Gen Digital (GEN) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited financial statements for the quarterly period ended September 27, 2024, show a 3% year-over-year revenue increase to $974 million, with operating income surging to $402 million due to significantly lower general and administrative expenses Condensed Consolidated Balance Sheets As of September 27, 2024, total assets were $15.47 billion, a slight decrease from March 29, 2024, while total liabilities decreased to $13.37 billion, primarily driven by a reduction in long-term debt Condensed Consolidated Balance Sheet Summary (in millions) | Account | Sep 27, 2024 | Mar 29, 2024 | | :--- | :--- | :--- | | Total Current Assets | $1,222 | $1,358 | | Goodwill | $10,235 | $10,210 | | Intangible assets, net | $2,442 | $2,638 | | Total Assets | $15,471 | $15,793 | | Total Current Liabilities | $3,822 | $2,726 | | Long-term debt | $7,137 | $8,429 | | Total Liabilities | $13,373 | $13,653 | | Total Stockholders' Equity | $2,098 | $2,140 | Condensed Consolidated Statements of Operations For the three months ended September 27, 2024, net revenues increased to $974 million, and operating income substantially rose to $402 million, largely due to reduced general and administrative expenses, resulting in net income of $161 million Statement of Operations Highlights (in millions, except per share data) | Metric | Three Months Ended Sep 27, 2024 | Three Months Ended Sep 29, 2023 | Six Months Ended Sep 27, 2024 | Six Months Ended Sep 29, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $974 | $945 | $1,939 | $1,888 | | Gross Profit | $780 | $765 | $1,555 | $1,529 | | Operating Income (Loss) | $402 | $22 | $819 | $381 | | Net Income (Loss) | $161 | $147 | $342 | $334 | | Diluted EPS | $0.26 | $0.23 | $0.55 | $0.52 | Condensed Consolidated Statements of Comprehensive Income (Loss) For the three months ended September 27, 2024, comprehensive income increased to $169 million, driven by higher net income and a foreign currency translation gain, partially offset by unrealized losses on derivative instruments Comprehensive Income (Loss) Summary (in millions) | Component | Three Months Ended Sep 27, 2024 | Three Months Ended Sep 29, 2023 | | :--- | :--- | :--- | | Net Income (Loss) | $161 | $147 | | Other Comprehensive Income (Loss) | $8 | $(30) | | Comprehensive Income (Loss) | $169 | $117 | Condensed Consolidated Statements of Stockholders' Equity (Deficit) For the six months ended September 27, 2024, total stockholders' equity decreased from $2.14 billion to $2.10 billion, primarily due to common stock repurchases and cash dividends exceeding net income - Key activities impacting stockholders' equity in the first six months of fiscal 2025 included net income of $342 million, offset by stock repurchases of $274 million and cash dividends of $158 million[13] Condensed Consolidated Statements of Cash Flows For the six months ended September 27, 2024, operating activities generated $422 million in cash, while financing activities used $538 million for repurchases, dividends, and debt repayments, resulting in a net decrease of $109 million in cash and cash equivalents Cash Flow Summary (in millions) | Activity | Six Months Ended Sep 27, 2024 | Six Months Ended Sep 29, 2023 | | :--- | :--- | :--- | | Net cash from operating activities | $422 | $351 | | Net cash from investing activities | $(10) | $3 | | Net cash from financing activities | $(538) | $(485) | | Change in cash and cash equivalents | $(109) | $(121) | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, including a prior period revenue recognition revision, the company's $8.6 billion debt structure, derivative instruments, Avast acquisition restructuring updates, and a $591 million accrual for a patent infringement case - The company revised prior period financial statements to correct a non-material error in revenue recognition timing, which decreased retained earnings as of March 29, 2024, by $57 million[25] - As of September 27, 2024, the company had $1,232 million in remaining performance obligations, of which 94% is expected to be recognized as revenue over the next 12 months[30] - The company's total debt principal outstanding was $8.6 billion as of September 27, 2024, with significant maturities in fiscal 2026 ($1.4B), 2028 ($4.0B), and thereafter ($2.8B)[55][57] - Under the September 2022 restructuring plan related to the Avast acquisition, the company has incurred $126 million in costs out of an expected total of up to $150 million, with actions expected to be complete by the end of fiscal 2025[68] - The company has accrued an estimated probable loss of approximately $591 million for the patent infringement case with Columbia University, which is recorded in Other long-term liabilities[91] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 3% year-over-year revenue growth in Q2 to higher sales in consumer security and identity protection products, with a significant increase in operating income primarily due to the absence of a $335 million legal cost incurred in the prior-year quarter Q2 FY2025 Financial Highlights (in millions) | Metric | Q2 FY2025 | Q2 FY2024 | | :--- | :--- | :--- | | Net Revenues | $974 | $945 | | Operating Income | $402 | $22 | | Net Income | $161 | $147 | Key Performance Metrics (Q2 FY2025 vs Q2 FY2024) | Metric | Q2 FY2025 | Q2 FY2024 | | :--- | :--- | :--- | | Direct Customer Count (millions) | 39.7 | 38.5 | | Direct ARPU | $7.26 | $7.25 | | Retention Rate | 78% | 77% | - The $329 million decrease in Q2 General and Administrative expenses was primarily due to the absence of $335 million in legal costs related to the Columbia University litigation that were recorded in the prior-year quarter[114] - For the first six months of fiscal 2025, cash from operations increased by $71 million year-over-year to $422 million, while cash used in financing increased by $53 million to $538 million, driven by a $231 million increase in stock repurchases[119][120][122] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company is primarily exposed to interest rate risk from its $6.0 billion variable-rate debt, which it mitigates using interest rate swaps, and foreign currency exchange rate risk from global operations, managed through forward contracts - The company has $6,022 million in variable-rate debt, where a 100 basis point change in the SOFR would result in a $60 million change in annualized interest expense[133] - To manage interest rate risk, the company entered into interest rate swap agreements, effectively converting $1 billion of variable-rate borrowings to fixed rates until March 2026[133] - The company is exposed to foreign currency fluctuations, primarily in the Euro, Japanese Yen, British Pound, and other currencies, and uses monthly forward contracts to hedge balance sheet exposure[135] Item 4. Controls and Procedures As of September 27, 2024, the CEO and CFO concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[136] - No changes in internal control over financial reporting occurred during the second quarter of fiscal 2025 that materially affected, or are reasonably likely to materially affect, internal controls[137] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section incorporates detailed legal matters from Note 17, including the Columbia University patent case, the GSA investigation, and various regulatory and class action matters related to Avast's former subsidiary, Jumpshot - Information regarding legal proceedings is detailed in Note 17, "Commitments and Contingencies," of the Notes to the Condensed Consolidated Financial Statements[139] Item 1A. Risk Factors The company identifies key risks including intense competition, challenges in developing new solutions and integrating acquisitions, dependence on customer retention, cybersecurity threats, compliance with global privacy laws, reliance on key personnel, substantial debt, and exposure to interest rate fluctuations - The company operates in a highly competitive environment and must continually innovate, particularly with evolving technologies like AI, to maintain its market position[141][142] - Acquisitions, such as the one of Avast, present significant risks related to integration, realizing synergies, and assuming liabilities[142] - The business is subject to cybersecurity events targeting its own systems, which could harm its reputation, and must comply with a growing number of stringent privacy and data security laws globally[149][150] - The company's substantial indebtedness of $8.6 billion as of September 27, 2024, poses risks related to debt service, compliance with covenants, and exposure to interest rate volatility[160] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In May 2024, the Board authorized a new $3 billion stock repurchase program, with $2.728 billion remaining available as of September 27, 2024, and no shares repurchased during the three-month period ending September 27, 2024 - A new $3 billion stock repurchase program was authorized in May 2024, with $2,728 million remaining as of September 27, 2024[169] - No stock repurchases were made during the three months ended September 27, 2024[169] Item 5. Other Information During the quarter, Chief Legal Officer Bryan Ko adopted a Rule 10b5-1 trading arrangement on August 27, 2024, for the potential sale of up to 101,208 shares, with an expiration date of August 27, 2025 - On August 27, 2024, Chief Legal Officer Bryan Ko adopted a Rule 10b5-1 trading plan to sell up to 101,208 shares[170] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications required by the Sarbanes-Oxley Act and financial statements formatted in iXBRL - The exhibits filed with the report include CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, as well as iXBRL data files[173]