GoDaddy Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Comparisons are against Q1 2020 unless noted. GoDaddy reports as one operating segment.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $901.1 million | $792.0 million | +13.8% |
| Domains revenue | $422.7 million | $355.9 million | +18.8% |
| Hosting and presence revenue | $310.3 million | $297.2 million | +4.4% |
| Business applications revenue | $168.1 million | $138.9 million | +21.0% |
| Total bookings | $1,088.7 million | $951.1 million | +14.5% |
| Operating income / margin | $38.0 million / 4.2% | $64.4 million / 8.1% | Lower |
| Net income | $10.8 million | $43.2 million | Lower |
| Diluted EPS | $0.06 | $0.24 | Lower |
| Operating cash flow | $221.3 million | $233.3 million | −5.1% |
Revenue growth reflected customer and average-revenue-per-user growth and contributions from acquisitions. Domains under management increased to 83.6 million from 79.5 million. Total bookings, a company-defined non-GAAP operating metric, grew approximately 13.5% on a constant-currency basis; revenue grew approximately 13.4% on that basis.
Profitability weakened as operating expenses rose faster than revenue. Technology and development expense increased 39% to $186.4 million, largely reflecting acquisition-related compensation and continued product and cloud-infrastructure investment. Marketing expense rose 43% to $132.7 million as the company increased discretionary growth spending. Interest expense rose 35% to $28.7 million, mainly due to additional borrowings. Customer-care expense fell 8% to $78.6 million, partly due to the 2020 restructuring and operating efficiencies.
Cash, liquidity and debt
- Cash and cash equivalents were $1,293.1 million at March 31, up from $765.2 million at year-end 2020.
- Operating cash flow was $221.3 million; investing used $306.5 million, including $298.5 million for acquisitions; financing provided $613.7 million, including $800.0 million of senior-note proceeds and $180.1 million of settled share repurchases.
- Long-term debt had $3,945.5 million of aggregate principal outstanding, before unamortized discounts and issuance costs; the balance-sheet carrying amount was $3,899.0 million. The company had no revolver borrowings and $600 million of available revolving capacity. It reported compliance with debt covenants.
- In February, GoDaddy issued $800 million of 3.50% senior notes due 2029, retaining proceeds for general corporate purposes. In March, it refinanced the 2027 term loans to reduce interest-rate margins by 0.5 percentage point.
- Current liabilities exceeded current assets, which included $1,806.2 million of current deferred revenue. Deferred revenue totaled $2,568.5 million and represents future performance obligations, not cash-free earnings.
- Management said cash and cash generated by operations should meet anticipated operating cash needs for at least the next 12 months, while noting that acquisitions or repurchases could require additional capital.
Material changes, outlook and risks
- Acquisitions: GoDaddy completed its $297.7 million cash acquisition of Poynt in February to expand commerce capabilities. It also paid $29.4 million of acquisition-related compensation expense; up to $45 million of further compensatory payments are conditional on performance and employment over three years. Preliminary allocation included $240.6 million of goodwill.
- Capital returns: Q1 share repurchases totaled $195.1 million, including unsettled amounts. In May, the board authorized an additional $775 million program. The filing states approximately $1 billion remained available for repurchases as of the filing date; repurchases are discretionary.
- Subsequent acquisitions: In April, the company signed four acquisition agreements for approximately $220 million cash at closing, plus approximately $13 million in deferred cash payments and a possible earn-out of up to $12 million. One acquisition had closed by April 12; the others were expected to close in Q2, subject to customary conditions.
- COVID-19: Management said the pandemic had not materially affected results to date, but its future effect remained uncertain. Nearly all employees were working remotely through at least June 2021; remote work increased cybersecurity risk. The company cited weaker demand for some higher-priced services and the 2020 restructuring of U.S. outbound sales operations.
- Other risks and contingencies: Key risks include competition, customer retention and renewal rates, acquisitions and integration, substantial indebtedness, cyber and privacy incidents, cloud migration and service reliability, foreign-currency exposure, and regulatory or tax changes. A TCPA class-settlement appeal remained pending; the company maintained an $8.1 million provision and made no Q1 change. Other accrued legal matters were not material, according to the filing.
- Tax item: Management said improved results could support release of substantially all federal and state valuation allowances in 2021, potentially producing a non-cash tax benefit; this was an expectation, not a commitment. Gross unrecognized tax benefits were $55.5 million.
- Leadership: The CFO and Chief Legal Officer had announced retirements effective June 30, 2021. The filing provided no numerical revenue or earnings guidance.
Important facts for investors to verify
- Whether revenue and bookings growth can continue, particularly in hosting and presence, and whether bookings convert to recognized revenue as deferred revenue is fulfilled.
- Whether rising technology, marketing and interest costs moderate enough to stabilize operating and net margins.
- Cash deployment and returns from Poynt and the April acquisitions, alongside the scale and timing of authorized share repurchases.
- Debt servicing capacity, refinancing needs and covenant headroom given approximately $3.95 billion of debt principal.
- Cybersecurity, remote-work, cloud-migration and customer-service developments, as well as the outcome of the pending TCPA settlement appeal.
- Whether the anticipated tax-valuation-allowance release occurs and its actual effect on reported earnings and cash taxes.