VeriSign, Inc.
Jul 28, 2016
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Verisign Reports Second Quarter 2016 Results

RESTON, Va.--(BUSINESS WIRE)-- VeriSign, Inc. (NASDAQ: VRSN), a global leader in domain names and internet security, today reported financial results for the second quarter of 2016.

Second Quarter GAAP Financial Results

VeriSign, Inc. and subsidiaries ("Verisign") reported revenue of $286 million for the second quarter of 2016, up 9.1 percent from the same quarter in 2015. Verisign reported net income of $113 million and diluted earnings per share (diluted "EPS") of $0.87 for the second quarter of 2016, compared to net income of $93 million and diluted EPS of $0.70 for the same quarter in 2015. The operating margin was 61.5 percent for the second quarter of 2016 compared to 56.7 percent for the same quarter in 2015.

Second Quarter Non-GAAP Financial Results

Verisign reported, on a non-GAAP basis, net income of $119 million and diluted EPS of $0.91 for the second quarter of 2016, compared to net income of $99 million and diluted EPS of $0.74 for the same quarter in 2015. The non-GAAP operating margin was 65.4 percent for the second quarter of 2016 compared to 61.3 percent for the same quarter in 2015. A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.

"I'm pleased with the focus and discipline of our teams in delivering another quarter of solid financial performance," 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 which differs 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 (gain) loss 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 and financial performance and the comparability of Verisign's operating results from period to period. 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.

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 second quarter 2016 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-1444 (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 function 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 oversight of key internet domain name functions (the Internet Assigned Numbers Authority ("IANA") function) and the related root zone maintainer function; 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, 2015, 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.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

 
 
    June 30,
2016
   

December 31,
2015

ASSETS

Current assets:
Cash and cash equivalents $ 170,966 $ 228,659
Marketable securities 1,736,030 1,686,771
Accounts receivable, net 15,086 12,638
Other current assets   22,573     39,856  
Total current assets   1,944,655     1,967,924  
Property and equipment, net 277,942 295,570
Goodwill 52,527 52,527
Deferred tax assets 13,205 17,361
Other long-term assets   25,844     24,355  
Total long-term assets   369,518     389,813  
Total assets $ 2,314,173   $ 2,357,737  

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable and accrued liabilities $ 144,361 $ 188,171
Deferred revenues 699,456 680,483
Subordinated convertible debentures, including contingent interest derivative   632,308     634,326  
Total current liabilities   1,476,125     1,502,980  
Long-term deferred revenues 288,232 280,859
Senior notes 1,236,272 1,235,354
Deferred tax liabilities 326,112 294,194
Other long-term tax liabilities   114,762     114,797  
Total long-term liabilities   1,965,378     1,925,204  
Total liabilities   3,441,503     3,428,184  
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:323,941 at June 30, 2016 and 322,990 at December 31, 2015; Outstanding shares:107,180 at June 30, 2016 and 110,072 at December 31, 2015 324 323
Additional paid-in capital 17,279,468 17,558,822
Accumulated deficit (18,404,933 ) (18,625,599 )
Accumulated other comprehensive loss   (2,189 )   (3,993 )
Total stockholders' deficit   (1,127,330 )   (1,070,447 )
Total liabilities and stockholders' deficit $ 2,314,173   $ 2,357,737  
 
 

VERISIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share data)

(Unaudited)

 
 
    Three Months Ended June 30,     Six Months Ended June 30,
2016     2015 2016     2015
Revenues $ 286,466   $ 262,539   $ 568,342   $ 520,961  
Costs and expenses:
Cost of revenues 48,753 48,221 99,335 96,574
Sales and marketing 19,757 24,329 39,784 46,711
Research and development 14,288 16,347 31,031 33,499
General and administrative   27,401     24,677     55,158     50,975  
Total costs and expenses   110,199     113,574     225,308     227,759  
Operating income 176,267 148,965 343,034 293,202
Interest expense (28,859 ) (28,503 ) (57,663 ) (50,520 )
Non-operating income (loss), net   1,709     3,201     4,830     (2,354 )
Income before income taxes 149,117 123,663 290,201 240,328
Income tax expense   (35,907 )   (30,652 )   (69,535 )   (59,079 )
Net income   113,210     93,011     220,666     181,249  
Realized foreign currency translation adjustments, included in net income 85 (291 ) 85 (291 )
Unrealized gain on investments 851 147 1,786 234
Realized gain on investments, included in net income   (1 )   (69 )   (67 )   (73 )
Other comprehensive income (loss)   935     (213 )   1,804     (130 )
Comprehensive income $ 114,145   $ 92,798   $ 222,470   $ 181,119  
 
Earnings per share:
Basic $ 1.05   $ 0.80   $ 2.03   $ 1.56  
Diluted $ 0.87   $ 0.70   $ 1.68   $ 1.36  
Shares used to compute earnings per share
Basic   108,067     115,656     108,829     116,394  
Diluted   130,588     133,251     131,084     133,546  
 
 

VERISIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 
 
    Six Months Ended June 30,
2016     2015
Cash flows from operating activities:
Net income $ 220,666 $ 181,249
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment 29,417 31,620
Stock-based compensation 22,891 22,129
Excess tax benefit associated with stock-based compensation (12,708 ) (11,366 )
Unrealized (gain) loss on contingent interest derivative on Subordinated Convertible Debentures (971 ) 4,311
Payment of contingent interest (6,544 ) (5,225 )
Amortization of debt discount and issuance costs 6,590 5,941
Other, net (1,414 ) (1,099 )
Changes in operating assets and liabilities
Accounts receivable (2,798 ) (1,018 )
Prepaid expenses and other assets 15,430 7,369
Accounts payable and accrued liabilities (28,653 ) (4,778 )
Deferred revenues 26,346 41,247
Net deferred income taxes and other long-term tax liabilities   36,039     37,245  
Net cash provided by operating activities   304,291     307,625  
Cash flows from investing activities:
Proceeds from maturities and sales of marketable securities 2,056,607 1,283,367
Purchases of marketable securities (2,101,863 ) (1,747,025 )
Purchases of property and equipment (13,458 ) (21,891 )
Other investing activities   206     (3,736 )
Net cash used in investing activities   (58,508 )   (489,285 )
Cash flows from financing activities:
Proceeds from issuance of common stock from option exercises and employee stock purchase plans 8,084 9,014
Repurchases of common stock (324,235 ) (335,885 )
Proceeds from borrowings, net of issuance costs 492,237
Excess tax benefit associated with stock-based compensation   12,708     11,366  
Net cash (used in) provided by financing activities   (303,443 )   176,732  
Effect of exchange rate changes on cash and cash equivalents   (33 )   606  
Net decrease in cash and cash equivalents (57,693 ) (4,322 )
Cash and cash equivalents at beginning of period   228,659     191,608  
Cash and cash equivalents at end of period $ 170,966   $ 187,286  
Supplemental cash flow disclosures:
Cash paid for interest $ 57,636   $ 42,839  
Cash paid for income taxes, net of refunds received $ 13,994   $ 14,342  
 
 

VERISIGN, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(In thousands, except per share data)

(Unaudited)

 
 
    Three Months Ended June 30,
2016     2015
Operating Income     Net Income Operating Income     Net Income
GAAP as reported $ 176,267 $ 113,210 148,965 $ 93,011
Adjustments:
Stock-based compensation 11,132 11,132 12,001 12,001
Unrealized loss (gain) on contingent interest derivative on the subordinated convertible debentures 94 (2,708 )
Non-cash interest expense 3,323 2,956
Contingent interest payable on subordinated convertible debentures (3,421 ) (2,767 )
Tax adjustment         (5,758 )         (3,965 )
Non-GAAP $ 187,399   $ 118,580   $ 160,966   $ 98,528  
 
Revenues $ 286,466 $ 262,539
Non-GAAP operating margin   65.4 %   61.3 %
Diluted shares 130,588 133,251
Diluted EPS, non-GAAP $ 0.91   $ 0.74  
 
 
Six Months Ended June 30,
2016 2015
Operating Income Net Income Operating Income Net Income
GAAP as reported $ 343,034 $ 220,666 293,202 $ 181,249
Adjustments:
Stock-based compensation 22,891 22,891 22,129 22,129
Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures (971 ) 4,311
Non-cash interest expense 6,590 5,662
Contingent interest payable on subordinated convertible debentures (6,767 ) (5,457 )
Tax adjustment         (11,571 )         (10,334 )
Non-GAAP $ 365,925   $ 230,838   $ 315,331   $ 197,560  
 
Revenues $ 568,342 $ 520,961
Non-GAAP operating margin   64.4 %   60.5 %
Diluted shares 131,084 133,546
Diluted EPS, non-GAAP $ 1.76   $ 1.48  
 
 

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

June 30,

2016     2015
Net Income $ 113,210 $ 93,011
Interest expense 28,859 28,503
Income tax expense 35,907 30,652
Depreciation and amortization 14,550 15,873
Stock-based compensation 11,132 12,001
Unrealized loss (gain) on contingent interest derivative on the subordinated convertible debentures 94 (2,708 )
Unrealized (gain) loss on hedging agreements   (994 )   944  
Non-GAAP Adjusted EBITDA $ 202,758   $ 178,276  
 
 

Four Quarters Ended

June 30, 2016

Net income

 

414,653

Interest expense

 

114,774

Income tax expense

 

122,870

Depreciation and amortization

 

59,288

Stock-based compensation

 

46,837

Unrealized loss on contingent interest derivative on the subordinated convertible debentures

 

8,848

Unrealized gain on hedging agreements

 

(825

)
Non-GAAP Adjusted EBITDA

$

766,445

 
 
 

VERISIGN, INC.

STOCK-BASED COMPENSATION CLASSIFICATION

(In thousands)

(Unaudited)

 

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

 
    Three Months Ended June 30,     Six Months Ended June 30,
2016     2015 2016     2015
Cost of revenues $ 1,747 $ 1,741 $ 3,588 $ 3,480
Sales and marketing 1,457 1,818 3,090 3,117
Research and development 1,587 1,691 3,290 3,412
General and administrative   6,341   6,751   12,923   12,120
Total stock-based compensation expense $ 11,132 $ 12,001 $ 22,891 $ 22,129
 

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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