Q113 Investor Presentation

© 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.

http://www.investor.websense.com/


• Introduction to Websense

• Aligned with modern security needs

• Growth company with a legacy business

• Attractive subscription-based business model

Agenda

3


• 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


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.


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


Positioned for growth

Why Invest in Websense?

7

Attractive subscription-based business model

Growth company with a legacy business

Aligned with modern security needs






Agenda

8


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)


$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


TRITON Advanced Security

Threat Seeker Network

Global SaaS Infrastructure


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


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






Agenda

14


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


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


$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.






Agenda

18


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


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


$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%



$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.



Q4’12 Financial Results

January 29, 2013

23


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


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 $ % ∆


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%


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)


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


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


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%


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


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 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


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 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.


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

Follow us…

34

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/

http://community.websense.com/blogs/securitylabs/

http://twitter.com/websenselabs

http://www.youtube.com/user/wslabsutube

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Q113 Investor Presentation

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