GoDaddy Inc.

Good afternoon, and thank you for joining us for GoDaddy's fourth quarter and full year 2020 earnings call. I'm Mark Grant, Vice President of Investor Relations. With me on the call today are Aman Bhutani, Chief Executive Officer, and Ray Winborn, Chief Financial Officer. Following prepared remarks by Aman and Ray, we will open up the call for your questions. If you would 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 call, we'll be referencing both GAAP and non-GAAP financial results and operating metrics, such as total bookings, unlevered free cash flow, normalized EBITDA, net debt, and gross merchandise volume. 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 investors.godaddy.net or on our Form 8K filed with the SEC with today's earnings release. The matters we'll discuss today include forward-looking statements, which include those related to our future financial results, new product introductions and innovations, partner integrations, our ability to integrate acquisitions and achieve desired synergies, changes to executive leadership, as well as the impact of the COVID-19 pandemic on our business, customers and employees. 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 the forward-looking statements. Any forward-looking statements that we make on this call are based on assumptions as of today, February 11, 2021, and we undertake no obligation to update these statements as a result of new information or future events unless required by law. With that, here's Iman.

Thanks, Mark, and thank you all for joining us today. GoDaddy exists to empower everyday entrepreneurs. Our mission is to make opportunity inclusive for all, and the shift to digital represents the greatest opportunity for our customers to share their gifts with the world. With a differentiated offering, including guidance and tools with an intuitive, seamless experience specifically designed and built for our customers, it is clear why customers continue to adopt our products and ask us for more. Everyday entrepreneurs are creative and resourceful, and they want to be able to focus their time on their business. From domain names to email and content creation to commerce, and soon to include payments and point of sale, customer focus for us is about building a seamlessly intuitive experience that saves them time and unlocks capabilities through ease of use. In 2020, our digital presence was key for our customers, and the increased demand led to accelerating bookings growth for the last three quarters for us. For 2020, GoDaddy neared $3.8 billion in bookings and topped $3.3 billion in revenue. We leaned into the surging demand with marketing spend, and while we kept it efficient, the result was our best year of net customer ads, except 2017, which included the HEG acquisition. We welcomed nearly 1.4 million net new customers in 2020. by providing valuable products and offering the best care, we have also been able to maintain stable renewal rates. And our churn metrics, well, those have always been low and they still found room to improve in 2020. Early last year, we spoke about our natural evolution into commerce. Everyday entrepreneurs are underserved and demand this from us, and our investments have been focused on the simplest and most relevant commerce experience. No doubt, commerce continues to be a giant opportunity for us. Internally, we are also evolving. We have made significant progress in implementing a broader experimentation program that allows us to more clearly measure the value we are creating for customers and deliver functionality faster. The discipline of measurement allows us to set more ambitious goals while also giving us the confidence to achieve them. We are moving faster, putting more products in the hands of more customers and winning the right to do more for them. Our leadership team is also evolving. 2020 was a year of milestones and career defining achievements for many GoDaddy leaders. After having truly accomplished herculean tasks both in 2020 and over their respective careers, our Chief Legal Officer Naima Kelly and our Chief Financial Officer Ray Winborn have each expressed a desire to retire at some point this year. They continue to be fully engaged with the company and will help with transition as we look to fill their incredibly big shoes. We have a strong leadership team with talented, tenured folks, and with continued leadership from Naima and Ray, we expect a seamless transition. We have strong internal candidates, and we will be looking for external candidates for both roles as well. With acceleration in the numbers and also in our internal operating rhythm, I want to share three priority areas where GoDaddy will be bringing innovative solutions to our customers in 2021. Our top priority is commerce and 2021 is the year we will bring to market a holistic solution for everyday entrepreneurs that powers every facet of their online and offline commerce experience. In 2020, we created strong customer value with our commerce tools and GMV for websites plus marketing and sell bright grew 75% year over year. In 2021, GoDaddy will extend our current offerings with a focus on delivering Omnicommerce solutions. Earlier this week, we closed on the point acquisition. And as you know, point extends our commerce offering with a set of products that span the full spectrum of commerce enablement. Point brings us payment capabilities as a payment facilitator and brings immense value to our customers through its innovative point of sale terminals, inventory management software, loyalty management tools, and more. Point and GoDaddy customers are already seeing great success. represented by the combined $23 billion in annualized GMV that already flows through our platforms. As we integrate and build the GoDaddy commerce platform, its scale will be backed by the 6,000 guides that are ready to provide guidance we know our customers need. To help drive focus and continued momentum in commerce, we have created a new commerce division within GoDaddy. Point CEO Osama Bedir has joined GoDaddy and will lead this new division reporting to me. The next priority I want to share is about our pro customers. We already have a large group of designers and developers that are GoDaddy customers, but we know the opportunity is much, much larger. last year our partners team whose sole focus is to create value for designers and developers went back to first principles deep research into the customer needs led to a new set of solutions organized in three pillars The first pillar is all about a seamless, intuitive experience in the toolset we offer. In January, we launched the Hub for GoDaddy Pros, where website designers and developers can perform their work in a simple, intuitive way that saves them time and money. The hub enables bulk updates across hundreds of sites for WordPress core, plugins, and themes, allowing pros to roll out updates for better security, new functionality, and better availability. What may have taken hours now takes seconds and even works on WordPress sites not hosted by GoDaddy. Pros can also use the Hub's built-in project management tools and make it easier than ever to deliver customized sites for their clients. The Hub lets Pros manage all of their clients in one place and built-in delegated access allows Pros to collaborate with their clients more effectively to drive the results their customers want to see. The second pillar is all about care. Pros have told us that they value the kind of guidance and care we offer, and they want us to do more. We have extended our care to support pros for all their WordPress sites, not just the ones they host with us. With additional care guides armed with a higher level of training to support these pros, we are ready for the unique needs of this customer population. The third pillar brings it all together through marketing. With millions of pros out there, we have planned a marketing launch to tell them about the added value and capabilities we are bringing forward. It all begins with the launch of the GoDaddy Pro program. Signing up to be a GoDaddy pro gets pros access to exclusive discounts for themselves and for their clients and direct access to the most advanced guides directly through the hub, speaking their language exactly the way they want it. GoDaddy Pro is live in the US with its first marketing campaign. And in April, we will be hosting our first virtual GoDaddy Pro conference. And we're just getting started. Look out for more benefits of being a GoDaddy Pro and its global launch. The three pillars together embrace the needs of our pro customers and enhance our relationship with them beyond a strong managed WordPress offering. Overall, our strategy is straightforward. WordPress is the largest CMS in the world with a market share of over 60% and growing. Pros know WordPress and prefer WordPress, and our vision is all about making it seamless and intuitive while retaining all its power and flexibility. We are not interested in forcing pros to use a different tool. That sounds like a job for Sisyphus. While it is exciting to talk about new offerings like Commerce and GoDaddy Pro, under these exciting new businesses is the solid foundation of our domains business. And that is the third priority I want to talk to you about. For years, we have outgrown the domains industry with innovative ideas and execution in both the primary and secondary market. That growth isn't going away anytime soon. Recently, we added GoDaddy corporate domains and GoDaddy registry, which promise to offer new and existing customers with innovative solutions. But that isn't all. Our fine team has really stepped up their experimentation velocity. These are the folks that run the search algorithm on godaddy.com. We are building an adaptive user experience which leverages multiple inputs, including the customer's profile, the query, its context, the available results, and also available add-ons to make sure customers see the options and bundles that will create the most value. Our aftermarket is also seeing tailwinds from the digital transformation of small business. More businesses coming online is resulting in more customers leveraging our domain broker service to help them secure the perfect name for their online presence, even if someone else already owns it. Our new list for sale tool has also seen an incredible first inning. This tool lets customers with unused domain names list them in our aftermarket. And in just three months, we've seen over 350,000 domains get listed. The outcome here is a continued acceleration in this business as more customers are matched with better offerings and are exposed to attach opportunities as well. Most of the financial impact of this accelerating innovation in domains is still to come, and we are confident that the outperformance we have seen in this category will continue well beyond 2021. At our scale, innovation like this not only drives growth, but also helps fund exciting new initiatives across the business. I look forward to sharing more on the three priorities I just went through as the year progresses. Before I wrap up, I know that many of you are eager to hear about the results of our Websites Plus Marketing premium offering. In less than a year, it has shown itself to be an area of real promise for GoDaddy. Beginning in the spring of 2020, we conducted a small-scale experiment presenting our premium offering to a limited number of visitors. Over the course of the year, we steadily increased the number of US-based visitors that would see this offering to approximately 50% and we are pleased with the results we've seen along the way. Millions of signups and solid conversion rates that we're happy to note are higher than what we have seen elsewhere in the industry. There is certainly more to be done and this is an exciting outcome as we work to make freemium a tailwind to our business for years to come. Looking at 2021, while there are many unknowns and many things we plan to accomplish, we continue to see evidence in our business that supports aggressive forward momentum. As Ray will share, through focused execution, GoDaddy delivered a strong result in 2020 in the face of many challenges. Our core strategy of creating value for customers and converting it to shareholder value over time is working. We are evolving as a company and are in a fantastic spot as we enter into 2021. With that, here's Ray.

Hey, thanks, Aman. I'll touch on the fourth quarter financial results and our outlook for 2021. Despite the operational challenges caused by the pandemic, we delivered a strong performance in 2020. We added 1.4 million net new customers, nearly double the number added in 2019. This was complemented by a decrease in our already low customer churn rates and resiliency in subscription renewal rates as our products and services became even more valuable to our customers. Full-year revenue grew 11% year-over-year, while unlevered free cash flow was up 12%, even as we invested more in marketing to capture higher demand in the market. We also took advantage of the opportunities created by the uncertainty, deploying $1.8 billion in capital adding capabilities for customers, and creating value for shareholders. Turning to the fourth quarter results, we saw continued acceleration in top line. Bookings grew to $943 million, rising 13% year-over-year on a reported and constant currency basis, as FX had little impact on the quarter. Growth was broad-based with continued strength across product categories. Revenue came in at $874 million, outperforming expectations and growing 12% year-over-year. Business Applications was again our fastest growing product line, increasing 20% year-over-year on continued strength in branded email and productivity solutions. Domains accelerated to 14% growth as new registrations, renewals, and aftermarket sales remained strong, along with a modest contribution from GoDaddy Registry. And finally, hosting and presence grew over 5% in the fourth quarter. We continue to see terrific growth in our website creation platform products, though the strength was tempered somewhat by the headwinds from the GoDaddy social service due to the elimination of the outbound sales motion in June. The key metrics underlying our growth have remained consistently strong. ARPU rose to $166, up 5% year-over-year, while the customer base grew 7%. Unlevered free cash flow for the quarter was $181 million and $825 million for the full year. This reflected good operating leverage in the P&L as well as reduced capital expenditures for corporate real estate and infrastructure as we transition more workloads to the cloud. Gross margin remained in the mid-60s in the quarter, consistent with our expectations. We continue to ramp investment in marketing to capture increasing demand, resulting in a $40 million year-over-year increase in marketing expense. As we mentioned last quarter, we've been able to elevate investment while remaining within our targeted return metrics, even as we saw increased competition in performance advertising channels. On the balance sheet, we finished the year with $765 million in cash and total liquidity of nearly $1.4 billion. Net debt landed at $2.4 billion, putting net leverage at 2.6 times on a trailing 12-month basis, illustrating our ability to deleverage quickly. The strength and resilience of our recurring business model has fueled a strong balance sheet, enabling us to execute across our capital allocation priorities. During 2020, we completed four acquisitions, repurchased nearly 6% of our outstanding equity at average prices substantially below today's stock price, and settled the TRA at an attractive valuation, removing an overhang toning the stock. All proof points that we have the flexibility to take advantage of opportunity as it arises. Rest assured, we'll continue to be prudent allocators of capital in the pursuit of long-term growth and levered free cash flow per share. As we look to the future, continued growth in cash flow and a strong balance sheet will provide us with the flexibility to deploy roughly $5 billion in capital through 2023. Moving on to our outlook for 2021, we expect to deliver revenue of approximately $3.7 billion, representing growth of 12% versus 2020. From our product category perspective, we expect double-digit growth in domains, high single-digit growth in hosting and presence, and high teams growth in business applications. This guidance includes $20 million in revenue we expect from the recent acquisition of Point. As for Q1, we started the year off on pace and expect to deliver revenue of $885 million, representing 12% growth versus last year. We expect 2021 unlevered free cash flow of approximately $945 million, or 15% growth versus 2020. This guidance reflects continued investment in marketing and product, plus $20 million in net dilution from point as we build out our capabilities in commerce this year. Finally, I'd like to provide some additional modeling points for the full year 2021. We expect bookings to grow at a rate similar to revenue and normalized EBITDA margin to be roughly flat as compared to 2020. We expect capital expenditures of approximately $65 million, income tax payments of $25 million, and cash interest payments of $100 million, based on current debt outstanding and today's forward rate expectations. We announced my retirement today, and I want to thank all of you who've been along for the ride. I've had an incredibly rewarding career and feel blessed to have been able to top it off here at GoDaddy. It's been my privilege to serve with this amazing group of people dedicated to such a noble mission. We navigated a lot of change as GoDaddy has evolved into a truly customer-centric company, obsessed with creating value for customers, employees, and shareholders. This last year was challenging for a lot of people, but also very rewarding, as I've been able to witness our leadership team taking bold, decisive, and strategically sound actions that helped our customers and employees through an incredibly turbulent year. As for what's next, I plan to be deeply engaged in the search for a successor, and I'll stay on to ensure a smooth transition. I look forward to speaking with all of you again next quarter. With that, we'll have Christy Misner from IR team open up the call for questions.