Nortonlifelock Inc. (Exact Name of the Registrant As Specified in Its Charter)
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended January 1, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File Number 000-17781 NortonLifeLock Inc. (Exact name of the registrant as specified in its charter) Delaware 77-0181864 (State or other jurisdiction of incorporation or organization) (I.R.S. employer Identification no.) 60 E. Rio Salado Parkway, Suite 1000, Tempe, Arizona 85281 (Address of principal executive offices) (Zip code) Registrant’s telephone number, including area code: (650) 527-8000 Former name or former address, if changed since last report: Not applicable ________________________ Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading symbol(s) Name of each exchange on which registered Common Stock, par value $0.01 per share NLOK The Nasdaq Stock Market LLC Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer þ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ 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. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ The number of shares of NortonLifeLock common stock, $0.01 par value per share, outstanding as of January 29, 2021 was 581,900,648 shares. Table of Contents NORTONLIFELOCK INC. FORM 10-Q Quarterly Period Ended January 1, 2021 TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) 3 Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statements of Comprehensive Income 5 Condensed Consolidated Statements of Stockholders’ Equity (Deficit) 6 Condensed Consolidated Statements of Cash Flows 8 Notes to Condensed Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 26 Item 3. Quantitative and Qualitative Disclosures about Market Risk 34 Item 4. Controls and Procedures 34 PART II. OTHER INFORMATION Item 1. Legal Proceedings 36 Item 1A. Risk Factors 36 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 46 Item 6. Exhibits 46 Signatures 48 “NortonLifeLock,” “we,” “us,” “our,” and “the Company” refer to NortonLifeLock Inc. and all of its subsidiaries. NortonLifeLock, the NortonLifeLock Logo, the Checkmark Logo, Norton, LifeLock, and the LockMan Logo are trademarks or registered trademarks of NortonLifeLock Inc. or its affiliates in the United States (U.S.) and other countries. Other names may be trademarks of their respective owners. 2 Table of Contents PART I. FINANCIAL INFORMATION Item 1. Financial Statements NORTONLIFELOCK INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in millions, except par value per share amounts) January 1, 2021 April 3, 2020 ASSETS Current assets: Cash and cash equivalents $ 1,046 $ 2,177 Short-term investments 27 86 Accounts receivable, net 111 111 Other current assets 394 435 Assets held for sale 270 270 Total current assets 1,848 3,079 Property and equipment, net 70 238 Operating lease assets 80 88 Intangible assets, net 999 1,067 Goodwill 2,606 2,585 Other long-term assets 754 678 Total assets $ 6,357 $ 7,735 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 67 $ 87 Accrued compensation and benefits 86 115 Current portion of long-term debt 63 756 Contract liabilities 1,090 1,049 Current operating lease liabilities 24 28 Other current liabilities 491 587 Total current liabilities 1,821 2,622 Long-term debt 3,542 3,465 Long-term contract liabilities 45 27 Deferred income tax liabilities 201 149 Long-term income taxes payable 1,096 1,310 Long-term operating lease liabilities 73 73 Other long-term liabilities 71 79 Total liabilities 6,849 7,725 Commitments and contingencies (Note 17) Stockholders’ equity (deficit): Common stock and additional paid-in capital, $0.01 par value: 3,000 shares authorized; 587 and 589 shares issued and outstanding as of January 1, 2021 and April 3, 2020, respectively 2,420 3,356 Accumulated other comprehensive income (loss) 58 (16) Accumulated deficit (2,970) (3,330) Total stockholders’ equity (deficit) (492) 10 Total liabilities and stockholders’ equity (deficit) $ 6,357 $ 7,735 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 3 Table of Contents NORTONLIFELOCK INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in millions, except per share amounts) Three Months Ended Nine Months Ended January 1, 2021 January 3, 2020 January 1, 2021 January 3, 2020 Net revenues $ 639 $ 618 $ 1,879 $ 1,876 Cost of revenues 87 103 263 296 Gross profit 552 515 1,616 1,580 Operating expenses: Sales and marketing 140 178 428 551 Research and development 71 72 199 258 General and administrative 42 85 163 271 Amortization of intangible assets 18 20 54 61 Restructuring and other costs 1 98 142 128 Total operating expenses 272 453 986 1,269 Operating income 280 62 630 311 Interest expense (32) (51) (109) (146) Other income, net 5 399 62 397 Income from continuing operations before income taxes 253 410 583 562 Income tax expense 80 57 95 133 Income from continuing operations 173 353 488 429 Income (loss) from discontinued operations 5 2,492 (128) 3,227 Net income $ 178 $ 2,845 $ 360 $ 3,656 Income (loss) per share - basic: Continuing operations $ 0.29 $ 0.57 $ 0.83 $ 0.69 Discontinued operations $ 0.01 $ 4.01 $ (0.22) $ 5.20 Net income per share - basic (1) $ 0.30 $ 4.58 $ 0.61 $ 5.90 Income (loss) per share - diluted: Continuing operations $ 0.29 $ 0.55 $ 0.81 $ 0.67 Discontinued operations $ 0.01 $ 3.85 $ (0.21) $ 5.01 Net income per share - diluted (1) $ 0.30 $ 4.40 $ 0.60 $ 5.68 Weighted-average shares outstanding: Basic 593 621 591 620 Diluted 597 647 604 644 (1) Net income per share amounts may not add due to rounding. The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 4 Table of Contents NORTONLIFELOCK INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited, in millions) Three Months Ended Nine Months Ended January 1, 2021 January 3, 2020 January 1, 2021 January 3, 2020 Net income $ 178 $ 2,845 $ 360 $ 3,656 Other comprehensive income, net of taxes: Foreign currency translation adjustments 37 15 74 17 Net unrealized gain (loss) on available-for-sale securities (1) (1) — 1 Other comprehensive income from equity method investee — — — 1 Other comprehensive income, net of taxes 36 14 74 19 Comprehensive income $ 214 $ 2,859 $ 434 $ 3,675 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 5 Table of Contents NORTONLIFELOCK INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited, in millions, except per share amounts) Common Stock and Additional Paid-In Three months ended January 1, 2021 Accumulated Other Capital Comprehensive Accumulated Total Stockholders’ Shares Amount Income (Loss) Deficit Equity (Deficit) Balance as of October 2, 2020 592 $ 2,650 $ 22 $ (3,148) $ (476) Net income — — — 178 178 Other comprehensive income — — 36 — 36 Common stock issued under employee stock incentive plans 4 6 — — 6 Shares withheld for taxes related to vesting of restricted stock units (2) (28) — — (28) Repurchases of common stock (7) (153) — — (153) Cash dividends declared ($0.125 per share of common stock) and dividend equivalents accrued — (76) — — (76) Stock-based compensation — 21 — — 21 Balance as of January 1, 2021 587 $ 2,420 $ 58 $ (2,970) $ (492) Common Stock and Additional Paid-In Nine months ended January 1, 2021 Accumulated Other Capital Comprehensive Accumulated Total Stockholders’ Shares Amount Income (Loss) Deficit Equity (Deficit) Balance as of April 3, 2020 589 $ 3,356 $ (16) $ (3,330) $ 10 Net income — — — 360 360 Other comprehensive income — — 74 — 74 Common stock issued under employee stock incentive plans 8 16 — — 16 Shares withheld for taxes related to vesting of restricted stock units (3) (49) — — (49) Repurchases of common stock (7) (158) — — (158) Cash dividends declared ($0.375 per share of common