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VeriSign Reports Fourth Quarter and Full Year 2004 ResultsMOUNTAIN VIEW, Calif., Jan. 26 /PRNewswire-FirstCall/ -- VeriSign, Inc. , the leading provider of intelligent infrastructure services for the Internet and telecommunications networks, today reported its results for the fourth quarter and year ended December 31, 2004. VeriSign reported revenue of $356 million for the fourth quarter of 2004. On a GAAP basis, VeriSign reported net income of $115 million for the fourth quarter and earnings per share of $0.43 per fully-diluted share which includes a onetime gain from the monetization of a portion of its investment in VeriSign Japan for $78 million. On a non-GAAP, after tax basis, using a 30% effective tax rate on non-GAAP pre-tax income of $78 million, earnings per share for the fourth quarter were $0.21 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 on the sale of VeriSign Japan stock, 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. "Our fourth quarter business and financial results capped a solid year of execution and growth for VeriSign," said Stratton Sclavos, Chairman and Chief Executive Officer. "We believe we are entering 2005 with significant momentum in our existing lines of business and exciting new opportunities in emerging markets and geographies." 2004 Financial Results For the year ended December 31, 2004, VeriSign reported revenue of $1.17 billion. On a GAAP basis, VeriSign reported net income of $186 million with earnings per share for year of $0.72 per fully-diluted share. On a non-GAAP, after tax basis, using a 30% effective tax rate on non-GAAP pre-tax income of $252 million, earnings per share for 2004 were $0.68 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 on the sale of VeriSign Japan stock, the net gain or loss on the sale of other investments, 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. "We are very pleased with the continued strength in our Internet and Communications lines of business," said Dana Evan, Chief Financial Officer of VeriSign. "Our strong sequential revenue growth in the fourth quarter, coupled with ongoing operational leverage, led to significant margin and earnings expansion. This execution also yielded record operating income and operating cash flow in the quarter." During the fourth quarter, the VeriSign Security Services (VSS) business unit continued the expansion of its Unified Authentication Platform announcing a strategic alliance with US Bancorp to supply next generation tokens to secure transactions with commercial banking customers. Also, VeriSign's Naming and Directory Services (VNDS) business unit saw continued momentum for its RFID initiatives in Asia and Australia that extend the availability of the VeriSign EPC Starter Service(TM). These relationships support VeriSign's strategy to work closely with regional supply-chain ecosystems to drive adoption of Electronic Product Codes and the EPCglobal Network(TM). In the fourth quarter, VeriSign's Communications Services (VCS) group announced its Digital Content Services platform. As part of this strategy, VeriSign and Thomson also announced plans to create an on-demand authentication and authorization service bureau to support the secure delivery of electronic entertainment over digital networks. Subsequent to the close of the quarter, VeriSign announced that it had signed a definitive agreement to acquire Santa Cruz, California-based LightSurf Technologies Inc. for $270 million in VeriSign stock. LightSurf is a global leader in multimedia messaging and interoperability solutions for the wireless market. Subject to regulatory approvals, the transaction is expected to close by the end of the first quarter of 2005. Additional Financial Information * VeriSign ended the year with Cash and Cash Equivalents, Restricted Cash and Short-term Investments of $789 million, an increase of $128 million from the prior quarter and up $47 million year over year, net of $257 million of cash used for acquisitions and stock repurchases during 2004. * During the quarter, VeriSign monetized a portion of its holding in VeriSign Japan for $78 million. The proceeds from the sale of VeriSign Japan shares were used to repurchase approximately 2.4 million shares of VeriSign stock for $78 million dollars under its existing repurchase program. For 2004, VeriSign repurchased approximately 4.5 million shares of common stock. * Net days sales outstanding (Net DSO) was 46 days, a three day increase from Q3 and within VeriSign's 40 to 50 day guidance. * Deferred revenue on the balance sheet was $413 million as of December 31, 2004, up from $406 million last quarter. For 2004, deferred revenue grew by $75 million. * Capital expenditures for the fourth quarter of 2004 were approximately $36 million, up from $22 million in Q3, bringing 2004 capital expenditures to approximately $93 million versus 2003 capital expenditures of $108 million. * Cash flow from operations was $135 million for the fourth quarter compared to $84 million for the third quarter of 2004. For 2004, cash flow from operations was over $365 million. Internet Services Group * The Internet Services Group -- which includes VeriSign's Security, Payments, and Naming & Directory services -- delivered $152 million of revenue in the fourth quarter of 2004. The results for the fourth quarter included strong sequential growth in the Security Services business in addition to continued growth in the core .com and .net registry business. * VeriSign's Web site certificate business issued approximately 115,000 new and renewed certificates in Q4 ending the quarter with a base of more than 455,000 certificates, up from 447,000 at the end of Q3. For the full year, the active base of Web site certificates grew by 18% or 71,000 certificates. * VeriSign's Payments business ended the fourth quarter with approximately 127,000 merchants under management, an increase of approximately 9,000 merchants over the third quarter of 2004 and 25,000 year over year. Further, the business processed approximately 118 million individual transactions with an aggregate value of $9.5 billion during the quarter. * VeriSign's Naming & Directory Services business ended the fourth quarter with 38.4 million active domain names in .com and .net, a net increase of approximately 2.3 million names or 6% from Q3. For 2004, the active domain name base grew by approximately 8 million names or 26%. 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 $110 million in the fourth quarter of 2004, with the digital content business, which includes the Jamba! and Jamster! brands, contributing an additional $94 million in revenue, bringing total VCS revenue for Q4 to $204 million. * VeriSign's Communications Services Group ended Q4 with a base of approximately 6.5 million wireless billing customer subscribers up from a Q3 base of 6.4 million. * The VCS business supported 12.8 billion database queries in the quarter up from 12.7 billion queries for Q3 and up from 8.6 billion queries in Q4 of the prior year. * In December, VeriSign began test marketing its mobile content services in the U.S. under the Jamster! brand with a limited set of carriers and content providers. No revenues related to the test marketing in the US were recognized in the fourth quarter. Today's Conference Call VeriSign will be hosting a teleconference call today at 2:00 pm (PST) to review the fourth quarter and annual results. The call will be accessible by direct dial at (888) 283-6901 (US) or (719) 955-1564 (international). A listen-only live webcast of the earnings call will also be available on the company's website at http://www.verisign.com/ under the Investor Relations tab and at http://www.streetevents.com/. A replay of the teleconference will be available by calling (888) 203-1112 (passcode: 549309) beginning at 5:00 pm (PST) today and will run through February 2nd. This press release and the financial information discussed on today's conference call are available on the company's website at http://www.verisign.com/ under the Investor Relations tab. About VeriSign VeriSign, Inc. operates intelligent infrastructure services that enable businesses and individuals to find, connect, secure, and transact across today's complex global networks. Additional news and information about the company is available at http://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. NOTE: VeriSign is a registered trademark of VeriSign, Inc. Other names may be trademarks of their respective owners. VERISIGN, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 31, December 31, 2004 2003 (unaudited) Assets Current assets: Cash and cash equivalents $333,782 $393,787 Short-term investments 406,784 329,899 Accounts receivable, net 198,317 100,120 Prepaid expenses and other current assets 51,324 45,935 Deferred tax assets 19,057 10,987 Total current assets 1,009,264 880,728 Property and equipment, net 512,621 520,219 Goodwill 725,427 401,371 Other intangible assets, net 243,838 216,665 Restricted cash 48,377 18,371 Long-term investments 6,809 21,749 Other assets, net 46,538 41,435 Total long-term assets 1,583,610 1,219,810 Total assets $2,592,874 $2,100,538 Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued liabilities $382,025 $291,392 Accrued restructuring costs 11,696 18,331 Deferred revenue 305,874 245,483 Total current liabilities 699,595 555,206 Long-term deferred revenue 107,595 93,311 Long-term restructuring costs 19,276 30,240 Other long-term liabilities 6,815 8,978 Deferred tax liability 31,319 321 Total long-term liabilities 165,005 132,850 Total liabilities 864,600 688,056 Minority interest in subsidiaries 36,277 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: 253,323,799 and 241,979,274 (excluding 6,164,017 and 1,690,000 shares held in treasury at December 31, 2004 and December 31, 2003) 253 242 Additional paid-in capital 23,253,111 23,128,095 Unearned compensation (6,127) (2,628) Accumulated deficit (21,553,829) (21,740,054) Accumulated other comprehensive loss (1,411) (2,002) Total stockholders' equity 1,691,997 1,383,653 Total liabilities and stockholders' equity $2,592,874 $2,100,538 VERISIGN, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (unaudited) Three Months Ended Year Ended December 31, December 31, 2004 2003 2004 2003 Revenues $355,986 $251,600 $1,166,455 $1,054,780 Costs and expenses: Cost of revenues 129,097 100,376 444,759 446,207 Sales and marketing 93,247 42,205 253,480 195,330 Research and development 17,689 14,956 67,346 55,806 General and administrative 41,600 38,224 164,922 168,380 Restructuring and other charges 5,160 43,217 24,780 74,633 Amortization and impairment of goodwill and other intangible assets 23,317 25,743 79,440 335,505 Sale of business and litigation settlements -- 7,169 -- 7,169 Total costs and expenses 310,110 271,890 1,034,727 1,283,030 Operating income (loss) 45,876 (20,290) 131,728 (228,250) Other income (expense), net 80,791 2,741 84,695 (7,802) Minority interest in net (income) in subsidiary (741) (507) (2,618) (474) Income (loss) before income taxes 125,926 (18,056) 213,805 (236,526) Income tax expense 11,114 14,232 27,580 23,353 Net income (loss) $114,812 $(32,288) $186,225 $(259,879) Net income (loss) per share: Basic $0.45 $(0.13) $0.74 $(1.08) Diluted $0.43 $(0.13) $0.72 $(1.08) Shares used in per share computation: Basic 254,310 241,602 250,564 239,780 Diluted 265,777 241,602 257,968 239,780 VERISIGN, INC. AND SUBSIDIARIES STATEMENT OF OPERATIONS RECONCILIATION (unaudited) Three Months Ended December 31, 2004 2003 Statement of Operations Reconciliation (in thousands) Net income (loss) on a GAAP basis $114,812 $(32,288) Amortization and impairment of intangible assets 23,317 25,743 Stock-based compensation expense resulting primarily from acquisitions 453 385 Restructuring and other charges 5,160 43,217 VSJ stock sale gain; net gains and losses and impairment on investments (76,601) 7,169 Income tax expense 11,114 14,232 Non-GAAP income before income taxes 78,255 58,458 Non-GAAP tax rate of 30% in lieu of the GAAP rate (23,477) (17,537) Net income on a non-GAAP basis $54,778 $40,921 Statement of Operations Reconciliation per Share (in thousands, except per share data) Diluted net income (loss) per share on a GAAP basis $0.43 $(0.13) Amortization and impairment of intangible assets 0.09 0.10 Stock-based compensation expense resulting primarily from acquisitions -- -- Restructuring and other charges 0.02 0.18 VSJ stock sale gain; net gains and losses and impairment on investments (0.29) 0.03 Non-GAAP tax rate of 30% in lieu of the GAAP rate (0.04) (0.01) Diluted net income per share on a non-GAAP basis $0.21 $0.17 Shares used in calculation of net income -- GAAP 254,310 241,602 Shares used in calculation of net income -- non-GAAP 265,777 246,432 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 on the sale of VeriSign Japan stock, the net gain or loss on the sale of other investments or the impairment of investments, restructuring and other charges, and stock-based compensation charges related to acquisitions. The non-GAAP financial information is also adjusted for a standard 30% tax rate which differs from the GAAP rate. 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) Year Ended December 31, 2004 2003 Statement of Operations Reconciliation (in thousands) Net income (loss) on a GAAP basis $186,225 $(259,879) Amortization and impairment of intangible assets 79,440 335,505 Stock-based compensation expense resulting primarily from acquisitions 2,130 7,017 Restructuring and other charges 24,780 74,633 VSJ stock sale gain; net gains and losses and impairment on investments (68,359) 16,541 Sale of business and litigation settlements -- 7,169 Income tax expense 27,580 23,353 Non-GAAP income before income taxes 251,796 204,339 Non GAAP tax rate of 30% in lieu of the GAAP rate (75,539) (61,302) Net income on a non-GAAP basis $176,257 $143,037 Statement of Operations Reconciliation per Share (in thousands, except per share data) Diluted net income (loss) per share on a GAAP basis $0.72 $(1.08) Amortization and impairment of intangible assets 0.31 1.39 Stock-based compensation expense resulting primarily from acquisitions -- 0.03 Restructuring and other charges 0.10 0.31 VSJ stock sale gain; net gains and losses and impairment on investments (0.26) 0.07 Sale of business and litigation settlements -- 0.03 Non GAAP tax rate of 30% in lieu of the GAAP rate (0.19) (0.16) Diluted net income per share on a non-GAAP basis $0.68 $0.59 Shares used in calculation of net income -- GAAP 250,564 239,780 Shares used in calculation of net income -- non-GAAP 257,968 242,497 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 on the sale of VeriSign Japan stock, the net gain or loss on the sale of other investments or the impairment of investments, restructuring and other charges, and stock-based compensation charges related to acquisitions. The non-GAAP financial information is also adjusted for a standard 30% tax rate which differs from the GAAP rate. 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) Year Ended December 31, 2004 2003 Cash flow from operating activities: Net income (loss) $186,225 $(259,879) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization of property and equipment 85,641 114,475 Amortization and impairment of other intangible assets and goodwill 79,440 335,505 Provision for doubtful accounts 689 6,055 Non-cash restructuring and other charges 19,957 27,634 VSJ Stock sale gain; net gains and losses and impairment on investments (68,359) 16,541 Minority interest in net income of consolidated subsidiary 2,618 474 Tax benefit associated with stock options 4,748 5,004 Deferred income taxes -- 3,321 Amortization of unearned compensation 3,136 7,390 Loss on disposal of property and equipment -- 388 Gain on sale of business -- (2,862) Changes in operating assets and liabilities: Accounts receivable (64,188) 27,950 Prepaid expenses and other current assets 1,483 12,753 Accounts payable and accrued liabilities 44,631 38,147 Deferred revenue 69,317 25,544 Net cash provided by operating activities 365,338 358,440 Cash flow from investing activities: Purchases of investments (1,029,378) (446,439) Proceeds from maturities and sales of investments 924,380 218,044 Purchases of property and equipment (92,532) (108,034) Proceeds from VSJ stock sale and from sale of business 78,317 57,621 Cash paid for business combinations, net of cash acquired (246,356) (16,052) Merger related costs (7,420) (5,120) Other assets (927) (4,171) Net cash used in investing activities (373,916) (304,151) Cash flow from financing activities: Proceeds from issuance of common stock from option exercises and employee stock purchase plan 62,882 31,680 Repurchase of common stock (113,253) -- Proceeds from sale of consolidated subsidiary stock 390 37,403 Repayment of debt (4,491) (13,199) Net cash (used in) provided by financing activities (54,472) 55,884 Effect of exchange rate changes 3,045 1,326 Net (decrease) increase in cash and cash equivalents (60,005) 111,499 Cash and cash equivalents at beginning of period 393,787 282,288 Cash and cash equivalents at end of period $333,782 $393,787 VeriSign, Inc. CONTACT: media, Brian O'Shaughnessy, +1-650-426-5270, [email protected], or investors, Tom McCallum, +1-650-426-3744, [email protected], both of VeriSign, Inc. Web site: http://www.verisign.com/ |