vrsn-20210930

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________

FORM 10-Q

____________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-23593

VERISIGN, INC.

(Exact name of registrant as specified in its charter)


Delaware		94-3221585
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

12061 Bluemont Way,
Reston,	Virginia	20190
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (703) 948-3200

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	VRSN	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:


Class						Shares Outstanding as of October 22, 2021
Common stock, $0.001 par value per share						111,078,436

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TABLE OF CONTENTS


		Page
	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	3
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020	4
	Condensed Consolidated Statements of Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2021 and 2020	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 6.	Exhibits	22
Signatures		23

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VERISIGN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)


	September 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	256,869	$	401,194
Marketable securities	941,552		765,713
Other current assets	65,989		51,033
Total current assets	1,264,410		1,217,940
Property and equipment, net	249,093		245,571
Goodwill	52,527		52,527
Deferred tax assets	65,163		67,914
Deposits to acquire intangible assets	145,000		145,000
Other long-term assets	38,514		37,958
Total long-term assets	550,297		548,970
Total assets	$	1,814,707	$	1,766,910
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities	$	204,511	$	208,642
Deferred revenues	843,664		780,051
Total current liabilities	1,048,175		988,693
Long-term deferred revenues	314,089		282,838
Senior notes	1,785,152		1,790,083
Long-term tax and other liabilities	84,869		95,494
Total long-term liabilities	2,184,110		2,168,415
Total liabilities	3,232,285		3,157,108
Commitments and contingencies
Stockholders’ deficit:
Preferred stock—par value $.001 per share; Authorized shares: 5,000; Issued and outstanding shares: none	—		—
Common stock and additional paid-in capital—par value $.001 per share; Authorized shares: 1,000,000; Issued shares: 354,154 at September 30, 2021 and 353,789 at December 31, 2020; Outstanding shares: 111,283 at September 30, 2021 and 113,470 at December 31, 2020	13,793,049		14,275,160
Accumulated deficit	(15,207,854)		(15,662,602)
Accumulated other comprehensive loss	(2,773)		(2,756)
Total stockholders’ deficit	(1,417,578)		(1,390,198)
Total liabilities and stockholders’ deficit	$	1,814,707	$	1,766,910

See accompanying Notes to Condensed Consolidated Financial Statements.

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VERISIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues	$	334,242	$	317,879	$	987,268	$	944,768
Costs and expenses:
Cost of revenues	47,801		45,024		142,565		134,205
Sales and marketing	9,410		8,389		28,115		23,883
Research and development	19,566		19,708		59,685		55,268
General and administrative	36,160		38,109		112,212		111,719
Total costs and expenses	112,937		111,230		342,577		325,075
Operating income	221,305		206,649		644,691		619,693
Interest expense	(18,829)		(22,537)		(64,427)		(67,607)
Non-operating income (loss), net	164		775		(1,433)		15,262
Income before income taxes	202,640		184,887		578,831		567,348
Income tax (expense) benefit	(46,018)		(13,908)		(124,083)		90,226
Net income	156,622		170,979		454,748		657,574
Other comprehensive income (loss)	61		(383)		(17)		(120)
Comprehensive income	$	156,683	$	170,596	$	454,731	$	657,454

Earnings per share:
Basic	$	1.40	$	1.49	$	4.05	$	5.70
Diluted	$	1.40	$	1.49	$	4.04	$	5.68
Shares used to compute earnings per share
Basic	111,664		114,655		112,389		115,456
Diluted	111,793		114,831		112,530		115,699

See accompanying Notes to Condensed Consolidated Financial Statements.

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VERISIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Total stockholders’ deficit, beginning of period	$	(1,417,785)	$	(1,400,324)	$	(1,390,198)	$	(1,490,100)

Common stock and additional paid-in capital
Beginning balance	13,949,525		14,592,929		14,275,160		14,990,011
Repurchase of common stock	(175,598)		(173,879)		(536,797)		(603,705)
Stock-based compensation expense	14,819		13,078		42,282		37,526
Issuance of common stock under stock plans	4,303		4,281		12,404		12,577
Balance, end of period	13,793,049		14,436,409		13,793,049		14,436,409

Accumulated deficit
Beginning balance	(15,364,476)		(15,990,895)		(15,662,602)		(16,477,490)
Net income	156,622		170,979		454,748		657,574
Balance, end of period	(15,207,854)		(15,819,916)		(15,207,854)		(15,819,916)

Accumulated other comprehensive loss
Beginning balance	(2,834)		(2,358)		(2,756)		(2,621)
Other comprehensive income (loss)	61		(383)		(17)		(120)
Balance, end of period	(2,773)		(2,741)		(2,773)		(2,741)

Total stockholders’ deficit, end of period	$	(1,417,578)	$	(1,386,248)	$	(1,417,578)	$	(1,386,248)

See accompanying Notes to Condensed Consolidated Financial Statements.

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VERISIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income	$	454,748	$	657,574
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment	35,609		34,463
Stock-based compensation	41,019		36,106
Other, net	5,410		(8,482)
Changes in operating assets and liabilities:
Other assets	(19,735)		(11,107)
Accounts payable and accrued liabilities	(5,529)		(5,912)
Deferred revenues	94,863		27,673
Net deferred income taxes and other long-term tax liabilities	(5,476)		(195,353)
Net cash provided by operating activities	600,909		534,962
Cash flows from investing activities:
Proceeds from maturities and sales of marketable securities	2,246,148		1,804,541
Purchases of marketable securities	(2,421,705)		(2,093,437)
Purchases of property and equipment	(39,536)		(36,933)
Proceeds received related to sale of business	—		20,009

Net cash used in investing activities	(215,093)		(305,820)
Cash flows from financing activities:
Repayment of borrowings	(750,000)		—
Proceeds from senior note issuance, net of issuance costs	741,075		—
Repurchases of common stock	(536,797)		(603,705)
Proceeds from employee stock purchase plan	12,404		12,577
Net cash used in financing activities	(533,318)		(591,128)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(600)		(506)
Net decrease in cash, cash equivalents, and restricted cash	(148,102)		(362,492)
Cash, cash equivalents, and restricted cash at beginning of period	410,601		517,601
Cash, cash equivalents, and restricted cash at end of period	$	262,499	$	155,109
Supplemental cash flow disclosures:
Cash paid for interest	$	61,845	$	56,860
Cash paid for income taxes, net of refunds received	$	132,202	$	105,258

See accompanying Notes to Condensed Consolidated Financial Statements.

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VERISIGN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

Interim Financial Statements

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by VeriSign, Inc. (“Verisign” or the “Company”) in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, do not include all information and notes normally provided in audited financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and other adjustments) considered necessary for a fair presentation have been included. The results of operations for any interim period are not necessarily indicative of, nor comparable to, the results of operations for any other interim period or for a full fiscal year. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes contained in Verisign’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”) filed with the SEC on February 19, 2021.

Note 2. Financial Instruments

Cash, Cash Equivalents, and Marketable Securities

The following table summarizes the Company’s cash, cash equivalents, and marketable securities and the fair value categorization of the financial instruments measured at fair value on a recurring basis:


	September 30,		December 31,
	2021		2020
	(In thousands)
Cash	$	24,317	$	28,832
Time deposits	3,708		4,176
Money market funds (Level 1)	208,377		129,627
Debt securities issued by the U.S. Treasury (Level 1)	967,649		1,013,679
Total	$	1,204,051	$	1,176,314

Cash and cash equivalents	$	256,869	$	401,194
Restricted cash (included in Other long-term assets)	5,630		9,407
Total Cash, cash equivalents, and restricted cash	262,499		410,601
Marketable securities	941,552		765,713
Total	$	1,204,051	$	1,176,314

The fair value of the debt securities held as of September 30, 2021, included less than $0.1 million of gross and net unrealized gains. All of the debt securities held as of September 30, 2021 are scheduled to mature in less than one year.

Fair Value Measurements

The fair value of the Company’s investments in money market funds approximates their face value. Such instruments are included in Cash and cash equivalents. The fair value of the debt securities consisting of U.S. Treasury bills is based on their quoted market prices. Debt securities purchased with original maturities in excess of three months are included in Marketable securities. The fair value of all of these financial instruments are classified as Level 1 in the fair value hierarchy.

The Company’s other financial instruments include cash, accounts receivable, restricted cash, and accounts payable. As of September 30, 2021, the carrying value of these financial instruments approximated their fair value. The fair values of the senior notes due 2025, 2027, and 2031 were $563.6 million, $580.0 million, and $763.5 million, respectively, as of September 30, 2021. The fair values of these debt instruments are based on available market information from public data sources and are classified as Level 2.

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Note 3. Selected Balance Sheet Items

Other Current Assets

Other current assets consist of the following:


	September 30,		December 31,
	2021		2020
	(In thousands)
Prepaid expenses	$	31,189	$	17,920
Prepaid registry fees	24,513		22,654
Accounts receivable, net	5,062		4,642
Taxes receivable	4,091		3,572
Other	1,134		2,245
Total other current assets	$	65,989	$	51,033

Other Long-Term Assets

Other long-term assets consist of the following:


	September 30,		December 31,
	2021		2020
	(In thousands)
Long-term prepaid expenses	$	12,250	$	7,105
Operating lease right-of-use asset	9,625		11,277
Long-term prepaid registry fees	8,990		7,997
Restricted cash	5,630		9,407
Other	2,019		2,172
Total other long-term assets	$	38,514	$	37,958

The prepaid expenses included in Other current assets and Other long-term assets as of September 30, 2021 are primarily related to prepaid hardware and software maintenance expenses. The current and long-term prepaid registry fees in the tables above relate to the fees the Company pays to Internet Corporation for Assigned Names and Numbers (“ICANN”) for each annual increment of .com domain name registrations and renewals which are deferred and amortized over the domain name registration term. The amount of prepaid registry fees as of September 30, 2021 reflects amortization of $9.7 million and $28.5 million during the three and nine months ended September 30, 2021 which was recorded in Cost of Revenues.

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of the following:


	September 30,		December 31,
	2021		2020
	(In thousands)
Accounts payable and accrued expenses	$	6,233	$	12,340
Customer deposits	64,650		53,631
Accrued employee compensation	48,890		54,596
Interest payable	24,988		24,408
Taxes payable and other non-income tax liabilities	24,593		27,194
Accrued registry fees	14,717		13,090
Customer incentives payable	10,210		12,556
Other accrued liabilities	10,230		10,827
Total accounts payable and accrued liabilities	$	204,511	$	208,642

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Customer deposits primarily relate to advance payments to cover domain name registration activity by registrars. Accrued employee compensation primarily consists of liabilities for employee leave, salaries, payroll taxes, employee contributions to the employee stock purchase plan, and incentive compensation. Accrued employee incentive compensation as of December 31, 2020, was paid during the nine months ended September 30, 2021. Interest payable varies at each period-end based on the payment due dates for each senior note issuance. Taxes payable and other non-income tax liabilities reflect amounts accrued for the income tax provision and payments made during the period. Customer incentives payable includes amounts related to rebates and marketing programs payable to registrars. These amounts may vary from period to period due to the timing of payments.

Long-term Tax and Other Liabilities

Long-term tax and other liabilities consist of the following:


	September 30,		December 31,
	2021		2020
	(In thousands)
Long-term tax liabilities	$	82,108	$	90,335
Long-term operating lease liability	2,761		5,159
Long-term tax and other liabilities	$	84,869	$	95,494

Long-term tax liabilities as of September 30, 2021 reflects a $7.7 million reclassification of a portion of the transition tax liability on accumulated foreign earnings from non-current to current as of September 30, 2021.

Note 4. Stockholders’ Deficit

Effective February 11, 2021, the Company’s Board of Directors authorized the repurchase of its common stock in the amount of $747.0 million, in addition to the $253.0 million that remained available for repurchases under the share repurchase program, for a total repurchase authorization of up to $1.00 billion under the program. The program has no expiration date. Purchases made under the program could be effected through open market transactions, block purchases, accelerated share repurchase agreements or other negotiated transactions. During the three and nine months ended September 30, 2021, the Company repurchased 0.8 million and 2.5 million shares of its common stock, respectively, at an average stock price of $219.62 and $210.55, respectively. The aggregate cost of the repurchases in the three and nine months ended September 30, 2021 was $172.4 million and $517.6 million, respectively. As of September 30, 2021, there was approximately $565.1 million remaining available for future share repurchases under the share repurchase program.

During the nine months ended September 30, 2021, the Company placed 0.1 million shares, at an average stock price of $205.10, and for an aggregate cost of $19.3 million, into treasury stock for purposes related to tax withholding upon vesting of Restricted Stock Units (“RSUs”).

Since inception, the Company has repurchased 242.9 million shares of its common stock for an aggregate cost of $11.52 billion, which is presented as a reduction of Additional paid-in capital.

Note 5. Calculation of Earnings per Share

The following table presents the computation of weighted-average shares used in the calculation of basic and diluted earnings per share:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
	(In thousands)
Weighted-average shares of common stock outstanding	111,664	114,655	112,389	115,456
Weighted-average potential shares of common stock outstanding:
Unvested RSUs and ESPP	129	176	141	243
Shares used to compute diluted earnings per share	111,793	114,831	112,530	115,699

The calculation of diluted weighted average shares outstanding excludes performance-based RSUs granted by the Company for which the relevant performance criteria have not been achieved. The number of potential shares excluded from the calculation was not significant in any period presented.

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Note 6. Revenues

The Company generates revenues in the U.S.; Europe, the Middle East and Africa (“EMEA”); China; and certain other countries, including Canada, Australia, and Japan.

The following table presents our revenues disaggregated by geography, based on the billing addresses of our customers:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
U.S.	$	214,352	$	202,934	$	632,424	$	599,845
EMEA	58,615		54,034		172,717		159,103
China	24,607		27,463		74,974		86,676
Other	36,668		33,448		107,153		99,144
Total revenues	$	334,242	$	317,879	$	987,268	$	944,768

Revenues in the table above are attributed to the country of domicile and the respective regions in which registrars are located; however, this may differ from the regions where the registrars operate or where registrants are located. Revenues for each region may be impacted by registrars reincorporating, relocating, or from acquisitions or changes in affiliations of resellers. Revenues for each region may also be impacted by registrars domiciled in one region, registering domain names in another region.

Deferred Revenues

As payment for domain name registrations and renewals are due in advance of our performance, we record these amounts as deferred revenues. The increase in the deferred revenues balance for the nine months ended September 30, 2021 was primarily driven by amounts billed in the nine months ended September 30, 2021 for domain name registrations and renewals to be recognized as revenues in future periods, offset by refunds for domain name renewals deleted during the 45-day grace period, and $665.1 million of revenues recognized that were included in the deferred revenues balance at the beginning of the period. The higher deferred revenue balance as of September 30, 2021 also reflects an increase in the volume of early renewal transactions that occurred before the .com price increase became effective on September 1, 2021. The balance of deferred revenues as of September 30, 2021 represents our aggregate remaining performance obligations. Amounts included in current deferred revenues are all expected to be recognized in revenues within 12 months, except for a portion of deferred revenues that relates to domain name renewals that are deleted in the 45-day grace period following the transaction. The long-term deferred revenues amounts will be recognized in revenues over several years and in some cases up to 10 years.

Note 7. Stock-based Compensation

Stock-based compensation is classified in the Condensed Consolidated Statements of Comprehensive Income in the same expense line items as cash compensation. The following table presents the classification of stock-based compensation:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Cost of revenues	$	1,636	$	1,558	$	4,925	$	4,761
Sales and marketing	1,202		830		3,241		2,558
Research and development	2,151		1,810		6,078		5,266
General and administrative	9,439		8,480		26,775		23,521
Total stock-based compensation expense	$	14,428	$	12,678	$	41,019	$	36,106

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The following table presents the nature of the Company’s total stock-based compensation:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
RSUs	$	11,899	$	10,871	$	31,777	$	29,060
Performance-based RSUs	1,857		1,102		7,283		5,146
ESPP	1,063		1,105		3,222		3,320
Capitalization (included in Property and equipment, net)	(391)		(400)		(1,263)		(1,420)
Total stock-based compensation expense	$	14,428	$	12,678	$	41,019	$	36,106

Note 8. Debt

On June 8, 2021, the Company issued $750.0 million of 2.700% senior unsecured notes due June 15, 2031 (“2031 Notes”). The 2031 Notes were issued at 99.712% of par value. The Company will pay interest on the notes semi-annually on June 15 and December 15, commencing on December 15, 2021. The total discount and issuance costs of $8.9 million are presented on the balance sheet as a reduction of the debt obligation and are being amortized to Interest expense over the 10-year term of the notes.

On June 23, 2021, the Company used the net proceeds from the 2031 Notes and cash on hand, to redeem all of its $750.0 million aggregate principal amount of outstanding 4.625% senior notes due 2023 (“2023 Notes”). The redemption of the 2023 Notes resulted in a loss on debt extinguishment of $2.1 million related to the unamortized debt issuance costs on the notes in the second quarter of 2021. The loss on extinguishment is included in Non-operating income (loss) during the nine months ended September 30, 2021.

Note 9. Non-operating Income (Loss), Net

The following table presents the components of Non-operating income (loss), net:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Interest income	$	111	$	805	$	438	$	7,500
Loss on extinguishment of debt	—		—		(2,149)		—
Gain on sale of business	—		(9)		—		5,602
Transition services income	—		—		—		2,100
Other, net	53		(21)		278		60
Total non-operating income (loss), net	$	164	$	775	$	(1,433)	$	15,262

The lower interest income during the three and nine months ended September 30, 2021 reflects a decline in interest rates on our investments in debt securities. The gain on sale of business in 2020 represents the excess of the contingent consideration received related to the divested security services business compared to the estimated receivable. The transition services income in 2020 relates to the divested security services business. The transition services agreement ended in February 2020.

Note 10. Income Taxes

The following table presents Income tax expense (benefit) and the effective tax rate:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
	(Dollars in thousands)
Income tax expense (benefit)	$	46,018		$	13,908		$	124,083		$	(90,226)
Effective tax rate	23		%	8		%	21		%	(16)		%

When compared to the statutory federal rate of 21%, the effective tax rates above reflect a lower effective tax rate on foreign income and excess tax benefits related to stock-based compensation, which are offset by state income taxes and U.S.

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taxes on foreign earnings, net of foreign tax credits. The effective tax rate for the three and nine months ended September 30, 2020 also reflected the remeasurement of unrecognized tax benefits discussed below.

The Company remeasured certain previously unrecognized income tax benefits, which resulted in the recognition of $24.0 million and $191.8 million of income tax benefits in the three and nine months ended September 30, 2020, respectively. The most significant portion of these tax benefits related to the worthless stock deduction taken in 2013, which resulted in the recognition of a $167.8 million benefit in the first quarter of 2020. These remeasurements were based on written confirmations from the Internal Revenue Service (“IRS”), received in the first and third quarters of 2020, indicating no examination adjustments would be proposed related to the worthless stock deduction or certain other matters reviewed as part of the audit of the Company’s federal income tax returns for 2010 through 2014. Notwithstanding these written confirmations, the Company’s U.S. federal income tax returns for those years remain under examination by the IRS.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with the 2020 Form 10-K and the interim unaudited Condensed Consolidated Financial Statements and related notes included in Part I, Item I of this Quarterly Report on Form 10-Q.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are based on current expectations and assumptions and involve risks and uncertainties, including, among other things, statements regarding our expectations about (i) the impact from the effects of the COVID-19 pandemic, (ii) the growth in revenues for the remainder of 2021, (iii) Cost of revenues, Sales and marketing expenses, Research and development expenses, General and administrative expenses, quarterly Interest expense, and quarterly Non-operating income (loss), net, for the remainder of 2021, (iv) our annual effective tax rate for 2021, and (v) the sufficiency of our existing cash, cash equivalents and marketable securities, and funds generated from operations, together with our borrowing capacity under the unsecured revolving credit facility. Forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,” “believes” and similar language. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” in Part I, Item 1A of the 2020 Form 10-K. You should also carefully review the risks described in other documents we file from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q or Current Reports on Form 8-K that we file in 2021. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update publicly or revise such statements, whether as a result of new information, future events, or otherwise, except as required by law.

For purposes of this Quarterly Report on Form 10-Q, the terms “Verisign,” “the Company,” “we,” “us,” and “our” refer to VeriSign, Inc. and its consolidated subsidiaries.

Overview

We are a global provider of domain name registry services and internet infrastructure, enabling internet navigation for many of the world’s most recognized domain names. We enable the security, stability, and resiliency of key internet infrastructure and services, including providing root zone maintainer services, operating two of the 13 global internet root servers, and providing registration services and authoritative resolution for the .com and .net top-level domains (“TLDs”), which support the majority of global e-commerce.

As of September 30, 2021, we had 172.1 million .com and .net registrations in the domain name base. The number of domain names registered is largely driven by continued growth in online advertising, e-commerce, and the number of internet users, which is partially driven by greater availability of internet access, as well as marketing activities carried out by us and our registrars. Growth in the number of domain name registrations under our management may be hindered by certain factors, including overall economic conditions, competition from country code top-level domains (“ccTLDs”), other generic top-level domains (“gTLDs”), services that offer alternatives for an online presence, such as social media, and ongoing changes in the internet practices and behaviors of consumers and businesses. Factors such as the evolving practices and preferences of internet users, and how they navigate the internet, as well as the motivation of domain name registrants and how they will manage their investment in domain names, can negatively impact our business and the demand for new domain name registrations and renewals.

Business Highlights and Trends

•We recorded revenues of $334.2 million and $987.3 million during the three and nine months ended September 30, 2021, an increase of 5% and 4%, respectively, compared to the same periods in 2020.

•We recorded operating income of $221.3 million and $644.7 million during the three and nine months ended September 30, 2021, an increase of 7% and 4%, respectively, compared to the same periods in 2020.

•As of September 30, 2021, we had 172.1 million .com and .net registrations in the domain name base, which represents a 5% increase from September 30, 2020, and a net increase of 1.5 million domain name registrations from June 30, 2021.

•During the three months ended September 30, 2021, we processed 10.7 million new domain name registrations for .com and .net compared to 10.9 million for the same period in 2020.

•The final .com and .net renewal rate for the second quarter of 2021 was 75.4% compared to 72.8% for the second quarter of 2020. Renewal rates are not fully measurable until 45 days after the end of the quarter.

Table of Contents

•During the three months ended September 30, 2021, we repurchased 0.8 million shares of our common stock for an aggregate cost of $172.4 million. As of September 30, 2021, there was approximately $565.1 million remaining available for future share repurchases under our share repurchase program.

•We generated cash flows from operating activities of $600.9 million during the nine months ended September 30, 2021, compared to $535.0 million for the same period in 2020.

Pursuant to our agreements with the Internet Corporation for Assigned Names and Numbers (“ICANN”), we make available files containing all active domain names registered in the .com and .net registries. Further, we also make available a summary of the active zone count registered in the .com and .net registries and the number of .com and .net domain name registrations in the domain name base. The zone counts and information on how to obtain access to the zone files can be found at https://www.Verisign.com/zone. The domain name base is the active zone plus the number of domain names that are registered but not configured for use in the respective top-level domain zone file plus the number of domain names that are in a client or server hold status. The domain name base may also reflect compensated or uncompensated judicial or administrative actions to add or remove from the active zone an immaterial number of domain names. These files and the related summary data are updated at least once per day. The update times may vary each day. The number of domain names provided in this Form 10-Q are as of midnight of the date reported.

COVID-19 Update

The United States and the global community we serve are facing unprecedented challenges posed by the COVID-19 pandemic. In response to the pandemic, we have established a task force to monitor the pandemic and have taken a number of actions to protect our employees, including restricting travel, modifying our sick leave policy to encourage quarantine and isolation when warranted, and directing most of our employees to work from home. We have implemented our readiness plans, which include the ability to maintain critical internet infrastructure with most employees working remotely. We believe that the effects of the pandemic to date have led to an increase in the demand for domain names, particularly as businesses and entrepreneurs have been seeking to establish or expand their presence online in response to the pandemic. Our revenues continued to grow during 2020 and the nine months ended September 30, 2021 primarily driven by an increase in the domain name base for the .com TLD; however, the situation remains uncertain and hard to predict. The broader implications of the pandemic on our business and operations and our financial results, including the extent to which the effects of the pandemic will impact future growth in the domain name base, remain uncertain. The duration and severity of the economic disruptions from the pandemic may ultimately result in negative impacts on our business and operations, results of operations, financial condition, cash flows, liquidity and capital and financial resources. For further discussion, see “Risk Factors – The effects of the COVID-19 pandemic have impacted how we operate our business, and the extent to which the effects of the pandemic will impact our business, operations, financial condition and results of operations remains uncertain” in Part 1, Item 1A of the 2020 Form 10-K.

Results of Operations

The following table presents information regarding our results of operations as a percentage of revenues:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Costs and expenses:
Cost of revenues	14.3		14.2		14.4		14.2
Sales and marketing	2.8		2.6		2.9		2.5
Research and development	5.9		6.2

SEC Form 10-Q filed by VeriSign, Inc.