Gen Digital Inc. · NASDAQ:GEN
Gen Digital — Q2 FY2023 Earnings Presentation
44 slides from Gen Digital's earnings presentation, Nov 8, 2022
Slide 1: FY23 Q2 Earnings
FY23 Q2 Earnings Nov 8, 2022 Copyright © 2022 Gen Digital Inc. All rights reserved.
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation 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 expre
Slide 3: Beginning a New Chapter
Beginning a New Chapter Copyright © 2022 Gen Digital Inc. All rights reserved. 3
Slide 4: Purpose: Powering Digital Freedom
Purpose Powering Digital Freedom Mission We create technology solutions for people to take full advantage of the digital world, safely, privately, and confidently – so together, we can build a better tomorrow. Copyright © 2022 Gen Digital Inc. All rights reserved. 4
Slide 5: Gen. For the next generation of digital life
There’s a new generation out there. Not Gen X, Y, or Z. It’s Gen D. Generation digital. Five billion people and counting who are all online. Today digital life is life. People bank, shop, learn and connect from just about anywhere. Use voice assistance in their homes and cars to navigate their lives
Slide 6: Gen at a glance
Gen at a glance NASDAQ: GEN Dual HQs: U.S. & Czechia Innovation & Broad Global Reach & Strong Technologies Product Portfolio Channel Diversification Financial Profile Purpose-Driven Products & Solutions in 500M+ Users Revenue $3.8B Culture & Innovation 150+ Countries ~95% Recurring Revenue Mix 60 /
Slide 7: Broad Portfolio Expanding Cyber Safety
Broad Portfolio Expanding Cyber Safety Family Device Safety Connected Security Privacy Home & Monitoring Cyber Safety Performance Identity Theft Protection Protecting your digital life & Utility Device Restoration Security & Insurance 500M+ users Individuals, families and Adjacent Trust-Based Soluti
Slide 8: A Family of Trusted Consumer Brands
A Family of Trusted Consumer Brands Copyright © 2022 Gen Digital Inc. All rights reserved. 8
Slide 9: Gen Leadership
Gen Leadership Vincent Pilette Natalie Derse Ondřej Vlček Michal Pěchouček Vita Santrucek Leena Elias Charlie Walton CEO CFO President Technology Development Product & Digital Trust E-Commerce Business Kara Jordan Bryan Ko Travis Witteveen Krista Todd Patrick Schwind Sameer Khera Mark Giles People &
Slide 10: FY23 Q2 Results
FY23 Q2 Results Copyright © 2022 Gen Digital Inc. All rights reserved. 10
Slide 11: Q2 Non-GAAP Business Highlights
Q2 Non-GAAP Business Highlights • 13th consecutive quarter of growth in CC: Bookings up 11% and Revenue up 12% (Avast added 7 pts of growth), EPS up 12% • High recurring revenue, operational discipline, and structural profitability provide flexibility to navigate macro-level challenges • Avast trans
Slide 12: Consistent Execution
Consistent Execution Revenue - Up 8% Y/Y in USD & Up 12% in CC Non-GAAP P&L Q2 Q1 Q2 • Cyber Safety growth of 5% (CC) excluding Avast; Avast added 7 pts of ($M), except per share amounts FY22 FY23 FY23 Y/Y % growth (CC) Revenue $695 $708 $748 8% • Unfavorable FX impact Y/Y $31M (4+ pts of currency h
Slide 13: Gen Reporting Related to Revenue Performance
Gen Reporting Related to Revenue Performance Revenue Customers (1) Subscriptions sold directly through (2) Paid customers from Direct E-Commerce and Mobile App (1) ~87% Direct E-Commerce and Mobile App (1) ~39M Revenue acquired through partners Paid customers through one + Partners Employee Benefits
Slide 14: Q2 Gen Performance Metrics
Q2 Gen Performance Metrics Reported CC Total Avast Growth Growth Q2 FY23 Revenue Contribution Y/Y % Y/Y % Direct Cyber Safety Customers Direct $660 $40 7% 11% Qtr-ending customer count, millions + Partners $74 $5 16% 21% = Cyber Safety $734 $45 8% 12% 1.4 15.6 38.6 (3) (1.4) Legacy $14 $3 N/A N/A (0
Slide 15: Cost Synergy & Integration Update
Cost Synergy & Integration Update Today Future (1) (2) % of Revenue Before Synergies with 100% Synergies COGS 13% 10 - 12% ● Annual savings identified increased to $300M+ S&M 21% 18 - 19% ● Day 1 integration: Nov 1, 2022 R&D 9% 7 - 8% ● Integration shortened to 18 months ● Productivity target of ~$1
Slide 16: Balance Sheet & Cash Flow
Balance Sheet & Cash Flow Key Balance Sheet, FY23 Year-to-Date Cash Flow, & Other Metrics Q2 Q1 Q2 Dollars in millions FY22 FY23 FY23 Balance Sheet $123M $558M Cash, Cash Equivalents and STI $1,541 $1,291 $1,095 Free Cash Flow (1) Capital Returned Contract Liabilities $1,213 $1,220 $1,684 to Shareho
Slide 17: Q3 FY23 Non-GAAP Guidance & Long-Term Target
Q3 FY23 Non-GAAP Guidance & Long-Term Target Q3 REVENUE Q3 EPS LONG-TERM $925M - $940M $0.42 - $0.45 $3 Q3 guidance reflects First quarter dilutive impact of Annualized EPS first full quarter of Avast Avast acquisition; accretive Exiting FY25 in first 12 months Note: All numbers presented are non-GA
Slide 18: Value Creation Model
Value Creation Model Copyright © 2022 Gen Digital Inc. All rights reserved. 18
Slide 19: Gen Investment Thesis
Gen Investment Thesis Still in Early Stages of Leadership at Scale and Superior Cash Flow Generation Digital Life Transformation Structural Profitability with Disciplined Deployment • Purpose-driven culture and • Leading consumer Cyber Safety • High recurring subscription commitment to innovation tr
Slide 20: Gen's Customer Universe
Gen’s Customer Universe There’s a new generation out there. Not Gen X, Y, or Z. It’s Gen D. Generation Digital. 5 billion global internet users 500M+ Total Users (paid & free) ~65M Cyber Safety Customers (paid Direct + Partners) ~39M Direct 14M+ Members* * Members from Norton 360, Avast One, Avira P
Slide 21: Gen Portfolio Positioned for Growth and Expansion
Gen Portfolio Positioned for Growth and Expansion ~35% ~35% ~10% Identity & Privacy Cyber Safety Memberships Partners ~65% Product ~65% Membership ~90% Revenue Security & Mix Point Products Adoption Direct Mix Performance & Solutions Increasing Value Growing Loyalty Extending Reach Cross-sell and ex
Slide 22: World's Largest Consumer Security Network
World’s Largest Consumer Security Network File-based attacks Gen AI-based engine Gen security cloud Social Web/network engineering based attacks attacks Every month, Gen: Autonomous Defense: 1.5+ BILLION • Handles 30+ million new files, • Clustering analysis 25% of which are malicious • Continuously
Slide 23: Evolving into Full Coverage of Cyber Safety Needs
Evolving into Full Coverage of Cyber Safety Needs Trust-based solutions Reputation Management Manage online perception, status and reputation in an increasingly digital world. Personal Privacy Protect personal and other sensitive Identity Protection data from public view or exploitation. Set control
Slide 24: Increasing Value to Customers
Increasing Value to Customers Double Norton LifeLock NPS Score % of 360 Target ARPU Customers Avast > 70 LifeLock $15+ ~ 10% 70 Norton 360 $8 - $9 (1) ~ 35% Norton Security ~$6 ~ 10% Avast / Avira ~$4 - $5 ~ 35% Mobile ~$2 - $3 ~ 10% 0 100 NPS Scores (1) Represents blended ARPU of Norton 360 members
Slide 25: Greater Retention Opportunity
Greater Retention Opportunity Retention rates increasing with increased NLOK Retention membership value Opportunity Zone ~90% (incl. identity protection) Customers with Identity protection Goal: ~75% To increase retention in earlier customer Retention Opportunity Avg. Aggregate tenure through higher
Slide 26: Synergy Opportunities
$318M Synergy Opportunities Cost Synergies Revenue Synergy Opportunities Increased to $300M+ annual cost synergies Strengthens mid-single digit growth % achieved (exit run rate): Cross-Sell & 100% Up-Sell Oppty Marketing Avast 70% Spend Retention Recalibration Improvement 50% ~$200M over next 2Y Cha
Slide 27: Long-Term Target: Updated Path to $3 EPS
Long-Term Target Updated Path to $3 EPS Path to $3 EPS $0.60 ($0.05) $0.45 - $0.75 ~$3 ($0.43) - $0.50 Macro & FX Headwinds: $0.40 • Rising cost of debt - $0.45 • US Dollar appreciation $0.65 94M Shares - $0.70 $1.75 ~($0.15) ($0.45) Increased annual gross cost synergies - ($0.55) $300M+ to $300M+ A
Slide 28: Disciplined Capital Allocation
Disciplined Capital Allocation ~$1.5B Dividend ~3x Net Debt Opportunistic Share Buyback M&A as continued Annual $0.50/share Leverage $1.4B accelerator Authorization Remaining (Target) Free Cash Flow* Balanced & Disciplined Approach • De-levering capacity to ~3x net debt leverage • Current cost of de
Slide 29: Supplemental Information
Supplemental Information Copyright © 2022 Gen Digital Inc. All rights reserved. 29
Slide 30: Avast Acquisition: Mechanics & Financing
Avast Acquisition: Mechanics & Financing Deal closed on September 12, 2022 Before Deal After Deal Ending Q1 FY23 Post Q2 FY23 Basic Share Count MCO election (Shares Issued and Outstanding) 571M 661M (1) 94M new shares issued 63.5% of Avast shares Debt $7.6B acquisition financing raised $3.3B $10.2B
Slide 31: Go Forward Capital Structure
Go Forward Capital Structure Facility Principal ($ Mil) Maturity Coupon Debt Maturities (Initial Principal Amounts) Revolver (RCF) $1,500 2027 SOFR+CSA+1.75% $ in millions Term Loan A (TLA) $3,910 2027 SOFR+CSA+1.75% Revolver (undrawn) Term Loan B (TLB) $3,690 2029 SOFR+CSA+2% $1,500 2025 Sr. Unsecu
Slide 32: Foreign Currency Update
Foreign Currency Update Revenue Mix by Geo Non-GAAP, Q2 FY23 Actuals (1) Q1 Q2 Q1 Q2 Euro FY22 FY22 FY23 FY23 APJ 10% €/$ Weighted Avg. 1.21 1.18 1.06 1.01 End of Period 1.18 1.16 1.04 0.98 EMEA 21% Americas 69% Q1 Q2 Q1 Q2 Yen FY22 FY22 FY23 FY23 ¥/$ Weighted Avg. 0.0091 0.0091 0.0077 0.0072 End of
Slide 33: Trended Non-GAAP Quarterly Results
Trended Non-GAAP Quarterly Results Non-GAAP P&L FY22 Q1 FY23 Q2 FY23 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 ($M), except per share amounts TOTAL REVENUE $691 $695 $704 $717 $2,807 $708 $748 Gross Profit 599 607 610 624 2,440 $612 646 Gross Margin 86.7% 87.3% 86.6% 87.0% 86.9% 86.4% 86.4% • Sales & Marketin
Slide 34: Reconciliation to Non-GAAP Gross Profit
Reconciliation to Non-GAAP Gross Profit GAAP to Non-GAAP Gross Profit ($M) Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 FY22 Q1 FY23 Q2 FY23 GAAP Results of Operation Gross profit (GAAP) $584 $592 $597 $615 $2,388 $605 $629 Non-GAAP Gross Profit Adjustments Net revenues • Contract liabilities fair value 1 11 1 -
Slide 35: Reconciliation to Non-GAAP Operating Income
Reconciliation to Non-GAAP Operating Income GAAP to Non-GAAP Operating Income ($M) Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 FY22 Q1 FY23 Q2 FY23 GAAP Results of Operation Operating income (GAAP) $287 $287 $302 $129 $1,005 $261 $241 Total Non-GAAP gross profit adjustment 15 15 13 9 52 7 17 Non-GAAP Operating
Slide 36: Reconciliation to Non-GAAP Net Income
Reconciliation to Non-GAAP Net Income GAAP to Non-GAAP Net Income ($M) Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 FY22 Q1 FY23 Q2 FY23 GAAP Results of Operation Net income (GAAP) $181 $333 $202 $120 $836 $200 $69 • Total Non-GAAP gross profit adjustment 15 15 13 9 52 7 17 • Total Non-GAAP operating expense adj
Slide 37: Reconciliation to Non-GAAP EPS and Net Income
Reconciliation to Non-GAAP EPS and Net Income Q2FY23 GAAP to Non-GAAP EPS and Net Income (1) ($M), except per share amounts EPS Net Income GAAP EPS / Net Income $0.12 $69 • Stock based compensation 0.05 29 • Amortization of intangible assets 0.08 45 • Restructuring and other costs 0.02 9 • Acquisiti
Slide 38: Trended Share Count
Trended Share Count Diluted Share Count FY22 Q1 FY23 Q2 FY23 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Shares in millions Basic Share Count Weighted Average 580 582 582 582 581 578 590 Dilutive Potentially Issuable Shares: • From Employee Equity Awards 4 2 3 4 3 4 3 • From Convertible Debt 7 7 6 7 7 22 2 Dilu
Slide 39: Trended Stock Based Compensation
Trended Stock Based Compensation Stock Based Compensation ($M) Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 FY22 Q1 FY23 Q2 FY23 Cost of revenues $- $1 $- $1 $2 $1 $1 Sales and marketing 5 3 5 6 19 7 8 Research and development 6 3 5 5 19 6 6 General and administrative 9 6 8 7 30 10 14 Total stock-based compensat
Slide 40: Trended EBITDA (Non-GAAP)
Trended EBITDA (Non-GAAP) Reported EBITDA (Non-GAAP) (1) ($M) Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 FY22 Q1 FY23 Q2 FY23 Net income $181 $333 $202 $120 $836 $200 $69 Adjustments: • Net interest expense 32 21 32 31 126 29 45 • Income tax expense (benefit) 71 100 59 (24) 206 29 126 • Depreciation and amorti
Slide 41: Consolidated Debt Covenant EBITDA (Non-GAAP)
Consolidated Debt Covenant EBITDA (Non-GAAP) Consolidated Debt Covenant EBITDA (Non-GAAP) (1) ($M) LTM (4) Net income $591 Adjustments: • Net interest expense 137 • Income tax expense (benefit) 190 • Depreciation and amortization 147 EBITDA (Non-GAAP) 1,065 Adjustments to EBITDA: • Contract liabilit
Slide 42: Use of GAAP and Non-GAAP Financial Information
Use of GAAP and 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,
Slide 43: Explanation of Non-GAAP Measures and Other Items
Explanation of Non-GAAP Measures and Other Items 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 reader
Slide 44: Thank you
Thank you Web: Investor.GenDigital.com Email: IR@GenDigital.com Copyright © 2022 Gen Digital Inc. All rights reserved. 44