Transcript Document
VeriSign, Inc. Company Update Fall 2003 1 Disclosure Statements in this presentation other than historical data and information, including but not limited to, statements regarding new business relationships and new service offerings, 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, VeriSign's limited operating history under its current business structure; the uncertainty of future revenue and profitability and potential fluctuations in quarterly operating results; the ability of VeriSign to successfully develop and market new services and customer acceptance of any new services; the risk that VeriSign's announced strategic relationships may not result in additional products, services, customers and revenues; increased competition and pricing pressures; and risks related to potential security breaches. 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, especially in the company's Annual Report on Form 10-K for the year ended December 31, 2002 and quarterly reports on Form 10-Q. VeriSign undertakes no obligation to update any of the forward-looking statements after the date of this annual report. VeriSign is a registered trademark of VeriSign, Inc. Other names may be trademarks of their respective owners. The company provides quarterly and annual financial statements that are prepared in accordance with generally accepted accounting principles. Along with this information, we typically disclose and discuss certain pro forma financial information in our quarterly earnings press releases, during earnings calls and at investor conferences and related events. We believe that the pro forma info enhances investors’ overall understanding of our financial performance and the comparability of the company's operating results from period to period. We’ve provided a reconciliation of the pro forma financial information that we report each quarter with the comparable financial information prepared in accordance with GAAP and have made these reconciliations available on our web site under the Investor Relations tab at www.verisign.com. 2 The Global Economy Relies on a Digital Infrastructure Email Web Identity Wired Calls Wireless Calls E-commerce Collaboration Content Communication Extranets & Intranets Consumers Enterprise Commerce Government SMS Telecommunications & Internet Infrastructure 3 Service Providers VeriSign’s Mission Provide the critical infrastructure services that make the Internet and telecommunications networks more reliable, intelligent and secure Naming & Directory Security Transaction Telecom ATLAS Infrastructure 4 Every .com and .net user 10 billion DNS queries 400,000 e-commerce sites 2 billion SS7 connections 100,000 merchants 5 million SMS messages 5,000 enterprises /carriers $60 million e-commerce VeriSign Services Portfolio 38 % 22 % 40 % Web Presence Telecom Services Services Group TrustedInternet Infrastructure & Application Services Services Group Domain Names SS7Site Signaling Web Security Database Services Billing & Mediation Network Monitoring Network & Security Services Security & Network Services Authentication & Access Payment Services Digital Brand Management Payment Services DNS & IP Addressing Directory Services Web Presence Telecom Infrastructure Infrastructure Security Infrastructure Transaction Payment Infrastructure ATLAS Directory & Routing Infrastructure Q2’03 Revenue Mix 5 Domain Names Web Site Hosting E-mail Services WebTelecom Presence Infrastructure Infrastructure Market Forces Communications Massive growth in email, instant messaging Global events in real-time Wireless is mainstream Early phase of VoIP transition Security 6 Physical security and Cybersecurity merging Fraud & identity theft rising Corporate governance issues rising Integrated part of business strategy Commerce Retail e-commerce growing dramatically Supply Chain integration working Online no longer an option Web services will optimize businesses processes Mobility Mobile workforces demand access Wireless email a “killer” application Carriers will compete and grow on wireless data Presence and availability services are coming Customer Spending Trends - 2003 Complexity Cost Operating expenses Capital outlays Human resources Quote to cash Network management Partner interaction New technology Best-of-breed integration Compliance Regulation Governance Peace of mind Privacy VeriSign Value Proposition 7 Domain expertise Intelligent services platform Time and Cost advantages Scalable, global infrastructure Broad Reach of Customers & Partners 8 VeriSign Financial Themes Leading provider in key markets – Security, telecom, directory & naming Profitable, recurring revenue businesses – Subscription, monthly or transactional Scaleable model with operating leverage – Cost management and margin stability Strong balance sheet and financial position – Cash, A/R, deferred revenue, no debt Meaningful growth opportunities – Volume growth, new services, cross-sell opportunities – International and Tier 1 account penetration 9 VeriSign Revenue Model ~ 90% of revenue is subscription-based/recurring Telecom Services Internet Services Network Solutions Network Services: Security Services: Domain Name Services: Monthly Annual/Multi-Annual Subscriptions* Annual/Multi-Annual Subscriptions* Payment Services: Value Added Services: Database Services: Per Query Wireless Services: Per Message * Deferred and amortized 10 Monthly/Transactional Registry Services: Annual/Multi-Annual Subscriptions* Monthly & Annual/ Multi-Annual Subscriptions* The Revenue Picture Domain Name: 90% Value-Added: 10% NSI $59M (22%) TSG $101M (38%) ISG $105M (40%) Security & Mgd. Svcs: 50-55% Payment Svcs.: 5-10% Naming & Directory: 40-45% Based on Q2’03 Revenue 11 Network: 15-20% Database: 30-35% Wireless: 40-45% Clearinghouse: <5% The Margin Picture Gross Margin* Contribution Margin** Internet Services 71% 15-20% Telecom Services 43% 20-25% Network Solutions 67% 5-10% Corporate Margin 56% 17% * Based on Q2’03 Results ** Should be used for indicative purposes only; does not reflect 100% allocation of all corporate expenses 12 Q2 ’03 Financial Snapshot Income Statement Revenue $265 million Anticipated decline at Network Solutions Gross margin 56% Consistent with guidance Operating margin (pf) 17% Maintained margin through revenue decline from continued cost controls & expense management $47 million Leverage in model generated solid income $0.14 In-line with expectations, consistent QTR-QTR $81 million Ahead of guidance of $60-70m Net income (pf) EPS (pf) Operating Cash Flow Balance Sheet Cash & cash equivalents $530 million A/R $101 million Deferred revenue $502 million 13 Increased $55m QTR-QTR Continued benefits; declined by $18m from Q1 Grew by 1% quarter-over-quarter Cash Flow Engine $ millions Free Cash Flow* Operating Cash Flow* 500 400 300 200 100 0 Q1 '02 Q2 '02 -100 Cumulative Q1’02 – Q2’03 14 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Strong Management Discipline Over the last 4 quarters … 15 $350 million in operating cash flow $250 million increase in cash and equivalents $145 million reduction in AR 44 day reduction in net DSO’s $50+ million reduction in quarterly operating expenses Deployed new infrastructure and business systems Continued investment in new services for future growth Solid Growth Drivers Security Extend network security Strong authentication for users, devices, networks App security for Web services Transaction intelligence Telecom Naming & Directory 16 New end-user services in naming Expand international footprint Drive ATLAS into new markets RFID, DRM Tier 1 share of wallet New mandated services New wireless data platform Expand international footprint Solid Growth Drivers Security 17 VeriSign Network intelligence & monitoring VoIP directory, security and mediation Propagation into all devices, networks Telecom Naming & Directory ATLAS foundation for allservices New end-user services in naming Tier 1 share of wallet Extend network security Strong authentication for users, devices, networks App security for Web services Transaction intelligence Expand international footprint Drive ATLAS into new markets RFID, DRM New mandated services New wireless data platform Expand international footprint Conclusion 18 Purpose-built strategy Strong position in growing markets Indispensable utility services for commerce and communications Unmatched capability and infrastructure Unique business model Strong team focused on execution VeriSign, Inc. Company Overview Fall 2003 19