Verisign Reports First Quarter 2017 Results
First Quarter GAAP Financial Results
First Quarter Non-GAAP Financial Results
"I'm pleased with the first quarter results and the consistency of our
teams in generating growth and delivering long-term value for our
stockholders," said
Financial Highlights
-
Verisign ended the first quarter with cash, cash equivalents and marketable securities of$1.8 billion , a decrease of$12 million from year-end 2016. -
Cash flow from operations was
$148 million for the first quarter of 2017, compared with$150 million for the same quarter in 2016. -
Deferred revenues on
March 31, 2017 , totaled$1.01 billion , an increase of$37 million from year-end 2016. -
During the first quarter,
Verisign repurchased 1.8 million shares of its common stock for$150 million . AtMarch 31, 2017 ,$920 million remained available and authorized under the current share repurchase program which has no expiration. - For purposes of calculating diluted EPS, the first quarter diluted share count included 21.3 million shares related to subordinated convertible debentures, compared with 21.1 million shares for the same quarter in 2016. These represent dilutive shares and not shares that have been issued.
Business Highlights
-
Verisign ended the first quarter with 143.6 million .com and .net domain name registrations in the domain name base, a 1.0 percent increase from the end of the first quarter of 2016, and a net increase of 1.4 million during the first quarter of 2017. -
In the first quarter,
Verisign processed 9.5 million new domain name registrations for .com and .net, as compared to 10.0 million for the same quarter in 2016. - The final .com and .net renewal rate for the fourth quarter of 2016 was 67.6 percent compared with 73.3 percent for the same quarter in 2015. Renewal rates are not fully measurable until 45 days after the end of the quarter.
Non-GAAP Financial Measures and Adjusted EBITDA
On a quarterly basis,
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 and financial performance and the comparability of Verisign's operating results from period to period. 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.
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
About
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,
whether the
©2017
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) (Unaudited) |
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2017 |
2016 |
|||||||||
ASSETS |
||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 454,592 | $ | 231,945 | ||||||
Marketable securities | 1,331,780 | 1,565,962 | ||||||||
Other current assets | 30,852 | 44,435 | ||||||||
Total current assets | 1,817,224 | 1,842,342 | ||||||||
Property and equipment, net | 262,352 | 266,125 | ||||||||
|
52,527 | 52,527 | ||||||||
Deferred tax assets | 20,264 | 9,385 | ||||||||
Deposits to acquire intangible assets | 145,000 | 145,000 | ||||||||
Other long-term assets | 18,152 | 19,193 | ||||||||
Total long-term assets | 498,295 | 492,230 | ||||||||
Total assets | $ | 2,315,519 | $ | 2,334,572 | ||||||
LIABILITIES AND STOCKHOLDERS' DEFICIT |
||||||||||
Current liabilities: | ||||||||||
Accounts payable and accrued liabilities | $ | 155,006 | $ | 203,920 | ||||||
Deferred revenues | 718,488 | 688,265 | ||||||||
Subordinated convertible debentures, including contingent interest derivative | 625,893 | 629,764 | ||||||||
Total current liabilities | 1,499,387 | 1,521,949 | ||||||||
Long-term deferred revenues | 293,890 | 287,424 | ||||||||
Senior notes | 1,237,648 | 1,237,189 | ||||||||
Deferred tax liabilities | 359,137 | 371,433 | ||||||||
Other long-term tax liabilities | 113,206 | 117,172 | ||||||||
Total long-term liabilities | 2,003,881 | 2,013,218 | ||||||||
Total liabilities | 3,503,268 | 3,535,167 | ||||||||
Commitments and contingencies | ||||||||||
Stockholders' deficit: | ||||||||||
Preferred stock—par value |
— | — | ||||||||
Common stock—par value |
325 | 324 | ||||||||
Additional paid-in capital | 16,838,202 | 16,987,488 | ||||||||
Accumulated deficit | (18,023,169 | ) | (18,184,954 | ) | ||||||
Accumulated other comprehensive loss | (3,107 | ) | (3,453 | ) | ||||||
Total stockholders' deficit | (1,187,749 | ) | (1,200,595 | ) | ||||||
Total liabilities and stockholders' deficit | $ | 2,315,519 | $ | 2,334,572 | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands, except per share data) (Unaudited) |
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Three Months Ended |
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2017 | 2016 | |||||||||
Revenues | $ | 288,614 | $ | 281,876 | ||||||
Costs and expenses: | ||||||||||
Cost of revenues | 50,669 | 50,582 | ||||||||
Sales and marketing | 18,322 | 20,027 | ||||||||
Research and development | 13,344 | 16,743 | ||||||||
General and administrative | 31,008 | 27,757 | ||||||||
Total costs and expenses | 113,343 | 115,109 | ||||||||
Operating income | 175,271 | 166,767 | ||||||||
Interest expense | (29,023 | ) | (28,804 | ) | ||||||
Non-operating income, net | 1,301 | 3,121 | ||||||||
Income before income taxes | 147,549 | 141,084 | ||||||||
Income tax expense | (31,137 | ) | (33,628 | ) | ||||||
Net income | 116,412 | 107,456 | ||||||||
Unrealized gain on investments | 365 | 935 | ||||||||
Realized gain on investments, included in net income | (19 | ) | (66 | ) | ||||||
Other comprehensive income | 346 | 869 | ||||||||
Comprehensive income | $ | 116,758 | $ | 108,325 | ||||||
Earnings per share: | ||||||||||
Basic | $ | 1.14 | $ | 0.98 | ||||||
Diluted | $ | 0.94 | $ | 0.82 | ||||||
Shares used to compute earnings per share | ||||||||||
Basic | 102,467 | 109,592 | ||||||||
Diluted | 124,464 | 131,581 | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) |
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Three Months Ended |
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2017 | 2016 | |||||||||
Cash flows from operating activities: | ||||||||||
Net income | $ | 116,412 | $ | 107,456 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Depreciation of property and equipment | 13,102 | 14,867 | ||||||||
Stock-based compensation | 12,563 | 11,759 | ||||||||
Payment of contingent interest | (7,719 | ) | (6,544 | ) | ||||||
Amortization of debt discount and issuance costs | 3,493 | 3,267 | ||||||||
Other, net | (1,436 | ) | (1,844 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||
Other assets | 14,196 | 2,745 | ||||||||
Accounts payable and accrued liabilities | (59,889 | ) | (31,537 | ) | ||||||
Deferred revenues | 36,689 | 30,998 | ||||||||
Net deferred income taxes and other long-term tax liabilities | 20,775 | 18,477 | ||||||||
Net cash provided by operating activities | 148,186 | 149,644 | ||||||||
Cash flows from investing activities: | ||||||||||
Proceeds from maturities and sales of marketable securities | 1,049,795 | 900,810 | ||||||||
Purchases of marketable securities | (813,459 | ) | (874,031 | ) | ||||||
Purchases of property and equipment | (9,654 | ) | (7,082 | ) | ||||||
Other investing activities | 12,092 | — | ||||||||
Net cash provided by investing activities | 238,774 | 19,697 | ||||||||
Cash flows from financing activities: | ||||||||||
Proceeds from employee stock purchase plan | 7,997 | 8,084 | ||||||||
Repurchases of common stock | (173,048 | ) | (172,360 | ) | ||||||
Net cash used in financing activities | (165,051 | ) | (164,276 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | 738 | 301 | ||||||||
Net increase in cash and cash equivalents | 222,647 | 5,366 | ||||||||
Cash and cash equivalents at beginning of period | 231,945 | 228,659 | ||||||||
Cash and cash equivalents at end of period | $ | 454,592 | $ | 234,025 | ||||||
Supplemental cash flow disclosures: | ||||||||||
Cash paid for interest | $ | 28,189 | $ | 27,028 | ||||||
Cash paid for income taxes, net of refunds received | $ | 17,861 | $ | 13,711 | ||||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (In thousands, except per share data) (Unaudited) |
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Three Months Ended |
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2017 | 2016 | |||||||||||||||||||
Operating Income |
Net Income |
Operating Income |
Net Income | |||||||||||||||||
GAAP as reported | $ | 175,271 | $ | 116,412 | $ | 166,767 | $ | 107,456 | ||||||||||||
Adjustments: | ||||||||||||||||||||
Stock-based compensation | 12,563 | 12,563 | 11,759 | 11,759 | ||||||||||||||||
Unrealized loss (gain) on contingent interest derivative on the subordinated convertible debentures | 893 | (1,065 | ) | |||||||||||||||||
Non-cash interest expense | 3,493 | 3,267 | ||||||||||||||||||
Contingent interest payable on subordinated convertible debentures | (3,808 | ) | (3,346 | ) | ||||||||||||||||
Tax adjustment | (10,642 | ) | (5,813 | ) | ||||||||||||||||
Non-GAAP | $ | 187,834 | $ | 118,911 | $ | 178,526 | $ | 112,258 | ||||||||||||
Revenues | $ | 288,614 | $ | 281,876 | ||||||||||||||||
Non-GAAP operating margin | 65.1 | % | 63.3 | % | ||||||||||||||||
Diluted shares | 124,464 | 131,581 | ||||||||||||||||||
Diluted EPS, non-GAAP | $ | 0.96 | $ | 0.85 | ||||||||||||||||
RECONCILIATION OF NON-GAAP ADJUSTED EBITDA (In thousands) (Unaudited) |
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The following table reconciles GAAP net income to non-GAAP Adjusted EBITDA for the periods shown below (in thousands): |
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Three Months Ended |
Four Quarters
Ended |
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2017 | 2016 | 2017 | ||||||||||||
Net Income | $ | 116,412 | $ | 107,456 | $ | 449,601 | ||||||||
Interest expense | 29,023 | 28,804 | 115,783 | |||||||||||
Income tax expense | 31,137 | 33,628 | 138,037 | |||||||||||
Depreciation and amortization | 13,102 | 14,867 | 56,402 | |||||||||||
Stock-based compensation | 12,563 | 11,759 | 50,848 | |||||||||||
Unrealized loss (gain) on contingent interest derivative on the subordinated convertible debentures | 893 | (1,065 | ) | (444 | ) | |||||||||
Unrealized loss (gain) on hedging agreements | 495 | 562 | (156 | ) | ||||||||||
Non-GAAP Adjusted EBITDA | $ | 203,625 | $ | 196,011 | $ | 810,071 | ||||||||
STOCK-BASED COMPENSATION CLASSIFICATION (In thousands) (Unaudited) |
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The following table presents the classification of stock-based compensation: |
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Three Months Ended |
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2017 | 2016 | |||||||||||||
Cost of revenues | $ | 1,735 | $ | 1,841 | ||||||||||
Sales and marketing | 1,429 | 1,633 | ||||||||||||
Research and development | 1,496 | 1,703 | ||||||||||||
General and administrative | 7,903 | 6,582 | ||||||||||||
Total stock-based compensation expense | $ | 12,563 | $ | 11,759 | ||||||||||
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