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Verisign Reports Third Quarter 2018 Results

RESTON, VA - Oct. 25, 2018 - 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.


Contacts
Investor Relations: David Atchley, datchley@verisign.com, 703-948-4643
Media Relations: Deana Alvy, dalvy@verisign.com, 703-948-3800

©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 Ended
September 30,
 
Nine Months Ended
September 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 Ended
September 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 Ended
September 30,
 
Four Quarters Ended
September 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 Ended
September 30,
 
Nine Months Ended
September 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





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