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Websense Reports Record Second Quarter Revenues and Confirms Guidance for Billings, Revenues, Non-GAAP Earnings per Share and Cash Flow from Operations

SAN DIEGO July 26, 2011 Websense, Inc. Gene Hodges

web, email, and data security solutions

"Billings for solutions which included data security increased nearly 200 percent as a record number of customers purchased data loss prevention-enabled versions of our TRITON-based gateways. These positive trends support our assessment that our product strategy is aligned to market requirements, our competitive position is strong, and we are well positioned to meet our objectives for the second half of 2011," added Hodges.

Europe Europe

Second Quarter 2011 GAAP Financial Highlights

  • $90.7 million
  • $81.0 million $79.3
  • $9.8 million $2.6 million $3.2 million $2.6 million
  • $9.5 million $7.1 million
  • The effective tax rate was 51.5%, compared with 48.2% in the second quarter of 2010.
  • $4.4 million 11 cents $3.1 million seven cents
  • Weighted average diluted shares outstanding of 41.5 million, compared with 43.9 million in the second quarter of 2010.
  • $25 million
  • $9.2 million $14.4 million
  • $61.1 million $55.4 million $61.5 million
  • Days billings outstanding of 64 days, a decrease of 1 day from the end of the first quarter of 2011 and 2 days from the second quarter of 2010.
  • $377.5 million $363.7 million $2.5 million

January 1, 2011 $9.8 million $6.6 million $3.2 million $2.9 million

Second Quarter 2011 Non-GAAP(1) Financial Highlights

  • $85.9 million $3.4 million $0.8 million $1.7 million
  • $90.7 million $83.2 million
  • $18.0 million $21.1 million
  • The estimated non-GAAP effective tax rate was 18.0%, compared with 32.2% in the year ago period. The decline primarily results from the estimated effects of the company’s international distribution restructuring on the long-term effective tax rate and the estimated tax benefits in 2011 associated with the company’s equity compensation programs.
  • $14.4 million 35 cents $13.7 million 31 cents

Millions, except percentages, exchange rates, contract values, duration and DSOs

Q2’11

Q2’10

Y/Y Change

Total net billings:

$85.9

$83.7

2.6%

   Net billings to end-user customers

$85.1

$82.0

3.8%

       Incremental net end-user billings(3)

$25.3

$22.5

12.5%

       Net end-user billings from renewals

$59.9

$59.5

0.6%

OEM billings

$0.8

$1.7

-53.9%

International net billings to end-user customers

$45.6

$42.0

8.6%

As a percentage of total net billings:

   Net billings to end-user customers

99.1%

98.0%

+1.1 pts

       Incremental net end-user billings(3)

29.4%

26.8%

+2.6pts

       Net end-user billings from renewals

69.7%

71.1%

-1.4 pts

   OEM billings

0.9%

2.0%

-1.1 pts

   International net billings to end-user customers

53.6%

51.2%

+2.4 pts

Net-end user billings by product group:

    TRITON solution billings(4)

$44.4

$30.3

46.6%

    Non-TRITON solution billings(4)

$40.7

$51.7

-21.3%

As a percentage of net end-user billings:

    TRITON solution billings(4)

52.2%

37.0%

+15.2 pts

    Non-TRITON solution billings(4)

47.8%

63.0%

-15.2 pts

Appliance billings

$6.9

$4.5

53.0%

Appliance billings (as a percentage of total billings)

7.9%

5.4%

+2.5pts

Exchange rates used in FX-neutral calculations

Euro

$1.44

$1.27

+13.4%

Pound Sterling

$1.65

$1.48

+11.5%

Average annualized contract value

$10,100

$8,400

+20.2%

Average contract duration (months)

23.7

24.0

-1.3%

Cash and cash equivalents (excluding restricted)

$76.2

$82.2

-7.3%

Secured loan outstanding

$63.0

$70.0

-10.0%

Days billings outstanding (DSOs)

64

66

-2 days

Share repurchases ($)

$25.0

$20.0

25.0%

Share repurchases (shares)

1.0

0.9

0.1

1.

A detailed description of the company’s non-GAAP financial measures appears under "Non-GAAP Financial Measures" and a full reconciliation of GAAP to non-GAAP results is included at the end of this news release in the tables "Reconciliation of GAAP to Non-GAAP Financial Measures."

2.

The company is reporting GAAP revenues for 2011 because the difference in GAAP and non-GAAP revenues is no longer significant. Non-GAAP revenues are provided for 2010 for purposes of historical comparison.  Non-GAAP revenues of $83.2 million in the second quarter of 2010 included approximately $1.4 million of revenue from SurfControl that would have been recognized during the second quarter of 2010 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.

3.

Incremental billings include upgrades to new products purchased by existing/renewing customers (i.e., data security, cloud-based security, and the incremental portion of Web security gateway family migrations) and new customer billings, regardless of product.

4.

TRITON solutions include the Web security gateway family of products (including WSG appliances), data security, and cloud-based security solutions.  Non-TRITON solutions include Web filtering products, including Web Security Suite (WSS) and WSS appliances, and on-premise email security.

January 1, 2011 January 1, 2011 $0.11

Quarterly Business Highlights

Recent business highlights include several significant milestones. Since the beginning of the quarter, Websense:

Future Outlook

Websense provides guidance on anticipated financial performance for the year based on an assessment of the current business environment, historical seasonal business trends, and prevailing exchange rates between the U.S. dollar and other major currencies. Annual guidance is updated each quarter with the release of quarterly results.  

$1.45 $1.61

2011 Outlook

(as of 07/26/11)

Net billings

$357 – $374 million

Net billings to end-user customers

$354 – $371 million

OEM billings

Approximately $3 million

Appliance billings

6-7% of total net billings

GAAP revenues

$358 – $368 million

Non-GAAP gross margin

Approximately 84.5%

Non-GAAP operating expenses

Increase 9-10% y/y

Non-GAAP earnings per diluted share

$1.50 – $1.60

Estimated non-GAAP effective tax rate

Approximately 19%

Average diluted shares outstanding

40 – 41  million

Cash flow from operations

$80 – $90 million

Capital expenditures

Approximately $10 million

Management further indicates:

  • Sequential growth in billings is expected to follow historical seasonal patterns for the remainder of the year.
  • Operating expenses (excluding cost of goods sold) are expected decline sequentially in the third quarter of 2011 compared with the second quarter of 2011.
  • $13.9 million June 30, 2011 $2.6 million $2.1 million
  • Growth in operating cash flow is expected to reach the mid-teens in 2012.

2011 Policy Changes

January 1, 2011

  • Adoption of ASU 2009-13, Revenue Arrangements with Multiple Deliverables and ASU 2009-14, Certain Revenue Arrangements that Contain Software Elements

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