Pro forma net profit for the quarter, which only excludes amortization of stock-based compensation, was $232,000, or $0.01 per share, compared to a pro forma net loss of $1.1 million, or $0.05 per share loss, in the second quarter of the previous year.

This has been an outstanding quarter for the company, said John B. Carrington, chairman and CEO of Websense. Our performance this quarter is a strong testament to the efficiency of our subscription-based business model, along with the increasing value businesses place on employee Internet management software. Websense achieved 126 percent growth in Q2 2001 subscription revenues compared to Q2 2000, a 21 percent revenue growth over the most recent quarter, and our deferred revenue balance is now $31 million. No other company focused on the EIM market can boast of such a strong financial position and continued excellence at consistently exceeding market expectations.

This is the sixth consecutive quarter that we have achieved sequential top- and bottom-line growth, even in these difficult economic times. We believe that it is this continued performance that has encouraged public investors to acquire significant ownership in Websense during the last ten months. After our March 2000 IPO, we had 4.6 million shares trading in the public market (a 23 percent float) with approximately 15 million shares locked-up until the end of September 2000. Since the lock-up expired ten months ago, approximately 13.5 million shares have entered the public market. We are pleased that our expanded shareholder base has absorbed the unlocked shares without significantly impacting our valuation. Websense currently has 20 million shares outstanding with approximately 18 million shares, or 90 percent, in the public float, said Carrington.

We continue to believe that the current economic slowdown presents an opportunity for Websense because businesses now have to create efficiencies and do more with a smaller, leaner workforce. More companies are needing an employee Internet management system and customers tend to choose a strong competitor in a difficult economy, said Carrington. Businesses of all sizes select Websense because of our superior technology and long-term financial viability as a profitable company, including $88.8 million in cash and investments in marketable securities. Because of this, Websense maintains its status as the de facto standard for corporate EIM software.

Quarterly financials

Websense’s total revenues were $8.2 million for the second quarter, which ended June 30, 2001. Subscription revenues accounted for $8.1 million of total revenues for Q2 2001, a 21 percent increase over Q1 2001 and a 126 percent increase from $3.6 million in the second quarter of 2000.

Subscription revenue accounted for 99 percent of total revenues in the second quarter 2001 compared to 95 percent in second quarter 2000, consistent with the strategy that transformed Websense from a network security services organization and reseller of third-party security software to a provider of Websense Enterprise, a high-margin, subscription-based EIM solution.

Deferred revenue increased 85 percent to $31 million as of June 30, 2001, from $16.7 million on June 30, 2000. Websense sells annual subscriptions on a one-, two- or three-year pre-paid basis. Deferred revenue is the portion of pre-paid subscription billings that has not yet been recognized as revenue. Deferred revenue will be recognized ratably as revenue in future quarters over the term of the subscriptions.

Websense achieved its original year-end target of 90 percent gross margin, with gross margins improved to $7.4 million for the second quarter 2001, compared to $3.1 million or 82 percent of revenue for the second quarter 2000, due to the continuing growth of subscription revenue.

Pro-forma net profit (excluding a non-cash charge of $245,000 related to the amortization of stock-based compensation) was $232,000 in second quarter 2001, or $0.01 per share. This was an improvement of $1.3 million, from the pro-forma net loss of $1.1 million, or ($0.05) per share in the quarter ended June 30, 2000.

This improvement was due to an increase in gross margin as compared to second quarter 2000 of $4.2 million, or 135 percent, offset by an increase in operating expenses (excluding amortization of stock-based compensation) of $2.9 million or 53 percent. The increase in operating expenses is attributable to greater marketing expenditures, increased selling costs associated with higher revenues, and increases in overall headcount and general operating expenses.

Websense generated positive cash flow of $5.1 million in Q2 2001. Websense has been cash-flow positive since Q3 2000. At June 30, 2001, the company’s solid financial position included cash and investments in marketable securities of $88.8 million.

Total assets have increased to $100.3 million at June 30, 2001, up from $83.7 million at June 30, 2000. This increase was primarily due to investment earnings and increased receivables resulting from increased revenues.

SOURCE: COMPANY PRESS RELEASE