Verisign Reports Fourth Quarter and Full Year 2018 Results
RESTON, Va.–(BUSINESS WIRE)–VeriSign, Inc. (NASDAQ: VRSN), a leader in domain names and internet
infrastructure, today reported financial results for the fourth quarter
and full year 2018.
Fourth Quarter GAAP Financial Results
VeriSign, Inc. and subsidiaries (“Verisign”) reported revenue of $307
million for the fourth quarter of 2018, up 4.0 percent from the same
quarter in 2017. Verisign reported net income of $182 million and
diluted earnings per share (diluted “EPS”) of $1.50 for the fourth
quarter of 2018, compared to net income of $103 million and diluted EPS
of $0.83 for the same quarter in 2017. The operating margin was 63.1
percent for the fourth quarter of 2018 compared to 59.7 percent for the
same quarter in 2017.
Fourth Quarter Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $191 million and
diluted EPS of $1.58 for the fourth quarter of 2018, compared to net
income of $119 million and diluted EPS of $0.96 for the same quarter in
2017. The non-GAAP operating margin was 66.7 percent for the fourth
quarter of 2018 compared to 64.1 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 release.
2018 GAAP Financial Results
For the year ended Dec. 31, 2018, Verisign reported revenue of $1.21
billion, up 4.3 percent from $1.17 billion in 2017. Verisign reported
net income of $582 million and diluted EPS of $4.75 in 2018, compared to
net income of $457 million and diluted EPS of $3.68 in 2017. The
operating margin for 2018 was 63.2 percent compared to 60.7 percent in
2017.
2018 Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $620 million and
diluted EPS of $5.05 for 2018, compared to net income of $492 million
and diluted EPS of $3.96 for 2017. The non-GAAP operating margin for
2018 was 67.5 percent compared to 65.3 percent for 2017.
On Dec. 5, 2018, Verisign completed the previously announced sale of the
rights, economic benefits, and obligations, in all customer contracts
related to its Security Services business to NeuStar, Inc. The sale
resulted in a pre-tax, non-operating gain of $54.8 million, which for
fourth quarter and full year 2018, increased GAAP net income, and
non-GAAP net income by $52.0 million and $42.8 million, respectively.
The gain increased GAAP diluted EPS and non-GAAP diluted EPS by $0.43
and $0.36 in the fourth quarter and by $0.43 and $0.35 for full year
2018. These increases are included in the results above.
“2018 was a strong year for Verisign. The domain name base and revenues
grew; we divested non-core assets; and we repurchased 4.4 million of our
shares. Significantly, in October, we executed an amendment to the
Cooperative Agreement with the Department of Commerce, which gives
Verisign the approval to engage with ICANN to amend the .com Registry
Agreement to allow Verisign to increase .com domain name registration
and renewal fees. The amendment also provides regulatory reduction that
allows for a standard renewal of the .com Registry Agreement, which
occurs every six years, to proceed without review and approval by the
Department of Commerce,” said Jim Bidzos, Executive Chairman, President
and Chief Executive Officer.
Financial Highlights
-
Verisign ended 2018 with cash, cash equivalents, and marketable
securities of $1.27 billion, a decrease of $1.15 billion from year-end
2017. -
Cash flow from operations was $219 million for the fourth quarter of
2018 and $698 million for the full year 2018 compared with $199
million for the same quarter in 2017 and $703 million for the full
year 2017. -
Deferred revenues on Dec. 31, 2018, totaled $1.02 billion, an increase
of $19 million from year-end 2017. -
During the fourth quarter, Verisign repurchased 1.2 million shares of
its common stock for $175 million. During the full year 2018, Verisign
repurchased 4.4 million shares of its common stock for $600 million. -
Effective Feb. 7, 2019 the Board of Directors approved an additional
authorization for share repurchases of approximately $603 million of
common stock, which brings the total amount to $1.0 billion authorized
and available under Verisign’s share repurchase program, which has no
expiration.
Business Highlights
-
On Oct. 26, 2018, Verisign and the U.S. Department of Commerce (“DOC”)
entered into Amendment 35 to the Cooperative Agreement, which, among
other items, permits Verisign, without further approval of the DOC, to
agree with the Internet Corporation for Assigned Names and Numbers
(“ICANN”) to change the .com Registry Agreement to increase wholesale
prices for .com domain names up to 7 percent in each of the last four
years of each six-year period of the .com Registry Agreement. -
Verisign ended the fourth quarter with 153.0 million .com and .net domain
name registrations in the domain name base, a 4.5 percent increase
from the end of the fourth quarter of 2017, and a net increase of 1.29
million registrations during the fourth quarter of 2018. -
In the fourth quarter, Verisign processed 9.5 million new domain name
registrations for .com and .net, as compared to 9.0 million for the
same quarter in 2017. -
The final .com and .net renewal rate for the third quarter of 2018 was
74.8 percent compared with 74.4 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. (EST) to
review the fourth quarter and full year 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 leader in domain names 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,
whether an amended .com Registry Agreement will include any or all of
the changes permitted in Amendment 35; 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.
©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. | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (In thousands, except par value) | ||||||||
| (Unaudited) | ||||||||
|
December 31, |
December 31, |
|||||||
|
ASSETS |
||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 357,415 | $ | 465,851 | ||||
| Marketable securities | 912,254 | 1,948,900 | ||||||
| Other current assets | 47,365 | 31,402 | ||||||
|
Total current assets |
1,317,034 | 2,446,153 | ||||||
| Property and equipment, net | 253,905 | 263,513 | ||||||
| Goodwill | 52,527 | 52,527 | ||||||
| Deferred tax assets | 104,992 | 15,392 | ||||||
| Deposits to acquire intangible assets | 145,000 | 145,000 | ||||||
| Other long-term assets | 41,046 | 18,603 | ||||||
| Total long-term assets | 597,470 | 495,035 | ||||||
| Total assets | $ | 1,914,504 | $ | 2,941,188 | ||||
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 215,208 | $ | 219,603 | ||||
| Deferred revenues | 732,382 | 713,309 | ||||||
|
Subordinated convertible debentures, including contingent interest derivative |
— | 627,616 | ||||||
| Total current liabilities | 947,590 | 1,560,528 | ||||||
| Long-term deferred revenues | 285,720 | 286,097 | ||||||
| Senior notes | 1,785,047 | 1,782,529 | ||||||
| Deferred tax liabilities | 134 | 444,108 | ||||||
| Other long-term tax liabilities | 281,487 | 128,197 | ||||||
| Total long-term liabilities | 2,352,388 | 2,640,931 | ||||||
| Total liabilities | 3,299,978 | 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: |
352 | 325 | ||||||
| Additional paid-in capital | 15,706,774 | 16,437,135 | ||||||
| Accumulated deficit | (17,089,789 | ) | (17,694,790 | ) | ||||
| Accumulated other comprehensive loss | (2,811 | ) | (2,941 | ) | ||||
| Total stockholders’ deficit | (1,385,474 | ) | (1,260,271 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 1,914,504 | $ | 2,941,188 | ||||
| VERISIGN, INC. | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
|
Three Months Ended December 31, |
Year Ended December 31, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenues | $ | 307,452 | $ | 295,501 | $ | 1,214,969 | $ | 1,165,095 | ||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of revenues | 48,368 | 47,680 | 192,134 | 193,326 | ||||||||||||
| Sales and marketing | 17,179 | 25,488 | 64,891 | 81,951 | ||||||||||||
| Research and development | 15,042 | 12,773 | 57,884 | 52,342 | ||||||||||||
| General and administrative | 32,897 | 33,128 | 132,668 | 129,754 | ||||||||||||
| Total costs and expenses | 113,486 | 119,069 | 447,577 | 457,373 | ||||||||||||
| Operating income | 193,966 | 176,432 | 767,392 | 707,722 | ||||||||||||
| Interest expense | (22,634 | ) | (40,467 | ) | (114,845 | ) | (136,336 | ) | ||||||||
| Non-operating income, net | 62,570 | 6,082 | 76,969 | 27,626 | ||||||||||||
| Income before income taxes | 233,902 | 142,047 | 729,516 | 599,012 | ||||||||||||
| Income tax expense | (51,707 | ) | (39,210 | ) | (147,027 | ) | (141,764 | ) | ||||||||
| Net income | 182,195 | 102,837 | 582,489 | 457,248 | ||||||||||||
| Other comprehensive income | 192 | 213 | 130 | 512 | ||||||||||||
| Comprehensive income | $ | 182,387 | $ | 103,050 | $ | 582,619 | $ | 457,760 | ||||||||
| Earnings per share: | ||||||||||||||||
| Basic | $ | 1.51 | $ | 1.05 | $ | 5.13 | $ | 4.56 | ||||||||
| Diluted | $ | 1.50 | $ | 0.83 | $ | 4.75 | $ | 3.68 | ||||||||
| Shares used to compute earnings per share | ||||||||||||||||
| Basic | 120,591 | 98,215 | 113,452 | 100,325 | ||||||||||||
| Diluted | 121,329 | 124,257 | 122,661 | 124,180 | ||||||||||||
| VERISIGN, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (In thousands) | ||||||||
| (Unaudited) | ||||||||
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 582,489 | $ | 457,248 | ||||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation of property and equipment | 48,367 | 49,878 | ||||||
| Stock-based compensation | 52,504 | 52,907 | ||||||
| Gain on sale of business | (54,840 | ) | (10,421 | ) | ||||
| Loss on debt extinguishment | 6,554 | — | ||||||
| Payment of contingent interest | — | (15,232 | ) | |||||
| Amortization of debt discount and issuance costs | 7,137 | 14,678 | ||||||
| Amortization of discount on investments in debt securities | (18,259 | ) | (14,860 | ) | ||||
| Other, net | 955 | 826 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Prepaid expenses and other assets | 1,041 | 13,775 | ||||||
| Accounts payable and accrued liabilities | (2,130 | ) | 15,483 | |||||
| Deferred revenues | 19,825 | 25,348 | ||||||
| Net deferred income taxes and other long-term tax liabilities | 54,124 | 113,131 | ||||||
| Net cash provided by operating activities | 697,767 | 702,761 | ||||||
| Cash flows from investing activities: | ||||||||
| Proceeds from maturities and sales of marketable securities | 4,031,809 | 4,562,161 | ||||||
| Purchases of marketable securities | (2,976,752 | ) | (4,929,834 | ) | ||||
| Proceeds from sale of business | 52,240 | 11,748 | ||||||
| Purchases of property and equipment | (37,007 | ) | (49,499 | ) | ||||
| Other investing activities | (160 | ) | — | |||||
| Net cash provided by (used in) investing activities | 1,070,130 | (405,424 | ) | |||||
| 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 | (638,152 | ) | (621,173 | ) | ||||
| Proceeds from senior notes, net of issuance costs | — | 543,185 | ||||||
| Net cash used in financing activities | (1,875,325 | ) | (65,073 | ) | ||||
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
(958 | ) | 1,294 | |||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | (108,386 | ) | 233,558 | |||||
| Cash, cash equivalents, and restricted cash at beginning of period | 475,139 | 241,581 | ||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 366,753 | $ | 475,139 | ||||
| Supplemental cash flow disclosures: | ||||||||
| Cash paid for interest | $ | 117,956 | $ | 117,234 | ||||
| Cash paid for income taxes, net of refunds received | $ | 84,906 | $ | 28,294 | ||||
| VERISIGN, INC. | ||||||||||||||||
| RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended December 31, | ||||||||||||||||
| 2018 | 2017 | |||||||||||||||
|
Operating |
Net Income |
Operating |
Net Income | |||||||||||||
| GAAP as reported | $ | 193,966 | $ | 182,195 | $ | 176,432 | $ | 102,837 | ||||||||
| Adjustments: | ||||||||||||||||
| Stock-based compensation | 11,098 | 11,098 | 12,864 | 12,864 | ||||||||||||
| Non-cash interest expense | — | 3,851 | ||||||||||||||
| Tax adjustment | (2,193 | ) | (480 | ) | ||||||||||||
| Non-GAAP | $ | 205,064 | $ | 191,100 | $ | 189,296 | $ | 119,072 | ||||||||
| Revenues | $ | 307,452 | $ | 295,501 | ||||||||||||
| Non-GAAP operating margin | 66.7 | % | 64.1 | % | ||||||||||||
| Diluted shares | 121,329 | 124,257 | ||||||||||||||
| Diluted EPS, non-GAAP | $ | 1.58 | $ | 0.96 | ||||||||||||
| Year Ended December 31, | ||||||||||||||||
| 2018 | 2017 | |||||||||||||||
|
Operating |
Net Income |
Operating |
Net Income | |||||||||||||
| GAAP as reported | $ | 767,392 | $ | 582,489 | $ | 707,722 | $ | 457,248 | ||||||||
| Adjustments: | ||||||||||||||||
| Stock-based compensation | 52,504 | 52,504 | 52,907 | 52,907 | ||||||||||||
|
Unrealized loss on contingent interest derivative on the subordinated convertible debentures |
— | 893 | ||||||||||||||
| Non-cash interest expense | 5,719 | 14,678 | ||||||||||||||
| Contingent interest payable on subordinated convertible debentures | — | (9,445 | ) | |||||||||||||
| Loss on debt extinguishment | 6,554 | — | ||||||||||||||
| Tax adjustment | (27,717 | ) | (24,352 | ) | ||||||||||||
| Non-GAAP | $ | 819,896 | $ | 619,549 | $ | 760,629 | $ | 491,929 | ||||||||
| Revenues | $ | 1,214,969 | $ | 1,165,095 | ||||||||||||
| Non-GAAP operating margin | 67.5 | % | 65.3 | % | ||||||||||||
| Diluted shares | 122,661 | 124,180 | ||||||||||||||
| Diluted EPS, non-GAAP | $ | 5.05 | $ | 3.96 | ||||||||||||
| VERISIGN, INC. | ||||||||||||
| RECONCILIATION OF NON-GAAP ADJUSTED EBITDA | ||||||||||||
| (In thousands) | ||||||||||||
| (Unaudited) | ||||||||||||
|
The following table reconciles GAAP net income to non-GAAP |
||||||||||||
|
Three Months Ended |
Year Ended |
|||||||||||
| 2018 | 2017 | 2018 | ||||||||||
| Net Income | $ | 182,195 | $ | 102,837 | $ | 582,489 | ||||||
| Interest expense | 22,634 | 40,467 | 114,845 | |||||||||
| Income tax expense | 51,707 | 39,210 | 147,027 | |||||||||
| Depreciation and amortization | 11,917 | 12,213 | 48,367 | |||||||||
| Stock-based compensation | 11,098 | 12,864 | 52,504 | |||||||||
| Unrealized (gain) loss on hedging agreements | (30 | ) | 43 | (100 | ) | |||||||
| Gain on sale of business | (54,840 | ) | — | (54,840 | ) | |||||||
| Loss on debt extinguishment | — | — | 6,554 | |||||||||
| Non-GAAP Adjusted EBITDA | $ | 224,681 | $ | 207,634 | $ | 896,846 | ||||||
| VERISIGN, INC. | |||||||||||||||
| STOCK-BASED COMPENSATION CLASSIFICATION | |||||||||||||||
| (In thousands) | |||||||||||||||
| (Unaudited) | |||||||||||||||
|
The following table presents the classification of stock-based |
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|
Three Months Ended |
Year Ended |
||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Cost of revenues | $ | 1,652 | $ | 1,719 | $ | 6,835 | $ | 7,030 | |||||||
| Sales and marketing | 579 | 1,433 | 4,972 | 5,688 | |||||||||||
| Research and development | 1,696 | 1,560 | 6,728 | 6,113 | |||||||||||
| General and administrative | 7,171 | 8,152 | 33,969 | 34,076 | |||||||||||
| Total stock-based compensation expense | $ | 11,098 | $ | 12,864 | $ | 52,504 | $ | 52,907 | |||||||
Contacts
Investor Relations: David Atchley, datchley@verisign.com,
703-948-4643
Media Relations: Deana Alvy, dalvy@verisign.com,
703-948-3800