GoDaddy Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2015; comparisons are primarily with the quarter ended September 30, 2014. Financial statements are unaudited. GoDaddy completed its IPO and reorganization in April 2015 and consolidates Desert Newco, although it owned approximately 42% of it at quarter-end.
Financial performance and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $411.1 million | $356.9 million | $1,181.9 million | $1,015.6 million |
| Operating income (loss) | $10.3 million | $(6.6) million | $(43.8) million | $(59.2) million |
| Net income (loss) | $(5.2) million | $(27.6) million | $(119.9) million | $(116.5) million |
| Adjusted EBITDA (non-GAAP) | $87.7 million | $71.6 million | $263.9 million | $215.1 million |
| Operating cash flow | $78.7 million | Not stated here | $198.1 million | $154.9 million |
- Quarterly revenue grew 15.2%; nine-month revenue grew 16.4%. Q3 revenue by category: domains $215.0 million, hosting and presence $150.8 million, and business applications $45.3 million.
- Q3 operating margin was approximately 2.5%, versus a 1.9% operating loss margin a year earlier. Q3 adjusted EBITDA increased 22.5%; it is a non-GAAP measure and excludes specified costs.
- Nine-month investing cash use was $88.8 million; capital expenditures were $11.3 million in Q3. Cash and cash equivalents were $327.7 million at September 30, up from $139.0 million at December 31, 2014.
- Long-term debt principal was $1,086.3 million at quarter-end, versus $1,469.5 million at December 31, 2014; the balance-sheet carrying amount, after discounts and current portion, was $1,048.0 million. The $150 million revolving facility was undrawn and available. The company reported compliance with debt covenants.
- Deferred revenue totaled $1,412.5 million. Current assets were $683.7 million and current liabilities $1,113.5 million.
Changes and notable items
- All three revenue categories grew. Business applications was the fastest-growing category, up 47.1% in Q3; domains grew 10.5% and hosting and presence 14.7%.
- Customers increased 8.8% to 13.6 million; average revenue per user rose 6.8% to $119. Total bookings, a non-GAAP measure, increased 14.1% to $475.6 million.
- Marketing expense rose 22.6% in Q3, while revenue rose 15.2%. Management attributed growth to customer gains, broader product adoption, and international expansion.
- The April IPO generated approximately $491.8 million net proceeds before certain offering costs. Proceeds supported repayment of the $300 million related-party Senior Note and $75 million revolving loan, among other uses. Repayment produced a $21.4 million debt-extinguishment loss in the first nine months; Q3 interest expense fell to $14.6 million from $23.1 million.
- Nine-month general and administrative expense included $29.7 million of termination payments to sponsors and founder-related parties. Three acquisitions were completed in the nine-month period; the company also purchased a customer-related intangible asset for $22.5 million, with potential additional earn-out payments.
Outlook, risks and contingencies
- Management said existing cash was expected to cover anticipated needs for at least the next 12 months. The filing gives no quantified revenue or earnings guidance.
- Management expects continued investment in product development, marketing, international operations, customer care, and infrastructure; these investments could delay or reduce profitability. Growth depends on customer acquisition and retention, product adoption, domain-market developments, and international expansion.
- Foreign exchange is a risk: management estimated nine-month bookings would have been approximately $40 million higher at constant currency. GoDaddy began using foreign-exchange forward contracts in Q3; the contracts reduce, but do not eliminate, currency exposure.
- The company had $170.9 million in tax receivable agreement liabilities at quarter-end, including $3.0 million current. Agreements generally require payment to specified owners of approximately 85% of qualifying tax savings; estimates depend on projected taxable income.
- Indirect-tax accruals were $6.3 million. The company said additional indirect-tax exposure was reasonably possible but it could not estimate a range. It reported ordinary-course litigation, including patent and trademark claims, and did not expect currently known matters to have a material adverse effect.
- Substantial debt, competition, foreign-currency movements, and the costs of growth are among the identified risks. Management reported effective disclosure controls and no material quarter changes in internal control over financial reporting.
Important facts for investors to verify
- Reconcile the net loss attributable to GoDaddy and loss-per-share figures: the primary statements report Q3 attributable loss of $2.5 million and nine-month attributable loss of $75.7 million, while the EPS note gives different attributable-loss amounts. The filing text is internally inconsistent.
- Track whether customer growth, bookings, and deferred-revenue conversion continue to support reported revenue growth, and assess the limitations of the company’s non-GAAP measures.
- Review debt repayment, interest costs, covenant headroom, and the substantial balloon maturity of the term loan, principally due after 2019.
- Assess the assumptions behind TRA liabilities and deferred-tax-asset valuation allowances, as well as developments in indirect-tax matters and litigation.