Gen Digital Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 1, 2024

There are 9 speakers on the call.

Operator

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

Operator

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

Speaker 1

Thank you, Victoria, and good afternoon, everyone. Welcome to Gen's Q3 fiscal year 2024 earnings call. Joining me today are Vincent Pilette, CEO and Natalie Dursey, CFO. As a reminder, there will be a replay of this call posted on the Investor Relations website along with our slides and press release. I'd like to remind everyone that during this call, All references to the financial metrics are non GAAP and all growth rates are year over year unless otherwise stated.

Speaker 1

A reconciliation of non GAAP to GAAP measures is included in our press release and earnings presentation, both of which are available on the IR website at investor. Gendigital.com. We encourage investors to monitor this website as we routinely post investor oriented information such as news and events and financial filings. Today's call contains statements regarding our business, financial performance and operations, including the impact on our business and industry that may be considered forward looking statements, And such statements involve risks and uncertainties that may cause actual results to differ materially from our current expectations. Those statements are based on current beliefs, assumptions and expectations as of today's date, February 1, 2024.

Speaker 1

We undertake no obligation to update these statements as a result of new information or future events. For more information, please refer to the cautionary statements in our press release the risk factors in our filings with the SEC and in particular, our most recent reports on Form 10 ks and Form 10 Q. And now I'll turn the call over to Vincent.

Speaker 2

Thank you, Jason. Good afternoon, everyone, and welcome to our earnings call. Only a few months ago, we celebrated Gen's 1 year anniversary and held our 1st Investor Day as Gen. We were excited to share our strategy and our plans to expand our customer reach and our product roadmap. We know that we will capture the tremendous opportunity we have in consumer cyber safety over the next several years.

Speaker 2

In Q3, We delivered another consistent quarter of execution towards that goal. We grew cyber safety bookings to $1,000,000,000 up 4%, Cyber Safety revenue up 3% and delivered our 18th consecutive quarter of growth. We drove net subscriber count higher Again, this quarter, up 330,000 sequentially, with total direct customer finishing the quarter at a record 38,900,000. While we remain focused on accelerating our growth, we continue to demonstrate our ability to operate with strong fiscal discipline, increasing our operating margin by another 80 basis points sequentially, up nearly 7 full points since the AVAS merger. And finally, we expanded our earnings power, growing EPS 10%.

Speaker 2

At our last Investor Day, we shared long term goals included accelerating revenue to mid single digits, growing EPS by 12% to 15% and reducing our leverage to less than 3x EBITDA by 2027. As we discussed, our growth plan is underpinned by accelerating our subscriber growth, especially internationally and through partnerships, increasing value to our customers with cross sell and upsell and driving Gens' overall retention rate to 80%. We're already making progress here, particularly in our investments to increase Gens' customer base entering new markets and driving international growth. In Q3, our direct acquisition channels grew double digits in all three regions, leading to a broad based performance. Our mobile solutions continue to see strong traction internationally, Capitalizing on growing Internet connectivity in emerging markets.

Speaker 2

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

Speaker 2

Overall, Q3 retention was stable sequentially at 77%, with continued progress across key brands, but partially offset by mix and other integration related activities. While slightly behind our aspirations this quarter, We remain on track and confident in our long term target of 80%. In partner, the timing of a few large deals and the rollout of our solutions to our indirect customer employee base impacted the in quarter revenue. Overall, the partner channel continues to show strong engagement with a robust and growing pipeline and a competitive set of partner solutions, which is a key tenant of our strategy. To support our growth plan, we are leveraging our trusted brands and customer centric approach.

Speaker 2

Our cyber safety capabilities continue to be recognized by leading third parties and most importantly, our customers. Recently, Norton and Avast were each named to PC Magazine's list of best tech brands for 2024. And LifeLock Net Promoter Score reached 67 exiting Q3, an all time high, driven by our relentless focus on our customers and listening to their feedback. Jen continues to be a leader in the industry and trusted by consumers around the world. Ultimately, we are recognized, trusted Because of our technology and our ability to innovate and protect people from the ever changing and increasing sophisticated threats they face every day.

Speaker 2

Last quarter, Havas blocked over EUR 1,000,000,000 unique attacks per month, a stunning increase of 50% compared to a year ago and over EUR 10,000,000,000 for all of calendar year 2023. As we have pointed out many times, These threats are not focusing on targeting UPC or U Phone, but you as an individual as you live your digital life. Threat actors are not missing a beat and have increasingly moved to web based threats such as social engineering and advertising as well as ongoing phishing attacks and AI powered targeted e mail scams. Our customers are relying on us to out innovate the threat actors and remain focused on increasing the pace at which we enhance and expand our products portfolio. Q3 was no different.

Speaker 2

We continued our focus on helping customer live their digital life safely, privately and confidently. We offered consumers better protection from phishing and email scams, Bolstering Norton Anti Track with private email and adding a new safe email standalone product. We gave our customers a trusted way to navigate the web securely and privately with the launch of Norden Private Browser. And in Identity, we expanded our reach into new countries in all three regions and added new features in existing markets. As we mentioned in November, Our AI technology has been and remains a key tenant of our strategy.

Speaker 2

Not only does powerful AI and deep learning technology power our core security engines, But we are now bringing AI to the forefront to make our products more interactive and intuitive. In December, as part of our Reputation Defender business, We launched Total Radius. This new innovative product powered by AI provides a fully automated analysis of all available information online to help customers quickly identify and protect themselves. To start, we are offering this product through our employee benefit channel. In early January, we also fully launched Northern Genie, our AI powered scam detection app.

Speaker 2

Both NordLynx Genie and Total Radius are excellent examples of how people can leverage the power of Gen's AI and cutting edge the Cardenext technology to more easily protect themselves and their loved ones from online threats. I'll conclude by saying that we have a great opportunity ahead and are very confident in achieving our long term targets we laid out at our Investor Day. The threat landscape is more porous than ever, and Gen's trusted brands offer the best solutions to consumer to protect and empower their digital lives. We will continue to execute our strategy in a disciplined way to accelerate growth, drive further margin expansion and create long term value for all stakeholders. And with that, let me pass it to Nathalie to review our quarterly performance in greater detail and our guidance for the next quarter.

Speaker 3

Thank you, Vincent, and hello, everyone. For today's call, I will walk through our fiscal Q3 twenty twenty four results followed by our outlook for Q4. I will focus on non GAAP financials and year over year growth rates unless otherwise stated. Also, please note, This is our 1st fiscal quarter that includes full financial results from Avast in both periods as we have now passed the anniversary of the closure of the deal. Q3 was another quarter of consistent execution.

Speaker 3

Q3 revenue was $951,000,000 up 2% in USD and up 3% in Cyber Safety, excluding legacy business lines. Cyber Safety bookings grew 4% in constant currency, supported by continued growth in cross sells and our direct acquisition channels. Direct revenue was $837,000,000 up 3% in constant currency. Our direct customer base expanded for the 2nd consecutive quarter, increasing to 38,900,000 up 330,000 customers sequentially and adding 500,000 customers year over year. Driving new customer acquisition remains a priority for us and is growing double digits year over year.

Speaker 3

Leading with our expanded product offerings and broadening our geographic efforts, we have deployed incremental marketing spend to capture structural demand growth for cyber safety, especially in channels like mobile and international markets. As we move forward, our robust product roadmap We'll continue to extend our reach into new markets and cohorts as well as continue to support our retention efforts over the long term across all of our cohorts. On the monetization front, monthly direct ARPU was $7.21 in USD, an increase of $0.12 year over year and a decrease of $0.07 sequentially. As previously shared, ARPU is impacted by many factors, including new customer growth, cross sell adoption, geographic and channel mix. With the stronger growth in our new customer acquisition and traction in mobile and emerging markets, we are seeing the mix impacts on blended ARPU.

Speaker 3

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

Speaker 3

As we've shared previously, we made Significant progress in our retention rate in the 1st year as a combined company, yet still have many opportunities to improve retention across cohorts and across brands as we make progress towards our 80% retention rate target over the next few years. Currently, we are focused on driving retention rates up by improving user engagement, introducing new products and features and clearly demonstrating value to our customers with our best in class comprehensive cyber protection offerings and services. And as we move forward, we expect to drive additional uplift By continuing to execute on our product migration plans and even more importantly, by creating hyper personalized AI powered customer experiences and incorporating them into our differentiated products and omni channel go to market strategies. Turning to our partner business. Scaling our partner business is a key component to achieving our overall growth Partner revenue was $99,000,000 in Q3, up 4% year over year.

Speaker 3

We continue to drive growth in this channel through employee benefits with a record pipeline and additional expansion plans to accelerate further. Given the long nature of partner sales cycles, the progress will be nonlinear and we will remain competitive with our offerings to capitalize on partner readiness across multiple channels. Driving our partners business to $500,000,000 remains the longer term objective, and we are excited to share more progress in the coming quarters. Rounding out our revenue, our legacy business lines contributed $15,000,000 this quarter, down from $23,000,000 in prior year. As a reminder, we expect legacy to continue declining double digits year over year and accounts for less than 2% of our overall total revenue.

Speaker 3

Turning to profitability. Q3 operating income was $558,000,000 up 6% year over year. We increased operating margin to 59% as we work towards our 60% margin goal we outlined in our long term model. Every point of operating margin expansion is harder to achieve than the last, but this expanding operating leverage enables us to redirect some of the efficiency gains back into our growth investment framework. You will see us continue to invest in performance marketing to reach new and existing customers, to bolster our product portfolio with differentiated solutions, to amplify our international presence, especially in identity and privacy and expand into trust based adjacencies that will touch more parts of the consumer's digital life.

Speaker 3

These investments help fuel progress in each of our growth levers and strengthen our position to accelerate revenue growth to mid single digits over the next 3 years. Q3 net income was $317,000,000 up 9% year over year. Diluted EPS was $0.49 for the quarter, up 10% year over year and up 11% in constant currency. Interest expense related to our debt was approximately $158,000,000 in Q3, an EPS impact of $0.19 Our non GAAP tax rate remains steady at 22% and our ending share count was 645,000,000 down $6,000,000 year over year reflecting the impact of our share repurchases. Turning to our balance sheet and cash flow.

Speaker 3

Q3 ending cash balance was $490,000,000 We are supported by $2,000,000,000 of total liquidity, consisting of our ending Q3 cash balance and a $1,500,000,000 revolver, and we have no near term maturities due until April 2025. Q3 operating cash flow was $315,000,000 And free cash flow was $307,000,000 which includes approximately $201,000,000 of cash interest payments this quarter. Turning to capital allocation. We remain intentional and balanced with our capital deployment and are committed to returning 100% of free cash flow to shareholders. In Q3, we paid down $250,000,000 of our term loan B and are now 3.9 times net levered.

Speaker 3

We also deployed $100,000,000 for opportunistic share repurchases, The equivalent of almost 5,000,000 shares. We have approximately $730,000,000 remaining in our current share buyback program. Finally, we have paid $81,000,000 to shareholders in the form of our regular quarterly dividend of $0.125 per common share. For Q4 fiscal 2024, the Board of Directors approved a regular quarterly cash dividend of $0.125 per common share to be paid on March 13, 2024 for all shareholders of record as of the close of business on February 19, 2024. Please note that the Q3 balance sheet and cash metrics above do not include a $900,000,000 tax refund We received at the end of January associated with tax capital losses disclosed in our fiscal year 20 3 10 ks.

Speaker 3

This domestic cash payment increases our liquidity. It's available for debt prepayment and or share repurchase and reduces our net leverage by 4 tenths of a point to approximately 3.5 times net. With our strong cash flow generation and disciplined capital deployment, we will continue to use a balanced approach in paying down debt and opportunistic share buybacks to help achieve our goals of delivering EPS growth of 12% to 15% and driving net leverage below 3 times. Now turning to our Q4 fiscal 'twenty four outlook. For Q4, we expect non GAAP revenue in the range of $960,000,000 to $970,000,000 We expect Q4 non GAAP EPS to be in the range of $0.52 to $0.54 This translates to fiscal year 2024 non GAAP revenue in the range of $3,805,000,000 to $3,815,000,000 and non GAAP EPS to be in the range of $1.95 to $1.97 While this guidance is within the full year range we provided in November at our Investor Day.

Speaker 3

We recognize it's at the low end as a result of some of the factors mentioned earlier. Yet, we remain steadfast in driving our long term growth plan. We are focused on operational excellence and delivering on our commitments, Always in a disciplined and balanced manner. Our key performance indicators are trending in the right direction. Our strategy is working and our financial model is resilient.

Speaker 3

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

Operator

Our first question comes from the line of Saket Kalia with Barclays. Your line is now open.

Speaker 4

Hey, Vincent. Hey, Natalie. Thanks for taking my questions here. Hey, how are you?

Speaker 5

Good.

Speaker 4

Natalie, maybe I'll start with you. Maybe my first question is, the bookings growth of 4% was really good to see. The revenue growth of 2% was a little bit below. I was just wondering if you could help us bridge those two metrics a little bit and when you think those two growth rates maybe start to converge?

Speaker 3

Yes, sure. Thanks for the question. So first, if I look at it, look, we're proud to be growing bookings for the 2nd quarter in a row in mid single digits, up 4%. As we've spoke to this quarter and last quarter, That growth is driven by the acceleration and the success of cross sell into a broader portfolio. It's driven by a reacceleration of DTC See in customer acquisition, stable retention across the brands, the strength really coming through, not only across broad base, but identity and privacy products that we've introduced.

Speaker 3

And then when you look Revenue, keep in mind that, that revenue on an as reported basis, that first of all includes legacy business lines And obviously, it's on a as reported basis in USD. When you take that out and you really look at the cyber safety revenue, Excluding legacy, excluding the FX headwinds, we grew 3%. So not that far off of a bookings rate of growth. And then as we continue to scale and as we continue to quarter after quarter deliver on that bookings growth that will eventually feed and really converge with revenue rate of growth over time.

Speaker 4

Got it. Got it. That makes sense. Vincent, maybe for my follow-up for you. Listen, the highlight for me was the better net adds.

Speaker 4

I mean, 330,000 was great It feels like the ARPU profile though for some of the gross ads or for some of the newer ads are changing. Maybe it's early to talk about this, but as you think about the growth formula in Cyber Safety, do you think that we should think about different mixes of sort of What comes from the installed base versus what comes from ARPU? How do you think about that sort of conceptually?

Speaker 2

Yes. And just to bridge first back to your first question and Nathalie, I think the 2 leading indicators we have for this business That will then flow back into the P and L is the booking growth rate, and Nathalie mentioned, our 4%. And then the second one is the customer count growth that we discussed, was it indirect or direct? You're right. So we grew sequential or sequentially our direct customer count for the 2nd quarter in a row.

Speaker 2

We actually achieved a record, right? So when you take Avast plus Northern LifeLock together at the time of the merger, we're now at a record 38 €900,000 and that has been definitely a very strong sign of the quarter. We did discuss at AID back in November that We'll drive with discipline. Every one of our channels is managed economically positive over the life cycle of the customers, So the CLV overcached by all the channels is very important. And we're balancing our marketing investment across all of the channel.

Speaker 2

And if we have a little bit more momentum in certain, then we're going to capture quickly that presence in that channel. For the last two quarter internationally, emerging markets And maybe closer to the security line versus identity and privacy has been the traction. And we also shared at the time that In developed and emerging country, an ARPU is $35 on average in emerging markets as you move into more developed towards $70 and then when you get mature and ARPU is 135. Now we feel good because we know we have very strong capability of cross selling and upselling. And As we continue to mature new channels or enter new channels and mature then the space there, we have a chance to expose our customers to a broader protection of their digital lives, and that has been our strategy.

Speaker 2

So that's how we're doing it. So the aggregated metric for total gen on ARPU, if you want, has to consider that mix, and we will we're looking at the ARPU across all the channels and then driving the cross sell upsell in each one of those.

Speaker 3

Got

Speaker 4

it. Got it. That makes sense. I'll get back in queue to ask my next one. Thanks very much.

Operator

Thank you. Thank you for your question. The next question comes from the line of Hamzah Bhatawala with Morgan Stanley. Your line is now open.

Speaker 2

Hey, Hamzah.

Speaker 6

Hey, good evening. Thank you. Hey, how's it going? Thank you for taking my question. So, Vincent, I understand that progress is not always linear across every metric, but clearly The ARPU did come in below your expectation.

Speaker 6

I'm wondering if it's just a function of just a higher mix of incremental international and mobile subs? Or did the churn rate for your, let's say, Higher paying subscribers, the Norton LifeLock subscriber, if you will, did that come down more than you would have expected or didn't improve as much as you expected.

Speaker 2

Yes. So let me address both and they combine obviously in the dynamic. Definitely, the ARPU is still growing year over year, but it's sequentially down. It's driven by mix. We are not Discounting more in each one of the channels, we didn't see anything outside of the normal business dynamic that we had seen in prior quarters.

Speaker 2

And to be honest with you, we love all of our channels. And where we see momentum, we're going to allocate Some of the marketing dollars in this case, this quarter was maybe a little more allocated towards lower ARPU channels, but very positive in the long term, so we feel good about that. So that's the entire ARPU dynamic mix shift. When you talk about retention, we were table quarter over quarter. We're actually improving in key areas, but we're slightly below our And we were doing real time allocation of our resources.

Speaker 2

We're also preparing to move now to common platform. This year is the big Well, a lot of our new product sets and merging the different campaigns, understanding the different things had to be some trade offs with the day to day drive of the activity. So we did not improve as much as we had in our plan in Q1. But We feel really good and I think as we continue to progress quarter in quarter out, it may not be exactly linear, but feel very good that we will get to 80% overall.

Speaker 6

Got it. And just on the topic of VARPA, I know the main driver for you to continue to deliver value through upsell and cross sell. But if I'm unless I'm mistaken, I don't think you've taken really Any price over the last couple of years despite what has been record high inflation and some of your peers are raising prices. So I'm just curious how you're thinking about maybe perhaps taking more price for the value that you're delivering going forward?

Speaker 2

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

Speaker 2

And I think the growth rate you mentioned cross sell, upsell. The definitely, the cross sell, meaning adding more to cyber safety or the upsell towards that membership, It's 2 of our 5 key levers for growth, right? We also obviously want to continue to expand, very pleased to have new customer coming In last quarter and this quarter, we want to expand and continue to expand with partners to provide cyber safe solutions. And we're looking at the overall, if you want, as a balanced approach delivering and pricing for

Speaker 6

I'll hop back in the queue. Thank you.

Operator

Thank you for your question. The next question comes from the line of Peter Levine with Evercore. Your line is now open.

Speaker 2

Hey,

Speaker 5

Peter. Thank you for hi, how are you guys? Thank you for taking my question. Maybe just to piggyback off of the first two is, Since we last met in November, kind of when did you see these dynamics start to kind of pop up? Was it mid quarter towards the end of the quarter?

Speaker 5

Just curious to know when You kind of started to see these the mix shift within the channel. And then what are your assumptions into Q4 into next year as you kind of think about what's happening today? Yes.

Speaker 2

So as we reported Q2, Q1 of sequential growth, as you know, we said we're finishing strongly in September with good momentum outside of the U. S. In international and new emerging markets. That's what At Tenaris Day, we indicated kind of the profile of customer by those markets, so we can model them. Obviously, they carried into Q3 at a stronger pace than we anticipated.

Speaker 2

We thought it would slow down. We didn't know it was sustainable. We saw it was sustainable. It continued to put marketing dollars into those trends. And I think going into Q4, we now have 2 quarter sequential experience with it, if you want.

Speaker 2

We plan to come into Q4. We'll give more indications when we give the annual guidance of 25 in May. This plenty of things can happen between now and then, especially making the progress in retention. In term of retentions, We actually, as I mentioned, we made good progress across the brand. So I see nothing changing from a fundamental progress and you know that we have the aspiration to bring the Avast brands to closer to where the Northern is and we're making good progress there.

Speaker 2

In terms of trading off certain initiatives for platform integrations that were more day to day the quarter as we were preparing for integration.

Speaker 5

Thanks. I think one of my comments you made was The record pipeline, I think, for the employee benefit channel, maybe just if you can double down there and kind of let us How that cohort of customers varies versus your traditional channel? Maybe talk about what the ARPU looks like for those, like Those customers, just curious anything that you can share and when that becomes more meaningful to you guys? Thank you.

Speaker 2

Definitely. In partner, we have multiple channels, right. Employee Benefit is one of them. We have the telcos. We have some of the retail.

Speaker 2

We have strategic partners as well. And they all behave slightly differently. They also have a different relationship between your bookings and your revenue compared to the normal DTC business, is 90% of our business, as you know. In terms of the employee benefit channel, we continue to grow the pipeline. We've been growing double digits.

Speaker 2

Maybe we're a bit Overoptimistic in terms of closing certain of these deals that would then carry an immediate impact here during sign up times and those will be delayed and carry going into fiscal year 2025 and not lost deals, but it takes time to deploy. We're also deploying Into those installed base, higher value proposition, which maybe started initially as a basic identity protection, Adding all the way to the full membership structure with Reputation, defend the new product and those taking a little bit more time. Each channel may have different ARPU of the employee base is very close to LifeLock, maybe 20%, 25% lower than the average, but very close to it.

Speaker 5

Great. Thank you for the color.

Speaker 2

Yes.

Operator

Thank you for your question. The next question comes from the line of Matt Hedberg with RBC. Your line is now open.

Speaker 2

Hey, guys. Hey, Matt.

Speaker 7

Hey, guys. Hope you guys are well. Thanks for the time. Maybe just my questions are kind of similar to the first couple of ones that have been asked. But I guess specifically on the ARPU piece, you've answered the question a couple of times.

Speaker 7

I guess specifically you guys don't guide to net adds and ARPU, but Sort of embedded in your Q4 guide, is it sort of continued mix pressure? Is that something that we should kind of expect in kind of the shorter term? Obviously, there's a long term upward bias to ARPU, but just sort of wondering if you could give us a little bit more clarity on some of the Q4 assumptions.

Speaker 3

Yes. I think from a like we heard Vincent talk about, we when we now we see 2 quarters of the momentum that we see and look, we like what we see. I don't want that to be lost. In the overarching metric with ARPU sequentially down and now 2 quarters of sequential customer adds, I think it's important to understand as much as we can and explain to you guys what's happening in at the cohort level. So let's just talk about ARPU for a second first.

Speaker 3

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

Speaker 3

So even at a even as the cohorts mix together and at the Top level metric on a blended basis, it looks down quarter or it is down quarter over quarter. Within the cohorts, they're very healthy. And so as we look forward in that metric or we look forward as to where the customer acquisition is going to come and be achieved Compared to as they come through the funnel, what products and solutions are they choosing at which time, it's definitely all about diversification and it's all about growth. And we don't, pick and choose or prioritize 1 channel market, etcetera, over the other. What we're looking for is sustainable and profitable growth.

Speaker 3

And as we look at the performance of the performance marketing dollars, We put the fuel behind the most fruitful opportunities that we can in a balanced approach. Now how all that math comes together that we lay out for you guys is that it is a balanced and disciplined approach and that the diversity that we are driving is a healthy one for Jen.

Speaker 7

Got it. Super helpful. Thanks, Natalie. And then there was an earlier question too on the employee benefit revenue. We often thought that's a huge opportunity for you all.

Speaker 7

It sounds to me like, Natalie, I just want to clarify. You said the revenue that slipped out of 3Q, we're not shouldn't expect that in 4Q. That's more of a fiscal 2025 timing issue. Is that kind of the right way to think about the deals that didn't close this quarter?

Speaker 2

Yes. Definitely, A few key deals slipped into fiscal year 2025 and we did not put them into our Q4 forecast.

Speaker 3

That's another one where

Speaker 7

I want to make sure that we They're not lost. So

Speaker 3

Yes. That's another message I want to make sure that we reiterate and are super clear. Like the EV is just incredibly robust. It's never been stronger. The team there is really driving diversification, expansion, and really increasing the quality.

Speaker 3

So we've got deals in the hopper of all size and scale. And we're just really having approach, there's an operational excellence component to that. That team is doing really, really well. And I look at it as When we manage these deals, we're just being great partners. We're being great partners to our partners for lack of a better way to say it.

Speaker 3

But The customers in the EB deals, those integrations can be as we look at different size and scales of the deals, They can be pretty complicated. And so we're making sure that we are absolutely, delivering on our commitment to them. And then as they integrate and really work through the integration on their side, there are eventually at times just timing components to it. So that's how I would encourage you guys to look at it. Again, the EB funnel has never been stronger.

Speaker 7

Thanks a lot, Madeline. Thanks a lot, Linda.

Speaker 3

Thanks.

Operator

Thank you for your question. The next question comes from the line of Jonathan Eisenson with Bank of America. Your line is now open.

Speaker 8

Hey, thanks for taking my question. I just have 2.

Speaker 3

Hi, good morning.

Speaker 7

So the first

Speaker 8

is, can you just touch on Hey, thank you. Can you just first touch on deal linearity throughout the quarter? And then my second question is, Any color you can give on how aggressive you plan to be on buybacks given the injection of cash?

Speaker 3

Yes. So the deal linearity, we just our partner channels are so diverse. And I know you attended the Investor Day, but for everybody else in the call, like we've talked about how many different channels are in partner and quarter in quarter out, the timing those deals and the diversity of those channels and how they come together, they won't be linear. What I would reiterate is that what we talked about At our Investor Day, and I would reiterate here is the partner channel is very, very critical for us. We laid out a growth plan over the long term to add about $100,000,000 of incremental partner revenue.

Speaker 3

And so the teams are aligned to that, driving towards that, and we'll stay focused on that goal and give you guys progress updates along the way. And then in terms of the share buyback, in terms of I don't really want to comment on conservative or aggressive, but we definitely will have a balanced capital allocation. We had already had prior to the receipt of that $900,000,000 we had earmarked a balanced approach across Share buyback and accelerated debt pay down for Q4, again, as we laid out for you guys in November. We'll continue that balanced approach. And then, like we said, the $900,000,000 is now available for us to deploy.

Speaker 3

We already have that in and ready to go in terms of how we're going to deploy that in Q4.

Speaker 5

Got it. Thank you.

Speaker 3

Sure.

Operator

Thank you for your question. Our next question is a follow-up from Saket Kalia with Barclays. Your line is now open.

Speaker 4

Hey guys, thanks for fitting me back in. Maybe just one follow-up if I could. Natalie, maybe for you. So the pipeline in the employee benefits and sort of the partner that partner business sounds great. Just given some of the deal dynamics that didn't necessarily benefit here in Q3 and what we are now assuming in Q4, I just wondered if you could put a finer point on what that revenue impact was here in Q3.

Speaker 4

I mean clearly there's some ARPU impacts, right, that we've talked about quite a bit. But I'm curious How much of that partner business maybe contributed to some of the revenue delta in the quarter?

Operator

Yes, I would say, look, Let's look

Speaker 3

at the top level number. I think based on the performance that we delivered in Q3 versus what the midpoint of the guide, Let's just face into that. That's about $5,000,000 versus midpoint. And so nothing is going to be material. There's a handful of things that go into that Approximately $5,000,000 miss to the midpoint us delivering on the low end.

Speaker 3

And so the partner deals are a contributor. The fact that when we talk about our growth levers coming through and we talk about the mix of the customers coming through the funnel, etcetera, that had some. There's a little bit of FX, etcetera. So all in, nothing on an individual line item basis is material, all tallying up to about a $5,000,000 delta.

Speaker 4

Got it. Got it. Very helpful. Thanks.

Speaker 3

Thank you.

Operator

Thank you for your question. Our final question comes from the line of Hamzah Sottawalla. Your line is now open.

Speaker 6

Thank you. Just for my final I wanted to sneak in A product question here for Vincent. Just given that the sort of threat environment that we're seeing with the rise of ransomware, is as much of a problem for organizations as it is for consumers. And I'm curious, what are you doing with your partners, with your customers to really educate them on having proper cyber hygiene and specifically on the AI deepfake issue, are there any sort of products on the roadmap that could potentially deal with that going forward?

Speaker 2

Yes, absolutely. And we have a lot of activities With Partner, that's why Partner is so strategic. As we embed it into security and security concerns into solutions that the consumer buy and then directly with the consumer, SaaS journey that we drive directly with all of our customers and hygiene, as you know, in cybersecurity is a big component of that. We definitely are using more and more AI, as Andre mentioned at the AID, using AI to combat AI if you want. The shift towards a personalized interactive intuitive cyber safety companion, if you want, is absolutely essential.

Speaker 2

We launched Northern Geni as an example of early on what we can do to try to identify some of those fake scams. They'll become more and more sophisticated. And with that, our product will become more and more powerful as it really can scam Consumer becoming more and more embedded and personalized to your behaviors.

Speaker 6

Thank you.

Speaker 1

All right, great. Thanks, Hamzah. This concludes our conference call today. Thanks for joining.

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Earnings Conference Call
Gen Digital Q3 2024
00:00 / 00:00