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
- Verisign ended the second quarter with
cash, cash equivalents and marketable securities of $1.9 billion, a
decrease of $8 million from year-end 2015.
- Cash flow from operations was $161
million for the second quarter of 2016, compared with $175 million
for the same quarter in 2015.
- Deferred revenues on June 30, 2016,
totaled $988 million, an increase of $26 million from year-end
2015.
- During the second quarter, Verisign
repurchased 1.7 million shares of its common stock for $150
million. At June 30, 2016, $766 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 21.9 million
shares related to subordinated convertible debentures, compared
with 17.0 million shares for the same quarter in 2015. These
represent diluted shares and not shares that have been issued.
Business Highlights
- Verisign Registry Services added 0.78
million net new names during the second quarter, ending with 143.2
million .com and .net domain names in the domain name base, which
represents a 7.3 percent increase over the base at the end of the
second quarter in 2015.
- In the second quarter, Verisign
processed 8.6 million new domain name registrations for .com and
.net, as compared to 8.7 million for the same quarter in 2015.
- The final .com and .net renewal rate
for the first quarter of 2016 was 74.4 percent compared with 73.4
percent for the same quarter in 2015. 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 $7.46 to $8.20,
effective Feb. 1, 2017, per its agreement with the Internet
Corporation for Assigned Names and Numbers (ICANN).
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
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version on businesswire.com: http://www.businesswire.com/news/home/20160728006394/en/
VeriSign, Inc.Investor Relations:David Atchley,
703-948-4643datchley@verisign.comorMedia Relations:Deana Alvy,
703-948-4179dalvy@verisign.com
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