Verisign Reports Third Quarter 2019 Results

VeriSign, Inc. (NASDAQ: VRSN), a global provider of domain name registry services and internet infrastructure, today reported financial results for the third quarter of 2019.

Third Quarter GAAP Financial Results

VeriSign, Inc. and its subsidiaries (“Verisign”) reported revenue of $308 million for the third quarter of 2019, up 0.9 percent from the same quarter in 2018. Verisign reported net income of $154 million and diluted earnings per share (diluted “EPS”) of $1.30 for the third quarter of 2019, compared to net income of $138 million and diluted EPS of $1.13 for the same quarter in 2018. The operating margin was 66.7 percent for the third quarter of 2019 compared to 63.8 percent for the same quarter in 2018.

Third Quarter Non-GAAP Financial Results

Verisign reported, on a non-GAAP basis, net income of $161 million and diluted EPS of $1.36 for the third quarter of 2019, compared to net income of $151 million and diluted EPS of $1.23 for the same quarter in 2018. The non-GAAP operating margin was 70.8 percent for the third quarter of 2019 compared to 68.7 percent for the same quarter in 2018. A table reconciling the GAAP to the non-GAAP results (which excludes the items described under “Non-GAAP Financial Measures and Adjusted EBITDA” below) is appended to this news release.

“Our third quarter results are the product of focused execution and our commitment to delivering shareholder value,” said Jim Bidzos, Executive Chairman, President and Chief Executive Officer.

Financial Highlights

• Verisign ended the third quarter of 2019 with cash, cash equivalents and marketable securities of $1.23 billion, a decrease of $40 million from the end of 2018.
• Cash flow from operating activities was $208 million for the third quarter of 2019, compared to $187 million for the same quarter in 2018.
• Deferred revenues as of Sept. 30, 2019 totaled $1.04 billion, an increase of $24 million from the end of 2018.
• During the third quarter of 2019, Verisign repurchased 1.0 million shares of its common stock for an aggregate cost of $194 million. As of Sept. 30, 2019, there was $522 million remaining for future share repurchases under the share repurchase program which has no expiration date.

Business Highlights

• Verisign ended the third quarter of 2019 with 157.4 million .com and .net domain name registrations in the domain name base, a 3.8 percent increase from the end of the third quarter of 2018, and a net increase of 1.27 million during the third quarter of 2019.
• During the third quarter of 2019, Verisign processed 9.9 million new domain name registrations for .com and .net, compared to 9.5 million for the same quarter in 2018.
• The final .com and .net renewal rate for the second quarter of 2019 was 74.2 percent compared with 75.0 percent for the same quarter in 2018. 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 measures in quarterly earnings news releases, on investor conference calls and during investor conferences and related events. These non-GAAP financial measures do not include stock-based compensation which is included in the comparable GAAP financial measures. Non-GAAP net income is also adjusted for an income tax rate of 22 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 senior notes. Adjusted EBITDA refers to net income before interest, taxes, depreciation and amortization, stock-based compensation, unrealized gain / loss on hedging agreements, and gain on the sale of a business.

Management believes that these non-GAAP financial measures supplement the GAAP financial measures 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 these non-GAAP financial measures is not meant to be considered in isolation nor as a substitute for financial measures prepared in accordance with GAAP.

The tables appended to this release include a reconciliation of the non-GAAP financial measures to the comparable financial measures 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 2019 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or [phone] (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 provider of domain name registry services and internet infrastructure, enables internet navigation for many of the world’s most recognized domain names. Verisign enables the security, stability, and resiliency of key internet infrastructure and services, including providing root zone maintainer services, operating two of the 13 global internet root servers, and providing registration services and authoritative resolution for the .com and .net top-level domains, which support the majority of global e-commerce. 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, risks arising from the agreements governing our Registry Services business; 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, 2018, 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.

2019 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, 2019				December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents		$	109,288			$	357,415
Marketable securities		1,120,723				912,254
Other current assets		68,135				47,365
Total current assets		1,298,146				1,317,034
Property and equipment, net		250,159				253,905
Goodwill		52,527				52,527
Deferred tax assets		100,564				104,992
Deposits to acquire intangible assets		145,000				145,000
Other long-term assets		40,334				41,046
Total long-term assets		588,584				597,470
Total assets		$	1,886,730			$	1,914,504
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities		$	200,361			$	215,208
Deferred revenues		760,517				732,382
Total current liabilities		960,878				947,590
Long-term deferred revenues		281,735				285,720
Senior notes		1,786,935				1,785,047
Long-term tax and other liabilities		309,101				281,621
Total long-term liabilities		2,377,771				2,352,388
Total liabilities		3,338,649				3,299,978
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: 353,084 at September 30, 2019 and 352,325 at December 31, 2018; Outstanding shares: 117,705 at September 30, 2019 and 120,037 at December 31, 2018		353				352
Additional paid-in capital		15,175,962				15,706,774
Accumulated deficit		(16,625,815		)		(17,089,789		)
Accumulated other comprehensive loss		(2,419		)		(2,811		)
Total stockholders’ deficit		(1,451,919		)		(1,385,474		)
Total liabilities and stockholders’ deficit		$	1,886,730			$	1,914,504

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,
		2019				2018				2019				2018
Revenues		$	308,421			$	305,777			$	921,118			$	907,517
Costs and expenses:
Cost of revenues		44,443				48,249				134,013				143,766
Sales and marketing		9,857				13,868				32,775				47,712
Research and development		14,619				13,712				45,704				42,842
General and administrative		33,886				34,951				101,065				99,771
Total costs and expenses		102,805				110,780				313,557				334,091
Operating income		205,616				194,997				607,561				573,426
Interest expense		(22,633		)		(22,631		)		(67,899		)		(92,211		)
Non-operating income, net		10,498				5,935				34,137				14,399
Income before income taxes		193,481				178,301				573,799				495,614
Income tax expense		(39,568		)		(40,621		)		(109,825		)		(95,320		)
Net income		153,913				137,680				463,974				400,294
Other comprehensive income (loss)		308				(322		)		392				(62		)
Comprehensive income		$	154,221			$	137,358			$	464,366			$	400,232
Earnings per share:
Basic		$	1.30			$	1.13			$	3.90			$	3.60
Diluted		$	1.30			$	1.13			$	3.89			$	3.25
Shares used to compute earnings per share
Basic		118,194				121,682				118,966				111,046
Diluted		118,569				122,261				119,410				123,079

VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
		Nine Months Ended September 30,
		2019				2018
Cash flows from operating activities:
Net income		$	463,974			$	400,294
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment		34,327				36,450
Stock-based compensation		38,237				41,406
Amortization of discount on investments in debt securities		(10,271		)		(12,746		)
Other, net		2,126				14,752
Changes in operating assets and liabilities:
Other assets		(12,123		)		(6,917		)
Accounts payable and accrued liabilities		(7,110		)		(29,478		)
Deferred revenues		24,563				24,844
Net deferred income taxes and other long-term tax liabilities		26,571				10,662
Net cash provided by operating activities		560,294				479,267
Cash flows from investing activities:
Proceeds from maturities and sales of marketable securities		1,523,862				3,081,702
Purchases of marketable securities		(1,721,661		)		(2,067,498		)
Purchases of property and equipment		(31,498		)		(29,597		)
Other investing activities		(8,530		)		(160		)
Net cash (used in) provided by investing activities		(237,827		)		984,447
Cash flows from financing activities:
Repayment of principal on subordinated convertible debentures		—				(1,250,009		)
Proceeds from employee stock purchase plan		13,152				12,836
Repurchases of common stock		(583,485		)		(459,803		)
Net cash used in financing activities		(570,333		)		(1,696,976		)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(208		)		(985		)
Net decrease in cash, cash equivalents, and restricted cash		(248,074		)		(234,247		)
Cash, cash equivalents, and restricted cash at beginning of period		366,753				475,139
Cash, cash equivalents, and restricted cash at end of period		$	118,679			$	240,892
Supplemental cash flow disclosures:
Cash paid for interest		$	57,074			$	87,184
Cash paid for income taxes, net of refunds received		$	75,197			$	84,433

VERISIGN, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND ADJUSTED EBITDA
(In thousands, except per share data)
(Unaudited)
		Three Months Ended September 30,
		2019								2018
		Operating Income				Net Income				Operating Income				Net Income
GAAP as reported		$	205,616			$	153,913			$	194,997			$	137,680
Adjustments:
Stock-based compensation		12,620				12,620				15,130				15,130
Tax adjustment						(5,774		)						(1,933		)
Non-GAAP		$	218,236			$	160,759			$	210,127			$	150,877
Revenues		$	308,421							$	305,777
Non-GAAP operating margin		70.8		%						68.7		%
Diluted shares						118,569								122,261
Diluted EPS, non-GAAP						$	1.36							$	1.23

The following table presents the classification of stock-based compensation:
		Three Months Ended September 30,								Nine Months Ended September 30,
		2019				2018				2019				2018
Cost of revenues		$	1,725			$	1,755			$	5,064			$	5,183
Sales and marketing		864				1,451				2,866				4,393
Research and development		1,513				1,623				4,744				5,032
General and administrative		8,518				10,301				25,563				26,798
Total stock-based compensation expense		$	12,620			$	15,130			$	38,237			$	41,406

The following table reconciles GAAP net income to non-GAAP Adjusted EBITDA:
		Four Quarters Ended September 30, 2019
Net Income		$	646,169
Interest expense		90,534
Income tax expense		161,532
Depreciation and amortization		46,244
Stock-based compensation		49,335
Unrealized loss on hedging agreements		134
Gain on sale of business		(55,657		)
Non-GAAP Adjusted EBITDA		$	938,291

 

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