Gen Digital, Inc. Q2 FY2025 earnings call

• Vincent highlighted Q2 was a solid quarter with 5% bookings growth, 16% EPS growth, and 39.7 million direct paying customers. He discussed the growing cyber threat environment, Genie anti-scam product with 1.6 million downloads, and plans to expand AI into core offerings.
• Natalie detailed Q2 financial results, including revenue growth, customer base expansion, ARPU, retention rate (78%), and partner revenue growth. She also discussed the company's strategy for monetization, customer retention, and future investments in innovation.

In Q2, Gen Digital's Cyber Safety bookings grew 5% in constant currency. Total Q2 revenue was $974 million, up 3% in USD and constant currency. Cyber Safety revenue grew 4% year-over-year. Direct revenue was $860 million, up 3%. The company's direct paying customers reached a record 39.7 million, with a 389,000 sequential increase and over 1.1 million year-over-year increase. Monthly direct ARPU was $7.26, up $0.03 sequentially. Partner revenue was $102 million, up 7% year-over-year. Legacy business lines contributed $12 million, down from $16 million the prior year.

• For Q3 fiscal 2025, non-GAAP revenue is expected to be in the range of $980 million to $990 million, with non-GAAP EPS in the range of $0.54 to $0.56.
• For fiscal year 2025, the company is strengthening prior guidance, expecting full year revenue in the range of $3.905 billion to $3.930 billion, with non-GAAP EPS in the range of $2.18 to $2.23 per share, representing an annual increase of 12% to 15%.

Q: Good afternoon, and thank you for taking the questions and congrats on the strong Q2 results here. I wanted to dig into the net adds this quarter, which I thought were very impressive. I mean, it seems like it's almost a guarantee that every adult in the US now has their personal data on the dark web, thanks to all the breaches we saw this summer, including that National Public Data breach. So do you think the net adds will improve, particularly in the US going forward? Because I think you said it was more influenced by the international growth this quarter?

A: So, definitely the national data breach helped making people more aware of the risks. But this quarter, we grew our cohorts across all of our brands and across the continents, both Americas and Europe. So we've seen kind of a broad base. Granted, it was a little bit more pronounced in the identity and in the US for that reason. And you're right that today we believe that about one American out of three has enough of their personal data out there on the dark web for any criminals to stitch together a profile and do an identity test. We know -- ideally, we know that everybody should be protected and that the awareness is something that we need to continue to work on to ensure that everyone understands the risk. It's a bit like an insurance service, if you want, you need to have a first catastrophe to never skip a protection.

Q: Okay, good evening. Thank you for taking my questions. Hey, team, good evening. This is Ryan Powderly on for Saket tonight. Thanks for taking the question. Congrats on a nice quarter. And, Natalie, maybe first for you. That was some helpful commentary just around the buybacks and de-levering activity this quarter, understanding the cash constrictions. Just going forward as we take a look at the next near and mid-term, can you talk about how you're going to be balancing buybacks and de-levering over the next few quarters?

A: Yeah. I would say it's going to be a consistent approach that we've taken for the last handful of quarters. Of course, we all know what's happening in the debt market and the cost of debt now is very different than the environment than we were in a year ago. But both are very important for us in terms of capital allocation strategy. We'll strike the right balance quarter-in, quarter-out, not a specific percentage because we flex based on the macroeconomic indicators. So, everything from the cost of debt, the timing of the cash, Q2 is our highest use of cash, so we were largely constricted in terms of what else we could do for additional capital allocation, but we also know we're highly, highly cash generators. So the back half of capital allocation would be very, very balanced and very interesting.

Q: Thank you for taking my questions. Specifically, first of all, can you talk about Genie AI -- hi, Natalie, how are you? So with -- I think you mentioned, I think it was like 1.6 million, 1.7 million downloads. But Vincent, in your commentary you called out, I think, you said more to come on that front, but will enable or embed AI across your core offerings. Can you maybe just talk a little bit about your kind of what the aspirations are there in terms of putting that across the platform? And then maybe explain to us the monetization opportunities, or if it's more of a tool to just to kind of be more competitive? Just help us kind of balance those out there.

A: Yeah, it will be all of our lever, but let me explain, right. So definitely we can see a very strong rise in scam, personalized scam and volume personalized scams through the use of AI. And when we came out with Genie, we're singly focused on really developing our LLMs to be able to spot those scams and then help our consumers detect what is a scam and what is not. And we did that also with a conversational interface, you can also decide on what's the next step with the scam. We've had 1.6 million downloads, very strong models and I think we're now ready to move that into our overall portfolio. We'll start first with the Norton 360 membership being the core Genie assistant or the anti-scam assistant in the first three-level of our Norton 360 plan. And then we'll ramp-up in features moving from tech scams to voice scams to call blocks to scam insurance through the different plans, if you want, all the way to Norton 360 with LifeLock. So that's coming now. The first path of monetization is to help our customers to move and upgrade to the next level of plan that not only provides the current features of safety, but extend to all of those I've just mentioned. And there will be a Genie Pro cross-sell, if you want for those who want to stay steam to their old plan and just want to have a standalone anti-scam tool.

Q: Great. Hi guys. I wanted to go back to the direct customer net adds. So when we look at the 389,000, how much of that would you say is coming from the adds of international and mobile versus what you said the better identity sales on the back of the national data breach? And really what I'm trying to ask here is what do you think is the normalized customer growth in the remainder of the year?

A: Hey, this is Natalie. So I'll take that one. The majority of our customer count net adds sequentially has consistently been coming from, as we expand and broaden our solutions available on mobile, as well as our international market expansion. So both of those have been consistent levers and consistent drivers of growth for us in customer acquisition as we expand and get -- and increase the penetration, increase the value proposition that we've got with our mobile users. And that stayed consistent in Q2. And then on top of that, we saw the increased demand coming from the identity offerings. On a go-forward basis, we -- it is very, very critical for us to continuously focus on healthy customer acquisition. We do that on a global basis across all of brands, across all of our platforms. And we will continue to expand internationally as we identify new markets of healthy customer acquisition. And yes, we're just getting started in terms of expanding the value proposition and the engagement that we've got with the ever-growing mobile users and customers in our portfolio. In addition, we will continue to foster all of the brands across our portfolio. All of them are critical and on a go-forward basis we're going to be balancing our investments, whether it's product -- the product roadmap and the technology solutions that we bring, as well as combined with the different marketing channels that we've got to optimize the healthy customer acquisition that feeds our flywheel, feeds our increase in ARPU, feeds our cross-sell, feeds our upsell and therefore feeds our retention and accelerating bookings growth.

Q: Hey, good evening. Thank you for taking my questions. Hey. So I wanted -- it's a solid quarter in terms of top line, really strong sort of record net adds. I wanted to ask a question on the cost side of the equation. The EBIT margin, I think, was slightly higher than it was in recent quarters. I'm just curious on the cost side, what are you seeing in terms of advertising cost? I know in the past that kind of gone up and down, so I'm curious what you're seeing currently?

A: Yeah, it varies across all the brands, quite honestly in all the different channels. And we've got such a diverse set of channels and increasing marketing spend going to those channels. I think you're specifically talking about the gross margin rates. And yes, we do see shifts across our marketing portfolio. We optimize for healthy ROI customer acquisition and we leverage the different channel diversification that we've got. In terms of what's -- there is different accounting treatment depending on what marketing channels there are. So I would encourage you to consider that when you think about the gross margin versus the op margin versus the EBITDA margin. And that's why we're able to hold the operating margin so consistently quarter-over-quarter. It's just P&L profile of where the marketing channel expense for this quarter actually hit.

Q: Hey, it's Dan Bergstrom for Matt Hedberg. Thanks for taking our questions. Natalie, you just mentioned accelerated bookings growth in your answer to one of the last questions. That 5% constant currency number, really nice to see, especially following the uptick to 4% last quarter. And then it looks like the key assumptions moved up to 4% to 5% from 3% to 5% last quarter. Maybe just what could that 5% portend for revenue growth over the next year? Should we think of maybe the difference between bookings and revenue growth that's maybe narrowing or maybe solidifying the potential around revenue acceleration? Just any further thoughts around the accelerating bookings growth here.

A: Yeah. A large -- the majority of our portfolio or our book of business is going to be ratable. And so it's about rolling off the balance sheet relatively consistently. We don't have a ton of seasonality in terms of the size of our quarters. And so largely speaking, super-high level, it will roll-off over the next 12 months. We do have our monthly subscribers, which is still a small share of our business, you would see that hitting bookings and revenue in the same period because we have recognized the revenue as we deliver on the service, so monthly. But largely speaking, our portfolio and our book of business is on an annual subscription and we -- the majority of that is ratable over the next four quarters.

Q: Hey, good evening. Thank you for taking my questions. So I wanted -- it's a solid quarter in terms of top line, really strong sort of record net adds. I wanted to ask a question on the cost side of the equation. The EBIT margin, I think, was slightly higher than it was in recent quarters. I'm just curious on the cost side, what are you seeing in terms of advertising cost? I know in the past that kind of gone up and down, so I'm curious what you're seeing currently?

A: Yeah, it varies across all the brands, quite honestly in all the different channels. And we've got such a diverse set of channels and increasing marketing spend going to those channels. I think you're specifically talking about the gross margin rates. And yes, we do see shifts across our marketing portfolio. We optimize for healthy ROI customer acquisition and we leverage the different channel diversification that we've got. In terms of what's -- there is different accounting treatment depending on what marketing channels there are. So I would encourage you to consider that when you think about the gross margin versus the op margin versus the EBITDA margin. And that's why we're able to hold the operating margin so consistently quarter-over-quarter. It's just P&L profile of where the marketing channel expense for this quarter actually hit.

Q: Hey, it's Dan Bergstrom for Matt Hedberg. Thanks for taking our questions. Natalie, you just mentioned accelerated bookings growth in your answer to one of the last questions. That 5% constant currency number, really nice to see, especially following the uptick to 4% last quarter. And then it looks like the key assumptions moved up to 4% to 5% from 3% to 5% last quarter. Maybe just what could that 5% portend for revenue growth over the next year? Should we think of maybe the difference between bookings and revenue growth that's maybe narrowing or maybe solidifying the potential around revenue acceleration? Just any further thoughts around the accelerating bookings growth here.

A: Yeah. A large -- the majority of our portfolio or our book of business is going to be ratable. And so it's about rolling off the balance sheet relatively consistently. We don't have a ton of seasonality in terms of the size of our quarters. And so largely speaking, super-high level, it will roll-off over the next 12 months. We do have our monthly subscribers, which is still a small share of our business, you would see that hitting bookings and revenue in the same period because we have recognized the revenue as we deliver on the service, so monthly. But largely speaking, our portfolio and our book of business is on an annual subscription and we -- the majority of that is ratable over the next four quarters.

Q: Hey, good evening. Thank you for taking my questions. So I wanted to ask a question on the cost side of the equation. The EBIT margin, I think, was slightly higher than it was in recent quarters. I'm just curious on the cost side, what are you seeing in terms of advertising cost? I know in the past that kind of gone up and down, so I'm curious what you're seeing currently?

A: Yeah, it varies across all the brands, quite honestly in all the different channels. And we've got such a diverse set of channels and increasing marketing spend going to those channels. I think you're specifically talking about the gross margin rates. And yes, we do see shifts across our marketing portfolio. We optimize for healthy ROI customer acquisition and we leverage the different channel diversification that we've got. In terms of what's -- there is different accounting treatment depending on what marketing channels there are. So I would encourage you to consider that when you think about the gross margin versus the op margin versus the EBITDA margin. And that's why we're able to hold the operating margin so consistently quarter-over-quarter. It's just P&L profile of where the marketing channel expense for this quarter actually hit.

Q: Hey, it's Dan Bergstrom for Matt Hedberg. Thanks for taking our questions. Natalie, you just mentioned accelerated bookings growth in your answer to one of the last questions. That 5% constant currency number, really nice to see, especially following the uptick to 4% last quarter. And then it looks like the key assumptions moved up to 4% to 5% from 3% to 5% last quarter. Maybe just what could that 5% portend for revenue growth over the next year? Should we think of maybe the difference between bookings and revenue growth that's maybe narrowing or maybe solidifying the potential around revenue acceleration? Just any further thoughts around the accelerating bookings growth here.

A: Yeah. A large -- the majority of our portfolio or our book of business is going to be ratable. And so it's about rolling off the balance sheet relatively consistently. We don't have a ton of seasonality in terms of the size of our quarters. And so largely speaking, super-high level, it will roll-off over the next 12 months. We do have our monthly subscribers, which is still a small share of our business, you would see that hitting bookings and revenue in the same period because we have recognized the revenue as we deliver on the service, so monthly. But largely speaking, our portfolio and our book of business is on an annual subscription and we -- the majority of that is ratable over the next four quarters.