SOURCE: VeriSign, Inc.

VeriSign, Inc.

February 05, 2015 16:05 ET

Verisign Reports Fourth Quarter and Full Year 2014 Results

RESTON, VA--(Marketwired - February 05, 2015) - VeriSign, Inc. (NASDAQ: VRSN), a global leader in domain names and Internet security, today reported financial results for the fourth quarter and full year of 2014.

Fourth Quarter GAAP Financial Results
VeriSign, Inc. and subsidiaries ("Verisign") reported revenue of $256 million for the fourth quarter of 2014, up 4.2 percent from the same quarter in 2013. Verisign reported net income of $65 million and diluted earnings per share (EPS) of $0.48 for the fourth quarter of 2014, compared to net income of $292 million and diluted EPS of $1.94 in the same quarter in 2013. The operating margin was 55.6 percent for the fourth quarter of 2014 compared to 53.0 percent for the same quarter in 2013. Fourth quarter 2014 net income was decreased by $26 million and diluted EPS was decreased by $0.19 primarily due to a non-U.S. income tax charge related to a reorganization of certain international operations and a change in estimate for U.S. income tax charges related to the repatriation of offshore assets in 2014.

As described in the fourth quarter 2013 earnings news release, results for the fourth quarter of 2013 included an income tax benefit related to a worthless stock deduction, pre-tax non-operating gains from the sale of certain cost-method investments, and an income tax expense related to estimated taxable income generated in the U.S. as a result of a planned repatriation of offshore assets in 2014, which collectively increased net income by $217.8 million and increased diluted EPS by $1.45.

Fourth Quarter Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $95 million and diluted EPS of $0.70 for the fourth quarter of 2014, compared to net income of $98 million and diluted EPS of $0.65 for the same quarter in 2013. The non-GAAP operating margin was 59.4 percent for the fourth quarter of 2014 compared to 56.9 percent for the same quarter in 2013. Results for the fourth quarter of 2013 included a pre-tax, non-operating gain of $15.8 million from the sale of certain cost-method investments which increased non-GAAP net income by $11.4 million and diluted EPS by $0.07.

A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.

"In 2014, Verisign marked more than 17 years of uninterrupted availability of the .com and .net domain name system, and continued to build on its financial performance since completing the divestitures in 2010, including exceeding $1 billion in annual revenues. During the year we repurchased 16.3 million shares, returning $867 million to shareholders," commented Jim Bidzos, executive chairman, president and chief executive officer.

2014 GAAP Financial Results
For the year ended Dec. 31, 2014, Verisign reported revenue of $1.01 billion, up 4.7 percent from $965 million in 2013. Verisign reported net income of $355 million and diluted EPS of $2.52 in 2014, compared to net income of $544 million and diluted EPS of $3.49 in 2013. The operating margin for 2014 was 55.9 percent compared to 54.7 percent in 2013. Net income for 2014 was decreased by $10 million and diluted EPS was decreased by $0.07 primarily due to the fourth quarter 2014 non-U.S. income tax charge related to a reorganization of certain international operations and changes in estimates during 2014 for U.S. income taxes related to the 2013 worthless stock deduction and the 2014 repatriation of offshore assets.

As described in the fourth quarter 2013 earnings news release, results for 2013 included an income tax benefit recognized in the fourth quarter related to a worthless stock deduction, pre-tax non-operating gains from the sale of certain cost-method investments, and income tax expense related to estimated taxable income generated in the U.S. as a result of a planned repatriation of offshore assets in 2014, which collectively increased net income by $217.8 million and increased diluted EPS by $1.39.

2014 Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $383 million and diluted EPS of $2.72 for 2014, compared to net income of $374 million and diluted EPS of $2.40 in 2013. The non-GAAP operating margin for 2014 was 60.2 percent compared to 58.5 percent in 2013. Results for 2013 included a pre-tax, non-operating gain of $15.8 million recognized during the fourth quarter from the sale of certain cost-method investments which increased non-GAAP net income by $11.4 million and diluted EPS by $0.07.

A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.

Financial Highlights

  • Verisign ended the fourth quarter with cash, cash equivalents and marketable securities of $1.4 billion, a decrease of $299 million as compared with year-end 2013.
  • Cash flow from operations was $170 million for the fourth quarter of 2014 and $601 million for the full year 2014 compared with $147 million for the same quarter in 2013 and $579 million for the full year 2013.
  • Deferred revenues on Dec. 31, 2014, totaled $890 million, an increase of $35 million from year-end 2013.
  • Capital expenditures were $9 million in the fourth quarter and $39 million for the full year.
  • During the fourth quarter, Verisign repurchased 3.7 million shares of its common stock for $209 million. During the full year 2014, Verisign repurchased 16.3 million shares of its common stock for $867 million.
  • Effective Jan. 30, 2015, the Board of Directors approved an additional authorization for share repurchases of approximately $453 million of common stock, which brings the total amount to $1 billion authorized and available under Verisign's share buyback program, which has no expiration.
  • For purposes of calculating diluted EPS, the fourth quarter diluted share count included 14.7 million shares related to subordinated convertible debentures, compared with 13.7 million shares in the same quarter in 2013. These represent diluted shares and not shares that have been issued.

Business Highlights

  • Verisign Registry Services added 0.59 million net new names during the fourth quarter, ending with 130.6 million .com and .net domain names in the domain name base, which represents a 2.7 percent increase over the base at the end of the fourth quarter in 2013.
  • In the fourth quarter, Verisign processed 8.2 million new domain name registrations for .com and .net, the same as for the fourth quarter in 2013. During 2014, Verisign processed 34 million new domain name registrations, the same as in 2013.
  • The final .com and .net renewal rate for the third quarter of 2014 was 72.0 percent compared with 72.7 percent for the same quarter in 2013. Renewal rates are not fully measurable until 45 days after the end of the quarter.

Non-GAAP Items
Non-GAAP financial results exclude the following items that are included under GAAP: stock-based compensation, unrealized gain/loss on contingent interest derivative on subordinated convertible debentures, and non-cash interest expense. Non-GAAP net income is decreased by amounts accrued, if any, during the period for contingent interest payable resulting from upside or downside triggers related to the subordinated convertible debentures and is adjusted for a 28 percent tax rate which differs from the GAAP tax rate. A table reconciling the GAAP to non-GAAP operating income and net income is appended to this release.

Today's Conference Call
Verisign will host a live conference call today at 4:30 p.m. (EST) to review the fourth quarter and full year 2014 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-1385 (international), conference ID: Verisign. A listen-only live web cast of the conference call and accompanying slide presentation will also be available at http://investor.verisign.com. An audio archive of the call will be available at https://investor.verisign.com/events.cfm. This news release and the financial information discussed on today's conference call are available at http://investor.verisign.com.

About Verisign
Verisign, a global leader in domain names and Internet security, enables Internet navigation for many of the world's most recognized domain names and provides protection for websites and enterprises around the world. Verisign ensures the security, stability and resiliency of key Internet infrastructure and services, including the .com and .net domains and two of the Internet's root servers, as well as performs the root-zone maintainer functions for the core of the Internet's Domain Name System (DNS). Verisign's Network Intelligence and Availability services include intelligence-driven Distributed Denial of Service Protection, iDefense Security Intelligence and Managed DNS. To learn more about what it means to be Powered by Verisign, please visit VerisignInc.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 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. These statements involve risks and uncertainties that could cause our 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 the impact of the U.S. government's transition of key Internet domain name functions (the Internet Assigned Numbers Authority ("IANA") function), whether the U.S. Department of Commerce will approve any exercise by us of our right to increase the price per .com domain name, under certain circumstances, the uncertainty of whether we will be able to demonstrate to the U.S. Department of Commerce that market conditions warrant removal of the pricing restrictions on .com domain names and the uncertainty of whether we will experience other negative changes to our pricing terms; the failure to renew key agreements on similar terms, or at all; the uncertainty of future revenue and profitability and potential fluctuations in quarterly operating results due to such factors as restrictions on increasing prices under the .com Registry Agreement, changes in marketing and advertising practices, including those of third-party registrars, increasing competition, and pricing pressure from competing services offered at prices below our prices; changes in search engine algorithms and advertising payment practices; the uncertainty of whether we will successfully develop and market new products and services, the uncertainty of whether our new products and services, if any, will achieve market acceptance or result in any revenues; challenging global economic conditions; challenges of ongoing changes to Internet governance and administration; the outcome of legal or other challenges resulting from our activities or the activities of registrars or registrants, or litigation generally; the uncertainty regarding what the ultimate outcome or amount of benefit we receive, if any, from the worthless stock deduction will be; new or existing governmental laws and regulations; changes in customer behavior, Internet platforms and web-browsing patterns; system interruptions; security breaches; attacks on the Internet by hackers, viruses, or intentional acts of vandalism; whether we will be able to continue to expand our infrastructure to meet demand; the uncertainty of the expense and timing of requests for indemnification, if any, relating to completed divestitures; and the impact of the introduction of new gTLDs, any delays in their introduction, the impact of ICANN's Registry Agreement for new gTLDs, and whether our new gTLDs or the new gTLDs for which we have contracted to provide back-end registry services will be successful; and the uncertainty regarding the impact, if any, of the delegation into the root zone of over 1,300 new gTLDs. More information about potential factors that could affect our business and financial results is included in our filings with the SEC, including in our Annual Report on Form 10-K for the year ended Dec. 31, 2013, 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 announcement.

©2015 VeriSign, Inc. All rights reserved. VERISIGN, the VERISIGN logo, and other trademarks, service marks, and designs are registered or unregistered trademarks of VeriSign, Inc. and its subsidiaries in the United States and in foreign countries. All other trademarks are property of their respective owners.

VERISIGN, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
 
   December 31,
 2014
  December 31,
 2013
ASSETS           
Current assets:           
 Cash and cash equivalents $ 191,608    $ 339,223  
 Marketable securities  1,233,076     1,384,062  
 Accounts receivable, net  13,448     13,631  
 Other current assets  52,475     66,283  
  Total current assets  1,490,607     1,803,199  
Property and equipment, net  319,028     339,653  
Goodwill  52,527     52,527  
Long-term deferred tax assets  266,954     437,643  
Other long-term assets  25,743     27,745  
  Total long-term assets  664,252     857,568  
  Total assets $ 2,154,859    $ 2,660,767  
LIABILITIES AND STOCKHOLDERS' DEFICIT           
Current liabilities:           
 Accounts payable and accrued liabilities $ 190,278    $ 149,276  
 Deferred revenues  621,307     595,221  
 Subordinated convertible debentures, including contingent interest derivative  631,190     624,056  
 Deferred tax liabilities  477,781     660,633  
  Total current liabilities  1,920,556     2,029,186  
Long-term deferred revenues  269,047     260,615  
Senior notes  750,000     750,000  
Other long-term tax liabilities  98,722     44,524  
  Total long-term liabilities  1,117,769     1,055,139  
  Total liabilities  3,038,325     3,084,325  
Commitments and contingencies           
Stockholders' deficit:           
 Preferred stock-par value $.001 per share; Authorized shares: 5,000; Issued and outstanding shares: none  -     -  
 Common stock-par value $.001 per share; Authorized shares: 1,000,000; Issued shares: 321,699 at December 31, 2014 and 320,358 at December 31, 2013; Outstanding shares: 118,452 at December 31, 2014 and 133,724 at December 31, 2013  322     320  
 Additional paid-in capital  18,120,045     18,935,302  
 Accumulated deficit  (19,000,835 )   (19,356,095 )
 Accumulated other comprehensive loss  (2,998 )   (3,085 )
  Total stockholders' deficit  (883,466 )   (423,558 )
  Total liabilities and stockholders' deficit $ 2,154,859    $ 2,660,767  
          
          
VERISIGN, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
 
   Three Months Ended December 31,   Year Ended December 31,
   2014     2013     2014     2013  
Revenues $ 255,917    $ 245,630    $ 1,010,117    $ 965,087  
Costs and expenses:                       
 Cost of revenues  47,477     46,575     188,425     187,013  
 Sales and marketing  23,757     25,064     92,001     89,337  
 Research and development  17,324     17,766     67,777     70,297  
 General and administrative  25,138     26,051     97,487     90,208  
  Total costs and expenses  113,696     115,456     445,690     436,855  
Operating income  142,221     130,174     564,427     528,232  
Interest expense  (21,586 )   (21,237 )   (85,994 )   (74,761 )
Non-operating income, net  (159 )   7,508     4,878     3,300  
Income before income taxes  120,476     116,445     483,311     456,771  
Income tax (expense) benefit  (55,004 )   175,704     (128,051 )   87,679  
Net income  65,472     292,149     355,260     544,450  
 Realized foreign currency translation adjustments, included in net income  -     81     -     81  
 Unrealized gain (loss) on investments, net of tax  50     (28 )   84     (369 )
 Realized loss (gain) on investments, net of tax, included in net income  1     69     3     (2,409 )
Other comprehensive income (loss)  51     122     87     (2,697 )
Comprehensive income $ 65,523    $ 292,271    $ 355,347    $ 541,753  
                        
Income per share:                       
 Basic $ 0.54    $ 2.15    $ 2.80    $ 3.77  
 Diluted $ 0.48    $ 1.94    $ 2.52    $ 3.49  
Shares used to compute net income per share:                       
 Basic  120,140     135,759     126,710     144,591  
 Diluted  135,899     150,422     140,895     155,786  
                        
                
VERISIGN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
   Year Ended December 31,
   2014     2013  
Cash flows from operating activities:           
 Net income $ 355,260    $ 544,450  
 Adjustments to reconcile net income to net cash provided by operating activities:           
  Depreciation of property and equipment and amortization of other intangible assets.  63,690     60,655  
  Stock-based compensation  43,977     36,649  
  Excess tax benefit associated with stock-based compensation  (6,054 )   (19,320 )
  Unrealized (gain) loss on contingent interest derivative on Subordinated Convertible Debentures  (2,249 )   17,801  
  Loss (gain) on sale of investments  5     (18,861 )
  Other, net  11,353     14,182  
  Changes in operating assets and liabilities           
   Accounts receivable  (73 )   (2,500 )
   Prepaid expenses and other assets  11,571     (2,694 )
   Accounts payable and accrued liabilities  45,419     19,065  
   Deferred revenues  34,518     43,254  
   Net deferred income taxes and other long-term tax liabilities  43,532     (113,284 )
    Net cash provided by operating activities  600,949     579,397  
Cash flows from investing activities:           
 Proceeds from maturities and sales of marketable securities and investments  3,428,659     3,508,569  
 Purchases of marketable securities  (3,277,096 )   (3,450,068 )
 Purchases of property and equipment  (39,327 )   (65,594 )
 Other investing activities  452     (3,969 )
    Net cash provided by (used in) investing activities  112,688     (11,062 )
Cash flows from financing activities:           
 Proceeds from issuance of common stock from option exercises and employee stock purchase plans  17,597     20,667  
 Repurchases of common stock  (883,403 )   (1,035,617 )
 Proceeds from senior notes, net of issuance costs  -     738,297  
 Repayment of borrowings  -     (100,000 )
 Excess tax benefit associated with stock-based compensation  6,054     19,320  
    Net cash used in financing activities  (859,752 )   (357,333 )
Effect of exchange rate changes on cash and cash equivalents  (1,500 )   (2,515 )
Net (decrease) increase in cash and cash equivalents  (147,615 )   208,487  
Cash and cash equivalents at beginning of period  339,223     130,736  
Cash and cash equivalents at end of period $ 191,608    $ 339,223  
Supplemental cash flow disclosures:           
 Cash paid for interest, net of capitalized interest $ 75,088    $ 58,928  
 Cash paid for income taxes, net of refunds received $ 35,201    $ 26,133  
         
         
VERISIGN, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)
 
   Three Months Ended December 31,
   2014   2013
   Operating Income   Net Income   Operating Income   Net Income
GAAP as reported $ 142,221    $ 65,472    $ 130,174    $ 292,149  
 Adjustments:                       
  Stock-based compensation  9,696     9,696     9,643     9,643  
  Unrealized loss on contingent interest derivative on the subordinated convertible debentures        1,704           8,078  
  Non-cash interest expense        2,641           2,292  
  Contingent interest payable on subordinated convertible debentures        (2,613 )         -  
 Tax adjustment        18,071           (213,912 )
Non-GAAP $ 151,917    $ 94,971    $ 139,817    $ 98,250  
                        
Revenues $ 255,917          $ 245,630        
Non-GAAP operating margin  59.4 %         56.9 %      
Diluted shares        135,899           150,422  
Per diluted share, non-GAAP       $ 0.70          $ 0.65  
                
                

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 information 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: stock-based compensation, unrealized gain/loss on contingent interest derivative on subordinated convertible debentures, and non-cash interest expense. Non-GAAP net income is decreased by amounts accrued, if any, during the period for contingent interest payable resulting from upside or downside triggers related to the subordinated convertible debentures and is adjusted for a 28 percent tax rate, which differs from the GAAP tax rate.

Management believes that this non-GAAP financial data supplements the GAAP financial data by providing investors with additional information that allows them to have a clearer picture of our operations. The presentation of this additional information is not meant to be considered in isolation nor as a substitute for results prepared in accordance with GAAP. We believe that the non-GAAP information enhances investors' overall understanding of our financial performance and the comparability of our 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.

SUPPLEMENTAL FINANCIAL INFORMATION
 The following table presents the classification of stock-based compensation:

   Three Months Ended December 31,
   2014   2013
 Cost of revenues $ 1,652  $ 1,517
 Sales and marketing  2,121   1,596
 Research and development  1,829   1,885
 General and administrative  4,094   4,645
Total stock-based compensation expense $ 9,696  $ 9,643
      
      
VERISIGN, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)
 
   Year Ended December 31,
   2014   2013
   Operating Income   Net Income   Operating Income   Net Income
GAAP as reported $ 564,427    $ 355,260    $ 528,232    $ 544,450  
 Adjustments:                       
  Stock-based compensation  43,977     43,977     36,649     36,649  
  Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures        (2,249 )         17,801  
  Non-cash interest expense        10,223           8,608  
  Contingent interest payable on subordinated convertible debentures        (3,919 )         -  
 Tax adjustment        (20,725 )         (233,231 )
Non-GAAP $ 608,404    $ 382,567    $ 564,881    $ 374,277  
                        
Revenues $ 1,010,117          $ 965,087        
Non-GAAP operating margin  60.2 %         58.5 %      
Diluted shares        140,895           155,786  
Per diluted share, non-GAAP       $ 2.72          $ 2.40  
                
                

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 information 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: stock-based compensation, unrealized gain/loss on contingent interest derivative on subordinated convertible debentures, and non-cash interest expense. Non-GAAP net income is decreased by amounts accrued, if any, during the period for contingent interest payable resulting from upside or downside triggers related to the subordinated convertible debentures and is adjusted for a 28 percent tax rate, which differs from the GAAP tax rate.

Management believes that this non-GAAP financial data supplements the GAAP financial data by providing investors with additional information that allows them to have a clearer picture of our operations. The presentation of this additional information is not meant to be considered in isolation nor as a substitute for results prepared in accordance with GAAP. We believe that the non-GAAP information enhances investors' overall understanding of our financial performance and the comparability of our 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.

SUPPLEMENTAL FINANCIAL INFORMATION
 The following table presents the classification of stock-based compensation:

   Year Ended December 31,
   2014   2013
 Cost of revenues $ 6,400  $ 6,156
 Sales and marketing  8,023   6,252
 Research and development  7,018   7,199
 General and administrative  22,536   17,042
Total stock-based compensation expense $ 43,977  $ 36,649
      
      

VERISIGN, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Unaudited)

Following the offering of the 4.625% senior notes due 2023 (the "Notes"), we disclose our Adjusted EBITDA for the periods shown below. Adjusted EBITDA is a non-GAAP financial measure and is calculated in accordance with the terms of the indenture governing the Notes. Adjusted EBITDA refers to net income before interest, taxes, depreciation and amortization, stock-based compensation, unrealized loss (gain) on contingent interest derivative on the subordinated convertible debentures and unrealized loss (gain) on hedging agreements.

The following table reconciles GAAP net income to Adjusted EBITDA for the periods shown below (in thousands):

   Three Months Ended
December 31,
   2014     2013  
Net Income $ 65,472    $ 292,149  
 Interest expense  21,586     21,237  
 Income tax expense (benefit)  55,004     (175,704 )
 Depreciation and amortization  15,767     15,240  
 Stock-based compensation  9,696     9,643  
 Unrealized loss on contingent interest derivative on the subordinated convertible debentures  1,704     8,078  
 Unrealized (gain) loss on hedging agreements  (267 )   1  
Adjusted EBITDA $ 168,962    $ 170,644  
        
        
   Year Ended
December 31, 2014
Net Income $ 355,260  
 Interest expense  85,994  
 Income tax benefit  128,051  
 Depreciation and amortization  63,690  
 Stock-based compensation  43,977  
 Unrealized gain on contingent interest derivative on the subordinated convertible debentures  (2,249 )
 Unrealized gain on hedging agreements  (152 )
Adjusted EBITDA $ 674,571  
    
    

Verisign's management believes that presenting Adjusted EBITDA enhances investors' overall understanding of our financial performance and the comparability of our operating results from period to period. However, Adjusted EBITDA has important limitations as an analytical tool. These limitations include, but are not limited to, the following:

  • Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
  • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
  • Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
  • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
  • non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating its ongoing operating performance for a particular period; and
  • other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.