Good afternoon, everyone. Thank you for standing by. My name is Francis and I’ll be your conference operator today. I would like to welcome everyone to Gen’s Third Quarter Fiscal Year 2023 Earnings Call. Today’s call is being recorded and all lines have been placed on mute to prevent any background noise. 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 Ms. Mary Lai, Head of Investor Relations. Miss, you may begin

Thank you, Francis. And good afternoon, everyone. Welcome to Gen’s fiscal 2023 third quarter earnings call. Joining me today to review our Q3 results are Vincent Pilette, CEO, and Natalie Derse, CFO. As a reminder, there will be a replay of this call posted on the IR website along with our slides and press release. I’d like to remind everyone that during this call all references to the financial measures 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 which is available on the IR website, at investor.gendigital.com. Today’s call contains statements regarding our business, financial performance and operations including the impact of our business industry, that may be considered forward-looking statements and such statements involve risks and uncertainties that may cause actual results to differ materially from our current expectations. Those statements are based on current beliefs, assumptions and expectations and speak only as of the current date. For more information, please refer to the Cautionary Statement in our press release and the Risk Factors in our filings with the SEC, and in particular, our most recent report on Form 10-K and 10-Q. And now I will turn the call over to our CEO, Vincent.

Thank you, Mary. Good afternoon, everyone, and welcome to our Q3 earnings call. To start, I want to first thank each Gen employee for their contributions in 2022. Merging two companies is never easy, and I'm proud of their dedication and the tremendous progress we have made. Quickly getting the integration done right, creates the foundation for Gen to keep empowering millions to live their digital lives safely. We are at the intersection of a digital transformation that touches all aspects of our lives and an ever-evolving threat landscape that threatens our digital security, identity and privacy. Although malware is still one of the biggest threat vectors, hackers and scammers continue to shift to attacking individuals and their data, not just the device anymore. The shift to the individual means that your information needs to be protected in all the digital places where it leads. In today's world, protecting the device for malware is often not enough. Information as a usage, [ph] discovery or manipulation is more damaging financially and to reputation that malware has ever been. The threat volume landscape and sophistication have grown, not reduced, whether it is test identity, fraud, privacy or fake news, people's financials, their reputation and overall digital safety are under threat. We are committed to fulfilling consumers' immediate needs and giving every person connected to the digital world, a path towards total cyber safety. Gen brings together trusted brands such as Norton, Avast, LifeLock and combines many capabilities. Our combination of technology, products, marketing and sales channels, creates a strong foundation for Gen's long-term growth plan. It strengthens our product innovation efforts, diversify our business, increases global scale, and opens new go-to-market opportunities. We set a strategy to be the best cyber safety platform for consumers and we have the growth levers to…

Thank you, Vincent, and hello, everyone. For today's call, I will walk through our Q3 results, give an update on synergies and wrap up with our outlook for Q4, who will focus on non-GAAP financials and year-over-year growth rates unless otherwise stated. Our Q3 results reflect another solid quarter of performance and consistent execution. We came in above the midpoint of our revenue guidance and at the high end of our EPS guidance. We drove our 14th consecutive quarter of bookings growth, supported by a resilient customer base and expanding product portfolio and our channel and geographic diversification efforts. We grew Q3 bookings 29% in USD and 35% growth in constant currency. When including Avast historical financials, cyber safety bookings grew 4% year-over-year in constant currency. Our major contributors to growth in Q3 included ARPU expansion as we scale our cross-selling efforts, stable retention with our existing customer cohorts, growing double-digits with our partners for the ninth consecutive quarter and driving our direct business to mid-single-digit growth supported by several new product launches. Q3 non-GAAP revenue was $936 million, up 33% in USD and 38% in constant currency, which includes a full quarter of Avast contribution. This also includes an unfavorable FX headwind of $34 million year-over-year or five points of growth, the highest it's been all fiscal year. When including a vast historical revenue, cyber safety revenue grew 4% year-over-year in constant currency. Now, let me walk through our cyber safety key operating metrics for the quarter. Direct revenue of $818 million grew 31% in USD and grew 3% when including a vast historical financials. Considering the continued macroeconomic pressures persisting in the market, we are proud of our performance in driving higher value and loyalty with our existing customers as measured by ARPU expansion and retention improvement this…

Thank you. [Operator Instructions] Our first question from Saket Kalia. Please go ahead.

Hi Saket.

Hey great. Hey Vincent, hey Natalie, hey guys how are you?

Good.

Thanks for taking my questions here. Vincent maybe just to start with you, kind of longer-term questions. To start with the longer-term question. I know that revenue synergies are a little bit more of a multiyear process, but I guess with the first full quarter of Avast under your belt, how do you feel about what you've seen for synergy opportunities, right? Whether that's processes around retention or cross-selling Curious how you feel about those revenue synergies, again, kind of having more time as a combined entity?

Yes, it's a very good question. We said on the last call that we will first really focus on fast integration of our operations than of our products to put in the best position to grow the value for our customers. On the last call, for those who were not on the call, we identified about $200 million of revenue synergies to be realized over the next two years. Half of those revenue synergies were about improving retention. Northern Life Log before the acquisition of Avast had a retention of about 85% on the customer side, when we merged with Avast, or brought Avast portfolio in, the aggregate portfolio dropped to 75%. And based on our initial assumptions, we felt we can improve that retention by about five good points on operational activities that we had identified at Norton LifeLock, including moving more customers to a membership level and making sure that they benefit and use all of the functionalities of the platform. After 90 days in, I think Natalie mentioned in her script that we improved Avast retention nominally, so not enough yet to make it a trend or mature, but it gives us good confidence that we're on the right path, having identified the right operational plan to improve over the next few quarters. The next big revenue synergies, it's all about cross-selling opportunities. Three quarters of our customers being more security focused, still device-centric and offering them the opportunity to grow in the identity and privacy space. In the quarter, the launch of new identity features or privacy products give us confidence that those would be well received. And I think over the next few quarters, we're going to accelerate that cross-sell, up-sell activities. One of the conditions is to have the product strategy fully defining the product integrated so we can do in-app identifications of the weaknesses for the customers and helping them being fully protected. And then the remaining other activities is between e-commerce, optimization, marketing recalibration across the business models we diverted a little bit of our marketing spend on the free-to-pay conversion so good results. So I think all in all, I would say today, I would reconfirm our $200 million estimate. The timeline does not change, but our confidence in getting there is there. We know in the short-term that we mentioned some macro level changes on global traffic and others. But when we based our the next two-year model and come in to the $3 EPS. We're confident we can rely upon a mid-single-digit growth rate to get there. Half of that growth rate is coming from those revenue synergies.

Got it. That's very helpful. Natalie, maybe for you. Great to see the $500 million in buyback in the quarter. I think you said it was $250 million of a little bit of delevering here early in Q4. Can you just talk to us a little more broadly about how you're factoring in capital return into maybe the Q4 guide? And maybe longer-term, I mean you mentioned some nuggets there just around the $300 in EPS. How should we sort of think about that kind of mix of share buyback and delevering.

Yes. Hi, Saket, thank you for the question. To answer your question very specifically, for the Q4 guide, we have nothing factored in there in that model beyond the mandatory debt pay down. But as you know, very, very consistent with our capital allocation priorities. We'll continue to strike the right balance across accelerated debt paydown and opportunistic share buyback as we all know, there's financial benefits to both of those as we maximize return back to our shareholders. We've stated delevering as a priority. It is. And as the cost of debt, you've heard it now a couple of times in today's call. The cost of debt for us is a major hurdle, one that's going to get worse before it gets better. So you can count on us that as we continue to generate strong cash flow and we continue to repatriate our international cash, we will be very, very active in deploying capital allocation in the most advantageous way. As we look into the long-term model, it does -- our capital allocation priorities stay very, very consistent. We s till -- we have a large amount of outstanding debt SOFR curve that anybody can see doesn't seem that it will get much better until fiscal year 2025. So as we navigate through not only Q4 but fiscal year 20024, you'll see us strike that right balance across opportunistic share buyback and accelerated debt paydown. We got to do both.

Absolutely, absolutely. Vincent, maybe just one last one for you, a little bit more shorter term. So obviously, a much more challenging macro backdrop. We saw that in the net add metric. I'm just kind of curious if you could parse that out a little bit. And maybe that's just a focus on kind of the log piece. How did gross add to how did sort of churn do? How are you kind of thinking about that in the coming quarters?

Yes. So, when you step back at a high level, three growth drivers. One is the revenue we get for users, which really is about adoption of some of the products or the full portfolio; the retention activities so more customers being retained satisfied with our values; and then the total customer adds not just the direct customer that we report. On ARPU growth sequential on retention, slight improvement driven by Avast, mainly and we continue to work on those behind that. Many investors ask me, okay, how do you do that? Obviously, we have a lot of operational know-how, but product innovation and membership adoption are the two very important driver there. And I think you've seen that we have a good cadence there. Then comes total membership. We look at membership as a total, including from partners, even though they're not a direct customers, they benefit from our overall membership. And so we'll continue to invest into that partnership, you've seen double-digit growth, and we're pretty happy about the performance there. We continue to work on the funnel. When it comes to direct customers with a stable retention across all lines and across regions and slightly growing ARPU. It's all about the net gross adds, so the new top of the funnel, if you want. A trend we have seen now for a couple of quarters, right? So, it's no different this quarter than it was last quarter or slightly more robustness on the identity privacy combined pillar if you want a little bit more weakness the security when you may be closer to the device. Same dynamic, whether it's Europe or Americas. And I think for us, it's all working on that marketing spend optimization as we continue to innovate the portfolio.

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

Thank you.

Thank you for your questions. Our next question comes from the line of Hamza Fodderwala with Morgan Stanley.

Hey Hamza.

Good evening. Thanks for taking my question. So, I wanted just to follow on the net add question because I think that's probably what folks might be picking on a little bit. But it sounds like the overall environment was pretty consistent with your expectations for this past quarter. But I think last quarter, we saw that the net adds coming in a little bit more stable, at least on the Northern LifeLock side. So I'm curious, was there anything throughout the quarter, perhaps what you saw towards the end of December where the consumer maybe got a little bit weaker as it relates to Gen Digital.

Yes, I understand the question. So, actually, Q1, Q2, Q3, the trends were somewhat in sand dynamic, the same. And you're right that last quarter, it was the Norton and LifeLock lines, if you want, that were sequentially slightly more under pressure -- sorry, less under pressure versus Avast and this quarter is actually the reverse. I would not indicate that as like 1 quarter change within the proportion of what we're looking at, it's not mature enough. And I think overall, you can say about the same dynamic slightly worse in Europe and Americas, but same dynamic across the two continents and slightly worse in security closer to the device than identity and privacy. And I think when we guided back in November, we had said, hey, we don't see a change in that trend. And I think for the next few quarters as we close the fiscal year, we see similar trends and that's why we're right now really focusing on integration, product integration, increasing ARPU and retention as we continue to optimize between the different brands and business models we have.

Got it. And just maybe a quick one for Natalie. The dollar has gotten quite a bit weaker year-to-date. Just curious how you're thinking about FX headwinds in relation to the fiscal Q4 guidance and perhaps any commentary you get beyond that?

Hi, Hamza. Yes, from a guidance perspective, we just assume no change to currency rates. We don't guide based on projected impacts of currency fluctuations in the market.

And also change Hamza only a few percentage points. So it's sorry, I just wanted to add Hamza that between dollar versus euro at 106 versus 109. Yes, it may change in big views, but it's not materially different for us to change how operationally we drive. And inside the company, we drive all of our teams in constant currency and each sales team and direct-to-consumer teams are managing their business on the bookings in constant currency. So…

Okay. Got it. Thank you.

Thank you for your questions. There are currently no questions registered. [Operator Instructions] At this time, there are no more questions remaining. This will conclude today's Gen Q3 Earnings Call. Thank you for joining, and have a great rest of your day.