Sign in
GD

Gen Digital Inc. (GEN)·Q3 2021 Earnings Summary

Executive Summary

  • Q3 FY2021 delivered accelerating growth: non-GAAP revenue $0.639B (+6% YoY), non-GAAP EPS $0.38 (+52% YoY), and non-GAAP operating margin 51.0%, with consumer reported billings up 10% to $0.700B .
  • Customer metrics remained strong: direct customers reached 21.0M (+334k QoQ; +876k YoY), ARPU held at $9.10/month, and unit retention stayed ~85% .
  • Results were above guidance: revenue exceeded the high end and EPS landed at the high end, while Q4 guidance was set at non-GAAP revenue $0.655–$0.665B and EPS $0.37–$0.39, with Avira contributions beginning in Q4 .
  • Liquidity and cash generation are robust: operating cash flow was $0.293B; a $0.125 dividend was declared (payable Mar 17, 2021), and management reiterated >$900M annual free cash flow run-rate ambition .

What Went Well and What Went Wrong

  • What Went Well

    • Sustained top-line momentum with non-GAAP revenue $0.639B (+6% YoY), non-GAAP EPS $0.38 (+52%), and operating margin at 51.0% (up 14.8 pts YoY) .
    • Partner business strength: “Q3 revenue grew 15% YoY” and retail performed well in eTail and holidays; Japan identity products were highlighted as strong .
    • Platform adoption and customer growth: “approximately 60% of our installed base are using Norton 360,” with 334k net adds QoQ and 876k YoY; ARPU ~$9 and retention ~85% .

  • What Went Wrong

    • GAAP diluted EPS from continuing operations fell 47% YoY ($0.29 vs. $0.55) due to compares and mixed discontinued operations impacts YoY .
    • Mix headwinds to ARPU/retention from newer cohorts: “first year ARPU and retention rate for newly acquired customers is generally lower,” creating mix pressure as international and freemium channels scale .
    • No Avira contribution in Q3 and some seasonality: Avira closed in January (Q4), and identity traditionally skews to Q4 (tax season), leaving limited contribution to Q3 .

Financial Results

Core P&L and Cash Flow (Quarterly progression)

MetricQ1 2021Q2 2021Q3 2021
Revenue (GAAP, $B)$0.614 $0.626 $0.639
Diluted EPS – Continuing Ops (GAAP, $)$0.24 $0.28 $0.29
Diluted EPS (Non-GAAP, $)$0.31 $0.36 $0.38
Operating Margin (Non-GAAP, %)47.1% 50.2% 51.0%
Operating Cash Flow ($B)$0.170 $(0.113) $0.293
Consumer Reported Billings (Non-GAAP, $B)$0.596 $0.642 $0.700

Q3 YoY and QoQ

  • Revenue: $0.639B vs. $0.618B YoY (+3.4%) and vs. $0.626B QoQ (+2.1%) .
  • Non-GAAP EPS: $0.38 vs. $0.25 YoY (+52%) and vs. $0.36 QoQ (+5.6%) .
  • Non-GAAP Operating Margin: 51.0% vs. 36.2% YoY (+14.8 pts) and vs. 50.2% QoQ (+0.8 pts) .
  • Operating Cash Flow: $0.293B vs. $0.399B YoY and vs. $(0.113)B QoQ .
  • Consumer Reported Billings: $0.700B vs. $0.634B YoY (+10%) and vs. $0.642B QoQ (+9.0%) .

Segment/Channel Breakdown

MetricQ1 2021Q2 2021Q3 2021
Direct Customer Revenues ($B)$0.552 $0.563 $0.569
Partner Revenues ($B)$0.062 $0.063 $0.070

KPIs

KPIQ1 2021Q2 2021Q3 2021
Direct Customer Count (M, period end)20.6 20.7 21.0
Net Adds QoQ (k)—+100 +334
ARPU ($/month)$9.03 $9.10 $9.10
Unit Retention (%)~85% ~85% ~85%
Norton 360 Adoption (% of installed base)>40% >50% ~60%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/ActualChange
Revenue (Non-GAAP)Q3 2021$0.625–$0.635B $0.639B actual Beat – above high end
EPS (Non-GAAP)Q3 2021$0.36–$0.38 $0.38 actual At high end
Revenue (Non-GAAP)Q4 2021n/a$0.655–$0.665B New
EPS (Non-GAAP)Q4 2021n/a$0.37–$0.39 New
DividendQ3 2021$0.125/share (Dec 16, 2020) $0.125/share (Mar 17, 2021) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1/Q2)Current Period (Q3)Trend
Platform adoption & product innovationNorton 360 adoption >40% (Q1); >50% (Q2); new features: Privacy Monitor Assistant; Botsight ML initiative ~60% adoption; enhanced Norton 360 Mobile; ID Advisor launch in Japan Strengthening adoption and faster innovation cadence
International expansionInternational growth outpacing Americas; new telco retail wins; underpenetration outside U.S. Strong Japan identity performance; multiple countries with double-digit direct growth; Avira strengthens EMEA reach Accelerating, particularly in EMEA/Japan
Partner channels (employee benefits/telco/retail)Employee benefits fastest-growing channel; TELUS rolling out nationally Partner revenue +15% YoY; continued focus on employee benefits Expanding, multi-year cycles acknowledged
Marketing mix & cohortsShift from TV/radio to digital/international; higher spend, positive cohort signs Continued investments; early improvements in first-year renewal on Norton 360 cohorts Improving efficiency and retention
Freemium strategy (Avira)—Avira freemium model to widen funnel; upsell/cross-sell to premium Norton portfolio post-acquisition Adds acquisition channel and EMEA capability
Capital allocation & FCF>$900M annual FCF run rate; buyback authorization $0.293B OCF in Q3; continued dividend and buybacks Consistent deployment with strong liquidity

Management Commentary

  • CEO: “Consumers are seeing the value of Cyber Safety with nearly 60% of our customers using Norton 360…with the Avira acquisition, we are just getting started.”
  • CFO: “Q3 operating margin was 51%…Diluted EPS was $0.38…We expect Q4 revenue in the range of $655 million to $665 million and EPS $0.37 to $0.39.”
  • CEO on international/identity: “We look forward to adding Avira’s and BullGuard’s capabilities to our portfolio…we are quickly working to leverage Avira’s strong presence in Europe.”
  • CEO on cohorts: “We’ve seen better retention rate in the first year than standalone product [with Norton 360]…we’re very encouraged by what the numbers show.”

Q&A Highlights

  • Marketing ROI and funnel: Management sees continued room to drive traffic and monetization via combined levers (Norton 360, new features, international penetration, and marketing), with Avira potentially accelerating growth .
  • Cohort retention and ARPU: Early improvements in first-year renewal for Norton 360 cohorts but noted lower first-year ARPU/retention vs. aggregate, implying mix headwinds as new cohorts scale .
  • Avira contribution and freemium strategy: Deal closed Jan 8; Q4 includes partial impact; freemium expands reach with upsell/cross-sell paths and European strength (Germany now #1 market share with Avira) .
  • Partner channel emphasis: Employee benefits called out as a particularly attractive, direct relationship channel; multi-year cycle investments continue .
  • Seasonality and identity: Q4 traditionally stronger for identity (tax season), and Avira plus international identity expansion expected to support growth .

Estimates Context

  • S&P Global/Capital IQ consensus estimates for Q3 FY2021 were not accessible at the time of analysis due to a request limit error, so beat/miss versus Wall Street consensus cannot be formally assessed here [GetEstimates error].

Key Takeaways for Investors

  • Momentum inflection confirmed: non-GAAP revenue, EPS, margin, billings all accelerated, with revenue above guidance and EPS at the high end—signaling durable execution and operating leverage .
  • Customer engine scaling: Five consecutive quarters of net adds culminating in 21.0M direct customers; stable retention (~85%) and ARPU resiliency point to healthy monetization of cohorts .
  • Strategic catalysts: Avira broadens EMEA reach and adds freemium funnel; Norton 360 adoption (~60%) supports cross-sell/upsell and higher retention—key drivers for mid/high single-digit growth trajectory .
  • Channel diversification: Employee benefits and telco partnerships deepen distribution with longer-cycle scale potential, supporting international underpenetration thesis .
  • Cash generation supports returns: Strong OCF in Q3 ($0.293B), ongoing dividend and buybacks with ample liquidity, underpinning EPS growth above revenue growth over time .
  • Near-term setup: Q4 guidance embeds identity seasonality and partial Avira impact; watch for continued billings growth, Norton 360 adoption, and international momentum as the narrative drivers .
  • Medium-term thesis: Platform-led cyber safety expansion (security, privacy, identity) plus international scaling should sustain profitable growth; monitor cohort quality (first-year retention/ARPU) and freemium conversion efficacy .