GODADDY INC.
The following discussion and analysis of our financial condition and results of
operations should be read together with our financial statements and related
notes included in this Quarterly Report on Form 10-Q as well as our audited
financial statements and related notes and the discussion in the "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" sections of our 2020 Form 10-K.
(Throughout this discussion and analysis, dollars are in millions and shares are
in thousands.)
COVID-19 Pandemic
We have implemented a variety of measures to attempt to minimize the impact of
the ongoing COVID-19 pandemic on our business, to ensure the availability and
functioning of our critical infrastructure and to promote the safety and
security of our employees. These measures have included remote working
arrangements for nearly all of our workforce since March 2020 and safety
protocols for any on-site personnel in accordance with federal, state and local
regulations. Based on guidance from governmental authorities and health experts,
we have started to bring our employees back to certain offices on a voluntary
basis, and we expect to do this for other offices later this year and continuing
into 2022. Incremental costs of these remote working arrangements have not been
material, though such arrangements have increased the risk of cybersecurity
incidents as individuals have been working through less secure network
connections.
While the pandemic has not had a material impact on our results of operations so
far, the extent to which it may impact our future results and operations will
depend on future developments, including: i) the duration of the virus; ii) the
widespread distribution and long-term efficacy of vaccines and the availability
of effective treatments; iii) the duration and parameters of global governmental
measures put in place to control the spread of the virus; and iv) the continuing
economic impact. We are actively monitoring the pandemic and the potential
impacts it may have on our financial position, results of operations and cash
flows in the future. See "Risk Factors" for additional information.
Third Quarter Financial Highlights
Below are our key financial highlights for the three months ended September 30,
2021 , with comparisons to the three months ended September 30, 2020 .
•Total revenue of $964.0 million , an increase of 14.2%, or approximately 13.5%
on a constant currency basis(1).
•International revenue of $319.7 million , an increase of 12.7%, or approximately
10.6% on a constant currency basis(1).
•Total bookings(2) of $1,038.1 million , an increase of 9.9%, or approximately
9.1% on a constant currency basis(1).
•Operating income of $131.3 million , an increase of 42.1%.
•Net cash provided by operating activities of $226.4 million , an increase of
14.7%.
(1) Discussion of constant currency is set forth in "Quantitative and
Qualitative Disclosures about Market Risk."
(2) A reconciliation of total bookings to total revenue, its most directly
comparable GAAP financial measure, is set forth in "Reconciliation of bookings"
below.
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Results of Operations
The following table sets forth our results of operations for the periods
presented and as a percentage of our total revenue for those periods. The
period-to-period comparison of financial results is not necessarily indicative
of future results.
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
% of Total % of Total % of Total % of Total
$ Revenue $ Revenue $ Revenue $ Revenue
Revenue:
Domains $ 453.2 47.0 % $ 387.4 45.9 % $ 1,312.6 46.9 % $ 1,112.9 45.6 %
Hosting and presence 324.7 33.7 % 302.4 35.8 % 953.5 34.1 % 891.8 36.5 %
Business applications 186.1 19.3 % 154.6 18.3 % 530.3 19.0 % 438.1 17.9 %
Total revenue 964.0 100.0 % 844.4 100.0 % 2,796.4 100.0 % 2,442.8 100.0 %
Costs and operating expenses:
Cost of revenue (excluding
depreciation and amortization) 345.8 35.9 % 290.2 34.5 % 999.0 35.7 % 856.7 35.1 %
Technology and development 172.4 17.9 % 141.4 16.7 % 530.8 19.0 % 411.8 16.9 %
Marketing and advertising 124.0 12.9 % 115.4 13.7 % 383.2 13.7 % 312.9 12.8 %
Customer care 74.0 7.7 % 73.6 8.7 % 230.9 8.3 % 242.6 9.9 %
General and administrative 81.2 8.4 % 76.4 9.0 % 260.9 9.3 % 244.1 10.0 %
Restructuring and other (15.4) (1.6) % 4.3 0.5 % (15.4) (0.6) % 43.7 1.8 %
Depreciation and amortization 50.7 5.2 % 50.7 6.0 % 149.7 5.4 % 151.3 6.2 %
Total costs and operating expenses 832.7 86.4 % 752.0 89.1 % 2,539.1 90.8 % 2,263.1 92.7 %
Operating income 131.3 13.6 % 92.4 10.9 % 257.3 9.2 % 179.7 7.3 %
Interest expense (32.5) (3.4) % (23.9) (2.8) % (93.8) (3.4) % (64.5) (2.6) %
Tax receivable agreements liability
adjustment - - % - - % - - % (674.7) (27.6) %
Other income (expense), net (1.2) (0.1) % 1.2 0.1 % (1.4) (0.1) % (1.3) (0.1) %
Income (loss) before income taxes 97.6 10.1 % 69.7 8.2 % 162.1 5.7 % (560.8) (23.0) %
Benefit (provision) for income taxes 0.1 - % (4.6) (0.5) % (6.7) (0.2) % (4.1) (0.2) %
Net income (loss) 97.7 10.1 % 65.1 7.7 % 155.4 5.5 % (564.9) (23.2) %
Less: net income attributable to
non-controlling interests 0.2 - % 0.4 - % 0.3 - % 0.7 - %
Net income (loss) attributable to
GoDaddy Inc. $ 97.5 10.1 % $ 64.7 7.7 % $ 155.1 5.5 % $ (565.6) (23.2) %
Revenue
We generate substantially all of our revenue from sales of subscriptions,
including domain registrations and renewals, hosting and presence products and
business applications products. Our subscriptions can range from monthly terms
to multi-annual terms of up to ten years depending on the product. We generally
collect the full amount of subscription fees at the time of sale, while revenue
is recognized over the period in which the performance obligations are
satisfied, which is generally over the contract term. Revenue is presented net
of refunds, and we maintain a reserve to provide for refunds granted to
customers.
Domains revenue primarily consists of revenue from the sale of domain
registrations and renewals, aftermarket domain sales and domain add-ons such as
domain protection.
Hosting and presence revenue primarily consists of revenue from the sale of
subscriptions for website hosting, website security, website building and
commerce products.
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Business applications revenue primarily consists of revenue from the sale of
subscriptions for third-party productivity applications, email accounts, email
marketing tools and telephony solutions.
The following table presents our revenue for the periods indicated:
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2021 2020 $ % 2021 2020 $ %
Domains $ 453.2 $ 387.4 $ 65.8 17 % $ 1,312.6 $ 1,112.9 $ 199.7 18 %
Hosting and presence 324.7 302.4 22.3 7 % 953.5 891.8 61.7 7 %
Business applications 186.1 154.6 31.5 20 % 530.3 438.1 92.2 21 %
Total revenue $ 964.0 $ 844.4 $ 119.6 14 % $ 2,796.4 $ 2,442.8 $ 353.6 14 %
The 14.2% and 14.5% increases in total revenue for the three and nine months
ended September 30, 2021 , respectively, were driven by growth in total customers
and average revenue per user as well as contributions from recent acquisitions.
The increase in customers impacted each of our revenue categories, as the
additional customers purchased subscriptions across our product portfolio.
Domains
The 17.0% and 17.9% increases in domains revenue for the three and nine months
ended September 30, 2021 , respectively, were primarily driven by the increase in
domains under management from 81.8 million as of September 30, 2020 to 84.1
million as of September 30, 2021 , increased aftermarket domain sales and
contributions from recent acquisitions.
Hosting and presence
The 7.4% and 6.9% increases in hosting and presence revenue for the three and
nine months ended September 30, 2021 , respectively, were primarily driven by
increased demand for our website building and website security products as well
as contributions from recent acquisitions, including commerce related revenue
from Poynt. The increase in the nine month period was partially offset by lower
demand for certain higher-priced subscriptions, such as GoDaddy Social.
Business applications
The 20.4% and 21.0% increases in business applications revenue for the three and
nine months ended September 30, 2021 , respectively, were primarily driven by
increased customer adoption of our productivity solutions.
Bookings
In addition to revenue, we also believe total bookings is a useful supplement in
evaluating our performance and helps provide an enhanced understanding of our
business:
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2021 2020 $ % 2021 2020 $ %
Total bookings
Total bookings. Total bookings represents cash receipts from the sale of
products to customers in a given period adjusted for products where we recognize
revenue on a net basis and without giving effect to certain adjustments,
primarily net refunds granted in the period. Total bookings provides valuable
insight into the sales of our products and the performance of our business since
we typically collect payment at the time of sale and recognize revenue ratably
over the term of our customer contracts. We report total bookings without giving
effect to refunds granted in the period because refunds often occur in periods
different from the period of sale for reasons unrelated to the marketing efforts
leading to the initial sale. Accordingly, by excluding net refunds, we believe
total bookings reflects the effectiveness of our sales efforts in a given
period.
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The 9.9% and 12.3% increases in total bookings for the three and nine months
ended September 30, 2021 , respectively, were primarily driven by increases in
total customers and domains under management, increased aftermarket domain
sales, broadened customer adoption of non-domain products and contributions from
recent acquisitions. Additionally, total bookings was favorably impacted by
approximately 80 and 120 basis points for the three and nine months ended
September 30, 2021 , respectively, due to movements in foreign currency exchange
rates.
Reconciliation of bookings
The following table reconciles total bookings to total revenue, its most
directly comparable GAAP financial measure:
Three Months Ended
September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Total bookings:
Total revenue $ 964.0
19.3 42.9 208.1 198.6
Net refunds 54.1 58.4 172.1 191.4
Other 0.7 (0.7) 5.0 (0.4)
Total bookings $ 1,038.1 $ 945.0 $ 3,181.6 $ 2,832.4 _________________________________
(1)Change in deferred revenue also includes the impact of realized gains or
losses from the hedging of bookings in foreign currencies.
Costs and Operating Expenses
Cost of revenue
Costs of revenue are the direct costs incurred in connection with selling an
incremental product to our customers. Substantially all cost of revenue relates
to domain registration fees, payment processing fees, third-party commissions
and licensing fees for third-party productivity applications. Similar to our
billing practices, we pay domain costs at the time of purchase for the life of
each subscription, but recognize the costs of service ratably over the term of
our customer contracts. The terms 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.
However, cost of revenue may fluctuate as a percentage of total revenue,
depending on the mix of products sold in a particular period.
Three Months Ended Nine Months Ended September
September 30, Change 30, Change
2021 2020 $ % 2021 2020 $ %
Cost of revenue (excluding
depreciation and amortization) $ 345.8 $ 290.2 $ 55.6 19 % $ 999.0 $ 856.7 $ 142.3 17 %
The 19.2% and 16.6% increases in cost of revenue for the three and nine months
ended September 30, 2021 , respectively, were primarily attributable to higher
domain costs, which were driven by the increase in domains under management,
increased aftermarket domain sales and costs associated with our recently
acquired registry business, as well as increased software licensing fees
resulting from higher sales of productivity solutions and increased payment
processing fees resulting from our bookings growth.
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Technology and development
Technology and development expenses represent the costs associated with the
creation, development and distribution of our products and websites. These
expenses primarily consist of personnel costs associated with the design,
development, deployment, testing, operation and enhancement of our products, as
well as costs associated with the data centers and systems infrastructure
supporting those products, excluding depreciation expense. We expect technology
and development expense to increase in absolute dollars as we continue to invest
in product development and migrate our infrastructure to a cloud-based
third-party provider. Technology and development expenses may fluctuate as a
percentage of total revenue depending on our level of investment in additional
personnel and the pace of our infrastructure transition.
Three Months Ended Nine Months Ended September
September 30, Change 30, Change
2021 2020 $ % 2021 2020 $ %
Technology and development $ 172.4 $ 141.4 $ 31.0 22 % $ 530.8 $ 411.8 $ 119.0 29 %
The 21.9% and 28.9% increases in technology and development expenses for the
three and nine months ended September 30, 2021 , respectively, were primarily due
to increased personnel costs driven by higher average headcount associated with
our continued investment in product development as well as increased technology
costs associated with the growth of our business and our migration to a
cloud-based infrastructure. Additionally, in the three and nine months ended
September 30, 2021 , we recorded approximately $5.0 million and $38.0 million ,
respectively, in compensation expense resulting from our acquisitions, primarily
Poynt.
Marketing and advertising
Marketing and advertising expenses represent the costs associated with
attracting and acquiring customers, primarily consisting of fees paid to third
parties for marketing and advertising campaigns across a variety of channels.
These expenses also include personnel costs and affiliate program commissions.
We expect marketing and advertising expenses to fluctuate depending on both the
mix of internal and external marketing resources used, the size and scope of our
future campaigns and the level of discretionary investments we make in marketing
to drive future sales.
Three Months Ended Nine Months Ended September
September 30, Change 30, Change
2021 2020 $ % 2021 2020 $ %
Marketing and advertising $ 124.0 $ 115.4 $ 8.6 7 % $ 383.2 $ 312.9 $ 70.3 22 %
The 7.5% and 22.5% increases in marketing and advertising expenses for the three
and nine months ended September 30, 2021 , respectively, were primarily
attributable to increased discretionary spending associated with the marketing
investments we made to drive additional growth. The year-over-year increase
decelerated in the three month period due to the significant investments we made
in 2020 to capture higher demand.
Customer care
Customer care expenses represent the costs to guide and service our customers,
primarily consisting of personnel costs. We expect customer care expenses to
fluctuate depending on the level of personnel required to support our business.
Three Months Ended Nine Months Ended September
September 30, Change 30, Change
2021 2020 $ % 2021 2020 $ %
Customer care $ 74.0 $ 73.6 $ 0.4 1 % $ 230.9 $ 242.6 $ (11.7) (5) %
The 4.8% decrease in customer care expenses for the nine months ended
September 30, 2021 was primarily due to the headcount reductions related to the
restructuring plan we implemented during the second quarter of 2020 as well as
operating efficiencies gained as we scale our business and increase our use of
alternative methods of customer interaction.
There were no material changes in customer care expenses for the three months
ended September 30, 2021 .
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General and administrative
General and administrative expenses primarily consist of personnel costs for our
administrative functions, professional service fees, office rent for all
locations, all employee travel expenses, acquisition-related expenses and other
general costs. We expect general and administrative expenses to fluctuate
depending on the level of personnel and other administrative costs required to
support our business as well as the significance of any strategic acquisitions
we choose to pursue.
Three Months Ended Nine Months Ended September
September 30, Change 30, Change
2021 2020 $ % 2021 2020 $ %
General and administrative $ 81.2 $ 76.4 $ 4.8 6 % $ 260.9 $ 244.1 $ 16.8 7 %
The 6.3% and 6.9% increases in general and administrative expenses for the three
and nine months ended September 30, 2021 , respectively, were primarily due to
increased acquisition-related expenses and professional fees. The increase for
the nine month period was partially offset by the reversal of equity-based
compensation expense resulting from the forfeiture of unvested awards as a
result of certain executive departures.
Restructuring and other
Restructuring and other for the three and nine months ended September 30, 2021
includes the $15.4 million gain on sale of the land and buildings of our former
corporate headquarters.
During the three and nine months ended September 30, 2020 , we recorded $4.3
million and $43.7 million , respectively, in pre-tax restructuring charges
pursuant to a restructuring plan implemented in June 2020 , as further discussed
in our 2020 Form 10-K. There were no such charges recorded in 2021.
Depreciation and amortization
Depreciation and amortization expenses consist of charges relating to the
depreciation of the property and equipment used in our operations and the
amortization of acquired intangible assets. These expenses may increase or
decrease in absolute dollars in future periods depending on our future level of
capital investments in hardware and other equipment as well as the significance
of any future acquisitions.
Three Months Ended Nine Months Ended September
September 30, Change 30, Change
2021 2020 $ % 2021 2020 $ %
Depreciation and
amortization $ 50.7 $ 50.7 $ - - % $ 149.7 $ 151.3 $ (1.6) (1) %
There were no material changes in depreciation and amortization.
Interest expense
Three Months Ended Nine Months Ended September
September 30, Change 30, Change
2021 2020 $ % 2021 2020 $ %
Interest expense $ 32.5 $ 23.9 $ 8.6 36 % $ 93.8 $ 64.5 $ 29.3 45 %
The 36.0% and 45.4% increases in interest expense for the three and nine months
ended September 30, 2021 , respectively, were primarily driven by the issuance of
the 2027 Term Loans in August 2020 and the 2029 Senior Notes in February 2021 ,
as further discussed in Note 9 to our financial statements, partially offset by
a decrease in the effective interest rate on our variable rate borrowings.
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Tax receivable agreements liability adjustment
During the nine months ended September 30, 2020 , we recorded a $674.7 million
charge related to the settlement of our prior tax receivable agreements, as
further described in our 2020 Form 10-K.
Liquidity and Capital Resources
Overview
Our principal sources of liquidity have been cash flow generated from
operations, long-term debt borrowings and stock option exercises. Our principal
uses of cash have been to fund operations, acquisitions and capital
expenditures, as well as to make mandatory principal and interest payments on
our long-term debt and to repurchase shares of our Class A common stock.
In general, we seek to deploy our capital in a prioritized manner focusing first
on requirements for our operations, then on growth investments, and finally on
stockholder returns. Our strategy is to deploy capital, whether debt, equity or
internally generated cash, depending on the adequacy and availability of the
source of capital and which source may be used most efficiently and at the
lowest cost at such time. Therefore, while cash from operations is our primary
source of operating liquidity and we believe our internally-generated cash flows
are sufficient to support our day-to-day operations, we may use a variety of
capital sources to fund our needs for less predictable investment decisions such
as strategic acquisitions and share repurchases.
We have incurred significant long-term debt, primarily to fund acquisitions,
share repurchases and the settlement of our prior tax receivable agreements. As
a result, we are limited as to how we conduct our business and may be unable to
raise additional debt or equity financing to compete effectively or to take
advantage of new business opportunities, strategic acquisitions or share
repurchases. However, the restrictions under our long-term debt agreements are
subject to a number of qualifications and may be amended with the consent of the
lenders and the holders of the senior notes, as applicable.
We believe our existing cash and cash equivalents and cash generated by
operating activities will be sufficient to meet our anticipated operating cash
needs for at least the next 12 months. However, our future capital requirements
will depend on many factors, including our growth rate, macroeconomic activity,
potential business disruptions associated with the ongoing COVID-19 pandemic,
the timing and extent of spending to support domestic and international
development efforts, continued brand development and advertising spend, the
level of customer care and general and administrative activities, the
introduction of new and enhanced product offerings, the costs to support new and
replacement capital equipment, the completion of strategic acquisitions or share
repurchases and other factors. Should we pursue additional strategic
acquisitions or share repurchases, we may need to raise additional capital,
which may be in the form of long-term debt or equity financings.
Credit Facility and Senior Notes
Our long-term debt consists of the Credit Facility and the senior notes. In
February 2021 , we issued the $800.0 million 2029 Senior Notes, which bear
interest at 3.50%. The proceeds were retained for general corporate purposes,
which may include working capital, capital expenditures, potential acquisitions
and strategic transactions. In addition, in March 2021 , we refinanced the 2027
Term Loans to lower the interest rate margins by 0.5%. See Note 9 to our
financial statements for additional information regarding our long-term debt.
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 September 30, 2021 , we were in compliance with
all such covenants and had no amounts drawn on our Revolver.
As further discussed in Note 10 to our financial statements, we have hedged a
portion of our long-term debt through the use of cross-currency and interest
rate swap derivative instruments. These instruments help us manage and mitigate
our risk of exposure to changes in foreign currency exchange rates and interest
rates. See "Quantitative and Qualitative Disclosures About Market Risk" for
additional discussion of our hedging activities.
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Share Repurchases
In May 2021 , our board of directors approved the repurchase of up to an
additional $775.0 million of our Class A common stock. During the nine months
ended September 30, 2021 , we repurchased a total of 3,500 shares in the open
market for an aggregate purchase price of $275.9 million , including commissions,
and entered into an ASR in August 2021 in which we repurchased an additional
3,425 shares for $250.0 million . See Note 5 to our financial statements for
additional information.
As of the date of this filing, we have $749.2 million remaining available for
repurchases.
Acquisitions
In February 2021 , we completed the acquisition of Poynt for $297.1 million in
cash consideration to expand our commerce capabilities. At closing, we also paid
an additional $29.4 million in cash that was recorded as compensation expense
during the three months ended March 31, 2021 . The acquisition agreements also
call for $45.0 million in additional compensatory cash payments subject to
certain performance and employment conditions over the three year period
following the closing date. See Note 3 to our financial statements for
additional discussion.
During the nine months ended September 30, 2021 , we purchased intangible assets
for a total of $201.8 million in cash. One of these purchases also includes a
variable earn-out payment of up to $12.0 million based on the achievement of
specified future performance conditions. See Note 4 to our financial statements
for additional discussion.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended
September 30,
2021 2020
Net cash provided by operating activities $ 657.1 $ 598.7
Net cash used in investing activities (570.3) (435.9)
Net cash provided by (used in) financing activities 292.4
(604.1)
Effect of exchange rate changes on cash and cash equivalents (1.0)
0.3
Net increase (decrease) in cash and cash equivalents$ 378.2
Operating Activities Our primary source of cash from operating activities has been cash collections from our customers. Our primary uses of cash from operating activities have been for domain registration costs paid to registries, software licensing fees related to third-party productivity solutions, personnel costs, discretionary marketing and advertising costs, technology and development costs and interest payments. Net cash provided by operating activities increased$58.4 million from$598.7 million during the nine months endedSeptember 30, 2020 to$657.1 million during the nine months endedSeptember 30, 2021 , primarily driven by our bookings growth. This increase was partially offset by$29.4 million in compensatory payments made in connection with the closing of our acquisition of Poynt as well as increased discretionary spending associated with the marketing investments we made to drive additional growth. Investing Activities Our investing activities generally consist of strategic acquisitions and purchases of property and equipment to support the overall growth of our business and our increased international presence. Net cash used in investing activities increased$134.4 million from$435.9 million during the nine months endedSeptember 30, 2020 to$570.3 million during the nine months endedSeptember 30, 2021 , primarily driven by$201.8 million in purchases of intangible assets and$40.0 million in purchases of equity investments in 2021, partially offset by a$100.6 million decrease in spending for business acquisitions. 32 -------------------------------------------------------------------------------- Table of Contents Financing Activities Our financing activities generally consist of long-term debt borrowings, the repayment of principal on long-term debt, stock option exercises and share repurchases. Net cash from financing activities increased$896.5 million from$604.1 million used during the nine months endedSeptember 30, 2020 to$292.4 million provided during the nine months endedSeptember 30, 2021 , primarily due to$849.8 million in payments made to settle our prior tax receivable agreements in 2020 and$800.0 million in proceeds from the issuance of the 2029 Senior Notes in 2021, partially offset by the receipt of$746.3 million in net proceeds from the issuance of the 2027 Term Loans in 2020. Deferred Revenue See Note 7 to our financial statements for details regarding the expected future recognition of deferred revenue. Off-Balance Sheet Arrangements As ofSeptember 30, 2021 andDecember 31, 2020 , we had no off-balance sheet arrangements that had, or which are reasonably likely to have, a material effect on our financial statements. Critical Accounting Policies and Estimates We prepare our financial statements in accordance with GAAP, and in doing so, we make estimates, assumptions and judgments affecting the reported amounts of assets, liabilities, revenues and expenses, as well as the related disclosure of contingent assets and liabilities. We base our estimates, assumptions and judgments on historical experience and on various other factors we believe to be reasonable under the circumstances, and we evaluate these estimates, assumptions and judgments on an ongoing basis. Different assumptions and judgments would change the estimates used in the preparation of our financial statements, which, in turn, could change our results from those reported. We refer to estimates, assumptions and judgments of this type as our critical accounting policies and estimates, which we discussed in our 2020 Form 10-K. We review our critical accounting policies and estimates with the audit and finance committee of our board of directors on an annual basis. There have been no material changes in our critical accounting policies from those disclosed in our 2020 Form 10-K. Recent Accounting Pronouncements For information regarding recent accounting pronouncements, see Note 2 to our financial statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk in the ordinary course of business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and variable interest rates. Consequently, we may employ policies and procedures to mitigate such risks, including the use of derivative financial instruments, which are discussed in more detail in Note 10 to our financial statements. We do not enter into derivative transactions for speculative or trading purposes. As a result of the use of derivative instruments, we are exposed to the risk that counterparties to our contracts may fail to meet their contractual obligations. To mitigate such counterparty credit risk, we enter into contracts only with carefully selected financial institutions based upon ongoing evaluations of their creditworthiness. As a result, we do not believe we are exposed to any undue concentration of counterparty risk with respect to our derivative contracts as ofSeptember 30, 2021 . Foreign Currency Risk We manage our exposure to changes in foreign currency exchange rates through the use of foreign exchange forward contracts and cross-currency swap contracts. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our cash and cash equivalents. 33 -------------------------------------------------------------------------------- Table of Contents Foreign Exchange Forward Contracts A portion of our bookings, revenue and operating expenses is denominated in foreign currencies, which are subject to exchange rate fluctuations. Our most significant foreign currency exposures are the Euro, the British pound and the Canadian dollar. Our reported bookings, revenues and operating results may be impacted by fluctuations in foreign currency exchange rates. Fluctuations in exchange rates may also cause us to recognize transaction gains and losses in our statements of operations; such amounts were not material during the period. As our international operations continue to grow, our exposure to fluctuations in exchange rates will increase, which may increase the costs associated with this growth. During the three months endedSeptember 30, 2021 , total bookings growth in constant currency would have been approximately 80 basis points lower and total revenue growth would have been approximately 70 basis points lower. Constant currency is calculated by translating bookings and revenue for each month in the current period using the foreign currency exchange rate for the corresponding month in the prior period, excluding any hedging gains or losses realized during the period. From time-to-time, we may utilize foreign exchange forward contracts to manage the volatility of our bookings and revenue related to foreign currency transactions. These forward contracts reduce, but do not eliminate, the impact of adverse currency exchange rate fluctuations. We generally designate these forward contracts as cash flow hedges for accounting purposes. Changes in the intrinsic value of designated hedges are recorded as a component of AOCI. Gains and losses, once realized, are recorded as a component of AOCI and are amortized to revenue over the same period in which the underlying hedged amounts are recognized. As ofSeptember 30, 2021 , such realized and unrealized gains (losses) included in AOCI were$(8.6) million and$5.0 million , respectively. Cross-Currency Swap Contract In order to manage variability due to movements in foreign currency exchange rates related to a Euro-denominated intercompany loan, we entered into a five-year cross-currency swap inApril 2017 . The cross-currency swap, which matures onApril 3, 2022 , had a notional amount of €1,187.3 million as ofSeptember 30, 2021 and converts the fixed rate Euro-denominated interest and principal receipts on the intercompany loan into fixedU.S. dollar interest and principal receipts. The cross-currency swap, which is designated as a cash flow hedge and recognized as an asset or liability at fair value, effectively creates a fixed-rateU.S. dollar intercompany loan from a fixed rate Euro-denominated intercompany loan, thereby reducing our exposure to fluctuations between the Euro andU.S. dollar. Changes to the fair value of the cross-currency swap due to changes in the value of theU.S. dollar relative to the Euro would be largely offset by the net change in the fair values of the underlying hedged items. Interest Rate Risk Interest rate risk reflects our exposure to movements in interest rates associated with our variable-rate debt. See Note 9 to our financial statements for additional information regarding our long-term debt. Total borrowings under our 2024 Term Loans were$1,788.7 million as ofSeptember 30, 2021 . These borrowings bear interest at a rate equal to, at our option, either (a) LIBOR plus 1.75% per annum or (b) 0.75% 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%. Total borrowings under our 2027 Term Loans were$740.6 million as ofSeptember 30, 2021 . These borrowings bear interest at a rate equal to, at our option, either (a) LIBOR plus 2.0% per annum or (b) 1.0% 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% . All LIBOR-based interest rates under the Credit Facility are subject to a 0.0% floor on LIBOR. InApril 2017 , we entered into a five-year pay-fixed rate, receive-floating rate interest rate swap arrangement to effectively convert a portion of the variable rate borrowings under the 2024 Term Loans to a fixed rate of 5.44%. This interest rate swap, which matures onApril 3, 2022 , had a notional amount of$1,265.8 million as ofSeptember 30, 2021 . InAugust 2020 , we entered into seven-year pay-fixed rate, receive-floating rate interest rate swap arrangements to effectively convert the variable one-month LIBOR interest rate on the 2027 Term Loans borrowings to a fixed rate of 0.705%. These interest rate swaps, which mature onAugust 10, 2027 , had an aggregate notional amount of$740.6 million as ofSeptember 30, 2021 . The objective of our interest rate swaps, all of which are designated as cash flow hedges, is to manage the variability of cash flows in the interest payments related to the portion of variable-rate debt designated as being hedged. For the balance of our long-term debt not subject to interest rate swaps, the effect of a hypothetical 10% change in interest rates would not have had a material impact on our interest expense. 34
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