filings.toolsItem 1. Financial Statements
103K characters. Original on sec.gov · Markdown
Item 1. Financial Statements
GoDaddy Inc.
Consolidated Balance Sheets (unaudited)
(In millions, except shares in thousands and per share amounts)
| March 31, | December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 742.7 | $ | 1,255.7 | |||||||
| Accounts and other receivables | 59.7 | 63.6 | |||||||||
| Prepaid domain name registry fees | 433.3 | 419.7 | |||||||||
| Prepaid expenses and other current assets | 208.0 | 150.8 | |||||||||
| Total current assets | 1,443.7 | 1,889.8 | |||||||||
| Property and equipment, net | 222.6 | 220.0 | |||||||||
| Operating lease assets | 100.8 | 109.2 | |||||||||
| Prepaid domain name registry fees, net of current portion | 186.8 | 181.4 | |||||||||
| Goodwill | 3,514.4 | 3,540.8 | |||||||||
| Intangible assets, net | 1,343.8 | 1,384.7 | |||||||||
| Other assets | 89.2 | 91.2 | |||||||||
| Total assets | $ | 6,901.3 | $ | 7,417.1 | |||||||
| Liabilities and stockholders' equity (deficit) | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 114.2 | $ | 85.2 | |||||||
| Accrued expenses and other current liabilities | 374.1 | 437.3 | |||||||||
| Deferred revenue | 1,961.6 | 1,890.1 | |||||||||
| Long-term debt | 24.1 | 24.1 | |||||||||
| Total current liabilities | 2,474.0 | 2,436.7 | |||||||||
| Deferred revenue, net of current portion | 763.7 | 743.3 | |||||||||
| Long-term debt, net of current portion | 3,852.8 | 3,858.2 | |||||||||
| Operating lease liabilities, net of current portion | 136.5 | 142.7 | |||||||||
| Other long-term liabilities | 74.7 | 77.7 | |||||||||
| Deferred tax liabilities | 68.3 | 75.3 | |||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' equity (deficit): | |||||||||||
| 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; 161,686 and 166,901 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | 0.2 | 0.2 | |||||||||
| Class B common stock, $0.001 par value - 500,000 shares authorized; 312 and 320 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | — | — | |||||||||
| Additional paid-in capital | 1,665.6 | 1,594.7 | |||||||||
| Accumulated deficit | (2,156.4) | (1,474.6) | |||||||||
| Accumulated other comprehensive income (loss) | 20.1 | (38.6) | |||||||||
| Total stockholders' equity (deficit) attributable to GoDaddy Inc. | (470.5) | 81.7 | |||||||||
| Non-controlling interests | 1.8 | 1.5 | |||||||||
| Total stockholders' equity (deficit) | (468.7) | 83.2 | |||||||||
| Total liabilities and stockholders' equity (deficit) | $ | 6,901.3 | $ | 7,417.1 |
See accompanying notes to consolidated financial statements.
GoDaddy Inc.
Consolidated Statements of Operations (unaudited)
(In millions, except shares in thousands and per share amounts)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Revenue: | |||||||||||
| Applications & commerce | $ | 303.1 | $ | 262.0 | |||||||
| Core platform | 699.6 | 639.1 | |||||||||
| Total revenue | 1,002.7 | 901.1 | |||||||||
| Costs and operating expenses(1): | |||||||||||
| Cost of revenue (excluding depreciation and amortization) | 370.2 | 321.2 | |||||||||
| Technology and development | 190.1 | 186.4 | |||||||||
| Marketing and advertising | 116.3 | 132.7 | |||||||||
| Customer care | 77.7 | 78.6 | |||||||||
| General and administrative | 90.6 | 95.2 | |||||||||
| Depreciation and amortization | 48.2 | 49.0 | |||||||||
| Total costs and operating expenses | 893.1 | 863.1 | |||||||||
| Operating income | 109.6 | 38.0 | |||||||||
| Interest expense | (33.6) | (28.7) | |||||||||
| Other income (expense), net | (1.1) | 0.7 | |||||||||
| Income before income taxes | 74.9 | 10.0 | |||||||||
| Benefit (provision) for income taxes | (6.3) | 0.8 | |||||||||
| Net income | 68.6 | 10.8 | |||||||||
| Less: net income attributable to non-controlling interests | 0.2 | — | |||||||||
| Net income attributable to GoDaddy Inc. | $ | 68.4 | $ | 10.8 | |||||||
| Net income attributable to GoDaddy Inc. per share of Class A common stock: | |||||||||||
| Basic | $ | 0.42 | $ | 0.06 | |||||||
| Diluted | $ | 0.41 | $ | 0.06 | |||||||
| Weighted-average shares of Class A common stock outstanding: | |||||||||||
| Basic | 164,323 | 169,435 | |||||||||
| Diluted | 166,811 | 173,053 | |||||||||
| ___________________________ | |||||||||||
| (1) Costs and operating expenses include equity-based compensation expense as follows: | |||||||||||
| Cost of revenue | $ | 0.3 | $ | 0.2 | |||||||
| Technology and development | 32.9 | 27.0 | |||||||||
| Marketing and advertising | 7.0 | 6.2 | |||||||||
| Customer care | 4.2 | 3.0 | |||||||||
| General and administrative | 16.8 | 16.2 | |||||||||
| Total equity-based compensation expense | $ | 61.2 | $ | 52.6 |
See accompanying notes to consolidated financial statements.
GoDaddy Inc.
Consolidated Statements of Comprehensive Income (unaudited)
(In millions)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net income | $ | 68.6 | $ | 10.8 | |||||||
| Foreign exchange forward contracts gain (loss), net | 3.2 | 2.1 | |||||||||
| Unrealized swap gain (loss), net(1) | 89.9 | 24.4 | |||||||||
| Change in foreign currency translation adjustment | (34.3) | 33.7 | |||||||||
| Comprehensive income | 127.4 | 71.0 | |||||||||
| Less: comprehensive income attributable to non-controlling interests | 0.3 | 0.3 | |||||||||
| Comprehensive income attributable to GoDaddy Inc. | $ | 127.1 | $ | 70.7 | |||||||
| ___________________________ | |||||||||||
| (1) Components of OCI are net of the tax effects reflected below: | |||||||||||
| Unrealized swap gain (loss), net | $ | (2.5) | $ | 0.5 | |||||||
See accompanying notes to consolidated financial statements.
GoDaddy Inc.
Consolidated Statements of Stockholders' Deficit (unaudited)
(In millions, except shares in thousands)
| Class A Common Stock | Class B Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Non- Controlling Interests | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 166,901 | $ | 0.2 | 320 | $ | — | $ | 1,594.7 | $ | (1,474.6) | $ | (38.6) | $ | 1.5 | $ | 83.2 | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 68.4 | — | 0.2 | 68.6 | ||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation, including amounts capitalized | — | — | — | — | 62.2 | — | — | — | 62.2 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock option exercises | 202 | — | — | — | 8.5 | — | — | — | 8.5 | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of Class A common stock | (6,532) | — | — | — | — | (750.2) | — | — | (750.2) | ||||||||||||||||||||||||||||||||||||||||||||
| Impact of derivatives, net | — | — | — | — | — | — | 93.1 | — | 93.1 | ||||||||||||||||||||||||||||||||||||||||||||
| Change in foreign currency translation adjustment | — | — | — | — | — | — | (34.3) | — | (34.3) | ||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units and other | 1,115 | — | (8) | — | 0.2 | — | (0.1) | 0.1 | 0.2 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 161,686 | $ | 0.2 | 312 | $ | — | $ | 1,665.6 | $ | (2,156.4) | $ | 20.1 | $ | 1.8 | $ | (468.7) | |||||||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Non- Controlling Interests | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 169,157 | $ | 0.2 | 688 | $ | — | $ | 1,308.8 | $ | (1,190.9) | $ | (131.0) | $ | 1.1 | $ | (11.8) | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 10.8 | — | — | 10.8 | ||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation, including amounts capitalized | — | — | — | — | 53.2 | — | — | — | 53.2 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock option exercises | 309 | — | — | — | 11.8 | — | — | (0.2) | 11.6 | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of Class A common stock | (2,544) | — | — | — | — | (195.1) | — | — | (195.1) | ||||||||||||||||||||||||||||||||||||||||||||
| Impact of derivatives, net | — | — | — | — | — | — | 26.5 | — | 26.5 | ||||||||||||||||||||||||||||||||||||||||||||
| Change in foreign currency translation adjustment | — | — | — | — | — | — | 33.7 | — | 33.7 | ||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units and other | 1,523 | — | (209) | — | (0.4) | — | (0.4) | 0.9 | 0.1 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | 168,445 | $ | 0.2 | 479 | $ | — | $ | 1,373.4 | $ | (1,375.2) | $ | (71.2) | $ | 1.8 | $ | (71.0) | |||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
GoDaddy Inc.
Consolidated Statements of Cash Flows (unaudited)
(In millions)
| Three Months Ended March 31, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Operating activities | |||||||||||||||||
| Net income | $ | 68.6 | $ | 10.8 | |||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 48.2 | 49.0 | |||||||||||||||
| Equity-based compensation expense | 61.2 | 52.6 | |||||||||||||||
| Other | 17.6 | 6.4 | |||||||||||||||
| Changes in operating assets and liabilities, net of amounts acquired: | |||||||||||||||||
| Prepaid domain name registry fees | (19.8) | (28.3) | |||||||||||||||
| Deferred revenue | 94.6 | 127.1 | |||||||||||||||
| Other operating assets and liabilities | (19.5) | 3.7 | |||||||||||||||
| Net cash provided by operating activities | 250.9 | 221.3 | |||||||||||||||
| Investing activities | |||||||||||||||||
| Business acquisitions, net of cash acquired | — | (298.5) | |||||||||||||||
| Purchases of property and equipment | (12.3) | (9.0) | |||||||||||||||
| Other investing activities | (0.2) | 1.0 | |||||||||||||||
| Net cash used in investing activities | (12.5) | (306.5) | |||||||||||||||
| Financing activities | |||||||||||||||||
| Proceeds received from: | |||||||||||||||||
| Issuance of senior notes | — | 800.0 | |||||||||||||||
| Stock option exercises | 8.5 | 11.6 | |||||||||||||||
| Payments made for: | |||||||||||||||||
| Repurchases of Class A common stock | (750.1) | (180.1) | |||||||||||||||
| Repayment of term loans | (8.1) | (8.1) | |||||||||||||||
| Other financing obligations | (0.9) | (9.7) | |||||||||||||||
| Net cash provided by (used in) financing activities | (750.6) | 613.7 | |||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (0.8) | (0.6) | |||||||||||||||
| Net increase (decrease) in cash and cash equivalents | (513.0) | 527.9 | |||||||||||||||
| Cash and cash equivalents, beginning of period | 1,255.7 | 765.2 | |||||||||||||||
| Cash and cash equivalents, end of period | $ | 742.7 | $ | 1,293.1 | |||||||||||||
| Cash paid during the period for: | |||||||||||
| Interest on long-term debt, including impact of interest rate swaps | $ | 28.1 | $ | 15.0 | |||||||
| Income taxes, net of refunds received | $ | 4.5 | $ | 1.2 | |||||||
| Amounts included in the measurement of operating lease liabilities | $ | 13.7 | $ | 12.7 | |||||||
| Supplemental disclosure of non-cash transactions | |||||||||||
| Operating lease assets obtained in exchange for operating lease liabilities | $ | 3.0 | $ | 2.6 | |||||||
| Accrued purchases of property and equipment at period end | $ | 5.9 | $ | 2.3 | |||||||
| Share repurchases not yet settled | $ | — | $ | 15.0 | |||||||
See accompanying notes to consolidated financial statements.
GoDaddy Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except shares in thousands and per share amounts)
1. Organization and Background
Organization
We are the sole managing member of Desert Newco, and as a result, we consolidate its financial results and report non-controlling interests representing the economic interests held by other members. The calculation of non-controlling interests excludes any net income attributable directly to GoDaddy Inc. As of March 31, 2022, we owned more than 99.8% of Desert Newco.
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.
Our interim financial statements are unaudited, and in our opinion, include all adjustments of a normal recurring nature necessary for the fair presentation of the periods presented. The results for interim periods are not necessarily indicative of the results to be expected for any subsequent period or for the year ending December 31, 2022.
These financial statements should be read in conjunction with our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the 2021 Form 10-K).
Prior Period Reclassifications
In the first quarter of 2022, we revised the presentation of revenue in our statements of operations, as described in Note 2. Reclassifications of certain other 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. We periodically evaluate our estimates and adjust prospectively, if necessary. We believe our estimates and assumptions are reasonable; however, actual results may differ.
Segments
Beginning in the first quarter of 2022, we revised the presentation of segment information to reflect changes in the way we manage and evaluate our business. As such, we now report our operating results through two reportable segments: Applications and Commerce (A&C) and Core Platform (Core), as further discussed in Note 14. Accordingly, we have revised our segment information for the comparable prior year period.
2. Summary of Significant Accounting Policies
Property and Equipment
Property and equipment, net by geography was as follows:
| March 31, 2022 | December 31, 2021 | ||||||||||
| U.S. | $ | 164.8 | $ | 162.6 | |||||||
| France | 24.2 | 23.8 | |||||||||
| All other international | 33.6 | 33.6 | |||||||||
| $ | 222.6 | $ | 220.0 |
No other international country represented more than 10% of property and equipment, net in any period presented.
Derivative Financial Instruments
We are exposed to changes in foreign currency exchange rates, primarily relating to intercompany debt, the net assets of our foreign operations and 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 risks. We do not enter into derivative transactions for speculative or trading purposes.
We utilize a variety of derivative instruments and expect that 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, at inception, the related risk management strategy and objective, including identification of the hedging instrument, the hedged item and the risk of exposure. In addition, we formally assess, both at the inception and at least quarterly thereafter, whether the financial instruments used in the hedging transactions are effective at offsetting changes in either the fair values or cash flows of the relating underlying exposures.
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.
Cash Flow Hedges
We utilize a variety of derivative instruments designated as cash flow hedges:
-
foreign exchange forward contracts to hedge certain forecasted sales transactions denominated in foreign currencies;
-
cross-currency swaps used to manage variability due to movements in foreign currency exchange rates related to a Euro-denominated intercompany loan; and
-
pay-fixed rate, receive-floating rate interest rate swaps to effectively convert portions of our variable-rate debt to fixed.
We reflect unrealized gains or losses on our cash flow hedges as components of accumulated other comprehensive income (loss) (AOCI). Gains and losses on these instruments are recorded as a component of AOCI until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from AOCI to earnings within the same line items as the underlying transactions. At inception, and each reporting period, we evaluate the effectiveness of each of our hedges, and all hedges were determined to be effective.
Net Investment Hedges
We use cross-currency swaps to reduce the risk associated with exchange rate fluctuations on our net investments in certain foreign operations. Changes in the fair value of these derivative instruments are recorded in equity as a component of AOCI in the same manner as foreign currency translation adjustments (CTA). We elected to use the spot method to assess effectiveness of these derivatives. Under this method, changes in fair value of the hedging instruments attributed to changes in spot rates are initially recorded in the CTA component of AOCI and will remain there until the hedged net investments are sold or substantially liquidated. Changes in fair value of the hedging instruments other than those due to changes in the spot rate are initially recorded in the CTA component of AOCI and are amortized to interest expense using a systematic and rational method over the instruments’ term.
See Note 9 for further discussion of our derivative instruments.
Revenue Recognition
In the first quarter of 2022, we revised the presentation of revenue in our statements of operations in order to provide better visibility into our business and products as well as a more consistent way to track our progress against our strategic objectives. This change also aligns our revenue presentation with the products in each of our two reportable segments, which are discussed in Note 14. Following this change, our revenue is categorized as follows:
Applications and Commerce. A&C revenue primarily consists of revenue from sales of third-party email and productivity solutions such as Microsoft Office 365, products containing proprietary software such as Websites + Marketing and Managed WordPress and commerce products such as payment processing fees and point-of-sale (POS) hardware. A&C revenue also includes revenue from sales of products, such as website security products, when they are included in bundled offerings of our proprietary software products. Consideration is generally recorded as deferred revenue when received, which is typically at the time of sale, and revenue from most A&C products is recognized ratably over the period in which the performance obligations are satisfied, which is typically over the contract term. Payment processing fee revenue is recognized at the time of the transaction and revenue from the sale of POS hardware is recognized at the time when ownership is transferred to the customer.
Core Platform. Core revenue primarily consists of revenue from sales of domain registrations and renewals, aftermarket domain sales, website hosting products and website security products when not included in bundled offerings of our proprietary software products. Core revenue also includes revenue from sales of products not containing a software component such as professional web services as well as fee surcharges paid to ICANN. Consideration is generally recorded as deferred revenue when received, which is typically at the time of sale, and revenue from most Core products is recognized ratably over the period in which the performance obligations are satisfied, which is typically over the contract term. Aftermarket domain revenue is recognized at the time when ownership of the domain is transferred to the buyer.
The prior period statement of operations was revised to retrospectively present revenue in the new groupings as shown in the table below. There was no impact on total revenue, operating income, net income, deferred revenue or our statement of cash flows as a result of these revisions.
| Three Months Ended March 31, 2021 | |||||
| As Previously Reported | |||||
| Revenue: | |||||
| Domains | $ | 422.7 | |||
| Hosting and presence | 310.3 | ||||
| Business applications | 168.1 | ||||
| Total revenue | $ | 901.1 | |||
| As Revised | |||||
| Revenue: | |||||
| Applications and commerce | $ | 262.0 | |||
| Core platform | 639.1 | ||||
| Total revenue | $ | 901.1 |
Disaggregated Revenue
Revenue by major product type was as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Applications and commerce | $ | 303.1 | $ | 262.0 | |||||||||||||||||||
| Core platform: domains | 483.9 | 424.0 | |||||||||||||||||||||
| Core platform: other | 215.7 | 215.1 | |||||||||||||||||||||
| $ | 1,002.7 | $ | 901.1 |
No single customer represented over 10% of our total revenue for any period presented.
Revenue by geography is based on the customer's billing address and was as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| U.S. | $ | 672.9 | $ | 598.0 | |||||||||||||||||||
| International | 329.8 | 303.1 | |||||||||||||||||||||
| $ | 1,002.7 | $ | 901.1 |
No international country represented more than 10% of total revenue in any period presented.
See Note 6 for information regarding our deferred revenue.
Assets Recognized from Contract Costs
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 $174.1 million and $160.9 million for the three months ended March 31, 2022 and 2021, respectively.
Fair Value Measurements
The following tables set forth our material assets and liabilities measured and recorded at fair value on a recurring basis:
| March 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents: | |||||||||||||||||||||||
| Money market funds and time deposits | $ | 350.1 | $ | — | $ | — | $ | 350.1 | |||||||||||||||
| Derivative assets | — | 72.5 | — | 72.5 | |||||||||||||||||||
| Total assets | $ | 350.1 | $ | 72.5 | $ | — | $ | 422.6 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivative liabilities | $ | — | $ | 49.8 | $ | — | $ | 49.8 | |||||||||||||||
| Total liabilities | $ | — | $ | 49.8 | $ | — | $ | 49.8 |
| December 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents: | |||||||||||||||||||||||
| Money market funds and time deposits | $ | 178.1 | $ | — | $ | — | $ | 178.1 | |||||||||||||||
| Derivative assets | — | 30.3 | — | 30.3 | |||||||||||||||||||
| Total assets | $ | 178.1 | $ | 30.3 | $ | — | $ | 208.4 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivative liabilities | $ | — | $ | 89.5 | $ | — | $ | 89.5 | |||||||||||||||
| Total liabilities | $ | — | $ | 89.5 | $ | — | $ | 89.5 |
Recent Accounting Pronouncements
In October 2021, the FASB issued final guidance changing the measurement of acquired liabilities from contracts with customers in a business combination. The new guidance requires the recognition of contract liabilities at amounts generally consistent with those recorded by the acquiree immediately before the acquisition date. Under existing guidance, contract liabilities are measured at fair value, which generally results in a reduction to acquired contract liabilities and therefore lower revenue recognized during the post-acquisition period. We early adopted the new guidance on January 1, 2022, which we will apply to future business acquisitions.
3. Goodwill and Intangible Assets
As described in Note 14, beginning in the first quarter of 2022, we revised the presentation of segment information to reflect changes in the way we manage and evaluate our business. As such, we now have two operating segments, which are also our reporting units. We evaluated the goodwill of each reporting unit for impairment immediately before and after this change; no impairment was identified.
The following table summarizes changes in our goodwill balance by segment:
| A&C | Core | Total | |||||||||||||||
| Balance at December 31, 2021 | $ | 1,522.5 | $ | 2,018.3 | $ | 3,540.8 | |||||||||||
| Impact of foreign currency translation | (11.4) | (15.0) | (26.4) | ||||||||||||||
| Balance at March 31, 2022 | $ | 1,511.1 | $ | 2,003.3 | $ | 3,514.4 |
Intangible assets, net are summarized as follows:
| March 31, 2022 | |||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||
| Indefinite-lived intangible assets: | |||||||||||||||||
| Trade names and branding | $ | 445.0 | n/a | $ | 445.0 | ||||||||||||
| Domain portfolio | 245.8 | n/a | 245.8 | ||||||||||||||
| Contractual-based assets | 253.8 | n/a | 253.8 | ||||||||||||||
| Finite-lived intangible assets: | |||||||||||||||||
| Customer-related | 512.7 | $ | (279.8) | 232.9 | |||||||||||||
| Developed technology | 236.4 | (138.0) | 98.4 | ||||||||||||||
| Trade names and other | 114.8 | (46.9) | 67.9 | ||||||||||||||
| $ | 1,808.5 | $ | (464.7) | $ | 1,343.8 |
| December 31, 2021 | |||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||
| Indefinite-lived intangible assets: | |||||||||||||||||
| Trade names and branding | $ | 445.0 | n/a | $ | 445.0 | ||||||||||||
| Domain portfolio | 246.8 | n/a | 246.8 | ||||||||||||||
| Contractual-based assets | 253.8 | n/a | 253.8 | ||||||||||||||
| Finite-lived intangible assets: | |||||||||||||||||
| Customer-related | 535.1 | $ | (279.3) | 255.8 | |||||||||||||
| Developed technology | 243.5 | (133.1) | 110.4 | ||||||||||||||
| Trade names and other | 118.4 | (45.5) | 72.9 | ||||||||||||||
| $ | 1,842.6 | $ | (457.9) | $ | 1,384.7 |
Amortization expense was $33.2 million and $30.4 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the weighted-average remaining amortization period for amortizable intangible assets was 46 months for customer-related, 34 months for developed technology and 62 months for trade names and other, and was 46 months in total.
Based on the balance of finite-lived intangible assets as of March 31, 2022, expected future amortization expense is as follows:
| Year Ending December 31: | |||||
| 2022 (remainder of) | $ | 97.3 | |||
| 2023 | 103.8 | ||||
| 2024 | 85.0 | ||||
| 2025 | 79.1 | ||||
| 2026 | 26.1 | ||||
| Thereafter | 7.9 | ||||
| $ | 399.2 |
4. Stockholders' Equity
Share Repurchases
In January 2022, our Board approved the repurchase of up to an additional $2,251.0 million of our Class A common stock. Such approval was in addition to the amount remaining available for repurchases under prior Board approvals, such that we have authority to repurchase up to $3,000.0 million of our Class A common stock. Shares may be repurchased in open market purchases, block transactions and privately negotiated transactions, in accordance with applicable federal securities laws. This authorization has no time limits, does not obligate us to make any repurchases and may be modified, suspended or terminated by us at any time without prior notice.
In February 2022, we entered into accelerated share repurchase agreements (ASRs) to repurchase shares of our Class A common stock in exchange for an up-front aggregate payment of $750.0 million. The counterparties to the ASRs initially delivered an aggregate of 6,532 shares, which were immediately retired and the up-front payment was recorded as a charge to accumulated deficit. The ASRs are forward contracts indexed to our Class A common stock and meet all of the applicable criteria for equity classification; therefore, they are not accounted for as derivative instruments. The total number of shares ultimately delivered under the ASRs, and therefore the average repurchase price paid per share, will be determined based on the volume weighted-average price of our stock during the purchase period, which is expected to be completed during the second quarter of 2022. Expenses incurred in connection with the ASRs were recorded as a charge to accumulated deficit.
As of March 31, 2022, we had $2,250.0 million of remaining authorization available for repurchases.
5. Equity-Based Compensation Plans
Equity Plans
On March 31, 2015, we adopted the 2015 Equity Incentive Plan (the 2015 Plan). On January 1, 2022, an additional 6,689 shares of our Class A common stock were reserved for issuance pursuant to the automatic increase provisions of the 2015 Equity Incentive Plan. As of March 31, 2022, 34,485 shares were available for issuance as future awards under the plan.
On March 31, 2015, we adopted the 2015 Employee Stock Purchase Plan (the ESPP). On January 1, 2022, an additional 1,000 shares of our Class A common stock were reserved for issuance pursuant to the automatic increase provisions of the ESPP. As of March 31, 2022, 5,592 shares were available for issuance under the plan.
Equity Plan Activity
We have granted stock options at exercise prices equal to the fair market value of our Class A common stock on the grant date. We have granted both stock options and restricted stock awards (RSUs) vesting solely upon the continued service of the recipient as well as performance-based awards (PSUs) with vesting based on either (i) our achievement of financial targets or (ii) our relative total stockholder return (TSR) as compared to an index of public internet companies. We recognize the accounting grant date fair value of equity-based awards as compensation expense over the required service period of each award, taking into account the probability of our achievement of associated performance targets. Compensation expense for TSR-based PSUs is recognized regardless of whether the TSR market condition is satisfied.
The following table summarizes stock option activity:
| Number of Shares of Class A Common Stock (#) | Weighted- Average Exercise Price Per Share ($) | ||||||||||||||||
| Outstanding at December 31, 2021 | 1,999 | 42.94 | |||||||||||||||
| Exercised | (202) | 42.03 | |||||||||||||||
| Forfeited | (11) | 73.02 | |||||||||||||||
| Outstanding at March 31, 2022 | 1,786 | 42.86 | |||||||||||||||
| Vested at March 31, 2022 | 1,585 | 39.56 |
The following table summarizes stock award activity:
| Number of Shares of Class A Common Stock (#) | |||||
| Outstanding at December 31, 2021 | 6,766 | ||||
| Granted: RSUs | 3,370 | ||||
| Granted: TSR-based PSUs | 246 | ||||
| Vested | (1,107) | ||||
| Forfeited | (284) | ||||
| Outstanding at March 31, 2022(1) | 8,991 |
_________________________________
(1)Includes financial-based 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 Grant-Date Fair Value Per Share ($) | ||||||||||
| RSUs | 8,162 | 79.73 | |||||||||
| TSR-based PSUs | 757 | 119.44 | |||||||||
| Financial-based PSUs granted for accounting purposes | 47 | 82.52 | |||||||||
| Financial-based PSUs not yet granted for accounting purposes | 25 | N/A | |||||||||
| Outstanding at March 31, 2022 | 8,991 |
As of March 31, 2022, total unrecognized compensation expense related to non-vested stock options and stock awards was $4.0 million and $533.6 million, respectively, with expected remaining weighted-average recognition periods of 1.3 years and 2.8 years, respectively. Such amounts exclude PSUs not yet considered granted for accounting purposes.
6. Deferred Revenue
Deferred revenue consisted of the following:
| March 31, 2022 | December 31, 2021 | ||||||||||
| Current: | |||||||||||
| A&C | $ | 601.8 | $ | 568.0 | |||||||
| Core | 1,359.8 | 1,322.1 | |||||||||
| $ | 1,961.6 | $ | 1,890.1 | ||||||||
| Noncurrent: | |||||||||||
| A&C | $ | 174.1 | $ | 187.3 | |||||||
| Core | 589.6 | 556.0 | |||||||||
| $ | 763.7 | $ | 743.3 |
The increase in deferred revenue is primarily driven by payments received in advance of satisfying our performance obligations, offset by $736.7 million of revenue recognized during the three months ended March 31, 2022, which was included in deferred revenue as of December 31, 2021. Deferred revenue as of March 31, 2022 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:
| Remainder of 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | |||||||||||||||||||||||||||||||||||
| A&C | $ | 536.5 | $ | 164.6 | $ | 54.9 | $ | 11.9 | $ | 4.4 | $ | 3.6 | $ | 775.9 | |||||||||||||||||||||||||||
| Core | 1,183.8 | 452.4 | 144.6 | 70.1 | 41.4 | 57.1 | 1,949.4 | ||||||||||||||||||||||||||||||||||
| $ | 1,720.3 | $ | 617.0 | $ | 199.5 | $ | 82.0 | $ | 45.8 | $ | 60.7 | $ | 2,725.3 |
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
| March 31, 2022 | December 31, 2021 | ||||||||||
| Accrued payroll and employee benefits | $ | 97.2 | $ | 124.2 | |||||||
| Derivative liabilities | 49.8 | 89.5 | |||||||||
| Tax-related accruals | 45.4 | 35.6 | |||||||||
| Current portion of operating lease liabilities | 33.1 | 36.9 | |||||||||
| Accrued legal and professional | 27.2 | 23.2 | |||||||||
| Accrued marketing and advertising | 24.7 | 22.9 | |||||||||
| Accrued acquisition-related expenses and acquisition consideration payable | 17.9 | 24.5 | |||||||||
| Other | 78.8 | 80.5 | |||||||||
| $ | 374.1 | $ | 437.3 |
8. Long-Term Debt
Long-term debt consisted of the following:
| Maturity Date | March 31, 2022 | December 31, 2021 | |||||||||||||||
| 2024 Term Loans (effective interest rate of 2.3% at March 31, 2022 and December 31, 2021) | February 15, 2024 | $ | 1,776.2 | $ | 1,782.4 | ||||||||||||
| 2027 Term Loans (effective interest rate of 2.5% at March 31, 2022 and 2.4% at December 31, 2021) | August 10, 2027 | 736.9 | 738.8 | ||||||||||||||
| 2027 Senior Notes (effective interest rate of 5.4% at March 31, 2022 and December 31, 2021) | December 1, 2027 | 600.0 | 600.0 | ||||||||||||||
| 2029 Senior Notes (effective interest rate of 3.6% at March 31, 2022 and December 31, 2021) | March 1, 2029 | 800.0 | 800.0 | ||||||||||||||
| Revolver | February 15, 2024 | — | — | ||||||||||||||
| Total | 3,913.1 | 3,921.2 | |||||||||||||||
| Less: unamortized original issue discount and debt issuance costs(1) | (36.2) | (38.9) | |||||||||||||||
| Less: current portion of long-term debt | (24.1) | (24.1) | |||||||||||||||
| $ | 3,852.8 | $ | 3,858.2 |
_________________________________
(1)Original issue discount and debt issuance costs are amortized to interest expense over the life of the related debt instruments using the interest method.
Credit Facility
As described in our 2021 Form 10-K, our secured credit agreement (the Credit Facility) includes two tranches of term loans (the 2024 Term Loans and the 2027 Term Loans, and together the Term Loans) and a revolving credit facility (the Revolver). A portion of the Term Loans is hedged by interest rate swap arrangements, as discussed in Note 9.
As of March 31, 2022, 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
As described in our 2021 Form 10-K, we have completed two offerings of senior notes (the 2027 Senior Notes and the 2029 Senior Notes, and together the Senior Notes).
As of March 31, 2022, we were not in violation of any covenants of the Senior Notes.
Fair Value
The estimated fair values of our long-term debt instruments are based on observable market prices for these loans, which are traded in less active markets and therefore classified as Level 2 fair value measurements, and were as follows as of March 31, 2022:
| 2024 Term Loans | $ | 1,766.2 | |||
| 2027 Term Loans | $ | 730.5 | |||
| 2027 Senior Notes | $ | 603.7 | |||
| 2029 Senior Notes | $ | 736.7 |
Future Debt Maturities
Aggregate principal payments, exclusive of any unamortized original issue discount and debt issuance costs, due on long-term debt as of March 31, 2022 were as follows:
| Year Ending December 31: | |||||
| 2022 (remainder of) | $ | 24.4 | |||
| 2023 | 32.5 | ||||
| 2024 | 1,740.0 | ||||
| 2025 | 7.5 | ||||
| 2026 | 7.5 | ||||
| Thereafter | 2,101.2 | ||||
| $ | 3,913.1 |
9. Derivatives and Hedging
We utilize the following derivative instruments designated as cash flow hedges:
-
foreign exchange forward contracts to hedge certain forecasted sales transactions denominated in foreign currencies;
-
cross-currency swaps used to manage variability due to movements in foreign currency exchange rates related to a Euro-denominated intercompany loan; and
-
pay-fixed rate, receive-floating rate interest rate swaps to effectively convert portions of our variable-rate debt to fixed.
We also utilize cross-currency swaps designated as net investment hedges to mitigate the risk associated with exchange rate fluctuations on our net investment in certain foreign operations.
The following table summarizes our outstanding derivative instruments on a gross basis, all of which are considered Level 2 financial instruments:
| Notional Amount | Fair Value of Derivative Assets**(2)** | Fair Value of Derivative Liabilities**(2)** | |||||||||||||||||||||||||||||||||
| March 31, 2022 | December 31, 2021 | March 31, 2022 | December 31, 2021 | March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||||||||||||||
| Foreign exchange forward contracts | $ | 361.6 | $ | 360.3 | $ | 6.7 | $ | 5.6 | $ | 2.7 | $ | 1.0 | |||||||||||||||||||||||
| Cross-currency swaps(1) | 572.9 | 1,346.8 | — | — | 20.6 | 80.9 | |||||||||||||||||||||||||||||
| Interest rate swaps | 1,996.1 | 2,001.2 | 65.8 | 24.7 | 0.1 | 7.6 | |||||||||||||||||||||||||||||
| Net investment hedges: | |||||||||||||||||||||||||||||||||||
| Cross-currency swaps(1) | 734.3 | — | — | — | 26.4 | — | |||||||||||||||||||||||||||||
| Total hedges | $ | 3,664.9 | $ | 3,708.3 | $ | 72.5 | $ | 30.3 | $ | 49.8 | $ | 89.5 |
_________________________________
(1)The notional values of the cross-currency swaps have been translated from Euros to U.S. dollars at the foreign currency rates in effect of approximately 1.11 and 1.14 as of March 31, 2022 and December 31, 2021, 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 hedging relationships on AOCI:
| Unrealized Gains (Losses) Recognized in Other Comprehensive Income | |||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2022 | March 31, 2021 | ||||||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||
| Foreign exchange forward contracts(1) | $ | 3.2 | $ | 2.1 | |||||||||||||||||||
| Cross-currency swaps | 36.3 | (2.1) | |||||||||||||||||||||
| Interest rate swaps | 51.1 | 27.0 | |||||||||||||||||||||
| Net investment hedges: | |||||||||||||||||||||||
| Cross-currency swaps | (26.4) | — | |||||||||||||||||||||
| Total hedges | $ | 64.2 | $ | 27.0 |
_________________________________
(1)Amounts include gains and losses realized upon contract settlement but not yet recognized into earnings from AOCI.
The following tables summarize the locations and amounts of gains (losses) recognized within earnings related to our hedging relationships:
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||
| Revenue | Interest Expense | Other Income (Expense), Net | Revenue | Interest Expense | Other Income (Expense), Net | ||||||||||||||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||||||||||||||
| Foreign exchange forward contracts: | |||||||||||||||||||||||||||||||||||
| Reclassified from AOCI into income | $ | (1.6) | $ | — | $ | — | $ | (1.1) | $ | — | $ | — | |||||||||||||||||||||||
| Cross-currency swaps: | |||||||||||||||||||||||||||||||||||
| Reclassified from AOCI into income(1) | — | 6.1 | 22.5 | — | 6.6 | 58.1 | |||||||||||||||||||||||||||||
| Interest rate swaps: | |||||||||||||||||||||||||||||||||||
| Reclassified from AOCI into income | — | (10.8) | — | — | (8.6) | — | |||||||||||||||||||||||||||||
| Net investment hedges: | |||||||||||||||||||||||||||||||||||
| Cross-currency swaps: | |||||||||||||||||||||||||||||||||||
| Reclassified from AOCI into income | — | 0.8 | — | — | — | — | |||||||||||||||||||||||||||||
| Total hedges | $ | (1.6) | $ | (3.9) | $ | 22.5 | $ | (1.1) | $ | (2.0) | $ | 58.1 |
_________________________________
(1)The amounts reflected in other income (expense), net include $(22.7) million and $(58.5) million reclassified from AOCI to offset the earnings impact of the remeasurement of the Euro-denominated intercompany loan hedged by cross-currency swaps during the three months ended March 31, 2022 and 2021, respectively.
As of March 31, 2022, we estimate that $6.8 million of net deferred losses related to our designated hedges will be recognized in earnings over the next 12 months. No amounts have been excluded from our hedge effectiveness testing.
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 currencies. We designate these forward contracts as cash flow hedges, which are recognized as either assets or liabilities at fair value. At March 31, 2022, all such contracts had maturities of 18 months or less.
Cross-Currency Swaps
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 five-year cross-currency swaps. In March 2022, we entered into a transaction to extend the maturity of these swaps to August 31, 2027. We and the existing counterparties executed cancellation agreements to terminate all rights, obligations and liabilities associated with the original swaps. On the modification date, the existing cash flow hedging relationships were de-designated and new hedging relationships incorporating the terms of the new swaps (the 2022 Cross-Currency Swaps) were designated as either cash flow hedging relationships or net investment hedging relationships. The 2022 Cross-Currency Swaps had an aggregate amortizing notional amount of €1,184.2 million at inception (approximately $1,262.5 million). The swaps designated as cash flow hedging relationships convert the 3.00% fixed rate Euro-denominated interest and principal receipts on the intercompany loan into U.S. dollar interest and principal receipts at a fixed rate of 4.81%. The swaps designated as net investment hedging relationships hedge the foreign currency exposure of our net investment in certain Euro denominated functional currency subsidiaries. Pursuant to the contracts, the Euro notional value will be exchanged for the U.S. dollar notional value at maturity.
Interest Rate Swaps
In April 2017, we entered into a five-year pay-fixed rate, receive-floating rate interest rate swap arrangement to effectively convert a portion of the variable-rate borrowings under the 2024 Term Loans to a fixed rate of 5.44%. In March 2022, we entered into a transaction to extend the maturity of the swaps to August 31, 2027. We and the existing counterparties executed cancellation agreements to terminate all rights, obligations and liabilities associated with the original swaps. On the modification date, the existing cash flow hedging relationships were de-designated and new hedging relationships incorporating the terms of the new interest rate swaps (the 2022 Interest Rate Swaps) were designated. The 2022 Interest Rate Swaps, which had an amortizing notional amount of $1,262.5 million at inception, serve to convert a portion of the variable-rate borrowings under the 2024 Term Loans to a fixed rate of 4.81%.
In August 2020, in conjunction with the issuance of the 2027 Term Loans, we entered into seven-year pay-fixed rate, receive-floating rate interest rate swaps to effectively convert the variable one-month LIBOR interest rate on the 2027 Term Loans borrowings to a fixed rate of 0.705%. These interest rate swaps, which mature on August 10, 2027, had an aggregate notional amount of $750.0 million at inception.
The objective of these arrangements, which are designated as cash flow hedges and recognized as assets or liabilities 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 swaps are included in AOCI and will be recognized in earnings within or against interest expense when the hedged interest payments are accrued each month.
10. 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 March 31, 2022, operating leases have a remaining weighted average lease term of 7.5 years and our operating lease liabilities were measured using a weighted average discount rate of 5.0%.
The components of operating lease expense were as follows:
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2022 | March 31, 2021 | ||||||||||||||||||||||
| Operating lease costs | $ | 12.8 | $ | 11.9 | |||||||||||||||||||
| Variable lease costs | 2.7 | 2.7 | |||||||||||||||||||||
| Sublease income | (1.8) | (0.8) | |||||||||||||||||||||
| $ | 13.7 | $ | 13.8 |
11. Commitments and Contingencies
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.
As described in our 2021 Form 10-K, as of December 31, 2021, we had accrued $8.1 million as our estimated loss provision related to the settlement of certain class action complaints alleging violation of the Telephone Consumer Protection Act of 1991. On January 19, 2021, a single objector to the settlement filed a notice of appeal to the 11th Circuit Court of Appeals, which remains pending as of the date of this filing. We made no changes to our estimated loss provision for this settlement during the three months ended March 31, 2022. The timing of any settlement payments is pending resolution of the appeal.
We have denied and continue to deny the allegations in the complaints. Nothing in the final 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. We received a full release from the settlement class concerning the claims asserted, or that could have been asserted,
with respect to the claims released in the final settlement agreement. Our legal fees associated with this matter have been recorded to general and administrative expense as incurred and were not material.
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 believes, 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 not 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.
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 March 31, 2022 and December 31, 2021, our accrual for estimated indirect tax liabilities was $8.2 million, 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.
12. Income Taxes
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 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 United Kingdom (UK), Germany and India. We anticipate this structure to remain in existence for the foreseeable future.
Our effective tax rate for the three months ended March 31, 2022 differs from the U.S. federal statutory rate primarily due to changes in valuation allowances based on current year earnings and a discrete charge of $6.8 million related to a change in entity tax status for one of our domestic corporations during the current quarter.
In determining the need for a valuation allowance, we prepare quarterly estimates using historical and forecasted future operating results, based upon approved business plans, including a review of the eligible carryforward periods and tax planning strategies. Based primarily on the negative evidence outweighing the positive evidence as of March 31, 2022, including our three year cumulative, consolidated GAAP loss, our historical tax losses and the difficulty in forecasting excess tax benefits related to equity-based compensation, we believe there is uncertainty as to when we will be able to utilize certain of our net operating losses (NOLs), credit carryforwards and other deferred tax assets (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.
If our operating results continue to improve and our projections show continued utilization of tax attributes, we will consider that as significant positive evidence and our future reassessment may result in the determination that all or a portion of
the valuation allowance is no longer required. If this were to occur, any reversal of the valuation allowance would result in a corresponding non-cash income tax benefit, thereby increasing total DTAs.
Uncertain Tax Positions
The total amount of gross unrecognized tax benefits was $124.4 million as of March 31, 2022, of which $35.9 million, if fully recognized, would decrease our effective tax rate. 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 challenged by a taxing authority could result in an adjustment to our provision or benefit for income taxes in the period in which a final determination is made.
13. 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 income per share is as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | 68.6 | $ | 10.8 | |||||||||||||||||||
| Less: net income attributable to non-controlling interests | 0.2 | — | |||||||||||||||||||||
| Net income attributable to GoDaddy Inc. | $ | 68.4 | $ | 10.8 | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average shares of Class A common stock outstanding—basic | 164,323 | 169,435 | |||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Class B common stock | 313 | 584 | |||||||||||||||||||||
| Stock options | 822 | 1,377 | |||||||||||||||||||||
| RSUs, PSUs and ESPP shares | 1,353 | 1,657 | |||||||||||||||||||||
| Weighted-average shares of Class A Common stock outstanding—diluted | 166,811 | 173,053 | |||||||||||||||||||||
| Net income attributable to GoDaddy Inc. per share of Class A common stock—basic | $ | 0.42 | $ | 0.06 | |||||||||||||||||||
| Net income attributable to GoDaddy Inc. per share of Class A common stock—diluted(1): | $ | 0.41 | $ | 0.06 | |||||||||||||||||||
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(1)The diluted income per share calculations exclude net income attributable to non-controlling interests unless the effect is antidilutive.
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:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| ASR shares(1) | 2,814 | — | |||||||||||||||||||||
| Stock options | 280 | 734 | |||||||||||||||||||||
| RSUs, PSUs and ESPP shares | 1,922 | 393 | |||||||||||||||||||||
| 5,016 | 1,127 |
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(1)If the ASRs described in Note 4 had been settled as of March 31, 2022, based on the volume-weighted average price per share since their effective date, the counterparties would have been required to deliver these additional estimated shares to us. However, we cannot predict the final number of shares to be received under the ASRs until completion, which is expected to occur during the second quarter of 2022.
Shares of Class B common stock are not participating securities, and therefore, do not have rights to share in our earnings. Accordingly, separate presentation of income per share of Class B common stock under the two-class method is not required. Each share of Class B common stock is exchangeable for one share of Class A common stock.
14. Segment Information
Beginning in the first quarter of 2022, we revised the presentation of segment information to reflect changes in the way we manage and evaluate our business. Effective January 1, 2022, we report our operating results through two reportable segments: A&C and Core. Previously we had a single operating and reportable segment.
Our chief operating decision maker (CODM), which, as of March 31, 2022, was our Chief Executive Officer, evaluates segment performance based on several factors, including revenue and normalized earnings before interest, taxes, depreciation and amortization (NEBITDA). Segment NEBITDA is defined as net income excluding depreciation and amortization, equity-based compensation expense, interest expense (net) and provision or benefit for income taxes; in addition to these adjustments, we exclude, as they occur, acquisition-related expenses and certain other items, such as restructuring-related items and expenses related to non-ordinary course legal matters. In this way, we believe segment NEBITDA serves as a measure that can assist our CODM and our investors in comparing our performance on a consistent basis by removing the impact of certain items that we believe do not directly reflect our segments’ core operations.
Our CODM does not use assets by segment to evaluate performance or allocate resources; therefore, we do not provide disclosure of assets by segment. See Note 2 for property, plant, and equipment, net as well as revenue disaggregated by geography.
The A&C and Core segments provide a view into the product-focused organization of our business and generate revenue as follows:
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A&C primarily consists of sales of third-party email and productivity solutions, products containing proprietary software and commerce products as well as sales of certain products when they are included in bundled offerings of our proprietary software products.
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Core primarily consists of sales of domain registrations and renewals, aftermarket domain sales, website hosting products and website security products when not included in bundled offerings of our proprietary software products as well as sales of products not containing a software component.
There are no internal revenue transactions between our reportable segments.
Corporate overhead and other primarily includes general and administrative expenses and items not allocated to either segment as well as those costs specifically excluded from Segment NEBITDA, our segment measure of profitability, such as depreciation and amortization, interest expense and income and provision (benefit) for income taxes.
The following tables present our segment information for the periods indicated:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| A&C | $ | 303.1 | $ | 262.0 | |||||||||||||||||||
| Core | 699.6 | 639.1 | |||||||||||||||||||||
| Total revenue | $ | 1,002.7 | $ | 901.1 | |||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Segment NEBITDA: | |||||||||||||||||||||||
| A&C | $ | 119.8 | $ | 100.9 | |||||||||||||||||||
| Core | 178.4 | 149.6 | |||||||||||||||||||||
| Corporate overhead and other | (72.3) | (58.3) | |||||||||||||||||||||
| Depreciation and amortization | (48.2) | (49.0) | |||||||||||||||||||||
| Equity-based compensation expense | (61.2) | (52.6) | |||||||||||||||||||||
| Interest expense, net of interest income | (33.2) | (28.4) | |||||||||||||||||||||
| Acquisition-related expenses | (7.7) | (46.9) | |||||||||||||||||||||
| Restructuring and other(1) | (0.7) | (5.3) | |||||||||||||||||||||
| Income before income taxes | 74.9 | 10.0 | |||||||||||||||||||||
| Benefit (provision) for income taxes | (6.3) | 0.8 | |||||||||||||||||||||
| Net income | $ | 68.6 | $ | 10.8 |
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(1)Includes lease-related expenses associated with closed facilities.
15. Accumulated Other Comprehensive Income (Loss)
The following table presents AOCI activity in equity:
| Foreign Currency Translation Adjustments | Net Unrealized Gains (Losses) on Cash Flow Hedges**(1)** | Total AOCI | |||||||||||||||
| Gross balance as of December 31, 2021(2) | $ | (52.9) | $ | 14.2 | $ | (38.7) | |||||||||||
| Other comprehensive income (loss) before reclassifications | (35.1) | 76.9 | 41.8 | ||||||||||||||
| Amounts reclassified from AOCI | 0.8 | 16.2 | 17.0 | ||||||||||||||
| Other comprehensive income (loss) | (34.3) | 93.1 | 58.8 | ||||||||||||||
| $ | (87.2) | $ | 107.3 | 20.1 | |||||||||||||
| Less: AOCI attributable to non-controlling interests | — | ||||||||||||||||
| Balance as of March 31, 2022 | $ | 20.1 | |||||||||||||||
| Gross balance as of December 31, 2020(2) | $ | (98.8) | $ | (32.8) | $ | (131.6) | |||||||||||
| Other comprehensive income (loss) before reclassifications | 33.7 | (28.5) | 5.2 | ||||||||||||||
| Amounts reclassified from AOCI | — | 55.0 | 55.0 | ||||||||||||||
| Other comprehensive income | 33.7 | 26.5 | 60.2 | ||||||||||||||
| $ | (65.1) | $ | (6.3) | (71.4) | |||||||||||||
| Less: AOCI attributable to non-controlling interests | 0.2 | ||||||||||||||||
| Balance as of March 31, 2021 | $ | (71.2) |
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(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.
See Note 9 for the effect on net income of amounts reclassified from AOCI related to our hedging relationships.
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