Q2 2021 Verisign Inc Earnings Call
<unk> second quarter 2021 earnings Conference call Today's conference is being recorded recording.
Recording of this call is not permitted unless preauthorized.
At this time I would like to turn the conference over to Mr. David Atchley, Vice President of Investor Relations and corporate Treasurer. Please go ahead Sir.
Thank you operator welcome to Ericsson line second quarter 2021 earnings call. Joining me are Jim bids of executive Chairman and CEO, Todd Stroup, President and COO, and George Kilgus Executive Vice President and CFO.
This call and presentation are being webcast from the Investor Relations website, which is available under about Verisign on Verisign Dot Com. There you will also kind of our earnings release at the end of this call of the presentation will be available on that site and with the within a few hours. The replay of the call will be posted.
Financial results in 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 in our documents filed with the SEC specifically the most recent report on form 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 in 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.
The 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 Jimmy.
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.
Yeah.
Thanks, David.
And good afternoon, everyone.
I am pleased to report another solid quarter of operational and financial performance for Verisign D.
During the second quarter, we saw continued demand for our domain names, including year over year growth in new registrations from some of our foreign geographies during.
During the second quarter, we processed the $11.7 million, new registrations and the domain name base increased by $2.5.9 million names.
At the end of June the domain name base in Dot Com and Dot net totaled $176 million, consisting of 157 million names per dot com and $13.6 million names for dot net with the year over year growth rate of 5.2%.
Although renewal rates are not fully measurable until 45 days after the end of the quarter. We believe that the renewal rate for the second quarter of 2021 will be approximately 75, 3%. This preliminary rate compares to 72, 8% achieved in the second quarter of 2020, and 76% last quarter.
As we look at full year 2021, we now expect the domain name base growth rate of between $4.7 6%. This range reflects the strength, we continue to observe 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 investing in and evolving our critical infrastructure.
And complying with the high operational standards required by our ICANN agreements.
Our critical infrastructure enables us to reliably and accurately provide the DNS navigation service, which people around the world depend on the Commerce education health care and person to person connection.
Just last week, we marked 24 years of uninterrupted availability of our dot com and dot net domain name resolution system.
Our financial and liquidity position remains stable with $112 billion in cash cash equivalents and marketable securities at the end of the quarter.
Share repurchases during the second quarter totaled $172 million per 797000 shares.
At quarter end $737 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 dot web on May 20th of final decision was issued in the independent review process or ERP the fee.
Final decision rejected affiliates this petition to nullify the results of the <unk> auction and rejected affiliates as request to be awarded Dot web of.
Also as we had requested the final decision directed ICANN Board of directors to review the objections, including objections as to affiliates of conduct and to make a determination on the delegation of non web.
After the final decision was issued however affiliates filed an application requesting that the ERP panel interpret and amend its final decision.
We believe the affiliates as application is without merit and expects the panel.
We expect the panel to rule on it in the fourth quarter of 2021 thereafter, we expect Itm's Board will proceed consistent with the final decision and it will make a determination on the delegation of Dot web.
The updated guidance, we are providing today does not include 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 June 32021, the company generated revenue of $329 million up 4.8% from the same quarter in 2020.
<unk> delivered operating income of $213 million up 3% from $207 million in the same quarter a year ago.
Operating expense totaled $116 million compared to $113 million last quarter and $108 million in the second quarter of year ago.
The year over year increase in operating expense is primarily a result of incremental and continued investment in our operational infrastructure and personnel.
The operating margin in the quarter was 64, 7% compared to 65, 8% for the same quarter a year ago.
Net income totaled $148 million compared to $152 million a year earlier.
Which produced diluted earnings per share of $1.31.
In the second quarter of this year compared to $1.32.
For the same quarter of last year.
During the quarter the company redeemed and favorably of refinanced its $750 million for 6.5% senior notes due in 2023 through the issuance of new 752, 7% senior notes, which mature in June 2000.
31.
We are pleased with the results of this refinancing which will result in interest expense savings of over $14 million annually for the company.
As part of the refinancing we wrote off $2.1 million of unamortized debt issuance costs on the 2023 notes.
Operating cash flow from the second quarter was $143 million and free cash flow was $125 million compared with $215 million and $204 million, respectively for the second quarter of 2020.
The year over year difference in operating cash flow, primarily relates to cash taxes from a combination of higher cash taxes. This year as well as last year's second quarter operating cash flow of benefiting from lower cash flow tax payments due to the permitted deferral of approximately $52 million of U S federal tax payments.
Until the third quarter of 2020.
I will now discuss our updated full year 2021 guidance.
Revenue is now expected to be in the range of $1 billion $322 million to $1 billion $331 million.
This narrowed and increased revenue range forecast.
Flex the updated domain name base growth rate expectation of between 4.7% and 6% that Jim mentioned earlier.
The operating margin is now expected to be between $64, 2.5% and 65%.
This guidance range reflects our expectation of incremental and continued investment in our operational infrastructure and personnel in 2021.
Interest expense and non operating income net is now expected to be an expense of between 83 million to $87 million.
This reflects lower interest expense following the refinancing that was completed during the second quarter.
Capital expenditures are still expected day between $55 million and $65 million.
The GAAP effective tax rate is still expected to be D between 20% and 23% we.
We expect the cash tax rate for 2021 to also be within the same guidance range.
In summary <unk>.
<unk> continued to demonstrate sound financial performance during the second quarter, and we look forward to continuing our focused execution in 2021.
Now I will turn the call back to Jim for his closing remarks.
Thank you George.
We continued our work to protect grow and manage the business, while continuing our focus on providing long term value to our shareholders before we open the call for your questions I'd like to touch on some other things we're doing at Verisign I've updated you on previous earnings calls on our commitment to responsible corporate citizenship in particular under our Verisign cares program and <unk>.
Isn't months, we've expanded our work to help those affected by the COVID-19, pandemic and a number of ways, including alleviating food insecurity caused by Covid related economic hardship and areas, where we have the footprint.
Providing medical and other relief in India, where the pandemic took a significant turn for the worse earlier this year.
And our ongoing and growing efforts to help those whose jobs or careers have been affected by COVID-19 to retrain and pivot the new careers in the tech industry.
We've also kept our focus on the area of equity and Justice, most working with existing partners and adding new ones. You can read more about all of these initiatives in the news section we added to our Investor website. This quarter on our ESG work.
And now we'll open the call to your questions operator, we're ready for the first question.
Thank you if you'd like to ask a question. Please Sigma pressing star 1 on your telephone keypad, if youre using a speakerphone. Please make sure that your mute function is off to allow your signals from each of our equipment.
Also in order to receive the best signal. Please refrain from using their headset to ask a question.
The Star 1 we'll take our first question from Rob Oliver from R. W. Baird. Please go ahead.
Great Hi, good afternoon. Thank you guys for taking my question Jim.
Jim I would just start.
With you on very strong renewal rates, and obviously you guys raising the domain.
Growth Guide again, you called out some foreign geographies, which saw but believe the strong renewal trends. So just was wondering if we can get a little bit of color on kind of where youre seeing pockets globally of of strength, whether some of that has surprised you whether it's COVID-19 recovery of related or any color around the foreign geography comment.
Sure I'll, let Georgia Tod comment on that.
Yeah. Thanks, Jim Rob This is George so with regard to domain demand.
As we mentioned in our prepared remarks, and as you alluded to we had a very solid quarter.
From a domain perspective.
New units were 11 point, the $7 million and that was up about 600000 from the year ago period.
As far as regional preferences of performance goes.
I would say that the U S registrars perform similar to a year ago quarter with the slight increase in demand coming from various international regions as Jim mentioned for example of both China and the EMEA regions were up on a year over year in new registrations.
As far as renewal rates.
As Jim mentioned, our preliminary renewal rate is.
The year ago.
I would say part of the improvement there relates to a combination of the mixture of first time and previously renewed names with the previously renewed named cohort of getting a little larger as the base ages.
As well as the geographic mix.
As you May recall back in 2019, we had a higher proportion of new units coming out of China out of that region with Chuck came up for renewal in 2020.
And contributed to a slightly lower average first time renewal rate in 2020, we had more mature regions like the U S and EMEA contribute to a larger portion of the new unit growth. So those historically higher renewing right regions have helped our first time renewal rate of little bit.
This year, so a combination of all of those 2 factors but.
Our first time renewal rates are in the 50% range in our previous renew rates are slightly up but they're in the still in the mid 80% range.
Got it Okay. That's really helpful. And then just 1 follow up Tim just I wanted to make sure.
Did that did I.
I understand.
The potential timeline non Dod web so.
Really its now having filed.
The motion I guess that now has to be ruled upon by the board that that happens book.
Sure.
The final ruling by I can so I think you said Q4.
2021 on.
The newer motion that was filed by affiliates. So if that's right.
What day.
What then would be your expectation of the expectation for timing.
Assuming you guys would then to win.
Dot web.
Maybe the just the folks filing the motion already but if the business anymore. Assuming you guys of wonder what would be the timing of it.
So that'll be dependent on Ah I cant timeframe for picking up.
What the ERP paddle instructed them to do which is to complete their process on dot web would get it delegated so I can't speak for that I can't process, but.
That's what would occur.
Following the ruling on that latest motion ITM would then basically do what the what the panel instructed it was essentially remanded back to I can't so there's this delay with this current motion, but then it would go back to I can't and they would conduct their process and determined the delegation of the TL day. So.
Hopefully that won't take too long, but I can't speak for ICANN.
Great. Okay, guys. Thank you very much I appreciate it.
Thank you.
Thank you we'll take our next question from Nick Jones from Citi.
Great. Thanks for taking the question maybe another 1 on geographic trends.
The package still has its pretty low internet penetration relative to kind of the North America and Western Europe.
Is there any sense of the dot coms popularity in those regions.
I guess more people.
Come on line.
And does that kind of a tailwind in the region for Verisign or dot com over time, and then of a second question.
Alright, Georgia Todd.
Yes. So Nick this is George I mean, I would just say that look at comments of global brand.
And we.
We obviously.
Try to continue to market our brand.
To be of very high quality reliable brand across the world as.
As far as China is concerned.
As I mentioned.
The last year, China was a little bit quieter, while the pandemic was going on and we've seen.
Some of our registrar of theirs.
Hasnt increased demand and are doing well.
So China is picking up I do think China is a little bit of a different of the market though.
I think China is much more of a platform and mobile driven market.
While domain names are still very relevant they are an important.
They are giving more of these platforms.
As I mentioned, China has performed.
Better.
Year over year in the second quarter here and.
We'll see how they continue to perform but theres still quite active over there.
Great. Thanks, and then maybe just.
Taking a step back looking at the you know the line about 100% availability for 24 years and as the Internet has evolved quite a bit and maybe the the velocity of usage in.
I guess, what's weighing the overall system I guess the increases over time.
What's the impact on availability in the future you know you've got crypto miners, yet just more and more people using the internet from more and more things.
I guess, what impact does that have kind of from here or how are you thinking about it from here versus kind of the last 24 years.
Well that's it that's the natural and good question given the expanded use of the internet and particularly during COVID-19. So many people working from home additional load et cetera, et cetera, I'll, just say that the the design.
Of our network. Besides resiliency is the there's also a design element of capacity and it's always been designed with over capacity as part of the resiliency sort of the formula.
And I'll, just say that the volume of traffic anticipated, we're still meeting all of our obligations, including specific performance and response time.
Obligations, we have no difficulty meeting those with with the demand mix.
It's essentially part of all of the planning that we did it always has been from the beginning so it's not a it's not a new consideration in that sense, we plan for it.
Great. Thanks for taking the questions.
Thank you.
Thank you, we'll take our last question from Sterling Auty from J P. Morgan.
Hi, This is true from Sterling I was wondering if you can provide some more color.
We're expecting 4 range.
Okay.
Range.
From time to money.
Yeah. So Joe this is George we don't guide to renewal rates.
But we do die because of the domain name base and.
Obviously, our guide is up from last quarter last quarter, we were guiding 4 to 5.5%. Obviously now we've increased that guidance to $4, 7% to 6%. So we're still expecting growth in domain name base, but.
But we don't guide to specific quarters.
Okay got it thank you.
Thank you that does conclude today's question and answer session I would like to turn the conference back over to Mr. Atchley for any additional or closing remarks.
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.
Thank you that does conclude today's conference. We thank you all for your participation you may now disconnect.
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