GoDaddy Inc. — Q2 2015 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2015; unaudited. Comparisons are with the corresponding 2014 periods. GoDaddy completed its IPO and reorganization on April 7, 2015, so ownership, consolidation and share-count comparisons reflect those transactions.
Business context
GoDaddy provides domains, hosting and website tools, security products, and business applications to small businesses, web professionals and individuals. It reported one operating segment. After the reorganization, GoDaddy controlled and consolidated Desert Newco while owning approximately 41.8% of it; the remaining economic interest is reported as non-controlling interest.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $394.5m | $338.5m | $770.8m | $658.7m |
| Operating loss | $(33.6)m | $(18.5)m | $(54.1)m | $(52.6)m |
| Consolidated net loss | $(71.3)m | $(37.6)m | $(114.7)m | $(88.9)m |
| Adjusted EBITDA (non-GAAP) | $82.3m | $63.8m | $176.2m | $143.5m |
| Operating cash flow | $47.3m | Not stated here | $119.4m | $104.6m |
Q2 revenue grew 16.5%; six-month revenue grew 17.0%. Q2 operating margin was approximately (8.5)% versus (5.4)%; consolidated net margin was (18.1)% versus (11.1)%. Cost of revenue, excluding depreciation and amortization, equaled 35.4% of Q2 revenue versus 37.5% a year earlier. Adjusted EBITDA is a company-defined non-GAAP measure and excludes, among other items, changes in deferred revenue and certain acquisition- and sponsor-related costs.
Q2 revenue by product: domains $208.5m (+10%), hosting and presence $145.5m (+18%), and business applications $40.5m (+52%). Six-month growth was 10%, 20% and 52%, respectively. U.S. and international Q2 revenue rose 15.5% and 19.6%. Total customers increased 9.1% to 13.3m; ARPU increased 8.6% to $118. Total bookings, a non-GAAP measure, grew 16.0% to $475.9m in Q2 and 14.8% to $974.6m for six months.
Cash, debt and liquidity
- Cash and cash equivalents were $289.4m at June 30, 2015, up from $139.0m at year-end; short-term investments were $5.4m. Six-month cash from operations was $119.4m, investing outflow was $55.0m and financing inflow was $86.0m.
- Capital expenditures were $23.0m for the first six months; acquisition cash outlays were $30.7m. Q2 capital expenditures were $14.8m, as stated in management’s highlights.
- Term-loan principal was $1.089bn; balance-sheet debt, net of discounts and current portion, was $1.044bn, with a further $4.8m current portion. The $150m revolving facility was undrawn. The term loan matures in 2021; the company reported compliance with its credit-facility covenants.
- Current liabilities were $1.095bn, including $914.2m of current deferred revenue. Total deferred revenue was $1.383bn. The company stated that existing cash was expected to cover anticipated cash needs for at least 12 months.
- The IPO generated $491.8m net of underwriting discounts and commissions. Proceeds funded debt repayment, termination payments, an acquisition and other uses. Repayment of the $300m senior note reduced debt but triggered a $21.4m extinguishment loss; management cited expected annual interest savings of $27m.
Material changes, outlook and risks
- Q2 general and administrative expense rose 77% to $75.8m, including $29.7m of IPO-related agreement termination payments and a $3.3m settlement charge. The debt-extinguishment loss was also a major Q2 expense. Management said the termination agreements carried no further payment obligations.
- Marketing expense rose 25% and customer-care expense rose 23% in Q2, reflecting greater advertising and staffing investment. Management said it did not expect near-term profitability, citing ongoing investment in product development, marketing, customer care and international expansion.
- GoDaddy planned to end its NASCAR sponsorship when existing agreements expired in December 2015 and redeploy spending across marketing channels and geographies. It highlighted international growth and its GoDaddy Pro program as opportunities, while noting related spending could delay profitability.
- Risks discussed include competition, customer acquisition and retention, domain-market changes including new gTLDs, execution of international expansion and product launches, substantial indebtedness, and the possibility that actual results differ materially from forward-looking statements.
- The company recorded a $170.4m liability under tax receivable agreements, generally requiring payment to related parties of about 85% of specified realized tax savings. Future liability estimates depend on taxable-income projections. Indirect-tax accruals were $6.0m; the company said additional losses were reasonably possible but could not estimate a range.
- Ordinary-course litigation was not expected by management to have a material adverse effect, though legal outcomes and costs are uncertain. The company also described service-level commitments and indemnities but reported no material related costs or recorded liabilities.
Most important facts for investors to verify
- Net-loss attribution discrepancy: The statements of operations report six-month net loss attributable to GoDaddy of $(73.2)m, while the loss-per-share note shows $(41.8)m attributable to GoDaddy and uses that figure in its reconciliation. The filing text does not provide a clear reconciliation. The reported six-month diluted loss per Class A share is $(0.81).
- Assess the quality and comparability of adjusted EBITDA and bookings, including the substantial exclusions for deferred revenue and acquisition- and sponsor-related items.
- Track whether customer growth, ARPU and faster-growing hosting and business-application sales can support improved GAAP operating results despite increased marketing, customer-care and development costs.
- Monitor debt service, floating-rate exposure, covenant headroom, cash needs and the potential scale and timing of tax receivable agreement payments.
- Review developments in indirect-tax exposures, litigation and the effects of the post-IPO ownership and non-controlling-interest structure.