VeriSign, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. VeriSign operates critical internet infrastructure, with the .com and .net domain registries as its primary revenue sources.
Business context and key metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $1,424.9 million | $1,327.6 million | Up 7% |
| Operating income | $943.1 million | $866.8 million | Up 9% |
| Operating margin | 66.2% | 65.3% | Up 0.9 percentage points |
| Net income | $673.8 million | $784.8 million | Down 14% |
| Diluted EPS | $6.24 | $7.00 | Down 11% |
| Cash from operations | $831.1 million | $807.2 million | Up 3% |
Net margin was 47.3%, versus 59.1% in 2021. The decline largely reflects the comparison with a $165.5 million deferred tax benefit recorded in 2021 following an internal intellectual-property transfer; FY2022 income tax expense was $206.4 million. Interest expense declined to $75.3 million from $83.3 million, while non-operating income was $12.4 million, mainly reflecting higher investment interest income.
At year-end, cash and cash equivalents were $373.6 million and marketable securities were $606.8 million, totaling $980.4 million. Senior-note principal was $1.8 billion: $500 million due 2025, $550 million due 2027, and $750 million due 2031. No borrowings were outstanding on the $200 million revolving facility. Current liabilities exceeded current assets, in part reflecting deferred revenue from domain registrations paid in advance. Total deferred revenue was $1.219 billion. Stockholders’ deficit was $1.562 billion.
VeriSign repurchased 5.5 million shares for $1.03 billion during 2022; $858.8 million remained authorized for future repurchases at year-end. Operating, investing, and financing cash flows were $831.1 million, $355.7 million, and negative $1.036 billion, respectively.
Material changes versus the prior year
- Revenue growth was driven primarily by .com price increases effective September 2021 and September 2022, and to a lesser extent by .com domain-base growth.
- The .com and .net domain base reached 173.8 million, up 0.2% year over year. New registrations fell to 39.9 million from 44.6 million in 2021; the final .com/.net renewal rate for Q3 was 73.7%, versus 75.0% a year earlier.
- FY2022 net income was lower despite higher operating income, principally because 2021 included the $165.5 million tax benefit.
- Cash from operations increased, while cash used in financing rose mainly because of higher share repurchases. Investment cash flow turned positive, primarily reflecting net maturities and sales of marketable securities and lower capital spending.
- VeriSign transitioned .tv operations to another provider in November 2022 and recognized $8.4 million of remaining related deferred revenue upon completion.
Outlook, commentary, risks, and contingencies
- Pricing: VeriSign announced that the annual registry-level wholesale fee for .com registrations and renewals would rise from $8.97 to $9.59 effective September 1, 2023. The .net fee was announced to increase from $9.02 to $9.92 effective February 1, 2023. The filing gives no earnings or revenue guidance.
- Liquidity: Management said available cash, marketable securities, operating cash generation, and borrowing capacity should be sufficient for working capital, capital expenditures, and debt service for the next 12 months and beyond.
- Contract and regulatory exposure: .net’s agreement was due for renewal or extension by July 1, 2023; the .com registry agreement and related U.S. Department of Commerce agreement extend to November 30, 2024. Applications to renew China licenses for .com and .net were under review. VeriSign anticipated transitioning .gov operations to another operator during 2023.
- Competition and demand: Management cited competition from other domain extensions and alternatives such as social media, apps, and e-commerce platforms, as well as economic uncertainty and changes in registration and renewal behavior.
- Operational risks: The company highlighted cyberattacks, DDoS attacks, software or vendor vulnerabilities, outages, and risks involving internet routing and its critical infrastructure operations.
- .web matter: VeriSign has paid $145 million for contractual rights to the .web gTLD, recorded as a deposit pending transfer and ICANN approval. The ICANN Board’s disposition remained pending amid objections by a competing applicant. The filing reports no other litigation expected by management to materially affect financial condition, results, or cash flows.
- Controls and audit: KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Most important facts for investors to verify
- Whether announced .com and .net price increases take effect as scheduled and how they affect registrations, renewals, and revenue.
- Domain-base growth, new-registration volumes, and renewal rates, given the flat base and lower new registrations in 2022.
- Progress and final terms of .net and .com agreement renewals, China license reviews, and the anticipated .gov transition.
- Status of ICANN’s .web decision and whether the $145 million deposit will become an acquired intangible asset or face a different outcome.
- Debt repayment and refinancing needs, cash generation, and the scale of share repurchases relative to liquidity and investment needs.
- Tax developments, including realization of deferred tax assets and resolution of open tax examinations; FY2021’s tax benefit makes year-over-year net income comparisons less representative of operating trends.