VeriSign, Inc. Price & Performance (VRSN)

Thank you, operator. Welcome to VeriSign's first quarter twenty twenty five earnings call. Joining me are Jim Bidzos, Executive Chairman, President and CEO George Kilgus, Executive Vice President and CFO and John Callis, Senior Vice President, Global Controller and Chief Accounting Officer will become Chief Financial Officer at the May upon George's retirement. This call and presentation are being webcast from the Investor Relations Web site, which is available under About VeriSign on verisign.com. There you will also find our earnings release. At the end of this call, the presentation will be available on that site, and within a few hours, the replay of the call will be posted. Financial results in our earnings release are unaudited and our remarks include forward looking statements that are subject to the risks and uncertainties we discuss in detail in our documents filed with the SEC. Specifically the most recent report on Form 10 ks and 10 Q. VeriSign does not update financial information or guidance during the quarter, unless it is done through a public disclosure. Financial results in today's call and the matters we will be discussing today include GAAP results and two non GAAP measures used by VeriSign, adjusted EBITDA and free cash flow.

GAAP to non GAAP reconciliation information is appended to the slide presentation. Which can be found on the Investor Relations section of our website. Available after this call. Jim and George will provide some prepared remarks, and afterward, we will open the call for your questions. With that, I'd like to turn the call over to Jim. Thank you, David. Afternoon, everyone, and thank you for joining us. This month, VeriSign celebrated thirty years since its incorporation, It was incubated beginning in 1986 by RSA Data Security, where I was CEO. VeriSign has changed significantly over the years we're particularly proud of VeriSign's mission and role in providing critical Internet information services. Turning to the first quarter results, VeriSign's performance in the first quarter reflects sequentially improving trends the soundness of our business model.

At the March, the domain name base for .com and .net totaled 169,800,000 domain names, up 777,000 from year end of twenty twenty four. New registrations for the first quarter totaled 10,100,000.0 compared with $9,500,000 for both last quarter and the same quarter last year. The renewal rate for the first quarter of twenty twenty five is expected to be 75.3% compared to 74.1% a year ago. From a geographic perspective, during the first quarter, we saw trends improve with increases in the domain name base from our three main regions, The U. S, EMEA and Asia Pacific. Given these improving domain name based trends, we now expect the change in the domain name base to be between negative 0.7% or negative 70 bps and positive 0.9% or 90 bps for 2025. As mentioned last quarter, we saw improving trends at the end of twenty twenty four which continued during the first quarter. Resulting in both improved new registrations and renewal rates. It's still early, but we do see signs of registrars shifting towards customer acquisition and we also see more registrar engagement with our marketing programs. Our updated guidance reflects these trends, but also includes a measure of caution until the macroeconomic situation clarifies.

And as a reminder, any expenses associated with marketing programs are fully accounted for in our guidance. Our financial and liquidity position continues to remain stable with $649,000,000 in cash cash equivalents and marketable securities at the end of the quarter. During the first quarter, we repurchased 1,000,000 shares returning $230,000,000 to shareholders. At quarter end, $793,000,000 remained available and authorized under the current share repurchase program, which has no expiration. As announced in today's earnings release, VeriSign's Board of Directors declared a cash dividend of $0.77 per share of VeriSign's outstanding common stock to stockholders of record as of the close of business on 05/19/2025, payable on 05/28/2025. VeriSign intends to continue to pay a cash dividend on a quarterly basis subject to market conditions and approval by VeriSign's Board of Directors. We are pleased to introduce a cash dividend as part of our return of capital commitment to shareholders. We will continue our capital allocation focus first on maintaining adequate liquidity, second, investing in the business and then returning excess cash to shareholders with a portion of that return now through quarterly cash dividends. This initiation of a cash dividend doesn't change the way we think about the total amount of shareholder return, addition to an ongoing commitment to maintain a dividend we intend to grow the dividend annually with our earnings growth.

We view the decision to become a dividend issuer as a natural evolutionary step to diversify our return of cash to shareholders. And now I'd like to turn the call over to George. I'll return when George is completed his financial report with closing remarks. Thanks, Jim, and good afternoon, everyone. For the quarter ended March 31, 2025, the company generated revenue of $4.00 $2,000,000 up 4.7% from the same quarter a year ago.

Operating expense in Q1 twenty twenty five totaled $131,000,000 which compares to $132,000,000 last quarter and $125,000,000 for the first quarter a year ago. While similar sequentially, the year over year increase in expense is mainly due to a slight increase in headcount and incentive based compensation accrual adjustments. Net income in the first quarter totaled 199,000,000 compared to $191,000,000 last quarter and 194,000,000 a year ago. Which produced diluted earnings per share of $2.1 for the first quarter this year compared to $2 last quarter and $1.92 for the same quarter of 2024. During the quarter, the company issued five new 5.25% senior notes due 02/1932 refinance the company's existing 500,000,000 five point two five percent twenty twenty five senior notes which on April 1.

The Operating cash flow for the first quarter of twenty twenty five was $291,000,000 and free cash flow was $286,000,000 compared with the $257,000,000 and $254,000,000 respectively, in the year ago quarter. I'll now discuss our updated full year 2025 guidance. Revenue is now expected to be between $1,635,000,000 and 1,650,000,000.00 Operating income is now expected to be between $1,110,000,000 and $1,125,000,000 Interest expense and non operating income net which includes interest income estimates, is still expected to be an expense of between $50,000,000 and $60,000,000 Capital expenditures are still expected to be between $30,000,000 and $40,000,000 And the GAAP effective tax rate is still expected to be between 2124%. In summary, VeriSign continued to demonstrate sound financial discipline during the quarter.

Now, I'll turn the call back to Jim for his closing remarks.

Thank you, George.

I'd like to acknowledge and thank George for his thirteen years of service to VeriSign as Executive Vice President and Chief Financial Officer. Has been instrumental in providing outstanding financial acumen and leadership to our operations and our teams, and we wish him the best in retirement. John Callis, Senior Vice President, Global Controller and Chief Accounting Officer has served as Interim CFO in the past has worked closely with George over many years and will become Chief Financial Officer upon George's retirement at the May, making for a seamless transition. Thanks for your attention today. This concludes our prepared remarks, and now we'll open the call for your questions. Operator, we're ready for the first question. Thank you. If you are dialed in via the telephone and would like to ask a question, If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once your question has been stated, please mute your line. We will take our first question from Ygal Arounian with Citigroup.

Hey, good afternoon, guys. Thanks.

I'll start with George. Congrats on the retirement, George. Good luck on the next steps and guess you left investors a little bit of a parting gift here on the dividend.

Can you elaborate a little bit on the timing of why now is the right time to initiate a dividend? And on the comment that doesn't change how you think about total shareholder return, does that mean that we should expect less buybacks because of the dividend or maybe just put it in context of that, and then I'll have some follow ups.

Hi, Kyle, it's Jim. Let me me answer part of that question for you. Maybe I invite George to comment further. But first of all, we're pleased to be able to diversify the method of shareholder return to now include regular dividends I don't think there's much more to say than what I covered in my prepared remarks. The company has had a long track record of returning excess cash to shareholders and has been considering the quarterly cash dividend for quite some time. Today's announcement is consistent with that long track record and with our expectations of and confidence in the continued stability and strength of our business. George, did you want to add anything?

Yes. Yigal, I think as Jim said, we're just diversifying our return of capital to shareholders. And we'll continue to go through our strategic framework of how we think about capital allocation. As we've done in the past and I think you'll see us do a combination of the two, but clearly it's really a statement on the company's stability in our business model and just think it's the right time to start diversifying that method of return of capital.

Okay. Thanks. And then, so two follow ups on on the business and the trends. So, with 1Q domain name based outperforming our expectations, you're taking up your outlook for the year because of that.

Can you just talk about what you think were the biggest drivers of that performance relative to what you were expecting at the beginning of the year? And as we kind of work our way through the rest of the year, particularly with some of the macro [indiscernible] You know, what are the factors that get you the low end of the range versus the high end of the range over the course of the rest of the year. And then second question, on .net. We didn't get the pricing increase February like we have the past few years. Just any updated thoughts on how you're thinking about pricing there? Thank you.

Sure, Regal, it's George. With regard to our guidance, you're right. We're off to a solid start of the year delivering 770,000 net adds here in Q1. And as a result, we took the guidance up, as Jim mentioned, from down 0.7% to positive 0.9%, which is a range of about 1,200,000 names down to 1,500,000 names up with a midpoint of about 200,000 there. I think at the end of the day, what the guidance is really reflecting is the pot positive trends we're seeing here. But as Jim mentioned, it also reflects a measure of caution as we're still early in the cycle. And the macroeconomic outlook is a bit unclear. We also have some seasonality to the domain name base in the first quarter. Which is typically our strongest. But I think we're encouraged by the results And activity of our registrars and and hence we took the guidance up pretty substantially here in Q1. As regard to your second question on .net, price increases, I think you're aware that we really don't provide guidance with regard to pricing changes for our TLDs. But we do have to provide a six month notice of any potential changes that we make.

For .net, our last price increase became effective in February 2024. Which placed our wholesale price for .net at $10.91 We of course regularly review our pricing strategies in conjunction with our go to market strategies. Our TLDs. But as I mentioned, we don't provide pricing guidance for them as well.

Great. Thank you so much.

We will take our last question from Rob Oliver with Baird.

Great. Thanks, guys. Good afternoon. I appreciate it. I have a couple of questions.

Jim or George, I'll start with you guys. First, Just on some of the activities around your marketing channel programs that you guys sort of kicked off last year. Would love to get an update on those. How what sort of traction you're seeing with them? George, I know you just commented that were encouraged by the registrar activity generally. I think part of that might be registrars reengaging, but would love to understand what portion of that is action you guys are taking and where you're seeing success with your marketing channel programs. And then I had a couple of follow ups. Yeah. Sure, Rob. To, your question for credit marketing programs, so as we mentioned, over the past few quarters, rolled out a variety of new programs late in 2024 and early twenty twenty five. To date we've seen good registrar interest in those programs. While it's still early, we do attribute some of the improved new registration trends we saw in the fourth quarter and here again in the first quarter. To register our engagement with the programs that we rolled out. I would call our activity that we saw here in the last two quarters, activity from what I would call early adopters of the programs that we rolled out last year.

We're also have some registrars that are continuing test the programs that we rolled out here in 2025. So we'll continue to monitor and work with the registrar community here to help them engage in our programs throughout the year. But I think early results are we're encouraged by them, but I think we still have some work to do.

Great. That helpful. Thanks. I appreciate it. Jim, on the strong domain guide, I think you said that it includes a measure of cost relative to the macro, which I think for your words And I'd love to hear your take on the macro because on the one hand, it's seems as if the registrars are starting to spend more and we were super encouraged to see two leading registrars pony up for Super Bowl ads, which I think that was the first time in a handful of years that we've been tracking it that we saw that sort of a financial commitment, which was a positive. But obviously, there are some concerns on the macro right now. So I would love to hear just from you kind of what your take currently is on the macro. I guess a variance on the question earlier about how we might get on one or other end of that range.

Sure, I'll give it a shot here. I think, first of all, the components of of all those pieces are first of all, some things that we laid out last year. That we would do and some things that we expected to shift favorably. So there were a couple of tailwinds that we thought would shift to headwinds and it looks like that's beginning to happen a bit. A return to new customer acquisition and the focus on ARPU by the channel And as you Super Bowl, for example, is clearly an indication of spend on new customer acquisition. So that's a favorable shift that we've seen since then. The things that we've done in our marketing programs that we've mentioned before, for example, we offered a range of programs simply as a way of providing needed flexibility in what was an evolving channel. It had changed traditional registrars. Yes, of course, there are customers, but also we had web site builders, etcetera. So one size fits fits all approach didn't work as well. I think that's where we're seeing some interesting promising take up even though it's a big it's a bit early. I think the other thing that the component that we really can't identify is just, you know, not an economist, but I think I can recognize a bit of turmoil here and I think it's just clarity.

It's a question of clarity. As that clarifies, I think we'll get a better idea of where the future is and offer any updated guidance, of course, as appropriate. But this is just based on it being early in the year. A bit of uncertainty about where things will land Hopefully, they will shortly and we'll be able to give you better info, but we are certainly appreciative of the positive changes that we've seen. As I said, we've done what we can control and we're seeing some results from that. And they trend favorably. And also we're picking up some headwinds that have shifted into tailwinds that are helping us return to getting off ARPU and returning to new customer acquisition by the registrars. Programs that are working for them. So those are the different components. The uncertainty is obviously the macroeconomic environment, which we just need more clarity on before we can get more comfortable.

Got it.

Okay. Helpful. Yeah. You and everyone else. My two other quick ones. One, John, welcome. And George, congratulations on your retirement. I guess just a quick question about some of the higher expenses that George had called out.

Is this a new run rate of higher expenses? And just would love to get a sense from you of kind of your philosophy relative to that expense run rate.

Thanks, Rob. This is John.

If you look at the midpoint of our operating income guidance for the year, it implies a slight improvement in our operating margin. But it also implies a slight amount of spend that we incurred, a similar amount of spend that we incurred in the first quarter for the balance of 2025 As George mentioned in his prepared remarks, this is mainly due to slight increases in headcount and some of our incentive based compensation programs.

As in past quarters, will continue to focus on expense management and do that within our strategic framework.

Got it. Great. Thanks. Look forward to working with you. And last one for me is just any update from you guys on .web or anything we should be aware of there? Thanks very much.

Rob. Jim here. We do have a small update on dot web. Just as in the first IRP, think arbitration IRP, this new IRP panel that we have has again rejected Altinovo's attempt to invalidate certain procedural rules. The hopes that doing so would exclude our participation in these IRP proceedings. With that effort rejected, we anticipate a ruling soon on our application to participate in the IRP the final hearing in November. To reiterate VeriSign, we intend to become the registry operator for .web and we intend to bring this new TLD to our customers as soon as we can. We believe Altenova's use of ICANN's processes to stop this from happening is an abusive process and is being pursued in bad faith to keep .web.

Off the market. So that's, that's the update this quarter.

Okay. All right. Great. I'm I'll, I'll digest that, and I'll come back to you guys probably with a callback or with some follow-up But really appreciate your time. Thanks very much.

Thank you. Thank you.

This concludes today's question and answer session. I will now turn the call back to David Atchley for final comments.

You, operator. Please call the Investor Relations department with any follow-up questions from this call. Thank you for your participation. This concludes our call.

Have a good evening.

This does conclude today's call. Thank you for your participation. You may now disconnect.