Q1 2026 Earnings Call Transcript

Good day, everyone. Welcome to VeriSign's First 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 First 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 update 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 results and 2 non-GAAP measures used by VeriSign, adjusted EBITDA and free cash flow. 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.

Thank you, David. Good afternoon to everyone, and thank you for joining us. We're pleased to report that VeriSign delivered strong results in the first quarter of 2026, both operationally and financially. The combined .com and .net domain name base is now at a record 176.1 million names.

New registrations are the largest we have seen since the first half of 2021, combined with very strong renewal rates. On the financial side, revenue was up 6.6% year-over-year and EPS increased 11.4% year-over-year. After seeing to the needs of our operations, we returned over 100% of our free cash flow to the investing public in the last 12 months for a total of $1.13 billion through share repurchases and dividends. Our financial and liquidity position remained stable with $556 million in cash, cash equivalents and marketable securities at the end of the quarter.

Also at quarter end, there was $863 million remaining available under our 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 stockholders of record as of the close of business on May 19, 2026, payable on May 27, 2026. VeriSign intends to continue to pay a cash dividend on a quarterly basis, subject to market conditions and approval by VeriSign's Board of Directors. VeriSign's performance in the first quarter shows sustained demand for domain names.

During the quarter, the domain name base for .com and .net grew 2.54 million from year-end 2025. New registrations for the first quarter were 11.5 million compared with 10.7 million last quarter and 10.1 million for the first quarter of last year. The renewal rate for the first quarter of 2026 is expected to be 76.3% compared to 75.5% a year ago. The positive domain name base trends of 2025 have continued to build strength to start 2026. We saw growth across our 3 main regions, with most of the strength coming from the U.S. and EMEA. It is clear to us that end users are seeing value in domain names and the domain name system as evidenced by our strong domain name metrics and the increasing reliance on our infrastructure.

We see ongoing registrar focus on customer acquisition and engagement with our marketing programs. Also, we see a positive impact from AI tools, which make content and website creation faster and easier. With the trends we've observed thus far in 2026 and our expectations for the next 3 quarters, we are increasing and narrowing our guidance for domain name base growth to be between 3.1% and 4.3% for 2026. As a reminder, you can monitor the progression of the domain name base on our website, which is updated daily. As announced in today's earnings release, we have given notice of a price increase of $0.71 to the annual wholesale price for .com domain names, which raises the wholesale price from $10.26 to $10.97 effective November 1, 2026. Even after this increase, we believe com will remain highly competitive with other TLD choices.

I would note that this is the first allowable price increase since the notice 2 years ago in February 2024 of a $0.67 increase. As a reminder, VeriSign is prohibited from selling .com registrations to retail buyers. We may only sell to accredited registrars and only at a capped regulated price. The new $10.97 price that will become effective November 1 is the maximum price that we can charge registrars.

The registrars, however, are entirely price unrestricted and can sell .com registrations at any retail price they choose, and those prices often differ significantly from the price we are limited to. Now I'd like to turn the call over to John. I will return when John has completed his financial report with closing remarks. John?

Thank you, Jim, and good afternoon, everyone. For the quarter ended March 31, 2026, the company generated revenue of $429 million, up 6.6% from the same quarter a year ago. Operating expense in Q1 2026 totaled $135 million, which compared to $140 million last quarter and $131 million for the first quarter a year ago. As noted last quarter, Q4 2025 results included an impairment charge.

Operating income totaled $294 million, up $22 million or 8.3% from the previous year. Operating income was up $9 million or 3.1% on a sequential quarter basis. Net income for the first quarter totaled $215 million compared to $206 million last quarter and $199 million for the same quarter a year ago. This resulted in diluted earnings per share of $2.34 for the first quarter this year compared to $2.23 last quarter and $2.10 for the first quarter of last year, representing increases of 4.9% and 11.4%, respectively.

Operating cash flow for the first quarter of 2026 was $272 million. Free cash flow was $265 million compared with $291 million and $286 million, respectively, in the year ago quarter. I will now discuss our updated full year guidance for 2026. Revenue is now expected to be between $1.730 billion and $1.745 billion. Operating income is now expected to be between $1.170 billion and $1.185 billion.

Interest expense and nonoperating income net, which includes interest income estimates, is still expected to be an expense of between $57 million and $67 million. Capital expenditures are still expected to be between $55 million and $65 million, which includes some modest structural improvement projects at our HQ facility. 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.

Thank you, John. As I said, we're pleased to have delivered another solid quarter of operational and financial performance. We extended our record of 100% service availability. We saw strength in all metrics, new registrations, renewal rates and solid financial performance, including paying our fourth quarterly dividend and additional share repurchases to return over 100% of our free cash flow to the investing public.

We've seen broad participation in our marketing programs, which are now better tailored to our diverse and evolving channel. In short, we focused on what we can control and influence. We also benefited from some tailwinds that include AI, which, as I said, has made it easier to find a good domain name, build a website and get online. However, as we said many times before, it's the delivery of our services, which is our primary mission, that is VeriSign's priority.

In addition to com and net DNS, our services include the DNS root zone publication and the operation of 2 of the 13 global Internet root servers. Our employees are dedicated to support that mission and the vast majority of them are highly skilled technical specialists directly engaged in the design, development, operation, maintenance, support and protection of our unique purpose-built high assurance critical infrastructure. As we approach 29 years of uninterrupted availability for the com and net DNS resolution service we provide, I'd like to point out why we think of our services as high assurance.

The unparalleled record of 100% availability spanning 4 decades is certainly one important aspect. Performance and accuracy are equally important for many reasons, including for security. Our authoritative DNS answers are cryptographically protected and over 95% are processed in milliseconds globally for the 600 billion transactions per day on average that we see across our infrastructure. That's 7 million transactions per second every second of every day on average.

Given the ever-increasing reliance on the global Internet, we believe high assurance, as we define it, will become increasingly important. In the coming weeks, we'll share a series of blogs about how we view the future of high assurance infrastructure, the role it will play in enhancing online trust and introduce enhanced security components. 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 Instructions] We'll take our first question from Rob Oliver with Baird.

Great. Jim, first question, and I had a couple of questions. First one for me is around clearly, the marketing programs that you guys announced that you intended to pursue, I think it was back in Q1 of '24, are really starting to gain traction. You also called out tailwinds from AI.

And I was wondering the extent to which you could help us understand as you look at the strength in domains, which I think you said we haven't seen now in many years, what sort of the contributing factor balances are there? Is it more AI? Is it more things you can control, marketing? How should we think about the mix of those contributions?

That's a good question, Rob. I guess the way we see it, it's difficult to really separate the 2. The reason is that I think they sort of collide in a good way with each other and sort of blend together. The registrars because of -- the tailwind from AI essentially makes it easier for the registrars to the service folks who can quickly find a domain and get online and build a website. That gets easier.

I believe that engagement with our programs, which we know for a fact is a significant contributor, but to what extent is difficult because that demand and our programs sort of collide. We put together programs that were responsive to what we heard from the channel. The channel is evolving and diversifying constantly. And as I've said before, we put together programs that were responsive to their diverse needs, and they're absolutely engaging with them.

So there's greater drive from the tailwind engaging more carefully tailored programs. So to try to sort of separate those is really difficult. I wish I could give you a better answer, but they're both good news.

Okay. Great. No, that's helpful color. Second question for me is around your comment about that you've been pleased.

I can't remember your exact language about renewal rates and what you've seen. And I just wanted to double down on that a little bit. We're, I think, around the kind of 2-year anniversary of when you guys called out these marketing programs. So I assume it's a little early to know if it was a 2-year cohort, but I guess specifically, would love to hear from you what you're hearing about the renewal cohorts around kind of post those marketing changes and how those are holding up relative to your kind of typical renewal rates on new domains.

Yes. Good question. John has been looking into that. John?

Yes. So certainly, our renewal rate at 76.3% was very strong. Our programs, as we've talked about in the past, do have elements of design to hopefully incentivize our customers, our registrars to sell and promote names to their customers that have a better renewal rate characteristic. So we do expect continued good solid renewal rates through 2026. As we mentioned, I think, last quarter, the strength of new registrations in the second half of 2025 will present a little bit of a challenge this year because we'll have a higher proportion of first-time renewing names through the second half of 2026. I think our -- overall, our first-time renewals are still averaging in the mid-40% range.

Our previously renewed names are in the mid-80% range, but have showed some improvement over the last year. So I think we're pleased with what our programs have delivered there and are seeing some improvement.

Okay. I appreciate all that detail. And then, I guess, last one for me, and then I'll hand it over to others. Jim, I don't know the extent to which you will comment since -- but just I wanted to ask about the upcoming round of ICANN TLD programs that is going to be coming up.

I think -- the process, I think, maybe kicking off even here in April or imminently. And just any color you can provide on how we should be thinking about how you're thinking about that potential opportunity around the new TLD program?

Sure. So yes, ICANN is opening another round of applications for new gTLDs. The last one was in 2012. And you're right, this one opens up at the end of this month for submission of applications. ICANN is opening a window for a new round.

We expect it to be a long process. The new generic TLDs are likely -- that come out of this process are likely not launched until 2028 as there are a lot of steps ICANN goes through after the application window. There's also a potential in this new round of applications with multiple applicants for the same TLD. In this case, ICANN will run an auction process to sort out the winners of different contention sets.

So there's a lot of process to go on. So we get asked a lot about VeriSign's participation, and we're taking the necessary technical steps to be ready should we choose to be an applicant at this round. And as a reminder, in the last round, the 2012 round, we obtained several new gTLDs, some of which we haven't yet launched. And also .web, which we're continuing to pursue was from the 2012 round.

We're still evaluating our participation in this current round, the 2026 round, with the window of application slated to open on 30th of this month and not close until August 12. So we'll update you as appropriate as we get closer to the end of the application close in August.

And we'll move to our next question from Jamesmichael Sherman-Lewis with Citi.

Jamesmichael Sherman-Lewis: First off, with the upcoming .com price hike, what are your expectations for the price elasticity or renewal trends for these newer domains following the hike? I understand wholesale domain prices are fairly nominal relative to the end customer costs, but any color there would be very helpful. And then also, how are you thinking about .net pricing?

Yes. So Jamesmichael, this is John. If I understood your question, you're asking us what our expectations are around renewals post price increase? And if I've got that right, it's very dependent on what our retail registrars do pricing-wise.

If they do take price increases, that could have an effect on either new registrations or renewals. And we've seen a little bit of that in the past. But we're still pretty confident in the trends that we're seeing in renewals at this point in time. And we'll see what happens come, I guess, November 1 and thereafter.

And, I guess, I would just add the new price, the $10.97 per year price for .com works out to about $0.03 a day. So I think for most registrants who are engaged in online activities, it's a relatively modest amount.

So well, we have available 10% annual price increases on .net. We don't guide to pricing, of course. We do take a lot of factors into consideration when we decide how to price the TLDs. We -- I can tell you -- so I can't tell you -- I can tell you a couple of things.

Number one is, we have not, at this point today, announced a price increase for .net. We consider it to be a well-known, competitively priced TLD, and we invest in marketing programs for .net. And if we announce a price increase, we'll certainly give notice, but we have not at this point.

Jamesmichael Sherman-Lewis: Got it. Follow-up question here on your infrastructure build-out. In context of the over 600 billion transactions per day that VeriSign sees, AI agents that will end up scraping the web at an accelerated rate. Is your current infrastructure sufficient to handle this expanding Internet? Or are there incremental investments you might need to ensure that 100% uptime?

Sure. So there are many qualitative and quantitative improvements that we are constantly making and adjusting to our network. I think the best answer I can give you to your question is that we have multiple orders of magnitude in excess capacity as one component of our resiliency planning and execution.

We will take our last question from Alexei Gogolev with JPMorgan.

Jim, I appreciate the commentary at the very end of your prepared remarks about the new services. Can you maybe provide a bit more color what those new services will solve for your customers, maybe some additional insights on security, stability, mission that you're looking to achieve there?

Sure. I can give you -- maybe I can say a few more things about sort of the foundational reasons that I alluded to concerning additional security services in high assurance infrastructure like ours. Putting aside AI for a moment, which is, of course, a significant major development, well, maybe not quite putting it aside, simply making the observation that with Anthropic's Mythos, we've seen that AI is capable of revealing vulnerabilities in various systems. So security is continuing to be important.

I mean, in the many years that I ran the RSA conference, my observation in every keynote was that the security situation provided more job security for the audience than any industry I could think of. And here we are 35 years since that conference began, and it certainly turned out to be true. So I think high assurance infrastructure becomes important for a lot of reasons. AI is not only beneficial for all the reasons that it is, but it reveals vulnerabilities.

So -- but just the increased reliance and use of the Internet, it's just such a deep part of all of our lives, so many different infrastructure now relying on it. We think high assurance will be important. I mentioned the components. The components I talked about are our own 100% availability record, 100% [indiscernible], now for 28 going on 29 years, that's one.

But also our performance that we can deliver accurate cryptographically protected answers to queries in milliseconds anywhere in the world at a rate of 600 billion per day on average and have multiple orders of magnitude capacity beyond it. The accuracy part is important because -- and the performance part is important because these are windows of vulnerability, the delays in answering queries related to secure navigation are important. And so the -- we believe that there are additional security tools that would be synergistic with the type of high assurance infrastructure that we have. And I've alluded to services that we've been examining.

They do need to fit certain requirements. They need to fit well into our infrastructure. I think they're -- and work well within our channel. Nothing significantly changes in offering them other than they benefit from the properties of our infrastructure, and we think that some of them are worth considering us an offering as a service.

And as I said, we'll have a series of blogs that roll this out starting as soon as next month. So you'll have more information then, but I think that's just probably what I'm comfortable saying right now.

Okay. Perfect. And I appreciate all the comments that you made around your own marketing activities. But can you comment on how registrar promotional intensity in Q1, for example, for GoDaddy, your biggest customer or for other registrars, how it compared with 4Q and how you think about promo-driven volume versus sustainable underlying demand?

So there's a lot of different ways that question could be answered. I'll give you one way and might John, if he has another to add to it. So I mentioned the evolving and diverse nature of our channel. This is all true.

Some website builders have turned into registrars. Some have been acquired, some have merged, some have a different focus. All of them have different models. That's the evolving part that led us to take a careful look at our programs and make sure that we offer those that actually work for them.

These different models bring about issues like different lead times to prepare marketing campaigns. And so as we learned and adapted, it was driven more by what the diverse needs were and the need to find something that could work for a larger group rather than just one size fits all. We're also bound by some restrictions in how we market. We have to be careful to treat registrars equally fairly.

So that's also a factor in that design. So it's really a function of trying to -- and by the way, our channel for .com and .net, I believe VeriSign's channel, we have sort of the broadest reach, I think, because of the popularity of com and net TLDs. So we service a very, very large number of registrars. So we thought that, that was maybe the path that would lead to the most productive results in the short term.

It's just simply addressing the needs of a very large and diverse and evolving channels. So we concentrated on listening to them, learning what they're doing, engage with them, return, assess, adapt, revise and present and then we get engagement. So it's less driven by what we think this program will do rather than what do they really need to go out and market our products, which are really great, reliable, trusted products.

That concludes today's question-and-answer session. I'll turn the conference back 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.