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Subscription-Based Model Provides Predictability, Consistency

LONDON, April 25, 2001 – Websense Inc. (NASDAQ: WBSN), the worldwide leader of employee Internet management (EIM) software, announced today very strong financial results for the quarter, achieving $6.9 million in revenue and generating more than $2.5 million of positive cash-flow for the quarter ended March 31, 2001.
Pro forma net loss for the quarter, which excludes only amortization of stock-based
compensation, was $187,000, or $0.01 per share, compared to a pro forma net loss of $2.2
million, or $0.14 per share, in the first quarter of the previous year.
“We continue to see strong growth in top and bottom line numbers, as well as positive
earnings visibility,” said Geoff Haggart, vice president of Websense’s UK-based sales office.
“With 127 percent growth in Q1 2001 subscription revenues compared to the same quarter last
year, 20 percent revenue growth over the most recent quarter, and our deferred revenue balance
now at $27.9 million, we see steady progress toward profitability, differentiating us from any other
company focused on the EIM market.”
“Our predictability for our revenues over the long term can be attributed to the fact that
Websense sells its software via a pre-paid, one-, two- or three-year subscription model. In these
times of economic uncertainty, this model separates us from other EIM companies and helps us
fortify our growth quarter over quarter and year over year,” said Haggart.
“A primary reason for our success is that organizations are quickly realizing that EIM
software is an essential part of every business network,” said Haggart. “While there are a number
of choices in the EIM space, we are seeing businesses of all sizes overwhelmingly select
Websense because of our superior technology and long-term financial viability, including $2.5
million in positive cash-flow for the most recent quarter and $83.7 million in cash and
investments. We believe Websense is the de facto standard for corporate EIM software.”
“Finally, we believe EIM market growth will continue despite the slowdown now
affecting worldwide economic markets. We feel this slowdown could present an opportunity for
Websense because businesses now have to create efficiencies and do more with a smaller, leaner
workforce for the first time in years. Websense software is the right product at the right time for
these companies because it helps make employees more productive, reduces a company’s
exposure to legal liability and saves valuable network bandwidth,” said Haggart.

Quarterly highlights

During the first quarter 2001, Websense solidified its position as the leader of the EIM
market space. Highlights include:
· Websense’s total revenues for Q1 2001 were $6.9 million. Subscription revenues
accounted for $6.7 million of total revenues for Q1 2001, a 20 percent increase over Q4
2000 and a 127 percent increase from Q1 2000.
· Pro forma net loss for the quarter, which excludes only amortization of stock-based
compensation, was $187,000, or a loss of $0.01 per share compared to a pro forma net
loss of $2.2 million and a loss of $0.14 per share in Q1 2000.
· Websense generated positive cash flow of $2.5 million in Q1 2001. Websense has been
cash-flow positive since Q3 2000.
· Deferred revenue increased to $27.9 million, a growth of 99 percent or $13.9 million
from the first quarter of 2000. Deferred revenue is the portion of pre-paid subscription
billings that has not yet been recognized as revenue.
· As of March 31, 2001, the company’s solid financial position included cash and
investments in marketable securities of $83.7 million.
· Websense continues to drive strong international revenue, with 34 percent of Q1 2001
revenue derived from outside of North America.
· Websense added many important European accounts in Q1 2001, including Old Mutual,
Orange, L’Oreal, Aventis, and UK Environment Agency. Coupled with more than 1,150
other new accounts globally in Q1 2001, Websense now has more than 13,300 accounts,
including 244 Fortune 500 customers, 69 of the Nikkei 225 and 36 of the FTSE 100.
· Websense added 39 new value-added resellers (VARs) as partners during first quarter
2001. The company now has 849 worldwide channel partners that produced 81 percent of
Q1 2001 billings.
· In Q1 2001, Websense continued to differentiate itself from other EIM software
companies by integrating its software application with a number of leading Internet
infrastructure companies. Check Point, NetScreen, CacheFlow and Volera (a Novell
subsidiary) each announced new or updated product integrations with Websense’s
existing Websense Enterprise v4.2 application.
· Websense continues to receive recognition for its EIM software solutions. In Q1 2001,
Websense Enterprise software earned a maximum five-star rating in a product review
from editors of Secure Computing Magazine, based on the software’s superior feature set,
ease of use, performance and other factors.

Quarterly financials

Websense subscription revenues increased $3.7 million, or 127 percent, to $6.7 million in
the quarter ended March 31, 2001, up from $3.0 million in the same period in 2000. Subscription
revenue accounted for 98 percent of total revenues in the first quarter 2001 compared to 95
percent in first quarter 2000.
Deferred revenue increased $13.9 million or 99 percent to $27.9 million as of March 31,
2001, from $14.0 million as of March 31, 2000. Websense sells annual subscriptions on a one-,
two- or three-year, pre-paid basis. Deferred revenue is the total amount the company has billed to
customers, but not yet recognized as revenue. Deferred revenue will be recognized ratably as
revenue in future periods over the term of the subscription.
Other products and services revenue decreased 7 percent from first quarter 2000, to
$150,000 in the first quarter 2001, representing a decrease as a percentage of total revenues from
5 percent to 2 percent. The decrease is 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.
Gross margins improved to $6.0 million or 88 percent of revenue for first quarter 2001,
compared to $2.5 million or 80 percent of revenue for first quarter 2000.
Pro-forma net loss (excluding a non-cash charge of $200,000 related to the amortization
of stock-based compensation) was $187,000 in first quarter 2001, or ($0.01) per share. This was
an improvement of $2.0 million, from the pro-forma net loss of $2.2 million, or ($0.14) per share
in the quarter ended March 31, 2000. This improvement was due to a combination of the increase
in gross margin of $3.5 million, or 141 percent, an increase in net interest income of $956,000
due to the investment of the company’s March 2000 IPO proceeds, offset by an increase in
operating expenses (excluding amortization of stock-based compensation) of $2.5 million or 52
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.
Total assets have increased by $12.6 million at March 31, 2001, to $96.1 million as
compared to $83.5 million at March 31, 2000. This increase was primarily due to investment
earnings and increased receivables.

Future outlook

Websense provides the following guidance for 2001. Please note that these are forward-looking
statements, and the company undertakes no obligation to update these statements:
· Websense currently expects revenue to continue growing in the range of 18 to 20 percent
per quarter over the next two quarters (Q2 and Q3). The company has not seen any
significant negative impact on its revenue growth from recent changes in the economy
and believes that the economic slowdown may not materially impact its revenues during
this period. Websense will keep the financial community informed on a quarterly basis,
as the economic changes unfold.
· Websense continues to target a gross margin of 90 percent by Q4 2001.
· Websense continues to target a long-term operating margin of 15 to 20 percent by Q4 2002.
· Websense anticipates achieving profitability on a pro forma basis by Q3 2001.

About Websense Inc.

Websense Inc. (NASDAQ: WBSN) is the worldwide leader of employee Internet
management (EIM) solutions. Websense Enterprise software enables businesses to monitor,
report and manage how their employees use the Internet. This supports an organization’s efforts
to improve employee productivity, conserve network bandwidth and mitigate legal liability.
Founded in 1994, the company serves more than 13,000 customers, ranging in size from 100-
person firms to global-sized corporations. Websense customers include 244 of the Fortune 500
and 69 of the Nikkei 225, and 36 of the FTSE 100. These encompass more than 8.25 million
worldwide customer seats, pre-paid on a subscription basis.
Websense is listed on the Software 500 ranking and has been honored by the Deloitte &
Touche “Technology Fast 50” program. The company also has strategic technology relationships
with CacheFlow (NASDAQ: CFLO), Check Point (NASDAQ: CHKP), Cisco (NASDAQ:
CSCO) and Microsoft (NASDAQ: MSFT). For more information, visit

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Except for the historical information contained herein, this press release contains forward-looking statements, including statements containing the words “planned,” “expects,” “believes,” “strategy,” “opportunity,” “anticipates” and similar words. Such forward-looking statements are subject to known and unknown risks, uncertainties or other factors that may cause the Company’s actual results to be materially different from historical results or any results expressed or implied by such forward-looking statements. We assume no obligation to update any forward-looking statements to reflect events or circumstances arising after the date hereof. The potential risks and uncertainties which could cause actual growth and results to differ materially include but are not limited to, the volatile and competitive nature of the Internet industry, changes in domestic and international market conditions, foreign exchange rates, the success of the Company’s brand development efforts, and customer acceptance of the Company’s services, products and fee structures. Further
information on the factors and risks that could affect Websense’s business, financial condition and results of operations are included under the “Risk Factors” or “Factors Affecting Our Operating Results” sections of Websense’s public filings with the Securities and Exchange Commission, available at (

For Financial results figures, please contact Johanna Severinsson on +44 193 279 6105 or by email:

IR contact:
Geoff Haggart
Vice President, EMEA
+44 193-279-6089

Media Contact:
Johanna Severinsson
UK Marketing Manager
+44 193-279-6105

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