A copy of today s prepared remarks will be available on the website after our call is completed.

Transcription

1 Introduction Sean Hazlett, Senior Manager, Investor Relations Good morning and thank you for joining our call to discuss first quarter 2016 earnings results. By now, you should have had the opportunity to review our earnings release and supplemental information. We ve also posted a presentation that complements our prepared remarks. If you have not reviewed these documents, they can be found on the investor relations events webpage. A copy of today s prepared remarks will be available on the website after our call is completed. Speakers on today s call are Mike Brown, Symantec s President and CEO, and Thomas Seifert, Executive Vice President and CFO. This is a live call that will be available for replay via webcast on our website. I'd like to remind everyone that all references to financial metrics are non-gaap, unless otherwise stated. Implied billings refer to revenue plus the change in sequential deferred revenue, and we include a trended history of this metric in our supplemental information. Also, we provide year-over-year constant currency growth rates adjusted for the 14th week of the June 2014 quarter in our prepared remarks, except for statements about net income and EPS. For FY16 guidance, year-over-year growth rates exclude the impact of the extra week in the year ago June 2014 quarter and adjust for foreign currency. I would like to take this opportunity to highlight a few dates for you. Thomas will be presenting at the Citi Conference on September 9th. We intend to announce our second quarter earnings on November 5th. Please note, non-gaap financial measures referenced during this call are reconciled to their comparable GAAP financial measure in the press release and supplemental materials posted on our website. Lastly, today s call contains forward-looking statements based on the environment as we currently see it. Those statements are based on current beliefs, assumptions and expectations, speak only as of the current date and, as such, involve risks and uncertainties that may cause actual results to differ materially from our current expectations. Please refer to the cautionary statement in our press release for more information. You will also find a detailed discussion about our risk factors in our filings with the SEC and, in particular, in our annual report on Form 10-K for the year ended April 3, And now, I'd like to introduce our CEO, Mr. Mike Brown. Go ahead Mike. August 11,

2 Michael Brown, President and CEO Thank you, Sean, and good morning. Today, I am pleased to announce that Symantec has entered into a definitive agreement to sell the Veritas business to Carlyle for $8 billion in cash. The transaction is expected to close by the end of our third quarter of fiscal 16. For Symantec, the proceeds of this all-cash transaction will further strengthen our financial foundation, allowing us to return significant cash to shareholders and enhance our portfolio of solutions as the world s largest cybersecurity company. As you know, in October 2014, we announced our decision to separate Symantec into two independent companies by spinning off our Veritas business. Consistent with its fiduciary duties, our Board considered other options for our Veritas business and ultimately determined that a sale of Veritas to Carlyle is in the best interest of Symantec shareholders because it delivers both an attractive and certain value. Given the large cash proceeds that we will receive at closing, we are committed to a disciplined capital allocation strategy one that is balanced and appropriately aligned with the size and structure of our go-forward business, and that allows Symantec to both invest in the business and return capital to shareholders. Accordingly, our Board of Directors authorized increasing the stock buyback program by an additional $1.5 billion so that we now have the authorization to buy up to $2.6 billion and maintain our 15-cent quarterly dividend, substantially increasing our dividend payout ratio post separation. In addition, our increased financial flexibility will also allow Symantec to pursue organic and inorganic opportunities to accelerate our Unified Security strategy, which consists of three elements: First, a unified security analytics platform that leverages big data analytics of our vast telemetry to enhance visibility of real-time global threats, and powers analytics applications; Second, using this analytics platform to provide best-in-class consumer and enterprise security software; and Third, Cybersecurity Services that provide a full-suite of services from Monitoring to Incident Response to Threat Intelligence supported by over 500 cybersecurity experts and nine global security response centers. This strategy is resonating well with our customers. The sale of Veritas marks a significant inflection point for Symantec. Upon closing of the transaction, Symantec will be focused as the world s largest cybersecurity company in a rapidly growing market. We will have substantial financial flexibility to accelerate our Unified Security strategy and capitalize on growth opportunities. Our ambition is to reshape the industry by harnessing our unique assets and unrivaled telemetry to lead in security analytics. August 11,

3 Now, I d like to comment on Q1 results. As a focused cybersecurity business, we expect to build on our momentum from fiscal year 15. However, Q1 was disappointing as our revenue was flat in a quarter with significant complexity. First, we managed a major sales force transition, establishing dedicated and separate Veritas and Symantec sales and marketing organizations. With this transition, we formed a new management structure that affected the majority of our sales territories and sales people. Second, we continued our ongoing separation activities, namely, separating our IT infrastructure including testing a new ERP system for Veritas, assigning dedicated personnel within HR, legal, finance and IT to support Veritas, and allocating our real estate worldwide to support two standalone companies. Third, and what we didn t anticipate, was managing a Veritas sale process that involved extensive due diligence with multiple parties. The complexity of managing these three efforts simultaneously resulted in disappointing execution for both Symantec and Veritas from which we expect to recover in Q2 as our sales force transition and the due diligence associated with the Veritas sale are now behind us. Enterprise Security Moving on to Enterprise Security. Our Enterprise Security segment includes our Threat Protection products, Information Protection products, Trust Services, and Cybersecurity Services. In total, this segment grew 1% in Q1, its first quarter of growth in two years. And we are building stronger momentum with a robust pipeline of new solutions in fiscal 16. We expect to strongly benefit both from this product pipeline in the second half of fiscal 16 and through improved sales force execution as our global installed base of customers adopts these new solutions. As a result, we continue to see a path to sustained growth in the second half of fiscal 16 for our enterprise security business. Threat Protection, which includes our endpoint security, endpoint management, mail, web, and data center security offerings, declined 1% in Q1. Excluding our endpoint management product line which declined this quarter, our Threat Protection offerings grew 2%. In particular, our flagship endpoint security product line continued to show strong momentum with 6% growth for the second consecutive quarter. In Q1, we released our ATP Network and ATP modules in limited availability to about two dozen customers in the financial services, telecom, consumer products, and healthcare industries. We are working with these customers to ensure our solutions are delivering the highest value. To date, about half of these customers have already moved into production. And, August 11,

4 we also released a beta version of our ATP Endpoint module. With these introductions, we have entered the multi-billion dollar advanced threat protection market growing at 40% per year. All three Symantec ATP modules will be available in the second half of fiscal year 16. They will be highly differentiated from competitive products because they can detect, correlate, and prioritize incidents across the endpoint, , and network threat vectors, and leverage the combined intelligence of our Unified Security Platform. In fact, in recent third party efficacy testing, our ATP solutions outperformed competitive offerings from FireEye and Cisco. Information Protection, which includes our DLP, encryption, and identity and access management offerings, grew 3% year-over-year in Q1. We launched DLP 14 in late Q1, which extends our on-premise DLP capabilities to cloud applications such as Box and Office 365. In Q1, Cybersecurity Services (CSS) revenue grew between 2 and 3% as we continued to expand our offerings to meet growing customer needs to manage every phase of the attack lifecycle. During the quarter, we introduced our CyberOne offering, and signed our first, multi-million dollar deal for offering. CyberOne combines our Intelligence, Monitoring, and Incident Response services into a single comprehensive offering. We also won several Incident Response deals across healthcare, oil and gas, telecommunications, government, media, and technology. In particular, 40% of our new customers came from healthcare in the wake of recent breaches in that sector. Additionally, in Q1, our Cybersecurity Services team also released our ATP Monitoring Service, where our Cybersecurity Services organization combines our ATP Technology and our Managed Services offering to monitor threats remotely, all powered by our global SOCs. Trust Services, which includes our SSL and PKI solutions, is the world s largest SSL certificate authentication provider with greater than 40% market share in protecting the world s e- commerce. Trust Services had another solid quarter, with 3% growth. And this quarter, Trust Services added further enhancements to SSL Assistant Plus, cutting the time it takes to secure websites down to minutes for small retailers. Consumer Security Now, onto the Consumer Security segment. As the number of devices in the home continues to grow and hackers become increasingly sophisticated, we believe Norton is more relevant than ever for our customers and for Symantec. In just the last few weeks we ve seen new vulnerabilities that expose Mac and Android devices to attack. Norton s core security service offering includes protection for mobile and Mac devices as well as Windows, providing not only device protection but also capabilities to detect phishing and scams. In addition, our services for managing customer passwords, backing up data and supervising children online continue to be more important for our customers. And of course, the aggregated telemetry from our global footprint of Norton users August 11,

5 powers our unified security analytics. In the future, we know that IoT connected devices will be vulnerable to attack, and we believe Norton can play a greater role in protecting all the devices in the homes of our customers. Our Consumer Security segment performed better than expected in Q1 as we continue to migrate our customers to a cloud-based subscription service. Revenue declined 6% versus a 7% decline in Q4, and operating margin expanded to a record 57% due to continued operational improvements. We re also seeing improvements in key levers of our Norton business such as online customer acquisition. Direct web acquisition of customers generated over a half million new units of our core Norton Security offering in Q1. More importantly, we believe the lifetime value for each of these customers is 25% higher with the subscription model. Information Management Moving to our Information Management segment. We expanded operating margin to 23% from 14% in the prior year, and revenue grew by over 3% driven by continued strength in NetBackup and appliances. Veritas continues to drive the transition to Integrated Backup appliances. According to IDC, Veritas claimed the #1 share of the open systems integrated backup appliance submarket for the first time at 47% share in the March 2015 quarter. We're releasing several products this summer which we believe will underpin additional growth for Veritas. First, NetBackup 7.7 provides enhanced datacenter integration across industry platforms, with significantly faster cloud performance than our previous release. Second, InfoScale provides availability and software-defined storage to address enterprise business continuity needs. Third, the Veritas Resiliency Platform ensures critical data remain accessible across complex, multi-vendor physical and virtual environments. Fourth, Information Map is the first cloud application built on our Information Fabric technology to enable companies to gain better visibility into their unstructured data. With its strong and broad product portfolio, Veritas is well positioned to compete in a growing market. Now, I ll turn it over to Thomas to provide a review of our first quarter financial results and guidance for our second fiscal quarter. August 11,

6 Thomas Seifert, EVP and CFO Thank you Mike and good morning everyone. The $8 billion sale price for Veritas delivers a certain and attractive valuation to Symantec, simplifies the separation process, and provides financial flexibility to invest in our future. This is an all cash transaction which we expect to close by the end of the third quarter of this fiscal year. After certain closing adjustments and the payment of taxes at the rate of approximately 20%, we expect to receive net cash proceeds of $6.3 billion of which 35% will reside in the U.S. To demonstrate our commitment now and in the future to returning capital to shareholders, our Board of Directors immediately authorized an increase of the stock buyback program to $2.6 billion. This new authorization enables us to retain flexibility as we finalize our capital allocation strategy in anticipation of the transaction s closing by the end of our third fiscal quarter. We intend to repurchase the first $2 billion over the next 18 months. The Board also decided to maintain our 15-cent quarterly dividend, thereby substantially increasing our dividend payout ratio post separation. Together, between dividends and buybacks, we expect to return about 120% of our after tax domestic cash proceeds from the sale to our shareholders over the next 18 months. Now, let me turn to first quarter financial results. Implied billings declined 7% year-over-year, and revenue was flat at $1.5 billion. As Mike noted earlier, the complexity of managing our sales force transition and our ongoing separation effort in parallel with the extensive due diligence process associated with the Veritas sale resulted in disappointing top-line execution during the quarter. We continue to expect our Enterprise Security business to grow in the second half of fiscal 16. The U.S. dollar strengthened against major currencies compared to the year-ago period, which created a headwind of $115 million to first quarter revenue and $266 million to deferred revenue on a year-over-year basis. However, currency effects had a $2 million positive impact on revenue as compared to the guidance we provided on May 14th. In addition to foreign currency effects, we estimate the June 2014 period had approximately $113 million of additional revenue from an extra 14th week of activity versus 13 weeks in the June 2015 period. Moving now to our business segments. Information Management revenue increased 3% to $587 million. NetBackup software and appliances grew 10% and 19%, respectively. This strength was offset by weakness in our Backup Exec and Information Availability offerings. Non-GAAP operating margin for the IM segment August 11,

7 increased by 11.4 percentage points year-over-year to 23% driven by cost reductions and an increase in revenue. In the Consumer Security segment revenue declined 6% to $430 million.we delivered non- GAAP operating margin of 57%, up 8.2 percentage points year-over-year and 2 percentage points sequentially. Our operating margin was higher than we anticipated primarily as a result of continued operational improvements. We continue to expect Norton revenue to decline 5% to 8% for fiscal 16, and operating margin to return to our guided range of 52 to 54% as we invest in additional marketing initiatives to improve our customer experience and our growing online acquisition rate. Enterprise Security revenue grew 1% year-over-year to $482 million. Endpoint Security posted another solid quarter, growing 6% year-over-year. Continued weakness in our endpoint management offering was a significant headwind for the segment. Non-GAAP operating margin for enterprise security was 6% as we invested in R&D despite lower than expected revenue. Moving down the income statement. Non-GAAP operating margin for the first quarter was 27.4%, an increase of 480 basis points year-over-year, driven by lower spend as we aligned costs with lower revenue. We will continue to make operational improvements to our business to expand our operating margin as we approach our longer-term target of 30%. Non-GAAP net income of $275 million resulted in fully diluted earnings per share of 40. Now, turning to cash flow and capital allocation. Cash flow from operating activities for the June quarter totaled $300 million. We incurred restructuring costs of $22 million and separation costs of $63 million during the June quarter. The costs were higher than expected as we accelerated our separation activities to prepare for our sale of the Veritas business. However, we do not expect total separation costs to increase compared to our prior estimate. Capital expenditures were $78 million. We expect Q2 capex to be higher as we work to complete the Veritas separation. During the quarter, we instituted a blackout period associated with the sale of Veritas, which limited us from repurchasing company shares. As a result, we returned $193 million to shareholders during the June quarter via share repurchases and dividends. $103 million was in the form of cash dividends and $90 million was used to repurchase 4 million shares at an average share price of $ August 11,

8 Initiatives The eight revenue and efficiency initiatives we undertook in fiscal year 15 continue to provide incremental benefits and operating profit in fiscal year 16. Given the complexity of the first quarter, we are expanding our set of revenue and efficiency initiatives to help improve our top-line and better optimize our cost base. Some of these new initiatives will include: accelerating our license compliance program and optimizing our end-oflife approach to better align with industry standards. Combined with our original fiscal 15 initiatives, we believe this expanded set will drive margin expansion and improve top-line performance as they accelerate throughout the year. Guidance Now, moving on to guidance. For the September 2015 quarter, we are providing guidance for a combined Symantec that includes Veritas. We expect to move the Information Management business results and balance sheet to discontinued operations starting in the December quarter and will adjust our full year guidance during our November earnings call to reflect this change. Our September 2015 quarter guidance assumes an exchange rate of $1.11. We expect revenue to be between $1.485 to $1.525 billion, up slightly quarter-over-quarter at the midpoint. We expect operating margin to be between 26% to 28%, resulting in EPS in the range of 40 to 43. In conclusion, I m pleased with all the progress the team has made in making the sale of our Veritas business happen, and I m excited about our organic and inorganic growth opportunities as the world s largest cybersecurity company. And with that, I ll turn it back over to Mike for some final comments. August 11,

9 Michael Brown, President and CEO Closing Thank you, Thomas. The sale of Veritas delivers an attractive and certain value for shareholders. Importantly, it also helps us simplify the separation process. This transaction is a major milestone for the Company, and we couldn t have achieved this result without the incredible effort and dedication of our employees, who have been working diligently to ensure a successful separation for a year now. Going forward, a balanced capital return policy will also drive long-term value for our shareholders. As a focused cybersecurity company, we are poised to extend our lead in the security industry. Our robust product pipeline, new product adoption by our global installed base, and improving sales force execution make us confident that we ll grow our enterprise security business in the second half of fiscal 16. I couldn t be more excited about our future. And with that, I ll turn it over to Sean to begin taking your questions. Sean Hazlett for Q&A Thanks, Mike. Operator, will you please begin polling for questions? Thank you Please direct all questions to Investor Relations at August 11,