Business context and reporting period
GoDaddy Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2023. Its two reportable segments are Applications & Commerce (A&C), including software, commerce and productivity products, and Core Platform, including domains, hosting and security products.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $1,069.7 million | $1,033.2 million | $3,153.8 million | $3,051.4 million |
| Operating income | $167.1 million | $129.7 million | $357.5 million | $363.9 million |
| Net income | $131.0 million | $100.0 million | $261.5 million | $259.1 million |
| Diluted EPS | $0.89 | $0.63 | $1.71 | $1.59 |
| Operating cash flow | $281.6 million | $270.0 million | $749.9 million | $771.7 million |
- Q3 revenue rose 3.5% (about 3.8% in constant currency). A&C revenue increased 11.4% to $363.3 million; Core revenue was essentially flat at $706.4 million.
- Q3 operating margin was 15.6%, compared with 12.5% a year earlier. Nine-month operating margin was 11.3%, down from 11.9%.
- Q3 bookings were $1,138.9 million, up 4.8%; annualized recurring revenue was $3,675.1 million, up from $3,535.4 million. Period-end customers totaled 21.025 million, versus 20.869 million, and ARPU was $200 versus $196.
- At September 30, cash and cash equivalents were $329.2 million, compared with $774.0 million at December 31, 2022. Total debt carrying value was $3,820.3 million, including current debt; principal outstanding was $3,882.4 million. The revolving facility had approximately $999.2 million available.
- Nine-month investing cash use was $61.4 million and financing cash use was $1,133.3 million. The company generated $749.9 million of operating cash flow and spent $1,145.3 million on share repurchases during the nine-month period.
- Deferred revenue was $2,897.9 million in total at quarter-end, including current and noncurrent amounts.
Material changes versus the prior comparable period
- Q3 A&C growth was led by productivity applications, online-presence subscriptions and commerce products. Core domain registration and add-on revenue grew, offsetting weaker hosting and other activity.
- Q3 net income rose 31.0%; operating income increased 28.8%. Lower marketing expense and depreciation and amortization supported operating results, while cost of revenue rose 6.0%.
- Interest expense increased 23.6% in Q3 and 30.1% for the nine months, primarily reflecting higher rates on unhedged variable-rate debt. Nine-month operating cash flow declined $21.8 million year over year.
- Q3 diluted EPS benefited from fewer weighted-average shares, as the company repurchased shares. Class A shares outstanding at September 30 were 141.989 million, versus 153.830 million at December 31, 2022.
Outlook, management commentary, risks and unusual items
- Management said existing cash and operating cash flows should be sufficient for anticipated operating needs for at least the next 12 months. The filing does not provide clear numerical full-year revenue or earnings guidance.
- Restructuring actions included workforce reductions of approximately 550 employees announced in February and approximately 250 additional employees affected in Q3. The company recorded $79.6 million of restructuring and other expense for the first nine months, including severance, a $16.8 million loss on disposal of hosting assets and a $17.0 million revenue-sharing agreement termination charge. Up to $4.7 million of additional restructuring charges were expected, primarily in Q4 2023; substantially all remaining payments were expected by Q1 2024.
- The July refinancing of the 2029 term loans resulted in a $1.5 million debt-extinguishment loss. Reported nine-month other income included a $14.4 million fair-value increase in an equity investment, partly offset by a $2.3 million impairment.
- Principal risks include substantial indebtedness and variable interest rates, macroeconomic uncertainty affecting small-business demand, competitive pressure, execution and disruption risks from restructuring, and cybersecurity, service availability and privacy risks. The company disclosed prior security incidents and continuing FTC information requests relating to a 2020 hosting-credential incident; timing and outcome remain uncertain.
- Other contingencies include a pending shareholder derivative action relating to the TRA settlement and an unresolved appeal concerning a TCPA class-action settlement. The company also reported $21.7 million accrued for estimated indirect tax liabilities and $151.8 million of gross unrecognized tax benefits.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It was in compliance with debt covenants at September 30, 2023.
Important facts for investors to verify
- Whether A&C growth can continue to offset softness in hosting and other Core products, including after the hosting-asset disposition.
- How higher borrowing costs, debt maturities and continued share repurchases affect cash, leverage and financial flexibility.
- Whether restructuring delivers the anticipated expense and cash-flow benefits without operational disruption or additional costs.
- Developments in the FTC inquiry, cybersecurity matters, TCPA settlement appeal, derivative litigation and indirect-tax exposures.
- The sustainability of reported profit growth, considering restructuring and other unusual items, equity-based compensation and non-GAAP adjustments.