NortonLifeLock : Q1 FY23 Transcript

Formatted Report

04-Aug-2022

NortonLifeLock, Inc. (NLOK)

Q1 2023 Earnings Call

	Total Pages: 15
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NortonLifeLock, Inc. (NLOK)	Formatted Report
Q1 2023 Earnings Call	04-Aug-2022

CORPORATE PARTICIPANTS

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

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OTHER PARTICIPANTS

Saket Kalia	Fiona G. Hynes
Barclays Capital, Inc.	Morgan Stanley & Co. LLC

Simran Biswal

RBC Capital Markets LLC

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MANAGEMENT DISCUSSION SECTION

Mary Lai

Vice President-Investor Relations

GAAP AND NON-GAAPFINANCIAL MEASURES...........................................................................................................................

• I'd like to remind everyone that during this call, all references to the financial metrics are non-GAAP and all growth rates are y-over-y, 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

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Vincent Pilette

Chief Executive Officer & Director

Q1 HIGHLIGHTS....................................................................................................................................................................................................................

Acquisition of Avast, Digital Life Protection and Empowerment

• After a very lengthy process in the UK, we are pleased to have received provisional approval from the Competition and Markets Authority for the acquisition of Avast
• Our hard work has paid off and we are excited to start the process of bringing the two companies together, with a great purpose and mission of bringing digital life protection and empowerment to everyone
• As I have shared before, our two companies share a similar vision and both have common values and complementary strengths

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NortonLifeLock, Inc. (NLOK)	Formatted Report
Q1 2023 Earnings Call	04-Aug-2022

1. As soon as we can bring us together, we will get started on delivering all the benefits of our new company to consumers, shareholders and other stakeholders

PREMIUM PRODUCTS AND REVENUES

• Together, we will serve about 500mm users globally, sell premium products to consumers for more than $3.5B in revenue, and have around 4,000 employees dedicated to the mission of protecting and empowering people to live their digital life safely

Complementary Product Portfolio and Culture of Innovation

• Avast's strength in privacy and NortonLifeLock's strength in identity, supported by our combined AI capabilities, creates a broad and complementary product portfolio beyond core security and towards adjacent trust-based solutions
• On top of that, the merger will broaden our geographic diversification, increase our presence in multiple channels, and also serve very small businesses
• We will have the opportunity to empower millions of consumers around the world with our complementary product portfolio and culture of innovation
• And while the world is in a different place than when we started this journey over a year ago, one thing is for sure, people want to continue to enjoy the advantages of a digital world without compromising their security, privacy and identity
• And our sole mission is to bring that and more to everyone

FCF, Revenues and Gross Cost Synergies

• Our combined financial profile is substantially enhanced through increased scale, long-term growth potential, synergies, strong FCF generation, supported by a resilient balance sheet
• As I mentioned, based on our last reported financials for both companies, we will scale our combined revenue to over $3.5B.
• And the combinations will unlock significant value creation to approximately $280mm of annual gross cost synergies and will give us the capacity to reinvest for innovation, partnerships and marketing to further accelerate our transformation

Operating Leverage and EPS

• We will have created operating leverage of approximately 52% in blended operating margin, that is pre- synergies, delivering approximately $1.5B of annual FCF, also pre-synergies
• The combination is another value creation enabler as we march towards our long-term objective of $3 in EPS.

Integration Planning Activities

• We look forward to re-engaging with Avast and restarting the integration planning activities
• Once the transaction is closed, we will be able to share more details on the combined business and its financial model
• So in terms of what's next, we will continue to work closely as quickly as possible after the CMA publishes its final approval, which is currently expected to be in early September, subject to change
  o Based on what we know today, we anticipate the closing date of the merger is expected to be between mid-September and sometimes in early October

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NortonLifeLock, Inc. (NLOK)	Formatted Report
Q1 2023 Earnings Call	04-Aug-2022
Bookings Growth and Currency

• So, with that, let me say a few words on our Q1 results
• While we observed the weaker consumer sentiment and inflationary pressure impacting the consumer discretionary spend, we are proud to deliver our 12th consecutive quarter of bookings growth, with Q1 bookings up 5% in constant currency and revenue up 6%
• The quarter's performance tracked in line with our mid-single digit bookings growth projection for FY2023, which I view as a demonstration of the stability that our business operating leverage provide in a challenging environment

Direct Revenues and Customer Count

• Our direct revenue grew 5% in constant currency on top of another strong COVID-leddouble-digit growth quarter a year ago
• In this new environment, our focus has been on balanced performance across a set of very healthy customer metrics
• Total customer count was stable at over 23.3mm, up 200,000 y-over-y, but down 200,000 sequentially

• 1. Throughout the quarter, we saw the impact of the macro-level headwinds in our direct-to- consumer website global traffic, slightly offset by solid conversion rates
• While these headwinds have limited our ability to grow customer count this quarter at the pace we aspire to, it's important to highlight that our overall customer base is healthy, with stable retention rates, stable
  ARPU and opportunity to continue to drive cross-sell, upsell, as we launch new products

Retention Rate and consumer Cyber Safety

• Our retention rate remained very strong at slightly over 85% in unit
• Customer cohorts who joined during the so-called COVID period have retention rates at par with prior years and through our operation initiatives, we continue to make progress in first-year renewal rates
• Our efforts have led to happier customers, supported by-products that are easier to download and easier to use
  o Since we became a dedicated consumer Cyber Safety company, we have grown our direct customer base by proximately 3mm to reach over 23mm customers and at the same time, improved our retention rate by almost 1 point during the period

Partner Business

REVENUES AND BOOKINGS GROWTH

• Another set of activities we are focused on is delivering more value to more customers in our partner business
• In this set of indirect channels, we delivered double-digit revenue growth for the seventh straight quarter, up 16% in constant currency, in this Q1 FY2023
• We had very healthy bookings in Q1, including double-digit bookings growth in both mobile and employee benefit channels, channels in which we added approximately 200,000 customers y-over-y and stayed flat sequentially
• As we continue to build a more global and more diversified go-to-market model, we look forward to combining with Avast, which will allow us to accelerate our strategy of expanding identity and privacy solutions across the globe

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NortonLifeLock, Inc. (NLOK)	Formatted Report
Q1 2023 Earnings Call	04-Aug-2022
PRODUCT PORTFOLIO

• A year ago, we stated that we would transform our company by building a richer product portfolio and we have continued to work towards that
  o We are off to a good start in FY Q1 on the product side

Norton Identity Advisor Plus

• In Q1, we have made good inroads from our recent launch of the Norton Identity Advisor Plus for the UK market and we've expanded the product's availability to Australia, New Zealand and Germany
  o This is yet another example of our international expansion efforts bolstering our identity capabilities

NORTON 360 WITH LIFELOCK PRODUCT, ASSESS AND PRIORITIZE

• We also continue to earn positive product reviews from important technology reviewers
• Just last month, we were awarded PC Magazine number one identity theft protection software for 2022
• Specifically, this was Norton 360 with LifeLock product, awarded to provide the best overall identity protection in the industry
  o This is just one of the many times we have been recognized for our overall product innovation and development efforts
• We continuously assess and prioritize our product roadmap and we know we still have big opportunity to expand our product portfolio, especially in areas beyond core security
• But above all, what guides us is our focus on providing quality and value in our products
• It is about a seamless end-to-end customer experience and comprehensive protection while making it simple for consumers to engage with us and stay safe

Cyber Safety

• Cyber safety will continue to be an evolving and growing market, fueled by the increase in activities online which brings more risk and challenges to consumers' digital lives
• With the merger with Avast, together we are well-positioned to drive the transformation of Consumer Cyber Safety and pursue our long-term objective while being financially resilient in any environment that

comes ahead of us

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Natalie M. Derse

Chief Financial Officer

FINANCIAL HIGHLIGHTS .........................................................................................................................................................................................

GAAP and Non-GAAP Financial Measures

• For today's discussion, I will start with Avast updates followed by our Q1 performance details and our outlook for Q2 FY2023
• I will focus on non-GAAP financials and y-over-y growth rates unless otherwise stated

Merger with Avast and Pre-Integration Blending

• I'd like to echo Vincent's excitement about the merger with Avast

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