GoDaddy Inc (GDDY) 2016 Q4 法說會逐字稿

Good afternoon. My name is Mariama, and I will be your conference operator today. At this time, I would like to welcome everyone to the GoDaddy fourth-quarter earnings conference call.

(Operator Instructions)

I would now like the turn the call over to Marta Nichols, VP, Investor Relations.

You may begin your conference.

Thank you.

Good afternoon, and thanks for joining us for GoDaddy's fourth-quarter and full-year 2016 earnings call. With me today are Blake Irving, CEO; Scott Wagner, President and COO; and Ray Winborne, CFO. Blake, Scott and Ray have some prepared remarks, and then we will open the call up for questions.

On today's call, we will be referencing both GAAP and non-GAAP financial results and operating metrics, such as total bookings, unlevered free cash flow, net debt and ARPU. A discussion of why we use non-GAAP financial measures and reconciliations of our non-GAAP measures to their GAAP equivalents may be found in the presentation posted to our IR site at Investors.GoDaddy.net, or on our Form 8-K filed with the SEC with today's earnings release.

The matters we will be discussing today include forward-looking statements, which include those related to our future financial results, new product introductions, the acquisition of HEG, and the possible divestiture of HEG's PlusServer business. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC. Risks related to HEG also include uncertainties regarding the timing of the acquisition, retention of customers and employees, and our ability to successfully integrate HEG into GoDaddy and divest the PlusServer business.

Actual results may differ materially from those contained in the forward-looking statements. Any statements that we make on this call are based on assumptions as of today, February 15, 2017. We undertake no obligation to update these statements as a result of new information or future events.

With that, I'll turn the call over to Blake.

Okay, thanks, Marta.

Thanks to all of you for joining us today. We feel great about how we closed 2016 on a strong note, with another year of consistently good growth on the books, as well a definitive agreement to acquire HEG in hand, and a strong marketing and roadmap for 2017. As we complete our second year as a public Company, our results and growth have remained very consistent, with continued solid growth across all our major revenue lines -- Domains, Hosting and Presence, and Business Applications -- and over 20% growth in cash flow.

At year end 2016, we've grown to serve over 14.7 million customers, an increase of 7% versus a year ago. Our average revenue per user, or ARPU, also rose 7% to $130 despite continued currency headwinds. We finished 2016 with revenue over $1.8 billion, up 15% year over year. Bookings crossed the $2 billion mark in 2016. The main bookings topped $1 billion for the first time, illustrating both our scale and leadership position in the industry.

This year, we look forward to generating continued growth in both revenue and cash flow, fueled again by organic customer adds and growing ARPU, in addition to the contribution for our expected acquisition of Host Europe Group, or HEG. Our strategy is consistently focused on growing GoDaddy in a steady and sustainable way over many years, and that focus remains unchanged. We see huge opportunity in the months and years ahead, and we intend to go after it in the same deliberate way we have over the last several years, through 2017 and beyond.

We're starting this year with some big product and strategic initiatives, including, one, the launch of GoCentral, our entirely new mobile-optimized website builder that does so much more than just create an online presence by combining easy and elegant site-building with fully integrated marketing and e-commerce tools. Two, the acquisition of HEG, which dramatically expands and strengthens our footprint in Europe. And three, the upcoming launch of our new telephony offering, [Smart Line]. I am going to spend a little time on GoCentral, and then turn it over to Scott and Ray.

With GoCentral, our Web presence team has re-imagined and completely rebuilt GoDaddy's entire website-building experience from the platform up, with a focus on what businesses want -- results. Including not just building an elegant website, but driving and attracting visitors and driving sales. With just basic information like the name, address, and type of business or idea, GoCentral's smart learning system generates a near-complete website, pre-filled with relevant sections and professional images that can be easily and intuitively edited.

Every site built on GoCentral is fully mobile-responsive, so it will immediately look great on phones, tablets and computers, with no additional work required. More importantly and totally unique to GoCentral, users can build, customize or update their site on the go entirely from a phone or tablet.

There was an industrywide belief that you couldn't build a great-looking website with a mobile device. Our team hypothesized that if a mobile site builder was easy to use and produced a fantastic-looking site on any device, including a PC, we'd see a relatively quick migration to mobile-site building. That hypothesis appears to be right. So far, 20% of new GoCentral customers are building sites from their mobile devices, making this a very key differentiator and an important new on-ramp for us.

When I reflect on how other experiences have evolved on mobile, I think of Facebook. Most people didn't use Facebook on their phones years ago until the experience was optimized to be great on mobile. And now the vast majority of Facebook activity is on mobile, and more than half of their users only access via mobile. In short, allowing customers to build directly on a mobile device is a big differentiator for us, especially meaningful in emerging markets where everything is mobile first, and often mobile only.

GoCentral's other big differentiator is GoDaddy's smart learning system. We have integrated this new site builder with several key features to make the critical stuff really easy. For example, with GoCentral, you see website activity updates when you log in. You get suggestions like attaching to social networks. You can quickly begin search engine-optimizing your site or launch an e-marketing campaign.

More importantly, while we started with dozens of smart features to help you design a beautiful site in under an hour, where the smart learning system really shines is deeply integrating GoDaddy's other offerings to help our customers acquire and connect with their customers. We're working to help our small business customers get results and achieve success quickly and easily. We're confident that anyone developing a Web presence for the first time, or even replacing their old site, will agree that GoCentral is incredibly easy to use and produces a terrific result.

We've made GoCentral free to get started, with no credit card required, so people can try out CoGentral and get going with the tool as easily as possible. You could even publish on your own domain name for free. I encourage you all to try GoCentral out and build your own site.

With this product launch, GoDaddy offers a complete range of products to help customers build a great online presence, from do-it-yourself to WordPress to professional design services. We now offer the industry's premiere mobile-first DIY website builder fully integrated with marketing and e-commerce. A managed WordPress tool set that makes it super-easy to build, update, monitor and maintain a site in WordPress, and a professional Web services team who can help build or remake a customer's online presence to their specs.

Each one of these offerings is built on a global and scalable technology platform that allows us to offer each of these options to every one of our customers globally. We've got a lot more lined up in 2017, and we're already putting points on the board.

I'll turn the call over to Scott now to talk a bit about our marketing strategy and provide more color on HEG.

Scott?

Thanks, Blake.

My focus over the last six months since Ray's arrival has been on our big go-to-market efforts. Specifically, the evolution of our marketing strategy and execution, our international growth and how we can do more with our customers through care. Today I'll say a bit about our marketing and international efforts.

First, on Marketing, we returned to the Super Bowl broadcast this year to launch GoCentral, kicking off a broader campaign that plays to the cultural and commercial power of the Internet. Our ad drove millions of viewers to the GoDaddy website with a very effective digital extension tactic, yielding millions of video views across multiple channels in our best Sunday ever for new customer signups. In their analysis of this year's ads, Forbes reported ours among the top five attention-generating ads aired with this year's game.

Everyone knows the Super Bowl helped put GoDaddy on the map a decade ago, massively expanding the Company's brand awareness. But our purpose this year was different. This year, the game provided a great forum to introduce GoCentral, which Blake just spoke about, and kick off a larger campaign focused on showing no one knows the Internet like GoDaddy, via a new character who personifies the Internet. In the coming months, you will see more of the Internet character and GoCentral across many channels and tactics, as we showcase GoDaddy's expertise in building, expanding and protecting the ideas that the Internet loves.

With its new campaign, we have a marketing message that links our GoDaddy brand to the breadth of our product portfolio and the outcomes we deliver for our customers. In the context of our overall marketing spend this year, the Super Bowl represents just one relatively small tactic in a global marketing strategy that delivers very effective and efficient customer acquisition relative to the high value we generate for customers around the world.

Turning to International, I want to spend a moment there on our progress and how HEG fits so well with our globalization strategy. GoDaddy's International business finished 2016 at nearly $500 million in annual revenue. The addition of HEG will bring us to well over 6.5 million paying international customers, or more than 40% of our total customer base, making our International business on its own bigger than most companies in our category.

As we shared with everyone in December, HEG is highly complementary to our existing business with similar customers, a fantastic leadership team, strong customer unit economics, and an exceptional financial profile. The deal dramatically strengthens our position in Europe, and we see clear upside for HEG's customers from GoDaddy's products, technology platform and care.

In 2017, we're focused on, first, bringing our full GoDaddy product portfolio to HEG, including domains, SSL, managed hosting, and productivity applications. Second, integrating our global tech platform and care operations across Europe. Third, accelerating go-to-market efforts in key European countries. We feel strongly there is much more to this acquisition than buying a European footprint and customer base. The combination with HEG will expand our team in Europe from fewer than 10 professionals to hundreds who can accelerate our overall business in Europe.

Finally, the financial characteristics of the HEG acquisition are positive. We expect the acquisition to be accretive to free cash flow in the coming 12 months. So that's a quick update on Marketing and International.

With that, I'm going to turn the call over to Ray.

Thanks, Scott.

Our Q4 and full-year results were strong on all fronts, with revenue near the high end of guidance, good leverage across the expense base, and cash flow ahead of our expectations. Total revenue in Q4 grew 14% year over year to $486 million, and bookings grew 13% to $525 million. Currency translation this quarter was an approximately 100-basis point headwind to both revenue and bookings.

We saw solid growth across all three of our product lines this quarter. First, Domains revenue grew 11% year over year in Q4, fueled by international growth, as well as strong renewals and aftermarket domain sales. Our Hosting and Presence revenue increased 14%, as we began rolling out our website builder; and we've seen some good uptake on security products as well. Business Applications rose 29%, driven by continued strong growth in both productivity and email marketing.

Turning to profitability, we continue to demonstrate good operating leverage across the expense base. Unlevered free cash flow jumped 46% in Q4 to $77 million, and 21% of the full year to $357 million, continuing to demonstrate strong cash conversion at about 19% of revenue.

Just a couple of points on cost. Note, higher-than-usual G&A expense in Q4 included $11 million in acquisition costs, primarily related to the HEG acquisition. Excluding these costs, we have gotten some good leverage in G&A, and technology and development spending as expected. Clearly, the combination of our solid top-line growth and good expense leverage continues to generate strong cash flow for us.

The release provides you with the three primary components of our internal EBITDA measure to allow you to compare to previous results. Note those components should be adjusted to exclude the acquisition costs I just mentioned for comparability purposes, as they were not included in our prior guidance.

On the balance sheet, we finished the year with $573 million in cash and short-term investments and net debt of $500 million. On that note, I'm pleased to announce that earlier today, we finalized approximately $2.5 billion in new term loans, fully replacing our existing term loan and providing full funding for the acquisition of the HEG mass business. We lowered our interest rate by 75 basis points and extended the term loan maturity date to 2024.

In addition, we increased the capacity on the revolver by an incremental $50 million to $200 million total, effective with the closing of the acquisition. The reduction in rates versus our prior term loan and initial financing exceptions on the HEG mass deal should result in analyzed cash interest savings of upward of $15 million. We've separately received commitments for a bridge loan of approximately $530 million associated with the acquisition of HEG's PlusServer managed hosting business, which GoDaddy intends to divest post close. The bridge loan was not part of this recent financing.

As we shared in December, the HEG acquisition is expected to take us up close to the high end of our targeted leverage range. However, given the very attractive cash flow characteristics of the combined businesses and the expected divestiture of PlusServer, we expect our leverage ratio to be roughly 3 times by the end of this year.

Let's discuss our outlook for 2017. Just a quick note that this outlook includes no contribution for PlusServer.

For the full-year 2017, we expect revenue, including HEG, of $2.18 billion to $2.22 billion, representing approximately 19% growth at the midpoint versus 2016. Assuming HEG closes in late April or early May, we expect the mass hosting business to contribute approximately $130 million in revenue this year.

Before I turn to cash flow, let me touch briefly on how we're thinking about future growth.

Since the IPO, the Company has consistently said that it expects Domains revenue to grow roughly in line with total customer growth. Hosting and Presence revenue to grow at approximately one to two times the rate of customer growth. Business Applications revenue to grow at roughly three to four times customer growth. We've nicely outpaced those rates in recent years. For those of you building models, these are good rules of thumb to use going forward.

Specifically on Domains, as we look into 2017, we're lapping some strong secular and Company-specific growth drivers that allowed us to meaningfully outpace the industry. So we look for Domains to grow closer to the customer growth going forward.

Quickly on Q1, we expect revenue for stand-alone GoDaddy in the range of $485 million to $490 million, implying a little over 12% year-over-year growth at the midpoint. Note that Q1 of 2016 included an extra day due to Leap Year, which we estimate added approximately 1% to our growth last year.

Turning to cash flow, as we have highlighted for the last couple of quarters, we are transitioning from providing guidance on adjusted EBITDA to unlevered free cash flow. For the full year, we expect unlevered free cash flow for the combined Company of $460 million to $480 million, implying approximately 32% year-over-year growth at the midpoint. This excludes expected acquisition and integration cost in the range of $20 million to $30 million this year.

As a reminder, we target 70% to 90% conversion of our internal measure of EBITDA down to unlevered free cash flow. We expect to be at the midpoint of that range this year, driven primarily by more meaningful tax distributions tied to increasing profitability. As we've said in the past, unlevered free cash flow is lumpy on a quarterly basis, and you will see that clearly in our first-quarter results this year. One full employee period will move from Q2 a year ago into Q1 this year, which we expect to result in a $15 million reduction in free cash flow in Q1 versus last year. You will obviously see the reverse effect in Q2.

Now, that's a lot of detail intended to give everyone a roadmap to 2017, including HEG. Taking a step back, we continue to create franchise distinction and competitive advantage, with a business growing double digits on the top line and 20%-plus in unlevered free cash flow over the long term. Rolling that into 2018, we see a business on track to generate unlevered free cash flow of approximately $600 million next year.

With that, I'll turn the call back over to Blake.

Thanks, Ray.

To briefly summarize what we've shared today, we're excited about what the future holds for us. Double-digit organic revenue growth through a combination of customer and ARPU increases. New product and on-ramp launches in 2017, including GoCentral and Smart Line. The acquisition of HEG, with 1.7 million new customers, adding scale in International with the opportunity to extend a successful business model to Europe. A new capital structure with a very attractive interest rate and maturity profile, and strong deleveraging characteristics, providing the ability to use the balance sheet to drive even faster growth in free cash flow.

You can see that we have an action-packed year ahead, and we look forward to continuing to deliver against our strategy with products, technology, care and world-class marketing. We're excited for 2017, and see a big opportunity to continue to grow the business long term around the world.

Thank you for your time, and we're ready to open the call to your questions.

(Operator Instructions)

Your first question comes from Naved Khan, Cantor Fitzgerald. Your line is open.

Hi, thank you very much. Just a question on the Q1 guidance. At the low end, it looks like it implies sequentially even a little bit down to flat. And now that we are in February already, with a half the quarter under the belt. Can you just lay out for us what is baked into the application?

Yes, let me start with just the guidance that we provided you guys. You know, first of all, we're big. I mean, this Company has doubled in size in the last four years. We crossed the $2 billion mark in bookings in 2016. So we are growing off a lot larger base now.

Second, within those product line items, we have grown very quickly, outpacing the industry. A simple way to think about 2017 -- we expect Hosting a Presence and the Business Apps line to grow it roughly to Q4 exit rate. What's different in that guidance is Domains. We've grown at a double-digit clip, fueled by new TLDs in the aftermarket.

The aftermarket is lumpy though, and it's difficult to drive that same level of incremental growth over what now is a $1 billion revenue stream. We see it continuing to outpace the industry, but closer to customer growth, in the mid- to high-single-digit range.

Yes, and I think the two comments just to add in are, midway through the quarter, it's good. Look, good results so far, steady as she goes. And to echo something that Ray said in his script, remember, we have Leap Year, which is just a little bit of a Q1-specific issue.

Okay, thanks. And then quickly, on the Business Apps, so this is the second quarter in a row where we saw some deceleration, which is coming down from 40%s to mid-30%s, last went to [3]%, and then 29% this quarter. What's a good run rate that we should be expecting for 2017? Is 28%, 29% kind of a good number? Mid-20%s? Or how do you see this business evolving?

Yes. As I mentioned in the script, we are targeting that three to four times customer growth, and our exit rate coming out of Q4. So that's about the right way to target this.

Got it, thank you.

Your next question comes from Sterling Auty with JPMorgan. Your line is open.

Yes, thanks. In the quarter, Hosting and Presence revenue -- was there anything that drove a little bit of mix, where more revenue went into Business Applications, or more just more color on the results there? And I have one follow-up.

No, Sterling, there is really nothing that would have driven any difference in those two line items.

Okay. And then as a follow-up, you talked about 6% customer growth. How should we think about that in terms of the sourcing, international versus domestic in 2017 and beyond?

Yes, Sterling. First, that was about 7% growth in customer growth. And going forward, we're obviously going to continue to see a higher mix of new customers coming out of international, just given our continued penetration in Tier 2 and Tier 3 markets as we move forward.

All right.

The one add-on, Sterling, is again, our customer base in the US is growing. It's growing nicely. And as we think about our product portfolio and expanding our product portfolio, obviously using those new products to drive additional customers is part of the strategy.

And actually, if I could sneak one more in, just following on the original question, I am getting hit with a lot of questions about the Q1 guide. You mentioned the one-day, 1% impact from Leap Year, and a few other things. But anything else you can talk to? People look at the subscription business and layering on, just wondering how it could be flat or even down in what traditionally has been a seasonally strong quarter for your industry.

Yes, it's back to what I mentioned on Domains, Sterling. We are continuing to see grow-over, some very large secular lift we got. We have been outperforming the industry for a couple years now, growing that double digits. While we would love to continue to do that, as that base gets bigger and bigger, it's hard to grow at those same rates.

Yes, Sterling, this is Blake. I'll pile on a little bit. Domains are still strongly outgrowing the industry, and we believe we will continue to do that. Just entered a lot of countries where we're picking up their country domain names -- TC, TLDs -- a very large portfolio of TLDs. And the aftermarket performs well as that becomes more liquid, as well. So I think we'll still see us outgrowing the industry, but you did see a little bit of a slope.

Got it. Thank you, guys.

You bet.

Your next question comes from Mark Mahaney, RBC. Your line is open.

Thanks. A couple things. Two numbers questions. First, I think your guidance then implies organic revenue growth of 12% for 2017. Just to get a check on that?

And then I think, Ray, you mentioned $600 million in unlevered free cash flow in 2018. That would imply something like 28%, which would be a little stronger than your long-term 20% guidance. But is that because you get more of a full-year contribution from HEG? Is that why the growth rate is higher than what you are forecasting for, for the long term in 2018?

Yes, Mark, let me start with the organic on GoDaddy standalone. That 12%-ish-plus is what we're telegraphing to you guys. When you look forward to the $600 million unlevered free cash flow, we have been telling you the standalone business is going to grow 20%. Continue to believe that. And have very strong convictions around that growing at the 20% rate.

The additional tack-on you are seeing there is, you get an extra quarter of HEG coming in next year in 2018, as well as run rate synergies by the end of 2018 for that acquisition. So that gets you the rest of the way there.

Okay. And then in terms of the timing of the new products, GoCentral, et cetera, could you, Blake, could you talk about how those things layer in? I'm sorry. There is the voice product, GoCentral, and there was the third one (multiple speakers)

Well, yes. We mentioned a couple, Mark. So GoCentral, we are about two weeks into the GoCentral announce. We launched that with the Super Bowl. And that's basically a 30-day free trial. So the top of the funnel works really good on that.

We are super-pleased with the way that customers are engaging with it. Trials are rolling really well. But we will see more when we start seeing those trials convert, and we will get a better feeling for that over the course of the next 60 to 90 days as we see publish rates that are being paid for start to happen.

We are pleased with publish right now. We are liking what the top of the funnel looks like, and we expect that to translate to conversion. But obviously, this is a new on-ramp for us. So we are not building that into the forecast, because we just don't know how that's going to affect it. And especially the mobile piece of this, where we have got a product that is pretty spectacular on mobile devices -- which is the way most of the world actually gets online now.

Voice, the voice launch, Smart Line is going to be in the second quarter this year. So you'll see that roll out. And this is, again, another new on-ramp for us, which, we're not going to speculate on how big we think that's going to be. We are being pretty certain on what we know, which is why we're coming in where we're coming in on our guidance. But we are, again, pretty bullish on the product, and the use cases are pretty game-changing for small businesses, actually.

Thank you, Blake. Thank you, Ray.

Thanks, Mark.

Your next question comes from Sameet Sinha, B. Riley.

Yes, thank you. A couple questions here. First, just wanted to confirm on HEG, $130 million. If you analyze that, that comes to -- that's about $195 million in revenue. How does that compare to the bookings? What's the equal in bookings?

And secondly, can you give us an update on some of the other new products you announced last quarter? You were talking about the DIY [hike] for the future. I guess you were talking about GoCentral, but does that incorporate other site builders as well as the DIFM and your security products?

Yes, Sameet, it's Ray. I will start with the first question. We talked about what their annual bookings were when we announced the acquisition in December. It's $236 million, growing in the high single-digits. The $130 million number we have given you guys for the guide takes into account the conversion to US GAAP. So there will be a deferral of domain registrations, as an example, amongst multiple adjustments we are making there, as well as the partial year. We are expecting close in late April/May timeframe.

This is Blake. I'll follow up on the new products and launch. Look, the two that I think are substantive over the last couple of quarters is, number one, a managed WordPress offering that is incredibly simple to use, along with a pretty amazing capability to update multiple sites in bulk for developers.

Those two features that we launched in the fourth quarter of 2016 are things that are pretty darned important for us, and actually service a different customer, a customer that's a little bit more advanced, that wants more flexibility than just an easy DIY site. And actually differentiates our Company from other folks, because it gives us a full range of solutions, from very simple DIY to a more comprehensive site-building experience that allows ultimate flexibility and customizability.

We rolled that out in Q4, and then followed very quickly on the heels of that in the first few weeks of 2017 with a GoCentral product, which is a mobile-optimized experience for DIY site-building. It does a great job on mobile and a great job on PCs, has 1,500 verticals that it supports. And we have a smart learning system that actually grows with the customer, and suggests what they should do next as their life cycle grows. So as they grow with us, we'll suggest things they ought to be doing next. Those are the two things, the big things that we have done in the past two quarters, including this quarter that we are in right now.

I would say that on security, we have got some big opportunity in security. We have a great business there today. We think there's other things that we can do. And I think you will see more about that from us and hear more about that in the third-quarter timeframe. I think that's probably the long and short of it.

Thank you.

Sure.

Your next question comes from Jason Helfstein, Oppenheimer. Your line is open.

Thanks. Two questions and a housekeeping question. What's making you excited about focusing on basically GoCentral and website building as the marketing funnel? And how do the CPAs in that compare to the traditional hosting CPAs? That's question one.

On Business Apps, obviously it's growing, as we pointed out. Do you need to sign new partnerships for that? Do you focus on more of the upsell opportunity to HEG? So just some color? And lastly, any help on CapEx for 2017 would be helpful. Thanks.

Hey, Jason, it's Scott. First of all, on -- let's call it site building or presence, the very first thing you do with a domain name is, you attach it to an online presence. And we at GoDaddy, both through the building of the business over the last 10, 15 years, and the variety of ways in which we do it, are already supporting more paid inactive sites in various forms than, frankly, anybody else around the world.

Now, the interesting thing about presence, and I think this is what Blake was highlighting through GoCentral, is, when done super well and in a connected way, it can be really the dashboard or the connective tissue to add all sorts of other applications. Whether they be marketing or marketing services, or SEO, so on and so forth. So the real tenant of GoCentral is about certainly getting somebody a great online presence. But then it's really the connective tissue about what else you add and do with that site to be successful.

I'm just going to tag team, Jason. So this is Blake. The other thing that I think is important to note -- and it's not a nuance -- is that people want to try the tool out. And when you have a tool that is as easy to use as GoCentral, and obviously to use it in trial on a mobile device as well -- we heard from many users that every solution out in the market is too difficult for them.

We optimized for incredibly simple, both on mobile devices and on desktop. And made sure that they had an opportunity to use the tool as an on-ramp, so they could experience it without having to commit dollars up front -- which is sometimes a barrier for folks -- allowing them to use it. Say: holy mackerel, this thing is really great, now I'm going to attach a domain to it, I'm going publish it, I'm going to buy a domain, I'm going to do email, and do the other things that follow on afterwards.

And we're seeing what we thought we were going to see. We're seeing publish rates that are increasing. We are seeing the top-of-funnel interest that we liked. 20% of those sites are being of new customers. New customers coming in to GoCentral are building the site completely on mobile.

And so Jason, in our math, which, back to your acquisition question, what that means is, this can be both an attachment product to us that turns into an ARPU driver, and a vehicle to add some new customers. And obviously we are going to continue to figure out our marketing spend around that math. But we think it's attractive.

On HEG, Business Apps specifically, and what else we can go do, Business Applications and the opportunity there is one of the, what we call, low-hanging fruit things that we are going to focus on in 2017. Which is taking what we think is our, frankly, distinctive and best-in-class way to get a productivity suite over to the brands in Europe. And that's one of the things we are going to do both with the two leading HEG brands in the UK and Germany, and obviously use that as an accelerant for our position in Europe. In terms of the CapEx question, I'm just going to let Ray hit that, for the last one.

Yes, Jason, for CapEx in 2017, continue to model 3.5%, 4% of revenue. So you could pencil in the $70 million number. And we'll highlight for you guys, as we move through the year, any integration capital that might be included.

Thank you.

Your next question comes from Mark May, Citi. Your line is open.

Thanks, guys, thanks for taking my question. I had two. Just based on a couple of emails I have gotten here, I want to try to clarify the HEG guidance. I think some people are trying to use the bookings number that they had for last year, and a 15% growth number in back end to what your guidelines implies.

I am assuming that some of the issues in doing that -- because it implies that there might be a pretty meaningful slowdown that you're guiding to. I assume that there is some purchase price accounting, some GAAP translation and other impacts that are affecting that. I don't know the best way of addressing it. But what is implied or embedded in your guidance in terms of organic growth? Or looked at another way, the impact that those various factors may be having on your numbers this year?

And then my second question is more of a product and pricing strategy question. How are you guys thinking about that this year? I know a web builder, to some degree, represents a bundling of various prices, and you get a bundled discount. Are you guys pursuing a different product and pricing strategy this year, attempting to drive more volume maybe at the expense of ARPU? Thanks.

Hey, Mark, it's Ray. I will take the first one around HEG bookings. We disclosed in December that, that 2016 bookings was going to be around $236 million, growing in the high single-digits. The $130 million number that we provided in the guidance is the US GAAP revenue. So we've attempted to go ahead and estimate the purchase accounting, as well as the conversion to GAAP. Primary difference being deferral of domain registrations.

And then also obviously it's taking the haircut for timing, between April and May. And then as you saw with GoDaddy when it was taken private, you will also see purchase accounting applied, where you get a haircut at the acquisition. So all of those factors are going in to reduce that number you might expect to see off bookings.

From a pricing strategy, on your question, Mark, bundling is certainly something that the Company has done for a long time, and we're going to continue to do, whether it's within a category or across. And free trial of our applications is, again, something that we've done in the past and we're going to continue to do, as a way of having customers try our product. And make it super simple for everybody to try each one of our applications, whether it's something for presence or email or down the road for voice.

Because we've found when people try our product and use it, then they are going to stay for a long time. That strategy is going to remain the same from a financial and guidance perspective. There isn't anything that I would highlight about that approach that would change the numbers or the trajectory that Ray was describing.

Mark, this is Blake. I am going to pile on just for a sec. You know, I think if you think about bundling, some of the things we've done, I'll just call it end-product discovery features -- one in particular with GoCentral. While somebody is building their website, and it's the first thing they do instead of getting a domain, we actually scan the contents of the domain, the business category the user selected, the geography where the user is. And we'll suggest to them domain names that are not taken, or there could be in the aftermarket that are things that they might want to do next.

And that's a feature that somebody actually needs. And it's a good example of something that's end-product discovery and end-product marketing that's even a step further than just plain bundling, allowing them to discover something at the moment they need it. And actually the feature they need at exactly the right time and the right place. And we think that actually is going to be, I think, a very helpful bundling tool, as well.

Thanks.

Yes.

Your next question comes from Shawn Kemp -- sorry, Sam Kemp, Piper Jaffray. Your line is open.

I would be pretty honored to be Shawn Kemp. I'll take it. (laughter) In terms of the guidance, can you call out any core GoDaddy FX that's baked into that organic growth rate number? And then on your net ads, it looks like it's down year over year again in Q4. Maybe call out any contribution to that and what's really causing that?

And then last is, you've talked for a couple years now about rolling out non-website-specific business applications -- things like paid media or CRMs, [supper and] loyalty and coupons. Can you just give us an update on the timing on when you are thinking about rolling out those different products? Thanks.

Yes, Sam, Scott. So on the first one, for FX, from a guidance perspective, very little. We will highlight that, again, FX impact that shows up in bookings rolls into GAAP in the prior year. So there is a little bit of it that flow-through of last year's bookings rate flowing into this year's GAAP revenue.

From a customer-add perspective -- I think we talked about this in the fourth quarter also, which is really -- in the second half of last year, we intentionally had less quantum of customer ad growth in a couple of our big emerging international markets as we, frankly, focused on monetization.

As you guys know, this is a balance between customer adds in ARPU that we're certainly balancing. And what we want are really good customers who are trying to bring an idea to life and get a name, and then activate it and use it over time. And that's a balance. So we're not managing our customers to a specific quarterly number, but are going to continue to balance customer adds and ARPU growth as we build up the business.

I think on your last point of business apps and some of the various marketing services, I think that's down the road in 2017. Those are specific applications, and in some cases, productized services that can really hang off the back of GoCentral. Those aren't necessarily dependent upon GoCentral, but they go very well. So those are the kinds of things that you are going to see us spending more time on as we continue to build up GoCentral.

Great, thanks.

Your next question comes from Michael Turrin at UBS. Your line is open.

Hi, guys. Thanks for taking my questions. Scott, you talked about the Super Bowl ad, but described it as a relatively small piece within a larger strategy. I was wondering if you can talk about some of the other things that you might be doing on the marketing side? Any changes upcoming in 2017? And then on the customer ad side in Q1, are there any impacts we should expect from the ad campaign?

From a strategy standpoint, and from a marketing standpoint, again, the fundamentals are being an efficient and effective customer acquisition tool and vehicle, both in the US and around the world. And that's going to continue. What is interesting about not just about our ad, but this personification of the Internet and from a brand messaging standpoint, is, we now have a vehicle that we can connect GoDaddy to the broad range of experiences that our customers go through online.

So when we think about TV advertising or online video and social presence, it's going to be much more in a connected way about all of the variety of things that our customers do with us. And that's also going to help translate into ARPU. So that is a shift, but a good shift, from just every marketing dollar going to straight acquisition, to helping support not only acquisition, but also ARPU generation. And I think those are the salient points to your question.

Great. And then international revenue growth continues to come in strong, mid-27% on constant currency basis, which is pretty consistent throughout the year. But the US revenue looks like it's ticking down. Is that law of large numbers? Some of these impacts from domains getting to a certain scale? Or what is the right way to think about that?

I think that's exactly the way to think about it. It's just a much larger entity in itself. And given the weight of domains in there, and as that's slowing, that's the result you're getting there.

Great, thanks a lot, guys.

Your next question comes from Ron Josey, JMP Securities. Your line is open.

Great, thanks for taking the question. I, too, please -- Blake, on GoCentral, we made a few references of users starting out on the product, and then essentially selling domains or their services once you have the website during the trial period. Do you think over time GoCentral can be the main on-ramp, or a main on-ramp, for the Company? Clearly it's domains. You talked about voice. Is GoCentral a change in terms of potentially how you go to market -- knowing, of course, you just launched it three weeks ago?

And then the second question, just we are a year into launching the 11 countries in Asia. Can you just talk about the progress here, what you have seen, brand awareness, things like that? Thank you.

Sure. Look, we view GoCentral as just another on-ramp. Domains are still the lion's share of our on-ramp, and will continue to be the lion's share of our on-ramp. When people globally think of the Company where they're going to get a domain name, they think of GoDaddy. They think of it in the United States. They think of it in India. They think of it in the UK. We are becoming a share leader around the world, and it's the first thing that they think of.

We are over 1 million domains in the UK. We are number one in India in both dot-IN and dot-com. We have seen that on-ramp be a great on-ramp for us, and will continue to do so. We think that there's a number of folks that want to try the tool out and use something before they buy a domain.

And frankly, if they've bought a domain already, they can still use GoCentral and apply it to that domain, and do that without using their credit card. So we think it's another on-ramp, just like we think the Smart Line product is going to be another on-ramp as well. The domains will continue to be a strong on-ramp for us.

On Asia, it's been about a year. We're happy. It's been good uptake. Brand recognition is moving up as we expect it to. We're seeing good uptick in China as well, as we have surrounded China in Hong Kong and Singapore and in Taiwan. And frankly, we think we are off to a nice start. But it's a small base, and it's not going to be something that we think is going to be substantively huge. But we are happy with where the Company is going and where we are right now.

Great, thank you.

Yes.

Your next question comes from James Cakmak, Monness, Crespi, Hardt. Your line is open.

Hi, thanks. Scott, you mentioned HEG helping you guys accelerate the go-to-market efforts in Europe. Arguably, the synergy estimates that you have are somewhat conservative. Can you just talk through the playbook there on how you're thinking about tackling that market? And I guess what gives you confidence that putting emphasis there is not going to dilute your efforts in other international markets?

And then just quickly, secondly, looks like ARPU accelerated somewhat this quarter. Anything to call out there? Thanks a lot.

Hey, James, thanks. I think, first, just take a step back and look at international over the last four years. Which is, we have meaningfully grown the international business and entered a series of geographies, both in Europe and in the emerging world. And have, I think, proven both to ourselves and everybody else that there is business to be had, and that we can enter these geographies.

In Europe -- we have said this in the past -- the UK is certainly our largest market. And our growth and performance there -- both in size, market share gain, accelerated growth -- has shown us that our value proposition particularly has legs, certainly in the UK, but also in Europe.

Now GoDaddy, traditionally, on the continent, hasn't spent as much time, energy, money, and so our relative positions in every individual country are still relatively small. In aggregate, it's a decent size. But in every single country, they are still relatively small.

So what we get from HEG is certainly a market position in Germany that we can work from, as well as, frankly, some team platform capability and scale, when we talk about technology, infrastructure, care, that we can use as, frankly, again that platform or underlying foundation that we can go into a couple other geographies, from a go-to-market standpoint, and accelerate growth.

And I think your comment on ARPU acceleration, you know, anything to call out -- nothing specifically, other than, it's just the model at work in terms of good products, the products attaching. And, frankly, our balance of customer and ARPU growth, and bringing in customers who are going to monetize and renew. So frankly, when you are looking at that ARPU acceleration, in many ways it's the model at work, and as a result of our acquisition decisions four quarters ago about the customers that we were bringing in, and then the renewals of the products that they were initially brought in on.

Your next question comes from Brian Essex, Morgan Stanley. Your line is open.

Hi, good afternoon. Thank you for taking the question. Scott, I was wondering if you could touch on -- or maybe Blake, if you care to -- it looks as though a lot of the new features in products that you are rolling out are more SMB or consumer-facing. Are any leveragable to your developer community in terms of accelerating time to market, through your developers on a mobile app, for example? And how do you think how the developer community or maybe the legacy media temple group is growing relative to the rest of the Company?

Brian, this is Blake. The interesting thing about GoCentral is, it's built on the same platform that our WordPress work is built on. So a lot of the libraries that are being used for GoCentral today are the same libraries being used for WordPress. The OpenStack infrastructure that GoCentral sits on top of, same infrastructure that our new offerings in the developer community are taking advantage of.

And the pieces of the product launches that I talked about in the fourth quarter, both in the managed WordPress community and managing multiple sites for developers, those are built, again, on some of the same technology that you are seeing GoCentral out of. And some of the things you could notice in the T&D line is, we are starting to get significant -- and through 2016, really, we got significant leverage out of our tech and dev, because we are using common components across the product lines.

We are actually seeing good lift, and I think some good use of tech across both developer capability, managed WordPress capability for small businesses, who have a little bit more advanced capability than somebody who wants to use a DIY site. I don't expect the developer community to use a DIY product.

It's very simple. I know that a lot of the things that we have learned in building this product will start showing up on mobile devices and our entire mobile framework for not just small businesses and consumers, but for developers. And you will see that over the course of 2017 into 2018. There is a significant amount of leverage that we are going to get out of what we're calling, basically, the Go framework that sits underneath the GoCentral product, and the developers are going to benefit from that as well.

Got it. Just a follow-up. Mix of developer versus, I guess we'll call it, DIY internationally, and how might those dynamics differ from the US?

Yes, well, developers internationally model pretty similarly to developers in the US. There is a difference between whether -- depending how deep you want to go, there is actually a bigger -- like Plex is a bigger thing than cPanel is in Europe. Well, cPanel, you know, dominates in the United States, which is a pretty significant delta. I think there is -- we don't see big differences in the characteristics.

WordPress is big everywhere. I think that we're seeing most of our signups for our GD Pro products actually coming from outside of the United States today. We think there is a big opportunity, a lot of signups in India in the developer community.

And one of the things I would say, that we know that 50% of small businesses don't have a website. And of those 50% of businesses that are going to build it, 50% of those businesses are going to have someone build it for them. And those are the customers -- and that's globally -- those are the customers we think we have a great opportunity with, attacking the developer community and creating a great platform for them.

That's helpful. Thank you.

Your next question comes from Jonathan Kees, Summit. Your line is open.

Great. Thanks for taking my questions. I have a couple follow-up. One, I just want to take the discussion about The Hague and the international. Basically, you mentioned you have market positions in Europe now that you can work from and enter other geographies within Europe. As you are looking to the new year -- well, we're in February already, and you have a limited advertising budget, sales and marketing budget. Are you shifting resources from Asia to Europe in order to enter those other geographies?

And then the second question I have is, can you talk about going for those highly efficient, highly effective ad tools, like the Super Bowl, back to what you did before? And that's a small part of the strategy, but in terms of the advertising budget, that would be a big part. Are you going back to more of a seasonality in terms of your advertising? That's it. Thanks.

Hi, it's Scott. I think to your first question, is anything being diverted into Europe? The short answer is, no. We are growing in Asia, and we are going to be able to approach Europe because of the increased scale of the business that allows us to obviously then invest a little bit of that into go-to-market in the same formula that we have now.

And the second, in terms of the seasonality, no, it's not going to affect the seasonality of the business. Again, the Super Bowl -- the math of this is a single-digit million-dollar spend on the quantum of what we do on a go-to-market. It's a small amount.

Okay, great. Thank you.

There are no further questions at this time. I will turn the call back to over to the presenters.

Thanks, everybody. It's Blake. On behalf of Scott, Ray, Marta and the entire leadership team, I thank you for attending our 2016 earnings report, and we look forward to talking with you in another quarter. Thanks very much. Bye now.

This concludes today's conference call. You may now disconnect.