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Verisign Reports 13 Percent Year-Over-Year Revenue Growth in 2012

RESTON, VA--(Marketwire - Jan 24, 2013) - VeriSign, Inc. (NASDAQ: VRSN), the trusted provider of Internet infrastructure services for the networked world, announced financial results for the fourth quarter of 2012 and year ended Dec. 31, 2012.

Fourth Quarter GAAP Financial Results
VeriSign, Inc. and subsidiaries ("Verisign") reported revenue of $230 million for the fourth quarter of 2012, up 13 percent from the same quarter in 2011. Verisign reported net income of $106 million and diluted earnings per share (EPS) of $0.65 for the fourth quarter of 2012, compared to net income of $54 million and diluted EPS of $0.34 for the same quarter in 2011. The operating margin was 58.8 percent for the fourth quarter of 2012 compared to 45.6 percent for the same quarter in 2011. Results for the fourth quarter of 2012 included non-recurring pre-tax benefits of $13.6 million, split $5.8 million and $7.8 million between continuing operations and discontinued operations, respectively, primarily related to reimbursements of previously incurred litigation and defense costs, received upon settlement with the selling shareholders of a previously acquired business. Additionally, results for the fourth quarter of 2012 include pre-tax benefits of $5.5 million related to a change in the estimated bonus payout. Together these items increased the operating margin by 4.9 percent and diluted EPS by $0.07. Results for the fourth quarter of 2011 included a pre-tax, $4 million non-operating accrued expense, which was non-recurring in nature and which reduced diluted EPS by $0.02.

Fourth Quarter Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $96 million and diluted EPS of $0.59 for the fourth quarter of 2012, compared to net income of $64 million and diluted EPS of $0.40 for the same quarter in 2011. The non-GAAP operating margin was 62.0 percent for the fourth quarter of 2012 compared to 50.9 percent for the same quarter in 2011. Non-GAAP results for the fourth quarter of 2012 included non-recurring pre-tax benefits of $5.8 million recorded in continuing operations, primarily related to reimbursements of previously incurred litigation and defense costs, received upon settlement with the selling shareholders of a previously acquired business. Additionally, the non-GAAP results for the fourth quarter of 2012 include pre-tax benefits of $5.5 million related to a change in the estimated bonus payout. Together these items increased the operating margin by 4.9 percent and diluted EPS by $0.05. Results for the fourth quarter of 2011 included a pre-tax, $4 million non-operating accrued expense, which was non-recurring in nature and which reduced diluted EPS by $0.02. A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.

"In 2012, Verisign marked 15 years of uninterrupted availability for .com and .net and we renewed the .com Registry Agreement for an additional six years. Our performance continues to demonstrate discipline and operational focus. In 2013, we will continue to seek quality growth, while protecting and managing our business," said Jim Bidzos, chairman and chief executive officer of Verisign.

2012 GAAP Financial Results
For the year ended Dec. 31, 2012, Verisign reported revenue of $874 million, up 13 percent from $772 million in 2011. Verisign reported net income of $320 million and diluted EPS of $1.95 in 2012, compared to net income of $143 million and diluted EPS of $0.86 in 2011. The operating margin for 2012 was 52.4 percent compared to 42.7 percent in 2011. 

2012 Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $322 million and diluted EPS of $1.97 for 2012, compared to net income of $249 million and diluted EPS of $1.49 in 2011. The non-GAAP operating margin for 2012 was 56.2 percent compared to 49.7 percent in 2011. A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.

Financial Highlights

  • Verisign ended the fourth quarter of 2012 with Cash, Cash Equivalents, Marketable Securities and Restricted Cash of $1.56 billion, an increase of $211 million from year-end 2011. 
  • Cash flow from operations was $171 million for the fourth quarter of 2012 and $538 million for the full year 2012, compared with $124 million for the same quarter in 2011 and $336 million for the full year 2011.
  • Deferred revenues ended the fourth quarter of 2012 totaling $813 million, an increase of $84 million from year-end 2011. 
  • Capital expenditures were $13 million in the fourth quarter and $53 million for the full year.
  • During the fourth quarter, Verisign repurchased approximately 2.3 million shares of its common stock for a cost of $94 million. During the full year 2012, Verisign repurchased approximately 7.7 million shares of its common stock for a cost of $315 million. On Dec. 5, 2012, the Board of Directors authorized the repurchase of up to approximately $458.8 million of our common stock, in addition to the approximately $541.2 million of our common stock remaining available for repurchase under the previous 2010 Share Buyback Program, for a total repurchase of up to $1.0 billion of Verisign common stock. At Dec. 31, 2012, approximately $976 million remained available and authorized for share repurchases. 
  • For purposes of calculating diluted EPS, the fourth quarter diluted share count included 6.4 million shares related to the convertible debentures. These represent dilutive shares and not shares that have been issued. There was no dilution from the convertible debentures in the same quarter of 2011.
  • Due to the stock price not exceeding the convertible debentures trigger during the fourth quarter of 2012, the debentures are no longer convertible starting Jan. 1, 2013. Consequently, the debt component of the convertible debentures, the related embedded derivative, and deferred tax liability were reclassified from current liabilities to long-term liabilities, while the associated unamortized debt issuance costs were reclassified from current assets to long-term assets, as of Dec. 31, 2012. 

Business and Corporate Highlights

  • Verisign Registry Services added 1.25 million net new names and ended the fourth quarter with 121.1 million active domain names in the zone for .com and .net, representing a 6.4 percent increase year over year.
  • Verisign processed 8.0 million and 33.1 million new domain name registrations for .com and .net, representing 0.9 percent and 3.0 percent increase year over year, in the fourth quarter and full year 2012 periods, respectively.
  • On Nov. 30, 2012, Verisign announced that the U.S. Department of Commerce approved the renewal of Verisign's revised agreement, on the terms described in that announcement, with the Internet Corporation for Assigned Names and Numbers (ICANN), to serve as the authoritative registry operator for the .com registry for the term commencing on Dec. 1, 2012 through Nov. 30, 2018.
  • On Dec. 19, 2012, Verisign announced that as of July 1, 2013, the registry fee for .net domain names will increase from $5.11 to $5.62.

Non-GAAP Items
Non-GAAP financial results exclude the following items that are included under GAAP: Discontinued operations, stock-based compensation, amortization of other intangible assets, impairments of goodwill and other intangible assets, restructuring charges, contingent interest payments to holders of our Convertible Debentures, unrealized gain/loss on contingent interest derivative on Convertible Debentures, and non-cash interest expense. Non-GAAP financial information is also adjusted for a 28 percent tax rate starting from the third quarter of 2012, and 30 percent for the other periods presented herein, both of which differ 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 Call
Verisign will host a live conference call today at 4:30 p.m. (EST) to review the fourth quarter and full year 2012 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-0637 (international). A listen-only live web cast and accompanying slide presentation of the fourth quarter and full year 2012 earnings conference call will also be available at http://investor.verisign.com. A replay of this call will be available at (888) 203-1112 or (719) 457-0820 (passcode: 1285042) beginning at 8:00 p.m. (EST) on Jan. 24, 2012, and will run through Feb. 1, 2012, at 7:00 p.m. (EST). 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, Inc. (NASDAQ: VRSN) is the trusted provider of Internet infrastructure services for the networked world. Billions of times each day, Verisign helps companies and consumers all over the world connect between the dots. Additional news and information about the company is available at www.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 Verisign's 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 Department of Commerce will approve any exercise by the Company of its right to increase the price per .com domain name, under certain circumstances, and whether the Company will be able to demonstrate to the Department of Commerce that market conditions warrant removal of the pricing restrictions on .com domain names; 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 2012 .com Registry Agreement, increasing competition, pricing pressure from competing services offered at prices below our prices and changes in marketing and advertising practices, including those of third-party registrars; changes in search engine algorithms and advertising payment practices; challenging global economic conditions; challenges to ongoing privatization of Internet administration; the outcome of legal or other challenges resulting from our activities or the activities of registrars or registrants, or litigation generally; new or existing governmental laws and regulations; changes in customer behavior, Internet platforms and web-browsing patterns; the uncertainty of whether Verisign will successfully develop and market new services; the uncertainty of whether our new services will achieve market acceptance or result in any revenues; system interruptions; security breaches; attacks on the Internet by hackers, viruses, or intentional acts of vandalism; whether Verisign will be able to continue to expand its 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 and whether our gTLD applications or the applicants' gTLD applications for which we have contracted to provide back-end registry services will be successful. More information about potential factors that could affect the Company's business and financial results is included in Verisign's filings with the Securities and Exchange Commission, including in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, 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.

©2013 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)  
   
    December 31,
2012
    December 31,
2011
 
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 130,736     $ 1,313,349  
  Marketable securities     1,425,700       32,860  
  Accounts receivable, net     11,477       14,974  
  Deferred tax assets     82,812       64,751  
  Prepaid expenses and other current assets     30,795       21,847  
    Total current assets     1,681,520       1,447,781  
Property and equipment, net     333,861       327,136  
Goodwill and other intangible assets, net     52,527       53,848  
Long-term deferred tax assets     7,299       2,758  
Other long-term assets     25,325       24,656  
    Total long-term assets     419,012       408,398  
    Total assets   $ 2,100,532     $ 1,856,179  
LIABILITIES AND STOCKHOLDERS' DEFICIT                
Current liabilities:                
  Accounts payable and accrued liabilities   $ 130,391     $ 156,385  
  Deferred revenues     564,627       502,538  
    Total current liabilities     695,018       658,923  
Long-term deferred revenues     247,955       226,033  
Convertible debentures, including contingent interest derivative     597,614       590,086  
Long-term debt     100,000       100,000  
Long-term deferred tax liabilities     424,970       325,527  
Other long-term tax liabilities     44,298       43,717  
    Total long-term liabilities     1,414,837       1,285,363  
    Total liabilities     2,109,855       1,944,286  
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: 318,722 at December 31, 2012 and 316,781 at December 31, 2011; Outstanding shares: 153,392 at December 31, 2012 and 159,422 at December 31, 2011     319       317  
  Additional paid-in capital     19,891,291       20,135,237  
  Accumulated deficit     (19,900,545 )     (20,220,577 )
  Accumulated other comprehensive loss     (388 )     (3,084 )
    Total stockholders' deficit     (9,323 )     (88,107 )
    Total liabilities and stockholders' deficit   $ 2,100,532     $ 1,856,179  
   
   
VERISIGN, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME  
(In thousands, except per share data)  
(Unaudited)  
   
    Three Months Ended
December 31,
    Year Ended
December 31,
 
    2012     2011     2012     2011  
Revenues   $ 230,196     $ 203,646     $ 873,592     $ 771,978  
Costs and expenses:                                
  Cost of revenues     42,040       42,016       167,600       165,246  
  Sales and marketing     20,753       27,772       97,809       97,432  
  Research and development     16,059       13,121       61,694       53,277  
  General and administrative     16,024       24,512       89,927       111,122  
  Restructuring charges     (35 )     3,352       (765 )     15,512  
    Total costs and expenses     94,841       110,773       416,265       442,589  
Operating income     135,355       92,873       457,327       329,389  
Interest expense     (12,657 )     (11,859 )     (50,196 )     (147,332 )
Non-operating income, net     8,596       (3,688 )     5,564       11,530  
Income from continuing operations before income taxes     131,294       77,326       412,695       193,587  
Income tax expense     (30,205 )     (31,997 )     (100,210 )     (55,031 )
Income from continuing operations, net of tax     101,089       45,329       312,485       138,556  
Income from discontinued operations, net of tax     4,552       8,485       7,547       4,335  
Net income     105,641       53,814       320,032       142,891  
  Foreign currency translation adjustments     --       112       --       110  
  Increase (decrease) in unrealized gain on investments, net of tax     221       (15 )     2,757       688  
  Realized (gain) loss on investments, net of tax, included in net income     (6 )     3       (61 )     (2,548 )
Other comprehensive income (loss)     215       100       2,696       (1,750 )
Comprehensive income   $ 105,856     $ 53,714     $ 322,728     $ 141,141  
                                 
Basic income per share:                                
  Continuing operations   $ 0.65     $ 0.28     $ 1.99     $ 0.84  
  Discontinued operations     0.03       0.06       0.05       0.03  
  Net income   $ 0.68     $ 0.34     $ 2.04     $ 0.87  
Diluted income per share:                                
  Continuing operations   $ 0.62     $ 0.28     $ 1.91     $ 0.83  
  Discontinued operations     0.03       0.06       0.04       0.03  
  Net income   $ 0.65     $ 0.34     $ 1.95     $ 0.86  
Shares used to compute net income per share                                
  Basic     154,642       159,226       156,953       165,408  
  Diluted     162,034       160,087       163,909       166,887  
   
   
VERISIGN, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(In thousands)  
(Unaudited)  
   
    Year Ended December 31,  
    2012     2011  
Cash flows from operating activities:                
  Net income   $ 320,032     $ 142,891  
  Adjustments to reconcile net income to net cash provided by operating activities:                
    Depreciation of property and equipment and amortization of other intangible assets     54,819       55,706  
    Stock-based compensation     33,362       43,272  
    Excess tax benefit associated with stock-based compensation     (18,436 )     (13,420 )
    Other, net     10,981       12,965  
    Changes in operating assets and liabilities                
      Accounts receivable     3,327       (251 )
      Prepaid expenses and other assets     (31,946 )     11,043  
      Accounts payable and accrued liabilities     81,480       18,162  
      Deferred revenues     84,011       65,533  
        Net cash provided by operating activities     537,630       335,901  
Cash flows from investing activities:                
  Proceeds from maturities and sales of marketable securities     1,234,156       546,006  
  Purchases of marketable securities     (2,622,898 )     (78,975 )
  Purchases of property and equipment     (53,023 )     (192,660 )
  Other investing activities     (588 )     (1,129 )
        Net cash (used in) provided by investing activities     (1,442,353 )     273,242  
Cash flows from financing activities:                
  Proceeds from issuance of common stock from option exercises and employee stock purchase plans     29,303       49,983  
  Repurchases of common stock     (325,680 )     (550,097 )
  Payment of dividends to stockholders     --       (463,498 )
  Excess tax benefit associated with stock-based compensation     18,436       13,420  
  Proceeds received from borrowings     --       100,000  
  Repayment of borrowings     --       (1,067 )
  Other financing activities     189       (939 )
        Net cash used in financing activities     (277,752 )     (852,198 )
Effect of exchange rate changes on cash and cash equivalents     (138 )     (3,224 )
Net decrease in cash and cash equivalents     (1,182,613 )     (246,279 )
Cash and cash equivalents at beginning of period     1,313,349       1,559,628  
Cash and cash equivalents at end of period   $ 130,736     $ 1,313,349  
Supplemental cash flow disclosures:                
  Cash paid for interest, net of capitalized interest   $ 41,276     $ 140,193  
  Cash paid for income taxes, net of refunds received   $ 19,436     $ 6,567  
   
   
VERISIGN, INC.  
STATEMENTS OF OPERATIONS RECONCILIATION  
(In thousands, except per share data)  
(Unaudited)  
   
    Three Months Ended     Three Months Ended  
    December 31, 2012     December 31, 2011  
    Operating Income     Net Income     Operating Income     Net Income  
GAAP as reported   $ 135,355     $ 105,641     $ 92,873     $ 53,814  
  Discontinued operations             (4,552 )             (8,485 )
  Adjustments:                                
    Stock-based compensation     6,971       6,971       7,165       7,165  
    Amortization of other intangible assets     533       533       325       325  
    Restructuring charges     (35 )     (35 )     3,352       3,352  
    Unrealized (gain)loss on contingent interest derivative on Convertible Debentures             (7,549 )             1,625  
    Non-cash interest expense             1,961               1,555  
  Tax adjustment             (7,085 )             4,593  
Non-GAAP as adjusted   $ 142,824     $ 95,885     $ 103,715     $ 63,944  
                                 
Revenues   $ 230,196             $ 203,646          
Non-GAAP operating margin     62.0 %             50.9 %        
Diluted shares             162,034               160,087  
Per diluted share, non-GAAP as adjusted           $ 0.59             $ 0.40  
                                 

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: discontinued operations, stock-based compensation, amortization of other intangible assets, impairments of goodwill and other intangible assets, restructuring charges, contingent interest payments to holders of our Convertible Debentures, unrealized gain/loss on contingent interest derivative on Convertible Debentures, and non-cash interest expense. Non-GAAP financial information is also adjusted for a 28 percent tax rate starting from the third quarter of 2012 and 30 percent for all other periods presented herein, both of which differ from the GAAP tax rate.

Management believes that this non-GAAP financial data supplements our GAAP financial data by providing investors with additional information that allows them to have a clearer picture of the Company'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. We believe that the non-GAAP information enhances the investors' overall understanding of our financial performance and the comparability of the company's 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 December 31,
    2012   2011
Cost of revenues   $ 1,275   $ 1,376
Sales and marketing     1,045     1,206
Research and development     1,832     961
General and administrative     2,819     3,622
Total stock-based compensation expense   $ 6,971   $ 7,165
             
   
   
VERISIGN, INC.  
STATEMENTS OF OPERATIONS RECONCILIATION  
(In thousands, except per share data)  
(Unaudited)  
   
    Year Ended     Year Ended  
    December 31, 2012     December 31, 2011  
    Operating Income     Net Income     Operating Income     Net Income  
                                 
GAAP as reported   $ 457,327     $ 320,032     $ 329,389     $ 142,891  
  Discontinued operations             (7,547 )             (4,335 )
  Adjustments:                                
    Stock-based compensation     33,362       33,362       37,571       37,571  
    Amortization of other intangible assets     1,321       1,321       1,293       1,293  
    Restructuring charges     (765 )     (765 )     15,512       15,512  
    Contingent interest payment to holders of Convertible Debentures             --               100,020  
    Unrealized (gain)loss on contingent interest derivative on Convertible Debentures             (422 )             1,125  
    Non-cash interest expense             7,370               6,540  
  Tax adjustment             (30,860 )             (51,663 )
Non-GAAP as adjusted   $ 491,245     $ 322,491     $ 383,765     $ 248,954  
                                 
Revenues   $ 873,592             $ 771,978          
Non-GAAP operating margin     56.2 %             49.7 %        
Diluted shares             163,909               166,887  
Per diluted share, non-GAAP as adjusted           $ 1.97             $ 1.49  
                                 

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: discontinued operations, stock-based compensation, amortization of other intangible assets, impairments of goodwill and other intangible assets, restructuring charges, contingent interest payments to holders of our Convertible Debentures, unrealized gain/loss on contingent interest derivative on Convertible Debentures, and non-cash interest expense. Non-GAAP financial information is also adjusted for a 28 percent tax rate starting from the third quarter of 2012 and 30 percent for all other periods presented herein, both of which differ from the GAAP tax rate.

Management believes that this non-GAAP financial data supplements our GAAP financial data by providing investors with additional information that allows them to have a clearer picture of the Company'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. We believe that the non-GAAP information enhances the investors' overall understanding of our financial performance and the comparability of the company's 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:

     
    Year Ended December 31,
    2012   2011
Cost of revenues   $ 5,754   $ 6,655
Sales and marketing     6,091     6,062
Research and development     6,023     4,926
General and administrative     15,494     19,928
Restructuring charges     --     5,701
Total stock-based compensation expense   $ 33,362   $ 43,272