Good day, everyone. Welcome to VeriSign's Second Quarter 2024 Earnings Call. Today's conference is being recorded. Recording of this call is not permitted unless preauthorized. At this time, I would like to turn the conference over to Mr. David Atchley, Vice President of Investor Relations and Corporate Treasurer. Please go ahead.

Thank you, operator. Welcome to VeriSign's second quarter 2024 earnings call. Joining me are Jim Bidzos, Executive Chairman, President and CEO; and George Kilguss, 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 report on Form 10-K. 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 two 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 George 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. Before we cover results, I'd like to note that last week; we marked 27 years of 100% uninterrupted availability for the .com, .net domain name resolution system. This milestone represents an unparalleled achievement in our industry for operating secure, stable and resilient DNS infrastructure. For well over 1/4 of the century, amidst some of the most technologically significant changes the world has ever experienced, our teams have successfully built, maintained, operated and evolved the infrastructure that enables hundreds of billions of queries a day and supports trillions of dollars in global commerce. In fact, we answer on average, 328 billion queries per day, billion with a B. 24 hours a day, 7 days a week, 365 days a year, and that's over 3.7 million per second. We do this amidst ever-increasing Internet demand and resilience, evolving technology and a challenging global cyber threat environment. Turning now to our results. We delivered another quarter of operational and financial stability by focusing on our mission as a critical Internet infrastructure provider. For the second quarter, revenues grew 4.1% year-over-year, operating income grew 7.1% year-over-year and earnings per share grew 12.3% year-over-year. At the end of June, the domain name basin .com, .net totaled 170.6 million domain names. During the second quarter, the domain name base decreased by 1.8 million names. From a new registration perspective, the second quarter ended with 9.2 million new registrations compared with 10.2 million names for the same quarter last year. The renewal rate for the second quarter of 2024 is expected to be approximately 72.6% compared to 73.4% a year ago. As we have previously reported, we continue to see U.S. registrars prioritize ARPU over customer acquisition through higher retail pricing levels and reduced spend on marketing to customers compared with prior years. These factors impacting new registrations are impacting new registrations and renewal rates and are leading to weaker trends in 2024 that are below our original expectations. During the second quarter, the U.S. region was lowered by about 800,000 names. In addition and as expected, China-related weakness continues and contributed to most of the remaining sequential decline in the second quarter. The domain name base from our EMEA region was up slightly during the second quarter. We have rolled out new registrar marketing programs over the past several weeks to support our registrars and our goal of returning to domain name base growth in the second half of 2025. However, given the ongoing impact of the factors we've mentioned, we now expect the change in the domain name base to be between negative 3% to a negative 2% for full year 2024. Our financial and liquidity position continues to remain stable with $690 million in cash, cash equivalents and marketable securities at the end of the quarter. During the second quarter, we repurchased 2.2 million shares for $388 million. Effective today, the Board of Directors has increased the amount authorized for share repurchase of VeriSign common stock by $1.11 billion, to a total of $1.5 billion authorized and available under the share repurchase program, which has no expiration. And now, I'd like to turn the call over to George. I'll return when George has completed his financial report with closing remarks.

Thanks, Jim, and good afternoon, everyone. For the quarter ended June 30, 2024, the company generated revenue of $387 million, up 4.1% from the same quarter of 2023 and delivered operating income of $266 million, an increase of 7.1% from the same quarter a year ago. Operating expense in the second quarter of 2024 totaled $121 million for the 3 months and $246 million for the 6 months ended June 30, which compares to $123 million in the second quarter of 2023 and $246 million for the first 2 quarters a year ago. Net income in the second quarter totaled $199 million compared to $186 million a year earlier, which produced diluted earnings per share of $2.01 for the second quarter of 2024, compared to $1.79 for the same quarter of 2023. Operating cash flow for the second quarter was $160 million and free cash flow was $151 million compared with $145 million and $139 million, respectively, in the year ago quarter. I'll now discuss our updated full year 2024 guidance. Revenue is now expected to be in the range of $1.553 billion to $1.563 billion. Operating income is now expected to be between $1.048 billion and $1.058 billion. Interest expense and non-operating income net, which includes interest income estimates, is still expected to be an expense of between $25 million to $35 million. Capital expenditures are still expected to be between $30 million to $40 million. And the GAAP effective tax rate is still expected to be between 21% and 24%. Overall, VeriSign continued to demonstrate sound financial performance during the second quarter. Now, I'll turn the call back to Jim for his closing remarks.

Thank you, George. While we expect that the change in the domain name base for 2024 will be below prior year levels for the reasons we've discussed, we continue to believe our business fundamentals remain. As I mentioned earlier, we continue to introduce additional registrar marketing programs to target and support improvement in new registration trends once adopted and integrated into registrar our go-to-market activities. Our goals to fulfill our stewardship mission of providing care and reliable infrastructure services, managing our business responsibly and efficiently returning capital to our shareholders remain unchanged and support our commitment to deliver consistent financial results. Thank you 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] Our first question from Rob Oliver with Baird.

Great. I've got a few, and then I'll hop back into the queue. Jim, I guess, the first question would be, you talked a little bit about some of the activity at the registrars, particularly in North America and the focus on ARPU. Can you talk about the view out there that perhaps newer gTLDs are taking share from .com and what you're seeing in the data that gives you either a concern there or that would persuade you from that view? And then I have a couple of others.

Okay. So ARPU -- while the primary ARPU is -- the primary factor in the U.S. weakness remains register focus -- register our focus on ARPU and the reduced spend on marketing, two components there. These factors are having a bigger impact and lasting longer than we originally expected earlier this year. The unregulated retail channel has increased prices more than twice our limited wholesale pricing flexibility with some increasing 3x or more. Also, we've seen some registrars focus on margin through price increases to the overall bundle. In addition, they've reduced marketing expenditures. So while our limited price increases on comp may have had an impact, we think the wholesale price impact is small relative to the overall price increases and other actions taken by the unregulated retail channel in the U.S. In relation to the new gTLD taking market share question, very low-cost new gTLDs seem to be picking up some of the monetization demand, primarily from China. I would just add that there's a thriving market of CCTLDs and new gTLDs. There are 33 million of them. But these names tend to have lower renewal rates and lower lifetime values compared to traditional cohorts. Some of these are the more speculative names that we're seeing a declining demand from our China registrar base. And let me remind you that new gTLDs operate under very different and more flexible contracts. They're allowed to offer special deals to individual registrars, some offer very low initial and renewal pricing. They can reserve and sell premiums anytime that they want. They're not as transparent. Very few are public companies. And it's important to note that there's a difference between a registry operator like us and some registries which are really registering marketers. They basically don't run a registry, but they outsource those operations to a back-end service provider who does it for them. So they tend to have very low overhead. Some of them have very, very few employees. They can sell these TLDs at very, very low prices and still be profitable. And again, they're not a public company, so we don't have much visibility, but we can -- we certainly understand that these are factors in the market. So you need to look a little bit closer to get the accurate picture there.

Got it. Okay. Very helpful, Jim. I appreciate all the color. Two other for me, if I may. The second would be -- so something that just came out today, there was a congressional letter to the NTIA asking for them to review the contract for .com? It's been our understanding that they can ask all they want, but there's no legal ground. But that follows, I guess, an earlier report from a think tank in New York also suggesting the same. So I just wanted to get your reaction to that letter, which came out today?

We've seen the letter and the questions to NTIA. So I can't speak for NTIA but our reaction was that questions do typically occur every 6 years around the renewal of the .com registry agreement. Some of the questions in the letter are about wholesale .com price increases. As you know, our pricing is completely transparent and regulated. Since 2018, the com wholesale price has gone up $1.74. Our research shows that the benefit from our cap wholesale prices is not always passed on to consumers, either in a retail market where, as I just mentioned, prices have gone up more than twice as much as the wholesale price increases. Or in the secondary market, where the average price for .com domain is estimated to be $1,600 or about 166 time today's wholesale price. Academic research sizes the secondary market at over $2 billion that's with a B. $2 billion per year, which exceeds VeriSign's revenue. And unlike any actor in the secondary market, you know that VeriSign, as all of you know, VeriSign operates critical infrastructure which helps to enable the global digital economy. We understand that one of these secondary market players has warehoused about 4.8 million .com domains for resale on the secondary market. Businesses that buy these .com domains on the secondary market at high prices pass the cost on to consumers. So while we expect questions about wholesale prices, and we'll do our best to assist it fast by NTIA. The issue of retail, especially secondary market pricing is an important part of the discussion of the com domain name market that hasn't been sufficiently addressed yet.

Okay, that's extremely helpful. I guess the ultimate question we get most often from investors would be. Is there a risk the .com contract and your most recent thoughts on that would be great?

Well, a word, no, there's no -- there's no provision in a cooperative agreement to rebid .com and we believe that Amendment 35 is clear that should the DOC decide to sunset the cooperative agreement, which we're not seeking, then VeriSign would continue to operate the com Registry under the ICANN contract which like all ICANN agreements as a presumptive right of renewal.

Okay, that's really helpful. I have -- you know if you one or two others, but I'll hop back in the queue. So I appreciate it.

Will take our next question from Ygal Arounian with Citigroup.

Similarly, we've lately been getting most of our questions around the agreements, both NTIA [ph] with ICANN and the Cooperative Agreement with Department of Commerce. So maybe just an opportunity to clarify; these are two separate contracts, are they interrelated at all? The date that -- the DOC would have to -- to give you notice on whether -- if they're not doing the cooperative agreement; is that August 2? Just to clarify. And then the part that people, I guess, investors are most confused about lately is where the pricing part of the contract sits. Does that sit with the Department of Commerce? Does that sit within the ICANN contract? Meaning, if the Department of Commerce on sets the cooperative agreement; what happens for the pricing? Where does that get negotiated regardless? Thanks.

Okay. Thanks, Ygal. So maybe it would just be helpful if I briefly covered that the two contracts are at a very high level and briefly on the interest of time and what their interrelationship is. I think that was the first thing that you asked me. So the Cooperative Agreement is between VeriSign and the NTI Department of Commerce. And that contract in the past prior to 2018 was a contract that oversaw the conditions of renewal with our registry agreement with ICANN. So after we negotiated with ICANN to exercise our presumptive right of renewal, the NTIA had to approve what we did. In 2018, Amendment 35 basically gave ongoing priority consent to do that provided that we didn't change certain provisions of the registry agreement with ICANN. The first one was that we not change the termination provisions, not change the performance requirements that we had to deliver and not change the pricing. And so that pricing in 2018 is a limited ability to raise prices. And through Amendment 3 to the contract with ICANN, that new pricing that was permitted in 2018 is now part of the com registry agreement. So therefore, the Cooperative Agreement has 3 outcomes. One is that as it's coming up for renewal here. Renewal is sort of a different word. It's not quite like the ICANN agreement. The Department of Commerce has the unilateral right to sunset the Cooperative Agreement if it chooses to and that has to give notice that it intends to do so. We don't see -- by the way, the sunset. I think renewal is sort of a strange. It's an evergreen renewal. If nothing is done, the contract automatically renews under the exact same provisions that it has, which is that we can get our business done with ICANN and renew the com agreement provided we don't change those 3 things, which we never seek to do. However, as I said, they could sunset it and they have to give notice, and I believe that's the right date. I don't -- I haven't looked at part of the contract in a while, but I think that August date is the right one. So if they choose to sunset it, they have to give notice, and I believe that's the date by which they must give notice so that the contract, which will either expire or renew that would be at the end of November. So if they want to sunset it, they would give notice by August 2. If they do nothing, the contract will automatically renew for another 6 years with all of its provisions intact. Those are the outcomes that can't be changed unless we mutually agree to whatever changes. So that's the cooperative agreement, the ICANN agreement. Although separate, as you can see now, requires that we don't change those 3 things, which we never seek to do. And with ICANN, like every one of the hundreds, actually thousands of registry agreements, they all contain a presumptive right of renewal. And that we've exercised most recently with .net, relatively straightforward renewal. And I think we got a question on the last call, so maybe I'll anticipate that you're thinking it. We are engaged with ICANN. We are very much engaged in preparing the .com registry renewal, which comes up for renewal by November 30. So we're well in advance of that, and we're working on it. I hope that answers your question.

It does. I know it's a multi-part of the question. Just to be clear, again, the pricing -- the wholesale pricing component right now sits between the VeriSign and ICANN in the registry agreement. Is that correct?

Well, it was negotiated with the Department of Commerce in 2018 and through Amendment 3 in 2020; it was moved into the com agreement as it's required to do. Those changes in the Cooperative Agreement pass on. So and we can't change them in our negotiations with ICANN. So they stay as does the performance requirements and as do the termination provisions. And you can see how all those work together.

Yes, understood. There's a lot of legal elements here; so that's…

It's a bit tricky, but -- yes. No, I understand. But if you look carefully at the different components, the outcomes sort of are pretty straightforward.

Yes, understood. And that's really helpful clarification. I want to ask about -- I want to ask about the marketing that you're doing with registrars in the U.S. I know you're saying it's just a couple of weeks, but maybe there is -- and the outcome is not going to come until next year, but maybe there's a little bit, so you can -- a little bit of color that you can add on what you're doing there or what the receptiveness has been from the registrars? So anything that would be helpful.

Sure. George is taking a lead on that. So, George?

Thanks, Jim. So Ygal, as we mentioned last quarter, in addition to the annual marketing programs that we launched at the beginning of the year, we have rolled out some new programs. During late Q2, we launched some new programs on .net. And this quarter, we've rolled out some programs to the registrar community on .com. Again, our strategy is really to broaden the options that registrars can choose from, depending on their different business models, geographic footprints and installed bases. I would say the initial feedback has been positive to those programs but it is early. And of course, while we've had, I think, some good registrar engagement there, it will take a little bit of time to registrars to work those programs into their go-to-market strategies. So still early days, but we've gotten some actual feedback. And as you may also know, we will start working here in the fourth quarter to modify and enhance and target additional programs for 2025. We tend to gear that up in the fourth quarter and begin to talk to registrars about those programs as well. So any of the programs that we've rolled out better that we get feedback on, we'll look to try to tweak those to make sure that they work best for the registrar community.

All right. And I'll ask one last one. Just on the updated gain guidance. You're giving down 3% at the low end, that would -- based on the first half, the current trends, that would seem to imply trends get worse, not continue at the current level. So just want to know how to think about that number? Is it just incremental caution around the trends? What is it something you're seeing or what needs to happen to get -- go from down 2 to down 3. What's contemplated there?

Yes, sure. So if you look -- simply, if you look at the first half of the year, we're for the first 6 months, we're down about 2 million names. And so the midpoint of our guidance suggests that, that trend is probably going to continue here for the second half. Having said that, on the upside if some of our marketing programs start taking root or as Jim mentioned, if registrars stop being as aggressive in the marketplace with ARPU or there has been some recent news out of China where the Chinese government has put some stimulus into that marketplace, if those things start to take root, I think those are positive and can close that gap a little bit for us on the downside to the extent any of those trends worsen, i.e., the China market continues to not turn around or worsens and renewal rates from some of the activities [ph] continuing to exercise their pricing flexibility weaken that could potentially get to the bottom of that range. But right now, I think the simplest thing the midpoint of our guidance suggests that the second half will be similar to the first half of this year.

This is Jim. I just -- there's a couple of other things in the Cooperative Agreement that can't be changed. We normally don't think of them because they aren't generally of interest to investors. But I think everybody is aware of them. But one is that we cannot be vertically integrated for .com. We cannot be our own registrar for .com. And I think you might recall that in Amendment 35, we got clarification that only applies to .com. So we don't have any plans to become a registrar for anything, but there is a restriction in the Cooperative Agreement has been forever that we cannot -- for quite a few years that we could not be our own registrar for .com. And there's a function called who is, where people can query registrations and there are some requirements to continue to support that. Just for all clarity, I think there's one more technical one, but it's all in Amendment 35, pretty easy to find. But I think the important ones for investors are pricing SLA, the service level agreement, the performance and termination. And we don't see -- and by the way, we don't see to change any of the other ones either since we got clarification on a vertical integration, there's really nothing in the cooperative agreement that we would seek to change and we don't see [indiscernible] termination or sunset.

Got it. Thanks for the clarification.

We will take our last question from Rob Oliver with Baird.

Thanks for squeezing me in for one more. Jim or George, just a question on capital allocation. I saw you guys re-up to the buyback. I guess, Jim, just thinking about your time since returning to VeriSign, you essentially unwound and so many of the noncore businesses and which our view has been, this is a tremendous competitive advantage for you guys. However, it was interesting in response to Ygal's question, what you just said about vertical integration because, yes, clearly, you can't do that with .com. But just wondering the extent to which the current malaise in .com growth and some of the activity with new gTLDs, coupled with a very strong financial position that you guys have might cause you to rethink your capital allocation strategy, either via M&A or getting more aggressive with the new gTLD market or in any other way?

It's a good question. We don't guide to any of those things. I'd be reluctant to say anything about it. Now we do -- I will say though that, as you're aware, we have pursued growth through the pursuit of a new TLD .web, and that continues, of course, in litigation, and there's no update, unfortunately, this quarter. But I think that adding a new TLD and giving our customers more choice was a good plan, a good growth plan for us. But also to remember that our primary mission, the 328 billion queries a day and delivering that and having delivered it for 27 years is a primary mission. We have a strategic framework that balances growth against meeting our SLAs, which is obviously a very important thing. So we certainly have the flexibility to become a registrar for .web, if we wanted to. But all the other things that you mentioned, and we have no intention of doing that. But the other things that you mentioned, we wouldn't guide to and are complicated processes. All I can say is that if you look at our long track record of capital allocation, as you can see from our financial results today it's serving us well.

This does conclude today's question-and-answer session. I would now like to turn the call back to David Atchley for final remarks.

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.

This does conclude today's call. Thank you for your participation. You may now disconnect.