WebSideStory Announces Record Third Quarter 2005 Results, Raises Earnings Guidance

Q3 Revenue Up 98% over Last Year; Record Net Income

SAN DIEGO, CA (Nov. 2, 2005) – WebSideStory, Inc. (Nasdaq: WSSI), a leading provider of on-demand digital marketing applications, today announced results of operations for the quarter ended September 30, 2005. Financial and operating highlights for the quarter include:

• Addition of 110 new customers contracted to use one or more applications in the WebSideStory Active Marketing Suite;
• Revenue of $11,337,000, an increase of approximately 98% over the $5,735,000 reported in the same period in 2004;
• 58% revenue growth for the combined WebSideStory and Atomz (Avivo Corporation) in Q3 of 2005, as compared to the pro forma combined revenue of the two separate companies for Q3 of 2004;
• Quarterly earnings per share of $0.09 and non-GAAP earnings per share of $0.13 (before stock-based compensation and amortization of intangibles), compared to earnings of $0.00 and $0.08 over the same period in 2004, respectively. Earnings per share in the third quarter of 2005 included stock-based compensation expenses of approximately $219,000, or $0.01 per share and amortization of intangibles of approximately $582,000, or $0.03 per share. All per share numbers are expressed on a weighted average diluted share basis;
• Signing 25% of new bookings for the Search and Publish applications with current HBX customers, demonstrating cross-sales from the Atomz acquisition;
• Signing five new Stream partners, bringing the list of WebSideStory product integration partners to 26;
• Launching the HBX Reporting API (application program interface), with the first third party using HBX as an infrastructure component delivering analytics data through its user interface going live in the quarter; and
• Signing 12 customers to join the beta program for the Bid module of the WebSideStory Active Marketing Suite, which is expected to become generally available in December.

"We are pleased to announce another strong quarter with record financial results, exceeding Q3 revenue and earnings guidance and entering this quarter on a trajectory that allows us to raise Q4 earnings guidance," said Jeff Lunsford, chairman and CEO. "In the quarter, we saw good traction for the WebSideStory Active Marketing Suite and began to significantly expand our R&D; capacity to position us for a competitive future. We were especially pleased to see that 25% of new bookings for Search and Publish came from existing HBX customers, validating our strategy of delivering an integrated suite of digital marketing tools focused on improving site performance and improving the efficiency and effectiveness of digital marketing professionals. Also in the quarter, we determined the need to restate how we were accounting for a five-year-old sublease. The net effect of this recalculation is that the company was approximately $177,000 more profitable than previously reported in 2004, and will be approximately $82,500 more profitable than previously reported in year-to-date 2005. Looking forward, expenses we had previously forecasted in the remainder of 2005 and into 2006 will no longer be incurred as they will have been fully accrued in the restated balance sheet. Sublease-related charges of $590,000 and $410,000 will be added to our financials in the years 2001 and 2003, respectively. Please note that the prior accounting treatment of this lease was fully described in our S-1 filed for the IPO and that this restatement does not result in any change in cash flow for the business during the years in question."

Restatement of Prior Financial Statements Due to Correction of Sub-Lease Accounting

The Company has made certain adjustments to its accounting for rental expense to correct for an error in its accounting treatment of a sub-lease under the Company`s lease for its headquarters building in San Diego, California. Historically, the Company has recorded rental expense on the entire leased facility on a straight-line basis over the entire term of the lease, resulting in a consistent rental expense each period. The sub-lease in question was entered into in 2001, amended in 2003, and expires at the end of 2006. From the time that the Company first entered into the sublease in 2001, it has recorded its rental expense net of sub-lease income for each period over the term of the sub-lease. Both the rental expense under the lease and the sub-lease income were fully disclosed in the Company`s prior financial statements. However, under FASB Technical Bulletin 79-15, "Accounting for Loss on Sublease Not Involving the Disposal of a Segment" and Statement of Financial Accounting Statements 146, "Accounting for Costs Associated with Exit of Disposal Activities," the Company should have recorded a one-time expense and a liability related to the projected shortfall between the Company`s rent obligation under the lease and the rental income to be received over the term of the sub-lease.

The adjustments necessary to reflect this change in accounting treatment have been included in the Company`s unaudited, condensed consolidated financial statements set forth below for the three and nine months ended September 30, 2005 and 2004. However, as a result of the adjustments described above, the Company also has determined that it must restate its consolidated financial statements previously issued in its Annual Report on Form 10-K for the year ended December 31, 2004 and on Form 10-Q for the quarter ended March 31, 2005 and June 30, 2005. The Company plans to reflect these restatements in amendments on Form 10-K/A [and on Forms Q/A] to be filed with the SEC as soon as practicable. The Company also plans to file with the SEC a report on Form 8-K indicating that the financial statements reported in the Company`s Form 10-K for the year ended December 31, 2004 and on Form 10-Q for the quarter ended March 31, 2005 and June 30, 2005, should no longer be relied upon. The adjustments described above resulted from the correction of an accounting error and are not attributable to any misconduct by Company employees.