Good afternoon everyone, thank you for standing by. My name is Paul, and I will be your conference operator today. I would like to welcome everyone to the NortonLifeLock Fiscal 2021 Second Quarter Earnings Call. [Operator Instructions] At this time for opening remarks, I would like to pass the call over to Ms. Mary Lai, Head of Investor Relations. Ms., you may begin.

Thank you, Paul and good afternoon everyone. Welcome to the NortonLifeLock fiscal 2021 second quarter earnings call. Joining me today to review our Q2 results are Vincent Pilette, CEO; and Natalie Derse, CFO. As a reminder, there will be a replay of this call posted on the Investor Relations website along with our earnings slides, press release and supplemental materials to finding 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 expectations. Those statements are based on current beliefs, assumptions and expectations and speak only as of the current date. 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 3, 2020, and recently filed quarterly reports on Form 10-Q. And now I will turn the call over to our CEO, Vincent.

Thank you, Mary. Good afternoon everyone, I hope you are all safe and well. Before we begin, I want to thank our employees and our partners for the hard work and dedication to help protect consumers as more and more of our everyday lives move online. We know that cyber criminals are taking advantage of this shift and I'm proud of our team for continuing to design products and the release features that support our vision of cyber safety for everyone. And to our loyal 50 million customers, thank you for trusting us to secure a growing portion of your digital activities. In Q2, we delivered reported billings growth of 7%, revenue growth of 5%, and EPS growth of 100%, closing out a strong first half of fiscal year '21. Our revenue now exceeds $2.5 billion in annualized run rate and we are beginning to string together strong quarters where we meet our target of mid-single digit revenue growth, while at the same time delivering solid operating leverage. Let me unpack a little bit on the topline. Our direct-to-consumer business, which represents 90% of our business was up 5% in Q2 with broad-based growth across the entire portfolio. We now have over half of our installed base on Norton 360, and we will continue to release new products such as dark web monitoring, a privacy manager assistant either as add-on features or standalone product. Our goal is to constantly bring new value to our subscribers around the globe and keep them cyber safe across the growing digital activities. We also continue to invest and expand internationally with international growth, slightly ahead of the Americas. Direct acquisition grew double-digits in many countries such as the U.K., Italy and Spain, in Europe and Australia and Japan in EPG, just to name a…

Thank you, Vincent and hello everyone. For today's discussion, I will focus on non-GAAP financials starting with our Q2 results and then provide our outlook for Q3. Q2 performance was better than expected. We delivered growth year-over-year and quarter-over-quarter on many key metrics. Our Q2 revenue was $626 million, up 5% year-over-year excluding ID Analytics. Q2 reported billings was up 7% year-over-year, including a two point positive impact from FX in our ending contract liability balance. We continue to gain momentum in both our direct and partner business. This was our 5th consecutive quarter of mid-single-digit billings growth another step in building our consistent and sustainable track record as a standalone company. We increased our total direct customer count to $20.7 million adding 117,000 customers sequentially quarter-over-quarter and adding a 608,000 customers year-over-year. We saw customer expansion across our regions and key product categories within security and identity. Overall, our customer count growth is highly correlated with our go-to-market efforts including our increased marketing investment. Our priority is to invest for sustainable growth and we have seen record customer acquisition these past couple of quarters. We are still in the early innings of evaluating changes in our customer cohort dynamics, but we remain committed to our marketing investments, so long as we continue to see the opportunity for growth. We will not take our foot off the gas pedal. We will continue to invest in developing our product offering portfolio and drive awareness and demand efficiency through our marketing and sales channels. In our partner business, revenue grew 7% year-over-year, largely driven by the continued momentum in our employee benefits channel that Vincent alluded to earlier. We are also continued to make progress on some of our more recently announced partnerships. For example, TELUS is starting to roll out our…

[Operator Instructions] The first question is from Saket Kalia of Barclays. Your line is open.

Natalie maybe just to start with you, I think next quarter is going to be the first time that we start to see growing cohorts of subscribers up for renewals. And so the question is can you just talk about what you are expecting in terms of churn rates and perhaps ARPU impact even qualitatively, as we start to see that really for the first time?

Yes, thanks for the question. So as it pertains to annualizing into that increased marketing spend and the customer growth that we've seen now for a few quarters now, we’re seeing the early indicators look very positive, very consistent. When I look at and step back as to let's talk about five quarters ago when we made the decision to increase the level of marketing spend, up from that $200 million annualized level to about $300 million annualized level, we are now spending roughly about $75 million quarter. As we ramped up that spend we not only spent more reaches to reallocate to more efficient channels, more spend in digital, more spend deployed international we've had expansion in affiliates and along the way less and less in TV and radio. We saw a lot of growth in our customer acquisition units in bookings and exchange for the spend, which you would expect, but now that we're fully anniversaried into that spend level, now it's time to as you're saying really look at the customer cohorts and the behavior attributes and how they differ from what we historically have been used to on an ongoing basis. We obviously will spend a lot of time doing that. But what I would say here on the call today would be as we move forward, we will continue to fund and invest for growth with the expectation that we will expand even further internationally and have our dollars work even harder for us. We will focus on acquiring attracting new customers to our products and solutions that we have in those markets, and along the way, we definitely will have mile markers to assess the cohorts of the customers that we got, how much it costs to acquire those and how we can navigate those new customers through our experience in the funnel.

Vincent for my follow-up for you, with the McAfee being a public company now. Now I think we all see their performance in competing consumer business and the growth is indeed faster than what Unlock and of course Unlock has accelerated growth, but it is faster. And so I'm curious if you can just talk about what you think Unlock, can do to help bridge that gap on growth. Does that makes sense?

Yes, no it makes still a sense. I think there is one very positive news with McAfee making their numbers public in that everyone start to realize that protecting consumer as they move more and more of their lives into the digital world is actually a growing market. Up to now, I think there were still this conception that maybe we're coming from the new technology and a PC driven environment, I think the realization that we are very user-centric and that maybe so unique view that we have with LifeLock, but user centric. It is more and more of applications we can address and the market is a vast growing market. If you sum-up today in the industry, the consumers that pay for stand-alone cyber safety you get less than $100 million. Yet, we have 1 billion of people using the Internet to leave the digital lives and that's a growing market. So I think positioning this as a growing market was the right call, you've seen us changing the momentum as we are busy with the focus of transitioning out the Enterprise activities if you want. We’re now fully dedicated to that market invest for growth and we look forward to accelerate our growth in the long-term. Our goal is to - as I mentioned reach everyone.

[Operator Instructions] The next question is from Gregg Moskowitz with Mizuho. Your line is open.

So I guess a bit of a follow-up to Saket's question, but with an increasing work from home environment, the number of average devices per family offices has gone up, the online activity on these devices has gone up as you alluded to earlier, Vincent. And because of that, is there an opportunity for you to generate more growth for both Norton and LifeLock on a sustainable basis. How do you think about that?

No, absolutely, I think the opportunity again to address all of the challenges linked to the fact that our large move online, it's not just the number of devices, is not just the basic activities of shopping, it's not as I mentioned and as you recognize the whole set of education. It's about gaming, it's about socializing, all of those activities are moving on creating new opportunities for cyber criminals to take advantage of your data and your virtual assets. So that's a huge growing opportunity. We always had that as the investment thesis as you recall a year ago when we sold the enterprise business, which it is a huge opportunity to focus solely on the consumer aspect. We're building our capabilities, we're increasing the velocity of innovation, you've seen us launching new products at the more frequent rate, some are good learnings, although we doubled on investments, and we continue to tweak our portfolio to address those opportunities. I think in the long run, we feel really, really confident, we move from frankly a division that was focused on maximizing cash to now focusing on growth. We returned to mid-single digit growth. Let's build a sustainable machine if you want to then be able to really provide again - I'll repeat it cyber safety to everyone rights, billion of people connected to the Internet. On the 100 million people paying for standalone cyber safety.

And then just as a follow-up, the improvement in net new subscribers over these last few quarters really impressive, especially in the last couple. Do you have any very high level sense of how much of this improvement is perhaps attributable to COVID, as opposed to your expanding marketing program and your increased focus on execution?

Yes. And it's sort of combined. And I would also say the introduction of Norton 360 the first integrated platform making cyber safety as kind of one umbrella protection a reality. Look, if you step back a year ago, we said we're going to grow mid-single-digit, and is going to be a balanced approach, is going to come from new subscribers, improve retention and then the cross-sell and up-sell opportunities and you've seen a very balanced results if you want, turning positive new customer - more new customer coming then those leaving improved retention rate now on the unit basis reaching 85% and then ARPU that continue to be solid and growing. I think achieving that structurally mid-single-digit growth rate in our mind was always a balanced view. Last quarter, we definitely had a boost from COVID-19, but the underlying structural change in everybody's life moving more and more of activities online is a reality that fear too last, and as you know, cyber criminals adapt fast and we'll find new opportunities to steal your assets, steak your data, and I think people need to realize they need to be protected when they’re online.

Our next question comes from Fatima Boolani with UBS. Your line is open.

Just my first one for you Natalie, with respect to the guidance, I'm wondering if you can walk us through any seasonality considerations that we should be mindful of either headwinds or tailwinds that you're considering, and I have a quick follow-up on the ARPU metric?

Yes, thanks for the question. So from a seasonality perspective, I think if I look back historically, there are some ups and downs as it pertains to a little bit in as we head into the holiday season, especially with the electronics gifting and then folks wanting to make sure that they're protected. Of course, from an annual tax perspective, we usually see a bump when the income tax are due but honestly as we look back and some of the breaches that we've had and now with COVID largely speaking, the seasonality has been kind of muted out in combination with the fact of with the ratable business model that we've got for a revenue guide perspective, I would say it's very muted from a seasonality perspective.

And just on the ARPU side, I just - excuse me, wanted to parse through the strength there. I continue to be impressed with the sequential in year-over-year growth in spite of the fact that you've introduced some lower ASP products into the mix to Ignite subscriber growth. So I'm wondering if you can kind of parse through SG what's really creating that upward tension on ARPU again in spite of the introduction of some of the lower ASP feature functionality that you've rolled into the NortonLifeLock family and that's it from me. Thank you.

Yes. And I’ll take that one and as I also mentioned to you guys the first year price is a promotional price and the second year renewal price get to the full value. And so normally when you grow your customer count you definitely also have headwind on that first year ARPU. Despite that growth, we're able to maintain very good ARPU overall and that's a testimony of the team, we've seen a broad-based growth this quarter across the more security angle of our membership, but also across identity, which as is coming at a strong ARPU. We've been very disciplined on almost every metric, driving solid retention, not marketing with promotion, we’re marketing with the message and the value we deliver to consumers and so and so that's the result you've seen very solid retention and ARPU despite the fact that we're growing overall. Now with that said, I do want to say that the focus for us is really to build innovative product. We are not looking at a single price for the product in relationship to the ARPU. We looked at how much value we can add to the customers basket to build that overall cyber safety umbrella.

[Operator Instructions] Our next question is from Walter Pritchard with Citi. Your line is open.

Question for you on international and you mentioned 30% here. And it seems like most of your initial efforts in driving the marketing the subscribers have been domestically. Can you talk about how you think about the sort of efficiencies you can get around additional marketing spend, or allocating spend internationally and where you are in terms of deploying that and having that try to start to help drive some momentum on the subscribers?

I'll pass it to Natalie on marketing, but I do want to say that we also rolling Norton 360 the first integrated platform across all countries. We've launched dark web monitoring in Japan and in Australia. We definitely very active as we feel we are under-penetrated in those markets. Yet the need for cyber safety our global needs and so definitely international is a huge opportunity. Natalie?

It is a huge opportunity and I would extend what Vincent said into the marketing. We just started in over the last few quarters to really deploy more of our marketing funds on an international basis, and even when you look at our business with 70/30 U.S. international split, it is just right for opportunity and then when you think about the under-penetrated space that we can enter into and from a marketing perspective as you diversify into those new markets and introduce your product and solution offering that value proposition to those new customers. We feel really, really bullish about what we can do by deploying our marketing there. Incrementality very, very clear. When we look at it from a marketing perspective and a payback perspective, the incrementality is just - is definitely a very strong indicator for us to continue to invest there.

And then just a follow-up on that question on international, what's the update on LifeLock and being able to deploy that type of a service internationally. And do you expect as you do drive international subscribers and have seen a lower ARPU just given you don't have that offering in many of your markets?

Yes, maybe, but again, I'll start with the last part of your question, which is retention in ARPU outputs metrics as you know. We are focusing on the input. How do we bring that cyber protection to consumers, which should be incremental value, whether it's a lower per unit or not it's incremental value. So that's our focus. When you look at the overall umbrella today of cyber safety, it includes the basic securities. But it also includes you privacy angle. It includes you identity protection, and restoration, it include how you connect with your family and protect that family. So we are around 4 pillars, and we're looking at almost at all 3 levers. How do we add value across the pillars we have. How do we look at different business model to go and deliver two doors consumers, and how do we make sure that we reach and retain locally while do we have a global business model and really important to drive our message on the local level. And so I think that's the angle we view. We view this incremental growth opportunity international as an overall way to reach every consumer to provide the cyber safety.

At this time, there are no more questions. I will turn the call back to Vincent Pilette, CEO for closing remarks.

Thank you, Paul. We are now one year into the journey as NortonLifeLock, and I can't tell you how excited our team is about the future. We sit in the middle of an ongoing and accelerating digital transformation of our daily lines. And as a team, as a company, we believe we are perfectly positioned to not only make all those every day online activity safer, but to also deliver control a few data, your identity, and your assets back to you as a consumer. Relentlessly we will pursue that mission. So, thanks for joining our call today. Thank you for your support and we look forward to connecting very soon.

This concludes the conference call. Thank you for joining.