VeriSign Beats Forecast

Last night, VeriSign, Inc. (VRSN) reported revenues of $258 million from continuing operations in the third quarter of 2009. Core businesses (Internet Infrastructure and Identity Services) generated revenues of $257 million, up 1% sequentially and up 6% year-over-year. Revenues from discontinued operations came in at $41 million. Operating margin came in at 38.6%, marginally up from the previous quarter. Net income was $64 million. Earnings per share (EPS) of 33 cents easily beat the Zacks Consensus Estimate of 28 cents. During the quarter, the company generated $105 million of cash from operations and used $25 million in capital expenditures. The company ended the quarter with cash and equivalents of $1.4 billion, an increase of $124 million from the previous quarter. As of September 30, 2009, deferred revenue came in at $881 million. Subsequent to the end of the quarter, VeriSign completed the sale of its Global Security Consulting business, and Messaging and Mobile Media Services. The company has so far sold thirteen of its non-core businesses (including Jamba joint venture) for $750 million. Management earlier indicated that it would focus on core competencies to provide highly scalable, reliable and secure Internet infrastructure services to customers around the world. Hence, the company divested a number of non-core businesses in its portfolio, such as communications, billing and commerce, content delivery, messaging and enterprise security services. VeriSign plans to invest proceeds from the divestitures into its core Internet Infrastructure and Identity Services. It is also using funds to buy back shares and has already repurchased stock worth $22.6 million in the first half of 2009. Through the sale of these non-core businesses as well as disciplined operating management, VeriSign has managed to reduce its headcount by nearly 1,000 employees. Going forward, management expects revenues between $258 million and $262 million, flat or up 2% sequentially. Operating margin is estimated to come in at 38.6%. The company has completely restructured its business in the past two years and expects that these efforts will unlock value for the company in the long-term. Cash flow is expected to be strong in 2010. The company is sitting on a huge cash balance and we expect the management to prudently invest the funds in growth businesses. In February 2009, VeriSign had lost an unsolicited bid to acquire Certicom Corp., which develops, manufactures and markets digital information security products, technologies and services, to Research in Motion Ltd. (RIMM). As the Internet spreads to mobile devices, we see VeriSign tapping this growth market with an array of value-added services. Headquartered in Mountain View, California, VeriSign provides essential Internet infrastructure services to companies, service providers and website owners. The terms of the deal were not disclosed.

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