Internet infrastructure services provider VeriSign Inc. (VRSN) reported revenues of $173 million from continuing operations for the third quarter of 2010, up 10% year over year and up 2% from the prior quarter. The results were in line with the Zacks Consensus Estimate.
The continuing operations of the company consist primarily of the results of the Naming Services business, which comprises Registry Services and Network Intelligence and Availability (NIA) Services. NIA Services include the Managed Domain Name System (Managed DNS), iDefense and Distributed Denial of Service (DDoS) mitigation businesses.
Results related to the Authentication Services business for the third quarter have been reclassified as discontinued operations following the announced sale of this business to Symantec (SYMC). On August 9, 2010, VeriSign sold its Authentication Services business for approximately $1.14 billion.
Naming Services generated revenues of $172 million, up 11% year over year and up 3% sequentially driven by a rebound in the internet business. VeriSign is yet to wind down the non-core Content Portal Services (CPS) business which contributed $364,000 to the top-line in the third quarter.
The base of registered names for .com and .net totaled 103.5 million active domain names, up from 101.5 million names at the end of June and growing 9% year over year. The company added 7.5 million net new domain names in the quarter, up 7% year over year. VeriSign experienced an average daily query load of 66 billion in the third quarter, up from 63 billion in the previous quarter and 54 billion in the year-ago quarter.
VeriSign ended the quarter with a headcount of approximately 1,100 compared to 2,225 employees at the end of the previous quarter before the close of the sale of Authentication Services.
Excluding stock-based compensation expense and non-recurring items, operating margin came in at 43.1%, up from 40.5% in the second quarter and 33.7% in the year-ago quarter. The transition of the Authentication Services business to Symantec is not yet complete (expected to be completed by mid-year 2011) and VeriSign expects variability in operating margins for the same.
VeriSign reported a net income of $785 million or $4.48 per share, propelled by a net gain of $737 million on the sale of the Authentication Services business. This compared to net income of $54 million or 28 cents per share in the year-ago quarter.
Excluding one-time items but including stock-based compensation expense, net income came in at $40.3 million or 23 cents per share, beating the Zacks Consensus Estimate by a penny.
VeriSign used $82 million of cash in operating activities and used $26 million in capital expenditures. The company also repurchased 5.1 million shares for $146 million in the quarter.
VeriSign ended the quarter with $2.5 billion, up from $1.0 billion at the end of the previous quarter as the company received $1.28 billion in proceeds from the sale of the authentication business. As of September 30, 2010, deferred revenue was $654 million, an increase of $13 million from the previous quarter and $74 million from the year-ago quarter.
Guidance
Going forward, management expects growth of 10% in Naming Services in 2010. VeriSign expects to add 1.7 million to 2 million of net domain names. Excluding one-time items and stock based compensation expense, gross margin is projected around 77% –78%.
Following the sale of Authentication services, VeriSign will solely focus on the Naming Services business. With increasing global use of the Internet, management continues to see opportunities for growth.
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