Good afternoon, everyone. Thank you for standing by. My name is Jeff and I’ll be your conference operator today. I would like to welcome everyone to the NortonLifeLock Fiscal 2022 Fourth Quarter Earnings Call. Today’s call is being recorded. [Operator Instructions] At this time, for opening remarks, I would like to pass the call over to Ms. Mary Lai, Head of Investor Relations. Miss, you may begin.

Thank you, Jeff and good afternoon everyone. Welcome to the NortonLifeLock fiscal 2022 fourth quarter earnings call. Joining me today to review our Q4 and full year 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 slides and press release. 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 recon of non-GAAP to GAAP measures is included in our press release, also 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 maybe considered forward-looking statements and such statements involve risks and uncertainties that may cause actual results to differ materially from our current expectations. Those 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, 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?

Thank you, Mary and welcome everyone. Before I start, I want to acknowledge the current geopolitical uncertainties the world is facing. Our hearts and support go out to those impacted, including friends, families and customers and of course, we hope for a quick and peaceful resolution. As we come together for this call, I also want to take a moment to thank each and every NortonLifeLock employee for doing their part to deliver the success we have had today. NortonLifeLock’s third year of growth is the result of an ambitious team working to build a great business together. Cyber safety is more needed than ever. Our vision and strategy are clear and our culture of authenticity and action that we are building upon everyday gets me very excited about our future. Q4 is our tenth straight quarter of top line growth, with revenue and bookings of 8% and 6% respectively in constant currency. The quarter’s performance was particularly important as it lapped a strong COVID-led double-digit growth quarter a year ago and the anniversary of our Avira acquisition. Although slightly more pronounced in identity and privacy, our growth in Q4 was once again broad-based across products and regions as our customer needs are truly global. Our customer base is now 50% international as we continue to focus on developing our product offering to be available in over 150 countries. To reach new customers, we have continued our strategic investments in both direct and indirect channels. Total direct customers are now over $23.5 million, with nearly 600,000 net new customers added year-over-year and over 120,000 customers added sequentially. Our indirect or partner business delivered double-digit revenue growth for the sixth straight quarter, up 20% in Q4 and we added almost 100,000 customers sequentially in the employee benefits and mobile channels alone.…

Thank you, Vincent, and hello, everyone. For today’s discussion, I will focus on non-GAAP financials, starting with our full year fiscal 2022 results, followed by our Q4 performance details and then provide our outlook for Q1 fiscal year 2023. Fiscal year 2022 was a strong year for our business. We met our growth expectations through consistent execution of our plans and in turn, completed a successful first year towards our long-term objectives. We finished fiscal 2022 with over $2.8 billion in revenue, growth of 10.4% in constant currency, slightly above our guidance. Our bookings further grew 8% in constant currency, our second consecutive year of high single-digit growth after years of flat to low single-digit growth. We achieved an annual operating margin of 52.7%, up 300 basis points year-over-year. On the bottom line, we delivered $1.75 in EPS over 20% growth year-over-year and at the high end of our original guidance of $1.65 to $1.75. We have scaled to over 23.5 million direct customers while maintaining our industry-leading customer retention of 85% and monthly ARPU of $8.90. As we prepare for the merger with Avast, we ended the year with approximately $1 billion in free cash flow, up 38% year-over-year.

Q4 bookings grew 6% in constant currency on top of a record 13% constant currency bookings growth in Q4 last year. This was our tenth consecutive quarter of sequential net new customer adds. We added 576,000 net new customers year-over-year and 123,000 quarter-over-quarter. Q4 growth was broad-based with a higher mix in identity as expected, given the timing of the U.S. tax filings. Looking at our performance in Q4 across other key operating metrics, overall customer unit retention was slightly above 85%, and our monthly average revenue per user, or ARPU, expanded sequentially again to $8.90. Retention is a major focus for us and remains strong, including newer cohorts that have renewed since last year. We drove retention improvement this year even as our customer base mix shifts more towards first year and newer customers. As a result, our direct business grew 4% in Q4 and 8% for the year. Our partner business continued its strong growth momentum in Q4, up 20% year-over-year and marking the sixth consecutive quarter of double-digit growth. Our international business continued to climb as we gain more traction in broadening the distribution and adoption of our identity offerings. Our indirect business now represents nearly 13% of our total business compared to 2 years ago when it was 10% of our business. While our indirect business has a longer sales cycle and takes time to scale, we continue to dedicate more resources in this area as we focus on broadening our go-to-market reach, diversifying our customer acquisition channels, and driving this as a key tenet of our long-term growth strategy. Turning to profitability. Q4 gross margin sustained at 87% and our operating margin for the quarter was up 54% – 54.5%, up 400 basis points year-over-year, driven by both our revenue growth and our cost discipline.…

[Operator Instructions] First question from the line of Hamza Fodderwala of Morgan Stanley. Your line is now open.

Alright. Good evening. Thank you for taking my question. So now, I just had a clarifying question for you first. I think you said FY ‘23 bookings growth would be in the mid-single-digit range. Did I hear that right?

Yes.

And I think from what I can tell on an organic basis, that generally tends to trend in line with revenue growth, like on a trailing 12-month basis. So I’m curious if there is any disconnect in that relationship at all.

There is a disconnect, I would say, yes. And just in concept, yes, bookings 1 year will indicate where our revenue is trending the prior – the next year with the exception, of course, of any of our revenue streams that don’t get count in bookings. So yes, you are on the right track there.

Got it. Got it.

But in short, Hamza, we do not know anything special outside of Natalie’s mentioned the late 12 months, there is no anything special that we know about. And so yes, bookings and revenue should trend.

Okay. And then just on the macro, I think you alluded to some macro and some currency headwinds, in particular, but the underlying demand environment still remains strong. I am just curious, incrementally if you guys are seeing anything around just in terms of looking at online traffic, in terms of looking at customer interest, if there has been any indication of a more material slowdown, obviously, the macro situation is less certain. So, I am just curious if you are seeing that at all in some of your leading indicators of demand.

Yes. And we are not immune to the macro level headwind, right. We are definitely aware of inflationary pressures. You have seen the PC shipment decline here in first calendar quarter. We definitely see marketing expense rates increasing, which is also a sign of tighter environment and everybody pushing. And so we navigate through that as we mentioned. We are not immune to that, but we do have a lot of different levers as we look at our business to drive growth. On one side, it’s all about educating consumers on our comprehensive cyber safety portfolio as we expand identity and privacy outside of the U.S. It’s something we believe we have a big opportunity. As we continue to drive initiatives on retention increasing, first year retention has been a priority for 12 months, and we have made progress in that, and we will continue to make progress. And then the third one is really about the ARPU as we expand the higher offering, especially in international. We mentioned about half of our customers are located outside of the U.S., where the ARPU is about half of that of the U.S. on average, whatever we see is on the same per country and per offering. But we do feel we have a big opportunity on all three levers to navigate through the macro level headwind. Definitely, Q1 calendar had a lot of uncertainties and volatilities as, of course, you have seen and as reported by many other companies.

Got it. Makes a ton of sense. Maybe if I could sneak in one last one. Just around the launch of the identity protection solution in UK and Germany, I am curious what the reception of that has been from customers? And how would you assess the maturity level of those markets as it relates to those products relative to the U.S. today?

Yes, definitely. So, digital identity for me is kind of the next element of your digital life, you want to protect, right. If you do all started about protecting new device then over time, you evolve and wanted to protect new devices, then all of your data and transactions moving to the cloud and now suddenly, the sum of your actions became like a digital identity. Every digital user, if you want has multiple identities, even a lot more on average if somebody has five to seven devices and identities, digital identities is 10 to 50 digital identities. And so protecting those may mean different things per country in the U.S., very social security numbers centric, very credit-centric, other countries, different elements. And then each countries internationally continue to mature more into this digital world. You may know the European Union is launching now the second version of a digital wallet. And all of that creates opportunity for hackers, unfortunately, and then for us to provide protection. I think it takes time to build momentum internationally. Over a year ago, we launched LifeLock in Canada in partnership with TELUS. And here in this last quarter, we have seen momentum picking up. We know it’s a multiyear effort. Similarly in Japan, we launched in a different way, different format than Canada, and we have got great traction there being the leader in this space. Just this quarter, we launched in the UK, we know that’s the market that’s more mature to adopt a similar angled service-oriented like in the U.S., then Germany, other countries are still maturing. And I think we are here for the long-term, and we know it is a long-term initiatives to build the total comprehensive digital protection for consumers outside of the U.S.

Thank you. I will leave the floor.

[Operator Instructions] Our next question is from the line of Saket Kalia of Barclays. Your line is open.

Okay. Great. Hey guys. Thanks for taking my questions here. Hey Vincent. Hey Natalie. Natalie, I just want to clarify something from just the last line of questioning. So, I think that – I think we talked about sort of mid-single digit bookings growth implied in the Q1 guide and maybe just the disconnect with revenue growth. My understanding was that the disconnect was FX. Is that the wrong way to look at it, or did I just maybe misunderstand – just any thoughts on that? Just is it FX that’s primarily the difference between bookings growth and revenue and the as-reported sort of revenue guide?

Yes. I mean the difference between bookings and revenue is bookings is what we recognize in period and then revenue is, of course, as we rolled off the balance sheet, we have got not only the in period combined with partner and then we have got the deferred revenue balance rolling off the balance sheet. The FX comes into play as the deferred balance rolls off. And so we need – we obviously need to deal with that is the FX impact as it rolls off the balance sheet. But I don’t see – we talked about in the range of mid-single digits for bookings. Just to reiterate for Q1 guide just a constant currency of 5% to 7%. I am not sure what disconnect we are talking about.

Understood.

Second, Vincent, just to add on that, a mid-single-digit booking growth rate is somewhat in line. You can assume that full year revenue. Unless you have significant shift in trends in bookings, then that would take 12 months to catch up. And then you have, as Natalie mentioned, the currency that get always reevaluated the deferred revenue balance get reevaluate at today’s spot rate, and so that can create a slight disconnect as well.

Okay. Understood. Sorry, just wanted to make sure I understood because it was just – I totally get it. Maybe just on to some more fun stuff. Natalie, for you – or actually, maybe Vincent for you, can you just talk about the economics of subscribers that come through the employee benefit plans. I mean clearly, those are lower ARPU, but I mean we are talking about sort of higher customer acquisition costs. Anything that you can just talk about on the direct side that is, anything you could just comment on the margin impact or the renewal economics of just subscribers that come through those employee benefit plans?

Yes. So first of all, coming back on your currency, no need to apologize. Currency – outside of currency would be ahead of our plan. Currency is the major headwind we have faced and we are trying to navigate through it. We know it’s temporary, and we manage through the implication. That was also we report our numbers in constant currency, so investors can really assess the true operational momentum we have. And we have also isolated the impact of that currency on EPS. At the end of the day, it is what it is, but it’s important for investors to have full transparency on that, so no issue here. When it comes to EB now, their employee benefits and a very exciting channel, the reason it’s exciting, it’s majorly the large lock offering. So, it’s in the identity space. And many of the accounts we sign up are being sponsored by the employer. Sometimes the employees have been asked to pay a portion of it. Sometimes it’s fully subsidized. And it’s a big important channel in which we can continue to grow up the offering. The ARPU is slightly in line to our overall portfolio ARPU. And in identity, I would say it’s a channel that’s about 20% lower in terms of the channel cost, if you want, or lower ARPU in that identity. But the cost structure, as you know, for us is more a step function cost structure. It’s not a variable cost structure. And so the direct contribution of any incremental customers that would benefit from our LifeLock offering in the EB channel is at a great drop through. So, economically we feel really good about that channel that we continue to invest in.

Got it. That’s helpful. Now maybe just last one for you, if I could squeeze in. You mentioned just the share buyback authorization that we haven’t been able to use for a while. Can you just walk through the mechanics of is there a maximum that you are allowed to buyback just kind of given the – given malware in waiting mode for Avast, any sort of mechanics that you can lay out on kind of how the buyback could work potentially between now and potential deal close?

Yes. Thanks Saket. Share buyback, as we said on the call, and as you guys know, we haven’t been able to do any in fiscal year 2022. So, we are looking forward to in 2023 to be able to use that. We have talked about it as a key tenet of our capital allocation strategy, but we have just been restricted. So, we are really looking at as we go forward, really trying to figure out is there any opportunity in order to get back in and do opportunistic share buyback. It’s really – it’s very, very specific in terms of not only when we can do it. We have got to obviously work across the aisle with Avast and the UK takeover panel. So, the mechanics are very, very specific and there is very, very limited opportunity for us to do it. We are – we have worked with them and gained some very limited ability to do it as we look forward into 2023, but we still have to work out the mechanics on the execution.

Got it. That’s very helpful. Thanks guys.

Thank you.

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

Thank you, Jeff. As I reflect on our transformation plan from a year ago, I am incredibly proud of our strong results and the team’s execution. Certainly, there are some ups and downs and growing pains, but we are intensely focused on consistent execution, investing and driving for growth to scale business on a global level. I am incredibly optimistic about our future. So, thanks for joining. Thanks for your continued support of NortonLifeLock and we look forward to connecting with you very soon. Stay safe and stay well.

And this concludes today’s conference call. Thank you everyone.