Q4 2020 Mcafee Corp Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Mcafee fourth quarter 2000, and 'twenty earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker, Mr. Eduardo Fleet.
Vice President Investor Relations. Please go ahead Sir.
Thank you operator, good afternoon, and thank you for joining us today.
Mcafee is hosting this call to discuss its fourth quarter and full year earnings results for the period ended December 2020 participating on today's call are Peter and leave President and CEO, Thank cat bond and Patty Chief Financial Officer, and Ashish Agarwal, Senior Vice President of <unk>.
<unk> and corporate development.
And do you this afternoon, Mcafee and issued a press release announcing its financial results.
While this call will reflect items discussed within those documents.
For complete information about our financial performance. We encourage you to read our 2020 annual report on form 10-K, which we expect to file with the SEC by early March.
Before we begin I want to remind you that matters discussed on today's call may include forward looking statements related to our operating performance.
And I shall goals.
And business outlook, which are based on management's current beliefs and assumptions. Please.
Please note that these forward looking statements reflect our opinions as of the date of this call and we undertake no obligation to revise this information as a result of new developments that may occur.
Forward looking statements are subject to various risks uncertainties and other factors that could cause our actual results to differ materially from those expected and described today.
For a more detailed description of our risk factors. Please review our most recent quarterly report on form 10-Q, and our upcoming 10-K to be filed with the Securities and Exchange Commission, where you will see a discussion of factors that could cause the company's actual results to differ materially.
From these statements a replay of this conference call will be available on our website under the Investor Relations section.
And I would also like to remind you that during the call. We will discuss some non-GAAP measures and talking about Mcafee and performance you can find out conciliation of those measures to the.
The nearest comparable GAAP measures and our earnings release.
I will now turn the call over to Peter Lee Mcafee, as President and CEO.
And thank you Eduardo and good afternoon, Q4 was a very strong quarter for Mcafee as we significantly increased revenue profitability and free cash flow, we delivered robust topline results with total revenue of 777 million growing 14% year.
Over a year, we also improve profitability with total adjusted EBITDA of 285 million, a 37% margin and growth of 32% versus last year.
Similar to last quarter, our consumer team delivered another exceptional set of results with consumer revenue growing 23% year over year in Q4, we added another industry, leading 668000 net new core direct to consumer subscribers to the platform a number that was similar to our robust.
Consumer net adds in Q3 or.
Our strong fourth quarter performance caps, another terrific year of revenue growth and marks our 13th consecutive quarter of sequential and year over year core direct to consumer subscriber ads for.
For the full year consumer revenue grew 20% and we added 2.8 million net new subscribers during the last 12 months.
Our enterprise business with a long tenured core customer base delivered solid Q4 revenue growth of 5% year over year and strong EBITDA growth.
Enterprise was a major contributor to our overall profit expansion and the quarter Venkat will go into more detail regarding our Q4 results during his remarks.
Our full year, 'twenty and 'twenty financial highlights clearly demonstrate our team's focus on execution and the strength of our product offerings and total net revenue increased by more than 10% to $2 9 billion driven by highly recurring organic growth and our consumer business Mcafee generated over 1 billion.
Dollars and adjusted EBITDA, representing a 36% margin and growth of approximately 32% versus last year we.
We generated 982 million and Unlevered free cash flow, representing a margin of 34% and growth of more than 37% versus last year.
Looking at each of our segments and more depth, our consumer franchise is sustained double digit growth trajectory for several years, while improving profitability and F.
Why 'twenty, we have reached an impressive 18 million and core direct to consumer subscribers up more than 18% year on year Mcafee as consumer business continues to be a robust growth engine for the company.
And 2020, our growth accelerated across all customer acquisition channels, resulting in strong double digit revenue growth and North America, EMEA, Japan, and Latin America are D. T. See subscriber growth was also and the double digits for all geographies underscoring the strategic advantages of our omni.
Channel approach and our holistic products suite.
Consumers have become increasingly digitized and consumer awareness about the need for security continues to increase these trends will continue to fuel the growth of an already large addressable market and we believe will power our consumer business in 'twenty and 'twenty, one and beyond.
Mcafee commissioned and external company.
Sigh ACI to survey 11000 Internet connected adults around the world based on the survey users expressed high levels of concern around cyber risks online crime with respondents surveyed showing an average concern of 65% <unk>.
During this same study the key trends that emerged as drivers for consumer security software purchases, where proliferation of devices within the household increased internet connectivity, the explosive growth and online transactions the use of personal information in those transactions and more work from home policies there.
Study also showed a broad increase and the usage of online banking online and financial planning online Doctor visits and personal shopping with the expectations that post pandemic. These activities will remain at high levels. Meanwhile, Another recent survey showed that the top criteria for consumer purchases on.
Security software, our multi device and web protection and you don't understand pricing and a trustworthy brand.
Mcafee as differentiated personal protection offerings are tightly aligned with the most pressing consumer needs for security software and it covers device privacy and identity protection.
In addition to our results Q4 was also highlighted with our consumer teams. Most recent channel partnership signings, including Mcafee, signing a five year extended global agreement to provide consumer security on <unk> P. C products and Mcafee signed a renewal to continue to offer security products on Costco Dot.
Cop, whereby all P. CS purchase through Costco Dot Com will include a one year paid subscription to Mcafee.
And our consumer segment, we are achieving results at scale, while simultaneously investing to capture the tremendous opportunity we see in front of US we feel confident about continuing our double digit long term growth rate driven by the positive and sustainable trends and the market increased public awareness of the importance of privacy and security.
And as well as our significant investments and product channel and subscriber acquisition and retention.
Looking at 'twenty, 'twenty, one and thinking about the flywheel effect for the consumer business. We also expect to benefit from a greater renewal base associated with our strong 2020 cohort of 2.8 million net new DTC subscribers, which we expect to provide an uplift to revenue the.
The expansion potential of this market remains very much in front of us.
Switching to our enterprise business, we finished the year with strong execution against our key strategic imperatives. Our focus is on serving the complex hybrid multi cloud environments of our long tenured core enterprise customer base, we are driving innovation and device to cloud security to help protect users.
<unk> infrastructure and data across the enterprise. We know this strategy is resonating with our customers given strong underlying double digit year on year growth and our E D R and.
Cloud security offerings.
Our focus on improving profitability through our targeted market and product orientation and drove significant expansion and adjusted EBITDA margin by 10 full percentage points to 28% a growth of 64 per cent for the quarter.
To provide additional context around how mcafee as cloud security offering is successfully competing in the marketplace Mcafee as envision unified cloud edge was chosen by a national health care provider to support their next generation of cloud and remote worker security needs. This.
This was a full platform cloud security win for Mcafee, delivering web security and data protection Shadow It and SaaS protection.
Both data and threat protection, we're equally important as this customer advanced and their adoption of cloud services and the need to support and secure cloud access for work from anywhere users are customer performed a rigorous evaluation process and considered a variety of cloud security and cloud Gateway solutions.
Jos Mcafee unified offering for its superior functionality and seamlessly converged solution.
Moreover, our U C E product delivers superior threat and data protection, underscoring Mcafee and position as gardeners market and magic quadrant leader for cloud security.
Recent high profile customer wins, and the Edr space came down to Mcafee has unique ability to combine E. P. P with edr to deliver better functionality, coupled with the advantages of envision insights AI guided investigations and and ability to easily extend preventative controls.
Mcafee as integrated platform meets the requirements of large organizations today.
But also can accompany them on their journey, whether at Intel security on premises and the cloud or in a hybrid format. This is an important distinction for our offering.
Mcafee is committed to protecting our customers against risks with leading edge cyber security products defending many of the world's largest organizations and government entities from sophisticated attacks and nation state threats. The importance of these capabilities certainly has been thrust into the spotlight recently and the wake of the solar winds and sunburst.
Fiber security attacks.
More than anything these events are stark reminders of the unprecedented increase and scale and sophistication of cyber criminal activity.
<unk> attacks in recent years, such as Wanna Cry, we're indiscriminate and nature compared to what we are seeing now with solar wind and sunburst are for.
Far more precision guided attack, which will necessitate that enterprises and government entities prepare and preempt for deliberate and coordinated campaigns and.
Many ways this breach as a seminal event for the enterprise landscape, we expected and response what are the big areas of focus from customers during the coming year will be spending on advanced security and.
And detecting threats specific to an organization or executed by a human operator and.
And we would expect to see more investments for many organizations, who may recognize that they have insufficient safeguards in place as the cyber threat landscape is changing quickly.
Our business is performing well, we understand the mission critical role, we play and securing the digital transformation wave that is sweeping the world the acceleration and Digitization that has taken place over the past 12 months has only served to compound and that urgency mcafee and expertise and bringing differentiated security solutions to <unk>.
Consumers enterprises, and governments has never been more timely new conveniences and the realm of work learn shop bank exercise stream and telemedicine and have gone from nice to haves must haves. These digitally enabled experiences have become permanently woven into consumers' daily lives.
And they expect every interaction to be secure Mcafee is there to provide that peace of mind.
Thank you once again to a mcafee team members for your hard work and dedication, which has allowed us to focus on customer and partner success execute on our strategy and deliver very strong Q4, and full year 'twenty and 'twenty results I will now turn the call over to Venkat to discuss our financial results and further detail.
Yeah.
Thanks, Peter and good afternoon, everyone. We finished the year on a strong note with revenue profitability and cash flow all increasing significantly across the business results exceeded expectations driven by strong execution and increased demand for our security offerings, resulting.
And double digit top and bottom line growth.
For the fourth quarter net revenue was 777 million a growth of 14% over last year at.
Adjusted EBITDA was $285 million up 32% year over year, representing a margin of 37%.
And and expansion of 500 basis points. This resulted in and adjusted EPS of <unk> 38 cents.
Our consumer segment, Delaware double digit subscriber growth because of robust demand and large critical and growing personal protection market.
And our enterprise segment, we grew revenue by 5% and significantly increase profitability.
Moving to fiscal year, 'twenty and 'twenty result, net.
Net revenue was $2 9 billion, representing 10% year over year growth.
Full year consumer net revenue grew 20% contributing $1 6 billion for the total.
And enterprise net revenue was $1 3 billion and increase of 1% for the full year.
Year over year total company adjusted operating expenses declined 2%.
Even as we invested to drive growth in key consumer channels there.
And therefore, mcafee as adjusted EBITDA grew 32% topping $1 billion for the year.
Adjusted EBITDA margin was 36%.
Worst is 30% and FY 19.
We continue to increase our operating leverage resulting in a more efficient business model.
For the full year, we generated unlevered free cash flow of 982 million up 37%, whereas for 2019 and.
And representing and Unlevered free cash flow margin of 34 per cent.
Our team, Delaware and solid performance to close out the year, our consumer business continued its momentum with increasing consumer demand for our security products as more aspects of our lives are these guys across the work learn and transact scenarios.
As Peter mentioned this marks the 13th consecutive quarters of sequential and year over year direct to consumer subscriber growth.
This validates the strategic advantage for a holistic personal protection offerings and omni channel go to market as well as strong execution on acquisition and conversion and retention.
We expect this momentum to continue going forward.
We also saw very strong adjusted EBITDA improvement from our enterprise segment.
These results were driven by our focus on core enterprise and government customers.
The prioritization of our R&D efforts towards market, leading device to cloud products and.
And continued optimization of our go to market strategy.
Now turning to operating expenses, we remain focused on improving profitability and our business, while balancing our investments in growth.
Evidence of this flow because it came in Q4, where our total adjusted operating income improved by 39 per cent compared to the prior year quarter.
We've also seen higher than expected partner product demand across our various channels.
While this drove increased marketing spend during the quarter. It also bodes well for the future revenue growth.
During Q4 on a GAAP net loss was $320 million and included recognizing 288 million of noncash equity based compensation charges and the fourth quarter, primarily due to the noncash cumulative catch up we discussed in our 10-Q for the third quarter.
And also in the S. One.
Restructuring activities of $16 million.
Recognize in connection with the reorientation of our enterprise business.
And realignment of staffing and other departments, primarily consisting of severance and benefits.
Now turning to segment results and key metrics.
In the consumer segment, we saw strong momentum across all dimensions during the fourth quarter.
For the period.
<unk> net revenue was $426 million.
Reflecting a 23% growth versus the prior year quarter.
We continue to grow our core direct to consumer subscriber base in Q4, we grew the base by 18% year over year or 668000 D. T. C subscribers. We entered Q4 with robust 18 million core DTC subscribers, an increase of two eight.
And net new subscribers on a trailing 12 month basis.
We also saw strong demand for our mobile and service provider channel business.
E R P C or monthly average revenue per customer fin.
Finished the quarter at $5.97 compared to $6.01 and the same period last year.
This change reflects the accelerated growth and mix of new subscribers.
Which are initially dilutive to L. P C.
Given the flywheel effect of the consumer business, a greater 'twenty and 'twenty renewal base of $2 8 million net new DTC subscribers bodes well for continued strong uplift in revenue.
On a full year basis Aarp's he came in at $6.01 compared to $5.96 for the prior year.
Also and the consumer business trailing 12 month dollar retention was 100 per cent for the fourth quarter versus 97% in the comparable Peter last here.
This reflects strong execution and improvement on a unit retention driving customer value not only and renewals, but also through upselling existing customer subscriptions to higher value packages.
Adjusted EBITDA for consumer was 188 million, reflecting 20 per cent year over year growth.
We continue to invest and consumer to drive growth and solidify our leadership position.
As the $2 8 million, new DTC subscribers added in 'twenty and 'twenty derive value from our offerings and.
And renew their subscriptions they provide significant lifetime value to Mcafee.
Moving to our fourth quarter enterprise business results net revenue was $351 million up 5%.
We continue to see our customers adopt our newer endpoint plus E D R and unified cloud edge solutions, all of which generate a solid double digit year on year growth the.
And the percentage of net revenue and the fourth quarter from core enterprise customers remained over 80 per cent of the total enterprise net revenue.
We continue to drive meaningful enterprise adjusted EBITDA expansion year over year during the period.
Q4, adjusted EBITDA was 97 million, reflecting 64 per cent year over year growth and.
Enterprise segment adjusted EBITDA margin also saw significant year over year improvement coming in at 28 per cent compared to 18% last year.
Now turning back to total company results and the balance sheet, we ended fourth quarter, with 231 million and cash and cash equivalents and short term and investments.
As a reminder, we raised approximately 586 million and our initial public offering last October or about 553 million net of fees.
We use these IPO proceeds to pay down our second lien debt, a filer and and 25 million.
In addition, based on solid cash generation of the business and the fourth quarter, we used excess cash to prepay 300 million off our first lien U S debt.
Based on our disciplined capital allocation strategy to drive shareholder returns, we are raising the dividend and now expect to pay 200 million annually.
Presenting and increase of 50 million annually from what we previously communicated on our first dividend was declared in December 'twenty and 'twenty and was paid to our shareholders in early January of this year.
For the full year cash flow from operations increased 53 per cent to $760 million compared to 496 million and the prior year.
The improvement is attributable to increased profitability and well managed working capital, including better performance around receivables of which approximately $25 million is timing related and came in a little earlier than we had expected for.
For the full year, 'twenty and 'twenty Unlevered free cash flow was $982 million.
Which included fees to terminate management contracts in conjunction with the IPO.
Turning to guidance, we are providing current quarter guidance ranges for total company net revenue and adjusted EBITDA.
And the first quarter, we expect consolidated net revenue to be between 725 million and $735 million embedded within this guidance is our expectation that consumer will grow net revenue between 16 and 18% year over year, we expect total adjusted.
EBITDA of 275 million to $285 million.
Furthermore, we anticipate cash net interest expense for the first quarter to be between 50 million and $55 million.
For normalized non-GAAP tax rate is expected to be 22%.
Finally, you should assume a fully diluted share count of approximately 468 million shares.
And we continue to prioritize our enterprise R&D investments optimize our enterprise go to market and drive operational excellence across all functions. We have completed a workforce reduction and other restructuring activities in Q1.
Our GAAP results and Q4 included a charge of 16 million for restructuring costs and we expect to take the remainder of the restructuring charge in Q1, all for approximately 30% to 35 million related to these actions.
As a result of these cost saving initiatives, we expect to achieve net savings of approximately $50 million after reinvestment over the next 12 months.
Overall, we're very pleased with our momentum to close out 'twenty and 'twenty, we continue to execute on all facets of our strategy.
Mcafee and sophisticated product platform and loyal long term relationships constitute sustainable competitive advantages.
We are committed to the success for our customers and positioning Mcafee for long term growth and profitability.
We look forward to reporting on our continued progress to you over time.
With that I'll turn the call back to the operator to begin Q&A.
Thank you, ladies and gentlemen, as a reminder to ask a question you will need to press star one on your telephone and we ask that you. Please limit yourself to one question and one follow up question to withdraw your question press the pound key please standby, while we compile the Q&A roster.
My first question comes from Hamzah <unk> with from Morgan Stanley. Please go ahead.
Hey, guys. Thank you so much for taking my questions.
I just wanted to ask.
A question about sort of.
The outlook for the full year right I know you didn't give sort of explicit guidance, but any sort of guidepost you can give us and defense that it seems like consumer from a revenue growth standpoint, given the uplift that you're about to see.
Given that it's still pretty favorable PC demand environment that should probably be somewhere in the double digits range right I think that's pretty reasonable and then for the enterprise business. It grew this quarter maybe.
Maybe that sort of flattish to slightly down. So is there any reason why on a total revenue basis, we shouldnt see revenue growth that would be sort of and that mid single digit range.
Yeah.
Hey, Hamzah. Thank you so much for the question.
A couple of framing things.
From my side and are you now and pizza might have additional thoughts as well.
So if you think about our enterprise revenue for Q on Q4, and overall, we grew 5% right, but if I was to kind of break it down for you they.
They were kind of three key drivers in there first you kind of have to take out the purchase price accounting and so if you take that out essentially are the apples to apples growth.
And would be 3%.
Now within that we've certainly benefited in Q4 for.
Hi, Remi.
Revenue yield on from non core products, you know which involved.
Both licensing and hardware so while we're pleased.
Pleased.
With the overall growth.
And in our cloud products as we mentioned there is some one time element to it.
Enterprise revenue so.
If you adjust for that I think enterprise revenue from you now.
We're projecting that for the rest of the year you know, we will come back because of sort of normalized levels.
And with respect to <unk>.
Consumer I think you know as we talked about we're very very pleased with the.
Our strong DTC ads that we've had you know we've grown for 13 quarters and neuro.
And two point million that we added in the last 12 months, obviously those constitute a pretty strong tailwind for us, especially as we continue to as these customers come up for renewal.
That's where we see the biggest leverage where we continue to upsell and cross.
Cross sell that base and given the strong dollar retention rate that we have been experiencing we expect strong tailwind.
So that's kind of the dynamics of the business. We're not you know certainly we're not guiding for the full year and we.
We feel pretty good about the 16% to 18% consumer growth.
And that we're guiding to in Q1.
Got it and maybe just one quick follow up around the consumer business. So.
You mentioned, some art boutell wins, but I wanted to just drill on the subscriber adds right to your other $2 8 million a net new subscribers. This year right I think.
Historically, you know your your net new adds here are a little over a million I know that you've had double digit growth from this business prior to COVID-19, but as we look out into 'twenty and 'twenty one.
You're facing tougher comps from a subscriber standpoint right.
And it's still a pretty favorable PC demand environment do you think that there'll be sort of a reversion to the mean as it relates to your net adds or do you think that will likely continue to see above historical trend in terms of net subscriber ads.
Yeah Hamzah, it's Peter I appreciate the question.
So I think yes, your math is right and the $2 8 million that we added over the past 12 months.
Is a record we added 668000.
New DTC subscribers in Q4, we added 669000 and Q3.
But I would say things are changing and a sense and certainly you know the flywheel of this business, but I think from a new subscriber add over time.
And there is a firm belief on our part and this will be paced and sequenced over time that the market is bigger than some understood and I think we've seen an acceleration of digital transformation, we've seen more people.
And moving into the digital World banking online health care on line and the attack surface and is continuing to expand.
And it's not just the P. C piece right, we've talked quite a bit about what we're seeing and mobile channels as an example.
So there's a degree of.
On a broadening if you will that we're seeing now we've been growing as you know year after year after year after year and.
And that's been a solid double digit growth story 2019 was an interesting year, because PC shipments were down it was sort of a trough year for PC shipments, but mcafee still grew at a very nice clip and I think what other things that changed for US is we have a much more expansive and broader channel with retail with E tail with Mcafee direct and.
And obviously the mobile channel that's growing well so the flywheel is a component.
But also it's a changing market. So that's not to overstate how much will come to fruition and Theres also a seasonal aspect to the business, where Q4 and Q1 from a consumer standpoint are the most voluminous Q2 is typically the lightest and actually will be tougher from a compare.
But I think you summarized it well, but the market is changing.
We see that as a good story for many years to come and frankly.
Thank you. Our next question will come from Brian Essex with Goldman Sachs. Please go ahead.
Hi, good afternoon, and thank you for taking the question. Peter just had a question on you know some of the competitive dynamics on the enterprise side I mean, I know you'd noted some pretty strong growth and edr and cloud and E. P P with edr driving traction.
And would love to know.
You know I guess competitively where share and that market coming from are there are there legacy kind of endpoint vendors donating share that you're benefiting from.
How are you going head to head and how.
How is the customer growth like it was this from.
Your core customers net new customers and and maybe a little bit of a sense of how net customer adds were on a quarter.
Sure, Brian I'll try to touch on each so I'm sure okay.
And a similar vein and we've talked about this a bit.
The market on the enterprise side is absolutely changing as well and we see that as something that is going to be.
And really related to increase and spend and a broadening of neat and.
And cyber.
For the cyber threat landscape has forever changed as well and several wins and sunburst are an example of that we talked a bit about it.
And our remarks earlier, we're indiscriminate attacks that would occur and entities would be impacted if they hadn't done things like.
And the fundamental patching.
That's an indiscriminate bomb that goes off of precision guided attack like this was from nation States is more of a campaign and.
And customers across the enterprise and governments are realizing they need a different level of protection and we anticipate that that is not going to change that is going to continue to be the case I preface all of that by saying the market is also a in many ways changing and the need to protect not just against deficiencies but against campaigns.
<unk> is playing very very well for Mcafee and so we have invested as you know and in Edr with insights with the capabilities. We have because we have access to over 1 billion endpoints and we have telemetry around those endpoints and we can anonymize that data and help large enterprises and governments and now mid sized companies.
And with partners preempt and predict and think about the world and a preventative way and we're moving into xdr with data integration and a way that frankly, no one else can either because we have so many different control points. So the wins that we're seeing are coming and in many ways because there was an expansive opportunity with.
And our core base as you know that's been a very steady base roughly 1500 customers.
And that you know government entities, we average 17 and a half years, we average seven products and our top 250, but theres more and more opportunity because theres. So much cloud transition and of the 3.8 trillion that will be spent globally and I T. This year, a large percentage of the growth global I T as expect.
And it to spend a large percentage will come and the arena is that we're focused on and those are the cloud components with unified cloud edge and market, leading cash be with secure web gateway and DLP with our Epo and with what we're doing with Edr with insights and those have been very good growth stories for US now we are absolutely winning.
Against competition, but we're on.
Also expanding in our base and both things are coming to fruition.
We also have as you know other product lines that we will not grow so we're going to balance both while we see an opportunity to continue to expand margins and so hopefully I hit most of your most of your questions on that.
Yeah, Yeah I appreciate it and maybe just a quick follow up so as you as you migrate along that path and those those other products are declining.
I mean might we get a sense of what recurring revenue was on the platform versus non recurring and how you might anticipate that will kind of play out on me.
The rate at that would shift towards more of a greater percentage of recurring revenue over the next kind of year or so.
Absolutely say that we are moving towards more and more ratable and recurring revenue as.
As the cloud business and in total grows at a very nice clip and that will continue to be the case, we expect for certainly 'twenty, one and beyond and that's good that gives US also some good headlights into the business. So that's exactly the route that's that's been in process and that's what we expect to continue.
Thank you. Our next question will come from Patrick Colville with Deutsche Bank. Please go ahead.
Hey, Thank you so much for taking my question and.
And congrats on a on a great and the year.
Question, you guys reported enterprise billings, because that was the metric that you.
Provided last quarter, but.
And to find it.
Hey, Patrick this is venkat and you know.
I think one other point that we made last time is.
For enterprise the billings are tend to be lumpy and episodic.
And <unk>.
And given it given that I think are the two key metrics that we have been focused on as we were giving a view on.
The core customers and and <unk>.
Revenue, we derived from the core customers.
And Ah you know our revenue as assets.
Flow through in the 10-K itself, we're going to have annual billing a bullet for consumer.
And and enterprise and so yeah, we are going to provide that on an annual basis.
Okay. That's appreciate it.
And also follow up on the consumer segment, I mean, the and that business has been firing on all cylinders.
In terms of the PC OEM contracts up for renewal and calendar 'twenty one are there any day.
You should call out to us.
We should be aware of.
Hey, Patrick it's Peter.
Short answer is there's nothing up for renewal and 'twenty one.
Okay, that's very clear I appreciate it's on.
Thank you.
Thank you. Thank you. Our next question will come from Rob Owens with Piper Sandler. Please go ahead.
Great and thanks for taking my question with the dual channel a little bit into the refuse and talked about here in Q1, and using our secure and some cost savings but.
Could you maybe go a little deeper relative to how you're looking at for the enterprise business.
Good day.
Create some pressure this quarter.
Yeah, Hey, Rob.
Uh huh.
So with respect to there.
Restructuring activity I mentioned.
Most of the expenses.
It will actually hit in Q1 from.
From a restructuring perspective.
And it's primarily enterprise, but theres other aspects of Mcafee.
And that we're rationalizing our whether it's high tea or facilities.
And our other infrastructure related activity.
And just to put this in perspective and <unk>.
Annualized savings, we're expecting in the in the 100 and a little over 100 million. What we are doing is redeploying are about half of that into you know strategically into areas that.
We.
They articulated.
Within enterprise and <unk>.
Certainly as we've re imagined and they go to market, we are reinvesting and.
Additional selling capacity and for instance, or within R&D, we are continuing to invest.
In some other strategic priority areas, whether it whether it's endpoint plus ETR on a cloud.
Workloads. So the total rationalization is going to yield a like I said over 100, and but we're being smart about making sure that we read and west where we see areas for growth and strength.
Great I appreciate the color and simple ones around.
Net malware and you saw on the news recently and I was targeting and processors.
And a big portion of the business, but that's a growing business for a year for people still running Max Nathan Thanks.
Yes, it's Peter I'll jump in.
I missed part of it I think you were asking about Max but it was it was a little fuzzy for us and I'm, sorry to ask about but can you I'm sorry to ask about but can you just is that again.
Absolutely sorry about that and it was with regard to the new Mac malware that we've seen and relative to I guess your mix of business. How much of it is is Max centric has this been much of a growing area for you where most consumers still running their Max naked eye I got you. Thanks.
So as you know we cover the gamut, including Mac, iOS and the entirety of hire and water.
What a consumer may have.
This is something that we've continued to see.
<unk> growing because of the volume of Max but not a massive departure.
But again the mobile channel is also seeing.
A bit of an uptick so we've seen this is something that has been a strong suit for us as we cover the gamut.
But it's just been a volume component related to volume not not a massive departure.
Alright, thank you.
Thank you. Our next question will come from Gregg Moskowitz with Mizuho. Please go ahead.
Okay. Thanks, very much hi, guys.
First question I guess just on the.
Trailing 12 months dollar base consumer retention rates. So it's now reached 100% and in addition to greater on line usage and a greater need for security can you walk through how you've been able to show so much improvement here over the past couple of years and then also and as you mentioned earlier you have a larger tranche of renewals coming up in 'twenty and 'twenty, one and so on.
Wondering if you think mcafee can sustain this level of dollar based retention.
Hey, Greg It's Peter So let me start with how and what the team has done because it really has not happened by chance and Youll recall and F.
Slide 17, our <unk> was 87% and every year it's improved.
And now we have gotten into the realm of triple digits, which is really a testament to a number of things we have invested in performance marketing and digital marketing and improve conversion we've.
We've been very very deliberate about what we see as an opportunity to make it a better and better experience for our customers and for consumers and part of what we've been really pleased with is the customer sat and NPS scores have continued to go up as well so as we've added more and more new subscribers.
By the way this was pre Covid, we were adding more and more.
New subscribers, we were retaining a higher component of that base, which become as part of the renewal engine is as you've outlined. So this has been focus are there are things that we've done and the last year or so that we did not do two or three years ago.
An example would be what we call OBE out of box experience, we work with our partners and make it easier and easier for our new subscriber.
Fewer clicks easier to pay just making it a better user experience. So the team has been fixated on that we still have a lot of work to do.
But that's really helped from a D or our perspective, so that's a bit about the how as far as the expectation of adding $2 8 million new subscribers.
And ensuring that we continue on this front to have a very solid D. R. R. That's absolutely what the team is expecting and that's what we expect of them and they know that.
With them through our partners, we're obviously going to have to see and make sure we hold to that but what other things again, we're really pleased with is that customer sat and NPS scores have gone up with this higher percentage, but we're going to work diligently to Vietnam and that range and continue on the triple digit front if that helps.
Helps very much very clear thorough answer and thanks for that Peter.
Quick follow up for Venkat.
You say roughly how much of a tailwind and operating margin cat in 2020 from lower <unk> expenses and I know you haven't guided of course for 'twenty and 'twenty, one, but even just from a high level. If you could talk to your assumptions around and sort of a return to normalization. If you will as it relates to opex in 'twenty and 'twenty one.
Yeah.
And then Curt may be muted, let me make sure sorry, we've got yes, sorry, I was muted.
And.
A couple a couple of things to consider you know certainly.
You know to 'twenty and 'twenty was a year, where you know we certainly benefited from almost no travel a little travel I would call it called out in our net <unk>.
$5 million to $30 million range as how much we benefited.
But one other things we have been doing is you.
You know clearly investing for Mcafee and for the future which is.
We've been investing and cloud based tool and a collaboration and communication tools. So when the war for.
Other returns to normal we do.
And I expect we don't expect that full level of travel are coming back, but certainly where it is required will be very selective.
You know with sales and marketing that require travel certainly we will.
Invest but you know the the.
For non customer facing roles and I think the some of the investments we've made and technology are going to give us some lasting tailwind for the future and flow.
And like everyone else, we actually learn to run the company on and virtual basis, and so that's there's new processes and new lessons learned as a result of being virtual so.
Again, if it's customer facing and if it's required we'll certainly make that investment.
Perfect. Thank you for the color.
Thank you. Our next question will come from Fatima <unk> with UBS. Please go ahead.
Good afternoon, and thank you for taking my questions Peter I'll start with you and a follow up please.
And Peter I wanted to talk about the Amazon opportunity and early trends you can speak to with respect to adoption and the impacts to the business and frankly, what is engagement and looking like from that and a relatively net new channel for you on the consumer side.
Pay for team and so on the Amazon piece, it's it's still early days.
But what we're seeing is alignment to what we had anticipated so as you'll recall this was a bundle for business Prime members.
And again, it kind of Ah and opportunity to dip our toe into a little bit beyond the scope of kind of the classic.
Consumer or family and we also are providing protection back to the earlier question for Pcs, and Macs, and iOS and Android devices, but.
But it's for that sort of licensing option for owners of businesses with about 25 devices.
And employees can stay protected access to 24, seven and virus removal services.
Some additional I T resolution that we've built in to ensure additional protection, obviously, a V. Mcafee support services and there are agents standing by as well to help and we've also included our VPN solutions and as part of the offering and and then password manager and comprehensive.
Overview from a tech support standpoint, so it's still early days, we anticipated that it would take a bit of time to start ramping that's about in line with expectations. We're not looking at it as a big needle mover on short term that's not for example, built into Venkat projection for Q1.
Forecast, but it's something that you know it was gonna enable us to just broaden the Tam a bit and we'll look to see continued progress over the course of time.
Yes.
I appreciate that color and then.
Good for you just on the enterprise side since I stand on that.
That's right.
Slide a grocery and the enterprise space and is based on your for first.
First quarter guide implies and mid single digit decay and and decline and so I'm wondering if you can start and help us with kind of the puts and takes that underwrite that expectation, especially relative to your.
Some of the more positive commentary around enterprise and enterprise spending trends on the dock outstanding burst and and the solar winds incident, and so just wanted to better understand how to reconcile them.
Kind of a tailwind from that on.
Dynamic relative to.
A pretty precipitous erosion on the enterprise business and your guys. That's it for me. Thank you.
Alright. Thanks.
Thanks for putting them on for the question so.
The way to think about it is you know as I.
Talking about the Q for.
Sort of unpack for Q4 revenue results for which is.
Which is a combination of three things.
He was the first thing is you know we did a off the 5% growth I mentioned two per cent of that purchase price accounting.
Of the remaining three per cent, we did see some.
And of the quarter.
Increase in revenue.
With respect to income.
Increased licensing and hardware, which are largely non core I'd call. It.
About two thirds of that goodness came from that we don't expect that to continue.
The remaining third of the goodness actually came from some of the favorable trends, we're seeing both in terms of our cloud.
Cloud products E D R and a continued strong growth of E. C. U E. Those are goodness.
We continue to see going into the year now so the last point I'll make on.
On the sequential decline you know clearly Q4 is a strong year you know.
Seasonally strong.
On a quarter for us and Q1 tends to be.
Not as strong from CS.
And Lee and.
So the billing trends that we saw earlier will continue so that's why we're guiding to a.
You know a slight decline in revenue.
Thank you. Our next question will come from Matt Hedberg with RBC capital markets. Please go ahead.
Oh, Hey, thanks, guys. Thanks for taking my questions. Obviously consumer did did did exceptionally well this quarter and I think at the midpoint, you're guiding for 17% growth and Q1.
Looking at that on a sequential basis I don't you know based on our data I don't know that and the consumers ever been down sequentially.
And I just wonder is that just conservatism on your part was there anything with.
Anything unique about Q4, just trying to get a better understanding for sort of the sequential consumer obviously strong year on year growth, but in Q1 and forecasted but just that sequential trend is a little different from what we've seen historically.
Okay.
Got it Hey, this is venkat.
So a couple of things to consider you know Matt.
And as you know certainly we're.
We're very very pleased with Q4 right and.
And in terms of total revenue growth for 23% subscriber growth of 18 per cent and.
And the momentum has been there.
And quite significantly over the last 13 quarters and subscriber ads.
So we're very pleased with that going from you know, it's a tough compare from 23 per cent going too.
And midpoint of our of.
17% and you know, we feel pretty comfortable with the 16 to 18 per cent range, but remember there's some degree of seasonality between Q4 and Q1 and.
And just going back and time, even though last year, we didn't see that level of decline, but Q1 19 relative to Q4 of 18 was actually a sequential decline. So obviously, we're very pleased with the momentum across all channels and all geographies.
In terms of subscriber growth.
But there's a slight element of seasonality between Q4 and Q1 other that we built into the guidance as well.
Right, Thanks Venkat for that.
And then maybe maybe just a follow up obviously you noted that that RPC was down a strong net adds it was still up on a year on year basis, though just for.
And for the total fiscal year.
And it has been for the last several years I guess, you know you're not guiding to the full year, but should we think about I guess the question is how should we think about RPC over the course of the year sort of balancing strong renewals and net adds I mean does that should we continue to expect that to trend higher over time.
Just trying to get a little bit better sense on that.
Hey, Matt, It's Peter I'll I'll I'll jump in quickly on that so I think you summarized it very well.
And.
From a full year perspective, when we look at 'twenty and 'twenty, you're right full year AARP. She did grow when we look at it broadly.
It's really a business decision and it's sort of one of those classic trade off decisions, which will continue to make this is a decision that we're happy to make and when we're adding that volume of new subscribers. It is going to be somewhat dilutive to our pik.
Over a shorter period of time that could be a quarter or a few quarters over the course of time and this is just the economics.
And I'll pick is going to improve.
But we like the fact that we're improving our pick through a level of growth over time, rather than having and our pick targets that we hit with such haste that it's it's at the cessation of growth. So I just want to make sure. We make that clear we have every intention to improve our pick over time, but we don't want to do it in and.
Such and such a hasty fashion that we get there prior to any opportunity to continue on the terrific trajectory of 13 quarters that we've been on to add substantive numbers of new subscribers.
And speakers I'm showing no further questions in the queue at this time on.
I'll turn the call back over to you for any further remarks.
Sorry, I know, we're closing I want to make sure we ask for match question and its entirety, though.
Matt you may have dropped but did we did we get it or was it was there more I want to make sure we didn't.
And we didn't leave that without a complete answer.
Matt you can press star one to have your line open again.
Okay go ahead and okay.
Sorry about that goes out and it sounds like I was on mute again.
That makes a ton of sense and then I think that's the right tradeoff on on the new sub adds and and I think considering the renewal expectations that that makes a ton of sense that answered. The question and it was it just was a really strong quarter congrats on that guys.
Thanks, a lot and that we appreciate it.
That I do want to thank you all for joining today I'd also like to say, thank you again to the Mcafee team around the world for and incredible 'twenty and 'twenty a lot has happened this year, including as you all know our our entre back into the public markets I'd like to thank our team for their continued focus on our customers and our partners.
And welcome Eduardo I'm happy to have him joined the IR team. He is the IR team at Mcafee by the way and we look forward to updating all of you on our next call. Thanks very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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And.