01—Abstract
Summary
Summary of the 10-K filed February 13, 2015. Cited figures are marked; the original filing is the authoritative source.
VeriSign, Inc. (NASDAQ: VRSN) reported 2014 revenues of $1,010.1 milliona, up 5% from $965.1 million in 2013, and operating income of $564.4 million, up 7% from 2013.
The Company operates the .com and .net registries, two of the Internet's root servers, and the root-zone maintainer function, and it has one reportable segment comprising Registry Services and NIA Services. Revenue is driven mainly by domain name registrations and renewals, and the .com and .net domain base grew to 130.6 million at December 31, 2014, a 3%b increase. The filing notes that growth was limited by economic conditions, the introduction of new gTLDs, registrar marketing changes, and search algorithm changes, and management expects revenue growth in 2015 to continue but at a slower rate.
Net income was $355.3 millionc in 2014, compared with $544.5 million in 2013, which included a $375.3 million income tax benefit from a worthless stock deduction. Cash flow from operations was $600.9 million. The Company repurchased 16.3 million shares for $867.1 million during 2014 and, effective January 30, 2015, the Board authorized repurchases of approximately $452.9 million, bringing total authorization to up to $1.0 billion.
Stockholders' deficit was $883.5 milliond at year-end, and the Company carried $1.25 billion of 3.25% Subordinated Convertible Debentures and $750.0 million of 4.625% Senior Notes. Cash, cash equivalents and marketable securities totaled $1.42 billion, of which $939.0 million was held by foreign subsidiaries. Key risks highlighted include dependence on the .com Registry Agreement and DOC approval of pricing, uncertainty around the introduction of over 1,300 new gTLDs by ICANN, the NTIA's announced intent to transition IANA oversight, potential tax consequences from the IRS review of the worthless stock deduction, and the possible need to settle the convertible debentures in cash.
02—Key points
Key Highlights
- Revenue of $1,010.1 million in 2014, up 5% from $965.1 million in 2013; operating income of $564.4 million, up 7%.
- Net income fell to $355.3 million from $544.5 million, mainly because 2013 included a $375.3 million income tax benefit from a worthless stock deduction.
- The .com and .net domain name base reached 130.6 million at December 31, 2014, up 3%; 34 million new registrations were processed in 2014, the same as in 2013.
- Repurchased 16.3 million shares for $867.1 million in 2014; the Board authorized about $452.9 million more on January 30, 2015, for a total of up to $1.0 billion.
- Cash flow from operating activities was $600.9 million in 2014, up 4% from 2013.
- Stockholders' deficit of $883.5 million at year-end; $1.25 billion of Subordinated Convertible Debentures and $750.0 million of Senior Notes outstanding.
- Risks include .com pricing restrictions and DOC approval requirements, the introduction of new gTLDs, NTIA's intent to transition IANA oversight, and the IRS review of the worthless stock deduction.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Verisign kept $0.35.
- Revenue$1.01B100.0%
- Cost of revenue−$188.4M18.7%
- Gross profit$821.7M81.3%
- Operating costs−$257.3M25.5%
- Operating income$564.4M55.9%
- Interest, other & tax−$209.2M20.7%
- Net income$355.3M35.2%
Where FY2014 revenue went
$1.01B- Net income: $355.3M, 35% of revenue
- Interest, other & tax: $209.2M, 21% of revenue
- Other operating costs: $189.5M, 19% of revenue
- Cost of revenue: $188.4M, 19% of revenue
- R&D: $67.8M, 6.7% of revenue
Kept 35% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 13, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $1.01B$965.09M | +4.7% |
| Cost of Revenue | $188.43M$187.01M | +0.8% |
| Gross Profit | $821.69M$778.07M | +5.6% |
| R&D Expenses | $67.78M$70.30M | −3.6% |
| Operating Expenses | $445.69M$436.86M | +2.0% |
| Operating Income | $564.43M$528.23M | +6.9% |
| Interest Expense | $85.99M$74.76M | +15.0% |
| Net Income | $355.26M$544.45M | −34.7% |
| EPS (Basic) | $2.80$3.77 | −25.7% |
| EPS (Diluted) | $2.52$3.49 | −27.8% |
| Shares Outstanding (Basic) | 126.71M144.59M | −12.4% |
| Shares Outstanding (Diluted) | 140.90M155.79M | −9.6% |
05—Questions
Frequently Asked Questions
How did VeriSign perform financially in 2014?
Revenue rose 5% to $1,010.1 million and operating income rose 7% to $564.4 million. Net income was $355.3 million, down from $544.5 million in 2013, which had included a $375.3 million income tax benefit from a worthless stock deduction.
What drives VeriSign's revenue?
Revenue from Registry Services comes mainly from fixed fees charged to registrars for .com and .net domain name registrations and renewals, which are recognized ratably. The number of domain names rose 3% to 130.6 million, and the .net annual fee increased from $6.18 to $6.79 effective February 1, 2015. The .com fee is fixed at $7.85 through November 30, 2018, subject to limited adjustments.
How much capital has VeriSign returned to shareholders?
In 2014 the Company repurchased shares for $883.4 million in total cash costs, including $867.1 million under its repurchase program. It did not pay cash dividends in the last three years. As of December 31, 2014, $623.5 million remained for repurchases, and the Board authorized an additional $452.9 million effective January 30, 2015.
What are the main risks flagged in the filing?
The filing highlights reliance on the .com and .net registry agreements and DOC approval for .com price increases, competition and operational risks from ICANN's introduction of over 1,300 new gTLDs, the NTIA's announced intent to transition oversight of the IANA function, and possible additional taxes if the IRS challenges the 2013 worthless stock deduction. It also notes that the convertible debentures could require significant cash settlement.
What is VeriSign's debt position?
The Company had $1.25 billion principal of 3.25% Subordinated Convertible Debentures due 2037, which were convertible in the first quarter of 2015 because the stock price exceeded the conversion trigger, and $750.0 million of 4.625% Senior Notes due 2023. The $200.0 million Unsecured Credit Facility had no borrowings outstanding at December 31, 2014.
06—Continue