filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
GoDaddy Inc.
Consolidated Balance Sheets (unaudited)
(In millions, except shares in thousands and per share amounts)
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 582.6 | $ | 774.0 | |||||||
| Accounts and other receivables | 67.2 | 60.1 | |||||||||
| Prepaid domain name registry fees | 464.2 | 435.7 | |||||||||
| Prepaid expenses and other current assets | 297.8 | 312.8 | |||||||||
| Total current assets | 1,411.8 | 1,582.6 | |||||||||
| Property and equipment, net | 206.6 | 225.6 | |||||||||
| Operating lease assets | 75.8 | 84.1 | |||||||||
| Prepaid domain name registry fees, net of current portion | 207.5 | 197.1 | |||||||||
| Goodwill | 3,563.9 | 3,536.9 | |||||||||
| Intangible assets, net | 1,217.7 | 1,252.2 | |||||||||
| Other assets | 110.6 | 95.0 | |||||||||
| Total assets | $ | 6,793.9 | $ | 6,973.5 | |||||||
| Liabilities and stockholders' deficit | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 145.8 | $ | 130.9 | |||||||
| Accrued expenses and other current liabilities | 371.2 | 356.7 | |||||||||
| Deferred revenue | 2,081.4 | 1,954.0 | |||||||||
| Long-term debt | 18.2 | 18.2 | |||||||||
| Total current liabilities | 2,616.6 | 2,459.8 | |||||||||
| Deferred revenue, net of current portion | 799.5 | 770.3 | |||||||||
| Long-term debt, net of current portion | 3,806.0 | 3,812.9 | |||||||||
| Operating lease liabilities, net of current portion | 104.8 | 116.5 | |||||||||
| Other long-term liabilities | 87.7 | 87.1 | |||||||||
| Deferred tax liabilities | 43.8 | 56.2 | |||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' 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; 148,293 and 153,830 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively | 0.1 | 0.2 | |||||||||
| Class B common stock, $0.001 par value - 500,000 shares authorized; 307 and 312 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively | — | — | |||||||||
| Additional paid-in capital | 2,088.2 | 1,912.6 | |||||||||
| Accumulated deficit | (2,917.8) | (2,422.6) | |||||||||
| Accumulated other comprehensive income | 162.4 | 178.0 | |||||||||
| Total stockholders' deficit attributable to GoDaddy Inc. | (667.1) | (331.8) | |||||||||
| Non-controlling interests | 2.6 | 2.5 | |||||||||
| Total stockholders' deficit | (664.5) | (329.3) | |||||||||
| Total liabilities and stockholders' deficit | $ | 6,793.9 | $ | 6,973.5 |
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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Applications & commerce | $ | 351.7 | $ | 317.2 | $ | 689.7 | $ | 620.3 | |||||||||||||||
| Core platform | 696.4 | 698.3 | 1,394.4 | 1,397.9 | |||||||||||||||||||
| Total revenue | 1,048.1 | 1,015.5 | 2,084.1 | 2,018.2 | |||||||||||||||||||
| Costs and operating expenses(1): | |||||||||||||||||||||||
| Cost of revenue (excluding depreciation and amortization) | 388.4 | 360.5 | 774.5 | 730.7 | |||||||||||||||||||
| Technology and development | 219.2 | 198.1 | 434.2 | 388.2 | |||||||||||||||||||
| Marketing and advertising | 89.5 | 100.7 | 181.9 | 217.0 | |||||||||||||||||||
| Customer care | 77.7 | 78.9 | 154.5 | 156.6 | |||||||||||||||||||
| General and administrative | 92.7 | 94.7 | 186.8 | 185.3 | |||||||||||||||||||
| Restructuring and other | 17.5 | 9.6 | 69.8 | 9.6 | |||||||||||||||||||
| Depreciation and amortization | 43.5 | 48.4 | 92.0 | 96.6 | |||||||||||||||||||
| Total costs and operating expenses | 928.5 | 890.9 | 1,893.7 | 1,784.0 | |||||||||||||||||||
| Operating income | 119.6 | 124.6 | 190.4 | 234.2 | |||||||||||||||||||
| Interest expense | (45.6) | (34.9) | (91.4) | (68.5) | |||||||||||||||||||
| Other income (expense), net | 6.8 | (1.2) | 29.4 | (2.3) | |||||||||||||||||||
| Income before income taxes | 80.8 | 88.5 | 128.4 | 163.4 | |||||||||||||||||||
| Benefit (provision) for income taxes | 2.3 | 2.0 | 2.1 | (4.3) | |||||||||||||||||||
| Net income | 83.1 | 90.5 | 130.5 | 159.1 | |||||||||||||||||||
| Less: net income attributable to non-controlling interests | 0.2 | 0.1 | 0.3 | 0.3 | |||||||||||||||||||
| Net income attributable to GoDaddy Inc. | $ | 82.9 | $ | 90.4 | $ | 130.2 | $ | 158.8 | |||||||||||||||
| Net income attributable to GoDaddy Inc. per share of Class A common stock: | |||||||||||||||||||||||
| Basic | $ | 0.54 | $ | 0.57 | $ | 0.85 | $ | 0.98 | |||||||||||||||
| Diluted | $ | 0.54 | $ | 0.56 | $ | 0.84 | $ | 0.97 | |||||||||||||||
| Weighted-average shares of Class A common stock outstanding: | |||||||||||||||||||||||
| Basic | 152,328 | 159,822 | 153,221 | 162,060 | |||||||||||||||||||
| Diluted | 154,064 | 161,739 | 155,756 | 164,503 | |||||||||||||||||||
| ___________________________ | |||||||||||||||||||||||
| (1) Costs and operating expenses include equity-based compensation expense as follows: | |||||||||||||||||||||||
| Cost of revenue | $ | 0.4 | $ | 0.4 | $ | 0.8 | $ | 0.7 | |||||||||||||||
| Technology and development | 42.0 | 35.1 | 81.0 | 68.0 | |||||||||||||||||||
| Marketing and advertising | 7.3 | 7.5 | 13.9 | 14.5 | |||||||||||||||||||
| Customer care | 6.5 | 5.5 | 11.9 | 9.7 | |||||||||||||||||||
| General and administrative | 21.3 | 18.2 | 41.5 | 35.0 | |||||||||||||||||||
| Restructuring and other | — | — | 2.3 | — | |||||||||||||||||||
| Total equity-based compensation expense | $ | 77.5 | $ | 66.7 | $ | 151.4 | $ | 127.9 |
See accompanying notes to consolidated financial statements.
GoDaddy Inc.
Consolidated Statements of Comprehensive Income (unaudited)
(In millions)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net income | $ | 83.1 | $ | 90.5 | $ | 130.5 | $ | 159.1 | |||||||||||||||
| Foreign exchange forward contracts gain (loss), net | (9.0) | 20.6 | (15.9) | 23.8 | |||||||||||||||||||
| Unrealized swap gain (loss), net(1) | 26.8 | 49.1 | (5.8) | 139.0 | |||||||||||||||||||
| Change in foreign currency translation adjustment | 3.9 | 9.0 | 6.0 | (25.3) | |||||||||||||||||||
| Comprehensive income | 104.8 | 169.2 | 114.8 | 296.6 | |||||||||||||||||||
| Less: comprehensive income attributable to non-controlling interests | 0.1 | 0.3 | 0.3 | 0.6 | |||||||||||||||||||
| Comprehensive income attributable to GoDaddy Inc. | $ | 104.7 | $ | 168.9 | $ | 114.5 | $ | 296.0 | |||||||||||||||
| ___________________________ | |||||||||||||||||||||||
| (1) Amounts are net of the tax effects reflected below: | |||||||||||||||||||||||
| Unrealized swap gain (loss), net | $ | — | $ | — | $ | — | $ | (2.5) | |||||||||||||||
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 | Non- Controlling Interests | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 153,830 | $ | 0.2 | 312 | $ | — | $ | 1,912.6 | $ | (2,422.6) | $ | 178.0 | $ | 2.5 | $ | (329.3) | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 47.3 | — | 0.1 | 47.4 | ||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation, including amounts capitalized | — | — | — | — | 74.5 | — | — | — | 74.5 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock option exercises | 132 | — | — | — | 3.2 | — | — | — | 3.2 | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of Class A common stock | (1,553) | — | — | — | — | (113.9) | — | — | (113.9) | ||||||||||||||||||||||||||||||||||||||||||||
| Impact of derivatives, net | — | — | — | — | — | — | (39.5) | — | (39.5) | ||||||||||||||||||||||||||||||||||||||||||||
| Change in foreign currency translation adjustment | — | — | — | — | — | — | 2.1 | — | 2.1 | ||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units and other | 1,705 | — | (5) | — | 0.2 | (0.1) | 0.1 | (0.2) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | 154,114 | 0.2 | 307 | — | 1,990.5 | (2,489.3) | 140.7 | 2.4 | (355.5) | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 82.9 | — | 0.2 | 83.1 | ||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation, including amounts capitalized | — | — | — | — | 78.0 | — | — | — | 78.0 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock option exercises | 115 | — | — | — | 1.6 | — | — | (0.1) | 1.5 | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of Class A common stock(1) | (7,019) | (0.1) | — | — | — | (511.5) | — | — | (511.6) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock under ESPP | 299 | — | — | — | 18.2 | — | — | — | 18.2 | ||||||||||||||||||||||||||||||||||||||||||||
| Impact of derivatives, net | — | — | — | — | — | — | 17.8 | — | 17.8 | ||||||||||||||||||||||||||||||||||||||||||||
| Change in foreign currency translation adjustment | — | — | — | — | — | — | 3.9 | — | 3.9 | ||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units and other | 784 | — | — | — | (0.1) | 0.1 | — | 0.1 | 0.1 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 148,293 | $ | 0.1 | 307 | $ | — | $ | 2,088.2 | $ | (2,917.8) | $ | 162.4 | $ | 2.6 | $ | (664.5) | |||||||||||||||||||||||||||||||||||||
_________________________________
(1)Includes a 1% excise tax on shares repurchased, net of the fair market value of new share issuances, of $3.8 million.
GoDaddy Inc.
Condensed Consolidated Statements of Stockholders' Deficit (unaudited) (continued)
(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) | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 90.4 | — | 0.1 | 90.5 | ||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation, including amounts capitalized | — | — | — | — | 67.5 | — | — | — | 67.5 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock option exercises | 158 | — | — | — | 4.9 | — | — | — | 4.9 | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of Class A common stock | (6,059) | — | — | — | — | (236.3) | — | — | (236.3) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A common stock under ESPP | 302 | — | — | — | 18.4 | — | — | — | 18.4 | ||||||||||||||||||||||||||||||||||||||||||||
| Impact of derivatives, net | — | — | — | — | — | — | 69.7 | — | 69.7 | ||||||||||||||||||||||||||||||||||||||||||||
| Change in foreign currency translation adjustment | — | — | — | — | — | — | 9.0 | — | 9.0 | ||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units and other | 458 | — | — | — | (0.1) | — | (0.2) | — | (0.3) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | 156,545 | $ | 0.2 | 312 | $ | — | $ | 1,756.3 | $ | (2,302.3) | $ | 98.6 | $ | 1.9 | $ | (445.3) | |||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
GoDaddy Inc.
Consolidated Statements of Cash Flows (unaudited)
(In millions)
| Six Months Ended June 30, | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| Operating activities | |||||||||||||||||
| Net income | $ | 130.5 | $ | 159.1 | |||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 92.0 | 96.6 | |||||||||||||||
| Equity-based compensation expense | 151.4 | 127.9 | |||||||||||||||
| Loss on dispositions | 16.8 | — | |||||||||||||||
| Other | 5.5 | 45.8 | |||||||||||||||
| Changes in operating assets and liabilities, net of amounts acquired: | |||||||||||||||||
| Prepaid domain name registry fees | (38.6) | (24.8) | |||||||||||||||
| Deferred revenue | 153.3 | 127.0 | |||||||||||||||
| Other operating assets and liabilities | (42.6) | (29.8) | |||||||||||||||
| Net cash provided by operating activities | 468.3 | 501.8 | |||||||||||||||
| Investing activities | |||||||||||||||||
| Purchases of intangible assets | (35.4) | — | |||||||||||||||
| Net proceeds received from dispositions | 12.4 | — | |||||||||||||||
| Purchases of property and equipment | (28.6) | (30.2) | |||||||||||||||
| Other investing activities | (0.4) | (0.3) | |||||||||||||||
| Net cash used in investing activities | (52.0) | (30.5) | |||||||||||||||
| Financing activities | |||||||||||||||||
| Proceeds received from: | |||||||||||||||||
| Stock option exercises | 4.7 | 13.3 | |||||||||||||||
| Issuance of Class A common stock under ESPP | 18.2 | 18.4 | |||||||||||||||
| Payments made for: | |||||||||||||||||
| Repurchases of Class A common stock | (611.7) | (967.1) | |||||||||||||||
| Repayment of term loans | (12.6) | (16.2) | |||||||||||||||
| Other financing obligations | (6.9) | (2.1) | |||||||||||||||
| Net cash used in financing activities | (608.3) | (953.7) | |||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 0.6 | (2.9) | |||||||||||||||
| Net decrease in cash and cash equivalents | (191.4) | (485.3) | |||||||||||||||
| Cash and cash equivalents, beginning of period | 774.0 | 1,255.7 | |||||||||||||||
| Cash and cash equivalents, end of period | $ | 582.6 | $ | 770.4 | |||||||||||||
| Cash paid during the period for: | |||||||||||
| Interest on long-term debt, including impact of interest rate swaps | $ | 88.4 | $ | 59.6 | |||||||
| Income taxes, net of refunds received | $ | 4.9 | $ | 6.9 | |||||||
| Amounts included in the measurement of operating lease liabilities | $ | 23.3 | $ | 25.3 | |||||||
| Supplemental disclosure of non-cash transactions | |||||||||||
| Operating lease assets obtained in exchange for operating lease liabilities | $ | 9.3 | $ | 7.1 | |||||||
| Accrued purchases of property and equipment at period end | $ | 2.4 | $ | 6.1 | |||||||
| Share repurchases not yet settled | $ | 15.6 | $ | 19.3 | |||||||
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 June 30, 2023, we owned approximately 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, 2023.
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, 2022 (the 2022 Form 10-K).
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
We report our operating results through two reportable segments: Applications and Commerce (A&C) and Core Platform (Core), as further discussed in Note 16.
2. Summary of Significant Accounting Policies
Property and Equipment
Property and equipment, net by geography was as follows:
| June 30, 2023 | December 31, 2022 | ||||||||||
| U.S. | $ | 158.4 | $ | 167.5 | |||||||
| France | 25.3 | 28.8 | |||||||||
| All other international | 22.9 | 29.3 | |||||||||
| $ | 206.6 | $ | 225.6 |
No other international country represented more than 10% of property and equipment, net in any period presented.
Equity Investments
We hold investments in privately held equity securities, which are recorded in other assets, and were as follows:
| Equity Investments | |||||
| Equity investments as of December 31, 2022 | $ | 40.5 | |||
| Fair market value adjustments(1) | 14.4 | ||||
| Impairment losses(1) | (2.3) | ||||
| Additional investments | 0.5 | ||||
| Equity investments as of June 30, 2023 | $ | 53.1 |
_________________________________
(1)Fair market value adjustments and impairment losses are recorded in other income (expense), net.
Revenue Recognition
Disaggregated Revenue
Revenue by major product type was as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Applications and commerce | $ | 351.7 | $ | 317.2 | $ | 689.7 | $ | 620.3 | |||||||||||||||
| Core platform: domains | 492.7 | 485.0 | 984.8 | 968.9 | |||||||||||||||||||
| Core platform: other | 203.7 | 213.3 | 409.6 | 429.0 | |||||||||||||||||||
| $ | 1,048.1 | $ | 1,015.5 | $ | 2,084.1 | $ | 2,018.2 |
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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| U.S. | $ | 707.0 | $ | 684.7 | $ | 1,402.4 | $ | 1,357.6 | |||||||||||||||
| International | 341.1 | 330.8 | 681.7 | 660.6 | |||||||||||||||||||
| $ | 1,048.1 | $ | 1,015.5 | $ | 2,084.1 | $ | 2,018.2 |
No international country represented more than 10% of total revenue in any period presented.
See Note 7 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 $192.1 million and $177.6 million for the three months ended June 30, 2023 and 2022, respectively and was $377.2 million and $351.7 million for the six months ended June 30, 2023 and 2022, respectively.
Restructuring and Other
Restructuring and other primarily represents: i) charges related to the restructuring plan announced in February 2023, which was implemented to reduce future operating expenses and improve cash flows through a combination of a reduction in force and the sale of certain assets and liabilities of our hosting business within our Core segment; and ii) a charge related to the termination of a revenue sharing agreement. See Note 13 for further discussion.
Fair Value Measurements
The following tables set forth our material assets and liabilities measured and recorded at fair value on a recurring basis:
| June 30, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents: | |||||||||||||||||||||||
| Commercial paper | $ | — | $ | 30.0 | $ | — | $ | 30.0 | |||||||||||||||
| Time deposits | 239.8 | — | — | 239.8 | |||||||||||||||||||
| Derivative assets | — | 175.7 | — | 175.7 | |||||||||||||||||||
| Total assets | $ | 239.8 | $ | 205.7 | $ | — | $ | 445.5 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivative liabilities | $ | — | $ | 6.8 | $ | — | $ | 6.8 | |||||||||||||||
| Total liabilities | $ | — | $ | 6.8 | $ | — | $ | 6.8 |
| December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents: | |||||||||||||||||||||||
| Commercial paper | $ | — | $ | 120.0 | $ | — | $ | 120.0 | |||||||||||||||
| Time deposits | 347.3 | — | — | 347.3 | |||||||||||||||||||
| Derivative assets | — | 218.5 | — | 218.5 | |||||||||||||||||||
| Total assets | $ | 347.3 | $ | 338.5 | $ | — | $ | 685.8 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivative liabilities | $ | — | $ | 4.9 | $ | — | $ | 4.9 | |||||||||||||||
| Total liabilities | $ | — | $ | 4.9 | $ | — | $ | 4.9 |
We have no other material assets or liabilities measured at fair value on a recurring basis.
3. Goodwill and Intangible Assets
The following table summarizes changes in our goodwill balance by segment:
| A&C | Core | Total | |||||||||||||||
| Balance at December 31, 2022 | $ | 1,497.0 | $ | 2,039.9 | $ | 3,536.9 | |||||||||||
| Impact of foreign currency translation | 12.7 | 17.6 | 30.3 | ||||||||||||||
| Less: goodwill related to disposition of businesses | — | (3.3) | (3.3) | ||||||||||||||
| Balance at June 30, 2023 | $ | 1,509.7 | $ | 2,054.2 | $ | 3,563.9 |
Intangible assets, net are summarized as follows:
| June 30, 2023 | |||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||
| Indefinite-lived intangible assets: | |||||||||||||||||
| Trade names and branding | $ | 445.0 | n/a | $ | 445.0 | ||||||||||||
| Domain portfolio | 241.7 | n/a | 241.7 | ||||||||||||||
| Contractual-based assets | 292.7 | n/a | 292.7 | ||||||||||||||
| Finite-lived intangible assets: | |||||||||||||||||
| Customer-related | 461.0 | $ | (322.5) | 138.5 | |||||||||||||
| Developed technology | 246.1 | (192.7) | 53.4 | ||||||||||||||
| Trade names and other | 105.1 | (58.7) | 46.4 | ||||||||||||||
| $ | 1,791.6 | $ | (573.9) | $ | 1,217.7 |
| December 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 | 243.2 | n/a | 243.2 | ||||||||||||||
| Contractual-based assets | 256.8 | n/a | 256.8 | ||||||||||||||
| Finite-lived intangible assets: | |||||||||||||||||
| Customer-related | 487.7 | $ | (309.0) | 178.7 | |||||||||||||
| Developed technology | 243.9 | (171.1) | 72.8 | ||||||||||||||
| Trade names and other | 109.8 | (54.1) | 55.7 | ||||||||||||||
| $ | 1,786.4 | $ | (534.2) | $ | 1,252.2 |
During the six months ended June 30, 2023, we completed two purchases of indefinite-lived domain portfolio intangible assets and related finite-lived customer-related intangible assets for a total of $35.4 million in cash and a variable earn-out of up to $4.0 million.
Amortization expense was $26.1 million and $31.7 million for the three months ended June 30, 2023 and 2022, respectively, and was $58.8 million and $64.9 million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, the weighted-average remaining amortization period for amortizable intangible assets was 33 months for customer-related, 29 months for developed technology and 49 months for trade names and other, and was 35 months in total.
Based on the balance of finite-lived intangible assets as of June 30, 2023, expected future amortization expense is as follows:
| Year Ending December 31: | |||||
| 2023 (remainder of) | $ | 46.3 | |||
| 2024 | 83.4 | ||||
| 2025 | 75.7 | ||||
| 2026 | 25.3 | ||||
| 2027 | 4.5 | ||||
| Thereafter | 3.1 | ||||
| $ | 238.3 |
4. Stockholders' Equity
Share Repurchases
We have authority to repurchase up to $3,000.0 million of our Class A common stock. During the six months ended June 30, 2023, we repurchased a total of 8,572 shares, of our Class A common stock in the open market, which were retired upon repurchase, for an aggregate purchase price of $621.6 million. As of June 30, 2023, we had $1,078.3 million of remaining authorization available for repurchases.
In August 2023, our board of directors approved the repurchase of up to an additional $1,000.0 million of our Class A common stock. Such approval was in addition to the amount remaining available for repurchases under prior approvals of our board of directors, such that our total approved authority under the program is $4,000.0 million of shares of our Class A common stock through 2025.
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
| June 30, 2023 | December 31, 2022 | ||||||||||
| Derivative assets | $ | 175.7 | $ | 218.5 | |||||||
| Prepaid software and maintenance expenses | 42.2 | 29.5 | |||||||||
| Registry deposits | 38.0 | 41.0 | |||||||||
| Usage-based prepaid expenses(1) | 16.0 | 10.6 | |||||||||
| Other | 25.9 | 13.2 | |||||||||
| $ | 297.8 | $ | 312.8 |
_________________________________
(1)Usage-based prepaid expenses include various cost of revenue, marketing, rent and other prepaid commitments that are amortized as the funds are used.
6. Equity-Based Compensation Plans
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.
The following table summarizes stock option activity:
| Number of Shares of Class A Common Stock (#) | Weighted- Average Exercise Price Per Share ($) | ||||||||||||||||
| Outstanding at December 31, 2022 | 1,426 | 44.38 | |||||||||||||||
| Exercised | (247) | 30.63 | |||||||||||||||
| Forfeited | (1) | 8.74 | |||||||||||||||
| Outstanding at June 30, 2023 | 1,178 | 47.29 | |||||||||||||||
| Vested at June 30, 2023 | 1,152 | 46.84 |
The following table summarizes stock award activity:
| Number of Shares of Class A Common Stock (#) | |||||
| Outstanding at December 31, 2022 | 7,632 | ||||
| Granted: RSUs | 3,299 | ||||
| Granted: TSR-based PSUs | 264 | ||||
| TSR-based PSU achievement above target | 91 | ||||
| Vested | (2,484) | ||||
| Forfeited | (627) | ||||
| Outstanding at June 30, 2023(1) | 8,175 |
_________________________________
(1)The balance of outstanding awards is comprised of the following:
| Number of Shares of Class A Common Stock (#) | Weighted-Average Grant-Date Fair Value Per Share ($) | ||||||||||
| RSUs | 7,387 | 78.25 | |||||||||
| TSR-based PSUs | 763 | 119.49 | |||||||||
| Financial-based PSUs | 25 | 77.23 | |||||||||
| Outstanding at June 30, 2023 | 8,175 |
As of June 30, 2023, total unrecognized compensation expense related to non-vested equity grants was $477.9 million with an expected remaining weighted-average recognition period of 2.3 years.
7. Deferred Revenue
Deferred revenue consisted of the following:
| June 30, 2023 | December 31, 2022 | ||||||||||
| Current: | |||||||||||
| A&C | $ | 681.0 | $ | 622.1 | |||||||
| Core | 1,400.4 | 1,331.9 | |||||||||
| $ | 2,081.4 | $ | 1,954.0 | ||||||||
| Noncurrent: | |||||||||||
| A&C | $ | 174.2 | $ | 173.1 | |||||||
| Core | 625.3 | 597.2 | |||||||||
| $ | 799.5 | $ | 770.3 |
The increase in deferred revenue is primarily driven by payments received in advance of satisfying our performance obligations, offset by $592.9 million and $1,350.3 million of revenue recognized during the three and six months ended June 30, 2023, respectively, which was included in deferred revenue as of December 31, 2022. Deferred revenue as of June 30, 2023 represents our aggregate remaining performance obligations that will be recognized as revenue over the period in which the performance obligations are expected to be satisfied, as follows:
| Remainder of 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | |||||||||||||||||||||||||||||||||||
| A&C | $ | 475.2 | $ | 280.0 | $ | 73.5 | $ | 16.8 | $ | 5.6 | $ | 4.1 | $ | 855.2 | |||||||||||||||||||||||||||
| Core | 919.0 | 693.0 | 202.2 | 91.6 | 52.4 | 67.5 | 2,025.7 | ||||||||||||||||||||||||||||||||||
| $ | 1,394.2 | $ | 973.0 | $ | 275.7 | $ | 108.4 | $ | 58.0 | $ | 71.6 | $ | 2,880.9 |
8. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
| June 30, 2023 | December 31, 2022 | ||||||||||
| Accrued payroll and employee benefits | $ | 98.1 | $ | 116.3 | |||||||
| Tax-related accruals | 53.5 | 42.8 | |||||||||
| Accrued legal and professional | 32.5 | 34.3 | |||||||||
| Current portion of operating lease liabilities | 33.1 | 33.3 | |||||||||
| Accrued acquisition-related expenses and acquisition consideration payable | 19.7 | 26.2 | |||||||||
| Accrued marketing and advertising | 18.2 | 13.6 | |||||||||
| Share repurchases not yet settled | 15.6 | 5.8 | |||||||||
| Derivative liabilities | 6.8 | 4.9 | |||||||||
| Accrued restructuring costs | 6.0 | — | |||||||||
| Other | 87.7 | 79.5 | |||||||||
| $ | 371.2 | $ | 356.7 |
9. Long-Term Debt
Long-term debt consisted of the following:
| Maturity Date | June 30, 2023 | December 31, 2022 | |||||||||||||||
| 2027 Term Loans (effective interest rate of 7.1% at June 30, 2023 and 4.3% at December 31, 2022) | August 10, 2027 | $ | 727.5 | $ | 731.3 | ||||||||||||
| 2029 Term Loans (effective interest rate of 8.5% at June 30, 2023 and 4.1% at December 31, 2022) | November 10, 2029 | 1,761.2 | 1,770.0 | ||||||||||||||
| 2027 Senior Notes (effective interest rate of 5.5% at June 30, 2023 and 5.4% at December 31, 2022) | December 1, 2027 | 600.0 | 600.0 | ||||||||||||||
| 2029 Senior Notes (effective interest rate of 3.7% at June 30, 2023 and 3.6% at December 31, 2022) | March 1, 2029 | 800.0 | 800.0 | ||||||||||||||
| Revolver | August 10, 2027 | — | — | ||||||||||||||
| Total | 3,888.7 | 3,901.3 | |||||||||||||||
| Less: unamortized original issue discount and debt issuance costs(1) | (64.5) | (70.2) | |||||||||||||||
| Less: current portion of long-term debt | (18.2) | (18.2) | |||||||||||||||
| $ | 3,806.0 | $ | 3,812.9 |
_________________________________
(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 2022 Form 10-K, our secured credit agreement (the Credit Facility) includes two tranches of term loans (the 2027 Term Loans and the 2029 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 10.
In May 2023, we entered into an amendment to the Credit Facility to replace LIBOR on our 2027 Term Loans with the Secured Overnight Financing Rate (SOFR), effective with the first interest period commencing on or after July 1, 2023. Once effective, these borrowings will bear interest at a rate equal to, at our option, either (a) SOFR for an interest period of one month plus an initial margin of 2.0% per annum or (b) an initial margin of 1.0% per annum plus the highest of (i) the Federal Funds Rate plus 0.5%, (ii) the Prime Rate or (iii) SOFR for an interest period of one month plus 1.0%. Fees incurred in conjunction with this amendment were not material.
As of June 30, 2023, we had $999.2 million available for borrowing under the Revolver as $0.8 million has been used to secure the issuance of standby letters of credit. We were not in violation of any covenants of the Credit Facility as of June 30, 2023.
Senior Notes
As described in our 2022 Form 10-K, we have completed two offerings of senior notes (the 2027 Senior Notes and the 2029 Senior Notes).
As of June 30, 2023, 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 June 30, 2023:
| 2027 Term Loans | $ | 727.0 | |||
| 2029 Term Loans | $ | 1,766.7 | |||
| 2027 Senior Notes | $ | 571.7 | |||
| 2029 Senior Notes | $ | 686.0 |
Future Debt Maturities
Aggregate principal payments, exclusive of any unamortized original issue discount and debt issuance costs, due on long-term debt as of June 30, 2023 were as follows:
| Year Ending December 31: | |||||
| 2023 (remainder of) | $ | 12.6 | |||
| 2024 | 25.2 | ||||
| 2025 | 25.2 | ||||
| 2026 | 25.2 | ||||
| 2027 | 1,319.0 | ||||
| Thereafter | 2,481.5 | ||||
| $ | 3,888.7 |
10. 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)** | |||||||||||||||||||||||||||||||||
| June 30, 2023 | December 31, 2022 | June 30, 2023 | December 31, 2022 | June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||||||||||||||
| Foreign exchange forward contracts | $ | 367.9 | $ | 364.7 | $ | 1.9 | $ | 9.4 | $ | 6.8 | $ | 2.0 | |||||||||||||||||||||||
| Cross-currency swaps(1) | 557.4 | 549.7 | 0.7 | 15.8 | — | 2.2 | |||||||||||||||||||||||||||||
| Interest rate swaps | 1,970.1 | 1,980.5 | 172.1 | 173.0 | — | — | |||||||||||||||||||||||||||||
| Net investment hedges: | |||||||||||||||||||||||||||||||||||
| Cross-currency swaps(1) | 714.4 | 704.6 | 1.0 | 20.3 | — | 0.7 | |||||||||||||||||||||||||||||
| Total hedges | $ | 3,609.8 | $ | 3,599.5 | $ | 175.7 | $ | 218.5 | $ | 6.8 | $ | 4.9 |
_________________________________
(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 1.09 and 1.07 as of June 30, 2023 and December 31, 2022, 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 accumulated other comprehensive income (AOCI):
| Unrealized Gains (Losses) Recognized in Other Comprehensive Income | |||||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||
| Foreign exchange forward contracts(1) | $ | (9.0) | $ | 20.6 | $ | (15.9) | $ | 23.8 | |||||||||||||||
| Cross-currency swaps | (6.6) | 7.1 | (4.6) | 43.4 | |||||||||||||||||||
| Interest rate swaps | 33.4 | 42.0 | (1.2) | 93.1 | |||||||||||||||||||
| Net investment hedges: | |||||||||||||||||||||||
| Cross-currency swaps | (12.9) | 48.0 | (19.3) | 21.6 | |||||||||||||||||||
| Total hedges | $ | 4.9 | $ | 117.7 | $ | (41.0) | $ | 181.9 |
_________________________________
(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 June 30, 2023 | Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||
| 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 | $ | 4.9 | $ | — | $ | — | $ | 0.2 | $ | — | $ | — | |||||||||||||||||||||||
| Cross-currency swaps: | |||||||||||||||||||||||||||||||||||
| Reclassified from AOCI into income(1) | — | 2.4 | (3.5) | — | 3.5 | 30.3 | |||||||||||||||||||||||||||||
| Interest rate swaps: | |||||||||||||||||||||||||||||||||||
| Reclassified from AOCI into income | — | 16.4 | — | — | (5.2) | — | |||||||||||||||||||||||||||||
| Net investment hedges: | |||||||||||||||||||||||||||||||||||
| Cross-currency swaps: | |||||||||||||||||||||||||||||||||||
| Reclassified from AOCI into income | — | 3.1 | — | — | 3.5 | — | |||||||||||||||||||||||||||||
| Total hedges | $ | 4.9 | $ | 21.9 | $ | (3.5) | $ | 0.2 | $ | 1.8 | $ | 30.3 |
_________________________________
(1)The amounts reflected in other income (expense), net include $3.5 million and $(30.2) 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 June 30, 2023 and 2022, respectively.
| Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||
| 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 | $ | 9.7 | $ | — | $ | — | $ | (1.4) | $ | — | $ | — | |||||||||||||||||||||||
| Cross-currency swaps: | |||||||||||||||||||||||||||||||||||
| Reclassified from AOCI into income(1) | — | 4.8 | (10.6) | — | 9.6 | 52.8 | |||||||||||||||||||||||||||||
| Interest rate swaps: | |||||||||||||||||||||||||||||||||||
| Reclassified from AOCI into income | — | 30.5 | — | — | (16.0) | — | |||||||||||||||||||||||||||||
| Net investment hedges: | |||||||||||||||||||||||||||||||||||
| Cross-currency swaps: | |||||||||||||||||||||||||||||||||||
| Reclassified from AOCI into income | — | 6.3 | — | — | 4.3 | — | |||||||||||||||||||||||||||||
| Total hedges | $ | 9.7 | $ | 41.6 | $ | (10.6) | $ | (1.4) | $ | (2.1) | $ | 52.8 |
_________________________________
(1)The amounts reflected in other income (expense), net include $10.5 million and $(52.9) 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 six months ended June 30, 2023 and 2022, respectively.
As of June 30, 2023, we estimate that $98.7 million of net deferred gains 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 June 30, 2023, 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 2029 Term Loans to a fixed rate of 4.81%. In November 2022, in conjunction with the Credit Facility refinancing discussed in our 2022 Form 10-K, we terminated these swaps and entered into new SOFR-based interest rate swaps. This modification impacted no critical terms other than the reference rate change from LIBOR to SOFR and thus had no impact on our hedging relationships or financial statements.
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. In May 2023, in conjunction with the Credit Facility amendment discussed in Note 9, we terminated these swaps and entered into new SOFR-based interest rate swaps. This modification impacted no critical terms other than the reference rate change from LIBOR to SOFR and thus had no impact on our hedging relationships or financial statements.
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.
11. 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 June 30, 2023, operating leases have a remaining weighted average lease term of 6.6 years and our operating lease liabilities were measured using a weighted average discount rate of 5.3%.
The components of operating lease expense were as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||||||
| Operating lease costs | $ | 9.6 | $ | 9.6 | $ | 19.4 | $ | 22.4 | |||||||||||||||
| Variable lease costs | 3.8 | 2.2 | 7.6 | 4.9 | |||||||||||||||||||
| Sublease income | (2.2) | (1.8) | (4.5) | (3.6) | |||||||||||||||||||
| Total net lease cost | $ | 11.2 | $ | 10.0 | $ | 22.5 | $ | 23.7 |
12. Commitments and Contingencies
Litigation
From time-to-time, we are a party to litigation and subject to claims, suits, regulatory and government investigations, other proceedings and consent decrees in 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 reasonably estimable.
As described in our 2022 Form 10-K, as of December 31, 2022, 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 (the 11th Circuit). On July 27, 2022, the 11th Circuit vacated the settlement approval order and remanded the case for further action due to standing issues among the class members. On August 18, 2022, the plaintiffs filed a petition for a rehearing before the 11th Circuit. On December 7, 2022, the 11th Circuit was notified of the death of one of the plaintiffs, Jason Bennett. The parties are currently briefing the effect, if any, of his death on the appeal. On March 13, 2023, the 11th Circuit granted the plaintiffs' petition for a rehearing before the 11th Circuit; the rehearing occurred on June 13, 2023. On July 24, 2023, the en banc 11th Circuit reversed the 11th Circuit's July 27, 2022 decision and remanded the appeal to the 11th Circuit for further action. Given the pending nature of the appeal, and the possibility for one or more parties to seek relief from the Supreme Court, the finality and/or impact of the July 27, 2022 decision is uncertain. As a result, we have not adjusted our estimated loss provision for this settlement as of June 30, 2023.
We have denied and continue to deny the allegations in the complaints. Nothing in the final settlement agreement is 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.
As more fully described in the section titled “Risk Factors” located elsewhere in this Quarterly Report, in March 2020, we discovered that a threat actor group had compromised the hosting login credentials of certain of our customers to their hosting accounts and the login credentials of a small number of our personnel. We have expended resources investigating and responding to this activity, notified the impacted customers, reported the activity to applicable regulatory authorities, and are responding to requests for information regarding our data privacy and security practices, including from the Federal Trade Commission (FTC) pursuant to Civil Investigative Demands issued in July 2020 and October 2021. The timing of resolution and the outcome of these matters are uncertain and could result in us being subject to substantial monetary or other costs to our business.
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. However, the outcomes of claims, legal proceedings or investigations are inherently unpredictable and subject to uncertainty, and may have an adverse effect on us because of defense costs, diversion of management resources and other factors that are not known to us or cannot be quantified at this time. 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. We periodically evaluate developments in our legal matters that could affect the
amount of liability that has been previously accrued or the reasonably possible losses that we have disclosed, and make adjustments as appropriate.
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.
Our accrual for estimated indirect tax liabilities was $20.7 million and $18.9 million as of June 30, 2023 and December 31, 2022, 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.
13. Restructuring and Other Charges and Disposition of Businesses and Related Assets
In February 2023, we announced a restructuring plan to reduce future operating expenses and improve cash flows through a combination of a reduction in force and a commitment to sell certain assets. As part of this plan, we announced a reduction in our workforce of approximately 550 employees, representing approximately 8% of our total employees. In conjunction with this restructuring, during the first quarter of 2023 we recorded $50.4 million of pre-tax restructuring charges in our statement of operations, which included $29.4 million in severance, employee benefits and equity-based compensation as well as a $21.0 million charge in connection with the planned disposition of certain assets and liabilities of our hosting business within our Core segment.
During the three months ended June 30, 2023, we recorded an additional $4.4 million in pre-tax restructuring charges for severance and employee benefits as well as completed the planned disposition discussed above, receiving net proceeds of $12.4 million. Due to changes to the assets and liabilities included within the disposal group as the negotiations were finalized, we recognized a $4.2 million adjustment to the loss estimated during the first quarter, resulting in a pre-tax loss on disposal of $16.8 million.
We estimate that we will incur up to an additional $1.5 million in restructuring charges related to this restructuring plan, primarily during the third quarter of 2023. We do not expect to incur additional restructuring charges beyond the fourth quarter of 2023.
Cash payments of $25.5 million related to the restructuring plan were made during the six months ended June 30, 2023. We expect to make substantially all remaining restructuring payments in the third quarter of 2023.
The following table shows the total amount incurred and the accrued restructuring costs, which are recorded in accrued expenses and other current liabilities in our balance sheet, for severance and employee benefits as of June 30, 2023:
| Accrued Restructuring Costs | |||||
| Accrued restructuring costs as of December 31, 2022 | $ | — | |||
| Restructuring costs incurred during the six months ended June 30, 2023(1) | 31.5 | ||||
| Amount paid during the six months ended June 30, 2023 | (25.5) | ||||
| Accrued restructuring costs as of June 30, 2023 | $ | 6.0 |
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(1)Excludes $2.3 million in equity-based compensation expense associated with our restructuring plan, which was recorded within additional paid-in capital.
During the three months ended June 30, 2023, we also recorded a charge of $17.0 million in our statement of operations related to the termination of a revenue sharing agreement. This termination fee was paid in full during the three months ended June 30, 2023.
14. 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 rates differ from the U.S. federal statutory rate primarily due to changes in valuation allowances based on current year earnings and the impact of foreign earnings primarily related to the United Kingdom, Germany and India jurisdictions.
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 June 30, 2023, we believe there is uncertainty as to when we will be able to utilize certain of our domestic net operating losses (NOLs), credit carryforwards and other deferred tax assets (DTAs). This negative evidence includes our historical tax losses, the difficulty in forecasting excess tax benefits related to equity-based compensation and the difficulty in forecasting profits due to the current uncertain macroeconomic conditions, such as inflation and the possibility of recession or an economic slowdown. 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 the current uncertain macroeconomic conditions dissipate making it easier to forecast in the long-term, our operating results continue to improve and our projections show sufficient 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 $148.8 million as of June 30, 2023, of which $44.0 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.
15. 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | 83.1 | $ | 90.5 | $ | 130.5 | $ | 159.1 | |||||||||||||||
| Less: net income attributable to non-controlling interests | 0.2 | 0.1 | 0.3 | 0.3 | |||||||||||||||||||
| Net income attributable to GoDaddy Inc. | $ | 82.9 | $ | 90.4 | $ | 130.2 | $ | 158.8 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average shares of Class A common stock outstanding—basic | 152,328 | 159,822 | 153,221 | 162,060 | |||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Class B common stock | 307 | 312 | 308 | 313 | |||||||||||||||||||
| Stock options | 453 | 703 | 492 | 762 | |||||||||||||||||||
| RSUs, PSUs and ESPP shares | 976 | 902 | 1,735 | 1,368 | |||||||||||||||||||
| Weighted-average shares of Class A Common stock outstanding—diluted | 154,064 | 161,739 | 155,756 | 164,503 | |||||||||||||||||||
| Net income attributable to GoDaddy Inc. per share of Class A common stock—basic | $ | 0.54 | $ | 0.57 | $ | 0.85 | $ | 0.98 | |||||||||||||||
| Net income attributable to GoDaddy Inc. per share of Class A common stock—diluted(1): | $ | 0.54 | $ | 0.56 | $ | 0.84 | $ | 0.97 | |||||||||||||||
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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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Stock options | 184 | 276 | 99 | 265 | |||||||||||||||||||
| RSUs, PSUs and ESPP shares | 2,603 | 3,862 | 618 | 2,266 | |||||||||||||||||||
| 2,787 | 4,138 | 717 | 2,531 |
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.
16. Segment Information
We report our operating results through two reportable segments: A&C and Core.
Our chief operating decision maker (CODM), which, as of June 30, 2023, was our Chief Executive Officer, evaluates the performance of and allocates resources to our segments based on each segment's revenue and earnings before interest, taxes, depreciation and amortization (Segment EBITDA). Segment EBITDA is defined as segment revenues less costs and operating expenses, excluding depreciation and amortization, interest expense (net), provision or benefit for income taxes, equity-based compensation expense, acquisition-related costs, restructuring-related expenses and certain other items. We believe Segment EBITDA serves as a measure that assists our CODM and our investors in comparing our segments' performance on a consistent basis.
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 products containing proprietary software, commerce products and third-party email and productivity solutions 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 primarily includes general and administrative expenses and items not allocated to either segment as well as those costs specifically excluded from Segment EBITDA, our segment measure of profitability, such as depreciation and amortization, interest expense and income and provision or benefit for income taxes.
The following table presents our segment information for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| A&C | $ | 351.7 | $ | 317.2 | $ | 689.7 | $ | 620.3 | |||||||||||||||
| Core | 696.4 | 698.3 | 1,394.4 | 1,397.9 | |||||||||||||||||||
| Total revenue | $ | 1,048.1 | $ | 1,015.5 | $ | 2,084.1 | $ | 2,018.2 | |||||||||||||||
| Segment EBITDA: | |||||||||||||||||||||||
| A&C | $ | 142.7 | $ | 131.8 | $ | 275.1 | $ | 251.6 | |||||||||||||||
| Core | 191.0 | 198.4 | 380.0 | 376.8 | |||||||||||||||||||
| Total Segment EBITDA | 333.7 | 330.2 | 655.1 | 628.4 | |||||||||||||||||||
| Unallocated corporate overhead | (69.1) | (71.8) | (140.8) | (144.1) | |||||||||||||||||||
| Depreciation and amortization | (43.5) | (48.4) | (92.0) | (96.6) | |||||||||||||||||||
| Equity-based compensation expense(1) | (77.5) | (66.7) | (149.1) | (127.9) | |||||||||||||||||||
| Interest expense, net of interest income | (37.4) | (33.6) | (75.4) | (66.8) | |||||||||||||||||||
| Acquisition-related expenses | (4.7) | (10.6) | (9.7) | (18.3) | |||||||||||||||||||
| Restructuring and other (2) | (20.7) | (10.6) | (59.7) | (11.3) | |||||||||||||||||||
| Income before income taxes | 80.8 | 88.5 | 128.4 | 163.4 | |||||||||||||||||||
| Benefit (provision) for income taxes | 2.3 | 2.0 | 2.1 | (4.3) | |||||||||||||||||||
| Net income | $ | 83.1 | $ | 90.5 | $ | 130.5 | $ | 159.1 |
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(1)The six months ended June 30, 2023 excludes $2.3 million of equity-based compensation expense associated with our restructuring plan, which is included within restructuring and other.
(2)In addition to the restructuring and other in our statements of operations, other charges included are primarily composed of lease-related expenses associated with closed facilities, charges related to certain legal matters and adjustments to the fair value of our equity investments.
17. 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, 2022(2) | $ | (75.0) | $ | 253.4 | $ | 178.4 | |||||||||||
| Other comprehensive income (loss) before reclassifications | 10.3 | (62.4) | (52.1) | ||||||||||||||
| Amounts reclassified from AOCI | (4.3) | 40.7 | 36.4 | ||||||||||||||
| Other comprehensive income (loss) | 6.0 | (21.7) | (15.7) | ||||||||||||||
| $ | (69.0) | $ | 231.7 | 162.7 | |||||||||||||
| Less: AOCI attributable to non-controlling interests | (0.3) | ||||||||||||||||
| Balance as of June 30, 2023 | $ | 162.4 | |||||||||||||||
| Gross balance as of December 31, 2021(2) | $ | (52.9) | $ | 14.2 | $ | (38.7) | |||||||||||
| Other comprehensive income (loss) before reclassifications | (25.3) | 113.5 | 88.2 | ||||||||||||||
| Amounts reclassified from AOCI | — | 49.3 | 49.3 | ||||||||||||||
| Other comprehensive income | (25.3) | 162.8 | 137.5 | ||||||||||||||
| $ | (78.2) | $ | 177.0 | 98.8 | |||||||||||||
| Less: AOCI attributable to non-controlling interests | (0.2) | ||||||||||||||||
| Balance as of June 30, 2022 | $ | 98.6 |
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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.
The sale of certain assets and liabilities of our hosting business, as discussed in Note 13, resulted in the reclassification from AOCI of $4.3 million in cumulative foreign currency translation adjustments. This amount was included within the loss on disposal reported in restructuring and other in our statements of operations for the three and six months ended June 30, 2023. See Note 10 for the effect on net income of amounts reclassified from AOCI related to our hedging relationships.
18. Subsequent Events
In July 2023, we entered into an amendment to the Credit Facility to provide for a new tranche of term loans maturing in 2029, the proceeds of which will be used to refinance our existing 2029 Term Loans. Pursuant to this amendment, these loans will be issued at par and will bear interest at a rate equal to, at our option, either (a) SOFR for an interest period of one month plus an initial margin of 2.5% per annum or (b) an initial margin of 1.5% per annum plus the highest of (i) the Federal Funds Rate plus 0.5%, (ii) the Prime Rate or (iii) SOFR for an interest period of one month plus 1.0%.
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