Symantec Corporation (SYMC)

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Symantec (SYMC)

Q3 2013 Earnings Call

January 23, 2013 4:30 pm ET


Helyn Corcos - Vice President of Investors Relations

James A. Beer - Chief Financial Officer and Executive Vice President

Stephen M. Bennett - Chief Executive Officer, President and Director

Stephen E. Gillett - Chief Operating Officer and Executive Vice President

Francis A. de Souza - Group President of Enterprise Products and Services


Philip Winslow - Crédit Suisse AG, Research Division

Brent Thill - UBS Investment Bank, Research Division

Adam H. Holt - Morgan Stanley, Research Division

Walter H. Pritchard - Citigroup Inc, Research Division

John S. DiFucci - JP Morgan Chase & Co, Research Division

Aaron Schwartz - Jefferies & Company, Inc., Research Division

Kash G. Rangan - BofA Merrill Lynch, Research Division


Unknown Executive

Ladies and gentlemen, please welcome, Vice President Investor Relations, Helyn Corcos.

Helyn Corcos

Thank you so much and welcome. We are very excited to have you here join -- Thank you so much. It's wonderful to have you all here to join us today for the strategic direction and third quarter announcement.

I'm going to be really quick here. I am just going to do some housekeeping comments and then move on. What we'll do is we'll start with the agenda. We will cover earnings very briefly with guidance, and then we'll move onto the strategic direction and the operational plan discussion. And then we'll have a Q&A session. The event is actually being recorded. We'll also have the presentation on our website right after the event.

In addition, as you know, we will have a lot of comments here today about products and financial statements that are forward-looking. So we do encourage you to please check our risks and uncertainties statements in our filings.

And in addition, we also talk about GAAP and non-GAAP financial information, and there's reconciliation comments at the -- on the website that you can also refer to.

And I think that's really it for me today. So I am going to turn it over to our CFO, Mr. James Beer, and he'll kick it off with the earnings.

James A. Beer

Thank you very much, Helyn. Good afternoon, everyone. In our December quarter, we were very pleased with the 5% revenue growth rate that we've recorded on a constant-currency basis, and that equates to 4% of organic revenue growth. That's, in fact, the highest percentage growth rate we've seen organically in over 4 years now.

These results is very much driven by strength in our Europe, Middle East, Africa region, as well as our Trust Services business and our Information Management business. That's the backup and archiving part of our business. And that area particularly helped us build our license revenue growth at 8% year-over-year. Maintenance grew 5% year-over-year, and our enterprise subscriptions business grew 12% year-over-year.

In terms of our beat the EPS line, it was very much a balance of both revenue, overperformance and, on the expense side, beating there as well. So about a 2/3 revenue, 1/3 expense balance that drove the EPS performance.

Looking at some of the details of the revenue performance across the business units reflecting growth across our portfolio, on the Consumer side, continued growth as we upsell our customers to our premium suites, as well as continue to grow our emerging businesses, including our mobile business there.

In terms of the Security and Compliance business unit, in addition to Trust Services, we saw a nice growth from our Managed Security Services and encryption businesses. And in terms of Storage and Server Management, we saw growth on both sides of this business. So first of all, on the back half and archiving side, a very strong performance, 12% growth driven by our NetBackup products. Capital. So, in terms of Storage Management, we saw 1% growth there year-over-year. So that's the second consecutive quarter of growth for that business as we saw more of our customers continue to convert their mission-critical applications to Linux and virtualized infrastructures using our software.

Services grew, again driven by our Business Critical Services unit. That's the high-end support offerings.

In terms of cash, we saw 15% growth in cash flow from operations year-over-year and our domestic cash balance represents 26% of the total after setting to one side $1 billion to cover the maturity of our convertible debt that comes due in June later this year. We spent $200 million during the quarter to repurchase shares at an average price of $17.94. Moving on now to our guidance, as we'll be discussing this afternoon, we're entering a period of some transition. So I think it's appropriate for us to be prudent when offering guidance here. We're suggesting revenue and deferred revenue both growing 1% to 3% on a constant-currency basis year-over-year, 73% of our in-period revenue coming from the balance sheet. In terms of earnings-per-share, we're looking for it down just over 1 point at the midpoint of the range. We do expect to record a lower tax rate in the fourth quarter, driven by the catch-up effects of the recently reinstated research and development credit that got put back into place earlier this month.

And in terms of GAAP EPS, that large decline year-over-year is driven by the fact that this time last year, we booked a onetime credit for the profit associated with the sale of our stake in the Huawei joint venture.

So with that, we have to shift gears and focus the rest of the afternoon on the 4.0 strategy and operational plan. And to introduce that, we're going to show you a short video.


Stephen M. Bennett

All right, we're stopping at 61%. I'm not quite sure why, but welcome to the unveiling of Symantec 4.0. Before we start today, what I'd like to do is first personally thank all of our employees for delivering just another very, very great quarter. I'd be remiss if I didn't start with that. We've produced better-than-expected results in a time where we've been going through quite a bit of transition as a company and there's lots of uncertainty for our employees.

I'd also like to start, before we get into forum, by introducing -- we just announced today the creation of an Office of the CEO at Symantec. You see the other 3 members with me here today. Stephen Gillett, who joined us recently; Francis de Souza; and you've already know or met James Beer.

So let me start by saying when I took this job in July, I said we're going to start with a clean sheet of paper. We were going to evaluate all of the options on the best way to create shareholder value. We commissioned an outside firm to help us, a reputable firm and we looked at a bunch of different scenarios. And I think we have 3 of our board members, in addition to me, are here today. And I think we participated in multiple discussions, looking at all sorts of different portfolio analysis. And at the same time, we commissioned a separate firm to help us put together a transformation strategy to evaluate at full potential or at a reasonable potential how could we best create shareholder value, so we'd be able to compare that against all the other options. We had a board that what I would call the 5 and 30 plan, because that's what we had been messaging.

We had a board meeting a couple of weeks ago in early January. And the board -- management made a proposal to the board, which the board concurred for clearly the best way for this team to create shareholder value, it is the 5 and 30 plan. And that's what you're going to hear about, that's what Symantec 4.0 is all about.

So there's a theme that we're using, and it's a very simple theme for Symantec 4.0. It's all about organic growth, an organic growth-focused company that finds, identifies and solves unmet, underserved customer needs that we can solve better than anybody else and drive organic growth. We not only solve them better than anybody else, we can do it in a way that builds competitive advantage and creates sustainable financial performance. If we get that, it's also about expanding margins, it's also about increasing cash flows and a disciplined use of capital allocation. We'll talk more about that as we go through. But this the financial theme for Symantec 4.0.

And so this is the talk track for today. I'm going to just start with quickly, as you know, I said I was going to go on a around-the-world learning tour. I'm going to share some of the key conclusions and insights from that. Stephen and Francis are going to give you a sense of how we view the market. Francis is going to go through our offering roadmap, which is how some of the things we're going to do to solve these unmet or underserved customer needs better than anybody else and create competitive advantage.

I'm going to hit a little bit on go-to-market strategy, some of the changes that we're going to make in that area. Then I'm also going to lead into our organization structure, both strategy and structure and the leadership team.

James is going to come back and talk about how we're going to fund these investments in organic growth, kind of the sources and uses of resource. And then finally, we're going to give you some forward-looking financial review over the next few years. So that's the talk track for today's program.

I looked at this map when we put it together and it kind of boggled my mind, but this is where I was in the last 6 months. Every location for Symantec around the world with more than 400 employees. And I put on a lot of miles. And I will tell you, I learned an awful lot. It was -- I talked to customers, partners, government officials, third-party outside analysts, investors. Just anybody that I thought could give me insight to help identify 2 things. What are the strengths that we have at Symantec to build on? And what are the areas of opportunity that we could capitalize on to perform as a company at a higher level?

And the thing I would share is the theme no matter who I talked to anywhere in the world, the themes were very consistent. It's very, very clear. Let's start with what were our assets? And I would like to start by thanking Gordon, John and Enrique for version 1, 2 and 3. They built a portfolio of strong assets that we will use as the foundation for us to deliver for customers going forward.

We have deep expertise and capability and learned a lot of things about our security expertise and our information management expertise and also some things that we can do that really leverage these across the portfolio and drive some synergy in how we saw these customer problems. Francis will give you some examples on how we're going to find synergies between the information management side of the house and the security side to solve important customer problems.

Portfolio of leading products. Look, we have great assets that were built by those that came before me. Nine products, 9-point solutions in the leadership positions in the Gartner Magic Quadrant. We've got positions in 98% of the Fortune 100 companies and 93% of the largest financial institutions. We've got over 175 million Norton users on a global basis, all of which are assets that, as the world starts to merge between consumer and business, put us in a position that are very difficult for others to match.

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