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Websense Announces Strong Third Quarter Results and Confirms 2009 Growth Expectations

2008 Non-GAAP Revenue and Non-GAAP Earnings Guidance Ranges Adjusted Upward to Reflect Strong Q3 Performance; Quarterly Billings Resume Year-Over-Year Growth and Total $82.7 Million; Core Product Billings Increase 7 Percent Year-Over-Year; Billings Growth Expected to Accelerate to Double Digits in 2009
  • 31 October, 2008 16:49

<p>(All figures are in US dollars)</p>
<p>SAN DIEGO, CA, Oct 28, 2008 (MARKET WIRE via COMTEX News Network) -- Websense, Inc. (NASDAQ: WBSN) today announced financial results for the third quarter ended September 30, 2008. The company expects 2008 revenue, calculated in accordance with U.S. generally accepted accounting principles (GAAP), to be in the range of $292 to $294 million, compared with previously issued revenue guidance of $290 to $295 million. 2008 non-GAAP revenue is expected to be in the range of $344 to $346 million, compared with previously issued non- GAAP revenue guidance of $340 to $345 million. Non-GAAP earnings per share and billings are expected to be in the ranges of $1.33 to $1.36 per diluted share and $345 to $350 million, respectively, compared with previously issued guidance of $1.30 to $1.35 per diluted share and $345 to $355 million, respectively.</p>
<p>Revenue, calculated in accordance with GAAP, increased to $76.7 million in the third quarter of 2008, from $50.4 million in the third quarter of 2007. The increase was a result of the addition of new, renewed and upgraded subscriptions, including approximately $20.6 million from new or renewal SurfControl seat subscriptions and revenue recognized from the deferred revenue acquired from SurfControl in October 2007.</p>
<p>The company posted a GAAP net loss of $3.5 million, or 8 cents per diluted share, for the third quarter of 2008, compared to net income of $6.4 million, or 14 cents per diluted share, for the third quarter of 2007. GAAP operating results reflected the write-down of the majority of SurfControl's deferred revenue to fair value as of the acquisition close date of October 3, 2007, which had the effect of reducing revenue that would have otherwise been recognisable by $10.2 million in the third quarter of 2008. GAAP operating income also included certain operating expenses totalling $18.6 million that were excluded from the company's non-GAAP results.</p>
<p>Non-GAAP operating cash flow for the quarter was approximately $20.4 million, which excludes approximately $1 million in cash payments for acquisition-related costs. GAAP operating cash flow for the quarter was $19.4 million compared to approximately $13.9 million in the third quarter of 2007. For the first nine months of 2008, non-GAAP operating cash flow was approximately $57.5 million, which excludes approximately $11.3 million in cash payments for acquisition related costs and $2.9 million for a litigation settlement. GAAP operating cash flow for the first nine months of 2008 was $43.3 million compared to $37.6 million in the first nine months of 2007.</p>
<p>Non-GAAP Operating Results
Billings for the third quarter, which represent the full amount of subscription contracts billed to customers during the period, were $82.7 million, compared to third quarter 2007 billings of $52.2 million for Websense standalone and $79.1 million including SurfControl billings. The average duration of third quarter contracts was 22.1 months, compared to 23.1 months for Websense in the third quarter of 2007. This change reflected an increase in the mix of one-year contracts to 55 percent of total billings, compared to 50 percent of total billings in the third quarter of 2007.</p>
<p>Third quarter non-GAAP revenue was $86.8 million and included approximately $10.2 million in subscription revenue from past billings to SurfControl customers that would have been recognised during this period had SurfControl remained an independent company reporting under GAAP. This subscription revenue was included in SurfControl's deferred revenue as of the acquisition date, but is not recognised as subscription revenue on a post-acquisition basis under GAAP due to the impact of the write-down of the majority of SurfControl's deferred revenue to fair value as of the acquisition date.</p>
<p>Third quarter non-GAAP operating income was $26.3 million, or 30.3 percent of non-GAAP revenue. Third quarter non-GAAP operating expenses of $60.5 million excluded cash and non-cash acquisition related expenses of approximately $12.8 million and stock based compensation expense of approximately $5.8 million. Third quarter non-GAAP net income was $15.6 million, or 34 cents per share, an increase of 43 percent from the $10.9 million, or 24 cents per diluted share, in non-GAAP net income posted in the third quarter of 2007. In April 2007, when Websense announced plans to acquire SurfControl, the company expected the combination to be accretive to non-GAAP
earnings by at least 20 percent. On a year to date basis, non-GAAP net income increased 61 percent, from $30.4 million in the first nine months of 2007 to $48.8 million in the first nine months of 2008. The costs excluded from non-</p>
<p>"We posted another solid quarter in Q3 as we continue to exceed our original expectations for earnings and cash flow accretion due to the SurfControl acquisition. We have yet to see a significant negative impact on our business from the recent economic turbulence and billings for our core products increased 7 percent from combined billings of Websense and SurfControl last year, excluding SurfControl products that we discontinued," said Gene Hodges, Websense chief executive officer.</p>
<p>"We introduced several new products toward the end of the quarter, including our new Web Security Gateway with real time malware scanning and dynamic categorisation of Web 2.0 content, and our data security endpoint solution. I believe the availability of these new products was a significant factor in the strength of our third quarter renewals and our growing pipeline of new business," Hodges added.</p>
<p>The company's balance sheet remains strong, with cash and cash equivalents of $63.4 million, accounts receivable of $64.6 million and total GAAP deferred revenue of $307.3 million as of September 30, 2008. Significant changes to the balance sheet compared to the prior quarter included:</p>
<p>-- An increase in deferred revenue by approximately $4.8 million. Non-GAAP deferred revenue decreased by approximately $5.8 million.</p>
<p>-- An increase in accounts receivable by approximately $3 million. Days sales outstanding increased to 67 days from 63 days in the prior quarter, but remained within the company's target range of 65 to 70 days.</p>
<p>The company repaid $15 million in long term debt during the third quarter and an additional $5 million in the first week of October, bringing total principal payments to date to $75 million and reducing long term debt to $135 million as of October 28, 2008, from $210 million at the close of the SurfControl acquisition one year ago. The company also repurchased a total of 252,388 shares in the third quarter for approximately $5 million under a 10b5-1 plan.</p>
<p>About Websense, Inc.</p>
<p>Websense, Inc. (NASDAQ: WBSN), a global leader in integrated Web security, data security and email security solutions, provides Essential Information Protection™ for more than 43 million employees at more than 50,000 organisations worldwide. Distributed through its global network of channel partners, Websense software and hosted security solutions help organizations block malicious code, prevent the loss of confidential information and enforce Internet use and security policies. For more information, visit www.websense.com</p>
<p>Websense and SurfControl are registered trademarks of Websense, Inc. in the United States and certain international markets. Websense has numerous other registered and unregistered trademarks in the United States and internationally. All other trademarks are the property of their respective owners.</p>

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