GoDaddy Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. GoDaddy provides domain, hosting, website, productivity, commerce and related services through Applications & Commerce (A&C) and Core Platform (Core). Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $1,036.0 | $1,002.7 | +3.3%; about +4.7% constant currency |
| Operating income | $70.8 | $109.6 | -35.4% |
| Operating margin | 6.8% | 10.9% | -4.1 percentage points |
| Net income | $47.4 | $68.6 | -30.9% |
| Net income attributable to GoDaddy | $47.3 | $68.4 | Basic EPS $0.31; diluted EPS $0.30, versus $0.42 and $0.41 |
| Normalized EBITDA (non-GAAP) | $249.7 | $225.9 | +10.5% |
| Cash from operating activities | $270.3 | $250.9 | +7.7% |
| Capital expenditures | $22.8 | $12.3 | Increase of $10.5 |
A&C revenue increased 11.5% to $338.0, while Core revenue was essentially flat, down 0.2% to $698.0. Segment EBITDA was $132.4 for A&C and $189.0 for Core. Total bookings rose 3.7% to $1,199.2; annualized recurring revenue was $3,543.2, customers totaled 20.997 million, and ARPU was $197.
Cash and cash equivalents were $892.4 at March 31, 2023, up from $774.0 at year-end 2022. Net cash used in financing was $124.2, including $119.7 of cash payments for share repurchases. The company reported $3,895.0 of debt principal outstanding, with $1,000.0 available and undrawn under its revolver; it was in compliance with debt covenants. Deferred revenue was $2,838.7, including current and noncurrent amounts.
Material changes versus the prior comparable period
- Applications & Commerce growth was led by productivity applications, Websites + Marketing subscriptions and commerce-related revenue. Commerce revenue grew 104.2% from a comparatively smaller base.
- Core weakness reflected lower aftermarket revenue (-8.0%) and hosting revenue (-4.8%), partly offset by 4.9% growth in domain registration and add-ons. Domains under management were 84.2 million.
- Operating expenses included $52.3 of restructuring and other charges, versus none in Q1 2022. The restructuring plan’s identified pre-tax charges were $50.4; the broader reported line also includes other items.
- Interest expense increased 36.3% to $45.8, driven by higher effective rates on variable-rate debt. Other income was $22.6 versus expense of $1.1, including a $14.4 increase in the carrying value of a private equity investment and higher interest income.
- Marketing and advertising expense fell 20.6% to $92.4, primarily from lower discretionary spending and headcount reductions. Technology and development expense rose 13.1% to $215.0, reflecting engineering investment and cloud migration costs.
- Cash flow from operations improved, while cash used in financing fell sharply from $750.6 in Q1 2022, mainly because share repurchases were substantially lower. Q1 2023 repurchases were $113.9 for approximately 1.553 million shares; $1,586.0 remained authorized.
Outlook, management commentary and risks
- The filing does not provide a clear numerical company revenue or earnings forecast. Management said existing cash and operating cash flows were expected to cover anticipated operating cash needs for at least the next 12 months.
- The February 2023 restructuring targeted lower future operating expenses and improved cash flow: approximately 550 employees, about 8% of the workforce, were affected, and the company committed to sell certain Core hosting assets and liabilities. The sale was expected to close in the second half of 2023. Management estimated up to $5.5 of additional restructuring charges, primarily in Q2, with no additional charges expected beyond Q4 2023; substantially all remaining restructuring payments were expected in Q2 and Q3.
- Management cited inflation, economic uncertainty and foreign-exchange pressure as headwinds to demand and bookings. Constant-currency revenue growth was about 140 basis points higher than reported growth; bookings growth was about 160 basis points higher.
- Key risks include substantial indebtedness and higher floating-rate borrowing costs; intense competition and uncertain small-business demand; execution and disruption risks from restructuring and cloud migration; cyber incidents, privacy regulation and potential FTC action; foreign-exchange exposure; and legal, tax and regulatory contingencies.
- The filing describes prior security incidents, including compromised hosting credentials and a 2021 Managed WordPress provisioning-system incident, and says the company continued responding to FTC information requests. Timing and outcomes remain uncertain. It also reports a shareholder derivative action concerning settlement of tax receivable agreements, with a motion to dismiss scheduled for hearing after quarter-end.
- Management reported effective disclosure controls as of March 31, 2023 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether A&C growth can continue and offset softness in Core hosting and aftermarket activity.
- Whether restructuring benefits materialize as intended, and whether the hosting asset sale closes on schedule and on expected terms.
- How variable-rate debt costs, scheduled debt maturities and cash allocation—including repurchases—affect liquidity and interest expense.
- Whether operating cash flow and bookings remain resilient amid macroeconomic and currency headwinds, and how deferred revenue converts to recognized revenue.
- Developments in the FTC inquiries, cybersecurity matters, derivative litigation, and tax contingencies, including $144.2 of gross unrecognized tax benefits.