VeriSign announced a solid start to the financial year, and its full-year guidance remains primarily unchanged. The company added 1.99 million net new names for the quarter and now provides registry services for 123.1 million active domains across the .com and .net zones – a 5.5% increase year-over year.

With such a large domain base, VeriSign continues to be the prominent global gTLD provider. We believe the company will also remain the premier provider of registry services, given its monopolylike position in the market. In light of these results, we maintain our narrow moat rating and $46-per-share fair value estimate.

VeriSign’s revenue grew 15% to $236 million year over year, while nonGAAP net income and nonGAAP EPS rose 38% to $94 million and $0.58, respectively. Operating margins were an impressive 59.6%, ahead of last year’s 51.9%. However, the margin was skewed due to the delay of marketing expenses, which should impact the second and third quarters. For the full-year, the company expects non-GAAP operating margins over 57%. VeriSign’s capital structure changed considerably during the quarter after the company issued $750 million of 10-year Senior Notes. As a result, the company’s total debt/EBITDA was 3.4 times. The proceeds will be used to pay down an existing revolving credit facility and for general corporate purposes.

First quarter domain renewal rates are expected to be around 73.3%, which is slightly below historic levels. Management cited weak economic conditions and algorithm changes at companies such as Google for contributing to this decrease. We believe renewal rates will hover around this level for the time being. Meanwhile, the impact from ICANNs decision to open up the gTLD market remains unknown at this stage, although the process is taking longer than expected. VeriSign expects no revenue contribution this year but does expect some impact in 2014.

It was a respectable quarter for VeriSign and we continue to forecast a good full-year performance. We believe the core .com and .net business will continue to perform well due to its strong position in the market. However, due to some uncertainties, we will continue to monitor the gTLD market and VeriSign’s future use of capital.