Q2 2020 Earnings Call

Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily.

I'm your lines will get to be placed somebody's a cold we thank you for your patience and that's what you. Please remain connected.

Art in listen only mode. After this conference presentation, there will be a question and answer session to ask a question during that time, you'll need to press star one on your telephone keypad to ensure that we were able to get everyone. During the Q and a session. We would like to request that you limit yourself to asking one main question and one follow up.

Thank you I would now like 10 conference over to your speaker for today Ms., Cynthia Hiponia Norton Lifelock, Vice President of Investor Relations Ma'am you may begin.

Great. Thank you again I'm I'm pleased to welcome you to work holiday discussed her second quarter fiscal year 2020 earnings result, we posted the earnings mature on slides to our Investor relations events, what page speakers on today's call or Rick Hill, Norton Lifelocks interim President and CEO , Vincent collect executive Vice President and CFO , It's America per yet.

VP and general manager of cyber consumer cyber safety. This call will be available for replay via webcast on our website.

As a reminder, in connection with the sale of certain of our enterprise security business to park on November 4th 2019, we changed our corporate name from Symantec Janardan Lifelock. The results of our enterprise security. This is were classified as discontinued operations in our consolidated condensed consolidated statements of operations and that's excluded from but.

Continuing operations and segment results for all periods presented.

Starting in a second quarter fiscal 2020, we operate in one reportable segment.

Revenues and associated costs are I'd analytics solutions, which were formally included in the enterprise Security segment are now included in our remaining reportable segment.

The assets acquired and liability told the Burcon were classified as discontinued operations and our condensed consolidated balance sheet.

I'd like to remind everyone that all references to financial metrics are non-GAAP unless otherwise stated.

Please refer to the supplemental materials pictured on the Investor Relations website for further definitions of our non-GAAP metrics.

Please note non-GAAP financial measures reference during this call a reconciled to their comparable GAAP financial measures in the press release and supplemental materials posted on our website.

We believe our presentation of non-GAAP financial measures when taken together with corresponding GAAP financial measures provides meaningful supplemental information regarding our operating performance for reasons discussed Hello.

Our management team uses these non-GAAP financial measures in assessing our operating results as well as with planning and forecasting future periods. We believe our non-GAAP financial measures also particulate facilitate comparisons of our performance depart period, and then investors benefit from understanding our non-GAAP financial measures.

non-GAAP financial measures or supplemental and should not be considered as a substitute for financial information presented in accordance gap.

Today's call contains forward looking statements based on conditions. We currently see the fit those statements are based on current beliefs assumptions and expectations speak only as of the current date and as such involve risks and uncertainties that may cause actual results could differ materially from our current expectations.

In particular statements regarding our sale of our enterprise security assets to Burcon.

Any anticipated benefits from such sale and the cost reductions associated with this transaction are subject to a variety of risks. Please refer to the cautionary statement in our press release for more information.

Well, that's a funny detailed discussion about our risk factors in our filings with the FCC and in particular in or annual report on Form 10-K for fiscal ended March 29, 2019, and recently filed quarterly reports on Form 10-Q , Let me now turn the call over to Rick. Thank you Cynthia and thank all of you for joining US this afternoon, that's been and.

Other exciting inning, and where you have quite a bit of good news to discuss today earlier. This week, we closed the sale of our enterprise security assets to Broadcom for 10.7 billion.

With the closing this transaction we have changed our company name and are now Norton Lifelock, a global leader in consumer cyber safety and we're now trading under the new ticker of at an L. Okay.

So.

It's been quite a busy quarter to say the lease the entire board is proud of what this team has accomplished in two quarters. The management and the board has delivered on our commitment to drive to unlock value and enterprise security and consumer Cyber safety. In addition, we met our.

Revenue guidance in Q2 and were over the high end of guidance in Q2 for ERP, yes.

Well, what I'm most proud to announce for the company is the new management team that the board and I believe can deliver both the elimination of stranded costs and growth in the north Lifelock business. The board has approved the promotion events and pull up to CEO and president promotional Samir couple Korea.

To the position of President.

These two seasoned leaders coupled with our industry, we now see T O Dr. Hugh Thompson give Norton Lifelock, a world class leadership team, who are well respected and provide continuity and the Norton Lifelock business, They will not Miss a heart beat.

Vincent brings a history of deep operational discipline financial fluency, a natural leadership skills.

Samir provides in depth understanding of the operational capabilities and needs of the consumer business well Dr. Hugh Thompson brings the vision and understanding of today's.

Consumer customer threats as well as a vision of what threats the consumers.

Doesn't even know about yet.

In addition, we have asked Matt Brown to pinch hit as the CFO of Norton Lifelock as we search for a new CFO for Norton Lifelock and that CFO will be located in Tempe, Arizona.

But before I return to Hawaii and downward facing dog, let me summarize the key highlights that put this business on the right track as Vincent and Samir step into their new roles first we identified and recruited an individual who I feel has tremendous skills.

And I believe will be one of my greatest C. O recommendations Vinson is a natural leader. He has an unrelenting dry for results and has consumer business and operating shops. He has honed as a CFO at large attack.

He has both high tech and consumer experience.

He has game their respective both the transition team and consumer team as he architected and executed the enterprise sale to broadcast.

The identification of line of sight on elimination of stranded costs and a strategy for the consumer business going forward.

In addition, Dan Schulman has worked with the board to restructure itself to a more appropriate size for our 2.5 billion consumer business.

As announced today, Dan Schulman, Rick kill Anita Sands, Suzanne well turn, though David Mahoney and Dale for will step down at the December 19th 2019 annual meeting.

I'd like to thank all the members of the board, who selflessly step down to help accelerate elimination of stranded costs.

Remaining on the board will be Ken how David Humphrey Peter Felled Frank Vanguard.

Oh on ROE and Susan Barsamian.

At the annual meeting we will add two additional members Vincent pohlad, and nor a denzel and the new board will select their chairman.

At the annual meeting.

Personally I would like to thank the board management team employees and you are investors for their support you have shown me for my three innings on the mound.

On Monday, we closed the transaction on the sale of the enterprise security assets to broad calm for 10.7 billion and over the last 60 days Vincent has identified line of sight, so to deliver better results than we spoke about.

At our August conference call.

Our estimated annualized stranded costs are now 1.3 billion down from 1.5 billion through the negotiating prowess of Vincent and his team.

And the cash costs to remove the stranded costs are also lower down for a billion to 900 million.

We had also stated that we would sell fund the majority of these cash cost with the sale of our underutilized assets in early October we receive proceeds on the sale of our did just start did just cert equity investment of approximately 378 million and we now believe that combined with the sale of our under you.

Utilize real estate and total pre proceeds from monetized assets, we can fund over 1.1 billion.

This deal is a home run from the precise <unk> perspective of this relief pitcher.

When we announced this transaction on our last earnings call. We made a commitment to return 100% or the after tax proceeds or 8.2 billion to shareholders in the form of a $12 special dividends, we maintain and reiterate that commitment and expect a dividend to be declared industry.

Repeated in the fiscal Q4 once all the funds are repatriated.

Reiterating to focus you on our commitment to doing what we say for quarter. Two we delivered results in line with guidance for total company revenue within line results for both the enterprise security and consumer cyber safety revenue.

Both our total company operating margin in our fully diluted EPS were above our guidance ranges and we grew year over year. This is a big accomplishment given the amount of resources and time required in completing the divestiture of enterprise security and the restructuring actions, we began in order to try.

Transition to a standalone cyber safety company with an optimized cost structure I want to thank the employees for their dedication and focus over the last several months I cannot be more proud of this team and I have full confidence in Vincent Samir hue and Matt as they step into there.

A new leadership roles now as I leave the mountain for locker room, and then on to Hawaii firms for some serious downward facing dog, let me turn the call over to Vincent Who'll review our results in more details and discuss our go forward plans Vincent.

Thank you Rick I would like to think week for his leadership and partnership there are many good things that we brought to these companies. The most important he made us believe that through great execution and teamwork, we can tackle seemingly insurmountable challenge it.

Closing and that's a deal of this magnitude within one quarter, while running the company is a perfect example of leadership he provided on behalf of everyone. Thank you Rick.

Thank you already shared some key highlights it is worth repeating them. This is a fine enterprise business for $10.7 billion closed on Monday.

The annualized stranded cost are now estimated to be $1.3 billion down from 1.5 billion.

The stranded cost I plan to be eliminated over 12 months at an estimated cash cost of 900 million.

Yes, you mean cash costs of 900 million is expected to be more than funded by the sales of real estate and all the assets primarily comprised of multiple campuses that are now for sale and I expect it to be sold by mid of next year.

We proudly launched our new company named Naughton, Lifelock and designated Tempe, Arizona as our new headquarters.

We started already to rightsize, our cost structure as reflect <unk>, 8% sequential decrease in had gone.

We delivered on our commitment for Q2 revenue.

And even better we deliver better than expected operating margin.

We have a lot of work in front of us to build a vibrant consumer company and as demonstrated by our Q2 achievements. There was no better team to deliver on that promise.

So they have accepted the role of CEO as we're transforming to a consumer pure play semi capacity has been promoted to president and we haven't they mature brands, our guns and talented chief accounting officer as interim CFO . We have also an entre search for new permanent CFO to be in Tempe.

I look forward to partnering closely we sent me or not then if you and everyone at the company.

As this quarter was under my CFO responsibilities I will review the Q2 financials.

In Q2, we moved the majority you'll find to probably security business into discontinued operations.

What do we had to change our reporting structure. It's important for me to give you a view of our results as compared to the non-GAAP guidance. We provided on August eight which would have included both continuing and discontinued operations.

Total company Q2 revenue was $1.187 billion flat year over year and inline with our guidance.

Consumer revenue was $595 million and enterprise revenue 592 million.

Operating margin was 33.9% up 220 basis points year over year exceeding guidance I'll still do you want to 33% with consumer segment margin of 50.1 person and enterprise segment margin of 17.6%.

Fully diluted EPS was 46 cents exceeding guidance of 40 to 44 and up 10% year over year.

[noise] as mentioned the majority of enterprise security segment under discontinued operations, so under our new reporting structure in the second quarter revenue from our continuing operations was $608 million flat year over year in constant currency.

Can you bring operations now includes revenue and cost from I'd analytics business, which was formally included an enterprise security segment.

And which contributed $13 million to Q2 revenue.

Well, our Q2 reported cost structure is complex and burden, we stranded costs, our core business remains on track.

Under continuing operations, we reported $92 million in cost of goods sold and 338 million in operating expenses, which equals to 430 million in toward spend.

Spend related to stranded cost in discontinued operations PNM was approximately $130 million in Q2. Therefore, the remaining spent approximately $300 million was related to a consumer cyber safety business and equates to approximately 50% operating margin in line with our target comes from the model.

You do accounting reporting requirements for the next 12 months I stranded cost will be located in multiple places in our piano.

I'm would've been continued operations some would've been discontinued operations and some will be in restructuring.

Well, we'll give you as much visibility as possible as we'd meet these stranded cost.

I've learned through my career he is better to overcome indicated during times of changes I want you to leave this goal with confidence that's we have full visibility to our cost structure and that detail transition plans are in place I will be directly accountable to remove the stranded cost as soon as possible within the next 12 months.

[noise] in Q2, our cash flow from operation was $180 million to $1 million, which free cash flow of 154 million. We ended the second quarter, we skosh in short the investment of 1.83 billion.

On Monday, we announced the successful refinancing of our debt to extend upcoming maturities without a little debt level unchanged at 4.5 billion as previously communicated.

Before I pass it over to semi or for more details on the consumer business I went to highlight the fact that we have a renewed vigor as we focus on the consumer business with a sole objective to solidify our growth plan. So we tend to business grew mid single digit revenue growth in the long time.

In Q2, we increased our marketing investment primarily targeted that direct acquisition marketing programs focused focused on on northern to 60 membership offerings.

So it will take some time to fill the revenue line you too to prove to the revenue line you to subscription nature of the business.

The reported billings growth of 4% equivalent to booking growth in consumer he's an early encouraging sign of the growth potential of that business.

And now let me turn the corner with the severe we'll do a deeper dive on Q2 consumer results [noise].

Thank you Vincent.

In April we launched our Norton Threesixty membership plans, U.S., Canada, UK and Germany.

Memberships offer different levels of coverage of device protection online privacy enablement, dark what monitoring and identity protection.

In the second quarter, we further expanded our Norton Threesixty memberships in EMEA, any PJ, including Spain, six Scandinavian countries and Japan.

And the third quarter, we're targeting additional countries in EMEA and Asia Pacific and Latin America. This membership strategy allows us to increase value by offering a broader set of cyber safety products to consumers.

In the second quarter, we saw stabilization in the declines of for ending direct customer count up 20.1 million.

Which were flat sequentially and down 3% year over year.

The last two quarters decreased our spending and direct customer acquisition marketing program in order to capture or longer term growth opportunities.

Average revenue per user or ARPU increased to $8, an 88 cents per month, 1% sequentially and 2% year over year. We also protect millions of indirect users through out through our partnership relationships.

The second quarter, our partner revenue was up 2% year over year.

Foundation of our consumer cyber safety strategies to offer solutions that protect all areas of consumers online lives our offerings covered devices identity privacy and home and family.

We created the consumer cyber safety category with the acquisition of Lifelock in 2017, and going forward as Norton Lifelock with a singular focus we will continue to be an industry leader through operational excellence and innovation.

Cyber risk as an expanding concern for every one globally and our team is constantly identifying new ways to provide cyber safety I'm looking forward to partnering with Vincent and together expanding cyber safety to an ever increasing market.

Thanks Amir.

Now turning to our Q3 outlook and also discuss our capital allocation plan.

In the third quarter, we expect revenue in the range of $602 million to $612 million or down 2% to flat year over year.

Well, we'll continue to drive to business for growth, which is expected to continue to yield low single digit bookings growth in Q3, ultimately delivering expected revenue growth out of quarters.

The timing in scope of the transition service agreements. We have was brought gum for the next few months and the complicated accounting treatment of this trended and restructuring cost as well as 80 nation plans can make the quarterly breakdown of our forecast spend more dynamic.

Based on our plan today, we expect Q3, non-GAAP EPS for continuing operations to being the range of five cents to 10 cents per share based on the share count assumption of approximately flat sequentially with our core business operating at about 50% profit margin and the rest of the spend made up stranded cost.

We're not providing Q3 GAAP EPS guidance due to extraordinary charges most significantly the gain resulting from the sales of five enterprise security assets, which could you three to $4 in GAAP EPS in Q3.

Well, we provide guidance for the next quarter and wave eyes on todays business activities, we actually manage the business starts out 12 months objective. So.

So let me reiterate that within the next 12 months, we will eliminate all just trying to cost.

Imagination elimination of the stranded cost the completion of the transition services to support Broadcom and the full you would benefit from our share buyback program. We expect the operating margin of the company to reach 50% annualized as to come to approximately a $1.50.

Well I continue to give you quality forecast. It this progress again that annual goal a $1.50 by which we will determine our success.

As we announced last quarter the board and this management team are committed to returning to shareholders, 100% of the after tax proceeds of approximately $8.2 billion in the form a $12 special dividend as Rick mentioned in his comments.

The special dividend should be declared by our board and feed NPD now fourth fiscal quarter. After all the funds are repatriated.

So there we also announced that we raised the regular quarterly dividend by 67% to 12.5 cents per share in the current quarter at today's share price. This would equate to over 2% on your yield.

Excluding the special dividends from the share price this would equate to over 4% on your yield.

Finally, as a reminder, we have an existing $1.6 billion share repurchase authorization, which we expect to execute through the transition period.

Let me finish with a few comments on why have accepted this leadership role.

This is a measured major transformation on one side, we must rightsize our business operations. Following the enterprise divestiture on the other side, we have to continue to expand northern lifelock to make the cyber world the safer place for everyone.

On Rightsizing the business, we have 1.3 billion enough cost to any minute.

We need to monetize and dispose of unused assets.

We will use the proceeds would those assets to fund cash cost related to winding down this trended operation.

On the other side the focus on execution and optimization of our cost structure will enable us to fund many growth initiatives such as the adoption of find you note on 360 memberships.

The conversion of Fonda subscribers to direct subscribers the expansion outside the U.S. and the development of new products and functionalities.

Going forward operational excellence disciplined and vision will continue to drive consume the cyber safety to new levels.

It is a privilege for me to partner with Samir These executive team and all of our employees to emerge as a successful consumer company in cyber safety.

And it was those comments Rick Semira now I know happy to take any question and I'll turn it back to you.

Ladies and gentlemen, as a reminder, at this time if you like to asking audio question you may do so by pressing star followed by the number one on your telephone keypad again, we ask that you limit yourself to one main question and one follow up questions that way, we can get to everyone.

Our first question is one of Saket kalia from Barclays.

Hi, guys. Thanks for taking my Hey, Vincent Thanks, Thanks for taking my questions here and Rick Vincent Samir Congrats on your respective transitions.

Thank you. Thank you.

Uh huh.

First maybe maybe for you Vincent and semi or just on the core business.

Can we just talk a little bit about the direct customer account.

Talking about how it's stabilizing can you just give us a sense for how the respective basis, both Norton and lifelock subscribers or maybe trending and how you're thinking about that direct customer count sort of going forward.

Yes, I can give a first why so first of all as we said in last quarter. We started to use some of savings to pull back into marketing investments and dose way prime any targeted that acquiring new customers to the direct marketing programs.

Well this quarter, which have about 20.1 million subscribers and are in the process of stabilizing that I couldn't find such or a stable quarter over quarter view. If you want for the last few years. If you exclude the Fox event in 2018, and so I think this is viewed as a very positive momentum we don't break.

Called as you know northern versus Lifelock, and we trying to move now to what is best membership program, where you get into the form off off a membership a view and at different functionalities, but I would say that privacy or identity protection are the primary marketing messages if you want.

And for what consumers are subscribing many of them of course get the security package with a membership.

So that's a the trend we've seen how many months anything.

I think instant covered it pretty pretty well I think the other indicators that we mentioned in her opening remarks is year over year, using a 2% increase in our ARPU and that's reflected in our conversion of users into the cyber safety membership programs.

Got it that's very helpful. Maybe for my follow up for you Vincent just on on the billion three and stranded costs. Thanks by the way for bringing out breaking it out and just partially in discontinued ops. I guess the question is can you just go one level deeper into the profile of those costs and I know that you've talked about those going the way over the next 12 months.

But should we be thinking about.

You know about those going away steadily over the next 12 months or could we see some some big quarters are big reductions versus others anything on the cadence of those trend of cost and how they sort of.

Get removed from the system would be helpful.

No absolutely no I wanted to do we have a very good detailed plan on the operational activities and how to get we'd have the activities and therefore the costs. The geography underpin that it was its county the operation these kinds of patient or restructuring is really driven by the GAAP accounting rules have nothing do with that but we providing all the visibility.

As you know, we will try to eliminate eliminate them as soon as possible.

In a in our projection and needs, including in our Q3 guidance, we have a big spike in stranded costs next quarter as we write off unused assets.

These are the buckets is we made off three areas. One is a people cost if you want on into positions needs to be kept for up to six month as we serve is both come with some of them.

After which the position would be eliminated the second bucket is facilities and we are exiting buildings as well.

Positions are being eliminated that will be a over the next nine months and the last one is contracts and all the assets that we are either renegotiated or writing off so it wouldn't be a little bit choppy I expect Q3, this coming quarter to probably be the biggest quarter and then it will moved on from there.

I think the last piece I would mention for investors will provide a good view of the casual shoes noncash item of disciplined cost cutting that's what matt into value of the deal.

[noise] and our next questions are from the line of a team of Lani from UBI, yes, but timo.

Good afternoon. Thank you for taking the questions and congratulations to you all in the new roles I wanted to dig into the I'd analytics business I just for the benefit of.

All of US if you can just give us an overview of what this business exactly as how it is distinct from the rest of the consumer portfolio and what sort of revenue model are we looking at here and then I have a follow up person here. Thank you.

So the idea business is about a $50 million business the day and he'll provide some some some alluded services and fraud for that and services the $50 million. Obviously, it's an annual number I broke for last quarter $13 million.

Committed on them, if you want to add anything yeah predominately idea is focused on two areas credit monitoring and fraud monitoring and both.

Our.

Data sources and the business model is to enable those data sources for multiple and customers.

Fair enough I appreciate that and now I assume you're on your discussion about international growth opportunities. There's been a kind of progress made and expanding your presence in actually last geography is I'm wondering if you can translate that into our two impact I think typically where are you seeing some ARPU degradation.

In international markets. So can you speak to sort of any divergence or any signs of a price elasticity in non U.S. regions from an ARPU perspective, as you expand that would be super helpful. Thank you.

Yes, given given where that's great question. Thanks for that given our being a premium brand with premium products. Our initial focus in international expansion has been on the countries I mentioned and we're targeting similar countries that have the ability to take the full offering of cyber safety.

At our existing ARPU levels.

And our next question is one of Melissa French he from Morgan Stanley Melissa.

Great. Thank you I've dialing hi, I'm dialing in for Keith Weiss. Thanks for taking my call and congrats everyone on the new roles as well I wanted to dig in to the sequential ARPU growth and I get a little bit more detail on that Samir I noted that you mentioned, a greater adoption of the kind of.

Premium subscription Desypris this 60 membership.

Just wondering if there was any sort of onetime factors that drove the sequential increase in ARPU and then looking for it do you feel like those trends you're sustainable we should continue to see sequential growth.

Yeah, as we roll out our our cyber safety programs, both through our existing customer base as well as new customers.

<unk> ARPU that that were recognizing the 2% year over year is reflective of that rolled out of the new program I'd anticipate that as we penetrate markets and continue to acquire new customers were going to see that reflect in our ARPU as well.

Okay. That's helpful. And then just wanted to follow up on distribution you mentioned he spent in direct customer acquisition is there any updated view on that.

The other form as I guess partnerships or distribution, specifically, yes, we're going to revisit OEM relationships or partnerships and how we should think about that living for it.

I mean is have you seen Vincent so so yes, we've started to weekly operational review was our consumer business and we kind of design a matrix of opportunities. If you want a membership in our products on one axis and on the other the various form off of distributions and when we look at that mid two weeks, we feel we have a lot of.

Great opportunities, we did one first to increase our marketing in the direct customer acquisition program because that had been under funded in the boss and nights about doing both investing in distribution and frankly, a into new products to access some of those channels.

Very helpful. Thank you.

And our next question is one of Carl Kierstead from Deutsche Bank Carl.

Oh, Thank you very much I've got Oh, Hi, I, just got a questions about the the task to a Buck 50 bps and 900 million in free cash flow made maybe I'll I'll ask both questions at the same time. So I think I think three months ago, you're expressing that we should feel good about the Buck 50, because the consumer business was.

Essentially running at an annualized EPS of a Buck 40, so it it really wasn't much of a lead to get to a Buck 50, maybe I missed it in the presentations, but I wanted to ask what the annualized GPS for just the consumer was in this most recent quarter. So we can see how close it is to that Buck 50, and then secondly on the free cash flow side.

I don't think Youre disclosing quote consumer free cash flow only the hundred 54 million of combined free cash flow, but perhaps you can talk about consumer free cash flow at least qualitatively. So we can feel a little bit better about the line of sight to that 900 million dollar number. Thank you for that.

No absolutely I will now we will report or come to you. The provision as you know combine of boys the cone consumer business plus all just trying to cost and moving forward. We will not have a segment reporting views for that things, we can break as additional information and other data we cannot protein.

Tcl got broad set of course, we follow those.

If you looked at the other consumer business, it's still delivering a 50% operating profit margin, which wasn't both our guidance assumption.

In the last quarter I had said at the time that if you use the current.

Cost of capital share count in the end a tax rate you would get you would be at the wrong a box a about 40 and today you not different than that we operate it comes from a business at 50%.

We have not started yet the share buyback program so share count is relatively flat.

And and so we are very close to that number on eliminating the stranded costs as part of that's gone you operations and reducing the share count we lead us to that Buck 50 by the end of the 12 months transition period.

On the free cash flow side, because we operate the consumer business oxy, 50% operating profit margins would be some was the best proxy for you cash generation. We are roughly this year that 900 million love It as I mentioned in August no change there.

Okay terrific. Thank you.

And our next question is one of Gregg Moskowitz from zero Greg.

Okay. Thank you very much and congratulations to all as well I guess my first question Vincent I realize your billings consumer grew 4% year over year this quarter, but historically the this business hasn't grown quite at that level and I was wondering if you could elaborate on what would catalyze additional growth such as you could achieve mid single digits growth on a sustainable.

Basis, and as part of that what gives you the confidence that the incremental marketing investments that you alluded to will drive a good ROI for the company.

Yeah. So today, if you look at the bidding grows its a a full percentage were reported there's a few moving pieces. There I would say low single digit booking growth is the first quarter. We have goes in the last three quarters he to us flat to negative as a as you mentioned as we reported the business was really run to maximize.

The profit and since August Weve, not only reinvested some of the incremental savings into marketing activities, but we started a deep weekly operational reviews, we samir and weak focus solely on developing horse opportunities not just on maximizing profit and again as I meant.

One two that's midweek like a five membership on top then opportunity to sell and 10 distribution you have the hundred set of metrics and only a few of those studies are fully addressing some of food opportunity and so we see a lot of people need to continue to improve operational efficiencies and we direct do savings into do so.

But he some will be a little bit short term like the direct customer acquisition, some we'd be longer Jim in the longer longer term is to invest in building two huge division off of the consumer side of the safety a blanket. If you won so that's a that's where we are booking growth up low single digit will dig because it's a subscription.

Business will take about full quarters to walk through.

The PNM today, the PNM suffer from the last four quarters of weak bookings, if you ones and so we wouldn't did just Tom to a two cells that.

So that's our current can position.

Okay. That's very helpful. Thank you for that and then we've also been getting some questions on what that pro forma balance sheet may look like and.

I think the special dividend the stranded costs and the sale of real estate are very clear, but it might be helpful. If you could also just please briefly address other primary sources and uses of cash over the next six to 12 months.

Klucel, whether there might be any changes to that level as well as linearity of share purchases and perhaps linearity of any incremental investments. Thank you.

Yeah, I can give you a few views here on sources and uses of cash.

First of all I, just want to remind you that compared to assumption in August our current stranded costs are coming lower the cash portion of that you slow and 900 million versus a billion assumed and the tax proceeds received.

From sales of underutilized assets keep going up as we are conservative in our projections and other on you want to make sure. We forecast play we have line of sight to.

In the fourth quarter will be the $12 dividends, but that's for one timing we have an assumption at this point in time that we'll use the 1.6 billion share buy back.

Through the transition period, we went to having both systemic and opportunistic so depending on on the way we see it we me I'd difficulty crude that youre.

For the sales of the real estate assets and others.

For the lack of better known and should we kind of we now forecast mother put them in the middle of the your that's why I say middle for next year.

And our next question. This line of Brad Zelnick from Credit Suisse Brian .

Excellent. Thank you so much in congrats to all.

I just wanted to follow up on for team as question and hoping you can confirm that and just clarify the quarter benefited from $13 million in revenue being reallocated from enterprise to consumer for I'd analytics, and just want to understand how much of that was factored into your guidance and what's the margin profile of the I'd analytics business and I've got a follow up for Samir.

Yep. So in the quarter, we have about $13 million of revenue. We are meeting our guidance for consumer as you know we guided into the old structure, which is a consumer segment and an enterprise segment at the low end of five guidance for consumer we guided 590 million we delivered 595.

In some of the margin profile that we do a business that sent to the I'm surprised that doesn't have the consumer a margin, but then the double digit profit margin.

Thank you for clarifying Benson and just Samir I think you spoke to this a bit went to team asked but just operationally and strategically what if anything changes in bringing I'd analytics back home and re combining with lifelock.

I went to make sure that we understand that I'd analytics coming back into consumer is more the result of broadcom buying the enterprise business and not and not taking it then so that's all we would cooking, but yeah and I think I think that the the summary right there.

Separate separate line that is focused on the enterprise side of the market that is not I'm not part of the consumer go to market play correct.

And our next question trying of Ken Talanian from Evercore ISI Ken.

Hi, Thanks for taking the question I was wondering if you could give us a sense for where your retention rates might trend going forward that you've seen good improvement in there over the years and any programs in place that.

Might help to improve them.

So couple couple of things I'll pass it to Samir, we reported last quarter, a retention rate of 84.9% retention rates they were flat and stable.

The company did not disclose that on a quarterly basis, we still reviewing now which operational metrics would be the most useful for investors as we can you too deep dive into growth opportunities.

Definitely through the adoption of the membership the engagement with the user base.

The increase of value added to the consumer so more identity protection privacy protection, we do expect that we have opportunities for improving dose retention rates.

But we have usually not giving you any either forecast or any number for the future.

Yeah, our focus with our customer base is centered around activating and upgrading the relationship to that complete cyber safety platform across privacy identity security home and family and as we engage on all of those levels and have a greater relationship with our customers become stickier with them and that's that's in that.

Since the strategy we have.

Great and I guess, maybe as a follow up could you give us a sense of what percentage of your existing base have both norton and lifelock or or or otherwise on a bundle.

Yeah, we launched our consumers cyber safety platform model with the acquisition of Lifelock in 2017, and and since then we have not provides a breakout of subscribers by each cohort, but as we look into the opportunity. We have ahead, we still have a lot of.

Existing customers that we can upgrade and upsell into that cyber safety platform.

And our next question its line of just take Reichow from city to say.

Hi.

Ultra pictured here with yardstick two questions first just on the on the real estate side could you help us that's and understand how.

How much risk and how broad the ranges you see to the outcomes there with side with the proceeds that will come from the real estate.

So what you wanted to range you mentioned, so we put already a four or five campuses that we had a forces at this point damage. The majority of the billion dollar we estimated.

And a you know we will try to get the best price possible, who had an updated will give you.

And then as you're thinking about the modest investments that you're putting back into the ease of business and sort of unique for this full cyber security suite. How are you thinking about acquisitions, either larger opportunities or tuck in type deals that would that would help.

Along that strategy.

Yes, so we're not really not any opportunities for growth.

As we have a a unique position I would say today, we really focusing on executing on our plans eliminating this trend is cost building the operational process muscles in the comes from a business to shift from maximizing profit to really focusing on growth. We felt that the first investment to return to.

Organic growth was to increase our direct marketing investment programs. That's what are the most urgent thing to do with the more immediate returns. The next view is really driving off going to drop the operational efficiencies and weve redirecting some of those savings more into the R&D and overbuilding the products.

And then not a at the right time, when we have the right operational cadence, we can always have a tucking acquisitions.

Either as a function the at Dawn is a trade off of our R&D budget, all because we want to add more subscribers into our overall offerings.

And our next question is one of Patrick Cobo from a reach research Patrick.

Hi, Thanks for taking my question on sandstone congratulations again.

The appointments.

Cost of question on the cost saving so you mentioned the slides are you.

400 million.

Benefit from a Dutch Joe equity investments.

What would sets.

So we had a minority stake into a business did you showed that was sold in a in October .

Okay understood and your guidance for next quarter.

Flies, one 1% decline on the topline the Midpoints, which you know given the the flat sequential custom count this quarter and then rising Sps.

If you said you cannot understand how you got to that number because the trends this quarter looked very positive and it looked like things are kind of picking up but then the guidance for next quarter suggests a down inflection. So any color you could provide that would be great.

Yeah, absolutely. So that this is a subscription business why the 12 month subscription business, where a lot of the revenue in the quarter is coming off the balance sheet from those from those revenue were running off and a a minority of the revenue coming from bookings in period revenue. If you look at the bookings for the last the full quarters.

Excluding the extra week last quarter.

They had a decline a negative growth and are currently the revenue coming from those prior quarters negative booking is impacting the was.

The as you mentioned the the more positive forward looking metric is booking grows which was a low single digits.

In this quarter and we forecast the same for the following quarter and secondly, the stabilization of the custom account, which will continue as we continue to invest in direct marketing it will take a few quarters to flushed through that.

And she that just many few one and as I mentioned that after the transition period, we should be able to be in in a business that 50% operating margin delivering $1.50 and growing low single digit.

[noise] and at this time I'm showing that we have another question I'd like to turn it back to Vincent for closing remarks.

Thank you very much I appreciate you attending the call we'll do our best to can you to update you on our progress and was that I would like to close the call. Thank you.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.