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VeriSign, Inc. (VRSN - Analyst Report) reported a net income of $0.41 per share (excluding one-time items but including stock-based compensation expenses) in the second quarter of 2012, missing the Zacks Consensus Estimate of $0.42 per share. 

The quarter's reported net income of $68.5 million or $0.43 per diluted share was up from a net income of $68.0 million or $0.42 per share in the first quarter of 2012 and a net loss of $10.6 million or ($0.06) per share in the second quarter of 2011. 
 
VeriSign reported revenue of $214 million in the second quarter of 2012, up 13% from the year-ago quarter and 4% sequentially. Approximately 60% of total revenue was derived by domestic operations while the remaining 40% was generated by foreign operations. Revenue from the U.S. business was up 11.6% year over year while revenue from international sources grew 14.7% year over year. 
 
The base of registered names for .com and .net totalled 118.5 million active domain names, up from 116.7 million names at the end of the March quarter and growing 7.8% year over year and 1.6% sequentially. The base of registered names in .com equaled 103.7 million names, while .net equaled 14.8 million names.
 
The company added 1.81 million net new domain names in the quarter. The company also processed a record 8.4 million new domain name registrations, an increase of 4.2% year over year.
 
In 2010, VeriSign sold the Authentication Services business and closed down the operations of non-core Content Portal Services (CPS).
 
The continuing operations of the company consist primarily of the results of the Naming Services business, which comprises Registry Services and Network Intelligence and Availability (NIA) Services. NIA Services include the Managed Domain Name System (Managed DNS), iDefense and Distributed Denial of Service (DDoS) mitigation businesses.
 
Operating margin came in at 54.0%, up from 51.9% in the first quarter of 2012 and 51.7% in the second quarter of 2011.
 
VeriSign generated $135 million of cash from operating activities and used $13 million in capital expenditures. The company repurchased 1.9 million shares for $76 million. In the first half of 2012, VeriSign has repurchased approximately 3.7 million shares for $144 million and still has $687 remaining under its current share repurchase authorization.
 
VeriSign ended the quarter with $1.44 billion of cash and equivalents, up from $1.35 billion at the end of the prior quarter. Deferred revenues came in at $804 million, an increase of $22 million from the previous quarter.
 
Guidance
 
On June 23, 2012, the Internet Corporation for Assigned Names and Numbers (ICANN) approved the renewal of Verisign's agreement to serve as the authoritative registry operator for the .com registry. The term period for the agreement will start from December 1, 2012 through November 30, 2018.
 
The terms of the agreement remains pretty much the same as the existing agreement except for new provisions regarding indemnification and audit rights, which is consistent with the other five largest generic top level domain (gTLD) registry agreements (including the .net agreement).
 
Meanwhile, under an agreement called the Cooperative Agreement, the U.S. Department of Commerce is currently reviewing the renewal of the .com registry agreement. VeriSign expects to get an approval by November 30.
 
Going forward, management now expects revenues between $870 million and $880 million in 2012, up 13% to 14% year over year compared with the previous guidance of $870 million – $890 million in 2012.  Excluding one-time items and stock based compensation expense, gross margin is projected around 80%. VeriSign expects to exit the fourth quarter of 2012 with an operating margin of 52%–54%.
 
Capital expenditures is projected between 6% – 8% of total revenue, down from 7% – 10%. Management expects to add net names between 1.6 million and 1.9 million in the third quarter. 
 
The disappointing results did not impress the investors as shares lost 3.59% in after-market trading to close at $41.10. In regular trading, shares gained 2.87% to close at $42.63.

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