%
                                 General and administrative              8,695                  10.8%               8,318       10.9%
                                                                         -----
                                   Non-GAAP Operating expenses          58,448                  72.6%              57,799       75.4%

    Non-GAAP Billings operating
     margin                                                  $9,592                   11.9%                $6,741         8.8%
                                                             ======                                        ======


                                  (1) Excluding deferred appliance expenses associated with pre-
                                  2011 appliance sales.

The non-GAAP financial measures included in the tables above are non-GAAP gross profit, non-GAAP operating expenses, non-GAAP income from operations, non-GAAP provision for income taxes, non-GAAP net income and non-GAAP net income per share, which adjust for the following items: acquisition related adjustments, share-based compensation expense, amortization of intangible assets and certain other items. We believe the presentation of these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding the Company's operating performance for the reasons discussed below. Our management uses these non-GAAP financial measures in assessing the Company's operating results, as well as when planning, forecasting and analyzing future periods. The annual operating plan approved by our Board of Directors is based upon non-GAAP financial measures and our management incentive plans also use non-GAAP financial measures as performance objectives. We believe that these non-GAAP financial measures also facilitate comparisons of the Company's performance to prior periods and to our peers and that investors benefit from an understanding of these non-financial measures.

SOURCE Websense, Inc.

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