NortonLifeLock : Transcript

Corrected Transcript

06-Dec-2022

Gen Digital Inc. (GEN)

NASDAQ Investor Conference

	Total Pages: 12
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Gen Digital Inc. (GEN)	Corrected Transcript
NASDAQ Investor Conference	06-Dec-2022

CORPORATE PARTICIPANTS

Vincent Pilette

Chief Executive Officer & Director, Gen Digital Inc.

Ondrej Vlcek

President & Director, Gen Digital Inc.

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OTHER PARTICIPANTS

Hamza Fodderwala

Analyst, Morgan Stanley & Co. LLC

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MANAGEMENT DISCUSSION SECTION

Hamza Fodderwala

Analyst, Morgan Stanley & Co. LLC

Well, good morning, everybody. Thank you for joining us and welcome to the Nasdaq Conference in Association Morgan Stanley. My name Hamza Fodderwala, I'm the Cybersecurity Analyst here at Morgan Stanley. And we are very pleased this morning to have the team from Gen Digital. We have the CEO of Gen Digital, Vincent Pilette; as well as the President, Ondrej Vlcek, who is also the former CEO of Avast. Thank you so much for joining us, gentlemen.

Before we begin, I do have to read a brief disclosures. For important disclosures, please visit the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. So with that, we'll kick it off.

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Gen Digital Inc. (GEN)	Corrected Transcript
NASDAQ Investor Conference	06-Dec-2022

QUESTION AND ANSWER SECTION

Hamza Fodderwala

Analyst, Morgan Stanley & Co. LLC

Q

So, Vincent, maybe I'll start with you to kind of level set everybody here who may not have been following the story as closely in the last couple of years. Can you give us sort of a quick recap of some of the major changes that have gone on to really evolve what was once NortonLifeLock into Gen Digital? And how do you feel that the company today is appropriately prepared for where the consumer security market is evolving into for the next 10 years?

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Vincent Pilette

Chief Executive Officer & Director, Gen Digital Inc.

A

Yeah. Thanks for your question and good morning, everyone. This is actually the first time I'm doing conference in-person since COVID, so I'm as excited as the first time I did that 15 years ago as a CFO, the same goosebumps. And it's also the beginning of a new chapter, as you mentioned, as we just launched Gen Digital as a new company coming from the merger of Avast and NortonLifeLock.

Three years ago, NortonLifeLock, which was a division of Symantec, realized there were three trends that were happening in the market. The first one is that consumers were spending more and more time online in many different ways, not just banking or shopping but also learning and socializing, and that created an exposure for themselves. The second trend is that the hacking activities were becoming more and more sophisticated. It was not just being a malware on a device to log the device and do other things. It was about phishing, scamming and taking data in multiple areas to really create a risk for the users, not for your device.

And the third one is that hacking was becoming a profession. It was not anymore a fun activity to lock computers and be in the news, but it was really about now having tools, even renting tools to do some damages and get some proceeds, and then using the Dark Web as kind of the gray market to reselling those proceeds. And those three trends were increasing the risk for consumers. So, at that time, three years ago, we decided to sell the Symantec enterprise business and set up NortonLifeLock as a standalone company dedicated to the protection, digital protection of the consumers' life.

We set a strategy to be just the best Cyber Safety platform for consumers, full stop, and then built adjacent services on top of that, that would increase in value because they would be in a trusted environment. We launched three years ago Norton 360, the first integrated Cyber Safety protection for the users, for the human being, that for a membership fee, you could benefit from all of the innovation and the evolution of the environment.

We accelerated our marketing activities to really drive that notion. Over the last three years, we returned the company to a mid- to high-single-digit growth rate, turned about, at the time, 23 million consumers, paid consumers to adopt 60% ratio this Norton 360 membership concept and really focused on that. Strong from our success, we looked at other companies and say, okay, what are we missing to be able to be that best Cyber Safety platform for consumers?

And that's when we met with Ondrej who had similar views, and he will tell you about the strategy, and say, hey, if we come together, we're going to increase the scale of that platform from about 23 million paid customers to 65 million paid customers and from roughly 80 million free users to over 0.5 billion users. The scale would give us the

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Gen Digital Inc. (GEN)	Corrected Transcript
NASDAQ Investor Conference	06-Dec-2022

advantage to increase our innovation, be more global, expand what is still known as cybersecurity into Cyber Safety which includes identity, privacy and other elements of that protection.

And early September, that's what we did. We closed the acquisition of Avast, which we really positioned as a merger, bringing the best of both company and be really well positioned to tackle this new challenge, which is building adjacent, trust-based services on top of the Cyber Safety platform.

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Hamza Fodderwala

Analyst, Morgan Stanley & Co. LLC

Q

Got it. So, this is no longer your grandfather's antivirus market, if you will. This is a holistic consumer cybersecurity platform that's protecting not only your device but your online identity, your online footprint in general. Ondrej, I want to bring you in the conversation. So, you started Avast long after McAfee and what was formerly known as Norton began, and you saw this sort of shift towards wanting to have more consumer security as more and more people were using the Internet. Can you just give us a sense of where you see the market heading and what made you want to start a consumer security company in the first place?

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Ondrej Vlcek

President & Director, Gen Digital Inc.

A

Yeah, absolutely. Thank you. Well, first of all, what I think is that the situation has really changed compared to when we started. When this company started, obviously, cybersecurity was a pretty niche thing and also technology was a niche thing kind of for IT specialist, et cetera. Today, we're totally surrounded by technology. In fact, technology or software, shall we say, is the elementary, basic fabric from which our society is built and [ph] emboldened (00:05:52).

And so that has some far reaching consequences when it comes to risk related to cyber. The way Avast was built with the freemium model in the first place was to disrupt the kind of muddy waters of the Symantecs and McAfees of this world back then in the early 2000s. The freemium model has proven to be very viable, in fact, today has become sort of standard for all sorts of categories of software including mobile, where you see probably more software titles being offered initially for free and then upgraded to paid versions. That model in security was novel though when we introduced it and has kind of led to the success of the company.

Now, moving forward, to Vincent's point, we absolutely see that the set of problems that consumers are facing cyber-wise has extended well beyond antivirus or binary threats. In fact, this year, it's probably the first year where we are seeing a slight decline in the number of threats, binary threats such as viruses, et cetera. I mean, for many years, they have - or for 30 years, consecutively, they have grown. At the same time, the number of threats that are more cognitive threats or that are using social engineering tricks that are somehow trying to trick people into doing something have grown substantially.

So, overall, the cyber problem has become much worse but the way these attackers work has changed dramatically from binary malware to more social engineering, to more phishing threats and all sorts of other things that - technical details that we probably don't have the time to discuss. But for us, the elementary, the basic thing is to figure out how to protect consumers against all these kind of threats independent of how they are happening, when they are happening or what other means the attackers are engaging.

So really being proactive and understanding those, and giving it as a service to the consumer with no real expectation that the consumer understand this stuff. For us, our promise to the consumer is that we'll take care of their security needs, privacy needs, safety needs, and it's our job to come up with all the solutions in a holistic way

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Gen Digital Inc. (GEN)	Corrected Transcript
NASDAQ Investor Conference	06-Dec-2022

and bundle them in such a way which is kind of through the membership, people can get real peace of mind. That kind of is the brand promise that we have here.

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Hamza Fodderwala

Analyst, Morgan Stanley & Co. LLC

Q

Got it, got it. So the name Gen Digital stands for Generation Digital, which is basically every generation, whether it's Gen X to Gen Y, et cetera, needs to have some sort of consumer cybersecurity. I think the one pushback I get from investors is, well, you have native security features in Microsoft or Google or Apple, and you touched on this a little bit already, but why pay sort of premium, let's say, for a solution like Gen Digital?

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Vincent Pilette

Chief Executive Officer & Director, Gen Digital Inc.

A

And I think all of the applications that they have, some sort of security or safety of some form, but the primary mission is to deliver the value of the services, so whatever that is. And security is kind of a minimum table stake that you have - you need to have. Our sole mission is to provide that consumer Cyber Safety wherever it's coming from. Our entire 2,000 engineers and overall budget is dedicated to really focusing on all the threats, wherever they're coming from, without biases and providing that overall safety umbrella that consumer would want to have.

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Hamza Fodderwala

Analyst, Morgan Stanley & Co. LLC

Q

Got it. Okay. So when you think about sort of the market opportunity, so you mentioned you had about 25 million subscribers that are directly paying you, and then I think you guys had about 15 million or 20 million. But there's probably over 100 million households in the US alone, there's billions of users. Where do you think you can get to from a paid customer penetration standpoint as a combined company over time?

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Vincent Pilette

Chief Executive Officer & Director, Gen Digital Inc.

A

[ph] The thing (00:10:10) we first look at - rather than looking at where we're starting from, first look at whoever is connected to the digital world would have some sort of risk or exposures. And there are five billion people that have some sort of digital lives and consciously or unconsciously are leaving digital footprint here and there and are creating exposure. Our view is that normally, five billion users should use an overall Cyber Safety umbrella or protection if they don't want to carry some risks.

That's where the freemium model becomes very interesting for us. It's kind of the top of the funnel where we can give a first taste of a total Cyber Safety protection to consumers and then add value as we go. You mentioned we have about 65 million paid customers, some are direct customers, some are through indirect solutions. And then we have 40 million paid customers that directly benefit from our total portfolio. And I think again our goal and our mission is that five billion Internet user can say, yes, I have peace of mind. If I have an issue in digital world, I know what to do and where to go.

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Ondrej Vlcek

President & Director, Gen Digital Inc.

A

That's kind of the main idea behind the new name, Generation Digital, as in everyone who's connected to the Internet really is - I mean, the aspiration for us is to ultimately serve all these people.

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