01—Abstract
Summary
Summary of the 10-K filed February 17, 2017. Cited figures are marked; the original filing is the authoritative source.
VeriSign, Inc. (Nasdaq: VRSN) reported 2016 revenues of $1,142.2 milliona, up from $1,059.4 million in 2015, with operating income of $686.6 million and net income of $440.6 million, or $3.42 diluted earnings per share.
The filing describes the company as a global provider of domain name registry services and internet security. Registry Services, which operates the .com and .net registries, generates substantially all revenue. On February 9, 2017, the company agreed to sell its iDefense business, and management expects revenues to remain consistent in 2017, partly offset by the planned iDefense divestiture.
Key operating and contractual developments include the October 2016 extension of the .com Registry Agreement through November 30, 2024, and the transition of the Root Zone Maintainer function to a new agreement with ICANN. The .com and .net domain name base reached 142.2 million at December 31, 2016. The fourth-quarter 2016 final renewal rate was 67.5%b, compared with 73.3% a year earlier.
The .com price is capped at $7.85c under the Cooperative Agreement, and the Cooperative Agreement expires November 30, 2018 unless the DOC extends it. Capital allocation remained a focus. The company repurchased 7.8 million shares for $636.5 million in 2016, and on February 9, 2017 its Board authorized up to $1.0 billion in total repurchases.
Cash, cash equivalents and marketable securities totaled $1.8 billiond at year-end, against $1.25 billion of principal on Subordinated Convertible Debentures, which were convertible through March 31, 2017. The company also disclosed a Civil Investigative Demand from the DOJ Antitrust Division received January 18, 2017 concerning its becoming the registry operator for the .web gTLD, and it has not estimated a potential outcome.
02—Key points
Key Highlights
- Revenues rose to $1,142.2 million in 2016 from $1,059.4 million in 2015, and operating income increased to $686.6 million from $605.9 million.
- Net income was $440.6 million in 2016, with diluted EPS of $3.42, compared with $2.82 in 2015.
- The .com Registry Agreement was extended through November 30, 2024, and the .com price cap of $7.85 remains in place under the Cooperative Agreement.
- The company agreed on February 9, 2017 to sell its iDefense business, subject to customary closing conditions.
- The domain name base reached 142.2 million .com and .net registrations at December 31, 2016, up from 139.8 million a year earlier, while the Q4 2016 final renewal rate fell to 67.5% from 73.3%.
- The Board authorized up to $1.0 billion of share repurchases effective February 9, 2017, after $636.5 million was repurchased in 2016.
- A DOJ Civil Investigative Demand received January 18, 2017 relates to the .web gTLD, and the company cannot currently estimate a range of outcomes.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Verisign kept $0.39.
- Revenue$1.14B100.0%
- Cost of revenue−$198.2M17.4%
- Gross profit$943.9M82.6%
- Operating costs−$257.4M22.5%
- Operating income$686.6M60.1%
- Interest, other & tax−$245.9M21.5%
- Net income$440.6M38.6%
Where FY2016 revenue went
$1.14B- Net income: $440.6M, 39% of revenue
- Interest, other & tax: $245.9M, 22% of revenue
- Other operating costs: $198.3M, 17% of revenue
- Cost of revenue: $198.2M, 17% of revenue
- R&D: $59.1M, 5.2% of revenue
Kept 39% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 17, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $1.14B$1.06B | +7.8% |
| Cost of Revenue | $198.24M$192.79M | +2.8% |
| Gross Profit | $943.92M$866.58M | +8.9% |
| R&D Expenses | $59.10M$63.72M | −7.2% |
| Operating Expenses | $455.60M$453.42M | +0.5% |
| Operating Income | $686.57M$605.95M | +13.3% |
| Interest Expense | $115.56M$107.63M | +7.4% |
| Net Income | $440.64M$375.24M | +17.4% |
| EPS (Basic) | $4.12$3.29 | +25.2% |
| EPS (Diluted) | $3.42$2.82 | +21.3% |
| Shares Outstanding (Basic) | 107.00M114.16M | −6.3% |
| Shares Outstanding (Diluted) | 128.83M133.03M | −3.2% |
05—Questions
Frequently Asked Questions
How did VeriSign's revenue and profitability trend in 2016?
Revenues increased 8% to $1,142.2 million in 2016 from $1,059.4 million in 2015. Operating income rose to $686.6 million from $605.9 million, and net income increased to $440.6 million from $375.2 million. Diluted EPS was $3.42, compared with $2.82 in 2015. The filing attributes the revenue growth mainly to a higher average number of .com and .net domain names and the .net fee increases in February 2015 and February 2016.
What are the main risks tied to the .com and .net registry agreements?
The Cooperative Agreement with the Department of Commerce expires November 30, 2018 unless the DOC extends it. Renewal of the .com Registry Agreement requires DOC approval, and the company must negotiate amendments with ICANN by October 20, 2018. The .net Registry Agreement runs through June 30, 2017 under its current term, and the filing notes that a failure to renew would have a material adverse effect on the business. Pricing for .com is capped at $7.85, with limited exceptions requiring DOC approval.
What is the status of the iDefense sale and the company's capital returns?
On February 9, 2017, VeriSign agreed to sell its iDefense business, subject to customary closing conditions. The same day, the Board authorized repurchases of approximately $640.9 million, in addition to $359.1 million remaining under the prior program, for a total authorization of up to $1.0 billion. As of December 31, 2016, $429.2 million remained available under the program. The company has not declared or paid cash dividends in the last five years.
What legal matter did the company disclose?
On January 18, 2017, the company received a Civil Investigative Demand from the Antitrust Division of the U.S. Department of Justice requesting material related to its becoming the registry operator for the .web gTLD. The company is responding to the CID, and it states that it is not possible at this time to estimate a range of potential financial and non-financial outcomes.
06—Continue