GoDaddy Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited consolidated results. Comparisons are with Q1 2016 unless stated otherwise. GoDaddy reports one operating segment.
Business and financial performance
| Metric | Q1 2017 | Q1 2016 / change |
|---|---|---|
| Revenue | $489.7 million | $433.7 million; up 12.9% (about 13.7% at constant currency) |
| Domains revenue | $240.8 million | Up 10.0% |
| Hosting and presence revenue | $178.3 million | Up 11.2% |
| Business applications revenue | $70.6 million | Up 29.8% |
| Operating income | $5.7 million; 1.2% margin | $1.3 million; 0.3% margin |
| Consolidated net loss | $3.1 million | $18.3 million |
| Net income attributable to GoDaddy Inc. | $0.6 million; $0.01 diluted EPS | Net loss of $10.5 million; $(0.15) diluted EPS |
| Cash from operating activities | $126.6 million | $105.3 million |
| Capital expenditures | $19.8 million | $12.0 million |
| Cash and cash equivalents at quarter-end | $658.2 million | $566.1 million at Dec. 31, 2016 |
Revenue growth reflected customer and ARPU increases, international expansion, and acquired-business revenue. Customers increased 6.9% to 15.1 million; ARPU rose 6.4% to $130. Total bookings, a company-defined operating metric rather than GAAP revenue, grew 12.0% to $624.8 million.
Operating expenses totaled $484.0 million, or 98.8% of revenue, versus $432.4 million, or 99.7%. Cost of revenue increased 14.5%, faster than revenue; management cited domain costs, new gTLD registration costs, software licensing, and commissions. General and administrative expense rose 26.6%, including refinancing and acquisition-related costs. Lower amortization helped results as certain intangible assets became fully amortized.
Liquidity, debt, and cash flow
At March 31, cash and short-term investments totaled $670.6 million. Current liabilities were $1.323 billion, including $1.112 billion of deferred revenue. Deferred revenue, current and noncurrent, totaled $1.671 billion and is generally recognized over subscription terms.
Quarter-end debt principal was $1.073 billion, with a $1.037 billion carrying amount after discounts, issuance costs, and current portion. The company reported $150 million available on its revolving facility and compliance with its covenants. Operating cash flow increased by $21.3 million year over year, principally from improved operating income and working-capital changes. Investing cash use was $29.6 million; financing cash use was $4.9 million.
Material developments, outlook, and risks
- HEG acquisition after quarter-end: Closed April 3, 2017, for approximately $1.9 billion. It was funded in part with a $1.425 billion acquisition term loan and a €500 million bridge loan (approximately $533 million). Including quarter-end term debt, these borrowings materially increased leverage after March 31. The bridge loan is due April 2018, with a possible one-year extension; proceeds from a sale of PlusServer must be used to repay it. GoDaddy intends to sell PlusServer.
- Other post-quarter items: GoDaddy completed another acquisition in April for $54.7 million, with up to $30 million of contingent earn-outs. It also announced a planned $275 million LLC-unit repurchase alongside a secondary offering; the company expected to receive only $3.7 million from its own share sale. The filing estimates the offering-related exchanges could increase the tax receivable agreement liability by up to $440 million.
- Management outlook: No specific revenue or earnings guidance is provided. Management said existing cash and internally generated cash flows should cover anticipated operating cash needs for at least 12 months. It expects costs in several areas to rise with customer growth, product development, and international expansion; future capital needs depend on growth spending, acquisitions, and repurchases.
- Notable financial items: The quarter included a $1.7 million debt-extinguishment loss and a $5.0 million favorable tax receivable agreement liability adjustment, compared with a $4.6 million unfavorable adjustment in Q1 2016. The existing TRA liability was $197.6 million; management noted that potential future recognition tied to tax attributes could be substantial.
- Risks and contingencies: Key exposures include substantial indebtedness, variable interest rates, foreign-exchange movements, acquisition integration and PlusServer sale execution, and the ability to sustain customer growth and retention. The company had $83.2 million of foreign-exchange forward contracts outstanding. It reported $6.6 million accrued for estimated indirect taxes; ordinary-course litigation accruals were not material, though outcomes remain uncertain.
Important facts for investors to verify
- Post-acquisition debt, interest costs, leverage, covenant headroom, and the bridge-loan repayment plan.
- HEG integration, purchase-price allocation, expected contribution to growth, and timing and proceeds of the planned PlusServer sale.
- Whether customer, bookings, and ARPU growth can continue while cost of revenue and operating expenses rise.
- The final TRA liability from the announced LLC-unit exchanges and repurchase, and the timing and amount of any resulting payments.
- Exposure to foreign-currency movements, indirect-tax assessments, and litigation or other contingencies.