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Verisign Reports Third Quarter 2014 Results(Marketwire Via Acquire Media NewsEdge) RESTON, VA -- (Marketwired) -- 10/23/14 -- VeriSign, Inc. (NASDAQ: VRSN), a global leader in domain names and Internet security, today reported financial results for the third quarter of 2014. Third Quarter GAAP Financial Results VeriSign, Inc. and subsidiaries ("Verisign") reported revenue of $255 million for the third quarter of 2014, up 4.7 percent from the same quarter in 2013. Verisign reported net income of $95 million and diluted earnings per share (EPS) of $0.69 for the third quarter of 2014, compared to net income of $81 million and diluted EPS of $0.53 in the same quarter in 2013. The operating margin was 54.7 percent for the third quarter of 2014 compared to 54.5 percent for the same quarter in 2013. Third Quarter Non-GAAP Financial Results Verisign reported, on a non-GAAP basis, net income of $97 million and diluted EPS of $0.70 for the third quarter of 2014, compared to net income of $90 million and diluted EPS of $0.59 for the same quarter in 2013. The non-GAAP operating margin was 60.6 percent for the third quarter of 2014 compared to 58.8 percent for the same quarter in 2013. A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release. "Our disciplined execution continues to deliver long-term shareholder value. During the quarter we repurchased $226 million of Verisign shares," 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 $1.5 billion, a decrease of $249 million as compared with year-end 2013. Cash flow from operations was $168 million for the third quarter compared with $134 million for the same quarter in 2013. Deferred revenues on Sept. 30, 2014, totaled $893 million, an increase of $37 million from year-end 2013. Capital expenditures were $11.3 million in the third quarter of 2014. During the third quarter, Verisign repurchased 4.2 million shares of its common stock for $226 million. At Sept. 30, 2014, $833 million remained authorized and available under Verisign's share buyback program, which has no expiration. For purposes of calculating diluted EPS, the third quarter diluted share count included 13.2 million shares related to subordinated convertible debentures, compared with 10.5 million shares in the same quarter in 2013. These represent diluted shares and not shares that have been issued. Business Highlights Verisign Registry Services added 1.15 million net new names during the third quarter, ending with 130.0 million active domain names in the zone for .com and .net, which represents a 3.3 percent increase over the zone at the end of the third quarter in 2013. In the third quarter, Verisign processed 8.7 million new domain name registrations for .com and .net as compared to 8.3 million for the same period in 2013. The final .com and .net renewal rate for the second quarter of 2014 was 71.8 percent compared with 72.7 percent for the same quarter in 2013. Renewal rates are not fully measurable until 45 days after the end of the quarter. Non-GAAP ItemsNon-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 a 28 percent tax rate which differs from the GAAP tax rate. A table reconciling the GAAP to non-GAAP operating income and net income is appended to this release. Today's Conference CallVerisign will host a live conference call today at 4:30 p.m. (EDT) to review the third quarter 2014 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 981-5572 (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 VerisignAs a global leader in domain names and Internet security, Verisign powers the invisible navigation that takes people to where they want to go on the Internet. For more than 15 years, Verisign has operated the infrastructure for a portfolio of top-level domains that today includes .com, .net, .tv, .edu, .gov, .jobs, .name and .cc, as well as two of the world's 13 Internet root servers. Verisign's product suite also includes Distributed Denial of Service (DDoS) Protection Services, iDefense Security Intelligence Services 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 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; 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 gTLD applications or the applicants' new gTLD applications 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 up to 1,400 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, 2013, 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. ©2014 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, 2014 2013 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 233,949 $ 339,223 Marketable securities 1,240,769 1,384,062 Accounts receivable, net 16,081 13,631 Income taxes receivable and other current assets 32,188 66,283 ------------- ------------- Total current assets 1,522,987 1,803,199 ------------- ------------- Property and equipment, net 318,808 339,653 Goodwill 52,527 52,527 Long-term deferred tax assets 286,429 437,643 Other long-term assets 26,671 27,745 ------------- ------------- Total long-term assets 684,435 857,568 ------------- ------------- Total assets $ 2,207,422 $ 2,660,767 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued liabilities $ 133,542 $ 149,276 Deferred revenues 625,007 595,221 Subordinated convertible debentures, including contingent interest derivative 627,068 624,056 Deferred tax liabilities 463,649 660,633 ------------- ------------- Total current liabilities 1,849,266 2,029,186 ------------- ------------- Long-term deferred revenues 268,066 260,615 Senior notes 750,000 750,000 Other long-term tax liabilities 88,844 44,524 ------------- ------------- Total long-term liabilities 1,106,910 1,055,139 ------------- ------------- Total liabilities 2,956,176 3,084,325 ------------- ------------- 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: 321,608 at September 30, 2014 and 320,358 at December 31, 2013; Outstanding shares: 122,026 at September 30, 2014 and 133,724 at December 31, 2013 322 320 Additional paid-in capital 18,320,280 18,935,302 Accumulated deficit (19,066,307) (19,356,095) Accumulated other comprehensive loss (3,049) (3,085) ------------- ------------- Total stockholders' deficit (748,754) (423,558) ------------- ------------- Total liabilities and stockholders' deficit $ 2,207,422 $ 2,660,767 ============= ============= 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, -------------------- -------------------- 2014 2013 2014 2013 --------- --------- --------- --------- Revenues $ 255,022 $ 243,678 $ 754,200 $ 719,457 --------- --------- --------- --------- Costs and expenses: Cost of revenues 46,933 46,554 140,948 140,438 Sales and marketing 24,304 22,900 68,244 64,273 Research and development 16,320 17,456 50,453 52,531 General and administrative 27,965 24,055 72,349 64,157 --------- --------- --------- --------- Total costs and expenses 115,522 110,965 331,994 321,399 --------- --------- --------- --------- Operating income 139,500 132,713 422,206 398,058 Interest expense (21,533) (21,119) (64,408) (53,524) Non-operating (loss) income, net (6,473) (4,592) 5,037 (4,208) --------- --------- --------- --------- Income before income taxes 111,494 107,002 362,835 340,326 Income tax expense (16,305) (26,104) (73,047) (88,025) --------- --------- --------- --------- Net income 95,189 80,898 289,788 252,301 --------- --------- --------- --------- Unrealized gain (loss) on investments, net of tax 59 85 34 (341) Realized (gain) loss on investments, net of tax, included in net income (1) 1 2 (2,478) --------- --------- --------- --------- Other comprehensive income (loss) 58 86 36 (2,819) --------- --------- --------- --------- Comprehensive income $ 95,247 $ 80,984 $ 289,824 $ 249,482 ========= ========= ========= ========= Income per share: Basic $ 0.77 $ 0.57 $ 2.25 $ 1.71 ========= ========= ========= ========= Diluted $ 0.69 $ 0.53 $ 2.03 $ 1.60 ========= ========= ========= ========= Shares used to compute net income per share Basic 124,109 141,701 128,924 147,567 ========= ========= ========= ========= Diluted 138,112 152,951 142,584 157,606 ========= ========= ========= ========= VERISIGN, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, ---------------------------- 2014 2013 ------------- ------------- Cash flows from operating activities: Net income $ 289,788 $ 252,301 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property and equipment 47,924 45,415 Stock-based compensation 34,281 27,006 Excess tax benefit associated with stock- based compensation (8,566) (30,095) Deferred income taxes (1,331) 29,000 Unrealized (gain) loss on contingent interest derivative on Subordinated Convertible Debentures (3,953) 9,723 Other, net 8,837 7,854 Changes in operating assets and liabilities Accounts receivable (2,550) (3,525) Income taxes receivable and other assets 31,349 1,679 Accounts payable and accrued liabilities (2,540) 47,185 Deferred revenues 37,237 45,414 ------------- ------------- Net cash provided by operating activities 430,476 431,957 ------------- ------------- Cash flows from investing activities: Proceeds from maturities and sales of marketable securities 2,425,259 2,253,776 Purchases of marketable securities (2,281,523) (2,516,714) Purchases of property and equipment (30,058) (50,201) Other investing activities 351 (3,946) ------------- ------------- Net cash provided by (used in) investing activities 114,029 (317,085) ------------- ------------- Cash flows from financing activities: Proceeds from issuance of common stock from option exercises and employee stock purchase plans 15,816 16,661 Repurchases of common stock (673,540) (810,067) Repayment of borrowings -- (100,000) Proceeds from Senior Notes, net of issuance costs -- 738,297 Excess tax benefit associated with stock- based compensation 8,566 30,095 ------------- ------------- Net cash used in financing activities (649,158) (125,014) ------------- ------------- Effect of exchange rate changes on cash and cash equivalents (621) (3,003) ------------- ------------- Net decrease in cash and cash equivalents (105,274) (13,145) Cash and cash equivalents at beginning of period 339,223 130,736 ------------- ------------- Cash and cash equivalents at end of period $ 233,949 $ 117,591 ============= ============= Supplemental cash flow disclosures: Cash paid for interest, net of capitalized interest $ 57,767 $ 40,435 ============= ============= Cash paid for income taxes, net of refunds received $ 34,937 $ 17,055 ============= ============= VERISIGN, INC. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Dollar amounts in thousands, except per share data) (Unaudited) Three Months Ended September 30, ------------------------------------------ 2014 2013 -------------------- -------------------- Operating Net Operating Net Income Income Income Income --------- --------- --------- --------- GAAP as reported $ 139,500 $ 95,189 $ 132,713 $ 80,898 Adjustments: Stock-based compensation 14,916 14,916 10,577 10,577 Unrealized loss on contingent interest derivative on the subordinated convertible debentures 6,562 5,286 Non-cash interest expense 2,588 2,171 Contingent interest payable on subordinated convertible debentures (1,306) -- Tax adjustment (21,285) (8,907) --------- --------- --------- --------- Non-GAAP $ 154,416 $ 96,664 $ 143,290 $ 90,025 ========= ========= ========= ========= Revenues $ 255,022 $ 243,678 Non-GAAP operating margin 60.6% 58.8% ========= ========= Diluted shares 138,112 152,951 Per diluted share, non-GAAP $ 0.70 $ 0.59 ========= ========= 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 a 28 percent tax rate, which differs from the GAAP 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 (in thousands): Three Months Ended September 30, --------------------- 2014 2013 ---------- ---------- Cost of revenues $ 1,618 $ 1,524 Sales and marketing 2,234 1,442 Research and development 1,678 1,674 General and administrative 9,386 5,937 ---------- ---------- Total stock-based compensation expense $ 14,916 $ 10,577 ========== ========== VERISIGN, INC. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Dollar amounts in thousands, except per share data) (Unaudited) Nine Months Ended September 30, ------------------------------------------ 2014 2013 -------------------- -------------------- Operating Net Operating Net Income Income Income Income --------- --------- --------- --------- GAAP as reported $ 422,206 $ 289,788 $ 398,058 $ 252,301 Adjustments: Stock-based compensation 34,281 34,281 27,006 27,006 Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures (3,953) 9,723 Non-cash interest expense 7,581 6,316 Contingent interest payable on subordinated convertible debentures (1,306) -- Tax adjustment (38,796) (19,319) --------- --------- --------- --------- Non-GAAP $ 456,487 $ 287,595 $ 425,064 $ 276,027 ========= ========= ========= ========= Revenues $ 754,200 $ 719,457 Non-GAAP operating margin 60.5% 59.1% ========= ========= Diluted shares 142,584 157,606 Per diluted share, non-GAAP $ 2.02 $ 1.75 ========= ========= 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 a 28 percent tax rate, which differs from the GAAP 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 (in thousands): Nine Months Ended September 30, --------------------- 2014 2013 ---------- ---------- Cost of revenues $ 4,748 $ 4,639 Sales and marketing 5,902 4,656 Research and development 5,189 5,314 General and administrative 18,442 12,397 ---------- ---------- Total stock-based compensation expense $ 34,281 $ 27,006 ========== ========== VERISIGN, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited) Following the offering of the 4.625% senior notes due 2023 (the "Notes"), we disclose our Adjusted EBITDA for the periods shown below. Adjusted EBITDA is a non-GAAP financial measure and is calculated in accordance with the terms of the indenture governing the Notes. 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 September 30, --------------------- 2014 2013 ---------- ---------- Net Income $ 95,189 $ 80,898 Interest expense 21,533 21,119 Income tax expense 16,305 26,104 Depreciation and amortization 15,809 14,889 Stock-based compensation 14,916 10,577 Unrealized loss on contingent interest derivative on the subordinated convertible debentures 6,562 5,286 Unrealized loss on hedging agreements 128 222 ---------- ---------- Adjusted EBITDA $ 170,442 $ 159,095 ========== ========== Four Quarters Ended September 30, 2014 ------------------- Net Income $ 581,937 Interest expense 85,646 Income tax benefit (102,657) Depreciation and amortization 63,163 Stock-based compensation 43,925 Unrealized loss on contingent interest derivative on the subordinated convertible debentures 4,125 Unrealized loss on hedging agreements 116 ------------------- Adjusted EBITDA $ 676,255 =================== 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. Source: VeriSign, Inc. |