10-Q 1 gddy10q-20180630xq2.htm 10-Q Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
 
FORM 10-Q
 
 
 
 
 
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-36904
 
 
 
 
 
image2a02.jpg
GoDaddy Inc.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Delaware
 
 
 
46-5769934
(State or other jurisdiction of incorporation or organization)
 
 
 
(I.R.S. Employer Identification Number)
 
 
 
 
 
 
 
14455 N. Hayden Road
 
 
 
 
Scottsdale, Arizona 85260
 
 
(Address of principal executive offices, including zip code)
 
 
 
 
 
 
 
(480) 505-8800
 
 
(Registrant’s telephone number, including area code)
 
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    ☒    No    ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                    Yes    ☒    No    ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
 
Accelerated filer
☐
Non-accelerated filer
☐
 
Smaller reporting company
☐
 
 
 
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.                         ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    ☐    No    ☒
As of July 27, 2018, there were 158,453,483 shares of GoDaddy Inc.'s Class A common stock, $0.001 par value per share, outstanding and 13,840,804 shares of GoDaddy Inc.'s Class B common stock, $0.001 par value per share, outstanding.
 


GoDaddy Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended June 30, 2018


TABLE OF CONTENTS
 
 
 
 
 
 
 
 



i

NOTE ABOUT FORWARD-LOOKING STATEMENTS


This Quarterly Report on Form 10-Q, including the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains certain forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, involving substantial risks and uncertainties. The words "believe," "may," "will," "potentially," "plan," "estimate," "continue," "anticipate," "intend," "project," "expect" and similar expressions conveying uncertainty of future events or outcomes are intended to identify forward-looking statements. These statements include, among other things, those regarding:
•
our ability to continue to add new customers and increase sales to our existing customers;
•
our ability to develop new solutions and bring them to market in a timely manner;
•
our ability to timely and effectively scale and adapt our existing solutions;
•
our dependence on establishing and maintaining a strong brand;
•
the occurrence of service interruptions and security or privacy breaches;
•
system failures or capacity constraints;
•
the rate of growth of, and anticipated trends and challenges in, our business and in the market for our products;
•
our future financial performance, including our expectations regarding our revenue, cost of revenue, operating expenses, including changes in technology and development, marketing and advertising, general and administrative and customer care expenses, and our ability to achieve and maintain, future profitability;
•
our ability to continue to efficiently acquire customers, maintain our high customer retention rates and maintain the level of our customers’ lifetime spend;
•
our ability to provide high quality Customer Care;
•
the effects of increased competition in our markets and our ability to compete effectively;
•
our ability to grow internationally;
•
the impact of fluctuations in foreign currency exchange rates on our business and our ability to effectively manage the exposure to such fluctuations;
•
our ability to effectively manage our growth and associated investments;
•
our ability to integrate acquisitions, including our acquisitions of Host Europe Holdings Limited (HEG) and Main Street Hub, and to deliver a broader range of cloud-based products built on a single global technology platform;
•
our ability to maintain our relationships with our partners;
•
adverse consequences of our substantial level of indebtedness and our ability to repay our debt;
•
our ability to maintain, protect and enhance our intellectual property;
•
our ability to maintain or improve our market share;
•
sufficiency of cash and cash equivalents to meet our needs for at least the next 12 months;
•
beliefs and objectives for future operations;
•
our ability to stay in compliance with laws and regulations currently applicable to, or which may become applicable to, our business both in the United States (U.S.) and internationally;
•
economic and industry trends or trend analysis;
•
our ability to attract and retain qualified employees and key personnel;
•
the amount and timing of any payments we make under tax receivable agreements (TRAs) or for tax distributions;
•
the future trading prices of our Class A common stock;
as well as other statements regarding our future operations, financial condition, growth prospects and business strategies.

ii

NOTE ABOUT FORWARD-LOOKING STATEMENTS (continued)


We operate in very competitive and rapidly-changing environments, and new risks emerge from time-to-time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report may not occur, and actual results could differ materially and adversely from those implied in our forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee the future results, levels of activity, performance or events and circumstances described in the forward-looking statements will be achieved or occur. Neither we, nor any other person, assume responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements for any reason after the date of this report to conform such statements to actual results or to changes in our expectations, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Unless expressly indicated or the context suggests otherwise, references to GoDaddy, we, us and our refer to GoDaddy Inc. and its consolidated subsidiaries, including Desert Newco, LLC and its subsidiaries (Desert Newco). We refer to Kohlberg Kravis Roberts & Co. L.P., together with its affiliates, as KKR. We refer to Silver Lake Partners, together with its affiliates, as Silver Lake. We refer to YAM Special Holdings, Inc., of which Robert R. Parsons, our founder and a member of our board of directors, is the sole beneficial owner, as YAM.

iii

Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
GoDaddy Inc.
Condensed Consolidated Balance Sheets (unaudited)
(In millions, except shares in thousands and per share amounts)
 
June 30,
 
December 31,
 
2018
 
2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
809.7

 
$
582.7

Short-term investments
18.8

 
12.3

Accounts and other receivables
23.6

 
18.4

Registry deposits
46.1

 
34.7

Prepaid domain name registry fees
373.5

 
351.5

Prepaid expenses and other current assets
79.1

 
59.9

Total current assets
1,350.8

 
1,059.5

Property and equipment, net
281.0

 
297.9

Prepaid domain name registry fees, net of current portion
184.5

 
180.8

Goodwill
2,837.5

 
2,859.9

Intangible assets, net
1,251.3

 
1,326.0

Other assets
22.8

 
14.2

Total assets
$
5,927.9

 
$
5,738.3

Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
51.9

 
$
59.6

Accrued expenses and other current liabilities
400.3

 
469.6

Deferred revenue
1,385.2

 
1,264.8

Long-term debt
16.7

 
16.7

Total current liabilities
1,854.1

 
1,810.7

Deferred revenue, net of current portion
628.7

 
596.8

Long-term debt, net of current portion
2,402.5

 
2,410.8

Payable to related parties pursuant to tax receivable agreements
179.2

 
153.0

Other long-term liabilities
52.6

 
75.0

Deferred tax liabilities
136.5

 
145.5

Commitments and contingencies

 

Stockholders' equity:
 
 
 
Preferred stock, $0.001 par value - 50,000 shares authorized; none issued and outstanding
—

 
—

Class A common stock, $0.001 par value - 1,000,000 shares authorized; 158,098 and 132,993 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively
0.2

 
0.1

Class B common stock, $0.001 par value - 500,000 shares authorized; 13,906 and 35,006 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively
—

 
—

Additional paid-in capital
590.1

 
484.4

Retained earnings
109.1

 
87.7

Accumulated other comprehensive loss
(67.8
)
 
(85.7
)
Total stockholders' equity attributable to GoDaddy Inc.
631.6

 
486.5

Non-controlling interests
42.7

 
60.0

Total stockholders' equity
674.3

 
546.5

Total liabilities and stockholders' equity
$
5,927.9

 
$
5,738.3

See accompanying notes to condensed consolidated financial statements.

1
GoDaddy Inc.
Condensed Consolidated Statements of Operations (unaudited)
(In millions, except share amounts in thousands and per share amounts)
 


 
Three Months Ended   June 30,
 
Six Months Ended   June 30,
 
2018
 
2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
Domains
$
304.8

 
$
263.3

 
$
596.5

 
$
504.1

Hosting and presence
244.6

 
214.9

 
484.4

 
393.2

Business applications
102.2

 
79.6

 
203.9

 
150.2

Total revenue
651.6

 
557.8

 
1,284.8

 
1,047.5

Costs and operating expenses(1):
 
 
 
 
 
 
 
Cost of revenue (excluding depreciation and amortization)
221.3

 
196.4

 
436.6

 
373.2

Technology and development
105.1

 
90.1

 
207.1

 
170.3

Marketing and advertising
67.4

 
62.5

 
141.9

 
129.9

Customer care
76.3

 
75.4

 
156.7

 
142.4

General and administrative
81.0

 
71.8

 
157.4

 
132.8

Depreciation and amortization
57.0

 
55.5

 
114.8

 
87.1

Total costs and operating expenses
608.1

 
551.7

 
1,214.5

 
1,035.7

Operating income
43.5

 
6.1

 
70.3


11.8

Interest expense
(24.7
)
 
(22.0
)
 
(48.5
)
 
(34.8
)
Tax receivable agreements liability adjustment
—

 
32.0

 
(0.1
)
 
37.0

Loss on debt extinguishment
—

 
—

 
—

 
(1.7
)
Other income (expense), net
0.2

 
2.7

 
1.2

 
4.4

Income from continuing operations before income taxes
19.0

 
18.8

 
22.9


16.7

Benefit for income taxes
1.2

 
4.6

 
1.5

 
3.6

Income from continuing operations
20.2


23.4


24.4


20.3

Loss from discontinued operations, net of income taxes
—

 
(5.3
)
 
—

 
(5.3
)
Net income
20.2


18.1


24.4


15.0

Less: net income (loss) attributable to non-controlling interests
2.1

 
(2.7
)
 
3.0

 
(6.4
)
Net income attributable to GoDaddy Inc.
$
18.1

 
$
20.8

 
$
21.4

 
$
21.4

Net income (loss) attributable to GoDaddy Inc. per share of Class A common stock—basic:
 
 
 
 
 
 
 
Continuing operations
$
0.12

 
$
0.25

 
$
0.15

 
$
0.28

Discontinued operations
—

 
(0.05
)
 
—

 
(0.06
)
Net income attributable to GoDaddy Inc.
$
0.12

 
$
0.20

 
$
0.15

 
$
0.22

Net income (loss) attributable to GoDaddy Inc. per share of Class A common stock—diluted:
 
 
 
 
 
 
 
Continuing operations
$
0.11

 
$
0.13

 
$
0.14

 
$
0.11

Discontinued operations
—

 
(0.03
)
 
—

 
(0.03
)
Net income attributable to GoDaddy Inc.
$
0.11

 
$
0.10

 
$
0.14

 
$
0.08

Weighted-average shares of Class A common stock outstanding:
 
 
 
 
 
 
 
Basic
152,577

 
101,800

 
145,249

 
95,734

Diluted
180,881

 
176,716

 
179,955

 
177,796

___________________________
 
 
 
 
 
 
 
(1) Costs and operating expenses include equity-based compensation expense as follows:
 
 
Technology and development
$
13.6

 
$
8.9

 
$
27.3

 
$
17.3

Marketing and advertising
2.1

 
1.5

 
5.0

 
3.2

Customer care
1.3

 
1.2

 
2.5

 
1.6

General and administrative
11.2

 
7.4

 
24.9

 
13.3

Total equity-based compensation expense
$
28.2

 
$
19.0

 
$
59.7

 
$
35.4

See accompanying notes to condensed consolidated financial statements.

2

GoDaddy Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
(In millions)


 
Three Months Ended   June 30,
 
Six Months Ended   June 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
20.2

 
$
18.1

 
$
24.4

 
$
15.0

Foreign exchange forward contracts gain (loss), net
7.7

 
(2.8
)
 
7.0

 
(4.8
)
Unrealized swap gain (loss), net
8.6

 
(30.6
)
 
11.6

 
(30.6
)
Change in foreign currency translation adjustment
(2.0
)
 
(0.1
)
 
3.6

 
(0.1
)
Comprehensive income (loss)
34.5

 
(15.4
)
 
46.6

 
(20.5
)
Less: comprehensive income (loss) attributable to non-controlling interests
3.8

 
(12.7
)
 
7.3

 
(16.4
)
Comprehensive income (loss) attributable to GoDaddy Inc.
$
30.7

 
$
(2.7
)
 
$
39.3

 
$
(4.1
)
See accompanying notes to condensed consolidated financial statements.


3
GoDaddy Inc.
Condensed Consolidated Statement of Stockholders' Equity (unaudited)
(In millions, except share amounts in thousands)

 
Class A Common Stock
 
Class B Common Stock
 
Additional
Paid-in
Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Non-
Controlling
Interest
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance at
December 31, 2017
132,993

 
$
0.1

 
35,006

 
$
—

 
$
484.4

 
$
87.7

 
$
(85.7
)
 
$
60.0

 
$
546.5

Net income
—

 
—

 
—

 
—

 
—

 
21.4

 
—

 
3.0

 
24.4

Equity-based compensation expense
—

 
—

 
—

 
—

 
59.7

 
—

 
—

 
—

 
59.7

Stock option exercises
2,652

 
0.1

 
—

 
—

 
40.5

 
—

 
—

 
(4.9
)
 
35.7

Issuance of Class A common stock under employee stock purchase plan
286

 
—

 
—

 
—

 
11.9

 
—

 
—

 
—

 
11.9

Effect of exchanges of LLC Units
21,100

 
—

 
(21,100
)
 
—

 
19.7

 
—

 
—

 
(19.7
)
 
—

Liability pursuant to the tax receivable agreements resulting from exchanges of LLC Units
—

 
—

 
—

 
—

 
(26.1
)
 
—

 
—

 
—

 
(26.1
)
Gain (loss) on swaps and foreign currency hedging, net
—

 
—

 
—

 
—

 
—

 
—

 
18.6

 
—

 
18.6

Change in foreign currency translation adjustment
—

 
—

 
—

 
—

 
—

 
—

 
3.6

 
—

 
3.6

Accumulated other comprehensive income (loss) attributable to non-controlling interests
—

 
—

 
—

 
—

 
—

 
—

 
(4.3
)
 
4.3

 
—

Vesting of restricted stock units
1,067

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Balance at
June 30, 2018
158,098

 
$
0.2

 
13,906

 
$
—

 
$
590.1

 
$
109.1

 
$
(67.8
)
 
$
42.7

 
$
674.3

See accompanying notes to condensed consolidated financial statements.


4
GoDaddy Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
(In millions)

 
Six Months Ended   June 30,
 
2018
 
2017
Operating activities
 
 
 
Net income
$
24.4

 
$
15.0

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
114.8

 
87.1

Equity-based compensation
59.7

 
35.4

Tax receivable agreements liability adjustment
0.1

 
(37.0
)
Other
(6.5
)
 
1.5

Changes in operating assets and liabilities, net of amounts acquired:
 
 
 
Registry deposits
(11.5
)
 
(0.2
)
Prepaid domain name registry fees
(26.6
)
 
(26.8
)
Deferred revenue
154.2

 
161.9

Other long-term liabilities
(20.6
)
 
1.5

Other operating assets and liabilities
(10.7
)
 
1.5

Net cash provided by operating activities
277.3

 
239.9

Investing activities
 
 
 
Purchases of short-term investments
(6.9
)
 
(6.4
)
Maturities of short-term investments
0.4

 
0.6

Business acquisitions, net of cash acquired
(14.1
)
 
(1,871.2
)
Payment of PlusServer sales price adjustment
(4.3
)
 
—

Purchases of property and equipment
(35.9
)
 
(36.5
)
Other investing activities
(10.0
)
 
—

Net cash used in investing activities
(70.8
)
 
(1,913.5
)
Financing activities
 
 
 
Proceeds received from:
 
 
 
Debt issued to finance HEG acquisition
—

 
1,953.1

Stock option exercises
35.7

 
33.3

Sale of Class A common stock, net of expenses
—

 
21.7

Issuance of Class A common stock under employee stock purchase plan
11.9

 
9.2

Payments made for:
 
 
 
Repurchases of LLC Units
—


(275.0
)
Financing-related costs
—

 
(38.9
)
Distributions to holders of LLC Units
—

 
(10.0
)
Repayment of term loans
(12.5
)
 
(2.7
)
Contingent consideration for business acquisitions
(9.2
)
 
(0.7
)
Capital leases and other financing obligations
(4.0
)
 
(5.5
)
Net cash provided by financing activities
21.9

 
1,684.5

Effect of exchange rate changes on cash and cash equivalents
(1.4
)
 
1.8

Net increase in cash and cash equivalents
227.0

 
12.7

Cash and cash equivalents, beginning of period
582.7

 
566.1

Cash and cash equivalents, end of period
$
809.7

 
$
578.8


5
GoDaddy Inc.
Condensed Consolidated Statements of Cash Flows (unaudited) (continued)
(In millions)

 
Six Months Ended   June 30,
 
2018
 
2017
Supplemental cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest on long-term debt, net of swap benefit
$
40.5

 
$
34.7

Income taxes, net of refunds received
$
15.7

 
$
6.6

Supplemental information for non-cash investing and financing activities:
 
 
 
Fair value of contingent consideration in connection with business acquisitions
$
2.2

 
$
—

Accrued capital expenditures at period end
$
4.2

 
$
16.4


See accompanying notes to condensed consolidated financial statements.

6

GoDaddy Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
(In millions, except share amounts 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 its other members. Non-controlling interests excludes any net income (loss) attributable directly to GoDaddy Inc. We owned approximately 92% of Desert Newco's limited liability company units (LLC Units) as of June 30, 2018.
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 the interim periods are not necessarily indicative of the results to be expected for any subsequent period or for the year ending December 31, 2018.
These financial statements should be read in conjunction with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2017 (the 2017 Form 10-K).
Prior Period Reclassifications
Reclassifications of certain immaterial prior period amounts have been made to conform to the current period presentation.

7

Use of Estimates
GAAP requires us to make estimates and assumptions affecting amounts reported in our financial statements. Our more significant estimates include:
•
the determination of the relative stand-alone selling price of the indicated performance obligations included in revenue arrangements with multiple performance obligations;
•
the fair value of assets acquired and liabilities assumed in business acquisitions;
•
the assessment of recoverability of long-lived assets, including property and equipment, goodwill and intangible assets;
•
the estimated reserve for refunds;
•
the estimated useful lives of intangible and depreciable assets;
•
the grant date fair value of equity-based awards;
•
the fair value of financial instruments;
•
the recognition, measurement and valuation of current and deferred income taxes;
•
the recognition and measurement of amounts payable under TRAs or as tax distributions to Desert Newco's owners; and
•
the recognition and measurement of loss contingencies, indirect tax liabilities and certain accrued liabilities.
We periodically evaluate these estimates and adjust prospectively, if necessary. We believe our estimates and assumptions are reasonable; however, actual results may differ from our estimates.
Segment and Reporting Unit
As of June 30, 2018, our chief operating decision maker function was comprised of our Chief Executive Officer who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance for the entire company. Accordingly, we have a single operating segment and reporting unit.
2.    Summary of Significant Accounting Policies
Revenue Recognition
Adoption of New Standard on Revenue from Contracts with Customers
On January 1, 2018, we adopted the Financial Accounting Standards Board's (FASB) new revenue recognition standard using the modified retrospective method applied to those contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new standard, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting.
The adoption of the new standard did not have a material impact to our financial statements.
Revenue Recognition
Revenue is recognized when control of the promised services is transferred to our customers, in an amount reflecting the consideration we expect to be entitled to in exchange for those services.
We typically receive payment at the time of sale, the purpose of which is to provide our customers with a simplified and predictable way of purchasing our services. We have determined that our contracts do not include a significant financing component. Payments received in advance of our performance are recorded as deferred revenue. Revenue is recognized net of allowances for returns and applicable transaction-based taxes collected from customers.
Our products are generally sold with a right of return within our policy, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Refunds are estimated at contract inception using the

8

expected value method based on historical refund experience and updated each reporting period as additional information becomes available and only to the extent it is probable a significant reversal of any incremental revenue will not occur. Refunds result in a reduced amount of revenue recognized over the contract term of the applicable product or service.
Our revenue is categorized and disaggregated as reflected in our statements of operations, as follows:
Domains. Domains revenue primarily consists of domain registrations and renewals, domain privacy, domain application fees, domain back-orders, aftermarket domain sales and fee surcharges paid to ICANN. Consideration is recorded as deferred revenue when received, which is typically at the time of sale, and revenue, other than for aftermarket domain sales, is recognized over the period in which the performance obligations are satisfied, which is generally over the contract term. Aftermarket domain revenue is recognized when ownership of the domain is transferred to the buyer.
Hosting and presence. Hosting and presence revenue primarily consists of website hosting products, website building products and services, website security products, an online shopping cart and online visibility products. Consideration is recorded as deferred revenue when received, which is typically at the time of sale, and revenue is recognized over the period in which the performance obligations are satisfied, which is generally over the contract term.
Business applications. Business applications revenue primarily consists of third-party productivity applications, email accounts and email marketing tools. Consideration is recorded as deferred revenue when received, which is typically at the time of sale, and revenue is recognized over the period in which the performance obligations are satisfied, which is generally over the contract term.
See Note 6 for additional information regarding our deferred revenue. See Note 14 for our revenue disaggregated by geography.
Performance Obligations
Our contracts with customers may include multiple performance obligations, including a combination of some or all of the following products or services: domain registrations, website hosting products, website building products and services, website security products and other cloud-based products. Judgment may be required in determining whether products or services are considered distinct performance obligations that should be accounted for separately or as one combined performance obligation. Revenue is recognized over the period in which the performance obligations are satisfied, which is generally over the contract term.
For each domain registration or renewal we provide, we have one performance obligation to our customers consisting of two promises: 1) to ensure the exclusive use of the domain during the applicable registration term and 2) to ensure the domain is accessible and appropriately directed to its underlying content. After the contract term expires, unless renewed, the customer can no longer access or use the domain. We have determined these promises are not distinct within the context of our contracts as they are highly interdependent and interrelated and are inputs to a combined benefit. Accordingly, we concluded that each domain registration or renewal represents one service offering and is a single performance obligation.
We may also offer specific arrangements, such as GoCentral, in which we include promises to transfer multiple performance obligations in a single service offering. For such arrangements, we allocate the transaction price to each of the underlying distinct performance obligations based on its relative stand-alone selling price (SSP), as described below.
We have determined that generally each of our other products and services constitutes an individual service offering to our customers, and therefore have concluded that each is a single performance obligation.
For arrangements with multiple performance obligations, we allocate revenue to each distinct performance obligation based on its relative SSP. We use judgment to determine SSP based on prices charged to customers for individual products and services, taking into consideration factors including historical and expected discounting practices, the size, volume and term length of transactions, customer demographics, the geographic areas in which our products and services are sold and our overall go-to-market strategy.

9

Principal versus Agent Considerations
We sell our products and services directly to customers and also through a network of resellers. In certain cases, we act as a reseller of products provided by others. The determination of gross or net revenue recognition is reviewed on a product-by-product basis and is dependent on our determination as to whether we act as principal or agent in the transaction. Revenue associated with sales through our network of resellers, for certain aftermarket domain sales and for third-party offerings is recorded on a gross basis as we have determined that we control the product before transferring it to end customers.
Assets Recognized from Contract Costs
Commissions paid to our resellers represent an incremental cost of obtaining a contract with a customer. We capitalize and amortize such amounts to cost of revenue consistent with the pattern of transfer of the service to which the asset relates. Amounts capitalized and amortized were not material during any of the periods presented.
Fees paid to various registries at the inception of a domain registration or renewal represent costs to fulfill a contract. We capitalize and amortize these prepaid domain name registry fees to cost of revenue consistent with the pattern of transfer of the service to which the asset relates. During the three months ended June 30, 2018 and 2017, amortization expense of such asset was $148.7 million and $138.6 million, respectively. During the six months ended June 30, 2018 and 2017, amortization expense of such asset was $294.0 million and $264.4 million, respectively.
No other material contract costs were capitalized during any of the periods presented.
Fair Value Measurements
The following tables set forth assets and liabilities measured at fair value on a recurring basis:
 
June 30, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 Cash and cash equivalents:
 
 
 
 
 
 
 
Reverse repurchase agreements(1)
$
—

 
$
70.0

 
$
—

 
$
70.0

Commercial paper
—

 
69.9

 
—

 
69.9

 Short-term investments:
 
 
 
 
 
 

Certificates of deposit and time deposits
0.9

 
—

 
—

 
0.9

Commercial paper
—

 
17.9

 
—

 
17.9

 Derivative assets
—

 
14.4

 
—

 
14.4

Total assets measured and recorded at fair value
$
0.9

 
$
172.2

 
$
—

 
$
173.1

Liabilities:
 
 
 
 
 
 
 
 Contingent consideration liabilities
$
—

 
$
—

 
$
19.4

 
$
19.4

 Derivative liabilities
—

 
159.8

 
—

 
159.8

Total liabilities measured and recorded at fair value
$
—

 
$
159.8

 
$
19.4

 
$
179.2

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

10

 
December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 Cash and cash equivalents:
 
 
 
 
 
 
 
Reverse repurchase agreements(1)
$
—

 
$
130.0

 
$
—

 
$
130.0

Commercial paper
—

 
50.0

 
—

 
50.0

 Short-term investments:
 
 
 
 
 
 
 
Certificates of deposit and time deposits
0.4

 
—

 
—

 
0.4

Commercial paper
—

 
11.9

 
—

 
11.9

Total assets measured and recorded at fair value
$
0.4

 
$
191.9

 
$
—

 
$
192.3

Liabilities:
 
 
 
 
 
 
 
Contingent consideration liabilities
$
—

 
$
—

 
$
20.7

 
$
20.7

 Derivative liabilities
—

 
206.4

 
—

 
206.4

Total liabilities measured and recorded at fair value
$
—

 
$
206.4

 
$
20.7

 
$
227.1

 
 
(1)
Reverse repurchase agreements include a $70.0 million repurchase agreement with Morgan Stanley, callable with 31 days notice, and a $60.0 million one-week repurchase agreement with Wells Fargo.
No material adjustments were made to the fair values of our Level 3 contingent consideration liabilities during any of the periods presented. We have no other material assets or liabilities measured at fair value on a recurring basis.
Recent Accounting Pronouncements
In February 2016, the FASB issued new guidance related to accounting for leases. The new standard requires the recognition of assets and liabilities arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. For leases with a term of 12 months or less, a lessee can make an accounting policy election by class of underlying asset to not recognize an asset and corresponding liability. We will adopt the new standard on January 1, 2019. Lessees will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. While we continue to evaluate the effect of adopting this guidance, we expect the accounting for our operating leases to be the most significant change as a result of the new guidance. We will recognize right-of-use assets and lease liabilities in our consolidated balance sheets upon adoption, which will increase our total assets and liabilities.
In June 2016, the FASB issued new guidance for the accounting for credit losses on instruments that will require entities to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial instruments measured at amortized cost and also applies to some off-balance sheet credit exposures. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the timing of our adoption and the expected impact of this new guidance.
In November 2016, the FASB issued new guidance requiring amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the amounts shown on the statement of cash flows. Our adoption of this new guidance on January 1, 2018 did not have a material impact.
In January 2017, the FASB issued new guidance simplifying the goodwill impairment test, eliminating the requirement for an entity to determine the fair value of its assets and liabilities (including unrecognized assets and liabilities) at the impairment testing date following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, an entity will be required to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity will be required to recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the timing of our adoption and the expected impact of this new guidance.

11

In May 2017, the FASB issued new guidance to amend the scope of modification accounting for share-based payment arrangements. The amendment provides guidance on the types of changes to the terms or conditions of share-based payment awards which would require an entity to apply modification accounting. Our adoption of this new guidance on January 1, 2018 did not have a material impact.
In June 2018, the FASB issued new guidance to simplify the accounting for nonemployee share-based payment transactions, aligning most of the guidance with the requirements for share-based payments granted to employees. This guidance is effective for annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the timing of our adoption and the expected impact of this new guidance.
3.    Goodwill and Intangible Assets
The following table summarizes changes in our goodwill balance:
Balance at December 31, 2017
$
2,859.9

Goodwill related to acquisitions(1)
4.5

Impact of foreign currency translation
(26.9
)
Balance at June 30, 2018
$
2,837.5

 
 
(1)
Goodwill related to acquisitions includes measurement period adjustments related to acquisitions completed in 2017.
Intangible assets, net are as follows:
 
June 30, 2018
 
Gross 
Carrying
Amount
 
Accumulated
Amortization
 
Domains Sold
 
Net Carrying
Amount
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
Trade names and branding
$
445.0

 
n/a

 
 n/a

 
$
445.0

Domain portfolio
171.0

 
n/a

 
$
(20.1
)
 
150.9

Finite-lived intangible assets:
 
 
 
 
 
 
 
Customer-related
857.6

 
$
(360.2
)
 
 n/a

 
497.4

Developed technology
173.6

 
(87.2
)
 
 n/a

 
86.4

Trade names
92.1

 
(20.5
)
 
 n/a

 
71.6

 
$
1,739.3

 
$
(467.9
)
 
$
(20.1
)
 
$
1,251.3

 
December 31, 2017
 
Gross 
Carrying
Amount
 
Accumulated
Amortization
 
Domains Sold
 
Net Carrying
Amount
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
Trade names and branding
$
445.0

 
n/a

 
 n/a

 
$
445.0

Domain portfolio
171.0

 
n/a

 
$
(18.8
)
 
152.2

Finite-lived intangible assets:
 
 
 
 
 
 
 
Customer-related
868.0

 
$
(320.4
)
 
 n/a

 
547.6

Developed technology
184.5

 
(82.2
)
 
 n/a

 
102.3

Trade names
94.4

 
(15.5
)
 
 n/a

 
78.9

 
$
1,762.9

 
$
(418.1
)
 
$
(18.8
)
 
$
1,326.0


12

Customer-related intangible assets, developed technology and trade names have weighted-average useful lives from the date of purchase of 104 months, 73 months and 111 months, respectively. Amortization expense was $32.8 million and $32.8 million for the three months ended June 30, 2018 and 2017, respectively, and was $66.0 million and $46.7 million for the six months ended June 30, 2018 and 2017, respectively. The weighted-average remaining amortization period for amortizable intangible assets was 82 months as of June 30, 2018.
Based on the balance of finite-lived intangible assets at June 30, 2018, expected future amortization expense is as follows:
Year Ending December 31:
 
2018 (remainder of)
$
65.0

2019
110.4

2020
103.7

2021
81.1

2022
79.5

Thereafter
215.7

 
$
655.4

4.    Stockholders’ Equity
Secondary Offerings
We have completed two underwritten public offerings in which certain stockholders, including KKR, SLP, YAM and certain of our executive officers, sold shares of our Class A common stock. We did not sell any shares in these offerings and did not receive any proceeds from the shares sold by the selling stockholders. Each offering included the exchange of LLC Units (together with the corresponding shares of Class B common stock) for Class A common stock by the selling stockholders, which resulted in increases in additional paid-in capital, with offsetting reductions in non-controlling interests, and material increases to the liability under the TRAs (see Note 12). Significant details for each offering are as follows:
Offering Date
 
Offering Price Per Share ($)
 
Aggregate Shares Sold by Selling Stockholders (#)
 
LLC Units Exchanged by Selling Stockholders (#)
 
Increase in Additional Paid-in Capital ($)
May 2018
 
70.73

 
11,625

 
8,052

 
7.6

March 2018
 
59.21

 
16,916

 
12,821

 
11.2

5.    Equity-Based Compensation Plans
As of December 31, 2017, 16,024 shares of Class A common stock were available for issuance as future awards under the 2015 Equity Incentive Plan (the 2015 Plan). On January 1, 2018, an additional 6,720 shares were reserved for issuance pursuant to the automatic increase provisions of the 2015 Plan. As of June 30, 2018, 19,876 shares were available for issuance as future awards under the 2015 Plan.
As of December 31, 2017, 2,551 shares of Class A common stock were available for issuance under the 2015 Employee Stock Purchase Plan (the ESPP). On January 1, 2018, an additional 1,000 shares were reserved for issuance pursuant to the ESPP. As of June 30, 2018, 3,265 shares were available for issuance under the ESPP.
We grant options at exercise prices equal to the fair market value of our Class A common stock on the grant date. We grant both options and restricted stock units (RSUs) vesting solely upon the continued employment of the recipient as well as awards vesting upon the achievement of annual or cumulative financial-based targets. We recognize the grant date fair value of equity-based awards as compensation expense over the required service period of each award, taking into account the probability of our achievement of associated performance targets.

13

The following table summarizes our option activity:
 
Number of
Shares of Class A Common Stock (#)
 
Weighted-
Average
Grant-
Date Fair
Value ($)
 
Weighted-
Average
Exercise
Price ($)
Outstanding at December 31, 2017
13,460

 
 
 
18.63

Granted
1,039

 
21.37

 
59.59

Exercised
(2,652
)
 
 
 
13.57

Forfeited
(207
)
 
 
 
29.47

Outstanding at June 30, 2018
11,640

 
 
 
23.25

Vested at June 30, 2018
6,945

 
 
 
14.68

The following table summarizes our RSU activity:
 
Number of
Shares of Class A Common Stock (#)
 
Weighted-
Average
Grant-
Date Fair
Value ($)
Outstanding at December 31, 2017
4,199

 
 
Granted
2,272

 
60.51

Vested
(1,067
)
 
 
Forfeited
(237
)
 
 
Outstanding at June 30, 2018
5,167

 
 
At June 30, 2018, total unrecognized compensation expense related to non-vested stock options and RSUs was $43.2 million and $158.4 million, respectively, with expected remaining weighted-average recognition periods of 2.1 years and 2.6 years, respectively. We currently believe the performance targets related to the vesting of performance awards will be achieved. If such targets are not achieved, or are subsequently determined to not be probable of being achieved, we will not recognize any compensation expense for performance awards not expected to vest, and will reverse any previously recognized expense on such awards.
6.    Deferred Revenue
Deferred revenue consists of the following:
 
June 30, 2018
 
December 31, 2017
Current:
 
 
 
Domains
$
696.3

 
$
638.5

Hosting and presence
479.5

 
444.7

Business applications
209.4

 
181.6

 
$
1,385.2

 
$
1,264.8

Noncurrent:
 
 
 
Domains
$
359.3

 
$
341.3

Hosting and presence
189.0

 
183.2

Business applications
80.4

 
72.3

 
$
628.7

 
$
596.8

The increase in the deferred revenue balance is primarily driven by payments received in advance of satisfying our performance obligations, offset by $412.3 million and $869.3 million of revenue recognized during the three and six months ended June 30, 2018, respectively, that was included in the deferred revenue balance as of December 31, 2017. The deferred

14

revenue balance as of June 30, 2018 represents our aggregate remaining performance obligations that will be recognized as revenue over the period in which the performance obligations are satisfied.
Deferred revenue as of June 30, 2018 is expected to be recognized as revenue as follows:
 
Remainder of 2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Domains
$
456.4

 
$
353.4

 
$
111.9

 
$
57.2

 
$
33.2

 
$
43.5

 
$
1,055.6

Hosting and presence
324.3

 
228.6

 
79.3

 
19.9

 
9.5

 
6.9

 
668.5

Business applications
141.8

 
98.8

 
34.5

 
9.1

 
3.5

 
2.1

 
289.8

 
$
922.5

 
$
680.8

 
$
225.7

 
$
86.2

 
$
46.2

 
$
52.5

 
$
2,013.9

7.     Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
 
June 30, 2018
 
December 31, 2017
Derivative liabilities
$
159.8

 
$
206.4

Accrued payroll and employee benefits
76.8

 
92.3

Tax-related accruals
53.4

 
54.7

Accrued acquisition-related expenses and acquisition consideration payable
39.0

 
32.9

PlusServer transaction tax and bonus accruals
2.4

 
28.1

Accrued marketing and advertising expenses
16.7

 
10.3

Current portion of capital lease obligation
4.9

 
4.8

Accrued other
47.3

 
40.1

 
$
400.3


$
469.6

8.    Long-Term Debt
Long-term debt consisted of the following:
 
June 30, 2018
 
December 31, 2017
Term Loans (effective interest rate of 4.4% at June 30, 2018 and 4.1% at December 31, 2017)
$
2,469.8

 
$
2,482.3

Revolving Credit Loan
—

 
—

Total
2,469.8

 
2,482.3

Less: unamortized original issue discount on long-term debt(1)
(30.4
)
 
(33.0
)
Less: unamortized debt issuance costs(1)
(20.2
)
 
(21.8
)
Less: current portion of long-term debt
(16.7
)
 
(16.7
)
 
$
2,402.5

 
$
2,410.8

 
 
(1)
Original issue discount and debt issuance costs are amortized to interest expense over the life of the related debt instruments using the effective interest method.
Credit Facility
Our secured credit agreement (the Credit Facility) includes an aggregate of $2,497.5 million in seven-year term loans (the Term Loans) and a $200.0 million five-year revolving credit facility (the Revolving Credit Loan).
The Term Loans mature on February 15, 2024 and bear interest at a rate equal to, at our option, either (a) LIBOR plus 2.25% per annum or (b) 1.25% per annum plus the highest of (i) the Federal Funds Rate plus 0.5%, (ii) the Prime Rate or (iii) one-month LIBOR plus 1.0%. We are eligible for a 0.25% reduction in the interest rate margins upon improvement in our

15

corporate credit rating. A portion of the Term Loans are hedged by an interest rate swap. See Note 9 for discussion of this hedging instrument.
The Revolving Credit Loan matures on February 15, 2022 and bears interest at a rate equal to, at our option, either (a) LIBOR plus a margin ranging from 2.00% to 2.50% per annum or (b) the higher of (i) the Federal Funds Rate plus 0.5%, (ii) the Prime Rate or (iii) the one-month LIBOR rate plus 1.0% plus a margin ranging from 1.00% to 1.50% per annum, with the margins determined based on our first lien net leverage ratio.
At June 30, 2018, we had $200.0 million available for borrowing under the Revolving Credit Loan and were not in violation of any covenants of the Credit Facility.
The estimated fair value of the Term Loans was $2,479.1 million at June 30, 2018 based on observable market prices for these loans, which are traded in a less active market and therefore classified as a Level 2 fair value measurement.
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, 2018 are as follows:
Year Ending December 31:
 
2018 (remainder of)
$
12.5

2019
25.0

2020
25.0

2021
25.0

2022
25.0

Thereafter
2,357.3

 
$
2,469.8

9.    Derivatives and Hedging
We are exposed to changes in foreign currency exchange rates, primarily relating to debt and certain forecasted sales transactions denominated in currencies other than the U.S. dollar, as well as to changes in interest rates as a result of our variable-rate debt. Consequently, we use derivative financial instruments to manage and mitigate such risk. We do not enter into derivative transactions for speculative or trading purposes.
The following table summarizes our outstanding derivative instruments, all of which are designated as cash flow hedges, on a gross basis:
 
Notional Amount
 
Fair Value of Derivative Assets(2)
 
Fair Value of Derivative Liabilities(2)
 
June 30, 2018
 
December 31, 2017
 
June 30, 2018
 
December 31, 2017
 
June 30, 2018
 
December 31, 2017
Derivative Instrument:
 
 
 
 
 
 
 
 
 
 
 
Level 2:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
$
118.9

 
$
241.3

 
$
3.4

 
$
—

 
$
—

 
$
4.4

Cross-currency swap(1)
1,430.2

 
1,478.3

 
—

 
—

 
159.8

 
182.9

Interest rate swap
1,308.9

 
1,315.5

 
11.0

 
—

 
—

 
19.1

Total hedges
$
2,858.0

 
$
3,035.1

 
$
14.4

 
$
—

 
$
159.8

 
$
206.4

 
 
(1)
The notional values of the cross-currency swap have been translated from Euros to U.S. dollars at the foreign currency rates in effect at June 30, 2018 and December 31, 2017 of approximately 1.16 and 1.20, respectively.
(2)
In our consolidated 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.

16

The following table summarizes the effect of our designated cash flow hedging derivative instruments on accumulated other comprehensive income (loss) (AOCI):
 
Unrealized Gains (Losses) Recognized in Other Comprehensive Income
 
Three Months Ended
 
Six Months Ended
 
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Derivative Instrument:
 
 
 
 
 
 
 
Foreign exchange forward contracts(1)
$
7.7

 
$
(2.8
)
 
$
7.0

 
$
(4.8
)
Cross-currency swap
(0.6
)
 
6.3

 
(18.4
)
 
6.3

Interest rate swap
9.2

 
(36.9
)
 
30.0

 
(36.9
)
 
$
16.3

 
$
(33.4
)
 
$
18.6

 
$
(35.4
)
 
 
(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 cash flow hedging relationships:
 
Three Months Ended June 30, 2018
 
Three Months Ended June 30, 2017
 
Revenue
 
Interest Expense
 
Other Income (Expense), Net
 
Revenue
 
Interest Expense
 
Other Income (Expense), Net
Foreign Exchange Forward Contracts:
 
 
 
 
 
 
 
 
 
 
 
Reclassified from AOCI into income
$
(1.0
)
 
$
—

 
$
—

 
$
0.5

 
$
—

 
$
—

Cross Currency Swap:
 
 
 
 
 
 
 
 
 
 
 
Reclassified from AOCI into income (1)
—

 
7.1

 
82.6

 
—

 
7.4

 
(93.2
)
Interest Rate Swap:
 
 
 
 
 
 
 
 
 
 
 
Reclassified from AOCI into income
—

 
(1.8
)
 
—

 
—

 
(4.7
)
 
—

 
$
(1.0
)
 
$
5.3

 
$
82.6

 
$
0.5

 
$
2.7

 
$
(93.2
)
 
 
(1)
The amount reflected in other income (expense), net includes $(82.9) million and $92.9 million reclassified from AOCI to offset the earnings impact of the remeasurement of the Euro-denominated intercompany loan hedged by the cross-currency swap for the three months ended June 30, 2018 and 2017, respectively.
 
Six Months Ended June 30, 2018
 
Six Months Ended June 30, 2017
 
Revenue
 
Interest Expense
 
Other Income (Expense), Net
 
Revenue
 
Interest Expense
 
Other Income (Expense), Net
Foreign Exchange Forward Contracts:
 
 
 
 
 
 
 
 
 
 
 
Reclassified from AOCI into income
$
(1.9
)
 
$
—

 
$
—

 
$
1.2

 
$
—

 
$
—

Cross Currency Swap:
 
 
 
 
 
 
 
 
 
 
 
Reclassified from AOCI into income (1)
—

 
13.6

 
40.6

 
—

 
7.4

 
(93.2
)
Interest Rate Swap:
 
 
 
 
 
 
 
 
 
 
 
Reclassified from AOCI into income
—

 
(4.7
)
 
—

 
—

 
(4.7
)
 
—

 
$
(1.9
)
 
$
8.9

 
$
40.6

 
$
1.2

 
$
2.7

 
$
(93.2
)
 
 
(1)
The amount reflected in other income (expense), net includes $(41.5) million and $92.9 million reclassified from AOCI to offset the earnings impact of the remeasurement of the Euro-denominated intercompany loan hedged by the cross-currency swap for the six months ended June 30, 2018 and 2017, respectively.

17

As of June 30, 2018, we estimate that approximately $20.4 million of net deferred gains related to our cash flow hedges will be recognized in earnings over the next 12 months. No amounts were excluded from our effectiveness testing during any of the periods presented.
Risk Management Strategies
Foreign Exchange Forward Contracts
We enter into foreign exchange forward contracts with financial institutions to hedge certain forecasted sales transactions denominated in foreign currency. We designate these forward contracts as cash flow hedges, which are recognized as either assets or liabilities at fair value. At June 30, 2018, the total notional amount of such contracts was $118.9 million, all having maturities of six months or less.
Cross-Currency Swap Contract
In April 2017, in order to manage variability due to movements in foreign currency rates related to a Euro-denominated intercompany loan, we entered into a five-year cross-currency swap arrangement (the Cross-Currency Swap). The Cross-Currency Swap, which matures on April 3, 2022, had an amortizing notional amount of €1,243.3 million at inception (approximately $1,325.4 million). It converts the 3.00% fixed rate Euro-denominated interest and principal receipts on the intercompany loan into fixed U.S. dollar interest and principal receipts at a rate of 5.44%. Pursuant to the contract, the Euro notional value will be exchanged for the U.S. dollar notional value at maturity. The Cross-Currency Swap has been designated as a cash flow hedge. Accordingly, it is recognized as an asset or liability at fair value and the unrealized gains and losses on the contract are included in gain (loss) on swaps and foreign currency hedging, net within AOCI. Gains and losses are reclassified to interest income or expense over the period the hedged loan affects earnings. As such, amounts recorded in other comprehensive income (loss) (OCI) will be recognized in earnings within or against interest expense when the hedged interest payment is accrued each month. In addition, an amount is reclassified from AOCI to other income (expense), net each reporting period, to offset the earnings impact of the hedged instrument.
Interest Rate Swap Contract
In April 2017, we entered into a five-year pay-fixed rate, receive-floating rate interest rate swap arrangement (the Interest Rate Swap) to effectively convert a portion of the variable-rate debt to fixed. The Interest Rate Swap, which matures on April 3, 2022, had an amortizing notional amount of $1,325.4 million at inception and swaps the variable interest rate on our LIBOR-based borrowings for a fixed rate of 5.44%. The objective of the Interest Rate Swap, which is designated as a cash flow hedge and recognized as an asset or liability at fair value, is to manage the variability of cash flows in the interest payments related to the portion of the variable-rate debt designated as being hedged. The unrealized gains and losses on the contract are included in gain (loss) on swaps and foreign currency hedging, net within AOCI. Amounts recorded in OCI will be recognized in earnings within or against interest expense when the hedged interest payment is accrued each month.
10.    Commitments and Contingencies
Litigation
From time-to-time, we are a party to litigation and subject to claims incident to the ordinary course of business, including intellectual property claims, putative class actions, commercial and consumer protection claims, labor and employment claims, breach of contract claims and other asserted and unasserted claims. We investigate claims as they arise and accrue estimates for resolution of legal and other contingencies when losses are probable and estimable. The amounts currently accrued for such matters are not material. While the results of such normal course claims and legal proceedings cannot be predicted with certainty, management does not believe, based on current knowledge and the likely timing of resolution of various matters, any additional reasonably possible potential losses above the amounts accrued for such matters would be material. Regardless of the outcome, legal proceedings may have an adverse effect on us because of defense costs, diversion of management resources and other factors.
Indemnifications
In the normal course of business, we have made indemnities under which we may be required to make payments in relation to certain transactions, including to our directors and officers to the maximum extent permitted under applicable state laws and indemnifications related to certain lease agreements. In addition, certain advertiser and reseller partner agreements contain indemnification provisions, which are generally consistent with those prevalent in the industry. We have not incurred

18

material obligations under indemnification provisions historically, and do not expect to incur material obligations in the future. Accordingly, we have not recorded any liabilities related to such indemnities as of June 30, 2018 and December 31, 2017.
We include service level commitments to our customers guaranteeing certain levels of uptime reliability and performance for our hosting and premium DNS products. These guarantees permit those customers to receive credits in the event we fail to meet those levels, with exceptions for certain service interruptions including but not limited to periodic maintenance. We have not incurred any material costs as a result of such commitments during any of the periods presented, and have not recorded any liabilities related to such obligations as of June 30, 2018 and December 31, 2017.
Indirect Taxes
We are subject to indirect taxation in some, but not all, of the various states and foreign jurisdictions in which we conduct business. Laws and regulations attempting to subject communications and commerce conducted over the Internet to various indirect taxes are becoming more prevalent, both in the U.S. and internationally, and may impose additional burdens on us in the future. Increased regulation could negatively affect our business directly, as well as the businesses of our customers. Taxing authorities may impose indirect taxes on the Internet-related revenue we generate based on regulations currently being applied to similar, but not directly comparable, industries. There are many transactions and calculations where the ultimate indirect tax determination is uncertain. In addition, domestic and international indirect taxation laws are complex and subject to change. We may be audited in the future, which could result in changes to our indirect tax estimates. We continually evaluate those jurisdictions in which nexus exists, and believe we maintain adequate indirect tax accruals.
As of June 30, 2018 and December 31, 2017, our accrual for estimated indirect tax liabilities was $19.8 million and $18.8 million, respectively, reflecting our best estimate of the probable liability based on an analysis of our business activities, revenues subject to indirect taxes and applicable regulations. Although we believe our indirect tax estimates and associated liabilities are reasonable, the final determination of indirect tax audits, litigation or settlements could be materially different than the amounts established for indirect tax contingencies.
11.    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 and Germany. We anticipate this structure to remain in existence for the foreseeable future.
Based primarily on our limited operating history and our historical losses, we believe there is significant uncertainty as to when we will be able to utilize our net operating losses (NOLs), credit carryforwards and other deferred tax assets (DTAs). Therefore, we have recorded a valuation allowance against the DTAs for which we have concluded it is more-likely-than-not they will not be realized.
Based on our analysis of tax positions taken on income tax returns filed, we have determined no material liabilities related to uncertain income tax positions were required. 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.
Tax Cuts and Jobs Act of 2017
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the TCJA) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a U.S. federal corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign

19

earnings. We recorded the estimated impact in accordance with our understanding of the TCJA and guidance available as of December 31, 2017, as shown in the 2017 10-K.
On December 22, 2017, the SEC issued guidance to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. The completion of our 2017 income tax returns, future guidance and additional information and interpretations with the respect to the TCJA may cause us to adjust the recorded provisional amounts in a future period. We made no such adjustments during the six months ended June 30, 2018.
In January 2018, the FASB released guidance on the accounting for the global intangible low-taxed income (GILTI) provisions of the TCJA. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance allows an accounting policy election either to account for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as period costs. We have not yet made a policy election with respect to GILTI and have determined its impact to be immaterial.
12.    Payable to Related Parties Pursuant to the TRAs
As of December 31, 2017, our liability under the TRAs was $153.0 million, representing approximately 85% of the calculated tax savings based on the portion of the original basis adjustments we anticipated being able to utilize in future years. During the six months ended June 30, 2018, we increased this liability primarily through an aggregate $26.1 million reduction in additional paid-in capital resulting from the exchanges of LLC Units in the secondary offerings discussed in Note 4. As of June 30, 2018, our liability under the TRAs was $179.2 million.
The projection of future taxable income involves significant judgment. Actual taxable income may differ from our estimates, which could significantly impact the liability under the TRAs. We have determined it is more-likely-than-not we will be unable to utilize all of our DTAs subject to the TRAs; therefore, we have not recorded a liability under the TRAs related to the tax savings we may realize from the utilization of NOL carryforwards and the amortization related to basis adjustments created by exchanges of LLC Units. If utilization of these DTAs becomes more-likely-than-not in the future, at such time, we will record liabilities under the TRAs of up to an additional $942.1 million as a result of basis adjustments under the Internal Revenue Code and up to an additional $328.4 million related to the utilization of NOL and credit carryforwards, which will be recorded through charges to our statements of operations. However, if the tax attributes are not utilized in future years, it is reasonably possible no amounts would be paid under the TRAs. In this scenario, the reduction of the liability under the TRAs would result in a benefit to our statements of operations.

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13.    Income (Loss) Per Share
Basic income (loss) per share is computed by dividing net income (loss) attributable to GoDaddy Inc. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted income (loss) per share is computed giving effect to all potentially dilutive shares unless their effect is antidilutive.
A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per share is as follows:
 
Three Months Ended   June 30,

Six Months Ended   June 30,
 
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
Income from continuing operations
$
20.2

 
$
23.4

 
$
24.4

 
$
20.3

Loss from discontinued operations, net of income taxes
—

 
(5.3
)
 
—

 
(5.3
)
Net income
20.2

 
18.1

 
24.4

 
15.0

Less: net income (loss) attributable to non-controlling interests
2.1

 
(2.7
)
 
3.0

 
(6.4
)
Net income attributable to GoDaddy Inc.
$
18.1

 
$
20.8

 
$
21.4

 
$
21.4

Denominator:
 
 
 
 
 
 
 
Weighted-average shares of Class A common stock outstanding—basic
152,577

 
101,800

 
145,249

 
95,734

Effect of dilutive securities:
 
 
 
 
 
 
 
Class B common stock
18,662

 
64,759

 
24,933

 
71,579

Stock options
7,409

 
9,019

 
7,564

 
9,384

RSUs and ESPP shares
2,233

 
1,138

 
2,209

 
1,099

Weighted-average shares of Class A Common stock outstanding—diluted
180,881

 
176,716

 
179,955

 
177,796

Net income (loss) attributable to GoDaddy Inc. per share of Class A common stock—basic
 
 
 
 
 
 
 
      Continuing operations
$
0.12

 
$
0.25

 
$
0.15

 
$
0.28

      Discontinued operations
—

 
(0.05
)
 
—

 
(0.06
)
Net income (loss) attributable to GoDaddy Inc.
$
0.12

 
$
0.20

 
$
0.15

 
$
0.22

Net income (loss) attributable to GoDaddy Inc. per share of Class A common stock—diluted(1):
 
 
 
 
 
 
 
     Continuing operations
$
0.11

 
$
0.13

 
$
0.14

 
$
0.11

     Discontinued operations
—

 
(0.03
)
 
—

 
(0.03
)
Net income attributable to GoDaddy Inc.
$
0.11

 
$
0.10

 
$
0.14

 
$
0.08

 
 
(1)
The diluted income (loss) per share calculations exclude the allocation of net income (loss) to the non-controlling interests.
The following number of weighted-average potentially dilutive shares were excluded from the calculation of diluted income (loss) 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,
 
2018
 
2017
 
2018
 
2017
Options and RSUs
822

 
2,755

 
876

 
2,792


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Shares of Class B common stock do not share in our earnings and are not participating securities. Accordingly, separate presentation of income (loss) per share of Class B common stock under the two-class method has not been presented. Each share of Class B common stock (together with a corresponding LLC Unit) is exchangeable for one share of Class A common stock. Total shares outstanding were as follows:
 
June 30, 2018
 
December 31, 2017
Class A common stock
158,098

 
132,993

Class B common stock
13,906

 
35,006

 
172,004

 
167,999

14.    Geographic Information
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,
 
2018
 
2017
 
2018
 
2017
U.S.
$
418.3

 
$
370.1

 
$
824.9

 
$
725.5

International
233.3

 
187.7

 
459.9

 
322.0

 
$
651.6

 
$
557.8

 
$
1,284.8

 
$
1,047.5

No individual international country represented more than 10% of total revenue in any period presented.
Property and equipment, net by geography was as follows:
 
June 30, 2018
 
December 31, 2017
U.S.
$
210.8

 
$
221.2

France
30.0

 
31.6

All other international
40.2

 
45.1

 
$
281.0

 
$
297.9

Other than France, no individual international country represented more than 10% of property and equipment, net in any period presented.
15.    Related Party Transactions
As of June 30, 2018, affiliates of KKR held $10.5 million of the outstanding principal balance of our Term Loans as part of the lending syndicate. No material amounts have been paid to KKR during any of the periods presented.
In the ordinary course of business, we purchase and lease computer equipment, technology licensing and software maintenance and support from affiliates of Dell Inc. (Dell) of which Silver Lake and its affiliates have a significant ownership interest. During the three months ended June 30, 2018 and 2017, we paid $3.1 million and $4.6 million, respectively, to Dell. During the six months ended June 30, 2018 and 2017, we paid $7.7 million and $7.6 million, respectively, to Dell.

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16.    Accumulated Other Comprehensive Income (Loss)
The following table presents OCI activity accumulated in equity:
 
Foreign Currency Translation Adjustments
 
Net Unrealized Gains (Losses) on Cash Flow Hedges(1)
 
Total Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2017
$
(86.8
)
 
$
(45.5
)
 
$
(132.3
)
Other comprehensive income (loss) before reclassifications
3.6

 
(29.0
)
 
(25.4
)
Amounts reclassified from AOCI
—

 
47.6

 
47.6

Other comprehensive income (loss)
3.6

 
18.6

 
22.2

 
$
(83.2
)
 
$
(26.9
)
 
$
(110.1
)
  Less: AOCI attributable to non-controlling interests
 
 
 
 
(42.3
)
Balance as of June 30, 2018
 
 
 
 
$
(67.8
)
 
 
 
 
 
 
Balance as of December 31, 2016
$
(0.3
)
 
$
3.0

 
$
2.7

Other comprehensive income (loss) before reclassifications
(0.1
)
 
53.9

 
53.8

Amounts reclassified from AOCI
—

 
(89.3
)
 
(89.3
)
Other comprehensive income (loss)
(0.1
)
 
(35.4
)
 
(35.5
)
</