Company reports 12th consecutive quarter of
bookings growth in Q1 Fiscal Year 2023
TEMPE,
Ariz., Aug. 4, 2022 /PRNewswire/ --
NortonLifeLock Inc. (NASDAQ: NLOK), a global leader in consumer
Cyber Safety, received provisional approval from the U.K.
Competition and Markets Authority ("CMA") for its acquisition of
Avast plc. NortonLifeLock also released its results for the fiscal
year 2023 first quarter, which ended July 1,
2022.
"We are excited to start the process of bringing our two
companies together now that the CMA has approved our merger with
Avast," said Vincent Pilette, CEO of
NortonLifeLock. "With this key milestone behind us, we are looking
forward to driving innovation and taking Cyber Safety to the next
level."
The merger is anticipated to close between mid-September to
early-October. The timing is subject to change and is dependent
upon the final CMA approval, mutually agreed upon operational
considerations and customary closing requirements such as the U.K.
court approval of the scheme.
Q1 Financial Highlights and Commentary YoY
Q1 GAAP revenue was $707 million,
up 3% in USD. Q1 GAAP diluted EPS from continuing operations was
$0.33, up 6%. Q1 operating cash flow
was $215 million, down 17%.
Q1 Non-GAAP YoY
- Revenue of $708 million, up 2% in
USD and 6% in CC
- Diluted EPS of $0.45, up 7%
- Bookings of $663 million, up 1%
in USD and 5% in CC
- Operating margin was 53.7%, up 250 bps
- Direct customer count of 23.3 million, up 0.2 million
"Q1 was another quarter of solid execution by our team, and in
the face of macroeconomic headwinds, we delivered our
12th consecutive quarter of bookings growth," said
Natalie Derse, CFO of
NortonLifeLock. "Now with the Avast acquisition provisionally
approved, we look forward to bringing our operational discipline to
the integration planning and quickly setting the foundation of the
company for growth."
Fiscal 2023 Q2 Guidance
- Non-GAAP Revenue expected to be in the range of $695 million to $705
million, translating to mid-single-digit growth YoY in
constant currency, including 4+ points or approximately
$30 million of FX headwind
- Non-GAAP EPS expected to be in the range of $0.44 to $0.46,
including $0.03 FX headwind YoY
Quarterly Cash Dividend
NortonLifeLock's Board of Directors has declared a quarterly
cash dividend of $0.125 per common
share to be paid on September 14,
2022, to all shareholders of record as of the close of
business on August 22,
2022.
Q1 Earnings Conference Call
August 4, 2022
2 p.m. PT / 5
p.m. ET
Webcast & Dial-In: Investor.NortonLifeLock.com
(replay will be posted after the call).
For additional details regarding NortonLifeLock's results and
outlook, please see the Financials section of the Investor
Relations website at Investor.NortonLifeLock.com.
About NortonLifeLock Inc.
NortonLifeLock Inc. (NASDAQ: NLOK) is a global leader in
consumer Cyber Safety, protecting and empowering people to live
their digital lives safely. We are the consumer's trusted ally in
an increasingly complex and connected world. Learn more about how
we're transforming Cyber Safety at www.NortonLifeLock.com.
Forward-Looking Statements
This press release contains statements which may be considered
forward-looking within the meaning of the U.S. federal securities
laws. In some cases, you can identify these forward-looking
statements by the use of terms such as "expect," "will,"
"continue," or similar expressions, and variations or negatives of
these words, but the absence of these words does not mean that a
statement is not forward-looking. All statements other than
statements of historical fact are statements that could be deemed
forward-looking statements, including, but not limited to: the
statements under "Fiscal 2023 Q2 Guidance," including expectations
relating to Q2 FY23 non-GAAP revenue and non-GAAP EPS; expectation
as to satisfaction or waiver of any regulatory conditions and any
risks associated therewith; and any statements of assumptions
underlying any of the foregoing. These statements are subject to
known and unknown risks, uncertainties and other factors that may
cause our actual results, levels of activity, performance or
achievements to differ materially from results expressed or implied
in this press release. Such risk factors include, but are not
limited to, those related to: the current and future impact of the
COVID-19 pandemic on the Company's business and industry;
retention of executive leadership team members; difficulties in
improving sales and product development during leadership
transitions; difficulties in executing the operating model for the
consumer cyber safety business; lower than anticipated returns from
the Company's investments in direct customer acquisition; the
impact of acquisitions and our ability to achieve expected
synergies or attendant cost savings; difficulties and delays in
reducing run rate expenses and monetizing underutilized assets;
general business and economic conditions; matters arising out of
our completed Audit Committee investigation and the ongoing U.S.
Securities and Exchange Commission investigation; fluctuations and
volatility in NortonLifeLock's stock price; the ability of
NortonLifeLock to successfully execute strategic plans; the ability
to maintain customer and partner relationships; the ability of
NortonLifeLock to achieve its cost and operating efficiency goals;
the anticipated growth of certain market segments; NortonLifeLock's
sales and business strategy; fluctuations in tax rates and foreign
currency exchange rates; the potential for corporate tax increases
under the Biden Administration; the timing and market acceptance of
new product releases and upgrades; and the successful development
of new products and the degree to which these products gain market
acceptance. Additional information concerning these and other risk
factors is contained in the Risk Factors sections of
NortonLifeLock's most recent reports on Form 10-K and Form 10-Q.
NortonLifeLock assumes no obligation, and does not intend, to
update these forward-looking statements as a result of future
events or developments.
Use of Non-GAAP Financial Information
We use non-GAAP measures of operating margin, net income and
earnings per share, which are adjusted from results based on GAAP
and exclude certain expenses, gains and losses. We also provide the
non-GAAP metrics of revenues, constant currency revenues, and free
cash flow, which is defined as cash flows from operating
activities, less purchases of property and equipment. These
non-GAAP financial measures are provided to enhance the user's
understanding of our past financial performance and our prospects
for the future. Our management team uses these non-GAAP financial
measures in assessing NortonLifeLock's performance, as well as in
planning and forecasting future periods. These non-GAAP financial
measures are not computed according to GAAP and the methods we use
to compute them may differ from the methods used by other
companies. Non-GAAP financial measures are supplemental, should not
be considered a substitute for financial information presented in
accordance with GAAP and should be read only in conjunction with
our condensed consolidated financial statements prepared in
accordance with GAAP. Readers are encouraged to review the
reconciliation of our non-GAAP financial measures to the comparable
GAAP results, which is attached to our quarterly earnings release,
and which can be found, along with other financial information
including the Earnings Presentation, on the investor relations page
of our website at Investor.NortonLifeLock.com. No
reconciliation of the forecasted range for non-GAAP EPS guidance is
included in this release because most non-GAAP adjustments pertain
to events that have not yet occurred. It would be unreasonably
burdensome to forecast, therefore we are unable to provide an
accurate estimate.
UK Takeover Code: Profit Forecast
UK Takeover Code
On August 10, 2021, the boards of NortonLifeLock
Inc. ("NortonLifeLock") and Avast plc ("Avast")
announced that they had reached agreement on the terms of a
recommended merger of Avast with NortonLifeLock, in the form of a
recommended offer by Nitro Bidco Limited, a wholly-owned subsidiary
of NortonLifeLock, for the entire issued and to be issued share
capital of Avast (the "Merger"). The Merger is
governed by the UK's City Code on Takeovers and Mergers (the "UK
Takeover Code"). In accordance with the rules of the UK
Takeover Code, NortonLifeLock is required to publish certain
confirmations in connection with the information set out in this
press release. These confirmations are set out below.
NortonLifeLock Profit Forecast
The following
statement regarding NortonLifeLock's earnings per share
("EPS") in this press release (the "NortonLifeLock
Profit Forecast") constitutes an ordinary course profit
forecast for the purposes of Rule 28 1(a) and Note 2(b) on Rule
28.1 of the UK Takeover Code:
- Non-GAAP EPS expected to be in the range of $0.44 to $0.46
including $0.03 FX headwind YoY.
References to "GAAP" in the NortonLifeLock Profit Forecast are
to U.S. GAAP, being the accounting policies applied in the
preparation of NortonLifeLock's annual results for the year ended
April 1, 2022.
Basis of Preparation
The NortonLifeLock Profit
Forecast has been prepared on a basis consistent with
NortonLifeLock's accounting policies, as summarized in the
paragraph entitled "Use of Non-GAAP Financial Information" above.
The NortonLifeLock Profit Forecast excludes any transaction costs
attributable to the Merger or any other associated accounting
impacts as a direct result of the Merger.
Assumptions
The NortonLifeLock Profit Forecast
is based on the assumptions listed below.
Factors outside the influence or control of the NortonLifeLock
Directors:
- There will be no material changes to existing prevailing
macroeconomic or political conditions in the markets and regions in
which NortonLifeLock operates.
- There will be no material changes to the conditions of the
markets and regions in which NortonLifeLock operates or in relation
to customer demand or the behavior of competitors in those markets
and regions.
- The interest, inflation and tax rates in the markets and
regions in which NortonLifeLock operates will remain materially
unchanged from the prevailing rates.
- There will be no material adverse events that will have a
significant impact on NortonLifeLock's financial
performance.
- There will be no material adverse events that will have a
significant impact on the timing and market acceptance of new
product releases and upgrades by NortonLifeLock.
- There will be no business disruptions that materially affect
NortonLifeLock or its key customers, including natural disasters,
acts of terrorism, cyber-attack and/or technological issues or
supply chain disruptions.
- There will be no material changes to foreign exchange rates
that will have a significant impact on NortonLifeLock's revenue or
cost base.
- There will be no material changes in legislation or regulatory
requirements impacting NortonLifeLock's operations or its
accounting policies.
- There will be no new material litigation and no unfavorable
resolutions of existing material litigation in relation to any of
NortonLifeLock's operations.
- The announcement of the Merger will not have any material
impact on NortonLifeLock's ability to negotiate new business.
Factors within the influence and control of the NortonLifeLock
Directors:
- There will be no material change to the present executive
management of NortonLifeLock.
- There will be no material change in the operational strategy of
NortonLifeLock.
- There will be no material adverse change in NortonLifeLock's
ability to maintain customer and partner relationships.
- There will be no material acquisitions or disposals.
- There will be no material strategic investments over and above
those currently planned.
- There will be no material change in the dividend or capital
policies of NortonLifeLock.
- There will be no unexpected technical or network issues with
products or processes.
NortonLifeLock Directors' Confirmation
With the
consent of Avast, the Panel on Takeovers and Mergers has granted a
dispensation from the UK Takeover Code requirement for
NortonLifeLock's reporting accountants and financial advisers to
prepare reports in respect of the NortonLifeLock Profit
Forecast.
The NortonLifeLock Directors have considered the NortonLifeLock
Profit Forecast and confirm that it has been properly compiled on
the basis of the assumptions set out in this press release and that
the basis of the accounting used is consistent with
NortonLifeLock's accounting policies.
No profit forecasts or estimates
The NortonLifeLock Profit Forecast is a profit forecast for the
purposes of Rule 28 of the UK Takeover Code.
Other than in respect of the NortonLifeLock Profit Forecast, no
statement in this press release is intended as, or is to be
construed as, a profit forecast or estimate for any period and no
statement in this press release should be interpreted to mean that
earnings or earnings per ordinary share for the current or future
financial years would necessarily match or exceed the historical
published earnings or earnings per ordinary share.
For the purposes of Rule 28 of the UK Takeover Code, the
NortonLifeLock Profit Forecast contained in this press release is
the responsibility of NortonLifeLock and the NortonLifeLock
Directors.
Publication on website
A copy of this press release will be made available on
NortonLifeLock's website
(at https://investor.nortonlifelock.com/) by no later than 12
noon London time on the business
day following the date of this press release. Neither the contents
of that website nor the content of any other website accessible
from hyperlinks on such website is incorporated into, or forms part
of, this press release.
CONTACTS
|
|
Investor
Contact
|
Media
Contact
|
Mary Lai
|
Spring
Harris
|
NortonLifeLock
Inc.
|
NortonLifeLock
Inc.
|
IR@NortonLifeLock.com
|
Press@NortonLifeLock.com
|
NORTONLIFELOCK
INC.
Condensed
Consolidated Balance Sheets
(Unaudited, in
millions)
|
|
|
July 1,
2022
|
|
April 1,
2022
|
ASSETS
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
1,291
|
|
$
1,887
|
Short-term
investments
|
—
|
|
4
|
Accounts receivable,
net
|
102
|
|
120
|
Other current
assets
|
180
|
|
193
|
Assets held for
sale
|
56
|
|
56
|
Total current
assets
|
1,629
|
|
2,260
|
Property and equipment,
net
|
56
|
|
60
|
Operating lease
assets
|
70
|
|
74
|
Intangible assets,
net
|
993
|
|
1,023
|
Goodwill
|
2,861
|
|
2,873
|
Other long-term
assets
|
638
|
|
653
|
Total
assets
|
$
6,247
|
|
$
6,943
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
71
|
|
$
63
|
Accrued compensation
and benefits
|
48
|
|
81
|
Current portion of
long-term debt
|
614
|
|
1,000
|
Contract
liabilities
|
1,183
|
|
1,264
|
Current operating
lease liabilities
|
19
|
|
18
|
Other current
liabilities
|
689
|
|
639
|
Total current
liabilities
|
2,624
|
|
3,065
|
Long-term
debt
|
2,714
|
|
2,736
|
Long-term contract
liabilities
|
37
|
|
42
|
Deferred income tax
liabilities
|
63
|
|
75
|
Long-term income taxes
payable
|
996
|
|
996
|
Long-term operating
lease liabilities
|
69
|
|
75
|
Other long-term
liabilities
|
43
|
|
47
|
Total
liabilities
|
6,546
|
|
7,036
|
Total stockholders'
equity (deficit)
|
(299)
|
|
(93)
|
Total liabilities and
stockholders' equity (deficit)
|
$
6,247
|
|
$
6,943
|
|
|
|
NORTONLIFELOCK
INC.
Condensed
Consolidated Statements of Operations
(Unaudited, in
millions, except per share amounts)
|
|
|
Three Months
Ended
|
|
July 1,
2022
|
|
July 2,
2021
|
Net revenues
|
$
707
|
|
$
686
|
Cost of
revenues
|
102
|
|
102
|
Gross
profit
|
605
|
|
584
|
Operating
expenses:
|
|
|
|
Sales and
marketing
|
156
|
|
156
|
Research and
development
|
61
|
|
68
|
General and
administrative
|
104
|
|
45
|
Amortization of
intangible assets
|
21
|
|
21
|
Restructuring and
other costs
|
2
|
|
7
|
Total operating
expenses
|
344
|
|
297
|
Operating income
(loss)
|
261
|
|
287
|
Interest
expense
|
(31)
|
|
(32)
|
Other income
(expense), net
|
(1)
|
|
(3)
|
Income (loss) before
income taxes
|
229
|
|
252
|
Income tax expense
(benefit)
|
29
|
|
71
|
Net income
(loss)
|
$
200
|
|
$
181
|
|
|
|
|
Net income (loss) per
share - basic
|
$
0.35
|
|
$
0.31
|
Net income (loss) per
share - diluted
|
$
0.33
|
|
$
0.31
|
|
|
|
|
Weighted-average shares
outstanding:
|
|
|
|
Basic
|
578
|
|
580
|
Diluted
|
604
|
|
591
|
|
|
|
NORTONLIFELOCK
INC.
Condensed
Consolidated Statements of Cash Flows
(Unaudited, in
millions)
|
|
|
Three Months
Ended
|
|
July 1,
2022
|
|
July 2,
2021
|
OPERATING
ACTIVITIES:
|
|
|
|
Net income
(loss)
|
$
200
|
|
$
181
|
Adjustments:
|
|
|
|
Amortization and
depreciation
|
29
|
|
36
|
Stock-based
compensation expense
|
24
|
|
20
|
Deferred income
taxes
|
(32)
|
|
1
|
Loss (gain) on
extinguishment of debt
|
—
|
|
5
|
Non-cash operating
lease expense
|
4
|
|
5
|
Other
|
(26)
|
|
7
|
Changes in operating
assets and liabilities, net of acquisitions:
|
|
|
|
Accounts receivable,
net
|
13
|
|
12
|
Accounts
payable
|
9
|
|
24
|
Accrued compensation
and benefits
|
(32)
|
|
(42)
|
Contract
liabilities
|
(53)
|
|
(34)
|
Income taxes
payable
|
60
|
|
21
|
Other
assets
|
—
|
|
41
|
Other
liabilities
|
19
|
|
(19)
|
Net cash provided by
(used in) operating activities
|
215
|
|
258
|
INVESTING
ACTIVITIES:
|
|
|
|
Purchases of property
and equipment
|
(2)
|
|
(1)
|
Proceeds from the
maturities and sales of short-term investments
|
4
|
|
4
|
Other
|
2
|
|
(4)
|
Net cash provided by
(used in) investing activities
|
4
|
|
(1)
|
FINANCING
ACTIVITIES:
|
|
|
|
Repayments of
debt
|
(410)
|
|
(372)
|
Proceeds from issuance
of debt, net of issuance costs
|
—
|
|
512
|
Net proceeds from
sales of common stock under employee stock incentive
plans
|
—
|
|
1
|
Tax payments related
to vesting of restricted stock units
|
(16)
|
|
(13)
|
Dividends and dividend
equivalents paid
|
(81)
|
|
(84)
|
Repurchases of common
stock
|
(300)
|
|
—
|
Net cash provided by
(used in) financing activities
|
(807)
|
|
44
|
Effect of exchange rate
fluctuations on cash and cash equivalents
|
(8)
|
|
(4)
|
Change in cash and cash
equivalents
|
(596)
|
|
297
|
Beginning cash and cash
equivalents
|
1,887
|
|
933
|
Ending cash and cash
equivalents
|
$
1,291
|
|
$
1,230
|
NORTONLIFELOCK
INC.
Reconciliation of
Selected GAAP Measures to Non-GAAP Measures (1)
(2)
(Unaudited, in
millions, except per share amounts)
|
|
|
Three Months
Ended
|
|
July 1,
2022
|
|
July 2,
2021
|
Operating income
(loss)
|
$
261
|
|
$
287
|
Contract liabilities
fair value adjustment
|
1
|
|
5
|
Stock-based
compensation
|
24
|
|
20
|
Amortization of
intangible assets
|
26
|
|
31
|
Restructuring and
other costs
|
2
|
|
7
|
Acquisition and
integration costs
|
8
|
|
1
|
Litigation
costs
|
58
|
|
3
|
Operating income
(loss) (Non-GAAP)
|
$
380
|
|
$
354
|
|
|
|
|
Operating
margin
|
36.9 %
|
|
41.8 %
|
Operating margin
(Non-GAAP)
|
53.7 %
|
|
51.2 %
|
|
|
|
|
Net income
(loss)
|
$
200
|
|
$
181
|
Adjustments to net
income (loss):
|
|
|
|
Contract liabilities
fair value adjustment
|
1
|
|
5
|
Stock-based
compensation
|
24
|
|
20
|
Amortization of
intangible assets
|
26
|
|
31
|
Restructuring and
other costs
|
2
|
|
7
|
Acquisition and
integration costs
|
8
|
|
1
|
Litigation
costs
|
58
|
|
3
|
Other
|
(1)
|
|
—
|
Non-cash interest
expense
|
1
|
|
2
|
Loss (gain) on
extinguishment of debt
|
—
|
|
5
|
Total adjustments to
GAAP income (loss) before income taxes
|
119
|
|
74
|
Adjustment to GAAP
provision for income taxes
|
(54)
|
|
(7)
|
Total adjustment to
income (loss), net of taxes
|
65
|
|
67
|
Net income (loss)
(Non-GAAP)
|
$
265
|
|
$
248
|
|
|
|
|
Diluted net income
(loss) per share
|
$
0.33
|
|
$
0.31
|
Adjustments to diluted
net income (loss) per share:
|
|
|
|
Contract liabilities
fair value adjustment
|
0.00
|
|
0.01
|
Stock-based
compensation
|
0.04
|
|
0.03
|
Amortization of
intangible assets
|
0.04
|
|
0.05
|
Restructuring and
other costs
|
0.00
|
|
0.01
|
Acquisition and
integration costs
|
0.01
|
|
0.00
|
Litigation
costs
|
0.10
|
|
0.01
|
Other
|
(0.00)
|
|
—
|
Non-cash interest
expense
|
0.00
|
|
0.00
|
Loss (gain) on
extinguishment of debt
|
—
|
|
0.01
|
Total adjustments to
GAAP income (loss) before income taxes
|
0.20
|
|
0.13
|
Adjustment to GAAP
provision for income taxes
|
(0.09)
|
|
(0.01)
|
Total adjustment to
income (loss), net of taxes
|
0.11
|
|
0.11
|
Incremental dilution
effect (3)
|
0.01
|
|
—
|
Diluted net income
(loss) per share (Non-GAAP)
|
$
0.45
|
|
$
0.42
|
|
|
|
|
Diluted
weighted-average shares outstanding
|
604
|
|
591
|
Incremental dilution
impact of ASU 2020-06 (3)
|
(18)
|
|
—
|
Diluted
weighted-average shares outstanding (Non-GAAP)
|
586
|
|
591
|
|
|
|
|
|
|
|
(1)
|
This presentation
includes non-GAAP measures. Non-GAAP financial measures are
supplemental
and should not be considered a substitute for financial information
presented in accordance with GAAP.
For a detailed explanation of these non-GAAP measures, see Appendix
A.
|
(2)
|
Amounts may not add due
to rounding.
|
(3)
|
Excludes the dilutive
impact of ASU 2020-06 (Debt with Conversion and Other
Options) under GAAP.
For a detailed explanation of this recently adopted guidance, see
Appendix A.
|
NORTONLIFELOCK
INC.
Revenues and
Consumer Cyber Safety Metrics
(Unaudited, in
millions, except per user data)
|
|
Revenues
(Non-GAAP)
|
|
|
|
|
|
|
Three Months
Ended
|
|
July 1,
2022
|
|
July 2,
2021
|
|
Variance in
%
|
Revenues
|
$
707
|
|
$
686
|
|
3 %
|
Contract liabilities
fair value adjustment (1)
|
1
|
|
5
|
|
|
Revenues
(Non-GAAP)
|
708
|
|
691
|
|
2 %
|
Exclude foreign
exchange impact (2)
|
27
|
|
—
|
|
|
Constant currency
adjusted revenues (Non-GAAP)
|
$
735
|
|
$
691
|
|
6 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Cyber
Safety Metrics
|
|
|
|
|
|
|
Three Months
Ended
|
|
July 1,
2022
|
|
April 1,
2022
|
|
July 2,
2021
|
Direct customer
revenues
|
$
620
|
|
$
627
|
|
$
611
|
Partner
revenues
|
$
88
|
|
$
90
|
|
$
80
|
Average direct customer
count
|
23.4
|
|
23.5
|
|
23.0
|
Direct customer count
(at quarter end)
|
23.3
|
|
23.5
|
|
23.1
|
Direct average revenue
per user (ARPU)
|
$
8.82
|
|
$
8.90
|
|
$
8.84
|
|
|
|
|
|
|
|
(1)
|
Contract liabilities
fair value adjustment represents the quarterly Avira deferred
revenue haircut amortization
recognized during the quarter.
|
(2)
|
Calculated using year
ago foreign exchange rates.
|
NORTONLIFELOCK INC.
Appendix
A
Explanation of Non-GAAP Measures and Other
Items
Objective of non-GAAP measures: We believe our
presentation of non-GAAP financial measures, when taken together
with corresponding GAAP financial measures, provides meaningful
supplemental information regarding the Company's operating
performance for the reasons discussed below. Our management team
uses these non-GAAP financial measures in assessing
NortonLifeLock's performance, as well as in planning and
forecasting future periods. Due to the importance of these measures
in managing the business, we use non-GAAP measures in the
evaluation of management's compensation. These non-GAAP financial
measures are not computed according to GAAP and the methods we use
to compute them may differ from the methods used by other
companies. Non-GAAP financial measures are supplemental and
should not be considered a substitute for financial information
presented in accordance with GAAP and should be read only in
conjunction with our condensed consolidated financial statements
prepared in accordance with GAAP.
Contract liabilities adjustment: Our non-GAAP net revenues
eliminate the impact of contract liabilities purchase accounting
adjustments. Prior to our adoption of ASU 2021-08 in fiscal 2022,
GAAP required an adjustment to the liability for acquired contract
liabilities such that the liability approximates how much we, the
acquirer, would have to pay a third party to assume the liability.
We believe that eliminating the impact of this adjustment improves
the comparability of revenues between periods. Also, although the
adjustment amounts will never be recognized in our GAAP financial
statements, we do not expect the acquisitions to affect the future
renewal rates of revenues excluded by the adjustments. In addition,
our management uses non-GAAP net revenues, adjusted for the impact
of purchase accounting adjustments to assess our operating
performance and overall revenue trends. Nevertheless, non-GAAP net
revenues has limitations as an analytical tool and should not be
considered in isolation or as a substitute for GAAP net revenues.
We believe these adjustments are useful to investors as an
additional means to reflect revenue trends of our business.
However, other companies in our industry may not calculate these
measures in the same manner which may limit their usefulness for
comparative purposes. Our acquisition of Avira during the fourth
quarter of fiscal 2021 was the last acquisition pre-adoption of the
new literature.
Stock-based compensation: This consists of expenses for
employee restricted stock units, performance-based awards, bonus
share programs, stock options and our employee stock purchase plan,
determined in accordance with GAAP. We evaluate our
performance both with and without these measures because
stock-based compensation is a non-cash expense and can vary
significantly over time based on the timing, size, nature and
design of the awards granted, and is influenced in part by certain
factors that are generally beyond our control, such as the
volatility of the market value of our common stock. In addition,
for comparability purposes, we believe it is useful to provide a
non-GAAP financial measure that excludes stock-based compensation
to facilitate the comparison of our results to those of other
companies in our industry.
Amortization of intangible assets: Amortization of
intangible assets consists of amortization of acquisition-related
intangibles assets such as developed technology, customer
relationships and trade names acquired in connection with business
combinations. We record charges relating to the amortization of
these intangibles within both cost of revenues and operating
expenses in our GAAP financial statements. Under purchase
accounting, we are required to allocate a portion of the purchase
price to intangible assets acquired and amortize this amount over
the estimated useful lives of the acquired intangible assets.
However, the purchase price allocated to these assets is not
necessarily reflective of the cost we would incur to internally
develop the intangible asset. Further, amortization charges for our
acquired intangible assets are inconsistent in size and are
significantly impacted by the timing and valuation of our
acquisitions. We eliminate these charges from our non-GAAP
operating results to facilitate an evaluation of our current
operating performance and provide better comparability to our past
operating performance.
Restructuring and other costs: Restructuring charges are
costs associated with a formal restructuring plan and are primarily
related to employee severance and benefit arrangements, contract
termination costs, and assets write-offs, as well as other exit and
disposal costs. Included in other exit and disposal costs are costs
to exit and consolidate facilities in connection with restructuring
events. We exclude restructuring and other costs from our non-GAAP
results as we believe that these costs are incremental to core
activities that arise in the ordinary course of our business and do
not reflect our current operating performance, and that excluding
these charges facilitates a more meaningful evaluation of our
current operating performance and comparisons to our past operating
performance.
Acquisition-related costs: These represent the transaction
and business integration costs related to significant acquisitions
that are charged to operating expense in our GAAP financial
statements. These costs include incremental expenses incurred to
affect these business combinations such as advisory, legal,
accounting, valuation, and other professional or consulting fees.
We exclude these costs from our non-GAAP results as they have no
direct correlation to the operation of our business, and because we
believe that the non-GAAP financial measures excluding these costs
provide meaningful supplemental information regarding the spending
trends of our business. In addition, these costs vary, depending on
the size and complexity of the acquisitions, and are not indicative
of costs of future acquisitions.
Litigation costs: We may periodically incur charges
or benefits related to litigation settlements, legal contingency
accruals and third-party legal costs related to certain legal
matters. We exclude these charges and benefits when
associated with a significant matter because we do not believe they
are reflective of ongoing business and operating results.
Non-cash interest expense and amortization of debt issuance
costs: In accordance with GAAP, we separately account for the
value of the conversion feature on our convertible notes as a debt
discount that reflects our assumed non-convertible debt borrowing
rates. We amortize the discount and debt issuance costs over the
term of the related debt. We exclude the difference between the
imputed interest expense, which includes the amortization of the
conversion feature and of the issuance costs, and the coupon
interest payments because we believe that excluding these costs
provides meaningful supplemental information regarding the cash
cost of our convertible debt and enhance investors' ability to view
the Company's results from management's perspective.
Gain (loss) on extinguishment of debt: We record gains or
losses on extinguishment of debt. Gains or losses represent the
difference between the fair value of the exchange consideration and
the carrying value of the liability component of the debt at the
date of extinguishment. We exclude the gain or loss on debt
extinguishment in our non-GAAP results because they are not
reflective of our ongoing business.
Gain (loss) on equity investments: We record gains or
losses, unrealized and realized, on equity investments in
privately-held companies. We exclude the net gains or losses
because we do not believe they are reflective of our ongoing
business.
Gain (loss) on sale of properties: We periodically
recognize gains or losses from the disposition of land and
buildings. We exclude such gains or losses because they are not
reflective of our ongoing business and operating results.
Income tax effects and adjustments: We use a non-GAAP tax
rate that excludes (1) the discrete impacts of changes in tax
legislation, (2) most other significant discrete items, (3)
unrealized gains or losses from remeasurement of a foreign currency
denominated deferred tax asset with no cash tax impact and (4) the
income tax effects of the non-GAAP adjustment to our operating
results described above. We believe making these adjustments
facilitates a better evaluation of our current operating
performance and comparisons to past operating results. Our tax rate
is subject to change for a variety of reasons, such as significant
changes in the geographic earnings mix due to acquisition and
divestiture activities or fundamental tax law changes in major
jurisdictions where we operate.
Diluted GAAP and non-GAAP weighted-average shares
outstanding: Diluted GAAP and non-GAAP weighted-average
shares outstanding are generally the same, except in periods when
there is a GAAP loss from continuing operations. In accordance with
GAAP, we do not present dilution for GAAP in periods in which there
is a loss from continuing operations. However, if there is non-GAAP
net income, we present dilution for non-GAAP weighted-average
shares outstanding in an amount equal to the dilution that would
have been presented had there been GAAP income from continuing
operations for the period.
Additionally, on April 2, 2022, we
adopted ASU 2020-06, Debt with Conversion and Other Options. Under
GAAP, we are required to apply the if-converted method to our
calculation of diluted earnings per share. As such, our GAAP
calculation adjusts for the dilutive effect of the maximum number
of potential shares to be issued upon settlement of our outstanding
convertible notes. For our Non-GAAP measure, we exclude the impact
of this adoption, which is consistent with our intent to settle in
cash and consistent with our prior maturing convertible note
transactions. As of July 5, 2022, we
communicated our intent to the convertible note holders to settle
the principal and conversion rights in cash upon maturity in
August 2022. We believe it is
reasonable to exclude the potential shares as these adjustments
provide useful supplemental information to investors and
facilitates the analysis of our operating results and comparison of
operating results across reporting periods. Additionally, it is
consistent with our past practice of cash settling these
instruments.
Bookings: Bookings are defined as customer orders received that
are expected to generate net revenues in the future. We present the
operational metric of bookings because it reflects customers'
demand for our products and services and to assist readers in
analyzing our performance in future periods.
Free cash flow: Free cash flow is defined as cash flows
from operating activities less purchases of property and equipment.
Free cash flow is not a measure of financial condition under GAAP
and does not reflect our future contractual commitments and the
total increase or decrease of our cash balance for a given period,
and thus should not be considered as an alternative to cash flows
from operating activities or as a measure of liquidity.
Non-GAAP constant currency adjusted revenues: Non-GAAP
constant currency adjusted revenues are defined as revenues
adjusted for the fair value of acquired contract liabilities and
foreign exchange impact, calculated by translating current period
revenue using the year ago currency conversion rate.
Revenues (Non-GAAP): Revenues (Non-GAAP) excludes the quarterly
Avira deferred revenue haircut amortization recognized during the
quarter. We are presenting revenues (Non-GAAP) to provide readers
with a better understanding of the impact from the Avira deferred
revenue haircut on our historical results and to assist readers in
analyzing results in future periods.
Direct customer count: Direct customers are defined as
active paid users of our consumer solutions who have a direct
billing relationship with us at the end of the reported period. We
exclude users on free trials and users who have indirectly
purchased our product or services through partners unless such
users convert or renew their subscription directly with us, or sign
up for a paid membership through our web store. Average direct
customer count presents the average of the total number of direct
customers at the beginning and end of the fiscal quarter.
Direct average revenues per user (ARPU): ARPU is
calculated as estimated direct customer revenues for the period
divided by the average direct customer count for the same period,
expressed as a monthly figure. We monitor ARPU because it helps us
understand the rate at which we are monetizing our consumer
customer base.
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SOURCE NortonLifeLock Inc.