Net Revenue Increased by 24% to $491 Million and Adjusted EBITDA Increased by 43% to $234 Million

Core Direct to Consumer (“DTC”) Subscribers Increased YoY by 16% to 20.1 Million, Up 640 Thousand QoQ

Net revenue was $491 million, reflecting 24% growth year-over-year

Net income of $2,390 million, inclusive of $2,251 million gain, net of estimated taxes and transaction costs, on the divestiture of the Enterprise business

Adjusted EBITDA⁽¹⁾ of $234 million or a 48% Adjusted EBITDA⁽¹⁾ Margin, inclusive of approximately $21 million in stranded costs attributed to the divestiture of our Enterprise business

McAfee’s net cash provided by operating activities was $90 million for the quarter

McAfee’s Unlevered Free Cash Flow was $132 million for the quarter

Added 640 thousand net new Direct-to-Consumer subscribers closing the quarter at 20.1 million Core DTC subscribers, compared to 17.3 million in the same period last year

Signed a multi-year exclusive relationship with T-Mobile, with an intrusion detection and protection and credit monitoring services agreement

Announced that Gagan Singh joined McAfee as its Executive Vice President, Chief Product and Revenue Officer

Adjusted EBITDA is a non-GAAP financial measure, and should be considered in addition to, but not as a substitute for, information provided in accordance with GAAP.

Net revenue

Cost of sales

Gross profit

Operating expenses:

Sales and marketing

Research and development

General and administrative

Amortization of intangibles

Restructuring and transition charges (Note 9)

Total operating expenses

Operating income

Interest expense

Foreign exchange gain (loss), net

Other income (expense), net

Income (loss) from continuing operations before income taxes

Provision for income tax expense (benefit)

Income (loss) from continuing operations

Income from discontinued operations, net of taxes

Net income

Less: Net income attributable to redeemable noncontrolling interests

Net income attributable to McAfee Corp.

Net income (loss) attributable to McAfee Corp.:

Loss from continuing operations attributable to McAfee Corp.

Income from discontinued operations attributable to McAfee Corp.

Net income attributable to McAfee Corp.

Earnings per share attributable to McAfee Corp., basic and diluted:

Continuing operations

Discontinued operations

Earnings per share, basic and diluted⁽¹⁾

Weighted-average shares outstanding, basic and diluted

Basic and diluted earnings per share of Class A common stock are not applicable prior to the initial public offering (“IPO”) and related Reorganization Transactions (as defined in Note 1 to the condensed consolidated financial statements to be included in our 2021 Q3 quarterly report on Form 10-Q to be filed with Securities Exchange Commission). See Note 15 Earnings Per Share in the notes to the condensed consolidated financial statements for the number of shares used in the computation of earnings per share of Class A common stock and the basis for the computation of earnings per share.

Assets

Current assets:

Cash and cash equivalents

Accounts receivable, net

Deferred costs

Receivable from Enterprise Business

Other current assets

Held-for-sale assets

Current assets of discontinued operations

Total current assets

Property and equipment, net

Goodwill

Identified intangible assets, net

Deferred tax assets

Other long-term assets

Long-term assets of discontinued operations

Total assets

Liabilities, redeemable noncontrolling interests and deficit

Current liabilities:

Accounts payable and other current liabilities

Accrued compensation and benefits

Accrued marketing

Income taxes payable

Long-term debt, current portion

Deferred revenue

Payable to Enterprise Business

Current liabilities of discontinued operations

Total current liabilities

Long-term debt, net

Deferred tax liabilities

Tax receivable agreement liability, less current portion

Other long-term liabilities

Deferred revenue, less current portion

Long-term liabilities of discontinued operations

Total liabilities

Commitments and contingencies (Note 17)

Redeemable noncontrolling interests

Equity (deficit):

Class A common stock, $0.001 par value - 1,500,000,000 shares authorized,
179,848,875 shares issued and outstanding as of September 25, 2021 and
161,267,412 shares issued and outstanding as of December 26, 2020

Class B common stock, $0.001 par value - 300,000,000 shares authorized,
255,490,562 shares issued and outstanding as of September 25, 2021 and
267,065,127 shares issued and outstanding as of December 26, 2020

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive income (loss)

Total deficit

Total liabilities, redeemable noncontrolling interests and deficit

Cash flows from operating activities:

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Equity-based compensation

Deferred taxes

Foreign exchange (gain) loss, net

Pre-tax gain on divestiture of Enterprise Business

Tax Receivable Agreement remeasurement

Other operating activities

Change in assets and liabilities:

Receivable and payable from/to Enterprise Business

Accounts receivable, net

Deferred costs

Other assets

Income taxes payable

Other current liabilities

Deferred revenue

Other liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Acquisitions, net of cash acquired

Additions to property and equipment

Proceeds from divestiture of Enterprise Business, net of transaction costs (Note 3)

Other investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Proceeds from the issuance of Member units

Payment for long-term debt

Distributions to members of FTW

Payment of dividends

Payment of tax withholding for shares and units withheld

Other financing activities

Net cash used in financing activities

Effect of exchange rate fluctuations on cash and cash equivalents

Change in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Supplemental disclosures of noncash investing and financing activities and cash flow information:

Acquisition of property and equipment included in current liabilities

Distributions to members of FTW included in liabilities

Dividends payable included in liabilities

Other financing activities included in liabilities

Tax withholding for shares and units withheld included in liabilities

Proceeds receivable related to divestiture of Enterprise Business

Transaction costs payable related to divestiture of Enterprise Business

Cash paid during the period for:

Interest, net of cash flow hedges

Income taxes, net of refunds

Net income

Add: Amortization

Add: Equity-based compensation

Add: Cash in lieu of equity awards⁽¹⁾

Add: Acquisition and integration costs⁽²⁾

Add: Restructuring and transition charges⁽³⁾

Add: Management fees⁽⁴⁾

Add: Transformation⁽⁵⁾

Add: Executive severance⁽⁶⁾

Add: Interest expense

Add: Foreign exchange loss (gain), net⁽⁷⁾

Add: Provision for income tax expense (benefit)

Add: TRA adjustment⁽⁸⁾

Less: Income from TSA⁽⁹⁾

Add: Other (income) expense, net⁽¹⁰⁾

Less: Income from discontinued operations, net of taxes

Adjusted operating income

Add: Depreciation

Less: Other expense

Adjusted EBITDA

Net revenue

Net income margin

Adjusted operating income margin

Adjusted EBITDA margin

Net income

Add: Amortization of debt discount and issuance costs

Add: Amortization

Add: Equity-based compensation

Add: Cash in lieu of equity awards⁽¹⁾

Add: Acquisition and integration costs⁽²⁾

Add: Restructuring and transition charges⁽³⁾

Add: Management fees⁽⁴⁾

Add: Transformation⁽⁵⁾

Add: Executive severance⁽⁶⁾

Add: Foreign exchange loss (gain), net⁽⁷⁾

Add: Provision for income taxes (benefit)

Add: TRA adjustment⁽⁸⁾

Less: Income from TSA⁽⁹⁾

Add: Other (income) expense, net⁽¹⁰⁾

Less: Income from discontinued operations, net of taxes

Adjusted income before taxes

Adjusted provision for income taxes⁽¹¹⁾

Adjusted net income

Net revenue

Net income margin

Adjusted net income margin

Net loss per share, diluted

Adjusted EPS

Weighted average shares outstanding, basic

Impact on dilution:

Equity awards^(a)

Assumed conversion of LLC Units and vested MIUs

Weighted average shares outstanding, diluted⁽¹²⁾

Diluted GAAP and non-GAAP impact from equity awards are the same, except in periods in which there is a GAAP loss from continuing operations. We do not present dilution for equity awards in periods in which there is a loss from continuing operations. However, if there is non-GAAP net income, we present dilution for non-GAAP weighted-average shares outstanding in an amount equal to the dilution that would have been presented had there been GAAP income from continuing operations for the period.

Net cash provided by operating activities

Add: Interest payments

Less: Capital expenditures⁽¹⁾

Unlevered free cash flow

Net cash provided by (used in) investing activities

Net cash used in financing activities

Capital expenditures includes payments for property and equipment and capitalized labor costs incurred in connection with certain software development activities.

As a result of the purchase from Intel of a majority interest in FTW in April 2017, cash awards were provided to certain employees who held Intel equity awards in lieu of equity in FTW. As these rollover awards reflect one-time grants to former employees of Intel in connection with these transactions, we believe this expense is not reflective of our ongoing results.

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.

Represents both direct and incremental costs to execute strategic restructuring events, including third-party professional fees and services, severance, and facility restructuring costs. Also inclusive of transition charges including legal, advisory, consulting and other costs directly incurred due to the divestiture of the Enterprise Business, including incremental costs associated with data disentanglement and acceleration of data migration to the cloud, that were incurred subsequent to the sale in support of the Transition Services Agreement.

Represents management fees paid to certain affiliates of TPG, Thoma Bravo, and Intel pursuant to the Management Services Agreement.

Represents costs incurred for our public offerings along with other transformational initiatives including data center and facilities rationalization.

Represents severance for executive terminations not associated with a strategic restructuring event.

Represents Foreign exchange gain (loss), net as shown on the condensed consolidated statement of operations. This amount is attributable to realized and unrealized gains or losses on non-U.S. Dollar denominated balances and is primarily due to unrealized gains or losses associated with our 1st Lien Euro Term Loan.

Represents the impact on net income of adjustments to liabilities under our Tax Receivable Agreement.

Represents income earned under the Transition Services Agreement.

Represents other income or expense not associated with our core operations and it is recorded within Other income (expense), net on the consolidated statements of operations.

Prior to our IPO, our structure was that of a pass through entity for U.S. federal income tax purposes with certain U.S. and foreign subsidiaries subject to income tax in their respective jurisdictions. Subsequent to the IPO, McAfee Corp. is taxed as a corporation and pays corporate federal, state, and local taxes on income allocated to it from FTW. This amount has been recast for periods reported previously. The adjusted provision for income taxes now represents the tax effect on net income, adjusted for all of the listed adjustments, assuming that all consolidated net income was subject to corporate taxation for all periods presented. We have assumed rate of 22% which represents our long term expected corporate tax rate excluding discrete and non-recurring tax items.

Represents weighted average shares outstanding and includes the dilutive impact of our outstanding equity awards and assumed conversion of our LLC units and MIUs not owned by the Corporation.