Websense Inc. (WBSN) filed Quarterly Report for the period ended 2009-09-30.
Websense Inc. provide employee Internet management products that enable businesses to monitorreport and manage how their employees use the Internet. The Websense Enterprise software and database product gives managers the ability to implement Internet access policies for different users and groups within their businessesand supports their efforts to improve employee productivityconserve network bandwidth and mitigate potential legal liability. Websense Inc. has a market cap of $702.65 million; its shares were traded at around $15.9 with a P/E ratio of 20.13 and P/S ratio of 2.37.
Highlight of Business Operations:
Revenues increased to $78.6 million in the third quarter of 2009 from $74.9 million in the third quarter of 2008. The increase was primarily the result of increased revenue from new, renewed and upgraded subscriptions including software as a service (“SaaS”) security products and OEM contract revenue from the third quarter of 2008 to the third quarter of 2009 and the revenue from the new V10000 appliance sales. The number of product seats under subscription decreased from 43.3 million as of September 30, 2008 to 42.9 million as of September 30, 2009 primarily due to the impact of the worldwide recession on the number of seats under subscription for renewals. Revenue from products sold in the United States accounted for $39.7 million or 51% of third quarter 2009 revenue compared to $37.2 million or 50% in the third quarter of 2008. Revenue from products sold internationally accounted for $38.9 million or 49% of third quarter 2009 revenue compared to $37.7 million or 50% in the third quarter of 2008. Revenue from international sales in the third quarter of 2009 was adversely impacted by the strengthening of the U.S. dollar against foreign currencies in the period when the subscription was entered relative to the currency rates that prevailed during the prior year. We had current deferred revenue of $218.6 million as of
September 30, 2009, compared to $208.8 million as of September 30, 2008, and $217.4 million as of June 30, 2009. For the remainder of 2009, we expect our revenue to increase slightly over 2008 revenue levels due to the amount of current deferred revenue that will be recognized as revenue during 2009, subscriptions that are scheduled for renewal that are expected to be renewed and expected new business sales for which some revenue will be recognized during 2009. We expect our deferred revenue balances in future periods to be negatively affected by the impact of the worldwide recession on our subscription renewals for web filtering and email security products, which have resulted in a shortening of duration of contracts, a slight reduction in the number of seats under subscription and delayed or non-renewal of contracts for these products. Generally our revenue in subsequent periods may be impacted by our deferred revenue balance entering the period, the number of product seats under subscription, the duration of contracts for renewal and new subscriptions, the timing of sales of renewal and new subscriptions, the average annual contract value and per seat price, and currency exchange rates impacting new and renewal subscriptions in international markets.
Cost of revenues. Cost of revenues consists of the costs of content review, technical support and infrastructure costs associated with maintaining our databases and costs associated with providing our SaaS security products. Cost of revenues also includes our amortized costs of acquiring and configuring our V10000 appliance. Cost of revenues increased to $9.9 million in the third quarter of 2009 from $9.2 million in the third quarter of 2008. The $0.7 million increase was primarily due to increased personnel costs in our technical support and database groups in 2009 from 2008 as our full-time employee headcount in cost of revenues departments increased from an average of 228 employees during the third quarter of 2008 to an average of 263 employees during the third quarter of 2009. We allocate the costs for human resources, employee benefits, payroll taxes, information technology, facilities and fixed asset depreciation to each of our functional areas based on headcount data. As a percentage of revenue, cost of revenues increased to 13% during the third quarter of 2009 compared to 12% during the third quarter of 2008. For the remainder of 2009, we expect cost of revenue will increase in absolute dollars due to the higher headcount and expected increases in appliance sales as compared to 2008 but as a percentage of revenue will remain approximately the same as compared to 2008.
Amortization of acquired technology. Amortization of acquired technology, which primarily relates to the developed technology acquired from the PortAuthority and SurfControl acquisitions in 2007, was $3.2 million in the third quarter of 2009 compared to $3.1 million in the third quarter of 2008. The increase of $0.1 million in amortization of acquired technology from the third quarter of 2008 to the third quarter of 2009 was primarily due to the acquisition of additional acquired technology in the fourth quarter of 2008. As of September 30, 2009, the acquired technology is being amortized over a remaining weighted average period of 1.7 years. We expect to incur $3.2 million in amortization expense of acquired technology during the remainder of 2009 and that 2009 levels will be approximately the same as 2008 in absolute dollars.
Selling and marketing. Selling and marketing expenses consist primarily of salaries, commissions and benefits related to personnel engaged in selling, marketing and customer support functions, including costs related to public relations, advertising, promotions and travel, amortization of acquired customer relationships as well as allocated costs. Selling and marketing expenses do not include payments to channel partners for marketing services and rebates. Selling and marketing expenses decreased to $40.7 million, or 52% of revenue, in the third quarter of 2009, from $43.0 million, or 58% of revenue, in the third quarter of 2008. The $2.3 million decrease was primarily due to a reduction in the amortization of acquired intangibles (customer relationships) of approximately $2.8 million and reduced discretionary costs and allocations of $0.2 million relating to the substantial completion of SurfControl integration activities during 2008 offset by increased personnel costs (including severance costs) of $0.7 million. As of September 30, 2009, the acquired customer relationships intangible assets are being amortized over a remaining weighted average period of approximately 4.8 years. Our headcount in sales and marketing increased from an average of 525 employees during the third quarter of 2008 to 608 employees for the third quarter of 2009. We expect overall selling and marketing expenses to be lower in absolute dollars for the remainder of 2009 as compared to 2008 primarily due to a reduction of amortization of acquired intangibles from the SurfControl acquisition due to the accelerated method of the amortization and the elimination of the non-recurring acquisition related expenses associated with PortAuthority and SurfControl, offset by having additional sales and marketing personnel to support our expanding selling and marketing efforts worldwide. We also expect that selling and marketing expenses as a percentage of
General and administrative. General and administrative expenses consist primarily of salaries, benefits and related expenses for our executive, finance and administrative personnel, third party professional service fees and allocated costs. General and administrative expenses decreased to $9.7 million, or 12% of revenue, in the third quarter of 2009 from $10.8 million, or 14% of revenue, in the third quarter of 2008. The $1.1 million decrease in general and administrative expenses was primarily due to a reduction in professional service fees of $1.0 million primarily related to a reduction in SurfControl integration activities in 2009 compared to 2008. Our headcount increased in general and administrative departments from an average of 114 employees during the third quarter of 2008 to 131 employees for the third quarter of 2009. For the remainder of 2009, we expect general and administrative expenses to be approximately the same in absolute dollars as co
WBSN is in the portfolios of Michael Price of MFP Investors LLC, PRIMECAP Management.
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