SOURCE: VeriSign, Inc.

November 01, 2007 16:15 ET

VeriSign Reports Third Quarter Results

Non-GAAP Operating Margin for Continuing Operations Increases Over 190 Basis Points to 23.4%

MOUNTAIN VIEW, CA--(Marketwire - November 1, 2007) - VeriSign, Inc. (NASDAQ: VRSN), the leading provider of digital infrastructure for the networked world, today reported financial results for the third quarter ended September 30, 2007.

VeriSign reported total revenue of $377 million for the third quarter of 2007 with revenue from continuing operations of $374 million.

On a GAAP basis, VeriSign reported net income of $19 million for the third quarter of 2007 and earnings per share of $0.08 per fully-diluted share. Net income from continuing operations was $16 million with earnings per share of $0.07 per fully-diluted share.

On a non-GAAP basis, VeriSign reported net income of $66 million for the third quarter of 2007 and earnings per share of $0.27 per fully-diluted share. Net income from continuing operations was $65 million with earnings per share of $0.26 per fully-diluted share.

A table reconciling the GAAP to non-GAAP results reported above is appended to this release.

"Our results this quarter highlight the continued strength of our Registry and SSL businesses," said Bill Roper, president and chief executive officer of VeriSign. "The consistent growth in these markets, combined with the stability of our business model, drive solid financial results which in turn allow us to invest in our business and improve the efficiency of our capital structure. We will continue to take steps to focus our efforts on growing our core businesses, and to seek ways of creating additional shareholder value."

"We are pleased with our third quarter results, particularly with regard to our ability to deliver margin expansion," said Bert Clement, chief financial officer of VeriSign. "Solid revenue growth, coupled with disciplined expense management, generated cash flow from operations of $109 million."

Business Highlights

--  VeriSign completed a $1.25 billion junior subordinated convertible
    bond offering in August.
--  During the quarter, the company repurchased 31.4 million shares of
    common stock at an average price of $30.12.
--  VeriSign Identity Protection (VIP) services announced several new VIP
    Network members, additional authentication form factor options available to
    consumers, and successful adoption of the PayPal Security Key amongst
    PayPal's customers in Germany and Australia.
--  Building on the strength of early adoption of Extended Validation (EV)
    Secured Sockets Layer (SSL) in the U.S. and Europe, online leaders such as
    E*TRADE Australia, Travelocity.ca and HMV have extended this new
    technology's footprint to all corners of the globe.
--  VeriSign recently announced that it has successfully completed key
    milestones for Project Titan, the expansion and diversification of its
    critical Internet infrastructure. Through Project Titan, VeriSign has
    increased its infrastructure capacity to 2 trillion DNS queries a day,
    continued to diversify its infrastructure globally and created new tools
    and processes to better monitor and manage traffic and to implement various
    system upgrades. These upgrades are vital to managing the surge in Internet
    interactions and protecting against cyber attacks that are growing in both
    scale and sophistication.
--  In August, VeriSign announced that its board of directors appointed D.
    James Bidzos as chairman of the board. Mr. Bidzos, who founded the company
    in 1995, previously served as chairman from April 1995 until December 2001,
    and as vice chairman until his recent appointment.
--  Subsequent to the end of the quarter, Mark McLaughlin, executive vice
    president of products, marketing and customer service, announced he will be
    leaving the company to spend time with his family before pursuing other
    opportunities. Mr. McLaughlin will remain through the end of November to
    help transition responsibilities.
--  VeriSign announced the hiring of Kevin A. Werner as senior vice
    president of corporate development and strategy. Mr. Werner will assume
    responsibility for strategic development activities.
--  VeriSign also announced the hiring of Grant L. Clark as senior vice
    president and chief administrative officer. Mr. Clark will have primary
    responsibility for improving business processes and will also oversee the
    company's operational and risk management activities.
    

Internet Services Group

--  The Internet Services Group (ISG) -- which includes VeriSign
    Information Services (VIS) and VeriSign Security Services (VSS) --
    delivered $236 million of revenue in the third quarter of 2007.
--  VeriSign Information Services ended the quarter with approximately 77
    million active domain names in .com and .net, representing a 5% increase
    over Q2 2007 and 25% increase year over year.
--  VeriSign Information Services also registered a record 17.5 million
    new and renewed domain names in .com and .net during the third quarter.
--  VeriSign Security Services issued approximately 217,000 new and
    renewal certificates in Q3, bringing the total base to 912,000, up 3% from
    Q2 2007.
    

Communications Services Group

--  VeriSign Communications Services Group (CSG) -- which provides
    intelligent communications, commerce and content services to
    telecommunications carriers, media and entertainment companies, and next-
    generation service providers -- delivered revenues of $138 million in the
    third quarter of 2007.
    

Additional Financial Information

--  Capital expenditures in the third quarter were approximately $47
    million.
--  VeriSign ended the third quarter with Cash, Cash Equivalents,
    Restricted Cash and Short-term Investments of $1.2 billion, an increase of
    approximately $370 million from the prior quarter.
--  Deferred revenue on the balance sheet was $711 million as of September
    30, 2007, an increase of $26 million from the prior quarter.
--  Net days sales outstanding (Net DSO), which takes into account the
    change in deferred revenue balances, was 50 days at the end of Q3, an
    increase of six days from the second quarter.
    

Non-GAAP results exclude the following items which are included under GAAP: amortization of intangible assets, stock-based compensation, non-recurring legal costs and settlements, restructuring and other charges, net loss on the sale or impairment of investments, unrealized gain on Jamba JV call option, gain on the sale of a subsidiary, realized and unrealized gains and losses on embedded derivative, and stock option investigation costs. A table reconciling the GAAP to non-GAAP net income is appended to this release.

Today's Conference Call

VeriSign will host a live teleconference call today at 2:00 pm (PDT) to review the quarter's results. The call will be accessible by direct dial at (888) 676-VRSN (US) or (913) 312-1505 (international). A listen-only live web cast and accompanying slide presentation of the earnings conference call will also be available at http://investor.verisign.com. A replay of this call will be available at (888) 203-1112 or (719) 457-0820 (passcode: 7142729) beginning at 5:00 pm (PDT) on November 1 and will run through November 6. This press release and the financial information discussed on today's conference call are available on the Investor Relations section of the VeriSign website at http://investor.verisign.com.

About VeriSign

VeriSign, Inc. (NASDAQ: VRSN) operates intelligent infrastructure services that enable and protect billions of interactions every day across the world's voice, video and data networks. Additional news and information about the company is available at www.verisign.com.

VRSNF

Statements in this announcement other than historical data and information constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve risks and uncertainties that could cause VeriSign's actual results to differ materially from those stated or implied by such forward-looking statements. The potential risks and uncertainties include, among others, the uncertainty of future revenue and profitability and potential fluctuations in quarterly operating results due to such factors as increasing competition and pricing pressure from competing services offered at prices below our prices and market acceptance of our existing services, the inability of VeriSign to successfully develop and market new services, the uncertainty of whether Project Titan will achieve its stated objectives, and the uncertainty of whether new services as provided by VeriSign will achieve market acceptance or result in any revenues and the risk acquired businesses will not be integrated successfully and unanticipated costs of such integration. More information about potential factors that could affect the company's business and financial results is included in VeriSign's filings with the Securities and Exchange Commission, including in the Company's Annual Report on Form 10-K for the year ended December 31, 2006 and quarterly reports on Form 10-Q and Current Reports on Form 8-K. VeriSign undertakes no obligation to update any of the forward-looking statements after the date of this press release.

                      VERISIGN, INC. AND SUBSIDIARIES

                  CONDENSED CONSOLIDATED BALANCE SHEETS
              (In thousands, except share and per share data)
                                (Unaudited)


                                                 September 30, December 31,
                                                      2007         2006
                                                  -----------  -----------

                       Assets
Current assets:
   Cash and cash equivalents                      $ 1,061,312  $   478,749
   Short-term investments                              61,095      198,656
   Accounts receivable, net                           220,232      241,570
   Prepaid expenses and other current assets          116,191      294,955
   Deferred tax assets                                 77,179       81,773
   Current assets of discontinued operations                -       36,661
                                                  -----------  -----------
      Total current assets                          1,536,009    1,332,364
                                                  -----------  -----------
   Property and equipment, net                        599,202      605,292
   Goodwill                                         1,267,967    1,442,493
   Other intangible assets, net                       213,246      333,430
   Restricted cash                                     47,406       49,437
   Long-term deferred tax assets                      183,265      179,023
   Other assets, net                                   56,511       25,214
   Investment in unconsolidated entities              122,866            -
   Long-term assets of discontinued operations              -        7,000
                                                  -----------  -----------
      Total long-term assets                        2,490,463    2,641,889
                                                  -----------  -----------
      Total assets                                $ 4,026,472  $ 3,974,253
                                                  ===========  ===========

      Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable and accrued liabilities       $   317,210  $   681,996
   Accrued restructuring costs                          5,850        3,818
   Deferred revenue                                   525,003      448,414
   Short-term debt                                          -      199,000
   Deferred tax liabilities                             1,116        1,448
   Current liabilities of discontinued operations           -       24,601
                                                  -----------  -----------
      Total current liabilities                       849,179    1,359,277
                                                  -----------  -----------
   Long-term deferred revenue                         185,757      159,439
   Long-term accrued restructuring costs                1,831          937
   Long-term debt                                   1,262,608            -
   Long-term tax liability                             34,777            -
   Other long-term liabilities                          5,994        5,175
   Long-term deferred tax liabilities                  13,686       24,849
      Total long-term liabilities                   1,504,653      190,400
                                                  -----------  -----------
      Total liabilities                             2,353,832    1,549,677
Commitments and contingencies
Minority interest in subsidiaries                      52,326       47,716
Stockholders' equity:
 Preferred stock - par value $.001 per share
   Authorized shares: 5,000,000
   Issued and outstanding shares: none                      -            -
 Common stock - par value $.001 per share
   Authorized shares: 1,000,000,000
   Issued and outstanding shares: 225,476,098 and
    243,844,122 (excluding 67,062,812 and 35,471,662
    shares held in treasury at September 30, 2007
    and December 31, 2006, respectively )                 293          279
Additional paid-in capital                         22,435,748   23,314,476
Accumulated deficit                               (20,815,457) (20,929,497)
Accumulated other comprehensive loss                     (270)      (8,398)
                                                  -----------  -----------
      Total stockholders' equity                    1,620,314    2,376,860
                                                  -----------  -----------
      Total liabilities and stockholders' equity  $ 4,026,472  $ 3,974,253
                                                  ===========  ===========





                      VERISIGN, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                  (In thousands, except per share data)
                                (Unaudited)


                                 Three Months Ended    Nine Months Ended
                                   September 30,         September 30,
                               --------------------- ---------------------
                                  2007       2006       2007       2006
                               ---------- ---------- ---------- ----------
Revenues                       $  373,587 $  396,418 $1,109,853 $1,154,359

Cost and expenses
   Cost of revenues               149,984    143,357    448,460    426,039
   Sales & marketing               65,411     94,850    208,251    278,209
   Research & development          39,897     33,164    121,313     92,444
   General & administrative        59,130     69,049    187,861    188,862
   Restructuring, impairments &
    other charges                   2,006        (84)    44,197     (4,279)
   Amortization of intangible
    assets                         29,237     30,978     90,693     90,809
   Acquired in-process R&D              -      1,200          -     16,700
                               ---------- ---------- ---------- ----------
        Total costs & expenses    345,665    372,514  1,100,775  1,088,784
                               ---------- ---------- ---------- ----------

Operating income                   27,922     23,904      9,078     65,575

Other income, net                  (6,204)     4,599     86,032     38,266
                               ---------- ---------- ---------- ----------

Income from continuing operations
 before income taxes, earnings
 from unconsolidated entities
 and minority interest             21,718     28,503     95,110    103,841
Income tax (expense) benefit       (3,501)   (13,769)   (23,871)   303,552
Earnings from unconsolidated
 entities, net of tax                 216          -      2,412          -
Minority interest, net of tax      (2,054)      (719)    (2,541)    (2,124)
                               ---------- ---------- ---------- ----------
Net income from continuing
 operations                        16,379     14,015     71,110    405,269
Net income from discontinued
 operations, net of tax             1,268      1,259      3,573      3,278
Gain on sale of discontinued
 operations, net of tax             1,357          -      1,357          -
                               ---------- ---------- ---------- ----------
Net income                     $   19,004 $   15,274 $   76,040 $  408,547
                               ========== ========== ========== ==========

Basic net income per share from:
   Continuing operations       $     0.07 $     0.06 $     0.29 $     1.66
   Discontinued operations           0.01       0.00       0.02       0.01
                               ---------- ---------- ---------- ----------
   Net income                  $     0.08 $     0.06 $     0.31 $     1.67
                               ========== ========== ========== ==========


Diluted net income per share from:
   Continuing operations       $     0.07 $     0.06 $     0.29 $     1.64
   Discontinued operations           0.01       0.00       0.02       0.01
                               ---------- ---------- ---------- ----------
   Net income                  $     0.08 $     0.06 $     0.31 $     1.65
                               ========== ========== ========== ==========

   Shares used in per share
    computation:
      Basic                       240,054    243,536    242,570    244,620
                               ========== ========== ========== ==========
      Diluted                     245,537    245,657    247,752    247,005
                               ========== ========== ========== ==========


Stock-based compensation
   Cost of revenue             $    7,306 $    2,889 $   14,645 $   10,175
   Sales & marketing                6,304      3,972     16,217     11,224
   Research & development           5,276      2,495     10,598      7,368
   General & administrative         7,853      6,476     28,924     19,064
                               ---------- ---------- ---------- ----------
      Total stock-based
       compensation            $   26,739 $   15,832 $   70,384 $   47,831
                               ========== ========== ========== ==========





                      VERISIGN, INC. AND SUBSIDIARIES

                    STATEMENTS OF INCOME RECONCILIATION
                   (In thousands, except per share data)


                              Three Months Ended      Nine Months Ended
                                September 30,           September 30,
                            ----------------------  ----------------------
                               2007        2006        2007        2006
                            ----------  ----------  ----------  ----------
Revenue reconciliation
Revenue from continuing
 operations                 $  373,587  $  396,418  $1,109,853  $1,154,359
    Revenue from discontinued
     operations (1)              3,065       2,975      11,869       8,573
                            ----------  ----------  ----------  ----------
Revenue including
 discontinued operations    $  376,652  $  399,393  $1,121,722  $1,162,932
                            ==========  ==========  ==========  ==========

(1) For the three and nine months ended September 30, 2007, revenue from
discontinued operations represents activity related primarily to the Jamba
Services business. VeriSign previously provided investors and analysts
forecasts for the period that included revenue up until an estimated
disposition date of the business. For the three and nine months ended
September 30, 2006, revenue from discontinued operations represents
activity related to both Jamba Services and the Payments Gateway business.
For GAAP purposes, revenue from these and all periods are reclassified to
net income from discontinued operations.


Statements of income reconciliation
Net income on a GAAP basis  $   19,004  $   15,274  $   76,040  $  408,547
    Amortization of
     intangible assets          29,237      30,978      90,693      90,809
    Acquired in-process
     research and development        -       1,200           -      16,700
    Stock-based compensation
     (2)                        26,739      15,832      70,384      47,706
    Former CEO severance             -           -      10,430           -
    Non-recurring legal
     costs and settlements         608         201       1,370       3,501
    Restructuring, impairments
     and other charges
     (reversals)                 2,006         (84)     44,197      (4,279)
    Net (gain) loss on sale
     of investments              4,314         (64)      3,430     (20,284)
    Net (gain) on sale of
     subsidiary                 (1,357)          -     (76,356)          -
    Unrealized (gain) on
     Jamba JV call option       (3,992)          -      (7,747)          -
    Stock option investigation
     costs                       1,177       5,015       7,896       5,015
    Realized and unrealized
     gains and losses on
     embedded derivative        12,584                  12,584           -
    Income from discontinued
     operations                 (1,268)     (1,259)     (3,573)     (3,278)
    Income tax expense
     (benefit)                   3,501      13,769      23,871    (303,552)
                            ----------  ----------  ----------  ----------
  Non-GAAP continuing
   operations income before
   income taxes                 92,553      80,862     253,219     240,885
  Non-GAAP tax rate in lieu
   of the GAAP rate (3)        (27,766)    (24,259)    (75,966)    (72,266)
                            ----------  ----------  ----------  ----------
Net income from continuing
 operations on a non-GAAP
 basis                      $   64,787  $   56,603  $  177,253  $  168,620
                            ==========  ==========  ==========  ==========
  Net income from discontinued
   operation, net of tax         1,268       1,259       3,573       3,278
                            ----------  ----------  ----------  ----------
Net income on a non-GAAP
 basis                      $   66,055  $   57,862  $  180,826  $  171,898
                            ==========  ==========  ==========  ==========

Statements of income
 reconciliation per share
Diluted net income per share
 on a GAAP basis            $     0.08  $     0.06  $     0.31  $     1.65
    Amortization of
     intangible assets            0.12        0.13        0.37        0.37
    Acquired in-process
     research and development        -        0.01           -        0.07
    Stock-based compensation      0.11        0.06        0.28        0.19
    Former CEO severance             -           -        0.04           -
    Non-recurring legal
     costs and settlements           -           -           -        0.02
    Restructuring,
     impairments and other
     charges (reversals)          0.01           -        0.18       (0.02)
    Net (gain) loss on sale
     of investments               0.02           -        0.01       (0.08)
    Net (gain) on sale of
     subsidiary                      -           -       (0.31)          -
    Unrealized (gain) on
     Jamba JV call option        (0.02)          -       (0.03)          -
    Stock option
     investigation costs          0.01        0.02        0.03        0.02
    Realized and unrealized
     gains and losses on
     embedded derivative          0.05           -        0.05           -
    Income from discontinued
     operations                  (0.01)      (0.01)      (0.01)      (0.01)
    Income tax expense
     (benefit)                    0.01        0.06        0.10       (1.23)
                            ----------  ----------  ----------  ----------
  Non-GAAP continuing
   operations income before
   income taxes                   0.38        0.33        1.02        0.98
  Non-GAAP tax rate in lieu
   of the GAAP rate (2)          (0.12)      (0.10)      (0.30)      (0.30)
                            ----------  ----------  ----------  ----------
    Non-GAAP net income from
     continuing operations
     basis                        0.26        0.23        0.72        0.68
                            ==========  ==========  ==========  ==========
    Net income from
     discontinued operation,
     net of tax                   0.01           -        0.01        0.01
                            ----------  ----------  ----------  ----------
Diluted net income per share
 on a non-GAAP basis        $     0.27  $     0.23  $     0.73  $     0.69
                            ==========  ==========  ==========  ==========

Shares used in calculation
 of net (loss) income per
 share                         245,537     245,657     247,752     247,005



(2) Nine months ended September 30, 2006 excludes $125 of stock-based
compensation included in discontinued operations.

(3) Non-GAAP tax rate calculated at 30%.

VeriSign provides quarterly and annual financial statements that are
prepared in accordance with generally accepted accounting principles
(GAAP).  Along with this information, we typically disclose and discuss
certain non-GAAP financial infromation in our quarterly earnings release,
on investor conference calls and during investor conferences and related
events.  This non-GAAP financial information does not include the following
types of financial measures that are included in GAAP: amortization of
intangible assets, acquired in-process research and development,
stock-based compensation, former CEO severance, non-recurring legal costs
and settlements, restructuring, impairments and other charges (reversals),
net (gain) loss on sale or impairment of investments, net gain on sale of
subsidiary, unrealized gain on Jamba JV call option, realized and
unrealized gains and losses on embedded derivative and stock option
investigation costs. Non-GAAP financial information is also adjusted for a
30% tax rate which differs from the GAAP tax rate.

Management believes that this non-GAAP financial data supplements our GAAP
financial data by providing investors with additional information that
allows them to have a clearer picture of the company's core operations. The
presentation of this additional information is not meant to be considered
in isolation or as a substitute for results prepared in accordance with
GAAP. We believe that the non-GAAP information enhances the investors'
overall understanding of our financial performance and the comparability of
the company's operating results from period to period. Above, we have
provided a reconciliation of the non-GAAP financial information that we
provide each quarter with the comparable financial information reported in
accordance with GAAP for the given period.