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Gen Digital (GEN) Q2 Earnings Meet Estimates, Sales Beat

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Gen Digital Inc. (GEN - Free Report) reported second-quarter fiscal 2024 results, wherein earnings matched the Zacks Consensus Estimate and revenues beat the same. Moreover, both the bottom and top lines marked a year-over-year improvement.

Gen Digital was formerly known as NortonLifeLock Inc. and was trading under the NLOK ticker symbol. NortonLifeLock changed its name and ticker symbol, effective from Nov 8, 2022, following the completed merger of NortonLifeLock and Avast Plc. The newly named company unites trusted consumer safety brands, including Norton, Avast, LifeLock, AVG, Avira, CCleaner and ReputationDefender.

Coming to the second-quarter performance, Gen Digital reported non-GAAP earnings of 47 cents per share, which matched the consensus estimate. The bottom line increased 4% year over year on a reported basis and 9% on constant currency.

Gen Digital Inc. Price, Consensus and EPS Surprise

Gen Digital Inc. Price, Consensus and EPS Surprise

Gen Digital Inc. price-consensus-eps-surprise-chart | Gen Digital Inc. Quote

Improvement in bottom-line results reflected benefits from higher revenues, partially offset by increased interest expenses. The company revealed that increased interest expenses negatively impacted non-GAAP earnings per share by 14%.

The company’s second-quarter non-GAAP revenues soared 27% year over year to $948 million, beating the Zacks Consensus Estimate of $942.9 million. On a constant-currency basis, revenues increased 28% year over year.

The robust top line was mainly driven by the inclusion of the Avast business, improved customer experiences and international business expansion. However, the negative impact of unfavorable foreign currency exchange rates somewhat hurt revenue growth in the reported quarter.

Key Metrics

Gen Digitals’ Direct Customer revenues increased 26.8% year over year to $837 million. Partner revenues improved by 28.4% to $95 million. Our revenue estimates for Direct Customer and Partner were pegged at $826 million and $96.1 million, respectively.

The direct monthly average revenue per user increased to $7.28 from $6.98 in the year-ago quarter. Our estimates for the direct monthly average revenue per user were pegged at $7.20. The quarterly bookings advanced 28% on a year-over-year basis to $923 million.

Gen Digital’s average direct customer count decreased marginally to 38.5 million from 38.6 million in the year-ago quarter. Our estimate for the average direct customer count was pegged at 38.2 million.

Gen Digital’s customer base continued to show healthy signs, with customer retention rate improving to 77% in the second quarter from 76% in the first quarter of fiscal 2024. Notably, before the Avast acquisition, NortonLifeLock’s customer retention rate was slightly more than 85%. However, it has fallen to around 75-76% post the merger.

Operating Details

The non-GAAP gross profit grew 28% year over year to $827 million. Moreover, the gross margin expanded by 80 basis points (bps) to 87.2%.

Non-GAAP operating expenses increased 8% year over year to $278 million. However, as a percentage of revenues, non-GAAP operating expenses reduced by 520 bps to 29.3%.

The non-GAAP operating income in the second quarter of fiscal 2024 totaled $549 million, up 41% year over year. The non-GAAP operating margin expanded by 600 bps to 57.9%, mainly due to cost synergies resulting from the NortonLifeLock and Avast merger, an improved gross margin and disciplined spending.

Non-GAAP EBITDA declined 47.8% year over year to $151 million. Meanwhile, the non-GAAP reported EBITDA increased 41.6% to $555 million.

Balance Sheet & Other Details

Gen Digital exited the second quarter with cash, cash equivalents and short-term investments of $629 million compared with the previous quarter’s $623 million. The long-term debt was $9.33 billion, marginally up from $9.32 billion in the previous quarter.

The company generated operating and free cash flows of $125 million and $120 million, respectively, in the second quarter of fiscal 2023. In the first half of fiscal 2024, it generated operating cash flow and free cash flow of $351 million and $342, respectively.

In the second quarter, Gen Digital paid out $81 million in dividends. The company also paid debt worth $58 million. GEN authorized a quarterly cash dividend of 12.5 cents per share, payable on Dec 13 to shareholders of record as of Nov 20.

Third-Quarter and Fiscal 2024 Guidance

For the third quarter of fiscal 2024, Gen Digital anticipates revenues in the band of $950-$960 million. The company projects non-GAAP earnings between 49 cents and 51 cents in the third quarter.

For fiscal 2024, Gen Digital anticipates revenues in the band of $3.81-$3.835 billion. The company projects non-GAAP earnings per share between $1.95 and $2.02 in the fiscal year.

Zacks Rank and Stocks to Consider

Currently, GEN carries a Zacks Rank #3 (Hold). Shares of the company have declined 11.7% year to date.

Some better-ranked stocks from the broader technology sector are NVIDIA (NVDA - Free Report) , NetEase (NTES - Free Report) and Asure Software (ASUR - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for NVDA’s third-quarter fiscal 2024 earnings has been revised by 10 cents northward to $3.34 per share in the past 60 days. For fiscal 2024, earnings estimates have increased by 28 cents to $10.74 in the past 60 days.

NVIDIA's earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing the same on one occasion, the average surprise being 9.8%. Shares of NVDA have rallied 214.3% year to date.

The Zacks Consensus Estimate for NetEase's third-quarter 2023 earnings has been revised upward by 8 cents to $1.65 per share in the past 30 days. For fiscal 2023, earnings estimates have increased by 42 cents to $6.96 per share in the past 30 days.

NTES' earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing the same on one occasion, the average surprise being 24.54%. Shares of NTES have gained 54% year to date.

The Zacks Consensus Estimate for Asure Software's third-quarter 2023 earnings has been revised upward by a penny to 6 cents per share in the past 60 days. For fiscal 2023, earnings estimates have increased by 3 cents to 54 cents per share in the past 60 days.

ASUR’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 676.39%. Shares of ASUR have declined 8.5% year to date.

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