SOURCE: VeriSign, Inc.

August 06, 2008 16:15 ET

VeriSign Reports Second Quarter 2008 Results

Company Delivers In-Line Revenue and Non-GAAP EPS Growth

MOUNTAIN VIEW, CA--(Marketwire - August 6, 2008) - VeriSign, Inc. (NASDAQ: VRSN), the trusted provider of Internet infrastructure services, today reported financial results for the second quarter ended June 30, 2008.

VeriSign reported revenue of $303 million for the second quarter of 2008. On a GAAP basis, VeriSign reported a net loss of $68 million and a net loss per share of $0.35. These GAAP results reflect a $92 million non-cash impairment charge on certain long-lived assets and assets held for sale. Also recorded were restructuring charges of $98 million in continuing and discontinued operations.

VeriSign reported segment revenue for Internet Infrastructure and Identity Services (3IS), or the "core businesses" of Naming, SSL and IAS, of $233 million, up 4% from Q1 2008 and up 21% year over year.

On a non-GAAP basis (which excludes items described below) for our core businesses, VeriSign reported net income of $50 million for the second quarter of 2008 and fully-diluted earnings per share of $0.25. A table reconciling the GAAP to the non-GAAP results reported above is appended to this release.

"Our revenue performance and non-GAAP earnings validate our strategy to focus on our core businesses, a strategy to which we are firmly committed," said Jim Bidzos, executive chairman of the board of directors, president and chief executive officer on an interim basis of VeriSign. "As we look toward the future, we will work to identify opportunities that align with our core competencies and extend what we believe to be our leading position as the trusted third party of the Internet."

"We are pleased by our performance during the second quarter," said Brian Robins, acting chief financial officer of VeriSign. "Company-wide disciplined expense management contributed to non-GAAP operating margin improvement for the core services of nearly 400 basis points since last quarter, and the solid performance of our core services coupled with other positive working capital contributions resulted in strong cash flow of $169 million in the quarter."

Business and Corporate Highlights

--  VeriSign Naming Services ended the quarter with approximately 87.3
    million active domain names in the adjusted zone for .com and .net,
    representing a 3% increase over Q1 2008 and 20% increase year over year.
--  In June, VeriSign announced additional infrastructure deployments in
    Europe with new sites in France and Belgium to fortify its Internet
    infrastructure as part of Project Titan.
--  VeriSign's Naming Services business continues to stimulate demand for
    .com by seeking new distribution partners.  VeriSign recently announced the
    first .com/.net ICANN accredited registrar in Mexico, Interplanet.
--  VeriSign SSL Services ended the quarter with 1,056,000 SSL
    certificates in the installed base, up 3% from 1,024,000 in Q1 2008 and an
    increase of 14% from 923,000 for certificates for the same quarter last
    year.
--  VeriSign EV SSL customers announced in Q2 include Buy.com, Blue Nile
    and Overtons.
--  As of June 30, 2008, there are more than 1.9 million credentials in
    distribution for our VIP network and one time password (OTP) programs.
--  VeriSign was selected during the quarter by Microsoft as an OpenID
    provider for users of HealthVault.
--  On July 3, we announced that Jim Bidzos, founder of VeriSign, was
    appointed executive chairman, president and chief executive, on an interim
    basis.  A search for a permanent president and chief executive is currently
    underway.
--  VeriSign 2008 Analyst Day will be held on Wednesday, November 12, 2008
    in New York City.  Details on the event agenda and registration will be
    announced at a later date.
    

Financial Highlights

--  Non-core businesses delivered $70 million of revenue in the second
    quarter of 2008, and revenue from discontinued operations was $89 million.
--  VeriSign ended the second quarter of 2008 with Cash, Cash Equivalents,
    Restricted Cash and Short-term Investments of $669 million, an increase of
    $137 million from the prior quarter.
--  Cash flow from operations for the quarter was $169 million and $244
    million year-to-date.
--  Capital expenditures were approximately $34 million for the second
    quarter of 2008 and $60 million year-to-date.
--  During the second quarter of 2008, the balance of $140 million on the
    line of credit was paid in full.
--  In June 2008, the company completed the sale and leaseback of two
    headquarter buildings in Mountain View, California.  The buildings were
    sold for net cash proceeds of $48 million.
--  Deferred revenue on June 30, 2008 totaled $780 million, an increase of
    $19 million from the prior quarter.
--  On August 5, 2008, the Board of Directors approved an additional
    authorization for share repurchases of $680 million, which brings the total
    amount authorized to $1 billion.
    

The financial statements in this press release include an immaterial revision to reduce the income tax expense for the first quarter of 2008.

Non-GAAP Items

Non-GAAP results exclude the following items which are included under GAAP: income or loss from discontinued operations, loss from non-core businesses, stock-based compensation, amortization of intangible assets, restructuring costs, non-recurring costs, and gains and losses on investments and derivatives. Non-GAAP financial information is also adjusted for a 30% tax rate which differs from the GAAP tax rate. 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) 312-0976 (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: 9794237) beginning at 5:00 pm (PDT) on August 6 and will run through August 12. 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) is the trusted provider of Internet infrastructure services for the networked world. Billions of times each day, VeriSign helps companies and consumers all over the world engage in communications and commerce with confidence. 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, and the uncertainty of whether new services as provided by VeriSign will achieve market acceptance or result in any revenues and the risk that the planned divestitures of certain businesses may be delayed, may generate less proceeds than expected or may incur unanticipated costs or otherwise negatively affect VeriSign's financial condition, results of operations or cash flows, and the uncertainty of whether Project Titan will achieve its stated objectives. 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, 2007, 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)


                                                    June 30,   December 31,
                                                      2008         2007
                                                  -----------  -----------
                        ASSETS
Current assets:
   Cash and cash equivalents                      $   621,017  $ 1,376,722
   Short-term investments                                 548        1,011
   Accounts receivable, net of allowance for
    doubtful accounts of $3,729 and $6,329 at
    June 30, 2008, and December 31, 2007,
    respectively                                      125,138      208,799
   Prepaid expenses and other current assets          160,203      163,041
   Assets held for sale                               466,204            -
                                                  -----------  -----------
      Total current assets                          1,373,110    1,749,573
                                                  -----------  -----------
Property and equipment, net                           435,971      621,917
Goodwill                                              617,524    1,082,420
Other intangible assets, net                           62,386      121,792
Restricted cash                                        47,209       46,936
Other assets                                          300,976      290,647
Investments in unconsolidated entities                112,137      109,828
                                                  -----------  -----------
      Total long-term assets                        1,576,203    2,273,540
                                                  -----------  -----------
      Total assets                                $ 2,949,313  $ 4,023,113
                                                  ===========  ===========

         LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
   Accounts payable and accrued liabilities       $   318,110  $   398,124
   Accrued restructuring costs                         31,544        2,878
   Deferred revenues                                  581,833      552,070
   Other liabilities                                    2,844        2,632
   Liabilities related to assets held for sale          9,041            -
                                                  -----------  -----------
      Total current liabilities                       943,372      955,704
                                                  -----------  -----------
Long-term deferred revenues                           198,486      186,719
Long-term accrued restructuring costs                   1,208        1,473
Convertible debentures                              1,263,199    1,265,296
Other long-term liabilities                            39,846       41,133
                                                  -----------  -----------
      Total long-term liabilities                   1,502,739    1,494,621
                                                  -----------  -----------
      Total liabilities                             2,446,111    2,450,325
                                                  -----------  -----------
Commitments and contingencies
Minority interest in subsidiaries                      58,715       54,485
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: 196,687,528
    excluding 104,896,643 held in treasury, at
    June 30, 2008, and 222,849,348 excluding
    73,720,953 shares held in treasury, at
    December 31, 2007                                     301          297
Additional paid-in capital                         21,551,301   22,559,045
Accumulated deficit                               (21,117,891) (21,043,014)
Accumulated other comprehensive income                 10,776        1,975
                                                  -----------  -----------
      Total stockholders’ equity                      444,487    1,518,303
                                                  -----------  -----------
      Total liabilities and stockholders' equity  $ 2,949,313  $ 4,023,113
                                                  ===========  ===========




                      VERISIGN, INC. AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (In thousands, except per share data)
                              (Unaudited)


                                 Three Months Ended     Six Months Ended
                                      June 30,              June 30,
                                --------------------  --------------------
                                  2008       2007       2008       2007
                                ---------  ---------  ---------  ---------
Revenues                        $ 303,240  $ 258,988  $ 599,873  $ 528,884
                                ---------  ---------  ---------  ---------
Costs and expenses
  Cost of revenues                 86,033     82,675    177,620    169,561
  Sales and marketing              51,993     62,545    109,581    139,732
  Research and development         32,891     31,868     68,752     71,937
  General and administrative       57,783     74,355    120,380    122,846
  Restructuring, impairments
   and other charges, net         136,958     14,319    157,071     38,434
  Amortization of other
   intangible assets                5,495     16,461     14,193     34,631
                                ---------  ---------  ---------  ---------
    Total costs and expenses      371,153    282,223    647,597    577,141
                                ---------  ---------  ---------  ---------

Operating loss                    (67,913)   (23,235)   (47,724)   (48,257)
  Other (loss) income, net         (5,171)    11,934     (7,743)    93,214
                                ---------  ---------  ---------  ---------
(Loss) income from continuing
 operations before income
 taxes, earnings (loss)
 from unconsolidated entities
 and minority interest            (73,084)   (11,301)   (55,467)    44,957
                                ---------  ---------  ---------  ---------

Income tax benefit (expense)        4,293     (5,632)    (1,003)   (10,254)
Earnings (loss) from
 unconsolidated entities, net
 of tax                             1,172      1,748       (590)     2,196
Minority interest, net of tax        (989)        82     (1,895)      (487)
                                ---------  ---------  ---------  ---------
(Loss) income from continuing
 operations                       (68,608)   (15,103)   (58,955)    36,412
Discontinued operations, net of
 tax                                  565     10,386    (15,192)    20,624
Net (loss) income               $ (68,043) $  (4,717) $ (74,147) $  57,036
                                =========  =========  =========  =========

Basic (loss) income per share
 from:
  Continuing operations         $   (0.35) $   (0.06) $   (0.29) $    0.15
  Discontinued operations               -       0.04      (0.08)      0.08
                                ---------  ---------  ---------  ---------
  Net (loss) income             $   (0.35) $   (0.02) $   (0.37) $    0.23
                                =========  =========  =========  =========


Diluted (loss) income per share
 from:
  Continuing operations         $   (0.35) $   (0.06) $   (0.29) $    0.15
  Discontinued operations               -       0.04      (0.08)      0.08
                                ---------  ---------  ---------  ---------
  Net (loss) income             $   (0.35) $   (0.02) $   (0.37) $    0.23
                                =========  =========  =========  =========

Shares used in per share
 computation:
  Basic                           195,515    243,846    201,032    243,849
                                =========  =========  =========  =========
  Diluted                         195,515    243,846    201,032    246,102
                                =========  =========  =========  =========

In presenting the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2008, the Company has adjusted its net loss, as reported, for the three months ended March 31, 2008. Penalties and interest related to late payment of federal and state payroll taxes of $7.3 million previously recorded to general and administrative expense for the three months ended March 31, 2008, were revised to the previous periods in which the charges arose. Additionally, the Company reduced its total income tax expense for the three months ended March 31, 2008, by $5.0 million.


                        VERISIGN, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)
                                  (Unaudited)


                                                       Six Months Ended
                                                           June 30,
                                                    ----------------------
                                                       2008        2007
                                                    ----------  ----------
Cash flows from operating activities:
   Net (loss) income                                $  (74,147) $   57,036
Adjustments to reconcile net (loss) income to net
 cash provided by operating activities:
      Gain on divestiture of businesses, net of tax    (31,629)    (74,999)
      Unrealized gain on joint venture call options          -      (3,755)
      Unrealized gain on contingent interest
       derivative on convertible debentures             (2,084)          -
      Depreciation of property and equipment            61,084      55,564
      Amortization of other intangible assets           17,452      61,456
      Impairment of goodwill, other intangible
       assets and assets held for sale                 117,208       4,849
      Provision for doubtful accounts                    1,166        (720)
      Stock-based compensation                          46,096      42,047
      Restructuring and other charges, net              45,679      37,342
      Loss on sale of property and equipment            80,371           -
      Net gain on sale and impairment of
       investments                                        (258)       (885)
      Loss (earnings) from unconsolidated entities,
       net of tax                                          590      (2,196)
      Minority interest, net of tax                      1,895         487
      Deferred income taxes                            (19,355)    (11,469)
   Changes in operating assets and liabilities:
      Accounts receivable                               31,186    (110,843)
      Prepaid expenses and other current assets         10,330     130,661
      Accounts payable and accrued liabilities        (104,105)   (106,241)
      Deferred revenues                                 62,302      76,698
                                                    ----------  ----------
         Net cash provided by operating activities     243,781     155,032
                                                    ----------  ----------

Cash flows from investing activities:
   Purchases of investments                                  -    (135,882)
   Proceeds from sale of property and equipment         48,843           -
   Proceeds from maturities and sales of
    investments                                            100     248,128
   Purchases of property and equipment                 (59,620)    (47,511)
   Proceeds received from divestiture of
    businesses, net of cash contributed                 60,613     152,643
   Proceeds received from contingent purchase price
    adjustment                                           1,175           -
   Other assets                                          1,950       1,989
                                                    ----------  ----------
         Net cash provided by investing activities      53,061     219,367
                                                    ----------  ----------

Cash flows from financing activities:
   Proceeds from issuance of common stock from
    option exercises and employee stock purchase
    plans                                               92,405           -
   Change in net assets of minority interest               134          89
   Repurchases of common stock                      (1,148,380)          -
   Proceeds from credit facility                       200,000           -
   Repayment of short-term debt related to credit
    facility                                          (200,000)   (199,000)
   Dividend paid to minority interest                     (723)          -
                                                    ----------  ----------
         Net cash used in financing activities      (1,056,564)   (198,911)
                                                    ----------  ----------
Effect of exchange rate changes on cash and cash
 equivalents                                             4,017        (984)
                                                    ----------  ----------
Net (decrease) increase in cash and cash
 equivalents                                          (755,705)    174,504
Cash and cash equivalents at beginning of period     1,376,722     501,784
                                                    ----------  ----------
Cash and cash equivalents at end of period             621,017     676,288
Cash and cash equivalents of Jamba Service at end
 of period                                                   -     (19,771)
                                                    ----------  ----------
Cash and cash equivalents of continuing operations
 at end of period                                   $  621,017  $  656,517
                                                    ==========  ==========

Supplemental cash flow disclosures:
   Cash paid for interest                           $   20,442  $    2,649
                                                    ==========  ==========




                      VERISIGN, INC. AND SUBSIDIARIES

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


                                 Three Months Ended     Six Months Ended
                                    June 30, 2008         June 30, 2008
                                --------------------  --------------------
                                Operating     Net     Operating     Net
                                  Income     Income     Income     Income
                                ---------  ---------  ---------  ---------

GAAP as reported                $ (67,913) $ (68,043) $ (47,724) $ (74,147)
   Discontinued operations and
    non-core businesses (1)        52,981     60,828     69,865     87,948
   Adjustments to core
    businesses: (1)
     Stock based compensation      16,549     16,549     30,456     30,456
     Amortization of intangibles    2,537      2,537      5,028      5,028
     Restructuring costs           81,899     81,899     96,023     96,023
     Other non-recurring costs
      (2)                          (6,364)    (6,364)    (6,289)    (6,289)
     Gains or losses on
      investments and
      derivatives                               (410)               (2,408)
   Tax adjustment (3)                        (37,166)              (42,980)
                                ---------  ---------  ---------  ---------
Non-GAAP as adjusted            $  79,689  $  49,830  $ 147,359  $  93,631
                                =========  =========  =========  =========

Fully-diluted shares              202,505    202,505    206,488    206,488

                                ---------  ---------  ---------  ---------
Per fully-diluted share         $    0.39  $    0.25  $    0.71  $    0.45
                                =========  =========  =========  =========


(1)  As of June 30, 2008, the Company’s business consists of the following
reportable segments: Internet Infrastructure and Identity Services ("3IS")
and Other Services which represents continuing operations of non-core
businesses and legacy products and services. The 3IS segment is also
referred to as "core businesses" which are Naming, SSL, and IAS.

(2) Other non-recurring costs primarily consists of a $6.3 million release
of costs expected to be incurred settling a legal matter.

(3) Non-GAAP tax is calculated as 30% of income from continuing operations,
excluding minority interest, which is presented net of tax on the
Statements of Operations.

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: income or loss from discontinued operations, loss from non-core businesses, stock-based compensation, amortization of intangible assets, restructuring costs, non- recurring costs, and gains and losses on investments and derivatives. 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.


SUPPLEMENTAL FINANCIAL INFORMATION

                                         Three Months Ended
                          -------------------------------------------------
                          June 30,  March 31, December  September June 30,
                            2008      2008    31, 2007  31, 2007    2007
                          --------- --------- --------- --------- ---------
Revenues from core
 business                 $ 232,963 $ 223,085 $ 212,408 $ 202,916 $ 193,260
                          ========= ========= ========= ========= =========