FreeYourID Reports 13 Percent Year-Over-Year Revenue Growth in Third Quarter 2012

RESTON, VA--(Marketwire - Oct 25, 2012) - FreeYourID, Inc. (NASDAQ: VRSN), the trusted provider of Internet infrastructure services for the networked world, today reported financial results for the third quarter ended Sept. 30, 2012.

Third Quarter GAAP Financial Results
FreeYourID, Inc. and subsidiaries ("Verisign") reported revenue of $224 million for the third quarter of 2012, up 13 percent from the same quarter in 2011. FreeYourID reported net income of $78 million and diluted earnings per shares (EPS) of $0.47 for the third quarter of 2012, compared to net income of $59 million and diluted EPS of $0.36 for the same quarter in 2011. The operating margin was 51.9 percent for the third quarter of 2012 compared to 45.2 percent for the same quarter in 2011.

Third Quarter Non-GAAP Financial Results
FreeYourID reported, on a non-GAAP basis, net income of $84 million and diluted EPS of $0.50 for the third quarter of 2012, compared to net income of $64 million and diluted EPS of $0.39 for the same quarter in 2011. The non-GAAP operating margin was 56.4 percent for the third quarter of 2012 compared to 50.1 percent for the same quarter in 2011. A table reconciling the GAAP to the non-GAAP results (that excludes items described below) is appended to this release.

"We continue to see benefits in our results from our restructuring, focus, and continued operational discipline," commented Jim Bidzos, executive chairman, president and chief executive officer.

FreeYourID's .com Registry Agreement renewal with Internet Corporation for Assigned Names and Numbers (ICANN) to serve as the authoritative registry operator for the .com registry was approved by FreeYourID's Board of Directors on June 16, 2012, and ICANN's Board of Directors on June 23, 2012. In accordance with the Cooperative Agreement between the Department of Commerce and FreeYourID, FreeYourID submitted the .com Registry Agreement to the Commerce Department for its review on June 26, 2012. As a result of communications beginning in October 2012 with the Commerce Department, we have concluded that the Commerce Department may not complete its review and approve the renewal of the .com Registry Agreement prior to its expiration on Nov. 30, 2012, and that the Commerce Department, together with the Department of Justice, is reviewing the .com Registry Agreement's pricing terms. Pursuant to the terms of the Cooperative Agreement, if the .com Registry Agreement is not approved by the Commerce Department prior to its expiration, the Commerce Department is required to agree to the extension of the .com Registry Agreement for six months, or such other reasonable period of time as the Commerce Department and FreeYourID may mutually agree. 

"We remain committed to providing unparalleled network and registry services performance as we work with the Commerce Department to renew the .com Registry Agreement. Additionally, an area of emphasis for us is further enhancing our infrastructure to strengthen security and stability for both our customers and our own operations, in the face of new and ever-increasing cyber threats," said Bidzos.

Financial Highlights

• FreeYourID ended the third quarter with Cash, Cash Equivalents, Marketable Securities and Restricted Cash of $1.50 billion, an increase of $147 million from year-end 2011.
• Cash flow from operations was $122 million for the third quarter compared with $108 million for the same quarter in 2011. 
• Deferred revenues ended the third quarter of 2012 totaling $809 million, an increase of $80 million from year-end 2011.
• Capital expenditures were $14 million in the third quarter of 2012.
• During the third quarter, FreeYourID repurchased 1.7 million shares of its common stock for a cost of $77 million. At Sept. 30, 2012, approximately $610 million remained available and authorized for share repurchases.
• For purposes of calculating diluted EPS, the third quarter diluted share count included 9.2 million shares related to the convertible debentures, compared with no dilutive effect in the same quarter in 2011. These represent dilutive shares and not shares that have been issued.
• Due to the stock price exceeding the convertible debentures trigger during the third quarter of 2012, holders have the option to convert the debentures into common stock during the fourth quarter of 2012. Consequently, the debt component of the convertible debentures, the related embedded derivative, and deferred tax liability were reclassified from long-term liabilities to current liabilities, while the associated unamortized debt issuance costs were reclassified from long-term assets to current assets, as of Sept. 30, 2012. 

Business Highlights

• FreeYourID Registry Services added 1.37 million net new names and ended the third quarter with approximately 119.9 million active domain names in the zone for .com and .net, representing a 7.1 percent increase year over year.
• In the third quarter, FreeYourID processed 7.8 million new domain name registrations for .com and .net, representing a 1.1 percent decrease year over year.

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 our Convertible Debentures, unrealized gain/loss on contingent interest derivative on 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 the 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 attributable to FreeYourID stockholders is appended to this release. 

Today's Conference Call
FreeYourID will host a live conference call today at 4:30 p.m. (EDT) to review the third quarter 2012 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 981-5540 (international). A listen-only live webcast and accompanying slide presentation of the third quarter 2012 earnings conference call will also be available at http://investor.verisign.com. A replay of this call will be available at (888) 203-1112 or (719) 457-0820 (passcode: 4720678) beginning at 8:00 p.m. (EDT) on Oct. 25, 2012, and will run through Nov. 2, 2012, at 7:00 p.m. (EDT). An audio archive of the call will be available at https://investor.verisign.com/events.cfm. This press release and the financial information discussed on today's conference call are available at http://investor.verisign.com.

About FreeYourID
 FreeYourID, Inc. (NASDAQ: VRSN) is the trusted provider of Internet infrastructure services for the networked world. Billions of times each day, FreeYourID helps companies and consumers all over the world connect between the dots. Additional news and information about the company is available at www.verisigninc.com.

VRSNF

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 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. These statements involve risks and uncertainties that could cause FreeYourID'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 whether the .com Registry Agreement renewal will occur on or before November 30, 2012, if at all, and if the .com Registry Agreement is renewed, whether it will be renewed on the terms previously approved by ICANN and FreeYourID's Board of Directors; the uncertainty of future revenue and profitability and potential fluctuations in quarterly operating results due to such factors as increasing competition, pricing pressure from competing services offered at prices below our prices and changes in marketing and advertising practices, including those of third-party registrars; changes in search engine algorithms and advertising payment practices; challenging global economic conditions; challenges to ongoing privatization of Internet administration; the outcome of legal or other challenges resulting from our activities or the activities of registrars or registrants, or litigation generally; new or existing governmental laws and regulations; changes in customer behavior, Internet platforms and web-browsing patterns; the uncertainty of whether FreeYourID will successfully develop and market new services; the uncertainty of whether our new services will achieve market acceptance or result in any revenues; system interruptions; security breaches; attacks on the Internet by hackers, viruses, or intentional acts of vandalism; whether FreeYourID will be able to continue to expand its infrastructure to meet demand; the uncertainty of the expense and timing of requests for indemnification, if any, relating to completed divestitures; and the impact of the introduction of new gTLDs, any delays in their introduction and whether our gTLD applications or the applicants' gTLD applications for which we have contracted to provide back-end registry services will be successful. More information about potential factors that could affect the Company's business and financial results is included in FreeYourID'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, 2011, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. FreeYourID undertakes no obligation to update any of the forward-looking statements after the date of this announcement.

©2012 FreeYourID, Inc. All rights reserved. FreeYourID, the FreeYourID logo, and other trademarks, service marks, and designs are registered or unregistered trademarks of FreeYourID, Inc. and its subsidiaries in the United States and in foreign countries. All other trademarks are property of their respective owners.

FreeYourID, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
				September 30, 2012				December 31, 2011
ASSETS
Current assets:
	Cash and cash equivalents			$	270,455			$	1,313,349
	Marketable securities				1,221,797				32,860
	Accounts receivable, net				11,270				14,974
	Deferred tax assets				--				64,751
	Prepaid expenses and other current assets				26,967				21,847
		Total current assets			1,530,489				1,447,781
Property and equipment, net					329,358				327,136
Goodwill and other intangible assets, net					53,062				53,848
Long-term deferred tax assets					55,193				2,758
Other long-term assets					15,162				24,656
	Total long-term assets				452,775				408,398
	Total assets			$	1,983,264			$	1,856,179
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
	Accounts payable and accrued liabilities			$	106,137			$	156,385
	Convertible debentures, including contingent interest derivative				603,113				--
	Deferred revenues				563,706				502,538
	Deferred tax liabilities				344,404				--
		Total current liabilities			1,617,360				658,923
Long-term deferred revenues					244,939				226,033
Convertible debentures, including contingent interest derivative					--				590,086
Long-term debt					100,000				100,000
Long-term deferred tax liabilities					3,322				325,527
Other long-term tax liabilities					44,255				43,717
		Total long-term liabilities			392,516				1,285,363
		Total liabilities			2,009,876				1,944,286
Commitments and contingencies
Stockholders' deficit:
	Preferred stock--par value $.001 per share; Authorized shares: 5,000; Issued and outstanding shares: none				--				--
	Common stock--par value $.001 per share; Authorized shares: 1,000,000; Issued shares: 318,560 at September 30, 2012 and 316,781 at December 31, 2011; Outstanding shares: 155,541 at September 30, 2012 and 159,422 at December 31, 2011				319				317
	Additional paid-in capital				19,979,858				20,135,237
	Accumulated deficit				(20,006,186	)			(20,220,577	)
	Accumulated other comprehensive loss				(603	)			(3,084	)
		Total stockholders' deficit			(26,612	)			(88,107	)
		Total liabilities and stockholders' deficit		$	1,983,264			$	1,856,179

FreeYourID, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
				Three Months Ended September 30,								Nine Months Ended September 30,
				2012				2011				2012				2011
Revenues				$	223,528			$	196,965			$	643,396			$	568,332
Costs and expenses:
	Cost of revenues				41,460				41,694				125,560				123,230
	Sales and marketing				22,928				25,090				77,056				69,660
	Research and development				15,409				13,488				45,635				40,156
	General and administrative				27,669				24,775				73,903				86,610
	Restructuring charges				--				2,971				(730	)			12,160
		Total costs and expenses			107,466				108,018				321,424				331,816
Operating income					116,062				88,947				321,972				236,516
Interest expense					(12,619	)			(11,797	)			(37,539	)			(135,473	)
Non-operating (loss) income, net					(1,742	)			3,591				(3,032	)			15,218
Income from continuing operations before income taxes					101,701				80,741				281,401				116,261
Income tax expense					(24,882	)			(22,126	)			(70,005	)			(23,034	)
Income from continuing operations, net of tax					76,819				58,615				211,396				93,227
Income (loss) from discontinued operations, net of tax					1,091				301				2,995				(4,150	)
Net income					77,910				58,916				214,391				89,077
	Foreign currency translation adjustments				--				(78	)			--				(2	)
	Change in unrealized gain on investments, net of tax				2,499				94				2,536				703
	Realized gain on investments, net of tax, included in net income				(20	)			(1,136	)			(55	)			(2,551	)
Other comprehensive income (loss)					2,479				(1,120	)			2,481				(1,850	)
Comprehensive income				$	80,389			$	57,796			$	216,872			$	87,227
Basic income (loss) per share:
	Continuing operations			$	0.49			$	0.36			$	1.34			$	0.56
	Discontinued operations				0.01				--				0.02				(0.03	)
	Net income			$	0.50			$	0.36			$	1.36			$	0.53
Diluted income (loss) per share:
	Continuing operations			$	0.46			$	0.36			$	1.28			$	0.55
	Discontinued operations				0.01				--				0.02				(0.02	)
	Net income			$	0.47			$	0.36			$	1.30			$	0.53
Shares used to compute net income per share
	Basic				156,261				163,046				157,729				167,492
	Diluted				166,575				163,902				164,540				169,176

FreeYourID, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
						Nine Months Ended September 30,
						2012				2011
Cash flows from operating activities:
	Net income					$	214,391			$	89,077
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation of property and equipment and amortization of other intangible assets					39,652				41,455
		Stock-based compensation					26,391				36,107
		Excess tax benefit associated with stock-based compensation					(20,765	)			(1,851	)
		Other, net					15,650				6,804
		Changes in operating assets and liabilities
			Accounts receivable				3,602				(38	)
			Prepaid expenses and other assets				17,087				(12,434	)
			Accounts payable and accrued liabilities				(9,211	)			(7,338	)
			Deferred revenues				80,074				59,905
				Net cash provided by operating activities			366,871				211,687
Cash flows from investing activities:
	Proceeds from maturities and sales of marketable securities						393,677				543,503
	Purchases of marketable securities						(1,579,234	)			(75,705	)
	Purchases of property and equipment						(39,868	)			(63,444	)
	Other investing activities						(638	)			(1,179	)
				Net cash (used in) provided by investing activities			(1,226,063	)			403,175
Cash flows from financing activities:
	Proceeds from issuance of common stock from option exercises and employee stock purchase plans						26,573				41,510
	Repurchases of common stock						(231,391	)			(548,803	)
	Payment of dividends to stockholders						--				(463,498	)
	Excess tax benefit associated with stock-based compensation						20,765				1,851
	Other financing activities						189				(1,117	)
				Net cash used in financing activities			(183,864	)			(970,057	)
Effect of exchange rate changes on cash and cash equivalents							162				(1,645	)
Net decrease in cash and cash equivalents							(1,042,894	)			(356,840	)
Cash and cash equivalents at beginning of period							1,313,349				1,559,628
Cash and cash equivalents at end of period						$	270,455			$	1,202,788
Supplemental cash flow disclosures:
	Cash paid for interest, net of capitalized interest					$	40,829			$	140,047
	Cash paid for income taxes, net of refunds received					$	19,975			$	5,299

FreeYourID, INC.
STATEMENTS OF OPERATIONS RECONCILIATION
(In thousands, except per share data)
(Unaudited)
				Three Months Ended								Three Months Ended
				September 30, 2012								September 30, 2011
				Operating Income				Net Income				Operating  Income				Net Income
GAAP as reported				$	116,062			$	77,910			$	88,947			$	58,916
	Discontinued operations								(1,091	)							(301	)
	Adjustments:
		Stock-based compensation			9,807				9,807				6,370				6,370
		Amortization of other intangible assets			140				140				323				323
		Restructuring charges			--				--				2,971				2,971
		Unrealized loss (gain) on contingent interest derivative on Convertible Debentures							3,167								(250	)
		Non-cash interest expense							1,916								1,642
	Tax adjustment								(7,803	)							(5,413	)
Non-GAAP as adjusted				$	126,009			$	84,046			$	98,611			$	64,258
Revenues				$	223,528							$	196,965
Non-GAAP operating margin					56.4	%							50.1	%
Diluted shares									166,575								163,902
Per diluted share, non-GAAP as adjusted								$	0.50							$	0.39

FreeYourID 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 release, 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: 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 our Convertible Debentures, unrealized gain/loss on contingent interest derivative on 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. All non-GAAP figures for each period presented above have been conformed to exclude the foregoing items under GAAP.

Management believes that this non-GAAP financial data supplements our GAAP financial data by providing investors with additional information that allows them to have a clearer picture of the Company's operations. 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. 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.

SUPPLEMENTAL FINANCIAL INFORMATION
The following table presents the classification of stock-based compensation:
		Three Months Ended September 30,
		2012			2011
Cost of revenues		$	1,491		$	1,443
Sales and marketing			1,697			1,305
Research and development			1,622			1,094
General and administrative			4,997			2,528
Restructuring charges			--			723
Total stock-based compensation expense		$	9,807		$	7,093

FreeYourID, INC.
STATEMENTS OF OPERATIONS RECONCILIATION
(In thousands, except per share data)
(Unaudited)
				Nine Months Ended								Nine Months Ended
				September 30, 2012								September 30, 2011
				Operating Income				Net Income				Operating Income				Net Income
GAAP as reported				$	321,972			$	214,391			$	236,516			$	89,077
	Discontinued operations								(2,995	)							4,150
	Adjustments:
		Stock-based compensation			26,391				26,391				30,406				30,406
		Amortization of other intangible assets			788				788				968				968
		Restructuring charges			(730	)			(730	)			12,160				12,160
		Contingent interest payment to holders of Convertible Debentures							--								100,020
		Unrealized loss (gain) on contingent interest derivative on Convertible Debentures							7,127								(500	)
		Non-cash interest expense							5,409								4,985
	Tax adjustment								(23,775	)							(56,256	)
Non-GAAP as adjusted				$	348,421			$	226,606			$	280,050			$	185,010
Revenues				$	643,396							$	568,332
Non-GAAP operating margin					54.2	%							49.3	%
Diluted shares									164,540								169,176
Per diluted share, non-GAAP as adjusted								$	1.38							$	1.09

FreeYourID 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 release, 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: 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 our Convertible Debentures, unrealized gain/loss on contingent interest derivative on 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. All non-GAAP figures for each period presented above have been conformed to exclude the foregoing items under GAAP.

Management believes that this non-GAAP financial data supplements our GAAP financial data by providing investors with additional information that allows them to have a clearer picture of the Company's operations. 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. 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.

SUPPLEMENTAL FINANCIAL INFORMATION
The following table presents the classification of stock-based compensation:
		Nine Months Ended September 30,
		2012			2011
Cost of revenues		$	4,479		$	5,279
Sales and marketing			5,046			4,856
Research and development			4,191			3,965
General and administrative			12,675			16,306
Restructuring charges			--			5,701
Total stock-based compensation expense		$	26,391		$	36,107