GoDaddy(GDDY) - 2023 Q1 - Quarterly Report

Part I Financial Statements (unaudited) This section presents GoDaddy's unaudited consolidated financial statements for Q1 2023, showing revenue growth to $1.04 billion but reduced net income of $47.4 million due to a restructuring charge Consolidated Balance Sheets As of March 31, 2023, total assets increased to $7.09 billion, liabilities rose to $7.45 billion, and stockholders' deficit widened to $355.5 million Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $892.4 | $774.0 | | Goodwill | $3,549.1 | $3,536.9 | | Total Assets | $7,092.3 | $6,973.5 | | Liabilities & Stockholders' Deficit | | | | Deferred revenue (Current) | $2,043.2 | $1,954.0 | | Long-term debt, net | $3,809.6 | $3,812.9 | | Total Liabilities | $7,447.8 | $7,302.8 | | Total stockholders' deficit | $(355.5) | $(329.3) | - The company classified $21.7 million in assets and $13.9 million in liabilities as 'held for sale' as of March 31, 2023, related to its restructuring plan[19] Consolidated Statements of Operations Q1 2023 total revenue increased to $1.036 billion, but operating income decreased to $70.8 million and net income to $47.4 million, primarily due to a restructuring charge Q1 2023 vs. Q1 2022 Performance (in millions, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Revenue | $1,036.0 | $1,002.7 | | Operating Income | $70.8 | $109.6 | | Net Income | $47.4 | $68.6 | | Diluted EPS | $0.30 | $0.41 | - Revenue from the Applications & Commerce segment grew to $338.0 million from $303.1 million, while Core Platform revenue slightly decreased to $698.0 million from $699.6 million[21] - The company recorded a $52.3 million charge for 'Restructuring and other', which was not present in the prior-year period and significantly impacted operating income[21] Consolidated Statements of Comprehensive Income Q1 2023 comprehensive income significantly decreased to $9.8 million, primarily due to a net loss on unrealized swaps Comprehensive Income (in millions) | Component | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Income | $47.4 | $68.6 | | Unrealized swap gain (loss), net | $(32.6) | $89.9 | | Comprehensive Income | $10.0 | $127.4 | Consolidated Statements of Stockholders' Deficit Total stockholders' deficit widened to $355.5 million, primarily due to share repurchases and negative derivative impacts offsetting net income - The company repurchased 1.55 million shares of Class A common stock for $113.9 million during the quarter[27] - Equity-based compensation added $74.5 million to additional paid-in capital[27] Consolidated Statements of Cash Flows Q1 2023 operating cash flow increased to $270.3 million, while financing cash outflow significantly decreased due to lower share repurchases Cash Flow Summary (in millions) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $270.3 | $250.9 | | Net cash used in investing activities | $(22.8) | $(12.5) | | Net cash used in financing activities | $(124.2) | $(750.6) | | Net increase (decrease) in cash | $118.4 | $(513.0) | - Payments for repurchases of Class A common stock were $119.7 million in Q1 2023, compared to $750.1 million in Q1 2022[29] Notes to Consolidated Financial Statements Notes detail accounting policies, revenue breakdown, the February 2023 restructuring plan, long-term debt, and segment performance Revenue by Geography (Q1 2023 vs Q1 2022, in millions) | Geography | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | U.S. | $695.4 | $672.9 | | International | $340.6 | $329.8 | | Total | $1,036.0 | $1,002.7 | - In February 2023, the company initiated a restructuring plan, reducing its workforce by approximately 8% (550 employees) and recording $50.4 million in pre-tax charges during the quarter[89] - As of March 31, 2023, the company had $1.586 billion remaining under its $3.0 billion share repurchase authorization[56] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 2023 financial results, noting revenue growth to $1.04 billion driven by A&C, but profitability impacted by a $52.3 million restructuring charge Consolidated First Quarter Financial Highlights Q1 2023 highlights include total revenue of $1.036 billion and bookings of $1.199 billion, but operating and net income declined due to restructuring charges Q1 2023 Key Financial Metrics vs. Q1 2022 (in millions) | Metric | Q1 2023 | Change vs. Q1 2022 | | :--- | :--- | :--- | | Total Revenue | $1,036.0 | +3.3% | | Total Bookings | $1,199.2 | +3.7% | | Operating Income | $70.8 | -35.4% | | Net Income | $47.4 | -30.9% | | Normalized EBITDA | $249.7 | +10.5% | Results of Operations Total revenue grew 3.3% driven by Applications & Commerce, while Core Platform revenue slightly decreased, and operating expenses rose due to a restructuring charge - Applications & Commerce revenue growth was driven by a 10.1% increase in productivity applications, 8.0% in Websites + Marketing, and 104.2% in commerce-related revenue[131] - Core Platform revenue was impacted by an 8.0% decrease in aftermarket revenues and a 4.8% decrease in hosting revenues, partially offset by a 4.9% increase in domain registration revenue[132] - Marketing and advertising expenses decreased 20.6% to $92.4 million, attributed to lower discretionary spending and headcount reductions from the restructuring plan[140] - Technology and development expenses increased 13.1% to $215.0 million due to higher personnel costs and technology investments for growth and cloud migration[138] Segment Results of Operations A&C segment revenue grew 11.5% to $338.0 million, while Core Platform revenue slightly decreased, but its EBITDA increased due to lower marketing spend Segment Performance (Q1 2023 vs Q1 2022, in millions) | Segment | Metric | Q1 2023 | Q1 2022 | Change % | | :--- | :--- | :--- | :--- | :--- | | Applications & Commerce | Revenue | $338.0 | $303.1 | +11.5% | | | Segment EBITDA | $132.4 | $119.8 | +10.5% | | Core Platform | Revenue | $698.0 | $699.6 | -0.2% | | | Segment EBITDA | $189.0 | $178.4 | +5.9% | Liquidity and Capital Resources GoDaddy's liquidity is driven by operating cash flow of $270.3 million, with $113.9 million used for share repurchases and $1.586 billion remaining in authorization - Net cash from operating activities increased by $19.4 million year-over-year, primarily due to growth in bookings and lower discretionary marketing spend[168] - Net cash used in financing activities decreased by $626.4 million, mainly due to a $630.4 million decrease in share repurchases compared to Q1 2022[171] - The February 2023 restructuring plan resulted in $6.4 million in cash payments during the quarter, with an additional $20.7 million remaining to be paid[165] Quantitative and Qualitative Disclosures About Market Risk GoDaddy manages market risks from foreign currency and variable interest rates using derivatives, with currency movements negatively impacting Q1 2023 growth - The company's most significant foreign currency exposures are the British pound, the Euro, and the Canadian dollar[180] - In Q1 2023, constant currency total bookings growth would have been approximately 160 basis points higher, and total revenue growth would have been 140 basis points higher, than reported figures[180] - The company uses pay-fixed, receive-floating interest rate swaps to convert a significant portion of its variable-rate term loans to fixed rates, mitigating exposure to rising interest rates[190][191][192] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of March 31, 2023, the company's disclosure controls and procedures are effective at a reasonable assurance level[195] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[196] Part II Legal Proceedings The company is subject to a shareholder derivative complaint alleging breach of fiduciary duty related to Tax Receivable Agreement settlements - A shareholder derivative complaint was filed against certain current and former officers and directors concerning the approval of the Tax Receivable Agreement (TRA) settlements[200] - The company filed a motion to dismiss the complaint, with a hearing scheduled for May 24, 2023[200] Risk Factors The company faces significant strategic, operational, financial, and legal risks, including intense competition, security breaches, substantial debt, and evolving regulations - The company faces significant competition from a wide range of providers, including domain registrars, hosting providers, e-commerce platforms (Wix, Shopify), and large tech companies (Google, Amazon, Microsoft)[219][220] - The company has experienced and is frequently targeted by sophisticated network attacks and security breaches, including a multi-year campaign by a threat actor group, which could harm its reputation and result in liability[252][256] - The February 2023 restructuring plan, which included an 8% workforce reduction, may not achieve expected cost savings and could lead to operational disruptions or loss of institutional knowledge[222][225] - The business is subject to complex and evolving regulations, including data privacy laws like GDPR and CCPA, and policies from ICANN, which could increase costs and restrict operations[321][327][329] Unregistered Sales of Equity Securities and Use of Proceeds GoDaddy repurchased 1.55 million shares for $113.9 million in Q1 2023, with $1.586 billion remaining under its repurchase authorization Share Repurchases in Q1 2023 | Period | Total Shares Purchased (in thousands) | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2023 | 407.8 | $74.22 | | Feb 2023 | 0.2 | $75.01 | | Mar 2023 | 1,144.6 | $73.09 | | Total | 1,552.6 | N/A | - As of March 31, 2023, the company had $1,586.0 million remaining under its share repurchase authorization[404] Defaults Upon Senior Securities No defaults upon senior securities were reported - The company reported no defaults upon senior securities[405] Mine Safety Disclosures This section is not applicable to the company's operations - This section is not applicable to the company[406] Other Information No other information was reported for this item - The company reported no other information for this item[407] Exhibits This section lists exhibits filed with the Form 10-Q, including certifications and XBRL data files - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906[410]