Verisign News Releases

Verisign Reports Second Quarter 2015 Results

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

  • Verisign ended the second quarter with cash, cash equivalents and marketable securities of $1.9 billion, an increase of $460 million as compared with year-end 2014.
  • Cash flow from operations was $175 million for the second quarter of 2015, compared with $121 million for the same quarter in 2014.
  • Deferred revenues on June 30, 2015, totaled $932 million, an increase of $41 million from year-end 2014.
  • Capital expenditures were $9 million in the second quarter of 2015.
  • During the second quarter, Verisign repurchased 2.5 million shares of its common stock for $156 million. At June 30, 2015, $761 million remained available and authorized under the current share repurchase program which has no expiration.
  • For purposes of calculating diluted EPS, the second quarter diluted share count included 17 million shares related to subordinated convertible debentures, compared with 11.3 million shares in the same quarter in 2014. These represent diluted shares and not shares that have been issued.

Business Highlights

  • Verisign Registry Services added 0.52 million net new names during the second quarter, ending with 133.5 million .com and .net domain names in the domain name base, which represents a 3.1 percent increase over the base at the end of the second quarter in 2014, as calculated including domain names on hold for both periods.
  • In the second quarter, Verisign processed 8.7 million new domain name registrations for .com and .net, as compared to 8.5 million for the same period in 2014.
  • The final .com and .net renewal rate for the first quarter of 2015 was 73.4 percent compared with 72.6 percent for the same quarter in 2014. Renewal rates are not fully measurable until 45 days after the end of the quarter.
  • Verisign announces an increase in the annual fee for a .net domain name registration from $6.79 to $7.46, effective Feb. 1, 2016, per its agreement with the Internet Corporation for Assigned Names and Numbers. (ICANN).

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:

  • Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
  • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
  • Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
  • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
  • non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating its ongoing operating performance for a particular period; and
  • other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.