GoDaddy Inc. Q2 FY2024 Earnings Call

Welcome to GoDaddy's Second Quarter 2024 Earnings Call. Thank you for joining us. I'm Christie Masoner, VP of Investor Relations. And with me today are Aman Bhutani, Chief Executive Officer; and Mark McCaffrey, Chief Financial Officer. Following prepared remarks, we'll open up the call for your questions. On today's call, we'll be referencing both GAAP and non-GAAP financial measures and other operating and 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 or in today's earnings release on our Form 8-K furnished with the SEC. Growth rates represent year-over-year comparisons unless otherwise noted. The matters we'll be discussing today include forward-looking statements such as those related to future financial results and our strategies or objectives with respect to 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 statements that we make on this call are based on assumptions as of today August 1, 2024. And except to the extent required by law, we undertake no obligation to update these statements because of new information or future events. 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. Our customers are a constant source of inspiration. One customer who has been with us for over 10 years runs a recruiting services company and wrote to us recently. They said, in today's business environment having partners that add real value is easier said than done. I'm happy to have GoDaddy on my extended business team. That is our goal: to be the extended business team for millions of micro businesses. Our strategy is relentlessly focused on creating customer value and transforming it to shareholder value through better conversion, attach and retention. Our profitable growth model drives our North Star to maximize free cash flow over the long term. The GoDaddy team is executing against this plan to drive innovation and operational efficiency leading to our strong Q2 results. This includes meaningful expansion of free cash flow with 35% growth. Applications and Commerce bookings grew 24% and normalized EBITDA margin expanded more than 400 basis points. Our key growth and margin initiatives are driven by the innovation powered by the GoDaddy software platform. Our aspiration is to deliver seamlessly intuitive experiences that start to be magical, and this is fueled by GoDaddy's unique scale and data. GoDaddy Airo, our AI-powered experience, is one of the results of this aspiration. I am excited about Airo's ability to reinvent multiple interactions with our customers from domain search to insights on how they can improve their websites, to growing their businesses. Airo is now rolled out to all new and existing customers across our English-speaking markets and it is poised for further expansion into over 90 countries in the coming months. Airo has already transformed the experience for our new customers. In Q2, we passed an exciting milestone. Over one million new customers have discovered Airo, and over 0.5 million of them have actively engaged with the experience. With strong traction on discovery and engagement with new customers, the focus has moved to monetization with them. One example is the rollout of a paywall for a full website immediately after Airo has built a Coming Soon page. This rollout followed a limited controlled experiment in which Websites + Marketing conversions improved 12%. Early data also shows that Airo leads to better product retention, which we will begin to understand more fully as these cohorts enter their renewal periods in the coming quarters. In parallel, we are building the engine to connect Airo with our existing base of 21 million customers. Our approach here is a different go-to-market motion, but the goal is the same: discovery, then engagement, and then monetization. As we shared at our Investor Day, monetization of our base with Airo represents one of the larger future opportunities for GoDaddy. We are also investing more in GABI, our internal AI-powered guide assist bot, which can now communicate in over 60 languages. Now rolled out globally, GABI is helping our guides work and serve customers more efficiently. While our investments in Airo and GABI are about the future, 2024 growth continues to be driven by our key initiatives: pricing and bundling, seamless experience, and commerce. Pricing and bundling continued to drive growth, led by productivity and was a significant contributor to the growth in applications and commerce bookings. We have started to apply our platform data, machine learning, and experimentation capabilities to the next set of product bundles as we look at opportunities for next year and beyond. Our seamless experience initiative overperformed versus our expectations as we remove friction in both purchase and renewal paths across multiple products. At our scale, small improvements in conversion and renewal rates, through a better user experience and robust technology, provide measurable financial results. In our continued effort to reduce the burden on our customers, we expanded the use of AI-generated content. For example, in Managed WordPress, we have optimized templates and enhanced models to generate content for multiple pages, making it easier for our customers to build and publish websites. On commerce, we are delivering on our 2024 target of driving higher-margin subscription revenue, with the recent launch of two new SaaS plans: Point-Of-Sale Plus and Invoicing Plus. These plans offer premium features and discounted transaction fees to merchants. They drive value for our customers by offering tools that simplify their operations, including real-time inventory management, online ordering, and customizable branded templates for invoices and emails. Annualized GPV also continued to grow at a fast pace, with the primary driver again being conversion within our existing base of customers. In closing, we continue to deliver on our key initiatives, unlocking new avenues of growth and value creation for the long term. The GoDaddy team shares an unwavering determination to fearlessly push boundaries, prioritize continuous experimentation, meticulously track results, and aim for improvement each day. I am thrilled with the speed of execution as we continue striving to exceed customer expectations, propel profitable growth, and create enduring shareholder value. With that, here's Mark.

Thanks, Aman. We are pleased to announce our strong Q2 results, which demonstrate our commitment to execution and continued progress towards our North Star of maximizing free cash flow over the long term. Our North Star continues to be bolstered by two key pillars: sustained double-digit revenue growth in our Applications and Commerce segment increasing 15% in the second quarter and further expansion of our normalized EBITDA margin to 29%. We continued to build on our strong track record here, delivering free cash flow of $323 million in the quarter. We also continued to implement our disciplined capital allocation strategy focusing on share buybacks and reducing our fully diluted shares outstanding at the end of the quarter to 145 million. We remain laser-focused on providing value for our customers by delivering seamless experiences that are easy to use driving better attached conversion and retention. At the same time, we continue to refine our operations to deliver profitable growth while investing in exciting initiatives such as Airo, which will provide benefits for years to come. Moving to our financial results for the quarter: Total revenue grew to $1.1 billion, up 7% on a reported and constant currency basis exceeding the high end of our guided range for the quarter. ARPU grew 6% to $210 on a trailing 12-month basis. Our customer count declined slightly to $20.9 million, reflecting the expected headwinds from our proactive divestiture and migration efforts that also impacted revenue by approximately 100 basis points. Meanwhile, our customer retention rate is an impressive 85%, and over 50% of GoDaddy's customers have two or more products with us. For our high-margin Applications and Commerce segment, we drove 24% growth in bookings and 15% growth in revenue to $406 million, delivering at the high end of our guided range. Growth in revenue and bookings was largely due to the continued strong performance of our growth initiatives across all major Applications and Commerce product offerings, particularly our productivity solutions. The segment EBITDA margin improved to 44%. In addition, ARR for Applications and Commerce grew 14% to $1.5 billion. Our core platform segment delivered bookings growth of 4% and revenue growth of 3% to $719 million in line with our guided range. Core platform's performance this quarter reflected continued strength in both primary domains, up 7% and aftermarket, up 10%, partially offset by hosting divestitures. Segment EBITDA margin for core platform grew to 31%. Lastly, ARR for our core platform segment was $2.3 billion, up 2%. One quick update on domains under management: This quarter, in connection with the work related to our brand migration efforts, we determined that domains under management were overstated at the end of Q4 2023 by approximately 1.4 million domains, primarily related to European TLDs. Following correction of this disclosure, coupled with the impact from the divestiture completed at the end of Q1, domains under management as of June 30 were approximately 82.1 million domains. While we understand this metric may be closely followed, this is not a key operating or financial metric and it does not impact our forecast or progress towards our North Star. Moving to profitability, normalized EBITDA grew 25% to $332 million and delivered an expanded margin of 29%, up over 400 basis points and exceeding our guide. On bookings, we delivered 11% growth in the second quarter on a reported and constant currency basis, achieving $1.3 billion. As a reminder, bookings primarily represent the cash collected during the period. Subscription bookings grew over three points ahead of subscription revenue. Unlevered free cash flow for the quarter grew 30% to $369 million and free cash flow grew 35% to $323 million. Capital expenditures were down 52% from data center divestitures. Through July 30, we repurchased 4.1 million shares year-to-date, totaling $521 million. Cumulative shares repurchased under our current authorizations totaled $3.1 billion and 38.3 million shares. We have $915 million remaining under our current authorization. We have reduced gross shares outstanding since January 2022 by 23%, ahead of our three-year targeted reduction of 20%. We had 145 million fully diluted shares outstanding at the end of the quarter. As we have shared previously, we plan to be in the market every quarter subject to market conditions and other factors with a minimum offset to share-based compensation dilution. On our balance sheet, we finished Q2 with $445 million in cash and total liquidity of $1.4 billion. Net debt was $3.4 billion representing net leverage of 2.4x on a trailing 12-month basis. Shifting to our outlook: Given our strong performance in the first half of the year, we are raising our full year revenue guidance. We now expect the full year's revenue to be between $4.525 billion and $4.565 billion, representing growth of approximately 7% at the midpoint. We are targeting Q3 total revenue in the range of $1.13 billion to $1.15 billion, also representing growth of approximately 7% at the midpoint of our range. We are also raising our expectations for Application and Commerce to deliver mid-teens growth for Q3 and the full year. In our core platform segment, we expect revenue to deliver low single-digit growth in the third quarter and full year. With our proven track record of margin expansion, we are committed to maintaining our operational discipline to drive further leverage in our model. We expect normalized EBITDA margin for Q3 to be approximately 29%. Additionally, we remain on track to deliver a 31% normalized EBITDA margin in Q4 and approximately 29% for the full year. Given our nearly 1:1 normalized EBITDA to free cash flow conversion ratio, we are also raising our unlevered free cash flow target to $1.45 billion plus and free cash flow target to $1.3 billion plus. We remain committed to our disciplined capital allocation approach and we will continue to evaluate all opportunities for shareholder return according to our rigorous returns-based framework. We have made impressive progress driving profitable growth in line with our North Star in the first half of 2024, and we remain dedicated to the path we laid out at our Investor Day, executing on our strategy with a combination of durable top-line growth and expanded profitability. Our substantial cash generation, strong balance sheet and disciplined capital allocation framework are important pillars of our investment thesis that create enduring value for our shareholders. With that, we will have Christie Masoner from our Investor Relations team open up the call for questions.

Thanks, Mark. Our first question comes from Josh Beck at Raymond James. Josh, please proceed.

Thank you so much for taking the question. I wanted to start with A&C bookings rising from the low to mid-20s this quarter. Maybe help us think through and unpack the major drivers. You obviously cited bundling and productivity and how those could maybe change as we look ahead? And then related anything that we need to be cognizant of when we think about comps for A&C bookings in the second half and into 2025 as well?

Go ahead, Aman.

It's one of those I want to take. Hey, Josh, thanks for the question. Super excited about the momentum in A&C bookings, 24% growth. And we're bringing to the table the full power of the GoDaddy scale and data as part of the GoDaddy software platform. So whether it's pricing and bundling or our seamless experience improvements or commerce obviously they are all helping A&C growth. And we're bringing these capabilities to a broader set of our product suite. So as we look into the future, we continue to be very excited about being able to implement these capabilities across our entire products in both sort of scenarios with new customers and with existing customers as well. And I'll let Mark take some of the financial pieces.

Yes. And hi, Josh, just to – we continue to see momentum across all the product groups within A&C. And for the first half of the year Q2 followed Q1 with double-digit growth in every area for bookings. When you asked about comps keep in mind Q2 compared to last year, it was an easier comp for us. So it did give us some benefit going forward as we reported this quarter. But it doesn't change the overall momentum of the bundling that's going on.

Super helpful. And maybe just a quick follow-up on Airo, really helpful metrics. I think you mentioned one million discovered, 0.5 million engaged. If we maybe double-click on that engaged group, maybe what are some of the early standouts from an adoption point of view? And when you think about the curve in the quarters ahead obviously, it hadn't been out that long. Is this the right cadence to think about in terms of the number of customers ramping with that suite?

Yes. The new customers engaging with Airo is happening at a tremendously fast pace. I couldn't be more excited about it. I think crossing the million milestone but more importantly the engagement with the product, right? We've talked about the three-step process of discovery, engagement, then monetization. And for new customers, we're really seeing good news there. As I talked about in the prepared remarks, we're starting to add paywalls and monetizing a little bit on the new customers. But we're going to learn a lot more about that when those customers come up for renewal, right? And you asked about the areas where we see the most engagement. One of the areas where we're seeing the most engagement is actually with websites. A lot more domain customers discovering the fact that GoDaddy has not just website capability, but automated AI capabilities to just build a one-page website for them, which now they can actually customize a little bit too. So customers are really enjoying this, and our view is that that engagement is going to sort of lead to more monetization options in the future. And then, of course, we have the very large base of existing customers to bring Airo too, and that's a slightly different go-to-market motion, but ultimately, it's the same discovery engagement, and then monetization, and sort of our energy is going to be more and more focused on the existing as the new does better and better. In terms of overall timeline, it actually mirrors very well. If you go back and look at our comments rollout first with you and then with existing. So we feel pretty good about it.

Great to hear. Thank you, Aman and Mark.

Thank you.

Thanks, Josh.

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

Thank you. My first question is about the solid double-digit growth in the aftermarket, with around 20 points attributed to ATV. Do you see this strength becoming more sustainable or widespread, potentially affecting the larger segment of that business, specifically the sub-$10,000 domains? Or is it mainly driven by just a few high-value transactions pushing the trend upward? Additionally, what is included in your guidance for the second half of the year regarding the aftermarket?

Yeah. Thanks, Trevor. We're seeing strength I would say overall in the volume related to aftermarket and we've talked about that coming into the year. And obviously, it's continued through Q2. We are seeing the return of larger transactions in the first half of the year. Hard to predict. We do believe that macro impacted related to those larger transactions, but they were definitely stronger in the first half of this year versus what we saw last year. As far as the guide going forward, we continue to call what we can see in front of us. It's hard to predict those large transactions, so we don't plan on them being there in any way, shape, or form. And they come in kind of hard and fast and close pretty quickly when they do come in. So again, we try to be prudent and just call based on the volume we're seeing at the lower end and we continue to think that overall, this platform will be a lower single-digit grower over time, although we may see volatility from quarter-to-quarter based on some of these larger transactions.

That's helpful. And just as a follow-up, on the free cash flow guide, it looks like raising the unlevered free cash flow for the full year $150 million and regular free cash flow about $200 million. Can you distill the drivers of that change or rank order them? Is it the stronger flow-through of the top line or maybe stronger bookings or any one-time items to be mindful of?

Yeah. I wouldn't say there's any one thing to call out. It is continued strong bookings, continued normalized EBITDA, and interest as well because we repriced some of our debt. So that's on the free cash flow part of it. But it's a combination of just better momentum across the board in translating into our free cash flow and unlevered free cash flow.

Our next question comes from the line of Jian Li from Evercore. Jian, please go ahead.

Thank you for the question, and congratulations on a strong quarter. I’d like to revisit the A&C bookings. Is the strength in bookings mainly due to productivity pricing, or is the improvement in Airo conversion also playing a significant role in this acceleration? Additionally, could you provide some insights on the top of the funnel activity you’re observing in A&C in light of the current macroeconomic conditions?

Yeah. Maybe we'll take a bit of that, Jian. Thanks for the question. On A&C, all the components of A&C as Mark said contributing to the growth. Of course, it's being led by productivity as we stated in our remarks, but GPV continues to grow very well. Our website business continued to grow very well as well. With respect to Airo, Airo even though we love the engagement and the discovery for new customers, it's still very small in terms of a contributor on the monetization side. So you're not really seeing much of Airo. And maybe I'll ask Mark to touch on that a bit more and come back to the last bit of your question.

Yeah. And I think that's right. We are entering the monetization, but it's really early stage. It didn't have a meaningful impact on Q2. We don't have enough data points to really build in anything related to our guide or forecast related to it. But the early signs are very positive, and we are starting to cross into seeing data around monetization today.

And then just on macro Q2 continued to be pretty steady in terms of demand coming in the door. And obviously, we have the global footprint, so it's a little bit different by region. But broadly, we would say it was a steady quarter in terms of macro.

Got it. And if I may ask a follow-up on the margins. So the EBITDA margin beat this quarter, but you're maintaining the full year guide. Is there some sort of timing in terms of expenses like shifting to the back half? Or if you continue to see upside in margins, would you expect to flow that through to the bottom line? Or any reinvestment that you're thinking as well?

Nothing to call out at this point. We're on a good pace. We're continuing to expand our margins as we said we would. There's nothing in particular we have to call out right now. Everything is on track, and we are on track for the 31% exit rate that we had talked about at the beginning of the year.

Our next question comes from the line of Elizabeth Porter from Morgan Stanley. Elizabeth, please go ahead.

Hi. Thank you so much. I had a quick follow-up on GABI. I noticed that you talked about GABI highlighting that it can serve customers more efficiently. How should we think about GABI? Is it more of a cost opportunity? Or is there a chance to turn customer service to actually more into a revenue center as GABI can drive better upsell and cross-sell?

Yeah. Thanks, Elizabeth. Our core ethos around whether it's GABI or all of our capabilities in Care is that we always want to provide a superior experience at the same or lower cost, right? And in GABI, we're super focused on making the guide slowly into a super guide. And whether it's the service side or support side or the sales side, GABI is able to partner with the guide and allow them to explore things with the customer that otherwise may be difficult because GABI has access to a lot more data given our scale. Of course, on the sales side, Care continues to drive 9% of our bookings. We get a lot of calls and we've got 14 million contacts, 6,200 guides, and GABI has access to all that information to just make the guide better and better. So you'll see both. You'll see improved customer experience, and you'll see more leverage on the cost.

Great. And then a follow-up on the A&C bookings. It sounds like momentum there can be pretty durable with multiple factors driving the growth. I'm hoping, if you could share any finer points on more specifically the pricing and bundling strategy about how broadly it's been rolled out whether from the product portfolio side or the customer base side just to understand the durability of this growth driver. Is there anything that you should roll out over the course of the year, or it could actually be a multi-year tail end?

Yeah. As we talked a little bit about in the Investor Day, Elizabeth, we see the pricing and bundling initiative as a multi-year initiative for us. So while productivity is leading the way this year and other products and bundles are a little bit behind it, we expect that over the next few years we'll be able to apply the same tools and capabilities across the GoDaddy suite. It's really about capturing all the data, all the customer insight into the GoDaddy software platform being able to drive and bring the customer the unique offering that works for them. And as we do that more and more, we actually think it's going to become stronger over time. So yes, we're looking forward to pricing and bundling and seamless experience trying to work together over multiple years.

Yeah. And just keep in mind too it's for new and renewals. So as renewals come up, you have the ability to sell into the existing customer base, and that becomes a compounding factor. So more bundles hit more renewals, and keep on going. That's why we think it's going to be a multi-year journey.

Yeah. And I think the comps will play a little bit. We're coming into some other comps in the second half of the year. But overall the way we look at the return from these tools is they're continuing to set the pace for the company where overall bookings are pacing ahead by a point or two of revenue. And that sets us up very clearly for the next year in the future as well.

Great. Thank you so much, and congrats on a strong quarter.

Thanks, Elizabeth.

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

Hey, can you hear me?

Yes. Hey, Vik.

Okay. Great. Thanks. I just wanted to ask first on capital allocation. Mark, going back to the Investor Day, you talked about kind of three main priorities in terms of the use of cash across repurchases, debt paydowns, and acquisitions. I just wanted to clarify where do repurchases currently rank within those uses of capital today? And how do you do that in terms of priority or most attractive uses of cash flow right now? And then my second question, I wanted to put a finer point on the A&C bookings growth comments. That number has accelerated now a few quarters in a row. I realize you don't guide to a specific number on that. But as we look at the third quarter directionally, I mean should that continue to accelerate from the second quarter levels? Or should we expect it to moderate? And if you could talk through some of the puts and takes there that would be great. Thanks.

I'll start. I'm sure Aman will add on here. On capital allocation, the strategy remains the same. We're going to look at it from quarter to quarter. We've laid out our North Star and our North Star continues to be our ability to generate free cash flow. And obviously, look at that on a per-share basis and continue to grow that at the CAGR we set out there. Now everything we look at has to be set against that backdrop. We still believe buying back our stock is a high ROI for us, and we continue to look at that from quarter to quarter based on other factors that are going on in the market. So, no change there. Active discussion quarter to quarter looking at what's out there and looking at the different opportunities that can really drive that LTV we talked about at Investor Day. On the bookings and our pace there. Now just a couple of factors. One, we expect for the year to bookings to outpace revenue by about one to two points. And that's based on the momentum we're seeing in A&C and also some of the other areas. And we think that's going to set us up nicely for 2025. But we also will get more difficult comps as we go out throughout the year. So I want to say, the pace and the momentum are there, whether the percentages move a little bit based on tougher comps, we'll see as we go out throughout the year and into 2025. But the overall pacing is still strong, and we're really happy with our ability to continue to get to that second and third product within our customer base today.

Okay. Great. Thank you.

Thanks, Vik.

Our next question comes from the line of Arjun Bhatia from William Blair. Arjun, please go ahead.

Hi. I'm Willow Miller on for Arjun Bhatia. Thanks for taking our questions. So shifting gears a bit and focusing more on commerce. In your prepared remarks, you called out the new Point-of-Sale and Invoicing plus SKUs offered discount to transaction-based to merchants. Are you only offering discounted transaction fees here? Or is there opportunity for volume-based advantaged pricing in other areas to attract more and larger customers to GoDaddy payments?

Thanks, Willow. As you'll probably remember, we have the best value for money in terms of payments pricing out there given the offering we bring to market. What these new SaaS plans do is they start to engage our customers into a deeper set of capabilities. So for example, with an Invoicing Plus plan, customers are able to build a more custom invoice and put a logo on it, or be able to email that out in a very easy way. And that's us just expanding what the sort of toolset that our customers can use with GoDaddy in a very, very easy way. And on the pricing piece, we've had pricing being an advantage for us since we came out with commerce and payments. And we continue to use that advantage, and we actually look at multiple avenues as we grow this business to continue to maintain that differentiator and create the value for the customer while also creating value for the company and the shareholder.

Great. Thanks for taking our questions.

Thank you.

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

Hello. Thank you for taking the question. First a clarifying one. Aman, you said improved conversion by 12%. I wanted to put that into context. Is that 12% improved conversion as a measure of 100% of users in the funnel? Or is that an improvement of 12% higher dollar value? If you could just clarify that point first?

Yes. As I mentioned, I wanted to share a data point from a controlled experiment. This experiment focused on a customer who purchases a domain and views a coming soon page. We tested two or three different methods to implement a paywall to see which one resonated more with customers. The conversion rate from the free coming soon page to a paid plan increased by 12%. This figure typically reflects a unit basis. The key takeaway is that by creating an engaging experience with Airo, we are uncovering numerous new opportunities. This was just one website example, but as you know, Airo currently offers nine cards for customer interaction. We are enhancing our engagement across more of these features that customers access when they buy a domain name. As this engagement grows, we will continue to inform you about our progress in monetization. It's important not to focus too heavily on any single aspect; rather, it's how all these elements collectively contribute to a more engaged customer, which we believe significantly enhances long-term value.

Understood. And then just one follow-up. You mentioned the rollout to non-English speaking countries. What is the percent of the base that is English-speaking today? I mean we have that international versus domestic breakout, but I'd imagine there is a sizable contribution there from English-speaking countries.

Yes. I don't think we've disclosed English-speaking versus non, but our larger markets are English-speaking. We have businesses in over 100 countries. So there is a sizable number of customers in many of those countries. There's great opportunity because GoDaddy is still early, and we're able to bring domains customers there at our scale and with our capabilities. So we continue to be excited about what we're bringing to the market. In terms of our actual English markets, our biggest markets are U.K., Canada, and Australia. So those are our bigger businesses. So maybe you can do a bit of math if that's what you're looking for.

Thank you.

Yes.

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

Hey, good afternoon, guys. Back to A&C looking to acceleration. We got this a lot last quarter in the translation to the top line guide in particular. At this point, we're nine points ahead on the A&C bookings acceleration or A&C bookings relative to the revenue. I understand we have some tougher comps, but how should we be thinking about how that translates to maybe why aren't we seeing it more? And on the comps, do you have us disclosed what the comps are pre-4Q of 2023? I may have missed it if you did, but could help kind of help people paint the picture to the revenue translation.

I'll take that first half, Ygal. Just a reminder, we have transaction revenue in subscription. And then within A&C, we have a mixture of both. And we saw a good performance today this quarter in commerce, which is transactional revenue, but we're also seeing good performance in the other areas, which are subscription. So the timing of the revenue related to the bookings acceleration can be anywhere from immediately within the quarter to over a period of time and will start to contribute to revenue as we go out through further quarters. So we saw some contribution this quarter. We'll continue to see that as we get to the rest of this year. And obviously, in 2025, we'll have momentum going in there. But remember, it's a combination of both, right? So we can hit in different periods depending on the nature of the bundle, the transaction, or the combination of the products they buy.

And just Ygal on the bookings numbers for A&C at least, I believe you should have Q3 and Q4 but you can always take it offline.

Okay. And then on the bundling. So, understanding productivity is the focus now and then there's more after is coming in the future. Maybe just a hit on what's next in the pipeline if you can? I guess, that's going to come over time. But we hear mostly about e-mail and security. Any more details around some of the key bundles that you expect to roll out? I think would be really helpful. Thank you.

Ultimately, we want to go across the board, right? The approach is really about the customer and not about the product, right? We're trying to create this value for the customer and their whole relationship with us. So all the products are going to sort of see something over the next year or two. Not making any promises on it but some of the products in A&C that we're very excited about is for example the website business. Just a couple of days completely unrelated to us, TechGrade named Airo as the number one AI website builder for micro businesses. So we're definitely getting some momentum in that business. And with Airo, we think there's some great opportunity there. But that's not the only one. Our other products, many of them are at significant scale and will lend themselves well to bundling in different ways.

Yes. The advantage we have now with the consolidated technology stack is we have the ability to see what bundles really are attractive to our customers, and we're starting to analyze that data, and that starts to give us a path forward. Airo only helps that even further as we look at the behaviors and the engagement and allows us to start to position those bundles as to what value we can give to the customers.

Yes. And there is a little bit of an order of operations where we have to hit certain renewal cycles to be able to see the customer behavior, right? So, it's not the thing that we can everything happen on in one quarter, one day. There is a progression of this program working over the next two, three years, getting to the real value for our customers.

Great. Thank you.

Our next question comes from the line of Alex from UBS. Alex, please go ahead.

Hi, it's Chris. I wanted to revisit the comments about having over 50% of customers using two or more products. Could you clarify the difference between existing customers and new customers? Are new customers more likely to adopt two or more products compared to the existing ones?

Yes. Chris, we're very excited about the Airo offering, right? We're engaging customers with a lot more products right away. But the metric that Mark talks about is that's paid products. So what we'll see happen is as we engage customers across these products when they come to those renewal cycles we expect to see sort of that number continuing to grow. But broadly our new customers adding more products has been a good trend for us.

And this has been something that's building over time. I think the metric we gave out at the end of the year was a customer new customer attach rate 25% faster than they were three, four years ago. And that trend continues, right? Our customers are coming in with intent. They're engaging at different levels. And just to hit on the finer point that Aman said, we count that two-plus product when they pay, not when they engage. And that means it can come into a renewal, it can come after a free trial. So it takes time, but they are definitely engaging at a higher level rate than we saw in the past.

Got it. Very helpful. And maybe just one follow-up on A&C incremental margins. It has been a couple of quarters where you're over 60% smaller. It really seems like you guys are sticking to a very cost control approach here. Any reason why this may be one-off here and not the right way to be thinking about it over the medium term?

There's nothing to call out on a one-off basis. This is just the three things we had talked about that would drive our profitability going forward. A&C growing, which is our higher-margin business and being more of the pie over time will create a tailwind to our overall normalized EBITDA margin. As we start to tap into the global talent pool, we'll use GABI more, and that will create leverage within our P&L up and down. And then we continue our journey on operational simplification. We're trying to make sure we're fit for purpose going forward that we're agile and we continue to have that ability to not only invest in the business and invest in new technology, but have an efficient back-office operations. So those three pillars still remain intact. And what we're seeing now is the A&C bookings and growth really becoming that tailwind that we had talked about coming into the year.

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

Hey Naved, you're muted.

We can.

So apologies if somebody already asked this. I jumped on a little late. But a question I have is on your 3Q guidance specifically on the EBITDA guide. Why are you guiding to a compression in margins quarter-on-quarter? And also given that A&C continues to be the bigger piece of the business and that's the higher-margin business. So just kind of unpack that for me? And then I have a follow-up.

Yes. We are pleased with our margin expansion throughout the year. We are continually exploring opportunities and analyzing our product mix and the momentum in our performance. We exceeded our margin expectations in Q2 and expect to maintain those levels into Q3. Furthermore, we anticipate our Q4 exit rate will stay at 31%, resulting in an annual margin of 29%. Our strong bookings support this outlook, and we have also raised our revenue guidance, which positively impacts our bottom line and enables us to increase our projections for free cash flow and unlevered free cash flow.

Got it. And then Aman, on your comments about now having nine cards in Airo, I think you started with maybe 5 or 6, if I remember correctly. Have you seen an improvement in conversion every time you add a card and then optimize the experience around that? Just give us some color around these launches and what the effect is on conversions on attach rates?

Now they're picking on a really interesting thing where as we introduce more, we've got to be very careful to keep the experience simple for our customers. So actually there are a number of experiments that continue to evolve what the cards look like to get higher engagement with the customers. There's all sorts of different things from cards disappearing to changing the order to growing out to saying it's done. The teams are trying lots and lots of different combinations. And frankly, there is more we want to include in Airo. And only when we make this simpler can we add the new things. So yes, that's a constant area of focus for us, but it's also the beauty of our scale, right? We have a breadth of products that we can bring to our customers. That's a lot of value we can pack in with a humble domain name. And if we can get the discovery and the engagement we can get the monetization. And at our scale, we’re doing lots and lots of experiments. We have teams that are well trained in understanding how to do this work well, and we're pretty excited about it. That's one of the reasons, as Mark likes to say, that Airo might be small today, and it's not in our guidance, but we are very excited about what it represents in the future for us.

So maybe just sort of to follow up on that. If I ask you, where are you on that journey with Airo if it's a nine-inning game? How would you kind of place yourself?

We are in an early inning, Naved.

I was going to say we're in the first pitch, right? So there's a lot to go and a lot of exciting things going on there.

Excellent. Thank you, guys.

Thank you. That concludes our Q&A. I'll turn the call back to Aman for closing remarks.

Thank you, Christie. Thank you all for joining and a quick shout out to all GoDaddy employees for Airo being named the number one website builder just recently. And I think it sets a great tone for us at the company. It's always good to see somebody recognize our work. So thank you very much, and we'll see you next quarter.