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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™ 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
First Quarter 2012 Non-GAAP1 Financial Highlights
Millions, except percentages, duration, number of transactions, and days billings outstanding
TRITON solution billings2
Number of transactions >$100K
Average contract duration (months)
Days billings outstanding (DSOs)
Cash and cash equivalents
Balance on revolving credit facility
Share repurchases ($)
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 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 SurfControl email security products.
Outlook for the Second Quarter and Fiscal Year 2012Websense 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
$88 – 92
$373 – 393
Appliance billings (% of total billings)
7 – 8%
$89 – 91
$364 – 374
Non-GAAP gross profit margin
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
Average diluted shares outstanding
37.5 – 38
37 – 38
Cash flow from operations
$8 – 10
$56 – 67
$12 – 14
Additionally, outlook ranges for 2012 reflect:
2011 Summary of Amounts Related to pre-2011 Appliance Sales
as of 12/31/10
2011 Recognition Schedule (actual)
Remaining deferred balances
as of 12/31/11
2012 Summary of Amounts Related to pre-2011 Appliance Sales
as of 12/31/11
2012 Recognition Schedule
as of 12/31/12 (expected)
IRS Tax SettlementThe 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 AdministrationThe 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 DetailsManagement 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.
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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.
Consolidated Balance Sheets
March 31, 2012
December 31, 2011
Cash and cash equivalents
Accounts receivable, net
Income tax receivable/prepaid income tax
Current portion of deferred income taxes
Other current assets
Total current assets
Cash and cash equivalents - restricted, less current portion
Property and equipment, net
Intangible assets, net
Deferred income taxes, less current portion
Deposits and other assets
Liabilities and stockholders' equity
Accrued compensation and related benefits
Other accrued expenses
Current portion of income taxes payable
Current portion of deferred tax liability
Current portion of deferred revenue
Total current liabilities
Other long term liabilities
Income taxes payable, less current portion
Deferred tax liability, less current portion
Deferred revenue, less current portion
Additional paid-in capital
Treasury stock, at cost
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
Consolidated Statements of Operations
(Unaudited and in thousands, except per share amounts)
Three Months Ended March 31,
Software and service
Cost of revenues:
Total cost of revenues
Selling and marketing
Research and development
General and administrative
Total operating expenses
Income from operations
Other (expense) income, net
Income before income taxes
Provision for income taxes
Net (loss) income
Basic net (loss) income per share
Diluted net (loss) income per share
Weighted average shares - basic
Weighted average shares - diluted
Total deferred revenue
Consolidated Statements of Cash Flows
(Unaudited and in thousands)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
Deferred income taxes
Unrealized gain on foreign exchange
Excess tax benefit from share-based compensation
Changes in operating assets and liabilities:
Accrued compensation and related benefits
Income taxes payable and receivable/prepaid
Net cash provided by operating activities
Change in restricted cash and cash equivalents
Purchase of property and equipment
Purchase of intangible assets
Net cash used in investing activities
Proceeds from secured loan
Principal payments on secured loan
Principal payments on capital lease obligation
Proceeds from exercise of stock options
Tax payments related to restricted stock unit issuances
Purchase of treasury stock
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
(Decrease) Increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Cash paid during the period for:
Income taxes, net of refunds
Non-cash financing activities:
Change in operating assets and liabilities for unsettled purchase of treasury
stock and exercise of stock options
Rollforward of Deferred Revenue
Deferred revenue balance at December 31, 2011
Net billings during first quarter 2012
Less revenue recognized during first quarter 2012
Deferred revenue balance at March 31, 2012
Reconciliation of GAAP to Non-GAAP Financial Measures
GAAP Gross profit
Amortization of acquired technology (2)
Share-based compensation (1)
Gross profit adjustment
Non-GAAP Gross profit
GAAP Operating expenses
Amortization of other intangible assets (2)
Operating expense adjustment
Non-GAAP Operating expenses
GAAP Income from operations
Non-GAAP Income from operations
GAAP Provision for income taxes
Provision for income taxes adjustment
Non-GAAP Provision for income taxes (3)
GAAP Net (loss) income
Amortization of deferred financing fees (4)
Provision for income tax adjustment
Tax related adjustments from other discrete items (5)
Non-GAAP Net income
GAAP Net (loss) income per share
Non-GAAP adjustments as described above per share, net of tax (1-5)
Non-GAAP Net income per share
GAAP Diluted common shares
Effect of dilutive securities
Non-GAAP Diluted common shares
(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.
Non-GAAP Billings Operating Margin Reconciliation
(Unaudited and in thousands, except percentages)
Software and service billings
Non-GAAP Cost of billings:
Software and service cost of billings
Appliance cost of billings (1)
Non-GAAP Cost of billings
Non-GAAP Gross margin:
Software and service gross margin
Appliance gross margin
Non-GAAP Gross margin
Non-GAAP Operating expenses:
Non-GAAP Operating expenses
Non-GAAP Billings operating margin
(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.