Q4 2019 Earnings Call
A question and answer session to ask a question during the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Mark Grant Vice President of Investor Relations. Thank you. Please go ahead.
Afternoon, and thank you for joining us for go Daddy sport quarter, and full year 2019 earnings call.
With me today, Mando, Tony Chief Executive Officer, and really wouldn't born Chief Financial Officer.
Ray will share some prepared remarks, and then we'll open up the call for your questions.
Today's call will be referencing both GAAP and non-GAAP financial results and operating metrics such as total bookings.
Free cash flow normalized EBITDA net debt and ARPU.
Discussion of why we use non-GAAP financial measures and reconciliations of our non-GAAP financial measures to their GAAP equivalents, maybe found in the presentation posted to our Investor Relations website at investors Dot go Daddy Dot net well on our form 8-K filed with the FCC with today's earnings release.
Matters will be discussing today includes forward looking statements, which include those related to our future financial results, new product introductions and innovations our ability to integrate recent acquisitions and achieved desired synergies, including our recent acquisition of over and the expected acquisition of unit registries domain Registrar.
Marketplace businesses.
He has forward looking statements are subject to risks and uncertainties that are discussed in detail in our documents filed with the FCC.
Actual results may differ materially from those contained in the forward looking statements.
Forward looking statements that we make on this call are based on assumptions as of today February 13, 2020, and we undertake no obligation to update these statements as a result of new information or future events with that gives them on thanks, Mark and thank you everyone for joining our fourth quarter earnings call.
29 team close out with strong operational execution and consistent financial performance.
As we near 3 billion in revenue, while growing unlevered free cash flow, 19% year over year.
Equally important we are entering 2020 with confidence after having moved quickly against a set of objective to realign how we operate as a company, including changes to our priorities leadership and teams.
All in fashion in support of our mission to enable entrepreneurs with technology humanity and purpose.
We made these rapid changes to accelerate execution, all while delivering on our financial commitments across the board with five months into my tenure I wanted to share a few thoughts on our core priorities of enabling a strong platform, creating an intuitive customer experience.
Continued brand expansion, including our recent launch of our new local first our core platform goals remain unchanged, increasing our velocity of innovation delighting, our customers with robust and flexible products globally, and seamlessly acquiring and integrating brands onto our platform. Many investors have asked me.
Two critical questions.
How much is going to call and when will we see results based on my experience well be enabling platform and the state of our platform in context of the resources in place today I can say with confidence that we will achieve our platform gold with minimal incremental investment.
In terms of result, we expected delivered new capabilities every quarter and I'm happy to share that we recently launched the capability to simultaneously launch products across all go Daddy brand globally, including our EMEA brands. It is live with a couple of brands today, and we plan to roll it out to all major brown.
Over the next few months.
Turning to our second priority, we are staying focused on building seamlessly intuitive customer experiences when we look at the entrepreneurial journey. There is a clear pattern interconnected tasks that create friction for our customers, which leads to frustration and discouragement, we've been investing heavily behind that number itself.
Patients for each of our custom audiences, namely in websites, let's marketing Wordpress and our naming capabilities.
First websites plus marketing caters to our independent do it yourself customers, where we've delivered increased simplicity in commerce and content creation.
In Commerce, we recently simplified our customers the ability to transact with their customers through new integration, including Google shopping and the Facebook developer platform, where were now powering service commerce bookings on both Instagram and Facebook.
Each of those platforms is important to our customers and their engagement with their customers and we've totally streamline the management of these channels.
In content creation, we recently acquired over a company with a suite of user friendly design tools to quickly create beautiful and professional digital content for every marketing channel.
We will quickly integrate overall capabilities into websites plus marketing to help our customers seamlessly enrich their social email and website presence.
And as an independent.
Over is 1 million monthly active users look remarkably like our everyday entrepreneurs with the average subscriber creating 23 pieces of content a month.
With near perfect reading on the App stores and in NPS North of 80. It is truly compelling experience I highly encourage you download the overlap and give it to try.
Secondly for our partners, who create websites on behalf of are those we have been making significant investments in the open source Wordpress ecosystem.
As you all know what breast is the world's largest CMS with a massive community of users.
Our team has been rapidly innovating the word breast editor to simplify the website building experience and we recently launched our go template. The go template has become one of the most downloaded template in the Wordpress community and it's based on our acquired technology from coal blocks.
This improved experience is being adopted by the entire Wordpress community not just our customers and its cementing go Daddy as the global champion of Wordpress.
And lastly for a large customers, we just announced the acquisition of several business components from Union Registry, we've acquired a set of world class tools experiences and technology to help our customers and domain investors by and manage domain.
A broker network <unk> added capability to our aftermarket business corporate registrar as well as a portfolio of high quality names that will help us improve liquidity in the secondary market.
Stepping back websites, most marketing managed wordpress and our aftermarket are thriving on account of the seamlessly intuitive experience is we are enabling we are seeing validation that building a web site would go Daddy is an exceptional experience whether that be in third party reviews.
Accessible published rates, the billions of G.N.V. wed, enabling or strength of our renewal cohorts and most compelling websites less marketing is taking market share within the captive website building industry, well managed wordpress subscription sales have been hitting new record level since our latest launch.
At the end of October.
All our signs of a healthy franchise.
Moving onto Brian.
This time last year, we launched a bold evolution in our brand strategy deploying investment into influence or driven creative content and a slate of icons that embody. The go Daddy spirit. This has been a highly successful strategy producing strong levels of brand sentiment social boss and impressions all of which.
Well ahead of our competition.
We celebrated this evolution last month as we launched our new logo. The go the go captures our unique ability to enable connect and champion millions of people around the world, who are making their own way as entrepreneurs truly making opportunity accessible to all the logo launch was it.
Incredibly successful and we couldn't be prouder of our teams and the results.
In closing I want to say a quick word about my confidence in our ability to deliver as Ray will touch on we nailed 29 team right in line with the targets we set at the beginning of year.
Beneath the headline results, we underwent substantial change as we realigned our team behind our core customer populations.
Furthering our identity as a customer led software company.
In the midst of chain companies, often take that put off the gas, but not at go Daddy I'm, particularly proud that this the stood up fiercely embrace change and refused to do anything short of delivering what we committed to.
That's unique and that's what creates the durable business that is go Daddy.
We're looking forward to sharing more about the changes, we're making and our future at our April 2nd Investor day with that here's right.
Hey takes them on I'll touch on our fourth quarter financial results in our outlook for 2020.
There's I'm on highlighted 2019 was another solid performance as our teams delivered terrific outcomes across the business.
From a financial perspective for your results landed right on top of our initial guidance with revenue up 12% year over year, an unlevered free cash flow up 19% delivering over a point of margin expansion.
We also returned significant capital to shareholders and strengthened our balance sheet, leaving us well position to drive growth in 2020.
Turning to the fourth quarter results bookings grew to 834 million rising 14% year over year on a reported and constant currency basis as currency headwinds subsiding.
Growth was broad based with strength across product categories and included a reacceleration of growth in international bookings.
Revenue came in at 780 million growing 12% year over year, we're about 13% on a constant currency basis.
We're seeing good growth across each of the revenue categories with particular strength and website sports marketing subscriptions and continued momentum in aftermarket sales the key metrics underlying growth remained consistently strong.
ARPU rose to $158 up 7% year over year, while we added 757000 customers in 2019.
In line with what we shared previously.
Unlevered free cash flow for the quarter was 178 million growing 40% year over year, reflecting good operating leverage in the piano and an easy compare created by the time you Capex spend in Q3 in Q4 last year.
On the balance sheet, we finished the year with 1.1 billion in cash and short term investments and that debt landed at 1.3 billion, putting net leverage near the low end of our targeted range of two to four times on a trailing 12 month basis.
Moving onto our outlook for 2020, we expect to deliver revenue of approximately 3.3 billion representing growth of 11% versus 2019.
We're starting to your own pace and expect to deliver revenue of 795 million for the first quarter 2020.
We will continue to drive margin expansion in 2020.
We expect 835 million, an unlevered free cash flow, which includes a highly anomalous extra pay period. They won't occur again for over a decade absent this payment unlevered free cash flow growth would be 16% year over year.
The extra pay period doesn't impact if you know and therefore, you should expect mid teens growth a normalized EBITDA as we deliver operating leverage.
Stepping back we're well positioned deliver another year of exceptional outcomes in 2020 by leveraging our competitive advantages investments, we're making to increase customer value and continued optimization of our platform.
And as you can see in our financial God, we're doing that in a disciplined fashion delivering both topline growth and margin expansion. We look forward to sharing more details on our growth plans as well as a financial framework with you at our Investor Day on April 2nd.
Thanks, everyone for joining today and with that operator, let's open the call for questions.
I will ask a question. Please press star one on your telephone keypad. The first question comes from key path. The fan of Barclays. Please go ahead, Sir your line is open.
Hi, Thanks for taking question. This is mark on for Deepak can't elaborate on the free cash flow guide how should we think about the nature and investment that's reflected in your guide and are these ongoing or onetime in nature.
Sure I'll start and see if a I'm almost with or anything over the top but the guide we put out there at 60% ex special item on the pay period reflects all the investment we're putting into the platform. The 12 months' spoke about on the call as well as into marketing care and it will get leverage RG. They line.
So it reflects everything that we've got lot of site into and.
If you look at our history, we will tell you what we're going to do and then we're going to go do it.
Yeah, I'll, just say that you know we've now I've now had a more time to look at our investments for the our and as we said.
We're covering everything we knowing that so you should take it just as it is.
Hi, it's helpful. Thank you.
Your next question comes from Matt Pfau of William Blair. Please go ahead, Sir your line is open.
Hey, guys. Thanks for taking my question Amman wanted to ask on.
Some of the reallocated resource and maybe a little bit of incremental investment.
Is that primarily going to the area as you mentioned in terms of web sites marketing Ward press and somebody other.
[noise] naming branding type tools or are there other areas as well and then any areas that previously were invested in that you're pulling some of those resources from that planned to be less of a focus going forward. Thanks.
Yeah. Thanks for the question, Matt just to clarify you know the incremental investments, we're making our small you know so I really look at the reallocation, which was the second part of your question and yes.
Investments are focused in the core product. We also are moving a bit more investment into our core platform, which is going to allow our products to faster and that's one of the key Reallocations you know when a product suite is more separate you may have to make certain duplicate investments for certain capability than we're pulling some goes back down.
The company level, just create the best customer experience. So we can.
Got it question that's it for me guys. Thanks.
Your next question comes from Sterling Auty of JP Morgan. Please go ahead. Your line is open.
Hey, guys. This is Jackson ader on for Sterling Tonight. Thanks for taking my question.
Can you just.
Give us a little bit of insight into the expectations for customer additions that are baked into this 2020 guidance on the topline.
Hey shirts right.
You know you guys no we haven't historically guided to customer account, we only called out the impact to the merchandising tactics last year, because it was an anomaly.
We've mentioned this numerous times, we don't run the business on customer account and so we're not going to guide to a number that said you know if you look at our go to market.
Motion, it's working well as evidenced by the topline growth that we delivered as well as the God. We've got in front of Us and Hey, Jackson, It's Andrew Lucky here I'd, just add our 2019 customer cohort was the highest value we've ever acquired.
The the growth in the progress you're seeing in websites plus marketing and weren't press is showing up in that value and a in Oman comment.
During the call earlier that we're taking market share.
Okay. That's helpful. Then a quick follow up if we can just stick with the website plus marketing subscribers that you at that you're adding wasn't the attach rate look like if you can give us any kind of a quantitative detail there and if not maybe how has that.
How does it compared to maybe some some attach rates of other products in the past.
Yeah, just you know we don't.
Talk about the specifics of the attach rate, but I would tell you that broadly me you'd have met and exceeded our expectations and it's higher than what we've seen in the past and with other products and the Best example of that and if you look at website for marketing.
Product that we sort of built from the ground up and really gone into market over the last two and a half years or so has gotten rapid adoption, we see the growth in the product, which is significantly a functional how well we are able to attached to people coming into the site or coming to care for us.
Understood. Okay. Thank you.
Your next question comes from Mr. Jones of Citi. Please go ahead. Your line is open.
Hi, Thanks for taking my question.
You mentioned, there's some interconnected tasks that lead to friction for your customers can you maybe elaborate on that and.
I'm, a little bit and how does that in farm I kind of the product development pipeline.
Yeah, Let me share we do a journey that we see very often every day entrepreneur has an idea they want to take online and they start with a name in the coming in the coming to our site and looking forward domain name and that's fantastic you know they can find the name names available. We can maybe we can sell it to them if it.
Not available we actually have broker services that can help them, but the minute you get passed that name somebody maybe thinking about Oh I want to create a little image logo I want to be able to just send this out to my friends and say here's here's what you know my idea it looks like and immediately you have the need to create online content.
Right and if that experience is not intuitive in terms of if at that moment you can't offer that service then there's a brake and friction in the process for the entrepreneur to continue and we basically have mapped out this journey sort of in a pretty detailed level and now we're looking at gaps and that journey and saying you don't want here's a moment where.
Somebody has to create a digital after that as an example, well let's look in the marketplace Who's got amazing products that do that and that leads us to something like over where we see a great group of people building building, an amazing product and a need that our customer have and then when we plug vetting we feel okay now, let's let's look at the next one song.
Does that help.
That does <unk>. So if we if we look at kind of some of the product to come out you know there's things in E commerce things in driving traffic or something and design is is there one category that's kind of most exciting it sounds like maybe the design part and the content generation.
I think content creation is a big category ecommerce is a big category you know kinda degree, we're putting more energy into his messaging. So our customers engaging their customers is a really big category and but it's it's really complicated for our customer that tend to be micro businesses to handle just all the channels.
But they have to handle because customers are coming in and talking to businesses in new ways and are.
The on front needs to be able to answer those requests so bringing those channels together, making it simple it's there's another good category for us.
Great. Thank you for taking my question.
Thank you.
The question is from Brent Thill of Jefferies. Please go ahead, Sir your line is open.
On if you could just double click into the platform goal with minimal you invest any or all watching it <unk> line and believe there's a lot of interesting things you could do there can manage you know Nanjing. The other part of the stack can you just walk through Directionally into high level. How you think you can do.
Without having to put more more capital into the business. Thank you.
Yeah. So as I discussed last time. This was an area of investigation for me to to understand deeply just given my background. You know I wanted to really understand it and a couple of things pop up the first as if you look at the last two years that has been significant investment in the tech and Dev line and the company has been focused on improving.
The second so that there's already a set of investment there for me to use the second is the given my background. The one big thing I can bring to the table is that like many other companies sort of the investing their platforms a company.
On point it will want to go to point B and say, okay. We should make these investments well I've been through that cycle and realize that you've got to point being often have to go to point see from that and that's what I can bring expertise and say hey, guys I know, where we're on this path I know it makes sense, but I know what it looks like when we got there. So let's just chart the path from 80 see directly.
And I had alluded to this last time in the call too it's not a matter of putting armies of people behind this thing it's about finding the right people with the right skill set and get them focused on a smaller more priorities. So that that was the plan that we wanted to put in place and I'm very confident that's the best one record.
Okay, Great I'm, just real quick for Ray.
Okay presence growing slower than the means and again, you're asking yields are a catch up that can come is there something you could do there.
They're buying a domain from you why why went that line grow a little faster. Thanks.
No. Thanks, Brett <unk>, we've been really happy with the growth we've seen in there obviously, the the websites post marketing and managed Wordpress or the software subscriptions were linking into those are growing around 40% on a unit basis for the growth is there. It's just living in a large line item right. This is a 1.1 billion dollar line very different.
Cult influx that ER and ER <unk>, but we're very happy with us So we're seeing a subscription growth.
Great. Thanks.
Your next question comes from I guess erroneous.
Securities. Please go ahead your line is open.
Hey, guys. Thanks for taking the question.
I mean business in the disclosure, but the guidance that doesn't include the acquisitions in any way to think about what the with the contribution is from them I'm guessing a unique you any registry would would be a bit more of a contributor and then on on that topic have you any registry just maybe.
Walk us through a little bit more the rationale of acquisition what the gaps in your offering that you think it's it's compromising or things that building on I'm, a little bit better and how would you in overall sits with the portfolio and if you could.
The domains under management and how that contribute to your overall domains. Thanks.
Yeah, Hey, it's Ray I'll start with the impact on guidance and then toss it to them on a on the topline the combined impact of both of those acquisitions over in unit registry or about a point and the impact to Unlevered free cash flow is negligible.
Yeah and in terms of the components of you need registry the key pieces that that up up part of the go Daddy business now include a set of tools and experiences for our large customers.
Second there's a set of Uh huh.
When it [laughter] sorry, there's a portfolio names that as part of unit registry that it's coming into the company as well if I just take those two items separately. When we look at our large customers. There's a set of friction for them to be able to do their jobs. It's you know if there's a lot of offline stuff, there's a lot of <unk>.
So the hand, holding an attraction in the broker service and unit registry is built from the ground up tools and experiences for that customer so bringing those back into the go Daddy family and offering it to all of our large customers is a fantastic condition.
In terms of the portfolio. It's about 350000 domains. It's a fantastic portfolio. It allows us to can continue to improve the liquidity or secondary market and really off for those names up to all the people coming in to go down <unk> dot com and searching for domain name.
Thanks.
I can ask one quick follow up on board.
To go seem plug in a is that maybe you guys monetize <unk>, how should we think about how that fits in with the rest of the a managed wordpress.
Portfolio, Yeah, and thank you.
Yeah. So the goal team is really about our position in the open source community. It's about the broader sort of set of brand building for us as a company. We don't monetize the C team people can use the goal of people whether they are customer of ours. For example on managed wordpress or if they're just using word.
Breast anyone in the world with anybody else grade this dramatic but the team is really focused on dramatically, reducing the time designers and need to put something together, that's beautiful and do it really fast you know I would encourage anyone to just go out and try it if you've gotten traction you'll you'll see the difference and how you yourself.
For you to fight that looks gorgeous and happens quickly.
Thank you.
Your next question comes from Naveed Khan of Suntrust. Please go ahead. Your line is open.
Yeah, Thanks, a lot.
A couple of question. So it's fair to think about segment leveraged growth.
Oh, maybe you can give us some fine does Descartes and previously you kind of spoke about like domains.
I'm going maybe techie faster than unit, and then hosting and presence green living two to two Jackson and then apps went past and how should we think about that 2020.
That's really helpful. If you can and then just on the conversation on marketing.
Obviously, you guys them to spend through 2018 and 19, how should we think about that.
Growing as a part of the mix and 2020.
Hey, it's ray on the beat I'll start with the first piece of that and also to Andrew.
You know I'm not going to provide specific guidance on a line item, but I think a decent way to think about a 2020 and the overall context of our 11% would be domains in the high single digits, Yeah, we're going to lap some pretty strong growth out of aftermarket and 2019.
Hosting and presence in the high single digits, that's gonna be driven primarily by continued growth in web sites or post marketing as well as our managed wordpress offerings and Biz apps, which is now right over a half a billion dollar line item a growing into high teens.
I'll share more with you guys are more insight into the growth algorithm, how we're thinking about the market opportunity for us at our Investor day in and early April.
And innovated, it's Andrew hair on conversational marketing on the full year and 19, we obviously scaled up our spend and de Levered line, a little bit, which which is a good thing we well we scaled that up importantly, conversational marketing and the pace of testing iteration of campaigns as really improved an increased and we're seeing does gains and.
<unk> men's kind of driving new an expanding reach into our existing customer base.
Paying off and we're seeing good strength in bookings.
The result up is good.
Thank you.
There are no further questions at this time I will turn the call over to a mom Tommy CEO for closing remarks.
Well. Thank you everyone for joining us for our call and I'll, just give a shout out to all go Daddy employees all in one of the world doing great work. Thank you very much will talk in the quarter <unk>.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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