Q1 2022 Verisign Inc Earnings Call
Please standby.
Good day, everyone and welcome to <unk> first quarter 2022 earnings call. Today's conference is being recorded recording of this call is not permitted unless preauthorized.
This time I would like to turn the conference over to Mr. David actually Vice President of Investor Relations and corporate Treasurer. Please go ahead Sir.
Thank you operator welcome to <unk> first quarter 2022 earnings call. Joining me are Jim <unk> Executive Chairman and CEO , Todd <unk>, President and C O O 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.
There are sign on 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 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 , they're saying does not update financial performance or guidance during the quarter unless it is done through a public disclosure.
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 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 George.
Who 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.
Thank you David good afternoon to everyone and thank you for joining us.
As global reliance on online services continues to increase so does the importance of delivering uninterrupted and accurate DNS resolution.
Our focus remains on operating protecting and enhancing our critical internet infrastructure.
Thank all of our employees, who continuously execute our complex mission.
I'm pleased to report another solid quarter of financial and operational performance for Verisign revenues grew seven 2% year over year, while EPS grew seven 5% year over year.
At the end of March the domain name base in Dot Com and Dot net totaled $174 7 million domain names.
<unk> of $1 six $1 3 million names for Dot Com and 13 4 million names for dot net with a year over year growth rate of 4%.
During the first quarter, we processed $10 2 million, new registrations and the domain name base increased by 123 million names.
The final renewal rate for the fourth quarter of 2021 was 74, 8% compared to 73, 5% for the same quarter of 2020.
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 2022 will be approximately 75, 9%.
This preliminary renewal rate compares to 76% achieved in the first quarter of 2021, and 74, 8% last quarter.
We continue to see growth in the domain name base and demand for our demand domain names.
There are many factors that drive demand for domain names, we have seen lower new units in the first quarter. As a result of a combination of factors. These include the component of growth attributable to the pandemic, which appears to have subsided as well as recent global macroeconomic factors.
For calendar 2022, we now expect the domain name base growth rate of between 175% and three 5%. This updated range reflects the various trends. We currently see in our business and our expectation for continued domain name base growth.
Our financial and liquidity position remains stable with $1 2 billion in cash cash equivalents in marketable securities at the end of the quarter.
Share repurchases during the first quarter totaled $196 million for 895000 shares.
At quarter end $893 million remained available and authorized under the current share repurchase program, which has no exploration.
We continually evaluate the overall liquidity and investing needs of the business and consider the best uses for our cash including potential share repurchases.
Turning to Dot web as we noted on our last call I can't Board directed one of its standing committees to review the independent review panels final decision and provide the board with its findings we understand that process is ongoing and we don't have any additional information to provide at this time.
As we have said before we continue to look forward to becoming the dark web registry, operator, and establishing if alongside dot com and dot net as an additional option for businesses and individual end users worldwide.
Now I'd like to turn the call over to George.
Thanks, Jim and good afternoon, everyone.
For the quarter ended March 31, 2022, the company generated revenue of $347 million up seven 2% from the same quarter of 2021 and delivered operating income of $225 million up six 8% from $210 million in the same quarter a year ago.
Operating expense totaled $122 million compared to $118 million last quarter and $113 million for the first quarter a year ago.
Year over year increase in operating expense is primarily a result of continued investments in personnel and infrastructure.
The operating margin in the quarter was 64, 8% compared to 65% for the same quarter a year ago.
Net income totaled $158 million compared to $150 million a year earlier, which produced diluted earnings per share of $1 43 for the first quarter of 2022 compared to $1 33 for.
At the same quarter of 2021.
Operating cash flow for the first quarter was $207 million and free cash flow was $200 million compared with $198 million and $192 million, respectively for the first quarter of 2021.
I'll now discuss our updated full year 2022 guidance.
Revenue is now expected to be in the range of $1.420 billion to $1 billion $435 million.
<unk> narrowed our revenue range guidance reflects the updated domain name base growth rate expectation of between 175% and three 5% that Jim mentioned earlier.
The operating margin is still expected to be between 64, 5% and 65, 5%.
Interest expense and nonoperating income net which includes interest income estimates is now expected to be an expense of between 65 million to $70 million.
Capital expenditures are now expected to be between $35 million to $45 million.
And the GAAP effective tax rate is now expected to be between 22% and 25%.
We expect the cash tax rate for 2022 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 in 2022.
Now I will turn the call back to Jim for his closing remarks.
Thank you George during the first quarter, we continued our work to protect grow and manage the business, while continuing our focus on providing long term value to our shareholders.
In closing I want to acknowledge again the team here at <unk> for their hard work and maintaining and operating our critical internet infrastructure, even while facing the challenges of working under pandemic conditions in particular I want to acknowledge the group of employees, who have worked onsite continually throughout the pandemic in order to continue our infrastructure functions and now we'll open the call.
For your questions operator, we're ready for the first question.
Thank you if you would like to signal with questions. Please press star one.
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And we'll go ahead and take a question from Rob Oliver with Baird.
Great good.
Afternoon, gentlemen, thanks for taking my questions.
So Jim I'll start with just the obvious changes in that.
Macro environment, which.
I have caused you guys to me.
The adjustments that you've made here today relative to domains. So let me just first ask for.
It's a bit more color around Q1.
A lot has happened in a short period of time, so we'd love to hear what you saw and how that how that was manifest in your decision to take down the range.
Sure. Thanks, Rob. Thanks for the question first of all there are a lot of factors that have influenced the changes here that we're seeing.
We're still analyzing many of them, but we do believe that the underlying drivers of domain name demand remain positive for our business as I stated earlier, we continue to see growth in the domain name base, we see demand for our domain names and while there are many factors that drive demand we have seen lower new units in the first quarter as a result of a combination of factors, which.
As I mentioned in particular include this component of growth that is attributed attributable to the pandemic that appears to have subsided and there are recent global macroeconomic factors as well those obviously were still analyzing.
We also have heard from some of our registrars that theyre seeing the same thing we are meaning that incremental demand for new registrations.
That.
That grew during the pandemic.
Endemic appears to be subsiding.
It's difficult to predict cabinet changes in these and other trends will impact demand for new registrations.
And growth in our domain name base, we do expect that new registrations in the second half of the year will be similar with the levels. We saw during the second half of last year.
Hopefully that helps yes.
Yes, that's helpful you touched a little bit.
Follow up was going to be on the on sort of that geographic makeup of that comment as well I know you did say.
That played an element meeting.
I was in Europe , this quarter marketing to investors and it was.
Yeah.
Exposure to the to the Moreover, there was noticeably more acute than here in the U S.
I know you said youre still analyzing those factors, but any color around sort of the geographic makeup of what you saw this quarter would be helpful.
Sure, Let me ask George to comment on that at first but let me directly address one specific part of your question. I mean, there are I can't accredited registrars based in Russia, Ukraine, and Belarus, but the revenue from those three countries combined is not material to the company's financials. So.
With that I'll invite George to add any any comments or color.
Thank you.
Yeah. So so Rob as Jim mentioned in his remarks, we continue to grow our domain name base.
In the first quarter, we were above 4% year over year.
In the first quarter, we saw gains in the base, primarily from the U S EMEA and Asia Pacific regions.
From a new unit perspective.
We generated $10 2 million of new units in the first quarter and that compared to $10 six in the fourth quarter and 11.6 in the first quarter a year ago.
When you look sequentially. We saw continued growth in the U S and Asia Pacific regions with slowing growth in most other regions that we participate in a year over year, we saw more of a broad based slowing of growth.
And as you mentioned, that's really a result of the incremental demand from endemic that appears to have subsided here and Additionally, as Jim mentioned, we also believe the global macroeconomic conditions has also impacted our growth rates here in 2022.
Got it okay that George Thats helpful. So.
Just in terms of the assumptions that went into that into that to that estimate.
Or are you guys did you guys make any assumptions relative to.
The state of the war of the state of the geopolitical environment or is it.
Status quo assumed in the forecast for the rest of the year.
Rob I think it's kind of too early to say, we're studying all of those things to the extent, we'll be able to and in any sort of granular manner.
Actor them in to that level of specificity will share with you when and if we do but I think it's early at this point, we do the guidance that we gave does plan for a certain amount of uncertainty, which I think is obvious every business is doing that these days.
Global geopolitical macroeconomic economic economic events that are.
Difficult to predict and obviously things that we can't control. So all I can tell you is that.
Those are factored in based on the best information and analysis that we're able to make today.
Got it got it okay and just just a couple more for me guys I appreciate it.
Yeah.
Jim.
Have you on.
Good topic gives us a lot of chatter about cyber war I mean, you guys.
We made some additional investments a couple of years ago.
Around security and security is very much at the DNA of what you do and you guys made those investments ahead of that.
Large significant december's federal Haq, which kind.
C C impression, but just curious you know it.
It looks.
Moody's reporting now they deal with the type of work could be the next part of the Warren.
If you could just refresh us on you know.
It was the security and how prepared you guys are before that in.
And if in fact, you guys haven't seen anything to date that would be supportive of those assertions in the press.
That's a tough one for me to comment on with any specificity. We generally don't talk about these things I can say in general that obviously, we we make certain assumptions about the cyber threat environment, we monitor it very very closely.
We think it varies and we think gets in a higher state than it has been in the past but.
We have in the.
The recent couple of years and in particular in 2020 in 2021.
<unk> made some investments in our infrastructure and cyber security in general we continue to make those that's obviously job one we.
We take nothing for granted we generally Eric.
<unk> greatly on the side of caution and precaution.
We are we are prepared on assumptions that I don't want to go into detail on let's just say that we're continuing to make investments.
We've made investments in providing equipment and protection for our teams that are working at home we constantly make.
Investments to protect evolved and strengthened.
Our infrastructure and its resilience and reliability and again that is job. One that's first and foremost that takes a back seat to nothing at this company. That's probably all I can say about that I hope that's helpful.
Yes that is helpful. I appreciate it yeah you'd be limited on that.
One or two other quick ones and I appreciate the opportunity here to hold the floor.
Just I know you mentioned Jim in your formal remarks that there is no update official update on Dot web.
I know you also said on the last call that you guys would be monitoring the process. So I guess a bit of a nuanced question there but.
In the absence of any official update.
Was there anything that you guys picked up in the process.
That you know that maybe it was either reported or.
From some of your sources that would either leave you to be more optimistic or more concerned or have a better sense of timing.
We have no other information in what you can get from <unk> web site.
When when when we monitor we're monitoring I guess public statements on its website. So you've seen everything that we've seen.
And as I said.
They have assigned to one of their committees of the task of executing on what the IOP assigned them to do and that seems to be ongoing.
You'll know something as soon as we do.
Great. That's helpful last one for me.
Just George for you just.
On the SG&A this quarter could you just.
Just a little bit about some of the components in there it was.
Up a little bit and just wanted to get a sense for what was driving that.
Yeah sure Rob So sequentially you saw that our expenses were up about $3 8 million in total.
And that was really due to a combination of factors.
Primarily increased labor as well as some of the flow through costs from the investments in cyber security and infrastructure I made last quarter that Jim mentioned also in the first quarter, we tend to have higher employee payroll taxes and stock based compensation.
As our performance based plans I really measured and awarded in the first quarter.
Got it.
Great well. Thank you guys very much I appreciate it.
Thank you Rob.
And that does conclude the question and answer session. Mr. Atchley I'll now turn the conference back over to you for any additional 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. Thank you for your participation have an excellent day.