) went down 4.3% in after-hours trading following its first
quarter 2014 results. Shares tumbled as a result of a sequential
decline in earnings, lower share count and a tepid fiscal 2014
revenue guidance provided by the company.
VeriSign reported first-quarter 2014 earnings of 58 cents per
share, which matched the Zacks Consensus Estimate. Earnings
(excluding all one-time items but including stock-based
compensation) increased 5.5% year over year but declined 1.7% on
a sequential basis.
Revenues surged 5.2% year over year and 1.3% sequentially to
$248.8 million, relatively in line with the Zacks Consensus
Estimate of $249.0 million. Approximately 61.0% of the revenues
were from the U.S., while the remaining came from overseas.
VeriSign Registry Services added 1.28 million net new names
compared with 1.29 million in the previous quarter. Active domain
names in the zone for .com and .net increased 4.0% year over year
to $128.5 million (.com 113.2 million and .net 15.2 million) in
VeriSign processed 8.6 million new domain name registrations for
.com and .net, down from 8.8 million in the year-ago quarter and
VeriSign estimates renewal rate to be approximately 72.6% in the
first quarter, flat year over year. Exact renewal rate figures
will be available 45 days after the end of the quarter. In the
fourth quarter of 2013, renewal rate was 72.2%.
During the quarter, VeriSign partnered with
) to provide hybrid cloud-based security services. The combined
solution can manage and protect against Distributed Denial of
Service (DDoS) attacks and at the same time connect public and
private clouds securely. VeriSign has significant growth
opportunities from its network security products as DDoS attacks
continue to grow. We believe that VeriSign will gain
significantly from this collaboration.
As a percentage of revenues, total operating expenses soared to
43.9% in the first quarter compared with 43.6% in the year-ago
quarter. However, on a sequential basis, operating expenses as a
percentage of revenues decreased from 47.0%.
An increase in sales & marketing (S&M) as well as general
& administrative (G&A) expenses, up 50 basis points (bps)
and 70 bps year over year, respectively, led to the rise in
operating expenses. The sequential drop in operating expense as a
percentage of revenues was primarily due to 160 bps contraction
in G&A, offset by a 200 bps upside in S&M.
Operating margin was 56.1% in the quarter compared with 56.4% in
the year-ago quarter and 53.0% in the previous quarter. The
contraction in operating margin was primarily due to higher
operating expenses on a year-over-year basis.
Net income margin was 34.1% compared with 36.6% in the year-ago
quarter and 36.1% in the previous quarter.
The company also plans to repatriate approximately $700.0 to
$800.0 million of offshore cash during the second quarter of
Balance Sheet & Cash Flow
Cash and cash equivalents (including marketable securities) were
$1.72 billion (out of which $192.0 million was held in the U.S.)
same as in the previous quarter.
Operating cash flow was $142.0 million in the quarter, down from
$147.0 million in the fourth quarter. Free cash flow was $130.0
million compared with $121.0 million in the previous quarter.
VeriSign repurchased approximately 2.4 million shares for $132.0
million in the quarter. As ofMar 31, 2014, approximately $868.0
million remained authorized under the share repurchase program.
VeriSign intends to focus more on developing new revenue streams
in 2014. In 2014, VeriSign expects to pay cash taxes of
approximately $35.0 to $50.0 million due to repatriation.
For 2014, VeriSign forecasts revenues in the range of $1.0 to
$1.015 billion, which represents an annual growth rate of 4.0% to
5.0% (previous guidance was $1.0 to $1.02 billion). The Zacks
Consensus Estimate is pegged at $1.014 billion. Non-GAAP gross
margin is expected to be at least 80%, while operating margin is
forecast to be between 58.0% and 60.0%.
Interest expense and non-operating income, net is expected to be
within the range of $73.0-$77.0 million for 2014. Capital
expenditure is expected in the range of $50.0 to $70.0 million
(previous guidance $60.0 million to $80.0 million) for 2014.
VeriSign reported in-line first-quarter results and provided a
tepid fiscal 2014 guidance. The company's top and bottom lines
increased year over year.
We believe growing generic top-level domain (gTLD) customer base,
international expansion through IDNs (internationalized domain
names), strong growth in the Network Intelligence and
Availability (NIA) services and investments on developing new
intellectual properties will boost revenues and profitability,
Additionally, VeriSign has significant growth opportunities from
its network security products as Distributed Denial of Service
(DDoS) attacks continue to grow.
However, the negative impact of search engine adjustments on
domain monetization and increasing operating expenses related to
the .com contract renewal remain the primary headwinds in the
near term. Moreover, significant competition from
) in the network intelligence and availability (NIA) segment
remains a major concern.
Currently, VeriSign has a Zacks Rank #3 (Hold).
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