Q1 2025 Earnings Summary
- GEN's partner revenue grew 6% in constant currency, with a robust pipeline in the employee benefits channel, indicating potential for further expansion.
- Retention rate reached a Gen record of 78%, with Avast's retention improving to 72%, driven by the rollout of the new Gen stack and enhanced customer engagement through AI and data analytics, suggesting increasing customer loyalty and potential for higher lifetime value.
- Direct customer base increased by 1.1 million year-over-year, with cross-sell penetration in the Norton base rising from 15% to 20% over the past year, demonstrating effective growth strategies and opportunities for further monetization.
- Future improvements in retention rates may be more challenging, as initial gains from low-hanging fruit post-merger have been realized, potentially making it harder to reach the 80% retention target.
- Growth in partner channels, such as employee benefits, depends on closing new deals, which may be uncertain and could impact the company's ability to achieve guidance.
- The lack of customer count guidance may indicate limited visibility into future customer growth, potentially signaling uncertainty in maintaining current growth rates.
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Guidance and Consumer Health
Q: What assumptions are in the guidance, and how is consumer health?
A: The guidance aligns with our strategic growth framework, focusing on gross acquisition, retention, and ARPU. We've seen the highest Q1 gross adds in four years and the lowest cancellations in three years, indicating strong consumer health. ARPU is growing consistently quarter-over-quarter, with increased retention rates across our brands over the last year. -
Gross Margin Variability and Investments
Q: What's causing the slight decline in gross margin?
A: While operating margin has improved by 7 points over the last three years, gross margin remains relatively stable at 86% to 87%. The slight variability is due to the P&L geography of our investments. We're investing in profitable, healthy ROI marketing to drive top-of-funnel growth, supporting our 5-for-5 growth strategy. -
Retention Rate Improvement
Q: How are retention initiatives progressing towards the 80% target?
A: We've improved retention to 78% this quarter, with Avast reaching a record 72% retention rate. Initial gains came from applying best practices post-merger. Future improvements will come from rolling out our new Gen stack and AI-enabled communications to enhance customer engagement. -
Cross-sell and Upsell Opportunities
Q: What's the progress on cross-sell and upsell initiatives?
A: Cross-sell penetration of the Norton base increased from 15% to 20% in the last year. We're moving customers from point products to comprehensive cyber safety suites, focusing on identity and privacy features. We see significant opportunity to increase suite adoption from slightly above 40% to 60%, as previously achieved with Norton LifeLock. -
AI Initiatives and Norton Genie
Q: What's the update on AI initiatives and Norton Genie?
A: With a surge in data breaches and sophisticated scams, we've launched Norton Genie, an AI-powered scam detection app with over 1 million downloads. In the second half, we'll integrate AI-supported anti-scam features into multiple product sets, enhancing our ability to detect AI-generated scams. -
New Gen Stack Rollout
Q: How is the new Gen stack rollout progressing?
A: We began rolling out the new Gen stack at fiscal year-end, starting in small Asian countries with positive results. We've expanded to more countries and initiated cohorts in the U.S. We're cautiously monitoring NPS and engagement and are on track to complete the rollout within the year as planned. -
Employee Benefits Enrollment Pipeline
Q: How does the benefits enrollment pipeline look compared to last year?
A: Our partner business, which is 10% of overall revenue and grew 6% in constant currency, includes telcos and employee benefits. Both are expected to grow double-digit within partnership revenue. We're investing in expanding coverage and have a healthy funnel ahead of the enrollment season starting in October. -
Net Adds and Growth Strategy
Q: Can you discuss net adds across geographies and outlook?
A: Net adds are broad-based across online, mobile, geographies, and brands. We're focusing on global expansion and acquisitions in underpenetrated markets and through partner channels. While we don't guide customer count quarterly, we're committed to investing for growth to accelerate top-of-funnel acquisition and retention. -
Customer Growth and Cross-sell Penetration
Q: How did existing and new customers perform versus expectations?
A: Both existing and new customers performed as expected. We had the highest gross adds in several years, driven by marketing investments. Cross-sell penetration in the Norton base increased from 15% to 20% over the last year, with further room for growth. -
FX Hedging Against Yen
Q: What hedging activities are in place for yen exposure?
A: We don't hedge against the yen. We fix the exchange rate at the beginning of the period, which is reflected in our reporting of USD versus constant currency.