Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data


Index to Consolidated Financial Statements
			Page
Report of Independent Registered Public Accounting Firm			81
Consolidated Balance Sheets			83
Consolidated Statements of Operations			84
Consolidated Statements of Comprehensive Income			85
Consolidated Statements of Stockholders' Equity			86
Consolidated Statements of Cash Flows			89
Notes to Consolidated Financial Statements			91

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of GoDaddy Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of GoDaddy Inc. (the Company) as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2019 and 2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 20, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.


						Payable to Related Parties Pursuant to Tax Receivable Agreements
Description of the Matter						As discussed in Notes 2 and 16 of the December 31, 2019 consolidated financial statements, the Company has recorded a $175.3 million liability, payable to counterparties pursuant to Tax Receivable Agreements (TRA). The TRA liability represents the amount the Company estimates to pay to the counterparties to the TRA that are former owners of the Company (pre-IPO owners). The liability is computed as 85% of the estimated cash tax savings to be received by the Company from utilizing the positive tax attributes contributed by pre-IPO owners. Auditing the TRA liability computation each period is a complex process as a result of the assumptions and management judgement utilized in the determination of the expected cash tax savings to be realized. In particular, estimated future taxable income can be sensitive to changes in the assumed revenue growth rate and expected operating margin, which are affected by expectations about future market conditions and are inherently uncertain due to their forward-looking nature.


How We Addressed the Matter in Our Audit						We tested controls that address the risks of material misstatement relating to the measurement of the TRA liability. For example, we tested controls over management's review of the sensitivity of the projections of future taxable income to the recorded TRA liability. Our audit procedures included, among others, independent recalculations of the recorded liability. We also evaluated management's estimates used in developing a forecast of future taxable income. For example, we compared the projections of future taxable income with the actual results of prior periods, as well as management's consideration of current industry and economic trends. We also compared the projections of future taxable income with other forecasted financial information prepared by the Company.

						Legal Contingencies
Description of the Matter						As described in Note 13 to the consolidated financial statements, the Company accrues for losses and defense costs related to legal contingencies at the time a loss is probable, and the amount of loss can be reasonably estimated. At December 31, 2019, the Company's legal liability reserve balance included $18.1 million, relating primarily to a single legal matter. The Company believes there is a range of estimated losses with respect to this matter, with $35.0 million representing the high end of the range. Auditing management's accounting for and disclosure of loss contingencies related to the primary legal matter in which a loss was determined to be probable was challenging due to the significant judgment required to develop the key assumptions utilized to measure the liability and the nature of information available given the early stages of the settlement process and the limited historical information available.
How We Addressed the Matter in Our Audit						We tested controls that address the risks of material misstatement relating to legal contingencies. For example, we tested controls over management's review of the model used to estimate the probable loss and potential range of loss, as well as significant assumptions utilized. We also tested management's controls over the completeness and accuracy of the data consumed. Our audit procedures also included, among others, evaluating the Company's method of measuring the reserve for the settlement of the claims, the analyses of determining the range of possible losses, and the accuracy and completeness of the data used in the analyses. We also discussed with the Company's internal and external legal counsel the development of the range of loss and evaluated new or contrary information affecting the estimate. Additionally, we assessed the adequacy of the Company's disclosures included in Note 13 in relation to these matters.

/s/ Ernst & Young LLP

We have served as the Company's auditor since 2004.

Phoenix, Arizona

February 20, 2020

GoDaddy Inc.

Consolidated Balance Sheets

(In millions, except shares in thousands and per share amounts)


	December 31,
	2019		2018
Assets
Current assets:
Cash and cash equivalents	$	1,062.8	$	932.4
Short-term investments	23.6		18.9
Accounts and other receivables	30.2		26.4
Registry deposits	27.2		28.3
Prepaid domain name registry fees	382.6		363.2
Prepaid expenses and other current assets	48.9		58.1
Total current assets	1,575.3		1,427.3
Property and equipment, net	258.6		299.0
Operating lease assets	196.6		—
Prepaid domain name registry fees, net of current portion	179.3		183.6
Goodwill	2,976.5		2,948.0
Intangible assets, net	1,097.7		1,211.5
Other assets	17.2		14.0
Total assets	$	6,301.2	$	6,083.4
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	72.3	$	61.6
Accrued expenses and other current liabilities	366.0		414.3


Deferred revenue	1,544.4		1,393.7
Long-term debt	18.4		16.6
Total current liabilities	2,001.1		1,886.2
Deferred revenue, net of current portion	654.4		623.8
Long-term debt, net of current portion	2,376.8		2,394.2
Operating lease liabilities, net of current portion	192.9		—
Payable to related parties pursuant to tax receivable agreements	175.3		174.3
Other long-term liabilities	17.7		63.2
Deferred tax liabilities	100.9		117.2
Commitments and contingencies
Stockholders' equity:

Preferred stock, $0.001 par value - 50,000 shares authorized; none issued and outstanding	—		—
Class A common stock, $0.001 par value - 1,000,000 shares authorized; 172,867 and 168,549 shares issued and outstanding as of December 31, 2019 and 2018, respectively	0.2		0.2
Class B common stock, $0.001 par value - 500,000 shares authorized; 1,490 and 6,254 shares issued and outstanding as of December 31, 2019 and 2018, respectively	—		—
Additional paid-in capital	1,003.5		699.8
Retained earnings (accumulated deficit)	(153.5)		164.8
Accumulated other comprehensive loss	(78.2)		(72.1)
Total stockholders' equity attributable to GoDaddy Inc.	772.0		792.7
Non-controlling interests	10.1		31.8
Total stockholders' equity	782.1		824.5
Total liabilities and stockholders' equity	$	6,301.2	$	6,083.4

See accompanying notes to consolidated financial statements.

GoDaddy Inc.

Consolidated Statements of Operations

(In millions, except shares in thousands and per share amounts)


	Year Ended December 31,
	2019		2018		2017
Revenue:
Domains	$	1,351.6	$	1,220.3	$	1,057.2
Hosting and presence	1,126.5		1,017.6		847.9
Business applications	510.0		422.2		326.8
Total revenue	2,988.1		2,660.1		2,231.9
Costs and operating expenses(1):
Cost of revenue (excluding depreciation and amortization)	1,026.8		893.9		775.5
Technology and development	492.6		434.0		355.8
Marketing and advertising	345.6		291.4		253.2
Customer care	348.7		323.1		292.3
General and administrative	362.1		334.0		282.4
Depreciation and amortization	209.7		234.1		205.8
Total costs and operating expenses	2,785.5		2,510.5		2,165.0
Operating income	202.6		149.6		66.9
Interest expense	(92.1)		(98.4)		(83.0)
Loss on debt extinguishment	(14.8)		—		(7.3)
Tax receivable agreements liability adjustment	8.7		14.9		123.2
Other income (expense), net	22.0		6.9		7.0
Income from continuing operations before income taxes	126.4		73.0		106.8
Benefit for income taxes	12.0		9.0		18.9
Income from continuing operations	138.4		82.0		125.7
Income from discontinued operations, net of income taxes	—		—		14.1
Net income	138.4		82.0		139.8
Less: net income attributable to non-controlling interests	1.4		4.9		3.4
Net income attributable to GoDaddy Inc.	$	137.0	$	77.1	$	136.4
Net income attributable to GoDaddy Inc. per share of Class A common stock—basic:
Continuing operations	$	0.79	$	0.50	$	1.17
Discontinued operations	—		—		0.08
Net income attributable to GoDaddy Inc.	$	0.79	$	0.50	$	1.25
Net income attributable to GoDaddy Inc. per share of Class A common stock—diluted:
Continuing operations	$	0.76	$	0.45	$	0.71
Discontinued operations	—		—		0.08
Net income attributable to GoDaddy Inc.	$	0.76	$	0.45	$	0.79
Weighted-average shares of Class A common stock outstanding:
Basic	173,431		155,234		108,779
Diluted	181,721		181,353		177,054
___________________________
(1) Costs and operating expenses include equity-based compensation expense as follows:
Cost of revenue	$	0.4	$	—	$	—
Technology and development	70.3		57.8		37.1
Marketing and advertising	15.4		10.3		7.3
Customer care	9.3		6.2		3.6
General and administrative	51.6		51.2		28.4
Total equity-based compensation expense	$	147.0	$	125.5	$	76.4

See accompanying notes to consolidated financial statements.

GoDaddy Inc.

Consolidated Statements of Comprehensive Income

(In millions)


	Year Ended December 31,
	2019		2018		2017
Net income	$	138.4	$	82.0	$	139.8
Foreign exchange forward contracts gain (loss), net	(2.7)		8.9		(9.3)
Unrealized swap gain (loss), net	0.8		14.2		(39.2)
Change in foreign currency translation adjustment	37.7		(5.5)		(86.5)
Comprehensive income	174.2		99.6		4.8
Less: comprehensive income (loss) attributable to non-controlling interests	2.2		8.9		(43.2)
Comprehensive income attributable to GoDaddy Inc.	$	172.0	$	90.7	$	48.0

See accompanying notes to consolidated financial statements.

GoDaddy Inc.

Consolidated Statements of Stockholders' Equity

(In millions, except shares in thousands)


	Class A Common Stock				Class B Common Stock						Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Non- Controlling Interests	Total Stockholders' Equity
	Shares	Amount		Shares	Amount



















Balance at December 31, 2016	88,558	$	0.1	78,554	$	0.1	$	608.3	$	(48.7)	$	2.7	$	151.7	$	714.2
Net income	—	—		—	—		—		136.4		—		3.4		139.8
Equity-based compensation	—	—		—	—		76.4		—		—		—		76.4
Sales of Class A common stock, net of issuance costs	721	—		—	—		21.3		—		—		—		21.3
Stock option exercises	6,000	—		—	—		80.9		—		—		(19.8)		61.1
Issuances of Class A common stock under employee stock purchase plan	572	—		—	—		17.4		—		—		—		17.4
Repurchases of LLC units	—	—		(7,345)	—		(275.0)		—		—		—		(275.0)
Exchanges of LLC units	36,203	—		(36,203)	(0.1)		28.7		—		—		(28.7)		(0.1)
Liability pursuant to tax receivable agreements resulting from exchanges of LLC Units	—	—		—	—		(73.6)		—		—		—		(73.6)
Impact of derivatives, net	—	—		—	—		—		—		(48.5)		—		(48.5)
Change in foreign currency translation adjustment	—	—		—	—		—		—		(86.5)		—		(86.5)
Accumulated other comprehensive income (loss) attributable to non-controlling interests	—	—		—	—		—		—		46.6		(46.6)		—
Vesting of restricted stock units	939	—		—	—		—		—		—		—		—
Balance at December 31, 2017	132,993	0.1		35,006	—		484.4		87.7		(85.7)		60.0		546.5

GoDaddy Inc.

Consolidated Statements of Stockholders' Equity (continued)

(In millions, except shares in thousands)


	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital	Retained Earnings (Accumulated Deficit)	Accumulated Other Comprehensive Income (Loss)	Non- Controlling Interests	Total Stockholders' Equity
	Shares	Amount	Shares	Amount
Net income	—	—	—	—	—	77.1	—	4.9	82.0
Equity-based compensation	—	—	—	—	125.5	—	—	—	125.5
Sales of Class A common stock, net of issuance costs	8	—	—	—	—	—	—	—	—
Stock option and warrant exercises	4,782	0.1	—	—	76.3	—	—	(9.2)	67.2
Issuances of Class A common stock under employee stock purchase plan	469	—	—	—	21.9	—	—	—	21.9
Exchanges of LLC units	28,752	—	(28,752)	—	27.9	—	—	(27.9)	—
Liability pursuant to tax receivable agreements resulting from exchanges of LLC Units	—	—	—	—	(36.2)	—	—	—	(36.2)
Impact of derivatives, net	—	—	—	—	—	—	23.1	—	23.1
Change in foreign currency translation adjustment	—	—	—	—	—	—	(5.5)	—	(5.5)
Accumulated other comprehensive income (loss) attributable to non-controlling interests	—	—	—	—	—	—	(4.0)	4.0	—
Vesting of restricted stock units	1,545	—	—	—	—	—	—	—	—
Balance at December 31, 2018	168,549	0.2	6,254	—	699.8	164.8	(72.1)	31.8	824.5

GoDaddy Inc.

Consolidated Statements of Stockholders' Equity (continued)

(In millions, except shares in thousands)


	Class A Common Stock				Class B Common Stock						Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Non- Controlling Interests	Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Impact of adoption of lease accounting standard	—	—		—	—		—		3.3		—		—		3.3
Net income	—	—		—	—		—		137.0		—		1.4		138.4
Equity-based compensation, including amounts capitalized	—	—		—	—		149.2		—		—		—		149.2
Sales of Class A common stock, net of issuance costs	8	—		—	—		—		—		—		—		—
Repurchases of Class A common stock	(7,125)	—		—	—		—		(458.6)		—		—		(458.6)
Stock option exercises	3,976	—		—	—		74.9		—		—		(4.2)		70.7
Issuances of Class A common stock under employee stock purchase plan	508	—		—	—		28.5		—		—		—		28.5
Exchanges of LLC units	4,764	—		(4,764)	—		9.1		—		(2.6)		(6.5)		—
Liability pursuant to tax receivable agreements resulting from exchanges of LLC Units	—	—		—	—		(9.7)		—		—		—		(9.7)
Impact of derivatives, net	—	—		—	—		—		—		(1.9)		—		(1.9)
Change in foreign currency translation adjustment	—	—		—	—		—		—		37.7		—		37.7
Accumulated other comprehensive income (loss) attributable to non-controlling interests	—	—		—	—		—		—		(0.8)		0.8		—
Vesting of restricted stock units	2,187	—		—	—		—		—		—		—		—
Adjustment to prior period non-controlling interests allocations	—	—		—	—		51.7		—		(38.5)		(13.2)		—
Balance at December 31, 2019	172,867	$	0.2	1,490	$	—	$	1,003.5	$	(153.5)	$	(78.2)	$	10.1	$	782.1

See accompanying notes to consolidated financial statements.

GoDaddy Inc.

Consolidated Statements of Cash Flows

(In millions)


	Year Ended December 31,
	2019		2018		2017
Operating activities
Net income	$	138.4	$	82.0	$	139.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	209.7		234.1		205.8
Equity-based compensation	147.0		125.5		76.4
Loss on debt extinguishment	14.8		—		7.3

Tax receivable agreements liability adjustment	(8.7)		(14.9)		(123.2)
Gain on sale of discontinued operations	—		—		(33.2)
Other	32.7		(11.4)		(21.2)
Changes in operating assets and liabilities, net of amounts acquired:
Registry deposits	1.1		6.2		(10.1)
Prepaid domain name registry fees	(15.1)		(15.9)		(13.5)
Accounts payable	13.6		(3.4)		(8.4)
Accrued expenses and other current liabilities	40.4		14.9		32.6
Deferred revenue	179.5		158.0		220.0

Other operating assets and liabilities	(30.0)		(15.3)		3.3
Net cash provided by operating activities	723.4		559.8		475.6
Investing activities
Purchases of short-term investments	(64.1)		(24.8)		(28.3)
Maturities of short-term investments	59.9		18.5		22.6
Business acquisitions, net of cash acquired	(40.3)		(147.2)		(1,876.9)
Purchases of intangible assets	(4.7)		(9.3)		(52.0)
Net proceeds from sale of discontinued operations, including post-closing adjustments	—		(4.3)		447.7
Purchases of property and equipment	(87.6)		(87.7)		(83.2)
Other investing activities, net	1.5		—		—
Net cash used in investing activities	(135.3)		(254.8)		(1,570.1)


Financing activities

Proceeds received from:
Issuance of Senior Notes	600.0		—		—
Stock option exercises	70.7		67.2		61.1
Issuances of Class A common stock under employee stock purchase plan	28.5		21.9		17.4
Debt issued to finance HEG acquisition	—		—		1,953.1
Sales of Class A common stock, net of issuance costs	—		—		22.9

Payments made for:
Repayment of term loans	(625.0)		(25.0)		(15.3)
Repurchases of Class A common stock	(458.6)		—		—
Contingent consideration for business acquisitions	(54.8)		(10.4)		(1.2)
Financing-related costs	(13.2)		—		(39.7)
Repurchases of LLC Units and distributions to holders of LLC Units	—		—		(285.0)
Repayment of HEG acquisition bridge financing	—		—		(596.6)


Other financing obligations	(4.5)		(6.7)		(9.2)

Net cash provided by (used in) financing activities	(456.9)		47.0		1,107.5
Effect of exchange rate changes on cash and cash equivalents	(0.8)		(2.3)		3.6
Net increase in cash and cash equivalents	130.4		349.7		16.6
Cash and cash equivalents, beginning of period	932.4		582.7		566.1
Cash and cash equivalents, end of period	$	1,062.8	$	932.4	$	582.7

GoDaddy, Inc.

Consolidated Statements of Cash Flows (continued)

(In millions)


	Year Ended December 31,
	2019		2018		2017


Supplemental cash flow information:
Cash paid during the period for:
Interest on long-term debt, net of swap benefit	$	80.3	$	84.1	$	88.3
Income taxes, net of refunds received	$	6.1	$	22.8	$	16.6
Supplemental information for non-cash investing and financing activities:
Acquisition date fair value of contingent consideration	$	—	$	45.6	$	14.8
Accrued capital expenditures at period end	$	7.4	$	21.9	$	7.4
Landlord paid tenant improvements included in purchases of property and equipment	$	11.2	$	4.1	$	—

See accompanying notes to consolidated financial statements.

GoDaddy Inc.

Notes to Consolidated Financial Statements

(In millions, except shares in thousands and per share amounts)


Note 1	Organization and Background	92
Note 2	Summary of Significant Accounting Policies	93
Note 3	Business Acquisitions	103
Note 4	Sale of Discontinued Operations	105
Note 5	Goodwill and Intangible Assets	105
Note 6	Stockholders' Equity	107
Note 7	Equity-Based Compensation Plans	108
Note 8	Deferred Revenue	111
Note 9	Accrued Expenses and Other Current Liabilities	111
Note 10	Long-Term Debt	112
Note 11	Derivatives and Hedging	114
Note 12	Leases	116
N ote 13	Commitments and Contingencies	117
Note 14	Defined Contribution Plan	119
Note 15	Income Taxes	119
Note 16	Payable to Related Parties Pursuant to the TRAs	122
Note 17	Income Per Share	123
Note 18	Geographic Information	124
Note 19	Related Party Transactions	124
Note 20	Accumulated Other Comprehensive Loss	125
Note 21	Selected Quarterly Financial Data (Unaudited)	126
Note 2 2	Subsequent Events	126

1. Organization and Background

Description of Business

We deliver simple, easy-to-use cloud-based products and outcome-driven, personalized guidance, which enables our customers to establish a digital presence, connect with their customers and manage their presence.

Organization

We are the sole managing member of Desert Newco, LLC and its subsidiaries (Desert Newco), and as a result, we consolidate its financial results and report non-controlling interests representing the economic interests held by its other members. The calculation of non-controlling interests excludes any net income attributable directly to GoDaddy Inc. We owned approximately 99% of Desert Newco's limited liability company units (LLC Units) as of December 31, 2019.

Basis of Presentation

Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP), and include our accounts and the accounts of our subsidiaries. All material intercompany accounts and transactions have been eliminated.

Prior Period Reclassifications

Reclassifications of certain immaterial prior period amounts have been made to conform to the current period presentation.

Use of Estimates

GAAP requires us to make estimates and assumptions affecting amounts reported in our financial statements. Our more significant estimates include:

the relative stand-alone selling price of the indicated performance obligations included in revenue arrangements with multiple performance obligations;
the fair value of assets acquired and liabilities assumed in business acquisitions;
the fair value of contingent consideration arrangements;
the assessment of recoverability of long-lived assets;
the estimated reserve for refunds;
the estimated useful lives of intangible and depreciable assets;
the grant date fair value of equity-based awards;
the fair value of financial instruments;
the recognition, measurement and valuation of current and deferred income taxes;
the recognition and measurement of amounts payable under tax receivable agreements (TRAs); and
the recognition and measurement of loss contingencies, indirect tax liabilities and certain accrued liabilities.

We periodically evaluate our estimates and adjust prospectively, if necessary. We believe our estimates and assumptions are reasonable; however, actual results may differ.

Segment

As of December 31, 2019, our chief operating decision maker function was comprised of our Chief Executive Officer who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance for the entire company. Accordingly, we have a single operating and reportable segment.

2. Summary of Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand, other highly liquid investments with a remaining maturity of 90 days or less at the date of acquisition and receivables related to third-party payment processor transactions normally received within 72 hours. Amounts receivable for payment processor transactions totaled $25.4 million and $26.3 million at December 31, 2019 and 2018, respectively.

Short-Term Investments

Our short-term investments consist of various instruments with a remaining maturity in excess of 90 days at the date of acquisition, which are carried at fair value. The estimated fair value of our short-term investments is determined based on quoted market prices and approximated historical cost. We did not have any material realized or unrealized gains or losses on sales of short-term investments during any of the periods presented.

We classify our short-term investments as available-for-sale at the time of purchase and reevaluate such classification at each balance sheet date. We may sell our short-term investments at any time for use in current operations or for other purposes, such as consideration for acquisitions, even if they have not yet reached maturity. As a result, we classify our short-term investments, including investments with maturities beyond 12 months, as current assets.

Registry Deposits

Registry deposits represent amounts on deposit with, or receivable from, various domain name registries to be used by us to make payments for future domain registrations or renewals.

Prepaid Domain Name Registry Fees

Prepaid domain name registry fees represent amounts charged by a registry at the time a domain is registered or renewed. These amounts are amortized to cost of revenue over the same period revenue is recognized for the related domain registration contracts.

Property and Equipment

Property and equipment is stated at cost. Depreciation is recorded over the shorter of the estimated useful life or the lease term of the applicable assets using the straight-line method beginning on the date an asset is placed in service. We regularly evaluate the estimated remaining useful lives of our property and equipment to determine whether events or changes in circumstances warrant a revision to the remaining period of depreciation. Maintenance and repairs are charged to expense as incurred.

Property and equipment consisted of the following:


	Estimated Useful Lives	December 31,
		2019		2018
Computer equipment	3 years	$	434.8	$	417.6
Software	3 years	55.9		40.5
Land	Indefinite	9.0		9.0
Buildings, including improvements	5-40 years	145.5		175.0
Leasehold improvements	Lesser of useful life or remaining lease term	99.4		70.8
Other	1-20 years	25.7		27.0
Total property and equipment		770.3		739.9
Less: accumulated depreciation and amortization		(511.7)		(440.9)
Property and equipment, net		$	258.6	$	299.0

Depreciation and amortization expense related to property and equipment was $86.5 million, $97.4 million and $88.8 million during 2019, 2018 and 2017, respectively.

Capitalized Internal-Use Software Costs

Costs incurred to develop software for internal-use during the application development phase are capitalized and amortized over such software's estimated useful life. Costs related to the design or maintenance of internal-use software are included in technology and development expenses as incurred. During 2019, we capitalized $13.4 million of such costs to property and equipment. Capitalized costs were not material in 2018.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. Indefinite-lived intangible assets consist of the GoDaddy trade names and branding and our domain portfolio. Goodwill and indefinite-lived intangible assets are not amortized to earnings, but are assessed for impairment at least annually. As individual domains are sold, our indefinite-lived domain portfolio intangible asset is reduced by the allocated carrying cost of each domain, which is included in cost of revenue.

We assess impairment annually for our single reportable segment and our indefinite-lived trade names and branding during the fourth quarter of each year. We also perform an assessment at other times if events or changes in circumstances indicate the carrying value of the assets may not be recoverable. If, based on qualitative analysis, we determine it is more-likely-than-not the fair value of our reporting unit is less than its carrying amount, a quantitative impairment test is performed. Our qualitative analysis did not indicate impairment during any of the periods presented.

Our indefinite-lived domain portfolio is reviewed for impairment annually during the fourth quarter of each year. We also perform an assessment at other times if events or changes in circumstances indicate the carrying amount of the asset may not be fully recoverable. Any identified impairment loss is treated as a permanent reduction in the carrying amount of the asset. We did not record an impairment loss during any of the periods presented.

Long-Lived and Finite-Lived Intangible Assets

Finite-lived intangible assets are amortized over the following estimated useful lives:


Customer relationships			2-9 years
Developed technology			2-7 years
Trade names and other			4-10 years

Our finite-lived intangible assets are primarily amortized on a straight-line basis. We annually evaluate the estimated remaining useful lives of our intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization.

Long-lived and finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be fully recoverable. An impairment loss is recognized if the sum of the expected long-term undiscounted cash flows the asset is expected to generate is less than its carrying amount. Any write-downs are treated as permanent reductions in the carrying amount of the respective asset. Our analysis did not indicate impairment during any of the periods presented, and accordingly, we did not record any impairment loss.

Debt Issuance Costs

We defer and amortize issuance costs, underwriting fees and related expenses incurred in connection with the issuance of debt instruments using the effective interest method over the terms of the respective instruments. Debt issuance costs, other than those associated with our revolving credit loan, are reflected as a direct reduction of the carrying amount of the related debt liability. Debt issuance costs related to our revolving credit loan are reflected as an asset.

Derivative Financial Instruments

We are exposed to changes in foreign currency exchange rates as well as changes in interest rates associated with our variable-rate debt. Consequently, we use derivative financial instruments to manage and mitigate such risks. We do not enter into derivative transactions for speculative or trading purposes.

Our derivative financial instruments include foreign exchange forward contracts with financial institutions to hedge certain forecasted sales transactions denominated in currencies other than the United States (U.S.) dollar. In addition, we have entered into an interest rate swap on a portion of our long-term debt and a cross-currency swap on certain of our intercompany debt to manage the variability of cash flows due to movements in interest rates and foreign currency exchange rates. We have designated each of these instruments as a cash flow hedge.

We expect each derivative instrument qualifying for hedge accounting will be highly effective at reducing the risk associated with the exposure being hedged. For each derivative instrument designated as a hedge, we formally document the related risk management strategy and objective, including identification of the hedging instrument, the hedged item and the risk of exposure, as well as how hedge effectiveness will be assessed prospectively and retrospectively over the instrument's term. To assess effectiveness of our swap instruments, we use regression analysis performed utilizing the Hypothetical Derivative Method to compare the change in fair value of the derivative instrument designated as the hedging instrument to the change in the fair value of a similarly modeled hypothetical derivative using the same discount rate. Following our initial quantitative assessment, we may perform subsequent assessments on a qualitative basis unless facts and circumstances change such that we can no longer qualitatively assert that our hedges are highly effective.

We reflect unrealized gains or losses on our cash flow hedges as a component of accumulated other comprehensive income (loss) (AOCI). Gains and losses, once realized, are recorded as a component of AOCI and are amortized to earnings over the same period in which the underlying hedged amounts are recognized. At inception, and each reporting period, we evaluate the effectiveness of each of our hedges, and all hedges were determined to be effective.

Our derivative instruments are recorded at fair value on a gross basis. For cash flow reporting purposes, proceeds received or amounts paid upon the settlement of a derivative instrument are classified in the same manner as the related item being hedged, primarily within cash flows from operating activities.

Leases

We lease office and data center space in various locations. Prior to our adoption of the new lease standard on January 1, 2019, rent expense under operating leases was recognized on a straight-line basis over the lease term taking into consideration rent abatements, scheduled rent increases and any lease incentives.

Adoption of New Standard on Leases

On January 1, 2019, we adopted the Financial Accounting Standards Board's (FASB) new lease accounting standard using a modified retrospective transition and recorded a $3.3 million cumulative-effect adjustment to beginning retained earnings (the effective date method). Under the effective date method, comparative period financial information is not adjusted. The new standard requires lessees to recognize a right-of-use (ROU) asset and lease liability on the balance sheet for operating

leases while the accounting for finance leases is substantially unchanged. We recognized $111.3 million and $108.0 million of additional assets and liabilities, respectively, upon adoption of the new standard. The impact to deferred taxes was immaterial.

The increases to assets and liabilities resulting from the recognition of ROU assets and operating lease liabilities included the derecognition of existing assets and liabilities related to leases. The most significant impact resulted from the derecognition of our lease financing obligation and related building asset. At adoption, we were required to reassess whether the failed sale-leaseback transaction that resulted in our previous recognition of a lease financing obligation and related building asset would have met the sale criteria under the new standard. We concluded that the sale criteria would have been met and recognized a $3.3 million adjustment to beginning retained earnings as a result of the derecognition of the lease financing obligation and related building asset. The previously recognized lease financing obligation is now classified as an operating lease and was included in the initial measurement of the ROU assets and operating lease liabilities.

We have adopted the package of practical expedients allowing us to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. Adoption of this standard did not have a material impact to our statements of operations or cash flows.

We determine whether a contract contains a lease at contract inception. We have lease agreements with lease and non-lease components and have elected the practical expedient to account for such components as a single lease component. This election must be made by class of underlying asset and was elected for our leases of office space, data center space and server equipment. We initially recognize and measure contracts containing a lease and determine lease classification at commencement. ROU assets and operating lease liabilities are measured based on the estimated present value of lease payments over the lease term. In determining the present value of lease payments, we use our estimated incremental borrowing rate when the rate implicit in the lease cannot be readily determined. The estimated incremental borrowing rate is based upon information available at lease commencement including publicly available data for debt instruments. The lease term includes periods covered by options to extend when it is reasonably certain we will exercise such options as well as periods subsequent to an option to terminate the lease if it is reasonably certain we will not exercise the termination option. Operating lease costs are recognized on a straight-line basis over the lease term while finance leases result in a front-loaded expense pattern. Variable lease costs are recognized as incurred. On our balance sheets, assets and liabilities associated with operating leases are included within operating lease assets, accrued expenses and other current liabilities and operating lease liabilities. Assets and liabilities associated with finance leases are included in property and equipment, net, accrued expenses and other current liabilities and other long-term liabilities.

See Note 12 for additional information regarding leases.

Foreign Currency

Our functional and reporting currency is the U.S. dollar. Assets denominated in foreign currencies are remeasured into U.S. dollars at period-end exchange rates. Foreign currency-based revenue and expense transactions are measured at transaction date exchange rates. Foreign currency remeasurement gains and losses are recorded in other income (expense), net and were $(7.1) million, $(10.4) million and $(1.5) million during 2019, 2018 and 2017, respectively.

For certain of our foreign subsidiaries whose functional currency is other than the U.S. dollar, we translate revenue and expense transactions at average exchange rates. We translate assets and liabilities at period-end exchange rates and include foreign currency translation gains and losses as a component of AOCI.

Revenue Recognition

Revenue is recognized when control of the promised product or service (product) is transferred to our customers, in an amount reflecting the consideration we expect to be entitled to in exchange for such product.

We typically receive payment at the time of sale, the purpose of which is to provide our customers with a simplified and predictable way of purchasing our products. We have determined that our contracts do not include a significant financing component. Payments received in advance of our performance are recorded as deferred revenue. Revenue is recognized net of allowances for returns and applicable transaction-based taxes collected from customers.

Our products are generally sold with a right of return within our policy, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Refunds are estimated at contract inception using the expected value method based on historical refund experience and updated each reporting period as additional information becomes available and only to the extent it is probable a significant reversal of any incremental revenue will not occur. Refunds result in a reduced amount of revenue recognized over the contract term of the applicable product.

Our revenue is categorized and disaggregated as reflected in our statements of operations, as follows:

Domains. Domains revenue primarily consists of domain registrations and renewals, domain privacy, domain application fees, domain back-orders, aftermarket domain sales and fee surcharges paid to ICANN. Consideration is recorded as deferred revenue when received, which is typically at the time of sale, and revenue, other than for aftermarket domain sales, is recognized ratably over the period in which the performance obligations are satisfied, which is generally over the contract term. Aftermarket domain revenue is recognized at the time when ownership of the domain is transferred to the buyer.

Hosting and presence. Hosting and presence revenue primarily consists of website hosting products, website building products, website security products and online visibility products. Consideration is recorded as deferred revenue when received, which is typically at the time of sale, and revenue is recognized ratably over the period in which the performance obligations are satisfied, which is generally over the contract term.

Business applications. Business applications revenue primarily consists of third-party productivity applications, email accounts, email marketing tools and telephony solutions. Consideration is recorded as deferred revenue when received, which is typically at the time of sale, and revenue is recognized ratably over the period in which the performance obligations are satisfied, which is generally over the contract term.

See Note 8 for additional information regarding our deferred revenue. See Note 18 for our revenue disaggregated by geography.

Performance Obligations

Our contracts with customers may include multiple performance obligations, including a combination of some or all of the following products: domain registrations, website hosting products, website building products, website security products and other cloud-based products. Judgment may be required in determining whether products are considered distinct performance obligations that should be accounted for separately or as one combined performance obligation. Revenue is recognized ratably over the period in which the performance obligations are satisfied, which is generally over the contract term.

For each domain registration or renewal we provide, we have one performance obligation to our customers consisting of two promises: 1) to ensure the exclusive use of the domain during the applicable registration term and 2) to ensure the domain is accessible and appropriately directed to its underlying content. After the contract term expires, unless renewed, the customer can no longer access or use the domain. We have determined these promises are not distinct within the context of our contracts as they are highly interdependent and interrelated and are inputs to a combined benefit. Accordingly, we concluded that each domain registration or renewal represents one product offering and is a single performance obligation.

We may also offer specific arrangements, such as our Websites + Marketing solution, in which we include promises to transfer multiple performance obligations in a single product offering. For such arrangements, we allocate the transaction price to each of the underlying distinct performance obligations based on its relative stand-alone selling price (SSP), as described below.

We have determined that generally each of our other products constitutes an individual product offering to our customers, and therefore have concluded that each is a single performance obligation.

For arrangements with multiple performance obligations, we allocate revenue to each distinct performance obligation based on its relative SSP. We use judgment to determine SSP based on prices charged to customers for individual products, taking into consideration factors including historical and expected discounting practices, the size, volume and term length of transactions, customer demographics, the geographic areas in which our products are sold and our overall go-to-market strategy.

Principal versus Agent Considerations

We sell our products directly to customers and also through a network of resellers. In certain cases, we act as a reseller of products provided by others. The determination of gross or net revenue recognition is reviewed on a product-by-product basis and is dependent on our determination as to whether we act as principal or agent in the transaction. Revenue associated with sales through our network of resellers, for certain aftermarket domain sales and for third-party offerings is recorded on a gross basis as we have determined that we control the product before transferring it to our end customers.

Assets Recognized from Contract Costs

Commissions paid to our resellers represent an incremental cost of obtaining a contract with a customer. We capitalize and amortize such amounts to cost of revenue consistent with the pattern of transfer of the product to which the asset relates. Amounts capitalized and amortized were not material during any of the periods presented.

Fees paid to various registries at the inception of a domain registration or renewal represent costs to fulfill a contract. We capitalize and amortize these prepaid domain name registry fees to cost of revenue consistent with the pattern of transfer of the product to which the asset relates. Amortization expense of such asset was $614.7 million, $597.1 million and $554.4 million during 2019, 2018 and 2017, respectively.

No other material contract costs were capitalized during any of the periods presented.

Operating Expenses

Cost of Revenue (excluding depreciation and amortization)

Costs of revenue are the direct costs we incur in connection with selling an incremental product to our customers. Substantially all cost of revenue relates to domain registration fees paid to the various domain registries, payment processing fees, third-party commissions and licensing fees for third-party productivity applications.

Technology and Development

Technology and development expenses represent the costs associated with the creation, development and distribution of our products and websites. These expenses primarily consist of personnel costs associated with the design, development, deployment, testing, operation and enhancement of our products, as well as costs associated with the data centers and systems infrastructure supporting those products, excluding depreciation expense.

Marketing and Advertising

Marketing and advertising expenses represent the costs associated with attracting and acquiring customers, primarily consisting of fees paid to third parties for marketing and advertising campaigns across a variety of channels. These expenses also include personnel costs and affiliate program commissions.

Advertising costs are expensed either as incurred, at the time a commercial initially airs or when a promotion first appears in the media. Advertising expenses were $260.0 million, $231.1 million and $205.8 million during 2019, 2018 and 2017, respectively. Prepaid advertising, which is included within prepaid expenses and other current assets, was $6.3 million and $9.7 million at December 31, 2019 and 2018, respectively.

Customer Care

Customer care expenses represent the costs to guide and service our customers, primarily consisting of personnel costs.

General and Administrative

General and administrative expenses primarily consist of personnel costs for our administrative functions, professional service fees, office rent for all locations, all employee travel expenses, acquisition-related expenses and other general costs.

Equity-Based Compensation

We grant stock options at exercise prices equal to the fair market value of our Class A common stock on the grant date. We grant both options and restricted stock units (RSUs) vesting solely upon the continued service of the recipient as well as awards vesting upon the achievement of annual or cumulative financial-based targets (PSUs). We recognize the accounting grant date fair value of equity-based awards as compensation expense over the required service period of each award, taking into account the probability of our achievement of associated performance targets.

We apply the straight-line attribution method to recognize equity-based compensation expense associated with awards not subject to graded vesting. For awards subject to graded vesting, we recognize expense separately for each vesting tranche. We also estimate when and if PSUs will be earned. If an award is not considered probable of being earned, no amount of expense is recognized. If the award is deemed probable of being earned, expense is recorded over the estimated service period.

Equity-based awards are accounted for using the fair value method. RSUs and PSUs are measured based on the fair market value of the underlying common stock on their respective accounting grant dates. Grant date fair values for options are determined using the Black-Scholes option pricing model and a single option award approach. The accounting grant date for PSUs is the date on which the applicable performance criteria are approved by our board of directors (the Board). The fair value of shares issued under our employee stock purchase plan is estimated on the first day of each offering period using the Black-Scholes option pricing model. We utilize an estimate of future award forfeitures, which is based on historical data, in our equity-based compensation expense calculations. We regularly estimate when and if PSUs will be earned and record expense only for awards considered probable of being earned.

Key assumptions used in the determination of fair value for options are as follows:

Expected term. The expected term represents the period the options are expected to be outstanding. Because of the lack of sufficient historical data necessary to calculate the expected term, we use the simple average of the vesting period and the contractual term to estimate the expected term.

Expected volatility. We determine the expected stock price volatility based on the historical volatility of our Class A common stock and the historical volatilities of a peer group. Industry peers consist of several public companies in the technology industry similar to us in size, stage of life cycle and financial leverage. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient trading history of our Class A common stock becomes available. If circumstances change such that the identified companies are no longer similar to us, we will revise our peer group to substitute more suitable companies in this calculation.

Expected dividend yield. We do not use a dividend rate due to our expectation of not paying dividends in the foreseeable future.

Risk-free interest rate. We base the risk-free interest rate on the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the expected term of the option on the grant date.

The fair value of options granted was estimated using the following weighted-average assumptions:


	Year Ended December 31,
	2019		2018		2017
Expected term (in years)	6.1		6.1		6.1
Expected volatility	31.2	%	31.5	%	37.4	%
Risk-free interest rate	2.2	%	2.7	%	2.0	%

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets (DTAs) and liabilities (DTLs) for the expected future tax consequences of events included in the financial statements. Under this method, we determine DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in the period in which the enactment date occurs.

We recognize DTAs to the extent we believe these assets are more-likely-than-not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations.

We record uncertain tax positions on the basis of a two-step process in which (1) we determine whether it is more-likely-than-not the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions meeting the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.

Interest and penalties related to income taxes are included in benefit (provision) for income taxes, and were not material during any of the periods presented.

Payable to Related Parties Pursuant to the TRAs

Concurrent with the completion of our initial public offering (IPO) in 2015, we became a party to five TRAs with our pre-IPO owners. Under four of the TRAs, we are generally required to pay to certain pre-IPO owners approximately 85% of the amount of calculated tax savings, if any, we are deemed to realize (using the actual applicable U.S. federal income tax rate and an assumed combined state and local income tax rate) as a result of (1) any existing tax attributes associated with LLC Units acquired in the pre-IPO organizational transactions, the benefit of which is allocable to us as a result of such transactions (including the allocable share of Desert Newco's existing tax basis in its assets), (2) net operating loss (NOL) carryforwards available as a result of such transactions and (3) tax benefits related to imputed interest.

Under the fifth of these agreements, we are generally required to pay our other pre-IPO owners of approximately 85% of the amount of the calculated tax savings, if any, we are deemed to realize (using the actual applicable U.S. federal income tax rate and an assumed combined state and local income tax rate) as a result of (1) any step-up in tax basis created as a result of exchanges of their LLC Units (together with the corresponding shares of Class B common stock) for shares of our Class A common stock, (2) any existing tax attributes associated with their LLC Units, the benefit of which is allocable to us as a result of such exchanges (including the allocable share of Desert Newco's existing tax basis in its assets), (3) tax benefits related to imputed interest and (4) payments under the TRAs.

When LLC Units are exchanged, we receive certain tax attributes, including the original basis adjustments (the OBAs) created from the original acquisition of the LLC Units plus any anticipated basis adjustments. The OBAs entitle us to the depreciation and amortization previously allocable to the original owner of such units. The anticipated basis adjustments will increase, for tax purposes, our depreciation and amortization deductions. To the extent these deductions are used to reduce our taxable income, thereby resulting in actual tax savings, we will be required to pay the original owners approximately 85% of such savings, which is recorded as an additional liability under the TRAs when deemed probable. Adjustments to the liability under the TRAs based on changes in anticipated future taxable income are recorded in our statements of operations.

Unutilized depreciation and amortization deductions related to the OBAs and the anticipated basis adjustments are converted to NOL carryforwards. If the utilization is considered to be more-likely-than-not, a liability under the TRAs relating to NOL carryforwards is recorded.

Fair Value Measurements

Fair value is defined as an exit price, representing the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. The framework for measuring fair value provides a three-tier hierarchy prioritizing inputs to valuation techniques used in measuring fair value as follows:

Level 1— Observable inputs such as quoted prices for identical assets or liabilities in active markets;

Level 2— Inputs, other than quoted prices for identical assets or liabilities in active markets, which are observable either directly or indirectly; and

Level 3— Unobservable inputs in which there is little or no market data requiring the reporting entity to develop its own assumptions.

We hold certain assets required to be measured at fair value on a recurring basis. These may include reverse repurchase agreements, commercial paper or other securities, which are classified as either cash and cash equivalents or short-term investments. We classify these assets within Level 1 or Level 2 because we use either quoted market prices or alternative pricing sources utilizing market observable inputs to determine their fair value. In addition, Level 2 assets and liabilities include derivative financial instruments associated with hedging activity, as further discussed in Note 11. Derivative financial instruments are measured at fair value on the contract date and are subsequently remeasured each reporting period using inputs such as spot rates, discount rates and forward rates. There are not active markets for the hedge contracts themselves; however, the inputs used to calculate the fair value of the instruments are tied to active markets.

The following tables set forth assets and liabilities measured at fair value on a recurring basis:


	December 31, 2019
Assets:	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Reverse repurchase agreements(1)	$	—	$	70.0	$	—	$	70.0
Commercial paper	—		102.0		—		102.0
Money market funds and time deposits	444.0		—		—		444.0

Short-term investments:

Commercial paper and other	0.7		22.9		—		23.6

Total assets measured and recorded at fair value	$	444.7	$	194.9	$	—	$	639.6
Liabilities:
Contingent consideration liabilities	$	—	$	—	$	2.6	$	2.6
Derivative liabilities	—		93.8		—		93.8
Total liabilities measured and recorded at fair value	$	—	$	93.8	$	2.6	$	96.4

_________________________________

(1) Reverse repurchase agreements include a $70.0 million repurchase agreement with Morgan Stanley, callable with 31 days notice.


	December 31, 2018
Assets:	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Reverse repurchase agreements(1)	$	—	$	70.0	$	—	$	70.0
Commercial paper	—		71.4		—		71.4
Money market funds	338.6		—		—		338.6
Short-term investments:

Commercial paper and other	1.0		18.0		—		19.0

Total assets measured and recorded at fair value	$	339.6	$	159.4	$	—	$	499.0
Liabilities:
Contingent consideration liabilities	$	—	$	—	$	67.9	$	67.9
Derivative liabilities	—		120.5		—		120.5
Total liabilities measured and recorded at fair value	$	—	$	120.5	$	67.9	$	188.4

_________________________________

(1) Reverse repurchase agreements include a $70.0 million repurchase agreement with Morgan Stanley, callable with 31 days notice.

Our contingent consideration liabilities, which relate to future earn-out payments associated with our business acquisitions, are classified within Level 3 and valued using discounted cash flow valuation methods encompassing significant unobservable inputs. The inputs include estimated operating results scenarios for the applicable performance periods, probability weightings assigned to operating results scenarios (generally assessed at 100% probability) and the discount rates applied (generally ranging from 14% to 25%). The fair values of our contingent consideration arrangements are sensitive to changes in forecasts and discount rates. A reconciliation of these liabilities is as follows:


	Year Ended December 31,
	2019		2018
Balance at beginning of period	$	67.9	$	20.7
Acquisition date fair value of contingent consideration	—		45.6
Adjustments to fair value recognized in earnings	2.6		11.9
Contingent consideration payments	(68.2)		(11.2)
Impact of foreign currency translation and other	0.3		0.9
Balance at end of period	$	2.6	$	67.9

We have no other material assets or liabilities measured at fair value on a recurring basis.

Business Combinations

We include the results of operations of acquired businesses as of the respective acquisition dates. Purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values, with the excess recorded as goodwill. If applicable, we estimate the fair value of contingent consideration payments in determining the purchase price. Measurement period adjustments to provisional purchase price allocations are recognized in the period in which they are determined, with the effect on earnings of changes in depreciation, amortization or other income resulting from such changes calculated as if the accounting had been completed at the acquisition date. Contingent consideration is adjusted to fair value in subsequent periods as an increase or decrease in general and administrative expenses. Acquisition-related costs are expensed as incurred.

Concentrations of Risks

Our financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents and short-term investments. Although we deposit cash with multiple banks, these deposits, including those held in foreign branches of global banks, may exceed the amount of insurance provided on such deposits. These deposits may generally be redeemed upon demand and bear minimal risk.

No single customer represented over 10% of our total revenue for any period presented.

In order to reduce the risk of downtime of the products we provide, we have established data centers in various geographic regions. We have internal procedures to restore products in the event of a service disruption or disaster at any of our data center facilities. We serve our customers and users from data center facilities operated either by us or third parties, which are located in Arizona, California, Missouri, Virginia, New York, France, Germany, the Netherlands, Singapore and the United Kingdom (U.K.). Even with these procedures for disaster recovery in place, the availability of our products could be significantly interrupted during the implementation of restoration procedures.

Recent Accounting Pronouncements

In June 2016, the FASB issued new guidance for the accounting for credit losses on instruments that will require entities to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial instruments measured at amortized cost and also applies to some off-balance sheet credit exposures. We do not expect our adoption of this guidance on January 1, 2020 to have a material impact.

In January 2017, the FASB issued new guidance simplifying the goodwill impairment test, eliminating the requirement for an entity to determine the fair value of its assets and liabilities (including unrecognized assets and liabilities) at the impairment testing date following the procedure that would be required in determining the fair value of assets acquired and

liabilities assumed in a business combination. Instead, an entity will be required to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity will be required to recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. Our adoption of this guidance on January 1, 2019 did not have a material impact.

In August 2018, the FASB issued new guidance to modify or eliminate certain fair value disclosures and require additional disclosures for Level 3 measurements. We do not expect our adoption of this guidance on January 1, 2020 to have a material impact.

In August 2018, the FASB issued new guidance aligning the accounting for implementation costs incurred in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We plan to adopt this guidance prospectively on January 1, 2020 and do not expect a material impact at adoption.

In December 2019, the FASB issued new guidance to simplify the accounting for income taxes primarily by eliminating certain exceptions allowable under the existing guidance related to the approach for intraperiod tax allocations, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance is effective for annual and interim reporting periods beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the timing of our adoption and the expected impact of this new guidance.

3. Business Acquisitions

2018 Acquisition of Main Street Hub

In July 2018, we completed the acquisition of Main Street Hub (MSH), a social media and reputation management company, for total purchase consideration of $182.0 million, including contingent earn-out payments of up to a maximum of $50.0 million subject to the achievement of certain revenue and operational milestones. The acquisition was completed to further our professional services strategy for our customers. The contingent consideration was recorded at an estimated acquisition date fair value of $43.4 million. The acquisition was not material to our results of operations.

The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess recorded to goodwill. The recognition of goodwill, none of which is deductible for income tax purposes, was made based on the strategic and synergistic benefits we expect to realize from the acquisition.

The following table summarizes the final estimated acquisition date fair values of the MSH assets acquired and liabilities assumed:


Total purchase consideration	$	182.0
Fair value of assets acquired and liabilities assumed:
Cash and cash equivalents	8.0
Intangible assets, net	35.7
Other assets and liabilities, net	3.2
Total assets acquired, net of liabilities assumed	46.9
Goodwill	$	135.1

Identified finite-lived intangible assets, which were valued using income-based approaches, consist primarily of developed technology and customer relationships. The acquired finite-lived intangible assets have a total weighted-average amortization period of 4.3 years.

2017 Acquisition of Host Europe Holdings Limited

In April 2017, we completed the acquisition of Host Europe Holdings Limited (HEG), a U.K.-based provider of domains, website hosting, applications hosting and managed hosting to small and medium-sized customers throughout Europe. Pursuant to the terms of the purchase agreement, we purchased all of the outstanding shares of HEG and certain loan notes issued by Host Europe Finance Co. Ltd. for total consideration transferred of €1.7 billion. We funded the acquisition with debt financing, as described in Note 10, and incurred $18.6 million in nonrecurring transaction costs in connection with the acquisition, which were recognized within general and administrative expense. As a result of the acquisition, HEG became our wholly-owned subsidiary. We believe the acquisition allowed us to leverage HEG's existing footprint to accelerate our expansion in Europe through the delivery of a broader range of cloud-based products.

Our operating results include HEG's results from the closing date. The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess recorded to goodwill. The recognition of goodwill, none of which is deductible for income tax purposes, was made based on the strategic and synergistic benefits we expect to realize from the acquisition.

The following table summarizes the final estimated acquisition date fair values of the HEG assets acquired and liabilities assumed:


Total purchase consideration(1)	$	1,849.5
Fair value of assets acquired:
Cash and cash equivalents	27.2
Other current assets	66.3
Assets held for sale(2)	497.5
Property and equipment, net	61.9
Intangible assets, net	595.7
Other assets	9.3
Amount attributable to assets acquired	1,257.9
Fair value of liabilities assumed:
Accounts payable and accrued expenses	65.1
Current portion of deferred revenue	45.5
Liabilities directly associated with the assets held for sale(2)	93.0
Other long-term liabilities	14.0
Deferred tax liabilities	177.6
Amount attributable to liabilities assumed	395.2
Goodwill	$	986.8

_________________________________

(1) The purchase consideration was translated using the Euro to U.S. dollar exchange rate in effect on the closing date of approximately 1.066.

(2) Assets held for sale, and liabilities directly associated with the assets held for sale, represented those of HEG's PlusServer managed hosting business (PlusServer), which met the criteria for held for sale designation at the acquisition date and was sold in August 2017. See Note 4 for further discussion.

The purchase price allocation to identifiable finite-lived intangible assets acquired was as follows:


Finite-lived Intangible Assets	Estimated Useful Lives
Trade names	10 years	$	75.2
Developed technology	6 years	62.4
Customer relationships	9 years	458.1
		$	595.7

We valued trade names and developed technology by applying the relief-from-royalty method, which is a variation of the income approach. Customer relationships were valued using the multi-period excess earnings method under the income approach. We determined the assumptions used in developing these valuations based on our future plans, historical data, current and anticipated market conditions, estimated growth rates and market comparables. The acquired finite-lived intangible assets have a total weighted-average amortization period of 8.8 years.

Property and equipment was valued using the cost approach. Deferred revenue was valued using the income approach. Estimated DTLs primarily represent the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their respective tax bases.

In 2017, HEG contributed approximately $155.1 million of our total revenue and a net loss of approximately $17.2 million within our income from continuing operations.

Other 2017 Acquisition

In April 2017, we completed an acquisition for consideration consisting of cash of $45.7 million, $9.0 million payable in future periods upon expiration of the contractual holdback period, $15.0 million of time-based milestone payments and additional contingent earn-out payments of up to $15.0 million subject to the achievement of certain revenue and integration milestones. We recognized a liability of $33.7 million representing the estimated aggregate acquisition-date fair value of the future payments. The aggregate purchase price was allocated based upon our assessment of acquisition-date fair values with $63.5 million allocated to goodwill, none of which is tax deductible, $28.5 million to identified finite-lived intangible assets and $12.6 million of net liabilities assumed. Identified finite-lived intangible assets, which were valued using income-based approaches, consist of developed technology, customer relationships and trade names. The acquired finite-lived intangible assets have a total weighted-average amortization period of 5.5 years. The acquisition was not material to our results of operations.

Other Acquisition-Related Payments

During 2019, 2018 and 2017, we made $88.0 million, $21.7 million and $10.8 million of aggregate holdback and contingent consideration payments related to prior acquisitions.

4. Sale of Discontinued Operations

In connection with the HEG acquisition, we committed to a formal plan to sell PlusServer as its business model differed from ours. The operating results of PlusServer from the acquisition date to the date of its sale are reported within discontinued operations. On August 31, 2017, we sold all of the outstanding shares of PlusServer, receiving net proceeds of $447.7 million. As a result of the sale, we recorded a gain on disposal of $33.2 million in 2017, which is included in income from discontinued operations and includes the reclassification of the associated cumulative translation adjustment on PlusServer's net assets.

5. Goodwill and Intangible Assets

The following table summarizes changes in our goodwill balance:


Balance at December 31, 2017	$	2,859.9
Goodwill related to 2018 acquisitions(1)	139.8
Impact of foreign currency translation	(51.7)
Balance at December 31, 2018	2,948.0
Goodwill related to 2019 acquisitions	20.9
Impact of foreign currency translation	7.6
Balance at December 31, 2019	$	2,976.5

_________________________________

(1) Includes immaterial measurement period adjustments related to acquisitions completed in 2017.

Intangible assets, net are summarized as follows:


	December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Indefinite-lived intangible assets:
Trade names and branding	$	445.0	n/a		$	445.0
Domain portfolio	148.1		n/a		148.1
Finite-lived intangible assets:
Customer-related	838.4		$	(475.6)	362.8
Developed technology	151.5		(67.3)		84.2
Trade names and other	81.4		(23.8)		57.6
	$	1,664.4	$	(566.7)	$	1,097.7


	December 31, 2018
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Indefinite-lived intangible assets:
Trade names and branding	$	445.0	n/a		$	445.0
Domain portfolio	152.4		n/a		152.4
Finite-lived intangible assets:
Customer-related	850.5		$	(407.5)	443.0
Developed technology	206.9		(103.1)		103.8
Trade names and other	92.9		(25.6)		67.3
	$	1,747.7	$	(536.2)	$	1,211.5

During 2017, we completed three purchases of intangible assets for $52.0 million in cash. The assets purchased consisted of $50.5 million in indefinite-lived domain portfolios and $1.5 million in customer-related intangible assets. The purchased customer-related intangible assets were valued at cost and are being amortized over 36 months. Transaction costs were immaterial and were expensed as incurred.

Amortization expense was $119.5 million, $136.7 million and $117.0 million during 2019, 2018 and 2017, respectively. As of December 31, 2019, the weighted-average remaining amortization period for amortizable intangible assets was 87 months for customer-related intangible assets, 41 months for developed technology and 71 months for trade names and other, and was 67 months in total.

Based on the balance of finite-lived intangible assets at December 31, 2019, expected future amortization expense is as follows:


Year Ending December 31:
2020	$	111.7
2021	88.3
2022	86.6
2023	71.3
2024	61.7
Thereafter	85.0
	$	504.6

6. Stockholders' Equity

Certificate of Incorporation

Our amended and restated certificate of incorporation authorized the issuance of up to 1,000,000 shares of Class A common stock, up to 500,000 shares of Class B common stock and up to 50,000 shares of undesignated preferred stock, each having a par value of $0.001 per share. Shares of Class A common stock have both economic and voting rights. Shares of Class B common stock have no economic rights, but do have voting rights. Holders of Class A and Class B common stock are entitled to one vote per share and, except as otherwise required, will vote together as a single class on all matters on which stockholders generally are entitled to vote.

We are required to, at all times, maintain (i) a one-to-one ratio between the number of shares of Class A common stock outstanding and the number of LLC Units owned by us and (ii) a one-to-one ratio between the number of shares of Class B common stock and LLC Units owned by Desert Newco's pre-IPO owners. We may issue shares of Class B common stock only to the extent necessary to maintain these ratios. Shares of Class B common stock are transferable only together with an equal number of LLC Units if we, at the election of a pre-IPO owner, exchange LLC Units for shares of Class A common stock.

Secondary Offerings and LLC Unit Repurchase

We have completed several underwritten public offerings in which certain stockholders, including Kohlberg Kravis Roberts & Co. L.P. (KKR), Silver Lake Partners (SLP), Technology Crossover Ventures (TCV) and YAM Special Holdings, Inc. (YAM) and certain of our executive officers sold shares of our Class A common stock. We did not receive any proceeds from the shares sold by the selling stockholders in these offerings. We used the net proceeds from the shares sold by us to pay expenses incurred in connection with the offerings. Each offering included the exchange of LLC Units (together with the corresponding shares of Class B common stock) for Class A common stock by the selling stockholders, which resulted in increases in additional paid-in capital, with offsetting reductions in non-controlling interests, and material increases to the liability under the TRAs (see Note 16). Significant details for each offering are as follows:


Offering Date	Offering Price Per Share ($)	Shares Sold by GoDaddy (#)	Gross Proceeds Received by GoDaddy ($)	Aggregate Shares Sold by Selling Stockholders (#)	LLC Units Exchanged by Selling Stockholders (#)	Increase in Additional Paid-in Capital ($)
February 2019(1)	75.40	8	0.6	8,539	4,278	5.7
August 2018(2)	75.75	8	0.6	10,391	7,405	7.8
May 2018	70.73	—	—	11,625	8,052	7.6
March 2018	59.21	—	—	16,916	12,821	11.2
December 2017(3)	47.32	50	2.4	7,228	4,689	4.7
September 2017	44.00	50	2.2	20,000	13,774	10.8
May 2017	38.50	100	3.7	27,615	16,701	10.8

_________________________________

(1) Following the February 2019 secondary offering, KKR and SLP no longer owned shares of GoDaddy's common stock.

(2) Following the August 2018 secondary offering, YAM no longer owned shares of GoDaddy's common stock.

(3) Following the December 2017 secondary offering, TCV no longer owned shares of GoDaddy's common stock.

In May 2017, we repurchased 7,345 LLC units from KKR, SLP, TCV and YAM for an aggregate of $275.0 million, or $37.44 per share, which is the same per share price, net of discounts and commissions, paid by the underwriters to the selling stockholders in the May 2017 secondary offering. In connection with this repurchase, the corresponding shares of Class B common stock were canceled. In May 2017, we also sold an aggregate of 521 shares of Class A common stock to certain executives for total proceeds of $19.2 million.

Share Repurchase Programs

In November 2018, our Board approved a share repurchase program pursuant to which we may repurchase up to $500.0 million of our Class A common stock (the 2018 Share Repurchase Program). During 2019, we repurchased a total of 7,125 shares of our Class A common stock in the open market pursuant to the 2018 Share Repurchase Program for an aggregate purchase price of $458.6 million, including commissions.

In October 2019, our Board approved an additional share repurchase program pursuant to which we may repurchase up to $500.0 million of our Class A common stock (the 2019 Share Repurchase Program). As of December 31, 2019, we have not repurchased any shares under the 2019 Share Repurchase Program.

Under each of these repurchase programs, we may purchase shares from time to time in open market purchases, block transactions and privately negotiated transactions, in accordance with applicable federal securities laws. The programs have no time limits, do not obligate us to make any repurchases and may be modified, suspended or terminated by us at any time without prior notice. The amount and timing of repurchases are subject to a variety of factors including liquidity, share price, market conditions and legal requirements, and will be funded by available cash and cash equivalents. Repurchased shares are immediately retired and returned to an unissued status. We have elected to record the excess of the repurchase price over par value as a charge to retained earnings (accumulated deficit).

7. Equity-Based Compensation Plans

Equity Plans

On March 31, 2015, we adopted the 2015 Equity Incentive Plan (the 2015 Plan) and reserved a total of 10,285 shares of Class A common stock for issuance thereunder. The shares reserved for issuance under the 2015 Plan also included up to 28,133 shares rolled over from our previous equity plan and from certain other option plans assumed in connection with acquisitions. The number of shares reserved for issuance are increased automatically each year by a number equal to the least of (i) 20,571 shares, (ii) 4% of the total shares of all classes of common stock outstanding as of the last day of the preceding year or (iii) such other amount as may be determined by our Board. On January 1, 2019, an additional 6,992 shares were reserved for issuance pursuant to the 2015 Plan. As of December 31, 2019, 23,363 shares were available for issuance as future awards under the 2015 Plan.

On March 31, 2015, we adopted the 2015 Employee Stock Purchase Plan (the ESPP) and reserved a total of 2,000 shares of Class A common stock for issuance thereunder. The number of shares reserved for issuance are increased automatically each year by a number equal to the least of (i) 1,000 shares, (ii) 1% of the total shares of all classes of common stock outstanding as of the last day of the preceding year or (iii) such other amount as may be determined by our Board. On January 1, 2019, an additional 1,000 shares were reserved for issuance pursuant to the ESPP. As of December 31, 2019, 3,575 shares were available for issuance under the ESPP.

Equity-Based Compensation Expense Error

During 2019, we determined that we had previously recognized equity-based compensation expense related to certain PSUs prior to the establishment of a grant date for accounting purposes. The error is comprised of $3.0 million, $5.7 million and $6.9 million recognized in 2016, 2017 and 2018, respectively. We determined the amounts related to the prior period financial statements and disclosures were immaterial considering both quantitative and qualitative factors. Accordingly, we reversed the cumulative amount as a reduction of equity-based compensation expense in 2019.

Equity Plan Activity

The following table summarizes option activity:


	Number of Shares of Class A Common Stock (#)	Weighted- Average Grant- Date Fair Value ($)	Weighted- Average Exercise Price ($)	Weighted- Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value ($)








Outstanding at December 31, 2016	18,628		14.06
Granted	2,077	15.07	38.03
Exercised	(6,000)		10.18		187.1
Forfeited	(1,245)		23.46
Outstanding at December 31, 2017	13,460		18.63
Granted	1,208	22.19	61.49
Exercised	(4,779)		14.08		246.4
Forfeited	(362)		34.05
Outstanding at December 31, 2018	9,527		25.77
Granted	1,401	24.91	71.74
Exercised	(3,976)		17.78		213.8
Forfeited	(648)		54.43
Outstanding at December 31, 2019	6,304		38.08	5.9	194.6
Vested at December 31, 2019	3,916		25.31	4.8	167.2

The following table summarizes RSU and PSU activity:


						Number of Shares of Class A Common Stock (#)
Outstanding at December 31, 2016						2,757
Granted						2,877
Vested						(939)
Forfeited						(496)
Outstanding at December 31, 2017(1)						4,199
Granted						3,152
Vested						(1,545)
Forfeited						(450)
Outstanding at December 31, 2018(1)						5,356
Granted						3,057
Vested						(2,187)
Forfeited						(986)
Outstanding at December 31, 2019(1)						5,240

_________________________________

(1) Includes PSUs for which performance targets have not yet been established, and which are not yet considered granted for accounting purposes. The balance of outstanding awards is comprised of the following:


	Number of Shares of Class A Common Stock (#)	Weighted Average Fair Value Per Share ($)
RSUs	2,885	36.12
PSUs granted for accounting purposes	409	37.13
PSUs not yet granted for accounting purposes	905	N/A
Outstanding at December 31, 2017	4,199

RSUs	3,952	53.77
PSUs granted for accounting purposes	505	63.18
PSUs not yet granted for accounting purposes	899	N/A
Outstanding at December 31, 2018	5,356

RSUs	4,247	65.12
PSUs granted for accounting purposes	401	73.28
PSUs not yet granted for accounting purposes	592	N/A
Outstanding at December 31, 2019	5,240

At December 31, 2019, total unrecognized compensation expense related to non-vested options and awards was $33.4 million and $190.3 million, respectively, with expected remaining weighted-average recognition periods of approximately 2.4 years and 2.3 years, respectively. Such amounts exclude PSUs not yet considered granted for accounting purposes.

We currently believe the performance targets related to the vesting of PSUs considered granted for accounting purposes will be achieved. If such targets are not achieved, or are subsequently determined to not be probable of being achieved, we will not recognize any compensation expense for PSUs not expected to vest, and will reverse any previously recognized expense on such awards.

8. Deferred Revenue

Deferred revenue consisted of the following:


	December 31,
	2019		2018
Current:
Domains	$	752.7	$	686.3
Hosting and presence	526.7		483.3
Business applications	265.0		224.1
	$	1,544.4	$	1,393.7
Noncurrent:
Domains	$	382.2	$	365.8
Hosting and presence	187.2		180.6
Business applications	85.0		77.4
	$	654.4	$	623.8

The increase in the deferred revenue balance is primarily driven by payments received in advance of satisfying our performance obligations, offset by $1,488.2 million of revenue recognized during 2019 that was included in the deferred revenue balance as of December 31, 2018. The deferred revenue balance as of December 31, 2019 represents our aggregate remaining performance obligations that will be recognized as revenue over the period in which the performance obligations are satisfied, and is expected to be recognized as revenue as follows:


	2020		2021		2022		2023		2024		Thereafter		Total
Domains	$	752.7	$	199.0	$	78.4	$	44.7	$	24.9	$	35.2	$	1,134.9
Hosting and presence	526.7		121.8		38.5		15.0		6.6		5.3		713.9
Business applications	265.0		58.7		19.3		4.0		1.6		1.4		350.0
	$	1,544.4	$	379.5	$	136.2	$	63.7	$	33.1	$	41.9	$	2,198.8

9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:


	December 31,
	2019		2018
Accrued payroll and employee benefits	$	116.9	$	105.9
Derivative liabilities	93.8		120.5
Current portion of operating lease liabilities	39.5		—
Tax-related accruals	30.8		38.4
Accrued legal and professional	28.7		10.9
Accrued marketing and advertising expenses	14.7		19.4
Accrued acquisition-related expenses and acquisition consideration payable	8.3		74.4

Accrued other	33.3		44.8
	$	366.0	$	414.3

10. Long-Term Debt

Long-term debt consisted of the following:


	December 31,
	2019		2018
Term Loans (effective interest rate of 4.7% at December 31, 2019 and 4.6% at December 31, 2018)	$	1,832.3	$	2,457.3
Senior Notes (effective interest rate of 5.4% at December 31, 2019)	600.0		—
Revolver	—		—
Total	2,432.3		2,457.3
Less: unamortized original issue discount on long-term debt(1)	(13.2)		(27.9)
Less: unamortized debt issuance costs(1)	(23.9)		(18.6)
Less: current portion of long-term debt	(18.4)		(16.6)
	$	2,376.8	$	2,394.2

_________________________________

(1) Original issue discount and debt issuance costs amortized to interest expense over the life of the related debt instruments using the effective interest method.

Credit Facility

Our secured credit agreement (the Credit Facility), which matures on February 15, 2024, consists of both term loans (the Term Loans) and a revolving credit facility (the Revolver).

The Credit Facility originally included a $1,100.0 million term loan and an available $150.0 million Revolver. In February 2017, we refinanced the Credit Facility to provide for: (i) a $1,072.5 million seven-year term loan, (ii) a second $1,425.0 million term loan, which was issued on April 3, 2017 upon the completion of our acquisition of HEG, and (iii) a $150.0 million five-year Revolver, which increased to $200.0 million upon the completion of our acquisition of HEG. In November 2017, we further refinanced the Credit Facility to reduce the interest rate margins applicable to the Term Loans. In connection with the 2017 refinancings, we recognized an aggregate $2.0 million loss on debt extinguishment, recorded $3.7 million as additional discount and recorded $3.3 million in aggregate fees as general and administrative expense.

As further described below, in June 2019 we issued 5.25% unsecured senior notes (the Senior Notes) in an aggregate principal amount of $600.0 million, the proceeds of which were used to prepay $600.0 million of the outstanding principal balance of the Term Loans. The partial prepayment was made in accordance with the contractual terms of the Credit Facility and the terms of the remaining Term Loans were not modified. As such, the prepayment was considered a partial extinguishment and we wrote off a proportionate amount of the unamortized debt issuance costs and original issue discount, recognizing a $14.5 million loss on debt extinguishment.

Concurrent with the issuance of the Senior Notes, we amended the Revolver to increase its borrowing capacity to $600.0 million and reduce its interest rate margins, as described below. In addition, the amendment provided that compliance relating to our first lien secured leverage ratio occurs upon our usage exceeding 20% of the Revolver, a reduction from the previous level of 35%. In connection with this amendment, we capitalized aggregate fees of $3.4 million as debt issuance costs.

In October 2019, we refinanced the Term Loans to lower the interest rate margins by 0.25%. The refinanced loans were issued at a 0.125% discount at original issue, with no changes made to the maturity date or any other terms of the loans. Fees incurred in connection with the refinancing were not material.

The Term Loans bear interest at a rate equal to, at our option, either (a) LIBOR plus 1.75% per annum or (b) 0.75% per annum plus the highest of (i) the Federal Funds Rate plus 0.5%, (ii) the Prime Rate or (iii) one-month LIBOR plus 1.0%. A portion of the Term Loans are hedged by an interest rate swap. See Note 11 for discussion of this hedging instrument and its impact on the interest rate associated with the Term Loans.

The Revolver bears interest at a rate equal to, at our option, either (a) LIBOR plus a margin ranging from 1.25% to 1.75% per annum or (b) the higher of (i) the Federal Funds Rate plus 0.5%, (ii) the Prime Rate or (iii) the one-month LIBOR rate plus 1.0% plus a margin ranging from 0.25% to 0.75% per annum, with the margins determined based on our first lien secured leverage ratio. The Revolver also contains a financial covenant requiring us to maintain a leverage ratio of 5.75:1.00

when our usage exceeds 20.0% of the maximum capacity. This ratio is calculated as the ratio of first lien secured debt less cash and cash equivalents to consolidated EBITDA (as defined in the Credit Facility).

In addition to paying interest on the outstanding principal under the term loans, we are required to pay a commitment fee ranging from 0.125% to 0.375% per annum for any unutilized commitments under the Revolver, with the applicable fee determined based on our first lien secured leverage ratio.

Significant terms of the Credit Facility are as follows:

we are required to prepay outstanding term loans, subject to certain exceptions, with percentages of excess cash flow, proceeds of non-ordinary course asset sales or dispositions of property, insurance or condemnation proceeds and proceeds from the incurrence of certain debt;
we are restricted by certain covenants, including, among other things, limitations on our ability to incur additional indebtedness, sell assets, incur additional liens, make certain fundamental changes, pay distributions and make certain investments;
we are required to maintain certain financial ratios; and
all obligations are unconditionally guaranteed by all of our material domestic subsidiaries and is secured by substantially all of our and such subsidiaries real and personal property.

At December 31, 2019, we had $600.0 million available for borrowing under the Revolver and were not in violation of any covenants of the Credit Facility.

Senior Notes

In June 2019, we issued the Senior Notes in an aggregate principal amount of $600.0 million in a private placement offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The Senior Notes were issued at par and bear interest at 5.25% per annum, with interest payable semiannually on June 1 and December 1, commencing on December 1, 2019. The aggregate principal amount outstanding is payable at maturity on December 1, 2027, subject to earlier repurchase or optional redemption as described below.

As described above, the proceeds from the issuance of the Senior Notes were used to prepay $600.0 million in aggregate principal amount of our existing Term Loans. In conjunction with the issuance of the Senior Notes, we capitalized $9.7 million in debt issuance costs.

The Senior Notes are redeemable at our option, in whole or in part, at any time prior to June 1, 2022 at a redemption price equal to 100.0% of the principal amount, plus accrued and unpaid interest, plus an applicable premium equal to the greater of 1.0% and the remaining scheduled payments of interest discounted to a present value amount. In the event of an equity offering prior to June 1, 2022, the Senior Notes may be partially redeemed with the net cash proceeds of such offering at our option at an amount equal to 105.25% of the principal amount, plus accrued and unpaid interest. On and after June 1, 2022, we may redeem the Senior Notes, in whole or in part, at an amount equal to 102.625% of the principal amount, decreasing to 101.75% at June 1, 2023, 100.875% at June 1, 2024 and 100.0% thereafter, plus accrued and unpaid interest. Upon the occurrence of a change of control, we are required to offer to repurchase the Senior Notes from the holders at a price equal to 101.0% of the principal amount, plus accrued and unpaid interest.

Significant terms of the Senior Notes are as follows:

they are subordinated to our existing secured debt, including the Credit Facility, and any future secured debt we may issue;
all obligations are unconditionally guaranteed by all of our material domestic subsidiaries;
we are restricted by certain covenants, including limitations on our ability to incur additional indebtedness, incur additional liens, consolidate with or merge with or into another entity and sell substantially all of our assets; and
certain covenants may be suspended if we are able to obtain and maintain investment grade ratings and no event of default has occurred.

At December 31, 2019, we were not in violation of any covenants of the Senior Notes.

Fair Value

The estimated fair values of the Term Loans and Senior Notes were $1,842.6 million and $632.0 million, respectively, at December 31, 2019 based on observable market prices for these loans, which are traded in less active markets and therefore classified as Level 2 fair value measurements.

Bridge Financing

On April 3, 2017, we entered into a bridge credit agreement pursuant to which we borrowed an aggregate principal amount of €500 million (approximately $533.0 million on the date of issuance) in connection with the HEG acquisition. Following the sale of PlusServer on August 31, 2017, as further discussed in Note 4, we prepaid this loan in its entirety and the underlying credit agreement was canceled. We recognized a $5.3 million loss on debt extinguishment, representing the remaining unamortized original issue discount and debt issuance costs on this loan. As this loan was contractually required to be repaid with any proceeds received from the sale of PlusServer, interest expense attributable to the loan of $12.4 million in 2017 was recorded within discontinued operations.

Future Debt Maturities

Aggregate principal payments, exclusive of any unamortized original issue discount and debt issuance costs, due on long-term debt as of December 31, 2019 are as follows:


Year Ending December 31:
2020	$	25.0
2021	25.0
2022	25.0
2023	25.0
2024	1,732.3
Thereafter	600.0
	$	2,432.3

11. Derivatives and Hedging

We are exposed to changes in foreign currency exchange rates, primarily relating to intercompany debt and certain forecasted sales transactions denominated in currencies other than the U.S. dollar, as well as to changes in interest rates as a result of our variable-rate debt. Consequently, we use derivative financial instruments to manage and mitigate such risk. We do not enter into derivative transactions for speculative or trading purposes.

The following table summarizes our outstanding derivative instruments, all of which are designated as cash flow hedges, on a gross basis:


	Notional Amount						Fair Value of Derivative Assets(2)						Fair Value of Derivative Liabilities(2)
	December 31, 2019		December 31, 2018		December 31, 2019		December 31, 2018		December 31, 2019		December 31, 2018
Derivative Instrument:

Level 2:
Foreign exchange forward contracts	$	138.9	$	—	$	—	$	—	$	3.3	$	—
Cross-currency swap(1)	1,355.8		1,397.8		—		—		64.1		119.1
Interest rate swap	1,289.0		1,302.3		—		—		26.4		1.4
Total hedges	$	2,783.7	$	2,700.1	$	—	$	—	$	93.8	$	120.5

_________________________________

(1) The notional values of the cross-currency swap have been translated from Euros to U.S. dollars at the foreign currency rates in effect at December 31, 2019 and 2018 of approximately 1.12 and 1.14, respectively.

(2) In our balance sheets, all derivative assets are recorded within prepaid expenses and other current assets and all derivative liabilities are recorded within accrued expenses and other current liabilities.

The following table summarizes the effect of our designated cash flow hedging derivative instruments on AOCI:


	Unrealized Gains (Losses) Recognized in Other Comprehensive Income
	Year Ended December 31,
	2019		2018		2017
Derivative Instrument:

Foreign exchange forward contracts(1)	$	(2.7)	$	8.9	$	(9.3)
Cross-currency swap	25.8		(3.5)		(20.1)
Interest rate swap	(25.0)		17.7		(19.1)
Total hedges	$	(1.9)	$	23.1	$	(48.5)

_________________________________

(1) Amounts include gains and losses realized upon contract settlement but not yet recognized into earnings from AOCI.

The following table summarizes the locations and amounts of gains (losses) recognized within earnings related to our cash flow hedging relationships:


	Year Ended December 31,
	2019										2018								2017
	Revenue		Interest Expense		Other Income (Expense), Net		Revenue		Interest Expense		Other Income (Expense), Net		Revenue		Interest Expense		Other Income (Expense), Net
Foreign Exchange Forward Contracts:
Reclassified from AOCI into income	$	3.2	$	—	$	—	$	(2.1)	$	—	$	—	$	0.8	$	—	$	—
Cross-Currency Swap:
Reclassified from AOCI into income (1)	—		30.1		28.1		—		28.3		65.9		—		21.6		(163.8)
Interest Rate Swap:
Reclassified from AOCI into income	—		(2.6)		—		—		(6.5)		—		—		(12.8)		—

Total hedges	$	3.2	$	27.5	$	28.1	$	(2.1)	$	21.8	$	65.9	$	0.8	$	8.8	$	(163.8)

_________________________________

(1) The amount reflected in other income (expense), net includes $(28.7) million, $(67.3) million and $162.8 million reclassified from AOCI to offset the earnings impact of the remeasurement of the Euro-denominated intercompany loan hedged by the cross-currency swap during 2019, 2018 and 2017, respectively.

As of December 31, 2019, we estimate that approximately $22.0 million of net deferred gains related to our cash flow hedges will be recognized in earnings over the next 12 months. No amounts were excluded from our effectiveness testing during any of the periods presented.

Risk Management Strategies

Foreign Exchange Forward Contracts

From time-to-time, we may enter into foreign exchange forward contracts with financial institutions to hedge certain forecasted sales transactions denominated in foreign currency. We designate these forward contracts as cash flow hedges, which are recognized as either assets or liabilities at fair value. At December 31, 2019, all such contracts had maturities of 18 months or less.

Cross-Currency Swap Contract

In April 2017, in order to manage variability due to movements in foreign currency rates related to a Euro-denominated intercompany loan, we entered into a five-year cross-currency swap arrangement (the Cross-Currency Swap). The Cross-Currency Swap, which matures on April 3, 2022, had an amortizing notional amount of €1,243.3 million at inception (approximately $1,325.4 million). It converts the 3.00% fixed rate Euro-denominated interest and principal receipts on the intercompany loan into fixed U.S. dollar interest and principal receipts at a rate of 5.44%. Pursuant to the contract, the Euro notional value will be exchanged for the U.S. dollar notional value at maturity. The Cross-Currency Swap has been designated as a cash flow hedge. Accordingly, it is recognized as an asset or liability at fair value and the unrealized gains and losses on the contract are included in gain (loss) on swaps and foreign currency hedging, net within AOCI. Gains and losses are reclassified to interest income or expense over the period the hedged loan affects earnings. As such, amounts recorded in other comprehensive income (loss) (OCI) will be recognized in earnings within or against interest expense when the hedged interest payment is accrued each month. In addition, an amount is reclassified from AOCI to other income (expense), net each reporting period, to offset the earnings impact of the hedged instrument.

Interest Rate Swap Contract

In April 2017, we entered into a five-year pay-fixed rate, receive-floating rate interest rate swap arrangement (the Interest Rate Swap) to effectively convert a portion of the variable-rate debt to fixed. The Interest Rate Swap, which matures on April 3, 2022, had an amortizing notional amount of $1,325.4 million at inception and swaps the variable interest rate on our LIBOR-based borrowings for a fixed rate of 5.44%. The objective of the Interest Rate Swap, which is designated as a cash flow hedge and recognized as an asset or liability at fair value, is to manage the variability of cash flows in the interest payments related to the portion of the variable-rate debt designated as being hedged. The unrealized gains and losses on the contract are included in gain (loss) on swaps and foreign currency hedging, net within AOCI, and will be recognized in earnings within or against interest expense when the hedged interest payment is accrued each month.

12. Leases

Our operating leases primarily consist of office and data center space expiring at various dates through November 2036. Certain leases include options to renew or terminate at our discretion. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of December 31, 2019, operating leases have a remaining weighted average lease term of 8.2 years and our operating lease liabilities were measured using a weighted average discount rate of 5.3%. Finance leases are immaterial.

The components of operating lease expense were as follows:


	Year Ended December 31, 2019

Operating lease costs	$	55.6
Variable lease costs	8.8
Sublease income	(3.0)
Net lease costs	$	61.4

Total rent expense related to operating leases was $44.1 million and $38.3 million during 2018 and 2017, respectively.

Supplemental cash flow information related to operating leases was as follows:


	Year Ended December 31, 2019

Cash paid for amounts included in the measurement of operating lease liabilities	$	50.0
ROU assets obtained in exchange for operating lease obligations	126.3

Operating lease liabilities are included in our balance sheets as follows:


	December 31, 2019
Accrued expenses and other current liabilities	$	39.5
Operating lease liabilities, net of current portion	192.9
	$	232.4

Maturities of operating lease liabilities as of December 31, 2019 were as follows:


Year Ending December 31:
2020	$	50.6
2021	44.9
2022	33.1
2023	25.6
2024	24.3
Thereafter	110.0
Total lease payments	288.5
Less: imputed interest	(56.1)
	$	232.4

13. Commitments and Contingencies

Service Agreements

We have entered into long-term agreements with certain vendors to provide for software and equipment maintenance, specified levels of bandwidth and other services. Under these arrangements, we are required to make periodic payments. Future minimum obligations under these non-cancelable agreements with initial terms in excess of one year at December 31, 2019 are as follows:


Year Ending December 31:
2020	$	48.9
2021	48.0
2022	48.5
2023	24.5
2024	10.6
Thereafter	0.3

Total minimum payments	$	180.8

Litigation

From time-to-time, we are a party to litigation and subject to claims incident to the ordinary course of business, including intellectual property claims, putative and certified class actions, commercial and consumer protection claims, labor and employment claims, breach of contract claims and other asserted and unasserted claims. We investigate claims as they arise and accrue estimates for resolution of legal and other contingencies when losses are probable and estimable.

On June 13, 2019, we entered into an agreement in principle to settle the class action complaint, Jason Bennett v. GoDaddy.com (Case No. 2:16-cv-03908-DLR)(U.S.D.C.)(D.AZ), filed on June 20, 2016. The complaint alleges violation of the Telephone Consumer Protection Act of 1991 (the TCPA). On September 23, 2019, the parties fully executed a written settlement agreement. On December 16, 2019, we amended the settlement agreement to include two additional putative class action cases, which also alleged violations of the TCPA: John Herrick v. GoDaddy.com, LLC, D. Ariz. (Case No. 2:16-cv-00254, appeal pending 18-16048 (9th Cir.)) and Susan Drazen v. GoDaddy.com, LLC (Case No 19-cv-00563). The amended settlement agreement is still subject to Court approval; a Motion for Preliminary Approval was filed on January 10, 2020 and remains pending.

Under the terms of the proposed amended settlement agreement, we would make available a total of up to $35.0 million to pay: (i) class members, at their election, either a cash settlement or a credit to be used for future purchases of products from us, (ii) an incentive payment to the class representative, (iii) notice and administration costs in connection with the settlement, and (iv) attorneys' fees to legal counsel representing the class. If approved, we would receive a full release from the settlement class (other than from those class members who timely elect to opt out of the settlement) concerning the claims asserted, or that could have been asserted, with respect to the claims released in the amended settlement agreement.

During the three months ended June 30, 2019, we recorded an estimated loss provision of $18.1 million to general and administrative expense, which represents our best estimate of the total settlement costs, inclusive of attorneys' fees to be paid to legal counsel representing the class in connection with the settlement. We made no changes to our estimated loss accrual during the six months ended December 31, 2019. Our legal fees associated with this matter have been recorded to general and administrative expense as incurred and were not material.

We have denied and continue to deny the allegations in the complaint. Nothing in the amended settlement agreement shall be deemed to assign or reflect any admission of fault, wrongdoing or liability, or of the appropriateness of a class action in such litigation.

The amounts currently accrued for other matters are not material. While the results of such normal course claims and legal proceedings, regardless of the underlying nature of the claims, cannot be predicted with certainty, management does not believe, based on current knowledge and the likely timing of resolution of various matters, any additional reasonably possible potential losses above the amounts accrued for such matters would be material. Regardless of the outcome, claims and legal proceedings may have an adverse effect on us because of defense costs, diversion of management resources and other factors. We may also receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurances that favorable final outcomes will be obtained. The final outcome of any current or future claims or lawsuits could adversely affect our business, financial condition or results of operations.

Indemnifications

In the normal course of business, we have made indemnities under which we may be required to make payments in relation to certain transactions, including to our directors and officers to the maximum extent permitted under applicable state laws and indemnifications related to certain lease agreements. In addition, certain advertiser and reseller partner agreements contain indemnification provisions, which are generally consistent with those prevalent in the industry. We have not incurred material obligations under indemnification provisions historically, and do not expect to incur material obligations in the future. Accordingly, we have not recorded any liabilities related to such indemnities as of December 31, 2019 and 2018.

We include service level commitments to our customers guaranteeing certain levels of uptime reliability and performance for our hosting and premium DNS products. These guarantees permit those customers to receive credits in the event we fail to meet those levels, with exceptions for certain service interruptions including but not limited to periodic maintenance. We have not incurred any material costs as a result of such commitments during any of the periods presented, and have not recorded any liabilities related to such obligations as of December 31, 2019 and 2018.

Indirect Taxes

We are subject to indirect taxation in some, but not all, of the various states and foreign jurisdictions in which we conduct business. Laws and regulations attempting to subject communications and commerce conducted over the Internet to various indirect taxes are becoming more prevalent, both in the U.S. and internationally, and may impose additional burdens on us in the future. Increased regulation could negatively affect our business directly, as well as the businesses of our customers. Taxing authorities may impose indirect taxes on the Internet-related revenue we generate based on regulations currently being applied to similar, but not directly comparable, industries. There are many transactions and calculations where the ultimate indirect tax determination is uncertain. In addition, domestic and international indirect taxation laws are complex and subject to change. We may be audited in the future, which could result in changes to our indirect tax estimates. We continually evaluate those jurisdictions in which nexus exists and believe we maintain adequate indirect tax accruals.

As of December 31, 2019 and 2018, our accrual for estimated indirect tax liabilities was $9.4 million and $11.6 million, respectively, reflecting our best estimate of the probable liability based on an analysis of our business activities, revenues subject to indirect taxes and applicable regulations. Although we believe our indirect tax estimates and associated liabilities are reasonable, the final determination of indirect tax audits, litigation or settlements could be materially different than the amounts established for indirect tax contingencies.

14. Defined Contribution Plan

We maintain defined contribution 401(k) plans covering eligible U.S. employees, who may contribute up to 100% of their compensation, subject to limitations established by the Internal Revenue Code. We match employee contributions on a discretionary basis. Expense for our matching contributions was $14.7 million, $13.5 million and $9.9 million during 2019, 2018 and 2017, respectively.

We maintain defined contribution benefit plans covering eligible foreign employees. Expense related to such plans was not material in any period presented.

15. Income Taxes

Overview

We are subject to U.S. federal, state and foreign income taxes with respect to our allocable share of any taxable income or loss of Desert Newco, as well as any stand-alone income or loss we generate. Desert Newco is treated as a partnership for U.S. income tax purposes, and for most applicable state and local income tax purposes, and generally does not pay income taxes on its taxable income in most jurisdictions. Instead, Desert Newco's taxable income or loss is passed through to its members, including us. Despite its partnership treatment, Desert Newco is liable for income taxes in certain foreign jurisdictions in which it operates, in those states not recognizing its pass-through status and for certain of its subsidiaries not taxed as pass-through entities. We have acquired the outstanding stock of various domestic and foreign entities taxed as corporations, which are now wholly-owned by us or our subsidiaries. Where required or allowed, these subsidiaries also file and pay tax as a consolidated group for U.S. federal and state income tax purposes and internationally, primarily within the U.K., Germany and India. We anticipate this structure to remain in existence for the foreseeable future.

Benefit for Income Taxes

Our benefit for income taxes includes U.S. federal, state and foreign income taxes. The domestic and foreign components of our income from continuing operations before income taxes were as follows:


	Year Ended December 31,
	2019		2018		2017
U.S.	$	176.4	$	138.9	$	180.6
Foreign	(50.0)		(65.9)		(73.8)
Income from continuing operations before income taxes	$	126.4	$	73.0	$	106.8

Our benefit for income taxes was as follows:


	Year Ended December 31,
	2019		2018		2017
Current:
Federal	$	(0.7)	$	(1.3)	$	(1.4)
State	(0.6)		(0.7)		(0.6)
Foreign	(7.8)		(10.3)		(9.5)
	(9.1)		(12.3)		(11.5)
Deferred:
Federal	4.4		1.4		9.6
State	0.4		1.0		0.8
Foreign	16.3		18.9		20.0
	21.1		21.3		30.4
Benefit for income taxes	$	12.0	$	9.0	$	18.9

A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate was as follows:


	Year Ended December 31,
	2019		2018		2017
Expected provision at U.S. federal statutory tax rate	$	(26.5)	$	(15.3)	$	(37.4)
Effect of U.S. federal rate reduction, net of the effect on valuation allowances	—		—		7.9
Effect of investment in Desert Newco	7.1		13.1		27.4
TRA liability adjustment	1.7		0.3		24.3
Foreign earnings	2.1		3.1		(15.3)
State taxes, net of federal benefit	(1.2)		2.1		(3.1)


Other	(4.3)		0.9		0.5
Effect of changes in valuation allowances, excluding effect of U.S. federal rate reduction	33.1		4.8		14.6
Benefit for income taxes	$	12.0	$	9.0	$	18.9

Our effective tax rate is driven by changes in valuation allowances based on current year earnings and the impact of foreign earnings primarily related to the U.K., Germany and India jurisdictions. In 2017, the increase in the impact of foreign earnings primarily resulted from our acquisition of HEG and the TRA liability adjustment primarily represents the non-deductible portion of the benefit resulting from the decrease in the liability under the TRAs due to the U.S. federal rate reduction.

Deferred Taxes

The components of our deferred taxes were as follows:


	December 31,
	2019		2018

DTAs:
Investment in Desert Newco	$	968.0	$	942.5
NOLs	476.1		391.3
Deferred interest	34.1		19.3
Operating lease liabilities	25.7		—
TRA liability	24.4		22.1
Other	8.9		15.9
Valuation allowance	(1,497.0)		(1,372.8)
Total DTAs	40.2		18.3
DTLs:
Identified intangible assets	(112.8)		(133.8)
Operating lease assets	(22.7)		—
Total DTLs	(135.5)		(133.8)
Net DTLs	$	(95.3)	$	(115.5)

As a result of certain pre-IPO organizational transactions, we acquired LLC Units and recognized a DTA for the difference between the financial reporting and tax basis of our investment in Desert Newco. During 2018, the DTAs associated with our investment increased $648.3 million due to exchanges of LLC Units and stock option exercises, and we recorded additional DTAs of $125.3 million as a result of our portion of Desert Newco's losses. During 2019, the DTAs associated with our investment increased $113.7 million due to exchanges of LLC Units and stock option exercises, and we recorded additional DTAs of $94.4 million as a result of our portion of Desert Newco's losses.

Based primarily on our limited operating history and our historical losses, we believe there is significant uncertainty as to when we will be able to utilize certain of our NOLs, credit carryforwards and other DTAs. Therefore, we have recorded a valuation allowance against the DTAs for which we have concluded it is more-likely-than-not they will not be realized. As of December 31, 2019, we have U.S. federal, state and foreign gross NOLs, credits and incentives, a portion of which will begin to expire in 2030, as follows:


	Gross NOLs, Credits and Incentives		Portion Subject to a Valuation Allowance
Federal NOLs and credits	$	1,751.1	$	1,747.2
State NOLs, credits and incentives	2,225.0		2,220.6
Foreign NOLs	31.4		24.2
Total NOLs, credits and incentives	$	4,007.5	$	3,992.0

Other

As of December 31, 2019, we have provided income taxes on the earnings of foreign subsidiaries, except to the extent such earnings are considered indefinitely reinvested. We have determined the amount of unrecognized DTL related to these temporary differences to be immaterial.

We have filed all income tax returns for years through 2018, other than for Germany. These returns are subject to examination by the taxing authorities in the respective jurisdictions, generally for three or four years after they were filed. Based on our analysis of tax positions taken on income tax returns filed, we have determined no material liabilities related to uncertain income tax positions were required for 2018. Our liability for unrecognized tax benefits as of December 31, 2019 was as follows:


	Year Ended December 31, 2019

Balance at beginning of period	$	2.1
Gross increases - tax positions in prior period	4.5
Gross increases - tax positions in current period	2.7

Balance at end of period	$	9.3

We recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense. No material amounts were recognized during any of the periods presented. We do not expect a significant decrease in our liability for unrecognized tax benefits in the next 12 months.

Although we believe the amounts reflected in our tax returns substantially comply with applicable U.S. federal, state and foreign tax regulations, the respective taxing authorities may take contrary positions based on their interpretation of the law. A tax position successfully changed by a taxing authority could result in an adjustment to our benefit for income taxes in the period in which a final determination is made.

16. Payable to Related Parties Pursuant to the TRAs

As a result of certain pre-IPO organizational transactions, we received certain tax attributes, including the OBAs and NOL carryforwards, from certain of our pre-IPO owners. These OBAs entitle us to the depreciation and amortization previously allocable to such parties, which are allowed prior to the utilization of any NOL or tax credit carryforwards against income taxes. If these additional depreciation and amortization deductions are greater than our taxable income, the excess deductions allocated to us will increase the amount of our NOL carryforwards. Based on current projections of taxable income, and before deduction of any specially allocated depreciation and amortization, we anticipated having enough taxable income to utilize a portion of these specially allocated deductions related to the OBAs.

As of December 31, 2017, the liability under the TRAs was $153.0 million, representing approximately 85% of the calculated tax savings based on the portion of the OBAs we anticipate being able to utilize in future years. During 2018, we increased this liability through a $36.2 million reduction of additional paid-in-capital resulting from exchanges of LLC Units in the secondary offerings discussed in Note 6, partially offset by a $14.9 million benefit to our statements of operations primarily resulting from changes in forecasted taxable income. As of December 31, 2018, the liability under the TRAs was $174.3 million.

During 2019, we increased this liability through an aggregate $9.7 million reduction of additional paid-in-capital resulting from the exchanges of LLC Units in the secondary offering discussed in Note 6, partially offset by a benefit to our statements of operations of $8.7 million primarily resulting from additional tax deductible equity-based compensation. As of December 31, 2019, the liability under the TRAs was $175.3 million.

The projection of future taxable income involves significant judgment. Actual taxable income may differ from our estimates, which could significantly impact the liability under the TRAs. We have determined it is more-likely-than-not we will be unable to utilize all of our DTAs subject to TRAs; therefore, we have not recorded a liability under the TRAs related to the tax savings we may realize from the utilization of NOL carryforwards and the amortization related to basis adjustments created by exchanges of LLC Units. If utilization of these DTAs becomes more-likely-than-not in the future, at such time, we will record liabilities under the TRAs of up to an additional $1,140.9 million as a result of basis adjustments under the Internal Revenue Code and up to an additional $438.4 million related to the utilization of NOL and credit carryforwards, which will be recorded through charges to our statements of operations. However, if the tax attributes are not utilized in future years, it is reasonably possible no amounts would be paid under the TRAs. In this scenario, the reduction of the liability under the TRAs would result in a benefit to our statements of operations.

17. Income Per Share

Basic income per share is computed by dividing net income attributable to GoDaddy Inc. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted income per share is computed giving effect to all potentially dilutive shares unless their effect is antidilutive.

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per share is as follows:


	Year Ended December 31,
	2019		2018		2017
Numerator:
Income from continuing operations	$	138.4	$	82.0	$	125.7
Income from discontinued operations, net of income taxes	—		—		14.1
Net income	138.4		82.0		139.8
Less: net income attributable to non-controlling interests	1.4		4.9		3.4
Net income attributable to GoDaddy Inc.	$	137.0	$	77.1	$	136.4

Denominator:
Weighted-average shares of Class A common stock outstanding—basic	173,431		155,234		108,779
Effect of dilutive securities:
Class B common stock	2,318		16,534		57,999
Stock options	4,369		7,123		8,791
RSUs, PSUs and ESPP shares	1,603		2,462		1,485
Weighted-average shares of Class A Common stock outstanding—diluted	181,721		181,353		177,054
Net income attributable to GoDaddy Inc. per share of Class A common stock—basic:
Continuing operations	$	0.79	$	0.50	$	1.17
Discontinued operations	—		—		0.08
Net income attributable to GoDaddy Inc.	$	0.79	$	0.50	$	1.25
Net income attributable to GoDaddy Inc. per share of Class A common stock—diluted:(1)
Continuing operations	$	0.76	$	0.45	$	0.71
Discontinued operations	—		—		0.08
Net income attributable to GoDaddy Inc.	$	0.76	$	0.45	$	0.79

_________________________________

(1) The diluted income per share calculations exclude net income attributable to non-controlling interests.

The following number of weighted-average potentially dilutive shares were excluded from the calculation of diluted income per share because the effect of including such potentially dilutive shares would have been antidilutive:


	Year Ended December 31,
	2019	2018	2017
Stock options, RSUs and PSUs	1,784	982	1,700

Shares of Class B common stock do not share in our earnings and are not participating securities. Accordingly, separate presentation of income per share of Class B common stock under the two-class method has not been presented. Each share of Class B common stock (together with a corresponding LLC Unit) is exchangeable for one share of Class A common stock.

18. Geographic Information

Revenue by geography is based on the customer's billing address, and was as follows:


	Year Ended December 31,
	2019		2018		2017
U.S.	$	1,979.6	$	1,723.9	1,504.5
International	1,008.5		936.2		727.4
	$	2,988.1	$	2,660.1	$	2,231.9

No individual international country represented more than 10% of total revenue in any period presented.

Property and equipment, net by geography was as follows:


	Year Ended December 31,
	2019		2018
U.S.	200.4		231.0
International	58.2		68.0
	$	258.6	$	299.0

No individual international country represented more than 10% of property and equipment, net in any period presented.

19. Related Party Transactions

As of December 31, 2019 and 2018, affiliates of KKR held $7.8 million and $10.4 million, respectively, of the outstanding principal balance of our Term Loans as participating lenders. No material amounts were paid to KKR during any of the periods presented.

20. Accumulated Other Comprehensive Loss

The following table presents AOCI activity in equity:


	Foreign Currency Translation Adjustments		Net Unrealized Gains (Losses) on Cash Flow Hedges(1)		Total Accumulated Other Comprehensive Income (Loss)
Gross balance as of December 31, 2017(2)	$	(86.8)	$	(45.5)	$	(132.3)
Other comprehensive income (loss) before reclassifications	(5.5)		(62.5)		(68.0)
Amounts reclassified from AOCI	—		85.6		85.6
Other comprehensive income (loss) - 2018	(5.5)		23.1		17.6
	$	(92.3)	$	(22.4)	(114.7)
Less: AOCI attributable to non-controlling interests					42.6
Balance as of December 31, 2018					$	(72.1)

Gross balance as of December 31, 2018(2)	$	(92.3)	$	(22.4)	$	(114.7)
Other comprehensive income (loss) before reclassifications	37.7		(60.7)		(23.0)
Amounts reclassified from AOCI	—		58.8		58.8
Other comprehensive income (loss) - 2019	37.7		(1.9)		35.8
	$	(54.6)	$	(24.3)	(78.9)
Less: AOCI attributable to non-controlling interests					0.7
Balance as of December 31, 2019					$	(78.2)

_________________________________

(1) Amounts shown for our foreign exchange forward contracts include gains and losses realized upon contract settlement but not yet recognized into earnings from AOCI.

(2) Beginning balance is presented on a gross basis, excluding the allocation of AOCI attributable to non-controlling interests.

The sale of discontinued operations in August 2017 resulted in the reclassification from AOCI of $46.9 million in cumulative foreign currency translation adjustments, which was reported in the gain on disposal within discontinued operations in 2017. The income tax impact associated with this reclassified amount was not material.

See Note 11 for the effect on net income of amounts reclassified from AOCI related to our cash flow hedging instruments. The income tax impact associated with these reclassified amounts was not material in any period presented.

21. Selected Quarterly Financial Data (Unaudited)

The following table contains selected unaudited statements of operations information for each quarter of 2019 and 2018. The following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.


	Three Months Ended
	Dec. 31, 2019		Sept. 30, 2019		Jun. 30, 2019		Mar. 31, 2019		Dec. 31, 2018		Sept. 30, 2018		Jun. 30, 2018		Mar. 31, 2018
Total revenue	$	780.4	$	760.5	$	737.2	$	710.0	$	695.8	$	679.5	$	651.6	$	633.2
Operating income	73.5		91.4		18.9		18.8		41.8		37.5		43.5		26.8
Net income (loss)	61.1		76.8		(12.7)		13.2		43.5		14.1		20.2		4.2
Net income (loss) attributable to GoDaddy Inc.	60.5		76.2		(12.6)		12.9		42.5		13.2		18.1		3.3
Net income (loss) attributable to GoDaddy Inc. per share of Class A common stock—basic	$	0.35	$	0.44	$	(0.07)	$	0.08	$	0.25	$	0.08	$	0.12	$	0.02
Net income (loss) attributable to GoDaddy Inc. per share of Class A common stock—diluted	$	0.34	$	0.42	$	(0.07)	$	0.07	$	0.24	$	0.08	$	0.11	$	0.02

22. Subsequent Events

In February 2020, we entered into agreements for two acquisitions with an aggregate purchase price of approximately $196.9 million, of which $149.1 million has been paid in cash. The remaining $47.8 million will be paid upon receipt of certain regulatory approvals and satisfaction of other customary closing conditions as well as upon the expiration of the contractual holdback period.

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