GoDaddy Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual report, not a standalone fourth-quarter filing; selected Q4 2015 results are included below. GoDaddy provides domains, hosting, website presence, security and business applications, supported by customer care. It reported 13.8 million customers and approximately 61.6 million domains under management at year-end.
Financial performance
| Metric | FY 2015 | FY 2014 | Change |
|---|---|---|---|
| Revenue | $1,607.3 million | $1,387.3 million | +15.9% |
| Operating income (loss) | $(31.0) million | $(61.9) million | Loss narrowed |
| Consolidated net loss | $(120.4) million | $(143.3) million | Loss narrowed |
| Adjusted EBITDA | $337.4 million | $271.5 million | +24.3% |
| Operating cash flow | $259.4 million | $180.6 million | +$78.8 million |
| Capital expenditures | $55.8 million | Not stated here | — |
| Cash and cash equivalents | $348.0 million | $139.0 million | +$209.0 million |
| Term loan principal | $1,083.5 million | $1,094.5 million | Reduced |
Revenue by category: domains $840.8 million (+10.2%); hosting and presence $592.0 million (+16.6%); business applications $174.5 million (+50.3%). Domains represented 52.3% of revenue, down from 55.0%; applications rose to 10.9% from 8.4%. The filing says the faster growth of hosting, presence and applications improved the product mix and margins. Cost of revenue was 35.2% of revenue versus 37.4%; operating loss margin improved to approximately 1.9% negative from 4.5% negative.
Bookings, a non-GAAP measure, increased 14.3% to $1,914.2 million; management reported approximately 17.5% growth on a constant-currency basis. Customers grew 8.7% to 13.8 million and ARPU rose 6.3% to $121. International revenue was $414.7 million, up 19.0% reported and approximately 24.4% on a constant-currency basis. Adjusted EBITDA is non-GAAP and excludes specified items; it should not be treated as a substitute for GAAP earnings or cash flow.
Q4 2015 revenue was $425.4 million, operating income was $12.8 million, and consolidated net loss was $0.5 million. Net income attributable to GoDaddy Inc. was $0.1 million for the quarter.
Cash, debt and liquidity
- Operating cash flow was $259.4 million; investing activities used $145.9 million and financing activities provided $95.7 million. Year-end cash was $348.0 million.
- Gross term-loan principal was $1,083.5 million, with a 5.1% effective interest rate and maturity in May 2021. The company had no revolving-credit borrowings and $150 million of available capacity at year-end; it reported covenant compliance.
- Current assets were $693.9 million and current liabilities $1,113.6 million. Current assets include substantial prepaid domain registry fees, so the current ratio alone does not describe readily available liquidity.
- Deferred revenue totaled $1,416.2 million, reflecting subscription cash received before revenue recognition. It is expected to be recognized over future periods and is not equivalent to cash available for general use.
- Management said existing cash and cash equivalents were expected to meet anticipated cash needs for at least the next 12 months.
Material changes and unusual items
- The April 2015 IPO generated $482.4 million in net proceeds. Proceeds were used in part to repay the $300 million senior note, repay $75 million drawn on the revolving facility, fund an acquisition and make payments connected with terminating sponsor and founder service arrangements.
- The senior-note repayment resulted in a $21.4 million debt-extinguishment loss, including a $13.5 million prepayment premium and write-offs of discounts and financing costs. Interest expense declined to $69.2 million from $85.0 million.
- 2015 general and administrative expense included $29.7 million in payments to terminate the sponsor transaction and monitoring agreement and Bob Parsons’s executive chairman agreement; no future payments under those agreements were due after termination.
- GoDaddy recorded a $151.6 million long-term liability under tax receivable agreements (TRAs). It generally expects to pay former owners approximately 85% of specified tax savings. Up to a further $112.4 million TRA liability could be recorded if use of certain tax losses becomes more likely than not. Payments on the recorded liability were not expected before at least 2017.
- Four acquisitions were completed in 2015 for $64.7 million cash, plus contingent consideration. The filing also reports $23.5 million of purchases of intangible assets.
Outlook, risks and contingencies
Management described continued investment in product development, international expansion, marketing, infrastructure, Web Pro offerings and customer care, but provided no quantified revenue, earnings or cash-flow guidance in the supplied filing text. It cited growth in customers, renewals, customer spending and adoption of non-domain products as business drivers.
- Key business risks include intense competition and pricing pressure; dependence on customer renewals, brand and marketing efficiency; and uncertainty over demand for domains as internet use shifts toward search, social platforms and mobile applications.
- Operational and technology risks include cyberattacks, privacy or security breaches, outages, capacity limits, third-party data-center reliance and service interruptions. Disaster-recovery plans had been tested only in limited circumstances.
- International growth exposes the company to foreign-exchange, regulatory, privacy, tax, localization and operating risks. Currency movements reduced reported growth; management began using foreign-exchange forward contracts in 2015.
- Debt and covenant restrictions, variable interest rates, and potential future TRA payments may constrain investment and liquidity. The company is a holding company dependent on distributions from Desert Newco to meet obligations.
- Indirect-tax accruals were $7.1 million at year-end. Management said additional losses were reasonably possible but it could not estimate a range. Ordinary-course litigation included intellectual-property and other claims; management did not expect the final outcomes to materially harm results, while noting defense costs and uncertainty.
- Pre-IPO owners, including sponsor-affiliated funds and Bob Parsons, controlled approximately 80.5% of combined voting power at year-end. GoDaddy qualified as a controlled company and relied on NYSE governance exemptions.
- Management concluded disclosure controls were effective at December 31, 2015. The 10-K did not include management’s internal-control effectiveness assessment or auditor attestation because of the newly public company transition period.
Investor verification points
- Reconcile consolidated net loss, net loss attributable to GoDaddy Inc. and the reported per-share loss: the filing presents differing attribution figures in its selected data and notes.
- Assess the quality and sustainability of bookings and adjusted EBITDA growth, including the non-GAAP adjustments, deferred-revenue build and faster-growing product mix.
- Review debt service, maturity and covenant terms alongside cash needs, acquisition plans and the timing and potential scale of TRA payments.
- Monitor international growth and foreign-exchange exposure, customer retention, ARPU, domain trends, and the costs and returns of marketing and customer-care investments.
- Follow developments in indirect-tax matters, privacy and data-transfer rules, cybersecurity and service reliability, and the implementation of the planned enterprise resource planning system by the end of 2017.