Verisign Reports Third Quarter 2015 Results
/EINPresswire.com/ -- RESTON, VA--(Marketwired - October 22, 2015) - 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
- Verisign ended the third quarter with cash, cash equivalents and marketable securities of $1.9 billion, an increase of $466 million as compared with year-end 2014.
- Cash flow from operations was $155 million for the third quarter of 2015, compared with $168 million for the same quarter in 2014.
- Deferred revenues on Sept. 30, 2015, totaled $940 million, an increase of $50 million from year-end 2014.
- Capital expenditures were $7 million in the third quarter of 2015.
- During the third quarter, Verisign repurchased 2.3 million shares of its common stock for $156 million. At Sept. 30, 2015, $605 million remained available and authorized under the current share repurchase program which has no expiration.
- For purposes of calculating diluted EPS, the third quarter diluted share count included 18.0 million shares related to subordinated convertible debentures, compared with 13.2 million shares for the same quarter in 2014. These represent diluted shares and not shares that have been issued.
Business Highlights
- Verisign Registry Services added 1.68 million net new names during the third quarter, ending with 135.2 million .com and .net domain names in the domain name base, which represents a 3.4 percent increase over the base at the end of the third quarter in 2014, as calculated including domain names on hold for both periods.
- In the third quarter, Verisign processed 9.2 million new domain name registrations for .com and .net, as compared to 8.7 million for the same quarter in 2014.
- The final .com and .net renewal rate for the second quarter of 2015 was 72.7 percent compared with 71.8 percent for the same quarter in 2014. Renewal rates are not fully measurable until 45 days after the end of the quarter.
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, December 31,
2015 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 Nine Months Ended
September 30, 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 (2,443,86 (2,281,52
5) 3)
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 Operating
Income Net Income 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 Operating
Income Net Income 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 Nine Months Ended
30, 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
======== ======== ======== ========
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