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VeriSign Reports Third Quarter Results Non-GAAP Operating Margin for Continuing Operations Increases Over 190 Basis Points to 23.4% MOUNTAIN VIEW, CA--(MARKET WIRE)--Nov 1, 2007 -- VeriSign, Inc. (NasdaqGS:VRSN - News), the
leading provider of digital infrastructure for the networked
world, today
reported financial results for the third quarter ended September
30, 2007.
VeriSign reported total revenue of $377 million for the third quarter of 2007 with revenue from continuing operations of $374 million. On a GAAP basis, VeriSign reported net income of $19 million for the third quarter of 2007 and earnings per share of $0.08 per fully-diluted share. Net income from continuing operations was $16 million with earnings per share of $0.07 per fully-diluted share. On a non-GAAP basis, VeriSign reported net income of $66 million for the third quarter of 2007 and earnings per share of $0.27 per fully-diluted share. Net income from continuing operations was $65 million with earnings per share of $0.26 per fully-diluted share. A table reconciling the GAAP to non-GAAP results reported above is appended to this release. "Our results this quarter highlight the continued strength of our Registry and SSL businesses," said Bill Roper, president and chief executive officer of VeriSign. "The consistent growth in these markets, combined with the stability of our business model, drive solid financial results which in turn allow us to invest in our business and improve the efficiency of our capital structure. We will continue to take steps to focus our efforts on growing our core businesses, and to seek ways of creating additional shareholder value." "We are pleased with our third quarter results, particularly with regard to our ability to deliver margin expansion," said Bert Clement, chief financial officer of VeriSign. "Solid revenue growth, coupled with disciplined expense management, generated cash flow from operations of $109 million." Business Highlights
-- VeriSign completed a $1.25 billion junior subordinated convertible
bond offering in August.
-- During the quarter, the company repurchased 31.4 million shares of
common stock at an average price of $30.12.
-- VeriSign Identity Protection (VIP) services announced several new VIP
Network members, additional authentication form factor options available to
consumers, and successful adoption of the PayPal Security Key amongst
PayPal's customers in Germany and Australia.
-- Building on the strength of early adoption of Extended Validation (EV)
Secured Sockets Layer (SSL) in the U.S. and Europe, online leaders such as
E*TRADE Australia, Travelocity.ca and HMV have extended this new
technology's footprint to all corners of the globe.
-- VeriSign recently announced that it has successfully completed key
milestones for Project Titan, the expansion and diversification of its
critical Internet infrastructure. Through Project Titan, VeriSign has
increased its infrastructure capacity to 2 trillion DNS queries a day,
continued to diversify its infrastructure globally and created new tools
and processes to better monitor and manage traffic and to implement various
system upgrades. These upgrades are vital to managing the surge in Internet
interactions and protecting against cyber attacks that are growing in both
scale and sophistication.
-- In August, VeriSign announced that its board of directors appointed D.
James Bidzos as chairman of the board. Mr. Bidzos, who founded the company
in 1995, previously served as chairman from April 1995 until December 2001,
and as vice chairman until his recent appointment.
-- Subsequent to the end of the quarter, Mark McLaughlin, executive vice
president of products, marketing and customer service, announced he will be
leaving the company to spend time with his family before pursuing other
opportunities. Mr. McLaughlin will remain through the end of November to
help transition responsibilities.
-- VeriSign announced the hiring of Kevin A. Werner as senior vice
president of corporate development and strategy. Mr. Werner will assume
responsibility for strategic development activities.
-- VeriSign also announced the hiring of Grant L. Clark as senior vice
president and chief administrative officer. Mr. Clark will have primary
responsibility for improving business processes and will also oversee the
company's operational and risk management activities.Internet Services Group
-- The Internet Services Group (ISG) -- which includes VeriSign
Information Services (VIS) and VeriSign Security Services (VSS) --
delivered $236 million of revenue in the third quarter of 2007.
-- VeriSign Information Services ended the quarter with approximately 77
million active domain names in .com and .net, representing a 5% increase
over Q2 2007 and 25% increase year over year.
-- VeriSign Information Services also registered a record 17.5 million
new and renewed domain names in .com and .net during the third quarter.
-- VeriSign Security Services issued approximately 217,000 new and
renewal certificates in Q3, bringing the total base to 912,000, up 3% from
Q2 2007.Communications Services Group
-- VeriSign Communications Services Group (CSG) -- which provides
intelligent communications, commerce and content services to
telecommunications carriers, media and entertainment companies, and next-
generation service providers -- delivered revenues of $138 million in the
third quarter of 2007.Additional Financial Information
-- Capital expenditures in the third quarter were approximately $47
million.
-- VeriSign ended the third quarter with Cash, Cash Equivalents,
Restricted Cash and Short-term Investments of $1.2 billion, an increase of
approximately $370 million from the prior quarter.
-- Deferred revenue on the balance sheet was $711 million as of September
30, 2007, an increase of $26 million from the prior quarter.
-- Net days sales outstanding (Net DSO), which takes into account the
change in deferred revenue balances, was 50 days at the end of Q3, an
increase of six days from the second quarter.Non-GAAP results exclude the following items which are included under GAAP: amortization of intangible assets, stock-based compensation, non-recurring legal costs and settlements, restructuring and other charges, net loss on the sale or impairment of investments, unrealized gain on Jamba JV call option, gain on the sale of a subsidiary, realized and unrealized gains and losses on embedded derivative, and stock option investigation costs. A table reconciling the GAAP to non-GAAP net income is appended to this release. Today's Conference Call VeriSign will host a live teleconference call today at 2:00 pm (PDT) to review the quarter's results. The call will be accessible by direct dial at (888) 676-VRSN (US) or (913) 312-1505 (international). A listen-only live web cast and accompanying slide presentation of the earnings conference call will also be available at http://investor.verisign.com. A replay of this call will be available at (888) 203-1112 or (719) 457-0820 (passcode: 7142729) beginning at 5:00 pm (PDT) on November 1 and will run through November 6. This press release and the financial information discussed on today's conference call are available on the Investor Relations section of the VeriSign website at http://investor.verisign.com. About VeriSign VeriSign, Inc. (NasdaqGS:VRSN - News) operates intelligent infrastructure services that enable and protect billions of interactions every day across the world's voice, video and data networks. Additional news and information about the company is available at www.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 and Section 21E of the Securities Exchange Act of 1934. These statements involve risks and uncertainties that could cause VeriSign's 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 future revenue and profitability and potential fluctuations in quarterly operating results due to such factors as increasing competition and pricing pressure from competing services offered at prices below our prices and market acceptance of our existing services, the inability of VeriSign to successfully develop and market new services, the uncertainty of whether Project Titan will achieve its stated objectives, and the uncertainty of whether new services as provided by VeriSign will achieve market acceptance or result in any revenues and the risk acquired businesses will not be integrated successfully and unanticipated costs of such integration. More information about potential factors that could affect the company's business and financial results is included in VeriSign's filings with the Securities and Exchange Commission, including in the Company's Annual Report on Form 10-K for the year ended December 31, 2006 and 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 press release.
VERISIGN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
September 30, December 31,
2007 2006
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 1,061,312 $ 478,749
Short-term investments 61,095 198,656
Accounts receivable, net 220,232 241,570
Prepaid expenses and other current assets 116,191 294,955
Deferred tax assets 77,179 81,773
Current assets of discontinued operations - 36,661
----------- -----------
Total current assets 1,536,009 1,332,364
----------- -----------
Property and equipment, net 599,202 605,292
Goodwill 1,267,967 1,442,493
Other intangible assets, net 213,246 333,430
Restricted cash 47,406 49,437
Long-term deferred tax assets 183,265 179,023
Other assets, net 56,511 25,214
Investment in unconsolidated entities 122,866 -
Long-term assets of discontinued operations - 7,000
----------- -----------
Total long-term assets 2,490,463 2,641,889
----------- -----------
Total assets $ 4,026,472 $ 3,974,253
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 317,210 $ 681,996
Accrued restructuring costs 5,850 3,818
Deferred revenue 525,003 448,414
Short-term debt - 199,000
Deferred tax liabilities 1,116 1,448
Current liabilities of discontinued operations - 24,601
----------- -----------
Total current liabilities 849,179 1,359,277
----------- -----------
Long-term deferred revenue 185,757 159,439
Long-term accrued restructuring costs 1,831 937
Long-term debt 1,262,608 -
Long-term tax liability 34,777 -
Other long-term liabilities 5,994 5,175
Long-term deferred tax liabilities 13,686 24,849
Total long-term liabilities 1,504,653 190,400
----------- -----------
Total liabilities 2,353,832 1,549,677
Commitments and contingencies
Minority interest in subsidiaries 52,326 47,716
Stockholders' equity:
Preferred stock - par value $.001 per share
Authorized shares: 5,000,000
Issued and outstanding shares: none - -
Common stock - par value $.001 per share
Authorized shares: 1,000,000,000
Issued and outstanding shares: 225,476,098 and
243,844,122 (excluding 67,062,812 and 35,471,662
shares held in treasury at September 30, 2007
and December 31, 2006, respectively ) 293 279
Additional paid-in capital 22,435,748 23,314,476
Accumulated deficit (20,815,457) (20,929,497)
Accumulated other comprehensive loss (270) (8,398)
----------- -----------
Total stockholders' equity 1,620,314 2,376,860
----------- -----------
Total liabilities and stockholders' equity $ 4,026,472 $ 3,974,253
=========== ===========
VERISIGN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Revenues $ 373,587 $ 396,418 $1,109,853 $1,154,359
Cost and expenses
Cost of revenues 149,984 143,357 448,460 426,039
Sales & marketing 65,411 94,850 208,251 278,209
Research & development 39,897 33,164 121,313 92,444
General & administrative 59,130 69,049 187,861 188,862
Restructuring, impairments &
other charges 2,006 (84) 44,197 (4,279)
Amortization of intangible
assets 29,237 30,978 90,693 90,809
Acquired in-process R&D - 1,200 - 16,700
---------- ---------- ---------- ----------
Total costs & expenses 345,665 372,514 1,100,775 1,088,784
---------- ---------- ---------- ----------
Operating income 27,922 23,904 9,078 65,575
Other income, net (6,204) 4,599 86,032 38,266
---------- ---------- ---------- ----------
Income from continuing operations
before income taxes, earnings
from unconsolidated entities
and minority interest 21,718 28,503 95,110 103,841
Income tax (expense) benefit (3,501) (13,769) (23,871) 303,552
Earnings from unconsolidated
entities, net of tax 216 - 2,412 -
Minority interest, net of tax (2,054) (719) (2,541) (2,124)
---------- ---------- ---------- ----------
Net income from continuing
operations 16,379 14,015 71,110 405,269
Net income from discontinued
operations, net of tax 1,268 1,259 3,573 3,278
Gain on sale of discontinued
operations, net of tax 1,357 - 1,357 -
---------- ---------- ---------- ----------
Net income $ 19,004 $ 15,274 $ 76,040 $ 408,547
========== ========== ========== ==========
Basic net income per share from:
Continuing operations $ 0.07 $ 0.06 $ 0.29 $ 1.66
Discontinued operations 0.01 0.00 0.02 0.01
---------- ---------- ---------- ----------
Net income $ 0.08 $ 0.06 $ 0.31 $ 1.67
========== ========== ========== ==========
Diluted net income per share from:
Continuing operations $ 0.07 $ 0.06 $ 0.29 $ 1.64
Discontinued operations 0.01 0.00 0.02 0.01
---------- ---------- ---------- ----------
Net income $ 0.08 $ 0.06 $ 0.31 $ 1.65
========== ========== ========== ==========
Shares used in per share
computation:
Basic 240,054 243,536 242,570 244,620
========== ========== ========== ==========
Diluted 245,537 245,657 247,752 247,005
========== ========== ========== ==========
Stock-based compensation
Cost of revenue $ 7,306 $ 2,889 $ 14,645 $ 10,175
Sales & marketing 6,304 3,972 16,217 11,224
Research & development 5,276 2,495 10,598 7,368
General & administrative 7,853 6,476 28,924 19,064
---------- ---------- ---------- ----------
Total stock-based
compensation $ 26,739 $ 15,832 $ 70,384 $ 47,831
========== ========== ========== ==========
VERISIGN, INC. AND SUBSIDIARIES
STATEMENTS OF INCOME RECONCILIATION
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Revenue reconciliation
Revenue from continuing
operations $ 373,587 $ 396,418 $1,109,853 $1,154,359
Revenue from discontinued
operations (1) 3,065 2,975 11,869 8,573
---------- ---------- ---------- ----------
Revenue including
discontinued operations $ 376,652 $ 399,393 $1,121,722 $1,162,932
========== ========== ========== ==========
(1) For the three and nine months ended September 30, 2007, revenue from
discontinued operations represents activity related primarily to the Jamba
Services business. VeriSign previously provided investors and analysts
forecasts for the period that included revenue up until an estimated
disposition date of the business. For the three and nine months ended
September 30, 2006, revenue from discontinued operations represents
activity related to both Jamba Services and the Payments Gateway business.
For GAAP purposes, revenue from these and all periods are reclassified to
net income from discontinued operations.
Statements of income reconciliation
Net income on a GAAP basis $ 19,004 $ 15,274 $ 76,040 $ 408,547
Amortization of
intangible assets 29,237 30,978 90,693 90,809
Acquired in-process
research and development - 1,200 - 16,700
Stock-based compensation
(2) 26,739 15,832 70,384 47,706
Former CEO severance - - 10,430 -
Non-recurring legal
costs and settlements 608 201 1,370 3,501
Restructuring, impairments
and other charges
(reversals) 2,006 (84) 44,197 (4,279)
Net (gain) loss on sale
of investments 4,314 (64) 3,430 (20,284)
Net (gain) on sale of
subsidiary (1,357) - (76,356) -
Unrealized (gain) on
Jamba JV call option (3,992) - (7,747) -
Stock option investigation
costs 1,177 5,015 7,896 5,015
Realized and unrealized
gains and losses on
embedded derivative 12,584 12,584 -
Income from discontinued
operations (1,268) (1,259) (3,573) (3,278)
Income tax expense
(benefit) 3,501 13,769 23,871 (303,552)
---------- ---------- ---------- ----------
Non-GAAP continuing
operations income before
income taxes 92,553 80,862 253,219 240,885
Non-GAAP tax rate in lieu
of the GAAP rate (3) (27,766) (24,259) (75,966) (72,266)
---------- ---------- ---------- ----------
Net income from continuing
operations on a non-GAAP
basis $ 64,787 $ 56,603 $ 177,253 $ 168,620
========== ========== ========== ==========
Net income from discontinued
operation, net of tax 1,268 1,259 3,573 3,278
---------- ---------- ---------- ----------
Net income on a non-GAAP
basis $ 66,055 $ 57,862 $ 180,826 $ 171,898
========== ========== ========== ==========
Statements of income
reconciliation per share
Diluted net income per share
on a GAAP basis $ 0.08 $ 0.06 $ 0.31 $ 1.65
Amortization of
intangible assets 0.12 0.13 0.37 0.37
Acquired in-process
research and development - 0.01 - 0.07
Stock-based compensation 0.11 0.06 0.28 0.19
Former CEO severance - - 0.04 -
Non-recurring legal
costs and settlements - - - 0.02
Restructuring,
impairments and other
charges (reversals) 0.01 - 0.18 (0.02)
Net (gain) loss on sale
of investments 0.02 - 0.01 (0.08)
Net (gain) on sale of
subsidiary - - (0.31) -
Unrealized (gain) on
Jamba JV call option (0.02) - (0.03) -
Stock option
investigation costs 0.01 0.02 0.03 0.02
Realized and unrealized
gains and losses on
embedded derivative 0.05 - 0.05 -
Income from discontinued
operations (0.01) (0.01) (0.01) (0.01)
Income tax expense
(benefit) 0.01 0.06 0.10 (1.23)
---------- ---------- ---------- ----------
Non-GAAP continuing
operations income before
income taxes 0.38 0.33 1.02 0.98
Non-GAAP tax rate in lieu
of the GAAP rate (2) (0.12) (0.10) (0.30) (0.30)
---------- ---------- ---------- ----------
Non-GAAP net income from
continuing operations
basis 0.26 0.23 0.72 0.68
========== ========== ========== ==========
Net income from
discontinued operation,
net of tax 0.01 - 0.01 0.01
---------- ---------- ---------- ----------
Diluted net income per share
on a non-GAAP basis $ 0.27 $ 0.23 $ 0.73 $ 0.69
========== ========== ========== ==========
Shares used in calculation
of net (loss) income per
share 245,537 245,657 247,752 247,005
(2) Nine months ended September 30, 2006 excludes $125 of stock-based
compensation included in discontinued operations.
(3) Non-GAAP tax rate calculated at 30%.
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 infromation 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: amortization of
intangible assets, acquired in-process research and development,
stock-based compensation, former CEO severance, non-recurring legal costs
and settlements, restructuring, impairments and other charges (reversals),
net (gain) loss on sale or impairment of investments, net gain on sale of
subsidiary, unrealized gain on Jamba JV call option, realized and
unrealized gains and losses on embedded derivative and stock option
investigation costs. Non-GAAP financial information is also adjusted for a
30% tax rate which differs from the GAAP tax rate.
Management believes that this non-GAAP financial data supplements our GAAP
financial data by providing investors with additional information that
allows them to have a clearer picture of the company's core operations. The
presentation of this additional information is not meant to be considered
in isolation or as a substitute for results prepared in accordance with
GAAP. We believe that the non-GAAP information enhances the investors'
overall understanding of our financial performance and the comparability of
the company's 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.Contact: Source: VeriSign, Inc.
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