Websense Reports Third Quarter 2012 Results
Financial highlights include revenues of $90.4 millionSAN 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-GAAP1 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.
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