SurfControl Announces Record Third Quarter Results; 200% Growth Underscores Its Leadership of the Content Filtering Market

Business Wire, April 4, 2001

Business Editors/Hi-Tech Writers

SCOTTS VALLEY, Calif.--(BUSINESS WIRE)--April 4, 2001

SurfControl, the Internet Filtering Company(SM), reported a 326 percent third quarter surge in filtering product revenues from $2.5 million to $10.5 million.

Third quarter results, which ended February 28, 2001, also disclosed SurfControl's year-to-date overall growth increase of 200 percent from $9.1 million to $27.3 million.

"Our focus on business fundamentals has shortened our path to profitability," said SurfControl's CEO, Steve Purdham. "We're well ahead of market expectations."

Specific third quarter highlights include:

-- An increase in deferred revenue to $17.6 million, up from $4.1 million in
2000 (deferred revenue is billings to customers not yet recognized as revenue
but guaranteed to be recognized in future periods).

-- Increase in filtering products organic revenues for nine months ending
February 2001 of 328 percent.

-- Expanded reseller network with indirect revenues for filtering products of
343 percent to $2.7 million.

-- Significant contribution from UK, Europe and ROW, increasing to $2.6 million
for the quarter, equivalent to 25 percent of global filtering product revenue
(Q3 2000: $0.1m).

-- EBITDA for the quarter (excluding the provision for tax on share options)
was a loss of $1.6 million (Q3 2000: $2.7m EBITDA loss); gross margins remained
over 90 percent.

-- Overall revenues were up 200 percent to $27.3m (2000: $9.1m)

-- Sale of non-core terminal emulation division, MultiView

-- Completion of the SurfControl Australia acquisition and rapid integration
into group.

-- Continued development of email filtering products and technology for global
launch during April 2001.

Heralding the escalation potential of the total content security market, industry analyst Frost & Sullivan forecasts a compound annual growth rate of 30.6 percent from 2000-2007. "With our comprehensive suite of software programs for homes, schools and businesses, SurfControl is well positioned to be both the driver and beneficiary of this market space," said Purdham.

Other factors that contributed to SurfControl's success include:

Ongoing Research and Development

SurfControl's ongoing investment in research and development paid off in positive product reviews of numerous cornerstone trade and consumer publications following the third quarter shipment of the latest versions of SuperScout for business and CyberPatrol for the home and education market.

In addition, the company made significant improvements to its SuperScout SDK filtering engine, which enables software to operate on a broader spectrum of technology platforms.

Purdham acknowledged that much of the third quarter was spent maximizing the potential of an investment that is expected to generate dividends later this year. The investment, which is the next generation email filtering software called SuperScout Email Filter, "gives SurfControl a considerable competitive advantage."

By integrating the strengths of two Australian acquisitions - EmU's email filtering technology and Lanvision's sales and marketing capabilities - SurfControl is well positioned to further penetrate Australia and New Zealand, as well as dominate the content security market worldwide.

Expanding Corporate Customer Base

SurfControl's customer base continues to expand, as there is an increase in the implementation of Internet filtering in SurfControl's key markets.

During the quarter, new additions to the company's corporate customer base included Apax Partners & Co, Cartier, the Defence Evaluation Research Agency, Monsoon, Polaroid (UK) Ltd., Samsung Electronic (UK) Ltd, the World Conservation Monitoring Centre, the Austrian Ministry for Finance, AOK (Allgemeine Ortskrankenkasse - one of the largest German health insurance schemes), the City of Melbourne, Duracell Inc., Shell Chemical Inc, E*Trade, Sega of America and GMAC Insurance.

SurfControl now has 19 of the FTSE 100 and more than 100 of the Fortune 500 as customers.

New Business Development

During the third quarter, SurfControl has announced further strategic alliances with major corporations including Global Technology Associates Inc, Microsoft, Intel and SofaWare Technologies - a Check Point Software Technologies company.

These alliances help to extend SurfControl's market reach in the areas of firewalls, iTV, Internet appliances and broadband communications, as its products are offered as part of its partners' services and IT solutions.

Existing Legislation

There has been continued support for the use of Internet filtering at the government level following the decision by the U.S. Congress requiring mandatory Internet filtering in schools and public libraries receiving federal funds.

As a leader in the field, SurfControl has been consulted on the implementation of Internet filtering in these environments and during the quarter, representatives from SurfControl testified in the U.S. Congress as part of the government's consultation program on the future of Internet filtering.