Q2 2022 NortonLifeLock Inc Earnings Call

Uh-huh.

Good afternoon, everyone. Thank you for standing by my name is Jerome and that will be a conference operator today I would like to welcome everyone to the nurse on like.

<unk> 2022 second quarter earnings call, but they should call is being recorded and all lines have been placed on mute to prevent any background noise. After the speakers too much there will be question and answer session. At this time for opening remarks, I would love like too fast they called I'd like to Miss Mary Light headed.

Investor Relations Misgive may begin.

Thank you Joanne and good afternoon, everyone welcome to the Northern Lifelock Fishbowl 20, twenty-two second quarter earnings call.

Joining me today to review our queue to resolve Sir Vincent <unk> C E O and Natalie Jersey C. F. F. As a reminder, there will be a replay of this call posted on the I R website, along with their earnings slight press release and materials defining or non-GAAP metrics.

I'd like to remind everyone that during this call all references to the final matrix are non-GAAP and all growth rates are year over year, unless otherwise stated.

The reconciliation of non-GAAP to get measures is included in our press release, which is available on the I R website at Investor Dot Nortonlifelock Dot com.

In addition, we previously announced the merger of Nortonlifelock Lifelock and vast information shared today will be limited to what has already been disclosed in the documents published on our website in connection with the deal.

Today's call contains statements regarding a business financial performance and operations, including the impact of the ongoing COVID-19 pandemic on our business and industry, which made me consider forward looking statements and such statements involve risks uncertainties that may cost actual results to differ materially from our current expectations those.

Statements are based on our current beliefs assumptions and expectations and speak only as of the current ache.

For more information please refer to the cautionary statement Arab press release, and the risk factors in our filings with the SEC and in particular, our annual report on Form 10-K for the fiscal year ended April 2nd in 2021 and.

And now I will turn the call over to our C O <unk> <unk>.

Thank you Mary welcome and good afternoon, everyone. We've come a long way since we became a consumer focused standard on company exactly two years ago with today.

<unk>, a direct customer count grew over 178000 sequentially and we added over two 6 million customers year over year, bringing our total customer count to $23 3 million.

In Q2, our direct to consumer revenue, which represented the majority of our business was up 9%.

With our pool growing slightly quarter over quarter, and you need retention stable.

We have continued to build a richer and more robust product portfolio as well.

Reach more consumers on a global basis, while driving higher engagement with our existing customers.

Our net promoter score continues to improve from low Forty's last year to 49, this quarter, reflecting our focus on customer experience and providing peace of mind to our customers as they leave their digital lives.

Our international expansion efforts continued in Q2 and grew double digits similar to last quarter.

We continue to invest in our freemium model as it increases our consumer reach and awareness and we are encouraged that our nascent expansion into identity internationally is now available in more than 20 countries across Europe and Asia.

It is a critical component of our ability to provide more value to our customers outside of the U S. Replicating. The success, we've had with IV advisor in Japan, where we combined dark web monitoring with elements of restoration.

Performance maintenance offering that epps create a faster and smoother and more secure experience for consumers, whether they're gaming or browsing or streaming content or more on the windows PPC.

We expanded northern family with new features including favorite locations to help parents establish approved geographic locations and receive notifications when they charged the device arrives departs those set locations.

We also introduced alert me, which had spun stay informed about their children's location by setting specific dates and times to receive automatic Checkings Edwards from the location of their charge. The device. Both of these new features were quite timely as many kids headed back to school in person.

On the island the front, we added payday loan lock to selected U S. Lifelock plans to help block the opening of fraudulent payday loans and other short term loans.

And we've added new features like social media monitoring in more markets to provide consumers with broader protection as they digital footprint expand.

As awareness grows globally for identity protection, we continued to evolve a roadmap to protect our customers and provide the most relevant products and features to new audiences.

As we continue to strengthen our privacy pillar and help provide additional ways for consumers to control. The online privacy, we released Norton anti track in the U S. A new up and browser extension that helps prevent a website from trucking in profiling users in ways normal private browsers of Upn's cannot.

Do that.

That way people can protect and control the digital footprints from companies and websites that truck online activities and collect or Saturday personal data.

We've seen positive momentum from this new product release as consumers are seeing ways to protect their privacy and I'm pleased to share that northern entire track as we expanded now to APG anemia earlier this week.

Privacy overall is one of the three pillars of our cyber safety portfolio.

And we should continue to see investment in this area to help consumed manager, Dave privacy and reputation online.

And the opportunity to accelerate innovation in cyber safety.

We crossed an important milestone today was known and Lifelock shareholders voting to overwhelmingly support our ongoing transformation through the proposed merger with I've asked with.

With the next key step being the avast shareholder vote scheduled for November 18.

We're also actively and collaboratively working through the antitrust and other regulatory processes in all relevant jurisdictions and we believe we are on track to close mid of next calendar year 2020, due as previously stated.

Our strategy has been to protect and empower consumers as more and more of their lives move online and this transaction will allow the combined companies to invest in and accelerate innovation for new cyber safety products.

And now let me turn the call over to Natalie for more details on the financials.

Thank you, Vince and Hello, everyone to all our customers shareholders and listeners around the world who are celebrating diwali today.

The festival of light spring join happiness to you and your families.

For today's discussion I will focus on non-GAAP financials, starting with our Q2 results and then provide our outlook for Q3 and full year.

We delivered another solid quarter rounding out a strong first half of our fiscal year.

Our Q2 revenue was $695 million up 11%.

Our growth remains broad based across Geos and products.

Bookings growth of 7% was supported by a renewal effort.

<unk> product offerings and continued international expansion.

Our total direct customer count increased to $23 3 million, adding $2 6 million customers year over year.

Adding 178000, net new customers quarter over quarter.

This was our eighth consecutive quarter of sequential net direct customer adds.

In a quarter, where there is seasonally lower demand are strong net adds in Q2 is evidence that there is growing demand for our products and we feel proud to have added over 300000 net new customers in the first half of our fiscal year.

Our operational metrics remained strong with 85% unit retention and our monthly average revenue per user or <unk> increased on a sequential basis to $8 85.

As a result, our direct business maintained consistent consistent growth momentum up 9% and revenue.

We continued to drive higher engagement with our existing loyal customers through the accelerated pace of new product releases, while scaling up our cross sell efforts.

We're also reaching more audiences with the expansion of our identity protection offerings into more international markets, providing broader cyber safety protection to newer cohorts of customers.

It remained focused on EPS expansion in achieving our long term EPS objective of $3 that we shared back in May this year.

Turning to our cash flow and balance sheet Q.

Q2, operating cash flow was $60 million in free cash flow was $59 million, which included seasonal tax payments.

Year to date operating cash flow is 318 million in line with our net income improvement and growth.

We ended Q2 with over $1.5 billion of total cash which includes the cash proceeds from the July sale of our mountain view Ellis buildings.

We remain levered at approximately two times net debt and maintain both a strong liquidity position and a healthy balance sheet.

In Q2, we also returned approximately $73 million to shareholders in the form of a regular quarterly dividend of 12, and a half cents per common share.

For Q3, the board of Directors has approved a regular quarterly cash dividend of 12 and a half since for common share to be paid on December 15th 2021 for all shareholders of record as of the close of business on November 22nd 2021 as described in the press release.

And a reminder, that while we still have approximately $1.8 billion remaining in the current share buyback program. We cannot deployed in the short term do the due to the pending a vast transaction.

Now turning to our two three and four year outlook.

We expect Q3 non-GAAP revenue in the range of $695 million to $705 million, assuming stable currency rates quarter over quarter, which translates to 9% to 11% growth year over year.

We expect Q3, non-GAAP EPS to be in the range of 42 to 44 cents per share.

For the full year, we expect non-GAAP revenue growth of 9% to 10% year over year in constant currency and non-GAAP EPS in the range of $1.72 $1 75, narrowing the range to the high end on both revenue and EPS versus what we shared with you back and made our analysts day.

But I'm also not surprised that our Q2 results as it is in line with our models. Our internal models as you know we don't guide bookings, but we did share that Q2 is historically a seasonally lighter quarter.

We also recognized early on that even if you look at the external search traffic metrics, either on Google metrics analytics et cetera.

And you hone in on our branded and non branded terms we knew.

That that search volume was lower than prior quarters, and what we saw last year.

And then we also saw very early on that the advertising spend being put into the market.

Across our competitive landscape was up.

The other thing I'd encourage you guys to look at is.

As you know with our recurring business model and as you know with customer acquisition when they get to the first year retention and renewal.

Healthy step up in terms of the bookings amount that we get.

As those as those customers chose to renew with us.

Outside of the U S countries did not include identity elements, we now start to build up the portfolio to move above and beyond that security moving into protecting the digital lives exploring element of restoration and so what I call solutions, which includes our services and then on the long term perspective.

Outside of the U S. We have a huge structural growth opportunities.

Obviously, the proposed merger with <unk> will boost all of that it will be more balanced when I look at different industry technology or even the demographic as you know we should be more 40 in the U S 60 international versus the reverse on a unit basis, and we're going to continue to expand.

Very helpful. Thanks, guys.

Thank you.

Thank you and again, if you would like to ask a question. Please press star one on your telephone keypad. Your next question comes from the line of hands App with our Waller from Morgan Stanley. Your line is now open.

Hey, good evening guys. Thanks for taking my question.

Oh sure.

So I'll keep it to one question Natalie since you alluded to inflation I'm curious what Norton Lifelock is thinking about in terms of <unk>.

And again, if you'd like to ask a question. Please press star one on your telephone.

Yeah.

At this time there are no for more questions I will turn the call back to Vincent <unk> CEO for closing remarks, why don't we wait one minute to see if theres nobody last time. There was no more question. We had two minutes later plenty of question trying to get in so let.

Let's check one more time, operator, if you don't mind.

Sure and again, if you would like to ask a question. Please press star one on your telephone keypad.

Okay, well, we'll obviously are always has management very open and available for any questions. Our investors or analysts would have we will have plenty of one on one sessions.

Between now and in the next few days.

I do want to thank our shareholders that have overwhelmingly approved.

The issuance of shares to for the acquisition or the merger with Avast.

We see that as a vote of confidence our confidence into our strategy of confidence into the specific transaction our confidence into the board and management. So thank you everyone and we'll be connecting very soon.

Yeah.

Thank you. This concludes the conference call.

You may now disconnect. Thank you.

[music].

Yes.

[music].