GoDaddy Inc.GDDYNYSE
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Christie Masoner: Welcome to GoDaddy's Third Quarter 2025 Earnings Call. Thank you for joining us. I'm Christie Masoner, VP of Investor Relations. And with me today are Aman Bhutani, Chief Executive Officer; and Mark McCaffrey, Chief Financial Officer. Following prepared remarks, we will open up the call for your questions. [Operator Instructions] On today's call, we will be referencing both GAAP and non-GAAP financial measures and other operating and business metrics. A discussion of why we use non-GAAP financial measures and reconciliations of our non-GAAP financial measures to their GAAP equivalents may be found in the presentation posted to our Investor Relations site at investors.godaddy.net or in today's earnings release on our Form 8-K furnished with the SEC. Growth rates represent year-over-year comparisons unless otherwise noted. The matters we'll be discussing today include forward-looking statements such as those related to future financial results and our strategies or objectives with respect to future operations. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our periodic SEC filings. Actual results may differ materially from those contained in forward-looking statements. Any forward-looking statements that we make on this call are based on assumptions as of today, October 30, 2025, and except to the extent required by law, we undertake no obligation to update these statements because of new information or future events. With that, I'm happy to introduce, Aman.
Amanpal Bhutani: Good afternoon, and thank you all for joining us today. At GoDaddy, our mission is to empower entrepreneurs and make opportunity more inclusive for all. We draw inspiration from our customers, millions of micro business owners bringing ideas to life every day. They are resilient, creative and determined even as technology and the world around them rapidly change. Our mission is to make that journey simpler, supporting their growth and success with tools that cut through the complexity and make running their businesses easier backed by human guidance. In the third quarter, we delivered strong financial results, achieving 10% growth in total revenue while also delivering A&C bookings growth acceleration to 14% on strengthening customer cohort dynamics. We also delivered normalized EBITDA margin of 32% and increased our AI investment and capabilities with new products ready for launch. Reflecting on our strong performance, we are raising our full-year 2025 revenue guidance to 8% growth, the top end of our 3-year range of 6% to 8%. At GoDaddy, we are energized by the Agentic Open Internet, our vision for an open, trusted and accessible web with AI agents helping us with our tasks. For more than 30 years, the Open Internet has enabled entrepreneurs to bring their ideas to life, and GoDaddy has been a foundational partner in that journey. The next leap forward is the Agentic Open Internet, where AI-powered agents collaborate and complete end-to-end tasks with speed and precision. These unlocks will help small businesses thrive in the years ahead. And as we meet the moment and build towards this next era, GoDaddy itself is transforming in 3 ways: First, our Airo platform evolution from Generative AI to Agentic AI; second, agents transforming how work gets done internally; and third, by building on the foundation of being the world's largest domain registrar and putting the infrastructure in place to make the Agentic Open Internet safe and accessible for all. The first part of the GoDaddy transformation is the evolution of the Airo experience from a Generative AI platform to an Agentic AI platform. Over the last few days, we launched 5 new Airo agents that handle fundamental customer jobs to be done like finding and buying domain names, building websites and applications, creating logos and compliance documents. This is just the beginning. Our pipeline includes many more agents ready for launch over the next few days and weeks. The interactive design of these agents reflects our unique ethos of guidance, a core differentiator for GoDaddy. Agents are learning to anticipate next steps across multiple jobs, proactively guiding a customer through each interaction with clarity and confidence. Live for both new and existing GoDaddy customers, they deliver tailored support by instantly understanding each customer's unique business context. These new capabilities are available through the beta launch of Airo.ai, a new website built on the GoDaddy software platform. We can test new agents on Airo.ai quickly and maintain a seamless path back to GoDaddy.com. Look out for new agents on Airo.ai every week over the next few weeks, and we will direct targeted traffic to it soon. With this release, Airo Plus was shift from a Generative AI tool set to an Agentic AI tool set. Airo Plus will serve as a direct monetization vehicle on airo.ai and on GoDaddy.com. Staying true to the needs of our micro business customer and our culture of experimentation, Airo.ai includes 2 different vibe coding experiences. Both experiences use an Agentic AI chat interface to build websites and both allow seamless publishing. The difference is that one lands the customer in the websites plus marketing editor, while the other introduces the editor in line with the chat interface. As customers use these experiences, we are excited to add more functionality to these tools. The second part of the AI transformation at GoDaddy is the impact Agentic AI is having on how we operate. Teams across the company are reimagining their roles in an Agentic world and identifying the shifts required to solidify gains in velocity and efficiency. From experimentation to care, to engineering, to corporate functions, we are evolving beyond the value of Generative AI and shifting focus on measurable improvements driven by agents. Our evolution in software development provides a good example. In Q2, we set a company-wide goal to reach 70% of AI-generated code by year-end. We are making great progress towards this goal. This month, more than 45% of code written at GoDaddy was generated by AI. And for new applications, this number is significantly higher. With that momentum, we are now shifting our focus from measuring code generation to measuring reduction in product cycle time. The expected net result is faster velocity, which allows us to build more capabilities without incremental investment. The impact is already visible. A small team used AI to build the Airo App Builder and launched it in short order on Airo.ai. The pace of iteration on this product is high, and it positions us to move fast on emerging shifts like Agentic browsers. Another example comes from our aftermarket team, which used AI tools to build a new portal for ultra-premium domain names. In the past, this type of work was hard to prioritize. Now a small team experimented, built and delivered it end-to-end within weeks. For both the Airo App Builder and the ultra-premium marketplace, our internal measurement tools show that nearly 90% of the code was AI generated. The third part of GoDaddy's AI transformation builds on our foundation as the world's largest domain registrar. Our vision for an Agentic Open Internet imagine today's open web, enhanced by agents that can operate independently, collaborate across systems and automate customer journeys. These agents can discover one another, validate identity and establish trust across domains, creating an open space for agents to collaborate. Working back from that vision, we launched GoDaddy's Agent Name Service or ANS. Built on DNS infrastructure and proposed as an open standard. GoDaddy's ANS provides verifiable identities for AI agents. By registering agents with ANS, value is immediately created for publishers by providing their agents with a verifiable identity. Value is also created for consumers of ANS since they can securely discover and validate agents across the open web. While many companies are beginning to explore this idea, we are excited to be leading the way. GoDaddy is launching ANS with its own agents to showcase registration, discovery and validation, and we are now inviting partners to join this open ecosystem. We have a bold vision for the Agentic Open Internet for our customers, and we look forward to showcasing this vision at our Investor dinner in December. Before I pass it to Mark, as always, I'd like to share some updates on our 2025 strategic growth initiatives. The first is pricing and bundling, which continues to deliver strong results across both segments of our business. This work remains centered on giving customers greater value and choice through tailored bundles that simplify their decision-making and deepen engagement across our platform. Execution remains on track for 2025, and we are focused on launching the 2026 bundles, further extending our reach and impact. Our next initiative, seamless experience, creates frictionless journeys that support our customers from their first search to purchase and renewal. This large-scale experimentation engine continues to deliver improvements in conversion, attach and renewal rates. In Q3, we expanded our optimization work to include more end-to-end flows across the customer journey using AI to personalize recommendations and refine design in real time. This initiative is meaningfully contributing to bookings growth with continued momentum into next year. Turning to commerce. Growth in our payment solution remains solid, driven by continued conversion within our existing customer base. We also drove solid adoption of our high-margin subscriptions, including GoDaddy Capital, Rate Saver and faster payouts, all of which are helping entrepreneurs simplify their operations and improve cash flow. These capabilities strengthen our commerce ecosystem, deepening relationships with merchants and positioning us to capture more of their business as they scale. And last but not least, GoDaddy Airo continues to be our primary customer engagement engine and key catalysts for our strategic growth initiatives, driving value as it powers better attach, higher average order size and improved retention. Our history shows that customers who adopt more products stay longer with us, generating higher lifetime value. The success metrics we track make it clear that Airo is creating a more valuable and durable customer cohort than our strongest historical benchmarks. In closing, I am proud of the progress our teams achieved this quarter, advancing our AI vision with Airo.ai, pioneering trust and security in the Agentic Open Internet through ANS and our experimentation culture that is accelerating innovation across the company. GoDaddy is evolving rapidly with the moment. And as AI reshapes what is possible, we are leading with the solutions we develop and helping entrepreneurs everywhere take the next leap forward with confidence, simplicity and world-class care. With that, here's Mark.
Mark McCaffrey: Thanks, Aman. Good afternoon, everyone, and thank you for joining us. We are pleased with our strong execution, which led to favorable results and exceeded our top line guidance. As a result, we are raising our full-year revenue guide to 8% at the midpoint to reflect the continued strength across the business. We delivered A&C revenue growth of 14% and grew free cash flow 21% to an impressive $440 million. We continue to demonstrate our commitment to shareholder returns, repurchasing 9 million shares for a total of $1.4 billion year-to-date. Taken together, we are on track to exceed our Investor Day North Star commitment of a 20% CAGR. How are we getting there? As Aman mentioned, our strategy that elevates GoDaddy Airo as our primary customer engagement engine is hitting its stride. High-intent customers are adopting more products, spending more and generating higher lifetime value. Our $500-plus customer cohort now represents approximately 10% of our base, and this cohort has higher attach and near perfect retention, boosting our ARPU up 10% to $237. In the third quarter, total revenue grew 10% to $1.3 billion, surpassing the high end of our guided range. Growth was broad-based, driven by continued strength in both the primary and secondary domain markets as more ideas come online and by the momentum in A&C, we're rising attach rates or expanding customer lifetime value and deepening engagement across our ecosystem. Retention rates remained at 85%, and our total customers grew sequentially to $20.4 million, underscoring the durability of our model and GoDaddy's central role in bringing entrepreneurs to the Open Internet. Additionally, international revenue grew 14%, primarily driven by the strength in the primary and secondary domain markets as we continue to expand our reach globally. For our high-margin A&C segment, we drove 14% growth in revenue to $481 million on the ongoing solid adoption and attach of our subscription solutions. Our Core Platform segment delivered elevated revenue growth of 8% to $784 million on 28% growth in aftermarket and 7% growth in primary domains. Moving to profitability. Normalized EBITDA grew 11% to $409 million, delivering a margin of 32%. This reflects leverage gains across the P&L from AI-driven efficiencies and continued operational discipline, partially offset by gross margin pressure from product mix and continued investment in our AI initiatives. Total bookings grew 9% to $1.4 billion. Within that, A&C bookings grew 14% and core platform bookings grew 6%. As a reminder, bookings primarily represent cash collected during the period. Free cash flow grew an impressive 21% to $440 million on our bookings growth, powered by continued strengthening of our customer cohorts and the greater than 1:1 conversion of normalized EBITDA to free cash flow. On the balance sheet, we exited the quarter with $924 million in cash and total liquidity of $1.9 billion. Net debt was $2.9 billion, representing a net leverage of 1.7x on a trailing 12-month basis. We maintained our disciplined approach to capital allocation, repurchasing 4.1 million shares during the quarter, totaling approximately $600 million. As of the end of the quarter, our fully diluted shares outstanding were 137 million. Pivoting to our outlook. For the full-year, we are raising our 2025 revenue guide to a range of $4.93 billion to $4.95 billion, representing growth of approximately 8% at the midpoint. We expect total bookings growth, absent FX impacts to be in line with total revenue growth and A&C bookings growth to continue its momentum. For the full year, we expect A&C revenue growth in the mid-teens and Core Platform growth in the mid-single digits. For the fourth quarter, we expect revenue to be in the range of $1.255 billion to $1.275 billion, representing 6% growth at the midpoint. This range reflects a more difficult A&C revenue comparison, the expected impact from the .CO registry contract expiration and our consistent approach of excluding high-value aftermarket transactions from our guidance. For Q4, we expect A&C growth in the low to mid-teens and core platform growth in the low single digits. For the full year, we expect a normalized EBITDA margin of approximately 32%. And for the fourth quarter, we are projecting 33% normalized EBITDA as we continue to balance operational efficiency with investments in AI innovation. We expect normalized EBITDA to maintain greater than a 1:1 conversion to free cash flow for the full-year and reaffirm our free cash flow target of approximately $1.6 billion, representing growth of over 18%. On capital allocation, our approach remains unchanged, and we will continue to evaluate all opportunities to maximize long-term shareholder value. In closing, GoDaddy is delivering solid profitable growth driven by durable revenue performance and continued operational discipline. Our strategy around Airo is working. We are ahead of our target of our Investor Day North Star, reflecting consistent execution across the business. Our expanding AI-powered innovation and efficient operating model position us to drive long-term value creation for customers and shareholders. We look forward to hosting many of you at our Investor Dinner in Tempe on December 2, where we will showcase the innovation setting the pace for GoDaddy's sustained success. I will now turn the call over to our VP of Investor Relations, Christie Masoner, to open up the line for Q&A. Thank you.
Christie Masoner: [Operator Instructions] Our first question comes from the line of Vikram Kesavabhotla from Baird.
Vikram Kesavabhotla: Can you hear me okay? My first one is a little more conceptual in nature and really a follow-up to some of Aman's comments regarding the changes taking place across the Internet. And specifically, when you think about a lot of the AI and Agentic services that are emerging across the board and changing the way that consumers find information, discover products and make decisions, how do you think all of this will ultimately impact the importance of domains and websites going forward and the demand for those products? And then my second question is on the customer base. It looks like your total customer count was up slightly on a sequential basis. But Mark, curious if you could offer any thoughts on how we should see that metric progress through the balance of the year and going forward. And beyond just the total customer count, what are some of the underlying metrics that you're following to measure the health of your customer base right now?
Amanpal Bhutani: Yes, Vik. Let's start with -- I've been a sort of proponent of AI and been super bullish on AI for a long time. I fundamentally believe that AI and Agentic AI is going to automate journeys for our customers and for their customers, allowing our customers to sort of serve their customers in a manner that we could only imagine a couple of years ago. And it's super exciting to be GoDaddy and meeting this moment and with all the innovation that's happening internally in the company, too. I think we're experiencing this moment where there's a symbiotic relationship between more websites and better models that consume those websites, and it's getting easier to build websites, and that's going to lead to more websites being created. And I think that symbiotic relationship is a positive. It's a positive for GoDaddy. If I have 10 ideas that I wanted to bring to the world, but it was hard to do. And if it's easier to do, I can just do it much faster. I can do it with the help of tools, but I can do it faster. That's fantastic. To me, that means there should be more domain in the world. And in fact, there should be more agents in the world. And that's what we're trying to showcase at GoDaddy. With Airo.ai launching, we're demonstrating how just starting with a few agents, but over the next few weeks, we're going to put dozens of agents on Airo.ai. So people can start to get a feel for what it's like as a customer sort of progresses between these agents and build whatever idea they have. And of course, while AI is continuing to make us better in terms of our internal velocity and our efficiency, what we're really looking at is how agents can transform how we work internally and then how agents can exist in the outside world. And that's where agent named service is just a fantastic innovation that we're bringing in terms of an open standard. And our goal there is to allow the world to register agents to discover agents that can work across domains that can work across companies. And all of that agent infrastructure is also based on DNS. It's based on the domain infrastructure that we're the largest player in the world for. So I think these things are coming well together and ultimately, making it easier for our customers is what we are focused on. That's the tool set we're building. We're bringing our scale and strength of products and the variety of products that we have to that customer built for that customer. And the more agents do for our customers, I think the better it's going to be for us.
Mark McCaffrey: Yes. And Vik, on the customer question that you had, yes, we turned positive this quarter. But remember, our strategy is around high-intent customers. We're looking at that cohort of $500 plus, why? That is the cohort that's buying more, attaching more, has a higher average order size. We're seeing great momentum as that is contributing meaningfully to our bookings number going forward. And that will continue to be our strategy. We will -- that is what is driving our ARPU number and is adding to that 10% ARPU growth that we had this quarter. So again, no change there. We will continue to focus on that high-intent customer.
Christie Masoner: Our next question comes from the line of Ygal Arounian from Citi.
Ygal Arounian: Definitely a lot of interesting stuff with Airo and Agentic and GenAI in general. So maybe on the rollout of Airo.ai, and I know we'll learn a lot more about this in the coming weeks at your Investor event. But can you just maybe set the stage a little bit for how this is rolling out, how it works with the current Airo product. You mentioned the monetization on Airo Plus. You'll have things like the vibe coding tool, it looks like we'll have to play around that a little bit, how that compares to the kind of current web builder and how these things sort of integrate and how that contributes. And then second question, which I'm sure ties into the first one. But just on the comments around the strengthening customer cohort dynamics, I know a lot of that is driven by the higher-value customers and that cohort growing faster. Can you talk a little bit more about the drivers of that and what you're seeing there, particularly around conversion from Airo would be helpful to hear.
Amanpal Bhutani: Yes. Let me start with how Airo is sort of evolving and how Airo.ai is going to be launched. Now it's important to mention that Airo.ai is built on the GoDaddy software platform. What that means is that anything you see on Airo.ai is not a separate experience. It actually links in very well into the GoDaddy experience. If you go to Airo.ai as an existing GoDaddy customer, it already knows everything GoDaddy knows about you, and it gives you a different experience because it knows that you're a customer. What we'd like to do with Airo.ai is to bring targeted traffic to it and test agents very, very quickly. And then whatever is more successful, bring it back into the GoDaddy experience where we have a ton of traffic already. In terms of monetization, as I shared, Airo Plus will be the monetization vehicle on Airo.ai and GoDaddy.com for all of these agents. And Airo Plus is already ready to do that. With the launch of Airo.ai, which it is still in beta, but we'll sort of make it full release over the next few weeks. With this launch, Airo Plus is going to offer paywalls on Airo.ai as well. So we'll be able to test that experience to see -- to add some friction to convert new customers. And we're super excited about being able to move very, very fast. I know you've mentioned wanting to try it out, and I'm super excited. I'd love for you to try the App Builder, and you'll find it, I think, pretty interesting. But what you don't see, and I'm really excited about is the changes to the App Builder coming next week and the week after, where new capabilities are coming every 5, 7 days into that product and the other agents as well. And as I look at them, I'm sort of more and more excited about what's going to be available just over the next couple of months. And I'll turn it to Mark.
Mark McCaffrey: Yes. And we're excited about our ability to get to the high-intent customers. And what we're seeing from that cohort is that they are attaching to a second product at a much higher rate than previous cohorts. We're seeing near perfect retention rates now that we've had experience with these cohorts since we launched Airo in and of itself over 12 months ago. And it's becoming more and more of a driver of not only our bookings and our revenue, but our ARPU as we continue to grow into the year. So these customers are coming in with the idea of doing something with their domain, doing something with their idea, getting to monetization on their end, and we're seeing those strong results start to become a tailwind as we go into future years.
Amanpal Bhutani: I think -- sorry, Ygal, it's important to mention that Airo is our primary vehicle for driving engagement and attach, right? And what Mark is really talking about is the better attach, the better renewal, the more one-stop shop, better exposure for our customers for the breadth of our products that creates this 500-plus cohort. And like Mark said, with the near perfect retention, we're super excited about expanding that more and more now getting to 10% of our base.
Christie Masoner: Our next question comes from the line of Trevor Young from Barclays.
Trevor Young: Aman, I'll start with a bigger picture one for you. You mentioned more AI-generated code, reduced production cycles, overall faster velocity of innovation. I think I heard you use the phrase experimentation culture a few times in your remarks. Is there a bit of a shift here where you're going to have more of that experimentation going forward, more small groups going out to create new features quickly and just see how it works. You put that on Airo.ai. And then if it works, you kind of bring it back to core GoDaddy.
Amanpal Bhutani: That's exactly right, Trevor. I think it's very common for people to think about teams as, let's say, 7 to 10 or groups of 7 to 10 going out building things over multiple weeks and multiple sprints. Now what we're seeing is teams of 3 to 5 that are using AI in the new products, 90% of the code ultimately is being written by AI. So the inefficiencies are really less and less in writing the code part and it's everything else around it. And that's where agents can make a much bigger difference as we automate the full cycle, right? And what we're finding is that smaller team is able to release much faster and Airo.ai gives us a surface where we can have many, many releases every week without worrying about our big funnel, our conversion that we have to do on GoDaddy.com, surface it to a large enough group of people that we get data very quickly on Airo.ai that it's working and then introduce it to our customers where the big funnels are.
Mark McCaffrey: Yes. And just with that, this culture just didn't start this quarter. This has been evolving for years for us. This is now getting to a great pace that it's getting faster and better and the ability to innovate and launch is becoming quicker and to get results that drive meaning in our financial model. It's fantastic.
Trevor Young: Great. And then a quick second question. Just in aftermarket, really strong acceleration there. Was that at the higher end, the above $10,000 domains that tend to be more lumpy and tougher to predict? Or did something fundamentally change in kind of the lower-priced domains that's driving that stronger growth?
Mark McCaffrey: Trevor, no doubt, we saw a return to high-value transactions this quarter. It was very strong at the higher end level, which, yes, those are the lumpy ones that are difficult to predict. Now we did also see continued strength at the lower levels. Again, no change in momentum there. It's still a great secondary market, but we definitely saw a pickup in the higher-value transactions.
Christie Masoner: Our next question comes from the line of Josh Beck from Raymond James.
Josh Beck: I wanted to ask a little bit about kind of how to think about maybe the TAM for Airo.ai. Obviously, your existing business is very closely related to the -- certainly the SMB environment and certainly new business formation. Are you getting into a new area where it's maybe beyond just the website? Just kind of curious on maybe if we should be thinking about a different TAM. And then on the like custom app piece of it, should we think of this being competitive with Lovable or Base44, those kind of players?
Amanpal Bhutani: Yes. Look, as you'll see on Airo.ai, even for website building, we're offering 2 experiences. One is very tuned to our micro business customer. As you interact with it, you'll find that it's learning and more and more instead of the customer asking for something, it prompts the customer says kind of buy this next, right? Or here are 3 options, pick one of them. Because that's what we found in our testing that our customers don't necessarily want to keep prompting to do something. They want AI to sort of guide them through the process. And you know how sort of important guidance is to our culture in care. So we're taking like our transcripts and our care guides help people build website, and we're training our agents on that, which is very particular to GoDaddy, right? It's very much our secret sauce. It's very much something that we focus on the sort of ethos of guidance. But as we do that, obviously, the models and the tools we have are much more capable. And we do have a big set of customers that are designers and developers that are in our core business, typically our hosting business. And those customers are more interested in going deeper and being able to give more complicated prompts and letting the AI generate something for them, right? The next thing actually, you'll see very, very quickly on Airo.ai. Today, the tool does similar to other tools, it can create it and can host it for you and you can go look at it. But what you'll see pretty soon is that, that same model will start to create WordPress sites. And that's, again, going back to we're a very large WordPress host. We have a large base of customers that work with us on WordPress. And we think Agentic AI can do a fantastic job for our customers to help them. But the way that, that tool works is a little bit different than the tool that we optimize for our micro business customers. That one is really for that customer base. Hopefully, that gives you some context of how we're approaching it. We're not looking at this as we're going to a different customer. We're looking at this as we have a breadth of customers, and we have a set of AI capabilities, and we're expressing them in different ways depending on how the -- which customer is approaching us.
Mark McCaffrey: Yes. And another way to look at it, Josh, is as more ideas come online, and people are spending money to get those ideas online and create that opportunity. We're getting more of the wallet share upfront from that high-intent customer that is propelling above $500. So the combination of the 2 is a great tailwind for our business, and we remain laser-focused on that customer, the micro business and the person who's getting that ID online.
Christie Masoner: Our next question comes from the line of Ken Wong from Oppenheimer.
Hoi-Fung Wong: Aman, I wanted to ask about the Agent Name Service. I think a very fascinating concept here. We think back to the past, it was clear you guys had a right to win in SSL, given that the website journey starts with the domain, starts with GoDaddy. Help us understand what the rationale might be for why GoDaddy can serve a similar purpose in the Agentic Internet?
Amanpal Bhutani: Yes, I love that question. So if we go back, and we'll take your analogy. If we go back and we say when the Internet came along, what solved the identity problem? And it wasn't websites. It was actually domains and DNS that was sort of first to the identity problem, right? And if you think about agents needing to be registered where 2 different companies or 2 different domains or 2 different systems have to be able to trust and validate that an agent is saying what it is, right? You have to be able to validate it. That's the service that Agent Name Service provides. And by attaching it to the DNS infrastructure, which is one of the largest things on the Internet and is what makes the Internet possible for us to navigate, right? By attaching it to the DNS infrastructure, we are really reusing the fundamentals of the Internet, right? And what that -- what the Agent Name Service can do is, it can do a bit more than DNS where not only can it register, it can have the certificates embedded in it, and GoDaddy is also a certificate authority. So those certificates get embedded into it, and it can also provide a way for companies to discover those agents. And you'll see all of these as we launch Agent Name Service with our own agents, you'll be able to see how each of those steps work and how much easier it makes for different companies or different domains to be able to tap into agents. This is based on a fundamental belief that different companies and different individuals are going to create agents that are very, very good at different things. And we will -- because different groups of people specialize in different things, those agents will do certain tasks very well. And another agent will want to tap into that capability. When it does tap into that capability, it wants it to be validated, it wants it to be trusted, and that's what ANS provides. And it provides it at the foundational layer of the Internet.
Hoi-Fung Wong: Got it. I really appreciate the context and looking forward to seeing how that evolves. Mark, one for you. Great to see the higher guide for the year. I guess I'm just trying to unpack what maybe the primary drivers are. I think right off the bat, we can see that aftermarket was really strong. But how should we think about maybe the primary market, the A&C piece contributing to that raise? Or was this largely just a byproduct of that step-up in aftermarket?
Mark McCaffrey: We're seeing strength across the business. And even if you took the aftermarket beat out, and we definitely had an elevated aftermarket beat this quarter, we are still growing at a very high rate. And I think if you take out the aftermarket, we're at around an 8% growth, which really reflects the underlying strength that not only in the domains market, primary and secondary, but also in A&C in and of itself because we're seeing those customers come in with that intent. We're seeing that cohort we talked about driving towards that second product, increasing the average order size. We see it through multiple different products in our portfolio. So I would say it's overall momentum. And on top of that, we had a really good aftermarket with a high transactions returning.
Amanpal Bhutani: If I could just add and take us back to our 3-year model, which I know Mark mentioned already, but it is important to highlight that we are at the top end or ahead in each of the metrics in our 3-year model. And that beat that Mark is talking about goes down to normalized EBITDA, it goes down to free cash flow. And by maintaining the margins on those lower metrics, we really as a company producing much more dollars on those bottom line metrics. And that's fantastic for our company because it is being driven by the growth on the top line.
Mark McCaffrey: Yes. And thank you, Aman. And remember, our North Star, we look at free cash flow. But when everything is working together, that number, combined with our share buyback gets us to that North Star. And we are ahead of schedule on that -- delivering that number or that CAGR we talk about.
Hoi-Fung Wong: Appreciate the reminder. We always have such short-term memory over on the -- in Wall Street.
Christie Masoner: Our next question comes from the line of Arjun Bhatia from William Blair.
Willow Miller: I'm Willow Miller on for Arjun Bhatia. Thinking about the balance of investing in AI and supporting profitability, is it fair to say your investments in AI can be offset by the efficiencies gained from internal use cases of AI? And then as a follow-up, can you comment on internal use cases of GenAI and Agentic AI in the customer care org -- could guide headcount come down over time?
Amanpal Bhutani: I think we have already demonstrated that. It's not that our investment in AI can be offset by efficiency. We've actually demonstrated that we are actively and have been for the last over a year plus. We're offsetting our investment with creating efficiencies in other areas. That's one of the reasons I shared how much AI-generated code is happening at GoDaddy and how quickly the new products are moving and coming to market. So I'm very, very bullish about that and very, very happy with the progress that the team is making. In that role, sort of Generative AI so far has had the biggest impact where you're using AI to generate content, whether it's code or other things across different functions. Now with Agentic AI, our focus is shifting to the broader cycle time, like if there is a product life cycle or a life cycle of a corporate process, what we're finding is that by using agents, we can go after efficiencies in other areas. And that's our new focus, and that's got us excited as well. In terms of the care guys, we have leveraged on the [indiscernible] item. I want to say for the last 6 years I have been here, and we've been very disciplined and shown many, many moments of efficiency with care while providing better and better service. And that's been our model. We want to provide higher and better service for a lower price. And there's no sort of doubt in my mind that we'll continue to deliver that, that our care offering will get better and better with AI, and we'll be able to do it more and more efficiently over time. Mark, I don't know what you'd add.
Mark McCaffrey: Yes. No, I think you hit it right. We've been on this journey for several years now, and we've been creating the operating leverage within the model. And now we're seeing the evolution of that as we're able to produce more efficient, whether it's engineering, whether it's care, whether it's in our corporate functions. That efficiency allows us to free up hours and times, and now we can reinvest those in what I would say is exciting things like the AI functionality we've talked about today. But it's -- this has been a journey, and we've set it up so we can get those efficiencies continue hitting our normalized EBITDA marks that we put out there. We're very comfortable with the 33% we put out for next year, and that's because it gives us the balance of the efficiency plus the ability to reinvest in innovation going forward so that we can carry the LTV for GoDaddy well into the future.
Christie Masoner: Our next question comes from the line of Mark Zgutowicz from The Benchmark Company.
Mark Zgutowicz: Guys, just thinking about ongoing A&C bookings variables, is the forward acceleration more dependent today on new product adoption versus pricing and bundling, which I think supported your guidance at the beginning of the year. That's question number one. Question number two, it looked like there was a little bit of deleverage in A&C adjusted EBITDA year-over-year. I was just curious what that might be attributable to? Is that AI investments in product or marketing and sort of what that looks like over the next couple of quarters?
Mark McCaffrey: Yes. And I'll start with the latter and then go into the -- well, I'll start with the first part. Let's go there. The strategy is working, Mark. And we continue to focus on the high-intent customer, the $500-plus cohort we talk about because the average order size goes on, they attach more -- and that's all the accumulation of what you're seeing in the strength in A&C right now. Obviously, our pipeline is strong, and Aman talked about the agents that will be coming back, which will help propel us well into the future. But what you're seeing today is what we've been doing for the last few years through Airo, going after those customers, focusing on those stronger customers, focusing on that cohort, and that is rolling out as we get -- finish up '25 and go into 2026. On the leverage, product mix. We just had some shifts in product mix in the segment normalized EBITDA. Nothing to call out. It should stay in a similar range, give or take a few points as we go forward, just dependent on that product mix.
Mark Zgutowicz: Got it. And maybe if I could squeeze one more in. Just in terms of incremental token costs perhaps as it relates to vibe coding. Is there any considerations we should have there in terms of how that may or may not impact gross margin?
Amanpal Bhutani: Yes, we're keeping a very close eye on our AI costs, and we have for a very long time, right? We've used -- Airo use Generative AI for almost 2 years now. So we keep a very close eye on it. We do have alternate model capabilities, models that we host internally, which we can use to offset the cost. But what you're really going to see is us testing with different models, us sort of striking the right balance of that objective function of producing revenue, giving customers an amazing experience and managing the cost. So we're looking at that full equation, and we feel comfortable that we have the expertise to manage it and still hit the 33% margin before Mark jumps in with that...
Christie Masoner: Our next question comes from the line of Naved Khan from B. Riley.
Ryan James Powell: This is Ryan Powell on for Naved. So we were wondering, you introduced some AI upgrades to manage WordPress earlier this year, and we're hoping if you could talk about any uptake you've seen by the pros since rollout. And then secondly, on international growth outpacing overall, if there are any specific markets to call out?
Amanpal Bhutani: Yes. The WordPress updates have gone really well. Designers, developers that work with us are using the tool. We measure how quickly they are able to get up the site running. We see improvements in that cycle time, and we're happy about that. The bullishness from what we tested with the WordPress upgrade is what is bringing the agent to Airo.ai very, very soon, where we'll be able to offer a fully Agentic ad interface that works with the other agents and allows the customer to create a WordPress site, skipping many, many, many, many steps. So we feel very good. We recently actually won a couple of awards for best WordPress for small businesses. So word is starting to get out, but GoDaddy has a new WordPress platform that we're putting AI tools around it and the capabilities are new and different. We do have a small amount of effort around tapping into agencies and sort of new markets on that. And that's still very early, but the early feedback that we've received has been good. Of course, they want to see more, and we're excited to sort of give them more AI capabilities and sort of continue the testing.
Mark McCaffrey: And Ryan, on international, nothing to call out. We saw strength similar to what we saw in the domestic market in both primary and secondary. And we saw some large aftermarket transactions land in the international geographies, but nothing specific to call out.
Christie Masoner: Our next question comes from the line of Ella Smith on for Alexei Gogolev at JPMorgan.
Eleanor Smith: So first, I was hoping to ask about the state of SMBs since it's become more opaque under the government shutdown. What are you hearing from your customers?
Amanpal Bhutani: Yes, Ella, what our survey shows is that our customers, they continue to be more bullish about their businesses than they are about the economy, but their overall view of the economy has not changed too much in the last several quarters. Now obviously, when we engage with them, they have a lot on their mind right now. But what we've seen in the past is that this is a very resilient group of people, and they have a high propensity to believe in themselves and believe in their businesses. And we don't find any sort of pullback in terms of their engagement or sort of entrepreneurship in general. And if we get down sort of to the specific metrics, then broadly, when we look across all of GoDaddy, we're seeing higher 2-plus attach, so more customers taking 2 and more products. We're seeing higher average order size. We're seeing the 500-plus cohort growing in the business. We're seeing customers try many more products, even though sort of they're buying more, but they're trying even more products. So we still see a lot of positive signals for engagement for conversion and renewals have continued to be better. Now of course, renewals are going to be better given our focus on high-intent customers. But we think some of that renewal goodness is also indicating that while folks have stuff on their mind, our services tend to be essential to their success. So we're not seeing any weakness in the renewals for them.
Mark McCaffrey: Yes. And I would just focus on the word they continue to be a very optimistic group about their ability to be successful. And that hasn't changed, and we haven't seen that showing up or heard it showing up anyway.
Eleanor Smith: Great. That's very helpful. And if I could squeeze one more in. We're really curious about the perception of domains and AI. So it seems like Airo has been positive for domain sales. Are you seeing your customer -- are your customer funnel composition change at all? Or even are you seeing customers adopt new type of TLDs that weren't as common before?
Amanpal Bhutani: We have seen over the last year or 2 more, for example, .ai domain usage, right? And as any of those sort of TLDs becomes more popular, you see some demand shifts. But if I take a long -- a little bit longer time period and look at it very broadly, we don't see massive shifts in preferences for our customers. We see a steady amount of traffic and pipeline. We see improving conversion rates over time. Now again, that's a focus of our marketing and our strategy of high-intent customers working there, too. But we see pretty consistent demand and usage from our customers when it comes to domain. And again, I'm just very bullish on AI. I think it will do amazing things for us, for our customer. And as it gets easier to create content, as it gets easier to build website, I think there's a symbiotic relationship where LLMs are using websites to gain content, creating tools that make it easier to have websites, and that's a symbiotic relationship that should sell more and more domains. And frankly, I'm even more excited about a world where that domains infrastructure powers agents across the world. And I went on about it already a little bit, so I want to repeat myself. But I'm just super excited about a world where -- which we call the Agentic Open Web, where agents use the ANS infrastructure and open standard to sort of work with each other. And it just bothers the mind on how exciting that world is going to be for our customers, like they'll be able to do things they couldn't even imagine 2, 3 years ago.
Mark McCaffrey: And just one thing to call out, Ella, nothing on the TLD specific, but we did see a return to large transactions in the aftermarket, the secondary market, not calling that a trend just yet, but it was increased activity, and we'll continue to monitor as we go forward.
Amanpal Bhutani: Yes. That usually means -- while it's not a perfect correlation, it usually means bullishness on behalf of people buying those domains because they go after sort of these high-value names.
Christie Masoner: Our next question comes from the line of Brent Thill from Jefferies.
Sang-Jin Byun: Can you hear me okay now? This is actually John Byun for Brent Thill. Two questions. One, just on industry trend. There's a lot of talk about the MCP servers and exposing some of the features and functionality to the outside and maybe to partners. Wondering how you're thinking about that in terms of exposing functionality and letting integration into some of what you provide? And then I have a follow-up after that.
Amanpal Bhutani: Yes. We're all on board with MCP and A2A. And you will find like GoDaddy with ANS supports both protocols. So when you register an agent, you actually tell it they want to use MCP or A2A. And we're looking at the best ways of offering all our customers the ability to surface their content or functionality, let's say, it's a commerce offering, all using MCP or maybe ACP in the future. So all of that is very much in the wheelhouse for us. We're excited about being able to offer our customers all of this capability or something like an MCP capability wrapped in an agent, right, wrapped in a manner that they can trust that they feel good about and it represents them in the best way possible and builds on the content or functionality they already own.
Sang-Jin Byun: So make it easy to consume for SMBs, makes sense. And then the other question, the A&C growth, it's been growing kind of like mid-teens. You've been guiding to mid-teens for quite a while now, maybe the last several quarters. And you have a couple more quarters of maybe tougher comps in the 16% level, I guess, through the March quarter. But how should we think about that going forward in general? I mean, is it kind of now going back to low to mid-teens or low teens in general as we kind of anniversary that as you get bigger and bigger?
Mark McCaffrey: Yes. So John, just a couple of highlights there. We were talking about revenue for Q4 that we have a tough comp for revenue. So we called that out. As we go into 2026, and obviously, we'll talk about '26 as we close out the year, we feel really good about the momentum we're seeing, and that's why we're calling out that cohort that is attaching faster, greater AOS, higher retention. A lot of that shows up in the A&C bookings and then obviously becomes A&C revenue. And we feel really good about how we're going into the second half of this year and what that will mean for '26 and what that will mean for the long term.
Christie Masoner: Our next question comes from the line of Elizabeth Porter from Morgan Stanley.
Elizabeth Elliott: Great. We've talked a lot about Agentic, and I wanted to ask a little bit more specifically as it relates to commerce, where we've seen examples like OpenAI, Instant Checkout. And so the question is, as customers increasingly shift towards conversational or some of these AI-driven interfaces that may be sitting just outside of the traditional website real estate, how are you expecting the role of the traditional website to evolve within that ecosystem? And what are some of the investments that you're making in the product portfolio to capitalize on this potential shift and interfaces for engagement?
Amanpal Bhutani: Yes. I mean, I'm sure since you're asking the question how early we are in this AI life cycle. And when we look at commerce with AI or with the large LLMs, we're even earlier when it comes to commerce. Now everything we've seen, and we're engaged with sort of the big players out there and keeping up to speed and how things are evolving and changing. Ultimately, our customers do need a place where all their content is available, where all the different functions that have to be executed are available. And the investments we are making is to prepare ourselves to be able to surface our customers' content and data and actions across the LLMs, across Agentic browsers, across whatever new AI technology comes along. And secondarily, making sure that our customers surface in those LLMs in a manner that makes sense for them and is accretive for them. So those are the 2 areas where we're putting in the most energy, but it's just very, very early. And I mean, none of us have really a crystal ball and how this is evolving. But what we try to do is stay very much up to speed with it and look forward 3 to 6 months and say, look, we're here now, what do we expect next and move very quickly towards that.
Elizabeth Elliott: Great. And then just as a follow-up, Mark, I wanted to follow up on your most recent kind of comments around that strengthening customer cohort dynamics kind of showing up in A&C. So could you provide a little bit more color on what exactly you're seeing as it relates to the strengthening dynamics? Is this incrementally more users or more of just the better ARPU? And how should we think about the skew between gross new customers driving the strengthening versus more going back to the installed base of existing customers and that being the bigger driver?
Mark McCaffrey: Yes, absolutely. And thanks, Elizabeth. A good way to look at it is and if you want to look at what is being driven by quantity, you look at stronger renewal rates, better attach and new customers coming in for the first time and getting to all 3, right? And then you have the pricing and the bundling on the other side that as we provide more value, we can start to charge. Both of them are contributing about equal to our funnel right now, which is, again, going to the initiatives around pricing and bundling and seamless experience contributing both equally as we go forward. So it's a good way to look at it. We're seeing strength across the board, and that's why we feel really good about our momentum going into 2026.
Christie Masoner: Thank you. That concludes our call. I'll hand the call back over to Aman for closing remarks.
Amanpal Bhutani: Well, thank you all for joining. A shout out to all GoDaddy employees for a fantastic quarter, and I look forward to welcoming all our investors at our Investor Dinner in December. Thank you.