VeriSign, Inc.

Thank you for joining me on this earnings call. 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. 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, Thank you for joining us. 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. Thank you for joining us. We'll be right back. With the trends we've observed in the first half of 2026 and our expectations for 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 quarter 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 based 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 Systems 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, Bear Sign 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 will 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 at 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. Thank you for joining us. Thank you very much. Now I'd like to turn a 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 30th, 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 billion respectively in the year-ago quarter. Our financial and liquidity position remains stable with $1,034,000,000 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. Thank you for watching. Interest, expense, and non-operating net is narrowed and expected to be an expense between $59 and $65 million, reflecting the impacts related to the refinancing I mentioned earlier. Capital expenditures are still expected to be between $55 and $65 million. The gap 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 return 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. Thank you for joining us. 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-based 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 the 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 domain, 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.

If you are using a speaker phone, please make sure... What your question has been stated.

Great. Good afternoon. Thanks. 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 trend, and 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 programs. Thank you for having me.

Okay, well, let me see if I can answer that briefly here. First of all, the components I can easily describe, I think one of them I mentioned earlier was our high assurance infrastructure. I think that contributes to people's confidence in online operations. AI is definitely enhancing demand for domain names. AI tools make it easier for content creators, for businesses to find domain names, create content. Create and maintain content on their websites. And businesses and content creators compete not only for attention online through AI-driven search, but the credibility and digital identity that a domain name encapsulates become even more critical. So those are all contributing trends and tailwinds. Active registrar engagement and strong execution of our marketing programs is definitely helping, I think, Last quarter I called that, if I didn't use the word convergence, I should have. I'll use it now. A synergistic conversion of some of the AI tailwind and other tailwinds like the ongoing registrar focus now on customer acquisition where we saw this sort of cyclical trend some time ago to ARPU. Now we're seeing things shift as we predicted they would. So there's a bit of good fortune here, but I think our marketing programs and their design are clearly a contributor. Sort of taking those apart with any precision is really difficult. Not sure we could even give you that kind of detail. We just see them working synergistically. I think we've also gotten much better at these marketing programs. I often talk about the evolving, changing channel. Their business models are changing, and we've been able to adapt to that. As Mike mentioned, with .web, we can adapt even further because we have fewer restrictions on that TLD. So all those factors together are contributing to the strength that you're seeing. It's primarily, as I mentioned, in the U.S. and EMEA. That's a positive for us because the quality and the renewal rates from these regions tend to be stronger. So like I said, taking it all apart, parsing it out in detail, difficult, but I think we're seeing the growth. We recognize the tailwinds. We definitely know we're very close to the channel. We understand the value and benefit and effectiveness of the marketing programs. I'll say again that when you see 14% and 21% increase in units, respectively, in the last two quarters, and you see first-time renewal rates essentially within a narrow range with long-term strong renewal rates, that's going to yield profitable growth long-term. So these are all very good for the business. And one point to clarify here, we've received questions about the current strength. Is it related to pull-forward growth? related to the November.com wholesale price increase. I can't say that that's not a factor. It could be a factor for some registrations. We just don't see it as anything coming close to a material factor in the current registration strength. So hopefully that's helpful.

Okay, great. Yeah, no, that is helpful. And thanks on that last point. That was a 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 guess I know knowing you guys, you're not going to talk about pricing and things like that, but maybe try to ask the question a different way. You guys have obviously the premier anchor asset in .com. You do have experience with other assets. but conceptually, how should we think about the way in which you'll think about approaching .web, marketing .web, and how, if at all, will it be different from .com? And then I'll pass it on. I know we got more people on the call. Thanks a lot, guys.

Okay, thanks. Well, .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 1,000, 2,000 online. and many more. Obviously, there are other global regulations that affect all tech companies, but the administration and regulation of the domain name industry is by ICANN, and this agreement is no different than the others. I'd say 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. Other than that, we have complete pricing flexibility. and but but like dot com we one thing that is in common with dot com is that we are a wholesaler as a registry and it will be registrars of course who set the retail pricing so dot web wholesale pricing is completely within our control subject to that notice period to the registrars of six months this includes the ability to sell premium names as well which we cannot do in com or dot net and now that it's delegated in the root zone, the process, just to give you a sense of what to expect coming up, there is a 90-day required period of security testing. So that's the first thing we'll do. We're beginning that. Then there is a required minimum 30-day period in which only trademark holders may come and get their .web registration. So we'll certainly observe that. So that puts us 120 days out. Then we have something optional called an LRP or a limited registration period. Thank you for joining us. Thank you for watching. Thank you for joining us. All in all, the prospects are promising. It's exciting. It's something new and different for us. We've been looking forward to it.

Hey, good afternoon, guys.

Maybe first, just with the guidance, the high-end domain growth approaching 5%, and as I sort of look back to It's been quite a while since domains have grown 5% sustainably. I know we are now, but looking back to 2025 and the years before, but it's been a long time since we've been at that level. I know we're talking about some of the factors, particularly AI. Does it feel like we're structurally at a different type of growth rate, maybe driven by AI and then In that, you're talking about some of the AI factors that are driving growth. How do you think agendic play out here? And is that, do you think that's driving any of the growth of the agendic AI piece in this place or not? How does that follow?

Okay, well, first of all, y'all, welcome back. It's good to have you back following VeriSign again. We appreciate that. Let me try to answer this from, you know, a higher altitude, so to speak. I'm not sure I can specifically answer some of the things you seem to be asking towards the end there. But let's start with, you know, why are domains, why is there a general increase and what may I do into it? Thank you for joining us. I think what's happening is that the strength of the DNS is sort of shining through here. We've often said that alternate namespaces don't really have what the DNS has, which is this governance by ICANN that creates what is a secure, stable, global identifier. Thank you for joining us. Thank you for watching. to adopt e-commerce and to get online. Here they are. They work. Now, the DNS under the covers is very complex and I think AI is obscuring some of the complexity and making it easier for people to get online. I would say that might be the single biggest influence if you wanted to look for external influences. Thank you for joining us. Those effects and that stability and our willingness and ability to adapt to them, I think, is behind our growth. I can't speak for everything, but that's my sense of the best answer I can give to your question.

Thank you very much. We'll be right back.

So this is as natural an integration as one could imagine. There's simply nothing new about the integration of .web and processing registration. The manner in which the registrars engage and bring their registrations to our operations is identical to everything we're doing now in some other DLDs. There's just more flexibility in engagement and marketing with the channel, which is really a big plus for us. John, any comments?

Yeah, I'd say from a marketing expense standpoint, given where we're at in the time frame that Jim laid out in his comments, there won't be a significant amount of marketing expense this year that we recognize, and the same is true for revenue. Thank you, guys. Thank you. And our next question comes from James Michael Sherman Lewis with Citi.

Good afternoon. Thank you for taking my question. Two here, if I may. Number one, on the .web rollout, I'm curious how you think 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 as an attach for a .com domain sale or even upselling existing customers at renewal? I just want to better understand how you're thinking about possible approaches here.

Thanks. Well, first of all, I think certainly there's a couple of different factors here that I think should result in what we think will be a favorable reception by the market and our channel for .web. First of all, it runs on our high assurance infrastructure, and I think that's often underappreciated. Secondly, I mentioned that we would be running a limited registration program, and we're That gives .com holders the opportunity to get their web. So if they want the companion web, they can have it. So that may be an opportunity that maybe isn't a new website, but a companion website that some may want for a variety of reasons. In addition to that, I think there are a lot of folks who might find it just more appealing. It's a very descriptive, it's a short TLD, and this is why we got interested in it years ago at the very beginning. and many more. and many more. We're very good at engaging with them. They're the ones who do the sort of retail marketing. We try to support them in that. John mentioned that there might be very, very modest marketing expense here late in the year. I think maybe just getting the word out that there's a period in which if you hold it calm, you may come and register your.web. It's reserved for you. We might do a little bit of messaging, but that would be entirely non-material expense, a very, very minimum expense for marketing. So I think there's a market for existing holders. I mean, there were literally hundreds and hundreds of new GTLDs brought to market over the last 12 years, and many of those are growing at rates much faster than .com. And so there's clearly a market for these TLDs, and I think .web will be an attractive option for folks.

What was the last word? Update us on our... Oh.

Thank you for joining us. We'll see you next time. The registrations that they chase to be of higher quality, and our programs are geared towards higher quality, so there's some offset to that natural tendency. As Jim mentioned in his comments, if you look at the renewal rate that we've had the last couple quarters, it's been very consistent with our historical rate for first-time renewals, and we had very strong new registrations. Thank you, and hello, everyone.

You talked about possible security services or any other solutions. Will those get the backseat now

I think the short answer to that is no, they will not. The first product that we're likely to roll out, it's just a different product. I would think of it this way. We are a pioneering company in public key infrastructure. We started doing this in the 80s. Thank you for joining us. In my comments, I alluded to the requirement to engage deeper with security in the AI world. You don't need to take my word for that. You can see that in the headlines of every newspaper just about every single day, that there are concerns that security is going to be a challenge in AI. I'm sure we'll address it, but what we plan to do is offer security features that are sort of going to benefit from operating in our high assurance environment. We believe, I certainly believe that what we're going to see is that AI, the security challenge with AI will be met by sharpening and hardening the tools and making full use of them in pursuit of compliance with something called the zero trust principles. And that will put demands on the security functions and I think our infrastructure as well. You won't have to wait too much longer to hear about that. But the teams that develop it have done their work in that it operates on our infrastructure in a way very similar to the way we ingest and service domain names. and its performance, however, will benefit from our infrastructure immensely. More of it will be needed in an agentic AI world and I think we're in a great position to offer at global scale millisecond performance along with many hundreds of billions of DNS resolutions that we answer today with significant overcapacity designed that way. We think we can offer a valuable service.

So our CapEx guidance for this year certainly takes into consideration the price increases in the server memory chip kind of markets, and it has had a meaningful impact on our business. Thank you for joining us. We've done some of that. As far as what next year holds, we don't guide to 2027 at this point in time, but our expectation is prices in that marketplace are going to stay elevated and probably be more elevated. We're competing with a lot of data center capacity that's trying to be built right now.

Thank you. I would just add that Regardless of what the market price for the technology, the servers, etc., that we need to acquire in the operation of our mission, we will simply make that investment and acquire the equipment that we need without hesitation.

And we'll take our last question from Oliver with Baird.

Great. Thanks, guys. Sorry, I just had one more question. John, for you, I know you guys talked about the price increase you guys have coming up in November. Jim mentioned it earlier, alluded to the potential for kind of pull forward ahead. As you look at it, that price increase, is there anything different or how you're thinking about the revenue flow through? From those price increases, occasionally we get questions on how, if at all, it differs. We think we've got it pretty well modeled, but just wanted to see if there's any difference or anything you can point to which would be helpful.

Yeah, sure, Rob. It's important to remember that while our customers pay at the time of registration, Our revenue recognition is done randomly over the life of the domain name subscription. So if they subscribe for one year, we recognize the revenue from that payment up front over the next 12 months. And then when you think about the price increase that goes into effect on November 1st, a domain name that renews on October 30th, let's say, It's October 30, 2027 before we start to realize any price increase. And then it flows through revenue in the following year after that renewal. So you could really think about the price increase as it relates to our existing base takes two years to really flow through revenue completely. And in some cases longer because we do have some names that are registered for longer than one year. It's a relatively small percentage. But think about it as, you know, it takes about a two-year period. You know, our own modeling, you know, if this helps you a little bit or helps others, is we would expect about 50% of November's 7% price increase on com to be recognized in 2027 revenues. The rest of it would be 2028 and a little bit beyond for the longer term subscription periods.

Okay, really helpful. And then just while I've got you, John, you know, just a follow-up to Egal's question earlier just on the .web, I think it was his .web ramp costs. I think it was your predecessor who had said at one point that, you know, hey, if we ended up getting .web years ago earlier in the year that there may be some additional costs. I just want to clarify what we heard from you is that those costs are factored into your guidance for this year. Not something that as this period ramps, we will see incremental. Just wanted to clarify.

Thanks. That's correct, Rob. Any costs that we might incur this year, as Jim mentioned, are probably not large, but they are factored in to our guidance. Okay.

Thanks again, guys. Appreciate it.

This concludes our call. Have a good evening.