What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-08-07 · 82 added, 58 removed, 207 unchanged (40% of the section changed)

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We have a 52/53-week fiscal year ending on the Friday closest to March 31.

The three months ended June 28, 2024 and June 30, 2023 each consisted of 13 weeks.

The three and six months ended September 27, 2024 and September 29, 2023 each consisted of 13 and 26 weeks, respectively.

Our 2025 fiscal year consists of 52 weeks and ends on March 28, 2025.

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The following tables provide our key financial metrics for the periods presented:

Three Months Ended

(In millions, except for per share amounts) June 28, 2024 June 30, 2023

Three Months Ended Six Months Ended

(In millions, except for per share amounts) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023

Net revenues $ 974 $ 945 $ 1,939 $ 1,888

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Net income (loss) per share - diluted $ 0.26 $ 0.23 $ 0.55 $ 0.52

(In millions) June 28, 2024 March 29, 2024

(In millions) September 27, 2024 March 29, 2024

Cash and cash equivalents $ 737 $ 846

Contract liabilities $ 1,827 $ 1,884

Below are our financial highlights for the first quarter of fiscal 2025, compared to the corresponding period in the prior year:

Below are our financial highlights for the second quarter of fiscal 2025, compared to the corresponding period in the prior year:

• Net revenues increased $29 million, primarily due to higher sales in both our consumer security and identity and information protection products.

• Operating income increased $58 million, primarily due to increased net revenues, decrease in restructuring costs related to our acquisition of Avast and lower amortization of intangible assets.

• Net income decreased $6 million, primarily due to increased income tax expense, partially offset by increased operating income discussed above and decreased interest expense associated with our Term B facility.

• Cash and cash equivalents decreased by $202 million compared to March 29, 2024, primarily due to repurchases of our common stock, cash interest paid, dividends paid to shareholders, voluntary prepayments of our Term B facility, and mandatory principal amortization payment of our Term A facility.

This is partially offset by cash generated from operating activities during the first quarter of fiscal 2025.

• Operating income increased $380 million, primarily due to increased net revenues, decrease in legal costs related to ongoing litigation, lower amortization of intangible assets, and restructuring costs related to our acquisition of Avast.

• Net income increased $14 million and net income per share increased $0.03, primarily due to increased operating income discussed above and decreased interest expense associated with our Term B facility.

This is offset by the absence of an income tax benefit in the second quarter of fiscal 2024.

Below are our financial highlights for the first six months of fiscal 2025, compared to the corresponding period in the prior year:

• Net revenues increased $51 million, primarily due to higher sales in both our consumer security and identity and information protection products.

• Operating income increased $438 million, primarily due to increased net revenues, decrease in legal costs related to ongoing litigation, lower amortization of intangible assets, and restructuring costs related to our acquisition of Avast.

• Net income increased $8 million and net income per share increased $0.03, primarily due to increased operating income discussed above and decreased interest expense associated with our Term B facility.

This is offset by the absence of an income tax benefit in the second quarter of fiscal 2024.

• Cash and cash equivalents decreased by $109 million compared to March 29, 2024, primarily due to repurchases of our common stock, cash interest paid, dividends paid to shareholders, voluntary prepayments of our Term B facility, and mandatory principal amortization payments of our Term A and B facility.

This is partially offset by cash generated from operating activities during the first six months of fiscal 2025.

• Contract liabilities decreased $57 million compared to March 29, 2024, primarily due to billing seasonality and fluctuations in foreign currency rates.

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dollars, our reporting currency, changes in interest rates, as well as recession risks, any of which may persist for an extended period.

Additionally, our international results are impacted by the economic conditions in the foreign markets in which we operate and by fluctuations in foreign currency exchange rates, although volatility did not have a significant impact on our reported results for the first quarter of our fiscal year 2025.

We conduct business in numerous currencies throughout our worldwide operations, and our entities hold monetary assets or liabilities, earn revenues, or incur costs in currencies other than the entity’s functional currency.

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Our critical accounting policies and estimates were disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended March 29, 2024.

There have been no material changes in the matters for which we make critical accounting estimates in the preparation of our Condensed Consolidated Financial Statements during the three months ended June 28, 2024.

RESULTS OF OPERATIONS

The following table sets forth our Condensed Consolidated Statements of Operations data as a percentage of net revenues for the periods indicated:

Three Months Ended

June 28, 2024 June 30, 2023

Three Months Ended Six Months Ended

September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023

Net revenues 100 % 100 % 100 % 100 %

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Percentages may not add due to rounding.

Three Months Ended

(In millions, except for percentages) June 28, 2024 June 30, 2023 Change in %

Three Months Ended Six Months Ended

(In millions, except for percentages) September 27, 2024 September 29, 2023 Change in % September 27, 2024 September 29, 2023 Change in %

Net revenues $ 974 $ 945 3 % $ 1,939 $ 1,888 3 %

Three Months Ended June 28, 2024 Compared with Three Months Ended June 30, 2023

Net revenues increased $22 million, primarily due to a $10 million increase in sales of our consumer security products and a $15 million increase in sales of our identity and information protection products.

Three Months Ended September 27, 2024 Compared with Three Months Ended September 29, 2023

Net revenues increased $29 million, due to a $19 million increase in sales of our identity and information protection products and a $14 million increase in sales of our consumer security products.

This was partially offset by a $4 million decrease in our legacy product offerings.

This is inclusive of $1 million of foreign exchange headwinds, in our consumer security solutions.

Six Months Ended September 27, 2024 Compared with Six Months Ended September 29, 2023

Net revenues increased $51 million, due to a $34 million increase in sales of our identity and information protection products and a $24 million increase in sales of our consumer security products.

This was partially offset by a $7 million decrease in our legacy product offerings.

This is inclusive of $8 million of foreign exchange headwinds, in our consumer security solutions.

Performance Metrics

We regularly monitor a number of metrics in order to measure our current performance and estimate our future performance.

We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies.

We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of

our business and the effectiveness of our marketing and operational strategies.

Our metrics may be calculated in a manner different than similar metrics used by other companies.

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Three Months Ended

(In millions, except for per user amounts) June 28, 2024 June 30, 2023

(In millions, except for per user amounts) September 27, 2024 September 29, 2023

Direct customer revenues $ 860 $ 834

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We define direct customer count as active paid users of our products and solutions who have a direct billing and/or registration relationship with us at the end of the reported period.

Average direct customer count presents the average of the total number of direct customers at the beginning and end of the applicable period.

We exclude users on free trials from our direct customer count.

Users who have indirectly purchased and/or registered for our products or solutions through partners are excluded unless such users convert or renew their subscription directly with us or sign up for a paid membership through our web stores or third-party app stores.

The methodologies used to measure these metrics require judgment and are subject to

change due to improvements or revisions to our methodology.

The methodologies used to measure these metrics require judgment and are subject to change due to improvements or revisions to our methodology.

From time to time, we review our metrics and may discover inaccuracies or make adjustments to improve their accuracy, which can result in adjustments to our historical metrics.

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Three Months Ended (1)

June 28, 2024 June 30, 2023

Six Months Ended (1)

September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023

Americas 66 % 65 % 66 % 65 %

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(1) From time to time, changes in allocation methodologies cause changes to the revenue by geographic area above.

When changes occur, we recast historical amounts to match the current methodology, such as for the three months ended June 30, 2023 where we aligned allocation methodologies across similar product categories.

When changes occur, we recast historical amounts to match the current methodology, such as for the three and six months ended September 29, 2023 where we aligned allocation methodologies across similar product categories.

The Americas include the U.S., Canada and Latin America;

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APJ includes Asia Pacific and Japan.

Percentage of revenue by geographic region in the three months ended June 28, 2024 remains primarily in the Americas.

Percentage of revenue by geographic region in the three and six months ended September 27, 2024 remains primarily in the Americas.

Cost of revenues

Three Months Ended

(In millions, except for percentages) June 28, 2024 June 30, 2023 Change in %

Three Months Ended Six Months Ended

(In millions, except for percentages) September 27, 2024 September 29, 2023 Change in % September 27, 2024 September 29, 2023 Change in %

Cost of revenues $ 194 $ 180 8 % $ 384 $ 359 7 %

Three Months Ended June 28, 2024 Compared with Three Months Ended June 30, 2023

Three Months Ended September 27, 2024 Compared with Three Months Ended September 29, 2023

Cost of revenues increased $14 million, primarily due to a $13 million increase in revenue share costs.

Six Months Ended September 27, 2024 Compared with Six Months Ended September 29, 2023

Cost of revenues increased $25 million, primarily due to a $22 million increase in revenue share costs.

Operating expenses

Three Months Ended

(In millions, except for percentages) June 28, 2024 June 30, 2023 Change in %

Three Months Ended Six Months Ended

(In millions, except for percentages) September 27, 2024 September 29, 2023 Change in % September 27, 2024 September 29, 2023 Change in %

Sales and marketing $ 184 $ 187 (2) % $ 367 $ 368 — %

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Total operating expenses $ 378 $ 743 (49) % $ 736 $ 1,148 (36) %

Three Months Ended June 28, 2024 Compared with Three Months Ended June 30, 2023

Sales and marketing, research and development, and general and administrative expenses all remained relatively flat.

Three Months Ended September 27, 2024 Compared with Three Months Ended September 29, 2023

Sales and marketing and research and development remained relatively flat.

General and administrative expenses decreased $329 million, primarily due to the absence of $335 million in legal costs related to our litigation with the Trustees of Columbia University in the City of New York (Columbia) in the second quarter of fiscal 2024.

Amortization of intangible assets decreased $17 million, primarily due to certain intangible assets being fully amortized during fiscal 2024.

Restructuring and other costs decreased $18 million, primarily due to a $17 million decrease in severance, termination benefits and other exit and disposal costs in connection with the September 2022 Plan.

Restructuring and other costs decreased $14 million, due to a $13 million decrease in severance, termination benefits, contract cancellation costs and other exit and disposal costs in connection with the September 2022 Plan and a $1 million decrease in stock-based compensation expense.

See Note 11 of the Notes to the Condensed Consolidated Financial Statements for details of the fiscal 2025 restructuring activities.

Six Months Ended September 27, 2024 Compared with Six Months Ended September 29, 2023

Sales and marketing remained relatively flat.

Research and development decreased $11 million, due to an $8 million decrease in headcount and outside services and a $3 million decrease of stock-based compensation expense.

General and administrative expense decreased $333 million, primarily due to the absence of $335 million in legal costs related to our litigation with Columbia in the second quarter of fiscal 2024.

Amortization of intangible assets decreased $35 million, primarily due to certain intangible assets being fully amortized during fiscal 2024.

Restructuring and other costs decreased $32 million, due to a $31 million decrease severance, termination benefits, contract cancellation costs and other exit and disposal costs in connection with the September 2022 Plan and a $1 million decrease in stock-based compensation expense.

See Note 11 of the Notes to the Condensed Consolidated Financial Statements for details of the fiscal 2025 restructuring activities.

Non-operating income (expense), net

Three Months Ended

(In millions) June 28, 2024 June 30, 2023

Three Months Ended Six Months Ended

(In millions) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023

Interest expense $ (149) $ (173) $ (302) $ (343)

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Gain (loss) on sale of properties

Other 1 — 1 1

Total non-operating income (expense), net $ (144) $ (166) $ (285) $ (324)

Three Months Ended June 28, 2024 Compared with Three Months Ended June 30, 2023

Three Months Ended September 27, 2024 Compared with Three Months Ended September 29, 2023

Non-operating income (expense), net, decreased by $22 million in expense, primary due to a $18 million decrease in interest expense related to our Term B facility.

Six Months Ended September 27, 2024 Compared with Six Months Ended September 29, 2023

Non-operating income (expense), net, decreased by $39 million, primarily due to a $32 decrease in interest expense related to our Term B facility.

Provision for income taxes

Three Months Ended

(In millions, except for percentages) June 28, 2024 June 30, 2023

Three Months Ended Six Months Ended

(In millions, except for percentages) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023

Income (loss) before income taxes $ 258 $ (144) $ 534 $ 57

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Effective tax rate 38 % 202 % 36 % (486) %

Our effective tax rate for the three months ended June 28, 2024 differs from the federal statutory income tax rate primarily due to state taxes, changes in unrecognized tax benefits and related interest and penalties, and the U.S.

Our effective tax rate for the three and six months ended September 27, 2024 differs from the federal statutory income tax rate primarily due to state taxes, changes in unrecognized tax benefits and related interest and penalties, and the U.S.

taxation on foreign earnings.

Our effective tax rate for the three months ended June 30, 2023 differs from the federal statutory income tax rate primarily due to tax benefits related to the set up and write-off of deferred tax items from an internal restructuring, partially offset by state taxes and the U.S.

Our effective tax rate for the three and six months ended September 29, 2023, differs from the federal statutory income tax rate primarily due to tax benefits related to the set up and write-off of deferred tax items resulting from an internal restructuring, partially offset by state taxes, changes in unrecognized tax benefits and related interest and penalties, and the U.S.

taxation on foreign earnings.

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Historically, this has included a quarterly cash dividend, the repayment of debt and the repurchase of shares of our common stock.

Based on past performance and current expectations, we believe that our existing cash and cash equivalents, together with cash generated from operations and amounts available under our Revolving Facility, will be sufficient to meet our working capital needs, support on-going business activities and finance the expected synergy costs related to the acquisition of Avast through at least the next 12 months and to meet our known long-term contractual obligations.

Based on past performance and current expectations, we believe that our existing cash and cash equivalents, together with cash generated from operations, amounts available under our Revolving Facility and our future refinancing plans related to our upcoming maturities, will be sufficient to meet our working capital needs, support on-going business activities and finance the expected synergy costs related to the acquisition of Avast through at least the next 12 months and to meet our known long-term contractual obligations.

We are currently not aware of any trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months.

However, our future liquidity and capital requirements may vary materially from those as of June 28, 2024, depending on several factors, including, but not limited to, economic conditions;

However, our future liquidity and capital requirements may vary materially from those as of September 27, 2024, depending on several factors, including, but not limited to, economic conditions;

political climate;

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The following summarizes our cash flow activities:

Three Months Ended

(In millions) June 28, 2024 June 30, 2023

Six Months Ended

(In millions) September 27, 2024 September 29, 2023

Net cash provided by (used in):

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Cash from operating activities

Our cash flows provided by and used in operating activities increased $38 million, primarily due to increased cash collection from our cyber safety billings and higher profit before taxes adjusted by non-cash items compared to during the first three months of fiscal 2024 .

Our cash flows provided by operating activities increased $71 million, primarily due to higher profit before taxes adjusted by non-cash items, increased cash collection from our cyber safety billings and an increase in accounts payable as a result of the timing of payments.

This is partially offset by increased cash taxes paid compared to during the first six months of fiscal 2024 .

Cash from investing activities

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Cash from financing activities

Our cash flows provided by and used in financing activities decreased $116 million, primarily due to a $231 million increase in repurchases of common stock under our repurchase program.

This was partially offset by a $120 million decrease in voluntary prepayments of our Term B Facility as compared to during the first three months of fiscal 2024.

Our cash flows used in financing activities increased $53 million, primarily due to a $231 million increase in repurchases of common stock under our repurchase program.

This was partially offset by a $120 million decrease in voluntary prepayments of our Term B Facility and a $58 million decrease in mandatory principal prepayments of our Term A and B Facilities as compared to during the first six months of fiscal 2024.

Cash and cash equivalents

As of June 28, 2024, we had cash and cash equivalents of $644 million, of which $359 million was held by our foreign subsidiaries.

As of September 27, 2024, we had cash and cash equivalents of $737 million, of which $400 million was held by our foreign subsidiaries.

Our cash, cash equivalents and short-term investments are managed with the objective to preserve principal, maintain liquidity and generate investment returns.

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federal tax, however, these distributions may be subject to applicable state or foreign taxes.

We have an undrawn revolving credit facility of $1,500 million, which expires in September 2027.

We have an undrawn revolving credit facility of $1,490 million, net of our letters of credit, which expires in September 2027.

Stock repurchases

During the three months ended June 28, 2024 and June 30, 2023, we executed repurchases of 11 million and 3 million of our common stock under our existing stock repurchase program for an aggregate amount of $272 million and $41 million, respectively.

During the six months ended September 27, 2024 and September 29, 2023, we executed repurchases of 11 million and 3 million of our common stock under our existing stock repurchase program for an aggregate amount of $272 million and $41 million, respectively.

Material Cash Requirements

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Debt instruments

As of June 28, 2024, our total outstanding principal amount of indebtedness is summarized as follows.

As of September 27, 2024, our total outstanding principal amount of indebtedness is summarized as follows.

See Note 9 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information on our debt.

(In millions) June 28, 2024

(In millions) September 27, 2024

Term Loans $ 6,022

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The Amended Credit Agreement contains customary representations and warranties and affirmative and negative covenants, including compliance with specified financial ratios .

As of June 28, 2024, we were in compliance with all debt covenants.

As of September 27, 2024, we were in compliance with all debt covenants.

See Note 9 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding financial ratios and debt covenant compliance.

On August 1, 2024, we announced a cash dividend of $0.125 per share of common stock to be paid in September 2024.

On October 30, 2024, we announced a cash dividend of $0.125 per share of common stock to be paid in December 2024.

Any future dividends and dividend equivalents will be subject to the approval of our Board of Directors.

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This new stock repurchase program will supersede any amounts under the prior stock repurchase programs.

As of June 28, 2024, the remaining balance of our stock repurchase authorization was $2,728 million and does not have an expiration date.

As of September 27, 2024, the remaining balance of our stock repurchase authorization was $2,728 million and does not have an expiration date.

The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions and other investment opportunities.

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These actions are expected to be completed by the end of fiscal 2025.

During the three months ended June 28, 2024, we made $11 million in cash payments related to the September 2022 Plan.

As of June 28, 2024, we have incurred costs of $124 million related to the September 2022 Plan.

During the six months ended September 27, 2024, we made $15 million in cash payments related to the September 2022 Plan.

As of September 27, 2024, we have incurred costs of $126 million related to the September 2022 Plan.

See Note 11 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further cash flow information associated with our restructuring activities.

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Our principal commitments consist of principal and interest payments related to our debt instruments, obligations under our purchase agreements, repatriation tax payments under the Tax Cuts and Jobs Acts and obligations under various non-cancellable leases.

Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits and other long-term taxes as of June 28, 2024, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities.

Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits and other long-term taxes as of September 27, 2024, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities.

Therefore, $1,395 million in long-term income taxes payable has been excluded from our quarterly review of timing of contractual obligations.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis