VeriSign, Inc. Q3 FY2025 earnings call

• VeriSign delivered growth in domain name base and solid financial performance in Q3. Domain name base for .com and .net totaled 171.9 million at end of September, up 1.4% y-o-y with 10.6 million new registrations in the quarter. - Revenue up 7.3% y-o-y, EPS up 9.7% y-o-y. Returned $287 million to shareholders through dividends and share repurchases. - Renewal rate for Q3 2025 expected to be 75.3% vs 72.2% a year ago. - Financial and liquidity position stable with $618 million in cash, etc. at end of quarter. - Board declared $0.77 per share cash dividend. - Adjusted channel programs, 2025 programs deepened engagement with channel, 2026 programs rolled out. - Increases in registration and resolution activity with AI seen as primary driver.

For the quarter ended September 30, 2025, VeriSign generated revenue of $419 million, up 7.3% from the same quarter a year ago. At the end of September, the domain name base for .com and .net totaled 171.9 million domain names, up 1.4% year-over-year with 10.6 million new registrations in the quarter. Net income in the third quarter totaled $213 million, and diluted earnings per share was $2.27. Operating cash flow for the third quarter 2025 was $308 million and free cash flow was $303 million. Revenue is expected to be between $1.652 billion and $1.657 billion for 2025, operating income between $1.119 billion and $1.124 billion, interest expense and nonoperating income net between $50 million and $60 million, capital expenditures between $25 million and $35 million, and GAAP effective tax rate between 21% and 24%. The domain name base growth is expected to be between 2.2% and 2.5% for 2025.

• 2025 revenue expected between $1.652 billion and $1.657 billion. - Operating income expected between $1.119 billion and $1.124 billion. - Interest expense and nonoperating income net still expected between $50 million and $60 million. - Capital expenditures still expected between $25 million and $35 million. - GAAP effective tax rate still expected between 21% and 24%. - Domain name base growth expected between 2.2% and 2.5% for 2025. - Plan to provide 2026 guidance after seeing 2025 trends finish and 2026 start.

• Google AdSense changes over multiple years have been eroding domain names solely for ad monetization, but VeriSign views exposure as minimal. - Increases in operating expenses such as incentive compensation and legal costs pose risks. - Uncertainties related to AI technology changes and their impact on business operations and market trends.

Q: A couple of questions from me. Jim, I guess, first, I appreciate all the color on the domain base trends that you're seeing. I guess, going back to Q1 of last year, when you guys called out the changes you need to make in your marketing programs. We've seen a nice improvement in those domain-based trends from sort of beginning of this year through now. You cited a few reasons, but I was wondering if you can give us a little bit more color perhaps on how much of it is macro, how much of it is stuff that you guys are controlling with your marketing programs? Any other color you can provide in particular geos would be helpful. And then I had a couple of quick follow-ups.

A: Okay. Well, I think really, the story is pretty much the one that I talked about in my remarks. It's just basically blocking and tackling in a sense. We improved our programs and made them more adaptable for our channel. We got great engagement from our channel. We've been talking about a cyclical shift that we were hoping for and anticipating and that came around. So that added to the growth. The registrar engagement with our marketing programs is also helping us sharpen our 2026 programs. I guess some more details we can share. John, do you want to?

Q: Robert Oliver: That's really helpful. Okay, thanks John, appreciate it. Jim, I want to ask specifically about changes that Google has made this year to their AdSense program and what, if any, impact you might be seeing or expect to see within your current domain base from those changes?

A: Okay. Well, this -- so Google's AdSense has been around for a long time and the changes that they made are part of a long process that's not new. Through the almost 15 years, they started in 2011, 15 years, Google has been making changes to their algorithm, and they've steadily eroded domain names that exist solely for ad monetization with AdSense. So changes this year to AdSense have continued a multiyear predictable strategy from Google to reduce their reliance of both advertisers and domain name registrants on that particular service. So this isn't a new trend. And after a decade of these changes, we view our exposure as minimal. Don't confuse these domain names with names that have been purchased for resale. Some of these are parked because it doesn't cost anything to do so, but the intent of these domains and the value of these domain names is for resale are not impacted by changes to AdSense.

Q: Ygal Arounian: I guess I want to follow up on some of Rob's questions. Maybe first, just on the marketing programs. And there's been a lot of questions on this lately from investors. And maybe if you could help just kind of parse through marketing programs, what's worked in particular. And if there's been a lot of discounting within that? Or is that just the cadence and pace of discounting has changed at all? And just note in your -- in the SG&A line, there was a sort of a notable step up there. I think you called out some legal expenses. But if you strip those out, that sort of more normalized, you step up a little bit in that spending? Maybe just kind of help us think through that a little bit more.

A: Yes, Ygal. This is John. We do think our marketing programs have contributed to the growth we've seen in 2025. I would point out that from a cost standpoint, those programs are accounted for as a reduction in revenue. So in the SG&A, there really isn't a significant change in marketing dollars in that line item. So it really is the incentive comp and the legal costs that I mentioned during my prepared remarks. That said, we've seen -- we've tried to shift our programs towards ones that yield higher quality and higher renewing names. And we think those are working at least to date. We've made some adjustments to those programs for 2026. The initial response that we've gotten from registrars as we begin to roll out those new offerings to them has been very positive. And so we're pleased with that. We continuously review our programs, monitor their performance and listen to feedback for registrars, and we will continue to invest in programs that we see are successful. The last thing I would say is don't think of our programs of something that's finite for 2025 or finite for 2026. Think of these programs as an evolution of what we've run for several years. And the main thing we've changed recently as we give more choices to be responsive to the changing market. So you can expect us to continue to learn, adapt and where appropriate, implement changes to our programs going forward.

Q: Ygal Arounian: Okay. And so another follow-up on the Google AdSense issue. Just -- I think there's a lot of opaqueness in this industry and maybe things that investors don't understand. Jim, you mentioned a lot of park domains are deferred kind of resale, a lot of the park domains are there for defensive purposes. Like is there any way to sort of break out what you think the split is on advertising monetized or aftermarket monetized defensive? And I think there were a number of players in the -- or a couple of players, key players, public players in the market that saw some impact from this in particular, which might be where some of this fear has been spreading from. So it does feel like it's impacting somewhere. If you could just comment on that and your thoughts on that.

A: Sure. When you say it's impacting somewhere, meaning not in our zone, you're not talking about that. I want to make sure I understand the question.

Q: Ygal Arounian: I'm talking about like some public players that have seen an impact to add revenue from this change on advertising on park domains.

A: Well, if that's your revenue model to make -- to earn revenue from monetizing traffic in parked domains through AdSense, yes, you've been on a downhill slide for 15 years. It was a 2011, I think many of those listening may remember this, Google introduced a change to their search algorithm called Panda, and then they did some more. There was Penguin and I think some others that started with P. And I remember during earnings calls, we'd go through each one and what impact it would have. And that's what I meant when I said that, that particular business has been eroding for 15 years. What I meant about the other side of the business or the other side of those domains is that the domains that are purchased for resale can be easily parked. In fact, I actually found that a registrar had parked a domain that I owned that I wasn't doing anything with, because I guess I didn't check the box that said don't park my domain. So they can pick up a small amount of revenue or at least they could. This happened about 9 years ago. So I think those domains are purchased for resale. They are -- those are -- you can see those for sale. And on registrars, almost every major registrar now has an aftermarket available for premium com domains. Those are different, but you may -- some of those could be part is the point I was making. So I don't have a segment breakout in detail. We do some analysis, but we don't disclose that.

Q: Ygal Arounian: Okay. And then finally, just shifting to different. Just an update on -- if there is any on .web time line or expectations and maybe in particular, like if sort of loophole on this process continuing open over again, might change? And then maybe with -- at the same time, just if you could talk about any update on how you think about the new -- I guess it's not really an auction model anymore, but with new TLDs and how that might play out later next year and into 2027?

A: Okay. So first of all .web, there's nothing substantive that's new since we talked last quarter. The -- but what is true is that what I reported then, which is that the final hearing is still scheduled for mid-November 2025. So I think there's anybody new on the call, just to reiterate, we intend to become the registry operator for .web. We hope to bring it as soon as we can to our customers. We believe Altanovo, who in this legal proceedings believe their use of ICANNs processes to keep that from happening as an abusive process and is being pursued in bad faith to keep web off the market. So we only have weeks now until at least that process begins, and we'll certainly keep you informed when we can about anything that comes out of that. I'm sorry, you had kind of a second part of that?

Q: Ygal Arounian: Yes, just on the upcoming domain auctions and -- on that process yes, for later next year and into, I think, 2027?

A: ICANN 2026 round of new gTLDs you're referring to. Yes. Yes, that's -- I believe that's on target to open the round in the second quarter, I believe, is ICANNs goal to do that. Unlike the 2013 round, there will not be auctions. There will be a different process that they use, but they haven't started rolling all that out yet. I think like a lot of companies, we are looking at any opportunities there. If there's something that we're interested in, we have our teams studying that, nothing to report yet. But yes, that round, if everything runs on schedule, I'm not sure exactly what the timing for the process is after the opening of the round and the submission of applications and there's a lot of process that goes with these. So I can't tell you exactly when. But yes, I think, 2027, you'll probably -- is probably the earliest that they'll actually be deployed because of the process. But it starts Q2 2026 according to ICANN.