8-K
false 0001783317 0001783317 2021-11-08 2021-11-08

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 8, 2021

 

 

McAfee Corp.

(Exact name of Registrant as Specified in Its Charter)

 

 

 

Delaware   001-39651   84-2467341

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

6220 America Center Drive  
San Jose, California   95002
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s Telephone Number, Including Area Code: (866) 622-3911

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Class A Common Stock, $0.001 par value   MCFE   The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 


Item 2.02 Results of Operations and Financial Condition.

On November 8, 2021, McAfee Corp. (the “Corporation”) issued a press release announcing its financial results for the quarter ended September 25, 2021. A copy of the press release is being furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference into this Item 2.02.

In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.

Item 7.01 Regulation FD Disclosure.

The information set forth under Item 2.02 is incorporated by reference as if fully set forth herein.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit
Number
  

Description

99.1*    Press Release dated November 8, 2021.
104    The cover page of this Current Report on Form 8-K, formatted in Inline XBRL.

 

*

Filed herewith.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    McAfee Corp.  
Date: November 8, 2021     By:   /s/ Venkat Bhamidipati
      Venkat Bhamidipati
      Executive Vice President and Chief Financial Officer
      (Principal Financial Officer)
EX-99.1

Exhibit 99.1

McAfee’s Pure-Play Consumer Business Grows 24% in Q3’21

 

   

Net Revenue Increased by 24% to $491 Million and Adjusted EBITDA Increased by 43% to $234 Million

 

   

Core Direct to Consumer (“DTC”) Subscribers Increased YoY by 16% to 20.1 Million, Up 640 Thousand QoQ

SAN JOSE, CA – November 8, 2021 – McAfee Corp. (“McAfee,” or the “Company”) (NASDAQ: MCFE), a global leader in online protection, today announced its financial results for the three months ended September 25, 2021.

“McAfee delivered another strong quarter, with revenue growing 24% year-over-year,” said Peter Leav, McAfee’s President and Chief Executive Officer. “Our continued commitment to secure our customers’ online footprint helped us add 640 thousand net new direct-to-consumer subscribers, a year-over-year increase of 16% in Q3. We continue to invest in our online protection services and diversified go-to-market channel, as consumers increasingly adopt digital services.”

Third Quarter Fiscal 2021 Financial Highlights from Continuing Operations

 

   

Net revenue was $491 million, reflecting 24% growth year-over-year

 

   

Net income of $2,390 million, inclusive of $2,251 million gain, net of estimated taxes and transaction costs, on the divestiture of the Enterprise business

 

   

Adjusted EBITDA(1) of $234 million or a 48% Adjusted EBITDA(1) Margin, inclusive of approximately $21 million in stranded costs attributed to the divestiture of our Enterprise business

 

   

McAfee’s net cash provided by operating activities was $90 million for the quarter

 

   

McAfee’s Unlevered Free Cash Flow was $132 million for the quarter

Business Highlights

 

   

Added 640 thousand net new Direct-to-Consumer subscribers closing the quarter at 20.1 million Core DTC subscribers, compared to 17.3 million in the same period last year

 

   

Signed a multi-year exclusive relationship with T-Mobile, with an intrusion detection and protection and credit monitoring services agreement

 

   

Announced that Gagan Singh joined McAfee as its Executive Vice President, Chief Product and Revenue Officer

Commenting on the Company’s financial results, Venkat Bhamidipati, McAfee’s Executive Vice President and Chief Financial Officer added, “We delivered solid results in Q3, as continued strong demand for our holistic consumer security offerings, across our diversified global go-to-market channels, coupled with our focus on operational discipline, resulted in $234 million in Adjusted EBITDA, or 48% Adjusted EBITDA margin.”

About McAfee

McAfee is a global leader in online protection. www.mcafee.com

Contacts

Investor Contact:

Eduardo Fleites

investor@mcafee.com

Media Contact:

media@mcafee.com


  (1)

Adjusted EBITDA is a non-GAAP financial measure, and should be considered in addition to, but not as a substitute for, information provided in accordance with GAAP.

Use of Non-GAAP Financial Information

In addition to McAfee’s results which are determined in accordance with generally accepted accounting principles in the United States (“GAAP”), the Company believes the following non-GAAP measures presented in this press release are useful in evaluating its operating performance: adjusted operating income, adjusted operating income margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income margin, adjusted earnings per share (“EPS”) and unlevered free cash flow. Certain of these non-GAAP measures exclude equity-based compensation, depreciation and amortization expense, transformation expense, restructuring and transition charges, interest expense, foreign exchange (gain) and loss, other income (expense), net, provision for income tax expense, Tax Receivable Agreement (“TRA”) adjustment, income from Transition Services Agreement (“TSA”), income or loss from discontinued operations, net of taxes, and other costs we do not believe are reflective of our ongoing operations. McAfee believes that these non-GAAP financial measures are provided to enhance the reader’s understanding of our past financial performance and our prospects for the future. McAfee’s management team uses these non-GAAP financial measures in assessing McAfee’s performance, as well as in planning and forecasting future periods. The non-GAAP financial information is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation is provided herein for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Readers are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Presentation of Financial Measures

McAfee Corp. (the “Corporation”) was incorporated in Delaware on July 19, 2019. The Corporation was formed for the purpose of completing an initial public offering (the “IPO”) and related transactions in order to carry on the business of Foundation Technology Worldwide LLC (“FTW”) and its subsidiaries (the Corporation, FTW and its subsidiaries are collectively the “Company”). The Corporation, as the sole managing member of FTW, exclusively operates and controls the business and affairs of FTW. The Corporation consolidates the financial results of FTW and reports a redeemable noncontrolling interest (“RNCI”) related to the LLC Units and Management Incentive Units (MIUs) not owned by the Corporation.


MCAFEE CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions except per share amounts)

 

     Three Months Ended     Nine Months Ended  
     September 25,
2021
    September 26,
2020
    September 25,
2021
    September 26,
2020
 

Net revenue

   $ 491     $ 395     $ 1,400     $ 1,132  

Cost of sales

     118       112       349       321  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     373       283       1,051       811  

Operating expenses:

        

Sales and marketing

     91       87       264       225  

Research and development

     48       35       138       109  

General and administrative

     51       43       143       141  

Amortization of intangibles

     13       36       63       108  

Restructuring and transition charges (Note 9)

     27       —         35       1  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     230       201       643       584  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     143       82       408       227  

Interest expense

     (61     (72     (170     (222

Foreign exchange gain (loss), net

     14       (43     29       (49

Other income (expense), net

     (292     (1     (301     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (196     (34     (34     (44

Provision for income tax expense (benefit)

     (166     5       (159     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (30     (39     125       (44

Income from discontinued operations, net of taxes

     2,420       39       2,467       75  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 2,390     $ —       $ 2,592     $ 31  
  

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income attributable to redeemable noncontrolling interests

     1,648       N/A       1,784       N/A  
  

 

 

     

 

 

   

Net income attributable to McAfee Corp.

   $ 742       N/A     $ 808       N/A  
  

 

 

     

 

 

   

Net income (loss) attributable to McAfee Corp.:

        

Loss from continuing operations attributable to McAfee Corp.

   $ (92     N/A     $ (40     N/A  

Income from discontinued operations attributable to McAfee Corp.

     834       N/A       848       N/A  
  

 

 

     

 

 

   

Net income attributable to McAfee Corp.

   $ 742       N/A     $ 808       N/A  
  

 

 

     

 

 

   

Earnings per share attributable to McAfee Corp., basic and diluted:

        

Continuing operations

   $ (0.54     N/A     $ (0.24     N/A  

Discontinued operations

     4.90       N/A       5.11       N/A  
  

 

 

     

 

 

   

Earnings per share, basic and diluted(1)

   $ 4.36       N/A     $ 4.87       N/A  
  

 

 

     

 

 

   

Weighted-average shares outstanding, basic and diluted

     170.3       N/A       165.9       N/A  

 

(1)

Basic and diluted earnings per share of Class A common stock are not applicable prior to the initial public offering (“IPO”) and related Reorganization Transactions (as defined in Note 1 to the condensed consolidated financial statements to be included in our 2021 Q3 quarterly report on Form 10-Q to be filed with Securities Exchange Commission). See Note 15 Earnings Per Share in the notes to the condensed consolidated financial statements for the number of shares used in the computation of earnings per share of Class A common stock and the basis for the computation of earnings per share.


MCAFEE CORP.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share amounts)

 

     September 25,
2021
    December 26,
2020
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 848     $ 231  

Accounts receivable, net

     124       102  

Deferred costs

     171       137  

Receivable from Enterprise Business

     116       —    

Other current assets

     36       42  

Held-for-sale assets

     31       —    

Current assets of discontinued operations

     —         402  
  

 

 

   

 

 

 

Total current assets

     1,326       914  

Property and equipment, net

     55       98  

Goodwill

     1,018       1,018  

Identified intangible assets, net

     595       729  

Deferred tax assets

     398       24  

Other long-term assets

     92       67  

Long-term assets of discontinued operations

     —         2,578  
  

 

 

   

 

 

 

Total assets

   $ 3,484     $ 5,428  
  

 

 

   

 

 

 

Liabilities, redeemable noncontrolling interests and deficit

    

Current liabilities:

    

Accounts payable and other current liabilities

   $ 303     $ 235  

Accrued compensation and benefits

     66       179  

Accrued marketing

     101       118  

Income taxes payable

     207       14  

Long-term debt, current portion

     44       44  

Deferred revenue

     953       823  

Payable to Enterprise Business

     50       —    

Current liabilities of discontinued operations

     —         972  
  

 

 

   

 

 

 

Total current liabilities

     1,724       2,385  

Long-term debt, net

     2,889       3,943  

Deferred tax liabilities

     17       5  

Tax receivable agreement liability, less current portion

     392       —    

Other long-term liabilities

     136       155  

Deferred revenue, less current portion

     91       80  

Long-term liabilities of discontinued operations

     —         660  
  

 

 

   

 

 

 

Total liabilities

     5,249       7,228  
  

 

 

   

 

 

 

Commitments and contingencies (Note 17)

    

Redeemable noncontrolling interests

     5,836       4,840  

Equity (deficit):

    

Class A common stock, $0.001 par value - 1,500,000,000 shares authorized,
179,848,875 shares issued and outstanding as of September 25, 2021 and
161,267,412 shares issued and outstanding as of December 26, 2020

     —         —    

Class B common stock, $0.001 par value - 300,000,000 shares authorized,
255,490,562 shares issued and outstanding as of September 25, 2021 and
267,065,127 shares issued and outstanding as of December 26, 2020

     —         —    

Additional paid-in capital

     (7,571     (6,477

Accumulated deficit

     —         (118

Accumulated other comprehensive income (loss)

     (30     (45
  

 

 

   

 

 

 

Total deficit

     (7,601     (6,640
  

 

 

   

 

 

 

Total liabilities, redeemable noncontrolling interests and deficit

   $ 3,484     $ 5,428  
  

 

 

   

 

 

 


MCAFEE CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

 

     Nine Months Ended  
     September 25,
2021
    September 26,
2020
 

Cash flows from operating activities:

    

Net income

   $ 2,592     $ 31  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     195       372  

Equity-based compensation

     85       25  

Deferred taxes

     (161     3  

Foreign exchange (gain) loss, net

     (29     49  

Pre-tax gain on divestiture of Enterprise Business

     (2,634     —    

Tax Receivable Agreement remeasurement

     310       —    

Other operating activities

     31       40  

Change in assets and liabilities:

    

Receivable and payable from/to Enterprise Business

     (36     —    

Accounts receivable, net

     108       94  

Deferred costs

     (34     (29

Other assets

     (42     (10

Income taxes payable

     193       (2

Other current liabilities

     24       (10

Deferred revenue

     (10     (26

Other liabilities

     (54     (73
  

 

 

   

 

 

 

Net cash provided by operating activities

     538       464  

Cash flows from investing activities:

    

Acquisitions, net of cash acquired

     —         (5

Additions to property and equipment

     (19     (32

Proceeds from divestiture of Enterprise Business, net of transaction costs (Note 3)

     3,880       —    

Other investing activities

     (4     (3
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     3,857       (40

Cash flows from financing activities:

    

Proceeds from the issuance of Member units

     11       2  

Payment for long-term debt

     (1,027     (33

Distributions to members of FTW

     (1,860     (200

Payment of dividends

     (812     —    

Payment of tax withholding for shares and units withheld

     (79     (4

Other financing activities

     (3     (10
  

 

 

   

 

 

 

Net cash used in financing activities

     (3,770     (245

Effect of exchange rate fluctuations on cash and cash equivalents

     (8     2  
  

 

 

   

 

 

 

Change in cash and cash equivalents

     617       181  

Cash and cash equivalents, beginning of period

     231       167  
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 848     $ 348  
  

 

 

   

 

 

 

Supplemental disclosures of noncash investing and financing activities and cash flow information:

    

Acquisition of property and equipment included in current liabilities

   $ (4   $ (2

Distributions to members of FTW included in liabilities

     (45     (5

Dividends payable included in liabilities

     (21     —    

Other financing activities included in liabilities

     (8     —    

Tax withholding for shares and units withheld included in liabilities

     (5     —    

Proceeds receivable related to divestiture of Enterprise Business

     65       —    

Transaction costs payable related to divestiture of Enterprise Business

     (28     —    

Cash paid during the period for:

    

Interest, net of cash flow hedges

     (148     (210

Income taxes, net of refunds

     (51     (35


MCAFEE CORP.

UNAUDITED NON-GAAP FINANCIAL MEASURES

(in millions)

We have included both financial measures compiled in accordance with GAAP and certain non-GAAP financial measures, including adjusted operating income, adjusted operating income margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income margin, adjusted EPS 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 for the periods presented:

 

     Three Months Ended     Nine Months Ended  
(in millions)    September 25,
2021
    September 26,
2020
    September 25,
2021
    September 26,
2020
 

Net income

   $ 2,390     $ —       $ 2,592     $ 31  

Add: Amortization

     35       62       134       188  

Add: Equity-based compensation

     17       5       50       21  

Add: Cash in lieu of equity awards(1)

     —         —         —         1  

Add: Acquisition and integration costs(2)

     —         2       1       5  

Add: Restructuring and transition charges(3)

     27       —         35       1  

Add: Management fees(4)

     —         2       —         6  

Add: Transformation(5)

     5       7       6       16  

Add: Executive severance(6)

     1       —         1       3  

Add: Interest expense

     61       72       170       222  

Add: Foreign exchange loss (gain), net(7)

     (14     43       (29     49  

Add: Provision for income tax expense (benefit)

     (166     5       (159     —    

Add: TRA adjustment(8)

     298       —         306       —    

Less: Income from TSA(9)

     (7     —         (7     —    

Add: Other (income) expense, net(10)

     1       1       2       —    

Less: Income from discontinued operations, net of taxes

     (2,420     (39     (2,467     (75
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted operating income

     228       160       635       468  

Add: Depreciation

     6       5       18       17  

Less: Other expense

     —         (1     —         (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 234     $ 164     $ 653     $ 484  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

   $ 491     $ 395     $ 1,400     $ 1,132  

Net income margin

     486.8     —         185.1     2.7

Adjusted operating income margin

     46.4     40.5     45.4     41.3

Adjusted EBITDA margin

     47.7     41.5     46.6     42.8

See Appendix A for an explanation of non-GAAP measures and other items.


Adjusted Net Income, Adjusted Net Income Margin, and Adjusted EPS

The following table presents a reconciliation of our adjusted net income to our net income for the periods presented:

 

     Three Months Ended     Nine Months Ended  
(in millions except per share amounts)    September 25,
2021
    September 26,
2020
    September 25,
2021
    September 26,
2020
 

Net income

   $ 2,390     $ —       $ 2,592     $ 31  

Add: Amortization of debt discount and issuance costs

     13       4       21       13  

Add: Amortization

     35       62       134       188  

Add: Equity-based compensation

     17       5       50       21  

Add: Cash in lieu of equity awards(1)

     —         —         —         1  

Add: Acquisition and integration costs(2)

     —         2       1       5  

Add: Restructuring and transition charges(3)

     27       —         35       1  

Add: Management fees(4)

     —         2       —         6  

Add: Transformation(5)

     5       7       6       16  

Add: Executive severance(6)

     1       —         1       3  

Add: Foreign exchange loss (gain), net(7)

     (14     43       (29     49  

Add: Provision for income taxes (benefit)

     (166     5       (159     —    

Add: TRA adjustment(8)

     298       —         306       —    

Less: Income from TSA(9)

     (7     —         (7     —    

Add: Other (income) expense, net(10)

     1       1       2       —    

Less: Income from discontinued operations, net of taxes

     (2,420     (39     (2,467     (75
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted income before taxes

     180       92       486       259  

Adjusted provision for income taxes(11)

     40       20       107       57  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income

   $ 140     $ 72     $ 379     $ 202  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

   $ 491     $ 395     $ 1,400     $ 1,132  

Net income margin

     486.8     —         185.1     2.7

Adjusted net income margin

     28.5     18.2     27.1     17.8

Net loss per share, diluted

   $ (0.54      

Adjusted EPS

   $ 0.31        

Weighted average shares outstanding, basic

     170.3        

Impact on dilution:

        

Equity awards(a)

     12.9        

Assumed conversion of LLC Units and vested MIUs

     269.4        
  

 

 

       

Weighted average shares outstanding, diluted(12)

     452.6        
  

 

 

       

 

(a)

Diluted GAAP and non-GAAP impact from equity awards are the same, except in periods in which there is a GAAP loss from continuing operations. We do not present dilution for equity awards in periods in which there is a loss from continuing operations. However, if there is non-GAAP net income, we present dilution for non-GAAP weighted-average shares outstanding in an amount equal to the dilution that would have been presented had there been GAAP income from continuing operations for the period.

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  
(in millions)    September 25, 2021      September 26, 2020  

Net cash provided by operating activities

   $ 538      $ 464  

Add: Interest payments

     148        210  

Less: Capital expenditures(1)

     (23      (35
  

 

 

    

 

 

 

Unlevered free cash flow

   $ 663      $ 639  
  

 

 

    

 

 

 

Net cash provided by (used in) investing activities

   $ 3,857      $ (40

Net cash used in financing activities

   $ (3,770    $ (245

 

(1)

Capital expenditures includes payments for property and equipment and capitalized labor costs incurred in connection with certain software development activities.


MCAFEE CORP.

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 as net income (loss), excluding the impact of amortization of intangible assets, equity-based compensation expense, interest expense, foreign exchange (gain) loss, net, Tax Receivable Agreement (“TRA”) adjustment, income from Transition Services Agreement (“TSA”), other income (expense), net, provision for income tax expense, income (loss) from discontinued operations, net of taxes, and other costs that we do not believe are reflective of our ongoing operations. 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 plus certain other non-operating costs. Adjusted EBITDA margin is calculated as adjusted EBITDA divided by net revenue.

Adjusted Net Income, and Adjusted Net Income Margin

Adjusted net income assumes all net income (loss) is attributable to McAfee Corp., which assumes the full exchange of all outstanding LLC Units for shares of Class A common stock of McAfee Corp., and is adjusted for the impact of amortization of intangible assets, amortization of debt issuance costs, equity-based compensation expense, foreign exchange loss (gain), net, Tax Receivable Agreement (“TRA”) adjustment, income from Transition Services Agreement (“TSA”), income (loss) from discontinued operations, net of taxes, and other costs that we do not believe are reflective of our ongoing operations. The adjusted provision for income taxes represents the tax effect on net income, adjusted for all of the listed adjustments, assuming that all consolidated net income was subject to corporate taxation for all periods presented. We have an assumed an annual effective tax rate of 22%, which represents our long term expected corporate tax rate excluding discrete and non-recurring tax items. This amount has been recast for periods reported previously.

Adjusted net income margin is calculated as adjusted net income divided by net revenue. Adjusted net income and adjusted net income margin have limitations as analytical tools, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

Adjustments for Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS

Below is additional information for the adjustments for adjusted operating income, adjusted EBITDA, and adjusted net income:

 

(1)

As a result of the purchase from Intel of a majority interest in FTW in April 2017, cash awards were provided to certain employees who held Intel equity awards in lieu of equity in FTW. As these rollover awards reflect one-time grants to former employees of Intel in connection with these transactions, we believe this expense is not reflective of our ongoing results.

 

(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 to execute strategic restructuring events, including third-party professional fees and services, severance, and facility restructuring costs. Also inclusive of transition charges including legal, advisory, consulting and other costs directly incurred due to the divestiture of the Enterprise Business, including incremental costs associated with data disentanglement and acceleration of data migration to the cloud, that were incurred subsequent to the sale in support of the Transition Services Agreement.

 

(4)

Represents management fees paid to certain affiliates of TPG, Thoma Bravo, and Intel pursuant to the Management Services Agreement.

 

(5)

Represents costs incurred for our public offerings along with other transformational initiatives including data center and facilities rationalization.

 

(6)

Represents severance for executive terminations not associated with a strategic restructuring event.

 

(7)

Represents Foreign exchange gain (loss), net as shown on the condensed consolidated statement of operations. This amount is attributable to realized and unrealized gains or losses on non-U.S. Dollar denominated balances and is primarily due to unrealized gains or losses associated with our 1st Lien Euro Term Loan.

 

(8)

Represents the impact on net income of adjustments to liabilities under our Tax Receivable Agreement.

 

(9)

Represents income earned under the Transition Services Agreement.

 

(10)

Represents other income or expense not associated with our core operations and it is recorded within Other income (expense), net on the consolidated statements of operations.


(11)

Prior to our IPO, our structure was that of a pass through entity for U.S. federal income tax purposes with certain U.S. and foreign subsidiaries subject to income tax in their respective jurisdictions. Subsequent to the IPO, McAfee Corp. is taxed as a corporation and pays corporate federal, state, and local taxes on income allocated to it from FTW. This amount has been recast for periods reported previously. The adjusted provision for income taxes now represents the tax effect on net income, adjusted for all of the listed adjustments, assuming that all consolidated net income was subject to corporate taxation for all periods presented. We have assumed rate of 22% which represents our long term expected corporate tax rate excluding discrete and non-recurring tax items.

 

(12)

Represents weighted average shares outstanding and includes the dilutive impact of our outstanding equity awards and assumed conversion of our LLC units and MIUs not owned by the Corporation.

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.

Source: McAfee