Business context and reporting period
GoDaddy Inc.’s unaudited Form 10-Q covers the quarter and six months ended June 30, 2020. The company sells subscription-based domain, hosting and presence, and business application products; it reports one operating segment. Results were affected by COVID-19, including weaker demand for certain higher-priced services and lower productivity and sales effectiveness among remote GoDaddy Guides.
Financial performance and liquidity
Amounts are in millions of dollars except per-share data. Comparisons are with the corresponding 2019 period.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $806.4 | $737.2 | $1,598.4 | $1,447.2 |
| Operating income | $22.9 | $18.9 | $87.3 | $37.7 |
| Net income (loss) | $(673.2) | $(12.7) | $(630.0) | $0.5 |
| Net loss attributable to GoDaddy | $(673.2) | $(12.6) | $(630.3) | $0.3 |
| Diluted loss per share | $(4.06) | $(0.07) | $(3.72) | $— |
| Operating cash flow | $168.1 | $161.3 | $401.4 | $361.0 |
Revenue increased 9.4% in Q2 and 10.4% for the first half. Q2 segment revenue was $369.6 from domains (+11%), $292.2 from hosting and presence (+4%), and $144.6 from business applications (+18%). Q2 total bookings were $936.3, up 10.7% (about 12.1% on a constant-currency basis). Operating margin was 2.8%, versus 2.6% a year earlier; the filing does not provide a normalized margin excluding unusual charges.
Q2 net loss primarily reflects a $674.7 charge to increase the tax receivable agreement (TRA) liability following settlement agreements, as well as $39.4 in restructuring charges. Interest expense was $19.4, down from $23.1. Cost of revenue rose faster than revenue, to $289.4 from $254.6.
Cash and cash equivalents were $772.7 at June 30, down from $1,062.8 at year-end 2019. For the first half, investing cash outflow was $196.6, including $189.9 net cash used for acquisitions; financing cash outflow was $494.0, including $541.7 of share repurchases. Capital expenditures were $30.7. Total debt principal was $2,419.8 ($2,368.0 long-term debt net of discount, issuance costs and current portion); the $600.0 revolver was undrawn and available. The company reported compliance with debt covenants. Current liabilities were $2,972.3, including an $850.0 current TRA settlement payable; current assets were $1,304.5.
Material changes versus the prior comparable period
- Q2 revenue growth reflected customer and average-revenue-per-user growth, acquisitions, and increased domains under management. Domains under management were 80.9 million versus 78.4 million a year earlier.
- Business applications grew fastest among the reported product lines; hosting and presence growth was restrained by lower demand for some higher-priced subscriptions during the pandemic.
- First-half operating cash flow increased to $401.4 from $361.0, primarily due to bookings growth. Cash declined by $290.1, compared with a $266.4 increase in the first half of 2019.
- First-half share repurchases totaled $541.7. A new $500.0 repurchase authorization was approved in May; $500.0 remained available at June 30.
- The company completed two acquisitions in the first half for $194.1 net cash consideration. On August 3, it completed the Neustar registry business acquisition for $215.9 in cash, subject to final adjustments.
Guidance, outlook, risks and unusual items
- Management said it lowered Q2 revenue guidance and withdrew full-year 2020 guidance because of COVID-19; no replacement full-year guidance or specific forecast values are provided in the filing. Management said the pandemic’s future effects were uncertain and could be material.
- In June, GoDaddy announced a restructuring of U.S. outbound sales and operations, including approximately 470 involuntary terminations, Austin office closures and a $27.9 lease-asset impairment. It estimated up to $5.0 of additional Q3 charges, with substantially all related cash payments expected before September 30.
- TRA settlement agreements were executed July 31, after quarter-end, for aggregate payments of $850.0. The company recorded the related $674.7 charge in Q2, expected to fund the payments with cash and debt, and had made none of the settlement payments as of the filing date. Management said the settlement would end future TRA obligations and allow GoDaddy to retain future cash tax savings tied to the covered attributes.
- A TCPA class-action settlement provides for up to $35.0 in total payments and credits. The recorded estimated loss provision was $15.1 at June 30; final approval remained pending, with a hearing scheduled for December 14, 2020.
- Other highlighted risks include prolonged economic weakness and reduced small-business spending, remote-work effects on customer care and sales, cyber and privacy incidents, foreign-exchange and interest-rate movements, acquisition integration, and substantial indebtedness. The filing disclosed a recent incident involving compromised hosting login credentials for approximately 28,000 customers; these credentials did not provide access to their main GoDaddy accounts.
Important facts for investors to verify
- TRA settlement cash-payment timing and financing: the $850.0 payable was expected to be paid substantially in Q3 2020, but none had been paid as of the filing date.
- Whether revenue, bookings, customer renewals and demand for higher-priced services withstand ongoing pandemic effects, and whether remote GoDaddy Guides regain productivity.
- Whether the U.S. sales restructuring delivers expected savings and results, and whether additional charges stay within the estimated $5.0 for Q3.
- Final outcome and cost of the TCPA settlement, including court approval and claims against the settlement fund.
- Neustar acquisition closing adjustments, integration costs and performance; the acquisition closed after quarter-end.
- Liquidity and leverage following TRA payments, acquisitions and any further share repurchases; term-loan principal maturities include $1,732.3 in 2024.