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VeriSign's (VRSN) Q3 Earnings Up Y/Y, Revenues Top Estimates

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VeriSign (VRSN - Free Report) reported non-GAAP earnings of $1.23 per share for third-quarter 2018, which increased 23% from the year-ago quarter. The Zacks Consensus Estimate was pegged at $1.19 per share.

Revenues increased 4.6% year over year to $306 million and came slightly ahead of the Zacks Consensus Estimate of $305 million.

Quarter Details

In the quarter, domain name registrations for .com and .net together grew 4% year over year to 151.7 million, of which 137.6 million registrations were for .com and 14.1 million for .net. Domain name base increased 1.99 million in the quarter.

VeriSign processed 9.5 million new domain name registrations for .com and .net, an increase from 8.9 million processed in the year-ago quarter as a result of increased gross additions from North American and China registrars.

For the reported quarter, the exact renewal rate figures will be available after 45 days from Sep 30, 2018. The company expects third-quarter 2018 renewal rate to be 75%, same as the second quarter.

VeriSign, Inc. Price, Consensus and EPS Surprise

VeriSign, Inc. Price, Consensus and EPS Surprise | VeriSign, Inc. Quote

Recent Updates

On Oct 24, VeriSign announced that NeuStar will acquire customer contracts of its Security Services business. The deal includes transfer of customer agreements related to Verisign’s Managed DNS, Distributed Denial of Service (DDoS) Protection, DNS Firewall and fee-based Recursive DNS services customer contracts.

Management noted that the sale of customer contracts will help the company focus on core operations. Moreover, the deal will not have any material impact to the already quoted fiscal 2018 guidance, per management.

VeriSign also noted that they are confident about the execution of the Cooperative Agreement with National Telecommunications and Information Administration (NTIA) to run the .com domain name before it expires on Nov 30.

Operating Details

Gross profit increased 5.1% year over year to $257.5 million. Gross margin expanded 40 basis points (bps) from the year-ago quarter to 84.2%.

Non-GAAP adjusted EBITDA was $228.6 million, up 6.8% from the year-ago quarter. Adjusted EBITDA margin expanded 150 bps to 74.8%.

VeriSign’s research and development (4.5% of total revenues) and general and administrative expenses (11.4% of total revenues) increased 7.8% and 7% respectively, from the year-ago quarter to $13.7 million and $34.9 million.

However, sales and marketing (4.5% of total revenues) declined 25.7% to $13.9 million due to delay in full execution of direct marketing activities carried out internationally. The marketing activities were aimed at increasing domain name sales.

In the third quarter, non-GAAP operating income was $210.1 million, up 7.7% from the prior-year quarter. VeriSign’s non-GAAP operating margin was 68.7% in the quarter, up 200 bps from the prior-year quarter.

Balance sheet

As of Sep 30, the company’s cash and cash equivalents (including marketable securities) were approximately $1.18 billion compared with $1.17 billion as of Jun 30.

Operating cash flow in the quarter was approximately $187 million while free cash flow came in at $177 million.

VeriSign repurchased 1.1 million shares for $175 million in the quarter.

Guidance

For fiscal 2018, VeriSign now expects revenues in the range of $1.211-$1.216 billion compared with the earlier guidance of $1.205-$1.215 billion.  Non-GAAP operating margin is expected to be in the range of 67%-67.5%, up from the earlier projection of 66%-67%.

Capital expenditure is anticipated in the range of $40-$50 million, down from the earlier projection of $45-$55 million.

For the fourth quarter, VeriSign projects domain name base registration to increase in the range of 0.9 million to 1.4 million. Full year domain name base growth is expected between 4.2% and 4.6%.

Zacks Rank & Other Stocks to Consider

Currently, VeriSign carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader computer and technology sector are Ringcentral, Inc. (RNG - Free Report) , Vishay Intertechnology (VSH - Free Report) and Cadence Design Systems, Inc. (CDNS - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long term growth rates for Ringcentral, Vishay and Cadence is projected to be 28.8%, 9.2% and 12%, respectively.

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