GoDaddy Inc. — FY2017 Form 10-K Summary
Business context and reporting period. GoDaddy provides domain registration, website hosting and presence, security, and business applications, primarily to small businesses and individuals. This annual report covers the fiscal year ended December 31, 2017; quarterly figures below include the three months ended December 31, 2017. The company reported one operating segment.
Financial and operating performance
| Metric | FY2017 | FY2016 | Change |
|---|---|---|---|
| Revenue | $2,231.9 million | $1,847.9 million | +20.8% |
| Operating income | $66.9 million; 3.0% margin | $50.1 million; 2.7% margin | Improved |
| Net income (loss) | $139.8 million | ($21.9 million) | Returned to profit |
| Net income attributable to GoDaddy Inc. | $136.4 million | ($16.5 million) | Returned to profit |
| Net cash from operating activities | $475.6 million | $386.5 million | +23.1% |
| Total bookings (non-GAAP operating metric) | $2,618.2 million | $2,155.5 million | +21.5% |
| Customers at year-end | 17.339 million | 14.740 million | +17.6% |
| Average revenue per user | $139 | $130 | +7.4% |
- FY2017 revenue mix: domains $1,057.2 million (47.4%); hosting and presence $847.9 million (38.0%); business applications $326.8 million (14.6%). Hosting and presence and business applications grew faster than domains.
- Cost of revenue was $775.5 million, or 34.7% of revenue, versus 35.6% in 2016. Cost of revenue excludes depreciation and amortization. Total operating expenses were $2,165.0 million, or 97.0% of revenue.
- Cash and cash equivalents were $582.7 million at year-end, compared with $566.1 million. Total debt was $2,482.3 million, up from $1,072.5 million, mainly due to financing the HEG acquisition. The $200 million revolving facility was undrawn; the company reported compliance with its debt covenants.
- Net cash used in investing activities was $1,570.1 million, principally reflecting acquisitions, partly offset by $447.7 million of proceeds from the PlusServer sale. Financing activities provided $1,107.5 million.
- Deferred revenue was $1,861.6 million at year-end, including $1,264.8 million current. The company said cash and expected operating cash flows should cover anticipated operating needs for at least the next 12 months.
Fourth-quarter 2017
Revenue was $602.2 million, versus $485.9 million in Q4 2016. Operating income was $23.0 million, versus $17.9 million. Net income attributable to GoDaddy was $92.6 million, versus a loss of $1.9 million. Q4 2017 results included substantial tax-receivable-agreement (TRA) liability benefits during the year; the filing does not separately quantify the TRA adjustment attributable to the quarter in the presented quarterly table.
Material changes and unusual items
- GoDaddy acquired Host Europe Group (HEG) on April 3, 2017, for approximately $1.85 billion. HEG contributed $155.1 million of revenue and a $17.2 million net loss from continuing operations after acquisition. The transaction materially increased debt and goodwill and added about 1.6 million customers.
- GoDaddy sold HEG’s PlusServer business on August 31, 2017, receiving $447.7 million net proceeds and recording a $33.2 million after-tax gain in discontinued operations. Proceeds, with additional cash, repaid the bridge loan in full.
- Reported net income included a $123.2 million favorable TRA liability adjustment, while the income statement also recorded $83.0 million of interest expense and a $7.3 million debt-extinguishment loss. The Tax Cuts and Jobs Act reduced the TRA liability by $86.2 million and generated a $7.9 million net income-tax benefit.
- International revenue rose 46.1% to $727.4 million, representing approximately 32.6% of total revenue. Growth reflected HEG and ongoing international expansion.
- Operating cash flow increased, supported by bookings growth and HEG. Bookings exceeded revenue partly because customer payments are generally collected upfront while subscription revenue is recognized over time.
Outlook, risks and contingencies
- The filing gives no specific numerical revenue or earnings guidance. Management expects to keep investing in product development, international expansion, marketing, Customer Care, and infrastructure; it expects certain operating expenses to rise as the business grows.
- Management identified execution and integration of HEG, substantial leverage and variable interest-rate exposure, competition and customer retention, service reliability and cybersecurity, and international expansion as important risks. The planned move toward third-party cloud providers and ongoing financial-system implementation also introduce execution and operational risks.
- The EU General Data Protection Regulation was scheduled to take effect May 25, 2018; management anticipated added compliance burden and cost. The company also described potential conflicts between GDPR requirements and ICANN domain-registration rules.
- TRA liability was $153.0 million at year-end. If certain tax benefits become more likely to be used, additional liabilities could reach $559.5 million for basis adjustments and $224.4 million for NOL and credit carryforwards. Payments may be accelerated under specified circumstances. A hypothetical estimate of future TRA payments is not a forecast.
- Indirect tax accruals were $18.8 million; management estimated reasonably possible additional indirect-tax losses of $0 to $10.0 million. The filing describes ongoing litigation but states accrued amounts were not material and management did not expect additional reasonably possible losses to be material based on then-current knowledge.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The internal-control assessment excluded HEG, which represented 6.9% of FY2017 revenue and 3.0% of year-end assets.
Important facts for investors to verify
- Whether organic growth, renewals, bookings, and customer spending continue to support revenue growth after separating out HEG’s contribution.
- HEG integration progress, realization of expected benefits, and the effect of acquisition-related amortization and costs on margins and cash flow.
- Debt repayment capacity, interest-rate sensitivity, covenant headroom, and cash available after operating needs and required payments.
- The sustainability of reported profitability, given the material TRA adjustment and PlusServer disposal gain, and the distinction between consolidated and GoDaddy-attributable earnings and per-share results.
- Actual TRA payment timing and amounts, realization of tax attributes, and the impact of tax-law changes; also monitor indirect-tax exposures and GDPR/ICANN compliance.