GoDaddy Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Amounts are in U.S. dollars, generally millions. GoDaddy is a single-segment provider of subscription services, including domains, hosting and presence, and business applications.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $792.0 | $710.0 | +11.5% |
| Domains revenue | $355.9 | $319.6 | +11.4% |
| Hosting and presence revenue | $297.2 | $268.9 | +10.5% |
| Business applications revenue | $138.9 | $121.5 | +14.3% |
| Total bookings | $951.1 | $870.5 | +9.3% |
| Operating income | $64.4 | $18.8 | Operating margin 8.1%, up from 2.6% |
| Net income | $43.2 | $13.2 | Net margin 5.4%, up from 1.8% |
| Net income attributable to GoDaddy | $42.9 | $12.9 | Diluted EPS $0.24 vs. $0.07 |
| Cash from operations | $233.3 | $199.7 | +16.8% |
Revenue growth reflected increases in total customers and average revenue per user. Bookings growth was supported by customer and domain growth, aftermarket sales, and broader adoption of non-domain products. Cost of revenue rose 17.2%, faster than revenue, mainly from domain costs, licensing, and payment processing. Lower customer-care, general and administrative, and depreciation and amortization expenses helped lift operating margin.
Cash from operations less capital expenditures was $219.8 million, compared with $170.3 million in Q1 2019 (calculated from reported cash flow and capital expenditure figures). The filing does not present this as a company-defined free-cash-flow measure.
Liquidity, debt, and capital allocation
- Cash and cash equivalents were $851.4 million at March 31, down from $1,062.8 million at year-end 2019. Current assets were $1,365.6 million and current liabilities $2,124.0 million; the current ratio was approximately 0.64.
- Debt principal totaled $2,426.1 million, comprising $1,826.1 million of term loans and $600.0 million of senior notes; the revolver was undrawn, with $600.0 million available. The term loans mature principally in 2024 and the notes in 2027. The company reported covenant compliance.
- Cash used in financing was $307.3 million, primarily reflecting share repurchases. The company repurchased shares for $398.0 million during the quarter, including $82.3 million unsettled at quarter-end; cash-flow statements report $315.7 million of repurchases paid during the period.
- Cash used in investing was $135.9 million, including $146.4 million net cash for acquisitions. The company stated existing cash and operating cash generation should meet anticipated operating needs for at least 12 months, while noting that further acquisitions or repurchases could require borrowing or additional capital.
- Deferred revenue totaled $2,291.4 million, representing remaining performance obligations expected to be recognized over time.
Material changes, outlook, and risks
- COVID-19: The pandemic did not materially affect Q1 financial statements, but its future impact was uncertain and could be material. Management reported negative effects on subscriptions for certain higher-priced services, aftermarket offerings, and GoDaddy Guides’ productivity and new sales. The company shifted nearly all employees and Guides to remote work and launched support initiatives for small businesses.
- Guidance: The company lowered its Q2 2020 revenue guidance and withdrew full-year 2020 guidance because of the pandemic; the filing provides no revised numerical guidance.
- Acquisitions: Two February acquisitions had $149.2 million of net cash purchase consideration. Two related transactions closed in April for an additional $44.9 million. In April, GoDaddy also agreed to acquire Neustar’s registry business for $218.0 million cash, subject to customary conditions and regulatory approval.
- Buybacks: April repurchases totaled $143.7 million. In May, the board authorized a further $500 million program, with no obligation to repurchase shares. Management’s capital-allocation choices should be considered alongside cash balances, acquisitions, and debt.
- Legal contingency: A proposed settlement of TCPA class actions could make up to $35.0 million available. Following a revised class definition, the company reduced its estimated provision by $2.9 million and reported an estimated total settlement cost of $15.1 million; court approval remained pending.
- Tax receivable agreements: The recorded liability was $175.3 million. The company disclosed potential additional liabilities of up to $1,578.6 million if relevant tax benefits become more likely than not to be realized; timing and amount depend on future taxable income and other assumptions.
- Other principal risks include economic weakness among small-business customers, competition, customer retention and renewal rates, cybersecurity and service continuity, foreign exchange exposure, substantial indebtedness, and execution and integration risks from acquisitions. Management reported effective disclosure controls as of quarter-end.
Important facts for investors to verify
- How pandemic-related demand, renewals, higher-priced services, aftermarket sales, and remote Guide productivity developed after Q1, and the assumptions behind withdrawn 2020 guidance.
- Whether operating-margin improvement is sustainable given cost-of-revenue growth, and how bookings growth translates into recognized revenue and cash generation.
- Cash and debt levels after the April buybacks, acquisition payments, and any new repurchases; also verify the distinction between repurchase expense/accruals and cash paid.
- Closing, funding, integration, and expected returns for the Neustar registry acquisition and other acquired businesses.
- Developments in the TCPA settlement and potential tax receivable agreement obligations, including the assumptions that could change recorded liabilities.