GoDaddy Inc.

Good afternoon, and thank you for joining us for GoDaddy's second quarter 2022 earnings call. I'm Christy Masoner, Senior Director of Investor Relations, and with me today are Aman Bhutani, Chief Executive Officer, and Mark McCaffrey, Chief Financial Officer. Following prepared remarks, we will open up the call for your questions. If you'd like to ask a question on today's call, please use the raise hand feature in the webinar to be added to the queue. On today's webinar, we'll be referencing both GAAP and non-GAAP financial results and operating metrics such as total bookings, unlevered free cash flow, normalized EBITDA, annualized recurring revenue, or ARR, gross merchandise volume, or GMV, and net debt. Growth rates presented represent year-over-year comparisons, unless otherwise noted. A discussion of why we use non-GAAP financial measures and reconciliations of our non-GAAP financial measures to their GAAP equivalents may be found in the presentation posted to our investor relations site at investors.go.edu.net or in today's earnings release on our Form 8K furnished with the SEC with today's earnings release. The matters we'll be discussing today include forward-looking statements, which include those related to our future financial results, Our strategies are objectives with respect to future operations, including our approach to capital allocation, new product introductions and innovations, and our ability to integrate acquisitions and achieve desired synergies. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC. Actual results may differ materially from those contained in forward-looking statements, Any forward-looking statements that we make on this call are based on assumptions as of today, August 3, 2022, and except to the extent required by law, we undertake no obligation to update these statements as a result of new information or future events. With that, here's Aman.

Thank you, Christy, and thank you all for joining us today. At GoDaddy, our mission is to make opportunity more inclusive for all. The best moments of my week are when I'm engaging with GoDaddy customers. I am constantly inspired by their grit and determination and amazed by their resilience. Just a couple of weeks ago, I spoke at a small business summit. I met so many GoDaddy customers there and some who will hopefully become GoDaddy customers in the future. While they worried about the current economic environment, I found them driven, ambitious, upbeat, and passionate about their businesses. One customer walked up to me and started with, my life is on GoDaddy. I am inspired to do more for her and all our customers to be better every day. Our relentless focus on innovation delivers seamless and intuitive technology complemented by human care, helping customers grow their businesses and achieve their dreams. Our strategy to attract high-value customers continued to show success, best illustrated by our customer retention rates, which have remained greater than 85%. The Q2 results demonstrate our steady operating discipline, 9% growth in revenue and 30% growth in normalized EBITDA, despite the challenging FX environment. GoDaddy's strong and diverse business enables us to navigate fluid global demand patterns and inflation concerns from a solid position, and we are committed to attention and action on what we control. As in the past, we aligned our marketing spend and other investments with demand signals, concentrating on success-based, disciplined, and efficient spending. We actively identify and deploy marketing spend where we find opportunities to deliver long-term growth. Through this plan, we create balance across all components of our business without sacrificing our investment in technology and development for future growth. Our strategic priorities have been consistent over the past six quarters. First, driving commerce through presence. Second, delivering for GoDaddy pros. And third, innovating in domains. Beginning with commerce, we are pleased to share that we continue to achieve positive trajectory with our GoDaddy payments offering. And more specifically, the attach rates to our other products. For websites plus marketing, more than 80% of our commerce customers choose our payment solution. And for managed WordPress, 30% of our commerce customers choose our payment solution. Annualized GMV also continues to rise with Q2 at $28 billion, growing 12% year over year. We continue to drive strong sales in payment hardware devices, enabling robust in-store capabilities for customers while also steadily approving payment applications. While our payments offering is still relatively new, GoDaddy's differentiated Omnicommerce solution is well positioned in this space. Regardless of the consumer's preferences, whether they are shopping online or in person, our solution empowers our customers to benefit from our industry-low transaction rates in all locations. We also rolled out Apple Pay on GoDaddy payments, improving the buying experience. And Apple selected GoDaddy as a tap-to-pay partner. We are excited to work with Apple to bring tap-to-pay on iPhone to GoDaddy customers later this year. And as always, we will share more information about this partnership as it becomes more meaningful. We embedded more capabilities within websites plus marketing plans to make it easier for entrepreneurs to market their products, sell online, manage their business, and grow. New capabilities include product image enhancement, including background removal, quick view and buy capabilities, enabling single-click add to cart, integrated discounting shipping labels, online appointment features, making calendaring and appointments more intuitive. Enhancing our product helps our customers grow their business while building retention and creating greater lifetime value for GoDaddy. We also continue to test price increases for a highly competitive and feature-rich websites plus marketing product. Our approach to pricing is nuanced, taking into consideration the right balance of increased price and market share while also closely monitoring shifts in customer behavior due to macro factors. We have limited the use of heavy discounting programs that frequent this space while maintaining our competitive position by offering products that our customers value. Our customer retention rates remain strong with consistent 15-month cohort retention, which is trending higher than prior year cohorts. And our overall customer retention metric has stayed above 85%, even as we observe some pressure for customers due to macro factors. This is something we are extremely proud of because it is a sign that we continue to deliver for an often left behind customer, the micro businesses that are the backbone of their local communities. We are proud that Websites Plus Marketing delivers websites for customers that are highly performant. We have pushed the bar further on that and have implemented significant behind the scenes changes that result in improved website performance for millions of sites. These powerful improvements enable GoDaddy customers to achieve improved page speed insights and core Web Vitals scores. For example, our core Web Vitals pass rate for our customers' sites increased by 75%, making us the leader in this category. These improvements ensure GoDaddy customers' websites rank higher in search results, and for small businesses, this is extremely important. Moving on to GoDaddy Pros. This quarter, we launched a beta Woosat solution to allow us to reach a larger customers, those with sales of a million to a few million dollars. These larger customers will be able to sell anywhere, including in person, on their online store and in online marketplaces and social platforms and benefit from omni-channel payment processing all managed in one place. This new online store offering provides growing merchants virtually infinite flexibility of WordPress plus WooCommerce combined with highly performance scalable and secure cloud hosting technology and a seamless, intuitive, and comprehensive software user experience. The fully managed technology stack allows our customers to focus on running their business. We brought together a team of experts in multiple technology domains to create this new premium offering, which includes exclusive functionality with free premium extensions and exclusive capabilities, such as an expert-level dedicated support team. Our customers want a one-stop-shop offering from us, and the WooSaaS solution is the latest proof point of GoDaddy's ability to move slightly upmarket over time. The beta program started in Q2 with an invite-only group of WooCommerce merchants and partners, testing the integration and unification of multiple acquired technologies to offer a seamlessly managed, all-in-one experience for WooCommerce stores. We are excited about the possibilities and looking forward to a full marketing launch. On our third priority, we are excited about the upcoming full launch of payable domains in Q3. A limited pilot program in Q2 focused on learnings demonstrated that customers value the offering. We also saw some green shoots in terms of meaningful GPV in the pilot being driven by customers without a website. In our Q3 launch, payable domains will be included for free and by default with every domain purchase, creating a frictionless out-of-the-box experience for new businesses. We believe this will simplify the online payments process for our customers by giving them a professional branded checkout experience and the freedom to accept online payments without needing any other subscription. In closing, I want to acknowledge that while we are all in uncertain times, GoDaddy's relentless focus on executing against our strategic priorities, delivering for our customers, building seamless and intuitive technology for our customers to succeed, backed by human care, our scale and vast portfolio of offerings steadily drives GoDaddy's consistent financial results. Our incredible customers inspire us to continue to innovate and do even more for them. We will continue to be prudent stewards of capital, investing behind long-term growth drivers, and staying committed to delivering value to our customers, employees, and shareholders. With that, here's Mark.

Thanks, Iman, and thank you, everyone, for joining us today. GoDaddy's resiliency and durable top-line growth, profitability at scale, and robust cash flow are evident in our Q2 financial results and enable GoDaddy to continue to invest to deliver long-term value while returning excess capital to investors in the form of share buybacks. Revenue in Q2 was $1 billion, growing 9% on a reported basis and 10% on a constant currency basis. Excluding the currency impact, revenue would have come in at the high end of our Q2 guidance. Within total revenue, international revenue grew 4% on a reported basis and 7% on a constant currency basis. Applications and commerce revenue grew 15% within the target range of 14% to 16% driven by continued strength in our create and grow products and email attached. the ARR for applications and commerce grew 12% to more than $1.2 billion. And within that, the ARR from our create and grow products grew 10% to $420 million. Additionally, annualized GMV across the GoDaddy ecosystem was approximately $28 billion, growing 12%. high end of our 5% to 7% Q2 guidance, primarily due to strengthened domain registration, aftermarket, and security, offset by a slight decrease in our hosting business. ARR for our core platform grew 5% to $2.3 billion. Q2 bookings sold $1.12 billion, growing 6% on a reported basis and 8% on a constant currency basis. Applications and commerce bookings grew 10%, and core platform bookings grew 4% on similar growth factors noted for revenue. Normalized EBITDA grew 30% to $258 million. Our 25% margin represented over four points of margin expansion, primarily because of expanded gross margins on product mix and reduced marketing spend. The decreased marketing spend investment as we zero in on success-based marketing and flex our spending to capture attractive returns. Our technology and development expenses increased as a percent of revenue this quarter as we advanced our commerce and innovation strategies. Lastly, we recognized a $10 million impairment charge related to IT licenses and facilities as we continue to simplify our infrastructure. Unlevered free cash flow for the quarter totaled $274 million, growing 16% driven by strong profitability. Additionally, year-to-date, we completed $1 billion of share buybacks, repurchasing 12.8 million shares and reducing our fully diluted share count by approximately 8% since year-end. free cash flow per share rose to $5.67 on a trailing 12-month basis versus a prior year cash flow per share of $4.78, a 19% increase on strong cash flow and share repurchases. On the balance sheet, we finished Q2 with $770 million in cash and total liquidity of $1.4 billion. Net debt stands at $3.1 billion at the midpoint of our targeted range of two to four times. Moving on to our outlook, we continue to be confident in our ability to execute in the second half of 2022 and are on target to meet our full-year operational and strategic goals, including our targets around normalized EBITDA, unlevered free cash flow, and cash flow per share. With that said, we are not immune to the macro environment of the strengthening dollar and the impact that it has on our top line performance. Assuming a continuation of today's rates over the rest of the year, we expect that the adverse FX impact for the full year to be approximately $35 million or approximately 1% compared to our full year revenue guidance issued in February. As a result, we revised our 2022 full-year revenue outlook to $4.1 to $4.13 billion. We remain focused on driving strong financial results and are committed to delivering $1.1 billion in unlevered free cash we are also increasing our margin expectations for normalized EBITDA to 24% to 25% for the full year based on strong execution and disciplined investments. For Q3, we are targeting total revenue in the range of $1.03 to $1.045 billion, representing growth of 8% at the midpoint. today's rates would be approximately $10 million or 1%. Flowing through this impact, we expect applications and commerce revenue to grow between 13 and 15% and core platform revenue to grow between 4 and 6%. For Q3 and full year bookings, we expect growth to be approximately two points below revenue, primarily driven by FX pressure. We will continue investing in technology into while balancing our goal for margin expansion through efficiencies in customer care and marketing. Normalized EBITDA for Q3 is expected to be in the range of $250 to $260 million, which would represent growth of 12% at the midpoint. Our capital allocation strategy remains the same. We fulfilled our $1 billion buyback target for 2022 and will continue to evaluate use of cash options for the remainder of the year. in line with our disciplined capital allocation framework. Lastly, as we said last quarter, we will evaluate the impact of rising interest rates and explore refinancing our term loan and revolver with the intention of maintaining our leverage ratio of two to four times. Before I close, I want to remind folks that during economic to improve upon our market-leading position through prudent investments and market share gains, growing the business long-term, while also delivering on our profit and cash flow goals. Our 21 million customers create a foundation for our resiliency. We enjoy exceptional retention, and we continue to execute on our strategic priorities, build deeper relationships, and partner along 15% plus normalized EBITDA CAGR, and 20% or better free cash flow per share CAGR through 2024. And with $1 billion of buybacks complete halfway through the year, we remain committed to executing against the remaining $2 billion of shares under our current authorization through 2024. With that, we will have Christy Masoner from our investor relations team open up the call for questions.