Websense (WBSN, $16.80, Hold) - Preannounces Weak Billings & Revenue But Inline EPS; Maintain Hold
Todd C. Weller, CFA
Software & Internet Infrastructure Analyst
Stifel, Nicolaus & Company, Inc.
  • After the close, Websense preannounced mixed 2Q09 results, with billings and revenue below our estimates and EPS inline.
  • Websense expects 2Q09 billings and revenue of $82.2 million and $83.9-$84.2 million, respectively, which compared to our estimates of $89.6 million and $85.1 million. EPS are expected to be $0.30-$0.32 versus our $0.32 estimate. Foreign currency movements had a negative $5 million impact on billings.
  • Soft billings were indicated to be a result of pressure on renewal business particularly outside the U.S. Management indicated that this was primarily a function of the macro environment with customers wanting to preserve cash. The company downplayed any increased competitive pressures or reduced seat counts having meaningful negative impacts.
  • On the positive side, Websense reported strength in upgrades, new customer wins, and sales of in its new Web Security Gateway appliance, with WSG billings totaling $11 million, up from $4.4 million in 1Q09. DLP billings were $3.6 million, up from $2.5 million in 2Q08. Comments around pipeline build, performance from recent sales additions and expectations for continued success among new products in 2H09 were positive, in our view.
  • Websense indicated that its 2Q09 cash flow performance was better than expected and that the company has reduced planned spending for 2H09 by a couple million dollars. We believe that our current EPS outlook for 2009 should be okay though we expect some pressure on our revenue estimate and clearly the billings outlook will be lower. The company did not provide any updates to guidance and we plan to revisit our model following the company's official release.
  • We view these preliminary results as mixed. While we view pressures on renewal business as concerning, we view the early performance with respect to its Web Security Gateway as positive. We continue believe that improved growth is key for the stock to work. We believe that success in driving new products is critical in this regard though a rebound in renewal business will clearly be required for Websense to drive improved growth. We are maintaining our Hold rating on the shares.