Gen Increases and Accelerates Synergy Targets
for Avast Acquisition Closed in September
TEMPE,
Ariz. and PRAGUE,
Nov. 8,
2022 /PRNewswire/ -- Gen Digital Inc. (NASDAQ: GEN)
released its results for the second quarter of Fiscal Year 2023,
which ended Sept. 30, 2022. This
marks the company's first earnings since becoming Gen™, a new
company dedicated to powering Digital Freedom for people
everywhere. Gen unites trusted names in Cyber Safety – Norton,
Avast, LifeLock, Avira, AVG, ReputationDefender and CCleaner.
"This week marks the next chapter for our company and its
expanded purpose to power Digital Freedom," said Vincent Pilette, CEO of Gen. "While the digital
world has made our lives simpler in so many ways, it's also created
new threats, complexity and exposure. As Gen, we're committed to
bringing our energy, credibility, and innovation to boldly tackle
these challenges. We won't rest until we bring Cyber Safety, and
more, to everyone."
Q2 Financial Highlights YoY
Q2 GAAP revenue was $748 million,
up 8% in USD. Q2 GAAP diluted EPS from continuing operations was
$0.12, compared to $0.56 a year ago, which included $175 million gain from building sales. First half
fiscal year 2023 operating cash flow was $127 million.
Q2 Non-GAAP YoY
- Revenue of $748 million, up 8% in
USD and 12% in CC
- Bookings of $719 million, up 6%
in USD and 11% in CC
- Operating Income of $388 million,
up 7% in USD and 13% in CC
- Diluted EPS of $0.45, up 5% in
USD and 12% in CC
"This quarter marks our 13th consecutive quarter of bookings
growth. We continue to improve the structural profitability of our
business model despite a challenging macroeconomic environment,"
said Natalie Derse, CFO of Gen. "The
Avast integration is off to a great start and we've already
identified additional cost synergies and revenue opportunities. Our
broad product portfolio, diverse distribution channels, and
relentless focus on execution position us very well to unlock value
for our customers and shareholders."
Cost Synergies Opportunity Update
Annual cost synergies increased to $300 million+ with additional
upside potential from new reinvestment capacity for innovation and
growth. The expected integration timeline is also shortened to 18
months.
Non-GAAP Q3 FY23 Guidance & Long-Term Target
- Q3 FY23 Revenue expected to be in the range of $925 million to $940
million, reflecting the first full quarter of Avast
- Q3 FY23 EPS expected to be in the range of $0.42 to $0.45
- Targeting annualized EPS of approximately $3 exiting fiscal year 2025
Quarterly Cash Dividend
Gen's Board of Directors has declared a quarterly cash dividend
of $0.125 per common share to be paid
on December 14, 2022, to all
shareholders of record as of the close of business on November 21, 2022.
Q2 Earnings Call
November 8, 2022
2 p.m. PT / 5
p.m. ET
Webcast & Dial-In: Investor.GenDigital.com. A
replay will be posted following the call.
For additional details regarding Gen's results and outlook, please
see the Financials section of the Investor Relations website at
Investor.GenDigital.com.
About Gen
Gen (NASDAQ: GEN) is a global company dedicated to powering
Digital Freedom through its trusted Cyber Safety brands, Norton,
Avast, LifeLock, Avira, AVG, ReputationDefender and CCleaner.
There's a new generation, and it's not Gen X, Y, or Z. It's Gen D:
Generation Digital. Gen's family of consumer brands is rooted in
providing safety for the first digital generations. Now, Gen
empowers people to live their digital lives safely, privately, and
confidently today and for generations to come. Gen brings
award-winning products and services in cybersecurity, online
privacy and identity protection to more than 500 million users in
more than 150 countries. Learn more at GenDigital.com.
Forward-Looking Statements
This press release contains statements which may be considered
forward-looking within the meaning of the U.S. federal securities
laws. In some cases, you can identify these forward-looking
statements by the use of terms such as "expect," "will,"
"continue," or similar expressions, and variations or negatives of
these words, but the absence of these words does not mean that a
statement is not forward-looking. All statements other than
statements of historical fact are statements that could be deemed
forward-looking statements, including, but not limited to: the
statements under "Cost Synergies Opportunity Update" and "Non-GAAP
Q3 FY23 Guidance & Long-Term Target," including expectations
relating to annual cost synergies from and timeline of the Avast
integration, Q3 FY23 non-GAAP revenue, non-GAAP EPS and targeted
annualized EPS existing fiscal year 2025, and any statements of
assumptions underlying any of the foregoing. These statements are
subject to known and unknown risks, uncertainties and other factors
that may cause our actual results, levels of activity, performance
or achievements to differ materially from results expressed or
implied in this press release. Such risk factors include, but are
not limited to, those related to: the impact of acquisitions and
our ability to achieve expected synergies and associated cost
savings; retention of executive leadership team members;
difficulties in improving sales and product development;
difficulties in executing the operating model for the consumer
cyber safety business; lower than anticipated returns from the
Company's investments in direct customer acquisition; difficulties
and delays in reducing run rate expenses and monetizing
underutilized assets; the timing and market acceptance of new
product releases and upgrades; the successful development of new
products and the degree to which these products gain market
acceptance; the ability to maintain customer and partner
relationships; the ability of Gen to achieve its cost and operating
efficiency goals; the anticipated growth of certain market
segments; fluctuations in interest rates, tax rates and foreign
currency exchange rates; fluctuations and volatility in Gen's stock
price; the ability of Gen to successfully execute strategic plans;
general business and economic conditions, including economic
recessions and inflationary pressures; the current and future
impact of the COVID-19 pandemic on the Company's business and
industry; and the potential for corporate tax increases under the
Biden Administration. Additional information concerning these and
other risk factors is contained in the Risk Factors sections of
Gen's most recent reports on Form 10-K and Form 10-Q. Gen assumes
no obligation, and does not intend, to update these forward-looking
statements as a result of future events or developments.
Use of Non-GAAP Financial Information
We use non-GAAP measures of operating margin, net income and
earnings per share, which are adjusted from results based on GAAP
and exclude certain expenses, gains and losses. We also provide the
non-GAAP metrics of revenues, constant currency revenues, and free
cash flow, which is defined as cash flows from operating
activities, less purchases of property and equipment. These
non-GAAP financial measures are provided to enhance the user's
understanding of our past financial performance and our prospects
for the future. Our management team uses these non-GAAP financial
measures in assessing Gen's performance, as well as in planning and
forecasting future periods. These non-GAAP financial measures are
not computed according to GAAP and the methods we use to compute
them may differ from the methods used by other companies. Non-GAAP
financial measures are supplemental, should not be considered a
substitute for financial information presented in accordance with
GAAP and should be read only in conjunction with our condensed
consolidated financial statements prepared in accordance with GAAP.
Readers are encouraged to review the reconciliation of our non-GAAP
financial measures to the comparable GAAP results, which is
attached to our quarterly earnings release, and which can be found,
along with other financial information including the Earnings
Presentation, on the investor relations page of our website
at Investor.GenDigital.com. No reconciliation of the
forecasted range for non-GAAP EPS guidance is included in this
release because most non-GAAP adjustments pertain to events that
have not yet occurred. It would be unreasonably burdensome to
forecast, therefore we are unable to provide an accurate
estimate.
GEN DIGITAL
INC.
Condensed Consolidated Balance Sheets
(Unaudited, in millions)
|
|
|
|
|
|
|
September 30,
2022
|
|
April 1, 2022
|
ASSETS
|
Current
assets:
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
|
|
$
1,095
|
|
$
1,887
|
Short-term
investments
|
|
|
|
|
—
|
|
4
|
Accounts receivable,
net
|
|
|
|
|
152
|
|
120
|
Other current
assets
|
|
|
|
|
345
|
|
193
|
Assets held for
sale
|
|
|
|
|
30
|
|
56
|
Total current
assets
|
|
|
|
|
1,622
|
|
2,260
|
Property and equipment,
net
|
|
|
|
|
108
|
|
60
|
Operating lease
assets
|
|
|
|
|
50
|
|
74
|
Intangible assets,
net
|
|
|
|
|
3,332
|
|
1,023
|
Goodwill
|
|
|
|
|
10,126
|
|
2,873
|
Other long-term
assets
|
|
|
|
|
644
|
|
653
|
Total
assets
|
|
|
|
|
$
15,882
|
|
$
6,943
|
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
|
|
$
66
|
|
$
63
|
Accrued compensation
and benefits
|
|
|
|
|
111
|
|
81
|
Current portion of
long-term debt
|
|
|
|
|
175
|
|
1,000
|
Contract
liabilities
|
|
|
|
|
1,597
|
|
1,264
|
Current operating
lease liabilities
|
|
|
|
|
24
|
|
18
|
Other current
liabilities
|
|
|
|
|
852
|
|
639
|
Total current
liabilities
|
|
|
|
|
2,825
|
|
3,065
|
Long-term
debt
|
|
|
|
|
9,883
|
|
2,736
|
Long-term contract
liabilities
|
|
|
|
|
87
|
|
42
|
Deferred income tax
liabilities
|
|
|
|
|
392
|
|
75
|
Long-term income taxes
payable
|
|
|
|
|
913
|
|
996
|
Long-term operating
lease liabilities
|
|
|
|
|
41
|
|
75
|
Other long-term
liabilities
|
|
|
|
|
43
|
|
47
|
Total
liabilities
|
|
|
|
|
14,184
|
|
7,036
|
Total stockholders'
equity (deficit)
|
|
|
|
|
1,698
|
|
(93)
|
Total liabilities and
stockholders' equity (deficit)
|
|
|
|
|
$
15,882
|
|
$
6,943
|
|
|
|
GEN DIGITAL
INC. Condensed Consolidated Statements of
Operations (Unaudited, in millions, except per share
amounts)
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
September 30,
2022
|
|
October 1,
2021
|
|
September 30,
2022
|
|
October 1,
2021
|
Net revenues
|
$
748
|
|
$
692
|
|
$
1,455
|
|
$
1,378
|
Cost of
revenues
|
119
|
|
100
|
|
221
|
|
202
|
Gross
profit
|
629
|
|
592
|
|
1,234
|
|
1,176
|
Operating
expenses:
|
|
|
|
|
|
|
|
Sales and
marketing
|
167
|
|
150
|
|
323
|
|
306
|
Research and
development
|
73
|
|
66
|
|
134
|
|
134
|
General and
administrative
|
110
|
|
63
|
|
214
|
|
108
|
Amortization of
intangible assets
|
29
|
|
21
|
|
50
|
|
42
|
Restructuring and
other costs
|
9
|
|
5
|
|
11
|
|
12
|
Total operating
expenses
|
388
|
|
305
|
|
732
|
|
602
|
Operating income
(loss)
|
241
|
|
287
|
|
502
|
|
574
|
Interest
expense
|
(48)
|
|
(31)
|
|
(79)
|
|
(63)
|
Other income
(expense), net
|
2
|
|
177
|
|
1
|
|
174
|
Income (loss) before
income taxes
|
195
|
|
433
|
|
424
|
|
685
|
Income tax expense
(benefit)
|
126
|
|
100
|
|
155
|
|
171
|
Net income
(loss)
|
$
69
|
|
$
333
|
|
$
269
|
|
$
514
|
|
|
|
|
|
|
|
|
Net income (loss) per
share - basic
|
$
0.12
|
|
$
0.57
|
|
$
0.46
|
|
$
0.88
|
Net income (loss) per
share - diluted
|
$
0.12
|
|
$
0.56
|
|
$
0.45
|
|
$
0.87
|
|
|
|
|
|
|
|
|
Weighted-average shares
outstanding:
|
|
|
|
|
|
|
|
Basic
|
590
|
|
582
|
|
583
|
|
581
|
Diluted
|
595
|
|
591
|
|
599
|
|
591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GEN DIGITAL
INC. Condensed Consolidated Statements of Cash
Flows (Unaudited, in millions)
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
September 30,
2022
|
|
October 1,
2021
|
|
September 30,
2022
|
|
October 1,
2021
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
Net income
|
$
69
|
|
$
333
|
|
$
269
|
|
$
514
|
Adjustments:
|
|
|
|
|
|
|
|
Amortization and
depreciation
|
49
|
|
35
|
|
78
|
|
71
|
Impairments and
write-offs of current and long-lived assets
|
(5)
|
|
3
|
|
(5)
|
|
3
|
Stock-based
compensation expense
|
29
|
|
13
|
|
53
|
|
33
|
Deferred income
taxes
|
(19)
|
|
12
|
|
(51)
|
|
13
|
Loss (gain) on
extinguishment of debt
|
9
|
|
—
|
|
9
|
|
5
|
Gain on sale of
property
|
—
|
|
(175)
|
|
—
|
|
(175)
|
Non-cash operating
lease expense
|
7
|
|
6
|
|
11
|
|
11
|
Other
|
(19)
|
|
(2)
|
|
(45)
|
|
5
|
Changes in operating
assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
Accounts receivable,
net
|
4
|
|
(3)
|
|
17
|
|
9
|
Accounts
payable
|
(27)
|
|
3
|
|
(18)
|
|
27
|
Accrued compensation
and benefits
|
35
|
|
6
|
|
3
|
|
(36)
|
Contract
liabilities
|
(32)
|
|
(13)
|
|
(85)
|
|
(47)
|
Income taxes
payable
|
(151)
|
|
(118)
|
|
(91)
|
|
(97)
|
Other
assets
|
9
|
|
(46)
|
|
9
|
|
(5)
|
Other
liabilities
|
(46)
|
|
6
|
|
(27)
|
|
(13)
|
Net cash provided by
(used in) operating activities
|
(88)
|
|
60
|
|
127
|
|
318
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
Purchases of property
and equipment
|
(2)
|
|
(1)
|
|
(4)
|
|
(2)
|
Payments for
acquisitions, net of cash acquired
|
(6,550)
|
|
(40)
|
|
(6,550)
|
|
(40)
|
Proceeds from the
maturities and sales of short-term investments
|
—
|
|
—
|
|
4
|
|
4
|
Proceeds from the sale
of property
|
—
|
|
355
|
|
—
|
|
355
|
Other
|
2
|
|
—
|
|
4
|
|
(4)
|
Net cash provided by
(used in) investing activities
|
(6,550)
|
|
314
|
|
(6,546)
|
|
313
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
Repayments of
debt
|
(2,328)
|
|
(10)
|
|
(2,738)
|
|
(382)
|
Proceeds from issuance
of debt, net of issuance costs
|
8,954
|
|
—
|
|
8,954
|
|
512
|
Net proceeds from
sales of common stock under employee stock incentive
plans
|
6
|
|
7
|
|
6
|
|
8
|
Tax payments related
to vesting of restricted stock units
|
—
|
|
(1)
|
|
(16)
|
|
(14)
|
Dividends and dividend
equivalents paid
|
(72)
|
|
(73)
|
|
(153)
|
|
(157)
|
Repurchases of common
stock
|
(104)
|
|
—
|
|
(404)
|
|
—
|
Net cash provided by
(used in) financing activities
|
6,456
|
|
(77)
|
|
5,649
|
|
(33)
|
Effect of exchange rate
fluctuations on cash and cash equivalents
|
(14)
|
|
(1)
|
|
(22)
|
|
(5)
|
Change in cash and cash
equivalents
|
(196)
|
|
296
|
|
(792)
|
|
593
|
Beginning cash and cash
equivalents
|
1,291
|
|
1,230
|
|
1,887
|
|
933
|
Ending cash and cash
equivalents
|
$
1,095
|
|
$
1,526
|
|
$
1,095
|
|
$
1,526
|
GEN DIGITAL
INC. Reconciliation of Selected GAAP Measures to Non-GAAP
Measures (1) (2) (Unaudited, in
millions, except per share amounts)
|
|
|
|
|
Three Months
Ended
|
|
|
|
September 30,
2022
|
|
October 1,
2021
|
Operating income
(loss)
|
|
|
$
241
|
|
$
287
|
Contract liabilities
fair value adjustment
|
|
|
—
|
|
3
|
Stock-based
compensation
|
|
|
29
|
|
13
|
Amortization of
intangible assets
|
|
|
45
|
|
32
|
Restructuring and
other costs
|
|
|
9
|
|
5
|
Acquisition and
integration costs
|
|
|
58
|
|
21
|
Litigation
costs
|
|
|
7
|
|
1
|
Other
|
|
|
(1)
|
|
1
|
Operating income
(loss) (Non-GAAP)
|
|
|
$
388
|
|
$
363
|
|
|
|
|
|
|
Operating
margin
|
|
|
32.2 %
|
|
41.5 %
|
Operating margin
(Non-GAAP)
|
|
|
51.9 %
|
|
52.2 %
|
|
|
|
|
|
|
Net income
(loss)
|
|
|
$
69
|
|
$
333
|
Adjustments to net
income (loss):
|
|
|
|
|
|
Contract liabilities
fair value adjustment
|
|
|
—
|
|
3
|
Stock-based
compensation
|
|
|
29
|
|
13
|
Amortization of
intangible assets
|
|
|
45
|
|
32
|
Restructuring and
other costs
|
|
|
9
|
|
5
|
Acquisition and
integration costs
|
|
|
58
|
|
21
|
Litigation
costs
|
|
|
7
|
|
1
|
Other
|
|
|
(10)
|
|
1
|
Non-cash interest
expense
|
|
|
3
|
|
2
|
Loss (gain) on
extinguishment of debt
|
|
|
9
|
|
—
|
Gain on sale of
properties
|
|
|
—
|
|
(175)
|
Total adjustments to
GAAP income (loss) before income taxes
|
|
|
150
|
|
(97)
|
Adjustment to GAAP
provision for income taxes
|
|
|
50
|
|
19
|
Total adjustment to
income (loss), net of taxes
|
|
|
200
|
|
(78)
|
Net income (loss)
(Non-GAAP)
|
|
|
$
269
|
|
$
255
|
|
|
|
|
|
|
Diluted net income
(loss) per share
|
|
|
$
0.12
|
|
$
0.56
|
Adjustments to diluted
net income (loss) per share:
|
|
|
|
|
|
Contract liabilities
fair value adjustment
|
|
|
—
|
|
0.01
|
Stock-based
compensation
|
|
|
0.05
|
|
0.02
|
Amortization of
intangible assets
|
|
|
0.08
|
|
0.05
|
Restructuring and
other costs
|
|
|
0.02
|
|
0.01
|
Acquisition and
integration costs
|
|
|
0.10
|
|
0.04
|
Litigation
costs
|
|
|
0.01
|
|
0.00
|
Other
|
|
|
(0.02)
|
|
0.00
|
Non-cash interest
expense
|
|
|
0.01
|
|
0.00
|
Loss (gain) on
extinguishment of debt
|
|
|
0.02
|
|
—
|
Gain on sale of
properties
|
|
|
—
|
|
(0.30)
|
Total adjustments to
GAAP income (loss) before income taxes
|
|
|
0.25
|
|
(0.16)
|
Adjustment to GAAP
provision for income taxes
|
|
|
0.08
|
|
0.03
|
Total adjustment to
income (loss), net of taxes
|
|
|
0.34
|
|
(0.13)
|
Diluted net income
(loss) per share (Non-GAAP)
|
|
|
$
0.45
|
|
$
0.43
|
|
|
|
|
|
|
Diluted
weighted-average shares outstanding
|
|
|
595
|
|
591
|
Diluted
weighted-average shares outstanding (Non-GAAP)
|
|
|
595
|
|
591
|
___________________________
|
(1) This presentation
includes non-GAAP measures. Non-GAAP financial measures are
supplemental and should not be
considered a substitute for financial
information presented in accordance with GAAP. For a detailed
explanation of these
non-GAAP measures, see Appendix A.
|
(2) Amounts may not add
due to rounding.
|
|
|
|
GEN DIGITAL
INC. Revenues and Cyber Safety
Metrics (Unaudited, in millions, except per user
data)
|
|
Revenues
(Non-GAAP)
|
|
|
|
|
|
|
Three Months
Ended
|
|
September 30,
2022
|
|
October 1,
2021
|
|
Variance in
%
|
Revenues
|
$
748
|
|
$
692
|
|
8 %
|
Contract liabilities
fair value adjustment (1)
|
—
|
|
3
|
|
|
Revenues
(Non-GAAP)
|
748
|
|
695
|
|
8 %
|
Exclude foreign
exchange impact (2)
|
31
|
|
—
|
|
|
Constant currency
adjusted revenues (Non-GAAP)
|
$
779
|
|
$
695
|
|
12 %
|
|
Cyber Safety
Metrics
|
|
|
|
|
|
|
|
|
Three Months Ended
(3)
|
|
|
|
September 30,
2022 (4)
|
|
October 1,
2021
|
Direct customer
revenues
|
|
|
$
660
|
|
$
619
|
Partner
revenues
|
|
|
$
74
|
|
$
64
|
Total Cyber Safety
revenues
|
|
|
$
734
|
|
$
683
|
Legacy
revenues
|
|
|
$
14
|
|
$
12
|
Direct customer count
(at quarter end)
|
|
|
38.6
|
|
24.0
|
Direct average revenue
per user (ARPU)
|
|
|
$
6.98
|
|
$
8.63
|
___________________________
|
(1)
|
Contract liabilities
fair value adjustment represents the quarterly Avira deferred
revenue haircut amortization recognized during
the quarter.
|
(2)
|
Calculated using year
ago foreign exchange rates.
|
(3)
|
From time to time,
changes in our product hierarchy cause changes to the revenue
channels above. When changes occur,
we recast historical amounts to match the current revenue channels.
Direct revenues currently includes Mobile App Store
customers, and legacy revenues includes revenues from products or
solutions that are no longer in operations in exited
markets, have been discontinued or identified to be discontinued,
or remain in maintenance mode as a result of integration
and product portfolio decisions. As such, the changes to historical
revenue amounts and the other performance metrics,
including direct customer count and ARPU, are reflected for all
periods presented above.
|
(4)
|
The performance metrics
for the three months ended September 30, 2022 include the revenues
earned and customers
acquired through our Merger with Avast. ARPU is based on average
customer count and assumes full quarter of revenue
for both companies.
|
|
|
GEN DIGITAL INC.
Appendix
A
Explanation of Non-GAAP Measures and Other
Items
Objective of non-GAAP measures: We believe our
presentation of non-GAAP financial measures, when taken together
with corresponding GAAP financial measures, provides meaningful
supplemental information regarding the Company's operating
performance for the reasons discussed below. Our management team
uses these non-GAAP financial measures in assessing our
performance, as well as in planning and forecasting future periods.
Due to the importance of these measures in managing the business,
we use non-GAAP measures in the evaluation of management's
compensation. These non-GAAP financial measures are not computed
according to GAAP and the methods we use to compute them may differ
from the methods used by other companies. Non-GAAP financial
measures are supplemental and should not be considered a substitute
for financial information presented in accordance with GAAP and
should be read only in conjunction with our condensed consolidated
financial statements prepared in accordance with GAAP.
Contract liabilities adjustment: Our non-GAAP net revenues
eliminate the impact of contract liabilities purchase accounting
adjustments. Prior to our adoption of ASU 2021-08 in fiscal 2022,
GAAP required an adjustment to the liability for acquired contract
liabilities such that the liability approximates how much we, the
acquirer, would have to pay a third party to assume the liability.
We believe that eliminating the impact of this adjustment improves
the comparability of revenues between periods. Also, although the
adjustment amounts will never be recognized in our GAAP financial
statements, we do not expect the acquisitions to affect the future
renewal rates of revenues excluded by the adjustments. In addition,
our management uses non-GAAP net revenues, adjusted for the impact
of purchase accounting adjustments to assess our operating
performance and overall revenue trends. Nevertheless, non-GAAP net
revenues has limitations as an analytical tool and should not be
considered in isolation or as a substitute for GAAP net revenues.
We believe these adjustments are useful to investors as an
additional means to reflect revenue trends of our business.
However, other companies in our industry may not calculate these
measures in the same manner which may limit their usefulness for
comparative purposes. Our acquisition of Avira during the fourth
quarter of fiscal 2021 was the last acquisition pre-adoption of the
new literature.
Stock-based compensation: This consists of expenses for
employee restricted stock units, performance-based awards, bonus
share programs, stock options and our employee stock purchase plan,
determined in accordance with GAAP. We evaluate our
performance both with and without these measures because
stock-based compensation is a non-cash expense and can vary
significantly over time based on the timing, size, nature and
design of the awards granted, and is influenced in part by certain
factors that are generally beyond our control, such as the
volatility of the market value of our common stock. In addition,
for comparability purposes, we believe it is useful to provide a
non-GAAP financial measure that excludes stock-based compensation
to facilitate the comparison of our results to those of other
companies in our industry.
Amortization of intangible assets: Amortization of
intangible assets consists of amortization of acquisition-related
intangibles assets such as developed technology, customer
relationships and trade names acquired in connection with business
combinations. We record charges relating to the amortization of
these intangibles within both cost of revenues and operating
expenses in our GAAP financial statements. Under purchase
accounting, we are required to allocate a portion of the purchase
price to intangible assets acquired and amortize this amount over
the estimated useful lives of the acquired intangible assets.
However, the purchase price allocated to these assets is not
necessarily reflective of the cost we would incur to internally
develop the intangible asset. Further, amortization charges for our
acquired intangible assets are inconsistent in size and are
significantly impacted by the timing and valuation of our
acquisitions. We eliminate these charges from our non-GAAP
operating results to facilitate an evaluation of our current
operating performance and provide better comparability to our past
operating performance.
Restructuring and other costs: Restructuring charges are
costs associated with a formal restructuring plan and are primarily
related to employee severance and benefit arrangements, contract
termination costs, and assets write-offs, as well as other exit and
disposal costs. Included in other exit and disposal costs are costs
to exit and consolidate facilities in connection with restructuring
events. We exclude restructuring and other costs from our non-GAAP
results as we believe that these costs are incremental to core
activities that arise in the ordinary course of our business and do
not reflect our current operating performance, and that excluding
these charges facilitates a more meaningful evaluation of our
current operating performance and comparisons to our past operating
performance.
Acquisition-related costs: These represent the transaction
and business integration costs related to significant acquisitions
that are charged to operating expense in our GAAP financial
statements. These costs include incremental expenses incurred to
affect these business combinations such as advisory, legal,
accounting, valuation, and other professional or consulting fees.
We exclude these costs from our non-GAAP results as they have no
direct correlation to the operation of our business, and because we
believe that the non-GAAP financial measures excluding these costs
provide meaningful supplemental information regarding the spending
trends of our business. In addition, these costs vary, depending on
the size and complexity of the acquisitions, and are not indicative
of costs of future acquisitions.
Litigation costs: We may periodically incur charges
or benefits related to litigation settlements, legal contingency
accruals and third-party legal costs related to certain legal
matters. We exclude these charges and benefits when
associated with a significant matter because we do not believe they
are reflective of ongoing business and operating results.
Non-cash interest expense and amortization of debt issuance
costs: In accordance with GAAP, we separately account for the
value of the conversion feature on our convertible notes as a debt
discount that reflects our assumed non-convertible debt borrowing
rates. We amortize the discount and debt issuance costs over the
term of the related debt. We exclude the difference between the
imputed interest expense, which includes the amortization of the
conversion feature and of the issuance costs, and the coupon
interest payments because we believe that excluding these costs
provides meaningful supplemental information regarding the cash
cost of our convertible debt and enhance investors' ability to view
the Company's results from management's perspective.
Gain (loss) on extinguishment of debt: We record gains or
losses on extinguishment of debt. Gains or losses represent the
difference between the fair value of the exchange consideration and
the carrying value of the liability component of the debt at the
date of extinguishment. We exclude the gain or loss on debt
extinguishment in our non-GAAP results because they are not
reflective of our ongoing business.
Gain (loss) on equity investments: We record gains or
losses, unrealized and realized, on equity investments in
privately-held companies. We exclude the net gains or losses
because we do not believe they are reflective of our ongoing
business.
Gain (loss) on sale of properties: We periodically
recognize gains or losses from the disposition of land and
buildings. We exclude such gains or losses because they are not
reflective of our ongoing business and operating results.
Income tax effects and adjustments: We use a non-GAAP tax
rate that excludes (1) the discrete impacts of changes in tax
legislation, (2) most other significant discrete items, (3)
unrealized gains or losses from remeasurement of a foreign currency
denominated deferred tax asset with no cash tax impact and (4) the
income tax effects of the non-GAAP adjustment to our operating
results described above. We believe making these adjustments
facilitates a better evaluation of our current operating
performance and comparisons to past operating results. Our tax rate
is subject to change for a variety of reasons, such as significant
changes in the geographic earnings mix due to acquisition and
divestiture activities or fundamental tax law changes in major
jurisdictions where we operate.
Diluted GAAP and non-GAAP weighted-average shares outstanding:
Diluted GAAP and non-GAAP weighted-average shares outstanding
are generally the same, except in periods when there is a GAAP loss
from continuing operations. In accordance with GAAP, we do not
present dilution for GAAP in periods in which there is a loss from
continuing operations. However, if there is non-GAAP net income, we
present dilution for non-GAAP weighted-average shares outstanding
in an amount equal to the dilution that would have been presented
had there been GAAP income from continuing operations for the
period.
Bookings: Bookings are defined as customer orders received that
are expected to generate net revenues in the future. We present the
operational metric of bookings because it reflects customers'
demand for our products and services and to assist readers in
analyzing our performance in future periods.
Free cash flow: Free cash flow is defined as cash flows
from operating activities less purchases of property and equipment.
Free cash flow is not a measure of financial condition under GAAP
and does not reflect our future contractual commitments and the
total increase or decrease of our cash balance for a given period,
and thus should not be considered as an alternative to cash flows
from operating activities or as a measure of liquidity.
Non-GAAP constant currency adjusted revenues: Non-GAAP
constant currency adjusted revenues are defined as revenues
adjusted for the fair value of acquired contract liabilities and
foreign exchange impact, calculated by translating current period
revenue using the year ago currency conversion rate.
Revenues (Non-GAAP): Revenues (Non-GAAP) excludes the quarterly
Avira deferred revenue haircut amortization recognized during the
quarter. We are presenting revenues (Non-GAAP) to provide readers
with a better understanding of the impact from the Avira deferred
revenue haircut on our historical results and to assist readers in
analyzing results in future periods.
Direct customer count: Direct customers are defined as
active paid users of our consumer solutions who have a direct
billing relationship with us at the end of the reported period. We
exclude users on free trials and users who have indirectly
purchased our product or services through partners unless such
users convert or renew their subscription directly with us, or sign
up for a paid membership through our web store or third party app
stores. Average direct customer count presents the average of the
total number of direct customers at the beginning and end of the
fiscal quarter.
Direct average revenues per user (ARPU): ARPU is
calculated as estimated direct customer revenues for the period
divided by the average direct customer count for the same period,
expressed as a monthly figure. We monitor ARPU because it helps us
understand the rate at which we are monetizing our consumer
customer base.
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SOURCE Gen Digital Inc.