Gen Digital Inc.

Good afternoon, everyone. Thank you for standing by. My name is Matt, and I will be your conference operator today. I would like to welcome everyone to the Norton LifeLock fiscal 2023 first quarter earnings call. Today's call is being recorded, and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. At this time, for opening remarks, I would like to pass the call over to Ms. Mary Lai, head of investor relations. Ms., you may begin.

Thank you, Matt, and hello, everyone. Welcome to the NORM LifeLoss Fiscal 2023 First Quarter Earnings Call. Joining me today to review our Q1 results are Vincent Poulet, CEO, and Natalie Dursey, CFO. As a reminder, there will be a replay of this call posted on the IR website, along with our slides and press release. I'd like to remind everyone that during this call, all references to the financial metrics are non-GAAP, and all growth rates are year-over-year unless otherwise stated. A reconciliation of non-gap-to-gap measures is included in our press release, which is available on our IR website at investor.nortonlifelong.com. Today's call contains statements regarding our business, financial performance, and operations, including the impact on our business industry. That may be considered forward-looking statements, and such statements involve risks and uncertainties that may cause actual results to differ materially from our current expectations. Those statements are based on current beliefs, assumptions, and expectations. and speak only as of the current date. For more information, please refer to the cautionary statement in our press release and the risk factors in our filings with the SEC, and in particular, our annual report on Form 10-K for the fiscal year ended April 1st, 2022. And now, I will turn the call over to our CEO. Vincent?

Thank you, Mary, and welcome everyone to our call. After a very lengthy process in the U.K., we are pleased to have received provisional approval from the Competition and Markets Authority for the acquisition of Avast. Our hard work has paid off and we are excited to start the process of bringing the two companies together with a great purpose and mission of bringing digital life protection and empowerment to everyone. As I have shared before, our two companies share a similar vision and both have common values and complementary strengths. As soon as we can bring us together, we will get started on delivering all the benefits of our new company to consumers, shareholders, and other stakeholders. Together, we will serve about 500 million users globally, sell premium products to consumers for more than $3.5 billion in revenue, and have around 4,000 employees dedicated to the mission of protecting and empowering people to live their digital lives safely. Advanced trends in privacy and Northern LifeLock's trends in identity supported by our combined AI capabilities, creates a broad and complementary product portfolio beyond post-security and towards adjacent trust-based solutions. On top of that, the merger will broaden our geographic diversification, increase our presence in multiple channels, and also serve very small businesses. We will have the opportunity to empower millions of consumers around the world with our complementary product portfolio and culture of innovation. And while the world is in a different place than when we started this journey over a year ago, one thing is for sure, people want to continue to enjoy the advantages of a digital world without compromising their security, privacy, and identity. And our sole mission is to bring that and more to everyone. Our combined financial profile is substantially enhanced through increased scale, long-term growth potential, synergies, strong free cash flow generations supported by a resilient balance sheet. As I mentioned, based on our last reported financials for both companies, we will scale our combined revenue to over 3.5 billion. And the combinations will unlock significant value creation to approximately $280 million of annual gross cost synergies and will give us the capacity to reinvest for innovation, partnerships, and marketing to further accelerate our transformation. We will have created operating leverage of approximately 52% in blended operating margins, that is pre-synergies, delivering approximately $1.5 billion of annual free cash flow, also pre-synergies. The combination is an other value creation enabler as we march towards our long-term objective of $3 in EPS. We look forward to reengaging with Avast and restarting the integration planning activities. Once the transaction is closed, we will be able to share more details on the combined business and its financial model. So in terms of what's next, we will continue to work closely as quickly as possible after the CNA publishes its final approval, which is currently expected to be in early September, subject to change. Based on what we know today, we anticipate the closing date of a merger is expected to be between mid-September and sometimes in early October. So with that, let me say a few words on our Q1 results. While we observed weaker consumer sentiment and inflationary pressure impacting the consumer discretion extent, we are proud to deliver a 12th consecutive quarter of bookings growth with Q1 bookings at 5% in constant currency and revenue at 6%. The quarter's performance struck in line with our mid-single-digit bookings growth projection for fiscal year 2023, which I view as a demonstration of the stability that our business operating levers provide in a challenging environment. Our direct revenue grew 5% in constant currency on top of another strong COVID-led double-digit growth quarter a year ago. In this new environment, our focus has been on balanced performance across a set of very healthy customer metrics. Total customer count was stable at over 23.3 million, up 200,000 year-over-year, but down 200,000 sequentially. Throughout the quarter, we saw the impact of the macro-level headwinds in our direct-to-consumer website global traffic, slightly offset by solid conversion rates. While these headwinds have limited our ability to grow customer count this quarter at the pace we aspire to, it's important to highlight that our overall customer base is healthy, with stable retention rates, stable output, an opportunity to continue to drive cross-sell, up-sell as we launch new products. Our retention rate remains very strong at slightly over 85% in units. Customer cohorts who joined during the so-called COVID period have retention rates at par with prior years, and through our operational initiatives, we continue to make progress in first-year renewal rates. Our efforts have led to happier customers supported by products that are easier to download and easier to use. Since we became a dedicated consumer cyber safety company, we have grown our direct customer base by approximately 3 million to reach over 23 million customers and at the same time improved our retention rate by almost a point during the period. Another set of activities we are focused on is delivering more value to more customers in our partner business. In this set of indirect channels, we delivered double-digit revenue growth for the seventh straight quarter, up 16% in constant currency in this first quarter of fiscal year 23. We had very healthy bookings in Q1, including double-digit bookings growth in both mobile and employee benefit channels, channels in which we added approximately 200,000 customers year over year and stayed flat sequentially. As we continue to build a more global and more diversified go-to-market model, We look forward to combining with Avast, which will allow us to accelerate our strategy of expanding identity and privacy solutions across the globe. A year ago, we stated that we would transform our company by building a richer product portfolio, and we have continued to work towards that. We are off to a good start in fiscal year Q1 on the product side. In Q1, we have made good inroads from our recent launch of the Nolan Identity Advisor Plus for the UK market, and we've expanded the product's availability to Australia, New Zealand, and Germany. This is yet another example of our international expansion efforts bolstering our identity capabilities. We also continue to earn positive product reviews from important technology reviewers. Just last month, We were awarded PC Magazine number one identity test protection software for 2022. Specifically, this was Northern 360 Whistler product awarded to provide the best overall identity protection in the industry. This is just one of the many times we have been recognized for our overall product innovation and development efforts. We continuously assess and prioritize our product roadmap, and we know we still have big opportunities to expand our product portfolio, especially in areas beyond core security. But above all, what guides us is our focus on providing quality and value in our products. It is about a seamless end-to-end customer experience and comprehensive protection while making it simple for consumers to engage with us and stay safe. Cyber safety will continue to be an evolving and growing market, fueled by the increase in activities online, which brings more risk and challenges to consumers' digital lives. With the merger with Avast, together, we are well positioned to drive the transformation of consumer cyber safety and pursue our long-term objective while being financially resilient in any environment that comes ahead of us. And with that, let me turn the call to Natalie to cover our results in more detail.