What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-24 compared with 2024-07-25 · 43 added, 47 removed, 148 unchanged (38% of the section changed)

14 unchanged sentences

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

As of June 30, 2024, we had 170.6 million .com and .net registrations in the domain name base.

As of September 30, 2024, we had 169.6 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 $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.

• We recorded revenues of $390.6 million and $1,162.0 million during the three and nine months ended September 30, 2024, each of which represents an increase of 4% compared to the same periods in 2023.

• We recorded operating income of $269.3 million and $794.4 million during the three and nine months ended September 30, 2024, which represents an increase of 6% and 7%, respectively, compared to the same periods in 2023.

• As of September 30, 2024, we had 169.6 million .com and .net registrations in the domain name base, which represents a 2.5% decrease from September 30, 2023, and a net decrease of 1.1 million domain name registrations from June 30, 2024.

• During the three months ended September 30, 2024, we processed 9.3 million new domain name registrations for .com and .net compared to 9.9 million for the same period in 2023.

• The final .

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

net renewal rate for the second quarter of 2024 was 72.7% compared to 73.4% for the second quarter of 2023.

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

• 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.

• We generated cash flows from operating activities of $671.1 million during the nine months ended September 30, 2024, compared to $649.6 million for the same period in 2023.

• During the three months ended September 30, 2024, we repurchased 1.7 million shares of our common stock for an aggregate cost of $300.9 million.

As of September 30, 2024, there was $1.28 billion remaining for future share repurchases under the share repurchase 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

21 unchanged sentences

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.

On February 8, 2024, we announced that we will increase the annual registry-level wholesale fee for each new and

com domain name registration from $9.59 to $10.26, effective September 1, 2024.

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.

2 unchanged sentences

A comparison of revenues is presented below:

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

Three Months Ended September 30, Nine Months Ended September 30,

2024 % Change 2023 2024 % Change 2023

2 unchanged sentences

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

June 30, 2024 % Change June 30, 2023

September 30, 2024 % Change September 30, 2023

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

169.6 million (3)% 173.9 million

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 .

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

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.

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The following table presents a comparison of our geographic revenues:

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

Three Months Ended September 30, Nine Months Ended September 30,

2024 % Change 2023 2024 % Change 2023

9 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 and six months ended June 30, 2024 compared to the same periods 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 nine months ended September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 % Change 2023 2024 % Change 2023

1 unchanged sentence

Cost of revenues $ 46.8 (4)% $ 48.6 $ 143.0 (4)% $ 148.8

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.

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

Cost of revenues decreased during the nine months ended September 30, 2024, compared to the same period last year, due to decreases in depreciation expenses and telecommunication expenses, partially offset by a combination of individually insignificant factors.

Depreciation expenses decreased by $5.7 million due to a decrease in capital expenditures in recent periods.

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A comparison of research and development expenses is presented below:

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

Three Months Ended September 30, Nine Months Ended September 30,

2024 % Change 2023 2024 % Change 2023

1 unchanged sentence

Research and development $ 23.2 7% $ 21.7 $ 71.8 6% $ 68.1

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.

Research and development expenses increased during the three and nine months ended September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 % Change 2023 2024 % Change 2023

1 unchanged sentence

Selling, general and administrative $ 51.3 (1)% $ 51.7 $ 152.8 1% $ 151.5

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

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

Interest expense

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

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

Non-operating income, net

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

Non-operating income decreased during the three and nine months ended September 30, 2024, compared to the same periods last year, primarily due to a decrease in interest income as a result of lower amounts invested in debt securities in the current period.

Income tax expense

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

6 unchanged sentences

The following table presents our principal sources of liquidity:

June 30, December 31,

September 30, December 31,

(In millions)

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

As of June 30, 2024, all of our debt securities have contractual maturities of less than one year.

As of September 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.

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.

During the three months ended September 30, 2024, we repurchased 1.7 million shares of our common stock for an aggregate cost of $300.9 million.

As of September 30, 2024, there was approximately $1.28 billion remaining available for future share repurchases under the share repurchase program.

As of September 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 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 September 30, 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.

1 unchanged sentence

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

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

Six Months Ended June 30,

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

Nine Months Ended September 30,

(In millions)

Net cash provided by operating activities $ 671.1 $ 649.6

Net cash provided by investing activities 246.5 11.5

Net cash provided by (used in) investing activities 307.0 (201.5)

Net cash used in financing activities (951.0) (663.5)

4 unchanged sentences

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 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.

Net cash provided by operating activities increased during the nine months ended September 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 .

com price increase that became effective on September 1, 2023, and the .

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

net price increases.

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 paid for income taxes increased primarily due to comparatively higher state income tax payments and a higher installment payment for the transition tax on our accumulated foreign earnings resulting from the 2017 Tax Cuts and Jobs Act.

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 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.

We had net cash inflows from investing activities in the nine months ended September 30, 2024, compared to net cash outflows from investing activities during 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 and a decrease in purchases of property and equipment due 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 and proceeds from our employee stock purchase plan.

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.

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

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