GoDaddy Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. GoDaddy provides domain registration, hosting, website, commerce, productivity and related services through Applications & Commerce (A&C) and Core Platform (Core). Figures are unaudited and in U.S. dollars.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1,048.1M | $1,015.5M | $2,084.1M | $2,018.2M |
| Operating income | $119.6M | $124.6M | $190.4M | $234.2M |
| Net income | $83.1M | $90.5M | $130.5M | $159.1M |
| Diluted EPS | $0.54 | $0.56 | $0.84 | $0.97 |
| Normalized EBITDA (non-GAAP) | $264.6M | $258.4M | $514.3M | $484.3M |
- Q2 revenue rose 3.2% (approximately 4.1% in constant currency). A&C grew 10.9% to $351.7M, led by productivity, website and commerce products; Core declined 0.3% to $696.4M. Core softness included hosting and aftermarket, partly offset by domain growth.
- Q2 operating margin was 11.4%, versus 12.3% a year earlier; net margin was 7.9%, versus 8.9%. Higher cost of revenue, technology spending, interest and restructuring charges weighed on GAAP earnings. Q2 interest expense increased 31% to $45.6M.
- Bookings increased 2.0% to $1,141.1M in Q2; annualized recurring revenue was $3,619.6M, total customers were 21.0M and average revenue per user was $199.
- For the six months, operating cash flow was $468.3M, down from $501.8M. Investing cash outflow was $52.0M and financing cash outflow was $608.3M, primarily reflecting $611.7M of cash share repurchases. Cash declined $191.4M to $582.6M.
Financial position and changes
- At June 30, cash and cash equivalents were $582.6M; current assets were $1,411.8M and current liabilities were $2,616.6M. Current liabilities include $2,081.4M of deferred revenue, reflecting advance customer payments.
- Debt principal totaled $3,888.7M, compared with $3,901.3M at year-end 2022; carrying value, net of discounts and issuance costs, was $3,824.2M including current debt. Cash less principal debt implies net debt of approximately $3.31B. The company had $999.2M available on its revolving facility and reported compliance with debt covenants.
- Compared with year-end 2022, cash fell $191.4M, total assets decreased to $6,793.9M from $6,973.5M, and stockholders’ deficit widened to $664.5M from $329.3M. Deferred revenue increased to $2,880.9M, current and noncurrent combined.
- Q2 share repurchases totaled 7.019M shares. For the six months, the company repurchased 8.572M shares for an aggregate purchase price of $621.6M. At quarter-end, $1,078.3M remained under the then-current authorization.
Outlook, notable items and risks
- The filing provides no specific numeric revenue or earnings guidance. Management said existing cash and operating cash flows should cover anticipated operating needs for at least 12 months, while noting future capital needs depend on growth, investment, acquisitions and repurchases.
- In February, GoDaddy announced a restructuring that included reducing its workforce by approximately 550 employees, or 8%, and selling certain Core hosting assets and liabilities. Six-month restructuring and other expense was $69.8M, including a $16.8M disposal loss and a $17.0M charge to terminate a revenue-sharing agreement. The asset sale generated $12.4M net proceeds. Management expected up to $1.5M of additional restructuring charges, primarily in Q3, with no further charges expected beyond Q4 2023.
- Interest expense rose as rates on variable-rate debt increased. The company uses interest-rate and currency hedges; it amended loan terms to transition certain borrowings from LIBOR to SOFR and, in July, amended the facility to refinance its 2029 term loans.
- In August 2023, the board approved an additional $1.0B of repurchase authority, bringing total approved authority to $4.0B through 2025. This is a subsequent event, not a June 30 liquidity balance.
- Key disclosed risks include uncertain macroeconomic conditions and customer demand, competitive pressure, execution and potential disruption from restructuring and cloud migration, substantial debt and variable interest rates, and cybersecurity, privacy and regulatory exposure. GoDaddy described prior security incidents, including a 2021 Managed WordPress incident affecting up to 1.2M active and inactive customers, and said related inquiries and investigations remain uncertain.
- Legal contingencies include an unresolved appeal concerning a TCPA class-action settlement; the company did not change its $8.1M estimated loss provision at quarter-end. It also reported ongoing FTC information requests related to security practices. The ultimate timing and outcomes are uncertain.
Important facts for investors to verify
- Whether A&C growth and customer adoption can offset continued weakness in Core hosting and aftermarket products.
- Whether bookings and deferred revenue translate into sustained recognized revenue, and how foreign exchange and macroeconomic conditions affect demand.
- Debt refinancing terms, effective borrowing costs, cash interest requirements and covenant headroom, alongside ongoing repurchases.
- Whether restructuring delivers expected cost and cash-flow benefits without operational disruption or additional costs.
- Updates on cybersecurity matters, FTC inquiries and the TCPA settlement appeal, including any material change in potential financial exposure.