McAfee Corp. - FORM 8-K - EX-99.1

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8-K - 8-K SUPPLEMENTAL FINANCIAL - McAfee Corp.	mcfe-8k_20201224.htm

EX-99.1

Non-GAAP Financial Measures

In addition to McAfee’s results determined in accordance with generally accepted accounting principles in the United States (“GAAP”), the Company believes the following non-GAAP measures presented in this presentation are useful in evaluating its operating performance: adjusted cost of sales, adjusted gross profit, adjusted sales and marketing expense, adjusted research and development expense, adjusted general and administrative expense, adjusted operating expense, adjusted operating income, adjusted interest expenses and other, net, adjusted income before income tax expense, adjusted provision for income tax expense, adjusted net income, adjusted net income excluding impact of foreign exchange, and adjusted EBITDA. 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 financial measures used by other companies. A reconciliation has been provided in this presentation 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.

This presentation includes historical results, for the periods presented, of Foundation Technology Worldwide LLC, the predecessor McAfee Corp. for financial reporting purposes. The financial results of McAfee Corp. have not been included in this presentation as it is a recently incorporated entity and had no material assets or liabilities and no material business transactions or activities during the periods presented. Accordingly, these historical results do not purport to reflect what the results of operations of McAfee Corp. or Foundation Technology Worldwide LLC would have been had the IPO and related recapitalization transactions occurred prior to such periods.

Foundation Technology Worldwide LLC

Condensed Consolidated Statements of Operations – Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3

Net revenue	$	637		$	654		$	662		$	682		$	685		$	716		$	728
Cost of sales		214			215			203			211			204			206			209
Gross profit		423			439			459			471			481			510			519
Gross margin percentage		66.4	%		67.1	%		69.3	%		69.1	%		70.2	%		71.2	%		71.3	%
Operating expenses:
Sales and marketing		193			190			184			203			174			174			186
Research and development		94			99			96			91			94			92			88
General and administrative		59			64			72			77			78			60			62
Amortization of intangibles		58			55			55			54			55			55			55
Restructuring charges		12			3			(1	)		8			9			-			-
Total operating expenses		416			411			406			433			410			381			391
Operating income		7			28			53			38			71			129			128
Operating margin percentage		1.1	%		4.3	%		8.0	%		5.6	%		10.4	%		18.0	%		17.6	%
Other Expense:
Interest expense and other, net		(70	)		(73	)		(76	)		(76	)		(75	)		(75	)		(73	)
Foreign exchange gain (loss), net		13			(12	)		43			(24	)		11			(17	)		(43	)
Income before income taxes		(50	)		(57	)		20			(62	)		7			37			12
Provision for income tax expense		17			22			29			19			(2	)		15			12
Net income (loss)	$	(67	)	$	(79	)	$	(9	)	$	(81	)	$	9		$	22		$	-

Foundation Technology Worldwide LLC

Adjusted Condensed Consolidated Statements of Operations – Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3

Net revenue	$	637		$	654		$	662		$	682		$	685		$	716		$	728
Adjusted cost of sales		149			153			142			148			143			154			157
Adjusted gross profit		488			501			520			534			542			562			571
Adjusted gross margin percentage		76.6	%		76.6	%		78.5	%		78.3	%		79.1	%		78.5	%		78.4	%
Adjusted operating expenses:
Adjusted sales and marketing		187			186			182			197			171			172			184
Adjusted research and development		88			94			90			85			91			89			87
Adjusted general and administrative		44			49			53			55			51			52			47
Total adjusted operating expenses		319			329			325			337			313			313			318
Adjusted operating income		169			172			195			197			229			249			253
Adjusted operating margin percentage		26.5	%		26.3	%		29.5	%		28.9	%		33.4	%		34.8	%		34.8	%
Other Expense:
Adjusted interest expense and other, net		(67	)		(68	)		(71	)		(72	)		(70	)		(71	)		(68	)
Foreign exchange gain (loss), net		13			(12	)		43			(24	)		11			(17	)		(43	)
Adjusted income before income taxes		115			92			167			101			170			161			142
Adjusted provision for income tax expense		18			26			18			17			12			16			13
Adjusted net income	$	97		$	66		$	149		$	84		$	158		$	145		$	129

Adjusted net income excluding impact of foreign exchange	$	84		$	78		$	106		$	108		$	147		$	162		$	172

Foundation Technology Worldwide LLC

GAAP to Non-GAAP Reconciliations – Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3
Adjusted Cost of Sales
GAAP cost of sales expense	$	214		$	215		$	203		$	211		$	204		$	206		$	209
Amortization		(63	)		(61	)		(61	)		(63	)		(61	)		(52	)		(52	)
Equity-based compensation		(1	)		-			-			-			-			-			-
Cash in lieu of equity awards⁽¹⁾		(1	)		(1	)		-			-			-			-			-
Adjusted cost of sales expense	$	149		$	153		$	142		$	148		$	143		$	154		$	157

Adjusted Gross Profit
GAAP gross profit	$	423		$	439		$	459		$	471		$	481		$	510		$	519
Amortization		63			61			61			63			61			52			52
Equity-based compensation		1			-			-			-			-			-			-
Cash in lieu of equity awards⁽¹⁾		1			1			-			-			-			-			-
Adjusted gross profit	$	488		$	501		$	520		$	534		$	542		$	562		$	571

Adjusted Sales and Marketing
GAAP sales and marketing expense	$	193		$	190		$	184		$	203		$	174		$	174		$	186
Equity-based compensation		(1	)		(1	)		(1	)		(1	)		(1	)		(1	)		(1	)
Cash in lieu of equity awards⁽¹⁾		(2	)		(2	)		(1	)		(1	)		(1	)		(1	)		(1	)
Transformation initiatives⁽⁵⁾		(3	)		(1	)		-			(1	)		-			-			-
Executive severance⁽⁶⁾		-			-			-			(3	)		(1	)		-			-
Adjusted sales and marketing expense	$	187		$	186		$	182		$	197		$	171		$	172		$	184

Adjusted Research and Development
GAAP research and development expense	$	94		$	99		$	96		$	91		$	94		$	92		$	88
Equity-based compensation		(4	)		(2	)		(3	)		(3	)		(1	)		(2	)		(1	)
Cash in lieu of equity awards⁽¹⁾		(2	)		(3	)		(2	)		(2	)		(2	)		(1	)		-
Transformation initiatives⁽⁵⁾		-			-			(1	)		(1	)		-			-			-
Adjusted research and development expense	$	88		$	94		$	90		$	85		$	91		$	89		$	87

Foundation Technology Worldwide LLC

GAAP to Non-GAAP Reconciliations – Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3
Adjusted General and Administrative
GAAP general and administrative expense	$	59		$	64		$	72		$	77		$	78		$	60		$	62
Equity-based compensation		-			(3	)		(3	)		(2	)		(13	)		(1	)		(4	)
Cash in lieu of equity awards⁽¹⁾		-			-			(1	)		(1	)		-			-			-
Acquisition and integration costs⁽²⁾		(6	)		(6	)		(6	)		(5	)		(2	)		(2	)		(2	)
Management fees⁽⁴⁾		(2	)		(2	)		(2	)		(2	)		(2	)		(2	)		(2	)
Transformation initiatives⁽⁵⁾		(4	)		(3	)		(7	)		(12	)		(8	)		(2	)		(7	)
Executive severance⁽⁶⁾		-			-			-			-			(2	)		(1	)		-
Implementation costs for ASC 606		(3	)		(1	)		-			-			-			-			-
Adjusted general and administrative expense	$	44		$	49		$	53		$	55		$	51		$	52		$	47

Adjusted Amortization of Intangibles
GAAP amortization of intangibles	$	58		$	55		$	55		$	54		$	55		$	55		$	55
Amortization of intangibles adjustment		(58	)		(55	)		(55	)		(54	)		(55	)		(55	)		(55	)
Adjusted amortization of intangibles	$	-		$	-		$	-		$	-		$	-		$	-		$	-

Adjusted Restructuring Charges
GAAP restructuring charges	$	12		$	3		$	(1	)	$	8		$	9		$	-		$	-
Restructuring charges adjustment		(12	)		(3	)		1			(8	)		(9	)		-			-
Adjusted restructuring charges	$	-		$	-		$	-		$	-		$	-		$	-		$	-

Foundation Technology Worldwide LLC

GAAP to Non-GAAP Reconciliations – Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3
Adjusted Operating Expenses
GAAP total operating expenses	$	416		$	411		$	406		$	433		$	410		$	381		$	391
Amortization		(58	)		(55	)		(55	)		(54	)		(55	)		(55	)		(55	)
Equity-based compensation		(5	)		(6	)		(7	)		(6	)		(15	)		(4	)		(6	)
Cash in lieu of equity awards⁽¹⁾		(4	)		(5	)		(4	)		(4	)		(3	)		(2	)		(1	)
Acquisition and integration costs⁽²⁾		(6	)		(6	)		(6	)		(5	)		(2	)		(2	)		(2	)
Restructuring and transition⁽³⁾		(12	)		(3	)		1			(8	)		(9	)		-			-
Management fees⁽⁴⁾		(2	)		(2	)		(2	)		(2	)		(2	)		(2	)		(2	)
Transformation initiatives⁽⁵⁾		(7	)		(4	)		(8	)		(14	)		(8	)		(2	)		(7	)
Executive severance⁽⁶⁾		-			-			-			(3	)		(3	)		(1	)		-
Implementation costs for ASC 606		(3	)		(1	)		-			-			-			-			-
Adjusted operating expenses	$	319		$	329		$	325		$	337		$	313		$	313		$	318

Adjusted Operating Income
GAAP operating income	$	7		$	28		$	53		$	38		$	71		$	129		$	128
Amortization		121			116			116			117			116			107			107
Equity-based compensation		6			6			7			6			15			4			6
Cash in lieu of equity awards⁽¹⁾		5			6			4			4			3			2			1
Acquisition and integration costs⁽²⁾		6			6			6			5			2			2			2
Restructuring and transition⁽³⁾		12			3			(1	)		8			9			-			-
Management fees⁽⁴⁾		2			2			2			2			2			2			2
Transformation initiatives⁽⁵⁾		7			4			8			14			8			2			7
Executive severance⁽⁶⁾		-			-			-			3			3			1			-
Implementation costs for ASC 606		3			1			-			-			-			-			-
Adjusted operating income	$	169		$	172		$	195		$	197		$	229		$	249		$	253

Foundation Technology Worldwide LLC

GAAP to Non-GAAP Reconciliations – Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3
Adjusted Interest Expense and Other, net
GAAP interest expense and other, net	$	(70	)	$	(73	)	$	(76	)	$	(76	)	$	(75	)	$	(75	)	$	(73	)
Amortization of debt issuance costs		3			5			5			4			5			4			5
Adjusted interest expense and other, net	$	(67	)	$	(68	)	$	(71	)	$	(72	)	$	(70	)	$	(71	)	$	(68	)

Adjusted Income Before Income Tax Expense
GAAP income before income tax expense	$	(50	)	$	(57	)	$	20		$	(62	)	$	7		$	37		$	12
Amortization of debt issuance costs		3			5			5			4			5			4			5
Amortization		121			116			116			117			116			107			107
Equity-based compensation		6			6			7			6			15			4			6
Cash in lieu of equity awards⁽¹⁾		5			6			4			4			3			2			1
Acquisition and integration costs⁽²⁾		6			6			6			5			2			2			2
Restructuring and transition⁽³⁾		12			3			(1	)		8			9			-			-
Management fees⁽⁴⁾		2			2			2			2			2			2			2
Transformation initiatives⁽⁵⁾		7			4			8			14			8			2			7
Executive severance⁽⁶⁾		-			-			-			3			3			1			-
Implementation costs for ASC 606		3			1			-			-			-			-			-
Adjusted income before income tax expense	$	115		$	92		$	167		$	101		$	170		$	161		$	142

Adjusted Provision for Income Tax Expense
GAAP provision for income tax expense	$	17		$	22		$	29		$	19		$	(2	)	$	15		$	12
Adjustment to provision for income tax expense⁽⁷⁾		1			4			(11	)		(2	)		14			1			1
Adjusted provision for income tax expense	$	18		$	26		$	18		$	17		$	12		$	16		$	13

Foundation Technology Worldwide LLC

GAAP to Non-GAAP Reconciliations – Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3
Adjusted Net Income and Adjusted Net Income Excluding Impact of Foreign Exchange
GAAP net income	$	(67	)	$	(79	)	$	(9	)	$	(81	)	$	9		$	22		$	-
Amortization of debt issuance costs		3			5			5			4			5			4			5
Amortization		121			116			116			117			116			107			107
Equity-based compensation		6			6			7			6			15			4			6
Cash in lieu of equity awards⁽¹⁾		5			6			4			4			3			2			1
Acquisition and integration costs⁽²⁾		6			6			6			5			2			2			2
Restructuring and transition⁽³⁾		12			3			(1	)		8			9			-			-
Management fees⁽⁴⁾		2			2			2			2			2			2			2
Transformation initiatives⁽⁵⁾		7			4			8			14			8			2			7
Executive severance⁽⁶⁾		-			-			-			3			3			1			-
Implementation costs for ASC 606		3			1			-			-			-			-			-
Adjustment to provision for income taxes⁽⁷⁾		(1	)		(4	)		11			2			(14	)		(1	)		(1	)
Adjusted net income	$	97		$	66		$	149		$	84		$	158		$	145		$	129
GAAP foreign exchange loss (gain), net		(13	)		12			(43	)		24			(11	)		17			43
Adjusted net income excluding impact of foreign exchange	$	84		$	78		$	106		$	108		$	147		$	162		$	172

Foundation Technology Worldwide LLC

GAAP to Non-GAAP Reconciliations – Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2		Q3
Adjusted EBTIDA
GAAP net income	$	(67	)	$	(79	)	$	(9	)	$	(81	)	$	9		$	22	$	-
Amortization		121			116			116			117			116			107		107
Equity-based compensation		6			6			7			6			15			4		6
Cash in lieu of equity awards⁽¹⁾		5			6			4			4			3			2		1
Acquisition and integration costs⁽²⁾		6			6			6			5			2			2		2
Restructuring and transition⁽³⁾		12			3			(1	)		8			9			-		-
Management fees⁽⁴⁾		2			2			2			2			2			2		2
Transformation initiatives⁽⁵⁾		7			4			8			14			8			2		7
Executive severance⁽⁶⁾		-			-			-			3			3			1		-
Implementation costs for ASC 606		3			1			-			-			-			-		-
GAAP interest expense and other, net		70			73			76			76			75			75		73
GAAP provision for income tax expense		17			22			29			19			(2	)		15		12
GAAP foreign exchange loss (gain), net		(13	)		12			(43	)		24			(11	)		17		43
Depreciation		16			16			15			19			16			13		13
Other expense		-			-			-			-			-			-		(1	)
Adjusted EBITDA	$	185		$	188		$	210		$	216		$	245		$	262	$	265

Foundation Technology Worldwide LLC – Consumer Segment

Condensed Consolidated Statements of EBITDA– Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3

Net revenue	$	314		$	320		$	322		$	347		$	354		$	383		$	395
Cost of sales		91			97			90			94			96			106			107
Gross profit		223			223			232			253			258			277			288
Gross margin percentage		71.0	%		69.7	%		72.0	%		72.9	%		72.9	%		72.3	%		72.9	%
Operating expenses:
Sales and marketing		63			66			67			80			56			75			84
Research and development		34			35			33			32			36			35			34
General and administrative		21			23			25			26			32			27			28
Amortization of intangibles		38			36			36			35			36			36			36
Restructuring charges		2			1			-			1			1			-			-
Total operating expenses		158			161			161			174			161			173			182
Operating income		65			62			71			79			97			104			106
Operating margin percentage		20.7	%		19.4	%		22.0	%		22.8	%		27.4	%		27.2	%		26.8	%
Other Expense:
Depreciation		6			6			5			8			6			5			4
EBITDA	$	71		$	68		$	76		$	87		$	103		$	109		$	110

Foundation Technology Worldwide LLC – Consumer Segment

Adjusted Condensed Consolidated Statements of EBITDA– Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3

Net revenue	$	314		$	320		$	322		$	347		$	354		$	383		$	395
Adjusted cost of sales		64			70			63			67			69			79			80
Adjusted gross profit		250			250			259			280			285			304			315
Adjusted gross margin percentage		79.6	%		78.1	%		80.4	%		80.7	%		80.5	%		79.4	%		79.7	%
Adjusted operating expenses:
Adjusted sales and marketing		63			66			67			79			56			75			84
Adjusted research and development		33			35			33			31			36			35			34
Adjusted general and administrative		17			19			20			21			21			24			20
Total adjusted operating expenses		113			120			120			131			113			134			138
Adjusted operating income		137			130			139			149			172			170			177
Adjusted operating margin percentage		43.6	%		40.6	%		43.2	%		42.9	%		48.6	%		44.4	%		44.8	%
Other Expense:
Depreciation		6			6			5			8			6			5			4
Adjusted EBITDA	$	143		$	136		$	144		$	157		$	178		$	175		$	181

Foundation Technology Worldwide LLC – Consumer Segment

GAAP to Non-GAAP Reconciliations– Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3
Adjusted Cost of Sales
GAAP cost of sales expense	$	91		$	97		$	90		$	94		$	96		$	106		$	107
Amortization		(26	)		(27	)		(27	)		(27	)		(27	)		(27	)		(27	)
Equity-based compensation		(1	)		-			-			-			-			-			-
Adjusted cost of sales expense	$	64		$	70		$	63		$	67		$	69		$	79		$	80

Adjusted Gross Profit
GAAP gross profit	$	223		$	223		$	232		$	253		$	258		$	277		$	288
Amortization		26			27			27			27			27			27			27
Equity-based compensation		1			-			-			-			-			-			-
Adjusted gross profit	$	250		$	250		$	259		$	280		$	285		$	304		$	315

Adjusted Sales and Marketing
GAAP sales and marketing expense	$	63		$	66		$	67		$	80		$	56		$	75		$	84
Executive severance⁽⁶⁾		-			-			-			(1	)		-			-			-
Adjusted sales and marketing expense	$	63		$	66		$	67		$	79		$	56		$	75		$	84

Adjusted Research and Development
GAAP research and development expense	$	34		$	35		$	33		$	32		$	36		$	35		$	34
Equity-based compensation		(1	)		-			-			-			-			-			-
Cash in lieu of equity awards⁽¹⁾		-			-			-			(1	)		-			-			-
Adjusted research and development expense	$	33		$	35		$	33		$	31		$	36		$	35		$	34

Foundation Technology Worldwide LLC – Consumer Segment

GAAP to Non-GAAP Reconciliations– Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3
Adjusted General and Administrative
GAAP general and administrative expense	$	21		$	23		$	25		$	26		$	32		$	27		$	28
Equity-based compensation		-			(1	)		(1	)		(1	)		(7	)		(1	)		(2	)
Cash in lieu of equity awards⁽¹⁾		-			-			(1	)		-			-			-			-
Acquisition and integration costs⁽²⁾		(2	)		(2	)		(2	)		(2	)		(2	)		(2	)		(2	)
Management fees⁽⁴⁾		-			-			-			-			-			-			(1	)
Transformation initiatives⁽⁵⁾		(1	)		(1	)		(1	)		(2	)		(2	)		-			(3	)
Implementation costs for ASC 606		(1	)		-			-			-			-			-			-
Adjusted general and administrative expense	$	17		$	19		$	20		$	21		$	21		$	24		$	20

Adjusted Amortization of Intangibles
GAAP amortization of intangibles	$	38		$	36		$	36		$	35		$	36		$	36		$	36
Amortization of intangibles adjustment		(38	)		(36	)		(36	)		(35	)		(36	)		(36	)		(36	)
Adjusted amortization of intangibles	$	-		$	-		$	-		$	-		$	-		$	-		$	-

Adjusted Restructuring Charges
GAAP restructuring charges	$	2		$	1		$	-		$	1		$	1		$	-		$	-
Restructuring charges adjustment		(2	)		(1	)		-			(1	)		(1	)		-			-
Adjusted restructuring charges	$	-		$	-		$	-		$	-		$	-		$	-		$	-

Foundation Technology Worldwide LLC – Consumer Segment

GAAP to Non-GAAP Reconciliations– Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3
Adjusted Operating Expenses
GAAP total operating expenses	$	158		$	161		$	161		$	174		$	161		$	173		$	182
Amortization		(38	)		(36	)		(36	)		(35	)		(36	)		(36	)		(36	)
Equity-based compensation		(1	)		(1	)		(1	)		(1	)		(7	)		(1	)		(2	)
Cash in lieu of equity awards⁽¹⁾		-			-			(1	)		(1	)		-			-			-
Acquisition and integration costs⁽²⁾		(2	)		(2	)		(2	)		(2	)		(2	)		(2	)		(2	)
Restructuring and transition⁽³⁾		(2	)		(1	)		-			(1	)		(1	)		-			-
Management fees⁽⁴⁾		-			-			-			-			-			-			(1	)
Transformation initiatives⁽⁵⁾		(1	)		(1	)		(1	)		(2	)		(2	)		-			(3	)
Executive severance⁽⁶⁾		-			-			-			(1	)		-			-			-
Implementation costs for ASC 606		(1	)		-			-			-			-			-			-
Adjusted operating expenses	$	113		$	120		$	120		$	131		$	113		$	134		$	138

Adjusted Operating Income
GAAP operating income	$	65		$	62		$	71		$	79		$	97		$	104		$	106
Amortization		64			63			63			62			63			63			63
Equity-based compensation		2			1			1			1			7			1			2
Cash in lieu of equity awards⁽¹⁾		-			-			1			1			-			-			-
Acquisition and integration costs⁽²⁾		2			2			2			2			2			2			2
Restructuring and transition⁽³⁾		2			1			-			1			1			-			-
Management fees⁽⁴⁾		-			-			-			-			-			-			1
Transformation initiatives⁽⁵⁾		1			1			1			2			2			-			3
Executive severance⁽⁶⁾		-			-			-			1			-			-			-
Implementation costs for ASC 606		1			-			-			-			-			-			-
Adjusted operating income	$	137		$	130		$	139		$	149		$	172		$	170		$	177

Foundation Technology Worldwide LLC – Enterprise Segment

Condensed Consolidated Statements of EBITDA– Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3

Net revenue	$	323		$	334		$	340		$	335		$	331		$	333		$	333
Cost of sales		123			118			113			117			108			100			102
Gross profit		200			216			227			218			223			233			231
Gross margin percentage		61.9	%		64.7	%		66.8	%		65.1	%		67.4	%		70.0	%		69.4	%
Operating expenses:
Sales and marketing		130			124			117			123			118			99			102
Research and development		60			64			63			59			58			57			54
General and administrative		38			41			47			51			46			33			34
Amortization of intangibles		20			19			19			19			19			19			19
Restructuring charges		10			2			(1	)		7			8			-			-
Total operating expenses		258			250			245			259			249			208			209
Operating income		(58	)		(34	)		(18	)		(41	)		(26	)		25			22
Operating margin percentage		(18.0	%)		(10.2	%)		(5.3	%)		(12.2	%)		(7.9	%)		7.5	%		6.6	%
Other Expense:
Depreciation		10			10			10			12			10			8			9
Other income/(expense)		-			-			-			-			-			-			(1	)
EBITDA	$	(48	)	$	(24	)	$	(8	)	$	(29	)	$	(16	)	$	33		$	30

Foundation Technology Worldwide LLC – Enterprise Segment

Adjusted Condensed Consolidated Statements of EBITDA– Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3

Net revenue	$	323		$	334		$	340		$	335		$	331		$	333		$	333
Adjusted cost of sales		85			83			79			81			74			75			77
Adjusted gross profit		238			251			261			254			257			258			256
Adjusted gross margin percentage		73.7	%		75.1	%		76.8	%		75.8	%		77.6	%		77.5	%		76.9	%
Adjusted operating expenses:
Adjusted sales and marketing		124			120			115			118			115			97			100
Adjusted research and development		55			59			57			54			55			54			53
Adjusted general and administrative		27			30			33			34			30			28			27
Total adjusted operating expenses		206			209			205			206			200			179			180
Adjusted operating income		32			42			56			48			57			79			76
Adjusted operating margin percentage		9.9	%		12.6	%		16.5	%		14.3	%		17.2	%		23.7	%		22.8	%
Other Expense:
Depreciation		10			10			10			11			10			8			9
Other income/(expense)		-			-			-			-			-			-			(1	)
Adjusted EBITDA	$	42		$	52		$	66		$	59		$	67		$	87		$	84

Foundation Technology Worldwide LLC – Enterprise Segment

GAAP to Non-GAAP Reconciliations– Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3
Adjusted Cost of Sales
GAAP cost of sales expense	$	123		$	118		$	113		$	117		$	108		$	100		$	102
Amortization		(37	)		(34	)		(34	)		(36	)		(34	)		(25	)		(25	)
Cash in lieu of equity awards⁽¹⁾		(1	)		(1	)		-			-			-			-			-
Adjusted cost of sales expense	$	85		$	83		$	79		$	81		$	74		$	75		$	77

Adjusted Gross Profit
GAAP gross profit	$	200		$	216		$	227		$	218		$	223		$	233		$	231
Amortization		37			34			34			36			34			25			25
Cash in lieu of equity awards⁽¹⁾		1			1			-			-			-			-			-
Adjusted gross profit	$	238		$	251		$	261		$	254		$	257		$	258		$	256

Adjusted Sales and Marketing
GAAP sales and marketing expense	$	130		$	124		$	117		$	123		$	118		$	99		$	102
Equity-based compensation		(1	)		(1	)		(1	)		(1	)		(1	)		(1	)		(1	)
Cash in lieu of equity awards⁽¹⁾		(2	)		(2	)		(1	)		(1	)		(1	)		(1	)		(1	)
Transformation initiatives⁽⁵⁾		(3	)		(1	)		-			(1	)		-			-			-
Executive severance⁽⁶⁾		-			-			-			(2	)		(1	)		-			-
Adjusted sales and marketing expense	$	124		$	120		$	115		$	118		$	115		$	97		$	100

Adjusted Research and Development
GAAP research and development expense	$	60		$	64		$	63		$	59		$	58		$	57		$	54
Equity-based compensation		(3	)		(2	)		(3	)		(3	)		(1	)		(2	)		(1	)
Cash in lieu of equity awards⁽¹⁾		(2	)		(3	)		(2	)		(1	)		(2	)		(1	)		-
Transformation initiatives⁽⁵⁾		-			-			(1	)		(1	)		-			-			-
Adjusted research and development expense	$	55		$	59		$	57		$	54		$	55		$	54		$	53

Foundation Technology Worldwide LLC – Enterprise Segment

GAAP to Non-GAAP Reconciliations– Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3
Adjusted General and Administrative
GAAP general and administrative expense	$	38		$	41		$	47		$	51		$	46		$	33		$	34
Equity-based compensation		-			(2	)		(2	)		(1	)		(6	)		-			(2	)
Cash in lieu of equity awards⁽¹⁾		-			-			-			(1	)		-			-			-
Acquisition and integration costs⁽²⁾		(4	)		(4	)		(4	)		(3	)		-			-			-
Management fees⁽⁴⁾		(2	)		(2	)		(2	)		(2	)		(2	)		(2	)		(1	)
Transformation initiatives⁽⁵⁾		(3	)		(2	)		(6	)		(10	)		(6	)		(2	)		(4	)
Executive severance⁽⁶⁾		-			-			-			-			(2	)		(1	)		-
Implementation costs for ASC 606		(2	)		(1	)		-			-			-			-			-
Adjusted general and administrative expense	$	27		$	30		$	33		$	34		$	30		$	28		$	27

Adjusted Amortization of Intangibles
GAAP amortization of intangibles	$	20		$	19		$	19		$	19		$	19		$	19		$	19
Amortization of intangibles adjustment		(20	)		(19	)		(19	)		(19	)		(19	)		(19	)		(19	)
Adjusted amortization of intangibles	$	-		$	-		$	-		$	-		$	-		$	-		$	-

Adjusted Restructuring Charges
GAAP restructuring charges	$	10		$	2		$	(1	)	$	7		$	8		$	-		$	-
Restructuring charges adjustment		(10	)		(2	)		1			(7	)		(8	)		-			-
Adjusted restructuring charges	$	-		$	-		$	-		$	-		$	-		$	-		$	-

Foundation Technology Worldwide LLC – Enterprise Segment

GAAP to Non-GAAP Reconciliations– Fiscal Quarters

(in millions)

(unaudited)

	2019												2020
	Q1			Q2			Q3			Q4			Q1			Q2			Q3
Adjusted Operating Expenses
GAAP total operating expenses	$	258		$	250		$	245		$	259		$	249		$	208		$	209
Amortization		(20	)		(19	)		(19	)		(19	)		(19	)		(19	)		(19	)
Equity-based compensation		(4	)		(5	)		(6	)		(5	)		(8	)		(3	)		(4	)
Cash in lieu of equity awards⁽¹⁾		(4	)		(5	)		(3	)		(3	)		(3	)		(2	)		(1	)
Acquisition and integration costs⁽²⁾		(4	)		(4	)		(4	)		(3	)		-			-			-
Restructuring and transition⁽³⁾		(10	)		(2	)		1			(7	)		(8	)		-			-
Management fees⁽⁴⁾		(2	)		(2	)		(2	)		(2	)		(2	)		(2	)		(1	)
Transformation initiatives⁽⁵⁾		(6	)		(3	)		(7	)		(12	)		(6	)		(2	)		(4	)
Executive severance⁽⁶⁾		-			-			-			(2	)		(3	)		(1	)		-
Implementation costs for ASC 606		(2	)		(1	)		-			-			-			-			-
Adjusted operating expenses	$	206		$	209		$	205		$	206		$	200		$	179		$	180

Adjusted Operating Income
GAAP operating income	$	(58	)	$	(34	)	$	(18	)	$	(41	)	$	(26	)	$	25		$	22
Amortization		57			53			53			55			53			44			44
Equity-based compensation		4			5			6			5			8			3			4
Cash in lieu of equity awards⁽¹⁾		5			6			3			3			3			2			1
Acquisition and integration costs⁽²⁾		4			4			4			3			-			-			-
Restructuring and transition⁽³⁾		10			2			(1	)		7			8			-			-
Management fees⁽⁴⁾		2			2			2			2			2			2			1
Transformation initiatives⁽⁵⁾		6			3			7			12			6			2			4
Executive severance⁽⁶⁾		-			-			-			2			3			1			-
Implementation costs for ASC 606		2			1			-			-			-			-			-
Adjusted operating income	$	32		$	42		$	56		$	48		$	57		$	79		$	76

Foundation Technology Worldwide LLC

Adjustments for Adjusted EBITDA and Adjusted Net Income and Adjusted Net Income Excluding Impact of Foreign Exchange

Below are additional information to the adjustments for adjusted EBITDA, adjusted net income and adjusted net income excluding impact of foreign exchange:

(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 Foundation Technology Worldwide LLC. In addition, as a result of the Skyhigh acquisition, cash awards were provided to certain employees who held Skyhigh equity awards in lieu of equity in Foundation Technology Worldwide LLC and vest over multiple periods based on employee service requirements. As these rollover awards reflect one‐time grants to former employees of the Predecessor Business and Skyhigh Networks in connection with these transactions, and the Company does not have a comparable cash-based compensation plan or program in existence, 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 associated with our separation from Intel, including implementing our own stand alone 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 $22 million to such parties in October 2020.

(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.

McAfee Corp. - FORM 8-K - EX-99.1 - January 11, 2021

Attached files

McAfee Corp. Reports