Verisign Reports Second Quarter 2016 Results
Second Quarter GAAP Financial Results
Second Quarter Non-GAAP Financial Results
"I'm pleased with the focus and discipline of our teams in delivering
another quarter of solid financial performance," commented
Financial Highlights
-
Verisign ended the second quarter with cash, cash equivalents and marketable securities of$1.9 billion , a decrease of$8 million from year-end 2015. -
Cash flow from operations was
$161 million for the second quarter of 2016, compared with$175 million for the same quarter in 2015. -
Deferred revenues on
June 30, 2016 , totaled$988 million , an increase of$26 million from year-end 2015. -
During the second quarter,
Verisign repurchased 1.7 million shares of its common stock for$150 million . AtJune 30, 2016 ,$766 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 21.9 million shares related to subordinated convertible debentures, compared with 17.0 million shares for the same quarter in 2015. These represent diluted shares and not shares that have been issued.
Business Highlights
- Verisign Registry Services added 0.78 million net new names during the second quarter, ending with 143.2 million .com and .net domain names in the domain name base, which represents a 7.3 percent increase over the base at the end of the second quarter in 2015.
-
In the second quarter,
Verisign processed 8.6 million new domain name registrations for .com and .net, as compared to 8.7 million for the same quarter in 2015. - The final .com and .net renewal rate for the first quarter of 2016 was 74.4 percent compared with 73.4 percent for the same quarter in 2015. 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$7.46 to$8.20 , effectiveFeb. 1, 2017 , per its agreement with theInternet Corporation for Assigned Names and Numbers (ICANN).
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
©2016
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) (Unaudited) |
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2016 |
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ASSETS |
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Current assets: | ||||||||||
Cash and cash equivalents | $ | 170,966 | $ | 228,659 | ||||||
Marketable securities | 1,736,030 | 1,686,771 | ||||||||
Accounts receivable, net | 15,086 | 12,638 | ||||||||
Other current assets | 22,573 | 39,856 | ||||||||
Total current assets | 1,944,655 | 1,967,924 | ||||||||
Property and equipment, net | 277,942 | 295,570 | ||||||||
|
52,527 | 52,527 | ||||||||
Deferred tax assets | 13,205 | 17,361 | ||||||||
Other long-term assets | 25,844 | 24,355 | ||||||||
Total long-term assets | 369,518 | 389,813 | ||||||||
Total assets | $ | 2,314,173 | $ | 2,357,737 | ||||||
LIABILITIES AND STOCKHOLDERS' DEFICIT |
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Current liabilities: | ||||||||||
Accounts payable and accrued liabilities | $ | 144,361 | $ | 188,171 | ||||||
Deferred revenues | 699,456 | 680,483 | ||||||||
Subordinated convertible debentures, including contingent interest derivative | 632,308 | 634,326 | ||||||||
Total current liabilities | 1,476,125 | 1,502,980 | ||||||||
Long-term deferred revenues | 288,232 | 280,859 | ||||||||
Senior notes | 1,236,272 | 1,235,354 | ||||||||
Deferred tax liabilities | 326,112 | 294,194 | ||||||||
Other long-term tax liabilities | 114,762 | 114,797 | ||||||||
Total long-term liabilities | 1,965,378 | 1,925,204 | ||||||||
Total liabilities | 3,441,503 | 3,428,184 | ||||||||
Commitments and contingencies | ||||||||||
Stockholders' deficit: | ||||||||||
Preferred stock—par value |
— | — | ||||||||
Common stock—par value |
324 | 323 | ||||||||
Additional paid-in capital | 17,279,468 | 17,558,822 | ||||||||
Accumulated deficit | (18,404,933 | ) | (18,625,599 | ) | ||||||
Accumulated other comprehensive loss | (2,189 | ) | (3,993 | ) | ||||||
Total stockholders' deficit | (1,127,330 | ) | (1,070,447 | ) | ||||||
Total liabilities and stockholders' deficit | $ | 2,314,173 | $ | 2,357,737 | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands, except per share data) (Unaudited) |
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Three Months Ended |
Six Months Ended |
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2016 | 2015 | 2016 | 2015 | |||||||||||||||||
Revenues | $ | 286,466 | $ | 262,539 | $ | 568,342 | $ | 520,961 | ||||||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of revenues | 48,753 | 48,221 | 99,335 | 96,574 | ||||||||||||||||
Sales and marketing | 19,757 | 24,329 | 39,784 | 46,711 | ||||||||||||||||
Research and development | 14,288 | 16,347 | 31,031 | 33,499 | ||||||||||||||||
General and administrative | 27,401 | 24,677 | 55,158 | 50,975 | ||||||||||||||||
Total costs and expenses | 110,199 | 113,574 | 225,308 | 227,759 | ||||||||||||||||
Operating income | 176,267 | 148,965 | 343,034 | 293,202 | ||||||||||||||||
Interest expense | (28,859 | ) | (28,503 | ) | (57,663 | ) | (50,520 | ) | ||||||||||||
Non-operating income (loss), net | 1,709 | 3,201 | 4,830 | (2,354 | ) | |||||||||||||||
Income before income taxes | 149,117 | 123,663 | 290,201 | 240,328 | ||||||||||||||||
Income tax expense | (35,907 | ) | (30,652 | ) | (69,535 | ) | (59,079 | ) | ||||||||||||
Net income | 113,210 | 93,011 | 220,666 | 181,249 | ||||||||||||||||
Realized foreign currency translation adjustments, included in net income | 85 | (291 | ) | 85 | (291 | ) | ||||||||||||||
Unrealized gain on investments | 851 | 147 | 1,786 | 234 | ||||||||||||||||
Realized gain on investments, included in net income | (1 | ) | (69 | ) | (67 | ) | (73 | ) | ||||||||||||
Other comprehensive income (loss) | 935 | (213 | ) | 1,804 | (130 | ) | ||||||||||||||
Comprehensive income | $ | 114,145 | $ | 92,798 | $ | 222,470 | $ | 181,119 | ||||||||||||
Earnings per share: | ||||||||||||||||||||
Basic | $ | 1.05 | $ | 0.80 | $ | 2.03 | $ | 1.56 | ||||||||||||
Diluted | $ | 0.87 | $ | 0.70 | $ | 1.68 | $ | 1.36 | ||||||||||||
Shares used to compute earnings per share | ||||||||||||||||||||
Basic | 108,067 | 115,656 | 108,829 | 116,394 | ||||||||||||||||
Diluted | 130,588 | 133,251 | 131,084 | 133,546 | ||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) |
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Six Months Ended |
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2016 | 2015 | |||||||||
Cash flows from operating activities: | ||||||||||
Net income | $ | 220,666 | $ | 181,249 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Depreciation of property and equipment | 29,417 | 31,620 | ||||||||
Stock-based compensation | 22,891 | 22,129 | ||||||||
Excess tax benefit associated with stock-based compensation | (12,708 | ) | (11,366 | ) | ||||||
Unrealized (gain) loss on contingent interest derivative on Subordinated Convertible Debentures | (971 | ) | 4,311 | |||||||
Payment of contingent interest | (6,544 | ) | (5,225 | ) | ||||||
Amortization of debt discount and issuance costs | 6,590 | 5,941 | ||||||||
Other, net | (1,414 | ) | (1,099 | ) | ||||||
Changes in operating assets and liabilities | ||||||||||
Accounts receivable | (2,798 | ) | (1,018 | ) | ||||||
Prepaid expenses and other assets | 15,430 | 7,369 | ||||||||
Accounts payable and accrued liabilities | (28,653 | ) | (4,778 | ) | ||||||
Deferred revenues | 26,346 | 41,247 | ||||||||
Net deferred income taxes and other long-term tax liabilities | 36,039 | 37,245 | ||||||||
Net cash provided by operating activities | 304,291 | 307,625 | ||||||||
Cash flows from investing activities: | ||||||||||
Proceeds from maturities and sales of marketable securities | 2,056,607 | 1,283,367 | ||||||||
Purchases of marketable securities | (2,101,863 | ) | (1,747,025 | ) | ||||||
Purchases of property and equipment | (13,458 | ) | (21,891 | ) | ||||||
Other investing activities | 206 | (3,736 | ) | |||||||
Net cash used in investing activities | (58,508 | ) | (489,285 | ) | ||||||
Cash flows from financing activities: | ||||||||||
Proceeds from issuance of common stock from option exercises and employee stock purchase plans | 8,084 | 9,014 | ||||||||
Repurchases of common stock | (324,235 | ) | (335,885 | ) | ||||||
Proceeds from borrowings, net of issuance costs | — | 492,237 | ||||||||
Excess tax benefit associated with stock-based compensation | 12,708 | 11,366 | ||||||||
Net cash (used in) provided by financing activities | (303,443 | ) | 176,732 | |||||||
Effect of exchange rate changes on cash and cash equivalents | (33 | ) | 606 | |||||||
Net decrease in cash and cash equivalents | (57,693 | ) | (4,322 | ) | ||||||
Cash and cash equivalents at beginning of period | 228,659 | 191,608 | ||||||||
Cash and cash equivalents at end of period | $ | 170,966 | $ | 187,286 | ||||||
Supplemental cash flow disclosures: | ||||||||||
Cash paid for interest | $ | 57,636 | $ | 42,839 | ||||||
Cash paid for income taxes, net of refunds received | $ | 13,994 | $ | 14,342 | ||||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (In thousands, except per share data) (Unaudited) |
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Three Months Ended |
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2016 | 2015 | |||||||||||||||||||
Operating Income | Net Income | Operating Income | Net Income | |||||||||||||||||
GAAP as reported | $ | 176,267 | $ | 113,210 | 148,965 | $ | 93,011 | |||||||||||||
Adjustments: | ||||||||||||||||||||
Stock-based compensation | 11,132 | 11,132 | 12,001 | 12,001 | ||||||||||||||||
Unrealized loss (gain) on contingent interest derivative on the subordinated convertible debentures | 94 | (2,708 | ) | |||||||||||||||||
Non-cash interest expense | 3,323 | 2,956 | ||||||||||||||||||
Contingent interest payable on subordinated convertible debentures | (3,421 | ) | (2,767 | ) | ||||||||||||||||
Tax adjustment | (5,758 | ) | (3,965 | ) | ||||||||||||||||
Non-GAAP | $ | 187,399 | $ | 118,580 | $ | 160,966 | $ | 98,528 | ||||||||||||
Revenues | $ | 286,466 | $ | 262,539 | ||||||||||||||||
Non-GAAP operating margin | 65.4 | % | 61.3 | % | ||||||||||||||||
Diluted shares | 130,588 | 133,251 | ||||||||||||||||||
Diluted EPS, non-GAAP | $ | 0.91 | $ | 0.74 | ||||||||||||||||
Six Months Ended |
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2016 | 2015 | |||||||||||||||||||
Operating Income | Net Income | Operating Income | Net Income | |||||||||||||||||
GAAP as reported | $ | 343,034 | $ | 220,666 | 293,202 | $ | 181,249 | |||||||||||||
Adjustments: | ||||||||||||||||||||
Stock-based compensation | 22,891 | 22,891 | 22,129 | 22,129 | ||||||||||||||||
Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures | (971 | ) | 4,311 | |||||||||||||||||
Non-cash interest expense | 6,590 | 5,662 | ||||||||||||||||||
Contingent interest payable on subordinated convertible debentures | (6,767 | ) | (5,457 | ) | ||||||||||||||||
Tax adjustment | (11,571 | ) | (10,334 | ) | ||||||||||||||||
Non-GAAP | $ | 365,925 | $ | 230,838 | $ | 315,331 | $ | 197,560 | ||||||||||||
Revenues | $ | 568,342 | $ | 520,961 | ||||||||||||||||
Non-GAAP operating margin | 64.4 | % | 60.5 | % | ||||||||||||||||
Diluted shares | 131,084 | 133,546 | ||||||||||||||||||
Diluted EPS, non-GAAP | $ | 1.76 | $ | 1.48 | ||||||||||||||||
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
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2016 | 2015 | |||||||||
Net Income | $ | 113,210 | $ | 93,011 | ||||||
Interest expense | 28,859 | 28,503 | ||||||||
Income tax expense | 35,907 | 30,652 | ||||||||
Depreciation and amortization | 14,550 | 15,873 | ||||||||
Stock-based compensation | 11,132 | 12,001 | ||||||||
Unrealized loss (gain) on contingent interest derivative on the subordinated convertible debentures | 94 | (2,708 | ) | |||||||
Unrealized (gain) loss on hedging agreements | (994 | ) | 944 | |||||||
Non-GAAP Adjusted EBITDA | $ | 202,758 | $ | 178,276 | ||||||
Four Quarters Ended
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Net income |
|
414,653 |
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Interest expense |
|
114,774 |
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Income tax expense |
|
122,870 |
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Depreciation and amortization |
|
59,288 |
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Stock-based compensation |
|
46,837 |
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Unrealized loss on contingent interest derivative on the subordinated convertible debentures |
|
8,848 |
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Unrealized gain on hedging agreements |
|
(825 |
) | |||||||
Non-GAAP Adjusted EBITDA |
$ |
766,445 |
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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 |
Six Months Ended |
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2016 | 2015 | 2016 | 2015 | |||||||||||||
Cost of revenues | $ | 1,747 | $ | 1,741 | $ | 3,588 | $ | 3,480 | ||||||||
Sales and marketing | 1,457 | 1,818 | 3,090 | 3,117 | ||||||||||||
Research and development | 1,587 | 1,691 | 3,290 | 3,412 | ||||||||||||
General and administrative | 6,341 | 6,751 | 12,923 | 12,120 | ||||||||||||
Total stock-based compensation expense | $ | 11,132 | $ | 12,001 | $ | 22,891 | $ | 22,129 | ||||||||
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