McAfee Corp.

Ladies and gentlemen, thank you for standing by, and welcome to the McGaffey Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker, Mr. Eduardo Fleites, Vice President, Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon, and thank you for joining us today. McAfee is hosting this call to discuss its fourth quarter and full year earnings results for the period ended December 2020. Participating on today's call are Peter Leaf, President and CEO, Venkat Bhamidipati, Chief Financial Officer, and Ashish Agrawal, Senior Vice President of Strategy and Corporate Development. Earlier this afternoon, McAfee issued a press release announcing its financial results. While this call will reflect items discussed within those documents, for complete information about our financial performance, we encourage you to read our 2020 annual report, on Form 10-K, which we expect to file with the SEC by early March. Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call and we undertake no obligation to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially for those expected and described today. For a more detailed description of our risk factors, please review our most recent quarterly report on form 10Q and our upcoming 10K to be filed with the Securities and Exchange Commission, where you will see a discussion of factors that could cause the company's actual results to differ materially from these statements. A replay of this conference call will be available on our website under the investor relations section. I would also like to remind you that during the call, we will discuss some non-GAAP measures in talking about McAfee's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in our earnings relief. I will now turn the call over to Peter Lee, McAfee's president and CEO.

Thank you, Eduardo, and good afternoon. Q4 was a very strong quarter for McAfee as we significantly increased revenue, profitability, and free cash flow. We delivered robust top-line results with total revenue of $777 million, growing 14% year-over-year. We also improved profitability with total adjusted EBITDA of $285 million, a 37% margin, and growth of 32% versus last year. Similar to last quarter, our consumer team delivered another exceptional set of results, with consumer revenue growing 23% year-over-year. In Q4, we added another industry-leading 668,000 net new core direct-to-consumer subscribers to the platform. a number that was similar to our robust direct-to-consumer net ads in Q3. Our strong fourth quarter performance caps another terrific year of revenue growth and marks our 13th consecutive quarter of sequential and year-over-year core direct-to-consumer subscriber ads. For the full year, consumer revenue grew 20%, and we added 2.8 million net new subscribers during the last 12 months. Our enterprise business with our long-tenured core customer base delivered solid Q4 revenue growth of 5% year-over-year and strong EBITDA growth. Enterprise was a major contributor to our overall profit expansion in the quarter. Venkat will go into more detail regarding our Q4 results during his remarks. Our full year 2020 financial highlights clearly demonstrate our team's focus on execution and the strength of our product offerings. Total net revenue increased by more than 10% to $2.9 billion, driven by highly recurring organic growth in our consumer business. McAfee generated over $1 billion in adjusted EBITDA, representing a 36% margin and growth of approximately 32% versus last year. We generated $982 million in in unlevered free cash flow, representing a margin of 34% and growth of more than 37% versus last year. Looking at each of our segments in more depth, our consumer franchise has sustained a double-digit growth trajectory for several years while improving profitability. In FY20, we have reached an impressive 18 million core direct-to-consumer subscribers, up more than 18% year-on-year. McAfee's consumer business continues to be a robust growth engine for the company. In 2020, our growth accelerated across all customer acquisition channels, resulting in strong double-digit revenue growth in North America, EMEA, Japan, and Latin America. Our DTC subscriber growth was also in the double digits for all geographies, underscoring the strategic advantages of our omni-channel approach and our holistic product suite. Consumers have become increasingly digitized, and consumer awareness about the need for security continues to increase. These trends will continue to fuel the growth of an already large addressable market, and we believe will power our consumer business in 2021 and beyond. McAfee commissioned an external company, MSI ACI, to survey 11,000 Internet-connected adults around the world. Based on the survey, users expressed high levels of concern around cyber risks, online crime, with respondents surveyed showing an average concern of 65%. During this same study, the key trends that emerged as drivers for consumer security software purchases were proliferation of devices within the household, increased Internet connectivity, the explosive growth in online transactions, the use of personal information in those transactions, and more work-from-home policies. The study also showed a broad increase in the usage of online banking, online financial planning, online doctor visits, and personal shopping, with the expectations that post-pandemic these activities will remain at high levels. Meanwhile, another recent survey showed that the top criteria for consumer purchases of security software are multi-device and web protection, easy-to-understand pricing, and a trustworthy brand. McAfee's differentiated personal protection offerings are tightly aligned with the most pressing consumer needs for security software that covers device, privacy, and identity protection. In addition to our results, Q4 was also highlighted with our consumer team's most recent channel partnership signings, including McAfee signing a five-year extended global agreement to provide consumer security on ASUS PC products. And McAfee signed a renewal to continue to offer security products on Costco.com, whereby all PCs purchased through Costco.com will include a one-year paid subscription to McAfee. In our consumer segment, we are achieving results at scale while simultaneously investing to capture the tremendous opportunity we see in front of us. We feel confident about continuing our double-digit long-term growth rate driven by the positive and sustainable trends in the markets. increased public awareness of the importance of privacy and security, as well as our significant investments in product, channel, and subscriber acquisition and retention. Looking at 2021 and thinking about the flywheel effect of the consumer business, we also expect to benefit from a greater renewal base associated with our strong 2020 cohort of 2.8 million net new DTC subscribers, which we expect to provide an uplift to revenue. The expansion potential of this market remains very much in front of us. Switching to our enterprise business, we finished the year with strong execution against our key strategic imperatives. Our focus is on serving the complex, hybrid, multi-cloud environments of our long tenured core enterprise customer base. We are driving innovation in device to cloud security to help protect users, applications, infrastructure, and data across the enterprise. We know this strategy is resonating with our customers, given strong underlying double-digit year-on-year growth in our EDR and cloud security offerings. Our focus on improving profitability through our targeted market and product orientation drove significant expansion in adjusted EBITDA margin by 10 full percentage points to 28%, a growth of 64% for the quarter. To provide additional context around how McAfee's cloud security offering is successfully competing in the marketplace, McAfee's Envision Unified Cloud Edge was chosen by a national healthcare provider to support their next generation of cloud and remote worker security needs. This was a full platform cloud security win for McAfee, delivering web security, data protection, shadow IT, and SaaS protection. Both data and threat protection were equally important as this customer advanced in their adoption of cloud services and the need to support and secure cloud access for work-from-anywhere users. Our customer performed a rigorous evaluation process and considered a variety of cloud security and cloud gateway solutions. They chose McAfee's unified offering for its superior functionality and seamlessly converged solution. Moreover, our UCE product delivers superior threat and data protection, underscoring McAfee's position as Gartner's market and magic quadrant leader for cloud security. Recent high-profile customer wins in the EDR space came down to McAfee's unique ability to combine EPP with EDR to deliver better functionality, coupled with the advantages of Envision Insights' AI-guided investigations and an ability to easily extend preventative controls. McAfee's integrated platform meets the requirements of large organizations today, but also provides can accompany them on their journey, whether it entails security on premises, in the cloud, or in a hybrid format. This is an important distinction for our offering. McAfee is committed to protecting our customers against risks with leading-edge cybersecurity products, defending many of the world's largest organizations and government entities from sophisticated attacks and nation-state threats. The importance of these capabilities certainly has been thrust into the spotlight recently in the wake of the SolarWinds and Sunburst cybersecurity attacks. More than anything, these events are stark reminders of the unprecedented increase in scale and sophistication of cybercriminal activity. Cyberattacks in recent years such as WannaCry were indiscriminate in nature compared to what we are seeing now with SolarWinds Sunburst, a far more precision-guided attack which will necessitate that enterprises and government entities prepare and preempt for deliberate and coordinated campaigns. In many ways, this preaches a seminal event for the enterprise landscape. We expect that in response, one of the big areas of focus from customers during the coming year will be spending on advanced security and detecting threats specific to an organization or executed by a human operator. And we would expect to see more investments from many organizations who may recognize that they have insufficient safeguards in place as the cyber threat landscape is changing quickly. Our business is performing well. We understand the mission-critical role we play in securing the digital transformation wave that is sweeping the world. The acceleration in digitization that has taken place over the past 12 months has only served to compound that urgency. McAfee's expertise in bringing differentiated security solutions to consumers, enterprises, and governments has never been more timely. New conveniences in the realm of work, learn, shop, bank, exercise, stream, and telemedicine have gone from nice-to-haves to must-haves. These digitally enabled experiences have become permanently woven into consumers' daily lives, and they expect every interaction to be secure. McAfee is there to provide that peace of mind. Thank you once again to our McAfee team members for your hard work and dedication, which has allowed us to focus on customer and partner success, execute on our strategy, and deliver very strong Q4 and full-year 2020 results. I will now turn the call over to Venkat to discuss our financial results in further detail.