VeriSign, Inc.
Apr 23, 2015
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Verisign Reports First Quarter 2015 Results

RESTON, VA -- (Marketwired) -- 04/23/15 -- VeriSign, Inc. (NASDAQ: VRSN), a global leader in domain names and Internet security, today reported financial results for the first quarter of 2015.

First Quarter GAAP Financial Results
VeriSign, Inc. and subsidiaries ("Verisign") reported revenue of $258 million for the first quarter of 2015, up 3.9 percent from the same quarter in 2014. Verisign reported net income of $88 million and diluted earnings per share of $0.66 for the first quarter of 2015, compared to net income of $94 million and diluted EPS of $0.64 in the same quarter in 2014. The operating margin was 55.8 percent for the first quarter of 2015 compared to 56.1 percent for the same quarter in 2014.

First Quarter Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $99 million and diluted EPS of $0.74 for the first quarter of 2015, compared to net income of $95 million and diluted EPS of $0.64 for the same quarter in 2014. The non-GAAP operating margin was 59.7 percent for the first quarter of 2015 compared to 60.1 percent for the same quarter in 2014. A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.

"Adherence to our strategy and disciplined execution have produced another solid quarter," commented Jim Bidzos, executive chairman, president and chief executive officer.

"We are pleased with the successful completion of our $500 million senior unsecured notes offering," stated George E. Kilguss, III, senior vice president and chief financial officer.

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 an income tax rate of 26 percent for 2015 and 28 percent for 2014, both of which differ from the GAAP income 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 first quarter 2015 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-1277 (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) and related root zone management functions, 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, 2014, 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)  
   
  March 31,
 2015
    December 31,
 2014
 
ASSETS          
Current assets:          
  Cash and cash equivalents $ 705,879     $ 191,608  
  Marketable securities   1,165,443       1,233,076  
  Accounts receivable, net   14,656       13,448  
  Other current assets   54,006       52,475  
    Total current assets   1,939,984       1,490,607  
Property and equipment, net   311,870       319,028  
Goodwill   52,527       52,527  
Long-term deferred tax assets   266,508       266,954  
Other long-term assets   36,821       25,743  
    Total long-term assets   667,726       664,252  
    Total assets $ 2,607,710     $ 2,154,859  
LIABILITIES AND STOCKHOLDERS' DEFICIT              
Current liabilities:              
  Accounts payable and accrued liabilities $ 150,482     $ 190,278  
  Deferred revenues   648,439       621,307  
  Subordinated convertible debentures, including contingent interest derivative   635,453       631,190  
  Deferred tax liabilities   487,817       477,781  
    Total current liabilities   1,922,191       1,920,556  
Long-term deferred revenues   276,497       269,047  
Senior notes   1,250,000       750,000  
Other long-term tax liabilities   106,899       98,722  
    Total long-term liabilities   1,633,396       1,117,769  
    Total liabilities   3,555,587       3,038,325  
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: 322,707 at March 31, 2015 and 321,699 at December 31, 2014; Outstanding shares: 116,429 at March 31, 2015 and 118,452 at December 31, 2014   323       322  
  Additional paid-in capital   17,967,312       18,120,045  
  Accumulated deficit   (18,912,597 )     (19,000,835 )
  Accumulated other comprehensive loss   (2,915 )     (2,998 )
    Total stockholders' deficit   (947,877 )     (883,466 )
    Total liabilities and stockholders' deficit $ 2,607,710     $ 2,154,859  
   
   
VERISIGN, INC.  
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  
(In thousands, except per share data)  
(Unaudited)  
   
    Three Months Ended March 31,  
    2015     2014  
Revenues   $ 258,422     $ 248,796  
  Costs and expenses:                
  Cost of revenues     48,353       48,026  
  Sales and marketing     22,382       20,289  
  Research and development     17,152       18,439  
  General and administrative     26,298       22,457  
    Total costs and expenses     114,185       109,211  
Operating income     144,237       139,585  
Interest expense     (22,017 )     (21,385 )
Non-operating (loss) income, net     (5,555 )     6,516  
Income before income taxes     116,665       124,716  
Income tax expense     (28,427 )     (30,293 )
Net income     88,238       94,423  
  Unrealized gain on investments     87       8  
  Realized (gain) loss on investments, included in net income     (4 )     5  
Other comprehensive income     83       13  
Comprehensive income   $ 88,321     $ 94,436  
                 
Income per share:                
  Basic   $ 0.75     $ 0.71  
  Diluted   $ 0.66     $ 0.64  
Shares used to compute net income per share                
  Basic     117,139       133,417  
  Diluted     133,850       148,600  
   
   
VERISIGN, INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(In thousands)  
(Unaudited)  
   
    Three Months Ended March 31,  
    2015     2014  
Cash flows from operating activities:            
  Net income   $ 88,238     $ 94,423  
  Adjustments to reconcile net income to net cash provided by operating activities:                
    Depreciation of property and equipment     15,747       16,008  
    Stock-based compensation     10,128       9,993  
    Excess tax benefit associated with stock-based compensation     (5,993 )     -  
    Unrealized loss (gain) on contingent interest derivative on Subordinated Convertible Debentures     7,019        (5,269  )
    Payment of contingent interest     (5,225 )     -  
    Other, net     2,701       1,004  
    Changes in operating assets and liabilities                
      Accounts receivable     (1,282 )     (1,806 )
      Prepaid expenses and other assets     (3,084 )     7,925  
      Accounts payable and accrued liabilities     (28,816 )     (34,579 )
      Deferred revenues     34,582       30,384  
      Net deferred income taxes and other long-term tax liabilities     18,654       23,546  
        Net cash provided by operating activities     132,669       141,629  
Cash flows from investing activities:                
  Proceeds from maturities and sales of marketable securities     325,399       718,177  
  Purchases of marketable securities     (257,415 )     (784,090 )
  Purchases of property and equipment     (13,042 )     (11,262 )
  Other investing activities     (3,787 )     34  
        Net cash provided by (used in) investing activities     51,155       (77,141 )
Cash flows from financing activities:                
  Proceeds from issuance of common stock from option exercises and employee stock purchase plans     8,776       8,668  
  Repurchases of common stock     (178,330 )     (145,556 )
  Proceeds from borrowings, net of issuance costs     493,824       -  
  Excess tax benefit associated with stock-based compensation     5,993       -  
        Net cash provided by (used in) financing activities     330,263       (136,888 )
Effect of exchange rate changes on cash and cash equivalents     184       230  
Net increase (decrease) in cash and cash equivalents     514,271       (72,170 )
Cash and cash equivalents at beginning of period     191,608       339,223  
Cash and cash equivalents at end of period   $ 705,879     $ 267,053  
Supplemental cash flow disclosures:                
  Cash paid for interest, net of capitalized interest   $ 25,494     $ 20,209  
  Cash paid for income taxes, net of refunds received   $ 12,970     $ 7,651  
   
   
VERISIGN, INC.  
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES  
(In thousands, except per share data)  
(Unaudited)  
   
    Three Months Ended March 31,  
    2015     2014  
    Operating Income     Net Income     Operating Income     Net Income  
GAAP as reported   $ 144,237     $ 88,238     $ 139,585     $ 94,423  
  Adjustments:                                
    Stock-based compensation     10,128       10,128       9,993       9,993  
    Unrealized loss on contingent interest derivative on the subordinated convertible debentures             7,019               (5,269 )
    Non-cash interest expense             2,706               2,443  
    Contingent interest payable on subordinated convertible debentures             (2,690 )             -  
  Tax adjustment             (6,369 )             (6,634 )
Non-GAAP   $ 154,365     $ 99,032     $ 149,578     $ 94,956  
                                 
Revenues   $ 258,422             $ 248,796          
Non-GAAP operating margin     59.7 %             60.1 %        
Diluted shares             133,850               148,600  
Per diluted share, non-GAAP           $ 0.74             $ 0.64  

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 an income tax rate of 26 percent for 2015 and 28 percent for 2014, both of which differ from the GAAP income 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 March 31,
  2015   2014
  Cost of revenues $ 1,739   $ 1,598
  Sales and marketing   1,299     1,848
  Research and development   1,721     1,872
  General and administrative   5,369     4,675
Total stock-based compensation expense $ 10,128   $ 9,993

VERISIGN, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Unaudited)

On a quarterly basis we disclose our Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure and is calculated in accordance with the terms of the indentures governing our 4.625% senior notes due 2023 and our 5.25% senior notes due 2025. 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
March 31,
 
  2015     2014  
Net Income $ 88,238     $ 94,423  
  Interest expense   22,017       21,385  
  Income tax expense   28,427       30,293  
  Depreciation and amortization   15,747       16,008  
  Stock-based compensation   10,128       9,993  
  Unrealized loss on contingent interest derivative on the subordinated convertible debentures   7,019       (5,269 )
  Unrealized (gain) loss on hedging agreements   (456 )     135  
Adjusted EBITDA $ 171,120     $ 166,968  
       
    Four Quarters Ended
March 31, 2015
 
Net income     349,076  
  Interest expense     86,626  
  Income tax benefit     126,185  
  Depreciation and amortization     63,430  
  Stock-based compensation     44,112  
  Unrealized gain on contingent interest derivative on the subordinated convertible debentures     10,039  
  Unrealized gain on hedging agreements     (743 )
Adjusted EBITDA   $ 678,725  

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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