Q3 2022 Verisign Inc Earnings Call
Good day, everyone and welcome to Verisign third quarter 2022 earnings call today's conference is being recorded.
A 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 Verisign third quarter 2022 earnings call. Joining me are Jim <unk> Executive Chairman and CEO, Todd <unk>, President and C. O O N 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 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.
Ts that we discuss in detail in our documents filed with the SEC specifically the most recent report on Form 10-K.
<unk> 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 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 Good afternoon to everyone and thank you for joining us.
Last quarter, we acknowledge the uncertainty that macroeconomic and other challenges presented and we said that we would focus on what was within our ability to control. We also indicated what that net first maintaining operating and investing in our critical infrastructure next exercising careful expense control where appropriate.
<unk> advent, keeping our capital allocation activities focused on building and efficiently returning long term shareholder value.
During the third quarter, we extended our record of uninterrupted DNS availability for dot com and dot net to over 25 years also during the third quarter.
Yeah.
Sorry, we also during the third quarter, we grew our revenues by six 8% year over year, and our EPS by 12, 9% year over year.
Our financial and liquidity position remains stable with $980 million in cash cash equivalents and marketable securities at the end of the quarter during the third quarter, we repurchased one 5 million shares for $275 million.
Today, the board of directors has increased the amount authorized for share repurchase <unk> common stock by approximately $803 million to a total of $1 billion authorized and available under the share repurchase program, which has no expiration.
At the end of September the domain name base in Dot Com and Dot net totaled $174 2 million domain names with a year over year growth rate of one 2%.
In the third quarter, there were $9 9 million, new registrations compared to $10 1 million last quarter and $10 7 million in the year ago quarter.
While there are many factors that drive demand for domain names, we have seen lower new registrations in the first three quarters of this year as a result of factors that I have already mentioned in prior calls these.
These include a pandemic driven acceleration of new registrations in 'twenty, 2020 'twenty, one which had subsided recent global macroeconomic headwinds and reduced new registrations from China.
We believe that the renewal rate for the third quarter of 2022 will be approximately 73, 8% same as the 73, 8% final renewal rate last quarter, which compares to 75% a year ago.
The renewal rate for previously renewed names has remained similar year over year and the first time renewal rates, while similar to last quarter, our lower year over year predominantly due to a greater proportion of names renewing from China that were registered last year.
We do see some signs that new registrations, while still slow continue to stabilize towards pre pandemic levels.
Said client current global economic and geopolitical conditions continued to introduce uncertainty through the remainder of 2022 because of this macro uncertainty. We are adjusting our 2022 domain name base guidance and now expect the domain name base growth rate of between two 5% and 1%.
Turning to Dot web the parties made their submissions to ICANN during Q3, and we are now waiting for ICANN to complete its process.
Now I'd like to turn the call over to George I'll return when George has completed his financial report with closing remarks.
Thanks, Jim and good afternoon, everyone.
For the quarter ended September 32022, the company generated revenue of $357 million up six 8% and delivered operating income of $237 million up 7% from the same quarter a year ago for.
For the first nine months of 2022 revenue is up six 9% and operating income is up eight 2% as compared with the first nine months of 2021.
Operating expense totaled $120 million compared to $113 million a year earlier.
For the first nine months of 2022 operating expenses are up four 5% as compared to the first nine months of 2021.
We continue to remain focused on optimizing our expenses and driving long term profitable growth.
Net income totaled $169 million compared to $157 million a year earlier, which produced diluted earnings per share of $1 58 for the third quarter of 2022 compared to $1 44.
For the same quarter of 2021.
For the first nine months of 2022 net income is up eight 7% as compared to the first nine months of 2021.
Operating cash flow for the third quarter was 262 million and free cash flow was $255 million compared with $260 million and 245 million respectively for the third quarter of 2021.
As with Q3 last year cash flow this quarter benefited from an increase in deferred revenue, which was primarily related to early domain name renewal activity before the dot com price increase on September one 2022.
Impacted these early renewals is the pulling forward of cash flow from future quarters into the third quarter. This year.
I will now discuss our updated full year 2022 guidance.
Revenue is now expected to be in the range of $1.418 billion to $1.426 billion.
This updated revenue range guidance reflects our domain name base growth rate expectation of between 0.25% and 1% that Jim mentioned earlier.
The operating margin is now expected to be between 65, 75% and 66.25%.
Interest expense and non operating income net which includes interest income estimates is now expected to be an expense of between 60 million to $65 million.
Capital expenditures are now expected to be between 30 million to $35 million.
The GAAP effective tax rate is still expected to be between 22% and 25% we.
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 third quarter and we look forward to continuing our focused execution in 2022.
Now I'll turn the call back to Jim for his closing remarks.
Thanks George.
We said last quarter, while the global macroeconomic outlook remains complicated by geopolitics inflation and risk of recession, we can and we did focus on what is within our control managing our business efficiently with the unconditional prioritization of delivering on our mission.
This focus on what we can manage will continue to serve all of our constituents well for the long term those being our customers relying parties employees and shareholders. You can expect that focus to continue we're confident that the long term fundamentals of our business remains strong.
Thanks for your attention today. This concludes our prepared remarks and now we'll open the call to your questions. Operator, we're ready for the first question.
Thank you.
As a reminder, if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're on speaker phone. Please make sure. Your mute function is turned off to a lot your signal to reach our equipment.
And we will go to Rob Oliver with Baird.
Great Good afternoon, guys Jim.
Thanks for the color yet I. Appreciate this is the second quarter in a row, where you really kind of laid out the focus on kind of the things that are within your control versus the things that are not within your control and I'm just curious.
If you look at those things if there's been any change since last quarter and if you could remind us of what some of those things in particular are as you see them.
Alright, Thanks for the question, Rob I guess.
This is at our core.
Focusing on last quarter, what we did the things I think they are fairly simple, but a wise man once said that just because something is simple doesn't mean, it's easy to do but you.
What we did first and foremost is sort of common sense and obvious focusing on what you can control that to us. It means not dwelling on these factors that we can't control beyond the need to do proper planning.
<unk> is getting it right, meaning that managing expenses has to be done while continuing to make all the necessary investments in our infrastructure to keep up with with an evolving cyber threat environment and.
I think the third category of sort of being about being alert for opportunities to more effectively return value to our shareholders and those are the things. We focus on were going to continue to focus on I should add that.
In addition to that I think you have to say that.
The domain names have an enduring value to users and that's certainly a contribution the fundamental strength of this business. It's what gives us confidence in the long term fundamentals and the value of the business and another thing we do I mean, obviously this is a quarterly focus we report every quarter, but we also at the same time have to keep our eye on the long term.
So we ask ourselves questions like Lucquin when this.
I've called it a bump in a road everything that we're going through right now COVID-19 and all the other challenges and that had certainly a longer bump that anybody would like but we ask ourselves questions like years years from now when we look back at getting through this what will we wish we had done.
In order to improve the long term health and fundamentals of our business and I think that helps guide us through these fit these things as well.
Hopefully that helps a little bit.
Great.
That's helpful.
You did make a comment Jim about some stabilization in the domain base.
We've seen some of that in the numbers you also talked about China I just wanted to make sure I understood was that a general comment relative to.
Two domains or was that a China specific comment and then you're just going to ask.
Geographies that if I can ask.
Todd that one as well, but just curious about that stabilization comment.
Okay, well, let's see.
It was a general comment that I made first of all in general we did.
Indicate at the lab.
<unk> quarterly report that we provided that we saw some indication of trends towards normalization and that and we did see some of that we see it again I think it said, it's a bit difficult to be precise in uncertain times, but I think that was a broad statement about general domain names.
China is a bit different.
China is always sort of a unique situation domains therein domain investors.
Have their own particular qualities about how they buy domains and how they use them China has regulations of course and that China had some challenges from Covid we.
We saw names that surged early on in China, having a lower first time renewal rates are certainly contributed to some of the data that you saw but.
We also saw that many of the pre pandemic names provided renewal rates that are very similar to the long term renewal rates. So much of what we got in a broader sense.
Our high quality names.
Got it okay. Thanks, and Youll Todd question for you sort of standard quarterly question just around any geographic trends I'll, Jim just talked a little bit about China, which I'd asked about if there was anything else to call out from a from a geographic.
Perspective relative to renewals or trends.
Yes, most of our regions from a new registrations perspective remained lower year over year.
So while North America, Europe , and China had year over year decreases in new registrations, we did see increases in new registrations from registrars in both APAC and in Latin America.
Okay.
Okay, that's great.
Jim a couple more for you if I may.
You mentioned that you guys had fulfilled this submission to ICANN on dot web it feels like.
One of many submissions you guys debate.
Was there anything else other than you guys fulfilling this submission any other communication or anything else that would give an indication to you guys as to what the timeframe might be or anything else you can share there.
Sure. So first of all let me just say I think this submission was a little bit different in a sense that there are many other submissions that we made were actually to an IRB panel and this wasn't a submission to ICANN, who was now acting.
On the panel directing them to pursue this through their processes in fact.
In March early March the ICANN Board adopted a resolution that debt instructed wanted their aboard accounting accountability mechanism committees.
To evaluate that the claims relating to the two parties here and those submissions were made directly to ICANN. So that's actually.
Different than what we are doing over the past few years in litigation I just wanted to offer that clarification.
What the conclusion of the IOP did was basically put this back in <unk> <unk> process, we've made our submissions.
Our submissions and so it's an ITM process and we're just waiting to hear what.
From them when they are concluded.
Got it okay. Thanks, and then on.
Dot net you guys announced last quarter that you were going to take a price increase.
<unk> dot net in gist.
I know that's going to roll in here, but just wanted to get a sense if were.
What if any feedback you could share in terms of what you've heard from channel partners or others there.
Around.
The price increase.
Well look dot net continues to be a strong widely recognized brand and a very competitive global TLD and like dotcom. It faces strong competition around the world and we continue to invest in it and the marketing Internet and work with our channel.
To ensure that it's widely recognized and available. So we're looking forward to continuing to work with our registrars and our channel on that.
Got it okay.
Okay helpful.
Jim just one for you when we get this all the time.
But just would love to just surface it again to get it out there just questions around around political risk to you guys.
If there is any at all.
A lot of different political winds blowing in.
In D C and can you just remind us please.
<unk>.
What if any political impact there has ever been for you guys on the decisions around.
The cooperative agreement contract or your ability to continue to fulfill your obligations.
Well the last the last action was in October of 2018, which was that.
Amendment 35 to the cooperative agreement.
And so at 36 35.
That amendment provided some regulatory relief as part of a broader effort to transition.
Global Internet Internet governance too.
Turn Ikea and into a more global organization and to provide some some sort of regulatory relief to verisign in dot com that that provided a priori approval for their assigned to enter into agreements.
Renewed dot com with Ikea and where in the past.
Every six years there specific.
Approval is required that has now been given our priority and the cooperative agreement also that that amendment to the cooperative agreement also provided for the limited pricing flexibility that we have and it also provided for.
Different termination provisions which are that.
The Commerce Department has the right to unilaterally sunset the agreement.
We do not they do but also it's a provision of amendment 35 net the cooperative agreement cannot be amended without approval of both of the parties. So I think you can certainly view that as a move towards sort of Depoliticizing. This component of the internet. It came.
Following the 2016.
So called transition.
ICANN away from the regulation that debt.
That it was governed by the U S government. So I think if you see it in that broader context, maybe it makes it a little bit more sense. So the last thing that happened with that respect was was a move to provide regulatory relief, which I think.
We certainly benefit from.
Got it okay. Yeah, that's really helpful. Appreciate you.
Running through that and then George just.
<unk>.
Quick one for you on just the impact of.
Of FX on dollar denominated.
Purchases can you just talk overall about.
The FX impact that you guys have within your business and anything Youre seeing there.
Yeah sure Robert as you know, we bill all of our registrar customers in U S dollars.
So we don't have a lot of FX exposure on the income statement.
We have a small amount of FX exposure with regard to some expenses, we have employees around the world and we obviously pay them in their local currency, but.
That's a relatively small amount.
For us there.
Okay.
Got it okay great.
That's all for me guys I really appreciate you taking all the questions.
Great. Thanks, Rob Thank you.
And at this time I would like to turn the call back over to David Atchley for final 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.
And again this concludes today's call. Thank you for your participation you may now disconnect.
[music].
Yeah.
Okay.
[music].
Yeah.
[music].
Yes.
[music].
Yeah.
[music].
Yeah.
[music].
Yeah.
Okay.
Okay.
Yeah.
[music].
Yeah.
[music].
Yes.
[music].
Yeah.
[music].
Yeah.
[music].
Yeah.
Okay.
Okay.
[music].
Yes.
[music].
Yes.
Yeah.
[music].
Okay.
[music].
Yeah.
Okay.
Okay.
[music].
[music].
Yes.
Okay.
[music].
Okay.
Okay.
[music].
Yeah.
[music].
Okay.
[music].
Yeah.
Okay.
Okay.
Okay.
[music].
Okay.
[music].
Yes.
[music].
Yeah.
Okay.
Okay.
Okay.
[music].
Okay.
[music].
[music].
Yes.
[music].
Okay.
Yeah.
[music].
Yeah.
Okay.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].
Yeah.
[music].
Yeah.
Okay.
Okay.
Yeah.
[music].
Okay.
[music].
Okay.
[music].
Yeah.
[music].
Yeah.
Okay.
Okay.
Yeah.
[music].
Okay.
[music].
Okay.
[music].
Yeah.
Okay.
[music].
Yeah.
[music].
Okay.
[music].
Yeah.
Yeah.
Okay.
Yeah.
[music].
Okay.
[music].