VRSN VeriSign Inc

VeriSign, Inc. (NASDAQ: VRSN), a global leader in domain names and internet security, today reported financial results for the third quarter of 2016.

Third Quarter GAAP Financial Results

VeriSign, Inc. and subsidiaries (“Verisign”) reported revenue of $288 million for the third quarter of 2016, up 8.2 percent from the same quarter in 2015. Verisign reported net income of $114 million and diluted earnings per share (diluted “EPS”) of $0.90 for the third quarter of 2016, compared to net income of $92 million and diluted EPS of $0.70 for the same quarter in 2015. The operating margin was 60.8 percent for the third quarter of 2016 compared to 58.1 percent for the same quarter in 2015.

Third Quarter Non-GAAP Financial Results

Verisign reported, on a non-GAAP basis, net income of $119 million and diluted EPS of $0.93 for the third quarter of 2016, compared to net income of $103 million and diluted EPS of $0.78 for the same quarter in 2015. The non-GAAP operating margin was 65.3 percent for the third quarter of 2016 compared to 62.7 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.

“In addition to solid third quarter financial results, we are pleased to report that the .com Registry Agreement extension to 2024 has been approved by NTIA and the Root Zone Maintainer Agreement with ICANN is now in effect. Security and stability of the critical root zone publication process has been prioritized and addressed with these steps,” said Jim Bidzos, Executive Chairman, President and Chief Executive Officer.

Financial Highlights

• Verisign ended the third quarter with cash, cash equivalents and marketable securities of $1.8 billion, a decrease of $158 million from year-end 2015.
• Cash flow from operations was $168 million for the third quarter of 2016, compared with $155 million for the same quarter in 2015.
• Deferred revenues on Sept. 30, 2016, totaled $981 million, an increase of $19 million from year-end 2015.
• During the third quarter, Verisign repurchased 2.2 million shares of its common stock for $177 million. At Sept. 30, 2016, $589 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 20.8 million shares related to subordinated convertible debentures, compared with 18.0 million shares for the same quarter in 2015. These represent diluted shares and not shares that have been issued.

Business Highlights

• On Oct. 20, 2016, Verisign announced that the U.S. Department of Commerce approved the extension amendment to the .com Registry Agreement with the Internet Corporation for Assigned Names and Numbers, pursuant to which Verisign will remain the sole registry operator for the .com registry through November 30, 2024.
• Verisign ended the third quarter with 144.1 million .com and .net domain name registrations in the domain name base, a 6.6 percent increase from the end of the third quarter of 2015, and a net increase of 0.90 million during the third quarter of 2016.
• In the third quarter, Verisign processed 8.3 million new domain name registrations for .com and .net, as compared to 9.2 million for the same quarter in 2015.
• The final .com and .net renewal rate for the second quarter of 2016 was 73.8 percent compared with 72.7 percent for the same quarter in 2015. 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 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 third quarter 2016 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-1475 (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)

        September 30, 2016     December 31, 2015

ASSETS

Current assets: Cash and cash equivalents $ 177,785 $ 228,659 Marketable securities 1,579,926 1,686,771 Accounts receivable, net 15,767 12,638 Other current assets   21,490     39,856   Total current assets   1,794,968     1,967,924   Property and equipment, net 270,165 295,570 Goodwill 52,527 52,527 Deferred tax assets 12,819 17,361 Deposits to acquire intangible assets 145,000 2,000 Other long-term assets   22,500     22,355   Total long-term assets   503,011     389,813   Total assets $ 2,297,979   $ 2,357,737  

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities: Accounts payable and accrued liabilities $ 161,966 $ 188,171 Deferred revenues 693,598 680,483 Subordinated convertible debentures, including contingent interest derivative   626,862     634,326   Total current liabilities   1,482,426     1,502,980   Long-term deferred revenues 287,214 280,859 Senior notes 1,236,731 1,235,354 Deferred tax liabilities 344,179 294,194 Other long-term tax liabilities   116,667     114,797   Total long-term liabilities   1,984,791     1,925,204   Total liabilities   3,467,217     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: 324,088 at September 30, 2016 and 322,990 at December 31, 2015; Outstanding shares: 105,095 at September 30, 2016 and 110,072 at December 31, 2015

324 323 Additional paid-in capital 17,123,629 17,558,822 Accumulated deficit (18,290,506 ) (18,625,599 ) Accumulated other comprehensive loss   (2,685 )   (3,993 ) Total stockholders’ deficit   (1,169,238 )   (1,070,447 ) Total liabilities and stockholders’ deficit $ 2,297,979   $ 2,357,737      

VERISIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share data)

(Unaudited)

       

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

2016     2015 2016     2015 Revenues $ 287,554   $ 265,780   $ 855,896   $ 786,741   Costs and expenses: Cost of revenues 49,807 47,218 149,142 143,792 Sales and marketing 18,647 20,966 58,431 67,677 Research and development 14,324 15,019 45,355 48,518 General and administrative   30,000     28,115     85,158     79,090   Total costs and expenses   112,778     111,318     338,086     339,077   Operating income 174,776 154,462 517,810 447,664 Interest expense (28,919 ) (28,544 ) (86,582 ) (79,064 ) Non-operating income (loss), net   3,262     (3,975 )   8,092     (6,329 ) Income before income taxes 149,119 121,943 439,320 362,271 Income tax expense   (34,692 )   (29,486 )   (104,227 )   (88,565 ) Net income   114,427     92,457     335,093     273,706   Realized foreign currency translation adjustments, included in net income — — 85 (291 ) Unrealized (loss) gain on investments (485 ) 565 1,301 799 Realized gain on investments, included in net income   (11 )   (26 )   (78 )   (99 ) Other comprehensive (loss) income   (496 )   539     1,308     409   Comprehensive income $ 113,931   $ 92,996   $ 336,401   $ 274,115     Earnings per share: Basic $ 1.08   $ 0.82   $ 3.10   $ 2.38   Diluted $ 0.90   $ 0.70   $ 2.58   $ 2.06   Shares used to compute earnings per share Basic   106,307     112,955     107,982     115,235   Diluted   127,750     131,721     129,967     132,925      

VERISIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

       

Nine Months Ended

September 30,

2016     2015 Cash flows from operating activities: Net income $ 335,093 $ 273,706 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property and equipment 44,114 46,554 Stock-based compensation 35,745 34,351 Excess tax benefit associated with stock-based compensation (15,566 ) (19,420 ) Unrealized (gain) loss on contingent interest derivative on Subordinated Convertible Debentures (2,411 ) 9,058 Payment of contingent interest (13,385 ) (10,759 ) Amortization of debt discount and issuance costs 9,971 9,122 Other, net (2,944 ) (961 ) Changes in operating assets and liabilities: Accounts receivable (3,536 ) (1,319 ) Prepaid expenses and other assets 17,814 2,967 Accounts payable and accrued liabilities (8,285 ) 14,658 Deferred revenues 19,470 49,787 Net deferred income taxes and other long-term tax liabilities   56,397     55,203   Net cash provided by operating activities   472,477     462,947   Cash flows from investing activities: Proceeds from maturities and sales of marketable securities 3,029,699 1,965,767 Purchases of marketable securities (2,917,743 ) (2,443,865 ) Purchases of property and equipment (19,889 ) (28,659 ) Deposits to acquire intangible assets (143,000 ) — Other investing activities   171     (3,666 ) Net cash used in investing activities   (50,762 )   (510,423 ) Cash flows from financing activities: Proceeds from issuance of common stock from option exercises and employee stock purchase plans 13,670 14,690 Repurchases of common stock (501,934 ) (492,575 ) Proceeds from borrowings, net of issuance costs — 492,237 Excess tax benefit associated with stock-based compensation   15,566     19,420   Net cash (used in) provided by financing activities   (472,698 )   33,772   Effect of exchange rate changes on cash and cash equivalents   109     (33 ) Net decrease in cash and cash equivalents (50,874 ) (13,737 ) Cash and cash equivalents at beginning of period   228,659     191,608   Cash and cash equivalents at end of period $ 177,785   $ 177,871   Supplemental cash flow disclosures: Cash paid for interest $ 84,930   $ 68,678   Cash paid for income taxes, net of refunds received $ 14,474   $ 13,289      

VERISIGN, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(In thousands, except per share data)

(Unaudited)

        Three Months Ended September 30, 2016     2015

Operating

Income

    Net Income

Operating

Income

    Net Income GAAP as reported $ 174,776 $ 114,427

$

154,462 $ 92,457 Adjustments: Stock-based compensation 12,854 12,854 12,222 12,222 Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures (1,440 ) 4,747 Non-cash interest expense 3,381 2,994 Contingent interest payable on subordinated convertible debentures (3,639 ) (3,020 ) Tax adjustment         (6,979 )         (6,625 ) Non-GAAP $ 187,630   $ 118,604   $ 166,684   $ 102,775     Revenues $ 287,554 $ 265,780 Non-GAAP operating margin   65.3 %   62.7 % Diluted shares 127,750 131,721 Diluted EPS, non-GAAP $ 0.93   $ 0.78       Nine Months Ended September 30, 2016 2015

Operating

Income

Net Income

Operating

Income

Net Income GAAP as reported $ 517,810 $ 335,093

$

447,664 $ 273,706 Adjustments: Stock-based compensation 35,745 35,745 34,351 34,351 Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures (2,411 ) 9,058 Non-cash interest expense 9,971 8,656 Contingent interest payable on subordinated convertible debentures (10,406 ) (8,477 ) Tax adjustment         (18,550 )         (16,959 ) Non-GAAP $ 553,555   $ 349,442   $ 482,015   $ 300,335     Revenues $ 855,896 $ 786,741 Non-GAAP operating margin   64.7 %   61.3 % Diluted shares 129,967 132,925 Diluted EPS, non-GAAP $ 2.69   $ 2.26      

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 EndedSeptember 30, 2016     2015 Net Income

$

114,427

$ 92,457 Interest expense 28,919 28,544 Income tax expense 34,692 29,486 Depreciation and amortization 14,697 14,934 Stock-based compensation 12,854 12,222 Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures (1,440 ) 4,747 Unrealized loss (gain) on hedging agreements   460     (479 ) Non-GAAP Adjusted EBITDA

$

204,609

  $ 181,911       Four Quarters EndedSeptember 30, 2016 Net income

$

436,623 Interest expense 115,149 Income tax expense 128,076 Depreciation and amortization 59,051 Stock-based compensation 47,469 Unrealized loss on contingent interest derivative on the subordinated convertible debentures 2,661 Unrealized loss on hedging agreements   113   Non-GAAP Adjusted EBITDA

$

789,142

   

VERISIGN, INC.

STOCK-BASED COMPENSATION CLASSIFICATION

(In thousands)

(Unaudited)

 

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

     

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

2016     2015 2016     2015 Cost of revenues $ 1,779 $ 1,722 $ 5,367 $ 5,202 Sales and marketing 1,129 1,683 4,219 4,800 Research and development 1,676 1,478 4,966 4,890 General and administrative   8,270   7,339   21,193   19,459 Total stock-based compensation expense $ 12,854 $ 12,222 $ 35,745 $ 34,351  

View source version on businesswire.com: http://www.businesswire.com/news/home/20161027006355/en/

VeriSign, Inc.Investor Relations:David Atchley, 703-948-4643datchley@verisign.comorMedia Relations:Deana Alvy, 703-948-4179dalvy@verisign.com