What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-25 compared with 2024-04-25 · 57 added, 45 removed, 138 unchanged (43% of the section changed)

5 unchanged sentences

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.

Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” in Part I, Item 1A of the 2023 Form 10-K.

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 2024.

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net generic top-level domains (“gTLDs”), which support the majority of global e-commerce.

As of March 31, 2024, we had 172.5 million .com and .net registrations in the domain name base.

As of June 30, 2024, we had 170.6 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.

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Business Highlights and Trends

• We recorded revenues of $384.3 million during the three months ended March 31, 2024, which represents an increase of 5% compared to the same period in 2023.

• We recorded operating income of $258.9 million during the three months ended March 31, 2024, which represents an increase of 7% compared to the same period in 2023.

• As of March 31, 2024, we had 172.5 million .com and .net registrations in the domain name base, which represents a 1.3% decrease from March 31, 2023, and a net decrease of 0.3 million domain name registrations from December 31, 2023.

• During the three months ended March 31, 2024, we processed 9.5 million new domain name registrations for .com and .net compared to 10.3 million for the same period in 2023.

• We recorded revenues of $387.1 million and $771.4 million during the three and six months ended June 30, 2024, which represents an increase of 4% and 5%, respectively, compared to the same periods in 2023.

• We recorded operating income of $266.2 million and $525.1 million during the three and six months ended June 30, 2024, which represents an increase of 7% compared to the same periods in 2023.

• As of June 30, 2024, we had 170.6 million .com and .net registrations in the domain name base, which represents a 2.2% decrease from June 30, 2023, and a net decrease of 1.8 million domain name registrations from March 31, 2024.

• During the three months ended June 30, 2024, we processed 9.2 million new domain name registrations for .com and .net compared to 10.2 million for the same period in 2023.

• The final .

net renewal rate for the fourth quarter of 2023 was 73.2% compared to 73.3% for the fourth quarter of 2022.

net renewal rate for the first quarter of 2024 was 74.1% compared to 75.5% for the first quarter of 2023.

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

• During the three months ended March 31, 2024, we repurchased 1.3 million shares of our common stock for an aggregate cost of $260.4 million.

As of March 31, 2024, there was $859.6 million remaining for future share repurchases under the share repurchase program.

• We generated cash flows from operating activities of $257.3 million during the three months ended March 31, 2024, compared to $259.0 million for the same period in 2023.

• We generated cash flows from operating activities of $417.7 million during the six months ended June 30, 2024, compared to $404.3 million for the same period in 2023.

• During the three months ended June 30, 2024, we repurchased 2.2 million shares of our common stock for an aggregate cost of $388.0 million.

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.

Pursuant to our agreements with ICANN, we make available files containing all active domain names registered in the .com and .net registries.

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Revenues 100.0 % 100.0 % 100.0 % 100.0 %

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A comparison of revenues is presented below:

Three Months Ended March 31,

2024 % Change 2023

Three Months Ended June 30, Six Months Ended June 30,

2024 % Change 2023 2024 % Change 2023

(Dollars in millions)

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

March 31, 2024 % Change March 31, 2023

June 30, 2024 % Change June 30, 2023

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

170.6 million (2)% 174.4 million

Revenues increased during the three months ended March 31, 2024, as compared to the same periods last year, primarily due to an increase in revenues from the operation of the registry for the .

com gTLD supported by the price increases that became effective September 1, 2023 and 2022.

Revenues increased during the three and six months ended June 30, 2024, as compared to the same periods last year, primarily due to the .

com price increases that became effective September 1, 2023 and 2022 and the .

net price increases that became effective February 1, 2024 and 2023, 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 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 domain names and may continue to do so in the future.

While the core value proposition for domain names remains strong, softness in demand primarily in China has recently led to a decline in our domain name base.

While the core value proposition of a domain name remains strong, challenging economic and regulatory conditions have continued to weaken demand for 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 .

net domain name registrations, resulting in a decline in our domain name base.

Geographic revenues

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The following table presents a comparison of our geographic revenues:

Three Months Ended March 31,

2024 % Change 2023

Three Months Ended June 30, Six Months Ended June 30,

2024 % Change 2023 2024 % Change 2023

(Dollars in millions)

8 unchanged sentences

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., EMEA and certain other countries, while revenues from registrars based in China declined in the three months ended March 31, 2024 compared to the same period of the prior year due to the lower demand noted above.

The majority of our revenue growth was generated from registrars based in the U.S., EMEA and certain other countries, while revenues from registrars based in China declined in the three and six months ended June 30, 2024 compared to the same periods of the prior year due to the lower demand noted above.

Cost of revenues

1 unchanged sentence

A comparison of cost of revenues is presented below:

Three Months Ended March 31,

2024 % Change 2023

Three Months Ended June 30, Six Months Ended June 30,

2024 % Change 2023 2024 % Change 2023

(Dollars in millions)

Cost of revenues $ 47.1 (7)% $ 50.3 $ 96.2 (4)% $ 100.2

Cost of revenues decreased slightly during the three months ended March 31, 2024, compared to the same period last year, due to a combination of individually insignificant factors.

Cost of revenues decreased slightly during the three months ended June 30, 2024, compared to the same period last year, due to a combination of individually insignificant factors.

Cost of revenues decreased during the six months ended June 30, 2024, compared to the same period last year, due to decreases in depreciation expenses and telecommunication expenses.

Depreciation expenses decreased by $3.9 million due to a decrease in capital expenditures in recent periods.

Telecommunication expenses decreased by $2.5 million primarily due to savings on renewals of colocation agreements.

Research and development

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A comparison of research and development expenses is presented below:

Three Months Ended March 31,

2024 % Change 2023

Three Months Ended June 30, Six Months Ended June 30,

2024 % Change 2023 2024 % Change 2023

(Dollars in millions)

Research and development $ 23.8 7% $ 22.2 $ 48.6 5% $ 46.4

Research and development expenses increased slightly during the three months ended March 31, 2024, compared to the same period last year, due to a combination of individually insignificant factors.

Research and development expenses increased slightly during the three and six months ended June 30, 2024, compared to the same periods last year, due to a combination of individually insignificant factors.

Selling, general and administrative

1 unchanged sentence

A comparison of selling, general and administrative expenses is presented below:

Three Months Ended March 31,

2024 % Change 2023

Three Months Ended June 30, Six Months Ended June 30,

2024 % Change 2023 2024 % Change 2023

(Dollars in millions)

Selling, general and administrative $ 50.0 (2)% $ 50.8 $ 101.5 2% $ 99.8

Selling, general and administrative expenses increased during the three months ended March 31, 2024, compared to the same period last year, due to a combination of individually insignificant factors.

Selling, general and administrative expenses remained consistent during the three and six months ended June 30, 2024, compared to the same periods last year.

Interest expense

Interest expense remained consistent during the three months ended March 31, 2024 compared to the same period last year.

Interest expense remained consistent during the three and six months ended June 30, 2024 compared to the same periods last year.

Non-operating income, net

Non-operating income, net increased during the three months ended March 31, 2024, compared to the same period last year, primarily due to an increase in interest income driven by higher interest rates on our investments in debt securities.

Non-operating income remained consistent during the three and six months ended June 30, 2024, compared to the same periods last year.

Income tax expense

The following table presents Income tax expense and the effective tax rate:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(Dollars in millions)

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The following table presents our principal sources of liquidity:

March 31, December 31,

June 30, December 31,

(In millions)

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

As of March 31, 2024, all of our debt securities have contractual maturities of less than one year.

As of June 30, 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 Condensed Consolidated Financial Statements in Part I, Item I of this Quarterly Report on Form 10-Q.

During the three months ended June 30, 2024, we repurchased 2.2 million shares of our common stock for an aggregate cost of $388.0 million.

As of June 30, 2024, there was approximately $471.6 million remaining available for future share repurchases under the share repurchase program.

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.

During the three months ended March 31, 2024, we repurchased 1.3 million shares of our common stock for an aggregate cost of $260.4 million.

As of March 31, 2024, there was approximately $859.6 million remaining available for future share repurchases under the share repurchase program.

As of March 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 2025.

As of March 31, 2024, there were no borrowings outstanding under our $200.0 million credit facility that will expire in 2028.

As of June 30, 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 2025.

As of June 30, 2024, there were no borrowings outstanding under our $200.0 million credit facility that will expire in 2028.

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.

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Our cash requirements have not changed materially since the 2023 Form 10-K.

In summary, our cash flows for the three months ended March 31, 2024 and 2023 were as follows:

Three Months Ended March 31,

In summary, our cash flows for the six months ended June 30, 2024 and 2023 were as follows:

Six Months Ended June 30,

(In millions)

3 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents, and restricted cash (0.3) (0.2)

Net increase in cash, cash equivalents, and restricted cash $ 491.7 $ 446.1

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 12.0 $ (29.8)

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 decreased slightly during the three months ended March 31, 2024, compared to the same period last year, primarily due to an increase in cash paid to employees and vendors, partially offset by an increase in cash received from customers.

Cash paid to employees and vendors increased primarily due to the timing of payments and an increase in operating expenses.

Net cash provided by operating activities increased during the six months ended June 30, 2024, compared to the same period last year, primarily due to an increase in cash received from customers, partially offset by increases in cash paid to employees and vendors and cash paid for income taxes.

Cash received from customers increased primarily due to the .

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net price increase that became effective on February 1, 2024.

Cash paid to employees and vendors increased primarily due to the timing of payments.

Cash paid for income taxes increased primarily due to comparatively higher U.S.

federal and state income taxes.

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.

Net cash provided by investing activities increased during the three months ended March 31, 2024, compared to the same period last year, primarily due to an increase in proceeds from maturities and sales of marketable securities, net of purchases of marketable securities.

Net cash provided by investing activities increased during the six months ended June 30, 2024, compared to the same period last year, primarily due to an increase in proceeds from maturities and sales of marketable securities, net of purchases of marketable securities.

Cash flows from financing activities

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

Net cash used in financing activities increased during the three months ended March 31, 2024, compared to the same period last year, primarily due to an increase in share repurchases.

Net cash used in financing activities increased during the six months ended June 30, 2024, compared to the same period last year, primarily due to an increase in share repurchases.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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-Q

Item 2. Management’s Discussion and Analysis