UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2023

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                to                

Commission File Number 000-17781

Gen Digital Inc.

(Exact name of the registrant as specified in its charter)

Delaware				77-0181864
(State or other jurisdiction of incorporation or organization)				(I.R.S. employer Identification no.)
60 E. Rio Salado Parkway,	Suite 1000,	Tempe,	Arizona	85281
(Address of principal executive offices)				(Zip code)

Registrant’s telephone number, including area code:

(650) 527-8000

Former name or former address, if changed since last report:

Not applicable

  ________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbol(s)	Name of each exchange on which registered
Common Stock,	par value $0.01 per share	GEN	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes þ   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	þ	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐
						Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐   No þ

The number of shares of Gen common stock, $0.01 par value per share, outstanding as of July 31, 2023 was 639,439,103 shares.

GEN DIGITAL INC.

FORM 10-Q

Quarterly Period Ended June 30, 2023

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Income (Loss)	5
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit)	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	32
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 5.	Other Information	45
Item 6.	Exhibits	46
Signatures		47

“Gen,” “we,” “us,” “our,” and “the Company” refer to Gen Digital Inc. and all of its subsidiaries. Gen, Norton, Avast,

LifeLock, Avira, AVG, Reputation Defender, CCleaner and all related trademarks, service marks and trade names are trademarks or registered trademarks of Gen or other respective owners that have granted Gen the right to use such marks. Other names may be trademarks of their respective owners.

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

GEN DIGITAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions, except par value per share amounts)

	June 30, 2023		March 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	623	$	750
Accounts receivable, net	145		168
Other current assets	297		284
Assets held for sale	22		31
Total current assets	1,087		1,233
Property and equipment, net	73		76
Operating lease assets	38		43
Intangible assets, net	2,982		3,097
Goodwill	10,241		10,217
Other long-term assets	1,366		1,281
Total assets	$	15,787	$	15,947
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	65	$	77
Accrued compensation and benefits	60		102
Current portion of long-term debt	233		233
Contract liabilities	1,631		1,708
Current operating lease liabilities	24		26
Other current liabilities	735		703
Total current liabilities	2,748		2,849
Long-term debt	9,327		9,529
Long-term contract liabilities	78		80
Deferred income tax liabilities	385		395
Long-term income taxes payable	841		820
Long-term operating lease liabilities	27		31
Other long-term liabilities	44		43
Total liabilities	13,450		13,747
Commitments and contingencies (Note 18)
Stockholders’ equity (deficit):
Common stock and additional paid-in capital, $0.01 par value: 3,000 shares authorized; 639 and 640 shares issued and outstanding as of June 30, 2023 and March 31, 2023, respectively	2,697		2,800
Accumulated other comprehensive income (loss)	36		(15)
Retained earnings (accumulated deficit)	(396)		(585)
Total stockholders’ equity (deficit)	2,337		2,200
Total liabilities and stockholders’ equity (deficit)	$	15,787	$	15,947

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3

GEN DIGITAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in millions, except per share amounts)

	Three Months Ended
	June 30, 2023		July 1, 2022
Net revenues	$	946	$	707
Cost of revenues	179		102
Gross profit	767		605
Operating expenses:
Sales and marketing	181		156
Research and development	90		61
General and administrative	56		104
Amortization of intangible assets	61		21
Restructuring and other costs	17		2
Total operating expenses	405		344
Operating income (loss)	362		261
Interest expense	(170)		(31)
Other income (expense), net	12		(1)
Income (loss) before income taxes	204		229
Income tax expense (benefit)	15		29
Net income (loss)	$	189	$	200
Net income (loss) per share - basic	$	0.30	$	0.35
Net income (loss) per share - diluted	$	0.29	$	0.33
Weighted-average shares outstanding:
Basic	640		578
Diluted	643		604

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4

GEN DIGITAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in millions)

	Three Months Ended
	June 30, 2023		July 1, 2022
Net income (loss)	$	189	$	200
Other comprehensive income (loss), net of taxes:
Foreign currency translation gain (loss)	32		(40)
Net unrealized gain (loss) on derivative instruments	19		—
Other comprehensive income (loss), net of taxes	51		(40)
Comprehensive income (loss)	$	240	$	160

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5

GEN DIGITAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited, in millions, except share amounts)

Three months ended June 30, 2023	Common Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Accumulated Deficit)		Total Stockholders’ Equity (Deficit)
	Shares	Amount
Balance as of March 31, 2023	640	$	2,800	$	(15)	$	(585)	$	2,200
Net income (loss)	—	—		—		189		189
Other comprehensive income (loss), net of taxes	—	—		51		—		51
Common stock issued under employee stock incentive plans	3	—		—		—		—
Shares withheld for taxes related to vesting of stock units	(1)	(18)		—		—		(18)
Repurchases of common stock	(3)	(41)		—		—		(41)
Cash dividends declared ($0.125 per share of common stock) and dividend equivalents accrued	—	(81)		—		—		(81)
Stock-based compensation	—	37		—		—		37
Balance as of June 30, 2023	639	$	2,697	$	36	$	(396)	$	2,337

Three months ended July 1, 2022	Common Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Accumulated Deficit)		Total Stockholders’ Equity (Deficit)
	Shares	Amount
Balance as of April 1, 2022	582	$	1,851	$	(4)	$	(1,940)	$	(93)
Net income (loss)	—	—		—		200		200
Other comprehensive income (loss), net of taxes	—	—		(40)		—		(40)
Common stock issued under employee stock incentive plans	2	—		—		—		—
Shares withheld for taxes related to vesting of stock units	(1)	(16)		—		—		(16)
Repurchases of common stock	(12)	(300)		—		—		(300)
Cash dividends declared ($0.125 per share of common stock) and dividend equivalents accrued	—	(73)		—		—		(73)
Stock-based compensation	—	24		—		—		24
Cumulative effect adjustment from adoption of ASU 2020-06 (1)		(7)				6		(1)
Balance as of July 1, 2022	571	$	1,479	$	(44)	$	(1,734)	$	(299)

(1) Effective on April 2, 2022, the Company adopted ASU 2020-06 (Debt with Conversion and Other Options, ASC 470-20) using a modified retrospective method.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6

GEN DIGITAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)

	Three Months Ended
	June 30, 2023		July 1, 2022
OPERATING ACTIVITIES:
Net income	$	189	$	200
Adjustments:
Amortization and depreciation	125		29
Stock-based compensation expense	37		24
Deferred income taxes	(59)		(32)
Gain on sale of property	(4)		—
Non-cash operating lease expense	6		4
Other	18		(26)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	20		13
Accounts payable	(12)		9
Accrued compensation and benefits	(42)		(32)
Contract liabilities	(68)		(53)
Income taxes payable	28		60
Other assets	(27)		—
Other liabilities	15		19
Net cash provided by (used in) operating activities	226		215
INVESTING ACTIVITIES:
Purchases of property and equipment	(4)		(2)
Proceeds from the maturities and sales of short-term investments	—		4
Other	(2)		2
Net cash provided by (used in) investing activities	(6)		4
FINANCING ACTIVITIES:
Repayments of debt	(208)		(410)
Tax payments related to vesting of stock units	(18)		(16)
Dividends and dividend equivalents paid	(83)		(81)
Repurchases of common stock	(41)		(300)
Net cash provided by (used in) financing activities	(350)		(807)
Effect of exchange rate fluctuations on cash and cash equivalents	3		(8)
Change in cash and cash equivalents	(127)		(596)
Beginning cash and cash equivalents	750		1,887
Ending cash and cash equivalents	$	623	$	1,291

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

7

GEN DIGITAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Description of Business and Significant Accounting Policies

Business

Gen Digital Inc. is a global company powering Digital Freedom with a family of trusted consumer brands including Norton, Avast, LifeLock, Avira, AVG, ReputationDefender and CCleaner. Our Cyber Safety portfolio provides protection across multiple channels and geographies, including security and performance, identity protection, and online privacy. Our technology platforms bring together software and service capabilities into comprehensive and easy-to-use products and solutions across our brands. We have also evolved beyond traditional Cyber Safety to offer adjacent trust-based solutions, including digital identity and access management, digital reputation, and restoration support services.

On September 12, 2022, we completed our acquisition of Avast, plc (Avast). Avast has been included in our consolidated results of operations since the acquisition date. See Note 4 for further information about this business combination.

Basis of presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America for interim financial information. In the opinion of management, the unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting only of normal recurring items, except as otherwise noted, necessary for the fair presentation of our financial position, results of operations and cash flows for the interim periods. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023. The results of operations for the three months ended June 30, 2023 are not necessarily indicative of the results expected for the entire fiscal year.

Fiscal calendar

We have a 52/53-week fiscal year ending on the Friday closest to March 31. Unless otherwise stated, references to three month periods in this report relate to fiscal periods ended June 30, 2023 and July 1, 2022. The three months ended June 30, 2023 and July 1, 2022 each consisted of 13 weeks, respectively. Our 2024 fiscal year consists of 52 weeks and ends on March 29, 2024.

Use of estimates

The preparation of Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying Notes. Such estimates include, but are not limited to, valuation of business combinations including acquired intangible assets and goodwill, loss contingencies, the recognition and measurement of current and deferred income taxes, including the measurement of uncertain tax positions, and valuation of assets and liabilities. On an ongoing basis, management determines these estimates and assumptions based on historical experience and on various other assumptions that are believed to be reasonable. Third-party valuation specialists are also utilized for certain estimates. Actual results could differ from such estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment as a result of macroeconomic factors such as inflation, fluctuations in foreign currency exchange rates relative to the U.S. dollars, our reporting currency, changes in interest rates, and Russia’s invasion of Ukraine, and such differences may be material to the Condensed Consolidated Financial Statements.

Significant accounting policies

With the exception of those discussed in Note 2, there have been no material changes to our significant accounting policies as of and for the three months ended June 30, 2023, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

Note 2. Recent Accounting Standards

Recently adopted authoritative guidance

There have been no material changes in recently issued or adopted accounting standards from those disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

Although there are several other new accounting pronouncements issued or proposed by the FASB that we have adopted or will adopt, as applicable, we do not believe any of these accounting pronouncements has had, or will have, a material impact on our Condensed Consolidated Financial Statements and disclosures.

8

Note 3. Assets Held for Sale

Assets held for sale

During fiscal 2020, we reclassified certain land and buildings previously reported as property and equipment to assets held for sale when the properties were approved for immediate sale in their present condition and the sale was expected to be completed within one year. However, the commercial real estate market was adversely affected by the COVID-19 pandemic, which delayed the expected timing of such sales.

On June 28, 2023, we completed the sale of certain land and buildings in Dublin, Ireland, which was previously classified as held for sale as of March 31, 2023, for cash consideration of $13 million, net of selling costs, and recognized a gain on sale of $4 million.

We continue to actively market the remaining properties for sale. We have taken into consideration the current real estate values and demand and continue to execute plans to sell these properties. As of June 30, 2023, these assets are classified as held for sale. During the three months ended June 30, 2023, there were no impairments because the fair value of the properties less costs to sell either equals or exceeds their carrying value.

On July 28, 2023, we entered into an agreement to sell certain land and buildings in Tucson, Arizona, which were previously classified as held for sale as of June 30, 2023 and March 31, 2023, for cash consideration of $13 million, net of selling costs. The transaction is expected to close during the third quarter of fiscal 2024.

Note 4. Business Combinations

Fiscal 2023 Avast acquisition

During the second quarter of fiscal 2023, we acquired all of the outstanding common stock of Avast. Prior to the acquisition, Avast was a global leader in consumer cybersecurity, offering a comprehensive range of digital security and privacy products and services that protected and enhanced users’ online experiences. With this acquisition, we are positioned to provide a broad and complementary consumer product portfolio with greater geographic diversification and access to a larger user base. The total consideration for the acquisition of Avast was approximately $8,688 million, net of cash acquired.

Our current allocation of the aggregate purchase price, based on the estimated fair values of the assets acquired and liabilities assumed, as of the acquisition date, inclusive of measurement period adjustments, is as follows:

(In millions)	September 12, 2022
Assets:
Accounts receivable	$	63
Other current assets	17
Property and equipment	33
Operating lease assets	18
Intangible assets	2,383
Goodwill	7,349
Other long-term assets	11
Total assets acquired	9,874
Liabilities:
Current liabilities	180
Contract liabilities	509
Operating lease liabilities	18
Long-term deferred tax liabilities	433
Other long-term obligations	46
Total liabilities assumed	1,186
Total purchase price	$	8,688

The allocation of the purchase price is based upon a preliminary valuation, and as additional information becomes available, our estimates and assumptions may be subject to refinement within the measurement period, which may be up to one year from the acquisition date. Adjustments to the purchase price may require adjustments to goodwill prospectively. The primary area of preliminary purchase price allocation that is not yet finalized are certain tax matters. There were immaterial measurement period adjustments during the three months ended June 30, 2023.

9

Note 5. Revenues

Contract liabilities

During the three months ended June 30, 2023, we recognized $700 million from the contract liabilities balances as of March 31, 2023. During the three months ended July 1, 2022, we recognized $508 million from the contract liabilities balances as of April 1, 2022.

Remaining performance obligations

Remaining performance obligations represent contract revenue that has not been recognized, which include contract liabilities and amounts that will be billed and recognized as revenue in future periods. As of June 30, 2023, we had $1,219 million of remaining performance obligations, excluding customer deposit liabilities of $490 million, of which we expect to recognize approximately 94% as revenue over the next 12 months.

See Note 17 for tabular disclosures of disaggregated revenue by solution and geographic region.

Note 6. Goodwill and Intangible Assets

Goodwill

The changes in the carrying amount of goodwill were as follows:

(In millions)
Balance as of March 31, 2023	$	10,217
Translation adjustments	24
Balance as of June 30, 2023	$	10,241

Intangible assets, net

	June 30, 2023						March 31, 2023
(In millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	$	1,643	$	(608)	$	1,035	$	1,641	$	(549)	$	1,092
Developed technology	1,464		(337)		1,127		1,462		(279)		1,183
Other	91		(10)		81		91		(8)		83
Total finite-lived intangible assets	3,198		(955)		2,243		3,194		(836)		2,358
Indefinite-lived trade names	739		—		739		739		—		739
Total intangible assets	$	3,937	$	(955)	$	2,982	$	3,933	$	(836)	$	3,097

Amortization expense for purchased intangible assets is summarized below:

	Three Months Ended				Condensed Consolidated Statements of Operations Classification
(In millions)	June 30, 2023		July 1, 2022
Customer relationships and other	$	61	$	21	Operating expenses
Developed technology	57		5		Cost of revenues
Total	$	118	$	26

As of June 30, 2023, future amortization expense related to intangible assets that have finite lives is as follows by fiscal year:

(In millions)
Remainder of 2024	$	344
2025	401
2026	395
2027	382
2028	379
Thereafter	342
Total	$	2,243

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Note 7. Supplementary Information

Cash and cash equivalents:

(In millions)	June 30, 2023		March 31, 2023
Cash	$	542	$	576
Cash equivalents	81		174
Total cash and cash equivalents	$	623	$	750

Accounts receivable, net:

(In millions)	June 30, 2023		March 31, 2023
Accounts receivable	$	146	$	169
Allowance for doubtful accounts	(1)		(1)
Total accounts receivable, net	$	145	$	168

Other current assets:

(In millions)	June 30, 2023		March 31, 2023
Prepaid expenses	$	118	$	122
Income tax receivable and prepaid income taxes	86		123
Other tax receivable	45		16
Other	48		23
Total other current assets	$	297	$	284

Property and equipment, net:

(In millions)	June 30, 2023		March 31, 2023
Land	$	13	$	13
Computer hardware and software	498		498
Office furniture and equipment	17		17
Buildings	28		28
Leasehold improvements	28		28
Construction in progress	4		1
Total property and equipment, gross	588		585
Accumulated depreciation and amortization	(515)		(509)
Total property and equipment, net	$	73	$	76

Other long-term assets:

(In millions)	June 30, 2023		March 31, 2023
Non-marketable equity investments	$	176	$	176
Long-term income tax receivable and prepaid income taxes	691		669
Deferred income tax assets	401		353
Long-term prepaid royalty	32		36
Other	66		47
Total other long-term assets	$	1,366	$	1,281

Short-term contract liabilities:

(In millions)	June 30, 2023		March 31, 2023
Deferred revenue	$	1,141	$	1,153
Customer deposit liabilities	490		555
Total short-term contract liabilities	$	1,631	$	1,708

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Other current liabilities:

(In millions)	June 30, 2023		March 31, 2023
Income taxes payable	$	188	$	172
Other taxes payable	90		76
Accrued legal fees	270		284
Accrued royalties	46		48
Accrued interest	39		27
Other	102		96
Total other current liabilities	$	735	$	703

Long-term income taxes payable:

(In millions)	June 30, 2023		March 31, 2023
Deemed repatriation tax payable	$	310	$	310
Other long-term income taxes	1		1
Uncertain tax positions (including interest and penalties)	530		509
Total long-term income taxes payable	$	841	$	820

Other income (expense), net:

	Three Months Ended
(In millions)	June 30, 2023		July 1, 2022
Interest income	$	6	$	2
Foreign exchange gain (loss)	1		(1)
Gain on sale of properties	4		—
Other	1		(2)
Other income (expense), net	$	12	$	(1)

Supplemental cash flow information:

	Three Months Ended
(In millions)	June 30, 2023		July 1, 2022
Income taxes paid, net of refunds	$	21	$	1
Interest expense paid	$	155	$	46
Cash paid for amounts included in the measurement of operating lease liabilities	$	8	$	6
Non-cash operating activities:
Reduction of operating lease assets as a result of lease terminations and modifications	$	(1)	$	—

Note 8. Financial Instruments and Fair Value Measurements

For financial instruments measured at fair value, fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider assumptions that market participants would use when pricing the asset or liability.

The three levels of inputs that may be used to measure fair value are:

•Level 1: Quoted prices in active markets for identical assets or liabilities.

•Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in less active markets or model-derived valuations. All significant inputs used in our valuations, such as discounted cash flows, are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities.

•Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities. We monitor and review the inputs and results of these valuation models to help ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.

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Assets measured and recorded at fair value on a recurring basis

The following table summarizes our financial instruments measured at fair value on a recurring basis:

	June 30, 2023						March 31, 2023
(In millions)	Fair Value		Level 1		Level 2		Fair Value		Level 1		Level 2
Assets:
Money market funds	$	81	$	81	$	—	$	174	$	174	$	—
Interest rate swaps (1)	19		—		19		—		—		—
Total	$	100	$	81	$	19	$	174	$	174	$	—

(1) The fair value of our interest rate swaps is less than $1 million as of March 31, 2023.

Financial instruments not recorded at fair value on a recurring basis include our non-marketable equity investments and long-term debt.

Non-marketable equity investments

As of June 30, 2023 and March 31, 2023, the carrying value of our non-marketable equity investments was $176 million and $176 million, respectively.

Current and long-term debt

As of June 30, 2023 and March 31, 2023, the total fair value of our current and long-term fixed rate debt was $2,578 million and $2,593 million, respectively. The fair value of our variable rate debt approximated its carrying value. The fair values of all our debt obligations were based on Level 2 inputs.

Note 9. Leases

We lease certain of our facilities, equipment and data center co-locations under operating leases that expire on various dates through fiscal 2029. Our leases generally have terms that range from 1 year to 8 years for our facilities, 1 year to 3 years for equipment and 1 year to 5 years for data center co-locations. Some of our leases contain renewal options, escalation clauses, rent concessions and leasehold improvement incentives.

The following summarizes our lease costs:

	Three Months Ended
(In millions)	June 30, 2023		July 1, 2022
Operating lease costs	$	4	$	4
Short-term lease costs	—		1
Variable lease costs	1		1
Total lease costs	$	5	$	6

Other information related to our operating leases was as follows:

	Three Months Ended
	June 30, 2023		July 1, 2022
Weighted-average remaining lease term	3.0 years		4.6 years
Weighted-average discount rate	4.49	%	4.05	%

See Note 7 for cash flow information related to our operating leases.

As of June 30, 2023, the maturities of our lease liabilities by fiscal year are as follows:

(In millions)
Remainder of 2024	$	20
2025	16
2026	8
2027	7
2028	2
Thereafter	1
Total lease payments	54
Less: Imputed interest	(3)
Present value of lease liabilities	$	51

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Note 10. Debt

The following table summarizes components of our debt:

(In millions, except percentages)	June 30, 2023		March 31, 2023		Effective Interest Rate
5.00% Senior Notes due April 15, 2025	$	1,100	$	1,100	5.00	%
Term A Facility due September 12, 2027	3,812		3,861		SOFR + % (2)
6.75% Senior Notes due September 30, 2027	900		900		6.75	%
Term B Facility due September 12, 2029	3,272		3,431		SOFR + % (3)
1.29% Avira Mortgage due December 30, 2029 (1)	4		4		1.29	%
7.125% Senior Notes due September 30, 2030	600		600		7.13	%
0.95% Avira Mortgage due December 30, 2030 (1)	3		3		0.95	%
Total principal amount	9,691		9,899
Less: unamortized discount and issuance costs	(131)		(137)
Total debt	9,560		9,762
Less: current portion	(233)		(233)
Total long-term debt	$	9,327	$	9,529

(1)     The Avira Mortgages are denominated in a foreign currency so the balances of these mortgages may fluctuate based on changes in foreign currency exchange rates.

(2)     Term A Facility due 2027 bears interest at a rate equal to Term SOFR plus a credit spread adjustment (CSA) plus a margin based either on the current debt rating of our non-credit-enhanced, senior unsecured long-term debt or consolidated adjusted leverage as defined in the underlying loan agreement.

(3)     Term B Facility due 2029 bears interest at a rate equal to Term SOFR plus CSA plus 2.00%.

The interest rates for the outstanding term loans are as follows:

	June 30, 2023		March 31, 2023
Term A Facility due September 12, 2027	6.95	%	6.66	%
Term B Facility due September 12, 2029	7.20	%	6.91	%

As of June 30, 2023, the future contractual maturities of debt by fiscal year are as follows:

(In millions)
Remainder of 2024	$	175
2025	234
2026	1,333
2027	233
2028	4,017
Thereafter	3,699
Total future maturities of debt	$	9,691

Senior credit facilities

On September 12, 2022, we entered into the Amended and Restated Credit Agreement (Credit Agreement) with certain financial institutions, in which they agreed to provide us with (i) a $1,500 million revolving credit facility (Revolving Facility), a $3,910 million term loan A facility (Term A Facility), (iii) a $3,690 million term loan B facility (Term B Facility) and (iv) a $750 million tranche A bridge loan (Bridge Loan) (collectively, the senior credit facilities). The Bridge Loan was undrawn and immediately terminated upon the close of the acquisition of Avast. The Credit Agreement provides that we have the right at any time, subject to customary conditions, to request incremental revolving commitments and incremental term loans up to an unlimited amount, subject to certain customary conditions precedent and other provisions. The lenders under these facilities will not be under any obligation to provide any such incremental loans or commitments. We drew down the aggregate principal amounts of the Term A Facility and Term B Facility to finance the cash consideration payable for the transaction and to fully repay the outstanding principal and accrued interest of the existing credit facilities. The Credit Agreement replaced the existing credit facilities upon the close of the transaction. The Revolving Facility and Term A Facility will mature in September 2027, and the Term Facility B will mature in September 2029; the senior credit facilities remain senior secured.

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The principal amounts of Term Facility A must be repaid in quarterly installments on the last business day of each calendar quarter equal to 1.25% of the aggregate principal amount as of the date of the Credit Agreement. The principal amounts of Term Facility B must be repaid in quarterly installments on the last business day of each calendar quarter equal to 0.25% of the aggregate principal amount as of the date of the Credit Agreement. Quarterly installment payments commenced on March 31, 2023. We may voluntarily repay outstanding principal balances under the Revolving Facility and both Term Loan facilities without penalty. As of June 30, 2023, there were no borrowings outstanding under our Revolving Facility; however, from time to time we utilize letters of credits as part of our ordinary course of business. Letters of credit reduce our Revolving Facility commitment amounts.

Interest on borrowings under the Credit Agreement can be based on a base rate or the SOFR at our election. Based on our debt ratings and our consolidated leverage ratios as determined in accordance with the Credit Agreement, loans borrowed bear interest, in the case of base rate loans, at a per annum rate equal to the applicable base rate plus CSA plus a margin ranging from 0.125% to 0.75%, and in the case of the SOFR loans, SOFR, as adjusted for statutory reserves, plus a margin ranging from 1.125% to 1.75%.

Debt covenant compliance

The Credit Agreement contains customary representations and warranties, affirmative and negative covenants. Each of the Revolving Facility and Term A Facility are subject to a covenant that we maintain a consolidated leverage ratio less than or equal to (i) 6.0 to 1.0 from the second quarter of fiscal 2023 through the last day of the second quarter of fiscal 2024, (ii) 5.75 to 1.0 following the last day of the second quarter of fiscal 2024 through the last day of the second quarter of fiscal 2025 and (iii) 5.25 to 1.0 for each fiscal quarter thereafter; provided that such maximum consolidated leverage ratio will increase to 5.75 to 1.0 for the four fiscal quarters ending immediately should we acquire property, business or assets in an aggregate amount greater than $250 million.

In addition, the Credit Agreement contains customary events of default under which our payment obligations may be accelerated, including, among others, non-payment of principal, interest or other amounts when due, inaccuracy of representations and warranties, violation of certain covenants, payment and acceleration cross defaults with certain other indebtedness, certain undischarged judgments, bankruptcy, insolvency or inability to pay debts, change of control, the occurrence of certain events related to the Employee Retirement Income Security Act of 1974 (ERISA), and the Company experiencing a change of control. As of June 30, 2023, we were in compliance with all debt covenants.

Senior notes

On February 9, 2017, we issued $1,100 million aggregate principal amount of our 5.0% Senior Notes due April 15, 2025 (the 5.0% Senior Notes). The 5.0% Senior Notes bear interest at a rate of 5.00% per year, payable semiannually in arrears on April 15 and October 15 of each year, beginning on October 15, 2017. On or after April 15, 2020, we may redeem some or all of the 5.0% Senior Notes at the applicable redemption prices set forth in the supplemental indenture, plus accrued and unpaid interest.

On September 19, 2022, we issued two series of senior notes, consisting of 6.75% Senior Notes due 2027 and 7.125% Senior Notes due 2030, for an aggregate principal of $1,500 million. They are senior unsecured obligations that rank equally in right of payment with all of our existing and future senior, unsecured, unsubordinated obligations and may be redeemed at any time, subject to the make-whole provisions contained in the applicable indenture relating to such series of notes. Interest on these series of notes is payable semi-annually in arrears on March 31 and September 30 for both the 6.75% Senior Notes and 7.125% Senior Notes, commencing on March 31, 2023. We may redeem some or all of the 6.75% Senior Notes due 2027 and 7.125% Senior Notes due 2030 at any time, subject to a prepayment penalty that expires one year prior to the maturity of each respective note. The First Call Dates of the 6.75% Senior Notes due 2027 and 7.125% Senior Notes due 2030 are September 30, 2024 and September 30, 2025, respectively.

Convertible Senior Notes

The following table sets forth total interest expense recognized related to our Convertible Senior Notes:

	Three Months Ended
(In millions)	July 1, 2022
Contractual interest expense	$	3
Amortization of debt discount	—
Payments in lieu of conversion price adjustments (1)	$	1

(1) Payments in lieu of conversion price adjustments consist of amounts paid to holders of the Convertible Senior Notes when our quarterly dividend to our common stockholders exceeds the amounts defined in the Convertible Senior Notes agreements.

During the three months ended June 30, 2023, we did not recognize any interest expense related to our Convertible Senior Notes as they were settled during the second quarter of fiscal year 2023.

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Note 11. Derivatives

Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flow associated with changes in foreign currency exchange rates and interest rates. These hedging contracts reduce, but do not entirely eliminate, the impact of adverse foreign exchange rate and interest rate movements. We do not use our derivative instruments for speculative trading purposes. By using derivative financial instruments to hedge exposures to changes in foreign exchange and interest rates, we are exposed to credit risk; however, we mitigate this risk by entering into hedging instruments with highly rated institutions that can be expected to fully perform under the terms of the applicable contracts.

Foreign currency exchange forward contracts

We conduct business in numerous currencies throughout our worldwide operations and our entities hold monetary assets or liabilities, earn revenues or incur costs in currencies other than the entity’s functional currency. As a result, we are exposed to foreign exchange gains or losses, which impacts our operating results. As part of our foreign currency risk mitigation strategy, we have entered into monthly foreign exchange forward contracts to hedge foreign currency balance sheet exposure. These forward contracts are not designated as hedging instruments. We do not hedge our foreign currency exposure in a manner that entirely offsets the effects of the changes in foreign exchange rates.

Interest rate swap

In March 2023, we entered into interest rate swap agreements to mitigate risks associated with the variable interest rate of our Term A Facility. These pay-fixed, receive-floating rate interest rate swaps have the economic effect of hedging the variability of forecasted interest payments until their maturity on March 31, 2026. Pursuant to the agreements, we have effectively converted $1 billion of our variable rate borrowings under Term A Facility to fixed rates, with $500 million at a fixed rate of 3.762% and $500 million at a fixed rate of 3.55%.

These arrangements are designated as cash flow hedges for accounting purposes and as such, we will recognize the changes in the fair value of these interest rate swaps in Accumulated other comprehensive income (loss) (AOCI), and the periodic settlements or accrued settlements of the swap will be recognized within or against interest expense in our Condensed Consolidated Statements of Operations. Cash flows related to these hedges are classified under operating activities in our Condensed Consolidated Statement of Cash Flows.

Summary of derivative instruments

The following table summarizes our outstanding derivative instruments as of June 30, 2023 and March 31, 2023:

	Notional Amount				Fair Value of Derivative Assets				Fair Value of Derivative Liabilities
(In millions)	June 30, 2023		March 31, 2023		June 30, 2023		March 31, 2023		June 30, 2023		March 31, 2023
Foreign exchange contracts not designated as hedging instrument (1)	$	249	$	291	$	—	$	—	$	—	$	—
Interest rate swap contracts designed as cash flow hedge	1,000		1,000		19		1		—		2
Total	$	1,249	$	1,291	$	19	$	1	$	—	$	2

(1) The fair values of the foreign exchange contracts are less than $1 million as of June 30, 2023 and March 31, 2023.

The following table summarizes the effect of our cash flow hedges on AOCI during the periods indicated:

	Three Months Ended
(In millions)	June 30, 2023		July 1, 2022
Interest rate swap contracts designed as cash flow hedge	$	(22)	$	—

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The related gain (loss) recognized in our Condensed Consolidated Statements of Operations, with presentation location was as follows:

	Three Months Ended				Condensed Consolidated Statements of Operations Classification
(In millions)	June 30, 2023		July 1, 2022
Foreign exchange contracts not designated as hedging instrument	$	(3)	$	(7)	Other income (expense), net
Interest rate swap contracts designed as cash flow hedge	3		—		Interest expense
Total	$	—	$	(7)

As of June 30, 2023, we estimate that $15 million of net deferred gains related to our interest rate hedges will be recognized in earnings over the next 12 months.

Note 12. Restructuring and Other Costs

Our restructuring and other costs consist primarily of severance and termination benefits, contract cancellation charges, asset write-offs and impairments and other exit and disposal costs. Severance costs generally include severance payments, outplacement services, health insurance coverage and legal costs. Contract cancellation charges primarily include penalties for early termination of contracts and write-offs of related prepaid assets. Other exit and disposal costs include costs to exit and consolidate facilities in connection with restructuring events. Separation costs primarily consist of consulting costs incurred in connection with our divestitures.

September 2022 Plan

In connection with our acquisition of Avast, our Board of Directors approved a restructuring plan (the September 2022 Plan) to realize cost savings and operational synergies, which became effective upon the close of acquisition on September 12, 2022. Actions under this plan include the reduction of our workforce, contract terminations, facilities closures, and the sale of underutilized facilities as well as stock-based compensation charges for accelerated equity awards to certain terminated employees. We expect that we will incur total costs up to $150 million, with $120 million and $30 million estimated to be incurred within the first and second full years, respectively, following the completion of acquisition. These actions are expected to be completed by fiscal 2024. As of June 30, 2023, we have incurred total costs of $86 million related to the September 2022 Plan.

Our activities and liabilities related to our September 2022 Plan are presented in the table below:

(in millions)	Liability Balance as of March 31, 2023		Costs, Net of Adjustments		Cash Payments		Liability Balance as of June 30, 2023
Severance and termination benefit costs	$	7	$	11	$	(7)	$	11
Contract cancellation charges	—		1		(1)		—
Other exit and disposal costs	—		5		(5)		—
Total	$	7	$	17	$	(13)	$	11

The restructuring liabilities are included in Other current liabilities in our Condensed Consolidated Balance Sheets.

Restructuring and other costs summary

Our restructuring and other costs are presented in the table below:

	Three Months Ended
(In millions)	June 30, 2023		July 1, 2022
Severance and termination benefit costs	$	11	$	—
Contract cancellation charges	1		—
Other exit and disposal costs	5		2
Total restructuring and other costs	$	17	$	2

Note 13. Income Taxes

The following table summarizes our effective tax rate for the periods presented:

	Three Months Ended
(In millions, except percentages)	June 30, 2023			July 1, 2022
Income (loss) before income taxes	$	204		$	229
Income tax expense (benefit)	$	15		$	29
Effective tax rate	7		%	13		%

Our effective tax rate for the three months ended June 30, 2023, differs from the federal statutory income tax rate primarily due to tax benefits related to the set up and write-off of deferred tax items from an internal restructuring, partially offset by state taxes and the U.S. taxation on foreign earnings.

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Our effective tax rate for the three months ended July 1, 2022, differs from the federal statutory income tax rate primarily due to tax benefits related to the foreign currency remeasurement of an Irish deferred tax asset and discrete legal expenses booked during the quarter, partially offset by state taxes.

We are a multinational company dual headquartered in the U.S. and Czech Republic, although our principal executive offices remain in Tempe, Arizona, and we are subject to tax in multiple U.S. and international tax jurisdictions. Our results of operations would be adversely affected to the extent that our geographical mix of income becomes more weighted toward jurisdictions with higher tax rates and would be favorably affected to the extent the relative geographic mix shifts to lower tax jurisdictions. Our results can also be impacted by the costs incurred and the potential deductibility of the expenses. Any change in our mix of earnings is dependent upon many factors and is therefore difficult to predict.

In connection with our Avast integration plan, in July 2023, we executed a legal entity restructuring as part of an ongoing effort to simplify our business operational and tax structure. We are evaluating the impact of this transaction on our Condensed Consolidated Financial Statements, however, an estimate of the impact cannot be made at this time.

The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential resolution of uncertain tax positions involves multiple tax periods and jurisdictions, it is reasonably possible that the gross unrecognized tax benefits related to these audits could decrease (whether by payment, release, or a combination of both) in the next 12 months. Depending on the nature of the settlement or expiration of statutes of limitations, it could affect our income tax provision and therefore benefit the resulting effective tax rate.

We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions.

Note 14. Stockholders' Equity

Dividends

On August 3, 2023, we announced that our Board of Directors declared a cash dividend of $0.125 per share of common stock to be paid in September 2023. All shares of common stock issued and outstanding and all restricted stock units (RSUs) and performance-based restricted stock units (PRUs) as of the record date will be entitled to the dividend and dividend equivalent rights, respectively, which will be paid out if and when the underlying shares are released. However, the 4 million unvested RSUs assumed in connection with the acquisition of Avast will not be entitled to DERs. See Note 15 for further information about these equity awards. Any future dividends and DERs will be subject to the approval of our Board of Directors.

Stock repurchase program

Under our stock repurchase program, we may purchase shares of our outstanding common stock on the open market and through accelerated stock repurchase transactions. As of June 30, 2023, we had $829 million remaining under the authorization to be completed in future periods with no expiration date.

The following table summarizes activity related to this program during the three months ended June 30, 2023 and July 1, 2022:

	Three Months Ended
(In millions, except per share amounts)	June 30, 2023		July 1, 2022
Number of shares repurchased	3		12
Average price per share	$	16.71	$	24.35
Aggregate purchase price	$	41	$	300

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income (loss), net of taxes, consisted of foreign currency translation adjustments and unrealized gain (loss) on derivative instruments:

(In millions)	Foreign Currency Translation Adjustments		Unrealized Gain (Loss) On Derivative Instruments		Total
Balance as of March 31, 2023	$	(15)	$	—	$	(15)
Other comprehensive income (loss), net of taxes	32		19		51
Balance as of June 30, 2023	$	17	$	19	$	36

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Note 15. Stock-Based Compensation

Avast equity awards

In connection with our acquisition of Avast, we assumed the outstanding equity awards under two of Avast’s equity incentive plans (the Avast Holding B.V. 2014 Share Option Plan and the Rules of the Avast plc Long Term Incentive Plan (collectively, the Avast Plans)), which consisted of 4 million shares of unvested RSUs. The assumed RSUs generally retain the terms and conditions under which they were originally granted. We intend to grant all additional shares that remain available for issuance under the Avast Plans. Upon vesting, these assumed RSUs and any additional shares granted will settle into shares of our common stock. See Note 4 for further information about this business combination.

The following table sets forth the stock-based compensation expense recognized for our equity incentive plans:

	Three Months Ended
(In millions)	June 30, 2023		July 1, 2022
Cost of revenues	$	1	$	1
Sales and marketing	9		7
Research and development	11		6
General and administrative	16		10
Total stock-based compensation expense	$	37	$	24
Income tax benefit for stock-based compensation expense	$	(5)	$	(4)

As of June 30, 2023, the total unrecognized stock-based compensation expense related to our unvested stock-based awards was $307 million, which will be recognized over an estimated weighted-average amortization period of 2.2 years.

The following table summarizes additional information related to our stock-based awards:

	Three Months Ended
(In millions, except per grant data)	June 30, 2023		July 1, 2022
Restricted stock units (RSUs):
Weighted-average fair value per award granted	$	17.24	$	24.51
Awards granted	5		2
Total fair value of awards released	$	35	$	46
Outstanding and unvested	11		6
Performance-based restricted stock units (PRUs):
Weighted-average fair value per award granted	$	22.79	$	33.04
Awards granted	2		1
Total fair value of awards released	$	19	$	2
Outstanding and unvested at target payout	6		4

Dividend equivalent rights (DERs)

Our RSUs and PRUs, except the $4 million unvested RSUs assumed under the Avast Plans, contain DERs that entitles the recipient of an award to receive cash dividend payments if and when the underlying shares are released. The amount of DERs equals the amount of cumulated dividends on the issued number of common stock that would have been payable since the date the associated award was granted. As of June 30, 2023 and March 31, 2023, current dividends payable related to DER was $3 million and $5 million, respectively, recorded as part of Other current liabilities in the Condensed Consolidated Balance Sheets, and long-term dividends payable related to DER was $2 million and $2 million, respectively, recorded as part of Other long-term liabilities.

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Note 16. Net Income Per Share

Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share also includes the incremental effect of dilutive potentially issuable common shares outstanding. Dilutive potentially issuable common shares include the dilutive effect of the shares underlying convertible debt and employee equity awards. Our remaining convertible debt was extinguished on August 15, 2022.

The components of basic and diluted net income (loss) per share are as follows:

	Three Months Ended
(In millions, except per share amounts)	June 30, 2023		July 1, 2022
Net income (loss)	$	189	$	200
Net income (loss) per share - basic	$	0.30	$	0.35
Net income (loss) per share - diluted	$	0.29	$	0.33
Weighted-average shares outstanding - basic	640		578
Dilutive potentially issuable shares:
Convertible debt	—		22
Employee equity awards	3		4
Weighted-average shares outstanding - diluted	643		604
Anti-dilutive shares excluded from diluted net income per share calculation:
Employee equity awards	6		—
Total	6		—

Note 17. Segment and Geographic Information

We operate as one reportable segment. Our Chief Operating Decision Maker reviews financial information presented on a consolidated basis to evaluate company performance and to allocate and prioritize resources.

The following table summarizes net revenues for our major solutions:

	Three Months Ended
(In millions)	June 30, 2023		July 1, 2022
Consumer security revenues	$	599	$	402
Identity and information protection revenues	330		294
Total Cyber Safety revenues	929		696
Legacy revenues	17		11
Total net revenues (1)	$	946	$	707

(1)     During the three months ended June 30, 2023, total net revenues include an unfavorable foreign exchange impact of $9 million from our consumer security solutions.

From time to time, changes in our product hierarchy cause changes to the product categories above. When changes occur, we recast historical amounts to match the current product hierarchy. The changes have been reflected for all periods presented above. Consumer security includes revenues from our Norton 360 Security offerings, Norton Security, Avast Security offerings, Norton Secure VPN, Avira Security and other consumer security and device performance solutions through our direct, partner and small business channels. Identity and information protection includes revenues from our Norton 360 with LifeLock offerings, LifeLock identity theft protection and other information protection and privacy solutions. Legacy includes revenues from products or solutions from markets that we have exited and in which we no longer operate, have been discontinued or identified to be discontinued, or remain in maintenance mode as a result of integration and product portfolio decisions.

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Geographic information

Net revenues by geography are based on the billing addresses of our customers. The following table represents net revenues by geographic area at the end of each period presented:

	Three Months Ended
(In millions)	June 30, 2023		July 1, 2022
Americas	$	622	$	508
EMEA	225		120
APJ	99		79
Total net revenues (1)	$	946	$	707

Note: The Americas include U.S., Canada and Latin America; EMEA includes Europe, Middle East and Africa; APJ includes Asia Pacific and Japan.

(1)     During the three months ended June 30, 2023, total net revenues include an unfavorable foreign exchange impact of $9 million, consisting of $7 million from EMEA and $2 million from APJ.

Revenues from customers inside the U.S. were $565 million and $479 million during the three months ended June 30, 2023 and July 1, 2022, respectively. No other individual country accounted for more than 10% of revenues.

The table below represents cash, cash equivalents and short-term investments held in the U.S. and internationally in various foreign subsidiaries.

(In millions)	June 30, 2023		March 31, 2023
U.S.	$	103	$	178
International	520		572
Total cash, cash equivalents and short-term investments	$	623	$	750

The table below represents our property and equipment, net of accumulated depreciation and amortization, by geographic areas, based on the physical location of the asset, at the end of each period presented.

(In millions)	June 30, 2023		March 31, 2023
U.S.	$	38	$	38
Czech Republic	13		16
Germany	13		13
Other countries (1)	9		9
Total property and equipment, net	$	73	$	76

(1)     No other individual country represented more than 10% of the respective totals.

Our operating lease assets by geographic area, based on the physical location of the asset, at the end of each period presented, are as follows:

(In millions)	June 30, 2023		March 31, 2023
U.S.	$	23	$	25
Czech Republic	9		12
Other countries (1)	6		6
Total operating lease assets	$	38	$	43

(1)     No other individual country represented more than 10% of the respective totals.

Significant customers and channel partners

No individual, end-user customer accounted for 10% or more of our net revenues during the three months ended June 30, 2023 and July 1, 2022.

Distributors that accounted for over 10% of our total billed and unbilled accounts receivable were as follows:

	June 30, 2023		March 31, 2023
Distributor A	15	%	13	%
Distributor B	17	%	14	%

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Note 18. Commitments and Contingencies

Indemnifications

In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, subsidiaries and other parties with respect to certain matters, including, but not limited to, product warranties and losses arising out of our breach of agreements or representations and warranties made by us, including claims alleging that our software infringes on the intellectual property rights of a third party. In addition, our bylaws contain indemnification obligations to our directors, officers, employees, and agents, and we have entered into indemnification agreements with our directors and certain of our officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our bylaws and to provide additional procedural protections. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers. It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements might not be subject to maximum loss clauses. We monitor the conditions that are subject to indemnification to identify if a loss has occurred. Historically, we have not incurred material costs as a result of obligations under these agreements, and we have not accrued any material liabilities related to such indemnification obligations in our Condensed Consolidated Financial Statements.

In connection with the sale of our Enterprise Security business to Broadcom, we assigned several leases to Broadcom or certain of its subsidiaries. As a condition to consenting to the assignments, certain lessors required us to agree to indemnify the lessor under the applicable lease with respect to certain matters, including, but not limited to, losses arising out of Broadcom’s or such subsidiaries’ breach of payment obligations under the terms of such lease. As with our other indemnification obligations discussed above and in general, it is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. As with our other indemnification obligations, such indemnification agreements might not be subject to maximum loss clauses, and to date, generally under our real estate obligations, we have not incurred material costs as a result of such obligations under our leases and have not accrued any liabilities related to such indemnification obligations in our Condensed Consolidated Financial Statements.

Litigation contingencies

Trustees of the University of Columbia in the City of New York v. NortonLifeLock

As previously disclosed, on May 2, 2022, a jury returned its verdict in a patent infringement case filed in 2013 by the Trustees of Columbia University in the City of New York (Columbia) in the U.S. District Court for the Eastern District of Virginia. Columbia originally brought suit alleging infringement of six patents owned by the university. We won a favorable claim construction order on all six patents, and the claim construction was upheld by the Federal Circuit in 2016 on all but U.S. Patent Nos. 8,601,322 and 8,074,115. We also sought inter partes review by the Patent Trial and Appeal Board of the claims of the ‘322 and ‘115 Patents and all but two claims of the ‘322 Patent and three claims of the ‘115 Patent were invalidated. The remaining claims of the ‘322 and ‘115 Patents were the only claims that remained in suit at trial.

The jury found that our Norton Security products and Symantec Endpoint Protection products (the latter of which were sold by us to Broadcom as part of an Asset Purchase Agreement dated November 4, 2019) willfully infringe the ‘322 and ‘115 Patents through the use of SONAR/BASH behavioral protection technology. The jury awarded damages in the amount of $185 million. Columbia did not seek injunctive relief against us. We believe that we have ceased the use of the technology found by the jury to infringe. The jury also found that we did not fraudulently conceal its prosecution of U.S. Patent No. 8,549,643 but did find that two Columbia professors were coinventors of this patent. No damages were awarded related to this patent.

A formal judgment has not yet been entered in the case. Post-verdict motions have been filed, and we intend to file an appeal challenging the verdict.

At this time, our current estimate of the low end of the range of probable estimated losses from this matter is approximately $239 million, reflecting the jury award and prejudgment interest, which we have accrued. The jury’s verdict may be enhanced and, should it be upheld on appeal, could ultimately result in the payment of somewhere between one and three times the jury’s verdict, plus interest and attorneys’ fees. There is a reasonable possibility that a loss may be incurred in excess of our accrual for this matter; however, such loss cannot be reasonably estimated.

Securities Class Action and Derivative Litigation

Securities class action lawsuits, which have since been consolidated, were filed in May 2018 against us and certain of our former officers, in the U.S. District Court for the Northern District of California. The lead plaintiff’s consolidated amended complaint alleged that, during a purported class period of May 11, 2017 to August 2, 2018, defendants made false and misleading statements in violation of Sections 10(b) and 20(a), and that certain individuals violated Section 20A, of the Securities Exchange Act of 1934, as amended (the Exchange Act).

On May 24, 2021, the parties reached a proposed settlement and release of all claims in the class action, for $70 million, and on June 8, 2021, the parties executed a Stipulation and Agreement of Settlement, exclusive of any claims that may be brought by shareholders who opted out of the class action. Of the $70 million, $67 million was covered under the applicable insurance policy with the remainder to be paid by us. The Court approved the settlement on February 12, 2022.

On November 22, 2021, investment funds managed by Orbis Investment Management Ltd. which previously opted out of the securities class action, filed suit under the Exchange Act of 1934, the Arizona Securities Act, the Arizona Consumer Fraud Act

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and certain common law causes of action to recover alleged damages for losses incurred by the funds for their purchases or acquisitions of our common stock during the class period. On February 7, 2023, our Motion to Dismiss was granted in part and denied in part. The parties have now settled the matter and the action was dismissed with prejudice on April 26, 2023. The impact of settlement was not material.

Purported shareholder derivative lawsuits have been filed against us and certain of our former officers and current and former directors in the Delaware Court of Chancery (In re Symantec Corp. S’holder. Deriv. Litig.), Northern District of California (Lee v. Clark et al.,), and the District of Delaware (Milliken vs. Clark et al.). These assert generally the same facts and circumstances as alleged in the securities class action and allege claims for breach of fiduciary duty and related claims. On January 4, 2023, after reaching an agreement on the terms of the proposed settlement, which provides for, among other things, a payment of $12 million to the Company by the insurers of the Company’s directors and officers, the parties to the Chancery action filed a Stipulation and Agreement of Settlement, Compromise and Release in that Court, which was approved by the Court on May 4, 2023, over the objection of the Lee and Milliken plaintiffs, and releases all claims in the Chancery, Lee, and Milliken actions, as well as any other claims based on the same operative facts. The parties in the Milliken action stipulated to a dismissal with prejudice, which was entered by the Court on May 12, 2023. The parties in the Lee action stipulated to a dismissal with prejudice, which was entered by the Court on June 12, 2023. All three shareholder derivative lawsuits are now resolved.

A fourth lawsuit filed in the Delaware Superior Court, Kukard v. Symantec, brings claims derivatively on behalf of our 2008 Employee Stock Purchase Plan. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of the Kukard action or estimate the range of any potential loss.

We will continue to incur legal fees in connection with the Kukard matter, including expenses for the reimbursement of legal fees of present and former directors under indemnification obligations. The expense of continuing to defend such litigation may be significant. We intend to defend this claim vigorously, but there can be no assurance that we will be successful in any defense. If this lawsuit is decided adversely, we may be liable for significant damages directly or under our indemnification obligations, which could adversely affect our business, results of operations, and cash flows.

GSA

During the first quarter of fiscal 2013, we were advised by the Commercial Litigation Branch of the Department of Justice’s (DOJ) Civil Division and the Civil Division of the U.S. Attorney’s Office for the District of Columbia that the government is investigating our compliance with certain provisions of our U.S. General Services Administration (GSA) Multiple Award Schedule Contract No. GS-35F-0240T effective January 24, 2007, including provisions relating to pricing, country of origin, accessibility, and the disclosure of commercial sales practices.

As reported on the GSA’s publicly-available database, our total sales under the GSA Schedule contract were approximately $222 million from the period beginning January 2007 and ending September 2012. We fully cooperated with the government throughout its investigation, and in January 2014, representatives of the government indicated that their initial analysis of our actual damages exposure from direct government sales under the GSA Schedule contract was approximately $145 million; since the initial meeting, the government’s analysis of our potential damages exposure relating to direct sales has increased. The government also indicated they would pursue claims for certain sales to California, Florida, and New York as well as sales to the federal government through reseller GSA Schedule contracts, which could significantly increase our potential damages exposure.

In 2012, a sealed civil lawsuit was filed against us related to compliance with the GSA Schedule contract and contracts with California, Florida, and New York. On July 18, 2014, the Court-imposed seal expired, and the government intervened in the lawsuit. On September 16, 2014, the states of California and Florida intervened in the lawsuit, and the state of New York notified the Court that it would not intervene. On October 3, 2014, the DOJ filed an amended complaint, which did not state a specific damages amount. On October 17, 2014, California and Florida combined their claims with those of the DOJ and the relator on behalf of New York in an Omnibus Complaint, and a First Amended Omnibus Complaint was filed on October 8, 2015; the state claims also do not state specific damages amounts.

On March 23, 2021, Plaintiffs withdrew their demand for a jury trial and we consented to proceed with a bench trial, which concluded on March 24, 2022. On January 19, 2023, the Court issued its Findings of Facts and Conclusions of Law in which it found in favor of the United States in part and awarded damages and penalties in the amount of $1.3 million. The Court also found in favor of the State of California in part and awarded penalties in the amount of $0.4 million. The resulting Judgment was filed by the Court on January 20, 2023. On February 16, 2023, Plaintiffs filed Motions to Amend Judgment to revive the damages claimed at trial. We have opposed and the motion is now fully briefed before the Court.

On May 13, 2021, we reached a settlement in principle with the State of Florida to resolve all claims it asserted in the litigation for $0.5 million, plus the relator’s statutory attorney’s fees with respect to the State of Florida’s claims. On February 28, 2022, we reached a settlement in principle with the State of New York and the relator to resolve all of the New York claims asserted in the litigation for $5 million.

The January 2023 Judgment has been paid, and at this time, our current estimate of the low end of the range of probable estimated losses from this matter was reduced to $1.4 million, which we have accrued. It is possible that the Court could grant Plaintiffs’ Motions to Amend Judgment, in whole or in part, or an appeal of the Court’s Judgment by the Plaintiffs, if brought, could lead to further claims or findings of violations of the False Claims Act and could be material to our results of operations and cash flows for any period. Resolution of False Claims Act investigations can ultimately result in the payment of somewhere between one and three times the actual damages proven by the government, plus civil penalties. There is a reasonable possibility that a loss may have been incurred in excess of our accrual for this matter; however, such loss cannot be reasonably estimated.

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Jumpshot Matters

At the end of 2019, Avast came under media scrutiny for provision of Avast customer data to its data analytics subsidiary Jumpshot Inc. Jumpshot was a subsidiary of Avast with its own management team and technical experts. Avast announced the decision to terminate its provision of data to, and wind down, Jumpshot on January 30, 2020. As Avast has previously disclosed, it has been in communication with certain regulators and authorities prior to completion of the acquisition of Avast, and we will continue cooperating fully in respect of all regulatory enquiries.

On December 23, 2019, the United States Federal Trade Commission (FTC) issued a Civil Investigative Demand (CID) to Avast seeking documents and information related to its privacy practices, including Jumpshot's past use of consumer information that was provided to it by Avast. Avast responded cooperatively to the CID and related follow-up requests from the FTC. On October 29, 2021, staff at the FTC sent Avast a draft complaint and proposed settlement order. We have been engaged in ongoing negotiations with the FTC staff regarding the scope and terms of the proposed settlement. Any negotiated settlement with the FTC, or absent settlement, any litigation or other legal proceeding between us and the FTC could result in material monetary remedies and/or compliance requirements that impose significant and material cost and resource burdens on us, and may impact our ability to use data in the future. There can be no assurance that we will be successful in negotiating a favorable settlement or in litigation. Any remedies or compliance requirements could adversely affect our ability to operate our business or have a materially adverse impact on our financial results. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of this investigation or estimate the range of any potential loss. On February 27, 2020, the Czech Office for Personal Data Protection (the Czech DPA) initiated offense proceedings concerning Avast`s practices with respect to Jumpshot, which remain ongoing and we continue to evaluate our options.

In addition, we received a letter and notification before action from Stichting CUIC – Privacy Foundation for Collective Redress, a Dutch foundation (the Foundation). The Foundation has asserted it represents the interests of Avast customers in the Netherlands whose data was provided to Jumpshot and that by doing so Avast violated the requirements of the GDPR and other provisions in Dutch and European Union privacy and consumer law entitling those customers to damages and other compensation, all of which we dispute. No specific amount of damages has been alleged and to date, no action has been filed. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of this notification before action or estimate the range of any potential loss.

On December 12, 2022, a putative class action, Lau v. Gen Digital Inc. and Jumpshot Inc., was filed in the Northern District of California alleging violations of the Electronic Communications Privacy Act, California Invasion of Privacy Act, statutory larceny, unfair competition and various common law claims related to the provision of customer data to Jumpshot. On February 24, 2023, we filed a Motion to Dismiss, which is still pending. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of this action or estimate the range of any potential loss. We dispute these claims and intend to defend them vigorously.

The outcome of the regulatory proceedings, government enforcement actions and litigation is difficult to predict, and the cost to defend, settle or otherwise resolve these matters may be significant. Plaintiffs or regulatory agencies or authorities in these matters may seek recovery of large or indeterminate amounts or seek to impose sanctions, including significant monetary penalties, as well as equitable relief. The monetary and other impact of these litigations, proceedings or actions may remain unknown for substantial periods of time. Further, an unfavorable resolution of litigations, proceedings or actions could have a material adverse effect on our business, financial condition, and results of operations and cash flows. The amount of time that will be required to resolve these matters is unpredictable, and these matters may divert management’s attention from the day-to-day operations of our business. Any future investigations or additional lawsuits may also adversely affect our business, financial condition, results of operations and cash flows.

Other

We are involved in a number of other judicial and administrative proceedings that are incidental to our business. Although adverse decisions (or settlements) may occur in one or more of the cases, it is not possible to estimate the possible loss or losses from each of these cases. The final resolution of these lawsuits, individually or in the aggregate, is not expected to have a material adverse effect on our business, results of operations, financial condition or cash flows.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking statements and factors that may affect future results

The discussion below contains forward-looking statements, which are subject to safe harbors under the Securities Act of 1933, as amended (the Securities Act) and the Exchange Act. Forward-looking statements include statements that represent our expectations or beliefs concerning future events, including, without limitation, references to our ability to utilize our deferred tax assets, as well as statements including words such as “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “goal,” “intent,” “momentum,” “projects,” “forecast,” “outlook,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” and similar expressions. In addition, projections of our future financial performance; anticipated growth and trends in our businesses and in our industries; the consummation of or anticipated impacts of acquisitions (including our ability to achieve synergies from our acquisition of Avast), divestitures, restructurings, stock repurchases, financings, debt repayments and investment activities; the outcome or impact of pending litigation, claims or disputes; our intent to pay quarterly cash dividends in the future; plans for and anticipated benefits of our products and solutions; anticipated tax rates, benefits and expenses; the impact of inflation, fluctuations in foreign currency exchange rates, changes in interest rates, Russia’s invasion of Ukraine and other global macroeconomic factors on our operations and financial performance; and other characterizations of future events or circumstances are forward-looking statements. These statements are only predictions, based on our current expectations about

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future events and may not prove to be accurate. We do not undertake any obligation to update these forward-looking statements to reflect events occurring or circumstances arising after the date of this report. These forward-looking statements involve risks and uncertainties, and our actual results, performance, or achievements could differ materially from those expressed or implied by the forward-looking statements on the basis of several factors, including economic recessions, inflationary pressures and those other factors that we discuss in Part II Item 1A, of this Quarterly Report on Form 10-Q and the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023. We encourage you to read those sections carefully. There may also be other factors that have not been anticipated or that are not described in our periodic filings with the SEC, generally because we did not believe them to be significant at the time, which could cause actual results to differ materially from our projections and expectations. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

OVERVIEW

Gen is a global company powering Digital Freedom with a family of trusted consumer brands including Norton, Avast, LifeLock, Avira, AVG, ReputationDefender and CCleaner. Our core Cyber Safety portfolio provides protection across three key categories in multiple channels and geographies, including security and performance, identity protection, and online privacy. We have built a technology platform that brings together software and service capabilities within these three categories into a comprehensive and easy-to-use integrated platform across our brands. We bring award-winning products and services in cybersecurity, privacy and identity protection to approximately 500 million users in more than 150 countries so they can live their digital lives safely, privately, and confidently today and for generations to come.

Fiscal calendar

We have a 52/53-week fiscal year ending on the Friday closest to March 31. The three months ended June 30, 2023 and July 1, 2022 each consisted of 13 weeks. Our 2024 fiscal year consists of 52 weeks and ends on March 29, 2024.

Key financial metrics

The following tables provide our key financial metrics for the periods presented:

	Three Months Ended
(In millions, except for per share amounts)	June 30, 2023		July 1, 2022
Net revenues	$	946	$	707
Operating income (loss)	$	362	$	261
Net income (loss)	$	189	$	200
Net income (loss) per share - diluted	$	0.29	$	0.33
Net cash provided by (used in) operating activities	$	226	$	215

	As Of
(In millions)	June 30, 2023		March 31, 2023
Cash and cash equivalents	$	623	$	750
Contract liabilities	$	1,709	$	1,788

Below are our financial highlights for the first quarter of fiscal 2024, compared to the corresponding period in the prior year:

•Net revenues increased $239 million and Operating income increased $101 million, primarily due to revenue contribution from Avast, which was acquired during the second quarter of fiscal 2023, and higher sales in both our consumer security and identity and information protection products, partially offset by unfavorable foreign currency fluctuations.

•Net income decreased $11 million and Net income per share - diluted decreased 0.04, primarily due to increased interest expense associated with our new senior credit facilities and two senior notes. This was partially offset by increased Operating income as a result of our merger with Avast.

•Cash and cash equivalents decreased by $127 million compared to March 31, 2023, primarily due to cash interest paid, dividends paid to shareholders, voluntary prepayments of our Term B facility, a mandatory principal amortization payment of our Term A facility, and repurchases of our common stock.

•Contract liabilities decreased $79 million compared to March 31, 2023, primarily due to a seasonal decline in billings and fluctuations in foreign currency rates.

GLOBAL MACROECONOMIC CONDITIONS

Our results of operations and cash flows are subject to fluctuations due to inflation, changes in foreign currency exchange rates relative to U.S. dollars, our reporting currency, changes in interest rates, as well as recession risks, which may persist for an extended period. Additionally, our international results are impacted by the economic conditions in the foreign markets in which we operate and by fluctuations in foreign currency exchange rates. We conduct business in numerous currencies throughout our worldwide operations, and our entities hold monetary assets or liabilities, earn revenues, or incur costs in currencies other than the entity’s functional currency. As a result, we are exposed to foreign exchange gains or losses, which impact our operating results. As part of our foreign currency risk mitigation strategy, we have entered into monthly foreign exchange forward contracts to hedge foreign currency balance sheet exposure.

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In addition, in early 2022, worldwide inflation began to increase. In response to the heightened levels of inflation, central banks, including the U.S. Federal Reserve and the European Central Bank, raised interest rates significantly in 2022, resulting in an increase in our cost of debt. Interest rates continued to increase in 2023, and while inflation rates have slowed, global inflation remains high and has impacted our results due to higher costs. Volatile market conditions related to Russia’s invasion of Ukraine and retaliatory sanctions against the Russian Federation and Belarus, and other macroeconomic events have, at times, and may in the future negatively impact our results of operations and cash flows. Conversely, we have seen and may continue to see cost savings from the shift to remote and distributed work for certain of our employees in areas including real estate, events, travel, utilities and other benefits. Due to our subscription-based business model, the effect of recent macroeconomic events may not be fully reflected in our results of operations until future periods, if at all.

The U.S. banking market has also recently experienced increased volatility as a result of several distressed or closed banks. While we have not realized any losses as a result of this increased market volatility, we continue to monitor the situation and will take appropriate measures, as necessary, to minimize potential risk exposure to our customers’ and our cash and investment balances.

While inflation, interest rates and foreign currency exchange rates may be less volatile in the second half of 2023, fluctuations in these indicators are uncertain and could result in further adverse impacts to our reported results. For a further discussion of the potential impacts of the global macroeconomic conditions on our business, please see Part I, Item III and “Risk Factors” in Part II, Item 1A below.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our Condensed Consolidated Financial Statements and related notes in accordance with generally accepted accounting principles in the U.S. requires us to make estimates, including judgments and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates on a regular basis and make changes accordingly. Management believes that the accounting estimates employed and the resulting amounts are reasonable; however, actual results may differ from these estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows.

Our critical accounting policies and estimates were disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023. There have been no material changes in the matters for which we make critical accounting estimates in the preparation of our Condensed Consolidated Financial Statements during the three months ended June 30, 2023.

RESULTS OF OPERATIONS

The following table sets forth our Condensed Consolidated Statements of Operations data as a percentage of net revenues for the periods indicated:

	Three Months Ended
	June 30, 2023		July 1, 2022
Net revenues	100	%	100	%
Cost of revenues	19		14
Gross profit	81		86
Operating expenses:
Sales and marketing	19		22
Research and development	10		9
General and administrative	6		15
Amortization of intangible assets	6		3
Restructuring and other costs	2		0
Total operating expenses	43		49
Operating income (loss)	38		37
Interest expense	(18)		(4)
Other income (expense), net	1		0
Income (loss) before income taxes	22		32
Income tax expense (benefit)	2		4
Net income (loss)	20	%	28	%

Note: Percentages may not add due to rounding.

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Net revenues

	Three Months Ended
(In millions, except for percentages)	June 30, 2023		July 1, 2022		Change in %
Net revenues	$	946	$	707	34	%

Net revenues increased $239 million, primarily due to a $197 million increase in sales of our consumer security products and a $36 million increase in sales of our identity and information protection products. This is inclusive of $9 million of foreign exchange headwinds, primarily in our consumer security solutions.

Performance Metrics

We regularly monitor a number of metrics in order to measure our current performance and estimate our future performance. Our metrics may be calculated in a manner different than similar metrics used by other companies.

The following table summarizes supplemental key performance metrics:

	Three Months Ended (2)
(In millions, except for per user amounts)	June 30, 2023 (3)		July 1, 2022
Direct customer revenues (1)	$	832	$	624
Partner revenues	$	97	$	72
Total Cyber Safety revenues	$	929	$	696
Legacy revenues	$	17	$	12
Direct customer count (at quarter end)	38.2		24.1
Direct average revenue per user (ARPU)	$	7.26	$	8.58

(1)     Non-GAAP Direct customer revenues differ from GAAP direct customer revenue during the three months ended July 1, 2022, as it excludes a $1 million reduction of revenue from contract liability purchase accounting adjustments. We believe that eliminating the impact of these adjustments improves the comparability of revenues between periods. In addition, although the adjustment amounts will never be recognized in our GAAP financial statements, we do not expect the acquisitions to affect the future renewal rates of revenues excluded by the adjustments.

(2)     From time to time, changes in our product hierarchy cause changes to the revenue channels above. When changes occur, we recast historical amounts to match the current revenue channels. Direct customer revenue currently includes Mobile App Store customers, and legacy revenues includes revenues from products or solutions from markets that we have exited and in which we no longer operate, have been discontinued or identified to be discontinued, or remain in maintenance mode as a result of integration and product portfolio decisions. As such, prior period performance metrics have been recast to conform to the current period presentation for all periods presented above.

(3)     The performance metrics for three months ended June 30, 2023 include the revenues earned and customers acquired through our acquisition with Avast. ARPU is based on average customer count and assumes full quarter of revenue for both companies.

We define direct customer count as active paid users of our products and solutions who have a direct billing and/or registration relationship with us at the end of the reported period. Average direct customer count presents the average of the total number of direct customers at the beginning and end of the applicable period. We exclude users on free trials from our direct customer count. Users who have indirectly purchased and/or registered for our products or solutions through partners are excluded unless such users convert or renew their subscription directly with us or sign up for a paid membership through our web stores or third-party app stores. The methodologies used to measure these metrics require judgment and are subject to change due to improvements or revisions to our methodology. From time to time, we review our metrics and may discover inaccuracies or make adjustments to improve their accuracy, which can result in adjustments to our historical metrics. Our ability to recalculate our historical metrics may be impacted by data limitations or other factors that require us to apply different methodologies for such adjustments. We generally do not intend to update previously disclosed metrics for any such inaccuracies or adjustments that are deemed not material.

ARPU is calculated as estimated direct customer revenues for the period divided by the average direct customer count for the same period, expressed as a monthly figure. Non-GAAP estimated direct customer revenues and ARPU have limitations as analytical tools and should not be considered in isolation or as a substitute for GAAP estimated direct customer revenues or other GAAP measures. We monitor ARPU because it helps us understand the rate at which we are monetizing our consumer customer base.

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Net revenues by geographical region

	Three Months Ended
	June 30, 2023		July 1, 2022
Americas	66	%	72	%
EMEA	24	%	17	%
APJ	10	%	11	%

The Americas include the U.S., Canada and Latin America; EMEA includes Europe, the Middle East and Africa; APJ includes Asia Pacific and Japan.

Percentage of revenue by geographic region in the three months ended June 30, 2023 remains primarily in the Americas but is beginning to shift more into the EMEA markets, as the acquisition with Avast has contributed to a stronger presence in those regional countries.

Cost of revenues

	Three Months Ended
(In millions, except for percentages)	June 30, 2023		July 1, 2022		Change in %
Cost of revenues	$	179	$	102	75	%

Our cost of revenues increased $77 million, primarily due to a $52 million increase in the amortization of acquired intangible assets, $15 million increase in payment processing fees, and $8 million increase in revenue share costs.

Operating expenses

	Three Months Ended
(In millions, except for percentages)	June 30, 2023		July 1, 2022		Change in %
Sales and marketing	$	181	$	156	16	%
Research and development	90		61		48	%
General and administrative	56		104		(46)	%
Amortization of intangible assets	61		21		190	%
Restructuring and other costs	17		2		750	%
Total operating expenses	$	405	$	344	18	%

Sales and marketing expense increased $25 million, primarily due to an $11 million increase in headcount and IT costs, an $8 million increase in outside services and software expenses, a $3 million increase in our investment in advertising, and a $2 million increase of stock-based compensation expense.

Research and development expense increased $29 million, primarily due to a $15 million increase in headcount costs, a $9 million increase in outside services and software expense, and a $5 million increase of stock-based compensation expense.

General and administrative expense decreased $48 million, primarily due to a $53 million decrease in litigation cost and an $8 million decrease in IT and occupancy costs. This was partially offset by an $8 million increase in headcount costs and a $6 million increase of stock-based compensation expense.

Amortization of intangible assets increased $40 million as a result of the acquisition with Avast.

Restructuring and other costs increased $15 million, primarily due to severance, termination benefits and other exit and disposal costs in connection with the September 2022 Plan. See Note 12 of the Notes to the Condensed Consolidated Financial Statements for details of the fiscal 2024 restructuring activities.

Non-operating income (expense), net

	Three Months Ended
(In millions)	June 30, 2023		July 1, 2022
Interest expense	$	(170)	$	(31)
Interest income	6		2
Foreign exchange gain (loss)	1		(1)
Gain on sale of properties	4		—
Other	1		(2)
Total non-operating income (expense), net	$	(158)	$	(32)

Non-operating income (expense), net, increased by $126 million in expense, primarily due to an increase in interest expense associated with our new senior credit facilities and two senior notes, all of which were issued during the second quarter of fiscal 2023. This is partially offset by a $4 million increase in interest income from higher interest rates on our money market funds, a

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$4 million increase in rental income related to a rent review settlement with our tenant, and a $4 million gain on the sale of certain land and buildings in Dublin, Ireland.

Provision for income taxes

	Three Months Ended
(In millions, except for percentages)	June 30, 2023			July 1, 2022
Income (loss) before income taxes	$	204		$	229
Income tax expense (benefit)	$	15		$	29
Effective tax rate	7		%	13		%

Our effective tax rate for income for the three months ended June 30, 2023 differs from the federal statutory income tax rate primarily due to tax benefits related to the set up and write-off of deferred tax items from an internal restructuring, partially offset by state taxes and the U.S. taxation on foreign earnings.

Our effective tax rate for the three months ended July 1, 2022 differs from the federal statutory income tax rate primarily due to tax benefits related to the foreign currency remeasurement of an Irish deferred tax asset and discrete legal expenses booked during the quarter, partially offset by state taxes.

We are a multinational company dual headquartered in the U.S. and Czech Republic, although our principal executive offices remain in Tempe, Arizona, and we are subject to tax in multiple U.S. and international tax jurisdictions. Our results of operations would be adversely affected to the extent that our geographical mix of income becomes more weighted toward jurisdictions with higher tax rates and would be favorably affected to the extent the relative geographic mix shifts to lower tax jurisdictions. Our results can also be impacted by the costs incurred and the potential deductibility of the expenses. Any change in our mix of earnings is dependent upon many factors and is therefore difficult to predict.

The timing of the resolution of income tax examinations is highly uncertain and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Given the potential resolution of uncertain tax positions involves multiple tax periods and jurisdictions, we are unable to accurately estimate when these unrecognized tax benefits will be realized or released. However, it is reasonably possible that there could be significant changes to our unrecognized tax benefits in the next 12 months.

We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions.

LIQUIDITY, CAPITAL RESOURCES AND CASH REQUIREMENTS

Liquidity and Capital Resources

We have historically relied on cash generated from operations, borrowings under credit facilities, issuances of debt and proceeds from divestitures for our liquidity needs.

Our capital allocation strategy is to balance driving stockholder returns, managing financial risk and preserving our flexibility to pursue strategic options, including acquisitions and mergers. Historically, this has included a quarterly cash dividend, the repayment of debt and the repurchase of shares of our common stock.

Based on past perfor