EXHIBIT 99.1
[WEBSENSE COMPANY 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
BUSINESS MOMENTUM AT WEBSENSE CONTINUES TO BUILD WITH RECORD FOURTH
QUARTER AND FISCAL YEAR RESULTS
Annual Billings Surpass $111 Million as Threats Associated with New
Internet-based Technologies Drive Growth in Demand for Employee
Internet Management Solutions
SAN DIEGO, January 28, 2004 - Websense Inc. (NASDAQ: WBSN), the world's leading
provider of employee Internet management (EIM) software, today announced its
financial results for the fourth quarter and fiscal year ended December 31,
2003.
Revenue for the fourth quarter grew for the 17th consecutive quarter and
was a record $22.7 million, an increase of 31 percent from the fourth quarter of
2002. Income before taxes was $7.2 million, an increase of 42 percent from the
fourth quarter of 2002. Fourth quarter net income was $4.5 million, or 19 cents
per diluted share, and reflected an effective tax rate of 38 percent. This
compares to net income in the fourth quarter of 2002 of $6.5 million, or 28
cents per diluted share, which included a tax benefit of $1.4 million associated
with the recognition of deferred tax assets.
For the fiscal year ended December 31, 2003, revenue was $81.7 million, an
increase of 34 percent from 2002. Income before taxes was $27.1 million, an
increase of 70 percent from 2002. Net income was $16.7 million, or 73 cents per
diluted share, and reflected a 38 percent effective tax rate. This compares with
2002 net income of $16.7 million, or 72 cents per diluted share, which included
a tax benefit of $797,000 associated with the recognition of deferred tax
assets. The company also generated significant positive cash flows during the
year and increased its cash balances by more than $42 million from the end of
2002, ending 2003 with $182.9 million in cash and investments and zero debt.
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Q4 2003 EARNINGS RELEASE (PAGE 2)
"The 2003 fiscal year was remarkable for Websense, a year in which we
truly changed the game of competing in the EIM market," said John Carrington,
chairman and CEO of Websense Inc. "Our business momentum continued to build
throughout the year as we extended our market leadership in terms of vision,
technology, installed base and market share.
"As the number of new and blended threats associated with emerging
Internet-enabled applications accelerated, customers embraced the advanced
functionality of Websense Enterprise v5 and our long-term technology roadmap,
resulting in strong new business flow, improved renewals, and heightened
interest in add-on products. All of this is reflected in our financial
performance as record billings, revenue and operating income for both the
quarter and the year," Carrington added. "As I look forward to 2004, I believe
the strength of our value propositions, combined with growing awareness of
Websense as an integral part of an organization's security infrastructure, will
allow us to continue to increase our customer base and gain market share against
less comprehensive solutions."
QUARTERLY BILLINGS CLIMB 36 PERCENT FROM Q3 2003; DRIVES RECORD INCREASE IN
DEFERRED REVENUE
Customer billings in the fourth quarter were the highest in the company's
history at $38.4 million, an increase of 36 percent from the third quarter of
2003, and 43 percent from the fourth quarter of 2002. For the fiscal year,
billings were a record $111 million, an increase of 35 percent from 2002.
Deferred revenue -- which represents amounts billed to customers but not
yet recognized as subscription revenue -- was $94 million at the end of the
fourth quarter, an increase of $15.7 million from the end of the third quarter
of 2003, and an increase of $29.3 million from the end of 2002. The increase in
deferred revenue represents the amount that total customer billings during the
reporting period exceed total subscription revenue recognized in the period.
Although deferred revenue has increased every quarter since the company's
initial public offering, the sequential increase in the fourth quarter was the
largest in the company's history and reflected the strong billings performance
posted in the quarter.
Websense sells subscriptions to its products primarily on a one-, two- or
three-year basis, billing the entire amount to the customer upfront and booking
the full value of the contract to deferred revenue on the balance sheet. The
company then recognizes pro-rata portions of the billing as subscription
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WEBSENSE INC.
Q4 2003 EARNINGS RELEASE (PAGE 3)
revenue on a monthly straight-line basis over the life of the subscription,
resulting in good visibility into near-term results. At the beginning of any
quarter, approximately 80 percent of the anticipated quarterly revenue was
booked in prior periods as deferred revenue. As a result, customer billings,
which represent business generated in the current quarter, provide an additional
measure of Websense's performance in the current period.
RECORD LEVELS OF OPERATING INCOME ACHIEVED; ANNUAL OPERATING MARGIN AT 30
PERCENT
For the fiscal year ended December 31, 2003, the company achieved its
long-term target of 30 percent operating margin with record operating income of
$24.8 million, an increase of 87 percent from 2002. Gross margin was 93 percent
of revenue in both 2002 and 2003 as the company's proprietary search and
classification technology successfully kept pace with the growth of the
Internet, increasing the size of the database by 1.4 million sites and adding
several new languages. During the year, the company invested $12.8 million, or
16 percent of revenue, in enhancing its existing products and developing
additional modules for the Websense Enterprise(R) platform. New product releases
during the year included the company's next-generation filtering platform,
Websense Enterprise v5, plus two new add-on modules, Bandwidth Optimizer(TM) and
Client Application Manager(TM).
Operating income for the fourth quarter was also a record at $6.8 million,
an increase of 52 percent from the fourth quarter of 2002. Operating margin in
the fourth quarter was 30 percent of revenue, even though selling and marketing
expenses increased as a percent of revenue compared with prior quarters in 2003,
primarily due to higher sales commission payments associated with the increase
in customer billings during the quarter.
"The many benefits of our subscription-based business model, including
increased visibility, strong positive cash flows and long-term customer
relationships, create a solid foundation for Websense's continued growth and
success," said Doug Wride, Websense Chief Financial Officer. "The surge in
fourth quarter billings results in a slightly higher operating expense structure
as we accrue sales commissions directly to the income statement but recognize
revenue over a more extended period of time. However, the strengths of the
subscription model far outweigh the slight seasonal impact this has on our
operating
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WEBSENSE INC.
Q4 2003 EARNINGS RELEASE (PAGE 4)
margin. By anticipating this pattern, we are able to set expectations
appropriately and we have met or exceeded our earnings guidance since our
initial public offering in March 2000."
BALANCE SHEET CONTINUES TO STRENGTHEN AS CASH AND INVESTMENTS INCREASE BY RECORD
AMOUNTS
The company ended the fourth quarter of 2003 with $182.9 million in cash
and investments, an increase of $15.6 million from the prior quarter, and zero
debt. The increase in the cash and investments balance reflected strong
operating cash flow, partially offset by $1.5 million in estimated tax payments
and $2.9 million spent during the fourth quarter to repurchase 107,000 shares of
the company's common stock at an average price of $26.78. To date, Websense has
repurchased 396,000 shares out of the two million shares authorized for
repurchase by the Board of Directors.
ADDITIONAL FOURTH QUARTER BUSINESS HIGHLIGHTS
In addition to record billings and revenue performance, business
highlights in the fourth quarter included:
- - Seats under subscription increased by more than 600,000 to approximately
16.4 million seats. At the end of the fourth quarter, nearly 40 percent of
all subscriptions included one or more of the Premium Group database
categories, compared with approximately 20 percent a year ago.
- - The company closed more than 140 transactions greater than $50,000 and
increased its customer count by more than 600 during the quarter, bringing
the total number of customers to approximately 20,600 worldwide.
- - International customers accounted for 30 percent of subscription revenue
in the quarter, consistent with the contribution in the fourth quarter of
2002.
- - Customer renewals remained strong and within the recent historical range
of 75 to 80 percent.
- - Existing customers accounted for approximately 60 percent of subscription
revenue, compared to approximately 60 percent in the prior quarter and
approximately 50 percent in
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Q4 2003 EARNINGS RELEASE (PAGE 5)
the fourth quarter of 2002. Over time, the contribution from existing
customers is expected to increase due to the purchase of additional seats
and add-on products, as well as annual increases in the per seat price of
a subscription to the Websense database. Historically, the dollar value of
the renewal contract of an existing customer is 30 to 40 percent higher,
on average, than that of the expiring contract.
- The average annualized contract value increased to approximately
$7,200, compared to $6,700 in the third quarter and $6,500 in the
fourth quarter of 2002.
- Approximately half of the quarter's billings were one-year in
length, compared to approximately 55 percent in the third quarter
and approximately 60 percent in the fourth quarter of 2002.
- The Websense database grew to 5.5 million Web sites representing
more than 1.1 billion unique Web pages. Websense has the most
accurate and relevant database in the industry and has categorized
more than seven million Web sites in more than 50 languages,
including approximately 1.5 million dead links that have been
removed from the database. Additionally, the company has identified
and categorized more than 225,000 software executable files in its
Client Application Manager database and has built a comprehensive
database of common network protocols to enable filtering of instant
messaging, peer-to-peer, streaming media and other non-http traffic.
FIRST QUARTER 2004 OUTLOOK
Websense provides guidance on its anticipated financial performance in the
coming quarter based on its assessment of the current business environment and
historical seasonal trends in its business. 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.
For the first quarter of 2004,
- Customer billings are expected to increase between 30 and 35 percent
from the first quarter of 2003, reflecting historical seasonal
patterns.
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WEBSENSE INC.
Q4 2003 EARNINGS RELEASE (PAGE 6)
- Deferred revenue is expected to increase marginally, consistent with
the company's expectation that billings booked will be greater than
subscription revenue recognized.
- Subscription revenue is expected to grow in the range of 28 to 29
percent from the first quarter of 2003. Approximately 80 percent of
this revenue is expected to be recognized from the company's current
deferred revenue balances.
- Gross margin is expected to remain constant at approximately 93
percent of revenue.
- Operating margin is expected to be in the range of 29 to 30 percent
of revenue.
- The effective tax rate is expected to be approximately 37 percent.
- Based on the above revenue and expense structure, earnings are
expected to be approximately 20 cents per diluted share.
- Based on fourth quarter 2003 billings and historical collection
trends, the company expects to generate more than $17 million in
cash, which would result in a cash balance of approximately $200
million at the end of the first quarter of 2004.
CONFERENCE CALL
Websense is hosting a conference call and simultaneous Webcast today at
5:00 p.m. (EST) to discuss these results. To participate in the call, investors
should dial (800) 479-9001 (domestic) or (719) 457-2618 (international) ten
minutes prior to the scheduled start of the call. 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 March 31, 2004 and a taped
replay of the call will be available for one week at (888) 203-1112 or (719)
457-0820, passcode 709598.
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
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WEBSENSE INC.
Q4 2003 EARNINGS RELEASE (PAGE 7)
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 fourth quarter of 2003
is set forth at the end of this press release.
ABOUT WEBSENSE INC.
Websense Inc. (NASDAQ: WBSN), the world's leading provider of employee Internet
management solutions, enables organizations to optimize employee use of
computing resources and mitigate new threats related to Internet use including
instant messaging, peer-to-peer, and spyware. By providing usage policy
enforcement at the Internet gateway, on the network and at the desktop, Websense
Enterprise enhances productivity and security, optimizes the use of IT resources
and mitigates legal liability for our customers. Websense serves more than
20,600 customers worldwide, representing 16.4 million seats. 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
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.
Q4 2003 EARNINGS RELEASE (PAGE 8)
WEBSENSE, INC.
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED TWELVE MONTHS ENDED
------------------------------ ------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2003 2002
---- ---- ---- ----
Revenue $ 22,700 $ 17,375 $ 81,734 $ 60,965
Cost of revenue 1,516 1,095 5,523 4,170
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Gross margin 21,184 16,280 76,211 56,795
Operating expenses:
Selling and marketing 9,428 7,356 31,845 26,201
Research and development 3,295 3,016 12,843 10,957
General and administrative 1,663 1,412 6,649 5,960
Amortization of stock-based compensation 7 68 83 448
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Total operating expenses 14,393 11,852 51,420 43,566
---------- ---------- ---------- ----------
Income from operations 6,791 4,428 24,791 13,229
Other income, net 419 645 2,292 2,711
---------- ---------- ---------- ----------
Income before income taxes 7,210 5,073 27,083 15,940
Provision (benefit) for income taxes 2,702 (1,424) 10,395 (797)
---------- ---------- ---------- ----------
Net income $ 4,508 $ 6,497 $ 16,688 $ 16,737
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Basic net income per share $ 0.20 $ 0.30 $ 0.76 $ 0.79
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Diluted net income per share $ 0.19 $ 0.28 $ 0.73 $ 0.72
========== ========== ========== ==========
Basic common shares 22,394 21,582 22,038 21,211
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Diluted common shares 23,368 23,369 22,976 23,338
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FINANCIAL DATA:
Total deferred revenue $ 93,960 $ 64,679 $ 93,960 $ 64,679
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WEBSENSE INC.
Q4 2003 EARNINGS RELEASE (PAGE 9)
WEBSENSE, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED AND IN THOUSANDS)
DECEMBER 31, DECEMBER 31,
2003 2002
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 104,224 $ 61,713
Investments in marketable securities 78,635 78,753
Accounts receivable, net 27,999 19,840
Deferred income taxes 8,733 8,731
Other current assets 1,271 1,184
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Total current assets 220,862 170,221
Property and equipment, net 2,997 2,967
Deferred income taxes, less current portion 8,672 6,701
Deposits and other assets 418 299
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TOTAL ASSETS $ 232,949 $ 180,188
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 743 $ 761
Accrued payroll and related benefits 5,241 3,627
Other accrued expenses 3,835 3,440
Income taxes payable 241 970
Deferred revenue, current portion 65,480 46,964
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Total current liabilities 75,540 55,762
Deferred revenue, less current portion 28,480 17,715
STOCKHOLDERS' EQUITY:
Common stock 228 217
Additional paid-in capital 120,638 107,058
Deferred compensation -- (83)
Retained earnings (deficit) 15,732 (957)
Accumulated other comprehensive income 15 476
Treasury stock (7,684) --
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Total stockholders' equity 128,929 106,711
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 232,949 $ 180,188
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Q4 2003 EARNINGS RELEASE (PAGE 10)
WEBSENSE, INC.
RECONCILIATION OF BILLINGS TO DEFERRED REVENUE
(UNAUDITED AND IN THOUSANDS)
Deferred revenue balance September 30, 2003 $ 78,268
Billings fourth quarter 2003 38,392
Revenue recognized fourth quarter 2003 (22,700)
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Deferred revenue balance December 31, 2003 $ 93,960
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