VeriSign, Inc. (NASDAQ: VRSN), a global leader in domain names
and internet security, today reported financial results for the
third quarter of 2018.
Third Quarter GAAP Financial Results
VeriSign, Inc. and subsidiaries (“Verisign”) reported revenue of
$306 million for the third quarter of 2018, up 4.6 percent from the
same quarter in 2017. Verisign reported net income of $138 million
and diluted earnings per share (diluted “EPS”) of $1.13 for the
third quarter of 2018, compared to net income of $115 million and
diluted EPS of $0.93 for the same quarter in 2017. The operating
margin was 63.8 percent for the third quarter of 2018 compared to
61.9 percent for the same quarter in 2017.
Third Quarter Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $151
million and diluted EPS of $1.23 for the third quarter of 2018,
compared to net income of $124 million and diluted EPS of $1.00 for
the same quarter in 2017. The non-GAAP operating margin was 68.7
percent for the third quarter of 2018 compared to 66.7 percent for
the same quarter in 2017. A table reconciling the GAAP to the
non-GAAP results (which excludes items described below) is appended
to this news release.
“The continued dedication of our teams to protecting and
managing our business has yielded another solid quarter,” said Jim
Bidzos, Executive Chairman, President and Chief Executive
Officer.
On Oct. 24, 2018, Verisign entered into an agreement with
NeuStar, Inc. (“Neustar”) to sell the rights, economic benefits,
and obligations, in all customer contracts related to its Security
Services business. The transaction includes the sale of customer
agreements related to Verisign’s Distributed Denial of Service
Protection, Managed Domain Name System (“DNS”), DNS Firewall, and
Recursive DNS services. Verisign will retain its proprietary
technology, network assets, critical infrastructure, software, and
public DNS service to focus solely on supporting Verisign’s core
mission: ensuring the security, stability, and resiliency of our
core infrastructure. As part of the transaction, Verisign will
continue to support the Security Services customers during the
transition to Neustar, pursuant to a transition services agreement
that is expected to be executed at closing. The transaction is
subject to customary regulatory approval and is expected to close
shortly following the receipt of such approval. The purchase price,
subject to a cap of $120 million, consists of a payment of $50
million, due at the time of closing, plus an additional contingent
amount, due after the first anniversary of closing. The additional
contingent amount, which cannot be negative, is based upon, among
other things, the successful transition of customers to Neustar
during the 12-month period following closing.
In commenting on the transaction, Jim Bidzos added: “Verisign is
committed to focusing on its core mission of providing critical
internet infrastructure, including Root Zone management, operation
of 2 of the 13 global internet root servers, operation of .gov and
.edu, and authoritative resolution for the .com and .net top-level
domains, which support the majority of global e-commerce. For this
reason, Verisign is transitioning its Security Services customers
to Neustar.”
Financial Highlights
- Verisign ended the third quarter with
cash, cash equivalents and marketable securities of $1.18 billion,
a decrease of $1.24 billion from year-end 2017.
- Cash flow from operating activities was
$187 million for the third quarter of 2018, compared with $175
million for the same quarter in 2017.
- Deferred revenues on Sept. 30, 2018,
totaled $1.02 billion, an increase of $25 million from year-end
2017.
- During the third quarter, Verisign
repurchased 1.1 million shares of its common stock for $175
million. At Sept. 30, 2018, $638 million remained available
and authorized under the current share repurchase program which has
no expiration.
Business Highlights
- Verisign ended the third quarter with
151.7 million .com and .net domain name registrations in the domain
name base, a 4.0 percent increase from the end of the third quarter
of 2017, and a net increase of 1.99 million during the third
quarter of 2018.
- In the third quarter, Verisign
processed 9.5 million new domain name registrations for .com and
.net, compared to 8.9 million for the same quarter in 2017.
- The final .com and .net renewal rate
for the second quarter of 2018 was 75.0 percent compared with 74.0
percent for the same quarter in 2017. 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 news 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,
non-cash interest expense through June 30, 2018, and loss on debt
extinguishment. Non-GAAP net income is decreased by amounts accrued
for contingent interest payable through Aug. 15, 2017, related to
the subordinated convertible debentures, and is adjusted for an
income tax rate of 22 percent starting from the first quarter of
2018, 25 percent for the second through the fourth quarters of
2017, and 26 percent for the first quarter of 2017, all of which
differ 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
senior notes. Adjusted EBITDA refers to net income before interest,
taxes, depreciation and amortization, stock-based compensation,
unrealized gain / loss on hedging agreements, gain on the sale of a
business, and loss on debt extinguishment.
Management believes that this non-GAAP financial data
supplements the GAAP financial data by providing investors with
additional information that allows them to have a clearer picture
of Verisign’s operations and financial performance and the
comparability of Verisign’s operating results from period to
period. The presentation of this additional information is not
meant to be considered in isolation nor as a substitute for results
prepared in accordance with GAAP.
The tables appended to this release include a reconciliation of
the non-GAAP financial information to the comparable financial
information reported in accordance with GAAP for the given
periods.
Today’s Conference Call
Verisign will host a live conference call today at 4:30 p.m.
(EDT) to review the third quarter 2018 results. The call will be
accessible by direct dial at (888) 676-VRSN (U.S.) or (786)
789-4776 (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 Distributed Denial of Service Protection 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
changes to the multi-stakeholder model of internet governance;
risks arising from our operation of two root zone servers and our
performance of the Root Zone Maintainer functions; changes in
internet practices and behavior and the adoption of substitute
technologies; the success or failure of the evolution of our
markets; 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; the possibility of system interruptions
or failures; challenging global economic conditions; economic,
legal 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; and
the impact of unfavorable tax rules and regulations. 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, 2017, 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.
©2018 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, 2018 December 31,
2017
ASSETS
Current assets: Cash and cash equivalents $ 231,571 $ 465,851
Marketable securities 947,395 1,948,900 Other current assets
57,016 31,402 Total current assets
1,235,982 2,446,153 Property and equipment,
net 256,269 263,513 Goodwill 52,527 52,527 Deferred tax assets
167,772 15,392 Deposits to acquire intangible assets 145,000
145,000 Other long-term assets 27,078 18,603
Total long-term assets 648,646 495,035
Total assets $ 1,884,628 $ 2,941,188
LIABILITIES AND
STOCKHOLDERS’ DEFICIT
Current liabilities: Accounts payable and accrued liabilities $
176,121 $ 219,603 Deferred revenues 737,515 713,309 Subordinated
convertible debentures — 627,616 Total
current liabilities 913,636 1,560,528
Long-term deferred revenues 286,735 286,097 Senior notes 1,784,417
1,782,529 Deferred tax liabilities — 444,108 Other long-term tax
liabilities 300,941 128,197 Total
long-term liabilities 2,372,093 2,640,931
Total liabilities 3,285,729 4,201,459
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:
352,260 at September 30, 2018 and 325,218 at December 31, 2017;
Outstanding shares: 121,158 at September 30, 2018 and 97,591 at
December 31, 2017 352 325 Additional paid-in capital 15,873,534
16,437,135 Accumulated deficit (17,271,984 ) (17,694,790 )
Accumulated other comprehensive loss (3,003 ) (2,941
) Total stockholders’ deficit (1,401,101 ) (1,260,271
) Total liabilities and stockholders’ deficit $ 1,884,628 $
2,941,188
VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(In thousands, except per share
data)
(Unaudited)
Three Months EndedSeptember
30, Nine Months EndedSeptember 30,
2018 2017 2018
2017 Revenues $ 305,777 $ 292,428 $ 907,517
$ 869,594 Costs and expenses: Cost of revenues 48,249
47,333 143,766 145,646 Sales and marketing 13,868 18,667 47,712
56,463 Research and development 13,712 12,715 42,842 39,569 General
and administrative 34,951 32,654
99,771 96,626 Total costs and expenses
110,780 111,369 334,091
338,304 Operating income 194,997 181,059 573,426 531,290
Interest expense (22,631 ) (37,756 ) (92,211 ) (95,869 )
Non-operating income, net 5,935 6,241
14,399 21,544 Income before income
taxes 178,301 149,544 495,614 456,965 Income tax expense
(40,621 ) (34,645 ) (95,320 ) (102,554 ) Net
income 137,680 114,899 400,294
354,411 Other comprehensive income (322
) (264 ) (62 ) 299 Comprehensive income
$ 137,358 $ 114,635 $ 400,232 $ 354,710
Earnings per share: Basic $ 1.13 $ 1.15 $ 3.60
$ 3.51 Diluted $ 1.13 $ 0.93 $ 3.25
$ 2.85 Shares used to compute earnings per share
Basic 121,682 99,614 111,046
101,036 Diluted 122,261
124,074 123,079 124,162
VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In thousands)
(Unaudited)
Nine Months EndedSeptember
30, 2018 2017 Cash flows from
operating activities: Net income $ 400,294 $ 354,411 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment 36,450 37,665 Stock-based
compensation 41,406 40,043 Loss on debt extinguishment 6,554 — Gain
on sale of business — (10,421 ) Amortization of debt discount and
issuance costs 6,428 10,827 Amortization of discount on investments
in debt securities (12,746 ) (9,092 ) Other, net 1,770 150 Changes
in operating assets and liabilities: Other assets (6,917 ) 4,566
Accounts payable and accrued liabilities (29,478 ) (24,756 )
Deferred revenues 24,844 32,790 Net deferred income taxes and other
long-term tax liabilities 10,662 67,385
Net cash provided by operating activities 479,267
503,568 Cash flows from investing activities:
Proceeds from maturities and sales of marketable securities
3,081,702 3,895,675 Purchases of marketable securities (2,067,498 )
(4,398,787 ) Purchases of property and equipment (29,597 ) (40,609
) Other investing activities (160 ) 11,748 Net
cash provided by (used in) investing activities 984,447
(531,973 ) Cash flows from financing activities:
Repayment of principal on subordinated convertible debentures
(1,250,009 ) — Proceeds from employee stock purchase plan 12,836
12,915 Repurchases of common stock (459,803 ) (474,290 ) Proceeds
from borrowings, net of issuance costs —
543,185 Net cash (used in) provided by financing activities
(1,696,976 ) 81,810 Effect of exchange rate
changes on cash, cash equivalents, and restricted cash (985
) 1,118 Net (decrease) increase in cash, cash
equivalents, and restricted cash (234,247 ) 54,523 Cash, cash
equivalents, and restricted cash at beginning of period
475,139 241,581 Cash, cash equivalents, and
restricted cash at end of period $ 240,892 $ 296,104
Supplemental cash flow disclosures: Cash paid for interest $ 87,184
$ 86,622 Cash paid for income taxes, net of refunds
received $ 84,433 $ 22,717
VERISIGN, INC.
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES
(In thousands, except per share
data)
(Unaudited)
Three Months Ended September 30,
2018 2017
Operating
Income
Net Income
Operating
Income
Net Income GAAP as reported $ 194,997 $
137,680 $ 181,059 $ 114,899 Adjustments: Stock-based compensation
15,130 15,130 14,105 14,105 Non-cash interest expense — 3,779
Contingent interest payable on subordinated convertible debentures
— (1,879 ) Tax adjustment (1,933 )
(6,741 )
Non-GAAP $ 210,127
$ 150,877 $ 195,164 $ 124,163
Revenues $ 305,777 $ 292,428
Non-GAAP operating
margin 68.7 % 66.7 %
Diluted shares
122,261 124,074
Diluted EPS, non-GAAP $ 1.23 $ 1.00
Nine Months Ended September 30,
2018 2017
Operating
Income
Net Income
Operating
Income
Net Income GAAP as reported $ 573,426 $ 400,294 $
531,290 $ 354,411 Adjustments: Stock-based compensation 41,406
41,406 40,043 40,043 Unrealized loss on contingent interest
derivative on the subordinated convertible debentures — 893
Non-cash interest expense 5,719 10,827 Contingent interest payable
on subordinated convertible debentures — (9,445 ) Loss on debt
extinguishment 6,554 — Tax adjustment
(25,524 ) (23,872 )
Non-GAAP $ 614,832 $
428,449 $ 571,333 $ 372,857
Revenues $ 907,517 $ 869,594
Non-GAAP operating
margin 67.7 % 65.7 %
Diluted shares
123,079 124,162
Diluted EPS, non-GAAP $ 3.48 $ 3.00
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:
Three Months EndedSeptember
30, Four Quarters EndedSeptember
30, 2018 2017 2018 Net
Income $ 137,680 $ 114,899 $ 503,131 Interest expense 22,631
37,756 132,678 Income tax expense 40,621 34,645 134,530
Depreciation and amortization 12,256 12,493 48,663 Stock-based
compensation 15,130 14,105 54,270 Unrealized loss (gain) on hedging
agreements 276 10 (27 ) Loss on sale of business — 186 — Loss on
debt extinguishment — — 6,554
Non-GAAP Adjusted EBITDA $ 228,594 $ 214,094 $ 879,799
VERISIGN, INC.
STOCK-BASED COMPENSATION
CLASSIFICATION
(In thousands)
(Unaudited)
The following table presents the
classification of stock-based compensation:
Three Months EndedSeptember
30, Nine Months EndedSeptember 30,
2018 2017 2018
2017 Cost of revenues $ 1,755 $ 1,774 $ 5,183 $ 5,311 Sales
and marketing 1,451 1,369 4,393 4,255 Research and development
1,623 1,575 5,032 4,553 General and administrative 10,301
9,387 26,798 25,924 Total stock-based
compensation expense $ 15,130 $ 14,105 $ 41,406 $ 40,043
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181025005843/en/
VeriSign, Inc.Investor Relations:David Atchley,
703-948-4643datchley@verisign.comorMedia Relations:Deana Alvy,
703-948-3800dalvy@verisign.com
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