Websense Beats By a Penny

Updated from 4:36 p.m. EDT

Second-quarter profit at IT security company Websense(WBSN Quote - Cramer on WBSN - Stock Picks) was down year-over-year, but the company beat analysts' expectations by a penny and guided in-line for the current quarter.

Net income was $2.1 million, or 5 cents a share, compared with net income of $8.1 million, or 17 cents a share, in the second quarter of 2006.

Excluding stock-based compensation expense, acquisition charges, a litigation settlement and associated payroll taxes, net income was $9.9 million, or 22 cents a share, down 16% from $11.8 million, or 25 cents, in the second quarter of 2006.

Revenue for the quarter was up nearly 15% to $50.4 million from $44.15 million the same quarter fiscal 2006.

Analysts polled by Thomson Financial were expecting earnings of 21 cents a share on revenue of $50.8 million.

Websense said the sequential revenue increase, after holding steady in the $1.5 million to $2 million range for several years, "slowed substantially" in the second quarter. The company has guided a sequential revenue increase of 1% to 2% for the third quarter.

"This slowing of growth rate reflects the unique relationship between billings and revenue and a subscription-based business model," CEO Gene Hodges told analysts on a conference call. "As billings growth has been slower over the past six quarters, revenue growth has also slowed, but at a rate lagging the billings rate."

Shares of Websense fell 75 cents, or 3.3%, to $22 in after-hours trading.

Net billings in the second quarter were $54.5 million, an increase of 10% from the same period a year before. Total deferred revenue was $217.5 million at the end of June.

Hodges said he hopes to see the billings rate accelerate because of growth in the small business segment, and the company's data leak prevention product.

The company closed 80 transactions valued at greater than $100,000 in the second quarter, up from 64 a year ago and 62 in the last quarter.

International revenue in the second quarter increased to 40% of total revenue, up 1% from the last quarter and 36% from a year ago.

For the third quarter of fiscal 2007, the company guided earnings in the range 22 cents to 23 cents a share.

Billings are expected to be in the range of $56 million to $59 million, and revenue is expected to be in the range of $51 million to $51.5 million.

Analysts are expecting earnings of 23 cents a share on revenue of $52.70 million.

The company also said it has promoted its Chief Financial Officer Douglas Wride, to President.

The move drew questions from analysts on the call, concerned about the timing of the promotion as the company is working to close the $400 million SurfControl deal. Websense bought SurfControl in April. The company said the promotion will not affect its efforts to close the deal.