NortonLifeLock (NLOK - Free Report) reported third-quarter fiscal 2020 non-GAAP earnings of 25 cents per share that increased 0.5% year over year. The figure beat the Zacks Consensus Estimate by 212.5%. This was driven by strong business execution and lower stranded costs.
Revenues were up 6.8% year over year to $649 million, beating the consensus mark of $608 million.
Notably, on Nov 4, 2019, 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 (AVGO - Free Report) .
Direct customer revenues (87.7% of revenues) inched up 0.4% year over year to $542 million. Partner revenues (9.9% of revenues) fell 1.6% on a year-over-year basis to $61 million.
Revenues from ID Analytics (2.4% of revenues) grew 15.4% from the year-ago quarter to $15 million.
Direct average revenue per user (ARPU) increased 1.2% year over year to $8.99.
Continued stabilization of direct customer count was a positive. Customer count increased sequentially during the quarter for the first time in more than two years.
In third-quarter fiscal 2020, gross profit increased 2% year over year to $515 million. Gross margin expanded 120 basis points (bps) on a year-over-year basis to 83.3%.
Operating income on a non-GAAP basis rose 27.3% year over year to $224 million. Operating margin expanded 760 bps on a year-over-year basis to 36.2%.
As of Jan 3, 2020, NortonLifeLock had $12.65 billion in cash and cash equivalents compared with $1.83 billion in the prior quarter. Long-term debt was $3.72 billion, up from $3.22 billion in the previous quarter.
Moreover, cash flow from operations was $399 million, up from $181 million in the second quarter of fiscal 2020. Free cash flow was $389 million, up sequentially from $154 million.
For the fourth quarter of fiscal 2020, NortonLifeLock expects revenues between $595 million and $605 million. Notably, the ID Analytics business was sold to LexisNexis Risk Solutions in January this year. Therefore, revenues from this unit have been excluded from the guidance.
Management continues to expect low-single-digit bookings growth.
Moreover, non-GAAP earnings from continuing operations are expected between 15 cents and 20 cents per share.
Further, upon the elimination of stranded costs (less than $750 million 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 $1.50 per share.
Zacks Rank & Stocks to Consider
NortonLifeLock currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader technology sector are SYNNEX (SNX - Free Report) and Silicon Motion Technology Corporation (SIMO - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term earnings growth rate for SYNNEX and Silicon Motion is currently pegged at 10.37% and 7%, respectively.
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