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WBSN Q412 Investor Presentation

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  • 1. Q4’12 Investor Presentation © 2012 Websense, Inc.
  • 2. GAAP to Non-GAAP ReconciliationDuring this presentation references to financial measures of Websense, Inc.(“Websense”) will include references to non-GAAP financial measures.Websense provides a reconciliation between GAAP and non-GAAP financialinformation on our website at www.Websense.com under “About Us” in the“Investors” section. www.investor.websense.comForward Looking StatementsThis presentation contains projections and other forward-looking statementsregarding future events or the future financial performance of Websense,including future operating results. These projections and statements are onlypredictions. Actual events or results may differ materially from those in theprojections or other forward-looking statements. Please see Websense’s filingswith the SEC, including its most recent filings on Form 10-K, for a discussion ofimportant risk factors that could cause actual events or results to differmaterially from those in the projections or other forward-looking statements. © 2012 Websense, Inc. 2
  • 3. Agenda• Introduction to Websense• Aligned with modern security needs• Growth company with a legacy business• Attractive subscription-based business model © 2012 Websense, Inc. 3
  • 4. About Websense• Market leader – Advanced web security, email security, mobile security and data loss prevention (DLP) solutions – Market share leader in content security• Technology pioneer – 15 years classifying content and threats – >170 patents granted or pending Web – First to market with unified web/email/data security, Security hybrid SaaS/on-premise, Threatseeker, ACE, Defensio• Global presence – ~1,500 employees in 35 countries – 15,000 resellers in 130 countries Mobile Email – R&D on four continents Security Security – Follow-the-sun technical support – ~50% of revenue outside the U.S.• Financial strength – Attractive business model Data • 2011 revenue of ~90% subscription software Security and service/~10% appliances – $363 million annual billings (2011) © 2012 Websense, Inc. 4
  • 5. Websense TransformationVision, Opportunity, Solutions, Sales Content Security Leader (>$6B market opportunity) Data-centric Sales security and 2006 Support TRITON solutions Vision Transaction to Strategic Web filtering R&D 2010-2011 company investment ($750M market 2007-2011 Content opportunity) security solutions © 2012 Websense, Inc. 5
  • 6. Websense R&D Investment Commitment to innovation reflected in increased R&D spending. Annual R&D Spending (non-GAAP) 14.9% $60 14.6% 15.0% 14.3% 14.0% $50 14.0% $40 13.0% 13.0% $30 10.7% 12.0% $20 11.0% $10 $0 10.0% 2006 2007 2008 2009 2010 2011 R&D Spending % of Revenue © 2012 Websense, Inc. 6
  • 7. Leader in Content Security Portfolio of security technologies Recurring revenue model $600M Installed base Annual Billings ($M) 2012E $359.5- $362.9 364.5 $347.0 Legacy TRITON TRITON SUITE 2010 2011 2012E* “No One Stops More Software and service Appliance Threats” * Guidance range as of 10/23/12 © 2012 Websense, Inc. 7
  • 8. Why Invest in Websense? Aligned with modern security needs Positioned for growth Growth company with a legacy business Attractive subscription-based business model © 2012 Websense, Inc. 8
  • 9. Agenda• Introduction to Websense• Aligned with modern security needs• Growth company with a legacy business• Attractive subscription-based business model © 2012 Websense, Inc. 9
  • 10. Modern Security RequirementsProtection from APTs, modern malware and targeted threats Risk management, governance, and Data Loss compliance Social Web & Theft Cloud Computing Mobility Modern Malware and Productivity & Liability Advanced Persistent Threats (APTs) © 2012 Websense, Inc. 10
  • 11. Global Security SpendingSecurity remains a top IT priorityLarge and growing market supported by increasingly targeted and complex attacks, aswell as regulatory and compliance requirements. Gartner Global Security Spending Forecast ($ billions) $80 $71.2 $70 $65.8 $60.5 $60 $55.3 $50.4 $50 Services 8% CAGR $40 $30 $20 Infrastructure 11% CAGR $10 $0 2010 2011 2012 2013 2014 Infrastructure ServicesPresented by Lawrence Pingree at the Gartner Security and Risk Management Summit, June 20-23, 2011 © 2012 Websense, Inc. 11
  • 12. TRITON Advanced Security Threat Seeker Global SaaS Network Infrastructure © 2012 Websense, Inc. 12
  • 13. TRITON Addresses Today’s Threats Content Security Suite Contextual Reasoning Data Loss Prevention Who, What, Where, When, Why, How Secure Web Gateway Identity & Access Content Management Security IMPACT NAC URL Filters Packet Level Inspection Anti-spam Anti-virus IDS Firewall VPN Infrastructure Security 1980’s 1990’s 2000’s Today © 2012 Websense, Inc. 13
  • 14. TRITON is the…Foundation for Long-term Billings Growth Substantial opportunity to upgrade customers from legacy filtering to TRITON as well as within the TRITON portfolio of products and technologies. 2012 Upgrade cycle FUTURE began in Upgrade cycle 2H 2011 ~ $20M began in Installed base 2009 ~ $280M Installed base ~ $300M Mobile Installed base Security TRITON Security TRITON Gateway Enterprise i-Platform Web Web Anywhere Security Web Security Suite Security Gateway Gateway Anywhere Web Filter © 2012 Websense, Inc. 14
  • 15. Solutions Feature MatrixQuick Reference Web filter Web TRITON and Web Web Security Security Security Security Gateway Gateway TRITON Suite Gateway Anywhere Anywhere Enterprise General availability 2000-2005 Q4 2008 Q2 2010 Q2 2011 Q2 2011 ~List price per seat (@ 1000 users) $15-30 $40 $50 $60 $70 Functionality URL filtering X X X X X Real-time Web Security X X X X Web channel TruWeb™ DLP X X X Email security X X Email channel TruEmail™ DLP X X Enterprise DLP X Deployment options Software-only X X Appliance X (WSS) X X X X Hybrid appliance/cloud service X X X © 2012 Websense, Inc. 15
  • 16. Agenda• Introduction to Websense• Aligned with modern security needs• Growth company with a legacy business• Attractive subscription-based business model © 2012 Websense, Inc. 16
  • 17. Websense: A Tale of Two Markets Legacy Next-generation (Web Filtering) (TRITON-based products, SaaS, DLP) Multi-billion, low Opportunity Saturated penetration Differentiation Low-commoditizing Maximum Competition Price-oriented Value-oriented Market growth rate 0% – (10%) 15-20% Accelerating interest and Market outlook Continued slow decline adoption © 2012 Websense, Inc. 17
  • 18. The “TRITON Effect” Future Competitive Upsell displacement PLATFORM opportunity EXTENSIONS Expanded NEW CUSTOMERS footprint Improved retention ADD SEATS /$ Value of Customer Rates CROSS SELL Mobile Increased IN-LINE TECHNOLOGY Security protection REAL TIME i-Platform ANALYTICS LEGACY FILTERING © 2012 Websense, Inc. 18
  • 19. TRITON Billings $80 70% 61% 59% 61% 59% $70 60% 54% 52% $60 45% 50% % of Total Billings $50 40% Millions $40 $68.3 30% $30 $49.0 $50.7 $49.4 $44.5 $45.3 20% $20 $34.4 $10 10% $0 0% Q111 Q211 Q311 Q411 Q112 Q212 Q312 $ % of total billings TRITON solutions include the TRITON family of security gateways for web, email, mobile and data security (including related appliances and technical support subscriptions), Websense Data Security Suite and cloud-based security solutions. © 2012 Websense, Inc. 19
  • 20. Agenda• Introduction to Websense• Aligned with modern security needs• Growth company with a legacy business• Attractive subscription-based business model © 2012 Websense, Inc. 20
  • 21. Value Creation Priorities Deliver shareholder value through top-line growth Capital Billings Business Productivity Allocation “TRITON effect” Sales performance Excess free cash flow used for share Expense management repurchases for growth Sustainable Cash flow and Shareholder growth profitability value © 2012 Websense, Inc. 21
  • 22. Subscription Model Dynamics Upgrade and “new logo” Cash flow statement opportunities In 2012, higher cash taxes will Migration to TRITON and impact cash generated by within the TRITON billings portfolio of products yields growth Billings Cash (Non-GAAP) Flow Renewal/ Revenue Upgrade Income statement Revenue follows billings Expiration/renewal growth. In 2012, revenue is Expansion of TRITON billings impacted by the decline in revenue drives improved customer recognized from OEM and appliance retention rates deferred revenue © 2012 Websense, Inc. 22
  • 23. Quality of Up for RenewalTRITON solutions increase quality and quantity of subscriptions up for renewal. 2011 2012E 2013E TRITON 23% TRITON 35% TRITON Legacy Legacy ~50% ~50% Legacy 65% 77% © 2012 Websense, Inc. 23
  • 24. Total Billings (Non-GAAP) TRITON billings growth drives overall growth and quality of the installed base. $400 $362.9 $359.5-364.5 $347.0 40% 47% $300 61% Millions $200 60% 53% $100 39% $0 2010 2011 2012E* TRITON Legacy OEM * Guidance range as of 10/23/12 © 2012 Websense, Inc. 24
  • 25. Deferred RevenueGrowth in software and service billings drives increases in deferred revenue. $450 $394.3 $393.0 0-1% $393-396 $350 $250 Millions 2-3% $150 5% $50 2010 2011 2012E* -$50 Software and Service Appliance OEM * Based on billings and revenue guidance ranges as of 10/23/12 25 © 2012 Websense, Inc.
  • 26. Q3’12 Financial ResultsOctober 23, 2012 © 2012 Websense, Inc.
  • 27. Billings Metrics Q312 YTD12$ in millions, except no. of transactions, average contract duration andpercentages Q311 $ % ∆ YTD11 $ %∆ Software and service $76.3 $74.6 -2% $226.9 $227.6 0% Appliance $8.0 $6.9 -14% $20.0 $19.9 -1% Total billings $84.3 $81.5 -3% $246.9 $247.5 0%Billings by Product Category TRITON $45.3 $49.4 9% $124.1 $149.1 20% Non-TRITON $39.0 $32.1 -18% $122.8 $98.4 -20%Billings by Region U.S. $47.2 $39.3 -17% $121.5 $119.7 -1% International $37.1 $42.2 14% $125.4 $127.8 2%Contract Metrics Number of customer transactions >$100k 132 144 9% 358 405 13% Average contract duration (months) 23.1 24.1 4% TRITON solutions include the TRITON family of security gateways for web, email, mobile and data security (including related appliances and technical support subscriptions), Websense Data Security Suite and cloud-based security solutions. © 2012 Websense, Inc. 27
  • 28. Revenues and Deferred Revenue Q312 YTD12 Q311 $ % ∆ YTD11 $ % ∆ Revenues ($ in millions, except percentages) Software and service $81.8 $82.3 1% $243.1 $246.0 1% Current period appliance 1 $7.7 $6.6 -14% $19.1 $19.0 -1% Pre-2011 appliance 2 $2.6 $1.5 -42% $9.3 $4.8 -48% Total appliance $10.3 $8.1 -21% $28.4 $23.8 -16% Total revenues $92.1 $90.4 -2% $271.5 $269.8 -1%Deferred Revenue ($ in millions, except percentages) Software and service $358.2 $364.9 2% Appliance $11.6 $5.8 -50% Total deferred revenue $369.8 $370.7 0% 1. Excludes pre-2011 appliance revenues. 2. Previously deferred. On January 1, 2011, Websense was required to adopt Accounting Standards Update (ASU) 2009-13 (Multiple Deliverable Revenue Arrangements) and ASU 2009-14 (Certain Revenue Arrangements that Include Software Elements), which require 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 subscription terms. © 2012 Websense, Inc. 28
  • 29. Revenue-based Operating Models Q311 Q312 YTD11 YTD12 Revenues Software and service 88.8% 91.1% 89.5% 91.2% Current period appliance 1 8.4% 7.3% 7.0% 7.0% Pre-2011 appliance 2 2.8% 1.6% 3.5% 1.8% Total appliance 11.2% 8.9% 10.5% 8.8% Total GAAP revenues 100.0% 100.0% 100.0% 100.0% GAAP M argins Gross profit margin % 83.8% 83.4% 83.5% 83.7% Operating expenses % 68.9% 68.1% 72.1% 70.4% Operating margin % 14.9% 15.3% 11.4% 13.3% Non-GAAP M argins Non-GAAP gross profit margin % 84.8% 84.3% 84.6% 84.7% Non-GAAP operating expenses % 61.1% 61.9% 63.6% 63.6% Non-GAAP operating margin % 23.7% 22.4% 21.0% 21.1% 1. Excludes pre-2011 appliance revenues. 2. Previously deferred. On January 1, 2011, Websense was required to adopt Accounting Standards Update (ASU) 2009-13 (Multiple Deliverable Revenue Arrangements) and ASU 2009-14 (Certain Revenue Arrangements that Include Software Elements), which require 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 subscription terms. © 2012 Websense, Inc. 29
  • 30. Billings-based Operating Models (Non-GAAP) Operating model as a percent of billings, excluding appliance costs associated with pre-2011 appliance sales. Q311 Q312 YTD11 YTD12 Billings Mix Software and service billings 90.5% 91.5% 91.9% 92.0% Appliance billings 9.5% 8.5% 8.1% 8.0% Total billings 100.0% 100.0% 100.0% 100.0% Non-GAAP Gross Profit Margin Gross margin software and service % 87.8% 85.4% 87.6% 86.2% Gross margin appliance %1 55.5% 60.7% 52.4% 60.6% Billings gross margin %1 84.7% 83.3% 84.7% 84.1% Non-GAAP Operating Expense and Margin Sales and marketing % 40.3% 40.0% 43.5% 41.4% Research & development % 16.7% 18.0% 16.5% 17.4% General & administrative % 9.8% 10.5% 9.9% 10.5% Total expenses % 66.8% 68.5% 69.9% 69.3% Billings non-GAAP operating margin % 1 17.9% 14.8% 14.8% 14.8% 1. Excludes previously deferred appliance costs of $1.1 million in Q3’11, $0.6 million in Q3’12, $4.2 million in Q3 YTD’11 and $2.1 million in Q3 YTD’12 associated with pre-2011 appliance sales. © 2012 Websense, Inc. 30
  • 31. Balance Sheet Highlights Y/Y Comparison $ millions, except DSO and percentages Q311 Q312 $ Chg % Chg Cash and receivables Cash and cash equivalents $75.6 $57.6 ($18.0) -24% (excluding restricted cash) Accounts receivable $59.8 $54.4 ($5.4) -9% Days billings outstanding (DSO) 64 days 60 days Deferred revenues Current deferred revenue $238.6 $231.6 ($7.0) -3% Long term deferred revenue $131.2 $139.1 $7.9 6% Total deferred revenue $369.8 $370.7 $0.9 0% 1 Deferred software and service revenue $358.2 $364.9 $6.7 2% Borrowings Balance on revolving credit facility $73.0 $68.0 -$5.0 -7% 1. Excludes deferred revenue from pre-2011 appliance sales. © 2012 Websense, Inc. 31
  • 32. Cash Flow Highlights Q312 YTD12 $ in millions Q311 $ ∆ YTD11 $ ∆ Cash flow from operations Net income $8.1 $8.5 $0.4 $20.6 $14.5 ($6.1) Adjustments to reconcile net income to net cash provided by operating activities $10.0 $9.5 ($0.5) $31.5 $29.7 ($1.8) 1 3 1 3 Changes in operating assets and liabilities ($1.4) ($12.4) ($11.0) $5.2 ($6.4) ($11.6) Net cash provided by operating activities 3 3 $16.7 $5.6 ($11.1) $57.3 $37.8 ($19.5) Free cash flow Purchase of property and equipment ($2.5) ($3.5) ($1.0) ($7.2) ($9.6) ($2.4) 1 $14.2 $2.1 ($12.1) $50.1 $28.2 ($21.9) Free cash flow Financing cash flows Borrowings (repayments), net $10.0 $0.0 ($10.0) $6.0 ($5.0) ($11.0) Purchase of treasury stock $25.1 $4.2 ($20.9) $74.0 $44.7 ($29.3) Supplemental cash flow disclosures 2 Cash taxes paid (net of refunds) $3.4 $17.3 $13.9 $5.0 $25.4 $20.4 Interest paid $0.3 $0.6 $0.3 $1.0 $1.7 $0.7 1. Free cash flow = cash flow from operations less purchases of property, plant, and equipment. 2. Cash taxes and interest paid are included in cash flow from operations. 3. Includes one-time tax payments of $14.7 million relating to the company’s settlement with the U.S. Internal Revenue Service of certain audit adjustments for tax years 2005 through 2007. © 2012 Websense, Inc. 32
  • 33. Q4 2012 Outlook Q412 Guidance Q411 (as of 10/23/12) Actual $ in millions, except per share and percentages Range Y/Y Chg GAAP Revenues $92.7 $90 - $92 -3% - -1% Cash flow from operations $21.9 $8 - $11 Cash taxes (net of refunds) $3.6 $3 - $4 Capital expenditures $1.9 $3 - $3.5 Weighted average diluted shares 38.9 37.0 - 37.5 Non-GAAP Software and service billings % 92.6% 92% - 93% Appliance billings % 7.4% 7% - 8% Total billings $116.0 $112 - $117 -3% - 1% Non-GAAP gross profit margin 84.8% 83% - 84% Non-GAAP operating margin 23.4% 16% - 18% Diluted non-GAAP EPS $0.44 $0.32 - $0.35 -27% - -20% Non-GAAP tax rate 18.5% 19.0% 11. Long-term non-GAAP effective tax rate. 33 © 2012 Websense, Inc.
  • 34. Implied 2012 Outlook Implied 2012 Guidance 2011 (as of 10/23/12) Actual $ in millions, except per share and percentages Range Y/Y Chg Prior Guidance GAAP Revenues $364.2 $359.8 - $361.8 -1% $359 - $363 Cash flow from operations 1 $45.8 - $48.8 $50 - $54 $79.2 Cash taxes (net of refunds) $8.6 $28 - $29 $29 - $30 Capital expenditures $9.1 $12.5 - $13 $12 - $13 Weighted average diluted shares 40.7 37.0 - 37.5 37 - 38 Non-GAAP Revenue Based Non-GAAP gross profit margin 84.6% 84% - 85% nc Non-GAAP operating margin 21.6% 19% - 20% 19% - 21% Diluted non-GAAP EPS $1.57 $1.50 - $1.53 -4% - -2% $1.50 - $1.57 1 Non-GAAP tax rate 18.5% 19.0% nc Non-GAAP Billings Based Software and service billings % 92.1% 92% - 93% nc Appliance billings % 7.9% 7% - 8% nc Total billings $362.9 $359.5 - $364.5 -1% - 0% $369 - $378 Billings operating margin 22.7% 20% - 22% 22% - 25%1. Long-term non-GAAP effective tax rate. © 2012 Websense, Inc. 34
  • 35. Billings-based Operating Model Long-term Target 2011 2012 Outlook Model Billings Billings Billings Billings Mix Software and service 92.1% 92% - 93% 92% - 93% Current period appliance 7.9% 7% - 8% 7% - 8% 1 Non-GAAP Gross Profit Margin % Software and service gross margin % 88.7% 87% - 89% Appliance gross margin % 54.7% 55% - 56% Billings gross margin % 86.0% 85% - 86% Non-GAAP Operating Expenses and Income % Sales and marketing % 39.3% 37% - 38% Research and development % 15.0% 14% - 15% General and administrative % 9.0% 7.5% - 8.5% Total expenses 63.3% 60% - 62% Billings non-GAAP operating margin %1 22.7% 20% - 22% 24% - 26% 1. Based on non-GAAP expenses, excluding deferred appliance expenses associated with pre-2011 appliance sales. © 2012 Websense, Inc. 35
  • 36. Billings-based Operating Model Q1 Q2 Q3 Q4 2011 2012 2011 2012 2011 2012 2011 2012 Total billings ($ in millions) $ 76.7 $ 80.6 $ 85.9 $ 85.4 $ 84.3 $ 81.5 $ 116.0 Billings Mix Software and service 93.2% 92.6% 92.1% 91.8% 90.5% 91.5% 92.6% Current period appliance 6.8% 7.4% 7.9% 8.2% 9.5% 8.5% 7.4%Non-GAAP Gross Profit Margin % 1 Software and service gross margin % 86.7% 86.5% 88.1% 86.7% 87.8% 85.4% 91.0% Appliance gross margin % 50.0% 59.2% 50.6% 61.3% 55.5% 60.7% 60.1% Billings gross margin % 84.2% 84.5% 85.2% 84.6% 84.7% 83.3% 88.7%Non-GAAP Operating Expenses and Income % Sales and marketing % 47.4% 44.4% 43.4% 39.8% 40.3% 40.0% 30.1% Research and development % 17.1% 17.4% 15.6% 17.0% 16.7% 18.0% 11.9% General and administrative % 10.9% 10.8% 9.2% 10.3% 9.8% 10.5% 7.1% Total expenses 75.4% 72.6% 68.2% 67.1% 66.8% 68.5% 49.1% 1 Billings non-GAAP operating margin % 8.8% 11.9% 17.0% 17.5% 17.9% 14.8% 39.6% 1. Based on non-GAAP expenses, excluding deferred appliance expenses associated with pre-2011 appliance sales. © 2012 Websense, Inc. 36
  • 37. 2012 Guidance Assumptions as of 10/23/12 Exchange Rates Q1 Q2 Q3 Q4 ~% Billings Guidance (expected) Assumption 2011 2012 2011 2012 2011 2012 2011 2012 GBP ~12% $1.61 $1.60 $1.59 $1.65 $1.58 $1.63 $1.58 $1.57 Euro ~12% $1.29 $1.37 $1.33 $1.44 $1.27 $1.44 $1.25 $1.36 Weaker dollar relative to the prior period increases billings and expenses; stronger dollar relative to prior Currency impact periods decreases billings and expenses. on financial results Deferred revenue primarily denominated in US dollars. © 2012 Websense, Inc. 37
  • 38. Follow us… Websense Corporate – www.websense.com – http://twitter.com/websense – http://www.facebook.com/websense – http://www.youtube.com/user/WBSNMKTG – http://community.websense.com/blogs/ – http://community.websense.com/blogs/newsletter/ Websense Security Labs – securitylabs.websense.com – http://community.websense.com/blogs/securitylabs/ – http://twitter.com/websenselabs – http://www.youtube.com/user/wslabsutube © 2012 Websense, Inc. 38