VeriSign 3rd-qtr net loss lower, revenue down [23rd October 2003]

SAN FRANCISCO, Oct 23 (Reuters) - Internet services and Web address provider VeriSign Inc. (VRSN) , on Thursday posted lower revenue but a narrower third-quarter net loss as the company cut costs and forecast a return to profitability by the second quarter of next year.

The Mountain View, California-based company said it saw gradually improving demand from telecommunications companies for its services and offered a flat forecast for current quarter roughly in line with Wall Street expectations.

Shares of VeriSign, which last week said it would sell most of its Network Solutions unit and retreat from the business of Web hosting and domain-name selling, dropped in after-hours trade to $14.10 from a close at $14.63 on the Nasdaq.

The company said fourth-quarter results would be slightly weaker if it quickly closes the sale of its Network Solutions.

VeriSign, which oversees the database of dot-com and dot-net addresses, has focused on providing Internet directory and security services with a view toward the convergence of the Web and more traditional phone systems.

In the third quarter, the company saw revenue growth across the board in those areas, said Stratton Sclavos, chief executive and chairman.

Sclavos said he was cautious about the pace of the recovery in telecom investment for the current quarter and the first quarter next year.

But he predicted revenue growth through the rest of 2004 from new services that enable carriers to offer do-not-call lists, that let customers keep their phone numbers when changing cellular providers and that allow federal authorities to intercept calls as part of investigations.

"The street will focus on where the growth is going to come from," said Gene Munster, an analyst with US Bancorp Piper Jaffray, who called the third-quarter results "uneventful." "All those new telecom services sound good, but in the near term they won't be anything meaningful to their business."

The company reported a net loss of $30.7 million, or 13 cents per share, compared with a net loss of $79.7 million, or 34 cents per share, a year earlier. Revenue was $268 million, down from $301.4 million but just above expectations.

Excluding a $78 million charge for amortization and and other charges, the company would have posted third-quarter income of 15 cents on a fully taxed basis.

On that basis, VeriSign's results were a penny above analysts' average expectations, according to Reuters Research, a unit of Reuters Group Plc.

RESTRUCTURING CHARGE IN Q4

The company gave two different fourth-quarter forecasts depending on when it completes the Network Solutions sale.

Including the business unit, fourth-quarter revenue is expected to be $268 million and earnings per share, fully taxed and excluding special items, is expected to be 15 cents, Dana Evan, chief financial officer, said.

Assuming a Nov. 1 closing date, fourth-quarter revenue is expected to be $240 million and earnings per share is expected to be 13 cents, Evan said.

As a result of the sale, VeriSign will take a restructuring charge over the next couple of quarters of between $75 million and $100 million, some of it in the fourth quarter, Evan said.

About 600 employees will leave VeriSign as a result of the sale of the business unit, leaving about 2,500, she added.

The company announced a week ago that it was selling off the business for $100 million, three years after paying $16 billion for it during the height of the dot-com boom and before demand for Web addresses declined.

A year later, VeriSign was forced to write down $9.9 billion of that cost in recognition that it had overpaid.

The amortization charges related to the Network Solutions acquisition will be completed by year end, while it will be another year or two before the company sees the end of charges related to telecom purchases in 2001 and 2002, Sclavos said.