.Com and .net domains increase by 1.99 million in Q3 – Renewal rate was 75% in Q2

VeriSign, Inc. (NASDAQ: VRSN) reported financial results for the third quarter of 2018.

Verisign ended the third quarter with 151.7 million .com and .net domain name registrations in the domain name base, a 4.0 percent increase from the end of the third quarter of 2017, and a net increase of 1.99 million during the third quarter of 2018.

The final .com and .net renewal rate for the second quarter of 2018 was 75.0 percent compared with 74.0 percent for the same quarter in 2017.

On Oct. 24, 2018, Verisign entered into an agreement with NeuStar, Inc. (“Neustar”) to sell the rights, economic benefits, and obligations, in all customer contracts related to its Security Services business. The transaction includes the sale of customer agreements related to Verisign’s Distributed Denial of Service Protection, Managed Domain Name System (“DNS”), DNS Firewall, and Recursive DNS services.

Financial Highlights

• Verisign ended the third quarter with cash, cash equivalents and marketable securities of $1.18 billion, a decrease of $1.24 billion from year-end 2017.
• Cash flow from operating activities was $187 million for the third quarter of 2018, compared with $175 million for the same quarter in 2017.
• Deferred revenues on Sept. 30, 2018, totaled $1.02 billion, an increase of $25 million from year-end 2017.
• During the third quarter, Verisign repurchased 1.1 million shares of its common stock for $175 million. At Sept. 30, 2018, $638 million remained available and authorized under the current share repurchase program which has no expiration.

Business Highlights

• Verisign ended the third quarter with 151.7 million .com and .net domain name registrations in the domain name base, a 4.0 percent increase from the end of the third quarter of 2017, and a net increase of 1.99 million during the third quarter of 2018.
• In the third quarter, Verisign processed 9.5 million new domain name registrations for .com and .net, compared to 8.9 million for the same quarter in 2017.
• The final .com and .net renewal rate for the second quarter of 2018 was 75.0 percent compared with 74.0 percent for the same quarter in 2017. Renewal rates are not fully measurable until 45 days after the end of the quarter.

Third Quarter GAAP Financial Results

VeriSign, Inc. and subsidiaries (“Verisign”) reported revenue of $306 million for the third quarter of 2018, up 4.6 percent from the same quarter in 2017. Verisign reported net income of $138 million and diluted earnings per share (diluted “EPS”) of $1.13 for the third quarter of 2018, compared to net income of $115 million and diluted EPS of $0.93 for the same quarter in 2017. The operating margin was 63.8 percent for the third quarter of 2018 compared to 61.9 percent for the same quarter in 2017.

Third Quarter Non-GAAP Financial Results

Verisign reported, on a non-GAAP basis, net income of $151 million and diluted EPS of $1.23 for the third quarter of 2018, compared to net income of $124 million and diluted EPS of $1.00 for the same quarter in 2017. The non-GAAP operating margin was 68.7 percent for the third quarter of 2018 compared to 66.7 percent for the same quarter in 2017. A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this news release.

“The continued dedication of our teams to protecting and managing our business has yielded another solid quarter,” said Jim Bidzos, Executive Chairman, President and Chief Executive Officer.

On Oct. 24, 2018, Verisign entered into an agreement with NeuStar, Inc. (“Neustar”) to sell the rights, economic benefits, and obligations, in all customer contracts related to its Security Services business. The transaction includes the sale of customer agreements related to Verisign’s Distributed Denial of Service Protection, Managed Domain Name System (“DNS”), DNS Firewall, and Recursive DNS services. Verisign will retain its proprietary technology, network assets, critical infrastructure, software, and public DNS service to focus solely on supporting Verisign’s core mission: ensuring the security, stability, and resiliency of our core infrastructure. As part of the transaction, Verisign will continue to support the Security Services customers during the transition to Neustar, pursuant to a transition services agreement that is expected to be executed at closing. The transaction is subject to customary regulatory approval and is expected to close shortly following the receipt of such approval. The purchase price, subject to a cap of $120 million, consists of a payment of $50 million, due at the time of closing, plus an additional contingent amount, due after the first anniversary of closing. The additional contingent amount, which cannot be negative, is based upon, among other things, the successful transition of customers to Neustar during the 12-month period following closing.

In commenting on the transaction, Jim Bidzos added: “Verisign is committed to focusing on its core mission of providing critical internet infrastructure, including Root Zone management, operation of 2 of the 13 global internet root servers, operation of .gov and .edu, and authoritative resolution for the .com and .net top-level domains, which support the majority of global e-commerce. For this reason, Verisign is transitioning its Security Services customers to Neustar.”