Q2 2023 Gen Digital Inc Earnings Call

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Good afternoon, everyone. Thank you for standing by my name is Matt and I'll be your conference operator today I would like to welcome everyone to Jen second quarter fiscal year 2023 earnings call. Today's call is being recorded in all lines have been placed on mute to prevent any background noise. After the speakers' remarks there.

A question answer session at this time for opening remarks, I would like to pass the call over to MS. Mary Lai head of Investor Relations Miss you may begin.

Thank you, Matt and good afternoon, everyone. Welcome to <unk> first earnings call. Joining me today to review our second quarter fiscal year 2023 result are missing pool at CEO and that'll leave Jersey CFO .

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

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.

Reconciliation of non-GAAP to GAAP measures is included in our press release, which is available on the IR website at Investor Doc Gen Digital dotcom.

This call contains statements regarding our business financial performance and operations, including the impact of 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.

That 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 most recent reports on Form 10-K, and 10-Q and now I will turn the call over to our CEO Vincent Thank you.

And welcome everyone to our first earnings call. It Gen digital.

In many ways, we are a new company better positioned as a leader in cyber safety and we then expanded purpose of powering digital freedom for everyone.

Our mission is to create technology solutions for people to take full advantage of the digital world safely privately and confidently.

Let me tell you a little bit about why we created Jen.

Generations today are normally associated with age such as Gen X Gen y or Z, but all generations no matter what your age all connected by one thing we are all digital generation digital we shop Bank run socialize online and that is just the day.

We have re imagined what the future will bring and what we can bring to generation D.

Did you do technology and innovation bring tremendous benefits to consumers in ways, we could never have imagined, but they also make out what are the more complex more demanding more exposed they have created new threats and challenges hacking has become a profession. The dark web is a black market used by <unk>.

Bad actors and the changes are not limited to hacking scamming of fishing.

Personal data is exports everywhere and now go which are influencing our reasoning.

Safety of course remains an absolute prerequisite for protecting our digital lives and fully benefiting from the digital World We live in.

Protecting online security is how we got started 30 years ago and it's still at the heart of what we do today.

But that's not enough anymore.

Agenda, we are committing to bring our credibility our passion innovation to step up and boldly tackle new challenges.

Digital freedom for everyone.

Jenny is now the leader that consumers trust to deliver comprehensive digital protection and empowerment in the digital world.

We are now United by our family of trusted brands, including Norton Lifelock.

Lifelock have euro AVG reputation defender and T. Cleaner. These amazing brands have and will continue to spend generations, which products and solutions that suit different lifestyles and life stages.

We'll also focus on trust based solutions that will do more than just help people around the world live Fuller safer digital lives today, we will have to define what it means to live freely in the digital world of Tomorrow.

As you know Jennifer jewel headquartered in both the U S and checkout, giving us the benefits of a truly global talented team located across Americas, Europe and Asia.

We have a purpose driven culture with an innovative mindset, we have products and solutions in over 150 countries with a nominee channel distribution strategy.

And we are trusted by over 500 million users around the world.

It is critically important to us to provide a seamless integrated cyber safety portfolio with best in class functionality and products that are easy to use and consumer friendly.

Before I share more about the quarter, let me talk a little bit about our integration.

We closed the <unk> acquisition on September 12, and we are off to a great start.

We have announced a new organizational design and leadership teams to help drive the next chapter of this company.

On November 1st emerged our back end systems and have a detailed technology and integration roadmaps.

As a result, we have increased our annual savings to over $300 million and we believe we will be fully completed within the next 18 months.

Yeah.

With a combined go to market leveraging a powerful set of trusted brands. We are focused on the opportunity to deliver more value to our current customers across our brands.

We know that higher engagement leads to growth in our pool and growth and retention for nearly 65 million cyber safety customers, which includes both paid direct and partners.

As of today, we have identified initiatives that that revenue synergy opportunities of about $200 million in the next two years, giving us additional confidence in our ability to sustain a mid single digit growth rate in the midterm.

While the integration is never easy for the team we are collectively very motivated by the opportunity in front of us.

Okay.

Now, let me move to our Q2 results I will provide a high level summary, and then naturally we will spend more time walking you through our detailed results and the reporting structure post acquisition.

Supported by our strong execution in a challenging environment, we delivered our 13th consecutive quarter of growth with Q2, Q2 bookings up 11% and revenue up 12% in constant currency, which includes seven percentage points of contribution from our vast.

Excluding avast, our cyber safety bookings.

Revenue grew 5% in constant currency in line with our mid single digit growth expectation.

Earnings grew 5% or 12%, excluding the impact of currency headwinds.

Our market leaderships are strong customer loyalty and the continued increase in value, we delivered to our product innovation and membership adoption enable us in the current economic environment to really tackle the business from a position of strength.

At the core we are a technology and product company and one thing that will not change is our continued pursuit for a faster pace of innovation and build out of our product portfolio.

Combining our offering with a vast gives us the most comprehensive product portfolio featuring a full coverage of cyber safety needs.

We are the first to offer a fully integrated platform covering device security and performance data and cloud security identity protection personal privacy and reputation management.

Before the acquisition over 60% of our customers had taken a membership our platform approach using Norton 360, now with avast, we approximately have 35% of our customers, having adopting our platform, giving us the opportunity to offer another 15 million customers the benefits of our future.

Rich platform.

While we are making fast progress on the technology front and the product integration front, we remain focused on the pace of our product releases, whether they are new products, new functionalities are platform upgrades.

We continue to make strong inroads with our privacy solutions in Q2 and tight truck expanding its capabilities to additional browsers in countries and relaunch our privacy monitoring assistance or PMA solution into retail channel for the first time.

In the identity pillar, we continued our international expansion and launch our IV adviser plus offering to more European countries, including Germany and France.

We have also launched several new enhancements to the U S lifelock experience, including guided child credit freeze.

We also launched email Guardia and we have asked our new feature capable of filtering malicious emails with no endpoints present independent of device used.

The new online safety score provides regular feedback on the users digital habits, and personalize tips to help them take charge of their online safety.

Finally, we were also very pleased by the performance of the advanced Security engine, which is called top marks in leading independent tests overall, the avast team brings a lot of technology know, how and then innovation man mindset around human centric cyber safety, which makes our combination even richer for consumers.

Expanding our ability to reach customers is equally important gen is now a house of brands with diversified set of sales channels and a business model that spans from freemium to premium.

Direct to consumer business remains the main channel for us today.

Despite macroeconomic pressure that showed in global ecommerce traffic through the quarter, we're able to grow bookings, 3% in our direct to consumer business.

We strategically deployed our marketing spend focusing on higher our pool versus customer counts.

We believe that this is the right way to deploy our marketing spend in this current environment and we will continue to adapt to deliver the most efficient and highest returns on our investment.

On the partner side, we continue to expand geographically delivering another double digit growth quarter of.

Our value proposition of complete cyber safety, including security identity and privacy protection is taking root.

As an example, we're excited to have launched our <unk>.

The offering for large British telco provider expanding our effort of identity protection for the UK market and replicating the success, we have had in Canada.

As Jen we have expanded our customer universe, but that is a small step towards our mission to protect and empower every one of the 5 billion global Internet users.

We have over 500 million total users, including paid and free customers one layer down we have a new classification of PE cyber safety.

Totaling about 65 million customers that is made up roughly of 39 million paid direct customers and over 25 million customers from our partner business.

And while our direct customers count declined by roughly 60000 quarter over quarter on the northern Lifelock side and 190000 on the advanced side, our short term focus and opportunity coming out of the acquisition is to work on the increasing and increasing the value for millions of our customers and consequently, their satisfaction and retention.

Right.

While the direct customer count is an important metric. It is also important to highlight that we have multiple levers to drive booking growth in more diversified ways such as growing in our pool with opportunity of cross selling new products growing in memberships offering a platform approach to cyber safety.

And growing in retention rates, especially on the advanced side supported by our best in class support and services organization.

Post acquisition, we have about two third of our customers that benefit mainly from a broadly defined security offering as a result of the acquisition our aggregated monthly our pool is now $7 per customer.

And we have as we have done before we believe we have the opportunity to demonstrate the need for a comprehensive cyber safety approach, including cross selling identity and privacy solutions from a richer portfolio and increased output over time.

As I mentioned is our platform strength continues to be a cornerstone of our strategy.

We have over 14 million members with a membership plan from Norton 360, I've asked one of your Prime these represent approximately 35% of our direct customers and believe we have the opportunity to bring that ratio to over 50% over time as we did it at Norton Lifelock over the last two years.

We have observed higher utilization higher satisfaction and better retention for customers that have subscribed to a membership and now benefits from our broad portfolio.

Customer satisfaction is a very important metric amgen. It is supported by consumer centric approach to our innovation and the largest service organization consumer cyber safety as a result, our Norton Lifelock direct customer renewed their membership at our retention rate of 85% plus.

When including our vast customer base and mobile customers. Our aggregate retention rate is now 75%. This is an opportunity to cross pollinate operational knowhow and offer a rich portfolio of supporting by Global service organization to all of our 65 million customers with a direct or through.

We see this as an opportunity to increase our 75% retention rate over the next two years.

In addition to our integration work, we have clean line of sight and priorities for our growth and operational initiatives.

Taking into consideration what I just mentioned, we have identified $200 million of potential revenue synergies that should lead to growing our pool and growing retention rates over the next two years.

We have channel diversification initiatives focus on partnership and new segments, such as the avast platform for small businesses.

And we will prioritize the effectiveness of our marketing spend on bookings growth over direct customer count. These revenue opportunities combined with over $300 million of cost synergies should deliver tremendous value and create room to invest for the long term opportunity.

So as we look to the future the current and potentially a recessionary economy does put downward pressure on some part of our business, but we also this and see this as an opportunity and a catalyst for us.

I am confident with our high recurring revenue model, coupled with operational discipline that our business will remain durable and flexible to navigate the short term challenging environment at the end, we know that the need for comprehensive cyber safety and digital freedom is a secular growth trend and we are the leader.

And now let me turn the call over to Natalie to cover our results and new reporting details Larry. Thank you Vincent and Hello, everyone. It's a very exciting time for our company. We are thrilled to bring the Avastin Norton Lifelock businesses together and move forward as Jen our team is highly motivated to get started and bring our vast opportunities to market.

For today's discussion I will walk you through our Q2 results and outlook for Q3 and wrap up with details on our long term model.

I will focus on non-GAAP financials and year over year growth rates unless otherwise stated.

A reminder, that our reported results also include a partial quarter of that which was acquired on September 12 2022.

Before we dive into the results I would like to share how we evaluate and measure our business performance as Jan.

Genesis centered on cyber safety, our product portfolio is split by consumer security identity, and information protection and our go to market Omnichannel business lines are split by direct and partners.

Direct makes up about 90% of our business with subscriptions sold directly through our e-commerce sites or third party App stores.

We have further harmonize our direct channel definitions and aligned to industry standard now, including Norton Lifelock mobile App store customers and revenue in this category.

Although partners only account for approximately 10% of our combined business. This channel remains an investment area for us as we further diversify our distribution models to provide multiple entry points for the consumer including employee benefit retailers', OEM telcos service providers and small businesses.

With the combined focused on cyber safety and go forward portfolio identified through the integration with the vast we have also carved out a legacy category, which includes end of life products or accident market.

In total this makes up less than 3% of our overall revenue base and we expect it to phase out over the next few quarters.

Going forward, our discussions will be focused on cyber safe safety growth.

For more details on our reporting structure I'd like to point you to slide 13 in our earnings presentation.

Now onto our Q2 results.

The results reflect our consistent execution and focus on driving long term sustainable growth.

Q2 is our 13th consecutive quarter of bookings growth supported by a healthy and robust customer base and strong unit economics.

Q2 bookings grew 11% in constant currency and was in line with our expectation.

Excluding a vast cyber safety bookings grew 5% in constant currency as we drove increased value through cross sells and the Norton customer base and our key partner channels continue to scale, including identity, driven partnerships with international telcos and employee benefit partners in the U S.

Q2, non-GAAP reported revenue was $748 million up 12% in constant currency and up 8% in USD.

This includes a partial quarter of avast, which contributed $48 million or seven points of growth in constant currency.

Similar to prior quarters, our top line growth includes an unfavorable impact of four points as a result of increased foreign exchange headwinds of over $30 million year over year.

We expect this currency headwind to continue with both the euro and yen depreciating further against the U S. Dollar in recent weeks.

Despite volatile macroeconomic impacts our cyber safety revenue, excluding avast continues to grow mid single digits in constant currency in line with expectations and again, a reflection of our focused and consistent execution.

Stepping through our other key operating metrics direct revenue of $660 million grew 11% in constant currency and 7% in USD supported by cross sell and other monetization initiatives with our existing customer base.

Direct customer count went from $23 3 million reported at the end of Q1 as Norton Lifelock to $38 6 million at the end of Q2, as Jen, including approximately $15 million cyber safety because customers from Alaska.

Quarterly performance implied a combined decline of 252000 quarter over quarter with 62000 for Norton Lifelock and 190000 from our best.

Both companies saw continued headwinds from lower global website traffic to our ecommerce site impacting new online customer acquisition.

But together.

With the vast we now have an even larger opportunity to leverage our go to market efforts and further optimize our marketing investment across brands and our CLO to drive up traffic and conversion.

Q2, direct monthly average revenue per user or <unk> was $6 98 in USD, which reflects a blended RPC of Norton lifelock in a vast combined with a vast <unk> of approximately $4 30.

And mobile <unk> of approximately $2 30.

Specifically for Norton Lifelock results <unk> expanded over 30 cents year over year adjusted for FX.

We are proud of the progress we've made in the last year, increasing the value provided to our existing customers through our cross sell and up sell efforts and are excited to drive similar improvements with the a vast customer base.

Our customer base remained loyal with Norton Lifelock retention stable at 85% exiting Q2.

As we merge with a vast our overall customer retention rate moves from 85% to 75% blended.

We believe the 20 point retention differential between Norton Lifelock in a vast presents a large synergy opportunity to drive growth with our existing customer base.

I will expand on this more as we discuss revenue synergies shortly.

For further details on our performance metrics. Please refer to slide 14 in the earnings deck.

Moving onto partners partner revenue was $74 million up 21% in constant currency and 16% in USD impacted by five points of FX headwind.

This is our eighth consecutive quarter of double digit revenue growth and partners.

As we leverage this channel to extend our reach to consumers and broaden our product and Geo expansion effort.

We will continue to invest in this omnichannel strategy, specifically in telco and retail partnerships that drive distribution of our expanded portfolio offerings.

Employee benefits were cyber safety and identity protection is essential to the employee's lives.

And through small businesses, where entrepreneurs can scale their businesses with peace of mind, knowing they are digitally protected.

Partners will remain a key cornerstone of our investments going forward.

Turning to profitability Q2, operating income was $388 million up 7% year over year with partial results for that.

We continue to run G&A lean at roughly 4% of revenue, which provides the operating leverage to invest in sales and marketing and R&D.

We remain disciplined in our cost structure with margin flat year over year.

Looking ahead as Jen, we will strike the right balance on investment across our expanded portfolio and channels and will be intentional in how we spend in order to drive the highest returns across the markets channels and customers we serve.

Q2, net income was $269 million up 5% compared to last year.

Diluted EPS was <unk> 45 for the quarter up 5% year over year or 12% in constant currency, including three cents of currency headwind.

Please note that this reflects partial dilution from the $94 million, a vast share issuance and higher cost of our debt.

And our non-GAAP tax rate estimate was 23%, which represents a blended rate before any tax restructuring effort.

Turning to our cash flow and balance sheet Q2, operating cash flow was a use of cash of $88 million in capex was consistent at $2 million in the quarter.

Seasonally Q2 operating cash flow is the lowest quarter of the year due to the concentration of tax payments.

This quarter also includes approximately $110 million of cash payments tied to the closing of the bass deal and related financing transactions.

Looking ahead, we have high confidence in our cash flow generation, which will continue to grow with profitability.

Year to date, we have returned over $550 million back to shareholders in the form of both buybacks and dividend.

We deployed a total of $404 million towards share repurchases or over 17 million shares in the first half of this fiscal year and have approximately $1 $4 billion remaining in our current buyback program.

In Q2, we repurchased $104 million or 5 million shares.

We also paid $73 million to shareholders in the form of a regular dividend quarterly dividend of $12.05 per common share.

For Q3, the board of directors approved a regular quarterly cash dividend of $12.05 per common share to be paid on December 14th 2022 for all shareholders of record as of the close of business on November 21 2022.

Moving to our capital structure, we had a lot of activity in Q2 related to the avast acquisition of maturities that came due during the quarter.

We now have a capital structure in place that we believe sets us up well for the long term.

We remain well positioned with $2 6 billion in liquidity.

And our gross leverage is 4.4 times with net leverage just under four times.

You can refer to slide 31 in the earnings deck for more details on our go forward capital structure.

Looking ahead Jen as a combined business has predictable and highly ratable revenue Jenna.

Generate significant free cash flow on an annual basis and is backed by a strong liquidity position.

We will drive a balanced and disciplined capital allocation approach between targeted deleveraging and opportunistic share buybacks.

We feel good about where we are at and we will continue to evaluate and assess our overall debt needs and leverage profile in this ever changing environment.

Now an update on the avast integration expect and expected synergies.

We're pleased to report that our pre integration planning and actions. We've taken to date have successfully accelerated our integration timeline from 24 months to 18 months.

This is a big undertaking and we are aggressively going after this.

Our integration efforts are well underway with day, one of integration officially kicked off a week go on November one and.

And I'm pleased to share with you today that we are increasing our annual gross cost synergy estimate to over $300 million.

In terms of phasing, we intend to exit fiscal year 2023, with 50% of the $300 million annual run rate achieved.

And exited the first half of our next fiscal year with 70% achieved 100% completion exiting fiscal year 2024.

We expect a post synergy structure with gross margins of over 88% and opex reduced from approximately 35% of revenue today to 28% to 30%.

This translates to an operating margin framework of approximately 60% and any leverage we drive above that creates flexibility to drive even more growth and portfolio diversification.

With the addition of a vast are complementary complementary strengths provide increased barriers to drive topline growth across the combined $500 million existing user base.

We have identified approximately $200 million in revenue synergies over the next two years.

Opportunity opportunities include a vast retention improvement increased cross sell and up sell leveraging an expanded product portfolio and marketing spend optimization across brands just to name a few.

Achieving these synergies will help strengthen our mid single digit growth rate.

We expect traction with revenue synergies to be measured directly through <unk> and retention improvements over the coming quarters to support our bookings and topline growth expectation.

Now turning to our Q3 outlook.

For Q3, we expect non-GAAP revenue in the range of $925 million to $940 million, which reflects the first full quarter of contribution from our vast and reflects cyber safety mid single digit bookings growth.

This also includes approximately $40 million of headwinds from FX.

We expect Q3, non-GAAP EPS to be in the range of 42% to 45%.

Per share.

This reflects the first quarter dilutive impact from our vast.

Please note, we expect <unk> to be accretive in the first 12 months.

Based on the continued strengthening of the U S dollar quarter to date, we anticipate the currency headwinds to persist in the interest rate conditions to remain volatile.

But I want to emphasize that the underlying health of the business remains strong and durable and given our high cash flow generation and strong liquidity, we are confident in our ability to navigate through the near term challenges.

Q3 is just the first step kosta that towards our long term objectives.

Beyond Q3, we continue to remain focused on our long term $3 EPS objective that we communicated during our last Investor day.

Given the meaningful macroeconomic changes since then and now that we have merged with the vast we have looked at our revised path to achieve this.

First we recognize that the rising cost of debt and FX headwind has created at 60 to 65 cent headwind.

Beyond that the building blocks and path remained largely the same as we've laid out previously at Investor day, as well as 15 months ago during the avast deal announcement.

The annual gross cost synergies of over $300 million combined with the accretion from our vast profits will create more capacity for reinvestment and a faster timeline and will fund the diversification efforts and next horizon debt that helps solidify our growth target.

We expect our business to grow at mid single digits supported by the revenue synergies I laid out above the complementary strengths and increased levers as a combined company in the long term secular importance of cyber safety.

These growth drivers are centered on product innovation, and new product introductions, expanding reach and distribution through our omni channel strategy and expansion of our trust based services.

The focus remains on customer experience at the core.

Finally, we intend to use our capital to deliver incremental EPS with a disciplined approach of debt paydown and opportunistic share buyback ultimately offsetting the dilution from the avast share issuance.

This all ladders up to an annualized EPS of $3 as we exit fiscal year 2025 and in line with the timeline, we shared with you 18 months back.

We are excited about these opportunities for growth and remain relentlessly focused on what we can control to achieve it.

For more details please refer to the whiteboard bridge in slide 27 of the earnings presentation.

Okay.

In summary, we remain committed to driving EPS expansion, we are focused on accelerated integration timeline on execution against our business opportunities.

And driving towards our long term objectives.

We have a very robust business model with a healthy customer base and we will remain focused on expanding new customer acquisition through new channels and Geos.

Driving more value for our existing customers as well as increasing engagement with new products and services.

We will provide updates in increments as we work through integration. These next few quarters.

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

Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove the question. Please Peru historical Bud to again to ask a question press Star one as a reminder, if youre using a speakerphone. Please remember to pick up your handset before asking your question.

We'll pause briefly as questions are registered.

The first question is from Romano Circuit tell you with Barclays. Your line is now open.

Okay, Great Hey, guys. Thanks for taking my questions here Congrats on closing of AST.

Yeah, Hi, Jessica Thanks, Adam.

Yeah, Hey, Vincent Vincent.

There's a lot to go through particularly with the vast but then maybe we can start just with would be organic.

Gen business. If you will right. It was it was great to see the churn improve versus versus last quarter. The net churn to 62000.

Churn metric I think most of US were prepared for for something worse, even even versus last quarter, just given the trend in PC shipments maybe the question for you is what do you think drove that improvement from last quarter as a result, despite the trend in Pcs.

Yeah. So I mean as you guys know, we not directly related to Pcs I think the PC is a good indicator of the pressure on the overall consumer.

Spend and a lot of BT, where board in way of onetime approaches during the Covid period, we abuse. The are more of a subscription business pause pause device people still spend time online as you know that is a growing metrics people still are exposed to risks.

In the digital World and that's also a growing scary metrics. So so the need for our product is still there. We said it for now two quarters that those macro level trends are impacting our global traffic and our ability to grow faster or new customers coming from our direct marketing investments, but we can.

You too really fostered or installed base, making sure we deliver the best value possible and it showed up into.

Continued growing our <unk> and high retention rates.

Quarter in quarter out.

I don't think there is like a something to conclude we now have 39.

Direct million customers 65 million total customers.

And in the trend would be although it's slightly negative I would call them lacks flat plus or minus.

Percentage point, I think you're going to continue to see that trend for probably a couple of quarters for as far as we can see but we are really focusing on the opportunities. We have within our current installed base in growing bookings through cross pollination of all of the best practices both companies bring together.

Sure.

Got it got it that makes a lot of sense Natalie.

Maybe maybe for you.

You said in your prepared remarks, just a really busy quarter for just the capital structure. I was wondering if you could just build on that and just talk about the Delevering plan going forward, obviously, you're a good amount of debt to finance the acquisition.

I think we said 40 to 45 cents just from the rising rate environment that eats into that into some of that EPS accretion. Maybe the question for you is how do you think about your options here for Delevering or maybe any other options to just generally control and interest expense.

Yeah, Hi, Thanks for the question, so I would start with <unk>.

Our capital allocation tenants are largely the same pre imposed to that deal.

The first.

A very critical component of that is for us to get onto our annual free cash flow target of generating 1 billion and a half that's going to that's going to really.

Bring to light the execution of the internal leadership team really executing on all of these opportunities both revenue and cost synergies and really generate that free cash flow beyond that as a reminder, what we said is our key tenants are we want to get you know.

We're going to stay committed to our dividend does it take to put that aside and then we're going to find the right balance across.

<unk>.

Our leverage ratio and our opportunistic share buyback of course with the avast financing.

And with the with the dramatic shift in the rates and the debt environment.

We're about a point higher.

Higher on our net debt leverage than we than we expected and we're obviously facing into that it's not the only component of our capital allocation and I don't think we can look at Delevering deleveraging in isolation. If you looked at it in isolation I mean, obviously the cost of debt is about three times, what we thought it was going to be even I don't know, let's call. It seven to nine <unk>.

[noise] ago.

But when you also take a look at you know the dilution that came with the deal we've talked about the avast share issuance, we're facing into that we're also facing into.

The when you look at our our share price and really think about opportunistic share buyback.

Balance is incredibly key and I think it's not only a balance of one level lever or the next there is also a timing component to that too and so by no means is it easy to strike that right balance, but we are super clear eyed about it and we're trying to find and find how we actually balance across all these different factors, especially as the dynamics change so rapidly in the market.

<unk>.

Yeah.

Yeah, absolutely well said if I can sneak in.

Last one and I'll cede the floor Vincent maybe for you.

The $200 million in revenue synergies was great to see I think you touched on it a little bit just in terms of retention rates in particular, but I was wondering if you could just go one level deeper just in terms of.

The building blocks of the 200 million in synergies any thoughts on timeframe in terms of when you get there and kind of how you got comfortable with that $200 million in revenue.

Yeah, absolutely and so we have about six initiatives identified.

It's important to note that they are not dependent on new product innovations is really about leveraging the strengths of both organizations to offer more value to our customers retention rates reporting by our service organization.

Coming into this deal will hugely benefit on the Avast side, you know that they have pressure on the retention rate about 65% and we've identified a set of operational initiatives here.

To move that.

Up cross selling identity and privacy more complete comprehensive plan is an important one as well.

I've asked us a lot of focus technology and features and products on the privacy side, we bring identity protection expertise and I think the cross selling is the second one the third one is really to move into Upselling to the platform approach I mentioned that about 60% of our customers had adopted before the acquisition that platform view.

We see higher satisfaction higher usage.

<unk> just launched a vast one and I think now we're going to leverage that expertise to offer to the 15 million customers coming from of us the opportunity to benefit from it.

And then you have a set of go to market.

Efficiency improvement one is the e-commerce site and the operational capabilities. We have developed we know we can we can benefit from rebalancing.

Very significant performance marketing budget across all lines and leveraging our premium to premium scope of business model will be the fifth initiative and the six one is expanding in a few various.

Channels that we did not have one of them being the very.

Very small and small businesses. So those are the six initiatives, we put them over 24 months make no mistakes, we are treating that as the priority day one.

Immediately we know will integrated with no will deliver cost synergies of USD driving value for our customers is our overall priority for us.

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

Thank you.

Thank you for your question. The next question is from the line of Matt Hedberg with RBC. Your line is now open.

Hey, great. Thanks for taking my questions Hey, Congrats from me as well on the deal.

Vincent.

The 66% of vast retention.

Certainly seems like an opportunity.

From the cost synergy or from a revenue synergy perspective, you talked about I'm wondering how much of that is just due to European exposure versus something maybe structurally with the vas just trying to wondering like how quickly we could see that avast retention look more like the sort of let Norton lifelock.

Totally let me break it down in timing, we can talk about it because hunting timing is linked to the buckets, but different at the very high level. If you separate I would call. It there's a bucket of structural differences that you will never change and.

I told you and all of you that the acquisition of <unk> was a great warm up for us to understand how to manage freemium to premium business models and he gave us the confidence to.

Merge with Avast and create this new foundation, we know it is defiantly an enabler.

Our future growth.

On that retention side I would say there is a set of structural view such as our reopened business, our freemium business model or other things then about I would say a third to half would be structural and some of the structural thing we can tackle them, but that's the timing that would take longer and then there is another set of operational differ.

<unk> and that we've known we've already brought to you Ryan will bring to our vos in term of improving retention with a customer.

<unk> service organizations some of the feature inside a product I won't go too much into the details.

But we know that we have at least 10 volunteer that are linked to our own operational execution and that's what we in the short term are focused on.

We said over two years, because we will do a lot of obviously testing and deployment.

We will be cautious on timing of revenue synergies, they always take longer but will accelerate the cost synergies to our to support the accretion on the bottom line. That's that's at a high level what the retention means.

Got it that's Super Super Great. That's Super helpful and then Natalie it looks like.

<unk> to apples versus your revenue guide it looks like kind of a core Norton lifelock was about $700 million.

Which was a little below the low end of the range I'm wondering how much of that was due to currency headwinds that transpired since your last guidance in other words, what was what was the incremental currency headwinds since you reported your Q1 results to revenue.

Yeah. It was about four points of growth.

Definitely a pretty significant headwind that we've been facing into the last few quarters with the volatility.

If I can complement to Doug I.

I would say Matt.

I would say that the grocery you you broke it down pretty well, which is basically our core business is marching towards what we had set our guy didn't wasn't growing at mid single digit and we see these trends to continue.

The difference of course at the macro level currency being the number one factor hitting us.

That's great.

I mean, I think you said four points of headwind on a year on year perspective, but do you know it wasn't like a 5 million dollar headwind incrementally 10 million since last guidance just on kind of just I don't know if you have that figure or we can certainly circle back on a call back.

Oh, no we have it so we're facing into about $30 million of currency headwind from a quarter over quarter perspective. It was about three to 4 million Bucks.

Got it Super helpful got it. Thank you very much super helpful.

Sure.

Thank you for your question.

The next question is from the line of <unk> with Morgan Stanley . Your line is now open.

Hello, everyone. Thank you for the question and congrats on closing of AST <unk>.

And I'm covering for Hamzah. So yeah I appreciate all the color on the updated reporting structure that you walked through in the prepared remarks I wanted to follow up a little bit on the partner channel. It looks like the sequential growth there was a little bit lighter this quarter, even including the $5 million of contribution from all of US. So wanted to get any updated commentary on what drove that.

Performance in the quarter, and then kind of your view of the ability of the partner channel to contribute on a go forward basis, you know where do you see that overall mix and contribution of revenue growing over the mid term. Thank you.

Okay.

Take the first part and that that you can can supplement definitely in our apartment business. We continue to see that as a as Natalie mentioned an investment area. This four five key buckets farm employee benefits to telco channels too.

Now, adding with avast the SMB area.

Now we had in our.

Sure.

Upon our business in the past as you know also the mobile mobile App direct customer, which will move into the director of business. So that may influence a little bit Korean in Cornwall.

I think that you know.

Wouldn't call it deceleration you'd see up and down in that business all outgrowing the direct business based on the investment profile.

Okay.

Yeah, I just want to cancel that supplement that right. So from a partner perspective, it's about 10% of our business. So we're going to continue to invest we've seen strong quarters very consistent double digit rate of growth.

It continues to help it's more important in the expansion into different markets in different channels and different customer cohorts.

That's the value that we really get out of it of course you know.

Double digit rate of growth in our in 10% of our revenue isn't isn't bad that's helpful. As well, it's a diversification channel for us.

Understood very helpful. Thank you for the question.

Thank you for your question.

At this time there are no more questions I will turn the call back to Vincent <unk> CEO for closing remarks.

Thank you so Jim Sabatino had these massive even with the near term macro headwinds we're still in early stages of long term secular needs and as we start this new chapter as Jen, Let me recap how I feel.

Our purpose is broad meaningful and inspirational the market is vast and full of opportunities.

We are a house of trusted consumer brands.

We have scale and a diversified go to market.

And we have great products technology, and technologist and above all we have a passionate and skilled team that seems big in place to win so I. Thank you for your support and I look forward to talking to you soon.

This concludes the conference call. Thank you.