Q4 2020 Earnings Call
The only mode. After the speakers prepared remarks, there will be a question answer session to ask your question. During this session you will need to press Star 100 Touchtone phone.
Interest uptime and to make sure that we can enter as many questions. This weekend, we request that you limit yourself to asking one main question and one follow up question.
Please be advised that today's conference is being recorded if your word any assistance during the call. Please press star zero, an operator, we'll be happy to assist you.
I would now like handle comfort to over two to one Kim head of Investor Relations. Please go ahead.
Yes.
Thank you I'm pleased to welcome due to our cost discuss our fourth quarter fiscal 20 earnings results. We posted the earnings materials sportswear Investor Relations bench My page speakers on today's call our Vincent to watch Lifelock, CEO, Samir Korea, President and background University or.
This call will be available for replay customer website.
Reminder, in connection with the sale certain assets for airport security business to brought coming back for 2019, we choose our corporate name from summit <unk>.
The results from our enterprise security business were classified as discontinued operations in our condensed consolidated statement of operations and does exclude it from books country operations in separate himself for all periods presented.
Starting in second quarter fiscal 20, we operate in one reportable segment revenue in so we should have cost about.
Issues, which was found to be incurred in the enterprise curious segment or not.
Portable segment.
On January 31st 2020 be completed the sale Barb.
Solutions.
To remind everyone that all references to final metrics are no one job unless otherwise stated please refer to the supplemental materials troops on the Investor Relations website for further definitions.
Metrics. Please note non-GAAP measurements reference turned the corner reconciled the comparable GAAP financial measures in the press release and supplemental materials purchasing our website.
We believe our presentation of non-GAAP financial measures when taken together with corresponding GAAP financial measures provide meaningful supplemental information regarding our operating performance written since best alone.
Our management team uses these non-GAAP financial measures and assess your operating results as well I'm trying to them for tries to future period.
Regarding non-GAAP financial measures, all substituted comparisons, but for Mr. Prior periods and better Investor Junkets, My understanding our non-GAAP financial measures.
Non-GAAP financial measures or supplemental should not be construed as substitutes national information presented in accordance with cap. Today's call contains forward looking statements based on conditions. We currently see the restatement. Your based on currently use assumptions and expectations speak only as of the current event and as such involve risks and uncertainties that may cause actual results differ materially different current expectation.
In particular statements regarding the impact to the ongoing cobot 19 times Democrat business and industry. Our sales are going to parse true, yes, just about comedy anticipated benefits from touched on cost reductions, especially with this transaction are subject to a variety of risks. Please refer to cautionary statement, you know pressure, which for more information you also pointed to tell discussion about.
The factors <unk> filings with the FCC and in particular, our annual report on form 10-K for fiscal year ended March 2019, and recently filed quarterly reports on form 10-Q, Let me now turn the call, but the Vincent.
Thank you see one good afternoon, and thank you for joining us today.
I want to started this goal by thinking all employees as I know many of you are listening each of you. It's persevered in driving on mission and supporting our customers want to working from home and adjusting to these new reality.
Our mission is to put the people online activities, which has never been more relevant than today.
And on behalf of all on police How's the wants to think how customers for the trust you have placed in our products and Uh huh.
Our business is built around prevention detection that with duration of potential damage is caused by hackers.
And then Jing and handling crisis is part of a DNA.
And then die in northern Lifelock team is rising to deal occasion.
Nothing ourselves and our processes to help customers in need as well as communities by done eating time and resources.
There was no other company I would rather be part of as we navigate the challenges that the work is currently is it.
We are pleased to report better than expected results in Q4, the second quarter off northern Lifelock as a Standalone company.
Consumer revenue was up 1% you will you in constant currency supported by bookings growth of 4%.
We generated 26 cents EPS up 10 cents from a year ago, driven by strong execution and determination of funded call.
In addition to you, but your bookings growth of mid single digits.
We increased net customer gone by 46000 sequentially.
We grew average revenue per users, we delivered industry, leading retention, while maintaining operating profit margin over 51% when you exclude the impact of funding cost.
This was our second sequential quarter off net customer growth, adding over 100000 customers seem to last six months.
Well the first time since 2014, we've had two consecutive quarters off net huh.
Through the quarter, we saw steady performance was a strong finish in the month of tomorrow.
However, we still in stabilization phase, especially in discounting environment.
The business is moving into right direction, and we believe that are focused execution will deliver consistent sustainable growth over time.
The need for products.
It's more present, an ever driven by working from home virtual meetings online gaming streaming E shopping telemedicine and numerous other online transactions and interactions.
All other risk from cyber criminals.
Looking to take advantage of these accelerating trend.
Yes, I mean, when remind us all in a moment.
Portfolio does a tremendous job protecting people from online right, but he is not a study called.
As the threats evolved without behaviors and technology, we are focused on delivering a portfolio that protect each 11 of our customers digital life.
That is our mission and we will know that we are succeeding when these added products and features consistency delever custom account growth.
That is why it is our number one measure of success.
Let me mention a few of these highlights now.
Corner, we expanded our family offering we offered we use its doing the copied 19 crises.
We see three awards from Avi Test Institute why device protection solutions, and we made numerous other improvements to our platform and products.
In April we expanded our international reach and capabilities with the launch off note increased 60, we slightly up in Canada.
We have a long history of innovation. He noted lifelock and we knew that product innovation will be a cornerstone of our long term success.
Our fourth quarter performance not only reflects the strong execution of our team, but also demonstrated the resiliency and opportunity our business model.
We set a direct to consumers with minimal reliance on physical partners delivering high value at the relatively low ARPU.
Plus over 95% off our business is recurring.
Considering these challenging time and the various request from our investors, let me expand on each of these points starting with it becoming Robyn.
90% of our revenue is direct to consumer.
The vast majority of our bookings our annual subscriptions, we taught paid upfront what revenues with a nice ratably each quarter.
Our indirect revenue about 10% of part two is also half bickering partners like telecom carriers and employee benefit providers be every month as they provide our products to their customer base.
On the first day of the quarter, we have visibility on over 70% off our revenue coming up on in cheat and as I mentioned over 95% off our total revenue is recurring.
Secondly, we have minimal reliance on physical retail OEM partners. The bookings generated by these trying those represent about 5% of outdoor bookings and the revenues included in the indirect part of our business.
These 5% might be impacted by a prolonged health crises.
And we will be conservative we don't forecast.
However, we do not believe travel restrictions on supply chain disruptions as much impact on our distribution capabilities overall.
Lastly, and most importantly, we are providing tremendous and were 11 value for monthly ARPU up $9.
During this environment when consumers are spending almost all of the time at home and online we're providing the run the crop protections why members.
We've all heard about increasing instances of online criminal activity.
In April our duration team already started handling the first Casey of identity theft, we need it's called 19 subsidy payment.
The opportunity for cyber crime has substantially increased and we know that will increase 60 is helping our customers manage a day online activities was more confidence knowing that no. One 360 is keeping them see.
In the back half of Q4 and during the month of April we have seen these customer confidence you know products, reflecting solid when your rate and new bookings.
So our mission to protect everyone's digital life is more relevant than ever.
And our business and financial model is as a resilient and any in these uncertain times.
No I bought in cheat and cash position are equally strong at the end of the quarter after that even dividend payments and buyback our cash balance was 2.3 billion.
As a result of refinancing actions taken in Q3, we have addressed all debt maturities until the end of fiscal you 2022.
I've always stress tests showed that well well capitalized with strong liquidity and plenty of financial flexibility to strategically invest in our business make interest payments and continue to return cash to our shareholders.
Our balance sheet and capital structure, Eva Optionality to make accretive stoping acquisitions, we've done for the capital through buybacks Oh boy.
Much will provide you with more details about the financial and equally these trends in his section.
So what about the stranded cost you might ask well if I only talk about it no. It is because I consider the transition to be almost done.
We all decisions made to cross the finish line in August.
We've run not transition to a few play consumer company, that's a rapid and decisive based.
As I spend front have you today on May 14, essentially all transitions have been service and crew.
It's fun to jump in emanation notifications have been made and operational outcome study is around 2500.
Q1, and the beginning of Q2 will reflect the last I said write offs and not the schedule restructuring activities.
By August we will have spent a cumulative the will of $750 million in gosh stranded costs.
The total proceeds from the sales of underutilized assets I still projected to be around $1.5 billion.
We have already realized hobbies from the sales of did you stood 90 analytics.
Refunding the cash stranded cost.
The other half he's made up the of various properties that we put up for sale.
Prior to the coffee 19 outbreak we had multiple offers for each of the building we own.
Well some contract negotiations have been slow down we are confident in our ability to monetize these asset in the near future.
We believed that our bargaining position is enhanced by our strong balance sheet and cash position.
By the end of this summer I transition should be completed officially Donnie nine months, which is three months faster than initially planned.
In fiscal year 2020, we sold the enterprise business for $11 billion and Rightsized infrastructure functions to be leaner and Nimbler seeking out 1.5 billion in on your run rate cost out.
In fiscal year 21, it is all about the productivity of our product innovation and selling motions for consumer business.
We can now focus all of our attention and energy on developing great products, taking a platform approach to upsetting various levels of membership and optimizing our marketing in an environment like consumers might be increasingly receptive to our products and services.
We are passionate about our mission to protect people online activities.
We are building a leadership team that is dedicated to fulfilling that consumer need and you will hear more about our progress in the future.
I will not by the quarter over to my business partners. The Amir for more details on our product and it is selling motion and a position going into fiscal year 21.
Thank you Vincent.
We're living through a generational events a moment in history that I would say, bringing the world closer together. Despite the fact, we have to stay physically apart.
Yeah quickly a ball to a common purpose of focusing on health and safety for families. Our friends in our communities.
For safety is at the forefront of this tidal wave of change, we're clearly seeing a rise in attackers taking advantage of to stay at home mode like.
We've seen new attacks focused on leveraging cobot 19, as a means to enable fraud and identity theft truce tailored malware phishing messages online commerce scans and more.
Occurs our preying on People's emotions, fear and panic to get them to click impulsively on various malicious links.
We are seeing stake offers for masks and vaccines were seeing fishing emails purportedly coming from organizations like the World Health organization and center for disease control anchors are also targeting recipients of stimulus checks from various governments around the world.
Instead of getting the help they're looking for many consumers end up giving away personally identifiable information or downloading malware on their devices. Our mission is to keep customers aware, a cyber safety has become more important than ever.
As old households, now spend more hours online whether for school work or in the community protecting the home Inns family in a simple way is even more for need that's why we've strengthened our softening offering here.
Norton family reached the protection and security upper products to every member of the family across multiple devices and platforms on top of that we recently extended our time management capability for Windows to include iOS and Android devices.
With many kids spending more their day on technology. The time management capability enables parents to easily managed the duration their children or on the internet akin to an online time allowance.
When kids reach their allowance women they have the ability to simply request additional time for example, just finishing online learning activity and parents can add more time to their balance.
I'm extension is part of our continued commitment to go beyond supervision and blocking should also provide tools, which helped parents keep the online safety conversation going on with their children, which leads to a deeper understanding of how to be safe online.
In addition to being a standalone product Norton families also included as parental control and our Norton Threesixty membership.
Working 360 use our full cyber safety platform, bringing together end to end security privacy identity home and family capabilities to provide the best safety coverage available to our members North Dthree hundred 60 is now available in 43 countries as we completed its global rollout during Q4.
This had been a major undertaking and I would like to thank all the parties for accomplishing this transformative goal with precision in execution time.
We can now focus on adding new areas of value to our memberships and delighting our customers in new ways. No. Other safety company has to reach and scale of Norton Threesixty to help as many consumers as we do.
Rounding out our cyber safety portfolio with the other three pillars of privacy security and identity, Here's a quick update on each of these area.
Our privacy offering has become even more relevant in the current environment as people are exchanging more sensitive information through digital channels.
Personal healthcare information to enable tele health or financial information for personal accounting, where you can shopping for food.
VPN or virtual private network has become even more crucial.
And uses encryption to help walk hackers from stealing personal information over the internet.
VPN is included in most years, so far Norton Threesixty membership and were encouraging our members to use it more frequently to help prevent hackers from eavesdropping on their internet activity.
Well North news, our flagship brand with end to end capabilities in premium positioning. We also started marketing another brand called surf easy to extend our reach into the value segment of the privacy market.
Sure for easy provides VPN protection for five devices.
Unlimited bandwidth and add tracker blocking technology for a very competitive price. We're currently marketing surf easy in the U.S. UK in India.
As Vincent said earlier growing our customer count the number one goal for our company and we believe serve easy will be another way to bring in new customers within our product family.
Security.
Security as an integral part of the value we deliver for our members and we have maintained consistent leadership in device security.
During the quarter, we received three awards from the AB Test Institute for our device protection solutions.
These included the Windows home user Best Protection and Best performance Awards as well as the award for Best Android Protection.
This represents Norton Lifelocks fifth consecutive best protection when for Norton Security, we're committed to building innovative technology that helps protect consumers.
He says from ever evolving cyber threats.
As people spend more time online to work in play in this environment. We believe securing devices is the foundation for security and will be more important than ever.
Identity crossed a major milestone this last quarter with our first full fledged lifelock identity restoration suite to what countries outside the United States.
Last quarter, we mentioned that we signed a partnership agreement with a large international Telecom service provider.
That partners tell us the second largest telecom company in Canada.
Creating a safer friendlier world online just went up to tell us is killer.
Aligning our two companies together very closely.
So much of the social security number the United States, Canada has the social insurance number which is the government's unique identifier for Canadian residents is used as a proof of identity for any and all types of credit health insurance and education amongst other things. It's considered the most important piece of personal.
Identifiable information Encana, and therefore highly targeted by hackers.
Now lets launched our Norton Threesixty with Lifelock in April and we're looking forward to bringing the same level of protection and restoration capabilities to Canadians.
At our American customers have enjoyed for over a decade.
And then as a nascent market where identity theft protection products have not existed before currently the market has been limited suggest credit scores and alerts which are small features often overall protection plan. We believe that Canada will grow to be an important market for us overtime akin to the U.S. years ago.
It will take some time to educate the market about the benefits of identity protection.
Partners like telcos employee benefits retailers and Etailers are all important part of our go to market strategy and we continue to work to bring our products to more and more partners and their customers working with our partners helps broaden our audience combine our capabilities and reach consumers close.
Sure to where they need cyber safety.
Look out from more from.
In this area in the near future.
In the fourth quarter average revenue per user or ARPU increased to $9 in seven cents per month up 1% sequentially and up 3% year over year.
We also had another quarter customer increased adding 46000 in the quarter.
The whole year, our retention rate was stable at 85%.
These metrics demonstrate the customers appreciate the value we are providing.
We have more enhancements with our membership programs for the future and we look forward to updating you in coming quarters about our robust R&D pipeline. The products. Let me now turn the call over to map to discuss the Q4 actual results in more detail.
Thanks Amir.
Let me review, our Q4 results in a bit more detail focusing on non-GAAP result.
Q4 revenue was better than expected at 614 million and revenue, excluding I'd analytics, which was sold on January 30, Onest was 610 million up 1% year over year in constant currency.
Q4 reported billings, excluding I'd analytics was up 3% year over year, despite the FX headwinds, which reduced ending contract liabilities on our balance sheet.
The reported billings growth was supported by our second consecutive quarter of net customer adds adding 46000 customers in Q4, along with a steady customer retention rate at 85% for the year.
Diluted EPS was 26 cents up 63% year over year and exceeded our guidance range, driven by strong execution and better than expected stranded costs in our piano.
As we stated in our prior quarter earnings calls during this transition period I reported cost structure will be complex and burdened with stranded costs.
However, this is becoming less so as we progressed through our accelerated transition.
We expect Q1 to be the last quarter with significant transition related moving pieces in our financials.
In Q4 total company operating margin from continuing operations was burdened by approximately 60 million and stranded costs.
And reached 41.5% compared to 27.2% in the year ago period, an increase of more than 14 points and 36.2% in the prior quarter.
Our execution on eliminating stranded cost is evidenced by the steady operating margin growth and we're well on our way to achieving the 50% post transition operating margin for the total company.
In addition, we continued to service and reduce our T. assays and eliminate the positions that were linked to stranded activities.
In Q4, ending headcount was down to approximately 3700 employees and its Vincent mentioned, we finished substantially all remaining notifications at the end of April.
Notified employees will remain on our books through Q1 in accordance with country specific notice periods, such as worn in the U.S., but operationally, we're now running the business with approximately 2500 employees achieving the long term model, we targeted when we sold the enterprise business well ahead of schedule.
On the topic of cash and as we mentioned to you in last quarters earnings call Q4 cash flow from operating activities includes large onetime payments for divestiture related tax amount.
And as a result of these payments as well as net cash outflows from stranded costs.
Our cash flow from operating activities in Q4 was materially negative as planned.
However, absent the onetime payments and stranded costs, our businesses operating inline with our long term model of approximately 900 million in free cash flow on an annual basis.
We ended the fourth quarter with cash and short term investments of 2.3 billion, giving us plenty of flexibility driving our business for growth.
This past quarter, we continue to return significant amounts of capital to shareholders through repurchases and dividends.
We repurchased 29 million shares in the quarter for a total of $658 million.
And we've utilized $1 billion, thus far of the 1.6 billion dollar share buyback authorization.
In addition, we cash settled the principal and conversion rights of a 250 million dollar convertible note, which lowered our overall debt level and reduced our diluted share count.
We paid our regular dividend of 12, and a half cent per share this quarter and we remain committed to paying our annual dividend of 50 cents per share.
And last but certainly not least we made good on our commitment to returned 100% of the after tax proceeds from the sale of the enterprise business via the $12 per share special dividend at the end of January.
I'd like to now spend a couple of minutes discussing how we're positioned amid the economic uncertainty caused by the recent Kobin 19 crisis.
In the early days of the Cobot 19 crisis, we paused our share buyback with approximately 6 million $600 million left on the authorization to be flexible with any challenges and opportunities that may arise in the new economic environment.
This was a prudent approach as our excess cash capacity affords us greater flexibility.
However, we remain open to a number of options and plan to resume our buyback program Opportunistically.
Another impact of the Cobot 19 crisis is the delay in the sales of our underutilized real estate assets as some potential buyers take a slower approach.
However, we believe it at the temporary delay and remain confident we will be able to move forward with the sales in a reasonable timeframe.
Importantly, this slowdown does not impact our ability to achieve the post transition operating margin outlook.
More importantly, we're not relying on that cash to run the business.
As Vincent mentioned, the vast majority of our business is to his direct to our highly recurring diverse subscriber base.
The ratable nature of our business helps minimize disruption in our financials from short term economic headwinds.
In addition, our balance sheet is strong with 2.3 billion in cash and short term investments as of Q4 as well as access to our Undrawn 1 billion dollar revolver.
And we have a capital efficient model.
Reflected in our low capex spending.
We spent just $3 million in Q4 and expect our annual Capex should be approximately $40 million with depreciation expense to be in the range of our capex spending going forward.
In addition, the maturities of our outstanding debt extend well into the future.
Or $750 million senior note. That's due in September is being replaced by the 750 million dollar delayed draw term loan that we structured back in November and pushes that maturity out to fiscal year 2025.
The next debt maturities don't incur infill almost two years from now.
In addition, we are well within our covenant limit.
We ran a series of downturn scenarios to stress test the business.
Even under severe downturn sensitivity scenarios, we have sufficient room in our financial covenants as well as minimum cash flow needed to operate the business and protect our regular cash dividend.
For example, our trailing 12 month adjusted EBITDA would have to dropped by almost 40% before triggering any issues with our covenants at the current debt levels.
So we feel very good about our liquidity and capital structure.
To recap I'm very pleased with how we executed we turned in a strong financial performance this quarter, delivering revenue and EPS growth, reducing debt lowering our share count accelerating our transition and maintaining strong liquidity heading into the cobot 19 economic environment.
Let me now turn the call back to Vincent to provide our Q1 outlook.
Thanks, Matt Let me now provide our Q1 of the look and also discuss along some growth strategy for northern life.
Much trends continued into April quarter to did we generated slightly positive customer net ads and almost mid single digit booking growth overblown.
Direct to consumer to consumers booking grew high single digit in April as people continue to adapt to life working from home.
This growth was partially offset by decline in our retail sales.
Impacting our overall indirect component sales.
Maintaining these net positive trend, we expect revenues to range from $590 million to $605 million or zero to 2% growth when normalizing for I'd and the extra week in Q1 fiscal year 20.
These revenue outlook is supported by bookings and growth in the low to mid single digit range.
We expect Q1, non-GAAP EPS to be in the range of 18 cents to 22 cents per share with the business operating of approximately 50% profit margin when excluding this trying to cost.
Has trended activities I expected to be fully eliminated by August.
So we will write off additional assets in Q1 was the go to be over 90% done by the end of June.
In fiscal year 20, we return to previous marketing investment level, primarily targeted that direct acquisition programs.
And we'll continue to investing on distribution and product roadmap for long time impact.
While these initiatives take time to generate revenue, we're very encouraged to see three consecutive quarter of low to mid single digit bookings growth year over year.
I also said that's why do we have a fantastic opportunity to define a simple and reliable path to cyber safety it won't be a linear ruled by any means.
Sorta need no one could have anticipated the will to go into a full look down only a month after we last give guidance.
Well, we wouldn't be cautious and the giant in managing our business.
Our mission to protect and safety unable customer digitalize, it's more relevant than ever.
And with that Matt CEMEA, an eye on now happy to take any question.
Operator.
At this time, we are taking questions feel like that's question simply press Star followed the number one under Touchtone phone again that is star one and interest. So time, we ask that you. Please limit yourself to one main question and one follow up question.
Our first question one of Keith Weiss with Morgan Stanley Keith Your line is open.
I keep on thank you guys for how's it going thank you guys doing the question and very nice quarter.
And it's an open you could drill down for us a little bit more into kind of what you think the impacts of Cowen 19 were on the overall business. It sounds like it may have been a tailwind for the direct to consumer side of the equation just given more people working for a moment and that heightened threat environment, but.
Slightly offset by the retail environment, because obviously people are just can't go to the stores.
In the same way can you help us understand kind of the puts and takes in and whether you think there's kind of durable tailwinds from kind of work from home.
And shelter in place that that could persist for sometime.
Yes, So let me first go back at the core as we develop the cyber safety membership northern Threesixty, we have underlying growth drivers, which is that more and more consumers are driving their operations. They live online and they want to do that in a safe environment we have.
Since we became though than my stuck in November reinvested marketing to make our products known out there we had launched northern to 60 at the beginning of this is for you as you know and we foods that rollout through we will on a on the steady if you will need to running a situation, where we had the declining customer cone into bringing.
More and more new customers.
The pass through the quarter, we so in the month of much more demand and slow conversional realization of that increased demand we saw that through the month Sofia Quillen ER abuse. The you can understand that all of the activities from working from home not wanting to go into the the shopping malls and one of those things have on the income.
Please the need for a better protection online as you mentioned.
That was offset partially by the fact that physical.
Stores, we couldn't go and buy a token or or one of our products, but that it wasn't my mind offset so we incurred by the trends it would be a long term trends, we believe that will continue.
Which is more people will work from home will leave their life on mining and we'll need a on a.
Got it and just one follow up just mischer I'm unclear on.
The real estate, so sounds like real estate transactions.
So we're expecting has slowed down a little bit we still feel pretty good on getting them close. The fact that did they don't impact our operating margin assumptions on a go forward basis or is that because of the expectation that they still get close or it's just it was relatively minor part of off actually still get too is like 50% API.
The margin levels without selling real estate.
So we have reduced now our headcount to what our long term modeled structure is for the consumer business about 2500 and with that we vacated the buildings that are not needed anymore, we put them for sales and one of them off our PNNT put them on our balance sheet teed up for sale.
We've had multiple offers for each one of those buildings and then through the outbreak as you in managing those discussions go down some drop or some tried to do an accelerated past coming back into a on the authors wrong. If you want.
And it was dig expectation is that it will dig a bit more time.
With another revised our value down we not fresh pressed the full cash as as you know and we have multiple options, including in the short term one of the bio came back with a short term lease while they were figuring out they need so.
From that perspective, I don't see any impact the non operational business and it's about time to cashing time upgraded realizing these underutilized assets.
And our next question. This line of Saket Kalia with Barclays Capital Forget your line is open.
Okay, great. Thanks, guys for taking my questions here not sure first Hey, first maybe for you Vincent.
Nice couple of quarters of positive subscriber additions.
And I guess as that renewal base kind of grows here in fiscal 21.
How are you thinking about the importance of sort of retention rate versus sort of top of funnel no. We're not guiding to fiscal 21 yet.
Obviously, you've invested a lot more and marketing to improved on top of funnel is there anything that you could sort of do on the retention rate as well as you look forward to you.
No absolutely so I had a very high level. If you think the three areas that drive gross one is number one more customers. The second one is offering a good point that they want at the high level of membership and you know we will have no. One in 360, we now have about 25, 25% of find store base into no one in 316 that increasing engagement and.
The third one is to increase retention, we have great operational teams driving each one of those three area and driving for growers.
As I shared a quarter ago and share was a team all the time, it's a balance between all those three drivers, but the number one metric is increasing the customer count behind that is the marketing investment. It's the the net promoter scores and the customer satisfaction and we were driving that if you see our retention it hasn't.
Proved in each one of the cohort by tenure, but you know that the first your tenure is a lower retention and then increases they seem to our portfolio and so the increase retention as they engage more and more than three six besides the all said because weve returning to a customer growth overall, there's always all value for us for the business.
Got it that makes sense for my follow up maybe for you Matt can you talk a little bit by Pdps Guy here in Q1.
And perhaps the pace of stranded cost removal.
Sounds like a lot of the tier say expenses are sort of wrapping up.
To Vincent's point, we're down to sort of the head count that we were planning on.
So how do you think about that sequential downtick in EPS in Q1.
Sure. So our stranded costs are coming to a close but as they come to a close they will impact different areas of the TNL in different quarters, depending on the types of activities and how they end and so as we sort of been consistent in this message over the last couple of quarters are reporting structure is complete.
Next the stranded cost show up in different areas of the piano, depending on on the types of activities and so for that reason, though we expect these activities to come to a close they may be impacting a different area the piano, having said that.
Our core business, we expect to operate.
At that 50% operating margin that we've discussed and continue to discuss.
So.
We will of course make it clear next quarter, when we report where those stranded costs showed up.
But that is the reason for the for the for the guide of 18 to 22 cents.
And our next question is one of the team up Boolani with few yes, but the most of your line is open.
Good afternoon. Thank you for taking the questions.
Maybe not or Vincent for you a question on retention.
I think for all of us, it's a little bit harder to overlook the broader.
Unemployment backdrop, and a weakening incentive consumer confidence in spending and sort of weakening spending signal. So.
As we take those dynamics into consideration.
Wondering if you guys can talk to the renewal charging and upsell trends that gives you confidence that the level of retention that you're seeing today is sustainable and then I have a follow up as well.
Yeah, absolutely. So as you imagine that the beginning days of the club 19 outbreak went back to a lot of of scenarios loosely went back to what happened in 2008 look at the retention rate during that time and actually it was pretty resilient and sustainable even then.
Now every and Vimin know every client Ccs unique and this one bring something that is very different it changes the way we operate online he changed we work it changes the way we interact do we shop in I think the visa.
Underlying acceleration of the need for more privacy more security on mine. That's why you see companies like Logitech sitting more video conferencing system and US was that something more security products and they seem to the the trends of having more awareness of few launched moving online.
He is a structural trends maybe impacting the short MCN there by different.
Economic headwind, but I think we well position from that and we have the perfect solution launching last year, the northern Threesixty membership, we saw an acceleration of.
Yeah adoption rate through a through the last two floors and we were pretty pleased by now.
That's super helpful and senior maybe for you.
Continue to to appreciate your international rollout here and so with more product available internationally and.
Perhaps a lot of these offerings aren't as maybe comparatively comprehensive as some of your domestic offerings that include the lifelock and the higher end Lifelock feature functionality. Your ARPU was still up in the quarter. So can you help us understand what some of the puts and takes here are on the ARPU continuing to improve.
Even as you go into.
Next U.S. geography sad that typically have a.
Lower compared as feature base within the product and that's it for me. Thank you.
Thanks for theme it.
Yeah, as we look at the international expansion for the most part where we're entering cohorts in markets, where the needs of has increased dramatically and so our security our privacy and even the identity solutions that we have designed for certain international markets to allow us to hit those markets.
With a premium a premium offering and that that's allowed us to maintain our ARPU I think two to the common set Vincent just shared with a lot more at risk in today's environment, given the masses of people that now are doing the tissue equivalent that's what their physical lives, where there is an appreciation for making sure that.
It's also safe and secure and we're seeing that trend continue both in our in our expansion in Europe and Asia.
And next we have a question for line of Gregg Moskowitz with Mizuho, Greg Your line is open.
Okay, I think right, Mike Hi, guys nice attached with you. So it's good to hear that 25% of your installed base is on north of 60, Although you do have a few different skews some some but not all of which include Lifelock and so I was wondering if you were able to share the percentage of the Nord and install base that has converted.
Lifelock memberships as well as how this conversion rate has been trending.
So you ride we have at the high level about six leveled off membership and started with what I would call basic securities and then at various levels of functionality Spottiswoode managers and others and then for the last three member CPQ includes the identity. So thats going to 60 with Lifelock and started busy can finished.
Premium we've seen a good adoption of that no one and 360 of cross when we felt that this with the new customer acquired in the vast majority on the northern Threesixty.
Platform, we're not going to share now between the different membership way way the ratio is but we've seen good good adoption and we expect that to continue over the next full quarters as we go through left is through a 21.
Okay. Thanks, Vincent and then maybe a follow up for some here. Thank you.
You talked about northern family and I think one can make it clear argument that the need for something like northern family and household is stronger than ever before you know I think you are six month free trial for that product has been in play for around six weeks now what have you seen in terms of high in terms of final.
Yeah. We said thanks for that question, we've seen a lot of.
Uptick and adoption of that family for free I think it goes back to the volume us of children that are now schooling gaming and communicating.
On online while well, there's a large cohort of parents set up the same time are working from home and so with the adoption.
That stay at home lifestyle, what we've seen is a much higher higher use.
So Norton family almost like a digital Guardian for parents.
And we're just happy to be able to contribute back in this time, where we've got.
This this crisis limits us.
Okay, great. Thank you.
And our next question its line of Brad Zelnick with Credit Suisse. Brad Your line is open.
Hey, Brad.
Hey, Vincent.
It's great to see the durability of the business during such Crazy times, and and I hope everyone on the call is doing well.
But my question for you as to what extent there you benefiting from lower advertising costs and how is the ROI been trending on marketing spend then and how would that look on a more normalized basis and perhaps even how to think about that equation equation shifting when marketing costs in ctcs.
Trend back up with.
A very good question. So as you mentioned early March we saw a drop in marketing rate.
We were already trying to shift or doing shifting between long form on TV ads into more social and dynamic advertising. So we in the process.
Improving the productivity of our recently increased marketing spend I think we discussed in the last couple of that you first raise you marketing level and then you maintained that level for a consistent periods to improve over time, we've seen a a low double digit improve.
In our customer acquisition costs, so two quarters, and we plan to leverage dot balancing between profitability and or reinvestment as we see a growth momentum mainly internationally.
Okay. Thank you.
And our next question, it's one of Walter Pritchard with Citi Walter.
Thanks.
Just wondering on the on the sub additions the net could you help us understand over the last three quarters with an inflection how much of that has been improvement in retention versus the gross the gross adds that go in there.
So as you know rights for the last 2.3 quarter, we increased our marketing spend each we shifted for the last two quarter was over 100000, new customer acquired our retention rates have been very stable.
Ron 85% and really about increasing the productivity in the return from our marketing investments, we net new coming from direct consumer acquisition programs.
Got it just a follow up on the family question that came up.
Product is free right now do you tend to make that product free forever and it's there's sort of a timing that we should think about we might start to see some up he conversion off of that three product.
Yeah, Walter the family three is something that we've decided to contribute we're not looking at it.
As a as a business as much as it is a contribution to the situation that hand.
But we do hope to deliver value and more awareness around the overarching cyber safety needs based on that and and we'll see what happens in the future hopefully we get out at this this current pandemic and in in a short amount of time. It we can reevaluate that.
Great. Thank you.
Our next question is from line of Phil Winslow with Wells Fargo filled and your line is open.
Thanks for taking my question.
Victor just talk about your comment on the cost of customer acquisition have you see me a changing the efficacy of any of the marketing channels that you've been using and how you're thinking about that about allocation there.
Yeah, I think we mentioned to rightsize, we've raised our marketing investment the two things we doing these doing more social and based search or or search fade that goes into a more quick returns than the long from TV and then it's moving more phone marketing dollars internationally in the Boston during fiscal year.
And team on the marketing investment were solely due to the U.S. and so we've expanded that internationally as we Walt on northern through 16, now more than 43 countries.
And as we can maintain disinvestment a certain level, we should see a continuous improvement of our CAC as we progress through a fiscal between what.
Great. Thanks.
And our next question is from the line of Matt Hedberg with RBC capital markets Matt.
Oh, Hey, guys. Thanks for taking my question.
A few questions on retention here I just had one other one it's great that it's been stable. It sounds like you are seeing strong subscriber trends in April or May Im just curious how you're thinking about retention relative to your Q1 guidance may have you seen any change in that in the very short term given the unemployment rates.
So we actually so very solid trends of retention in the month of March and April.
We're not.
Forecasting you few one dramatic change in retention, we've seen increase engagement pharma customers moving to known Threesixty.
Platform in that increase the retention and then that has to be offset with bringing new customers and countries. The growing our customer base with the first two retention being lower than the average we mentioned and then we have of course, a program trying to improve the retention rate of the first two cohorts. So as I mentioned, it's a balance between.
Retention and new customer accounts and a number one objective is to grow customer count sustainably for the long term.
Got it Super helpful. Thanks, guys.
And our next question is flying of show you all with Oppenheimer Shoals. Your line is open.
Thank you.
Good afternoon, gentlemen, congrats on the solid set of results.
I had a quick product related question I think you might have addressed that I'm not certain.
Part of your membership I think include your cloud backup product because I think.
Now available strictly on the Windows the operating system.
Did you indicate that it's now available on the iOS and put us well.
The I'll take that one Vincent the comment we made was regarding our time management capability within North family that was originally windows in the interest expanding that to help help parents at home. We have now added that to iOS and Android as well.
So that's the comment we're making.
Understood. Thank you so much for that.
And ladies and gentlemen, I would now like to turn it back to the CEO for final summary.
Thank you we believe Norton Lifelock has a unique opportunity to build the best portfolio addressing the consumers ever evolving needs for cyber safe.
While the economic environment might be versatile and uncertain, our resilient business model and strong balance sheet give us the ability to continue to execute our business plan was minimal interruption. We are adapting as we go we are technically focus on delivering to our best potential every single day, we have a bias for action.
And the mission to make the World Congress, Dave Thank you for joining us today.
Ladies and gentlemen, this does conclude todays conference. We thank you greatly for your participation you may now disconnect.