Websense Reports Second Quarter 2012 Results
SAN DIEGO, July 24, 2012 /PRNewswire/ — Websense, Inc. (NASDAQ: WBSN) today announced financial results for the second quarter of 2012.
“Sales of our Websense(®) TRITON(TM) solutions continue to grow, with business from new customers increasing more than 20 percent year-over-year,” said Gene Hodges, Websense CEO. “Our demonstrated ability to displace competitors reinforces our ongoing TRITON strategy to provide the best defense against advanced threats, especially in a climate of increased content and cyber security risks. While our revised guidance for 2012 reflects moderate softening in the global economy and volatility in currency exchange rates, we remain confident in our ability to leverage our leading technology and installed base of customers.”
Second Quarter 2012 GAAP Financial Highlights
- Revenues of $89.9 million, compared with $90.7 million in the second quarter of 2011.
- Software and service revenues of $81.7 million, compared with $81.0 million in the second quarter of 2011.
- Appliance revenues of $8.2 million, which consisted of approximately $6.6 million in current-period appliance sales and approximately $1.6 million of deferred appliance revenue from pre-2011 appliance sales, compared with $9.7 million of appliance revenues in the second quarter of 2011, which consisted of approximately $6.5 million in current-period appliance sales and the remainder from deferred appliance revenue from pre-2011 appliance sales.
- Operating income of $11.5 million, compared with $9.5 million in the second quarter of 2011.
- Provision for income taxes of $3.0 million, compared with $4.6 million in the second quarter of 2011.
- Net income of $7.9 million, or 21 cents per diluted share, compared with net income of $4.4 million, or 11 cents per diluted share, in the second quarter of 2011.
- Weighted average diluted shares outstanding of 37.5 million, compared with 41.5 million in the second quarter of 2011.
- Cash flow from operations of $9.9 million, compared with $9.2 million in the second quarter of 2011.
- Quarter-end accounts receivable of $61.8 million, compared with $61.1 million at the end of the second quarter of 2011 and $61.9 million at the end of the first quarter of 2012.
- Days billings outstanding of 65 days, compared with 64 days at the end of the second quarter of 2011 and 69 days billings outstanding at the end of the first quarter of 2012.
- Deferred revenue of $379.6 million, an increase of $2.1 million compared with deferred revenue of $377.5 million at the end of the second quarter of 2011. Deferred revenue at the end of the second quarter of 2012 included $5.3 million from pre-2011 appliance sales, a decrease of $8.0 million from the year ago period. Deferred revenue from pre-2011 appliance sales will continue to decrease quarterly.
Second Quarter 2012 Non-GAAP(1) Financial Highlights
- Billings of $85.4 million, a decrease of one percent compared with the second quarter of 2011. Currency exchange rates had a negative impact on billings of approximately $2.0 million in the second quarter of 2012 compared with the prevailing exchange rates in effect during the second quarter of 2011.
- TRITON solution billings of $50.7 million, an increase of 14 percent compared with the second quarter of 2011.
- Non-GAAP operating income of $18.7 million, compared with non-GAAP operating income of $18.0 million in the second quarter of 2011. Non-GAAP operating margin in the second quarter of 2012, calculated as a percentage of revenues, was 20.8 percent, compared with 19.8 percent in the second quarter of 2011.
- Billings-based operating margin of 17.5 percent, compared with billings-based operating margin of 17.0 percent in the second 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 $3.5 million, based on a long-term effective tax rate of 19 percent, compared with a non-GAAP tax provision of $3.2 million, based on an effective tax rate of 18 percent, in the second quarter of 2011.
- Non-GAAP net income of $14.8 million, or 39 cents per diluted share, compared with $14.4 million, or 35 cents per diluted share, in the second quarter of 2011.
Summary Metrics
---------------
Millions, except percentages,
number of transactions, duration,
and days billings outstanding Q2'11 Y/Y Chg
Q2'12
--- -----
Total billings $85.4 $85.9 -1%
-------------- ----- ----- ---
U.S. billings $42.9 $39.9 8%
------------- ----- ----- ---
International billings $42.5 $46.0 -8%
---------------------- ----- ----- ---
TRITON solution billings(2) $50.7 $44.5 14%
-------------------------- ----- ----- ---
Appliance billings $7.0 $6.7 4%
------------------ ---- ---- ---
Number of transactions >$100K 140 125 12%
----------------------------- --- --- ---
Average contract duration (months) 24.1 23.7 2%
--------------------------------- ---- ---- ---
Days billings outstanding (DSOs) 65 64 1 day
------------------------------- --- --- -----
Cash and cash equivalents $60.2 $76.2 -21%
------------------------- ----- ----- ---
Balance on revolving credit
facility $68.0 $63.0 8%
--------------------------- ----- ----- ---
Share repurchases ($) $20.0 $25.0 -20%
-------------------- ----- ----- ---
Shares repurchased 1.0 1.0 0%
------------------ --- --- ---
- 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 Third Quarter and Fiscal Year 2012
Websense provides guidance on anticipated financial performance for the third 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 may be 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 $1.23 for the Euro and $1.57 for the Pound Sterling. The company disclaims any obligation to update the statements as circumstances change.
Millions, except percentages and
per-share amounts Q3'12 Outlook 2012 Outlook
-------------------------------- ------------- ------------
Total billings $85 - 90 $369 - 378
-------------- -------- ----------
Appliance billings (% of total
billings) 7 - 8% 7 - 8%
------------------------------ ----- -----
Revenues $88 - 90 $359 - 363
-------- -------- ----------
Non-GAAP gross profit margin 84 - 85% 84 - 85%
---------------------------- ------- -------
Non-GAAP operating margin 20 - 22% 19 - 21%
------------------------- ------- -------
Non-GAAP earnings per diluted
share $0.38 - 0.41 $1.50 - 1.57
----------------------------- ------------ ------------
Non-GAAP effective tax rate 19% 19%
--------------------------- --- ---
Average diluted shares
outstanding 37.0 - 37.5 37.0 - 38.0
---------------------- ----------- -----------
Cash flow from operations $0 - 2 $50 - 54
------------------------- ------ --------
Capital expenditures ~$3.0 $12 - 13
-------------------- ----- --------
Additionally, outlook ranges for 2012 reflect:
- Billings-based non-GAAP operating margin of 22 to 25 percent.
- Expected reduction of stock repurchases in the third quarter to approximately $3 million to more closely align with expected cash flow. The company will reassess its position to repurchase shares during the fourth quarter and provide guidance on its third quarter earnings call.
- Expected cash tax payments of approximately $21 to $22 million in the second half of 2012, including $15 to $16 million in payments in the third quarter related to the expected settlement with the U.S. Internal Revenue Service (IRS). As a reminder, in April 2012, the company announced an agreement in principle to settle an outstanding dispute with the IRS relating to an audit for the 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 $5.3 million from pre-2011 appliance billings (as of June 30, 2012) that will continue to be recognized ratably according to the original subscription periods, including $1.4 million to be recognized in the third quarter of 2012 (compared with $2.6 million in the third quarter of 2011).
- Remaining deferred costs of $2.5 million from pre-2011 appliance billings (as of June 30, 2012) that will continue to be recognized ratably according to the original subscription periods, including $0.6 million to be recognized in the third quarter of 2012 (compared with $1.1 million in the third 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 2011 Recognition Schedule (actual) Remaining
balances deferred
as of balances
12/31/10 as of
(actual) 12/31/11
(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
as of deferred balances
12/31/11 as of
(actual) 12/31/12 (expected)
--- ------- -------------------
Q1'12 Q2'12 (actual) 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
----- ---- ---- ---- ---- ---- ---- ----
Conference Call Details
Management will host a conference call and simultaneous webcast to discuss the financial results and outlook today, July 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 September 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 89640639.
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 second 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. 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. 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 second 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
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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; 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 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.
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 as well as the interim financial statements and notes thereto included in Websense’s Quarterly Reports on Form 10-Q. Certain reclassifications have been made for consistent presentation.
INVESTOR CONTACT: MEDIA CONTACT:
Avelina Kauffman Patricia Hogan
Websense, Inc. Websense, Inc.
(858) 320-9364 (858) 320-9393
akauffman@websense.com phogan@websense.com
Websense, Inc.
Consolidated Statements of Operations
(Unaudited and in thousands, except per share amounts)
Three Months Ended June Six Months Ended June
30, 30,
----------------------- ----------------------
2012 2011 2012 2011
---- ---- ---- ----
Revenues:
Software and service $81,699 $80,950 $163,707 $161,254
Appliance 8,175 9,755 15,691 18,085
----- ----- ------ ------
Total revenues 89,874 90,705 179,398 179,339
Cost of revenues:
Software and service 11,300 10,333 22,275 20,759
Appliance 3,405 4,759 6,592 8,996
----- ----- ----- -----
Total cost of
revenues 14,705 15,092 28,867 29,755
------ ------ ------ ------
Gross profit 75,169 75,613 150,531 149,584
Operating expenses:
Selling and marketing 37,538 41,986 76,565 82,840
Research and
development 15,669 14,311 30,959 28,472
General and
administrative 10,510 9,789 20,828 20,953
Total operating
expenses 63,717 66,086 128,352 132,265
------ ------ ------- -------
Income from
operations 11,452 9,527 22,179 17,319
Interest expense (643) (366) (1,299) (793)
Other income
(expense), net 112 (139) (140) 1,326
--- ---- ---- -----
Income before income
taxes 10,921 9,022 20,740 17,852
Provision for income
taxes 2,998 4,642 14,650 5,351
----- ----- ------ -----
Net income $7,923 $4,380 $6,090 $12,501
====== ====== ====== =======
Basic net income per
share $0.21 $0.11 $0.16 $0.31
===== ===== ===== =====
Diluted net income
per share $0.21 $0.11 $0.16 $0.30
===== ===== ===== =====
Weighted average
shares -basic 36,949 40,146 37,290 40,337
====== ====== ====== ======
Weighted average
shares -diluted 37,492 41,480 37,931 41,522
====== ====== ====== ======
Financial Data:
Total deferred
revenue $379,606 $377,539 $379,606 $377,539
======== ======== ======== ========
Websense, Inc.
Consolidated Balance Sheets
(In thousands)
June 30, 2012 December 31, 2011
------------- -----------------
Assets (Unaudited)
Current
assets:
Cash and
cash
equivalents $60,242 $76,201
Accounts
receivable,
net 61,802 80,147
Income tax
receivable/
prepaid
income tax 12 738
Current
portion of
deferred
income
taxes 30,141 30,021
Other
current
assets 12,664 13,793
------ ------
Total
current
assets 164,861 200,900
Cash and
cash
equivalents
-
restricted,
less
current
portion 636 628
Property
and
equipment,
net 18,418 16,832
Intangible
assets,
net 22,176 26,412
Goodwill 372,445 372,445
Deferred
income
taxes,
less
current
portion 8,610 8,599
Deposits
and other
assets 7,593 8,622
Total
assets $594,739 $634,438
======== ========
Liabilities
and
stockholders'
equity
Current
liabilities:
Accounts
payable $6,159 $9,026
Accrued
compensation
and
related
benefits 20,694 22,770
Other
accrued
expenses 15,132 16,534
Current
portion of
income
taxes
payable 9,950 3,187
Current
portion of
deferred
tax
liability 85 86
Current
portion of
deferred
revenue 238,592 250,597
------- -------
Total
current
liabilities 290,612 302,200
Other long
term
liabilities 2,351 2,600
Income
taxes
payable,
less
current
portion 12,305 11,955
Secured
loan 68,000 73,000
Deferred
tax
liability,
less
current
portion 2,497 2,501
Deferred
revenue,
less
current
portion 141,014 142,437
------- -------
Total
liabilities 516,779 534,693
Stockholders'
equity:
Common
stock 574 568
Additional
paid-in
capital 429,828 415,573
Treasury
stock, at
cost (427,224) (385,544)
Retained
earnings 78,337 72,247
Accumulated
other
comprehensive
loss (3,555) (3,099)
Total
stockholders'
equity 77,960 99,745
Total
liabilities
and
stockholders'
equity $594,739 $634,438
======== ========
Websense, Inc.
Consolidated Statements of Cash Flows
(Unaudited and in thousands)
Six Months Ended June
30,
----------------------
2012 2011
---- ----
Operating activities:
Net income $6,090 $12,501
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 9,918 13,069
Share-based compensation 10,245 10,154
Deferred income taxes - 20
Unrealized (gain) loss on
foreign exchange 232 (148)
Excess tax benefit from
share-based compensation (211) (1,640)
Changes in operating assets
and liabilities:
Accounts receivable 19,152 20,641
Other assets 1,259 (413)
Accounts payable (3,743) 332
Accrued compensation and
related benefits (2,298) (1,822)
Other liabilities (1,187) (2,380)
Deferred revenue (13,432) (16,776)
Income taxes payable and
receivable/prepaid 6,210 7,026
Net cash provided by
operating activities 32,235 40,564
------ ------
Investing activities:
Change in restricted cash and
cash equivalents (19) 35
Purchase of property and
equipment (6,101) (4,710)
Purchase of intangible assets - (275)
Net cash used in investing
activities (6,120) (4,950)
------ ------
Financing activities:
Proceeds from secured loan - 56,000
Principal payments on secured
loan (5,000) (60,000)
Principal payments on capital
lease obligation (587) (569)
Proceeds from exercise of
stock options 2,225 12,540
Proceeds from issuance of
common stock for stock
purchase plan 3,595 3,446
Excess tax benefit from
share-based compensation 211 1,640
Tax payments related to
restricted stock unit
issuances (1,682) (1,568)
Purchase of treasury stock (40,497) (48,940)
Net cash used in financing
activities (41,735) (37,451)
------- -------
Effect of exchange rate
changes on cash and cash
equivalents (339) 630
Decrease in cash and cash
equivalents (15,959) (1,207)
Cash and cash equivalents at
beginning of period 76,201 77,390
Cash and cash equivalents at
end of period $60,242 $76,183
======= =======
Cash paid during the period
for:
Income taxes, net of refunds $8,055 $1,694
Interest $1,176 $627
Non-cash financing
activities:
Change in operating assets
and liabilities for
unsettled purchase of
treasury
stock and exercise of stock
options $324 $651
Websense, Inc.
Rollforward of Deferred Revenue
(Unaudited and in thousands)
Deferred revenue balance at
March 31, 2012 $384,076
Net billings during second
quarter 2012 85,405
Less revenue recognized during
second quarter 2012 (89,874)
Translation adjustment (1)
Deferred revenue balance at
June 30, 2012 $379,606
========
Websense, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited and in thousands, except per share amounts)
Three Months Ended June
30, Six Months Ended June 30,
------------------------ -------------------------
2012 2011 2012 2011
---- ---- ---- ----
GAAP Gross profit $75,169 $75,613 $150,531 $149,584
Amortization of acquired technology (2) 539 646 1,078 1,291
Share-based compensation (1) 307 268 645 553
--- --- --- ---
Gross profit adjustment 846 914 1,723 1,844
Non-GAAP Gross profit $76,015 $76,527 $152,254 $151,428
======= ======= ======== ========
GAAP Operating expenses $63,717 $66,086 $128,352 $132,265
Amortization of other intangible assets (2) (1,511) (3,160) (3,023) (6,320)
Share-based compensation (1) (4,925) (4,381) (9,600) (9,601)
------ ------ ------ ------
Operating expense adjustment (6,436) (7,541) (12,623) (15,921)
Non-GAAP Operating expenses $57,281 $58,545 $115,729 $116,344
======= ======= ======== ========
GAAP Income from operations $11,452 $9,527 $22,179 $17,319
Gross profit adjustment 846 914 1,723 1,844
Operating expense adjustment 6,436 7,541 12,623 15,921
Non-GAAP Income from operations $18,734 $17,982 $36,525 $35,084
======= ======= ======= =======
GAAP Provision for income taxes $2,998 $4,642 $14,650 $5,351
Provision for income taxes adjustment (5) 472 (1,492) (7,961) 1,439
--- ------ ------ -----
Non-GAAP Provision for income taxes (3) $3,470 $3,150 $6,689 $6,790
====== ====== ====== ======
GAAP Net income $7,923 $4,380 $6,090 $12,501
Gross profit adjustment 846 914 1,723 1,844
Operating expense adjustment 6,436 7,541 12,623 15,921
Amortization of deferred financing fees (4) 59 59 119 119
Provision for income tax adjustment (472) 1,492 7,961 (1,439)
Non-GAAP Net income $14,792 $14,386 $28,516 $28,946
======= ======= ======= =======
GAAP Net income per diluted share $0.21 $0.11 $0.16 $0.30
Non-GAAP adjustments as described above per share, 0.18 0.24 0.59 0.40
net of tax (1-5)
Non-GAAP Net income per diluted share $0.39 $0.35 $0.75 $0.70
===== ===== ===== =====
(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 June 30, Six Months Ended June 30,
Billings: 2012 2011 2012 2011
---- ---- ---- ----
Software and service billings $78,431 91.8% $79,155 92.1% $153,046 92.2% $150,564 92.6%
Appliance billings 6,974 8.2% 6,748 7.9% 12,926 7.8% 11,998 7.4%
-----
Total billings 85,405 100.0% 85,903 100.0% 165,972 100.0% 162,562 100.0%
Non-GAAP Cost of billings:
Software and service cost of billings 10,454 13.3% 9,419 11.9% 20,552 13.4% 18,915 12.6%
Appliance cost of billings (1) 2,697 38.7% 3,336 49.4% 5,126 39.7% 5,959 49.7%
-----
Non-GAAP Cost of billings 13,151 15.4% 12,755 14.8% 25,678 15.5% 24,874 15.3%
Non-GAAP Gross margin:
Software and service gross margin 67,977 86.7% 69,736 88.1% 132,494 86.6% 131,649 87.4%
Appliance gross margin 4,277 61.3% 3,412 50.6% 7,800 60.3% 6,039 50.3%
-----
Non-GAAP Gross margin 72,254 84.6% 73,148 85.2% 140,294 84.5% 137,688 84.7%
Non-GAAP Operating expenses:
Selling and marketing 34,009 39.8% 37,177 43.3% 69,743 42.0% 73,542 45.3%
Research and development 14,498 17.0% 13,429 15.7% 28,517 17.2% 26,545 16.3%
General and administrative 8,774 10.3% 7,939 9.2% 17,469 10.5% 16,257 10.0%
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Non-GAAP Operating expenses 57,281 67.1% 58,545 68.2% 115,729 69.7% 116,344 71.6%
Non-GAAP Billings operating margin $14,973 17.5% $14,603 17.0% $24,565 14.8% $21,344 13.1%
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(1) Excluding deferred appliance expenses associated with pre-2011 appliance sales.
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 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
