Q2 2026 Gen Digital Inc Earnings Call
Speaker #1: Good afternoon everyone . Thank you for standing by . My name is Lauren and I will be your conference operator today . Today's call is being recorded and all lines have been placed on mute to prevent any background noise .
Speaker #1: 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 .
Speaker #1: Please go ahead .
Speaker #2: Thank you , Laura , and good afternoon , everyone . Welcome to Jen's second quarter fiscal year 2020 earnings call . Joining me today are Vincent Pilette CEO and Natalie Derse CFO .
Speaker #2: As a reminder , there will be a replay of this call posted on the Investor Relations website along with our slides and press release .
Speaker #2: I'd like to remind everyone that during this call , all references to the financial metrics or non-GAAP and all growth rates are year over year unless otherwise stated .
Speaker #2: A reconciliation of non-GAAP to GAAP measures is included in our press release and earnings presentation , which are available on our website at investor Gen Digital Inc. .
Speaker #2: We encourage investors to monitor this website as we routinely post investor oriented information such as news and events and financial filings . Today's calls contains statements regarding our business , financial performance and operations , including the impact of our business 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 .
Speaker #2: Those statements are based on current beliefs , assumptions and expectations as of today's date , November 6th , 2025 . We undertake no obligation to update these statements as a result of new information or future events .
Speaker #2: 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 form 10-q .
Speaker #2: And now I'll turn the call over to Vincent .
Speaker #3: Thanks . Hello , everyone , and thank you for joining us today to discuss results for the second quarter of fiscal year 2026 .
Speaker #3: This was another quarter of outstanding execution , exceeding our expectations as we capitalize on our global user base and compounding data advantage . We delivered record revenue and earnings continued to drive strong customer and bookings growth , and are making clear progress with our portfolio transformation .
Speaker #3: This performance demonstrates the strength and resilience of our business , underpinned by a high margin subscription model . Now expanding into faster growing adjacencies in secure financial wellness .
Speaker #3: It also reflects our strategic position as the most trusted partner in protecting digital lives , bringing confidence in a complex and increasingly AI driven world .
Speaker #3: Before diving into the numbers , it is important to recognize the environment in which we operate . Consumers today face a rapidly evolving threat landscape .
Speaker #3: They face a new generation of cyber threats like AI powered phishing , deepfakes , inner circle impersonation and identity theft . Driven by large scale data breaches .
Speaker #3: These threats are increasingly personalized , sophisticated and harder to detect . The financial impact is real and rising . Cyber crimes against consumers are projected to exceed $15 billion annually in the US alone , growing at double digit rates .
Speaker #3: Meanwhile , financial wellness is a very real and prevalent consumers need two thirds of Americans live paycheck to paycheck , often stitching together their financial lives across multiple digital platforms .
Speaker #3: Beyond traditional banks , in this environment , risk and financial wellness are deeply interconnected . When people live with little financial buffer , an incident of identity theft , a fraudulent charge , or even a scam can quickly upend their finances .
Speaker #3: The stakes go beyond security and protection . There are also about trust and well-being . People aren't just searching for another financial product .
Speaker #3: They're seeking for trusted and reliable partner , one that can secure their identity , protect their data , safeguard their privacy and empower their financial well-being through trusted decisioning along their journey .
Speaker #3: And that is exactly the role Gen is built to play . And we are uniquely positioned to be the global consumer cyber safety and fintech leader .
Speaker #3: Now . And in the future . A genetic world that is emerging around us . Let me review some of the highlights of the current quarter .
Speaker #3: We generated just over 1.2 billion in revenue , up 25% year over year . A consumer fintech business , Moneylion , delivered another exceptional quarter , growing 50% .
Speaker #3: And when including Moneylion results in the prior year , Gen grew revenue 10% , matching our strong Q1 performance . We continue to operate with financial discipline , maintaining a non-GAAP operating margin above 50% and driving a non-GAAP EPs result of $0.62 , up 15% year over year .
Speaker #3: Even as we continue to make disciplined growth investments throughout our technology stack in AI data and platform architecture , this disciplined investments will continue to fortify our global leadership and over time , further compound allowing us to offer even more offers , services and value to our customers to help them lead secure and safe financial and digital lives .
Speaker #3: Similar to Q1 , our performance was broad based . We generated growth across our Norton Avast , LifeLock , and Moneylion brands . Our bookings for the Cyber safety segment grew 5% year over year , coupled with a robust operating margin of 61% and healthy and stable customer retention during the quarter .
Speaker #3: We expanded our scam and deepfake protection powered by Norton Pro and Avast Scam , Guardian to help users combat the rapid rise in AI based scams .
Speaker #3: Early adoption is strong and accelerating with support in over 40 languages and more countries coming on later this year . We are driving rapid development with our cyber safety Assistant delivering actionable insights to Norton 360 users as more innovation is integrated into our cyber safety suites , we are seeing higher engagement , which we believe is helping drive strong Norton 360 and Avast one membership growth .
Speaker #3: Our refreshed privacy portfolio is also gaining momentum following the Norton VPN improvements , which we released earlier this year and several positive reviews in leading tech publications that have market awareness and privacy .
Speaker #3: Accelerated to double digit growth . We also enrich our own small business solution , combining security and financial protection features for entrepreneurs and teams .
Speaker #3: These efforts align with Gen's strategic direction to penetrate new customer cohorts , combining technology , leadership and improved user experience . Independent testing continues to validate our leadership as Norton and Avast remain the top two brands in consumer protection , and we will continue to drive additional innovation in the portfolio through new features such as our AI driven customer renewal model .
Speaker #3: Overall , cyber Safety provides an important , needed value proposition to consumers as we continue to operate this business with discipline driving stable and profitable growth , our trust based solution segment delivered another standout quarter , with revenue up over 25% on a pro forma basis , while operating margin came in at our 30% target , our trusted brand , LifeLock remains the leader in identity protection , allowing consumers to support their financial journey with their best credit reputation consuming financial products at those moments of truth when identity , reputation and financial well-being intersect , Moneylion exceptional results across our first party personal finance products and our engine marketplace demonstrate our disciplined execution unrivaled portfolio and the strong signal of demand for our secure financial wellness services .
Speaker #3: The integration of Moneylion has been one of our smoothest yet , with cost synergies delivered ahead of plan . We are now unlocking revenue synergies by unifying best in class data systems and solutions across our cyber safety and trust based solutions .
Speaker #3: We have embraced Moneylion experimentation and innovation . DNA and are focused on building new features in the category that is still transforming , incorporating best practices from all of our businesses will ensure cutting edge product performance , but also multiple opportunities to cross-promote our features to consumers across channels such as the launch of a feature in our employee benefit channel .
Speaker #3: We have begun rolling out Early Access Financial wellness features across selected gen brands , including LifeLock and Norton , marking a key step in expanding our ecosystem .
Speaker #3: This includes the early launch of Norton Money , a unified platform that combines credit monitoring , identity protection , financial insights , and a curated marketplace .
Speaker #3: We have also embedded a robust credit card marketplace for LifeLock customers , a natural extension of the credit monitoring features that are increasingly engaging with continued excellence in embedding AI powered financial recommendations and insight is a natural use of our data advantage to help consumers make even better financial decisions .
Speaker #3: The LifeLock and Norton consumers will no longer need to leave the ecosystem for customized , precise recommendations that can improve their financial lives .
Speaker #3: These initiatives reflect our broader ambition to build the leading decisioning platform for consumers , secure financial empowerment . Gen now serves hundreds of millions of active and premium customers across our ecosystem , creating a substantial base for future financial , product and subscription cross-sell monetization .
Speaker #3: This strategy drives lifetime value expansion and sets up a strong growth trajectory . This is exactly what we outlined in our strategic vision for secure financial wellness to enrich Gen ecosystem .
Speaker #3: By leveraging our trusted data platform , where every decision and transaction feels secure , permitted and contextual , and embedding financial wellness like digital banking insights , precision marketplace payments into our cyber safety and identity protection , entry door .
Speaker #3: AI is now the connective tissue of everything we do across innovation , products , marketing and customer experience in cyber safety , AI powers behavioral based threat detection and real time schema identification , protecting users from phishing , deepfakes , and other emerging forms of attacks in financial wellness .
Speaker #3: The moneyline engine leverages AI through spark are proprietary underwriting platform that matches customers with the best and most relevant financial products . Personalizing and accelerating their decision making .
Speaker #3: Our AI native Norton Neo browser power need personalized browsing by introducing safe and private memory support , transforming each browser instance into a unique personal assistant that users can trust within our Customer Success organization , we improved retention through tailored offers and enhanced user satisfaction , and drove sustainable long term revenue growth .
Speaker #3: As we unify our customer data securely , we are developing personalized and permissioned AI powered outcomes , redefining the trusted value we bring to consumers .
Speaker #3: Operationally , AI is already delivering tangible productivity gains . Our customer support , automation and agentic framework continues to mature . Now handling 55% of text based chats and 40% of voice based interactions driving over 20% cost efficiencies in this function to relocate towards our platform investment in R&D , we have applied a genetic AI across the entire product development lifecycle , enabling us to shift over time .
Speaker #3: Resources for maintenance towards innovation and ultimately boost product velocity . And finally , in marketing , we have built an AI enabled ecosystem that accelerates creative production and enhanced productivity across every team , from upper to lower funnel .
Speaker #3: This shift is creating a more agile , data informed marketing organization that is operating at the pace of our ambitious innovation . We very excited about the scale and growth we can deliver through this strategy , through our global data advantage and the consumer trust .
Speaker #3: With a strong first half results and increased visibility in the second half of the year , we are raising our annual guidance up $95 million at the midpoint of our prior revenue range , representing over 25% growth on a reported basis .
Speaker #3: This underscores the momentum we see in our business as we transform into a customer centric platform , leveraging our scaled customer base and using our data to drive personalization and trust at the core of our business .
Speaker #3: In summary , we delivered another very strong quarter and are raising our annual guidance again demonstrating our strategy is working . We are ahead of plan with Moneylion and setting our sights on capturing further growth , synergies and leading with innovation grounded in trust .
Speaker #3: We are building the first AI powered platform with a trust layer that unites security , privacy , identity and financial wellness solutions into a market advantage that no one else holds at scale .
Speaker #3: Our ecosystem brings together a portfolio of competitive first party products in cyber safety and trust based solutions , and an expanding partner network that underpins our engine marketplace to also provide leading third party products and solutions for our customers .
Speaker #3: And all of it is supported by a customer driven platform that delivers personalization and contextualization at key moments of truth to our investors and partners .
Speaker #3: I want to thank you for your confidence to our employees . I want to thank you for your relentless commitment to our customers and to fulfilling our mission of powering digital freedom .
Speaker #3: Jan is executing with momentum, discipline, and purpose, and our opportunity has never been greater. Now, I will turn it over to Natalie to discuss our financial results and financial guidance in more detail.
Speaker #4: Thank you . Vincent , and hello everyone for today's call . I will walk through our Q2 results and also provide some additional color on our performance metrics .
Speaker #4: I'll then conclude by providing our outlook for Q3 and fiscal year 2026 . I will focus on non-GAAP financials and year over year growth rates unless otherwise stated .
Speaker #4: I will also include commentary on our pro forma growth , which include Money lines , results from the prior year for comparative purposes .
Speaker #4: Now on to our results . Q2 was another strong quarter for Gen with better than expected results on a reported basis . Q2 bookings and revenue were over $1.2 billion , up 27% and 25% year over year , respectively , on a performance basis , Q2 revenue grew 10% , consistent with last quarter and excluding Moneylion , Q2 revenue grew 5% , which is consistent quarter over quarter performance .
Speaker #4: And in line with our commitments in our cyber safety segment , bookings was up 5% and revenue was up over 3% , with broad based growth across channels .
Speaker #4: With our expanded scam protection features and cyber safety , AI assistant helping consumers outpace emerging threats , this has translated into strong sales of our leading Norton 360 comprehensive membership offerings , and reflected in our accelerated bookings growth this quarter .
Speaker #4: More partners are also adopting our highest tier all in one cyber Safety memberships and promoting our bundled solutions through their channels . As just one example , our employee benefits partners already see the expanded value we provide through Norton 360 , and this channel continues to grow double digits with a robust pipeline ahead of the annual enrollment period .
Speaker #4: More and more consumers understand the need to have full suite with identity protection , and we see it in our results . Additionally , across our go to market channels , we are leveraging our data and AI capabilities to drive more effective , targeted campaigns through our In-product messaging platform , upselling more customers to higher tier memberships with additional identity and privacy protection or cross-selling them .
Speaker #4: Additional add on products that fit their immediate needs based on select moments of exposure . These post-sale levers continue to drive more growth , higher engagement , and in turn , higher retention .
Speaker #4: Our cyber safety platform remains our foundational bedrock , and the growth playbook we deploy continues to provide an accelerating flywheel rooted in innovation and serving customer needs .
Speaker #4: In our trust based solutions segment on a pro forma basis , bookings and revenue grew 26% and 27% , respectively , and more than doubled on a reported basis in our LifeLock business .
Speaker #4: Growth remained stable , with highly retaining customers and strong customer NPS . Additionally , money Line's personal financial management solutions are scaling significantly , with strong gains in new active users and increasing product consumption , and our engine financial marketplace delivered another strong quarter .
Speaker #4: The fourth consecutive quarter of growth over 50% . The accelerating adoption of third party financial products available on engine reinforces our marketplace strategy and our mission to help consumers make better financial decisions through embedded experiences across financial and non-financial platforms and apps .
Speaker #4: This momentum , this momentous business , is powerful in and of itself , and as we innovate across our trust based solutions segment , we believe it provides us with such a unique opportunity to cross-pollinate .
Speaker #4: Although we're just getting started , we are very excited about the green shoots in our early test results . Driving offers and in turn demand with our LifeLock cohorts .
Speaker #4: And we expect this momentum to continue as we expand the marketplace catalog to include new third party product . Product categories such as Prime credit cards that are personalized for our diverse customer base .
Speaker #4: Overall , our direct channels continue to demonstrate strong fundamentals , growing revenue 17% as reported and 6% pro forma and partner is scaling considerably .
Speaker #4: Growing revenue 88% . As reported , and 24% pro forma . Demonstrating healthy diversification , underpinned by strong innovation across our product portfolio .
Speaker #4: Turning to customers , we continue to expand our customer base . Now reaching over 77 million customers , up approximately 1 million sequentially with expansion across our segments and net adds across our key channels as we navigate forward with a more integrated business model , we will take a customer centric approach , and that requires us to refine how we target personalized offerings to best serve their needs .
Speaker #4: We will continue to focus on subscribers , which are customers who pay for our products in a recurring monthly or annual basis , such as our vast Norton 360 membership .
Speaker #4: Customers or money line subscriptions , which are refining in addition to subscribers . We will also focus on product users generating revenue , which our customers whom we monetize through transactions and complementary engagement models such as our money line , personal financial wellness and marketplace customers .
Speaker #4: And while we are at the early stages of development , we wanted to introduce our expanded approach designed to capture the growing demand in a more focused manner .
Speaker #4: As we continue to innovate and scale , we are no longer just the direct to consumer business , and there is no one size fits all approach with such a diverse customer base .
Speaker #4: More to come on this as we drive further expansion across these vectors . Now turning to profitability . Q2 operating income was $623 million .
Speaker #4: Translating to 51% operating margin in line with our expectations . Operating margin for cyber safety platform was 61% , and trust based solutions was 30% .
Speaker #4: Each . In line with our plan , our margins remain robust as we continue to drive growth with a disciplined approach to resource allocation , scaling , efficiency with AI and measured investment in our long term strategic initiatives .
Speaker #4: Q2 net income was $387 million and diluted EPs was $0.62 , up 15% year over year . As reported , this represents our eighth consecutive quarter of achieving or exceeding our 12 to 15% EPs growth target interest expense was $139 million in Q2 .
Speaker #4: Our non-GAAP tax rate remained steady at 22% , and our ending share count was 624 million , up 2 million year over year .
Speaker #4: Turning to our balance sheet and cash flow , Q2 ending cash balance was $701 million , representing over $2.2 billion of liquidity . When including our $1.5 billion revolver .
Speaker #4: Year to date operating cash flow was $525 million in free cash flow was $512 million , demonstrating the capital efficiency of our business model as we shared , Q2 is seasonally high .
Speaker #4: Our highest use of cash given the concentration of tax payments that are due within the quarter , including 130 $139 million transition tax payment .
Speaker #4: Our last payment related to the 2017 tax Cuts and Jobs Act . Also worth noting , due to how specific calendar dates fall in this fiscal year , we have both of our semi-annual interest payments in our first half of fiscal 2026 , whereas typically we have the first payment in the first half and the second payment in the second half of the fiscal year .
Speaker #4: Given this higher use of cash in Q2 , we did not have any additional capacity for share buyback during the open period . We paid down $160,000,160 million of debt and ended the quarter with our net leverage at 3.2 times EBITDA .
Speaker #4: We paid $77 million to shareholders in the form of a regular quarterly dividend of 12.5 cents per common share for Q3 fiscal 2026 .
Speaker #4: The Board of Directors approved a regular quarterly cash dividend of 12.5 cents per common share , to be paid on December 10th , 2025 for all shareholders of record .
Speaker #4: As of the close of business on November 17th , 2025 , our free cash flow generation remains very strong and we stay committed to a balanced capital allocation as we enter into the second half of our fiscal year .
Speaker #4: Now , let me share our Q3 and fiscal 2026 outlook . We are raising our revenue and EPs guidance again for fiscal 2026 , based on our strong results and the momentum we are seeing , our business remains resilient , bolstered by a highly recurring revenue base , further supported by solid customer retention and substantial free cash flow generation for fiscal year 2026 , we now expect full year revenue in the range of 4.92 to $4.97 billion , up from our prior expectation of 4.8 to $4.9 billion .
Speaker #4: And reflects reported revenue growth of 25 to 26% year over year . We expect non-GAAP EPs to be in the range of $2.51 to $2.56 , representing our continued commitment to achieving our 12 to 15% annual EPs growth for Q3 , we expect non-GAAP revenue in the range of 1.22 billion to $1.24 billion .
Speaker #4: We expect Q3 non-GAAP EPs to be in the range of 62 to $0.64 , or 12 to 15% growth year over year . Our Q3 and full year guidance assumes high single digit pro growth , combined with disciplined cost management , while funding targeted long term growth investments in the Gen platform and additional AI capabilities .
Speaker #4: This guidance range also assumes current FX rates to Q2 . Although significant fluctuations remain possible given the volatility in currency markets that has taken place over the past few years .
Speaker #4: In summary , we are well positioned after a strong first half , we're accelerating growth while maintaining the same operating discipline that has long defined our strategy .
Speaker #4: We are driving healthy growth in both of our segments , and we've made tremendous progress with the integration of Moneylion operating margins remain strong , and we're continuing to invest in scalable innovation without compromising returns .
Speaker #4: Our free cash flow generation is robust , creating capacity for ongoing opportunistic share repurchases and further delivering to drive strong returns for our shareholders .
Speaker #4: We continue to hit the mile markers we've laid out as we navigate towards our long term growth objectives . I want to thank the entire team for staying focused and delivering great value to our customers and shareholders .
Speaker #4: We look forward to sharing more progress in the coming quarters . As always , thank you for your time today and I will now turn the call back to the operator to take your questions .
Speaker #4: Operator .
Speaker #1: Thank you . We'll now begin the Q&A session . If you would like to ask a question , please press star , followed by one on your telephone keypad .
Speaker #1: To withdraw your question , please press star , followed by two . Please also ensure that your phone is unmuted locally as a reminder that is star followed by one to ask a question .
Speaker #1: Our first question today comes from Rob , Evercore ISI . Please go ahead .
Speaker #5: Great . Thank you very much and congratulations on the strong results . Just wondering , first of all , if you could maybe give us , your view of the macro environment and the health of the consumer right now .
Speaker #5: And if we were to see a more significant downturn , how do you expect that to play across the two segments of the business ?
Speaker #5: And then also , I'd ask on the transition . Sure . Please go ahead . Go ahead . Sorry .
Speaker #3: Okay . You ask a question of that . Sorry about that . To jump . But this is Vincent . Thanks for the congratulations .
Speaker #3: We definitely had an outstanding quarter . And I would add another one . So let's talk about the macro environment . We have two segments security and privacy .
Speaker #3: And then trust based solution really anchored around the secure financial wellness I started with the security and privacy . Obviously you've seen in our Q2 threat report that we just published last week , continued increase in complexity of the threat landscape targeting consumers in various forms , increased use of AI .
Speaker #3: Just last quarter blocked 140,000 websites , all designed by AI , with a very high level of credibility and and precision . So all of that , if you will continue , we believe the consumers for a very small membership fee , I would say can protect against thousands .
Speaker #3: Of dollars lost through cyber criminals . When you look back at historical during downturns or upturns , we have not seen too much correlation to our subscription or security revenue streams on the the secure Financial wellness .
Speaker #3: We now have millions of our customers connecting their bank accounts for monitoring alerts . We do offer , as you know , first party financial products from liquidity offering to credit building to high yield savings accounts .
Speaker #3: We've seen a very strong growth . Again this quarter under personal financial management offerings slightly under 50% , but but but very strong .
Speaker #3: We have not seen a change in patterns in consumption over the last few months . And we do not see it here as as we speak so far .
Speaker #3: Generally speaking , when interest rates continue to trend down , normally there's actually a renewed activities and refinancing and other activities that that supports that , that demand .
Speaker #3: On the second aspect of our secure here , financial one is it's our marketplace here . We've really seen the benefit of coming together with gen millions of consumers brought onto the marketplace .
Speaker #3: We're just at money 2020 conference , and a lot of very strong interest from financial partners to join the engine marketplace by Gen .
Speaker #3: And I think we'll continue to have that opportunity to offer for consumers , whether the economy goes up or down . I think the need for the best financial decisions will remain and be strong .
Speaker #5: Great . Thank you for all the detail on on the LifeLock integration . Some of the experiences you bring to bear between LifeLock and and secure financial wellness .
Speaker #5: But just if you could maybe talk a little bit as you as you go down this cross-sell journey , maybe about the frequency of member interaction with the LifeLock products , particularly around as they do identity on lock as they're shopping for financial products .
Speaker #5: You know , maybe if you could just talk a little bit about the mechanics of the cross-sell and some of the unique opportunities there .
Speaker #5: Thank you .
Speaker #3: Absolutely . So , so obviously , revenue synergies is a long process . Moneylion fully integrated from a back end , integrated from an R&D perspective .
Speaker #3: We finalizing the integration of the data to offer even enriched experience . And now we've really unlocking the revenue synergies . There are two immediate components .
Speaker #3: We're focusing on . One is not on money , whereas features going into employee benefits , but also on all money as a PFM tool for our northern install base , that's one .
Speaker #3: And the second one is the embedded , I would call it credit marketplaces focusing on the needs of the consumer . LifeLock is the first immediate case since we brought Moneylion on .
Speaker #3: We've really enriched the marketplace with credit card catalogs or offerings . If you want for Prime customers , and we're embedding that into LifeLock .
Speaker #3: And as you know , LifeLock is not only monitoring your credit , it's really monitoring and managing your financial lives at moments of truth , you check your credit , you check your financials when you're going to go for a purchase and or if you want to improve your your credit level in order to do a purchase that you intend to do today .
Speaker #3: And so at that point in time , if you want in an embedded experience , we now have that marketplace embedded into the LifeLock applications .
Speaker #3: It's actually a very positive result , although it's still on a small base . And we have a long transformation to drive , as we've already discussed in prior quarters , and making progress on it is really moving .
Speaker #3: And application that was essentially passively giving you peace of mind to a more engaged applications in which you come and validate and try to improve your journey .
Speaker #3: And we see good progress overall on that trend as we bring new tools such as the credit builder tool or now this credit marketplace .
Speaker #5: Great . Thank you again .
Speaker #3: Yep . Thanks , Mark .
Speaker #1: Our next question comes from Roger Boyd from UBS . Please go ahead .
Speaker #6: Great . Thanks for taking the question . And congrats also on the strong results . I wanted to touch on partner revenue , which was again , very strong .
Speaker #6: And I think maybe accelerated organically . But you did note 50% growth in moneyline engine and the double digit growth in employee benefits .
Speaker #6: Just any any thoughts on how we should think about the trajectory of partner revenue over the back half of the year ? Anything to be mindful of from a seasonality perspective , particularly with moneyline engine .
Speaker #6: And then the employee benefits channel into open enrollment and have a follow up .
Speaker #2: Yeah .
Speaker #3: I'll take that one because I think that's financial and more structural . So two years ago when we did that , we said , hey , we have a big opportunity in our partner organizations .
Speaker #3: At the time , it was 90% direct , 10% partner . As we were expanding the portfolio , we said in the long run , we think it will be more of an 80 over 20 , and you're going to see partner growing faster than than direct .
Speaker #3: And it makes sense because many of our services are embedded into partner views . And then we had the view of this long term view of bringing these marketplace , adding more value to our consumer .
Speaker #3: And what you see now , two years later , eight quarters later , since we laid out that strategy , it's finally taking roots quarter in , quarter out .
Speaker #3: You may have a little bit bigger gap or smaller gap , but I think you'll continue to see the partner revenue outgrow the direct revenue as we continue to contemplate bringing to our consumers adjacent values that we may not even manufacture ourselves because we neither a bank or we may not be a legal firm , but that all fits together around supporting that financial wellness overall .
Speaker #3: And no , I would not predict specific seasonality that you see every year . Now , obviously , you can always the growth rate change and quarter out .
Speaker #3: But but similar trend will continue moving forward .
Speaker #6: Awesome . That's helpful Vincent . And then Natalie just on free cash flow , it looked like it was actually pretty robust . After backing out the tax payment .
Speaker #6: I know you don't guide to it , but any color you can give just on how you think about free cash flow trajectory and is that continues to improve .
Speaker #6: I know you touched upon it in the prepared remarks , but any any update on how you think about capital allocations between debt paydown and share repurchase ?
Speaker #6: Thanks .
Speaker #4: Yeah . Thanks , Roger . Our our free cash flow generation will continue to stay strong . It's . Yeah . Seasonally high in Q2 .
Speaker #4: And then of course we have that timing element that hurt a little bit more in Q2 than norm as well . Yeah . As you know we accelerate rates of growth as we integrate .
Speaker #4: And we continue to scale . We're going to continue to operate in a disciplined fashion . We've laid out our our margin expectations of for each of the segments over the long term .
Speaker #4: And we'll continue to to , to , to deploy our capital and a disciplined and balanced way across accelerated debt paydown , but also share repurchases .
Speaker #4: And then , you know , we just haven't with the timing of the money line deal over the last , I would say , 3 to 4 quarters .
Speaker #4: And when we were able to get out in the open period , we just we just didn't have the opportunity to do much here , repurchase .
Speaker #4: But as we look to the back half , we'll get back to being much , much more balanced across accelerated debt , paydown and share repurchase .
Speaker #6: Really helpful . Thanks again .
Speaker #4: Thanks .
Speaker #1: Our next question comes from Dan Bergström from RBC . Please go ahead .
Speaker #7: Hey , it's Dan Bergström from Matt Hedberg . Thanks for taking our questions . So you highlighted higher engagement on Norton 360 . In the prepared remarks , you also talked with some scams as providing some tailwind .
Speaker #7: There. Beyond that, maybe what are some keys to the momentum in upselling customers into those higher-tier Norton 360 memberships?
Speaker #3: Yeah , very good . Then thanks for joining . To remind people , Norton 360 is our all in one suite set of plans .
Speaker #3: If you want , from the northern branch , we have the same on Avast one from the Avast view . And our goal has been to move more and more people to membership .
Speaker #3: You pay a fee and with that , you'll get our new features and get peace of mind in this environment where cyber threat is pretty dynamic .
Speaker #3: And then depending on the plan , all the way to all in one , including the LifeLock identity protection , then you fully protected .
Speaker #3: We still have the majority of our customers on the Norton 360 . Lower and mid-level tier , not including the we have at the beginning of the year .
Speaker #3: Moved Norton , our anti-scam , into that known 360 platform and have evolved Norton Genie from a pure AI driven anti scam to becoming really the AI cyber safety assistant .
Speaker #3: And we've now just launched into 40 new countries in 40 languages that that feature , that feature is at the core of getting our application .
Speaker #3: So our platform more engaging , where you can ask you questions and can automatically also become ultimately become your agent . Connecting different privacy and security features .
Speaker #3: At the moment , it's needed . We have seen some traction on the upper level of the plan . Norton 360 with Norton Genie Pro , which is upgraded feature that provides not only the security side .
Speaker #3: The AI assistant , but also the insurance , the voice block , the text block , and so a much more enriched experience full , private and full protection .
Speaker #3: And weve seen traction with that . And then we now just launching a Norton Money , which will be the alternative to go and move to a higher plan with credit monitoring , financial insights and a curated marketplace .
Speaker #3: As an alternative path to the upper plan . So as I mentioned in my remarks , continue to see very good progress towards a the membership and b , the engagement with the platform .
Speaker #7: That's great . And then I know paid customers is the new metric , but the old KPI , KPI around direct cyber safety customers was in the slides up 400,000 quarter over quarter .
Speaker #7: Understanding there's some rounding there , but that's that's impressive . And at the upper end of what we'd expect historically . And again not seasonally strong quarter here , but maybe what was what was behind some of the strengths on that customer edition number .
Speaker #4: Yeah .
Speaker #3: I would say now it has been many , many , many quarters . I don't remember how many , maybe 7 or 8 that we've been in the range of .
Speaker #3: I would call it like 250 to 400 . So you write it in the upper of the range , but we basically see it on the high side of the range in line to our expectations .
Speaker #3: As we've been driving increased engagement , more , more channels to acquire customers and improvement on the retention . And I think it's it's more progress across all of the dimensions that are reviewed .
Speaker #3: Now , as you know , our customer base is evolving . We see it in two categories . One is subscriber generated revenue .
Speaker #3: As Natalie mentioned , and the other one is a product usage generated revenue . We see a very strong increase across all dimensions .
Speaker #3: And and our goal will be to continue to increase the subscription . We did provide the all metric just for people to understand and assess the health of our core gen .
Speaker #3: The way we looked at it before we split into two segments , which I think will be useful for investors .
Speaker #7: Thank you .
Speaker #1: Thank you . Our next question comes from Kalia from Barclays . Please go ahead .
Speaker #8: Okay . Great . Hey , Vincent . Hey , Natalie . Thanks for taking my questions here . And congrats on another raised guide .
Speaker #3: Yeah . Thank you Vincent .
Speaker #8: Maybe maybe for you . Absolutely , Vincent . Maybe for you . Just kind of picking up off that thread . You know , you've talked about sort of the potential for new business models in , in the Moneylion base .
Speaker #8: I mean , it seems to be doing very well , just as it is . But , you know , I think that there's such a subscription DNA at Gen , you've kind of talked about that as a possibility without pre-announcing anything .
Speaker #8: How do you sort of envision something like that looking , if that makes sense ?
Speaker #3: Yeah , totally . So , so just to put it in context , maybe some investors don't have the full history that we've had since , you know us very well and covers for a long time when when we acquired Moneylion , most of the revenue , if not all of the revenue was driven by what we call product usage revenue or product usage derived revenue , which is essentially transaction based .
Speaker #3: And many other customers like that . They use the product for free . And when they transact a very small portion of the transaction gets booked as a fee .
Speaker #3: And and that's how they make the money . You know what they say . They don't break what's working . So we're trying to make sure we manage very carefully because it's really working for the Moneylion install base , and it's working for the Moneylion customer .
Speaker #3: And the team knows how to bring innovation into that environment . You will maintain that in addition . And that's why it's complimentary .
Speaker #3: We said that when you come to a little bit more premium customers, they like to have a subscription. They pay, and then they have access to many different features à la carte or as much as they want.
Speaker #3: And we we're building those subscription views which may include not only the ability to use the PFM tool or to consume some liquidity product , or to do credit builder for their kids or , or or having access to actually the investment features on the platform .
Speaker #3: And we know more prone to our type of customer base . And so the features are there , and it's a question of balance on how we're going to drive from a marketing perspective and where we're going to drive membership versus transaction based revenue .
Speaker #3: And over time , you're going to see that progression , as you know , just to complete my , my , my answer , we always said that a shift , a full shift from transaction to subscription will lead to a shorter gap in the or a gap in the short term and a longer value over time .
Speaker #3: And we hope , hopefully to be able to manage that transition towards more subscription without too much impact on our overall knowing that it's all about driving long term customer value .
Speaker #3: We hear for for maximizing that CLV .
Speaker #8: Yep , absolutely . Natalie , maybe for my follow up for you , I'd love to . Maybe just touch on the profitability of the of the Moneylion business .
Speaker #8: I think I think in the presentation it showed about a 20% operating margin . That , of course , is fantastic . If it's supporting 50% top line growth .
Speaker #8: But maybe the question is , how do you think about the margin journey that we could see in Money Lion and maybe remind us how that sort of 30 , 60 dynamic that we talked about at our session a couple of months ago , sort of plays into that journey .
Speaker #4: Yeah . Thanks . Good to hear from you . Yeah . Moneyline margin . That's where we started . Approximately 20% . Keep in mind as we blend money line with trust based solutions and even just integrated with Gen overall we have achieved the cost synergies that we that we have laid out for ourselves as we integrate that them as an acquisition .
Speaker #4: Just just high level , especially the back office and some of the other , the fixed costs that we can strip out of the business , that's done .
Speaker #4: We also have revenue synergies that we're going after . You heard them peppered through the messaging today and our slide where in our in our our day that we did around moneylion back in September .
Speaker #4: There are so many revenue synergies to go after. It requires investment to drive that growth, and so we'll continue to stay committed to that.
Speaker #4: So that points to you know , the current margin rate today driving that 50% growth rate . And then as we look forward , of course , yes , the mix is is definitely there and is an opportunity for us to balance .
Speaker #4: But keep in mind we want all parts of the 30 , 60 , 90 that they provide us different layers and levels and types of of value and access to different customers .
Speaker #4: So if you think about the 30% margin on the marketplace , that's going to fuel customer acquisition and really give us just a ton of access to different sites , lots of data that we can do deep data analysis and customization , personalization .
Speaker #4: And then the first party products at 60% , and then all the way up to the retargeting of the 90% . It's a very , very healthy model .
Speaker #4: It's a flywheel effect . But the the , the quarter in , quarter out , what percentage of the business is going to come from different segments is going to be mixed ?
Speaker #4: And as we move forward , we're going to find that right balance for the business , all with the appetite of healthy , sustainable , accelerating rates of growth .
Speaker #4: As we integrate across trust based solutions with all of the different services that we're innovating on .
Speaker #8: Super helpful. Thanks, guys.
Speaker #4: Thanks .
Speaker #1: Our next question comes from Tomer Silbermann from Bank of America. Please go ahead.
Speaker #9: Hey , guys . Yeah , maybe going along the same tracks of the money line , right ? You had two solid quarters of money line growth , you know , 45 to 50% .
Speaker #9: You previously guided it to grow 30% . I think your guidance now calls for an exit rate of 30% . And just wanted to get more color .
Speaker #9: Why we wouldn't see these elevated growth levels sustained into the back half . And apologies if I missed in your prepared remarks , but can you pair that with commentary around the the business model transition you're expecting in the second half ?
Speaker #9: And I have a follow up after .
Speaker #10: I'll take .
Speaker #3: Absolutely . Yeah . So I'll take that one first . So money line when we acquired and closed the deal April of this year not too long ago feels like a long time ago .
Speaker #3: Only six months ago , they were growing at 25 to 30% . At about 15% . Operating margin . Since the beginning of this year .
Speaker #3: And as we integrated and started to work on various different aspects , including marketing and leveraging our current customer base , etc. , we've seen an elevated performance level .
Speaker #3: As you mentioned , 45% in the quarter before . And 50% this quarter . And while we improved their operating margin over five points , now over 20% , we are not forecasting moving forward 50% .
Speaker #3: We do believe there may be a little bit of a boost of coming together and we feel it's more prudent to base maybe linking back to second question at around a 30% growth rate , 20% margin , if I redefine another new rule and call you the rule of 50 , that's what it would be .
Speaker #3: And managing the business along those lines, as we see room for acceleration, will definitely capture it in the marketplace. So, be sure of that.
Speaker #3: And there's different ways of capturing it , including moving more transactional customer . Maybe customer . We can identify as not having a strong recurring pattern .
Speaker #3: And moving them to a membership or having a chance to offer different values in a bundle membership structure, which is really most of what we are planning to do over time.
Speaker #3: While we maintain that rule of 50 growing at 30 , up to 20% margin , and then along the line every quarter , we learn more , we'll understand better the trends .
Speaker #3: And that's where we'll be , what it is not implied into our current exit . 30% growth rate is any significant macro level effect because , as I mentioned in the prior answer , we do not see a change today of of patterns or behaviors from the millions of customers that are plugging into our platform .
Speaker #9: Got it . And maybe as a follow up , if I move towards the core cyber safety business , I know someone addressed earlier that you grew your customers 400 K sequentially , but if we look at the growth trends , they diverged a little bit from last quarter , last quarter , if I have it right , revenue and bookings grew 4% this quarter .
Speaker #9: Revenue was 3% . Bookings was 5% . We drove that flight . Delta . And do you think that the 400 K ads this quarter and the other the the better bookings growth can translate into better revenue growth over the next few quarters ?
Speaker #4: Yeah . Hey it's Natalie . So keep in mind revenue is going to reflect the trailing 12 month bookings . So if you go back and look at the bookings as reported , that's where you would see the 3% .
Speaker #4: Also keep in mind we're only rounded at the at the whole numbers . When you get into the decimals , it's it's sub two points .
Speaker #4: So it's really not that different between bookings rate of growth and revenue . Like you see two points on the surface . And yes , as we look forward , it's not just the customer count acquisition .
Speaker #4: It's the balance across the segments . It's the innovation . It's the scale . It's AI coming through . It's more personalization , it's more customization through Ecpm , cross-sell , upsell are still alive and well .
Speaker #4: Partner mixing in . There's just so many factors . Even when you you know , when you look at both on a pro forma basis , even excluding Moneylion , the core business has so much opportunity and we are just driving all of the growth levers that we possibly can with all of the innovation that's come to market .
Speaker #4: So I would say as you look forward , we're we're focused and just look at the full year guide pointing to on a pro forma basis , a high single digit rate of growth .
Speaker #4: And that's what I would, that's what I would point you back to.
Speaker #9: Great . Thank you .
Speaker #4: Thanks .
Speaker #1: Our next question comes from meta marshall from Morgan Stanley . Please go ahead .
Speaker #11: Great . Thanks so much . Maybe as a first question , you noted the AI impact kind of bringing 20% efficiency on the customer support .
Speaker #11: Just wanted to get a sense of other ways in which you guys are utilizing AI and what you're finding traction within the business .
Speaker #11: And then just as a follow up question , just any Oba impact on tax rate that we should be expecting . Thanks .
Speaker #3: Okay , let me take the one on on the user AI . So all of our AI initiatives are split into two buckets .
Speaker #3: One is to use our call it data. If features of products from Northern to Spark to others Northern browser that you see there.
Speaker #3: I'll leave that on the side because that's not the question , but it's our main effort in trying to bring a truly AI native portfolio .
Speaker #3: Even all the way thinking in our lab of not only how we protect against AI generated scams or threats , but how will security look like in the world of agent to agent interactions , where you , as a consumer may ask your automated agent to do financial wellness transaction on your behalf and then interact in the world of agent , how does privacy and security work in that environment ?
Speaker #3: So super , super important topic . And then we have the second bucket which we called transforming gen into an AI first company , which is really changing our workflows .
Speaker #3: Not immediately jumping into AI platform or tools , but changing our workflows to then being able to automate and where it's needed using AI to generate things .
Speaker #3: Obviously , in support and services , we further along the tools and the processes in the market are more mature , which they have roughly half a little bit less than half of all of our content contacts .
Speaker #3: Fully contained into an AI environment . Whether it's one or multiple bots . And and that has generated significantly savings , which we have reused to really build our data approach or data platform to to our business .
Speaker #3: I mentioned marketing , marketing is probably the second two R&D . I'll talk about in a minute function that we transforming marketing . Really we we combine everything from upper funnel or branding all the way down to performance marketing under one leader combined organizations .
Speaker #3: And we've realigned around value creation around their brands , and they are using the tools AI first to really develop the framework to our vision .
Speaker #3: Later on will be to enable our product leaders to do . Everything from ideation to first level performance materials , assisted by AI bots without human intervention .
Speaker #3: That's not the case today, but within the marketing function, they started to get really good traction on developing materials and even creatives all through AI.
Speaker #3: And that has enabled us to redirect the savings towards more performance marketing to then accelerate the growth. And then the last piece is around R&D.
Speaker #3: We've been at it for a little bit longer, which is starting with more automations. We're running some pallets. I'll give you the name.
Speaker #3: We call it Inside the Genie , and it's to see if we have from ideation to product development , everything managed by by one person , assisted by bot .
Speaker #3: We have some level of of of success , but we are running a lot of those experiments and bring them back into our development environment to improve the way we we develop products there .
Speaker #3: The savings are really redirected since we had a large portfolio with years of of experience , but also skewed to maintain . We're trying to lower our maintenance costs to redirect into more innovation and most importantly , higher velocity in our different prototype and testing .
Speaker #3: I would say I see really great potential . The slower to to materialize and capture . But we are on a great path .
Speaker #3: That's how we we are becoming an AI first company .
Speaker #4: And then I think you had a follow up question on the one beautiful tax bill .
Speaker #11: Yeah , just of any impact of tax rate that we should be thinking of now .
Speaker #4: So our tax rate is long term focused . And so the 22% that you see in our non-GAAP results and is is assumed in the guide as well .
Speaker #4: So the beautiful bill just helps with cash flows in terms of cash taxes in the short term , in the long term it's it's there's no material change .
Speaker #4: So we don't really influence that or that we don't include that change in in the long term tax rate expectations .
Speaker #11: Got it. Great. Thank you.
Speaker #12: Sure .
Speaker #1: Our final question today comes from Joseph Dallo from Jefferies . Please go ahead .
Speaker #8: Hey guys . Thanks for the question . As you think through the cross-sell opportunities between the money line and the Gen digital bases and vice versa ,
Speaker #7: Which one seems to be gaining .
Speaker #8: The most traction early on ? And then .
Speaker #7: Are there any more go-to-market efforts left to implement to accelerate?
Speaker #10: Yeah .
Speaker #3: Very good . So so we are the early stage . So I definitely would say yes . We have a lot of room to accelerate the current results .
Speaker #3: You see here is on the merits of the core business on their own, each one of them. And then maybe core platform of data and haven't really delivered yet.
Speaker #3: The value of bringing everything together . The most natural one and more immediate one is really the embedment if you want of financial insight and financial options into the LifeLock app , that's where originally maybe we had discussed that in September , where the initial ask for financial one when when necessary insights and advice were coming from .
Speaker #3: That's how we started that project organically and then led to the acquisition of Moneylion . We know embedding that , and I think it's going to take traction .
Speaker #3: With very careful , with very operations . But we creative , if I can say we're not doing blasting marketing , we know that our customers in LifeLock will benefit from that insight .
Speaker #3: And those new options . But we're following the demand . We're not trying to do a forceful marketing campaign or inside app that that could be very annoying .
Speaker #3: So preserving the peace of mind is key, and we will drive at that pace. The second one, obviously, is bringing Norton money.
Speaker #3: I'm sorry . Money into Norton as a alternative to identity , into Norton , or in full combine . Of course . And the most immediate one is Moneylion features into our employee benefit channel that represents probably the best channel on selling the entire portfolio and having traction on all dimensions .
Speaker #3: We are about to launch that . Of course , in employee benefit channel , you're going to have to have the time to onboard the new employees , then go for the onboarding view , and then only you'll see the results .
Speaker #3: So the result will be delayed . But the traction and the early discussions are are extremely positive . So it's only the beginning of of the journey .
Speaker #3: I would say on the revenue synergy side .
Speaker #8: Great to hear there is more .
Speaker #7: To come . And then just I know you called out a consistent macro , but Americas has been pretty consistently strong . Is there anything to call out on the other geos ?
Speaker #3: Actually , you're right , we haven't talked too much about the other Geo . I was just discussing that with Natalie and my head of of corporate espionage yesterday , reviewing the results in Europe .
Speaker #3: They've been very strong , positively surprised by how broad based our growth rates have been . Us first . Then , you know , for a while we had Latin America leading the way right now for the last two quarters , we've seen a lot of strength coming out of Europe , and we haven't reintroduced financial wellness yet in Europe .
Speaker #3: So that's talk about more to come over the next few quarters and years . We really feel excited about all of levers we have at our at our disposal .
Speaker #3: the
Speaker #3: If I can say to drive that long term value for our customers .
Speaker #7: Thank you .
Speaker #1: Thank you . That is the end of the Q&A session . And this concludes today's call . Thank you for joining everyone . You may now