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NortonLifeLock Inc. (NASDAQ:NLOK)
Q3 2021 Earnings Call
Feb 4, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon everyone, thank you for standing by. My name is Ann and I will be your conference operator today. I would like to welcome everyone to the Norton LifeLock Fiscal 2021 Third Quarter Earnings Call. Today's call is being recorded and all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. At this time for opening remarks, I would now like to pass the call over to Ms. Mary Lai, Head, Investor Relations. Miss, you may begin.

Mary Lai -- Head of Investor Relations

Thank you, Ann, and good afternoon everyone. Welcome to the Norton LifeLock fiscal 2021 third quarter earnings call. Joining me today to review our results are Vincent Pilette, CEO; and Natalie Derse, CFO. As a reminder, there will be a replay of this call posted on the IR website along with our earnings slides, press release, and supplemental materials defining our non-GAAP metrics. I'd like to remind everyone that during this call, all references to the final metrics are non-GAAP and all growth rates are year-over-year unless otherwise stated. A reconciliation of non-GAAP to GAAP measures is included in our press release which is available on our IR website at investor.nortonlifelock.com. Today's call contains statements regarding our business, financial performance and operations including the impact of the ongoing COVID-19 pandemic on our business and industry which may be considered forward-looking statements, and such statements involve risks and uncertainties that may cause actual results to differ materially from our current expectations. Those statements are based on current beliefs, assumptions and expectations and speak only as of the current date. For more information, please refer to the cautionary statement in our press release and the risk factors in our filings with the SEC and in particular our annual report on Form 10-K for the fiscal year ended April 3, 2020, and recently filed quarterly reports on Form 10-Q. And now, I will turn the call over to our CEO, Vincent.

Vincent Pilette -- Chief Executive Officer

Thank you, Mary, and good afternoon everyone. I hope you're all safe and well. As we embark on 2021, I think it's important to recognize the sense of uncertainty and the ongoing challenges that we all face as individual or as a society. Despite the social, economic, and health issues we are facing, I'm hopeful that collectively we will emerge stronger and more united. At Norton LifeLock, the safety and well-being of our employees is our utmost priority and I want to thank each and every one of them for facing all those challenges, while continuing to show a deep commitment to drive our vision of protecting and empowering people to live their digital life safely. A lot has happened since our last earnings. On top of delivering another solid quarter, accelerating our growth, and adding some exceptional talent to our team and our Board, we also are proud to have been recognized by the Human Rights Campaign Foundation for earning a top score on the 2021 Equality Index. We are proud of the diverse backgrounds represented by our entire team at Norton LifeLock, and we remain committed to building an inclusive company. We know that delivering on our vision cannot happen without a committed, talented and diverse team.

In December, we announced LifeLock's first acquisition. Now that the deal has closed, we are excited to welcome Avira's employees, customers and partners to the Norton family. We are really excited by the opportunity to provide Avira's 30 million users and over 1.5 million paid customers the benefit of the Norton plus Avira offering. Together, we are now privileged to help protect over 80 million consumers globally as we embrace the important responsibility we have in securing the digital lives. We are also quickly working to leverage Avira’s strong presence in Europe, which now also includes BullGuard, a UK based cyber security company that Avira added to their business last year. On top of expanding our reach deeper into EMEA, we look forward to adding Avira's and BullGuard's capabilities to our portfolio.

Before I dive into Q3 results, I want to revisit two key post-transition commitments we previously set as a stand-alone Norton LifeLock company. From returning to a growing customer base, a first since 2014, to delivering over $1.5 annualized EPS, I'm proud to say that we have established the company on the trajectory of sustainable and profitable growth. We are strongest cyber safety company today, 100% focused on protecting and empowering consumers to live their digital lives safely. While we are proud of these achievements, we know we have a tremendous responsibility to deliver a portfolio that stays ahead of cyber criminals. We don't take this lightly. As we innovate and move to keep our customer safe, we know that we will be transforming our company for a richer portfolio and expanded consumer reach, and we're just getting started.

In Q3, we delivered solid growth and accelerated our momentum. Revenue was up 6% and non-GAAP EPS grew 52%. Reported billings growth was 10%, our first quarter of double-digit growth. We are closing the fiscal year out strong, and more importantly, we're well on our way to creating a meaningful and sustainable growth business. Leading the growth momentum, our partner business posted double-digit revenue growth, up 15%. Retail was strong in the quarter, performing well through e-tail and during the holidays. International Japan was particularly strong, as it relates to identity theft protection solutions such as dark web monitoring and ID advisor sold through partners and retailers. Finding the right opportunities and markets to build and expand this long-term partnerships is one of our key strategic focus areas to broaden our reach and bring Cyber Safety to more consumers in under penetrated markets. Stay tuned for more developments in this area as we continue to transform the company.

Our direct to consumer revenue, which represent the majority of our business was up 5%. We saw broad-based growth across the portfolio as well as strong performance through the holiday season. While our North America business is considerably larger than the rest of the world, the international growth rate continues to show strength and outpace the Americas. In the quarter, our direct business grew double-digits across multiple countries, including Germany, France, Australia and New Zealand, where we have recently added dark web monitoring into our Norton 360 offering. This is part of our strategic push to expand Norton Identity products internationally and bring more comprehensive cyber safety offering to international consumers. We definitely have more room to grow here, especially with the synergies and extended global reach we will be leveraging with Avira and the freemium model.

In Q3, our direct customer count grew over 300,000 sequentially and close to 900,000 year-over-year, bringing our total count to 21 million. This was our fifth straight quarter of net direct customer add sequentially. Our customer retention rate remained stable at 85%. Our industry-leading monthly ARPU, average revenue per user also remained strong at $9. Both metrics are strong indicators that our current customers see the value of our products.

Notwithstanding the effect of tenure and geographical mix, we continue to see opportunities to improve ARPU as we enrich the cyber safety value offered to our customers and to improve retention rates, especially in the 30 years of the customer journey. One of the key contributors to our customer count growth and retention success continues to be the Norton 360 integrated platform, the first truly integrated cyber safety offering in the market. At the end of Q3, approximately 60% of our install base are using Norton 360. This platform is designed to provide a comprehensive protection while driving higher customer engagement. This level of adoption shows that our approach to provide an easy to use platform and comprehensive protection through a membership model resonates well with our customers, and we're working hard to continue bringing new functionalities, simplifying the membership plans, and constantly improving the user experience.

The combination of Norton 360 platform, our international expansion effort and our strategic shift to new forms of digital marketing is working and bringing Cyber Safety to new customers. Looking back at the last 12 months, we've welcomed approximately 4 million new customers to Norton LifeLock, the majority of which was on Norton 360. We are seeing early improvements in renewal trends with this newer customer cohorts. We are engaging with this customer differently, communicating with new alerts, measuring what works, what doesn't, and we're able to scale product launches more effectively through our in-house e-commerce platform. At the heart of all of this, it's our technology and accelerated pace of innovation that enable us to be nimble in bringing new and incremental value to customers. Sometimes we may run the risk of failing fast. But the reward is that we learn even faster to translate that into success as we move to own the Consumer Cyber Safety category. With the ever expanding scope of cyber crimes and the acceleration of the numbers of attacks that we've all witnessed in the news, we know it's critical to focus on product and service innovation to help keep consumers' digital lives safe and to raise the overall awareness of Consumer Cyber Safety across all audience. We plan to continue to release new products and features at an accelerated pace that we have not achieved in years. Let me tell you about a couple of them launched in Q3.

As part of our global expansion efforts, we successfully launched Norton ID Advisor in Japan powered by LifeLock. Here, we specifically targeted retail and service providers to reach new audiences and increase awareness on the value of dark web monitoring. One of the differentiators in this product is the access to a dedicated ID restoration specialist, a Japanese speaking service agent to help resolve fraudulent claims from start to finish. Another example is our enhanced Norton 360 Mobile experience, which provides customers access to their device security, online privacy and identity features through one single easy to use app, making it easier for customers to access and manage their Cyber Safety tools from one dashboard. This is another example of our commitment to bring a richer and simpler experience to Consumer Cyber Safety.

Looking back, we have demonstrated our continued commitment to grow the top line, drive disciplined operating leverage, and pursue value creation for all stakeholders. It's important to me and our entire leadership team to build credibility and a sustainable and growing financial track record. It's also worth noting that behind our strong third quarter performance, you will find a very passionate team working hard to fulfill our vision to protect and empower people to live their digital life safely. We think customer first, we innovate and grow, we’re scrappy, we own it, we are open, we are authentic. These are the core values we live by, and making the world cyber safe is what inspires us.

Finally, before I pass it to Natalie, I'm excited to share a little more detail on our recent additions to the Board. Sherrese Smith is Vice-Chair and partner at Paul Hastings, a prominent global Law firm. She brings extensive international experience in data privacy, cyber security and breach response issues. Similarly, Emily Heath, DocuSign's Chief Trust and Security Officer, brings significant experience in information security, data privacy, in addition to being a key contributor in creating consumer trust to digitally transform an industry. They are both passionate and accomplished leaders who are already valuable member of the Board team. And now let me turn the call over to Natalie for more details on the financial results.

Natalie Derse -- Chief Financial Officer

Thank you, Vincent and hello everyone. For today's discussion, I will focus on non-GAAP financials starting with our Q3 results and then provide our outlook for Q4. We delivered strong performance in Q3 with growth year-over-year and quarter-over-quarter across our key metrics. Our Q3 revenue was $639 million, up 6% year-over-year and above the high end of our guidance. We accelerated reported billings growth to 10% including a two point positive impact from FX in our ending contract liability balance. Our growth momentum was driven by broad-based strength across all geos and products as well as a successful holiday season. Our total direct customer count increased to 21 million, adding 334,000 customers quarter-over-quarter and 876,000 customers year-over-year. This was our fifth consecutive quarter of net customer adds sequential. Our customer retention rate, a unit retention metric, remained stable at 85%. Our monthly average revenue per user or ARPU was over $9 this quarter, up 1% year-over-year and stable quarter-over-quarter. As we continue to grow our customer base, it is important to note that our first year ARPU and retention rate for newly acquired customers is generally lower than our total average. As we explore new business models and add more customers globally, ARPU can vary as our mix changes. We will look for opportunities to improve ARPU and first year retention as we continue to grow and diversify our business.

We are still in the early innings but our go-to-market efforts are beginning to take hold. We are leveraging our distribution channels to reach more customers globally. We accelerated growth in our direct business in Q3 driven by our growing renewable base. As we continue to add new customers, we are seeing positive data points and retention directly correlated with our Norton 360 membership suite. As we have accelerated the pace of our innovation and launched new in-demand products and features, we are beginning to see improvements in our cross-sell and upsell efforts, and we have the opportunity to accelerate further as we expand our reach to new audiences and continue to foster growth in our loyal customer base.

In our partner business, Q3 revenue grew 15% year-over-year. We continue to make strides internationally signing new partnerships that we expect will scale over the long term. As we have noted in previous conversations, these partner sales cycles are longer taking one to two years or more to realize. We continue to invest in these partnerships for the long term as they are strategically important for us to expand our reach. Next, Q3 operating margin was 51%. We remain focused on driving operational discipline and prioritizing investments in product innovation and diversified marketing. With R&D, we continue to accelerate the pace of product introductions, growing and expanding our product portfolio, and providing an increasingly differentiated value proposition for consumers. With marketing, we continue to invest to drive new customer acquisition as well as diversify our spend into more digital and international channels to help widen our audience, measuring and ensuring effectiveness along the way. We are disciplined in our approach, and we'll continue to invest in sustainable growth. Q3 net income was $229 million, up 44% year-over-year. Diluted EPS was $0.38 for the quarter, up 52% year-over-year and at the high end of our guidance range. We are now operating above the $1.5 annualized EPS level and have established a strong foundation to build upon. As we look to the future, we will continue to prioritize EPS expansion, while taking advantage of the sustainable growth opportunities.

Turning to our cash flow and balance sheet, Q3 operating cash flow was $293 million and free cash flow was $291 million. For a few quarters now, we have been generating more than $900 million in annual free cash flow, excluding stranded costs. We ended Q3 with over $1 billion of total cash and a $1 billion of undrawn revolver capacity. We continue to have a strong liquidity position and are levered at approximately two times net debt. Now a quick update on our real estate assets held for Seville. We see a lot of activity and interest in each of our properties, and recently agreed to terms for the sale of one of our buildings in Mountain View. The buyers are expected to complete their due diligence in our fourth quarter. While we've seen a lot of interest and continue to be on active discussions on all properties, we remain focused on achieving fair market value for the remaining assets for sale in Mountain View, Dublin and Tucson.

Let me spend a few minutes specifically on capital allocation. In Q3, we returned approximately $207 million to shareholders in the form of our regular quarterly dividend and share repurchase. In the quarter, we paid a dividend of $0.125 per common share. Despite the limited open trading window, we were active in the last month of the quarter and deployed $133 million and purchased 7 million shares. As of the end of Q3, there was approximately $420 million remaining in our $1.6 billion share buyback authorization which we expect to continue to deploy opportunistically. As described in the press release, the Board of Directors approved a regular quarterly cash dividend of $0.125 per common share to be paid on March 17, 2021 for all shareholders of record as of the close of business on February 22, 2021. Before I move on to our Q4 outlook, let me provide an update on Avira. As you heard from Vincent, we closed the acquisition of Avira in January which falls in our fiscal fourth quarter. While it is early, the integration process is well under way and on track to plan. As a reminder, we expect to add approximately three points of growth to our total revenue and be financially accretive in the first year, targeting to achieve 50% operating margin post synergies within six months.

Now turning to our Q4 outlook. We expect Q4 revenue in the range of $655 million to $665 million, which translates to high-single digit growth year-over-year. We expect non-GAAP EPS to be in the range of $0.37 to $0.39 per share, assuming stable currency rates and share count dilution from Q3 buybacks. Our Q4 outlook includes the partial impact of Avira. As we enter the last quarter of our fiscal year 2021 we are proud to have achieved all of the long-term commitments we set when we stood up Norton LifeLock, including revenue growth of mid single digits, operating margin at 50%, generating annualized free cash flow of more than $900 million, and an annualized EPS of $1.50. Achieving all of those is a true testament to our renewed focus on execution and building a consistent and sustainable track record. We look forward to closing out the fiscal year strong with accelerating momentum and a scalable foundation, and we're excited about the tremendous opportunities ahead. Thank you for your time today and I will now turn the call back to the operator to take your questions. Operator.

Questions and Answers:

Operator

Yes, ma'am. [Operator Instructions] Our first question comes from the line of Gregg Moskowitz from Mizuho. Your line is open.

Gregg Moskowitz -- Mizuho -- Analyst

All right, thank you very much. Good afternoon, guys. Congratulations on a good Q3.

Vincent Pilette -- Chief Executive Officer

Thank you.

Gregg Moskowitz -- Mizuho -- Analyst

So Vincent, you've invested a lot more in marketing over the last 12 months, and it seems pretty clear inclusive of these results that you're -- that you've already seen a really good yield on those investments. So looking forward, how much more room for improvement do you see with regard to driving traffic to the site and increasing monetization?

Vincent Pilette -- Chief Executive Officer

Yeah. And it's important to note that your marketing investment is never done in a vacuum, right? We've also launched Norton 360 a year and a half ago. We introduced a bunch of new products and new functionalities into our overall portfolio, and we started to accelerate the spend or at least a penetration of certain international markets. I think as we continue to play on all three levels, including the marketing spend, if you want, we'll be able to continue to show a good growth, and with the acquisition of Avira actually maybe an accelerated growth as we move forward.

Gregg Moskowitz -- Mizuho -- Analyst

All right, perfect. And then you mentioned in your prepared remarks that you're seeing early improvements with newer customer cohorts, and that's interesting because typically that first year renewal rate is of course -- a first year renewal is of course the most challenging. So my question is your retention has been extremely stable at 85% and I know it's early, but given some of the improvements that you're seeing, is there a potential to get that retention higher?

Vincent Pilette -- Chief Executive Officer

I think it's still early, as you mentioned the first year and the second year retention is where we have the most improvement to achieve. If I look at the out years for those who are in the full portfolio, we achieved the 90 plus percent retention on a unit basis. And so we see the full potential between first year in that 90% as the improvement needed. It has many different operations, increasing the engagement, showing the value, adding new functionalities. The results I mentioned is mainly on Norton 360 when we have the ability to show cross category values if you want to the users. We've seen better retention rate in the first year than stand-alone product. And still early to say, we're still in the early phase of renewing the early adopters on Norton 360, but we're very encouraged by what the numbers show.

Gregg Moskowitz -- Mizuho -- Analyst

All right, terrific. Thanks. So maybe just one quick one for Natalie. So the billings growth of 10% reported 8% constant currency. I just wanted to confirm that none of that includes Avira, and then also how much of Avira is sitting in deferred revenue as of Jan 31. Thank you.

Natalie Derse -- Chief Financial Officer

Yeah, thanks for the question. Just really quickly, Avira is not in our Q3 results at all. And so whether you think about growth or you think about the liability balance, any of that, it's not going to be in our financials until Q4.

Gregg Moskowitz -- Mizuho -- Analyst

Okay. Even though we've closed at the end of January, it's not sitting on the balance sheet at all, is that right?

Vincent Pilette -- Chief Executive Officer

That's correct.

Gregg Moskowitz -- Mizuho -- Analyst

Okay, fantastic. Thanks for the clarification. Nice job.

Vincent Pilette -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Saket Kalia from Barclays.

Saket Kalia -- Barclays -- Analyst

Hey guys, thanks for taking my questions here. And congrats on the quarter.

Vincent Pilette -- Chief Executive Officer

Thanks.

Saket Kalia -- Barclays -- Analyst

Vincent, maybe first for you. Just maybe zooming out a little bit, can we just talk a little bit about Avira's freemium business model and sort of how you see that complementing what Norton currently offers?

Vincent Pilette -- Chief Executive Officer

Yeah, let me zoom out even one more. We definitely see more and more consumer moving the activities online. The pandemic has only accelerated that move and I think a lot is here to stay. Along with that, as you know, cyber criminals are adapting and we've seen an increase in activity there, and their awareness from a consumer standpoint to have a Cyber Safety protection is more relevant than ever. We feel good about where we are as a company both investing as we discussed organically and inorganically. We have a platform, the cyber safety integrated platform we've launched, Norton 360, covering three pillars; security, privacy, and Identity Protection and Restoration. And then along with that, we said we're going to continue and accelerate the growth by doing three things; one is accelerating our penetration of international markets. The second one was to -- while we doubled down on a direct to consumer go-to market model, explore new go-to-market models. Partner with companies like TELUS to penetrate Canada or explore new business models. Obviously a membership plan was the first in the market for cyber safety. We continue to build on that. And the third one is adding new functionalities, we came [Indecipherable] title etc. When I take those three dimensions, Avira plays in all three. Expanding internationally, [Indecipherable] is very strong in Europe. We were Number 3 market share in Germany. With Avira we moved to number one and we accelerate our growth across Western Europe. And Avira to penetrate internationally many markets will be definitely an asset.

The second one, which you mentioned which is the free model, going to market in different ways is very important. We have the direct to consumer and a premium model, we are doing B2B2C activities and trying to bring combined solutions to consumers. The free model for us is just one more tool in our toolbox. As functionalities could become more commoditized, we can have an offer first access for all consumers to cyber safety using some of those in the freemium model, and then using the muscle of cross-selling and up-selling and converting to the full portfolio over time. So it's a way of acquiring those eyeballs if you want an experience around cyber safety to then later on demonstrated that that value without spending more in marketing. And the third element is, they had a few nuggets in their technology. They have a very nimble and creative engineering team, and there are some functionalities like we mentioned, the gaming booster functioning from BullGuard we can integrate into our gaming additions of Norton 360. So we'll continue to look at their capabilities from a portfolio perspective to enrich our overall experience. So that's how Avira plays into our growth moving forward.

Saket Kalia -- Barclays -- Analyst

Got it. That's really helpful. Maybe for my follow-up for you, Natalie. Great to see the uptick in net adds this quarter. I guess the open-ended question is, was there anything on conversion rates or renewing cohorts, I mean it sounds like the renewal rate was maybe a little bit better, but was there anything that surprised you, especially looking at the net adds last quarter versus this quarter, what sort of changed as you look back at sort of the tea leaves?

Natalie Derse -- Chief Financial Officer

Yeah, thanks for the question. So look, we've seen consistent customer adds with 5 quarters in a row. If I take a look -- if I step back and take a look at just this fiscal year, 600,000 net new adds in the first half, now 300,000 in Q3 with growth across the board, across geos, across product lines and positive contribution from holiday. Now, to answer your question around renewal and conversion, yes, we are seeing early improvements in our renewal rates related to our new customer cohorts. And now, look, it's early, but I would say the Norton 360 platform is definitely helping us. It's gaining good traction with now nearly 60% of our base. And so all-in, all of that is helping us sustain a strong 85% overall retention.

Saket Kalia -- Barclays -- Analyst

Got it. Very helpful. Thanks guys.

Natalie Derse -- Chief Financial Officer

Thank you.

Vincent Pilette -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Brad Zelnick from Credit Suisse. Your line is open.

Vincent Pilette -- Chief Executive Officer

Hey, Brad.

Brad Zelnick -- Credit Suisse -- Analyst

Great, thank you so much. Hey, congratulations on a great quarter...

Vincent Pilette -- Chief Executive Officer

Thank you.

Brad Zelnick -- Credit Suisse -- Analyst

And to the team as well. I wanted to just touch on international a bit more. It's nice to hear about the success that you're having in Japan. And I was hoping you can just better -- help us to better understand the international opportunity broadly away from the freemium asset that you get with the Avira, obviously that gives you a lot more reach. In which theaters does the value prop translate best? Where might there be just too much competition and how should we think about the cost of reaching these markets?

Vincent Pilette -- Chief Executive Officer

Yeah. You know, when you think about international, 70% of our business is still in the US, 30% international. So when you look at the geographical mix of the overall market, it's clear to see that we are under-penetrated internationally. So from a core security first entry point, if you want, Avira will definitely be a strong help. But where we add a real differentiator is when we bring our expertise in privacy and identity management and restoration from LifeLock and make it in the form of an international proposal, which was always the intent when we bought LifeLock, but was late to come as we were trying to find the first angle. With dark web monitoring, which is really protecting your multiple digital identities that you have out there, we see a lot of very good positive feedback from consumers. And so now adding to that dark web monitoring activities the restoration and helping the consumers to restore claims when there is some, is definitely also a value-add and a differentiator. I think that opportunity to push Norton identity international is broad across many countries and we'll start with the big one, Japan was the first one where we've got real -- which we expanded into Australia, New Zealand, Germany, UK, touching France, and we'll continue to penetrate actively all of the interesting markets.

Brad Zelnick -- Credit Suisse -- Analyst

Thank you. That makes a lot of sense. And maybe just a follow-up for Natalie. Specific to the Avira deal, can you share with us when exactly in January did it close just so we can understand how much of a contribution it might have this -- in Q4 and going forward, and as well, what's assumed in guidance in terms of contribution, and if you can speak to the deferred writedown, like what's the mix of duration in their portfolio? Thanks.

Natalie Derse -- Chief Financial Officer

Yeah. The Avira deal closed on January 8th. And so, yeah, that's when it closed. In terms of the guide, we definitely have partial impact of Avira in. We have shared with you the contribution on revenue just from a growth perspective. And then from a -- from an EBITDA perspective, we will -- we have folded them in and we'll look to really drive the business hard to get the synergistic savings we've communicated to you over the next six months.

Brad Zelnick -- Credit Suisse -- Analyst

Okay, thank you.

Operator

Your next question comes from the line of Fatima Boolani from UBS. Your line is open.

Fatima Boolani -- UBS -- Analyst

[Indecipherable] Vincent and just with respect to Avira and some of the things you mentioned in your prepared remarks around maybe introducing some Norton LifeLock functionality into that base. I know you've been very categorical about keeping the premium brand premium and the Avira freemium brand freemium. And so I'm curious how you bridge that gap with some of the goodness of the LifeLock capability without diluting the pricing power and the branding around Norton LifeLock. And I have a follow-up for Natalie next.

Vincent Pilette -- Chief Executive Officer

Yes. And the great news with our business -- digital business, we can run a lot of experiments. So we are not concluding yet from a brand perspective, but definitely there is a way to get new consumer or address consumers on the freemium model which has certain functionalities mainly commoditized, provided value but commoditized. And then it's about having the pass for upselling and cross-selling the different functionalities that today are either differentiators or offered at a premium to the market. And as we discussed, our long-term success is based on that pace of innovation, introducing new functionality all the time. As cyber criminality is evolving, we continue to increase the overall level of protection for consumers, from dark web monitoring to restoration services, focus on privacy identity, are all the next level. We obviously have a very rich funnel of new ideas that we're working on. And so the freemium is one way if you want to get the first access to then see more closely the value of the overall portfolio. For the short term, as you mentioned, we are going to keep Avira separate as one brand and Norton on the other side, but obviously we are testing different way in terms of branding.

Fatima Boolani -- UBS -- Analyst

Fair enough. Natalie, maybe shifting gears to you around the strength in the partner segment of the business. You gave some very helpful color around these partnerships take longer to get off the ground and it's an area of investment for you. But I'm wondering what -- how we should think about some of the key drivers of strength in this quarter within the partner business and what are some of the largest components in the partner business that we should be thinking about going forward. And that's it from me. Thank you.

Natalie Derse -- Chief Financial Officer

Yeah, thanks. So from a partnership perspective, it's pretty diverse. We've got a lot of different channels within the partnership business. Overall we grew 15% year-over-year and we saw relatively broad based strength across all of those different channels. The one that we are really very excited about and really plays to our strengths is employee benefits. Employee benefits is -- really is a great distribution channel that widens our audience but brings users very close to our book of business as we have the direct relationship with those users or those customers. And so we're really, really excited about that. But overall for the quarter, just overall just generally speaking broad stroke growth across the partner side.

Fatima Boolani -- UBS -- Analyst

Very helpful, thank you so much.

Operator

Our next question comes from the line of Matt Hedberg from RBC Capital. Your line is open.

Matt Swanson -- RBC Capital -- Analyst

Hey, yeah, thanks. This is Matt Swanson on for Matt Hedberg. Natalie, if I could just follow up on Fatima's question, I would think Q4 is going to kind of be the strongest quarter for that employee benefits segment. Could you just talk a little bit more about kind of trends that you're seeing this year from that area?

Natalie Derse -- Chief Financial Officer

Yeah, I would say I hear you on the timing in terms of, of course, we've got to figure out from an employee benefit calendar, most people really get started understanding what partners they're going to do business with, etc., as those annual enrollments come later in the year. So we are definitely working hard. The employee benefits channel for us has been pretty consistent. We have been really working across the employee benefits channel to gain more partners and to really get our Norton 360 value proposition out there and really get the education and the audiences widen through the employee benefits channel. And then as we look forward, again, just to reiterate, we love this channel and we want to make sure that we are working with the partners in the right way. There's is a lot of different size and types of partners that we can go after from a growth perspective. And we're just really excited to take advantage of the opportunity. But you're right, the time is now, I mean, and you really have to pay attention to when those employee benefits annual enrollments are. So we're trying to get after it, for sure.

Vincent Pilette -- Chief Executive Officer

And Matt, if I can add to that, taking back outside of the channel, Q3 traditionally has been more of a Norton quarter and then Q4 has been more of a LifeLock quarter aligned to the tax season in the US where most of our business is protecting identity. So from that perspective on the identity side here coming into this quarter, we expect a very strong quarter build into Natalie's guidance. Now, we also are closing Avira and doubling down on the Norton identity internationally. So that's not linked to the tax season. But it is definitely new areas with its markets or product positioning, if you want, for us to continue to accelerate our growth.

Matt Swanson -- RBC Capital -- Analyst

That's really helpful. And then Vincent, obviously maybe not the first security company when you're thinking about your core customer base as far as impact from Sun Bernstein [Phonetic]. But when a major breach like that, as you know front page news all over the place, what do you think that does for the demand environment, just in terms of kind of mindshare and awareness being front and center for consumers around security and breaches?

Vincent Pilette -- Chief Executive Officer

I think you’re totally right. The first level is continue to increase awareness. I can tell you the highest retention rate is when we have customers who have been breached and we have them restored what they've had and they are customers for a long, long time. And then the rest it's about really building up the awareness, that is not just breach of your old data or you devices, but it's a breach of your personal data and access to your -- as an identity, if you want, or digital identities now. And I think seeing that the pandemic when more activity moved online as we mentioned, with that, cyber criminals are adapting and have a wider scope to play in. And it's upon us as a company, Norton LifeLock, to continue to build a portfolio to show the relevance and staying a step or two or three ahead of those risks that consumer face.

Matt Swanson -- RBC Capital -- Analyst

Thank you for the time.

Operator

Our next question comes from the line of Keith Weiss from Morgan Stanley. Your line is open.

Keith Weiss -- Morgan Stanley -- Analyst

Excellent. Thank you guys for taking the questions. I think most of my questions have been answered. I have just a couple of clarification questions if you will. In terms of ARPU, is there any significant differentiation between maybe international average ARPUs and the US that we should be keeping in mind on a go-forward basis?

Vincent Pilette -- Chief Executive Officer

Yeah, I think the value perceived by markets obviously changes. The value perceived by also the pillars that you subscribe to into our membership level also changes, right. So if you are a Norton 360 level 3 customers that has most of the security password managers, VPN access, it's one level ARPU. If you add identity protection and if you add Identity Protection and Restoration the ARPU will grow, and therefore from that perspective LifeLock being mainly in the US, we are getting a higher ARPU in the US. And then as you move into Western Europe, we start to add some of those identity protection and restoration to be able to grow ARPU, although it is less than our aggregate. And then if you move into more international closer to emerging markets we'll have a lower ARPU. The way we think about it is really about a set of all combined levers by cohorts and by market. So in aggregate, you may have pressure on the ARPU or retention rate, but as long as you continue to grow more customers and by cohort or by markets continue to improve the value we deliver to customers, we're moving into the right direction.

Keith Weiss -- Morgan Stanley -- Analyst

Got it, got it. That makes sense. And then on Avira for Q4 explicitly, is it 3 percentage points of growth in Q4 or did you not give an exclusive number for the Q4 contribution as of yet?

Vincent Pilette -- Chief Executive Officer

Yes. So overall, the business will contribute on an annual basis at about three points of our revenue growth, call it 75 to...

Keith Weiss -- Morgan Stanley -- Analyst

So how should we think about Q4 in particular in terms of your contribution?

Vincent Pilette -- Chief Executive Officer

Yeah, I understand. Yeah, and Natalie mentioned we closed Avira in the early months of January. It's not every quarter exactly the same, there is also a bit of seasonality. But if you model it, you are somewhat in the same level.

Keith Weiss -- Morgan Stanley -- Analyst

Okay, got it, that helps. Great quarter, guys. Thank you very much.

Vincent Pilette -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Walter Pritchard from Citi. Your line is open.

Walter Pritchard -- Citi -- Analyst

Hi, two questions.

Vincent Pilette -- Chief Executive Officer

Hi, Walter.

Walter Pritchard -- Citi -- Analyst

Hi, how're you doing, Vincent?

Vincent Pilette -- Chief Executive Officer

Good.

Walter Pritchard -- Citi -- Analyst

Two questions for you on the kind of product side. One relative to the mobile product, can you update us there on what you're seeing on phones and tablets and conversions and how you're thinking about that strategy as you move into next year? And then, a lot of focus here on the channels and benefit channels and so forth run [Phonetic] identity. I'm curious if you've -- as you’ve sort of put the marketing dollars into the channel -- into direct channels, how you’ve thought about some of the device attached channel, PCs and other things that might attach traditional sort of security sales and circling back on those markets as you've understood customer acquisition here better.

Vincent Pilette -- Chief Executive Officer

Yeah, let me take the product first. I forgot the question, what is the question again on product?

Natalie Derse -- Chief Financial Officer

Mobile.

Vincent Pilette -- Chief Executive Officer

Oh mobile, yeah. Sorry, yeah, yeah. So mobile, very important user experience, right? And we acquired through multiple channel. I know in the past, as Security started on the device, then on a desktop, then moved on to laptop, then moved to a mobile. I get very often the question of, you need security on new cellphone, for example. And the answer is, we've moved to a user-centric view of cyber safety, which includes security but also identity and privacy. And we see a lot of our customers using their Cyber Safety dashboard and tools, both on desktop and on tablet or cellphones. And therefore, mobility from a user experience perspective, it's hugely important to us. Simplifying that experience as we continue to enrich the value is also a core element of our investments. So you'll see more around simplifying, making cyber safety easy to use, to consume, and giving consumer full peace of mind.

In terms of the channels, we have a direct to customer -- and I'll pass it to Natalie -- and we have a second angle which is partnership. It's very important for us to continue taking that user perspective to work on B2B2C offering, combining our value add with other offering to provide full total protection to consumers depending on their situations. And I think that's the one we approach. It's not only device hardware centric world, but it's really a user service centric world that we're taking as an approach. Natalie, I don't know if you want to add anything on that.

Natalie Derse -- Chief Financial Officer

Yeah, I was just going to add, look, from a customer acquisition perspective, we don't necessarily plan through the eyes of just LifeLock versus Norton. I would say it's about reach, it’s about expanding audiences, it's about doing it in an effective way, in an efficient way. So from our channel reach perspective, we focused in the last year really trying to diversify. Of course, historically we've been more on the long-form TV and radio, we've been diversifying into online digital channels, so that we can get really relevant and interesting content out there. We can diversify the users that are coming to our platform. We've got really, really strong brand awareness. We've got brand strength that we will continue to leverage and strengthen in the market as we diversify and really try and attract new customer acquisition, as well as get the word out there on all of our product innovation, our product introductions as we build and strengthen the Norton 360 suite.

Walter Pritchard -- Citi -- Analyst

Great, thank you.

Operator

Next question is coming from the line of Yi Fu Lee with Oppenheimer. Your line is open.

Yi Fu Lee -- Oppenheimer -- Analyst

Hi, thank you for taking my question and congrats on another strong set of results. Question is for either Vincent, or Natalie. Just on the capital allocation front, in terms of the free cash flow, the runway is now about $250 million, $300 million each quarter. Was wondering if you could just minus on the capital allocation plans? Are there some like any areas that you look to further invest. I know you just went through the other acquisition. Just wanted to get your heads around how to spend this cash flow generation? That's the question.

Natalie Derse -- Chief Financial Officer

Yeah, thanks for the question. I'll take it. Our capital allocation strategy remains relatively unchanged. And what I mean by that is we have said we've been -- for the last couple of quarters has been on track to generate $900 million of annualized cash flow. And from a capital allocation perspective, we've talked about three main tenets. The first one being the dividend, which we paid the regular dividend in the quarter. And then as we progress, we said we would strike the right balanced approach as it pertains to opportunistic share buyback and acquisition. And so the actions in Q3 I think speak for themselves in terms of, if you look back and you think back to approximately November and all things considered, now you guys know why we didn't necessarily -- we had the acquisition activity going on. As soon as our trading window was open, we opportunistically bought shares by the share buyback to the extent of $133 million. And so as you take that into account, high savvy ratio in terms of leveraging and maximizing the value of our capital allocation tenets and you look forward, our strategy remains unchanged. We will continue with the quarterly dividend and then strike that right balance on opportunistic share buyback, but we've not been shy to say that we are interested in M&A activity, especially as we look forward and look for those sustainable growth opportunities.

Yi Fu Lee -- Oppenheimer -- Analyst

Thanks for that, Natalie. Maybe just one quick one, like in terms of like areas that you intend to look at. I know there is international opportunity, if you can tell, the gaminglopportunity as well like Vincent like, just chart that our heads are now like which area of focus next?

Vincent Pilette -- Chief Executive Officer

Yeah, so it all started with our vision. We want to both protect and empower everyone that's connected to the Internet to live their digital life safely. That's our vision and that gives us a wide range of opportunities to fulfill that we have not fulfilled yet. And so when you look at our overall strategy. I would say, number one is continue to scale up the Cyber Safety platform. Three pillars today; security, privacy, and identity and building that up. As we continue to do that, adding digital services that address the vision is very important and we continue to do it, increasing into the gaming verticals and with new functionalities, now integrating some of the BullGuard functions that are really interesting. And so we have a long list if you want of opportunities that we are working with our engineers and our product people. And then the third element of course is to continue to expand outside of the US to be a truly global and reach out everyone, to 5 billion connected to the Internet that have a digitalized online.

Yi Fu Lee -- Oppenheimer -- Analyst

Thanks for that Vincent and Natalie.

Operator

The next question will be coming from the line of Gregg Moskowitz with Mizuho. Your line is open.

Gregg Moskowitz -- Mizuho -- Analyst

Okay, great, thank you for the follow-up. First of all apologies for earlier Avira billings related question. So many simultaneous earnings call, so many January ending quarters so got thrown for a moment there. But I do have a follow-up for Natalie. So I know that you're a data driven executive just given your background and now that you’re sitting in this seat for several months, I guess I'm wondering, are there opportunities to leverage data in a way that you think is translating or potentially could translate into more business for us for Norton LifeLock?

Natalie Derse -- Chief Financial Officer

Oh, absolutely, I would say -- and I don't know, how I would answer that question. No, there -- we just have opportunities everywhere. I think from a value and a culture of put the customer first, we have so many opportunities to use analytics to get closer and closer to the customer and understand their behaviors, understanding their needs and wants and -- and how we can serve that the best. If I get into specifics, of course, we will continue to build out our marketing analytics every -- but it's not just in a silo. When I think about marketing analytics I think customer analytics, and it's about making sure that we are at the very top of the funnel expanding our audiences in a diverse way, in an efficient way, and making sure that we've got the content out there that really showcases our value proposition, everything from the expanding Norton 360 integrated platform and the suite of products as Vincent has talked about, and whether you talk about where you're at in the funnel in terms of whether you're brand new and we need to explain the value that we can bring to consumers globally, or if you are an existing customer, perhaps on the security side and we can find ways to share the value we can bring to your life from an identity perspective. There's just so many opportunities to just get to as close to the customer as possible, understand where they are in their journey and in their life and really use data analytics to predict how we can take that next step in the customer journey. There's so many out -- there is so many opportunities to build that out.

Gregg Moskowitz -- Mizuho -- Analyst

All right. That's great, Natalie. Thanks very much.

Natalie Derse -- Chief Financial Officer

Operator, we have time for one more question.

Operator

And that question will be coming from the line of Shaul Eyal with Oppenheimer. Your line is open.

Shaul Eyal -- Oppenheimer -- Analyst

Thank you so much for squeezing me in. And in addition to these prior question, Vincent, I have more of a technology related question. I think also it is related to your Japan launch. When I look at your Norton ID Advisor and your solutions associated with the gaming industry, there's definitely plenty of dark web capability. Are these capabilities home-grown? Do you actually use your own sensors in the dark web or is it facilitated through some third party? Thank you for that.

Vincent Pilette -- Chief Executive Officer

Yeah. So we have a -- as LifeLock has a mix of integrated third party technologies and own algorithm that build on top. So it's a mix of the two and we'll continue to build upon that to offer it not only in Japan, but across all countries. Someone was asking here, if you launch it in Japan, why don't you launch it in all countries, international. Exactly for that reason because you want to adapt your data architecture, you sensors and your approach to the country and the data that's relevant in each country. And so we're taking a country by country approach to build up the -- the solution.

Shaul Eyal -- Oppenheimer -- Analyst

Thank you.

Vincent Pilette -- Chief Executive Officer

Thank you.

Operator

At this time there are no more questions. I will turn the call back to Vincent Pilette, CEO for closing remarks.

Vincent Pilette -- Chief Executive Officer

Thank you. And the overlap between the physical world and the digital world continues to grow. More and more activities are moving online from shopping to socializing, almost every aspect of our life has a digital component. Unfortunately, many of those activities are left unprotected, or weakly protected at best, leaving many doors open for cyber criminals. Our vision is to protect and empower people to live their digital lives safely. And while we have already accomplished a lot since we launched Norton LifeLock over a year ago, we're just getting started. We plan to leverage our leading technologies and integrate its product portfolio, our relentless focus on customer experience, a trusted global brand, our unmatched scale and direct distribution, as well as a growth focused financial model. If I have to summarize it in four words, I'd say, our future is bright. Thank you for joining and for your support and we look forward to connecting with you very soon.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Mary Lai -- Head of Investor Relations

Vincent Pilette -- Chief Executive Officer

Natalie Derse -- Chief Financial Officer

Gregg Moskowitz -- Mizuho -- Analyst

Saket Kalia -- Barclays -- Analyst

Brad Zelnick -- Credit Suisse -- Analyst

Fatima Boolani -- UBS -- Analyst

Matt Swanson -- RBC Capital -- Analyst

Keith Weiss -- Morgan Stanley -- Analyst

Walter Pritchard -- Citi -- Analyst

Yi Fu Lee -- Oppenheimer -- Analyst

Shaul Eyal -- Oppenheimer -- Analyst

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