Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes included in this Quarterly Report on Form 10-Q as well as our audited financial statements and related notes and the discussion in the "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of our 2021 Form 10-K. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategies for our business, includes forward-looking statements involving significant risks and uncertainties. As a result of many factors, such as those set forth in "Risk Factors," actual results may differ materially from the results described in, or implied by, these forward-looking statements.

(Throughout the tables and this discussion and analysis, dollars are in millions and shares are in thousands.)

COVID-19

The extent to which the ongoing COVID-19 pandemic may impact our future results and operations will depend on future developments, including the duration of the pandemic and the parameters of global governmental measures put in place to control the spread of the virus as well as the continuing economic impact of the pandemic. We continue to monitor the pandemic and the potential impacts it may have on our future financial position, results of operations and cash flows. See "Risk Factors" for additional information.

Overview

We are a global leader in serving a large market of everyday entrepreneurs, delivering simple, easy-to-use products, and outcome-driven, personalized guidance to small businesses, individuals, organizations, developers, designers and domain investors. We manage and report our business in the following two segments:

• Applications and Commerce (A&C)**, which 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.

• Core Platform (Core)**, which 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.

Consolidated First Quarter Financial Highlights

Below are our key consolidated financial highlights for the three months ended March 31, 2022, with comparisons to the three months ended March 31, 2021.

• Total revenue of $1,002.7 million, an increase of 11.3%, or approximately 11.5% on a constant currency basis(1).

• International revenue of $329.8 million, an increase of 8.8%, or approximately 9.5% on a constant currency basis(1).

• Total bookings of $1,156.3 million, an increase of 6.2%, or approximately 7.2% on a constant currency basis(1).

• Operating income of $109.6 million, an increase of 188.4%.

• Net income of $68.6 million, an increase of 535.2%.

• Normalized EBITDA(2) of $225.9 million, an increase of 17.5%.

• Net cash provided by operating activities of $250.9 million, an increase of 13.4%.

(1) Discussion of constant currency is set forth in "Quantitative and Qualitative Disclosures about Market Risk."

(2) A reconciliation of Normalized EBITDA to net income, its most directly comparable GAAP financial measure, is set forth in Note 14 to our financial statements.

Consolidated Results of Operations

The following table sets forth our consolidated results of operations for the periods presented and as a percentage of our total revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results.

			Three Months Ended March 31,
			2022												2021
			$						% of Total Revenue						$						% of Total Revenue
Revenue:
Applications & commerce			$	303.1					30.2		%				$	262.0					29.1		%
Core platform			699.6						69.8		%				639.1						70.9		%
Total revenue			1,002.7						100.0		%				901.1						100.0		%
Costs and operating expenses:
Cost of revenue (excluding depreciation and amortization)			370.2						36.9		%				321.2						35.7		%
Technology and development			190.1						19.0		%				186.4						20.7		%
Marketing and advertising			116.3						11.6		%				132.7						14.7		%
Customer care			77.7						7.8		%				78.6						8.7		%
General and administrative			90.6						9.0		%				95.2						10.6		%
Depreciation and amortization			48.2						4.8		%				49.0						5.4		%
Total costs and operating expenses			893.1						89.1		%				863.1						95.8		%
Operating income			109.6						10.9		%				38.0						4.2		%
Interest expense			(33.6)						(3.4)		%				(28.7)						(3.2)		%
Other income (expense), net			(1.1)						(0.1)		%				0.7						0.1		%
Income before income taxes			74.9						7.4		%				10.0						1.1		%
Benefit (provision) for income taxes			(6.3)						(0.6)		%				0.8						0.1		%
Net income			68.6						6.8		%				10.8						1.2		%
Less: net income attributable to non-controlling interests			0.2						—		%				—						—		%
Net income attributable to GoDaddy Inc.			$	68.4					6.8		%				$	10.8					1.2		%

Revenue

We generate substantially all of our revenue from sales of product subscriptions, as described in Note 2 to our financial statements. Our subscriptions can range from monthly terms to multi-annual terms of up to ten years, depending on the product. Revenue is presented net of refunds, and we maintain a reserve to provide for refunds granted to customers.

Beginning in the first quarter of 2022, we revised the presentation of revenue, as described in Note 2 to our financial statements, and accordingly, have revised the prior period amounts in the table below to retrospectively present revenue in the new format.

			Three Months Ended March 31,												Change
			2022						2021						$						%
Applications & commerce			$	303.1					$	262.0					$	41.1					16		%
Core platform			699.6						639.1						$	60.5					9		%
Total revenue			$	1,002.7					$	901.1					$	101.6					11		%

The 11.3% increase in total revenue for the three months ended March 31, 2022 was driven by growth in total customers and average revenue per user as well as contributions from recent acquisitions. The increase in customers impacted both of our revenue categories, as the additional customers purchased subscriptions across our product portfolio.

The 15.7% increase in A&C revenue for the three months ended March 31, 2022 was primarily driven by increased customer adoption of our productivity solutions and our Websites + Marketing and Managed WordPress products as well as increased commerce-related revenue.

The 9.5% increase in Core revenue for the three months ended March 31, 2022 was primarily driven by an increase in domains under management from 83.6 million as of March 31, 2021 to 84.4 million as of March 31, 2022, increased aftermarket domain sales fueled by our continued innovation in auction technologies and the growth of our registry business.

Bookings

In addition to revenue, we believe total bookings is a useful operating metric to help evaluate our performance and provide an enhanced understanding of our business. Total bookings represents the total sales of products to customers in a given period, excluding refunds. We believe total bookings provides valuable insight into (i) the performance of our business since we typically collect payment at the time of sale but recognize subscription revenue ratably over the term of our customer contracts and (ii) the effectiveness of our sales efforts since refunds often occur in periods different from the period of sale for reasons unrelated to the marketing efforts leading to the initial sale.

			Three Months Ended March 31,												Change
			2022						2021						$						%
Total bookings			$	1,156.3					$	1,088.7					$	67.6					6		%

The 6.2% increase in total bookings for the three months ended March 31, 2022 was primarily driven by increases in total customers and domains under management, increased aftermarket domain sales and broadened customer adoption of our productivity solutions and our Websites + Marketing and Managed WordPress products as well as contributions from recent acquisitions, partially offset by approximately 100 basis points due to adverse movements in foreign currency exchange rates. Our bookings growth rate was impacted by uneven demand patterns related to the ongoing COVID-19 pandemic and inflation as well as foreign currency headwinds due to the strength of the U.S. dollar.

Costs and Operating Expenses

Cost of revenue

Costs of revenue are the direct costs incurred in connection with selling an incremental product to our customers. Substantially all cost of revenue relates to domain registration fees, payment processing fees, third-party commissions and licensing fees for third-party productivity applications. Similar to our billing practices, we pay domain costs at the time of purchase for the life of each subscription but recognize the costs of service ratably over the term of our customer contracts. The terms for domain costs are established by agreements between registries and registrars and can vary significantly depending on the top-level domain (TLD). We expect cost of revenue to increase in absolute dollars in future periods due to increased sales of domains and third-party productivity applications as well as continued growth in our customer base. However, cost of revenue may fluctuate as a percentage of total revenue, depending on the mix of products sold in a particular period.

			Three Months Ended March 31,												Change
			2022						2021						$						%
Cost of revenue (excluding depreciation and amortization)			$	370.2					$	321.2					$	49.0					15		%

The 15.3% increase in cost of revenue for the three months ended March 31, 2022 was primarily attributable to (i) higher domain costs, which were driven by the increase in domains under management, increased aftermarket domain sales and costs associated with our registry business, (ii) increased software licensing fees resulting from higher sales of productivity solutions and (iii) increased costs associated with the growth of our payment processing business.

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. We expect technology and development expense to increase in absolute dollars as we continue to invest in product development and migrate our infrastructure to a cloud-based third-party provider. Technology and development expenses may fluctuate as a percentage of total revenue depending on our level of investment in additional personnel and the pace of our infrastructure transition.

			Three Months Ended March 31,												Change
			2022						2021						$						%
Technology and development			$	190.1					$	186.4					$	3.7					2		%

The 2.0% increase in technology and development expenses for the three months ended March 31, 2022 was primarily due to increased personnel costs driven by higher average headcount associated with our continued investment in product development as well as increased technology costs associated with the growth of our business and our migration to a cloud-based infrastructure. These increases were partially offset by a $25.0 million decrease in compensation expense related to prior acquisitions.

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. We expect marketing and advertising expenses to fluctuate depending on both the mix of internal and external marketing resources used, the size and scope of our future campaigns and the level of discretionary investments we make in marketing to drive future sales.

			Three Months Ended March 31,												Change
			2022						2021						$						%
Marketing and advertising			$	116.3					$	132.7					$	(16.4)					(12)		%

The 12.4% decrease in marketing and advertising expenses for the three months ended March 31, 2022 was primarily attributable to a lower level of discretionary spending in the first quarter of 2022 as compared to the significant additional marketing investments we made in the first quarter of 2021 to drive additional growth.

Customer care

Customer care expenses represent the costs to guide and service our customers, primarily consisting of personnel costs. We expect customer care expenses to fluctuate depending on the level of personnel required to support our business.

			Three Months Ended March 31,												Change
			2022						2021						$						%
Customer care			$	77.7					$	78.6					$	(0.9)					(1)		%

The 1.1% decrease in customer care expenses for the three months ended March 31, 2022 was primarily due to a reduction in average headcount, offset by the impact of operational challenges within our customer care teams related to the ongoing COVID-19 pandemic.

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. We expect general and administrative expenses to fluctuate depending on the level of personnel and other administrative costs required to support our business as well as the significance of any strategic acquisitions we choose to pursue.

			Three Months Ended March 31,												Change
			2022						2021						$						%
General and administrative			$	90.6					$	95.2					$	(4.6)					(5)		%

The 4.8% decrease in general and administrative expenses for the three months ended March 31, 2022 was primarily due to lower acquisition-related expenses and office rent, partially offset by increased personnel costs.

Depreciation and amortization

Depreciation and amortization expenses consist of charges relating to the depreciation of the property and equipment used in our operations and the amortization of acquired intangible assets. These expenses may increase or decrease in absolute dollars in future periods depending on our future level of capital investments in hardware and other equipment as well as the significance of any future acquisitions.

			Three Months Ended March 31,												Change
			2022						2021						$						%
Depreciation and amortization			$	48.2					$	49.0					$	(0.8)					(2)		%

There were no material changes in depreciation and amortization.

Interest expense

			Three Months Ended March 31,												Change
			2022						2021						$						%
Interest expense			$	33.6					$	28.7					$	4.9					17		%

The 17.1% increase in interest expense for the three months ended March 31, 2022 was primarily driven by the issuance of the 2029 Senior Notes in February 2021, as further discussed in Note 8 to our financial statements.

Segment Results of Operations

Our two operating segments, A&C and Core, reflect the way we manage and evaluate the performance of our business. Our CODM evaluates segment performance based upon several factors, of which the primary financial measures are revenue and Segment NEBITDA. See Note 14 to our financial statements for a reconciliation of Segment NEBITDA to net income, its most directly comparable GAAP financial measure.

Applications & Commerce

The following table presents the results for our A&C segment for the periods indicated:

			Three Months Ended March 31,												Change
			2022						2021						$						%
Revenue			$	303.1					$	262.0					$	41.1					16		%
Segment NEBITDA			$	119.8					$	100.9					$	18.9					19		%

The 15.7% increase in A&C revenue for the three months ended March 31, 2022 was primarily driven by increased sales of productivity solutions and Websites + Marketing and Managed WordPress products, as described above.

The 18.7% increase in A&C Segment NEBITDA for the three months ended March 31, 2022 primarily resulted from the revenue increases noted above, in conjunction with lower discretionary marketing spend in 2022 due to the investments we made in the prior year to drive additional growth. These increases were partially offset by higher personnel costs resulting from headcount additions made to support the continued development of our A&C products.

Core Platform

The following table presents the results for our Core segment for the periods indicated:

			Three Months Ended March 31,												Change
			2022						2021						$						%
Revenue			$	699.6					$	639.1					$	60.5					9		%
Segment NEBITDA			$	178.4					$	149.6					$	28.8					19		%

The 9.5% increase in Core revenue for the three months ended March 31, 2022 was primarily driven by increases in domains under management and aftermarket domain sales as well as the growth of our registry business, as described above.

The 19.3% increase in Core Segment NEBITDA for the three months ended March 31, 2022 primarily resulted from the revenue increases noted above, in conjunction with lower discretionary marketing spend in 2022 due to the investments we made in the prior year to drive additional growth. These increases were partially offset by higher third-party commissions associated with the increased aftermarket domain sales.

Liquidity and Capital Resources

Overview

Our principal sources of liquidity have been cash flow generated from operations, long-term debt borrowings and stock option exercises. Our principal uses of cash have been to fund operations, acquisitions and capital expenditures, as well as to make mandatory principal and interest payments on our long-term debt and to repurchase shares of our Class A common stock.

In general, we seek to deploy our capital in a prioritized manner focusing first on requirements for our operations, then on growth investments, and finally on stockholder returns. Our strategy is to deploy capital, whether debt, equity or internally generated cash, depending on the adequacy and availability of the source of capital and which source may be used most efficiently and at the lowest cost at such time. Therefore, while cash from operations is our primary source of operating liquidity and we believe our internally-generated cash flows are sufficient to support our day-to-day operations, we may use a variety of capital sources to fund our needs for less predictable investment decisions such as strategic acquisitions and share repurchases.

We have incurred significant long-term debt, primarily to fund acquisitions, share repurchases and the settlement of our prior tax receivable agreements. As a result, we are limited as to how we conduct our business and may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities, strategic acquisitions or share repurchases. However, the restrictions under our long-term debt agreements are subject to a number of qualifications and may be amended with the consent of the lenders and the holders of the senior notes, as applicable.

We believe our existing cash and cash equivalents and cash generated by operating activities will be sufficient to meet our anticipated operating cash needs for at least the next 12 months. However, our future capital requirements will depend on many factors, including our growth rate, macroeconomic activity, the timing and extent of spending to support domestic and international development efforts, continued brand development and advertising spend, the level of customer care and general and administrative activities, the introduction of new and enhanced product offerings, the costs to support new and replacement capital equipment, the completion of strategic acquisitions or share repurchases and other factors. Should we pursue additional strategic acquisitions or share repurchases, we may need to raise additional capital, which may be in the form of long-term debt or equity financings.

Credit Facility and Senior Notes

Our long-term debt consists of the Credit Facility and the Senior Notes described in Note 8 to our financial statements.

Our long-term debt agreements contain covenants restricting, among other things, our ability, or the ability of our subsidiaries, to incur indebtedness, issue certain types of equity, incur liens, enter into fundamental changes including mergers and consolidations, sell assets, make restricted payments including dividends, distributions and investments, prepay junior indebtedness and engage in operations other than in connection with acting as a holding company, subject to customary exceptions. As of March 31, 2022, we were in compliance with all such covenants and had no amounts drawn on our Revolver.

As discussed in Note 9 to our financial statements, we have hedged a portion of our long-term debt through the use of cross-currency and interest rate swap derivative instruments. These instruments help us manage and mitigate our risk of exposure to changes in foreign currency exchange rates and interest rates. See "Quantitative and Qualitative Disclosures About Market Risk" for additional discussion of our hedging activities.

Share Repurchases

As discussed in Note 4 to our financial statements, our Board has authorized us to repurchase up to $3,000.0 million of our Class A common stock.

In February 2022, we entered into 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 approximately 6.5 million shares, which were immediately retired. 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.

As of March 31, 2022, we had $2,250.0 million of remaining authorization available for repurchases.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

			Three Months Ended March 31,
			2022						2021
Net cash provided by operating activities			$	250.9					$	221.3
Net cash used in investing activities			(12.5)						(306.5)
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

Operating Activities

Our primary source of cash from operating activities has been cash collections from our customers. Our primary uses of cash from operating activities have been for domain registration costs paid to registries, software licensing fees related to third-party productivity solutions, personnel costs, discretionary marketing and advertising costs, technology and development costs and interest payments. We expect cash outflows from operating activities to be affected by the timing of payments we make to registries as well as increases in personnel and other operating costs as we continue to grow our business.

Net cash provided by operating activities increased $29.6 million from $221.3 million during the three months ended March 31, 2021 to $250.9 million during the three months ended March 31, 2022, primarily driven by the growth in total bookings as well as lower acquisition-related payments and discretionary marketing spending. These increases were partially offset by higher personnel costs to support our growth, higher third-party commissions related to increased aftermarket domain sales and higher software licensing fees related to increased sales of third-party productivity solutions.

Investing Activities

Our investing activities generally consist of strategic acquisitions and purchases of property and equipment to support the overall growth of our business. We expect our investing cash flows to be affected by the timing of payments we make for capital expenditures and the strategic acquisition or other growth opportunities we decide to pursue.

Net cash used in investing activities decreased $294.0 million from $306.5 million during the three months ended March 31, 2021 to $12.5 million during the three months ended March 31, 2022, primarily due to a $298.5 million decrease in spending for business acquisitions.

Financing Activities

Our financing activities generally consist of long-term debt borrowings, the repayment of principal on long-term debt, stock option exercise proceeds and share repurchases.

Net cash from financing activities decreased $1,364.3 million from $613.7 million provided during the three months ended March 31, 2021 to $750.6 million used during the three months ended March 31, 2022, primarily due to $800.0 million in proceeds received from the issuance of the 2029 Senior Notes in 2021 and a $570.0 million increase in share repurchases.

Deferred Revenue

See Note 6 to our financial statements for details regarding the expected future recognition of deferred revenue.

Off-Balance Sheet Arrangements

As of March 31, 2022 and December 31, 2021, we had no off-balance sheet arrangements that had, or which are reasonably likely to have, a material effect on our financial statements.

Critical Accounting Policies and Estimates

We prepare our financial statements in accordance with GAAP, and in doing so, we make estimates, assumptions and judgments affecting the reported amounts of assets, liabilities, revenues and expenses, as well as the related disclosure of contingent assets and liabilities. We base our estimates, assumptions and judgments on historical experience and on various other factors we believe to be reasonable under the circumstances, and we evaluate these estimates, assumptions and judgments on an ongoing basis. Different assumptions and judgments would change the estimates used in the preparation of our financial statements, which, in turn, could change our results from those reported. We refer to estimates, assumptions and judgments of this type as our critical accounting policies and estimates, which we discussed in our 2021 Form 10-K. We review our critical accounting policies and estimates with the audit and finance committee of our board of directors on an annual basis.

There have been no material changes in our critical accounting policies from those disclosed in our 2021 Form 10-K.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 2 to our financial statements.