** WBSN ($26~$31) Business Momentum at Websense Continues to Build With Record Fourth Quarter And Fiscal Year Results
Wednesday January 28, 4:08 pm ET
Annual Billings Surpass $111 Million as Threats Associated With New Internet-Based Technologies Drive Growth in Demand for Employee Internet Management Solutions
SAN DIEGO, Jan. 28 /PRNewswire-FirstCall/ -- Websense Inc. (Nasdaq: WBSN - News), 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.
"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. "As we progressed through the year, our business momentum continued to build 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 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® 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.
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Shares of the Vancouver, British Columbia-based firm rose $3.17 to $25.65 on Nasdaq on a volume of more than 3.7 million. In Toronto the stock rose C$4.42 to C$34.15.
National Bank Financial analyst Deepak Chopra raised his rating on the stock to "sector perform" from "underperform" and his target price to $23 from $16.50.
"Going forward, the company indicated that demand was very brisk and that inventory remains very low or nearly nonexistent in its channels," Chopra said in a research note.
Sierra reported fourth-quarter net income of $1.9 million, or 8 cents a share, on revenues of $34.6 million. Analysts had expected an adjusted profit of 6 Canadian cents a share, on revenues of $31.55 million, according to Reuters Research, a unit of Reuters Group Plc.
Sierra also said it expected first-quarter 2004 revenues of $35 million to $37 million and earnings per share of about 6 cents. Analysts had expected a first-quarter profit forecast of 6 cents a share on revenue of $29.84 million.
"Sierra reported good Q4 results that beat our top and bottom line expectations and delivered forward guidance that is in line with our expectations. We are lifting our target price to C$29.00 (from C$23)," Scotia Capital analyst Gus Papageorgiou said a note to clients.
"We continue to believe Sierra's main wireless modem business will do well...however, at current valuation levels we believe the shares are fairly valued," he added. Scotia has the stock rated "2-sector perform, high risk".
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