VERISIGN 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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 June 30, 2020
OR
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,Virginia20190
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (703948-3200
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per shareVRSNNasdaq 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 filerAccelerated filer
Non-accelerated filerSmaller 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 July 17, 2020
Common stock, $0.001 par value per share 114,853,683


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TABLE OF CONTENTS
 
  Page
  
Item 1.
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PART I—FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS

VERISIGN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
June 30,
2020
December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents$306,701  $508,196  
Marketable securities887,872  709,863  
Other current assets55,075  60,530  
Total current assets1,249,648  1,278,589  
Property and equipment, net250,290  250,283  
Goodwill52,527  52,527  
Deferred tax assets82,048  87,798  
Deposits to acquire intangible assets145,000  145,000  
Other long-term assets40,613  39,812  
Total long-term assets570,478  575,420  
Total assets$1,820,126  $1,854,009  
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities$235,671  $209,988  
Deferred revenues782,661  755,178  
Total current liabilities1,018,332  965,166  
Long-term deferred revenues281,649  278,702  
Senior notes1,788,824  1,787,565  
Long-term tax and other liabilities131,645  312,676  
Total long-term liabilities2,202,118  2,378,943  
Total liabilities3,220,450  3,344,109  
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: 353,637 at June 30, 2020 and 353,157 at December 31, 2019; Outstanding shares: 115,011 at June 30, 2020 and 116,715 at December 31, 2019
14,592,929  14,990,011  
Accumulated deficit(15,990,895) (16,477,490) 
Accumulated other comprehensive loss(2,358) (2,621) 
Total stockholders’ deficit(1,400,324) (1,490,100) 
Total liabilities and stockholders’ deficit$1,820,126  $1,854,009  

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
June 30,
Six Months Ended
June 30,
 2020201920202019
Revenues$314,365  $306,289  $626,889  $612,697  
Costs and expenses:
Cost of revenues43,608  44,066  89,181  89,570  
Sales and marketing8,890  12,399  15,494  22,918  
Research and development18,202  14,953  35,560  31,085  
General and administrative36,885  33,178  73,610  67,179  
Total costs and expenses107,585  104,596  213,845  210,752  
Operating income206,780  201,693  413,044  401,945  
Interest expense(22,535) (22,635) (45,070) (45,266) 
Non-operating income, net7,403  11,436  14,487  23,639  
Income before income taxes191,648  190,494  382,461  380,318  
Income tax (expense) benefit(39,169) (42,960) 104,134  (70,257) 
Net income152,479  147,534  486,595  310,061  
Other comprehensive (loss) income(2,000) 35  263  84  
Comprehensive income$150,479  $147,569  $486,858  $310,145  
Earnings per share:
Basic$1.32  $1.24  $4.20  $2.60  
Diluted$1.32  $1.24  $4.19  $2.59  
Shares used to compute earnings per share
Basic115,347  118,965  115,861  119,359  
Diluted115,544  119,361  116,137  119,837  
See accompanying Notes to Condensed Consolidated Financial Statements.
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VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(In thousands)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Total stockholders’ deficit, beginning of period$(1,409,114) $(1,406,129) $(1,490,100) $(1,385,474) 
Common stock and additional paid-in capital
Beginning balance14,734,618  15,523,895  14,990,011  15,707,126  
Repurchase of common stock(154,203) (180,230) (429,826) (384,532) 
Stock-based compensation expense12,514  13,623  24,448  26,441  
Issuance of common stock under stock plans    8,296  8,253  
Balance, end of period14,592,929  15,357,288  14,592,929  15,357,288  
Accumulated deficit
Beginning balance(16,143,374) (16,927,262) (16,477,490) (17,089,789) 
Net income152,479  147,534  486,595  310,061  
Balance, end of period(15,990,895) (16,779,728) (15,990,895) (16,779,728) 
Accumulated other comprehensive loss
Beginning balance(358) (2,762) (2,621) (2,811) 
Other comprehensive (loss) income(2,000) 35  263  84  
Balance, end of period(2,358) (2,727) (2,358) (2,727) 
Total stockholders’ deficit, end of period$(1,400,324) $(1,425,167) $(1,400,324) $(1,425,167) 
See accompanying Notes to Condensed Consolidated Financial Statements.

5

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VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six Months Ended
June 30,
 20202019
Cash flows from operating activities:
Net income$486,595  $310,061  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment22,841  22,884  
Stock-based compensation23,428  25,617  
Amortization of discount on investments in debt securities(5,095) (5,679) 
Other, net(3,006) 894  
Changes in operating assets and liabilities:
Other assets(10,146) (10,254) 
Accounts payable and accrued liabilities25,796  (39,351) 
Deferred revenues30,430  31,857  
Net deferred income taxes and other long-term tax liabilities(175,471) 16,146  
Net cash provided by operating activities395,372  352,175  
Cash flows from investing activities:
Proceeds from maturities and sales of marketable securities995,194  1,466,303  
Purchases of marketable securities(1,167,680) (1,021,741) 
Purchases of property and equipment(21,891) (20,189) 
Proceeds received (payments made) related to sale of business20,009  (6,311) 
Net cash (used in) provided by investing activities(174,368) 418,062  
Cash flows from financing activities:
Repurchases of common stock(429,826) (384,532) 
Proceeds from employee stock purchase plan8,296  8,253  
Net cash used in financing activities(421,530) (376,279) 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(965) 243  
Net (decrease) increase in cash, cash equivalents, and restricted cash(201,491) 394,201  
Cash, cash equivalents, and restricted cash at beginning of period517,601  366,753  
Cash, cash equivalents, and restricted cash at end of period$316,110  $760,954  
Supplemental cash flow disclosures:
Cash paid for interest$43,708  $43,708  
Cash paid for income taxes, net of refunds received$26,472  $62,214  
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, 2019 (the “2019 Form 10-K”) filed with the SEC on February 14, 2020.
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.
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:
June 30,December 31,
20202019
 (In thousands)
Cash$27,046  $33,238  
Time deposits3,971  3,924  
Money market funds (Level 1)155,113  149,624  
Debt securities issued by the U.S. Treasury (Level 1)1,017,852  1,040,678  
Total$1,203,982  $1,227,464  
Cash and cash equivalents$306,701  $508,196  
Restricted cash (included in Other long-term assets)9,409  9,405  
Total Cash, cash equivalents, and restricted cash316,110  517,601  
Marketable securities887,872  709,863  
Total
$1,203,982  $1,227,464  
The fair value of the debt securities held as of June 30, 2020 was $1.02 billion, including $0.4 million of gross and net unrealized gains. All of the debt securities held as of June 30, 2020 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 June 30, 2020, the carrying value of these financial instruments approximated their fair value. The fair values of the senior notes due 2023, 2025, and 2027 were $756.6 million, $555.0 million, and $579.0 million, respectively, as of June 30, 2020. 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: 
June 30,December 31,
20202019
 (In thousands)
Prepaid expenses$24,495  $19,818  
Prepaid registry fees22,539  21,717  
Accounts receivable, net5,338  1,524  
Contingent consideration receivable  14,721  
Other2,703  2,750  
Total other current assets$55,075  $60,530  
During the six months ended June 30, 2020 the Company received $20.4 million of contingent consideration related to its divested security services business. The excess of the proceeds received over the balance of the receivable was recognized as a gain and included in Non-operating income, net.
Other Long-Term Assets
Other long-term assets consist of the following: 
June 30,December 31,
20202019
(In thousands)
Operating lease right-of-use asset$10,228  $9,133  
Restricted cash9,409  9,405  
Long-term prepaid registry fees7,904  7,753  
Other tax receivable6,927  6,927  
Other6,145  6,594  
Total other long-term assets$40,613  $39,812  
The current and long-term prepaid registry fees in the tables above relate to the fees the Company pays to 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 June 30, 2020 reflects amortization of $9.0 million and $17.9 million during the three and six months ended June 30, 2020 which was recorded in Cost of Revenues.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following: 
June 30,December 31,
20202019
 (In thousands)
Accounts payable and accrued expenses$14,964  $17,177  
Taxes payable and other tax liabilities78,242  33,435  
Customer deposits53,948  52,804  
Accrued employee compensation38,590  49,869  
Interest payable24,318  24,318  
Accrued registry fees12,316  11,529  
Customer incentives payable7,777  13,547  
Other accrued liabilities5,516  7,309  
Total accounts payable and accrued liabilities$235,671  $209,988  
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Taxes payable and other tax liabilities reflect amounts accrued for the income tax provision and payments made during the period. The Company deferred its U.S. federal tax payments to the third quarter of 2020 as permitted by IRS guidance. 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, 2019, was paid during the six months ended June 30, 2020. Interest payable varies at each period-end based on the payment due dates for each Senior Note issuance. 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
June 30,December 31,
20202019
(In thousands)
Long-term tax liabilities$126,890  $308,112  
Long-term operating lease liability4,755  4,564  
Long-term tax and other liabilities$131,645  $312,676  
During the six months ended June 30, 2020, the Company remeasured its previously unrecognized income tax benefits relating to the worthless stock deduction taken in 2013. The remeasurement resulted in the recognition of a $167.8 million benefit in the first quarter of 2020.
Note 4. Stockholders’ Deficit
Effective February 6, 2020, the Company’s Board of Directors authorized the repurchase of its common stock in the amount of $743.0 million, in addition to the $257.0 million that remained available for repurchases under the share repurchase program, for a total repurchase authorization of up to $1.0 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 six months ended June 30, 2020, the Company repurchased 0.7 million and 2.0 million shares of its common stock, respectively, at an average stock price of $205.45 and $195.68, respectively. The aggregate cost of the repurchases in the three and six months ended June 30, 2020 was $150.0 million and $395.0 million, respectively. As of June 30, 2020, there was approximately $675.6 million remaining available for future share repurchases under the share repurchase program.
During the six months ended June 30, 2020, the Company placed 0.2 million shares, at an average stock price of $210.23, and for an aggregate cost of $34.9 million, into treasury stock for purposes related to tax withholding upon vesting of Restricted Stock Units (“RSUs”).
Since inception, the Company has repurchased 238.6 million shares of its common stock for an aggregate cost of $10.63 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
June 30,
Six Months Ended
June 30,
 2020201920202019
 (In thousands)
Weighted-average shares of common stock outstanding115,347118,965115,861119,359
Weighted-average potential shares of common stock outstanding:
Unvested RSUs and ESPP197396276478
Shares used to compute diluted earnings per share115,544119,361116,137119,837
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
June 30,
Six Months Ended
June 30,
2020201920202019
 (In thousands)
U.S.$199,408  $191,848  $396,911  $384,003  
EMEA52,964  51,595  105,069  103,741  
China29,026  29,448  59,213  57,690  
Other32,967  33,398  65,696  67,263  
Total revenues$314,365  $306,289  $626,889  $612,697  
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 six months ended June 30, 2020 was primarily driven by amounts billed in the first half of 2020 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 $493.7 million of revenues recognized that were included in the deferred revenues balance at the beginning of the period. The balance of deferred revenues as of June 30, 2020 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
June 30,
Six Months Ended
June 30,
2020201920202019
 (In thousands)
Cost of revenues$1,555  $1,741  $3,203  $3,339  
Sales and marketing843  1,019  1,728  2,002  
Research and development1,780  1,642  3,456  3,231  
General and administrative7,809  8,753  15,041  17,045  
Total stock-based compensation expense$11,987  $13,155  $23,428  $25,617  
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The following table presents the nature of the Company’s total stock-based compensation:
 Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
 (In thousands)
RSUs$9,102  $9,059  $18,189  $17,668  
Performance-based RSUs2,327  3,294  4,044  6,332  
ESPP1,085  1,270  2,215  2,441  
Capitalization (included in Property and equipment, net)(527) (468) (1,020) (824) 
Total stock-based compensation expense$11,987  $13,155  $23,428  $25,617  

Note 8. Non-operating Income, Net
The following table presents the components of Non-operating income, net:
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
(In thousands)
Interest income$2,274  $7,228  $6,695  $14,588  
Transition services income  4,050  2,100  8,100  
Gain on sale of business5,153  43  5,611  753  
Other, net(24) 115  81  198  
Total non-operating income, net$7,403  $11,436  $14,487  $23,639  
The lower interest income during the three and six months ended June 30, 2020 reflects a decline in interest rates on our investments in debt securities. The transition services income relates to the divested security services business. The transition services agreement ended in February 2020. 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.
Note 9. Income Taxes
The following table presents Income tax expense (benefit) and the effective tax rate:
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2020201920202019
 (Dollars in thousands)
Income tax expense (benefit)$39,169  $42,960  $(104,134) $70,257  
Effective tax rate20 %23 %(27)%18 %
The effective tax rate for each of the periods in the table above differed from the statutory federal rate of 21% due to a lower foreign effective tax rate and excess tax benefits related to stock-based compensation, offset by state income taxes and U.S. taxes on foreign earnings, net of foreign tax credits. Additionally, during the six months ended June 30, 2020, the Company remeasured its previously unrecognized income tax benefits relating to the worthless stock deduction taken in 2013. The remeasurement, which resulted in the recognition of a $167.8 million benefit in the first quarter, was based on Internal Revenue Service (“IRS”) written confirmation indicating no examination adjustment would be proposed. Notwithstanding this written confirmation, the Company’s U.S. federal income tax returns remain under examination by the IRS for 2010 through 2014. The timing of completion and ultimate outcome of the audits remains uncertain and it is reasonably possible that during the next 12 months, the Company’s unrecognized tax benefits may change further as a result of IRS audits.

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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 2019 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 rate of growth in revenues for the remainder of 2020, (iii) cost of revenues, sales and marketing expenses, research and development expenses, general and administrative expenses, interest expense and non-operating income, net, for the remainder of 2020, (iv) the impact of new legislation and IRS guidance issued in response to the COVID-19 pandemic, and (v) our annual effective tax rate for 2020. 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 II, Item 1A of this Quarterly Report on Form 10-Q. 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 2020 and the 2019 Form 10-K, which discuss our business in greater detail. 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 June 30, 2020, we had 162.1 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”), competition from, and the continued introduction of, new generic top-level domains (“gTLDs”), 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 $314.4 million and $626.9 million during the three and six months ended June 30, 2020, an increase of 3% and 2%, respectively, compared to the same periods in 2019.
We recorded operating income of $206.8 million and $413.0 million during the three and six months ended June 30, 2020, an increase of 3% compared to the same periods in 2019.
As of June 30, 2020, we had 162.1 million .com and .net registrations in the domain name base, which represents a 4% increase from June 30, 2019, and a net increase of 1.4 million domain name registrations from March 31, 2020.
During the three months ended June 30, 2020, we processed 11.1 million new domain name registrations for .com and .net compared to 10.3 million for the same period in 2019.
The final .com and .net renewal rate for the first quarter of 2020 was 75.4% compared to 75.0% for the first quarter of 2019. Renewal rates are not fully measurable until 45 days after the end of the quarter.
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During the three months ended June 30, 2020, we repurchased 0.7 million shares of our common stock for an aggregate cost of $150.0 million. As of June 30, 2020, there was approximately $675.6 million remaining available for future share repurchases under our share repurchase program.
We generated cash flows from operating activities of $395.4 million during the six months ended June 30, 2020, compared to $352.2 million for the same period in 2019.
On July 23, 2020, we announced that we will extend the freeze on registry prices for all of our TLDs, including .com and .net, through March 31, 2021. Additionally, we announced the extension of the waiver of the wholesale restore fee for expired domains through the end of 2020.
Pursuant to our agreements with ICANN, we make available on our website (at https://www.Verisign.com/zone) files containing all active domain names registered in the .com and .net registries. At the same website address, we 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 domain name base is the active zone plus the number of domain name registrations that are registered but not configured for use in the respective TLD zone file plus the number of domain name registrations that are in a client or server hold status. 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 name registrations provided in this Quarterly Report on Form 10-Q are as of midnight of the date reported. Information available on, or accessible through, our website is not incorporated herein by reference.
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. While we believe the pandemic has had certain impacts on our business, we do not believe there has been, nor are we anticipating, a material impact from the effects of the pandemic on our business and operations, results of operations, financial condition, cash flows, liquidity and capital and financial resources; however, the situation is uncertain, rapidly changing, 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 downturn from the pandemic may negatively impact our business and operations, results of operations, financial condition, cash flows, liquidity and capital and financial resources. Because fees for domain name registrations and renewals are generally due at the time of registration or renewal and revenues from such registrations and renewals are recognized ratably over their terms, the effects of the pandemic may not be fully reflected in our results of operations until future periods. For further discussion, see “Risk Factors - The effects of the COVID-19 pandemic could adversely affect our business, operations, financial condition and results of operations, 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 II, Item 1A of this Quarterly Report on Form 10-Q.
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Results of Operations
The following table presents information regarding our results of operations as a percentage of revenues:
Three Months Ended
June 30,
Six Months Ended
June 30,
 2020201920202019
Revenues100.0 %100.0 %100.0 %100.0 %
Costs and expenses:
Cost of revenues13.9  14.4  14.2  14.6  
Sales and marketing2.8  4.0  2.5  3.7  
Research and development5.8  4.9  5.7  5.1  
General and administrative11.7  10.8  11.7  11.0  
Total costs and expenses34.2  34.1  34.1  34.4  
Operating income65.8  65.9  65.9  65.6  
Interest expense(7.2) (7.4) (7.2) (7.4) 
Non-operating income, net2.4  3.7  2.3  3.9  
Income before income taxes61.0  62.2  61.0  62.1  
Income tax (expense) benefit(12.5) (14.0) 16.6  (11.5) 
Net income48.5 %48.2 %77.6 %50.6 %
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 for several other TLDs and from providing back-end registry services to a number of TLD registry operators, 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 fixed pursuant to our agreements with ICANN. Individual customers, called registrants, contract directly with registrars or their resellers, and the registrars in turn register the domain names with Verisign. 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 the Department 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 marketing activities carried out by us and our registrars. The annual fee for a .com domain name registration has been fixed at $7.85 since 2012. On October 26, 2018, we entered into an agreement with the DOC to amend the Cooperative Agreement. The amendment extends the term of the Cooperative Agreement until November 30, 2024 and permits the price of a .com domain name to be increased without further DOC approval by up to 7% in each of the final four years of each six-year period beginning on October 26, 2018. On March 27, 2020, Verisign and ICANN entered into an agreement to amend the .com Registry Agreement (“Third .com Amendment”) that incorporates these changes to the pricing terms. 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, through June 30, 2023. As part of our response to the COVID-19 crisis, we announced on March 25, 2020 that we will freeze registry prices for domain name registrations and renewals for all of our TLDs, including .com and .net, through the end of 2020. On July 23, 2020, we announced that we will extend the freeze on registry prices for all of our TLDs, including .com and .net, through March 31, 2021. Within the current six-year period under the Third .com Amendment, the first year in which we may increase the price for .com domain names ends on October 25, 2021, and we expect to effectuate a .com price increase by that date. We offer promotional marketing programs for our registrars based upon market conditions and the business environment in which the registrars operate. All fees paid to us for .com and .net registrations are in U.S. dollars.
A comparison of revenues is presented below:
 Three Months Ended
June 30,
Six Months Ended
June 30,
2020% Change20192020% Change2019
 (Dollars in thousands)
Revenues$314,365  %$306,289  $626,889  %$612,697  
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The following table compares the .com and .net domain name registrations in the domain name base:
June 30, 2020% ChangeJune 30, 2019
.com and .net domain name registrations in the domain name base
162.1 million%156.1 million
Revenues increased by $8.1 million and $14.2 million during the three and six months ended June 30, 2020, respectively, as compared to the same periods last year, primarily due to an increase in revenues from the operation of the registry for the .com TLD, partially offset by the elimination of revenues from our divested security services business. The increase in revenues from the .com TLD was driven by a 4% increase in the domain name base for .com.
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, the continued introduction of new gTLDs, 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, and historical global economic uncertainty, has limited the rate of growth of the domain name base in recent years and may continue to do so in the remainder of 2020 and beyond.
We expect the rate of growth in revenues will remain consistent during the remainder of 2020 compared to the six months ended June 30, 2020, as a result of continued growth in the aggregate number of .com domain names.
Geographic revenues
We generate 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 a comparison of our geographic revenues:
 Three Months Ended
June 30,
Six Months Ended
June 30,
2020% Change20192020% Change2019
 (Dollars in thousands)
U.S.$199,408  %$191,848  $396,911  %$384,003  
EMEA52,964  %51,595  105,069  %103,741  
China29,026  (1)%29,448  59,213  %57,690  
Other32,967  (1)%33,398  65,696  (2)%67,263  
Total revenues$314,365  $306,289  $626,889  $612,697  
Revenues for our Registry Services business 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 and six months ended June 30, 2020, the majority of our revenue growth has come from increased sales to registrars based in the U.S.
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, consulting and development services, costs of facilities and computer equipment used in these activities, telecommunications expense and allocations of indirect costs such as corporate overhead.
A comparison of Cost of revenues is presented below:
 Three Months Ended
June 30,
Six Months Ended
June 30,
2020% Change20192020% Change2019
 (Dollars in thousands)
Cost of revenues$43,608  (1)%$44,066  $89,181  — %$89,570  
Cost of revenues remained consistent during the three and six months ended June 30, 2020, compared to the same periods last year as decreases in salary and employee benefits expenses of $1.0 million and $1.5 million, respectively, during the three and six months ended June 30, 2020 resulting from a functional realignment of some headcount to research and development were offset by other individually insignificant increases.
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We expect Cost of revenues as a percentage of revenues to remain consistent during the remainder of 2020 compared to the six months ended June 30, 2020.
Sales and marketing
Sales and marketing expenses consist primarily of salaries and other personnel-related expenses, travel and related expenses, trade shows, costs of lead generation, costs of computer and communications equipment and support services, facilities costs, consulting fees, costs of marketing programs, such as online, television, radio, print and direct mail advertising costs, and allocations of indirect costs such as corporate overhead.
A comparison of Sales and marketing expenses is presented below:
 Three Months Ended
June 30,
Six Months Ended
June 30,
2020% Change20192020% Change2019
 (Dollars in thousands)(Dollars in thousands)
Sales and marketing$8,890  (28)%$12,399  $15,494  (32)%$22,918  
Sales and marketing expenses decreased by $3.5 million and $7.4 million during the three and six months ended June 30, 2020, respectively, compared to the same periods last year, primarily due to decreases in advertising and marketing expenses of $2.4 million and $5.5 million, respectively, as a result of decreases in marketing programs in various regions.
We expect Sales and marketing expenses as a percentage of revenues to increase during the remainder of 2020, compared to the six months ended June 30, 2020, as we execute more advertising and marketing campaigns.
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
June 30,
Six Months Ended
June 30,
2020% Change20192020% Change2019
 (Dollars in thousands)
Research and development$18,202  22 %$14,953  $35,560  14 %$31,085  
Research and development expenses increased by $3.2 million and $4.5 million during the three and six months ended June 30, 2020, respectively, compared to the same periods last year, primarily due to increases in salary and employee benefits expenses of $2.7 million and $3.8 million, respectively, resulting from a functional realignment of some headcount from cost of revenues, additional headcount increases, and an increase in expenses for other employee benefits including expanded paid time off benefits provided to employees in response to the COVID-19 pandemic.
We expect Research and development expenses as a percentage of revenues to increase slightly during the remainder of 2020 compared to the six months ended June 30, 2020.
General and administrative
General and administrative expenses consist primarily of salaries and other personnel-related expenses for our executive, administrative, legal, finance, information technology and human resources personnel, costs of facilities, computer and communications equipment, management information systems, support services, professional services fees, 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 General and administrative expenses is presented below:
 Three Months Ended
June 30,
Six Months Ended
June 30,
2020% Change20192020% Change2019
 (Dollars in thousands)
General and administrative$36,885  11 %$33,178  $73,610  10 %$67,179  
General and administrative expenses increased by $3.7 million during the three months ended June 30, 2020, compared to the same period last year, due to a $2.2 million increase in salary and employee benefits expenses resulting from an increase in average headcount as well as an increase in expenses for other employee benefits.
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General and administrative expenses increased by $6.4 million during the six months ended June 30, 2020, compared to the same period last year, due to increases in salary and employee benefits expenses and charitable contributions, partially offset by a decrease in stock-based compensation expenses. Salary and employee benefits expenses increased by $4.0 million as a result of an increase in average headcount as well as an increase in expenses for other employee benefits. Charitable contributions increased by $3.1 million to support the response to the COVID-19 pandemic and to promote equal justice. Stock-based compensation expense decreased by $2.0 million as a result of a decrease in the projected achievement level on certain performance-based RSU grants.
We expect General and administrative e