01—Abstract
Summary
Summary of the 10-K filed February 24, 2012. Cited figures are marked; the original filing is the authoritative source.
VeriSign, Inc. (NASDAQ: VRSN) reported 2011 revenues of $771,978 thousanda, up 13% from $680,578 thousand in 2010, driven primarily by an 8% year-over-year increase in active .com and .net domain names and July 2010 registry fee increases.
Operating income was $329,389 thousandb, up 42% from 2010, while net income attributable to Verisign stockholders was $142,891 thousand, or $0.86 per diluted share. Registry Services, which operates the authoritative directory for .com, .net and related domains, generates substantially all revenue; NIA Services (iDefense, Managed DNS, DDoS Protection) is not significant to consolidated revenue. Capital returns were significant in 2011: a special dividend of $2.75 per share ($463.5 million) was paid in May 2011, and 16.3 million shares were repurchased for $534.6 million.
Cash, cash equivalents and marketable securities totaled $1,346,209 thousandc at year-end, down from $2,060,866 thousand, and the company took on $100.0 million under a new $200.0 million revolving credit facility, partly to buy its Reston, Virginia headquarters for $118.5 million. Stockholders' equity was a deficit of $(88,107) thousand at December 31, 2011. Key risks flagged in the filing include the expiration of the .com Registry Agreement on November 30, 2012, which the company says it has begun renewing with ICANN and the DOC, the potential impact of new gTLDs, and a 2010 corporate network breach that was not sufficiently escalated to management.
The company also disclosed that its Interim Chief Financial Officer, John D. Calys, is serving while a permanent CFO is sought, following the resignation of the prior CFO in 2011.
02—Key points
Key Highlights
- Revenue rose 13% to $771,978 thousand in 2011, driven by an 8% increase in active .com and .net domain names and July 2010 registry fee increases.
- Operating income of $329,389 thousand, up 42% from 2010, reflecting higher revenue and lower general and administrative expenses after the 2010 Restructuring Plan.
- Net income attributable to Verisign stockholders was $142,891 thousand ($0.86 diluted EPS), versus $830,967 thousand in 2010, which included a gain on the Authentication Services divestiture.
- Returned capital via a $2.75 per share special dividend ($463.5 million) and repurchases of 16.3 million shares for $534.6 million; $831.3 million remained under the 2010 Share Buyback Program.
- Cash, cash equivalents and marketable securities of $1,346,209 thousand at year-end 2011, down from $2,060,866 thousand; $100.0 million was borrowed under a new $200.0 million credit facility.
- Stockholders' deficit of $(88,107) thousand at December 31, 2011, compared with equity of $676,430 thousand a year earlier.
- The .com Registry Agreement expires November 30, 2012; the company has commenced renewal with ICANN, and the filing states that failure to renew on similar terms could materially adversely affect the business.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Verisign kept $0.19.
- Revenue$772.0M100.0%
- Cost of revenue−$165.2M21.4%
- Gross profit$606.7M78.6%
- Operating costs−$277.3M35.9%
- Operating income$329.4M42.7%
- Interest, other & tax−$186.5M24.2%
- Net income$142.9M18.5%
Where FY2011 revenue went
$772.0M- Other operating costs: $224.1M, 29% of revenue
- Interest, other & tax: $186.5M, 24% of revenue
- Cost of revenue: $165.2M, 21% of revenue
- Net income: $142.9M, 19% of revenue
- R&D: $53.3M, 6.9% of revenue
Kept 19% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 24, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $771.98M$680.58M | +13.4% |
| Cost of Revenue | $165.25M$156.68M | +5.5% |
| Gross Profit | $606.73M$523.90M | +15.8% |
| R&D Expenses | $53.28M$53.66M | −0.7% |
| Operating Expenses | $442.59M$448.30M | −1.3% |
| Operating Income | $329.39M$232.28M | +41.8% |
| Interest Expense | $147.33M$157.67M | −6.6% |
| Net Income | $142.89M$830.97M | −82.8% |
| EPS (Basic) | $0.87$4.68 | −81.4% |
| EPS (Diluted) | $0.86$4.64 | −81.5% |
| Shares Outstanding (Basic) | 165.41M177.53M | −6.8% |
| Shares Outstanding (Diluted) | 166.89M178.97M | −6.7% |
05—Questions
Frequently Asked Questions
How much of VeriSign's revenue comes from its core business?
The filing states that its Registry Services business, which derives most of its revenue from domain name registration fees, generates substantially all of the company's revenue. Revenue from NIA Services is described as not significant in relation to consolidated revenue.
What is the main risk tied to the .com registry agreement?
The .com Registry Agreement provides that VeriSign will remain the sole registry operator through November 30, 2012, and it is renewable unless certain breach findings are made. The company says the DOC must approve renewal if it serves the public interest, and that it has commenced the renewal process with ICANN. The filing warns that failure to renew on the same or similar terms could have a material adverse effect on the business.
How did VeriSign return cash to shareholders in 2011?
In April 2011 the Board declared a special dividend of $2.75 per share totaling $463.5 million, paid May 18, 2011, which also triggered $100.0 million in contingent interest payments to Convertible Debenture holders. The company also repurchased 16.3 million shares for $534.6 million under the 2010 Share Buyback Program, leaving $831.3 million available for future repurchases.
Why did total interest expense decline in 2011?
Total interest expense fell to $147,332 thousand from $157,667 thousand in 2010. The filing attributes the decrease mainly to lower contingent interest on the Convertible Debentures, which was $100,020 thousand in 2011 versus $109,113 thousand in 2010.
Are there governance or control issues investors should know about?
The filing discloses that the company's corporate network suffered successful attacks in 2010 that were not sufficiently reported to management until September 2011. Management concluded disclosure controls were effective and has implemented reporting and escalation changes. Additionally, D. James Bidzos became President and CEO in 2011, and John D. Calys is Interim Chief Financial Officer while a permanent CFO is sought.
06—Continue