Q4 2024 VeriSign Inc Earnings Call
Please standby.
Speaker Change: Good day, everyone Welcome Nevers Science fourth quarter and full year 2024 earnings call. Today's conference is being recorded recording of this call is not permitted unless preauthorized.
Speaker Change: 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.
David: Thank you operator, welcome to various signs fourth quarter and full year 'twenty 'twenty four earnings call. Joining me are Jim bids Us executive Chairman, 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 available under about various.
David: 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.
David: 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.
David: Verisign does not update financial performance or guidance during the quarter unless it is done through a public disclosure.
David: 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.
David: 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.
Jim: Thank you David.
Jim: To everyone and thank you for joining us.
Jim: I'm pleased with verify success of continuing to deliver on our mission during 'twenty 'twenty four.
Jim: We extended our unparalleled record of uninterrupted dot com and dot net resolution to more than 27 years, and an increasingly evolving cyber threat environment, while protecting improving and strengthening our network.
Jim: Besides network now processes on average more than 400 billion transactions daily.
Jim: Our focus remains on providing the security stability and resiliency Internet users worldwide have come to depend on not only for dot com and dot net before the DNS root zone as well.
Jim: Financially in 2024, we delivered four 3% year over year revenue growth, while increasing operating income by five 7% shares outstanding at the end of 'twenty 'twenty four decreased by six 2% from the total of outstanding shares at the end of 2023.
Jim: Our financial and liquidity position continues to remain stable with $600 million in cash cash equivalence and marketable securities at the end of the year.
Jim: During 'twenty 'twenty four we returned $1 2 billion of capital to shareholders through the repurchase of six 6 million shares.
Jim: At year end 1 billion remained available and authorized under the current share repurchase program, which has no expiration.
Jim: At the end of December the domain obey domain name base in Dot Com and Dot net totaled 169 million domain names, a decrease of 2.1% or $3 7 million names a year over year during.
Jim: During the fourth quarter the domain name base decreased by 500000 names.
Jim: From a new registration perspective, we saw improvement sequentially and year over year with fourth quarter, New registrations of $9 5 million compared with 9 million names for the same quarter last year and $9 3 million during the third quarter of 2024.
Jim: The renewal rate for the fourth quarter of 2024, which is expected to be approximately 73, 9% shows improvement both sequentially and year over year.
Jim: From a geographic region perspective during Q4 and the full year 2024, we saw decreases in the domain name base from both our U S and China based registrars the domain name base in EMEA was up both sequentially and for the full year 2024.
Jim: In 2020 for the decrease in China volumes was in line with our expectations at the start of the year for 2025, we continue to expect our China Registrar segment to decline.
Jim: Be it at a slower pace as that segment now represents only 5% of our domain name base. The decrease from China will have a smaller impact.
Jim: As we have previously reported we've seen U S registrars prioritize our poo over customer acquisition through higher retail pricing levels reduced spend on marketing to new customers compared with prior years and an increased focus on the secondary market for domain names. These factors impacted new registrations and renewal rates in 'twenty 'twenty four for you.
Jim: S regions.
Jim: In response to these trends, we began working to Reengage registrars on new customer acquisition by launching new marketing programs for Dot com and dot net to support our goal of returning to domain name base growth as we stated last quarter. We have seen positive response to our new programs and we expect many of the registrars to engage more fully in 2025.
Jim: It is early in this process, but we are optimistic that our efforts will start to improve the dnb growth trend in 2025.
Jim: Given these conditions and trends for 2025, we're expecting the year over year change in the base to be negative two 3% to negative 3%.
Speaker Change: And now I'd like to turn the call over to George I'll retirement, George has completed his financial report with closing remarks.
George Kilgus: Thanks, Jim and good afternoon, everyone.
George Kilgus: For the year ended December 31, 2024, the company generated revenue of $1.557 billion up four 3%.
George Kilgus: Operating expenses totaled $499 million and were up 1.4% from the previous year, resulting in operating income of $1 billion 58 billion up five 7% from 2023.
George Kilgus: For the fourth quarter ended December 31, 2024, the company generated revenue of 395 million up three 9% from the same quarter of 2023 and delivered operating income of $264 million, an increase of two 9% from the same quarter a year ago.
George Kilgus: Operating expense in Q4, 2024 totaled 132 million, which compares to $121 million during the third quarter and $124 million a year earlier.
George Kilgus: As we discussed on our last quarter's earnings call. We expected an increase in Q4 operating expenses due to prior quarter spending delays that were pushed into the fourth quarter.
George Kilgus: Net income in the fourth quarter totaled $191 million compared to $265 million, a year earlier, which produced diluted earnings per share of $2.
George Kilgus: For the fourth quarter of 2024 compared to $2.60 for the same quarter of 2023.
George Kilgus: As previously discussed net income in the fourth quarter of last year included the recognition of a $69 3 million of income tax benefits, which increased diluted earnings per share by 68 cents in the year ago quarter.
Operating cash flow for the fourth quarter of 2024 was 232 million and free cash flow was $222 million compared with $204 million and $199 million, respectively in the year ago quarter.
George Kilgus: Operating cash flow and free cash flow for the full year of 2024 totaled $903 million and $875 million respectively.
George Kilgus: I will now discuss our full year 2025 guidance.
George Kilgus: Revenue is expected to be between $1.615 billion and $1.635 billion.
George Kilgus: Operating income is expected to be between $1.095 billion and $1.115 billion.
George Kilgus: Interest expense and non operating income net which includes interest income estimates is expected to be inexpensive between $50 million and $60 million.
George Kilgus: Capital expenditures are expected to be between 30 million and $40 million.
George Kilgus: And the GAAP effective tax rate is expected to be between 21% and 24%.
George Kilgus: Overall, verisign continued to demonstrate sound financial discipline during the fourth quarter and throughout 2024.
Jim: Now I'll return the call back to Jim for his closing remarks.
Speaker Change: Thank you George and summary, Verisign successfully concluded the year by renewing the Dot Com registry agreement with ICANN and the cooperative agreement with the NTIA.
Speaker Change: We extended our unparalleled twenty-seven year track record of resolution availability for Dot com and dot net and we defer delivered sound financial and operational results as we look to 2025 and beyond we'll continue to focus on and be driven by our mission.
Speaker Change: As it relates to the debate name base growth rate for 2025, we see three positive trends taking shape first the decrease from China based registrars is expected to be more muted second the marketing programs. We rolled out in 2024 and continue to offer for 2025 are being adopted by our registrars and are starting to impact trends.
Speaker Change: While it is early in the cyclical trend, we do expect registrars to start refocusing on customer acquisition and are starting to hear from some registers and expectation for increased marketing efforts in 2025.
Speaker Change: Although we expect a slight decline to the domain name base in 2025, we do expect trends to improve from what we saw in 2024.
Speaker Change: Thank you 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.
Speaker Change: Thank you if you would like to signal with questions. Please press star one on your Touchtone telephone. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. Once your question Hasnt been stated. Please mute your line again that is star one if you would like to signal.
Speaker Change: With questions Star one.
Speaker Change: I'll take a question from Rob Oliver with Baird.
Great. Thank you good afternoon, I had a couple questions Jim first for you in your closing remarks there.
Speaker Change: Jim.
It was a big year for you guys last year with.
Speaker Change: The ICANN renewal as well as the cooperative agreement at the NTIA.
Speaker Change: Certainly the Investor focus now is is pivoted towards the domain base.
Speaker Change: And you certainly you finished with three points as to why you're more optimistic on that.
Speaker Change: I guess.
Speaker Change: On your perspective.
Speaker Change: Maybe looking at the macro as well in addition to those three points. If you could give us some more color on the three but also just around the macro generally I know you mentioned that you suspected that some of the registrars might be pivoting more towards.
Speaker Change: New domains, which would be very encouraging what gives you that comfort and then I had a couple of follow ups.
Speaker Change: Okay. Thanks, Rob.
Speaker Change: Well as you know today, we guided the domain as the domain name base continuing to decrease during this year 2025, although the mid part point of our range suggests an improving trend from what we saw last year, we do see the trends that have negative impact is cyclical in nature and we do expect the domain name base to return to growth once we worked through those trends.
Speaker Change: As I said earlier, China is lessening and now only represents 5% of our business also our new marketing programs are being adopted we're seeing positive impact from them. Its early we expect more throughout the year. Finally, while it's early in a cyclical trend. We do expect registrars to start refocusing on customer acquisition and are starting to hear from red.
Speaker Change: <unk> like I said, an expectation for increased marketing efforts in fact, I would point out that two registrars are running Super Bowl ads, which will reach around 200 million viewers. So as you look back that two main trends, we called out China in ARPA.
Speaker Change: We're impacting the DNA dnb and both seem to be easing and where we could influence on growth through marketing programs. There are encouraging signs and also renewal rates have improved so that's the picture we see.
Speaker Change: And on those marketing programs, Jim if you could just provide a little bit more color perhaps on.
Speaker Change: If there are particular regions.
Speaker Change: Where you guys are seeing early traction I know you said, it's still early in the results won't be immediate and we get that or perhaps this is for George but any particular areas, where youre seeing early signs that the marketing programs are starting to take hold or.
Speaker Change: Conversely, where you had to tweak them.
Speaker Change: And feel comfortable that you don't have the formula right any color there would be great.
Speaker Change: Okay, I'll invite George to comment I'll, just say that it takes time to get these things integrated theres adoption integration and there's actual performance. So it may be early to give you.
Speaker Change: A clear picture of where we are but we do see signs George do you want to comment.
George Kilgus: Yeah sure Rob I mean, you know as we've mentioned the focus of our new programs is really to offer more options for our registrar community to help them engage in a variety of programs that really are more aligned with their particular go to market strategies. So again looking for opportunities for a win win.
George Kilgus: As we talked about in 2024, we spent a lot of time developing and piloting a lot of these programs. We have gotten feedback we've also refined and recently relaunched these programs.
George Kilgus: Late in 2024 here, we actually had a few programs that we rolled out here early in January as well.
George Kilgus: Again from from little color, when we talk to registrars.
George Kilgus: We've gotten a lot of positive feedback from registrars that our programs are aligning with the strategies that they're employing and they feel they can use these programs within their own marketing programs. So that's good news for us is.
George Kilgus: So I was early adoption I'd say, it's a little early right now most registrars are just starting to roll out there even though we've had these programs.
George Kilgus: Late last year, and we've gotten good feedback and we've modified some of them are they're really gearing up to roll them out here in 2025.
George Kilgus: Some registrars do engage a little earlier than others, but I think it's a little early for us to comment on that but we are optimistic about.
George Kilgus: The progress we've rolled out and we've gotten great feedback.
Speaker Change: Great. That's helpful. And then the last one for me Jim back to you just.
George Kilgus: Got a couple of.
George Kilgus: <unk> got a leadership changes happening one obvious one we have a new administration in DC.
So would be curious to hear from you.
George Kilgus: What if anything you might expect or how we should think about that relative to <unk> business.
George Kilgus: Number one number two.
George Kilgus: Our discussions with the NTIA ongoing I know.
George Kilgus: The NTIA obviously.
George Kilgus: Did not.
George Kilgus: Ultimately request any changes but.
George Kilgus: They had agreed to sit down with them. So it would be curious to hear whether.
George Kilgus: Those discussions are ongoing and then I know we have a new head of ICANN that came in in December so any thoughts there would be helpful. I realize that's a lot. Thank you guys very much.
George Kilgus: Okay. Thanks, Rob.
George Kilgus: Well first of all I would just point out that.
George Kilgus: Where we are today verisign the cooperative agreement ICANN. This whole process as a result of decades of very successful policy across many different administrations of many political stripes that we tend to sort of see that is not.
George Kilgus: Not a directly impacting factor just.
George Kilgus: Along supported consistent policy with the security and stability is the main driver.
George Kilgus: And as you mentioned there are new folks.
George Kilgus: In December of course, we have a new CEO and I can and will be getting a new NTIA administrator. Shortly we believe and we look we have great relationships with both organizations and we look forward to continuing them. We've always maintained a good working relationship with ICANN for many decades, and we look forward to working with the new CEO Curtis linguist and his leadership team.
George Kilgus: <unk>, particularly in the areas, we engage in mostly which is a security and stability of the DNS and DNS abuse.
George Kilgus: About the second part of your question ongoing discussions with the NTIA.
George Kilgus: Typical for our relationship we look forward to working with the new NTIA Assistant Secretary partner confirmation and I look forward to meeting I think until then I won't speculate.
George Kilgus: But let me, let me add some background that might be a little bit helpful. There.
George Kilgus: First the cooperative agreement as long contained as I think most of that most of the listeners here no.
George Kilgus: Strict requirements that Verisign meet the most rigorous availability and performance specifications of any T. L. D. Due to the reliance of services and infrastructure on common net in 2018 Amendment 35 retain these provisions and while there was reduced regulation. There was also explicit protection for Registrant first amendment rights by guaranteeing that.
George Kilgus: The dot Com registry will remain content neutral these and the other policies and that 2018 amendment of proven in the last six years to be successful in continuing.
George Kilgus: The policy of security and stability and resilience first in the critical importance of dot com to the security and stability of the infrastructure, that's literally critical to the digital economy of the U S.
George Kilgus: And finally I'll just mention that the recent dot com renewals enabled us to clear up some.
George Kilgus: This information that was spread during that process.
George Kilgus: One for example is that we received money from the government, which simply isn't true our cooperative agreement is not a procurement contract in the U S government doesn't fund verisign for the secure and reliable Internet service that Verisign helps to preserve every day and has without interruption for 27 years and as I mentioned now processing an average of over 400.
George Kilgus: Billion transactions every day, which by the way is 40 times the number of daily average Google searches 40 X.
George Kilgus: And there was a lot of misinformation about our pricing as well as you know our pricing is capped at it's transparent. It's a simple fact that our limited pricing flexibility at the wholesale level hasn't kept up with global CPI over the last six years, while at the same time, we've seen the unregulated retail price increases exceed our whole wholesale price increases so hopefully.
That is helpful.
George Kilgus: We look forward to engaging with our new regulators and and.
George Kilgus: And we look forward to it.
Jeff: Great. Okay, I'm going to go back I need to read that transcript. Thank you very much I appreciate that Jeff.
George Kilgus: Sure.
George Kilgus: Okay.
Speaker Change: And we'll take our last question from Yigal Iranian with Citi.
Yigal Iranian: Hey, good afternoon guys.
Speaker Change: Let me start on.
Speaker Change: Coming back to the comments on the cyclical trends.
Speaker Change: That youre expecting from the registrars to kind of go back and be a little bit more focused on.
Speaker Change: The broader.
Speaker Change: Top of the funnel of customer acquisition.
Speaker Change: And that's that sounds like what you guys were trying to accomplish with the marketing programs, but lots of it sounds like you are talking about both of those points as two distinct things.
Speaker Change: Is that is that true and if if we're moving back in that part of the cyclical.
Speaker Change: Part of the cycle.
Why why are the marketing programs important as it kind of help amplify that move back up cycle.
Speaker Change: I think if I understood the question.
Speaker Change: If a cyclical turn is coming.
Speaker Change: Why why the programs is that.
Speaker Change: That's not an unfair summary.
Speaker Change: Okay.
Speaker Change: Are they distinct points.
If yes, then why.
Speaker Change: So I would say two things.
Speaker Change: That we brought up in the past first of all we pointed out that the other programs.
Speaker Change: Were actually being designed as a response to the evolving nature and structure of our channel. We've got a lot of website builders, who have become registrars. They have different business models. They are more of them. Some are large some are small so designing programs.
Speaker Change: That met their needs and gave them flexibility as opposed to an hour.
Speaker Change: Ill generalize a bit here the one size fits all that we kind of used in the past that was a that was a primary motivator and when we talked about the cyclical trend from <unk> back to customer acquisition, I think I remember a quarter or two ago, saying that what.
Speaker Change: We would we would focus on programs.
Speaker Change: And that we hope to get a tailwind from.
Speaker Change: I'll return to customer acquisition so.
Speaker Change: I don't think it's not sort of one or the other we certainly can do both because they're really for different reasons.
Some of the programs that maybe can incentivize a shift away from <unk>, but I don't think that has the same effect as giving our registrars that choice that the diverse nature of that at channel is going to require.
George Kilgus: George the only comment I would just say you go look at we clearly have a good generally what the stronger we can make that channel are the better it off off it is for us and so we're trying to support that channel because they are evolving they have different needs and sometimes some of our previous programs may not have fit the needs of all registrars who were taken.
Speaker Change: That feedback we're helping them. We're also trying to help them.
Speaker Change: Target.
Speaker Change: The registration of new registrations to high renewal rate cohorts, which would be good for them and good for us and so.
Speaker Change: As Jim said that the channel continues to evolve the market continues to evolve and.
Speaker Change: We believe we need to continue to do the same to support the channel.
Speaker Change: And I guess, one last thing I might add here is that we said.
Speaker Change: George mentioned in his remarks that.
We're seeing take up in the channel I think this is a result of offering more flexibility and choice in our programs in.
Speaker Change: In the past when we had a fairly straightforward simple program offered to all.
Speaker Change: We saw that it worked for some it didn't work for some and what the feedback. We're getting is that these choices are great and they're finding programs that work for them. That's the initial take up we'll see where it goes of course, we'll work hard to support them, but that's something that's something we can put some energy into and hopefully get a return, but I would say <unk> is a cyclical tailwind into <unk>.
Speaker Change: There's less we can influence there and we can benefit from it and we are seeing signs that that shift is occurring as well.
Speaker Change: Okay very helpful. A quick follow up on that.
Speaker Change: Or is it just a shift in strategy or are you spending more on the marketing programs that maybe just if you could talk about how that's embedded in the operating income guidance for the year.
Speaker Change: Yes, I would say primarily it's a shift in strategy, having said that a lot of our programs are success based so if there.
Speaker Change: Extremely successful, we will spend more but those should be accretive to us.
Speaker Change: Overtime.
Speaker Change: But it really is a shift of strategy, recognizing the changing channel and trying to support them.
Speaker Change: And there are different strategies.
Speaker Change: Okay.
Speaker Change: The expense of all of those programs is baked into our guidance I would just I should add right.
Speaker Change: Okay. All right helpful. At two more if you don't mind one is the gross new registrations number was.
Speaker Change: That's my numbers are right the largest ones in <unk> 'twenty one.
Speaker Change: On a year over year growth sorry.
Speaker Change: Can you talk about what Youre seeing there.
Speaker Change: Pretty impressive number in the quarter I know the renewal rates are still a little bit below where they are.
Speaker Change: I believe but if you look at the growth numbers it looks like from some of the cyclicality is already coming back here in <unk>.
Speaker Change: Yes, as you point out we did $9 5 million new registrations in the quarter that was up sequentially and also up year over year again, I would credit some of.
Speaker Change: Early successes to some of the programs we launched.
In the fourth quarter.
Speaker Change: That supported that so we saw good engagement from some people again, it's only a partial year.
Speaker Change: And we think once we get.
Speaker Change: Further into the year, we'll get more channel partners engaging in these programs, but it's some early successes.
Speaker Change: From those programs so not huge numbers, but we are seeing positive trends and as you saw and as Jim mentioned the contraction of the domain name base was at half a million dollars debts.
Speaker Change: It was $1 1 million down in the third quarter and $1 2 million down in the year ago fourth quarter. So we saw some improvement here and that gives us some.
Speaker Change: Some optimism here as we move into 2025.
Speaker Change: Yeah Okay.
Speaker Change: Helpful. And then last maybe a little bit of a bigger picture bigger picture question.
Speaker Change: Auctions coming up for some new generic TLD.
Speaker Change: Later this year.
Speaker Change: Just wanted to get your thoughts on that particularly with the kind of.
Speaker Change: The Wei and <unk> have taken share of total domains.
Speaker Change: Over the last decade.
Speaker Change: Since they've been introduced.
Speaker Change: Are you interested in bidding for new domains has your strategy changed in.
Speaker Change: <unk>.
The amount of demand do you want to be a registry for.
Speaker Change: How should we think about that and sorry and within that maybe you could just give us an update on del Webb. That's also a new TLD.
Speaker Change: I'm glad you mentioned that web because I was going to sort of include that in the answer we did some years ago, obviously move to acquire another TLD and expand our portfolio there.
Speaker Change: So first of all let me answer them in reverse order. So it's not web we are still very interested in being the registry operator for dot web. Although this process. It has taken quite a few years, we still want to be able to offer dot web.
Speaker Change: <unk> to our customers the process is still with ICANN and it's their ERP or roughly translates to arbitration process and.
Speaker Change: And we understand what we've come to understand here recently is that there'll be more briefings and hearings in 2025 with a planned final merits hearing currently slated for later 2025.
Speaker Change: And we think that they are continuing to drag this process out into abuse ICANN rules actually is the intention of the competing party.
Speaker Change: As far as the new round.
Speaker Change: We're considering looking at it.
Speaker Change: Tossing ideas around looking at the potential for applications, but nothing to share at this point.
Speaker Change: Alright, thanks for taking 15 questions from analysts.
Anytime.
Speaker Change: Yeah.
Speaker Change: Sure.
Speaker Change: And that does conclude the question and answer session I will now turn the conference back over to Mr. David Atchley for final comments.
David Atchley: 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.
David Atchley: Thank you that does conclude today's conference. We do thank you for your participation have an excellent day.
David Atchley: Okay.
David Atchley: [music].
David Atchley: Yeah.
Yeah.
David Atchley: [music].