Q1 2021 Verisign Inc Earnings Call
Please standby.
Good day, everyone and welcome to their science first quarter 2021 earnings call.
Today's conference is being recorded.
Recording of this call is not for played it unless preauthorized at this time I would like to turn the conference over to Mr. David attached Lee Vice President of Investor Relations and corporate Treasurer. Please go ahead Sir.
Thank you operator, welcome to Verisign first quarter 2021 for each call. Joining me are Jim bid dose executive Chairman and CEO, Todd Stroup, President and CEO and George Kilgus Executive Vice President and CFO. This call and presentation are being webcast from the Investor Relations website, which is at the.
Billable under about Verisign and Verisign Dot Com. There you will also find our earnings release at the end of this call. The presentation will be available on that site and within a few hours. The replay of the call will be posted.
Financial results and our earnings release are unaudited and our remarks include forward looking statements that are subject to the risks and uncertainties that we discuss in detail and of documents filed with the SEC specifically the most recent report on forms 10-K.
Verisign does not update financial performance or guidance during the quarter unless it is done through a public disclosure the.
The financial results and today's call and the matters. We will be discussing today include GAAP results and to non-GAAP measures used by Verisign, adjusted EBITDA and free cash flow and GAAP to non-GAAP reconciliation information is appended to the slide presentation, which can be found on the investor Relations section of our website.
Available after this call Jim.
And Jim and George will provide some prepared remarks and afterward, we will open the call for your questions with that I would like to turn the call over to Jim.
Thanks, David and good afternoon, everyone.
And I'm pleased to report another solid quarter of performance for Verisign.
During the first quarter, we saw increased demand for our domain names across most regions as businesses continued to expand their online presence.
The first quarter, we processed of 11 6 million, new registrations and of the domain name base increased by $2 8 million names.
At the end of March the domain name base, and Dot Com and Dot net totaled $168 million, consisting of $154 6 million names for dot com and.
$13 4 million names for Dot net.
And with the year over year growth rate of four 6%.
Although renewal rates are not fully measurable until 45 days after the end of the quarter. We believe that the renewal rate for the first quarter of 2021 will be approximately 75, 9%.
This preliminary rate compares to 75, 4% achieved and the first quarter of 2020, and 73, 5% last quarter.
And we look forward for fiscal 2020. One we now expect the domain name base growth rate of between 4.0% and five 5%.
This updated range reflects the strength, we have witnessed the new additions to the base and our outlook for the balance of the year.
During the quarter, we continued to deliver solid financial results, while maintaining and investing in and the ball being a critical infrastructure and complying with high operational standards required by our ICANN agreements.
Our critical infrastructure enables us to reliably and accurately provide the DNS and navigation service people around the world rely on for Commerce education health care and the person to person and connection.
Our financial and liquidity position remains stable with 1.18 billion and cash cash equivalents in marketable securities at the end of the quarter.
Share repurchases during the first quarter total $173 million or 876000 shares.
At quarter and $910 million remained available and authorized under the current share repurchase program, which has no expiration.
We continually evaluate the overall liquidity and investing needs of the business and consider the best uses for our cash including potential share repurchases.
Regarding <unk>, we have been informed that the independent review process panel formally declared the IRB hearing closed on April seven 2021.
Under the applicable arbitration rules the IOP panel should now issue a final decision within 60 days from that day.
As a reminder, and IOP under <unk> bylaws is for the purpose of ensuring that I cant followed its own policies and procedures when making decisions.
Our expectation is that following the resolution of the IRT, the Ikea and board will make the final decision on the delegation of the Dot Web T. L D.
The updated guidance, we're providing today does not include any revenue or expenses related to dot web.
And now I'd like to turn the call over to George.
Thanks, Jim and good afternoon, everyone.
For the quarter ended March 31 2021.
The company generate generated revenue of $324 million up three 6% from the same quarter in 2020 and delivered operating income of $210 million up 2% from $206 million and the same quarter a year ago.
Operating expense totaled $113 million compared to $116 million last quarter, and the $106 million in the first quarter of year ago.
The year over year increase and operating expense is primarily a result of incremental and continued operational investments and personnel and infrastructure.
The operating margin and the quarter was 65% compared to 66% for at the same quarter a year ago.
Net income totaled $150 million compared to $334 million a year earlier, which produced diluted earnings per share of $1 33 from the first quarter. This year compared to $2 86 for the same quarter last year.
As noted in our earnings release net income for the first quarter last year included the recognition of $168 million of previously unrecognized noncash income tax benefits, which increased diluted earnings per share by $1 and 44 six.
Operating cash flow for the first quarter was $198 million and free cash flow was $192 million compared with $180 million and $169 million, respectively for the first quarter last year.
The year over year increase and operating cash flow was primarily driven by the increased volume of new registrations and renewals, partially offset by higher cash payments for operating expenses.
I'll now discuss our updated full year 2021 guidance.
Revenue is now expected to be and the range of $1.315 billion to $1 billion of $330 million.
And this narrowed and increased revenue range forecast reflects the updated domain name base growth rate expectation of between 4% and five 5% that Jim mentioned earlier.
The operating margin is still expected to be between 64% and 65%. This guidance reflects our expectation of incremental and continued investments and our operational infrastructure and personnel in 2020 one.
Interest expense and non operating income net is still expected to be an expense of between 88 million to $92 million.
Capital expenditures are also still expected to be between $55 million and $65 million.
The GAAP effective tax rate is still expected to be between 20% and 23%.
And we expect the cash tax rate for 2020 one.
Full year to also be within the same guidance range.
In summary, Verisign continued to demonstrate sound financial performance during the first quarter and we look forward to continuing our focused execution throughout 2021.
Now I will turn the call back to Jim for his closing remarks.
Thank you George and closing I want to acknowledge the team here at Verisign for their hard work and maintaining and operating and our critical internet infrastructure, even during the challenges of working remotely during the pandemic.
And now we'll open the call for your questions operator, we're ready for the first question.
Thank you as a reminder, every one that is star one to ask a question.
So that's the audio quality with your <expletive>ets. Your please take yourself off and you and pick up your headset. So that we can hear you clearly we will go first to Rob Oliver of Baird.
Great. Good afternoon, and thank you very much for taking my question.
First one Jim for you just go clearly macro trends.
The better would you guys taking up the range of domains and the revenue side I know you mentioned in your prepared remarks, the debt was sort of strength across the board and I was wondering if you could add a little more context to that maybe both from a geographic perspective to see if the already particular pockets of strength as well as maybe you could talk about some of the dynamics debt.
And you believe.
All of our driving or what you guys are seeing driving that that increase domain activity and then I had a follow up.
Okay. Thanks, well first of all I think the recovering economy is certainly contributing to increase the internet usage and that includes additional domain and years.
The good part of the strength came from the U S. But it was very broad based and and virtually all geographic regions. We do have limited visibility recall through our channel, but certainly the the adds this quarter were broad based across all regions driven I think primarily by.
Rick kind of recovering of comedy economy, and the economic activity that comes with it but also recall that the common net our trusted brands and as people continue to get online.
Our our ads are certainly going to benefit from it and they did this quarter.
Yeah.
Got it okay. Thank you and then.
George just one follow up for you I know you guys just going back a couple of quarters have talked a bit about the.
The need for increased operational.
And for your infrastructure and you know Bob or.
D and security and things like that.
I guess a couple of questions. How do you feel you are in and that trajectory and I guess by your implied increased revenue guide for the year for maintaining the margin. You you guys are looking for probably spend a little bit more and just wanted to get a sense for where you're spending on the same things and how you're thinking about that this year. Thank you.
Yeah, Thanks, Rob Alright, similar to the last year and continue this year, we continue to spend as you indicate and investing in areas of cyber security as well as infrastructure areas and and those are both and personnel as.
And as well as a new.
New software tools and you can see that our our head count for the year for the quarter ended at 918. The people, we're continuing to execute on our plans this year.
And we'll continue to make investments and those areas.
And hence.
The the guidance range of 60 for years to 65 per cent for operating margin is still appropriate.
Okay, great. Thank you guys.
We will now go to our next question and that will be from Nick Jones of Citi.
Great. Thanks for taking the question.
And I guess the first one could you just expand a little bit on the timelines for for Dot web.
The 60 days from the surveil.
The decision needs to be made and then it sounded like there potentially is the additional.
Time after that I guess, how should we be thinking about the.
The 60 day timeline and the context of when you know debt level will be delegated and then when that love can kind of start being issued to consumers.
Well first of all the debt so the announcements from the RP panel was that they had.
Concluded their hearing on April 7th and that started the 60 day clock that you're referring to so they.
They have concluded the hearing we <expletive>umed debt in that timeframe. There their final report will be issued.
That being the the.
Hopefully final step and the litigation part of this process.
We don't comment on that pending litigation and I'll, just simply say that occur.
According to their announcement by the time, we're talking again next quarter, we should have quite a bit more to say so I think until that happens, it's premature to discuss exactly when and how dot web will the delegated.
And then we get it launched and into the hands of consumers and it's just simply too early to speculate about exactly how that will play out as I mentioned, we do expect that at the conclusion here when we do see the IOP report that the ICANN Board will then proceed to determine the delegation of dot web when and when.
We get to that point, I think we'll be able to say more about the timing.
Of our own efforts, but until then it would be premature. So at least we know now that will have a hopefully a lot more to say I have the next time, we talk to you the next quarter.
Great Great and then I guess.
And I look at the domain name industry brief.
The total deal T L D decline and things like four and a half million or a little less sequentially Dot com continues to grow can you talk about kind of what's underpinning I guess, what would be share gains in terms of I D.
<unk> com, gaining and T L D and maybe why others are declining any thoughts on those trends. Thanks.
Well so let me just say first of all of that we did I understand that there's this broad based a bit of growth and adds that we had this quarter.
The the registrars and reporting this is growth from small businesses and individuals and it's broad based the.
Yeah.
Competitive registries, and we don't have insights into their particular businesses and their exact numbers I'll just simply say that as people are getting online common net are trusted brands and we continue to see that growth. The registrars are are having success with them and we're pleased with the with that growth and the quarter.
Great. Thank you.
Okay.
And we will take our last question from Sterling Auty of J P. Morgan.
Yeah. Thanks, Hi, guys. So just following along that line of questioning the 11.6 million gross new registration and the quarter was up you know now.
Isolate versus what you saw last year, you pointed to both small business and consumers, but I'm wondering what you might be hearing back from the registrars and terms of the mix how much of this might be tied to the continued elevated new business application data that we see versus maybe other types of.
Tumor use cases for you know for domains.
Yes, George you want to comment there.
Yes, I would I would say Sterling, we don't quite get the detailed mix of all of the register of ours I can tell you that.
From what we are we do here the.
Theyre seeing good demand for the consumer businesses wanting to get online as you know over the last couple of years.
Registrars have invested a lot of money and increasing the utility of the domain names and making it much easier to build a website and and.
Get a line for consumers and as a result, we're seeing a registrar of spending a lot more money.
Advertising and marketing to the small businesses to bring them online and I think that has been.
Helpful for of the domain name industry as far as the economy.
The only.
Insight we have the areas that are.
Registrars just believe that this is a this trend is is a pretty good trend and think it will continue for the rest of the year.
And when we quit for you to that they just a reply.
Reply back that they feel the economy is opening up and and and and that supporting some of that optimism on their part.
And then if you look at the total number of new T. L. D. As you know it's been in kind of a steady decline from what it hit the peak back and Oh, let's say.
Timber of 2020.
Much of that is just kind of failed marketing programs and.
Have you heard from the registrars that they just kind of back to Jim Your comment Dot com and dot net of trusted domains are you just feeling like youre starting to regain share and is there more marketing dollars being put behind dot com and dot net at this point.
Well, let me Oh God.
George to comment on that but first let me just add this in and it sort of goes to the next question earlier as well I think what we're not mentioning here is this is a very competitive marketplace and we haven't mentioned the country code <unk>.
Especially the ones that debt have been commercialized for example, <unk> Dot Kodak D D.
Many of these the country code <unk> that are not new G. T. L. D is not legacy <unk>.
So the the market is a little bit bigger than all of that.
And I just wanted to make sure that we understood that there's a bigger picture of their that we normally don't talk about and have limited visibility into but many of them have been commercialized and so they certainly need to be factored in.
George do you want to comment further I think that's true I mean, the other half of your question was about marketing.
Sure so sort of I don't really have any insight into the marketing activities of the new <unk>, but if you go to I cans are records, which are public and you look at some of that data for new G. T. L D.
I think the decline and the new <unk> is really centered and in a few.
T O D as debt.
And had some very rapid rise of <unk>.
Year or two ago, and I think as they come up for renewal, maybe theyre not renewing as well I don't have any.
Specific and insight into them and unless what I see.
And based on what I see here in the Ikea and data, but the.
I think that decline is really specific to just a few T. L. D that had a very strong growth and prior years.
Gotcha, and then for your own marketing programs here for 2021.
Can you give us a sense within the context of the the guidance you've given around margins how should we think about the you know the marketing spend and in light of a potential favorable ruling on the web what should we be thinking about you know the the plan to put the marketing muscle.
And behind the launch of <unk>.
So this is George of Sterling, so as far as dot web and and marketing muscle I. Just think it's too early at that point the guidance that we provided this year for both revenue and expense as Jim mentioned does not include any.
Revenue or expense <expletive>ociated with the with the web.
Once we have the.
And the <unk> delegated and we've got our plans in place then we will be able to communicate that as far as our ROE and sales and marketing programs.
You saw of spend a little bit more and sales and marketing and the first quarter compared to last year. We had I think that's more about some of the progress we curtailed and.
2020, and the first quarter as a result of the the pandemic coming on and people are working toward home working from home.
This year, we're continuing to execute on our direct marketing plans as well as the other programs that we will out of the beginning of the year and you know as far as I can tell it's really business as usual for us here.
And this year as well.
Alright, great and last question, because I get it quite a bit I kind of know how youre going to answer, but I wanted to ask and the public form anyway dot net and pricing. So you've made of price decision here and.
And dotcom and spend it down but it's been it's been a little bit since you last took a price action on dot net you know what of your thoughts around.
What are what you might be doing here with pricing for dot that in 'twenty, and 'twenty, one or 2020 two.
Yes, Sterling and I'll I'll give you the the you've asked the same question I have to give you. The same answer we don't we don't guide the pricing of course, I'll just point out debt.
Dot net is.
Competitively priced.
Dot Com is of course below it at this point, but we don't guide to the future pricing decisions and as you pointed out and we do have <expletive>ets.
Our price increase for dot com and that'll be effective in September.
Understood. Thank you guys appreciate it.
Sure. Thank you.
And with that that does conclude today's question and answer session and I would like to turn things back to David for any.
The additional or closing comments.
Thank you operator, please call the Investor Relations Department with any follow up questions from this call. Thank you for your participation. This concludes our call have a good evening.
Okay.
And again, everyone that does conclude today's call we'd like to thank you again for your participation you may now disconnect.
Yeah.
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