Websense Reports First Quarter 2013 Results

SAN DIEGO, April 25, 2013 /PRNewswire/ -- Websense, Inc. (NASDAQ: WBSN) today announced financial results for the first quarter of 2013.

"Our first quarter results reflect the continued strength of our Websense^® TRITON^® solutions, which increased 11.6 percent year-over-year and represented 67 percent of total billings in the quarter," said John McCormack, Websense CEO. "We are particularly pleased with the 19 percent increase in transactions greater than $100k. This demonstrates the strength of our core business and the appeal of TRITON to our larger enterprise target customers. Our recent sales expansion is already showing benefits with an increased sales pipeline for the second quarter and the rest of the year. We remain confident in our ability to execute successfully on the growing market opportunity for advanced security solutions, and to deliver sustained and profitable billings growth."

First Quarter 2013 GAAP Financial Highlights

• Revenues of $87.5 million, compared with $89.5 million in the first quarter of 2012.
• Software and service revenues of $80.1 million, compared with $82.0 million in the first quarter of 2012.
• Appliance revenues of $7.4 million, which consisted of approximately $6.5 million in current-period appliance sales and approximately $0.9 million of deferred appliance revenue primarily from pre-2011 appliance sales, compared with $7.5 million of appliance revenues in the first quarter of 2012, which consisted of approximately $5.8 million in current-period appliance sales and $1.7 million of deferred appliance revenue primarily from pre-2011 appliance sales.  
• Operating income of $3.5 million, compared with $10.7 million in the first quarter of 2012, as we incurred increased operating expenses primarily related to our sales force expansion, which was substantially completed in the quarter.
• Benefit from income taxes of $0.3 million, compared with a provision for income taxes of $11.7 million in the first quarter of 2012.
• Net income of $2.8 million, or eight cents per diluted share, compared with a net loss of $1.8 million, or five cents per diluted share, in the first quarter of 2012.
• Weighted average diluted shares outstanding of 36.8 million, compared with 37.6 million in the first quarter of 2012.
• Cash flow from operations of $29.2 million, compared with $22.4 million in the first quarter of 2012. 
• Quarter-end accounts receivable of $57.9 million, compared with $61.9 million at the end of the first quarter of 2012.
• Days billings outstanding of 64 days, compared with 69 days at the end of the first quarter of 2012.
• Deferred revenue of $395.4 million, compared with deferred revenue of $384.1 million at the end of the first quarter of 2012.

First Quarter 2013 Non-GAAP¹ Financial Highlights

• Total billings of $81.8 million, an increase of 1.5 percent compared with the first quarter of 2012. Changes in currency exchange rates, compared with exchange rates prevailing in the first quarter of 2012, did not materially impact first quarter 2013 billings performance.
• TRITON solution billings of $54.7 million, an increase of 11.6 percent compared with the first quarter of 2012.
• Non-GAAP operating income of $10.0 million, compared with non-GAAP operating income of $17.8 million in the first quarter of 2012. Non-GAAP operating margin in the first quarter of 2013, calculated as a percentage of revenues, was 11.4 percent, compared with 19.9 percent in the first quarter of 2012. We incurred increased operating expenses in the first quarter of 2013 primarily related to our sales force expansion which was substantially completed in the quarter.
• Billings-based operating margin of 5.6 percent, compared with billings-based operating margin of 11.9 percent in the first quarter of 2012. Billings-based operating margin is calculated similar to 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 $1.7 million, compared with a non-GAAP tax provision of $3.2 million in the first quarter of 2012, both based on an effective non-GAAP tax rate of 19.0 percent.
• Non-GAAP net income of $7.3 million, or 20 cents per diluted share, compared with $13.7 million, or 36 cents per diluted share, in the first quarter of 2012, as we incurred increased operating expenses primarily related to our sales force expansion, which was substantially completed in the quarter.

Summary Metrics

Outlook for the Second Quarter and Fiscal Year 2013

Websense provides guidance on anticipated financial performance for the second quarter and the 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 24 and 26 months and prevailing currency exchange rates of $1.28 for the Euro and $1.52 for the Pound Sterling. The company disclaims any obligation to update the statements as circumstances change.

Management further indicates:

• Expected stock repurchases of approximately $5.0 million per quarter in 2013.
• Non-cash items related to the recognition of revenue and costs associated with pre-2011 appliance billings:
  • Remaining deferred revenue of $1.9 million from pre-2011 appliance billings (as of March 31, 2013) that will continue to be recognized ratably according to the original subscription periods, including $0.6 million to be recognized in the second quarter of 2013 (compared with $1.6 million in the second quarter of 2012).
  • Remaining deferred costs of $1.0 million from pre-2011 appliance billings (as of March 31, 2013) that will continue to be recognized ratably according to the original subscription periods, including $0.3 million to be recognized in the second quarter of 2013 (compared with $0.7 million in the second quarter of 2012).
  • On January 1, 2011, Websense adopted Accounting Standards Update (ASU) 2009-13 (Multiple Deliverable Revenue Arrangements) and ASU 2009-14 (Certain Revenue Arrangements That Include Software Elements), which requires 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 related software subscription terms. The schedules below summarize the actual and expected recognition of remaining deferred appliance revenues and costs by quarter for 2012 and 2013:

Conference Call Details

Management will host a conference call and simultaneous webcast to discuss the financial results and outlook today, April 25, at 2 p.m. PDT / 5 p.m. EDT. 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 on the internet at investor.websense.com. An archive of the webcast will be available on the company's website through June 30, 2013, and a recorded replay of the call will be available for one week at 855-859-2056 or 404-537-3406, pass code 22448863.

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 historical operating results. Reconciliations of the GAAP and non-GAAP financial measures for the first quarters of both years 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 numerical measures that cannot be calculated in accordance with GAAP.  Billings-based non-GAAP operating margin is calculated similar to 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. 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 rollforward of deferred revenue (which includes billings and revenues) for the first quarter of 2013 is set forth at the end of this news release.

About Websense, Inc.

Websense, Inc. (NASDAQ: WBSN) is a global leader in protecting organizations from the latest cyber attacks and data theft. Websense TRITON comprehensive security solutions unify web security, email security, mobile security and data loss prevention (DLP) at the lowest total cost of ownership. Tens of thousands of enterprises rely on Websense TRITON security intelligence to stop advanced persistent threats, targeted attacks and evolving malware. Websense prevents data breaches, intellectual property theft and enforces security compliance and best practices. A global network of channel partners distributes scalable, unified appliance- and cloud-based Websense TRITON solutions.

Websense TRITON stops more threats, visit www.websense.com/proveit to see proof. To access the latest Websense security insights and connect through social media, please visit social.websense.com. For more information, visit www.websense.com and www.websense.com/triton.

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 John McCormack; statements about our expected success of our strategic initiatives and selling products; statements regarding market share gains and trends; statements about the effectiveness of our products; statements about customer acceptance of our products and services; billings, revenues, and growth trends; statements regarding expected repurchases of our common stock; 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 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, 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.

The following financial information should be read in conjunction with the audited financial statements and notes thereto, included in Websense, Inc.'s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. 

The non-GAAP financial measures included in the tables above and in the tables on the preceding page 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 diluted share, billings, non-GAAP cost of billings, non-GAAP gross margin and non-GAAP billings operating margin which adjust for the following items: acquisition related adjustments, share-based compensation expense, amortization of intangible assets, deferred expenses 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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