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Edited Transcript of GDDY earnings conference call or presentation 2-May-19 9:00pm GMT

Q1 2019 GoDaddy Inc Earnings Call

Scottsdale May 7, 2019 (Thomson StreetEvents) -- Edited Transcript of GoDaddy Inc earnings conference call or presentation Thursday, May 2, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Raymond E. Winborne

GoDaddy Inc. - CFO

* Samuel James Kemp

GoDaddy Inc. - VP of IR & Strategy

* Scott W. Wagner

GoDaddy Inc. - CEO & Director

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Conference Call Participants

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* Aaron Michael Kessler

Raymond James & Associates, Inc., Research Division - Senior Internet Analyst

* Brent John Thill

Jefferies LLC, Research Division - Equity Analyst

* Deepak Mathivanan

Barclays Bank PLC, Research Division - Research Analyst

* Jason Stuart Helfstein

Oppenheimer & Co. Inc., Research Division - MD and Senior Internet Analyst

* Mark Frank Grant

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Matthew Charles Pfau

William Blair & Company L.L.C., Research Division - Analyst

* Matthew Melotto Parron

JP Morgan Chase & Co, Research Division - Research Analyst

* Naved Ahmad Khan

SunTrust Robinson Humphrey, Inc., Research Division - Analyst

* Nicholas Freeman Jones

Citigroup Inc, Research Division - Assistant VP & Senior Associate

* Ronald Victor Josey

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Seth Andrew Gilbert

Deutsche Bank AG, Research Division - Research Associate

* Ygal Arounian

Wedbush Securities Inc., Research Division - Research Analyst

* Zachary Aaron Schwartzman

RBC Capital Markets, LLC, Research Division - Analyst

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Presentation

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Operator [1]

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Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the GoDaddy Q1 2019 Earnings Conference Call. (Operator Instructions) I will now turn the call over to Sam Kemp, VP of Investor Relations and Strategy. You may begin your conference.

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Samuel James Kemp, GoDaddy Inc. - VP of IR & Strategy [2]

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Good afternoon, and thank you for joining us for GoDaddy's First Quarter 2019 Earnings Call. With me today are Scott Wagner, Chief Executive Officer; and Ray Winborne, Chief Financial Officer. Scott and Ray will share some prepared remarks, and then we'll open up the call 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 financial measures to their GAAP equivalents may be found in the presentation posted to our Investor Relations website at investors.godaddy.net or on our Form 8-K filed with the SEC with today's earnings release. Unless otherwise stated, when we refer to organic measures, we're referring to those measures excluding the impact of Main Street Hub.

The matters we'll be discussing today include forward-looking statements, which include those related to our future financial results; product introductions and innovations; our share repurchase program; and our ability to integrate recent or potential future acquisitions and achieved desired synergies. Any forward-looking statements that we make on this call are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC or based on assumptions as of to date, May 2, 2019, and may differ materially from actual results. We undertake no obligations to update these statements as a result of new information or future events.

With that, here's Scott.

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [3]

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Thanks, Sam, and thanks to everyone for joining us today to discuss our first quarter of 2019, which has started off at a solid pace.

GoDaddy revenue was up over 12%, and our cash flow margins continue to expand even with the investments we're making across the business. Companies that thrive over the long term consistently focus on finding new ways to add customer value, and here at GoDaddy, we're doing this through constant improvements in our entire experience across product, marketing and care as we build not just for 2019 and 2020 but for the years to come.

Today, we'll spend time on 3 topics: first, I'll share our quarterly product progress, both organically and through our recent acquisitions; second, an update on how we're driving growth in domestic and international markets; and finally, Ray will cover our first quarter financial performance and outlook for the remainder of 2019.

I'll start with our products. GoDaddy empowers the everyday entrepreneur by designing applications and services that help our customers look good, be everywhere and engage with their audiences. Our feature release pace continues to be rapid, and in just the first several months of the year, we've taken big steps forward in e-commerce, digital marketing and the WordPress ecosystem. Let me touch on each briefly.

First, on e-commerce. Our functionality continues to build on what's now a multiyear effort behind both service and product commerce tools. In March, we launched support for digital downloads and online stores, enabling customers to sell music, e-books, videos, art and other digital content. In April, we acquired SellBrite, a world-class multi-channel commerce suite that has tens of millions of orders and billions of dollars of cumulative GMV in channels like Amazon, Etsy, eBay and Walmart.com. We partnered with SellBrite last year to power our first GoCentral marketplace offer and saw strong early customer traction, and by joining forces, we'll will more deeply integrate SellBrite's e-commerce channel capabilities, inventory management and fulfillment tools into GoCentral and eventually into our WordPress offerings.

Second, we continue to expand the suite of marketing tools available in GoCentral. At an enterprise or mid-market level, you'll hear the term CRM and marketing automation a lot, but for our customers, these functions and their digital presence are really all blurred together. And as we help our customers be everywhere, we at GoDaddy are at our best when we unite these tools into a simple and thoughtful experience. Today, we're tailoring marketing recommendations using data science in the GoCentral dashboard. And in March, we launched a customer management tool called Connections, which helps entrepreneurs organize and stay close to their customers. We have deep insights into the ventures using GoDaddy and their audiences, and this tool is a foundation that we'll use to help simplify, personalize and automate marketing for our customers. This is an important step as we expand what we do, enabling not only the creation of an online presence but ensuring that it thrives.

And finally, we continue to invest behind WordPress' ecosystem of third-party themes, which make websites beautiful, and plug-ins, which give them functionality. At the end of Q1, there were more than 3 million installs of GoDaddy owned plug-ins and themes in WordPress websites around the world. In April, we added to this ecosystem by acquiring CoBlocks, which streamlines the WordPress website creation process, and ThemeBeans, which is a library of elegant, modern website themes. As we expand the resources supporting our WordPress offer, we're bringing an increasingly differentiated experience to the world's largest open-source CMS through simplicity, security and elegant design.

Stepping back on our products overall, the investments we're making across both GoCentral and WordPress are increasingly being recognized in the market as we pursue strategies that lead to the success of our customers.

Let me now turn to our go-to-market efforts where we're supporting the product momentum I just discussed by driving consideration and usage for both prospective and existing GoDaddy customers. Our underlying bookings growth accelerated for the second quarter, reflecting strong tailwinds from our brand initiatives and tactical marketing performance.

Over the last several years, we've grown our incremental marketing spend largely by investing outside the U.S., which has helped drive our global scale. In 2019, we're directing the bulk of our new marketing efforts in discretionary spend in the U.S., and we're happy with the results, including the great early performance of the brand strategy that we launched in February. Our lineup of influencers has resonated well. We're reaching a more diverse audience, and our marketing execution continues to acquire customers at attractive economics. Importantly, the metrics we monitor for brand health and how well everyday entrepreneurs identify with GoDaddy are all moving in the right direction. Conversational marketing also continues to ramp nicely with a broader base of campaigns being run against a broader range of customer needs. Since the beginning of 2018, we've taken conversational marketing from a concept, scaling channel for reaching our base in a helpful, impactful way all while exceeding our target thresholds for returns.

Our international business has been a big success over the last several years and at $1 billion run rate is now larger than all of GoDaddy in 2012, which is the year that we first began localizing international markets. As we look forward, we remain bullish on our international potential and have 3 core priorities to continue driving growth.

First, international market growth starts with localizing our existing products, marketing and care in a targeted geography. We've done this across well over 50 markets, and we continue to ramp into new and underpenetrated countries like Germany, South Africa and the Philippines. As we do this, we benefit from both the tailwinds of continuing Internet adoption in developing markets and share gains from small and relatively fragmented local players, which builds a nice runway in countries across Asia, Europe, Latin America and the Middle East.

The second priority is launching products and experience tailored to a market's unique needs, which we've just started to do in a handful of regions. For example, in Asia, we're expanding support for care conversations in WeChat and other relevant messaging platforms. In India, which is a "do it for you" market, we have a vibrant pro community built around our web pro offering in the GoDaddy brand. And in certain price-sensitive markets like Brazil, Mexico and recently, India, we've launched value-priced email through Open-Xchange, which is double the run rate of email unit sales in these countries.

And finally, in our largest and most mature markets, we look to drive deeper customer engagement, which ultimately shows up in ARPU. As you know, the U.S. is our oldest market and we continue to grow at a double-digit pace, showing that strategies like conversational marketing can sustain healthy growth over the long term. Our ramp of conversational marketing along with a broader and richer product portfolio and experience has been focused in the U.S., where we've driving significant innovation. As we refine this new playbook, we expect to be able to export it to other maturing international markets as a core strategy to drive ongoing growth.

The punchline is that we continue to see many vectors of growth in domestic and international markets supported by a diverse set of product and operational initiatives in each market. And for you, our shareholders, this creates a clear line of sight to continued double-digit top line growth.

Before I wrap, I want to emphasize our focus on building a business that's aimed at customer success and that can deliver for years to come. We're proud of the consistency of our execution and, more importantly, how we've evolved as a company. We've got a good business, a great customer and market to serve and a fantastic team, all of which underpin what we deliver to our shareholders.

And with that, here's Ray to cover the financials.

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Raymond E. Winborne, GoDaddy Inc. - CFO [4]

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Thanks, Scott. We started 2019 on a strong foot with an acceleration in underlying bookings trends, continued strength in customer and ARPU growth and ongoing margin expansion. The balance is growing cash flow with the right rate of reinvestment for the long term.

Q1 bookings grew to $871 million, rising 13.5% on a constant currency basis or about 100 basis points faster than fourth quarter growth. Reported bookings growth of 11% reflects about 230 basis points of currency headwinds, and in today's exchange rates, we expect this to continue into Q2 and be awash in the second half.

Revenue came in at $710 million, growing 13.5% on a constant currency basis and 12% on a reported basis, reflecting 150 basis points of exchange rate headwinds. Like-for-like revenue growth decelerated a couple of hundred basis points from Q4, which reflects tough comps from a year ago, most notably in our aftermarket business.

Our key metrics remained strong, reflecting goodness in both ARPU and customer growth. ARPU rose to $150, up 9% year-over-year and, normalizing for acquisitions and currency, remained steady in the mid-single-digit range. Our customer base grew more than 6% to 18.8 million, adding over 1 million net new customers in the past year as we see continued strength in new adds and modest reductions in churn.

Unlevered free cash flow for the quarter grew 22% year-over-year to $199 million. Our trailing 12-month unlevered free cash flow margin expanded to 24%, up over 100 basis points versus a year ago.

On the balance sheet, we finished Q1 with $1.1 billion in cash and short-term investments. Net debt landed at $1.3 billion or about 1.9x net leverage. As Scott touched on earlier, we made a couple of smaller acquisitions after the quarter ended, which are immaterial in both cash outlay and their contribution to the P&L.

With that, I'll turn to our outlook for the rest of 2019. We continue to expect mid-single-digit growth in customers and ARPU will produce full year revenue of $2.97 billion to $3 billion, implying full year growth of 12% to 13%. For the second quarter, we expect revenue of $730 million to $740 million, representing 12% to 14% growth versus the second quarter of 2018. For full year unlevered free cash flow, we expect to generate $730 million to $745 million, representing 1.5 points of margin expansion versus 2018. With our recent credit rating upgrade, we now expect net cash payments for interest in 2019 to be $80 million to $85 million, yielding slightly faster growth in levered free cash flow in 2019.

Stepping back, we continue to deliver consistent results while executing against our key priorities in customer experience, product and marketing, laying the foundation for sustainable growth in the future.

Thanks, everyone, for joining us today. And with that, operator, let's open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Brent Thill from Jefferies.

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Brent John Thill, Jefferies LLC, Research Division - Equity Analyst [2]

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When you talk about the bookings growth acceleration to 13.5% from 12.5% in Q4, can you just talk through maybe what you saw in Q1 that led you to that? And then secondarily, some of us are customers of yours and we noticed some small price changes in our bill. Well, we haven't seen that in the last couple of years. Is there a broader price increase going through the system? Or is this just selective in some areas? It would be helpful -- many others have obviously raised prices in -- across tech in the last year, and I think there's a lot of questions from investors around your approach on pricing.

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Raymond E. Winborne, GoDaddy Inc. - CFO [3]

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Brent, it's Ray. I'll take the first of those and then I'll pass it to Scott on pricing. As far as the acceleration in bookings quarter to quarter, it was broad-based across a number of areas where we're driving change of product as well as go-to-market merchandising. You can see that show up in both the customer growth as well as the ARPU growth.

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [4]

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Yes. Brent, and on your price question, overall, our strategy is having an incredibly valuable product at a valuable price. And over time, we're constantly looking at how we ramp our products together, what the list price is and tweaking that so that, again, there's overall value. And again, our combination of ARPU is around adoption of products. It's around value-add and then select pricing. And I think your wrapper comment was -- is what you saw selective. And the answer is yes, it's selective. It fits with the philosophy and strategy we've had for a long time around value product and value price.

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Operator [5]

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Your next question comes from Jason Helfstein from Oppenheimer.

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Jason Stuart Helfstein, Oppenheimer & Co. Inc., Research Division - MD and Senior Internet Analyst [6]

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Two questions. One, can you talk about the current impact on Business Applications? I think you did mention that it was tougher comps. So I'm just wondering kind of the impact there. Question 2, when we think about e-commerce, how do you expect to monetize that? Is that a function of getting customers to adopt higher ARPU? Was there -- or another way that will kind of monetize that? And then just lastly, how do you think -- from here, do you think kind of expenses should be more linear just because of the moving parts? I think The Street and ourselves have kind of struggled with modeling expenses. And kind of from here, do you think it gets more smoother?

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Raymond E. Winborne, GoDaddy Inc. - CFO [7]

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Jason, it's Ray. I'll take the first one, and the last one -- I'll pass the one on e-comm to Scott. When you're looking at biz apps, I wouldn't point as much to currency within there. There's about 150 basis points of currency headwind in the revenue this quarter, and a disproportionate amount of that headwind is actually in the Hosting and Presence line. With biz apps, it landed exactly where we expect in the quarter. If you'll recall from the last fourth quarter call, I talked about us lapping a number of initiatives and merchandising changes from last year. It's just creating a little tougher comp this year. It is still, by far, the fastest-growing product category. We're on a trajectory now for this to be a $0.5 billion business this year. And if you look at the quantum of growth on a dollar basis, it's been pretty darn steady if you look past about 4 or 5 quarters. We continue to see line of sight there to hit that 3 to 4x customer growth algorithm we've been talking to you guys about on a longer term.

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [8]

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Jason, it's Scott. And on e-commerce, right now, both -- we as GoDaddy plus SellBrite both monetize through subscription. And as of right now, our focus is going to be around driving unit adoption, so SellBrite combined with GoDaddy to have an incredibly valuable capability not just to have an online site in the open web but also connect that card to everywhere. It needs to be online and to have that for a monthly subscription. Now we will obviously think about and look at ways to think about transaction flow over time, but as of right now, our focus is going to be around driving units and driving adoption.

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Raymond E. Winborne, GoDaddy Inc. - CFO [9]

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Yes. On your last question around expense growth, we talked to you guys through the back half of last year where we were investing back in the business given the tailwind we had on revenue. You will see that combined with the cash burn from Main Street impacting our expenses through the second half of this year, then you should start to see those growth rates level out in the back half.

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Operator [10]

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Your next question comes from Zachary Schwartzman from RBC Capital Markets.

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Zachary Aaron Schwartzman, RBC Capital Markets, LLC, Research Division - Analyst [11]

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Scott, in your opening comment, you spoke about your bullishness on the international opportunity, including India and how -- the "do it for you" market. You also called out the launch of your Open-Xchange power business email there. Can you remind us how many current customers you have in India and talk more about the geographic opportunity and the ability to expand your go-to-market capabilities there?

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [12]

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Zach, in India, we've said we've got over 1 million paying customers in the market, which is great. Obviously, India is still in pretty early stages of open Internet adoption, and our own growth there will be continuing to ride that adoption curve and, as I mentioned particularly, a couple of tailored products to the pros who build online presences for others. And so we think that India has continued trajectory, and I'd say what we're also seeing through Open-Xchange and other things is really nice growth in other emerging markets like Brazil and Mexico.

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Zachary Aaron Schwartzman, RBC Capital Markets, LLC, Research Division - Analyst [13]

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And a quick follow-up on Brent's question earlier on some of the selective or just the normal industry pricing changes from some of your peers. Are you seeing any, I guess, read-throughs from the amount that we're -- from the selective price increases? Or do you feel that there's a further opportunity for your most engaged customers whether that's through additional product expansion or pricing levers?

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [14]

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I would -- nothing that's, I think, particular to call out to everybody. Again, our -- the strategy around value product at a value price point is great. I will say there are others in our industry that are very explicitly trying to drive significant price increases in a couple of categories. I think that puts us in a nice relative position. Our biggest focus is around quality right now of the experience around adoption and units and being able to do more with our existing customers. So in terms of the premise of your question, I don't think there's anything that I or we should call out specifically. And again, our focus will be around doing more with our existing customers, driving value and adoption and that will show up well over time.

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Operator [15]

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Your next question comes from Sterling Auty from JPMorgan.

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Matthew Melotto Parron, JP Morgan Chase & Co, Research Division - Research Analyst [16]

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This is Matt Parron on for Sterling Auty. So I know you mentioned there are some FX headwinds in the Hosting and Presence segment. I was wondering if you could touch a bit on the contribution from Main Street Hub and GoCentral in the quarter and what the performance was for those.

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Raymond E. Winborne, GoDaddy Inc. - CFO [17]

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Yes. Matt, I mentioned with Jason's question around the FX exposure there. From a Main Street perspective, we had disclosed to you guys a $40 million run rate, so $10 million a quarter for Main Street and the existing business, and that's a good place order for you to continue to push in there. As far as GoCentral and Managed WordPress, the 2 applications show up in that line. We're not disclosing that every quarter. Scott talked about it last quarter with the 40% growth. We're continuing to see good growth in those applications.

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Operator [18]

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Your next question comes from Matt Pfau from William Blair.

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Matthew Charles Pfau, William Blair & Company L.L.C., Research Division - Analyst [19]

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Just have one on SellBrite. So my understanding is that a lot of your e-commerce companies are -- or at least are more weighted towards services business versus product business. So is the plan with SellBrite more to expand the product portfolio to bring new product selling businesses into the mix? Or is there a sizable pace of product customers within your existing e-commerce base that you can take the SellBrite tool to?

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [20]

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Well, I think it's about expanding the range of capabilities within commerce. So you're right around service commerce and that's something that we've certainly ramped up over the last couple of years. And SellBrite adds a capability again where somebody's card can now absolutely get syndicated, managed and show up across the big marketplaces, and that's just a great capability around product commerce. And so we think that this will allow us to deliver incremental value certainly to GoCentral towards product commerce. And down the road, it's a great capability to add to WordPress. And so if you think about a lot of the footprint of commerce retail around, there's a -- frankly a huge chunk of installed base within and around WordPress, and we're excited about the capability that SellBrite offers and how to deploy it not only to GoCentral but also to the WordPress community.

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Operator [21]

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Your next question comes from Ron Josey from JMP.

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Ronald Victor Josey, JMP Securities LLC, Research Division - MD and Senior Research Analyst [22]

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Scott, I had 2, please. Just on -- I think, Scott, you mentioned mostly marketing efforts and discretionary spend would be directed here in the U.S. And so can you just talk a little bit more about your marketing strategy here in the States specifically and maybe the products you plan to highlight/lead with. And then sort of as a secondary to that, I'm pretty intrigued with the Connections tool. And bigger picture, just how you view Connections with Marketplaces in GoCentral in terms of the marketing messaging and just basically the product together and sort of bigger picture, where that could go.

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [23]

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Great. Yes. Thanks, Ron. In the U.S., the strategy has been to emphasize the GoDaddy brand and really standing for empowering everyday entrepreneurs, and you're seeing that whether it's in social media or different YouTube executions about ways to show and link GoDaddy to the full life cycle of things that we can do with our customers because right now, the richness of our product portfolio, it is still something that frankly we've got opportunity here in the U.S. to expose or almost reintroduce ourselves to both existing customers and prospects. And so that's been strategy and focus of frankly incremental dollars through the year. And then when we say both brand enhancement and conversational marketing, it's about those 2 things. So that's the first, and frankly again, we're happy, I think, with the results both in terms of the receptivity of the message and how it's showing up in dollars.

To your second question around Connections, think about that as a foundation, and it's a foundation in digital marketing that really brings together website, digital marketing and social presence, which are a continuum now, and we're really poised to bring all 3 of those capabilities together in an easy, simple way for customers both at a product level. And then obviously, when you think about Main Street Hub, that's a bit of a hands-on execution that for certain people who need extra help or want somebody to take on their services for them or set up to do it. So appreciate the interest in Connections and I would think about that as a foundation in digital marketing that we're going to do a heck of a lot more within the quarters to come. So stay tuned.

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Operator [24]

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Your next question comes from Ygal Arounian from Wedbush Securities.

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Ygal Arounian, Wedbush Securities Inc., Research Division - Research Analyst [25]

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So maybe I'll start with -- clearly, a lot of focus on Hosting and Presence, building on the products out there, accelerating the pace of the rollouts. So I haven't heard as much about product rollouts in Business Applications. I just want to get your thoughts on kind of next steps of products that you could add to grow the value of that segment?

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [26]

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Well, don't run away from OX and what we've just done with Open-Xchange, which is to be able to enable world-class email productivity capabilities at a frankly really low price point. And so that's rolling out across emerging markets, and we've doubled unit sales in some of the emerging markets that that's just been recently introduced. And so that's been a really nice execution that we're ramping up around the world, and we're excited about that on what it can do. And then per Brent's question around both digital marketing, which really expands categories, again, there's going to be more to come there, too.

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Ygal Arounian, Wedbush Securities Inc., Research Division - Research Analyst [27]

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Great. I guess I didn't mean to ignore Open-Xchange. I'm just thinking outside of email but -- to clarify. Let me just ask one more on Managed WordPress and how you guys see the Managed WordPress product. Again, obviously, you're starting to build out the e-commerce but a lot more -- it feels like more of that is starting on the GoCentral side and understand that SellBrite will eventually work its way up. How do you see Managed WordPress and things you're doing there, how they fit in today's kind of more advanced website builder ecosystem especially when it comes to e-comm?

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [28]

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Great question. So first, on Managed WordPress, again, for context for those listening that may not know WordPress as well. WordPress is, far and away, the largest online publishing CMS but obviously built on open-source software, and there's kind of 4 principal considerations and ways to add value around WordPress, one of which is site management. Plug-in updates is the single biggest pain point that any user of WordPress faces. Second is security, and then third is sort of performance, speed, availability of sites themselves. And the fourth is kind of ease in management, simplicity of design, right, inherently as an open source system, a simpler framework around design and management.

And so our strategy around WordPress is not -- is side by side with what we're doing around GoCentral and is really aimed at those 4 things that we just talked about. And just to highlight what we did with ThemeBeans and CoBlocks, both of those bring nice capability around the design-making WordPress sites easier to design and manage. So we're excited about it. Down the road and looking forward, we think there are nice opportunities to blend the capabilities between GoCentral and WordPress, but we'll get to that a little bit in the future. But we see these 2 things as both critically important at addressing the major needs of not just websites but really publishing, site creation and bringing website, social media and digital marketing together.

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Operator [29]

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Your next question comes from Naved Khan from SunTrust.

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Naved Ahmad Khan, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [30]

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I have a couple of questions. So maybe just on FX. Did the FX headwinds intensify a bit versus what you guided back in February? And then maybe a high-level question on Marketplaces. Scott, when you acquired Main Street Hub, you kind of spoke about the opportunity there. Maybe up to 2 million subscribers could be using it over time. Could you sort of give us a big picture opportunity for Marketplaces mainly?

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Raymond E. Winborne, GoDaddy Inc. - CFO [31]

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Naved, it's Ray. I'll take the first one on FX. The headwinds were right in line with what we expected. I think I said 200 to 250 basis points on the fourth quarter call, and it came in here right in the middle there. As we look into the rest of the year, as I mentioned on my call comments, we expect a similar pressure in the second quarter and then that will balance out over the remainder of the year.

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [32]

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Thanks. And on Main Street Hub, we've been focused on doing 2 things with the capability of Main Street Hub, the first of which is product, bringing the product to Main Street Hub, which is really a social media reputation management and assisted reputation management through social and bringing it together with GoDaddy's website building and site creation capabilities. And we're pleased with the progress there. That's one team in our presence unit and is being set up really well.

The second has been to rebrand the Main Street Hub social media services as GoDaddy and introduce it into GoDaddy's base. And as you mentioned, we shared a 2 million-ish white space or customers that were either buying those services from others or had high interest in it. And as we rebranded those services as GoDaddy and are starting to introduce it into our base, we're seeing really nice take rate far above what Main Street Hub did on a stand-alone basis, and I would say that's on top of the acquisition thesis and case. And so we're tracking where we want to be.

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Naved Ahmad Khan, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [33]

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And just to sort of extrapolate from that, if I look at Marketplaces' launch of the e-commerce product, what percent of your base do you think could be adopters of that over time?

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [34]

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You could -- rather than share a specific number, our potential to grow product commerce is -- from the base which we're starting is quite high. And again, I would think about ways to frame it as I think about the number of WordPress sites that actually sell a product. And we think again with SellBrite, that's a really neat capability to add unique value to WordPress sites, in particular. GoDaddy is the largest WordPress -- the WordPress host. As Ray mentioned, we have over 3 million plug-ins and installs. Obviously, all of those are not product commerce, but there's a base of WordPress sites that are product commerce that we think have -- that's the target environment within the base for incremental SellBrite activity.

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Operator [35]

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Your next question comes from Nick Jones from Citi.

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Nicholas Freeman Jones, Citigroup Inc, Research Division - Assistant VP & Senior Associate [36]

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I just want to touch on CoBlocks and ThemeBeans. How big of an opportunity is there for you to consolidate, have third-party plug-ins and themes as -- I know you had presented [free and deep] offering there?

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [37]

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Thanks. I'm not sure it's consolidation as much as, boy, bringing capability to have world-class plug-ins within the GoDaddy environment. I mean there's just -- there is a lot of opportunity for us to add value for all the WordPress sites sitting in our base. And as you mentioned, both CoBlocks, ThemeBeans, what we're really able to do with those 2 is we're going to make the site design process easier, simpler. That's going to be right and this is the step and we're going to do more, more of these kinds of things around WordPress both organically and in the right spot for M&A, too.

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Nicholas Freeman Jones, Citigroup Inc, Research Division - Assistant VP & Senior Associate [38]

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Great. And one follow-up on the kind of sub -- the expanding sub domain, is that -- do you know how prevalent that is? Is that something that you're going to invest in monitoring your approach there? How should we think about that?

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [39]

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Sorry. Can I have the question again? I didn't -- wasn't -- didn't catch the first part of it.

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Nicholas Freeman Jones, Citigroup Inc, Research Division - Assistant VP & Senior Associate [40]

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I was asking about the expanding sub domain.

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [41]

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Oh, just regular part of our practice, super tiny number of sites. And this is just part of our ongoing legal site review process but nothing special to call out there, and it was a tiny number of sites.

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Operator [42]

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Your next question comes from Lloyd Walmsley from Deutsche Bank.

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Seth Andrew Gilbert, Deutsche Bank AG, Research Division - Research Associate [43]

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This is Seth on for Lloyd. Last quarter, you talked about Mexico and Brazil being able to provide an email suite for $1.50. So we're just wondering how the uptake has been trending there and if there are any levers in the future that you'd be able to pull in order to raise ARPU. And then just as a follow-up, it doesn't look like you bought back any stock this quarter and on last quarter. Just curious as to your updated thoughts on capital allocation as well as what you're seeing in the M&A market so far this year.

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [44]

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Sure. On the first, we're seeing kind of 2x the level of unit sales in those markets and we're on the process of rolling out Open-Xchange around the world. Boy, it's great to drive unit adoption and usage, and that will create a lot of value. So right now, we're focused on driving OX adoption into emerging markets around the world. I'll let Ray comment on the second question.

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Raymond E. Winborne, GoDaddy Inc. - CFO [45]

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Yes. You know we can't get into the details around stock buybacks but we're an economically minded management team. As far as capital allocation priorities go, they haven't changed. It's organic growth, M&A, share repurchases in that order.

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Operator [46]

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Your next question comes from Mark Grant from Goldman Sachs.

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Mark Frank Grant, Goldman Sachs Group Inc., Research Division - Equity Analyst [47]

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I just wanted to touch on the investments around technology and platform that you've been making. We've been talking about this for over a year now and really building out that technology platform. It seems like those investments are making it easier to make some of these tuck-in technology acquisitions and just plug them in and have it work, so whether it's Managed WordPress, GoCentral. Where do you think you are in terms of bringing in all the capabilities that you hope to offer? Are there any features or products that you think the platform is missing that you need for some?

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [48]

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Mark, I wouldn't talk about it as specific feature capabilities. I think there's a couple of things that you're seeing us do if you look at not just feature releases but what we're doing. The first is bringing site creation, which is really publishing into the open web, social media presence and digital marketing together. And I can pick off certain features and elements in each one of those categories, but we've got, I think, a whole different level of capability that's coming in the intersection of those 3 things. And what we're trying to do at a high level is have somebody's idea there, whether it's business or a venture, look right, be everywhere. It needs to be and allow somebody to engage with their own audience. And that -- those are the customer things that we're driving. And really, it cuts across sites, social media and digital marketing.

And, and this is an important and, the elegant thing about GoDaddy is that we're creating DIY technical tools to allow people to do that in an elegant way and building a service capability where we can put hands-on work for the 50% plus of the world that actually wants somebody else to either build or manage their online presence. And that's the strategy and we continue to build capability to fulfill frankly that value proposition.

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Operator [49]

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Your next question comes from Brian Essex from Morgan Stanley.

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Unidentified Analyst, [50]

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This is actually [Chris] on for Brian. Just a quick one from me. Can you talk about some of the initiatives to increase attach rates as you're working with better data, better analytics? And is that something that's localized in your core geographies? Or can we expect the rollout towards international markets soon as well?

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [51]

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Yes. A great question. If you think about attach, there's a lot of [needs.] I would say we were, one, working at ways within the GoDaddy site experience to present the relevant next thing to somebody. Obviously, the core name, site email are different ways that those are presented. Again through -- whether it's Connections, what I just described or a number of things within security, we're adding sophistication on kind of the next level of attach that really shows up through our site experience. That's one. Two, what we term conversational marketing to everybody is our way of taking data insight and science across our 18.8 million customers and being able to profile what's the one next thing that we should at least introduce or talk to them about, and that's the muscle that we're really focusing on here in the U.S. We're seeing good traction. And in both of those 2 things that I described, we're kind of proving them out in the core U.S. region, and now we're going to expand them to markets around the world.

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Unidentified Analyst, [52]

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Got it. And just a quick follow-up. In terms of Plasso, are you able to provide any incremental color on that?

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [53]

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Only that we're integrating into the core GoCentral experience. And as I've described earlier, it's creating all sorts of digital commerce capabilities, downloads, books, music, art, et cetera, that is just adding richness to our GoCentral experience. It's great. Like we're 6 months into the integration and it's ticking right along.

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Operator [54]

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Your next question comes from Deepak Mathivanan from Barclays.

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Deepak Mathivanan, Barclays Bank PLC, Research Division - Research Analyst [55]

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Sorry if this question was asked. I was jumping on a couple of calls. So first, I know you've been making domain pricing tweaks recently. Should we think of that largely as a pass-through for Verisign hikes that's coming out over the next few months? Or would it be another adjustment when that becomes effective? And then secondly, I know there were a couple of questions on M&A, but what is the recent thought process on potentially consolidating the side of the market where you have pretty good cost structure advantages, like domains and hosting?

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [56]

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Deepak, in terms of the former, no comment on our -- on future pricing. As you know, we're always testing price but particularly new renewal from a value standpoint and particularly around combining individual products. And so again, that's sort of both strategy and tactic, and both of those are going to continue.

In terms of consolidating domain and hosting companies, we're -- we have the capability certainly in naming, where we have complete, frankly, confidence in our ability to operationally tuck in and integrate anything we're doing. From a hosting standpoint, the focus has been to selectively think about our geographic scope through acquisition, and that's probably the way that everybody should think about any future action that we do in what you call the conventional domain and hosting companies, which again would be -- get a footprint in a market that we can increase our heft and scope and then roll out GoDaddy's product portfolio over time.

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Raymond E. Winborne, GoDaddy Inc. - CFO [57]

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Use it as a way to accelerate your organic growth.

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Operator [58]

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(Operator Instructions) The next question comes from Aaron Kessler from Raymond James.

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Aaron Michael Kessler, Raymond James & Associates, Inc., Research Division - Senior Internet Analyst [59]

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A couple of things. I may have missed this, but can you speak to kind of the uptake that are kind of shifting over to cloud with AWS? And then just on GoCentral, kind of where do you feel you are in terms of kind of adding various services to the app in terms of where you want to be at kind of over the next year? Kind of what inning are you in there?

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Raymond E. Winborne, GoDaddy Inc. - CFO [60]

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Aaron, I'll take the -- it's Ray. I'll take the first one on cloud and Scott will take GoCentral. Making great progress on transition to the cloud. As I've mentioned before on previous calls, this will be a multiyear transition. We're taking a lot of the workloads outside of our core hosting products and moving those to the cloud. That will occur over the next 18 months. We're moving a lot of the dev teams today. Some new product design will go there. Production is next. So all going according to plan but you won't see any dramatic impacts either in operating expense or capital over the next, call it, 12 to 18 months.

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [61]

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And in terms of GoCentral, we've added a heck of a lot of capability into the core editor and site design of what we can do and extending GoCentral into both social media and marketplaces, whether it's Facebook, Yelp integration or through SellBrite, what we're doing around IT commerce. So it's extending a website into the social media ecosystem that frankly, I think, we put a heck of a lot of capability onto the field right now and I'm excited about what's coming. And -- again, and the third sort of pillar of digital marketing is funneling through and bringing capability into GoCentral that helps our customers talk to their customers. Frankly, I think we've got a lot more richness into the product and frankly perhaps even users of existing product realize, and that's going to be a big effort of ours going forward.

So I think the wrapper on the question would be we have a ton of capability within the product now that we're excited about and can deliver great outcomes for customers. And if I'm looking ahead over the next couple of quarters, I'm excited about what I think we're going to deliver into the marketplace along those same areas.

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Operator [62]

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That was our last question. At this time, I will turn the call back over to the presenters.

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Scott W. Wagner, GoDaddy Inc. - CEO & Director [63]

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Hey, everybody, thanks for joining us. Appreciate the questions as always and we'll talk to everybody next quarter. Take care.

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Operator [64]

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