Gen Digital Inc (GEN) 2017 Q4 法說會逐字稿

Good day. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter earnings call. (Operator Instructions) Mr. Jonathan Doros, you may begin your conference.

Good afternoon, and thank you for joining our call to discuss our fourth quarter fiscal year 2017 earnings results. We posted the earnings materials and prepared remarks to our Investor Relations Events web page.

Speakers on today's call are Greg Clark, Symantec's CEO; and Nick Noviello, 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. We provide year-over-year constant currency growth rates in our prepared remarks for revenue. During the call, we may speak to growth adjusted for acquisitions metrics, which includes prior period non-GAAP revenue from acquisitions adjusted for Symantec's accounting policies, including quarterization.

All non-GAAP revenue and expenses exclude the impact of Veritas. However, the continuing operations deferred revenue on the balance sheet includes a portion of Veritas deferred revenue from Symantec and Veritas bundled contracts entered into prior to operational separation. The Veritas deferred revenue from those contracts will amortize into discontinued operations. As a result, implied billings growth calculated from the change in deferred on the balance sheet will not be representative of stand-alone Symantec's performance as it will include an impact from Veritas.

Please note, non-GAAP financial measures referenced during this call are reconciled to their comparable GAAP financial measures in the press release and supplemental materials posted in our website. We believe our presentation of non-GAAP financial measures, when taken together with corresponding GAAP financial measures, provides a meaningful supplemental information regarding our operating performance for reasons discussed below. Our management team uses those non-GAAP financial measures in assessing our operating results as well as in planning, forecasting and analyzing future periods. We believe those non-GAAP financial measures also facilitate comparisons of our performance to prior periods and to our peers and that investors benefit from understanding of the non-GAAP financial measures. Non-GAAP financial measures are supplemental and should not be considered a substitute for financial information presented in accordance with GAAP.

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, on Form 10-Q for the quarter ended December 30, 2016.

We would like to remind everyone that we'll be hosting a financial analyst day on June 8. Further details are available on our Investor Relations website. And now I'd like to introduce our CEO, Greg Clark. Go ahead, Greg.

Thank you for joining us. Fiscal 2017 was a transformative year at Symantec with substantial improvement across the entire company. Fiscal 2018 marks the second half of our execution plan to fundamentally transform Symantec's enterprise and consumer businesses addressing both revenue growth and profitability. Today, we announced our Q4 fiscal year 2017 results, and we're also raising our fiscal 2018 EPS outlook to $1.75 to $1.85.

I will recap our fourth quarter and fiscal year 2017 results, update you on our progress within Enterprise Security and Consumer Security segments, discuss our transformation and cost-savings commitments and our CFO, Nick Noviello, will provide more details on our financial result in fiscal 2018 outlook.

Beginning with Q4. Our results demonstrate strong and consistent execution relative to our expectations. During the quarter, we saw further evidence that our investments and commitments to innovation are distinguishing us as the leader in cybersecurity for the cloud generation.

Let me highlight a few key areas from the quarter. Our overall Q4 business activity was strong and consistent with our expectations. Within Enterprise Security, we saw a faster-than-expected increase in mix towards cloud subscription and virtual appliances. We believe this product mix shift is a positive for our business both financially and strategically. It's a proof that our customers are designing Symantec into their future cloud security architectures.

Enterprise Security profitability has improved dramatically with Q4 fiscal year 2017 operating margins up 17 points year-over-year. Consumer Security revenue growth performed better than our guidance and LifeLock came in above our revenue expectations as well. Overall, we continue to perform ahead of plan on our cost efficiencies and synergies. Total company margins were at the high end of our guidance. And as a result, we delivered EPS at the high end of our guidance, including LifeLock.

Now turning to our Enterprise business. We are combining best-of-breed product innovation with unmatched scale. This is leading to significant competitive advantage and differentiates us in the market as the leading cybersecurity provider for enterprises.

During the fourth quarter, business activity was strong. We are pleased to report Enterprise Security grew 2% organically in the quarter. The business activity of our Blue Coat products were in line with our expectations at above market growth. And we had a big milestone in Q4 as we have achieved feature parity between our network products delivered through an appliance and its corollary in the cloud. We now have the leading software elements across relevant deployment methods: appliances, virtual appliances and pure cloud.

During the quarter, we doubled the number of cloud proxy competitive wins versus our next largest cloud competitor. And we are pleased that we saw accelerating demand for cloud and subscription solutions. Selling more cloud solutions is a positive indicator for future success. This has an effect on in-period revenue with the benefit of increased deferred revenue. The Blue Coat subscription offerings are now approaching $100 million revenue run rate, growing 67% year-on-year in the fourth quarter, with business activity more than doubling on an annualized basis.

Now on to Consumer Security results for Q4 fiscal year 2017. Consumer Security exceeded the high end of our revenue guidance on an organic basis and LifeLock performed above revenue expectations with strong underlying growth metrics. LifeLock renewal rates increased year-over-year and cumulative ending numbers were up 8% year-over-year. This is an impressive result amidst the significant acquisition and integration activity.

Moving to the full year fiscal 2017. The results show improving revenue performance and delivery ahead of plan on operating efficiency, while we are, at the same time, integrating our transformative acquisitions. And Nick will cover the full year fiscal 2017 details in his remarks.

Now let me turn to the strategic progress we are making in Enterprise Security. Our Integrated Cyber Defense Platform is clearly resonating with customers. We believe our Integrated Cyber Defense Platform provides the security reference architecture for the future of IT environments, whether on premise, software defined or in a pure cloud delivery model. The strength of our platform begins with a strong commitment to leading cyber defense intelligence.

As we have commented on previously, the integration of Blue Coat and Symantec threat intelligence has created a differentiated lens into the threat landscape. An example of our artificial intelligence adding significant value with this data is now resulting in blocking an additional 3.2 million attacks every day. We expect more advancements from our artificial intelligence as we further integrate our network and endpoint data. Our Integrated Cyber Defense Platform ingests this threat intelligence and combines it with robust integrated functionality across our user, web, information and messaging solutions.

Turning to a representative customer example. Recently, one of the world's largest food and drug retailers with over 60,000 users embarked upon an initiative to move to the cloud and upgrade their security infrastructure. Our sales team moved the conversation with the customer from speaking about a combination of point solutions to articulating the benefits of our Integrated Cyber Defense Platform. We delivered a solution that improved the customer's security posture and reduced their expense. Given the increased Symantec footprint, this customer is now paying approximately 60% more to Symantec, but reduced their overall security spend by an estimated 25% and took a major step forward in their security posture. We expect these type of win-win opportunities to be commonplace as companies are looking for integrated platforms as they struggle with the technology sprawl and runaway costs due to isolated point vendors.

Now let me highlight our leadership in cloud security. In order for the enterprise customer to take advantage of the cloud, security solutions must be incorporated that reduce the risks inherent in the cloud generation. All of our major solutions are now delivering in the cloud and designed for the new risks our customers are facing. For example, we have an industry-leading approach to securing cloud applications. We have combined cloud proxy, CASB, data loss prevention and multi-factor authentication into 1 complete offering that addresses these new risks. We believe we are the only company that has all of these major components and will enjoy this position for the foreseeable future. When compared to the alternatives of an internal IT shop procuring and integrating multiple solutions from point vendors, we are an obvious choice.

In Q4, we saw a substantial traction with our entire cloud security portfolio. As an example of our success, during the quarter, we won a large deal at a major technology services company that is undergoing a cloud transformation. The customer took the first steps in adopting this platform for their internal environment with the purchase of our cloud proxy and DLP. This was a highly competitive win and a massive endorsement through our strength in cloud security, given how cloud-centric IT services organizations are today. We see many deals in the pipeline that are similar in nature.

Turning to our endpoint security solution. Endpoint security is a key component of our platform, and its success has resulted in customers' cross buying additional components of our Cyber Defense Platform. In Q4, we saw continued success with SEP 14 from both a product and sales standpoint. SEP 14 detection rates have improved 26% compared to SEP 12. Competitive wins are increasing and SEP 14 has not witnessed a significant technical loss. For example, we replaced a major competitor at a large financial services company. There were multiple drivers of the win, including SEP integration with ProxySG and our superior machine-learning capabilities. The competitive landscape is turning in our favor with the leading market share endpoint vendor removed from a third-party endpoint leadership quadrant as well as smaller endpoint providers experiencing some recent significant missteps.

Overall, we see signs of increasing win rates and expect renewal metrics to improve over the medium term. In addition, endpoint detection and response, EDR, is an important part of the endpoint market that is garnering attention from customers. The next release of our converge to endpoint plus EDR solution is launching soon. As we introduce this new version of converged endpoint plus EDR into our install base, we expect to have a similar impact to the current point EDR solution vendors as SEP 14 is having on point machine learning and exploit prevention vendors.

For example, during the fourth quarter, we closed a nearly 180,000 endpoint win with a large IT services company that included our EDR and endpoint security. The customers overwhelmed with a high volume of alerts across 40 countries and was seeking to consolidate their endpoint security to a single vendor. We won due to our strong technology and single agent architecture. This win involved replacing 2 competitors out of our customer's endpoint environment.

We have made strong progress in EDR and are pleased with our first year in the market closing approximately 600 customers. We believe given our rapid adoption, we are already a meaningful player in the EDR market 1 year after launch. This is an example of our competitive advantage enabled by our platform.

In summary on endpoint progress, the power of our platform improves the security posture of our customers while enabling them to drive down their overall security cost per employee. The combination of cloud proxy, CASB, DLP and multi-factor authentication enables the cloud generation.

With SEP 14, we are now the leading next-generation endpoint provider and will further extend our leadership with the introduction of the converged endpoint and EDR.

Now on to our Consumer Security segment. The acquisition of LifeLock was a catalyst that expanded the business onto a new market category of Consumer Digital Safety. We believe Digital Safety increases our addressable market to an estimated $10 billion growing in the high single digits. We have expanded our value proposition by offering a comprehensive Digital Safety solution that delivers more value to the customer than PC malware protection alone and protects all aspects of a consumer's digital life, including their information, identities, devices, homes and families.

In addition, we now have much larger demand generation budget for enhancing our brand and driving new customer acquisition. We expect this competitive differentiation will fuel sustainable long-term growth in new customers and retention metrics.

During the quarter, we are already seeing signs that the strategy is working. Norton's results were better than our outlook, driven by renewal metrics and new products such as mobile solutions and privacy technology. We see a significant opportunity to deliver more value to our loyal customers, which we will expand upon in more detail at the financial Analyst Day.

At a high level, there are multiple growth drivers that underpin our Digital Safety strategy. Let me outline the major components.

First, leverage our larger demand generation. By combining Norton and LifeLock, we have substantially increased our demand generation engine that can inform the market of our expanded value proposition. Our combined demand generation spend nearly triples compared to Norton stand alone, and we expect it will provide greater economies of scale. For example, we recently rolled out a cobranded marketing campaign by leveraging LifeLock's existing pay TV and radio advertising spend.

Second, transitioning to a Digital Safety offering. Another level for growth is transitioning our loyal Norton customer base to our Digital Safety bundle. We began our journey to Digital Safety by cross selling new offerings such as Wi-Fi privacy and our upcoming home IT security and next-generation parental control solution, Norton Core. We have already begun the preliminary phases of cross-selling Norton into the LifeLock base through a referral process. And in June, we plan to begin to cross sell the LifeLock and Norton bundle, which we believe has potential to drive upside to our current outlook.

As a reminder, identity protection customers pay 2 to 3 times more for protecting their identity than the average selling price of PC malware protection. We were purposely measured in our cross-sell launch of LifeLock into the Norton base to ensure our internal systems and processes were tightly aligned. Moreover, with approximately 50% of the Norton install base outside the U.S., international expansion of the Digital Safety bundled is a large opportunity.

Third, mobile security. Mobile users increased 50% year-over-year, driven by both Android and iOS growth. In April, we signed an agreement with a large international telco to deliver Norton Mobile protection for their customer base, which is a new route to over 43 million wireless subscribers. We're also seeing an uptick in demand of mobile private VPN, due to recent legislation that permits ISPs to share customers' Internet activity.

Finally, Norton Core, which has the potential to be a significant growth driver. Norton Core is an exciting extensions to our Digital Safety platform. We are seeing continued strong reception from partners and industry participants. We expect the combined consumer business to reach growth adjusted for acquisitions by the first half of fiscal 2018. We plan to accomplish this while maintaining industry-leading profitability which provides us with the flexibility to continue investing in driving long-term growth in our Consumer Digital Safety business.

Turning to recent developments related to our Website Security solution. As you may be aware, in late March, Google put forth a proposal that, if implemented, will introduce major changes to the processes in operations that are standard across our industry, including our Certificate Authority business. Since that time, we've been engaged in conversations with Google, Mozilla and other members of the CA community to seek input on our counterproposal that we believe minimizes business disruption for our customers and improves trust in Symantec's CA business. We believe we will find a mutually agreeable path forward that is in the best interest of our customers, and we expect discussions around our proposal to continue and have factored our current expectations around this headwind into our financial outlook.

Now I would like to address the transformation of the overall Symantec business and our operational commitments. We indicated there was a strong industrial logic to our transformation. Exiting fiscal 2017, we believe this industrial logic is materializing across the business. Last June, we committed to a set of cost savings and synergies. We're achieving these savings at a faster pace than originally anticipated, and we are ahead of plan exiting fiscal 2017.

Exiting fiscal 2017, the financial profile of Symantec has substantially improved from what it would've been the picture not even a year ago. For example, Enterprise Security operating margins improved from 5% in the fiscal year 2016 to 13% in fiscal year 2017, and we are forecasting exiting fiscal year 2018 with over 30% Enterprise operating margins.

Fiscal 2018 begins the second half of our execution plan to fundamentally transform Symantec across both revenue growth and increased profitability. As we exit fiscal year 2018, at the highest level, we expect organic revenue growth for each of our segments and total organic revenue growth for the company in the mid-single digits with market-leading operating margins: in Enterprise Security, above 30%; and in Consumer Security, above 40%.

We are entering the year with significant operational improvements in our go-to market processes and have simplified the demand chain and programs to our partners reducing substantial complexity across the business. We have made substantial transformational changes in our Enterprise Security segment related to SKUs, price lists, partners and systems. And today, we have a very capable and proven team that can navigate integration complexity and continue to focus on disciplined operational execution. We have combined 2 quota carrying sales forces, thus increasing our productive sales capacity. From the close of the Blue Coat transaction through the end of fiscal year 2017, we effectively maintained the equivalent of 2 sales reps per named account with divided territories.

Over the last 9 months, we have worked to align our sales capacity more efficiently. We're confident that our efforts are already translating to results. However, we believe it is prudent to begin the fiscal year 2018 Q1 with modest close rate assumptions, allowing for additional sales capacity to take effect.

In summary, the new Symantec has established significant competitive differentiation which allows us the financial flexibility to maximize our investment in cybersecurity, which greatly benefits our customers, employees and shareholders. The industrial logic around the Symantec and Blue Coat combination is stronger than ever, and we are combining leading product innovation with unmatched scale, which, in our view, is leading to significant competitive advantages.

The Integrated Cyber Defense Platform is resonating with customers and the opportunities to significantly expand our wallet share are materializing. We have transformed our consumer business from PC malware protection to Consumer Digital Safety. This brings significant competitive differentiation, and we expect will fuel sustainable long-term growth. We are forecasting that our Norton customers will purchase LifeLock, hence, retuning the consumer business to organic growth. We are on track to deliver long-term sustainable growth with leading profitability across both our Enterprise Security and consumer segments. We are on track with our expectations to exit fiscal '18 with organic growth accelerating into the mid-single digits, with total non-GAAP operating margins over 35%.

Now I will turn the call over to Nick to provide more financial detail.

Thank you Greg, and good afternoon, everyone. Today, I will provide an overview of our fourth quarter and full year fiscal 2017 financial results. I will give you context to our segment performance and our cost savings, synergies and the substantial integration, transformation and business process changes we are executing as we round out fiscal year 2017 and enter fiscal year 2018. And I will review with you details around our fiscal year 2018 and first quarter fiscal year 2018 financial outlook. We have also made additional details, including reconciliations of GAAP to non-GAAP measures such as amortization of intangibles and stock-based compensation available in our CFO commentary, which is posted on our Investor Relations website.

Before I review our results, I would like to remind you that our Q4 and fiscal year 2017 financial guidance provided on February 1 did not include a contribution from the LifeLock acquisition, which subsequently closed on February 9. In our prepared remarks last quarter, we stated that we expected LifeLock to contribute just under $100 million of revenue for the stub period in our Q4 and be $0.01 dilutive to Symantec earnings per share.

Let me start with an overview of our Q4 financial results.

Our fourth quarter non-GAAP revenue was $1.176 billion, up 36% on a constant currency basis. For the stub period, LifeLock contributed $100 million to revenue during the quarter, which was slightly better than our expectations. Excluding LifeLock, revenue was $1.076 billion compared to our guidance of $1.070 billion to $1.090 billion. While business activity was consistent with our expectations for Q4, we saw the subscription mix within our Blue Coat products above expectations, which had an impact on in-period revenue in the quarter. I will expand upon this later in more detail.

Overall organic revenue performance was approximately flat, excluding revenue from the Blue Coat and LifeLock acquisitions, with better-than-expected results in Consumer Security and growth in Enterprise Security. This is an improvement of 6 points compared to the same period in the prior fiscal year.

Non-GAAP operating margin for the fourth quarter was 27%. Excluding LifeLock, our operating margin was 29%, at the high end of our guided range of 27% to 29%. Operationally, our strong non-GAAP operating margin was driven by continued execution against our cost-savings initiatives and synergies.

Fully diluted non-GAAP earnings per share was $0.28 and includes a $0.01 headwind from LifeLock as we anticipated. Excluding LifeLock, fully diluted non-GAAP earnings per share was $0.29, at the high end of our $0.27 to $0.29 guidance range.

GAAP earnings per share reflects 2 elements that were not incorporated in our prior guidance. First, our preliminary valuation of LifeLock and the related purchase price adjustment, such as revenue and intangibles and other items we do not include in our non-GAAP earnings; and second, stock-based compensation expense relating not only to LifeLock, but also our alignment of our performance-based executive compensation with shareholder interests.

Fully diluted shares outstanding increased by 5 million shares to 663 million shares relative to our guidance of 658 million shares, due to the impact from our convertible notes, driven by increased share price and the timing of our share repurchase program. Please see the dilution tables posted to our Investor Relations website where you can see the impact to diluted share count from the convertible notes at various stock prices. Finally, cash from operations during the quarter was $353 million.

Now let's review our operating segment performance for Q4 in a bit more detail. First, I'll review the performance of Enterprise Security. Our Enterprise Security segment non-GAAP revenue was $689 million and grew 49% year-over-year. Excluding acquisitions, Enterprise Security organically grew 2%. Enterprise non-GAAP operating margin was 16%, up 17 points year-over-year.

As Greg stated, we believe our Integrated Cyber Defense Platform will improve the security posture of our customers and considerably reduces their per user cyber security costs, while at the same time, increasing our annual wallet share per employee.

As we evolve our business to selling integrated solutions, it will become more challenging to delineate growth by each product line on a quarterly basis. That said, we are clearly seeing an improvement in our underlying business. Let me provide 3 examples of products within our Integrated Cyber Defense Platform.

During the fourth quarter, endpoint security grew in the low single digits year-over-year. .Cloud, our SaaS-based email security, grew over 20% year-over-year, and total e-mail has now inflected to growth of 7%.

For the 11 months through the end of our fiscal year, revenue related to Blue Coat products is up 10% year-over-year. At our Financial Analyst Day, we will discuss metrics that are aligned to how we are managing the business going forward, with examples to show how we are increasing wallet share per protected user through cross buying of our platform, while enabling our customers to improve their security postures through use of our products.

Now turning to Consumer Security. Our Consumer Security segment non-GAAP revenue for Q4 was $487 million and grew 21% year-over-year. Non-GAAP operating margin was 42%. Excluding LifeLock, Consumer Security was down 3%, which improved sequentially from the third quarter and versus our guidance of down 4% to down 3%. The improved revenue performance was mainly driven by continued improvement in Norton renewal metrics and, to a lesser extent, a tailwind from new offerings. LifeLock contributed $100 million to revenue, which was higher than our expectations for the stub period. The underlying LifeLock metrics were strong, and we have included a summary in the CFO commentary for your review.

Now turning to a summary of fiscal year 2017. Overall, fiscal year 2017 was a year of important change for our business. As Greg indicated, we are driving significant integration, transformation and business process change across the company and balancing financial performance as we do so. From a financial perspective, we performed well in fiscal 2017 across all metrics. On our last earnings conference call, we narrowed our fiscal year 2017 currency adjusted revenue growth to the high end of our previous range and raised our non-GAAP earnings per share guidance range despite headwinds from foreign currency and fully diluted share count. Fiscal year 2017 revenue, excluding LifeLock, was $4.063 billion, up 12% on a constant currency basis. Revenue was $4.163 billion, including the stub period of revenue contribution from LifeLock. Organic revenue growth, excluding Blue Coat and LifeLock, was down just under 3% compared to our original fiscal year 2017 guidance of down 4% to down 1% and our performance in fiscal year 2016, down 5%.

On an organic basis, Consumer Security revenue was down 5% within our original fiscal year 2017 guidance of down 3% to down 6%. On an organic basis, Enterprise Security revenue was down 1% compared to our original fiscal year 2017 guidance of down 2% to flat. Non-GAAP operating margin, excluding LifeLock, was 29%, consistent with our prior guidance. We completed the year with over $300 million of run rate cost-savings and integration synergies ahead of our plan. Including LifeLock, non-GAAP operating margin remained at 29%. Non-GAAP EPS was $1.18, including a $0.01 headwind from LifeLock, which is an increase of 15% year-over-year and above our original guidance of $1.06 to $1.10 provided in May 2016.

Cash flow from operations for the full year was negative $220 million, but included $887 million in cash tax payments related to the sale of Veritas and $141 million of restructuring and separation payments.

With respect to our cost-savings initiatives and acquisition integration synergies. On prior calls, we discussed that our total cost-savings initiatives are comprised of $400 million in net cost efficiencies on the Symantec business and $150 million in Blue Coat cost synergies to be achieved by the end of fiscal year 2018. In addition, at acquisition announcement, we communicated $80 million of cost synergies for LifeLock by fiscal year 2020, $30 million of which we expect to be achieved by the end of fiscal year 2018.

As of the end of fiscal year 2017, we have achieved over $300 million of the $550 million in net cost efficiencies and Blue Coat synergies, which is faster than our original plans. We are also tracking well to achieve the LifeLock synergies of $30 million this year and $80 million by fiscal year 2020.

Now turning to balance sheet and capital allocation. As of March 31, we had $4.3 billion in cash and short-term investments and $8.3 billion in gross debt, including $1.75 billion of convertible notes. We expect to complete our $500 million accelerated share repurchase before the end of our fiscal first quarter and have $800 million remaining on our current repurchase authorization.

Now let me provide you context on how we are entering fiscal year 2018. We have fundamentally transformed both our Enterprise and Consumer Security businesses and are now the largest pure-play cybersecurity company. Our Enterprise Security business is positioned with a robust and Integrated Cyber Defense Platform that increases the return on investment our customers realize from their security spend. The acquisition of LifeLock was a catalyst that enabled our consumer business to expand into a new market category of Consumer Digital Safety.

With respect to our financial outlook, I want to acknowledge that given the 2 acquisitions and all of the integration, transformation and business process changes we are executing, investors' financial models need to be updated. We are giving you as much information on this call as we can and expect to use our Financial Analyst Day to further give you context on the drivers to the financials for each of our business segment and the overall corporation.

Let me start with the full year, then provide our first quarter outlook. Further detail and GAAP to non-GAAP reconciliations and guidance are available in the CFO commentary.

For the full year, we expect revenue to increase to $5.1 billion to $5.2 billion at guided rates, which is approximately 3% constant currency growth adjusted for acquisitions at the midpoint. We have incorporated in our guidance an expectation of a further shift to subscription in our Blue Coat network products versus fiscal year 2017, which reflects the recent increase in customers choosing our cloud offerings. This shift benefits future visibility to revenue and in-year deferred revenue and cash flow. In-year revenue from business moving to subscription will naturally be lower. We have also incorporated in our guidance our revenue expectations for our website security business, due to the ongoing dispute with Google and the uncertainty it has created for customers.

From a seasonality standpoint, we expect the mix of our $5.1 billion to $5.2 billion of revenue to be weighted to the second half of the fiscal year with about a 2-point shift from the first half, second half revenue mix we saw in the base Symantec business in fiscal year 2017. We believe this is reasonable, given the substantial transformation and business process changes we made in our Enterprise segment at the beginning of the fiscal year.

In consumer, we are launching our digital safety offerings, which are subscription offerings generated by our Norton and LifeLock team. The combination of these actions in enterprise and consumer set us up extremely well to realize fully the value propositions of our transformative acquisitions. That said, the benefits to revenue will accrue later in the fiscal year as all of the changes take root.

For fiscal year 2018, we expect Enterprise Security growth adjusted for acquisitions of 3% to 5% and Consumer Security growth adjusted for acquisitions of 1% to 3%. We expect that Consumer Security will show growth adjusted for acquisitions in the first half of the fiscal year. As Greg indicated, we expect the company to be exiting fiscal year 2018 at a revenue growth rate in the mid-single digits. We expect non-GAAP operating margins for fiscal year 2018 of 36% to 37%, up 8 to 9 points in constant currency, versus fiscal year 2017.

We exited fiscal year 2017 ahead of plan on our cost savings and synergy commitments and expect to maintain our cadence in fiscal year 2018. We remain on track to exiting fiscal year 2018 with our cost savings in Blue Coat synergy program largely complete.

As it relates to the LifeLock synergies, we remain on plan to achieve the $30 million in synergies we committed to by the end of fiscal year 2018 and the $80 million by the end of fiscal year 2020. We expect non-GAAP EPS of $1.75 to $1.85 for fiscal year 2018, which is an increase from our prior guidance of $1.70 to $1.80 and up 52% to 61% versus fiscal year 2017 in constant currency.

We expect a non-GAAP effective tax rate of 29.5%, up 50 basis points from fiscal year 2017 and driven by our mix of business. We expect fully diluted weighted average shares outstanding of approximately 675 million, up from 645 million in fiscal year 2017, and driven by increased share price and its impact on our convertible notes and options. We have not built substantial share repurchases into our share count estimates as our focus from a capital allocation perspective is on debt reduction.

We plan to pay down a portion of our debt outstanding in fiscal year 2018. We have repaid $810 million of prepayable debt so far this quarter and expect to retire our $600 million bond due in June. We also continue to maintain our regular quarterly dividend.

Before I turn to our first quarter outlook, I would like to discuss the progression of our fiscal 2018 outlook.

In June 2016, when we laid out our fiscal year 2018 EPS guidance of $1.70 to $1.80, the euro was trading at 1.13 and our underlying share count assumption was 585 million, which implied fiscal year 2018 non-GAAP net income of approximately $1 billion.

Our fiscal year 2018 guidance today implies substantial non-GAAP net income improvement versus that initial estimate. At the same time, the euro has depreciated 5%, causing an incremental $0.05 headwind to that guidance. Our share price has appreciated by approximately 70%, resulting in approximately 35 million shares of dilution from our convertible debt. The considerable share price appreciation also resulted in our share repurchase program retiring less shares than we had previously anticipated, and in addition, we reallocated a portion of the previously planned share repurchase for the LifeLock acquisition, which we determined to be a better use of shareholder capital.

Many of our existing long-term focused shareholders are well aware of these moving parts, but for those that are new to Symantec, we believe it is helpful to frame the changes over this time frame and since this initial fiscal year 2018 non-GAAP EPS range was issued, to where we are today.

Moving to our first quarter outlook. Given the integration of our acquisitions, business process changes and modification to sales coverage we put in place at the beginning of April as well as the shift to more subscription business, we believe it is prudent to set measured first quarter guidance. We expect non-GAAP revenue for the first quarter to be up 37% to 40%, which at guided rates, translates to $1.1 billion to $1.2 billion. We expect enterprise revenues to increase 36% to 40% and consumer revenue to increase 38% to 40%. We expect operating margins to be 27% to 29% and expand sequentially each quarter from there. We expect non-GAAP EPS of $0.28 to $0.32, and an underlying share count of 667 million shares. We will share additional details on the outlook of each of our businesses at our Financial Analyst Day in June.

So in summary, business activity and momentum with customers was strong as we exited fiscal year 2017. Financially, we saw stronger-than-expected subscription in our product mix, which impacted in-period revenue, but was more than offset by our cost management, driving operating margins and earnings to the high end of our prior guidance.

At the same time, our integration, transformation and business process work is going well and is setting us on firm footing to realize the value propositions we outlined to you related to the acquisitions in both our enterprise and consumer business segments.

Our financial guidance for fiscal year 2018 reflects our work and the fundamental change taking place at Symantec.

From a revenue perspective, we expect to see the benefits accrue later in the year, as all of the changes take root and yield results. With 8 to 9 points of operating margin growth and 52% to 61% non-GAAP EPS growth in fiscal year 2018, we believe the company will be set on a strong trajectory of long-term sustainable growth with leading profitability for the future.

Thank you for your time, and let me turn the call back over to Greg.

Thank you, Nick. And John, I'll ask you to lead the Q&A.

Operator, please take our first question.

Our first question comes from the line of Shaul Eyal from Oppenheimer & Co.

I want to start by focusing on the endpoint side of the equation. Progress saw on EDR, without a doubt, seem to be encouraging given some of the metrics and data you disclosed in your prepared remarks. Greg, can you talk to us about some of the market trends driving endpoint detection and response?

Yes. So I think the endpoint is a busy space at the moment. One of the things that we're really into is delivering a converged endpoint to try to reduce some of the chaos and expense to our customers as we had described in one of the examples. And so we have, I think, closed the gap on any of the AI-based (inaudible) detection, machine-learning aspects of the endpoint and always had the best sort of detection technologies that we had. And recently, we have turned our energy onto the EDR front. EDR is a very important piece. It is really trying to get to the repair and response to malware events or cybersecurity events. We have entered the market last year with that, and I think in our prepared remarks, we talked about some substantial success in that first year, and we really look forward to that converged solution coming into the release of our SEP 14 platform in the very near future. From a customer wallet point of view, there is a wallet open for EDR at the moment in the enterprise, and we do expect to take a good piece of that. And I think another big benefit for us is the effect of that capability in our product in our renewal, and we do expect our renewal rates on endpoint to increase. We are also delivering other endpoint technology that is great. We have a future release coming up this year of endpoint integrated very tightly with our proxy technology that will change the game in being able to respond and detect problems. And we have a great cross-sell opportunity for endpoint DLP which is very powerful in the cloud generation for protecting enterprise data and from the endpoints to the cloud. So we pooled that together, we also think there is a great opportunity for us to take share as some of the big market share leaders have had some headwinds in third-party analysis, and as mentioned in our prepared remarks, we've had some reports coming out that have sort of downgraded their capability, we'd expect to step into some of that share also. One of the other points I'd like to make about the remarks on our conference call is the traditional Symantec Enterprise Security business grew this quarter in Q4. And remember comments from the prior call where that was slightly negative, and we had felt a good about our opportunity to bring that back to growth and that was delivered in Q4.

And our next question is from the line of Sarah Hindlian from Macquarie.

Greg, I wanted to start with you. Could you please expand a little bit on what you're seeing in terms of the subscription adoption in Blue Coat? And maybe obviously $100 million run rate is quite large, so how is that impacting the product revenue? And then a second question for you, Nick. We published on the Google asset sale issue recently, and we attempted pin down some impact you would have on your ability to read the EPS outlook. And then in your prepared comments, you are calling this out as a factor in your raise of the fiscal year '18 outlook, and I'm hoping you could help me also quantify if we're right ballpark in terms of the adverse impact we're cycling on that as well.

Yes, so I'll start off, Nick will see the Blue Coat question. So first, we did see more subscription. I think there's a couple of things that's going on there. First of all, we have now achieved future parity -- sorry, with the Blue Coat solution, whether it'd be the hardware appliance, the VAs that we deployed for software-defined network solutions and also the pure cloud offering. So we want to provide our products to customers the way they want to buy them. And as we see more and more cloud adoption in the enterprise, we now offer our customers the 3 different versions of how to take that technology on. In the fourth quarter, we saw a more than what we had planned adoption of the cloud and subscription versions of those form factors. Very good result because that is proof that the Symantec technology is being designed into the future network architectures of some of our large enterprise customers. We think that there's going to be more of that in the future, and hence, we have, on many conference calls, we've had put an underscore on mix as we go forward, and we do see as a cloud generation takes off more of that mix. We also have seen great traction with our Blue Coat subscription and Blue Coat cloud technology. That is something that is growing at a very strong clip. And I think, as we reported in our remarks, at 67% growth rate as the sort of revenue ZIP code, we do expect a strong future there. So that hits the current period, puts tailwinds into the deferred revenue for the future. But we really also want to point out, it's difficult to decipher the deferred revenue, and Nick will make comments on that later at the Analyst Day, but I think it's really important to understand that we did see the expected levels of business in the Blue Coat products in Q4, and we saw a shift of some of the form factor of which it is purchased which affected some of the in-period revenue. Okay? So business was in good shape, and we're happy with the outcome there.

So Sarah, it's Nick. Thanks for the question. Maybe first of all, let me just frame general size of business, around $350 million. In that type of a range, a substantial amount of the business, especially as we enter a year in Q1, will come off the balance sheet. So obviously, I wanted to size it, but as Greg indicated in his comments, we're having a set of conversations and discussions around our business, around the environment with Google and others, so we don't want to get into too much detail and granularity on that at this point in time because those are ongoing discussions that we feel good about those that are happening. So suffice it to say, I think it's important to understand the relative size of the business versus the rest of the portfolio. Substantial amount of the business comes off the balance sheet, so obviously, that's a risk mitigator in terms of in-quarter or quarterly revenue streams and contribution to EPS. But it's certainly something we think about on a go forward.

Our next question is from the line of Keith Weiss from Morgan Stanley.

This is Melissa Gorham calling in for Keith. I just wanted to put a finer point on the Q1 guide. So it seems like there's a number of factors that potentially could drive some conservatism. You talked about the certificate business, the shift to subscription, but you also noted a more modest close rate assumption, just given the integration of the sales force. So I'm wondering if you could just maybe put a little bit of a finer point around those factors, if you could help quantify it. And then in terms of the integration of the sales force, where are we in this process? And will that kind of extend beyond Q1?

Melissa, thank you for a very good question. So 2 things are happening, and let me just put an underscore around the product mix that we described and also the ramp in sales. And we did talk in our prepared remarks about 2 things. We have put a substantial amount of work into the back office systems and what we have done in our demand chain in our channel. That has gone into effect as coming out of Q4 and into the first quarter of this fiscal year. And we have spent a lot of time planning and preparing the sort of realignment of our sales force where we used to have that sales force overlap on a bunch of named accounts, we have now worked for the last 9 months to align them to the market. And we are just signaling to folks that it will take a little bit of time for that newly aligned field to get productive, okay? And those are 2 things, and I'll pass the call over -- the question over to Nick to hit a couple of the pieces here.

Yes, maybe just to put a point on the nonsales side for a second, because Greg's, obviously, incredibly close to that. But I wanted to also highlight the amount of work that the enterprise team has been doing in the integration activities. Because we are touching every SKU, every (inaudible), every channel partner, all the price list. The team has been training the sales force since October, November time frame. There's been a significant, in the systems side of the fence, where the team here has really broken through multiple years of stuff that hasn't been integrated to make it integrated. So a lot of work has been done. We look at that as a real positive in terms of the future, in terms of traction, in terms of visibility to our business and all of those pieces. Obviously, that all landed at the beginning of the quarter, and we want to be conscious of that and want to be measured when we think about how fast an individual can pick up all his new stuff and be at 100% capacity with it. Everything feels good, and I think the team is very, very excited about all of that change. But I just want to be conscious of it when we pull together the financial side of the fence for Q1. And obviously, I indicated in the scripted commentary also our thoughts around where the revenue falls this year, and it's a different mix in terms of the proportions in the first half of the year versus the second half of the year. That is obviously a discussion of what's going on, on the enterprise side here and there ramp up that we expect to have as well as the synergies on the consumer side with the bundles on LifeLock.

I think that's a good point. The bundles are important. We mentioned that we are the only vendor in the market, in our prepared remarks, with the 4 major pieces of cloud stack, and that is really taking what you see 4 separate sort of pieces technology and put them together, as an example of a bundle, that when we put it together, how that gets purchase and recognized is different than it may be historically. And I think the other piece that's really, really important is we did do the hard work for those of you who are -- long term, we did go after the massive number of different clients of distribution contracts, thousands and thousands of SKUs and reduced those things to a modern demand chain, modern set of distribution contracts and a much, much simplified price book for our products. And so we are going after long-term complexity take down. And the other piece, I think that is -- it definitely makes me feel good about things is our sales attrition is extremely low. And we've come out of the fiscal year with just a -- everybody hit all of their -- the usual cohort, a very good folks did well. And now coming to this year, you usually get a spike in attrition, we did not have that.

And our next question is from the line of Matt Hedberg from RBC Capital Markets.

Greg, Enterprise Security, I believe grew 2% organically this quarter. I was wondering if you can provide a bit more granularity, and actually how much of ES is growing versus declining? And then maybe just as a quick follow-up, blue Coat, obviously, enters a larger refresh shortly. Can you provide a little more color on the magnitude of the refresh? And maybe how you think about incorporating that into your full year guide?

So, Matt, let me start off by passing over the growth byproduct question to Nick and he can knock some of that down and I'll come back to the last one.

Yes, Matt, you're kind of getting into some stuff that we're looking forward to showing at the Financial Analyst Day so let me just give you some high-level statistics. What we're looking at and the team again on the enterprise side has done a really good job here, looking at the products and where we are on the products. And frankly, we can group growers and great growers and others, and when we do those types of things, we've got a substantial element of the product on the ES side that are growing already in the mid- to high single digits. And that incorporates some of the elements obviously from Blue Coat, from endpoint, et cetera, which we'll show you at the Financial Analyst Day. That is also reflecting only the front end of what we think we can do in terms of the combinations of products and products working together that Greg spoke to. We also indicated that looking at products is going to be difficult go forward as we bundle, but we want to try to give you some of that perspective the best we can, and I'll point to the Financial Analyst Day for some of that material. We also acknowledged that there's elements of the portfolio that are shrinking, right? And that's a small proportion of the whole when we break it into those types of proportions. We feel that, that shrink is going to moderate over the course of the year as some of these things just become less and less important. But we do expect to show you that kind of a what set of products are in, what camp, if you will, to give you a perspective of what we're working with and then how that looks going forward and how we're going to be combining things going forward. But as I indicated in the scripted remarks, I think that us talking about specific products and numbers for specific products in any 1 quarter, we're going to be a lot less of.

And moving to your next question about the Blue Coat refresh, I think there's a-- we have, I would say a very good reputation in the market with respect to the products and technologies that Blue Coat delivered to our customers and that refresh is coming from having looked at Blue Coat before like I know you have, is a high end of enterprise and middle enterprise solution that's very popular in that cohort. And so that cohort is migrating to the cloud and really landing in what we call a hybrid cloud situation where they definitely have needs for on-premise hardware and in some instance of the environment and other stuff they'd like to pick up just purely from the cloud. And for those who have built the virtual infrastructure like the virtualization capabilities, they want to be able to pick the stuff up in a software-defined space. So as we roll into the refresh which really happens in FY '18 and then throughout FY '19 in healthy numbers, nothing's happened to the size of it. We do see like we saw in Q4, we expect to see a better natural mix shift to the software defined in pure cloud, choices for that, which we think are very good. If you look at competitive displacement of that, we think we have a better stack of that technology than any other vendor, and we can give it to you how you want to buy it. And that's how we're approaching the refresh, is If you want it in cloud, you want it in software defined, you want it in appliances, you tell us we give it to you. And we think that when you look at the feature sets of that set of capabilities, it is extremely differentiated. It is better than anything else in the market. So we are still planning on that going well, and that also is in our thoughts around a strong second half and also a very strong '19, okay?

And our next question is from the line of Andrew Nowinski from Piper Jaffray.

I apologize for the background noise here, but first question on the endpoint, maybe just a follow-up. Can you give us any more color on the endpoint integration with ProxySG that you mentioned and how that plays into the conversations with customers? And then second, can you just give us also an update on your discussions with cable MSOs or any other home router providers and how they may deploy your Norton software on top of their hardware in addition to the Norton Core offering that you're about to launch?

Yes, yes, no problem. So let me take on the Norton Core one first and then I'll shuffle back to the [front end]. So in the Norton Core discussion, we have seen from the prelaunch of the product at the CES show around the start of January, we've seen a continuing build and substantial interest both from kind of end customers as well as cable broadband telecom operators and other folks that have been traditional channels for more malware-oriented technology. So we think that the future is bright for Core, and we've had very good business interactions with some of those providers. We don't have -- we don't want to mess up any of our announcements that will happen in the future by talking about that on this call, but I would say that we still are very optimistic about Core because of the value proposition and I think the growing awareness of the plethora of internet-enabled devices in the home and being able to take care of that. So we like the business activity around Core. And we think, as I mentioned in the prepared remarks, the growth driver from that is definitely a reason for optimism. Now the first part of your question, it was really about endpoint and proxy. And I think that we've delivered one thing that we talked about on the call which is very powerful which is the threat telemetry into our AI that comes from the integration of endpoint in our proxy technology. What that means is if we know about something in the web that's bad, the endpoints are aware of that and they won't even initiate those kind of connections when the user is requesting those or malware is trying to go to those. Also, modern malware comes to you in lots of pieces and it can be taking a long time with different forms of getting there. When we detect that and we go and stitch that back together, we can vaccinate all the avenues in the network and thus, shut down those infections. And so we really like what's happening right now in our telemetry and the AI associated with it. When we first launched it, we talked about blocking 300-something thousand events per day, and that's gotten smarter over time, and there's now into the 3-plus million per day. And so that is extremely encouraging. What's happening next, in conjunction with what we're doing in EDR, is being able to have our network technology reach back to the client when they see something that they don't understand or something that's new or something that's anomalistic, and ask what's on the other end of this? What is requesting this? What is this? And when we see kind of a Twitter tweet that didn't come from a Twitter app or browser, we will get very interested in that. And that EDR makes ProxySG and our security analytics technology delivers a solution that we think will seriously differentiate us in the market. We know a lot about it, and we're working hard towards that goal. Additionally, we have some more work we're doing with our client multi-factor authentication to also enlist our users when we see something that's anomalistic and actually ask them, hey, we noticed this, are you actually copying all of these files right now? And we get a yes or no out of that, and that can also really enlist a very different set of remediation and detection capabilities. So we are driving innovation in network meet endpoint in a huge way, and we -- our engineers are super excited about what's going on, and -- they run into my office quite often to show me something cool, and I think we're going to excite people as we start to release those piece of technology were the rest of our network technology meets endpoint.

Our next question is from the line of Saket Kalia from Barclays Capital.

Two questions, if I may. First, maybe, for Greg. Greg, can you just talk about EDR pricing and how that might change just on a unit basis for a customer on SEP 14 adding EDR? And then the second question maybe for you, Nick, on the consumer side. A lot of talk about the LifeLock and Norton bundles, how impactful could that bundle be on your 2018 revenue guide?

Okay, so on the pricing side of EDR, I think the market is definitely used to buying EDR right now. So there's definitely a wallet and a budget open for that. And we do expect to, as we mentioned in our prepared remarks, to be able to go in and say where that becomes a Symantec Integrated Cyber Defense Platform solution, we want to be able to give our customers a lower cost of ownership for that integrated product. And so we expect to take down -- we expect that we have an opportunity to, in that share of wallet, to get more for Symantec, but also give back a good chunk to our partners in our customer base. So we do think that we are a huge disruptor to the current state of play in EDR because we do have a massive installed base, and in our business case, we also like to incent that renewal, which is very helpful for us because we do grow from good 2 piece of security real estate, that and the endpoint, that in the network and that in the big threat analytics. So we like growing and retaining our share at the endpoint. EDR will be a driver for that. I think the other piece that's quite good, we mentioned a very large case where we won an EDR account in our prepared remarks against all the who's who]. We also entered the market just in the last -- in FY '17 with EDR and we did get a very strong set of installs around that, that were competitive. So you mentioned the pricing, I think that's still kind of TBD from a list MSRP kind of situation when coupled with the next version of SEP 14. We do expect that to be more for Symantec, less for our customers. Okay?

Okay, then maybe just a couple of points on the Norton side of the fence or should I say, the consumer side of the fence with Digital Safety strategy. So first of all, I think that let me come for a second and really acknowledge what's happened over the past year. I think the results and the top line results have continued to get better and we've been better and the team has driven better-than-expected results each quarter. With LifeLock, the actual -- the GAAP results were basically flat year-on-year, and I think nobody would've expected that. Obviously, I realize there's a stub period in there for LifeLock, but as we project forward into FY '18, we have a consumer organization that is growing and is growing organically. And I think that's really important based upon a couple of things. Some of them we're seeing already such as the renewal metrics, the mobile solutions, the privacy technology and some of them are on the LifeLock side of the fence, and the bundles between Norton and LifeLock. And we continue to be very, very positive on that interlink. There is -- the last piece I'd say is between the 2, we have a substantial demand gen budget. And we are utilizing that, we are doing all of the pieces in terms of building and getting those bundles ready. Greg mentioned some timing of some of that stuff in his prepared remarks, and I'm going to point you to Financial Analyst Day, again, because I know that Fran will be spending much more time talking about it, Ben as well as, so we are very positive on it. I think that what I don't want to do is have you think that it's only the bundles that are driving the betterment in consumer. It's the work that's going on in just blocking and tackling of the basics, of renewals on new products as well, but we feel very, very good about the prospects for consumer and for organic growth in FY '18.

We're forecasting organic growth in FY '18 for consumer. There is a lot of room for positive thoughts about how that's going to go. So I think that's it. We're out of time, over time. But I'd just like to thank all of you for getting on the call and asking some great questions. And at this point in the transformation of Symantec, I think we have achieved some outstanding results on the operational efficiencies and the margin optimization, and I think we are set up on an outcome for FY '18 that, we feel, as a management team, is achievable, and we feel great about what happens coming out of FY '18 into FY '19, and that is something that we really look forward to the discussion at Financial Analyst Day. We'll put the coffee pot on early. It's going to be a lot of detail. There's a lot to discuss. And we look forward to seeing you all in person, I think, in just little less than a month on June 8. So thank you very much for your time today.

Ladies and gentlemen, this does conclude today's fourth quarter earnings call. We thank you for your participation. You may now disconnect.