VeriSign Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 28, 2022

There are 5 speakers on the call.

Operator

Good day, everyone. Welcome to VeriSign's First Quarter 2022 Earnings Call. Today's conference is being recorded. Recording of this call is not permitted unless preauthorized. At this time, I'd like to turn the conference over to Mr.

Operator

David Atchley, Vice President of Investor Relations and Corporate Treasurer. Please go ahead, sir.

Speaker 1

Thank you, operator. Welcome to VeriSign's Q1 2022 earnings call. Joining me are Jim Bidzos, Executive Chairman and CEO Todd Strube, President and COO and George Kilgus, Executive Vice President and CFO. This call and presentation are being webcast from the Investor Relations 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 ks.

Speaker 1

VeriSign does not update financial performance or guidance during the quarter 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 2 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, will open the call for your questions. With that,

Speaker 2

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, and I thank all of our employees who continuously execute our complex mission.

Speaker 2

I'm pleased to report another solid quarter of financial and operational performance for VeriSign. Revenues grew 7.2% year over year, while EPS grew 7.5% year over year. At the end of March, the domain name base in dotcomand.net and the domain name base increased by 1,230,000 names. The final renewal rate for the Q4 of 2021 was 74.8% compared to 73.5 percent 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 Q1 of 2022 will be approximately 75.9%.

Speaker 2

This preliminary renewal rate compares to 76% achieved in the Q1 of 2021 74.8% last quarter. We continue to see growth in the domain name base and demand for our domain names. While there are many factors that drive demand for domain names, we have Lower new units in the Q1 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 a domain name base growth rate of between 1.75% and 3.5%.

Speaker 2

This updated range reflects the various trends we currently see in our business and our expectation for continued domain name based growth. Our financial and liquidity position remains stable with $1,200,000,000 in cash, cash equivalents and marketable securities at the end of the quarter. Share repurchases during the Q1 totaled $196,000,000 for 895,000 shares. At quarter end, dollars 893,000,000 remained available and authorized under the current share repurchase program, which has no expiration. We continually evaluate the overall liquidity and investing needs of the business and consider the best uses for our cash, including potential share repurchases.

Speaker 2

Turning to Dot Webb, as we noted on our last call, Icahn's Board directed one of its standing committees to review panel's 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 .web registry operator and establishing it alongside .comand.net as an additional option for businesses and individual end users worldwide. Now, I'd like to turn the call over to George.

Speaker 3

Thanks, Jim, and good afternoon, everyone. For the quarter ended March 31, 2022, the company generated revenue of $347,000,000 up 7.2 percent from the same quarter of 2021 and delivered operating income of $225,000,000 up 6.8% from $210,000,000 in the same quarter a year ago. Operating expense totaled $122,000,000 compared to $118,000,000 last quarter and $113,000,000 for the Q1 a year ago. The 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.

Speaker 3

Net income totaled $158,000,000 compared to $150,000,000 a year earlier, which produced Diluted earnings per share of $1.43 for the Q1 of 2022 compared to $1.33 for the same quarter of 2021. Operating cash flow for the Q1 was $207,000,000 and free cash flow was $200,000,000 compared with $198,000,000 $192,000,000 respectively for the Q1 of 2021. I'll now discuss our updated full year 2022 guidance. Revenue is now expected to be in the range of $1,420,000,000 to $1,435,000,000 This narrowed revenue range guidance reflects the updated domain name base growth rate expectation of between 1.75% and 3.5% that Jim mentioned earlier. The operating margin is still expected to be between 64.5% 65.5%.

Speaker 3

Interest expense and non operating income net, which includes interest income estimates, is now expected to be an expense of between $65,000,000 to $70,000,000 Capital expenditures are now expected to be between $35,000,000 to 45,000,000 And the GAAP effective tax rate is now expected to be between 22% 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 Q1 and we look forward to continuing our focused execution in 2022. Now, I'll turn the call back to Jim for his closing remarks.

Speaker 2

Thank you, George. During the Q1, we continued our

Operator

And we'll go ahead and take a question from Rob Oliver with Baird.

Speaker 4

Great. Good afternoon, gentlemen. Thanks for taking my questions. So Jim, I'll start with just the Changes in the macro environment, which have caused you guys to make the adjustments that you've made here today relative to domain. So let me just first ask for Just a bit more color around Q1.

Speaker 4

Obviously, a lot has happened in a short period of time. So we'd to hear what you saw and how that was manifest in your decision to take down the range?

Speaker 2

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.

Speaker 2

As I stated earlier, we continue to see growth in the domain name base. We see demand for our domain names. And while there That is attributable to the pandemic that appears to have subsided and there are recent global macroeconomic factors as well. Those, obviously, we're still analyzing. We also have heard from some of our registrars that they're seeing the same thing we are, meaning that incremental demand for new registrations that grew during the pandemic appears to be subsiding.

Speaker 2

It's difficult to predict how the 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.

Speaker 4

Yes, that's helpful. You touched a little bit. My follow-up was going to be on sort of that geographic make I know you did say that played an element meaning the war. I was in Europe This quarter marketing to investors and it was the exposure to the war over there It was noticeably more acute than here in the U. S.

Speaker 4

And just I know you said you're still analyzing those factors, but any

Speaker 2

Sure. Let me ask George I'll comment on that first, but let me directly address one specific part of your question. I mean, there are ICANN 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 comments or color. Yes.

Speaker 3

So Rob, as Jim mentioned in his remarks, we continue to grow our domain name base in the Q1. We were up about 4% year over year. Again, in the Q1, we saw gains in the base primarily from the U. S, EMEA and Asia Pacific regions. From a new unit perspective, we generated $10,200,000 of new units in the Q1 and that compared to 10.6 Q4 and 11.6% in the Q1 a year ago.

Speaker 3

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, year over year, we saw more of a broad based slowing of growth. And as Jim mentioned, that's really a result of the incremental demand from the pandemic 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.

Speaker 4

Got it. Okay. Yes, George, that's helpful. So just in terms of the assumptions that went into then to that estimate, So is are you guys did you guys make any assumptions relative to kind of the state of the war, the state of the geopolitical environment or is it status quo assumed in the forecast for the rest of the year?

Speaker 2

Rob, I think it's kind of too early to say. We're studying all those things to the extent we'll be able to in any sort of granular manner Factor them in to that level of specificity. We'll 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.

Speaker 2

These are global geopolitical macroeconomic 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.

Speaker 4

Got it. Got it. Okay. And just a couple more from you guys. I appreciate it.

Speaker 4

Jim, while I have you on the just topic of a lot of chatter about cyber war. I mean, you guys made some additional investments a couple 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 hack, which kind of seem seem pressured. But just curious, It looks while everybody is reporting now that cyber work could be the next front of the warren. And if you could just refresh us So, the security and how prepared you guys are for that and if in fact you guys have seen anything To date that would be supportive of those assertions in the press?

Speaker 2

That's a tough one for me to comment on with any We generally don't talk about these things. I can say in general that obviously we make certain assumptions about the cyber threat environment. We monitor it very, very We think it varies and we think it's in a higher state than it has been in the past. But We have in the recent couple of years and in particular in 2020 2021, Made some investments in our infrastructure and cybersecurity in general. We continue to make those.

Speaker 2

That's obviously job 1. We take nothing for granted. We generally greatly on the side of caution and precaution. So, We are prepared on assumptions that I don't want to go into detail on. I'm just let's just say that we're continuing to make investments.

Speaker 2

We've made investments In providing equipment and protection for our teams that are working at home, we constantly make investments to protect, evolve and strengthen Our infrastructure and its resilience and reliability, and again, that is job 1. That's 1st and foremost. That takes a back seat to nothing at this company. That's probably all I can say about that. Hope that's helpful.

Speaker 4

Yes. That is helpful. And I appreciate you'd be limited on that. I had one or two other quick ones and I appreciate the opportunity here to hold the floor. Just and I know you mentioned Jim in your formal remarks that there is no Our official update on Dotweb, I know you also said in the last call that you guys would be monitoring The process, so I guess a bit of a nuance question there, but in the absence of any official update, was there anything that you guys picked In the process that maybe was either not 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?

Speaker 2

We have no other information than what you can get from ICANN's website. When we monitor, we're monitoring ICANN's public statements on what the IRP assigned them to do and that seems to be ongoing and you'll know something as soon as we do.

Speaker 4

Great. That's helpful. Last one for me. Just George for you, just on the SG and A this quarter, can you just remind us 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?

Speaker 3

Yes, sure, Rob. So sequentially, you saw that our expenses were up about $3,800,000 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 Security and infrastructure made last quarter that Jim mentioned. Also in the Q1, we tend to have higher employee Payroll taxes and stock based compensation, as our performance based plans are really measured and awarded in the Q1.

Speaker 4

Got it. Great. Well, thank you guys very much. I appreciate it.

Speaker 2

Thank you, Rob.

Operator

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.

Speaker 4

Thank you, operator. Please call

Speaker 1

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.

Operator

Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.

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Earnings Conference Call
VeriSign Q1 2022
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