Symantec: Fiscal 2Q14 Financial Results

Symantec Corp. reported revenue of $1.64 billion for its second quarter of fiscal year 2014, ended September 27, 2013, down 4% year-over-year and down 3% after adjusting for currency.

“Since announcing our strategy in January, we made significant changes that will help us become more successful at delivering value to customers and partners. We’ve reallocated resources to develop new integrated offerings, split the sales organization into renewals and new business teams, and simplified our management structure,” said Steve Bennett, president and CEO, Symantec. “While this was a challenging quarter in our transition year, we expect our actions to translate into growth. We remain committed to our FY15-FY17 targets and are confident that we are on the right track.”

“The actions we took were necessary and will build a strong foundation for long-term growth,” said Drew Del Matto, acting CFO, Symantec. “We fell short on revenue in the September quarter, but over-delivered on operating margin and EPS. Due to the second quarter shortfall and the significant changes we are driving, we are lowering our FY14 guidance.”

GAAP Results for 2Q14

• GAAP operating margin was 15.1% compared with 17.5% for the same quarter last year.
• GAAP net income was $241 million compared with net income of $189 million for the year-ago period.
• GAAP diluted earnings per share were $0.34, up 26% year-over-year.
• GAAP deferred revenue as of September 27, 2013 was $3.50 billion compared with $3.62 billion as of September 28, 2012, down 3% year-over-year.
• Cash flow from operating activities was $191 million, up 7% year-over-year.

Non-GAAP Results for 2Q14

• Non-GAAP operating margin was 27.6% compared with 27.0% for the same quarter last year, up 60 basis points year-over-year and flat after adjusting for currency.
• Non-GAAP net income was $355 million, compared to $318 million for the year-ago period, up 12% year-over-year.
• Non-GAAP diluted earnings per share were $0.50, compared with $0.45 for the year-ago period, an increase of 11%

Business Segment and Geographic Highlights for the Quarter
In alignment with our 4.0 strategy, we created three new business segments. Below is a breakdown of our results by segments and geographies.

The User Productivity & Protection segment, which is comprised of endpoint security and management, encryption, and our mobile offerings, represented 44% of total revenue and declined 3% year-over-year (2% after adjusting for currency) to $719 million.

The Information Security segment declined 2% year-over-year (1% after adjusting for currency) to $316 million. This segment represented 19% of total revenue and includes Symantec’s security capabilities such as our mail and web security, authentication services, data center security, Managed Security Services, hosted security services, and Data Loss Prevention businesses.

The Information Management segment represented 37% of total revenue and declined 5% year-over-year (6% after adjusting for currency) to $602 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 52% of total revenue and decreased 3% year-over-year (2% after adjusting for currency).

The Europe, Middle East and Africa region represented 28% of total revenue and increased 4% year-over-year (down 1% after adjusting for currency). The AsiaPac/Japan region represented 18% of total revenue and increased 14% year-over-year (5% after adjusting for currency). The Americas, including the United States, Latin America and Canada, represented 54% of total revenue and decreased 3% year-over-year (4% after adjusting for currency).

Capital Allocation
Symantec ended the quarter with cash, cash equivalents and short-term investments of $3.8 billion compared to $4.0 billion, a decrease of 4% year-over-year.

On September 18, 2013, the company paid a dividend of $0.15 per share for a total of $105 million.

Also, during the quarter, Symantec repurchased 5.0 million shares for $125 million at an average price of $24.99. At the end of the second quarter, Symantec had $908 million 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 December 18, 2013 to all shareholders of record as of the close of business on November 25, 2013. The ex-dividend date will be November 21, 2013.

For fiscal 2014, Symantec expects:
Given the September quarter shortfall and the significant transformation the firm is driving, it has lowered annual guidance.

• Revenue to decline 3 to 4% in constant currency
• Non-GAAP operating margin to expand by 30 to 60 basis points
• Non-GAAP earnings per share to be between -1.0 and 1.5% compared to the prior fiscal year

For the third quarter of fiscal 2014, Symantec expects:

• Revenue of $1.63 billion to $1.67 billion, compared to $1.79 billion in the year-ago period.
• GAAP operating margin of 17.0% to 17.6% compared to 17.0% in the year-ago period.
• Non-GAAP operating margin of 25.6% to 26.2% compared to 25.9% in the year-ago period.
• GAAP diluted earnings per share between $0.26 and $0.28 as compared to $0.31 in the year-ago period.
• Non-GAAP diluted earnings per share between $0.41 and $0.43 as compared to $0.45 in the year-ago period.

Guidance assumes an exchange rate of $1.35/€ for the December 2013 quarter versus the actual weighted average rate of $1.30 and an end of period rate of $1.32/€ for the December 2012 quarter. Our guidance assumes an effective tax rate of 28% and a common stock equivalents total for the quarter of approximately 707 million shares.