AccessMyLibrary provides FREE access to millions of articles from top publications available through your library.
Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good day, ladies and gentlemen and welcome to the Websense conference call. (OPERATOR INSTRUCTIONS).
As a reminder, this conference is being recorded today. I would now like to introduce your host, Kate Patterson, Websense Vice President of Investor Relations. Ms. Patterson, please go ahead.
KATE PATTERSON, VP-IR, WEBSENSE: Thank you. Good morning and thank you for joining us to discuss the planned acquisition of PortAuthority Technologies. With me this morning are Gene Hodges, Websense CEO, Doug Wride, Websense CFO and [Becky Wheeler] from Investor Relations.
We will open the call with some comments on the transaction and in turn the call over to your questions.
Before we begin, let me remind you that the press release issued this morning contains forward-looking statements that involve risks, uncertainties, assumptions and other factors which if they do not materialize or prove correct could cause Websense's results to differ materially from historical results from those expressed or implied by such forward-looking statements. All statements other than statements of historical facts are statements that could be deemed forward-looking statements including statements related to the potential benefit of the merger, the timing of the expected closing of the merger and statements containing the words plan, expect, believe, strategy, opportunity, anticipate and similar words.
The potential risks and uncertainties which contribute to the uncertain nature of the statements include, among others, risks related to Port Authority business that were not identified through diligence, risks related to integration of acquisition, risks related to maintaining of an engineering group in Israel, execution of growth initiatives, customer acceptance of the Company's services, products and fee structures, changes in domestic and international market conditions and the entry into and development of international markets for the Company's product.
Risks related to intellectual property ownership and other risks and uncertainties are described in Websense's public filings with the Securities and Exchange Commission. Websense assumes no obligation to update any forward-looking statements to reflect events or or circumstances arising after the date on which it was made.
I will now turn the call over to Doug.
DOUG WRIDE, CEO, WEBSENSE: Good morning. Thank you all for joining us to discuss this exciting news of our planned acquisition of PortAuthority. I will walk you through the financial aspects of the deal then Gene will review the strategic rationale of what we believe will be the significant competitive advantages as a result of this transaction.
Before we start I want to emphasize that this transaction is all about inflecting our growth over the long-term. The upfront investment will impact our earnings over the near-term but longer-term we believe this acquisition positions us for accelerating future growth. We are paying approximately $90 million in cash and we expect the transaction to close in January. Purchase price includes assumption of approximately $4 million in debt and a net working capital requirement of $5 million. This transaction is not subject to regulatory approval or Websense shareholder approval. The shareholders of PortAuthority have already approved this transaction. We expect the transaction to be diluted by 10 to 15% on a non GAAP basis for 2007 and slightly accretive for the following year of 2008.
The non GAAP element exclude equity base compensation expenses related to FAS 123R and purchase price accounting.
The market for data leakage solutions is in its very early stages and although it is projected to grow rapidly is from a very small base today. This is clearly an investment stage business. But we are confident it offers us a tremendous opportunity and is a natural fit with our current business.
As a result, our estimates of EPS dilution are based on what we believe are appropriately conservative estimates for information leak prevention revenue and billing. The dilution is a result of increased expenses combined with the lower interest income on the lower cash balance. We are not giving guidance for Q1 yet, but in general terms the consolidated results will show very minimal impact on gross margins. And the decline in 2007 operating margin to be somewhere in the high 20% range also on a non GAAP basis.
Our share count will increase slightly to reflect about 0.5 million options related to our new employees who joined us from PortAuthority. We do hope to retain most of PortAuthority's employees. Cash obviously will take a dip by the $90 million purchase price although cash will be generated in the first quarter which is, typically, one of our strongest cash collection quarters.
Due to the absence this time of hard estimates of the acquisition related costs and the allocation to the purchase price between goodwill, in process R&D, other intangibles and equity-based compensation expenses related to FAS 123R, we are currently unable to provide GAAP estimates for future earnings. But we will provide an update when we announce Q4 and give guidance for Q1.
With that I will turn the call over to Gene.
GENE HODGES, CFO, WEBSENSE: Thank you Doug. Earlier this year we identified the information leak prevention or data leakage market as a strategic opportunity for Websense. Because of that we formed an OEM alliance with PortAuthority to allow us to combine their detailed knowledge of internal data and our deep knowledge of the Internet, its protocols and applications -- as well as our role based policy engine.
We were bringing all of this together to create an integrated information leak prevention solution.
Over the past several months as we have worked with the outstanding engineering sales and marketing teams of PortAuthority, we have become …