Exhibit 99.2
| INVESTOR CONTACT: | MEDIA CONTACT: | |||||
| Kate Patterson | Cas Purdy | |||||
| Websense, Inc. | Websense, Inc. | |||||
| (858) 320-8072 | (858) 320-9493 | |||||
| kpatterson@websense.com | cpurdy@websense.com |
NEWS RELEASE
Websense Confirms Second Quarter 2009 Results
Company returns to GAAP profitability
SAN DIEGO, July 28, 2009 —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 atwww.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™ 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, visitwww.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, 2009 | June 30, 2008 | June 30, 2009 | June 30, 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, 2009 | December 31, 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, 2009 | June 30, 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, 2009 | June 30, 2008 | June 30, 2009 | June 30, 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 | ||