GoDaddy Inc.
Q4 2019 Earnings Call Transcript

Published: 13 Feb 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the GoDaddy Q4 earnings conference call. . I would now like to hand the conference over to your speaker today, Mark Grant, Vice President of Investor Relations. Thank you. Please go ahead.

[Mark Grant:]

Good afternoon, and thank you for joining us for Godaddy's Fourth Quarter and Full Year 2019 Earnings Call. With me today are Aman Bhutani, Chief Executive Officer; and Ray Winborne, Chief Financial Officer. Aman and Ray will share some prepared remarks, and then we'll open up the call for your questions. 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 ARPU. 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 8-K filed with the SEC with today's earnings release.

[Amanpal Bhutani:]

Thanks, Mark, and thank you, everyone, for joining our fourth quarter earnings call. 2019 closed out with strong operational execution and consistent financial performance, as we near $3 billion in revenue while growing unlevered free cash flow 19% year-over-year. Equally important, we are entering 2020 with confidence after having moved quickly against a set of objectives to realign how we operate as a company, including changes to our priorities, leadership and teams, all in passionate support of our mission to enable entrepreneurs with technology, humanity and purpose. We made these rapid changes to accelerate execution, all while delivering on our financial commitments across the board. With five months into my tenure, I wanted to share a few thoughts on our core priorities of enabling a strong platform, creating an intuitive customer experience and continued brand expansion, including our recent launch of our new logo. First, our core platform goals remain unchanged

[Raymond Winborne:]

Hey, thanks, Aman. I'll touch on our fourth quarter financial results and our outlook for 2020. As Aman highlighted, 2019 was another solid performance as our teams delivered terrific outcomes across the business. From a financial perspective, full year results landed right on top of our initial guidance, with revenue up 12% year-over-year and unlevered free cash flow, up 19%, delivering over 1 point of margin expansion.

[Operator:]

. The first question comes from Deepak Mathivanan of Barclays.

[Mario Lu:]

This is Mario Lu on for Deepak. Can you elaborate on the free cash flow guide? How should we think about the nature of investment that's reflected in your guidance? Are those ongoing or onetime in nature?

[Raymond Winborne:]

Sure. I'll start and see if Aman wants to over the top. But the guide we put out there at 16% ex special item on the pay period, it reflects all the investment we're putting into the platform that Aman spoke about on the call as well as in the marketing, care, and we'll get leverage on our G&A line item. So it reflects everything that we've got line of sight into. And if you look at our history, we will tell you what we're going to do, and then we're going to go do it.

[Amanpal Bhutani:]

Now I'll just say that we've not -- I've now had more time to look at our investments for the year. And as we said, we're covering everything we know in it. So you should take it just as it is.

[Operator:]

Your next question comes from Matt Pfau of William Blair.

[Matthew Pfau:]

Aman, I wanted to ask on some of the reallocated resource and maybe a little bit of incremental investment. Is that primarily going to the areas you mentioned in terms of Websites + Marketing, WordPress and some of the other naming, branding type tools? Or are there other areas as well? And then any areas that previously where we're invested in that you're pulling some of those resources from that plan to be less of a focus going forward?

[Amanpal Bhutani:]

Yes. Thanks for the question, Matt. Just to clarify, the incremental investments we're making are small so I would really look at the reallocation, which was the second part of your question. And yes, our investments are focused in the core products. We also are moving a bit of more investment into our core platform, which is going to allow our products to move faster. And that's one of the key reallocations. When a product suite is more separate, you may have to make certain duplicate investments for certain capabilities, then we're pulling some of those back down at the company level to just create the best customer experience that we can.

[Operator:]

Your next question comes from Sterling Auty of JPMorgan.

[Jackson Ader:]

This is Jackson Ader on for Sterling tonight. Can you just give us a little bit of insight into the expectations for customer additions that are baked into this 2020 guidance on the top line?

[Raymond Winborne:]

Hey, sure. It's Ray. You guys know, we haven't historically guided to customer count. We only called out the impact of the merchandising tactics last year because it was an anomaly. We've mentioned this numerous times, we don't run the business on customer count, and so we're not going to guide to a number. That said, if you look at our go-to-market motion, it's working, as evidenced by the top line growth that we delivered as well as the guide we've got in front of us.

[Andrew Low Ah Kee:]

And hey, Jackson, it's Andrew Low Ah Kee here. I'd just add, our 2019 customer cohort was the highest value we've ever acquired. The growth and the progress you're seeing in Websites + Marketing and WordPress is showing up in that value, and in Aman's comment during the call earlier that we're taking market share.

[Jackson Ader:]

Okay. That's helpful. Then a quick follow-up, if we can just stick with the Websites + Marketing, the subscribers that you're adding, what does the attach rate look like, if you can give us any kind of quantitative detail there? And if not, maybe how has it -- how does it compare to maybe some attach rates of other products in the past?

[Amanpal Bhutani:]

Yes. We don't talk about the specifics of the attach rate. But I would tell you that, broadly, it has met and exceeded our expectations, and it's higher than what we've seen in the past and with other products. And the best example of that is if you look at Websites + Marketing, a product that we sort of built from the ground up and really gone into market over the last 2.5 years or so, has gotten rapid adoption, right? We see the growth in the product, which is significantly a function of how well we are able to attach to people coming into the site or coming into care for us.

[Operator:]

Your next question comes from Nick Jones of Citi.

[Nicholas Jones:]

You mentioned there's some interconnected tasks that lead to friction for your customers. Can you maybe elaborate on that and a little bit? And how does that inform on kind of the product development pipeline?

[Amanpal Bhutani:]

Yes. Let me share with you a journey that we see very often. Everyday entrepreneur has an idea they want to take online, and they start with a name and they come in and -- come in to our site and looking for a domain name, and that's fantastic. They can find the name. If the name is available, we can give it -- we can sell it to them. If it's not available, we actually have broker services that can help them. But the minute you get past that name, somebody may be thinking about, "Oh, I want to create a little image logo. I want to be able to just send this out to my friends and say, 'here's what my idea looks like.'" And immediately, you have the need to create online content, right? And if that experience is not intuitive in terms of, if at that moment, you can't offer that service, then there's a break and friction in the process for the entrepreneur to continue. And we basically have mapped out this journey, sort of in a pretty detailed level. And now we're looking at gaps in that journey and saying, "You know what, here is the moment where somebody has to create a digital asset as an example. Well, let's look in the marketplace, who's got amazing products that do that." And that leads us to something like Over where we see a great group of people building an amazing product and a need that our customer has. And then when we plug that in, we say, "Okay, now let's look at the next one and so on." Does that help?

[Nicholas Jones:]

That does. So if we look at kind of some of the products that come out, there's things in e-commerce, things in driving traffic, some things in design. Is there one category that's kind of most exciting? It sounds like maybe the design part and the content generation.

[Amanpal Bhutani:]

I think content creation is a big category. Commerce is a big category. Category we're putting more energy into is messaging. So our customers engaging their customers is a really big category. And it's really complicated for our customers that tend to be micro businesses to handle just all the channels that they have to handle because customers are coming in and talking to businesses in new ways. And our -- the entrepreneur needs to be able to answer those requests. So bringing those channels together, making it simple, is another good category for us.

[Operator:]

Your next question is from Brent Thill of Jefferies.

[Brent Thill:]

Aman, if you could just double click into the platform goal with minimal new investments, many are watching that line and believe there's a lot of interesting things you could do there and manage -- managing the other part of the stack. Can you just walk through directionally at the high level, how do you think you can manage that without having to put more capital into the business? .

[Amanpal Bhutani:]

Yes. So as I discussed last time, this was an area of investigation for me to understand deeply. Just given my background, I wanted to really understand it. And a couple of things pop up. The first is, if you look at the last 2 years, there has been significant investment in the tech and dev line, and the company has been focused on improving. The second -- so that -- there's already a set of investment there for me to use. The second is that given my background, the one big thing I can bring to the table is that, like many other companies, sort of investing in their platforms, a company will -- on point A will want to go to point B and say, "Okay, we should make these investments." Well, I've been through that cycle and realize that you get to point B and then often have to go to point C from there. And that's where I can bring my expertise and say, "Hey, guys, I know we're on this path. I know it makes sense. But I know what it looks like when we get there. So let's just chart the path from the A to C directly." And I had alluded to this last time in the call, too, but it's not a matter of putting armies of people behind this thing. It's about finding the right people with the right skill set and get them focused on a small number of priorities. So that was the plan that we wanted to put in place. And now I'm very confident that, that's the best plan record.

[Brent Thill:]

Okay. Great. Just real quick for Ray. Hosting and Presence growing slower than Domains. I think vendor asking, is there a catch-up that can come? Is there something you can do there, if they're buying the domain from you, why wouldn't that line grow a little faster?

[Raymond Winborne:]

No. Thanks, Brent. We've been really happy with the growth we've seen in there. Obviously, the Websites + Marketing and Managed WordPress are the software subscriptions we're leaning into. Those are growing around 40% on a unit basis. So growth is there. It's just living in a large line item, right? This is a $1.1 billion line, very difficult to inflect that and -- but we're very happy with the success we're seeing in the subscription growth.

[Operator:]

Your next question comes from Ygal Arounian of Wedbush Securities.

[Ygal Arounian:]

I may have missed this in the disclosure, but the guidance, does it include the acquisitions? And any way to think about what the contribution is on -- I'm guessing Uniregistry would be a bit more of a contributor? And then on that topic of Uniregistry, just maybe walk us through a little bit more the rationale of the acquisition, what the gaps in your offerings that you think it's complementing or things that it's building on a little bit better and how just it overall fits with the portfolio. And if you could tell us the domains under management and how that contributes to your overall domains.

[Raymond Winborne:]

Yes. Hey, it's Ray. I'll start with the impact on guidance and then toss it to Aman. On the top line, the combined impact of both of those acquisitions over in Uniregistry are about 1 point, and the impact to unlevered free cash flow is negligible.

[Amanpal Bhutani:]

Yes. And in terms of the components of Uniregistry, the key pieces that are for the GoDaddy business now include a set of tools and experiences for our large customers. Second, there's a set of -- sorry, there is a portfolio of names that is part of Uniregistry that is coming into the company as well. So if I just take those two items separately. When we look at our large customers, there is a set of friction for them to be able to do their jobs. It's -- there's a lot of off-line stuff. There's a lot of sort of handholding and interaction in the broker service. And Uniregistry is built from the ground up tools and experiences for that cost. So bringing those back into the GoDaddy family and offering it to all of our large customers is a fantastic addition. In terms of the portfolio, it's about 350,000 domains. It's a fantastic portfolio. It allows us to continue to improve the liquidity of our secondary market and really offer those names up to all the people coming into GoDaddy.com and searching for a domain name.

[Ygal Arounian:]

If I could ask one quick follow-up on WordPress and the Go theme plug-in, is that something you guys monetize? And how should we think about how that fits in with the rest of the Managed WordPress portfolio?

[Amanpal Bhutani:]

Yes. So the Go theme is really about our position in the open-source community. It's about the broader, the set of brand building for us as a company. We don't monetize the theme. People can use the Go theme whether they are a customer of ours, for example, on Managed WordPress or if they're just using WordPress anywhere in the world with anybody else, right? This dramatic -- the team is really focused on dramatically reducing the time designers need to put something together that's beautiful and do it really fast. I would encourage anyone to just go out and try it. If you go out and try it, you'll see the difference in how you yourself can create a site that looks gorgeous and happens quickly.

[Operator:]

Your next question comes from Naved Khan of SunTrust.

[Naved Khan:]

Yes. Maybe a couple of questions. So if we have to think about segment level growth, maybe, Ray, you can give us some pointers like, I think, previously, you kind of spoke about like Domains growing maybe slightly faster than unit and Hosting and Presence growing maybe 2 to 3x and then apps growing faster? And how should we think about that for 2020? That will be very helpful, if you can. And then just on the conversational marketing. Obviously, you guys ramped up the spend through 2018 and '19, how should we think about that growing as a part of the mix in 2020?

[Raymond Winborne:]

Hey, it's Ray, Naved. I'll start with the first piece of that, and then I'll toss it to Andrew. I'm not going to provide specific guidance on a line item. But I think a decent way to think about 2020 in the overall context of our 11% would be Domains in the high single digits. We're going to lap some pretty strong growth out of aftermarket in 2019. Hosting and Presence in the high single digits, and that's going to be driven primarily by continued growth in Websites + Marketing as well as our Managed WordPress offerings. And in biz apps, which is now over $500 million line item, growing in the high teens. We'll share more with you guys, more insight into the growth algorithm, how we're thinking about the market opportunity for us at our Investor Day in early April.

[Andrew Low Ah Kee:]

And Naved, it's Andrew here. On conversational marketing on the full year in '19, we obviously scaled up our spend and delevered that line a little bit, which is a good thing. While we've scaled that up, importantly conversational marketing and the pace of testing, iteration of campaigns has really improved and increased. And we're seeing those gains and improvements kind of driving new and expanding reach into our existing customer base paying off, and we're seeing good strength in bookings as a result. Op is good.

[Operator:]

There are no further questions at this time. I will turn the call over to Aman Bhutani, the CEO, for closing remarks.

[Amanpal Bhutani:]

Well, thank you, everyone, for joining us for our call. And I'll just give a shout out to all GoDaddy employees all over the world, doing great work. Thank you very much. We'll talk to you in the quarter. Bye.

[Operator:]

This concludes today's conference call. Thank you for your participation. You may now disconnect.