Gen Digital Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the fiscal 1Q21 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this time, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded, and if you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Suwan Kim, Head of Investor Relations. Please go ahead, sir.

Thank you. I'm pleased to welcome you to our call to discuss our first quarter fiscal 21 earnings results. We've posted the earnings materials and slides to our Investor Relations Events web page. Speakers on today's call are Vincent Pellet, Norton Leiflock's Chief Executive Officer, and Natalie Durr's Chief Financial Officer. This call will be available for replay via webcast on our website. I'd like to remind everyone that all references to the final metrics are non-GAAP unless otherwise stated. Please refer to the supplemental materials on the Investor Relations website for further definitions of our non-GAAP metrics. Please note non-GAAP financial measures referenced during this call are reconciled to comparable GAAP financial measures in the press release and supplemental materials posted on our website. We believe our presentation of non-GAAP financial measures when taken together with corresponding GAAP financial measures provide meaningful supplemental information regarding our operating performance for reasons discussed below. Our management team uses the non-GAAP financial measures in assessing our operating results as well as when planning and forecasting future periods. We believe our non-GAAP financial measures also facilitate comparison of our performance to prior periods and that investors benefit from understanding our non-GAAP financial measures. Non-GAAP financial measures and supplementals should not be considered a substitute for financial information presented in accordance with GAAP. Today's call contains four looking statements based on conditions we currently see. Those statements are based on current beliefs, assumptions, and expectations and speak only as of the current date. And as such, involve risks and uncertainties that may cause actual results to differ materially from our current expectations. In particular, our statements regarding the impact of the ongoing COVID-19 pandemic on our business and industry are sale of our enterprise security assets to Broadcom. Any participated benefits from such sale and cost reductions associated with this transaction are related to subject to a variety of risks. Please refer to the cautionary statement in our press release for more information. You will also find detailed discussions of our risk factors and our filings with the SEC, and in particular, our annual report on Form 10-K for the fiscal year ended April 3, 2020, and recently filed quarterly reports on Form 10-Q. Let me now return the call over to Vincent.

Thanks, Johan, and good afternoon, everyone. Thanks for joining us today. Since we closed the sales of the enterprise business, we committed to return to customer growth, drive sustainable revenue growth, complete an overhaul of the cost structure, and deliver a healthy profit. In just our second full quarter at Northern LifeLock, our first quarter of fiscal year 2021, we delivered better-than-expected results with strong reported billing growth of 9%, revenue growth of 4%, and EPS growth of 48% year-over-year. As we created Northern LifeLock, we believed in the potential of a business solely focused on building personal cyber safety for consumers. We initially set our sights on sustainably and meaningfully growing customer count and delivering revenue growth in the mid-single digits. In Q1, we delivered both sequential and year-over-year 400,000 net new customers, a first since 2014. Revenue growth was 4%, meeting the long-term objective of mid-single digits in just our second full quarter. At the end of June, we eliminated 95% of the stranded costs, and we expect to be done this month, one quarter ahead of plan. In Q1, included stranded costs, we reached 47% operating margin for the company, up 15 points year-over-year, and expect to reach 50%. by September, another one of our commitments. If you exclude the stranded cost, the consumer business has been running above 51%, better than our operating margin target of 50%. Our Q1 EPS was $0.31, which included a $0.04 impact from stranded cost and is up $0.10 year over year. By the end of this fiscal year, we expect to run the business at our target of $1.50 annualized EPS, which can be achieved by virtue of mid-single-digit revenue growth, operating margin of both 50% or utilizing our remaining $600 million share buyback program, or some combination of any or all of them. Finally, we projected to run the company at $900 million annualized free cash flow after the transition period While we have been and are running at that level in Q1, excluding cash spent on stranded costs, we are tracking for those levels to be reflected in our cash flow statement once our financials are clean of stranded costs in the second half of this fiscal year. As we demonstrated the operational discipline with which we want to continue to operate, we made it a priority to build out our post-transition leadership team. This quarter, we welcomed new and accomplished leaders with deep experience in consumer technology. Natalie, who you will hear from in a minute, brings operational skills with a growth mindset. Overall, we added seasoned leaders from very successful consumer technology companies. These leaders are joining us for our mission to bring cyber safety to every consumer around the world. We believe the company is uniquely positioned to seize that tremendous growth opportunity. Our initial lever to restart the growth was to increase our marketing spend, which, as you know, is our main way to reach new consumers and educate them on the benefits of our solutions. As we maintain a consistent messaging level in the market, we saw increased efficacy. Our overall customer acquisition costs continue to benefit not just from lower ad rates related to COVID, but also from our own initiatives to shift marketing spend to new digital channels, including search, social media, and digital video. In terms of reach, despite the global strength of the Northern brand, we had not invested in international marketing in recent years. We reversed that in Q3 fiscal year 20, and we are beginning to see the results from those investments. The strategic shift in our marketing efforts have broadened our reach and we are making steady progress in reaching younger and international customer cohorts. As of the end of Q1, we counted 20.6 million customers who buy our products or services directly through our e-commerce platform. This represents an increase in net customer by 379,000 sequentially and 416,000 year-over-year. Our Q1 growth was broad-based. with growth across both the portfolio and the geographies. We grew both in the U.S. and internationally across all regions. The increase in international customer count outpaced that in the U.S., another first in a long time here. Supported by trends like work from home, virtual meetings, and online shopping and transacting, we saw both our security and identity product categories grow sequentially and year over year, another first in a very long time. Our average revenue per user, or ARPU, remains strong at $9.03 per month, even as we recorded strong net additions. Our retention remains very strong as well, at around 85%, suggesting that customers recognize the value and stay with us for a long time. In addition to our direct business, which accounts for about 90% of our revenue, we also have a partner organization, developing new ways of distributing our offering to individuals. In Q1, we grew our indirect revenue 11% year-over-year. In retail, our performance on Amazon and other e-tailers offset the weakness from traditional stores being shut down or operating with limited hours. Our indirect sales also benefited from the strong performance of employee benefit programs, our faster-growing partner channels. we are seeing strong growth from new employer acquisitions and greater participation within existing employers. Furthermore, while we're still in the early stages, I'm also pleased to report progress in our long-term partnerships with organizations like TELUS and AARP. Although it takes time to develop and ramp up new relationships, we believe in the long-term potential to expand our reach and continue to grow. Growing through new marketing channels, and various forms of partnerships, and consistently messaging our value proposition to them is extremely important. Our new Chief Commercial Officer, Robert Clarkson, has significant experience building out global partners and platforms over his tenure at PayPal. His passion is around consistently delivering the customer experience throughout their customer journey and lifetime. That is the reason we regrouped our direct, indirect, and renewal sales organization under his leadership. Our vision is to keep people around the world cyber safe. We believe it is our responsibility to provide everyone with innovative products and solutions to protect and control their digital lives. That vision was the impetus for creating the Nolan 360 integrated platform and we believe customers are starting to see it. The vast majority of new customers are now coming directly to Nolan 360 And as of the end of Q1, over 40% of our installed base was on Norden 360, up from approximately 25% at the end of Q4. This penetration is important as it enables us to offer comprehensive cyber safety and the one common experience to seamlessly upgrade our platform with new features like home title protection and to increase the engagement and with that the retention of our customers. Some of our platform features might need to be offered as standalone products, where it makes sense for our customers and helps accelerate the growth of our company. Last quarter, we talked about Surf Easy VPN as an example of a standalone product. This quarter, I want to share a new example that demonstrates how we constantly are looking at new ways to protect people and their highly dynamic digital lives. Some customers want help limiting the public availability of their own personal data. serve the web, and you will likely see that a lot of your personal information that you may not want out there is readily available, such as name, age, addresses, phone numbers. Privacy Monitor, which is available as a feature with Nolan 360 with LifeLog, scans for personally identifiable information, or PII, accessible on the most popular people search websites. But taking control of this data is tedious at best. and often too complex. Recognizing this consumer need, we developed and beta tested a product called Privacy Monitor Assistant. It's a white glove service where our agents, assisted by software, find and delete all your PII on this data broker website. Wouldn't you pay for a reasonable fee to secure your personal information? It's still early, but we have seen positive response so far and we think this capability has tremendous value for our customers. This is a good example of how we can continue to fulfill our vision by protecting our customers and enhancing the control they have over their digital lives. It's also a good example of how our service capability, combined with software, can differentiate us from competitors. We have a large customer base that constantly uses our service and provide us with insights we can turn into new features or products. Growing through innovative products and solutions is key to fulfill our mission. That is why we have put product management and R&D under our new Chief Product Officer, Gargan Singh. Gargan has a passion for technology, and in particular, how artificial intelligence and machine learning can help build cutting-edge products. He was particularly interested in our internal research team and their capabilities. This June, our research team released BotSight, which can be downloaded for free as a browser extension or iOS app in a targeted effort to enable people to identify disinformation on their Twitter feed. BotSight's technology is based on machine learning and leading-edge algorithms. It looks at over 20 different distinguishing features, such as age of the account and tweet frequencies. to detect Twitter bots and show them directly on feed in real time. We are now looking to advance this technology and extend this capability to other use cases and threats. Before I pass it to Natalie, let me take a minute to step back and talk about our vision to deliver cyber safety to every person across the globe. Even before the world was tossed into turmoil, our mission was relevant as the digital world is taking over how we work, learn, shop, and basically live our lives. Now with COVID-19, our mission is more important than ever. Clearly, this pandemic has accelerated people's reliance on technology, and we are seeing the impact of that increased activity online to the number and variety of attacks on consumers. Attackers have elevated their techniques on stealing information, disrupting sites, and cascading malware, through phishing attacks, camouflage-less tracing apps, social engineering portraying COVID vaccines, and poisoned websites emulating stimulus benefits, all resulting in an increased need for security, identity protection and restoration, and privacy solutions. These are just a few of examples of the many threats facing us now that more of our everyday activities are done digitally. So while there is a lot of uncertainty at the macro level, one thing is certain. there is a real need for cyber safety for individuals, families, and homes. Through innovative products and expanding distribution channels, our mission is to meet that need and provide cyber safety to everyone. And with that, let me pass it to Natalie to give you more details on our Q1 financials.