Ladies and gentlemen, thank you for standing by and welcome to NortonLifeLock's Fourth Quarter Fiscal Year 2020 Earnings Call. [Operator Instructions] Please be advised that today’s conference in being recorded. [Operator Instructions] I would now like to hand the conference over to the Soohwan Kim, Head of Investor Relations. Please go ahead.

Thank you. I'm pleased to welcome you to our call to discuss our fourth quarter fiscal 2020 earnings results. We posted the earnings materials and slides to our Investor Relations events web page. Speakers on today's call are Vincent Pilette, NortonLifeLock's CEO; Samir Kapuria, President; and Matt Brown, Interim CFO. This call will be available for replay via webcast on our website. As a reminder, in connection with the sale of certain assets of our Enterprise Security business to Broadcom on November 4, 2019, we changed our corporate name from Symantec to NortonLifeLock. The results of our Enterprise Security business were classified as discontinued operations in our condensed consolidated statements of operations and thus, excluded from both continuing operations and segment results for all periods presented. Starting in the second quarter of fiscal 2020, we operate in one reportable segment. Revenues and associated cost of our ID Analytics solutions, which were formally included in the Enterprise Security segment, are now included in our remaining reportable segment. On January 31, 2020, we completed the sale of our ID Analytics solutions. I'd like to remind everyone that all references to financial metrics are non-GAAP unless otherwise stated. Please refer to the supplemental materials posted on the Investor Relations website for further definitions of our non-GAAP metrics. Please note, non-GAAP financial measures referenced during this call are reconciled to their comparable GAAP financial measures in the press release and supplemental materials posted on our website. We believe our presentation of non-GAAP financial measures, when taken together with the corresponding GAAP financial measures provide meaningful supplemental information regarding our operating performance for reasons discussed below. Our management team uses these non-GAAP financial measures in assessing our operating results as well as planning and forecasting future periods. We believe our non-GAAP financial measures also facilitate comparisons of our performance to prior periods and that investors benefit from understanding our non-GAAP financial measures. Non-GAAP financial measures are supplemental and should not be considered as a substitute for financial information presented in accordance with GAAP. Today's call contains forward-looking statements based on conditions we currently see. Those statements are based on current beliefs, assumptions and expectations, speak only as of the current date and as such, involve risks and uncertainties that may cause actual results to differ materially from our current expectations. In particular, our statements regarding the impact with the ongoing COVID-19 pandemic on our business and industry or our sale of our Enterprise Security assets to Broadcom and the anticipated benefits from such sale and cost reductions associated with this transaction are subject to a variety of risks. Please refer to the cautionary statement in our press release for more information. You will also find a detailed discussion about our risk factors in our filings with the SEC and in particular, in our annual report on Form 10-K for the fiscal year ended March 29, 2019, and recently filed quarterly reports on Form 10-Q. Let me now turn the call over to Vincent.

Thank you, Soohwan. Good afternoon and thank you for joining us today. I want to start this call by thanking all our employees, as I know many of you are listening, each of you as persevered in driving our mission and supporting our customers while working from home and adjusting to this new reality. Our mission is to protect people's online activities, which has never been more relevant than today. And on behalf of all our employees, I also want to thank our customers for the trust you have placed in our products and in us. Our business is built around prevention, detection and restoration of potential damages caused by hackers. Managing and handling crisis is part of our DNA and then entire NortonLifeLock team is rising to the occasion, adapting ourselves and our processes to help customers in need as well as communities by donating time and resources. There is no other company I would rather be part of as we navigate the challenges that the world is currently facing. We are pleased to report better than expected results in Q4, the second quarter of NortonLifeLock as a standalone company. Consumer revenue was up 1% year-over-year in constant currency supported by bookings growth of 4%. We generated $0.26 EPS up $0.10 from a year ago, driven by strong execution and the elimination of stranded costs. In addition to year-over-year bookings growth of mid-single digits, we increased net customer count by 46,000 sequentially. We grew average revenue per users. We delivered industry-leading retention, while maintaining our operating profit margin over 51% when you exclude the impact of stranded costs. This was our second sequential quarter of net customer growth, adding over 100,000 customers in the last six months. For the first time since 2014, we've had two consecutive quarters of…

Thank you, Vincent. We are living through a generational event. A moment in history that I would say is bringing the world closer together, despite the fact we have to stay physically apart. We have quickly evolved to a common focus of focusing on health and safety for our families, our friends and our communities. As cyber safety is at the forefront of this tidal wave of change, we're clearly seeing a rise in attackers taking advantage of the stay at home mode of life. We've seen new attacks focused on leveraging COVID-19 as a means to enable fraud and identity theft through tailored malware, phishing messages, online commerce scams and more. Hackers are preying on people's emotions, fear, panic, to get them to click impulsively on various malicious links. We are seeing fake offers for masks and vaccines. We're seeing phishing emails reportedly coming from organizations like World Health Organization and Centers for Disease Control. Hackers 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 personal identifiable information or downloading malware on their devices. Our mission is to keep customers aware as cyber safety has become more important than ever. As all households now spend more hours online, whether for school, work or in the community protecting the home and family in a simple way is even more of a need. That's why we’ve strengthened offering here. Norton Family brings the protection and security of our 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 of their day on technology, the time management capability enables…

Thanks, Samir. Let me review our Q4 results in a bit more detail. Q4 revenue was better than expected at $614 million and revenue excluding ID Analytics, which was sold on January 31, was $610 million, up 1% year-over-year in constant currency. Q4 reported billings excluding ID 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 consent, negative quarter of net customer ads, adding 46,000 customers in Q4, along with a steady customer retention rate at 85% for the year. Diluted EPS was $0.26, up 63% year-over-year and exceeded our guidance range driven by strong execution and better than expected stranded costs in our P&L As we stated in our prior quarter earnings calls, during this transition period our reported cost structure will be complex and burdened with stranded costs. However, this is becoming less so as we progress 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 in 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 costs 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 continue to service and reduce our TSAs and eliminate the positions that were linked to stranded activities. In Q4, ending headcount was down to approximately 3,700 employees and as Vincent mentioned, we finished substantially all remaining notifications at the end of April. Notified employees will remain…

Thanks, Matt. Let me not our provide our Q1 outlook and also discuss a long-term growth strategy for NortonLifeLock? March trends continued into April. Quarter-to-date, we generated slightly positive customer net adds and almost mid-single-digit booking growth overall. Direct to consumers booking grew high-single digits 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 partner sales. Maintaining this net positive trend, we expect revenue in the range of $590 million to $605 million or zero to 2% growth when normalizing for IDA and the extra week in Q1 fiscal year 2020. This revenue outlook is supported by bookings growth in the low-to-mid single digit range. We expect Q1 non-GAAP EPS to be in the range of $0.18 to $0.22 per share with a business operating at approximately 50% profit margin, when excluding the stranded cost. Our stranded activities, I expect it to be fully eliminated by August, although we will write-off additional assets in Q1 with the goal to be over 90% done by the end of June. In fiscal year 2020, we return to previous marketing investment levels, primary targeted that direct acquisition programs, and we will continue to invest in our distribution and product roadmap for long-term impact. While these initiatives take time to generate revenue, we are very encouraged to see three consecutive quarter of low-to-mid single digit bookings growth year-over-year. I also said that while we have a fantastic opportunity to define a simple and reliable path to cyber safety, it won't be a linear road by any means. Certainly, no one could have anticipated the work to going to a full lockdown only a month after we last gave guidance. Well, we will be cautious and agile in managing our business; our mission to protect and safely enable customer digital lives is more relevant. And with that Matt, Samir and I are now happy to take any question. Operator?

[Operator Instructions] Our first question is the line of Keith Weiss with Morgan Stanley. Keith, your line is open.

Hi, Keith.

Thank you, guys. How is it going? Thank you for taking the question and very nice quarter. Vincent, hoping you could drill down for us a little bit more into kind of what you think the impacts of COVID-19 were on your overall business? It sounds like it may have been a tailwind for the direct consumer side of the equation; just given more people working from home and that heightened threat environment, but that was slightly offset by the retail environment because obviously, people just can't go to the stores in the same way. Can you help us understand kind of the puts and takes 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 some time.

Yes. So let me first go back at the core, as we developed the cyber safety membership, Norton 360, we have underlying growth drivers, which is that more and more consumers are driving the operations, they live online and they want to do that in a safe environment. We have since we became NortonLifeLock in November, reinvested in marketing to make our products known, out there we had launched Norton 360 at the beginning of this fiscal year, as you know, and we pushed that rollout through. We were on a steady path if you want, turning a situation where we had a declining customer count into bringing more and more new customers; it was the path-through-the-quarter. We saw in the month of March, more demand and slow conversion or realization of that increased demand. We saw that through the month of April and obviously you can understand that all of the activities from working from home, not wanting to go into the shopping malls and all of those things have only increased the need for a better protection online. As you mentioned, that was offset partially by the fact that at physical stores, we couldn't go and buy a token or one of our products, but that was a mile offset. So we encouraged by the trends, it will be a long-term trends. We believe that will continue which is more people will work from home, will live their life online and, and we'll need our products.

Got it. And just one follow-up just to make sure I'm clear on the real estate. So it sounds like the real estate transactions that you guys were expecting had slowed down a little bit, but you still feel pretty good on getting them close. The fact that they don't impact our operating origin assumptions on a go-forward basis, is that because of the expectation that they still get closed or it’s just – it was a relatively minor part of OpEx and you still get to there's like 50% operating margin levels without selling the real estate?

So we have reduced our headcount to what our long-term model structure is for the consumer business about 2,500. And with that, we've vacated the buildings that are not needed anymore. We put them for sale and we them off our put them for sale and hold them off our P&L, put them on our balance sheet, teed up for sales. We’ve had multiple offers with each one of those buildings and then through the outbreak, as you imagine those discussions, slow down some drop, some try to do an accelerated [indiscernible] coming back into the offers around, if you want. And it will – our expectation is that it will take a bit more time. We have not revised our value down. We not press for cash as you know, and we have multiple options, including in the short-term, one of the buyer came back with a short-term lease while they were figuring out they need. So from that perspective, I don't see any impact in our operational business, and it's about time to cash in term of realizing this underutilized assets.

And our next question is line of Saket Kalia from Barclays Capital. Saket, your line is open.

Okay. Great. Thanks guys for taking my questions here.

Sure.

First, hey – first maybe for you Vincent, nice couple quarters and positive subscriber additions. And I guess as that renewal base kind of grows here in fiscal 2021, how are you thinking about the importance of sort of retention rate versus sort of top of funnel? I know we're not guiding to fiscal 2021, yet. And obviously you've invested a lot more in marketing to improve that top of funnel. Is there anything that you could sort of do on the retention rate as well as you look forward to year?

No, absolutely. So, at a very high level, if you take the three areas that drive growth, one is number one more customers. The second one is offering a great product that they want at a higher level of membership, and you know, we've all at Norton 360, we not have about 25% of our install base into Norton 360 and that increased engagement. And the third one is to increase retention. We have great operational teams driving each one of those three areas and driving for growers. As I shared a quarter ago and share with the 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 net promoter scores and the customer satisfaction and we were driving that. If you see our retention, it has improved in each one of the cohort by tenure. But you know that the first year of tenure is a lower retention and that increases, as they seem to our portfolio. And so the increase retention as they engage more and more than 360 is slightly offset because we’re returning to customer growth, overall though always all value for the business.

Got it. That makes sense. For my follow-up, maybe for you, Matt, can you just talk a little bit about the EPS guide here in Q1 and perhaps the pace of stranded cost removal? It sounds like a lot of the TSA expenses are sort of wrapping up; to Vincent's point we're down to sort of the headcount that we were planning on. So how do you think about that sequential downtick in EPS in Q1?

So, our stranded costs are coming to a close, but as they come to a close they will impact different areas of the P&L in different quarters, depending on the types of activities and how they end. And so, you know, as we've sort of been consistent in this message over the last couple of quarters, our reporting structure is complex. The stranded costs show up in different areas of the P&L depending 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 of the P&L. Having said that our core business, we expect to operate at that 50% operating margin that we've discussed and continue to discuss. And so you know, 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 guide of $0.18 to $0.22.

And our next question is from one of Fatima Boolani with UBS. Fatima, your line is open.

Good afternoon. Thank you for taking the questions. Maybe Matt 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 sense of consumer confidence in spending and in sort of weakening spending signals. So as we take those dynamics into consideration I'm wondering if you guys can talk to the renewal churn in up-sell trends that give you confidence that the level-of retention that you’re seating today is sustainable, and then I have a follow-up as well.

Yes, absolutely. So as you imagine at the beginning days of the COVID-19 outbreak, went back to a lot of scenarios. We also went back to what happened in 2008, look at the retention rate during that time. And actually there was pretty resilient and sustainable even then. Now every environment or every crisis is unique and this one brings something that is very different. It changes the way we operate our lives. It changed the way we work? It changes the way we interact? The way we shop? And I think there is a underlying acceleration of the need for more privacy, more security online that's why you see companies like Logitech selling more video conferencing systems and us with that selling more security products. And I think the trends of having more awareness of few lives moving online is a structural trend. Now it may be impacting in the short-term here and there by different economic headwind. But I think we're well positioned from that. And we have the perfect solution launching last year, the Norton 360 membership. We saw an acceleration of the adoption rate through the last two quarters, and we're very pleased by that.

That’s super helpful. And Samir, maybe for you, continue to appreciate your international rollout here. And so with more product available internationally and perhaps a lot of the offerings aren't as maybe comparatively comprehensive as some of your domestic offerings that include the LifeLock in the higher-end level of the LifeLock feature functionality, your ARPU is 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 ex-U.S. geographies that typically have a lower comparative feature base within the product? And that's it for me, thank you.

Thanks, Fatima. Yes. As we look at the international expansion, for the most part we're entering cohorts and markets where the needs have increased dramatically and so our security, our privacy and even the identity solutions that we have designed for certain international markets allow us to hit those markets with a premium offering, and that's allowed us to maintain our ARPU. I think to the comments that Vincent just shared, with a lot more at risk in today's environment, given the masses of people that now are doing the digital equivalent of what their physical lives were there is an appreciation for making sure that is also safe and secure. And we're seeing that trend continue both in our expansion in Europe and in Asia.

And next we have a question from the line of Gregg Moskowitz with Mizuho. Gregg, your line is open.

Okay. Yes. Thank you very much. Hi guys nice to chat with you. So it's good to hear that 25% of your install base is on Norton 360, although you do have a few different SKUs, some but not all of which include LifeLock. And so I was wondering if you were able to share the percentage of the Norton install base that has converted to LifeLock membership, as well as just how this conversion rate has been trending.

So you are right, we have at the high level about six level of membership and it start with what I would call basic securities and then add various level of functionalities, password managers and others. And then for the last three memberships it includes the identity, so that's Norton 360 with LifeLock and start basic and finish that premium. We've seen a good adoption of that Norton 360 across. When we sell today, the new customer acquired are in the vast majority on the Norton 360 platform, we're not going to share now between the different membership where the ratio is, but we've seen good adoption. And we expect that to continue over the next four quarters as we go through fiscal year 2021.

Okay. Thanks, Vincent. And then maybe a follow-up for Samir, I think you talked about Norton Family, and I think one can make a clear argument that the need for something like Norton Family in a household is stronger than ever before. I think, your six month free trial for that product has been in play for around six weeks now, what have you seen in terms of sign ups?

Yes, thanks for that question. We've seen a lot of uptake and adoption of that Family for free. I think it goes back to the volume of children that are now schooling, gaming and communicating on online, while there's a large cohort of parents that at the same time are working from home. And so with the adoption of that stay at home lifestyle, what we've seen is a much higher use of 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 crisis amidst us.

That’s great. Thank you.

And our next question is from 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 I hope everyone on the call is doing well. But my question for you is to what extent are you benefiting from lower advertising costs and how is the ROI been trending on marketing spend and how would that look on a more normalized basis? And perhaps even how to think about that equation shifting when marketing costs and CPCs trend back upward?

A very good question, as you mentioned early March we saw a drop in marketing rates. We were already trying to shift or doing shifting between long-form TV ads into more social and dynamic advertising. So we're in the process of improving the productivity of our recently increased marketing spent. I think we discussed in the last call that you first raise your marketing level and then you maintain that level for a consistent periods to improve over time. We've seen a low-double digit improvement in our CAC, Customer Acquisition Costs to the quarter. And we plan to leverage that, balance it between profitability and/or reinvestment as we see gross momentum mainly international.

Okay. Thank you.

And our next question is Walter Pritchard with Citi. Walter?

Thanks. I'm just wondering on the sub-addition 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 ads that go in there?

So as you know, right, for the last two quarter – three quarter, we increased our marketing spent, it really shifted for the last two quarter with over $100,000 new customer acquired. Our retention rates have been very stable around 85% and it’s really about increasing the productivity and the return from our marketing investment, so it's net new coming from direct consumer acquisition programs.

Got it. Then just a follow-up on the Family question that came up, that product is free right now, do you intend to make that product free forever? And is there a sort of a timing that we should think about we might start to see some paid conversion off of that free product?

Yes, Walter, the Family free is something that we've decided to contribute. We are not looking at it as a business as much as it is a contribution to the situation at hand. But, we do hope to deliver value and more awareness around the overarching cyber safety needs based on that and we'll see what happens in the future. Hopefully we get out of this current pandemic in a short amount of time and we can reevaluate that.

Great. Thank you.

Our next question is from the line of Phil Winslow with Wells Fargo. Phil, your line is open.

Hey, thanks guys for taking my question. Vincent, just going back to your comment on the cost of customer acquisition, have you seen any change in the efficacy of the marketing channels that you've been using and how are you thinking about allocation there?

Yes, I think we’ve mentioned it, right. So as we raised our marketing investment, two things we're doing. We’re doing more social and pay search or search paid that goes into more quick returns than the long-form TV. And then it's moving more of our marketing dollars internationally. In the past, and certainly in fiscal year 2019 the marketing investment were solid [indiscernible] U.S. and so we've expanded that internationally as we roll out our Norton 360 now more than 43 countries and as we can maintain this investment at certain level. We should see a continuous improvement of our CAC as we progress through fiscal year 2021.

Great, thanks guys.

And our next question is from the line of Matt Hedberg with RBC Capital Markets. Matt?

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 and it sounds like you're seeing strong subscriber trends in April or May. I'm just sort of curious how you're thinking about retention relative to your Q1 guide. I mean, have you seen any change in that in the very short-term, given the unemployment rates?

So we actually saw very solid trends of retention in the month of March and April. We are not forecasting, if you want dramatic change in retention, we've seen increased engagement from customers moving to Norton 360 platform and that increased the retention and then that has to be offset with bringing new customers and continuously growing our customer base with the first year retention being lower than the average we mentioned. And we have of course a program trying to improve the retention rate of the first year cohort. So as I mentioned, it's a balance between ARPU retention and new customer counts. And our number one objective is to grow customer count sustainably for the long-term.

Got it. Super helpful, thanks guys.

And our next question is line of Shaul Eyal with Oppenheimer. Shaul, 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've addressed it, I'm not certain, part of your membership, I think include your cloud backup products, which is I think now available strictly on the Windows operating system, did you indicate that it's now available on iOS and Android as well?

No, I don't think that one. The comment we made was regarding our time management capability within Norton Family that was originally Windows and in the interest of expanding that to help parents at home we've now added that to iOS and Android as well. So that's the comment we were 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 NortonLifeLock has a unique opportunity to build the best portfolio addressing the consumer's ever evolving needs for cyber safety. While the economic environment might be volatile and uncertain, our resilient business model and strong balance sheet give us the ability to continue to execute our business plan with minimal interruption. We are adapting as we go. We are tactically focused on delivering to our best potential every single day. We have a bias for action and a mission to make the world cyber safe. Thank you for joining us today.

Ladies and gentlemen, this does conclude today's conference call. We thank you greatly for your participation. You may now disconnect.