GoDaddy Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Figures are in U.S. dollars unless noted. Results are unaudited.
Business context and key financial results
GoDaddy provides domain, hosting and presence, and business application subscriptions. It completed the acquisition of Host Europe Holdings (HEG) on April 3, 2017; reported results include HEG from that date.
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $557.8 million | $456.2 million | $1,047.5 million | $889.9 million |
| Operating income | $6.1 million | $9.7 million | $11.8 million | $11.0 million |
| Net income (loss), consolidated | $18.1 million | $(11.1) million | $15.0 million | $(29.4) million |
| Net income (loss) attributable to GoDaddy Inc. | $20.8 million | $(8.9) million | $21.4 million | $(19.4) million |
| Operating margin | 1.1% | 2.1% | 1.1% | 1.2% |
Q2 revenue increased 22.3% (approximately 23.5% on a constant-currency basis). By product, domains revenue grew 14.6%, hosting and presence 28.3%, and business applications 35.1%. International revenue increased 56.7% to $187.7 million. Total bookings rose 23.9% to $667.5 million; customers increased 17.8% to 16.9 million and average revenue per user rose 2.8% to $129.
Q2 operating income declined despite revenue growth, as operating costs rose. Interest expense was $22.0 million versus $14.3 million a year earlier. Q2 net income included a $32.0 million favorable adjustment to the tax receivable agreements (TRA) liability; income from continuing operations was $23.4 million, offset by a $5.3 million discontinued-operations loss. Diluted EPS attributable to GoDaddy was $0.10, compared with a loss of $0.11 in Q2 2016.
Cash flow, debt and liquidity
- For the six months, operating cash flow was $239.9 million, versus $197.7 million in 2016. Investing cash outflow was $1,913.5 million, principally reflecting acquisitions; financing cash inflow was $1,684.5 million. Cash increased $12.7 million to $578.8 million.
- At June 30, total debt carrying value was $3,065.3 million, including a $570.5 million Bridge Loan; cash and cash equivalents were $578.8 million. The $200 million revolving facility was undrawn, and the company reported covenant compliance.
- Management stated existing cash and internally generated cash flows were expected to cover anticipated operating cash needs for at least 12 months. Debt levels, interest expense and restrictive covenants remain important liquidity considerations.
- Deferred revenue was $1,801.3 million, including $1,217.0 million current. It represents customer payments for services not yet recognized as revenue.
Material changes, outlook and risks
- HEG was acquired for total consideration of approximately $1.85 billion, primarily debt-funded. It contributed approximately $45.9 million of revenue and a $26.6 million net loss within continuing operations for the three and six months since acquisition. Acquisition accounting and purchase-price allocations were preliminary.
- HEG’s PlusServer managed-hosting business was classified as held for sale and discontinued operations. On July 15, 2017, GoDaddy agreed to sell it for a preliminary €385 million (approximately $442 million), subject to adjustments and closing conditions; closing was expected in Q3 2017. The company planned to use net proceeds to repay the Bridge Loan and expected to use approximately $171.2 million of existing cash to repay the balance. It estimated Q3 debt-extinguishment and foreign-exchange losses of approximately $5.1 million and $11.2 million, respectively.
- No specific revenue or earnings guidance is provided in the supplied filing text. Management cited growth from HEG, more customers and domains, increased product adoption, and international expansion; it also expects operating costs to rise as the business grows.
- Key risks include substantial indebtedness and refinancing/repayment needs; integration of HEG and execution of the PlusServer sale; foreign-exchange and variable-rate exposure; competition, customer retention and service/security interruptions. The filing estimates possible additional indirect-tax losses of $0–$22 million. Ordinary-course litigation accruals were described as not material.
- Disclosure controls were assessed as effective at a reasonable-assurance level. HEG’s internal controls were excluded from the company’s current evaluation because of the acquisition timing.
Investor facts to verify
- Completion terms and actual proceeds from the PlusServer sale, and application of proceeds to the Bridge Loan.
- Post-acquisition revenue, profitability, integration progress and final HEG purchase-price allocation.
- Debt repayment capacity, interest costs, covenant headroom and the impact of currency and rate movements.
- Whether the $32.0 million Q2 TRA liability benefit is repeatable, and whether future tax attributes result in additional TRA liabilities or payments.
- Actual indirect-tax exposures and any material developments in litigation or other contingencies.