# VERISIGN INC/CA (VRSN) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from VERISIGN INC/CA's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1014473/000101447325000006/vrsn-20241231.htm
Accession: 0001014473-25-000006
Filing date: 2025-02-13
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/VRSN/
All MD&A years: /company/VRSN/mda/
Previous year: /company/VRSN/mda/fy2023/ (FY 2023)
Next year: /company/VRSN/mda/fy2025/ (FY 2025)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are based on current expectations and assumptions and involve risks and uncertainties, including, statements regarding our expectations about 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 this Form 10-K. You should also carefully review the risks described in other documents we file from time to time with the SEC, including the Quarterly Reports on Form 10-Q or Current Reports on Form 8-K that we file in 2025. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Form 10-K. 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.

This section of this Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Overview

We are a global provider of critical internet infrastructure and domain name registry services, enabling internet navigation for many of the world’s most recognized domain names. We help enable the security, stability, and resiliency of the DNS and the internet by providing Root Zone Maintainer Services, operating two of the thirteen global internet root servers, and providing registration services and authoritative resolution for the .com and .net TLDs, which support the majority of global e-commerce.

As of December 31, 2024, we had 169.0 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. The number of domain name registrations under our management may be negatively impacted by certain factors, including overall economic conditions, competition from ccTLDs, other 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.

2024 Business Highlights and Trends

•We recorded revenues of $1,557.4 million in 2024, which represents an increase of 4% as compared to 2023.

•We recorded operating income of $1,058.2 million during 2024, which represents an increase of 6% as compared to 2023.

•We finished 2024 with 169.0 million .com and .net registrations in the domain name base, which represents a 2.1% decrease from December 31, 2023.

•During 2024, we processed 37.4 million new domain name registrations for .com and .net compared to 39.4 million in 2023.

•The final .com and .net renewal rate for the third quarter of 2024 was 72.2% compared to 73.5% for the same quarter of 2023. Renewal rates are not fully measurable until 45 days after the end of the quarter.

•We repurchased 6.6 million shares of our common stock for an aggregate cost of $1.21 billion in 2024. As of December 31, 2024, there was $1.02 billion remaining for future share repurchases under the share repurchase program.

•We generated cash flows from operating activities of $902.6 million in 2024, which represents an increase of 6% as compared to 2023.

•Effective September 1, 2024, we increased the annual registry-level wholesale fee for each new and renewal .com domain name registration from $9.59 to $10.26.

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•On November 25, 2024, we renewed the .com Registry Agreement with ICANN, pursuant to which we will remain the sole registry operator for the .com registry through November 30, 2030. Pursuant to the renewed .com Registry Agreement, we cannot increase the price of a .com domain name registration during the first two years of the six year contract term.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates those estimates. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. We believe the following critical accounting estimates and policies have the most significant impact on our consolidated financial statements:

 Income taxes

We operate in multiple tax jurisdictions in the United States and internationally. Tax laws and regulations in these jurisdictions are complex, interrelated, and periodically changing. Significant judgment or interpretation of these laws and regulations is often required in determining our worldwide provision for income taxes, including, for example, the calculations of taxable income in each jurisdiction, deferred taxes, and the availability and amount of deductions and tax credits. We have recognized $281.3 million of deferred tax assets, net as of December 31, 2024. Our income tax expense was $236.2 million for the year ended December 31, 2024. The final taxes payable are also dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from various tax examinations. See Note 11, “Income Taxes” of our Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for additional information.

Results of Operations

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023","","2022"],["Revenues","100.0","%","","100.0","%","","100.0","%"],["Costs and expenses:"],["Cost of revenues","12.3","","","13.2","","","14.1"],["Research and development","6.2","","","6.1","","","6.0"],["Selling, general and administrative","13.6","","","13.7","","","13.7"],["Total costs and expenses","32.1","","","33.0","","","33.8"],["Operating income","67.9","","","67.0","","","66.2"],["Interest expense","(4.8)","","","(5.0)","","","(5.3)"],["Non-operating income, net","2.5","","","3.4","","","0.9"],["Income before income taxes","65.6","","","65.4","","","61.8"],["Income tax expense","(15.2)","","","(10.6)","","","(14.5)"],["Net income","50.4","%","","54.8","%","","47.3","%"]]
[[/GREPCENT_TABLE]]

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 gTLDs and one ccTLD, 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 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

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extent permitted by ICANN and the 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. We also offer promotional incentive-based discount programs to registrars based upon market conditions and the business environment in which the registrars operate.

In November 2024, we renewed the .com Registry Agreement with ICANN, pursuant to which we will remain the sole registry operator for the .com registry through November 30, 2030. Under the .com Registry Agreement, we are permitted to increase the price of a .com domain name registration by up to 7% in each of the final four years of each six-year period. The first such six-year period began on October 26, 2018. We increased the annual registry-level wholesale fee for each new and renewal .com domain name registration from $8.97 to $9.59 effective September 1, 2023, and from $9.59 to $10.26 effective September 1, 2024. Under the .net Registry Agreement, which renewed in June 2023, we are permitted to increase the price of .net domain name registrations by up to 10% each year during the term of our agreement with ICANN, through June 30, 2029. We increased the annual registry-level wholesale fee for each new and renewal .net domain name registration from $9.02 to $9.92 effective February 1, 2023, and from $9.92 to $10.91 effective February 1, 2024. All fees paid to us for .com and .net registrations are in U.S. dollars.

A comparison of revenues is presented below:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","","2024","","% Change","","2023","","% Change","","2022"],["","","(Dollars in millions)"],["Revenues","","$","1,557.4","","","4","%","","$","1,493.1","","","5","%","","$","1,424.9"]]
[[/GREPCENT_TABLE]]

The following table compares the .com and .net domain name registrations in the domain name base: 

[[GREPCENT_TABLE]]
[["","As of December 31,"],["","","2024","","% Change","","2023","","% Change","","2022"],[".com and .net domain name registrations in the domain name base","","169.0 million","","(2)","%","","172.7 million","","(1)","%","","173.8 million"]]
[[/GREPCENT_TABLE]]

Revenues increased in 2024 compared to 2023, primarily due to the .com and .net price increases, partially offset by a decline in the .com and .net domain name base, and the elimination of revenue from the operation of the .gov gTLD, which was transitioned to another service provider in the fourth quarter of 2023.

Demand for .com and .net domain names 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 global economic conditions, has limited the demand for .com and .net domain names and may continue to do so in the future. While the core value proposition of a domain name remains strong, challenging economic and regulatory conditions have continued to weaken demand for .com and .net domain name registrations in China, and some registrars, particularly in the U.S., have shifted their focus to increasing profitability through higher retail pricing and a decrease in marketing activities targeting new customer acquisition. The combination of these factors has negatively impacted our renewal rates and the volume of new .com and .net domain name registrations, resulting in a decline in our domain name base.

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Geographic revenues

We generate revenues in the U.S.; Europe, the Middle East and Africa (“EMEA”); Australia, China, Japan, Singapore, and other Asia Pacific countries (“APAC”); and certain other countries, including Canada and Latin American countries.

The following table presents a comparison of the Company’s geographic revenues:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","% Change","","2023","","% Change","","2022"],["","(Dollars in millions)"],["U.S","$","1,035.5","","","4","%","","$","994.7","","","6","%","","$","937.6"],["EMEA","249.6","","","9","%","","228.2","","","1","%","","226.0"],["APAC","175.7","","","1","%","","174.8","","","4","%","","167.7"],["Other","96.6","","","1","%","","95.4","","","2","%","","93.6"],["Total revenues","$","1,557.4","","","4","%","","$","1,493.1","","","5","%","","$","1,424.9"]]
[[/GREPCENT_TABLE]]

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. The majority of our revenue growth was generated from registrars based in the U.S. and EMEA, while revenue growth in APAC was limited during 2024 compared to 2023 primarily as a result of a 13% decline in revenues from China due to the lower demand noted above.

Cost of revenues

Cost of revenues consists 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.

A comparison of cost of revenues is presented below:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","% Change","","2023","","% Change","","2022"],["","(Dollars in millions)"],["Cost of revenues","$","191.4","","","(3)","%","","$","197.3","","","(2)","%","","$","200.7"]]
[[/GREPCENT_TABLE]]

Cost of revenues decreased in 2024 compared to 2023 primarily due to decreases in depreciation expenses and telecommunication expenses, partially offset by an increase in compensation and benefits expenses and a combination of other individually insignificant factors. Depreciation expenses decreased by $7.4 million due to a decrease in capital expenditures in recent periods. Telecommunication expenses decreased by $3.9 million primarily due to savings on renewals of colocation agreements. Compensation and benefits expenses increased by $2.6 million primarily due to annual salary increases.

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:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","% Change","","2023","","% Change","","2022"],["","(Dollars in millions)"],["Research and development","$","96.7","","","6","%","","$","91.0","","","6","%","","$","85.7"]]
[[/GREPCENT_TABLE]]

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Research and development expenses increased in 2024 compared to 2023 primarily due to an increase in compensation and benefit expenses and a combination of several other individually insignificant factors. Compensation and benefits expenses increased by $3.0 million primarily due to annual salary increases.

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:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","% Change","","2023","","% Change","","2022"],["","(Dollars in millions)"],["Selling, general and administrative","$","211.1","","","3","%","","$","204.2","","","4","%","","$","195.4"]]
[[/GREPCENT_TABLE]]

Selling, general and administrative expenses increased in 2024 compared to 2023 primarily due to increases in compensation and benefits expenses, equipment and software expenses and professional services expenses, partially offset by an increase in overhead expenses allocated to other cost types. Compensation and benefits expenses increased by $4.4 million primarily due to annual salary increases. Equipment and software expenses increased by $3.6 million primarily due to increases in expenses related to network security and other software services. Professional services expenses increased by $2.9 million primarily due to an increase in external consulting costs related to various projects. Overhead expenses allocated to other cost types increased by $3.1 million due to an increase in total allocable expenses.

Interest expense

Interest expense remained consistent during 2024 compared to 2023.

Non-operating income, net

See Note 10, “Non-operating Income, Net” of our Notes to Consolidated Financial Statements in Item 8 of this Form 10-K.

Income tax expense

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["2024","","2023","","2022"],["","(Dollars in millions)"],["Income tax expense","$","236.2","","","$","158.9","","","$","206.4"],["Effective tax rate","23","%","","16","%","","23","%"]]
[[/GREPCENT_TABLE]]

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, offset by a lower foreign effective tax rate.

During 2023, we recognized $69.3 million of income tax benefits related to a step-up in tax basis of certain non-U.S. intellectual property, recognition of previously unrecognized income tax benefits as the related statutes of limitations lapsed, and a beneficial change in certain state income apportionment rules.

As of December 31, 2024, we had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $282.2 million, net of valuation allowances, but before the offset of certain deferred tax liabilities. With the exception of a portion of deferred tax assets related to intellectual property, certain state and foreign net operating loss and foreign tax credit carryforwards, we believe it is more likely than not that the tax effects of the deferred tax liabilities, together with future taxable income, will be sufficient to fully recover the remaining deferred tax assets.

The income tax expense for 2024 includes the impact of the OECD Pillar 2 minimum tax adopted by applicable tax jurisdictions. While our foreign income taxes increased as a result of the Pillar 2 minimum tax, the overall impact was not material as the additional taxes in these jurisdictions were partly offset by related foreign tax credits in the U.S.

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Liquidity and Capital Resources

The following table presents our principal sources of liquidity:

[[GREPCENT_TABLE]]
[["","As of December 31,"],["","2024","","2023"],["","(In millions)"],["Cash and cash equivalents","$","206.7","","","$","240.1"],["Marketable securities","393.2","","","686.3"],["Total","$","599.9","","","$","926.4"]]
[[/GREPCENT_TABLE]]

The marketable securities primarily consist of debt securities issued by the U.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 and U.S. Treasury bills purchased with original maturities of three months or less. As of December 31, 2024, 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 Consolidated Financial Statements in Item 8 of this Form 10-K.

Effective July 25, 2024, our Board of Directors authorized the repurchase of our common stock in the amount of $1.11 billion, in addition to the $388.0 million that remained available for repurchases under the share repurchase program, for a total repurchase authorization of up to $1.50 billion under the program. In 2024, we repurchased 6.6 million shares of our common stock at an average stock price of $183.84 for an aggregate cost of $1.21 billion under our share repurchase program. In 2023, we repurchased 4.2 million shares of our common stock at an average stock price of $210.28 for an aggregate cost of $882.8 million. As of December 31, 2024, there was approximately $1.02 billion remaining available for future share repurchases under the share repurchase program.

As of December 31, 2024, we had $750.0 million principal amount outstanding 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 April 2025 (“2025 Senior Notes”). Under existing market conditions, we intend to refinance all of our 2025 Senior Notes through the issuance of new long-term debt. As of December 31, 2024, we had no outstanding borrowings and $200.0 million in borrowing capacity under our credit facility which matures in 2028. If a suitable refinancing arrangement is not available due to a change in market conditions, we intend to utilize the credit facility to repay $200.0 million of the 2025 Senior Notes.

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 most significant future cash requirements include interest and principal payments on the senior notes issuances described above, income tax payments, purchase obligations and registry fees related to the operation of certain top-level domains. These items are detailed in Note 12, “Commitments and Contingencies” of our Notes to Consolidated Financial Statements in Item 8 of this Form 10-K.

In summary, our cash flows were as follows:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023","","2022"],["","(In millions)"],["Net cash provided by operating activities","$","902.6","","","$","853.8","","","$","831.1"],["Net cash provided by (used in) investing activities","286.3","","","(97.4)","","","355.7"],["Net cash used in financing activities","(1,221.5)","","","(889.8)","","","(1,035.8)"],["Effect of exchange rate changes on cash, cash equivalents and restricted cash","(0.8)","","","(0.1)","","","(0.8)"],["Net (decrease) increase in cash, cash equivalents and restricted cash","$","(33.4)","","","$","(133.5)","","","$","150.2"]]
[[/GREPCENT_TABLE]]

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.

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Net cash provided by operating activities increased in 2024 compared to 2023 primarily due to an increase in cash received from customers and a decrease in cash paid for income taxes, partially offset by an increase in cash paid to employees and vendors. Cash received from customers increased primarily due to the impact of the .com and the .net price increases. Cash paid for income taxes decreased primarily due to comparatively lower federal and foreign income tax payments, partially offset by higher state income tax payments and a higher installment payment for the transition tax on accumulated foreign earnings resulting from the 2017 Tax Cuts and Jobs Act. Cash paid to employees and vendors increased primarily due to increases in operating expenses and the timing of payments.

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 2024, compared to net cash outflows from investing activities in 2023, primarily due to an increase in proceeds from maturities and sales of marketable securities, net of purchases of marketable securities, and a decrease in purchases of property and equipment, primarily related to the purchase of a building in 2023.

Cash flows from financing activities

The changes in cash flows from financing activities primarily relate to share repurchases, proceeds from our employee stock purchase plan and payment of excise tax on share repurchases.

Net cash used in financing activities increased in 2024 compared to 2023 primarily due to an increase in share repurchases and payment of excise tax on share repurchases in 2024.

Dilution from RSUs

Grants of stock-based awards are key components of the compensation packages we provide to attract and retain certain of our employees and align their interests with the interests of existing stockholders. We recognize that these stock-based awards dilute existing stockholders and have sought to control the number granted while providing competitive compensation packages. As of December 31, 2024, there were a total of 0.7 million unvested RSUs which represent potential dilution of less than 1.0%. This maximum potential dilution will only result if all outstanding RSUs vest and are settled. In recent years, our stock repurchase program has more than offset the dilutive effect of RSU grants to employees; however, we may reduce the level of our stock repurchases in the future if and as we use our available cash for other purposes.