GoDaddy Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results, compared with the three months ended March 31, 2021, unless otherwise noted. GoDaddy reorganized its reporting into Applications & Commerce (A&C) and Core Platform (Core); comparative segment and revenue information was recast, with no effect on prior-period total revenue or earnings.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $1,002.7 million | $901.1 million | +11.3%; approximately +11.5% constant currency |
| A&C revenue | $303.1 million | $262.0 million | +15.7% |
| Core revenue | $699.6 million | $639.1 million | +9.5% |
| Total bookings | $1,156.3 million | $1,088.7 million | +6.2%; approximately +7.2% constant currency |
| Operating income / margin | $109.6 million / 10.9% | $38.0 million / 4.2% | Operating income +188.4% |
| Net income | $68.6 million | $10.8 million | +535.2% |
| Net income attributable to GoDaddy; diluted EPS | $68.4 million; $0.41 | $10.8 million; $0.06 | — |
| Normalized EBITDA | $225.9 million | — | +17.5%; non-GAAP measure |
| Cash from operating activities | $250.9 million | $221.3 million | +13.4% |
Revenue gains reflected customer growth and higher average revenue per user, with recent acquisitions also contributing. A&C benefited from productivity solutions, Websites + Marketing, Managed WordPress and commerce products. Core growth reflected more domains under management (84.4 million versus 83.6 million), aftermarket sales and registry growth. International revenue was $329.8 million, up 8.8% (approximately 9.5% constant currency).
Cost of revenue increased 15.3% to $370.2 million, faster than revenue, mainly due to domain costs, software licensing and payment-processing growth. Marketing expense fell 12.4% to $116.3 million, primarily because discretionary spending was lower than in the prior-year quarter. Technology and development expense rose 2.0% to $190.1 million. Interest expense increased 17.1% to $33.6 million, mainly reflecting the 2021 senior-note issuance.
Cash and cash equivalents were $742.7 million at quarter-end, down from $1,255.7 million at December 31, 2021. Operating cash flow was $250.9 million; investing cash use was $12.5 million; and financing cash use was $750.6 million, primarily reflecting a $750.0 million accelerated share repurchase (ASR). The company stated existing cash and operating cash flow should cover anticipated operating cash needs for at least 12 months.
Long-term debt totaled $3,913.1 million in principal ($3,876.9 million carrying value before the current portion presentation), comprising term loans and senior notes; $24.1 million was current. The company had $600.0 million available under its revolving facility and reported compliance with debt covenants. Total current liabilities were $2,474.0 million versus current assets of $1,443.7 million; current liabilities include substantial deferred revenue. Stockholders’ deficit was $468.7 million, compared with equity of $83.2 million at year-end, mainly reflecting the $750.2 million share-repurchase charge to accumulated deficit.
Material changes and notable items
- Revenue rose 11.3%, while bookings grew 6.2%; management cited uneven demand patterns related to the pandemic and inflation, as well as currency headwinds.
- Segment NEBITDA increased 18.7% for A&C to $119.8 million and 19.3% for Core to $178.4 million. These are company-defined segment measures, not GAAP operating income.
- The $750.0 million ASR began in February; 6.532 million shares were initially delivered and retired. Final shares and average repurchase price were to be determined after the purchase period, expected to conclude in Q2. Remaining repurchase authorization was $2.25 billion.
- Deferred revenue was $2,725.3 million, including current and noncurrent amounts, and represents remaining performance obligations expected to be recognized over future periods.
- Management recorded a $6.8 million discrete income-tax charge related to a change in a domestic subsidiary’s tax status. It also maintained valuation allowances against certain deferred tax assets due to uncertainty about their realization.
- GoDaddy extended certain cross-currency and interest-rate swaps to August 2027. The company uses derivatives to hedge currency and interest-rate exposures and does not use them for speculative trading.
Outlook, commentary and risks
The filing provides no specific numeric revenue or earnings guidance. Management expects cost of revenue and technology and development expense to rise in absolute dollars as the business grows, and expects continued investment in product development and migration to third-party cloud infrastructure. The company identified inflation, foreign-exchange movements, pandemic-related demand uncertainty and the Russia-Ukraine conflict as sources of uncertainty; it reported no material business impact from the conflict to date and said inflationary pressures had not materially harmed results to date.
Important risks include competition and customer retention; execution of product and cloud-infrastructure investments; service outages and dependence on third-party providers; cybersecurity and privacy events; substantial indebtedness and debt-service obligations; foreign-currency and interest-rate exposure; and regulatory, tax and litigation contingencies. The filing describes prior security incidents, including unauthorized access affecting up to 1.2 million active and inactive Managed WordPress customers in November 2021, and an earlier incident involving a third-party corporate content system. The timing and outcomes of related inquiries or other matters are uncertain.
A Telephone Consumer Protection Act class-action settlement remains subject to a pending appeal; the company made no change to its $8.1 million estimated loss provision in Q1. It also reported $124.4 million of gross unrecognized tax benefits, of which $35.9 million would reduce the effective tax rate if recognized. Disclosure controls were deemed effective as of March 31, 2022; no material change in internal control over financial reporting was reported.
Most important facts for investors to verify
- Whether bookings and customer growth sustain revenue growth, particularly given bookings growth below revenue growth and stated demand uncertainty.
- Completion and final economics of the $750 million ASR, and the impact of further repurchases on cash, leverage and equity.
- Cash generation, debt maturities and interest costs, including the company’s ability to maintain liquidity while funding operations and capital returns.
- Progress and costs of the cloud migration, and whether security controls adequately address disclosed incidents and ongoing regulatory inquiries.
- Effects of inflation, foreign exchange, pandemic-related trends and geopolitical developments on customer demand, costs and international operations.
- Resolution of the TCPA settlement appeal, tax positions and valuation allowances, and any material changes in contingent liabilities.