Verisign(VRSN) - 2021 Q2 - Quarterly Report

Part I—Financial Information Financial Statements This section presents Verisign's unaudited condensed consolidated financial statements for the period ended June 30, 2021, including Balance Sheets, Statements of Comprehensive Income, Stockholders' Deficit, and Cash Flows, with accompanying notes on accounting policies and financial figures Condensed Consolidated Balance Sheets As of June 30, 2021, Verisign's total assets were $1.74 billion, total liabilities $3.16 billion, and stockholders' deficit increased to $1.42 billion from $1.39 billion due to share repurchases Condensed Consolidated Balance Sheets (in thousands) | | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $1,189,067 | $1,217,940 | | Total assets | $1,741,380 | $1,766,910 | | Total current liabilities | $998,334 | $988,693 | | Total liabilities | $3,159,165 | $3,157,108 | | Total stockholders' deficit | $(1,417,785) | $(1,390,198) | Condensed Consolidated Statements of Comprehensive Income In Q2 2021, revenues rose 4.8% to $329.4 million and operating income grew 3.0% to $213.0 million, with six-month revenues reaching $653.0 million and net income at $298.1 million Financial Performance (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $329,405 | $314,365 | $653,026 | $626,889 | | Operating Income | $212,979 | $206,780 | $423,386 | $413,044 | | Net Income | $147,772 | $152,479 | $298,126 | $486,595 | | Diluted EPS | $1.31 | $1.32 | $2.64 | $4.19 | Condensed Consolidated Statements of Stockholders' Deficit Stockholders' deficit increased from $1.39 billion to $1.42 billion by June 2021, primarily due to $361.2 million in share repurchases, partially offset by $298.1 million in net income - For the six months ended June 30, 2021, the company repurchased $361.2 million of its common stock[12] - Net income of $298.1 million for the six months ended June 30, 2021, partially offset the increase in the accumulated deficit caused by share repurchases[12] Condensed Consolidated Statements of Cash Flows Net cash from operating activities decreased to $340.8 million for the first half of 2021, with $164.9 million used in investing and $360.8 million in financing activities, primarily for share repurchases and debt refinancing Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $340,844 | $395,372 | | Net cash used in investing activities | $(164,884) | $(174,368) | | Net cash used in financing activities | $(360,769) | $(421,530) | | Net decrease in cash, cash equivalents, and restricted cash | $(185,173) | $(201,491) | Notes to Condensed Consolidated Financial Statements Notes detail key financial events, including the issuance of $750.0 million in new senior notes and redemption of existing debt, $345.1 million in share repurchases, and revenue growth across most regions except China - On June 8, 2021, the company issued $750.0 million of 2.700% senior notes due 2031, using proceeds to redeem $750.0 million of 4.625% senior notes due 2023, resulting in a $2.1 million loss on debt extinguishment[33][34] - During the six months ended June 30, 2021, the company repurchased 1.7 million shares of its common stock for an aggregate cost of $345.1 million; $737.5 million remained available for future repurchases as of June 30, 2021[27] Revenues by Geography (in thousands) | Region | Six Months 2021 | Six Months 2020 | % Change | | :--- | :--- | :--- | :--- | | U.S. | $418,072 | $396,911 | +5.3% | | EMEA | $114,102 | $105,069 | +8.6% | | China | $50,367 | $59,213 | -14.9% | | Other | $70,485 | $65,696 | +7.3% | | Total | $653,026 | $626,889 | +4.2% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2021 operational and financial performance, highlighting a 5% increase in .com and .net domain registrations driving revenue growth, regional performance, cost analysis, liquidity, and recent debt refinancing, alongside a planned .com price increase - The company announced it will increase the annual registry-level wholesale fee for each new and renewal .com domain name registration from $7.85 to $8.39, effective September 1, 2021[52] - The domain name base for .com and .net registrations grew to 170.6 million as of June 30, 2021, a 5% increase from the prior year, driving revenue growth[43][45] - The company believes the COVID-19 pandemic has led to an increase in demand for domain names as businesses expand their online presence, but the long-term impact remains uncertain[48] Business Highlights and Trends Verisign's Q2 2021 revenues increased 5%, driven by a 5% growth in .com and .net domain base to 170.6 million registrations, with 11.7 million new registrations and a 76.0% Q1 renewal rate, alongside $172.5 million in share repurchases Key Business Metrics - Q2 2021 | Metric | Q2 2021 | YoY Change | | :--- | :--- | :--- | | Revenues | $329.4M | +5% | | Operating Income | $213.0M | +3% | | .com & .net Registrations | 170.6M | +5% | | New .com & .net Registrations | 11.7M | +5.4% (vs 11.1M) | - The final .com and .net renewal rate for the first quarter of 2021 was 76.0%, compared to 75.4% for the first quarter of 2020[45] Results of Operations Q2 and H1 2021 revenues increased 5% and 4% respectively, driven by a 6% rise in .com domain base, with growth in most regions except a 14% decline in China, while cost of revenues increased due to higher ICANN fees and operating expenses rose moderately Revenue Comparison (in thousands) | Period | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $329,405 | $314,365 | 5% | | Six Months Ended June 30 | $653,026 | $626,889 | 4% | - Revenues from registrars based in China declined during the three and six months ended June 30, 2021 by 14% and 15% respectively, due to lower new registrations and renewal rates[57] - Cost of revenues increased for the three and six months ended June 30, 2021, primarily due to higher registry fees payable to ICANN[59][60] Liquidity and Capital Resources As of June 30, 2021, Verisign held $1.12 billion in liquidity, generated $340.8 million from operations, and used cash for $172.5 million in share repurchases and debt refinancing, with management confident in sufficient liquidity for the next 12 months Sources of Liquidity (in thousands) | Component | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $216,497 | $401,194 | | Marketable securities | $906,492 | $765,713 | | Total | $1,122,989 | $1,166,907 | - In June 2021, the company issued $750.0 million of 2.700% senior notes due 2031 and used the proceeds to redeem its $750.0 million 4.625% senior notes due 2023[78] - Net cash from operating activities decreased to $340.8 million for the first six months of 2021 from $395.4 million in the prior year, primarily due to higher cash payments for income taxes[80][82] Quantitative and Qualitative Disclosures About Market Risk The company reports no significant changes in its market risk exposures since December 31, 2020 - There have been no significant changes in our market risk exposures since December 31, 2020[87] Controls and Procedures As of June 30, 2021, Verisign's CEO and CFO concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[88] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[89] Part II—Other Information Legal Proceedings The company provides an update on the .web gTLD auction dispute, where an IRP panel dismissed Afilias' claims to invalidate the auction but recommended ICANN's Board consider objections before delegating .web, with a ruling on a subsequent application anticipated in Q4 2021 - An IRP panel delivered a final decision on May 20, 2021, regarding the .web gTLD auction dispute with Afilias[93] - The panel dismissed Afilias' claims to invalidate the .web auction and be awarded the .web TLD, but recommended ICANN's Board consider Afilias' objections before making a final decision on the delegation of .web[93] Risk Factors Verisign reports no material changes to its risk factors since the December 31, 2020, Annual Report on Form 10-K, referring investors to that document for comprehensive risk discussion - There have been no material changes to the Company's risk factors since the 2020 Form 10-K[96] Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2021, Verisign repurchased approximately 797,000 shares for $172.5 million at an average price of $216.44 per share, with $737.5 million remaining for future repurchases as of June 30, 2021 Share Repurchase Activity (Q2 2021) | Period | Total Shares Purchased (thousands) | Average Price Paid per Share | Dollar Value Remaining for Repurchase | | :--- | :--- | :--- | :--- | | April 2021 | 277 | $207.33 | $852.5 million | | May 2021 | 248 | $220.95 | $797.7 million | | June 2021 | 272 | $221.73 | $737.5 million | | Total Q2 | 797 | - | - | Exhibits This section lists Form 10-Q exhibits, including the Indenture for new debt, CEO and CFO certifications, and the Interactive Data File (XBRL) - The exhibits filed with this report include the Indenture for the June 2021 debt issuance, CEO and CFO certifications (Rule 13a-14(a) and Section 1350), and the Inline XBRL document[99]