Executive Summary

Q2 FY21 revenue was $626M (+5% y/y; +3% reported), non-GAAP EPS $0.36 (+100% y/y), and non-GAAP operating margin reached 50%; GAAP diluted EPS from continuing ops was $0.28 .
Results exceeded company guidance: revenue came in just above the high-end ($626M vs $615–$625M guided) and non-GAAP EPS topped the high-end ($0.36 vs $0.31–$0.35 guided), driven by solid top-line execution, elimination of stranded costs, and favorable FX .
KPIs strengthened: direct customers rose to 20.7M (+608k y/y), ARPU increased to $9.10/month (+2% y/y), and reported billings grew 7% y/y; partner revenue grew 7% y/y, with employee benefits a notable driver .
Q3 FY21 outlook: revenue $625–$635M (~4–5% growth after ID Analytics normalization), non-GAAP EPS $0.36–$0.38, and target non-GAAP operating margin ~50%; quarterly dividend maintained at $0.125/share (payable Dec 16, 2020) .

What Went Well and What Went Wrong

What Went Well

Sustained growth and operating leverage: “reported billings growth of 7%, revenue growth of 5%, and EPS growth of 100%” with 50% non-GAAP operating margin achieved at the total company level .
Customer acquisition and engagement: Direct customers reached 20.7M, the fourth consecutive quarter of sequential net adds, with ARPU >$9 and retention stable at ~85% as Norton 360 adoption increased (over half of installed base) .
Partner momentum: Partner revenue +7% y/y, with double-digit growth in employee benefits and progress in TELUS Canada rollout; management emphasized long-term scaling potential of partnerships .

What Went Wrong

Cash flow timing and one-offs pressured quarterly OCF: Q2 operating cash flow was a usage of $113M due to the last stranded costs, transition close-outs, a licensing agreement with Broadcom, and tax timing; management reiterated a ~$900M annualized FCF run-rate absent one-offs .
Retail channel remained weak even as other partner channels strengthened; management cited eTail strength but continued brick-and-mortar softness .
International monetization mix can temper ARPU near term as LifeLock capabilities scale outside the U.S.; management noted ARPU varies with geography and pillar mix (security, privacy, identity) .

Financial Results

Core P&L and Margins (oldest → newest)

Metric	Q4 2020	Q1 2021	Q2 2021
Revenue ($M)	$614	$614	$626
GAAP Diluted EPS – Continuing Ops ($)	$0.23	$0.24	$0.28
Non-GAAP Diluted EPS ($)	$0.26	$0.31	$0.36
GAAP Operating Margin (%)	7.2%	19.5%	36.7%
Non-GAAP Operating Margin (%)	41.5%	47.1%	50.2%
Consumer Reported Billings ($M, Non-GAAP)	$639	$596	$642

Notes: Q2 y/y revenue growth +5% and constant currency +4%; non-GAAP EPS up 100% y/y .

Segment/Channel Mix (oldest → newest)

Metric	Q4 2020	Q1 2021	Q2 2021
Direct Customer Revenues ($M)	$549	$552	$563
Partner Revenues ($M)	$61	$62	$63

KPIs (oldest → newest)

KPI	Q4 2020	Q1 2021	Q2 2021
Direct Customer Count (end of period, M)	20.2	20.6	20.7
ARPU ($/month)	$9.07	$9.03	$9.10
Annual Retention Rate (%)	85%	~85%	85% (stable)

Q2 Actual vs Prior Company Guidance (Q1 guide for Q2)

Metric	Q2 Company Guidance (from Q1)	Q2 Actual	Result
Revenue ($M)	$615–$625	$626	Above high-end
Non-GAAP EPS ($)	$0.31–$0.35	$0.36	Above high-end

Non-GAAP add-backs in Q2 included stock comp ($19M), amortization ($25M), restructuring ($14M), litigation settlement ($25M), other items, and gain on sale of property (−$35M), which together bridged GAAP EPS to $0.36 non-GAAP .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($M)	Q3 FY21	N/A	$625–$635	New
Non-GAAP EPS ($)	Q3 FY21	N/A	$0.36–$0.38	New
Non-GAAP Operating Margin (%)	Q3 FY21	N/A	~50%	New
Dividend per Share ($)	Q3 FY21 pay date	$0.125 (prior quarter)	$0.125 (pay Dec 16, 2020)	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2020 and Q1 2021)	Current Period (Q2 2021)	Trend
Marketing investment and cohorts	Increased spend (+$100M annualized), shift to digital; customer adds resumed; 47% non-GAAP margin incl. stranded costs .	Continued investment; early renewal cohort indicators positive; “will not take our foot off the gas pedal” .	Building efficiency; sustaining growth.
Norton 360 adoption and product innovation	Rapid Norton 360 penetration (40%+ of base by Q1); new features like Privacy Monitor Assistant; AI/ML initiatives (Botsight) .	>50% of base on Norton 360; launches include dark web monitoring, privacy manager assistant, family plan features .	Feature cadence accelerating; cross-sell potential rising.
International expansion	Began investing in international marketing; strong early growth in Japan, ANZ, Europe .	International growth outpaced Americas; double-digit direct acquisition in multiple countries; new telco deal in Europe .	Positive momentum; still underpenetrated.
Partner channels (employee benefits, telco, retail)	Employee benefits strong; TELUS partnership groundwork .	Partner revenue +7% y/y; EB strong; TELUS national rollout; retail still weak .	EB/telco scaling; retail mixed.
Retention/ARPU dynamics	Retention ~85%; ARPU ~$9; balanced growth across security and identity .	Retention stable at 85%; ARPU >$9 despite first-year price headwinds with new adds .	Stable retention; ARPU resilient.
Cost structure/stranded costs	Nearing elimination; margin target 50% .	Stranded costs fully eliminated; total company non-GAAP margin 50% .	Structural tailwind to margins realized.
Cash flow and underutilized assets	Target ~$900M annualized FCF post-transition; asset sales progressing .	Q2 OCF impacted by one-offs; reaffirmed ~$900M annualized FCF; ~ $875M proceeds realized to date; active discussions on remaining properties .	One-offs abating; FCF run-rate intact.

Management Commentary

“In Q2, we delivered reported billings growth of 7%, revenue growth of 5%, and EPS growth of 100%, closing out a strong first half of fiscal year '21.” – Vincent Pilette, CEO .
“Q2 total company operating margin from continuing operations was 50%...this quarter marked the first time we have met our long-term target of 50% margin on a total company basis.” – Natalie Derse, CFO .
“We increased our total direct customer count to 20.7 million…adding 117,000 customers sequentially… and 608,000 customers year-over-year.” – Natalie Derse, CFO .
“We will continue to fund and invest for growth with the expectation that we will expand even further internationally…” – Natalie Derse, CFO .
“Our goal is to constantly bring new value to our subscribers…We also continue to invest and expand internationally with international growth slightly ahead of the Americas.” – Vincent Pilette, CEO .

Q&A Highlights

Renewal cohorts and marketing ROI: Early indicators for first-year renewal cohorts are “very positive” as the company shifts to more efficient digital channels; management will keep investing to drive sustainable growth .
Competitive backdrop (McAfee): Management views consumer cyber safety as a growing market and is focused on accelerating long-term growth through product innovation and market expansion .
International/ARPU mix: ARPU differs by market and product mix (security vs identity); U.S. ARPU higher due to LifeLock; international identity expansion underway to lift ARPU over time .
Seasonality: With ratable revenue and COVID-era dynamics, seasonality is muted; some holiday and tax-related effects remain, but less pronounced .
Guidance clarifications: Q3 guide assumes ~50% non-GAAP margin and non-GAAP EPS $0.36–$0.38; liquidity remains strong with ~$1B cash and $1B undrawn revolver .

Estimates Context

S&P Global consensus data for Q2 FY21 actuals and Q3 FY21 estimates was unavailable at time of analysis due to an access limit, so we cannot provide vs-consensus comparisons or estimate deltas. We benchmarked actuals against company guidance instead .

Key Takeaways for Investors

Q2 FY21 execution exceeded company guidance on revenue and non-GAAP EPS, with structural margin expansion as stranded costs were fully eliminated; non-GAAP operating margin of 50% is now a maintained target .
Growth drivers are diversified: direct customer adds, expanding international footprint, and scaling partner channels (employee benefits, telco) underpin mid-single digit top-line trajectory .
ARPU and retention remain resilient (> $9/month ARPU; ~85% retention), aided by rising Norton 360 penetration and identity features, supporting lifetime value even as new customer mix grows .
Near-term OCF was impacted by one-offs, but the ~$900M annualized FCF cadence is reaffirmed; balance sheet/liquidity provides flexibility for opportunistic buybacks and strategic investments .
Q3 outlook implies continued mid-single digit growth and stable margins; catalysts include ongoing feature releases, international identity rollout, and partner wins; retail recovery remains a swing factor .
Non-GAAP adjustments (stock comp, amortization, restructuring, litigation) materially impact headline profitability; investors should anchor on non-GAAP EPS/margin for operating trends while monitoring recurring vs one-time items .
With consensus comparisons unavailable, focus on the consistent pattern of internal beat vs guidance and the building momentum across regions and channels as the primary narrative drivers this quarter .

Gen Digital Inc. (GEN)·Q2 2021 Earnings Summary