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SYMANTEC CORPORATION 4Q15 & FY15 RESULTS – May 2015
Introduction - Helyn Corcos, Vice President Investor Relations
Good afternoon and thank you for joining our call to discuss fourth quarter and fiscal year 2015
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 in our prepared remarks, except for
statements about net income and EPS. For FY16, 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 JP Morgan conference on May 19th and Mike will be presenting at the Bank of America
Merrill Lynch conference on June 3rd. We intend to announce our first quarter earnings on
August 6th.
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 March 28, 2014.
And now, I'd like to introduce our CEO, Mr. Mike Brown. Go ahead Mike.
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SYMANTEC CORPORATION 4Q15 & FY15 RESULTS – May 2015
Michael Brown, President and CEO
Thank you, Helyn, and good afternoon.
Fiscal 15 was a transformative year for Symantec as we improved our profitability and laid the
foundation for future growth. We focused on returning to growth and right-sizing our cost
structure; achieved our profitability targets; and returned significant cash to shareholders while
preparing for the separation. We increased our R&D spending and shifted R&D dollars to focus
on growth areas, delivering 41 enterprise security products and 17 Veritas products in fiscal 15.
In the March quarter, Symantec achieved revenue growth for the first time in three quarters.
Our confidence that this momentum will continue is underscored by leading indicators such as
implied billings and deferred revenue. For the full year, implied billings increased 4% and grew
in every quarter. In addition, deferred revenue grew 1% for the year and posted two
consecutive quarters of growth.
Now, let’s review some key highlights for each segment, starting with information
management.
Information Management
Exponential data growth driven by trends spanning from mobile to virtualization to hybrid
clouds and the increased complexity in managing information is creating opportunity for
Veritas.
At Veritas, we continue to make progress on our plan to accelerate growth and expand
operating margin. Veritas returned to growth in fiscal 15, with revenue up 4% year-over-year,
and expanded operating margin from Q1 to Q4. We continue to build momentum in this
business with four consecutive quarters of accelerating year-over-year revenue growth to 6% in
the fourth quarter, up from 5% in the third quarter.
Enterprise backup continues to be the largest growth driver for Veritas. NetBackup appliances
grew 46% in fiscal 15, accelerating to 88% in the fourth quarter. This success was driven by the
recent launch of our NetBackup 5330 appliance, which more than doubled the capacity of the
prior model, giving us the ability to expand into larger enterprise environments. As an example,
in the March quarter, we signed a $6 million appliances deal with a major telco provider based
on our backup appliance’s ease of use and lower total cost of ownership. While our appliance
is the fastest-growing in the market, we’ve only penetrated 10% of our installed base. Our
NetBackup software also grew above market achieving growth of 11% in fiscal 15.
Additionally, we saw strength in our archiving and eDiscovery products with Enterprise Vault
growing 5% and eDiscovery accelerating its growth to 11% in the fourth quarter.
We expect our momentum to continue in fiscal 16, driven by increased R&D investment, which
is leading to new releases in every one of our foundational enterprise products as well as nextMay 14, 2015
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SYMANTEC CORPORATION 4Q15 & FY15 RESULTS – May 2015
generation solutions, which expand our addressable market and provide new capabilities such
as Information Orchestration, IT Resiliency and Information Map.
Consumer Security
Next, onto the Consumer Security segment.
During fiscal 15, we expanded our Consumer Security operating margin to 53% by streamlining
our operations through business simplification and cost reduction. In fiscal 16, we expect to
maintain our Norton operating margin between 52 and 54%.
The Norton organization is also focused on key initiatives to mitigate revenue declines while
maintaining our current profitability, which include:
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Increasing customer acquisition by refining our marketing messaging and optimizing our
pricing for our premium service offering;
Migrating existing consumers from an annual renewal to our subscription offering;
Boosting retention by improving the user experience throughout the customer lifecycle,
including informing customers where Norton has blocked high profile threats;
And, lastly, expanding distribution channels through telcos and other service providers.
Enterprise Security
Moving to our Enterprise Security segment.
The increasing complexity of threats, the scarcity of cyber security talent, and the need for
actionable, intelligent security solutions are driving opportunities in our enterprise security
business.
During fiscal 15, we returned endpoint protection to market growth, continued to take share in
data loss prevention, established a strong presence in incident response services, and
reallocated investments to growth areas such as threat protection, information protection and
cyber security services. And to better protect Symantec customers, we operate the largest
civilian cyber intelligence threat network, updated at a rate of 200,000 threats per second. This
is the foundation for Symantec’s unified security analytics platform.
In fiscal 15, we experienced a strong resurgence in endpoint security which grew 5% during the
full year and accelerated to 6% growth in the fourth quarter, driven by increasing awareness of
attacks on the endpoint where most unencrypted data resides.
Our data loss prevention, or DLP, offering also experienced above market growth of 14% in
fiscal 15 and is the undisputed leader in the market with double the share of the next largest
competitor. DLP growth accelerated to 33% in the fourth quarter as we expanded DLP into
cloud deployments such as Office 365.
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SYMANTEC CORPORATION 4Q15 & FY15 RESULTS – May 2015
Another important part of our enterprise security business is Trust Services. We are the world’s
largest SSL certificate authentication provider with 44% market share. Trust Services had a
record year, reporting the highest revenue in its history, growing 4% in fiscal 15 and driven
primarily by our enterprise offering that solves for a comprehensive set of website security
challenges.
Our cyber security services also showed strong momentum in fiscal 15. We now have one of the
broadest service offerings in the industry covering the full attack lifecycle from before, during,
and after a breach. Our Incident Response service has engaged over 120 customers since its
launch just a year ago. We expanded both the breadth and depth of our services by launching
new Incident Response Retainer and Simulation services. The retainer service, which launched
in mid-February, is already off to a strong start, signing up major global brands and government
clients in multiple regions in the first few weeks of availability.
In the area of advanced threat protection, we have now entered the ATP market, which is
growing at 40% per year. Earlier this month, we shipped the first two of our Advanced Threat
Protection solutions: the ATP: Network appliance and ATP: Email. By early Fall, we will deliver
our ATP: Endpoint offering. Our ATP solution has two key differentiators:
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One, integration of the endpoint, email, and network control points and our ability to
gather, correlate and analyze data across all three; and
Two, it leverages the combined intelligence of our unified security analytics platform.
Closing
In conclusion, we’re confident that the momentum we’ve established in fiscal 15 sets a strong
foundation for future growth and improving profitability in fiscal 16.
As we outlined at financial analyst day, we expect Veritas to grow 4 to 7% in fiscal 16 and
significantly expand operating margin to between 27 and 29% by growing our core portfolio
and offering differentiated next generation information availability and insight solutions that
address an expanded market opportunity.
In Consumer Security, we expect to maintain operating margin of 52 to 54% while executing on
our initiatives to mitigate Norton’s revenue decline to down 5 to 8% in fiscal 16.
In Enterprise Security, we will leverage our global scale and unique assets to drive
differentiated offerings in threat protection, information protection, cyber security services,
and unified security analytics to accelerate revenue growth to between 1 to 6% in fiscal 16.
Now, I’ll turn it over to Thomas to provide a review of our fourth quarter financial results and
guidance for our fiscal first quarter.
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SYMANTEC CORPORATION 4Q15 & FY15 RESULTS – May 2015
Thomas Seifert, EVP and CFO
Thank you Mike and good afternoon.
Through increased focus, we are returning to growth, right-sizing the cost structure and
improving our profitability. We also returned more than $900 million to shareholders through
share repurchases and dividends. All of this was accomplished in the midst of executing the
Veritas separation.
Implied billings grew 4% in fiscal year 15, compared to the 8% decline in fiscal year 14.
Deferred revenue grew 1% to $3.7 billion compared to the 6% decline in fiscal year 14, giving us
confidence in our growth trajectory. We reported non-GAAP operating margin of 27.3% for the
year. We are pleased with this progress and the momentum as we enter fiscal year 16.
Now, let me provide some details on the fourth quarter financial results.
We delivered non-GAAP revenue of $1.55 billion, within our guided range.
The US dollar continued to appreciate significantly against major currencies which created a
headwind of $111 million to our fourth quarter revenue and $292 million to deferred revenue
on a year-over-year basis.
Our implied billings were up 2% year-over-year, now the fourth consecutive quarter of growth.
And, deferred revenue grew for the second consecutive quarter.
License revenue continued its positive trend from last quarter, growing 10% year-over-year
driven by appliances and DLP. The number of large deals greater than $300,000 and $1M+
increased 35% and 82%, respectively. We saw particular strength in banking, government, and
telecom.
Moving now to our business segments.
Information Management revenue increased 6% to $619 million. NetBackup appliances and
software generated impressive double-digit year-over-year growth. Strength in enterprise
backup was offset by continued weakness in Backup Exec and storage management. Non-GAAP
operating margin for the IM segment increased by 120 basis points year-over-year.
We drove non-GAAP operating margin for the Consumer Security segment to 55%, up 610 basis
points year-over-year and 285 basis points sequentially. We accomplished this through
continuing to reduce complexity in the business, streamlining product offerings, and optimizing
marketing spend. As expected, non-GAAP revenue declined 7% to $438 million due to the exit
of OEM and retail channel arrangements.
Enterprise Security revenue was flat year-over-year at $491 million driven by double-digit
growth in DLP and growth of 6% in endpoint protection. This growth was offset by weakness in
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SYMANTEC CORPORATION 4Q15 & FY15 RESULTS – May 2015
endpoint management. Non-GAAP operating margin for the enterprise security segment was
10%, compared to 15% in the year ago period driven by the stronger US dollar and increased
R&D investment.
Non-GAAP gross margin decreased 100 basis points to 82.7% primarily due to substantial
growth in our appliance business.
Non-GAAP operating margin for the fourth quarter was 25.6%, negatively affected by:
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A true-up of $11 million to defined benefit plan primarily in our EMEA region; and
An $8 million impact due to the strengthening US dollar compared to our guided rate.
Excluding these items, operating margin for the quarter would have been within the guided
range.
We incurred restructuring costs of $61 million and separation costs of $43 million during the
March quarter. In FY16, we expect to incur restructuring costs between $56 to $86 million and
separation costs between $89 to $109 million.
Non-GAAP net income of $299 million resulted in fully diluted earnings per share of 43¢, down
10% year-over-year. The true-up for the defined benefit plan reduced EPS by roughly a penny
per share.
Now, turning to cash flow and capital allocation.
Cash flow from operating activities for the March quarter totaled $488 million, bringing cash
flow for the year to $1.3 billion, up 2% from fiscal 14, driven primarily by the increase in
deferred revenue.
Capital expenditures were $81 million, up 5% year-over-year as we continue to build out our IT
infrastructure.
We returned $227 million to shareholders during the March quarter via share repurchases and
dividends. $102 million was in the form of cash dividends and $125 million was used to
repurchase 4.9 million shares at an average share price of $25.55. We have $1.2 billion
remaining under the current stock repurchase authorizations as of April 3, 2015.
Initiatives
Now, I’d like to briefly review our revenue and efficiency initiatives. Overall, these initiatives
exceeded FY15 targets, delivering over $150 million in incremental operating profit. Let me
highlight several significant achievements:
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The renewals team exceeded its targets and improved renewal rates;
The license compliance team accelerated its audit activity and beat its full year targets;
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SYMANTEC CORPORATION 4Q15 & FY15 RESULTS – May 2015
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Our pricing optimization efforts resulted in a significant improvement in price realization;
And, optimizing the Norton business and streamlining product support delivered cost
savings and operating margin improvement.
These initiatives continue to realize incremental benefits throughout the business and we are
now tracking at a run-rate of roughly $250 million in incremental operating profit into fiscal 16.
Separation
Before I review our guidance, I’d like to briefly discuss the separation of the Veritas and security
businesses.
In April, we completed an important milestone with the separation of the two salesforces. We
are on track to separate Veritas as a standalone company on January 2nd, 2016. Operationally,
we will be two separate companies on October 3, 2015.
We expect to file the Form 10 in August which will provide you with more details on the
business and Veritas carve-out financials.
Guidance
Now, I would like to reiterate guidance for fiscal 16 which we previously provided at Financial
Analyst Day.
For fiscal 16, revenue is expected to be between $6.21 to $6.35 billion, representing year-overyear growth of 0 to 2% after adjusting for the extra week and foreign currency. Operating
margin is expected to be between 29.0% to 30.0% resulting in EPS in the range of $1.80 to
$1.90. Our guidance for the year assumes an exchange rate of $1.13.
We expect cash flow from operations to grow 12% in fiscal 16.
For the June 2015 quarter, our guidance assumes an exchange rate of $1.10. It’s important to
note that the year ago June 2014 quarter included an extra week and the revenue for that extra
week was $113 million which we are excluding from our year-over-year calculation of growth
rates.
We expect revenue to be between $1.5 to $1.54 billion, representing growth of 1% year-overyear at the midpoint. We expect operating margin to be between 27.0% to 28.0% representing
expansion of 685 basis points year-over-year at the midpoint, and resulting in EPS in the range
of 41¢ to 44¢.
Typically, our June revenue is down approximately 1 to 2% sequentially on an as reported basis.
Our June 2015 revenue guidance reflects normal seasonality.
In conclusion, I’m pleased with all the progress the team has made in fiscal 15 and am excited
about our growth prospects.
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SYMANTEC CORPORATION 4Q15 & FY15 RESULTS – May 2015
And with that, I’ll turn it over to Helyn to begin taking your questions.
Helyn Corcos for Q&A
Thanks. Operator, will you please begin polling for questions?
Thank you
Please direct all questions to investor relations at 650-527-5523.
May 14, 2015
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