What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-01-31 compared with 2024-10-31 · 82 added, 84 removed, 205 unchanged (45% 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 and six months ended September 27, 2024 and September 29, 2023 each consisted of 13 and 26 weeks, respectively.

The three and nine months ended December 27, 2024 and December 29, 2023 each consisted of 13 and 39 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 Six Months Ended

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

Three Months Ended Nine Months Ended

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

Net revenues $ 986 $ 948 $ 2,925 $ 2,836

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Net income (loss) per share - diluted $ 0.26 $ 0.22 $ 0.80 $ 0.74

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

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

Cash and cash equivalents $ 883 $ 846

Contract liabilities $ 1,849 $ 1,884

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

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

• Net revenues increased $38 million, primarily due to higher sales in both our consumer security and identity and information protection products.

• 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.

• Operating income increased $42 million, primarily due to increased net revenues and lower amortization of intangible assets, offset by an increase in revenue share costs.

• Net income increased $17 million and net income per share increased $0.04, 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:

This is offset by an impairment expense on our non-marketable equity investments and increase in income tax expense.

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

• Net revenues increased $89 million, primarily due to higher sales in both our consumer security and identity and information protection products.

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• Net income increased $25 million and net income per share increased $0.06, 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.

This is offset by an impairment expense on our non-marketable equity investments and the absence of an income tax benefit in the second quarter of fiscal 2024.

• Cash and cash equivalents increased by $37 million compared to March 29, 2024, primarily due cash generated from operating activities during the first nine months of fiscal 2025.

This is partially offset by 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.

• Contract liabilities decreased $35 million compared to March 29, 2024, primarily due to billing seasonality and fluctuations in foreign currency rates.

Proposed Acquisition of MoneyLion

On December 10, 2024, we entered into a definitive agreement to acquire MoneyLion Inc.

See Note 4 of the Notes to the Condensed Consolidated Financial Statements for further information about the proposed acquisition.

Subsequent Event

On January 16, 2025, we notified e-commerce partner B (Refer to Note 17 of the Notes to the Condensed Consolidated Financial Statements for information about e-commerce partner B) of our termination of the agreement and subsequently entered into a legal settlement agreement with them.

Refer to Note 19 of the Notes to the Condensed Consolidated Financial Statements for further information about this notice of termination and settlement agreement.

Fiscal 2025 Acquisition

Refer to Note 19 of the Notes to the Condensed Consolidated Financial Statements for further information about the acquisition completed on January 28, 2025.

GLOBAL MACROECONOMIC CONDITIONS

Our results of operations and cash flows are subject to fluctuations due to inflation, changes in foreign currency exchange rates relative to U.S.

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 second 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.

As a result, we are exposed to foreign exchange gains or losses, which impact our operating results.

As part of our foreign currency risk mitigation strategy, we have entered into monthly foreign exchange forward contracts to hedge certain foreign currency balance sheet exposure.

In addition, in early 2022, worldwide inflation began to increase.

In response to the heightened levels of inflation, central banks, including the U.S.

Federal Reserve and the European Central Bank, raised interest rates significantly in 2022, resulting in an increase in our cost of debt.

Although inflation rates slowed in 2023, global inflation currently remains high and has impacted our results due to higher costs.

Volatile market conditions related to geopolitical conflicts and other macroeconomic events have, at times, affected our results of operations and cash flows in non-material ways;

however, geopolitical conflicts and other macroeconomic events may in the future materially impact our results of operations and cash flows.

Due to our subscription-based business model, the effect of recent macroeconomic events may not be fully reflected in our results of operations until future periods, if at all.

Inflation, interest rates and foreign exchange rates remained volatile in 2023 and fluctuations in these indicators continue to remain uncertain and could result in further adverse impacts to our reported results.

For a further discussion of the potential impacts of the global macroeconomic conditions on our business, please see Part I, Item III and “Risk Factors” in Part II, Item 1A below.

As a global company, our results of operations and cash flows may be influenced by global macroeconomic conditions, including, but not limited to, foreign currency exchange rate fluctuations, the impact of interest rate fluctuations, inflation, geopolitical conflicts and/or pressures, including the unknown impacts of current and future trade regulations, instability in the global banking sector, economic slowdown and recession risks, any of which may persist for an extended period.

We continue to monitor the direct and indirect impacts of these global macroeconomic or other geopolitical factors.

The broader implications of these events on our business, results of operations, and overall financial position remain uncertain and could result in further adverse impacts to our reported results.

For further discussion of the potential impacts of global macroeconomic conditions on our business, please see Part 1, Item III and “Risk Factors” in Part II, Item 1A below.

CRITICAL ACCOUNTING ESTIMATES

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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 and six months ended September 27, 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 Six Months Ended

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

Three Months Ended Nine Months Ended

December 27, 2024 December 29, 2023 December 27, 2024 December 29, 2023

Net revenues 100 % 100 % 100 % 100 %

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Percentages may not add due to rounding.

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 %

Three Months Ended Nine Months Ended

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

Net revenues $ 986 $ 948 4 % $ 2,925 $ 2,836 3 %

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.

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

Net revenues increased $38 million, due to a $21 million increase in sales of our consumer security products and a $20 million increase in sales of our identity and information protection products.

This was partially offset by a $3 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

Nine Months Ended December 27, 2024 Compared with Nine Months Ended December 29, 2023

Net revenues increased $89 million, due to a $54 million increase in sales of our identity and information protection products and a $45 million increase in sales of our consumer security products.

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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) September 27, 2024 September 29, 2023

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

Direct customer revenues $ 869 $ 834

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Three Months Ended (1)

Six Months Ended (1)

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

Nine Months Ended (1)

December 27, 2024 December 29, 2023 December 27, 2024 December 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 and six months ended September 29, 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 nine months ended December 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 and six months ended September 27, 2024 remains primarily in the Americas.

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

Cost of revenues

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 %

Three Months Ended Nine Months Ended

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

Cost of revenues $ 193 $ 182 6 % $ 577 $ 541 7 %

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

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

Cost of revenues increased $11 million, primarily due to a $12 million increase in revenue share costs.

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

Nine Months Ended December 27, 2024 Compared with Nine Months Ended December 29, 2023

Cost of revenues increased $36 million, primarily due to a $34 million increase in revenue share costs.

Operating expenses

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 %

Three Months Ended Nine Months Ended

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

Sales and marketing $ 182 $ 184 (1) % $ 549 $ 552 (1) %

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Total operating expenses $ 419 $ 434 (3) % $ 1,155 $ 1,582 (27) %

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.

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

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

Amortization of intangible assets decreased $18 million, primarily due to certain intangible assets being fully amortized during fiscal 2024.

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.

Restructuring and other costs remained flat.

See Note 12 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.

Nine Months Ended December 27, 2024 Compared with Nine Months Ended December 29, 2023

Sales and marketing and research and development remained relatively flat.

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

Amortization of intangible assets decreased $53 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.

Restructuring and other costs decreased $32 million, primarily due to a $30 million decrease in severance, termination benefits, contract cancellation costs and other exit and disposal costs in connection with the September 2022 Plan.

See Note 12 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 Six Months Ended

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

Three Months Ended Nine Months Ended

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

Interest expense $ (141) $ (165) $ (443) $ (508)

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Foreign exchange gain (loss)

Gain (loss) on equity investments

(30) — (30) —

Gain (loss) on sale of properties

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Total non-operating income (expense), net $ (166) $ (154) $ (451) $ (478)

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.

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

Non-operating income (expense), net, increased by $12 million in expense, primary due to a $30 million impairment expense on our non-marketable equity investments.

This was partially offset by a $19 million decrease in interest expense related to our Term B facility.

Nine Months Ended December 27, 2024 Compared with Nine Months Ended December 29, 2023

Non-operating income (expense), net, decreased by $27 million, primarily due to a $51 million decrease in interest expense related to our Term B facility.

This was partially offset by a $30 million impairment expense on our non-marketable equity investments.

Provision for income taxes

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Income (loss) before income taxes $ 208 $ 178 $ 742 $ 235

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Effective tax rate 24 % 20 % 32 % (103) %

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.

Our effective tax rate for the three and nine months ended December 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 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.

Our effective tax rate for the three and nine months ended December 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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Ireland, Czech Republic, and certain jurisdictions in which we operate have enacted legislation to implement Pillar Two and other countries are actively considering changes to their tax laws to adopt certain parts of the OECD’s proposals.

The enactment of Pillar Two legislation is not expected to have a material adverse effect on our effective tax rate and Condensed Consolidated Financial Statements in the near term.

The enactment of Pillar Two legislation is not expected to have a material adverse effect on our effective

tax rate and Condensed Consolidated Financial Statements in the near term.

We will continue to monitor and reflect the impact of such legislative changes in future Condensed Consolidated Financial Statements as appropriate.

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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 September 27, 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 December 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:

Six Months Ended

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

Nine Months Ended

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

Net cash provided by (used in):

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Our cash flows provided by operating activities increased $82 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 .

This is partially offset by increased legal payments compared to the first nine months of fiscal 2024 .

Cash from investing activities

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Cash from financing activities

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.

Our cash flows used in financing activities decreased $256 million, primarily due to a $320 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.

This was partially offset by a $131 million increase in repurchases of common stock under our repurchase program as compared to the first nine months of fiscal 2024.

Cash and cash equivalents

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

As of December 27, 2024, we had cash and cash equivalents of $883 million, of which $386 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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Stock repurchases

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.

During the nine months ended December 27, 2024 and December 29, 2023, we executed repurchases of 11 million and 7 million of our common stock under our existing stock repurchase program for an aggregate amount of $272 million and $141 million, respectively.

Material Cash Requirements

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Debt instruments

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

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

See Note 10 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) September 27, 2024

(In millions) December 27, 2024

Term Loans $ 5,963

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

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

See Note 10 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 October 30, 2024, we announced a cash dividend of $0.125 per share of common stock to be paid in December 2024.

On January 30, 2025, we announced a cash dividend of $0.125 per share of common stock to be paid in March 2025.

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

As of December 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 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.

During the nine months ended December 27, 2024, we made $21 million in cash payments related to the September 2022 Plan.

As of December 27, 2024, we have incurred costs of $128 million related to the September 2022 Plan.

See Note 12 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 September 27, 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 December 27, 2024, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities.

Therefore, $1,384 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