Yesterday, VeriSign Inc. (VRSN) reported second-quarter revenues of $257 million from continuing operations, which were in line with management expectations.
VeriSign provides essential Internet infrastructure services to companies, service providers and website owners.
GAAP net income came in at $35 million or 15 cents per share. Non-GAAP net income came in at 31 cents, easily beating the Zacks Consensus Estimate of 27 cents. Non-GAAP operating margin came in at 38.4%, compared to 36.9% in the previous quarter.
Core businesses (Internet Infrastructure and Identity Services) generated revenues of $255 million, up 1% sequentially and up 9% year over year.
The company continues with its divestiture program and has only two of thirteen businesses left to divest. From November 2007 to date, the company has sold eleven non-core businesses for $575 million. VeriSign is in the process of winding down one more business – The Messaging and Global Security Consulting businesses.
VeriSign plans to invest the funds received from the divestiture of these businesses in its core businesses. The company is also using funds to buy back shares and has repurchased shares worth $22.6 million in the first half of 2009.
During the quarter, the company generated $83 million of cash from operations and used $20 million in capital expenditures. VeriSign ended the quarter with cash and equivalents of $1.3 billion and debt of $570.7 million.
Management maintained that macroeconomic environment remains challenging. Going forward, management guided third quarter revenues from core businesses between $256 million and $260 million, flat to up 2% sequentially. Operating margins are projected between 37% and 39%.
Meanwhile, the company also named Mark McLaughlin as Chief Executive Officer and Brian Robins as Chief Financial Officer. McLaughlin has been serving as President and Chief Operating Officer of VeriSign since January 2009.
As the Internet spreads to mobile devices, we see VeriSign tapping this growth market with its array of value-added services. Moreover, we believe the company has substantial growth opportunities in the areas of intelligent supply chains, real-time publishing, and interactive television.
In February 2009, VeriSign had lost an unsolicited bid to acquire Certicom Corp., which develops, manufactures and markets digital information security products, technologies and services, to Research in Motion Ltd. (RIMM).
The company is sitting on a huge cash balance and we expect the management to prudently invest the funds in growth businesses. We maintain our HOLD on the stock.
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