// terug

Verisign Reports 9 Percent Year-Over-Year Revenue Growth in Third Quarter 2013

RESTON, VA--(Marketwired - Oct 24, 2013) - VeriSign, Inc. (NASDAQ: VRSN), the global leader in domain names, today reported financial results for the third quarter ended Sept. 30, 2013.

Third Quarter GAAP Financial Results
VeriSign, Inc., and subsidiaries ("Verisign") reported revenue of $244 million for the third quarter of 2013, up 9 percent from the same quarter in 2012. Verisign reported net income of $81 million and diluted earnings per share (EPS) of $0.53 for the third quarter of 2013, compared to net income of $78 million and diluted EPS of $0.47 in the same quarter in 2012. The operating margin was 54.5 percent for the third quarter of 2013 compared to 51.9 percent for the same quarter in 2012.

Third Quarter Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $90 million and diluted EPS of $0.59 for the third quarter of 2013, compared to net income of $84 million and diluted EPS of $0.50 for the same quarter in 2012. The non-GAAP operating margin was 58.8 percent for the third quarter of 2013 compared to 56.4 percent for the same quarter in 2012. A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.

"Our team continued to execute well and delivered sound operational and financial results. Also, during the third quarter we repurchased 6.8 million shares for $331 million," commented Jim Bidzos, executive chairman, president and chief executive officer.

As a result of Verisign's ongoing evaluation of its tax structure, Verisign expects to liquidate for tax purposes one of its domestic subsidiaries during the fourth quarter of 2013, which it expects will allow it to claim a worthless stock deduction on its 2013 federal income tax return. If claimed, based on preliminary estimates, Verisign expects to record an income tax benefit during the fourth quarter of 2013, ranging from approximately $300 million to $400 million, related to the worthless stock deduction, net of valuation allowances and uncertain tax positions recorded as required under GAAP. The worthless stock deduction may be subject to audit and adjustment by the IRS, which could result in reversal of all, part or none of the income tax benefit, or could result in a benefit higher than the net amount Verisign initially records. Verisign cannot guarantee that the liquidation of this subsidiary will occur as described, or at all, or what the ultimate outcome, use or amount of benefit Verisign receives, if any, will be. The financial statement carrying value of this subsidiary is not material.

While Verisign expects its domestic operations to generate sufficient taxable income to fully use the tax benefits of the ordinary loss from the worthless stock deduction, Verisign is analyzing and evaluating various scenarios for realizing the benefits. Although Verisign's current intent remains to indefinitely reinvest outside of the U.S. those funds held by foreign subsidiaries that have not been previously taxed in the U.S. and accordingly Verisign has not provided deferred U.S. taxes for such funds, Verisign anticipates reevaluating its overall business structure and financing of foreign operations as a part of this analysis. If the conclusion of this analysis results in a change to Verisign's current strategy related to foreign operations, Verisign may be required to accrue for an additional U.S. tax obligation, although it cannot predict what such amount, if any, may be. Based upon the audited statutory financial statements of Verisign's foreign subsidiaries as of December 31, 2012, on a combined basis Verisign's foreign subsidiaries have up to approximately $600 million of distributable capital under applicable foreign statutes. Verisign does not know what the ultimate outcome, if any, will be resulting from this analysis and evaluation for realizing the benefits.

Financial Highlights

  • Verisign ended the third quarter with Cash, Cash Equivalents and Marketable Securities of $1.8 billion, an increase of $250 million from year-end 2012.
  • Cash flow from operations was $134 million for the third quarter compared with $122 million for the same quarter in 2012.
  • Deferred revenues on Sept. 30, 2013, totaled $858 million, an increase of $45 million from year-end 2012.
  • Capital expenditures were $13 million in the third quarter of 2013.
  • During the third quarter, Verisign repurchased 6.8 million shares of its common stock for $331 million. At Sept. 30, 2013, $697 million remained available and authorized under the current share repurchase program.
  • For purposes of calculating diluted EPS, the third quarter diluted share count included 10.5 million shares related to the subordinated convertible debentures, compared with 9.2 million shares in the same quarter in 2012. These represent diluted shares and not shares that have been issued.

Business Highlights

  • Verisign Registry Services added 1.55 million net new names during the third quarter, ending with 125.9 million active domain names in the zone for .com and .net, which represents a 5 percent increase over the zone at the end of the third quarter in 2012.
  • In the third quarter, Verisign processed 8.3 million new domain name registrations as compared to 7.8 million in the same quarter in 2012.
  • The final .com and .net renewal rate for the second quarter of 2013 was 72.7 percent compared with 72.9 percent for the same quarter in 2012. Renewal rates are not fully measurable until 45 days after the end of the quarter.

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 the subordinated convertible debentures, unrealized gain/loss on contingent interest derivative on subordinated 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. (EDT) to review the third quarter 2013 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-1494 (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 Verisign 
As the global leader in domain names, 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, 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; the uncertainty regarding whether and when, if at all, the liquidation of one of our domestic subsidiaries will occur, and what the ultimate outcome, use or amount of benefit we receive, if any, will be; the outcome of our reevaluation of our current strategy related to foreign operations and the amount of additional tax obligation, if any, we may be required to accrue as a result of this analysis; new or existing governmental laws and regulations; changes in customer behavior, Internet platforms and web-browsing patterns; the uncertainty of whether we 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 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 gTLD applications or the applicants' 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 TLDs. 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, 2012, 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)
 
    September 30,
2013
    December 31,
2012
 
ASSETS            
Current assets:                
  Cash and cash equivalents   $ 117,591     $ 130,736  
  Marketable securities     1,689,223       1,425,700  
  Accounts receivable, net     14,823       11,477  
  Deferred tax assets     253       44,756  
  Prepaid expenses and other current assets     39,853       30,795  
    Total current assets     1,861,743       1,643,464  
Property and equipment, net     337,785       333,861  
Goodwill     52,527       52,527  
Long-term deferred tax assets     48,391       7,299  
Other long-term assets     29,505       25,325  
    Total long-term assets     468,208       419,012  
    Total assets   $ 2,329,951     $ 2,062,476  
LIABILITIES AND STOCKHOLDERS' DEFICIT            
Current liabilities:                
  Accounts payable and accrued liabilities   $ 145,426     $ 130,391  
  Deferred revenues     597,033       564,627  
  Subordinated convertible debentures, including contingent interest derivative     613,751       --  
  Deferred tax liabilities     407,860       --  
    Total current liabilities     1,764,070       695,018  
Long-term deferred revenues     260,963       247,955  
Senior notes     750,000       --  
Subordinated convertible debentures, including contingent interest derivative     --       597,614  
Credit facility     --       100,000  
Long-term deferred tax liabilities     3,832       386,914  
Other long-term tax liabilities     44,903       44,298  
    Total long-term liabilities     1,059,698       1,376,781  
    Total liabilities     2,823,768       2,071,799  
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: 320,177 at September 30, 2013 and 318,722 at December 31, 2012; Outstanding shares: 137,654 at September 30, 2013 and 153,392 at December 31, 2012     320       319  
  Additional paid-in capital     19,157,314       19,891,291  
  Accumulated deficit     (19,648,244 )     (19,900,545 )
  Accumulated other comprehensive loss     (3,207 )     (388 )
    Total stockholders' deficit     (493,817 )     (9,323 )
    Total liabilities and stockholders' deficit   $ 2,329,951     $ 2,062,476  
                     
 
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,
 
    2013     2012     2013     2012  
Revenues   $ 243,678     $ 223,528     $ 719,457     $ 643,396  
Costs and expenses:                                
  Cost of revenues     46,554       41,460       140,438       125,560  
  Sales and marketing     22,900       22,928       64,273       77,056  
  Research and development     17,456       15,409       52,531       45,635  
  General and administrative     24,055       27,669       64,157       73,903  
  Restructuring charges     --       --       --       (730 )
    Total costs and expenses     110,965       107,466       321,399       321,424  
Operating income     132,713       116,062       398,058       321,972  
Interest expense     (21,119 )     (12,619 )     (53,524 )     (37,539 )
Non-operating loss, net     (4,592 )     (1,742 )     (4,208 )     (3,032 )
Income from continuing operations before income taxes     107,002       101,701       340,326       281,401  
Income tax expense     (26,104 )     (24,882 )     (88,025 )     (70,005 )
Income from continuing operations, net of tax     80,898       76,819       252,301       211,396  
Income from discontinued operations, net of tax     --       1,091       --       2,995  
Net income     80,898       77,910       252,301       214,391  
  Unrealized gain (loss) on investments, net of tax     85       2,499       (341 )     2,536  
  Realized loss (gain) on investments, net of tax, included in net income     1       (20 )     (2,478 )     (55 )
Other comprehensive income (loss)     86       2,479       (2,819 )     2,481  
Comprehensive income   $ 80,984     $ 80,389     $ 249,482     $ 216,872  
                                 
Basic income per share:                                
  Continuing operations   $ 0.57     $ 0.49     $ 1.71     $ 1.34  
  Discontinued operations     --       0.01       --       0.02  
  Net income   $ 0.57     $ 0.50     $ 1.71     $ 1.36  
Diluted income per share:                                
  Continuing operations   $ 0.53     $ 0.46     $ 1.60     $ 1.28  
  Discontinued operations     --       0.01       --       0.02  
  Net income   $ 0.53     $ 0.47     $ 1.60     $ 1.30  
Shares used to compute net income per share                                
  Basic     141,701       156,261       147,567       157,729  
  Diluted     152,951       166,575       157,606       164,540  
                                   
 
VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
    Nine Months Ended September 30,  
    2013     2012  
Cash flows from operating activities:                
  Net income   $ 252,301     $ 214,391  
  Adjustments to reconcile net income to net cash provided by operating activities:                
    Depreciation of property and equipment and amortization of other intangible assets     45,415       39,652  
    Stock-based compensation     27,006       26,391  
    Excess tax benefit associated with stock-based compensation     (30,095 )     (20,765 )
    Deferred income taxes     29,000       34,310  
    Other, net     17,577       15,650  
    Changes in operating assets and liabilities                
      Accounts receivable     (3,525 )     3,602  
      Prepaid expenses and other assets     1,679       5,081  
      Accounts payable and accrued liabilities     47,185       (31,515 )
      Deferred revenues     45,414       80,074  
        Net cash provided by operating activities     431,957       366,871  
Cash flows from investing activities:                
  Proceeds from maturities and sales of marketable securities     2,253,776       393,677  
  Purchases of marketable securities     (2,516,714 )     (1,579,234 )
  Purchases of property and equipment     (50,201 )     (39,868 )
  Other investing activities     (3,946 )     (638 )
        Net cash used in investing activities     (317,085 )     (1,226,063 )
Cash flows from financing activities:                
  Proceeds from issuance of common stock from option exercises and employee stock purchase plans     16,661       26,573  
  Repurchases of common stock     (810,067 )     (231,391 )
  Repayment of borrowings     (100,000 )     --  
  Proceeds from senior notes, net of issuance costs     738,297       --  
  Excess tax benefit associated with stock-based compensation     30,095       20,765  
  Other financing activities     --       189  
        Net cash used in financing activities     (125,014 )     (183,864 )
Effect of exchange rate changes on cash and cash equivalents     (3,003 )     162  
Net decrease in cash and cash equivalents     (13,145 )     (1,042,894 )
Cash and cash equivalents at beginning of period     130,736       1,313,349  
Cash and cash equivalents at end of period   $ 117,591     $ 270,455  
Supplemental cash flow disclosures:                
  Cash paid for interest, net of capitalized interest   $ 40,435     $ 40,829  
  Cash paid for income taxes, net of refunds received   $ 17,055     $ 19,975  
                   
 
VERISIGN, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)
 
    Three Months Ended September 30,  
    2013     2012  
    Operating Income     Net Income     Operating Income     Net Income  
GAAP as reported   $ 132,713     $ 80,898     $ 116,062     $ 77,910  
  Discontinued Operations             --               (1,091 )
  Adjustments:                                
    Stock-based compensation     10,577       10,577       9,807       9,807  
    Amortization of other intangible assets     --       --       140       140  
    Unrealized loss on contingent interest derivative on the subordinated convertible debentures             5,286               3,167  
    Non-cash interest expense             2,171               1,916  
  Tax adjustment             (8,907 )             (7,803 )
Non-GAAP   $ 143,290     $ 90,025     $ 126,009     $ 84,046  
                                 
Revenues   $ 243,678             $ 223,528          
Non-GAAP operating margin     58.8 %             56.4 %        
Diluted shares             152,951               166,575  
Per diluted share, non-GAAP           $ 0.59             $ 0.50  
                                 

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 the subordinated convertible debentures, unrealized gain/loss on contingent interest derivative on subordinated convertible debentures, and non-cash interest expense. Non-GAAP financial information is also 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:

     
    Three Months Ended September 30,
    2013   2012
Cost of revenues   $ 1,524   $ 1,491
Sales and marketing     1,442     1,697
Research and development     1,674     1,622
General and administrative     5,937     4,997
Total stock-based compensation expense   $ 10,577   $ 9,807
             
 
VERISIGN, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)
 
    Nine Months Ended September 30,  
    2013     2012  
    Operating Income     Net Income     Operating Income     Net Income  
GAAP as reported   $ 398,058     $ 252,301     $ 321,972     $ 214,391  
  Discontinued operations                             (2,995 )
  Adjustments:                                
    Stock-based compensation     27,006       27,006       26,391       26,391  
    Amortization of other intangible assets     --       --       788       788  
    Restructuring charges     --       --       (730 )     (730 )
    Unrealized loss on contingent interest derivative on the subordinated convertible debentures             9,723               7,127  
    Non-cash interest expense             6,316               5,409  
  Tax adjustment             (19,319 )             (23,775 )
Non-GAAP   $ 425,064     $ 276,027     $ 348,421     $ 226,606  
                                 
Revenues   $ 719,457             $ 643,396          
Non-GAAP operating margin     59.1 %             54.2 %        
Diluted shares             157,606               164,540  
Per diluted share, non-GAAP           $ 1.75             $ 1.38  
                                 

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 the subordinated convertible debentures, unrealized gain/loss on contingent interest derivative on subordinated 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 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:

     
    Nine Months Ended September 30,
    2013   2012
Cost of revenues   $ 4,639   $ 4,479
Sales and marketing     4,656     5,046
Research and development     5,314     4,191
General and administrative     12,397     12,675
Total stock-based compensation expense   $ 27,006   $ 26,391
             
 
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,
    2013   2012
Net Income   $ 80,898   $ 77,910
  Interest expense     21,119     12,619
  Income tax expense     26,104     24,985
  Depreciation and amortization     14,889     13,379
  Stock-based compensation     10,577     9,807
  Unrealized loss on contingent interest derivative on the subordinated convertible debentures     5,286     3,167
  Unrealized loss on hedging agreements     222     435
Adjusted EBITDA   $ 159,095   $ 142,302
             
    Four Quarters Ended
September 30, 2013
Net Income   $ 357,941
  Interest expense     66,181
  Income tax expense     121,541
  Depreciation and amortization     60,582
  Stock-based compensation     33,976
  Unrealized loss on contingent interest derivative on the subordinated convertible debentures     2,174
  Unrealized loss on hedging agreements     18
Adjusted EBITDA   $ 642,413
       

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.