Everybody, thanks for joining us again. I'm Brad Erickson. I cover internet here at RBC. Very pleased today to have Mark McCaffrey, CFO of GoDaddy, straight in from Tempe, Arizona, I assume. Thanks for being here. Redwood City, California. Oh! But close, close- Like I said. Well- Yeah. Our headquarters is still in Tempe, so... All right. Well, good, good, good of you to make the trip- Yeah, thanks Either way, so thanks for being here. So, I have my list of questions. We always say, if anybody has a question, feel free to raise your hand and we'll get you a mic, and get that to Mark. But I think starting out, you guys just printed... maybe always good to just take a minute or two and just talk us through the print, and particularly, what are the kind of one or two items you're fielding in terms of questions from investors following the earnings last week? Yeah. So, you know, everybody's seeing the reaction. You know, we're really happy with the momentum we have in Q3 going into next year. We've laid out some of the framework. Now, some of those key items were, you know, we're gonna exit this year, we're targeting around 29% Normalized EBITDA margins. That's gotten a lot of questions, but that's ahead of where we originally thought we were gonna be. And we put a target out there, of 31% for exiting next year, to give an idea of the momentum we continue to get. So, a lot of positive reaction that as we have gone through our integrations and some disposals of assets in the first half of the year, we're starting to see that momentum in the back half of the year around our cost structure, we're starting to see that coming to fruition. The other item that has been talked about a lot is A&C growth and, you know, taking it up a level, you know, we're seeing really strong demand at the top of the funnel, which is very encouraging. We're seeing it consistently, which is something, again, in prior years it was very inconsistent, but we're seeing that demand. And if you look at our domain space in our Core Platform segment, you're seeing the growth in bookings around 8%, growth in revenue around 4%. The... That, which is great, but the best part about it is our customers are attaching that second product a lot faster. And we gave the data point that more than 50% of our customers now have a second product with us. And why that becomes important, well, that gets to the third product, it gets to the LTV equation we've talked about, it gets to those retention rates. But that benefit of that shows up in the momentum in A&C, right? Because those are, in essence, the second products. Now, where it helps us on a margin basis is it, you know, that's at a higher segment margin as well because it is our, you know, mostly our technology, so therefore we're getting it at a higher basis, which is helping that momentum. Last but not least, lot of, you know, hey, we've been buying back stock, right? Our capital allocation strategy and our ability to hit our cash flow per share, using the combination of operating efficiency as well as, you know, being in the market, doing the right thing around capital allocation. Again, led to a good story that those three points continue to be, you know, "Hey, or we like that- Yeah. - we like what we're hearing. Yeah. So, good reaction. Yeah, yeah. Nice to... Good to hear. Yeah. Yeah, so in terms of... Let's just start out with a macro question, obviously. Oh, we're going right to macro. All right, all right, all right. Uncertain times. It's gonna happen in 2024. No, I'm just kidding. Let's assume kind of a stable environment into next year. And obviously, just the uncertainties that investors tend to price in. Talk about this, you know, the business's resilience, the durability under kind of, you know, these, I don't want to call them tough times, but certainly uncertainties. It's uncertainties, right? Yeah. You know, we've been around for a while. This isn't our first... I don't want to say the word recession, because apparently, it's here or it's not here. But, you know, in a down cycle in the economy, we've seen these before. You know, we have a very resilient customer base. You know, you look at our ARPU, you look at the micro business, you look at the entrepreneur, they're very bullish on their ability to, you know, do something with their venture, to grow their venture, despite the macroeconomic environment. They're worried about that, but they're bullish on their own ability. We've actually done surveys through our Venture Forward program, and I think it's over 70% of them are very, very, you know, encouraged by what they're seeing out there. Yeah. You know, it's this weird, you know, inflection point in any macroeconomic environment where, you know, the popularity of the side hustle, I always call it, starts to come into play, or that micro business that they want to do out of their home or locally starts to come into play. And so, you know, it adds to this resilience that we see in our customer base, right? So I want to be clear, like, the demand part of this is really where we spend a lot of time, and what we're seeing in these times is that demand is there, and that intent is there, and that's why we feel good about, you know, in a normalized state, everything going into next year has a lot of momentum. Yeah. Now, we're not immune to macroeconomics. I never wanna... There used to be this theory that we were recession-proof. You know, we have to monitor the business. There are certain aspects of the business on a broad basis, you know, aftermarket's one of them I've talked about a lot. You know, we see the valuation in the aftermarket, something that continues to be volatile. We've done a lot of work on things like our infrastructure and our data centers of less reliance on them, so energy costs aren't a variable we have to worry about going forward. Great work there. You know, interest rates, you know, again, you know, we had an opportunity last year to refi our 2024 debt. We were aggressive in the market, thanks to a lot of help out there, but we were able to get ourselves to a point where, you know, we really created a, I would say, security, in the sense that we weren't subject to future interest rate- Yeah ... hikes going up. Yeah. So there were things like that on the macro environment. We continue to monitor and aggressively go through, but from a customer base?... We feel like that demand and that positivity coming out of the customer base right there is really almost encouraging. And I always use the comment, you know, "We're here for the underdog. We're here for that mom-and-pop shop who, you know, is competing against all these other elements, that wants to do better, wants to sell in more places." And that kind of drives us in our mission right now, is: How do we do that, and how do we keep that very efficient? Yeah. Yeah, you can't lose with the underdog pitch. Yeah, the underdog pitch, you know, you're gonna hear it a few times, right? Always. I'll know I'm successful when Aman says underdog in any of his statements. Yeah. Yes. Yes. All right? Maybe just to follow up on the funnel, you mentioned you're seeing kind of good trends, better trends, et cetera. I think others in your space have spoken to some ongoing softness, maybe a little bit of directional improvement. Where's the difference for you, do you think, from your perspective? Well, it's hard to say what they're seeing from that. I know we continue to be the biggest player in the domain space, so that continues to be a big part of our funnel. I would like to say, because our technology has become more seamless, that once people are coming to us for a domain, they're not leaving to go elsewhere, and that's creating that, I would say, second product, third product type of equation we're talking about right now. The demand, you know, that intent is there. Now, we have talked about net adds on a quarterly basis, a disclosure we added this year, at the request of a lot of people. We've talked about the churn we're seeing in some brands that we're integrating and, you know, negative churn for us right now. But on the growth side, you know, again, I think it's the encouragement of the micro business, of the side hustle, of people wanting to put that into effect, wanting to sell faster in those environments- Yeah ... that is really kind of driving a little bit of a differential for us right now. Yeah. Yeah, got it. And how do we think about the, the churn on that front? 'Cause I know there were, you know, the new business formations, right, skyrocketed during COVID. They're still pretty elevated, though. In fact, they're still above pre-COVID levels, I think. What's the churn characteristics, though, on the- Mm ... on the new business formation that we think we're seeing these days? Remember, we're engaging customers, and we look at many data points around our market. We're engaging customers often before the new business formations, right? So that is a step in a process for them, but we're at the, "Hey, I have an idea, I have a dream, let me see if I can get a few transaction," level, right? And that is where we're seeing the encouragement. It's not always correlated directly to new business formations and failures. Yeah. You know, there are business failures, there's no doubt about it, but more often than not, we even see in that case, they're just flipping their dream to somewhere else, right? And they keep their domain name, but now they get another domain name, and they add a website there, or maybe they have now two or three that are in play. Mm-hmm. We were out visiting a customer not too long ago, and the wife was running a business out of you know, a shop. They had just moved out of their living room the year before. As we're going through how she's engaging on our platform and what's working for her, all of a sudden, her husband pulls me aside and says, "I just started personal training." And I'm like: "Well, that's great. You look pretty fit to me, but..." And he said: "No, no, no, I'm actually training people, and I've created my website, and my wife likes to talk about her business, but look at what I did, and I'm a customer now." And I felt a little awkward there for a minute. But it went to that, you know, resiliency of them coming back and seeing- Yeah ... the success of, you know, their ability to do business in that market. And that's where I love kind of, you know, seeing it just multiply even within family units, right? So it's- Yeah ... we're feeling good about the momentum, and that's what I said, is if we have that seamless experience, we feel we're gonna keep that momentum going. Airo, which we announced... I never get to announce something before the marketing team, just so you know. Mm. And the fact that I announced it on earnings was a big deal, right? Airo is here. We have it in market. Go on our website. If you see it, you're one of the 10% that have been designated as a kind of modeling for us to see people's reactions. But Airo is here. It's AI-generated. It basically goes through a seamless attach. It is so cool. We're going to display it more at our investor dinner in November. But that is all about that seamless experience of engaging people to get them to transacting faster. Mm-hmm. We spent a lot of time on our technology stack integrating. We're the only company in the world that has domains all the way to payments on one technology stack, integrated in its entirety. That creates a ton of data. We have a ton of data. We now are gonna have it all consolidated within one stack. Why does that matter? Well, AI needs data to keep improving. Yeah. It needs to keep updating. We have the ability to look across the platform, even to the transaction level right now, you know, from even the domain, to see what they are doing and help them with solutions. And that's why we get excited about, hey, that seamless experience is just carrying our model and momentum going into the future. Got it. Okay. Let's talk about Apps and Commerce. Yes. Just one... Any questions? We're good? All right. Yeah. I always like to check. On apps and commerce, obviously, that's kind of the, yeah, big focus point of the business, growing, growing really well. And you talked about, you know, having the funnel for new subscribers. On the ARPU side, though, you're also seeing a nice accretive mix shift there. Can you kind of walk us through, like, a typical customer's journey, if you can, that's driving some of that? Is it just new customers signing up, and they're going all in on commerce and payments, or is it you're seeing people sort of dip their toe in the water, smaller business, and they expand. Walk us through kind of what you're seeing there. And, yes, it's everything, which is the best part of this. Because if you come in, you come in with, "Hey, I have an idea. Markbaseballcard.com." Yes, I used it again, all right? Christie's shaking her head at me in that chat. But I can go multiple different directions now because everything is available. I could go right to taking payments to sell my baseball cards. I don't need a website to do that, but I may want one. Oh, maybe I just wanna set up my email first. That, you know, all the choices are there, it's not a linear process anymore. Yeah ... which allows our customers to kind of get to right where they need to be to jump into the market and start selling what they wanna sell. So it's less right now about, you know, "Hey, is there a certain path they have to follow to get everywhere?" To, it's engaging the customer on the platform to say, "What do you need?" And it's even now with Airo giving the ideas of, you know, I buy markbaseballcard.com, it's gonna give me, "Do you want a logo?" And then it's gonna give me sample logos of, you know, baseball cards. Yeah. Right? And then I say, "Well, I'm not really doing a baseball card. I'm gonna be an investment banker. I just wanted to use that name," then it'll change immediately, right? So, it. That actually happens. Yeah. So, you know, it's... What we're finding is, it's less about the linear path of the journey- Yeah ... and more about engaging the customer to get them thinking about what exactly they need. And that intuitive process, when that one, again, coming back to the technology stack, is working tremendously well. Got it. I know we've sent out invitations to our investor dinner, but you know, we can't wait to get that out more broad-based right now. And again, keep trying until you're in that 10% if you wanna get on our website and check it out earlier. Got it. And when you think about the growth algorithm for apps and commerce between kind of some of that, that ARPU mix shift, and then just subs, are they kind of equal contributors? Is one greater than the other, as you think about the next few years? It's both, right? Yeah. And it's both. And remember, ARPU for us is a lagging indicator. Mm-hmm. Because we do it on a TTM basis, and then on top of it, it's based on revenue, not on bookings. So booking is usually the leading indicator- Mm. ARPU is our lagging indicator. That's why we get excited with, you know, the bookings momentum within A&C right now. We believe the demand, coupled with the intent in that second edition product. Now, remember, the other data point we always use is our retention rates are great at 85%. When we get to that second customer attach- Mm. our retention rates go up even higher than that. If we go to a third product attach, we basically have a customer for life. So, so getting to those decision points faster has that, I would say, momentum effect of just, you know, growing and growing and driving the LTV. We always talk about the 83 times, you know, getting all the way to payments from domains, so. Got it, okay. And then maybe just a finer point on the domains business, as kind of that distribution point. You guys, I think, talked to having a structural advantage with that, and, you know, separate from just top of funnel. Talk about how you guys think about that structural advantage. Like, why... What specifically happens, that drives that, from your perspective? Well, you know, it helps having, you know, come up in the domain space and having the brand around it. You know, we're the biggest domain player in the world, by far, right? Mm-hmm. That is a natural funnel for us. Yeah. Being able to take the domain technology, which again is something that we've done for a long time, there's, you know, it's in the technology stack, and add functionality to it, is not something that can be replicated very easily. Mm-hmm. So having a domain that automatically attaches a website or having a domain that has payments attached to it- Mm. ... that is something that, you know, you have to own all those pieces in order to make it happen. Yeah. We own all those pieces. We've made it and differentiated ourselves. No one can do a payable domain in the world. Why? Mm. Because you need both the payment functionality, and you need the domain functionality, and you need them integrated together. Our domain names now accept payments. It's a pretty easy process. You know, you can set up your kids on a domain name- Yeah ... instead of, you know, have their birthday money come in right to the domain name, right? So that, that's not a business, but it's ability to transact very easily without giving away personal information, that you may not want to give out at this point in time. Yeah. Got it. Okay. And on domains, one more there. You know, that, I mean, things pretty well-known, that market's fairly mature. Yeah. You guys have been able to grow, actually, fairly well. High singles, low doubles, somewhere in there. I know, I know there's been some- Yeah ... volatility in there, here and there, but, you know, how have you guys been able to do that? How, how durable do you think that model is going forward? By broadening our domains. You know, a lot of other players out there are very focused on certain areas of the domains. We have over 400 TLDs. We're a registry and a registrar. It allows us to really, you know, have a broad base of ability to sell into the domain space, keeps us as the biggest player. And from time to time, there are different TLDs that are gonna be more popular than others. Mm-hmm. You know, surprise, surprise,.ai right now is a popular TLD, right? It helps drive, you know, the growth, but having that broad base of opportunities around TLDs allows us to really maintain that. Now, a couple other things, you know, again, coming to the technology around it as well, offering a differentiated TLD also allows us to continue to grow in that space, while you're getting more value out of just a domain name. So when we talk about actual, you know, innovation and being able to put this all together, the domain's part of it, right? Like, it's a key- Yeah -part of it. Yeah. Our ability to do that really, again, comes back to that structural advantage. Got it. Okay, and then let's talk margins a little bit. Yes. Y- Margins. You guys, you guys, came out with obviously some pretty strong results, raised the outlook both for this year and kind of in the next, and exit rates and all that. On the tech and dev costs, in particular, product development, R&D, what were you able to identify that stuck out to be able to execute on some of those cost reductions? And in particular, you did it very fast- Yeah ... right? Like, last quarter, two quarters ago, we weren't necessarily talking about this. All of a sudden, it's on the table, it's, it's in play for next year. How did you do that, and what, what did you identify there? Thank you for the very fast comment. I would say- It is fast. ... it appeared faster than most people maybe thought, but it's something we've been working on, right? And if I go back to, you know, several years, but let's just take the last couple of years- Yeah ... we went from, you know, two years prior to last year, we exited at 26% on our normalized EBITDA margin. This year, we're looking at 29%. You know, obviously, this has been an incremental journey as we've gone on, that we've targeted exactly in the fourth quarter where we want to go for the next year as far as our margins are concerned. But this took effort, in the sense that we had to get to less reliance on things like data centers and infrastructure that was driving our core segment, our slower growth segment, and get, you know, to areas that were going to have more efficiencies in them. Our cloud contract is well known right now, that continues to allow us a lot more flexibility in our workloads and creates that efficiency. So we took restructuring actions at the beginning of the year. We talked about the integrations of some of our non-core brands that we were gonna bring into the core GoDaddy stack. We talked about the fact we were gonna, you know, get rid of a couple non-core assets out there that weren't really driving any future benefit for us. And we did that as we went through the first half of the year, knowing that, you know, we would start to see the benefit of some of this in the second half of the year. What happened is, you know, we hit some of our milestones around this faster than we thought. I mean, this was- Mm-hmm ... a concerted effort. Yeah. And so some of that started to show up in Q3, a lot faster than we had anticipated. Mm ... because we were able to, you know, sell a couple of those entities, but we closed the deal, I think it was either June 30th or July 1st, but it didn't have an impact on Q2 anymore, right? Yeah. We were able to hit milestones with workloads going into the core GoDaddy stack that, you know, help us with more efficient pricing within our AWS structure, right? So there was multiple elements of just executing to the timing and seeing those benefits start to be realized within the second quarter, and they will—they're not one-time. And to be clear, they're not one-time benefits. They are benefits that will continue as we continue this journey, and we continue to get more efficient in everything we do. So it allowed us to say, "Hey, we're really pushing this in the right direction." And on top of that, you know, when we talk about the growth in ANC, which we're really happy with, and the progress there, that's the more efficient segment for us. Mm-hmm ... right? That comes at that higher segment margin that we've talked about, which again, helps with that momentum. As that becomes a bigger piece of the pie, it allows us to get more efficiencies and has a bigger impact on our bottom line and normalized EBITDA. Yeah. So, you know, this is a continued journey of just making sure we're improving every step of the way and having the most efficient structure. And the ultimate goal is, we have one technology stack- Mm ... that we're maintaining and that we're adding to, that, that in and of itself is easier to maintain. It comes with, you know, you know, tech and dev efficiencies, but it also- Yeah ... comes with core efficiencies- Yeah ... right? You know, we don't have to maintain a care organization now for multiple different platforms. We can focus on the care organization around that one. We can start to use AI for care within that one tech stack, which becomes more efficient, right? We're allowed to see the results of our marketing technology even better within that one tech stack without having to support other tech stacks. So there is an added element of just continual improvement- Yeah ... that makes this model more efficient, which gets us really excited and allows us to say, "Hey, you know, not only are we putting a target out there, but if you look at how we've taken it- Yeah ... each year, it's kind of just putting out the- Yeah ... gap that we've been doing," right? Yeah. So, you know- Yeah ... we're gonna continue it, we're not stopping. That sounds good. I have to... I'm a channel checks guy. I have to ask you a quick channel check. Right. So- All right. I almost ask you to take your CFO hat off. All right. All right. So everybody saved money on cloud, right? Over the last year, optimization, rationalization. I think Amazon's CEO used the word attenuate in the last quarter, meaning those optimizations are kind of bottoming after we all looked it up in the dictionary. I was gonna say, can you tell me what that means? Yeah, exactly. So, I guess, you know, you just spoke about seeing sort of further optimization, but I think, you know, setting aside some of the company-specific stuff that you guys are running your own play, just industry-wise, do you think some of these optimizations that companies made, do you think there's more to go in 2024? Meaning, do you think there's further opportunities to identify, or was 2023 kind of like this big rationalization year, and we're kind of at a new baseline, and then it's back to normal? What would you say? Well, that's a loaded question. I feel like there is a lot of digging into there. Listen, I think- 13 words or less? Yeah. Does that make it- I'm trying... Yes, 13 words or less. I think this was the year to start the effort. Like, in other words, this is the year- Yeah ... where everybody focused on, you know what? Optimization. And if you've been around, you've been around, I know, for more than 15 years... this is a cycle, right? You know, especially in the technology industry. And when we get to the cycle, all of a sudden, the mindset shifts. Yeah. Everybody, "Hey, we have to be more efficient. We, we have to look at returns on our investment. Mm-hmm. We can't be doing everything. We have to focus on, you know, what are we gonna invest in that's really gonna create incremental value?" That's just the mindset that happens. Yeah. I think what we saw coming into this year is, yes, we have to do that, right? If you were a mature technology company, you probably had a little bit better of an idea of how to make that all work. I think that was helpful for us. If you were a newer company, then you were probably having to re-shift a lot of your focus around, okay, in a non-growth, hyper-growth environment, what does that mean for my cost structure? How do I get more out of it? Yeah. You know, and so I think that journey will continue into 2024. I think that's just the nature of where we are today- Yeah ... from a macroeconomic environment. Now, what does it hold beyond? I, I always say this, you know, technology industry has short memories, so at some point, you shift back to, you know, hey, you know, IPO market comes back, M&A comes back, everything, everything goes in that direction. But I think this cycle feels a little bit longer than some of the ones we've seen in the past. Got it. Okay. Therefore, there's gonna be a little bit more of a focus on operational efficiencies, improved margins, making sure your structure, you know, from a balance sheet all the way down to your infrastructure, are ready to go to... for that next cycle. Yeah. With that, those that can do it will have a better opportunity when the cycle starts to change again. Yeah, got it. Okay, and then just one more from a margin standpoint. You've spoken to kind of the longer term, obviously, giving people a little bit of a sort of early expectations there. Aman's talked about kind of being a 10% grower. That's kind of where he views the business from a normalized growth perspective. Anything to read into those margin comments? And I assume obviously there's been no deviation there, but maybe give us a little bit more on why 10% is the right number, if you can. Yeah. So, you know, at different times, we've focused on different numbers, so I don't wanna over-pivot to, hey, double digits. Yeah. Yeah. Our feeling and the way we look at our model assumes that we're, you know, double digit may not be there, right? So what do we need to do to operate in an environment that is efficient but not necessarily dependent on hitting growth numbers? Yeah. That's how we have focused our structure going forward. So while we have said that in the past, you know, hey, I like the momentum. I like where we're going. Some of it's natural. FX falls off. We'll see that. We're seeing it in our bookings today, we're seeing a lot of that momentum. Look, you know, let's not assume things. Yeah. And I say that in a nice way of we're gonna... We can do what we're doing on margins without assuming we have to get to a certain level right now. Got it. Okay. Any last questions? I got two more lightning round questions- Oh, boy! ... if nothing. These really are... Oh, yeah. Yeah. Quick one. The commerce business is accelerating. Could you talk about the competitive dynamics there? Are you typically taking share away from someone, or is it kind of a net new product for a customer? Yeah, so it's, it's both, right? What we're seeing is an great attach within the commerce element. So when people are coming in, going to websites, less marketing, over 90% of the time, when given all the options of payment processors, now they're taking the GoDaddy Payments. Now, there's a couple reasons. One, we're more cost-effective for them, but two, it's also a consolidated platform, coming back to the one technology stack, which for our customer base, is really an advantage. They don't wanna be dealing with mobile applications. If they can do it all in one spot, that's always gonna be a competitive advantage for us, and works in our market and allows us to grow with our customers, and that is a great place for us to be. The other muscle that we saw, which, you know, we had to, we had to experiment with it and get it to where we thought was our existing customers, in our 21 million customers that are using a different payment processor, are switching over to our payments. And, and why are they doing that? Because, one, the same reason, you know, it's one consolidated stack. But when we're engaging them in our care organization and we're, we're talking to them about how we, you know, charge them, and we don't have any, you know, I would say, hidden fees anywhere else, but that we're giving the data back to them on the transaction basis, and that you... You know, we can convert them over pretty quickly, and they, they can now just use one app. That actually has become a compelling—a compelling selling point. This is where technology comes into play, too. You, you have to identify those customers in your customer base who are, you know, at that point where it seems like they would be willing to switch- Yeah ... and that's some of the technology we've built into the care organization today. Got it. All right, one last true lightning round, 10 words or less. Most interesting Gen AI use case, like something you can actually do with it, hopefully generate some revenue. Most interesting Gen AI use case that you see- Oh, the- ... that no one's talking about. Well, I'm talking about it, so I'm gonna cheat a little bit here. No one else. You have to see Airo, right? And please check it out if you can't make it to the dinner. It is just unbelievable, and it's a game changer, in that, you know, within seconds now, products are getting attached, and websites are getting built, and customers can take payments. It really is impressive. Yeah. And it is, it is Gen AI built- Yeah ... and takes advantage of that entire technology stack and that ability to read that customer and what they want. It's really, really exciting. Got it. That it. That was way more than 10 words. Yeah, I know I'm an accountant, but I never counted very well. So, you know. Mark, thanks so much- Thank you ... for being here. Appreciate it. Thank you. Thank you. Thank you.