Gen Digital Inc (GEN) 2014 Q1 法說會逐字稿

Good day and welcome to Symantec's fiscal first-quarter 2014 earnings conference call. Today's call is being recorded.

At this time I would like to turn the call over to Ms. Helyn Corcos, Vice President of Investor Relations. Please go ahead.

Good afternoon and thank you for joining our call to discuss our first-quarter 2014 results. With me today are Steve Bennett, Symantec's President and CEO; and James Beer, Executive Vice President and CFO.

In a moment, I will turn call over to Steve. He will discuss our execution during the quarter and provide some thoughts on our future. Then James will provide highlights of our financial results as well as outline our guidance assumptions. This will be followed by a question-and-answer session.

Today's call is being recorded and will be available for replay on Symantec's Investor Relations website. A copy of today's press release and supplemental financial information has been posted on our website. Our prepared remarks will be available also on the website after the call is completed.

Before we begin, I would like to remind everyone that we made several financial reporting changes this quarter. These include reorganizing our business into three new segments, eliminating the other segment and changing our accounting policy for commission expensing. We have included recaptured historical financials based on these changes in our supplemental doc and press release in order to provide you with comparable financials.

Also, we provide year-over-year constant currency growth rates in our prepared remarks unless otherwise stated. Earnings-per-share growth rates are provided on an as reported basis only. A summary of our year-over-year constant currency and actual growth rate are included in our press release table and supplemental information.

Some of the information discussed on this call including our projections regarding revenue, operating results, EPS, cash flow from ops, amortization of acquisition related intangibles, and stock-based compensation for the coming quarter contain forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in the statements.

Additional information concerning these risks and uncertainties can be found in the Company's most recent periodic report filed with the US Securities and Exchange Commission. Symantec assumes no obligation to update any forward-looking statements. Investors are encouraged to review the reconciliation of the non-GAAP financial measures to the most directly comparable GAAP results which can be found in the press release and the supplemental docs.

Now, I would like to introduce our CEO, Mr. Steve Bennett.

Things Helyn and good afternoon everyone. I would like to start by saying how proud I am of the team's execution this quarter. In a period of significant organizational change we grew organic revenue by 3% and expanded non-GAAP operating margins to 25.3%.

Over the past 12 months the team has made significant progress transforming the Company. By the end of July, we will be almost done with our organizational simplification initiative bringing the number of management layers and spans of control closer to industry standards and reducing our management structure by 30% to 40%.

In addition, we removed some redundancies across the organization during the last quarter resulting in the elimination of some individual contributor positions. From a strategic perspective our better-than-expected results were driven by strength in some of our largest businesses, like Endpoint Security and Enterprise Backup. Our Endpoint Security business grew again this quarter driven by the strength of our offerings.

And our Enterprise Backup business continues its strong double-digit growth as we focus on simplifying the complexity inherent in today's backup environments. By delivering an easy-to-use integrated backup appliance that addresses customers' unmet and underserved needs we have gained share and driven higher top line organic growth for the Company.

While we're pleased with our progress on many fronts, we have some areas where we still have some improvement opportunities. One being Backup Exec. We believe we are on the right track to resuming growth in fiscal year 2015.

Last week we delivered a Backup Exec release focused on expanding platform support and improving quality. We're also optimistic about another Backup Exec release planned for the end of this fiscal year that will address migration issues and provide additional capabilities that will benefit our customers.

From an FY 2014 financial perspective, we are reiterating our revenue guidance of 0% to 2% growth with a 200-basis point improvement in operating margins. In the near term we are factoring uncertainty associated with implementing additional go-to-market changes into our September quarter guidance. I will let James provide the specifics of our guidance for the September quarter. Over the FY 2015 to FY 2017 timeframe I remain confident we will deliver an organic revenue growth CAGR above 5% with greater than 30% operating margins.

There are a number of reasons I'm confident in the future of Symantec. We've continue to deliver, while both running the Company and at the same time significantly changing the Company. We continue to attract top senior-level talent who are signing on to be part of our important mission and want to be part of helping transform the Company. I have never seen such a target rich environment with so many large unmet underserved customer needs in markets that are already growing 8% to 10% according to IDC reports.

We're also excited about our new offering strategy with its three distinct elements. First, managing our existing point solutions in a more strategic way and being much more rigorous on resource allocation based on the market opportunity for each offering. Second, we are excited about the new integrated offerings that solve higher order, higher value customer problems. This will change the basis of competition in a way that is positive for us and delivers real value for our customers. And third we can solve even larger customer problems and deliver even more value when we integrate our capabilities with selected other firms. This will help us win in the market and expand our available market.

You have heard me talk about the network security providers as an example of this large opportunity. So where are we on these partnerships? In simple terms we are in advanced discussions with network security partners including running proof of concepts with selected beta customers. We want to have tangible benefits and proof points before we announce anything related to these partnerships.

My team, customers and our partners are very excited about these opportunities and how they can benefit our joint customers. Stay tuned for future announcements.

Let me share another thought. You may have read recently about a small but important acquisition we just closed. We acquired some technology assets and hired the technical team of Password Bank, a provider of multi-factor authentication, single sign-on and user management services. As a matter of fact, I am heading over to see them next week on a European trip.

I highlight this because this is the type of acquisition you should expect from us in the future. Buying engineering teams and technology, not buying revenue. Our plan is to grow organically and these types of acquisitions will complement and accelerate our internal innovation approach.

Another big area of focus for the team has been on our go-to-market approach. In the second quarter we are beginning the implementation of many of the changes we talked about in January. New roles for our sales force is hunters versus farmers and changing their incentives to be paid on new business.

We're also beginning implementation of the change from a general sales force to one where the vast majority of either information security or information management solutions. We're also starting the implementation of a new centrally managed renewals organization which will be up and running by the end of the fiscal year across the world. I'm optimistic that our offerings and go-to-market changes will lead to significantly improved longer-term performance for Symantec.

In closing, I would like to reflect briefly on my one-year anniversary. I have never been more optimistic about the team, and our opportunities. There's been a lot of positive changes at the Company so far and we can feel the momentum building.

We have just begun to scratch the surface of what this Company will become. I'm confident we have the right team in place to execute our multi-year road maps, implement our critical go-to-market changes, launch our new channel strategy and partner programs, and continue to make progress on our successful transformation.

We will be satisfied when we reach our 5 and 30 goal. But that would mean we would still be losing share. In my career, I have never run a business that lost share.

So while we would be satisfied with beating 5 and 30, we wouldn't be happy. We are setting our sights much higher. In the meantime, we will continue to work hard, executing our strategy and putting points on the board so we can consistently deliver better results for our employees, customers, partners, and shareholders.

Thanks for your support. And with that, I will turn the call over to James.

Thank you Steve and good afternoon. I am pleased by our over performance in the June quarter, while we concurrently made progress towards simplifying our organization and planning for significant sales and go-to-market changes. In the September quarter we will be implementing our new sales organization structure, territories and compensation plan.

June quarter GAAP revenue grew 3% in constant currency to $1.71 billion. Organic constant currency revenue also grew 3% year-over-year driven by strength in our Backup information security and Endpoint security businesses.

As more customers are choosing to purchase subscription services our total subscription businesses grew 5% and accounted for 45% of total revenue compared to 44% of revenue in the year ago period. Enterprise subscriptions, which exclude the Norton business, grew 12% and accounted for 15% of total revenue as compared to 14% in the prior year.

In aggregate, 89% of total revenue was ratable in the June quarter. GAAP operating margin for the -- in alignment with our 4.0 strategy we created three new business segments. We also allocated certain shared expenses from the other segment into our three new segments in order to provide a clearer picture of segment profitability.

Now to review the results of these new segments, the user productivity and protection segment which is comprised of endpoint security and management, encryption and mobile businesses grew 1% to $732 million. We're pleased with the continued growth of our endpoint security businesses driven by growth in both Norton and Enterprise Endpoint Protection. We expect growth in our endpoint security businesses to be flattish for the balance of the fiscal year. This growth was offset by weakness in our endpoint management business, due in part to customer uncertainty surrounding previous divestiture rumors in the early part of 2013.

GAAP operating margin for the user productivity and protection segment was 35%, flat year-over-year. The information security segment which includes our authentication, mail and Web security, hosted security services, data center security, MSS and DLP offerings grew 9% to $336 million. Our trust services business continues to perform well, in part because many of our customers are choosing to protect more corporate website interactions rather than just the sites that involve e-commerce transactions.

GAAP operating margin for the information security segment was 8% compared to negative 3% in the year-ago period as we begin to scale our emerging information security portfolio. The information management segment grew 4% to $641 million, and is comprised of our 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. Our backup and recovery businesses grew high-single digits driven by double-digit growth in Net Backup offset by a continued weakness in Backup Exec.

Strength continued in our integrated backup appliances as customers look for ways to simplify their expanding backup environments. According to a recent IDC report, our share of the backup appliance market for the first quarter of calendar 2013 has more than doubled year-over-year, driving us into the number two share position. GAAP operating margin for the information management segment was down 4 percentage points year-over-year to 23% as we continue to invest in areas such as appliances and technical support.

Turning now to total Company margins. Non-GAAP gross margins declined 59 basis points year-over-year to 83.6% as we continue to grow our subscription and appliance businesses. GAAP operating margin was 13.1%, down 190 basis points year-over-year, driven primarily by $83 million in restructuring and transition charges. Employee layoff notifications occurred in May and June, as well as in the month of July. We expect the balance of our projected severance and benefits payments of $220 million to $250 million to be realized throughout the rest of the fiscal year.

Non-GAAP operating margin was 25.3%, up 36 basis points year-over-year as increased commission expenses and investments in R&D were offset by top-line growth and lower than expected OEM fees. Non-GAAP net income of $308 million resulted in fully diluted non-GAAP earnings-per-share of $0.44, up 7% year-over-year as reported, driven primarily by improved operating leverage from stronger-than-expected revenue performance.

Deferred revenue was $3.81 billion, down sequentially as expected and in line with historical seasonal patterns. Year-over-year, deferred revenue grew 3%. We exited the quarter with cash, cash equivalents and short-term investments of $3.8 billion, following the maturity of our $1 billion of convertible notes. Approximately 41% of our cash balance resides onshore.

In the June quarter, we returned $230 million to shareholders through a combination of share repurchases and dividends. On June 27, we paid our first dividend of $0.15 per share for a total of $105 million. We also spent $125 million to repurchase 5.2 million shares at an average share price of $23.96. Symantec has approximately $1 billion remaining in the current Board authorized stock repurchase plan.

Cash flow from operating activities for the June quarter totaled $312 million, down 8% year-over-year driven primarily by spending on operational improvements in areas such as support and our ongoing ERP implementation.

Now I'd like to spend a few minutes discussing our guidance. For FY 2014 we reiterate our constant currency revenue guidance of 0% to 2% growth and non-GAAP operating margin expansion of 200 basis points. As a reminder, we continue to expect a currency headwind driven primarily by weakness in the yen. We also expect non-GAAP EPS to grow between 5% to 7% in FY 2014.

We have identified $350 million in annual spending that is not aligned with our 4.0 strategy. We have reallocated the majority of these resources to key growth opportunities and the remaining savings will be used to expand operating margins in fiscal 2014. As discussed last quarter we expect cash flow from operations for fiscal year 2014 to be down approximately $200 million year-over-year driven by severance cash payments.

Our September quarter guidance takes into consideration the significant changes our sales organization will be undergoing as well as the associated risk. These changes include realigning our sales territories faster than expected, reducing costs through headcount reductions, redesigning the coverage model, launching the new renewals team, converting our general sales force to one that is specialized, focusing our sales organization on new business only, and redefining compensation incentives.

For the September 2013 quarter, we expect GAAP revenue to be in the range of $1.65 billion to $1.69 billion, compared to $1.7 billion in the year ago period. Approximately 77%, or $1.28 billion of our September quarter revenue is estimated to come from the balance sheet. We expect GAAP operating margins to be in the range of 13.6% to 14.2%, compared to 17.5% in the year ago period.

Non-GAAP operating margin is expected to be in the range of 25.8% to 26.4% compared to 27% last year. GAAP earnings per share are estimated to be between $0.22 and $0.24 as compared to $0.27 in the year-ago period. Non-GAAP earnings per share are estimated to be between $0.42 to $0.44 as compared to $0.45 in the year-ago period. We expect cash flow from operations to be down slightly year-over-year compared to the September 2012 quarter, driven by cash outflows related to severance payments.

As part of our enhanced capital allocation strategy we will issue a quarterly cash dividend of $0.15 per share equivalent to a yield of 2.5% based on the closing stock price of $24.25 on July 25, 2013. Payment will occur on September 18th to shareholders of record on August 26.

In addition to paying dividends we will also continue to buy back our shares. Our guidance for both the quarter and the full year assumes an effective tax rate of 27.5%. We expect common stock equivalents for the quarter of approximately 705 million shares and expect our share count to remain flat for the full year.

And now I will turn it over to Helyn so we can start taking some of your questions.

Thank you James. Gwen, will you please start polling for questions?

Thank you.

(Operator Instructions)

Please limit yourself to one question and one follow-up question.

While the operator is polling for questions, I'd like to update you on our upcoming investor events. We will be presenting at the Citi Global Technology conference on September 4 in New York. We will be reporting our fiscal second-quarter results on October 23. For a complete schedule of our investor related events, please visit the events section of the Investor Relations website.

Gwen, we are ready for our first question.

Brad Zelnick with Macquarie.

Thank you very much, and great job, especially considering all that is going on, not only at Symantec but in the environment more generally. Steve, on the product side, can you talk about the progress you're making on the new solution areas, and when we might hear additional details on what the initial offerings look like? And is it fair to say that a changing product roadmap might've impacted customer decisions, and caused some hesitation, and the results might have otherwise been even better or am I stretching here?

You are stretching. We just shared with our sales force, and obviously we have been sharing with some of our customers, these roadmaps when we had our worldwide sales and marketing conference a couple weeks ago. And the feedback from both customers, partners and salespeople has been very, very positive. And so we are trying to figure out what the right path is.

I know we will talk about this at Investor Day next May, and my guess is that you will see some of this between now and then, and we don't really have a good path on this, but it is -- of the 10 new offerings that we announced -- we still have 10. One didn't make it, and we came up with the idea of one new one. And so your feedback -- all of your feedback to Helyn, and the best way for us to share some of this data would be helpful, but I think that it did not affect revenue in the current period. But we are excited about how it will help us meet the 5% CAGR that we talked about longer term.

-- Steve. And James, you listed a good half-dozen vectors of change to the sales model heading into 2Q. It seems unprecedented, the degree of change, but is there any reference point in the past that gives you confidence that your guidance sufficiently accounts for the risks associated with all these changes that you're making?

I think it's important to recognize how much of our revenue in the quarter is ratable. I particularly drew reference in the June quarter to that 89% number. And for the September quarter, the starting balance sheet will drive 77% of our revenue. And then we will add to that based on the ratable activity from in-period sales. I think that should give you some comfort as to the revenue guide that we put out there.

Thanks, James. And just a very quick follow-up. Based on that comment, would it be fair to say that as we model deferreds into September, that maybe we should exercise a little bit more conservatism than typical seasonality?

I think that's probably appropriate. That would certainly be consistent with the approach that we have taken to setting the guidance range.

Thank you very much for taking my questions.

Thanks.

John DiFucci with JPMorgan.

Thank you. Steve, it sounds like you started separating --

John, we can't hear you. Can you speak up, please?

I'm sorry. Can you hear me better now?

Much better.

Sorry about that. Steve, it sounds like you started separating maintenance renewals from the sale of new business this quarter, or at least got the ball rolling. But I think either you or James said that you'll have the renewals team fully up and running by the end of the fiscal year. Can you give us a little more detail on the status of that? Are you rolling that out regionally? And if you are, where are you, I guess, here in the -- I would assume if you're going to do that, you might do it here in the US first, but can you give us a little more detail on that? That would be helpful.

I think, John, what we talked about was -- we're rolling it out in a thoughtful way, as we talked about, going as fast as we feel comfortable with, given all the moving parts. And so we are not going to release the details by country or geo, and I think it will be different in Asia-Pacific based on the different languages than it might be in the US or Europe. And so I think we launched in the second quarter in some geographies, and some will come in later in the year, and we expect to launch in all of them between now and the end of the fiscal year. I think that's what we wanted to talk about at this point.

Okay, thanks. If I could, James, you maintain constant-currency guidance for the year for the top line of 0% to 2% growth. Our math would indicate the reported numbers, given where the currencies are today relative to a year ago, would indicate something on the order of minus 2% to 0% growth. The reason I'm asking is because I think there is some confusion out there with investors. Is that accurate? Would that be the reported, if it is 0% to 2% constant currency?

Yes, that would be consistent with the headwind that we are looking at in that range. Yes.

Great, thank you very much, gentlemen.

Keith Weiss with Morgan Stanley.

Excellent. Thank you, you guys, for taking my call, and very nice quarter. I was hoping you could give us a little bit of a mark-to-market on where we are with -- particularly with some of these changes in the sales reorg. We often look at the beginning of the fiscal year as the time that these sales changes take place. Granted, this might be a little bit of a different scenario considering the overall reorg, but to what degree did these sales changes start in Q1? How far are we through them when you look to the stuff about reallocating sales territories and redesigning the coverage models and stuff like that?

I think we shared what we wanted to share, Keith. We said that we turned on the renewals part in some parts of the world in Q2, and that we are in the process of implementing new territories, and James's information management and information security specialization. And those changes are in play, and they are going to happen between now and the end of the fiscal year where we are going to implement all the changes that we talked about in some sequential fashion.

None of those changes were in place in Q1.

Okay.

We have the traditional model where an enterprise field salesperson was getting compensated on new and renew. That was really for the last time.

What was covered in Q1 is that we eliminated and changed the entire management structure of the sales force. So it's not that the sales force was not impacted, but we impacted sales management in Q1, but not sales people. Now we start with some changes that are affecting salespeople.

Got it. If I could sneak one more in. One of the concerns heading into a new fiscal year was the idea that perhaps at the end of your prior fiscal year, salespeople seeing these changes on the horizon would have drained the pipeline. Obviously, we did not see that impact in Q1 results. How are you guys feeling about the overall pipeline right now? Are the build rates in line with your expectations?

I think we feel surprisingly good. We have looked at the data for the first three months of the second quarter, and we are ahead of the previous year. So we did not see -- and we put governors on the amount of renewals that people could get commission on in Q1, so we actually feel like that we managed Q1 -- we did not try and maximize Q1. I think it happened naturally, and we are ahead of where we were through the first three weeks of July versus last year.

And so we feel quite excited about -- I think the thing that is most important is there's a lot of positive energy in our Company right now. And we have gone through some tough changes in Q1; we are going to go through some more in Q2, but there is a lot of positive energy from all of our employees. And I think they like what's going on, and I think they are stepping up their game. And that is sometimes hard to predict the impact that will have at the end of the quarter, but there's a lot of positive momentum for us with our employees.

Excellent, thank you very much, guys.

Walter Pritchard with Citi.

Hi, thanks. James, I wanted to ask you about the expense impact here -- the restructuring that you saw in the quarter? And could you help us out in understanding the -- I think it was $996 million in OpEx? How much of that ahead of the restructuring is it, and how much is still to come in terms of -- I know you had kind of a mid-quarter impact of the actions you took.

Yes, our restructuring and transition expenses are GAAP-only items, and so that's $83 million for the quarter. And the significant majority of that was driven by severance. The balance was driven by our ongoing ERP implementation. So I would expect that we would see a larger number in Q2 as we build on through our reorganization process. We've got through very significant majority of the employee notifications at this point. The activity in terms of booking the severance and so forth comes a little later.

I guess I was more focused on the ongoing run rate of expenses, and understanding that you probably didn't see the full benefit of the restructuring -- the restructuring on the run rate of OpEx not the charges you were taking. Can you talk about just the run rate of expenses that you saw in the June quarter, and how much did those come down just simply based on having a full-quarter impact of those actions you took mid-quarter. (multiple speakers)

We saw relatively little impact in the June quarter just because of the timing of what I was mentioning a little earlier there. I would expect that to start picking up in the September quarter, and be getting closer to a full quarterly run rate in the third quarter.

The restructuring impact will be picking up, but the cost -- the benefits will be starting to -- the cost base will start to go down.

So we'll see more of that in Q2, and then in the second half we'll be more into the full run rate benefit.

Okay, thank you very much.

Brent Thill with UBS.

Thank you. Steve, from an operational alignment, is there a mile marker you can give us a sense of how far you are through unveiling the playbook you want to put in place? Are you 60%, 70% of the way through? Are you 40%? I don't know what the right number to think about, but can you give us a sense of -- just from a high level where you are at, and maybe the next big things that you feel that you need to do now considering the success of the initial plan?

We are at the one-mile mark in a marathon. So, 1-mile mark out of 26 miles. And the flywheel is just starting to spin. We had our Officers meeting where we got the top 140 people in the Company together a couple weeks ago, and I will tell you the people that were here before and are still here are different people than they were a year ago, in a positive sense.

And I shared an interesting statistic with the Officers that investors probably should see, too. Of the top 12 people that were running the Company a year ago, 7 are no longer with the Company. And in our Officer population, which was 146 I think a year ago, 70 are no longer with the Company. We've had quite a significant leadership transition. We have attracted some great talent from the outside. And the 70-plus Officers that were here a year ago, that are still here, including both James and Helyn, are different people in a positive sense than they were a year ago.

But we're at the 1-mile marker on a long-term journey. And there's no big silver bullets, there's no big catalysts here. It's going to be slow and steady, build the foundation a brick at a time, and continue on the path to make this Company the best it can be.

Great, thanks.

Phil Winslow with Credit Suisse.

Just to build on some of the prior questions asked about where we are in terms of the changes in the sales force, clearly some of it went on this quarter, some it sounds like it's going to be going on here in fiscal Q2. But when do you expect to have, for example, [most quotas in place] the realignment on the complete rollout of the renewals team, as you think of mile markers over the course of this year?

I think we're not going to give you guys the details you keep asking for because we don't want to be held accountable to timeline details on implementing something that we're moving as fast as we can. I think it is safe to say that more will happen earlier rather than later, but that will be complete by the end of the fiscal year.

Okay. And just to slide one in there -- with some of the relationships you have on the PC OEM side, I was just wondering if you could give us an update on just your general thinking about the upside/downside from those as some of these ones come up for renewal over the next couple of years? Thanks.

I think that, as we have been quite clear on in the past, nothing has changed. And current deals that we have are not attractive to us, and we would be financially ahead if we didn't have the deals we have. And it might hurt us a little bit on revenue, but we would be financially ahead. That hasn't changed.

So, we don't know what's going to happen. Time will tell. We are not going to sign another money-losing deal, I can guarantee you on that. Time will tell, and we will see how that all plays out.

Great, thanks, guys.

Aaron Schwartz with Jefferies.

Good afternoon. Steve, you have talked a lot about partnerships with other security companies. I think you've also referred to this maybe as the information security service. I apologize for asking the stupid question here, but maybe you could help us out with how the economics of those transactions will work as you sell that to your customer base? And then maybe for James -- is that more of a ratable model? Should we expect a little bit different shift over the years as this gains some traction? Thanks.

I think it's actually a really good question. The answer is, it will be completely a service. It will be completely ratable, so I can handle that one for James.

I think the concept here is MSS on steroids, with much broader and more capability, which integrates our stuff into a platform with third-party stuff. Because, as we said in the third element of our offering strategy, that we have learned that we can integrate with third parties to deliver even more value for customers, and we're working on those deals. I have a meeting tomorrow actually with one of them. And we have been having meetings for quite a while.

So I think it will be completely a service, and you'll start to see modules of that coming in the roadmap as early as within six months, but it will be a slow and steady release of these new capabilities. That's why they're multi-year roadmaps, and we are very excited about it. Every CIO I've talked to about this ISS concept said -- if you had that, I would buy it.

How will the economics work? We have not figured all that out yet. But we will deliver a lot of value to customers, and my view is we will get paid for the value we deliver for customers because we will save them a lot of money, and we will also have nice margins in those services.

Okay. And quick follow-up, if I could. You've talked a lot about some of the changes at the sales management level. But last week you also had a release out of some several senior management additions to the Company. Are you complete on that higher-level management additions there? Can you just update on that side of it? Thanks.

We just hired a CMO, and I think their first day is Thursday. That is a really, really key hire for us. And we have got really a spectacular individual that has chosen to join our team as the CMO, and I think we -- at the top, we are in pretty good shape. I think we will continue to evolve, and we have high performance standards here, so that does not mean we will ever be done. I think we will continue to evolve. But I think, for the most part, in the top 23 or 24 people that sit around the table with me every two weeks and run the Company, I think we have got a strong team. And it's getting better individually and collectively, and I'm very excited about the progress we're making.

James Westman with Raymond James.

Good afternoon, it's James Westman sitting in for Michael. First question -- on the user productivity and protection division, how do you feel it will be impacted by PC shipments? I know you had said you felt the endpoint business would be flat. There are other tech vendors that have said that they thought PCs would likely be down double digits next quarter, and down for the foreseeable future. Do you feel like that division can grow for the quarter and for the year with this effect?

We just did. We just told you that we just grew in endpoint today -- despite headwinds in Altiris, we grew Norton, and we grew our SEP Enterprise business. And we also are doing well in mobile. Actually I just saw an email beforehand -- we just got a $1.4-million mobile deal from a very large retailer. I think that -- just booked, like, today. I think that we have estimated, in all of our forecasts in 5-and-30, that the endpoint market was going to be flat. That said, we grew Norton and we grew our Enterprise endpoint business this quarter despite PC sales.

I think this big focus on PC sales having some dramatic impact on Symantec was a great question 10 years ago, to be honest, when that was really all we did. But this is a much more diversified portfolio now, and we do all sorts of different things, and so I don't think PC sales has a huge positive or negative impact on us because of all of the other opportunities that we are in that are growing double digits. And as we shift our focus from markets that aren't growing to markets that are, and do some innovation, I think we can more than offset the flat growth that we expect in the endpoint business.

Got it, thanks, Steve. And a quick follow-up for James. James, gross margins were down slightly year over year this quarter. Makes sense with the appliance and SaaS businesses growing. Should we expect that trend to continue for the rest of the year and for the foreseeable future?

I think that we will continue to grow our appliances and subscription businesses. But at the same time, we will continue to look for ways to make more efficient and effective the costs that create the COGS. I think directionally I would be looking for gross margins around where they are at the moment. So that's what we're focusing on.

The thing I would add to that -- James, I would add to that is -- is an important thing, at least philosophically, for me to share. At the end of the day, we are solving for and have committed to operating margin increases. Gross margins are driven by the mix of business and all sorts of other things. And so some of the new products that -- are going to have different gross margin structure, and that -- we are going to be competitive and we are going to grow.

So at the end of the day, it is important for investors to at least know my very strong philosophy. It's about revenue growth, organic revenue growth, and operating margin expansion. And so I felt like I was compelled to share that today.

Got it, thank you, guys.

Robert Breza with RBC Capital Markets.

Thanks for taking my questions. Steve, I was wondering if you could just comment a little bit -- as you are moving more into the services marketplace, do you see yourself competing more against service providers, being more of a partner? How do you think about that relationship? Thank you.

Robert, I think that is a really good question. As we are in the process of -- and I'm intimately involved in a whole new kind of channel strategy for us, where I think we have all sorts of interesting opportunities. One of the big things we are talking about is exactly that point that you brought up. So, stay tuned for that. At some point here, it's one of the things that we've talked about in terms of go-to-market enhancements that we think is going to create a lot of value for both the channel and for our customers. And allow us to be, frankly, more productive is to have a really powerful partner in channel strategy and program, which we really did not have in the past.

Our strategy in the past was -- everybody sells everything. That was our channel strategy. We are going to be much more strategic. And I think one of the areas we are focusing a lot on is service providers. Whether they be telcos or whether they be some of the hosted service providers. And how do we have right-for-me offerings and value propositions for these different channels, and have a much more strategic look. I think it's a big opportunity for us, and stay tuned for some additional insight from us as we firm that up.

Great. Maybe as a follow-up just for James -- as you think about taxes is always difficult for us, do you see any significant change as we go into next year as you start out this year from a tax rate perspective? Thanks.

No, I wouldn't expect significant changes to the tax rates. So I would stick with the 27.5% guide.

Great, thank you.

Kash Rangan with Merrill Lynch.

Thank you very much. One question for you, Steve. Can you share a little bit more details on the changes in the go-to-market strategy from a sales standpoint starting this quarter?

And one for you, James. We have heard quite a few numbers here -- $350 million in savings. And you expect next year's cash flow -- or this year's cash flow rather, to be down by about $200 million. Can you just walk us through how the restructuring items and the payouts are going to be impacting your financial statements over the next couple of quarters? That's it for me. Thank you.

In terms of the [$350] million of costs that we have identified as not being consistent with the strategy, we have redirected the majority of those to things that are important for this strategy, that are going to drive growth. And the remaining money we are letting drop to the bottom line to achieve our 200-basis-point margin improvement goal.

In terms of cash flow, that will be impacted obviously by the severance charges that we'll be expecting to pay out over the coming several months here. That will really be the driver. I would expect beyond this transitional period to see our cash flow from operations growing consistent directionally with our operating profit growth.

So, one thing I would add, too, that I think is important for investors to understand. Of the $350 million that James talked about, where we're giving $100 million to investors in terms of margin expansion. On the $250 million that we're reinvesting, I think it's important for investors to understand that 80% of that is being invested in things that will produce no fiscal-year '14 benefit. We really have shifted the focus to put more money into things that are going to power longer-term growth, and we are quite excited about -- that's a big change for us. And so, 80% on no fiscal-year '14 benefit, and $50 million of that $250 million we think could have some impact later on this year.

And on the go-to-market, Steve, if you don't mind?

Yes.

If you want to just repeat that question?

I was curious on the -- on what exactly any specificity on the changes in the go-to-market strategy that you envision starting this quarter -- better sales alignment, focus, whatnot -- just wanted to understand the specifics of what exactly is being done. Thank you.

I think the more macro thought is -- we've got really four or five things that we are implementing this year starting in the second quarter. And I think you have heard about all of them between the scripts today. One is, we are launching the renewals team. Two, we are changing our sales force from farmers to hunters, and paying only on new business. Three, we are focusing the majority of our sales force on being information management or information security specialists. Four, we're working on a new channel strategy that we talked about. And five, we are in the process of retooling our sales incentives over time to pay on profit and revenue, but that won't affect us until fiscal-year '15.

So, those are really the five levers that we are filtering in between now and the last one, which will be a fiscal-year '15 impact. We are not going to get into the details on when we are doing what by country or region or all that on all those things. We just kind of share -- those are the five major things we're implementing, and we are doing it as fast as we can and as thoughtful as we can to minimize disruption. All of which we are confident are going to make us a higher performing, faster growth Company in the long term.

Crystal clear. Thank you very much.

Raimo Lenschow with Barclays.

Thanks for taking my question, and well done so far. I just wanted to shift gear a little bit. We talked a lot about the internal drivers for your performance. Can you talk a little bit about what you see in macro? There's a big debate of things are slightly better or not. And I specifically wanted to focus on the deals over $1 million, which was up quite significantly year over year.

But then also talk a little bit about the regions. Asia seems to be the weak spot for a lot of people. Your growth there was 1%, still good, but probably the weaker part of the performance overall. So just what are you seeing there? Thank you.

I would say in terms of the macro economy just slow, steady improvements there. Fundamentally there is good demand both the storage and the security side of our product [sets], and we've got a terrific set of point products in the market today, and as you have heard we are busy building the integrated offerings to complement those current products.

In terms of the big deals, yes, we were pleased that both the greater than $1 million and greater than $300,000 type deals were up significantly. Those stats can move around from one quarter to another.

Geographically, pleased with the European result there at 6% growth. Obviously challenging macro backdrop in Europe. Very steady Americas growth as well. Asia, yes, 1% -- the story there was around Japan where we saw some weakness around Norton on the retail level. And in the previous quarter, Q4, Japan had had a particularly strong enterprise quarter. So, again, we feel comfortable with the trajectory of the Business in Asia-Pacific.

Perfect, thank you.

Gregg Moskowitz with Cowen.

Thank you, and good afternoon. Your information security business grew 9% constant currency, and you referenced trust service as being strong. Just wondering what else in particular did well in that segment to get to that level of growth?

It was really a range of the different offerings there. So I wouldn't call out anything particularly beyond -- there were several of the product areas -- DLP, managed security services -- so it was a good result all around.

Okay. And I know you have been investing a lot in that segment, but your operating margins were only 4% last year, although it did improve to high-single digits this quarter. Steve, what sort of margin do you aspire to for that segment if you look out two to three years or so?

Yes, I think it's a good question, Gregg. I am not sure we know, because we are investing a lot, but we are breaking down a lot of barriers in these new offerings, and we have had all these silos and redundancies. And so I think this is one of the variables we have to play with. It's a growth market.

We've got good positions, and we think we can grow faster, and we think we can improve the margins. And I don't have a -- I don't know enough to have an opinion about whether it should be a 25% operating margin business. But I think the more meta-point that you are alluding to is, over time, my philosophy on this -- and some of you have heard me say this is -- we want to deliver against the 5-and-30, and put that in the rear view mirror, and prove that.

And then I think the discussion we are going to have, which is an extension, Gregg, of your question is -- okay, now do we deliver more margin or do we deliver faster organic growth, and how do we trade off between those two? My focus at this point is to get over the 5-and-30 hurdle, frankly as fast as we can. And then second, we will know more at that point, because that is not going to be next quarter. That might be in a year or 1.5 years or 2 years. Then we will know more about our team's ability to execute and invest and deliver. And then we will have the discussion about operating margin expansion versus organic revenue growth.

My bias would be -- the market opportunities are there; the faster we can drive organic growth, the more value we are going to create for our shareholders. But that's where everybody, rightfully, is the most skeptical. Let's prove 5-and-30, and then have this discussion after we are over the 5-and-30 bar. I love your question -- I would love to defer it for a year or two, and then have it. You can hold me to that. Bring that up in a couple of years when we are above the hurdle.

That's great, and fair enough. Thanks very much, Steve.

Gwen, we have time for one last question.

Steve Ashley with Robert W. Baird.

Hi, this is [Tatanya Armoto] for Steve Ashley. Thanks for squeezing me in. I just had a question on sales quotas. And I know a lot of things are changing, but could you comment on maybe how the aggregate sales quota may look like at the end of this year -- this fiscal year compared to last fiscal year?

And also, you will be handling the renewals through a separate team by the end of the year, allowing the sales reps to focus on new business. So what does that mean for sales rep quotas, and how will you structure that?

The sales rep quotas are going to go down because there are only focused on new business. And the renewals team will have the quota for renewals. So, I think, hopefully you can trust us to manage that, because that's a pretty basic thing when you are running a $7 billion company.

I think at the end of the day, we believe we are going to have better performance on both fronts because we have focus on new license, and incentives aligned with that. And we have focus and incentives aligned on renewals, and I think that focus and leadership from the top down will produce better outcomes. And we are quite confident since that is really the norm for everybody else in the industry other than us that that is a better way to run the railroad. And we are just copying other people's best practices a few years after they all went that way.

Great, thank you.

That concludes our question-and-answer session. I would like to turn the conference back to Steve Bennett for any closing remarks.

Everybody, thanks for the support. I really am pleased with the performance this quarter. It was way above what I expected.

We have been thoughtful about what we shared. And in the next quarter, we are going to try and do the best we can do, but there is some uncertainty. And we are quite confident about the 0% to 2% for the year, and the path to the 30% margins, or the 200 basis points for this year anyway. But there is a lot of moving parts, and I hope you don't get ahead of me here, which you could, because there is a lot of uncertainty.

At the end of the day, we are going to make this Company the best we can be. But we're solving for creating long-term value, not short-term value. And so we are going to take any kind of short-term transition pain to get it right, so that we can make this 5-and-30 commitment we made in the January announcement. Thanks for your support, and look forward to reporting on how we delivered in the second quarter, and maybe to see some of you at the Citi Conference in New York. Good bye, everybody.

Thank you, everyone. That does conclude today's conference. We thank you for your participation.