諾頓 (NLOK) 2014 Q2 法說會逐字稿

Good day and welcome to Symantec's second-quarter 2014 earnings conference call.

Today's call is being recorded.

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

Good afternoon and thank you for joining our call to discuss our second-quarter 2014 results.

With me today are Steve Bennett, Symantec's President and CEO, and Drew Del Matto, Senior Vice President and Acting CFO. In a moment I'll turn the call over to Steve to review our quarterly results and provide a strategic overview. Then Drew will provide highlights of our financial results as well as discuss our guidance assumption. This will be followed by a question and answer session.

Today's call is being recorded and will be available for replay on Symantec's investor relations website. A copy of today's press release and supplemental financial information are posted on our website. Today's prepared remarks will be available on the website after the call is completed. I'd like to remind you that we provide year-over-year constant currency growth rates in our prepared remarks unless otherwise stated. Earnings per share growth rates are provided on an as reported basis.

We use our published foreign currency rules of thumb in our guidance section for all constant currency year-over-year growth rates. We've included a summary of the year-over-year constant currency and actual growth rates in our press release tables and in our supplemental information, which are available on our website.

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

Additional information concerning these risks and uncertainties can be found in the Company's most recent periodic reports filed with the US Securities and Exchange Commission. Symantec assumes no obligation to update any forward-looking statements.

In addition to reporting financial results in accordance with Generally Accepted Accounting Principles or GAAP, Symantec reports non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP results, which can be found in the press release and on our website.

And now I would like to turn introduce our CEO, Mr. Steve Bennett.

Thanks Helyn. Good afternoon everyone.

Before we get into that details of the September quarter, which obviously did not meet my expectations, I'd like to provide some context on how I view Symantec's role in what Gartner is calling the digital industrial economy. We've entered a new era where the physical and digital worlds are converging rapidly. It demands an integrated holistic approach to protecting and managing information and we are building on our strong assets to transform Symantec to take advantage of this massive shift. I truly believe the world has never needed a stronger Symantec than it does today.

But many changes are required to transform a Company of our size and complexity so we can help protect our customers from increasingly sophisticated attacks and solve their problems better than anyone else. In doing so, we believe we can deliver consistent and sustained organic growth. Six months into our transformation, after the January announcement, we feel good about the progress on most fronts. However, this was a more challenging than expected topline quarter in a transitional year. We fell short on revenue while delivering on both operating margin rate and EPS.

I'm disappointed that our performance fell outside our revenue guidance range. We underestimated, I underestimated the impact of the go-to-market changes we made and it was a challenging quarter. However, we remain solidly convinced that these changes are required to position Symantec for long-term success. And we are not backing away from our long-term targets of greater than 5% growth CAGR, and better than 30% operating margin for the fiscal year '15 to fiscal year '17 timeframe. In fact the excitement and positive feedback we are getting from customers and partners to our new offerings and go-to-market changes, coupled with greater employee engagement make me as confident as ever in our ability to achieve our long-term targets.

As we evaluated the root cause for the miss we analyzed every angle, products, geographies, segments, big deals, government spending, you name it. We boiled it down to a single critical area that drove the miss, new license sales, direct to customers, and through partners. Part of our shortfall was due to some second-quarter sales that were pulled into the first quarter before we implemented changes to our sales model. But the majority of the impact to our results was due to significantly changing our coverage model for more than 90% of our direct sales people.

We went from traditional generalists, selling 150 or so point solution to sales people that are now information management or information security specialists. We clearly lost more momentum than we expected in the transition and are working hard to address all the critical levers to accelerate progress in building a robust new business pipeline in Q3 and Q4, so we regain our positive momentum going into fiscal year '15.

The enterprise sales cycle can often have long lead times. Consequently, we expect it to take us a few quarters for our sales force to regain its momentum. We expect positive year-over-year sales activity to begin in the first or second quarter of fiscal year '15. When the dust settles from the transition of our sales force gains traction, momentum builds from our improved sales force focus.

We have new releases of some of our leading point solutions, such as NetBackup, appliances, and Endpoint Security to name a few. There are initial launches of some of our new integrated solutions addressing data center security, information security, and innovative defense against advanced persistent threats. And finally, key industry partnerships begin to gain customer acceptance and produce results.

We also believe we will see improved commercial execution as we build out our marketing organization and better enable our salespeople and partners to be more effective and productive. We are making solid progress providing our sales team and partners the messaging and tools required to better share our exciting new story with the market. The magnitude of change we're implementing during this transition year, coupled with a second-quarter shortfall will impact results during the second half of fiscal year 2014.

We want to be prudent with our guidance for the remainder of the year. As such, we are reducing our fiscal-year guidance targets. That said, since our strategy and transformation journey is not changing, we are not going to make across-the-board spending reductions to drive short-term improved financial results at the expense of longer-term success. We will as always continue to identify and eliminate areas of inefficiency and redundancy so we better allocate resources to drive growth.

Let me step back from this quarter and share some perspective on the changes we've been working on. Let's start with where we were just a year ago. Symantec was a Company that sold point products based on features and functionality, had a generalist sales structure that was high-cost, had non-differentiated volume-based rewards for channel partners, was organized in silos, and had an inefficient management structure. Simply put, our structure, incentives, and culture were hampering our ability to deliver value to customers and partners and limiting our growth.

Since the January announcement of our new strategy, we've made significant progress in changing many key foundational elements of the Company, starting with upgrading our offerings, evaluating our existing point solutions and reallocating dollars based on the competitive position and market opportunity. Resourcing dedicated teams to build the 10 new integrated offerings that solve higher-order customer problems. Bringing on lighthouse customers as early adopters of our new innovative offerings. Customers are excited about our offering strategy and want to participate in the development process.

On the network security partnership front, we completed two preliminary customer pilots and are actively working with other select joint customers for additional feedback. Feedback from the two pilots has been positive and have confirmed our approach of satisfying our customers' underserved needs relative to advanced threat protection. We are preparing to announce our partnerships and new offerings during the RSA conference early next year.

We also launched many critical elements in the complete revamping of our go-to-market strategy and plan during the September quarter. We split the sales organization into renewals and new business teams. We successfully launched our centrally managed renewals group, which is focused exclusively on this important revenue stream. This team provides a high-quality, cost-effective approach to the renewals process and improves the value we deliver to customers, by making it easier to do business with us. We are pleased with the renewal team's performance this quarter.

We also changed the roles of our direct new business sales reps to focus on new business only and specializing on either information security or information management. We are also enabling our e-business platform into a digital experience that will enable anyone to discover, purchase, and receive product help online with real-time customer care. We see this as a tremendous opportunity to reach and acquire a new set of customers. Some of the things we are working on that will help us in the long term include significantly improving our e-business served market by expanding our payment options, global expansion of our e-business platform and advancing our search capabilities.

We made significant progress in defining our channel strategy and redesigning our partner program to better align our offerings with the optimal route to market and our channel capability. We are investing more time and resources in our channel to build stronger, more strategic partner relationships. Further, we will align the economics and incentives based on the value created by the partner and their commitment to Symantec and our customers. We will unveil the framework of our new partner strategy at our North America Partner Engage event in November.

We have also made progress with our team. Functionalizing and upgrading the leadership team, we've lost some key senior people, but we've added a lot of top talent to the senior leadership team. This is expected in a transformation of this type. We've improved the engagement and energy of our employees and we've simplified the management structure by reducing middle-management by 35%.

We remain focused on three priority areas, offerings, go-to-market, and a third concept we call work smart. Which is all about better execution and being easier to do business with through investing in our people, process, and technology.

In summary, we have begun the operational phase of our transition. With a focus in all three of our priority areas, I'm more encouraged than ever in our vision and strategy to drive growth in the long term. It will take some time for our transformation changes to translate into revenue but I'm confident we are on the right track.

We have a lot of work ahead of us. We greatly appreciate the support and confidence from our customers, partners, employees, and shareholders. We are working diligently to ensure that we into next year a stronger, better Company with an ever bright future.

With that, thanks for your support and let me turn it over to Drew to provide a review of our financial results and guidance.

Thank you Steve, and good afternoon.

The second quarter was a transition quarter as we implemented significant sales force and go-to-market changes. These structural changes resulted in lower than expected revenue. However, we are confident that these changes will create a more effective and efficient sales model and support our goals to achieve better than 5% organic revenue growth and greater than 30% operating margin in the '15 to '17 fiscal-year timeframe.

In the September quarter, organic revenue declined 4% year over year and GAAP revenue declined 3% to $1.64 billion, driven by lower than expected license revenue. The license revenue declined 31% year over year in the September quarter, while content, maintenance, and subscription revenue was flat. In aggregate, 92% of total revenue in the September quarter was ratable.

Our total subscription revenue was flat year over year and accounted for 46% of total revenue, compared to 45% of revenue in the year-ago period. Enterprise subscriptions, which excludes Norton revenue, grew 1% and accounted for 15% of total revenue, as compared to 14% in the prior year.

Turning now to our business segments. Our User Productivity and Protection segment, which is comprised of our end point security, end point management, encryption, and mobile businesses declined 2% to $719 million. Flattish performance in our endpoint businesses was offset by continued weakness in endpoint management. GAAP operating margin for this segment was 36%, flat year over year as lower marketing spend offset lower revenue.

The Information Security segment, which includes our authentication, mail and web security, hosted security services, data center security, managed security services, and data loss prevention offerings, declined 1% to $316 million. Continued growth in our authentication and MSS businesses were offset by weaknesses in our mail, web, and data center security businesses. GAAP operating margin for this segment was 16%, compared to 4% in the year-ago periods, driven primary by lower sales and marketing expenses.

The Information Management segment, which includes our offerings related to backup and recovery, information intelligence, which includes archiving and e-discovery, and information availability, which we previously referred to as storage management, declined 6% to $602 million. Continued growth in our NetBackup appliances was offset by weakness in our Backup Exec and information availability offerings. GAAP operating margin for this segment was down 4 percentage points year over year to 24%, driven by our increasing appliance mix on lower revenue.

Turning now to total Company margins. Non-GAAP gross margin declined 80 basis points year over year to 83.7%, due to lower revenue and continued growth in our appliance and hosted solutions. Non-GAAP operating margin was 27.6%, flat year over year as lower revenue was offset by organizational simplification benefits and lower sales and marketing spend. Non-GAAP net income of $355 million resulted in fully diluted non-GAAP earnings per share of $0.50, up 11% year over year as reported, driven by a one-time tax benefit from a favorable IRS settlement.

Deferred revenue was $3.5 billion, down 3% year over year, driven by lower than expected sales activity. We exited the quarter with cash, cash equivalents, and short-term investments of $3.8 billion. Approximately 47% of our cash resides onshore.

In the September quarter we returned $230 million to shareholders through a combination of share repurchases and dividends. On September 18 we paid a $0.15 per share dividend for a total of $105 million. We also spent $125 million to repurchase 5 million shares at an average price of $24.99. Symantec has approximately $908 million remaining in the current Board authorized stock repurchase plan. Cash flow from operating activities for the September quarter totaled $191 million, up 7% year over year, driven primarily by the timing of payroll payments.

Now, I'd like to spend a few minutes discussing our business outlook and guidance. We remain confident in our business over the long term, and are committed to delivering greater than 5% revenue growth and better than 30% operating margin in the '15 to '17 fiscal year timeframe. Given the September quarter shortfall and the significant transformation we are driving, we are being prudent and lowering annual guidance. We expect revenue for fiscal 2014 to be down 3% to 4% in constant currency as our sales force focuses on building new business, and our renewals team concentrates on extending customer relationships.

We expect non-GAAP operating profit margin to expand 30 to 60 basis points as our strategy remains unchanged and we continue to invest in driving organic growth by solving our customers' large, unmet, and underserved needs. We expect non-GAAP earnings per share to be between negative 1% and positive 1.5% compared to the prior fiscal year. For the December 2013 quarter, we expect revenue to be in the range of $1.63 billion to $1.67 billion, compared to $1.79 billion in the year-ago period. Approximately 75%, or $1.24 billion of our December quarter revenue is estimated to come from our balance sheet.

We expect GAAP operating margin to be in the range of 17% to 17.6%, compared to 17% in the year-ago period. Non-GAAP operating margin is expected to be in the range of 25.6% to 26.2%, compared to 25.9% last year. GAAP earnings per share are estimated to be between $0.26 and $0.28, as compared to $0.31 in the year-ago period. Non-GAAP earnings per share are estimated to be between $0.41 and $0.43, as compared to $0.45 in the year-ago period. Our guidance assumes an exchange rate of $1.35 per euro, versus the weighted average rate of $1.30 and the end of period rate of $1.32 per euro in the December 2012 quarter.

Our guidance also assumes an effective tax rate of 28% for the December and March quarters. We expect common stock equivalents for the quarter of approximately 707 million shares and expect our share count to remain flat for the full year. As part of our enhanced capital allocation strategy, we will issue a quarterly cash dividend of $0.15 per share, payment will occur on December 18 to shareholders of record on November 25. In addition to paying dividends, we will also continue to buy back our shares.

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

Thank you Drew. Casey will you please begin polling for questions?

(Operator Instructions)

While the operator is polling for questions, I'd like to update you on our upcoming conference events. We will be presenting at the UBS Technology Conference on November 21 in Sausalito, and at the NASDAQ Conference on December 4 in London. For a complete schedule of our investor related events and materials, please visit the events section on the investor relations website. Casey we are ready for the first question.

Thank you. We will take our first question from John DiFucci with JPMorgan.

Thank you. Steve, question for Steve, and a follow-up for Drew. Steve I understand you saw more transition disruption than you expected with the sales force for new license in the quarter. But you also said you were pleased with the new renewal team and their performance. I know it's their first-quarter of doing this, but can you quantify that at all? Were the renewal rates of maintenance or subscription worse, about the same, or better than it was before?

About the same. I mean we just got up and running and about the same on the renewal rates, but obviously much lower cost as we do this more with a different business model than we did with -- than we had with the old model John.

Okay great. And Drew, we were modeling restructuring costs to decline in this quarter, that's what we thought -- that's what we were modeling. But it actually increased. I guess can you talk a little bit about why that happened and how we should think about this when we're modeling going forward?

I think John. This is Steve. I think it's a little bit of the longtail we had in some of the countries outside the US and that's what happened. The total is still within the range that we talked about, but the timing was delayed based on some local market laws and regulations.

So should we see that sort of trail off now Steve?

I think we are for the most part I think it'll be done by the end of the third quarter completely but it will be a trickle I think in the third quarter.

Okay great. Thanks a lot.

We'll take our next question from Walter Pritchard with Citi

Steve I'm wondering if you could talk a bit about obviously it was possible that this outcome was going to happen given the transition that was underway. I wonder if you could just talk about any course corrections you have made in terms of your sales organization going forward, and if you have been able to implement or had implemented any changes as a result of the performance you saw in the September quarter?

Walter I think it's -- look life's about doing things, making decisions, reflecting on them, and learning as you go, and continuing to improve. I'm utterly convinced this was the right long-term decision for us. If I were to have been more prudent in my guidance, you guys wouldn't have believed me, so we just didn't know. And we were surprised at how -- but it's isolated to new license sales, it was about the same everywhere in the world so there was no geographic phenomenon. There was no government phenomenon, although we like others were a little bit less in government but that wasn't material to the results.

So what we've learned is that this transition from hunters to farmers and people getting it with a new coverage model and getting specialization was -- had much more impact than we thought. And we dug a hole for ourselves as you can see in the deferred revenue that we have to dig our way out of. I think this has been on the positive side a catalyst for us now to break down some of the barriers in the organization, and I think the team is collaborating more effectively now and I think this is going to make us much better. It's a little painful for all of us to go through this, but in the end we are going to be better off and I'm convinced the decisions we made are the right ones for the long-term.

And then just on the maybe for Drew on the employee count, it looks like you did actually have -- you had sort of -- you had a flat employee base into Q1, you had an increase in Q2 -- I'm sorry another decrease into Q2. Is that employee number relatively bottomed at this point? Should we start to see that build? Just to try to get a sense of some expectation around the employee number headed forward here coming out of the restructuring?

I think we've got -- this is Steve again Walter, we've got a lot of moving parts here and it's something that we are going to obviously take a hard look at. I think we are down 624 employees year over year. And so a big part of that is the management structure where we reduced 35% of our management. But it's something that we are looking hard at.

We have a ramp up as we are implementing some new IT systems, and so there's a bunch of things that are going in and out, but overall it's something that we are very focused on. But we are investing in a bunch of areas for the long term, and we are also finding redundancies and inefficiencies that are freeing up resources. So it's going to be a combination of investments and also reductions as we go forward, and I think that's -- we are going to manage this tightly and do the right thing for the long term and be thoughtful about the short term.

Okay, thank you very much.

We'll take our next question from Keith Weiss with Morgan Stanley.

Excellent. Thank you guys. I want to ask about in terms of the sales force disruption, to what degree is that just guys just figuring out their new roles and it's sort of an internal disruption if you will? To what degree did you see a higher-than-expected turnover or guys leaving involuntary departures of sales guys versus what you were expecting?

I think it's a really thoughtful observation. And look we have over 90% of our people in this coverage model had new responsibilities. And so I think it's just takes longer, you have to go meet new customers, it takes six to nine months for some of these products to build a pipeline.

I think we also have -- we had a lot of people leave that were probably farmers. I heard a bunch of stories anecdotally now of people that had interviewed with competitors. A competitor interviewed 20 of our people and they asked them all are you farmers or hunters, and one person said they were a hunter. So I think we've had a shift from keeping our hunters and letting farmers go, and I think that's a natural attrition, and my strategy is to have stronger partner relationships and fewer higher-impact, more highly compensated hunters, and then feed them these great new offerings that we have coming both through our sales force in the channel that we think are going to give us a real advantage in the marketplace when they start hitting.

So I think this is a more meta-combination, it's bigger than just salespeople. I think we're going to have more compelling offerings, dramatically more compelling going forward, and that will make it easier for our salespeople to book new business. So this isn't really about salespeople, it's about giving them better solutions to sell, better channel relationships, more support and enablement. We've talked about the fact that in the past our system was broken and our salespeople didn't spend as much time selling as at the industry norms. We are making progress on a lot of those fronts. We just had a big pothole here on new license sales, I think Drew said it was down about 30% year over year, and everything else was really within normal ranges, and I think a lot of it is for the points you -- just new people or people in new territories getting into their jobs.

And so we expect to do better in Q3. We expect to do better than that in Q4. And we expect to get our head above water in going into fiscal year '15. Obviously we're going to work hard to be the best we can be, but after this surprise we want to be prudent in how long it takes to dig out of this hole.

If I could perhaps sneak in one last one. Unfortunate timing if you will that you guys have this misstep or you hit this pothole right when FireEye is coming public and they're getting a lot of visibility into how well they're growing. Any commentary on the competitive impacts of guys like FireEye in the market, or maybe if we expand that a little bit further, hearing more positive things about McAfee in the market as of late, so maybe go over the competitive dynamics and any impacts that might've had?

I think this has always been a tough competitive market. And at the same time, I would tell you there's always a lot of focus on shiny new objects. We actually just launched a shiny new object, we call our Disarm Technology and our new messaging gateway product that ships next week, that we are pretty excited about as a feature that we think will be part of our suite to help customers protect themselves from APTs with a technology that we think is better in some ways than some of the other competitors, and so you'll learn more about that from us as we go forward.

I think this to be honest is mostly self-inflicted. I don't think that the competitive dynamic has changed dramatically. I hear noise like you say, I also just heard about somebody that ended a 12-year relationship with McAfee to come to Symantec. So I think you can hear noise in a lot of different things. I think in my view the competitive dynamic hasn't changed that much. We just -- this was self-inflicted wounds in the short term to win in the long term.

Excellent, I appreciate your time Steve.

We'll take our next question from Brad Zelnick with Macquarie.

Thanks for taking my question. Steve with overall bookings down 17%, year on year, can you give us a sense how much of that is disruption from the changes to the enterprise go to market versus your bookings performance with Norton?

I think that -- the great majority of it is enterprise. Norton is down year over year, but not nearly to the amount that -- and Norton was pretty much in line with expectations. So the big surprise was new license sales to business customers through directly or through the channel, which was down in the neighborhood of 30% year over year. That's really the driver, there's lots of things we could say to blame it on somebody else but this was the decision I made. I believe it was the right decision. I believe it will pay big dividends for us as we work our way out of the pothole that I created.

And Steve could you maybe just comment about the precision of your updated guidance relative to where it stood three months ago? Now that you've looked into the abyss and you've seen what we hope is the worst of the transformation, clearly all that you've done here was necessary and unprecedented and I'm hoping now that you have a greater handle you can maybe speak to the confidence you have? Thanks.

I would tell you that I have more confidence in the guidance we issued today than I did in the guidance we gave for last quarter because of the uncertainty. We don't -- to me it should be onward and upward from here, and we said this would be -- the second quarter would be the toughest quarter because we were making all these changes and we did the best we could. Look, we missed the low end of our range by $13 million, and but more importantly we missed on bookings of new license by around 30%. So I have more confidence on the guidance going forward. We did the best we could in Q2 and I'm disappointed that we didn't do a better job but we did the best we could.

Thanks again.

We'll take our next question from Robert Breza from RBC Capital Markets.

Hi, thanks for taking my questions. Steve, obviously disappointing results on the enterprise sales, I know you're going to be rolling out these changes going into Europe next quarter and then into the Asia Pacific region the following quarter. I guess how have you -- I guess what have you learned in North America here this past quarter that you're going to be changing as you go into the next two big geographies? Thanks.

I don't know Robert exactly what you're referring to, but we rolled out renewals in EMEA in the second-quarter, and I think in some parts of APJ the same thing. I'm not sure we are all the way there in APJ yet, but almost all the way there. What change specifically were you talking about to make sure I heard you right?

I was under the impression that you were rolling out the changes on the enterprise sales side across the geographies in a geographical roll out manner.

No, sorry we bit the bullet and did almost all of it around the world in Q2.

Okay thank you.

And to build on your point, and that's why as we looked at to Brad's earlier question or Walter's point, we looked at is there a geography problem here. No, actually all of the geographies were within a couple percent of each other of their new license booking miss, so it was a phenomenon that was not industry, geo, product, it was pretty consistent around the world. Which means I was the problem. I can't blame it on any of the of our geo leaders. It was my guidance that underestimated the impact of these transformational changes.

That's helpful, thanks.

Thank you. We'll take our next question from Aaron Schwartz with Jefferies.

Good afternoon. If we look forward now that you're through this quarter, you have a number of new products coming out, and I imagine we'll get sort of the product roadmaps at some point, but now that you've shifted your salesforce towards hunters, how are they communicating to their new customers when they're still a lot to come on the product front?

Aaron, it's such an insightful question. Let me share probably some inside baseball here. We are working really hard. We build engineering roadmaps that we shared with our team in July that, for these new roadmaps because we never really had multiyear roadmaps to solve our most important customers' problems. We are now learning and working really hard and I'm personally involved in building the roadmaps to put in the hands of our sales team to take to partners and customers and share with investors or analysts or whoever. And I would expect that by the end of this month, we would have some stuff to talk with you about that we are pretty excited about.

And I referred to this in my script where I said we have a great story. Every customer that I go out and talk to or Francis goes out and talks to, or Steve and Gillett is very excited, or people that come into our briefing center are very excited about what they're hearing about what we are trying to do. And actually many of them want to become development or lighthouse customers.

There's again a weakness of -- we haven't done as good a job as we need to getting those tools and stories into the hands of our sales people, and I think that's part of the reason why we had a bit of a stall here. We are working like dogs to get our salespeople the tools they need to tell this great story, and again I think this is part of our learning and self-inflicted wounds in addition to the transformation of all the roles. I think we will get a lot better on this a lot faster, and it's all hands on deck now to make it happen.

Okay. And if I could ask a quick follow-up. I mean I know you've spent a lot of time talking on sales management and the sales force and the changes you've made there. If we talk to channel partners, it seems like there's still some changes to come, perhaps there's maybe an evaluation period going on right now. But what are the major things to look for? You went through the sales model, you went through some of the product front, is there still change to come on the channel model in terms of pricing? What are some other things we should look for? Thanks.

No, I think Aaron, a very good question, and we alluded to it in my script but we're going to announce our new partner program at our North American Partner Exchange in Scottsdale in about three or four weeks. So the net of it is going to be -- in the past we treated everybody the same and everybody sold everything. And all of our incentives were volume based. I think -- net net you're going to see a much more -- a strategy much more aligned to having franchises of our products based on the channel's ability to sell and have the technical skills and capability to sell and service the customers and create demand, and we are going to change the economic structures to better reward and enhance the margins for the people that are -- have the ability to create demand and do a great job for customers and their commitment to us.

This will be a big change again. That we think is 100% the right thing to do and there will be some transition on this too, but for the long-term this is a very, very important part of changing our go to market. I think it's a huge opportunity now for us to improve our value proposition for the channel and the partners that have the kind of capabilities that we need, so we are going to be announcing more details around that in about a month.

Great, thanks Steve.

We'll take our next question from Greg Dunham with Goldman Sachs.

Thanks for taking my question. Clearly enterprise licenses was a challenge this quarter, down $63 million year over year, but billings was also down close to $240 million. What's the delta there? What else impacted billings for the rate that it fell? Thanks.

Greg, I don't -- do we know?

I would say new license is really what drove the billings weakness, right?

I guess if I just -- maybe I did the math wrong, I have licenses down $63 million year over year, and billings down $250 million. I just want to get the disconnect between those two.

That's what your model is saying?

Yes.

Yes, I'll have to let Helyn follow up with you afterward, I don't know the answer to your question.

Okay.

I think revenue overall was down, what 4% year over year, and it wasn't 100% license and the 4% is in the neighborhood of $65 million. So maybe our model and our results and your model don't match up, but we will let her follow-up with you on that.

Just one other element to that is very often along with the new license sales is new maintenance and other products, but it's the new license sale that's really the driver. The primary driver for that Greg.

Okay, thank you.

There's other things attached to a deal than license, that's only a small portion of it. We'll follow up with you, but that's the primary activity.

Thank you. We'll take our next question from Raimo Lenschow with Barclays.

Thanks for taking my question. Stephen, if you look at the discussion I have with investors you guys have obviously challenges on the top line because you're changing the model, but given where Symantec was as a Company on the margin side, there's a lot you can do. If I look at the new guidance now, it looks like the margin progression is much more closely aligned with what's going on, on the revenue side. Can you talk a little bit about how you think about this when the transition takes longer than expected, are you kind of willing to do something extra on the margins, or are we really kind of closely aligned margin close with revenue and that's it? Thank you.

Yes, I think it's a good question. We get new learning every quarter as we see how we perform. Look, I still believe that I'm still 100% committed we had a Board meeting this week, I said look I'm still committed to the 5% growth and greater than 30% margin targets. I think we have margin opportunities here because of our hidden factories and the way we've done things and redundancies.

And the big question still now is how fast can we drive growth, and I think the answer is we are investing in the products and we are excited about those, the customer feedback is great about that. We are changing all of these elements of our go to market from our sales model, renewals team, partner strategy, e-Business capability, all in the same year, we are making a lot of these changes. I believe they are all the right changes for the long term and I think we will get volume growth. And remember we are still in markets that are growing 8%, so we are taking a beating on the share front while we transform the Company.

But I think we are going to come out of training camp here and play a much better game and we are still committed to the financial numbers I shared in January. This is a transition year, we are changing a lot of stuff. We just hit a pothole, but we are still committed to what we said in January.

Thank you, good luck.

We'll go to Phil Winslow with Credit Suisse.

Hi guys. As you're contemplating your guidance for next quarter and the full year, was there one of the divisions that sort of stood out from the others as far as the reduction in the guidance whether it be information management or information security?

And then also just following up on Greg's question on deferred revenue, I understand that there was a miss in license, and then obviously your license feeds the beast of maintenance, but the decline in deferred seems to outstrip or would just be tied to new license growth.

Just to double check, I mean almost going back to John's question just to make sure there was no change in renewal rates on enterprise side or change in renewal rates on the Norton front and --?

It's all new license Phil, it's all new license, there's no change in anything else.

Phil, if you don't mind my adding, that very often there are other things bundled into a deal. New license is reflexive of just one piece of the sales activity, there is a maintenance attached to it, but there's often other products that would be a subscription or something else that would attach itself and build up that deferred. So the license is only a small percent of any individual transaction.

But it's the driver.

Yes, it's a reflection of the activity.

If you don't get the license, you don't have to worry about all the other stuff.

That's the point. What was your first question again Phil?

As you contemplate the guidance for the second half, if there was one sort of subdivision that stood out from the others as far as the reduction? And also just one quick one, you guys talk about a 3% to 4% decline in constant currency. If rates stay the same in March, what would be the full-year effect of currency?

While you guys are thinking about that -- I think the answer is there's no big positive or negative -- I think NetBackup is a great product for us, we have a new release coming that we are excited about. I think we might get some traction on that as we move through Q-- into the fourth-quarter, it's a big business for us and it's been performing well. Appliance have been great, we have some good things coming there. So I think we have a great information management business and we have a great security business.

But what we're -- but there's no pattern or anything in terms of one product versus the other. It's a general -- because we affected 90% of the people in our coverage model, so there's nothing that stuck out that's material in answer to your question about specific products and guidance and all that. There wasn't in the second quarter and there's not factoring that into our thinking in the Q3 or Q4. We will see if we've got -- do we know how much currency would be for the total year? Well currency adjusted was like 1.5 to -- the whole year.

Make sure we've got the question right Phillip, but we expect revenue for fiscal 2014 to be down 3% to 4% in constant currency.

Because you gave what your currency assumption was for December and the revenue impact for the December quarter, I was just saying if the rates stay the same in March as you assumed in December, what would be the full-year effect?

Phillip, we'll get back to you on that, we will post it. Thanks.

We will take our next question from James Westman with Raymond James.

Hey guys Michael Turits on for James Westman. The backup side of the business, it sounds like appliances were strong, Backup Exec is still challenged. Are you seeing any change in requirements of customers and in the competitive landscape on the backup side as we move towards cloud, are we starting to see new types of competitors, or are you going to market for your customers who now are having cloud requirements for backup any differently?

It's a great question Michael, and I just -- I was at a Gartner conference talking to their backup specialist, so let me give you -- his view is that for many businesses they're not going to backup into the cloud. So he thinks that people are way overestimating the backup. Now what we are doing is we are going to in our building backup capabilities whether they're on premise or in partnership with the cloud. And so I think our backup story is that backup remains strong, appliances, we had a softer quarter than we have been having, appliances remain strong and we are still digging our way out of the self-inflicted wounds we had from Backup Exec, which we have another release coming in the next six months that we think will really get our head above water there.

I think the market has started to change. And as fewer people buy servers, you buy a server in a small business, you generally buy backup. I think the market dynamics changed, which is why we are reinventing information management with some of the new offerings that we announced in January, because we want to solve a higher order problem for customers in backup. We still want to have the leading backup point solutions, but we want to focus on and have announced these higher order solutions too, like business BCP and some of the other things, the information fabric that we've been talking about recently.

I think the market is changing, I think we're making progress. There's a lot of moving parts now and we have to get our head above water on Backup Executive to get back on the full speed track.

Okay, thank you very much.

(Operator Instructions)

We will go next to Brent Thill with UBS.

Thanks. Steve I've gotten a lot of questions from your investors on the sales alignment, and I realize that you said the bulk of the realignment is done, but I'm curious if you could just drill into a little bit about what you actually changed or territories, quotas, if you could just give us a sense of what's changed so we can better understand what happened a little bit behind the scenes?

Sure, it's pretty simple. Say that in the past, you were a salesperson, a general salesperson this happened up through Q1. And your territory was Boston or part of Boston. Okay. What happened July 1 is you became either a information security or an information management specialist. Let's say the size of your account base probably doubled or your coverage territory probably doubled but your focus narrowed. That happened to over 90% of our sales people starting in July.

That's a pretty big change. Remember then in addition to that, and you're only focused on new license where in the past you were compensated and the bulk of your revenue or your activity your bookings was based on renewals. So the change is you became a hunter with a new territory with a specialization in either information management or information security. That's a big change to bite all at one time.

You've spent a lot of time in the software industry. When you think of the ramp that typically can be a six to nine month process for bringing someone new on, but given they've been there, do you feel like a six month ramp is kind of what you're thinking through in terms of getting them back up to full productivity underneath the new model?

Well the good news is we are through the first three months, and so I think you're right, I'm hoping it's three to six more months. I think, look, there's still a lot of uncertainty here and that's why we're prudent in our guidance. Obviously we're going to try to do the best we can do because we believe this is the right path.

I think the better job we do, the faster they will become more productive, and I shared some of the things we are doing now to better enable them and give them better tools. So we're moving as fast as we can, but I think we, being prudent think it's going to take another one or two quarters to get where we want to be, and I think we will be roaring, starting to roar when we go into fiscal year '15.

And so I think that's the best insight that we have, now it is a pretty massive change. Look, a bunch of you wrote about this and so there's no surprise here. The surprise is it was bigger than we thought that we -- so now we are working hard to recover. And the good news is as we get better on the sales structure settling and we have new offerings coming and we have a lot of new positive things that we think are going to help us gain additional traction too, so there's a lot of moving parts here.

This is not at all about our sales team or sales execution, it's really about the transition we put -- I put the sales team through and now what we can help them -- how we can help them with enablement and messaging to help them be even more successful going forward. So we have a strong sales team and they are adjusting rapidly and effectively to this. It's just a lot to digest in a short period of time.

Thanks Steve.

We'll take our next question from Pat Walravens with JMP Group.

Great, thank you. Steve, as I look, you have over 1,000 open positions listed on the careers part of your website. Are you having trouble attracting the kind of talent that you want? And what's your strategy there?

So that's a great question. This is a Company with 20,000 employees, and if you just look at normal turnover for a Company like this, if you looked at normal float, my guess if you went back for the last 20 years, you'd see 1,000 open headcount in a Company with 20,000 employees and 10% annual turnover.

The answer is we are getting great talent, we just actually had somebody accept that I can't talk about publicly yet for a very senior role in our products organization. We've hired people from Amazon, from Google, we are acquiring great people that want to sign-on and help us with the mission. And then in the sales front as we get these new offerings coming to market, I think we are going to make our salespeople look even smarter than they already are, because we're going to give them these compelling must-have products that solve these important customer problems.

I think we probably have some turnover and some of that would be expected. I mean if we had people that we were paying $200,000 or $300,000 a year to be a farmer, there aren't a lot of those kind of jobs around. I don't mind paying that kind of money or even more for a great hunter. So I think we're having a natural selection here, but we are not having trouble finding talent. And I think the 1,000 number you talk about is normal float for a Company of our size and scope.

Thank you.

Thank you. And it appears there are no further questions at this time, I'll turn the conference back over to our speakers for any additional or closing remarks.

Guys this was a surprising and disappointing quarter for me, but as I said, I believe everything we are doing we reflect and we try and learn and adjust and course correct, and what I would tell you I'm disappointed in the quarter, not about the performance that we underestimated the impact; at the same time I am never been more confident in our ability to win in this Company and based on the feedback I'm getting from our employees, from our customers, and from our partners.

So, we've got to dig ourselves out of the ditch here. We're working hard to make that happen. I think '15 through '17 we are going to be right on track with what we shared. It's just a little bump in the road or a big bump in the road here because of the disappointing bookings that we had in the balance of this year. We will work our way through it, we will learn from it, and we will be better, and thanks for all your support and help on this as we get through it. Good talking together and I'm looking forward to next quarter, where hopefully we have a lot better story.

Thank you. Ladies and gentlemen this does conclude today's presentation. We appreciate your participation. You may now disconnect.