VeriSign, Inc.
Feb 11, 2016
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Verisign Reports Fourth Quarter and Full Year 2015 Results

RESTON, Va.--(BUSINESS WIRE)-- 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 2015.

Fourth Quarter GAAP Financial Results

VeriSign, Inc. and subsidiaries ("Verisign") reported revenue of $273 million for the fourth quarter of 2015, up 6.5 percent from the same quarter in 2014. Verisign reported net income of $102 million and diluted earnings per share ("diluted EPS") of $0.76 for the fourth quarter of 2015, compared to net income of $65 million and diluted EPS of $0.48 for the same quarter in 2014. The operating margin was 58.1 percent for the fourth quarter of 2015 compared to 55.6 percent for the same quarter in 2014.

As described in fourth quarter of 2014 earnings news release, net income for the fourth quarter of 2014 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.

Fourth Quarter Non-GAAP Financial Results

Verisign reported, on a non-GAAP basis, net income of $105 million and diluted EPS of $0.79 for the fourth quarter of 2015, compared to net income of $95 million and diluted EPS of $0.70 for the same quarter in 2014. The non-GAAP operating margin was 62.4 percent for the fourth quarter of 2015 compared to 59.4 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.

"We close 2015 marking more than five years, since completing the divestitures in 2010, of growing revenues, operating income and earnings while providing more than 18 years of uninterrupted availability of the Verisign DNS for .com and .net. During 2015 we repurchased 9.3 million shares returning $622 million to shareholders," commented Jim Bidzos, Executive Chairman, President and Chief Executive Officer.

2015 GAAP Financial Results

For the year ended Dec. 31, 2015, Verisign reported revenue of $1.06 billion, up 4.9 percent from $1.01 billion in 2014. Verisign reported net income of $375 million and diluted EPS of $2.82 in 2015, compared to net income of $355 million and diluted EPS of $2.52 in 2014. The operating margin for 2015 was 57.2 percent compared to 55.9 percent in 2014.

As described in the fourth quarter of 2014 earnings news release, net income for 2014 was decreased by $10 million and diluted EPS was decreased by $0.07 primarily due to the fourth quarter of 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.

2015 Non-GAAP Financial Results

Verisign reported, on a non-GAAP basis, net income of $405 million and diluted EPS of $3.05 for 2015, compared to net income of $383 million and diluted EPS of $2.72 for 2014. The non-GAAP operating margin for 2015 was 61.5 percent compared to 60.2 percent for 2014.

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 news 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. (EST) to review the fourth quarter and full year 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, 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; new or existing governmental laws and regulations in the U.S. or other applicable foreign jurisdictions; system interruptions; security breaches; attacks on the Internet by hackers, viruses, or intentional acts of vandalism; 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, changes in Internet practices and behavior and the adoption of substitute technologies; the success or failure of the evolution of our target markets; the operational and other risks from the introduction of new gTLDs by ICANN and our provision of back-end registry services; the highly competitive business environment in which we operate; whether we can maintain strong relationships with registrars and their resellers to maintain their marketing focus on our products and services; challenging global economic conditions; economic and political risk associated with our international operations; our ability to protect and enforce our rights to our intellectual property and ensure that we do not infringe on others' intellectual property; the outcome of legal or other challenges resulting from our activities or the activities of registrars or registrants, or litigation generally; the impact of our new strategic initiatives, including our IDN gTLDs; whether we can retain and motivate our senior management and key employees; the impact of unfavorable tax rules and regulations; and our ability to continue to reinvest offshore our foreign earnings. 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.

©2016 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, December 31,
2015 2014

ASSETS

Current assets:
Cash and cash equivalents $ 228,659 $ 191,608
Marketable securities 1,686,771 1,233,076
Accounts receivable, net 12,638 13,448
Other current assets 39,856   41,658  
Total current assets 1,967,924   1,479,790  
Property and equipment, net 295,570 319,028
Goodwill 52,527 52,527
Deferred tax assets 17,361 33,887
Other long-term assets 24,355   15,918  
Total long-term assets 389,813   421,360  
Total assets $ 2,357,737   $ 1,901,150  

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable and accrued liabilities $ 188,171 $ 190,278
Deferred revenues 680,483 621,307
Subordinated convertible debentures, including contingent interest derivative 634,326   620,620  
Total current liabilities 1,502,980   1,432,205  
Long-term deferred revenues 280,859 269,047
Senior notes 1,235,354 740,175
Deferred tax liabilities 294,194 244,467
Other long-term tax liabilities 114,797   98,722  
Total long-term liabilities 1,925,204   1,352,411  
Total liabilities 3,428,184   2,784,616  
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: 322,990 at December 31, 2015 and 321,699 at December 31, 2014; Outstanding shares: 110,072 at December 31, 2015 and 118,452 at December 31, 2014 323 322
Additional paid-in capital 17,558,822 18,120,045
Accumulated deficit (18,625,599 ) (19,000,835 )
Accumulated other comprehensive loss (3,993 ) (2,998 )
Total stockholders' deficit (1,070,447 ) (883,466 )
Total liabilities and stockholders' deficit $ 2,357,737   $ 1,901,150  
 
 
VERISIGN, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
   
Three Months Ended December 31, Year Ended December 31,
2015   2014 2015   2014
Revenues $ 272,625   $ 255,917   $ 1,059,366   $ 1,010,117  
Costs and expenses:
Cost of revenues 48,996 47,477 192,788 188,425
Sales and marketing 22,507 23,757 90,184 92,001
Research and development 15,200 17,324 63,718 67,777
General and administrative 27,640   25,138   106,730   97,487  

Total costs and expenses

114,343   113,696   453,420   445,690  
Operating income 158,282 142,221 605,946 564,427
Interest expense (28,567 ) (21,586 ) (107,631 ) (85,994 )
Non-operating (loss) income, net (4,336 ) (159 ) (10,665 ) 4,878  
Income before income taxes 125,379 120,476 487,650 483,311
Income tax expense (23,849 ) (55,004 ) (112,414 ) (128,051 )
Net income 101,530   65,472   375,236   355,260  
Realized foreign currency translation adjustments, included in net income (291 )
Unrealized (loss) gain on investments (1,318 ) 50 (519 ) 84
Realized (gain) loss on investments, included in net income (86 ) 1   (185 ) 3  
Other comprehensive (loss) income (1,404 ) 51   (995 ) 87  
Comprehensive income $ 100,126   $ 65,523   $ 374,241   $ 355,347  
 
Earnings per share:
Basic $ 0.92   $ 0.54   $ 3.29   $ 2.80  
Diluted $ 0.76   $ 0.48   $ 2.82   $ 2.52  
Shares used to compute earnings per share:
Basic 110,952   120,140   114,155   126,710  
Diluted 133,385   135,899   133,031   140,895  
 
 
VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Year Ended December 31,
2015   2014
Cash flows from operating activities:
Net income $ 375,236 $ 355,260
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment 61,491 63,690
Stock-based compensation 46,075 43,977
Excess tax benefit associated with stock-based compensation (18,464 ) (6,054 )
Unrealized loss (gain) on contingent interest derivative on Subordinated Convertible Debentures 14,130 (2,249 )
Payment of contingent interest (10,759 )
Amortization of debt discount and issuance costs 12,292 10,878
Other, net (1,781 ) 480
Changes in operating assets and liabilities
Accounts receivable 661 (73 )
Prepaid expenses and other assets (1,728 ) 11,571
Accounts payable and accrued liabilities 21,013 45,419
Deferred revenues 70,988 34,518
Net deferred income taxes and other long-term tax liabilities 82,328   43,532  
Net cash provided by operating activities 651,482   600,949  
Cash flows from investing activities:
Proceeds from maturities and sales of marketable securities and investments 2,767,027 3,428,659
Purchases of marketable securities (3,219,329 ) (3,277,096 )
Purchases of property and equipment (40,656 ) (39,327 )
Other investing activities (3,941 ) 452  
Net cash (used in) provided by investing activities (496,899 ) 112,688  
Cash flows from financing activities:
Proceeds from issuance of common stock from option exercises and employee stock purchase plans 14,690 17,597
Repurchases of common stock (643,169 ) (883,403 )
Proceeds from borrowings, net of issuance costs 492,237
Excess tax benefit associated with stock-based compensation 18,464   6,054  
Net cash used in financing activities (117,778 ) (859,752 )
Effect of exchange rate changes on cash and cash equivalents 246   (1,500 )
Net increase (decrease) in cash and cash equivalents 37,051 (147,615 )
Cash and cash equivalents at beginning of period 191,608   339,223  
Cash and cash equivalents at end of period $ 228,659   $ 191,608  
Supplemental cash flow disclosures:
Cash paid for interest, net of capitalized interest $ 99,473   $ 75,088  
Cash paid for income taxes, net of refunds received $ 39,723   $ 35,201  
 
 

VERISIGN, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(In thousands, except per share data)

(Unaudited)

 
Three Months Ended December 31,
2015   2014
Operating   Operating  
Income Net Income Income Net Income
GAAP as reported $ 158,282 $ 101,530 $ 142,221 $ 65,472
Adjustments:
Stock-based compensation 11,724 11,724 9,696 9,696
Unrealized loss on contingent interest derivative on the subordinated convertible debentures 5,072 1,704
Non-cash interest expense 3,091 2,641
Contingent interest payable on subordinated convertible debentures (3,272 ) (2,613 )
Tax adjustment   (13,070 )   18,071  
Non-GAAP $ 170,006   $ 105,075   $ 151,917   $ 94,971  
 
Revenues $ 272,625 $ 255,917
Non-GAAP operating margin 62.4 % 59.4 %
Diluted shares 133,385 135,899
Diluted EPS, non-GAAP $ 0.79   $ 0.70  
 
 
Year Ended December 31,
2015 2014
Operating Operating
Income Net Income Income Net Income
GAAP as reported $ 605,946 $ 375,236 $ 564,427 $ 355,260
Adjustments:
Stock-based compensation 46,075 46,075 43,977 43,977
Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures 14,130 (2,249 )
Non-cash interest expense 11,746 10,223
Contingent interest payable on subordinated convertible debentures (11,749 ) (3,919 )
Tax adjustment   (30,028 )   (20,725 )
Non-GAAP $ 652,021   $ 405,410   $ 608,404   $ 382,567  
 
Revenues $ 1,059,366 $ 1,010,117
Non-GAAP operating margin 61.5 % 60.2 %
Diluted shares 133,031 140,895
Diluted EPS, non-GAAP $ 3.05   $ 2.72  
 
 

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

December 31,

2015   2014
Net Income $ 101,530 $ 65,472
Interest expense 28,567 21,586
Income tax expense 23,849 55,004
Depreciation and amortization 14,937 15,767
Stock-based compensation 11,724 9,696
Unrealized loss on contingent interest derivative on the subordinated convertible debentures 5,072 1,704
Unrealized loss (gain) on hedging agreements 84   (267 )
Non-GAAP Adjusted EBITDA $ 185,763   $ 168,962  
 
Year Ended

December 31, 2015

Net Income $ 375,236
Interest expense 107,631
Income tax expense 112,414
Depreciation and amortization 61,491
Stock-based compensation 46,075
Unrealized loss on contingent interest derivative on the subordinated convertible debentures 14,130
Unrealized loss on hedging agreements 95  
Non-GAAP Adjusted EBITDA $ 717,072  
 
 
VERISIGN, INC.
STOCK-BASED COMPENSATION CLASSIFICATION
(In thousands)
(Unaudited)
 

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

   
Three Months Ended Year Ended
December 31, December 31,
2015   2014 2015   2014
Cost of revenues $ 1,807   $ 1,652 $ 7,009   $ 6,400
Sales and marketing 1,963 2,121 6,763 8,023
Research and development 1,598 1,829 6,488 7,018
General and administrative 6,356   4,094   25,815   22,536
Total stock-based compensation expense $ 11,724   $ 9,696   $ 46,075   $ 43,977

VeriSign, Inc.
Investor Relations:
David Atchley, 703-948-4643
datchley@verisign.com
or
Media Relations:
Deana Alvy, 703-948-4179
dalvy@verisign.com

Source: VeriSign, Inc.

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