VeriSign, Inc.
Feb 5, 2015
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Verisign Reports Fourth Quarter and Full Year 2014 Results

RESTON, VA -- (Marketwired) -- 02/05/15 -- 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

Business Highlights

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.

©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:

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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