GoDaddy Inc (GDDY) 2015 Q2 法說會逐字稿

Good afternoon. My name is Connor, and I will be your conference operator today. At this time, I would like to welcome everyone to the GoDaddy second-quarter 2015 earnings conference call.

(Operator Instructions)

Thank you. Marta Nichols, Vice President of Investor Relations, you may begin your conference.

Thanks, Connor. Good afternoon and thank you for joining us for GoDaddy's second-quarter 2015 earnings call. With me today are Blake Irving, Chief Executive Officer, and Scott Wagner, Chief Operating Officer and Chief Financial Officer. Blake and Scott have some prepared remarks which we'll follow with a question-and-answer session.

On today's call, we'll be referencing both GAAP and non-GAAP financial results, such as total bookings, adjusted EBITDA, unleveraged 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 equivalent 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 are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC. Actual results may differ materially from those contained in the forward-looking statements. Any forward-looking statements that we make on this call are based on assumptions as of today, August 5, 2015, and 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.

Thanks, Marta. Good afternoon, everyone, and thanks for joining us today. We delivered another strong quarter, with solid results from all of our major product lines and we saw some really nice improvements in our customer experience. We remain laser focussed on our vision to radically shift the global economy toward small business by helping individuals easily start, confidently grow and successfully run their own ventures. We are a trusted partner and champion for organizations of all sizes in their quest to build a successful on-line presence.

Our employees are inspired by our more than 13 million customers. We focus on giving them simple, powerful solutions that help them deliver online. We offer them a growing suite of elegant, easy to use and increasingly integrated cloud-based products built on a single global technology platform, supported by empathetic, consultative customer care, real people that are here to talk with and help our customers every single day.

Our strategy and model have yielded a large high-growth business with strong cash flow, serving a massive global market with growing needs. At the end of the second quarter we've grown to serve over 13 million customers, an increase of more than 1 million customers versus a year ago. Our annual average revenue per user, or ARPU, rose nearly 9% to $118. Second-quarter bookings grew 16% to $476 million and together, our strong customer and ARPU growth drove our revenue up 17% to $395 million. Our adjusted EBITDA, which excludes IPO-related expenses, jumped 29% to $82 million in the second quarter, producing a solid adjusted EBITDA margin of nearly 21%.

I'd like to share three big themes in our recent accomplishments in our second-quarter results with everyone today. First, we're expanding our product portfolio and delivering innovative services. Second, we're posting strong financial performance and growth. And third, we're seeing our platform and data science investments translate into increasingly personalized and integrated customer experiences. Let me spend a bit more time on each of those three briefly.

On my first point about expanding our product portfolio, we demonstrated continued innovation in recent months in all three of our major revenue lines. In Domains, we now offer more than 375 top-level domain extensions, include gTLDs and ccTLDs, with 32 new gTLDs launched in the second quarter and we passed 60 million domains under management for the first time this quarter. So we're continue to go grow our inventory and our Domains team delivered dramatic improves in domain search speed and overall experience this quarter, as well.

In Hosting and presence, we're continuing to expand our penetration of the hosting market and our new GoDaddy Pro offering is ramping nicely, with tens of thousands of web professionals now signed up. Many thousands of our new GoDaddy Pro users are entirely new to GoDaddy and nearly half of them coming from international markets, which we see as a great indication of the potential of this targeted product experience and of our international opportunity with professional developers and designers.

In Business applications, our recently launched GoDaddy email marketing product, or GEM, as we like to call it, is now available globally in multiple languages and it's been embedded in both our Website Builder and GoDaddy Pro purchase experiences, allowing individuals to purchase GEM from inside other GoDaddy products. Our progress in all of these areas demonstrates our focus on delivering truly distinctive products on a single technology platform, all wrapped with world-class customer care. We see differentiated combination of products, technology and care as a unique advantage for us in serving our customers.

On my second point about our financial performance, our Q2 results show that we're growing revenue across all three of our business lines while continuing to invest in innovation and growth, all while delivering strong cash flow and margins. Scott is going to spend more time on this in a minute.

And third, on our focus on creating wonderful customer experiences, we're seeing positive early results from our investments in our platform and data science. We believe our focus on the underlying platform that powers our products and customer relationships is very unique in our industry and it will allow us to deliver a more seamless customer experience over time. We see huge opportunity to delight our customers through personalized and integrated experiences, tailoring our messages to them, making our products easier to find and use together and giving our customers myriad ways to get help whenever and wherever they need. Let me give you just a few examples of how personalization shows up for us and our customers.

First, on our home page and our outbound marketing, we're beginning to use our data science to personalize our home pages and marketing globally. Today, we now have tens of thousands of unique home pages running across the world and our data science, marketing, home page and product teams continue to refine the volume and content of our message to customers, whether by phone, chat or e-mail.

Second, on products, we're integrating our various product applications to create new ways for customers to discover, use and purchase new products. Take GoDaddy Email Marketing, or GEM, and our Office 365 products. We're now embedding these applications in our other products, making it easier for our Website Builder customers to buy Office 365 or discover and use GEM Email Marketing to connect with their own customers when they're ready for it, and that's important.

And third, on customer care, we're rolling out innovative tools, such as a world-class CRM system and an all new mobile-first online help capability to help our care consultants provide our customers with a great experience. And honestly, we're just getting started across all aspects of personalization.

We believe our intense focus on our customers and their needs for easy to use products, delivered on a single global technology platform, delivered with exceptional customer care, that rare combination of products, technology and care, will continue to differentiate GoDaddy and produce strong financial results going forward. Now let me turn the call over to Scott to talk about the financial results in more detail. Scott?

Thanks, Blake, and thanks from me for joining us as well. As Blake said, we feel great about what we delivered in the second quarter. We grew customers 9% over the last year, ending Q2 with approximately 13.3 million paying customers. Our annual average revenue per user, or ARPU, grew nearly 9% year over year to $118, up from $108 a year ago. As Blake said, our second-quarter bookings grew 16% and solid growth in both customers and ARPU drove revenue up 17%, with each of our three product lines, Domains, Hosting and presence and Business applications, growing at double-digit rates.

As a reminder to everyone, we report and measure our top line in two ways, bookings and revenue. Our bookings represent the cash we collect when a customer purchases a product. We typically collect the full purchase price at the time of sale, then recognize our GAAP revenue ratably over the term of a customer contract, which averages more than one year. Over the past five years, on average, we've generated 90% of our revenue each year from customers already in our base at the start of the year. While we experience annual customer churn of less than 15%, the 85% of customers who do stay with us typically spend more, which translates into limited revenue churn. In short, we have a very stable revenue model.

Now, I'll briefly run through the results in each of our three revenue lines. First, on domains, we continue to extend our market leadership, with domains revenue up 10.3% in the second quarter to $209 million. The domain market continues to grow on a secular basis as more businesses and individuals claim and name their ideas on line, and we are working to continue to outgrow the market. While Domains revenue continues to expand for us, it now contributes about 53% of our total revenue, down from 56% a year ago as our two other revenue lines grow faster.

Our objective in Domains is pretty simple. It is to enable our customers to easily find the perfect name wherever they are in the world and to turn that perfect name into a great online presence. There is several ways we're doing that.

First, we continue to expand our domains inventory, with 32 new gTLDs launched in Q2. At the end of the quarter, we offered more than 375 gTLDs and ccTLDs and had over 850,000 new gTLD domains under management.

Second, Blake mentioned the huge improvements in domains search speed. We've used speed and comprehensiveness of results as key features in domain search. These are real differentiators that set the domain experience at GoDaddy distinctly apart from other registrars. We'd encourage everyone to try our domain experience and assess the speed, merchandising flow and activation ease relative to other options in the market. We think you're going to like what you'll find, not just in the US but increasingly around the world. This quarter, we began testing and deploying machine learning to algorithmic (technical difficulty) domain search results by location in several Tier 1 markets around the world and there is much more to come.

Our second product group is Hosting and presence, which grew 18.5% in Q2 to $145 million. Hosting and presence now makes up roughly 37% of our total revenue. We have been expanding our offerings in hosting, focussing on providing our customers with great performance, reliability and speed, while adding new options like our industry-leading managed WordPress product and robust virtual private and dedicated server offerings. We launched GoDaddy Pro in May, and it has been well received in the design and development community. Blake noted we have tens of thousands of pros participating and about half are from overseas.

Now, GoDaddy Pro is still in its infancy but so far our initial customers love the ability to easily manage clients and products through GoDaddy, using features like delegation, shared shopping and site performance. We expect these innovations to allow us to add more products and deepen our business relationships with our existing Pro customers and also to attract more end customers through this important set of influencers over time. On the presence side, we continue to see strong new sales and renewals of our DIY Website Builder product and our online store builder.

In our third revenue line, Business applications, we continue to see very strong growth, with revenue up 51.4% in Q2 to $41 million. Business applications now makes up about 10% of total revenue. We continue to see strong adoption of the Microsoft Office 365 product suite that we introduced in 2014 and solid renewals of our proprietary workspace email product as well. We've integrated GoDaddy Email Marketing, or GEM, into our Website Builder product and also enabled GEM for our Web Pro program, so now pros can purchase GEM for their clients using shared shopping and help their clients to do email marketing effectively.

Also on the topic of integrating our different products, we've embedded Office 365 into the Website Builder purchase experience, resulting in both a better experience for our customers and increased attachment of Office 365 units. The products in our Business applications group, and these initial product integrations in particular, demonstrate the power of our platform to bring new products and service offerings to market and to connect our individual products together to create a seamless and distinctive experience for our customers.

Before we leave revenue, I'll discuss growth overseas quickly. A key focus for GoDaddy over the last couple years has been to localize our site and products across various geographic markets. We made a huge push into Europe last year and began 2015 with offerings in 37 countries in 17 languages, with a primary focus on major English-speaking markets as well as Latin America and Europe. We've been steadily gaining share of total domains across our major Tier 1 markets including the UK, India, Canada and Australia, and are now laying the foundations for bringing our next major markets in Asia online.

Q2 was our first quarter with International revenue above $100 million. International grew 19.6% versus the prior year and now represents over 25% of our total revenue. Blake and I want to give kudos both to our core international team and to all the teams across from GoDaddy from Domains, to Hosting, to Business apps, marketing care, and so on, who have joined forces to establish and grow our International business to over $100 million in quarterly revenue. We look forward to international becoming an even larger percentage of our revenue mix over time.

Turning now to cost, perhaps the most attractive attribute of our business is our customer unit economics. That is, the profits that we generate over the lifetime of a customer relationship versus our cost to acquire that customer. Over the last several years, we've acquired customers for roughly $50 to $60 each. Our average customer has generated more than $550 in gross profit during the course of their relationship with us. That's an LTV to CAC, or lifetime value versus our cost to acquire a customer, of approximately 10 times, an attractive ratio. We closely monitor the metrics that contribute to this ratio. Now, as we focus on moving overseas and targeting higher potential value segments like Web Pros, we expect our cost to acquire customers will increase over time, but we also expect to maintain attractive LTV to CAC ratios as we look for the spending and margin profiles of our customers to increase as well.

Looking briefly at our cost lines, our gross margin increased by more than 210 basis points year over year to 64.6% in Q2. This is primarily because of our two smaller higher revenue margin lines, Hosting and presence and Business apps, are growing faster than our average.

Turning to our operating costs, as expected and disclosed in our prospectus and our 10-Q filed in May, our second-quarter G&A included nearly $30 million in IPO-related expenses stemming from agreements that terminated with the completion of the IPO. Excluding these IPO-related costs, G&A would have been roughly up 7% on a year-over-year basis.

In Q2 our two go-to-market expense lines, Marketing and advertising and Customer care, grew faster year over year as we put more relative muscle behind the products in international markets that we've introduced over the past 18 months. Again, excluding the costs related to the IPO, we're seeing operating leverage from our two other major operating expense lines, G&A and Technology and development. While the pace of aggregate tech and dev expense growth has slowed in recent quarters, we're still investing meaningfully in our customer-facing platform and product applications, both to delight our customers and to create competitive differentiation for us.

Hopefully everyone on the call appreciates how we are achieving steady margin expansion while continuing to invest in our capabilities and growth opportunities for the future. Our results show that balance playing out in Q2 as our solid top-line growth, combined with prudent investment, helped us grow adjusted EBITDA to $82 million, up 29% year over year, yielding a margin of 20.9% in the quarter, which was up 200 basis points versus prior year. In the second quarter, we also converted more than 90% of our adjusted EBITDA into unlevered free cash flow. Year over year, unlevered free cash flow grew over 21% to $77 million.

Just a quick note to everyone about below-the-line items in the quarter. Please note that our reported net loss included over $51 million in expenses related to the completion of the IPO in Q2. This includes the approximately $30 million in G&A, IPO-related expenses which I mentioned a moment ago, and roughly $21 million in debt extinguishment costs associated with the repayment of our $300 million senior note using the IPO proceeds. We expect our business will continue to generate substantial free cash flow. Due to the timing of working capital needs and CapEx, our free cash flow generation may be lumpy from quarter to quarter, but over time, we expect unlevered free cash flow to be roughly 70% to 90% of adjusted EBITDA.

On the balance sheet, we ended the quarter with net debt of approximately $794 million. With the repayment of the $300 million senior note, we expect to save over $25 million in annual interest expense. Our second-quarter net leverage ratio of just over 2.5 times is a very comfortable level for the business.

Looking forward, I'll provide some color on what we expect for Q3 and full-year financials. For the third quarter ending September 30, 2015, we expect revenue between $405 million and $410 million, and adjusted EBITDA in the range of $82 million to $85 million. For the full year ending December 31, 2015, we expect revenues in the range of $1.595 billion to $1.605 billion and we're raising our outlook for adjusted EBITDA to a range of $328 million to $333 million.

In the second half of the year, we're going to continue our investment spend to both build out new product categories, lay the foundation for future geographic expansion, continue our marketing spend and expand our use of data science to increasingly personalize our customer interactions. The midpoint of our full-year 2015 outlooks translates into year-over-year growth 15.3% for revenue and 22% for adjusted EBITDA, implying an adjusted EBITDA of approximately 20.7%. We believe these targets continue to allow for a healthy level of reinvestment in products, technology, and care for our customers to drive long-term value as well as delivering a solid incremental return for our shareholders in the near term.

So to wrap up, we feel great about our performance in Q2, and we're focussed on delivering for our customers and shareholders over time. We believe that GoDaddy's unique combination of products, technology and care will continue to differentiate us in the market and to produce strong future financial results.

With that, we'll open it up for questions.

(Operator Instructions)

Mark Mahaney, RBC Capital Markets.

Thanks. Two housekeeping questions and then a broader one. Can you talk through the FX impact on your overall bookings growth rate and then what the organic growth rate of the business apps segment would have been? Those are the two housekeeping questions.

On the customer service side, I know how much of a priority it is for the Company. Are there any metrics you could call out in terms of improvements you've made there with -- in the customer service function, anything you can call out there? Thank you.

Mark, it is Scott. Two housekeeping items, first FX. Last quarter, we described to everybody that our bookings had about 200 basis points of FX impact and the currency markets really haven't changed all that much, and that's about the year-over-year impact that we saw in the second quarter, as well. Now, our bookings overall of 16% had that headwind in it, so we feel really good about how bookings fell in the quarter, particularly relative to where currencies sit. So that's one.

Second, in terms of business apps, it is all organic. So the 51% is just continued trajectory in the business and it's all organic. In terms of C3 in our care improvements, we are investing in a couple of things now which we're particularly excited about, one of which is a best-in-class CRM system that's going to provide our agents with a true real-time view of what's happening with our customers across all aspects of their environment, and even things that they do online that may be outside of GoDaddy. This is in pilot mode right now and we're excited about what means for our customers, and that will continue to roll out in the coming quarters.

All of our time tool set has really improved both call response times, satisfaction, and other quality-of-service metrics that have been great. And from a business side, I think we mentioned before that care is also a channel that delivers bookings, as well, and the team continues to perform really well on those numbers.

Thank you, Scott.

Deepak Mathivanan, Deutsche Bank.

Great, thanks for taking the question. First question maybe for Blake. You mentioned you have tens of thousands of data (inaudible) for the Pro product. Can you discuss the level of engagement on the product among these pros? What features are the most commonly used inside the product? And then maybe how many end customer accounts have been on-boarded? Do you also see incremental customers coming in, maybe to your hosting products at this time? I know it's still early stages, but perhaps some early feedback on it. And then I have a follow-up.

This is Blake. So what we've seen in the new GoDaddy Pro features enables a developer or a designer to have a relationship with their customer and actually see the way that their customer's sites are performing. So they can buy on a customer's behalf, they can manage a customer's cart, they can see how their website is performing and instead of being called by a customer and told that hey, my website is down, they actually they can make a phone call to the customer and say, I've notice you have a problem, I'd like to solve it for you, or if you have a WordPress plug-in that is not working for some reason, they can follow on with the customer.

That -- we have two feature features. One is called delegation. The other is monitoring. Those are the two features that are the ones that are strongly differentiated in the marketplace and are having a lot of pull with these guys. We have, of those tens of thousands, we've seen thousands of folks that are new customers for us and we're starting to see it for us, And we're starting to see an increasing number of customers of theirs show up on the platform. We're pleased results. It is not a service we pay for. It is a service developers pay for. It is a service that provides them value in some of the top critical issues they have that we're solving on their behalf.

Okay. That makes sense. And then ARPU continues to grow on a good trajectory, up 9% is definitely due to a mix shift towards higher ARPU products. Can you qualitatively maybe discuss what up-sell rate you're seeing in the last, say, couple of quarters? What products are seeing good eruption there? And particularly on the site builder, they DIY site builder, can you discuss the growth rates there?

It is Scott. ARPU was up 8.6% this quarter. It was a shade over 9% last quarter. It is nice trajectory. And really you're looking at just continued growth in hosting and presence in business apps. I mean, it would be -- it would be almost misleading to point out any one particular product. It's really the growth across both of those two segments and obviously the sub segments underneath them, whether it would be managed WordPress or Office 365 or some of the more sophisticated hosting offerings. I could rattle off -- I did three. I could rattle off seven more, and all of which contribute. I think the headline for everybody on the call would be the ARPU gains are really just a reflection of the product innovation and the product strategy that's been underway for probably the last couple of years.

Okay. That is helpful. Scott, If I can squeeze in one more housekeeping. What was the revenue contribution from the Marchex domains acquired and how do you treat it in the domains under management? Thanks.

It was immaterial in the quarter, so we closed that in the second quarter. It was -- it was immaterial for the quarter. What we did see, though, and the reason that we even did the Marchex deal was that we're big believers over the long term of the ability and potential in the after market, which is merchandise names in a liquid fashion for -- that are already held. And, obviously, this was a portfolio of names that were really unavailable on the market and when we merchandised these names, we saw nice activity across our entire after-market business for the quarter. This was just one element that had domains revenue growing 10% year-over-year, which was basically about what we did in the first quarter, too.

Thanks, Scott.

Jason Helfstein, Oppenheimer.

Thanks. Three questions. First, results would suggest a greater mix to annual subscriptions, so just talk about any dynamics there and what impact that might be having as potentially an offset to ARPU. Second, are you guys seeing any impact as far as on the stronger dollar, i.e., customers choosing lower -- international customers choosing lower-priced plans, and does that have any impact on the back-half guidance? And then lastly, should we expect you to be more aggressive in product acquisitions? It seems like there are some interesting things out there that would be -- you could really utilize, given your customer mix and just all of the customer support you're offering to upsell more products. Thank you.

It's Scott. I'll do the first two and let Blake talk about the second one. In terms of bookings to revenue, there is not a meaningful difference in the shift of plan mix. Given that we've got a portfolio of products and some of them just have different characteristics or mechanisms on recognition and, obviously, sometimes we're selling different term lengths. There is not a one thing happening and actually we think that the annual -- the bookings to revenue relationship and our mix of annual plans is just a really healthy one. And there is nothing specific to call out that would suggest that things are lengthening or the terms are dramatically changing. So that's one.

Second, on the strong dollar, just like with Mark's question, the strong dollar, obviously, it's still out there on a year-over-year basis. It is approximately 200 basis points of headwind, but I think we're managing through it. And the trade-off, we are balancing the trade-off of customer acquisition, which continues to be healthy in our international markets and still the currency effect and we think we're doing a pretty good job and are pretty happy about it. Our guidance reflects a currency environment that stays where it is. So we don't think that there is any special things in the second half that we would call out because of this. We think we're basically managing through it right now.

Jason, this is Blake. So on your M&A question, so we continually make -- I'll just call it make-by-partner decisions on areas we think our customers are demanding or we believe will benefit them. And those exist in whether it is domains, whether it is in the presence and hosting business, or whether it is in the business applications business. Customers were pretty clear with us what's important to them. We keep an eye on the market carefully. We talk to a lot of companies, as I know you know. We acquired -- been acquisitive and have acquired nine companies over the last 24 months or so. We're booking into areas that we think frankly matter to our customers and in both presence and hosting business, the biz apps business, as well as international, too. So I think, without getting any more specific than that, I think that kind of covers where we're thinking.

Our organic trajectory's really good. I think you framed it as, boy, there is opportunities in -- they're out there, it is just that we have a high bar for success, and we'll do -- when we do stuff, it's going to be because it is adding real value and distinctiveness for our customer experience. But we've go a pretty high bar on the inorganic stuff.

Thank you.

You bet.

Mark May with Citi.

I had two. First, I was hoping you could remind us about how the gross margins roughly differ between the three segments, in particular with domains, just so we can get to -- continue to think about the upside to gross margins going forward from the revenue mix shift. And then on business apps, can you remind us -- I know that Office 365 has been a really good product for you guys. Are we going to hit a point where you kind of comp that and the growth rates that we see there will kind of differ? Remind us where we are and how to think about that going forward? And I know you have a relatively new email marketing product there. Is that something that you think that will help to offset some of that comping issue if in fact that's something to be thinking about? Thanks.

Mark, this is Blake. Scott and I will riff back and forth on this one. Margins on the three product segments, the first, which is domains, we're roughly in the high 30%s. Both in hosting and presence and business applications, they're what you would expect from a software business. So they're typical software margins, whether it is on GEM or whether it's on our 365.

And your second question on growth rate and trajectory on apps, we will -- absolutely that growth rate will end up tapering and slowing and it gave up a couple points versus the first quarter, from 53% to 51%. We've already lapped the Office 365 introduction and there is nothing in the next quarter or two that is going to cause a dramatic cliff in the growth rate. But you should expect that area and product segment to continue to slow. We think GEM and then plus other category extensions and things that we can do, we'll try to keep that growth growing and push it up.

And just building up Scott's comment, renewal on O-365, very strong. When we've integrated -- you heard Scott and I both talk about integration of Office 365 and GEM into the Website Builder product and frankly, we're seeing greater activation and usage. Even while we've lapped those -- we've lapped that introduction, we're seeing what I'd really call really good growth in that segment and I anticipate it to continue to be good.

Great. Thanks.

You bet.

Ron Josey with JMP Securities.

Thanks for taking the question. I want to ask about cost and tech dev spending, specifically. Scott, I think you mentioned -- I can see in the numbers tech dev growth has been -- spending has been decelerating past several quarters. I think it grew 4% this year. I understand the balance of the business, but you're also investing quite a bit in launching new products. I'm just wondering, is this slowdown in spend more of a pause as you operationalize all the new products, or are you well-staffed in this segment right now and sort of and this the right run rate? Thank you.

Hey, Ron, this is Blake. I think you accurately point out that we spent, had an increase in spend, in like earlier in T&D, but -- and we're up 7% year over year. I'll say this. The investments that we made years ago -- and you always, when you're making technology investments you always have a trailing result of those. What we're seeing now is the investments that we made over the last 24 months are actually starting to benefit the business. You heard Scott and I both of us talk about the uplift in platform capability across everything that we've been rolling out, whether it is front of site, whether it is our customer care organization, integration from other products across the board.

We continue invest in engineering talent, particularly in both product applications and product teams. We're getting, frankly, good savings in our global infrastructure and we've actually had, I'd characterize it as a shift from spending a lot on IT infrastructure to being able to spend on talent. So you're seeing the numbers not increase but the balance of how we're spending that T &D spend is quite different. And it's on talent. We have, frankly, been extremely successful in acquiring talent in our locations in Sunnyvale, San Francisco, Seattle, Cambridge, Massachusetts, and we're feeling good about our investments we made and what they are going to yield in the future.

Super helpful. Thank you very much.

You bet.

Brian Essex, Morgan Stanley.

Hi, good afternoon, and thank you for taking the question. Blake, I just had a question for you, particularly on GoDaddy Pro. You noted how many international customers are coming on board with that effort. Are you seeing any kind of maybe an outsized opportunity internationally or difference in mix of attach rates with customers that you're on boarding from international markets relative to those in the US?

I would say no. I think the thing to point out, that is most important, GoDaddy Pro is very new, right? So we're seeing very good success with it initially. But 50% of small businesses today rely on a professional developer to build a website for them to develop a web presence for them. And I think that we -- this is not an area that we have been strong in over the last many years. The products have improved, the quality, the performance across dedicated, managed. Our managed WordPress product, I think we've seen a considerable improvement there and it is being noted by developers, so we're starting to see them come on. Now the fact that we actually localized product in GoDaddy Pro for other markets is something that is unique and new, so I think that, that also has some large pull-through for us.

Got it. And then maybe a follow-on to Ron's question, a question for Scott. As we look at CAC and your investment in growing the business, both domestically and internationally, understanding there is a rev rec differential there from when you were able to sign a customer on and when you can recognize revenue. Should we expect any fluctuations in CAC, particularly on a per-customer basis as you expand and maybe keep in mind how that revenue is going to be recognized in the future?

Yes, Brian, I think CAC probably not dramatic fluctuations in rev rec, as you posited it. You're not going to see huge swings on a quarter-over-quarter basis. As I said earlier, we should expect CAC spend to go up on average, particularly as we get smarter about targeting high-value segments, like pros, or other attributes of small businesses that have a higher propensity to spend. So what you're seeing on our marketing is more dollars aiming at those higher-value sub segments and over time, that could push CAC up. But it is not going to be dramatic swings that will be an evolution and a flow, and that will happen on a measured basis.

The most important point being that's not happening in isolation. It is that we're actually going -- not only finding customers, but we're attaching more things to customers and the spending profile and the margin profile are going up as well. So we're doing all this while still maintaining an attractive ratio.

Got it. Helpful. Thank you.

Sterling Auty, JPMorgan.

Yes, thanks, hi, guys. I wanted to give you guys give -- have a chance to answer this question on the call. The most popular question I got from investors after the print is, if you had two straight quarters of very solid bookings, 16% growth in the quarter, why didn't that give you enough ammunition to actually maybe inch up guidance for the full year?

Sterling, we feel good about where the guidance is, looking forward in the second half, and it is something even with FX headwind, as I said before, that we're incorporating that into our guidance and we just think that it is prudent with our guidance to have where it is right now. Again, I would mention, obviously, we're lifting our EBITDA guidance and the performance has been really solid there and we feel very comfortable with the meaningful step-up in EBITDA guidance that we just put forward.

Okay. Great. And then on the international front, can you give us a sense in the markets that are contributing most to growth, is there any difference in your approach in terms of what you're selling off the bat in terms of the domain, plus any tie to hosting and applications? I mean, is it a difference versus what you're doing here in the US?

Not meaningful, Sterling, both relative in the US and across the markets. There is distinction without differences as you get into certain markets, but it is relatively similar.

But that means that the new users right from the get-go in these international markets probably come on with a higher dollar value initially than, say, what US did three and four years ago before you guys came on board, correct?

More way back when. If you look at international, I think we've said this before, there is a lifetime value difference in international. It's probably 10% to 15% less than the US, and that's ARPU driven. Some of that price sensitivity in more developed markets and then some of it is just a less fulsome attachment of some of the other services and just the relative youth of the customer base. So punch line is, international ARPU is less than that in the States, but it is not a meaningful difference. It is 10% to 15%.

This is Blake, Sterling. One other thing I would point out, that is different if you think about GoDaddy years and years ago, the product portfolio is much more full today than it was a long while ago, and the quality and performance of those products has changed pretty dramatically over the last 2.5, 3 years. That notably has a competitive product set that is easy to acquire. That on ramp of domains matters a lot and we've just made it incredibly simple for somebody to take that next step, either say, I'm going to go build a website for myself or I'm going to have a professional developer do it for me, and we've made the services for that professional developer matter a lot more, too. It's just a different evolution in the Company, so we've made it easier to acquire products.

Great. Thank you.

(Operator Instructions)

Mark Kelley, Barclays.

Just curious how you're approaching marketing outside the US. I know the Super Bowl has been a huge benefit to your domestic brand awareness and I would imagine that's pretty hard to replicate that reach. Seems like there's a lot of moving pieces with the NASCAR partnership ending. Any thoughts you have there would be helpful. Thanks.

It's Scott, Mark. If we think about a geography in our Tier 1 markets, we will enter that geography with a mix that has both brand awareness and direct spend, but it's single-digit millions of dollars, and that's a entry into a market. So take India or the UK or Canada, we're on the back end of that investment and what we've seen is that, again, a relatively modest amount of marketing spend measured in the single millions of dollars, has created an activation in customer growth that's been a terrific return. I think what that means relative to how you framed your question was, we don't necessarily need to go replicate the NASCAR sponsorship or a Super Bowl venue to enter a market in localized form, and get a big uptick, not only in awareness in attention in the market, but more importantly, our customer and financial metrics.

This is Blake. Just a quick example. In India, Mark, over the course of the last three years, we've moved from the teens in terms of -- low teens in terms of brand awareness to over 70% brand awareness today. And that's, as Scott said, using a variety of different media, both broadcast media, programmatic display and search. In doing those things in combination, we have found that there is a pretty intense amount of bleed over from the US and our marketing spend in the US to other markets outside of the US. So when we activate the brand in a Tier 1 market like India, we see results happening more quickly than you would expect to see them if we were making those investments initially in the US.

That is helpful. Thanks a lot.

You bet.

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

Great. Well, look, hey, this is Blake. I just wanted to thank all of you for joining us on our second-quarter earnings report-out and I look forward to talking to you a quarter from now in our next release. Thanks, everyone.

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