GoDaddy(GDDY) - 2022 Q2 - Quarterly Report

FORM 10-Q Note About Forward-Looking Statements Forward-Looking Statements Disclosure The report contains forward-looking statements subject to substantial risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements identified by words like 'believe,' 'may,' 'will,' 'expect,' etc, which involve substantial risks and uncertainties[4][408] - Key areas of uncertainty include customer retention, solution development, brand strength, and achieving future profitability[4][408] - Readers are cautioned not to rely on forward-looking statements as predictions of future events[7][411] PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements and accompanying notes for GoDaddy Inc Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in millions) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $770.4 | $1,255.7 | | Total current assets | $1,551.7 | $1,889.8 | | Total assets | $6,904.1 | $7,417.1 | | Total current liabilities | $2,457.6 | $2,436.7 | | Total stockholders' equity (deficit) | $(445.3) | $83.2 | - Total assets decreased from $7,417.1 million at December 31, 2021, to $6,904.1 million at June 30, 2022[10][414] - Stockholders' equity shifted from a positive $83.2 million to a deficit of $(445.3) million[10][414] Consolidated Statements of Operations Consolidated Statements of Operations Highlights (in millions, except per share amounts) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $1,015.5 | $931.3 | $2,018.2 | $1,832.4 | | Operating income | $124.6 | $88.0 | $234.2 | $126.0 | | Net income attributable to GoDaddy Inc. | $90.4 | $46.8 | $158.8 | $57.6 | | Basic EPS | $0.57 | $0.28 | $0.98 | $0.34 | | Diluted EPS | $0.56 | $0.27 | $0.97 | $0.33 | - Total revenue increased by 9.0% for the three months and 10.1% for the six months ended June 30, 2022, compared to prior year periods[13][417] - Net income attributable to GoDaddy Inc. increased by 93.0% for the three months and 175.7% for the six months ended June 30, 2022[13][417] Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income Highlights (in millions) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net income | $90.5 | $46.9 | | Foreign exchange forward contracts gain (loss), net | $20.6 | $0.9 | | Unrealized swap gain (loss), net | $49.1 | $(6.1) | | Change in foreign currency translation adjustment | $9.0 | $(5.9) | | Comprehensive income attributable to GoDaddy Inc. | $168.9 | $35.7 | - Comprehensive income attributable to GoDaddy Inc. significantly increased from $35.7 million in Q2 2021 to $168.9 million in Q2 2022, largely due to foreign exchange and unrealized swap gains[16][420] Consolidated Statements of Stockholders' Deficit Stockholders' Deficit Highlights (in millions, except shares in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Class A Common Stock (shares) | 156,545 | 166,901 | | Additional Paid-in Capital | $1,756.3 | $1,594.7 | | Accumulated Deficit | $(2,302.3) | $(1,474.6) | | Accumulated Other Comprehensive Income (Loss) | $98.6 | $(38.6) | | Total Stockholders' Equity (Deficit) | $(445.3) | $83.2 | - The company's total stockholders' equity shifted from a positive $83.2 million to a deficit of $(445.3) million, primarily due to an increase in accumulated deficit and share repurchases[19][423] - Repurchases of Class A common stock amounted to $(236.3) million for the three months ended June 30, 2022[19][423] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (in millions) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $501.8 | $430.7 | | Net cash used in investing activities | $(30.5) | $(359.9) | | Net cash provided by (used in) financing activities | $(953.7) | $539.6 | | Net increase (decrease) in cash and cash equivalents | $(485.3) | $610.0 | | Cash and cash equivalents, end of period | $770.4 | $1,375.2 | - Net cash provided by operating activities increased by $71.1 million to $501.8 million for the six months ended June 30, 2022[25][429] - Net cash used in financing activities significantly increased to $(953.7) million for the six months ended June 30, 2022, primarily due to increased share repurchases[25][429] Notes to Consolidated Financial Statements Note 1. Organization and Background - GoDaddy Inc. is the sole managing member of Desert Newco, consolidating its financial results and reporting non-controlling interests[29][433] - Financial statements are prepared in accordance with GAAP and are unaudited for interim periods, including normal recurring adjustments[30][434] - Revenue presentation was revised in Q1 2022 to align with new reportable segments, with no impact on total revenue or net income[31][435] Note 2. Summary of Significant Accounting Policies - The company uses estimates and assumptions in its financial statements, which are periodically evaluated and adjusted prospectively[33][437] - Segment reporting was revised in Q1 2022 to reflect two reportable segments: Applications and Commerce (A&C) and Core Platform (Core)[34][438] - Derivative financial instruments are used to manage foreign currency exchange rate and interest rate risks[37][441][442] - Revenue from A&C products is generally recognized ratably over the contract term[42][446] - Core revenue is mostly recognized ratably over the contract term, with aftermarket domain revenue recognized upon ownership transfer[43][447] Disaggregated Revenue by Product Type (in millions) | Product Type | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Applications and commerce | $317.2 | $276.2 | $620.3 | $538.2 | | Core platform: domains | $485.0 | $438.3 | $968.9 | $862.3 | | Core platform: other | $213.3 | $216.8 | $429.0 | $431.9 | | Total Revenue | $1,015.5 | $931.3 | $2,018.2 | $1,832.4 | Revenue by Geography (in millions) | Geography | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | U.S. | $684.7 | $614.1 | $1,357.6 | $1,212.1 | | International | $330.8 | $317.2 | $660.6 | $620.3 | | Total | $1,015.5 | $931.3 | $2,018.2 | $1,832.4 | - The company early adopted new FASB guidance on January 1, 2022, for measuring acquired liabilities from customer contracts in business combinations[55][459] Note 3. Goodwill and Intangible Assets - Goodwill was evaluated for impairment after segment reporting changes in Q1 2022, with no impairment identified[57][461] Goodwill Balance by Segment (in millions) | Segment | December 31, 2021 | June 30, 2022 | | :--- | :--- | :--- | | A&C | $1,522.5 | $1,490.6 | | Core | $2,018.3 | $1,976.2 | | Total | $3,540.8 | $3,466.8 | Intangible Assets, Net (in millions) | Asset Type | Gross Carrying Amount (June 30, 2022) | Accumulated Amortization (June 30, 2022) | Net Carrying Amount (June 30, 2022) | | :--- | :--- | :--- | :--- | | Trade names and branding | $445.0 | n/a | $445.0 | | Domain portfolio | $244.9 | n/a | $244.9 | | Contractual-based assets | $256.8 | n/a | $256.8 | | Customer-related | $484.8 | $(280.5) | $204.3 | | Developed technology | $232.0 | $(146.1) | $85.9 | | Trade names and other | $109.7 | $(48.0) | $61.7 | | Total | $1,773.2 | $(474.6) | $1,298.6 | - Amortization expense for intangible assets was $31.7 million for the three months ended June 30, 2022 and 2021[59][463] Note 4. Stockholders' Equity - In January 2022, the Board approved an additional $2,251.0 million for Class A common stock repurchases, bringing the total authorized amount to $3,000.0 million[61][465] - The company entered into Accelerated Share Repurchase Agreements (ASRs) in February 2022 for $750.0 million, repurchasing 9,202 thousand shares[62][466] - An additional 3,389 thousand shares were repurchased in the open market for $236.3 million during the three months ended June 30, 2022[63][467] - As of June 30, 2022, $2,013.7 million of repurchase authorization remained available[64][468] Note 5. Equity-Based Compensation Plans - As of June 30, 2022, 34,574 thousand shares were available for future awards under the 2015 Equity Incentive Plan[64][468] - The company grants stock options, Restricted Stock Units (RSUs), and Performance-based Stock Units (PSUs)[65][469] Stock Option Activity Summary (in thousands, except per share amounts) | Metric | Number of Shares of Class A Common Stock () | Weighted-Average Exercise Price Per Share ($) | | :--- | :--- | :--- | | Outstanding at Dec 31, 2021 | 1,999 | 42.94 | | Exercised | (360) | 37.04 | | Forfeited | (26) | 71.61 | | Outstanding at Jun 30, 2022 | 1,613 | 43.79 | | Vested at Jun 30, 2022 | 1,462 | 41.28 | Stock Award Activity Summary (in thousands) | Metric | Number of Shares of Class A Common Stock () | | :--- | :--- | | Outstanding at Dec 31, 2021 | 6,766 | | Granted: RSUs | 3,700 | | Granted: TSR-based PSUs | 246 | | Vested | (1,564) | | Forfeited | (689) | | Outstanding at Jun 30, 2022 | 8,459 | - Total unrecognized compensation expense for non-vested stock options and stock awards was $3.0 million and $481.9 million, respectively, as of June 30, 2022[68][472] Note 6. Deferred Revenue Deferred Revenue (in millions) | Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Current | $1,980.5 | $1,890.1 | | Noncurrent | $770.7 | $743.3 | | Total | $2,751.2 | $2,633.4 | - Deferred revenue increased primarily due to payments received in advance, partially offset by $1,314.0 million of revenue recognized during the six months ended June 30, 2022[70][474] Expected Recognition of Deferred Revenue (in millions) | Segment | Remainder of 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | A&C | $429.1 | $263.1 | $75.7 | $18.4 | $5.7 | $4.3 | $796.3 | | Core | $904.2 | $659.6 | $193.8 | $82.7 | $49.0 | $65.6 | $1,954.9 | | Total | $1,333.3 | $922.7 | $269.5 | $101.1 | $54.7 | $69.9 | $2,751.2 | Note 7. Accrued Expenses and Other Current Liabilities Accrued Expenses and Other Current Liabilities (in millions) | Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Accrued payroll and employee benefits | $105.4 | $124.2 | | Tax-related accruals | $40.6 | $35.6 | | Current portion of operating lease liabilities | $36.1 | $36.9 | | Accrued legal and professional | $25.2 | $23.2 | | Accrued acquisition-related expenses and acquisition consideration payable | $21.7 | $24.5 | | Accrued marketing and advertising | $21.3 | $22.9 | | Share repurchases not yet settled | $19.3 | — | | Derivative liabilities | $2.1 | $89.5 | | Other | $83.5 | $80.5 | | Total | $355.2 | $437.3 | - Total accrued expenses and other current liabilities decreased from $437.3 million to $355.2 million, primarily due to a significant decrease in derivative liabilities[72][476] Note 8. Long-Term Debt Long-Term Debt (in millions) | Debt Instrument | Maturity Date | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | :--- | | 2024 Term Loans | Feb 15, 2024 | $1,770.0 | $1,782.4 | | 2027 Term Loans | Aug 10, 2027 | $735.0 | $738.8 | | 2027 Senior Notes | Dec 2027 | $600.0 | $600.0 | | 2029 Senior Notes | Mar 1, 2029 | $800.0 | $800.0 | | Total | | $3,905.0 | $3,921.2 | - As of June 30, 2022, the company had $600.0 million available under its Revolver and was in compliance with all Credit Facility covenants[75][479] Estimated Fair Values of Long-Term Debt (in millions) as of June 30, 2022 | Debt Instrument | Fair Value | | :--- | :--- | | 2024 Term Loans | $1,714.7 | | 2027 Term Loans | $708.4 | | 2027 Senior Notes | $558.8 | | 2029 Senior Notes | $675.4 | Future Debt Maturities (in millions) | Year Ending December 31 | Principal Payments | | :--- | :--- | | 2022 (remainder of) | $16.3 | | 2023 | $32.5 | | 2024 | $1,740.0 | | 2025 | $7.5 | | 2026 | $7.5 | | Thereafter | $2,101.2 | | Total | $3,905.0 | Note 9. Derivatives and Hedging - The company uses foreign exchange forward contracts, cross-currency swaps, and interest rate swaps as cash flow hedges to manage foreign currency and interest rate risks[81][485] - Cross-currency swaps are also designated as net investment hedges to mitigate foreign currency exposure on net investments in foreign operations[81][485] Outstanding Derivative Instruments (in millions) | Instrument | Notional Amount (June 30, 2022) | Fair Value Assets (June 30, 2022) | Fair Value Liabilities (June 30, 2022) | | :--- | :--- | :--- | :--- | | Foreign exchange forward contracts | $358.1 | $18.0 | — | | Cross-currency swaps (cash flow) | $542.3 | $16.8 | $2.1 | | Interest rate swaps | $1,990.9 | $107.6 | — | | Cross-currency swaps (net investment) | $693.7 | $21.7 | — | | Total hedges | $3,585.0 | $164.1 | $2.1 | - In March 2022, the company extended the maturity of certain swaps to August 31, 2027, de-designating old hedges and designating new ones[91][93][495][497] - An estimated $25.5 million of net deferred gains from designated hedges are expected to be recognized in earnings over the next 12 months[93][493] Note 10. Leases - Operating leases primarily cover office and data center space, with a weighted average lease term of 7.2 years and a weighted average discount rate of 5.1%[95][499] Lease Costs (in millions) | Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Operating lease costs | $9.6 | $12.4 | $22.4 | $24.3 | | Variable lease costs | $2.2 | $2.1 | $4.9 | $4.8 | | Sublease income | $(1.8) | $(0.8) | $(3.6) | $(1.6) | | Total | $10.0 | $13.7 | $23.7 | $27.5 | Note 11. Commitments and Contingencies - The company is involved in various litigation and claims, accruing for legal contingencies when losses are probable and estimable[97][501] - A $8.1 million loss provision related to a Telephone Consumer Protection Act class action settlement was accrued as of December 31, 2021[98][502] - Accrual for estimated indirect tax liabilities was $9.7 million as of June 30, 2022[103][507] Note 12. Income Taxes - GoDaddy Inc. is subject to U.S. federal, state, and foreign income taxes[104][508] - Effective tax rates differ from the U.S. federal statutory rate due to valuation allowance changes and a $6.8 million discrete charge in H1 2022[105][509] - A valuation allowance has been recorded against deferred tax assets (DTAs) due to uncertainty regarding utilization of domestic net operating losses (NOLs)[106][510] - A reserve of $12.7 million for an uncertain tax position was established in Q2 2022, with $11.9 million recorded as an increase to goodwill[109][513] - Total gross unrecognized tax benefits were $138.3 million as of June 30, 2022[110][514] Note 13. Income Per Share - Basic EPS is calculated by dividing net income attributable to GoDaddy Inc. by the weighted-average Class A common stock outstanding[111][515] Income Per Share Calculation (in millions, except shares in thousands and per share amounts) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income attributable to GoDaddy Inc. | $90.4 | $46.8 | $158.8 | $57.6 | | Weighted-average shares outstanding—basic | 159,822 | 168,204 | 162,060 | 168,816 | | Weighted-average shares outstanding—diluted | 161,739 | 171,129 | 164,503 | 172,388 | | Basic EPS | $0.57 | $0.28 | $0.98 | $0.34 | | Diluted EPS | $0.56 | $0.27 | $0.97 | $0.33 | Potentially Dilutive Shares Excluded from Diluted EPS (in thousands) | Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Stock options | 276 | 500 | 265 | 536 | | RSUs, PSUs and ESPP shares | 3,862 | 1,018 | 2,266 | 760 | | Total | 4,138 | 1,518 | 2,531 | 1,296 | Note 14. Segment Information - Effective January 1, 2022, the company reports operating results through two segments: Applications and Commerce (A&C) and Core Platform (Core)[116][520] - Segment performance is evaluated based on revenue and Normalized EBITDA (NEBITDA)[116][520] - A&C revenue includes proprietary software and commerce products, while Core revenue includes domain registrations and hosting[116][520] Segment Revenue and NEBITDA (in millions) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue: | | | | | | A&C | $317.2 | $276.2 | $620.3 | $538.2 | | Core | $698.3 | $655.1 | $1,397.9 | $1,294.2 | | Total Revenue | $1,015.5 | $931.3 | $2,018.2 | $1,832.4 | | Segment NEBITDA: | | | | | | A&C | $131.8 | $108.3 | $251.6 | $209.2 | | Core | $198.4 | $158.2 | $376.8 | $307.8 | | Corporate overhead and other | $(71.8) | $(68.2) | $(144.1) | $(126.5) | | Net income | $90.5 | $46.9 | $159.1 | $57.7 | Note 15. Accumulated Other Comprehensive Income (Loss) Accumulated Other Comprehensive Income (Loss) Activity (in millions) | Category | Foreign Currency Translation Adjustments | Unrealized Gains (Losses) on Cash Flow Hedges | Total AOCI | | :--- | :--- | :--- | :--- | | Gross balance as of December 31, 2021 | $(52.9) | $14.2 | $(38.7) | | Other comprehensive income (loss) before reclassifications | $(25.3) | $113.5 | $88.2 | | Amounts reclassified from AOCI | — | $49.3 | $49.3 | | Other comprehensive income (loss) | $(25.3) | $162.8 | $137.5 | | Less: AOCI attributable to non-controlling interests | | | $(0.2) | | Balance as of June 30, 2022 | $(78.2) | $177.0 | $98.6 | - Total Accumulated Other Comprehensive Income (AOCI) shifted from a loss of $(38.7) million to a gain of $98.6 million, driven by unrealized gains on cash flow hedges[123][527] Note 16. Subsequent Events - In July 2022, the company completed an acquisition for $71.4 million in cash[125][529] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results of operations, covering key highlights, segment analysis, and liquidity COVID-19 - The COVID-19 pandemic's impact on future results depends on its duration and continuing economic effects[129][533] - The company continues to monitor the pandemic's potential impacts on its financial position, operations, and cash flows[129][533] Overview - GoDaddy Inc. is a global leader serving everyday entrepreneurs with simple, easy-to-use products and personalized guidance[130][534] - The business is managed and reported in two segments: Applications and Commerce (A&C) and Core Platform (Core)[130][534] - A&C includes proprietary software and commerce products, while Core Platform focuses on domain registrations and hosting[130][534] Consolidated Second Quarter Financial Highlights Consolidated Second Quarter Financial Highlights (Three Months Ended June 30) | Metric | 2022 ($M) | 2021 ($M) | Change (%) | | :--- | :--- | :--- | :--- | | Total revenue | 1,015.5 | 931.3 | 9.0% | | International revenue | 330.8 | 317.2 | 4.3% | | Total bookings | 1,118.9 | 1,054.8 | 6.1% | | Operating income | 124.6 | 88.0 | 41.6% | | Net income | 90.5 | 46.9 | 93.0% | | Normalized EBITDA | 258.4 | 198.3 | 30.3% | | Net cash from operating activities | 250.9 | 209.4 | 19.8% | - Total revenue increased by 9.0% (10.1% constant currency) for the three months ended June 30, 2022[131][535] - Net income increased by 93.0% to $90.5 million for the three months ended June 30, 2022[131][535] Consolidated Results of Operations Revenue - Total revenue for Q2 2022 was $1,015.5 million, an increase of 9.0% (10.1% on a constant currency basis)[136][540] - Applications & Commerce (A&C) revenue increased by 14.8% to $317.2 million, driven by adoption of productivity and commerce solutions[136][540] - Core Platform revenue increased by 6.6% to $698.3 million, driven by aftermarket domain sales and registry business growth[137][541] Bookings Total Bookings (in millions) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total bookings | $1,118.9 | $1,054.8 | $64.1 | 6% | - Total bookings increased by 6.1% for the three and six months ended June 30, 2022, driven by aftermarket sales and customer growth[139][543] - Bookings growth was partially offset by approximately 160 basis points due to adverse foreign currency movements[139][543] Costs and Operating Expenses Cost of revenue Cost of Revenue (excluding depreciation and amortization) (in millions) | Period | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $360.5 | $332.0 | $28.5 | 9% | | Six Months Ended June 30 | $730.7 | $653.2 | $77.5 | 12% | - The increases were primarily due to higher domain costs, increased software licensing fees, and growth in payment processing business[142][546] Technology and development Technology and Development Expenses (in millions) | Period | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $198.1 | $172.0 | $26.1 | 15% | | Six Months Ended June 30 | $388.2 | $358.4 | $29.8 | 8% | - Increases were driven by higher personnel costs due to increased headcount and increased technology costs related to business growth[144][548] - The six-month increase was partially offset by a $25.2 million decrease in compensation expense from prior acquisitions[144][548] Marketing and advertising Marketing and Advertising Expenses (in millions) | Period | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $100.7 | $126.5 | $(25.8) | (20)% | | Six Months Ended June 30 | $217.0 | $259.2 | $(42.2) | (16)% | - Decreases were primarily due to lower discretionary spending in the first half of 2022 compared to significant marketing investments in 2021[146][550] Customer care Customer Care Expenses (in millions) | Period | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $78.9 | $78.3 | $0.6 | 1% | | Six Months Ended June 30 | $156.6 | $156.9 | $(0.3) | 0% | - There were no material changes in customer care expenses for the periods presented[149][553] General and administrative General and Administrative Expenses (in millions) | Period | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $94.7 | $84.5 | $10.2 | 12% | | Six Months Ended June 30 | $185.3 | $179.7 | $5.6 | 3% | - The 12.1% increase for Q2 2022 was due to increased personnel costs and acquisition-related expenses[150][554] - The 3.1% increase for H1 2022 was due to increased personnel costs, partially offset by a reversal of equity-based compensation expense[151][555] Depreciation and amortization Depreciation and Amortization Expenses (in millions) | Period | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $48.4 | $50.0 | $(1.6) | (3)% | | Six Months Ended June 30 | $96.6 | $99.0 | $(2.4) | (2)% | - There were no material changes in depreciation and amortization expenses for the periods presented[153][557] Interest expense Interest Expense (in millions) | Period | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $34.9 | $32.6 | $2.3 | 7% | | Six Months Ended June 30 | $68.5 | $61.3 | $7.2 | 12% | - The increases were primarily driven by the issuance of the 2029 Senior Notes in February 2021[154][558] Segment Results of Operations Applications & Commerce Applications & Commerce Segment Performance (in millions) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $317.2 | $276.2 | $41.0 | 15% | | Segment NEBITDA | $131.8 | $108.3 | $23.5 | 22% | - A&C revenue increased by 14.8% (three months) and 15.3% (six months) due to higher sales of productivity solutions and commerce-related revenue[157][561] - A&C Segment NEBITDA increased by 21.7% (three months) and 20.3% (six months), driven by revenue growth and lower marketing spend[158][562] Core Platform Core Platform Segment Performance (in millions) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $698.3 | $655.1 | $43.2 | 7% | | Segment NEBITDA | $198.4 | $158.2 | $40.2 | 25% | - Core revenue increased by 6.6% (three months) and 8.0% (six months) due to increased aftermarket domain sales and registry business growth[160][564] - Core Segment NEBITDA increased by 25.4% (three months) and 22.4% (six months), driven by revenue growth and lower marketing spend[161][565] Liquidity and Capital Resources Overview - Principal liquidity sources are cash flow from operations, long-term debt, and stock option exercises[162][566] - Capital deployment prioritizes operations, then growth investments, and finally stockholder returns[163][567] - Existing cash and operating cash flow are expected to meet operating needs for at least the next 12 months[165][569] Credit Facility and Senior Notes - Long-term debt includes a Credit Facility (2024 and 2027 Term Loans, Revolver) and Senior Notes (2027 and 2029)[166][570] - As of June 30, 2022, the company was in compliance with all debt covenants and had $600.0 million available under the Revolver[166][570] - A portion of long-term debt is hedged using cross-currency and interest rate swap derivative instruments[167][571] Share Repurchases - The Board authorized repurchases of up to $3,000.0 million of Class A common stock, with $2,013.7 million remaining as of June 30, 2022[168][572][573] - In February 2022, the company entered into ASRs for $750.0 million, repurchasing 9,202 thousand shares[168][572] - An additional 3,389 thousand shares were repurchased in the open market for $236.3 million during Q2 2022[169][573] Acquisitions - In July 2022, the company completed an acquisition for $71.4 million in cash[169][573] Cash Flows Operating Activities - Net cash provided by operating activities increased by $71.1 million to $501.8 million for H1 2022, driven by bookings growth and reduced marketing[172][576] - This increase was partially offset by higher personnel costs and third-party commissions[172][576] Investing Activities - Net cash used in investing activities decreased by $329.4 million to $30.5 million for H1 2022, due to a $320.1 million decrease in acquisition spending[173][577] Financing Activities - Net cash from financing activities decreased by $1,493.3 million, shifting from $539.6 million provided in H1 2021 to $953.7 million used in H1 2022[174][578] - This change was primarily due to $800.0 million in proceeds from 2029 Senior Notes in 2021 and a $691.2 million increase in share repurchases in 2022[174][578] Deferred Revenue - Details on the expected future recognition of deferred revenue are provided in Note 6 to the financial statements[175][579] Off-Balance Sheet Arrangements - As of June 30, 2022, the company had no off-balance sheet arrangements with a material effect on its financial statements[176][580] Critical Accounting Policies and Estimates - Financial statements are prepared using GAAP, requiring estimates, assumptions, and judgments affecting reported amounts[177][581] - There have been no material changes in critical accounting policies from those disclosed in the 2021 Form 10-K[178][582] Recent Accounting Pronouncements - Information regarding recent accounting pronouncements is detailed in Note 2 to the financial statements[179][583] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rates and variable interest rates, managed via derivative instruments - GoDaddy is exposed to market risk from foreign currency exchange rates and variable interest rates, mitigated by derivative financial instruments[180][584] - Counterparty credit risk from derivatives is managed by contracting with selected financial institutions based on creditworthiness[181][585] Foreign Currency Risk - Foreign currency risk is managed using foreign exchange forward contracts and cross-currency swap contracts[182][586] - A hypothetical 10% change in foreign currency exchange rates would not materially impact cash and cash equivalents[182][586] - Foreign currency fluctuations adversely impacted total bookings growth by 160 basis points and total revenue growth by 110 basis points for Q2 2022[183][587] Foreign Exchange Forward Contracts - Foreign exchange forward contracts are used to hedge forecasted foreign currency sales transactions, designated as cash flow hedges[185][589] - As of June 30, 2022, realized and unrealized gains included in AOCI were $4.3 million and $17.9 million, respectively[185][589] Cross-Currency Swaps - Cross-currency swaps manage variability from Euro-denominated intercompany loans, with maturities extended to August 31, 2027[186][187][590][591] - Swaps designated as cash flow hedges convert Euro interest/principal receipts to fixed U.S. dollar rates[187][591] Interest Rate Risk - Interest rate risk is associated with variable-rate debt, including $1,770.0 million of 2024 Term Loans and $735.0 million of 2027 Term Loans[188][592] - Interest rate swaps convert portions of variable-rate borrowings to fixed rates[189][190][593][594] - A hypothetical 10% change in interest rates would not materially impact interest expense for the unhedged portion of long-term debt[190][594] Item 4. Controls and Procedures Management concluded that disclosure controls were effective as of June 30, 2022, with no material changes in internal control - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2022[193][597] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2022[194][598] - Controls and procedures provide only reasonable, not absolute, assurance of achieving control objectives[195][599] PART II. OTHER INFORMATION Item 1. Legal Proceedings A shareholder derivative complaint was filed in June 2022 related to Tax Receivable Agreement (TRA) Settlement Agreements - A shareholder derivative complaint was filed on June 7, 2022, alleging breach of fiduciary duty and corporate waste related to TRA Settlement Agreements[197][601] - The complaint seeks monetary damages, restitution, and changes to corporate governance and internal procedures[197][601] - Further details on legal proceedings are incorporated by reference from Note 11 to the financial statements[198][602] Item 1A. Risk Factors The company faces various risks that could materially affect its business, financial condition, and growth prospects - The company's operations and financial results are subject to various risks and uncertainties, which could materially and adversely affect its business[199][603] - Key risk categories include customer retention, product development, competition, international expansion, system failures, and regulatory changes[199][200][201][604][605][606] Risk Factor Summary - Inability to attract and retain customers or increase sales to new and existing customers[200][201][604][605][606] - Failure to successfully develop and market products that meet or anticipate customer needs[200][201][604][605][606] - Suffering if the small business market is less lucrative or if small business customers are not effectively acquired and serviced[200][201][604][605][606] - Adverse effects if unable to attract a more diverse customer base (Independents, Web Pros, Domain Registrars, Investors, tech-savvy users)[200][201][604][605][606] - Harm to business and competitive position if the brand is not protected or promoted[200][201][604][605][606] - Significant and intensifying competition for applications, commerce, and core platform products[200][201][604][605][606] - Additional risks due to continued international presence and dependence on international bookings for future growth[200][201][604][605][606] - Investments to support growth strategy may not succeed, and ineffective management of future growth could adversely affect operating results[200][201][604][605][606] - Acquisitions of other businesses or talent could require significant management attention, disrupt business, dilute stockholder value, and adversely affect operating results[200][201][604][605][606] - Entry into new lines of business may subject the company to additional risks[200][201][604][605][606] Strategic Risks - Success depends on attracting and retaining customers; slower growth rates in recent periods reflect business maturity, and future growth is uncertain[204][608] - Failure to maintain strong renewal rates, which have lower associated costs than new customer acquisition, would reduce operating margins[205][609] - Inability to attract a diverse customer base or effectively serve the small business market could harm growth and profitability[206][207][208][209][610][611][612][613] - Failure to timely develop and market products that anticipate customer needs could adversely affect business[210][211][614][615] - Brand protection and promotion are crucial for attracting new customers globally; activist groups targeting the brand could cause harm[214][215][618][619] - Evolving Internet technologies could reduce the value and demand for domain names, impacting market share[216][217][620][621] - Significant competition from providers like Google, Amazon, Microsoft, Wix, and Shopify could lead to lower sales and reduced margins[221][222][625][626] - International expansion faces risks including compliance with foreign laws, currency exposure, and geopolitical events (e.g, Russia-Ukraine conflict)[224][225][226][227][628][629][630][631] - Significant investments in growth strategy, including international operations and cloud migration, may not succeed or may have delayed benefits[228][229][230][231][632][633][634][635] - Acquisitions involve risks such as integration difficulties, unknown liabilities, dilution of stockholder value, and potential impairment charges[232][233][234][235][236][237][636][637][638][639][640][641] - Entering new lines of business introduces risks like diversion of resources, regulatory burdens, and inability to compete effectively[238][239][642][643] - Failure to maintain corporate culture could negatively affect talent retention, innovation, and operational effectiveness[239][240][643][644] Operational Risks - The company is exposed to system failures and capacity constraints, which can disrupt operations and impact reputation[241][242][645][646] - Reliance on third parties (e.g, AWS) exposes the company to risks of service interruptions, cyber attacks, and increased costs[243][244][647][648] - The company faces a high rate of sophisticated network attacks, which could lead to service disruptions and unauthorized data access[245][246][247][248][649][650][651][652] - Past security incidents highlight ongoing risks of litigation, regulatory inquiries, fines, and significant remediation costs[249][653] - Breaches of confidential, personal, or payment card information could harm reputation and lead to liability and government investigations[250][251][252][253][254][255][654][655][656][657][658][659] - Marketing efforts are critical for brand promotion; failure to optimize campaigns could adversely affect business[256][257][258][660][661][662] - High-quality customer care is essential for retention; failure to maintain it could harm reputation and financial results[259][260][261][663][664][665] - Dependence on senior management and key employees means loss of their services could delay strategic objectives[262][666] - Inability to hire and retain qualified personnel, particularly those with technical skills, could harm business[263][264][667][668] - Failure to maintain contractual relationships with partners (e.g, Microsoft, PayPal) could limit product offerings and increase costs[265][266][669][670] - Improper registration or maintenance of customer domain names could lead to expenses, claims, and negative publicity[267][268][671][672] - Reliance on internally developed systems means maintenance difficulties could cause service interruptions and increase expenditures[269][270][673][674] - Reliance on a limited number of data centers exposes the business to risks of damage and interruption[271][272][273][274][275][675][676][677][678][679] - Exposure to credit card and payment chargebacks and fraud could lead to increased refunds and liability[276][277][278][279][280][680][681][682][683][684] Financial Risks - Quarterly and annual operating results are subject to fluctuations due to factors like customer acquisition, renewal rates, and macroeconomic conditions[281][283][685][687] - Failure to meet revenue or operating results expectations could lead to stock price decline[285][688] - The company may not achieve or maintain future profitability due to increased expenditures or slower revenue growth[286][287][690][691] - Future financing may be needed but might not be available on acceptable terms, potentially leading to dilution[288][289][692][693] - Revenue recognition over subscription terms means sales changes are not immediately reflected in operating results[290][291][694][695] - Unanticipated changes in effective tax rates or adverse audit outcomes could harm operating results[292][293][294][696][697][698] - Dependence on distributions from Desert Newco to pay expenses and taxes means restrictions could adversely affect financial condition[295][296][297][699][700][701] - Substantial indebtedness could adversely affect financial condition and restrict business operations[299][300][703][704] - Debt agreements impose significant operating and financial restrictions, limiting ability to incur debt, pay dividends, and make investments[301][302][303][705][706][707] - Ability to service and repay debt depends on cash flow; failure could lead to default and acceleration of obligations[304][305][306][307][708][709][710][711] - A change of control triggering event could require repurchase of Senior Notes, potentially leading to default[308][712] Legal and Regulatory Risks - Governmental and regulatory policies concerning the domain name system, particularly ICANN's role, may cause industry instability[309][310][311][312][313][713][714][715][716][717] - Conflicts between global privacy laws (e.g, GDPR) and ICANN policies could impact revenue[314][718] - Delays in ICANN authorizing new Top-Level Domains (TLDs) could adversely impact business[315][316][719][720] - Increases in domain name registration fees imposed by registries (e.g, VeriSign) and ICANN could raise costs or reduce margins[318][319][320][722][723][724] - Failure to comply with privacy and data protection laws (e.g, CCPA, GDPR) could result in sanctions and harm to reputation[321][322][323][324][325][326][327][328][725][726][727][728][729][730][731][732] - Customer activities or website content could lead to liability and negative publicity[329][330][331][332][333][733][734][735][736][737] - Dependence on customers' unimpeded Internet access means providers blocking access could lead to customer loss[334][335][336][738][739][740] - Involvement in lawsuits, including class actions, is expensive and could lead to substantial damages or fines[337][338][339][340][741][742][743][744] - Failure to protect and enforce intellectual property rights could harm business and operating results[341][342][343][344][345][745][746][747][748][749] - Involvement in intellectual property claims by third parties is costly and could result in significant expenses or injunctions[346][347][348][750][751][752] - Disputes over domain name registration could lead to liability and damage to reputation[349][350][351][753][754][755] - Use of open source technology could impose limitations on commercializing products[352][353][756][757] - Data localization requirements in certain jurisdictions may increase operating costs[354][758] - New governmental regulations regarding the Internet could increase costs or restrict business operations[355][356][759][760] - Subject to export controls and trade sanctions; non-compliance could lead to civil/criminal penalties[357][358][359][360][761][762][763][764] - Violations of anti-bribery and anti-corruption laws could result in criminal/civil penalties and reputational damage[361][362][363][765][766][767] - Changes in taxation laws may discourage domain name registration or increase costs[364][365][768][769] - Payments business (GoDaddy Payments) is subject to various laws and payment network rules; non-compliance could lead to penalties[366][367][368][369][370][770][771][772][773][774] Risks Related to Owning our Class A Common Stock - Shareholder activism could negatively impact business by disrupting operations and diverting management attention[371][775] - The Class A common stock price may be highly volatile due to market fluctuations, operating results, and macroeconomic conditions[372][373][776][777] - Provisions in the company's charter and bylaws may have anti-takeover effects[374][375][376][778][779][780] - Bylaws designate Delaware Court of Chancery as exclusive forum for certain litigation, potentially limiting stockholders' choice of forum[377][378][781][782] - The company does not intend to pay dividends, making capital appreciation the sole source of gain for investors[379][783] - There is no guarantee of additional share repurchases, and failure to repurchase could negatively impact stock price[380][381][784][785] Other Risks - The COVID-19 pandemic has adversely impacted customers and could harm business by reducing spending and disrupting operations[382][383][384][385][786][787][788][789] - Economic conditions (e.g, inflation, Russia-Ukraine conflict) may adversely impact demand for products[386][387][790][791] - Failure to maintain effective disclosure controls and internal control could impair ability to produce timely financial statements[388][389][390][391][392][792][793][794][795][796] - Business is subject to risks from catastrophic events which could cause service disruptions and damage reputation[393][394][797][798] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details share repurchases during Q2 2022 under ASR agreements and open market purchases Share Repurchases (Three Months Ended June 30, 2022) | Period | Total Number of Shares Purchased (in thousands) | Average Price Paid Per Share | | :--- | :--- | :--- | | May 1 - May 31 (ASRs) | 2,670 | $81.50 | | May 1 - May 31 (Open market) | 1,045 | $71.12 | | June 1 - June 30 (Open market) | 2,344 | $69.16 | | Total | 6,059 | | - In total, 9,202 thousand shares were repurchased under ASRs at an average price of $81.50 per share[800] - As of June 30, 2022, $2,013.7 million of repurchase authorization remained available[800] [Item 3. Defaults Upon Senior Securities](index=95&type=section&id=Item%203.%20Defaults%20Upon%