GoDaddy Inc. — Q2 2016 Form 10-Q
Business context and period: GoDaddy provides domain, hosting, website and business-application services. This unaudited filing covers the quarter and six months ended June 30, 2016; comparisons are with the same 2015 periods. Amounts are in millions except per-share data and operating metrics.
Financial performance and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $456.2 | $394.5 | $889.9 | $770.8 |
| Operating income (loss) | $9.7 | $(33.6) | $11.0 | $(54.1) |
| Net income (loss) | $(11.1) | $(71.3) | $(29.4) | $(114.7) |
| Net loss per Class A share | $(0.11) | $(0.46) | $(0.26) | $(0.81) |
| Adjusted EBITDA (non-GAAP) | $103.5 | $82.3 | $219.1 | $176.2 |
| Operating cash flow | Quarterly value not stated | Quarterly value not stated | $197.7 | $119.4 |
- Q2 revenue grew 15.6% (approximately 17.6% in constant currency); six-month revenue grew 15.5%. Q2 segment revenue: domains $229.8 (+10%), hosting and presence $167.5 (+15%), business applications $58.9 (+45%).
- Q2 operating margin was 2.1%, versus negative 8.5%; six-month operating margin was 1.2%, versus negative 7.0%. Q2 net margin was negative 2.5%, versus negative 18.1%. Improvement partly reflects the prior-year $21.4 debt-extinguishment loss and $29.7 of IPO-related termination payments.
- Cost of revenue was $162.1 in Q2. The filing does not present a standalone gross-margin figure. Adjusted EBITDA is non-GAAP and excludes, among other items, deferred-revenue movements, equity compensation and acquisition-related costs.
- Cash and cash equivalents were $472.1 at June 30, versus $348.0 at year-end 2015; short-term investments were $9.6. Six-month investing cash outflow was $73.0, including $41.3 for acquisitions and $26.6 for capital expenditures. Financing cash outflow was $0.6; cash increased $124.1.
- Total debt was $1,078.0 principal ($1,037.7 net of discounts, costs and current portion); the $1,078.0 term loan had a 4.9% effective rate and matures in 2021. The $150.0 revolving facility was undrawn and available. The company reported covenant compliance.
- Current assets were $860.7 and current liabilities $1,233.1; current liabilities include $1,026.8 of deferred revenue. Total deferred revenue was $1,545.0. Management stated existing cash should meet anticipated needs for at least 12 months.
Changes, outlook and risks
- Growth was supported by 7.9% more customers (14.3 million), 6.2% higher ARPU ($125), 4.5% more domains under management, increased international sales and adoption of non-domain products. Currency movements reduced reported growth; management estimated Q2 revenue growth would have been about 200 basis points higher at constant currency.
- Q2 bookings rose 13.2% to $538.6; six-month bookings rose 12.5% to $1,096.4. Adjusted EBITDA increased 25.8% for Q2 and 24.3% for the half-year. Management attributed EBITDA growth to revenue gains, acquired businesses and operating efficiencies. It planned to change its non-GAAP presentation beginning in Q3; no formal numerical revenue or earnings guidance is provided in the supplied filing text.
- Management expected cost of revenue, technology and development, customer-care and certain other costs to grow with customers, product development and international expansion; marketing spend may vary. In May, GoDaddy agreed to acquire Freedom Voice Systems for $42.0 cash plus up to $5.0 contingent consideration, subject to closing conditions; completion was expected before year-end 2016.
- Tax receivable agreement (TRA) liability was $200.8, including $6.9 current; the company recorded a $10.7 income-statement charge during the half-year. If specified tax benefits become more likely to be realized, it could record up to an additional $171.1 and $120.1 of TRA liabilities. Management expected to begin payments on existing liability in 2017, subject to the agreements and tax outcomes.
- Risks include substantial debt and restrictive covenants, foreign-exchange exposure, competition, service interruptions or security/privacy breaches, international expansion and uncertain tax/indirect-tax outcomes. The filing reports an $8.3 indirect-tax accrual and ordinary-course litigation, including patent and trademark claims, which management did not expect to have a material adverse effect. Disclosure controls were judged effective.
Investor verification points
- Reconcile the net-loss attribution figures in the statements with the loss-per-share note: the supplied filing text shows differing six-month attributable-loss amounts, including for 2015.
- Review the full debt agreement, variable-rate exposure, maturity profile and restrictions on distributions, acquisitions and additional borrowing.
- Assess assumptions behind the $200.8 TRA liability, potential additional liabilities and timing of cash payments.
- Confirm Freedom Voice closing, final consideration and any earn-out obligations.
- Track constant-currency growth, customer retention and ARPU alongside bookings; bookings and Adjusted EBITDA are non-GAAP/operating measures and are not substitutes for GAAP results or cash flow.