MCFE - Earnings call transcript Q2 2021

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Operator

Thank you for standing by and welcome to McAfee's Q2 2021 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. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your host, Vice President Investor Relations, Eduardo Fleites.

Eduardo Fleites

operator. you, Thank thank McAfee's and ended joining today us XX, Good quarter you earnings discuss second period results to XXXX. afternoon for for June the Bhamidipati, Leav, Participating and Officer; Senior Strategy and are: today's of Agarwal, President Peter President Corporate on CEO; Chief call Ashish Venkat and Executive Vice Financial Vice and President Development. afternoon, results. McAfee a release press issued this Earlier announcing financial its

the XXXX about you items XXXX, and call Commission. within on that ended our information will to XXXX, fiscal complete Securities the encourage we reflect year discussed XX-Q ended Report Form XX-K, our this and Exchange Form performance, which June While for financial fiscal with Report on for XX, Annual read file document, we quarter for our the Quarterly XX, December today

I outlook, you operating on to are related discussed Before that forward-looking These may result business to our undertake no our statements assumptions. management's call we may we remind revise information and matters this beliefs which reflect to include goals new and of a developments begin, today's on statements as opinions the current of based performance, occur. financial that call obligation and forward-looking of date this as want

various to statements are other differ could factors that our uncertainties Forward-looking subject actual from expected risks, and and those cause materially to results described today.

some on the report section. will website call measures A also our detailed in about that performance. statements. company's to For cause see I quarterly will remind risk the XX-Q annual Form of recent most will under from factors talking the actual review be Commission, results differ on materially today Relations of discuss where replay we of call, report and to this during you non-GAAP like a McAfee's that would Investor XX-K with please conference our available those a Exchange you description our on more factors, the filed Form and our could discussion Securities

of our reconciliation comparable nearest GAAP these measures to a measures can in release. earnings You find the

to the the Before X, that call a the as I due to results thus condensed pass over XXXX, like periods announcement operations definitive signing agreement March Enterprise Peter, statements the regarding the for of our I remind operations financial everyone consolidated excluded classified Business would discontinued presented. sell to to are in were and from Business, Enterprise the financial continuing of on all

As Peter over will continuing we I call operations business our this the now President on will focus or Leav. Consumer to on future and turn CEO. McAfee's such, and calls.

Peter Leav

good afternoon. Thank you, and Eduardo,

we cash. to want highlight major over Enterprise diligently move our $X was XX this several are results, take to to make for working billion Before the happen. moment sale a July team very This that the for we thank pleased quarterly past And months accomplishment. a our to on completed to in the we Business of I

we As pure-play as journey our look about a forward, company. consumer excited we are cybersecurity

with EBITDA. we very results. Now, our double-digit to during We the and year year-over-year of half strong was as free quarterly first and performance flow. for strong cash quarter revenue increased McAfee significantly revenue, for drove the growth both another adjusted profitability QX

same a for costs our as increasing delivered stranded we year. a versus adjusted period increase margin EBITDA an same of In of compared the As result, of $XXX the included period of revenue the XX%. XX% EBITDA we XX% FY Adjusted The period year, for was million. $XX last million, XXXX up $XXX to are quarter representing guidance. million, QX, year-over-year the last

organically period In same This powerful million direct-to-consumer $XX.X to quarter XXX,XXX XXth direct-to-consumer cumulative consecutive we online with a in at closing ads. protection QX, core double-digit through drive platform, DTC core versus or the to adopting core added continue another and and $XX.X product differentiated growth improved Consumers our are increasingly We profitability marks sequential omnichannel net subscriber strategy. services. industry-leading along quarter of go-to-market new year. year-over-year the last DTC our our subscribers subscribers our

included QX protect these Samsung signing McAfee via multiyear a with LiveSafe to operating partnership Samsung highlights personal worldwide to McAfee's against extended addition longstanding In to product. our PC agreement data threats strong results users' online

AV-TEST, go total continues journey. May Xth Our consecutive at top-product to Furthermore, and time. unique perspective certification protection on omnichannel a test for outpace to emanation market their attracting XX, to German allow McAfee antimalware competition, from digital point the product subscribers awarded strategy lab, McAfee's the the the throughout

consecutive Additionally, on Xth perfect June Mobile score time. AV-TEST XX, also for a awarded Security the Android for McAfee's

as balance continue margins. and grow improving to We of We on invest double-digit the over and plan to plan our continue our to committed drive the right long-term. motions growth to and market the go-to-market front and tremendous opportunity while remain us, capture in to we strike portfolio, engine product acquisition retention subscriber execute between investing revenue in

trajectory, proliferation well increased forces this and the positive by to as protection adoption, in social, market personal as driven educational, We data, professional confident devices of awareness are security. importance of evolving the identity and the tied privacy, sustainability landscape, threat of and public use the the of

new security role continue more look around digitization second over year bringing greater mission-critical renewal has with The we urgency. to that subscribers in never timely. lives as place the to consumers the served associated the consumers the the cohort benefit past the of are out only over been that acceleration that expertise to that half digital end understand We we in of and world. XX-month differentiated flywheel effect play solutions net has our of taken compound has McAfee's securing million added we of of As DTC business base the from X.X year, the confident trailing will a QX.

hard that digitally the conveniences realm and permanently provide to your from turn woven discuss now and expect again be experiences stream they the team customer McAfee us of consumers' is once to detail. every and in strategy have in to bank, mind. exercise dedication and peace has daily nice-to-haves results and New call strong QX over learn, allowed enabled results. which on Thank very work, on into of focus success, you Venkat These gone execute our shop, to further must-haves. secure. to there to interaction have become lives deliver to will our I our McAfee partner financial work, for

Venkat Bhamidipati

Peter, good afternoon, Thanks, and everyone.

our For on unless today's financials discussion, I'll Also, be on focusing IR non-GAAP specifically view find otherwise. historical the section operations continuing stated within our our a continuing operations supplemental you'll of website. the of

explain mentioned, transaction transaction of our we're business. this impact security divest Peter closed on our on have pleased and be exclusively the results. later Enterprise focused consumer Business, we to As will our moving pure-play forward that the I'll

demand in continued profitability our in security Overall expectations strong with year-over-year. growth momentum execution QX We results strong exceeded double-digit offerings. revenue, personal and flow increased our and by holistic for driven cash

and quarter importance For awareness was identity of continuing public period security, growth XX% million, Consumer of $XXX the strong double-digit Direct a second the of revenue a $XXX year-over-year strong trend. over revenue by increase year, contributed million, the last rate to driven growth XX% privacy. same of an

and We was e-commerce non-subscription, also increase primarily last $XXX margin a search, year. representing million, $XXX by subscription indirect for our up of an of retail, is continue same includes This XX%. providers, from the of to see and Revenue which robust EBITDA driven year-over-year, and the business, mix period both XX% channels, million, was indirect which partner-led increase Adjusted mobile and contributed partners. of non-subscription demand over-performance over ISP, XX% EBITDA business. partner-led

of $XX would adjusted Excluding EBITDA EBITDA a million stranded XX% million, representing costs, $XXX be margin.

quarter Finally, second adjusted $X.XX. EPS was for

business in continue spending, our increase model. we to leverage to operating Moving

points percentage a though, year-over-year a to margins and As customer the of improved and approximately product as adjusted Even cost to XXX due year. product mix as compared improved quarter by revenue, of efficiencies. of revenue. last operating increased second sales approximately acquisition percentage points gross investments basis basis Adjusted for XXX by in margins

model. find leverage continue our We in to

widespread show Our APJ and year. We grew demand XX% across pure-play contributed Consumer same over period rate growing the group and million all year. with the Americas robust address $XXX with increasing year-over-year growth while we and thought the million over $XX contributed region globally. period $XXX business same XX% a at contributing strength leading million growth as of last XX%, continues subscriber demand geographies, to last EMEA the

continues retention Core believe conversion and McAfee all an including the type in customer and rate, our the retention. $X.XX, for a most the industry QX, to at need online or subscribers, protection million quarter acquisition, mix the subscribers, of million From renewal the well this towards In perspective, dollar ended retention remained Average customer, recent across the of QX subscribers we was consumers DTC with reinforces ARPC, XXX%. leading revenue sustainable on which X.X growth to which $XX.X reflected months. in and geographies. Our from QX, team We in focusing across up added XX per provides. $X.XX or new XXX,XXX shift execute digitization net activities, DRR, of new last online reflects their

team's a focus of DRR. to renewal, of execution value and our Our offerings, experience, value excellent to ease on contribute through packages upselling user added continues higher deliberate

cash in regular and and per total working increased flow generated cash second equivalents. $XXX in a on compared from a to discontinued attributable cash share ended XXXX, perspective, company Class declared dividend management Now turning XXXX. $XXX profitability continuing X, which the operations, and total in $X.XXX June we We improvements an is common million on and operations sheet paid XX%. of balance prior and capital. the from million include XX, of the increase The to cash period, From flows, amount in it we to July flow in quarter cash million results $XXX A company with improvement of

unlevered period, increase million in $XXX is million company previous of a onetime million free costs. cash $XX inclusive total This approximately $XXX of was year-over-year Finally, in XX%. versus flow the

as nature. and providing to of is search our in remind that portion indirect our a Before derived partners revenue partner-led non-subscription investors and wish I from guidance,

While within is in QX we and normally source, over-performed lower in QX. it seasonally this revenue QX

and Now, pure-play we current guidance, guidance providing quarter to operations Consumer ranges continuing business. and our for adjusted turning revenue annual for the EBITDA are

ending $XXX of the $XXX expect and million, million and XXXX, the million, be For September million quarter to we XX, EBITDA respectively. revenue $XXX and third $XXX in and adjusted range

expect to Consumer We of of shares. be you be $XX subscription for to $XX expense to to stranded diluted million. million, approximately increase anticipate XXX and assume in third quarter Furthermore, Direct range the our QX. range and the interest should QX cash million of share in revenue from to count costs estimate We a sequentially $XX we $XX fully million the million to

$XXX year For and $XXX ending in million $X.XX and we revenue range of full billion, respectively. the December be and and to the expect adjusted EBITDA XXXX, million, $X.XX XX, billion

the as expectations, XXXX, $XXX million eliminated $XXX progress previous the to separating of sale is of is million, businesses. the to make decrease we the incorporates range the estimate attributable continue Enterprise which we Cash in the million that costs, of from million of proceeds some successfully and be and expense in $X interest FY paid be costs the to billion the in and have $XX million stranded expected down Business. net to $XXX of This now the lower For to $XX $XXX annualized stranded million. range than

For should count, you XXX diluted assume fully share a approximately million shares.

normalized continuing FY be tax For the expected operations to is the XXXX, quarter XX%. for third rate non-GAAP

profitability. market. subscription As product scale, McAfee for pure-play personal loyal time. to a have positioning sustainable and success platform we profitability our customers security look long-term growing We're forward to We advantage. company, the sophisticated double-digit to in highly you high growth progress committed a constitute business over competitive a of relationships and with and consumer attractive long-term reporting and growth industry-leading continued consumer-focused McAfee's our

sale Q&A, we of Peter over Before mentioned, $X for our Business. as billion closed recently Enterprise turning it the

we're Q&A. the have Directors of the I'll out per $X to common XXXX. of declared process paying debt. turn And Class back to paid begin XX, to dividend shareholders a in $X.XX Board August record down of Our to of be call billion A of with operator special that, a share With date currently the

Operator

Rob Instructions] of Owens question from [Operator you. Sandler. Our comes Piper Thank first

line is open. Your

Rob Owens

lot a thank very much my to competitive getting landscape. Great. taking for relative And investor the question. some questions of consolidation in you guys Obviously,

some think want you broad acquisition, a guys if And international you address to customer I maybe consolidation the think about occurring, about some front? So guess, of on stroke, just how strategy from especially the you McAfee do that's how the similar? going models, of to freemium customer would you channels, go versus something models acquisition think you're mainly MSPs? pursue Thanks. your subscription Or that is where through those OEM and

Peter Leav

Rob. for Peter Hey, and It's the thanks question.

continues big start growing this we to we've typically So And be as very in we've And you talked and where the market. started the to it a important that is past. is, case.

We continuing sum. it very us, And it's what grew we're grew in We with XX% by that. we not way, over are at obviously, don't And grew would. over sense. EBITDA with in fact we do at that the for We that commensurate really last in XX% grown the year. has XX% a clip pleased QX. QX. very, or So zero outlined We look exclusively we've to better

And healthy think growing. that's of statement about team, All our needs and at are consumer it And growing a thought all the how are what rate. channels our consumer and a also strategically, but the we've we how very, operationally geos about only not very of real about are.

continue global all front us, to our well need geographies, Again, very ability EMEA relates fine execute. nicely. for it we to a great to in our to TAM of of strategy, the and above see that's Venkat's in to component, we XX%, to prepared consolidation, and that's we Related is Americas we above teens. us. that grew about as So, as see going as the And yes, feel remarks APJ in what And do. good XX% outlined massive with the

a know, for XX% But brand as So our continue fairly direct which all piece until is us, our of have was profit, is much nascent drive opportunities to a terrific. of been enterprise engine, And a you great that's our representing other of the for and of in because inclusive channel, website And so see engines and very, as vast dedicated really to recently. been the growth growth name long-term you growth feeder. are channels majority which PCs We, also represent channel great has too. the the retail this is relationships, a us very for business and grown growth volume. MISP, us, mentioned it and addition terrific there the OEM story which Venkat well for importantly, are by incredibly drive in performance. channels, We be non-recurring to means, asked to about solid consumers. search,

feel what and again, So, across going we're we're about good very routes globe. doing we the the

Rob Owens

a expansion. expansion that Great. ARPC Thank I specifically, and the should we guess, as of as adds And pace then, how slow, about you. more follow-up, DTC think

Venkat Bhamidipati

higher as to as Hey, Rob. ARPC. is This is the you alluded, We're ARPC quarter-on-quarter. know, Venkat. ARPC, pleased With respect very increase up to Certainly, with you the sequential long-term both mix packages. driving and $X.XX the And incredibly our ability team through upsell our of to is renew sell helps on ARPC. customers, focused value continue value customers through to to holistic in

in with So to we we ARPC time, And that installed large in us. long-term. over expect of opportunity cohorts a of large certainly front a increase as all base, the think

Rob Owens

you. Great, thank

Operator

from Thank you. Essex [Operator of Sachs. Brian next The comes question Instructions] Goldman

open. Your line is

Brian Essex

of demand going how and adds. we could should bit Thank talk quarterly, afternoon. decelerated about us kind for line adds color Could in seen what was forward? good you rates more it perhaps little retention bit net give maybe a about if think maybe little taking you question. you net the historically. of into with a you've DTC Hi, I looks maybe like It and

Peter Leav

Hey, It's Peter. Brian.

XXX,XXX about and So and retention with why added, the From start clearly were standpoint, don't then I talk that retention DRR was DTC is we'll healthy. industry-leading. very which a the

year. first but mix in subscribers DRR was bps the bring amount strong performance and the year-over-year, call front. continued we It's of So XXX new that with that on it of up XXX% just

rate the remains very retention good. So feel we solid and

quarters beyond, happens strong the this really, the the it's in year X and new XX very, just very future As flywheel sequential positive because subscribers, with of is addition business for in and a very sign what far as us. of consecutive year-over-year of

don't such ARPC ARPC, want we new. growth at like things a a improve we clip to and fast rush to that cessation related of cause Now, of

really I a So from is news quarter, business a from coming XX% and which That's nicely. is good feed are. solid nicely. The OEM in know, call is, direct QX And of what indirect QX well seasonally The also the QX the more mechanisms. growing the side doing are you it as well. it's softer team. this we is into variety would robust. of And and growing channel recall, QX a performance

today, continue to was I very of a business a and it's more and more for performance think, it that. So balanced no, going drive to But the we're solid quarter.

Brian Essex

that. more Okay. driving follow-up just consumer that eye attributing Are growth think about consumer just the mean, And spend? point, from kind are on adoption DTC the forward? efficient of trends a standpoint to? we of I maybe level that that, appreciate there platform? I things should as going like deeper. it there How macro any more we Is you're that one are that

Peter Leav

or unfortunate, of are obvious. the bank, expand trying who world online, that Well, continues whereas that forever lives. and been seen from and reasons as that that one-off, folks clear but that a And think the changing. we or very opt or as it's food are cyber-criminal people focus continuing of whether And I going not to all that's happen behavior the that's our greater going for as in it's behave and there's again that, chance with wasn't And of way, provider healthcare And late, high, again the exploit and is by at interaction to to see, level, consumers of that's years way pervasive your a those that a hastening of well. macro how behavior been didn't to sugar by degree behaving to a it's ago. a ordering to for have are a few digitization start just we've the of continue,

endpoints. group important millions not bigger of behavior, have the folks gauge their And only mean, consumer and it's is telemetry that's Threat world, get that's we things probably in us, understand but McAfee a doesn't And families behavior. a think continue. I importantly, enough team. hundreds around and consumers differentiated our have accolades that's of for McAfee, only cyber-criminal we of Labs around on I a to the and and Now, getting going that at one understand fashion And it. that

So continue. at level, we macro to a that phenomenon that's expect a

Brian Essex

All helpful. you. right. Thank That's

Peter Leav

Brian. Thanks,

Operator

you. Thank

Our Fodderwala Morgan of from next Stanley. comes question Hamza

open. is line Your

Hamza Fodderwala

of my standpoint, I'm growth growth McAfee's into security fit I Hey, first say, consumer M&A let's of for that light degree a Peter, of in guess does guess, obviously pure-play a standpoint, and question allocation for strategy announcements, questions. a now the recent guys, you. what taking sort capital longer-term from thanks kind wondering like you're to I company?

Peter Leav

You shareholders, obviously, very, bet. I job reasonably is has XXth obviously, of And And to July be back We've past, the good We're business. be cash outlined and very of both billion to of continuation case. Hamza, solidified strong a responsible. a that Ashish producing just the has that this think, outlined on in to as that, giving down. some done very dividend that that continues the $X Venkat inclusive going we the debt paid and, of and

be the going and to we're M&A related not So component. balanced responsible to

we'll of we the broadly we're and to have. to the standpoint. team technology driving us very very look potential type been we is of we we But and think from to and to to clearly while mindset while going focused call like the going with that's of look and a good We're be very the doing at, the about what play, growth that's size types oriented things And Those what that we're areas. market at both profitability what And growth driven results enables what case. of lens continue the feel we look grow. be continue which would TAM. assess, would accretive the continue speaking, I obviously, to organic our on at

Hamza Fodderwala

follow-up. a maybe just And quick

sort getting that some with renewal agreements are anything any PC there device you And Samsung these it the have more with smart into were some home growth and just of like these opportunities the Just traditional extension that of was you're are protecting devices. to around you previously signed there now likes that of others, in that you of OEM. - agreement degree that additional what in

Peter Leav

are these agreements, I appreciate you're asking. and And Sure. long-term

So beyond is expand renewal, with we're itself well, et mobile which seeing probably cetera. renewals, we've doing, And a been component. maybe channel, extent is the of and marketed But it's about security really it proportion package, say, Samsung that app it's as and about are or functionalities. part to continues Total an LiveSafe really McAfee LiveSafe of we and looking so offer example We've the our that just this and consumers enhanced an we I impacts it's But, important one market and a amalgam could PCs to one, browsing, our obviously should. LiveSafe story as secure product features look what not would with protection, And haven't Protection, you the to between the more with with safe with McAfee broader Protection. less it's for. as Fi identity Total being a is sold that VPN, our We've and range. of with scan. now It's Wi business enhanced the related at

interesting really across - is out And thing is consumers. for this came our that's is score. we consumers. channels just including direct, And protection McAfee enables quarter, this that past other with this and The

have know whether a us so, degree do they Z going a know estimate, to you we think your provide of to As is situation. somewhat we've McAfee, And we've or consumers and family a And really, know feedback of whether akin have, nonintrusive help in studied or produced it a with greater safe protection safe we've like to but personalized engagement a what not way. it's even online? help done in not think score, assurance and they you're know and and are. how They consumers they queried not they're there's consumers, they do whether insurance safe that most how and

look to expansion, to solution an as the there's it ARPU but docket, throwing going number also That'll at than be broader features solution think yes, back opportunity the time. mindset, So, the of kind those from ARPC ultimately of broaden the of about, on improving to at set and rather And a all we market. VPN with aperture only DTC question are a well. subs. come and over But the we not

you So, of probably an that's than on. but wanted, we're what answer focused more

Hamza Fodderwala

you. Thank

Peter Leav

bet. You

Operator

Thank you. call back like Sir? At turn time, closing Peter Leav, to remarks. over to I'd for CEO, this the

Peter Leav

updating all Great. on Well, our Thank We call. for call our thank you to you. you joining next today. forward look

Operator

today's And conference participating. you this call. Thank concludes for

You may now disconnect.

McAfee (MCFE) 11 Aug 212021 Q2 Earnings call transcript