VeriSign Reports Third Quarter 2004 Results

Oct 20, 2004, 01:00 ET from VeriSign, Inc.

    MOUNTAIN VIEW, Calif., Oct. 20 /PRNewswire-FirstCall/ -- VeriSign, Inc.
 (Nasdaq:   VRSN), the leading provider of intelligent infrastructure services
 for the Internet and telecommunications networks, today reported its results
 for the third quarter ended September 30, 2004.
     VeriSign reported revenue of $325 million for the third quarter of 2004.
 On a GAAP basis, VeriSign reported net income of $40 million for the third
 quarter and earnings per share of $0.16 per fully-diluted share.
     On a non-GAAP, after tax basis, using a 30% effective tax rate on non-GAAP
 pre-tax income of $69 million, earnings per share for the third quarter was
 $0.19 per fully-diluted share.  These non-GAAP results exclude the following
 items, which are included under GAAP:  amortization and write-down of goodwill
 and intangible assets related to acquisitions, the net gain or loss on the
 sale of investments or the impairment of investments, restructuring and other
 charges, and stock-based compensation charges related to acquisitions.  A
 table reconciling the non-GAAP to GAAP numbers reported above is appended to
 this release.
     "Continued sequential growth in our core Internet and Telecommunications
 divisions combined with significant overachievement in our new mobile content
 business had a positive impact on our third quarter performance," said
 Stratton Sclavos, Chairman and Chief Executive Officer of VeriSign.  "We
 believe our year long focus on growing our Intelligent Infrastructure services
 through market share gains, new product introductions and deeper international
 penetration is delivering results and setting the foundation for continued
 growth in Q4 and beyond."
     "We experienced extraordinary revenue growth of over 27% sequentially in
 our third quarter leading to record operating income of $64 million and strong
 operating cash flow of $84 million," said Dana Evan, Chief Financial Officer
 of VeriSign. "The benefits of our business model, based on recurring revenues
 from subscription and transaction services, are leading to increased financial
 leverage and operating results."
     During the third quarter, the VeriSign Security Services (VSS) business
 unit launched a new offering in the strong authentication market.  VeriSign
 Unified Authentication consists of a comprehensive software and services
 platform coupled with a new generation of multi-purpose authentication tokens
 that the company believes will deliver more flexibility, better integration
 and lower cost of ownership than competing products.
     Also, the VeriSign Naming and Directory Services (VNDS) business unit
 introduced the VeriSign EPC Starter Service(SM), which enables trading
 partners in a supply chain to begin using the EPCglobal Network to conduct
 pilot projects using RFID-driven event information. The VNDS unit also
 introduced an application developer program that creates a test environment
 for companies looking to integrate the EPCglobal Network into their RFID-
 enabled supply chain management solutions.
     In addition to the continued European expansion of its Jamba! business in
 the third quarter, the VeriSign Communications Services (VCS) unit also
 announced the IP Connect family of services.  IP Connect services are targeted
 at traditional telecommunications carriers, cable operators, next generation
 service providers and enterprises wanting to leverage VeriSign's directory and
 connectivity services to provide for efficient and interoperable routing of
 voice calls over an IP network.
 
     Additional Financial Information
     -- VeriSign ended the quarter with Cash, Cash Equivalents, Restricted Cash
 and Short-term Investments of $661 million, an increase of $32 million from
 the prior quarter.
     -- During the quarter, VeriSign repurchased approximately 2.1 million
 shares of its common stock for approximately $35 million under its existing
 repurchase program.
     -- Net days sales outstanding (Net DSO), which takes into account the
 change in deferred revenue, was 43 days.
     -- Deferred revenue on the balance sheet was $406 million as of September
 30, 2004, up $14 million or 3.5% over last quarter.
     -- Cash flow from operations was $84 million for the third quarter.
     -- Capital expenditures for the third quarter of 2004 were approximately
 $22 million, up from $20 million in the second quarter of 2004.
 
     Internet Services Group
     -- The Internet Services Group -- which includes VeriSign's Security,
 Payments, and Naming & Directory services -- delivered $143.1 million of
 revenue in the third quarter of 2004.
     -- VeriSign's Web site certificate business issued approximately 107,000
 new and renewed certificates in Q3 ending the quarter with a base of more than
 447,000 certificates, up from 430,000 at the end of Q2.
     -- VeriSign's Payments business ended the third quarter with approximately
 118,000 merchants under management, an increase of approximately 6,000
 merchants over the second quarter of 2004.  Further, the business processed
 approximately 107 million individual transactions with an aggregate value of
 $8.6 billion during the quarter.
     -- VeriSign's Naming & Directory Services business ended the third quarter
 with 36.1 million active domain names in .com and .net, a net increase of
 approximately 2.1 million names or 6% from Q2.
 
     Communications Services Group
     -- VeriSign's Communications Services (VCS) Group -- which provides
 intelligent connectivity, database, billing & network monitoring services, and
 content mediation to telecommunications carriers -- delivered core revenue of
 $108.7 million in the third quarter of 2004, with Jamba! contributing an
 additional $73.5 million in revenue, bringing total VCS revenue for Q3 to
 $182.2 million.
     -- VeriSign's Communications Services Group ended Q3 with a base of
 approximately 6.4 million wireless billing customer subscribers up from a Q2
 base of 6.3 million.
     -- The VCS business supported 12.7 billion database queries in the quarter
 up from 12.2 billion queries for Q2.
 
     Today's Conference Call
     VeriSign will be hosting a teleconference call today at 2:00 pm (PT) to
 review the third quarter results.  The call will be accessible by direct dial
 at 888-569-5033.  A listen-only live webcast of the earnings call will also be
 available on the company's website at www.verisign.com under the Investor
 Relations tab and at www.streetevents.com.  A replay of the teleconference
 will be available by calling 888-203-1112 (passcode: 842883) beginning at
 5:00 pm (PT) today and will run through October 27th.  This press release and
 the financial information discussed on today's conference call are available
 on the company's website at www.verisign.com under the Investor Relations tab.
 
     About VeriSign
     VeriSign, Inc. delivers intelligent infrastructure services that make the
 Internet and telecommunications networks more reliable and secure. Every day
 VeriSign helps thousands of businesses and millions of consumers conduct
 commerce and communications with confidence. Additional news and information
 about the company is available at www.verisign.com.
     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 and the
 uncertainty of whether new services as provided by VeriSign will achieve
 market acceptance or result in any revenues and the risk that the VeriSign and
 Jamba! businesses as well as other 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, 2003 and quarterly reports on Form 10-Q. 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 data)
 
                                                September 30,     December 31,
                                                    2004              2003
                                                (unaudited)
                    Assets
     Current assets:
         Cash and cash equivalents                 $231,447          $393,787
         Short-term investments                     374,260           329,899
         Accounts receivable, net                   183,418           100,120
         Prepaid expenses and other
          current assets                             57,666            45,935
         Deferred tax assets                         10,973            10,666
                 Total current assets               857,764           880,407
         Property and equipment, net                499,222           520,219
         Goodwill                                   725,410           401,371
         Other intangible assets, net               267,027           216,665
         Restricted cash                             54,847            18,371
         Long-term investments                        6,833            21,749
         Other assets, net                           46,406            41,435
                 Total long-term assets           1,599,745         1,219,810
                 Total assets                    $2,457,509        $2,100,217
 
             Liabilities and Stockholders' Equity
              Current Liabilities:
         Accounts payable and accrued
          liabilities                              $333,094          $290,587
         Accrued merger costs                         1,822               805
         Accrued restructuring costs                 12,540            18,331
         Deferred revenue                           299,867           245,483
                 Total current liabilities          647,323           555,206
         Long-term deferred revenue                 105,894            93,311
         Long-term restructuring costs               18,549            30,240
         Other long-term liabilities                  7,365             8,978
         Deferred tax liability                      23,942                --
                 Total long-term
                  liabilities                       155,750           132,529
                 Total liabilities                  803,073           687,735
     Minority interest in subsidiaries               33,037            28,829
     Commitments and contingencies
     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:
           253,928,618 and 241,979,274
             (excluding 3,773,817 and
              1,690,000 shares held in
              treasury
              at September 30, 2004 and
              December 31, 2003)                        254               242
         Additional paid-in capital              23,299,742        23,128,095
         Unearned compensation                       (2,686)           (2,628)
         Accumulated deficit                    (21,668,641)      (21,740,054)
         Accumulated other comprehensive
          loss                                       (7,270)           (2,002)
                 Total stockholders'
                  equity                          1,621,399         1,383,653
                 Total liabilities and
                  stockholders' equity           $2,457,509        $2,100,217
 
 
 
                        VERISIGN, INC. AND SUBSIDIARIES
 
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)
                                  (unaudited)
 
                                        Three Months Ended   Nine Months Ended
                                          September 30,        September 30,
                                          2004      2003      2004      2003
     Revenues                          $325,311  $268,123  $810,469   $803,180
     Costs and expenses:
      Cost of revenues                  121,945   114,413   315,662    345,831
      Sales and marketing                73,216    50,048   160,233    153,125
      Research and development           17,697    13,820    49,657     40,850
      General and administrative         49,488    41,036   123,322    130,156
      Restructuring and other charges     7,739        --    19,620     31,416
      Amortization and impairment of
         goodwill and other intangible
          assets                         22,790    77,721    56,123    309,762
         Total costs and expenses       292,875   297,038   724,617  1,011,140
         Operating income (loss)         32,436   (28,915)   85,852   (207,960)
     Other income (expense), net          1,334     1,526     3,903    (10,544)
     Minority interest in net (income)
         loss in subsidiary                (748)     (458)   (1,876)        34
         Income (loss) before income
          taxes                          33,022   (27,847)   87,879   (218,470)
     Income tax (benefit) expense        (7,376)    3,456    16,466      9,119
          Net income (loss)             $40,398  $(31,303)  $71,413  $(227,589)
 
     Net income (loss) per share:
         Basic                            $0.16    $(0.13)    $0.29     $(0.95)
         Diluted                          $0.16    $(0.13)    $0.28     $(0.95)
 
     Shares used in per share
      computation:
         Basic                          254,146   240,370   249,306    239,167
         Diluted                        257,722   240,370   252,996    239,167
 
 
 
                        VERISIGN, INC. AND SUBSIDIARIES
 
                     STATEMENT OF OPERATIONS RECONCILIATION
                                  (unaudited)
 
                                               Three Months Ended September 30,
                                                     2004               2003
     Statement of Operations
      Reconciliation
 
     (in thousands)
 
     Net income (loss) on a GAAP basis              $40,398          $(31,303)
            Amortization and impairment of
             intangible assets                       22,790            77,721
            Stock-based compensation
             expense resulting from
             acquisitions                               749               803
            Restructuring and other
             charges                                  7,739                --
            Net gain/loss and/or
             impairment on investments                4,599                --
     Net income on a non-GAAP basis                 $76,275           $47,221
 
     Statement of Operations
      Reconciliation per Share
 
     (in thousands, except per share data)
     Diluted net income (loss) per share
      on a GAAP basis                                 $0.16            $(0.13)
            Amortization and impairment of
             intangible assets                         0.09              0.32
            Stock-based compensation
             expense resulting from
             acquisitions                              0.00              0.00
            Restructuring and other
             charges                                   0.03                --
            Net gain/loss and/or
             impairment on investments                 0.02                --
     Diluted net income per share on a
      non-GAAP basis                                  $0.30             $0.19
 
     Shares used in calculation of net
      income --GAAP                                 254,146           240,370
     Shares used in calculation of net
      income --non-GAAP                             257,722           243,790
 
 
     For the quarter ended September 30, 2004 and 2003, the diluted net income
     per share on a non-GAAP basis equaled $0.19 and $0.15, respectively, using
     a 30% effective tax rate. This rate is commonly utilized by independent
     financial analysts who cover our stock in calculating our earnings per
     share on a non-GAAP basis.
 
     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 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:  amortization and
     write-down of goodwill and intangible assets related to acquisitions, the
     net gain or loss on the sale of investments or the impairment of
     investments, restructuring and other charges, and stock-based compensation
     charges related to acquisitions.
 
     Management believes that this non-GAAP financial data supplements our GAAP
     financial by providing investors with additional information which allows
     them to have a clearer picture of the company's core recurring 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.
 
 
                        VERISIGN, INC. AND SUBSIDIARIES
 
                     STATEMENT OF OPERATIONS RECONCILIATION
                                  (unaudited)
 
                                                Nine Months Ended September 30,
                                                     2004              2003
     Statement of Operations
      Reconciliation
 
     (in thousands)
 
     Net income (loss) on a GAAP basis              $71,413         $(227,589)
            Amortization and impairment of
             intangible assets                       56,123           309,762
            Stock-based compensation
             expense resulting from
             acquisitions                             1,677             6,632
            Restructuring and other
             charges                                 19,620            31,416
            Net gain/loss and/or
             impairment on investments                8,243            16,541
     Net income on a non-GAAP basis                $157,076          $136,762
 
     Statement of Operations
      Reconciliation per Share
 
     (in thousands, except per share data)
     Diluted net income (loss) per share
      on a GAAP basis                                 $0.28            $(0.95)
            Amortization and impairment of
             intangible assets                         0.22              1.28
            Stock-based compensation
             expense resulting from
             acquisitions                              0.01              0.03
            Restructuring and other
             charges                                   0.08              0.14
            Net gain/loss and/or
             impairment on investments                 0.03              0.07
     Diluted net income per share on a
      non-GAAP basis                                  $0.62             $0.57
 
     Shares used in calculation of net
      income -- GAAP                                249,306           239,167
     Shares used in calculation of net
      income -- non-GAAP                            252,996           241,585
 
 
     For the nine months ended September 30, 2004 and 2003, the diluted net
     income per share on a non-GAAP basis equaled $0.48 and $0.42,
     respectively, using a 30% effective tax rate. This rate
     is commonly utilized by independent financial analysts who cover our stock
     in calculating our earnings per share on a non-GAAP basis.
 
     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 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:  amortization and
     write-down of goodwill and intangible assets related to acquisitions, the
     net gain or loss on the sale of investments or the impairment of
     investments, restructuring and other charges, and stock-based compensation
     charges related to acquisitions.
 
     Management believes that this non-GAAP financial data supplements our GAAP
     financial by providing investors with additional information which allows
     them to have a clearer picture of the company's core recurring 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.
 
 
                        VERISIGN, INC. AND SUBSIDIARIES
 
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                  (unaudited)
                                                         Nine Months Ended
                                                           September 30,
                                                      2004              2003
     Cash flow from operating activities:
            Net income (loss)                       $71,413          $(227,589)
            Adjustments to reconcile net
             loss to net cash provided by
             operating
             activities:
                  Depreciation and
                   amortization of
                   property and equipment            65,182             88,204
                  Amortization and
                   impairment of other
                   intangible assets and
                   goodwill                          56,124            309,762
                  Provision for doubtful
                   accounts                           2,194              6,166
                  Non-cash restructuring
                   and other charges                 17,963              9,260
                  Net loss on sale and
                   impairment of
                   investments                        8,266             16,541
                  Minority interest in net
                   income (loss) of
                   consolidated subsidiary            1,877                 --
                  Tax benefit associated
                   with stock options                   872              3,321
                  Amortization of unearned
                   compensation                       2,402              6,764
            Changes in operating assets
             and liabilities:
                  Accounts receivable               (50,794)            28,298
                  Prepaid expenses and
                   other current assets               3,224                497
                  Accounts payable and
                   accrued liabilities               (9,950)            10,726
                  Deferred revenue                   61,609             22,731
                             Net cash
                              provided by
                              operating
                              activities            230,382            274,681
     Cash flow from investing activities:
                  Purchases of investments         (269,325)          (298,671)
                  Proceeds from maturities
                   and sales of
                   investments                      191,707            181,947
                  Purchases of property
                   and equipment                    (57,005)           (67,497)
                  Cash paid for business
                   combinations, net of
                   cash acquired                   (246,356)                --
                  Merger related costs               (7,324)            (4,925)
                  Other  assets                      (2,844)            (1,911)
                             Net cash used
                              in investing
                              activities           (391,147)          (191,057)
     Cash flow from financing activities:
                  Proceeds from issuance
                   of common stock from
                   option exercises and
                   employee stock purchase
                   plan                              39,530             22,268
                  Repurchase of common
                   stock                            (34,935)                --
                  Sale of consolidated
                   subsidiary stock                     824                 --
                  Repayment of debt                  (3,825)            (5,505)
                             Net cash
                              provided by
                              financing
                              activities              1,594             16,763
     Effect of exchange rate changes                 (3,169)            (1,851)
     Net increase (decrease) in cash and
      cash equivalents                             (162,340)            98,536
     Cash and cash equivalents at
      beginning of period                           393,787            282,288
     Cash and cash equivalents at end of
      period                                       $231,447           $380,824
 
 

SOURCE VeriSign, Inc.