01—Abstract
Summary
Summary of the 10-K filed February 21, 2014. Cited figures are marked; the original filing is the authoritative source.
VeriSign, Inc. (filed under the name VeriSign, Inc.; trades on NASDAQ as VRSN) reported fiscal 2013 revenues of $965.1 milliona, up 10% from $873.6 million in 2012, and operating income of $528.2 million, up from $457.3 million.
Revenue growth came mainly from Registry Services for .com and .net, which the filing attributes to a 5% increase in active .com and .net domain names to 127.2 million and to fee increases in January 2012 and July 2013. Net income was $544.5 millionb, boosted by a $375.3 million income tax benefit from a worthless stock deduction, partly offset by $167.1 million of tax expense tied to an intended repatriation of foreign cash. Diluted EPS was $3.49 versus $1.95 in 2012.
The balance sheet shows $1.72 billionc in cash, cash equivalents and marketable securities against $2.21 billion of Subordinated Convertible Debentures principal (3.25% due 2037) and $750.0 million of 4.625% Senior Notes due 2023 issued in April 2013. Stockholders' equity was a deficit of $423.6 million. The company repurchased 21.0 million shares for $1.0 billion in 2013, and on January 31, 2014 its board authorized a further $527.6 million buyback, bringing the 2014 program to $1.0 billion.
Operating cash flow was $579.4 milliond, and the company plans to repatriate approximately $700.0 million to $800.0 million of foreign cash in the second or third quarter of 2014. The filing highlights concentration and regulatory risk. Substantially all revenue comes from Registry Services, and one customer accounted for approximately 30% of revenues in each of the last three years.
Pricing for .com domain names is capped at $7.85 under the renewed .com Registry Agreement through November 30, 2018, and the company is subject to ICANN and Department of Commerce oversight. Management flags the rollout of new gTLDs, which began October 23, 2013, as a possible source of competition and operational risk, and notes the company's 2011 security breach.
02—Key points
Key Highlights
- Revenues of $965.1 million in 2013, up 10% from $873.6 million in 2012; operating income of $528.2 million, up from $457.3 million.
- Net income of $544.5 million (diluted EPS $3.49) includes a $375.3 million income tax benefit from a worthless stock deduction, partly offset by $167.1 million of tax expense on intended repatriation of foreign cash.
- Active .com and .net domain names reached 127.2 million at December 31, 2013, up 5%; .net registration fees rose to $6.18 effective February 1, 2014.
- Repurchased 21.0 million shares for $1.0 billion in 2013; the board authorized an additional $527.6 million buyback on January 31, 2014, bringing the 2014 program to $1.0 billion.
- Issued $750.0 million of 4.625% Senior Notes due 2023 in April 2013, repaying the $100.0 million credit facility balance; the company had $1.72 billion in cash and marketable securities at year-end.
- Stockholders' deficit of $423.6 million; $1.25 billion principal of 3.25% Subordinated Convertible Debentures due 2037 became convertible through March 31, 2014.
- Customer concentration and regulatory exposure: one customer accounted for about 30% of revenues in each of the last three years, and .com pricing is capped at $7.85 through November 30, 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Verisign kept $0.56.
- Revenue$965.1M100.0%
- Cost of revenue−$187.0M19.4%
- Gross profit$778.1M80.6%
- Operating costs−$249.8M25.9%
- Operating income$528.2M54.7%
- Interest, other & tax$16.2M1.7%
- Net income$544.5M56.4%
Where FY2013 revenue went
$965.1M- Operating income: $528.2M, 55% of revenue
- Cost of revenue: $187.0M, 19% of revenue
- Other operating costs: $179.5M, 19% of revenue
- R&D: $70.3M, 7.3% of revenue
Kept 55% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 21, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $965.09M$873.59M | +10.5% |
| Cost of Revenue | $187.01M$167.60M | +11.6% |
| Gross Profit | $778.07M$705.99M | +10.2% |
| R&D Expenses | $70.30M$61.69M | +13.9% |
| Operating Expenses | $436.86M$416.26M | +4.9% |
| Operating Income | $528.23M$457.33M | +15.5% |
| Interest Expense | $74.76M$50.20M | +48.9% |
| Net Income | $544.45M$320.03M | +70.1% |
| EPS (Basic) | $3.77$2.04 | +84.8% |
| EPS (Diluted) | $3.49$1.95 | +79.0% |
| Shares Outstanding (Basic) | 144.59M156.95M | −7.9% |
| Shares Outstanding (Diluted) | 155.79M163.91M | −5.0% |
05—Questions
Frequently Asked Questions
Why did net income rise so sharply in 2013?
Net income was $544.5 million, compared with $320.0 million in 2012. The main driver was a $375.3 million income tax benefit from a worthless stock deduction, net of valuation allowances and accruals for uncertain tax positions. Income from continuing operations before taxes was $456.8 million, and the tax line was a benefit of $87.7 million after $167.1 million of repatriation-related tax expense.
How much cash does the company plan to bring back from foreign subsidiaries?
The company intends to repatriate approximately $700.0 million to $800.0 million of cash held by foreign subsidiaries in the second or third quarter of 2014, using the worthless stock deduction to offset U.S. taxable income from the repatriation. As of December 31, 2013, cash and marketable securities held by foreign subsidiaries totaled $1.5 billion.
What are the main debt obligations and their terms?
The company has $750.0 million of 4.625% Senior Notes due May 1, 2023, and $1.25 billion principal of 3.25% Subordinated Convertible Debentures due August 15, 2037, with a fair value of about $2.2 billion. The $200.0 million unsecured credit facility had no borrowings at year-end 2013. The filing says the debentures could require up to 15.5 million additional shares if the conversion spread were settled in stock, though the company states it intends to settle principal in cash.
What limits the company's ability to raise .com prices?
Under the .com Registry Agreement renewed November 29, 2012, the .com price cannot exceed $7.85 through November 30, 2018. Increases are allowed only for a new Consensus Policy or documented extraordinary expense from an attack, and only with prior approval from the Department of Commerce. The company may also petition the DOC to remove the pricing restrictions if market conditions no longer warrant them.
What new risks come from the introduction of new gTLDs?
ICANN began delegating new gTLDs on October 23, 2013. The filing says the company does not yet know their impact on .com and .net registrations, and it believes some deployment issues were not sufficiently addressed. The company applied for 14 new gTLDs and was invited to contract for 12, and it provides back-end services to applicants for approximately 200 new gTLDs. Registrars that do not execute the new Registry Accreditation Agreement could reduce demand for those back-end services.
06—Continue