VeriSign, Inc. (VRSN) reported revenues of $169 million from continuing operations for the second quarter of 2010, up 4% from the prior quarter and up 9% from the same quarter in 2009. The results underperformed the Zacks Consensus Estimate of $203 million.
Continuing operations primarily consist of Naming Services (comprising Registry Services and Network Intelligence and Availability (NIA) Services). NIA includes iDefense and the Distributed Denial of Service (DDoS) mitigation business.
Results related to the Authentication Services business for the second quarter have been reclassified as discontinued operations following the announced sale of this business to Symantec.
On May 19, 2010, VeriSign announced a definitive agreement to sell its Authentication Services business to Symantec Corp. (SYMC) for approximately $1.28 billion in cash.
Naming Services generated revenues of $168 million, up 9% sequentially. The non-core Content Portal Services (CPS) business reported $1 million of revenues.
Revenues from discontinued operations were $102 million during the second quarter.
Both Naming and Authentication Services continue to see improvements driven by the rebounding economy. Increases in advertising and e-commerce spending should positively impact the company’s business.
The base of registered names in .com and .net totaled 101.5 million active domain names, up from 99.3 million names at the end of March and growing 9% year over year. The company added 2.2 million net domain names in the quarter, in line with management’s guidance of 2 million to 2.3 million names. During the quarter, VeriSign processed 7.9 million new registrations, down from the record 8.1 million new registrations in the quarter, but up 13% year over year. Renewal rate was strong at 72.1%, up from 71.2% in the previous quarter.
On July 1, VeriSign increased the price for .com and .net new and renewing names from $6.86 to $7.34 and from $4.23 to $4.65, respectively.
Operating margin came in at 30.0%, up from 27.8% in the year-earlier quarter. VeriSign posted net income of $35.2 million or 19 cents per diluted share, compared to net income of $34.9 million or 18 cents in the year-earlier quarter. This reported net income per share includes a contribution of 5 cents from discontinued operations. Excluding special items but including stock-based compensation expense, net income came in at 19 cents, missing the Zacks Consensus Estimate of 28 cents.
Financial Highlights
VeriSign generated $159 million of cash from operations and used $23 million in capital expenditures. The company also repurchased 8.1 million shares for $227 million in the quarter. VeriSign still has approximately $420 million left in its authorized share repurchase program.
On July 27, 2010, the Board of Directors approved an additional authorization for share repurchases of approximately $1.1 billion, which brings the total amount authorized and remaining under the plan to $1.5 billion.
VeriSign ended the quarter with $1.0 billion, down from $1.5 billion at the end of the previous quarter.
At the end of the quarter, deferred revenues for Naming services were $641 million, an increase of $24 million from the prior quarter and $65 million from the same quarter in 2009.
Guidance
Going forward, management continues to target growth of 8% –11% for Naming Services in 2010. This will translate to revenues between $665 million and $685 million in 2010. Excluding one-time items and stock based compensation expense, gross margin is projected at 77% –78% and operating margin at 45%.
Following the sale of Authentication services, VeriSign will solely focus on the Naming Services business. With increasing usage of the Internet on a global basis, management continues to see opportunities of growth.
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