Gen Digital Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Norton LifeLock's second quarter fiscal 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that time, you will need to press star 1 on your telephone keypad. To ensure that we are able to get everyone during the Q&A session, we would like to request that you limit yourself to asking one main question and one follow-up. Thank you. I would now like to hand the conference over to your speaker for today, Ms. Cynthia Hiponia, Norton LifeLock Vice President of Investor Relations. Ma'am, you may begin.

Great. Thank you, Ian. I'm pleased to welcome you to our call to discuss our second quarter fiscal year 2020 earnings results. We've posted the earnings material and slides to our Investor Relations events webpage. Speakers on today's call are Rick Hill, Norton LifeLock's Interim President and CEO, Vincent Pellet, Executive Vice President and CFO, and Samir Kapuria, EVP and General Manager of Consumer Cyber Safety. 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 4th, 2019, we changed our corporate name from Symantec to Norton LifeLock. 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 costs of our ID analytics solutions, which were formerly included in the enterprise security segment, are now included in our remaining reportable segment. The assets acquired and liabilities sold to Broadcom were classified as discontinued operations in our condensed consolidated balance sheet. 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 corresponding GAAP financial measures provides 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 when 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 our sale of our enterprise security assets to Broadcom, any anticipated benefits from such sale, and the 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 ended March 29, 2019, and recently filed quarterly reports on Form 10-Q. Let me now turn the call over to Rick.

Thank you, Cynthia, and thank all of you for joining us this afternoon. It's been another exciting inning, and we have quite a bit of good news to discuss today. Earlier this week, we closed the sale of our enterprise security assets to Broadconf for $10.7 billion. With the close of this transaction, we have changed our company name and are now Norton LifeLock, a global leader in consumer cyber safety. And we are now trading under the new ticker of NLOK. So it's been quite a busy quarter to say the least. The entire board is proud of what this team has accomplished in two quarters. The management and the board has delivered on our commitment to drive to unlock value in enterprise security and consumer cyber safety. In addition, we met our revenue guidance in Q2 and we're over the high end of guidance in Q2 for EPS. But what I'm most proud of to announce for the company is the new management team that the board and I believe can deliver both the elimination of stranded costs and growth in the Norton LifeLock business. The board has approved the promotion of Vincent Palette to CEO and promotion of Samir Kapuria to the position of president. These two seasoned leaders, coupled with our industry-renowned CTO, Dr. Hugh Thompson, give Norton LifeLock a world-class leadership team who are well respected and provide continuity in the Norton LifeLock business. They will not miss a heartbeat. Vincent brings a history of deep operational discipline, financial fluency, and natural leadership skills. Samir provides in-depth understanding of the operational capabilities and needs of the consumer business Well, Dr. Hugh Thompson brings the vision and understanding of today's consumer customer threats as well as a vision of what threats the consumers doesn't even know about yet. In addition, we have asked Matt Brown to pinch hit as the CFO of Norton LifeLock as we search for a new CFO for Norton LifeLock, and that CFO will be located in Tempe, Arizona. But before I return to Hawaii and downward facing dog, let me summarize the key highlights that put this business on the right track as Vincent and Samir step into their new roles. First, we identified and recruited an individual who I feel has tremendous skills and I believe will be one of my greatest CEO recommendations. Vincent is a natural leader. He has an unrelenting drive for results and has consumer business and operating chops. He has honed as a CFO at Logitech. He has both high-tech and consumer experience. He has gained the respect of both the transition team and consumer team as he architected and executed the enterprise sale to Broadcom. the identification of line of sight on elimination of stranded costs, and a strategy for the consumer business going forward. In addition, Dan Schulman has worked with the board to restructure itself to a more appropriate size for our 2.5 billion consumer business. As announced today, Dan Schulman, Rick Hill, Anita Sands, Suzanne Vautrineau, David Mahoney, and Dale Fuller will step down at the December 19, 2019 annual meeting. I'd like to thank all the members of the board who selflessly stepped down to help accelerate elimination of stranded costs. Remaining on the board will be Ken Howe, David Humphrey, Peter Feld, Frank Dangard, Paul Unruh, and Susan Barsamian. At the annual meeting, We will add two additional members, Vincent Poulet and Nora Denzel, and the new board will select their chairman at the annual meeting. Personally, I would like to thank the board, management team, employees, and you, our investors, for the support you have shown me for my three innings on the mound. On Monday, we closed the transaction on the sale of the enterprise security assets to Broadcom for $7.7 billion. And over the last 60 days, Vincent has identified line of sight to deliver better results than we spoke about at our August conference call. Our estimated annualized stranded costs are now $1.3 billion, down from $1.5 billion through the negotiating prowess of Vincent and his team. And the cash costs to remove these stranded costs are also lower, down from $1 billion to $900 million. We had also stated that we would self-fund the majority of these cash costs with the sale of our underutilized assets. In early October, we received proceeds from the sale of our DigiCert equity investment of approximately $378 million, and we now believe that combined with the sale of our underutilized real estate, and total proceeds from monetized assets, we can fund over $1.1 billion. This deal is a home run from the perspective of this relief pitcher. When we announced this transaction on our last earnings call, we made a commitment to return 100% of the after-tax proceeds, or $8.2 billion, to shareholders in the form of a $12 special dividend. We maintain and reiterate that commitment and expect a dividend to be declared and distributed in the fiscal Q4 once all the funds are repatriated. Reiterating to focus you on our commitment to doing what we say, for quarter two we delivered results in line with guidance for total company revenue, with in-line results for both enterprise security and consumer cyber safety revenue. Both our total company operating margin and our fully diluted EPS were above our guidance ranges and we grew year over year. This is a big accomplishment given the amount of resources and time required in completing the divestiture of enterprise security and the restructuring actions we began in order to transition to a standalone cyber safety company with an optimized cost structure. I want to thank the employees for their dedication and focus over the last several months. I cannot be more proud of this team and I have full confidence in Vincent, Samir, Hugh and Matt as they step into their new leadership roles. Now as I leave the mound for the locker room and then on to Hawaii for some serious downward facing dog, let me turn the call over to Vincent who will review our results in more detail and discuss our go-forward plans. Vincent? Thank you, Rick.