What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-13 compared with 2024-02-15 · 69 added, 72 removed, 166 unchanged (46% of the section changed)

17 unchanged sentences

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, 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.

The number of domain name registrations under our management may be negatively impacted by certain factors, including overall economic conditions, competition from ccTLDs, other gTLDs, services that offer alternatives for an online presence, such as social media, and ongoing changes in the internet practices and behaviors of consumers and businesses.

Factors such as the evolving practices and preferences of internet users, and how they navigate the internet, as well as the motivation of domain name registrants and how they will manage their investment in domain names, can negatively impact our business and the demand for new domain name registrations and renewals.

2024 Business Highlights and Trends

• We recorded revenues of $1,493.1 million in 2023, which represents an increase of 5% compared to 2022.

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

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

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

• We repurchased 4.2 million shares of our common stock for an aggregate cost of $882.8 million in 2023.

• We repurchased 6.6 million shares of our common stock for an aggregate cost of $1.21 billion in 2024.

As of December 31, 2024, there was $1.02 billion remaining for future share repurchases under the share repurchase program.

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

• During 2023, we recognized $69.3 million of income tax benefits related to a step-up in tax basis of certain non-U.S.

intellectual property, recognition of previously unrecognized income tax benefits as the related statutes of limitations lapsed, and a beneficial change in certain state income apportionment rules.

• On June 29, 2023, we renewed the .

net Registry Agreement with ICANN, pursuant to which we will remain the sole registry operator for the .

net registry through June 30, 2029.

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

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

• Effective September 1, 2024, we increased the annual registry-level wholesale fee for each new and renewal .

com domain name registration from $9.59 to $10.26.

• On November 25, 2024, we renewed the .

com Registry Agreement with ICANN, pursuant to which we will remain the sole registry operator for the .

com registry through November 30, 2030.

Pursuant to the renewed .

com Registry Agreement, we cannot increase the price of a .

com domain name registration during the first two years of the six year contract term.

Critical Accounting Estimates

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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 11, “Income Taxes” of our Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for additional information.

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Interest expense (4.8) (5.0) (5.3)

Non-operating income (loss), net 3.4 0.9 (0.1)

Non-operating income, net 2.5 3.4 0.9

Income before income taxes 65.6 65.4 61.8

Income tax (expense) benefit (10.6) (14.5) 0.2

Income tax expense (15.2) (10.6) (14.5)

Net income 50.4 % 54.8 % 47.3 %

Our revenues are primarily derived from registrations for domain names in the .com and .net domain name registries.

We also derive revenues from operating domain name registries and technical systems for several other gTLDs and ccTLDs, all of which are not significant in relation to our consolidated revenues.

We also derive revenues from operating domain name registries and technical systems for several other gTLDs and one ccTLD, all of which are not significant in relation to our consolidated revenues.

For domain names registered in the .com and .net registries, we receive a fee from registrars per annual registration that is determined pursuant to our agreements with ICANN.

Individual customers, called registrants, contract directly with registrars or their resellers, and the registrars, who are our direct customers, in turn register the domain names with Verisign.

Changes in revenues are driven largely by changes in the number of new domain name registrations and the renewal rate for existing registrations as well as the impact of new and prior price increases, to the extent permitted by ICANN and the DOC.

extent permitted by ICANN and the DOC.

New registrations and the renewal rate for existing registrations are impacted by continued growth in online advertising, e-commerce, and the number of internet users, as well as marketing activities carried out by us and our registrars.

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

com Registry Agreement, we are permitted to increase the price of a .com domain name registration by up to 7% in each of the final four years of each six-year period beginning on October 26, 2018.

In November 2024, we renewed the .

com Registry Agreement with ICANN, pursuant to which we will remain the sole registry operator for the .

com registry through November 30, 2030.

com Registry Agreement, we are permitted to increase the price of a .com domain name registration by up to 7% in each of the final four years of each six-year period.

The first such six-year period began on October 26, 2018.

We increased the annual registry-level wholesale fee for each new and renewal .

com domain name registration from $8.97 to $9.59 effective September 1, 2023, and from $9.59 to $10.26 effective September 1, 2024.

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

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

Effective February 1, 2023, we increased the annual registry-level wholesale fee for each new and renewal .net domain name registration from $9.02 to $9.92.

In June 2023, we entered into a renewal of the .net Registry Agreement with ICANN, pursuant to which we will remain the sole registry operator for the .net registry through June 30, 2029.

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, 2029.

Effective February 1, 2024, we increased the annual registry-level wholesale fee for each new and renewal .

net domain name registration from $9.92 to $10.91.

Under the .net Registry Agreement, which renewed in June 2023, we are permitted to increase the price of .net domain name registrations by up to 10% each year during the term of our agreement with ICANN, through June 30, 2029.

We increased the annual registry-level wholesale fee for each new and renewal .net domain name registration from $9.02 to $9.92 effective February 1, 2023, and from $9.92 to $10.91 effective February 1, 2024.

All fees paid to us for .com and .net registrations are in U.S.

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169.0 million (2) % 172.7 million (1) % 173.8 million

Revenues increased in 2023 compared to 2022, primarily due to an increase in revenues from the operation of the registries for the .

net gTLDs driven by the .

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

net price increase that became effective February 1, 2023.

The increase in revenue was partially offset by the elimination of revenue from the operation of the .tv ccTLD, which was transitioned to another service provider in the fourth quarter of 2022.

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.

Revenues increased in 2024 compared to 2023, primarily due to the .

net price increases, partially offset by a decline in the .

net domain name base, and the elimination of revenue from the operation of the .

gov gTLD, which was transitioned to another service provider in the fourth quarter of 2023.

Demand for .com and .net domain names has been primarily driven by continued internet growth and marketing activities carried out by us and our registrars.

However, competitive pressure from ccTLDs, other gTLDs, services that offer alternatives for an online presence, such as social media, ongoing changes in internet practices and behaviors of consumers and business, as well as the motivation of existing domain name registrants managing their investment in domain names, such as for resale at increased prices or for revenue generation through website advertising, and global economic conditions, has limited the demand for .com and .net domain names and may continue to do so in the future.

While the core value proposition of a domain name remains strong, challenging economic and regulatory conditions have continued to weaken demand for .com and .net domain name registrations in China, and some registrars, particularly in the U.S., have shifted their focus to increasing profitability through higher retail pricing and a decrease in marketing activities targeting new customer acquisition.

The combination of these factors has negatively impacted our renewal rates and the volume of new .com and .net domain name registrations, resulting in a decline in our domain name base.

Geographic revenues

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Europe, the Middle East and Africa (“EMEA”);

and certain other countries, including Canada, Japan and Singapore.

Australia, China, Japan, Singapore, and other Asia Pacific countries (“APAC”);

and certain other countries, including Canada and Latin American countries.

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

4 unchanged sentences

EMEA 249.6 9 % 228.2 1 % 226.0

China 91.6 (14) % 106.0 4 % 101.7

175.7 1 % 174.8 4 % 167.7

Other 96.6 1 % 95.4 2 % 93.6

3 unchanged sentences

Revenue growth for each region may be impacted by registrars reincorporating, relocating, or from acquisitions or changes in affiliations of resellers.

Several such changes benefited revenues in the U.S.

and negatively impacted revenues in EMEA during the year ended December 31, 2023.

Revenue growth for each region may also be impacted by registrars domiciled in one region, registering domain names in another region.

The majority of our revenue growth was generated from registrars based in the U.S.

and certain other countries, while revenues from registrars based in China declined during 2023 compared to 2022 due to the lower demand noted above.

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

Cost of revenues

Cost of revenues 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.

Cost of revenues consists primarily of salaries and employee benefits expenses for our personnel who manage the operational systems, depreciation expenses, operational costs associated with the delivery of our services, fees paid to ICANN, customer support and training, costs of facilities and computer equipment used in these activities, telecommunications expense and allocations of indirect costs such as corporate overhead.

A comparison of cost of revenues is presented below:

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Cost of revenues $ 191.4 (3) % $ 197.3 (2) % $ 200.7

Cost of revenues decreased in 2023 compared to 2022 primarily due to decreases in registry fees, depreciation expenses, and telecommunication expenses, partially offset by increases in compensation and benefits expenses and allocated overhead expenses.

Registry fees decreased by $4.3 million due to the transition of the operation of the registry for the .tv ccTLD to another service provider in the fourth quarter of 2022.

Depreciation expenses decreased by $2.7 million due to a decrease in capital expenditures in recent periods, particularly in 2022.

Cost of revenues decreased in 2024 compared to 2023 primarily due to decreases in depreciation expenses and telecommunication expenses, partially offset by an increase in compensation and benefits expenses and a combination of other individually insignificant factors.

Depreciation expenses decreased by $7.4 million due to a decrease in capital expenditures in recent periods.

Telecommunication expenses decreased by $3.9 million primarily due to savings on renewals of colocation agreements.

Compensation and benefits expenses increased by $3.9 million due to salary increases and an increase in average headcount.

Allocated overhead expenses increased by $2.4 million due to an increase in total allocable expenses.

Compensation and benefits expenses increased by $2.6 million primarily due to annual salary increases.

Research and development

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Research and development $ 96.7 6 % $ 91.0 6 % $ 85.7

Research and development expenses increased in 2023 compared to 2022 primarily due to a decrease in capitalized labor and a combination of several other individually insignificant factors.

Capitalized labor decreased by $2.9 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 in 2024 compared to 2023 primarily due to an increase in compensation and benefit expenses and a combination of several other individually insignificant factors.

Compensation and benefits expenses increased by $3.0 million primarily due to annual salary increases.

Selling, general and administrative

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Selling, general and administrative $ 211.1 3 % $ 204.2 4 % $ 195.4

Selling, general and administrative expenses increased in 2023 compared to 2022 primarily due to increases in compensation and benefits expenses and several other individually insignificant factors, partially offset by an increase in overhead expenses allocated to other cost types.

Compensation and benefits expenses increased by $5.4 million due to salary increases and an increase in average headcount.

Among other individually insignificant factors, expenses related to travel, contractors and professional services and equipment and software, cumulatively increased by $4.7 million.

Selling, general and administrative expenses increased in 2024 compared to 2023 primarily due to increases in compensation and benefits expenses, equipment and software expenses and professional services expenses, partially offset by an increase in overhead expenses allocated to other cost types.

Compensation and benefits expenses increased by $4.4 million primarily due to annual salary increases.

Equipment and software expenses increased by $3.6 million primarily due to increases in expenses related to network security and other software services.

Professional services expenses increased by $2.9 million primarily due to an increase in external consulting costs related to various projects.

Overhead expenses allocated to other cost types increased by $3.1 million due to an increase in total allocable expenses.

1 unchanged sentence

Interest expense remained consistent during 2024 compared to 2023.

Non-operating income (loss), net

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

Income tax expense (benefit)

Non-operating income, net

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

Income tax expense

Year Ended December 31,

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(Dollars in millions)

Income tax expense (benefit) $ 158.9 $ 206.4 $ (2.6)

Income tax expense

$ 236.2 $ 158.9 $ 206.4

Effective tax rate 23 % 16 % 23 %

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As of December 31, 2024, we had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $282.2 million, net of valuation allowances, but before the offset of certain deferred tax liabilities.

With the exception of

deferred tax assets related to intellectual property, certain state and foreign net operating loss and foreign tax credit carryforwards, we believe it is more likely than not that the tax effects of the deferred tax liabilities, together with future taxable income, will be sufficient to fully recover the remaining deferred tax assets.

With the exception of a portion of deferred tax assets related to intellectual property, certain state and foreign net operating loss and foreign tax credit carryforwards, we believe it is more likely than not that the tax effects of the deferred tax liabilities, together with future taxable income, will be sufficient to fully recover the remaining deferred tax assets.

The income tax expense for 2024 includes the impact of the OECD Pillar 2 minimum tax adopted by applicable tax jurisdictions.

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

Liquidity and Capital Resources

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Effective July 25, 2024, our Board of Directors authorized the repurchase of our common stock in the amount of $1.11 billion, in addition to the $388.0 million that remained available for repurchases under the share repurchase program, for a total repurchase authorization of up to $1.50 billion under the program.

In 2023, we repurchased 4.2 million shares of our common stock at an average stock price of $210.28 for an aggregate cost of $882.8 million under our share repurchase program.

In 2022, we repurchased 5.5 million shares of our common stock at an average stock price of $187.07 for an aggregate cost of $1.03 billion.

In 2024, we repurchased 6.6 million shares of our common stock at an average stock price of $183.84 for an aggregate cost of $1.21 billion under our share repurchase program.

In 2023, we repurchased 4.2 million shares of our common stock at an average stock price of $210.28 for an aggregate cost of $882.8 million.

As of December 31, 2024, there was approximately $1.02 billion remaining available for future share repurchases under the share repurchase program.

As of December 31, 2023, 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.

In December 2023, we entered into a new $200.0 million unsecured revolving credit facility which takes the place of our prior unsecured revolving credit facility.

As of December 31, 2023, there were no borrowings outstanding under this credit facility, which will expire in 2028.

As of December 31, 2024, we had $750.0 million principal amount outstanding of 2.70% senior unsecured notes due 2031, $550.0 million principal amount outstanding of 4.75% senior unsecured notes due 2027, and $500.0 million principal amount outstanding of 5.25% senior unsecured notes due April 2025 (“2025 Senior Notes”).

Under existing market conditions, we intend to refinance all of our 2025 Senior Notes through the issuance of new long-term debt.

As of December 31, 2024, we had no outstanding borrowings and $200.0 million in borrowing capacity under our credit facility which matures in 2028.

If a suitable refinancing arrangement is not available due to a change in market conditions, we intend to utilize the credit facility to repay $200.0 million of the 2025 Senior Notes.

We believe existing cash, cash equivalents and marketable securities, and funds generated from operations, together with our ability to arrange for additional financing should be sufficient to meet our working capital, capital expenditure requirements, and to service our debt for the next 12 months and beyond.

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These items are detailed in Note 12, “Commitments and Contingencies” of our Notes to Consolidated Financial Statements in Item 8 of this Form 10-K.

In summary, our cash flows for 2023, 2022, and 2021 were as follows:

In summary, our cash flows were as follows:

Year Ended December 31,

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Net cash provided by operating activities $ 902.6 $ 853.8 $ 831.1

Net cash (used in) provided by investing activities (97.4) 355.7 (269.2)

Net cash provided by (used in) investing activities 286.3 (97.4) 355.7

Net cash used in financing activities (1,221.5) (889.8) (1,035.8)

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 in 2023 compared to 2022 primarily due to increases in cash received from customers and interest on investments, partially offset by an increase in cash paid for income taxes and cash paid to employees.

Net cash provided by operating activities increased in 2024 compared to 2023 primarily due to an increase in cash received from customers and a decrease in cash paid for income taxes, partially offset by an increase in cash paid to employees and vendors.

Cash received from customers increased primarily due to the impact of the .

com price increases that were effective on September 1, 2022 and September 1, 2023, changes in customer deposit balances, and the .net price increase that became effective on February 1, 2023.

Cash received from interest on investments increased due to higher interest rates on our investments in debt securities.

Cash paid for income taxes increased primarily due to comparatively higher taxable income and higher transition tax payments on accumulated foreign earnings resulting from the 2017 Tax Cuts and Jobs Act.

Cash paid to employees increased primarily due to salary increases.

com and the .net price increases.

Cash paid for income taxes decreased primarily due to comparatively lower federal and foreign income tax payments, partially offset by higher state income tax payments and a higher installment payment for the transition tax on accumulated foreign earnings resulting from the 2017 Tax Cuts and Jobs Act.

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

Cash flows from investing activities

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

We had net cash outflows from investing activities in 2023, compared to net cash inflows from investing activities in 2022, primarily due to a decrease in proceeds from maturities and sales of marketable securities, net of purchases of marketable securities and an increase in purchases of property and equipment, primarily related to the purchase of a building to be used as our future corporate headquarters.

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

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

Cash flows from financing activities

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

Net cash used in financing activities decreased in 2023 compared to 2022 primarily due a decrease in share repurchases.

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

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

Dilution from RSUs

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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 7. Management’s Discussion and Analysis