SOURCE: VeriSign, Inc.

VeriSign, Inc.

July 23, 2015 16:05 ET

Verisign Reports Second Quarter 2015 Results

RESTON, VA--(Marketwired - July 23, 2015) - VeriSign, Inc. (NASDAQ: VRSN), a global leader in domain names and Internet security, today reported financial results for the second quarter of 2015.

Second Quarter GAAP Financial Results
VeriSign, Inc. and subsidiaries ("Verisign") reported revenue of $263 million for the second quarter of 2015, up 4.9 percent from the same quarter in 2014. Verisign reported net income of $93 million and diluted earnings per share of $0.70 for the second quarter of 2015, compared to net income of $100 million and diluted EPS of $0.71 in the same quarter in 2014. The operating margin was 56.7 percent for the second quarter of 2015 compared to 57.2 percent for the same quarter in 2014.

Second Quarter Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $99 million and diluted EPS of $0.74 for the second quarter of 2015, compared to net income of $96 million and diluted EPS of $0.68 for the same quarter in 2014. The non-GAAP operating margin was 61.3 percent for the second quarter of 2015 compared to 60.9 percent for the same quarter in 2014. A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.

"I am pleased to report another quarter in which we have created and delivered value for our shareholders," commented Jim Bidzos, Executive Chairman, President and Chief Executive Officer.

Financial Highlights

  • Verisign ended the second quarter with cash, cash equivalents and marketable securities of $1.9 billion, an increase of $460 million as compared with year-end 2014.
  • Cash flow from operations was $175 million for the second quarter of 2015, compared with $121 million for the same quarter in 2014.
  • Deferred revenues on June 30, 2015, totaled $932 million, an increase of $41 million from year-end 2014.
  • Capital expenditures were $9 million in the second quarter of 2015.
  • During the second quarter, Verisign repurchased 2.5 million shares of its common stock for $156 million. At June 30, 2015, $761 million remained available and authorized under the current share repurchase program which has no expiration.
  • For purposes of calculating diluted EPS, the second quarter diluted share count included 17 million shares related to subordinated convertible debentures, compared with 11.3 million shares in the same quarter in 2014. These represent diluted shares and not shares that have been issued.

Business Highlights

  • Verisign Registry Services added 0.52 million net new names during the second quarter, ending with 133.5 million .com and .net domain names in the domain name base, which represents a 3.1 percent increase over the base at the end of the second quarter in 2014, as calculated including domain names on hold for both periods.
  • In the second quarter, Verisign processed 8.7 million new domain name registrations for .com and .net, as compared to 8.5 million for the same period in 2014.
  • The final .com and .net renewal rate for the first quarter of 2015 was 73.4 percent compared with 72.6 percent for the same quarter in 2014. Renewal rates are not fully measurable until 45 days after the end of the quarter.
  • Verisign announces an increase in the annual fee for a .net domain name registration from $6.79 to $7.46, effective Feb. 1, 2016, per its agreement with the Internet Corporation for Assigned Names and Numbers. (ICANN).

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 an income tax rate of 26 percent for 2015 and 28 percent for 2014, both of which differ from the GAAP income 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. (EDT) to review the second quarter 2015 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-1233 (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 Security 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) and related root zone management functions, 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 in the U.S. or other applicable foreign jurisdictions; 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 a large number of 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, 2014, 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) 
  
   June 30,
 2015
  December 31,
 2014
 
ASSETS           
Current assets:           
 Cash and cash equivalents  $187,286   $191,608  
 Marketable securities   1,697,523    1,233,076  
 Accounts receivable, net   14,418    13,448  
 Other current assets   31,280    41,905  
  Total current assets   1,930,507    1,480,037  
Property and equipment, net   304,360    319,028  
Goodwill   52,527    52,527  
Long-term deferred tax assets   260,892    266,954  
Other long-term assets   22,378    15,918  
  Total long-term assets   640,157    654,427  
  Total assets  $2,570,664   $2,134,464  
LIABILITIES AND STOCKHOLDERS' DEFICIT           
Current liabilities:           
 Accounts payable and accrued liabilities  $166,558   $190,278  
 Deferred revenues   653,773    621,307  
 Subordinated convertible debentures, including contingent interest derivative   624,767    620,620  
 Deferred tax liabilities   500,433    477,781  
  Total current liabilities   1,945,531    1,909,986  
Long-term deferred revenues   277,828    269,047  
Senior notes   1,234,368    740,175  
Other long-term tax liabilities   107,253    98,722  
  Total long-term liabilities   1,619,449    1,107,944  
  Total liabilities   3,564,980    3,017,930  
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:322,781 at June 30, 2015 and 321,699 at December 31, 2014; Outstanding shares:114,028 at June 30, 2015 and 118,452 at December 31, 2014   323    322  
 Additional paid-in capital   17,828,075    18,120,045  
 Accumulated deficit   (18,819,586 )  (19,000,835 )
 Accumulated other comprehensive loss   (3,128 )  (2,998 )
  Total stockholders' deficit   (994,316 )  (883,466 )
  Total liabilities and stockholders' deficit  $2,570,664   $2,134,464  
  
  
VERISIGN, INC. 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
(In thousands, except per share data) 
(Unaudited) 
  
   Three Months Ended June 30,   Six Months Ended June 30,  
   2015   2014   2015   2014  
Revenues  $262,539   $250,382   $520,961   $499,178  
Costs and expenses:                     
 Cost of revenues   48,221    45,989    96,574    94,015  
 Sales and marketing   24,329    23,651    46,711    43,940  
 Research and development   16,347    15,694    33,499    34,133  
 General and administrative   24,677    21,927    50,975    44,384  
  Total costs and expenses   113,574    107,261    227,759    216,472  
Operating income   148,965    143,121    293,202    282,706  
Interest expense   (28,503 )  (21,490 )  (50,520 )  (42,875 )
Non-operating income (loss), net   3,201    4,994    (2,354 )  11,510  
Income before income taxes   123,663    126,625    240,328    251,341  
Income tax expense   (30,652 )  (26,449 )  (59,079 )  (56,742 )
Net income   93,011    100,176    181,249    194,599  
 Realized foreign currency translation adjustments, included in net income   (291 )  -    (291 )  -  
 Unrealized gain (loss) on investments   147    (33 )  234    (25 )
 Realized (gain) loss on investments, included in net income   (69 )  (2 )  (73 )  3  
Other comprehensive loss   (213 )  (35 )  (130 )  (22 )
Comprehensive income  $92,798   $100,141   $181,119   $194,577  
                      
Income per share:                     
 Basic  $0.80   $0.77   $1.56   $1.48  
 Diluted  $0.70   $0.71   $1.36   $1.34  
Shares used to compute net income per share                     
 Basic   115,656    129,350    116,394    131,372  
 Diluted   133,251    141,142    133,546    144,861  
                      
  
  
VERISIGN, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(In thousands) 
(Unaudited) 
  
   Six Months Ended June 30,  
   2015   2014  
Cash flows from operating activities:           
 Net income  $181,249   $194,599  
 Adjustments to reconcile net income to net cash provided by operating activities:           
  Depreciation of property and equipment   31,620    32,115  
  Stock-based compensation   22,129    19,365  
  Excess tax benefit associated with stock-based compensation   (11,366 )  (15,309 )
  Unrealized loss (gain) on contingent interest derivative on Subordinated Convertible Debentures   4,311    (10,515 )
  Payment of Contingent interest   (5,225 )  -  
  Other, net   4,842    3,802  
  Changes in operating assets and liabilities           
   Accounts receivable   (1,018 )  (233 )
   Prepaid expenses and other assets   7,369    26,414  
   Accounts payable and accrued liabilities   (4,778 )  (869 )
   Deferred revenues   41,247    34,615  
   Net deferred income taxes and other long-term tax liabilities   37,245    (21,246 )
    Net cash provided by operating activities   307,625    262,738  
Cash flows from investing activities:           
 Proceeds from maturities and sales of marketable securities   1,283,367    2,118,861  
 Purchases of marketable securities   (1,747,025 )  (2,042,657 )
 Purchases of property and equipment   (21,891 )  (18,747 )
 Other investing activities   (3,736 )  74  
    Net cash (used in) provided by investing activities   (489,285 )  57,531  
Cash flows from financing activities:           
 Proceeds from issuance of common stock from option exercises and employee stock purchase plans   9,014    8,970  
 Repurchases of common stock   (335,885 )  (446,676 )
 Proceeds from borrowings, net of issuance costs   492,237    -  
 Excess tax benefit associated with stock-based compensation   11,366    15,309  
    Net cash provided by (used in) financing activities   176,732    (422,397 )
Effect of exchange rate changes on cash and cash equivalents   606    266  
Net decrease in cash and cash equivalents   (4,322 )  (101,862 )
Cash and cash equivalents at beginning of period   191,608    339,223  
Cash and cash equivalents at end of period  $187,286   $237,361  
Supplemental cash flow disclosures:           
 Cash paid for interest, net of capitalized interest  $42,839   $37,507  
 Cash paid for income taxes, net of refunds received  $14,342   $34,464  
  
  
VERISIGN, INC. 
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES 
(In thousands, except per share data) 
(Unaudited) 
  
   Three Months Ended June 30,  
   2015   2014  
   Operating Income   Net Income   Operating Income   Net Income  
GAAP as reported $148,965  $93,011  $143,121  $100,176 
 Adjustments:                     
  Stock-based compensation   12,001    12,001    9,372    9,372  
  Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures        (2,708 )       (5,246 )
  Non-cash interest expense        2,956         2,547  
  Contingent interest payable on subordinated convertible debentures        (2,767 )       -  
 Tax adjustment        (3,965 )       (10,875 )
Non-GAAP  $160,966   $98,528   $152,493   $95,974  
                      
Revenues  $262,539        $250,382       
Non-GAAP operating margin   61.3 %       60.9 %     
Diluted shares        133,251         141,142  
Per diluted share, non-GAAP       $0.74        $0.68  
                      

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 an income tax rate of 26 percent for 2015 and 28 percent for 2014, both of which differ from the GAAP income 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 June 30,
  2015 2014
 Cost of revenues $1,741 $1,532
 Sales and marketing   1,818   1,820
 Research and development   1,691   1,639
 General and administrative   6,751   4,381
Total stock-based compensation expense  $12,001  $9,372
         
  
  
VERISIGN, INC. 
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES 
(In thousands, except per share data) 
(Unaudited) 
  
   Six Months Ended June 30,  
  2015  2014 
  Operating Income  Net Income  Operating Income  Net Income 
GAAP as reported $293,202  $181,249  $282,706  $194,599 
 Adjustments:                     
  Stock-based compensation   22,129    22,129    19,365    19,365  
  Unrealized loss on contingent interest derivative on the subordinated convertible debentures        4,311         (10,515 )
  Non-cash interest expense        5,662         4,991  
  Contingent interest payable on subordinated convertible debentures        (5,457 )       -  
 Tax adjustment        (10,334 )       (17,509 )
Non-GAAP  $315,331   $197,560   $302,071   $190,931  
                      
Revenues  $520,961        $499,178       
Non-GAAP operating margin   60.5 %       60.5 %     
Diluted shares        133,546         144,861  
Per diluted share, non-GAAP       $1.48        $1.32  
                      

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 an income tax rate of 26 percent for 2015 and 28 percent for 2014, both of which differ from the GAAP income 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:

   Six Months Ended June 30,
  2015 2014
 Cost of revenues $3,480 $3,130
 Sales and marketing   3,117   3,668
 Research and development   3,412   3,511
 General and administrative   12,120   9,056
Total stock-based compensation expense  $22,129  $19,365
         
       
       
VERISIGN, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Unaudited)

On a quarterly basis we disclose our Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure and is calculated in accordance with the terms of the indentures governing our 4.625% senior notes due 2023 and our 5.25% senior notes due 2025. 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
June 30,
 
   2015    2014  
Net Income $93,011  $100,176 
 Interest expense   28,503    21,490  
 Income tax expense   30,652    26,449  
 Depreciation and amortization   15,873    16,107  
 Stock-based compensation   12,001    9,372  
 Unrealized gain on contingent interest derivative on the subordinated convertible debentures   (2,708 )  (5,246 )
 Unrealized loss (gain) on hedging agreements   944    (150 )
Adjusted EBITDA  $178,276   $168,198  
            
         
  Four Quarters Ended
June 30, 2015
Net income 341,911
 Interest expense  93,639
 Income tax benefit  130,388
 Depreciation and amortization  63,197
 Stock-based compensation  46,742
 Unrealized loss on contingent interest derivative on the subordinated convertible debentures  12,577
 Unrealized loss on hedging agreements  351
Adjusted EBITDA $688,805
    

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.