BusinessWire

NortonLifeLock Delivers Strong Growth in Q1 Fiscal 2021

Reported Billings up 9% and Customer Count Increased More Than 400,000

TEMPE, Ariz.--(BUSINESS WIRE)--NortonLifeLock Inc. (NASDAQ: NLOK), a global leader in consumer Cyber Safety, today reported results for its first quarter fiscal year 2021 which ended July 3, 2020.


First Quarter GAAP revenue from Continuing Operations was $614 million, compared to $650 million a year ago which included revenue from ID Analytics and the extra week in first quarter fiscal 2020. Q1 GAAP diluted EPS was $0.19, compared to $0.04 a year ago.

Q1 Non-GAAP Financial and Operational Highlights from Continuing Operations:

  • Consumer revenue was $614 million, up 4% year-over-year
  • Non-GAAP diluted EPS was $0.31, compared to $0.21 a year ago, up 48% year-over-year
  • Consumer reported billings growth of 9% year-over-year
  • Average revenue per user of $9.03 per month, up 2% year-over-year
  • Direct customer count of 20.6 million, up 416,000 year-over-year

“In our first quarter, we drove better than expected results on the top and bottom lines. We demonstrated great progress towards our goal to deliver sustained mid-single digit growth, with reported billings up 9% and customer count growing year-over-year for the first time in over 5 years,” said Vincent Pilette, CEO of NortonLifeLock. “We are off to a strong start this year and I’m even more excited about our vision to keep people around the world Cyber Safe. We believe it is our responsibility to provide everyone with innovative products and solutions to protect and control their digital lives.”

Transition to a Pure-Play Consumer Company to be Completed by end of August

NortonLifeLock’s transition to a pure-play consumer company will be completed by the end of August. Through Q1, approximately 95% of the stranded costs have been removed and the latest estimate for total stranded costs are $950 million, of which $650 million are cash costs. The stranded cash costs have already been more than offset by $875 million in realized proceeds from the sale of under-utilized assets. The Company remains committed to its target of $1.5 billion in total proceeds from sales of under-utilized assets.

Q2 Fiscal Year 2021 Guidance

  • Revenue in the range of $615 to $625 million, representing 3 to 5% growth adjusting for ID Analytics revenue ($13 million)
  • Non-GAAP EPS in the range of $0.31 to $0.35

NortonLifeLock’s Board of Directors has declared a quarterly cash dividend of $0.125 per common share to be paid on September 16, 2020 to all shareholders of record as of the close of business on August 24, 2020.

To help readers understand our past financial performance and our future results, we supplement the financial results that we provide in accordance with generally accepted accounting principles, or GAAP, with non-GAAP financial measures. The methods we use to produce non-GAAP results are not in accordance with GAAP and may differ from the methods used by other companies. Additional information regarding our non-GAAP measures are provided below. No reconciliation of the forecasted range for non-GAAP EPS guidance is included in this release because it would be unreasonably burdensome to forecast the impacts of significant changes in our business such as restructuring activities related to the sale of our enterprise business.

For additional details regarding NortonLifeLock’s results and outlook, please see the Earnings Presentation and the Supplemental Information on the investor relations page of our website at: http://investor.nortonlifelock.com

Conference Call

NortonLifeLock has scheduled a conference call for 5:00 p.m. EDT / 2:00 p.m. MST today to discuss its results for its first quarter fiscal year 2021 ended July 3, 2020 and to review guidance. Interested parties may access the conference call by dialing (970) 297-2372 and using conference ID 1625248. A live audio webcast of the conference call will also be available through NortonLifeLock's Investor Relations website at http://investor.nortonlifelock.com/investor-relations/events-calendar/. A replay and our prepared remarks will be available on the investor relations home page shortly after the call is completed.

About NortonLifeLock

NortonLifeLock Inc. (NASDAQ: NLOK) is a global leader in consumer Cyber Safety. NortonLifeLock is dedicated to helping secure the devices, identities, online privacy, and home and family needs of nearly 50 million consumers, providing them with a trusted ally in a complex digital world. For more information, please visit www.NortonLifeLock.com.

Forward-Looking Statements:

This press release contains statements which may be considered forward-looking within the meaning of the U.S. federal securities laws. In some cases, you can identify these forward-looking statements by the use of terms such as “expect,” “will,” “continue,” or similar expressions, and variations or negatives of these words, but the absence of these words does not mean that a statement is not forward-looking. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, but not limited to: the statements under “Q2 Fiscal Year 2021 Guidance,” including expectations relating to operating margin and annualized EPS; the estimated amount and character of, and time to eliminate, stranded costs; the effects of the sale of substantially all of the Enterprise Security business on the Company’s business; the timing and amount of stock repurchases; the long-term operating model of NortonLifeLock; NortonLifeLock’s future revenue growth and cash flow from operations; statements regarding expectations of the recurring nature of consumer subscriptions; statements regarding the compliance with our debt instruments and covenants thereunder; the estimated unrealized cost savings from estimates of future results; the estimated amount, and the Company’s ability to monetize and use the proceeds of sales, of underutilized assets; any other statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from results expressed or implied in this press release. Such risk factors include, but are not limited to, those related to: the current and future impact of the COVID-19 pandemic on the Company’s business and industry; the effect of the sale of substantially all of the Enterprise Security assets on NortonLifeLock’s retained businesses and products; retention of executive leadership team members; difficulties in improving sales and product development during leadership transitions; difficulties in executing the operating model for the consumer cyber safety business; lower than anticipated returns from the Company's investments in direct customer acquisition; difficulties and delays in reducing run rate expenses and monetizing underutilized assets; general business and economic conditions; matters arising out of our completed Audit Committee investigation and the ongoing U.S. Securities and Exchange Commission investigation; fluctuations and volatility in NortonLifeLock’s stock price; the ability of NortonLifeLock to successfully execute strategic plans; the ability to maintain customer and partner relationships; the ability of NortonLifeLock to achieve its cost and operating efficiency goals; the anticipated growth of certain market segments; NortonLifeLock’s sales and business strategy; fluctuations in tax rates and foreign currency exchange rates; the timing and market acceptance of new product releases and upgrades; and the successful development of new products and the degree to which these products gain market acceptance. Additional information concerning these and other risk factors is contained in the Risk Factors sections of NortonLifeLock’s most recent reports on Form 10-K and Form 10-Q. NortonLifeLock assumes no obligation, and does not intend, to update these forward-looking statements as a result of future events or developments.

Use of Non-GAAP Financial Information:

We use non-GAAP measures of operating margin, net income and earnings per share, which are adjusted from results based on GAAP and exclude certain expenses, gains and losses. We also provide the non-GAAP metrics of Consumer revenues, constant currency revenues and Consumer reported billings, which exclude revenues from our divested ID Analytics solutions. These non-GAAP financial measures are provided to enhance the user’s understanding of our past financial performance and our prospects for the future. Our management team uses these non-GAAP financial measures in assessing NortonLifeLock’s performance, as well as in planning and forecasting future periods. These non-GAAP financial measures are not computed according to GAAP and the methods we use to compute them may differ from the methods used by other companies. Non-GAAP financial measures are supplemental, should not be considered a substitute for financial information presented in accordance with GAAP and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Readers are encouraged to review the reconciliation of our non-GAAP financial measures to the comparable GAAP results, which is attached to our quarterly earnings release and which can be found, along with other financial information including the Supplemental Information, on the investor relations page of our website at: http://investor.nortonlifelock.com.

NORTONLIFELOCK INC.

Condensed Consolidated Balance Sheets

(In millions, unaudited)

 

 

July 3, 2020

 

April 3, 2020

ASSETS

Current assets:

 

 

 

Cash and cash equivalents

$

1,073

 

 

$

2,177

 

Short-term investments

58

 

 

86

 

Accounts receivable, net

102

 

 

111

 

Other current assets

364

 

 

435

 

Assets held for sale

353

 

 

270

 

Total current assets

1,950

 

 

3,079

 

Property and equipment, net

88

 

 

238

 

Operating lease assets

62

 

 

88

 

Intangible assets, net

1,042

 

 

1,067

 

Goodwill

2,588

 

 

2,585

 

Other long-term assets

675

 

 

678

 

Total assets

$

6,405

 

 

$

7,735

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

 

 

 

Accounts payable

$

60

 

 

$

87

 

Accrued compensation and benefits

71

 

 

115

 

Current portion of long-term debt

763

 

 

756

 

Contract liabilities

1,028

 

 

1,049

 

Current operating lease liabilities

26

 

 

28

 

Other current liabilities

600

 

 

587

 

Total current liabilities

2,548

 

 

2,622

 

Long-term debt

2,841

 

 

3,465

 

Long-term contract liabilities

30

 

 

27

 

Deferred income tax liabilities

170

 

 

149

 

Long-term income taxes payable

1,191

 

 

1,310

 

Long-term operating lease liabilities

61

 

 

73

 

Other long-term liabilities

67

 

 

79

 

Total liabilities

6,908

 

 

7,725

 

Total stockholders’ equity (deficit)

(503

)

 

10

 

Total liabilities and stockholders’ equity (deficit)

$

6,405

 

 

$

7,735

 

NORTONLIFELOCK INC.

Condensed Consolidated Statements of Operations (1)

(In millions, except per share data, unaudited)

 

 

Three Months Ended

 

July 3, 2020

 

July 5, 2019

Net revenues

$

614

 

 

$

650

 

Cost of revenues

86

 

 

96

 

Gross profit

528

 

 

554

 

Operating expenses:

 

 

 

Sales and marketing

145

 

 

184

 

Research and development

65

 

 

101

 

General and administrative

53

 

 

96

 

Amortization of intangible assets

18

 

 

20

 

Restructuring and other costs

127

 

 

13

 

Total operating expenses

408

 

 

414

 

Operating income

120

 

 

140

 

Interest expense

(40

)

 

(49

)

Other income, net

19

 

 

1

 

Income from continuing operations before income taxes

99

 

 

92

 

Income tax expense (benefit)

(50

)

 

54

 

Income from continuing operations

149

 

 

38

 

Loss from discontinued operations

(31

)

 

(12

)

Net income

$

118

 

 

$

26

 

 

 

 

 

Income (loss) per share - basic:

 

 

 

Continuing operations

$

0.25

 

 

$

0.06

 

Discontinued operations

$

(0.05

)

 

$

(0.02

)

Net income per share - basic

$

0.20

 

 

$

0.04

 

 

 

 

 

Income (loss) per share - diluted:

 

 

 

Continuing operations

$

0.24

 

 

$

0.06

 

Discontinued operations

$

(0.05

)

 

$

(0.02

)

Net income per share - diluted

$

0.19

 

 

$

0.04

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

Basic

590

 

 

619

 

Diluted

614

 

 

642

 

___________________

(1) The three months ended July 3, 2020 consisted of 13 weeks whereas the three months ended July 5, 2019 consisted of 14 weeks. The impact of the extra week on revenues in the three months ended July 5, 2019 is estimated to be approximately $44 million.

NORTONLIFELOCK INC.

Condensed Consolidated Statements of Cash Flows

(In millions, unaudited)

 

 

Three Months Ended

 

July 3, 2020

 

July 5, 2019

OPERATING ACTIVITIES:

 

 

 

Net income

$

118

 

 

$

26

 

Adjustments:

 

 

 

Amortization and depreciation

46

 

 

158

 

Impairments of current and long-lived assets

85

 

 

3

 

Stock-based compensation expense

25

 

 

80

 

Deferred income taxes

20

 

 

(30

)

Gain on extinguishment of debt

(20

)

 

 

Loss from equity interest

 

 

11

 

Non-cash operating lease expense

6

 

 

12

 

Other

24

 

 

1

 

Changes in operating assets and liabilities:

 

 

 

Accounts receivable, net

5

 

 

270

 

Accounts payable

(28

)

 

(21

)

Accrued compensation and benefits

(39

)

 

(46

)

Contract liabilities

(29

)

 

(161

)

Income taxes payable

(88

)

 

72

 

Other assets

62

 

 

5

 

Other liabilities

(17

)

 

(55

)

Net cash provided by operating activities

170

 

 

325

 

INVESTING ACTIVITIES:

 

 

 

Purchases of property and equipment

(1

)

 

(49

)

Proceeds from maturities and sales of short-term investments

29

 

 

92

 

Other

(5

)

 

(5

)

Net cash provided by investing activities

23

 

 

38

 

FINANCING ACTIVITIES:

 

 

 

Repayments of debt and related equity component

(1,179

)

 

 

Net proceeds from sales of common stock under employee stock incentive plans

2

 

 

37

 

Tax payments related to restricted stock units

(23

)

 

(52

)

Dividends and dividend equivalents paid

(105

)

 

(51

)

Repurchases of common stock

 

 

(559

)

Net cash used in financing activities

(1,305

)

 

(625

)

Effect of exchange rate fluctuations on cash and cash equivalents

8

 

 

3

 

Change in cash and cash equivalents

(1,104

)

 

(259

)

Beginning cash and cash equivalents

2,177

 

 

1,791

 

Ending cash and cash equivalents

$

1,073

 

 

$

1,532

 

NORTONLIFELOCK INC.

Reconciliation of Selected GAAP Measures to Non-GAAP Measures (1) (2)

(In millions, except per share data, unaudited)

 

 

Three Months Ended

 

July 3, 2020

 

July 5, 2019

Operating income

$

120

 

 

$

140

 

Stock-based compensation

18

 

 

26

 

Amortization of intangible assets

25

 

 

27

 

Restructuring and other costs

127

 

 

13

 

Other

(1

)

 

1

 

Operating income (Non-GAAP)

$

289

 

 

$

207

 

 

 

 

 

Operating margin

19.5

%

 

21.5

%

Operating margin (Non-GAAP)

47.1

%

 

31.8

%

 

 

 

 

Net income

$

118

 

 

$

26

 

Adjustments to income from continuing operations:

 

 

 

Stock-based compensation

17

 

 

26

 

Amortization of intangible assets

25

 

 

27

 

Restructuring and other costs

127

 

 

13

 

Other

(3

)

 

 

Non-cash interest expense

3

 

 

6

 

Gain on extinguishment of debt

(20

)

 

 

Loss from equity method investment

 

 

11

 

Total adjustments to GAAP income from continuing operations before income taxes

149

 

 

83

 

Adjustment to GAAP provision for income taxes

(110

)

 

13

 

Total adjustment to continuing operations, net of taxes

39

 

 

96

 

Discontinued operations

31

 

 

12

 

Net income (Non-GAAP)

$

188

 

 

$

134

 

 

 

 

 

Diluted net income per share

$

0.19

 

 

$

0.04

 

Adjustments to diluted net income per share:

 

 

 

Stock-based compensation

0.03

 

 

0.04

 

Amortization of intangible assets

0.04

 

 

0.04

 

Restructuring and other costs

0.21

 

 

0.02

 

Other

(0.00

)

 

 

Non-cash interest expense

0.00

 

 

0.01

 

Gain on extinguishment of debt

(0.03

)

 

 

Loss from equity method investment

 

 

0.02

 

Total adjustments to GAAP income from continuing operations before income taxes

0.24

 

 

0.13

 

Adjustment to GAAP provision for income taxes

(0.18

)

 

0.02

 

Total adjustment to continuing operations, net of taxes

0.06

 

 

0.15

 

Discontinued operations

0.05

 

 

0.02

 

Diluted net income per share (Non-GAAP)

$

0.31

 

 

$

0.21

 

 

 

 

 

Diluted weighted-average shares outstanding

614

 

 

642

 

Incremental dilution

 

 

 

Diluted weighted-average shares outstanding (Non-GAAP)

614

 

 

642

 

___________________

(1) This presentation includes non-GAAP measures. Non-GAAP financial measures are supplemental and should not be considered a substitute for financial information presented in accordance with GAAP. For a detailed explanation of these non-GAAP measures, see Appendix A.

(2) Amounts may not add due to rounding.

NORTONLIFELOCK INC.

Consumer Revenues, Consumer Reported Billings and Consumer Cyber Safety Metrics

(In millions, except per user data, unaudited)

 

Consumer Revenues (Non-GAAP)

 

 

 

 

 

 

Three Months Ended

 

July 3, 2020

 

July 5, 2019

 

Variance in %

Revenues (1)

$

614

 

 

$

650

 

 

(6

)%

Exclude revenues from ID Analytics (2)

 

 

(14

)

 

 

Consumer revenues (Non-GAAP)

614

 

 

636

 

 

(3

)%

Exclude foreign exchange impact (3)

1

 

 

 

 

 

Constant currency adjusted consumer revenues (Non-GAAP)

615

 

 

636

 

 

(3

)%

Exclude extra week impact (1)

 

 

(44

)

 

 

Constant currency and extra week adjusted consumer revenues (Non-GAAP)

$

615

 

 

$

592

 

 

4

%

 

Consumer Reported Billings (Non-GAAP)

 

 

Three Months Ended

 

July 3, 2020

 

July 5, 2019

 

Variance in %

Revenues (1)

$

614

 

 

$

650

 

 

(6

)%

Add: Contract liabilities (end of period)

1,058

 

 

1,011

 

 

 

Less: Contract liabilities (beginning of period)

 

(1,076

)

 

 

(1,059

)

 

 

Add: Other contract liabilities adjustment (4)

 

 

5

 

 

 

Reported billings (Non-GAAP)

596

 

 

607

 

 

(2

)%

Exclude revenue from ID Analytics (2)

 

 

(14

)

 

 

Consumer reported billings (Non-GAAP)

596

 

 

593

 

 

1

%

Exclude extra week impact (1)

 

 

(44

)

 

 

Consumer reported billings excluding extra week impact (Non-GAAP)

$

596

 

 

$

549

 

 

9

%

 

Consumer Cyber Safety Metrics

 

 

 

 

 

 

Three Months Ended

 

July 3, 2020

 

April 3, 2020

 

July 5, 2019

Direct customer revenues

$

552

 

 

$

549

 

 

$

577

 

Partner revenues

$

62

 

 

$

61

 

 

$

59

 

Revenues from ID Analytics

$

 

 

$

4

 

 

$

14

 

Average direct customer count

20.4

 

 

20.2

 

 

20.2

 

Direct customer count (at quarter end)

20.6

 

 

20.2

 

 

20.1

 

Direct average revenue per user (ARPU) (5)

$

9.03

 

 

$

9.07

 

 

$

8.83

 

___________________

(1) The three months ended July 3, 2020 consisted of 13 weeks whereas the three months ended July 5, 2019 consisted of 14 weeks. The impact of the extra week on revenues in the three months ended July 5, 2019 was estimated to be approximately $44 million.

(2) In the three months ended April 3, 2020, we divested our ID Analytics solutions. We present consumer reported billings and consumer revenues to enhance comparability of the reported billings and revenues of our remaining solutions to the year ago period.

(3) Calculated using year ago foreign exchange rates.

(4) Other contract liabilities adjustment for the three months ended July 5, 2019 represents the change in contract liabilities related to Veritas discontinued operations of $5 million.

(5) ARPU in the three months ended July 5, 2019 was normalized to exclude the impact of the extra week on direct revenue, which we estimate to be approximately $41 million.

NORTONLIFELOCK INC.
Appendix A
Explanation of Non-GAAP Measures and Other Items

Objective of non-GAAP measures: We believe our presentation of non-GAAP financial measures, when taken together with corresponding GAAP financial measures, provides meaningful supplemental information regarding the Company’s operating performance for the reasons discussed below. Our management team uses these non-GAAP financial measures in assessing NortonLifeLock’s performance, as well as in planning and forecasting future periods. Due to the importance of these measures in managing the business, we use non-GAAP measures in the evaluation of management’s compensation. These non-GAAP financial measures are not computed according to GAAP and the methods we use to compute them may differ from the methods used by other companies. Non-GAAP financial measures are supplemental and should not be considered a substitute for financial information presented in accordance with GAAP and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

Contract liabilities adjustment: Our non-GAAP net revenues eliminate the impact of contract liabilities purchase accounting adjustments required by GAAP. GAAP requires an adjustment to the liability for acquired contract liabilities such that the liability approximates how much we, the acquirer, would have to pay a third party to assume the liability. We believe that eliminating the impact of this adjustment improves the comparability of revenues between periods. Also, 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. In addition, our management uses non-GAAP net revenues, adjusted for the impact of purchase accounting adjustments to assess our operating performance and overall revenue trends. Nevertheless, non-GAAP net revenues has limitations as an analytical tool and should not be considered in isolation or as a substitute for GAAP net revenues. We believe these adjustments are useful to investors as an additional means to reflect revenue trends of our business. However, other companies in our industry may not calculate these measures in the same manner which may limit their usefulness for comparative purposes.

Stock-based compensation: This consists of expenses for employee restricted stock units, performance-based awards, bonus share programs, stock options and our employee stock purchase plan, determined in accordance with GAAP. We evaluate our performance both with and without these measures because stock-based compensation is a non-cash expense and can vary significantly over time based on the timing, size, nature and design of the awards granted, and is influenced in part by certain factors that are generally beyond our control, such as the volatility of the market value of our common stock. In addition, for comparability purposes, we believe it is useful to provide a non-GAAP financial measure that excludes stock-based compensation to facilitate the comparison of our results to those of other companies in our industry.

Amortization of intangible assets: Amortization of intangible assets consists of amortization of acquisition-related intangibles assets such as developed technology, customer relationships and trade names acquired in connection with business combinations. We record charges relating to the amortization of these intangibles within both cost of revenues and operating expenses in our GAAP financial statements. Under purchase accounting, we are required to allocate a portion of the purchase price to intangible assets acquired and amortize this amount over the estimated useful lives of the acquired intangible assets. However, the purchase price allocated to these assets is not necessarily reflective of the cost we would incur to internally develop the intangible asset. Further, amortization charges for our acquired intangible assets are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions. We eliminate these charges from our non-GAAP operating results to facilitate an evaluation of our current operating performance and provide better comparability to our past operating performance.

Restructuring and other costs: Restructuring charges are costs associated with a formal restructuring plan and are primarily related to employee severance and benefit arrangements, contract termination costs, and assets write-offs, as well as other exit and disposal costs.


Contacts

MEDIA CONTACT:
Spring Harris
NortonLifeLock Inc.
press@nortonlifelock.com

INVESTOR CONTACT:
Soohwan Kim, CFA
NortonLifeLock Inc.
ir@nortonlifelock.com


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