What changed in this filing

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Item 1A. Risk Factors

2025-02-13 compared with 2024-02-15 · 66 added, 58 removed, 251 unchanged (33% of the section changed)

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When the factors, events and contingencies described below or elsewhere in this Form 10-K materialize, our business, operating results, financial condition, reputation, cash flows or prospects can be materially adversely affected.

In such case, the trading price of our common stock could decline and you could lose part or all of your investment.

In such cases, the trading price of our common stock could decline and you could lose part or all of your investment.

Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also materially adversely affect our business, operating results, financial condition, reputation, cash flows and prospects.

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However, such measures cannot provide absolute security.

While we strive to remediate known vulnerabilities on a timely basis, such vulnerabilities could be exploited before a vulnerability has been disclosed or before our remediation is effective and if so, could cause systems and service interruptions, data loss and other damages.

Vulnerabilities could be exploited before a vulnerability has been disclosed or before our remediation is effective and if so, could cause systems and service interruptions, data loss and other damages.

Our failure to identify, remediate and mitigate security vulnerabilities, including any potential failure to timely replace and upgrade hardware, software, or other technology assets, could result in material harm to our business, including loss of or delay in revenues, failure to meet service level agreements, material liability claims, failure to maintain market acceptance, injury to our reputation, increased costs, and call into question our ability to preserve the security and stability of the internet.

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Recent industry experience has demonstrated that DDoS attacks continue to grow in size and sophistication and have the ability to widely disrupt internet services.

While we have adopted mitigation techniques, procedures, and strategies to defend against DDoS attacks, and have successfully mitigated DDoS attacks to date, there can be no assurance that we will be able to defend against every attack, especially as the attacks increase in size and sophistication.

We have successfully mitigated DDoS attacks to date;

however, there can be no assurance that we will be able to defend against every attack, especially as the attacks increase in size and sophistication.

Any attack, even if only partially successful, could disrupt our networks, increase response time, negatively impact our ability to meet our service level agreements, and generally impede our ability to provide reliable service to our customers and the broader internet community.

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We are employing new technologies and new and different services and capabilities to help mitigate DDoS attacks.

If these new technologies, services and capabilities are not effective, our infrastructure could be

disrupted, our response times could increase, our ability to meet our service level agreements could be negatively impacted, and our ability to provide reliable service to our customers and the broader internet community could be impeded.

If these new technologies, services and capabilities are not effective, our infrastructure could be disrupted, our response times could increase, our ability to meet our service level

agreements could be negatively impacted, and our ability to provide reliable service to our customers and the broader internet community could be impeded.

In addition, we are subject to social engineering attacks including phishing, spear phishing, whaling, vishing, smishing, and domain spoofing, which are designed to entice people to divulge sensitive information or take actions that, if successful, could pose a material risk to our operations.

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Social engineering attacks have occurred in concert with ransomware attacks.

While we deploy advanced tools and conduct continuous security awareness training to address social engineering attacks, such measures cannot provide absolute security.

Similarly, although we implement redundant architecture and multiple recovery solutions, and conduct periodic exercises to mitigate the threat of ransomware, we still may be subject to successful ransomware attacks.

Our failure to prevent such attacks, including any successful social engineering attack, could result in our inability to meet our service legal agreements and could otherwise materially harm our business, including from legal claims, governmental investigations and scrutiny, injury to our reputation, and increased costs.

The various measures we take to mitigate cyber-attacks, including our deployment of advanced tools and implementation of redundant architecture and multiple recovery solutions, as well as conducting continuous security awareness training to address social engineering attacks and periodic exercises to mitigate the threat of ransomware cannot provide absolute security.

We still may be subject to successful cyber attacks.

Our failure to prevent such attacks, including any successful social engineering attack, could result in our inability to meet our service level agreements and could otherwise materially harm our business, including from legal claims, governmental investigations and scrutiny, injury to our reputation, and increased costs.

We do not maintain specific reserves for security breaches, cyber-attacks and DDoS attacks against our systems and the amount of insurance coverage we maintain may be inadequate to cover claims or liabilities relating to such attacks.

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Contracting with RIRs for the provision of and access to RPKI services carries material operational risks, as described above, as well as material contractual risks, which may expose us to service disruptions and material liability.

We could encounter system interruptions or systems failures resulting from activities beyond our direct control that could materially harm our business.

We could encounter system interruptions or system failures resulting from activities beyond our direct control that could materially harm our business.

We depend on the uninterrupted operation of our various systems, secure data centers, points of presence around the world and other computer and communication networks.

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Our data centers, our data center systems, including the Shared Registration Systems located at our data centers, and our resolution systems are vulnerable to damage or interruption, which could impede our ability to provide our services, expose us to material liability, and materially harm our reputation.

Most of the computing infrastructure for our Shared Registration System is located at, and most of our customer information is stored in, data centers we own or lease and operate.

In 2019, we expanded some of our data center services to a leased data center facility.

These data centers are vulnerable to damage or interruption, including from natural disasters, such as fires, earthquakes, hurricanes, and floods, power loss, hardware or system failures, physical or electronic break-ins, human error or interference.

We are also regularly updating and enhancing our network architecture in several of our new and existing data centers and globally distributed resolution systems.

Most of the computing infrastructure for our Shared Registration System is located at, and most of our customer information is stored in, data centers we own or lease.

These data centers, which are concentrated in the same geographic region, are vulnerable to damage or interruption, including from natural disasters, such as fires, earthquakes, hurricanes, and floods, power loss, hardware or system failures, physical or electronic break-ins, human error or interference.

We are also regularly updating and enhancing our network architecture in our data centers and globally distributed resolution systems.

If our data center facilities or the updated network architectures, hardware or software upgrades, or security controls do not operate as expected, including the ability to quickly switch over between sites, we could experience service interruptions or outages.

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If the providers that our connections depend upon do not protect, maintain, improve, and reinvest in their networks or present inconsistent, incorrect, or invalid data regarding routing information or DNS responses through their networks, our business could be harmed.

A failure in the operation or update of the root zone servers, the root zone file, the Root Zone Management System, the TLD name servers, the TLD zone files that we operate, or other network functions, could result in, among other problems, (1) a DNS resolution or other service outage or degradation, (2) the deletion of one or more gTLDs or ccTLDs from the internet, (3) the deletion of one or more second-level domain names from the internet, or (4) a misdirection of one or more domain names to different servers.

A failure in the operation or update of the root zone servers that we operate, the root zone file, the Root Zone Management System, the TLD name servers, the TLD zone files that we operate, or other network functions, could result in, among other problems, (1) a DNS resolution or other service outage or degradation, (2) the deletion of one or more gTLDs or ccTLDs from the internet, (3) the deletion of one or more second-level domain names from the internet, or (4) a misdirection of one or more domain names to different servers.

A failure in the operation or update of the supporting cryptographic and other operational infrastructure that we maintain could result in similar consequences.

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We face risks from the operation of the root server system and our performance of the Root Zone Maintainer functions under the RZMA.

Although the overall root server system is redundant and dispersed, a failure or interruption in the operation of the root server system could impact the effectiveness of our .

Although the overall root server system is redundant and dispersed, an infrastructure or services failure or other disruption of one or more organizations involved in the operation of the root server system could impact the effectiveness of our .

net authoritative servers and therefore negatively impact directory services necessary for the operation of the internet.

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If we make errors in the publication of the root zone or experience operational issues that impact the timeliness of updates to the root zone data, we may be subject to material claims challenging the RZMA or our performance under it, including tort claims, and we may not have immunity from, or sufficient indemnification or insurance for, such claims.

Economic and Competition Risk Factors

Deterioration of economic conditions, particularly in China, continues to negatively impact our business.

Our business is, and will likely continue to be, adversely affected by the deterioration in global economic conditions, including high inflation, interest rates, and currency fluctuations, as well as impacts from war, civil unrest, and other political and economic developments.

In particular, these conditions are negatively impacting our business in China, where demand for our services has substantially declined due to worsening economic conditions within China and from Chinese regulatory mandates that make it more difficult to register a domain name or establish an online presence using a domain name.

The overall economic impact, severity and duration of these conditions, as well as the timing, strength, and sustainability of any recovery, are not known at this time, and are not within the Company’s control.

The business environment is highly competitive and, if we do not compete effectively, we may suffer material adverse impact to our business, including lower demand for our products, reduced gross margins, and loss of market share.

We face competition from services that provide an online identity or presence, including other gTLDs and ccTLDs.

In order to remain competitive, we must continually demonstrate the security, stability, and resiliency of our services and must adopt and support new technologies to adapt our services to changing technologies, market conditions, and our customers’ and internet users’ preferences and practices.

Also to remain competitive, we have undertaken important initiatives such as our efforts to acquire the .web gTLD, and we may in the future undertake other important initiatives.

Any of these initiatives require significant resources, can subject us to regulatory scrutiny and/or negative publicity, and divert management attention from our existing business.

Such undertakings, including our efforts to acquire the .web gTLD, may be unsuccessful and costly.

In addition, competing technologies developed by others or the emergence of new industry standards may adversely affect our competitive position or render our services or technologies noncompetitive or obsolete.

Finally, consolidation within our industry has occurred and is likely to continue to occur.

Our ability to participate and benefit from such consolidations may be limited and consolidation within our industry among our competitors could harm our competitive position and adversely impact our business.

We have been designated as the registry operator for certain new gTLDs, including certain IDN gTLDs.

Our new gTLDs may not be as or more successful than the new gTLDs obtained by our competitors.

In addition, our new gTLDs may face additional universal acceptance and usability challenges and it is possible that resolution of domain names within some of these new gTLDs may be blocked within certain state or organizational environments, challenging universal resolvability of these domain names and their general acceptance and usability.

See the “Competition” section in Part I, Item 1 of this Form 10-K for further information.

Contractual, Regulatory, Legal and Compliance Risk Factors

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net Registry Agreement if, upon proper notice, (1) we fail to cure a fundamental and material breach of certain specified obligations, and (2) we fail to timely comply with a final decision of an arbitrator or court.

Additionally, each of the .com and .net Registry Agreements provide that if certain terms of these agreements are not similar to such terms generally in effect in the registry agreements of the five largest gTLDs, then a renewal of these agreements would be upon terms reasonably necessary to render such terms to be similar to the registry

agreements for those other gTLDs.

Any such terms, if they apply, could be unfavorable to us and have a material adverse impact on our business.

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However, we can provide no assurances whether we will seek the removal of these restrictions, or whether the DOC would approve the removal of these restrictions.

Our .com Registry Agreement, including its pricing provisions, has faced, and could face in the future, challenges, including possible legal challenges, or challenges under ICANN’s accountability mechanisms, from ICANN, registrars, registrants, and others, and any adverse outcome from these challenges could have a material adverse effect on our business.

Our .com Registry Agreement, and the Cooperative Agreement, including their pricing provisions, have been challenged, and could face challenges in the future, through publicity campaigns, governmental scrutiny, media interest, legal challenges, or challenges under ICANN’s accountability mechanisms.

Such challenges have arisen, and could in the future, arise from trade organizations, the media, registrars, registrants, and others, particularly when these agreements are being renewed.

These challenges, if successful, and even when unmeritorious and/or unsuccessful, could have a material adverse effect on our business.

Government regulation and the application of new and existing laws in the U.S.

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or internationally to the internet or the domain name industry have imposed and may in the future impose new costs and new restrictions on our business.

Laws and regulations, including those designed to restrict who can register and who can distribute domain names or to require registrants to provide additional documentation to register domain names, have, and may in the future, impose significant additional costs on our business and subject us to additional liabilities or could prevent us from operating in certain jurisdictions.

In the U.S., new or modified Executive Orders or legislation involving the internet, cybersecurity, or in other areas could result in new obligations that could negatively impact our business.

In addition, laws and regulations, including those designed to restrict who can register and who can distribute domain names or to require registrants to provide additional documentation to register domain names, have, and may in the future, impose significant additional costs on our business and subject us to additional liabilities or could prevent us from operating in certain jurisdictions.

For example, the government of China has indicated that it will issue, and has issued, new regulations, and it has begun to enforce existing regulations differently, including by directing certain implementation models for registry services, that impose additional costs on, and risks to, our provision of registry services in China.

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We are also subject to changing laws and regulations that impact whether, how, and under what circumstances we may transfer, process and/or receive certain data that is critical to our operations, including data shared between countries or regions in which we operate and data shared among our products and services.

For example, following the invalidation of the U.S.-EU Safe Harbor by the European Court of Justice (“EUCJ”) in 2015, the European Union and United States agreed to an alternative framework for data transferred from the European Union to the United States, called Privacy Shield.

In 2018, Privacy Shield

was also invalidated by the EUCJ.

In 2022, the United States and European Union announced a new, but undefined data transfer framework, which once finalized, also could be subject to further legal challenges.

New laws, regulations, directives or ICANN polices that require us to obtain and maintain personal information of registrants of domain names in the .

net gTLDs could impose material compliance costs and could create new, material legal and others risks to our business.

For example, the data transfer frameworks between the U.S.

have been subject to legal challenges, which has created uncertain legal obligations.

New laws, regulations, directives or ICANN policies that require us to obtain and maintain personal information of registrants of domain names in the .

net gTLDs could impose material compliance costs and could create new, material legal and other risks to our business.

If we are required to, or choose to, obtain and maintain personal information of registrants of domain names in the .

net gTLDs we could be required to incur significant compliance and legal costs as a result of GDPR and other similar regulations.

For example, we could incur material costs to protect such information from unauthorized disclosure and, under GDPR, to ensure authorized disclosures are permitted.

Failure to properly protect such information, or failure to comply with GDPR, could expose the Company to material costs and penalties.

For example, in 2023, the European Union adopted the Network and Information Security Directive (“NIS 2”) that addresses registrant data.

Our current obligations do not require us to obtain and maintain personal information of registrants of domain names.

Specific E.U.

member state implementations of NIS 2 could create uncertainty about, or change, these obligations.

Failure to properly protect such information, if obtained, or failure to comply with GDPR or NIS 2, could expose the Company to material costs and penalties.

In addition, new obligations to obtain and maintain personal information of registrants in the .

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Failure to do so could materially harm our business.

Moreover, local laws and customs in many countries differ significantly from those in the U.S.

Moreover, local laws and customs in many countries differ

significantly from those in the U.S.

In many foreign countries, particularly in those with developing economies, it is common for others to engage in business practices that are prohibited by our internal policies and procedures or U.S.

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government data collection policies.

Political tensions between the United States and China in particular may pose additional risks to our business in China.

Political tensions between the United States and China, including tensions resulting from tariffs or proposed tariffs, in particular may pose additional risks to our business in China.

government has imposed restrictions on certain Chinese companies and on trading in certain technologies.

The Chinese government has announced actions that, if implemented, could impose additional restrictions on the operations of non-Chinese companies in China.

These and future government actions could impact our ability to operate in China and may cause our management’s attention to be diverted, our reputation to be damaged, or our business in China to be adversely affected.

These and possible future government actions could impact our ability to operate in China and may cause our management’s attention to be diverted, our reputation to be damaged, or our business in China to be adversely affected.

Changes in, or interpretations of, tax rules and regulations or our tax positions may materially and adversely affect our income taxes.

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The Organization for Economic Cooperation and Development (“OECD”) continues to issue guidance that will provide a long-term, multilateral proposal on the taxation of the digital economy.

Certain countries have enacted and other countries may enact legislation based on the OECD’s guidance that could impact the taxation of the digital economy.

Certain countries, including our major international tax jurisdictions, have enacted legislation based on the OECD’s guidance.

To date the legislation has had a limited impact on us, but the impact of future legislation is uncertain.

Similarly, some international tax jurisdictions, independent of the OECD, have enacted or may enact new tax regimes aimed at income resulting from digital services.

Although we cannot predict the nature or outcome of such changes or the likelihood of such legislative proposals being adopted in the U.S.

or throughout the world, any or all of these changes in tax laws could increase our taxes and adversely impact our financial condition and cash flow.

or throughout the world, any or all of these changes in tax laws, including but not limited to changes in scope of OECD’s Pillar One, as well as new guidance issued and enacted pertaining to OECD’s Pillar Two, could increase our taxes and adversely impact our financial condition and cash flow.

Our business faces risks arising from ICANN’s consensus and temporary policies, technical standards and other processes.

Our Registry Agreements with ICANN require us to implement Consensus Policies and changes mandated by ICANN through temporary specifications or policies (“Temporary Policies”).

ICANN could adopt Consensus Policies or Temporary Policies that (1) are unfavorable to us as the registry operator of .com , .net and other gTLDs we operate, (2) are inconsistent with our current or future plans, (3) impose substantial costs on our business, (4) subject the Company to additional legal risks, or (5) affect our competitive position.

ICANN could adopt Consensus Policies or Temporary

Policies that (1) are unfavorable to us as the registry operator of .com , .net and other gTLDs we operate, (2) are inconsistent with our current or future plans, (3) impose substantial costs on our business, (4) subject the Company to additional legal risks, or (5) affect our competitive position.

These Consensus Policies or Temporary Policies could have a material adverse effect on our business.

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In addition, proceedings that we initially view as immaterial could prove to be material.

Adverse outcomes in

lawsuits, audits and investigations, could result in significant monetary damages, including indemnification payments, or injunctive relief that could adversely affect our ability to conduct our business, and may have a material adverse effect on our financial condition, results of operations and cash flows.

For example, we are engaged in activities to help mitigate security threats and other forms of DNS abuse in the gTLDs and ccTLDs we operate and we are involved in community efforts that could increase and expand such activities including potential new contractual obligations.

Such activities include, for example, receiving reports of suspected threats and abuse from appropriate “trusted notifiers” (typically involving national and international law enforcement) and notifying registrars or others of domain names associated with suspected malicious or illegal activity.

Our activities may also include disabling one or more domain names in the gTLDs or ccTLDs we operate including in response to governmental directives and orders in those jurisdictions in which we operate.

Adverse outcomes in lawsuits, audits and investigations, could result in significant monetary damages, including indemnification payments, or injunctive relief that could adversely affect our ability to conduct our business, and may have a material adverse effect on our financial condition, results of operations and cash flows.

For example, we are engaged in activities to help mitigate security threats and other forms of DNS abuse in the gTLDs and ccTLD we operate and we are involved in community efforts that have increased and expanded such activities to include contractual obligations.

For example, we receive reports of suspected threats and abuse and we notify registrars or others of domain names associated with suspected malicious or illegal activity.

We may also disable one or more domain names in the gTLDs or ccTLD we operate including in response to reports of suspected threats and abuse, governmental directives and court orders in those jurisdictions in which we operate.

Activities such as these have resulted in, and could in the future result in, significant litigation and could harm our reputation.

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In addition, such claims, lawsuits, audits and investigations could involve significant expense and diversion of management’s attention and resources from other matters.

Economic and Competition Risk Factors

Challenging global economic conditions have in the past and may in the future negatively impact our business.

Factors such as inflation, interest rates, currency fluctuations, trade barriers, tariffs, war, civil unrest, and other political and economic developments and their impact on global economic conditions have in the past and may in the future negatively impact our business.

In particular, demand for our services has substantially declined in China and may continue to decline further due to lower economic growth and as a result of Chinese regulatory mandates that make it more difficult to register a domain name or establish an online presence using a domain name.

The overall economic impact, severity and duration of these conditions, as well as the timing, strength, and sustainability of any future economic growth or recovery, are not known at this time, and are not within the Company’s control.

We face competition from services that provide an online identity or presence, including other gTLDs and ccTLDs.

In order to remain competitive, we must continually demonstrate the security, stability, and resiliency of our services and must adopt and support new technologies to adapt our services to changing cybersecurity threats, regulations, application environments, market conditions, and our customers’ and internet users’ preferences and practices.

Also to remain competitive, we have undertaken important initiatives such as our efforts to acquire the .web gTLD, and we may in the future undertake other important initiatives.

Any of these initiatives require significant resources, can subject us to regulatory scrutiny and/or negative publicity, and divert management attention from our existing business.

Such undertakings, including our efforts to acquire the .web gTLD, may be unsuccessful and costly.

Finally, consolidation within our industry has occurred and is likely to continue to occur.

We have been designated as the registry operator for certain new gTLDs, including certain IDN gTLDs.

Our new gTLDs may not be as or more successful than the new gTLDs obtained by our competitors.

See the “Competition” section in Part I, Item 1 of this Form 10-K for further information.

Strategic, Business and Operating Risk Factors

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To the extent that alternative namespaces introduce user confusion about the relationship between identical or similar-looking identifiers in these namespaces and domain names in the DNS, demand for domain names and user confidence in the value of domain names as unique identifiers could also be negatively impacted.

In addition, applications using artificial intelligence could be transformational in ways that cannot be predicted at this time.

To the extent such applications impact the demand for domain names, it could have a material impact on our business.

Some registrars and registrants purchase and resell domain names at an increased price in a secondary market.

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Some registrars and registrants seek to generate revenues by registering domain names specifically for website advertising.

Changes in the way these registrars and registrants are compensated (including changes in methodologies and metrics) by advertisers and advertisement placement networks, such as Google, Baidu and Bing, have adversely affected, and may continue to adversely affect the market for domain names used for this purpose, which has resulted in, and may continue to result in, a decrease in demand and/or the renewal rate for such domain names.

result in, a decrease in demand and/or the renewal rate for such domain names.

In addition, if spending on online advertising and marketing is reduced, this may result in a further decline in the demand for domain names used for this purpose.

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Despite our precautions, it may be possible for an external party to copy or otherwise obtain and use our intellectual property without authorization.

Furthermore, the laws of other countries may not protect our proprietary rights in those countries to the same

Furthermore, the laws of other countries may not protect our proprietary rights in those countries to the same extent U.S.

law protects these rights in the U.S.

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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-K

Item 1A. Risk Factors