What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-19 compared with 2020-02-14 · 116 added, 76 removed, 155 unchanged (55% of the section changed)

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FORWARD-LOOKING STATEMENTS

This Report on 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 involve risks and uncertainties, including, among other things, statements regarding our anticipated costs and expenses and revenue mix.

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, among other things, statements regarding our expectations about (i) the impact from the effects of the COVID-19 pandemic, (ii) revenue growth in 2021, (iii) continued growth in registrations in the domain name base in 2021, (iv) cost of revenues, sales and marketing expenses, research and development expenses, general and administrative expenses, interest expense, and non-operating income, net, in 2021, (v) our effective tax rate for 2021, (vi) the sufficiency of our existing cash, cash equivalents and marketable securities, and funds generated from operations, together with our ability to arrange for additional financing, (vii) cash paid for income taxes in 2021, and (viii) our planned property and equipment expenditures for 2021.

Forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,” “believes” and similar language.

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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 2021.

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 publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

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 2020 and 2019 items and year-to-year comparisons between 2020 and 2019.

Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 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 the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 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, 2019.

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.

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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 ccTLDs, the introduction of new gTLDs, and ongoing changes in the internet practices and behaviors of consumers and businesses.

Growth in the number of domain name registrations under our management may be hindered 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.

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net compared to 40.3 million in 2019.

The final .com and .net renewal rate for the third quarter of 2019 was 73.7% compared with 74.8% for the same quarter in 2018 .

• The final .com and .net renewal rate was 73.7% for the third quarter of 2020 and 2019.

Renewal rates are not fully measurable until 45 days after the end of the quarter.

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As of December 31, 2020, there was $335.6 million remaining for future share repurchases under the share repurchase program.

Effective February 6, 2020, our Board authorized the repurchase of our 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.

We generated cash flows from operating activities of $753.9 million in 2019 , which represents an increase of 8% as compared to 2018 .

• Effective February 11, 2021, our Board of Directors authorized the repurchase of our common stock in the amount of $747.0 million, in addition to the $253.0 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.

• We generated cash flows from operating activities of $730.2 million in 2020, which represents a decrease of 3% as compared to 2019.

• During 2020, we recognized an income tax benefit of $204.2 million as a result of the remeasurement of certain previously unrecognized income tax benefits and the lapse of statutes of limitations related to other unrecognized income tax benefits.

• During 2020, we announced a freeze on the registry prices for all of our TLDs, including .com and .net, through March 31, 2021.

Additionally, we announced a waiver of the wholesale restore fee for expired domain names through the end of 2020.

• On February 11, 2021, we announced that we 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.

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.

We believe that the effects of the pandemic to date have led to a modest increase in the demand for domain names, particularly as businesses and entrepreneurs have been seeking to establish or expand their presence online in response to the pandemic.

Our revenues increased during 2020 primarily driven by an increase in the domain name base for the .com TLD;

however, the situation remains uncertain 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 disruptions from the pandemic may ultimately result in negative impacts on 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 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 this Form 10-K.

Critical Accounting Policies and Significant Management Estimates

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We believe the following critical accounting estimates and policies have the most significant impact on our consolidated financial statements:

Our operations involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions.

The final taxes payable are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from U.S.

federal, state, and international tax audits.

We only recognize or continue to only recognize tax positions that are more likely than not to be sustained upon examination.

We adjust these amounts in light of changing facts and circumstances;

however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities.

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.

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.

We only recognize or continue to recognize tax positions and tax benefit amounts that are more likely than not to be sustained upon examination.

We adjust these amounts in light

of changing facts and circumstances;

however, due to the complexity of some of these uncertainties, the ultimate resolution may result in an outcome that is materially different from our current estimate of unrecognized tax benefits.

See Note 10, “Income Taxes” of our Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for a discussion of significant changes in unrecognized tax benefits during 2020.

Results of Operations

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Year Ended December 31,

2020 2019 2018

Revenues 100.0 % 100.0 % 100.0 %

Costs and expenses:

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Income before income taxes 59.3 61.6 60.0

Income tax expense

Income tax benefit (expense) 5.1 (11.9) (12.1)

Net income 64.4 % 49.7 % 47.9 %

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 with the .com and .net registries we receive a fee from registrars per annual registration that is fixed pursuant to our agreements with ICANN.

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 in turn register the domain names with Verisign.

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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.

We increased the annual fee for a .net domain name registration from $8.20 to $9.02 on February 1, 2018.

The annual fee for a .

com domain name registration has been fixed at $7.85 since 2012.

On October 26, 2018, Verisign and the DOC amended the Cooperative Agreement.

The amendment, among other items, extends the term of the Cooperative Agreement until November 30, 2024 and permits the price of a .com domain name to be increased, subject to appropriate changes to the .com Registry Agreement, 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 amended the .com Registry Agreement (“Third .com Amendment”) that, among other items, incorporates these changes agreed to with the DOC 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.

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 .

net registrations are in U.S.

As part of our response to the COVID-19 crisis, we announced on March 25, 2020 that we would 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 would extend the freeze on registry prices for all of our TLDs, including .com and .net , through March 31, 2021.

On February 11, 2021, we announced that we 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.

We offer promotional incentive-based discount programs to 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.

A comparison of revenues is presented below:

Year Ended December 31,

Change 2019 %

(Dollars in thousands)

Revenues $ 1,265,052 3 % $ 1,231,661 1 % $ 1,214,969

The following table compares the .

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As of December 31,

Change 2019 %

.com and .net domain name registrations in the domain name base

158.8 million

153.0 million

146.4 million

165.2 million 4 % 158.8 million 4 % 153.0 million

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 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 2020 and beyond.

Revenues increased by $16.7 million in 2019 compared to 2018, primarily due to an increase in revenues from the operation of the registries for the .com and .net TLDs, partially offset by the decrease in revenues from the security services business as customers terminated or consented to the assignment of their contracts to Neustar.

The increase in revenues from the .com and .net TLDs was driven by a 5% increase in registrations in the domain name base for .com and the increase in the .net domain name registration fees in February 2018, partially offset by a 4% decline in registrations in the domain name base for .net .

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, 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 2021 and beyond.

Revenues increased by $33.4 million in 2020 compared to 2019, 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 sale of our security services customer contracts.

The increase in revenues from the .com TLD was driven by a 4% increase in the domain name base for .com .

Geographic revenues

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Year Ended December 31,

Change 2019 %

(Dollars in thousands)

U.S $ 804,647 4 % $ 772,586 2 % $ 756,907

EMEA 214,204 3 % 206,975 (3) % 212,699

China 113,048 (5) % 119,291 12 % 106,841

Other 133,153 — % 132,809 (4) % 138,522

Total revenues $ 1,265,052 3 % $ 1,231,661 1 % $ 1,214,969

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.

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.

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The majority of our revenue growth in 2020 has come from increased sales to registrars based in the U.S.

Revenues in the U.S.

and EMEA regions in particular, were impacted by the decrease in revenues from our security services business as customers terminated or consented to the assignment of their contracts to Neustar.

We expect revenues will continue to grow in 2020, as a result of the increased volume of domain registrations in 2019, and continued growth in registrations in the domain name base in 2020, partially offset by the elimination of revenue from the customers of our security services business that had not yet consented to the assignment of their contracts to Neustar.

Revenues from registrars based in China declined during 2020 as a result of lower new registrations and renewal rates in the country.

We expect revenues to continue to grow in 2021, as a result of the increased volume of domain registrations in 2020, and continued growth in registrations in the domain name base in 2021.

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.

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.

A comparison of cost of revenues is presented below:

Year Ended December 31,

Change 2019 %

(Dollars in thousands)

Cost of revenues $ 180,177 — % $ 180,467 (6) % $ 192,134

Cost of revenues decreased by $11.7 million in 2019 compared to 2018 primarily due to decreases in salary and employee benefits expenses, telecommunications expenses, and depreciation expenses.

Salary and benefits expenses decreased by $5.5 million due to a reduction in average headcount primarily related to employees supporting the divested security services business.

Telecommunications expenses decreased by $5.1 million as a result of lower costs to support our operations.

Depreciation expenses decreased by $2.0 million as a result of a decrease in capital expenditures in recent years.

We expect cost of revenues as a percentage of revenues to remain consistent in 2020 as compared to 2019.

Cost of revenues remained consistent in 2020 compared to 2019, as a decrease in salary and employee benefits expenses was offset by an increase in direct cost of revenues.

Salary and employee benefits expenses decreased by $2.3 million due to a functional realignment of some headcount to research and development, partially offset by headcount increases throughout the year 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.

Direct cost of revenues increased by $1.8 million as a result of an increase in registry fees primarily related to the .com TLD.

We expect cost of revenues as a percentage of revenues to increase slightly in 2021 as compared to 2020.

Sales and marketing

Sales and marketing expenses consist primarily of salaries, sales commissions, sales operations 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.

Sales and marketing expenses consist primarily of salaries and other personnel-related expenses, travel and related expenses, trade shows, 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:

Year Ended December 31,

Change 2019 %

(Dollars in thousands)

Sales and marketing $ 36,790 (21) % $ 46,637 (28) % $ 64,891

Sales and marketing expenses decreased by $18.3 million in 2019 compared to 2018 primarily due to decreases in salary and employee benefits expenses, advertising and marketing expenses, and allocated overhead expenses.

Salary and employee benefits expenses decreased by $9.1 million due to a reduction in average headcount primarily affecting employees supporting the divested security services business.

Advertising and marketing expenses decreased by $4.4 million as we executed fewer marketing activities and campaigns.

Allocated overhead expenses decreased by $2.7 million primarily due to a decrease in average headcount relative to other cost types.

Sales and marketing expenses decreased by $9.8 million in 2020 compared to 2019 primarily due to a $6.9 million decrease in advertising and marketing expenses and a combination of other individually insignificant factors.

Advertising and marketing expenses declined as a result of decreases in marketing programs in various regions.

We expect sales and marketing expenses as a percentage of revenues to remain consistent in 2021 as compared to 2020.

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Year Ended December 31,

Change 2019 %

(Dollars in thousands)

Research and development $ 74,671 23 % $ 60,805 5 % $ 57,884

Research and development expenses increased by $2.9 million in 2019 compared to 2018 primarily due to a decrease in capitalized labor and an increase in allocated overhead expenses.

Capitalized labor decreased by $2.5 million due to a shift in work from capital projects to certain non-capital projects and maintenance of existing software products.

Research and development expenses increased by $13.9 million in 2020 compared to 2019 primarily due to increases in salary and employee benefits expenses and allocated overhead expenses.

Salary and employee benefits expenses increased by $10.2 million as a result of several factors, including a functional realignment of some headcount from cost of revenues, additional headcount increases throughout the year, 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.

Allocated overhead expenses increased by $4.0 million primarily due to an increase in average headcount relative to other cost types.

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Year Ended December 31,

Change 2019 %

(Dollars in thousands)

General and administrative $ 149,213 8 % $ 137,625 4 % $ 132,668

General and administrative expenses increased by $5.0 million in 2019 compared to 2018 primarily due to increases in salary and employee benefits expenses and software license expenses.

Salary and employee benefits expenses increased by $2.8 million due to an increase in average headcount and annual salary increases.

Software license expenses increased by $2.4 million resulting from costs related to certain security initiatives.

General and administrative expenses increased by $11.6 million in 2020 compared to 2019 primarily due to increases in salary and employee benefits expenses, software license expenses, charitable contributions, and contract and professional services expenses, partially offset by a decrease in stock-based compensation expenses and an increase in overhead expenses allocated to other cost types.

Salary and employee benefits expenses increased by $8.1 million as a result of an increase in average headcount as well as an increase in expenses for other employee benefits including expanded paid time off benefits provided to employees in response to the COVID-19 pandemic.

Software license expenses increased by $3.3 million due to expenses related to network security and other software services.

Charitable contributions increased by $3.6 million to support the response to the COVID-19 pandemic and to promote equal justice.

Contract and professional services expenses increased by $2.0 million due to increases in expenses for network security and other corporate support services.

Stock-based compensation expense decreased by $2.4 million as a result of a decrease in the projected achievement levels on certain performance-based RSU grants.

Overhead costs allocated to other cost types increased by $3.0 million due to an increase in total allocable expenses.

We expect general and administrative expenses as a percentage of revenues to remain consistent in 2021 as compared to 2020.

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See Note 9, “Non-operating Income, Net” of our Notes to Consolidated Financial Statements in Item 8 of this Form 10-K.

We expect Non-operating income, net to decrease in 2020 as compared to 2019 due to income from the transition services provided to Neustar in 2019 in connection with the sale of customer contracts of our security services business and a decrease in interest income resulting from a decline in interest rates.

Income tax expense

We expect Non-operating income, net to decrease in 2021 as compared to 2020 due to the transition services income and gain recognized in 2020 in connection with the sale of our security services customer contracts which will not recur in 2021, and lower interest income in 2021 as a result of lower interest rates.

Income tax (benefit) expense

Year Ended December 31,

2020 2019 2018

(Dollars in thousands)

Income tax expense

Income tax (benefit) expense (64,644) $ 146,477 $ 147,027

Effective tax rate (9) % 19 % 20 %

The effective tax rates for 2019 and 2018 were lower than the statutory federal rate of 21% due to a lower foreign effective tax rate and excess tax benefits related to stock-based compensation, partially offset by state income taxes, U.S.

taxes on our foreign earnings, and accrual for uncertain tax positions.

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 2020, we recognized an income tax benefit of $204.2 million as a result of the remeasurement of certain previously unrecognized income tax benefits.

The majority of this tax benefit related to the worthless stock deduction taken in 2013.

These remeasurements were based on written confirmations from Internal Revenue Service (“IRS”), received in 2020, indicating no examination adjustments would be proposed related to the worthless stock deduction or certain other matters reviewed as part of the audit of our federal income tax returns for 2010 through 2014, and the lapse of statutes of limitations related to other unrecognized income tax benefits.

Notwithstanding these written confirmations, our U.S.

federal income tax returns for 2010 through 2014 remain under examination by the IRS.

As of December 31, 2020, we had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $74.4 million, net of valuation allowances, but before the offset of certain deferred tax liabilities.

With the exception of deferred tax assets related to certain state and foreign NOL 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.

With the exception of deferred tax assets related to certain state and foreign net operating loss 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.

We qualified for a tax holiday in Switzerland until the end of 2019 which lowered tax rates on certain types of income and required certain thresholds of foreign source income.

The tax holiday reduced our foreign income tax expense by $17.3 million ($0.15 per share) and $16.9 million ($0.14 per share) in 2019 and 2018, respectively.

The tax holiday reduced our foreign income tax expense by $17.3 million ($0.15 per share) in 2019.

The benefit from the tax holiday is calculated before consideration of any offsetting tax impact in the United States.

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Marketable securities 765,713 709,863

Total $ 1,166,907 $ 1,218,059

As of December 31, 2020, our principal source of liquidity was $401.2 million of cash and cash equivalents and $765.7 million of marketable securities.

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The cash equivalents consist mainly of amounts invested in money market funds and U.S.

Treasury bills purchased with original maturities of less than 90 days.

Treasury bills purchased with original maturities of three months or less.

As of December 31, 2020, all of our debt securities have contractual maturities of less than one year.

Our cash and cash equivalents are readily accessible.

Following the Tax Cuts and Jobs Act, we have greater flexibility in accessing the cash, cash equivalents and marketable securities balances held by our foreign subsidiaries.

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.

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In 2019, we repurchased 3.9 million shares of our common stock at an average stock price of $188.84 for an aggregate cost of $738.5 million.

Effective February 11, 2021, our Board of Directors authorized the repurchase of our common stock in the amount of $747.0 million, in addition to the $253.0 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.

As of December 31, 2020, we had $550.0 million principal amount outstanding of 4.75% senior unsecured notes due 2027, $500.0 million principal amount outstanding of the 5.25% senior unsecured notes due 2025 and $750.0 million principal amount outstanding of the 4.625% senior unsecured notes due 2023.

In December 2019, we entered into a new $200.0 million unsecured revolving credit facility.

This facility will expire in 2024 and takes the place of our prior unsecured revolving credit facility.

As of December 31, 2019, there were no borrowings outstanding under this credit facility.

In 2018 we settled our subordinated convertible debentures with the $1.25 billion principal value paid in cash and 26.1 million shares of common stock issued for the conversion spread.

As of December 31, 2020, there were no borrowings outstanding under the $200.0 million unsecured revolving 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.

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Year Ended December 31,

2020 2019 2018

(In thousands)

Net cash provided by operating activities $ 730,183 $ 753,892 $ 697,767

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities (72,258) 167,195 1,070,130

Net cash used in financing activities (764,877) (770,303) (1,875,325)

Effect of exchange rate changes on cash, cash equivalents and restricted cash (48) 64 (958)

Net increase (decrease) in cash, cash equivalents and restricted cash

Net (decrease) increase in cash, cash equivalents and restricted cash $ (107,000) $ 150,848 $ (108,386)

Cash flows from operating activities

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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 in 2019 compared to 2018 primarily due to an increase in cash received from customers and a decrease in cash paid for interest, partially offset by an increase in cash paid for income taxes.

Net cash provided by operating activities decreased in 2020 compared to 2019 primarily due to an increase in cash paid for income taxes and decreases in cash received from interest on investments and from transition services, partially offset by an increase in cash received from customers.

Cash paid for income taxes increased as we used the majority of our net operating loss carryforwards and tax credit carryforwards by the end of 2019.

Cash received from interest on investments decreased due to a decline in interest rates.

Cash received from transition services decreased due to the expiration of the transition services agreement related to our sale of our security services customer contracts in February 2020.

Cash received from customers increased primarily due to higher domain name registrations and renewals.

The decrease in cash paid for interest on our debt obligations was primarily due to the settlement of our subordinated convertible debentures in May 2018.

The increase in cash paid for income taxes was primarily due to by higher U.S.

federal income tax payments in 2019, partially offset by the $60.7 million of foreign withholding taxes paid on the repatriation of $1.15 billion cash held by foreign subsidiaries to the U.S.

in the first quarter of 2018.

Cash flows from investing activities

The changes in cash flows from investing activities primarily relate to purchases, maturities and sales of marketable securities, purchases of property and equipment and the sale of businesses.

Net cash provided by investing activities decreased in 2019 compared to 2018 primarily due to decreases in proceeds from sales and maturities of marketable securities, net of purchases, proceeds from the sale of businesses, and an increase in purchases of property and equipment.

We had net cash outflows from investing activities in 2020, compared to net cash inflows during 2019, primarily due to an increase in purchases of marketable securities and investments, net of proceeds from maturities and sales of marketable securities and investments, and an increase in purchases of property and equipment, partially offset by contingent consideration received related to our sale of security services customer contracts.

Cash flows from financing activities

The changes in cash flows from financing activities primarily relate to share repurchases, proceeds from and repayment of borrowings, and our employee stock purchase plan (“ESPP”).

Net cash used in financing activities decreased in 2019 compared to 2018 primarily due to the repayment of the principal amount of the subordinated convertible debentures during 2018, partially offset by an increase in share repurchases.

The changes in cash flows from financing activities primarily relate to share repurchases, repayment of borrowings, and our employee stock purchase plan.

Net cash used in financing activities decreased in 2020 compared to 2019 primarily due to a decrease in share repurchases.

Impact of Inflation

We do not believe that inflation has had a significant impact on our operations in any of the periods presented.

We expect cash paid for income taxes in 2020 to approximate our Income tax expenses for the year.

We expect cash paid for income taxes as a percentage of pre-tax income to be between 20% and 23% in 2021.

Property and Equipment Expenditures

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Dilution from RSUs

Grants of stock-based awards are key components of the compensation packages we provide to attract and retain certain of our talented employees and align their interests with the interests of existing stockholders.

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.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis