VeriSign, Inc (VRSN)

• VeriSign is actively returning excess cash to shareholders through share repurchases, spending $301 million to repurchase 1.7 million shares in the third quarter, with $1.28 billion remaining under the current share repurchase program. -
• New registrar marketing programs are showing promising results, and the company plans to engage more fully with registrars in 2025 to drive domain name base growth.** - -
• VeriSign has historically benefited from economic growth in China, and as registrars in China adopt new programs, there is potential for positive impacts on the domain name base.** -

• VeriSign experienced a decline of 1.1 million domain names in its domain name base during the third quarter, with 850,000 of this decline from the U.S. market, indicating challenges in maintaining growth. -
• U.S. registrars are prioritizing higher ARPU over customer acquisition by increasing retail prices, focusing on aftermarket sales, and reducing marketing spend, negatively impacting VeriSign's new registrations and renewal rates. -
• Weakness in the Chinese market due to a poor macroeconomic environment and increased regulations continues to impact VeriSign's growth, with no material improvement expected in the near term. -

1. Growth Outlook
   Q: Is returning to growth in 2025 less certain now?
   A: Management indicated that registrars are not engaging quickly enough to implement programs, pushing some initiatives from 2024 into 2025, which could impact the goal of returning to growth in the second half of 2025. -

2. Registrar Strategies
   Q: How is the focus on ARPU affecting domain growth?
   A: Registrars are prioritizing higher ARPU through increased retail prices, aftermarket sales of premium domain names, and reduced marketing spend. This focus is creating headwinds for domain growth, particularly in the U.S. market, contributing to a decline of 850,000 domains in the U.S.. -

3. China Outlook
   Q: Will you benefit if China's economy rebounds?
   A: Historically, the company benefited when China's economy was strong. Currently, the macroeconomic environment and increased regulation in China remain weak. Some registrars piloted programs last quarter with positive results, and the company is engaging with them into 2025 in hopes of benefiting if economic activity rebounds. -

4. Expense Growth
   Q: How will marketing efforts impact costs in 2024 and 2025?
   A: Expenses are expected to grow more in 2025 than in 2024. Investments, including hiring 12 people in the quarter, have been pushed into Q4 2024. The company will invest more in marketing programs that are proving accretive and reduce investment in those that are not. -

5. Capital Allocation
   Q: Will you increase leverage to boost buybacks?
   A: The company is cautious about financial stability and does not plan to increase leverage. While committed to returning excess cash to shareholders efficiently, leveraging up is not a priority, and they will continue their prudent capital allocation strategy. -

6. Marketing Initiatives
   Q: Can you provide examples of marketing programs?
   A: For competitive reasons, specifics were not disclosed, but the company is offering registrars multiple programs to align with different go-to-market strategies. This includes options that appeal to registrars focusing on selling more products or acquiring new customers, aiming for programs that are mutually beneficial. -

Annual guidance for FY 2024:

• Revenue: $1.554–$1.559 billion - (lowered from $1.553–$1.563 billion - )
• Operating Income: $1.054–$1.059 billion - (raised from $1.048–$1.058 billion - )
• Interest Expense and Nonoperating Income Net: $32 million–$42 million - (raised from $25 million–$35 million - )
• Capital Expenditures: $25 million–$35 million - (lowered from $30 million–$40 million - )
• GAAP Effective Tax Rate: 21%–24% - (no change from prior guidance - )