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

RESTON, VA--(Marketwire - Jul 26, 2012) - VeriSign, Inc. (NASDAQ: VRSN), the trusted provider of Internet infrastructure services for the networked world, today reported financial results for the second quarter ended June 30, 2012.

Second Quarter GAAP Financial Results
VeriSign, Inc. and subsidiaries ("Verisign") reported revenue of $214 million for the second quarter of 2012, up 13 percent from the same quarter in 2011. Verisign reported net income of $68 million and diluted earnings per share (EPS) of $0.42 for the second quarter of 2012, compared to a net loss of $(11) million and diluted net loss per share of $(0.06) in the same quarter in 2011. The operating margin was 50.0 percent for the second quarter of 2012 compared to 43.2 percent for the same quarter in 2011.

Second Quarter Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $74 million and diluted EPS of $0.45 for the second quarter of 2012, compared to net income of $65 million and diluted EPS of $0.38 for the same quarter in 2011. The non-GAAP operating margin was 54.0 percent for the second quarter of 2012 compared to 51.7 percent for the same quarter in 2011. A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.

"The second quarter results demonstrate our continued strong operating performance and financial discipline," commented Jim Bidzos, executive chairman, president and chief executive officer of Verisign. "Our share repurchases in the quarter, of $76 million, underscore our commitment to creating and delivering shareholder value."

Financial Highlights

  • Verisign ended the second quarter with Cash, Cash Equivalents, Marketable Securities and Restricted Cash of $1.44 billion, an increase of $92 million from year end 2011.
  • Cash flow from operations was $135 million for the second quarter compared with $13 million for the same quarter in 2011, which was reduced by a $100 million payment of contingent interest to holders of convertible debentures in the second quarter of 2011. 
  • Deferred revenues ended the second quarter of 2012 totaling $804 million, an increase of $75 million from year end 2011.
  • Capital expenditures were $13 million in the second quarter of 2012.
  • During the second quarter, Verisign repurchased approximately 1.9 million shares of its common stock for a cost of $76 million. At June 30, 2012, approximately $687 million remained available and authorized under the current share repurchase program.
  • For purposes of calculating diluted EPS, the second quarter diluted share count included 5.6 million shares related to the convertible debentures, compared with 1.2 million shares in the same quarter in 2011 for the non-GAAP diluted EPS calculation. These represent dilutive shares and not shares that have been issued.

Business Highlights

  • On June 23, 2012, the board of directors of Internet Corporation of Assigned Names and Numbers ("ICANN") approved the renewal of Verisign's agreement to serve as the authoritative registry operator for the .com registry for the term commencing on Dec. 1, 2012, through Nov. 30, 2018. The board of directors of Verisign approved the renewal of the .com registry agreement on June 16, 2012. The U.S. Department of Commerce (the Department) is now reviewing the renewal of the .com registry agreement under the terms of the Cooperative Agreement between the Department and Verisign.
  • Verisign Registry Services added 1.81 million net new names and ended the second quarter with approximately 118.5 million active domain names in the zone for .com and .net, representing a 7.8 percent increase year-over-year. 
  • In the second quarter, Verisign processed a second quarter record 8.4 million new domain name registrations, representing an increase of 4.2 percent year-over-year.

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 30 percent tax rate which differs from the GAAP tax rate. A table reconciling the GAAP to non-GAAP operating income and net income attributable to Verisign stockholders is appended to this release. All non-GAAP figures for each period presented herein have been conformed to exclude the foregoing items under GAAP. 

Today's Conference Call
Verisign will host a live conference call today at 4:30 p.m. (EDT) to review the second quarter 2012 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-0402 (international). A listen-only live webcast and accompanying slide presentation of the second quarter 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 (pass code: 6410522) beginning at 8:00 p.m. (EDT) on July 26, 2012, and will run through Aug. 2, 2012, at 7:00 p.m. (EDT). An audio archive of the call will be available at https://investor.verisign.com/events.cfm. This press 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 future revenue and profitability and potential fluctuations in quarterly operating results due to such factors as increasing competition, pricing pressure from competing services offered at prices below our prices and changes in marketing practices including those of third-party registrars; 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; the uncertainty of the expense and duration of transition services and requests for indemnification relating to completed divestitures; the uncertainty of whether Project Apollo will achieve its stated objectives; the impact of the introduction of new gTLDs and whether our gTLD applications or the applicants' gTLD applications for which we have contracted to provide back-end registry services will be successful; and the uncertainty of whether the .com Registry Agreement renewal will occur on or before November 30, 2012, if at all. 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.

©2012 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,
2012
    December 31,
2011
 
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 315,621     $ 1,313,349  
  Marketable securities     1,122,397       32,860  
  Accounts receivable, net     12,653       14,974  
  Deferred tax assets and other current assets     79,940       86,598  
    Total current assets     1,530,611       1,447,781  
Property and equipment, net     329,328       327,136  
Goodwill and other intangible assets, net     53,202       53,848  
Other assets     28,883       27,414  
    Total long-term assets     411,413       408,398  
    Total assets   $ 1,942,024     $ 1,856,179  
LIABILITIES AND STOCKHOLDERS' DEFICIT                
Current liabilities:                
  Accounts payable and accrued liabilities   $ 112,508     $ 156,385  
  Deferred revenues     560,127       502,538  
    Total current liabilities     672,635       658,923  
Long-term deferred revenues     243,622       226,033  
Convertible debentures, including contingent interest derivative     597,935       590,086  
Long-term debt     100,000       100,000  
Long-term deferred tax liabilities     341,733       325,527  
Other long-term liabilities     45,294       43,717  
    Total long-term liabilities     1,328,584       1,285,363  
    Total liabilities     2,001,219       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: 317,982 at June 30, 2012 and 316,781 at December 31, 2011; Outstanding shares: 156,667 at June 30, 2012 and 159,422 at December 31, 2011     318       317  
  Additional paid-in capital     20,027,665       20,135,237  
  Accumulated deficit     (20,084,096 )     (20,220,577 )
  Accumulated other comprehensive loss     (3,082 )     (3,084 )
    Total stockholders' deficit     (59,195 )     (88,107 )
    Total liabilities and stockholders' deficit   $ 1,942,024     $ 1,856,179  

 

VERISIGN, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME  
(In thousands, except per share data)  
(Unaudited)  
   
    Three Months Ended June 30,     Six Months Ended June 30,  
    2012     2011     2012     2011  
Revenues   $ 214,142     $ 189,844     $ 419,868     $ 371,367  
Costs and expenses:                                
  Cost of revenues     42,844       40,667       84,100       81,536  
  Sales and marketing     26,313       22,179       54,128       44,570  
  Research and development     15,461       13,074       30,226       26,668  
  General and administrative     22,726       28,206       46,234       61,835  
  Restructuring charges     (182 )     3,659       (730 )     9,189  
    Total costs and expenses     107,162       107,785       213,958       223,798  
Operating income     106,980       82,059       205,910       147,569  
Interest expense     (12,580 )     (111,856 )     (24,920 )     (123,676 )
Non-operating (loss) income, net     (2,097 )     6,149       (1,290 )     11,627  
Income (loss) from continuing operations before income taxes     92,303       (23,648 )     179,700       35,520  
Income tax (expense) benefit     (23,831 )     15,967       (45,123 )     (908 )
Income (loss) from continuing operations, net of tax     68,472       (7,681 )     134,577       34,612  
(Loss) income from discontinued operations, net of tax     -       (2,929 )     1,904       (4,451 )
Net income (loss)     68,472       (10,610 )     136,481       30,161  
  Foreign currency translation adjustments     -       48       -       76  
  Change in unrealized gain on investments, net of tax     42       1,077       37       609  
  Realized gain on investments, net of tax, included in net income (loss)     (30 )     (1,398 )     (35 )     (1,415 )
Other comprehensive income (loss)     12       (273 )     2       (730 )
Comprehensive income (loss)   $ 68,484     $ (10,883 )   $ 136,483     $ 29,431  
                                 
Basic income (loss) per share:                                
  Continuing operations   $ 0.43     $ (0.05 )   $ 0.85     $ 0.20  
  Discontinued operations     -       (0.01 )     0.01       (0.02 )
  Net income (loss)   $ 0.43     $ (0.06 )   $ 0.86     $ 0.18  
Diluted income (loss) per share:                                
  Continuing operations   $ 0.42     $ (0.05 )   $ 0.82     $ 0.20  
  Discontinued operations     -       (0.01 )     0.01       (0.02 )
  Net income (loss)   $ 0.42     $ (0.06 )   $ 0.83     $ 0.18  
Shares used to compute net income per share                                
  Basic     157,599       167,471       158,471       169,751  
  Diluted     164,178       167,471       163,530       171,850  

 

VERISIGN, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(In thousands)  
(Unaudited)  
   
    Six Months Ended June 30,  
    2012     2011  
Cash flows from operating activities:                
  Net income   $ 136,481     $ 30,161  
  Adjustments to reconcile net income to net cash provided by operating activities:                
    Depreciation of property and equipment and amortization of other intangible assets     26,273       27,642  
    Stock-based compensation     16,584       29,014  
    Excess tax benefit associated with stock-based compensation     (11,638 )     (854 )
    Other, net     10,947       1,627  
    Changes in operating assets and liabilities                
      Accounts receivable     2,213       354  
      Deferred tax assets and other assets     5,855       (12,786 )
      Accounts payable and accrued liabilities     (16,644 )     (22,736 )
      Deferred revenues     75,178       50,814  
        Net cash provided by operating activities     245,249       103,236  
Cash flows from investing activities:                
  Proceeds from maturities and sales of marketable securities     8,101       369,586  
  Purchases of marketable securities     (1,097,669 )     (44,038 )
  Purchases of property and equipment     (26,242 )     (29,481 )
  Other investing activities     (520 )     (1,181 )
        Net cash (used in) provided by investing activities     (1,116,330 )     294,886  
Cash flows from financing activities:                
  Proceeds from issuance of common stock from option exercises and employee stock purchase plans     15,348       32,445  
  Repurchases of common stock     (152,725 )     (310,671 )
  Payment of dividends to stockholders     -       (463,498 )
  Excess tax benefit associated with stock-based compensation     11,638       854  
  Other financing activities     189       -  
        Net cash used in financing activities     (125,550 )     (740,870 )
Effect of exchange rate changes on cash and cash equivalents     (1,097 )     3,285  
Net decrease in cash and cash equivalents     (997,728 )     (339,463 )
Cash and cash equivalents at beginning of period     1,313,349       1,559,628  
Cash and cash equivalents at end of period   $ 315,621     $ 1,220,165  
Supplemental cash flow disclosures:                
  Cash paid for interest, net of capitalized interest   $ 20,476     $ 120,082  
  Cash paid for income taxes, net of refunds received   $ 21,193     $ 4,737  

 

VERISIGN, INC.  
STATEMENTS OF OPERATIONS RECONCILIATION  
(In thousands, except per share data)  
(Unaudited)  
   
    Three Months Ended     Three Months Ended  
    June 30, 2012     June 30, 2011  
    Operating Income     Net Income     Operating Income     Net (Loss) Income  
                                 
GAAP as reported   $ 106,980     $ 68,472     $ 82,059     $ (10,610 )
  Discontinued operations             -               2,929  
  Adjustments:                                
    Stock-based compensation     8,454       8,454       12,075       12,075  
    Amortization of other intangible assets     325       325       322       322  
    Restructuring charges     (182 )     (182 )     3,659       3,659  
    Contingent interest payment to holders of Convertible Debentures             -               100,020  
    Unrealized loss (gain) on contingent interest derivative on Convertible Debentures             3,147               (700 )
    Non-cash interest expense             1,871               1,679  
  Tax adjustment             (7,944 )             (43,989 )
Non-GAAP as adjusted   $ 115,577     $ 74,143     $ 98,115     $ 65,385  
                                 
Revenues   $ 214,142             $ 189,844          
Non-GAAP operating margin     54.0 %             51.7 %        
Diluted shares             164,178               169,882  
Per diluted share, non-GAAP as adjusted           $ 0.45             $ 0.38  

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 30% tax rate which differs from the GAAP tax rate. All non-GAAP figures for each period presented above have been conformed to exclude the foregoing items under GAAP.

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 June 30,
    2012   2011
Cost of revenues   $ 1,451   $ 1,846
Sales and marketing     1,833     1,697
Research and development     1,327     1,353
General and administrative     3,843     7,179
Restructuring charges     -     1,989
Total stock-based compensation expense   $ 8,454   $ 14,064

 

VERISIGN, INC.  
STATEMENTS OF OPERATIONS RECONCILIATION  
(In thousands, except per share data)  
(Unaudited)  
   
    Six Months Ended     Six Months Ended  
    June 30, 2012     June 30, 2011  
    Operating Income     Net Income     Operating Income     Net Income  
                                 
GAAP as reported   $ 205,910     $ 136,481     $ 147,569     $ 30,161  
  Discontinued operations             (1,904 )             4,451  
  Adjustments:                                
    Stock-based compensation     16,584       16,584       24,036       24,036  
    Amortization of other intangible assets     648       648       645       645  
    Restructuring charges     (730 )     (730 )     9,189       9,189  
    Contingent interest payment to holders of Convertible Debentures             -               100,020  
    Unrealized loss (gain) on contingent interest derivative on Convertible Debentures             3,960               (250 )
    Non-cash interest expense             3,491               3,343  
  Tax adjustment             (15,972 )             (50,843 )
Non-GAAP as adjusted   $ 222,412     $ 142,558     $ 181,439     $ 120,752  
                                 
Revenues   $ 419,868             $ 371,367          
Non-GAAP operating margin     53.0 %             48.9 %        
Diluted shares             163,530               171,850  
Per diluted share, non-GAAP as adjusted           $ 0.87             $ 0.70  

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 30% tax rate which differs from the GAAP tax rate. All non-GAAP figures for each period presented above have been conformed to exclude the foregoing items under GAAP.

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:

    Six Months Ended June 30,
    2012   2011
Cost of revenues   $ 2,988   $ 3,836
Sales and marketing     3,349     3,551
Research and development     2,569     2,871
General and administrative     7,678     13,778
Restructuring charges     -     4,978
Total stock-based compensation expense   $ 16,584   $ 29,014