GoDaddy Inc (GDDY) 2017 Q4 法說會逐字稿

Good evening. My name is Chris and I'll be your conference operator today. At this time, I would like to welcome everyone to the GoDaddy Q4 2017 Earnings Call. (Operator Instructions) Thank you. Christie Masoner, Senior Manager of Investor Relations, you may begin the conference.

Good afternoon, and thank you for joining us for GoDaddy's fourth quarter and full year 2017 earnings call. With me today are Scott Wagner, Chief Executive Officer; and Ray Winborne, Chief Financial Officer. We'll 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, 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.

The matters we'll be discussing today include forward-looking statements, which include those related to our future financial results; new product introductions and innovations; our ability to integrate recent or potential future acquisitions and achieved desired synergies, including our recent acquisition of HEG and our proposed acquisition of Main Street Hub. 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 22, 2018, and we undertake no obligation to update these statements as a result of new information or future events.

Unless otherwise stated, when we refer to organic measures, we're referring to those measures excluding the impact of HEG and Main Street Hub. I'll now turn the call over to Scott.

Thanks, Christie, and thanks to all of you for joining us today. We feel great about how we closed 2017, with another year of consistently good growth in the books. At year-end 2017, we'd grown to serve 17.3 million customers, an increase of 18% versus a year ago, driven by both strong organic growth and the addition of HEG in April of last year. Our average revenue per user, or ARPU, also rose over 7% to $139.

We finished 2017 with revenue of $2.2 billion and bookings of $2.6 billion, both up 21%; and unlevered free cash flow of $496 million, up 39% year-over-year, demonstrating our ability to deliver growth at scale in both our top and bottom lines. 2018 is off to a strong start as well, which you'll see in our increased guidance for the year that Ray is going to discuss a bit later.

We want GoDaddy to be known as the place where ideas start, grow and thrive online all around the world. And today, we're a global leader in helping individuals and businesses create an online presence, with particular strength in naming, websites and branded e-mail. We have a distinctive value proposition that combines our products, technical platform and customer care, to uniquely serve customers and grow with their ideas over time. In the coming year, we'll look to build on our solid foundation and invest in several ways to continue driving multiyear sustainable growth.

Our priorities are to deepen engagement with existing customers; continue to expand our product portfolio; grow our international footprint; build and evolve on our exceptional brand awareness; and enhance the speed, reliability and performance of our global infrastructure. Today, I'd like to discuss 2 topics in a bit more detail to demonstrate our commitment to these priorities: first, our expanding view of what it means for us to provide a truly differentiated online presence; and second, the continuing evolution of our global go-to-market strategy.

First, I'll start with our view on providing a great online presence. Whether you're a business, nonprofit, sports team or politician, a dynamic, great looking, reliable and effective online presence is a must-have. Our customers tell us that how they show up online is the most important and effective marketing they can do.

The definition of what it means to have a great online presence continues to expand. Domain names and websites are, in many ways, the foundation of the Internet, and their functionality and importance is evolving in a couple of meaningful ways. First, given the proliferation of social media platforms, online content needs to exist and to be managed across many more places. And second, product applications, which used to be standalone point solutions such as booking engines, SEO services, blogs and e-mail marketing, are now increasingly being integrated into a singular online presence. At GoDaddy, we've made great progress innovating against both of these trends.

First, to help us further extend and sync our customers' website content to different social media platforms, we've recently launched new integrations to Facebook's small business pages and Google My Business, where customers can update and manage their content to both platforms directly from the GoCentral editor. We've also recently announced we're acquiring Main Street Hub, which manages branding and social media engagement for our customers and will ultimately allow GoDaddy to offer customers a complete suite of do it for me capabilities to build a powerful online presence across website design and maintenance, SEO and social media. Main Street Hub combines dedicated teams of branding experts with proprietary workflow technology to help their customers manage activity on popular social media platforms.

Turning to the second trend I mentioned. The industry is shifting from point solutions to fully integrated applications. On that front, GoCentral is evolving rapidly, particularly as we do more to make vertical experiences come alive. Today, over 80% of our customers now have a tailored theme and application experience specifically relevant for their industry or vertical, and we continue to add richness to this vertical capability. Over the last several months, we've added powerful features like online appointment scheduling, including automated SMS and e-mail notifications; payment integration with Square; and 2-way calendar sync. Now again, this isn't about a website in the traditional sense, but about bringing a full range of capabilities to customers where they might previously have had to seek separate point solutions.

We've done all this with GoCentral while achieving high customer satisfaction scores, increasing numbers of published sites in the hundreds of thousands and continuing to drive free to paid conversion up in the mid-single digits. We believe we're well positioned to drive the industry forward in delivering what a venture or an idea needs to start, grow and thrive. Our long-term vision is to provide a true platform where anyone in need of an online presence have every -- has everything they need in one place, with applications working together seamlessly.

So that's our view of the evolution of online presence. I'd also like to touch on the ongoing evolution of our go-to-market strategy. Over the last 5 years, as we've expanded into dozens of international markets, we've proven our business and particularly our go-to-market model translates well globally. Going forward, we intend to build on the strong foundation in several ways: first, continuing our international expansion, bringing more localized versions of our products and services to customers around the world; second, evolving our brand story. We intend to maintain our lighthearted edginess, while also expanding and solidifying our position as the place to make your idea real online. For example, we have a number of local campaigns running around the world showcasing how GoDaddy easy -- easily powers an online presence, including our reunion with Danica Patrick in the U.S., highlighting her life after racing as she begins to turn what were her side hustles into full-time passions. You'll see several of these geo-specific campaigns in our earnings slides, and they all tie to a common thread: that GoDaddy makes creating a complete and successful online presence really easy.

Third, we're also increasing our ability to do direct customer marketing, including introducing our ever broader product portfolio to our existing base of 17-plus million customers through targeted and contextual marketing campaigns, focused on deepening our customers engagement with us. Throughout our history, we focused almost all of our marketing spend on new customer acquisition, which is logical given our attractive unit economics, where GoDaddy customers generate a lifetime value of roughly 10x our cost to acquire those customers.

However, with our expanded product portfolio, there's far more we can do with and for our existing customers, so we're ramping up our efforts there. Now this is still small on a relative scale, but as we leverage data and are constantly improving global platform, we're discovering that we can deploy additional spend in the many micro campaigns at good incremental return.

One more quick point before I wrap. In November, we first talked with everyone about our opportunity to leverage the public cloud. We've ran a detailed process looking at several partners, certainly on their cloud capabilities but also addressing other product and go-to-market opportunities. We hope to announce a partnership soon that will allow us to embark on a multiyear transition to the cloud.

And as we reflect on all these themes, whether it'd be our products, our go to market or our evolving technical platform, we hope that you can see that they all work and ladder in to delivering truly great customer experiences all around the globe. Strategically, our biggest asset is our 17-plus million paying customer base. And our growth priorities remain focused on continuing to both expand that base and to do more with existing customers over time.

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

Thanks, Scott. As Scott mentioned, we finished the year strong and carried that momentum into the new year, driving an increase in our 2018 guidance. We're executing well, driving consistent growth in customers and ARPU, combining to deliver a solid top line. Both revenue and cash flow for Q4 came in ahead of our expectations with strength across the board. For the full year, we posted exceptional bookings and revenue growth with both up 21%. But just as important, we delivered better-than-expected organic growth, north of 9 -- of 12%. HEG contributed $56 million in the fourth quarter revenue.

Let me touch briefly on our 3 product revenue lines. First, Domains revenue grew 16% year-over-year in Q4, fueled by international growth, strong renewals, aftermarket domain sales and the addition of HEG. We've continually invested in our platform to make domains easy to find, buy and use. As a result, our domains under management of 75 million has grown by 20 million names over the last 5 years, clearly demonstrating that domains matter, and owning your brand online matters. Domains is now over $1 billion annual business for us, and we expect solid growth to continue through 2018. Longer term, we continue to expect Domains to grow in line with our customer growth.

Our Hosting and Presence revenue increased 29% in the quarter, with the majority of the incremental revenue again coming from HEG. Exiting 2017 with nearly $850 million in revenue, we still see plenty of room to grow in this category, targeting 1 to 2x our customer growth rate over the long term.

Business Applications revenue rose 38%, driven by continued strong growth in our -- in both productivity and e-mail marketing as well as our growing product suite and the addition of HEG. At over $325 million of revenue in 2017, we continue to believe we have ample opportunity to grow this revenue stream at 3 to 4x our customer growth rate longer term.

Turning to international. Q4 revenue came in at $207 million. That's 53% year-over-year growth. Beyond the addition of HEG, GoDaddy's organic international business grew at a double-digit clip as we continued to push localization and extend our go-to-market playbook and customer care globally. Finally, after a couple of years of a headwind, currency is now providing a slight tailwind to our international growth.

Looking at cash flow. The combination of solid bookings growth and strong operating leverage continues to generate terrific growth. Unlevered free cash flow jumped 43% in Q4, to $109 million, and 39% for the full year to $496 million, resulting in a nearly 300 basis point year-over-year expansion in our cash margin to 22%. Margin expansion is being driven both by our continued organic operating leverage and by HEG's contribution. On that topic, we're executing well against our HEG integration plan, and we're on track to deliver $20 million synergy target by the end of this year.

Let me touch on a few housekeeping items with respect to the P&L this quarter. First, the implementation of ASC 606, the new revenue recognition accounting standard, will not result in any changes to our current method of revenue recognition or reporting.

Second, as you know, the recent tax reform act resulted in significant changes to the corporate tax code. While we have a somewhat unique tax structure, many of the provisions impact us in similar ways to a traditional C corp, the lower corporate tax rate being the most meaningful. In the fourth quarter, we recorded a noncash benefit of $86 million to reflect the impact of the lower corporate rate on our existing TRA liability. Based on our assessment, we don't currently expect other provisions of the act to have a material impact on our financials, but we'll continue to monitor interpretive guidance as it's issued.

And third, G&A expense this quarter includes a couple of items worth noting: $6 million in acquisition and integration costs associated with HEG and Main Street Hub, and a $12 million reserve for exposure related to our obligation to collect and remit pass-through taxes on behalf of government entities. We've provided a table near the end of the earnings release highlighting these and other items, which may be helpful to those of you building models.

On the balance sheet, we finished the year with $595 million in cash and short-term investments, and net debt of $1.9 billion. This put our leverage at 3.1x on a pro forma trailing 12 basis, right in the middle of our target range of 2 to 4x.

During the quarter, we took advantage of market conditions and refinanced our term loans, lowering our interest rate to LIBOR plus 2.25%. This new rate implies cash interest payments in 2018 of $90 million to $95 million.

Turning to the rest of our outlook for 2018. In the first quarter, we expect revenue of $620 million to $625 million, including a $65 million to $70 million contribution from HEG, implying year-on-year organic growth of about 13% at the midpoint. For the full year 2018, we expect revenue of $2.58 billion to $2.61 billion, representing approximately 16% growth at the midpoint versus 2017. This includes one incremental quarter from HEG and the anticipated contribution of roughly $10 million per quarter in the back half of the year from our planned acquisition of Main Street Hub.

Cutting through the math, here's your takeaway. The full year guide implies 11% to 13% year-on-year organic growth, on par with what we delivered in 2017 on a much bigger base of revenue.

Moving to cash flow. We expect 2018 unlevered free cash flow of $605 million to $625 million, implying 24% year-over-year growth at the midpoint and continued margin expansion. Three quick notes on that cash flow guidance: First, it includes total cash tax-related payments in the $25 million to $30 million range, comparable to 2017. Second, it also includes any costs related to our expected public cloud transition in 2018. And third, it excludes an anticipated onetime tax payment associated with the gain on the PlusServer sale last year. For quarterly modeling purposes, we suggest you assume that our unlevered free cash flow will be evenly split across the 4 quarters of 2018.

Stepping back, we continue to create franchise distinction and competitive advantage, with a business capable of delivering double-digit top line and high-teens growth in unlevered free cash flow. As our cash flow and balance sheet capacity expands, you will continue to see us be thoughtful stewards of capital, with the ultimate goal of prudently driving attractive growth and levered free cash flow per share for our shareholders. With that, I'll turn the call back over to Scott.

Thanks, Ray. We look forward to continuing to deliver against our strategy with differentiated customer experiences. We're excited for 2018 and see a big opportunity to continue to grow the GoDaddy business, both this year and for the long term. We hope to share more details with you, demos and products, and hear your questions at our Investor Day in the afternoon of March 28 in Tempe, Arizona. Thanks, everyone, for your time, and we're ready to open up the call for questions. Operator?

(Operator Instructions) Your first question is from Sam Kemp with Piper Jaffray.

First, one on Main Street Hub. So this is a higher touch model than you've historically gone after. Can you just talk about how you're planning on incorporating it into the product adoption funnel for users? And is there any sort of level of automation that you plan on bringing to Main Street Hub that potentially wasn't there before? And then the second is just on SmartLine, you didn't provide an update during the quarter. I don't know if that was intentional or not. But can you just talk about your evolved thoughts on the go-to-market strategy there and adoption?

Yes, thanks, Sam. It's Scott. So on Main Street Hub, Main Street Hub's model, it is higher touch, and it's helping customers fully set up and particularly manage the communication process through all the different touch points of social media. And as of right now, our focus is going to be on introducing this proposition to what we think is about 2 million high potential customers within our base. During diligence, we screened their value proposition for their highest and best-performing customers and found we had about a 2 million overall TAM within our base. And so our first focus is setting ourselves up to introduce the services that exist today into the GoDaddy base. Second, and this is where it really gets interesting, is taking workflow technology to manage content and actually helping to syndicate that through everybody's different points of presence, whether it be a website or social media or even e-mail and communication plans that customers would have with their own customers. That's going to be down the road, but that's really where we're headed with Main Street Hub. To your second question on SmartLine, SmartLine today has tens of thousands of customers. We're continuing to evolve the feature set nicely. Over the last quarter or 2, we've added things like texting, call forwarding, some toll-free number capabilities. And particularly, texting is having really great customer resonance. We're happy with the product and with that feature evolution, and we're just continuing to build it up. I mean, the big focus now is boy, just continue to build a use case around tens of thousands of bases that customers are going to work with. I think the point for people listening and thinking about 2018 is, obviously, it's at a scale where it's not going to affect our financials this year, but it's a product and a value proposition that we are continuing to work on and are attracted by.

Your next question comes from Sterling Auty with JPMorgan.

So the domain revenue was really strong in the quarter. And based on the commentary for 2018, it sounds like the trend line of that growth going down to the customer growth is not quite happening as fast as we originally thought. It sounds like it's going to stay above that rate through 2018 before it starts to tail off. I'm just kind of curious, what is the main driver behind the domain revenue growth being better for longer than maybe we first expected?

Sterling, it's Ray. Obviously, when we gave you guys that guide last year, it was a longer-term look. So we are seeing continued solid growth in there. And a lot of that's coming from continued improvements in our domain purchase path, just how do you come on the site, and how do you acquire domain, how are we packaging it with other products. And then the other impact you saw this quarter, a little lighter than that, was just the diminishing impact of purchase accounting on the HEG component of Domains.

Your next question comes from Lloyd Walmsley with Deutsche Bank.

Two, if I can. First, on HEG. Can you give us a sense if there are any other big upcoming milestones you guys are looking to hit in terms of operational, you need to unlock more synergy on the revenue side? And then kind of related second one, you mentioned a focus on a more localized marketing effort going forward. Can you just talk about how far -- how close you are in some of your international markets in terms of the go-to-market there, relative to kind of your best in class U.S. localized go-to-market, and kind of how you see that improving over the time frame over which you can really localize in those markets like you do in the U.S.?

Lloyd, it's Scott. So on the synergy, we're feeling really good about reaching and exceeding our $20 million target that we've communicated to everybody, which is a combination of both revenue and cost. And so operationally, you can think about what we're working on, on 2 fronts. The first is product and platform, and the second is just our go-to-market effort. On product and platform, we're putting our products together into a single global product portfolio. So for example, SSL, all of the aftermarket services and are -- were very close on Domains to having these all those basically running in the same place. Productivity is shortly to follow, and Hosting, a little further beyond that. And so there's no one single milestone, but those are tracking really nicely. On the second operational category, which is merchandising and go-to-market, we're building a single care organization in Europe. That's ticking along nicely. And we're continuing to put marketing dollars into the countries in Europe based on our footprint and our relative opportunity. And I think that's probably a relevant takeaway for you, which is we're running EMEA together, both HEG and the GoDaddy brands. And our scale and heft there is allowing us to continue to message and expand our position in our -- certainly markets where we have a big footprint like the U.K., but also like to invest more into some of the continental markets where we have a smaller presence but think we can ramp. And the tactics really aren't different. It's the same marketing playbook of brand awareness combined with some super sharp performance marketing underneath it that's got a really nice return. The overall focus on messaging is around who we are, who we stand for and what we do, which is get ideas, a great online presence and help them grow over time.

Lloyd, it's Ray. The only thing that I'd tack on to that is that the integration roadmap, we're well along that path. And we feel good about the promised $20 million in synergies by the end of the year.

Great. And then any just broader color on increased localization beyond HEG, and how to think about that going forward?

I think, Lloyd, you can think about it on 2 fronts. Localization is our global product portfolio which, again, it's a hallmark of what we do. And we continue to localize products whether they're naming or certainly our presence. So for example, GoCentral, the localization capabilities of that continues to evolve. And then on the go-to-market side. I think in some of the -- on the IR slides, we flashed a couple of campaigns that are running around the world. And what you see is an overall brand position of GoDaddy being a place for ideas to become real and to thrive online, but with a local execution. And so if people want to have fun, go check out both what we're running in the U.K, what we're doing in Australia to come -- maybe what's coming in Germany. And you're going to see kind of locally relevant campaign execution but with the same overall message.

Your next question comes from Matt Pfau with William Blair.

Scott, I wanted to dig into a comment you made relative to the Main Street Hub acquisition. And maybe I'm reading too much into it, but it sounded like there was potentially opportunity to start offering more "do it for me" services down the road. So is this true? Is this sort of an area that you're potentially evaluating additional "do it for me" services? Do you offer to your customer base? And then relative to that, you do have relationships with a lot of web pros that, in a way, offer "do it for me" services themselves. So how do you sort of tow that line in terms of not stepping on some of the web pros that you have relationships with?

Yes, thanks, Matt. That's a great -- it's sort of a great question. I think the 2 things are -- they're complementary, not contradictory, and that's the most important point. And if you follow customers around, the line between DIY and DIFM is also not a hard one, and there's a real spectrum between those different activities. So that's a super important point to communicate and understand. With Main Street Hub also, when you think about activities that our customers are doing online, their website, both design, maintenance, updating, social media presence, some marketing and communication campaigns, SEO optimization, 5 years ago, those were all discrete activities. And we're trying to bring those together, both productizing them; and for those customers who want a little bit of a boost or help, create the capability to help them do that. And look, that's the part of the core value proposition that we're able to offer at GoDaddy, which is combining truly distinctive products at a global level wrapped with a personal interaction. Now when it comes to pros, pros are a big part of that. And pros are these independent -- largely independent or small groups of designers that might be doing these services also for people. This is complementary. And we can help pros both get customers, and for those who have maintenance requirements, maybe do some of the same stuff on behalf of pros. But we see this as complementary, not contradictory.

Your next question comes from Ron Josey with JMP Securities.

I wanted to ask maybe about total bookings that came in. On our numbers at least, 3% or so above our projections. And that's despite ending customers being relatively in line. And so I'm wondering, Scott, if we're starting to see maybe the beginning of the benefits around improved merchandising and bundling as the new customer care team rolls out. And if so, can you talk about just the timeline as we see this customer care team and the benefits of -- as merchandising bundling throughout the year?

Ron, I wouldn't attribute it to any one -- it meaning good bookings performance, relative ARPU, to any one specific thing. But I would say it's a combination of our marketing message and footprint, which is what we say and how we reach customers, both new and existing. As you said, our merchandising flows and how we're bringing our customers together in a clean way, and how our care team is helping to steward that process, and it really is a combination of all those things that -- that's, I think, helping propel the business.

Got it. And maybe if I could just follow up on GoCentral. I think you said also hundreds of thousands of sites have been created with mid-single-digit conversion rates, which have been maintained. Can you just talk about how many of your, call it, 17 million users have been exposed to GoCentral? And is that an opportunity as you go on?

Thanks, Ron. I think it's interesting where a lot of our base of customers, the 17 million, they have an idea that's in some form of development. And by that development, meaning an idea that's connected to some form of an active presence. And when we look at not only our base, but frankly, the base of sites and ideas in the world, this meta opportunity of taking a site and actually expanding it into a mobile social world is a big opportunity. And it's taking, in some ways, sites that have kind of largely stayed the same for the last 8 to 10 years and really bring in new capability. And I think to your specific question then, which was exposure, hits on that possibility and theme, and the answer is, we're sort of trying to both figure out how to not only just create exposure, but also the right mechanism by which you can grab somebody who may have a version 1 site and actually connect it into the mobile social world. We think it's a big opportunity. We think we're, in some ways, uniquely positioned to be able to do it. But we got some work to do to actually turn that into a major system at the level that we could actually go talk to you guys about it and put hard numbers behind it.

Your next question comes from Sameet Sinha with B. Riley FBR.

A couple of questions regarding your acquisitions. So starting with HEG, you've kind of indicated in Q1, $65 million to $70 million versus the $56 million that was there in the fourth quarter. So it seems like when you acquired the company, you had indicated it's currently growing at low single digits. We aim to get it to high single digits. So are we at that inflection point with HEG? Because the growth seems to be fairly significant from fourth to first quarter. And secondly, sort of picking up on your comments on Main Street Hub, if you indicate 2 million potential customers for this product, if you look at media reports, they indicate about a $300 ARPU, monthly ARPU. So is that -- are we talking about an opportunity that goes into billions of dollars? Or -- I'm going to leave it there for you to answer.

Sameet, it's Ray. On the HEG, that business is growing nicely. We've gotten some uptick in the top line growth there. But as you look at that guide or that sequential step-up in the revenue, some of that's -- it's a mix, right, of Q1 seasonality, you got a little bit of lift there. And then the other piece of it is diminishing impact to purchase accounting as that revenue normalizes to reflect the run rate of net bookings. So I would say, if you want to look at it that way, it's probably 1/3 where we're getting some inflection on growth on the top line. The other 2/3 is seasonal and purchase accounting.

And on Main Street Hub, Sameet, yes, again, I said the 2 million TAM, so total addressable market, and boy, you did the simple math and your eyes can get big, big on that. But here's what that 2 million correlates to. When you take Main Street Hub's customers who have been with them through -- not only through a renewal cycle, but also their highest NPS customers, we took that customer base and did a screen on industry vertical, website position and their social media development and kind of matched those customers to our customers, and said, "Ooh, there's about 10 million -- or excuse me, 2 million customers in our base that have similar characteristics." Alright, now what's our ability to actually deliver the service, build it up to them? It realistically is smaller than that. I think the takeaway is to say that there's certainly a customer need when we think about this meta proposition of taking site content, connecting it to social media and providing some sort of productized assist that we're excited about, and that's the fundamental logic behind Main Street Hub. Obviously, there's work to do to grow from where they are to capture that kind of opportunity.

Yes, Sameet, it's Ray. I think I'll tack onto that, right? When you look at that 2 million customers, it is a smaller subset because of that ARPU. That's a dramatically higher ARPU than our average customer.

So it's about a $300 monthly ARPU business?

That's correct. Again, in Ray's comments, Ray said at $10 million per quarter, it's a $40 million top line business today.

Your next question comes from Naved Khan with SunTrust.

So a pretty nice subscriber growth, and I guess if I look at the commentary, you talked about also sort of improving renewals. Just wanted some additional color on how much of the growth has really been driven by improving retention versus just higher gross additions.

Naved, it's Ray. I would tag more of that improvement to retention. As Scott's alluded to in the last couple of calls with the customer experience that is part of it, right, it's how our customers are experiencing the product that flows to the site, the interactions with the customer care center. All of those things are helping with improving retention, particularly with our longer life customers.

Okay, and then a little bit of a housekeeping. So CapEx was some kind of a spike in the fourth quarter. How should we think about it for 2018?

Yes, I think as you look forward, Naved, it's the timing from a quarter to quarter spikes at times. But continue to look at 3% to 4% of our GAAP revenue as your target for modeling purposes.

Your next question comes from Deepak Mathivanan from Barclays.

2 questions. Sorry if you discussed this in detail before. Just been jumping between multiple calls here. The new tax reform creates some constraints on tax deductibility from interest expense at certain scale. Does that in any way change how you think about capital allocation with respect to leverage levels and potential M&As? And then the second question is with the scale of the Domains business you have already, and given that Domains is an important on-ramp channel for you, do think there's a lot of runway left to drive customer growth in mid-single digits over the next few years? Or should we expect to see customer growth driven by other products increasingly?

Deepak, it's Ray. I'll take the first one on the new tax reform. From an interest expense deductibility, longer term, it could affect our capital allocation. But certainly, for the short and medium, just not a big impact on us given our -- both our structure and our tax position. Rate was really the biggest impact on us.

And relative to your question on customer adds and the role of Domains, Deepak, I mean I think the first point is that Domains is still a strong on-ramp. And we continue to bring in millions of customers, new customers every year into the franchise with Domains as a foundation. And as we add product capability, hopefully, these other on-ramps are also starting to contribute. I mean, in some ways, GoCentral and Domains are inextricably linked in a lot of ways, and so that's certainly helping. And as you point out, other product categories certainly offer potential. And that's part of the strategy over time is to add a couple of complementary product categories that might be able to bring in new customers into the franchise as well.

Your next question comes from Jason Helfstein with Oppenheimer.

Again, I apologize if you've covered this. I've been jumping around. But is there any impact for full year free cash flow for Main Street Hub? I saw you gave the revenue impact. But is there -- do we see any free cash flow impact?

Jason, it's Ray. Yes, the $40 million in annual run rate on the revenue, they were a negative cash flow business. That's a combination of scale and customer acquisition cost. That dilution is built into the guide on unlevered free cash flow that we gave.

So I mean, can you help us understand what that drag is? So excluding that, would you have actually taken up free cash flow guidance for the year?

Yes, absent that, absolutely. It would have been a higher guide. But I'm not going to get into the specifics because we haven't closed the acquisition yet. It will be back half of the year.

Right. And then just if I look at the kind of the operating segments, it was a very kind of clean and consistent quarter, kind of very consistent with last quarter, albeit a slight acceleration in Domains. Is there anything you'd call out as driving that in Domains?

Yes -- no, Jason as I mentioned in call comment, it's a pretty broad strength across the board. With Domains specifically, there was a slight step-up there. But that was the diminishing impact of purchase accounting that I mentioned to an earlier question.

And then just last for me, do you have any impact in ASC -- the new -- the new ASC rule change?

Yes, so no impact on us for our -- neither our recognition or our reporting. The 2 big potential impacts for us would have been Domains. We defer currently and we'll defer under the new standard as well. And then our relationship with Microsoft on O365, we are a principal to that customer relationship today, and we will be under the new standard as well. So zero change is expected with the new standard.

Your next question comes from Brent Thill with Jefferies.

I had a question just relating to the organic versus international growth, and I just -- I want to make sure these numbers are correct. I think the implied organic was 12% in the fourth quarter. And I believe you said ex HEG, that the international business was growing low double digits. And I'm just curious why the international business may not be growing faster? When you think, that given the base, that, that could grow at a much quicker rate than the overall organic? So I just wanted to make sure I heard that correct.

Yes, Brent, you're -- you heard it correct. And that's the second quarter in a row we've seen a little slower growth there on a constant currency basis in the organic business. But again, when you look under the covers, it was a tougher comp in -- against 2016. We've moved through that now. So as you look out into '18, you're going to see that growth kind of bounce back to what we were at prior to the last couple of quarters. So underlying, nothing to be concerned about there. If you look at the overall results, we're ahead of our expectations. So some of the revenue coming in across the business, it will ebb and flow on geos. And we expect that to bounce back in this year.

Okay, and a question for Scott. When you look at the business apps, you have a long list of strong portfolio of solutions. But I think the one thing that many have noted is just the absence of bundling, similar to what Microsoft did with Office or others. Is there a planned initiative that you feel like you can take in 2018 around a stronger bundling solution that can potentially ease the adoption for many of these businesses?

Brent, well, so on biz apps, I think the priority if you're thinking about productivity is to make sure that in a really clean and easy way, we can introduce branded e-mail and productivity solutions to our customers. And if you're new, you can see that in our purchase flow and the linkage between a name and getting branded email on us, we've done, I think, a pretty good job on that and it's actually putting attachment in a pretty elegant way now. Now bundling is a merchandising offer, but if we move towards subscription, then it gets pretty interesting. Where today, these are still discrete products, but for certain segments of customers, you can absolutely see a world where you have site e-mail and a domain name tied together for a certain price point. Now we're working on that and there's some underlying platform technology to do it, but that's a focus. And you could take what I just described on those big 3 and extend it to a whole bunch of others products as well. That is a 2018 effort to be able to not just merchandise them together, but if you're a customer, activate, manage and have all of those 3 products really operate as one, and that's kind of what's coming next.

Your next question comes from Brian Essex with Morgan Stanley.

Maybe, Ray, I got a question. I think you may have talked about the impacts on revenue. But as we look at bookings, understanding we're about to lap kind of annualized HEG acquisition, how do we think about sequential growth in bookings through the year, as current bookings may include obviously some renewals of bookings that were written off at the acquisition?

Brian, it's Ray. I'm not sure where you're coming from, from bookings being written off. That was more associated with revenue. Your bookings are what stayed relatively steady. So if you were looking at the business from an organic standpoint, even with HEG, that bookings number is more pure.

Yes, I guess I was getting to deferred, that maybe looked a little bit skewed when you had deferred revenue written off in the prior year and now you're renewing that, so it looks -- I guess, may look new. And then on the migration to the cloud, I mean, how do you anticipate -- obviously, you haven't kind of inked that agreement yet. But how do you anticipate that might impact your margins near term and long term, as you kind of enter into that agreement, integration expenses notwithstanding?

Yes, so just take the onetime aside for a second, Brian, which we're accounting for in that guide we gave you. From a margin perspective, obviously, you'll see a degradation there because it's going to come from capital (inaudible) operating expense. But you should see an offsetting reduction in our capital. And so over a longer period of time, we'd expect this to be accretive to margins as we move there.

Yes. So Brian, the punchline remember, it's uFCF. Kind of if that mix just works itself up through a uFCF. And our guidance this year includes all of our planned work already going to the cloud. So we're talking about it, but for modeling purposes, our guide includes everything that we think we're going to be doing this year related to our infrastructure.

Your next question comes from James Cakmak with Monness, Crespi, Hardt.

Just one high-level question. When you guys kind of framed yourselves as the one-stop shop solution for businesses, now you added the social marketing component to it, I guess where do you guys kind of draw the line on what is too much beyond being a one-stop shop? Like, what -- I guess, where's the line on what services you wouldn't enter? And because just thinking about it as -- in terms of deals and potential additional services that you could add. So I mean, where does it -- where is the line? Just wanted to understand that.

I think the relevant, James -- maybe I'll answer with a different cut, which is if you look at what our customers are trying to do and the variety of products or services that they're paying other people thousands of dollars to provide, our product road map is about logical extension from our strength. And our strength is, right now, online presence. That's why 17 million plus customers around the world work with us. You have the honor of serving them today focused on presence, which is your name, your site and branded e-mail. And you can think about the -- a category like security for example, or e-mail marketing, or what we're doing in social media as natural adjacencies from those 3 points in the online presence triangle. And our strategy has been super purposeful around be great in what we do today, which is online presence, and then continue to expand from there in ways that are distinctive and meaningful for our customers. And that has been the way we've been thinking about it, and certainly will be for the future.

Okay, I guess a nicer way of putting it was more around where do you know that you're not diluting kind of the focus of the business, but that's helpful.

Your next question comes from Mark Mahaney with RBC Capital Markets.

I guess, 2 questions. First, when you think about HEG and the potential revenue synergies, just draw out where do you think you are in terms of generating those. Is that whiteboard, beyond whiteboard, already in numbers, multiyear, multiquarter? Just help us think about that going both ways. And then just a little bit more color on international. I know you talked about the growth there. The stuff seems relatively positive, but are there particular international markets you would call out? In the past, I think you've talked about seeing really nice momentum in Asia. Could you just update us on that?

Mark, on HEG, revenue synergy, I would characterize the revenue synergies in 2 different buckets. The first is product and merchandising where we're building a global product portfolio, and then we're merchandising it together. And I would say that those are far along. If this is a scale of 1 to 10, we're kind of a 7.5 right now. And it's driving that confidence in saying we're at or going to exceed our revenue synergy, or the targeted synergies that we put out. More broadly, EMEA in general, Europe's an attractive market. We've got a pretty big business there overall, but when you get into individual countries, there's still room to grow. And the fundamental premise behind the HEG combination was to get us more heft and scale in a couple of other geographies and allow us to maybe up our presence in a few more markets. And really, we're, I'd say we're on a 1 to 10 scale there, we're at a 2, maybe a 2.5, which is drawn on the strengths where HEG is. And we're going to work it in the same manner that we've worked global expansion, and hopefully, continue to evolve from there. And on your second question on Asia, could I just ask you to give me a quick repeat? I'm not sure I totally got the full context of it.

Sorry, Scott. It was a real simple question. Just an update on traction in Asian markets. I think you spent a lot of time a year ago kind of localizing for those markets, put a lot of effort into that. So just an update on how you're faring.

Thanks. Yes. Well, so -- same, we localized everything in 2016. And sort of 2017, we then started to spend some amount of dollars into the market. And I think we had said Asia was a low single-digit percentage of our revenue. In a couple of the markets in Southeast Asia where we've started to put our shoulder against, we're seeing nice growth that kind of looks like India in the very early days, which is great. But we're big enough now that, that level of growth isn't necessarily showing up in the P&L per se, but it's just about continuing to grow our footprint. So anyway, punchline is that we're happy with kind of where and how Asia's evolving.

And at this time, this concludes the Q&A session for the conference. I'd now like to turn it back to Scott Wagner.

Hey, everybody. Thanks a lot. Thanks for your questions and being with us. And for those of you who are coming to our Investor Day in late March, we'll see you then.

And this concludes today's conference call. You may now disconnect.