NortonLifeLock (NLOK) Q2 Earnings Up Y/Y, Revenues Down

NortonLifeLock (NASDAQ:NLOK) reported second-quarter fiscal 2020 non-GAAP earnings of 18 cents per share that increased 20% year over year. The figure includes a $1.16 adjustment related to discontinued operations, net of taxes.

Revenues were down 1.1% year over year to $608 million.

Notably, on Nov 4, the company changed its corporate name from Symantec Corporation to NortonLifeLock, post the completion of the divestiture of its Enterprise Security business assets to Broadcom (NASDAQ:AVGO) .

Including the Enterprise Security business, which was classified as discontinued operations, the company reported earnings of 46 cents per share on revenues of $1.19 billion in the reported quarter.

Moreover, the company appointed Vincent Pilette as the chief executive officer, effective Nov 8. Additionally, Samir Kapuria has been appointed as the president of the company.

Quarter in Detail

Direct customer revenues (88.2% of revenues) decreased 1.3% year over year to $536 million. Partner revenues climbed 1.7% on a year-over-year basis to $59 million.

Revenues from ID Analytics (2.1% of revenues) fell 7.1% from the year-ago quarter to $13 million.

Direct average revenue per user (ARPU) increased 1.8% year over year to $8.88.

At the end of the quarter, direct customer count was 20.1 million, lower than 20.7 million in the year-ago quarter and flat sequentially.

In the reported quarter, NortonLifeLock expanded Norton 360 membership plans (launched in April in the United States, Canada, the U.K. and Germany) in EMEA and APJ, including Spain, six Scandinavian countries and Japan. The company plans to expand the offering into additional countries in EMEA, Asia Pacific and Latin America during the current quarter.

In second-quarter fiscal 2020, gross profit increased 1.8% year over year to $508 million. Gross margin expanded 240 basis points (bps) on a year-over-year basis to 83.6%.

Moreover, non-GAAP operating expenses decreased 1.5% year over year to $338 million. As a percentage of revenues, operating expenses declined 20 bps to 55.6%.

However, Sales & Marketing (S&M) expenses grew 8% on a year-over-year basis to $189 million. As a percentage of revenues, S&M expenses expanded 260 bps to 31.1%.

Meanwhile, Research & Development (R&D) expenses decreased 18.1% year over year to $86 million. As a percentage of revenues, R&D expenses declined 290 bps to 14.1%.

Further, General & Administrative (G&A) expenses fell 8.9% year over year to $92 million. As a percentage of revenues, G&A expenses shrank 130 bps to 15.1%.

Operating income on a non-GAAP basis rose 9.2% year over year to $178 million. Operating margin expanded 280 bps on a year-over-year basis to 29.3%.

Balance Sheet

As of Sep 30, 2019, NortonLifeLock had $1.83 billion in cash and cash equivalents. Long-term debt was $3.22 billion.

Moreover, cash flow from operations was $181 million, while free cash flow was $154 million.

NortonLifeLock plans to issue a $12 per share special dividend to shareholders, to be declared and distributed in the fourth quarter of fiscal 2020. The company also raised its quarterly dividend to $0.125 per share for the third quarter.

NortonLifeLock has an existing share repurchase authorization of $1.6 billion.

Guidance

For the third quarter of fiscal 2020, NortonLifeLock expects revenues between $602 million and $612 million, (down 2% to flat year over year). Management expects low-single-digit bookings growth.

Moreover, non-GAAP earnings from continuing operations are expected between 5 cents and 10 cents per share.

Further, upon the elimination of the stranded costs ($1.3 billion at the end of reported quarter), the completion of the transition services to support Broadcom and a full-year benefit from the share buyback program over the next 12 months, NortonLifeLock expects operating margin to reach 50% and annual earnings of approximately $1.50 per share.

Zacks Rank & Stocks to Consider

NortonLifeLock currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader computer & technology sector include Advanced Energy Industries (NASDAQ:AEIS) and NetApp (NASDAQ:NTAP) . While Advanced Energy sports a Zacks Rank #1 (Strong Buy), NetApp has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While Advanced Energy Industries is set to report quarterly results on Nov 12, NetApp is scheduled to report on Nov 13.

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