01—Abstract
Summary
Summary of the 10-K filed February 28, 2013. Cited figures are marked; the original filing is the authoritative source.
VeriSign, Inc. (NASDAQ: VRSN) reports that it is a provider of Internet infrastructure services, operating one reportable segment, Naming Services, which comprises Registry Services (operator of the .com, .net, .cc, .tv and .name registries and back-end systems for .gov, .jobs and .edu) and Network Intelligence and Availability (NIA) Services (iDefense, Managed DNS and DDoS Protection).
For 2012, revenues were $873.6 milliona, up 13% from $772.0 million in 2011, driven mainly by a 6% year-over-year increase in active .com and .net domain names to 121.1 million and the .com and .net registry fee increases effective in January 2012. Operating income rose to $457.3 million, up 39%, and net income was $320.0 million, or $1.95 per diluted share, compared with $142.9 million in 2011. Cash flow from operations was $537.6 million, up 60%.
Capital allocation was active in 2012: the company repurchased 7.7 million shares for $314.6 millionb and, as of December 31, 2012, had $975.5 million remaining under the 2012 Share Buyback Program. Cash, cash equivalents and marketable securities totaled $1.56 billion at year end, while $1.25 billion of 3.25% Convertible Debentures due 2037 and $100.0 million drawn on a $200.0 million revolving facility remained outstanding. Stockholders' deficit narrowed to $9.3 million.
The main investor considerations are regulatory and contractual. The new .com Registry Agreement and Amendment 32 with the Department of Commerce run through November 30, 2018, cap the .com price at $7.85c subject to limited increases, and require DOC approval for price increases.
The company also faces competition from roughly 1,400 new gTLDs expected to launch from 2013, and it expects little significant revenue from new gTLDs before 2014. Pending securities litigation includes a derivative suit over incentive compensation plans and a Glaser securities class action filed January 16, 2013.
02—Key points
Key Highlights
- Revenues of $873.6 million in 2012, up 13% from $772.0 million in 2011; .com and .net active domain names reached 121.1 million, up 6%.
- Operating income of $457.3 million, up 39%, with net income of $320.0 million ($1.95 diluted EPS) versus $142.9 million in 2011.
- Cash flows from operating activities were $537.6 million, up 60% from 2011.
- Repurchased 7.7 million shares for $314.6 million in 2012; $975.5 million remained under the 2012 Share Buyback Program at year end.
- The .com Registry Agreement renewed through November 30, 2018, with the price capped at $7.85 and the .net registry fee rising from $5.11 to $5.62 effective July 1, 2013.
- Balance sheet at December 31, 2012 held $1.56 billion in cash, cash equivalents and marketable securities against $1.25 billion of 3.25% Convertible Debentures due 2037 and $100.0 million borrowed under the $200.0 million credit facility.
- ICANN received 1,930 applications for over 1,400 new gTLDs; the company applied for 14 and has back-end agreements for approximately 220 others, creating new competitive risk.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Verisign kept $0.37.
- Revenue$873.6M100.0%
- Cost of revenue−$167.6M19.2%
- Gross profit$706.0M80.8%
- Operating costs−$248.7M28.5%
- Operating income$457.3M52.4%
- Interest, other & tax−$137.3M15.7%
- Net income$320.0M36.6%
Where FY2012 revenue went
$873.6M- Net income: $320.0M, 37% of revenue
- Other operating costs: $187.0M, 21% of revenue
- Cost of revenue: $167.6M, 19% of revenue
- Interest, other & tax: $137.3M, 16% of revenue
- R&D: $61.7M, 7.1% of revenue
Kept 37% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 28, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $873.59M$771.98M | +13.2% |
| Cost of Revenue | $167.60M$165.25M | +1.4% |
| Gross Profit | $705.99M$606.73M | +16.4% |
| R&D Expenses | $61.69M$53.28M | +15.8% |
| Operating Expenses | $416.26M$442.59M | −5.9% |
| Operating Income | $457.33M$329.39M | +38.8% |
| Interest Expense | $50.20M$147.33M | −65.9% |
| Net Income | $320.03M$142.89M | +124.0% |
| EPS (Basic) | $2.04$0.87 | +134.5% |
| EPS (Diluted) | $1.95$0.86 | +126.7% |
| Shares Outstanding (Basic) | 156.95M165.41M | −5.1% |
| Shares Outstanding (Diluted) | 163.91M166.89M | −1.8% |
05—Questions
Frequently Asked Questions
How much did VeriSign grow revenue and earnings in 2012?
Revenues rose to $873.6 million from $772.0 million, an increase of 13%. Operating income increased 39% to $457.3 million, and net income rose to $320.0 million from $142.9 million. The increase was primarily driven by a 6% year-over-year increase in .com and .net domain names and the registry fee increases effective in January 2012.
What is the outlook for the .com and .net registry pricing?
The .com price is fixed at $7.85 for the term of the new .com Registry Agreement through November 30, 2018, though prices may be raised by up to 7% annually for a new Consensus Policy or documented extraordinary expense, subject to DOC approval. The .net fee rises from $5.11 to $5.62 effective July 1, 2013, and the company has the contractual right to raise .net fees by up to 10% each year through June 30, 2017.
What are the main risks from new gTLDs?
ICANN received 1,930 applications for over 1,400 new gTLDs, and new registrations are expected to begin in 2013. The company does not yet know how these will affect .com and .net registrations. Competitors may have greater resources, and new gTLD operators may be able to vertically integrate with registrars, which VeriSign is restricted from doing. The company does not expect significant revenue from new gTLDs before 2014.
How is the company returning capital to shareholders?
In 2012 VeriSign repurchased 7.7 million shares for $314.6 million and paid no dividends. The Board authorized up to $1.0 billion of repurchases under the 2012 Share Buyback Program, of which $975.5 million remained at December 31, 2012, with no expiration date. Prior special dividends of $2.75 per share in 2011 and $3.00 per share in 2010 were paid from divestiture proceeds.
What litigation and debt obligations should investors be aware of?
A derivative suit (Warhanek v. Bidzos) challenges shareholder approval of certain incentive compensation plans and seeks equitable relief, and the motions to dismiss were under advisement at filing. A securities class action (Glaser v. VeriSign, filed January 16, 2013) alleges misleading statements about .com renewal prospects and revenue guidance, and a motion to dismiss was filed February 15, 2013. The company has $1.25 billion of 3.25% Convertible Debentures due 2037 and $100.0 million outstanding under its revolving facility.
06—Continue