NortonLifeLock : Q3 FY21 Earnings Transcript (PDF 318 KB)

Corrected Transcript

04-Feb-2021

NortonLifeLock, Inc. (NLOK)

Q3 2021 Earnings Call

	Total Pages: 23
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NortonLifeLock, Inc. (NLOK)	Corrected Transcript
Q3 2021 Earnings Call	04-Feb-2021

CORPORATE PARTICIPANTS

Mary Lai	Natalie Derse
Vice President-Investor Relations, NortonLifeLock, Inc.	Chief Financial Officer, NortonLifeLock, Inc.
Vincent Pilette
Chief Executive Officer & Director, NortonLifeLock, Inc.

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OTHER PARTICIPANTS

Gregg Moskowitz	Keith Eric Weiss
Analyst, Mizuho Securities USA LLC	Analyst, Morgan Stanley & Co. LLC
Saket Kalia	Walter H. Pritchard
Analyst, Barclays Capital, Inc.	Analyst, Citigroup Global Markets, Inc.
Brad Zelnick	Yi Fu Lee
Analyst, Credit Suisse Securities (USA) LLC	Analyst, Oppenheimer & Co., Inc.
Fatima Boolani	Shaul Eyal
Analyst, UBS Securities LLC	Analyst, Oppenheimer & Co. Inc.

Matthew Swanson

Analyst, RBC Capital Markets LLC

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MANAGEMENT DISCUSSION SECTION

Operator: Good afternoon, everyone. Thank you for standing by. My name is Ann, and I will be your conference operator today. I would like to welcome everyone to the NortonLifeLock Fiscal 2021 Third Quarter Earnings Call. Today's call is being recorded and all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

At this time for opening remarks, I would now like to pass the call over to Ms. Mary Lai, head, Investor Relations. Miss, you may begin.

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Mary Lai

Vice President-Investor Relations, NortonLifeLock, Inc.

Thank you, Ann, and good afternoon, everyone. Welcome to the NortonLifeLock's Fiscal 2021 Third Quarter Earnings Call. Joining me today to review our results are Vincent Pilette, CEO; and Natalie Derse, CFO.

As a reminder, there will be a replay of this call posted on the IR website, along with our earnings slides, press release, and supplement materials defining our non-GAAP metrics. I'd like to remind everyone that during this call, all references to the final metrics are non-GAAP and all growth rates are year-over-year unless otherwise stated. A reconciliation of non-GAAP to GAAP measures is included in our press release, which is available on our IR website at investor.nortonlifelock.com.

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NortonLifeLock, Inc. (NLOK)	Corrected Transcript
Q3 2021 Earnings Call	04-Feb-2021

Today's call contains statements regarding our business, financial performance and operations, included the impact of the ongoing COVID-19 pandemic on our business and industry, which may be considered forward- looking statements and such statements involve risks and uncertainties that may cause actual results to differ materially from our current expectations. Those statements are based on current beliefs, assumptions, and expectations and speak only as of the current date.

For more information, please refer to the cautionary statement in our press release and the risk factors in our filings with the SEC, and in particular, our Annual Report on Form 10-K for the fiscal year ended April 3, 2020 and recently filed quarterly report on Form 10-Q.

And now, I will turn the call over to our CEO. Vincent?

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Vincent Pilette

Chief Executive Officer & Director, NortonLifeLock, Inc.

Thank you, Mary, and good afternoon, everyone. I hope you are all safe and well. As we embark on 2021, I think it's important to recognize the sense of uncertainty and the ongoing challenges that we all face as individual or as a society. Despite the socioeconomic and health issues we are facing, I'm hopeful that collectively we will emerge stronger and more united.

At NortonLifeLock, the safety and well-being of our employees is our utmost priority and I want to thank each and every one of them for facing all those challenges while continuing to show a deep commitment to drive our vision of protecting and empowering people to live their digital life safely.

A lot has happened since our last earnings. On top of delivering another solid quarter, accelerating our growth, and adding some exceptional talent to our team and our board, we also are proud to have been recognized by the Human Rights Campaign Foundation for earning a top score on the 2021 Equality Index. We are proud of the diverse backgrounds represented by our entire team at NortonLifeLock, and we remain committed to building an inclusive company. We know that delivering on our vision cannot happen without a committed, talented, and diverse team.

In December, we announced LifeLock's first acquisition. Now that the deal has closed, we are excited to welcome Avira's employees, customers, and partners to the Norton family. We are really excited by the opportunity to provide Avira's 30 million users and over 1.5 million paid customers the benefit of the Norton plus Avira offering. Together, we are now privileged to help protect over 80 million consumers globally as we embrace the important responsibility we have in securing their digital lives.

We are also quickly working to leverage Avira's strong presence in Europe, which now also includes BullGuard, a UK-based cybersecurity company that Avira added to their business last year. On top of expanding our reach deeper into EMEA, we look forward to adding Avira's and BullGuard's capabilities to our portfolio.

Before I dive into Q3 results, I want to revisit two key post-transition commitments we previously set as a standalone NortonLifeLock company. From returning to a growing customer base, a first since 2014 to delivering over $1.5 annualized EPS, I am proud to say that we have established the company on a trajectory of sustainable and profitable growth. We are a stronger Cyber Safety company today, 100% focused on protecting and empowering consumers to live their digital life safely.

While we are proud of these achievements, we know we have a tremendous responsibility to deliver a portfolio that stays ahead of cyber criminals. We don't take this lightly. As we innovate and work to keep our customers

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NortonLifeLock, Inc. (NLOK)	Corrected Transcript
Q3 2021 Earnings Call	04-Feb-2021

safe, we know that we will be transforming our company for a richer portfolio and expanded consumer reach and we're just getting started.

In Q3, we delivered solid growth and accelerated our momentum. Revenue was up 6% and non-GAAP EPS grew 52%. Reported billings growth was 10%, our first quarter of double-digit growth. We are closing the fiscal year out strong and more importantly, we're well on our way to creating a meaningful and sustainable growth business.

Leading the growth momentum, our partner business posted double-digit revenue growth, up 15%. Retail was strong in the quarter, performing well through e-tail and during the holidays. Internationally, Japan was particularly strong as it relates to identity theft protection solutions such as Dark Web Monitoring and ID Advisor sold through partners and retailers.

Finding the right opportunities and markets to build and expand these long-term partnerships is one of our key strategic focus areas to broaden our reach and provide Cyber Safety to more consumers in underpenetrated markets. Stay tuned for more developments in this area as we continue to transform the company.

Our direct-to-consumer revenue, which represent the majority of our business, was up 5%. We saw broad-based growth across the portfolio as well as strong performance through the holiday season. While our North America business is considerably larger than the rest of the world, the international growth rate continues to show strength and outpace the Americas.

In the quarter, our direct business grew double digits across multiple countries, including Germany, France, Australia, and New Zealand, where we have recently added Dark Web Monitoring into our Norton 360 offering. This is part of our strategic push to expand Norton Identity products internationally and bring more comprehensive Cyber Safety offering to international consumers. We definitely have more room to grow here, especially with the synergies and expanded global reach we will be leveraging with Avira and the freemium model.

In Q3, our direct customer count grew over 300,000 sequentially and close to 900,000 year-over-year, bringing our total count to 21 million. This was our fifth straight quarter of net direct customer adds sequentially. Our customer retention rate remained stable at 85%.

Our industry-leading monthly ARPU, average revenue per user, also remained strong at $9. Both metrics are strong indicators that our current customers see the value of our products. Notwithstanding the effect of tenure and geographical mix, we continue to see opportunities to improve ARPU, as we enrich the Cyber Safety value offered to our customers, and to improve retention rates, especially in the early years of the customer journey.

One of the key contributors to our customer count growth and retention success continues to be the Norton 360 integrated platform, the first truly integrated Cyber Safety offering in the market. At the end of Q3, approximately 60% of our installed base are using Norton 360. This platform is designed to provide a comprehensive protection, while driving higher customer engagement.

This level of adoption shows that our approach to provide an easy to use platform and comprehensive protection through a membership model resonates well with our customers. And we're working hard to continue bringing new functionalities, simplifying the membership plans, and constantly improving the user experience.

The combination of Norton 360 platform, our international expansion effort, and our strategic shift to new forms of digital marketing is working and bringing Cyber Safety to new customers.

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