Symantec: Fiscal 1Q14 Financial Results

Symantec Corp. reported the results of its first quarter of fiscal year 2014, ended June 28, 2013.

GAAP revenue for the fiscal first quarter was $1.71 billion, up 2% year-over-year and up 3% after adjusting for currency.

"I’m proud of the team’s performance despite the ongoing work to right-size and transform the company. I’m also pleased that we delivered better than expected results," said Steve Bennett, president and CEO, Symantec. "While the hard work is just beginning, I’m confident we have the right team in place to execute our multi-year roadmaps, implement our critical go-to-market changes and continue to make progress on our successful transformation."

"We achieved better than expected results driven by strength in our backup, information security and endpoint security businesses," said James Beer, EVP and CFO, Symantec. "During a period of planning and significant resource reallocation, we executed well and grew organic revenue by 3%. The magnitude of change we are undertaking is substantial and so as we move increasingly into the implementation phase of our transformation, we remain cautious on our outlook for the coming quarter."

GAAP Results for 1Q14
GAAP operating margin was 13.1% compared with 15.0% for the same quarter last year. GAAP net income was $157 million compared with net income of $160 million for the year-ago period. GAAP diluted earnings per share were $0.22, flat compared to a year ago. GAAP deferred revenue as of June 28, 2013, was $3.812 billion compared with $3.745 billion as of June 29, 2012, up 2% year-over-year and up 3% after adjusting for currency. Cash flow from operating activities was $312 million compared with $340 million for the year ago period.

Non-GAAP Results for 1Q14
Non-GAAP operating margin was 25.3% compared with 24.9% for the same quarter last year, up 40 basis points year-over-year and up 36 basis points after adjusting for currency. Non-GAAP net income was $308 million, compared to $297 million for the year-ago period, up 4% year-over-year. Non-GAAP diluted earnings per share were $0.44, compared with $0.41 for the year-ago period, an increase of 7%.

Business Segment, Geographic Highlights for 1Q14
In alignment with its 4.0 strategy, Symantec created three new business segments. Below is a breakdown of our results by segments and geographies.

• User Productivity & Protection segment, which is comprised of endpoint security and management, encryption, and our mobile offerings, represented 43% of total revenue and declined 1% year-over-year (increased 1% after adjusting for currency) to $732 million.
• Information Security segment grew 7% year-over-year (9% after adjusting for currency) to $336 million. This segment represented 20% of total revenue and includes Symantec’s security capabilities such as mail and web security, authentication services, data center security, Managed Security Services (MSS), hosted security services, and Data Loss Prevention (DLP) businesses.
• Information Management segment represented 37% of total revenue and grew 4% year-over-year on an actual and currency adjusted basis to $641 million. This segment is comprised of offerings related to backup and recovery, information intelligence, which includes archiving and e-discovery, and information availability, which we previously referred to as storage management.
• International revenue represented 51% of total revenue and increased 2% (4% after adjusting for currency).
• EMEA represented 27% of total revenue and increased 8% year-over-year (6% after adjusting for currency).
• AsiaPac/Japan revenue represented 18% of total revenue and decreased 5% year-over-year (increased 1% after adjusting for currency).
• The Americas, including the United States, Latin America and Canada, represented 55% of total revenue and increased 3% year-over-year on an actual and currency-adjusted basis.

Capital Allocation
Symantec ended the quarter with cash, cash equivalents and short-term investments of $3.8 billion compared to $4.1 billion, a decrease of 8% year-over-year as we paid off our $1 billion of convertible notes that matured in June 2013. On June 27th, Symantec paid our first dividend of 15¢ per share for a total of $105 million. Also, during the quarter, Symantec repurchased 5.2 million shares for $125 million at an average price of $23.96. At the end of the first quarter, Symantec had $1 billion remaining for future repurchases in the current board authorized stock repurchase plan.

Symantec’s board of directors has declared a quarterly cash dividend of $0.15 per common share to be paid on September 18, 2013 to all shareholders of record as of the close of business on August 26, 2013. The ex-dividend date will be August 22, 2013.

FY2014 Guidance
For fiscal 2014, the companyis reconfirming our revenue guidance of 0-2% growth year-over-year and non-GAAP operating margin expansion of 200 basis points – both on a constant currency basis. We expect non-GAAP EPS to grow between 5-7% year-over-year. It expects currency to be a headwind year over year driven primarily by weakness in the yen. It also expect cash flow from operations to be down approximately $200 million year-over-year driven by severance cash payments.

2Q14 Guidance
September quarter guidance takes into consideration the significant changes our sales organization will be undergoing as well as the associated risk. We are confident that these changes will improve execution in the long-term, but may impact results in the short-term.

For 1Q14, Symantec expects:

• GAAP revenue of $1.65 billion to $1.69 billion, compared to $1.70 billion in the year ago period.
• GAAP operating margin of 13.6% to 14.2% compared to 17.5% in the year ago period.
• Non-GAAP operating margin of 25.8% to 26.4% compared to 27% in the year ago period.
• GAAP diluted earnings per share between $0.22 and $0.24 as compared to $0.27 in the year ago period.
• Non-GAAP diluted earnings per share between $0.42 and $0.44 as compared to $0.45 in the year ago period.
• Guidance assumes an exchange rate of $1.31 per euro for the September 2013 quarter versus the actual weighted average rate of $1.25 and an end of period rate of $1.29 per euro for the September 2012 quarter. Our guidance assumes an effective tax rate of 27.5% and a common stock equivalents total for the quarter of approximately 705 million shares.