VeriSign Reports First Quarter 2006 Results
MOUNTAIN VIEW, Calif., April 20, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- VeriSign, Inc. (Nasdaq: VRSN), the leading provider of intelligent infrastructure services for the Internet and telecommunications networks, today reported its results for the first quarter ended March 31, 2006.
VeriSign reported total revenue of $374 million for the first quarter of 2006. On a GAAP basis, VeriSign reported net income of $16 million for the first quarter of 2006 and earnings per share of $0.06 per fully-diluted share. Net income on a GAAP basis for the first quarter of 2006 included a non-cash stock-based compensation charge of $15 million, relating to the implementation of the accounting pronouncements around stock option expensing.
On a non-GAAP basis, using a 30% effective tax rate on non-GAAP pre-tax income of $84 million, earnings per share for the first quarter was $0.24 per diluted share. These non-GAAP results exclude the following items which are included under GAAP: amortization and impairment of intangible assets, acquired in-process research and development, stock-based compensation, litigation settlements, restructuring and other charges, and the net gain on the sale of investments. A table reconciling the GAAP to non-GAAP net income reported above is appended to this release.
"Our financial and business results for the first quarter met our forecast and provide a solid start to the year," said Stratton Sclavos, Chairman and Chief Executive Officer of VeriSign. "We also continued to execute on our strategic plan in Q1 as we expanded our intelligent infrastructure portfolio through both internal development and key acquisitions in the security, content and messaging areas."
"We were pleased with our ability to achieve our operational plan in Q1 while still making strategic investments in future growth opportunities within each of VeriSign's business units" said Dana Evan, Chief Financial Officer of VeriSign. "Particularly strong performance in the VeriSign Information Services business added significant deferred revenues to our balance sheet and allowed us to generate cash flow from operations of over $90 million for the quarter."
During the first quarter within the Internet Services Group (ISG), VeriSign Security Services (VSS) launched VeriSign Identity Protection (VIP), a comprehensive network-based service to protect consumer identities online. VIP is supported by several leading e-commerce companies, including PayPal, eBay and Yahoo!. Device manufacturer, SanDisk has also announced plans to support VIP in its storage devices. VSS also acquired Snapcentric, a provider of online fraud detection solutions, for $12 million during the quarter. Snapcentric's advanced anomaly detection technology is a key addition to VeriSign's suite of authentication solutions. Also within the ISG business segment, VeriSign Information Services (VIS) received approval of the .com registry agreement from ICANN which is subject to final review and approval by the U.S. Department of Commerce.
VeriSign Communications Services (VCS) continued to expand its mobile content platform in Q1 with the acquisition of 3united, a leading wireless application service provider, for $70 million and the execution of a definitive agreement to acquire m-Qube, a leading mobile channel enabler, for $250 million. Subject to regulatory approvals, the m-Qube transaction is expected to close in the second quarter. VCS also entered the broadband content market with the acquisition of Kontiki for $58 million. The Kontiki technology will become the cornerstone of the Broadband Content Services platform to enable the delivery of rich media over broadband networks. These investments extend VCS's services to enable carriers, Internet portals, media companies, and consumer brands to deliver entertainment and information to any device, anytime, anywhere.
Additional Financial Information
-- VeriSign ended the first quarter with Cash, Cash Equivalents,
Restricted Cash and Short-term Investments of $812 million, a decrease
of $94 million from the prior quarter and down $60 million year over
year.
-- During Q1, VeriSign repurchased approximately 3.2 million shares of its
common stock for a net purchase price of $75 million and used
approximately $189 million of cash for acquisitions closed in the
quarter.
-- Cash flow from operations was $92 million for the first quarter of
2006, up $18 million year over year.
-- Deferred revenue on the balance sheet was $539 million as of March 31,
2006, an increase of 9% or $44 million from the prior quarter and up
approximately $100 million year over year.
-- Net days sales outstanding (Net DSO), which takes into account the
change in deferred revenue balances decreased 3 days from the prior
quarter to 48 days for Q1.
-- Capital expenditures for the first quarter of 2006 were approximately
$27 million.
-- Non-GAAP operating income for Q1 was $76 million, a decrease of
$11 million from the prior quarter.
-- In April, VeriSign put in place a $200 million credit facility to be
used for general corporate purposes.
Internet Services Group
-- The Internet Services Group (ISG) -- which includes VeriSign Security
Services (VSS) and VeriSign Information Services (VIS) -- delivered
$177 million of revenue in the first quarter of 2006.
-- The VeriSign Web site certificate business issued approximately 143,000
new and renewed certificates in Q1, ending the quarter with a base of
more than 508,000 certificates, up from 489,000 at the end of the
fourth quarter of 2005. Year over year the base is up over 10%.
-- The VeriSign Information Services business ended the first quarter with
approximately 54 million active domain names in .com and .net, a net
increase of approximately 4 million names or 8% over Q4.
Communications Services Group
-- VeriSign Communications Services (VCS) Group -- which provides
intelligent communications, commerce and content services to
telecommunications carriers and next generation service providers --
delivered revenues of $197 million in the first quarter of 2006.
-- Within VCS, the Communications and Commerce group generated revenues of
$119 million, which included $15 million of revenue from the SMS and
MMS messaging services. The Content group generated revenues of
$78 million, which includes $77 million for Jamba!/Jamster B2C services
and $1 million from acquisitions of 3united and Kontiki, which closed
during the quarter.
-- VeriSign Communications Services Group ended Q1 with a base of
approximately 8.2 million wireless billing customer subscribers, an
increase of approximately 15% year over year.
-- The VCS business supported 14.9 billion database queries in Q1 2006, up
16% year over year.
Today's Conference Call
VeriSign will be hosting a teleconference call today at 2:00 pm (PDT) to review the first quarter results. The call will be accessible by direct dial at 800-967-1784 (US) or 719-457-2633 (international). A listen-only live webcast of the earnings conference call will also be available at www.verisign.com and www.streetevents.com. A replay of this call will be available at 888-203-1112 (passcode: 6643961) or 719-457-0820 (international) beginning at 5:00 pm (PDT) on April 20 and will run through April 27. This press release and the financial information discussed on today's conference call are available on the company's website at www.verisign.com under the Investor Relations site.
About VeriSign
VeriSign, Inc. operates intelligent infrastructure services that enable and protect billions of interactions every day across the world's voice and data networks. Additional news and information about the company is available at www.verisign.com.
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 acquired businesses will not be integrated successfully and unanticipated costs of such integration. 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, 2005 and quarterly reports on Form 10-Q. 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)
March 31, December 31,
2006 2005
Assets
Current assets:
Cash and cash equivalents $432,123 $476,826
Short-term investments 328,557 378,006
Accounts receivable, net 265,511 271,883
Prepaid expenses and other current
assets 82,828 80,079
Deferred tax assets 16,959 16,186
Current assets of discontinued
operations 3,518 5,295
Total current assets 1,129,496 1,228,275
Property and equipment, net 557,005 553,036
Goodwill 1,183,909 1,071,910
Other intangible assets, net 267,045 225,302
Restricted cash 50,972 50,972
Long-term note receivable -- 26,419
Other assets, net 17,308 16,985
Total long-term assets 2,076,239 1,944,624
Total assets $3,205,735 $3,172,899
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $541,900 $555,458
Accrued restructuring costs 7,248 7,440
Deferred revenue 401,339 368,413
Current liabilities of discontinued
operations 6,248 6,822
Total current liabilities 956,735 938,133
Long-term deferred revenue 138,089 127,175
Long-term restructuring costs 10,285 10,876
Other long-term liabilities 4,263 4,995
Deferred tax liability 29,012 18,560
Total long-term liabilities 181,649 161,606
Total liabilities 1,138,384 1,099,739
Minority interest in subsidiaries 41,634 41,485
Commitments and contingencies
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:
244,790,567 and 246,418,940 shares
(excluding 32,657,898 and
28,981,444 shares held in treasury
at March 31, 2006 and December 31,
2005, respectively ) 245 246
Additional paid-in capital 23,168,618 23,205,261
Unearned compensation -- (13,911)
Accumulated deficit (21,131,697) (21,147,368)
Accumulated other comprehensive
loss (11,449) (12,553)
Total stockholders' equity 2,025,717 2,031,675
Total liabilities and
stockholders' equity $3,205,735 $3,172,899
VERISIGN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended March 31,
2006 2005
Revenues $373,552 $387,267
Costs and expenses:
Cost of revenues* 138,228 122,388
Sales and marketing* 90,352 126,181
Research and development* 28,012 20,199
General and administrative* 58,403 42,099
Restructuring and other charges (reversals) 1,460 (1,875)
Amortization and impairment of
intangible assets 34,049 22,840
Acquired in-process research and development 10,900 --
Total costs and expenses 361,404 331,832
Operating income from continuing
operations 12,148 55,435
Other income, net 28,797 15,277
Minority interest in net income of
subsidiaries (647) (1,128)
Income from continuing operations
before income taxes 40,298 69,584
Income tax expense 24,627 24,424
Net income from continuing operations,
net of tax 15,671 45,160
Net income from discontinued operations,
net of tax -- 4,015
Net income $15,671 $49,175
Basic net income per share:
Income from continuing operations $0.06 $0.18
Income from discontinued operations $-- $0.01
Net income per share $0.06 $0.19
Diluted net income per share:
Income from continuing operations $0.06 $0.17
Income from discontinued operations $-- $0.02
Net income per share $0.06 $0.19
Shares used in per share computation:
Basic 245,603 253,989
Diluted 248,905 262,338
* includes the following amounts related
to stock-based compensation:
Cost of revenue $3,781 $50
Sales and marketing 3,121 58
Research and development 2,152 14
General and administrative 6,092 256
Total stock-based compensation $15,146 $378
VERISIGN, INC. AND SUBSIDIARIES
STATEMENTS OF INCOME RECONCILIATION
(Unaudited)
Three Months Ended March 31,
2006 2005
Revenue reconciliation
Revenue from continuing operations $373,552 $387,267
Discontinued operations revenue (1) -- 13,724
Revenue including discontinued
operations $373,552 $400,991
(1) For the three months ended March 31, 2005, discontinued operations
revenue represents activity related to the Payments Gateway business for
the period January 1, 2005 through March 31, 2005. VeriSign previously
provided investors and analysts forecasts for the period that included
revenue up until an estimated disposition date of the Payments business.
For GAAP purposes, revenue for this and all periods is reclassified to net
income from discontinued operations.
Statement of Income Reconciliation
(in thousands, except per share data)
Net income on a GAAP basis $15,671 $49,175
Amortization and impairment of
intangible assets 34,049 22,840
Acquired in-process research
and development 10,900 --
Stock-based compensation 15,146 378
Litigation settlements 2,000 --
Restructuring and other charges
(reversals) 1,460 (1,875)
Net gain on sale of investments (20,248) (2,275)
Income tax expense 24,627 26,386 (2)
Non-GAAP income before income taxes 83,605 94,629
Non-GAAP tax rate in lieu of the
GAAP rate (25,082) (28,389)
Net income on a non-GAAP basis $58,523 $66,240
Statement of Income Reconciliation
per Share
Diluted net income per share on a
GAAP basis $0.06 $0.19
Amortization and impairment of
intangible assets 0.14 0.09
Acquired in-process research
and development 0.04 --
Stock-based compensation 0.06 --
Litigation settlements 0.01 --
Restructuring and other
charges (reversals) 0.01 (0.01)
Net gain on sale of
investments (0.08) (0.01)
Non-GAAP tax rate of 30% in
lieu of the GAAP rate -- (0.01)
Diluted net income per share on a
non-GAAP basis $0.24 $0.25
Shares used in calculation of net
income per share 248,905 262,338
(2) Includes income tax expense from discontinued operations of $1,962
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
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:
amortization and impairment of intangible assets, acquired in-process
research and development, stock-based compensation, litigation
settlements, restructuring and other charges (reversals), and the net
gain on the sale of investments. The 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
which 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.
VERISIGN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
March 31,
2006 2005
Cash flow from operating activities:
Net income from continuing operations $15,671 $49,175
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of
property and equipment 24,444 20,804
Amortization and impairment of
intangible assets 34,049 22,840
Acquired in-process research and
development 10,900 --
Provision for doubtful accounts (650) 575
Stock-based compensation 15,146 --
Gain on sale of investments (21,317) (96)
Non-cash restructuring and other charges 1,460 106
Dividend income from investment -- (2,180)
Minority interest in net income of
subsidiary 647 1,128
Tax benefit associated with stock options -- 3,091
Deferred income taxes 4,361 (2,038)
Amortization of unearned compensation -- 880
Loss on disposal of property and equipment -- 127
Changes in operating assets and liabilities:
Accounts receivable 17,788 (59,993)
Prepaid expenses and other current assets (2,936) (13,543)
Accounts payable and accrued liabilities (48,787) 16,286
Deferred revenue 41,601 36,698
Net cash provided by operating
activities of continuing
operations 92,377 73,860
Cash flow from investing activities
of continuing operations:
Purchases of investments (38,353) (78,795)
Proceeds from maturities and sales of
investments 86,054 51,899
Purchases of property and equipment (26,813) (17,054)
Net cash paid in business combinations (169,937) --
Net proceeds received on note receivable
and investment 47,786 20,000
Merger related costs 3,519 (15)
Other assets -- (3,283)
Net cash used in investing
activities (97,744) (27,248)
Cash flow from financing activities
of continuing operations:
Proceeds from issuance of common stock
from option exercises and employee
stock purchase plan 29,127 14,014
Change in net assets of subsidiary 301 400
Repurchase of common stock (74,996) --
Tax benefit associated with stock
options 5,840 --
Repayment of debt (640) (550)
Net cash (used in) financing
activities of continuing operations (40,368) 13,864
Effect of exchange rate changes 1,032 (1,740)
Net increase (decrease) in cash and cash
equivalents (44,703) 58,736
Cash and cash equivalents at beginning
of period 476,826 330,641
Cash and cash equivalents at end of
period $432,123 $389,377
Cash flows from discontinued operations:
Net cash provided by operating activities $1,727 $3,363
SOURCE VeriSign, Inc.
Media Relations, Brendan P. Lewis, +1-650-426-4470, or brlewis@verisign.com, or Investor Relations, Tom McCallum, +1-650-426-3744, or tmccallum@verisign.com, both of VeriSign, Inc.http://www.prnewswire.com
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