VeriSign, Inc.
Jul 23, 2015
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Verisign Reports Second Quarter 2015 Results

RESTON, VA -- (Marketwired) -- 07/23/15 -- VeriSign, Inc. (NASDAQ: VRSN), a global leader in domain names and Internet security, today reported financial results for the second quarter of 2015.

Second Quarter GAAP Financial Results
VeriSign, Inc. and subsidiaries ("Verisign") reported revenue of $263 million for the second quarter of 2015, up 4.9 percent from the same quarter in 2014. Verisign reported net income of $93 million and diluted earnings per share of $0.70 for the second quarter of 2015, compared to net income of $100 million and diluted EPS of $0.71 in the same quarter in 2014. The operating margin was 56.7 percent for the second quarter of 2015 compared to 57.2 percent for the same quarter in 2014.

Second 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 second quarter of 2015, compared to net income of $96 million and diluted EPS of $0.68 for the same quarter in 2014. The non-GAAP operating margin was 61.3 percent for the second quarter of 2015 compared to 60.9 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.

"I am pleased to report another quarter in which we have created and delivered value for our shareholders," 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: 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 second quarter 2015 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-1233 (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 Security 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 in the U.S. or other applicable foreign jurisdictions; 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 a large number of 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)  
   
    June 30,
 2015
    December 31,
 2014
 
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 187,286     $ 191,608  
  Marketable securities     1,697,523       1,233,076  
  Accounts receivable, net     14,418       13,448  
  Other current assets     31,280       41,905  
    Total current assets     1,930,507       1,480,037  
Property and equipment, net     304,360       319,028  
Goodwill     52,527       52,527  
Long-term deferred tax assets     260,892       266,954  
Other long-term assets     22,378       15,918  
    Total long-term assets     640,157       654,427  
    Total assets   $ 2,570,664     $ 2,134,464  
LIABILITIES AND STOCKHOLDERS' DEFICIT                
Current liabilities:                
  Accounts payable and accrued liabilities   $ 166,558     $ 190,278  
  Deferred revenues     653,773       621,307  
  Subordinated convertible debentures, including contingent interest derivative     624,767       620,620  
  Deferred tax liabilities     500,433       477,781  
    Total current liabilities     1,945,531       1,909,986  
Long-term deferred revenues     277,828       269,047  
Senior notes     1,234,368       740,175  
Other long-term tax liabilities     107,253       98,722  
    Total long-term liabilities     1,619,449       1,107,944  
    Total liabilities     3,564,980       3,017,930  
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:322,781 at June 30, 2015 and 321,699 at December 31, 2014; Outstanding shares:114,028 at June 30, 2015 and 118,452 at December 31, 2014     323       322  
  Additional paid-in capital     17,828,075       18,120,045  
  Accumulated deficit     (18,819,586 )     (19,000,835 )
  Accumulated other comprehensive loss     (3,128 )     (2,998 )
    Total stockholders' deficit     (994,316 )     (883,466 )
    Total liabilities and stockholders' deficit   $ 2,570,664     $ 2,134,464  
   
   
VERISIGN, INC.  
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  
(In thousands, except per share data)  
(Unaudited)  
   
    Three Months Ended June 30,     Six Months Ended June 30,  
    2015     2014     2015     2014  
Revenues   $ 262,539     $ 250,382     $ 520,961     $ 499,178  
Costs and expenses:                                
  Cost of revenues     48,221       45,989       96,574       94,015  
  Sales and marketing     24,329       23,651       46,711       43,940  
  Research and development     16,347       15,694       33,499       34,133  
  General and administrative     24,677       21,927       50,975       44,384  
    Total costs and expenses     113,574       107,261       227,759       216,472  
Operating income     148,965       143,121       293,202       282,706  
Interest expense     (28,503 )     (21,490 )     (50,520 )     (42,875 )
Non-operating income (loss), net     3,201       4,994       (2,354 )     11,510  
Income before income taxes     123,663       126,625       240,328       251,341  
Income tax expense     (30,652 )     (26,449 )     (59,079 )     (56,742 )
Net income     93,011       100,176       181,249       194,599  
  Realized foreign currency translation adjustments, included in net income     (291 )     -       (291 )     -  
  Unrealized gain (loss) on investments     147       (33 )     234       (25 )
  Realized (gain) loss on investments, included in net income     (69 )     (2 )     (73 )     3  
Other comprehensive loss     (213 )     (35 )     (130 )     (22 )
Comprehensive income   $ 92,798     $ 100,141     $ 181,119     $ 194,577  
                                 
Income per share:                                
  Basic   $ 0.80     $ 0.77     $ 1.56     $ 1.48  
  Diluted   $ 0.70     $ 0.71     $ 1.36     $ 1.34  
Shares used to compute net income per share                                
  Basic     115,656       129,350       116,394       131,372  
  Diluted     133,251       141,142       133,546       144,861  
                                 
   
   
VERISIGN, INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(In thousands)  
(Unaudited)  
   
    Six Months Ended June 30,  
    2015     2014  
Cash flows from operating activities:                
  Net income   $ 181,249     $ 194,599  
  Adjustments to reconcile net income to net cash provided by operating activities:                
    Depreciation of property and equipment     31,620       32,115  
    Stock-based compensation     22,129       19,365  
    Excess tax benefit associated with stock-based compensation     (11,366 )     (15,309 )
    Unrealized loss (gain) on contingent interest derivative on Subordinated Convertible Debentures     4,311       (10,515 )
    Payment of Contingent interest     (5,225 )     -  
    Other, net     4,842       3,802  
    Changes in operating assets and liabilities                
      Accounts receivable     (1,018 )     (233 )
      Prepaid expenses and other assets     7,369       26,414  
      Accounts payable and accrued liabilities     (4,778 )     (869 )
      Deferred revenues     41,247       34,615  
      Net deferred income taxes and other long-term tax liabilities     37,245       (21,246 )
        Net cash provided by operating activities     307,625       262,738  
Cash flows from investing activities:                
  Proceeds from maturities and sales of marketable securities     1,283,367       2,118,861  
  Purchases of marketable securities     (1,747,025 )     (2,042,657 )
  Purchases of property and equipment     (21,891 )     (18,747 )
  Other investing activities     (3,736 )     74  
        Net cash (used in) provided by investing activities     (489,285 )     57,531  
Cash flows from financing activities:                
  Proceeds from issuance of common stock from option exercises and employee stock purchase plans     9,014       8,970  
  Repurchases of common stock     (335,885 )     (446,676 )
  Proceeds from borrowings, net of issuance costs     492,237       -  
  Excess tax benefit associated with stock-based compensation     11,366       15,309  
        Net cash provided by (used in) financing activities     176,732       (422,397 )
Effect of exchange rate changes on cash and cash equivalents     606       266  
Net decrease in cash and cash equivalents     (4,322 )     (101,862 )
Cash and cash equivalents at beginning of period     191,608       339,223  
Cash and cash equivalents at end of period   $ 187,286     $ 237,361  
Supplemental cash flow disclosures:                
  Cash paid for interest, net of capitalized interest   $ 42,839     $ 37,507  
  Cash paid for income taxes, net of refunds received   $ 14,342     $ 34,464  
   
   
VERISIGN, INC.  
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES  
(In thousands, except per share data)  
(Unaudited)  
   
    Three Months Ended June 30,  
    2015     2014  
    Operating Income     Net Income     Operating Income     Net Income  
GAAP as reported   $ 148,965     $ 93,011     $ 143,121     $ 100,176  
  Adjustments:                                
    Stock-based compensation     12,001       12,001       9,372       9,372  
    Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures             (2,708 )             (5,246 )
    Non-cash interest expense             2,956               2,547  
    Contingent interest payable on subordinated convertible debentures             (2,767 )             -  
  Tax adjustment             (3,965 )             (10,875 )
Non-GAAP   $ 160,966     $ 98,528     $ 152,493     $ 95,974  
                                 
Revenues   $ 262,539             $ 250,382          
Non-GAAP operating margin     61.3 %             60.9 %        
Diluted shares             133,251               141,142  
Per diluted share, non-GAAP           $ 0.74             $ 0.68  
                                 

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 June 30,
    2015   2014
  Cost of revenues   $ 1,741   $ 1,532
  Sales and marketing     1,818     1,820
  Research and development     1,691     1,639
  General and administrative     6,751     4,381
Total stock-based compensation expense   $ 12,001   $ 9,372
             
   
   
VERISIGN, INC.  
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES  
(In thousands, except per share data)  
(Unaudited)  
   
    Six Months Ended June 30,  
    2015     2014  
    Operating Income     Net Income     Operating Income     Net Income  
GAAP as reported   $ 293,202     $ 181,249     $ 282,706     $ 194,599  
  Adjustments:                                
    Stock-based compensation     22,129       22,129       19,365       19,365  
    Unrealized loss on contingent interest derivative on the subordinated convertible debentures             4,311               (10,515 )
    Non-cash interest expense             5,662               4,991  
    Contingent interest payable on subordinated convertible debentures             (5,457 )             -  
  Tax adjustment             (10,334 )             (17,509 )
Non-GAAP   $ 315,331     $ 197,560     $ 302,071     $ 190,931  
                                 
Revenues   $ 520,961             $ 499,178          
Non-GAAP operating margin     60.5 %             60.5 %        
Diluted shares             133,546               144,861  
Per diluted share, non-GAAP           $ 1.48             $ 1.32  
                                 

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:

    Six Months Ended June 30,
    2015   2014
  Cost of revenues   $ 3,480   $ 3,130
  Sales and marketing     3,117     3,668
  Research and development     3,412     3,511
  General and administrative     12,120     9,056
Total stock-based compensation expense   $ 22,129   $ 19,365
             
             
             
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
June 30,
 
      2015        2014   
Net Income   $ 93,011     $ 100,176  
  Interest expense     28,503       21,490  
  Income tax expense     30,652       26,449  
  Depreciation and amortization     15,873       16,107  
  Stock-based compensation     12,001       9,372  
  Unrealized gain on contingent interest derivative on the subordinated convertible debentures     (2,708 )     (5,246 )
  Unrealized loss (gain) on hedging agreements     944       (150 )
Adjusted EBITDA   $ 178,276     $ 168,198  
                 
                 
  Four Quarters Ended
June 30, 2015
Net income   341,911
  Interest expense   93,639
  Income tax benefit   130,388
  Depreciation and amortization   63,197
  Stock-based compensation   46,742
  Unrealized loss on contingent interest derivative on the subordinated convertible debentures   12,577
  Unrealized loss on hedging agreements   351
Adjusted EBITDA $ 688,805
     

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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