Good day, everyone. Welcome to VeriSign's 2nd Quarter 2021 Earnings Conference 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 Q2 2021 earnings call. Joining me are Jim Bizzos, Executive Chairman and CEO Todd Strube, President and COO and George Kilgus, 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 ks. 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 George will provide some prepared remarks, And afterwards, we will open the call for your questions. With that, I would like to turn the call over to Jim.
Thanks, David, and good afternoon, everyone. I'm pleased to report another solid quarter of operational and financial performance for VeriSign. During the Q2, we saw continued demand for our domain names, including year over year growth in new registrations from some of our foreign geographies. During the Q2, we processed 11,700,000 new registrations and the domain name base increased by 2,590,000 names. At the end of June, the domain name base in dotcomand.net totaled 170,600,000 consisting of 157,000,000 names for dotcom And 13,600,000 names for dot net with a year over year growth rate of 5.2%.
Although renewal rates are not fully measurable until 45 days after the end of the quarter, we believe that the renewal rate for the Q2 of 2021 will be approximately 75.3%. This preliminary rate compares to 72.8% achieved in the Q2 of 2020 76% last quarter. As we look at full year 2021, we now expect a domain name base growth rate of between 4.7% 6%. This range reflects the strength we continue to observe in new additions to the base and our outlook for the balance of the year. During the quarter, we continued to deliver solid financial results Our critical infrastructure enables us to reliably and accurately provide the DNS navigation service, which people around the world depend on Commerce, education, healthcare and person to person connection.
Just last week, we marked 24 years of uninterrupted availability of our dot and .netdomainnameresolutionsystem. Our financial and liquidity position remains stable with $1,120,000,000 in cash, Cash equivalents and marketable securities at the end of the quarter. Share repurchases during the Q2 totaled $172,000,000 or 797 1,000 shares. At quarter end, dollars 737,000,000 remained available and authorized under the current share repurchase program, which has no expiration. We continually evaluate the overall liquidity and investing needs of the business and consider the best uses for our cash, including potential share repurchases.
Regarding DotWeb, on May 20, a final decision was issued in the independent review process or IRP. The final decision rejected Affilius' petition to nullify the results of the Dotweb auction and rejected Affilius' request to be awarded Dotweb. Also, as we had requested, a final decision directed ICANN's Board of Directors to review the objections, including objections as to Affilius' conduct and to make a determination on the delegation of .web. After the final decision was issued, however, Affilius filed an application requesting that the IRP panel interpret and amend its final decision. We believe Affilius' application is without merit and expects the panel to we expect the panel to rule on it in the Q4 of 2021.
Thereafter, we expect Icahn's Board will proceed consistent with the final decision and it will make a determination on the delegation of .web. The updated guidance we are providing today does not include revenue or expenses related to .web. And now I'd like to turn the call over to George.
Thanks, Jim, and good afternoon, everyone. For the quarter ended June 30, 2021, The company generated revenue of $329,000,000 up 4.8% from the same quarter in 2020 and delivered operating income of $213,000,000 up 3% from $207,000,000 in the same quarter a year ago. Operating expense totaled $116,000,000 compared to $113,000,000 last quarter and $108,000,000 in the Q2 a year ago. The year over year increase in operating expense is primarily a result of incremental and continued investment in our operational infrastructure and personnel. The operating margin in the quarter was 64.7% compared to 65.8% for the same quarter a year ago.
Net income totaled $148,000,000 compared to $152,000,000 a year earlier, which produced Diluted earnings per share of $1.31 in the Q2 of this year compared to $1.32 for the same quarter last year. During the quarter, the company redeemed and favorably refinanced its 750,000,000 4.625 percent senior notes due in 2023 through the issuance of new $750,000,000 2.7 percent senior notes, which mature in June 2,031. We are pleased with the results of this refinancing, which will result in interest expense savings of over $14,000,000 annually for the company. As part of the refinancing, we wrote off $2,100,000 of unamortized debt issuance costs on the 2023 notes. Operating cash flow for the Q2 was $143,000,000 and free cash flow was $125,000,000 compared with $215,000,000 $204,000,000 respectively for the Q2 of 2020.
The year over year difference in operating cash flow primarily relates to cash taxes from a combination of higher cash taxes this year As well as last year's Q2 operating cash flow benefiting from lower cash flow tax payments due to the permitted deferral of approximately $52,000,000 of U. S. Federal tax payments until the Q3 of 2020. I will now discuss our updated full year 2021 guidance. Revenue is now expected to be in the range of 1,322,000,000 to $1,331,000,000 This narrowed and increased revenue range forecast Reflects the updated domain name base growth rate expectation of between 4.7% 6% that Jim mentioned earlier.
The operating margin is now expected to be between 64.25% and 65%. This guidance range reflects our expectation of incremental and continued investment and our operational infrastructure and personnel in 2021. Interest expense and non operating income net
It is
now expected to be an expense of between $83,000,000 to $87,000,000 This reflects lower interest expense following the refinancing that was completed during the Q2. Capital expenditures are still expected to be between 55,000,000 and $65,000,000 The GAAP effective tax rate is still expected to be between 20% 23%. We expect the cash tax rate for 2021 to also be within the same guidance range. In summary, VeriSign continued to demonstrate sound financial performance during the Q2, and we look forward to continuing our focused execution in 2021. Now I'll turn the call back to Jim for his closing remarks.
Thank you, George. We continued our work to protect, grow and manage the business while continuing our focus on providing long term value to our shareholders. Before we open the call for your questions, I'd like to touch on some other things we're doing at VeriSign. I've updated you in previous earnings Those affected by the COVID-nineteen pandemic in a number of ways, including alleviating food insecurity caused by COVID related economic hardship in areas where we have a footprint, providing medical and other relief in India, where the pandemic took a significant turn for the worse earlier this year, And our ongoing and growing efforts to help those whose jobs or careers have been affected by COVID to retrain and pivot to new careers in the tech industry. We've also kept our focus on the area of equity and justice, both working with existing partners and adding new ones.
You can read more about all of these initiatives In the new section, we added to our investor website this quarter on our ESG work. And now we'll open the call to your questions. Operator, we're ready for the first question.
Thank Please refrain from using your headset to ask a question. We'll take our first question from Rob Oliver from R. W. Baird. Please go ahead.
Great. Hi, good afternoon. Thank you guys for taking my question. Jim, I would just start with you on very strong renewal rates and obviously you guys raising the domain Growth guide again. You called out some foreign geographies, which saw, I believe, strong renewal trends.
So just was wondering if we can get a little bit of color Where you're seeing pockets globally of strength, whether some of that surprised you, whether it's COVID recovery related or any color around the foreign geography comment?
Sure. I'll let George or Todd comment on that.
Yes. Thanks, Jim. Rob, this is George. So with regard to domain demand, as we mentioned in our prepared remarks and as you alluded to, we had a very solid quarter From a domain perspective, new units were $11,700,000 and that was up about $600,000 from the year ago period. As far as regional preferences performance goes, I would say that U.
S. Registrars performed similar to a year ago quarter With a slight increase in demand coming from various international regions, as Jim mentioned, for example, both China and the EMEA regions We're up year over year in new registrations. As far as renewal rates, as Jim mentioned, our preliminary renewal rate It's 75.3 percent and that's up from 72.8 percent a year ago. I would say part of the improvement there relates to A combination of the mixture of first time and previously renewed names with the previously renewed name cohort getting a little larger as the base ages, as well as the geographic mix. As you may recall, back in 2019, we had a higher proportion of new units coming out of China, Out of that region, which came up for renewal in 2020 and contributed to a slightly lower average first time renewal rate In 2020, we had more mature regions like the U.
S. And EMEA contribute to a larger portion of new unit growth. So those historically higher renewing Rate regions have helped our first time renewal rate a little bit this year. So a combination of those two factors, but Our first time renewal rates are in the 50% range and our previous renewal rates are slightly up, but they're in the still in the mid-eighty percent range.
Got it. Okay, George, that's really helpful. And then just one follow-up, Jim, just I want to make sure that I understand The potential timeline on Dotweb. So with Affilius now having filed the motion, I guess, that now has to be Ruled upon by the Board, that then happens before the final ruling by ICANN. So I think you said Q4 2021 on the newer motion that was filed by Affilius.
So if that's right, What then would be your expectation for timing, assuming you guys were then to win .web Since the maybe since the folks filing the motion aren't even in the business anymore, assuming you guys are wondering what would be the timing of it?
So that will be dependent on ICANN's timeframe for picking up what the IRP panel instructed them to do, which is to complete their process on .web and get it delegated. So I can't speak for that. I can't process, That's what would occur. Following the ruling on that latest motion, ICANN would then basically do What the panel instructed it to do was essentially remanded back to ICANN. So there's this delay with this current motion, but then it would go back to ICANN and they would conduct their process and determine the delegation of the TLD.
So hopefully that won't take too long, but I can't speak where I can.
Great. Okay, guys. Thank you very much. Appreciate it.
Thank you. Thank you. We'll take our next question from Nick Jones from Citi.
Great. Thanks for taking the questions. Maybe another one on geographic trends. I think APAC still has Pretty low Internet penetration relative to kind of North America and Western Europe. Is there any sense of dotcom's popularity in those regions as I guess More people come online, and is that kind of a tailwind in the region for VeriSign or .com over time.
And then I have a second question.
All right, George or Todd?
Yes. So Nick, this is George. I mean, I would just say that, look, Calm is a global brand, and We obviously try to continue to market our brand to be a very high quality reliable brand across the world. As far as China is concerned, as I mentioned last year, China was a little bit quieter While the pandemic was going on and we've seen some of our registrars there's have some increased demand and are doing well. So China is picking up.
I do think China is a little bit of a different of a market though. I think China is much more of a platform and Mobile driven market, while domain names are still very relevant there and important, they are driven more in these platforms. But as I mentioned, China has performed better year over year in the Q2 here. And we'll see how they continue to perform, but they're still quite active over there.
Great. Thanks. And then maybe just Taking a step back, looking at the line about 100% availability for 24 years and as the Internet has evolved quite a bit and maybe The velocity of usage and, I guess, what's weighing the overall system, I guess, increases over time. What's the impact on availability in the future? You got crypto miners, you got just more and more people using the Internet for more and more things.
I guess, what impact does that have kind of from here?
Or how
are you thinking about
it from here versus kind of the last 24 years?
Well, that's a natural and good question, given the expanded use of the Internet, I'll just say that the design of our network besides resiliency is There's also a design element of capacity and it's always been designed with overcapacity as part of the resiliency sort of Formula, and I'll just say that the volume of traffic anticipated, we're still meeting all of our obligations, including specific performance and response time Obligations, we have no difficulty meeting those with the demand. It's essentially part of all the planning that we did. It always has been from the beginning. So it's not a new consideration in that sense. We've planned for it.
Great. Thanks for taking the questions.
Thank you.
Thank you. We'll take our last question from Sterling Auty from JPMorgan.
Hi, this is Drew on for Sterling. I was wondering if you could provide some more color on what you're
Yes. So Drew, this is George. We don't guide to renewal rates, but we do guide to the domain name base. And Obviously, our guide is up from last quarter. Last quarter, we were guiding 4% to 5.5%.
Obviously, now we've increased that guidance to 4.7% to 6%. So we're still expecting growth in the domain name base, but we don't guide specific quarters.
Thank you. That does conclude today's question and answer session. I'd like to turn the conference back over to Mr. Ashby for any additional or closing remarks.
Thank you, operator. Please call the Investor Relations department with any follow-up questions from this call. Thank you for your participation.