What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-04-24 compared with 2024-10-24 · 81 added, 72 removed, 119 unchanged (56% of the section changed)

2 unchanged sentences

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

These forward-looking statements are based on current expectations and assumptions and involve risks and uncertainties, including, among other things, statements regarding our expectations about the sufficiency of our existing cash, cash equivalents and marketable securities, and funds generated from operations, together with our borrowing capacity under the unsecured revolving credit facility.

These forward-looking statements are based on current expectations and assumptions and involve risks and uncertainties, including, among other things, statements regarding the Company’s dividend program and our expectations about the sufficiency of our existing cash, cash equivalents and marketable securities, and funds generated from operations, together with our borrowing capacity under the unsecured revolving credit facility.

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

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 I, Item 1A of the 2023 Form 10-K.

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.

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 2025.

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

As of September 30, 2024, we had 169.6 million .com and .net registrations in the domain name base.

As of March 31, 2025, we had 169.8 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.

The number of domain name registrations under our management may be negatively impacted by certain factors, including overall economic conditions, competition from country code top-level domains (“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 country code top-level domains (“ccTLDs”), other gTLDs, services that offer alternatives for an online presence, such as social media and artificial intelligence, 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.

Business Highlights and Trends

• 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.

• We recorded revenues of $402.3 million during the three months ended March 31, 2025, which represents an increase of 5% compared to the same period in 2024.

• We recorded operating income of $271.2 million during the three months ended March 31, 2025, which represents an increase of 5% compared to the same period in 2024.

• As of March 31, 2025, we had 169.8 million .com and .net registrations in the domain name base, which represents a 1.5% decrease from March 31, 2024, and a net increase of 0.8 million domain name registrations from December 31, 2024.

• During the three months ended March 31, 2025, we processed 10.1 million new domain name registrations for .com and .net compared to 9.5 million for the same period in 2024.

• The final .

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

net renewal rate for the fourth quarter of 2024 was 74.0% compared to 73.2% for the fourth 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 $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.

• We generated cash flows from operating activities of $291.3 million during the three months ended March 31, 2025, compared to $257.3 million for the same period in 2024.

• During the three months ended March 31, 2025, we repurchased 1.0 million shares of our common stock for an aggregate cost of $229.9 million.

As of March 31, 2025, there was $792.7 million remaining for future share repurchases under the share repurchase program.

• On March 11, 2025, we issued $500.0 million of 5.25% senior notes due June 1, 2032.

On March 31, 2025, we used the net proceeds from the 2032 Notes, along with cash on hand, to fund the repayment of all of our $500.0 million aggregate principal amount of outstanding 5.25% senior notes due April 1, 2025.

• On April 23, 2025, our Board of Directors declared a cash dividend of $0.77 per share of our outstanding common stock to stockholders of record as of the close of business on May 19, 2025, payable on May 28, 2025.

We intend to continue to pay a cash dividend on a quarterly basis, subject to market conditions and approval by our Board of Directors.

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 September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Three Months Ended March 31,

Revenues 100.0 % 100.0 %

18 unchanged sentences

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.

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.

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.

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 current such six-year period began on October 26, 2024.

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

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

Under the .net Registry Agreement, 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 $9.92 to $10.91 effective February 1, 2024.

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

A comparison of revenues is presented below:

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

2024 % Change 2023 2024 % Change 2023

Three Months Ended March 31,

2025 % Change 2024

(Dollars in millions)

1 unchanged sentence

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

September 30, 2024 % Change September 30, 2023

March 31, 2025 % Change March 31, 2024

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

169.8 million (2)% 172.5 million

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.

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 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.

Revenues increased during the three months ended March 31, 2025, as compared to the same period last year, primarily due to the .

net price increases, partially offset by a decline in the .com and .net domain name base.

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 and artificial intelligence, ongoing changes in internet practices and behaviors of consumers and businesses, 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 has remained strong, challenging economic and regulatory conditions weakened demand for .

net domain name registrations in China, and some registrars, particularly in the U.S., shifted their focus to increasing profitability through higher retail pricing and decreasing marketing activities targeting new customer acquisition during 2024.

The combination of these factors negatively impacted our renewal rates and the volume of new domain name registrations, resulting in a decline in our domain name base during 2024.

These business conditions began to improve at the end of 2024 and have continued into the first quarter of 2025 resulting in an increase in both new registrations and renewal rates.

While still early, we are seeing more focus from registrars on customer acquisition and some early engagement from registrars with our marketing programs.

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 our geographic revenues:

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

2024 % Change 2023 2024 % Change 2023

Three Months Ended March 31,

2025 % Change 2024

(Dollars in millions)

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EMEA 67.0 11% 60.3

China 19.7 (10)% 22.0 60.2 (15)% 71.0

44.4 (1)% 44.9

Other 24.8 4% 23.8

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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 nine months ended September 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.

and EMEA, while revenue in APAC decreased slightly during the three months ended March 31, 2025 compared to the same period in 2024.

The decline in revenues from registrars based in APAC was due to lower demand in China where revenues decreased by 7% compared to the prior period.

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:

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

2024 % Change 2023 2024 % Change 2023

Three Months Ended March 31,

2025 % Change 2024

(Dollars in millions)

Cost of revenues $ 49.4 1% $ 49.1

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.

Telecommunication expenses decreased by $3.3 million primarily due to savings on renewals of colocation agreements.

Cost of revenues remained consistent during the three months ended March 31, 2025, compared to the same period last year.

Research and development

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A comparison of research and development expenses is presented below:

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

2024 % Change 2023 2024 % Change 2023

Three Months Ended March 31,

2025 % Change 2024

(Dollars in millions)

Research and development $ 26.0 5% $ 24.8

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.

Research and development expenses increased slightly during the three months ended March 31, 2025, compared to the same period last year, due to a combination of individually insignificant factors.

Selling, general and administrative

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

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

2024 % Change 2023 2024 % Change 2023

Three Months Ended March 31,

2025 % Change 2024

(Dollars in millions)

Selling, general and administrative $ 55.7 8% $ 51.5

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

Selling, general and administrative expenses increased during the three months ended March 31, 2025, compared to the same period last year, primarily due to an increase in compensation and benefits expenses, including stock-based compensation expenses.

Compensation and benefits expenses, including stock-based compensation expenses, increased by $3.8 million, primarily due to higher expenses for certain employee health insurance related benefits, annual salary increases, and an increase in the total projected achievement levels on certain performance-based RSU grants.

Interest expense

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

Interest expense increased slightly during the three months ended March 31, 2025, compared to the same period last year, due to interest accrued on the 2032 Notes issued on March 11, 2025.

Non-operating income, net

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.

Non-operating income decreased during the three months ended March 31, 2025, compared to the same period last year, primarily due to a decrease in interest income as a result of lower amounts invested in debt securities in the current period and slightly lower interest rates on the Company’s investments in debt securities.

Income tax expense

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

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

2024 2023 2024 2023

Three Months Ended March 31,

(Dollars in millions)

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The following table presents our principal sources of liquidity:

September 30, December 31,

March 31, December 31,

(In millions)

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

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

As of March 31, 2025, all of our debt securities have contractual maturities of less than one year.

Our cash and cash equivalents are readily accessible.

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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.

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.

During the three months ended March 31, 2025, we repurchased 1.0 million shares of our common stock for an aggregate cost of $229.9 million.

As of March 31, 2025, there was approximately $792.7 million remaining available for future share repurchases under the share repurchase program.

On March 11, 2025, we issued $500.0 million of 5.25% senior notes due June 1, 2032.

As of March 31, 2025, we also had $750.0 million principal amount outstanding of 2.70% senior unsecured notes due 2031 and $550.0 million principal amount outstanding of 4.75% senior unsecured notes due 2027.

As of March 31, 2025, we had no outstanding borrowings and $200.0 million in borrowing capacity under our credit facility which matures in 2028.

On April 23, 2025, our Board of Directors declared a cash dividend of $0.77 per share of our outstanding common stock to stockholders of record as of the close of business on May 19, 2025, payable on May 28, 2025.

We intend to continue to pay a cash dividend on a quarterly basis, subject to market conditions and approval by our Board of Directors.

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, fund our dividend program, and to service our debt for the next 12 months and beyond.

We regularly assess our cash management approach and activities in view of our current and potential future needs.

Our cash requirements have not changed materially since the 2024 Form 10-K.

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

Nine Months Ended September 30,

In summary, our cash flows for the three months ended March 31, 2025 and 2024 were as follows:

Three Months Ended March 31,

(In millions)

Net cash provided by operating activities $ 291.3 $ 257.3

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

Net cash provided by investing activities 317.6 496.4

Net cash used in financing activities (239.9) (261.6)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash (0.3) (0.4)

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 27.2 $ (216.0)

Net increase in cash, cash equivalents, and restricted cash $ 368.7 $ 491.7

Cash flows from operating activities

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Our primary uses of cash from operating activities are for personnel-related expenditures and other general operating expenses, as well as payments related to taxes, interest and facilities.

Net cash provided by operating activities increased 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.

Net cash provided by operating activities increased during the three months ended March 31, 2025, compared to the same period last year, primarily due to an increase in cash received from customers, partially offset by increases in cash paid for interest and cash paid for income taxes.

Cash received from customers increased primarily due to the .

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 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.

net price increases and higher .

com domain name registrations and renewals.

Cash paid for interest increased due to the payment of interest accrued on our 2025 Notes in March 2025, prior to their maturity date of April 1, 2025.

Cash paid for income taxes increased primarily due to comparatively higher non-US income tax payments.

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.

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.

Net cash provided by investing activities decreased during the three months ended March 31, 2025, compared to the same period last year, primarily due to a decrease 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 nine months ended September 30, 2024, compared to the same period last year, due to an increase in share repurchases.

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

Net cash used in financing activities decreased during the three months ended March 31, 2025, compared to the same period last year, primarily due to proceeds received from the issuance of our 2032 Notes and a decrease in share repurchases, partially offset by the repayment of our 2025 Notes.

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