諾頓 (NLOK) 2007 Q1 法說會逐字稿

Good afternoon everyone and welcome to Symantec's first quarter 2007 earnings conference call. Today's call is being recorded. At this time, I would like to turn the call over to Helyn Corcos, Vice President of Investor Relations. Please go ahead ma'am.

Thanks, Lisa. Good afternoon everyone and thank you for joining us. With me today are John Thompson, Chairman of the Board and CEO of Symantec and James Beer, Executive Vice President and Chief Financial Officer. In a moment, I'll turn the call over to John who will discuss highlights of our results for the fiscal first quarter 2007 which ended June 30, 2006. James will discuss the financial details of the quarter and he will review guidance for the fiscal year 2007 as outlined in the press release. John will provide a few more concluding remarks before we open the lines up to take your questions.

Today's call is being recorded and will be available for replay on Symantec's investor relations homepage at Symantec.com/invest. In addition to today's press release, a copy of our prepared remarks and supplemental financial information are available on the investor relations website.

Before we begin, I would like to remind everyone that some of the information discussed on this call, including our projections regarding revenue and operating results for the coming quarter and fiscal year, 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 U.S. Securities and Exchange Commission. Symantec assumes no obligation to update any forward-looking statement.

In addition to the reporting financial results in accordance with generally accepted accounting principles or GAAP, Symantec reports non-GAAP financial results. Please note that our combined non-GAAP financial results include the historical results for Symantec and Veritas for the comparative fiscal period. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP results, which can be found in the press release and on our investor relations website. And now, it is my pleasure to introduce our CEO, Mr. John Thompson.

Thanks very much, Helyn. I'm very pleased with the team's ability to execute our operating plan and deliver solid June quarter results. We saw strength across several areas of our product portfolio. The solid performance was driven by our market-leading consumer suite, Norton Internet Security, as well as unique enterprise solution such as Storage Foundation, e-mail management, IT compliance, and a variety of our services offerings.

Our performance speaks to the strength of the diversified business model we created -- our strong market leadership, and our long-standing relationships with customers and partners around the world. It is becoming more and more evident that customers are leveraging our broader product and services portfolio to help them solve the cost complexity and compliance issues of their IT environment.

In addition, with CIOs wrestling with the difficulty of managing hundreds of IT vendors, our customers have a growing need to rationalize these relationships in order to streamline their own operations. With our much broader product portfolio aimed at high-growth IT segments, Symantec is well positioned to be a core strategic partner with many of our customers and ultimately increase our share of their overall spending. With a solid first quarter behind us, we're well positioned for the balance of fiscal 2007 as we continue to take steps to drive our competitive differentiation in the marketplace.

The breadth of security and availability solutions continues to drive the number of large transactions Symantec generates. During the June quarter, we booked 280 transactions valued at more than $300,000 and 63 deals more than $1 million. During the June quarter, we signed one of the largest commercial transactions in Symantec's history with a global technology leader serving both the consumer and enterprise markets. They were seeking to reduce costs, consolidate and simplify their massive infrastructure, which had grown dramatically in recent years.

As part of the consolidation, our sales team was able to demonstrate how Storage Foundation can optimize their heterogeneous data center environment and reduce the number of vendors the customer was using. Already a significant user of several of Symantec security products including Antivirus, Endpoint Compliance and Enterprise Security Manager, this customer will now rely on Symantec to provide security, storage management, and availability solutions for their IT infrastructure.

In addition, we booked a multimillion dollar contract with one of the world's largest financial services companies. We've worked with this customer in the U.S., Europe, and Japan to find ways to reduce the cost and complexity of its heterogeneous data center and backup environments. The result was a new contract for Storage Foundation, NetBackup, Command Central, i3, and Enterprise Vault. They also committed to utilize our consulting services to optimize their backup environment, adding almost $1 million to the transaction. Importantly, this customer is also a significant Symantec security customer as well.

As reflected in the deal I just discussed, our services offerings are becoming an important element of our solutions portfolio and helps us expand the scope of our relationship with many of our largest customers. Today, corporate boards and executive management teams are highly concerned with protecting their company from operational risk. With their access to proprietary technologies and techniques to uncover and mitigate unwanted risk, our security professionals or services professionals have a unique perspective to offer our clients on IT risk management. In doing so, it enables our clients to concentrate on their core business activities with the assurance that their critical infrastructure and information is safe and reliable.

During the quarter, we led an interesting engagement with one of the world's largest pharmaceutical companies. Symantec's Business Continuity Management practice was retained to ensure that medications continued to flow uninterrupted in the event of a crisis. Symantec delivered by assessing, testing, and strengthening the business continuity plan and by helping the company achieve its recovery time objectives and pass its audit with the highest rating available.

In addition to focusing on business as usual during the quarter, we also successfully completed the final steps integrating our enterprise sales teams. In April, we shifted our model in line with the industry approach of having a single account manager for large customers. Our account managers are responsible for overall opportunity identification and relationship management for both security and availability products and services. They are supported by individual product or solution specialists to ensure we can deliver the deep skills required in some account situations. This structure allows better account and opportunity coverage while leveraging our broad product portfolio.

We also enhanced our sales solution specialization at the [SC] level and increased our mid-market sales resources. These represent incremental resource commitments to drive stronger penetration into the vast mid-market segment. And expansion of the SC resources provides stronger presales technical support as our customers are evaluating our products and services. Throughout all of this, sales attrition rates were very much in line with our full year projections.

Needless to say, I'm very delighted that we have successfully completed the integration of our sales team in all of our go to market activities. This represents an important milestone in the development of the new Symantec.

Our channel partners continue to be instrumental to our success. This year, our focus is on making our partner ecosystem even more efficient while at the same time expanding its coverage of our broader solution portfolio. Our Web enabled programs support tens of thousands of partners around the globe, and we are strengthening our sales, support, and program resources focused on our Platinum level partners.

Over the past two quarters, we've been at work merging our partner programs, our partner portal, and our deal registration systems. Efforts to date have already yielded a dramatic increase in the amount of availability products that are sold through the channel compared to the pre-merger amounts. This was an important issue for many of our channel partners as we announced the transaction to acquire Veritas. With more than 60,000 partners around the world, we will continue to enhance the program to include our service, consulting, and system integration communities into our offerings and programs.

On a separate note, during the quarter, we decided to streamline our approach to the security appliance market. With a very crowded market and slowing growth rates, we decided to concentrate our efforts on the higher growth segments of the security appliance market like e-mail security, database security, and security event management. These offerings will continue to be delivered on industry standard hardware with our unique software capability pre-loaded at the factory.

However, we will be discontinuing new development on proprietary hardware especially for our Symantec Network Security and Symantec Gateway Security appliances. We will continue to provide maintenance and signature update support to existing customers and offer the appliances we have in inventory as extensions to existing contracts. These moves enable us to invest more and higher growth areas of our business such as enterprise messaging and the important compliance arena.

Before I turn the call over to James for more details on our June quarter financials, I want to touch on a significant step that Symantec made during the quarter toward optimizing our capital structure and increasing our financial flexibility. In mid-June, the Company issued 1.2 billion in convertible notes -- I'm sorry, 2.1 billion convertible in notes at interest rates of between 0.75 and 1% with an effective conversion premium of 75%. Simultaneously, we were also extended a $1 billion line of credit.

In conjunction with this transaction, the board authorized a new stock repurchase program totaling $1.5 billion, which is additive to the $1 billion repurchase program that was authorized in January. Over the past five quarters, we have repurchased nearly $4.5 billion in stock or approximately 230 million shares. We plan to repurchase approximately 1.5 billion more of stock over the next three quarters, completing the balance of the two outstanding authorizations. Clearly, our share repurchase commitment and high convertible strike price reflect our strong belief in the fundamental value and long-term prospects of our Company's business.

We will continue to evaluate our capital structure going forward. In the meantime, the board and I believe that the most prudent uses of cash are to repurchase stock and invest in activities that augment revenue and earnings growth. As I have indicated in the past, we will continue to look for bolt on technology capabilities that can be integrated into our product portfolio as well as acquisitions that expand our addressable market opportunity. We believe our internal R&D efforts coupled with newly acquired technologies help to strengthen our businesses and improve our competitive positioning.

With an ever-increasing level of consolidation across the infrastructure software segment, we will always take a look at potential transactions or companies that we believe to be complementary to our existing portfolio.

Now I will turn the call over to James to discuss our financials in further detail.

Thank you, John, and good afternoon everyone. Our solid performance in the June quarter is a good indication of the progress we're making towards our FY '07 targets. GAAP revenue for our June 2006 quarter was $1.26 billion. Non-GAAP revenue grew approximately 2% versus the June 2005 period to $1.28 billion. I'm pleased our revenue performance came in above the guidance range we had previously provided.

The June quarter's diluted GAAP earnings per share was $0.09. The total stock based compensation impact in the June quarter, GAAP earnings per share, was approximately $0.03. Non-GAAP diluted earnings per share for the quarter was $0.24. Earnings per share also exceeded guidance.

There were two factors that impacted our year-over-year growth that you should be aware of. First, foreign currency movements negatively impacted non-GAAP revenue by almost $8 million in the June 2006 quarter as compared to June 2005. Second, difficult year-over-year comparisons occur as a result of our comparing the June 2006 quarter to a June 2005 period that actually includes Veritas' results from the March 2005 quarter.

Last year's March quarter was a strong revenue quarter for Veritas, driven by specific pre-merger incentives. Thankfully, this is the last quarter in which we will be making year-over-year comparisons to different Veritas and Symantec calendar periods.

International non-GAAP revenue for the June quarter was $648 million, growing 5% versus the year ago period and representing 51% of total non-GAAP revenue. The Europe, Middle East, Africa region grew 1% and Asia Pacific, including Japan, grew 16%. The Americas declined 1%, driven primarily by the difficult year-over-year comparable period resulting from Veritas' March 2005 results.

Now, I'd like to move to revenue by segment in the June '06 quarter. Consumer revenue came in at $385 million, up 6% versus the June 2005 quarter. Consumer revenue grew almost 5% sequentially. Growth was driven primarily by strong electronic distribution activity from our on-line store, subscription renewals, and upgrades. From a product perspective, the growth was driven by strong sales of our Norton Internet Security Suite.

Electronic distribution channels represented 66% of consumer revenue and grew 21% versus the June 2005 quarter. Norton Internet Security revenue grew 47% and remains the single largest product contributor to our consumer category, generating approximately 53% of consumer revenue.

Moving on to our enterprise segments, as you may recall, we announced at our recent analyst day that we would break out the revenue results of three enterprise business segments. The June quarter performance for the new segments is as follows. Our security and data management revenue of $488 million declined by 2% over the June 2005 quarter, due in part to be difficult Veritas year-over-year comparison period. Enterprise messaging products, which include mail security and email archiving, experienced the largest year-over-year gains, as these solutions continue to lead their respective markets.

IT policy compliance and managed security services also posted strong growth. The data center management business generated revenue of $351 million. Growth was flat with the June 2005 results. Once again, however, this result reflects the difficult year-over-year comparison of our actual June 2006 activity versus the March 2005 Veritas quarter.

The Storage Foundation family of products delivered its second strongest performance ever, with solid double-digit percentage growth. And our Services group posted another strong performance, increasing revenue to $58 million, up 18% from $49 million in the June 2005 quarter. Services represents 5% of our total revenue.

Non-GAAP gross margin decreased to 83.7% for the June 2006 quarter compared to 84.7% for the year ago period. The decline was largely driven by excess appliance inventory.

As John mentioned, we will maintain our appliance lines that are built on industry standard boxes. However, we have decided to discontinue proprietary hardware development. We will reinvest the funds generated by this move in other high growth opportunities such as endpoint compliance, message management, and security policy compliance.

Non-GAAP operating expenses of $725 million for the June 2006 quarter were up 3% sequentially. Expenses were driven by increased hiring, information technology initiatives, and sales and marketing programs ahead of Microsoft's introduction of its OneCare product.

GAAP net income was $95 million for the June 2006 quarter. Non-GAAP net income equaled $248 million. As John mentioned, we announced several actions during the June quarter to optimize our capital structure and increase our financial flexibility. We issued $2.1 billion in convertible notes, which have an effective conversion premium of 75% or $27.32. This relatively high premium was obtained by entering into two additional equity-related transactions.

We purchased a call option which will effectively neutralize the dilution associated with the convertible notes, which have a conversion premium themselves of 22.5%, equivalent to a stock price of $19.12. We also sold warrants at $27.32 to create the 75% effective conversion premium. The call options and warrants will have a limited near-term impact on our share count from an accounting perspective.

The purchased call is anti-dilutive and is thus ignored. The sold warrants only impact our share count once our stock rises above $27.32. At stock prices above $19.12, our fully diluted share count will increase in line with the in-the-money value of the equity underlying the convertible notes.

Simultaneous with the issuance of the convertible notes, we established a $1 billion revolving credit facility. This facility remains undrawn. Using the proceeds of the convertible notes, we are already halfway through our new $1.5 billion share repurchase program. As a result, Symantec exited June with cash and short-term investment [spouts] of $4.1 billion.

During the quarter, we repurchased approximately 57 million shares valued at nearly $890 million, equivalent to an average price of $15.75. During the September quarter, our share repurchase activities will continue. We expect to repurchase approximately $975 million worth of our stock. This activity will complete our new $1.5 billion share repurchase program and will continue our progress towards the previous $1 billion share repurchase goal.

Also during the September quarter, we expect to use $520 million of our cash balance to retire the Veritas convertible notes, which will likely be put to us by their holders.

Our net accounts receivable balance at the end of the June 2006 quarter was $539 million. Days sales outstanding or DSO was 38 days, in line with normal seasonal trends for the combined business. Cash flow from operating activities for the quarter is expected to be between $340 million and $360 million. This compares favorably to the pro forma combined cash flow from operations of $318 million in the June 2005 quarter.

GAAP deferred revenue at the end of the June 2006 quarter was approximately $2.21 billion. Non-GAAP deferred revenue at the end of the quarter reached a record $2.24 billion. In fact, non-GAAP deferred revenue grew approximately $455 million or 26% as compared to the June 2005 quarter.

Deferred revenue also grew sequentially despite what is typically a seasonally down quarter for deferred revenue. On a non-GAAP basis, enterprise products represented roughly 60% of deferred revenue with consumer products accounting for the remaining 40%. We expect about 60% or approximately $775 million of our September quarter revenue to come from the balance sheet.

Now, I'd like to spend a few minutes discussing our guidance. In summary, we're on track to deliver on our previously announced expectations. Given the current business environment and an exchange rate of $1.26 per euro, our forecast for the September quarter and FY '07 are as follows.

For September quarter, GAAP revenue is estimated at between $1.265 billion and $1.295 billion. Non-GAAP revenue is estimated between $1.275 billion and $1.305 billion. GAAP earnings per share are forecasted between $0.11 and $0.12. The total stock based compensation impact to the September quarter GAAP earnings per share is estimated to be approximately $0.03.

Non-GAAP earnings per share are estimated between $0.26 and $0.27.

For FY '07, we're forecasting GAAP revenue of between $5.1 billion and $5.3 billion. Our non-GAAP revenue guidance for FY '07 also remains between $5.2 billion and $5.4 billion. We expect FY '07 GAAP earnings per share to be between $0.46 and $0.56. The total stock based compensation impact to FY '07 GAAP earnings per share is estimated to be approximately $0.12.

We're increasing our non-GAAP earnings per share guidance for FY '07 by $0.06 to adjust for the additional $1.5 billion stock buyback program. As such, non-GAAP earnings per share are now expected to be between $1.06 and $1.16. Given our planned completion of both repurchase programs, we expect fully diluted common stock equivalents for fiscal year 2007 to be approximately 980 million shares.

Lastly, we are reaffirming non-GAAP deferred revenue and cash flow from operations expectations for FY '07. Specifically, we expect deferred revenue to be in the range of $2.4 billion to $2.6 billion. And we expect cash flow from operations to be in the range of $1.5 billion to $1.7 billion. And with that, I'd like to hand the call back to John.

Thanks, James. There are a couple areas we plan to focus on to drive performance over the next few months. In September, we plan to refresh our flagship Norton security products, Norton AntiVirus and Norton Internet Security. Both of these products will offer enhanced protection from today's threats and represent industry-leading functionality when compared to all of today's end market competitors, including Microsoft's OneCare.

Also during the quarter, we plan to launch an important new product called Norton Confidential that addresses the security requirements of identity theft and on-line fraud, protecting consumers at the moment they are conducting an on-line transaction. This is a high-priority launch because we feel it represents an incremental sales opportunity into our existing customer base. As such, we feel there's more potential for revenue lift in the current fiscal year with Norton Confidential.

Norton Confidential offers advanced Websites authentication and password security capabilities. Additionally, it includes features for protection against fraudulent Web sites and crime ware. As more and more customers are reluctant to divulge personal information and conduct important business on-line, Symantec is focused on the new threat landscape. We expect to have this product in the marketplace in October.

We plan to initiate our Norton 360 beta by late summer. Norton 360 will seamlessly integrate our best of breed security products, including all of the advanced functionality of Norton Confidential, along with our market leading PC Health and Backup technologies to offer protection from the threats impacting today's digital lifestyles. We will determine the formal launch timing of this product based upon customer feedback from the beta.

Our Norton product portfolio continues to evolve to address the ever-changing threat landscape and I'm confident in our ability to continue our category leadership in the consumer segment. As a leading infrastructure software Company, Symantec is committed to delivering innovative solutions to meet the changing requirements of our customers around the world. In order to sustain our technology and product leadership, we must continue to invest in our R&D teams around the world.

Our acquisition of Veritas and BindView significantly expanded our base of engineering expertise in India. We currently have over 1600 employees in the Pune region. This group focuses on product development, technology innovation, and localization. Over the next 6 to 12 months, we intend to further expand our presence in India and expand our development operations in China.

We also plan to further expand our internationally based technical support organization for some customer segments. Our investments in these markets allow us access to the rich talent pool as well as a rich customer base as we develop the worldwide footprint of Symantec.

In conclusion, I'm pleased with our execution in the June quarter and the solid results against a very tough compare from last year. I'm very proud of the tremendous efforts the team put forth. I firmly believe that Symantec has a much stronger market position today, largely due to our broad portfolio of award-winning technologies and our diverse base of enterprise and individual customers around the world. I'm looking forward to the remainder of fiscal 2007 as we ready ourselves for several important product introductions and a major brand launch campaign, our brand campaign launch.

More than ever, our customers and partners are looking to Symantec for IT risk management solutions across a full spectrum of operating platforms, and we look forward to delivering on those expectations. And now, I'll turn the call back to Helyn to address your questions.

Thank you, John. Lisa, will you please begin polling for questions?

(OPERATOR INSTRUCTIONS).

While we're polling for questions, I would like to announce that Symantec plans to attend the following upcoming conferences -- the Pacific Crest conference on August 8th, and the Citigroup conference on September 6th. For a complete list of investor related events, please visit our event calendar on the investor relations website. Lisa, we're ready for our first question.

Adam Holt, J.P. Morgan.

I have two questions, one on the consumer and one on the Foundation suite. First, on the consumer business, it looks like not only was revenue particularly strong in the quarter, but so were bookings. I was wondering if maybe beyond the NIS mix strength you can give us some of the dynamics behind the consumer businesses quarter, particularly in front of some of the launches next quarter. And then secondly, Foundation up double digits in front of a major product release for you might see some transition. Was wondering if you could talk a little bit about what was behind that product in the quarter.

On the latter one, which is the Foundation suite product, I think it's really underpinned by the large deal transactions that we saw during the quarter. In almost every one of the multimillion dollar deals or million dollar and above deals, the Storage Foundation suite or some componentry out of that product portfolio were a part of those transactions. So the team is off to a very solid start, and we have now shipped the new capability that was announced back in May at our Vision conference.

On the consumer side, Norton Internet Security continues to be the market leading integrated security suite, bar none. And even with Microsoft's entry of OneCare into the marketplace, a number of independent research firms have continued to rate Norton Internet Security well above everyone else, and particularly strong against Microsoft's OneCare solution. Norton AntiVirus continues to be a strong product, but obviously with the 40% plus growth rate in NIS what consumers are coming to realize is that they need to switch to a more feature rich capability as is reflected in Norton Internet Security. And so we expect to continue to put functions and features into the product as we roll out Norton Confidential, Norton 360, and enhancements to Norton AntiVirus.

Is it possible if you could just to give us a sense for where you are in subs and maybe the totals for the potential subs number that you have?

We don't really disclose, Adam, subs per se. We talked about having over 50 million users of -- active users of our products around the world, and we think that's a very, very strong base for which we can not only upgrade people to new products, but sell new capabilities like Norton Confidential into that base. Obviously the announcement of our partnership with Yahoo! on yesterday is a part of our strategy to grow our customer base, not just to mine the base of customers we have.

Great thank you.

Todd Raker, Deutsche Bank.

Nice quarter.

Thank you, John. Haven't heard that in a long time.

I know. Getting into the consumer side a little bit more, can you give us some insight in terms of what you are seeing from OneCare? And with just the incredible growth we've seen this quarter relative to expectations, is it being driven by new channel strategies or what's really changed here in your mind?

Well we really haven't changed our channel strategy at all, Todd. Our channel strategy forever has been to place Symantec's products, the Norton branded products, in any channel where a consumer wants to buy. But do that with an eye toward balancing customer growth, our growth in customers, revenue growth, and profitability. And that strategy has been in place for seven years and I don't see any reason to change that at this point in time.

With respect to OneCare, I think it would be fair to say that the summer months are always a challenging time to launch consumer products. And so while we are pleased with our results and we don't think OneCare was a significant factor in the market at all, we're not going to sit back and rest on one quarter's results for us or for Microsoft and OneCare. So our team is sharpening their focus to deliver the products on our portfolio plan and you will see us be even more aggressive as we exit the September quarter.

And when you guys ship Norton 360 sometime this fall, how do you envision taking that product to market given the nature of it? Is it going to be exactly like the existing product portfolio or is it just going to be selectively introduced in certain relationships?

No, I expect that product will be available in all channels just as all of our others when we decide to release it. We have not announced a release date. Our planned date for the beta is the late summer timeframe. Once we get feedback from that, we will then decide what the release date of the product will be.

Okay. And last question for you, with the discontinuation I think of the 5400 series, how do you see yourselves playing longer-term in the UTM market?

We don't.

Thanks.

Sarah Friar, Goldman Sachs.

Good afternoon. I echo Todd's words, good quarter. Just again on the consumer side, a quick question there. Can you give us any sense for the impact of the new products -- the Norton Save and Restore products? And maybe it's less the actual revenue, but how many current customers signed up for that incremental product -- give us a sense for penetration right now.

Candidly, Sarah, I don't have the data in front of me. I would venture to say that it's relatively small, but as you well know, we don't give out product details anyway.

Okay, so it's just beginning. So to flip over to the enterprise side, bookings there if I look at it are still kind of low single digits. And obviously James, you made the point there's a tough year-over-year comp there given the inclusion of the Veritas March quarter. What do you think is a more reasonable growth rate of the enterprise side of your business? Should it be a high single digit type growth business in aggregate? And what are the particular product lines -- you didn't mention email archiving, for example, much on this call. But what are the product lines that can really outpace that sort of high single digit growth?

Well, we have not given up on building a business that has aggregate growth rate that's consistent with the addressable market. And we run a product portfolio and a business portfolio here that covers consumers, mid-market, and enterprise. That diversity I think is at the bedrock of the performance we had this quarter.

Now, that being said, we made the very explicit move to (indiscernible) or reduce our investments in proprietary appliances so we could fuel growth in areas like email archiving, like IT policy and security compliance, and areas that we think represent stronger long-term growth than the addressable market for the total Company in aggregate. So we have not given up on driving very, very strong double-digit growth across our Company.

Okay. Terrific. Thank you very much.

Michael Turits, Prudential Equity Group.

Two questions, one kind of a follow up on the enterprise side and one for James on the share count. On the enterprise side, anything else you could tell us about, especially in the mid-market segment, about what some of the factors were there? Obviously there were tough comps. What was going on with pricing? Obviously we have been tracking pricing over a couple of quarters, how's that? And what products were stronger or weaker within that? Then I have a question on share count.

In general, Michael, the products that are strongest for us in the mid-market relate to email archiving, electronic message management and anything around viral protection or protection technology. What we did in the most recent quarter was allocate a significant increase in sales resources to target mid-market solutions, where we could literally bundle certain products together with the channel to address a particular problem they mid-market customer might be experiencing.

While it was the first quarter of that focus, we would expect it to build momentum if you will as the year unfolds. So it's early to declare victory or lack thereof in the mid-market, but I think it's an important initiative for our team for sure. James, I'll let you comment on the share count.

Do you have a specific question, Mike?

Yes, so first of all, did you have a common share equivalent guidance for the coming quarter? And also, just if you would review the effect when you -- when the Veritas [convergence] gets put to you, does that affect the share count? And also, you talked about the effect of the new converts when the stock price goes above 19, how does the hedge work against those and what is the effect on share count?

We haven't put out a guidance for share count for the September quarter, just for the full-year that I mentioned. The Veritas convertible notes, when those are put back to us as I would expect they would be, that shouldn't have any effect on share count. And then, say again the last part of your question -- (multiple speakers) and so forth?

And then on the new converts, when you go above $19, how does it work with the hedge since you have got that hedged?

Well, from an accounting perspective, the rules work this way. Because the bond hedge that we purchased, the lower strike call is anti-dilutive, it has no effect on share count calculations. And obviously, the higher price warrants that we sold, they will only have an impact on share count once the stock exceeds $27.

So, at least in the very near-term, the driver of share count will be when the stock moves above $19.12. And the way that works is that in essence, the in-the-money value that is created above $19.12 is then divided by the share price at the measurement period. Say the stock price has got to 22. You take 22 minus 19.12 to get the in-the-money value, and then you divide that in-the-money value by 22. And that drops out of number of shares that you add to the share count. Is that helpful?

Yes. Thanks very much. And if you could give our common share equivalent guides for next quarter, that would be even more helpful.

Daniel Ives, Friedman Billings Ramsey.

John, could you do talk about the acquisition strategy in a little more detail? There's obviously some noise out there, fears that you guys (indiscernible) go after another big acquisition. You talk about tuck-ins. Can you define that maybe a little clearer in regards to is that 200 million, 500 million? Can you get the granular? And also, were you possibly also in that bidding contest for RSA? If you could comment, thanks.

We're not going to comment on market rumors because that's just inappropriate I think. But with respect to our strategy, we've always had a view that we would look for acquisitions that fit the strategic intent of the Company, hence the security and the availability business, to look for ways that would expand the addressable market for a company in a way that is meaningfully [impactable] at least in a given product area or in a new segment.

I don't think there is an appropriate metric to say we won't buy a company over this size or under that size. I think we have to look at what's going in the market around us and make sure that we are prepared to digest whatever it is we plan to do. I can assure you that there's no plan to do another Veritas-sized transaction anytime soon. But beyond that, I guess I'm just not going to comment on pricing of transactions and transaction sizes.

Thanks. Good quarter.

Phil Winslow, Credit Suisse.

Good quarter. Just have one question just on the SMB side of the security market. Just curious what you're seeing there -- I think somebody asked the question previously about pricing pressure, whether you've seen any of that come to bear and if you still -- have you seen any sort of change in the competitive landscape there?

I don't think there's been a marked change in the competitive landscape as we moved sequentially from the March quarter to the June quarter. It's clear that the security market is tightening a bit and I think you've seen that in the results published by some of our peers or colleagues in the industry. And over time, it is our belief that the way you distinguish yourself is through new technology integration into the existing base of customers and capabilities that you have.

And that's why Project Hamlet is so important to us. It extends not just our capability for compliance and new threat protection capability, it allows us to deliver a more integrated capability at the upper end of the marketplace and down into the mid-market as well. The mid-market right now continues to be a target rich environment, but it's also very, very competitive for sure.

And also, James, just from a deferred revenue standpoint, obviously it's stronger than expected this quarter. What should our thoughts be as far as growth or decline for the September quarter?

Again, we haven't tried to put out a specific piece of guidance for that, so I would not necessarily expect dramatic movements one way the other. I think I would leave it at that.

Thanks.

Walter Pritchard, Cowen & Co.

Just actually one question, James, on taxes. I noticed on the balance sheet the accruals for taxes came down by quite a bit. If you could just comment on that and tell us what the impact was on cash flow if any, and then I had one follow up for John.

Yes, the change in the deferred tax liability is driven by the fact that that is where we record the tax benefit associated with be lower strike call that I was referring to earlier that was part of our overall financing initiative. So, that's what drove that, so it wouldn't have a cash flow from operations type benefit.

Okay. And then John, for you on the sales and marketing side I guess, you talked about higher sales and marketing activity in the quarter around the OneCare launch. And just being a consumer and looking around on the Internet, I didn't necessarily see a lot of visible pickup in activity from you guys. What was that money spent on? And in terms of looking forward, what should we look for as we get into the launch period here in terms of your activity around pushing the Norton brand?

We typically have a very strong launch program around all of our consumer brands. And I think the period of time leading into really October 10th, which is where we're gearing up for a big corporate brand launch, in addition to outlining our strategy for Security 2.0 not just for the consumer market, but for the enterprise markets as well. So a lot of the spending and preparation for those activities that will occur in early October will actually occur in the September quarter.

We didn't spend incrementally a substantial amount more in the most recent June quarter, primarily because the retail markets are fairly weak in the June period and there was no need to do that in light of what Microsoft eventually did. There was, however, some incremental investment made in what we do with channel partners around specific rebates to try to drive demand.

Phil Rueppel, Wachovia Securities.

Great. Thanks. Could you give us a little bit of color on the changes in the direct sales side? This was the first quarter of the kind of combined sales force. Were there any implications on that, it's sort of accelerating some of the big deal strength that you saw? Or are there still some regions or pockets of sales folks that are still finding their weight and might cause further growth as we go further into 2007?

I am sure if you go somewhere, in some country, in some closet somewhere in the world, you'll find some sales rep who hadn't quite found his or her way, but in the main, this is an issue that is behind us, guys. We have completely integrated or sales force. They have a responsibility to cover a single or in some instances multiple accounts. They have the full Symantec product portfolio at their disposal.

They're supported by a management team that has been managing the full Symantec portfolio since we closed the transaction last July, and they're further supported by product, services, and solution specialists that understand the details in a given product area. And so while I think there has been much ado about this transition and this change, I think Tom Kendra and his regional leadership team around the world did an absolutely phenomenal job to make sure that it was not only flawless in its execution, but it was flawless in its deal flow impact for the quarter.

And given that deal flow in the large -- the kind of preponderance of large deals we saw, is that the kind of thing that we should expect -- obviously with variation, but --

We certainly hope so. I don't know how to forecast how deals will come through the pipeline, but I think our forecast for the year is reflective of strength in our business. And James outlined what the forecast is in his earlier comments.

Great. Thanks very much.

Ed Maguire, Merrill Lynch.

Yes, good afternoon. Could you talk about patterns you may be seeing with maintenance renewals, both on -- particularly on the enterprise side given the jump in deferreds?

Well, maintenance renewals for both traditional security and availability products are very, very strong. They underpin the importance of those products in the infrastructure that our customers have built. You can't very well backup a series of files or data sets with one product and then decide oh, by the way, I am not going to renew the maintenance, because then you don't have the capability to bring that data set or file back into the operating environment.

You can't very well have an antivirus client running on a desktop and not renew the subscriptions associated with the updates for the most recent attack pattern that might have occurred in the marketplace. So we tend to focus very strongly at point of renewal at not just getting the renewal done, but trying to the upgrade or cross grade other products into the portfolio.

And so for Backup Exec, we want to try to get Backup Exec 10d, the new capabilities that are there. For Norton AntiVirus or Symantec antivirus product, we want to try to get the client security product that is a more feature rich, price rich product into the marketplace. So the teams have several options that they can execute on at the point of renewal, and we think that's a terrific way to go about this.

Gregg Moskowitz, Susquehanna Financial Group.

Thank you. Good quarter gentlemen. John, wondering if you could address how Backup performed in the quarter both for 10d and NetBackup. And then in the enterprise antivirus market, was the annual growth this past quarter pretty consistent with what you've seen recently or was there any variance there?

We don't talk about specific product performance in the quarter, but I think it would be fair to say this is a very challenging compare on the Veritas or availability side of our business because of the fifth quarter incentives that were put in place during the March quarter of 2005 within Veritas. Backup Exec continues to be the market leader, bar none, by a huge, huge margin. And so we do not have any reason to believe that we ceded or lost any market share during the most recent June quarter.

On the enterprise antivirus side, the top end of the marketplace continues to be very tight and fairly well saturated, and so every renewal is a very challenging transaction with customers as we engage and our competitors engage. At the mid-market, there continues to be some opportunity there for sure. But as you have noted or one of your colleagues noted earlier, their channel checks suggested that there might be some aggressive pricing going on, although we did not see a material change in pricing during the quarter. So the environment is pretty good. We have a great product portfolio. We have leadership capability, and we will just keep on keeping on.

Thank you.

Robert Stimson, WR Hambrecht.

(inaudible).

Sir, we are not able to hear a response. We will go onto our next question. Kevin Buttigieg, A.G. Edwards.

Thank you. Just on the geographic performance, I heard your comments during the prepared remarks, but it's been a couple of quarters now that the U.S. growth has been relatively flat or it has certainly seen a significant degree of outperformance in growth coming from the Asia-Pacific region. I was wondering if you could expand on what's behind that relative performance.

I think it's a function of the maturity of the various markets and our penetration of those markets around the world. If you look at both the Symantec portfolio and the historical Veritas portfolio, we had very strong penetration in the U.S. with far less penetration in regions of Europe or regions of Asia-Pacific. And hence, you're going to see stronger growth numbers coming out of those parts of the world. And our budgeting cycle and planning process acknowledges that as we set the targets for the various teams.

Typically, Europe will lag the U.S. in terms of penetration anywhere from 12 to 18 months. And typically APJ, or Asia-Pacific and Japan, will be 24 to 28 months in a lag. So hopefully we'll be able to sustain the capabilities of growth in those regions and introduce new functionality into the Americas that gets it growing equal to our planned expectations.

Okay. And then I don't know if you mentioned this or not, James, but the operating cash flow performance in the first quarter -- I didn't quite catch it if you did.

We haven't finalized the operating cash flow statement yet for the quarter. But we're estimating that it is in a range of between $340 million and $360 million.

That's for the first quarter?

Yes, that was for -- yes, this quarter just finished.

That's fine. I thought was a reference to the second quarter cash flow.

No.

Thanks very much.

Lisa, we have time for one more question.

Chris Hovis, Morgan Keegan.

Nice quarter, guys. A couple quick questions for you. One, given the shift we're seeing in the enterprise towards more info and risk management mentality, I thought for a while that services need to become a bigger part of your offering and potentially become a growth driver. Can you comment on whether not you think that can build that internally or is that an area we might have to go out and make a sizable acquisition?

Well, services is an important part of our solution strategy, and if you reflect on one of the transactions, actually two of the transactions I talked about, both of them had very, very important services components in order to make the products work and realizable in the environment our customers have created. And so we would view services as an area of investment for our Company.

Now, that being said, it's not clear to me that there are a lot of sizable, to use your phrase, transactions out there to be done. We think it's more important that we have both skill and geographic coverage in the solution areas that are important to us around security, storage management, data center management, if you will. And those are the places that we will certainly continue to look, but they're likely to be small boutique firms to the extent that we find something we want to do.

Thanks. And then if we look at the September guidance, it implies a pretty decent ramp in year-over-year growth. Is that solely due to confidence in the business, easy comps or a combination of all the above?

We certainly have enormous confidence in our business, but we also have the benefit quite frankly of getting to more normal compares. We have a combination of moving to a point of comparability in our ratable model for the consumer business and we have the strength of our fiscal second half that's always strong for Symantec.

Okay thank you. Good luck.

That concludes our question-and-answer session. I would like to turn the conference back to Mr. Thompson for concluding remarks.

I want to thank everyone for joining us on the call this afternoon and I want to particularly thank team Symantec. They proved once again that by staying focused on execution, we can deliver a very solid quarter. I'm proud of our team and I am particularly proud of our results. Thanks very much.

Ladies and gentlemen, this does concludes the Symantec conference call. We thank you for your participation and you may disconnect your phone lines at this time.