VeriSign Earnings Report Sends Shares Diving

VeriSign shares plummeted more than 45 percent Friday after the company announced worse than expected first-quarter results and lowered its guidance for the second quarter.

The company recorded a net loss of $328 million for the first quarter. While that figure represented an improvement over the year-ago first quarter, it failed to meet analysts’ estimates.

VeriSign stock fell by US$8.25 to $10 per share on the Nasdaq as analysts downgraded the company.

Calling the economic environment “much more difficult than we anticipated,” VeriSign chairman, president and CEO Stratton Sclavos said in a conference call that “the sustained economic downturn caught up with us.”

Sclavos also admitted there is a “tough selling environment in technology and telecommunications.”

Acquisition Charges

For the last year, VeriSign has been in acquisition mode, scooping up 12 companies in deals that were bound to have some impact on its financials. Indeed, the company noted that the first-quarter results reflect its purchases of Illuminet Holdings and H.O. Systems.

Pro forma net income totaled $68 million, compared with $49 million recorded in the first quarter of 2001. In contrast, pro forma operating income for the quarter was $61 million, compared with $27 million a year ago.

VeriSign ended the quarter with more than $305 million in cash, cash equivalents and short-term investments. The company reported that accounts receivable decreased to $283 million in the first quarter from $315 million in previous quarter. Operating cash flow also declined to between $20 million and $25 million in the first quarter, down from the $60 million posted in the fourth quarter of 2001.

Layoffs Planned

To help dig itself out of the financial mire, Sclavos said VeriSign will initiate “a proactive restructuring” to integrate and realign company resources. As part of the move, VeriSign will consolidate its sales, marketing and administration staff, ultimately resulting in a 10 percent workforce reduction. The company will book charges of $70 million to $80 million because of the restructuring, including severance and lease and contract terminations.

“With a solid core business in place, VeriSign is now realigning and integrating all corporate functions to most efficiently execute on our strategy. With the economic outlook still uncertain, it is particularly important for us to take these difficult but necessary steps,” VeriSign chief financial officer Dana Evan said.

Silver Linings

The news was not all bad for the company. Sclavos mentioned several highlights in the quarter, including a sequential rise in network and database use.

Also, Sclavos said, the company ended the first quarter with more than 4,400 enterprise customers and successfully introduced its Digital Trust Services framework. Its number of affiliates increased from 48 in the fourth quarter of last year to 51 in this year’s first quarter.

VeriSign said it registered 2.6 million new domain names in the first quarter, the first boost in new domain name registrations in seven consecutive quarters. The new sign-ups left the company with 27.3 million active domain names, down from 28.8 million in the previous quarter.

Lookups per day on VeriSign’s DNS (domain name service) infrastructure rose to 6.5 billion from 5.2 billion in the fourth quarter.

While Sclavos said he believes the company’s efforts will result in better results over the long term, he was “less comfortable” with how the second quarter will play out.

1 Comment

  • Let’s see. Customers are discovering that VeriSign’s security certification is a buncha baloney – a lot of money for what amounts to displaying an image on a website with a link to a web page with a little bit of whois-type information – and nothing else.
    And website owners are leaving Network Solutions in droves as they discover 1) owning a domain is no guarantee that it won’t be sold out from under you even though all the fees are paid up and 2) even though NS says vital information, such as domain server information, absolutely cannot be changed without express authorization from the domain owner or the administrator, it somehow gets changed anyway.
    VeriSign managed to muck up its cash cow (the registrar business). It’s probably mucking up the other businesses it’s gobbling as well. I’m glad I don’t own shares in this company.

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