Verisign Reports: Revenue Up 13%: 118.5 Million .com/.net Domains & Has A 50% Profit Margin

VeriSign, Inc. (VRSN), the company that has the contract to run the .com and .net registries, reported financial results for the second quarter ended June 30, 2012 after the market closed.

VeriSign, Inc. reported revenue of $214 million for the second quarter of 2012, up 13% from the same quarter in 2011.

“Verisign reported net income of $68 million and diluted earnings per share (EPS) of $0.42 for the second quarter of 2012, compared to a net loss of $(11) million and diluted net loss per share of $(0.06) in the same quarter in 2011.”

“The operating margin was 50.0 percent for the second quarter of 2012 compared to 43.2 percent for the same quarter in 2011.”

Compare that to Amazon (AMZN) which also reported earnings today which had a profit of $7 Million on sales of almost $13 Billion or a profit margin of about 2%.

Of course Amazon doesn’t have the right to hike prices 7% a year for every 4 out of 6 years for eternity either.

Verisign ended the Quarter with $1.44 Billion in the bank

“Verisign reported, on a non-GAAP basis, net income of $74 million and diluted EPS of $0.45 for the second quarter of 2012, compared to net income of $65 million and diluted EPS of $0.38 for the same quarter in 2011. The non-GAAP operating margin was 54.0 percent for the second quarter of 2012 compared to 51.7 percent for the same quarter in 2011. A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.”

“The second quarter results demonstrate our continued strong operating performance and financial discipline,” commented Jim Bidzos, executive chairman, president and chief executive officer of Verisign. “Our share repurchases in the quarter, of $76 million, underscore our commitment to creating and delivering shareholder value.”

  • Verisign ended the second quarter with Cash, Cash Equivalents, Marketable Securities and Restricted Cash of $1.44 billion, an increase of $92 million from year end 2011.
  • Cash flow from operations was $135 million for the second quarter compared with $13 million for the same quarter in 2011, which was reduced by a $100 million payment of contingent interest to holders of convertible debentures in the second quarter of 2011.
  • Deferred revenues ended the second quarter of 2012 totaling $804 million, an increase of $75 million from year end 2011.
  • Capital expenditures were $13 million in the second quarter of 2012.
  • During the second quarter, Verisign repurchased approximately 1.9 million shares of its common stock for a cost of $76 million. At June 30, 2012, approximately $687 million remained available and authorized under the current share repurchase program.
  • For purposes of calculating diluted EPS, the second quarter diluted share count included 5.6 million shares related to the convertible debentures, compared with 1.2 million shares in the same quarter in 2011 for the non-GAAP diluted EPS calculation. These represent dilutive shares and not shares that have been issued.

Verisign Registry Services added 1.81 million net new names and ended the second quarter with approximately 118.5 million active domain names in the zone for .com and .net, representing a 7.8 percent increase year-over-year.

In the second quarter, Verisign processed a second quarter record 8.4 million new domain name registrations, representing an increase of 4.2 percent year-over-year.”

                               VERISIGN, INC.
                   CONDENSED CONSOLIDATED BALANCE SHEETS
                      (In thousands, except par value)
                                (Unaudited)

                                                 June 30,     December 31,
                                                    2012           2011
                                               -------------  -------------
                    ASSETS
Current assets:
  Cash and cash equivalents                    $     315,621  $   1,313,349
  Marketable securities                            1,122,397         32,860
  Accounts receivable, net                            12,653         14,974
  Deferred tax assets and other current assets        79,940         86,598
                                               -------------  -------------
    Total current assets                           1,530,611      1,447,781
                                               -------------  -------------
Property and equipment, net                          329,328        327,136
Goodwill and other intangible assets, net             53,202         53,848
Other assets                                          28,883         27,414
                                               -------------  -------------
    Total long-term assets                           411,413        408,398
                                               -------------  -------------
    Total assets                               $   1,942,024  $   1,856,179
                                               =============  =============
     LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Accounts payable and accrued liabilities     $     112,508  $     156,385
  Deferred revenues                                  560,127        502,538
                                               -------------  -------------
    Total current liabilities                        672,635        658,923
                                               -------------  -------------
Long-term deferred revenues                          243,622        226,033
Convertible debentures, including contingent
 interest derivative                                 597,935        590,086
Long-term debt                                       100,000        100,000
Long-term deferred tax liabilities                   341,733        325,527
Other long-term liabilities                           45,294         43,717
                                               -------------  -------------
    Total long-term liabilities                    1,328,584      1,285,363
                                               -------------  -------------
    Total liabilities                              2,001,219      1,944,286
                                               -------------  -------------
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: 317,982 at June 30, 2012 and
   316,781 at December 31, 2011; Outstanding
   shares: 156,667 at June 30, 2012 and
   159,422 at December 31, 2011                          318            317
  Additional paid-in capital                      20,027,665     20,135,237
  Accumulated deficit                            (20,084,096)   (20,220,577)
  Accumulated other comprehensive loss                (3,082)        (3,084)
                                               -------------  -------------
    Total stockholders' deficit                      (59,195)       (88,107)
                                               -------------  -------------
    Total liabilities and stockholders'
     deficit                                   $   1,942,024  $   1,856,179
                                               =============  =============

 

 
                               VERISIGN, INC.
  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                   (In thousands, except per share data)
                                (Unaudited)

                                  Three Months Ended     Six Months Ended
                                       June 30,              June 30,
                                    2012       2011       2012       2011
                                 ---------  ---------  ---------  ---------
Revenues                         $ 214,142  $ 189,844  $ 419,868  $ 371,367
                                 ---------  ---------  ---------  ---------
Costs and expenses:
  Cost of revenues                  42,844     40,667     84,100     81,536
  Sales and marketing               26,313     22,179     54,128     44,570
  Research and development          15,461     13,074     30,226     26,668
  General and administrative        22,726     28,206     46,234     61,835
  Restructuring charges               (182)     3,659       (730)     9,189
                                 ---------  ---------  ---------  ---------
    Total costs and expenses       107,162    107,785    213,958    223,798
                                 ---------  ---------  ---------  ---------
Operating income                   106,980     82,059    205,910    147,569
Interest expense                   (12,580)  (111,856)   (24,920)  (123,676)
Non-operating (loss) income, net    (2,097)     6,149     (1,290)    11,627
                                 ---------  ---------  ---------  ---------
Income (loss) from continuing
 operations before income taxes     92,303    (23,648)   179,700     35,520
Income tax (expense) benefit       (23,831)    15,967    (45,123)      (908)
                                 ---------  ---------  ---------  ---------
Income (loss) from continuing
 operations, net of tax             68,472     (7,681)   134,577     34,612
(Loss) income from discontinued
 operations, net of tax                  -     (2,929)     1,904     (4,451)
                                 ---------  ---------  ---------  ---------
Net income (loss)                   68,472    (10,610)   136,481     30,161
                                 ---------  ---------  ---------  ---------
  Foreign currency translation
   adjustments                           -         48          -         76
  Change in unrealized gain on
   investments, net of tax              42      1,077         37        609
  Realized gain on investments,
   net of tax, included in net
   income (loss)                       (30)    (1,398)       (35)    (1,415)
                                 ---------  ---------  ---------  ---------
Other comprehensive income
 (loss)                                 12       (273)         2       (730)
                                 ---------  ---------  ---------  ---------
Comprehensive income (loss)      $  68,484  $ (10,883) $ 136,483  $  29,431
                                 =========  =========  =========  =========

Basic income (loss) per share:
  Continuing operations          $    0.43  $   (0.05) $    0.85  $    0.20
  Discontinued operations                -      (0.01)      0.01      (0.02)
                                 ---------  ---------  ---------  ---------
  Net income (loss)              $    0.43  $   (0.06) $    0.86  $    0.18
                                 =========  =========  =========  =========
Diluted income (loss) per share:
  Continuing operations          $    0.42  $   (0.05) $    0.82  $    0.20
  Discontinued operations                -      (0.01)      0.01      (0.02)
                                 ---------  ---------  ---------  ---------
  Net income (loss)              $    0.42  $   (0.06) $    0.83  $    0.18
                                 =========  =========  =========  =========
Shares used to compute net
 income per share
  Basic                            157,599    167,471    158,471    169,751
                                 =========  =========  =========  =========
  Diluted                          164,178    167,471    163,530    171,850
                                 =========  =========  =========  =========

 

 
                               VERISIGN, INC.
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (In thousands)
                                (Unaudited)

                                                 Six Months Ended June 30,
                                                    2012           2011
                                               -------------  -------------
Cash flows from operating activities:
  Net income                                   $     136,481  $      30,161
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Depreciation of property and equipment and
     amortization of other intangible assets          26,273         27,642
    Stock-based compensation                          16,584         29,014
    Excess tax benefit associated with stock-
     based compensation                              (11,638)          (854)
    Other, net                                        10,947          1,627
    Changes in operating assets and
     liabilities
      Accounts receivable                              2,213            354
      Deferred tax assets and other assets             5,855        (12,786)
      Accounts payable and accrued liabilities       (16,644)       (22,736)
      Deferred revenues                               75,178         50,814
                                               -------------  -------------
        Net cash provided by operating
         activities                                  245,249        103,236
                                               -------------  -------------
Cash flows from investing activities:
  Proceeds from maturities and sales of
   marketable securities                               8,101        369,586
  Purchases of marketable securities              (1,097,669)       (44,038)
  Purchases of property and equipment                (26,242)       (29,481)
  Other investing activities                            (520)        (1,181)
                                               -------------  -------------
        Net cash (used in) provided by
         investing activities                     (1,116,330)       294,886
                                               -------------  -------------
Cash flows from financing activities:
  Proceeds from issuance of common stock from
   option exercises and employee stock
   purchase plans                                     15,348         32,445
  Repurchases of common stock                       (152,725)      (310,671)
  Payment of dividends to stockholders                     -       (463,498)
  Excess tax benefit associated with stock-
   based compensation                                 11,638            854
  Other financing activities                             189              -
                                               -------------  -------------
        Net cash used in financing activities       (125,550)      (740,870)
                                               -------------  -------------
Effect of exchange rate changes on cash and
 cash equivalents                                     (1,097)         3,285
                                               -------------  -------------
Net decrease in cash and cash equivalents           (997,728)      (339,463)
Cash and cash equivalents at beginning of
 period                                            1,313,349      1,559,628
                                               -------------  -------------
Cash and cash equivalents at end of period     $     315,621  $   1,220,165
                                               =============  =============
Supplemental cash flow disclosures:
  Cash paid for interest, net of capitalized
   interest                                    $      20,476  $     120,082
                                               =============  =============
  Cash paid for income taxes, net of refunds
   received                                    $      21,193  $       4,737
                                               =============  =============

 

 
                               VERISIGN, INC.
                  STATEMENTS OF OPERATIONS RECONCILIATION
                   (In thousands, except per share data)
                                (Unaudited)

                               Three Months Ended      Three Months Ended
                                  June 30, 2012           June 30, 2011
                             ----------------------  ----------------------
                              Operating               Operating  Net (Loss)
                               Income    Net Income    Income      Income
                             ----------  ----------  ----------  ----------

GAAP as reported             $  106,980  $   68,472  $   82,059  $  (10,610)
  Discontinued operations                         -                   2,929
  Adjustments:
    Stock-based compensation      8,454       8,454      12,075      12,075
    Amortization of other
     intangible assets              325         325         322         322
    Restructuring charges          (182)       (182)      3,659       3,659
    Contingent interest
     payment to holders of
     Convertible Debentures                       -                 100,020
    Unrealized loss (gain)
     on contingent interest
     derivative on
     Convertible Debentures                   3,147                    (700)
    Non-cash interest
     expense                                  1,871                   1,679
  Tax adjustment                             (7,944)                (43,989)
                             ----------  ----------  ----------  ----------
Non-GAAP as adjusted         $  115,577  $   74,143  $   98,115  $   65,385
                             ==========  ==========  ==========  ==========

Revenues                     $  214,142              $  189,844
Non-GAAP operating margin          54.0%                   51.7%
                             ==========              ==========
Diluted shares                              164,178                 169,882
Per diluted share, non-GAAP
 as adjusted                             $     0.45              $     0.38
                                         ==========              ==========

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 information 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: discontinued operations, stock-based compensation, amortization of other intangible assets, impairments of goodwill and other intangible assets, restructuring charges, contingent interest payments to holders of our Convertible Debentures, unrealized gain/loss on contingent interest derivative on Convertible Debentures, and non-cash interest expense. Non-GAAP financial information is also adjusted for a 30% tax rate which differs from the GAAP tax rate. All non-GAAP figures for each period presented above have been conformed to exclude the foregoing items under GAAP.

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 operations. 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. 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.

SUPPLEMENTAL FINANCIAL INFORMATION
The following table presents the classification of stock-based compensation:

 
                                                 Three Months Ended June 30,
                                                      2012          2011
                                                 ------------- -------------
Cost of revenues                                 $       1,451 $       1,846
Sales and marketing                                      1,833         1,697
Research and development                                 1,327         1,353
General and administrative                               3,843         7,179
Restructuring charges                                        -         1,989
                                                 ------------- -------------
Total stock-based compensation expense           $       8,454 $      14,064
                                                 ============= =============

 

 
                               VERISIGN, INC.
                  STATEMENTS OF OPERATIONS RECONCILIATION
                   (In thousands, except per share data)
                                (Unaudited)

                                Six Months Ended        Six Months Ended
                                  June 30, 2012           June 30, 2011
                             ----------------------  ----------------------
                              Operating               Operating
                               Income    Net Income    Income    Net Income
                             ----------  ----------  ----------  ----------

GAAP as reported             $  205,910  $  136,481  $  147,569  $   30,161
  Discontinued operations                    (1,904)                  4,451
  Adjustments:
    Stock-based compensation     16,584      16,584      24,036      24,036
    Amortization of other
     intangible assets              648         648         645         645
    Restructuring charges          (730)       (730)      9,189       9,189
    Contingent interest
     payment to holders of
     Convertible Debentures                       -                 100,020
    Unrealized loss (gain)
     on contingent interest
     derivative on
     Convertible Debentures                   3,960                    (250)
    Non-cash interest
     expense                                  3,491                   3,343
  Tax adjustment                            (15,972)                (50,843)
                             ----------  ----------  ----------  ----------
Non-GAAP as adjusted         $  222,412  $  142,558  $  181,439  $  120,752
                             ==========  ==========  ==========  ==========

Revenues                     $  419,868              $  371,367
Non-GAAP operating margin          53.0%                   48.9%
                             ==========              ==========
Diluted shares                              163,530                 171,850
Per diluted share, non-GAAP
 as adjusted                             $     0.87              $     0.70
                                         ==========              ==========

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