GoDaddy Inc. Q1 FY2022 Earnings Call

Good afternoon and thank you for joining us for GoDaddy's First Quarter 2022 Earnings Call. I'm Christie Masoner, Senior Director of Investor Relations. And with me today are Aman Bhutani, Chief Executive Officer; and Mark McCaffrey, Chief Financial Officer. Following prepared remarks, we will open up the call for your questions. On today's call we'll be referencing both GAAP and non-GAAP financial results and operating metrics such as total bookings, unlevered free cash flow, normalized EBITDA, annualized recurring revenue or ARR gross merchandise volume or GMV and net debt. A discussion of why we use non-GAAP financial measures and reconciliations of our non-GAAP financial measures to their GAAP equivalents may be found in the presentation posted to our Investor Relations site 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, our strategies or objectives with respect to future operations including our approach to capital allocation, new product introductions and innovations and our ability to integrate acquisitions and achieve desired synergies. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC. Actual results may differ from those contained in forward-looking statements. Any forward-looking statements that we make on this call are based on assumptions as of today, May 4, 2022, and except to the extent required by law, we undertake no obligation to update these statements as a result of new information or future events. With that here's Aman.

Thank you, Christie and thank you all for joining us today. At GoDaddy, our mission is to empower entrepreneurs everywhere, making opportunity inclusive for all. With the secular trends of entrepreneurship coupled with accelerating online presence and commerce, we believe GoDaddy's role is to help our micro and small business customers take advantage of the largest opportunity in front of them: the combination of the Internet and commerce. We do this by helping customers establish and maintain their digital identity. Our tools help customers extend their web presence to social media and marketplaces and into their in-store experience, giving them a ubiquitous presence. And we are bringing them to the world of connected commerce by enabling every surface for them with commerce. This mission has never been more important and GoDaddy's combination of assets makes us a unique and differentiated player in the market. Together, digital identity, ubiquitous presence, and connected commerce form the entrepreneurs' wheel, representing our customers' needs and how we meet and exceed them. We shared this new framing for GoDaddy at our Investor Day in February. We also presented a three-year plan and we are off to a good start. In the first quarter of 2022, revenue grew 11% year-over-year and normalized EBITDA grew faster, up 18% year-over-year. While we all face a fluid macro environment, we are focused on what we can control and delivering on expectations for our customers and shareholders. We are keeping a close eye on the war in Ukraine. The financial impacts of the war on our business are limited, but we remain critically concerned for the safety of our contractors in the area. A prolonged war will likely mean a bigger disruption in the work and delays in some product releases and rollouts as we ramp resources in other areas. We are also closely monitoring the uneven demand patterns as a result of the ongoing COVID-19 pandemic and inflation, and the strength of the US dollar is leading to FX headwinds across industries. Our business model is durable and offers us opportunities to adapt and be nimble. Our leadership team is focused on our three-year plan and mitigating short-term headwinds. Over the last several years, we have strengthened the quality of our revenue by delivering on our strategy to attract customers with higher lifetime value. Through disciplined execution, we have improved our renewal experience. And as a result, we have continued to drive modest improvements in our already high retention rates. An important data point that I am happy to share is that the 15-month renewal rate from the 2020 cohort of customers continues to be strong. Our commitment to our strategy is clearly highlighted in the consistency of our priorities. Our three strategic priorities have been and continue to be: first, driving commerce through presence; second, delivering for GoDaddy Pros; and third, innovating in Domains. We covered our priorities in detail at Investor Day, so I will provide brief comments on each of these today. On our first priority, we have delivered many product launches in the last couple of months. But the one I want to highlight is the launch of a new higher-tier Commerce Plus plan. The new offering includes increased customer value in the form of simplified taxes, unlimited product listings, and higher limits on many features. From marketplace orders to email campaigns, the data is early and encouraging. 80% of sales in this new tier are from new purchases. I'm looking across our Commerce plans; 70% of customers are now choosing GoDaddy Payments, up from the 60% we shared in February. Annualized GMV across the GoDaddy ecosystem grew 20% year-over-year to $24 billion, primarily driven by offline point of sale. For GoDaddy Pros, our focus continues to be to create best-in-class presence and commerce offerings and tooling for Managed WordPress. We continue to add more users to The Hub and our teams are working hard to increase rates of engagement. Our integration of Pagely continues at a good pace and we are excited about upcoming releases, which include a commerce offering and a new onboarding flow for Managed WordPress. I'm looking forward to sharing more about these new capabilities once they are launched. On innovation in domains. In February, we shared that we are going to bring to market an innovative new product called Payable Domains. I am happy to share that we have started to test Payable Domains with a small percentage of customers in the US. It is too early to comment on how customers will receive and adopt this product, but we are eager to experiment with it as quickly as possible. In closing, I want to remind you that GoDaddy has built a durable business with a history of solid performance in all kinds of economic environments. By accelerating the rate of experimentation and innovation, we have continued to improve the quality of our products and enter new markets, improving attach and ARPU and driving shareholder value. Our strength comes from our large customer base, extraordinary customer, and revenue retention, the power of our existing cohorts, the strong competitive advantages we have serving the micro and small business customer, a clear three-year plan, and a disciplined leadership team and workforce committed to our mission. With that, here is Mark.

Thanks, Aman, and thank you everyone for joining us today. We are excited to share our strong Q1 results, which highlight our execution towards the targets we shared at our recent Investor Day. Our results demonstrate our focus on delivering a balanced combination of durable topline growth, profitability at scale, and robust cash flow, and our performance shows GoDaddy's business resiliency. We are pleased that we were able to deliver a strong first quarter while we actively manage through the uncertain global macro environment. In Q1, total revenue grew to $1 billion, which represents 12% growth year-over-year on a constant currency basis and 11% year-over-year on a reported basis. Within total revenue, international revenue grew 10% year-over-year on a constant currency basis. As shared earlier this year, we updated the lens by which we report the pillars of our revenue. This change transitioned our reporting from three revenue segments into two new segments: Applications and Commerce and Core Platform. This gives us the framework of how we will talk about our business and opportunities going forward. Applications and Commerce revenue, which includes presence in application solutions, grew 16% year-over-year. Coming in at the high end of our guidance range from February, our presence products such as Websites + Marketing contributed to this growth. And as Aman mentioned earlier, we drove great traction with the attach of our payment solution which will show up in this line item as it becomes more meaningful. The ARR for Applications and Commerce grew 14% year-over-year to $1.2 billion. ARR from our Create and Grow group of products, which includes Websites + Marketing, Managed WordPress, Sellbrite, and GoDaddy Studio grew 13% year-over-year to $410 million. Lastly, annualized GMV across the GoDaddy ecosystem was approximately $24 billion, growing 20% year-over-year. We achieved growth across all channels, primarily driven by offline point-of-sale. Core Platform revenue, which includes Domains, Hosting, and Security products, grew 9% year-over-year, delivering above our February guide with 40% of the increase driven by aftermarket. ARR for Core Platform grew 5% year-over-year to $2.2 billion. As a reminder, aftermarket performance does not impact ARR. Q1 bookings were $1.16 billion, growing over 7% on a constant currency basis and 6% on a reported basis against tough comparisons from the strong year-ago quarter. Additionally, Q1 bookings grew 10% sequentially against our largest ever Q4 quarter. Applications and Commerce bookings grew 9% year-over-year and Core Platform bookings grew 5% year-over-year. Normalized EBITDA grew 18% year-over-year to $226 million at a 23% margin, representing over a point of margin expansion compared to the same period last year and bringing our normalized EBITDA margins within the 23% to 24% guide we outlined at Investor Day. Our technology and development expenses increased as a percent of revenue this quarter as we focused on building our commerce and innovation strategies. Additionally, as we continued reopening offices in Q1, our G&A expenses also increased as a percentage of revenue while remaining below historical levels. We drove leverage in our marketing spend based on continued execution of the formula outlined at Investor Day. Additionally, during Q1, we faced inflation pressures primarily in the form of increasing energy and cloud infrastructure expenses. Currently, we have medium-term contracts and FX hedges to mitigate some of the foreseen impacts. We expect these inflation-related impacts to continue throughout 2022 and we will monitor and proactively address our exposure in these areas. Unlevered free cash flow for the quarter was $287 million, growing 7% year-over-year driven by strong profitability. Additionally, during the quarter, we began executing against our announced $3 billion authorized share repurchase through an initial $750 million accelerated share repurchase or ASR expected to be completed in May. Through Q1, we repurchased an initial 6.5 million shares, reducing our total share count by 4% since year-end, bringing our free cash flow per share to $5.25 on a trailing 12-month basis versus prior year cash flow per share of $4.51 for an increase of 16%. On the balance sheet, we finished Q1 with $743 million in cash and total liquidity of $1.3 billion. Net debt stands at $3.2 billion at the midpoint of our targeted range of two to four times. Moving on to our outlook. Given the solid start to our year and the predictability of our model, based on what we know now, we are comfortable with our full year 2022 outlook provided in February. Having said that, we are not immune to the current macroeconomic environment, which increases our short-term exposure to foreign currency and customer demand fluctuations. While the environment remains fluid, we believe our predictable model allows us the flexibility to moderate our investments and leverage our operating expenses to seek to offset exposure to revenue from these factors. We also remain committed to delivering the $6-plus free cash flow per share discussed in February. For Q2, we are targeting total revenue in the range of $1.01 billion to $1.02 billion, which would represent year-over-year growth of 9% at the midpoint. Within that, we expect Applications and Commerce revenue to grow between 14% and 16% and Core Platform revenue to grow between 5% and 7%. For Q2, and full year bookings we expect growth to be approximately two points below revenue, primarily driven by FX pressure. We will continue investing in technology and development to drive our robust product launch momentum while balancing our goal for margin expansion through efficiencies in customer care and marketing. Normalized EBITDA for Q2 is expected to be in the range of $232 million to $237 million, which would represent year-over-year growth of 18% at the midpoint. Our capital allocation strategy also remains unchanged. During the second and third quarters, we intend to fulfill our $1 billion buyback target for 2022 through an additional $250 million of share repurchases. Additionally, we will evaluate the impact of rising interest rates and explore refinancing our term loan and revolver, with the intention of maintaining our leverage ratio of 2 to 4 times. Before I close, I want to reiterate that we remain laser-focused on execution and we have a track record of consistency in difficult times. We are marching towards delivering the 10% top line CAGR, 15% normalized EBITDA CAGR, and 20% or better free cash flow per share CAGR, while buying back $3 billion of our stock over the next three years, that we described in detail in our Investor Day. We are balancing our near-term and long-term goals, emphasizing delivering strong results, while at the same time investing in areas for future growth. GoDaddy leads in providing small business solutions, a position that we built by understanding the needs of our more than 21 million customers. While the current macro events present challenges, GoDaddy's resiliency comes from our long history of strong customer retention, the power of our existing cohorts, and the competitive advantages we built as the champion for small businesses.

Thanks, Mark. Our first question comes from Trevor Young from Barclays. Trevor, please go ahead.

Great. Thanks. Two if I may. Just first one any color on how customer growth has trended thus far in 2022 relative to the 3% growth last year? Aman, I think you made some comments about on a 15-month basis, the 2020 cohort is retaining at pretty healthy levels. I'm just trying to get a sense, kind of, like in-period demand from new customers. Have you seen any improvement in that cadence? And then, on international, revs declining a tad Q-on-Q. Were there any specific regions or countries where you saw weakness in the quarter? And did you see weakness specifically in Europe following the onset of the Russia-Ukraine conflict? Thanks.

Thanks, Trevor. This is Aman. On the 15-month retention rates, one of the reasons I wanted to share that metric is 2020 was a huge cohort for the company. And I think analysts have been asking us, investors have been asking us about retention rates on it. And we're very excited to see that we've continued to attract a customer with a high lifetime value, a customer that wants to stay with us. So those strong retention rates were obviously very, very important for us. And in terms of the customer growth, we don't guide to customer growth; but definitely at the end of the year, it will be something we'll be happy to talk about more and share with you. In terms of international, I'm sure Mark may mention a thing or two, but generally, I would say, we see the same sort of macro environment that you see in Europe, as an example. In Russia, we did shut down our Russia website and removed support for the ruble. And that had an impact. And maybe, Mark, you want to comment on it. I wouldn't call it any sort of material impact. But perhaps, Mark, you want to comment on it?

Yes. Thanks, Aman, and Trevor. I think that's exactly right, Aman. I think you stole the buy line. We did shut down. It didn't have a significant impact on us. I would say it's more of the macroeconomic trends that are impacting us throughout Europe, and there isn't a particular exposure to any region or country at this point to call out.

Great. Thank you, both.

Our next question comes from the line of Clarke Jeffries from Piper Sandler. Clarke, please go ahead.

Hello. Thank you for taking the question. Maybe addressing the previous question in a different way on a product level, just wanted some qualitative thoughts on the macro impacts to Domain demand, and if there was any characterization you could offer between North America demand and international demand for Domains? And then, I think as a follow-up to that, with a 40% increase driven by aftermarket, was that in line with your expectations or above? And as we settle into kind of cleaner compares, where do you think the growth contribution from aftermarket goes?

Yeah. Thanks, Clarke. I can take the first, and Mark perhaps you can take the second. In terms of domain demand, Clarke, I would point to the sort of core domain business for us, which is now much more than selling just specific TLDs. We sell a large sort of set of TLDs across the world. We've also added to that capability the secondary market. We then combine the primary market in the secondary market. We connected those really well. You will remember products like list for sale from about a year and a half ago. And then, we've also added Corporate business in Domains and we've added more recently a Registry business as well. So we continue to be very happy with our overall Domains business. But it's really the collection of diverse products that we have that are performing really well for us. And then, on the aftermarket, maybe Mark I can turn it to you.

Absolutely, thanks, Clarke. We're very pleased with the momentum in the aftermarket. As we mentioned coming out of Q4, we're still seeing strong volume growth and rising average prices, which are key indicators of our momentum in that area. While larger transactions can be unpredictable, we continue to observe them coming in and the quarter-over-quarter momentum remains evident. There’s no notable difference between North America and international markets; the momentum is broad-based, and we’re satisfied with the volume of transactions taking place right now.

Good. And if I could squeeze one more in about just how the investment plan changes given the macro environment. Just trying to get a sense of whether you see it as a net benefit to profitability or whether there will be some offsetting costs you do have to rotate some of that kind of contractor headcount around. Is it kind of a net benefit or a net headwind to profitability as you look through the year?

I think if you are referring to my comments about the contractors in the Ukraine region, it is an important but small group for us. Given our large base of engineers globally and our ability to hire and collaborate with vendors worldwide, we believe it won't create a significant impact. While their safety is extremely important to us, I wouldn't place too much emphasis on it since the group is relatively small.

Yeah. Clarke, I'll just add on to that. We don't see the cost as a headwind.

All right. Perfect. Thank you very much.

Our next question comes from the line of Ygal Arounian from Wedbush. Ygal, please go ahead.

Hey. Good afternoon, guys. I'll take the macro one again. Maybe like a kind of two-sided. So, one of the things we're seeing around is just a lot of pressure on e-commerce. I mean it sounded like from your comments in-store POS has been a big driver of strength in GMV images. Talk about the puts and takes on offline and online commerce that you're seeing. And then, when we start to talk about recession, ultimately the impact to SMEs who are usually typically more exposed comes up a lot. So anything you're hearing from your SME customers? I know you're seeing things like improvements in renewals and things look pretty good but just the tone from your customers anything you're hearing there.

Thanks, Ygal. Look on bringing online and offline commerce together, what we call Connected Commerce is more important for our customers than ever before, right? They need to be able to quickly pivot to selling online or be able to bring those same capabilities in-store very, very quickly. Given our portfolio and given that we are still very early in the Connected Commerce space and the exposure we have to sort of GMV is generally small in our overall business, we're still growing in that area. We have lots of opportunity where I feel very, very early in that field. And in terms of different economic impacts. I would point you to a data point I think we shared a couple of years ago. When we looked at the data or the cohort for 2008, you might remember we talked about the recession, the Great Recession cohort. Well that cohort a couple of years ago had delivered $1.5 billion in revenue with GoDaddy. And today it is up to $1.9 billion in terms of what that cohort has delivered in terms of revenue. So we look at that cohort and we see it perform very similar to other cohorts. So we look at our business and we say look, we deliver a set of products at a price that delivers great value to our customers. This is essential to their future to their growth. And yes in the short term things might move up and down a bit but those cohorts over time continue to perform very, very well. And maybe I'll turn it to you to add a couple of more bits to that.

Yes, and that's great. I think in these times what we're hearing is that being a one-stop shop for our customer base, which is entrepreneurs and very small businesses, becomes an opportunity. They are focusing on their business and their ability to really count on us to help make their go-to-market easier seems to be something that is resonating with them. And a reminder, we generate about 85% of our revenue coming from our existing 21 million customers. So our ability to give them relevant products in the market is just a huge upside for us and we look at it as very much a positive going forward.

That's really helpful. And maybe if you could just talk about Commerce Plus a little bit and expand on that. It sounds like a really interesting product. Is that you guys going a little bit more upmarket, or is that still a product that's more focused on your kind of micro SMB core customer? And anything you could share about price points and any other details around that will be super helpful. Thank you.

Sure, Ygal. In terms of the target customer, like we shared on Investor Day, we have lots of customers in our base that sell up to $1 million or do up to $1 million of GMV a year. And as we had shared with you, we want to be able to serve their needs because they are our customers already and we don't need to do that much more to serve them well. And we have talked about launching in Q1 a new higher-end SKU. That's what the Commerce Plus SKU is. Happy to send you details offline in terms of price points and how far it's launched and stuff like that. But you can literally go to the US website and see it. You will see 100% of the time. So it's absolutely there available to customers. And we're very excited about it. Like 80% of the sales that we have seen and have seen in that SKU have been new purchases, which means customers are willing to pay more for the greater value that we provided them. And it's definitely played a little bit of a part as well in the overall customers adopting GoDaddy Payments because now 70% of customers in our Commerce SKUs are adopting GoDaddy Payments, which was 60% in February that we shared with you.

Great. Thanks so much. Let me check that out on the site.

Thank you.

Our next question comes from the line of Mark Zgutowicz from Benchmark. Mark, please go ahead. Mark, I believe you are muted.

Thanks for that. I just wanted to draft maybe on the couple of those last questions. On the new customer side of Commerce Plus which you highlighted, I'm just curious if you could maybe refresh us again on your go-to-market and sort of where perhaps those new customers are coming from. And then, as it relates to your GMV growth, obviously you noted mainly coming from POS. So just trying to get a sense of sustainability of that 20% growth and if that sort of corresponds to the CAGR that you're sort of talking about for Applications and Commerce three-year CAGR and sort of the high teens. If that would sort of parallel that growth. That's it for me. Thanks.

Thanks, Mark. On the new Commerce Plus plan in terms of go-to-market approach, it's a super new product. We just launched it this last quarter. And most of the customer base is coming in through the web. So that's where we've done the majority of the testing. No doubt, we have a huge competitive advantage in the Care organization and the ability of the Care organization to be able to have a fantastic relationship with our customers and to be able to upsell customers. But that is part of this year's priority for us to be able to get our go-to-market motion really swinging in terms of Commerce. But we're excited to have the product launch. We're excited to have customers like it; we're excited that we can go to GoDaddy Payments. So that's been fantastic for us. In terms of GMV growth we just feel we're so early in the payment space and we have such a large customer base with this need. Of course, it's hard to sort of have a crystal ball and talk about specifics in terms of numbers of the long term. But we feel we're very, very early and there's just so much more for us to take. It's a massive TAM. We're positioned really well. We're putting out great innovative products in the market in terms of what we're doing with Websites Plus Marketing. In my prepared comments, I mentioned a new commerce coming for WordPress. We have payable domains out there now testing in the US. So, we're really lighting up all our services with Commerce. So we feel we're just earlier.

Super. Well, thanks very much. I appreciate it.

Our next question comes from the line of Aaron Kessler from Raymond James. Aaron, please go ahead.

Can you hear me? I know you've been working on the cloud transition for a couple of years. Can you talk about your current status on that? Also, what impact are you seeing from overall labor costs, which has been a common question in many of our conference calls? Lastly, regarding the lower year-over-year marketing spend, how much of an effect is that having on gross or customer additions? Have you found more efficient marketing sources, as you mentioned at the Investor Day? Thank you.

Yes. Thanks, Aaron. Let me take the cloud and marketing and Mark maybe you can comment on the labor costs. In terms of our transition to cloud, we continue to be very happy with our applications moving to the cloud. We're seeing higher productivity, we're seeing better responsiveness. We measure our applications with the Google tools and they performed very, very well, both sort of in the US and globally. So we're very excited about that. The transition is going to plan; nothing significant to call out there. In terms of our marketing dollars, I think over the last year, we've been very open about sharing with you our philosophy around marketing, while making sure that we lean into the demand when we see it. And then as we see sort of changes in the market pattern that we manage our marketing dollars. We don't want to manage them too aggressively because we don't want to pull demand down just for GoDaddy, but we do want to follow the demand patterns. And what we are doing is that we're coupling that with investments in data science and better data and better technology that's allowing us to measure that marketing spend better and better every year and be more efficient with it. And Mark I'll turn it to you for the labor cost comment.

Yeah. And thanks, Aaron. On labor costs we have been in a hypercompetitive environment for talent here for a number of years. So we've been constantly looking at how do we attract talent but yet have levers in place to moderate the cost buildup appropriately. And that hasn't changed, and we're not seeing anything that would cause us to think that that's going to be what we haven't built into our guide already. And we continue to look for opportunities to diversify the locations of our employees going forward to make sure we can maintain that into our three-year outlook.

Great. Thank you.

Our next question comes from Elizabeth Porter from Morgan Stanley. Elizabeth. Please go ahead. Elizabeth, please unmute.

Hi. Thank you so much. I have a question on the competitive landscape. So back in March, Google announced that they were going GA with their Domains product after being in beta for multiple years. So I just wanted to get your view on the any changes to the competitive landscape? Thanks.

Thank you, Elizabeth. Specific to Google, we've been competing with Google on Domains for I think seven years or more. And the removal of sort of the beta logo, if you will, it doesn't change – sort of create any fundamental change in the industry from my view. Competing with the mega tech players is a fact of life for every tech business. So I feel we've been competing with them and sort of not much has changed with this little change from them.

Great. And then on the payment side, great to see that adoption kind of ticked up to 70% from 60%. And I believe that's just new customers that are going into Commerce. So I wanted to see if there had been any change in legacy customers kind of moving over to GoDaddy Payments from their prior provider just given the competitive kind of pricing that you guys offer with that product.

Yeah. I think the majority of what we've talked about is new customers going through the site. In terms of our legacy customers, we continue to feel that is a big opportunity for GoDaddy. Anecdotally, we do see a set of customers that are attractive. So we know that our pricing makes sense. We know that this is something we can scale. But that's part of this year's priority for us to get the go-to-market motions at scale across the company, so that we can go after not just the new but the legacy customers as well. But it's just – that is still a work in progress.

Thank you.

Our next question comes from the line of Brent Thill from Jefferies. Brent, please go ahead.

Thanks, good afternoon. I guess a couple, on financially the bookings growth trailed revenue this quarter. I guess, was that more just a comp, or was there anything on the internal execution that you call out that caused that?

I'll jump into that one, Aman. You can add color. You hit it right on the head there. It's – we're comping to a tough quarter last year. We did talk about January at Investor Day and some of the impacts in the market and we've seen positive momentum coming out of the quarter which gives us a lot of comfort as we get into the rest of the year. We're excited about it. So there's nothing in particular to call out that we haven't already mentioned. And we also are very happy that coming off a great Q4, the bookings growth was pretty strong. So we like the momentum, we like the opportunities out there in the market right now. Obviously, it's an interesting time, but we continue to manage through it and we feel good about where we think we're going to end up for the year and the quarter Q2.

And maybe just a quick follow-up that obviously the elephant in the room is watching is the interest rates and what that does to the small business segment. And I'm curious how you're thinking about this and what happens maybe not this quarter, next quarter but over the next year? How do you think you can kind of be more insulated or not? Curious how you think through this as that rolls through?

Yes. Brent, I'll address this from two perspectives: our internal situation and customer demand. Internally, as noted in our prepared remarks or slides, we currently have about a 13% variable interest rate. We believe the impact for us this quarter and for the year will be minimal. We plan to refinance our term loan and our revolver if it makes sense. These are aspects we can manage. Regarding our customers, it's difficult to predict the overall effect of inflation, but we believe our products assist them in their business operations. Being a one-stop shop allows them to be more efficient in the marketplace, enabling them to focus on business growth rather than making tough choices. However, assessing the overall impact over three years is challenging. Aman, would you like to add anything?

I appreciate the long-term perspective on the question. I believe we have strong trends supporting entrepreneurship, online activity, and e-commerce. We are in a great position to meet the essential needs of micro and small businesses, which means the total addressable market is significant. GoDaddy is very well positioned, and our services are crucial to our customers. During tough times, customers are less likely to abandon their websites or domains. This presents an opportunity for GoDaddy to support them more effectively and help them navigate challenges. As I mentioned regarding the 2008 cohort, we can cultivate valuable customers in various economic conditions.

Thank you.

Our next question comes from the line of Sunil Rajgopal from Berenberg. Sunil, please go ahead.

Hi. Can you please comment about the overhead expenses line seems to have gone up quite a bit this quarter? And also my second question will be on the Payments front. Just want to understand a little bit more. I know you commented earlier about that you are still in the early phase of deployment in terms of the payment opportunity. But have you thought about what would be the potential opportunity from our payable domains and how that could potentially accelerate your revenue stream going forward? Thank you.

I'll hit the first part of that and Aman maybe you can handle the second. And Sunil, I assume you're talking about the G&A line when you say overhead.

Right.

We began reopening our offices in the first quarter, which led to a minor increase as we prepared for that. However, it's still below historical levels, and we anticipate it will improve going forward. We feel confident about our normalized EBITDA margins as outlined in our guidance and our three-year plan. The specific increase was indeed tied to the opening of the offices in the first quarter.

And Sunil, regarding payable domains, I think my enthusiasm for that product became apparent during Investor Day. You'll likely notice how passionate I am about it. I believe it represents a fundamentally new concept. No one else is offering that product. We have significant scale to launch it into the market. However, we need to collaborate with customers to help them grasp what this new product is. That's the process we're currently engaged in. We're testing it out and have strong projections for its potential. This is certainly why we're discussing it and why we're excited about it. We will keep you updated on its progress, and you will be able to see it on the site as we continue to develop it.

Sure. Thank you. And maybe if I could just follow up. You talked about inflationary pressures in terms of the cloud infrastructure costs going up. So how should we be thinking about those costs? And is there, I mean, do you think it will incrementally pose pressure on margin, I mean, pushing the margins towards the low end of the guidance?

So when we look at the infrastructure cloud costs, we're still in the process of moving to the cloud. I think we've talked about that and our impact on our tech and dev line. And we still look at it as an opportunity to moderate our costs as well as reduce our capital expenditures going forward. Everything that we are looking at today we've included in the guide not only for the year, but for our three-year plan. And we feel comfortable with our normalized EBITDA margins where they are. Obviously, lots of puts and takes. But we're comfortable where we are and built in what we can see today.

Thank you very much.

As a reminder, if you’d like to ask the question, please use the raise hand feature at the bottom of the webinar screen. Our next question comes from the line of Naved Khan from Truist. Naved, please go ahead.

Naved, I think you are on mute. I will turn the call back over to Aman for closing remarks.

Thank you Christie and thank you all for joining us today. I'll end the call by just thanking all the GoDaddy team members who have been doing a tremendous job getting out these results and all the good work we do for our customers as well. And may the fourth be with you.