What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-02-16 · 108 added, 154 removed, 293 unchanged (47% of the section changed)

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(Throughout the tables and this discussion and analysis, dollars are in millions, excluding average revenue per user (ARPU), and shares are in thousands.)

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 are a global leader serving a large market of entrepreneurs, developing and delivering easy-to-use products in a one-stop shop solution alongside personalized guidance.

We serve 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 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.

• Applications and Commerce (A&C) , which primarily consists of sales of products containing proprietary software, notably our website building products, as well as our commerce products and third-party email and productivity solutions and 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.

Financial Highlights

Below are key consolidated financial highlights for 2022, with comparisons to 2021.

Below are our key consolidated financial highlights for 2023, with comparisons to 2022.

• Total revenue of $4,254.1 million, an increase of 4.0%, or approximately 4.6% on a constant currency basis (1) .

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(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 "Reconciliation of Normalized EBITDA" below.

COVID-19 Pandemic

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.

(2) Our operating results for the year ended December 31, 2023 included $90.8 million in restructuring and other charges, as further discussed in Note 14 to our financial statements.

Net income for the year ended December 31, 2023 included a $971.8 million benefit for income taxes primarily due to a $1,014.0 million release of the majority of our domestic valuation allowance .

(3) A reconciliation of Normalized EBITDA to net income, its most directly comparable GAAP financial measure, is set forth in "Reconciliation of NEBITDA" below.

Our Financial Model

We have developed a stable and predictable business model driven by efficient customer acquisition, high customer retention rates and increasing lifetime spend.

We have developed a stable and durable business model driven by strong brand recognition, efficient customer acquisition, high customer retention rates and increasing lifetime spend of our customers.

We have broadened our business model over the past several years to encompass a meaningful set of transactional relationships with our customers in areas such as aftermarket, commerce and payments and reseller agreements where one account may give us access to many users.

We have also observed an increase in users that have converted from owning paid to free subscriptions during this time, coinciding with our experimentation with freemium services as our customers engage in more varied types of business with us.

This has changed the way in which we interact with and target our customers, and, as such, in 2022 we reevaluated our definition of a customer based on our current business model.

Under this new definition, we include all customer accounts with paid transactions in the trailing twelve months or with paid subscriptions as of the end of a period, but exclude customer accounts that have active free versions of our products but have not paid us in the trailing twelve months or do not have any paid subscriptions as of the end of the period.

As a result of this reevaluation, we revised both our customer and related ARPU disclosures to retrospectively present total customers and ARPU under our updated customer definition, as shown in the table below:

Year Ended December 31,

Total customers at period end (in thousands):

Previous definition 21,233 20,646

New definition 20,704 20,148

Average revenue per user:

Previous definition $ 182 $ 166

New definition $ 187 $ 170

We grew our total customers from 20.1 million as of December 31, 2020 to 21.0 million as of December 31, 2023, through a combination of our industry leading products built on a cloud platform, brand advertising, direct marketing efforts, customer referrals, world-class customer care and acquisitions.

In each of the five years ended December 31, 2022, our customer retention rate exceeded 85%, and in 2022, our retention rate for customers who had been with us for over three years was

approximately 93%.

In each of the five years ended December 31, 2023, our customer retention rate was approximately 85%, and in 2023, our retention rate for customers who had been with us for over three years was approximately 92%.

We believe the breadth and depth of our product offerings and the high quality and responsiveness of our customer care team build strong relationships with our customers and are key to our high level of customer retention.

We generate bookings and revenue from sales of product subscriptions.

We offer our subscriptions on a variety of terms, which average approximately one year, but can range from monthly to multi-annual terms of up to ten years depending on the product.

We offer our subscriptions on a variety of terms, which can range from monthly to multi-annual terms of up to ten years depending on the product.

We monitor total bookings as we typically collect payment at the time of sale and generally recognize revenue ratably over the term of our customer contracts.

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We generated 33.6% of our 2023 total revenue from the sale of A&C products.

A&C revenue primarily consists of revenue from sales of products containing proprietary software such as Websites + Marketing and Managed WordPress and commerce products such as payment processing fees and point-of-sale (POS) hardware as well as sales of third-party email and productivity solutions such as Microsoft Office 365.

Total revenue from A&C products grew at a compound annual growth rate (CAGR) of 15.6% over the three years ended December 31, 2023.

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Core revenue primarily consists of revenue from sales of domain registrations and renewals, aftermarket domain sales, website hosting products and website security products when not included in bundled offerings of our proprietary software products.

Total revenue from Core Platform products grew at a compound annual growth rate (CAGR) of 5.6% over the three years ended December 31, 2022.

Total revenue from Core Platform products grew at a CAGR of 5.7% over the three years ended December 31, 2023.

Revenue derived from both of our product categories has increased in each of the last three years, with many of our non-domains products growing faster in recent periods.

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Loss on debt extinguishment (1.5) — % (3.6) (0.1) % — — %

Tax receivable agreements liability adjustment — — % — — % (674.7) (20.3) %

Other income (expense), net 36.9 0.8 % 7.6 0.2 % (2.5) (0.1) %

Income (loss) before income taxes 356.5 8.7 % 253.6 6.6 % (495.4) (14.9) %

Income before income taxes 403.8 9.5 % 356.5 8.7 % 253.6 6.6 %

Benefit (provision) for income taxes 971.8 22.8 % (3.6) (0.1) % (10.8) (0.3) %

Net income (loss) 352.9 8.6 % 242.8 6.3 % (494.1) (14.9) %

Net income 1,375.6 32.3 % 352.9 8.6 % 242.8 6.3 %

net income attributable to non-controlling interests 0.8 — % 0.7 — % 0.5 — %

Net income (loss) attributable to GoDaddy Inc.

Net income attributable to GoDaddy Inc.

$ 1,374.8 32.3 % $ 352.2 8.6 % $ 242.3 6.3 %

Non-GAAP Financial Measure and Other Operating Metrics

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP financial measure and other operating metrics are useful as supplements in evaluating our ongoing operational performance and help provide an enhanced understanding of our business:

In addition to our results determined in accordance with GAAP, we believe that Normalized EBITDA, a non-GAAP financial measure, and the following other operating metrics are useful as supplements in evaluating our ongoing operational performance and help provide an enhanced understanding of our business:

Year Ended December 31,

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2023 2022 2021

Net income (loss) $ 352.9 $ 242.8 $ (494.1)

Net income $ 1,375.6 $ 352.9 $ 242.8

Depreciation and amortization 171.3 194.6 199.6

Equity-based compensation (1)

294.0 264.4 207.9

Interest expense, net 155.4 135.0 124.9

Tax receivable agreements liability adjustment — — 674.7

Acquisition-related expenses (2)

12.1 35.1 78.2

Restructuring and other (3)

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_________________________________

(1) Includes lease-related expenses associated with closed facilities, charges related to certain legal matters, and expenses incurred in relation to the refinancing of our long-term debt.

(1) The year ended December 31, 2023 excludes $2.3 million of equity-based compensation expense associated with our restructuring plan, which is included within restructuring and other.

(2) The year ended December 31, 2023 includes an adjustment of $6.0 million to a previously-recognized acquisition milestone liability.

(3) In addition to the restructuring and other charges in our statement of operations, other charges include lease-related expenses associated with closed facilities, charges related to certain legal matters, adjustments to the fair value of our equity investments, expenses incurred in relation to the refinancing of our long-term debt and incremental expenses associated with certain professional services.

Year-Over-Year Comparison

We generate substantially all of our revenue from sales of product subscriptions, as described in Note 2 to our financial statements.

We generate the majority 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.

The following table presents our revenue for the periods indicated:

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Total revenue $ 4,254.1 $ 4,091.3 $ 3,815.7 $ 162.8 4 % $ 275.6 7 %

2022 compared to 2021

Total revenue increased 4.0%, due to the increases in our A&C and Core revenues, as described below:

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(i) 11.2% growth in revenue related to our productivity applications, most notably our email solutions;

(ii) 8.7% growth in revenues due to increased customer adoption of our subscription-based products designed to establish and grow online presence, such as Websites + Marketing and Managed WordPress hosting;

and (iii) 103.2% growth in commerce-related revenue primarily associated with our acquisition of Poynt Co.

(now known as GoDaddy Payments).

The 4.6% increase in Core revenue was primarily driven by:

(i) 8.5% growth in domain-related revenues as a result of our continued enhancement of online presence and offerings and the continued growth of our registry business;

(ii) a 5.8% growth in aftermarket revenues due to our continued innovation in auction technologies as well as contributions from our Dan.com acquisition;

and (iii) 4.0% growth in our security and SSL product offerings resulting from higher customer renewals year over year, specifically with respect to Website Security.

Partially offsetting these increases was a 5.9% decrease in hosting revenues, which was primarily due to end-of-life migrations from certain products and lower demand for these products amid the uncertain macroeconomic environment.

2021 compared to 2020

Total revenue increased 15.0% due to the increases in our A&C and Core revenues, as described below:

The 21.8% increase in A&C revenue was primarily driven by:

(i) 15.5% growth in revenue related to our productivity applications, most notably our email solutions;

(ii) 29.2% growth in revenues due to increased customer adoption of our subscription-based products designed to establish and grow online presence;

and (iii) new commerce-related revenue primarily associated with our acquisition of Poynt Co in 2021.

The 12.4% increase in Core revenue was primarily driven by:

(i) 9.8% growth in domain-related revenues as a result of a 1.7 million increase in domains under management and the continued growth of our registry business;

(ii) 69.2% growth in aftermarket revenues due to continued innovation in our auction technologies;

and (iii) 7.9% growth in our security and SSL product offerings resulting from increased customer adoption and higher customer renewals year over year.

Partially offsetting these increases was a 33.6% decrease in certain higher-priced subscriptions, specifically GoDaddy Social, due to lower demand for such products.

(ii) 8.2% growth in revenue due to continued customer adoption of our subscription-based products designed to establish and grow online presence;

and (iii) 54.0% growth in revenue related to our commerce solutions, as continued customer adoption has resulted in an increase in payment volume.

The 0.4% increase in Core revenue was primarily driven by 4.1% growth in domain-related revenues and the continued growth of our registry business, partially offset by a 7.8% decrease in hosting revenues primarily due to end-of-life migrations from certain products, and the divestiture of certain hosting assets during the year.

The following table presents our total bookings for the periods indicated:

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$ 4,603.1 $ 4,413.8 $ 4,231.7 $ 189.3 4 % $ 182.1 4 %

The 4.3% increase in total bookings was primarily driven by increased aftermarket domain sales, broadened customer adoption of our productivity solutions and our Websites + Marketing and Managed WordPress products as well as an increase in ARPU due to a higher product attach rate and contributions from recent acquisitions, partially offset by approximately 170 basis

points due to adverse movements in foreign currency exchange rates due to the strength of the U.S.

In addition to the currency headwinds, our bookings growth rate was also impacted by uneven demand patterns related to inflation and continued economic uncertainty.

The 4.3% increase in total bookings was primarily driven by continued customer adoption of our productivity solutions and our Websites + Marketing product, partially offset by decreased hosting bookings following the divestiture of certain hosting assets during 2023.

Our bookings growth rate was also impacted by uneven demand patterns related to inflation and continued economic uncertainty.

Our annual refund rate has declined from 5.3% of total bookings in 2021 to 4.4% in 2023.

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.

Costs of revenue are primarily 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 of registry pricing are established by agreements between registries and registrars, and can vary significantly depending on the TLD.

We expect cost of revenue to increase in absolute dollars in future periods related to the expansion of our domains business, higher sales of third-party productivity applications and growth in our customer base.

The terms for domain costs are established by agreements between registries and registrars and can vary significantly depending on the 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.

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$ 1,573.6 $ 1,484.5 $ 1,372.2 $ 89.1 6 % $ 112.3 8 %

The 8.2% increase in cost of revenue was primarily attributable to (i) higher domain costs, which were driven by increased aftermarket domain sales, cost increases implemented by various TLD registries and costs associated with our growing 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.

The 6.0% increase in cost of revenue was primarily attributable to (i) increased software licensing fees resulting from higher sales of productivity solutions, (ii) higher domain costs, which were primarily driven by the increased domain registration revenue as well as cost increases implemented by various TLD registries and (iii) increased costs associated with the growth of our payment processing business.

These increases were partially offset by a decrease in cost of revenue related to our hosting business, which is consistent with the decline in revenue for this business due to end of life migrations away from certain products, the divestiture of certain hosting assets during 2023 and lower demand amid the uncertain macroeconomic environment.

Technology and development

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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.

We expect technology and development expense to decrease as a percentage of revenue in future periods following a period of investment in product development and migration toward a unified infrastructure platform.

Year Ended December 31, 2023 to 2022 2022 to 2021

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$ 839.6 $ 794.0 $ 706.3 $ 45.6 6 % $ 87.7 12 %

The 12.4% increase in technology and development expenses was primarily due to (i) increased personnel costs driven by higher average headcount associated with our continued investment in product development and (ii) increased technology costs associated with the growth of our business, advancement of our commerce and innovation strategies and our migration to a cloud-based infrastructure.

The increase was partially offset by a $27.0 million decrease in compensation expense related to prior acquisitions, primarily Poynt.

The 5.7% increase in technology and development expenses was primarily due to increased personnel costs driven by higher average headcount associated with our continued investment in product development.

This increase was partially offset by an adjustment recognized during 2023 to a previously-recognized acquisition milestone liability following reassessment of its achievement probability, cloud provider credits recognized in 2023 and decreases in professional fees and infrastructure migration costs.

Marketing and advertising

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$ 352.9 $ 412.3 $ 503.9 $ (59.4) (14) % $ (91.6) (18) %

The 18.2% decrease in marketing and advertising expenses were primarily attributable to a lower level of discretionary spending in 2022 as compared to the significant additional marketing investments we made in 2021 to drive growth during a period of high demand.

The 14.4% decrease in marketing and advertising expenses was primarily attributable to a lower level of discretionary spending and headcount reductions resulting from our restructuring activities as discussed in Note 14 to our financial statements.

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.

We expect customer care expenses to fluctuate depending on the methods of customer interaction utilized as well as the level of personnel required to support our business.

Year Ended December 31, 2023 to 2022 2022 to 2021

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$ 374.0 $ 385.5 $ 345.8 $ (11.5) (3) % $ 39.7 11 %

The 11.5% increase in general and administrative expenses was primarily due to (i) increased personnel costs driven by higher average headcount and the reversal of equity-based compensation expense in 2021 due to the forfeiture of unvested awards related to certain executive departures;

(ii) increased legal and professional fees;

and (iii) the reversal of an indirect tax reserve as a result of a settlement agreement in 2021.

These increases were partially offset by lower acquisition related expenses and office rent expense.

The 3.0% decrease in general and administrative expenses was primarily due to decreases in acquisition-related costs and facilities expenses, partially offset by increases in indirect tax-related reserves and equity-based compensation expense.

Restructuring and other

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$ 90.8 $ 15.7 $ (0.3) $ 75.1 478 % $ 16.0 (5333) %

Restructuring and other of $90.8 million during 2023 primarily includes costs incurred pursuant to restructuring activities in the first and third quarters of 2023, as further discussed in Note 14 to our financial statements, as well as a charge of $17.0 million related to the termination of a revenue sharing agreement.

Restructuring and other of $15.7 million during 2022 primarily includes the impairment and loss on disposition of certain assets.

Restructuring and other during 2021 includes (i) the $15.4 million gain on sale of the land and buildings of our former corporate headquarters and (ii) a $15.1 million charge related to the impairment of certain operating lease assets and related leasehold improvements associated with the decision to close one of our leased offices.

Depreciation and amortization

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$ 171.3 $ 194.6 $ 199.6 $ (23.3) (12) % $ (5.0) (3) %

There were no material changes in depreciation and amortization.

The $23.3 million decrease in depreciation and amortization expenses was primarily due to technology and customer-related intangible asset dispositions in conjunction with the restructuring activities in 2023 and certain acquired intangibles reaching the end of their useful lives.

Interest expense

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$ 179.0 $ 146.3 $ 126.0 $ 32.7 22 % $ 20.3 16 %

The 16.1% increase in interest expense was primarily driven by the higher effective interest rates on our variable-rate debt in 2022, as further discussed in Note 10 to our financial statements.

The 22.4% increase in interest expense was primarily driven by the higher effective interest rates on the unhedged portion of our variable-rate debt partially offset by the refinancing of the 2029 Term Loans which reduced our interest margin.

See Note 10 to our financial statements for additional discussion.

Loss on debt extinguishment

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See Note 10 to our financial statements for additional discussion.

Benefit (provision) for income taxes

During 2023, we released a majority of our domestic valuation allowance on a portion of our deferred tax assets resulting in a $1,014.0 million non-cash income tax benefit, as discussed in Note 16 to our financial statements.

This release was related to our U.S.

federal and state domestic NOLs, credit carryforwards and other deferred tax assets (DTAs).

In determining the need for a valuation allowance, we consider both the positive and negative evidence including our ability to forecast future operating results, historical tax losses and our ability to utilize DTAs within the requisite carryforward periods.

In December 2023, management applied judgement and determined the positive evidence outweighed the negative evidence and released the majority of our valuation allowance due to the following factors:

we have been in a three year cumulative consolidated book income position for two years, our operating results and profitability continue to improve, our projections showed sufficient utilization of tax attributes within their requisite carryforward periods and we have not had a history of expiration of tax attributes.

We continue to maintain a valuation allowance against the DTAs for which we concluded it is more-likely-than-not they will not be realized due to certain limitations on character or carryforward period.

The ultimate realization of our DTAs is dependent upon a number of uncertainties including future taxable income of the appropriate character during the requisite carryforward periods.

Our ability to project future operating results was an important factor in determining the need for our valuation allowance.

To assess the amount of tax attributes that could be utilized in the requisite carryforward periods, we prepared projections based on historical results, assessment of business initiatives and the current macroeconomic environment.

Over the last few years, we have continued to grow revenues, expand our profit margins and increase pre-tax income which was used as the basis to form our projections.

In addition, we considered various sensitivities to our projections that included scenarios below our current projections.

In such scenarios, we were able to utilize substantially all our DTAs within the allowed carryforward periods on a more-likely-than-not basis.

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 chief operating decision maker evaluates segment performance based upon several factors, of which the primary financial measures are revenue and Segment EBITDA.

Our chief operating decision maker evaluates segment performance based upon several factors, of which the primary financial measures are revenue and Segment EBITDA, our segment measure of profitability.

See Note 18 to our financial statements for a reconciliation of Segment EBITDA to net income, its most directly comparable GAAP financial measure.

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Segment EBITDA $ 594.2 $ 522.8 $ 447.7 $ 71.4 14 % $ 75.1 17 %

2022 compared to 2021

The 11.8% increase in A&C revenue was primarily driven by:

(i) 11.2% growth in revenue related to our productivity applications, most notably our email solutions;

and (iii) 103.2% growth in commerce-related revenue primarily associated with our acquisition of Poynt Co.

(now known as GoDaddy Payments).

The 16.8% increase in A&C Segment EBITDA for the year ended December 31, 2022 primarily resulted from the revenue increases noted above, in conjunction with lower discretionary marketing spend in 2022.

These increases were partially offset by higher personnel costs resulting from headcount additions made to support the continued development of our A&C products.

2021 compared to 2020

The 21.8% increase in A&C revenue was primarily driven by:

(i) 15.5% growth in revenue related to our productivity applications, most notably our email solutions;

and (ii) 29.2% growth in revenues due to increased customer adoption of our subscription-based products designed to establish and grow online presence;

and (iii) new commerce-related revenue associated with our acquisition of Poynt Co in 2021.

The 28.0% increase in A&C Segment EBITDA for the year ended December 31, 2021 primarily resulted from the revenue increases noted above, partially offset by higher personnel costs resulting from headcount additions made to support the continued development of our A&C products as well as increased discretionary marketing spending associated with investments made to drive additional growth.

(ii) 8.2% growth in revenues due to continued customer adoption of our subscription-based products designed to establish and grow online presence;

and (iii) 54.0% growth in commerce-related revenue.

The 13.7% increase in A&C Segment EBITDA primarily resulted from the revenue increases noted above, in conjunction with lower discretionary marketing spend.

These increases were partially offset by increased personnel costs resulting from a higher average headcount made to support the continued development of our A&C products.

Core Platform

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Segment EBITDA $ 816.4 $ 783.7 $ 679.7 $ 32.7 4 % $ 104.0 15 %

2022 compared to 2021

The 4.6% increase in Core revenue was primarily driven by:

(i) 8.5% growth in domain-related revenues as a result of our continued enhancement of online presence and offerings and the continued growth of our registry business;

(ii) 5.8% growth in aftermarket revenues due to our continued innovation in auction technologies as well as contributions from our Dan.com acquisition;

and (iii) 4.0% growth in our security and SSL product offerings resulting from higher customer renewals year over year, specifically with respect to Website Security.

The 15.3% increase in Core Segment EBITDA for the year ended December 31, 2022 primarily resulted from the revenue increases noted above, in conjunction with lower discretionary marketing spend in 2022.

These increases were partially offset by higher third-party commissions associated with the increased aftermarket domain sales as well as cost increases implemented by various TLD registries.

2021 compared to 2020

The 12.4% increase in Core revenue was primarily driven by:

(i) 9.8% growth in domain-related revenues as a result of a 1.7 million increase in domains under management and the continued growth of our registry business;

(ii) 69.2% growth in aftermarket revenues due to continued innovation in our auction technologies;

and (iii) 7.9% growth in our security and SSL product offerings resulting from increased customer adoption and higher customer renewals year over year.

Partially offsetting these increases was a 33.6% decrease in certain higher-priced subscriptions, specifically GoDaddy Social, due to lower demand for such products.

The 8.2% increase in Core Segment EBITDA for the year ended December 31, 2021 primarily resulted from the revenue increases noted above, partially offset by increased discretionary marketing spend in 2021 and higher third-party commissions associated with the increased aftermarket domain sales.

The 4.2% increase in Core Segment EBITDA primarily resulted from the revenue increases noted above, in conjunction with lower discretionary marketing spend.

These increases were partially offset by cost increases implemented by various TLD registries.

Liquidity and Capital Resources

Our principal sources of liquidity have been cash flow generated from operations, long-term debt borrowings and stock option exercises.

Our principal sources of liquidity have been cash flow generated from operations, long-term debt borrowings, stock option exercises and Employee Stock Purchase Plan (ESPP) proceeds.

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 liquidity position also benefits from U.S.

and state DTAs such that we have not historically paid a significant amount of U.S.

federal or state income taxes.

We acquired the right to benefit from the majority of our DTAs when we settled the Tax Receivable Agreements (collectively TRA Settlement Agreements) in 2020.

In connection with executing the TRA Settlement Agreements, we pai d $850.0 million for approximately $1,400.0 million of cash tax benefits, with substantially all of them expected to be realized within the next ten years.

In general, we seek to deploy our capital in a prioritized manner fo cusing 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.

We have incurred significant long-term debt, primarily to fund acquisitions, share repurchases and the TRA Settlement 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.

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Credit Facility and Senior Notes

Our long-term debt obligations consist of our Credit Facility, which includes our secured credit agreement and a revolving credit facility (the Revolver), and the senior notes.

In November 2022, we amended our Credit Facility to provide for a new $1.8 billion tranche of term loans maturing in 2029, the proceeds of which were used to refinance all of the outstanding previously-issued term loans maturing in 2024.

In addition, we increased the borrowing capacity under our revolving credit facility from $600.0 million to $1.0 billion and extended its maturity to November 2027.

Estimated future interest payments associated with our long-term debt totaled $1,455.3 million as of December 31, 2022, with $241.6 million payable within 12 months.

Our long-term debt consists of the Credit Facility, which includes two tranches of term loans and a revolving credit facility, and the Senior Notes.

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), beginning in July 2023.

In July 2023, we entered into an amendment to the Credit Facility to refinance the 2029 Term Loans.

See Note 10 to our financial statements for additional information regarding our long-term debt.

In January 2024, we entered into an amendment to the Credit Facility to refinance the 2029 Term Loans, as discussed in Note 20 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 December 31, 2022, we were in compliance with all such covenants and had no amounts drawn on our Revolver.

As further discussed in Note 11 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.

As of December 31, 2023, we were in compliance with all such covenants and had no amounts drawn on our revolving credit facility.

As discussed in Note 11 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.

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Share Repurchases

As discussed in Note 5 to our financial statements, in January 2022, our board of directors approved the repurchase of up to an additional $2,251.0 million of our Class A common stock.

Such approval was in addition to the amount remaining available

for repurchases under prior approvals of our board of directors, such that we have authority to repurchase up to $3,000.0 million of shares of our Class A common stock.

Under this authority, in February 2022, we entered into a ASRs to repurchase shares of our Class A common stock in exchange for an up-front aggregate payment of $750.0 million.

We completed the ASRs in May 2022, repurchasing a total of 9,202 shares of our Class A common stock at an average price of $81.50 per share under these arrangements.

In addition to the ASRs discussed above, during the year ended December 31, 2022, we also repurchased a total of 7,642 shares of our Class A common stock in the open market for an aggregate purchase price of $550.1 million.

As discussed in Note 5 to our financial statements, we are authorized to repurchase up to $4,000.0 million of our Class A common stock.

During the year ended December 31, 2023, we repurchased a total of 17,356 shares of our Class A common stock in the open market for an aggregate purchase price of $1,264.4 million.

As of December 31, 2023, we had $1,435.5 million of remaining authorization available for repurchases.

In July 2022, we completed an acquisition for $69.6 million in net cash consideration.

See Note 3 to our financial statements for a discussion of this acquisition.

Restructuring

As discussed in Note 20 to our financial statements, on February 8, 2023, the audit and finance committee of our board of directors authorized a restructuring plan to reduce future operating expenses and improve cash flows through a combination of a reduction in force and a rationalization of our portfolio.

As part of this plan, we announced a reduction in our current workforce of approximately 550 employees, representing approximately 8% of our total employees.

We estimate we will incur approximately $55.0 million to $65.0 million of pre-tax restructuring and exit related charges, of which $30.0 million to $40.0 million represents future cash expenditures for the payment of severance and related benefit costs.

Restructuring and Other

As further discussed in Note 14 to our financial statements, we undertook restructuring activities in 2023 to reduce future operating expenses and improve cash flows through a combination of reductions in force and a commitment to sell certain assets and liabilities of our hosting business within our Core segment.

Cash payments of $38.7 million related to restructuring activities were made during 2023, with approximately $7.4 million remaining to be paid in 2024.

We expect to make substantially all remaining restructuring payments pursuant to these activities by the end of the second quarter of 2024.

In addition, we made a cash payment of $17.0 million related to the termination of a revenue sharing agreement during 2023.

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

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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 $150.4 million from $829.3 million in 2021 to $979.7 million in 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, increased domain costs and higher software licensing fees related to increased sales of third-party productivity solutions.

Net cash provided by operating activities increased $67.9 million from $979.7 million in 2022 to $1,047.6 million in 2023, primarily driven by the growth in total bookings as well as lower discretionary marketing spending.

These increases were partially offset by payments made pursuant to our restructuring activities, as discussed in Note 14 to our financial statements, higher software licensing fees related to increased sales of third-party productivity solutions, increased costs associated with the growth of our payment processing business and increased cash interest payments.

Investing Activities

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We expect our investing cash flows to be affected by the timing of payments we make for capital expenditures, strategic acquisitions or other growth opportunities we decide to pursue.

Net cash used in investing activities decreased $503.6 million from $635.6 million in 2021 to $132.0 million in 2022, primarily due to a $295.2 million decrease in spending for business acquisitions and a $201.7 million decrease in purchases of intangible assets.

Net cash used in investing activities decreased $29.6 million from $132.0 million in 2022 to $102.4 million in 2023, primarily due to a $72.5 million decrease in spending for business acquisitions, partially offset by a $35.0 million increase in purchases of intangible assets and the purchase of short-term investments totaling $40.0 million.

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 $1,624.8 million from $298.1 million provided in 2021 to $1,326.7 million used in 2022, primarily due to $800.0 million in proceeds received from the issuance of the 2029 Senior Notes in 2021 as well as a $768.6 million increase in share repurchases.

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

Net cash used in financing activities decreased $65.0 million from $1,326.7 million used in 2022 to $1,261.7 million used in 2023, primarily due to a $34.6 million increase in net proceeds received from the issuance of term loans as a result of the 2029 Term Loans refinancing completed in July 2023 as compared to proceeds from the November 2022 amendment, as discussed in Note 10 to our financial statements, as well as a $24.4 million decrease in share repurchases.

Deferred Revenue

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We review our critical accounting policies and estimates with the audit and finance committee of our board of directors on an annual basis.

See Note 2 to our financial statements for a summary of our significant accounting policies.

Of our significant accounting policies, which are described in Note 2 to our financial statements, the following accounting policies and specific estimates involve a greater degree of judgement and complexity.

Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and operating results.

Revenue Recognition

We recognize revenue when control of the promised products is transferred to a customer, in an amount reflecting the consideration we expect to be entitled to in exchange for those products.

Payments received in advance of our performance are recorded as deferred revenue.

Revenue is recognized net of allowances for returns and transaction-based taxes collected.

We generally sell our products with a right of return, which we account for as variable consideration when estimating the amount of revenue to recognize.

Refunds are estimated at contract inception using the expected value method based on historical refund experience and updated each reporting period as additional information becomes available.

Our annual refund rate has declined from 6.5% of total bookings in 2020 to 4.7% in 2022.

We may sell multiple products to customers at the same time.

For example, we may design a customer website and separately offer other products such as hosting and an SSL certificate, or a customer may combine a domain registration with other products such as Websites + Marketing or email.

Judgment may be required in determining whether products contain multiple distinct performance obligations that should each be accounted for separately or as one combined performance

The majority of our revenue arrangements consist of multiple performance obligations, with revenue recognized over the period in which each performance obligation is satisfied, which is generally over the contract term.

For arrangements with multiple performance obligations, we allocate revenue to each distinct performance obligation based on its relative stand-alone selling price (SSP).

Our process for determining SSP requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation.

We determine SSP based on prices charged to customers for individual products, taking into consideration other factors, which may include (i) historical and expected discounting practices;

(ii) the size, volume and term length of transactions;

(iii) customer demographics;

(iv) the geographic areas in which our products are sold;

and (v) our overall go-to-market strategy.

We sell our products directly to customers and also through a network of resellers.

In certain cases, such as for aftermarket domain sales, we act as a reseller of products provided by others.

The determination of gross or net revenue recognition is reviewed on a product-by-product basis and is dependent on whether we act as principal or agent in the transaction.

In certain cases, we act as a reseller of products provided by others.

We record revenue on a gross basis when we are the principal in the arrangement and on a net basis when we are an agent.

The determination of whether we are a principal or an agent is dependent on whether we control the specific good or service before it is transferred to the customer, including whether we have primary fulfillment responsibility and obligation to perform the services being sold to the customer, whether we have inventory risk and whether we have latitude in establishing pricing.

Revenue associated with sales of our products through a network of resellers is generally recorded on a net basis.

Revenue associated with sales of aftermarket domains and third party solutions, including Microsoft 365, where we act as a reseller of products provided by others is generally recorded on a gross basis as we have determined that we control the product before transferring it to our end customers.

The determination of gross or net revenue recognition is reviewed on a product-by-product basis.

See Notes 2 and 8 to our financial statements for additional information regarding revenue recognition and deferred revenue.

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Significant judgment is required in determining our provision or benefit for income taxes and in evaluating uncertain tax positions.

We account for income taxes under the asset and liability method, which requires the recognition of DTAs and DTLs for the expected future tax consequences of events included in our financial statements.

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets (DTAs) and d eferred tax liabilities (DTLs) for the expected future tax consequences of events included in our financial statements.

Under this method, we determine DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse.

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Actual operating results in future years could differ from our current assumptions, judgments and estimates, which could have a material impact on the amount of DTAs we ultimately realize.

We continue to maintain a valuation allowance against t he DTAs f or which we have concluded it is more-likely-than-not they will not be realized due to certain limitations on character or carryforward period.

We recognize tax benefits from uncertain tax positions only if it is more-likely-than-not the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

The tax benefits recognized from such positions are measured based on the largest benefit having a greater than 50% likelihood of being realized.

See Notes 2 and 16 to our financial statements for additional information regarding income taxes and the considerations that could lead to a release of substantially all of the valuation allowance against our DTAs.

See Notes 2 and 16 to our financial statements for additional information regarding income taxes and the release of the majority of the domestic valuation allowance against our DTAs.

Loss Contingencies

We are subject to the possibility of various loss contingencies arising from uncertain and unresolved matters in the ordinary course of business and from events or actions by others having the potential to result in a future loss.

Such contingencies may include, but are not limited to, intellectual property claims, putative class actions, commercial and consumer protection claims, labor and employment claims, breach of contract claims, regulatory proceedings, product service level commitments and losses resulting from other events and developments.

losses resulting from other events and developments.

We consider the likelihood of loss, the impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss, in determining loss contingencies.

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We regularly review all contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made.

Development of a meaningful estimate of loss, or a range of potential loss, is complex when the outcome is directly dependent on negotiations with, or decisions by, third parties such as regulatory

agencies, court systems in various jurisdictions and other interested parties.

Development of a meaningful estimate of loss, or a range of potential loss, is complex when the outcome is directly dependent on negotiations with, or decisions by, third parties such as regulatory agencies, court systems in various jurisdictions and other interested parties.

Such factors bear directly on whether it is possible to reasonably estimate a range of potential loss and boundaries of high and low estimates.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis