VeriSign, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter report. VeriSign operates critical DNS infrastructure and domain registry services, with most revenue generated from .com and .net registrations and renewals.
Financial results and key metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $1,493.1 million | $1,424.9 million | +5% |
| Operating income / margin | $1,000.6 million / 67.0% | $943.1 million / 66.2% | Income +6% |
| Net income / net margin | $817.6 million / 54.8% | $673.8 million / 47.3% | +21% |
| Diluted EPS | $7.90 | $6.24 | +27% |
| Cash from operations | $853.8 million | $831.1 million | +3% |
- Revenue drivers: Growth primarily reflected .com wholesale price increases effective September 2022 and September 2023, and a .net increase effective February 2023. The benefit was partly offset by the transfer of the .tv registry to another provider.
- Profitability: Operating expenses were $492.5 million, or 33.0% of revenue, versus 33.8% in 2022. Interest expense was $75.3 million, unchanged year over year. Non-operating income rose to $51.2 million from $12.4 million, primarily on higher investment interest income; 2023 also included currency-related items.
- Tax: Income tax expense was $158.9 million and the effective tax rate was 16%, compared with $206.4 million and 23% in 2022. FY2023 included $69.3 million of tax benefits from several items, including a tax-basis step-up for non-U.S. intellectual property; a $64.7 million valuation allowance partially offset the related deferred tax asset.
- Liquidity: Cash and cash equivalents were $240.1 million and marketable securities $686.3 million at year-end, totaling $926.4 million, down from $980.4 million. Operating cash flow was $853.8 million; investing used $97.4 million and financing used $889.8 million. Cash, cash equivalents and restricted cash totaled $245.5 million at year-end.
- Debt: $1.8 billion principal outstanding: $500 million of 5.25% notes due 2025, $550 million of 4.75% notes due 2027, and $750 million of 2.70% notes due 2031. A $200 million unsecured revolver due 2028 had no borrowings at year-end; the company reported covenant compliance.
- Capital returns: Repurchased 4.2 million shares for $882.8 million under the program in 2023; approximately $1.12 billion remained authorized at year-end. Outstanding shares fell to 101.3 million from 105.3 million.
- Registry base: .com and .net registrations in the domain name base declined 0.6% to 172.7 million. New registrations were 39.4 million versus 39.9 million in 2022; the final .com/.net renewal rate for Q3 was 73.5% versus 73.7% a year earlier.
Material changes versus FY2022
- Revenue and operating income increased despite a slight decline in the domain base, with permitted registry price increases the main revenue tailwind.
- Net income and EPS rose faster than operating income, reflecting lower income tax expense and higher non-operating income.
- China revenue declined 14% to $91.6 million; management cited weaker demand amid economic conditions and regulatory requirements. U.S. revenue rose 6% to $994.7 million.
- Operating cash flow increased modestly, while cash and marketable securities combined declined. Financing outflows were lower than in 2022, primarily because share repurchases decreased.
Outlook, commentary, risks and unusual items
- Outlook: The filing does not provide formal numerical revenue or earnings guidance. Management expects cash, investments, operating cash generation and financing capacity to be sufficient for working capital, capital spending and debt service for the next 12 months and beyond.
- Pricing: VeriSign announced that the .com wholesale fee would rise from $9.59 to $10.26 effective September 1, 2024. The .net fee rose from $9.92 to $10.91 effective February 1, 2024.
- Contract dependence: The .com registry agreement and Cooperative Agreement with the U.S. Department of Commerce run through November 30, 2024; the .net agreement was renewed through June 30, 2029. These agreements govern core operations and pricing. The Root Zone Maintainer agreement has a current term ending October 19, 2024, with automatic renewal provisions.
- Key risks: Cyberattacks, DDoS attacks, system outages and third-party vulnerabilities; dependence on .com and .net and their contractual renewals; competition and alternatives to domain names; economic weakness and regulation in China; changing data, privacy and internet-governance rules; and possible declines in domain registrations or renewals.
- Contingency: Afilias filed a second ICANN independent review proceeding challenging the .web auction, pausing processing of the application. VeriSign says the claims lack merit. The company has $145 million recorded as a deposit for the .web rights pending resolution and ICANN approval.
- Audit and controls: KPMG issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective. Income tax accounting was identified as a critical audit matter.
Important facts for investors to verify
- Whether registration-base and renewal trends stabilize, particularly in China, and how they affect revenue after price increases.
- The timing and outcome of .com agreement renewal and the separate .web proceeding, including the status of the $145 million deposit.
- Whether the 2023 tax benefits recur; reported earnings benefited from significant tax items and a lower effective tax rate.
- Cash generation, the schedule of senior-note payments, and the pace of share repurchases relative to liquidity and business needs.
- Whether cyber, regulatory, or infrastructure events affect service availability, contractual obligations or costs.