wbsn q113 investor presentation
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© 2013 Websense, Inc.
Q1’13 Investor Presentation
© 2013 Websense, Inc. 2
GAAP to Non-GAAP Reconciliation During 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 financial information on our website at www.Websense.com under “About Us” in the “Investors” section. www.investor.websense.com
Forward Looking Statements This presentation contains projections and other forward-looking statements regarding future events or the future financial performance of Websense, including future operating results. These projections and statements are only predictions. Actual events or results may differ materially from those in the projections or other forward-looking statements. Please see Websense’s filings with the SEC, including its most recent filings on Form 10-K, for a discussion of important risk factors that could cause actual events or results to differ materially from those in the projections or other forward-looking statements.
© 2013 Websense, Inc.
• Introduction to Websense
• Aligned with modern security needs
• Growth company with a legacy business
• Attractive subscription-based business model
Agenda
3
© 2013 Websense, Inc.
• Market leader – Advanced web security, email security, mobile security and data loss
prevention (DLP) solutions
– Market share leader in content security
• Technology pioneer – 16 years classifying content and threats
– >180 patents granted or pending
– First to market with unified web/email/data security,
hybrid SaaS/on-premise, Threatseeker, ACE, Defensio
• Global presence – ~1,600 employees in 35 countries
– 15,000 resellers in 130 countries
– R&D on four continents
– Follow-the-sun technical support
– ~50% of revenue outside the U.S.
• Financial strength – Attractive business model
• 2012 revenue of more than 90% subscription revenue
– $369.5 million annual billings (2012)
About Websense
4
Data
Security
Email Security
Web Security
Mobile Security
© 2013 Websense, Inc.
9.1% 11.9%
13.9% 13.4%
14.1% 14.9% 15.8%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
17.0%
$0
$10
$20
$30
$40
$50
$60
$70
2006 2007 2008 2009 2010 2011 2012
Annual R&D Spending (non-GAAP)
R&D Spending % of Billings
Websense R&D Investment
5
Commitment to innovation reflected in increased R&D spending.
© 2013 Websense, Inc.
Leader in Content Security
6
$362.9 $369.5
$374-394
2011 2012 2013*
Annual Billings ($M)
Recurring revenue model $600M Installed base
2012
Legacy TRITON TRITON SUITE
“No One Stops More
Threats”
Portfolio of security
technologies
Software and service Appliance
*Guidance range as of 01/29/13
© 2013 Websense, Inc.
Positioned for growth
Why Invest in Websense?
7
Attractive subscription-based business model
Growth company with a legacy business
Aligned with modern security needs
© 2013 Websense, Inc.
• Introduction to Websense
• Aligned with modern security needs
• Growth company with a legacy business
• Attractive subscription-based business model
Agenda
8
© 2013 Websense, Inc.
Modern Security Requirements Protection from APTs, modern malware and targeted threats
9
Social Web
Cloud Computing Mobility
Data Loss & Theft
Risk management,
governance, and
compliance
Productivity & Liability Modern Malware and
Advanced Persistent Threats (APTs)
© 2013 Websense, Inc.
$50.4 $55.3
$60.5
$65.8
$71.2
$0
$10
$20
$30
$40
$50
$60
$70
$80
2010 2011 2012 2013 2014
Gartner Global Security Spending Forecast ($ billions)
Infrastructure Services
Global Security Spending Security remains a top IT priority
10
Large and growing market supported by increasingly targeted and complex attacks, as
well as regulatory and compliance requirements.
Presented by Lawrence Pingree at the Gartner Security and Risk Management Summit, June 20-23, 2011
Infrastructure 11% CAGR
Services 8% CAGR
© 2013 Websense, Inc. 11
TRITON Advanced Security
Threat Seeker Network
Global SaaS Infrastructure
© 2013 Websense, Inc.
TRITON Addresses Today’s Threats
12
IMP
AC
T
1980’s 1990’s 2000’s Today
Infrastructure
Security Firewall VPN
IDS
Anti-virus
Anti-spam
URL Filters
Identity & Access
Management
Secure Web
Gateway
Data Loss
Prevention
Content Security Suite
Contextual Reasoning
Packet Level Inspection
Who, What, Where,
When, Why, How
Content Security
NAC
© 2013 Websense, Inc.
Web filter and Web Security
Suite
Web Security Gateway
Web Security Gateway
Anywhere
TRITON Security Gateway
Anywhere TRITON
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
Solutions Feature Matrix Quick Reference
13
© 2013 Websense, Inc.
• Introduction to Websense
• Aligned with modern security needs
• Growth company with a legacy business
• Attractive subscription-based business model
Agenda
14
© 2013 Websense, Inc.
Websense: A Tale of Two Markets
Legacy (Web Filtering)
Next-generation (TRITON-based products, SaaS, DLP)
Opportunity Saturated Multi-billion, low
penetration
Differentiation Low-commoditizing Maximum
Competition Price-oriented Value-oriented
Market growth rate 0% – (10%) 15-20%
Market outlook Continued slow decline Accelerating interest and
adoption
15
© 2013 Websense, Inc. 16
The “TRITON Effect”
LEGACY FILTERING
Improved retention
Rates
Increased protection
Expanded footprint
Competitive displacement opportunity
$ V
alu
e o
f C
ust
om
er
Future Upsell
IN-LINE TECHNOLOGY
REAL TIME ANALYTICS
ADD SEATS / CROSS SELL
NEW CUSTOMERS
PLATFORM EXTENSIONS
Mobile
Security
ACE in
the Cloud
© 2013 Websense, Inc.
$34.4
$44.5 $45.3
$68.3
$49.0 $50.8 $49.4
$83.7
45%
52% 54%
59% 61% 59% 61%
69%
0%
10%
20%
30%
40%
50%
60%
70%
80%
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12
% o
f Total B
illings
Mill
ion
s
$ % of total billings
TRITON Billings
17
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.
© 2013 Websense, Inc.
• Introduction to Websense
• Aligned with modern security needs
• Growth company with a legacy business
• Attractive subscription-based business model
Agenda
18
© 2013 Websense, Inc. 19
Value Creation Priorities
Sustainable
growth
Cash flow and
profitability
Shareholder
value
“TRITON effect”
Excess US-based free
cash flow used for share
repurchases
Sales performance
Expense management
for growth
Billings Business Productivity Capital
Allocation
Deliver shareholder value
through top-line growth
© 2013 Websense, Inc.
Expiration/renewal
Expansion of TRITON billings
drives improved customer
retention rates
Income statement Revenue follows billings
growth. In 2013, revenue is impacted by the continued recognition of deferred appliance revenue and costs.
Upgrade and “new logo” opportunities
Migration to TRITON and within the TRITON portfolio of products yields growth
Cash flow statement Cash flow from operations is expected to grow each quarter in 2013 on a year-over-year basis.
Subscription Model Dynamics
20
Billings (Non-GAAP)
Cash Flow
Renewal/ Upgrade
Revenue
© 2013 Websense, Inc.
$347.0 $362.9 $369.5 $374-394
$0
$100
$200
$300
$400
2010 2011 2012 2013E*
Mill
ion
s
TRITON Non-TRITON
Total Billings (Non-GAAP)
21
TRITON billings growth drives overall growth and quality of the installed base.
61%
39%
47%
53%
37%
63%
*Guidance range as of 01/29/13
© 2013 Websense, Inc.
$394.3 $393.0 $401.1 $424-434
-$50
$50
$150
$250
$350
$450
2010 2011 2012 2013E*
Mill
ion
s
Software and Service Appliance OEM
Deferred Revenue
22
Growth in software and service billings drives increases in deferred revenue.
*Guidance range as of 01/29/13
© 2013 Websense, Inc.
Q4’12 Financial Results
January 29, 2013
23
© 2013 Websense, Inc.
Billings Metrics
24
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.
Software and service $107.4 $113.4 6%
Appliance $8.6 $8.6 0%
Total billings $116.0 $122.0 5%
Billings by Product Category
TRITON $68.3 $83.7 23%
Non-TRITON $47.7 $38.3 -20%
Billings by Region
U.S. $51.9 $54.4 5%
International $64.1 $67.6 5%
Contract Metrics
Number of customer transactions >$100k 205 243 19%
Average contract duration (months) 24.2 25.8 7%
Q4'12$ in millions, except no. of transactions, average contract duration and
percentages $ % ∆Q4'11
© 2013 Websense, Inc.
Revenues and Deferred Revenue
25
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.
Q4'11 $ % ∆
Software and service $82.3 $82.3 0%
Current period appliance1 $8.3 $8.2 0%
Pre-2011 appliance2 $2.1 $1.2 -43%
Total appliance $10.4 $9.4 -10%
Total revenues $92.7 $91.7 -1%
Software and service $383.3 $396.1 3%
Appliance $9.7 $5.0 -48%
Total deferred revenue $393.0 $401.1 2%
Q4'12
Revenues ($ in millions, except percentages)
Deferred Revenue ($ in millions, except percentages)
© 2013 Websense, Inc.
Revenue-based Operating Models
26
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.
Q4'11 Q4'12
Software and service 88.8% 89.7%
Current period appliance1 8.9% 9.0%
Pre-2011 appliance2 2.3% 1.3%
Total appliance 11.2% 10.3%
Total GAAP revenues 100.0% 100.0%
GAAP Margins
Gross profit margin % 83.9% 83.3%
Operating expenses % 69.5% 77.2%
Operating margin % 14.4% 6.1%
Non-GAAP Margins
Non-GAAP gross profit margin % 84.8% 84.2%
Non-GAAP operating expenses % 61.4% 70.0%
Non-GAAP operating margin % 23.4% 14.2%
Revenues
© 2013 Websense, Inc.
Billings-based Operating Models (Non-GAAP)
27
Operating model as a percent of billings, excluding appliance costs associated with pre-2011 appliance sales.
1. Excludes previously deferred appliance costs of $1.0 million in Q4’11, $0.5 million in Q4’12, $5.1 million in Q4 YTD’11 and $2.6 million in Q4
YTD’12 associated with pre-2011 appliance sales.
Q4'11 Q4'12
Software and service billings 92.6% 92.9%
Appliance billings 7.4% 7.1%
Total billings 100.0% 100.0%
Non-GAAP Gross Profit Margin
Gross margin software and service % 91.0% 90.5%
Gross margin appliance %1 60.1% 62.9%
Billings gross margin %1 88.7% 88.6%
Non-GAAP Operating Expense and Margin
Sales and marketing % 30.2% 32.3%
Research & development % 11.8% 12.6%
General & administrative % 7.1% 7.7%
Total expenses % 49.1% 52.6%
Billings non-GAAP operating margin %1 39.6% 36.0%
Billings Mix
© 2013 Websense, Inc.
Balance Sheet Highlights
28
1. Excludes deferred revenue from pre-2011 appliance sales.
$ millions, except DSO and percentages Q4'11 Q4'12 $ Chg % Chg
Cash and receivables
Cash and cash equivalents (excluding restricted cash)
Accounts receivable $80.1 $89.1 $9.0 11%
Days billings outstanding (DSO) 62 days 66 days
Deferred revenues
Current deferred revenue $250.6 $244.0 ($6.6) -3%
Long term deferred revenue $142.4 $157.1 $14.7 10%
Total deferred revenue $393.0 $401.1 $8.1 2%
Deferred software and service revenue1 $383.3 $396.1 $12.8 3%
Borrowings
Balance on revolving credit facility $73.0 $68.0 -$5.0 -7%
Y/Y Comparison
$76.2 $64.6 ($11.6) -15%
© 2013 Websense, Inc.
Cash Flow Highlights
29
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.
$ in millions Q4'11 $ ∆
Cash flow from operations
Net income $10.4 $3.8 ($6.6)
Adjustments to reconcile net income to net cash
provided by operating activities $16.5 $12.5 ($4.0)
Changes in operating assets and liabilities ($5.0)1($5.2)
3($0.2)
Net cash provided by operating activities $21.9 $11.1 3
($10.8)
Free cash flow
Purchase of property and equipment ($1.9) ($3.0) ($1.1)
Free cash flow 1 $20.0 $8.1 ($11.9)
Financing cash flows
Borrowings (repayments), net $0.0 $0.0 $0.0
Purchase of treasury stock $24.7 $4.4 ($20.3)
Supplemental cash flow disclosures2
Cash taxes paid (net of refunds) $3.6 $2.9 ($0.7)
Interest paid $0.5 $0.6 $0.1
Q4'12
© 2013 Websense, Inc.
Q1 2013 Outlook
30
1. Long-term non-GAAP effective tax rate.
$ in millions, except per share and percentages
GAAP
Revenues $89.5 $84 - $87 -6% - -3%
Cash flow from operations $22.4 $27 - $30
Capital expenditures $2.8
Weighted average diluted shares 37.6
Non-GAAP
Software and service billings % 92.9% 92% - 93%
Appliance billings % 7.1% 7% - 8%
Total billings $80.6 $82 - $86 2% - 7%
Non-GAAP gross profit margin 85.2%
Non-GAAP operating margin 19.9% 8% - 11%
Diluted non-GAAP EPS $0.36 $0.15 - $0.19 -58% - -47%
Non-GAAP tax rate 19.0% 19.0% 1
(as of 01/29/13)
~ 83%
~ $4
~ 37
Q1'12
Actual
Q1'13 Guidance
Range Y/Y Chg
© 2013 Websense, Inc.
2013 Outlook
31
1. Long-term non-GAAP effective tax rate.
$ in millions, except per share and percentages
GAAP
Revenues $361.5 $351 - $361 -3% - 0%
Cash flow from operations $48.9 $66 - $76
Capital expenditures $12.5 $15 - $17
Weighted average diluted shares 37.5
Non-GAAP Revenue Based
Non-GAAP gross profit margin 84.6%
Non-GAAP operating margin 19.3% 11% - 13%
Diluted non-GAAP EPS $1.46 $0.78 - $0.93 -47% - -36%
Non-GAAP tax rate 19.0%
Non-GAAP Billings Based
Software and service billings % 92.3% 92% - 93%
Appliance billings % 7.7% 7% - 8%
Total billings $369.5 $374 - $394 1% - 7%
Billings operating margin 21.8% 17% - 20%
Y/Y Chg
~37
~83%
19.0% 1
2012
Actual
2013 Guidance
(as of 01/29/13)
Range
© 2013 Websense, Inc.
Billings-based Operating Model
32
1. Based on non-GAAP expenses, excluding deferred appliance expenses associated with pre-2011 appliance sales.
2011 2012 2011 2012 2011 2012 2011 2012
Total billings ($ in millions) $ 76.7 $ 80.6 $ 85.9 $ 85.4 $ 84.3 $ 81.5 $ 116.0 $ 122,021
Billings Mix
Software and service 93.2% 92.6% 92.1% 91.8% 90.5% 91.5% 92.6% 92.9%
Current period appliance 6.8% 7.4% 7.9% 8.2% 9.5% 8.5% 7.4% 7.1%
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% 90.5%
Appliance gross margin % 50.0% 59.2% 50.6% 61.3% 55.5% 60.7% 60.1% 63.1%
Billings gross margin % 84.2% 84.5% 85.2% 84.6% 84.7% 83.3% 88.7% 88.6%
Sales and marketing % 47.4% 44.4% 43.4% 39.8% 40.3% 40.0% 30.1% 32.3%
Research and development % 17.1% 17.4% 15.6% 17.0% 16.7% 18.0% 11.9% 12.6%
General and administrative % 10.9% 10.8% 9.2% 10.3% 9.8% 10.5% 7.1% 7.7%
Total expenses 75.4% 72.6% 68.2% 67.1% 66.8% 68.5% 49.1% 52.6%
Billings non-GAAP operating margin %1
8.8% 11.9% 17.0% 17.5% 17.9% 14.8% 39.6% 36.0%
Q4
Non-GAAP Operating Expenses and Income %
Q1 Q2 Q3
© 2013 Websense, Inc.
2013 Guidance Assumptions as of 01/29/13
33
Exchange Rates
Q1 Q2 Q3 Q4
~% Billings (expected)
Guidance Assumption 2012 2013 2012 2013 2012 2013 2012 2013
GBP Euro
~12% ~12%
$1.62 $1.32
$1.59 $1.33
$1.58 $1.27
$1.58 $1.25
$1.61 $1.30
Currency impact on financial results
Weaker dollar relative to the prior period increases billings and expenses; stronger dollar relative to prior periods decreases billings and expenses.
Deferred revenue primarily denominated in US dollars.
© 2013 Websense, Inc.
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