Gen Digital (GEN) Gains on Q2 Earnings Meet, Revenue Beat

Gen Digital Inc. GEN shares soared 5% on Tuesday’s extended trading session following the company’s report of strong second-quarter fiscal 2023 results. The consumer cyber safety provider reported non-GAAP earnings that matched the Zacks Consensus Estimate, while revenues surpassed the same.

Moreover, the top and bottom 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 45 cents per share, which matched the Zacks Consensus Estimate. The bottom line improved by 5% from the year-ago quarter’s earnings of 43 cents per share.

The company’s quarterly non-GAAP revenues increased 8% year over year to $748 million, which surpassed the Zacks Consensus Estimate of $699.7 million. Constant currency-adjusted revenues on a non-GAAP basis were $779 million, 12% higher than the year-ago quarter’s reported figure.

Revenues were primarily driven by improved customer experiences. The international business expansion contributed to the quarterly results.

Direct customer revenues increased to $660 million from the $619 million reported in the year-ago quarter. Partner revenues improved by 16% to $74 million from the $64 million reported a year ago.

Quarterly Details

The monthly direct average revenue per user decreased to $6.98 from $8.63 in the year-ago quarter. The continued stabilization of the direct customer count was an upside. The quarterly bookings increased 6% on a year-over-year basis to $719 million.

Gen Digital’s average direct customer count increased to 38.6 million from 24 million in the year-ago quarter. NortonLifeLock’s customer retention rate was slightly more than 85% as new initiatives were launched for the improvement of overall retention and within specific products and customer cohorts.

However, including Avast’s customer base and online customers, the aggregate retention rate for Gen Digital was 75% at the second-quarter end.

The non-GAAP gross profit grew 6% year over year to $646 million from $607 million. However, the gross margin contracted by 90 basis points (bps) to 86.4%.

The non-GAAP operating income for the second quarter of fiscal 2023 totaled $388 million, up 7% year over year. The non-GAAP operating margin contracted by 30 bps to 51.9%, mainly due to a lower gross margin, partially offset by a reduction in operating expenses as a percentage of revenues.

Non-GAAP operating expenses increased 6% year over year to $258 million. However, as a percentage of revenues, non-GAAP operating expenses reduced 60 bps to 34.5% from 35.1% in the year-ago quarter.

Non-GAAP EBITDA plunged 42% year over year to $289 million. Meanwhile, the non-GAAP reported EBITDA increased 7% to $392 million.

Balance Sheet & Other Details

Gen Digital exited the second quarter with cash and cash equivalents of $1.1 billion compared with the previous quarter’s $1.29 billion. The long-term debt was $9.88 billion, up from $2.71 billion in the previous quarter.

The company used cash worth $88 million for operational activities and had negative free cash flow of $90 million in the second quarter.

Gen Digital authorized a quarterly cash dividend of $0.125 per share, payable on Dec 14, 2022, to shareholders of record as of Nov 21.

Third-Quarter Fiscal 2023 Guidance

For the third quarter of fiscal 2023, GEN anticipates revenues in the band of $925-$940 million. Gen Digital projects non-GAAP earnings between 42 cents and 45 cents in the third quarter.

Stocks to Consider

Some top-ranked stocks worth considering from the broader technology sector are Zscaler ZS, Celestica CLS and Coupa Software COUP, 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 Zscaler's first-quarter fiscal 2023 earnings has been revised 3 cents north to 26 cents per share over the past 60 days. For fiscal 2023, earnings estimates have moved 12 cents north to $1.18 per share in the past 60 days.

ZS’ earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 28.6%. Shares of the company have declined 62.7% YTD.

The Zacks Consensus Estimate for Celestica’s fourth-quarter 2022 earnings has increased by 9 cents to 53 cents per share over the past 30 days. For 2022, earnings estimates have moved 9.4% up to $1.86 per share in the past 30 days.

CLS' earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 11.8%. Shares of the company have decreased 1.2% YTD.

The Zacks Consensus Estimate for Coupa's third-quarter fiscal 2023 earnings has been revised 4 cents northward to 10 cents per share over the past 90 days. For fiscal 2023, earnings estimates have moved upward by 19 cents to 44 cents per share in the past 90 days.

Coupa's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 478.1%. Shares of COUP have slumped 72.4% YTD.

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