VeriSign, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
For the three months ended March 31, 2022, VeriSign operated domain-name registry services and internet infrastructure, including the .com and .net registries. Its domain name base was 174.7 million .com and .net registrations at quarter-end. The interim financial statements are unaudited.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 / prior period |
|---|---|---|
| Revenue | $346.9 million | $323.6 million; up 7% |
| Operating income / margin | $224.8 million / 64.8% | $210.4 million / 65.0% |
| Net income / net margin | $157.5 million / 45.4% | $150.4 million / 46.5% |
| Diluted EPS | $1.43 | $1.33 |
| Operating cash flow | $207.1 million | $198.3 million |
| Cash and cash equivalents | $758.5 million | $223.5 million at Dec. 31, 2021 |
| Marketable securities | $451.1 million | $982.3 million at Dec. 31, 2021 |
| Senior notes, carrying value | $1,786.3 million | $1,785.7 million at Dec. 31, 2021 |
Cash, cash equivalents and marketable securities totaled $1,209.6 million at March 31, 2022, versus $1,205.8 million at year-end. The company had no borrowings on its $200 million revolving credit facility. Current liabilities were $1,088.5 million, including $877.4 million of deferred revenue; total liabilities exceeded total assets, resulting in a $1,285.1 million stockholders’ deficit.
Investing activities provided $524.5 million, mainly reflecting maturities and sales of marketable securities net of purchases; financing activities used $196.4 million, primarily reflecting share repurchases. The company reported $6.6 million of property and equipment purchases. Interest expense was $18.8 million, down from $22.5 million. The effective tax rate rose to 24% from 20%.
Material changes versus the comparable period
- Revenue increased $23.3 million, primarily from 4% growth in the .com and .net domain name base and the .com price increase effective September 1, 2021.
- Operating income grew 7%, while operating margin declined slightly to 64.8% from 65.0%. Net income rose about 5%, but net margin fell to 45.4% from 46.5%, partly reflecting higher income tax expense.
- The domain name base grew 4% year over year and increased 1.2 million from December 31, 2021. New .com and .net registrations declined to 10.2 million from 11.6 million. The final renewal rate for Q4 2021 was 74.8%, versus 73.5% for Q4 2020.
- Operating cash flow increased $8.8 million, primarily due to lower cash income-tax payments, partly offset by lower customer cash receipts. Cash and marketable securities shifted substantially between categories, while their combined balance was broadly stable from year-end.
Outlook, commentary, risks and unusual items
- VeriSign announced that the annual wholesale fee for new and renewed .com registrations would increase from $8.39 to $8.97 effective September 1, 2022. No specific earnings or revenue guidance was provided.
- Management said earlier pandemic-related incremental domain demand appeared to have subsided. It believes existing liquidity, operating cash generation and potential financing are sufficient for working capital, capital expenditures and debt service for the next 12 months and beyond.
- Management cited competition from country-code and other generic top-level domains, alternative online-presence services such as social media, changing internet practices, economic uncertainty, and registrant behavior as factors that may constrain domain-base growth. China revenue declined 1%, with lower new registrations and renewal rates cited.
- The company repurchased 0.9 million shares under its program for $195.5 million and had $892.6 million of authorization remaining. The board increased the total program authorization to $1.0 billion; it has no expiration date. Separately, $9.1 million of shares were placed in treasury for tax withholding, contributing to $204.6 million of total repurchases shown in financing cash flows.
- VeriSign reported no material changes to risk factors since its 2021 Form 10-K and no significant change in market-risk exposure. It said ongoing investigations, claims and lawsuits were not expected to have a material adverse effect, while noting litigation could still cause expense or management distraction.
Most important facts for investors to verify
- Whether .com and .net registration growth and renewal rates remain resilient, particularly given the decline in new registrations and weakness in China.
- The effect of the September 2022 .com wholesale price increase on demand, renewals and revenue growth.
- That reported operating cash flow and the large investing cash inflow are interpreted separately from marketable-security maturities and sales.
- Debt maturities, interest costs, liquidity and the pace of share repurchases relative to cash generation.
- Developments in the cited business risks, COVID-19 effects and ordinary-course legal matters; this filing provides no quantified estimate of potential legal exposure.