GoDaddy Inc. — FY 2016 Form 10-K
Reporting period: Year ended December 31, 2016. The filing also reports fourth-quarter results. Financial statements are audited; the auditor issued an unqualified opinion and reported effective internal control over financial reporting.
Business context
GoDaddy provides domain registration, hosting and website-presence tools, business applications, and customer support to small businesses, web professionals, and individuals. It reported 14.7 million customers and 63.5 million domains under management at year-end. Domains generated 50% of 2016 revenue, hosting and presence 37%, and business applications 13%.
Financial performance and liquidity
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $1,847.9 million | $1,607.3 million |
| Total bookings | $2,155.5 million | $1,914.2 million |
| Operating income (loss) | $50.1 million | ($31.0 million) |
| Net loss | ($21.9 million) | ($120.4 million) |
| Net loss attributable to GoDaddy Inc. | ($16.5 million) | ($75.6 million) |
| Net loss per Class A share | ($0.21) | ($0.81) |
| Net cash from operating activities | $386.5 million | $259.2 million |
| Cash and cash equivalents at year-end | $566.1 million | $348.0 million |
| Total debt at year-end | $1,072.5 million | $1,083.5 million |
| Deferred revenue at year-end | $1,576.2 million | $1,416.2 million |
Revenue grew 15.0% (about 16.7% in constant currency); bookings rose 12.6% (about 13.8% in constant currency). Operating margin was 2.7%, versus negative 2.0% in 2015. Cash used in investing activities was $183.4 million, including $118.5 million for acquisitions and $61.5 million in capital expenditures. The filing states cash and internally generated cash flows were expected to cover anticipated operating needs for at least 12 months.
Material changes and fourth-quarter results
- Revenue growth reflected customer growth, higher average revenue per user (ARPU), and acquired businesses. Customers increased 7.0% to 14.7 million; ARPU rose 6.8% to $130.
- Business applications revenue grew 38.3% to $241.4 million; hosting and presence rose 14.6% to $678.7 million; domains rose 10.3% to $927.8 million. Management said the faster-growing, generally higher-margin non-domain offerings improved product mix.
- Fourth-quarter revenue was $485.9 million versus $425.4 million a year earlier. Operating income was $17.9 million versus $12.2 million; net loss was $0.8 million versus $0.5 million.
- Operating cash flow increased by $127.3 million year over year, while net loss narrowed substantially. Interest expense fell to $57.2 million from $69.2 million.
Outlook, risks, contingencies, and unusual items
- No specific revenue, earnings, or cash-flow guidance is provided in the filing. Management expected continued investment in product development, international growth, marketing, and customer care; these investments may increase costs before benefits emerge.
- GoDaddy agreed to acquire Host Europe Holdings for approximately €1.69 billion, including approximately €605 million payable to sellers and €1.08 billion of assumed net debt, subject to adjustments and closing conditions. At filing, completion was expected in the second quarter of 2017 and regulatory approvals remained outstanding.
- On February 15, 2017, after year-end, the company refinanced its facility with a $1,072.5 million seven-year term loan, a contingent $1,425.0 million acquisition term loan intended to partly fund HEG, and a $150.0 million revolver, increasing to $200.0 million upon the acquisition closing. The acquisition financing and intended asset-sale bridge facility could increase leverage and constrain liquidity and flexibility.
- Tax receivable agreement (TRA) liability was $202.6 million at year-end. GoDaddy generally owes certain pre-IPO owners about 85% of specified tax savings; additional liabilities of up to $169.8 million and $148.0 million could be recognized if related tax benefits become more likely to be used. Payments, timing, and realized tax benefits are uncertain.
- Key risks include substantial debt and covenants, competition and customer retention, cybersecurity and service interruptions, foreign-exchange exposure, regulation and data privacy, and execution/integration risks from acquisitions. The company reported ongoing litigation but said accrued amounts were not material and additional reasonably possible losses were not believed material based on current knowledge.
- Other notable items: the company recorded a $12.5 million expense from a TRA liability adjustment; annual refunds ran between 6.6% and 7.2% of bookings from 2014–2016; it reported no goodwill or indefinite-lived intangible impairment in 2016. It does not expect to pay common-stock dividends in the foreseeable future.
Investor verification priorities
- Track whether customer growth, renewals, ARPU, and bookings continue to support recognized revenue growth; bookings are a non-GAAP operating metric and differ from revenue partly because of deferred revenue and refunds.
- Verify HEG closing conditions, final funding terms, treatment or sale of PlusServer, integration costs, and post-transaction debt and liquidity.
- Assess cash available after debt service, capital spending, acquisition spending, tax distributions, and potential TRA payments.
- Monitor margins and operating cash flow as product mix shifts and the company funds international expansion and new products.
- Review cybersecurity, uptime, litigation, indirect-tax, and data-protection exposures, including preparation for the EU General Data Protection Regulation effective in 2018.