GoDaddy Inc. — Form 10-Q Summary
Reporting period: Quarter ended March 31, 2015. The operating results and cash flows presented are those of Desert Newco, LLC, GoDaddy’s operating business; GoDaddy Inc. itself had not conducted business by quarter-end. GoDaddy completed its IPO and related reorganization on April 7, 2015, after the reporting period.
Business context and financial performance
GoDaddy provides domains, website hosting and presence, security, and business applications, primarily to small businesses, web professionals, and individuals. Results below compare the three months ended March 31, 2015 with the same period in 2014; amounts are in millions except per-unit data.
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | $376.3 | $320.2 | +$56.1; 18% |
| Domains revenue | $199.2 | $180.5 | +10% |
| Hosting and presence revenue | $140.2 | $115.6 | +21% |
| Business applications revenue | $36.9 | $24.1 | +53% |
| Operating loss | $(20.5) | $(34.1) | Loss narrowed |
| Net loss | $(43.4) | $(51.3) | Loss narrowed |
| Net loss per unit | $(0.34) | $(0.40) | |
| Operating cash flow | $72.1 | $42.5 | +$29.6 |
| Adjusted EBITDA | $93.9 | $79.7 | +18% |
| Total bookings | $498.7 | $438.5 | +14% |
Operating margin improved to approximately (5.5)% from (10.7)%; net margin improved to approximately (11.5)% from (16.0)%. Cost of revenue excluding depreciation and amortization was 36.5% of revenue versus 39.3%, implying gross margin on that basis of approximately 63.5% versus 60.7%. Adjusted EBITDA is a non-GAAP measure; the filing cautions that it excludes significant expenses and is not a substitute for GAAP results.
Bookings growth reflected customer growth, higher domains under management, and increased spending on non-domain products. Period-end customers rose 9.3% to 13.1 million, domains under management increased 3.5% to 59.8 million, and reported ARPU rose 9.6% to $115. The filing notes purchase-accounting effects limit ARPU comparability.
Liquidity, debt, and IPO transactions
- At March 31, Desert Newco reported cash and cash equivalents of $196.8 million, current assets of $535.2 million, and current liabilities of $1,046.1 million. Current liabilities include $881.8 million of current deferred revenue, reflecting customer payments for services not yet recognized as revenue.
- Operating cash flow of $72.1 million exceeded net loss, aided by deferred revenue growth. Investing cash use was $7.4 million and financing cash use was $6.9 million; cash increased $57.8 million during the quarter.
- March 31 debt was $1,466.8 million gross principal, including a $1,091.8 million term loan, a $300.0 million 9% note payable to an entity owned by the founder, and $75.0 million drawn on the revolver. The carrying amount of long-term debt, net of discounts and current portion, was $1,413.1 million. The company reported compliance with debt covenants.
- The April 7 IPO raised $491.8 million net. Proceeds were used, among other items, to repay the $300 million note (with premiums and accrued interest, total payment $316 million) and the $75 million revolver balance, pay IPO and termination-related amounts, and fund a $28.1 million acquisition. The filing states $36.4 million remained for general corporate purposes. The revolver then had $150 million available; the term loan remained outstanding.
- Following the reorganization, GoDaddy Inc. held approximately 42% of Desert Newco but controlled it as sole managing member; the remaining interest was non-controlling. GoDaddy reported $6 million of assets at March 31 and will consolidate Desert Newco beginning in Q2 2015.
Material changes, outlook, and risks
- Revenue grew across all three product categories, with the fastest growth in business applications and hosting and presence. Management attributed improved operating results and adjusted EBITDA to revenue growth and operating efficiencies.
- Operating expenses increased with investment and scale: marketing and advertising rose 24%, customer care 22%, and technology and development 10%. Management said it does not expect to be profitable in the near future, citing ongoing investment in products, marketing, customer care, and international expansion.
- Management said existing cash and cash equivalents were expected to cover anticipated needs for at least 12 months. Future capital needs depend on growth, investment, product development, and other operating requirements; no numerical revenue or earnings guidance was provided.
- Tax receivable agreements require GoDaddy to pay eligible former owners approximately 85% of realized tax savings. Based on IPO-date projections, the company expected to record a $160–$170 million liability related to acquired tax basis adjustments. It also recorded a valuation allowance against deferred tax assets because realization of acquired and expected net operating loss carryforwards was uncertain.
- Key risks include substantial remaining debt and related restrictions and interest costs; execution of international expansion and customer acquisition; competition and changes in domain markets, including new gTLD adoption; ability to develop and scale products; and uncertain indirect-tax exposure. Estimated indirect-tax accruals were $6.4 million, but the company said additional losses were reasonably possible and could not be estimated. The filing reported ordinary-course litigation, including intellectual-property claims, and no material off-balance-sheet arrangements.
- Other notable post-quarter items included a $26.6 million final payment to terminate the sponsor transaction and monitoring fee agreement, a $3.0 million payment to terminate the executive chairman services agreement, and a $13.5 million prepayment premium on the note repayment. The filing also disclosed a $0.9 million office-closure exit charge in Q1.
Important facts for investors to verify
- How the Q2 consolidated statements reflect the IPO, reorganization, non-controlling interests, and the remaining term-loan balance.
- Actual cash, debt, interest expense, and covenant headroom after use of IPO proceeds and repayment of the note and revolver.
- Whether customer, bookings, and product-revenue growth continue, and whether higher investment converts to improved GAAP profitability and cash generation.
- Recognition and subsequent remeasurement of the estimated $160–$170 million tax receivable agreement liability, and the realizability of deferred tax assets.
- Any developments in indirect-tax assessments, litigation, acquisition earn-outs, or other contingencies.