Websense Reports Fourth Quarter and Fiscal Year 2012 Results
Websense Reports Fourth Quarter and Fiscal Year 2012 Results
- Record fourth quarter billings of $122.0 million, up five percent
year-over-year
- Fourth quarter TRITON billings of $83.7 million, up 23 percent
year-over-year
- Announces strategic partnership with F5 Networks to offer Websense leading
content security technology
PR Newswire
SAN DIEGO, Jan. 29, 2013
SAN DIEGO, Jan. 29, 2013 /PRNewswire/ -- Websense, Inc. (NASDAQ: WBSN) today
announced financial results for the fourth quarter and fiscal year 2012
consistent with preliminary results for billings, non-GAAP revenue, non-GAAP
earnings per diluted share, and cash flow from operations released on January
13, 2013.
"Our record fourth quarter billings demonstrate the success of our strategic
initiatives and the Websense^® TRITON™ platform," said John McCormack,
Websense CEO. "The strength in the quarter was driven by a 23 percent
year-over-year increase in TRITON solution billings and double-digit
year-over-year growth in new customer sales. These results confirm the
traction we have established in the content security market as we evolve our
web, email, mobile and data security solutions. Looking to the future, we are
focused on continued growth, consistent execution, and extension of the TRITON
platform ecosystem through strategic partnerships."
Fourth Quarter 2012 GAAP Financial Highlights
o Revenues of $91.7 million, compared with $92.7 million in the fourth
quarter of 2011.
o Software and services revenues of $82.3 million, consistent with the
fourth quarter of 2011.
o Appliance revenues of $9.4 million, which consisted of approximately $8.2
million in current-period appliance sales and approximately $1.2 million
of deferred appliance revenue primarily from pre-2011 appliance sales,
compared with $10.4 million of appliance revenues in the fourth quarter of
2011, which consisted of approximately $8.3 million in current-period
appliance sales and $2.1 million of deferred appliance revenue primarily
from pre-2011 appliance sales.
o Operating income of $5.6 million, compared with $13.4 million in the
fourth quarter of 2011, as we incurred increased operating expenses
primarily due to increased sales commissions and selling expenses
resulting from our billings growth and our investments to expand our sales
force, as well as litigation expenses associated with the company's
successful defense of a patent lawsuit.
o Provision for income taxes of $1.4 million, compared with $2.2 million in
the fourth quarter of 2011.
o Net income of $3.8 million, or 10 cents per diluted share, compared with
net income of $10.4 million, or 27 cents per diluted share, in the fourth
quarter of 2011.
o Weighted average diluted shares outstanding of 36.8 million, compared with
38.9 million in the fourth quarter of 2011.
o Cash flow from operations of $11.1 million, compared with $5.6 million in
the third quarter of 2012 and $21.9 million in the fourth quarter 2011.
o Quarter-end accounts receivable of $89.1 million, compared with $54.4
million at the end of the third quarter of 2012 and $80.1 million at the
end of the fourth quarter of 2011.
o Days billings outstanding of 66 days, compared with 60 days at the end of
the third quarter of 2012 and 62 days at the end of the fourth quarter of
2011.
o Deferred revenue of $401.1 million, an increase of $8.1 million compared
with deferred revenue of $393.0 million at the end of the fourth quarter
of 2011. Deferred revenue at the end of the fourth quarter of 2012
included $5.0 million from extended warranties and pre-2011 appliance
sales, a decrease of $4.7 million from the year ago period. Deferred
revenue from pre-2011 appliance sales will continue to decrease quarterly
as it is depleted by ratable recognition over the original subscription
periods.
Fourth Quarter 2012 Non-GAAP^1 Financial Highlights
o Billings of $122.0 million, an increase of five percent compared with the
fourth quarter of 2011. Changes in currency exchange rates, compared with
exchange rates prevailing in the fourth quarter of 2011, did not
materially impact fourth quarter 2012 billings performance.
o TRITON solution billings of $83.7 million, an increase of 23 percent
compared with the fourth quarter of 2011.
o Non-GAAP operating income of $13.0 million, compared with non-GAAP
operating income of $21.7 million in the fourth quarter of 2011. Non-GAAP
operating margin in the fourth quarter of 2012, calculated as a percentage
of revenues, was 14.2 percent, compared with 23.4 percent in the fourth
quarter of 2011. We incurred increased operating expenses primarily due to
increased sales commissions and selling expenses resulting from our
billings growth and investments to expand our sales force, as well as
litigation expenses associated with the company's successful defense of a
patent lawsuit.
o Billings-based operating margin of 36.0 percent, compared with
billings-based operating margin of 39.6 percent in the fourth 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.
o A non-GAAP tax provision of $2.4 million, based on an effective tax rate
of 19 percent, compared with a non-GAAP tax provision of $3.9 million
based on an effective tax rate of 18.5 percent, in the fourth quarter of
2011.
o Non-GAAP net income of $10.3 million, or 28 cents per diluted share,
compared with $17.1 million, or 44 cents per diluted share, in the fourth
quarter of 2011.
Fiscal Year 2012 GAAP Financial Highlights
o Revenues of $361.5 million, compared with $364.2 million in 2011.
o Software and services revenues of $328.3 million, compared with $325.4
million in 2011.
o Appliance revenues of $33.2 million, which consisted of approximately
$27.3 million in current-period appliance sales and approximately $5.9
million of deferred appliance revenue primarily from pre-2011 appliance
sales, compared with $38.8 million of appliance revenues in 2011, which
consisted of approximately $27.4 million in current-period appliance sales
and $11.4 million of deferred appliance revenue primarily from pre-2011
appliance sales.
o Operating income of $41.5 million, compared with $44.4 million in 2011.
o Provision for income taxes of $20.7 million, representing an effective tax
rate of 53 percent, compared with a tax provision of $13.0 million and an
effective tax rate of 29.6 percent in 2011. The 2012 effective tax rate
was impacted by a one-time tax provision recorded in the first quarter of
2012 relating to the company's settlement with the U.S. Internal Revenue
Service of certain audit adjustments for tax years 2005 through 2007.
o Net income of $18.3 million, or 49 cents per diluted share, compared with
$31.0 million, or 76 cents per diluted share, in 2011.
o Weighted average diluted shares outstanding of 37.5 million, compared with
40.7 million in 2011.
o Cash flow from operations of $48.9 million, compared with $79.2 million in
2011. Cash flow from operations includes one-time tax payments of $14.7
million in the third quarter of 2012 relating to the company's settlement
with the U.S. Internal Revenue Service described above.
Fiscal Year 2012 Non-GAAP^1 Financial Highlights
o Billings of $369.5 million, an increase of 2 percent compared with $362.9
million in 2011. Changes in currency exchange rates, compared with
exchange rates prevailing in 2011, negatively impacted 2012 billings by
approximately $4.7 million.
o TRITON solution billings of $232.9 million, an increase of 21 percent
compared with the 2011.
o Non-GAAP operating income of $69.9 million, compared with non-GAAP
operating income of $78.6 million in 2011. Non-GAAP operating margin in
2012, calculated as a percentage of revenues, was 19.3 percent, compared
with 21.6 percent in 2011.
o Billings-based operating margin of 21.8 percent, compared with
billings-based operating margin of 22.7 percent in 2011.
o A non-GAAP tax provision of $12.8 million, based on a long-term effective
tax rate of 19 percent, compared with a non-GAAP tax provision of $14.5
million, based on an effective tax rate of 18.5 percent, in 2011.
o Non-GAAP net income of $54.8 million, or $1.46 per diluted share, compared
with $63.9 million, or $1.57 per diluted share, in 2011.
Summary Metrics
Millions, except percentages,
number of transactions, duration, Q4'12 Q4'11 Y/Y Chg 2012 2011 Y/Y Chg
and days billings outstanding
Total billings $122.0 $116.0 5% $369.5 $362.9 2%
U.S. billings $54.4 $51.9 5% $174.0 $173.3 0%
International billings $67.6 $64.1 5% $195.5 $189.6 3%
TRITON solution billings^2 $83.7 $68.3 23% $232.9 $192.6 21%
Appliance billings $8.6 $8.6 0% $28.5 $28.6 0%
Number of transactions >$100K 243 205 19% 648 563 15%
Average contract duration (months) 25.8 24.2 7% —
Days billings outstanding (DSOs) 66 62 +4 days —
Cash and cash equivalents $64.6 $76.2 -15% —
Balance on revolving credit $68.0 $73.0 -7% —
facility
Share repurchases ($) $5.0 $25.0 -80% $47.9 $100.0 -52%
A detailed description of the company's non-GAAP financial measures appears
1. 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."
TRITON solutions include the TRITON family of security gateways for web,
email, mobile, and data security (including related appliances and
2. 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 First Quarter and Fiscal Year 2013
Websense provides guidance on anticipated financial performance for the first
quarter and 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 24 and 26
months and prevailing currency exchange rates of $1.32 for the Euro and $1.62
for the Pound Sterling. The company disclaims any obligation to update the
statements as circumstances change.
Millions, except percentages and per share Q1'13 Outlook 2013 Outlook
amounts
Total billings $82 – 86 $374 – 394
Appliance billings (% of total billings) 7 – 8% 7 – 8%
Revenues $84 – 87 $351 – 361
Non-GAAP gross profit margin Approximately 83% Approximately 83%
Non-GAAP operating margin 8 – 11% 11 – 13%
Billings-based non-GAAP operating margin 8 – 11% 17 – 20%
Non-GAAP earnings per diluted share $0.15 – 0.19 $0.78 – 0.93
Non-GAAP effective tax rate 19% 19%
Average diluted shares outstanding Approximately 37 Approximately 37
Cash flow from operations $27 – 30 $66 – 76
Capital expenditures Approximately $4 $15 – 17
Management further indicates:
o Expected stock repurchases of approximately $5 million per quarter in
2013.
o Non-cash items related to the recognition of revenue and costs associated
with pre-2011 appliance billings:
o Remaining deferred revenue of $2.7 million from pre-2011 appliance
billings (as of December 31, 2012) that will continue to be
recognized ratably according to the original subscription periods,
including $0.8 million to be recognized in the first quarter of 2013
(compared with $1.7 million in the first quarter of 2012).
o Remaining deferred costs of $1.4 million from pre-2011 appliance
billings (as of December 31, 2012) that will continue to be
recognized ratably according to the original subscription periods,
including $0.4 million to be recognized in the first quarter of 2013
(compared with $0.8 million in the first quarter of 2012).
o On January 1, 2011, Websense adopted Accounting Standards Update
(ASU) 2009-13 (Multiple Deliverable Revenue Arrangements) and ASU
2009-14 (Certain Revenue Arrangements that Include Software
Elements), which requires 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 related software subscription terms. The schedules below
summarize the actual and expected recognition of remaining deferred
appliance revenues and costs by quarter for 2012 and 2013:
2012 Summary of Amounts Related to pre-2011 Appliance Sales
Deferred Remaining
balances deferred
2012 Recognition Schedule (actual) balances
Millions as of
12/31/11 as of
12/31/12
(actual) Q1'12 Q2'12 Q3'12 Q4'12 2012
(actual)
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
2013 Summary of Amounts Related to pre-2011 Appliance Sales
Deferred Remaining
balances 2013 Recognition Schedule deferred
balances
Millions as of Q1'13 Q3'13 Q4'13 2013
12/31/12 Q2'13 as of
(expected) (expected) (expected) (expected) (expected) 12/31/13
(actual) (expected)
Revenue $2.7 $0.8 $0.6 $0.5 $0.3 $2.2 $0.5
Costs $1.4 $0.4 $0.3 $0.2 $0.1 $1.0 $0.4
Strategic Partnership with F5 Networks
During the fourth quarter of 2012, Websense entered into an agreement with F5
Networks (NASDAQ: FFIV), the global leader in Application Delivery Networking
(ADN). The companies have agreed to integrate their technologies to deliver
bi-directional context-based security leveraging user, device, and location,
as well as application, data, and destination information. Further details
will be announced at the RSA Security Conference starting on February 25.
Conference Call Details
Management will host a conference call and simultaneous webcast to discuss the
financial results and outlook today, January 29, at 2 p.m. Pacific Standard
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 on the internet at www.websense.com/investors. An archive of the
webcast will be available on the company's website through March 31, 2013, and
a recorded replay of the call will be available for one week at 855-859-2056
or 404-537-3406, pass code 83989045.
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 historical operating results. Reconciliations of the
GAAP and non-GAAP financial measures for 2012, 2011 and the fourth quarters of
both years 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 numerical measures that cannot 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 fourth 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), 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 appliance-based software or SaaS-based cloud services, Websense TRITON
content security solutions help organizations leverage social media and
cloud-based communication, while protecting from advanced persistent threats
and modern malware, 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 John McCormack;
statements about our expected success of our strategic initiatives and selling
products; statements regarding market share gains and trends; 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, 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.
INVESTOR CONTACT: MEDIA CONTACT:
Avelina Kauffman Patricia Hogan
Websense, Inc. Websense, Inc.
(858) 320-9364 (858) 320-9393
akauffman@websense.com phogan@websense.com
Websense, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Three Months Ended December Years Ended December 31,
31,
2012 2011 2012 2011
(Unaudited) (Unaudited) (Unaudited)
Revenues:
Software and $ 82,284 $ 82,316 $ 328,276 $ 325,373
service
Appliance 9,419 10,417 33,188 38,810
Total 91,703 92,733 361,464 364,183
revenues
Cost of revenues:
Software and 11,642 10,570 45,560 41,563
service
Appliance 3,717 4,395 13,646 18,056
Total cost of 15,359 14,965 59,206 59,619
revenues
Gross profit 76,344 77,768 302,258 304,564
Operating expenses:
Selling and 43,028 39,754 155,254 161,039
marketing
Research and 16,560 14,691 63,305 58,247
development
General and 11,201 9,941 42,161 40,863
administrative
Total 70,789 64,386 260,720 260,149
operating expenses
Income from 5,555 13,382 41,538 44,415
operations
Interest expense (643) (468) (2,586) (1,635)
Other income 313 (291) 92 1,239
(expense), net
Income before income 5,225 12,623 39,044 44,019
taxes
Provision for income 1,417 2,248 20,695 13,025
taxes
Net income $ $ 10,375 $ 18,349 $
3,808 30,994
Basic net income per $ $ $ $
share 0.10 0.27 0.50 0.78
Diluted net income $ $ $ $
per share 0.10 0.27 0.49 0.76
Weighted average 36,602 38,555 36,908 39,711
shares - basic
Weighted average 36,848 38,894 37,526 40,739
shares - diluted
Financial Data:
Total deferred $ 401,057 $ 393,034 $ 401,057 $ 393,034
revenue
Websense, Inc.
Consolidated Balance Sheets
(In thousands)
December 31, 2012 December 31, 2011
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ $
64,584 76,201
Accounts receivable, net 89,071 80,147
Income tax receivable/prepaid 3,989 738
income tax
Current portion of deferred 28,933 30,021
income taxes
Other current assets 13,249 13,793
Total current assets 199,826 200,900
Cash and cash equivalents - 662 628
restricted
Property and equipment, net 18,901 16,832
Intangible assets, net 17,940 26,412
Goodwill 372,445 372,445
Deferred income taxes, less current 7,335 8,599
portion
Deposits and other assets 7,352 8,622
Total assets $ $
624,461 634,438
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable $ $
7,941 9,026
Accrued compensation and 24,981 22,770
related benefits
Other accrued expenses 12,413 16,534
Current portion of income taxes 694 3,187
payable
Current portion of deferred tax 42 86
liability
Current portion of deferred 243,945 250,597
revenue
Total current liabilities 290,016 302,200
Other long term liabilities 2,044 2,600
Income taxes payable, less current 10,514 11,955
portion
Secured loan 68,000 73,000
Deferred tax liability, less 2,026 2,501
current portion
Deferred revenue, less current 157,112 142,437
portion
Total liabilities 529,712 534,693
Stockholders' equity:
Common stock 580 568
Additional paid-in capital 443,100 415,573
Treasury stock, at cost (436,426) (385,544)
Retained earnings 90,596 72,247
Accumulated other comprehensive (3,101) (3,099)
loss
Total stockholders' equity 94,749 99,745
Total liabilities and stockholders' $ $
equity 624,461 634,438
Websense, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Years Ended December 31,
2012 2011
Operating activities: (Unaudited)
Net income $ 18,349 $ 30,994
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 20,351 26,286
Share-based compensation 20,110 18,976
Deferred income taxes 2,036 5,423
Unrealized loss (gain) on foreign exchange 279 (137)
Excess tax benefit from share-based compensation (555) (2,596)
Changes in operating assets and liabilities:
Accounts receivable (7,836) 957
Other assets 835 2,251
Accounts payable (2,135) 1,667
Accrued compensation and related benefits 1,877 449
Other liabilities (3,635) (4,161)
Deferred revenue 8,021 (1,246)
Income taxes payable and receivable/prepaid (8,765) 328
Net cash provided by operating activities 48,932 79,191
Investing activities:
Change in restricted cash and cash equivalents (21) 31
Purchase of property and equipment (12,546) (9,117)
Purchase of intangible assets - (765)
Net cash used in investing activities (12,567) (9,851)
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)
Cash paid for deferred financing fees under (35) (35)
secured loan
Proceeds from exercise of stock options 2,464 16,719
Proceeds from issuance of common stock for stock 6,752 6,614
purchase plan
Excess tax benefit from share-based compensation 555 2,596
Tax payments related to restricted stock unit (2,967) (2,979)
issuances
Purchase of treasury stock (49,109) (98,712)
Net cash used in financing activities (47,927) (70,366)
Effect of exchange rate changes on cash and cash (55) (163)
equivalents
Decrease in cash and cash equivalents (11,617) (1,189)
Cash and cash equivalents at beginning of period 76,201 77,390
Cash and cash equivalents at end of period $ 64,584 $ 76,201
Cash paid during the period for:
Income taxes including interest and $ 28,279 $ 8,597
penalties, net of refunds
Interest $ 2,332 $ 1,421
Non-cash financing activities:
Change in operating assets and liabilities
for unsettled purchase of treasury
stock and exercise of stock options $ (1,018) $ 1,097
Websense, Inc.
Rollforward of Deferred Revenue
(Unaudited and in thousands)
Deferred revenue balance at September 30, 2012 $
370,739
Net billings during fourth quarter 2012 122,021
Less revenue recognized during fourth quarter (91,703)
2012
Translation adjustment -
Deferred revenue balance at December 31, 2012 $
401,057
Websense, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited and in thousands, except per share amounts)
Three Months Ended Years Ended
December 31, December 31,
2012 2011 2012 2011
GAAP gross profit $ 76,344 $ 77,768 $ 302,258 $ 304,564
Amortization of acquired 538 646 2,155 2,583
technology (2)
Share-based compensation 341 267 1,224 1,097
(1)
Gross profit 879 913 3,379 3,680
adjustment
Non-GAAP gross profit $ 77,223 $ 78,681 $ 305,637 $ 308,244
GAAP operating expenses $ 70,789 $ 64,386 $ 260,720 $ 260,149
Amortization of other (1,512) (3,160) (6,047) (12,640)
intangible assets (2)
Share-based compensation (5,094) (4,275) (18,886) (17,878)
(1)
Operating expense (6,606) (7,435) (24,933) (30,518)
adjustment
Non-GAAP operating expenses $ 64,183 $ 56,951 $ 235,787 $ 229,631
GAAP income from operations $ 5,555 $ 13,382 $ 41,538 $ 44,415
Gross profit 879 913 3,379 3,680
adjustment
Operating expense 6,606 7,435 24,933 30,518
adjustment
Non-GAAP income from $ 13,040 $ 21,730 $ 69,850 $ 78,613
operations
GAAP provision for income $ 1,417 $ 2,248 $ 20,695 $ 13,025
taxes
Provision for
income taxes adjustment (3, 1,009 1,642 (7,852) 1,489
5)
Non-GAAP provision for $ 2,426 $ 3,890 $ 12,843 $ 14,514
income taxes
GAAP net income $ 3,808 $ 10,375 $ 18,349 $ 30,994
Gross profit 879 913 3,379 3,680
adjustment
Operating expense 6,606 7,435 24,933 30,518
adjustment
Amortization of 60 59 238 238
deferred financing fees (4)
Provision for income (1,009) (1,642) 7,852 (1,489)
tax adjustment
Non-GAAP net income $ 10,344 $ 17,140 $ 54,751 $ 63,941
GAAP net income per diluted $ 0.10 $ 0.27 $ 0.49 $ 0.76
share
Non-GAAP adjustments as
described above per share, 0.18 0.17 0.97 0.81
net of tax (1-5)
Non-GAAP net income per $ 0.28 $ 0.44 $ 1.46 $ 1.57
diluted share
(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 non-GAAP
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 December 31, Years Ended December 31,
Billings: 2012 2011 2012 2011
Software and $ 92.9% $ 92.6% $ 92.3% $ 92.1%
service 113,373 107,390 341,004 334,286
Appliance 8,648 7.1% 8,622 7.4% 28,487 7.7% 28,603 7.9%
Total 122,021 100.0% 116,012 100.0% 369,491 100.0% 362,889 100.0%
billings
Non-GAAP cost of
billings:
Software and 10,763 9.5% 9,656 9.0% 42,181 12.4% 37,883 11.3%
service
Appliance (1) 3,208 37.1% 3,440 39.9% 11,050 38.8% 12,952 45.3%
Total
non-GAAP cost 13,971 11.4% 13,096 11.3% 53,231 14.4% 50,835 14.0%
of billings
Non-GAAP gross margin:
Software and 102,610 90.5% 97,734 91.0% 298,823 87.6% 296,403 88.7%
service
Appliance 5,440 62.9% 5,182 60.1% 17,437 61.2% 15,651 54.7%
Total
non-GAAP gross 108,050 88.6% 102,916 88.7% 316,260 85.6% 312,054 86.0%
margin
Non-GAAP operating
expenses:
Selling and 39,436 32.3% 35,011 30.2% 141,806 38.4% 142,506 39.3%
marketing
Research and 15,320 12.6% 13,752 11.8% 58,526 15.8% 54,420 15.0%
development
General and 9,427 7.7% 8,188 7.1% 35,455 9.6% 32,704 9.0%
administrative
Total
non-GAAP 64,183 52.6% 56,951 49.1% 235,787 63.8% 229,630 63.3%
operating
expenses
Non-GAAP billings $ 36.0% $ 39.6% $ 21.8% $ 22.7%
operating margin 43,867 45,965 80,473 82,424
(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 diluted 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.
SOURCE Websense, Inc.
Website: http://www.websense.com
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