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 recent guidance from governmental authorities and health
experts, we expect to begin to bring our employees back to certain offices later
this year, starting with volunteers. 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.
Second Quarter Financial Highlights
Below are our key financial highlights for the three months ended June 30, 2021 ,
with comparisons to the three months ended June 30, 2020 .
•Total revenue of $931.3 million , an increase of 15.5%, or approximately 14.3%
on a constant currency basis(1).
•International revenue of $317.2 million , an increase of 19.2%, or approximately
15.8% on a constant currency basis(1).
•Total bookings(2) of $1,054.8 million , an increase of 12.7%, or approximately
10.6% on a constant currency basis(1).
•Net income of $46.9 million .
•Net cash provided by operating activities of $209.4 million , an increase of
24.6%.
(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 June 30, Six Months Ended June 30,
2021 2020 2021 2020
% of Total % of Total % of Total % of Total
$ Revenue $ Revenue $ Revenue $ Revenue
Revenue:
Domains $ 436.7 46.9 % $ 369.6 45.9 % $ 859.4 46.9 % $ 725.5 45.4 %
Hosting and presence 318.5 34.2 % 292.2 36.2 % 628.8 34.3 % 589.4 36.9 %
Business applications 176.1 18.9 % 144.6 17.9 % 344.2 18.8 % 283.5 17.7 %
Total revenue 931.3 100.0 % 806.4 100.0 % 1,832.4 100.0 % 1,598.4 100.0 %
Costs and operating expenses:
Cost of revenue (excluding
depreciation and amortization) 332.0 35.6 % 289.4 35.9 % 653.2 35.6 % 566.5 35.4 %
Technology and development 172.0 18.5 % 135.9 16.9 % 358.4 19.6 % 270.4 16.9 %
Marketing and advertising 126.5 13.6 % 104.4 12.9 % 259.2 14.1 % 197.5 12.4 %
Customer care 78.3 8.4 % 83.8 10.4 % 156.9 8.6 % 169.0 10.6 %
General and administrative 84.5 9.1 % 82.2 10.2 % 179.7 9.8 % 167.7 10.4 %
Restructuring charges - - % 39.4 4.9 % - - % 39.4 2.5 %
Depreciation and amortization 50.0 5.4 % 48.4 6.0 % 99.0 5.4 % 100.6 6.3 %
Total costs and operating expenses 843.3 90.6 % 783.5 97.2 % 1,706.4 93.1 % 1,511.1 94.5 %
Operating income 88.0 9.4 % 22.9 2.8 % 126.0 6.9 % 87.3 5.5 %
Interest expense (32.6) (3.5) % (19.4) (2.4) % (61.3) (3.4) % (40.6) (2.5) %
Tax receivable agreements liability
adjustment - - % (674.7) (83.7) % - - % (674.7) (42.2) %
Other income (expense), net (0.9) (0.1) % (1.1) (0.1) % (0.2) - % (2.5) (0.2) %
Income (loss) before income taxes 54.5 5.8 % (672.3) (83.4) % 64.5 3.5 % (630.5) (39.4) %
Benefit (provision) for income taxes (7.6) (0.8) % (0.9) (0.1) % (6.8) (0.4) % 0.5 - %
Net income (loss) 46.9 5.0 % (673.2) (83.5) % 57.7 3.1 % (630.0) (39.4) %
Less: net income attributable to
non-controlling interests 0.1 - % - - % 0.1 - % 0.3 - %
Net income (loss) attributable to
GoDaddy Inc. $ 46.8 5.0 % $ (673.2) (83.5) % $ 57.6 3.1 % $ (630.3) (39.4) %
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 and website building
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 June 30, Change Six Months Ended June 30, Change
2021 2020 $ % 2021 2020 $ %
Domains $ 436.7 $ 369.6 $ 67.1 18 % $ 859.4 $ 725.5 $ 133.9 18 %
Hosting and presence 318.5 292.2 26.3 9 % 628.8 589.4 39.4 7 %
Business applications 176.1 144.6 31.5 22 % 344.2 283.5 60.7 21 %
Total revenue $ 931.3 $ 806.4 $ 124.9 15 % $ 1,832.4 $ 1,598.4 $ 234.0 15 %
The 15.5% and 14.6% increases in total revenue for the three and six months
ended June 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 18.2% and 18.5% increases in domains revenue for the three and six months
ended June 30, 2021 , respectively, were primarily driven by the increase in
domains under management from 80.9 million as of June 30, 2020 to 84.2 million
as of June 30, 2021 , increased aftermarket domain sales and contributions from
recent acquisitions.
Hosting and presence
The 9.0% and 6.7% increases in hosting and presence revenue for the three and
six months ended June 30, 2021 , respectively, were primarily driven by increased
demand for our website building and website security products as well as
contributions from recent acquisitions, partially offset by lower demand for
certain higher-priced subscriptions, such as GoDaddy Social.
Business applications
The 21.8% and 21.4% increases in business applications revenue for the three and
six months ended June 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 June 30, Change Six Months Ended June 30, Change
2021 2020 $ % 2021 2020 $ %
Total bookings $ 1,054.8 $ 936.3 $ 118.5 13 % $ 2,143.5 $ 1,887.4 $ 256.1 14 %
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 12.7% and 13.6% increases in total bookings for the three and six months
ended June 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 210 and 150 basis points for the three and six months ended
June 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 June 30, Six Months Ended June 30,
2021 2020 2021 2020
Total bookings:
Total revenue $ 931.3
66.1 59.4 188.8 155.7
Net refunds 55.9 69.7 118.0 133.0
Other 1.5 0.8 4.3 0.3
Total bookings $ 1,054.8 $ 936.3 $ 2,143.5 $ 1,887.4 _________________________________
(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 June 30, Change Six Months Ended June 30, Change
2021 2020 $ % 2021 2020 $ %
Cost of revenue (excluding
depreciation and amortization) $ 332.0 $ 289.4 $ 42.6 15 % $ 653.2 $ 566.5 $ 86.7 15 %
The 14.7% and 15.3% increases in cost of revenue for the three and six months endedJune 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. 26 -------------------------------------------------------------------------------- Table of Contents 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 June 30, Change Six Months Ended June 30, Change 2021 2020 $ % 2021 2020 $ % Technology and development$ 172.0 $ 135.9 $ 36.1 27 %$ 358.4 $ 270.4 $ 88.0 33 % The 26.6% and 32.5% increases in technology and development expenses for the three and six months endedJune 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 six months endedJune 30, 2021 , we recorded approximately$34.0 million 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 June 30, Change Six Months Ended June 30, Change 2021 2020 $ % 2021 2020 $ % Marketing and advertising$ 126.5 $ 104.4 $ 22.1 21 %$ 259.2 $ 197.5 $ 61.7 31 % The 21.2% and 31.2% increases in marketing and advertising expenses for the three and six months endedJune 30, 2021 , respectively, were primarily attributable to increased discretionary spending associated with the marketing investments we made to drive additional growth. Customer care Customer care expenses represent the costs to guide and service our customers, primarily consisting of personnel costs. We expect customer care expenses to fluctuate depending on the level of personnel required to support our business. Three Months Ended June 30, Change Six Months Ended June 30, Change 2021 2020 $ % 2021 2020 $ % Customer care$ 78.3 $ 83.8 $ (5.5) (7) %$ 156.9 $ 169.0 $ (12.1) (7) % The 6.6% and 7.2% decreases in customer care expenses for the three and six months endedJune 30, 2021 , respectively, were 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. 27 -------------------------------------------------------------------------------- Table of Contents 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 June 30, Change Six Months Ended June 30, Change 2021 2020 $ % 2021 2020 $ % General and administrative$ 84.5 $ 82.2 $ 2.3 3 %$ 179.7 $ 167.7 $ 12.0 7 % The 2.8% and 7.2% increases in general and administrative expenses for the three and six months endedJune 30, 2021 , respectively, were primarily due to increased acquisition-related expenses and professional fees, 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 charges During the three months endedJune 30, 2020 , we recorded$39.4 million in pre-tax restructuring charges pursuant to a restructuring plan implemented inJune 2020 , as further discussed in our 2020 Form 10-K. 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 June 30, Change Six Months Ended June 30, Change 2021 2020 $ % 2021 2020 $ % Depreciation and amortization$ 50.0 $ 48.4 $ 1.6 3 %$ 99.0 $ 100.6 $ (1.6) (2) % There were no material changes in depreciation and amortization. Interest expense Three Months Ended June 30, Change Six Months Ended June 30, Change 2021 2020 $ % 2021 2020 $ % Interest expense$ 32.6 $ 19.4 $ 13.2 68 %$ 61.3 $ 40.6 $ 20.7 51 % The 68.0% and 51.0% increases in interest expense for the three and six months endedJune 30, 2021 , respectively, were primarily driven by the issuance of the 2027 Term Loans inAugust 2020 and the 2029 Senior Notes inFebruary 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. Tax receivable agreements liability adjustment During the three months endedJune 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. 28 -------------------------------------------------------------------------------- Table of Contents 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 equity holder 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. InFebruary 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 and potential acquisitions and strategic transactions. In addition, inMarch 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 ofJune 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. Share Repurchases InMay 2021 , our board of directors approved the repurchase of up to an additional$775.0 million of our Class A common stock, as described in Note 5 to our financial statements. During the six months endedJune 30, 2021 , we repurchased a total of 3,500 shares of our Class A common stock for an aggregate purchase price of$275.9 million , including commissions. As of the date of this filing, we have$999.2 million remaining available for repurchases. 29 -------------------------------------------------------------------------------- Table of Contents Acquisitions InFebruary 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 endedMarch 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. InApril 2021 , we executed agreements to purchase a number of TLDs for aggregate consideration of approximately$200.0 million in cash, subject to customary adjustments. InJuly 2021 , we completed a portion of these purchases for aggregate cash paid at closing of approximately$77.0 million . See Note 17 to our financial statements for additional discussion. Cash Flows The following table summarizes our cash flows for the periods indicated: Six Months Ended June 30, 2021 2020 Net cash provided by operating activities$ 430.7 $ 401.4 Net cash used in investing activities (359.9)
(196.6)
Net cash provided by (used in) financing activities 539.6
(494.0)
Effect of exchange rate changes on cash and cash equivalents (0.4)
(0.9)
Net increase (decrease) in cash and cash equivalents$ 610.0
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$29.3 million from$401.4 million during the six months endedJune 30, 2020 to$430.7 million during the six months endedJune 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$163.3 million from$196.6 million during the six months endedJune 30, 2020 to$359.9 million during the six months endedJune 30, 2021 , primarily driven by a$130.2 million increase in spending for business acquisitions and a$23.7 million sale of short-term investments in 2020. 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$1,033.6 million from$494.0 million used during the six months endedJune 30, 2020 to$539.6 million provided during the six months endedJune 30, 2021 , primarily due to$800.0 million in proceeds from the issuance of the 2029 Senior Notes and a$265.8 million decrease in share repurchases. 30 -------------------------------------------------------------------------------- Table of Contents Deferred Revenue See Note 7 to our financial statements for details regarding the expected future recognition of deferred revenue. Off-Balance Sheet Arrangements As ofJune 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 ofJune 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. 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 endedJune 30, 2021 , total bookings growth in constant currency would have been approximately 210 basis points lower and total revenue growth would have been approximately 120 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. 31 -------------------------------------------------------------------------------- Table of Contents 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 ofJune 30, 2021 , the realized and unrealized losses included in AOCI related to designated hedges were$9.5 million and$5.2 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 €1,190.5 million as ofJune 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$1,794.9 million as ofJune 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$742.5 million as ofJune 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$1,269.1 million as ofJune 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$742.5 million as ofJune 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. 32
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