Appendix C
Notes and Assumptions to Significant Financial Projection Model Items
FINANCIAL PROJECTIONS
The following are supplemental notes and assumptions, for each Confidence Level, for significant revenue and expense items contained in the financial model projections. The financial model consists of the following financial schedules:
| Schedule A: Summary Profit & Loss Statement, Balance Sheet, and Cash Flow Statement with Annual Summaries | |
| Schedule B: Detailed Revenue Model, Detailed Profit & Loss Statement, and Balance Sheet | |
| Schedule C: Headcount and Expenses Detail | |
| Schedule D: Capital Expenditures and forecast depreciation and amortization tables | |
| Schedule E: Revenue Accrual Tables (Revenue Waterfall) | |
| Schedule F: Registry Fee Accrual Tables (Core Registry Fee Waterfall) | |
| Schedule G: Annual Anniversary Payments Schedule for Core Registry Fees and ICAAN Cost Recovery Fees | |
| Schedule H: First Year Registration Demand and Marketing Spend Projections | |
| Schedule I: Summary Technology Systems Development and Support Staffing and Equipment Leasing |
| Item | 10% Confidence Level | 50% Confidence Level | 90% Confidence Level | |||
| GENERAL: | ||||||
| Projection Time Horizon | 5 Years | 5 Years | 5 Years | |||
| Basis | Monthly with Annual Totals and Annual Summary | Monthly with Annual Totals and Annual Summary | Monthly with Annual Totals and Annual Summary | |||
| Registry Operations | The 10% Confidence Level projections assume that physical registry infrastructure and operations are sub-contracted to a third-party in years 1-2. In Year 3, the projections assume registry infrastructure and operations are performed "in-house". | The 50% Confidence Level projections assume that physical registry infrastructure and operations are sub-contracted to a third-party in years 1-2. In Year 3, the projections assume registry infrastructure and operations are performed "in-house". | The 90% Confidence Level projections assume that physical registry infrastructure and operations are sub-contracted to a third-party for the entire projection horizon, years 1-5. In this scenario, management has concluded that the lower registration volumes and resulting economics indicate that the optimal operating structure for the registry is the sub-contracting configuration. | |||
| REVENUE MODEL: | ||||||
| New Registrations | New registrations projections have been established in part based on the level of marketing spend and support contemplated by the consortium and participating registrars. Generally, a base or "steady-state" estimate of new domain registrations has been estimated. A multiple of this base estimate is used to calculate projected activity in the "Sunrise" period and initial start-up period for the new TLD. Monthly growth rates corresponding to each confidence level have been applied to the base registrations estimated to arrive registration activity for all other periods | Same | Same | |||
| Registration Term | All confidence level projections assume that initial registrations will be offered for a period of 2-10 years. Additionally, the projections reflect offering a mandatory, initial 5-year registration for intellectual property owners during the "Sunrise" period. Furthermore, the projections assume that renewal terms offered are 1-10 years. | Same | Same | |||
| Use of Weighted Averages in Registration / Renewal Term Projections | Projections for all confidence
levels utilize weighted average
registrations periods based on
historical activity and the planned
registration terms to be offered.
The weighted average approach
assigns to each registration term
offered a percentage that it is
expected that the registration term
will represent of total registrations.
For all confidence levels, average
registration periods have been
estimated as follows:
|
Same | Same | |||
| Domain Years | Domain years, as used in the revenue model, is the product of the total number of registrations and/or renewals and the weighted average registration / renewal term. This factor effectively represents sales units or the number of registration years sold in any given period. | Same | Same | |||
| Renewable Rate | Projections at the 10% confidence level assume a renewal rate of 80%. | Projections at the 50% confidence level assume a renewal rate of 70%. | Projections at the 90% confidence level assume a renewal rate of 60%. | |||
| Registration Revenue (Cash) Vs Registration Revenue (Actual | Registration Revenue (Cash) represents the cash proceeds received in the period (domain years x the per year, per name registration price). Registration Revenue (Accrual) represents the amount of revenue recognized under Generally Accepted Accounting Principals (GAAP), where revenues are recognized in the period they are earned, for financial reporting purposes. | Same | Same | |||
| Revenues from Domain Name Transfers | The projections assume that transfers of domain names between registrars generates a registration fee at the time of transfer. The projections further assume that on average, this activity will occur prior to the expiration of a registration term and, on average, will result in an incremental revenue yield equating to 0.5 years registration fee. The projections reflect the cash received from transfer activity as well as the recognized accrual basis revenue attributable to transfer activity. | Same | Same | |||
| SIGNIFICANT OPERATING COST ITEMS: | ||||||
| ICANN Cost Recovery Fee | The projections assume a cost recovery fee to be remitted to ICANN is charged per domain name, per annum. The fee is effectively treated as a pass-through item. The fee is collected based on the number of domain names purchased. Payment to ICANN is made on a yearly basis, payable on the anniversary date of a domain registration. | Same | Same | |||
| Core Registry Fee | Core Registry Fee represents the per name, per year fee charged by the registry operator (sub-contracted technology provider). The fee is payable on an annual basis on the anniversary period of a domain name. Pricing is based on negotiations with several third-party technology providers and is constant at each confidence level. Within the model, Core Registration Fee (Cash) represents total cash outflow, which is effectively a 1 year pre-payment of this fee to the technology provider. Core Registration Fee (Accrual) in the model represents the amount of Core Registry Fees recognized for financial reporting purposes under GAAP. This fee is relevant to the projections for this confidence level only in years 1-2, since the projections assume this function is performed "in-house" in year 3. | Same.
This fee is relevant to the projections for this confidence level only in years 1-2, since the projections assume this function is performed "in-house" in year 3. |
Same.
This fee is relevant to the projections for this confidence level for the entire projections horizon since the projections assume that the function will be outsourced for years 1-5. | |||
| Equipment Operating Leases | In accordance with the planned build out of an internal registry infrastructure the projections include lease costs associated with the equipment required. Based on the estimates obtained, these leases do not qualify as capital leases and thus, are not reflected on the balance sheets. Under the 10% confidence level, operating lease charges begin late in Year 2. A summarized equipment / operating lease list is contained in Schedule I of the financial projections. | Same | Not applicable to this Confidence Level, since relevant to the 90% confidence level assume a sub-contracting of the registry infrastructure model assumes to a third-party technology provider. | |||
| Satellite Offices | The financial projections assume the deployment of at least 1-2 satellite operations to provide better geographic coverage and provisioning of the registry operator services. With the exception of the specific headcount associated with the planned satellite offices, other costs are not explicitly delineated in the financial projections, but are accounted for by the model. 10% confidence level includes 2 satellite offices. | Same. 50% Confidence level contemplates 2 satellite offices. | Same. 90% confidence level anticipates 1 satellite office. | |||
| OTHER NOTABLE ITEMS: | ||||||
| Treatment of Income Taxes | Projections regarding estimated Income Taxes, made at a standard 40% against accrual financial statements, are likely to be materially understated, resulting from the substantial unearned income under accrual financial accounting methods. The estimated taxes do not reflect any attempt to re-state the financial accounting to a cash basis which would better estimate tax liability for such an operation. | Same | Same | |||
| Equity Contribution | The projections include the financial contribution of member registrars of $4.79 million. | Same | Same |