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Good day, everyone. Welcome to VeriSign's Second Quarter 2026 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 Second Quarter 2026 Earnings Call. Joining me are Jim Bidzos, Executive Chairman, President and CEO; and John Calys, 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 reports on Form 10-K and 10-Q. VeriSign does not plan to update financial performance or guidance during the quarter. The financial results in today's call and the matters we will be discussing today include GAAP results and free cash flow, a non-GAAP measure used by VeriSign. 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 John 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. Good afternoon to everyone, and thank you for joining us. Last week, we marked 29 years of delivering 100% availability for the .com and .net domain name resolution system, an unprecedented achievement that speaks to the robustness of the high-assurance critical infrastructure we operate. Alongside that technical milestone, we're also pleased to report that VeriSign delivered strong results in the second quarter of 2026, both operationally and financially. The combined .com and .net domain name base is now at 179.1 million names, driven by a record 12.7 million new registrations during the second quarter with continued solid renewal rates. On the financial side, revenue was up 6% year-over-year, and EPS increased 7.7% year-over-year. We have returned more than 100% of our free cash flow to our shareholders in the last 12 months, totaling $1.17 billion in share repurchases and dividends. Effective today, the Board of Directors has increased the amount authorized for share repurchases of VeriSign common stock by $884 million for a total of $1.5 billion available under the current share repurchase program, which has no expiration. As announced in today's earnings release, VeriSign's Board of Directors approved a cash dividend of $0.81 per share of VeriSign's outstanding common stock to shareholders of record as of the close of business on August 19, 2026, payable on August 27, 2026. VeriSign intends to continue to pay a cash dividend on a quarterly basis. VeriSign's performance in the second quarter shows continued robust demand for domain names. During the quarter, the domain name base for .com and .net grew 3.05 million from the prior quarter end. New registrations for the second quarter were a record 12.7 million compared to 11.5 million last quarter and 10.4 million for the second quarter of last year. The renewal rate for the second quarter of 2026 is expected to be 75.2%, compared to 75.5% a year ago. The U.S. and EMEA were the regions in which we saw the strongest growth during the second quarter. The factors driving the solid domain name base trends the past several quarters accelerated during the second quarter. Registrars are focused on customer acquisition and are successfully engaged with our marketing programs. Additionally, AI tools are making content and website creation faster and easier. The strength in new registrations attests to the vital role of domain names in being discovered and establishing digital credibility. With the trends we've observed in the first half of 2026 and our expectations for the second half, we're increasing and narrowing our guidance for domain name base growth to be between 5.2% and 6% for 2026. As a reminder, you can monitor the progression of the domain name base on our website, which is updated daily. The first-time renewal rate is the highest rate we have seen in 20 years. The 12.7 million new registrations are the largest we have seen for any quarter in our history. The record metrics we have seen during the first half of 2026 and the solid outlook made for our upward revision for domain name base growth for 2026. We're very pleased with the strong business metrics, which are leading to strong financial metrics for the company. Before having John review the financial metrics, I want to spend a minute talking about .web. Last night, we announced that .web had been delegated into the global Domain Name System's root zone, with VeriSign as the registry operator. The delegation of .web follows the successful resolution of all previous disputes related to the generic top-level domain. With a worldwide channel of registrar partners and decades of experience leveraging channel relationships to market and distribute TLDs like .com and .net, VeriSign is poised to offer .web as an attractive new domain for TLD registrants across the globe. VeriSign plans to begin offering .web domains through its channel partners later this year, and we'll share further details about the planned launch in the coming months. As the launch is expected late this year, at this time, we don't expect meaningful revenue or expenses related to .web for 2026. We understand there may be questions about the new products we discussed in our last earnings call. We didn't put our new product efforts on hold. There are and have been teams working without interruption on them, and the products have been operational in test mode since early this year. We simply paused the rollout of the blogs as we focused on resolving and delegating .web. And with that complete, we can turn our attention back to introducing those products, and you'll see the blogs in the coming months. I can say that the products are very security-focused, that they benefit from our high-assurance, high-performance infrastructure and that they also benefit from our long history in public key infrastructure and DNS security. They're designed to provide a high level of performance and reliability at global scale as our DNS resolution does. We believe today's increasing reliance on online services, especially those that are AI-related, with the evolving threat environment will demand greater and deeper deployment of security technology and practices, which will come with performance, security and scalability challenges. Our infrastructure will address those challenges and more. Now I'd like to turn the call over to John. I'll return when John has completed his financial report with closing remarks. John?
Thank you, Jim, and good afternoon, everyone. For the quarter ended June 30, 2026, the company generated revenue of $435 million, up 6% from the same quarter a year ago. Operating expense in Q2 2026 totaled $138 million, which compared to $135 million last quarter and $121 million for the second quarter a year ago. Operating income totaled $296 million, up $16 million or 5.6% from the previous year. Operating income was up $3 million or 0.9% sequentially. Net income for the second quarter totaled $217 million, compared to $215 million last quarter and $207 million for the same quarter a year ago. This resulted in diluted earnings per share of $2.38 for the second quarter this year compared to $2.34 last quarter and $2.21 for the second quarter last year. Operating cash flow for the second quarter of 2026 was $232 million, and free cash flow was $213 million, compared with $202 million and $109 million, respectively, in the year-ago quarter. Our financial and liquidity position remained stable with $1.034 billion in cash, cash equivalents and marketable securities at the end of the quarter. That amount included $546 million of net proceeds from the issuance of 5.1% Senior Notes maturing in 2031. On July 20, 2026, the company redeemed its $550 million of outstanding 4.75% Senior Notes due in 2027, thereby reducing our liquidity from quarter end. I will now discuss our updated full year 2026 guidance, which, as Jim mentioned earlier, does not anticipate meaningful revenue or expense related to .web at this time. Revenue is now expected to be between $1.745 billion and $1.755 billion. Operating income is now expected to be between $1.185 billion and $1.195 billion. Interest expense and non-operating net is narrowed and expected to be an expense between $59 million and $65 million, reflecting the impacts related to the refinancing I mentioned earlier. Capital expenditures are still expected to be between $55 million and $65 million. The GAAP effective tax rate is still expected to be between 22% and 25%. I will now turn the call back to Jim for his closing remarks.
Thanks, John. While we're very pleased that .web is now delegated, we'd like to focus on the very solid trends we're seeing in our business in 2026. We extended our record of 100% service availability to 29 years. We saw strength in all metrics, in particular, with new registrations and solid financial performance. We returned more than 100% of our free cash flow to the investing public. We've seen strong execution of our marketing programs, which are better suited to our evolving channel. These programs are a great investment as they contribute significantly to our long-term growth and profitability. Importantly, the first-time renewal rate has stayed in a tight range in the mid-40% range for several quarters. Names registered in the first half of last year are renewing at rates consistent with our longer-term first-time renewal rate. Our programs are carefully designed to produce these results. Now as we look at the significant increase in new registrations, for example, up 14% year-over-year in the first quarter and up 21% year-over-year in the second quarter, we're encouraged that the factors that are driving the new registration strength, including our programs, have been producing quality names. This should translate to long-term profitable growth for this company. And as a reminder, once a name renews at least once, it becomes part of our previously renewed base. The previously renewed rate is in the mid-80% range. Additionally, we're benefiting from some factors that include AI. AI has made finding a good domain name, building a website and getting online faster and easier. This includes leveraging AI-enabled tools we've made available to our registrar partners. Our record high domain name base and record high new registrations are contributing to the ever-increasing reliance on VeriSign's high-assurance critical Internet infrastructure. We've seen a substantial increase in the number of DNS transactions to our servers. Operating a high-assurance infrastructure remains our priority and is at the core of VeriSign. We also believe that our uptime record is a significant contributor to the growth of our domains, and that reliability will allow individuals and businesses to register .web domain names with confidence. 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.
分析師問答
Our first question comes from Rob Oliver with Baird.
Great. I had a couple of questions. Jim, I'll just start with you. I appreciate some of the color you provided around the really strong domain trends. I was wondering if you could just add a bit more. I know some of what's at work here is you guys have really sharpened your marketing programs and your efforts, and I think that's really showing in not just the registrations, but also in those first-time renewal rates in terms of the quality. You're also seeing these tailwinds around AI, around application development, the importance of the domain. I was wondering if you could help contextualize, maybe breaking those apart, help us better understand of the strength you're seeing, how each is responsible for them? And then I had a couple of other questions.
Okay. Let me try to answer that briefly. First, one of the components is our high-assurance infrastructure, which I think contributes to people's confidence in online operations. AI is definitely enhancing demand for domain names. AI tools make it easier for content creators and businesses to find domain names, create content, and maintain content on their websites. Businesses and content creators compete for attention online through AI-driven search, and the credibility and digital identity that a domain name encapsulates become even more critical. Active registrar engagement with and strong execution of our marketing programs is also helping. Last quarter I described this as a convergence — a synergistic convergence of AI tailwinds and other tailwinds like the ongoing registrar focus on customer acquisition. So there's some good fortune here, but I think our marketing programs and their design are clearly a contributor. Taking those factors apart with precision is difficult; we just see them working synergistically. We've also gotten much better at these marketing programs. The channel's business models are changing, and we've been able to adapt. With .web, we can adapt even further because we have fewer restrictions on that TLD. All those factors together are contributing to the strength that you're seeing, and it's primarily in the U.S. and EMEA. That's positive for us because the quality and the renewal rates from these regions tend to be stronger. Regarding whether the current strength is related to pull-forward related to the November .com wholesale price increase, I can't say that's not a factor. It could be a factor for some registrations, but we don't see it as anything close to a material factor in the current registration strength. Hopefully that is helpful.
Okay. Great. Yes, that is helpful. And on that last point, I was going to ask as well. I wanted to ask about .web also and congrats. I'm happy. I thought I'd be in my dotage by the time that deal finally closed. So congratulations on that. I know you won't talk about pricing and things like that. But conceptually, how should we think about the way in which you'll approach .web, marketing .web? And how, if at all, will it be different from .com? Then I'll pass it on.
Okay. .web is different from .com. .com is uniquely the only TLD in the entire DNS industry that's regulated by a cooperative agreement between VeriSign and the Department of Commerce, the NTIA. .web is a TLD like the other thousands of TLDs that ICANN oversees and regulates, and its operating parameters are quite different. We don't have many of the restrictions. For example, like other TLDs, it's governed by a standard registry agreement with ICANN, not with any other regulatory body. The most obvious difference with .web from .com and .net is that we have complete wholesale pricing flexibility; the only requirement is a six-month notice to registrars. Other than that, we have complete pricing flexibility. Like .com, we are a wholesaler as a registry, and registrars set retail pricing. This includes the ability to sell premium names as well, which we cannot do in .com or .net. Now that it's delegated in the root zone, there is a 90-day required period of security testing, which we are beginning. Then there is a required minimum 30-day period in which only trademark holders may come and get their .web registration. That puts us 120 days out. We intend to offer an optional Limited Registration Period, during which we will give our holders of .com registrations the opportunity to get the same registration in .web before general availability. We're still working out details of how long that will run, but we intend to do that. So general availability will be either late this year or very early next year. We'll provide further updates. There's flexibility in how we market to the channel. We do not have the same restrictions as with .com, so we can be more flexible, creative, and engaging individually with the channel. We believe that's an opportunity to more effectively engage this diverse and evolving channel. The prospects are promising and exciting.
And we'll go next to Ygal Arounian with Wedbush.
Maybe first, with the guidance, the high end domain growth approaching 5%. Looking back, it's been quite a while since domains have grown 5% sustainably. Does it feel like we're structurally at a different type of growth rate driven by AI? And then, within that, you're talking about some of the AI factors that are driving the growth. How are you seeing agentic AI play out here? Do you think that's driving any incremental growth specifically from agentic AI? I'll have one follow-up.
Ygal, welcome back. Good to have you following VeriSign again. Let me try to answer at a higher altitude. AI is definitely increasing demand because it's easier and faster to build a domain name. More importantly, AI is driving more engagement and more activity happening more quickly, and the strength of the DNS is shining through. Alternate name spaces don't have what the DNS has: governance by ICANN that creates a secure, stable global identifier. It's secure due to ICANN requirements and additional measures by registries; it's stable — we've completed 29 years of uninterrupted availability; and it's global because ICANN operates in 150-plus countries. Domain names are guaranteed to be unique and stable and secure up to a very high level due to this governance structure. AI is obscuring some of the complexity and making it easier for people to get online, which I think is a major influence. We're making our own contribution by getting smarter and more engaged with our channel. The channel is diverse and evolving, which keeps changing our approach. If it feels like the world is spinning faster, it does to me, and I think we're seeing those effects. Those effects, together with our stability and ability to adapt, are behind our growth.
Okay. Very helpful. Good to see .web finally come through. The timing color you gave is helpful. As we build this into our models, are there upfront costs? You mentioned marketing a little. Are there costs to build the registry or anything else that come ahead of revenue recognition? I want to think through how that impacts your financials.
As we finalize our launch and marketing plans, there will be some marketing expenses as there are now with .com and .net. In terms of registry costs, no — we run multiple TLDs and have operated many over the years, so integration is straightforward. Processing registrations and how registrars engage with our operations is identical to what we do now. There's more flexibility in engagement and marketing with the channel, which is a big plus. John, any comments?
From a marketing expense standpoint, given the timeframe Jim laid out, there won't be a significant amount of marketing expense this year that we recognize. The same is true for revenue; it's likely to be fairly late in the year. Because of our method of revenue recognition, you won't see a big bump even if we see some nice sales before the end of the year. It will take some time to build.
And our next question comes from Jamesmichael Sherman-Lewis with Citi.
Two here, if I may. Number one, on the .web rollout, I'm curious how you're thinking about the go-to-market approach across marketing channels and specifically where you think the point of sale is most likely to occur. Could these be predominantly net-new .web domain sale opportunities or potentially an attach for a .com domain sale, or even upselling existing customers at renewal? I want to better understand possible approaches.
There are a couple of factors that should result in a favorable reception by the market and our channel for .web. First, it runs on our high-assurance infrastructure, which is underappreciated. Second, the Limited Registration Period gives .com holders the opportunity to get a companion .web. That may be a companion website rather than a new website. Also, .web is descriptive and short, which makes it appealing. There are over 1,000 TLDs today, and many have entered the market; some grow faster than .com, so there's clearly a market for TLDs. We have nothing to say about .web pricing today; we're still working on it. The name space is available now with zero registrations, so it will invite interest. The channel—registrars—will do the retail marketing, and we will support them. As John mentioned, any marketing expense late in the year will likely be very modest and nonmaterial. We believe there will be demand from existing holders and new customers.
That's very helpful. Quick follow-up on renewals. As we look to the back half of the year and start lapping this higher mix of new registrations and go through the price hike, could you update us on your churn expectations?
We have said in past quarters we would expect a little downward pressure as the mix of first-time renewing names grows because of the strength of new registrations in the last six quarters or so. We still expect some of that for the remainder of this year and possibly into next year. However, we've gotten much better at marketing to registrars to encourage higher-quality registrations, and our programs are geared toward higher quality, which offsets that natural tendency. If you look at our renewal rate the last couple of quarters, it's been very consistent with our historical rate for first-time renewals, and we had very strong new registrations early in 2025. So our renewal rate is holding up fairly well given our programs and the natural trends of strength in new registrations.
And we'll go next to Alexei Gogolev with JPMorgan.
Jim, could we start with the discussion around some of your plans for new product rollouts? You talked about possible security services or other solutions. Will those get the back seat now that you have .web to focus on? Or will you continue to roll those out in the near term?
The short answer is no, they will not take a back seat. The first product we are likely to roll out is different but related. We are a pioneering company in public key infrastructure; VeriSign's roots include RSA and early browser PKI work in the 1990s. Cryptographic security components that we have long operated are becoming more important. Security needs are increasing in the AI world, and headlines underscore that security will be a challenge with AI. We plan to offer security features that benefit from operating in our high-assurance environment. I believe AI-related security challenges will be met by sharpening and hardening tools and applying Zero Trust principles, which will place demands on security functions. Our infrastructure is well aligned to provide these services at global scale with millisecond performance. You won't have to wait too long to hear more about this. The teams that developed these products have done their work; they operate on our infrastructure similarly to the way we process domain names, and performance will benefit from our infrastructure.
Okay. And maybe another question for John. With regards to CapEx, you kept the guidance for the year unchanged. We're seeing price pressure all around. Do you see any risk going forward? What sort of CapEx needs do you think VeriSign will have over the next couple of years?
Our CapEx guidance for this year takes into consideration price increases in server and memory markets, which have had a meaningful impact. Our technology people are good at adapting and making changes to get more value, and we've pulled forward some spend that we would have expected next year to avoid price increases coming in the next six months. As for next year, we don't guide to 2027 at this point, but our expectation is prices in that marketplace will stay elevated and probably be more elevated. There's a lot of data center capacity being built right now, and we'll adjust as needed.
Regardless of market prices for the technology and servers we need, we will make the investments and acquire the equipment necessary to operate our mission without hesitation.
And we'll take our last question from Rob Oliver with Baird.
Great. Sorry, I just had one more. John, you talked about the price increase coming up in November. As you look out, is there anything different in how you're thinking about the revenue flow-through from those price increases? Occasionally we get questions on how it differs. We think we've got it modeled, but just wanted to see if there's any difference or anything you can point to.
It's important to remember that while our customers pay at the time of registration, our revenue recognition is done ratably over the life of the domain subscription. If a customer pays for one year, we recognize that payment over the next 12 months. A price increase that goes into effect on November 1 flows into revenue as names renew after that date. For the existing base, it takes about two years to really flow through revenue completely, and in some cases longer because some names are registered for longer than one year. Our modeling is that about 50% of November's 7% price increase on .com would be recognized in 2027 revenues, with the rest recognized in 2028 and a little beyond for longer-term subscriptions.
Okay. Really helpful. While I've got you, John, just a follow-up to Ygal's question earlier on .web ramp costs. I think a predecessor mentioned that if .web had been obtained earlier there might have been additional costs. I just want to clarify: are those costs factored into your guidance for this year and not something we'll see incremental as the period ramps?
That's correct, Rob. Any costs we might incur this year are likely modest and are factored into our guidance.
I'll turn the call back over to 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.
And this does conclude our call today. Thank you for your participation. You may now disconnect.