GoDaddy Inc. — Q3 2022 Form 10-Q
Business context and period. This unaudited quarterly report covers the three and nine months ended September 30, 2022. GoDaddy reports two segments: Applications & Commerce (A&C), including website, productivity and commerce products; and Core Platform, including domains, hosting and related services.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1,033.2 million | $964.0 million | $3,051.4 million | $2,796.4 million |
| Operating income | $129.7 million | $131.3 million | $363.9 million | $257.3 million |
| Net income | $100.0 million | $97.7 million | $259.1 million | $155.4 million |
| Net income attributable to GoDaddy | $99.8 million | $97.5 million | $258.6 million | $155.1 million |
| Diluted earnings per share | $0.63 | $0.58 | $1.59 | $0.90 |
- Q3 revenue increased 7.2% year over year, or approximately 8.8% on a constant-currency basis. A&C revenue grew 12.6%; Core revenue grew 4.9%.
- Q3 operating margin was approximately 12.5%, down from 13.6% a year earlier. Net income rose 2.4%; management reported Normalized EBITDA of $262.7 million, up 15.4%.
- Bookings were $1,087.0 million in Q3, up 4.7% year over year, or approximately 6.7% in constant currency. Management cited customer and average-revenue-per-user growth, partly offset by currency and uneven demand amid inflation and economic uncertainty.
- For the first nine months, operating cash flow was $771.7 million, compared with $657.1 million. Investing used $115.5 million; financing used $1,081.0 million, primarily reflecting share repurchases. Cash declined $429.5 million to $826.2 million.
- At September 30, cash and cash equivalents were $826.2 million; current assets were $1,769.8 million and current liabilities were $2,475.5 million, including $1,975.2 million of current deferred revenue. Total deferred revenue was $2,748.8 million.
- Debt principal was $3,896.8 million, before $29.5 million of unamortized discounts and issuance costs; reported debt carrying value was $3,867.3 million, including current debt. Q3 interest expense was $35.6 million. The company had $600 million available on its revolver and reported compliance with debt covenants.
Changes, outlook and material items
- Revenue growth was partly offset by unfavorable foreign exchange, which reduced reported growth by approximately 160 basis points in Q3. Domains under management declined 0.4% year over year, from 84.1 million to 83.8 million.
- Q3 marketing expense fell 19% year over year, while technology and development expense rose 16% and general and administrative expense rose 25%. Management attributed the marketing decline to lower discretionary spending than in 2021, and higher development expense to personnel, technology investment and cloud migration.
- GoDaddy repurchased $1,090.5 million of stock in the first nine months, including completed accelerated repurchases; $1,904.1 million of authorization remained at quarter-end. These repurchases contributed to the cash decline.
- Management stated existing cash and expected operating cash flows should cover anticipated operating cash needs for at least 12 months. No specific forward revenue or earnings guidance is provided in this filing.
- In October 2022, the company announced a planned refinancing of its 2024 term loans, extending maturity to 2029, and a proposed increase in revolver capacity from $600 million to $1 billion. Closing was subject to final terms and customary conditions.
- Key risks include substantial indebtedness and interest-rate exposure, foreign-exchange headwinds, macroeconomic uncertainty affecting small-business demand, competition, cloud migration and service reliability, and cybersecurity, privacy and regulatory exposures. The filing describes prior security incidents and ongoing regulatory inquiries; timing and outcomes remain uncertain.
- A previously accrued $8.1 million TCPA class-action settlement was not adjusted after an appeals court vacated approval and remanded the matter; a rehearing petition remained pending. The company also disclosed a shareholder derivative suit relating to the tax receivable agreement settlement.
- The company recorded a valuation allowance against certain deferred tax assets amid uncertainty about their realization. Gross unrecognized tax benefits were $142.2 million. Management was evaluating the Inflation Reduction Act and did not then expect a material consolidated financial-statement impact.
Most important facts for investors to verify
- Whether revenue and bookings growth, particularly in A&C, can persist as demand, inflation and currency conditions evolve.
- Whether operating margins can hold up as development and other costs rise and marketing spending normalizes.
- Debt refinancing terms, borrowing costs, covenant headroom and the company’s ability to balance debt service with repurchases and investment.
- Cash generation and deferred-revenue trends, alongside the pace of share repurchases and acquisition spending.
- Developments in the TCPA settlement appeal, shareholder litigation, tax matters and previously disclosed cybersecurity and regulatory inquiries.