NortonLifeLock : Q1 FY22 Earnings Transcript (PDF 319 KB)

Corrected Transcript

27-Jul-2021

NortonLifeLock, Inc. (NLOK)

Q1 2022 Earnings Call

	Total Pages: 14
1-877-FACTSET www.callstreet.com	Copyright © 2001-2021 FactSet CallStreet, LLC

NortonLifeLock, Inc. (NLOK)	Corrected Transcript
Q1 2022 Earnings Call	27-Jul-2021

CORPORATE PARTICIPANTS

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

.....................................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

Saket Kalia	Matthew Hedberg
Analyst, Barclays Capital, Inc.	Analyst, RBC Capital Markets LLC
Jonathan B. Ruykhaver	Hamza Fodderwala
Analyst, Robert W. Baird & Co., Inc.	Analyst, Morgan Stanley & Co. LLC

.....................................................................................................................................................................................................................................................................

MANAGEMENT DISCUSSION SECTION

Operator: Good afternoon, everyone. Thank you for standing by. My name is Chino and I'll be your conference operator today. I would like to welcome everyone to the NortonLifeLock Fiscal 2022 First Quarter Earnings Call. Today's call is being recorded and all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

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

.....................................................................................................................................................................................................................................................................

Mary Lai

Vice President-Investor Relations, NortonLifeLock, Inc.

Thank you, Chino, and good afternoon, everyone. Welcome to the NortonLifeLock's fiscal 2022 first quarter earnings call. Joining me today to review our Q1 results are Vincent Pilette, CEO; and Natalie Derse, CFO.

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

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

	2
1-877-FACTSET www.callstreet.com	Copyright © 2001-2021 FactSet CallStreet, LLC

NortonLifeLock, Inc. (NLOK)	Corrected Transcript
Q1 2022 Earnings Call	27-Jul-2021

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

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

.....................................................................................................................................................................................................................................................................

Vincent Pilette

Chief Executive Officer & Director, NortonLifeLock, Inc.

Thank you, Mary. Welcome and good afternoon, everyone. So before we dive into our first quarter results, let me start by addressing the Possible Combination with Avast. We confirm that we are in advanced discussions with the board of Avast regarding a possible merger. As we've said many times, M&A is a key part of our strategy, and we're constantly looking at potential acquisitions and investment opportunities, some small, some larger in size. We believe in being disciplined in our approach and playing for the long term. So if or when we have material developments, we will share those with you. I'm sure you understand that today, we will not be able to answer any question related to specific cases.

So now, with that out of the way, just barely over two months ago, at our Investor Day, we shared with you our long-term strategic path to meaningful and sustainable growth. And the ambitious big goals we set then should tell you everything you need to know about our opportunity that we see in front of us. Big audacious goals are not achieved in the short term, of course, but quarter-by-quarter, strong execution creates the momentum that will allow us to meet our long-term goals. And Q1 is just that, a strong execution and solid results that put us right on track to achieve our ambition.

We are off to a strong start to fiscal year 2022, with solid financial results for Q1. The direct-to-consumer demand for Cyber Safety remains a global opportunity, and our Q1 results are evidence of that evolving and underpenetrated opportunity. Overall, Q1 performance was in line with short-term and long-term commitments. Bookings and revenue growth were 12% and 13%, respectively, and EPS grew 35%.

We sustained our growth momentum in Q1, managing our business through the unpredictable macro environment and the transition to post-pandemic environment in many parts of the world. At the heart of it, it is critical for us to focus on product and service innovation. This is the only way we can stay at the forefront of the ever-changing scope and sophistication of cybercrimes and offer consumers the best in Cyber Safety.

In the first quarter, we unveiled four new products, doubling the number of new product introductions compared to a year ago. As we have said at our Investor Day, it is about being nimble, showcasing our ability to move faster, and being better by learning along the way.

Let me tell you about a couple of these product releases in Q1. As planned and previewed, we launched the very first integrated product with Avira called Game Optimizer. This new feature on Norton 360 platform is designed to maximize gaming performance while strengthening security, freeing PCs from programs that are typically running in the background and hogging CPU system resources. This is another tool in our expanding toolbox, and we're excited and eager to give gamers tools that they not only need but want.

Another new product is Norton Crypto. While we see the investment is in its infancy, it is another example of how we are committed to innovation and how we are looking to enable and empower the digital lives of consumers. Digital currency is becoming an increasingly important part of consumers' digital lives, and this feature allows you to use your idle PC time to earn digital currency. And our Norton Crypto Wallet allows you to track, transfer, and store earnings in the cloud. We accelerated our pace of innovation to be the first Cyber Safety company to

	3
1-877-FACTSET www.callstreet.com	Copyright © 2001-2021 FactSet CallStreet, LLC

NortonLifeLock, Inc. (NLOK)	Corrected Transcript
Q1 2022 Earnings Call	27-Jul-2021

provide such a feature to help ensure our customers have a safe and easy way to mine crypto without having to make tradeoffs that could compromise their cybersecurity.

As we transform our company to offer richer portfolio, we've also made great strides in expanding our overall consumer reach. In Q1, our direct-to-consumer revenue, which represented the majority of our business, was up 11%. Our global expansion efforts are working, as Q1 growth was partly driven by record growth in international. While our North America business remains larger than the rest of the world, the international growth rate once again outpaced the Americas.

Similar to last quarter, our direct business grew double digits across multiple countries, including the UK, Germany, France, Australia and New Zealand. We continue to make great progress in leveraging Avira's freemium model to broaden our reach while accelerating the free-to-paid conversion using our marketing capabilities.

Another area of strength is our partner business, which posted double-digit revenue growth for the third straight quarter, up 29% in Q1, including Avira. Key channels continue to drive the growth from employee benefits to online retail and service providers. As part of our all-in effort to build the most comprehensive go-to-market model, we recently expanded our partnerships with Lenovo for our OEM business. Selected 5G Lenovo laptop PCs will be preinstalled with Norton Security and VPN app, available now in selected markets.

While our OEM business is small, it demonstrates that we will continue to explore all avenues to reach customers. We've been highly engaged in various opportunities and markets globally in our partner business. Our goal is to continue to build and expand these long-term partnerships and increase Cyber Safety awareness everywhere.

In Q1, our direct customer count grew over 150,000 sequentially, and including Avira, over 2.5 million customers year-over-year, bringing our total direct customer count to 23.1 million. This was our seventh straight quarter of net direct customer adds sequentially in a quarter that has been historically down sequentially driven by normal seasonality.

Our customer retention rate remained strong at 85%, as we drive new initiatives to further improve retention overall and within specific products and customer cohorts. As we've shared at our Investor Day, we have started multiple operational initiatives, targeting areas of improvement such as our first year cohort or geographies with different customer profiles. Customer satisfaction and retention will continue to be a long-term focus for this leadership team.

Finally, before I pass it to Natalie, I want to reiterate our core values and our inspiration to fulfil our vision to protect and empower people to live their digital lives safely. We think customer first. We innovate and grow. We scrap it. We own it and we are open and authentic. These are the core values that push us to be better every single day to make the world cyber safe.

Quarter in, quarter out, we have been and continue to exercise financial discipline and reinforce our cadence of innovation. We have demonstrated our ability to grow this business, relentlessly building a strong financial track record with consistent and accelerated growth. We are far from being down, of course, and we're just getting started as we look to transform our company to redefine consumer Cyber Safety.

And with that, let me turn it over to Natalie.
.....................................................................................................................................................................................................................................................................
	4
1-877-FACTSET www.callstreet.com	Copyright © 2001-2021 FactSet CallStreet, LLC

NortonLifeLock, Inc. (NLOK)	Corrected Transcript
Q1 2022 Earnings Call	27-Jul-2021

Natalie M. Derse

Chief Financial Officer, NortonLifeLock, Inc.

Thank you, Vincent, and hello, everyone. For today's discussion, I will focus on non-GAAP financials starting with our Q1 results and then provide our outlook for Q2 and full year.

Fiscal year 2022 is off to a strong start. Our Q1 revenue was $691 million, up 13% year-over-year on an as reported basis, delivering above the high end of our guidance range. We grew bookings by 12% in the quarter. Our growth was driven by broad-based strength across all geos and products and included 2-point positive impact from [ph] net FX (10:40).

Our total direct customer count increased to over 23.1 million, adding 2.6 million customers year-over-year and adding 150,000 net new customers quarter-over-quarter. This was our seventh consecutive quarter of sequential net customer adds, a testament to our growing value proposition.

Our customer retention rate, a unit retention metric, remains stable at 85%. Our monthly average revenue per user, or ARPU, is up on a sequential basis to $8.84. Our growing customer base, combined with our strong retention rate and expanding ARPU, accelerated the revenue growth of our direct business to 11% year-over- year. We continue to add more in-demand products and features into the portfolio to assist our cross-sell and upsell efforts, keeping loyal customers engaged through their life cycle.

As we continue to grow our customer base, it is important to note that our first year ARPU and retention rate for newly acquired customers is generally lower than our total average. But our growing product portfolio and customer-centric mindset make us well-positioned to foster growth of these customers while expanding our reach to new audiences.

Our partner business is a key tenet of our go-to-market strategy and once again posted strong results in Q1, up 29% year-over-year, including Avira and with broad-based growth across our distribution channels.

Our employee benefits channel continues to post double-digit growth with an expanded pipeline. More small and mid-market employers are discovering that our identity theft protection solutions help mitigate the rapidly evolving Cyber Safety threats, including recent concerns related to unemployment and tax fraud. We're proud of the progress we've made so far and are excited about the upcoming expansion efforts in this channel.

We also drove double-digit retail growth in key European countries as we continue to adapt to the market conditions in each country and focus on building the strategic partnerships needed to achieve our long-term goals.

Turning to profitability, we remain focused on executing to achieve our long-term strategy and consistently drive sustainable growth with operational discipline. As I shared at our Investor Day, we continue to drive the core business at or above a 50% margin rate, with Q1 operating at 51%, up 410 basis points year-over-year.

In the quarter, we invested in performance marketing and product innovation. With our marketing investments, we operate with a disciplined approach in new customer acquisition, measuring and ensuring effectiveness along the way while adapting to consumer behavior shifts in the market and newer media offerings. We keep our eyes on the marketplace and continue to evolve our marketing spend mix to expand our reach in a relevant and efficient manner.

	5
1-877-FACTSET www.callstreet.com	Copyright © 2001-2021 FactSet CallStreet, LLC