You should read the following discussion in conjunction with the 2021 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 the impact from the effects of the COVID-19 pandemic and 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 2021 Form 10-K. You should also carefully review the risks described in other documents we file from time to time with theSecurities and Exchange Commission , including the Quarterly Reports on Form 10-Q or Current Reports on Form 8-K that we file in 2022. 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 toVeriSign, 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 ofMarch 31, 2022 , we had 174.7 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
•We recorded operating income of
•As ofMarch 31, 2022 , we had 174.7 million .com and .net registrations in the domain name base, which represents a 4% increase fromMarch 31, 2021 , and a net increase of 1.2 million domain name registrations fromDecember 31, 2021 . •During the three months endedMarch 31, 2022 , we processed 10.2 million new domain name registrations for .com and .net compared to 11.6 million for the same period in 2021. •The final .com and .net renewal rate for the fourth quarter of 2021 was 74.8% compared to 73.5% for the fourth quarter of 2020. Renewal rates are not fully measurable until 45 days after the end of the quarter. •During the three months endedMarch 31, 2022 , we repurchased 0.9 million shares of our common stock for an aggregate cost of$195.5 million . As ofMarch 31, 2022 , there was approximately$892.6 million remaining available for future share repurchases under our share repurchase program. 11
--------------------------------------------------------------------------------
Table of Contents
•We generated cash flows from operating activities of
•On
Pursuant to our agreements with theInternet 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 daily. 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 UpdateThe United States and the global community we serve continue to face unprecedented challenges posed by the COVID-19 pandemic. In response to the pandemic, we established a task force to monitor the pandemic and took 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 implemented our readiness plans, which include the ability to maintain critical internet infrastructure with most employees working remotely. We believe that, initially, the effects of the pandemic led to an incremental increase in the demand for domain names, particularly as businesses and entrepreneurs sought to establish or expand their presence online in the beginning of the pandemic. This incremental demand experienced earlier in the pandemic appears to have subsided. 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 I, Item 1A of the 2021 Form 10-K.
Results of Operations
The following table presents information regarding our results of operations as a percentage of revenues: Three Months Ended March 31, 2022 2021 Revenues 100.0 % 100.0 % Costs and expenses: Cost of revenues 14.6 14.5 Research and development 6.6 6.3 Selling, general and administrative 14.0 14.2 Total costs and expenses 35.2 35.0 Operating income 64.8 65.0 Interest expense (5.4) (7.0) Non-operating income, net 0.1 0.2 Income before income taxes 59.5 58.2 Income tax expense (14.1) (11.7) Net income 45.4 % 46.5 % Revenues Our revenues are primarily derived from registrations for domain names in the .com and .net domain name registries. We also derive revenues from operating domain name registries and technical systems for several other TLDs, all of which are not significant in relation to our consolidated revenues. For domain names registered in the .com and .net registries we receive a fee from registrars per annual registration that is determined pursuant to our agreements with ICANN. Individual customers, called registrants, contract directly with registrars or their resellers, and the registrars, who are our direct customers, in turn register the domain names withVerisign . Changes in revenues are driven largely by changes in the number of new domain name registrations and the renewal rate for existing registrations as well as the impact of new and prior price increases, to the extent permitted by ICANN and theDepartment of Commerce ("DOC"). New registrations and the renewal rate for existing registrations are impacted by continued growth in online advertising, e-commerce, and the number of internet users, as well as 12 -------------------------------------------------------------------------------- Table of Contents marketing activities carried out by us and our registrars. We also offer promotional incentive-based discount programs to registrars based upon market conditions and the business environment in which the registrars operate. Under the .com Registry Agreement, we are permitted to increase the price of a .com domain name by up to 7% in each of the final four years of each six-year period beginning onOctober 26, 2018 . EffectiveSeptember 1, 2021 , we increased the annual registry-level wholesale fee for each new and renewal .com domain name registration from$7.85 to$8.39 . OnFebruary 10, 2022 , we announced that we will increase the annual registry-level wholesale fee for each new and renewal .com domain name registration from$8.39 to$8.97 , effectiveSeptember 1, 2022 . We have the contractual right to increase the fees for .net domain name registrations by up to 10% each year during the term of our agreement with ICANN, throughJune 30, 2023 . All fees paid to us for .com and .net registrations are inU.S. dollars.
A comparison of revenues is presented below:
Three Months Ended March 31, 2022 % Change 2021 (Dollars in millions) Revenues$ 346.9 7%$ 323.6 The following table compares the .com and .net domain name registrations in the domain name base: March 31, 2022 % Change March 31, 2021
.com and .net domain name registrations in the domain name base
174.7 million 4% 168.0 million Revenues increased by$23.3 million during the three months endedMarch 31, 2022 as compared to the same period last year, primarily due to an increase in revenues from the operation of the registry for the .com TLD driven by a 4% increase in the domain name base for .com and the price increase which became effectiveSeptember 1, 2021 . Growth in the domain name base has been primarily driven by continued internet growth and marketing activities carried out by us and our registrars. However, competitive pressure from ccTLDs, other gTLDs, services that offer alternatives for an online presence, such as social media, ongoing changes in internet practices and behaviors of consumers and business, as well as the motivation of existing domain name registrants managing their investment in domain names, such as for resale at increased prices or for revenue generation through website advertising, and historical global economic uncertainty, has limited the rate of growth of the domain name base in recent years and may do so in the remainder of 2022 and beyond. Geographic revenues
We generate revenues in the
The following table presents a comparison of our geographic revenues:
Three Months Ended March 31, 2022 % Change 2021 (Dollars in millions) U.S.$ 224.6 8%$ 207.1 EMEA 58.6 4% 56.4 China 25.1 (1)% 25.4 Other 38.6 11% 34.7 Total revenues$ 346.9 $ 323.6 Revenues in the table above are attributed to the country of domicile and the respective regions in which our registrars are located; however, this may differ from the regions where the registrars operate or where registrants are located. Revenue growth for each region may be impacted by registrars reincorporating, relocating, or from acquisitions or changes in affiliations of resellers. Revenue growth for each region may also be impacted by registrars domiciled in one region, registering domain names in another region. During the three months endedMarch 31, 2022 , revenues increased in all regions exceptChina . Revenues from registrars based inChina declined during the three months endedMarch 31, 2022 as a result of lower new registrations and renewal rates in the country.
Cost of revenues
Cost of revenues consist primarily of salaries and employee benefits expenses for our personnel who manage the operational systems, depreciation expenses, operational costs associated with the delivery of our services, fees paid to ICANN, customer support and training, costs of facilities and computer equipment used in these activities, telecommunications expense and allocations of indirect costs such as corporate overhead. 13
--------------------------------------------------------------------------------
Table of Contents
A comparison of Cost of revenues is presented below:
Three Months Ended March 31, 2022 % Change 2021 (Dollars in millions) Cost of revenues $ 50.7 8%$ 47.0
Cost of revenues increased by
Research and development
Research and development expenses consist primarily of costs related to research and development personnel, including salaries and other personnel-related expenses, consulting fees, facilities costs, computer and communications equipment, support services used in our service and technology development, and allocations of indirect costs such as corporate overhead.
A comparison of Research and development expenses is presented below:
Three Months Ended March 31, 2022 % Change 2021 (Dollars in millions) Research and development $ 22.9 13%$ 20.3 Research and development expenses increased by$2.6 million during the three months endedMarch 31, 2022 , compared to the same period last year, due to a combination of individually insignificant factors.
Selling, general and administrative
Selling, general and administrative expenses consist primarily of salaries and other personnel-related expenses for our executive, administrative, legal, finance, information technology, human resources, sales, and marketing personnel, travel and related expenses, trade shows, costs of computer and communications equipment and support services, consulting and professional service fees, costs of marketing programs, costs of facilities, management information systems, support services, and certain tax and license fees, offset by allocations of indirect costs such as facilities and shared services expenses to other cost types.
A comparison of Selling, general and administrative expenses is presented below:
Three Months Ended
2022 % Change 2021 (Dollars in millions) Selling, general and administrative$ 48.5 6%$ 45.9 Selling, general and administrative expenses increased by$2.6 million during the three months endedMarch 31, 2022 , compared to the same period last year, primarily due to a$2.1 million increase in salary and employee benefits expenses as a result of an increase in expenses for certain employee health insurance related benefits.
Interest expense
Interest expense decreased by$3.7 million in the three months endedMarch 31, 2022 compared to the same period last year, due to the lower interest rate on our 2031 Notes compared to the 2023 Notes which were redeemed in the second quarter of 2021.
Income tax expense
The following table presents Income tax expense and the effective tax rate:
Three Months Ended March 31, 2022 2021 (Dollars in millions) Income tax expense$ 48.8 $ 37.9 Effective tax rate 24 % 20 % 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 andU.S. taxes on foreign earnings, net of foreign tax credits, offset by a lower foreign effective tax rate. 14
--------------------------------------------------------------------------------
Table of Contents
Liquidity and Capital Resources
The following table presents our principal sources of liquidity:
March 31, December 31, 2022 2021 (In millions) Cash and cash equivalents$ 758.5 $ 223.5 Marketable securities 451.1 982.3 Total$ 1,209.6 $ 1,205.8 The marketable securities primarily consist of debt securities issued by theU.S. Treasury meeting the criteria of our investment policy, which is focused on the preservation of our capital through investment in investment grade securities. The cash equivalents consist of amounts invested in money market funds, time deposits andU.S. Treasury bills purchased with original maturities of three months or less. As ofMarch 31, 2022 , all of our debt securities have contractual maturities of less than one year. Our cash and cash equivalents are readily accessible. For additional information on our investment portfolio, see Note 2, "Financial Instruments," of our Notes to Condensed Consolidated Financial Statements in Part I, Item I of this Quarterly Report on Form 10-Q. During the three months endedMarch 31, 2022 , we repurchased 0.9 million shares of our common stock for an aggregate cost of$195.5 million . As ofMarch 31, 2022 , there was approximately$892.6 million remaining available for future share repurchases under the share repurchase program which has no expiration date. As ofMarch 31, 2022 , we had$750.0 million of 2.70% senior unsecured notes due 2031,$550.0 million principal amount outstanding of 4.75% senior unsecured notes due 2027, and$500.0 million principal amount outstanding of 5.25% senior unsecured notes due 2025. As ofMarch 31, 2022 , there were no borrowings outstanding under our$200.0 million credit facility that will expire in 2024. We believe existing cash, cash equivalents and marketable securities, and funds generated from operations, together with our ability to arrange for additional financing should be sufficient to meet our working capital, capital expenditure requirements, and to service our debt for the next 12 months and beyond. We regularly assess our cash management approach and activities in view of our current and potential future needs. Our cash requirements have not changed materially since the 2021 Form 10-K. In summary, our cash flows for the three months endedMarch 31, 2022 and 2021 were as follows: Three Months Ended March 31, 2022 2021 (In millions) Net cash provided by operating activities$ 207.1 $ 198.3 Net cash provided by (used in) investing activities 524.5 (175.2) Net cash used in financing activities (196.4) (177.3)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(0.1) (0.2)
Net increase (decrease) in cash, cash equivalents, and restricted cash
$
535.1
Cash flows from operating activities
Our largest source of operating cash flows is cash collections from our customers. Our primary uses of cash from operating activities are for personnel-related expenditures, and other general operating expenses, as well as payments related to taxes, interest and facilities.
Net cash provided by operating activities increased during the three months endedMarch 31, 2022 , compared to the same period last year, primarily due to decreases in cash paid for income taxes, partially offset by a decrease in cash received from customers. Cash paid for income taxes decreased primarily due to the timing of certain non-US income tax payments. Cash received from customers decreased primarily due to timing of payments from certain large customers.
Cash flows from investing activities
The changes in cash flows from investing activities primarily relate to purchases, maturities and sales of marketable securities, and purchases of property and equipment.
We had net cash inflows from investing activities in the three months ended
15
--------------------------------------------------------------------------------
Table of Contents
Cash flows from financing activities
The changes in cash flows from financing activities primarily relate to share repurchases and our employee stock purchase plan.
Net cash used in financing activities increased during the three months endedMarch 31, 2022 , compared to the same period last year, primarily due an increase in share repurchases.
© Edgar Online, source