GoDaddy Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. GoDaddy operates as a single reportable segment, primarily selling subscription-based domains, hosting and presence products, and business applications.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $844.4 million | $760.5 million | $2,442.8 million | $2,207.7 million |
| Operating income | $92.4 million | $91.4 million | $179.7 million | $129.1 million |
| Operating margin | 10.9% | 12.0% | 7.3% | 5.9% |
| Net income (loss) | $65.1 million | $76.8 million | $(564.9) million | $77.3 million |
| Net income (loss) attributable to GoDaddy | $64.7 million | $76.2 million | $(565.6) million | $76.5 million |
| Diluted EPS | $0.38 | $0.42 | $(3.35) | $0.42 |
| Cash from operations | $197.3 million | Not stated for the quarter | $598.7 million | $561.2 million |
- Q3 revenue grew 11.0%; bookings rose 11.0% to $945.0 million. Nine-month revenue increased 10.6% and bookings increased 10.3%.
- Q3 revenue growth by category: domains 12%, hosting and presence 6%, and business applications 19%. Growth reflected more customers, higher average revenue per user, acquisitions, and demand for email/productivity and website products.
- Nine-month net loss was primarily driven by a $674.7 million tax receivable agreement (TRA) settlement accounting charge. The company reported operating income of $179.7 million for the period.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $621.8 million at September 30, 2020, down from $1,062.8 million at December 31, 2019. Nine-month operating cash flow was $598.7 million; investing cash use was $435.9 million and financing cash use was $604.1 million.
- Debt principal totaled $3,161.7 million, comprising $1,813.6 million of 2024 term loans, $748.1 million of 2027 term loans and $600.0 million of senior notes. The company had $600.0 million available under its revolver and reported compliance with debt covenants.
- In August, GoDaddy borrowed $750.0 million under new 2027 term loans, receiving $746.3 million net proceeds. It paid $849.8 million to settle TRA obligations totaling $850.0 million, funding the settlement with cash and loan proceeds. Management said the settlement was at a significant discount to approximately $1.8 billion of estimated payments otherwise due; GoDaddy will retain future cash tax savings covered by the settlement.
- Cash used for acquisitions was $420.7 million in the first nine months. The Neustar registry operations acquisition closed in August; total consideration for four 2020 acquisitions was $454.5 million, with $231.7 million of goodwill recorded.
- GoDaddy repurchased $541.7 million of Class A shares in the first nine months and had $500.0 million remaining under its May 2020 authorization.
Material changes, outlook and risks
- Revenue increased year over year, but Q3 operating margin declined to 10.9% from 12.0%, as marketing and technology spending rose. Marketing and advertising expense increased 45% in Q3; customer care expense fell 14%, partly reflecting restructuring-related headcount reductions and operating efficiencies.
- June restructuring addressed challenges in U.S. outbound sales, including soft demand for higher-priced, do-it-for-you services and reduced effectiveness of outbound calling amid COVID-19. Charges totaled $43.7 million through September, including a $27.9 million lease-asset impairment. Approximately 470 employees were involuntarily terminated and about 110 declined alternate roles. Management did not expect significant additional charges.
- COVID-19 effects remained uncertain. Management cited weaker demand for some higher-priced services and lower GoDaddy Guides productivity and sales generation while working remotely. Nearly all employees and Guides were expected to remain remote through at least the end of March 2021; incremental remote-work costs had not been material.
- The company withdrew full-year 2020 guidance earlier in the pandemic and stated it had restored guidance for Q3 and Q4; numerical guidance is not provided in this filing text. Management said existing cash and expected operating cash flows should cover anticipated operating needs for at least 12 months, while noting future capital needs depend on COVID-19, growth investment, acquisitions and repurchases.
- Other notable exposures include substantial indebtedness, cybersecurity and privacy incidents, competition, foreign exchange and interest-rate risks, regulatory changes, and possible customer demand and renewal weakness. The filing describes a TCPA class settlement of up to $35.0 million; the estimated accrued loss was reduced to $10.3 million at September 30, subject to final court approval expected at a December 2020 hearing.
Important facts for investors to verify
- How much of reported growth reflects customer and product demand versus acquisitions, and whether bookings growth converts into recognized revenue and cash flow.
- The ongoing effect of COVID-19 on higher-priced services, customer renewals, outbound sales and GoDaddy Guides productivity.
- Debt service, refinancing and covenant headroom after the 2027 borrowing, alongside the company’s remaining cash and repurchase plans.
- The final cost and court approval of the TCPA settlement, and whether the restructuring delivers expected operating benefits.
- Whether tax attributes underlying the TRA settlement and related deferred tax assets can ultimately be realized; the company recorded a full valuation allowance against the additional deferred tax assets.