Gen Digital (GEN) 2 Feb 232023 Q3 Earnings call transcript

Good afternoon, everyone. Thank you for standing by. My name is Francis and I’ll be your conference operator today. I would like to welcome everyone to Gen’s Third Quarter Fiscal Year 2023 Earnings Call. Today’s call is being recorded and all lines have been placed on mute to prevent any background noise. there a remarks, session. speakers’ the will question-and-answer be After

Relations. would opening pass Mary At begin Investor for I Lai, you like of Ms. this time to remarks to may over the Head Miss, call

you, XXXX quarter fiscal Thank to third And everyone. earnings good Welcome Francis. Gen’s call. afternoon,

Vincent me are QX today Natalie and our review CEO, Joining Derse, to results Pilette, CFO.

be along call posted release. IR website with As slides this a on of reminder, a replay there press our will and the

during unless this included measures non-GAAP that investor.gendigital.com. all A like references all is financial everyone I’d measures in to of the call are which at release growth available to remind is reconciliation press GAAP to rates otherwise on and our website, non-GAAP the are year-over-year stated. IR

our uncertainties performance the financial actual speak contains may Today’s assumptions based forward-looking and industry, may on regarding and and call of current of beliefs, results impact differ expectations. and from and be statements risks that the are including statements involve that only current our statements considered business expectations current our materially Those cause as to date. statements operations such business,

information, the press and filings our and XX-K Risk to Statement in release our our and please with report Factors more in in SEC, Form on refer the the particular, Cautionary recent For most XX-Q.

And now I our will over Vincent. call turn the CEO, to

the to we each afternoon, easy, their welcome made. thank Merging our tremendous and To to want never companies XXXX. Good I QX contributions have is proud and and Mary. everyone, call. you, progress of employee first two for in dedication Thank start, I'm Gen their earnings

millions keep safely. digital lives live the Quickly foundation getting creates their done the for to Gen to integration empowering right,

transformation threatens of digital of security, privacy. and at a all that an and identity that are aspects We our ever-evolving threat landscape intersection touches the lives our digital

anymore. The not hackers threat digital all device information shift the continue to it your in attacking to individual means places still their Although and data, biggest malware the the of just where and that individuals is vectors, scammers needs one protected the shift to be to leads.

device malware under fake protecting a the manipulation that financials, damaging world, to reduced, reputation people's test threat usage, have and volume whether ever reputation or or not is their news, privacy and The often and financially been. today's sophistication is not identity, In Information safety has malware more are for [ph] overall as landscape enough. discovery fraud, digital grown, it is threat.

Gen path are immediate person giving cyber total fulfilling safety. LifeLock committed trusted brands and to such Norton, as towards consumers' and needs brings every world, digital connected many to together a We the capabilities. combines Avast,

new technology, us set opens creates safety the combination platform of for products, opportunities. have and and for plan. business, get a levers Gen's strengthens increases to our be our and best a strong global consumers long-term growth marketing scale, product sales to strategy innovation channels, growth diversify efforts, we Our foundation We there. the It go-to-market cyber

to reach strategy, leveraging As identity user by value for from customers and levers last on we extending and call, expanding growth the solutions, retention. by loyalty shared our are customers omnichannel increasing growing privacy experience and global the improving

and share on Before the progress me to integration. the let highlight it QX pass our I Natalie, results made

a the to our back-end systems hit would you across first us processes optimize enabling go-to-market our As three and the we've fast. unified months, integrated all expect, investments brands. deployed we've ground running structure, In and

about and XXX We activities. identified or jobs eliminated duplicative

And to in we're facility our the location code-to-cash new this reductions. strategy, are leading process our processes. of We week, integrating deploying

but revenue integration innovation, our broader accelerate not which are be long to Product our of we supports growth will the striving pole and maintain synergies where objectives. pace only

that ensure strategically we In that the address engineering threats to technology dynamic our every innovative teams integration products day. of are and face people delivering the driving case, we this continue

you margin. see expanding our operating the Overall, can in progress

year exiting track savings to the annual XXXX. plus on are million cost $XXX achieve We fiscal

coming Our at adoption, a activities integrated our customer for across sharing on years. now the best loyalty, practices teams technological focus are and cross-selling the are two continents, driving core which synergy adopting together platform knowledge of next revenue know-how plans with and

the The Let's lackluster pressure seeing what quarters, we turn traffic and have global inflationary market were to we QX persistent overall saw demand results. in and been on QX trends consistent e-commerce with few pressures. in consumer last

to at a our we QX combined, look were spending in both constant macro taken the safety, call this results have and a currency factors, in historical when of consumers environment. the that vast growth base. up more in approach Despite X% our consecutive challenging revenue which quarter direct their believe We we including we partner delivered cautious now our cyber and business bookings and when XXth

currency execution across strong was our and negative We year-over-year strength and of X% masking expense, three points sequentially. Growth our four grew spread margin regions, by product of and and business. with the lines. the brands, interest expanded operating EPS operational impact points

top Our direct last we prioritizing eyes similar growth marketing the efficiency, higher and customer taking ARPU to deploy soft the achieve In but this strategically returns continue X%, off spend environment, not quarter's retention and business our on to of our grew to ball rate. the funnel. the highest

count while double-digit and Avast safety retention, quarter-over-quarter. especially supported slight with in our slightly cyber by by offerings strong direct Growth sequential privacy over our improvement declined customer was $XXX,XXX in growth cross-sell,

to partner we with delivering and business this another value by or strong traction partners wallet we quarter demonstrate share continue our was omnichannel primarily from make our the to quarter approach, driven gains On diversified growth as double-digit continue proposition. side, existing

many both is their program, Gen want defender Benefits concierge LifeLock Executive other personalized, product In includes and the and high-profile and products. individuals. will And our employers C-suite Norton accelerate the launched of the for designed only success support reputation solutions that which me integration core QX, As combined is a you've two innovation. that for executives of several introduced capabilities. product companies new times, is heard we say We

launch Identity the the in with our continued of internationally We features monitoring market. credit expand UK to business

protection, In products. assistance alerts the Identity Avast two US, loss identity launched reimbursement. in includes and was we launched test December, new Secure which

LifeLock added which accounts names. Alerts, Additionally, or that new customers' monitors industry-first are feature telco utility called opened Utility in an

have app expanded Monitor to we've a for Norton global our to Canada reach we with the Assistant our Privacy first product reach. mobile privacy, And launch In Norton launched extend our very also anti-truck the for time. of

the to value launches comes Our that expand mid-term an product within strategy keeps sales. our invest in offered to is new and developed. that the We will customer platform current portfolio through Innovation is customers short retention. a will to and priority, strongest believe user that and improved fiber experience have these loyalty and our we grow the we've top continue focuses to our

our growth remains Let comments me intact. by saying here up wrap strategy that my

We will this in continue to and profitable execute challenging environment long-term create drive stakeholders. to value all growth for

cover Natalie? me over And in to Natalie to turn our detail. results the call now let

Thank you, and Vincent, hello, everyone.

through up For give and unless with focus growth outlook I will an our results, on otherwise call, who today's non-GAAP our for synergies will financials and walk QX wrap QX, update on year-over-year stated. rates

guidance. our the came reflect the consistent end above at Our execution. solid We in another QX of our performance guidance high revenue and EPS of of quarter midpoint and results

growth QX We our grew When financials, and and customer portfolio geographic in year-over-year drove XX% in product by a XX% constant XXth base historical of including expanding growth, bookings constant We resilient and in and X% currency. diversification our Avast bookings USD safety cyber consecutive grew currency. channel supported quarter efforts. bookings

direct with growing QX Our our double-digits to launches. new major business included we existing contributors as quarter to cohorts, supported our with product in stable retention our growth customer the expansion consecutive for by scale our growth ARPU ninth cross-selling driving mid-single-digit efforts, and several partners

million, currency, contribution. includes been When unfavorable full This XX% growth, USD highest revenue FX also includes of of million grew of Avast vast in or in revenue, quarter QX XX% five currency. non-GAAP revenue in including was year-over-year a all the cyber X% year. fiscal $XXX constant constant it's historical headwind $XX a safety up points year-over-year which and an

revenue X% pressures walk measured existing a higher with USD in this financials. market, macroeconomic when quarter. and key improvement $XXX retention our safety continued the performance historical of loyalty driving our million including as expansion let and for our grew proud in vast ARPU operating cyber through the the metrics in Now, grew and me XX% Direct Considering we persisting by quarter. customers are value of

an just Direct or $X.X, ARPU monthly through expansion quarter-over-quarter. average would November. $X.XX We we in back like our was efforts, drove growth of we upsell do per revenue user cross-sell and said expanded

attach our customers growth existing Our have to existing choose their incremental quarter. who high strong double-digit subscriptions, scaling services these driving in to traction the privacy with offerings

integrated customers Cyber we safety choose again stand-alone offer offerings. adoption incremental quarter this has the services and value our as membership versus platform through increased

e-commerce Traffic impacting new $XXX,XXX quarter-over-quarter of challenged million, customer to sites count than ended into environment. year we at our last acquisition Direct our face is macroeconomic is and a a decline lower funnel. XX.X as continue customer to

We cohorts. invest while a in drive shifts delight continue of more to to mix our and in marketing the our in mix base, diverse higher with customer acquisition. spend up existing it's site, retention to with help pockets retain optimizing market of to dynamically XX%, traffic different working efforts above customer We landing and drive adapting to to improvement strive and and direct channel sequentially

and inroads period the made with November a of Avast progress. early opportunities improvement. was short rate primary in was the sequentially of synergy Avast are we while the we nominal, encouraged improvement retention shared the we One In retention the early time, by

through traction expect coming be quarters. improvements synergies over with directly we ARPU to revenue measured the retention ahead, Looking and

growing $XX drove of sign revenue portfolio, Avast USD on partnerships was our XX% revenue growth quarter reported ninth channels, capture Moving and We to historical our to result in XX% year-over-year partners. us a partners. product more our partner growth existing to across of partner growth This financials. million, with consecutive new enabling when business new and double-digit as international including

retail drive leverage and our to partnerships existing continue offerings. the expanded of telco distribution product We to

growing is channel. we and are continue employee in the and strong and channel Our market reach a differentiator broad our in with pipeline, to large a across spanning small, growth for With invest distribution, midsized, will well-positioned employers. benefits this

income QX XX% strong profitability, synergies. over and expanded our integration $XXX to of a discipline, million, our accelerated to efforts, of cost We result our operating as execution year-over-year. continued up operating margin XX% Turning was cost

X,XXX rationalization of to reductions and strategy we are early employees approximately expense overall Through of contracts profile Synergistic from a structural revenue. to operating XX% enterprise X,XXX, QX, contributors workforce from workforce roughly from duplicative hybrid reduced our XX% lower consolidation facilities IT our costs. have to operating

We are the making outlined last quarter. margin plus XX% to inroads we've framework

one-third the $XXX as million At the we to QX, cost rate we target from achieve XXXX. on achieved perspective, of fiscal remain an exit and annual of over exit track of we approximately synergies end synergy cost year

we as growth expansion creates leverage innovation operating reinvest planned, As more sales forward this in in move our to product and efforts.

total than net the related of last currency, $X.XX X% worse headwind. XX% a and QX million was negative rate year. EPS up in in to $XXX the year. with EPS including We compared to last a year-over-year interest currency million, of to rise currency quarter, QX impact Interest debt or remain headwinds in the $X.XX $X.XX with expense up from Diluted income the constant continue was cost volatile debt SOFR $X.XX in our was $XXX conditions near the for future. quarter, to projected of in anticipate X%

this our flow million approximately flow cash million. for $XXX was balance flow $XXX a $XXX was of and operating sheet. million Turning cash includes expense $XXX brings to free flow cash quarter. cash QX total to of year-to-date which free payments fiscal interest million, This and our

ending over was Our balance million. $XXX cash

balanced purchases million our $XXX million approximately of $XXX shares, prepayment of In we remaining our a of QX, TLB. and deployed maintain have share we XX capital -- $XXX buyback In our current program. made January, in We repurchases, approach equivalent the million a in opportunistic deployment. we million

of shareholders dividend to form a per regular quarterly million $XX of $X.XXX paid also common We the share. in

per for record For of Board quarterly of common close XXXX. of of business the the on and all as XX, March to on dividend XXXX, QX, approved February a paid share cash regular shareholders Directors XX, $X.XXX of be

balanced capital and $X and times to deploy our share With cash XXXX. EPS over near-term to with capital buybacks. until we and deliver we a April total positioned continue opportunistic to billion well maturities due will of deployment, in with expansion debt three are approximately and generation target We have our liquidity down pay no utilize net approach disciplined flow strong

turning our Now outlook. QX to

$XXX currency. For million revenue QX, translating we non-GAAP of in expect mid-single-digit to to range million, growth the in cyber expressed safety $XXX in to low constant

expense synergies $X.XX as We on are based partially cost increased curves. to of expect be the share offset QX by non-GAAP in interest range $X.XX forward current EPS to per SOFR

assumptions. exiting on the achieve $X and EPS following QX, still fiscal XXXX focused Beyond to objectives targeting underlying annualized remain key we our year long-term with are

Our mid-single trends our towards of XX% below and grow cyber buyback. safety XXXX and diluted margin, cash X% levels. indicate pre-Avast structure share be free fiscal curve to synergy flow deployed SOFR expected business plus digits, count exiting continues to post The merger paydown year around operating share rates debt

In with long-term solid our summary, plan. and this a in was line quarter

We execution across growth, level achievement the of our synergies. are and proud of continued accelerated our the teams, of

take of Amidst high we opportunity face, and strong base business and to both advantage services growth revenue on to shareholder focused flow secular us. driving best and huge front cash healthy model the customers, headwinds in we our committed robust remain the generation of remain we delivering value we the customer future, incremental current streams, with our and ratable as products

thank always, And take time call the to to today. back your the will your you I Operator? operator for turn As questions. now

Instructions] you. Saket first Our Please go [Operator Kalia. Thank from question ahead.

Hi Saket.

Vincent, hey Hey how are great. hey you? Natalie, guys Hey

Good.

quarter combined processes how again, Curious more you've about around of do Avast seen taking that's for maybe you under about more synergies, for Whether my full a cross-selling that are how Thanks bit multiyear of with revenue little those as but opportunities, you, a with first with I of start synergy longer-term or questions feel process, questions. revenue your kind you start question. I guess synergies kind To right? here. longer-term retention feel know having just the time entity? belt, what to of a the Vincent

that the to integration grow Yes, We in on our call very will fast said value first we than it's customers. really best operations good the question. the last of our on our focus to a for of position put products

next portfolio Avast Life million be of who XX%. side, not years. had $XXX those customer the call, retention. to Avast Half On on with realized on two revenue when of the portfolio synergies about or about improving aggregate for we the in, acquisition revenue before Avast, were synergies call, to Log the last identified the the those Northern about a we dropped merged of XX% of over brought were retention

customers by assumptions, felt and of about points a to we can at sure good that membership of based activities initial LifeLock, And benefit more and our functionalities had on five moving retention platform. we level that on making we identified the improve that Norton all operational the including they use

mature, the in, days her Natalie operational XX in identified we good retention trend I improve to having gives confidence plan the over nominally, us quarters. After yet that script make think the it next Avast path, mentioned it that improved or on right so not enough but right to a we're few

space. grow being synergies, all well over cross-sell, the focused, those revenue privacy activities. received. them quarters it's that big few and us our would security up-sell be quarters, and of In the device-centric still we're more about accelerate the or next quarter, I opportunities. customers that opportunity cross-selling offering And next the launch privacy to The Three identity give the of to identity products going new features confidence think in

good fully One can product fully of of helping have of bit optimization, the the weaknesses a for to And models activities integrated the the so then results. business conversion defining the is recalibration do across in-app we free-to-pay marketing between conditions being is our identifications little the remaining the product we protected. customers them on spend and e-commerce, diverted other the marketing so strategy

$XXX I would in I today, million all reconfirm think I say estimate. all, our So would

EPS. to to not and some But rate from and changes others. that there. is change, we mentioned the our when we based confident on our in growth macro rate We two-year the traffic Half can there get upon mid-single-digit rely but $X level confidence next The does come model in the a global we is there. We're revenue synergies. those timeline short-term getting growth in know that coming of

Great the helpful. very in in million buyback quarter. the That's it. you. Got maybe to for Natalie, $XXX see

us you there into bit maybe guide? talk here in about little I sort Can million factoring $XXX the return in early in capital about that think of more just to was a it $XXX said little a delevering. QX. you how the maybe you around of delevering you're I nuggets EPS. mix of buyback of think mean just QX and And we How longer-term, mentioned of should some kind share broadly

QX accelerated in very factored the Yes. of you model nothing down. with Hi, know, maximize debt financial priorities. opportunistic paydown But Saket, in strike the we as right to back guide, benefits you as answer for we thank across share continue we very, there's all specifically, for our those to the question the there both consistent know, balance debt mandatory very capital To allocation our that We'll to beyond return have question. your and pay shareholders. buyback as

We've it cost stated to the call. us going it you've delevering as And better. before hurdle, a as in of today's that's for is a now cost The couple debt of priority. worse It times a major of is. debt, get gets one heard

deploying as count way. international can flow continue the very generate continue you our capital on we So advantageous in cash, will we to that very, active most to strong repatriate allocation be us we in and cash

it curve long-term of outstanding it s we allocation -- stay the till better capital fiscal does XXXX. year our We look very, into large much until have priorities debt will a that doesn't model, see -- anybody can get very As we that consistent. SOFR amount seem

you'll year balance us debt not strike both. right to We through and accelerated navigate only we as that buyback share So paydown. opportunistic fiscal but across see QX do XXXXX, got

last one one shorter you, term. for bit just more maybe absolutely. Absolutely, little Vincent, a

backdrop. parse net focus you curious that maybe metric. just of bit. little add the kind the much that And the a challenging How did in macro out log just if in coming a that sort add kind gross thinking We you of did could churn do? how obviously, on a piece. I'm more kind about So of are of that's saw How to quarters?

Yes.

customer the One with you products retention of and of portfolio; high customers So, the report. at then adoption three not drivers. just satisfied more direct being step that the for adds which is revenue the a so full or users, some retained we back values; growth the about when is customer our get the activities level, really total we

ARPU we On improvement how Many behind have a and me, lot Obviously, think of by you to Avast, we those two growth we the work that. adoption very you've continue on there. ask mainly seen have sequential on And operational know-how, there. retention, membership and slight investors that? driven do do product that innovation a good cadence but I important are driver okay,

total even from though membership. a at membership customers, including a as they're We comes our from not look benefit total, partners, membership. direct overall they Then

invest into the to And about that so partnership, growth, seen performance there. you've and we'll continue we're happy pretty double-digit

We the continue work to on funnel.

customers across of the net ARPU. the about When and retention a new regions it lines the if comes to growing so direct want. It's funnel, adds, slightly top and across with stable all gross all you

we privacy a for last working all or A the the spend it's you trend a bit portfolio. that different no or now it on Europe for weakness have optimization combined device. identity may the quarter was when think want security dynamic, to robustness right? slightly more it's we continue than innovate quarter of quarters, I us, closer you seen And So, pillar on little if Same more Americas. it's the whether as couple be to this marketing

Thanks back guys. get I'll helpful. queue. in Very

Thank you.

your for you questions. Thank

Morgan Fodderwala Our next of the from line Hamza question comes with Stanley.

Hamza. Hey

Thanks Good my evening. for question. taking

on think past might to that's follow was it bit. just with question picking expectations But wanted what pretty environment quarter. sounds little overall on net I the a I your be add this the probably like folks consistent So, because for

side. think a Northern least last coming quarter, stable, that I we the at in saw more net But on bit LifeLock the adds little

the quarter, saw you to was weaker as what bit Gen consumer I'm got little end relates where maybe throughout anything there curious, Digital. perhaps of the December towards So it a the

question. the understand I Yes,

like dynamic slightly reverse. same. the I at, and sorry, overall, we're quarter that under looking And change the it quarter, enough. QX, and more was worse it's the that same in and versus you're as the LifeLock Europe were right QX, indicate pressure same -- Avast you actually, proportion say lines, continents across last were under and sand not QX, would closer device And less quarter security than identity actually two in is what pressure this trends X want, about the the you to that mature I somewhat Americas, dynamic, the not and So, can if within sequentially in the worse Norton think dynamic privacy. of slightly but slightly

change we're we the see that right few trends we have. business similar between continue November, hey, see we when fiscal I models really we next And focusing And as on now for the we and the I ARPU had and think to guided why optimize we that's increasing integration, quarters in back as think different close retention brands in integration, year, trend. product said, we and a don't

Got And a maybe quick The a dollar for one gotten year-to-date. bit has weaker Natalie. it. just quite

curious you Just in thinking that? relation perhaps and the any fiscal QX to get commentary you're headwinds beyond FX about guidance how

just no of currency from assume We perspective, we fluctuations market. guide a Yes, don't rates. change in projected currency based to the Hamza. guidance impacts Hi, on

a only points. Hamza change percentage also And few

it's sorry, teams it's change materially how dollar we all change but operationally versus and direct-to-consumer just euro I big drive managing sales in bookings and business currency currency. the on constant their at in each the inside wanted teams to different to are constant we Hamza drive. for And that our company, not team of XXX in between may views, it versus us add So Yes, XXX.

So…

Thank Got Okay. you. it.

currently for of conclude There day. great questions Call. no are [Operator rest remaining. there you your today's for a At questions registered. QX this you questions. Instructions] Gen will your This more no Thank Thank and time, joining, are Earnings have