Gen Digital Inc (GEN) — Q1 2025 Earnings Call Transcript

Thank you, Tamia. Good afternoon. Welcome to Gen's First Quarter Fiscal Year 2025 Earnings Call. Joining me today are Vincent Pilette, CEO; and Natalie Derse, 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. A reconciliation of non-GAAP to GAAP measures is included in our press release and our earnings presentation, both of which are available on our 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 of 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, August 1, 2024. 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 and the risk factors in our filings with the SEC, and in particular, our most recent reports on Form 10-K and Form 10-Q. And now I'll turn the call over to Vincent.

Thanks, Jason, and welcome, everyone, to our Q1 earnings call. We have started fiscal '25 on a good note with our operating KPIs supporting our long-term aspirations. We grew cyber safety bookings 4% in constant currency and reached a record direct customer count of 39.3 million, up 1.1 million year-over-year. Additionally, ARPU is up sequentially and year-over-year in constant currency and retention reached 78%, a Gen record supported by record levels in LifeLock and Avast. Our consistent focus on execution resulted in another double-digit growth quarter for earnings per share at $0.53 in Q1, up 15% in constant currency. I'm proud of our team for delivering these results and for our continued focus on evolving cyber safety for consumers in a very dynamic threat landscape. Before Natalie walks you through the details of our results, I would like first to remind everyone about our strategic opportunity and the steady progress we are making to achieve our cyber safety mission. Whether it is a biometric payment at the retail store or our personal performance data combined with recommendations algorithms to buy sportswear, it seems like not a day goes by where we don't do something digitally without sharing more personal information. And while these experiences can be convenient, our growing digital life leads to the proliferation of sensitive personal information, which is difficult to properly safeguard as it is increasingly out of our control. We depend on our banks, government institutions, mobile providers, and retailers to protect our data. And yet, as we can all see by the ever-increasing number of data breaches in all industries, it is tremendously hard for them to do. In just the first half of 2024, we have seen more than 2,000 reported breaches per month across the globe. And those are just the reported breaches, not to mention the many that occur across small businesses, local doctor offices, schools, and shops that also get access to our sensitive personal data. Recent global breaches highlighted the growing threat of cyber attacks, which are often targeted at exploiting human vulnerabilities. In the aftermath of such events, there is a surge in impersonation scams, suspicious emails, and text messages designed to trick people into sharing personal information. The rapid development of generative AI has made it easier for criminals to create more personalized and believable scams, including deepfake clones. The potential scope of these threats is broadening, resulting in significant economic and reputational damages. It is clear to anyone paying attention that these threats are creating a dynamic threat landscape, making consumers worldwide more vulnerable than ever to real threats to their privacy, identity, and financial assets. And even the more careful and vigilant people struggle to control where their personal data lives and will have little to no visibility into how governments, companies, and small businesses protect their data, identity, and reputation, which I believe are among the most valuable assets. I strongly believe that it is not a question of if your personal data will be compromised, if it hasn't occurred already, but when. And that is why the team at Gen has made protecting your data and your digital identity our life's work. It is our never-ending mission that we deliver through constant innovation. Today, we already have the most comprehensive product portfolio that meets consumer needs for security, identity, privacy, and reputation. Our flagship cyber safety membership offerings, Norton 360, Avast One, and Avira Prime, continue to gain traction and regularly receive industry recognition and awards for the way we protect against the merits of cyber threats. We don't just stop at delivering to consumers industry-leading technology. We know that providing our customers with best-in-class services sets us apart from our competitors. Solutions like LifeLock and ReputationDefender deliver personal live service to help protect and restore your identity and reputation in case you become a victim. By focusing on the customer journeys with us, both products have achieved top ratings, with LifeLock recognized as the best identity theft service in the marketplace and ReputationDefender with a near-perfect rating for reputation management. As the leader of the industry, we are constantly investing in innovation to stay ahead of potential threats and provide our customers with the best possible cyber safety protection. Yesterday, we launched Norton Ultra VPN, which offers more comprehensive online protection with three different plans catering to individuals, couples, and families. Not only does Ultra VPN provide the best online privacy, dark web monitoring, VPN protocol support, and worldwide content access, but it also offers protection against scams, viruses, malware, and ransomware, as well as a password manager and parental control. We believe it is the best and the next generation of VPN solution, offering a modern and personalized approach to cyber safety and adds another entry door into total comprehensive cyber safety. We're so excited to bring Norton Ultra VPN to consumers. Not only is this a great product that meets customer needs, but it also represents the promise of all the hard integration work we put into bringing two companies' technology together under a new single common architecture. Norton Ultra VPN is built on the new Gen stack, which helps us not only with innovation and features we delivered but also with the speed with which we were able to bring it to market. And in the future, as we take those capabilities and combine them with our ever-expanding AI tools, we can see what we can deliver in terms of customer experience and ease of use. Over time, that will result in improved customer loyalty and greater engagement, leading to more value-add cross-sell and upsells. The last point I want to touch on today is that most everyone has heard about cybercrime and cybersecurity, but most people are not fully aware of the very real risk they are exposed to and often not adequately protected from. At Gen, we are hard at work every day communicating, educating, and earning the trust of consumers around the world. Although we have a host of industry-leading brands that enable us to serve the needs of hundreds of millions of diverse customers across over 150 countries, we feel it is also our responsibility to constantly educate and inform people about cyber risk and its impact through initiatives such as our recent campaign. This campaign uses art and psychology to demonstrate the emotional impact of cybercrime and helps people take the right steps to proactively protect themselves online. This quarter, we also launched our personal data exposure scan by LifeLock, which is a comprehensive scan of millions of data points online, combined with our privacy monitoring and dark web algorithms. By simply entering an email address, individuals can obtain a free report card detailing all their supposedly private information that may actually be publicly available. These tools are free to everyone and give consumers visibility into their digital footprint so they can better protect themselves. All these types of cyber safety awareness initiatives are beginning to pay off as we grew cyber safety bookings and revenue by 4% in Q1. We had strong momentum in the identity and privacy business lines with bookings up 6%, supported by double-digit new customer acquisition in that segment and accelerating privacy cross-sell growth. This success reflects the increasing consumer awareness of identity risk from recently reported breaches. Although the identity market remains mostly U.S.-based today, we continue to make steady traction in our efforts to expand identity protection globally, introducing Norton 360 Advance to eight markets in Europe, providing customers additional identity protection services such as dark web monitoring, social media monitoring, stolen wallet assistance, and ID restoration. Now despite the importance of comprehensive cyber safety, most consumers mistakenly believe it won't happen to them or still believe that they digitalize are safe, basically choosing to self-insure. Two-thirds of cyber safety customers have only basic security or even just device security. But in today's user-centric cloud-based digital world, information and identity risk transcend personal devices. We believe that comprehensive cyber safety is paramount and yet still massively underpenetrated. And with our technology portfolio, focus on innovation, trusted brands, and channel expansion, we are well positioned to drive its adoption. This is a never-ending mission. So in summary, we are pleased with our Q1 results and promising start to fiscal 2025. We are confident that our customer centricity, innovation, and disciplined execution will enable us to deliver on our goals for not only this year, but also on our plan to accelerate long-term profitable revenue growth to further increase shareholder value. And with that, let me pass it on to Natalie to review our performance in detail.

Thank you, Vincent, and hello, everyone. For today's call, I will discuss our fiscal Q1 2025 results and our outlook for Q2 and the full fiscal year 2025. I will concentrate on non-GAAP financials and year-over-year growth rates unless otherwise noted. Before I start, I want to mention that we have revised our historical practice regarding revenue recognition for certain customers, shifting from the successful bill date to the renewal date. The impact of this revision is minor; however, we have adjusted past reported periods for comparison. For more details, please refer to the supplemental information section of our slide presentation on our IR website and our Q1 Form 10-Q. Now, looking at Q1 results. Q1 was another strong quarter with financial results at the midpoint of our guidance, marking our 20th consecutive quarter of growth. Q1 bookings reached $913 million, a 3% increase in USD and a 4% increase in constant currency. Cyber safety bookings, excluding our legacy business lines, also grew 4% year-over-year in constant currency. Total Q1 revenue was $965 million, up 2% in USD and 3% in constant currency. Cyber safety revenue grew 4% year-over-year in constant currency, driven by our privacy and identity business lines and ongoing cross-sell efforts to the Norton base. In the U.S., we also saw a 4% growth fueled by increased demand for privacy and identity protection services, bringing in new customers through our direct and partner channels and enhancing cross-sells with existing customers. We have made progress in international markets with varying levels of market maturity, continuing to invest in new acquisitions and expanding our cyber safety services. We will persist in leveraging all available resources to drive profitable, broad-based growth. Direct revenue was $850 million, up 3% in constant currency, aided by improvements in our key performance metrics, such as direct customers, average revenue per consumer, and retention rates. Specifically, a vital part of our growth strategy is adding net new customers. In Q1, we increased our customer base for the fourth consecutive quarter to 39.3 million, rising by 192,000 sequentially and 1.1 million year-over-year. We are actively investing in various marketing channels to reach new audiences and drive traffic to our sites while working to optimize conversions. We are acquiring new customers with solid returns on investment as we gain traction in international markets with our mobile offerings. Our brand trust and the strength of our award-winning product portfolio will continue to facilitate customer growth through diverse acquisition channels. On monetization, our monthly direct ARPU was $7.23, a slight sequential increase of $0.01 but down $0.01 compared to last year. It's important to note that this figure includes a $0.04 negative impact from foreign exchange year-over-year and $0.02 sequentially. Operationally, ARPU has remained stable or slightly increased across our customer segments by brand and market. As we expand our customer base, we have demonstrated our ability to enhance monetization through cross-sells and upsells. With the Norton base, cross-sell penetration has risen from 15% to 20% over the past year. We are utilizing best practices to offer complementary products at critical moments to better protect our customers' digital needs. We are also refining our upselling strategies to guide customers toward higher-tier memberships that offer comprehensive protection—an exciting growth opportunity for the coming years. The enhanced value proposition for customers is reflected in our improved retention rates. In Q1, our direct retention rate was nearly 78%, showing year-over-year improvement and making progress toward our goal of 80%. As we simplify the Gen stack, we see more prospects for boosting customer loyalty and increasing lifetime value by leveraging improved targeting capabilities to create personalized customer experiences, activating the growth flywheel we have previously discussed. Turning to our partner business, partner revenue was $101 million in Q1, a 4% year-over-year increase as reported and a 6% increase in constant currency. Our employee benefits channel has a strong pipeline as companies increasingly understand the importance of protecting their employees from identity and cyber risks. We are further strengthening strategic partnerships with telecom companies, financial services, and insurance providers to expand our identity offerings and drive greater adoption of our private browsers and search partnerships. Scaling our partner business to $500 million in annual revenue is a key part of our overall growth strategy, and we are confident in the progress we are making. Regarding our legacy business lines, they contributed $14 million this quarter, down from $17 million last year. We anticipate that our legacy revenues will continue to decline at double-digit rates year-over-year, making up less than 2% of our total revenue. Moving on to profitability, Q1 operating income was $564 million, up 4% year-over-year and 5% in constant currency, resulting in an operating margin of 58.4%. We are making disciplined investments in targeted growth opportunities to attract new customers through comprehensive marketing efforts and expand our international reach. We are also enhancing our technology capabilities, including the new Gen Stack simplification, to quickly adapt to shifting cyber threats and promote innovation through new offerings like Norton Ultra VPN, which adds to our extensive cyber safety product lineup. In our core operations, we will continue to enhance efficiencies and productivity that can be reinvested for additional growth opportunities. Q1 net income was $335 million, an 11% year-over-year increase. Diluted EPS for the quarter was $0.53, reflecting a 13% year-over-year increase and a 15% increase in constant currency. Interest expense related to our debt amounted to $146 million. Our non-GAAP tax rate has remained consistent at 22%, and our ending share count was 627 million, down 16 million year-over-year due to share repurchases. Now, looking at our balance sheet and cash flow. Our ending cash balance for Q1 was $644 million, supported by over $2 billion in total liquidity, which includes our ending Q1 cash balance and a $1.5 billion revolver. Our Q1 operating cash flow was $264 million, and free cash flow was $262 million, which included approximately $187 million in cash interest payments for the quarter. Earlier in Q1, we successfully repriced our Term Loan B, eliminating the credit spread adjustment and reducing the credit spread from 200 basis points over SOFR to 175 basis points. As is customary, we expect Q2 to be the lowest quarter of the year for operating cash flow due to the concentration of tax payments due. Regarding capital allocation, we are maintaining balance in our capital deployment and commit to returning 100% of excess free cash flow to shareholders. We voluntarily repaid $30 million of our Term Loan B and $58 million in line with our maturity schedule, leading to a net leverage of 3.5 times. Additionally, we invested $272 million in share repurchases this quarter, which equated to 11 million shares as part of the expanded $3 billion buyback program approved by the Board in May 2024. Since the start of fiscal year 2023, we have adhered to a balanced capital allocation strategy, reducing debt by $2 billion and executing $1.6 billion in share repurchases during that timeframe. We allocated $82 million to shareholders in the form of our regular quarterly dividend of $0.125 per common share. For Q2 fiscal 2025, the Board of Directors has approved a regular quarterly cash dividend of $0.125 per common share, which will be paid on September 11, 2024, to all shareholders of record as of the close of business on August 19, 2024. With our strong cash flow generation, we will continue to balance debt reduction and opportunistic share buybacks to help meet our goals of achieving EPS growth of 12% to 15% and reducing net leverage below 3 times EBITDA by fiscal year 2027. Now, looking ahead to our Q2 and fiscal year 2025 outlook. For Q2, we anticipate non-GAAP revenue between $965 million and $975 million, equating to 3% to 4% growth in cyber safety, with Q2 non-GAAP EPS projected to be between $0.53 and $0.55, reflecting a growth of 13% to 17%. For the full fiscal year 2025, we are reaffirming our prior guidance, expecting full-year revenue in the range of $3.89 billion to $3.93 billion, which translates to 3% to 4% growth in cyber safety in constant currency, supported by anticipated cyber safety bookings growth of 3% to 5%. We expect non-GAAP EPS to fall between $2.17 and $2.23 per share, representing an annual increase of 12% to 15% in constant currency. Please note that we expect ongoing foreign exchange headwinds, particularly from the Japanese yen, to affect our reported revenue. In summary, our Q1 results keep us on track for our 2025 plan, and we are well-positioned to achieve our long-term objectives. Our key performance indicators are trending positively, we are executing our strategy, and our growth framework provides direction as we move forward. We look forward to reporting our progress over the coming year. Thank you for your time today. Now, I will turn the call back to the operator for questions.

It's Dan Bergstrom for Matt Hedberg. It was encouraging to see the increase in retention this quarter. What initiatives are working well for you in terms of retention? Also, can you provide insight into retention—was there easily achievable improvement after the merger, and are the gains from here becoming more challenging? Or is this a consistent effort towards reaching the 80% target?

Yes. Thanks for your question. This is Vincent, and I'll take that answer. Just as context for those who were not here 18 months ago, when we merged with Avast, our retention rate on an aggregated basis for all the brands and the new Gen company was around 75%. We identified about 5 points of overall improvement that would drive all the way to our target 80% retention rate for Gen. A significant portion of that improvement was for Avast itself, which was around 65% retention, and we determined we could bring that business to a 75% retention rate overall. So initially, yes, we had a few low-hanging fruit, as you remember, Norton LifeLock combined was at a retention rate closer to 85%. We had a lot of good practices around the whole customer journey, breaking it down by the different experiences that a customer would have in trying to get the best optimal output for those. We applied those expertise and practices to the entire portfolio and improved for the first two points from 75% to 77%. And then we said that the remaining will be over the next few quarters, maybe the next couple of years as we really roll out the new Gen stack. So this quarter, we reached 78% with actually an Avast record retention rate of 72% and also improved a LifeLock retention rate to record levels. I think you see here two dynamics. The first one is the rollout of the new Gen stack, which is much more aligned to a suite with high engagement in-app communications. That engagement and the ability to demonstrate the value to the customers has led to improved retention rates. The second component is the work we've done and are doing in breaking down the journey of the customers through our cyber safety cycles and really providing the right value at the right time using some of the AI and data analytics that we have built, and we're going to continue to roll those two, the new Gen stack migration towards a suite approach on one side and then the buildup of new features and AI-enabled communications into that suite.

That's very impressive. And then you called out cross-sell a number of times in the prepared remarks, and it is one of those five drivers through Investor Day. How should we think about cross-sell in the context of maybe what you've accomplished so far using, let's say, Avast as a template this time? And then what could still be done here on Norton and LifeLock from a cross-sell perspective?

Yes. So as we discussed 6, 8 months ago now, we said one of the five drivers was to increase the cross-sell, and it basically means moving customers that have entered cyber safety from a point product to a broader comprehensive cyber safety privacy and some of the identity features have been a very strong cross-sell this quarter. Before that, it was mainly about taking the products from the Avast portfolio that were more point products specifically and cross-selling into the Norton base and using their practice of cross-selling, again, at the right time and using as much as we can data scientists to deliver the right message at the right time. I think we've seen a trend of moving more and more towards either total comprehensive cyber safety or more towards the privacy identity angle. You'll see us continue to develop that. We have more room in Norton where we've made progress, but it will be a three-year roadmap, as you know. And then we still have a lot of room in what you mentioned, which is the upsell, which is the migration towards the overall suite. Today, we're slightly above 40% in the total portfolio, and I think we have an opportunity to go to where we had brought the Norton LifeLock portfolio, which was 60%. So both cross-sell and upsell have made progress in identity and privacy; they are essentially the focus, and cross-sell plus upsell is the big opportunity moving forward.

Natalie, just the first one for you is as you think about the guidance for the remainder of the year, what assumptions are baked into that? And then how do you think about the health of the consumer? Any color that you can give us around what you're seeing from your pipeline in terms of just the overall health of the consumer into fiscal '25 versus where you were, call it, 6 to 12 months ago?

Yes. Thanks for the question. So the guide is very much in line with the plans that we've articulated for you guys. The five for five is the structural growth framework and not that every one of those levers hits the same order of magnitude at the same quarters in the same years, but that is our strategic growth framework, and we've got the business aligned to that. In terms of yes, the team is focused on gross acquisition, which is very, very important to get the health at the top of the funnel. We've spent a lot of time and focus on figuring out all the different cohorts in our customer base and how we retain them at the highest rates possible. And then ARPU, right? We've got to make sure that we continuously stay focused on having the most robust product roadmap that can fuel our growth opportunities in both cross-sell and upsell, and again, continuously communicate with our customers that we have the most relevant, most comprehensive cyber safety protection in the market. So all of those things coming together as we navigate through the year is what helps us shore up not only the Q2 guide but also our reiteration of the full year guide. In terms of the health of the consumer, look, there's been a lot of movement and many things in the news in the last couple of days. But what I can tell you is what I can see within our business. We are growing customers, both from a gross adds perspective; we've just seen our highest Q1 that we've seen in four years. From a cancellation perspective, we've seen the lowest number of cancels we've seen in the last three years. So whether that's the health of the customer or the awareness of the ever-increasing cyber safety threats we've got combined with our trusted brands, from a customer count perspective, we see health and we see growth. Then combine that with the other two legs of the stool, as I speak about in terms of what is happening in ARPU. Affects aside, we are growing ARPU consistently quarter-over-quarter, and we have seen increases in the last year across our brands in retention rates. So from the measures of our customer in those three key performance indicators, I see a lot of health in our customer base.

And then if I can jump to the product side. I think last quarter, we talked and touched at least on the ask, I think it was asked on silver for the membership offering, and you talked about the newer Gen Stack initiative. Can you maybe just give us an update on how that's trending?

Yes. On the rollout of the new Gen stack, we started at the end of the fiscal year. We just have a couple of small countries in the Asia region to test. We had very good positive results. Since then, we've expanded to a few more countries. We rolled out our first new cohorts because we're doing so by customer cohort in the U.S. We're very cautious monitoring the first NPS after the first rollout, measuring the engagement, comparing that to prior. We said it will take the full year to roll out the new stock, and I think we're on track to that, and we're not changing that timeline. We're pleased by what we see so far. There's ups and downs. As we roll out new adjustments and as we get customer feedback, but overall, pretty positive.

Maybe just two quick questions for me. So this quarter, your sequential direct customer adds came in pretty strong, and you also talked about cross-sell penetration now nearing the target with your guidance—or excuse me, with your performance falling in line with your guidance. My question is, how did the difference between existing customers and new customers play in per your expectation or versus your expectations? Three months ago, was it in line? Or did you see one of the two performing better than expected?

Yes, I would say it's a balance across the metrics, and we've got different teams aligned to different segments of that five for five strategic growth framework. In terms of how the customers performed, we are honestly working extremely hard from a disciplined fashion to free up as much capacity for investment for growth as we can. So we've made a commitment and we stand behind that commitment in operation and execution to continue to invest in marketing. That marketing goes to the top of the funnel. So we are not surprised by the growth in customer count on a sequential basis. From a gross adds perspective, like I said, it's the highest gross adds we've seen in several years. From a retention perspective and ARPU perspective, the levers of cross-sell—we are just getting started, quite honestly. We're very, very proud of the performance that our teams have driven in cross-sell penetration of the Norton base moving from 15% to 20% in the last year. But we are at 20%, and we feel like we have a ways to go, especially because we're not dealing with a stagnant customer base with a stagnant product portfolio; both are growing. So we will continuously invest in product and technology to enhance our value proposition. We will continuously work to cut through the message with our trusted brand and services to our customers and will continue to focus on retention to make sure that the customers that we've got want to stay with us and they're getting world-class customer service and protection by a product and technology value creation that is ever-increasing.

I don't hedge against the yen from a currency rate perspective. We fix a rate at the beginning, and that's why we report USD versus constant currency.

Vincent, Natalie, I joined late, so apologies if some of these have been asked, but Vincent, maybe just to start with you on just another part of the business. I think we get into the benefits enrollment season next quarter. And I know that last year, there was a little bit of lumpiness there. And can you just talk a little bit about how that pipeline looks? And maybe anything that you think about doing differently this time versus last year?

Yes, absolutely, Saket. And no worries about joining late. The good news is we're recording the call, and we gave a lot of good information on where we stand with our business overall. We feel pretty good. You may have heard that our partner business this quarter, partner revenue, which is 10% of our overall business, grew 6% in constant currency. As you know, it's made of categories, and I'm summarizing the context to give everyone context to your question. It encompasses telcos selling to telco solutions, our employee benefit strategic relationships, and then retail. Both telcos and employee benefits will continue to grow double digits within that partnership revenue. What you referred to is the fact that we signed a set of new accounts ahead of the enrollment time for employee benefits that usually starts around October to February. We may or may not close bigger deals into new accounts. We have continued to invest in building up our overall coverage of the entire set of companies working through brokers. We have a very healthy funnel. Not different from last year, we will try to aggressively close as many deals as we can. Obviously, when it comes to estimating which deals convert to the full annual guidance, we feel we definitely have a very healthy funnel to cover the forecast for the year.

Got it. That's very helpful. Natalie, maybe for my follow-up for you. Listen, the operating margin also speaks for itself. My question was just maybe on the gross margin. The last couple of quarters, it's just, I don't know, maybe like 100 basis points lower than it's been from the prior few quarters. So maybe the question is, can you talk to just any investments that are going into cost of sales or anything that we should continue there that should anything we should think about as we model growth, the difference between gross margin and OpEx going forward?

Saket, thanks for the question. Yes, I think it is definitely appropriate to call out just what high margins we operate the business from both the gross margin and the operating margin. Operating margin has improved seven points over the last three years, up five points over the last two years. So I think that is the real measure of how we operate. It is a disciplined approach, and we operate with very high margins, and we are committed to that. However, we also said as we navigate the business forward, although we're going to operate the core at those very high margins that we've been increasing to, we also reserve the right to invest in areas of growth that we believe are healthy and will lead us to supporting the five to five growth strategy because everyone wants to see an accelerating rate of growth on the top line. Although you see 86.3% gross margin this quarter, that's flat quarter-over-quarter, down year-over-year, yes, but I would ask that you just zoom out a bit further. Gross margin is relatively stable. If you look back at 22%, you look back at 23%, it's incredibly stable. I would say the only pop that I've seen is just P&L geography of our investments. We will continue to put firepower behind profitable, healthy ROI marketing investments to drive the top of the funnel, and that's all you're seeing with the gross margin variability. I would say, zoom out, look at the overall 86% to 87% range on gross margin and look at the operating margin health and stability that we've delivered over the last few years.

This is John speaking on behalf of Hamza. We are seeing great results in a challenging environment. Vincent, could you elaborate on the growth drivers related to Gen AI that you mentioned in your prepared remarks, particularly regarding brand awareness across various regions? Also, what does the overall opportunity in this area look like?

Yes. Definitely, we've seen—first of all, upstream we have seen a very strong double-digit growth increase on data breaches and data getting into the hands of the overall hacking community. We've seen a surge of increased scams and other things using some of those social engineering techniques to combine data breaches with other private information that may sit on the web, making the scams more and more relatable and personable—and with that, obviously, increasing the risks for consumers. As you know, we've decided to use AI to combat AI, and we launched Norton Genie to detect those scams more and more. We now have well over 1 million users or downloads of that Norton Genie app, and emerging for the second half, we're migrating that to integrate basic anti-scam AI-supported features into multiple product sets. You'll see more and more shift towards using AI to detect AI-generated scams today.

Got it. That's very helpful. And just for my follow-up for Natalie. So net adds were obviously very strong again this quarter. Can you just talk a little bit about the contribution across different geographies? And maybe any color on how you're thinking about net adds tracking throughout the year if you have any visibility?

Sure. I would say it's pretty broad-based. We look at it both online as well as mobile. We look at it by geography. We look at it across brands. I would say when we look at the multi-year trending, we are headed in the right direction. It’s broad-based. We have called out—as we expand in the global expansion portion of our five for five and focus on acquisition not only direct into low-penetrated markets or underdeveloped markets but also through our partner channels. We know that the customers we acquire come in all shapes and sizes, so to speak. We've got to figure out a way to balance those through our model, but what we really focus on is the acquisition coming through with economics we like and that point to health and sustainability. Yes, no matter which pivots you look at, whether it's geography, whether it's brand, or whether it's the way that consumers engage with us. So that's great. In terms of where we're going, I don't guide customer count quarter in, quarter out, but I would point you to our commitment to continue to create the capacity to invest for growth. We are here to accelerate the rate of growth of this business, and there's no way we can do that if we don't focus that fair share at the top of the funnel with net new acquisition. Gross adds, yes, but also net customer adds as we continue to focus on delighting our customers and therefore increasing the retention rate of our existing customers. Both are critically important for our business model, and we will continue to invest in growing the top of the funnel and then servicing our customers all the way through their journey to ensure that they retain at the highest rate possible.

Thank you, operator. As the leading company in consumer cyber safety, we have a bold vision to provide digital freedom for everyone. The threat landscape is more dynamic than ever, and our investments in technology, AI, and product innovation are key to our success and future opportunities. We have a compelling AI-enabled product roadmap focused on security, financial safety, personal data control, and verification. Our go-to-market strategy is effective, and we have a long track record of serving our customers. We are well-positioned to expand the adoption of cyber safety globally with our trusted brands and omnichannel expertise. Thank you for your interest and your support.