Q3 2024 Gen Digital Inc Earnings Call

February 1, 2024

Rob Owens: Rob Owens, Matt Hedberg, Gur Talpaz, James McRitchie, Matt Hedberg, Shaul Eyal, Matt Hedberg, and GEN Digital. Thank you for watching. We'll see you next time, and GEN Digital. Thank you for tuning in. We'll see you next time, and Matt Hedberg.

Okay.

[music].

Okay.

[music].

Victoria: Thank you for watching, www.gendigital.com Good afternoon, everyone. Thank you for standing by. My name is Victoria, and I will be your conference operator today. I would like to welcome everyone to the GE Fiscal Year 2024 Third Quarter Earnings Call. Today's call is being recorded, and all lines have been placed on mute to prevent any background noise.

Okay.

[laughter].

Victoria: Good afternoon, everyone. Thank you for standing by my name is Victoria and I'll be your conference operator today I would like to welcome everyone to the gin fiscal year 2024 third quarter earnings call. Today's call is being recorded in all lines have been placed on mute to prevent any.

Victoria: Background noise.

Victoria: 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 Jason Starr, head of investor relations. Thank you, Victoria, and good afternoon, everyone.

Victoria: After the Speakers' remarks, there will be a question and answer session. At this time for opening remarks, I would like to pass the call over to Jason Starr head of Investor Relations.

Jason Starr: Thank you Victoria and good afternoon, everyone welcome to <unk> third quarter fiscal year 2024 earnings call. Joining me today are Vincent <unk>, CEO and Nathalie <unk> CFO as a reminder, there'll be a replay of this call posted on the Investor Relations website, along with our slides and press release.

Jason Starr: Welcome to GEN's third quarter fiscal year 2024 earnings call. Joining me today are Vincent Pilette, CEO, and Natalie Dursey, CFO. As a reminder, there will be a replay of this call posted on the Investor Relations 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-GAAP to GAAP measures is included in our press release and earnings presentation, both of which are available on the IR website at investor.gendigital.com.

Jason Starr: Like to remind everyone that during this call all references to financial metrics are non-GAAP and all growth rates are year over year, unless otherwise stated a reconciliation of non-GAAP to GAAP measures is included in our press release and earnings presentation, both of which are available on the IR website at Investor Dot Gen Digital Dot com.

Vincent Pilette: We encourage investors to monitor this website as we routinely post investor-oriented information such as news and events and financial filings. Today's call contains statements regarding our business, financial performance, and operations, including the impact on our business and 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 as of today's date, February 1st, 2024. We undertake no obligation to update these statements as a result of new information or future events. For more information, please refer to the cautionary statements 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 Form 10-Q. And now, I'll turn the call over to Vincent. Thank you, Jason.

Jason Starr: We encourage investors to monitor this website as we routinely post investor oriented information such as news and events in financial filings.

Jason Starr: Today's call contains statements regarding our business financial performance and operations, including the impact on our business and 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.

Jason Starr: As of todays date February one 2024.

Jason Starr: We undertake no obligation to update these statements as a result of new information or future events.

Jason Starr: For more information please refer to the cautionary statements 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 Form 10-Q, and now I will turn the call over to Vincent. Thank you Jason Good afternoon, everyone and welcome to our earnings call on the a few months ago, we celebrated <unk>.

Vincent Pilette: Good afternoon, everyone, and welcome to our earnings call. Only a few months ago, we celebrated GEN's one-year anniversary and held our first Investor Day as GEN. We were excited to share our strategy and our plans to expand our customer reach and our product roadmap. We know that we will capture the tremendous opportunity we have in consumer cyber safety over the next several years. In Q3, we delivered another consistent core of execution toward that goal. We grew cyber safety bookings to $1 billion, up 4%, cyber safety revenue up 3%, and delivered our 18th consecutive quarter of growth. We drove net subscriber count higher again this quarter, up $330,000 sequentially, with total direct customers finishing the quarter at a record $38.9 million.

Vincent: Anniversary and held our first Investor day as Jen we were excited to share our strategy and our plans to expand our customer reach and our product roadmap. We know that we will capture the tremendous opportunity we have in consumer cyber safety over the next several years in Q3, we delivered another consistent quarter of execute.

Vincent: <unk> towards that goal.

Vincent: We grew cyber safety bookings to $1 billion up 4% cyber safety revenue up 3% and delivered our 18th consecutive quarter of growth.

Vincent: We drove net subscriber count higher again this quarter at 330000 sequentially, we still direct customer, finishing the quarter at a record $38 9 million.

Vincent: While we remain focused on accelerating our growth we continued to demonstrate our ability to operate with strong fiscal discipline, increasing operating margin by another 80 basis points sequentially up nearly seven full points since the vast merger.

Vincent Pilette: While we remain focused on accelerating our growth, we continue to demonstrate our ability to operate with strong fiscal discipline, increasing our operating margin by another 80 basis points sequentially, up nearly 7 full points since the Avast merger. And finally, we expanded our earnings power by going EPS 10%. At our last Investor Day, we shared long-term goals that included accelerating revenue to mid-single digits, growing EPS by 12% to 15%, and reducing our leverage to less than 3x EBITDA by 2027. As we discussed, our growth plan is underpinned by accelerating our subscriber growth, especially internationally and through partnerships, increasing value to our customers with cross-sell and up-sell, and driving GEN's overall retention rate We are already making progress here, particularly in our investments to increase GEN's customer base, enter new markets, and drive international growth. In Q3, our direct acquisition channels grew double digits in all three regions, leading to a broad-based performance. Our mobile solutions continue to see strong traction internationally, capitalizing on growing internet connectivity in emerging markets.

Vincent: And finally, we expanded our earnings power going EPS, 10%.

Vincent: At our last Investor day, we shared long term goals that included accelerating revenue to mid single digits.

Vincent: <unk> EPS by 12% to 15% and reducing our leverage to less than three X EBITA by 2027.

Vincent: As we discussed our growth plan is underpinned by accelerating our subscriber growth, especially internationally and through partnerships increasing value to our customers with cross sell and upsell and driving <unk> overall retention rate to 80%.

Vincent: We're already making progress here, particularly in our investments to increase <unk> customer base entering new markets and driving international growth.

Vincent: In Q3, our direct acquisition channels grew double digits in all three regions, leading to a broad based performance.

Vincent: Our mobile solutions continue to see strong traction internationally capitalizing on growing internet connectivity in emerging markets.

Vincent Pilette: Our solutions are responding to customers in these markets, and we have an integration world map that will enable us to drive more value over the life cycle. We will continue to invest in these higher growth markets and channels as we look to expand our reach. We are also making consistent headway in delivering added value to our current customers as they expand their digital footprint. In Q3, we delivered another strong quarter in cross-sell and up-sell activities, with ARPU for these customers growing both year over year and sequentially in key markets, even though our overall reported ARPU slightly declined sequentially due to a shifting mix of customer cohorts in mobile and emerging markets. Of course, progress is not linear and uniform across all of our levers.

Vincent: Our solutions are resonating with customers in these markets and we have an integration roadmap that will enable us to drive more value over the life cycle.

Vincent: We will continue to invest in these higher growth markets and channels as we look to expand our reach.

We are also making consistent headwind in delivering added value to our current customers as they expand their digital footprint.

Vincent: In Q3, we delivered another strong quarter and cross sell upsell activities with our pool for these customers growing both year over year and sequentially in key markets, even though our overall reported <unk> slightly declined sequentially due to shifting mix of customer cohorts in mobile and emerging markets.

Vincent: Of course progress is not linear and uniform across all of our levers overall Q3 retention was stable sequentially at 77% with continued progress across key brands, but partially offset by mix and other integration related activities.

Vincent Pilette: Overall, Q3 retention was stable sequentially at 77%, with continued progress across key brands, but partially offset by mix and other integration-related activities. While slightly behind our aspirations this quarter, we remain on track and confident in our long-term target of 80%. In partner, the timing of a few large deals and the rollout of our solutions into our indirect customer employee base impacted in-quarter revenue.

Vincent: While slightly behind aspirations this quarter, we remain on track and confident in our long term target of 80%.

Vincent: In partner the timing of a few larger deals in the rollout of our solutions into our indirect customer employee base.

Vincent: Impacted the in quarter revenue.

Vincent Pilette: Overall, the partner channel continues to show strong engagement with a robust and growing pipeline and a competitive set of partner solutions, which is a key tenet of our strategy. To support our growth plan, we are leveraging our trusted brands and customer-centric approach. Our cyber safety capabilities continue to be recognized by leading third parties and, most importantly, our customers. Recently, Norton and Avast were each named to PC Magazine's list of the best tech brands for 2024.

Vincent: Overall, the partner channel continues to show strong engagement with a robust and growing pipeline and a competitive set of partner solutions, which is a key tenant of our strategy.

Vincent: Okay.

Vincent: To support our growth plan, we are leveraging our trusted brands and customer centric approach, our cyber safety capabilities continue to be recognized by leading third parties and most importantly, our customers.

Vincent: Recently in northern and Avast, where each name to PC magazine's list of best Tech brands for 2024.

Vincent: And Lifelock net promoter score reached 67 exiting Q3, an all time high driven by a relentless focus on our customers and listening to their feedback.

Vincent Pilette: And LifeLock's Net Promoter Score reached 67 in exiting Q3, an all-time high driven by our relentless focus on our customers and listening to their feedback. GEN continues to be a leader in the industry and trusted by consumers around the world. Ultimately, we are recognized and trusted because of our technology and our ability to innovate and protect people from the ever-changing and increasingly sophisticated threats they face every day. Last quarter, Avast blocked over 1 billion unique attacks per month, a stunning increase of 50% compared to a year ago, and over $10 billion for all of calendar year 2022. As we have pointed out many times, these threats are not focusing on targeting your PC or your phone but you as an individual as you live your digital life.

Vincent: Gen continues to be a leader in the industry and trusted by consumers around the world.

Vincent: Ultimately, we are recognized trusted because of our technology and our ability to innovate and protect people from the ever changing and increasingly sophisticated threats. They face every day.

Vincent: Last quarter advanced blocked over 1 billion unique attacks per month.

Vincent: Turning increase of 50% compared to a year ago and over $10 billion for all of calendar year 2023.

Vincent: Okay.

Vincent: We have pointed out many times. These threats are not focusing on targeting UPC or you phone.

Vincent: But you as an individual as you leave your digital life.

Vincent Pilette: Threat actors are not missing a beat and have increasingly moved to web-based threats such as social engineering and malvertising, as well as ongoing phishing attacks and AI-powered targeted email scams. Our customers are relying on us to out-innovate the threat actors and remain focused on increasing the pace at which we enhance and expand our product portfolio. Q3 was no different.

Vincent: Threat actors and not missing a beat and have increasingly moved to web based threats, such as social engineering and malware timing as well as ongoing phishing attacks and AI powered targeted E mail scams.

Our customers are relying on us to out innovate the threat actors and remain focused on increasing the pace at which we enhance and expand our product portfolio.

Vincent: Q3 was no different we continued our focus on helping customer leave their digital lives safely privately and confidently.

Vincent Pilette: We continued our focus on helping customers live their digital lives safely, privately, and confidently. We offered consumers better protection from phishing and email scams, bolstering not an anti-trust with private email and adding a new safe email standalone product. We gave our customers a trusted way to navigate the web securely and privately with the launch of Nolan Private Browser.

Vincent: We offered consumers a better protection from fishing and E mail scams bolstering northern antitrust with private E mail, and adding a new safe E Mail Standalone product.

Vincent: We gave our customers a trusted way to navigate the web securely and privately with the launch of northern private browser and in identity, we expanded our reach into new countries in all three regions and added new features in existing markets.

Vincent Pilette: And in Identity, we expanded our reach into new countries in all three regions and added new features in existing markets. As we mentioned in November, our AI technology has been and remains a key tenet of our strategy. Not only does powerful AI and deep learning technology power our core security engines, but we are now bringing AI to the forefront to make our products more interactive and intuitive. In December, as part of our Reputation Defender business, we launched Tonal Radius. This new innovative product, powered by AI, provides a fully automated analysis of all available information online to help customers quickly identify and protect themselves.

Vincent: As we mentioned in November our AI technology has been and remains a key tenant of our strategy.

Vincent: Not only does powerful AI and deep learning technology power, our core security engines, but we are now bringing AI to the forefront to make our products more interactive and intuitive.

Vincent: In December as part of our reputation defend their business, we launched two radius with new innovative products powered by AI provides a fully automated analysis of all available information online to help customers quickly identify and protect themselves.

Vincent Pilette: To start, we are offering this product through our Employee Benefit Channel. In early January, we also fully launched Northern Genie, our AI-powered scam detection app. Both Northern Genie and Total Radius are excellent examples of how people can leverage the power of GEN's AI and cutting-edge technology to more easily protect themselves and their loved ones from online threats.

Vincent: To start we are offering this product through our employee benefit channel.

Vincent: In early January we also fully launched northern Genie AI powered scam detection app.

Vincent: Both northern Jeannie and total wagers are excellent examples of how people can leverage the power of <unk>, AI and cutting edge cutting edge technology to more easily protect themselves and their loved ones from online threats.

Vincent: I'll conclude by saying that we have a great opportunity ahead and are very confident in achieving our long term targets, we laid out at our Investor day the.

Vincent Pilette: I'll conclude by saying that we have a great opportunity ahead and are very confident in achieving our long-term targets we laid out at Investor Day. The threat landscape is more perilous than ever, and GEN's trusted brands offer the best solutions to consumers to protect and empower their digital lives. We will continue to execute our strategy in a disciplined way to accelerate growth, drive further margin expansion, and create long-term value for all stakeholders. And with that, let me pass it to Nathalie to review our quarterly performance in greater detail and our guidance for the next quarter. Thank you, Vincent. And hello, everyone.

Vincent: The threat landscape has more players than ever agenda trusted brands offer the best solutions to consumer to protect and empower digital lives. We will continue to execute our strategy in a disciplined way to accelerate growth drive further margin expansion and create long term value for all stakeholders.

And with that let me pass it to Natalie to review, our quarterly performance in greater detail and our guidance for the next quarter.

Natalie: Thank you Vince and Hello, everyone for today's call I will walk through our fiscal Q3 2024 results followed by our outlook for Q4.

Natalie Dursey: For today's call, I will walk through our fiscal Q3 2024 results, followed by our outlook for Q4. I will focus on non-GAAP financials and year-over-year growth rates, unless otherwise stated. Also, please note this is our first fiscal quarter that includes full financial results from Avast for both periods, as we have now passed the anniversary of the closure of the deal. Q3 was another quarter of consistent execution. Q3 revenue was $951 million, up 2% in USD and up 3% in cyber safety, excluding legacy business lines.

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

Natalie: Also please note. This is our first fiscal quarter that includes full financial results for the vast in both periods as we have now passed the anniversary of the closure of the deal.

Natalie: Q3 was another quarter of consistent execution Q.

Natalie: Q3 revenue was $951 million up 2% in USD and up 3% and cyber safety, excluding legacy business line.

Natalie Dursey: Cyber Safety Bookings grew 4% in constant currency, supported by continued growth in cross-sells and our direct acquisition channels. Direct revenue was $837 million, up 3% in constant currency. Our direct customer base expanded for the second consecutive quarter, increasing to 38.9 million, up 330,000 customers sequentially, and adding half a million customers year over year. Driving new customer acquisition remains a priority for us and is growing double digits year over year. Leading with our expanded product offerings and broadening our geographic efforts, we have deployed incremental marketing spend to capture structural demand growth for cyber safety, especially in channels like mobile and international markets. As we move forward, our robust product roadmap will continue to extend our reach into new markets and cohorts, as well as continue to support our retention efforts over the long term across all of our cohorts. On the monetization front, monthly direct ARPU was $7.21 in USD, an increase of $0.12 year-over-year and a decrease of $0.07 sequentially. As previously shared, ARPU is impacted by many factors, including new customer growth, cross-sell adoption, geographic, and channel mix.

Natalie: Cyber safety bookings grew 4% in constant currency supported by continued growth in cross sells and our direct acquisition channels.

Natalie: Direct revenue was $837 million up 3% in constant currency.

Natalie: Our direct customer base expanded for the second consecutive quarter, increasing to $38 9 million up 330000 customers sequentially, and adding half a million customers year over year.

Natalie: Driving new customer acquisition remains a priority for us and is growing double digits year over year.

Natalie: Leading with our expanded product offerings and broadening our geographic efforts, we have deployed incremental marketing spend to capture structural demand growth for cyber safety.

Natalie: Especially in channels like mobile and international markets.

Natalie: As we move forward a robust product roadmap will continue to extend our reach into new markets and cohorts as well as continue to support our retention efforts over the long term across all of our cohorts.

Natalie: On the monetization front monthly direct <unk> was $7.21 in USD and increase of 12, <unk> year over year and a decrease of 7%.

Natalie: Sequentially.

Natalie: As previously shared ARPA as it is impacted by many factors, including new customer growth cross sell adoption.

Natalie: Graphic and channel mix.

Natalie: With a stronger growth in our new customer acquisition and traction in mobile in emerging markets. We are seeing the mix impacts on blended our tail.

Natalie Dursey: With the stronger growth in our new customer acquisition and traction in mobile and emerging markets, we are seeing mixed impacts on blended ARPU. While lower than the ARPU average, the cohort of customers we are acquiring in these new markets and channels is accretive to our installed base, and we are able to acquire these new cohorts at a lower acquisition cost, proving out to be a healthy ROI on our performance marketing dollars. These cohorts will also blend into our flywheel and offer opportunities for further expansion into our portfolio of products and services, in essence, feeding our cross-sell and up-sell opportunity funnel. Within our more mature cohorts, ARPU continues to scale as we drive cross-cell adoption, and this expansion reflects our customers' demand for increased coverage in the ever-changing cyber safety landscape. Turning to retention, our overall customer retention rate remains steady at 77%.

Natalie: While lower than the <unk> average the cohort of customers. We are acquiring in these new markets and channels are accretive to our installed base and we are able to acquire these new cohorts at a lower acquisition cost proving out to be healthy ROI on our performance marketing dollars.

Natalie: These cohorts will also blend into our flywheel and offer opportunities for further expansion into our portfolio of products and services in essence feeding our cross sell and up sell opportunity funnel.

Natalie: Within our more mature cohorts or <unk> continues to scale as we drive cross sell adoption and this expansion reflects our customers' demand for increased coverage in the ever changing cyber safety landscape.

Natalie: Turning to retention, our overall customer retention rate remained steady at 77%.

Natalie: As we've shared previously we made significant progress in our retention rate in the first year as a combined company yet still have many opportunities to improve retention across cohorts and across brands as we make progress towards our 80% retention rate target over the next few years.

Natalie Dursey: As we've shared previously, we made significant progress in our retention rate in the first year as a combined company, yet still have many opportunities to improve retention across cohorts and across brands as we make progress towards our 80% retention rate target over the next few years. Currently, we are focused on driving retention rates higher by improving user engagement. Introducing new products and features and clearly demonstrating value to our customers with our best-in-class, comprehensive cyber protection offerings and services.

Natalie: Currently we are focused on driving retention rates up by improving user engagement.

Natalie: Introducing new products and features and clearly demonstrating value to our customers with our best in class comprehensive cyber protection offerings and services.

Natalie: And as we move forward, we expect to drive additional uplift by continuing to execute on our product migration plan and even more importantly by creating hyper personalized AI powered customer experiences and incorporating them into our differentiated products and Omnichannel go to <unk>.

Natalie Dursey: And as we move forward, we expect to drive additional uplift by continuing to execute on our product migration plans, and even more importantly, by creating hyper-personalized, AI-powered customer experiences and incorporating them into our differentiated products and omni-channel go-to-market strategies. Now, turning to our partner business. Scaling our partner business is a key component to achieving our overall growth plan. Partner revenue was $99 million in Q3, up 4% year over year.

Natalie: <unk> strategies.

Natalie: Turning to our partner business scaling our partner business is a key component to achieving our overall growth plan.

Natalie: Partner revenue was $99 million in Q3 up 4% year over year.

Natalie Dursey: We continue to drive growth in this channel through employee benefits, with a record pipeline and additional expansion plans to accelerate further. Given the long nature of partner sales cycles, progress will be nonlinear, and we will remain competitive with our offerings to capitalize on partner readiness across multiple channels. Driving our partners' business to half a billion dollars remains the longer-term objective, and we are excited to share more progress in the coming quarters. Rounding out our revenue, our legacy business lines contributed $15 million this quarter, down from $23 million in the prior year.

Natalie: We continue to drive growth in this channel through employer employee benefits with a record pipeline and additional expansion plans to accelerate further.

Natalie: Given the long nature of partner sales cycles, the progress will be non linear and we will remain competitive with our offerings to capitalize on partner readiness across multiple channels.

Natalie: Driving our partners' business to have a $1 billion remains the longer term objective and we are excited to share more progress in the coming quarters.

Natalie: Rounding out our revenue our legacy business lines contributed $15 million this quarter down from $23 million in prior year.

Natalie Dursey: As a reminder, we expect Legacy to continue declining double digits year over year and accounts for less than 2% of our overall total revenue. Turning to Profitability, Q3 operating income was $558 million, up 6% year over year.

Natalie: As a reminder, we expect legacy to continue declining double digits year over year and accounts for less than 2% of our overall total revenue.

Natalie: Turning to profitability.

Natalie: Q3, operating income was $558 million up 6% year over year.

Natalie: We increased operating margin to 59% as we work towards our 60% margin goal, we outlined in our long term model.

Natalie Dursey: We increased operating margin to 59% as we work towards our 60% margin goal we outlined in our long-term model. Every point of operating margin expansion is harder to achieve than the last, but this expanding operating leverage enables us to redirect some of the efficiency gains back into our growth investment framework. You will see us continue to invest in performance marketing to reach new and existing customers, to bolster our product portfolio with differentiated solutions, to amplify our international presence, especially in identity and privacy, and to expand into trust-based adjacencies that will touch more parts of the consumer's digital life. These investments help fuel progress in each of our growth levers and strengthen our position to accelerate revenue growth to mid-single digits over the next three Q3 net income was $317 million, up 9% year-over-year. Diluted EPS was $0.49 for the quarter, up 10% year-over-year and up 11% in constant currency. Interest expense related to our debt was approximately $158 million in Q3, an EPS impact of $0.19.

Natalie: Every point of operating margin expansion is harder to achieve than the last.

Natalie: This expanding operating leverage enables us to redirect some of the efficiency gains back into our growth investment framework.

Natalie: You will see us continue to invest in performance marketing to reach new and existing customers.

Natalie: To bolster our product portfolio with differentiated solutions to.

Natalie: To amplify our international presence, especially in identity and privacy.

Natalie: And expand into trust based Adjacencies that will touch more parts of the consumers' digital life.

These investments help fuel progress in each of our growth levers and strength of our position strengthen our position to accelerate revenue growth to mid single digits over the next three years.

Natalie: Q3, net income was $317 million up 9% year over year.

Natalie: Diluted EPS was <unk> 49 for the quarter up 10% year over year and up 11% in constant currency.

Natalie: Interest expense related to our debt was approximately $158 million in Q3, and EPS impact of <unk> 19.

Natalie: Our non-GAAP tax rate remained steady at 22% and our ending share count was $645 million down $6 million year over year, reflecting the impact of our share repurchases.

Natalie Dursey: Our non-GAAP tax rate remained steady at 22%, and our ending share count was $645 million, down $6 million year-over-year, reflecting the impact of our share repurchases. Turning to our balance sheet and cash flow, our Q3 ending cash balance was $490 million. We are supported by $2 billion of total liquidity, consisting of our ending Q3 cash balance and a $1.5 billion revolver, and we have no near-term maturities due until April 2025. Q3 operating cash flow was $315 million, and free cash flow was $307 million, which includes approximately $201 million of cash interest payments this quarter.

Natalie: Turning to our balance sheet and cash flow Q.

Natalie: Q3, ending cash balance was $490 million.

We are supported by $2 billion of total liquidity, consisting of our ending Q3 cash balance and a $1 5 billion revolver and we have no near term maturities due until April 2025.

Q3, operating cash flow was $315 million and free cash flow was $307 million, which includes approximately $201 million of cash interest payments this quarter.

Natalie Dursey: Turning to capital allocation, we remain intentional and balanced with our capital deployment and are committed to returning 100% of excess free cash flow to shareholders. In Q3, we paid down $250 million of our term loan fees, and we are now 3.9 times net leveraged. We also deployed $100 million for opportunistic share repurchases, the equivalent of almost 5 million shares. We have approximately $730 million remaining in our current share buyback program. Finally, we have paid $81 million to shareholders in the form of our regular quarterly dividend of $0.125 per common share. For Q4 Fiscal 2024, the Board of Directors approved a regular quarterly cash dividend of 12.5 cents per common share to be paid on March 13, 2024, for all shareholders of record as of the close of business on February 19, 2024. Please note that the Q3 balance sheet and cash metrics above do not include a $900 million tax refund we received at the end of January associated with tax capital losses disclosed in our fiscal year 2310K.

Natalie: Turning to capital allocation, we remain remain intentional and balanced with our capital deployment and are committed to returning 100% of excess free cash flow to shareholders.

Natalie: In Q3, we paid down $250 million of our term loan b.

Natalie: And our now three nine times net levered.

Natalie: We also deployed $100 million for opportunistic share repurchases the equivalent of almost 5 million shares.

Natalie: We have approximately $730 million remaining in our current share buyback program. Finally finally.

Natalie: Finally, we have paid $81 million to shareholders in the form of a regular quarterly dividend of $12.05 per common share.

Natalie: For Q4 fiscal 2024, the board of directors approved a regular quarterly cash dividend of $12.05 per common share to be paid on March 13, 2024 for all shareholders of record as of the close of business on February 19th 2024.

Natalie: Please note that the Q3 balance sheet and cash metrics above do not include a $900 million tax refund. We received at the end of January associated with tax capital losses disclosed in our fiscal year 'twenty three 10-K.

Natalie Dursey: This domestic cash payment increases our liquidity; it's available for debt prepayment and or share repurchase, and reduces our net leverage by four-tenths of a point to approximately three-and-a-half times net. With our strong cash flow generation and disciplined capital deployment, we will continue to use a balanced approach in paying down debt and opportunistic share buybacks to help achieve our goals of delivering EPS growth of 12 to 15% and driving net leverage below three times. Now turning to our Q4 Fiscal 24 Outlook. For Q4, we expect non-GAAP revenue in the range of $960 to $970 million.

Natalie: This domestic cash payment increases our liquidity, it's available for debt prepayment and our share repurchase and reduces our net leverage by four tenths of a point to approximately three five times net.

Natalie: With our strong cash flow generation and disciplined capital deployment, we will continue to use a balanced approach and paying down debt and opportunistic share buybacks to help achieve our goals of delivering EPS growth of 12%, 15% and driving net leverage below three times.

Natalie: Okay.

Natalie: Now turning to our Q4 fiscal 'twenty for outlook for Q4, we expect non-GAAP revenue in the range of $960 to $970 million.

Natalie Dursey: We expect Q4 non-GAAP EPS to be in the range of $0.52 to $0.54. This translates to fiscal year 2024 non-GAAP revenue in the range of $3.805 to $3.815 billion and non-GAAP EPS in the range of $1.95 to $1.97. While this guidance is within the full-year range we provided in November at our Investor Day, we recognize it's at the low end as a result of some of the factors mentioned earlier. Yet, we remain steadfast in driving our long-term growth plan. We are focused on operational excellence and delivering on our commitments, always in a disciplined and balanced manner. Our key performance indicators are trending in the right direction. Our strategy is working, and our financial model is robust.

Natalie: We expect Q4, non-GAAP EPS to be in the range of 52 to 54.

This translates to fiscal year 2024, non-GAAP revenue in the range of 3805 to $3 815 billion.

Natalie: And non-GAAP EPS to be in the range of $1 95 to $1 97.

Natalie: While this guidance is within the full year range. We provided in November at our Investor Day, we recognize it's at the low end as a result of some of the factors mentioned earlier.

Natalie: Yet we remain steadfast in driving our long term growth plan.

Natalie: We are focused on operational excellence and delivering on our commitments always in a disciplined and balanced manner.

Natalie: Our key performance indicators are trending in the right direction.

Our strategy is working.

Natalie: In our financial model is resilient.

Operator: We're committed to reinvesting in our business to drive sustainable and profitable mid-single-digit growth and create shareholder value over the long term. We look forward to reporting on our progress in the quarters ahead. As always, thank you for your time today, and I will now turn the call back to the operator to take your questions.

Natalie: We're committed to reinvest in our business to drive sustainable and profitable mid single digit growth.

Natalie: And create shareholder value over the long term.

Natalie: We look forward to reporting on our progress in the quarters ahead.

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

Operator: Of course. We will now begin the question and answer session. 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 a question, please press star followed by two.

Speaker Change: Of course.

Speaker Change: We will now begin the question and answer session if you'd like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to turn that question. Please press star followed by two.

SAC-IT Calia: Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. Our first question comes from a line of SAC-IT Calia with Sparklight.

Speaker Change: Again to ask a question press star one.

Speaker Change: As a reminder, if you are using a speakerphone. Please pick up your handset before asking your question.

Speaker Change: Our first question comes from the line of second Kalia Barclays.

Vincent Pilette: Good one, it's now open. Hey, Vincent. Hey, Natalie. Thanks for taking my questions here. Hey, how are you?

Speaker Change: Your line is now open.

Sandeep Kalia: Hey, Vincent Hey, Natalie Thanks for taking my questions here how are you.

Sandeep Kalia: Yes.

SAC-IT Calia: Good. Natalie, maybe I'll start with you. Maybe my first question is... The bookings growth of 4% was really good to see, but the revenue growth of 2% was a little bit below.

Okay. Good.

Speaker Change: Maybe I'll start with you.

Speaker Change: Maybe my first question is.

Natalie: The bookings great bookings growth of 4% was really good to see the revenue growth of 2% was a little bit below I was just wondering if you could help US bridge those two metrics a little bit and when do you think those two growth rates may be start to converge.

Natalie Dursey: I was just wondering if you could help us bridge those two metrics a little bit. And when you think those two growth rates maybe start to... Yeah, sure. Thanks for the question.

Speaker Change: Yeah sure. Thanks for the question. So first if I look if I look at it look we're proud to be growing bookings for the second quarter in a row and mid single digits up 4%.

Natalie Dursey: So first, if I look, if I look at it, look, we're proud to be growing bookings for the second quarter in a row and mid single digits, up 4%. As we've spoken about this quarter and last quarter, that growth is driven by the acceleration and the success of CrossSell into a broader portfolio. It's driven by a reacceleration of DTC and customer acquisition, and stable retention across the brands. The strength is really coming through not only across the broad base but identity and privacy products that we've introduced. And then when you look at revenue, keep in mind that revenue on an as-reported basis, which first of all includes legacy business lines and, obviously, is on an as-reported basis in USD.

Speaker Change: As we as we spoke to this quarter and last quarter that growth is driven by the acceleration in the success of cross sell into a broader portfolio, it's driven by a reacceleration of DTC and customer acquisition stable retention across the brands.

Speaker Change: The strength really coming through.

Speaker Change: Not only across broad base, but identity and privacy products that we've introduced.

Speaker Change: And then when you look at revenue keep in mind that that revenue on an as reported basis.

Speaker Change: First of all include.

Speaker Change: Our legacy business lines and.

Speaker Change: Obviously as on an as reported basis and USD. When you when you take that out and you really look at the cyber safety revenue excluding legacy excluding the FX headwinds. We grew we grew at 3% so not that far off of our bookings rate of growth and then as we continue to scale and as as we continue to.

Vincent Pilette: When you take that out and you really look at the cyber safety revenue, excluding legacy, and excluding the FX headwinds, we grew 3%, so not that far off of a bookings rate of growth. And then, as we continue to scale and as we continue to quarter after quarter deliver on that bookings growth, that will eventually feed and really converge with the revenue rate of growth over time. Got it. Got it. That makes... Vincent, maybe for my follow-up for you, what the highlight for me was the BetterNet ads. I mean, 330,000 was great.

Speaker Change: Quarter after quarter deliver on that bookings growth that will eventually feed and really converge with revenue rate of growth over time.

Speaker Change: Got it got it that makes sense Vincent maybe maybe for my follow up for you.

Speaker Change: The highlight for me was was was the better net adds I mean 330000 was great to see it feels like the <unk> profile, though for for some of the gross adds or.

Vincent Pilette: You know, it feels like the ARPU profile, though, for some of the gross ads or for some of the newer ads is changing. So, you know, maybe it's too early to talk about this. But as you think about the growth formula in cyber safety, do you think that we should think about different mixes of sort of what comes from the installed base versus what comes from ARPU? How do you think about that sort of conception?

Vincent: Some of the newer ads or are changing so maybe it's maybe it's early to talk about this but as you think about the growth formula in cyber safety.

Vincent: That we should think about different mixes of sort of what comes from the installed base versus what comes from <unk>. How do you think about that sort of conceptually.

Speaker Change: Yes, and just to bridge back to your first question and that study is in the two leading indicators. We have for this business that will then flowed back into the P&L is the booking growth rate and that you mentioned are 4% and then the second one is the customer count of course that we discussed was 18 director director.

Vincent Pilette: Yeah, and just to bridge back to your first question, and Natalia, I think the two leading indicators we have for this business that will then float back into the P&L are the booking gross rate, and Natalia mentioned our 4%. And then the second one is the customer account gross that we discussed, was it indirect or direct. You're right.

Vincent Pilette: So we grew sequentially, or sequentially, our direct customer account for the second quarter in a row; we actually achieved a record, right? So when you take Avast plus Northern Lifelock together at the time of the merger, we not only achieved a record 38.9 million. And, and that has definitely been a very strong sign of the quarter. We did discuss at the ID back in November that will drive with discipline so that every one of our channels is managed economically positive over the lifecycle of the customers, right? So the CLV overcap by all the channels is very important.

Speaker Change: You are right. So we grew sequential sequentially, our direct customer count for the second quarter in a role we actually achieved a record right. So when you take a vast plus northern lifelock together at the time of the merger, we not a record $38 9 million and that has been differently a very strong sign.

End.

Speaker Change: Of the quarter, we did discuss at the <unk> back in November that will drive with disciplined every one of our channels is manage economically positive over the lifecycle of the customers right. So the <unk> by all the channel is very important and we are balancing our marketing investment across all of the channel and.

Vincent Pilette: And we balance our marketing investment across all of the channel. And if we have a bit more momentum in certain areas, then we're going to capture quickly that presence in that channel for the last two quarters in emerging markets, and maybe closer to the security line versus identity and privacy has been the traction. And we also shared at the time that in developed and emerging countries, our pool is, you know, $35 on average in emerging markets as you move into more developed towards 70. And then when you get fully mature, our pool is 135.

Speaker Change: We have a bit more momentum in <unk> and then we're going to capture quickly that presence in that channel for the last two quarter internationally emerging markets and maybe closer to the security lines versus identity privacy has been the the traction. We also shared at the time that.

Speaker Change: In developed and emerging country and with $35 on average in emerging markets as you move into more developed towards 70% and then when you get fully mature and upwards of 135 now.

Vincent Pilette: Now, we feel good because we know we have a very strong capability for cross-selling and upselling. And as we continue to mature new channels or enter new channels and mature the space there, we have a chance to expose our customers to a broader protection of their digital lives. And that has been our strategy. So that's how we're doing it. So the aggregated metric for total GEN on R2, if you want to, has to consider that mix.

Speaker Change: So we feel good because we know we have very strong capability of cross selling and up selling and as we continue to mature new channels or enter new channels and mature then the space. There we have a chance to expose our customers to a broader protection of their.

Digital lives and that has been has been our strategy. So thats how were doing at the aggregated metric for total Gen. On our Q1 has to consider that mix and we will looking at the art, We're cross sold that.

Speaker Change: Channels, and then driving the cross sell upsell in each one of those.

Speaker Change: Got it got it that makes sense I'll get back in queue to ask my next one thanks very much.

Vincent Pilette: And we're looking at R2 across all the channels and then driving cross-sell-up selling. Got it. Got it. That makes sense. I'll get back in queue to ask my next question. Thanks very much.

Speaker Change: Okay.

Speaker Change: Thank you for your question.

The next question comes from the line of Hamzah firewall with Morgan Stanley.

Hamzah Firewall: Now open.

Hamzah Firewall: Hey, good evening, Thank you, Hey, how's it going.

Hamzah Firewall: Thank you for taking my question.

Hamzah Firewall: Yes.

Hamzah Firewall: Understand that.

Hamzah Firewall: Progress is not always linear across every metric, but clearly.

Hamzah Firewall: <unk> did come in below your expectations I'm wondering if it.

SAC-IT Calia: Thank you for your questions. The next question comes from Hamza Badarwala with Morgan Stanley. Your line is now open, and the Good..., and Matt Hedberg. Matt Hedberg.

Hamzah Firewall: If it's just a function of just the higher mix of incremental.

Hamzah Firewall: International mobile subs or did the churn rate for your let's say higher paying subscribers, the Norton and Lifelock subscribers. If you will.

Matt Hedberg: Yep. So let me address both, and they combine, obviously, in the dynamic. Definitely, the ARC pool is still growing year over year, but it's sequentially down. It's driven by mail.

Hamzah Firewall: That.

Hamzah Firewall: Come down more than you would've expected or did.

Hamzah Firewall: Didn't improve as much as you expected.

Hamzah Firewall: So so.

Speaker Change: Let me address both in the combined obviously in the dynamic differently. The RFP is still growing year over year, but sequentially down is driven by mix.

Vincent Pilette: We are not discounting more in each one of the channels; we didn't see anything outside of the normal business dynamics that we had seen in prior quarters. And to be honest with you, we love all of our channels, and where we see momentum, we're going to allocate some of the marketing dollars, in this case, this quarter was maybe a little more allocated to lower output channels, but very economically positive in the long term. So we feel good about that. So that's the entire output dynamic makeshift.

Speaker Change: We are not discounting more in each one of the channels. So we didn't see any.

And you're seeing outside of the normal business dynamic that we had seen in prior quarters.

Speaker Change: And to be honest with you we love all of our channels and where we see momentum we're going to allocate some of the marketing dollars. In this case. This quarter was maybe a little more allocated towards lower <unk> channels, but very economically positive in the long term. So so we feel good about that so that's the entire our pud dynamic.

Speaker Change: Mix shift.

Vincent Pilette: When you talk about retention, we were stable quarter over quarter. We actually improved in key areas, but we're slightly below our plan, and we were doing real-time allocation of our resources. You know, we're also preparing to move now to a common platform; this year is the big rollout of our new product set and merging the different campaigns, understanding that different things had to be some trade-offs with the day-to-day drive of the activity. So we did not improve as much as we had in our plan, if you want. But we feel really good, and I think as we continue to progress, quarter in, quarter out, may not be exactly linear, but I feel very good that we will get to our 80%. I know the main driver...

Speaker Change: When you talk about retention, we were stable quarter over quarter.

Speaker Change: We actually improving a key in key areas, but we are slightly below our plan and we were doing real time allocation of our resources. We also preparing to move now to common platform. This year is the big rollout.

Speaker Change: Rollout of our new.

Speaker Change: Product sets and merging the different campaigns understanding the different things had to be.

Speaker Change: Some tradeoffs with.

Speaker Change: The day to day drive.

Speaker Change: The activity. So we did not improve as much as we had in our in our plan in Q1, but we feel really good.

Speaker Change: And.

Speaker Change: I think as we continue to progress quarter on quarter now it may not be exactly linear but feel very good that we will get to 80% level.

Speaker Change: Got it and just on the topic.

Speaker Change: The main driver for us.

Speaker Change: Just to continue to deliver value through upsell and cross sell but.

Speaker Change: Unless I'm mistaken I don't think you've taken really any price.

Speaker Change: Over the last couple of years.

Speaker Change: Despite what has been record high inflation in some of your peers are raising prices. So I'm just curious how youre thinking about.

Speaker Change: Yes, perhaps taking more price for the value that you're delivering going forward.

Vincent Pilette: So pricing is very strategic to us, right? And we really are pricing for value. So we constantly innovate, add new features, and then keep our price constant with the market. And when we say we didn't take a price increase, that's not true.

Speaker Change: So pricing is very strategic to us right and we really are pricing for value. So we constantly innovated, adding new features and then keep off price constant with markets and when you say, we didn't take price increase thats not true.

Vincent Pilette: We always price for the value we deliver to the market, adding new features. And I think the growth rate you mentioned, cross-sell, up-sell, definitely the cross-sell, meaning adding more to cyber safety, or the up-sell towards that membership, are two of our five key levers for growth, right? We also obviously want to continue to expand, and we are very pleased to have a new customer coming in last quarter and this quarter. We want to expand and continue to expand with partners to provide cyber-safe solutions. And we're looking at the overall, if you want, as a balanced approach to delivery and pricing. Thank you for your questions. The next question comes from a line from Peter Levine with Evercore. Your line is now open, but a No, thank you for asking. Hi, how are you guys?

Speaker Change: We always price for the value, we deliver into the market, adding adding new features.

Speaker Change: And I think the growth rate you mentioned cross sell upsell.

Speaker Change: Definitely the cross sell meaning adding more to cyber safety of the upsell towards that membership. It's two of our five key levers for growth right. We also obviously want to continue to expand very pleased to have new customer coming in.

Speaker Change: In last quarter and this quarter, we want to expand and continue to expand with partners to provide cyber safety solutions.

Speaker Change: And we're looking at the overall, if you want as a balanced approach delivering in pricing program.

Speaker Change: Okay I'll hop back in the queue. Thank you.

Speaker Change: Okay.

Speaker Change: Thank you for your question.

Speaker Change: The next question comes from the line of Peter Levine with Evercore.

Peter Levine: Your line is now open.

Peter Levine: Hey, Peter.

Well. Thank you for you guys. Thank you for taking my question.

Peter Levine: Thank you for taking my question. Let me just piggyback off of the first two. Last question: when did you see the dynamics start to pop up, was it mid-quarter, towards the end of the quarter? Just curious to know when you started to see them. The makeshift was in the channel.

Peter Levine: Yeah, maybe just to piggyback off of the first to US since we last met in November kind of where did you see these dynamics start to kind of pop up was it mid quarter or towards the end of the quarter. Just curious, though when you kind of started to see these mix shifts within the channel and then what are your assumptions into Q4 into next year as you kind of think about whatsapp.

Vincent Pilette: And then what are your assumptions? Oh, okay. We're, So as we reported, Q2, the first quarter of sequential growth, as you know, we said we were finishing strongly in September with good momentum outside of the U.S. in international and new emerging markets. That's what, at the end of the day, we indicated a kind of customer profile by those markets so we can model them. Obviously, they carried into Q3 at a stronger pace than we anticipated. We thought it would slow down, but we didn't know if it was sustainable.

Speaker Change: Thanks for that.

Speaker Change: Yes, so as we reported Q2 first quarter of sequential growth as you know we said we finished strongly.

Speaker Change: In September with good momentum.

Speaker Change: Outside of the U S and international in new emerging markets. That's at the analyst day, we indicated.

Speaker Change: Kind of the profile of customer by those market. So we can we can muddle them, obviously the carried into Q3.

Speaker Change: Stronger pace than we anticipated we thought it would slow down we didn't know it was sustainable and we saw it was sustainable to continue to put marketing dollars into those trends.

Vincent Pilette: We saw it was sustainable. We continued to put marketing dollars into those trends, and I think going into Q4, we now have two quarters of sequential experience with it, if you want. We plan to continue into Q4. We'll give more indications when we give the annual guidance of $25 in May.

Speaker Change: Going into Q4, we now have two quarter sequential.

Speaker Change: Experienced with it if you want we plan to continue into Q Q4.

Speaker Change: We will give more indications when we give the annual guidance of 25 in May this plenty of things can happen between now and then.

Vincent Pilette: Splendid things can happen between now and then, especially progress in retention. In terms of retention, we, actually, as I mentioned, we made good progress across the brands. So I see nothing changing from fundamental progress.

Speaker Change: Especially making the progress in retention in terms of Retentions, we actually as I mentioned, we made good progress across the brand so I see nothing.

Speaker Change: Changing from a fundamental.

Speaker Change: Progress and you know that we have the aspiration to bring the <unk> brands to closer to where the northern is and we're making good progress there in terms of trading off certain initiatives for platform integrations that were more day to day two of the quarter as we were preparing for integration.

Vincent Pilette: And you know that we have the aspiration to bring the Avast brands closer to where the Northern is, and we're making good progress there. In terms of trading off certain initiatives for platform integrations that were more day-to-day through the quarter, as we were preparing for. Thanks.

Peter Levine: You know, I think one of my comments you made was interesting, was, you know, the record pipeline. I think for the employee benefit channel, maybe just double down there and kind of let us know how that cohort of customers varies. Traditional channel, maybe talk about what the ARPU looks like for those, like the chart for those customers. Just curious, anything that you can share and you know when that becomes Definitely. In partner, we have multiple channels, right? An employee benefit is one of them. We have the telcos, we have some retail, and we have strategic partners as well. And they all behave slightly differently.

Speaker Change: I think what I'll call. It some of it was interesting.

Speaker Change: The record pipeline I think for the employee benefit channel.

Speaker Change: If you can double down there and kind of let us know.

Speaker Change: How that cohort of customers berries versus your traditional channel maybe talk about what the <unk> looks like for those mature customers. Just curious anything that you can share when that becomes more meaningful to you guys. Thank you.

Speaker Change: And definitely in partner, we have multiple channels. So employee benefits is one of them. We have the telcos, who have some of the retail we have strategic partners as well.

Speaker Change: They all behave slightly differently. They also have a different relationship between your bookings and your revenue compared to the normal DTC business, which is 90% of our business as you know.

Vincent Pilette: They also have a different relationship between your bookings and your revenue compared to the normal DTC business, which is 90% of our business, as you know. In terms of the employee benefit channel, we continue to grow the pipeline. We've been growing double digits. Maybe we're a bit overly optimistic in terms of closing certain of these, I mean, immediate impact here during sign-up times. And those will be delayed and carried goal going into Fiscal year twenty five; they are not lost deals. But it takes time to deploy.

In terms of the employee benefit channel, we continue to grow the pipeline, we've been growing double digits, maybe we'll a bit over optimistic in terms of closing certain of these.

Speaker Change: We've been carrying immediate impact here.

Speaker Change: During sign up times, and those will be delayed and cargo going into fiscal 'twenty, five and not lost deals, but it takes time to deploy also deploying into those installed base.

Vincent Pilette: We're also deploying into those install-based higher value propositions which may be studied initially at basic identity protection, adding all the way to the full membership structure, with reputation defender new product and those taking a little bit more time. Each channel may have different output of the employee base is very close to life lock, maybe 20, 25 percent lower than the average. But it's very close.

Speaker Change: Higher value proposition, which may be started initially.

Speaker Change: Physic identity protection, adding all the way to the full membership structure with reputation defender new product and and dose digging a little bit more time.

Speaker Change: Each channel may have different <unk> of their employee base is very close to lifelock.

Speaker Change: Maybe 2025% lower than the average, but very close to it.

Speaker Change: Great. Thank you for the color.

Peter Levine: Great, thank you for the call. Thank you for your question. The next question comes from the line of Matt Hedberg with RBC. Your line is now open. Maybe just I, my questions are kind of similar to the first couple ones that have been asked, but I guess, you know, I guess, specifically on the our. You've answered the question a couple times.

Speaker Change: Yes.

Speaker Change: Thank you for your question.

Speaker Change: The next question comes from the line of Matt Hedberg with RBC.

Matt Hedberg: Your line is now open.

Matt Hedberg: Hi, guys Hey, Matt.

Matt Hedberg: Hey, guys, Thanks, Hey, guys.

Matt Hedberg: You guys are well.

Matt Hedberg: Thanks for the time.

Matt Hedberg: Maybe just.

Matt Hedberg: My questions are kind of similar to the first couple of ones that have been asked but I guess.

Matt Hedberg: I guess, specifically on the <unk> piece, you've answered the question a couple of times I guess, specifically you guys don't guide to.

Matt Hedberg: I guess, you know, specifically, you guys don't guide to NetAds and ARPU, but, you know, sort of embedded in your Q4 guidance, is it sort of continued mixed pressure? Is that something that we should kind of expect in kind of the shorter term? Obviously, there's a long-term, probably upward bias to ARPU, but just sort of wondering if you could give us a little bit more clarity on some of the Q4. Yeah, I think from a, like we heard Vincent talk about, we now see two quarters of the momentum that we see and look, and we like what we see. I don't want that to be lost in the overarching metric with ARPU sequentially I think it's important to understand as much as we can and explain to you guys what's happening at the cohort level. So let's just talk about ARPU for a second first.

Matt Hedberg: Net adds and <unk>.

Matt Hedberg: Embedded in your Q4 guide is it sort of continued mix pressure is that something that we should kind of expect in kind of the shorter term, obviously as a long term probably upward bias to our pool, but just sort of wondering if you could give us a little bit more clarity on some of the Q4 assumptions.

Speaker Change: Yeah, I think from a likelihood Vincent talk about.

Speaker Change: Now, we see two quarters of the momentum that we see and look we like what we see I don't want that to be lost in the overarching metric with our two sequentially down and now two quarters of sequential customer ads I think it's important to understand as much as we can and explain to you guys what's happening.

Speaker Change: At the cohort level. So, let's just talk about <unk> for a second first if you break that down and we really see.

Natalie Dursey: If you break that down, and we really see the core online business, we see expansion in ARPU, and we've seen that for many, many, many quarters in a row, especially as we continue to drive, in a successful manner, more and more adoption of cross-sell. That has been a growth driver and lever for us in recent quarters. And as you heard back in November, it will continue to be one of our main levers as we drive forward, not only with the different cohorts that come in and as we expand internationally, but as we, again, have a robust product portfolio and continue to bring new products to market. And then when you look at the economics of the other cohorts, they're very healthy.

Speaker Change: The core online business, we see expansion in our appeal and we've seen that for many many many quarters in a row, especially as we continue to drive in a successful manner more and more adoption of cross sell that has been a growth driver and lever for us.

Speaker Change: In the recent quarters and as you heard in back in November It will continue to be one of our main levers as we drive forward not only with the different cohorts that come in and as we expand internationally, but as we again.

Our robust product portfolio and continue to bring new products to market and then when you look at the economics of the other cohorts.

Speaker Change: Theyre very healthy we've said and we've been very explicit that we will continue to invest in marketing to drive growth and drive expansion and diversify but we don't burn money in the parking lot. So even at even as the cohorts mixed together and at the top level metric on a blended basis, it looks down quarter over quarter. It is down.

Natalie Dursey: We've said, and we've been very explicit that we will continue to invest in marketing to drive growth and drive expansion and diversification, but we don't burn money in the parking lot. So even as the cohorts mix together, and at the top level metric on a blended basis, it looks down a quarter or it is down a quarter of a quarter within the cohorts, they're very healthy. And so as we look forward in that metric, or as to where the customer acquisition is gonna come and be achieved compared to as they come through the funnel, what products and solutions are they choosing at which time? It's definitely all about diversification, and it's all about growth. And we don't pick and choose or prioritize one channel, market, et cetera over the other.

Speaker Change: Quarter over quarter within the cohorts they are very healthy and so as we look forward in that metric, where we look forward as to where the customer acquisition is going to come in.

Speaker Change: <unk> achieved compared to as they come through the funnel what products and solutions are they choosing at which time, it's definitely all about diversification and it's all about growth and we don't.

Speaker Change: Pick and choose or prioritize one channel market et cetera over the other what we're looking for is sustainable and profitable growth and as we look at the performance of the performance marketing dollars.

Natalie Dursey: What we're looking for is sustainable and profitable growth, and as we look at the performance of performance marketing dollars. We put the fuel behind the most fruitful opportunities that we can in a balanced approach. Now, how all that math comes together, quarter in, quarter out, I think that's going to look different, and it's going to flex as we make those decisions. And what we've got to, you know, make sure that we lay out for you guys is that it is a balanced and disciplined approach and that the diversity that we are driving is a healthy one for GEN. Got it, super helpful. Thanks, Natalie.

Speaker Change: We put the fuel behind the most fruitful opportunities that we can in a balanced approach now how that all of that math comes together quarter in quarter out I think that's going to look different and it's going to flex as we make those decisions and what we've got to make sure that we lay out for you guys is that it is a balanced and disciplined approach in.

Speaker Change: Let the diversity that we are driving is a healthy one for Jen.

Got it Super helpful. Thanks, Natalie and then.

Matt Hedberg: And then I, you know, there was an earlier question too on employee benefit revenue. We've, you know, we also think that's a huge opportunity for you all. It sounds to me like, Natalie, I just want to clarify, you said the revenue that slipped out of 3Q, we're not, we shouldn't expect that in 4Q, that's more of a fiscal 25 timing issue. Is that kind of the right way to think about the deals that didn't close this quarter? Yeah, definitely a few key deals slipped into fiscal year 25, and we did not put them into our Q44. That's another one where I want to make sure that we... Yeah, that's another message I want to make sure that we reiterate and are super clear. Like, the eBee funnel is just incredibly robust; it's never been stronger.

Speaker Change: Earlier question too on the employee benefit revenue.

Speaker Change: That's a huge opportunity for you all.

Speaker Change: It sounds to me like that I, just want to clarify you said the revenue that slipped out of <unk> were not we shouldnt expect that in <unk>, that's more of a fiscal 'twenty five.

Speaker Change: Timing issues is that kind of the right way to think about the deals that didnt close this quarter, yes. It differently.

Speaker Change: Key deals slipped into.

Speaker Change: Into fiscal year, 'twenty, five and we did not put them into our Q4 forecast.

Speaker Change: That's another one where I want to make sure that they are not lost so.

Speaker Change: Yeah. That's that's another message I wanted to make sure that we reiterate our super clear like the ebay funnel is just incredibly robust robust never been stronger the team there is really driving diversification expansion and really increasing the quality. So we've got deals in the hopper of all size and scale.

Natalie Dursey: The team there is really driving diversification, expansion, and really increasing quality. So we've got deals in the hopper of all size and scale, and we're just really having a disciplined approach. There's an operational excellence component to that. That team is doing really, really well.

Speaker Change: And we're just really having a disciplined approach. It there is an operational excellence component to that that team is doing really really well and I look at it as well.

Natalie Dursey: And I look at it as, you know, when we manage these deals, we're just being great partners. We're being great partners to our partners, for lack of a better way to say it. But, you know, the customers in the eBee deals, those integrations can be, as we look at the different sizes and scales of the deals, pretty complicated. And so we're making sure that we are absolutely delivering on our commitment to them. And then as they integrate and really work through the integration on their side, there are eventually, you know, at times, just timing components to it. So that's how I would encourage you guys to look at it. Again, the eBee funnel has never been stronger. Thanks a lot, Natalie. Thanks a lot.

Speaker Change: When we manage these deals were just being great partners, we're bringing great partners to our partners for lack of a better way to say it but the customers and the deals those integrations can be as we look at different size and scale of the deals they can be pretty complicated and so we're making sure that we are absolutely delivering on our.

Speaker Change: Commitment to them and then as they integrate and really and really work through the integration on their side. There are eventually at.

Speaker Change: At times, just timing components to it so that's how I would encourage you guys to look at it again, the EBIT funnel has never been stronger.

Speaker Change: Thanks, a lot Matt Thanks, a lot.

Speaker Change: <unk>.

Speaker Change: Thanks.

Jonathan: Thank you for your questions. The next question comes from Jonathan Stevenson with Think of America.

Speaker Change: Thank you for your question.

Speaker Change: The next question comes from the line Jonathan.

Jonathan: With bank of America.

Your line is now open.

Jonathan: Your line is now open. Hey, thanks for taking my question. I just have two.

Jonathan: Yeah.

Jonathan: Hey, Thanks for taking my question I just have two.

Jonathan: So the first is, can you just touch on, hey, thank you. Can you just touch on deal linearity throughout the quarter? And then my second question is, any color.

Jonathan: So the first is can you just touch on hey, Thank you.

Speaker Change: Can you just first touch on deal linearity throughout the quarter.

Speaker Change: And then my second question is.

Speaker Change: Any color.

Natalie Dursey: Any color you can give on how aggressive you plan to be on buybacks given the injection of cash? Yeah, so the deal linearity is, just our partner channels are so diverse. And I know you attended the investor day, but for everybody else on the call, like we've talked about how many different channels are in partner, and quarter in, quarter out, the timing, those deals, and the diversity of those channels now that they come together, they won't be linear. What I would reiterate is that, you know, what we talked about at our investor day, and I would reiterate here is that the partner channel is very, very critical for us. We laid out a growth plan over the long term to add about $100 million of incremental partner revenue.

Speaker Change: Any color you can give on how aggressive you plan to be on buybacks given the injection of cash.

Speaker Change: Yes, so the deal linearity, we just our partner channels are so diverse and I know I know you attended the Investor day, but for everybody else on the call like we've talked about how many different channels earn partner in quarter in quarter out the timing of those deals and the diverse.

Speaker Change: See those channels and how they come together they won't be linear.

Speaker Change: I would reiterate is that what we talked about.

Speaker Change: At our Investor Day, and I would reiterate here is the partner channel is very very critical for us.

Speaker Change: We laid out a growth plan over the long term to add about $100 million of incremental partner revenue and so the teams are aligned to that driving towards that.

Natalie Dursey: And so the teams are aligned to that, driving towards that, and we'll stay focused on that goal and give you guys progress updates along the way. And then in terms of the share buyback, in terms of I don't, I don't, I don't really want to call comments on conservative or aggressive, but we definitely will have a balanced capital allocation. We had already earmarked a balanced approach across share buyback and accelerated debt paydown for Q4.

Speaker Change: And we will stay focused on that goal and give you guys progress updates along the way and then in terms of the share buyback.

Speaker Change: In terms of I don't I don't I don't really want to comment on conservative or aggressive, but we definitely will have.

Speaker Change: Our balanced capital allocation, we had already had prior to the receipt of that $900 million, we had earmarked a balanced approach across share buyback and accelerated debt pay down for Q4 again as we laid out for you guys. In November we'll continue that balanced approach and then.

Natalie Dursey: Again, as we laid out for you guys in November, we'll continue that balanced approach. And then, like we said, the $900 million is now available for us to deploy. We already have, you know, that in and ready to go in terms of how we're going to deploy it in Q4. Thank you for your questions. Our next question is a follow-up from Sacket Callia with Barclays and Matt Hedberg. Thank you. Hey guys, thanks for fitting me back in. Maybe just one follow-up, if I could. Natalie, maybe for you.

Speaker Change: Like we said the $900 million is now available for us to deploy.

Speaker Change: We already have.

Speaker Change: In.

Speaker Change: And ready to go in terms of how we're going to deploy that in Q4.

Speaker Change: Got it thank you.

Speaker Change: Sure.

Speaker Change: Thank you for your question.

Speaker Change: Question is a follow <unk> with Barclays.

Speaker Change: Your line is now open.

Barclays: Hey, guys. Thanks for thanks for fitting me back and maybe just one one follow up if I could.

Natalie: Natalie maybe for you.

Sacket Callia: So the pipeline in the employee benefits and sort of the partner business sounds great, you know, given some of the deal dynamics that didn't necessarily benefit here in Q3 and what we are now assuming in Q4, I was just wondering if you could put a finer point on what that revenue impact was here in Q3. I mean, clearly, there's some ARPU impacts, right, that we've talked about quite a bit, but I'm curious how much that partner business maybe contributed to some of the revenue delta in the quarter. Yeah, I would say look, let's look at the top level number, I think, based on the performance that we delivered in Q3, versus what, you know, the midpoint of the guide, let's just dive into that, that's about, you know, 5 million bucks versus midpoint. And so nothing's going to be material; there are a handful of things that go into that approximately $5 million miss to the midpoint of us delivering on the low end.

Natalie: So the pipeline and the employee benefits and sort of the partner the partner business sounds sounds screen, just given some of the deal dynamics that didn't necessarily benefit here in Q3.

Natalie: And what we're now assuming in Q4 I was just wondering if you could put a finer point on what the revenue impact was here in Q3, I mean, clearly there are some ARPA impacts rate that we've talked about quite a bit but I'm curious how much how much of that partner business, maybe contributed to some of the revenue delta in the quarter.

Speaker Change: Yeah, I would say look let's look at the top of a number I think.

Speaker Change: Based on the performance that we delivered in Q3 versus what the midpoint of the guide, let's just face into that Thats about five.

Speaker Change: <unk> 5 million Bucks.

Speaker Change: Versus midpoint, and so nothing is going to be material. There's a handful of things that go into that approximately $5 million Miss to the midpoint us delivering on the low end.

Natalie Dursey: And, you know, so there the partner deals are a contributor. The fact that, when we talk about our growth levers coming through, and we talk about the mix of customers coming through the funnel, etc., that had some, there's a little bit of FX, etc. So all in, nothing on an individual line item basis is material, all tallying up to about a $5 million delta.

Speaker Change: And.

Speaker Change: So the partner deals are a contributor.

Speaker Change: The fact that.

Speaker Change: When we talk about our growth levers coming through and we talk about the mix of the customers coming through the funnel et cetera that had some there was a little bit of FX et cetera. So all in nothing and on an individual line item basis as material all tallying up to about a $5 million Delta.

Sacket Callia: Got it. Got it. Very helpful. Thanks. Thank you. Thank you for your questions. Our final question comes from a line between Homs and Sotawawa.

Speaker Change: Got it got it very helpful. Thanks.

Speaker Change: Thank you.

Speaker Change: Thank you for your question.

harmful firewall: Our final question comes from the line of harmful firewall.

Homs: Your line is now open. I wanted to sneak in a product question here. Threat and Environment. The rise of Ransomware, AI- Seems like cyber security is as much of a problem as it is a solution, www.gen.com. What are you doing with your partners? www.gen.com and the GEN Digital Network. We'll see you on Thursday.

harmful firewall: Your line is now open.

harmful firewall: Thank you just for my follow up I wanted to sneak in a.

harmful firewall: A product question here for Vincent.

harmful firewall: Just given that you sort of threaten environment that we're seeing with the rise of ransomware.

harmful firewall: I'd.

harmful firewall: Just the elections that are happening globally around the world.

harmful firewall: It seems like cyber securities as much of a problem for organizations as it is.

harmful firewall: For consumers and I'm curious.

harmful firewall: What are you doing with your partners with your customers to really educate them on having proper cyber hygiene and specifically on the <unk>.

Vincent Pilette: A.I. Deepak Aishwarya, Products on the Roadmap Absolutely. And we have a lot of activities with partners.

harmful firewall: As you are there any sort of products on the roadmap that goes that could potentially deal with that going forward.

Speaker Change: Yeah, absolutely and we have a lot of activities with partners. That's why partnering strategic as we embed it into security and security concerns into solutions that the consumer buy and then directly with the consumer.

Vincent Pilette: That's why partnership is so strategic as we embed it into security and security concerns into solutions that the consumer buys. And then, directly with the consumer, we have a full set of activities in terms of educating and reminding them. It's also part of our customer success journey that we drive directly with all of our customers. Hygiene, as you know, in cybersecurity, is a big component of that. We definitely are using more and more AI, as Andre mentioned at the AID, using AI to combat AI, if you want. The shift towards a personalized, interactive, intuitive cyber safety companion is absolutely essential. We launched Northern Genie as an example of early on what we can do to try to identify some of those fake scams.

Speaker Change: We have a full.

Speaker Change: <unk> set of activities in terms of educating reminding them at social part of our customer success journey that we drive directly with all of our customers and hygiene as you know in cyber security is a big component.

Speaker Change: That we definitely are using more and more AI as Andrea mentioned at the AAD using AI to combat AI, if you want.

Speaker Change: The.

Speaker Change: A shift towards a personalized interactive intuitive side.

Speaker Change: Cyber safety companion, if Q1 is absolutely essential.

Speaker Change: Northern Genie is an example of early on what we can do to try to identify some of those fake scans.

Vincent Pilette: They'll become more and more sophisticated. And with that, our product will become more and more powerful as it really can counter the entire spectrum of digital threats. So you will see the evolution of cyber safety for consumers becoming more and more embedded and personalized to your behavior.

Speaker Change: They will become more and more sophisticated and with that our product will become more and more powerful as it really can scan the entire spectrum of digital threat. So you'd see the evolution of cyber safety for consumer becoming more and more embedded and personalized to you.

Speaker Change: Youll behaviors.

Operator: All right, great. Thanks, Alza. This concludes our conference call today. Thanks for joining us.

Speaker Change: Thank you.

Speaker Change: Alright, great. Thanks.

Speaker Change: This concludes our conference call today, thanks for joining.

Q3 2024 Gen Digital Inc Earnings Call

Request a DemoDemo

GEN

Gen Digital

Earnings