In the fourth quarter of 2001, pro forma diluted net income, excluding only $205,000 of amortization of stock-based compensation, amounted to $1.8 million, or 8 cents per diluted share, and revenues totaled $11.3 million. In the same quarter a year ago, the company had a pro forma loss of $398,000, or 2 cents per share, on revenues of $5.8 million.

For the full year, pro forma diluted net income was $4 million, or 17 cents per diluted share, a substantial improvement over the pro forma loss of $4 million, or 22 cents per share, a year ago. Revenues rose to $35.9 million in 2001, more than double the $17.4 million reported in 2000, and total billings increased 80 percent to approximately $55 million, up from more than $30 million the year before.

John B Carrington, Websense’s chairman and chief executive officer, believes the company’s strong financial performance in a soft economy reflects growing recognition by employers that the analysis and management of employee Internet usage is extremely cost-effective. Our product allows a company to use its existing Internet infrastructure to significantly improve employee productivity while reducing network and bandwidth expense. That produces sizeable savings at relatively low cost, he said.

He also said much of Websense’s success this past year came from an unwavering focus on the EIM market, on customers in the highly profitable corporate and government sectors, and on product features, sales channels and technology partnerships tailored to those markets.

In addition, Carrington believes customers have come to view Websense as the technological leader in its field, allowing the company to gain competitive momentum and pursue a greater share of the rapidly growing marketplace. The company’s EIM solution includes a database of more than 3 million Web sites and 600 million Web pages, with an average of 500,000 new pages added daily. Proprietary technology permits the updating of the database to be largely automated, a major competitive advantage that helps ensure Websense customers have the most current and efficient content filtering capabilities available.

Websense sells subscriptions to use its database on a one-, two-, or three-year basis, billing the entire amount up-front. Customers typically pay the full amount of their invoices within 60 days, and the company recognizes pro-rata portions of the total billings as revenue on a monthly straight-line basis over the life of the subscriptions. Total deferred revenues, billed to customers but not yet recognized, amounted to $43.5 million at the end of 2001, up 78 percent from $24.5 million at the beginning of the year.

The company has now reported increases in cash and investments for six consecutive quarters, generating record gains of $9.3 million in the fourth quarter and $21.8 million during the year as a whole. Websense’s balance sheet continues to be very strong, with no debt and more than $100 million in cash and investments. Total assets rose to $120 million at year end, up from $92 million at the beginning of the year.

Operating expenses in 2001 equaled more than 90 percent of revenues, in part because of increased selling expenses on record levels of new billings that have not yet been recognized as revenues. Although Websense will continue to carefully manage operating expenses and plans to significantly reduce that percentage over time, near-term investments in sales and marketing and in research and development will remain at levels necessary to sustain strong growth.

The company broadened its sales channels during the year and at year end had 984 value-added resellers (VARs) and distributors marketing its products in 82 countries worldwide. Paying on a per seat basis, more than 16,500 customers now deploy Websense software to approximately 11.2 million seats. That reflects a 1.6 million increase in seats during the fourth quarter alone and a 50 percent increase from one year ago.