Company Returns to GAAP Profitability
SAN DIEGO, CA -- (Marketwire) -- 07/28/09 -- Websense, Inc. (NASDAQ: WBSN) today confirmed
financial results for the second quarter of 2009 consistent with
preliminary results for billings, non-GAAP revenue and non-GAAP earnings
per diluted share announced on July 7, 2009. Separately, the company
announced that it has expanded its management team with the additions of
Art Locke as Senior Vice President and Chief Financial Officer and Didier
Guibal as Executive Vice President, Worldwide Sales.
Second Quarter 2009 GAAP Financial Highlights
-- Revenue, calculated in accordance with generally accepted accounting
principles (GAAP), increased 9 percent from the second quarter of 2008 to
$79.5 million.
-- Operating income was $2.7 million, compared to an operating loss of
$8.1 million in the second quarter of 2008.
-- Net income was $3.1 million, or 7 cents per diluted share, compared to
a net loss of $8.2 million, or 18 cents per diluted share, in the second
quarter of 2008.
Second Quarter 2009 Non-GAAP Financial Highlights
-- Billings, which represent the full amount of subscription contracts
billed to customers during the period, totaled $82.2 million, compared to
$87.3 million in the second quarter of 2008.
-- International billings were approximately $40.1 million, compared to
$46.5 million in the second quarter of 2008. Using the same currency
exchange rates that prevailed in the second quarter of 2008, international
billings would have been approximately $45.1 million.
-- Non-GAAP revenue of $84.1 million included approximately $4.6 million
of revenue from SurfControl that would have been recognized during this
period had SurfControl remained an independent operating company reporting
under GAAP. This subscription revenue was included in SurfControl's
deferred revenue as of the date of the acquisition, but was not recognized
as revenue on a post-acquisition basis under GAAP due to a required write-
down of SurfControl's deferred revenue to fair value as of the acquisition
date. Non-GAAP revenue in the second quarter of 2008 was $88.2 million,
and included approximately $15.2 million of revenue from SurfControl that
would have been recognized during this period had SurfControl remained an
independent company.
-- Non-GAAP operating income was $23.5 million, representing 28.0 percent
of non-GAAP revenue. This compares to $27.6 million in the second quarter
of 2008, representing 31.3 percent of non-GAAP revenue.
-- Non-GAAP net income was $14.5 million, or 32 cents per diluted share,
compared to $17.1 million, or 37 cents per diluted share, in the second
quarter of 2008.
"Our second quarter billings results reflected two widely divergent buying
patterns by our customers. A significant number of our customers were
financially distressed and shortened the duration of their contracts and
reduced seats under subscription, resulting in lower billings overall. At
the same time, many customers with adequate financial resources chose to
upgrade to our Web security gateway solutions, including the V10000
appliance, and extend the duration of their contracts," said Websense Chief
Executive Officer Gene Hodges. "Incremental billings associated with the
Web security gateway, data loss prevention and hosted security, were up
substantially from both the second quarter of 2008 and the first quarter of
2009. Although we expect the global recession to continue to impact our
business through at least 2009, our incremental billings performance gives
us confidence our product portfolio is competitive and our strategy is
aligned with market requirements."
Quarterly Business Metrics Summary:
Dollars in thousands, except earnings per diluted share, product seats
under subscription, average contract value, average contract duration and
all percentage metrics.
Q2'09 Q2'08
-------- --------
Billings $ 82,227 $ 87,291
-------- --------
-------- --------
GAAP revenue 79,464 72,958
-------- --------
GAAP operating income (loss) 2,700 (8,082)
-------- --------
GAAP net income (loss) 3,121 (8,194)
-------- --------
GAAP net income (loss) per diluted share $ 0.07 ($ 0.18)
-------- --------
-------- --------
Non-GAAP* revenue 84,101 88,180
-------- --------
Non-GAAP* operating income 23,517 27,637
-------- --------
Non-GAAP* net income 14,465 17,071
-------- --------
Non-GAAP* earnings per diluted share $ 0.32 $ 0.37
-------- --------
-------- --------
Product seats under subscription (millions) 43.6 42.1
-------- --------
International billings (% of total) 49% 53%
-------- --------
Average contract value $ 7,300 $ 7,800
-------- --------
Billings from renewals (% of total) 75-80% 75-80%
-------- --------
Average contract duration (months) 23.2 21.8
-------- --------
*A detailed description of the company's non-GAAP financial data 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 table
"Reconciliation of GAAP to Non-GAAP Financial Measures."
Balance Sheet and Operating Cash Flow Metrics
Highlights of the balance sheet and cash flow performance compared to the
second quarter of 2008 included:
-- Cash, cash equivalents and restricted cash worldwide of $77.6 million,
compared with $65.1 million at the end of the second quarter of 2008.
-- Total GAAP deferred revenue of $321.6 million, an increase of 6
percent compared to $302.5 million at the end of the second quarter of
2008.
-- Non-GAAP deferred revenue of $331.7 million, a decrease of 3 percent
compared to non-GAAP deferred revenue of $340.7 million at the end of the
second quarter of 2008. Non-GAAP deferred revenue at the end of the second
quarter of 2009 included approximately $10.2 million of deferred revenue
from SurfControl that was included in SurfControl's deferred revenue as of
the date of the acquisition, but is not included in the company's GAAP
deferred revenue on a post-acquisition basis due to a required write-down
of SurfControl's deferred revenue to fair value as of the acquisition date.
Non-GAAP deferred revenue at the end of the second quarter of 2008 included
$38.1 million of deferred revenue from SurfControl that was included in
SurfControl's deferred revenue as of the date of acquisition, but was
written down as of the acquisition date.
-- Accounts receivable of $59.9 million, representing 65 days of sales
outstanding. This compares to 68 days outstanding at the end of the first
quarter of 2009 and 63 days outstanding at the end of the second quarter of
2008.
-- Cash flow from operations during the second quarter of 2009 of $6.7
million, compared to $5.0 million in the second quarter of 2008.
-- Capital expenditures of $2.7 million in the quarter, compared to $1.7
million in the second quarter of 2008.
During the quarter, the company repurchased a total of approximately
447,000 shares for approximately $7.5 million under a 10b5-1 stock
repurchase plan.
Outlook for Fiscal Year 2009 and 2010
Websense updates its annual guidance on its anticipated financial
performance for the fiscal year each quarter based on its assessment of the
current business environment and historical seasonal trends in its business
and prevailing exchange rates between the US dollar and other major
currencies. In providing guidance, the company emphasizes that its
forward-looking statements are based on current expectations and prevailing
currency exchange rates on the date the guidance is provided and disclaims
any obligation to update the statements as circumstances change.
2009 Outlook
(as of 07/28/09)
--------------------------
Billings $340 - 350 million
Billings from renewals (% of total) 75 - 80%
GAAP revenue $318 - 322 million
Non-GAAP revenue $334 - 338 million
Non-GAAP operating margin 26 - 27%
Stock-based compensation expense $26 - 28 million
Amortization of intangible assets
(non-cash) approximately $ 39 million
Net cash interest expense $5 - 6 million
Non-GAAP earnings per diluted share $1.23 - 1.27
Estimated Non-GAAP tax rate 33 - 34%
Average diluted shares outstanding 44 - 46 million
Billings guidance for 2009 assumes an average contract duration in the
range of 22 to 23 months. GAAP cash flow from operations for the year,
including cash severance expenses associated with cost containment actions
of approximately $2 million in the third quarter, is now expected to be
approximately $80 million, compared to $65.8 million in GAAP cash flow from
operations in 2008.
Non-GAAP guidance for 2009 revenue and diluted earnings per share includes
approximately $16.1 million in subscription revenue of SurfControl that
would have been recognized under subscriptions that were included in
deferred revenue as of the date of the acquisition that will not be
recognized as revenue during the applicable period as 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.
Additionally, non-GAAP revenue for the third quarter of 2009 is expected to
decline by approximately $1 to $2 million from second quarter 2009 non-GAAP
revenue. Non-GAAP revenue for the fourth quarter of 2009 is expected to be
approximately equal to third quarter non-GAAP revenue.
For 2010, the company believes it has the potential to generate substantial
growth in non-GAAP earnings per diluted share compared to 2009 non-GAAP
earnings per diluted share, assuming the company generates 2009 billings
within the current guidance range. The forecasted range will be published
with the final fourth quarter 2009 results.
Conference Call
Management will host a conference call and simultaneous webcast to discuss
the final results today, July 28, at 2:00 p.m. Pacific time. To
participate in the conference call, investors should dial 877-741-4244
(domestic) or 719-325-4824 (international) ten minutes prior to the
scheduled start of the call. A simultaneous audio-only webcast of the call
may be accessed on the Internet at www.websense.com/investors.
An archive of the webcast will be available on the company's Web site
through September 30, 2009, and a taped replay of the call will be
available for one week at 719-457-0820 or 888-203-1112, passcode 1160646.
Non-GAAP Financial Measures
This news release provides financial measures for the second quarter of
2009, including measures for revenue, gross margin, income from operations,
net income and earnings per diluted share, that include revenue from
SurfControl that would have been recognized during the second quarter of
2009 under subscriptions that were included in deferred revenue as of the
date of the acquisition but will not be recognized as revenue on a
post-acquisition basis under GAAP due to the impact of the write-down of a
majority of SurfControl's deferred revenue to fair value as of the
acquisition date. In addition, second quarter GAAP operating results
exclude certain cash and non-cash expenses relating to the company's
acquisitions, including amortization of intangible assets and deferred
financing fees, restructuring costs relating to facility closures,
integration travel, and professional fees, as well as stock based
compensation expense and related tax effects. Based on the foregoing, the
company's presentation of non-GAAP revenue, gross margin, operating
expenses, income from operations, net income and earnings per diluted share
are not calculated in accordance with GAAP. Management believes that these
non-GAAP financial measures provide meaningful supplemental information
regarding our 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. A
reconciliation of the GAAP and non-GAAP financial measures for the second
quarter and a more detailed explanation of each non-GAAP financial measure
and its uses are provided at the end of this news release.
This news release also provides guidance for the fiscal year 2009 and 2010,
including guidance for revenue, income from operations, net income and
earnings per diluted share, that include revenue from SurfControl that
would have been recognized during the full year 2009 and 2010 under
subscriptions that were included in deferred revenue as of the date of the
acquisition but will not be recognized as revenue on a post-acquisition
basis under GAAP due to the impact of the write-down of a majority of
SurfControl's deferred revenue to fair value as of the acquisition date.
This news release also includes financial measures for billings for the
second quarter and for guidance for the fiscal year 2009 that are not
numerical measures that can be calculated in accordance with GAAP. Websense
provides this measurement in news releases reporting financial performance
because this measurement provides a consistent basis for understanding the
company's sales activities in the current period. The company believes the
billings measurement is useful to investors because the GAAP measurements
of revenue and deferred revenue in the current period include subscription
contracts commenced in prior periods. The roll-forwards of deferred revenue
for the second quarter of 2009 are set forth at the end of this news
release.
About Websense, Inc.
Websense, Inc. (NASDAQ: WBSN), a global leader in integrated Web, data and
email security solutions, provides Essential Information Protection(TM) for
approximately 44 million product seats under subscription. 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.
Websense is a registered trademark 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.
Follow Websense on Twitter: http://www.twitter.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, our guidance and financial outlook for the company's
2009 and 2010 fiscal years, and statements about our technology and product
leadership, growth trends and expense management, and statements containing
the words "planned," "expects," "believes," "strategy," "opportunity,"
"anticipates" and similar words. The potential risks and uncertainties
which contribute to the uncertain nature of these statements include, among
others, risks associated with launching new product offerings, customer
acceptance of the company's services, 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, risks relating to
currency exchange rates and impacts of macro-economic conditions on our
customers, risks relating to the required use of cash for debt servicing,
the risks of ongoing compliance with the covenants in the senior secured
credit facility, risks related to 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.
Websense, Inc.
Consolidated Statements of Operations
(Unaudited and in thousands, except per share amounts)
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
--------- --------- --------- ---------
Revenue $ 79,464 $ 72,958 $ 160,444 $ 139,942
Cost of revenues:
Cost of revenues 9,166 8,587 17,742 17,454
Amortization of acquired
technology 3,257 3,081 6,513 6,153
--------- --------- --------- ---------
Total cost of revenues 12,423 11,668 24,255 23,607
--------- --------- --------- ---------
Gross margin 67,041 61,290 136,189 116,335
Operating expenses:
Selling and marketing 41,614 44,338 81,446 87,159
Research and development 12,690 13,198 25,533 26,658
General and administrative 10,037 11,836 21,038 24,689
--------- --------- --------- ---------
Total operating expenses 64,341 69,372 128,017 138,506
--------- --------- --------- ---------
Income (loss) from operations 2,700 (8,082) 8,172 (22,171)
Interest expense (1,747) (2,941) (3,959) (7,373)
Other (expense) income, net (3) 1,113 355 1,004
--------- --------- --------- ---------
Income (loss) before income
taxes 950 (9,910) 4,568 (28,540)
(Benefit) provision for income
taxes (2,171) (1,716) 5,742 (14,109)
--------- --------- --------- ---------
Net income (loss) $ 3,121 $ (8,194) $ (1,174) $ (14,431)
========= ========= ========= =========
Basic net income (loss) per
share $ 0.07 $ (0.18) $ (0.03) $ (0.32)
========= ========= ========= =========
Diluted net income (loss) per
share $ 0.07 $ (0.18) $ (0.03) $ (0.32)
========= ========= ========= =========
Basic common shares 44,384 45,208 44,603 45,299
========= ========= ========= =========
Diluted common shares 44,857 45,208 44,603 45,299
========= ========= ========= =========
Financial Data:
Total deferred revenue $ 321,563 $ 302,541 $ 321,563 $ 302,541
--------- --------- --------- ---------
Websense, Inc.
Consolidated Balance Sheets
(Unaudited and in thousands)
June 30, December 31,
2009 2008
--------- ------------
Assets
Current assets:
Cash and cash equivalents $ 75,764 $ 64,310
Cash and cash equivalents - restricted 1,803 2,673
Accounts receivable, net 59,928 82,032
Prepaid income taxes 3,973 3,723
Current portion of deferred income taxes 32,608 33,125
Other current assets 10,409 9,029
--------- ------------
Total current assets 184,485 194,892
Property and equipment, net 16,232 14,312
Intangible assets, net 86,810 106,493
Goodwill 374,232 374,410
Deferred income taxes, less current portion 24,436 21,092
Deposits and other assets 3,319 3,933
--------- ------------
Total assets $ 689,514 $ 715,132
========= ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 5,121 $ 2,719
Accrued compensation and related benefits 18,662 19,087
Other accrued expenses 25,883 28,440
Current portion of income taxes payable 9,743 8,010
Current portion of senior secured term loan 11,217 4,112
Current portion of deferred tax liability 315 1,053
Current portion of deferred revenue 212,466 220,607
--------- ------------
Total current liabilities 283,407 284,028
Income taxes payable, less current portion 12,846 10,098
Senior secured term loan, less current portion 98,783 120,888
Deferred tax liability, less current portion 8,658 10,523
Deferred revenue, less current portion 109,097 112,157
Other long term liabilities 1,513 2,617
--------- ------------
Total liabilities 514,304 540,311
Stockholders' equity:
Common stock 527 522
Additional paid-in capital 315,576 299,657
Treasury stock, at cost (174,935) (159,842)
Retained earnings 36,763 37,937
Accumulated other comprehensive loss (2,721) (3,453)
--------- ------------
Total stockholders' equity 175,210 174,821
--------- ------------
Total liabilities and stockholders' equity $ 689,514 $ 715,132
--------- ------------
Websense, Inc.
Consolidated Statements of Cash Flows
(Unaudited and in thousands)
Six Months Ended
--------------------
June 30, June 30,
2009 2008
--------- ---------
Operating activities:
Net loss $ (1,174) $ (14,431)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 25,495 31,490
Share-based compensation 12,563 12,175
Deferred income taxes (5,904) (30,964)
Unrealized loss (gain) on foreign exchange 189 (71)
Tax shortfall from stock option exercises 1,621 678
Changes in operating assets and liabilities:
Accounts receivable 20,962 14,817
Other assets (2,062) (1,761)
Accounts payable 1,815 (1,660)
Accrued compensation and related benefits (492) (8,772)
Other liabilities (1,599) (5,293)
Deferred revenue (11,200) 16,582
Income taxes payable 2,629 11,119
--------- ---------
Net cash provided by operating activities 42,843 23,909
--------- ---------
Investing activities:
Change in restricted cash and cash equivalents 913 (1,240)
Purchase of property and equipment (6,137) (4,109)
Purchase of intangible assets - (940)
Cash refunded from PortAuthority acquisition - 147
Cash received from sale of CyberPatrol assets - 1,400
Purchases of marketable securities - (20,160)
Maturities of marketable securities - 39,963
--------- ---------
Net cash (used in) provided by investing activities (5,224) 15,061
--------- ---------
Financing activities:
Principal payments on senior secured term loan (15,000) (35,000)
Proceeds from exercise of stock options 2,194 720
Proceeds from issuance of common stock for stock
purchase plan 2,787 2,903
Tax shortfall from stock option exercises (1,621) (678)
Purchase of treasury stock (14,648) (9,998)
--------- ---------
Net cash used in financing activities (26,288) (42,053)
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents 123 512
Increase (decrease) in cash and cash equivalents 11,454 (2,571)
Cash and cash equivalents at beginning of period 64,310 66,163
--------- ---------
Cash and cash equivalents at end of period $ 75,764 $ 63,592
--------- ---------
Websense, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited and in thousands, except per share amounts)
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
--------- --------- --------- ---------
GAAP Revenue $ 79,464 $ 72,958 $ 160,444 $ 139,942
Deferred revenue related to
SurfControl acquisition (1) 4,637 15,222 10,122 34,777
--------- --------- --------- ---------
Non-GAAP Revenue $ 84,101 $ 88,180 $ 170,566 $ 174,719
========= ========= ========= =========
GAAP Gross margin $ 67,041 $ 61,290 $ 136,189 $ 116,335
Deferred revenue related to
SurfControl acquisition (1) 4,637 15,222 10,122 34,777
Amortization of acquired
technology (3) 3,036 2,942 6,072 5,885
Restructuring and
integration related items
(4) - 303 4 866
Stock-based compensation (2) 392 316 691 677
--------- --------- --------- ---------
Gross margin adjustment 8,065 18,783 16,889 42,205
--------- --------- --------- ---------
Non-GAAP Gross margin $ 75,106 $ 80,073 $ 153,078 $ 158,540
========= ========= ========= =========
GAAP Operating expenses $ 64,341 $ 69,372 $ 128,017 $ 138,506
Amortization of other
intangible assets (3) (6,590) (9,365) (13,181) (18,729)
Restructuring and
integration related items
(4) (135) (1,882) (221) (5,179)
Stock-based compensation (2) (6,027) (5,689) (11,872) (11,496)
--------- --------- --------- ---------
Operating expense
adjustment (12,752) (16,936) (25,274) (35,404)
--------- --------- --------- ---------
Non-GAAP Operating expenses $ 51,589 $ 52,436 $ 102,743 $ 103,102
========= ========= ========= =========
GAAP Income (loss) from
operations $ 2,700 $ (8,082) $ 8,172 $ (22,171)
Gross margin adjustment 8,065 18,783 16,889 42,205
Operating expense
adjustment 12,752 16,936 25,274 35,404
--------- --------- --------- ---------
Non-GAAP Income from operations $ 23,517 $ 27,637 $ 50,335 $ 55,438
========= ========= ========= =========
GAAP Net income (loss) $ 3,121 $ (8,194) $ (1,174) $ (14,431)
Gross margin adjustment 8,065 18,783 16,889 42,205
Operating expense
adjustment 12,752 16,936 25,274 35,404
Amortization of deferred
financing fees (5) 150 325 589 1,365
Impact of favorable tax
ruling (6) - - - (2,682)
Income tax effect on the
above items (7) (9,623) (10,779) (10,348) (28,666)
--------- --------- --------- ---------
Non-GAAP Net income $ 14,465 $ 17,071 $ 31,230 $ 33,195
========= ========= ========= =========
GAAP Net income (loss) per
share $ 0.07 $ (0.18) $ (0.03) $ (0.32)
Non-GAAP adjustments as
described above per share,
net of tax (1-7) 0.25 0.55 0.72 1.05
--------- --------- --------- ---------
Non-GAAP Net income per share $ 0.32 $ 0.37 $ 0.69 $ 0.73
========= ========= ========= =========
GAAP Diluted common shares 44,857 45,208 44,603 45,299
Effect of dilutive
securities (8) - 369 393 377
--------- --------- --------- ---------
Non-GAAP Diluted common shares 44,857 45,577 44,996 45,676
========= ========= ========= =========
The non-GAAP financial measures included in the tables above are non-GAAP
revenues, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP
income from operations, non-GAAP net income and non-GAAP net income per
share, which adjust for the following items: acquisition related
adjustments, stock-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.
(1) Deferred revenue related to SurfControl. We completed our acquisition
of SurfControl in October 2007. At the time of the acquisition, SurfControl
had recorded deferred revenue related to subscriptions commenced in the
past for which revenue would be recognized in future periods (during the
term of the subscription) as revenue recognition criteria are satisfied.
The purchase accounting rules required us to write down a significant
portion of this deferred revenue to its then current fair value.
Consequently, in post acquisition periods, we do not recognize the full
amount of this deferred revenue. When measuring the performance of our
business, however, we add back non-GAAP revenue associated with the
SurfControl deferred revenue that would have been recognized during the
relevant accounting period that was excluded as a result of these purchase
accounting adjustments, as we believe this provides information about the
impact on operations of the acquired business in a manner consistent with
the revenue recognition for our pre-existing services. We further believe
that the inclusion of non-GAAP revenue enables investors to better
understand the impact of the acquisition on the baseline revenue of the
combined company and provides useful information to investors on revenue
trends impacting the combined business.
(2) Stock-based compensation. Consists of non-cash expenses for employee
stock options, restricted stock units and our employee stock purchase plan
determined in accordance with SFAS 123(R). When evaluating the performance
of our business and developing short and long-term plans, we do not
consider stock-based compensation charges. Although stock-based
compensation is necessary to attract and retain quality employees, our
consideration of stock-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 stock-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
SFAS 123(R) on our operating results.
(3) Amortization of acquired technology and other intangible assets. When
conducting internal development of intangible assets (including developed
technology, customer relationships, trade-marks, etc.), 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.
(4) Restructuring and integration. We have engaged in various restructuring
and integration activities in connection with our acquisitions that have
resulted in costs associated with severance, benefits, excess facilities,
integration travel, retention bonuses and professional fees. Each
restructuring and integration has been a discrete event based on a unique
set of business objectives or circumstances, and each has differed from the
others in terms of its operational implementation, business impact and
scope. We do not engage in these activities in the ordinary course of our
business. We believe that it is important to understand these charges;
however, we do not believe that these charges are indicative of future
operating results and that investors benefit from an understanding of our
operating results without giving effect to them, including in comparison to
operating results for periods where no restructuring and integration costs
were incurred.
(5) Amortization of deferred financing fees. This is a non-cash charge that
can vary significantly in size and frequency depending on the optional
prepayments we make on our senior secured term loan and, therefore, are
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.
(6) Impact of favorable tax ruling. During the first quarter of 2008, we
received a favorable state tax ruling regarding unrecognized state income
tax benefits. Because the impact is non-recurring, we excluded the impact
when presenting non-GAAP financial measures.
(7) Income tax effect on the above items. This amount adjusts the provision
(benefit) for income taxes to reflect the effect of the non-GAAP
adjustments on non-GAAP net income.
(8) Effect of dilutive securities. The effect of dilutive securities was
excluded from GAAP diluted common shares due to the reported net loss under
GAAP, but are included for non-GAAP diluted common shares since we have
non-GAAP net income.
Websense, Inc.
Rollforward of GAAP Deferred Revenue
(Unaudited and in thousands)
GAAP deferred revenue balance at March 31, 2009 $ 318,800
Net billings during second quarter 2009 82,227
Less GAAP revenue recognized during second quarter 2009 (79,464)
---------
GAAP deferred revenue balance at June 30, 2009 $ 321,563
=========
Websense, Inc.
Rollforward of Non-GAAP Deferred Revenue
(Unaudited and in thousands)
Non-GAAP deferred revenue balance at March 31, 2009 $ 333,617
Net billings during second quarter 2009 82,227
Less Non-GAAP revenue recognized during second quarter 2009 (84,101)
---------
Non-GAAP deferred revenue balance at June 30, 2009 $ 331,743
=========
Websense, Inc.
Reconciliation of GAAP to Non-GAAP Deferred Revenue
(Unaudited and in thousands)
GAAP deferred revenue balance at June 30, 2009 $ 321,563
Addback: Deferred revenue related to SurfControl acquisition 10,180
---------
Non-GAAP deferred revenue balance at June 30, 2009 $ 331,743
=========
INVESTOR CONTACT:
Kate Patterson
Websense, Inc.
(858) 320-8072
kpatterson@websense.com
MEDIA CONTACT:
Cas Purdy
Websense, Inc.
(858) 320-9493
cpurdy@websense.com
