Verisign 2013 Report: 10% Year-Over-Year Revenue Growth, 127.2 million .com/.net (5% increase)

VeriSign, Inc. (NASDAQ: VRSN), the global leader in domain names, today reported financial results for the fourth quarter of 2013 and year ended Dec. 31, 2013.

• Verisign Registry Services added 1.29 million net new names during the fourth quarter, ending with 127.2 million active domain names in the zone for .com and .net, which represents a 5 percent increase over the zone at the end of the fourth quarter in 2012.
• In the fourth quarter, Verisign processed 8.2 million new domain name registrations for .com and .net as compared to 8.0 million for the same period in 2012. During 2013, Verisign processed 34.0 million new domain name registrations as compared with 33.1 million for 2012.
• The final .com and .net renewal rate for the third quarter of 2013 was 72.7 percent compared with 72.5 percent for the same quarter in 2012. Renewal rates are not fully measurable until 45 days after the end of the quarter.

“2013 was a strong year for the company capped by solid performance across several metrics. We recorded double digit revenue growth, increased cash flows, expanded margins, and returned over $1 billion to shareholders in share repurchases while continuing to provide uninterrupted availability of the .com and .net domain name system (DNS) for over 16 years. We look forward to 2014 from a strong position,” commented Jim Bidzos, executive chairman, president and chief executive officer.

Fourth Quarter GAAP Financial Results
VeriSign, Inc. and subsidiaries (“Verisign”) reported revenue of $246 million for the fourth quarter of 2013, up 7 percent from the same quarter in 2012. The operating margin was 53.0 percent for the fourth quarter of 2013 compared to 58.8 percent for the same quarter in 2012. Verisign reported net income of $292 million and diluted earnings per share (EPS) of $1.94 for the fourth quarter of 2013, compared to net income of $106 million and diluted EPS of $0.65 in the same quarter in 2012.

During the fourth quarter of 2013 Verisign liquidated for tax purposes one of its domestic subsidiaries which will allow it to claim a worthless stock deduction on its 2013 federal income tax return. Verisign recorded an income tax benefit during the fourth quarter of 2013 of $375.3 million related to the worthless stock deduction, net of valuation allowances and accrual for uncertain tax positions. The financial statement carrying value of this subsidiary was not material. The worthless stock deduction may be subject to audit and adjustment by the IRS, which could result in reversal of all, part or none of the income tax benefit, or could result in a benefit higher than the net amount recorded. If the IRS rejects or reduces the amount of the income tax benefit related to the worthless stock deduction, Verisign may have to pay additional cash income taxes which could adversely affect its results from operations, financial condition and cash flows. Verisign cannot guarantee what the ultimate outcome or amount of benefit to receive, if any, will be. Verisign also sold certain cost-method investments during the fourth quarter of 2013 and realized a pre-tax, non-operating, gain of $15.8 million.

Verisign evaluated various scenarios for realizing the tax benefits from the worthless stock deduction and determined that using part of the benefit to offset current year domestic income, combined with a repatriation of a portion of the cash held by foreign subsidiaries, as the most financially beneficial alternative. Accordingly, during the second or third quarter of 2014 Verisign intends to repatriate approximately $700 million to $800 million of cash held by foreign subsidiaries, in a tax efficient manner by using the tax benefits resulting from the worthless stock deduction to offset the taxable income generated in the U.S. as a result of the intended repatriation. The repatriation amount utilizes substantially all of the projected available distributable capital reserves of Verisign’s foreign subsidiaries under applicable foreign statutes. During the fourth quarter of 2013, Verisign recorded an income tax expense of $167.1 million related to taxable income generated in the U.S. as a result of the intended repatriation. For funds remaining in the foreign subsidiaries after the intended repatriation that have not been previously taxed in the U.S., Verisign’s intent remains to indefinitely reinvest those funds outside of the U.S. and accordingly Verisign has not provided deferred U.S. taxes.

Results for the fourth quarter of 2013 included the income tax benefit related to the worthless stock deduction, pre-tax non-operating gains from the sale of certain cost-method investments, and income tax expense related to taxable income generated in the U.S. as a result of the intended repatriation, discussed above, which collectively increased net income by $217.8 million and increased diluted EPS by $1.45.

Results for the fourth quarter of 2012 included certain pre-tax benefits as described in the fourth quarter 2012 earnings news release which, together, increased the operating margin by 4.9 percentage points and diluted EPS by $0.07.

Because Verisign has not fully completed the tax provision calculation process, tax provisions for both the fourth quarter and full year 2013 (including the income tax benefit related to the worthless stock deduction and income tax expense related to taxable income generated in the U.S. as a result of the intended repatriation) are still preliminary and therefore GAAP net income and GAAP earnings per share for these periods are also preliminary. Final tax provisions, GAAP net income, and GAAP earnings per share will be included in the Annual Report on Form 10-K for the year ended December 31, 2013, to be filed with the SEC and may differ materially from the amounts reported above.

Fourth Quarter Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $98 million and diluted EPS of $0.65 for the fourth quarter of 2013, compared to net income of $96 million and diluted EPS of $0.59 for the same quarter in 2012. The non-GAAP operating margin was 56.9 percent for the fourth quarter of 2013 compared to 62.0 percent for the same quarter in 2012. Results for the fourth quarter of 2013 included a pre-tax, non-operating, gain of $15.8 million from the sale of certain cost-method investments which increased non-GAAP net income by $11.4 million and diluted EPS by $0.07.

Non-GAAP results for the fourth quarter of 2012 included certain pre-tax benefits as described in the fourth quarter 2012 earnings news release which, together, increased the non-GAAP operating margin by 4.9 percentage points and diluted EPS by $0.05.

A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.

2013 GAAP Financial Results
For the year ended Dec. 31, 2013, Verisign reported revenue of $965 million, up 10 percent from $874 million in 2012. Verisign reported net income of $544 million and diluted EPS of $3.49 in 2013, compared to net income of $320 million and diluted EPS of $1.95 in 2012. The operating margin for 2013 was 54.7 percent compared to 52.4 percent in 2012. Results for 2013 included the income tax benefit recognized during the fourth quarter related to the worthless stock deduction, a pre-tax non-operating gain from the sale of certain cost-method investments, and income tax expense related to taxable income generated in the U.S. as a result of an intended repatriation in 2014 which collectively increased net income by $217.8 million and increased diluted EPS by $1.39.

2013 Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $374 million and diluted EPS of $2.40 for 2013, compared to net income of $322 million and diluted EPS of $1.97 in 2012. The non-GAAP operating margin for 2013 was 58.5 percent compared to 56.2 percent in 2012. Results for 2013 included a pre-tax, non-operating gain of $15.8 million recognized during the fourth quarter from the sale of certain cost-method investments which increased non-GAAP net income by $11.4 million and diluted EPS by $0.07.

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 hard work of our team which has culminated in recording a tax benefit during the fourth quarter, that we intend to use, in part, to repatriate a significant portion of our foreign domiciled cash,” stated George Kilguss III, senior vice president and chief financial officer.

Financial Highlights

• Verisign ended the fourth quarter with cash, cash equivalents and marketable securities of $1.7 billion, an increase of $167 million from year-end 2012.
• Cash flow from operations was $147 million for the fourth quarter of 2013 and $579 million for the full year 2013 compared with $171 million for the same quarter in 2012 and $538 million for the full year 2012.
• Deferred revenues on Dec. 31, 2013, totaled $856 million, an increase of $43 million from year-end 2012.
• Capital expenditures were $15 million in the fourth quarter and $66 million for the full year.
• During the fourth quarter, Verisign repurchased 4.1 million shares of its common stock for $225 million. During the full year 2013, Verisign repurchased 21 million shares of its common stock for $1 billion.
• On Jan. 31, 2014, the Board of Directors approved an additional authorization for share repurchases of approximately $528 million of common stock, which brings the total amount to $1 billion authorized and available under Verisign’s share buyback program, which has no expiration.
• For purposes of calculating diluted EPS, the fourth quarter diluted share count included 13.7 million shares related to subordinated convertible debentures, compared with 6.4 million shares in the same quarter in 2012. These represent diluted shares and not shares that have been issued.

Business Highlights

• Verisign Registry Services added 1.29 million net new names during the fourth quarter, ending with 127.2 million active domain names in the zone for .com and .net, which represents a 5 percent increase over the zone at the end of the fourth quarter in 2012.
• In the fourth quarter, Verisign processed 8.2 million new domain name registrations for .com and .net as compared to 8.0 million for the same period in 2012. During 2013, Verisign processed 34.0 million new domain name registrations as compared with 33.1 million for 2012.
• The final .com and .net renewal rate for the third quarter of 2013 was 72.7 percent compared with 72.5 percent for the same quarter in 2012. Renewal rates are not fully measurable until 45 days after the end of the quarter.

Non-GAAP Items
Non-GAAP financial results exclude the following items that are included under 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 the subordinated convertible debentures, unrealized gain/loss on contingent interest derivative on subordinated convertible debentures, and non-cash interest expense. Non-GAAP financial information is also adjusted for a 28 percent tax rate starting from the third quarter of 2012, and 30 percent for all other periods presented herein, both of which differ from the GAAP tax rate. A table reconciling the GAAP to non-GAAP operating income and net income is appended to this release.

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 2013 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-1488 (international), conference ID: Verisign. A listen-only live web cast of the conference call and accompanying slide presentation will also be available at http://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 http://investor.verisign.com.

About Verisign
As the global leader in domain names, Verisign powers the invisible navigation that takes people to where they want to go on the Internet. For more than 15 years, Verisign has operated the infrastructure for a portfolio of top-level domains that today includes .com, .net, .tv, .edu, .gov, .jobs, .name and .cc, as well as two of the world’s 13 Internet root servers. Verisign’s product suite also includes Distributed Denial of Service (DDoS) Protection Services, iDefense Security Intelligence Services and Managed DNS. To learn more about what it means to be Powered by Verisign, please visit VerisignInc.com.