VeriSign Inc 2026 Q3 Earnings Call

Welcome to Verisign's third 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.

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 third quarter of 2026, both operationally and financially. The combined .com and .net domain name base now totals 182.5 million names, up 6.1% year-over-year, with a record 13.1 million new registrations processed during the third quarter. On the financial side, revenue is up 5.7% year-over-year. We have returned $1.14 billion to our shareholders in the last 12 months through share repurchases and dividends. 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 November 17, 2026, payable on November 24, 2026. Verisign intends to continue to pay a cash dividend on a quarterly basis.

At quarter end, $1.36 billion remained authorized for share repurchases. Verisign's performance in the third quarter shows continued robust demand for domain names. During the quarter, the domain name base for .com and .net grew by 3.4 million from the prior quarter end. New registrations for the third quarter totaled 13.1 million. This compares with 12.7 million new registrations last quarter and 10.6 million for the third quarter of last year. The renewal rate for the third quarter of 2026 is expected to be 74.3% compared to 75.4% a year ago. The primary driver of this year-over-year decrease in renewal rates relates to the mix of first-time and previously renewed names, with a higher percentage of first-time renewing names due to last year's strength in new registrations. As in recent quarters, the U.S. and EMEA were the regions in which we saw the strongest growth during the third quarter.

The factors driving the solid domain name base trends the past several quarters further accelerated during the third quarter. Registrars have successfully engaged with our marketing programs and are focused on customer acquisition. Plus, AI tools are making content and website creation faster and easier. The ongoing strength in new registrations attests to the vital role that domain names play in discovering content and establishing digital credibility. With the trends we've observed in the first three quarters of 2026 and our expectations for the rest of the year, we're increasing and narrowing our guidance for domain name base growth to be between 6.5% and 7% for 2026. As a reminder, you can monitor the progression of the domain name base on our website, which is updated daily. As we stated last quarter, .web is delegated into the root zone, and we're actively preparing for its launch.

We have been communicating to our registrars that the required 30-day sunrise period is planned to begin in mid-December. In mid-January, we are planning to begin a limited registration period, or LRP, which could run into early April 2027. At that point, we expect to open .web for general availability. During the LRP, most registrants of a .com domain name will have an opportunity to register an exact match .web domain name. We're in the process of finalizing pricing, and we'll be communicating our pricing plans to registrars over the next few weeks. As we shared last quarter, the .web registry agreement allows for pricing flexibility, including premium names, which we intend to use. The agreement also gives us more flexibility in marketing and engaging with our registrars than we have in .com and .net.

We're looking forward to launching .web and adding it to our portfolio of trusted domain names alongside .com and .net. Now I'd like to turn the call over to John. I'll return when John has completed his financial report with closing remarks, including more information on Verisign Informed, our high-assurance validation service we announced earlier this month.

John? Thank you, Jim, and good morning or good afternoon, everybody.

For the quarter ended September 30, 2026, the company generated revenue of $443 million, up 5.7% from the same quarter a year ago. Operating expense in Q3 2026 totaled $147 million, which compared to $138 million last quarter and $135 million for the third quarter a year ago.

During the third quarter of 2026, the company recognized a pre-tax operating loss of $7.5 million related to certain assets held for sale, which accounted for the majority of the sequential increase in operating expenses. Operating income totaled $296 million, up $12 million, or 4.2%, from the previous year and flat sequentially. Net income for the third quarter totaled $213 million, compared to $217 million last quarter and $213 million for the same quarter a year ago. This resulted in diluted earnings per share of $2.35 for the third quarter this year, compared to $2.38 last quarter and $2.27 for the third quarter last year. The previously mentioned loss to adjust the carrying value of certain assets held for sale decreased EPS by $0.06 in the current period.

Operating cash flow for the third quarter of 2026 was $268 million, and free cash flow was $261 million, compared with $308 million and $303 million, respectively, in the year-ago quarter. The year-over-year decrease is primarily related to higher cash taxes and payments to employees and vendors, partially offset by higher cash collected from customers in the third quarter this year. Our financial and liquidity position remains stable, with $476 million in cash equivalents, and marketable securities at the end of the quarter. I will now discuss our updated full-year 2026 guidance. Revenue is now expected to be between $1,755,000,000 and $1,760,000,000. Operating income is now expected to be between $1,188,000,000 and $1,192,000,000, which reflects the $7.5 million expense booked during the third quarter, as mentioned before. Interest expense and non-operating income net is still expected to be an expense between $59 million and $65 million.

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%. Now I'll turn the call back to Jim for his closing remarks.

Thank you, John. We are pleased with the results of our core DNS business in Q3. We believe that our record of more than 29 years of uninterrupted .com/.net DNS global availability contributes to our domain growth by establishing and maintaining .com/.net as highly reliable and trusted TLDs, now processing approximately 800 billion DNS queries per day on average, returning cryptographically protected answers within milliseconds. With this unparalleled record of availability, reliability, and performance, we use the term high assurance to describe our services. Very soon, .web will join our family of trusted TLDs, and it will allow us to offer more choice to customers, and they will benefit from Verisign's rigorous attention to availability and reliability. We are very pleased to be on track to bring .web to market in just a few months. As many of you know, we have recently announced another new product.