Marta Nichols - Vice President, Investor Relations Blake Irving - Chief Executive Officer Scott Wagner - Chief Operating Officer and Chief Financial Officer.

Deepak Mathivanan - Deutsche Bank Jason Helfstein - Oppenheimer Andrew Bruckner - RBC Capital Markets James Cakmak - Monness, Crespi, Hardt Mark May - Citi Michael Turrin - UBS George Kelly - Craig-Hallum Capital Group Brian Essex - Morgan Stanley.

Good afternoon. My name is Dan and I will be your conference operator today. At this time, I would like to welcome everyone to the GoDaddy Third Quarter Earnings Conference Call. [Operator Instructions] Thank you. I will now turn the call over to VP of Investor Relations, Marta Nichols. Please go ahead..

Thanks, Dan. Good afternoon and thank you for joining us for GoDaddy’s third quarter 2015 earnings call. With me today are Blake Irving, Chief Executive Officer and Scott Wagner, Chief Operating Officer and Chief Financial Officer. Blake and Scott have some prepared remarks, which will follow with a Q&A session.

On today’s call, we will be referencing both GAAP and non-GAAP financial results, such as total bookings, adjusted EBITDA, un-levered 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 maybe found in the presentation posted our IR site at investors.godaddy.net or on our Form 8-K filed with the SEC with today’s earnings release.

The matters we will be discussing include forward-looking statements, which are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC. Actual results may differ materially from those contained in the forward-looking statements.

Any forward-looking statements that we make on this call are based on assumptions as of today, November 4, 2015 and we undertake no obligation to update these statements as a result of new information or future events. With that, I will turn the call over to Blake..

Hey, everyone. Good afternoon, and thanks for joining us today. We are pleased to report we put up our third quarter of solid results as a public company with strong contributions from all of our major product lines.

As we deliver for our customers and our shareholders each quarter, our vision remains unchanged, radically shift the global economy towards small business by helping individuals easily start, confidently grow and successfully run their own ventures. Organizations of all sizes trust GoDaddy in their quest to build the successful online presence.

And our recent survey of global small businesses shows that our global opportunity is still significant. We found that 59% of small businesses still don’t have a web presence.

We offer millions of global customers a growing suite of elegant, easy-to-use and increasingly integrated cloud-based products built on a single global technology platform and supported by outcome driven personalized customer care. These are real people that are here to talk with and help our customers every single day.

Our strategy and model have yielded a large high growth business with strong cash flow serving a massive global market with growing needs. At the end of Q3, we have grown to serve nearly 13.6 million customers, an increase of more than 1 million customers versus a year ago. Our annual average revenue per user, or ARPU rose almost 7% to $119.

Q3 bookings grew 14% to $476 million and our strong customer and ARPU growth together drove our revenue up 15% to $411 million. Our adjusted EBITDA jumped 22% to almost $88 million in Q3, producing a solid margin of over 21% and we converted 90%, over 90% of adjusted EBITDA into unlevered free cash flow.

I would like to share three big themes and our recent progress and accomplishments in Q3 results with everyone today. First, we are continuing to expand our product portfolio and deliver innovative services. Second, we are consistently posting strong financial performance and growth.

And third, our efforts to evolve and grow our brands are changing the way people think about GoDaddy. Let me spend a bit of time on each of those briefly. On my first point about expanding our product portfolio, we have been innovating in all three of our major revenue lines.

In domains, we continue to grow faster than the industry due to our expanding demand inventory, our industry leading proprietary domain search and our efforts to expand the domain aftermarket. We have recently passed more than 61 million domains under management and that’s over 20% of the world’s total domains that we managed.

In Hosting and Presence, we are expanding our penetration of the hosting market with a unique understanding of the needs of small businesses offering both hosting products and tools targeted at the professional, like our industry leading Managed WordPress offering and simple tools that allow a business owner to build the site on their own like our website builder and online store builder tools.

We also introduced a new Search Engine Visibility technology that allows any website using GoDaddy DNS to place higher search results without requiring the customer to manually update their websites’ code.

The service has been previously offered on a Website Builder and Managed WordPress products, but now it’s available for any website regardless of who host it. Our innovative SEV technology has delivered a product that’s simple for small businesses to use, and most importantly, it really works and it is super effective.

In Business Applications, we have seamlessly integrated GoDaddy Email Marketing, or GEM as we like to call it, a Shippo shipping solutions and McAfee Security Solutions into our online store offering. This is enabling customers to purchase and activate these products inside the site builder experience.

And this is important, so I don’t want you to miss this. We are making it possible for customers to discover and use other GoDaddy products like e-mail that meet an immediate need, while they are using other GoDaddy products, not through a separate marketing message.

This is something we call in-app discovery and purchase capabilities, a big benefit to our customers. It allows them to find, try and use the right next product super easily and makes our full portfolio of products more valuable together than apart. For GoDaddy, for us, this is one of several growth levers that can help drive ARPU.

Also in business apps, we are seeing strong renewals of our proprietary workspace email product as well as continued growth of Office 365. And our O365 offer just keeps getting better. We brought our O365 provisioning to a median of 90 seconds for a customer’s first mailbox purchase and that’s an awesome user experience.

It’s improving both activation and usage. Our progress in all these area demonstrates our focus on delivering truly distinctive products on a single technology platform, all wrapped with world-class customer care. And we see our differentiated combination of products, technology and care as a unique advantage for us in serving our customers.

On my second point about our financial performance, we have delivered consistently strong financial results prior to and since our IPO growing revenue across all three of our business lines, while continuing to invest in innovation and growth, all while delivering increasing cash flow and margins.

Scott is going to spend more time on this in a minute. And third, the investments we are making globally in the GoDaddy brand are showing promising results. And there is much more plan. Let me say a little bit about that.

Along with all the product, tech and scale work that Scott and I have talked with all of you about, we have also have been taking very deliberate steps to align our brand with our global customer value proposition, our culture and our technology investments around the world. And we are doing that in several ways.

First, our global advertising is increasingly aligned with our products, our technology and our customers increasing awareness. For instance, in India over the last three years, we have seen our aided brand awareness more than double to almost 80%.

Second, we have been focusing on our employment brand with an emphasis on technology, transparency and diversity. For example, we recently published our gender diversity and salary parity research highlighting the challenges we and all tech companies face in building a gender-balanced workforce, from salary parity to promotion trajectory.

We have also invested in a relationship with the MIT Media Lab to further the science behind bringing customers to small businesses through their community.

And third, and yesterday, we announced we have engaged GoDaddy’s first global brand agency, TBWA, to help us further refine our story and bring a unified message to our increasingly global audience. Small business customers need a dedicated partner to help them start, run and grow their business online around the world and that is GoDaddy.

With the help of the clear message about who we are, what we do, and who we do it for, we believe our intense focus on our customers and their needs will continue to differentiate GoDaddy and produce strong financial results. Now, I am going to turn this call over to Scott to talk about the financial results in more detail.

Scott?.

Thanks, Blake and thanks from me for joining us as well. As Blake said, we feel great about what we delivered in the third quarter. Overall, I would like to highlight three key financial points. First, we continue to deliver strong, consistent revenue growth with a nice balance between customer and ARPU increases.

Second, we are consistently delivering even faster growth in free cash flow, with over 22% growth in adjusted EBITDA and an increase of more than 40% in unlevered free cash flow in Q3. Those are great gains in our two key profitability measures.

Third, we are well positioned to deliver the solid combination of top and bottom line growth into 2016 and beyond. Touching on each of these three things in more detail and starting with the top line, we grew bookings 14% and revenue 15% in Q3.

In terms of the drivers of revenue, customers grew 9% over last year and we ended Q3 with approximately 13.6 million paying customers. Our annual average revenue per user or ARPU grew nearly 7% to $119, up from $112 a year ago. Our product lines all grew at double-digit rates in the quarter.

Touching on our product lines briefly, domains revenue finished the quarter at $215 million, up 10% year-over-year.

Our domain business continues to be fueled by; one, international growth; two, share gain in the markets in which we compete; three, successful attachment of renewals of domains, driven by our proprietary search and merchandising improvement; and four, growth in the sale of [Technical Difficulty].

Hosting and Presence revenue was $151 million in Q3, up about 15% year-over-year.

We currently reaped nearly 5 million aggregate customers with our Hosting and Presence products, including those customers who use either our easy and effective Website Builder products and more sophisticated audiences, those customers have build the site with open source tools and host it on our hosting infrastructure.

Unlike many point solutions, we address a full range of online presence needs, serving our customers from those who want to build a site on their own to web professionals who need more capability to build sites for others.

Just as important, we believe that a successful online presence requires not just a website, but tools and capabilities to extend the sites content everywhere it needs to be online. A great example of this strategy in action is our Search Engine Visibility tool, which Blake mentioned in his introductory comments.

We are also having success combining our Hosting and Presence tools with those in our business applications offerings such as email, productivity and email marketing. In Q3, our business applications revenue was $45 million, up 47% year-over-year. This product category continues to be driven by strong growth in both productivity and email marketing.

In Q3, we reached 2 million paying customers for business applications products. Blake and I get asked a lot about what’s next in our product roadmap for business apps. Importantly, we see plenty of growth opportunity just in our existing product categories.

We also know there is value in many adjacent product areas where our customers spend a lot of money and there is ample room for innovation, whether it would be in online presence, marketing solutions or technical infrastructure.

We have proven we can extend our model into other areas, but it’s also very clear to us that doing a few things really well and with distinction is the winning approach. That’s what we’ve done over the last couple of years and it served our customers and GoDaddy well.

In addition to innovating and extending our product portfolio, we are increasingly bundling our products, bringing domains, basic presence and email and productivity products together in introductory offers.

We have learned that when we make it easy for customers to attach and use our core products like site builder or email, they renew at very healthy rates and have attractive long-term economics. One example of this bundling and merchandising strategy is our offer of a free email with the Website Builder purchase.

Attaching a domain specific email like Blake at blakesblog.com creates a more professional appearance and it makes a domain and website that much more valuable to our customers.

Now an important point and bundling is that when we sell products at a package price, payment is allocated among the product types being sold in the bundle based on the list price of the individual products. As a result, our bundling strategy may shift revenue recognition across product lines in the short-term.

However, our focus is on lifetime spend of our customers in aggregate. When you look at the growth rates of our three business lines, these allocations shifted a bit of growth from Hosting and Presence line to the Business Applications in the third quarter.

We are 100% focused on maximizing the aggregate lifetime value of our customers and we will continue to explore pricing and bundling strategies that grow total spend and lifetime value at the customer level. We should also mention the impact of the stronger dollar on our top line growth.

In recent quarters, I said our bookings growth would have been roughly 200 basis points higher if measured in constant currency. As bookings translate into revenue over time, that currency impact shows up in our GAAP numbers.

Given the lag between bookings and revenue, we are now seeing the currency impact that affected bookings in the first half of the year show up in GAAP revenue.

International revenue, which represents close to 26% of our total now, grew 17% on a reported basis in Q3, but keep in mind that the currency impact that I just mentioned in total really applies directly to this portion of the revenue base.

Our underlying international business remains strong across all our key markets and we feel good about the underlying growth trajectory and health of our overseas offerings.

In fact, we just topped 14 million – excuse me, we just topped 4 million international customers during the quarter and that’s double the number of international customers we had just 4 years ago. Turning to my second overall point on our growing profitability, we continue to deliver strong cash flow.

Adjusted EBITDA grew over 22% in Q3 to $88 million, yielding a margin of over 21%, a gain of 120 basis points versus Q3 of last year. Unlevered free cash flow grew over 40% in Q3 to $80 million, roughly in line with our nine-month growth of 42%.

So far in 2015, we have converted over 90% of our adjusted EBITDA into unlevered free cash flow at the high end of our long-term target of 70% to 90% conversion. We finished Q3 with approximately $333 million in cash and short-term investments and net debt of $753 million or about 2.4 times our 2015 adjusted EBITDA.

We are delivering these levels of strong bottom line performance, while continuing to invest in the business. We have been and will continue to hire engineers across all our applications and are investing in marketing, care and our ongoing international expansion.

Our strong cash and balance sheet position also allows us to pursue value-creating acquisitions, where and if buying businesses, technology or customers complement our strategy and provide distinctive return above our organic opportunities.

Our performance both in the third quarter and year-to-date, clearly reflect the leverage in our financial aid and operating model as one our product innovation continues to drive better attachment, high-margin products beyond domains; two, our global technology platform creates scale in our infrastructure spend; and three, we scale G&A.

We feel well positioned to deliver this solid combination of top and bottom line growth into the future. Turning to our outlook, we are raising our 2015 guidance ranges for both revenue and adjusted EBITDA. For revenue, we expect full year 2015 to be $1.603 billion to $1.606 billion, implying approximately 16% growth versus 2014.

This translates into Q4 revenues of $421 million to $424 million, implying approximately 14% growth versus prior year, in line with the long-term revenue expectations that we have shared before even while absorbing the currency impact mentioned earlier on the call.

For cash flow, we are raising our full year adjusted EBITDA range to $334 million to $337 million, implying a Q4 range of $70 million to $73 million. The midpoint of our full year adjusted EBITDA range implies nearly 24% growth year-over-year.

We also expect unlevered free cash flow in excess of $280 million in 2015, implying approximately 83% to 84% conversion of adjusted EBITDA into unlevered free cash flow and year-over-year growth of over 46%. More importantly, looking forward, we are well positioned for continued growth at scale in 2016 and beyond.

We serve a huge market of small businesses, organizations and individuals who are looking to build an online presence. We deliver a true lifecycle experience to these customers that combine product, tech and care in a distinctively way. And the products and services that we offer grow with our customers over time.

This value proposition translates into a proven financial model with great customer unit economics and strong and consistent revenue and cash flow growth.

For those of you who are building models, we would like to reinforce our long-term targets of low-teens to mid-teens organic top line growth coupled with 20% plus adjusted EBITDA growth and unlevered free cash flow growth in the mid-20s. As we continue our growth trajectory, not just in the coming quarter or two quarters, but through 2016 and beyond.

Given our strong cash flow and balance sheet position, we are also well positioned to pursue additional growth through inorganic [ph] activity into adjacent and complementary products and geographies. So to wrap up, we feel great about Q3 and our continued execution and we are focused on delivering for our customers and our shareholders over time.

We believe GoDaddy’s unique combination of products, technology and care will continue to differentiate us in the market and produce strong future financial results. With that, let’s open it up for questions..

[Operator Instructions] Your first question comes from the line of Deepak Mathivanan with Deutsche Bank. Your line is now open..

Thanks, guys. Congrats on a good quarter. Two questions for me. First question on international, we saw you saw launched online store in India during 3Q.

Can you elaborate on what big markets do you currently offer the site builder and business apps fully customized for local languages? How should we think about the focus for international next year with respect to entering into new market up-selling and existing ones? And then I have a follow-up about bundling..

Hey, Deepak, it’s Scott. So, in the international, I guess, your second question first. So, first and foremost, we are going to continue to expand in the markets in which we are in, which are primarily the European and Latin American markets. And then second we will, in 2016, enter a variety of the Asian markets.

To address your first point on online store and site builder, each of those are primarily localized in Tier 1 markets now and there is a roadmap to get them into Tier 2 markets and the geographies I just mentioned and obviously then following in the Asian launch..

Yes, Deepak, this is Blake.

Just to pilot on Scott’s comments, next year more specifically just to drill into Asia a little bit, first quarter will enter with a core set of products, which will include website builder and not necessarily online stores, some key markets with online store, because payment types are little more tricky, but we will enter Singapore, Hong Kong, Taiwan, Vietnam, Indonesia, Malaysia, Philippines, Thailand, South Korea and Japan and of course China as well with a core set of products that we offer domains, hosting, website builder, email, productivity.

So you should think of those as being the core on online store in select markets where we think there is good opportunity for us and we have payment types that are appropriate for the marketplace..

Got it. That’s helpful. And then second on product bundling, I think the integrated email marketing app being offered into the site builder on the online store, it makes a lot of sense, it requires no incremental marketing spend.

But now that you have had it for say, two quarters roughly, can you qualitatively talk about the adoption rates that you are seeing for these apps from the initiatives in the last two quarters? And then what other opportunities would you characterize are left still untapped with respect to such cross-selling? Thanks..

Yes. So, this is Blake, Deepak. So, qualitatively, we are seeing pretty good uptake in the way that if you have actually used the site builder, you will note that when we surface these things, we are actually using data science to determine when the appropriate time to surface that capability is.

So, in the case of email marketing, when we see that somebody has had 25 people signed up on a website to get feedback, we will surface email marketing for them in the time of need. We are also doing similar things with mail.

So, servicing the ability to go by mail, so when you show up in somebody’s inbox, you show up with a very personalized domain name. It says blake@blakeirving.com versus blake1535@gmail.com and that matters a lot. And I will just say we are really early in this still.

So, a couple of quarters, we are learning and there is machine learning involved in this as well, so it’s both people and machine learning. And we are continuing to iterate and if you think about the offer that we have got, we have folks that are in a life cycle. In small businesses, we are generally a lifecycle type of business.

And as they move from I get a domain to I set up a website, now I am actually having some success, I would have surfaced the capability that’s going to allow me to go retain or acquire more customers, we are getting more business.

And that continuum of entering new product capability as somebody is growing with us really makes a difference to our customers and I think we are seeing some of that lift and you are certainly seeing it in the biz apps number..

It makes sense. Thanks, Blake. Congrats on the good quarter..

Thanks, Deepak..

Your next question comes from the line of Jason Helfstein with Oppenheimer. Your line is now open..

Thanks. Down here between two calls here. So, I am going to do my best. I am not sure if you commented yet on what drove the lower CPA in the quarter, it just seems like we are seeing really good marketing leverage.

And then we saw clearly good margin in the quarter you are expecting uptrend in the fourth quarter, can you comment on kind of initial expectations for next year as far as margin trends? Thanks..

Hey, Jason, it’s Scott. To your last question first on margin trends, as we look into next year, we are well positioned for kind of 20% growth in adjusted EBITDA.

And I think that’s the playbook really that’s been propelling us throughout this year, which is really nice growth across our product lines with faster growth in the non-domain products that are carrying higher gross margins. And then we are getting real scale that’s starting to show up.

You have seen it over the last quarters, but in our tech and dev, particularly on our infrastructure and G&A and that’s going to continue frankly into next year with continuing and ongoing spend in marketing and care to support our growth, but the nice balance kind of creates the algorithm that you have been seeing, which is nice top line growth and even more flow through to the bottom line..

And then on the CPA in the quarter?.

Yes. I think on the quarter, it’s again – it’s tough to sort of look at CPA one quarter or the other. And so the marketing spend, some of it, obviously, they will show up in the quarter, but some of it has some drag. And so I am not sure we are going to jump up and down and take great credit for that one in the quarter necessarily.

But again, we just feel good about the ongoing marketing return that we are getting and having that show up in a very consistent cohort level of spend over time..

Maybe just one follow-up.

Following Endurance’s announced intention to acquire Constant Contact, do you guys think this signals consolidation generally in the space and overall thoughts?.

No. Jason, this is Blake. So, look I think if you take Constant Contact acquisition by itself, it’s interesting it’s a logical move for them. The proximity of the businesses makes sense. They are both Boston locals. We have examined the email market for a couple of years and need the customers clearly have.

And we are more of an organic grower than we are an acquirer of customer revenue and we have been growing organically.

We did acquire a very small company and I will tell you, so we did an exhaustive research around the space over the last couple of years and found on a variety of different qualitative measures and quantitative measures and found one that we loved that had incredibly high NPS and the best product experience in Mad Mimi.

And we purchased a small company and frankly integrated a product called GoDaddy Email Marketing. That’s what we were just talking to Deepak about his question. And have integrated that into our product suite in a way that is surfaced when somebody would most need it. And we think that’s the key.

So, it’s less about consolidation and more about customer need. And we think that those logical extensions that customers that our little tiny business customers or small business customers really wanted to do next to make their business important.

And Scott, I don’t know if you have got any comments on top of that?.

Yes. I think what you are seeing is online presence is a category really being created for the small businesses and organizations that are all using cloud software. And there is a variety of point solutions across a broad set of categories.

And from our standpoint, having those products work very well together is real advantage for our customers and obviously for us too and it’s a very big market, it’s expanding and there is a bunch of different ways for things to happen and play out.

I think overall the fact that you do see consolidation in certain parts of it kind of validates the value proposition that we are providing and frankly reinforces I think some of our unique strengths around being able to create a bunch of need states across things and time together that creates real value..

Thank you. That’s helpful..

Your next question comes from the line of Mark Mahaney with RBC Capital Markets. Your line is now open..

Thank you. This is Andrew on for Mark. I just had one question on ARPU. As we think about you expanding into Asia kind of the continued FX headwinds and the bundling, should we think about ARPU growth is slowing down here or how do we think about it in the medium, short term? Thank you..

Yes, thanks, Andrew. It’s Scott. It’s good. First, I think at an overall level, we are balancing our adds and growth of customers, which certainly drives the long-term value and the monetization of our existing customers, which more shows up in the ARPU. And in ARPU, there is three things happening.

I mean, number one is really now and in the second half, we are lapping a number of pretty big ARPU enhancing moves from last year such as Managed WordPress and our big aggressive ramp on Office 365. Second is the FX impact, which you just brought forward and that is going to continue and that as you readily pointed out is some tempering of ARPU.

And then third is the bundling and merchandising. And I think if you look at our ARPU at a shade under 7% for the quarter, in the quarters ahead you will probably see it in that mid single-digits line again, factoring in all three of these different things..

Thank you..

Your next question comes from the line of James Cakmak with Monness, Crespi, Hardt. Your line is now open..

Alright. Thanks.

At the end of the prepared remarks, you made some comments about your potential opportunities to explore inorganic growth through adjacencies just opened, could you expand on that a little bit?.

Yes. Hi James, this is Blake.

So I wont go into specifics about what categories we are looking at, but what I would say is that very small business customers have needs that are adjacencies that they are expecting what I would consider to be IT or tech dollars on with other providers, whether that’s in marketing or communications those are things that they are doing that they are not pleased with the situation that they are in today, where they either don’t get the results that they want from the marketing dollars they are spending or they feel like, they are not being served the same type of customer care that they get when they are dealing with us.

So we think there are opportunities because we have that unique set of products, technology and care that allow us to go into adjacencies that are potentially very strong for us and we are exploring quite a few different areas that we think are the potential interesting growth areas for us that we would be adding.

And then I have Scott?.

Hey James, I will just add two things quickly. The first thing is, look our trajectory is one of great organic growth right now. And the second point is we throw off a lot of cash. We have got very strong cash flow position and a nice position in our balance sheet and it’s citing that we have been a great organic growth story.

And obviously, our balance sheet position gives us the flexibility to add something inorganic if and so we choose and that it’s additive to already what we are doing on the organic side..

Got it. Thanks. And then on the marketing side, one of the goals was to tackle the web professional market and so with all the marketing initiatives you have in place and I guess as we look forward, can you talk about on a go-forward basis, the traction that you are seeing with the higher value, higher LTV type of clients? Thanks a lot..

Yes. James, this is Blake. So we are super early for just two quarters into this web professional push we have, slightly under 60,000 web pros that are now in that program. And frankly, web professionals do spend more than small businesses, because we are usually managing more than one small business.

So on a cohort basis, we expect to see some – a good trend, but now we are really early in this process and still rolling out features, in fact rolling of features as we speak that matter to these guys and allow them to manage their small business clients in a way that they haven’t been able to do at scale before.

And we have rolled that out internationally, in fact 50% of the folks that are in the web program are coming from international markets and cohorts spend internationally is the same as it is in the U.S. So we are optimistic, but we are really early innings on this one..

Thanks..

You bet..

Your next question comes from the line of Mark May with Citi. Your line is now open..

Thanks. We saw a lot of leverage in your customer care line in the quarter, I am just wondering if you could shed a little light on kind of what drove that in the period and kind of how to think about it going forward.

And then in terms of the ARPU growth in the quarter, maybe I am sorry if I missed this, but maybe if you can walk through a little bit some of the drivers of the ARPU growth during the quarter.

And then I guess the sunset of that is in terms of the international customer growth, what impact, if any does that have on sort of the average ARPU metric that you provide? Thanks..

Yes. Thanks Mark. It’s Scott. So first care, you are right we saw some leverage in the care line in Q3. And ongoing care, it’s a balance for us between having time, energy with our customers and then getting them into products and that’s something that we continue to invest in and we see that time is distinctive and valuable to us.

But also adding, whether it’s technology and CRM or call routing that helps us balance our staff more effectively or adding things like chat, which is becoming much more prevalent on our site and thinking in the quarter you are seeing frankly, a bunch of investments that we have been making around using technology to both balance our people and the customer interactions in the way that are still giving us high value touch, but are also helping us scale of a cost structure.

Look going-forward we are going to continue to manage this balance. And to think about the care being roughly in line with growth possibly with a little bit of scale, but as we expand around the world, obviously that might be lumpy quarter-over-quarter. But we feel like, we are on a nice trajectory there. So I think that’s one.

Number two on ARPU growth, I think at the very simple level, you are just seeing the faster growth in our non-domain products in both Hosting and Presence and business apps in particular.

All of those products carry higher relative price points and so as more customers adopt those and those continue to grow faster, that’s going to translate into ARPU. And that’s got a bunch of little sub-segments to do it. But at the end of the day, it’s faster growth in adoption in Hosting and Presence and business apps.

And I think the third question on the international impact and how will it impact ARPU, that’s part of how we have been balancing customer growth in ARPU as we are growing outside United States, some of those new customers are coming in at lower ARPUs and then they spent over time.

Right now, we are managing that balance and its showing up in our results. And if we continue to expand in other markets at the economics that exist today, then it’s going to be great.

And look, I think I have just a point to call it the FX impact absolutely does show up in not only ARPU, but particularly the international line, the international ARPU as well. And we are going to be dealing with that for the next several quarters..

Thanks..

[Operator Instructions] Your next question comes from the line of Brent Thill with UBS. Your line is now open..

Hey guys. This is actually Michael on for Brent. Thanks for taking my questions.

Just on the business applications segment, I know you talked about having already lapped 365 and the growth rate there is still very strong and you also just spoke to the aggregate between hosting in that segment, just wondering if we could dig a bit more into the expected trajectory of that business and what you are seeing the most success with that?.

This is Blake, Brent – Michael, sorry. The overall business we think will continue to grow at approximately the same rate you are seeing now, so that 47% growth we feel very good about and there will be some as we have talked about the way that the bundling works.

There will be some fluidity between the web hosting, the web hosting and presence line and business apps line. But overall, we feel like the non-domain businesses, which are higher margin business for us, we will continue to do well and continue to pace at the paces with a pretty strong level..

Great.

And then we have talked a bit about international on the Q&A, I think that at one point I saw a goal of 60 countries in 2016, can you just talk about are you still on track for that particular clip and how that figures into the next year on expansion?.

Yes. Look, we are on track right now to be very, very close to that number. And frankly, we have – we are focused on Asia.

You heard me rattle off the countries, I think there is 11 of them that we will roll in the first quarter, which would bring our overall market count to 53, so that’s getting pretty darn close to 60 and there is a lot of the year left for some other markets.

And frankly, for us it’s focusing not just on country expansion, but performance in country and making sure that the Tier 1 countries that we identify is our biggest opportunities are performing well and that we are actually making sure that we are bouncing our spend in those countries.

As you know and on a software product, you can go into countries with very, very little cost and it’s almost our marketing, so the way that we are going to work that marketing levers over the course of 2016 will be incredibly important for us as we roll these things out.

By the end of 2016, we will be in most of the markets that really make a difference for the business and that’s, if we just get away from the 60 number and think about what’s really going to a sense for the business, we are going to be there, which is a really important thing.

And then you think about companies that are providing a platform for various businesses, there will be nothing close. That is targeting a very small business in that many marketplaces today..

Great. Thanks for taking my question..

Your next question comes from the line of Mitch Bartlett with Craig-Hallum Capital Group. Your line is now open..

Hi guys. This is George on for Mitch.

Just one question, you mentioned in your prepared remarks a product you are launching that helps with in app discovery, and wasn’t totally clear on that, so wondering if you could just explain that a bit further?.

Yes. It is not a product George, as much as it is a capability. So if you think about a scenario where I have Website Builder product and I am going to go into make a quick change or a view or just viewing my website. And I have had 25 individuals signed up for – to be contacted by me at some point.

When we know that they have reached a critical mass, a critical number, we can toggle that number up or down on market.

We can introduce just a button that says hey, try email marketing right now and introduce that at that incredibly important point in that small businesses life cycle that surface the ability for them to discover and then use and then try in a free trial way, try that product out.

And then when they get the certain scale, then they will start paying for it. But it’s a great way for discovery of a product to be within another product to give it that way.

And frankly, we are doing this with email, we are doing it with email marketing and there are other places you can imagine us doing this over time that will make a lot of sense for these small business customers, did that make sense?.

Okay. Thanks. It does, yes. Thanks..

Okay, you bet..

Your next question comes from the line of Brian Essex with Morgan Stanley. Your line is now open..

Hi, good afternoon and thank you for taking the question.

I was wondering if we can talk a little bit about Hosting and Presence, I think you guys have already kind of touched on the tax rates, but what are you seeing in that segment, I think while business applications certainly beat our expectations, I think Hosting was kind of more in line-ish, just what you are seeing in terms of initiatives, performance to expectations and then how we might anticipate kind of growth going forward given the initiatives that you have in the pipeline right now?.

Yes. Thanks Brian. It’s Scott. So I guess, as mentioned and what we talked about, our bundling and merchandising approach where we are increasingly bringing Business Applications both email and email marketing into our Hosting products is actually moving some of the growth from Hosting and Presence in the business apps.

And so I think when you look at those two in totality and we look at it and think about it, the growth is really strong and healthy. And we just – we think that this bundling approach is really impactful because it’s number one, contextual. And number two it reduces a lot of friction.

And so and what we have learned and see is that when people are using our products, they don’t go anywhere. And so we continue to experiment, not just with the offer, but how we can make it really easy for customers in the right context the relevant way to sample, try, begin to use our different products at the right time in their lifecycle.

And we know when they do that, it works out for them and it works for us. So punch line on Hosting and Presence and apps is you are just seeing a little bit of a shift to the dollar growth, kind of from Hosting and Presence go over the business apps because of some of this bundling..

Got it. That’s helpful. Maybe take a follow-up of the domain side.

As we see more ccTLDs and gTLDs kind of enter the market, what kind of tools do you use to gauge your penetration of the market, maybe relative to your peers? I mean, one of the things that I like about your platform is it seems that you almost have like a nice scaled management layer whereas some of your peers are smaller and don’t have as many registry relationships.

So, with all the choice that you have, one of the questions I get, I mean, does the source of this question is investors are often asking me how do we know about who is gaining more share and who is positioned in different ways in the domain market and curious to think – curious to hear how you look at it given the platform that you have and the visibility that you have in the market?.

Hey, Brian, it’s Scott. But let me try the share gain one first. So think about share, certainly, there is .com in the gTLDs and then there is the different ccTLDs.

And obviously, zone files from VeriSign are both published and easily accessible and we have a regular, frankly, automated dashboard, where we can swizzle .com in any country, situation around the world and track and measure our share.

Over the last couple of years, as we have been entering our countries in localized form, one little execution part of that has been to establish data feeds with the registries in each of those countries to also track and measure ccTLDs.

So, in our Tier 1 markets, we also are measuring and tracking our ccTLDs share and frankly, in all of our Tier 1 markets, it’s going up.

So, we look at both in their individual component parts, but more importantly overall, because I think this gets to the most interesting thing and is what you let into, which is our platform is now in a position where in a geography or in a market, we can surface certain kinds of products in some markets that maybe a ccTLD and others it’s .com, individually, with different price points, sometimes together and have automated – frankly, the infrastructure in the platform to be able to do that kind of market price product independent.

And again, that’s one of those things that is just starting to rollout and we think this is going to be a big help and it’s just one of the many ways that a platform plays out into making things very localized and relevant and good business for us..

Yes. Just to pile on, Brian, so, a couple of things I think are important to note. I think the way that we have done a proprietary search algorithm is insanely fast and it also allows us to surface any TLD that’s appropriate based on the word breaking that we have done in the search query.

So, actually it’s a very advanced word-breaking across the search. We can surface TLDs from any registry that are appropriate for that particular search query. And it’s delivered frankly a 10% growth rate for us in an industry that’s not growing at 10%. So, we continue like basically double the growth rate.

So, we are continuing to take share in the TLDs that we play in today, which are the big ones as well, the .com and the .nets. And frankly, having 20% of the world’s domains under management and 61 million domains under management is important.

So leadership here is incredibly important to us and we are going to continue to innovate and put great engineers on these – great engineers and great UX people on these problems.

And we know that when you own that domains on ramp, it’s the first thing that people do when they have an idea, they go buy a domain and then the next thing they do is go attach something to it.

And it’s a key driver not just for the domains business, but for the rest of our business as well and you will see us continuing to work there and make really good investments..

Great. Very helpful. Thank you very much..

Thank you..

And there are no further questions on the lines at this time. I will now turn the call back to the presenters..

Hey, everyone. This is Blake. I just wanted to thank you all for standing on the phone for – standing or sitting on the phone for the last hour hearing our comments and asking questions. So, we have had a great third quarter. We feel good about it. And we look forward to talking with you next quarter. Bye now..

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