GoDaddy Inc. (GDDY) Q4 2016 Earnings Report, Transcript and Summary

Good afternoon. My name is Mariama, and I will be your conference operator today. At this time, I would like to welcome everyone to the GoDaddy Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Marta Nichols, VP of Investor Relations. You may begin your conference.

Thank you. Good afternoon and thanks for joining us for GoDaddy's fourth quarter and full-year 2016 earnings call. With me today are Blake Irving, CEO; Scott Wagner, President and COO; and Ray Winborne, CFO. Blake, Scott, and Ray have some prepared remarks and then will open the call up for questions. On today's call, we'll be referencing both GAAP and non-GAAP financial results and operating metrics such as total bookings, unlevered free cash flow, net debt and ARPU. A discussion of why we use non-GAAP financial measures and reconciliations of our non-GAAP measures to their GAAP equivalents may be found in the presentation posted to our IR site at investors.godaddy.net or on our Form 8-K filed with the SEC with today's earnings release. The matters we'll be discussing today include forward-looking statements, which include those related to our future financial results, new product introductions, the acquisition of HEG and the possible divesture of HEG's PlusServer business. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC. Risks related to HEG also include uncertainties regarding the timing of the acquisition, retention of customers and employees and our ability to successfully integrate HEG into GoDaddy and divest the PlusServer business. Actual results may differ materially from those contained in the forward-looking statements. And any statements that we make on this call are based on assumptions as of today February 15, 2017, and we undertake no obligation to update these statements as a result of new information or future events. So with that, I’ll turn the call over to Blake.

Thanks, Marta. And thanks to all of you for joining us today. Look we feel great about how we close 2016 on a strong note with another year of consistently good growth in the books as well as a definitive agreement to acquire HEG in hand and a strong product and marketing roadmap for 2017. As we complete our second year as a public company, our results and growth have remained very consistent with continued solid growth across all our major revenue lines; domains, hosting and presence and business applications and over 20% growth in cash flow. At year end 2016, we've grown the server over 14.7 million customers, an increase of 7% versus a year ago. Our average revenue per user or ARPU also rose 7% to $130 despite continued currency headwinds. We finish 2016 with revenue over $1.8 billion, up 15% year-over-year. Bookings crossed to $2 billion mark in 2016 and domain bookings topped to $1 billion for the first time illustrating both our scale and leadership position in the industry. This year we look forward to generating continued growth in both revenue and cash flow fueled again by both organic customer ads and growing ARPU, in addition to the contribution for our expected acquisition of Host Europe Group or HEG. Our strategy is consistently focused on growing GoDaddy in a steady and sustainable way over many years and that focus remains unchanged. We see huge opportunity in the months and years ahead and we intend to go after it in the same deliberate way we have over the last several years through 2017 and beyond. We are starting this year with some big product and strategic initiatives including, one, the launch of GoCentral, our entirely new mobile optimized website builder that does so much more than just create an online presence by combining easy and elegant site building with fully integrated marketing and e-commerce tools. Two, the acquisition of HEG which dramatically expands and strengthens our footprint in Europe. And three, the upcoming launch of our new telephony offering smartline. I am going to spend a little time on GoCentral and then turn it over to Scott and Ray. With GoCentral, our web presence team is re-imagined and completely rebuilt GoDaddy's entire website building experience from the platform up with a focus on what businesses want results. Including not just building an elegant website, but driving and attracting visitors and driving sales which is basic information like the name, address and type of business or idea. GoCentral smart learning system generates in your complete website pre-filled with relevant sections and professional images that can be easily and intuitively edited. Every site built on GoCentral is fully mobile responsive, so it will immediately look great on phones, tablets and computers, but no additional work required. More importantly and totally unique to GoCentral, users can build, customize or update their site on the Go entirely from a phone or tablet. In other words, an industry-wide belief that you couldn't build a great looking website with a mobile device. Our team hypothesized that if a mobile site builder was easy to use and produced a fantastic looking site on any device including a PC would see a relatively quick migration to mobile site building. That hypothesis appears to be right. So far 20% of new GoCentral customers are building sites from their mobile devices making this a very key differentiator and an important new on-ramp for us. It reflects on how other experiences have evolved on mobile, I think in Facebook. Most people didn't use Facebook on their phones years ago until the experience was optimized to be great on mobile and now the vast majority of Facebook activity is on mobile and more than half of their users only access via mobile. In short, allowing customers to build directly on a mobile device is a big differentiator for us especially meaningful in emerging markets where everything is mobile first and often mobile only. GoCentral’s other big differentiator is GoDaddy smart learning system. We've integrated this new site builder with several key features to make the critical stuff really easy. For example, with GoCentral you see website activity updates when you log in you get suggestions like attaching the social networks, you can quickly begin search engine optimizing your site or launch an email marketing campaign. More importantly, while we started with dozens of smart features to help you design a beautiful site in under an hour where the smart learning system really shines is deeply integrating GoDaddy's other offerings to help our customers acquire and connect with their customers. We are working to help our small business customers get results and achieve success quickly and easily. We are confident that anyone developing a web presence for the first time or even replacing their old site will agree that GoCentral is incredibly easy to use and produces a terrific result. We've made GoCentral free to get started with no credit card required, so people can try out GoCentral and get going with the tool as easily as possible. You can even publish on your own domain name for free. I encourage you all to try GoCentral out and build your own site. With this product launch GoDaddy now offers a complete range of products to help customers build a great online presence from do-it-yourself to WordPress to professional design services. We now offer the industries premier mobile first DIY website builder fully integrated with marketing and e-commerce. Our managed WordPress toolset that makes it super easy to build, update, monitor and maintain a site in WordPress, and a professional web services team who can help build or remake a customers online presence to their specs. And each one of these offerings has built on a global and scalable technology platform that allows us to offer each of these options to everyone of our customers globally. We’ve got a lot more aligned up in 2017 and we’re already putting points on the board. I’ll turn the call over to Scott now to talk a bit about our marketing strategy and provide more color on HEG. Scott?

Thanks Blake. My focus over the last six months since Ray's arrival has been on our big go-to-market efforts, specifically the evolution of our marketing strategy and execution, our international growth and how we can do more with our customers through care. Today, I’ll say a bit about our marketing and international efforts. First on marketing, we’ve returned to the Super Bowl broadcast this year to launch GoCentral, kicking off a broader campaign that place to the cultural and commercial power of the Internet. Our ad drove millions of viewers to the GoDaddy’s website with a very effective digital extension tactic yielding millions of video views across multiple channels in our best Sunday ever for new customer sign ups. In their analysis of this year’s ad forums reported ours among the top five attention generating ad with this year’s game. Everyone knows the Super Bowl help put GoDaddy on the map, but decade ago, massively expanding the Company’s brand awareness, but our purpose this year was different. This year, the game provided a great forum to introduce GoCentral, which Blake just spoke about and kick off a larger campaign, focused on showing no one knows the Internet like GoDaddy via new character who personifies the Internet. In the coming months, you’ll see more of the Internet character and GoCentral across many channels in tactics as we showcase GoDaddy’s expertise in building, expanding and protecting the ideas that the Internet loves. With this new campaign, we have a marketing message that wings are GoDaddy brand to the breath of our product portfolio and the outcomes we deliver for our customers. In the context of our overall marketing spend this year, the Super Bowl represents just one, relatively small tactic in a global marketing strategy that delivers very effective and efficient customer acquisition relative to the high value we generate for customers around the world. And turning to international, I want to spend a moment there on our progress and how HEG fits so well with our globalization strategy. GoDaddy’s international business finished 2016 at nearly $500 million in annual revenue. The addition of HEG will bring us to well over 6.5 million paying international customers or more than 40% of our total customer base, making our international business on its own bigger than most companies in our category. As we shared with everyone in December, HEG is highly complementary to our existing business with similar customers, fantastic leadership team, strong customer unit economics, in an exceptional financial profile. The deal dramatically strengthens our position in Europe and we see clear upside for HEG’s customers from GoDaddy’s products, technology platform and care. In 2017, we’re focused on first bringing our full GoDaddy product portfolio to HEG including domains, SSL, managed hosting and productivity applications. Second, integrating our global tech platform and care operations across Europe. And third, accelerating go-to-market efforts in key European countries. We feel strongly there is much more to this acquisition and buying a European footprint and customer base. The combination with HEG will expand our team in Europe from fewer than 10 professionals to 100, who can accelerate our overall business in Europe. Finally, the financial characteristics of the HEG acquisition are positive we expect the acquisition to be accretive to free cash flow in the coming 12 months. So that’s a quick update on marketing and international and with that, I’m going to turn the call over the Ray.

Thanks, Scott. Our Q4 and full-year results were strong on all fronts with revenue near the high-end of our guidance, good leverage across expense base and cash flow ahead of our expectations. Total revenue in Q4 grew 14% year-over-year to $486 million and bookings grew 13% to $525 million. Currency translation this quarter was an approximately 100 basis point headwind to both revenue and bookings. We saw solid growth across all three of our product lines this quarter. First, domains revenue grew 11% year-over-year in Q4, fueled by international growth as well as strong renewals and aftermarket domain sales. Our hosting and presence revenue increased 14% as we began rolling out our new website builder and we’re seeing some good uptake on security products as well. Business applications rose 29% driven by continued strong growth in both productivity and email marketing. Turning to profitability. We continue to demonstrate good operating leverage across the expense base. Unlevered free cash flow jumped 46% in Q4 to $77 million and 21% for the full-year to $357 million, continuing to demonstrate strong cash conversion at about 19% of revenue. Just a couple of points on cost. No higher than usual G&A expense in Q4 included $11 million in acquisition cost primarily related to the HEG acquisition. Excluding these costs, we've done some good leverage in G&A and technology and development spending as expected. Clearly the combination of our solid topline growth and good expense leverage continues to generate strong cash flow for us. The release provides you with the three primary components of our internal EBITDA measure to allow you to compare to previous results. Note those components should be adjusted to exclude the acquisition cost I just mentioned for comparability purposes as they were not included in our prior guidance. On the balance sheet, we finished the year with approximately $573 million in cash and short-term investments and net debt of $500 million. On that note, I am pleased to announce that earlier today we finalized approximately $2.5 billion in new term loans, fully replacing our existing term loan and providing full funding for the acquisition of the HEG mass business. We lowered our interest rate by 75 basis points and extended the term loan maturity date to 2024. In addition, we increased the capacity on the revolver by an incremental $50 million to $200 million total affected with the closing of the acquisition. The reduction in rates versus our prior term loan and initial financing expectations on the HEG mass deal should result in annualized cash interest savings of upward of $15 million. We separately received commitments for our bridge loan of approximately $530 million associated with the acquisition of HEG's PlusServer managed hosting business, which GoDaddy intends to divest post close. The bridge loan was not part of this recent financing. As we shared in December, the HEG acquisition is expected to take us up close to the high end of our targeted leverage range. However, given the very attractive cash flow characteristics of the combined businesses and the expected divestiture of PlusServer, we expect our leverage ratio to be roughly three times by the end of this year. So let's discuss our outlook for 2017. Just a quick note to this outlook includes no contribution for PlusServer. For the full-year 2017, we expect revenue including HEG of $2.18 billion to $2.22 billion representing approximately 19% growth at the midpoint versus 2016. Assuming HEG closes in late April or early May, we expect the mass hosting business to contribute approximately $130 million in revenue this year. Before I turn to cash flow, let me touch briefly on how we’re thinking about future growth. Since the IPO, the Company has consistently said that it expects domains revenue to grow roughly in line with total customer growth, hosting and presence revenue to grow at approximately one to two times array of customer growth, and business applications revenue to grow at roughly three to four times customer growth. We've nicely outpaced those rates in recent years and for those of you building models these are good rules of thumb to use going forward. Specifically on domains, as we look into 2017, we are lapping some strong secular and Company specific growth drivers that allowed us to meaningfully outpace the industry. So we look for domains to grow closer to the customer growth going forward. Quickly on Q1, we expect revenue for standalone GoDaddy in the range of $485 million to $490 million implying a little over 12% year-over-year growth at the midpoint. Note that Q1 of 2016 included an extra day due to leap year, which we estimate added approximately 1% to our growth last year. Turning to cash flow. As we've highlighted for the last couple of quarters, we are transitioning from providing guidance on adjusted EBITDA to unlevered free cash flow. For the full-year, we expect unlevered free cash flow for the combined company of $460 million to $480 million implying approximately 32% year-over-year growth at the midpoint. This excludes expected acquisition and integration cost in the range of $20 million to $30 million this year. As a reminder, we target 70% to 90% conversion of our internal measure of EBITDA down to unlevered free cash flow. We expect to be at the midpoint of that range this year driven primarily by more meaningful tax distributions tied to increasing profitability. As we said in the past, unlevered free cash flow is lumpy on a quarterly basis and you'll see that clearly in our first quarter results this year. One full employee period will move from Q2 a year ago into Q1 this year which we expect to result in a $15 million reduction in free cash flow in Q1 versus last year. You'll obviously see the reversed effect in Q2. That's a lot of detail intended to give everyone a roadmap to 2017 including HEG. Taking a step back, we continue to create franchise distinction and competitive advantage with the business growing double-digits on the topline and 20% plus in unlevered free cash flow over the long-term. Rolling that into 2018, we see a business on track to generate unlevered free cash flow of approximately $600 million next year. With that, I will turn the call back over to Blake.

Thanks, Ray. To briefly summarize what we've shared today and more excited about what the future holds for us. Double-digit organic revenue growth through a combination of customer and ARPU increases, new product and on-ramp launches in 2017 including GoCentral and smartline. The acquisition of HEG with 1.7 million new customers adding scale and international with the opportunity to extend a successful business model to Europe. A new capital structure with a very attractive interest rate and maturity profile and strong deleveraging characteristics providing the ability to use the balance sheet to drive even faster growth in free cash flow. You can see that we have an action pack year ahead and we look forward to continuing to deliver against our strategy with products, technology, care and world-class marketing. We are excited for 2017 and see a big opportunity to continue to grow the business long-term around the world. Thank you for your time. And we're ready to open the call to your questions.

[Operator Instructions] Your first question comes from Naved Khan, Cantor Fitzgerald. Your line is open.

Hi. Thank you very much. Just a question on the Q1 guidance, at the low end it looks like it implies sequentially maybe even a little bit down to flat and now we are in February already with the half of the quarter to the belt. Can you just kind of layout for us what's taken to the expectation?

Yes. Let me start Naved with just the guidance that we provided you guys. First of all, we're big. I mean this Company has doubled in size in the last four years. We crossed the $2 billion mark in bookings in 2016, so growing off a lot larger base now. Second within those product line items, we've grown very quickly outpacing the industry. A simple way to think about 2017, we expect hosting and presence and the biz-apps lines to grow at roughly the Q4 exit rate. What's different in that guidance is domains. We've grown at a double-digit clip fueled by new TLDs in the aftermarket. The aftermarket is lumpy though and it's difficult to drive that same level of incremental growth over what now is $1 billion revenue stream. So we’re continuing to outpace the industry, but closer to customer growth in the mid-to-high single-digit range.

Yes. I think the two comments just to add in our midway through the quarter. It's good. Good results so far, steadier she goes and echo something that Ray said in his script. Remember, we have leap year which is just a little bit of a Q1 specific issue.

Okay. Thanks. And then quickly just on the business apps. So this is the – I guess the second quarter in a row where we saw some deceleration which is coming down from 40s to I guess mid-30s in Q3 and 29% this quarter. What’s a good sort of run rate that we should sort of be expecting for 2017 is 28%, 29% kind of the good number, mid-20s or how do you see this business evolving?

Yes, I mentioned in the script Naved. We're targeting that three times to four times customer growth and our exit rate coming out of Q4. So that's about the right way to target this.

Got it. Thank you.

Your next question comes from Sterling Auty with JPMorgan. Your line is open.

Yes, thanks. In the quarter, hosting and presence revenue was there anything that can drove maybe a little bit of mix where more revenue when into business applications or just more color on the results there and I have one follow-up.

No Sterling, there is really nothing that would have driven any difference in those two line items.

Okay, and then as a follow-up, you talked about the 6% customer growth, how should we think about that in terms of the sourcing international versus domestic in 2017 and beyond?

Yes, so first that was about 7% growth in customer growth and going forward, obviously we’re going to continue to see higher mix of new customers coming out of international, just given our continued penetration in Tier II and Tier III markets as we move forward?

Okay, great. Thank you.

The one add on Sterling is again our customer base in the U.S. is growing. It's growing nicely and as we think about our product portfolio and expanding our product portfolio, obviously using those new products to drive additional customers as part of the strategy.

And if I can sneak one more in just following on the original question, I am getting hit with a lot of questions about the Q1 guide. You mentioned the one day or 1% impact from leap year, and few other things, but maybe if you can talk to – just people look at the subscription business and layering on, just wondering how it could be flat or even down and what traditional is going to seasonally strong quarter for your industry?

Yes, back to what I mentioned on domain Sterling. We're just continuing to see grow over some various large secular lift we've got. We've been outperforming the industry for a couple years now grown that double-digits. So while we would love to continue to do that as that base gets bigger and bigger. It's hard to grow with those same rates.

Okay, thank you.

Yes, Sterling I’ll pile on a little bit. Domains are still strongly outgrowing the industry and we believe we'll continue to do that just entered a lot of countries where we're picking up their country domain names, ccTLDs very large portfolio of TLDs in the aftermarket perform as well as that becomes more liquid as well. So I think we'll still see as a growing industry, but you did see a little bit of a slow.

Got it. Thank you, guys.

You bet.

Your next question comes from Mark Mahaney, RBC. Your line is open.

Thanks, a couple of things. Two numbers questions. First, I think your guidance that implies organic revenue growth of 12% for 2017 just to get a check on that. And then I think Ray you mentioned $600 million unlevered free cash flow in 2018 that would imply something like 28%, which should be I think a little stronger than your kind of long-term 20% guidance, but is that because you get more of a I guess a full-year contribution from HEG's at why that growth rates higher than what you're forecasting for the long-term in 2018?

Yes, Mark let me start with the organic on GoDaddy standalone. Yes, that 12%-ish plus is what we're telegraphing to you guys? When you look forward to the $600 million unlevered free cash flow, we've been telling you that the standalone business is going to grow 20% continue to believe that and where we have strong convictions around that growing at the 20% rate, the additional tech on you're seeing there. You get an extra quarter of HEG coming in next year in 2018 as well as run rate synergies by the end of 2018 for that acquisition. So that gets you the rest of the way there.

Okay. And then in terms of the timing of the new products, GoCentral et cetera, Could you just maybe Blake, could you talk about how those things layer in? I’m sorry there is the voice product those central and names the third one?

Well, we mentioned a couple Mark.

Yes, so GoCentral, we're about two weeks into the GoCentral announce when we launched that with the Super Bowl and that's if it basically it's a 30-day free trial. So the top of the funnel looks really good on that we're super pleased with the way that customers are engaging with it. Trials are rolling really well, but we'll see more when we start seeing those trials convert and we get a better feeling for that over the course of the next 60 to 90 days as we see published rates that are being paid for that to happen, but we are pleased with publisher right now, we're like and what the top of the funnel looks like and we expected that to translates to conversion. But honestly this is a new on ramp for us. So we're not building that into the forecast because we just don't know how that’s going to affect and especially the mobile piece of this where we've got a product that is pretty spectacular on mobile devices, which is by the way most of the world actually gets online now. Voice, the voice launch, a smartline is going to be in the second quarter this year, so you'll see that rollout again and this is again another new on ramp for us, which we're not going to speculate on how big we think that's going to be. We're being pretty certain on what we know, which is why we're commenting and what we're commenting on our guidance. But we're again pretty bullish on the product and the use cases are pretty game changing for small businesses actually.

Thank you, Blake. Thank you, Ray.

Thanks Mark.

Your next question comes from the Sameet Sinha, B. Riley. Your line is open.

Yes. Thank you. Couple questions here. So first, just wanted to confirm on HEG $130 million, if you annualize that that comes to let’s say about $195 million in revenue. How does that compare to the booking? What’s the equivalent booking there? And secondly, could you give us an update on some of the other new products you had announced last quarter, you are talking about the DIY site builder, if you try to get that – you are talking about GoCentral, but is that incorporate other site builders as well the DIFM and your security products?

Yes. Sameet, it’s Ray. I’ll start with the first question. We talked about what their annual bookings were when we announced the acquisition in December. It’s about $236 million growing in the high single-digits. The $130 million number we've given you guys for the guide takes into account, the conversion to U.S. GAAP. So there will be deferral or domain registrations as an example amongst multiple adjustments we’re making there as well as the partial year. We're expecting close in late April, May timeframe.

Yes. Sameet, it’s Blake. I’ll follow-up on the new products that launched. So look the two that I think are substantive over the last couple of quarters is number one, a managed WordPress offering that is incredibly simple to use along with a pretty amazing capability to update multiple sites in bulk for developers. Those two features that we launched in the fourth quarter of 2016 are things that are pretty darn important for us and actually service a different customer, a customer that's a little bit more advanced that once more flexibility then as just an easy DIY site and actually differentiates our Company from other folks because it gives us a full range of solutions from very, very simple DIY to a more comprehensive site building experience that allows ultimate flexibility and customizability. We rolled that out in Q4 and then followed very quickly on the heels of that in the first few weeks of 2017 with the GoCentral product, which is a mobile optimized experience for DIY site building does a great job on mobile, great job on PC's, has 1,500 verticals that it supports and we have a smart learning system that actually grows with the customer and suggests what they should do next as their lifecycle grows. So as they grow with us, we'll suggest things that they ought to be doing next. Those are the two things that the big things that we've done in the past two quarters including this quarter that we're in right now and I would say that on security, we've got some big opportunity in security. We have a great business there today. We think there's other things that we can do and I think you'll see more about that from us and hear more about that in the third quarter timeframe. I think that's probably the long and short of it.

Thank you.

Sure.

Your next question comes from Jason Helfstein, Oppenheimer. Your line is open.

Thanks. Two questions and a housekeeping question. What's making you excited about focusing on basically GoCentral and website building as the marketing funnel and out of the CPAs in that compared the traditional hosting CPAs, that’s question one. On business apps, obviously it’s slowing as we pointed out. Do you need to sign new partnerships for that? Do you focus on more the upsell opportunity to HEG, so just some color? And lastly any help on CapEx for 2017 would be helpful? Thanks.

Hey, Jason. It’s Scott. So first of all let's call it site building or presence. The very first thing you do with a domain name is you attach it to an online presence. And we at GoDaddy bode through the building of the business over the last 10 years, 15 years in the variety of ways in which we do it already supporting more sort of paid and active sites in various forms and frankly anybody else around the world. Now the interesting thing about presence and I think this is what Blake was highlighting through GoCentral is, when done super well and in a connected way it can be really the dashboard of the connective tissue to add all sorts of other applications. Whether it would be marketing or marketing services or SCO, so on and so forth. So the real tenant of GoCentral is about certainly getting somebody a great online presence, but then it's really the connective tissue about what else you add in and do with that site to be successful.

I'm just going to tag team Jason. So it’s Blake. The other thing that I think is important to note and it's not a nuance is that people want to try the tool out. And when you have a tool that is easy to use as GoCentral and allows you to use it and trial on a mobile device as well. We heard from many, many users that every solution out in the market today is too difficult for them. We optimized for incredibly simple both on mobile devices and on desktop and made sure that they had an opportunity to use the tool as an on-ramp. So they could experience it without having to commit dollars upfront which is sometimes a barrier for folks, allowing them to use it, say holy macro this thing is really great, now I'm going to attach a domain to it, I'm going to publish it, I'm going to buy a domain, I'm going to do email and do the other things that follow on afterwards. And we're seeing what we thought we were going to see, we're seeing published rates that are increasing, we're seeing the top of the funnel interests that we liked and 20% of those sites are being of new customers, let’s say it’s new customers coming into GoCentral are building the site completely on mobile.

And so Jason in our math which back to your acquisition question, what that means is this can be both an attachment product for us that turns into an ARPU driver and a vehicle to add some new customers, and obviously we're going to continue to figure out our marketing spend around that that math, but we think it's attractive. On HEG business apps specifically and what else we can go do business applications and the opportunity there is one of the – what we’d call low hanging fruit things that we're going to focus on in 2017 which is taking what we think is our frankly distinctive and best in class way to get a productivity suite over to the brands in Europe and that's one of the things that we're going to do both with the two leading HEG brands and the UK and Germany, and obviously, use that as an excel rant for our position in Europe. In terms of the CapEx question, I'm just going to let Ray hit that for the last one.

Yes, Jason for CapEx in 2017, continue to model 3.5%, 4% of revenue. So you could pencil in the $70 million number and we'll highlight for you guys as we move through the year in the integration capital that might be included.

Thank you.

Your next question comes from Mark May, Citi. Your line is open.

Thanks guys. Thanks for taking my question. I had two. Based on a couple of emails I've gotten here. I want to try to clarify the HEG guidance. I think some people are trying to use the bookings number that they have for last year and kind of a 15% growth number and backend kind of what your guidance implies. I'm assuming that some of the issues in doing because it implies that there might be a pretty meaningful slowdown that you're guiding too. I assume that there are some purchase price accounting, some GAAP translation and other impacts that are affecting that. I don't know the best way of addressing it, but maybe what is implied or embedded in your guidance in terms of organic growth or looked at another way the impact that those various factors maybe having on your numbers this year? And then my second question is more of a kind of a product and pricing strategy question? How do you guys thinking about that this year? I know web builder kind of to some degree represents a bundling of various prices and you kind of get a bundle discount. Are you guys pursuing kind of a different product in pricing strategy this year attempting to drive more volume maybe at the expense of our bill? Thanks.

Hey Mark, it’s Ray. I'll take the first one round HEG bookings. We disclosed in December that 2016 bookings would to be around $236 million, growing in the high single-digits. The $130 million number that we provided in the guidance is the U.S. GAAP revenues. So we've attempted to go and estimate the purchase accounting as well as the conversion to GAAP, primary difference being deferral of registrations, domain registrations and then also obviously taking the haircut for timing between April and May. And then as you saw with GoDaddy, when it was taken private. You will also see purchase accounting applied where you get a haircut at the acquisition. So all those factors are going into reduce that number you might expect to see off bookings.

From a pricing strategy, on your question Mark, bundling is certainly something that the Company has done for a long time and we're going to continue to do whether it's within a category or across and pretrial of our application is again something that we've done in the past and we're going to continue to do is a way of having customers, try our product and make it super simple for everybody to try each one of our applications whether it's something for presence or e-mail or down the road for voice because we found when people try our product and use it then they're going to stay for a long, long time. So that strategy is going to remain the same from a financial and guidance perspective. There isn't anything that I would highlight about that approach that would kind of change the numbers or the trajectory that Ray was describing.

Hey, Mark. This is Blake. I’m going to pile on just for a second. I think if you think about bundling, some of the things we’ve done, I’ll just call it in product discovery, a feature is wind on in particularly with GoCentral, while somebody is building their website and it's the first thing they do, instead of getting a domain, we actually scan the contents of the domain, the business category, the user selected, the geography, where the user is and will suggest to them. Domain names that are not taken or that could be in the aftermarket that are things that they might want to do next. And that's a feature that that somebody actually needs and it's a good example of something that's in product discovery and in product marketing. That's kind of even a step further than just plain bundling allowing them to discover something at the moment they need it. And actually the feature they need exactly the right time in the right place. And we think that actually is going to be I think a very helpful, bundling tool as well.

Thanks.

Yes.

Your next question comes from Sam Kemp, Piper Jaffray. Your line is open.

I would be pretty honored to be Shan Kemp. In terms of the guidance, can you call it any core GoDaddy FX that's baked into that organic growth rate number? And then on your net ads, it looks like a down year-over-year again in Q4 maybe call out any contribution to that and what's really causing that? And then last is you've talked for a couple of years now about rolling out non-website specific business applications things like paid media or CRMs, so from loyalty and coupons. Can you just kind of give us an update on the timing on when you're thinking about rolling out those different products? Thanks

Yes, Sam, this is Scott. So, on the first one for FX, from a guidance perspective very little, we will highlight that again FX impact that shows up in bookings rolls into GAAP in the prior year. So there's a little bit of that that flow through of last year's bookings rate flowing into this year's GAAP revenue. From a customer ad perspective, I think we talked about this in the fourth quarter, also which is really in the second half of last year. We intentionally had a less quantum of customer ad growth in a couple of our big emerging international markets as we frankly focused on monetization. And as you guys know this is a balance between customer ads and ARPU that we are certainly balancing and what we want are really good customers who are trying to bring an idea to life and get a name and then activate it and use it over time and that's a balance. So we're not managing our customers to a specific quarterly number, but are going to continue to balance customer ads and ARPU growth as we build up the business. I think on your last point of business apps and some of the various marketing services. I think that's down the road in 2017 and those are specific applications and in some cases productize services that can really hang off the back of GoCentral. Those aren't necessarily dependent upon GoCentral, but they go very well. So those are the kinds of things that you're going to see us spending more time on as we continue to build up GoCentral.

Great. Thanks.

And your next question comes from Michael Turrin, UBS. Your line is open.

Hi, guys. Thanks for taking the questions. Scott, you talked about the Super Bowl ad, but sort of described that it is a relatively small piece within the larger strategy. I was wondering if you can talk about some of the other things you might be doing on the marketing side, any changes upcoming in 2017. And then on the customer ad side in Q1, are there any impacts we should expect from the ad campaign?

So from a strategy standpoint and from a marketing standpoint, again the fundamentals of it are being a efficient and effective customer acquisition tool in vehicle, right both in the U.S. and around the world and that's going to continue. What is interesting about not just our ad, but this personification of the Internet and from a brand messaging standpoint is we know of a vehicle that we can connect GoDaddy to the broad range of experiences that our customers go through online. So when we think about TV advertising or online video and social presence, it's going to be much more in a connected way about all the variety of things that our customers do with us and that's also going to help translate into ARPU, right. So that is a shift, but a good shift from just every marketing dollar going to straight acquisition to helping support not only acquisition, but also ARPU generation and I think those are the salient points to your question.

Great. And then international revenue growth continues to come in strong mid 27% on constant currency basis, which is pretty consistent throughout the year, but the U.S. revenue looks like it's sticking down, is that a lot of large numbers, some of these impacts from domains getting to a certain scale or what's the right way to think about that?

Now I think it's exactly what you think about it. It's just a much larger entity in itself and given the weight of domains in there in is that slowing. That's the result you're getting there.

Great. Thanks a lot guys.

Your next question comes from Ron Josey, JMP Securities. Your line is open.

Great. Thanks for taking the question. I had two please. Blake on GoCentral, we made a few references of you just starting out on the product and then potentially selling domains or other services once you have the website during the trial period. Do you think over time GoCentral can be the domain on ramp or aiming on ramp for the Company, clearly it's domains, you’ve talked about voice. If GoCentral like a change in terms of potentially how you go to market knowing of course you just launched it three weeks ago. And then the second question just where you are in the launching 11 new countries in Asia. Can you just talk about the progress here, what you've seen brand awareness things like that? Thank you.

Sure. Look, we view GoCentral as just another on ramp, what domains are still – are the lion’s share of our on ramp, then we will continue to be the lion’s share of on ramp, when people globally think of a Company where they're going to go get a domain name, they think of GoDaddy. They think of it in the United States. They think of it in India. They think of it in the UK. We are becoming a share leader around the world and it’s the first thing that they think of we're over a million domains in the UK. We're number one in India in both .in and .com. So we've seen that on ramp, be a great on ramp, for some we'll continue to do so. We do think that there's a number of folks that want to try the tool out and use something before they buy a domain and frankly if they've bought a domain already they can still use GoCentral and apply it to that domain and do that without using their credit card. So we think it's another on ramp just like we think the smartline product is going to be another on-ramp as well, but domains will continue to be a strong on-ramp for us. On Asia, about a year. We are happy. Good uptake. Brand recognition is moving up as we expect it to. We're seeing a good uptick in China as well as we've surrounded China and in Hong Kong and in Singapore and in Taiwan. And frankly, what we think we're off to a nice start, but it's a small base and it's not going to be something that we think is going to be substantively huge, but look we're happy with where the Company is going and where we are right now.

Great. Thank you.

Your next question comes from James Cakmak, Monness, Crespi, Hardt. Your line is open.

Hi, thanks. Scott you mentioned HEG helping you guys accelerate the go-to-market efforts in Europe. And just arguably the synergy as well as that you have somewhat imperative. Can you just kind of talk through the playbook there on how you’re thinking about tackling that market. And I guess what gives you confidence that bring emphasis there is not going to dilute your efforts in other international markets. And then just quickly secondly, it looks like ARPU accelerated somewhat this quarter anything to call out there as well?

Hey, James. Thanks. I think first just take a step back and look at international over the last four years which is we have meaningfully grown the international business and entered series of geographies both in Europe and in the emerging world and I think proven both to ourselves and everybody else that there's business to be add and that we can enter these geographies. In Europe, I think we've said this in the past; the UK is certainly our largest market. And our growth and performance there both in size market share gain accelerated growth kind of has shown us that our value proposition particularly has legs certainly in the UK, but also in Europe. Now GoDaddy traditionally on the continent hasn't spent as much time, energy, money and so our relative positions in every individual country are still relatively small. In aggregate it's a decent size, but in every single country they're still relatively small. And so what we get from HEG is certainly a market position in Germany that we can work from as well as frankly some team platform capability and scale when we talk about technology, infrastructure, care that we can use this frankly again in a platform or underlying foundation that we can go into a couple other geographies from a go-to-market standpoint and accelerate growth. And I think your other comment on ARPU acceleration, anything to call out. Nothing specifically other than – it's just the model of work in terms of good products, the products attaching and frankly our balance of customer and ARPU growth, right and bringing in customers who are going to monetize and renew. So frankly when you're looking at that ARPU acceleration, in many ways it's the model that work as a result of our acquisition decisions four quarters ago about the customers that we're bringing in and then the renewals of the products that they were initially brought in on.

Your next question comes from Brian Essex, Morgan Stanley. Your line is open.

Hi, good afternoon. Thank you for taking the question. Scott, I was wondering I guess maybe just touch on or maybe Blake if you care to. It looks as though a lot of the new features and products that you rolling out are more kind of SMB our consumer facing. For any kind of leveragable to your developer community in terms of accelerating time to market for developers on a mobile apps for example, and how do you think about how the developer community or maybe the legacy Media Temple Group is growing relative to the rest of the Company?

Yes, Brian. This is Blake. The interesting thing about GoCentral is it's built on the same platform that our WordPress work is built on. So a lot of the libraries that are being used for GoCentral today, same libraries being used for WordPress, the OpenStack infrastructure that GoCentral sits on top of the same infrastructure that our new offerings in the developer community are taking advantage of and the pieces of the product launches that I talked about in fourth quarter both in the managed WordPress community and managing multiple sites for developers. Those are built again on some of the same technology that you're seeing GoCentral out of. And some of the things you could notice in the T&D line is we're starting to get significant, through 2016 really got significant leverage out of our tech and dev because we're using common components across the product lines. So we're actually seeing good lift and I think some good use of tech across both developer or capability, managed WordPress capability for small businesses who have a little bit more advanced capability than somebody who wants to use a DIY site. I don't expect the developer community to use a DIY product that's very simple. I know that a lot of the things that we've learned in building this product will start showing up on mobile devices and our entire mobile framework for not just small businesses and consumers, but for developers and you'll see that over the course of 2017 and into 2018. There's a significant amount of leverage that we're going to get out of what we're calling basically the go framework that sits underneath the GoCentral product and the developers are going to benefit from that as well.

Got it. Maybe just a follow-up, mix of developer versus I guess we call it DIY internationally and how might those dynamics differ from U.S.?

Yes, developers internationally model pretty similarly to developers in the U.S. there's a difference between whether if you were depending on how deep you want to go. There is actually a bigger like Flex is a bigger thing than cPanel is in Europe; well cPanel dominates in the United States which is a pretty significant delta. I think there's – we don't see big differences in the characteristics, WordPress is big everywhere. I think that we're seeing most of our sign ups for our GD pro products actually coming from outside of the United States today. We think there's a big opportunity, a lot of sign ups in India in the developer community. And one of the things I would say that we know that 50% of small businesses don't have a website and of those 50% of businesses are going to build it, 50% of those businesses are going to have someone build it for them and those are the customers and that's globally those are the customers we think we have a great opportunity with attacking the developer community and creating a great platform for them.

That’s helpful. Thank you.

Your next question comes from Jonathan Kees, Summit. Your line is open.

Great. Thanks for taking my questions. I have a couple follow-up. One, I just want to take the discussion about the HEG and international, basically you mentioned you have like market positions in Europe now that you can work from and enter other geographies within Europe. As you look into the new year while we're in February already and you have limited budget, advertising budget, sales and marketing budget. Are you shifting resources from Asia to Europe in order to enter those other geographies? And then the second question I have is – can you talked about going for those highly efficient, highly effective tools, ad tools like the Super Bowl compared to which should before I mean that’s the small part of the strategy, but in terms of the advertising budget that would be a big part. Are you going back to more of a seasonality in terms of your advertising? That's it. Thanks.

Hi. It’s Scott. I think your first question is anything being diverted into Europe. Sure answer is no. So we're growing in Asia and we're going to be able to approach Europe because of the increased scale of the business that allows us to obviously then invest a little bit of that into go-to-market in the same formula that we have now. And the second, in terms of the seasonality, no it's not going to affect the seasonality of the business, again this Super Bowl, the math of this is if single-digit million dollar spend on the quantum of what we do want on a go to market, it's a small amount.

Okay. Great. Thank you. End of Q&A

There are no further questions at this time. I’ll turn the call back over to the presenters.

Thanks everybody. It's Blake on behalf of Scott, Ray, Marta and the entire leadership team. Thank you for attending our 2016 earnings report and we look forward to talking with you in another quarter. Thanks very much, bye now.

This concludes today’s conference call. You may now disconnect.