VeriSign, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. VeriSign operates key internet infrastructure and the .com and .net domain registries. Its domain name base was 174.4 million .com and .net registrations at quarter-end.
Financial results
| Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 |
|---|---|---|---|---|
| Revenue | $372.0 million | $351.9 million | $736.4 million | $698.8 million |
| Operating income | $248.7 million | $236.0 million | $490.0 million | $460.8 million |
| Net income | $185.7 million | $167.3 million | $364.4 million | $324.8 million |
| Diluted EPS | $1.79 | $1.54 | $3.49 | $2.96 |
| Operating margin | 66.8% | 67.1% | 66.5% | 65.9% |
| Net margin | 49.9% | 47.5% | 49.5% | 46.5% |
Q2 revenue rose 6% and net income 11% year over year; H1 revenue rose 5% and net income 12%. Higher .com pricing supported revenue growth, while the transition of the .tv registry to another provider partly offset it. Higher interest income materially boosted non-operating income: $12.7 million in Q2 versus $1.6 million, and $24.0 million in H1 versus $1.9 million.
Cash, debt and liquidity
- H1 operating cash flow was $404.3 million, up from $352.0 million. Capital expenditures were $12.2 million; operating cash flow less capital expenditures was approximately $392.1 million.
- H1 investing cash flow was $11.5 million, compared with $579.4 million, largely reflecting changes in purchases and maturities of marketable securities. Financing cash outflow was $445.4 million, mainly from share repurchases.
- Cash and cash equivalents plus marketable securities totaled $935.6 million at June 30, down from $980.4 million at year-end 2022. The securities were primarily U.S. Treasury instruments, all with maturities under one year.
- Senior notes had $1.8 billion principal outstanding: $750 million at 2.70% due 2031, $550 million at 4.75% due 2027, and $500 million at 5.25% due 2025. No borrowings were outstanding on the $200 million revolving credit facility. The balance-sheet carrying value of notes was $1.789 billion.
- Management said liquidity and operating cash generation, together with potential financing capacity, should be sufficient for working capital, capital expenditures, and debt service for the next 12 months and beyond. Stockholders’ deficit was $1.618 billion.
Business developments, outlook and risks
- The domain base increased 0.1% year over year but declined by 0.3 million registrations from March 31. Q2 new .com and .net registrations were 10.2 million, versus 10.1 million a year earlier. The final Q1 2023 renewal rate was 75.5%, compared with 75.9% for Q1 2022.
- Management cited soft domain demand, particularly in China, alongside competition from other domain extensions and alternatives such as social media, changing internet behavior, and global economic uncertainty.
- The .net registry agreement was renewed through June 30, 2029. VeriSign announced a .net wholesale fee increase from $9.92 to $10.91 effective February 1, 2024. A .com increase from $8.97 to $9.59 was announced for September 1, 2023.
- The board authorized an expanded share repurchase program on July 27, 2023, raising total authorization to $1.50 billion. During H1, VeriSign repurchased $453.4 million of shares; $418.9 million remained under the prior authorization at June 30, before the subsequent increase.
- The .web application remains on hold after ICANN dismissed objections by Afilias and directed the application to be processed; Afilias subsequently filed another independent review complaint. The company said other pending investigations, claims and lawsuits were not expected to have a material adverse effect, while noting litigation may consume resources and management attention.
- No formal earnings or revenue guidance is provided in the supplied filing text. Management reported no material changes to risk factors since the 2022 Form 10-K and no significant change in market-risk exposures.
Key facts for investors to verify
- Whether domain registrations and renewals stabilize or weaken further, particularly in China, and the direction of the renewal rate.
- How announced .com and .net price increases affect registrations, renewals, and revenue.
- Cash generation and liquidity relative to continued repurchases, the debt maturities, and the enlarged repurchase authorization.
- Progress and potential implications of the .web application dispute and any material developments in other legal matters.