McAfee Reports Third Quarter and Nine Month 2020 Results
- Total Revenue Grew 10 Percent and Consumer Revenue Grew 23 Percent Compared to Q3 2019
- Significant Acceleration of Net New Core Direct to Consumer (“DTC”) Subscribers with Additional 2.4 Million Subscribers, Up 16 Percent Year-Over-Year
-
Operating Income for Consumer Grew
$35 Million and for Enterprise Grew$40 Million Compared to Q3 2019 - Double-Digit Adjusted EBITDA Growth Across Both Consumer and Enterprise Segments Compared to Q3 2019
-
Now Publicly Traded on NASDAQ Following
October 2020 IPO
“We delivered strong third quarter results led by Consumer revenue growth of 23 percent year-over-year, expanding profitability, and strong cash flow generation which is a testament to our team’s execution. Through more than 30 years of leadership and innovation we have built a trusted global cybersecurity brand by seamlessly securing a consumer’s digital experience and defending many of the world’s largest organizations from sophisticated attacks and nation-state threats. The cybersecurity landscape has never been more intense and the need for our solutions is as important as ever. We are very excited to embark on this next leg of our journey as a public company,” said
Financial Highlights for the Third Quarter of 2020 Compared to Prior
Revenue: Total net revenue for the quarter was
Net Income: McAfee reported breakeven net income for the quarter.
Operating Income: Total operating income for the quarter was
Adjusted EBITDA: Total adjusted EBITDA for the quarter was
Unlevered Free Cash Flow: Net cash provided by operating activities was
Consumer KPIs: The market leading growth in McAfee’s Consumer business is attributable to solid business fundamentals, led by 16 percent year-over-year subscriber growth in Core DTC subscribers. McAfee ended the third quarter with 17.3 million Core DTC subscribers, adding over 2.4 million net new subscribers compared to the third quarter of 2019 and 669,000 net new subscribers during the past quarter alone. Consumer trailing twelve-month dollar retention rate was 100 percent for the third quarter, versus 96 percent in the comparable period last year. This marks the 12th consecutive quarter of positive quarter over quarter and year over year Core DTC subscriber growth.
Please refer to the section titled “Use of Non-GAAP Financial Information” and the tables within this press release which contain explanations and reconciliations of the Company’s non-GAAP financial measures.
Recent Business Highlights
-
Consummated initial public offering of 37 million shares and used a portion of the net proceeds to pay down second lien debt of
$525 million -
Recent Consumer channel partnership highlights include an expanded relationship with one of the top 3 mobile service providers in
North America offering our holistic protection to its tens of millions of customers; and an agreement with a leading telecommunications provider to broadly make available our secure home platform to its millions of broadband customers - McAfee has also expanded our relationship with Amazon. With an exclusive offer now available for Business Prime members, McAfee and Amazon Business Prime partnered to solve cyber security and IT resource challenges for small businesses
- McAfee was recently named a Leader in the 2020 Gartner Magic Quadrant for Cloud Access Security Broker (or CASB), for the fourth year in a row
- Hosted MPOWER, McAfee’s annual user conference virtually with our partners to recognize our customers’ success, demonstrate multiple new products, and deliver keynote presentations from industry leaders
Commenting on the Company’s financial results,
Financial Outlook
McAfee provides the following expected financial guidance for the quarter ending
Total Revenue of
Total Adjusted EBITDA of
The financial outlook is subject to a number of important assumptions and risks referenced in the section entitled “Forward-Looking Statements” below, which investors should read carefully.
Webcast / Conference Call Details
In conjunction with this announcement, McAfee will host a webcast conference call today,
Following the conference call, a replay of the webcast will be made available for 30 days on the Investor Relations page of the Company’s website at https://ir.mcafee.com/news-and-events/events.
Use of Non-GAAP Financial Information
In addition to McAfee’s results determined in accordance with generally accepted accounting principles in
Forward-Looking Statements
In addition to historical consolidated financial information, certain statements in this press release and on the related teleconference call may contain “forward-looking statements” within the meaning
Presentation of Financial Measures
This press release presents historical results, for the periods presented, of
The Gartner content described herein, (the "Gartner Content") represent(s) research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. ("Gartner"), and are not representations of fact. Gartner Content speaks as of its original publication date (and not as of the date of this press release) and the opinions expressed in the Gartner Content are subject to change without notice.
About McAfee
McAfee is the device-to-cloud cybersecurity company. Inspired by the power of working together, McAfee creates consumer and business solutions that make the world a safer place. www.mcafee.com
McAfee technologies’ features and benefits depend on system configuration and may require enabled hardware, software, or service activation. No computer system can be absolutely secure. McAfee® and the McAfee logo are trademarks of
|
||||||||||||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) |
||||||||||||||||
(in millions except per unit data) |
||||||||||||||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
728 |
|
|
$ |
662 |
|
|
$ |
2,129 |
|
|
$ |
1,953 |
|
Cost of sales |
|
|
209 |
|
|
|
203 |
|
|
|
619 |
|
|
|
632 |
|
Gross profit |
|
|
519 |
|
|
|
459 |
|
|
|
1,510 |
|
|
|
1,321 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
186 |
|
|
|
184 |
|
|
|
534 |
|
|
|
567 |
|
Research and development |
|
|
88 |
|
|
|
96 |
|
|
|
274 |
|
|
|
289 |
|
General and administrative |
|
|
62 |
|
|
|
72 |
|
|
|
200 |
|
|
|
195 |
|
Amortization of intangibles |
|
|
55 |
|
|
|
55 |
|
|
|
165 |
|
|
|
168 |
|
Restructuring charges |
|
|
— |
|
|
|
(1 |
) |
|
|
9 |
|
|
|
14 |
|
Total operating expenses |
|
|
391 |
|
|
|
406 |
|
|
|
1,182 |
|
|
|
1,233 |
|
Operating income |
|
|
128 |
|
|
|
53 |
|
|
|
328 |
|
|
|
88 |
|
Interest expense and other, net |
|
|
(73 |
) |
|
|
(76 |
) |
|
|
(223 |
) |
|
|
(219 |
) |
Foreign exchange gain (loss), net |
|
|
(43 |
) |
|
|
43 |
|
|
|
(49 |
) |
|
|
44 |
|
Income (loss) before income taxes |
|
|
12 |
|
|
|
20 |
|
|
|
56 |
|
|
|
(87 |
) |
Provision for income tax expense |
|
|
12 |
|
|
|
29 |
|
|
|
25 |
|
|
|
68 |
|
Net income (loss) |
|
$ |
— |
|
|
$ |
(9 |
) |
|
$ |
31 |
|
|
$ |
(155 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on interest rate cash flow hedges, net of tax |
|
$ |
6 |
|
|
$ |
(12 |
) |
|
$ |
(75 |
) |
|
$ |
(75 |
) |
Total comprehensive income (loss) |
|
$ |
6 |
|
|
$ |
(21 |
) |
|
$ |
(44 |
) |
|
$ |
(230 |
) |
Net income (loss) per unit, basic |
|
$ |
— |
|
|
$ |
(0.02 |
) |
|
$ |
0.08 |
|
|
$ |
(0.41 |
) |
Net income (loss) per unit, diluted |
|
$ |
— |
|
|
$ |
(0.02 |
) |
|
$ |
0.08 |
|
|
$ |
(0.41 |
) |
Weighted-average units outstanding, basic |
|
|
379.3 |
|
|
|
377.0 |
|
|
|
378.4 |
|
|
|
376.4 |
|
Weighted-average units outstanding, diluted |
|
|
379.3 |
|
|
|
377.0 |
|
|
|
388.3 |
|
|
|
376.4 |
|
|
||||||||
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS |
||||||||
(in millions) |
||||||||
|
|
As of |
|
|
As of |
|
||
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
348 |
|
|
$ |
167 |
|
Accounts receivable, net |
|
|
311 |
|
|
|
409 |
|
Deferred costs |
|
|
216 |
|
|
|
187 |
|
Other current assets |
|
|
77 |
|
|
|
68 |
|
Total current assets |
|
|
952 |
|
|
|
831 |
|
Property and equipment, net |
|
|
154 |
|
|
|
171 |
|
|
|
|
2,431 |
|
|
|
2,428 |
|
Identified intangible assets, net |
|
|
1,748 |
|
|
|
2,071 |
|
Deferred tax assets |
|
|
59 |
|
|
|
55 |
|
Other long-term assets |
|
|
209 |
|
|
|
232 |
|
Total assets |
|
$ |
5,553 |
|
|
$ |
5,788 |
|
Liabilities, redeemable units, and deficit |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and other current liabilities |
|
$ |
195 |
|
|
$ |
196 |
|
Accrued compensation and benefits |
|
|
150 |
|
|
|
209 |
|
Accrued marketing |
|
|
105 |
|
|
|
94 |
|
Income taxes payable |
|
|
13 |
|
|
|
15 |
|
Long-term debt, current portion |
|
|
44 |
|
|
|
43 |
|
Lease liabilities, current portion |
|
|
22 |
|
|
|
29 |
|
Deferred revenue |
|
|
1,605 |
|
|
|
1,574 |
|
Total current liabilities |
|
|
2,134 |
|
|
|
2,160 |
|
Long-term debt, net |
|
|
4,698 |
|
|
|
4,669 |
|
Deferred tax liabilities |
|
|
165 |
|
|
|
160 |
|
Other long-term liabilities |
|
|
218 |
|
|
|
175 |
|
Deferred revenue, less current portion |
|
|
661 |
|
|
|
718 |
|
Total liabilities |
|
|
7,876 |
|
|
|
7,882 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Redeemable units |
|
|
41 |
|
|
|
— |
|
Deficit: |
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) |
|
|
(137 |
) |
|
|
(62 |
) |
Members’ deficit |
|
|
(873 |
) |
|
|
(647 |
) |
Accumulated deficit |
|
|
(1,354 |
) |
|
|
(1,385 |
) |
Total deficit |
|
|
(2,364 |
) |
|
|
(2,094 |
) |
Total liabilities, redeemable units, and deficit |
|
$ |
5,553 |
|
|
$ |
5,788 |
|
||||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||||||
(in millions) |
||||||||
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
31 |
|
|
$ |
(155 |
) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
372 |
|
|
|
400 |
|
Equity-based compensation |
|
|
25 |
|
|
|
19 |
|
Deferred taxes |
|
|
3 |
|
|
|
13 |
|
Foreign exchange (gain) loss, net |
|
|
49 |
|
|
|
(44 |
) |
Other operating activities |
|
|
40 |
|
|
|
37 |
|
Change in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
94 |
|
|
|
71 |
|
Deferred costs |
|
|
(29 |
) |
|
|
(12 |
) |
Other assets |
|
|
(10 |
) |
|
|
(61 |
) |
Other current liabilities |
|
|
(12 |
) |
|
|
(27 |
) |
Deferred revenue |
|
|
(26 |
) |
|
|
20 |
|
Other liabilities |
|
|
(73 |
) |
|
|
24 |
|
Net cash provided by operating activities |
|
|
464 |
|
|
|
285 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
|
|
(5 |
) |
|
|
(2 |
) |
Additions to property and equipment |
|
|
(32 |
) |
|
|
(37 |
) |
Other investing activities |
|
|
(3 |
) |
|
|
(3 |
) |
Net cash used in investing activities |
|
|
(40 |
) |
|
|
(42 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from the issuance of Member units |
|
|
2 |
|
|
|
— |
|
Payment for the long-term debt due to third party |
|
|
(33 |
) |
|
|
(56 |
) |
Proceeds from long-term debt |
|
|
— |
|
|
|
685 |
|
Payment for debt issuance costs |
|
|
— |
|
|
|
(6 |
) |
Distributions to Members |
|
|
(200 |
) |
|
|
(1,081 |
) |
Other financing activities |
|
|
(14 |
) |
|
|
(11 |
) |
Net cash used in financing activities |
|
|
(245 |
) |
|
|
(469 |
) |
Effect of exchange rate fluctuations on cash and cash equivalents |
|
|
2 |
|
|
|
(2 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
181 |
|
|
|
(228 |
) |
Cash and cash equivalents, beginning of period |
|
|
167 |
|
|
|
468 |
|
Cash and cash equivalents, end of period |
|
$ |
348 |
|
|
$ |
240 |
|
Supplemental disclosures of noncash investing and financing activities and cash flow information: |
|
|
|
|
|
|
|
|
Acquisition of property and equipment included in current liabilities |
|
$ |
(2 |
) |
|
$ |
(6 |
) |
Distributions to Members included in liabilities |
|
|
(5 |
) |
|
|
(4 |
) |
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest, net of cash flow hedges |
|
|
(210 |
) |
|
|
(209 |
) |
Income taxes, net of refunds |
|
|
(35 |
) |
|
|
(35 |
) |
UNAUDITED NON-GAAP FINANCIAL MEASURES
(in millions)
We have included both financial measures compiled in accordance with GAAP and certain non-GAAP financial measures in this Quarterly Report on Form 10-Q, including adjusted operating income, adjusted operating income margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income margin, and unlevered free cash flow and ratios based on these financial measures.
Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA and Adjusted EBITDA Margin
The following table presents a reconciliation of our adjusted operating income and adjusted EBITDA to our net income (loss) for the periods presented:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
— |
|
|
$ |
(9 |
) |
|
$ |
31 |
|
|
$ |
(155 |
) |
Add: Amortization |
|
|
107 |
|
|
|
116 |
|
|
|
330 |
|
|
|
353 |
|
Add: Equity-based compensation |
|
|
6 |
|
|
|
7 |
|
|
|
25 |
|
|
|
19 |
|
Add: Cash in lieu of equity awards(1) |
|
|
1 |
|
|
|
4 |
|
|
|
6 |
|
|
|
15 |
|
Add: Acquisition and integration costs(2) |
|
|
2 |
|
|
|
6 |
|
|
|
6 |
|
|
|
18 |
|
Add: Restructuring and transition(3) |
|
|
— |
|
|
|
(1 |
) |
|
|
9 |
|
|
|
14 |
|
Add: Management fees(4) |
|
|
2 |
|
|
|
2 |
|
|
|
6 |
|
|
|
6 |
|
Add: Implementation costs of adopting ASC Topic 606 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
Add: Transformation initiatives(5) |
|
|
7 |
|
|
|
8 |
|
|
|
17 |
|
|
|
19 |
|
Add: Executive severance(6) |
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
Add: Interest expense and other, net |
|
|
73 |
|
|
|
76 |
|
|
|
223 |
|
|
|
219 |
|
Add: Provision for income tax expense |
|
|
12 |
|
|
|
29 |
|
|
|
25 |
|
|
|
68 |
|
Add: Foreign exchange loss (gain), net |
|
|
43 |
|
|
|
(43 |
) |
|
|
49 |
|
|
|
(44 |
) |
Adjusted operating income |
|
|
253 |
|
|
|
195 |
|
|
|
731 |
|
|
|
536 |
|
Add: Depreciation |
|
|
13 |
|
|
|
15 |
|
|
|
42 |
|
|
|
47 |
|
Less: Other expense |
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
Adjusted EBITDA |
|
$ |
265 |
|
|
$ |
210 |
|
|
$ |
772 |
|
|
$ |
583 |
|
Net revenue |
|
$ |
728 |
|
|
$ |
662 |
|
|
$ |
2,129 |
|
|
$ |
1,953 |
|
Net income (loss) margin |
|
|
— |
|
|
|
(1.4 |
)% |
|
|
1.5 |
% |
|
|
(7.9 |
)% |
Adjusted operating income margin |
|
|
34.8 |
% |
|
|
29.5 |
% |
|
|
34.3 |
% |
|
|
27.4 |
% |
Adjusted EBITDA margin |
|
|
36.4 |
% |
|
|
31.7 |
% |
|
|
36.3 |
% |
|
|
29.9 |
% |
See Appendix A for an explanation of non-GAAP measures and other items.
Consumer Segment
The following table presents a reconciliation of our Consumer adjusted operating income and Consumer adjusted EBITDA to our Consumer operating income for the periods presented:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating income — Consumer |
|
$ |
106 |
|
|
$ |
71 |
|
|
$ |
307 |
|
|
$ |
198 |
|
Add: Amortization |
|
|
63 |
|
|
|
63 |
|
|
|
188 |
|
|
|
191 |
|
Add: Equity-based compensation |
|
|
2 |
|
|
|
1 |
|
|
|
11 |
|
|
|
3 |
|
Add: Cash in lieu of equity awards(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
Add: Acquisition and integration costs(2) |
|
|
2 |
|
|
|
2 |
|
|
|
6 |
|
|
|
6 |
|
Add: Restructuring and transition(3) |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
2 |
|
Add: Management fees(4) |
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
Add: Implementation costs of adopting ASC Topic 606 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
Add: Transformation initiatives(5) |
|
|
3 |
|
|
|
2 |
|
|
|
4 |
|
|
|
3 |
|
Add: Executive severance(6) |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
Adjusted operating income — Consumer |
|
|
177 |
|
|
|
139 |
|
|
|
519 |
|
|
|
406 |
|
Add: Depreciation |
|
|
4 |
|
|
|
5 |
|
|
|
15 |
|
|
|
17 |
|
Adjusted EBITDA — Consumer |
|
$ |
181 |
|
|
$ |
144 |
|
|
$ |
534 |
|
|
$ |
423 |
|
Net revenue — Consumer |
|
$ |
395 |
|
|
$ |
322 |
|
|
$ |
1,132 |
|
|
$ |
956 |
|
Operating income margin — Consumer |
|
|
26.8 |
% |
|
|
22.0 |
% |
|
|
27.1 |
% |
|
|
20.7 |
% |
Adjusted operating income margin — Consumer |
|
|
44.8 |
% |
|
|
43.2 |
% |
|
|
45.8 |
% |
|
|
42.5 |
% |
Adjusted EBITDA margin — Consumer |
|
|
45.8 |
% |
|
|
44.7 |
% |
|
|
47.2 |
% |
|
|
44.2 |
% |
See Appendix A for an explanation of non-GAAP measures and other items.
Enterprise Segment
The following table presents a reconciliation of our Enterprise adjusted operating income and Enterprise adjusted EBITDA to our Enterprise operating income (loss) for the periods presented:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income (loss) — Enterprise |
|
$ |
22 |
|
|
$ |
(18 |
) |
|
$ |
21 |
|
|
$ |
(110 |
) |
Add: Amortization |
|
|
44 |
|
|
|
53 |
|
|
|
142 |
|
|
|
162 |
|
Add: Equity-based compensation |
|
|
4 |
|
|
|
6 |
|
|
|
14 |
|
|
|
16 |
|
Add: Cash in lieu of equity awards(1) |
|
|
1 |
|
|
|
4 |
|
|
|
6 |
|
|
|
14 |
|
Add: Acquisition and integration costs(2) |
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
12 |
|
Add: Restructuring and transition(3) |
|
|
— |
|
|
|
(1 |
) |
|
|
8 |
|
|
|
12 |
|
Add: Management fees(4) |
|
|
1 |
|
|
|
2 |
|
|
|
5 |
|
|
|
5 |
|
Add: Implementation costs of adopting ASC Topic 606 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
Add: Transformation initiatives(5) |
|
|
4 |
|
|
|
6 |
|
|
|
13 |
|
|
|
16 |
|
Add: Executive severance(6) |
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
— |
|
Adjusted operating income — Enterprise |
|
|
76 |
|
|
|
56 |
|
|
|
212 |
|
|
|
130 |
|
Add: Depreciation |
|
|
9 |
|
|
|
10 |
|
|
|
27 |
|
|
|
30 |
|
Less: Other expense |
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
Adjusted EBITDA — Enterprise |
|
$ |
84 |
|
|
$ |
66 |
|
|
$ |
238 |
|
|
$ |
160 |
|
Net revenue — Enterprise |
|
$ |
333 |
|
|
$ |
340 |
|
|
$ |
997 |
|
|
$ |
997 |
|
Operating income (loss) margin — Enterprise |
|
|
6.6 |
% |
|
|
(5.3 |
)% |
|
|
2.1 |
% |
|
|
(11.0 |
)% |
Adjusted operating income margin — Enterprise |
|
|
22.8 |
% |
|
|
16.5 |
% |
|
|
21.3 |
% |
|
|
13.0 |
% |
Adjusted EBITDA margin — Enterprise |
|
|
25.2 |
% |
|
|
19.4 |
% |
|
|
23.9 |
% |
|
|
16.0 |
% |
See Appendix A for an explanation of non-GAAP measures and other items.
Adjusted Net Income and Adjusted Net Income Margin
The following table presents a reconciliation of our adjusted net income to our net income (loss) for the periods presented:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
— |
|
|
$ |
(9 |
) |
|
$ |
31 |
|
|
$ |
(155 |
) |
Add: Amortization of debt discount and issuance costs |
|
|
5 |
|
|
|
5 |
|
|
|
14 |
|
|
|
13 |
|
Add: Amortization |
|
|
107 |
|
|
|
116 |
|
|
|
330 |
|
|
|
353 |
|
Add: Equity-based compensation |
|
|
6 |
|
|
|
7 |
|
|
|
25 |
|
|
|
19 |
|
Add: Cash in lieu of equity awards(1) |
|
|
1 |
|
|
|
4 |
|
|
|
6 |
|
|
|
15 |
|
Add: Acquisition and integration costs(2) |
|
|
2 |
|
|
|
6 |
|
|
|
6 |
|
|
|
18 |
|
Add: Restructuring and transition(3) |
|
|
— |
|
|
|
(1 |
) |
|
|
9 |
|
|
|
14 |
|
Add: Management fees(4) |
|
|
2 |
|
|
|
2 |
|
|
|
6 |
|
|
|
6 |
|
Add: Implementation costs of adopting ASC Topic 606 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
Add: Transformation initiatives(5) |
|
|
7 |
|
|
|
8 |
|
|
|
17 |
|
|
|
19 |
|
Add: Executive severance(6) |
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
Add: Adjustment to provision for income taxes(7) |
|
|
(1 |
) |
|
|
11 |
|
|
|
(16 |
) |
|
|
6 |
|
Adjusted net income |
|
$ |
129 |
|
|
$ |
149 |
|
|
$ |
432 |
|
|
$ |
312 |
|
Net revenue |
|
$ |
728 |
|
|
$ |
662 |
|
|
$ |
2,129 |
|
|
$ |
1,953 |
|
Net income (loss) margin |
|
|
— |
|
|
|
(1.4 |
)% |
|
|
1.5 |
% |
|
|
(7.9 |
)% |
Adjusted net income margin |
|
|
17.7 |
% |
|
|
22.5 |
% |
|
|
20.3 |
% |
|
|
16.0 |
% |
See Appendix A for an explanation of non-GAAP measures and other items.
Unlevered Free Cash Flow
The following table presents a reconciliation of our unlevered free cash flow to our net cash provided by operating activities for the periods presented:
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
||
Net cash provided by operating activities |
|
$ |
464 |
|
|
$ |
285 |
|
Add: Interest payments |
|
|
210 |
|
|
|
209 |
|
Less: Capital expenditures(1) |
|
|
(35 |
) |
|
|
(40 |
) |
Unlevered free cash flow |
|
$ |
639 |
|
|
$ |
454 |
|
Net cash used in investing activities |
|
$ |
(40 |
) |
|
$ |
(42 |
) |
Net cash used in financing activities |
|
$ |
(245 |
) |
|
$ |
(469 |
) |
(1) |
Capital expenditures includes payments for property and equipment and capitalized labor costs incurred in connection with certain software development activities. |
APPENDIX A
EXPLANATION OF NON-GAAP MEASURES AND OTHER ITEMS
Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA and Adjusted EBITDA Margin
We define adjusted operating income for the total Company as net income (loss), excluding the impact of amortization of intangible assets, equity-based compensation expense, interest expense and other, net, provision for income tax expense, foreign exchange (gain) loss, net, and other costs that we do not believe are reflective of our ongoing operations. We define adjusted operating income for our Consumer and Enterprise segments as segment operating income (loss), excluding the impact of amortization of intangible assets, equity-based compensation expense and other costs attributable to the segment that we do not believe are reflective of the segment’s ongoing operations. We present this reconciliation of adjusted operating income (loss) to operating income for Consumer and Enterprise segments because operating income (loss) is the primary measure of profitability used to assess segment performance and is therefore the most directly comparable GAAP financial measure for our operating segments. Adjusted operating income margin is calculated as adjusted operating income divided by net revenue. We define adjusted EBITDA as adjusted operating income, excluding the impact of depreciation expense and other non-operating costs. Adjusted EBITDA margin is calculated as adjusted EBITDA divided by net revenue.
Adjusted Net Income and Adjusted Net Income Margin
We define adjusted net income as net income (loss), excluding the impact of amortization of intangible assets, amortization of debt issuance costs, equity-based compensation expense, other costs, and certain non-recurring tax benefits and expenses that we do not believe to be reflective of our ongoing operations and the tax impact of these adjustments. Adjusted net income margin is calculated as adjusted net income divided by net revenue.
Adjustments for Adjusted Operating Income, Adjusted EBITDA, and Adjusted Net Income
Below are additional information to the adjustments for adjusted operating income, adjusted EBITDA, and adjusted net income:
(1) |
|
As a result of the Sponsor Acquisition, cash awards were provided to certain employees who held Intel equity awards in lieu of equity in |
(2) |
|
Represents both direct and incremental costs in connection with business acquisitions, including acquisition consideration structured as cash retention, third party professional fees, and other integration costs. |
(3) |
|
Represents both direct and incremental costs associated with our separation from Intel, including standing up our back office and costs to execute strategic restructuring events, including third-party professional fees and services, transition services provided by Intel, severance, and facility restructuring costs. |
(4) |
|
Represents management fees paid to certain affiliates of our Sponsors and Intel pursuant to the Management Services Agreement. The Management Services Agreement has been terminated subsequent to the IPO and we paid a one-time fee of |
(5) |
|
Represents costs incurred in connection with transformation of the business post-Intel separation. Also includes the cost of workforce restructurings involving both eliminations of positions and relocations to lower cost locations in connection with MAP and other transformational initiatives, strategic initiatives to improve customer retention, activation to pay and cost synergies, inclusive of duplicative run rate costs related to facilities and data center rationalization. |
(6) |
|
Represents severance to be paid for executive terminations not associated with a strategic restructuring event. |
(7) |
|
Represents the tax impact of all of the above adjustments, as well as excluding the non-recurring tax benefits and expenses related to changes resulting from tax legislation, the assessment or resolution of tax audits or other significant events. |
Unlevered free cash flow
We define unlevered free cash flow as net cash provided by operating activities add interest payments less capital expenditures. We consider unlevered free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet.
View source version on businesswire.com: https://www.businesswire.com/news/home/20201119006253/en/
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