Exhibit 99.1
(WEBSENSE LOGO)
IR CONTACT: Kate Patterson MEDIA CONTACT: Brigitte Engel
Websense Inc. Websense Inc.
(858) 320-8072 (858) 320-9270
kpatterson@websense.com bengel@websense.com
NEWS RELEASE
WEBSENSE REPORTS RECORD THIRD QUARTER REVENUE AND CONTINUED STRONG GROWTH IN
BILLINGS
Revenue Rises 31 Percent to $21 Million and Billings Increase 33 Percent to
$28.2 Million Compared to the Third Quarter of 2002
SAN DIEGO, October 21, 2003 - Websense Inc. (NASDAQ: WBSN), the world's
leading provider of employee Internet management (EIM) software, today announced
financial results for the third quarter ended September 30, 2003.
Revenue for the third quarter was a record $21 million, an increase of 31
percent from the $16.0 million reported in the third quarter a year ago. Third
quarter net income was $4.2 million, or 18 cents per diluted share, compared to
net income in the third quarter of 2002 of $4.0 million, or 18 cents per diluted
share. Third quarter 2003 results reflected an effective tax rate of 38 percent,
compared to an effective tax rate of approximately 6 percent in the third
quarter of 2002.
Websense sells subscriptions to its products primarily on a one-, two- or
three-year basis, billing the entire amount to the customer up-front. The
company then recognizes pro-rata portions of the total billings as subscription
revenue on a monthly straight-line basis over the life of the subscriptions.
Total billings in the third quarter were the highest in the company's history at
$28.2 million, an increase of 33 percent compared with $21.2 million in the
third quarter of 2002.
"This record-breaking performance was the direct result of growing
traction for our next-generation solutions, especially Websense Enterprise(R)
v5. Our billings performance, new customer additions and record number of large
transactions all suggest that Websense's innovative technology roadmap is
resonating with customers and driving both more and larger commitments," said
John Carrington, chairman and CEO of Websense Inc. "Websense is the only
solution that includes the three critical points of policy enforcement -- at the
gateway, the network and the desktop -- necessary to extend management and
control of computing resources beyond URL filtering to include instant
messaging, peer-to-peer file sharing and desktop applications."
"This multi-level approach to managing the employee computing environment
is particularly important as the number of new blended virus attacks continues
to increase," added Carrington. "The ability to manage employee use of a broad
spectrum of Internet-enabled
WEBSENSE INC.
Q3 2003 EARNINGS RELEASE (PAGE 2)
applications at multiple points of presence, and to block the execution of
malicious code even after it has been introduced on the desktop, complements
existing anti-virus and security measures and is a powerful competitive
advantage for Websense."
THIRD QUARTER OPERATING MODEL
Operating margin for the quarter was 30 percent, reflecting both revenue
growth and continued prudent financial controls. Cost of goods sold, which
includes costs associated with technical support and maintenance of the
company's databases of URLs, executable applications and protocols, accounted
for 7 percent of revenue. Total operating expenses were 63 percent of revenue,
compared with 70 percent in the third quarter of 2002. Third quarter 2003 sales
and marketing expenses reflected higher commission payments associated with the
company's strong billings performance in the quarter when compared with prior
quarters. Operating margin was consistent with the company's target of 30
percent for the third consecutive quarter, placing Websense among an elite group
of software companies that have achieved this level of profitability.
BALANCE SHEET CONTINUES TO STRENGTHEN
The company ended the quarter with $167.3 million in cash and investments,
an increase of $10.4 million from the prior quarter, and no debt. The increase
in the cash and investments balance reflected strong operating cash flow,
partially offset by $1.6 million in estimated tax payments and $2.4 million
spent during the third quarter to repurchase 124,000 shares of the company's
common stock at an average price of $19.38. To date, Websense has repurchased
289,000 shares out of the two million shares authorized for repurchase by the
Board of Directors.
Deferred revenue -- which represents amounts billed to customers but not
yet recognized as subscription revenue -- was $78.3 million at the end of the
third quarter, an increase of approximately $7.2 million from the end of the
second quarter of 2003, and an increase of $13.6 million year-to-date. The
increase in deferred revenue reflects the amount that total billings during the
quarter exceeded total subscription revenue recognized in the quarter. Deferred
revenue has increased every quarter since the company's initial public offering
in March 2000.
NINE MONTHS RESULTS
For the nine months ended September 30, revenue was $59.0 million, an
increase of 35 percent from the $43.6 million posted in the first nine months of
2002. Net income totaled $12.2 million, or 53 cents per diluted share, compared
to $10.2 million, or 44 cents per diluted share, during the first nine months of
2002. Results for the first nine months of 2003 reflected an effective tax rate
of 39 percent, compared to an effective tax rate of approximately 6 percent in
the first nine months of 2002.
BUSINESS HIGHLIGHTS
In addition to record billings and revenue performance, business
highlights since the end of the second quarter include:
WEBSENSE INC.
Q3 2003 EARNINGS RELEASE (PAGE 3)
- Websense was awarded U.S. Patent No. 6,606,659, entitled "System and
Method for Controlling Access to Internet Sites." The patent covers
several key areas of competitive differentiation for Websense,
including a wide spectrum of policy options such as time-based
quotas and filtering by time of day. Websense has additional patents
pending for its WebCatcher(TM) and AppCatcher(TM) technologies.
- The company closed more than 90 transactions greater than $50,000
and added approximately 600 customers during the quarter, increasing
the number of customers to approximately 20,000 worldwide. There
were significant wins in all geographic regions and across a variety
of vertical markets, including Visteon, the Hong Kong and Shanghai
Bank, Centrica plc, Land o' Lakes and Cox Communications. Customers
outside the United States accounted for 30 percent of subscription
revenue in the quarter.
- Renewals remained strong, and significant renewing or upgrading
customers included Fifth Third Bank, KPMG UK, Northrop Grumman,
Countrywide Home Loans, the U.S. Department of Justice, and Hitachi
Systems.
- Seats under subscription increased by approximately 800,000 seats to
approximately 15.8 million. Year-to-date, Websense has added more
than two million seats to its subscription base. At the end of the
third quarter, approximately one-third of all seat subscriptions
included one or more of the Premium Group database categories.
- Leveraging the company's highly sophisticated search and
classification technologies, the Websense Master Database grew to
4.9 million Web sites representing more than 1.1 billion unique Web
pages. Websense has now categorized more than six million Web sites
in more than 50 languages, including approximately 1.3 million dead
links that have been removed from the database. Additionally, the
company has identified and categorized more than 165,000 software
applications and executable files in its Client Application
Manager(TM) database.
- The company received the Global Market Leadership Award in Web
filtering from Frost & Sullivan, a leader in growth consulting. The
award recognizes Websense for its market share leadership and
excellence in all areas of the market, including the identification
of market challenges, drivers and restraints, as well as strategy
development and methods of addressing these market dynamics.
FOURTH QUARTER OUTLOOK
Websense provides guidance on its anticipated financial performance in the
coming quarter based on its assessment of the current business environment. In
providing quarterly guidance, the company emphasizes that its forward-looking
statements are based on current expectations and disclaims any obligation to
update the statements as conditions change.
WEBSENSE INC.
Q3 2003 EARNINGS RELEASE (PAGE 4)
The company expects year-over-year revenue growth in the fourth quarter of
2003 to be in the range of 28 to 29 percent. Based on this revenue, earnings are
expected to be approximately 19 cents per diluted share and will reflect a 38
percent effective tax rate.
CONFERENCE CALL
Websense is hosting a conference call and simultaneous Webcast today at
5:00 p.m. (EDT) to discuss these results. To participate in the call, investors
should dial (800) 374-0879 (domestic) or (706) 643-7555 (international) ten
minutes prior to the scheduled start of the call and reference call no. 3022709.
The Webcast may be accessed via the Internet at www.websense.com/investors. An
audio archive of the Webcast will be available on the company's Web site through
December 31 and a taped replay of the call will be available for one week at
(800) 642-1687 or (706) 645-9291, passcode 3022709.
NON-GAAP FINANCIAL MEASURES
This press release includes financial measures for billings that are not
numerical measures that can be calculated in accordance with generally accepted
accounting principles (GAAP). Websense has provided this measurement in press
releases reporting financial performance, presently and in the past, 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. A reconciliation of billings and deferred revenue for the
third quarter of 2003 is set forth at the end of this press release.
ABOUT WEBSENSE INC.
Websense Inc. (Nasdaq: WBSN) is the world's leading provider of employee
Internet management solutions. Websense Enterprise software enables
organizations to manage how employees use their computing resources, including
Internet access, desktop applications and network bandwidth. These solutions
help improve productivity and security, conserve information technology
resources, and mitigate legal liability for our customers. Websense serves
approximately 20,000 customers worldwide, including many of the world's largest
corporations. For more information, visit www.websense.com.
# # #
This press 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 statements
containing the words "planned," "expects," "believes," "strategy,"
"opportunity," "anticipates" and similar words. These statements may include,
among others, plans, strategies and objectives of management for future
operations; any statements regarding proposed new products, services or
developments; any statements regarding future economic conditions or financial
or operating performance; statements of belief and any statements of assumptions
WEBSENSE INC.
Q3 2003 EARNINGS RELEASE (PAGE 5)
underlying any of the foregoing. The potential risks and uncertainties which
contribute to the uncertain nature of these statements include, among others,
customer acceptance of the company's services, products and fee structures; the
success of Websense's brand development efforts; the volatile and competitive
nature of the Internet industry; changes in domestic and international market
conditions and the entry into and development of international markets for the
company's products; risks relating to intellectual property ownership; and the
other risks and uncertainties described in Websense's public filings with the
Securities and Exchange Commission, available at (<http://www.sec.gov>).
Websense assumes no obligation to update any forward-looking statement to
reflect events or circumstances arising after the date on which it was made.
Tables to follow
WEBSENSE INC.
Q3 2003 EARNINGS RELEASE (PAGE 6)
WEBSENSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Revenue $ 21,006 $ 16,005 $ 59,034 $ 43,590
Cost of revenue 1,412 1,081 4,007 3,075
---------- ---------- ---------- ----------
Gross margin 19,594 14,924 55,027 40,515
Operating expenses:
Selling and marketing 8,236 6,610 22,417 18,845
Research and development 3,224 3,063 9,548 7,941
General and administrative 1,770 1,503 4,986 4,548
Amortization of stock-based compensation 11 95 76 380
---------- ---------- ---------- ----------
Total operating expenses 13,241 11,271 37,027 31,714
---------- ---------- ---------- ----------
Income from operations 6,353 3,653 18,000 8,801
Other income, net 418 665 1,873 2,066
---------- ---------- ---------- ----------
Income before income taxes 6,771 4,318 19,873 10,867
Provision for income taxes 2,539 280 7,693 627
---------- ---------- ---------- ----------
Net income $ 4,232 $ 4,038 $ 12,180 $ 10,240
========== ========== ========== ==========
Basic net income per share $ 0.19 $ 0.19 $ 0.56 $ 0.49
========== ========== ========== ==========
Diluted net income per share $ 0.18 $ 0.18 $ 0.53 $ 0.44
========== ========== ========== ==========
Basic common shares 22,072 21,319 21,917 21,069
========== ========== ========== ==========
Diluted common shares 23,035 22,913 22,805 23,170
========== ========== ========== ==========
FINANCIAL DATA:
Total deferred revenue $ 78,268 $ 55,134 $ 78,268 $ 55,134
========== ========== ========== ==========
WEBSENSE INC.
Q3 2003 EARNINGS RELEASE (PAGE 7)
WEBSENSE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2003 2002
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 90,563 $ 61,713
Investments in marketable securities 76,734 78,753
Accounts receivable, net 21,601 19,840
Deferred income taxes 8,731 8,731
Other current assets 1,321 1,184
---------- ----------
Total current assets 198,950 170,221
Property and equipment, net 3,247 2,967
Deferred income taxes, less current portion 6,701 6,701
Deposits and other assets 392 299
---------- ----------
TOTAL ASSETS $ 209,290 $ 180,188
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 551 $ 761
Accrued payroll and related benefits 5,152 3,627
Other accrued expenses 3,353 3,440
Income taxes payable 4,406 970
Deferred revenue, current portion 55,804 46,964
---------- ----------
Total current liabilities 69,266 55,762
Deferred revenue, less current portion 22,464 17,715
STOCKHOLDERS' EQUITY:
Common stock 225 217
Additional paid-in capital 110,924 107,058
Deferred compensation (7) (83)
Retained earnings (deficit) 11,223 (957)
Accumulated other comprehensive income 13 476
Treasury stock (4,818) --
---------- ----------
Total stockholders' equity 117,560 106,711
---------- ----------
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 209,290 $ 180,188
========== ==========
WEBSENSE INC.
Q3 2003 EARNINGS RELEASE (PAGE 8)
WEBSENSE, INC.
RECONCILIATION OF BILLINGS TO DEFERRED REVENUE
(IN THOUSANDS)
Deferred revenue balance June 30, 2003 $ 71,093
Billings third quarter 2003 28,181
Revenue recognized third quarter 2003 (21,006)
--------
Deferred revenue balance September 30, 2003 $ 78,268
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