諾頓 (NLOK) 2014 Q3 法說會逐字稿

Good day and welcome to Symantec's Third-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 third-quarter 2014 results. With me today are Steve Bennett, Symantec President and CEO, and Don Rath, Vice President and Interim CFO. In a moment, I will turn the call over to Steve to review our quarterly results and provide a strategic overview.

Then Don will provide highlights of our financial results, as well as discuss our guidance assumptions. This will be followed by a question-and-answer session.

Today's call is being recorded and will be available for replay on Symantec's investor relations website. A copy of the press release and supplemental financial information are posted on our site. Our prepared remarks will be available on the IR site 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 only. We use our published foreign currency rules of thumb in our guidance section for all constant currency growth rates.

Some of the information discussed on this call, including our projections regarding revenue, operating results, earning 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 the statement.

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

In addition to reporting financial results in accordance with generally-accepted accounting principles, 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 in the supplemental packet.

And now I'd like to introduce our CEO, Mr. Steve Bennett.

Thanks, Helyn, and good afternoon, everyone.

I'm please to report that total business activity, which includes new business and renewals, improved in the third quarter across all geographies and business segments as the critical changes we made last quarter to our sales organization began to take hold.

As we told you in October, these changes created short-term business challenges. They were necessary, however, to build a foundation for sustained profitable growth.

As our sales force focuses on gaining traction and building momentum, we expect it will take several quarters for us to build our deferred revenue balance and see positive year-over-year business activity.

Given the significant changes we are making at the Company to position us for long-term success, I am pleased with our financial performance this quarter. We expanded operating margin by 370 basis points and grew non-GAAP EPS by 13% year over year as lower spending and increased organizational efficiency offset the decline in revenue.

It's been a year since we announced our strategy to transform Symantec to get the Company on the right path for sustained long-term organic growth. To drive value for our customers and partners, our strategy is focused on three pillars.

Offerings. Leverage all of the Company's technology assets plus partner and acquire to deliver innovative offerings that solve important customer problems better than anyone else.

Go to market. Redesign our channel strategy and build our capabilities to improve sales and marketing effectiveness and efficiency.

And third, work smart. Improve execution by strengthening our processes and infrastructure so we are easier to do business with, execute with more consistency, and are more efficient.

To remain competitive in a fast-changing market, we knew Symantec needed to fundamentally change. During the first half of 2013, we focused on planning and preparing for that change.

We created the offering strategy, completely redesigned our go-to-market plans, and functionalized and simplified the organization structure. For the last two quarters we've been focused on execution, implementing these changes.

In July, we made the following changes to our sales organization: split the sales organization into renewals and new business teams; changed the roles of our direct sales force to focus on new business only, with a specialization in selling either information management or information security; and we launched our centrally-managed renewals team, which is focused on adding value by extending the customer relationship and making it easier to renew and do business with us.

These were critical changes that altered the coverage model for more than 90% of our direct sales force.

Now that the structure of our sales organization is in place, we are laser focused on the critical levers that drive new business and renewals.

We continue to make progress on redesigning our channel program. In November, we unveiled our new global channel strategy; and feedback from our most valued partners has been positive. The strategy is built on different kinds of partner competency and designed to recognize and reward the value our channel partners deliver to customers.

Partners will be rewarded for making investments that build skills that support the delivery of comprehensive solutions and improve customer satisfaction. It will substantially improve channel execution by helping us build deeper, more meaningful partner relationships.

We will share more details of the new Partner Program, what it looks like, how it is different and what it means for our partners at our EMEA Partner Engage Event in Budapest in February.

We also recognize that the way people, business and government secure and manage information also needs to change. Customers need our help removing the complexity inherent in securing and managing their information.

Customers need unified security that is multi-tier, multi-layered, integrated, automated and delivered as a service. And a new concept we've termed information fabric, to help them effectively protect, manage and derive value from their information regardless of where it is stored. Plus have control and visibility over all their data across private, public and hybrid clouds so they can better policy and compliance.

In the past, we focused on winning with a strong portfolio of individual point solutions, and growth was dependent primarily on acquisition. We never really integrated the technology in a way that added value for our customers, so organic growth was not a priority. That's changing with our new strategy.

We will continue to invest in our leading-point solutions -- they are foundational -- while at the same time delivering new and higher value-added offerings that solve important customer problems better than anyone else.

With our new strategy, we are executing against all three legs of the build, buy and partner spectrum. On the buy front, we plan to announce several small acquisitions over the next couple of quarters that will help us accelerate the progress of our strategy.

We are focused on acquiring technology and engineering teams that accelerate our progress in delivering innovative new solutions that win in the marketplace. Core growth will come from integration and home-grown innovation. This is clearly our number one growth priority.

And these strategic tuck-ins will be slightly dilutive to our financial results in fiscal 2015. More on that as we get into the next fiscal year.

On the offering partnership front, we are working to create ecosystems, help the industry deliver both unified security and information fabric to solve these larger customer problems. It takes an ecosystem and an integrated holistic approach because no company can do this on its own.

We recently announced a partnership with Cisco to integrate technology into their application centric infrastructure, or ACI architecture. This partnership helps us extend our leadership into the infrastructure automation space while enabling us to dramatically accelerate our vision of unified security.

We continue to work with several customers to integrate next-generation firewalls with Symantec endpoint protection using our managed security service.

This initiative is an industry first and will provide a new set of enhanced advanced-threat detection capabilities that will enable our customers to automatically prioritize and provide comprehensive contextual intelligence for incidents based on correlation between network-based advanced-threat detection, end point security, and Symantec's global intelligence network.

We've delivered several important point products as we continue to execute on upgrading our leadership offerings. Storage Foundation 6.1 was released in December. It includes a disruptive new capability that abstracts in-server memory, allowing the sharing of flash storage across servers without the need for expensive storage hardware.

We offer the only vendor-agnostic solution providing these benefits, so customers can run any storage configuration while managing performance and redundancy entirely through software.

NetBackup 7.6 was released last week which is centered on market-leading VMware support that empowers customers to protect the largest, most complicated environments. As IT organizations move to software-defined data centers, they can now simplify and automate the protection of massive and complex physical, virtual and cloud environments which are the building blocks of a modern data center.

NetBackup 7.6 is the only back up product designed for enterprise-level scale, which can accommodate hundreds of thousands of virtual machines and petabytes of data while giving customers 400 times faster recovery.

We're offered making solid progress in bringing our new integrated solutions to market. We launched Mobile App Center 4.3 this month, an important enhancement to our integrated mobile workforce productivity solution released last February.

Central to this release is the Symantec Sealed Program, which delivers enterprise-class security and control for both internal and third-party apps on both iOS and Android operating systems. This functionality, coupled with our existing enterprise mobility management capabilities and the recent release of another one of our integrated solutions, Norton Zone, enabled our mobile customers to secure and access their corporate data anytime, anywhere, on any device.

Our strategy is the same, but some of the specific offerings we announced have changed as we've learned more and our thinking has evolved. For example, last January we announced integrated backup as one of our 10 new integrated offerings.

However, as part of our ongoing product design, we determined to incorporate integrated backup into the NetBackup product roadmap. So we won't launch that as a standalone offering.

With regards to a couple of the other new offerings announced, Internet security service and information fabric, we think these are larger, more comprehensive and more powerful concepts that combine our point offerings, our integrated offerings, plus partnerships to change the way security is delivered and information is managed in the future.

Customers and partners are a critical part of the process. Feedback from key customers and partners on our multi-year road maps has been very positive. We also plan to share publicly a more comprehensive product strategy with customers and partners at our Vision Event in early May and with investors at our Analyst Event in late May.

As I look back over the past 12 months, we are exactly where I expected to be at this stage of our three- to five-year transformation. We are executing against our long-term vision and making short-term progress as expected.

We said FY14 would be a transition year, and I am pleased with the progress we've made. We plan to grow earnings per share by mid-single digits and deliver more than 100 basis points in operating margin expansion for the year, despite the difficult changes we have undergone.

We are still focused on our 5 and 30 objectives in the FY15 to FY17 timeframe.

However, to drive organic revenue growth, we need to invest in our offerings and other growth enablers in FY15. We will continue to identify and eliminate redundancies and hidden factories to drive improved efficiency and better resource allocation across the Company.

We still need to dig our way out of the deferred revenue hole we dug this year, which will impact revenue in FY15. We expect further operating margin expansion to come in the fiscal 2016 and 2017 periods, as we focus on rebuilding our business activity and positioning ourselves to win in the future.

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

Thank you, Steve, and good afternoon. We're pleased with the financial results delivered in the December quarter, given the substantial changes our Company is undergoing.

In the December quarter, organic revenue declined 4.5% year over year; and revenue declined 4% to $1.7 billion, driven by the significant changes implemented in our sales organization. Both total business activity and license revenue improved this quarter compared to the September quarter.

License revenue declined 27% year over year; while content, maintenance and subscription revenue was flat. In aggregate, 88% of total revenue was ratable.

Our total subscription revenue grew 1% year over year and accounted for 44% of total revenue compared to 42% of revenue in the year-ago period. Enterprise subscriptions, which excludes Norton revenue, grew 2% and accounted for 14% of total revenue, in line with prior years.

Turning now to our business segments. Our User Productivity and Protection segment declined 4% to $718 million. Flattish performance in our endpoint businesses was offset by continued weakness in endpoint management.

GAAP operating margin for this segment was 37%, up 6 percentage points year over year due to lower sales and marketing spend. The Information Security segment declined 1% to $327 million.

Continued growth in our authentication and DLP businesses were offset by weakness in our mail, web and data center security businesses. GAAP operating margin for this segment was 20%, compared to 8% in the year-ago period, driven primarily by lower sales and marketing expenses.

The Information Management segment declined 7% to $660 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 2 percentage points year over year to 27% due to growth in our appliance businesses and lower sales and marketing spend.

Turning now to total Company margins, non-GAAP gross margin declined 20 basis points year over year to 84.5% due to continued growth in our appliance and hosted businesses. Non-GAAP operating margin was 30.1%, up 370 basis points year over year, due to two organization simplification benefits, lower sales and marketing spend and slower-than-expected hiring.

Non-GAAP net income of $358 million resulted in fully-diluted non GAAP earnings per share of $0.51, up 13% year over year as reported, driven by benefits from our organization simplification initiative, reduced spending and slower hiring.

Deferred revenue was $3.6 billion, down 5% year over year, driven by lower business activity as we rebuild our new business and renewals streams.

We exited the quarter with cash, cash equivalents and short-term investments of $3.9 billion. Approximately 42% of our cash resides onshore.

In the December quarter, we returned $229 million to shareholders through a combination of share repurchases and dividends. On December 18, we paid a $0.15 per-share dividend for a total of $104 million.

We also spent $125 million to repurchase 5 million shares at an average share price of $23.76. Symantec has $783 million remaining in the current Board-authorized stock repurchase plan.

Cash flow from operating activities for the December quarter totaled $329 million, down 29% year over year, driven by severance payments and the impact of lower business activity on collections.

Now I'd like to review guidance. For the March quarter, we expect revenue to be in the range of $1.615 billion to $1.655 billion, compared to $1.748 billion in the year-ago period. Approximately 73%, or $1.2 billion of our March quarter revenue, is estimated to come from our balance sheet.

We expect GAAP operating margin to be in the range of 18.0% to 19.5% compared to 14.6% in the year-ago period. Non-GAAP operating margin is expected to be in the range of 24.5% to 26.0%, compared to 24.1% last year.

GAAP earnings per share are estimated to be between $0.29 and $0.31, as compared to $0.27 in the year-ago period. Non-GAAP earnings per share are estimated to be between $0.40 and $0.42, as compared to $0.44 in the year-ago period.

Our guidance assumes an exchange rate of $1.36 per euro and an effective tax rate of 28% for the March quarter. We expect common stock equivalents for the quarter of 702 million shares.

As part of our enhanced capital allocation strategy, we will issue a quarterly cash dividend of $0.15 per share. Payment will occur on March 19 to shareholders of record as of February 24. In addition to paying dividends, we will also continue to buy back our shares.

Our FY14 results will be higher than the guidance we provided last quarter due to better-than-expected third-quarter results. We expect FY14 revenue to be in the range of $6.666 billion to $6.706 billion, compared to $6.906 billion in the year-ago period. We expect GAAP operating margin to be in the range of 17.6% to 17.9%, compared to 16% in the year-ago period.

Non-GAAP operating margin is expected to be in the range of 26.9% to 27.2%, compared to 25.5% last year.

GAAP earnings per share are estimated to be between $1.25 and $1.27, as compared to $1.06 in the year-ago period. Non-GAAP earnings per share are estimated to be between $1.85 and $1.87, as compared to $1.76 in the year-ago period.

And now I'll turn it over to Helyn so that we can start taking your questions.

Thank you. Travis, 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'll be presenting at the Morgan Stanley Technology Conference on March 3 in San Francisco. And we'll be reporting our fiscal fourth quarter and full-year 2014 results on April 30.

For a complete schedule of our investor events and materials, please visit the events section on the IR website. Travis, we're ready for our first question.

Walter Pritchard, Citigroup.

Hi Steve, I wonder if you could talk a bit about it looks like your larger deals actually the deals over $1 million were flat year over year which most of your other metrics here are showing a decline year over year as you move through this transition. I'm wondering if that's at all leading indicator of what you're seeing and maybe update us on in general where you think you are with the sales for transition and what we should look for going forward in terms of signs of improvement further?

Thanks, Walter. I think that -- think deals flow in and out during the quarter so I -- when you look at it statistically, there's not a lot of variation that I see. I think where we are as we said when we made these changes that it takes two to three quarters for people in new territories to build the momentum, and I think we saw the progress.

We've said that we expected Q2 to be the floor. We expected Q3 to be better and we expect Q4 to be better. The pipeline looks pretty good.

I think in using the terminology language you guys use, it implied [billings]. We were down 9% in Q3 and our current guidance look -- makes us down 5% in Q4. So I think we continue the trend, there's not a lot of new news other than I feel like we're stable and we're now in operating mode in there's not a lot of restructuring to happen. We don't expect any changes to the field really as we go forward in that FY '15, so now it's just, can we put the points on the board.

And then related to acquisitions and further spending, it does sound like your upticking your plan to some degree there around what your OpEx plans are for 2015. Can you talk through at a high level what the puts and takes are to 2015? It does feel like there probably still some expenses to come out of the organization and then also it sounds look you're adding some investment back in.

Yes, I think we're still in the middle of really working through all the details. It's an interesting thing. We're trying to balance three things and I talked to the Board about and I talked to the team about, we have to invest in the things that are going to help us drive long-term growth, number one. Number two, we have to continue to work to get out inefficiencies and redundancies in our Company. And because of the decentralized fragmented nature and really the operational opportunity is quite larger here, and the question is how do you change the tires while the car is moving on some of those things and change the way we do the work.

And then third, the third element is obviously margin expansion so that we continue to make progress in line with our 5 and 30 target. So we're right in the middle of going through that right now as we plan for the future and we've got some tough decisions to make to try and find the sweet spot between all three of those elements.

Great, thank you.

John DiFucci, JPMorgan.

Steve, it's nice to see you hit the numbers, or actually you exceed a lot of your numbers this quarter. But license was still down meaningfully, down 27%. Realize you're going through a transition here.

But has there been a change in any of your previous license model businesses of late moving towards the subscription? The Backup and recovery, are more people starting to consume that wanting to buy a subscription or are still licenses and is what we're seeing something that we should expect to get better as time goes on as your transition, your business transitions progresses?

I think we've had really no -- I think this is a real number. I think other than a slight mix shift where enterprise subscription revenue grow to 14% of total, there's been no catalyst or trying to force people to move from A to B. So I think the -- pretty much the 27% is what our team delivered in the quarter. There's no unusual efforts on that.

But as we go forward I think ultimately we expect the mix shift to subscriptions to continue in Symantec like we've seen. But I think that's the performance on creating new business activity and that's part of the opportunity we have as we go forward.

Okay, great. And if I might a follow up, you talked about Information Fabric and Unified Security and both those strategies are going to require, and you talk about it, you to work closely with a lot of your partners. I guess can you talk a little bit more about what's happening internally?

Is there a head of partners, like somebody that's trying to organize this that reports to you? And maybe talk a little bit other than the Cisco partnership you mentioned. And Symantec's had some level of partnership with Cisco for a while. What's been happening there? Especially with maybe the network security vendors who you don't really compete with but somewhat complementary.

Yes, no we hired a very strong woman, Roxane Divol, who was a McKinsey partner for 16 years and she joined our team in I think September. She runs the partner and alliance program for us, she's a direct report to me.

And partnerships, offering partnerships become an integrated -- a very important part of the strategy as you talked about, John. And so we're pleased that she joined the team and we're really starting to get some traction there.

And look I think it's safe to say that these two Unified Security and Information Fabric are concepts that solve a big customer problem and they're multi year outcomes. So we're going to continue to deliver lots of our point solutions and our integrated offerings and partnerships with respect to changing the way information is managed and security is delivered.

With respect to network security partnerships, we've got now I think with one of the leading next-generation firewall companies, we've got five customers that are running this pilot we described. And we're working on the announcement, timing on that whether it'll be at Vision or RSA or their user conference.

And so look I think we want to get enough learning to do that, it's taken us sometimes longer than I thought but it's clearly the right thing and the feedback is really exciting. And I think it's going to connect the endpoint and the network in a way that we think will be better than what other people are able to do.

Great, thanks, Steve.

Greg Dunham, Goldman Sachs

You have done a good job of improving operating margins and especially in the user productivity segment despite the decline in growth there. How much of that improvement has been due to lower OEM fees and can we expect that type of margin going forward? Thanks.

I think Greg part of it is due to lower user OEM fees. And so I think that'll be a one-time event that factors in through the year as opposed to all at once based on the revenue. But I think that'll be a one-year special costs change that will lift margins.

I think longer term, we're working on a lot of interesting things in that business to integrate the technology stacks were we had four redundant stacks between Altiris, Symantec Endpoint Protection, Norton and our mobile teams. And so we're working on some interesting things that are going to be more platform nature to do it once and serve all of the mobile devices that our customers want to manage, not just mobility or SEP or Norton or Altiris.

And so those things we're making progress on that. And so I think over time we have an opportunity to be more efficient in our engineering spend in that business as we eliminate all these silos that were all playing their own game in the past.

And so one-time event on the margin improvement from the OEM fees. A big margin improvement opportunity on eliminating redundant technology and doing a better job for customers that'll come out too over a longer period.

Okay, perfect, thank you.

Brent Thill, UBS

Steve if you could give us an update on the innovation pipeline with some of these new products, I know there's a lot of questions? And also how you think about the addressable market for mobile APT and cloud apps, get a lot of questions around that? Thanks.

Yes, Brent. We're actually going to go through interesting tomorrow with our employees the road map for the next four quarters, a combination of all the key releases for our existing point offerings and also all the new what we call 4.0 new integrated offerings and it's actually quite an interesting list. And so I think that'll be the foundational elements that we share with at Vision and our Investor Day in May. So stay tuned for more details on that.

But we're busy beavers working really hard to execute. We launched the mobile workforce productivity or the apps center that I mentioned that's getting really good reviews. So we have a lot of good stuff coming. It takes a while.

I wish we could go faster, we're working on that. But it was only a year ago that we announced the strategy and then change the whole structure. So I think you'll start us to pick up traction as we now are in operating mode and move forward.

And a lot of the focus now that we're working on is to integrate what we do with others to provide, and integrate what we do with ourselves, to provide leading advanced threat protection. We believe we have as much or more capability than anybody else. We just had it dispersed in a bunch of different products and we haven't marketed it particularly effectively.

So big focus on mobile, a big focus on APT and we think we're making progress. Now the world is moving fast, so we got to pick up our pace. But the feedback we get is from a lot of customers, if you can build what you're saying, we want to buy it. So we're moving as fast as we can.

To follow up on that Steve. I think you've articulated that you had laid out some pretty thoughtful road maps that customers can see. And the question is given those road maps, perhaps maybe they didn't see that in the past from Symantec. Are you seeing some of the customer step up with orders now realizing that there's more to come and they're willing to commit on other products with the willingness to commit down the road?

We're seeing that -- exactly we're seeing that on our mobile offer where people like the architecture and the path we're going. And so yes on mobility. On the other things, I think it's safer to say that we are -- the customers are telling us we are describing a solution in both Unified Security and Information Fabric that resonates with them. And they want to the lighthouse customers to be part of helping us shape the development and how that evolves.

So we have a lot of work to do to now build and stitch the components together to deliver on that concept for our customers including the partnerships that John referred to. So I think the answer is on some things yes we're getting people to buy into the multi year road map and architecture, and others the best we're able to do is get people that are on the earlier stages to want to be lighthouse customers. And so I think that's probably the most accurate description I can give you at this point.

Thanks, Steve.

Aaron Schwartz, Jefferies.

Steve, you talked a little bit about -- I'm seeing some stability in the business coming through Q2 which you indicated was a more disruptive quarter. I guess the question I have is you've described a lot of product coming out here. You've also talked about partnerships and integrated offerings.

Given the change in the sales model and holding the bar higher for your sales organization, how do you keep the focus to make sure they're moving product that's important to your P&L and not get diluted? Maybe enjoying go to market with partners and get lost in that phase? That seemingly is always a little more difficult for companies in joint go to market models.

Aaron, you must have sat in our staff meeting yesterday. Because we talked exactly about what you talked about is we actually went through the economic levers in the models for both our Symantec business and our Norton business to make sure the top 25 people in the Company all understand with very clear, with a high degree of clarity, the levers and how the decisions we make on renewals and new business and what we discount and what we don't discount contribute to our financial road map. And so we are going to go through the same data with our top 150 people in the Company next week.

And I think you were over the target of something that I think is a huge opportunity for our Company which is to really focus our resources on selling deals and transactions and customer relationships that we make money on as opposed to treating $1 is a $1. And this is a big change for us to move from bookings to selling the stuff that creates lifetime customer value.

And we talked about this in great detail tomorrow and we're going to as I say talk about it next week. So we're going to be much more focused with the right metrics and execution on the commercial side.

Our team is very excited about this. It's a big change from history and it'll take us a while to make it all happen, but there's a lot of low hanging fruit for us in my opinion in this area from better Management, leadership and a more strategic view of decisions and how they impact the financial levers.

Okay and a quick follow up, if I could on the M&A comments. I know you said these are small and really just tactical deals. But is there any words of wisdom you could give in areas that you're looking at or are these deals that are already agreed on in principle? Or could you add any more color onto that? Thanks.

Yes, I would say, and hell might be nervous, but I think all four of them will add up to less than $200 million. So that's the size. We're at various stages in all of these.

They are all directly correlative to Information Fabric or Unified Security and building on our capabilities in the integrated offerings that are part of that. And so I think when we make these, it'll be readily apparent in the logic for the transactions. ¶ And as I said, we're buying engineers and technology to help us go faster as opposed to buying revenue. And so we're quite excited about that and we think it's just another focus of playing offense to move faster.

Complement our organic growth focus not to in lieu of. And so it's -- the organic growth focus is number one, and these will help us accelerate progress. And so stay tuned we should have some -- we're giving you a little foreshadowing on that. We'll have details to come as we go forward, but in total they all add up to less than $200 million.

Great, thanks, Steve.

Raimo Lenschow, Barclays.

Thanks for taking my question and congrats from my side. Quick one, Steve, you're now a good few months into the sales force reorg, can you tell -- help me understand a little bit better how things are going especially renewal teams how they're setting up? And how is it for the established [sales going to] start selling on your product side since in the past there were coms on renewals. And so it's a big cultural change for them, how is that progressing from your perspective? Thank you.

Yes Raimo, I think it's -- this is why it takes a while. It is really a big change to separate renewals from new business and take people that had been paid on a blend, but primarily renewals to all of the sudden say okay, you're going to be paid only on new business. And so -- and then plus we have to stand up the renewals team as a separate entity.

And so I think we're going through the learning curve as anytime you go through something so significant, you have -- you learn a lot of things and you see things that you have to adjust and adapt to. I think we're gaining traction. They're still more we have to do on both fronts, which is why it takes a while for this kind of massive change to take hold.

I think what's happening is we're getting better every day and stabilizing. I think the new offerings start to come, the new channel strategy starts to have similar positive impact. And it -- look it's why we're pleased with the quarter but we're not happy. I'm not going to be happy until we get new business activity and revenue is growing, but it's my judgment that we had to go through this massive change of basically everything we did from offering to go to market to marketing and sales to win in the future.

And so I'm actually quite pleased that we're absorbing all this and delivering what I consider to be a pretty good year given all the challenges. But every day we're getting better and I don't see any big disruptive things coming, it's just how fast can we digest and learn and adapt and get these new offerings and market so that we can get some more sizzle in the market. We've been starting to make progress, but we lost a little bit of ground in the transition which is understandable.

Yes, okay. Perfect, thank you.

Brad Zelnick, Macquarie.

Thank you very much for taking my question and it's good to see your performance improved from last quarter. My question Steve, is around Norton, is it fair to assume that Norton bookings were flattish year on year given the comment for overall endpoint protection? And also hoping you can comment on the status of your relationship with HP, which I think came up for renewal pretty recently? Thanks.

Yes, I think, Brad, all of the endpoint business I think as Don said in his script was relatively flat. And I think we're going to see some pressure on our new user acquisition based on how some of the OEM agreements have sorted out.

I think the opportunity for us to take a lot of money that we were investing in that channel and acquire customers directly and build a digital first marketing direct capability. And so I think we had invested a lot of money in the Norton business and channels were our lifetime customer value was not what we would really like.

And there are other channels that we had under-invested in where the lifetime customer value is very strong. So this is again something we talked about a great detail yesterday at our staff. And I think we need to move faster, are in the process of moving faster to channels that are -- were we can create more profitable lifetime customer value and this is a big transition that's going on.

We're also launching for the first time Norton-branded small-business solutions which we -- I think will be an interesting pilot to try and extend and expand the Norton offering because I think for small businesses under 25 or 30, market I know a little bit about from my Intuit days, we think Norton is a more powerful brand than Symantec and we think that could be a nice life extension. So we're working on all of the levers to I would call it life extend the Norton business.

At the same time I would tell you I think it's -- we have to solve a new customer problem to get that to be a growth business and be accretive to the 5 and 30 plan and that's something that we're working hard on doing.

So that's really an update from my perspective of Norton. And as we've talked about, we think we can deliver increased cash flow in the Norton business for quite a few years based on cost and redundant technology and exiting deals that weren't financially attractive to us.

The question is, can we find a new customer problem to solve for Norton that will help us get back on the growth trajectory. And we're working on that. If you can great, if we can't we have lots of other growth opportunities that we think can create real value for shareholders. So probably more on that in -- at the May session.

Thanks, and one quick follow up, Steve. I know you're not going to guide, or I don't believe you've guided to deferred revenue this quarter, but as we model out billings typically in the past sequentially we would see them up from Q3 to Q4. Is there any reason we shouldn't expect that this year as well?

I think that -- I guess I would answer, I'll see if Helen wants to answer that one or Don. I think -- look I think the implied billings, and you heard us talk about this now for the first time, actually think the way the street measures this is a good way to measure it.

Putting revenue change with deferred revenue up or minus. And we're actually thinking more about running our Company the same way you have measured us. And so we're still trying to figure out what that means because I actually think the way the street keeps score here makes sense for us to be thinking about the same way. And that's a big change for how we used to think about it.

And so I'm answering your question in a more philosophical fashion. I think we're trying to figure out what that means going forward. So at this quarter, let me leave it for that.

I think the big thought is we did when we -- when bookings went down so far in the second quarter, and even in the third quarter where they're down year over year, we have created a bit of a deferred revenue hold that we have to dig out of next year as we look at our revenue plan for next year. I mean that's really the answer to your question.

And there's some pressure for us now on growth in FY '15 based on our new business performance and our deferred revenue slide this year. I think down 5% year over year, if I remember the number right here.

Okay, thanks again for taking my question, Steve.

We can follow up on that too Brad with regards to the actual deferred revenue. We would expect it to be up sequentially, probably around $3.8 billion is probably around a right ballpark to be thinking about.

Yes I think you could infer that from the guidance.

On the guidance we've given.

In Q4?

Yes.

Okay.

That's helpful, thanks.

Phil Winslow, Credit Suisse.

Looking at results and one of the things that jumped out versus consensus expectations was that information management line. And I know you guys had some struggles there with things like the Backup Exec release about a year ago.

Where do you think you stand there? What are you seeing in that market especially from a pricing perspective but also where you guys stand with your products right now? Thanks.

Well I think we're the clear leader in that Backup especially as managing information in these more complicated large corporate data centers gets more and more challenging. But I think with respect to BE, I think we don't have our head above water yet.

We have a new release coming midyear, mid calendar year. We think it's going to have some real nice features, fix the UI and actually become compatible with what Microsoft R2 released, if I remember right.

So I think we have been a little bit slow on platform support and I think that's something we're addressing to change our development process to be a faster cycle on platform support and separate that from our big more annual or 15 month releases. And so I think there's a bunch of stuff we need to do.

Backup Exec though is one of the pressure points, Altiris is the other pressure point in information management. So we're doing well on some fronts like appliances and NetBackup appliances, but those other two products that are putting a little pressure on us over the -- in the short term.

Got it. Thanks, guys.

Michael Turits, Raymond James.

Mike are you on the line? As we're waiting to hear from Mike, do we want to move onto the next question and then if Mike is available he can dial back in?

Or he's on mute.

Let's go to the next question, Travis.

Keith Weiss, Morgan Stanley.

Steve, very much appreciate all the transparency you're giving us into this transition on the call. Really [unprecedented] into the Company's [back cover] so a great deal of detail and I appreciate that.

The question is about operating margins and the operating margin commentary about FY '15. I want make sure that I was correct in what you were trying to get across that more of that operating margin gains take place in FY '16, FY '17.

It seems like part of that should come from the acquisitions but they seem relatively small what you're acquiring. Is there an element of reinvestment going on. Where are those key areas of reinvestment that you guys think, if that's correct, that you guys think you need in FY '15?

No, I think that's exactly right, Keith. We -- look this is an industry where you got to have leadership products to win. And this is a big change for us to invest in our own ideas, which we're pretty excited about. And so it's balancing the investments we need to make to win in the marketplace with how long it takes us to get some of the efficiencies out of our inefficient structure and redundancy.

And so as I said we're in the middle of the planning process for that and we're going to know a lot more about that. I guess it's safe to say I wouldn't expect the same kind of margin expansion in FY '16 or 2015 that you're going to see this year from us because we are investing in growing. We're in this for the long term and we believe that we're on the right path. And as we get these new offerings and get our go to market properly aligned, we feel comfortable and confident we're on track for the 5 and 30.

But we have a lot of execution to do between now and then. And so we don't have any of the details including how many of these deals get done and what their impact is, so stay tuned, we'll have a lot more for that when we combine guidance.

I guess we're giving you a little foreshadowing to not to expect the same kind of -- don't just model what happened this year that might not be accurate as we think about going into FY '15.

If I can sneak in one follow up. In terms of the sales hiring, I'm sorry, the overall hiring this quarter being slower than expected, was that purposeful. Was that the plan that you slow down the pace of hiring or was it, it's a difficult hiring environment a lot of competition for engineers and sales guys and you just weren't able to hire up the plan?

I think our eyes were bigger than our stomach. I think we wanted to hire, we did not shut down any -- we're still investing, we just could not bring on, now we have high standards, so we're not trying to hire to fill bodies, we want to hire great people.

We just were not able to bring in as many great people in multiple areas that are going to drive growth. And I think that's -- I think I say our eyes are bigger than our stomach, we wanted to hire, we didn't shut down hiring.

It's just we're not going to compromise our standards and it's taking longer in some cases to bring the talent on board. And so we'll factor that into our thinking as we go forward and our hiring plans for FY -- the fourth quarter and FY '15.

Excellent, thank you for the time.

It appears there are no further questions at this time. Mr. Steve Bennett, I'd like to turn the conference back over to you for any additional or closing remarks.

Well thanks, everybody. I think the thing I would say in summary at 10,000 feet is I think the quarter turned out pretty much the way we planned that we wanted to show progress. We did a little better than we thought, I was pleased about that.

The pipeline looks pretty good, so I'm cautiously optimistic about the fourth quarter and the momentum we have going into FY '15. At the same time we over delivered because we under spent, mostly on hiring. And so I think that is something that we're pleased with the short-term results, but until we get into positive new business activity or positive revenue growth, we won't be happy.

And so rest assured we're paddling as fast as we can to take cost and redundancy out, invest in things that are going to make us easier to do business with and drive growth, and balancing growth with investments, cost reduction and margin expansion as we go into our thinking for FY '15.

So thanks for your support and hopefully our discussion here give some insight for all of you on how we're thinking about things today and maybe going forward a little bit. Talk to you next quarter, bye.

That concludes today's conference. Thank you for your participation.