Websense Reports Third Quarter 2012 Results
SAN DIEGO, Oct. 23, 2012 /PRNewswire/ — Websense, Inc. (NASDAQ: WBSN) today announced financial results for the third quarter of 2012.
“In the third quarter, we had double-digit growth in sales to new customers and we started to see a recovery in our international sales territories, with sales outside the U.S. growing by 14 percent,” said Gene Hodges, Websense(®) CEO. “While our customer retention rates remain solid, we were negatively impacted by fewer upgrades from our installed base in the U.S. Looking ahead, we see good opportunities to upgrade our customers and increase new customer sales. The need and awareness for content security is increasing, and security experts recognize we have the best solutions to protect against data theft and advanced attacks.”
Third Quarter 2012 GAAP Financial Highlights
- Revenues of $90.4 million, compared with $92.1 million in the third quarter of 2011.
- Software and service revenues of $82.3 million, compared with $81.8 million in the third quarter of 2011.
- Appliance revenues of $8.1 million, which consisted of approximately $6.6 million in current-period appliance sales and approximately $1.5 million of deferred appliance revenue primarily from pre-2011 appliance sales, compared with $10.3 million of appliance revenues in the third quarter of 2011, which consisted of approximately $7.7 million in current-period appliance sales and the remainder from deferred appliance revenue primarily from pre-2011 appliance sales.
- Operating income of $13.8 million, compared with $13.7 million in the third quarter of 2011.
- Provision for income taxes of $4.6 million, compared with $5.4 million in the third quarter of 2011.
- Net income of $8.5 million, or 23 cents per diluted share, compared with net income of $8.1 million, or 20 cents per diluted share, in the third quarter of 2011.
- Weighted average diluted shares outstanding of 36.8 million, compared with 40.4 million in the third quarter of 2011.
- Cash flow from operations of $5.6 million, compared with $16.7 million in the third quarter of 2011. Cash flow from operations includes one-time tax payments of $14.7 million relating to the company’s settlement with the U.S. Internal Revenue Service of certain audit adjustments for tax years 2005 through 2007. The company had expected these payments to total $15 to $16 million in the third quarter.
- Quarter-end accounts receivable of $54.4 million, compared with $59.8 million at the end of the third quarter of 2011 and $61.8 million at the end of the second quarter of 2012.
- Days billings outstanding of 60 days, compared with 64 days at the end of the third quarter of 2011 and 65 days billings outstanding at the end of the second quarter of 2012.
- Deferred revenue of $370.7 million, an increase of $0.9 million compared with deferred revenue of $369.8 million at the end of the third quarter of 2011. Deferred revenue at the end of the third quarter of 2012 included $5.8 million from extended warranties and pre-2011 appliance sales, a decrease of $5.8 million from the year ago period. Deferred revenue from pre-2011 appliance sales will continue to decrease quarterly.
Third Quarter 2012 Non-GAAP(1) Financial Highlights
- Billings of $81.5 million, a decrease of three percent compared with the third quarter of 2011. Currency exchange rates had a negative impact on billings of approximately $1.9 million in the third quarter of 2012 compared with the prevailing exchange rates in effect during the third quarter of 2011.
- TRITON(TM) solution billings of $49.4 million, an increase of nine percent compared with the third quarter of 2011.
- Non-GAAP operating income of $20.3 million, compared with non-GAAP operating income of $21.8 million in the third quarter of 2011. Non-GAAP operating margin in the third quarter of 2012, calculated as a percentage of revenues, was 22.4 percent, compared with 23.7 percent in the third quarter of 2011.
- Billings-based operating margin of 14.8 percent, compared with billings-based operating margin of 17.9 percent in the third 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 $3.7 million, based on a long-term effective tax rate of 19 percent, compared with a non-GAAP tax provision of $3.8 million, based on an effective tax rate of 17.7 percent, in the third quarter of 2011.
- Non-GAAP net income of $15.9 million, or 43 cents per diluted share, compared with $17.9 million, or 44 cents per diluted share, in the third quarter of 2011.
Summary Metrics
Millions, except percentages,
number of transactions, duration,
and days billings outstanding Q3'11 Y/Y Chg
Q3'12
--- -----
Total billings $81.5 $84.3 -3%
-------------- ----- ----- ---
U.S. billings $39.3 $47.2 -17%
------------- ----- ----- ---
International billings $42.2 $37.1 14%
---------------------- ----- ----- ---
TRITON solution billings(2) $49.4 $45.3 9%
-------------------------- ----- ----- ---
Appliance billings $6.9 $8.0 -14%
------------------ ---- ---- ---
Number of transactions >$100K 144 132 9%
----------------------------- --- --- ---
Average contract duration (months) 24.1 23.1 4%
---------------------------------- ---- ---- ---
Days billings outstanding (DSOs) 60 64 -4 days
------------------------------- --- --- -------
Cash and cash equivalents $57.6 $75.6 -24%
------------------------- ----- ----- ---
Balance on revolving credit
facility $68.0 $73.0 -7%
--------------------------- ----- ----- ---
Share repurchases ($) $2.9 $25.0 -88%
-------------------- ---- ----- ---
1. 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."
2. 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 Fourth Quarter and Fiscal Year 2012
Websense provides guidance on anticipated financial performance for 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 23 and 24 months and prevailing currency exchange rates of $1.29 for the Euro and $1.61 for the Pound Sterling. The company disclaims any obligation to update the statements as circumstances change.
Millions, except percentages and
per-share amounts Q4'12 Outlook Implied
2012 Outlook
--- ------------
Total billings $112 - 117 $359.5 - 364.5
-------------- ---------- --------------
Appliance billings (% of total
billings) 7 - 8% 7 - 8%
------------------------------ ----- -----
Revenues $90 - 92 $359.8 - 361.8
-------- -------- --------------
Non-GAAP gross profit margin 83 - 84% 84 - 85%
---------------------------- ------- -------
Non-GAAP operating margin 16 - 18% 19 - 20%
------------------------- ------- -------
Non-GAAP earnings per diluted
share $0.32 - 0.35 $1.50 - 1.53
----------------------------- ------------ ------------
Non-GAAP effective tax rate 19% 19%
--------------------------- --- ---
Average diluted shares
outstanding 37.0 - 37.5 37.0 - 37.5
---------------------- ----------- -----------
Cash flow from operations $8.0 - 11.0 $45.8 - 48.8
------------------------- ----------- ------------
Capital expenditures $3.0 - 3.5 $12.5 - 13.0
-------------------- ---------- ------------
Cash taxes (net of refunds) $3.0 - 4.0 $28.0 - 29.0
-------------------------- ---------- ------------
Additionally, outlook ranges for 2012 reflect:
- Billings-based non-GAAP operating margin of 20 to 22 percent.
- Expected stock repurchases in the fourth quarter of approximately $5 million to more closely align with expected cash flow.
- Non-cash items related to the recognition of revenue and costs associated with pre-2011 appliance billings:
- Remaining deferred revenue of $3.9 million from pre-2011 appliance billings (as of September 30, 2012) that will continue to be recognized ratably according to the original subscription periods, including $1.2 million to be recognized in the fourth quarter of 2012 (compared with $2.1 million in the fourth quarter of 2011).
- Remaining deferred costs of $1.9 million from pre-2011 appliance billings (as of September 30, 2012) that will continue to be recognized ratably according to the original subscription periods, including $0.5 million to be recognized in the fourth quarter of 2012 (compared with $1.0 million in the fourth 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 balances 2011 Recognition Schedule (actual) Remaining deferred balances
as of 12/31/10 as of 12/31/11
(actual) (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 deferred balances
as of 12/31/11 as of 12/31/12 (expected)
(actual)
--- -------
Q1'12 Q2'12 (actual) Q3'12 Q4'12 2012
(actual) (actual) (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, October 23, 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 December 31, 2012, and a recorded replay of the call will be available for one week at (855) 859-2056 and (404) 537-3406, pass code 33392987.
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 third 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 third 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
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 Gene Hodges; statements about our expected success selling products; statements about the effectiveness of our products; 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 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.
Websense, Inc.
Consolidated Statements of Operations
(Unaudited and in thousands, except per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2012 2011 2012 2011
---- ---- ---- ----
Revenues:
Software and service $82,285 $81,803 $245,992 $243,057
Appliance 8,078 10,308 23,769 28,393
----- ------ ------ ------
Total revenues 90,363 92,111 269,761 271,450
Cost of revenues:
Software and service 11,643 10,234 33,918 30,993
Appliance 3,337 4,665 9,929 13,661
----- ----- ----- ------
Total cost of revenues 14,980 14,899 43,847 44,654
------ ------ ------ ------
Gross profit 75,383 77,212 225,914 226,796
Operating expenses:
Selling and marketing 35,661 38,445 112,226 121,285
Research and development 15,786 15,084 46,745 43,556
General and administrative 10,132 9,969 30,960 30,922
Total operating expenses 61,579 63,498 189,931 195,763
------ ------ ------- -------
Income from operations 13,804 13,714 35,983 31,033
Interest expense (644) (374) (1,943) (1,167)
Other income (expense), net (81) 204 (221) 1,530
--- --- ---- -----
Income before income taxes 13,079 13,544 33,819 31,396
Provision for income taxes 4,628 5,426 19,278 10,777
----- ----- ------ ------
Net income $8,451 $8,118 $14,541 $20,619
====== ====== ======= =======
Basic net income per share $0.23 $0.21 $0.39 $0.51
===== ===== ===== =====
Diluted net income per share $0.23 $0.20 $0.39 $0.50
===== ===== ===== =====
Weighted average shares - basic 36,457 39,575 37,010 40,081
====== ====== ====== ======
Weighted average shares - diluted 36,782 40,428 37,590 41,273
====== ====== ====== ======
Financial Data:
Total deferred revenue $370,739 $369,750 $370,739 $369,750
======== ======== ======== ========
Websense, Inc.
Consolidated Balance Sheets
(In thousands)
September 30, 2012 December 31, 2011
------------------ -----------------
Assets (Unaudited)
Current
assets:
Cash and
cash
equivalents $57,602 $76,201
Accounts
receivable,
net 54,436 80,147
Income
tax
receivable/
prepaid
income
tax 2,187 738
Current
portion
of
deferred
income
taxes 30,234 30,021
Other
current
assets 11,589 13,793
------ ------
Total
current
assets 156,048 200,900
Cash and
cash
equivalents
-
restricted 640 628
Property
and
equipment,
net 18,617 16,832
Intangible
assets,
net 20,058 26,412
Goodwill 372,445 372,445
Deferred
income
taxes,
less
current
portion 8,670 8,599
Deposits
and
other
assets 7,348 8,622
Total
assets $583,826 $634,438
======== ========
Liabilities
and
stockholders'
equity
Current
liabilities:
Accounts
payable $6,404 $9,026
Accrued
compensation
and
related
benefits 23,358 22,770
Other
accrued
expenses 11,722 16,534
Current
portion
of
income
taxes
payable 1,533 3,187
Current
portion
of
deferred
tax
liability 86 86
Current
portion
of
deferred
revenue 231,576 250,597
------- -------
Total
current
liabilities 274,679 302,200
Other
long
term
liabilities 2,256 2,600
Income
taxes
payable,
less
current
portion 10,308 11,955
Secured
loan 68,000 73,000
Deferred
tax
liability,
less
current
portion 2,512 2,501
Deferred
revenue,
less
current
portion 139,163 142,437
------- -------
Total
liabilities 496,918 534,693
Stockholders'
equity:
Common
stock 577 568
Additional
paid-in
capital 434,089 415,573
Treasury
stock,
at cost (431,290) (385,544)
Retained
earnings 86,788 72,247
Accumulated
other
comprehensive
loss (3,256) (3,099)
Total
stockholders'
equity 86,908 99,745
Total
liabilities
and
stockholders'
equity $583,826 $634,438
======== ========
Websense, Inc.
Consolidated Statements of Cash Flows
(Unaudited and in thousands)
Nine Months Ended September 30,
-------------------------------
2012 2011
---- ----
Operating activities:
Net income $14,541 $20,619
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 15,133 19,716
Share-based compensation 14,675 14,433
Deferred income taxes - (360)
Unrealized loss (gain) on foreign exchange 412 (47)
Excess tax benefit from share-based compensation (532) (2,267)
Changes in operating assets and liabilities:
Accounts receivable 26,760 21,149
Other assets 2,412 470
Accounts payable (3,437) 2,244
Accrued compensation and related benefits 451 533
Other liabilities (3,761) (3,385)
Deferred revenue (22,297) (24,575)
Income taxes payable and receivable/prepaid (6,559) 8,722
Net cash provided by operating activities 37,798 57,252
------ ------
Investing activities:
Change in restricted cash and cash equivalents (20) 33
Purchase of property and equipment (9,576) (7,176)
Purchase of intangible assets - (500)
Net cash used in investing activities (9,596) (7,643)
------ ------
Financing activities:
Proceeds from secured loan - 87,000
Principal payments on secured loan (5,000) (81,000)
Principal payments on capital lease obligation (587) (569)
Proceeds from exercise of stock options 2,257 14,461
Proceeds from issuance of common stock for stock purchase plan 3,595 3,446
Excess tax benefit from share-based compensation 532 2,267
Tax payments related to restricted stock unit issuances (2,830) (2,824)
Purchase of treasury stock (44,674) (73,998)
Net cash used in financing activities (46,707) (51,217)
------- -------
Effect of exchange rate changes on cash and cash equivalents (94) (232)
Decrease in cash and cash equivalents (18,599) (1,840)
Cash and cash equivalents at beginning of period 76,201 77,390
Cash and cash equivalents at end of period $57,602 $75,550
======= =======
Cash paid during the period for:
Income taxes including interest and penalties, net of refunds $25,385 $5,045
Interest $1,746 $968
Non-cash financing activities:
Change in operating assets and liabilities for unsettled purchase
of treasury stock and exercise of stock options
$(1,583) $994
Websense, Inc.
Rollforward of Deferred Revenue
(Unaudited and in thousands)
Deferred revenue balance at
June 30, 2012 $379,606
Net billings during third
quarter 2012 81,498
Less revenue recognized
during third quarter 2012 (90,363)
Translation adjustment (2)
Deferred revenue balance at
September 30, 2012 $370,739
========
Websense, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited and in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2012 2011 2012 2011
---- ---- ---- ----
GAAP Gross profit $75,383 $77,212 $225,914 $226,796
Amortization of acquired technology (2) 539 646 1,617 1,937
Share-based compensation (1) 238 276 883 829
--- --- --- ---
Gross profit adjustment 777 922 2,500 2,766
Non-GAAP Gross profit $76,160 $78,134 $228,414 $229,562
======= ======= ======== ========
GAAP Operating expenses $61,579 $63,498 $189,931 $195,763
Amortization of other intangible assets (2) (1,512) (3,159) (4,535) (9,479)
Share-based compensation (1) (4,192) (4,004) (13,792) (13,605)
------ ------ ------- -------
Operating expense adjustment (5,704) (7,163) (18,327) (23,084)
Non-GAAP Operating expenses $55,875 $56,335 $171,604 $172,679
======= ======= ======== ========
GAAP Income from operations $13,804 $13,714 $35,983 $31,033
Gross profit adjustment 777 922 2,500 2,766
Operating expense adjustment 5,704 7,163 18,327 23,084
Non-GAAP Income from operations $20,285 $21,799 $56,810 $56,883
======= ======= ======= =======
GAAP Provision for income taxes $4,628 $5,426 $19,278 $10,777
Provision for income taxes adjustment (3, 5) (900) (1,592) (8,861) (153)
---- ------ ------ ----
Non-GAAP Provision for income taxes $3,728 $3,834 $10,417 $10,624
====== ====== ======= =======
GAAP Net income $8,451 $8,118 $14,541 $20,619
Gross profit adjustment 777 922 2,500 2,766
Operating expense adjustment 5,704 7,163 18,327 23,084
Amortization of deferred financing fees (4) 59 60 178 179
Provision for income tax adjustment 900 1,592 8,861 153
Non-GAAP Net income $15,891 $17,855 $44,407 $46,801
======= ======= ======= =======
GAAP Net income per diluted share $0.23 $0.20 $0.39 $0.50
Non-GAAP adjustments as described above 0.20 0.24 0.79 0.63
per share, net of tax (1-5)
Non-GAAP Net income per diluted share $0.43 $0.44 $1.18 $1.13
===== ===== ===== =====
(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 annual non-GAAP tax expense divided by the company’s long term annual 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 is 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 September 30, Nine Months Ended September 30,
Billings: 2012 2011 2012 2011
---- ---- ---- ----
Software and service billings $74,585 91.5% $76,332 90.5% $227,631 92.0% $226,896 91.9%
Appliance billings 6,913 8.5% 7,983 9.5% 19,839 8.0% 19,981 8.1%
-----
Total billings 81,498 100.0% 84,315 100.0% 247,470 100.0% 246,877 100.0%
Non-GAAP Cost of billings:
Software and service cost of billings 10,866 14.6% 9,312 12.2% 31,418 13.8% 28,227 12.4%
Appliance cost of billings (1) 2,716 39.3% 3,553 44.5% 7,842 39.5% 9,512 47.6%
-----
Non-GAAP Cost of billings 13,582 16.7% 12,865 15.3% 39,260 15.9% 37,739 15.3%
Non-GAAP Gross margin:
Software and service gross margin 63,719 85.4% 67,020 87.8% 196,213 86.2% 198,669 87.6%
Appliance gross margin 4,197 60.7% 4,430 55.5% 11,997 60.5% 10,469 52.4%
-----
Non-GAAP Gross margin 67,916 83.3% 71,450 84.7% 208,210 84.1% 209,138 84.7%
Non-GAAP Operating expenses:
Selling and marketing 32,627 40.0% 33,953 40.3% 102,370 41.4% 107,494 43.5%
Research and development 14,689 18.0% 14,123 16.7% 43,206 17.4% 40,669 16.5%
General and administrative 8,559 10.5% 8,259 9.8% 26,028 10.5% 24,516 9.9%
-----
Non-GAAP Operating expenses 55,875 68.5% 56,335 66.8% 171,604 69.3% 172,679 69.9%
Non-GAAP Billings operating margin $12,041 14.8% $15,115 17.9% $36,606 14.8% $36,459 14.8%
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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.
INVESTOR CONTACT: MEDIA CONTACT:
Avelina Kauffman Patricia Hogan
Websense, Inc. Websense, Inc.
(858) 320-9364 (858) 320-9393
akauffman@websense.com phogan@websense.com
SOURCE Websense, Inc.
