Verisign Reports 9 Percent Year-Over-Year Revenue Growth in Third Quarter 2013
Third Quarter GAAP Financial Results
Third Quarter Non-GAAP Financial Results
"Our team continued to execute well and delivered sound operational and financial results. Also, during the third quarter we repurchased 6.8 million shares for
As a result of
While
Financial Highlights
Verisign ended the third quarter with Cash,Cash Equivalents and Marketable Securities of$1.8 billion , an increase of$250 million from year-end 2012.- Cash flow from operations was
$134 million for the third quarter compared with$122 million for the same quarter in 2012. - Deferred revenues on
Sept. 30, 2013 , totaled$858 million , an increase of$45 million from year-end 2012. - Capital expenditures were
$13 million in the third quarter of 2013. - During the third quarter,
Verisign repurchased 6.8 million shares of its common stock for$331 million . AtSept. 30, 2013 ,$697 million remained available and authorized under the current share repurchase program. - For purposes of calculating diluted EPS, the third quarter diluted share count included 10.5 million shares related to the subordinated convertible debentures, compared with 9.2 million shares in the same quarter in 2012. These represent diluted shares and not shares that have been issued.
Business Highlights
- Verisign Registry Services added 1.55 million net new names during the third quarter, ending with 125.9 million active domain names in the zone for .com and .net, which represents a 5 percent increase over the zone at the end of the third quarter in 2012.
- In the third quarter,
Verisign processed 8.3 million new domain name registrations as compared to 7.8 million in the same quarter in 2012. - The final .com and .net renewal rate for the second quarter of 2013 was 72.7 percent compared with 72.9 percent for the same quarter in 2012. 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: Discontinued operations, stock-based compensation, amortization of other intangible assets, impairments of goodwill and other intangible assets, restructuring charges, contingent interest payments to holders of the subordinated convertible debentures, unrealized gain/loss on contingent interest derivative on subordinated convertible debentures, and non-cash interest expense. Non-GAAP financial information is also adjusted for a 28 percent tax rate starting from the third quarter of 2012, and 30 percent for the other periods presented herein, both of which differ 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
About
As the global leader in domain names,
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 whether the
©2013
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||||
(In thousands, except par value) | ||||||||||
(Unaudited) | ||||||||||
2013 |
2012 |
|||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 117,591 | $ | 130,736 | ||||||
Marketable securities | 1,689,223 | 1,425,700 | ||||||||
Accounts receivable, net | 14,823 | 11,477 | ||||||||
Deferred tax assets | 253 | 44,756 | ||||||||
Prepaid expenses and other current assets | 39,853 | 30,795 | ||||||||
Total current assets | 1,861,743 | 1,643,464 | ||||||||
Property and equipment, net | 337,785 | 333,861 | ||||||||
Goodwill | 52,527 | 52,527 | ||||||||
Long-term deferred tax assets | 48,391 | 7,299 | ||||||||
Other long-term assets | 29,505 | 25,325 | ||||||||
Total long-term assets | 468,208 | 419,012 | ||||||||
Total assets | $ | 2,329,951 | $ | 2,062,476 | ||||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||||
Current liabilities: | ||||||||||
Accounts payable and accrued liabilities | $ | 145,426 | $ | 130,391 | ||||||
Deferred revenues | 597,033 | 564,627 | ||||||||
Subordinated convertible debentures, including contingent interest derivative | 613,751 | -- | ||||||||
Deferred tax liabilities | 407,860 | -- | ||||||||
Total current liabilities | 1,764,070 | 695,018 | ||||||||
Long-term deferred revenues | 260,963 | 247,955 | ||||||||
Senior notes | 750,000 | -- | ||||||||
Subordinated convertible debentures, including contingent interest derivative | -- | 597,614 | ||||||||
Credit facility | -- | 100,000 | ||||||||
Long-term deferred tax liabilities | 3,832 | 386,914 | ||||||||
Other long-term tax liabilities | 44,903 | 44,298 | ||||||||
Total long-term liabilities | 1,059,698 | 1,376,781 | ||||||||
Total liabilities | 2,823,768 | 2,071,799 | ||||||||
Commitments and contingencies | ||||||||||
Stockholders' deficit: | ||||||||||
Preferred stock--par value |
-- | -- | ||||||||
Common stock--par value |
320 | 319 | ||||||||
Additional paid-in capital | 19,157,314 | 19,891,291 | ||||||||
Accumulated deficit | (19,648,244 | ) | (19,900,545 | ) | ||||||
Accumulated other comprehensive loss | (3,207 | ) | (388 | ) | ||||||
Total stockholders' deficit | (493,817 | ) | (9,323 | ) | ||||||
Total liabilities and stockholders' deficit | $ | 2,329,951 | $ | 2,062,476 | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||||
Revenues | $ | 243,678 | $ | 223,528 | $ | 719,457 | $ | 643,396 | ||||||||||
Costs and expenses: | ||||||||||||||||||
Cost of revenues | 46,554 | 41,460 | 140,438 | 125,560 | ||||||||||||||
Sales and marketing | 22,900 | 22,928 | 64,273 | 77,056 | ||||||||||||||
Research and development | 17,456 | 15,409 | 52,531 | 45,635 | ||||||||||||||
General and administrative | 24,055 | 27,669 | 64,157 | 73,903 | ||||||||||||||
Restructuring charges | -- | -- | -- | (730 | ) | |||||||||||||
Total costs and expenses | 110,965 | 107,466 | 321,399 | 321,424 | ||||||||||||||
Operating income | 132,713 | 116,062 | 398,058 | 321,972 | ||||||||||||||
Interest expense | (21,119 | ) | (12,619 | ) | (53,524 | ) | (37,539 | ) | ||||||||||
Non-operating loss, net | (4,592 | ) | (1,742 | ) | (4,208 | ) | (3,032 | ) | ||||||||||
Income from continuing operations before income taxes | 107,002 | 101,701 | 340,326 | 281,401 | ||||||||||||||
Income tax expense | (26,104 | ) | (24,882 | ) | (88,025 | ) | (70,005 | ) | ||||||||||
Income from continuing operations, net of tax | 80,898 | 76,819 | 252,301 | 211,396 | ||||||||||||||
Income from discontinued operations, net of tax | -- | 1,091 | -- | 2,995 | ||||||||||||||
Net income | 80,898 | 77,910 | 252,301 | 214,391 | ||||||||||||||
Unrealized gain (loss) on investments, net of tax | 85 | 2,499 | (341 | ) | 2,536 | |||||||||||||
Realized loss (gain) on investments, net of tax, included in net income | 1 | (20 | ) | (2,478 | ) | (55 | ) | |||||||||||
Other comprehensive income (loss) | 86 | 2,479 | (2,819 | ) | 2,481 | |||||||||||||
Comprehensive income | $ | 80,984 | $ | 80,389 | $ | 249,482 | $ | 216,872 | ||||||||||
Basic income per share: | ||||||||||||||||||
Continuing operations | $ | 0.57 | $ | 0.49 | $ | 1.71 | $ | 1.34 | ||||||||||
Discontinued operations | -- | 0.01 | -- | 0.02 | ||||||||||||||
Net income | $ | 0.57 | $ | 0.50 | $ | 1.71 | $ | 1.36 | ||||||||||
Diluted income per share: | ||||||||||||||||||
Continuing operations | $ | 0.53 | $ | 0.46 | $ | 1.60 | $ | 1.28 | ||||||||||
Discontinued operations | -- | 0.01 | -- | 0.02 | ||||||||||||||
Net income | $ | 0.53 | $ | 0.47 | $ | 1.60 | $ | 1.30 | ||||||||||
Shares used to compute net income per share | ||||||||||||||||||
Basic | 141,701 | 156,261 | 147,567 | 157,729 | ||||||||||||||
Diluted | 152,951 | 166,575 | 157,606 | 164,540 | ||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
(In thousands) | ||||||||||||
(Unaudited) | ||||||||||||
Nine Months Ended |
||||||||||||
2013 | 2012 | |||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 252,301 | $ | 214,391 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation of property and equipment and amortization of other intangible assets | 45,415 | 39,652 | ||||||||||
Stock-based compensation | 27,006 | 26,391 | ||||||||||
Excess tax benefit associated with stock-based compensation | (30,095 | ) | (20,765 | ) | ||||||||
Deferred income taxes | 29,000 | 34,310 | ||||||||||
Other, net | 17,577 | 15,650 | ||||||||||
Changes in operating assets and liabilities | ||||||||||||
Accounts receivable | (3,525 | ) | 3,602 | |||||||||
Prepaid expenses and other assets | 1,679 | 5,081 | ||||||||||
Accounts payable and accrued liabilities | 47,185 | (31,515 | ) | |||||||||
Deferred revenues | 45,414 | 80,074 | ||||||||||
Net cash provided by operating activities | 431,957 | 366,871 | ||||||||||
Cash flows from investing activities: | ||||||||||||
Proceeds from maturities and sales of marketable securities | 2,253,776 | 393,677 | ||||||||||
Purchases of marketable securities | (2,516,714 | ) | (1,579,234 | ) | ||||||||
Purchases of property and equipment | (50,201 | ) | (39,868 | ) | ||||||||
Other investing activities | (3,946 | ) | (638 | ) | ||||||||
Net cash used in investing activities | (317,085 | ) | (1,226,063 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from issuance of common stock from option exercises and employee stock purchase plans | 16,661 | 26,573 | ||||||||||
Repurchases of common stock | (810,067 | ) | (231,391 | ) | ||||||||
Repayment of borrowings | (100,000 | ) | -- | |||||||||
Proceeds from senior notes, net of issuance costs | 738,297 | -- | ||||||||||
Excess tax benefit associated with stock-based compensation | 30,095 | 20,765 | ||||||||||
Other financing activities | -- | 189 | ||||||||||
Net cash used in financing activities | (125,014 | ) | (183,864 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (3,003 | ) | 162 | |||||||||
Net decrease in cash and cash equivalents | (13,145 | ) | (1,042,894 | ) | ||||||||
Cash and cash equivalents at beginning of period | 130,736 | 1,313,349 | ||||||||||
Cash and cash equivalents at end of period | $ | 117,591 | $ | 270,455 | ||||||||
Supplemental cash flow disclosures: | ||||||||||||
Cash paid for interest, net of capitalized interest | $ | 40,435 | $ | 40,829 | ||||||||
Cash paid for income taxes, net of refunds received | $ | 17,055 | $ | 19,975 | ||||||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||
Three Months Ended |
||||||||||||||||||
2013 | 2012 | |||||||||||||||||
Operating Income | Net Income | Operating Income | Net Income | |||||||||||||||
GAAP as reported | $ | 132,713 | $ | 80,898 | $ | 116,062 | $ | 77,910 | ||||||||||
Discontinued Operations | -- | (1,091 | ) | |||||||||||||||
Adjustments: | ||||||||||||||||||
Stock-based compensation | 10,577 | 10,577 | 9,807 | 9,807 | ||||||||||||||
Amortization of other intangible assets | -- | -- | 140 | 140 | ||||||||||||||
Unrealized loss on contingent interest derivative on the subordinated convertible debentures | 5,286 | 3,167 | ||||||||||||||||
Non-cash interest expense | 2,171 | 1,916 | ||||||||||||||||
Tax adjustment | (8,907 | ) | (7,803 | ) | ||||||||||||||
Non-GAAP | $ | 143,290 | $ | 90,025 | $ | 126,009 | $ | 84,046 | ||||||||||
Revenues | $ | 243,678 | $ | 223,528 | ||||||||||||||
Non-GAAP operating margin | 58.8 | % | 56.4 | % | ||||||||||||||
Diluted shares | 152,951 | 166,575 | ||||||||||||||||
Per diluted share, non-GAAP | $ | 0.59 | $ | 0.50 | ||||||||||||||
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 |
||||||
2013 | 2012 | |||||
Cost of revenues | $ | 1,524 | $ | 1,491 | ||
Sales and marketing | 1,442 | 1,697 | ||||
Research and development | 1,674 | 1,622 | ||||
General and administrative | 5,937 | 4,997 | ||||
Total stock-based compensation expense | $ | 10,577 | $ | 9,807 | ||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||
Nine Months Ended |
||||||||||||||||||
2013 | 2012 | |||||||||||||||||
Operating Income | Net Income | Operating Income | Net Income | |||||||||||||||
GAAP as reported | $ | 398,058 | $ | 252,301 | $ | 321,972 | $ | 214,391 | ||||||||||
Discontinued operations | (2,995 | ) | ||||||||||||||||
Adjustments: | ||||||||||||||||||
Stock-based compensation | 27,006 | 27,006 | 26,391 | 26,391 | ||||||||||||||
Amortization of other intangible assets | -- | -- | 788 | 788 | ||||||||||||||
Restructuring charges | -- | -- | (730 | ) | (730 | ) | ||||||||||||
Unrealized loss on contingent interest derivative on the subordinated convertible debentures | 9,723 | 7,127 | ||||||||||||||||
Non-cash interest expense | 6,316 | 5,409 | ||||||||||||||||
Tax adjustment | (19,319 | ) | (23,775 | ) | ||||||||||||||
Non-GAAP | $ | 425,064 | $ | 276,027 | $ | 348,421 | $ | 226,606 | ||||||||||
Revenues | $ | 719,457 | $ | 643,396 | ||||||||||||||
Non-GAAP operating margin | 59.1 | % | 54.2 | % | ||||||||||||||
Diluted shares | 157,606 | 164,540 | ||||||||||||||||
Per diluted share, non-GAAP | $ | 1.75 | $ | 1.38 | ||||||||||||||
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:
Nine Months Ended |
||||||
2013 | 2012 | |||||
Cost of revenues | $ | 4,639 | $ | 4,479 | ||
Sales and marketing | 4,656 | 5,046 | ||||
Research and development | 5,314 | 4,191 | ||||
General and administrative | 12,397 | 12,675 | ||||
Total stock-based compensation expense | $ | 27,006 | $ | 26,391 | ||
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 |
|||||||
2013 | 2012 | ||||||
Net Income | $ | 80,898 | $ | 77,910 | |||
Interest expense | 21,119 | 12,619 | |||||
Income tax expense | 26,104 | 24,985 | |||||
Depreciation and amortization | 14,889 | 13,379 | |||||
Stock-based compensation | 10,577 | 9,807 | |||||
Unrealized loss on contingent interest derivative on the subordinated convertible debentures | 5,286 | 3,167 | |||||
Unrealized loss on hedging agreements | 222 | 435 | |||||
Adjusted EBITDA | $ | 159,095 | $ | 142,302 | |||
Four Quarters Ended |
||||
Net Income | $ | 357,941 | ||
Interest expense | 66,181 | |||
Income tax expense | 121,541 | |||
Depreciation and amortization | 60,582 | |||
Stock-based compensation | 33,976 | |||
Unrealized loss on contingent interest derivative on the subordinated convertible debentures | 2,174 | |||
Unrealized loss on hedging agreements | 18 | |||
Adjusted EBITDA | $ | 642,413 | ||
- 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.
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