EX-99.1 2 q12016earningsrelease.htm EXHIBIT 99.1 Exhibit





Verisign Reports First Quarter 2016 Results

RESTON, VA - April 28, 2016 - VeriSign, Inc. (NASDAQ: VRSN), a global leader in domain names and Internet security, today reported financial results for the first quarter of 2016.

First Quarter GAAP Financial Results
VeriSign, Inc. and subsidiaries (“Verisign”) reported revenue of $282 million for the first quarter of 2016, up 9.1 percent from the same quarter in 2015. Verisign reported net income of $107 million and diluted earnings per share (diluted “EPS”) of $0.82 for the first quarter of 2016, compared to net income of $88 million and diluted EPS of $0.66 for the same quarter in 2015. The operating margin was 59.2 percent for the first quarter of 2016 compared to 55.8 percent for the same quarter in 2015.

First Quarter Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $112 million and diluted EPS of $0.85 for the first quarter of 2016, compared to net income of $99 million and diluted EPS of $0.74 for the same quarter in 2015. The non-GAAP operating margin was 63.3 percent for the first quarter of 2016 compared to 59.7 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.

“The Company’s strong and consistent financial performance reflects the focus and discipline of our teams in executing our strategy,” commented Jim Bidzos, Executive Chairman, President and Chief Executive Officer.

Financial Highlights

•
Verisign ended the first quarter with cash, cash equivalents and marketable securities of $1.9 billion, a decrease of $20 million from year-end 2015.
•
Cash flow from operations was $144 million for the first quarter of 2016, compared with $133 million for the same quarter in 2015.
•
Deferred revenues on March 31, 2016, totaled $992 million, an increase of $31 million from year-end 2015.
•
During the first quarter, Verisign repurchased 1.8 million shares of its common stock for $150 million. At March 31, 2016, $916 million remained available and authorized under the current share repurchase program which has no expiration.
•
For purposes of calculating diluted EPS, the first quarter diluted share count included 21.1 million shares related to subordinated convertible debentures, compared with 15.8 million shares for the same quarter in 2015. These represent diluted shares and not shares that have been issued.

Business Highlights

•
Verisign Registry Services added 2.65 million net new names during the first quarter, ending with 142.5 million .com and .net domain names in the domain name base, which represents a 7.1 percent increase over the base at the end of the first quarter in 2015.
•
In the first quarter, Verisign processed 10.0 million new domain name registrations for .com and .net, as compared to 8.7 million for the same quarter in 2015.
•
The final .com and .net renewal rate for the fourth quarter of 2015 was 73.3 percent compared with 72.5 percent for the same quarter in 2014. 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. 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. Management believes that the non-GAAP information enhances investors’ overall understanding of Verisign’s financial performance and the comparability of Verisign’s operating results from period to period.

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 first quarter 2016 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-1449 (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 key Internet domain name functions (the Internet Assigned Numbers Authority (“IANA”) function) and the related root zone management 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.


Contacts
Investor Relations: David Atchley, datchley@verisign.com, 703-948-4643
Media Relations: Deana Alvy, dalvy@verisign.com, 703-948-4179

©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)
 
March 31,
2016
 
December 31,
2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
234,025

 
$
228,659

Marketable securities
1,661,804

 
1,686,771

Accounts receivable, net
16,188

 
12,638

Other current assets
34,040

 
39,856

Total current assets
1,946,057

 
1,967,924

Property and equipment, net
286,202

 
295,570

Goodwill
52,527

 
52,527

Deferred tax assets
15,324

 
17,361

Other long-term assets
23,563

 
24,355

Total long-term assets
377,616

 
389,813

Total assets
$
2,323,673

 
$
2,357,737

LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
148,677

 
$
188,171

Deferred revenues
703,599

 
680,483

Subordinated convertible debentures, including contingent interest derivative
629,437

 
634,326

Total current liabilities
1,481,713

 
1,502,980

Long-term deferred revenues
288,741

 
280,859

Senior notes
1,235,813

 
1,235,354

Deferred tax liabilities
310,856

 
294,194

Other long-term tax liabilities
114,573

 
114,797

Total long-term liabilities
1,949,983

 
1,925,204

Total liabilities
3,431,696

 
3,428,184

Commitments and contingencies
 
 
 
Stockholders’ deficit:
 
 
 
Preferred stock—par value $.001 per share; Authorized shares: 5,000; Issued and outstanding shares: none
—

 
—

Common stock—par value $.001 per share; Authorized shares: 1,000,000; Issued shares:323,884 at March 31, 2016 and 322,990 at December 31, 2015; Outstanding shares:108,879 at March 31, 2016 and 110,072 at December 31, 2015
324

 
323

Additional paid-in capital
17,412,920

 
17,558,822

Accumulated deficit
(18,518,143
)
 
(18,625,599
)
Accumulated other comprehensive loss
(3,124
)
 
(3,993
)
Total stockholders’ deficit
(1,108,023
)
 
(1,070,447
)
Total liabilities and stockholders’ deficit
$
2,323,673

 
$
2,357,737











VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)

  
Three Months Ended March 31,
 
2016
 
2015
Revenues
$
281,876

 
$
258,422

Costs and expenses:
 
 
 
Cost of revenues
50,582

 
48,353

Sales and marketing
20,027

 
22,382

Research and development
16,743

 
17,152

General and administrative
27,757

 
26,298

Total costs and expenses
115,109

 
114,185

Operating income
166,767

 
144,237

Interest expense
(28,804
)
 
(22,017
)
Non-operating income (loss), net
3,121

 
(5,555
)
Income before income taxes
141,084

 
116,665

Income tax expense
(33,628
)
 
(28,427
)
Net income
107,456

 
88,238

Unrealized gain on investments
935

 
87

Realized (gain) on investments, included in net income
(66
)
 
(4
)
Other comprehensive income
869

 
83

Comprehensive income
$
108,325

 
$
88,321

 
 
 
 
Earnings per share:
 
 
 
Basic
$
0.98

 
$
0.75

Diluted
$
0.82

 
$
0.66

Shares used to compute earnings per share
 
 
 
Basic
109,592

 
117,139

Diluted
131,581

 
133,850






VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
Three Months Ended March 31,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
107,456

 
$
88,238

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation of property and equipment
14,867

 
15,747

Stock-based compensation
11,759

 
10,128

Excess tax benefit associated with stock-based compensation
(6,018
)
 
(5,993
)
Unrealized (gain) loss on contingent interest derivative on Subordinated Convertible Debentures
(1,065
)
 
7,019

Payment of Contingent interest
(6,544
)
 
(5,225
)
Amortization of debt discount and issuance costs
3,267

 
2,845

Other, net
(779
)
 
(144
)
Changes in operating assets and liabilities
 
 
 
Accounts receivable
(3,779
)
 
(1,282
)
Prepaid expenses and other assets
6,524

 
(3,084
)
Accounts payable and accrued liabilities
(31,537
)
 
(28,816
)
Deferred revenues
30,998

 
34,582

Net deferred income taxes and other long-term tax liabilities
18,477

 
18,654

Net cash provided by operating activities
143,626

 
132,669

Cash flows from investing activities:
 
 
 
Proceeds from maturities and sales of marketable securities
900,810

 
325,399

Purchases of marketable securities
(874,031
)
 
(257,415
)
Purchases of property and equipment
(7,082
)
 
(13,042
)
Other investing activities
—

 
(3,787
)
Net cash provided by investing activities
19,697

 
51,155

Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock from option exercises and employee stock purchase plans
8,084

 
8,776

Repurchases of common stock
(172,360
)
 
(178,330
)
Proceeds from borrowings, net of issuance costs
—

 
493,824

Excess tax benefit associated with stock-based compensation
6,018

 
5,993

Net cash (used in) provided by financing activities
(158,258
)
 
330,263

Effect of exchange rate changes on cash and cash equivalents
301

 
184

Net increase in cash and cash equivalents
5,366

 
514,271

Cash and cash equivalents at beginning of period
228,659

 
191,608

Cash and cash equivalents at end of period
$
234,025

 
$
705,879

Supplemental cash flow disclosures:
 
 
 
Cash paid for interest
$
27,028

 
$
25,494

Cash paid for income taxes, net of refunds received
$
13,711

 
$
12,970







VERISIGN, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
 
Operating Income
 
Net Income
 
Operating Income
 
Net Income
GAAP as reported
$
166,767

 
$
107,456

 
144,237

 
$
88,238

Adjustments:
 
 
 
 
 
 
 
Stock-based compensation
11,759

 
11,759

 
10,128

 
10,128

Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures
 
 
(1,065
)
 
 
 
7,019

Non-cash interest expense
 
 
3,267

 
 
 
2,706

Contingent interest payable on subordinated convertible debentures
 
 
(3,346
)
 
 
 
(2,690
)
Tax adjustment
 
 
(5,813
)
 
 
 
(6,369
)
Non-GAAP
$
178,526

 
$
112,258

 
$
154,365

 
$
99,032

 
 
 
 
 
 
 
 
Revenues
$
281,876

 
 
 
$
258,422

 
 
Non-GAAP operating margin
63.3
%
 
 
 
59.7
%
 
 
Diluted shares
 
 
131,581

 
 
 
133,850

Diluted EPS, non-GAAP
 
 
$
0.85

 
 
 
$
0.74














VERISIGN, INC.
RECONCILIATION OF NON-GAAP ADJUSTED EBITDA
(In thousands)
(Unaudited)

The following table reconciles GAAP net income to non-GAAP Adjusted EBITDA for the periods shown below (in thousands):

 
Three Months Ended
March 31,
 
2016
 
2015
Net Income
$
107,456

 
$
88,238

Interest expense
28,804

 
22,017

Income tax expense
33,628

 
28,427

Depreciation and amortization
14,867

 
15,747

Stock-based compensation
11,759

 
10,128

Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures
(1,065
)
 
7,019

Unrealized loss (gain) on hedging agreements
562

 
(456
)
Non-GAAP Adjusted EBITDA
$
196,011

 
$
171,120

 
Four Quarters Ended
March 31, 2016
Net income
394,454

Interest expense
114,418

Income tax expense
117,615

Depreciation and amortization
60,611

Stock-based compensation
47,706

Unrealized loss on contingent interest derivative on the subordinated convertible debentures
6,046

Unrealized loss on hedging agreements
1,113

Non-GAAP Adjusted EBITDA
$
741,963











VERISIGN, INC.
STOCK-BASED COMPENSATION CLASSIFICATION
(In thousands)
(Unaudited)

The following table presents the classification of stock-based compensation:
 
Three Months Ended March 31,
 
2016
 
2015
     Cost of revenues
$
1,841

 
$
1,739

     Sales and marketing
1,633

 
1,299

     Research and development
1,703

 
1,721

     General and administrative
6,582

 
5,369

Total stock-based compensation expense
$
11,759

 
$
10,128