Verisign Reports Third Quarter 2014 Results
Third Quarter GAAP Financial Results
Third Quarter Non-GAAP Financial Results
"Our disciplined execution continues to deliver long-term shareholder value. During the quarter we repurchased
Financial Highlights
Verisign ended the third quarter with cash, cash equivalents and marketable securities of$1.5 billion , a decrease of$249 million as compared with year-end 2013.- Cash flow from operations was
$168 million for the third quarter compared with$134 million for the same quarter in 2013. - Deferred revenues on
Sept. 30, 2014 , totaled$893 million , an increase of$37 million from year-end 2013. - Capital expenditures were
$11.3 million in the third quarter of 2014. - During the third quarter,
Verisign repurchased 4.2 million shares of its common stock for$226 million . AtSept. 30, 2014 ,$833 million remained authorized and available underVerisign's share buyback program, which has no expiration. - For purposes of calculating diluted EPS, the third quarter diluted share count included 13.2 million shares related to subordinated convertible debentures, compared with 10.5 million shares in the same quarter in 2013. These represent diluted shares and not shares that have been issued.
Business Highlights
- Verisign Registry Services added 1.15 million net new names during the third quarter, ending with 130.0 million active domain names in the zone for .com and .net, which represents a 3.3 percent increase over the zone at the end of the third quarter in 2013.
- In the third quarter,
Verisign processed 8.7 million new domain name registrations for .com and .net as compared to 8.3 million for the same period in 2013. - The final .com and .net renewal rate for the second quarter of 2014 was 71.8 percent compared with 72.7 percent for the same quarter in 2013. 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: stock-based compensation, unrealized gain/loss on contingent interest derivative on 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 a 28 percent tax rate which differs 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 a global leader in domain names and Internet security,
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
©2014
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||||
(In thousands, except par value) | ||||||||||
(Unaudited) | ||||||||||
2014 |
2013 |
|||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 233,949 | $ | 339,223 | ||||||
Marketable securities | 1,240,769 | 1,384,062 | ||||||||
Accounts receivable, net | 16,081 | 13,631 | ||||||||
Income taxes receivable and other current assets | 32,188 | 66,283 | ||||||||
Total current assets | 1,522,987 | 1,803,199 | ||||||||
Property and equipment, net | 318,808 | 339,653 | ||||||||
Goodwill | 52,527 | 52,527 | ||||||||
Long-term deferred tax assets | 286,429 | 437,643 | ||||||||
Other long-term assets | 26,671 | 27,745 | ||||||||
Total long-term assets | 684,435 | 857,568 | ||||||||
Total assets | $ | 2,207,422 | $ | 2,660,767 | ||||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||||
Current liabilities: | ||||||||||
Accounts payable and accrued liabilities | $ | 133,542 | $ | 149,276 | ||||||
Deferred revenues | 625,007 | 595,221 | ||||||||
Subordinated convertible debentures, including contingent interest derivative | 627,068 | 624,056 | ||||||||
Deferred tax liabilities | 463,649 | 660,633 | ||||||||
Total current liabilities | 1,849,266 | 2,029,186 | ||||||||
Long-term deferred revenues | 268,066 | 260,615 | ||||||||
Senior notes | 750,000 | 750,000 | ||||||||
Other long-term tax liabilities | 88,844 | 44,524 | ||||||||
Total long-term liabilities | 1,106,910 | 1,055,139 | ||||||||
Total liabilities | 2,956,176 | 3,084,325 | ||||||||
Commitments and contingencies | ||||||||||
Stockholders' deficit: | ||||||||||
Preferred stock--par value |
-- | -- | ||||||||
Common stock--par value |
322 | 320 | ||||||||
Additional paid-in capital | 18,320,280 | 18,935,302 | ||||||||
Accumulated deficit | (19,066,307 | ) | (19,356,095 | ) | ||||||
Accumulated other comprehensive loss | (3,049 | ) | (3,085 | ) | ||||||
Total stockholders' deficit | (748,754 | ) | (423,558 | ) | ||||||
Total liabilities and stockholders' deficit | $ | 2,207,422 | $ | 2,660,767 | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||||
Revenues | $ | 255,022 | $ | 243,678 | $ | 754,200 | $ | 719,457 | ||||||||||
Costs and expenses: | ||||||||||||||||||
Cost of revenues | 46,933 | 46,554 | 140,948 | 140,438 | ||||||||||||||
Sales and marketing | 24,304 | 22,900 | 68,244 | 64,273 | ||||||||||||||
Research and development | 16,320 | 17,456 | 50,453 | 52,531 | ||||||||||||||
General and administrative | 27,965 | 24,055 | 72,349 | 64,157 | ||||||||||||||
Total costs and expenses | 115,522 | 110,965 | 331,994 | 321,399 | ||||||||||||||
Operating income | 139,500 | 132,713 | 422,206 | 398,058 | ||||||||||||||
Interest expense | (21,533 | ) | (21,119 | ) | (64,408 | ) | (53,524 | ) | ||||||||||
Non-operating (loss) income, net | (6,473 | ) | (4,592 | ) | 5,037 | (4,208 | ) | |||||||||||
Income before income taxes | 111,494 | 107,002 | 362,835 | 340,326 | ||||||||||||||
Income tax expense | (16,305 | ) | (26,104 | ) | (73,047 | ) | (88,025 | ) | ||||||||||
Net income | 95,189 | 80,898 | 289,788 | 252,301 | ||||||||||||||
Unrealized gain (loss) on investments, net of tax | 59 | 85 | 34 | (341 | ) | |||||||||||||
Realized (gain) loss on investments, net of tax, included in net income | (1 | ) | 1 | 2 | (2,478 | ) | ||||||||||||
Other comprehensive income (loss) | 58 | 86 | 36 | (2,819 | ) | |||||||||||||
Comprehensive income | $ | 95,247 | $ | 80,984 | $ | 289,824 | $ | 249,482 | ||||||||||
Income per share: | ||||||||||||||||||
Basic | $ | 0.77 | $ | 0.57 | $ | 2.25 | $ | 1.71 | ||||||||||
Diluted | $ | 0.69 | $ | 0.53 | $ | 2.03 | $ | 1.60 | ||||||||||
Shares used to compute net income per share | ||||||||||||||||||
Basic | 124,109 | 141,701 | 128,924 | 147,567 | ||||||||||||||
Diluted | 138,112 | 152,951 | 142,584 | 157,606 | ||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
(In thousands) | ||||||||||||
(Unaudited) | ||||||||||||
Nine Months Ended |
||||||||||||
2014 | 2013 | |||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 289,788 | $ | 252,301 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation of property and equipment | 47,924 | 45,415 | ||||||||||
Stock-based compensation | 34,281 | 27,006 | ||||||||||
Excess tax benefit associated with stock-based compensation | (8,566 | ) | (30,095 | ) | ||||||||
Deferred income taxes | (1,331 | ) | 29,000 | |||||||||
Unrealized (gain) loss on contingent interest derivative on Subordinated Convertible Debentures | (3,953 | ) | 9,723 | |||||||||
Other, net | 8,837 | 7,854 | ||||||||||
Changes in operating assets and liabilities | ||||||||||||
Accounts receivable | (2,550 | ) | (3,525 | ) | ||||||||
Income taxes receivable and other assets | 31,349 | 1,679 | ||||||||||
Accounts payable and accrued liabilities | (2,540 | ) | 47,185 | |||||||||
Deferred revenues | 37,237 | 45,414 | ||||||||||
Net cash provided by operating activities | 430,476 | 431,957 | ||||||||||
Cash flows from investing activities: | ||||||||||||
Proceeds from maturities and sales of marketable securities | 2,425,259 | 2,253,776 | ||||||||||
Purchases of marketable securities | (2,281,523 | ) | (2,516,714 | ) | ||||||||
Purchases of property and equipment | (30,058 | ) | (50,201 | ) | ||||||||
Other investing activities | 351 | (3,946 | ) | |||||||||
Net cash provided by (used in) investing activities | 114,029 | (317,085 | ) | |||||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from issuance of common stock from option exercises and employee stock purchase plans | 15,816 | 16,661 | ||||||||||
Repurchases of common stock | (673,540 | ) | (810,067 | ) | ||||||||
Repayment of borrowings | -- | (100,000 | ) | |||||||||
Proceeds from Senior Notes, net of issuance costs | -- | 738,297 | ||||||||||
Excess tax benefit associated with stock-based compensation | 8,566 | 30,095 | ||||||||||
Net cash used in financing activities | (649,158 | ) | (125,014 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (621 | ) | (3,003 | ) | ||||||||
Net decrease in cash and cash equivalents | (105,274 | ) | (13,145 | ) | ||||||||
Cash and cash equivalents at beginning of period | 339,223 | 130,736 | ||||||||||
Cash and cash equivalents at end of period | $ | 233,949 | $ | 117,591 | ||||||||
Supplemental cash flow disclosures: | ||||||||||||
Cash paid for interest, net of capitalized interest | $ | 57,767 | $ | 40,435 | ||||||||
Cash paid for income taxes, net of refunds received | $ | 34,937 | $ | 17,055 | ||||||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||||||||||||||||
(Dollar amounts in thousands, except per share data) | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||
Three Months Ended |
||||||||||||||||||
2014 | 2013 | |||||||||||||||||
Operating Income | Net Income | Operating Income | Net Income | |||||||||||||||
GAAP as reported | $ | 139,500 | $ | 95,189 | $ | 132,713 | $ | 80,898 | ||||||||||
Adjustments: | ||||||||||||||||||
Stock-based compensation | 14,916 | 14,916 | 10,577 | 10,577 | ||||||||||||||
Unrealized loss on contingent interest derivative on the subordinated convertible debentures | 6,562 | 5,286 | ||||||||||||||||
Non-cash interest expense | 2,588 | 2,171 | ||||||||||||||||
Contingent interest payable on subordinated convertible debentures | (1,306 | ) | -- | |||||||||||||||
Tax adjustment | (21,285 | ) | (8,907 | ) | ||||||||||||||
Non-GAAP | $ | 154,416 | $ | 96,664 | $ | 143,290 | $ | 90,025 | ||||||||||
Revenues | $ | 255,022 | $ | 243,678 | ||||||||||||||
Non-GAAP operating margin | 60.6 | % | 58.8 | % | ||||||||||||||
Diluted shares | 138,112 | 152,951 | ||||||||||||||||
Per diluted share, non-GAAP | $ | 0.70 | $ | 0.59 | ||||||||||||||
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 (in thousands): | |||||||
Three Months Ended |
|||||||
2014 | 2013 | ||||||
Cost of revenues | $ | 1,618 | $ | 1,524 | |||
Sales and marketing | 2,234 | 1,442 | |||||
Research and development | 1,678 | 1,674 | |||||
General and administrative | 9,386 | 5,937 | |||||
Total stock-based compensation expense | $ | 14,916 | $ | 10,577 | |||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||||||||||||||||
(Dollar amounts in thousands, except per share data) | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||
Nine Months Ended |
||||||||||||||||||
2014 | 2013 | |||||||||||||||||
Operating Income | Net Income | Operating Income | Net Income | |||||||||||||||
GAAP as reported | $ | 422,206 | $ | 289,788 | $ | 398,058 | $ | 252,301 | ||||||||||
Adjustments: | ||||||||||||||||||
Stock-based compensation | 34,281 | 34,281 | 27,006 | 27,006 | ||||||||||||||
Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures | (3,953 | ) | 9,723 | |||||||||||||||
Non-cash interest expense | 7,581 | 6,316 | ||||||||||||||||
Contingent interest payable on subordinated convertible debentures | (1,306 | ) | -- | |||||||||||||||
Tax adjustment | (38,796 | ) | (19,319 | ) | ||||||||||||||
Non-GAAP | $ | 456,487 | $ | 287,595 | $ | 425,064 | $ | 276,027 | ||||||||||
Revenues | $ | 754,200 | $ | 719,457 | ||||||||||||||
Non-GAAP operating margin | 60.5 | % | 59.1 | % | ||||||||||||||
Diluted shares | 142,584 | 157,606 | ||||||||||||||||
Per diluted share, non-GAAP | $ | 2.02 | $ | 1.75 | ||||||||||||||
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 (in thousands): | |||||||
Nine Months Ended |
|||||||
2014 | 2013 | ||||||
Cost of revenues | $ | 4,748 | $ | 4,639 | |||
Sales and marketing | 5,902 | 4,656 | |||||
Research and development | 5,189 | 5,314 | |||||
General and administrative | 18,442 | 12,397 | |||||
Total stock-based compensation expense | $ | 34,281 | $ | 27,006 | |||
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 |
|||||||
2014 | 2013 | ||||||
Net Income | $ | 95,189 | $ | 80,898 | |||
Interest expense | 21,533 | 21,119 | |||||
Income tax expense | 16,305 | 26,104 | |||||
Depreciation and amortization | 15,809 | 14,889 | |||||
Stock-based compensation | 14,916 | 10,577 | |||||
Unrealized loss on contingent interest derivative on the subordinated convertible debentures | 6,562 | 5,286 | |||||
Unrealized loss on hedging agreements | 128 | 222 | |||||
Adjusted EBITDA | $ | 170,442 | $ | 159,095 | |||
Four Quarters Ended |
|||||
Net Income | $ | 581,937 | |||
Interest expense | 85,646 | ||||
Income tax benefit | (102,657 | ) | |||
Depreciation and amortization | 63,163 | ||||
Stock-based compensation | 43,925 | ||||
Unrealized loss on contingent interest derivative on the subordinated convertible debentures | 4,125 | ||||
Unrealized loss on hedging agreements | 116 | ||||
Adjusted EBITDA | $ | 676,255 | |||
- 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.
Source:
News Provided by Acquire Media