GoDaddy Inc.

Good afternoon, and thank you for joining us for GoDaddy's fourth quarter and full year 2021 earnings call. I'm Christy Mason, 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 would like to ask a question on today's call, please use the raised 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, annualized recurring revenue or ARR, gross merchandise volume or GMV, 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 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, our strategies or 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 the forward-looking statements. Any forward-looking statements that we make on this call are based on assumptions as of today, February 10, 2022, and accept 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, we remain laser-focused on helping micro and small business owners succeed and grow their businesses Our customers continued to show resilience and creativity through the pandemic, and our Q4 financial results were a strong end to a strong year. As we look back at 2021, I am excited by the unyielding acceleration in the pace of execution, best demonstrated by the integration of points and the launch of the Omnicommerce offerings. And we have a deep trust with our 21 million customers, evidenced by the 65-plus NPS we have in care, and that in Q4, more than 60% of customers in the commerce tier of websites plus marketing chose GoDaddy payments over other established providers. We delivered strong growth in bookings, revenue, and unlevered free cash flow in 2021. with Q4 being GoDaddy's first quarter of $1 billion in revenue. We ended the year with a significant outperformance in aftermarket, driven by sustained market demand. We continue to drive broad-based trends in our Create and Grow suite of products, with ARR for them growing 19% year-over-year. And today, we announced a $3 billion share buyback program that Mark will cover in his section. While we delivered strong financial results, Omicron impacted our customers and our employees. In the U.S., the impact started to show late in the quarter as customer demand softened a little bit and more and more employees were out sick due to the pandemic. As you might expect, the biggest operational impact of the higher absentee rates were in our care organization. As Omicron cases around the world have come down, we have seen better staffing in care and expect the impact of Omicron to be limited to Q1 2022. Early this year, we named Roger Chen as our Chief Operating Officer. Roger has been with GoDaddy for over six and a half years and led teams to strong financial results by focusing on operational excellence. He started with GoDaddy with the expansion of our international footprint and most recently has been leading our domain business. Roger is excited to meet you at our Investor Day tomorrow. With Roger's appointment, I am happy to share that we have a well-rounded and complete executive leadership team in place, and we are excited about the large opportunity in front of GoDaddy and confident in our ability to execute to it. As always, I will cover progress on our top three priorities today. Our top priority continues to be driving success in commerce through presence. A year into the point acquisition, we have made remarkable progress with the integration. Kudos to all the teams involved. We completed several product launches for Website Plus Marketing and Managed WordPress, launching GoDaddy Payments mid-year and the Omnicommerce product launch in September. We also recently launched a higher-end commerce queue, which is currently being tested with a percentage of U.S. customers. We doubled the size of our commerce team, and we intend to continue the rapid pace of product launches in 2022 as well. With the launch of our Omnicommerce offering in September, we took a giant step forward in our ability to serve our customers with a seamlessly intuitive experience. Our customers' need is to sell anything, anywhere. And we are all in the early stages of the merging of the offline and online commerce experience. And we call this connected commerce. We're pleased to share that right out of the gate, we're seeing some good early signs. Since the launch, we have sold over a thousand point of sale devices and have received tens of thousands of GoDaddy payments applications from customers. Most promising is that customers are choosing GoDaddy payments. In websites plus marketing commerce tier, more than 60% of customers are choosing GoDaddy payments. And in managed WordPress, where customers have over 140 choices, nearly a quarter of customers are already choosing GoDaddy payments. We're pleased to already be at this level of attach. We have also rapidly expanded our partnerships with Google, Facebook, and Instagram to increase our customers' reach and boost their online profile. These integrations are making a real difference for our customers. Most of our customers double their website traffic when running a Facebook or Instagram ad. Additionally, GoDaddy websites plus marketing customers who added their stores to social media placing orders. Our customers' commerce needs are increasingly interconnected to the various different ways they show up. Recognizing this customer need, we have expanded our focus from online presence to what we call ubiquitous presence, which we'll discuss in more detail tomorrow. We know how and where customers show up is important to the way they connect with their customers. And GoDaddy has the solutions customers need. A third of our customers link their websites to at least one social platform. And in Q4, we added the ability for customers to link their sites to three new social platforms, TikTok, Twitch, and Discord. Since then, these new platforms account for 11% of all platforms that customers link from their websites, with TikTok being the most popular. Another customer need is BioSites. BioSites have become an essential tool for our Social First customers, and we're excited to support them through the launch of Social Site, GoDaddy Studio's BioSite capability. Consistent with our goal of meeting customers where they are, this tool empowers social-first entrepreneurs to set up a fantastic social site with GoDaddy Studios with just a few clicks, helping them grow their business by driving traffic to their top content. Our customers' customers are reaching them through many channels, chat on website, SMS, Facebook Messenger, and much more. Having to check and respond to these various different channels is cumbersome and time-consuming. With the acquisition of Reamaze, we quickly enabled a unified messaging inbox called Conversations in Websites Plus Marketing. It pulls in messages from a customer's website, Facebook Messenger, Instagram inbox, and voice lines all into one convenient inbox. customers can easily access, organize and respond to messages from multiple platforms all in one place and never miss a sales opportunity. This feature is also available via mobile app for convenient access to messages on the go. This saves small business customers time, and they can quickly help their customers or enable automated chatbots that can help answer questions about order updates, shipping, and more. And customers are already showing that they love it. Usage for the conversations feature jumped immediately, and we expect more and more websites plus marketing customers to use this feature over the next few months. Our present solutions continue to be priced competitively, giving us short-term pricing opportunity and with higher customer engagement with features like conversations, we continue to build greater consumer surplus, which we expect will offer pricing opportunities in the future as well. The increased pace of execution here is also showing in our results. Across our Create and Grow products, Websites Plus Marketing, Manage WordPress, Sellbrite, and GoDaddy Studios, ARR grew to 410 million in 2021, an increase of approximately 19% year-over-year. We measure and share this metric as we believe it is indicative of future success in GoDaddy's high-growth areas and where we are funding innovation and capturing higher-value customers. Moving on to our second priority, GoDaddy Pros. As you are aware, we have a large number of pros, over 1.5 million, in our customer base, a majority of them in our hosting business. Pros widely prefer WordPress, and we are committed to supporting them and supporting WordPress. More deeply engaging our pro customer base continues to be one of the large opportunities in front of us, and we are working on exactly that. While we set and achieved an aggressive goal to register 300,000 pros in our pro hub, we quickly shifted our focus to a steady set of feature launches driving monthly active users, or MAL. In Q4, we launched priority care ticketing, commission-based incentives, percent-based pricing for new reseller customers, client reports, and more in the hub. While it's early days on these new launches, all of these features demonstrate our commitment to provide a differentiated experience to our pro customers, increasing the value we create for them. Our pros customers use both managed WordPress and hosting products with us. As pros show greater preference for managed WordPress, delivering the best experience across both is key to our relationship with them. In 2021, we started to upgrade the hosting platform to a new optimized configuration, which has started to show significant performance improvements. Notably, a 37% average improvement in server response times, improved NPS, and a resulting 6% increase in renewal rates over a couple of quarters. And with our continued efforts to integrate Paisley, we will provide them with the best managed WordPress offerings for their customers as well. Our third priority is innovating in domains. Our aftermarket business posted another remarkable quarter, led by significant market demand as we exited the year, driving increases in both the volume and size of transactions. While primary domain registration growth remained solid, GoDaddy Registry successfully launched a reputation protection solution, contributing to strong growth in the registry business. We also extended our registry offering by winning the bid to be the exclusive issuer of .tv TLDs. The domains business continues to be one of our most valued assets as it often serves as our first introduction to our customers while providing a significant launching point to attach other products. We will share more on this at our investor day tomorrow. Lastly, I wanted to highlight some key wins on the marketing front as a preview for some of the content in tomorrow's Investor Day. One of the areas of investment for us over the last year was the GoDaddy website. The team had set its sights on conversion improvement as the goal, and by building and following a world-class experimentation-based software development approach, they realized meaningful incremental growth. We know that once a customer gets to our site, that's only the beginning, and our teams continue to work on continuing improvement in engagement and conversion. We've also been working hard at spending marketing dollars more efficiently. Over the last few months, with new leadership in place, we embarked on a journey to add advanced testing and measurement capabilities to make faster decisions on our marketing stance. Strengthening our talent and execution in areas like data science has been key for us to be able to better discover opportunities for marketing efficiency and do the tests needed to understand incrementality, even if it means turning off the channel for a couple of weeks. Farah will cover this area tomorrow at our investor day, and I continue to be excited to leverage our marketing spend more effectively. I also wanted to take a moment to welcome you to our investor day tomorrow. We will discuss our long-term strategy, innovation initiative, refreshed capital allocation strategy, go-forward revenue presentation, and three-year guide. We are eager to spend additional time with all of you tomorrow. In closing, we're pleased with the results this quarter and with GoDaddy's progress against our key initiatives. We're delighted that the momentum in our biggest product release yet, and even more delighted that our customers are demonstrating an appetite for it through the early signals of adoption. We are committed to continuing our pace of innovation, bringing important innovative solutions to customers, driving progress across the entire industry and delivering durable top line, profitable growth, robust cash flow with a focus on disciplined capital allocation. With that, here's Mark.

Thanks Iman and hello. I am looking forward to connecting with everyone over the next few days. Today, I'll first touch on 2021 full year and fourth quarter financial results, as well as an outlook for 2022. Tomorrow, at our investor day, I'll provide additional long-term guidance and introduce our new revenue disclosures and metrics. With that, let's move to our 2021 results. Total revenue for 2021 grew 15% year-over-year to $3.8 billion, exceeding our initial guidance on broad-based strength in new and renewal revenue attached and outperformance in our aftermarket. ARPU increased 10% to 182, and we added 600,000 net new customers in 2021 with continued strong retention and renewal rates. Moving on to our quarterly results, GoDaddy achieved a new quarterly revenue milestone of $1 billion, up 17% year-over-year, exceeding our guidance. International revenue grew 13% on a reported basis with approximately one point of currency tailwind. Q4 domains revenue increased 24% year over year to $497 million. Aftermarket was the primary driver of the strength in domains, contributing nearly two-thirds of the growth in this line. with the remainder attributable to acceleration and GoDaddy registry, and continued strong new registrations and renewals. Hosting and presence revenue grew 7% year-over-year to $330 million in the fourth quarter. We continued to drive growth in our Create and Grow products, with legacy hosting and security growing low single digits. Q4 hosting and presence. Create and Grow ARR surpassed $410 million growing 19% year-over-year. Within that suite, Q4 websites plus marketing ARR grew 20% year-over-year. And more specifically, websites plus marketing commerce ARR grew 24%, demonstrating our commerce opportunity in websites plus marketing. As commerce becomes more pronounced in our products, we'll continue to evolve this disclosure, as we have multiple paths of growth for commerce in more products in our suite. Lastly, annualized GMV across the GoDaddy ecosystem was approximately $26 billion in 2021, growing 21% year-over-year. Business applications revenue increased 18% year-over-year, to $192 million on continued strength in branded email and productivity solutions as customers continue to attach, add feeds, and up-level their solutions. Bookings grew to $1.1 billion, improving 11% year-over-year on a reported and constant currency basis. Growth was broad-based with continued strength across product categories, including strength in aftermarket. Gross margin was down slightly in the low end of the mid-60s for the quarter. Product mix, particularly strength in aftermarket, continues to drive the company's overall gross margin. Investment in tech and dev was consistent with last quarter as we continue to accelerate our pace of innovation while maintaining fiscal discipline. We continue to get leverage in G&A as travel and other office expenses remain below historical levels. One item to note is that during Q4, we continued the consolidation of our Arizona offices, resulting in a closure of one office and a $15 million one-time charge in our restructuring and other line. This offset the $15 million gain recognized last quarter from the sale of another Arizona office as we continue to simplify our physical footprint. As Aman noted earlier, we drove efficiency in our marketing spend, although our investment remained strong in Q4 and consistent with Q3. Year over year saw a deceleration in our spend as we lapped the elevated investment we made in 2020 to capture the extraordinary demand. As we continue to refine our marketing return engine, we remain focused adjusting our marketing spend as macro environments fluctuate. our growth and investment in the fourth quarter resulted in normalized EBITDA of $254 million, representing growth of 29% year-over-year from continued profitability, disciplined hiring, and leveraging OPEX as we continue to benefit from work at home and decreased travel. Unlevered free cash flow for the quarter was $203 million, growing 12% year-over-year. Full-year unlevered free cash flow grew 16% year-over-year to $960 million in line with our guidance. Positive working capital impacts, as well as reduced capital expenditures for corporate real estate and infrastructure, was offset by the lower margin profile of our top-line outperformance. On the balance sheet, we exited the year with $1.3 billion in cash and total liquidity of nearly $1.9 billion. Net debt landed at $2.7 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. The strength and resilience of our recurring business models have fueled a strong balance sheet, enabling us to address our capital allocation priorities. In 2021, we completed six acquisitions and repurchased nearly 4% of our outstanding equity. In addition today, we announced our intent to buy back $3 billion of shares through 2024. This represents utilization of approximately 80% of our projected free cash flow over the next three years and is expected to drive a material reduction in our share count. We also announced we expect to launch a $750 million ASR this quarter, which shows our commitment to aggressive use of the new $3 billion repurchase authorization. We are committed to increasing the value we create for shareholders by growing our free cash flow and reducing our share count over time. Now, I'd like to provide our outlook for 2022. We expect total annual revenue to be within a range of $4.14 to $4.16 billion, which represents year-over-year growth of 9% at the midpoint of the range. In Q1 2022, we are targeting total revenue of $985 to $990 million. This represents 10% growth at the midpoint of the range. We expect 2022 unlevered free cash flow of approximately $1.1 billion or 15% growth versus 2021. We expect capital expenditures of approximately $65 million, income tax payments of approximately $20 million, and cash interest payments of approximately $120 million. The global pandemic has affected a lot of businesses and SMBs. timeline of which has varied by market geography and customer type. Because of this variability, forward-looking guidance based on compare years that were impacted or benefited by COVID can be challenging. As such, it's important to call out that guidance we're providing today shows continued business momentum, yet comes off a strong year of outperformance in 2021, which makes for tough comps in the near term. Tomorrow at investor day, We will discuss multi-year growth targets and levers which provide a better picture of the potential we see and the shareholder value they will create. We are committed to providing the information you need to model the business confidently, value the business effectively, and hold us accountable for executing against our stated objectives. In addition to incremental disclosures and metrics, we will spend our time with you tomorrow discussing the company's long-term strategies. key innovation initiatives, an updated capital allocation strategy, and as I mentioned, a multi-year outlook. We'll end the day with Q&A hosted by our management team. Given we have Investor Day tomorrow, we ask that you limit questions today to our 2021 results and the information we've provided in our prepared remarks. We have ample information to share with you tomorrow, and we will have time to go into more details then. With that, I'll hand the call over to Christy Masner, who will be leading the Q&A.