VERISIGN INC/CA 10-Q

ITEM 1. FINANCIAL STATEMENTS VERISIGN, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In millions, except par value) (Unaudited) March 31, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 731.8 $ 240.1 Marketable securities 192.9 686.3 Other current assets 63.6 61.9 Total current assets 988.3 988.3 Property and equipment, net 227.2 233.2 Goodwill 52.5 52.5 Deferred tax assets 283.2 301.0 Deposits to acquire intangible assets 145.0 145.0 Other long-term assets 31.6 29.0 Total long-term assets 739.5 760.7 Total assets $ 1,727.8 $ 1,749.0 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable and accrued liabilities $ 249.9 $ 257.4 Deferred revenues 964.0 931.1 Total current liabilities 1,213.9 1,188.5 Long-term deferred revenues 320.8 315.0 Senior notes 1,790.7 1,790.2 Long-term tax and other liabilities 38.1 36.3 Total long-term liabilities 2,149.6 2,141.5 Total liabilities 3,363.5 3,330.0 Commitments and contingencies Stockholders’ deficit: Preferred stock—par value $ .001 per share; Authorized shares: 5.0 ; Issued and outstanding shares: none — — Common stock and additional paid-in capital—par value $ .001 per share; Authorized shares: 1,000 ; Issued shares: 355.1 at March 31, 2024 and 354.9 at December 31, 2023; Outstanding shares: 100.1 at March 31, 2024 and 101.3 at December 31, 2023 11,559.4 11,808.0 Accumulated deficit ( 13,192.3 ) ( 13,386.4 ) Accumulated other comprehensive loss ( 2.8 ) ( 2.6 ) Total stockholders’ deficit ( 1,635.7 ) ( 1,581.0 ) Total liabilities and stockholders’ deficit $ 1,727.8 $ 1,749.0 See accompanying Notes to Condensed Consolidated Financial Statements. 3 Table of Contents VERISIGN, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions, except per share data) (Unaudited) Three Months Ended March 31, 2024 2023 Revenues $ 384.3 $ 364.4 Costs and expenses: Cost of revenues 49.1 49.9 Research and development 24.8 24.2 Selling, general and administrative 51.5 49.0 Total costs and expenses 125.4 123.1 Operating income 258.9 241.3 Interest expense ( 18.8 ) ( 18.8 ) Non-operating income, net 13.9 11.3 Income before income taxes 254.0 233.8 Income tax expense ( 59.9 ) ( 55.1 ) Net income 194.1 178.7 Other comprehensive loss ( 0.2 ) — Comprehensive income $ 193.9 $ 178.7 Earnings per share: Basic $ 1.93 $ 1.70 Diluted $ 1.92 $ 1.70 Shares used to compute earnings per share Basic 100.8 104.9 Diluted 100.9 105.0 See accompanying Notes to Condensed Consolidated Financial Statements. 4 Table of Contents VERISIGN, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (In millions) (Unaudited) Three Months Ended March 31, 2024 2023 Total stockholders’ deficit, beginning of period $ ( 1,581.0 ) $ ( 1,562.2 ) Common stock and additional paid-in capital Beginning balance 11,808.0 12,644.5 Repurchase of common stock ( 269.9 ) ( 230.5 ) Stock-based compensation 15.3 14.1 Issuance of common stock under stock plans 8.3 8.0 Excise tax on repurchase of common stock ( 2.3 ) ( 1.9 ) Balance, end of period 11,559.4 12,434.2 Accumulated deficit Beginning balance ( 13,386.4 ) ( 14,204.0 ) Net income 194.1 178.7 Balance, end of period ( 13,192.3 ) ( 14,025.3 ) Accumulated other comprehensive loss Beginning balance ( 2.6 ) ( 2.7 ) Other comprehensive loss ( 0.2 ) — Balance, end of period ( 2.8 ) ( 2.7 ) Total stockholders’ deficit, end of period $ ( 1,635.7 ) $ ( 1,593.8 ) See accompanying Notes to Condensed Consolidated Financial Statements. 5 Table of Contents VERISIGN, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited) Three Months Ended March 31, 2024 2023 Cash flows from operating activities: Net income $ 194.1 $ 178.7 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property and equipment 9.8 11.6 Stock-based compensation expense 15.1 13.8 Amortization of discount on investments in debt securities ( 7.0 ) ( 4.0 ) Other, net 1.0 1.1 Changes in operating assets and liabilities: Other assets ( 4.1 ) 1.9 Other liabilities ( 8.0 ) 12.1 Deferred revenues 38.6 41.8 Net deferred income taxes 17.8 2.0 Net cash provided by operating activities 257.3 259.0 Cash flows from investing activities: Proceeds from maturities and sales of marketable securities 658.0 562.0 Purchases of marketable securities ( 157.8 ) ( 146.5 ) Purchases of property and equipment ( 3.8 ) ( 5.7 ) Net cash provided by investing activities 496.4 409.8 Cash flows from financing activities: Repurchases of common stock ( 269.9 ) ( 230.5 ) Proceeds from employee stock purchase plan 8.3 8.0 Net cash used in financing activities ( 261.6 ) ( 222.5 ) Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 0.4 ) ( 0.2 ) Net increase in cash, cash equivalents, and restricted cash 491.7 446.1 Cash, cash equivalents, and restricted cash at beginning of period 245.5 379.0 Cash, cash equivalents, and restricted cash at end of period $ 737.2 $ 825.1 Supplemental cash flow disclosures: Cash paid for interest $ 13.1 $ 13.1 Cash paid for income taxes, net of refunds received $ 16.1 $ 18.3 See accompanying Notes to Condensed Consolidated Financial Statements. 6 Table of Contents 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, 2023 (the “2023 Form 10-K”) filed with the SEC on February 15, 2024. Reclassifications Certain reclassifications have been made to prior period amounts to conform to current period presentation. Such reclassifications have no effect on net income as previously reported. Recent Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which requires additional disclosure of significant segment expenses on an annual and interim basis. This guidance will be applied retrospectively and will be effective for our 2024 Form 10-K, and for interim periods beginning in 2025. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. This guidance will be effective for our 2025 Form 10-K. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements. 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: March 31, December 31, 2024 2023 (In millions) Cash $ 23.6 $ 25.6 Time deposits 1.9 1.0 Money market funds (Level 1) 202.5 160.3 Debt securities issued by the U.S. Treasury (Level 1) 702.1 744.9 Total $ 930.1 $ 931.8 Cash and cash equivalents $ 731.8 $ 240.1 Restricted cash (included in Other long-term assets) 5.4 5.4 Total Cash, cash equivalents, and restricted cash 737.2 245.5 Marketable securities 192.9 686.3 Total $ 930.1 $ 931.8 The gross and net unrealized gains and losses included in the fair value of the debt securities were not significant for the periods presented. All of the debt securities held as of March 31, 2024 are scheduled to mature in less than one year. 7 Table of Contents 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 the Company’s foreign currency forward contracts is based on foreign currency rates quoted by banks or foreign currency dealers and other public data sources. The fair value of all of these financial instruments are classified as Level 1 in the fair value hierarchy. As of March 31, 2024, the Company’s other financial instruments include cash, accounts receivable, restricted cash, and accounts payable whose carrying values approximated their face values. The aggregate fair value of the Company’s senior notes is $ 1.67 billion and $ 1.69 billion as of March 31, 2024 and December 31, 2023, respectively. The fair values of these debt instruments are based on available market information from public data sources and are classified as Level 2. Note 3. Selected Balance Sheet Items Other Current Assets Other current assets consist of the following: March 31, December 31, 2024 2023 (In millions) Prepaid expenses $ 25.3 $ 23.3 Prepaid registry fees 24.1 23.8 Accounts receivable, net 6.5 6.3 Foreign currency forward contracts 5.3 — Taxes receivable 1.4 7.3 Other 1.0 1.2 Total other current assets $ 63.6 $ 61.9 Other Long-Term Assets Other long-term assets consist of the following: March 31, December 31, 2024 2023 (In millions) Long-term prepaid registry fees $ 8.3 $ 8.3 Operating lease right-of-use asset 7.4 7.4 Long-term prepaid expenses 7.2 4.8 Restricted cash 5.4 5.4 Other 3.3 3.1 Total other long-term assets $ 31.6 $ 29.0 The prepaid registry fees in the tables above relate to the fees the Company pays to ICANN for each annual term of . com domain name registrations and renewals which are deferred and amortized over the domain name registration term. 8 Table of Contents Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consist of the following: March 31, December 31, 2024 2023 (In millions) Accounts payable and accrued expenses $ 9.4 $ 12.5 Taxes payable 83.7 49.5 Customer deposits 66.9 77.2 Accrued employee compensation 38.2 61.2 Interest payable 24.6 19.5 Accrued registry fees 13.7 12.3 Customer incentives payable 6.2 6.5 Current operating lease liabilities 5.0 5.1 Foreign currency forward contracts — 10.7 Other accrued liabilities 2.2 2.9 Total accounts payable and accrued liabilities $ 249.9 $ 257.4 Taxes payable reflects amounts accrued for the income tax provision and payments made during the period. This balance fluctuates from period to period due to the timing of income tax payments in the Company’s major tax jurisdictions. The balance of customer deposits varies from period to period due to the timing of payments from certain large customers. 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, 2023 was paid during the three months ended March 31, 2024. Interest payable varies at each period-end based on the payment due dates for each senior note issuance. The liability related to the unrealized loss on foreign currency forward contracts as of December 31, 2023 was remeasured and paid upon settlement of the forward contract during the three months ended March 31, 2024. Note 4. Share Repurchases Effective July 27, 2023, the Company’s Board of Directors authorized the repurchase of its common stock in the amount of $ 1.14 billion, in addition to the $ 356.1 million that remained available for repurchases under the share repurchase program, for a total authorization of up to $ 1.50 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. As of March 31, 2024 there was approximately $ 859.6 million remaining available for repurchases under the program. The Company’s share repurchases are as following. Amounts may not add up due to rounding: Three Months Ended March 31, 2024 Shares Total Costs Average Price (In millions, except average price amounts) Total repurchases under the repurchase plans 1.3 $ 260.4 $ 196.37 Total repurchases for tax withholdings — 9.5 $ 197.84 Total repurchases 1.4 $ 269.9 $ 196.42 Since inception, the Company has repurchased 254.9 million shares of its common stock for an aggregate cost of $ 13.92 billion, which is recorded as a reduction of Additional paid-in capital. The share repurchase and authorization amounts disclosed in this Form 10-Q exclude the excise tax on share repurchases. 9 Table of Contents 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 March 31, 2024 2023 (In millions) Weighted-average shares of common stock outstanding 100.8 104.9 Weighted-average potential shares of common stock outstanding: Unvested RSUs and ESPP 0.1 0.1 Shares used to compute diluted earnings per share 100.9 105.0 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 and any awards that are antidilutive. The number of potential shares excluded from the calculation was not significant in any period presented. 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, Japan, and Singapore. The following table presents the Company’s revenues disaggregated by geography, based on the billing addresses of our customers: Three Months Ended March 31, 2024 2023 (In millions) U.S. $ 255.3 $ 242.8 EMEA 60.3 55.0 China 20.7 25.1 Other 48.0 41.5 Total revenues $ 384.3 $ 364.4 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 payments 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 three months ended March 31, 2024 was primarily driven by amounts billed in the three months ended March 31, 2024 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 $ 343.0 million of revenues recognized that were included in the deferred revenues balance at December 31, 2023. The balance of deferred revenues as of March 31, 2024 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 ten years. 10 Table of Contents 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 March 31, 2024 2023 (In millions) Cost of revenues $ 2.0 $ 1.3 Research and development 2.6 2.5 Selling, general and administrative 10.5 10.0 Stock-based compensation expense 15.1 13.8 Capitalization (included in Property and equipment, net) 0.2 0.3 Total stock-based compensation $ 15.3 $ 14.1 The following table presents the nature of the Company’s total stock-based compensation: Three Months Ended March 31, 2024 2023 (In millions) RSUs $ 12.1 $ 10.9 Performance-based RSUs 2.1 2.1 ESPP 1.1 1.1 Total stock-based compensation $ 15.3 $ 14.1 Note 8. Non-operating Income, Net Non-operating income, net, primarily consists of interest income from the Company’s surplus cash balances and marketable securities. Interest income was $ 12.0 million and $ 10.7 million during the three months ended March 31, 2024 and 2023, respectively. The increase in interest income in the first quarter of 2024 reflects higher interest rates on the Company’s investments in debt securities. Note 9. Income Taxes The following table presents Income tax expense and the effective tax rate: Three Months Ended March 31, 2024 2023 (Dollars in millions) Income tax expense $ 59.9 $ 55.1 Effective tax rate 24 % 24 % The effective tax rate for each of the periods in the table above differed from the statutory federal rate of 21 %, due to state income taxes and U.S. taxes on foreign earnings, net of foreign tax credits, partially offset by a lower foreign effective tax rate. 11 Table of Contents