GoDaddy Inc.

Vice President of Investor Relations. With me on the call today are Aman Bhutani, Chief Executive Officer, and Mark McCaffrey, Chief Financial Officer. Following prepared remarks, we'll 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, and net debt. 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 website at investors.godaddy.net or on our Form 8K filed 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, strategies and objectives with respect to future operations, new product introductions and innovations, partner integrations, our ability to integrate acquisitions and achieve desired synergies, and the impact of the COVID-19 pandemic on our business. 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, August 4th, 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 Amman.

Thank you, Mark, and thank you all for joining us today. At GoDaddy, our mission is about making opportunity inclusive for all. We are committed to making everyday entrepreneurs successful. Through bold innovation and disciplined execution, we will succeed in our mission. More than 20 million customers rely on GoDaddy's seamless and intuitive technology, highly performant products, and world-class customer care to help them grow their business online and offline. As I look back at the last quarter and the last year, I am most proud of the acceleration in innovation at the company, even in the face of a pandemic. Our teams have done a fantastic job delivering new functionality for our customers, and every quarter we are delivering more. Today, I will highlight some of those key product launches driven by the increasing velocity of experimentation in every part of our business. I have never been more confident in our ability to deliver value to our customers faster and drive long-term financial results for our shareholders. The vaccines had provided a new normal, but now we find the world challenged by the Delta variant. We're staying vigilant regarding any short-term impacts from the difficulties our customers continue to face coming out of the pandemic. As I look at the rest of the year and given our history of providing prudent guidance to our shareholders, I am confident that following a strong first half, we remain on track to achieve our full-year financial targets. Our core focus is to drive value over the long term through continuous improvements in our products and services. The long-term secular tailwinds in our industry continue to play to our strengths. As more people and businesses seek to sell their products and services online and offline, they need intuitive solutions and a trusted partner that can help guide them to growth. Our priorities are aligned with our customers and they remain clear. First, driving commerce through presence. Second, GoDaddy pros. And third, innovation in domains. Everyday entrepreneurs look to GoDaddy for help with their number one priority to reach more of their customers and grow their business. It is also our number one priority and our investments reflect that. True to our promise, we have moved quickly this year with the launch of GoDaddy Payments, already available to all websites plus marketing customers and managed WordPress customers in the US. Our ability to integrate point and launch payments quickly is a proof point of our platform-based approach to commerce and presence. We're dedicated to creating a seamless and intuitive experience for our customers built on a common platform. That increases our agility and speed to market. As further proof, we're already looking beyond websites plus marketing and managed WordPress. We're launching GoDaddy Pay Links and Virtual Terminal. With PayLinks, GoDaddy customers will finally be able to say goodbye to sending paper invoices. PayLinks enables customers to take payments from anyone in the U.S. through a secure link. And with the virtual terminal, they can accept payments through iOS and Android on their phone or tablet without a card reader, ideal for farmers markets, craft fairs, and other remote sales. And we have much more coming. We are on track to launch GoDaddy's Omnicommerce solution by the end of the year, empowering our customers to sell everywhere, in their physical store, on their online store, and across major platforms. And we have deepened our partnerships with the major platforms, especially with Google and Facebook. GoDaddy customers can now display their product inventory directly within Google Search, Shopping, Image Search, and YouTube for free. They can also create listings and manage their Google Smart Ad campaigns directly within their GoDaddy Websites Plus Marketing dashboard. Customers can also manage their Facebook and Instagram ad campaigns from the same dashboard. Websites plus marketing continues to launch new capabilities, including functionality for job listings, critical in the current environment, a robust FAQ widget, an enhanced email composer, and much more. We have also completed the integration of Over, rebranding it as GoDaddy Studios. We've expanded the functionality as well, and now GoDaddy customers can seamlessly create content on iOS and Android and leverage that content on social networks and their website. Moving to our second priority, GoDaddy Pros. We continue to focus on creating a seamless and intuitive experience with WordPress while maintaining flexibility for pros. We are committed to driving real improvements in the WordPress ecosystem and are thrilled to share that one of GoDaddy's own led the release of the latest version of the Gutenberg editor for WordPress. WordPress has been the winning platform for pros for years, and we are confident that WordPress will continue to be the winning platform for years to come. Earlier this year, we created a dramatically simplified onboarding experience, and we've invested to make managed WordPress even more performant. and we are hearing for customers that they are noticing the difference. Our goal is to save time for pros, and inside the GoDaddy Hub, we are seeing continued improvement. We are launching new capabilities in the Hub on a regular basis, and we are particularly excited about introducing invoicing. With invoicing, pros can build their customers without needing a separate system. We also launched the new GoDaddy Pro brand in India this quarter, and we are starting to see early signs of traction. India represents an enormous opportunity for GoDaddy, and we're looking forward to hosting our first event for pros in India later this year. And for our third priority, we continue to see remarkable strength in domains driven by innovation in our aftermarket business, as well as strong renewals and continued new registrations. As you may recall, in Q4 last year, we introduced list for sale and multiple improvements in domain search. These innovations contributed to nearly 20% year-over-year revenue growth in domains through the first half of this year. In Q2, we launched Buy It Now landing pages for domain investors to sell premium domains faster and more efficiently, and customers have reacted positively to it. One major domain investor moved approximately 50,000 domains to GoDaddy's platform, and the improvement in their sales was so immediate that they decided to move over their entire portfolio of ccTLDs as well. The customer described the experience as an absolute game changer. We've also continued to enhance the experience for buyers with an improved search in our auctions experience. We're thrilled with the outcomes in this space and excited about continuing to innovate. We're also seeing good progress in scaling our GoDaddy registry business. With the recent acquisitions of additional top-level domains, or TLDs, GoDaddy registry now manages more than 240 total TLDs. and we continue to look for ways to outpunch our weight in the registry business. I am also super excited to share that we published GoDaddy's first Environmental, Social, and Governance, or ESG, report in June. I encourage you to read our report and learn about the fantastic initiatives going on inside GoDaddy. We look forward to setting goals and reporting on our ESG results regularly going forward. In closing, we have accelerated the pace of innovation within GoDaddy. Our strategy remains centered on building incredible products and creating value for everyday entrepreneurs around the world. We are prudent stewards of capital and remain committed to delivering value to our shareholders. With a number of organic and inorganic investments, especially around commerce and our upcoming Omnicommerce launch, we believe we are positioning GoDaddy for continued growth in our top line and our profits for years to come. With that, here's Mark.

Thanks, Aman. It's great to be here on my first earnings call as GoDaddy's CFO. I'm two months in and I can tell that there is something special about GoDaddy's culture, people, vision, and commitment to our customers. As Aman mentioned, there is an incredible opportunity ahead of this company, and I'm very excited to join at this stage of the journey. I want to take a moment to discuss our financial results for the second quarter, and then I'll provide an update on what we're seeing now and our financial outlook for Q3 and the rest of 2021. Q2 was a strong quarter. And that showed up in our financial results. Total revenue came in at $931 million, growing over 15% year over year, which includes about a point of currency tailwind. Our international business grew 19% on a reported basis, approximately three points of currency tailwind. Business applications was our fastest growing product line, increasing 22% year over year. we continued to see new customer-attached strong renewals and existing customers adding additional seats of email and productivity solutions. Domains grew 18% year-over-year. As Aman mentioned, the innovation that the teams put in place late last year is driving performance in the aftermarket, which was a large contributor to the growth we saw in the second quarter. We are also seeing strong renewal rates from huge cohorts that joined last year and continued new registrations. And finally, hosting and presence grew 9% year over year, in line with our expectations of high single-digit growth. We continue to see very nice growth in our presence products like websites and marketing, tempered by slower growth in our legacy hosting and security business, with continued year-over-year declines in social. Bookings came in at $1.05 billion, rising 13% year-over-year, with two points of currency tailwind. Strength in bookings in the quarter reflects similar drivers to what we called out for revenue. Gross margin came in at 64% in the quarter, in line with what we saw both last quarter and in the second quarter last year. product mix continues to drive the company's overall gross margin, and we're pleased with the 16% year-over-year growth we saw in gross profit dollars in the second quarter. Growth in both G&A and tech and dev expenses decelerated this quarter. As you'll recall, there were some one-time expenses related to our point acquisition that were recognized in T&D and G&A in Q1 that didn't repeat in Q2. The growth rate in T&D remains above what we saw in 2020, reflecting the outstanding talent we added via the point acquisition and our continued investment in the product development. Our marketing and advertising investment remains strong in Q2, though the year-over-year growth decelerated as we started to lap the elevated investment we made to capture the extraordinary demand we saw last year. Our growth and investment in the second quarter resulted in normalized EBITDA of 198 million, representing a growth of 22% year-over-year. Unlevered free cash flow for the quarter was 237 million, growing 27% year-over-year, driven by strong profitability, continued positive impacts from working capital, and disciplined CapEx investments as we continued shifting workloads to the cloud. Now onto the balance sheet. We finished Q2 with $1.4 billion in cash and total liquidity of nearly $2 billion. Net debt stands at $2.6 billion, below three times net leverage on a trailing 12-month basis, and near the midpoint of our targeted range of two to four times. GoDaddy has a strong liquidity position, access to both debt and equity capital markets, and resilient cash-generating operations. During the second quarter, we repurchased nearly 1 million shares for an aggregate purchase price of $81 million and announced acquisitions in the registry space. Our priorities for capital allocation haven't changed. Our strategic priority is to grow the business and will continue with organic investment as well as through acquisitions. We will continue to prioritize M&A over share repurchases. That said... We still have approximately $1 billion remaining on our repurchase authorization, and we expect to deploy capital to repurchase shares opportunistically. Moving on to our outlook, GoDaddy has a strong, resilient business model, giving us confidence in our ability to achieve our full-year targets. Following a strong first half, we want to acknowledge the evolving impact of the pandemic, COVID variants, and access to the vaccines, and we want to be prudent with our guidance for the second half of the year. We expect our full year revenue to be approximately $3.75 billion, or 13% growth year over year. And we continue to expect unlevered free cash flow of $955 million, or 16% growth year over year. While we don't typically guide to bookings explicitly, we want to provide some color. We expect bookings growth to be a couple of points below revenue growth in the back half of the year. Our forecast assumes that FX tailwinds will abate and we're facing tough compares. We expect revenue growth and domains to moderate, especially in Q4, exiting the year growing low double digits. We're also facing tougher compares in the aftermarket as we lap the impact of the list for sale tool and other improvements introduced in Q4 last year. The aftermarket, as you know, is a non-subscription business. We expect hosting and presence revenue to deliver mid single digit growth for the full year. We continue to see low single digit growth in our legacy hosting business. We're also lapping very difficult comps in our higher growth products like websites and marketing and continued declines in social. We also note that the moderation of the FX tailwinds will disproportionately impact this line. We've got a strong track record of driving growth, and our goal is to accelerate the growth in this category beyond 2021. We continue to expect high teams growth in business applications for the year. With respect to investments and expenses, we continue to invest in tech and dev. as we drive development of our Omnicomners and better scale our engineering and developer teams for long-term growth. Marketing spend is governed by returns, so we'll continue to monitor and adjust based on the demand we're seeing in the market. Investments here will likely be offset by continued leverage in customer care and G&A. For Q3, we expect total revenue of approximately $945 million. We're 12% growth year over year with high teens growth in business applications, mid-teens growth in domains as we lap the slightly tougher comp, and mid-single-digit growth in hosting and presence. As I wrap up my comments here, I want to express my thanks for the incredible welcome I've received from all of the wonderful people at GoDaddy, as well as our partners throughout the industry and our analysts. I will do everything I can to ensure that we are executing against all of the financial and strategic priorities we've laid out, and that we are communicating clearly and transparently with all of our stakeholders. I know I have big shoes to fill, and I'm looking forward to meeting many of you in the coming weeks and months as we virtually hit the road. With that, we'll have Christine Masoner from our IR team open up the call for questions.