Gen Digital Inc. (GEN) Earnings Call Transcript & Summary

Hello, everyone. I appreciate you joining us today. I am Patrick Colville, a senior analyst at DB covering the cybersecurity and the infrastructure software space. This session with NortonLifeLock will be a fireside chat with listener Q&A. There's a chat box where you can ask questions. Any questions will be anonymous, so we will not mention your name or your company affiliation. I guess the place to start is to have some introductions. So we've got Vincent Pilette, the CEO of NortonLifeLock with us today. NortonLifeLock, as you all know, is a pioneer in consumer cybersecurity and arguably one of the most recognized and trusted brands in the space. Vincent, thank you for joining us.

Thanks, Patrick. Thanks for inviting me.

So I guess given time constraints, let's jump straight into questions. I think probably the most obvious place to start, the elephant in the room, really, is cybersecurity risks have been increasing, we all know that, but how has the coronavirus pandemic affected that trend?

Yes, we can talk about that. Let me step back a little bit and really talk about what NortonLifeLock is about, right? As we saw the enterprise security business when it was part of Symantec to Broadcom, we became NortonLifeLock, a cybersecurity company as you mentioned, solely focused on consumer. And our mission is really to enable and protect consumers to live their digital lives in a safe environment, protect them against cyber criminals, but also enabling them to conduct their digital operations that could be commerce, that could be talking to friends, schooling, many different activities, and conduct that in a safe environment. As we came from the Norton side, the security of new endpoint device, to combine with LifeLock, which is more user-centric, really focusing on the overall ecosystem of the consumer. Now of course, with the pandemic, as you know, more and more of the activities that we used to conduct in a physical environment, my kids going to school and now doing it virtually, my mother was going to the shop, and now doing everything online, so more and more people got into that overall digital environment. And with that, of course, cyber criminality adapted, increased, changed and people have the need to be protected against that. So I would say the pandemic has accelerated the understanding that, as a consumer, you will need a cybersafety umbrella to protect you against cybercriminals.

Interesting. And I guess, the kind of anecdotal evidence you're pointing to is we have seen in your numbers, the recent results suggest an increase in new customer adds. So I think across your portfolio in device security, identity protection, data privacy, where has the kind of strength the most concentrated? It's probably the most -- the first question. And then the second question is, is the strength a sustainable tailwind in your view?

So a year or plus ago, in April 2019, we launched the first integrated platform to address the cyber safety needs of a consumer, so that's an integrated platform. For a membership fee, you can have access to the various functionalities of our portfolio. You mentioned, at the bottom, we have some device, endpoint security, the core antivirus, password managers, we have VPNs. And then you go up and up our functionalities and at the highest level of membership, you have full identity protection plus every other service, including insurance services or restoration services. And I think that integrated approach to address and build up on what cybersafety is for consumer is at the core of our vision. If you are new, you will subscribe to a cybersafety protection, the same way, that today, without thinking, when you buy a car, you buy an insurance or when you buy a house, you take a physical protection of that house, you will do the same online. But these functionalities that made up of cybersafety would continue to evolve. If 10 years ago, it was really around protecting your multiple devices, today, it's about protecting your multiple digital identities, pushing into the new frontiers, you mentioned privacy as one example and definitely, people are very conscious about their data being on the web and being able to better control their own data. Through the pandemic crisis, what we've seen is a pretty broad-based growth. As we know -- as you know, we've reinvested into marketing to kind of drive this message of the integrated platform for cybersafety to the consumers, and we've seen a pretty broad-based growth. On the bond side of the portfolio, which is more value-based, security-based, but also on the higher side of the portfolio, which is pushing into the identity and privacy base. It was growth in the U.S., and it was growth in international. So we've seen a good reception, if you want, of our overall message, vision and supported by the launch of Norton 360.

Nice one. And I guess, I mean -- and do you think this is sustainable? I mean is your view that the world is now more digital, and so these kind of -- this -- we're in a new paradigm, and this is, I guess, a sustainable tailwind? Is that how we should think about it?

Well, let me share how we think about it, right? More and more consumers will be moving their life online, and there will be actually an overlap between your physical life and your digital life. And today, when we talk about cybersecurity, in 90-plus percent of the cases, people think about Enterprise Security or vendor-specific security for their specific applications. But when you're a consumer, you don't really worry about which vendor provides what type of security, you want to be fully protected overall the same way when you have an insurance for your entire set of assets and you want to have it that way. As we return to growth, we know that the potential is basically that every consumer on earth, every citizen on earth, has that ability to live their digital life in a safe environment. And safe includes protection upfront, education and prevention all the way to restoration and insurance protection. And today, we're 7.5 billion on earth, and we only have 20 million consumers. So we feel that the structural growth opportunity as we develop our portfolio, as we launch into new markets, will enable us to continue to grow. Now you first need to walk before you can run. The division, for 10 years under Symantec, was run more as a profit maximization division. As we became a company, launched Norton 360, we invested into marketing. We've returned the company to what you call a low to mid-single-digit growth rate. That is still our view that as we build up the portfolio, we're on that path. Last quarter with COVID-19 was a little bit of a boost and frankly, at least a structural step in terms of understanding the need to have cyberprotection when you're a consumer out there.

Got it. That's very clear. I just want to make this, to our listeners, as interactive as possible. So if you've got any questions, please post them through the chat box or, alternatively, why not e-mail me, if that's easier. It's patrick.colville, which is C-O-L-V-I-L-L-E@db.com. It's patrick.colville@db.com, or the chat box, if any of our audience have any questions. So switching gear, I think the kind of key question on many people's minds is NortonLifeLock versus McAfee, Avast and -- competitive environment. So I think it's kind of key for us, understanding that what differentiates NortonLifeLock versus those other vendors?

Yes. So let me go back in how, today, the market is being described. And normally, it's really backward-looking and how we look at the market, right? So you still have part of the overall market distribution, the core pillar of security, and that's very endpoint-centric, protecting you from an endpoint perspective, maybe expanding from antivirus to maybe a password manager and a few other functionalities, it's endpoint-centric. Then you have a second pillar, which is identity, and the identity is much more user-centric. It's about giving your ability to understand the attributes that matter to your identity. In the U.S., it could be a social security number, it could be a credit report, a digital identity numbers in Europe start to take routes. Those are attributes, and you want to make sure they fully protect it and that you can control them. Then you have fragmented and new emerging pillars around privacy, connected home and families, and those have new fragmented applications that could become big or not, and there will be a lot of innovation in those spaces. So with the approach we have is we're really building up an integrated portfolio that address all of those pillars to build our vision of cybersafety. To date, those 4 pillars, which I think they're going to start merging, but we could add new pillars to that overall platform. So our vision is we need to run as fast as possible to offer a fully-integrated solution to have cybersafety or peace of mind from a cyber perspective for every consumer and citizen on Earth. That's our objective. Now when you compete day-to-day, if you're someone that's more obviously focused on security, you're going to maybe compare Norton, McAfee and Avast. If you're more focused on identity, you may compare one of the Equifax or Experian and us. If you focus on privacy, there's a few applications. If you focus on connected homes, there's a lot of startups. And I think the way we differentiate it is towards that integrated platform.

Okay. That's very clear. I've got a question from one of the audience members about specifically this kind of competitive dynamics with the freemium models. So I mean just any color you can give us around how you see NortonLifeLock competing against those freemium vendors would be interesting.

Yes. Well, at the end of the day, every company has to be able to charge for the innovation and make a profit, and that's the capitalist system. And then they reinvent that profit to continue to grow their innovations and build up on the R&D and build up on the portfolio. How you get to your funnel, whether you use marketing dollars and get the consumers to download the applications on your platform and then immediately subscribe, which is the Norton model, is one way, and we continue to invest into R&D, and we have a premium from a functionality perspective. You have another distribution model, as you know, which is more like OEM, you partner with OEMs and you load your applications on hardware manufacturers. And then at the time of you getting an endpoint device, you can convert on us. And as the McAfee model, and it works well when PC's up, it works less well on PC is down. And for us, it fits a little less well because we've become really user-centric versus pure hardware-centric. And then you have another model that could be freemium, a lot of startups are offering their application for free. It's about touching more people, but you still have them -- to convert them into the premium subscription or the premium price to be able to support and fund your innovations. So at the bottom of the market and the value, you will always have functionalities that become more and more commoditized, and that becomes free. We offer those functionalities in the lowest level of our membership, but we always add a few functionalities that are innovative and competitive to be able to have our customers better pay for our solutions.

Okay. That's very clear. And another question we've got in is about something you mentioned earlier, that you have increased marketing spend, both, I guess, in the U.S. and internationally. And so the question is, have -- what have you seen your competitors do to react to that? Have you seen your competitors change their strategy as it relates to marketing and take consumer actions?

Look, we're not really obsessed by what our competitors do. We're really obsessed about building up the portfolio to address the consumer needs towards that new vision of cybersafety. As one membership fee, you get fully protected in or of your digital activity. So that's our core focus. As you know and as I mentioned, the division, NortonLifeLock as part of Symantec kind of reduced their marketing spend as they were maximizing their profit and focusing on other priorities within the company. When we became NortonLifeLock, a stand-alone company, we basically returned to the level of marketing they were pre-acquisition of LifeLock. And with that, as you've seen for the last 3 quarters, we returned growth, we've turned around the customer decline to our customer count growth and are really focused on that. For sure, for U.S., probably our competitors were enjoying the fact that in the consumer space, we were not as dynamic as we could have been and now they see the difference. We are somewhat reinforced towards our vision when we see that many competitors are trying to bundle functionalities or are trying to create an integrated platform, we kind of know that we're on the right path.