Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gen Digital Inc (GEN, Financial) reported a 4% year-over-year growth in cyber safety bookings in constant currency.
- The company achieved a record direct customer count of 39.3 million, up 1.1 million year-over-year.
- Retention rates reached 78%, supported by record levels in LifeLock.
- Earnings per share grew by 15% year-over-year in constant currency, reaching $0.53.
- The company launched Norton Ultra VPN, offering comprehensive online protection and built on the new Gen stack.
Negative Points
- Legacy business lines continue to decline, contributing only $14 million this quarter, down from $17 million the prior year.
- The company faces ongoing FX headwinds, particularly from the depreciating Japanese yen.
- Gross margin has shown slight variability, down 100 basis points year-over-year.
- Despite strong customer acquisition, the company acknowledges that achieving further retention improvements may become more challenging.
- The company remains highly leveraged with a net leverage ratio of 3.5 times EBITDA.
Q & A Highlights
Q: It was nice to see the uptick in retention this quarter. What are some of the initiatives that are working well for you from a retention perspective? And how should we think about reaching the 80% target?
A: (Vincent Pilette, CEO) Initially, we had some low-hanging fruit post-merger with Avast, improving retention from 65% to closer to Norton LifeLock's 85%. We've applied best practices across the portfolio, improving overall retention from 75% to 78%. The rollout of the new Gen stack and enhanced customer journey experiences are key drivers. We aim to reach the 80% target over the next few quarters.
Q: How should we think about cross-sell in the context of what you've accomplished so far and what could still be done?
A: (Vincent Pilette, CEO) Cross-sell has been a significant focus, moving customers from point products to comprehensive cyber safety solutions. We've seen strong cross-sell performance, particularly in privacy and identity features. We have more room to grow, especially in upsell opportunities, aiming to increase the adoption of comprehensive suites.
Q: Can you talk about the health of the consumer and how it impacts your outlook for the remainder of the year?
A: (Natalie Derse, CFO) We are seeing strong customer acquisition and retention metrics, with the highest Q1 gross adds in four years and the lowest cancellations in three years. This indicates a healthy consumer base and growing awareness of cyber safety threats. Our outlook remains aligned with our strategic growth framework.
Q: Can you provide an update on the rollout of the new Gen stack and its impact?
A: (Vincent Pilette, CEO) We started the rollout at the end of the fiscal year with positive results in initial test markets. We've expanded to more countries and customer cohorts, with the full rollout expected to take the entire year. Early feedback is positive, and we are on track with our timeline.
Q: How did the performance of existing customers versus new customers compare to your expectations?
A: (Vincent Pilette, CEO) We are pleased with the balance across metrics. Our disciplined approach to marketing investments has driven strong customer acquisition. Gross adds were the highest in several years, and cross-sell penetration has increased from 15% to 20%. We see continued opportunities for growth in both new and existing customer segments.
Q: What sort of hedging activities are you putting in place to protect against the weakening yen?
A: (Natalie Derse, CFO) We do not hedge against currency fluctuations. We report in USD versus constant currency to account for FX impacts.
Q: Can you talk about the pipeline for employee benefits enrollment and any changes from last year?
A: (Vincent Pilette, CEO) We have a very healthy funnel for employee benefits, with continued investment in broker coverage and strategic partnerships. We expect to close new deals during the enrollment period from October to February, similar to last year.
Q: Can you explain the recent trends in gross margin and any investments impacting it?
A: (Natalie Derse, CFO) Gross margin has been relatively stable, around 86%-87%. The slight variability is due to P&L geography of our investments. We continue to invest in profitable marketing to drive top-of-funnel growth while maintaining high operating margins.
Q: Can you discuss the impact of generative AI on your product offerings and growth?
A: (Vincent Pilette, CEO) We are using AI to combat AI-generated scams, with products like Norton Genie detecting scams. We have over 1 million users and are integrating AI-supported features into multiple product sets. This enhances our ability to protect consumers from evolving cyber threats.
Q: Can you provide more details on the contribution of net adds across different geographies?
A: (Natalie Derse, CFO) Net adds are broad-based across online, mobile, and geographies. We focus on acquiring customers with healthy economics and expanding in low-penetration markets. Our commitment to investing in growth and customer retention remains strong, driving positive trends in net customer adds.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
