威瑞信 (VRSN) 2017 Q3 法說會逐字稿

Good day, everyone, and welcome to VeriSign's Third Quarter 2017 Earnings Call. Today's conference is being recorded, and unauthorized recording of this call is not permitted.

At this time, I would 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, and good afternoon, everyone. Welcome to VeriSign's Third Quarter 2017 Earnings Call. With me are Jim Bidzos, Executive Chairman, President and CEO; Todd Strubbe, Executive Vice President and COO; and George Kilguss, Executive Vice President and CFO.

This call and our presentation are being webcast from the Investor Relations section of our verisign.com website. There, you will also find our third quarter 2017 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 discussed in detail in our documents filed with the SEC, specifically, the most recent reports on Forms 10-K and 10-Q, which identify risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.

VeriSign retains its long-standing policy not to comment on 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 and non-GAAP measures used by VeriSign. GAAP to non-GAAP reconciliation information is appended to our earnings release and slide presentation, as applicable, each of which can be found on the Investor Relations section of our website.

In a moment, 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.

Thanks, David, and good afternoon, everyone. I'm pleased to report another solid quarter for VeriSign. Third quarter results are in line with our objectives of offering security and stability to our customers while generating profitable growth and providing long-term value to our shareholders.

We reported revenue of $292 million, up 1.7% year-over-year and delivered strong financial performance, including non-GAAP EPS of $1 and $153 million in free cash flow.

During the third quarter, we continued our share repurchase program by repurchasing 1.5 million shares for $147 million. Our financial position is strong with $2.4 billion in cash, cash equivalents and marketable securities at the end of the quarter. We continually evaluate the overall cash and investing needs of the business and consider the best uses for our cash, including potential share repurchases.

At the end of September, the domain name base in .com and .net totaled 145.8 million, consisting of 130.8 million names for .com and 15 million names for .net. The domain name base increased by 1.47 million net names during the third quarter after processing 8.9 million new gross registrations. Gross additions during the quarter benefited from continued strength from U.S.-based registrars.

Although renewal rates are not fully measurable until 45 days after the end of the quarter, we believe that the renewal rate for the third quarter of 2017 will be 74.3%. This preliminary rate compares to 73.0% achieved in the third quarter of 2016. We expect an increase to the domain name base during the fourth quarter of between 0.4 million to 0.9 million registrations, which is consistent with the full year 2017 domain name base growth rate of 2.8% to 3.1%.

And now I'd like to turn the call over to George.

Thank you, Jim, good afternoon, everyone. Revenue for the third quarter totaled $292 million, up 1.7% year-over-year and up by 1.3% sequentially. During the quarter, 59% of our revenue was from customers in the United States and 41% was from foreign customers.

As it relates to our GAAP results, operating income in the third quarter totaled $181 million compared with $175 million in the third quarter of 2016. The operating margin in the quarter came to 61.9% compared to 60.8% in the same quarter a year ago.

Net income totaled $115 million compared to $114 million a year earlier, which produced diluted earnings per share of $0.93 in the third quarter this year compared to $0.90 for the third quarter last year.

As of September 30, 2017, the company maintained total assets of $2.9 billion and total liabilities of $4.1 billion. Assets included $2.4 billion of cash, cash equivalents and marketable securities, of which, $757 million were held domestically with the remainder held abroad.

I'll now review some additional third quarter financial metrics, which include non-GAAP operating margin, non-GAAP earnings per share, operating cash flow and free cash flow. I will then discuss our 2017 full year guidance.

As it relates to non-GAAP metrics, third quarter operating expense, which excludes $14 million of stock-based compensation, totaled $97 million compared to $100 million, both last quarter and the same quarter a year ago. While non-GAAP operating expenses were lower in the third quarter, we do expect an increase in sales and marketing spending in the fourth quarter.

Non-GAAP operating margin for the third quarter was 66.7% compared to 65.3% in the same quarter of 2016. Non-GAAP net income for the third quarter was $124 million, resulting in non-GAAP diluted earnings per share of $1 based on a weighted average diluted share count of 124.1 million shares. This compares to $0.93 in the third quarter of 2016 and $1.05 last quarter based on 127.7 million and 124.0 million weighted average diluted shares, respectively.

Operating cash flow for the third quarter was $175 million and free cash flow was $153 million compared with $171 million and $165 million, respectively, for the third quarter last year. Free cash flow in the third quarter was lower, partially due to the timing of some capital expenditures.

Dilution related to convertible debentures was 24 million shares based on the average share price during the third quarter compared with 20.8 million for the same quarter in 2016 and 22.5 million shares last quarter. The share count was reduced by the full effect of second quarter 2017 repurchase activity and the weighted effect of the 1.5 million shares repurchased during the third quarter.

With respect to full year 2017 guidance, revenue for 2017 is now expected to be in the range of $1,161,000,000 to $1,166,000,000 increased and narrowed from the $1,155,000,000 to $1,165,000,000 range provided on our prior earnings call.

Full year 2017 non-GAAP operating margin is now expected to be between 65% and 65.5% increased and narrowed from the 64.5% to 65.25% range provided on our prior earnings call. Our non-GAAP interest expense and non-GAAP nonoperating income net is still expected to be an expense of between $103 million and $110 million.

Capital expenditures for the year are now expected to be between $45 million and $55 million, changed from the $40 million to $50 million range provided on the last call. And cash taxes for the year are still expected to be between $20 million and $30 million.

The majority of expected cash taxes in 2017 are foreign, primarily because of domestic tax attributes, including cash tax benefits from our convertible debentures. As we said in prior calls, these convertible debentures are an important part of our capital structure and our intention, based on current conditions, is not to redeem these debentures, which will allow the cash tax benefits to continue to accrue.

In summary, the company continues to demonstrate sound financial performance during the third quarter of 2017.

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

Thanks, George. In closing, during the third quarter, we continued our work to protect, grow and manage the business while continuing our focus on providing long-term value to our shareholders. We think our focus on profitable growth and disciplined execution will extend the long trend lines of growth in our top and bottom line and allow us to continue our consistent track record of generating and returning value to our shareholders in the most efficient manner.

We will now take your questions. So operator, we're ready for the first question.

(Operator Instructions) And we will go to Rob Oliver, Baird.

It's Matt Lemenager on for Rob this afternoon. Can you give us any update on the .web civil investigative demand that I think we had talked about a couple of quarters ago? Is there any update on that process or how that's sitting?

The update is really the same. There's no new news. Although there is activity, the process is ongoing. We are continuing to cooperate with the Justice Department. Regarding the CID that you asked about, there's an ongoing constructive document -- dialogue. We're producing documents and information. But beyond that, there's nothing new to say at this point. Of course, as soon as there is, we'll let you know.

Got it. And my next question is just -- do you have any thoughts on -- as I think about speculators or squatters and we think about the rise in with things like Bitcom -- Bitcoin and Ethereum and things like that, is there any -- have you guys seen any impact of people who may be before would have been coming and buying domains? I'm just curious to get your thoughts on kind of the impact of Bitcoin and other things like that people are maybe out purchasing.

I don't know of any direct relationship between people purchasing Bitcoin and domain names. I can tell you that we do report on trends in domain name registration and that Bitcoin trends frequently, consistently and often. So people are registering names related to Bitcoin and cryptocurrency and those types of things. So we do see those, and we do report those registration trends. Beyond that, I don't think there's any unusual activity that we have to report.

And Mr. Atchley, I'll turn things over to you for any final comments.

Great. 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.

And that does conclude today's conference call. We thank you all for joining us.