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VeriSign (NASDAQ:VRSN) held its second-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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The full earnings call is available at https://event.webcasts.com/starthere.jsp?ei=1763198&tp_key=cf365b879d
Summary
VeriSign reported a free cash flow of $213 million, an increase from $202 million in the previous year, and maintained a stable liquidity position with $1.034 billion in cash and equivalents.
The company provided updated full-year 2026 guidance with expected revenue between $1.745 billion and $1.755 billion, and operating income between $1.185 billion and $1.195 billion.
VeriSign emphasized the strong performance in domain registrations, noting a 14% and 21% increase in the first and second quarters, respectively, with AI contributing to demand.
The company successfully extended its record of 100% service availability to 29 years and highlighted the role of AI in enhancing domain name demand and operational efficiency.
VeriSign is preparing for the launch of the .web TLD, with flexibility in pricing and marketing, and expects to make it available either late this year or early next year.
The company plans to implement security features benefiting from its high-assurance infrastructure to address AI-driven security challenges.
CapEx guidance remains unchanged despite price pressures, with expectations of elevated costs in the future due to market conditions.
Full Transcript
John
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 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 dot web at this time. Revenue is now expected to be between 1,745,000,000 and 1,755,000,000. Operating income is now expected to be between 1,185,000,000 and 1,195,000,000. 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 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.
Jim
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 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 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.
OPERATOR (Operator)
If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once your question has been stated, please mute your line. Our first question comes from Rob Oliver with Baird.
Rob Oliver, Analyst at Baird
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 trends, 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 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, and I was wondering if you can help contextualize, you know, kind of maybe breaking those apart, help us better understand, you know, of this strength you're seeing how each is responsible for them. And then I had a couple of other questions.
Jim
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 with, 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 convergence 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 can 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.
Just as Mike mentioned with dot 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. And again, 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, you know, one point to clarify here: we've received questions about the current strength, is it related to pull-forward related to the November .com wholesale price increase? You 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.
Rob Oliver, Analyst at Baird
Okay, great. Yeah, no, that is helpful and thanks. On that last point, that was a question 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 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 like .net, 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.
Jim
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 thousand, two thousand almost, TLDs that ICANN oversees and regulates, and its operating parameters are actually quite different. We don't have many of the restrictions. So, for example, like all these other TLDs it's governed by a standard registry agreement.
They are all operating from the same registry agreement, which is only with ICANN, as I mentioned, not with any other regulatory body. 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. But like .com, one thing that is in common with .com is that we are a wholesaler as a registry, and it will be registrars, of course, who set the retail pricing. So 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 .net. And now that it's delegated in the root zone, that 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. This is where registries have the opportunity to set their own rules for who can come in before you go to general availability. And we intend to run an LRP, and the rules that we will use is we will give all of our holders of .com registrations the opportunity to come and get the same registration in .web before we open registrations for general availability.
We're working out the details of how long that will run, but we do intend to do that. So that puts general availability, we think it will be either late this year or very, very early next year. And that's pretty much everything about web I can share right now. We'll obviously provide you further updates, but we're excited. I notice that it's been quite a while since we've been in pursuit of web, but it is a very different TLD, and I appreciate your question.
Those are the ways that it's significantly different. And there's also flexibility in how we market to the channel. We do not have the same restrictions that we have now. We can be more flexible, more creative, more engaging individually with the channel. I think that's going to translate into an opportunity to even more effectively engage this diverse and evolving channel. So, 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.
Rob Oliver, Analyst at Baird
Great. Thanks, Jim. Really appreciate it.
Jim
Sure. Pleasure.
OPERATOR (Operator)
And we'll go next to Igal Aronian with Wedbush.
Igal Aronian, Analyst at Wedbush
Hey, good afternoon, guys. First, just with the guidance, the high-end domain growth approaching 5%, and as I sort of look back, it's been quite a while since domains have grown 5% sustainably. I know we are now, but looking back to even 2025 and the years before, 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 within that, and you're talking about some of the AI factors that are driving the growth, how are you seeing agentic play out here and do you think that's driving any incremental growth on the agentic AIP specifically? And I'll have one follow-up.
Jim
Okay, well first of all, y'all, welcome back. It's good to have you back following VeriSign again. We appreciate that. Good. Let me try to answer this from 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 why there is a general increase and what's AI doing to it? I think AI is definitely increasing demand for the obvious reason we mentioned, which is that it's easier and faster to build a domain name.
But I think only saying that tells only part of the story. The other part of the story is that AI is driving obviously more engagement, more is happening more quickly. And 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. It's secure because of all the security required by ICANN, and then we do above and beyond, as many other registries do as well.
It's stable, certainly in our operations, because we just completed a record 29 years of uninterrupted availability. And it's global because ICANN operates in 150-plus countries. And so these domain names are guaranteed to be unique and stable and secure up to a very high level due to this governance structure. I think that's underappreciated as a contributor to the rapid willingness and eagerness 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. As I said, we are making our own contribution. We've gotten smarter, more engaged with our channel. We understand what they're doing. They do have complex business models. They have evolved. Many have gone public, some public ones have gone private, some sell wholesale, some only sell retail.
It's very diverse and it keeps evolving. So if it feels like the world is spinning faster, well, it does to me. And I think we're seeing those effects. And 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, if that's helpful.
Igal Aronian, Analyst at Wedbush
Okay, great, thanks. Yeah, very helpful. And then, yeah, great to see that web finally come through. We can change how we write about it. The color you gave on the timing is really helpful. Just wondering, thinking about how we build this into our models, are there upfront costs? You mentioned the marketing a little bit. Are there costs to build the registry or anything else that come ahead of revenue recognition? I just want to think through how that impacts your financials.
Jim
Well, I think as we finalize our launch plans and marketing plans, there'll be some marketing expense as there is now with com and net. But in terms of any registry costs, no. We run multiple TLDs now. We have a number of TLDs that we operate. We've operated many over the years, not just com and net. So this is as natural an integration as one could imagine. There's simply nothing new about the integration of web and processing registrations. The manner in which the registrars engage and bring their registrations to our operations is identical to everything we're doing now.
It's another TLD. There's just more flexibility in engagement and marketing with the channel, which is really a big play. John, any comments?
John
Yeah, I'd say from a marketing expense standpoint, given where we're at and the timeframe 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. It's likely to be fairly late in the year and, because of our method of revenue recognition, you won't see a big bump. Even if you see some nice sales before the end of the year, you won't see revenue recognition happen right away.
It'll take some time to build.
Igal Aronian, Analyst at Wedbush
Got it. Thank you guys. Thank you.
OPERATOR (Operator)
And our next question comes from James Michael Sherman Lewis with Citi.
James Michael Sherman Lewis, Analyst at 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'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 as an attach for a dot com domain sale, or even upselling existing customers at renewal? I just want to better understand how you're thinking about possible approaches here.
Jim
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 dot 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 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 very descriptive; it's a short TLD. This is why we got interested in it years ago at the very beginning. There are, by the way, well over 1,000 TLDs today that the market has to choose from. And many of them, by the way, compared to, in that market, com is a very low-priced TLD.
We have nothing to say about web pricing today. We're still working on that. But certainly there are very few that are really short, descriptive TLDs, and I think this is one of them, which is why it appealed to us. So I think that will be inviting for folks. The namespace will be available, because at this moment there are zero registrations in dot web. So for those reasons I think there certainly will be a market. I think the channel, you know, 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 a com 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 dot com. And so there's clearly a market for these TLDs, and I think web will be an attractive option for folks.
James Michael Sherman Lewis, Analyst at Citi
That's very helpful, thank you. And then just a quick follow-up on the renewals. I know you had some commentary in your prepared remarks about this, but 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?
Jim
What was the last word? Update us on our—
James Michael Sherman Lewis, Analyst at Citi
Thank you.
Jim
Oh, renewal rate.
John
Oh, renewal rate. You know, I know we've said in the past quarters we expected a little bit of a tick down as the mix of first-time renewing names grows because of the strength of our new registrations here in the last, you'll call it, six quarters or so. We still have some expectation there in the remainder of this year and then possibly into next year. But I think I would reiterate something Jim mentioned earlier, and that is we've gotten much better at marketing to our registrars, trying to encourage 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. And 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 early in 2025. So I think our renewal rate's holding up fairly well given our programs and just the natural trends that the strength in our new registrations have.
James Michael Sherman Lewis, Analyst at Citi
Understood, thank you very much.
Jim
Thank you.
OPERATOR (Operator)
And we'll go next to Alexei Gogolev with JP Morgan.
Alexei Gogolev, Analyst at JP Morgan
Thank you, and hello everyone. I guess, Jim, could we start with discussion around some of your plans for new product rollouts? You talked about possible security services or any other solutions. Will those get the backseat now that you have web to focus on, or will you still continue to roll those out in the near term?
Jim
I think the short answer to that is no, they will not. I think the first product that we're likely to roll out is 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. This company was created from RSA, which invented the most popular form of public key cryptography, digital signatures. VeriSign was formed to play a role in PKI in the very first browsers that came from Netscape in 1994.
There are a lot of components, cryptographic security components, that come with that service that we were performing that today are becoming more important. 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 going to benefit from operating in our high-assurance environment. We believe, I certainly believe, that what we're going to see is that 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 these security functions.
I think our infrastructure is well aligned to provide them, and you won't have to wait too much longer to hear about that. The teams that develop that, and 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 the 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.
John
Yeah, 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. You know, our technology people are very good about adapting and making changes where they can to get more bang for the buck, so to speak, and we've done that. We've even pulled forward some spend that we would have expected next year to avoid price increases that we know are coming in the upcoming six months.
So we've done some of that. As far as what next year holds, we don't guide, you know, to 2027 at this point in time, but our expectation is, you know, prices in that marketplace are going to stay elevated and probably be more elevated. You know, we're competing with a lot of data center capacity that's trying to be built right now.
Jim
I would just add that regardless of what the market price for the technology, the servers, et cetera, 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.
OPERATOR (Operator)
And we'll take our last question from Rob Oliver with Baird.
Rob Oliver, Analyst at Baird
Great, thanks, guys. Sorry, I just had one more, John, for you. I know you guys talked about the price increase you guys have coming up in November. Jim mentioned it earlier, alluding to the potential for kind of pull-forward ahead. As you look out at that price increase, is there anything different in how you're thinking about the revenue flow-through from those price increases? Occasionally we get questions on, you know, 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. Thanks.
John
Yeah, sure. Rob, 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 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 1, a domain name that renews on October 30—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. It 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 it takes about a two-year period. Our own modeling, 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.
Rob Oliver, Analyst at Baird
Okay, really helpful. And then just while I've got you, John, you know, just a follow up to Igal's question earlier just on the—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 in to your guidance for this year and not something that, as this period ramps, we will see incremental.
Just wanted to clarify that.
John
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.
Rob Oliver, Analyst at Baird
Okay, thanks again, guys. Appreciate it.
John
Thank you.
OPERATOR (Operator)
I'll turn the call back over to David Atchley for final comments.
David Atchley, Investor Relations
Thank you, operator. Please call the Investor Relations department with any follow-up questions from this call. Thank you for your participation.
OPERATOR (Operator)
Thank you. This concludes our call. Have a good evening. And this does conclude our call today. Thank you for your participation. You may now disconnect.
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