Gen Digital Inc.

Good afternoon, everyone, and thank you for standing by. My name is Hannah, and I will be your conference operator today. I would like to welcome everyone to GEN Fiscal Year 2024 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, Hannah, and good afternoon, everyone. Welcome to the GEN first quarter fiscal year 2024 earnings call. Joining me today to review our Q1 results are Vincent Pellet, 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 recon of non-GAAP to GAAP measures is included in our press release, which is available on our website at investor.gendigital.com. Today's call contains statements regarding our business, financial performance, and operations, including the impact of our business and industry. That may be considered forward-looking statements, and such statements involve risk 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 and the SEC, and in particular, our most recent reports on Form 10-K and Form 10-Q. And now, I will turn the call over to our CEO. Vincent?

Thank you, Mary. Good afternoon, everyone, and welcome to our earnings call. Our fiscal year is off to a great start. This quarter is what many of you have come to expect from us, strong execution, consistent operating discipline, and solid results. These quarter marks our 16th consecutive quarter of growth with Q1 cyber safety bookings and revenue, both up low single digits in constant currency when including a vast historical result in the base. We continue to make progress with our direct customer count, reducing our gap between acquisition and churn in the post-COVID environment and on our way to breakeven. With operational integration essentially complete, we expanded our operating margin by another 50 basis points sequentially and six points since the Avast merger, which only started nine months ago. We expanded our earnings power, growing EPS 5% in U.S. dollars and 9% in constant currency. Our consistency can be easily taken for granted, but make no mistakes, these sustained results to the talent and commitment the Gen Team shows every day. Our team is second to none. As you can tell, I'm proud of what we have accomplished. But what really excites me is when I look ahead. We are well positioned to drive innovation and leadership in cyber safety, protecting people against the growing threats facing our ever-expanding digital lives. And we really have only just gotten started. As the footprint of our digital lives continues to expand, people everywhere need easy-to-use solutions that help protect them and enable all the digital world has to offer. When Andre and I first talked about bringing Norton LifeLock and Avast together two years ago, delivering this type of protection to more people in more geographies with a comprehensive product portfolio was the fundamental vision for bringing companies together. And if you go back and look at the roadmap we shared with our stakeholders, you can not only see our progress on each dimension, but more importantly, I believe you can clearly see that GEN is delivering on our mission to empower and protect people everywhere. One of the key elements for Andrea and I was that our combination would create unmatched reach and scale. Today, GEN touches hundreds of millions of people with our free services, and 65 million subscribers, direct and indirect, with our premium offerings. We serve consumers in over 150 countries, and at the end of Q1, 60% of the people we served were outside the U.S. versus 40% two years ago. While we continue to believe in growth in all countries, we have tremendous opportunities internationally to serve more people and, over time, grow the value we deliver to them. In fact, our customer acquisition success in Latin America is a showcase of this global expansion. In Q1, we reach new customers through new channels, new countries, and new products, all three dimensions in that region. Our Q1 international growth was supported by positive customer count and expanding ARPU for longer-tenure customers, which we view as a strong proxy for those customers adding value over time. With our global reach, we bring to market the broadest and most comprehensive portfolio in consumer cyber safety. Norton and LifeLock's leadership in security and identity, coupled with a vast strength in security technology and privacy, are also unmatched. Not only do we have the breadth of offerings, we have many trusted industry-leading brands. Our portfolio of brands allows us to best serve the different needs of our diverse customers. whether that be from regional or local needs, different life stages, or levels of tech awareness. With Norton, Avast, LifeLock, Avira and AVG, amongst others, we can meet consumers where they are and with what they need. With Avast and Avira, we can reach less mature markets with freemium offerings. With Norton, we can offer comprehensive suites that deliver tremendous all-in-one value with higher entry price points. And with LifeLock, we offer unmatched identity theft protection plans, including award-winning restoration services. The portfolio and our family of trusted brands are great enablers for us to deliver the right value to consumers in the U.S. and abroad and grow that as their needs evolve. This quarter, we delivered our third quarter of sequential improvement in ARPU and retention, driven by double-digit growth in cross-sell and adoption of our comprehensive integrated suites. Today, almost 40% of our direct paid customer base have adopted Norton 360 or Avast One. Most importantly, Gen's investments in technology and innovation are really the engines that power our current and future success. In this first year as Gen, we launched several new products and features, expanding the portfolio offering to provide our customers more protection and control in the digital world. Products like Avast Identity, Anti-Track on Android, Norton Secure Browser, and Executive Protection in Employee Benefits all come from the combination of our complementary portfolios and expand the protection and digital empowerment we offer to consumers. We promised accelerated innovation when we brought Avast and Northern LifeLock together, and now with the integration essentially complete and the strong progress we've made in our next generation modular cyber safety platform, we are beginning to double down on our innovation efforts and revenue synergies. It is still early days, but just last week we introduced early access program to our latest innovation called Northern Genie. Northern Genie is an AI-powered tool that is designed to help consumers quickly identify whether a text, an email, social media message, or a web link is a scam or a fraud. With a few clicks or taps, Genie will provide real-time guidance and advice on what to do next. Because it's built on AI technology, it learns as it goes and will constantly get better. It is an exciting innovation that's built on our decades of experience in data and advanced technology in consumer cyber safety. But just as important as the tech is, Genie takes our customer-centric approach to another level. We created Genie for everyone. It's free, it's interactive, engaging, and is right at your fingertips so you can be sure that your daily digital life is not being compromised by sophisticated and creative scammers. Genie is just a glimpse of how we plan to innovate and reimagine how people can stay cyber safe. And there is so much more we can and will do with Genie platform. Now, innovation is hard and it's hardly free, so we remain committed to investing in it. We are on a mission to make cyber safety something people want to live without. That's why we focused on delivering and, frankly, exceeding on our promised synergies while reinvesting a portion for innovation and future growth. We originally promised $280 million in cost synergies, which we later raised to over $300 million. In record time, we fully integrated our sales, marketing, and overall infrastructure processes. Today, we operate out of a unified go-to-market structure, a single ERP system and code-to-cash framework, and with a committed workforce of under 3,500 down from over 4,500. Halfway through our 18-month timeline, we've already achieved 80% of the cost synergies, enabling us to reach almost 58% operating margin in Q1. The remainder will come from our phased product integration work, which we are careful with so as to not disrupt the service and experience of our subscribers. Rest assured, of course, that these are all planned out and will roll up our progress in the coming quarters. As part of the combinations, we also see revenue synergies, which we size at around $200 million. A big portion of this revenue opportunity is largely dependent on our next-generation platform which will enable us to offer more value in a more personalized and targeted way across our brands. While the teams are hard at work bringing that to life, we are already leveraging one of our centers of excellence to increase the Avast customer retention rate, another pillar of revenue synergies. In Q1, Avast retention was up over two points since the close of the merger. We believe that investing in innovation and growth is a must. but we are already disciplined about funding those investments responsibly through efficient and streamlined operations. We've made tremendous progress in the integration and our overall operations, which we know will directly support our long-term growth. The 16th quarter of growth and the capabilities we've built coming together with Avas demonstrate that our strategy is working. Two years ago, at our last investor day, we showcased our strategic playbook and transformation. Today, no one is better positioned than Jen to bring cyber safety to everyone. And the big aspiration goals we set then are more relevant than ever to achieve our vision. As a reminder, we committed to consistently delight our customers, doubling our NPS score to above 70. We committed to protect and empower people with cyber safety, doubling our user base. and we committed to accelerate our growth while maintaining operating discipline, doubling our EPS to $3. We've made solid progress as we executed on the merger plan and created GEN. Providing customers with a great experience is our number one metric. We will continue to make our solution easy to use and bring added value to their digital lives. In Q1, LifeLog reached an all-time high NPS of 60, giving us the blueprint to leverage the operational learnings across our entire portfolio. Our user base moved from about 80 million as Northern LifeLock to hundreds of millions of users as Gen, and our direct customer moved from 23 million to over 38 million. And also, we have been managing through a challenging post-COVID environment, including a cost of debt that is much higher than two years ago, costing us over an incremental 50 cents in EPS, We remain fully committed to accelerating our long-term growth and delivering our $3 EPS commitment. With our first full year as Gen almost behind us, we look forward to sharing more about our vision and our growth opportunities at our next investor day, planned for the fall. So stay tuned for the exact date. Natalie will now review our quality performance, and with the merger and integration essentially behind us, she will also share our full year guidance. On the low end, our guidance is based on the current trends, growing low single digits. On the high end, growth accelerates to a mid-single-digit rate towards the end of the year, supported by initiatives and investments in key strategic areas such as international expansion, partnership above and beyond security, and our product innovation roadmap. On direct customer count, we expect to continue to drive improvement over time and exit the fiscal year 24 on a very positive trend. And with that, let me pass it to you, Natalie.