Q1 2023 VERISIGN INC/CA Earnings Call

Okay.

Good day, everyone and welcome to various science first quarter 2023 earnings call. Today's conference is being recorded 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 <unk> first quarter 2023 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.

<unk> 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 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.

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.

That I would like to turn the call over to Jim.

Thank you David good afternoon to everyone and thank you for joining us I am pleased to report another solid quarter of operational and financial performance for Verisign. We delivered these results while continuing to strengthen our critical internet infrastructure and complying with the high operational standards required by our I can't agreements.

For the first quarter revenues grew five 1% year over year, while EPS grew 19% year over year.

At the end of March the domain name base in Dot Com and Dot net totaled $174 8 million domain names with a year over year growth rate of 0.1%.

During the first quarter the domain name base increased by just over 1 million domain names.

From a new registration perspective, the first quarter delivered a modest year over year increase with 10 3 million, new registrations compared to $10 2 million last year and $9 7 million last quarter.

Our renewal rates remain stable, we believe that the renewal rate for the first quarter of 2023 will be approximately 75, 6% compared to the 73, 3% final renewal rate last quarter, and 75, 9% a year ago.

Having seen modest improvement in the registration trend. During Q1, we now expect the domain name base growth rate of between five and to two 5% for the full year of 2023.

This updated range reflects the current macroeconomic uncertainty and recent trends in our business.

Our financial and liquidity position remains stable with $1 billion and $15 million in cash cash equivalents and marketable securities at the end of the quarter share repurchases. During the first quarter totaled $220 million for $1 1 million shares.

At quarter end of $639 million remained available and authorized under the current share repurchase program, which has no expiration.

As many of you are aware we are in the process of renewing the net registry agreement with ICANN as the current term ends on June 30th.

Consistent with ICANN as usual process on April 13th ICANN posted the new Dot net registry agreement for public comment, which is open until may 25th.

The business terms of the agreement such as pricing the fees paid to ICANN, our renewal rights in the six year term of the agreement are all unchanged.

Regarding dot web on Monday, I cant website published a notice of a scheduled board of directors meeting to take place. This Sunday.

One of the board's agenda items is to further consider the dark web ERP final declaration.

I can then publish the minutes from to be AMC meetings, one held on January 31.

Which discussed the <unk> consideration of certain recommendations related to dot web.

And also the minutes from our meeting on March 2nd which state that the BMC approved recommendations related to dot web and requested that those recommendations be sent to the board. We believe that this new information published this week means progress towards a final resolution is being made but beyond what was posted we have no updates.

And now I'd like to turn the call over to George I will return with Georgia has completed his financial report with closing remarks.

For the quarter ended March 31, 2023, the company generated revenue of $364 million up five 1% from the same quarter of 2022 and delivered operating income of $241 million, an increase of seven 3% from the same quarter a year ago.

Operating expense in Q1 totaled $123 million compared to $122 million a year earlier.

Net income for the first quarter totaled $179 million compared to $158 million a year earlier, which produced diluted earnings per share of $1 70 for Q1 2023 compared to $1 43 for the same quarter of 2022.

Operating cash flow for the first quarter of 2023 was $259 million and free cash flow was $253 million compared with $207 million and $200 million, respectively for the first quarter of 2022.

I will now discuss our updated full year 2023 guidance.

Revenue is now expected to be in the range of $1 billion of $490 million to $1.505 billion. This.

This updated revenue range reflects our expectation that the domain name base growth rate will be between 0.5% and two 5% that Jim mentioned earlier.

Operating income is now expected to be between $990 million and $1 5 million.

Interest expense and nonoperating income net which includes interest income estimates is still expected to be an expense of between $35 million to $45 million.

Capital expenditures are still expected to be between $35 million to $45 million.

And the GAAP effective tax rate is still expected to be between 22% and 25%.

In summary, Verisign continued to demonstrate sound financial performance during the first quarter of 2023, and we look forward to continuing to deliver on our mission as well as our objectives throughout the year.

Now I will turn the call back to Jim for his closing remarks.

Thank you George we strongly believe our strategic focus and disciplined management continue to serve as well, allowing us to deliver another solid quarter in which we provided secure and reliable infrastructure services managed our business responsibly and efficiently and returned value to our shareholders I want to thank our teams for their dedication and focus.

While there is some continuing turbulence in the economy due to macroeconomic and geopolitical issues, we see signs of stability and modest growth in our business. We're also pleased that there is progress on the resolution of Dot web. Thanks.

Thanks for your attention today. This concludes our prepared remarks 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 ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure your mute function is turned off.

Now your signal to reach our equipment.

Your first question comes from Rob Oliver with Baird.

Hi, great good afternoon guys.

Jim.

On the call here, so I guess just to kind of level set at the outset.

Sure.

Maybe you can give us a sense of kind of what you bought <unk>.

You thought we're kind of the biggest takeaways here for you guys and then I had a few other questions.

Okay. Thanks, Thanks, Rob.

It may sound simple like I'm trivializing, but what we do is anything but trivial.

And by the way why demand from Omaha said that just because something is simple doesn't mean, it's easy to do and to do it consistently and over a sustained period of time is even more difficult.

I mentioned in my remarks that what we accomplished in the quarter as we reliably and securely operated our infrastructure.

We added another three months to a 25 year uptime record. That's that's really significant we are responsibly and efficiently ran our business. That's always important that's how we take care of our people. That's how we control expenses Thats, how we focus on things that we can control and number three we return value to our shareholders. We certainly have obligations there.

So.

This is what our customers want they want reliable and secure operation of our infrastructure of course, they wanted to work it needs to work. This is what our governing bodies I can in the U S government want the.

The contracts in the <unk> and the performance requirements make that clear and we believe that this is what our shareholders want so I guess, that's what I mean, when I say that this was.

A solid quarter for us.

That's what we that's consistently what we strive for every quarter and I would say that so those are the takeaways I would just add that the fundamental drivers of our business, our internet adoption and reliance and that fundamental long term trend line is strong so another solid quarter.

Okay. Thanks, so much.

<unk>.

Dot web has been so long since we've had new so.

I guess, just trying to read into here.

You told US about this meeting this coming Sunday.

It sounds to me like that could be an indication that there is some decision would be rendered imminently here just.

But curious to know if thats the way you think about it.

Well Youre right Robert It has been a long time and then we have always had declined to speculate.

On ICANN process. It is I can't process, so I won't speculate as to what the board May do we're certainly pleased that there has been progress this.

This information about the meetings is good to see.

Can add one thing which is that.

When the ICANN board.

When it does passed resolutions in board meetings I can't typically publishes them on their website within two days. So if there are resolutions that come out of the Sunday meeting they should be public by Tuesday.

Okay really helpful. Thanks, if I could squeeze in one more.

I appreciate it.

But.

No not the only wanted anymore, so would it be conscious of that.

Great.

Just around the macro I mean, you guys did tweak down.

The high end of the range a little bit at the same time, Jimmy you talked a little bit about <unk>.

Ability.

Steady improvements my language not yours necessarily.

In the business can you talk about.

We've seen 13 of last 14 weeks or something with sequential improvement in domains can you talk about what youre seeing in the macro.

Specifically.

Around how China reopening impacted you guys in that anything else relative to geographies that you would call out here.

Well I don't know if I can.

Point to any specifics that would give any indication I can tell you that our general view is first of all the worst of Covid has certainly mostly behind us and.

The long the long term effects the recovery, there's certainly still some turbulence associated with that recovery supply chain issues et cetera. There is certainly some economic turbulence interest rates were up theyre down a level they are up again.

Climate data is good not so good its good so thats the kind of turbulence, we're referring to that long term that long that trend line.

Is the strong one that we watch, but we are seeing.

What I would call some stability in our business the.

Fundamental value of the services that we provide the utility of domain names is unchanged and so I think we're just sort of.

Boeing through that turbulence and its affecting us but yes.

Yes, we have seen an improvement and we're happy with the quarter.

Great. Okay. Thanks, I have a couple more but I'll defer here and can hop back in the queue, but I appreciate it. Thank you guys.

Thank you.

Yeah.

We will take our last question from the gallery with Citi.

Go ahead.

Hey, good afternoon guys.

I appreciate it Rob.

Two questions from me.

Maybe I'll just start on just a follow up on the macro in the domain.

You guys gave the full year guide and.

You're you're raising.

The low end you are lowering the high end.

Just talk about how you how once you came in versus where your expectations were.

Stronger can start the year than you thought.

What are what needs to happen to get to the high end of the.

Range versus the low end of the range in terms of the name registrations as we work our way through the year.

Yeah, Hi, <unk>, it's George.

Okay.

So I will echo there but.

In any event.

As Jim mentioned, we had modest gains here in Q1 with the domain name base growing about 1 million names here in the first quarter.

When we look around.

Our various regions, we did see the domain name base grow and pretty much.

All of our major regions with the exception of our China Registrars that segment was lower year over year and when we look at our new units.

We also saw some modest gains in new registrations as Jim mentioned year over year.

<unk> was a little bit.

A tepid or flat here in Q1 relative to the prior year ago quarter, We did see some improvements in EMEA and the rest of the world again, excluding China, China's new registrations were also lower year over year and so.

As Rob.

Alluded to as you are acquiring.

As far as China, and the reopening I would just say, it's a little early days for us.

Haven't yet seen any meaningful impact there, but we are keeping an eye.

For it.

To the extent that that reopening happens sooner or later that.

That clearly can help us.

Get to the higher end of our domain name base range.

Yeah. That's helpful. If I may.

Sure go ahead I'm sorry.

Oh, please jump in.

No go ahead. Please do you have another question.

Sure.

It's going to follow up on the renewal rates, which had a nice bump from what you had really the past couple of quarters. He was there.

Is that more typical seasonality and once you are are you seeing that kind.

Kind of a trend line improvement.

In the past few quarters.

Yes, so as you point out renewal rates were relatively stable year over year.

75, six versus the $75 nine in the first quarter, we did see an improvement.

Q4.

I'd said I'd say when you look at our renewal rates and a big picture.

Our domestic renewal rates are relatively stable and where we see fluctuations fluctuations is more in the international markets and when we look a little deeper there. It's it's more in the first time renewal rates, there with international markets and so.

We've seen the improvement here sequentially.

Year over year.

I think renewal rates are pretty stable right.

Right now, where we see them.

Got it.

Hey on the.

On the Dot web.

Let's see if we can add on.

So I can't the Greenlight for public comment.

Till may 25th.

All of the facts.

Contract.

Hey, Jim.

What is the process from here renewal.

What is the public comment.

One of the things that might change.

And in a way or.

Kind of just kind of.

Work through.

Well typically in this process comments will be collected and ICANN will address the comments in response, so I think until we see that I can't really totally answered your question, but that the.

The process of engaging with ICANN and coming up with a contract that was proposed negotiated and then proposal put out for comment with its consistent features as you point out that part is done and of course, the public comment as you mentioned so until it's done and the comments are assessed and reported on by ICANN and the next step conclude.

<unk>.

Okay. Thanks, and then I'll ask one more and then.

Okay.

Let them.

Comprehensive.

<unk>.

So on the top web hopefully once the quarter here.

Yes.

It's all set and done.

It will become meaningful or not web registrations start opening up.

Thats part of the process.

And I think.

I don't want to speculate about what's going to happen at the board meeting Sunday and so I certainly don't want to speculate beyond that but there are processes that are required to be followed there are.

A number of things that have to be done there are a number of our security periods, where certain things have to be done and then there are some other trademark holder protection periods, where they are they're exclusively allowed to come in and acquire there.

Protected domain names. So there are certainly a number of cycles that are all roughly collectively at some number of months, but I think at this point whenever anything happens if it does that.

There will be no change in what.

What I, just said about the revenue or expense in 2023.

Great. Thanks for taking my question.

Sure.

This concludes today's question and answer session.

I'll now 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.

This concludes today's conference. Thank you for your participation and you may now.