UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 30, 2015
VERISIGN, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation)
000-23593 | 94-3221585 | |
(Commission File Number) | (IRS Employer Identification No.) | |
12061 Bluemont Way, Reston, VA | 20190 | |
(Address of Principal Executive Offices) | (Zip Code) | |
(703) 948-3200
(Registrant’s Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
c | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
c | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
c | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
c | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. | Results of Operations and Financial Condition. |
On February 5, 2015, VeriSign, Inc. (“Verisign” or the “Company”) announced its financial results for the fiscal quarter ended and year ended December 31, 2014, and certain other information, including information on the third quarter 2014 domain name renewal rate. A copy of this press release is attached hereto as Exhibit 99.1.
The information in this Item 2.02 of Form 8-K and the Exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Use of Non-GAAP Financial Information
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: 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.
Following the offering of our 4.625% senior notes due 2023 (the “Notes”), we disclose our Adjusted EBITDA for the three months ended December 31, 2014 and 2013 and the year ended December 31, 2014. 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.
All non-GAAP figures for each period presented in Exhibit 99.1 have been conformed to exclude the foregoing items under GAAP.
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 the Company’s 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 the investors’ overall understanding of our financial performance and the comparability of the Company’s operating results from period to period. In the press release attached hereto as Exhibit 99.1, 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 as well as a reconciliation of consolidated Adjusted EBITDA to consolidated net income, the most directly comparable GAAP measure.
Item 8.01. | Other Events. |
Effective January 30, 2015, the board of directors of the Company authorized the repurchase of approximately $453 million of our common stock, in addition to the approximately $547 million of our common stock remaining available for repurchase under the previous 2014 Share Buyback Program, for a total repurchase of up to $1 billion of our common stock (collectively, the “2015 Share Buyback Program”) at a price per share and upon such terms and conditions as the Company’s Chief Executive Officer shall determine are reasonable, appropriate and in the best interests of the Company. The 2015 Share Buyback Program has no expiration date. Purchases made under the 2015 Share Buyback Program can be effected through open market transactions, block purchases, accelerated share repurchase agreements or other negotiated transactions.
Item 9.01. | Financial Statements and Exhibits. |
(d) Exhibits
Exhibit Number | Description | |
99.1 | Text of press release of VeriSign, Inc. issued on February 5, 2015. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
VERISIGN, INC. | ||||
Date: February 5, 2015 | By: | /s/ Thomas C. Indelicarto | ||
Thomas C. Indelicarto | ||||
Senior Vice President, General Counsel and Secretary | ||||
Exhibit Index
Exhibit No. | Description | |
Exhibit 99.1 | Text of press release of VeriSign, Inc. issued on February 5, 2015. | |
Exhibit 99.1
Verisign Reports Fourth Quarter and Full Year 2014 Results
RESTON, VA - Feb. 5, 2015 - VeriSign, Inc. (NASDAQ: VRSN), a global leader in domain names and Internet security, today reported financial results for the fourth quarter and full year of 2014.
Fourth Quarter GAAP Financial Results
VeriSign, Inc. and subsidiaries (“Verisign”) reported revenue of $256 million for the fourth quarter of 2014, up 4.2 percent from the same quarter in 2013. Verisign reported net income of $65 million and diluted earnings per share (EPS) of $0.48 for the fourth quarter of 2014, compared to net income of $292 million and diluted EPS of $1.94 in the same quarter in 2013. The operating margin was 55.6 percent for the fourth quarter of 2014 compared to 53.0 percent for the same quarter in 2013. Fourth quarter 2014 net income was decreased by $26 million and diluted EPS was decreased by $0.19 primarily due to a non-U.S. income tax charge related to a reorganization of certain international operations and a change in estimate for U.S. income tax charges related to the repatriation of offshore assets in 2014.
As described in the fourth quarter 2013 earnings news release, results for the fourth quarter of 2013 included an income tax benefit related to a worthless stock deduction, pre-tax non-operating gains from the sale of certain cost-method investments, and an income tax expense related to estimated taxable income generated in the U.S. as a result of a planned repatriation of offshore assets in 2014, which collectively increased net income by $217.8 million and increased diluted EPS by $1.45.
Fourth Quarter Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $95 million and diluted EPS of $0.70 for the fourth quarter of 2014, compared to net income of $98 million and diluted EPS of $0.65 for the same quarter in 2013. The non-GAAP operating margin was 59.4 percent for the fourth quarter of 2014 compared to 56.9 percent for the same quarter in 2013. Results for the fourth quarter of 2013 included a pre-tax, non-operating gain of $15.8 million from the sale of certain cost-method investments which increased non-GAAP net income by $11.4 million and diluted EPS by $0.07.
A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.
“In 2014, Verisign marked more than 17 years of uninterrupted availability of the .com and .net domain name system, and continued to build on its financial performance since completing the divestitures in 2010, including exceeding $1 billion in annual revenues. During the year we repurchased 16.3 million shares, returning $867 million to shareholders,” commented Jim Bidzos, executive chairman, president and chief executive officer.
2014 GAAP Financial Results
For the year ended Dec. 31, 2014, Verisign reported revenue of $1.01 billion, up 4.7 percent from $965 million in 2013. Verisign reported net income of $355 million and diluted EPS of $2.52 in 2014, compared to net income of $544 million and diluted EPS of $3.49 in 2013. The operating margin for 2014 was 55.9 percent compared to 54.7 percent in 2013. Net income for 2014 was decreased by $10 million and diluted EPS was decreased by $0.07 primarily due to the fourth quarter 2014 non-U.S. income tax charge related to a reorganization of certain international operations and changes in estimates during 2014 for U.S. income taxes related to the 2013 worthless stock deduction and the 2014 repatriation of offshore assets.
As described in the fourth quarter 2013 earnings news release, results for 2013 included an income tax benefit recognized in the fourth quarter related to a worthless stock deduction, pre-tax non-operating gains from the sale of certain cost-method investments, and income tax expense related to estimated taxable income generated in the U.S. as a result of a planned repatriation of offshore assets in 2014, which collectively increased net income by $217.8 million and increased diluted EPS by $1.39.
2014 Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $383 million and diluted EPS of $2.72 for 2014, compared to net income of $374 million and diluted EPS of $2.40 in 2013. The non-GAAP operating margin for 2014 was 60.2 percent compared to 58.5 percent in 2013. Results for 2013 included a pre-tax, non-operating gain of $15.8 million recognized during the fourth quarter from the sale of certain cost-method investments which increased non-GAAP net income by $11.4 million and diluted EPS by $0.07.
A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.
Financial Highlights
• | Verisign ended the fourth quarter with cash, cash equivalents and marketable securities of $1.4 billion, a decrease of $299 million as compared with year-end 2013. |
• | Cash flow from operations was $170 million for the fourth quarter of 2014 and $601 million for the full year 2014 compared with $147 million for the same quarter in 2013 and $579 million for the full year 2013. |
• | Deferred revenues on Dec. 31, 2014, totaled $890 million, an increase of $35 million from year-end 2013. |
• | Capital expenditures were $9 million in the fourth quarter and $39 million for the full year. |
• | During the fourth quarter, Verisign repurchased 3.7 million shares of its common stock for $209 million. During the full year 2014, Verisign repurchased 16.3 million shares of its common stock for $867 million. |
• | Effective Jan. 30, 2015, the Board of Directors approved an additional authorization for share repurchases of approximately $453 million of common stock, which brings the total amount to $1 billion authorized and available under Verisign’s share buyback program, which has no expiration. |
• | For purposes of calculating diluted EPS, the fourth quarter diluted share count included 14.7 million shares related to subordinated convertible debentures, compared with 13.7 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 0.59 million net new names during the fourth quarter, ending with 130.6 million .com and .net domain names in the domain name base, which represents a 2.7 percent increase over the base at the end of the fourth quarter in 2013. |
• | In the fourth quarter, Verisign processed 8.2 million new domain name registrations for .com and .net, the same as for the fourth quarter in 2013. During 2014, Verisign processed 34 million new domain name registrations, the same as in 2013. |
• | The final .com and .net renewal rate for the third quarter of 2014 was 72.0 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
Verisign will host a live conference call today at 4:30 p.m. (EST) to review the fourth quarter and full year 2014 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-1385 (international), conference ID: Verisign. A listen-only live web cast of the conference call and accompanying slide presentation will also be available at http://investor.verisign.com. An audio archive of the call will be available at https://investor.verisign.com/events.cfm. This news release and the financial information discussed on today’s conference call are available at http://investor.verisign.com.
About Verisign
Verisign, a global leader in domain names and Internet security, enables Internet navigation for many of the world’s most recognized domain names and provides protection for websites and enterprises around the world. Verisign ensures the security, stability and resiliency of key Internet infrastructure and services, including the .com and .net domains and two of the Internet’s
root servers, as well as performs the root-zone maintainer functions for the core of the Internet’s Domain Name System (DNS). Verisign’s Network Intelligence and Availability services include intelligence-driven Distributed Denial of Service Protection, iDefense Security Intelligence and Managed DNS. To learn more about what it means to be Powered by Verisign, please visit VerisignInc.com.
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 the impact of the U.S. government’s transition of key Internet domain name functions (the Internet Assigned Numbers Authority (“IANA”) function), whether the U.S. Department of Commerce will approve any exercise by us of our right to increase the price per .com domain name, under certain circumstances, the uncertainty of whether we will be able to demonstrate to the U.S. Department of Commerce that market conditions warrant removal of the pricing restrictions on .com domain names and the uncertainty of whether we will experience other negative changes to our pricing terms; the failure to renew key agreements on similar terms, or at all; the uncertainty of future revenue and profitability and potential fluctuations in quarterly operating results due to such factors as restrictions on increasing prices under the .com Registry Agreement, changes in marketing and advertising practices, including those of third-party registrars, increasing competition, and pricing pressure from competing services offered at prices below our prices; changes in search engine algorithms and advertising payment practices; the uncertainty of whether we will successfully develop and market new products and services, the uncertainty of whether our new products and services, if any, will achieve market acceptance or result in any revenues; challenging global economic conditions; challenges of ongoing changes to Internet governance and administration; the outcome of legal or other challenges resulting from our activities or the activities of registrars or registrants, or litigation generally; the uncertainty regarding what the ultimate outcome or amount of benefit we receive, if any, from the worthless stock deduction will be; new or existing governmental laws and regulations; changes in customer behavior, Internet platforms and web-browsing patterns; system interruptions; security breaches; attacks on the Internet by hackers, viruses, or intentional acts of vandalism; whether we will be able to continue to expand our infrastructure to meet demand; the uncertainty of the expense and timing of requests for indemnification, if any, relating to completed divestitures; and the impact of the introduction of new gTLDs, any delays in their introduction, the impact of ICANN’s Registry Agreement for new gTLDs, and whether our new gTLDs or the new gTLDs for which we have contracted to provide back-end registry services will be successful; and the uncertainty regarding the impact, if any, of the delegation into the root zone of over 1,300 new gTLDs. More information about potential factors that could affect our business and financial results is included in our filings with the SEC, including in our Annual Report on Form 10-K for the year ended Dec. 31, 2013, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Verisign undertakes no obligation to update any of the forward-looking statements after the date of this announcement.
Contacts
Investor Relations: David Atchley, datchley@verisign.com, 703-948-4643
Media Relations: Deana Alvy, dalvy@verisign.com, 703-948-4179
©2015 VeriSign, Inc. All rights reserved. VERISIGN, the VERISIGN logo, and other trademarks, service marks, and designs are registered or unregistered trademarks of VeriSign, Inc. and its subsidiaries in the United States and in foreign countries. All other trademarks are property of their respective owners.
VERISIGN, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
December 31, 2014 | December 31, 2013 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 191,608 | $ | 339,223 | |||
Marketable securities | 1,233,076 | 1,384,062 | |||||
Accounts receivable, net | 13,448 | 13,631 | |||||
Other current assets | 52,475 | 66,283 | |||||
Total current assets | 1,490,607 | 1,803,199 | |||||
Property and equipment, net | 319,028 | 339,653 | |||||
Goodwill | 52,527 | 52,527 | |||||
Long-term deferred tax assets | 266,954 | 437,643 | |||||
Other long-term assets | 25,743 | 27,745 | |||||
Total long-term assets | 664,252 | 857,568 | |||||
Total assets | $ | 2,154,859 | $ | 2,660,767 | |||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||
Current liabilities: | |||||||
Accounts payable and accrued liabilities | $ | 190,278 | $ | 149,276 | |||
Deferred revenues | 621,307 | 595,221 | |||||
Subordinated convertible debentures, including contingent interest derivative | 631,190 | 624,056 | |||||
Deferred tax liabilities | 477,781 | 660,633 | |||||
Total current liabilities | 1,920,556 | 2,029,186 | |||||
Long-term deferred revenues | 269,047 | 260,615 | |||||
Senior notes | 750,000 | 750,000 | |||||
Other long-term tax liabilities | 98,722 | 44,524 | |||||
Total long-term liabilities | 1,117,769 | 1,055,139 | |||||
Total liabilities | 3,038,325 | 3,084,325 | |||||
Commitments and contingencies | |||||||
Stockholders’ deficit: | |||||||
Preferred stock—par value $.001 per share; Authorized shares: 5,000; Issued and outstanding shares: none | — | — | |||||
Common stock—par value $.001 per share; Authorized shares: 1,000,000; Issued shares: 321,699 at December 31, 2014 and 320,358 at December 31, 2013; Outstanding shares: 118,452 at December 31, 2014 and 133,724 at December 31, 2013 | 322 | 320 | |||||
Additional paid-in capital | 18,120,045 | 18,935,302 | |||||
Accumulated deficit | (19,000,835 | ) | (19,356,095 | ) | |||
Accumulated other comprehensive loss | (2,998 | ) | (3,085 | ) | |||
Total stockholders’ deficit | (883,466 | ) | (423,558 | ) | |||
Total liabilities and stockholders’ deficit | $ | 2,154,859 | $ | 2,660,767 | |||
VERISIGN, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Revenues | $ | 255,917 | $ | 245,630 | $ | 1,010,117 | $ | 965,087 | |||||||
Costs and expenses: | |||||||||||||||
Cost of revenues | 47,477 | 46,575 | 188,425 | 187,013 | |||||||||||
Sales and marketing | 23,757 | 25,064 | 92,001 | 89,337 | |||||||||||
Research and development | 17,324 | 17,766 | 67,777 | 70,297 | |||||||||||
General and administrative | 25,138 | 26,051 | 97,487 | 90,208 | |||||||||||
Total costs and expenses | 113,696 | 115,456 | 445,690 | 436,855 | |||||||||||
Operating income | 142,221 | 130,174 | 564,427 | 528,232 | |||||||||||
Interest expense | (21,586 | ) | (21,237 | ) | (85,994 | ) | (74,761 | ) | |||||||
Non-operating income, net | (159 | ) | 7,508 | 4,878 | 3,300 | ||||||||||
Income before income taxes | 120,476 | 116,445 | 483,311 | 456,771 | |||||||||||
Income tax (expense) benefit | (55,004 | ) | 175,704 | (128,051 | ) | 87,679 | |||||||||
Net income | 65,472 | 292,149 | 355,260 | 544,450 | |||||||||||
Realized foreign currency translation adjustments, included in net income | — | 81 | — | 81 | |||||||||||
Unrealized gain (loss) on investments, net of tax | 50 | (28 | ) | 84 | (369 | ) | |||||||||
Realized loss (gain) on investments, net of tax, included in net income | 1 | 69 | 3 | (2,409 | ) | ||||||||||
Other comprehensive income (loss) | 51 | 122 | 87 | (2,697 | ) | ||||||||||
Comprehensive income | $ | 65,523 | $ | 292,271 | $ | 355,347 | $ | 541,753 | |||||||
Income per share: | |||||||||||||||
Basic | $ | 0.54 | $ | 2.15 | $ | 2.80 | $ | 3.77 | |||||||
Diluted | $ | 0.48 | $ | 1.94 | $ | 2.52 | $ | 3.49 | |||||||
Shares used to compute net income per share: | |||||||||||||||
Basic | 120,140 | 135,759 | 126,710 | 144,591 | |||||||||||
Diluted | 135,899 | 150,422 | 140,895 | 155,786 | |||||||||||
VERISIGN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Year Ended December 31, | |||||||
2014 | 2013 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 355,260 | $ | 544,450 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation of property and equipment and amortization of other intangible assets | 63,690 | 60,655 | |||||
Stock-based compensation | 43,977 | 36,649 | |||||
Excess tax benefit associated with stock-based compensation | (6,054 | ) | (19,320 | ) | |||
Unrealized (gain) loss on contingent interest derivative on Subordinated Convertible Debentures | (2,249 | ) | 17,801 | ||||
Loss (gain) on sale of investments | 5 | (18,861 | ) | ||||
Other, net | 11,353 | 14,182 | |||||
Changes in operating assets and liabilities | |||||||
Accounts receivable | (73 | ) | (2,500 | ) | |||
Prepaid expenses and other assets | 11,571 | (2,694 | ) | ||||
Accounts payable and accrued liabilities | 45,419 | 19,065 | |||||
Deferred revenues | 34,518 | 43,254 | |||||
Net deferred income taxes and other long-term tax liabilities | 43,532 | (113,284 | ) | ||||
Net cash provided by operating activities | 600,949 | 579,397 | |||||
Cash flows from investing activities: | |||||||
Proceeds from maturities and sales of marketable securities and investments | 3,428,659 | 3,508,569 | |||||
Purchases of marketable securities | (3,277,096 | ) | (3,450,068 | ) | |||
Purchases of property and equipment | (39,327 | ) | (65,594 | ) | |||
Other investing activities | 452 | (3,969 | ) | ||||
Net cash provided by (used in) investing activities | 112,688 | (11,062 | ) | ||||
Cash flows from financing activities: | |||||||
Proceeds from issuance of common stock from option exercises and employee stock purchase plans | 17,597 | 20,667 | |||||
Repurchases of common stock | (883,403 | ) | (1,035,617 | ) | |||
Proceeds from senior notes, net of issuance costs | — | 738,297 | |||||
Repayment of borrowings | — | (100,000 | ) | ||||
Excess tax benefit associated with stock-based compensation | 6,054 | 19,320 | |||||
Net cash used in financing activities | (859,752 | ) | (357,333 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | (1,500 | ) | (2,515 | ) | |||
Net (decrease) increase in cash and cash equivalents | (147,615 | ) | 208,487 | ||||
Cash and cash equivalents at beginning of period | 339,223 | 130,736 | |||||
Cash and cash equivalents at end of period | $ | 191,608 | $ | 339,223 | |||
Supplemental cash flow disclosures: | |||||||
Cash paid for interest, net of capitalized interest | $ | 75,088 | $ | 58,928 | |||
Cash paid for income taxes, net of refunds received | $ | 35,201 | $ | 26,133 | |||
VERISIGN, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)
Three Months Ended December 31, | |||||||||||||||
2014 | 2013 | ||||||||||||||
Operating Income | Net Income | Operating Income | Net Income | ||||||||||||
GAAP as reported | $ | 142,221 | $ | 65,472 | $ | 130,174 | $ | 292,149 | |||||||
Adjustments: | |||||||||||||||
Stock-based compensation | 9,696 | 9,696 | 9,643 | 9,643 | |||||||||||
Unrealized loss on contingent interest derivative on the subordinated convertible debentures | 1,704 | 8,078 | |||||||||||||
Non-cash interest expense | 2,641 | 2,292 | |||||||||||||
Contingent interest payable on subordinated convertible debentures | (2,613 | ) | — | ||||||||||||
Tax adjustment | 18,071 | (213,912 | ) | ||||||||||||
Non-GAAP | $ | 151,917 | $ | 94,971 | $ | 139,817 | $ | 98,250 | |||||||
Revenues | $ | 255,917 | $ | 245,630 | |||||||||||
Non-GAAP operating margin | 59.4 | % | 56.9 | % | |||||||||||
Diluted shares | 135,899 | 150,422 | |||||||||||||
Per diluted share, non-GAAP | $ | 0.70 | $ | 0.65 | |||||||||||
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 release, 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: 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.
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 December 31, | |||||||
2014 | 2013 | ||||||
Cost of revenues | $ | 1,652 | $ | 1,517 | |||
Sales and marketing | 2,121 | 1,596 | |||||
Research and development | 1,829 | 1,885 | |||||
General and administrative | 4,094 | 4,645 | |||||
Total stock-based compensation expense | $ | 9,696 | $ | 9,643 | |||
VERISIGN, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)
Year Ended December 31, | |||||||||||||||
2014 | 2013 | ||||||||||||||
Operating Income | Net Income | Operating Income | Net Income | ||||||||||||
GAAP as reported | $ | 564,427 | $ | 355,260 | $ | 528,232 | $ | 544,450 | |||||||
Adjustments: | |||||||||||||||
Stock-based compensation | 43,977 | 43,977 | 36,649 | 36,649 | |||||||||||
Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures | (2,249 | ) | 17,801 | ||||||||||||
Non-cash interest expense | 10,223 | 8,608 | |||||||||||||
Contingent interest payable on subordinated convertible debentures | (3,919 | ) | — | ||||||||||||
Tax adjustment | (20,725 | ) | (233,231 | ) | |||||||||||
Non-GAAP | $ | 608,404 | $ | 382,567 | $ | 564,881 | $ | 374,277 | |||||||
Revenues | $ | 1,010,117 | $ | 965,087 | |||||||||||
Non-GAAP operating margin | 60.2 | % | 58.5 | % | |||||||||||
Diluted shares | 140,895 | 155,786 | |||||||||||||
Per diluted share, non-GAAP | $ | 2.72 | $ | 2.40 | |||||||||||
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 release, 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: 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.
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:
Year Ended December 31, | |||||||
2014 | 2013 | ||||||
Cost of revenues | $ | 6,400 | $ | 6,156 | |||
Sales and marketing | 8,023 | 6,252 | |||||
Research and development | 7,018 | 7,199 | |||||
General and administrative | 22,536 | 17,042 | |||||
Total stock-based compensation expense | $ | 43,977 | $ | 36,649 | |||
VERISIGN, INC.
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 December 31, | |||||||
2014 | 2013 | ||||||
Net Income | $ | 65,472 | $ | 292,149 | |||
Interest expense | 21,586 | 21,237 | |||||
Income tax expense (benefit) | 55,004 | (175,704 | ) | ||||
Depreciation and amortization | 15,767 | 15,240 | |||||
Stock-based compensation | 9,696 | 9,643 | |||||
Unrealized loss on contingent interest derivative on the subordinated convertible debentures | 1,704 | 8,078 | |||||
Unrealized (gain) loss on hedging agreements | (267 | ) | 1 | ||||
Adjusted EBITDA | $ | 168,962 | $ | 170,644 | |||
Year Ended December 31, 2014 | |||
Net Income | $ | 355,260 | |
Interest expense | 85,994 | ||
Income tax benefit | 128,051 | ||
Depreciation and amortization | 63,690 | ||
Stock-based compensation | 43,977 | ||
Unrealized gain on contingent interest derivative on the subordinated convertible debentures | (2,249 | ) | |
Unrealized gain on hedging agreements | (152 | ) | |
Adjusted EBITDA | $ | 674,571 | |
Verisign’s management believes that presenting Adjusted EBITDA enhances investors’ overall understanding of our financial performance and the comparability of our operating results from period to period. However, Adjusted EBITDA has important limitations as an analytical tool. These limitations include, but are not limited to, the following:
• | 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.