Poynt Co. (GDDY) Earnings Call Transcript & Summary

Good afternoon, and thank you for joining us on today's call to discuss GoDaddy's announced acquisition of Poynt. I'm Mark Grant, Vice President of Investor Relations. With me today are Aman Bhutani, Chief Executive Officer; and Ray Winborne, Chief Financial Officer. Today's call is being recorded. [Operator Instructions] Following brief prepared remarks by Aman and Ray, we'll open up the call for your questions. [Operator Instructions] On today's call, we may reference both GAAP and non-GAAP financial and operating metrics such as total bookings, unlevered free cash flow and net debt. 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 most recent earnings presentation posted to our Investor Relations website at investors.godaddy.net or on our Form 8-K filed with the SEC with the most recent earnings release. The matters we'll be discussing today include forward-looking statements, which include those related to our future financial results, new product introductions and innovations and our ability to integrate Poynt and achieve desired synergies. These forward-looking statements 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, December 15, 2020, and we undertake no obligation to update these statements as a result of new information or future events unless required by law. With that, here's Aman.

Thank you all for joining us today. GoDaddy exists to empower everyday entrepreneurs. Our team members come in every day with the goal of helping customer ventures succeed. Our strategy for long-term success is a straightforward one, it is about value creation, primarily for customers and employees and shifting some of that value over time to shareholders. For over 20 years, we have delivered exceptional customer care and strong shareholder returns. In 2020, the pandemic brought an unprecedented level of challenges for our customers. They responded with tenacity and grit, reaching into the depths of their creativity and resilience. They pivoted online to reach their customers, and this resulted in 2 quarters of record net customer growth for GoDaddy. One of our fastest-growing product suites has been Websites + Marketing, especially the high-end commerce tier. Everyday entrepreneurs are writing this huge wave of digitization, and as online and off-line commerce come together, they have been demanding more from us. While today, I am excited to announce that we have signed a deal to purchase Poynt, a company providing amazing experiences in payments, invoicing and point-of-sale for everyday entrepreneurs. The team at Poynt is committed to bringing all the technological advantages in commerce to everyday entrepreneurs. With over 100,000 customers and more than $16 billion in GMV on their robust platform, a strong NPS, they have much to be proud of. Bringing together GoDaddy's brand reach and marketing competency, strong digital commerce functionality and Websites + Marketing online store, WooCommerce and Sellbrite and capabilities from Poynt, we are positioned to bring together a seamless and intuitive commerce offering across both online and off-line for our customers, wrapping that with GoDaddy care, the way only GoDaddy can do it. We expect the deal to close in Q1, and at that time, I will share more details on our go-to-market plans. I will now turn it to Ray to cover the financials before we open it up for questions.

Thanks, Aman. We're excited about the capabilities the Poynt team brings to the table and our ability to drive synergies with our existing commerce offerings. We believe that bringing Poynt into the GoDaddy family will accelerate Poynt's already strong growth and add mission-critical functionality for our customers. Driving customer value ultimately drives long-term shareholder value, and this acquisition enables that equation. As you saw in the press release today, we're acquiring Poynt for $320 million in cash at closing, plus an additional $45 million in deferred cash payments over the next 3 years. We expect to fund the acquisition with some combination of cash on hand and incremental debt. We believe Poynt will grow rapidly as we integrate and scale the offering within the GoDaddy ecosystem and expect to deliver more than $150 million in incremental bookings in 2023. In the near term, the financial impact of the acquisition is expected to be relatively modest, less than 1 point of revenue growth and roughly $20 million dilutive to unlevered free cash flow in 2021. We plan to repurchase shares post acquisition effectively offsetting the dilution on a fully levered free cash flow per share basis. With that, we'll turn it over to Christie Masoner from our IR department to open it up for your questions.

Thanks, Ray. [Operator Instructions] Our first question comes from the line of Sterling Auty from JPMorgan.

So I've already gotten a couple of inbounds from investors. There's a number of investors in GoDaddy that are not as familiar with the payments arena. So what might be helpful is if you could kind of walk through how does $16 billion in GMV then equate all the way through to revenue for GoDaddy? So in other words, what percentage do they take of that, what goes to the partners, et cetera? So just kind of give them the money train, if you will.

Thanks, Sterling, for that question. And I'll give you the high level and Ray can go a bit more into detail, if needed. The $16 billion of GMV that Poynt has is through a reseller channel. And the monetization of that is different from how our investors may look at monetization for something like Websites + Marketing commerce, for example. So what that $16 billion really represents is the success customers are having using the Poynt ecosystem using the Poynt solutions. And what it provides GoDaddy is a robust platform that has lots of merchants transacting huge amount of dollars, which then we can give to GoDaddy customers in a seamless, intuitive way, right? That's the opportunity that we're referencing, and we're super excited to bring these 2 ecosystems together and create tons of value for customers. Ray, I don't know if there's more that you can just touch on in terms of revenue short term?

Yes. So Sterling, I think aside from the obvious mechanics of payments, we've got a lot of options around Poynt. We'll update everyone on more of the specifics after the deal is closed, and we'll provide some color on 2020 at that point. But for now, we're super excited to have this deal signed. We've got a number of different levers that we can pull once Poynt has been integrated into the business. But the ultimate target remains the same, generate $150 million in incremental bookings in 2023 and get to free cash flow accretion quickly.

And then maybe one quick follow-up. Who are the key distribution partners for Poynt at this point in time, no pun intended? Because I think they've had a couple of notable and interesting ones through the years.

Yes. They work through a number of banks as their reseller channel, Sterling. And we'll share more information about them after we close, so that it just lays out for investors more clearly at that time.

Yes, Elavon and Nexi are the 2 large ones for now. They've got broader distribution beyond those 2 financial institutions.

Our next question comes from the line of Brent Thill from Jefferies.

Aman, why Poynt -- what was -- there's many assets in this sector. What stood out to you that made this the right fit? And for Ray, having to go out to '23 in a booking target is somewhat unconventional for some of the companies that we follow to look out that far way. Why did you pick '23 in the conviction around that $150 million number?

Yes. As we looked at players out there in this space, what we were looking for was a team and a company that was committed to building just amazing customer experiences. And one of the things we do is when we go into a company, we not only look at the product and use it and try use cases, talk to customers, look at their NPS scores, we actually do a bunch of research ourselves to validate that customers are getting the value from the products. And what we found consistently talking to customers of Poynt was that they love the products. They rated it very, very highly. Poynt had been over the years very responsive to their needs. Any time as they learn new things, as they found challenges, they were able to solve them and really come to the aid of entrepreneurs and merchants and give them what they needed. So to have a company that's focused on building the best experiences we felt was the entry point. And Poynt sort of hit the head on the point, no pun intended. For us, that was a really big deal. Secondarily, Poynt has a robust platform in place already and a team around it that has the expertise, that have the background, that can really help us accelerate, right? We are trying to bring this capability to our customers very, very quickly, and we wanted a platform that already was battle-tested that already had a ton of transaction flow and ton of merchants on it, and Poynt provides all of those to us.

Yes, Brent, it's Ray. On your second question as far as 2023, yes, 2021 will be all about the integration and getting that product and customer experience super tightly integrated and then starting to ramp that over time. When you look at something like a payments offering, a lot of it is going to go to new customers. And so that ramps with the new customers that we're bringing in on the commerce offering. So I think as you look at just how it builds in the model, 2023 is the natural point where it'll get to scale.

Our next question comes from the line of Mark Mahaney from RBC.

I think you mentioned that Poynt has something like 100,000 merchants. Could you talk about what overlap you may have with them, your customer base and their customer base has? And then just talk about how many more holes do you think you may have to fill just in this kind of Websites and Marketing area, and this may have been the last hole you really wanted to fill. But just talk about your product road map just for that particular vertical.

Yes. We haven't gone through the specifics of the exact overlap between our customers. That's something we'll be able to do post close. But suffice to say, with GoDaddy with 20 million customers, I have to say that the opportunity is really huge for us. And any overlap is likely pretty small given our big base. In terms of the second part of your question, when -- actually, could you repeat the second part of your question again for me?

Yes. I think it was a really good question. That's a joke. The -- I was asking about the suite of solutions you have in Websites and Marketing. Is that now with this do you complete the suite of solutions? Or are there still other missing pieces in terms of just the solution set in terms of products?

Yes. As we've been asked many times recently, there's a number of things that we want to continue to do to support our customers. Some of the most immediate gaps or the things that customers are asking us for, point of sale, it gets us point-of-sale payments and very importantly, invoicing as well, which is a really important product for our customers too. So it puts those key items in place. And in terms of are there more areas, I would just tell you, every day, we're getting more customers, and we hear from customers 2 million times a month, and there continues to be areas of opportunity where we can grow and meet more of their needs.

Our next question comes from the line of Naved Khan from Truist.

A couple of questions. So the $150 million in bookings by 2023 versus maybe around, say, $30 million in revenue next year. If I have to think about the 2023 target, is it fair to assume most of that will be from online payment by then? How should I be thinking about that? And then I have a follow-up.

Yes. No, this could obviously be most closely connected to the commerce offering, but there are a lot of different ways that we're looking at pursuing this opportunity. I think the most important takeaway for you guys at this point is that we've looked at it 10 ways to Sunday on how to attack it. And as we looked at each of those impacts and how they would impact our fundamentals, $150 million should be a conservative realistic outcome. Obviously, I think we can do a lot more with this asset.

Understood. And then roughly 40% of your customers are international. So maybe just talk a little bit about the payment capabilities that you may have internationally with this acquisition?

We're going to look at that more carefully. Poynt does have certain connections with payment processors, others that are supported internationally. But it continues to be an area of opportunity now. Our initial focus will be to not just support our customers in the U.S., but our primary markets. And you know, our primary markets are U.S., Canada, India, Australia. So we're very interested in using the Poynt platform, empowering our customers in multiple markets. And we have a great starting point with where they are already.

That definitely one of the things that was appealing about them was the international capability.

Our next question comes from the line of Ron Josey from JMP.

I just want to understand a little bit more about the integration, Aman and Ray. Maybe can you help us understand if Poynt is something that just can be easily integrated with Websites and Marketing and Managed WordPress? Or is there some work to be done on the product side? And then I know we're talking a lot about commerce, but maybe any insight on how the services opportunity might fit into your plan? So not just payments for goods purchased online, but any SMBs that require bookings like salons or fitness experiences or things along those lines would be helpful.

Yes. I'll take the first part first. On the integration piece, there are various integration options to provide a more sort of integrated feel for payments for our customers. We will do sort of various styles of it, we will look for short-term wins as we post close as we bring the teams together. But ultimately, our goal run is to build a very seamless, completely integrated experience, where for the customer, there is no friction in the path between their commerce interfaces, between their merchant payment interfaces, not just for their customers' customers, but for them as well to really reduce the friction between off-line, between online, between commerce payments. For them, it's one solution. It not just works across all of those. It also works across what they sell on Amazon and eBay and Etsy all from one place, right? That's the solution we're building. That's why this capability -- the set of capabilities that Poynt has are really interesting for us. And in terms of services, Poynt has a really interesting ecosystem where they allow a number of developers to work with their APIs. They actually have about 1,200 developers that today work in their "app store." And what those developers do is they take the Poynt's sort of core systems and build on top of it, to customize it for specific merchants, and that includes a number of services companies as well. So that -- I think you're aware that GoDaddy has a pretty significant percentage of customers that are services customers. So Poynt does give us an entry point sort of into payments and invoicing in that area as well.

Congrats on the acquisition.

Thank you.

Our next question comes from the line of Ygal Arounian from Wedbush Securities.

Maybe first on the Poynt GMV. How much of that is coming from in-store versus online? What's the right way to think about that? And then I'm assuming Poynt integrates with multiple different kind of e-commerce solutions right now. If you think about the acquisition, are you -- do you bring everything in-house to kind of rebrand as GoDaddy payments as we've seen many competitors do? What's kind of the progression from where Poynt is right now with various platforms it's working with and how you intend to bring all those pieces in-house versus where it is right now?

Yes. To start with the GMV part of the question, Poynt, given its original history actually had a higher percentage of its GMV in-store versus online. But obviously, with COVID, some of that has shifted, and they have much more exposure to online transactions. That is what actually makes bringing these 2 teams together very, very powerful, that we have complementary technologies, complementary skill sets. GoDaddy has the ability to bring the online store, all of the online pieces, the marketing pieces together with Poynt's sort of strong in-store capabilities. Poynt also has capabilities over the last couple of years where they invested to be a PayFac. So as a payment facilitator, Poynt is able to have many, many more options for GoDaddy. And that's something that GoDaddy doesn't have to build, right? We get all of that in the package, and we're able to enable it both online and off-line. Hopefully, that makes sense. Happy to go into that in more detail, Ygal, if you like. On your question on the integrations and the integrating, Poynt integrates with multiple solutions, GoDaddy integrates with multiple solutions too. And absolutely, you can expect something like a GoDaddy payments that provides that fully seamless integrated experience for our micro and small business customers. Having said that, we know that customers have preferences and choices that they want to make. So we expect to continue to work with partners as well.

Our next question comes from the line of Brent Bracelin from Piper Sandler.

Obviously, I'm excited to hear the narrative around kind of payments evolve here over the next couple of years. My first exposure to Poynt dates me back to the MINDBODY days where the MINDBODY actually partnered up with Poynt on the point-of-sale terminal. So my first question is, how much of the Poynt business today is driven by point-of-sale device terminals? Is it a small portion of revenue? Is it a large portion of revenue? Just help me kind of understand the mix today of how much of it is actually device terminal revenue versus kind of software services revenue.

Yes. I'll give it to Ray to maybe give a little bit of color, but I just want to be clear, the opportunity we're looking at, of course, they started in-store point of sale and they've continued to evolve online. But the real opportunity here is to take all those pieces together with the large set of customers that are coming through to GoDaddy site, coming to care every day and be able to give them that fully integrated experience end-to-end, right? That's the value that we're looking at in the future. That's the set of opportunities we're going after. There's lots of things we can do there. And we have lots of opportunities with how we treat sort of the existing revenue, the existing channels and so on. But I'd love to make sure that we're being clear about sort of how we're looking at these set of capabilities and growing them into the future. And Ray, I don't know if you have anything you'd like to add there?

Yes. I think you hit it on the head, Aman. This is -- guys, this is not about the hardware, specifically, it's about that integration with our commerce offering, but also be able to provide off-line because a lot of our customers do have needs for both. They're not just exclusively online, they need the off-line capability as well.

Yes. I mean just a simple data point, we know that over half of GoDaddy's customers in Websites + Marketing have an off-line store as well. And we know that COVID times aside, a very significant percentage, in fact, the majority of their transactions are actually off-line today.

I'm sorry, did you say 5-0 percent or 1-5 percent of GoDaddy have offline stores?

50% of GoDaddy's customers that are Websites + Marketing commerce customers for GoDaddy also have an off-line store.

Interesting. Interesting. Very interesting there. And then I guess my next question is really just looking at the acquisition purchase price. This payment space is very hot. But it does look like this was an interesting opportunistic buy. I mean I went back and it looked like Poynt raised $100 million series C in late 2018. And obviously, you're buying this for -- whole asset for $360 million here. So was this business kind of maybe impacted by COVID? And that was really the opportunity for you to go in and partner with this company to really leverage this asset and team to build out your payment strategy or walk me through how big of an impact COVID had on their business, creating an opportunity for you to partner with them?

Yes. The way we went about it is that we were looking to make the decision sort of partner, buy, build sort of in that order in terms of a number of capabilities to provide better commerce and greater commerce functionality to our customers. We engaged with Poynt initially as a partner. And as we dug into it more, what we found was an amazing team, great product, like complete focus on creating value for customers and a highly engaged customer base, great ecosystem around the tools as well. So it just was a really, really fantastic opportunity. We turned it from a partner conversation into acquisition conversation. And we've worked with the leaders there over the last few weeks to really hone down and understand what they want to do and what we want to do and we found alignment in really a number of places.

Our next question comes from the line of Nick Jones from Citi. Well, I think we lost Nick. Our next question comes from the line of Aaron Kessler. Aaron from Raymond James.

There we go. Sorry about that, I was talking to myself. If you can just give us a sense maybe where -- what some of your customers were using before and have they been asking for kind of deeper integration? And second, for Ray, maybe if you can give us a sense for the $150 million of bookings, what type of margin structure should we be thinking about? And then maybe what are the gross margins of this business as well?

Yes. Aaron, if a call in 2020 goes by without somebody saying you're on mute, the year would not be complete. Thank you for doing that for all of us on this call. In terms of our customer ask for deeper integration, we continue to get customers asking us all the time for better, more seamless integration. They want the minimum sort of relationships. They want the minimum complexity. They don't want to log in into multiple places. They want all their data in one place and they want online and off-line together, right? It's very, very hard. Imagine you're a small business, you've got a store, you've got an online site, you're powering both. And you're literally taking your inventory from one system and typing it into the other system to say that you've got something available and not got something available. That is -- that adds no value. That's not valuable time that our customers are spending. And similarly, when things are not connected up between system, that's not valuable time that our customers are spending. And by putting ourselves in a position to build this seamless experience, we truly believe will create a lot of low friction sort of advantage for our customers. And at GoDaddy, we're committed to creating the simplest experience for our customer, and we're going to wrap it with care, just the way we do it. So that's what you can expect from us. And Ray, I'll turn it to you.

On the gross margin profile for Poynt itself, it's about what you'd expect for a point-of-sale and payments company. I mentioned dilution in 2021. Obviously, we're going to invest to drive awareness, adoption as well as some capabilities on that integration. And that will be marketing R&D in the P&L. We'll share more about the strategy and the financial profile in February when we report Q4.

Our next question comes from the line of Naved Khan from Truist.

Maybe a clarification. So Aman, you talked about PayFac payment facilitator. Maybe just can you elaborate on that a little bit and give us some sense of what the opportunity is there?

Yes. I'll share, Naved, much more about this post close and as we formalize some of the integration plans. But if you're asking the question, I assume you understand the topic well, Poynt investing into PayFac capability allows us to streamline the experience significantly for customers, right? If we control the core of how funds are moved, if we control the core risk calls and how those are sequenced and articulated and when things are asked for from customers, we can continually sort of take cohorts of customers that we understand well, lower the barrier to entry for them, increase conversion for them. And that's the game, right, of payments. That payments isn't about the actual transaction piece of it. What payments is about is can it really power commerce better because it comes into every part of commerce and it's just seamless and the merchant is able to just build their business as they go and new capabilities or new data points are needed as they go versus having to do everything upfront before they even start. So that's why we're excited about that opportunity, and we're really glad Poynt invested in that, I think, over the last couple of years.

And then, Ray, maybe can you talk about -- maybe is there a purchase accounting impact for next year at all?

Sorry, Naved, I missed that. What kind of impact on '21?

Any kind of impact from purchase accounting?

Relatively small. There was a little bit of deferred revenue hung up on the balance sheet that we'll take care of, but we'll come back with all of the impacts on Q4.

[Operator Instructions] Okay, it looks like we don't have any further questions. So I'll turn it back over to Aman for any closing remarks.

Thank you, Christie. Thank you, everyone, for joining us. Also a big thank you to all the teams across GoDaddy and Poynt that worked together to get us here. We couldn't be more excited about bringing these 2 great companies together and just creating an awesome experience for our customers. So thank you very much. We'll share more with you in the next call. Bye-bye.