SAN DIEGO -- Websense, Inc. (Nasdaq: WBSN - News), the world's leading provider of employee internet management software, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2004.

Revenue in the fourth quarter was a record $31.7 million, an increase of 40 percent from the fourth quarter of 2003. Fourth quarter net income increased 80 percent from the fourth quarter of 2003, to $8.1 million, or 33 cents per diluted share. For the year, revenue was $111.9 million, an increase of 37 percent from 2003, and net income was $26.2 million, or $1.09 per diluted share, an increase of 57 percent from 2003.

Billings for the fourth quarter were $51.8 million, an increase of 35 percent from the fourth quarter of 2003. Billings represent the full amount of subscription contracts billed to customers during the quarter. The difference between billings booked and revenue recognized in the fourth quarter resulted in an increase in deferred revenue of $20.1 million from the end of September, bringing total deferred revenue to a record $132.3 million at the end of December. For the year, billings totaled $150.2 million, an increase of 35 percent from 2003.

"2004 was an outstanding year for Websense on many levels, and I am extremely pleased with our performance," said John Carrington, chairman and CEO of Websense, Inc. "Because our solutions are capable of filling the time and technology gaps left open by existing security infrastructures, Websense is now considered an integral layer of an enterprise's security. This has resulted in increased awareness and commitment from our customers, strong renewal rates, an increased attach rate for add-on products and market-leading growth of our installed base of users," Carrington added.

Continued Strong Operating Performance Reflects Balanced Investments in Selling and Marketing and Research and Development

For the fourth quarter of 2004, operating income was a record $11.6 million, or approximately 37 percent of revenue, an increase of 71 percent from the fourth quarter of 2003. Gross margin was 93 percent of revenue, consistent with gross margin levels since early 2002, as the company continues to scale its database and technical support organizations with the increase in its customer base and product offerings, and with the growth of the Internet.

During the quarter, the company continued to invest in research and development, spending $3.8 million, or 12 percent of revenue, to enhance the Websense Enterprise® and Websense® Client Policy Manager(TM) platforms, develop other new and complementary product offerings, increase the number of security platforms integrated with the Websense solution and establish and maintain Websense Security Labs(TM). New and enhanced products introduced during the quarter included Websense Enterprise v5.5, the newest version of the company's core application and central management console, and the Real Time Security Updates(TM) module, an add-on security module that updates subscribing customers' Security Premium Group(TM) and Client Policy Manager databases in real time as new malicious sites and applications are identified and categorized.

Selling and marketing expense was $12.1 million for the quarter, or 38 percent of revenue, and reflected investments made in worldwide marketing programs, as well as higher commissions paid on seasonally higher billings. Sales and marketing expense typically increases as a percent of revenue in the fourth quarter, reflecting the seasonal surge in billings associated with year-end purchasing by new customers and renewals and upgrades from existing customers. General and administrative expense was $1.8 million, or six percent of revenue.

The company ended the fourth quarter of 2004 with $243.8 million in cash and investments, an increase of $17.9 million from the third quarter, and zero debt. During the quarter, the company generated more than $18 million in net operating cash flow. The company also spent approximately $5.4 million to repurchase 107,500 shares of the company's common stock at an average price of $50.44. To date, Websense has repurchased 1,006,000 shares out of the two million shares authorized for repurchase by the board of directors.

---In a separate release---

SAN DIEGO -- Websense, Inc. (NASDAQ: WBSN), the leading provider of employee internet management solutions, today announced that John Carrington and the Websense Board of Directors have initiated a succession process to identify a new chief executive officer for Websense. Mr. Carrington and the Board hope to identify the potential successor before January 2006, although there is no deadline for this process. Carrington will remain in his current role as chief executive officer until a successor is identified, and will retain his role as executive Chairman of the Board following the transition.

Under Carrington’s leadership since 1999, Websense has grown from a start-up URL filtering company with less than $9 million in annual revenue to a leading provider of employee internet management solutions with more than $111 million in annual revenue and more than $1 billion in market capitalization. Additionally, Websense is one of only seven companies, out of more than 140, that completed an initial offering in the first quarter of 2000 and currently has a market capitalization greater than at the initial offering. In the last two years, with Carrington’s vision and guidance, Websense has become a leading provider of database-driven security solutions that close the gaps in enterprise security infrastructures left by existing anti-virus, intrusion detection and firewall solutions.

“The last six years at Websense have been both exciting and fulfilling. In each year, the company has achieved successive milestones in billings, revenue, installed base and operating performance, and has continued to expand beyond its URL filtering roots to address the enormous opportunities of the enterprise security market,” said Carrington. “CEO succession planning is a natural and necessary responsibility of a growing, successful company. I believe the time is now right to recruit a new CEO who will devote the same energy and commitment to Websense that I have, but who will also bring new expertise and a fresh perspective while managing the next phase of the company’s growth. While I anticipate that we will be able to attract top quality candidates and will bring the process to its conclusion in 2006 or earlier, I am fully committed to retaining the CEO title and its responsibilities until the right person is identified. Following the transition, as executive chairman, my focus will shift from day-to-day operations to more long-term strategic initiatives involving new technologies, possible acquisitions and strategic partnerships,” Carrington added.

The Board of Directors has formed a CEO Selection Committee, chaired by John Schaefer, to conduct the search for a new chief executive officer. Speaking on behalf of the Board, John Schaefer said, “John Carrington’s contribution to the ongoing success of Websense is immeasurable. We respect John’s decision to transfer responsibility for the day-to-day management of Websense and appreciate his long-term commitment to remain actively involved with the company as executive chairman. While he will be difficult to replace, with the many assets held by Websense, including the depth of the current management team, the strength of its technology, and the market opportunity available, we believe we will be successful in recruiting a highly respected CEO with a proven track record,” added Schaefer.

Websense Inc.