Verisign Q2 Report: Revenue Up 9.1% Adding 0.78 Million Net New Domains

VeriSign, Inc. (NASDAQ: VRSN), today reported financial results for the second quarter of 2016.

Business Highlights

• Verisign Registry Services added 0.78 million net new names during the second quarter, ending with 143.2 million .com and .net domain names in the domain name base, which represents a 7.3 percent increase over the base at the end of the second quarter in 2015.
• In the second quarter, Verisign processed 8.6 million new domain name registrations for .com and .net, as compared to 8.7 million for the same quarter in 2015.
• The final .com and .net renewal rate for the first quarter of 2016 was 74.4 percent compared with 73.4 percent for the same quarter in 2015. Renewal rates are not fully measurable until 45 days after the end of the quarter.
• Verisign announces an increase in the annual fee for a .net domain name registration from $7.46 to $8.20, effective Feb. 1, 2017, per its agreement with the Internet Corporation for Assigned Names and Numbers (ICANN).

Second Quarter GAAP Financial Results

VeriSign, Inc. and subsidiaries (“Verisign”) reported revenue of $286 million for the second quarter of 2016, up 9.1 percent from the same quarter in 2015. Verisign reported net income of $113 million and diluted earnings per share (diluted “EPS”) of $0.87 for the second quarter of 2016, compared to net income of $93 million and diluted EPS of $0.70 for the same quarter in 2015. The operating margin was 61.5 percent for the second quarter of 2016 compared to 56.7 percent for the same quarter in 2015.

Second Quarter Non-GAAP Financial Results

Verisign reported, on a non-GAAP basis, net income of $119 million and diluted EPS of $0.91 for the second quarter of 2016, compared to net income of $99 million and diluted EPS of $0.74 for the same quarter in 2015. The non-GAAP operating margin was 65.4 percent for the second quarter of 2016 compared to 61.3 percent for the same quarter in 2015. A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.

“I’m pleased with the focus and discipline of our teams in delivering another quarter of solid financial performance,” commented Jim Bidzos, Executive Chairman, President and Chief Executive Officer.

Financial Highlights

• Verisign ended the second quarter with cash, cash equivalents and marketable securities of $1.9 billion, a decrease of $8 million from year-end 2015.
• Cash flow from operations was $161 million for the second quarter of 2016, compared with $175 million for the same quarter in 2015.
• Deferred revenues on June 30, 2016, totaled $988 million, an increase of $26 million from year-end 2015.
• During the second quarter, Verisign repurchased 1.7 million shares of its common stock for $150 million. At June 30, 2016, $766 million remained available and authorized under the current share repurchase program which has no expiration.
• For purposes of calculating diluted EPS, the second quarter diluted share count included 21.9 million shares related to subordinated convertible debentures, compared with 17.0 million shares for the same quarter in 2015. These represent diluted shares and not shares that have been issued.

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 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, and non-cash interest expense. Non-GAAP net income is decreased by amounts accrued, if any, during the period for contingent interest payable resulting from upside or downside triggers related to the subordinated convertible debentures and is adjusted for an income tax rate of 26 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 4.625% senior notes due 2023 and 5.25% senior notes due 2025. Adjusted EBITDA refers to net income before interest, taxes, depreciation and amortization, stock-based compensation, unrealized loss (gain) on the contingent interest derivative on the subordinated convertible debentures and unrealized (gain) loss on hedging agreements.

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.