SOURCE: VeriSign, Inc.

VeriSign, Inc.

October 22, 2015 16:05 ET

Verisign Reports Third Quarter 2015 Results

RESTON, VA--(Marketwired - October 22, 2015) - VeriSign, Inc. (NASDAQ: VRSN), a global leader in domain names and Internet security, today reported financial results for the third quarter of 2015.

Third Quarter GAAP Financial Results

VeriSign, Inc. and subsidiaries ("Verisign") reported revenue of $266 million for the third quarter of 2015, up 4.2 percent from the same quarter in 2014. Verisign reported net income of $92 million and diluted earnings per share of $0.70 for the third quarter of 2015, compared to net income of $95 million and diluted EPS of $0.69 for the same quarter in 2014. The operating margin was 58.1 percent for the third quarter of 2015 compared to 54.7 percent for the same quarter in 2014.

Third Quarter Non-GAAP Financial Results

Verisign reported, on a non-GAAP basis, net income of $103 million and diluted EPS of $0.78 for the third quarter of 2015, compared to net income of $97 million and diluted EPS of $0.70 for the same quarter in 2014. The non-GAAP operating margin was 62.7 percent for the third quarter of 2015 compared to 60.6 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.

"Our quarterly results demonstrate the ongoing strength of our business and our execution discipline, which continue to produce value for our shareholders," commented Jim Bidzos, Executive Chairman, President and Chief Executive Officer.

Financial Highlights

  • Verisign ended the third quarter with cash, cash equivalents and marketable securities of $1.9 billion, an increase of $466 million as compared with year-end 2014.
  • Cash flow from operations was $155 million for the third quarter of 2015, compared with $168 million for the same quarter in 2014.
  • Deferred revenues on Sept. 30, 2015, totaled $940 million, an increase of $50 million from year-end 2014.
  • Capital expenditures were $7 million in the third quarter of 2015.
  • During the third quarter, Verisign repurchased 2.3 million shares of its common stock for $156 million. At Sept. 30, 2015, $605 million remained available and authorized under the current share repurchase program which has no expiration.
  • For purposes of calculating diluted EPS, the third quarter diluted share count included 18.0 million shares related to subordinated convertible debentures, compared with 13.2 million shares for the same quarter in 2014. These represent diluted shares and not shares that have been issued.

Business Highlights

  • Verisign Registry Services added 1.68 million net new names during the third quarter, ending with 135.2 million .com and .net domain names in the domain name base, which represents a 3.4 percent increase over the base at the end of the third quarter in 2014, as calculated including domain names on hold for both periods.
  • In the third quarter, Verisign processed 9.2 million new domain name registrations for .com and .net, as compared to 8.7 million for the same quarter in 2014.
  • The final .com and .net renewal rate for the second quarter of 2015 was 72.7 percent compared with 71.8 percent for the same quarter in 2014. Renewal rates are not fully measurable until 45 days after the end of the quarter.

Non-GAAP Financial Measures and Adjusted EBITDA

Verisign provides quarterly and annual financial statements that are prepared in accordance with generally accepted accounting principles (GAAP). Along with this information, management typically discloses and discusses certain non-GAAP financial information in quarterly earnings releases, 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 the contingent interest derivative on the 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.

On a quarterly basis, Verisign also provides Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure and is calculated in accordance with the terms of the indentures governing Verisign's 4.625% senior notes due 2023 and 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 the contingent interest derivative on the subordinated convertible debentures and unrealized loss (gain) on hedging agreements.

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 Verisign's 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. Management believes that the non-GAAP information enhances investors' overall understanding of Verisign's financial performance and the comparability of Verisign's operating results from period to period.

The tables appended to this release include a reconciliation of the non-GAAP financial information to the comparable financial information reported in accordance with GAAP for the given periods.

Today's Conference Call

Verisign will host a live conference call today at 4:30 p.m. (EDT) to review the third quarter 2015 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-1460 (international), conference ID: Verisign. A listen-only live web cast of the conference call and accompanying slide presentation will also be available at https://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 https://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 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 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 or pursue strategic initiatives, the uncertainty of whether our new products and services, including our new gTLDs, 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 continuing introduction of new gTLDs, 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 current and future 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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
 
   September 30,
 2015
  December 31,
 2014
 
ASSETS           
Current assets:           
 Cash and cash equivalents  $177,871   $191,608  
 Marketable securities   1,713,087    1,233,076  
 Accounts receivable, net   14,714    13,448  
 Other current assets   35,468    41,905  
  Total current assets   1,941,140    1,480,037  
Property and equipment, net   297,299    319,028  
Goodwill   52,527    52,527  
Long-term deferred tax assets   262,243    266,954  
Other long-term assets   24,096    15,918  
  Total long-term assets   636,165    654,427  
  Total assets  $2,577,305   $2,134,464  
LIABILITIES AND STOCKHOLDERS' DEFICIT           
Current liabilities:           
 Accounts payable and accrued liabilities  $180,106   $190,278  
 Deferred revenues   660,417    621,307  
 Subordinated convertible debentures, including contingent interest derivative   626,590    620,620  
 Deferred tax liabilities   512,779    477,781  
  Total current liabilities   1,979,892    1,909,986  
Long-term deferred revenues   279,724    269,047  
Senior notes   1,234,890    740,175  
Other long-term tax liabilities   114,209    98,722  
  Total long-term liabilities   1,628,823    1,107,944  
  Total liabilities   3,608,715    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:322,968 at September 30, 2015 and 321,699 at December 31, 2014; Outstanding shares:111,891 at September 30, 2015 and 118,452 at December 31, 2014   323    322  
 Additional paid-in capital   17,697,985    18,120,045  
 Accumulated deficit   (18,727,129 )  (19,000,835 )
 Accumulated other comprehensive loss   (2,589 )  (2,998 )
  Total stockholders' deficit   (1,031,410 )  (883,466 )
  Total liabilities and stockholders' deficit  $2,577,305   $2,134,464  
 
 
 
VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
 
   Three Months Ended September 30,   Nine Months Ended September 30,  
   2015   2014   2015   2014  
Revenues  $265,780   $255,022   $786,741   $754,200  
Costs and expenses:                     
 Cost of revenues   47,218    46,933    143,792    140,948  
 Sales and marketing   20,966    24,304    67,677    68,244  
 Research and development   15,019    16,320    48,518    50,453  
 General and administrative   28,115    27,965    79,090    72,349  
  Total costs and expenses   111,318    115,522    339,077    331,994  
Operating income   154,462    139,500    447,664    422,206  
Interest expense   (28,544 )  (21,533 )  (79,064 )  (64,408 )
Non-operating (loss) income, net   (3,975 )  (6,473 )  (6,329 )  5,037  
Income before income taxes   121,943    111,494    362,271    362,835  
Income tax expense   (29,486 )  (16,305 )  (88,565 )  (73,047 )
Net income   92,457    95,189    273,706    289,788  
 Realized foreign currency translation adjustments, included in net income   -    -    (291 )  -  
 Unrealized gain on investments   565    59    799    34  
 Realized (gain) loss on investments, included in net income   (26 )  (1 )  (99 )  2  
Other comprehensive income   539    58    409    36  
Comprehensive income  $92,996   $95,247   $274,115   $289,824  
                      
Income per share:                     
 Basic  $0.82   $0.77   $2.38   $2.25  
 Diluted  $0.70   $0.69   $2.06   $2.03  
Shares used to compute net income per share:                     
 Basic   112,955    124,109    115,235    128,924  
 Diluted   131,721    138,112    132,925    142,584  
 
 
 
VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
   Nine Months Ended September 30,  
   2015   2014  
Cash flows from operating activities:           
 Net income  $273,706   $289,788  
 Adjustments to reconcile net income to net cash provided by operating activities:           
  Depreciation of property and equipment   46,554    47,924  
  Stock-based compensation   34,351    34,281  
  Excess tax benefit associated with stock-based compensation   (19,420 )  (8,566 )
  Unrealized loss (gain) on contingent interest derivative on Subordinated Convertible Debentures   9,058    (3,953 )
  Payment of Contingent interest   (10,759 )  -  
  Other, net   8,161    7,470  
  Changes in operating assets and liabilities           
   Accounts receivable   (1,319 )  (2,550 )
   Prepaid expenses and other assets   2,967    31,349  
   Accounts payable and accrued liabilities   14,658    (2,540 )
   Deferred revenues   49,787    37,237  
   Net deferred income taxes and other long-term tax liabilities   55,203    36  
    Net cash provided by operating activities   462,947    430,476  
Cash flows from investing activities:           
 Proceeds from maturities and sales of marketable securities   1,965,767    2,425,259  
 Purchases of marketable securities   (2,443,865 )  (2,281,523 )
 Purchases of property and equipment   (28,659 )  (30,058 )
 Other investing activities   (3,666 )  351  
    Net cash (used in) provided by investing activities   (510,423 )  114,029  
Cash flows from financing activities:           
 Proceeds from issuance of common stock from option exercises and employee stock purchase plans   14,690    15,816  
 Repurchases of common stock   (492,575 )  (673,540 )
 Proceeds from borrowings, net of issuance costs   492,237    -  
 Excess tax benefit associated with stock-based compensation   19,420    8,566  
    Net cash provided by (used in) financing activities   33,772    (649,158 )
Effect of exchange rate changes on cash and cash equivalents   (33 )  (621 )
Net decrease in cash and cash equivalents   (13,737 )  (105,274 )
Cash and cash equivalents at beginning of period   191,608    339,223  
Cash and cash equivalents at end of period  $177,871   $233,949  
Supplemental cash flow disclosures:           
 Cash paid for interest, net of capitalized interest  $68,678   $57,767  
 Cash paid for income taxes, net of refunds received  $13,289   $34,937  
 
 
 
VERISIGN, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)
 
   Three Months Ended September 30,  
   2015   2014  
   Operating Income   Net Income   Operating Income   Net Income  
GAAP as reported  $154,462   $92,457   $139,500   $95,189  
 Adjustments:                     
  Stock-based compensation   12,222    12,222    14,916    14,916  
  Unrealized loss on contingent interest derivative on the subordinated convertible debentures        4,747         6,562  
  Non-cash interest expense        2,994         2,588  
  Contingent interest payable on subordinated convertible debentures        (3,020 )       (1,306 )
 Tax adjustment        (6,625 )       (21,285 )
Non-GAAP  $166,684   $102,775   $154,416   $96,664  
                      
Revenues  $265,780        $255,022       
Non-GAAP operating margin   62.7 %       60.6 %     
Diluted shares        131,721         138,112  
Per diluted share, non-GAAP       $0.78        $0.70  
                 
                 
                 
   Nine Months Ended September 30,  
   2015   2014  
   Operating Income   Net Income   Operating Income   Net Income  
GAAP as reported  $447,664   $273,706   $422,206   $289,788  
 Adjustments:                     
  Stock-based compensation   34,351    34,351    34,281    34,281  
  Unrealized loss (gain) on contingent interest derivative on the subordinated convertible debentures        9,058         (3,953 )
  Non-cash interest expense        8,656         7,581  
  Contingent interest payable on subordinated convertible debentures        (8,477 )       (1,306 )
 Tax adjustment        (16,959 )       (38,796 )
Non-GAAP  $482,015   $300,335   $456,487   $287,595  
                      
Revenues  $786,741        $754,200       
Non-GAAP operating margin   61.3 %       60.5 %     
Diluted shares        132,925         142,584  
Per diluted share, non-GAAP       $2.26        $2.02  
 
 
 
VERISIGN, INC.
RECONCILIATION OF NON-GAAP ADJUSTED EBITDA
(In thousands)
(Unaudited)

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

   
   Three Months Ended September 30,
   2015   2014
Net Income  $92,457   $95,189
 Interest expense   28,544    21,533
 Income tax expense   29,486    16,305
 Depreciation and amortization   14,934    15,809
 Stock-based compensation   12,222    14,916
 Unrealized loss on contingent interest derivative on the subordinated convertible debentures   4,747    6,562
 Unrealized (gain) loss on hedging agreements   (479 )  128
Non-GAAP Adjusted EBITDA  $181,911   $170,442
   
  Four Quarters Ended September 30, 2015  
Net income  339,179  
 Interest expense  100,651  
 Income tax expense  143,569  
 Depreciation and amortization  62,322  
 Stock-based compensation  44,047  
 Unrealized loss on contingent interest derivative on the subordinated convertible debentures  10,761  
 Unrealized gain on hedging agreements  (256 )
Non-GAAP Adjusted EBITDA $700,273  
      
 
 
STOCK-BASED COMPENSATION CLASSIFICATION
(In thousands)
(Unaudited)

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

   Three Months Ended September 30,  Nine Months Ended September 30,
   2015  2014  2015  2014
 Cost of revenues  $1,722  $1,618  $5,202  $4,748
 Sales and marketing   1,683   2,234   4,800   5,902
 Research and development   1,478   1,678   4,890   5,189
 General and administrative   7,339   9,386   19,459   18,442
Total stock-based compensation expense  $12,222  $14,916  $34,351  $34,281