Business context and reporting period
This is NortonLifeLock Inc.’s Form 10-K for fiscal 2022, the 52-week year ended April 1, 2022, filed May 20, 2022. The filing is under the NortonLifeLock name, not Gen Digital. The company sold subscription-based consumer cybersecurity, identity-protection and online-privacy services through direct, partner and freemium channels. It reported nearly 80 million users and more than 23 million direct customers.
Key financial metrics
Amounts are in U.S. dollars; figures are for fiscal years ended April 1, 2022 and April 2, 2021, respectively.
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $2.796 billion | $2.551 billion |
| Gross profit / gross margin | $2.388 billion / 85% | $2.189 billion / 86% |
| Operating income / margin | $1.005 billion / 36% | $896 million / 35% |
| Continuing-operations net income | $836 million | $696 million |
| Net income | $836 million | $554 million |
| Diluted EPS | $1.41 | $0.92 |
| Operating cash flow | $974 million | $706 million |
| Cash, equivalents and short-term investments at year-end | $1.891 billion | $951 million |
Revenue grew 10%, with increases in consumer security and identity-protection products. Direct customer revenue was $2.476 billion and partner revenue $331 million. Average direct customer count increased to 23.3 million from 21.2 million; year-end count was 23.5 million. Direct ARPU declined to $8.87 from $9.01, while annual retention remained 85%.
Principal, outstanding debt was $3.747 billion at year-end, including $1.000 billion current and $2.736 billion long-term on the balance sheet. The company had an undrawn $1 billion revolver and reported compliance with debt covenants. Cash and short-term investments less debt principal imply approximately $1.856 billion of net debt. Current assets were $2.260 billion versus current liabilities of $3.065 billion. Management said available cash, operating cash generation and credit availability were expected to cover working-capital needs and known obligations for at least 12 months.
Material changes versus the prior year
- Revenue rose $245 million, attributed to higher direct customer count, growth in both main product categories and Avira revenue following its January 2021 acquisition.
- Operating income increased $109 million. Lower restructuring expense helped, partly offset by higher cost of revenue, advertising investment and a $185 million patent-litigation accrual.
- Net income rose $282 million, reflecting higher continuing-operations income and the absence of the prior-year $142 million discontinued-operations loss.
- Operating cash flow increased $268 million. Investing cash flow was $326 million, including $355 million of net proceeds from a property sale; financing cash outflow was $333 million.
- Other income included a $175 million gain on the Mountain View property sale. The company entered a seven-year leaseback for part of the property.
Outlook, risks and unusual items
- Avast transaction: The proposed acquisition was estimated at $8.1–$8.6 billion and expected to close in mid-to-late 2022, subject to remaining regulatory and other conditions. The U.K. Competition and Markets Authority referred it to a Phase 2 investigation. Failure to obtain approval could trigger a break fee of up to $200 million; financing was expected to rely primarily on new debt.
- Demand and competition: Management said pandemic-driven demand had eased and competition was increasing. A recession or weaker consumer spending could pressure demand, cancellations and retention; the company described its offerings as discretionary purchases.
- Litigation: A May 2, 2022 jury verdict, after fiscal year-end, awarded Columbia University $185 million for patent infringement. The company accrued $185 million and intended to appeal; the award could be enhanced, with additional loss possible but not reasonably estimable. The GSA matter had a $50 million accrued low-end estimate, with additional loss possible but not reasonably estimable.
- Other legal matters: A $70 million securities class-action settlement was approved in February 2022, with $67.1 million covered by insurance. The SEC informed the company in April 2022 that it had concluded its investigation and did not intend to recommend enforcement action.
- Tax and interest-rate exposure: Gross unrecognized tax benefits were $527 million, and the auditor identified assessment of uncertain tax positions as a critical audit matter. Variable-rate debt and the transition away from LIBOR may affect borrowing costs.
- Capital returns: The company declared a $0.125-per-share dividend for June 2022 and had $1.774 billion remaining under its repurchase authorization at year-end. It repurchased no shares during FY2022; subsequent to year-end it repurchased 4 million shares for $107 million.
- Guidance: The filing does not provide a specific revenue, earnings or cash-flow forecast. Management’s liquidity statement is not financial guidance.
Most important facts for investors to verify
- Whether the Avast transaction closed, on what terms, and how its financing changed leverage, interest expense and share count.
- The final outcome and total exposure in the Columbia patent case and GSA litigation, including any amounts beyond recorded accruals.
- Whether direct customer growth can continue while ARPU is declining and retention remains unchanged.
- How much reported earnings and cash generation depend on non-recurring property gains and lower restructuring costs.
- The timing and terms of near-term debt maturities, refinancing needs and the effect of variable rates and LIBOR replacement.