01—Abstract
Summary
Summary of the 10-K filed February 15, 2019. Cited figures are marked; the original filing is the authoritative source.
VeriSign, Inc. (Nasdaq: VRSN) reported 2018 revenues of $1,214,969 thousanda, up from $1,165,095 thousand in 2017, and operating income of $767,392 thousand.
Net income was $582,489 thousandb, or $4.75 per diluted share, compared with $457,248 thousand in 2017. The filing states that net income for 2018 includes a $52.0 million after-tax gain on the December 5, 2018 sale of the Security Services business to Neustar, Inc. Revenue comes overwhelmingly from Registry Services for the .com and .net domain name registries, with the domain name base reaching 153.0 million registrations as of December 31, 2018. The company's capital structure changed significantly in 2018.
It settled the $1.25 billionc principal of its subordinated convertible debentures in cash and issued 26.1 million shares for the $3.17 billion conversion excess. It repurchased 4.4 million shares for $600.0 million under its repurchase program, and the Board authorized a new repurchase of approximately $602.9 million on February 7, 2019, bringing total available authorization to $1.0 billion. Stockholders' deficit was $1,385,474 thousand at year end, and senior notes outstanding were $1,785,047 thousand net of issuance costs.
Cash, cash equivalents and marketable securities totaled $1,269,669 thousandd. The filing highlights regulatory and contractual dependencies for investors.
Amendment 35 to the Cooperative Agreement with the Department of Commerce, signed October 26, 2018, extends the .com agreement term to November 30, 2024 and permits .com wholesale price increases of up to 7% in each of the final four years of each six-year period. Management expects 2019 revenue to grow, partly offset by the Security Services sale, and expects cash paid for income taxes of $95.0 million to $115.0 million in 2019.
02—Key points
Key Highlights
- Revenues rose to $1,214,969 thousand in 2018 from $1,165,095 thousand in 2017, and operating income rose to $767,392 thousand from $707,722 thousand.
- Net income was $582,489 thousand ($4.75 diluted EPS) in 2018, versus $457,248 thousand ($3.68 diluted EPS) in 2017; the filing states 2018 includes a $52.0 million after-tax gain on the Security Services sale.
- The .com and .net domain name base reached 153.0 million at December 31, 2018, with 38.2 million new .com and .net registrations processed in 2018 versus 36.7 million in 2017.
- Capital returns were significant: $600.0 million of share repurchases in 2018 and an additional $602.9 million authorization effective February 7, 2019, for a total program of up to $1.0 billion.
- The $1.25 billion subordinated convertible debentures were settled in 2018, with $1.25 billion paid in cash and 26.1 million shares issued for the $3.17 billion conversion excess; no subordinated debentures remained at year end.
- Amendment 35 to the Cooperative Agreement extends the .com agreement through November 30, 2024 and permits .com price increases of up to 7% in each of the final four years of each six-year period.
- Stockholders' deficit was $1,385,474 thousand at December 31, 2018, and senior notes were $1,785,047 thousand net of issuance costs.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Verisign kept $0.48.
- Revenue$1.21B100.0%
- Cost of revenue−$192.1M15.8%
- Gross profit$1.02B84.2%
- Operating costs−$255.4M21.0%
- Operating income$767.4M63.2%
- Interest, other & tax−$184.9M15.2%
- Net income$582.5M47.9%
Where FY2018 revenue went
$1.21B- Net income: $582.5M, 48% of revenue
- Other operating costs: $197.6M, 16% of revenue
- Cost of revenue: $192.1M, 16% of revenue
- Interest, other & tax: $184.9M, 15% of revenue
- R&D: $57.9M, 4.8% of revenue
Kept 48% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 15, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $1.21B$1.17B | +4.3% |
| Cost of Revenue | $192.13M$193.33M | −0.6% |
| Gross Profit | $1.02B$971.77M | +5.3% |
| R&D Expenses | $57.88M$52.34M | +10.6% |
| Operating Expenses | $447.58M$457.37M | −2.1% |
| Operating Income | $767.39M$707.72M | +8.4% |
| Interest Expense | $114.84M$136.34M | −15.8% |
| Net Income | $582.49M$457.25M | +27.4% |
| EPS (Basic) | $5.13$4.56 | +12.5% |
| EPS (Diluted) | $4.75$3.68 | +29.1% |
| Shares Outstanding (Basic) | 113.45M100.33M | +13.1% |
| Shares Outstanding (Diluted) | 122.66M124.18M | −1.2% |
05—Questions
Frequently Asked Questions
What drove the increase in 2018 net income?
Net income rose to $582,489 thousand from $457,248 thousand. Revenue increased by $49.9 million, operating expenses fell (total costs and expenses were $447,577 thousand versus $457,373 thousand), and non-operating income rose to $76,969 thousand, including a $54,840 thousand gain on the sale of the Security Services business. The filing also shows a lower effective tax rate of 20% versus 24% in 2017.
What was the Security Services sale and how will it affect future results?
On December 5, 2018, the company sold the rights, economic benefits and obligations of its Security Services customer contracts (DDoS Protection and Managed DNS) to Neustar, Inc. The company received $50.0 million at closing, recorded a contingent consideration receivable of $14.7 million, and recognized a pre-tax gain of approximately $54.8 million. The filing expects 2019 revenue to grow overall but notes that the sale will partly offset that growth, and expects non-operating income to decrease in 2019 because of the 2018 gain.
How does the .com pricing change under Amendment 35 affect revenue potential?
Under Amendment 35, signed October 26, 2018, the company may increase the .com Maximum Price by up to 7% without further Department of Commerce approval in each of the final four years of each six-year period, subject to incorporation into the ICANN .com Registry Agreement. The annual .com fee has been $7.85 since 2012. The .net fee may be increased by up to 10% per year through June 30, 2023, and the .net fee rose from $8.20 to $9.02 on February 1, 2018.
What are the main risks to the business disclosed in the filing?
The filing identifies dependence on agreements with the Department of Commerce and ICANN, since substantially all revenue comes from Registry Services. Other risks include DDoS and cyber-attacks, changes to the multi-stakeholder model of internet governance, competition from ccTLDs and new gTLDs, changes in domain name demand, registrar concentration (the largest customer accounted for approximately 32% of 2018 revenues), and the .web arbitration filed by Afilias against ICANN on November 14, 2018.
How much cash does the company have and how is it being used?
At December 31, 2018, cash, cash equivalents and marketable securities totaled $1,269,669 thousand, including $357,415 thousand of cash and cash equivalents and $912,254 thousand of marketable securities. In 2018 the company repurchased $600.0 million of stock, settled the convertible debentures for $1.25 billion in cash, and repatriated $1.15 billion of foreign cash. Management believes existing resources and operating cash flow of $697,767 thousand in 2018 are sufficient for the next 12 months, and it plans capital expenditures of $45.0 million to $55.0 million in 2019.
06—Continue