VeriSign, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with the three months ended March 31, 2023 unless noted. VeriSign operates critical internet infrastructure and the .com and .net domain-name registries. Its domain base was 172.5 million .com and .net registrations at quarter-end.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change or note |
|---|---|---|---|
| Revenue | $384.3 million | $364.4 million | Up 5% |
| Operating income | $258.9 million | $241.3 million | Up 7%; operating margin 67.4%, versus 66.2% |
| Net income | $194.1 million | $178.7 million | Up 9%; net margin 50.5%, versus 49.0% |
| Diluted EPS | $1.92 | $1.70 | Weighted-average diluted shares declined to 100.9 million from 105.0 million |
| Operating cash flow | $257.3 million | $259.0 million | Slightly lower |
| Cash, cash equivalents and marketable securities | $924.7 million | $926.4 million at Dec. 31, 2023 | Quarter-end liquidity |
| Senior notes | $1,790.7 million carrying value | $1,790.2 million at Dec. 31, 2023 | $1.8 billion principal outstanding |
Cost of revenues fell 2% to $49.1 million; research and development rose 3% to $24.8 million; and selling, general and administrative expense rose 5% to $51.5 million. Interest expense was $18.8 million, unchanged. Non-operating income increased to $13.9 million, primarily reflecting higher interest income. The effective tax rate remained 24%.
Cash, debt and capital allocation
- Cash provided by investing activities was $496.4 million, mainly reflecting $658.0 million of maturities and sales of marketable securities, partly offset by purchases. Financing used $261.6 million, primarily for share repurchases. Cash, cash equivalents and restricted cash increased $491.7 million to $737.2 million; this cash-flow figure includes restricted cash.
- Senior notes comprise $750 million of 2.70% notes due 2031, $550 million of 4.75% notes due 2027, and $500 million of 5.25% notes due 2025. No borrowings were outstanding under the $200 million revolving credit facility.
- VeriSign repurchased 1.3 million shares for $260.4 million under its program and repurchased additional shares for tax withholding; total repurchase cash outflow was $269.9 million. Approximately $859.6 million remained authorized for future repurchases.
- Management said available liquidity, operating cash generation and potential financing capacity should be sufficient for working capital, capital expenditures and debt service for the next 12 months and beyond.
Business trends, outlook and risks
- The .com and .net domain base declined 1.3% year over year and by 0.3 million registrations from year-end 2023. New registrations were 9.5 million, down from 10.3 million. The final .com and .net renewal rate for Q4 2023 was 73.2%, versus 73.3% for Q4 2022.
- Revenue growth was attributed primarily to .com price increases. The .com wholesale fee rose to $9.59 in September 2023; a further increase to $10.26 is scheduled for September 1, 2024. The .net fee rose to $10.91 effective February 1, 2024.
- Management noted softer domain-name demand, particularly in China, where revenue fell 18% to $20.7 million. It cited competition from other domains and online-presence alternatives, changing internet practices, registrant behavior and global economic conditions as factors that may constrain demand. U.S. revenue rose 5%, EMEA 10%, and other regions 16%.
- No specific revenue or earnings guidance was provided in the filing. Management cautioned that forward-looking expectations involve risks and actual results may differ.
- The filing reported an ongoing ICANN Independent Review Process relating to the .web auction; VeriSign and Nu Dotco requested participation on April 11, 2024. The company said other ordinary-course claims and proceedings were not expected to have a material adverse effect, while noting litigation can be costly and divert management attention. No material changes to the risk factors in the 2023 Form 10-K were reported.
- VeriSign reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. Its board appointed John D. Calys Chief Accounting Officer and Principal Accounting Officer effective April 22, 2024.
Important facts for investors to verify
- Whether domain-base declines and weaker demand, particularly in China, continue, and how renewal rates develop.
- The revenue and demand effects of the scheduled .com fee increase in September 2024, alongside the .net increase already effective in February.
- Repurchase pace and remaining authorization, relative to liquidity needs and the 2025, 2027 and 2031 note maturities.
- Developments and potential costs or business effects from the .web auction review process and other legal matters.