Websense Beats Forecasts

The company's $416 million acquisition of SurfControl, which closed Oct. 3, has also made it difficult to predict its short-term financial outlook with accuracy, said Websense. Prior to the acquisition, UK-based SurfControl reported its results following International Financial Reporting Standards as opposed to the Generally Accepted Accounting Principles (GAAP) used in the U.S.

Websense said it will convert SurfControl's historical results to GAAP, a process which it said could cause some variability in its quarterly results going forward.

"With SurfControl coming on board, it is difficult to be precise in our expectations and we have found that the market is not very forgiving if you are not precise enough," said Mendenhall.

Shares of Websense were up 37 cents, or 2%, to $18.70 in recent after-hours trading.

Net billings in the quarter decreased 2% to $52.2 million. Websense billings were below the previously guided range of $56 to $59 million, primarily due to increased competition from SurfControl in North America--something that Websense says should not matter going forward.

"SurfControl didn't have the discounting discipline that we did," says Mendenhall. "They weren't sure if they would be employed after Oct. 4 so they pursued a very aggressive selling policy. That undisciplined pricing now goes away."

Websense also reiterated that it is on track to achieve cost savings of $10 million this quarter and $60 million in 2008 as a result of the Websense-SurfControl merger. Websense places to reduce 400 employees across both organizations over the next 15 months, and in turn hire about 100 employees, many of whom it says will be deployed in "lower cost locations."