VeriSign, Inc. (NASDAQ:VRSN) Q4 2023 Earnings Call Transcript
VeriSign, Inc. (NASDAQ:VRSN) Q4 2023 Earnings Call Transcript February 8, 2024
VeriSign, Inc. beats earnings expectations. Reported EPS is $1.92, expectations were $1.83. VeriSign, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, everyone. Welcome to Verisign's Fourth Quarter and Full Year 2023 Earnings Call. Today's conference is being recorded. Recording of this call is not permitted unless preauthorized. At this time, I'd like to turn the conference over to Mr. David Atchley, Vice President of Investor Relations and Corporate Treasurer. Please go ahead, sir.
David Atchley: Thank you, operator. Welcome to Verisign's fourth quarter and full year 2023 earnings call. Joining me are Jim Bidzos, Executive Chairman and CEO; Todd Strubbe, President and COO; and George Kilguss, Executive Vice President and CFO. This call and presentation are being webcast from the Investor Relations website, 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 that we discuss in detail in our documents filed with the SEC, specifically the most recent report on Form 10-Q.
Verisign does not update financial performance or guidance during the quarter unless it is done through a public disclosure. The 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 would like to turn the call over to Jim.
Jim Bidzos: Thank you, David. Good afternoon to everyone, and thank you for joining us. 2023 marked another solid year of execution delivering consistent financial results while enhancing our critical internet infrastructure and extending our record of .com and .net DNS availability beyond 26 years. During 2023, revenue grew 4.8% year-over-year while operating income increased by 6.1%. Shares outstanding at the end of 2023 decreased by 3.7% from the total of outstanding shares at the end of 2022. Our financial and liquidity positions remains stable with $926 million in cash, cash equivalents and marketable securities at the end of the year. Over the course of the year, we returned $883 million of capital to shareholders through the repurchase of 4.2 million shares.
At year end, $1.12 billion remained available authorized under the current share repurchase program which has no expiration. At the end of December, the domain base in .com and .net totaled 172.9 million domain names, down 0.6% from 173.8 million names at the end of 2022. During the fourth quarter, the domain name base decreased by 1.2 million domain names. From a new registration perspective, the fourth quarter ended with 9 million new registrations, compared with 9.7 million names for the same quarter last year. For the full year, new registrations were 39.4 million names, down 490,000 names from the 39.9 million names we saw during 2022. The renewal rate for the fourth quarter of 2023 is expected to be approximately 73.1% compared with 73.3% a year ago.
For the full year 2023, a preliminary renewal rate of 73.9% is below the 74.2% renewal rate of 2022. Both first time and previously renewed names were lower year-over-year. While there are many factors that drive demand for domain names, declining demand from China remains the primary source of drag on the overall domain name base growth. Our domains under management from China-based registrars declined by 2.2 million names in 2023. China-based registrar demand has been weak as a result of several factors including challenging economic conditions, a more stringent regulatory environment and the impact of a weaker local currency combined with retail pricing adjustments. Excluding registrars based in China, our domain name base grew by 1.2 million names or 0.8% during 2023.
While the domain name base thus far in 2024 has grown quarter-to-date, we have not yet seen any material changes in the current macroeconomic or regulatory landscape in China. Therefore we believe it’s prudent to expect China to continue to negatively impact revenue and domain base growth during 2024. However, with the China base portion of our base now at about 5% of our overall domain name base, we see the negative trend in China having a less pronounced effect on our overall business after 2024. For 2024, we are expecting the domain name base to remain flat year-over-year with a range of negative 1% and positive 1%. As announced in today’s earnings release, we have given notice of a price increase of $0.67 to the annual wholesale price for .com domain names with raises of our wholesale price from $9.59 to $10.26 effective September 1, 2024.
Even after this increase, we believe com will remain highly competitive with other TLD choices. As a reminder, any of our domains maybe registered for terms up to ten years at the current wholesale price. Now I’d like to turn the call over to George. I’ll return when George has completed his financial report with closing remarks.
George Kilguss: Thanks, Jim, and good afternoon, everyone. For the year ended December 31, 2023, the company generated revenue of $1.493 billion, up 4.8% and delivered operating income of $1 billion, up 6.1% from 2022. Operating expense totaled $492 million in 2023 and was up 2.2% from the previous year. The full year 2023 operating margin was 67% and free cash flow was $808 million. For the quarter ended December 31, 2023, the company generated revenue of $380 million, up 3% from the same quarter of 2022, and delivered operating income of $256 million, an increase of 4.4% from the same quarter a year ago. Operating expense in Q4 totaled $124 million, compared to $122 million last quarter and it was flat from a year earlier.
Net income in the fourth quarter totaled $265 million, compared to $179 million a year earlier, which produced diluted earnings per share of $2.860 for the fourth quarter of 2023, compared to $1.70 for the same quarter of 2022. As stated in today’s earnings release, net income for the fourth quarter of 2023 included the recognition of income tax benefits related to the items noted in our release. Cumulatively, these income tax benefits increased net income by $69.3 million, and increased diluted earnings per share by $0.68. Operating cash flow for the fourth quarter of 2023 was $204 million, and free cash flow was $199 million, compared with $217 million and $209 million, respectively, in the year ago quarter. Operating cash flow and free cash flow for the full year 2023 totaled $854 million and $808 million, respectively.
I’ll now discuss our full year 2024 guidance. Revenue is expected to be in the range of $1.560 million to $1.580 million. Operating income is expected to be between $1.045 million and $1.065 million. Interest expense and non-operating income net, which includes interest income estimates is expected to be an expense of between $30 million to $40 million. Capital expenditures are expected to be between $35 million to $45 million. And the GAAP effective tax rate is expected to be between 21% and 24%. Overall, Verisign has continued to demonstrate sound financial performance during the last quarter and throughout 2023 and we look forward to building on our strengths in our mission in the coming year. I'll now turn the call back to Jim for his closing remarks.
Jim Bidzos Thank you, George. While demand from our registrars in China is expected to continue to remain soft in 2024, the fundamentals of our business remains strong. We firmly believe our responsible and disciplined management of our business and capital continue to service well allowing us to report another solid year, which in our view is one in which we fulfill our stewardship mission of providing secure and reliable infrastructure services, manage our business responsibly and efficiently and returning capital to our shareholders. These goals remain unchanged and support our commitment to deliver strong financial results including steady growth in revenue, operating income and EPS. Thanks for your attention today. This concludes our prepared remarks.
Now we will open the call for your questions. Operator, we are ready for the first question.
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