Good afternoon, and thank you for joining us for GoDaddy's Second Quarter 2023 Earnings Call. I'm Christie Masoner, Head 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. If you'd like to ask a question on today's call, please use the raise hand feature in the webinar to be added to the queue. On today's call, we will be referencing both GAAP and non-GAAP financial measures and other operating in-business metrics. 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. Growth rates presented represent year-over-year comparisons unless otherwise noted. The matters we will be discussing today include forward-looking statements, such as those related to future financial results and our strategies or objectives regarding future operations. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our periodic SEC filings. Actual results may differ materially from those contained in forward-looking statements. Any forward-looking statement that we make on this call is based on assumptions as of today, August 3, 2023. Except to the extent required by law, we undertake no obligations to update these statements. With that, I'm pleased to introduce Aman.

Good afternoon, and thank you for joining us today. At GoDaddy, our mission is to empower everyday entrepreneurs and make opportunity more inclusive for all. In Q2, we continued to make good progress on our mission, providing a breadth of solutions to a growing number of customers globally. The fundamental health of our business remains strong with new high-quality customers, robust retention rates, and improved attach. We continue to be on track for stronger growth and profitability in our business, exiting the year at approximately 7% revenue growth and a 28% normalized EBITDA margin. For Q2, in our highly competitive Applications & Commerce segment, our revenue of $352 million outperformed our guidance with 11% growth. We remain the leader in domains with a 3% growth in private registrations as domains under management grew in the quarter, offset by underperformance in the domain aftermarket. Hosting continues to stabilize from product improvements and the previously announced integration and divestitures of noncore hosting assets. Gross adds remain strong on efficient marketing while maintaining our customer retention for the GoDaddy brand at 85%. Customers are now bundling new solutions at a faster rate than we have ever seen before. Innovation, resulting in higher monetization through attach and pricing with strong retention underpins our confidence in the positive trajectory of our business and our ability to drive shareholder value for years to come. At GoDaddy, we are focused on creating value for customers through innovation, strengthening product market fit, and driving towards a one-stop shop. We move quickly to understand and take advantage of the step function changes brought by generative AI to our industry. In just a few months, we have already launched multiple new generative AI-based features that our customers are actively using to reduce their workload, and there is more to come. As you know, our care organization has guided customers to success for over 25 years. And now for the first time, we can bundle each GoDaddy domain purchase with an AI-powered GoDaddy digital guide. The digital guide will automatically build a free personalized basic website, including a checkout path, allowing customers to take payments. It proposes brand colors, creates a free logo, and embeds it in the basic website. It also creates marketing messages with our customers' logo and posts to social media to generate traffic to their sites. The digital guide, built on years of our experience, understands the journey of our customers from identity to presence to commerce and can automatically present solutions in a unique way so they can experience a new product in context. For example, the digital guide can configure email or a new phone number and bring messages from SMS and social sites to our conversations app, giving our customers one simple inbox that aggregates their messages. And at the same time, the digital guide writes proposed responses, practically removing the effort and time taken to respond to inbound messages. Bundling this with the domain purchase is different from anything else available across the industry, and GoDaddy is in a unique position to pursue this disruptive approach at scale. These new capabilities can improve loyalty and retention and bring differentiated offerings to our existing base of 21 million customers, driving an increase in lifetime value. We are excited about bringing these new features to our customers, and our teams have been energized to build new experiences powered by generative AI. In November at our investor dinner in Tempe, we look forward to showing you demos of these new capabilities. As always, I also wanted to briefly touch on our three priorities: driving commerce through presence, delivering for professionals, and innovating in domains. Regarding commerce, we continue to drive strong growth in our OmniCommerce solutions. Customers in our base continue to convert to GoDaddy payments at an impressive rate, and attaching to our base was again the strongest component of our year-over-year GPV growth, which is on pace to more than double our last year's exit rate. We'll add to this momentum through our anticipated Q3 launch of GoDaddy payments in Canada as we deploy our successful U.S. playbook. Website plus marketing continues to perform well, and we are driving greater engagement with customers with new product launches. We know that higher engagement is correlated with higher retention rates, and we expect engagement to be a driver of website and commerce performance metrics.

Thanks, Aman. In just the last few years, GoDaddy has successfully built a growing competitive and robust set of tools and services, including our websites plus marketing product and OmniCommerce solution at a one-stop shop, empowering entrepreneurs to build and manage their ventures and accept payments with a dedicated partner by their side. The product innovation and targeted investment over this period have led to a better suite of products. With our soon-to-be-launched GoDaddy digital guide, we will provide an even further differentiated experience for our customers, propelling long-term growth for GoDaddy through faster product attachment and stronger retention. As we consider the many headwinds we faced in the first half of the year, we are thrilled with the continued momentum of our applications in commerce revenue and the acceleration in our Create & Grow solutions. Our durable model continues to generate free cash flow, and we expect to reaccelerate our growth and improve our profitability as we exit the year while delivering on our cash flow targets. Moving to our financial results, our applications and commerce revenue grew to $352 million, up 11%, surpassing our guidance of 8% to 10%, and delivering a segment EBITDA margin of 41%. The strength in our Applications & Commerce segment is fueled by our Create & Grow solutions, which accelerated to $465 billion in ARR, up 11%. Additionally, we drove rapid growth in GPV comparable to last quarter, and we are on pace to more than double the 2022 exit rate by the end of the year as we continue to attract and convert customers within our 21 million base to GoDaddy payments. ARR for applications and commerce grew 10% to more than $1.3 billion, with a 20% growth in annualized GMV to over $33 billion. Core platform revenue totaled $696 million, flat year-over-year with a segment EBITDA margin of 27%. ARR for our core platform segment was $2.3 billion. Core platform revenue was supported by 3% growth in domains due to stronger customer additions from higher demand and price increases. This was primarily offset by greater-than-expected declines in our aftermarket, where revenue decreased 5% to $101 million on a tough compare from last year. Over the last five years, we've built upwards of a $400 million revenue two-sided marketplace. This business allows a buyer and seller to transact on our platform at their agreed-upon valuation. As we measure the post-COVID normalization of this business, we expect steady low to mid-single-digit top-line growth moving forward.

On our core platform restructuring initiative, we completed the migration of Media Temple and Main Street Hub customers to the GoDaddy technology stack. The 123 Reg migration is planned to be completed by the end of the year. As expected, these migrations produced a slightly elevated churn on these brands this quarter but will deliver further cost efficiencies in the future. The retention rate of customers for the GoDaddy-branded products remains above 85%. Total revenue grew to $1.05 billion, up 3% on a reported basis and 4% excluding aftermarket. Constant currency revenue increased by 4%. Within total revenue, international revenue grew 3% on a reported basis and 6% on a constant currency basis. Our ARPU grew 3% to $199 from $193 last year, and we added 100,000 net new high-quality customers despite the headwinds from our migration efforts. Normalized EBITDA grew 2% to $265 million while delivering a margin of 25%. Bookings totaled $1.1 billion, growing 2% on a reported basis and 4% excluding aftermarket and the impact of the integration of non-core assets. Bookings grew 3% on a constant currency basis. Excluding the impact of aftermarket, the drivers of growth in bookings were strong customer additions and price increases in domains, as well as strong attach in applications and commerce. We expect these factors to contribute to accelerated revenue growth next year. Unlevered free cash flow for the quarter totaled $284 million, growing 3%. While free cash flow was relatively flat at $240 million despite increased interest-related payments, free cash flow per share rose to $6.44 on a trailing 12-month basis versus the prior year's cash flow per share of $5.67, a 14% increase driven by execution, operating leverage, and share repurchases.

Through July 31, we repurchased 10.2 million shares year-to-date, totaling $746 million, of which $632 million was repurchased since the end of Q1. This brings the cumulative share repurchase under the current authorization to $2 billion and 27.1 million shares, reducing shares outstanding since the inception of this authorization by 16%, and we remain on track for our commitment to reduce our fully diluted shares outstanding by 15% to 20% over the three-year period. Additionally, today, we announced an incremental $1 billion share buyback authorization to bring the total authorization to $4 billion and extending the program out to 2025. On the balance sheet, we finished Q2 with $583 million in cash and total liquidity of $1.6 billion. Net debt stands at $3.3 billion with a 2.9 times net leverage within our targeted range of 2 times to 4 times. Lastly, we secured a 75-basis point interest rate reduction on $1.8 billion of outstanding principal through a refinance issued at par. This refinance is expected to save $13 million annually in interest payments over the next seven years. Moving on to our outlook, we are targeting Q3 total revenue in the range of $1.055 billion to $1.075 billion, representing growth of 3% at the midpoint. With the current momentum, we expect to exit the year at approximately 7% top-line growth with a normalized EBITDA of 28%, an increase of 300 basis points from our 2021 exit rate of 25%. We are increasing our growth expectations for applications and commerce to be between 9% and 11% for Q3 and the full year. In our core platform segment, we expect revenue to be flat in Q3 and reaccelerate in the fourth quarter to deliver 1% growth for the full year. Q3 Normalized EBITDA margin is expected to improve to approximately 26% with continued acceleration over the fourth quarter, resulting in a full-year normalized EBITDA margin of approximately 26%. This is a 300-basis point increase from our 2021 rate of 23% due to better operating leverage from improved marketing performance, restructuring efforts, benefits from our continued move to the cloud, and the incorporation of AI into our operating model. While expanding margins and improving cash flows, we remain confident in the path to accelerated revenue growth. As a reminder, this year's revenue growth rate includes approximately two points of FX pressure from last year's bookings, difficult compares in our aftermarket business, and the migration and divestiture of certain non-core assets. We expect momentum in bookings in the second half of the year to drive the reacceleration of revenue growth as we exit the year while remaining committed to delivering our margin expansion and free cash flow targets. We will be posting our annual investor dinner with product demonstrations in November at our Planning and Investor Day in Q1 2024. We consider both a great opportunity to share more about our exciting initiatives in AI and our outlook for the next three years.

In closing, we feel good about our continued progress and how our organization is positioned to take us into the next phase of our growth with strong applications and commerce momentum. We have also continued to be efficient with our marketing spend, especially with the improvements we have made in search engine marketing, and we are eager to duplicate those results in other channels. We expect growth to accelerate as we exit the year and remain committed to our growth algorithm with increasing margins and expanding free cash flow per share, and we remain eager to continue to deliver value for all GoDaddy stakeholders. With that, here's Mark.

Thanks, Mark. Our first question comes from Matt Pfau from William Blair. Please go ahead.

Great, thanks for taking my questions. Two of them. First, I wanted to ask on the acceleration of the core business in the fourth quarter and potential healthy sequential increase. Maybe you can just discuss what are the factors that are driving that increase.

Yes. Thanks, Matt. When we look at Q2 and bookings and the trade-off in the second half of the year, a couple of things to consider: one, we have FX that will be abating. We have pricing increases that we did towards the end of the quarter, which should help with our bookings and somewhat revenue into this year. Obviously, the aftermarket comparisons get better going into Q4. Now that we've completed some of our migrations to the core GoDaddy stack, we should see those start to abate as we get through the half year. So, that gives us the confidence that we will have that accelerating growth rate as we get through the remainder of this year. That, coupled with some of the demand we're seeing at the front of the funnel with customers coming in, attaching new products faster, and our retention rates remaining strong all contribute to the momentum we feel going out of Q4 and into 2024.

Great. And on the digital guide, maybe you can just help us understand what that rollout is going to look like? Is it just going to be for new customers? Or do you plan to roll that out to your existing base as well?

Thanks, Matt. Yes, we plan to roll it out to the existing base as well. The digital guide acts as a guide for a customer, even when the customer is not active. So, it will start with new customers, just like a lot of other products do, but you'll see us quickly take it to the base as well.

Our next question comes from the line of Vikram Kesavabhotla from Baird. Vikram, please go ahead.

I wanted to ask about the applications and commerce segment. It looks like you raised the expectation for fiscal '23. Maybe if you could talk some more about the primary drivers behind that revision. And then separately, I also wanted to ask about the EBITDA margins. It looks like you posted about 25% in the second quarter. You're guiding to 26% in Q3 and exiting the year at 28%. Could you just talk through some of the main drivers of the expansion there throughout the balance of the year? Thanks.

I'll start with the application commerce. We continue to see strong momentum in the front of the funnel, and customer bundling payments are increasing. We're seeing our customers attaching payments to their websites, which is making them very happy and excited. We also have really strong net gross customer adds coming in, and they're getting to that bundled product quicker, contributing to our higher retention rates. In terms of margin expansion, we've forecasted a margin of 28%. We're seeing greater marketing efficiency, and the benefits of moving into the cloud are becoming evident, allowing us to take hold of cost efficiencies at certain milestones throughout the year. We also had restructuring in Q2, which will gain traction in the back half of the year, making us optimistic about expanding our margins while also expanding our growth rate.

Great. Thank you.

Our next question comes from the line of Trevor Young from Barclays. Trevor, please go ahead.

Great. First, on core platform, now expecting around 1% growth for the full year. In the main lines there, which segment is kind of underperforming relative to your prior expectations? And then the second question on that AI-powered digital guide, do you view that as complementary to the higher-touch customer care organization? Or do you see that functionality eventually helping alleviate some of the costs or headcount within the care organization?

Thanks, Trevor. I'll start with the aftermarket and the core platform. We've seen underperformance in this quarter as the larger transactions' valuations have decreased and volume growth has slowed as we moved into Q2. However, we still see great demand and gross ads within our funnel. In terms of the digital guide, we couldn't be more excited about pairing it with every domain purchase. We have successfully created leverage in our care line, and while it is early to discuss the impacts of AI, I foresee it leading to efficiencies across our business, as we have seen in marketing.

Our next question comes from the line of Naved Khan from B. Riley. Naved, please go ahead.

Thanks. Just a question on the outlook. So, 28% EBITDA margin by Q4. If I have to think about next year, 2024, and I know you're not guiding to that, but is there any reason why 28% shouldn't be the base to start with? I mean, the cost savings will still be layering in because this is not a full year for cost savings, right? So, am I thinking about it the right way? Just any comment there would be helpful. And then I have a follow-up.

Yes. Naved, thanks. We're excited about our Investor Day coming up in the first quarter, and we'll get more into the details of what we'll look like. We're really excited about our margin expansion going into Q4, the 28% forecast, if we look back to Q4 in 2021, we've increased our margins by 300 basis points. We'll continue to look for efficiencies and push margin growth into 2024 while accelerating revenue and hitting cash flow objectives.

Got it. And then you kind of alluded to the bridge to sort of resumption of growth or healthy growth, right? And the one that you shared last call was, I think, getting you back into double digits. So, if I have to think about when you start to see like the full effect of full anniversary-ing and kind of getting to that, how should I think about timing? Is it Q1? Is it early next year? At what point would be kind of this would be in the real war for you?

Yes. Thanks. I'm trying not to peg a specific timetable here as we're getting into the back half of the year. However, when we look at the full-year guide and the impact of FX, difficult comparisons in the aftermarket business, and migrations, those will start to abate into the fourth quarter and continue into 2024. The momentum we have now makes us optimistic about accelerating revenue as we progress through the year.

And if I could just add, long-term, we're excited about the path to accelerating growth because it's based on the simple idea of creating products that can lead the customer through the entrepreneurship wheel, which involves leading them from identity to presence to commerce. This creates a flywheel effect for the company. Our technology has significantly improved, leading to greater attachment for both new and existing customers.

And just to clarify, while we look out into '24, we are reaffirming our guidance for 2023 in the range for revenue.

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

This is John Ben for Brent Thill. First question GMV had pretty good growth accelerating 20% year-over-year and also up 18% sequentially. Just wondering what might have been some of the drivers. I mean, are you seeing any sort of improvement in macro and GMV per customer? Or is it just better attach? If you could parse that, that would be great.

Yes. GMV growing is a function of the macro environment, to start with. We are seeing more of our existing customers transact more with the solutions they have. To remind you, a lot of our GMV is a function of the relationship we have through the bank. It's a pretty unique financial model for us, but it gives us a great barometer. We are very happy with the growth, which signifies that more and more people are using GoDaddy solutions for their businesses.

Great. Thanks. And maybe any update on the FIS Worldpay partnership?

The partnership is doing great. We have launched the product with them and have a set of customers that are using our new solutions. Still very early since we're only about a month into the launch. However, we are very happy with the progress.

And we'd always said the impact on 2024 was minimal, and we would start to see that momentum going into 2024, which again adds to the excitement about that momentum.

Our next question comes from the line of Mark Godoi from Benchmark. Mark, please go ahead.

Hi, everyone. This is Alex filling in for Mark. I have a question about payable domains. Last quarter, you described their contribution as modest, but it seems there was significant performance in the second quarter from payable domains. Can you discuss what the main driver was for the strong performance in applications in commerce, and whether payable domains are a significant factor in that?

Yes. I'll maybe let Mark talk on commerce and sort of payable domains. I'd probably say it's still very early and OmniCommerce is pretty significant. The biggest drivers over the last quarter for payable domains is we started to really surface payable domains in the journey and engagement that our customers have with us. Our customers don't automatically understand that they can use their domains to start taking payments. We've found better ways to guide the customer through that path and get them equipped with the capability. What we find is that once we get them live with that, they start to transact.

And I'd add that one of the things we're really excited about is that strong gross customer adds are coming in and coming stronger than we've seen in a long time. They are getting to their second product quickly, whether it's payable domains, payments, or commerce, they are bundling those together at the initial stages. Once we obtain a(customer with) that second or third product, we find that we have a customer for life, which drives our metrics significantly.

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

I'm not re-asking this, but I want to start on domains. We continue to kind of see some, let's say, challenging growth from the aftermarket. I know you guys are involved in other TLDs too, which if there's interesting things to point out, we'd love to hear. But just maybe just some of what you're seeing around that and expectations for when that can start to normalize, how that's impacting the aftermarket? And then a really interesting comment about channel partners who are pushing more on ARPU than they were on new users. Can you comment on that?

Yes. Happy to give a bit of color on domains. As mentioned, we saw domains under management for GoDaddy grow, so we're doing well on units. As Mark said, we're seeing better traffic and demand coming to our site due to our focus on search engine marketing.

Yes. That's really helpful. And so, maybe to segue, I think it's similar. I don't know. A lot of the answers might actually overlap. But if there's anything incremental to add. So, just on the gross top of the funnel, gross adds commentary, which feels really strong. And I know you have some noise in your new customer number, I believe, still ongoing with some of the sunsetting of the brands. How do you parse that?

Yes. Gross adds were strong for us due to efficient marketing spend. We have been focused on improving our marketing, targeting, and measuring effectiveness over the last couple of years. More people are visiting our website and converting, which drives growth in our gross adds and customer acquisition. Overall, it is the result of our changes and improvements to our marketing approach.

Yes. And what we like about the gross adds coming in is that they are customers with a higher propensity to engage and purchase. Although we are facing churn due to customer migrations and transitions, we are confident that the net adds will continue to trend positively as we move forward.

One of the things we've shifted to is an experimentation-based culture, where teams try different approaches and measure their impact. This has helped us attract gross adds and improve customer conversion.

Our next question comes from Chris Kentaro from Morgan Stanley. Chris, please go ahead.

This is Christian Kentaro on for the listed quarter. I wanted to ask around the macro and kind of how it's changed Q2 versus Q1. And then the second question would be around the digital guide. Are these capabilities kind of like table stakes for the industry? Or how do you think about your ability to drive differentiation in AI against your web-building competitors?

Let me take your first question first. When we look at the macro, we track non-brand demand for our terms, and we saw good lift in markets like the U.K., indicating better future demand. Although some markets are showing flat behavior, we remain optimistic about future conversion. Regarding the digital guide, I don't see it as table stakes. We are coupling unique technology with our offerings to create a roadmap for customer success. Nobody else is starting from the point of a domain name; that's where we have a significant edge.

We have the entire technology stack around our journey, allowing us to maximize the impact of generative AI across the board. This holistic approach distinguishes us from competitors.

I would also invite all of you to our investor day in November, where we will demonstrate our customer's experience with the digital guide live.

Our next question comes from Navid Khan from B. Riley. Please go ahead.

Okay good. Yes, a quick follow-up. So, one is we saw a transaction, Google domains being sold to Square space. I wanted to get your thoughts on what it means for the other participants such as yourself in terms of competition. And then the other question I had was on the price increase on the A&C segment. What was the magnitude of the increase?

On the Google domain space, we believe there's an opportunity given the transition. Customers often look for other options during such disruptions. With our brand recognition and a strong customer experience, we believe this positions us well to seize potential opportunities. As for the pricing, we improved our approach towards pricing increases on both renewals and new customer segments toward the latter part of Q2, which should gradually reflect as we progress throughout the year.

We have not broken down the magnitude of pricing increases by each of the different components. However, our priority remains customer retention while ensuring that pricing adjustments are clearly communicated.

I will now turn the call over to Aman for some closing remarks.

Thank you, Christie, and I'll just end by thanking all the GoDaddy employees for another good quarter. Just to remind all of our shareholders, we're super excited about the products we're bringing to market. We're super excited about attaching into our base that we've demonstrated with e-mail and commerce now. We're confident about the trajectory we have going into Q3 and Q4, ending the year with accelerating growth and strong margins, setting up next year really well. I look forward to the next call. Thank you very much.