Q1 2025 VeriSign Inc Earnings Call
Good day, everyone and welcome to their science first quarter 2025 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 actually Vice President of Investor Relations and corporate Treasurer.
Sir Please go ahead Sir.
Speaker Change: Thank you operator welcome to <unk> first quarter 2025 earnings call. Joining me are Jim <unk> Executive Chairman, President and CEO, George Kilgus Executive Vice President and CFO, and John <unk> Senior Vice President Global Controller, and Chief Accounting Officer, who will become Chief Financial Officer.
Speaker Change: At the end of May upon George his retirement.
Speaker Change: 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 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.
Speaker Change: 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, and 10-Q, Verisign does not update financial information or guidance during the quarter unless it is.
Speaker Change: Is done through a public disclosure.
Speaker Change: 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.
Speaker Change: Jim and George will provide some prepared remarks and afterward, we will open the call for your questions with that I'd like to turn the call over to Jim.
Jim: Thank you David Good afternoon, everyone and thank you for joining us.
Jim: This month Verisign celebrated 30 years since its incorporation it was incubated beginning in 1986 by RSA data security, where I was CEO Verisign has changed significantly over the years and we're particularly proud of <unk> mission enroll in providing critical Internet information services.
Speaker Change: Turning to the first quarter results <unk> performance in the first quarter reflects sequentially improving trends and the soundness of our business model at the end of March the domain name base for Dot Com and Dot net totaled $169 8 million domain names up 777000 from year end of 2024, new.
Speaker Change: Registrations for the first quarter totaled $10 1 million compared with $9 5 million for both last quarter and the same quarter last year.
Speaker Change: The renewal rate for the first quarter of 2025 is expected to be 75, 3% compared to 74, 1% a year ago.
Speaker Change: From a geographic perspective during the first quarter, we saw trends improve with increases in the domain name base from our three main regions. The U S EMEA and Asia Pacific.
Speaker Change: Given these improving domain name base trends, we now expect the change in the domain name base to be between negative, 7% or negative 70 bps and positive <unk>, 9% or 90 bps for 2025 as.
Speaker Change: As mentioned last quarter, we saw improving trends at the end of 2024, which continued during the first quarter, resulting in both improved new registrations and renewal rates.
Speaker Change: It's still early but we do see signs of registrars shifting towards customer acquisition and we also see more register our engagement with our marketing programs. Our updated guidance reflects these trends, but also includes a measure of caution until the macroeconomic situation clarifies and as a reminder, any expenses associated with marketing programs are fully occur.
Speaker Change: For in our guidance.
Speaker Change: Our financial and liquidity position continues to remain stable with $649 million in cash cash equivalents and marketable securities at the end of the quarter.
Speaker Change: During the first quarter, we repurchased 1 million shares returning $230 million to shareholders.
Speaker Change: At quarter end $793 million remained available and authorized under the current share repurchase program, which has no expiration.
Speaker Change: As announced in today's earnings release, <unk> Board of directors declared a cash dividend of <unk> 77 per share of <unk> outstanding common stock to stockholders of record as of the close of business on May 19, 2025 payable on May 28, 2025 <unk>.
Speaker Change: <unk> intends to continue to pay a cash dividend on a quarterly basis subject to market conditions and approval by <unk> Board of directors.
Speaker Change: We're pleased to introduce a cash dividend as part of our return of capital commitment to shareholders. We will continue our capital allocation focus first on maintaining adequate liquidity second investing in the business and then returning excess cash to shareholders with a portion of that return now through quarterly cash dividends. This initiation of a cash dividend.
Speaker Change: Isn't changed the way, we think about the total amount of shareholder return. In addition to an ongoing commitment to maintain a dividend we intend to grow the dividend annually with our earnings growth.
Speaker Change: We view the decision to become a dividend issuer as a natural evolutionary step to diversify our return of cash to shareholders.
George: And now I'd like to turn the call over to George I'll return with GA completed his financial report with closing remarks.
George: Thanks, Jim and good afternoon, everyone.
George: For the quarter ended March 31, 2025, the company generated revenue of $402 million up four 7% from the same quarter a year ago.
George: Operating expense in Q1, 2025 totaled $131 million, which compares to $132 million last quarter and $125 million for the first quarter a year ago.
George: While similar sequentially the year over year increase in expense is mainly due to a slight increase in head count and incentive based compensation accrual adjustments.
George: Net income in the first quarter totaled $199 million compared to $191 million last quarter and $194 million a year ago, which produced diluted earnings per share of $2 10 for the first quarter this year compared to $2 last quarter and $1 92 for the same.
George: Quarter of 2024.
George: During the quarter the company issued 500.
George: I have in a quarter percent senior notes due 2032 to refinance the company's existing 500 million, 5.25% 2025, senior notes, which mature.
George: In April.
George: Operating cash flow for the first quarter of 2025 was $291 million and free cash flow was $286 million compared with the $257 million and $254 million, respectively in the year ago quarter.
George: I'll now discuss our updated full year 2025 guidance.
George: Revenue is now expected to be between $1.635 billion and $1.650 billion.
George: Operating income is now expected to be between $1 billion $110 million and $1 billion $125 million.
George: Interest expense and non operating income net which includes interest income estimates is still expected to be an expense of between $50 million and $60 million.
George: Capital expenditures are still expected to be between 30 million and $40 million.
George: And the GAAP effective tax rate is still expected to be between 21% and 24%.
George: In summary, Verisign continued to demonstrate sound financial discipline during the quarter.
Jim: Now I will turn the call back to Jim for his closing remarks.
Jim: Thank you George I'd like to acknowledge and thank George for his 13 years of service to <unk> as executive Vice President and Chief Financial Officer, George has been instrumental in providing outstanding financial acumen and leadership to our operations and our teams and we wish him. The best in retirement, John <unk> Senior Vice President Global Controller, and Chief Accounting Officer.
Jim: <unk> has served as interim CFO in the past and has worked closely with George over many years and will become Chief financial officer. Upon George his retirement at the end of May making for a seamless transition.
Jim: 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.
Jim: Thank you.
Speaker Change: We have a dialogue.
Speaker Change: Telephone and we'd like to ask a question. Please signal by pressing star one on your telephone keypad.
Speaker Change: If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Speaker Change: What's your question.
David Please mute your line.
Speaker Change: We will take our first question from the gallery with Citigroup.
Speaker Change: Hey, good afternoon, guys. Thanks.
Speaker Change: I'll start with George Congrats on the retirement George.
Speaker Change: Good luck on the next steps in <unk>.
Speaker Change: That's just a little bit of a parting gift here on the dividend.
Speaker Change: Can you elaborate a little bit on the timing of why now is the right time to initiate a dividend and.
Speaker Change: And on the comment that doesn't change how you think about total shareholder return does that mean that we should expect.
Speaker Change: Less buybacks because of the dividend.
Speaker Change: Put it in context with that and then I'll have some follow ups.
Speaker Change: Hi, It's Jim Let me, let me answer part of that question for you maybe invite George to comment further but well.
George: Well first of all we're pleased to be able to diversify the method of shareholder return to now include regular dividends I don't think theres much more to say than what I covered in my prepared remarks. The company has had a long track record of returning excess cash to shareholders and as been considering the quarter quarterly cash dividend for quite some time today's announcement is consistent with that long track record.
With our expectations of and confidence in the continued stability and strength of our business.
Roger: Roger do you want to add anything.
George: Yes.
George: <unk>.
George: As Jim said, we're just diversifying our return of capital to shareholders.
Speaker Change: And we will continue to go through our strategic framework of how we think about capital allocation.
George: As we've done in the past and.
George: I think youll see us do a combination of the two but clearly.
George: It's really a statement of the company's stability in our business model and we just think it's the right time to start diversifying that method of return of capital.
George: Okay. Thanks.
George: Okay.
George: Two follow ups on.
George: On the business and the trends.
George: So with <unk>.
George: <unk> domain name base outperforming expectations, you're taking up your outlook for the year because of that.
George: Can you just talk about what you think were the biggest drivers of the outperformance relative to what you were expecting at the beginning of the year.
George: We kind of work our way through the rest of the year, particularly with some of the macro question.
George: What are the factors that get you to the low end of the range versus the high end of the range over the course of the rest of the year and then second question.
George: On Dot net we didnt get the price increase in February like we have in the past few years, just any updated thoughts on how youre thinking about pricing there. Thank you.
George: Sure, regardless, George so with regard to our guidance you're right.
Speaker Change: We're off to a solid start of the year delivering 770000 net adds here in Q1.
Speaker Change: And as a result, we took the guidance up as Jim mentioned from down <unk>, 7%, a positive <unk>, 9%, which is a range of about $1 2 million names down to one 5 million names up with a midpoint of about 200000 there.
Speaker Change: <unk>.
Jim: At the end of the day they put the guidance is really reflecting is the positive trends we're seeing here.
Jim: But as Jim mentioned it also reflects a measure of caution.
Jim: We're still early in the cycle and the macroeconomic outlook is a bit unclear.
Jim: We also have some seasonality to the domain name base in the first quarter, which is typically our strongest but I think we're encouraged by the results.
Jim: <unk>.
Jim: The activity of our registrars and.
Jim: Hence we took the guidance up.
Jim: Pretty substantially here in Q1.
Jim: As regards to your second question on Dot net price increases.
Jim: I think youre aware that we really don't provide.
Jim: Guidance with regard to pricing changes for <unk>.
But we do have to provide a six month notice of any potential changes that we make.
Jim: <unk> Dot net our last price increase became effective in February 2024.
Jim: Which placed our wholesale price for dot net at $10 91.
Jim: We of course regularly review our pricing strategies in conjunction with our go to market strategies for our <unk>, but as I mentioned, we don't provide.
Jim: Pricing guidance for them as well.
Speaker Change: Great. Thank you so much.
Rob Oliver: And we'll take our last question from Rob Oliver with Baird.
Rob Oliver: Great. Thanks, guys. Good afternoon I appreciate it I have a couple questions.
Rob Oliver: Jim.
Speaker Change: Hello, George I'll start I'll start with you guys first just.
Speaker Change: On some of the activities around your marketing channel programs.
Speaker Change: You guys sort of kicked off last year.
Speaker Change: Would love to get an update on those.
Speaker Change: <unk>.
Speaker Change: What sort of traction.
Speaker Change: Youre seeing with them George I know you just commented that you were encouraged by.
Speaker Change: The registrar activity generally I think part of that might be registrars re engaging but would love to understand what portion of that is action you guys are taking and where youre seeing success with your marketing channel programs and then I had a couple of follow ups.
Speaker Change: Yes, sure Rob, but two to answer your question with regard to marketing programs. So.
Speaker Change: So as we mentioned over the past few quarters, we rolled out a variety of new programs late in 2024 and early 2025 to date, we've seen good Registrar Register our interest in those programs.
Speaker Change: While it's still early we do attribute some of the improved new registration trends, we saw in the fourth quarter and here again in the first quarter to a registrar engagement with the programs.
Speaker Change: That will be rolled out I would I would call our activity that we saw here in the last two quarters activity from what I would call early adopters of the programs that we rolled out last year. We're also have some registrars that are continuing to test the programs that we rolled out here in 2025, So we'll continue to monitor and work with the <unk>.
Speaker Change: Register our community here to help them engage in our programs throughout the year, but I think early results. While we are encouraged by them, but I think we still have some work to do.
Speaker Change: Great. That's helpful. Thanks, I appreciate it Jim.
Speaker Change: The strong domain guide.
Speaker Change: Thank you you said that it includes a measure of caution relative to the macro which I think.
Speaker Change: Words, and I'd love to I'd Love to hear your take on the macro because on the one hand it seems as if the registrars are starting to spend more than we were super encouraged to see.
Speaker Change: Two leading registrars pony up for Super Bowl ads, which I think that was the first time.
Speaker Change: A handful of years that we've been tracking it that we saw that sort of a financial commitment which was a positive.
Speaker Change: But obviously there are some concerns on the macro right now so I would love to hear just from you.
Speaker Change: Take currently.
Speaker Change: On the macro I guess its a variance on neal's question earlier about how we might get on one or other end of that range.
Speaker Change: Sure I'll give it a shot here I think first of all the components of of all of those pieces are first of all some things that we laid out last year that we would do and some things that we expected to shift favorably. So there were a couple of tailwind that we thought would shift to headwinds and it looks like that's been.
Speaker Change: Turning to happen a bit.
Speaker Change: I'll return to new customer acquisition and the focus on ARPA by the channel and as your Super Bowl for example, its clearly an indication of that.
Speaker Change: Spend on new customer acquisition. So that's.
Speaker Change: Favorable.
Speaker Change: The shift that we've seen since then.
Speaker Change: And the things that we've done in our marketing programs that we've mentioned before for example, we offered a range of programs simply as a way of providing needed flexibility in what was an evolving channel it had changed.
Speaker Change: Traditional registrars, yes of course, they are our customers, but also we had website builders et cetera. So a one size fit fits all didnt approach didn't work as well I think that's where we're seeing.
Speaker Change: Some interesting promising take up even though it's a big it's a bit early.
Speaker Change: I think the.
Speaker Change: The other thing that.
Speaker Change: The component that we really can identify as just John certainly not an.
Speaker Change: An economist, but I think I can I can recognize a bit of turmoil here and I think it is just clarity. It's a question of clarity.
Speaker Change: That clarifies I think we will get a better idea of where the future is an offer any updated guidance of course is appropriate but this is just based on it being early in the year.
Speaker Change: Bit of uncertainty about where things will land.
Speaker Change: Hopefully they will shortly and we'll be able to give you a better in filed but.
Speaker Change: We are certainly appreciative of the positive changes that we've seen as I said, we've done what we can control and we're seeing some results from that and they trend favorably and also we are picking up some some.
Speaker Change: Headwinds that have shifted into tail winds that are helping us a return.
Speaker Change: Getting off arent Boone, returning to new customer acquisition by the registrars programs that are working for them. So those are the different components. The uncertainty is obviously the macroeconomic environment, which we just need more clarity on before we can get more comfortable.
Speaker Change: Got it okay helpful. Yes, you and everyone else on my two other quick ones.
Speaker Change: One John welcome and.
George: George Congratulations on your retirement I guess, just a quick question about some of the higher expenses that George had called out.
George: Is this a new run rate of higher expenses, and just would love to get a sense from you of kind of your philosophy relative to that expense run rate.
Hey, Thanks, Rob This is John.
George: If you look at the midpoint of our operating income guidance for the year.
George: <unk> is a slight improvement in our operating margin.
George: But it also implies a slight amount of spend that we incurred.
George: Similar amount of spend that we incurred in the first quarter.
George: For the balance of 2025.
George: As George mentioned in his prepared remarks. This is mainly due to slight increases in head count and some of our incentive based compensation programs.
George: As in past quarters, we will continue to focus on disciplined expense management.
George: And do that within our strategic framework.
Speaker Change: Got it great. Thanks look forward to working with you and then last one for me is just any update from you guys.
Speaker Change: Dot web or anything we should be aware of there thanks very much.
Jim: Thanks, Rob Jim here, we do have a small update on that web.
Jim: Just as in the first <unk> think arbitration IOP.
Jim: This new RFP <unk> panel that we have has again rejected alter novo's attempt to invalidate certain procedural rules in the hopes that doing so would exclude our participation in these IRB proceedings.
Jim: With that effort rejected we anticipate a ruling soon on our application to participate in the IOP in the final hearing in November.
Speaker Change: To reiterate Verisign, we intend to become the registry operator for Dot web and we intend to bring this new TLD to our customers as soon as we can we believe alternative his use of <unk> processes to stop this from happening is an abuse of process and is being pursued in bad faith to keep dot web off the market.
Jim: That's that's the update this quarter.
Speaker Change: Okay.
Speaker Change: Okay Alright, great.
Speaker Change: Well Digest that and then I'll come back to you guys probably call back or with some follow up questions, but really appreciate your time, thanks very much.
Speaker Change: Thank you.
Speaker Change: Thank you. This concludes today's question and answer session I will now turn the call back to 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: This does conclude today's call. Thank you for your participation you may now disconnect.
David Atchley: [music].