VeriSign, Inc. — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Good day, everyone. Welcome to Verisign's First Quarter 2024 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.
Thank you, operator. Welcome to Verisign's First Quarter 2024 Earnings Call. Joining me are Jim Bidzos, Executive Chairman, President and CEO; 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.
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.
Thank you, David. Good afternoon to everyone, and thank you for joining us. In addition to continuing to deliver on our mission as a critical Internet infrastructure provider, we delivered solid and consistent financial results during the first quarter. These results show the continued financial strength of our business model.
Thanks, Jim, and good afternoon, everyone. For the quarter ended March 31, 2024, the company generated revenue of $384 million, up 5.5% from the same quarter of 2023 and delivered operating income of $259 million, an increase of 7.3% from the same quarter a year ago. Operating expense in the first quarter totaled $125 million compared to $124 million last quarter and $123 million in the year ago quarter.
Thank you, George. While we expect that the change in the domain name base for 2024 will be below historic levels for the reasons we've discussed, we continue to believe our business fundamentals remain strong.
[Operator Instructions] Our first question comes from Rob Oliver with Baird.
Great. Jim, first one is for you. Could you just put a finer point on some of those conditions that you discussed, which are weighing on U.S.-based, domestic-based .com growth within registrars?
Sure. Let's see, your first question was on the U.S. market. So basically, as we've discussed, what we see is the recent registrar focus on ARPU has led to some higher retail pricing and a reduction of their promotional offers. And of course, just as a reminder, we don't control the retail pricing, the registrars do. And when you combine that with decreased marketing and advertising outlays from the channel, we think this is a factor leading to less demand for products at present as well as some lower registration volumes and lower renewal rates.
Great. That's helpful color. And then just as a corollary to that, George, for you. We're still running through the model here and obviously, the margin or profit coming down a little bit. That could be a result of the revenue, but is that -- is there -- are there any additional expenses in that second half associated with this program that would -- to drive -- to restart that jump in .com growth for '25? Any additional expenses captured in that change?
Yes, Rob, thanks for the question. I would say not a necessarily direct expense associated with those programs. We do have expense already budgeted, and that is reflected in the current guidance that we're already putting out there for you.
Okay. Great. Helpful. Last question for me, and then I'll turn it over to Ygal. On China, Jim, last quarter, you mentioned that the situation was, I think you used the word opaque, and that there was just so many moving parts, and you guys have been a strong partner and provider in China for so many years.
Sure. Well, I guess, first of all, I would just remind you that in my prepared remarks, at least I mentioned that we do expect China to continue to be a drag through 2024. So that's the first thing. In terms of better visibility, less opacity. I'm -- not really. There's nothing really substantial that I think I can point to that gives us better insights. I just think that, that is a different market for all the reasons that we typically mention.
And we'll take our last question from Ygal Arounian with Citi.
If we could dig into the registrars and the focus on pricing and the impact that's having just a little bit more, is there anything within the pricing that's specific to .com that you're seeing, meaning if we look at kind of total domains beyond .com, the softness isn't necessarily as pronounced? So what are the dynamics? Why is it having a bigger impact on .com versus everything? Are they promoting some of the other TLDs more than they are .com? Just to understand that a little bit better.
Well, it's -- Ygal, it's Jim. It's certainly true that one thing, I guess maybe I could have added, I didn't, so I'm glad you asked this question, to Rob's last question about China is that, that's where we're seeing other TLDs filling some of the demand there. These are TLDs that are priced extremely low. We're talking about sub-$1, in many cases. So that's certainly a factor.
Ygal, it's George. We don't have the flexibility -- as much flexibility, I would say, in new gTLDs in certain markets. So we treat all our customers the same. And so sometimes when we have differences in exchange rates overseas, that can also be a factor in demand.
Got it. So just a follow-up on that, then. With pricing focus with Amendment 35 and the structure of the current contracts, do you think that there's maybe less pricing power in the domain? I mean I would think still not retail $20 a year. It's not the highest consideration purchase. Does that give you any pause or thoughts on how you think about pricing at a wholesale level? I know you don't control the retail level, but how does that flow through on how you think about the wholesale level?
Well, I think the registrars have to make their own decisions on pricing. I think some of the higher renewal prices are, in my opinion, a testament to the stickiness and the high quality of the com product and that the largest segment we have is people who brand themselves on it, and those enjoy particularly high renewal rates. So I think it's just easy, if you have a product, a subscription product, that has strong stickiness like this, a functional TLD that's supported with a 26-year uptime record and all the other benefits that come with it. I think that's not particularly surprising.
Okay. Helpful. And last one for me. Maybe -- we get a lot of questions as we get closer to the date on the .com renewal, and I'm assuming there's nothing new per se to say about it, but maybe just help us walk through the time line of the renewal. What are some of the key timing things to think about or what the time line might look like?
I don't know what you mean by risk. I mean the contract has a presumptive right of renewal, and as long as we're meeting all SLAs, the contract says it shall be renewed. But the contract is not due for actual. The deadline date is the end of November, so it's a ways out. But we are now engaged with ICANN and are in the process of exchanging drafts to the com renewal. So it's early in that process, and com is, like I said, not due until the end of November.
And we'll take an additional question from Rob Oliver with Baird.
Great. Jim, last quarter, you got a question on .web, so I think I'll ask it again. I'm not sure that there's been -- I know this doesn't seem like there's been any official update, but anything you guys have heard or seen or anything we should be aware of that constitutes any change? And could you just provide us your updated perspective on what you see as the possible time line or evolution of that web here?
Thanks, Rob. Good question. I guess I would call it an update. You said movement. I guess this could qualify as that as well. So the one update I have is that Verisign and NDC have just filed an application to participate in this second IRP like we did the first one, as you know.
Great. That's helpful. I'll have to go back to the record to look at that again. But very helpful.
And that does conclude the question-and-answer session. I'll now turn the conference back over to Mr. David Atchley for final comments.
Thank 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.
Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.