VeriSign, Inc.
Oct 22, 2015
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Verisign Reports Third Quarter 2015 Results

RESTON, VA -- (Marketwired) -- 10/22/15 -- VeriSign, Inc. (NASDAQ: VRSN), a global leader in domain names and Internet security, today reported financial results for the third quarter of 2015.

Third Quarter GAAP Financial Results

VeriSign, Inc. and subsidiaries ("Verisign") reported revenue of $266 million for the third quarter of 2015, up 4.2 percent from the same quarter in 2014. Verisign reported net income of $92 million and diluted earnings per share of $0.70 for the third quarter of 2015, compared to net income of $95 million and diluted EPS of $0.69 for the same quarter in 2014. The operating margin was 58.1 percent for the third quarter of 2015 compared to 54.7 percent for the same quarter in 2014.

Third Quarter Non-GAAP Financial Results

Verisign reported, on a non-GAAP basis, net income of $103 million and diluted EPS of $0.78 for the third quarter of 2015, compared to net income of $97 million and diluted EPS of $0.70 for the same quarter in 2014. The non-GAAP operating margin was 62.7 percent for the third quarter of 2015 compared to 60.6 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.

"Our quarterly results demonstrate the ongoing strength of our business and our execution discipline, which continue to produce value for our shareholders," commented Jim Bidzos, Executive Chairman, President and Chief Executive Officer.

Financial Highlights

Business Highlights

Non-GAAP Financial Measures and Adjusted EBITDA

Verisign provides quarterly and annual financial statements that are prepared in accordance with generally accepted accounting principles (GAAP). Along with this information, management typically discloses and discusses certain non-GAAP financial information in 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 the contingent interest derivative on the 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.

On a quarterly basis, Verisign also provides Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure and is calculated in accordance with the terms of the indentures governing Verisign's 4.625% senior notes due 2023 and 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 the contingent interest derivative on the subordinated convertible debentures and unrealized loss (gain) on hedging agreements.

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 Verisign'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. Management believes that the non-GAAP information enhances investors' overall understanding of Verisign's financial performance and the comparability of Verisign's operating results from period to period.

The tables appended to this release include a reconciliation of the non-GAAP financial information to the comparable financial information reported in accordance with GAAP for the given periods.

Today's Conference Call

Verisign will host a live conference call today at 4:30 p.m. (EDT) to review the third quarter 2015 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-1460 (international), conference ID: Verisign. A listen-only live web cast of the conference call and accompanying slide presentation will also be available at https://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 https://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 Verisign.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 or pursue strategic initiatives, the uncertainty of whether our new products and services, including our new gTLDs, 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 continuing introduction of new gTLDs, 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 current and future 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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
 
    September 30,
 2015
    December 31,
 2014
 
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 177,871     $ 191,608  
  Marketable securities     1,713,087       1,233,076  
  Accounts receivable, net     14,714       13,448  
  Other current assets     35,468       41,905  
    Total current assets     1,941,140       1,480,037  
Property and equipment, net     297,299       319,028  
Goodwill     52,527       52,527  
Long-term deferred tax assets     262,243       266,954  
Other long-term assets     24,096       15,918  
    Total long-term assets     636,165       654,427  
    Total assets   $ 2,577,305     $ 2,134,464  
LIABILITIES AND STOCKHOLDERS' DEFICIT                
Current liabilities:                
  Accounts payable and accrued liabilities   $ 180,106     $ 190,278  
  Deferred revenues     660,417       621,307  
  Subordinated convertible debentures, including contingent interest derivative     626,590       620,620  
  Deferred tax liabilities     512,779       477,781  
    Total current liabilities     1,979,892       1,909,986  
Long-term deferred revenues     279,724       269,047  
Senior notes     1,234,890       740,175  
Other long-term tax liabilities     114,209       98,722  
    Total long-term liabilities     1,628,823       1,107,944  
    Total liabilities     3,608,715       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:322,968 at September 30, 2015 and 321,699 at December 31, 2014; Outstanding shares:111,891 at September 30, 2015 and 118,452 at December 31, 2014     323       322  
  Additional paid-in capital     17,697,985       18,120,045  
  Accumulated deficit     (18,727,129 )     (19,000,835 )
  Accumulated other comprehensive loss     (2,589 )     (2,998 )
    Total stockholders' deficit     (1,031,410 )     (883,466 )
    Total liabilities and stockholders' deficit   $ 2,577,305     $ 2,134,464  
 
 
 
VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2015     2014     2015     2014  
Revenues   $ 265,780     $ 255,022     $ 786,741     $ 754,200  
Costs and expenses:                                
  Cost of revenues     47,218       46,933       143,792       140,948  
  Sales and marketing     20,966       24,304       67,677       68,244  
  Research and development     15,019       16,320       48,518       50,453  
  General and administrative     28,115       27,965       79,090       72,349  
    Total costs and expenses     111,318       115,522       339,077       331,994  
Operating income     154,462       139,500       447,664       422,206  
Interest expense     (28,544 )     (21,533 )     (79,064 )     (64,408 )
Non-operating (loss) income, net     (3,975 )     (6,473 )     (6,329 )     5,037  
Income before income taxes     121,943       111,494       362,271       362,835  
Income tax expense     (29,486 )     (16,305 )     (88,565 )     (73,047 )
Net income     92,457       95,189       273,706       289,788  
  Realized foreign currency translation adjustments, included in net income     -       -       (291 )     -  
  Unrealized gain on investments     565       59       799       34  
  Realized (gain) loss on investments, included in net income     (26 )     (1 )     (99 )     2  
Other comprehensive income     539       58       409       36  
Comprehensive income   $ 92,996     $ 95,247     $ 274,115     $ 289,824  
                                 
Income per share:                                
  Basic   $ 0.82     $ 0.77     $ 2.38     $ 2.25  
  Diluted   $ 0.70     $ 0.69     $ 2.06     $ 2.03  
Shares used to compute net income per share:                                
  Basic     112,955       124,109       115,235       128,924  
  Diluted     131,721       138,112       132,925       142,584  
 
 
 
VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
    Nine Months Ended September 30,  
    2015     2014  
Cash flows from operating activities:                
  Net income   $ 273,706     $ 289,788  
  Adjustments to reconcile net income to net cash provided by operating activities:                
    Depreciation of property and equipment     46,554       47,924  
    Stock-based compensation     34,351       34,281  
    Excess tax benefit associated with stock-based compensation     (19,420 )     (8,566 )
    Unrealized loss (gain) on contingent interest derivative on Subordinated Convertible Debentures     9,058       (3,953 )
    Payment of Contingent interest     (10,759 )     -  
    Other, net     8,161       7,470  
    Changes in operating assets and liabilities                
      Accounts receivable     (1,319 )     (2,550 )
      Prepaid expenses and other assets     2,967       31,349  
      Accounts payable and accrued liabilities     14,658       (2,540 )
      Deferred revenues     49,787       37,237  
      Net deferred income taxes and other long-term tax liabilities     55,203       36  
        Net cash provided by operating activities     462,947       430,476  
Cash flows from investing activities:                
  Proceeds from maturities and sales of marketable securities     1,965,767       2,425,259  
  Purchases of marketable securities     (2,443,865 )     (2,281,523 )
  Purchases of property and equipment     (28,659 )     (30,058 )
  Other investing activities     (3,666 )     351  
        Net cash (used in) provided by investing activities     (510,423 )     114,029  
Cash flows from financing activities:                
  Proceeds from issuance of common stock from option exercises and employee stock purchase plans     14,690       15,816  
  Repurchases of common stock     (492,575 )     (673,540 )
  Proceeds from borrowings, net of issuance costs     492,237       -  
  Excess tax benefit associated with stock-based compensation     19,420       8,566  
        Net cash provided by (used in) financing activities     33,772       (649,158 )
Effect of exchange rate changes on cash and cash equivalents     (33 )     (621 )
Net decrease in cash and cash equivalents     (13,737 )     (105,274 )
Cash and cash equivalents at beginning of period     191,608       339,223  
Cash and cash equivalents at end of period   $ 177,871     $ 233,949  
Supplemental cash flow disclosures:                
  Cash paid for interest, net of capitalized interest   $ 68,678     $ 57,767  
  Cash paid for income taxes, net of refunds received   $ 13,289     $ 34,937  
 
 
 
VERISIGN, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)
 
    Three Months Ended September 30,  
    2015     2014  
    Operating Income     Net Income     Operating Income     Net Income  
GAAP as reported   $ 154,462     $ 92,457     $ 139,500     $ 95,189  
  Adjustments:                                
    Stock-based compensation     12,222       12,222       14,916       14,916  
    Unrealized loss on contingent interest derivative on the subordinated convertible debentures             4,747               6,562  
    Non-cash interest expense             2,994               2,588  
    Contingent interest payable on subordinated convertible debentures             (3,020 )             (1,306 )
  Tax adjustment             (6,625 )             (21,285 )
Non-GAAP   $ 166,684     $ 102,775     $ 154,416     $ 96,664  
                                 
Revenues   $ 265,780             $ 255,022          
Non-GAAP operating margin     62.7 %             60.6 %        
Diluted shares             131,721               138,112  
Per diluted share, non-GAAP           $ 0.78             $ 0.70  
                                 
                                 
                                 
    Nine Months Ended September 30,  
    2015     2014  
    Operating Income     Net Income     Operating Income     Net Income  
GAAP as reported   $ 447,664     $ 273,706     $ 422,206     $ 289,788  
  Adjustments:                                
    Stock-based compensation     34,351       34,351       34,281       34,281  
    Unrealized loss (gain) on contingent interest derivative on the subordinated convertible debentures             9,058               (3,953 )
    Non-cash interest expense             8,656               7,581  
    Contingent interest payable on subordinated convertible debentures             (8,477 )             (1,306 )
  Tax adjustment             (16,959 )             (38,796 )
Non-GAAP   $ 482,015     $ 300,335     $ 456,487     $ 287,595  
                                 
Revenues   $ 786,741             $ 754,200          
Non-GAAP operating margin     61.3 %             60.5 %        
Diluted shares             132,925               142,584  
Per diluted share, non-GAAP           $ 2.26             $ 2.02  
 
 
 
VERISIGN, INC.
RECONCILIATION OF NON-GAAP ADJUSTED EBITDA
(In thousands)
(Unaudited)

The following table reconciles GAAP net income to non-GAAP Adjusted EBITDA for the periods shown below (in thousands):

     
    Three Months Ended  September 30,
    2015     2014
Net Income   $ 92,457     $ 95,189
  Interest expense     28,544       21,533
  Income tax expense     29,486       16,305
  Depreciation and amortization     14,934       15,809
  Stock-based compensation     12,222       14,916
  Unrealized loss on contingent interest derivative on the subordinated convertible debentures     4,747       6,562
  Unrealized (gain) loss on hedging agreements     (479 )     128
Non-GAAP Adjusted EBITDA   $ 181,911     $ 170,442
     
  Four Quarters Ended  September 30, 2015  
Net income   339,179  
  Interest expense   100,651  
  Income tax expense   143,569  
  Depreciation and amortization   62,322  
  Stock-based compensation   44,047  
  Unrealized loss on contingent interest derivative on the subordinated convertible debentures   10,761  
  Unrealized gain on hedging agreements   (256 )
Non-GAAP Adjusted EBITDA $ 700,273  
       
 
 
STOCK-BASED COMPENSATION CLASSIFICATION
(In thousands)
(Unaudited)

The following table presents the classification of stock-based compensation:

    Three Months Ended September 30,   Nine Months Ended September 30,
    2015   2014   2015   2014
  Cost of revenues   $ 1,722   $ 1,618   $ 5,202   $ 4,748
  Sales and marketing     1,683     2,234     4,800     5,902
  Research and development     1,478     1,678     4,890     5,189
  General and administrative     7,339     9,386     19,459     18,442
Total stock-based compensation expense   $ 12,222   $ 14,916   $ 34,351   $ 34,281

Source: VeriSign, Inc.

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