VeriSign, Inc.
Jul 25, 2013
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Verisign Reports 12 Percent Year-Over-Year Revenue Growth in Second Quarter 2013

RESTON, VA -- (Marketwired) -- 07/25/13 -- VeriSign, Inc. (NASDAQ: VRSN), the global leader in domain names, today reported financial results for the second quarter ended June 30, 2013.

Second Quarter GAAP Financial Results
VeriSign, Inc., and subsidiaries ("Verisign") reported revenue of $239 million for the second quarter of 2013, up 12 percent from the same quarter in 2012. Verisign reported net income of $87 million and diluted earnings per share (EPS) of $0.55 for the second quarter of 2013, compared to net income of $68 million and diluted EPS of $0.42 in the same quarter in 2012. The operating margin was 55.2 percent for the second quarter of 2013 compared to 50.0 percent for the same quarter in 2012.

Second Quarter Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $92 million and diluted EPS of $0.58 for the second quarter of 2013, compared to net income of $74 million and diluted EPS of $0.45 for the same quarter in 2012. The non-GAAP operating margin was 58.9 percent for the second quarter of 2013 compared to 54.0 percent for the same quarter in 2012. A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.

"We posted solid operational and financial results for the second quarter and repurchased 7.1 million shares for $334 million during the quarter," commented Jim Bidzos, executive chairman, president and chief executive officer.

Financial Highlights

Business Highlights

Non-GAAP Items
Non-GAAP financial results exclude the following items that are included under GAAP: Discontinued operations, stock-based compensation, amortization of other intangible assets, impairments of goodwill and other intangible assets, restructuring charges, contingent interest payments to holders of the subordinated convertible debentures, unrealized gain/loss on contingent interest derivative on subordinated convertible debentures, and non-cash interest expense. Non-GAAP financial information is also adjusted for a 28 percent tax rate starting from the third quarter of 2012, and 30 percent for the other periods presented herein, both of which differ 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. (EDT) to review the second quarter 2013 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-1524 (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
As the global leader in domain names, Verisign powers the invisible navigation that takes people to where they want to go on the Internet. For more than 15 years, Verisign has operated the infrastructure for a portfolio of top-level domains that today includes .com, .net, .tv, .edu, .gov, .jobs, .name and .cc, as well as two of the world's 13 Internet root servers. Verisign's product suite also includes Distributed Denial of Service (DDoS) Protection Services, iDefense Security Intelligence Services 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 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, increasing competition, pricing pressure from competing services offered at prices below our prices and changes in marketing and advertising practices, including those of third-party registrars; changes in search engine algorithms and advertising payment practices; challenging global economic conditions; challenges to ongoing privatization of Internet administration; the outcome of legal or other challenges resulting from our activities or the activities of registrars or registrants, or litigation generally; new or existing governmental laws and regulations; changes in customer behavior, Internet platforms and web-browsing patterns; the uncertainty of whether we will successfully develop and market new services; the uncertainty of whether our new services will achieve market acceptance or result in any revenues; 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 gTLD applications or the applicants' gTLD applications for which we have contracted to provide back-end registry services will be successful. 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, 2012, 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.

©2013 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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
June 30,
2013
December 31,
2012
ASSETS
Current assets:
Cash and cash equivalents $ 578,301 $ 130,736
Marketable securities 1,419,161 1,425,700
Accounts receivable, net 13,556 11,477
Deferred tax assets 256 44,756
Prepaid expenses and other current assets 42,017 30,795
Total current assets 2,053,291 1,643,464
Property and equipment, net 337,879 333,861
Goodwill 52,527 52,527
Long-term deferred tax assets 51,976 7,299
Other long-term assets 29,168 25,325
Total long-term assets 471,550 419,012
Total assets $ 2,524,841 $ 2,062,476
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 138,846 $ 130,391
Deferred revenues 596,869 564,627
Subordinated convertible debentures, including contingent interest derivative 606,282 --
Deferred tax liabilities 398,637 --
Total current liabilities 1,740,634 695,018
Long-term deferred revenues 259,515 247,955
Senior notes 750,000 --
Subordinated convertible debentures, including contingent interest derivative -- 597,614
Credit facility -- 100,000
Long-term deferred tax liabilities 3,698 386,914
Other long-term tax liabilities 44,926 44,298
Total long-term liabilities 1,058,139 1,376,781
Total liabilities 2,798,773 2,071,799
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: 319,852 at June 30, 2013 and 318,722 at December 31, 2012; Outstanding shares: 144,121 at June 30, 2013 and 153,392 at December 31, 2012 320 319
Additional paid-in capital 19,458,183 19,891,291
Accumulated deficit (19,729,142 ) (19,900,545 )
Accumulated other comprehensive loss (3,293 ) (388 )
Total stockholders' deficit (273,932 ) (9,323 )
Total liabilities and stockholders' deficit $ 2,524,841 $ 2,062,476
VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2013 2012 2013 2012
Revenues $ 239,332 $ 214,142 $ 475,779 $ 419,868
Costs and expenses:
Cost of revenues 46,630 42,844 93,884 84,100
Sales and marketing 23,269 26,313 41,373 54,128
Research and development 16,899 15,461 35,075 30,226
General and administrative 20,453 22,726 40,102 46,234
Restructuring charges -- (182 ) -- (730 )
Total costs and expenses 107,251 107,162 210,434 213,958
Operating income 132,081 106,980 265,345 205,910
Interest expense (19,809 ) (12,580 ) (32,405 ) (24,920 )
Non-operating income (loss), net 6,161 (2,097 ) 384 (1,290 )
Income from continuing operations before income taxes 118,433 92,303 233,324 179,700
Income tax expense (31,543 ) (23,831 ) (61,921 ) (45,123 )
Income from continuing operations, net of tax 86,890 68,472 171,403 134,577
Income from discontinued operations, net of tax -- -- -- 1,904
Net income 86,890 68,472 171,403 136,481
Unrealized (loss) gain on investments, net of tax (159 ) 42 (426 ) 37
Realized gain on investments, net of tax, included in net income (2,459 ) (30 ) (2,479 ) (35 )
Other comprehensive (loss) income (2,618 ) 12 (2,905 ) 2
Comprehensive income $ 84,272 $ 68,484 $ 168,498 $ 136,483
Basic income per share:
Continuing operations $ 0.58 $ 0.43 $ 1.14 $ 0.85
Discontinued operations -- -- -- 0.01
Net income $ 0.58 $ 0.43 $ 1.14 $ 0.86
Diluted income per share:
Continuing operations $ 0.55 $ 0.42 $ 1.07 $ 0.82
Discontinued operations -- -- -- 0.01
Net income $ 0.55 $ 0.42 $ 1.07 $ 0.83
Shares used to compute net income per share
Basic 148,576 157,599 150,549 158,471
Diluted 158,641 164,178 159,982 163,530
VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
2013 2012
Cash flows from operating activities:
Net income $ 171,403 $ 136,481
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment and amortization of other intangible assets 30,526 26,273
Stock-based compensation 16,429 16,584
Excess tax benefit associated with stock-based compensation (17,642 ) (11,638 )
Deferred income taxes 16,055 19,135
Other, net 10,064 10,947
Changes in operating assets and liabilities
Accounts receivable (2,263 ) 2,213
Prepaid expenses and other assets (991 ) 2,955
Accounts payable and accrued liabilities 30,090 (32,879 )
Deferred revenues 43,802 75,178
Net cash provided by operating activities 297,473 245,249
Cash flows from investing activities:
Proceeds from maturities and sales of marketable securities 1,564,459 8,101
Purchases of marketable securities (1,557,724 ) (1,097,669 )
Purchases of property and equipment (37,550 ) (26,242 )
Other investing activities (3,221 ) (520 )
Net cash used in investing activities (34,036 ) (1,116,330 )
Cash flows from financing activities:
Proceeds from issuance of common stock from option exercises and employee stock purchase plans 9,396 15,348
Repurchases of common stock (478,148 ) (152,725 )
Repayment of borrowings (100,000 ) --
Proceeds from senior notes, net of issuance costs 738,731 --
Excess tax benefit associated with stock-based compensation 17,642 11,638
Other financing activities -- 189
Net cash provided by (used in) financing activities 187,621 (125,550 )
Effect of exchange rate changes on cash and cash equivalents (3,493 ) (1,097 )
Net increase (decrease) in cash and cash equivalents 447,565 (997,728 )
Cash and cash equivalents at beginning of period 130,736 1,313,349
Cash and cash equivalents at end of period $ 578,301 $ 315,621
Supplemental cash flow disclosures:
Cash paid for interest, net of capitalized interest $ 20,495 $ 20,476
Cash paid for income taxes, net of refunds received $ 17,531 $ 21,193
VERISIGN, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)
Three Months Ended June 30,
2013 2012
Operating Income Net Income Operating Income Net Income
GAAP as reported $ 132,081 $ 86,890 $ 106,980 $ 68,472
Adjustments:
Stock-based compensation 8,835 8,835 8,454 8,454
Amortization of other intangible assets -- -- 325 325
Restructuring charges -- -- (182 ) (182 )
Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures (1,996 ) 3,147
Non-cash interest expense 2,230 1,871
Tax adjustment (4,157 ) (7,944 )
Non-GAAP $ 140,916 $ 91,802 $ 115,577 $ 74,143
Revenues $ 239,332 $ 214,142
Non-GAAP operating margin 58.9 % 54.0 %
Diluted shares 158,641 164,178
Per diluted share, non-GAAP $ 0.58 $ 0.45

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: discontinued operations, stock-based compensation, amortization of other intangible assets, impairments of goodwill and other intangible assets, restructuring charges, contingent interest payments to holders of the subordinated convertible debentures, unrealized gain/loss on contingent interest derivative on subordinated convertible debentures, and non-cash interest expense. Non-GAAP financial information is also adjusted for a 28 percent tax rate starting from the third quarter of 2012 and 30 percent for all other periods presented herein, both of which differ 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 June 30,
2013 2012
Cost of revenues $ 1,575 $ 1,451
Sales and marketing 1,727 1,833
Research and development 1,745 1,327
General and administrative 3,788 3,843
Total stock-based compensation expense $ 8,835 $ 8,454
VERISIGN, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)
Six Months Ended June 30,
2013 2012
Operating Income Net Income Operating Income Net Income
GAAP as reported $ 265,345 $ 171,403 $ 205,910 $ 136,481
Discontinued operations (1,904 )
Adjustments:
Stock-based compensation 16,429 16,429 16,584 16,584
Amortization of other intangible assets -- -- 648 648
Restructuring charges -- -- (730 ) (730 )
Unrealized loss on contingent interest derivative on the subordinated convertible debentures 4,437 3,960
Non-cash interest expense 4,144 3,491
Tax adjustment (10,412 ) (15,972 )
Non-GAAP $ 281,774 $ 186,001 $ 222,412 $ 142,558
Revenues $ 475,779 $ 419,868
Non-GAAP operating margin 59.2 % 53.0 %
Diluted shares 159,982 163,530
Per diluted share, non-GAAP $ 1.16 $ 0.87

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: discontinued operations, stock-based compensation, amortization of other intangible assets, impairments of goodwill and other intangible assets, restructuring charges, contingent interest payments to holders of the subordinated convertible debentures, unrealized gain/loss on contingent interest derivative on subordinated convertible debentures, and non-cash interest expense. Non-GAAP financial information is also adjusted for a 28 percent tax rate starting from the third quarter of 2012 and 30 percent for all other periods presented herein, both of which differ 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:
Six Months Ended June 30,
2013 2012
Cost of revenues $ 3,115 $ 2,988
Sales and marketing 3,214 3,349
Research and development 3,640 2,569
General and administrative 6,460 7,678
Total stock-based compensation expense $ 16,429 $ 16,584
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 June 30,
2013 2012
Net Income $ 86,890 $ 68,472
Interest expense 19,809 12,580
Income tax expense 31,543 23,831
Depreciation and amortization 15,408 13,532
Stock-based compensation 8,835 8,454
Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures (1,996 ) 3,147
Unrealized gain on hedging agreements (33 ) (585 )
Adjusted EBITDA $ 160,456 $ 129,431
Four Quarters Ended
June 30, 2013
Net Income $ 354,953
Interest expense 57,681
Income tax expense 120,422
Depreciation and amortization 59,072
Stock-based compensation 33,206
Unrealized loss on contingent interest derivative on the subordinated convertible debentures 55
Unrealized loss on hedging agreements 231
Adjusted EBITDA $ 625,620

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:

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: VeriSign, Inc.

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