諾頓 (NLOK) 2015 Q2 法說會逐字稿

Good day and welcome to Symantec's second-quarter 2015 earnings conference call. Today's call is being recorded. At this time I would like to turn the call over to Ms. Helyn Corcos, Vice President of investor relations. Please go ahead.

Good afternoon and thank you for joining our call to discuss second-quarter 2015 earnings results. By now you should have had the opportunity to review a copy of our earnings release and supplemental information. We've also posted a presentation that complements our prepared remarks. If you have not reviewed these documents they can be found on the Investor Relations home page. A copy of today's prepared remarks will be available on the website after our call is completed.

Participants on today's call are Mike Brown, Symantec's President and CEO, and Thomas Siefert, Executive Vice President and CFO. This is a live call and will be available for replay via webcast on our website.

I'd like to remind everyone that we provide year-over-year constant currency growth rates in our prepared remarks except for statements about net income and EPS. All references to financial metrics our non-GAAP unless otherwise stated. Also, implied billings refer to revenue plus the change in sequential deferred revenue. And we've provided a trended history of this metric in our supplemental information on as reported rates.

I would like to take this opportunity to highlight a few dates for you. Thomas will be presenting at the UBS technology conference on November 19 in San Francisco and at the NASDAQ conference on December 3 in London. And we intend to announce our third-quarter earnings on February 5.

Please note non-GAAP financial measures referenced during this call are reconciled to their comparable GAAP financial measure in the press release and supplemental materials posted on our website.

Today's call contains forward-looking statements based on the environment as we currently see it. Those statements are based on current beliefs, assumptions and expectations, speak only as of the current date, and as such involve risks and uncertainties that may cause actual results to differ materially from our current expectations. Please refer to our cautionary statement in our press release for more information. You will also find a detailed discussion about our risk factors in our filings with the SEC, and in particular in our annual report on Form 10-K for the year ended March 28, 2014.

And now I'd like to introduce our CEO Mr. Mike Brown. Go ahead, Mike.

Thanks, Helyn. We are pleased with the progress we're making with our priorities to improve growth and operating margin, and with the momentum that is building in our businesses. We had a solid quarter with both operating margin and EPS exceeding guidance, and with revenue coming in line with our expectations. We drove 150 basis points of operating margin expansion by driving toward an improved long-term cost structure for the Company.

Additionally, implied billings grew 12% year over year on a constant currency basis, but was down 1% due to the depreciation of the euro. We're seeing more large deals with the number of $1 million deals up 56% year over year. Both our federal and renewals teams delivered another impressive quarterly performance.

In October we announced six new or upgraded offerings. Some of these include our NetBackup 5330 appliance which delivers twice the performance capacity of previous models; enhanced Symantec endpoint protection, which improves our ability to stop targeted attacks and advanced persistent threats; and augmented E-Discovery, which significantly accelerates how fast customers can search and identify relevant information in a litigation process. Our margin expansion and billings momentum give us confidence we will achieve our fiscal-year guidance at our original guided exchange rate.

In October we announced our intention to separate Symantec into two publicly-traded companies. A separation will allow each company to focus on its unique growth opportunities, reduce operational complexity, and enhance strategic flexibility. We are pleased with the positive reaction we've received from our customers, partners and employees.

I attended our North America Partner Engage conference the week after our announcement, and the partners I spoke with there were enthusiastic about the increased focus the separation brings, as most of these partners primarily sell security products or information management products. Our large customers have also been very supportive of the separation, as they most often work with us on buying security and information management products in different buying cycles rather than simultaneously. And our employees are enthused about the opportunity to be part of a more focused organization.

I'm confident this separation and the strategies we outlined for each business will create significant shareholder value. These strategies complement our five priorities which we will continue to use to manage our two businesses. Thomas will provide more details about the separation process in his remarks.

Now I'd like to discuss the progress we've made in executing both strategies and introduce recent additions to our executive team. I'll start with security. Our unified security strategy is to apply big data-driven intelligence to prevent, detect and remediate attacks faster and better than ever before.

As a reminder the strategy has three elements. First, deliver a unified security platform that integrates threat information from our Symantec product and Norton endpoints. Second, grow our cyber security service capabilities. Third, simplify and integrate our security product portfolio by consolidating our Norton products to one offering, and by extending our Advanced Threat Protection, or ATP, and data loss prevention, or DLP capabilities into more of our enterprise products.

For example, our release of DLP 12.5 last June, which reduces the deployment footprint for customers from five servers to one, helped us accelerate revenue growth in our DLP products to 18% year over year. In a few months we will introduce our ATP threat defense gateway, our first product that takes full advantage of the intelligence from our vast threat telemetry. And it does so in three ways.

First, this ATP appliance offers automated threat detection through the analysis of all ports and protocols at the gateway level. Second, this offering provides cloud-based sandboxing capabilities in a virtualized execution environment for detonation, monitoring and analysis of malware. Our technology uses machine learning to observe the step-by-step behavior of potential malware, and then compares this behavior against telemetry of firewalls as well as our global telemetry across Symantec endpoints, mail and web, as well as through our managed services, providing multi-tiered protection. Our greater scale harnesses much richer threat intelligence, reducing our rate of false positive versus those of competitive solutions.

Third, ATP threat defense enables customers to prioritize security events, saving time and effort. Unlike competitive solutions that alert customers each time malware enters the network, whether or not that malware poses a real danger, we flag the most critical threats.

No other vendor integrates ATP across firewalls, end points, email and gateways like we do. Our threat defense gateway is only the first in a series of products that will leverage our superior telemetry to generate better protection for customers.

Additionally we are releasing Symantec Endpoint Security Advanced Threat Protection, or SES ATP. This new offering will help our customers detect and respond to targeted attack activity on their endpoints by correlating information in our global security intelligence repository with local data in the customer's environment. Our research shows that virtually all advanced persistent attacks leverage endpoint systems in order to infiltrate their target organization.

SES ATP will be delivered as an on-premise virtual appliance, and will alert organizations if they are under attack, describe the scale and scope of the attack, and shut down advanced threats. We will be selling this product as an add-on capability for a large installed base of Symantec endpoint protection or SEP customers. Our complementary threat defense gateway provides ATP production even for customers who do not currently have SEP installed.

Moving to cyber security services, our addressable market is growing at a 30% compound annual growth rate from 2013 to 2018, becoming a $10 billion market by 2018. Today we are the only company that offers the combination of managed security services, Internet response, managed adversary threat intelligence, and a cyber security simulation platform. Let me say a few words about each.

We unveiled our upgraded security operations center, or SOC, in Sydney, Australia, which joins a global network of four other SOCs in the US, UK, Japan and India. Our incident response service, which we launched in June, has already engaged 65 customers, nearly doubling since August. We launched our managed adversary threat intelligence offering in early October, which provides customers with intelligence reports on adversaries, attack vectors, and incidence in campaign in targeted industries and geographies.

Later this fiscal year we will be launching a cloud-based hands-on cyber security simulation that customers can access from anywhere and engage in realistic training scenarios that approximate their data center environments. We believe we're the only company in the world with such an offering, and have already engaged with a large European government to deliver this offering.

Over the last 12 months Symantec has tracked 255 data breaches that exposed a total of 656 million identities. Using telemetry provided by our global intelligence network of more than 41.5 million attack sensors, our researchers partnered with international law enforcement to disrupt the advanced criminal infrastructure behind the Shylock malware, remediate infections from Turla cyber espionage campaign, and helped neutralize the advanced malware used by hidden links.

Our information management vision is to help organizations harness the power of their information when they needed, wherever they need it, wherever it resides. Our information management strategy has three elements.

First, innovate across our best-in-class portfolio of solutions to provide resilient and reliable foundational products for our customers. Second, deliver solutions that dramatically reduce the total cost of ownership of storing, managing and deriving insights and business value from information. Third, enable visibility, management and control across an organization's entire information landscape through an intelligent information fabric layer that integrates with our portfolio and third-party ecosystems.

We continue to extend our lead in backup, particularly with our appliances. The growth of our NetBackup appliances accelerated from 35% year-over-year growth in the June quarter to 45% in the September quarter. In October we announced our NetBackup 5330 appliance, which delivers twice the performance capacity of prior models, making the management of information even simpler and less expensive.

Our information availability business had double-digit billings growth driven by robust renewal activity. With Storage Foundation we drove better performance at a lower cost than competitors, enabling the win of a multi-million dollar deal with a large company in India. To extend our leadership in Storage Foundation we are releasing our smart I/O platform expansion, with flexible storage sharing in December. This expansion will enable customers to drive down costs, increase performance and move into cutting-edge software-defined storage.

Our on-premise archiving product generated double-digit billings growth, driven by the summer launch of Enterprise Vault 11. Additionally, to enable customers to move data to and from the cloud, earlier this year we introduced Disaster Recovery Orchestrator, which enables businesses to automate and manage disaster recovery of Microsoft Windows-based applications residing on either physical or virtual machines to the Microsoft Azure cloud. In November we will extend this capability to Amazon Web Services.

We continue to attract leading talent to my team. We have hired Balaji Yelamanchili who will be the General Manager of our Enterprise Security Products. He has more than 20 years of development, marketing and management experience in the software industry, and was most recently Senior Vice President for Analytics and Performance Management Products at Oracle. Balaji's analytics background will be instrumental as we leverage our unified security intelligence platform to harness more insight from our vast telemetry data.

We've also hired a new leader of strategy and alliances, Jeff Scheel, who was more than 25 years of experience at enterprise, software and security companies in executive roles at FireEye, Mandiant, ArcSite and Hewlett-Packard.

In closing we've made significant progress over the past seven months. We've outlined five key priorities which we will continue to use a managing both of our major businesses, security and information management.

Number one, we're managing our portfolio of businesses for growth and margin. Number two, we are shifting R&D investment to the fastest growth areas for our future. Number three, we introduced eight revenue and efficiency initiatives that stimulate growth and expand operating margins. Number four, we are attracting top talent to our executive team. And, number five, we continue to return significant cash to shareholders.

Our implied billings growth rate and the change in the trajectory from last year give us confidence that we will achieve our revenue and operating margin targets at our original FY15 guided exchange rates. Achieving nearly 29% operating margin this quarter underpins our ability to improve profitability.

We've now articulated defined strategies for our two major businesses and announced the separation to better realize the distinct strategies required for each to be successful. We've moved from a functional to a business unit organizational structure to improve our focus on the different roles our businesses play in the Symantec portfolio.

The improvement in our Norton operating margin from 43% to 53% underscores the power of aligning around a business focus to make quick decisions and execute faster. We've also added six key executives, enhancing the capability of the management team, in the past seven months. We will continue to move quickly in making the changes required to ensure Symantec has a more successful future, and in doing so we will stay focused on executing to deliver for customers, employees and shareholders.

Now I'll turn it over to Thomas to review our financial results and guidance.

Thank you, Mike. And good afternoon. Symantec delivered a solid quarter with operating margin and earnings per share exceeding guidance, and with revenue coming in line with our expectations. These results were driven by strength in enterprise backup, enterprise endpoint protection, and DLP products, as well as reduced operating expenses. We continue to make progress on our revenue and efficiency initiatives, and are well on our way to achieving our fiscal year revenue and margin targets.

As you know, the US dollar appreciated significantly against the euro during the September quarter, which created a headwind of $106 million to deferred revenue and $19 million to our revenue. Our implied billings on a currency-adjusted basis were up 12% year over year. This marks our fourth consecutive quarter of an improving billings trend, and our second quarter of growth.

We posted our first quarter of license growth in six quarters. License revenue grew 25% year over year, driven by strength in enterprise backup and an easier compare versus the year-ago period, and it was also up 8% sequentially. Renewals were up year over year from growth in Storage Foundation and enterprise backup. And enterprise subscriptions grew 6% year over year, accounting for 16% of total revenue.

Our federal team continued to perform above expectations. We secured a multi-million dollar renewal and multiple license deal with various agencies of the US government. Our number of larger deals greater than $300,000 grew 24% to 277, with strength in the retail, financial services, telco, technology and healthcare sectors.

Moving now to our business segments. As we mentioned last quarter, we've realigned our reporting segments into consumer security, enterprise security, and information management. The new reporting structure provides improved transparency into our consumer security segment for both management and investors, and helps us better manage our information management and security businesses during the period leading up to the separation.

In consumer security, we simplified our product portfolio by streamlining nine core products into a single Norton security offering, and exited unprofitable OEM contracts. These efforts expended operating margin 973 basis points year over year to 53%.

Over the last ten quarters we have significantly increased operating margin, as is now evident in our new reporting structure. In response to an increase in consumer protection regulations, we made the decision to be more transparent in the way we manage automatic renewals in our Norton business. We believe this change in policy is the right thing to do for our Norton customers and will result in greater brand loyalty.

In the near term these changes, however, along with our decision to exit certain unprofitable OEM and retail channel arrangements, will negatively impact revenue and billings in the Norton business over the next four quarters. Revenue in the quarter was down 6% year over year to $485 million. However, the net impact of higher operating margin more than offset lower revenue, resulting in a 15% year-over-year increase in operating income. We believe we can mitigate the revenue decline in the Norton business by improving online customer acquisition, enhancing the customer experience, transitioning Norton to a subscription service, and by providing a virus remover guarantee to customers who opt in to auto renewal.

Enterprise Security revenue decreased 1% year over year to $511 million, as growth in our endpoint protection and DLP products were offset by weakness in endpoint management. GAAP operating margin reached 17% compared to 15% in the year-ago period, driven by recused expenses.

Information management revenue increased 3% year over year to $621 million. Growth in enterprise backup was offset by weakness in information availability. GAAP operating margin declined to 20% compared to 24% in the year-ago period due to increased revenue in our lower margin appliances. Gross margin increased 30 basis points year over year to 84% as lower royalty payments more than offset an increase in lower margin appliance revenue.

We made significant progress reducing our operating expenses during the September quarter, which resulted in operating margins of 28.7%, 150 basis point expansion year over year. Net income of $332 million resulted in fully diluted earnings per share of $0.48, down 6% year over year as the September 2013 quarter included a gain on the sale of our LifeLock investment.

We returned a total of $229 million during the September quarter via share repurchase and dividend. $104 million was in the form of cash dividends to shareholders, and $125 million was used to repurchase 5.26 million shares at an average share price of $23.75. We have $408 million remaining under the current stock repurchase authorization.

Cash flow from operating activities totaled $173 million, down 9% year over year due to lower collections. And capital expenditures were $107 million, up year over year as we invest in our IT and cloud infrastructure.

Now I'd like to briefly discuss our eight revenue and deficiency initiatives. We made progress on our revenue initiatives with sales at renewals, pricing optimization, and license compliance, all contributing to the September quarter's results.

In sales and renewals, we are putting into practice more policies and procedures of a best-in-class sales organization, including more consistent forecasting, better pipeline management, more aggressive pursuit of flip deals, and a greater focus on value selling. In pricing, we have established more disciplined parameters that place higher value on our products and services. In license compliance, our augmented auditing procedures are beginning to show traction.

With our efficiency initiatives we have seen the benefits of optimizing our Norton segment in our expanded operating margin. Reducing our global footprint, streamlining product support and improving R&D capacity will contribute to revenue growth and margin expansion in the second half of FY15.

Before I review our guidance, I'd like to comment on our separation progress. Our philosophy is to manage each business separately, minimize disruption to our businesses, partners, customers and employees, and execute a well-managed separation.

To achieve these objectives we've established four operating principles. First, we are deploying dedicated work streams to manage the separation. Second, we're leaving our go-to-market capability largely intact for the remainder of the fiscal year. The split between our new license and renewal sales teams, as well as the increase in specialization between security and information management, which occurred a year ago, ensures that most of our separated go-to-market capability is already in place.

Third, we are creating a process to separate contracts that pertain to both our information management and security products. To that end, we established a contract separation project management organization to ensure customers are minimally impacted from the transition. We believe separating the contracts will not be problematic as we intend to enter into inter-company agreements [to trusted ELAs].

Four, to minimize costs we are delaying the creation of a duplicitous organizational structure until late in the separation process. In parallel with our separation efforts we are carefully reviewing the two businesses to ensure we have a more streamlined cost structure.

Over the next five quarters we expect to incur separation costs of between $80 million and $100 million. This excludes any potential tax implications outside the US and potential advisor fees payable upon the separation.

We will also incur restructuring charges of between $100 million and $120 million, with about half of these costs coming in FY15. As a result of restructuring we expect headcount reductions of approximately 10%. We expect to reinvest some of the savings in R& D to grow key growth offerings such as mobile services, DLP, ATP, backup, and backup appliances.

The separation is expected to accelerate these restructuring efforts and generate momentum into FY16 across our eight revenue and efficiency initiatives. For example, we will be able to reduce our global footprint by terminating leases and closing redundant data centers and facilities.

We are still evaluating the capital structure and capital allocation policies of each company, and we'll update you as we have more details. We expect to file a preliminary Form 10 in the summer, which will provide carved-out financials and other detailed information.

Now turning to guidance, for the December quarter at an exchange rate of $1.27 we expect revenue between $1.65 billion to $1.69 billion. We expect operating margin between 28.3% to 29.3%, resulting in EPS of $0.47 to $0.50.

We are pleased with the momentum we have generated in the first half of FY15. As a result, we are raising our fiscal year guidance at our original guided exchange rate of $1.38 to revenue between $6.715 billion to $6.795 billion, and operating margin between 28.3% and 28.6%, resulting in EPS in the range of $1.94 and $1.99. At the originally guided exchange rate, we expect to achieve revenue growth during the second half of the fiscal year, and to reach 30% operating margin by the fourth quarter.

After adjusting for the volatile currency movements at an expected annual exchange rate of $1.31 versus our originally guided rate of $1.38, we expect fiscal year revenue to be in the range of $6.6 billion to $6.68 billion, operating margin between 27.4% and 27.8%, and EPS between $1.88 and $1.93.

In conclusion, I am pleased with our continued progress this quarter and the future that lies ahead of Symantec. And with that I'll turn it over to Helyn to begin taking our questions.

Thank you, Thomas. Operator, will you please begin polling for questions?

(Operator Instructions)

Philip Winslow, Credit Suisse

Congrats on a great quarter. I really wanted to focus on that license line. It grew pretty impressively year over year, even on a constant currency basis. I understand that it was an easy comp versus last year but it was a big number, and the first quarter in multiple quarters we've seen that type of growth. I wonder if you can give us some details as far as what's driving that. In particular, you obviously made a lot of changes just on the go-to-market strategy over the past 12 to 15 months. Is that what we're starting to see pay off, or is it specific products, or is it a combination? Just more detail would be great.

Phil, I'd say it's a combination of the go-to-market changes, which we've talked about for several quarters here, that underpin a strengthening in the business that you can see in the implied billings trend. So I'd say that's clearly part of it. But I'd also say it's the strength in new products.

A number of things that we called out here. The accelerating growth in appliances you'd have to point, number one. The improvement in DLP -- so, seeing that up 18% year over year. In addition, our flagship Endpoint Protection or SEP products are also up. User authentication also up. NetBackup in general, separate from appliances, also increased year over year. That was 18% also year-over-year increase.

So, a lot of improvement in the product comparisons, as well. Of course we introduced six new products in October. So, as we start to think about Q3, and will have introduced 40 new products that will be new or upgraded versions of existing products, by the end of this fiscal year.

Great. Thanks guys and congrats again.

Walter Pritchard, Citi.

Thanks. Just one question -- some detail on the consumer side. You talked about some changes to practices in auto renewal., and then it sounds like you did exit some products. Can you give us some more detail on how much impact you specifically expect to see in that business from those moves and the relative weighting of those two factors?

I think there's a number of headwinds. You could view them as headwinds or you could view them as positive changes, depending on whether you're looking at revenue or the profit impact that Thomas covered in his remarks.

As we talked about streamlining the business, it was not only the product streamlining, going from the nine offerings down to one, but it's also in terms of the channel and business practices. In the channel, as you know, we focus on online acquisition and gotten out of unprofitable OEM, retail, some activity we had going in small countries. And, so, taking away that unprofitable revenue obviously makes a more difficult comparison as we look at the revenue year over year, but improves both profitability, as we saw the operating margin increase to 53%, and the absolute profits in the business.

The renewal policy that we changed basically made it much more transparent for consumers to not be automatically renewing. What we're doing to mitigate those headwinds, which we expect to last several quarters because the business is ratable and it will take us three or four quarters to work through that and have a different comparison point, are focusing on online acquisition where we think there's more opportunity to improve the rate at which we acquire customers. And then enhancing the customer experience.

We're going through what it takes to land each landing page, what it takes to come to Norton. And we're also improving what we can demonstrate to customers as value they receive from Norton.

An example, when one of these large malware attacks occurs, we're highlighting that for customers if they are protected already by Norton. We think that's going to show customers there's value in subscribing to Norton versus subscribing to one of the premium offerings that are out there.

For those folks who do renew automatically, we're offering a virus removal guarantee, which means that if they do get a virus we'll guarantee to get that removed from their system. So, there's a number of things that we're doing to mitigate what we're seeing as headwinds over the next several quarters.

Great. And then just one question on the enterprise endpoint, that product line has been stronger than I think many people expected for the last couple of quarters. Can you talk about is it large enterprises, is it midsize business, is it certain verticals, do you think you are taking share? Because I think the investor consensus is probably that that's a no-growth business, and you've been seeing some pretty good growth there.

We've been pretty consistent that that has been growing mid single digits which is in line with the market. I actually think this past quarter we saw some strength to indicate we could be gaining share in that market.

What we just introduced in October really improves the capability of the product -- we talked about that -- to stop targeted attacks. And I'm very enthused about what's coming as we get to the end of this fiscal year, beginning of next fiscal year, where we're introducing Advanced Threat Protection capability focused on the endpoint That's SES ATP capability is going to be very powerful.

Great. Thank you.

Raimo Lenschow, Barclays.

Thanks. First, congratulations from me, as well. Compared to the other established tech company you're doing really well. A quick question from me. First of all, you talked about the new product. Can you talk a little bit about the environment that you are seeing in Europe and the US? assume it's new products into new distribution models, and all the improvement in the sales performance. But what are you seeing in terms of trends there? That's my first question.

The other question we have from a lot of investors, can you talk a little bit about validation in China and how you are working around that? Thank you

I'd say from a geography standpoint we're seeing strength in North America relative to the other regions. But I'd say it's improving from what we saw in previous quarters, especially in APJ for us. Thomas, did you want to add something?

Yes. We've done especially well this quarter in Latin America because of some very large deals in the financial sector and in the infrastructure sector. So, overall I would see the strength of the product across all of the regions and all of the important verticals, whether it's federal or public sector, financial services, healthcare and insurance, especially. China --?

Yes. You asked specifically about China. What we've talked about before, it's the same for us today, which is most of our revenue in China is from our information management business. I didn't know if your question was reflecting the political environment in China where a lot of tech companies are facing difficulties.

Yes.

We don't see that affecting the information management business.

Okay. Perfect. Thank you.

Keith Weiss, Morgan Stanley

Excellent, guys. Thank you for taking the question. And, again, a nice quarter. On the restructuring that you are planning on doing ahead of splitting the company in two you talked about an initial headcount reduction of around 10%, but then you're going to reinvest some of those cuts. Can you help us understand where the areas you are expecting to cut from initially, and maybe help us understand the magnitude of that reinvestment, maybe what the net headcount looks like after all is said and done?

Yes, that's a very good question. I think we have been rather transparent in how we look at our cost structure and where we think there is room to make us a leaner, more efficient organization. That's in the infrastructure cost and the footprint we have, and our benchmarks in sales and marketing, and also to a certain degree in G&A costs are off by quite a bit. And this is where most of the restructuring is going to be targeted at.

The reinvestment goes into R&D, as we said before, into mobile, into services and DLP and ATP and the backup and backup appliances. We'll provide more clarity of how much we're going to invest when we start the new fiscal year. We are going through the product portfolio from an R&D perspective, as we speak -- where is the best ROIs, where are the good growth opportunities, and where are the opportunities for us to really deliver unique benefits to our customers across the portfolio that we have. We will not reinvest all of the 10% but we will reinvest a good portion of it because the opportunities from the market perspective are just huge.

Got it. And then it's been a couple -- not too long but a couple weeks since you guys announced the plan to split the Company into two parts. Can you help us maybe with some of the feedback that you have gotten from partners and customers, and what they think about the plan? What's the early reception that you guys have gotten to that strategic change?

I'd say it's very positive. I was able to spend the week after the announcement, as I mentioned in the script, with our North American partners at an event we call Partner Engage. And because most of our partners, frankly, are already focused on either one part of the business or the other, there as a lot of enthusiasm for working with a smaller more focused company that can execute better.

At that event we were able to confirm that we do not see any changes to the channel program, something we've talked about in the last couple of calls, something we've invested a lot in. Something our partners have invested a lot in, because, if you recall, this is all about better economics for more value, meaning our partners invest with us, get certification to be able to achieve better economics through this program. So that we're working with the most valuable partners who help us sell some of the most valuable solutions in the market versus some of the products that are, frankly, easier to sell and become more commoditized. I think there's a lot of enthusiasm from the channel partners about both the program and the momentum they are seeing on products.

I think our larger customers, similarly, as we've talked about before, there are different buying centers. They are often, even when we do a contract that spans information management and security, they are buying those in different cycles. So, I think from their standpoint they view it as a positive, and don't see that there's going to be a disruption to continuing to buy from us. And they are excited about what's in the pipeline.

Excellent. Thank you. That's helpful.

Brent Thill, UBS.

Good afternoon. This is Fatima Boolani on behalf of Brent Thill. Thanks for taking my question. I had a question along the lines of the product portfolio. As you think about investing into some of these higher growth areas -- the mobile, DLP and ATP -- what approach are you taking to some of your older products? Are there some in the portfolio that could be candidates for divestitures or discontinuation or even sunsetting?

Yes, Fatima, we've talked about that before. Of course, we can't announce ahead of any transaction. But we've looked both at individual products as well as groupings of products that might make sense. So, that's certainly something that is on our mind.

More importantly, we're focused on where we can reinvest for the highest growth. We've talked about some of those here today. We believe DLP is a flagship product for us, something where our position is more than twice as big as the next biggest competitor.

We have a similar position with Endpoint, and we're going to make that a lot more powerful, as I said, when we include ATP capabilities -- so, SES ATP. And that's coming very soon. We expect to be in beta on that product by the end of this fiscal year.

Services is another area which is one of our three tenets of our strategy. Huge market. We're not a large factor there even though our business activity is way up in services. Mobile is another opportunity for us going forward.

And on the information management side we see opportunities continuing with appliances. As we mentioned, our growth rate has accelerated there. Continue to see growth in backup. And we're excited about the business activity we are seeing with some of the new offerings we've got with older products like Storage Foundation and some of the other information availability products. So, a pretty broad spectrum of things we see to invest in.

Understood, that's helpful. And maybe just a quick follow-up on the information management side of the house. The appliances and then the backup growth was pretty strong. Just curious what customers' posture is around having more of a cloud-based approach to backup and archiving. We've seen a lot of software companies pivot towards the consumption or on-demand model. So just curious if you are seeing an accelerating interest in hosted or cloud-hosted backup and recovery offering?

Yes, I think that's a very accurate description -- an accelerated interest. And that has been an interest in exploring that from many different types of customers. If you look at where the market is going, it's moving first to cloud at small- or medium-sized businesses, not really the large enterprises. So, I think that's one of the reasons why our growth continues to be strong for an on-premise solution with the largest enterprises, because that's of course were NetBackup is strongest.

So, I'd say we're seeing more pressure there for competitive products to Backup Exec, as an example, than we are with NetBackup. But we continue to make progress in terms of getting our offerings to the cloud. And we talked today about some of what we're doing to be able to enable customers to move back and forth data to the cloud, and recover from the cloud. That's what Disaster Recovery Orchestrator is all about, as an example.

That's it for me. Thank you very much.

Michael Turits, Raymond James.

Good evening. I wanted to follow up on a prior question about the headwinds on the revenue side to consumer, and whether or not you are actively -- well, there may be two different ways of looking at it. One, if you can, quantify, since you had that big drop year over year, relatively speaking, on the consumer security side. And whether or not we can think about that going to growth when you come out of that in three or four quarters.

I think after three or four quarters what we would expect is a moderation of that trend that you see this quarter. We've talked about in the past the fact that our Norton business, it's certainly the largest by far consumer security business. And we expect that there's an opportunity to continue to improve that. But we should expect from a revenue standpoint that it will be flat to slightly declining. So, we think when we get through this period of headwinds, we should return to an environment that's more like that.

And then when you talked about the separation cost of $80 million to $100 million, the restructuring costs of $100 million to $120 million, just a clarification -- are those costs that are going to be non-GAAPed out? And are those accrual costs or are those cash costs? If you could break those out it would be helpful.

They're going to be non-GAAPed out, for sure. And they are cash 100% of the charges.

Okay, so those are all cash charges then, non-GAAPed out. Great. Thanks very much, guys.

Matt Hedberg, RBC Capital Markets

Thanks for taking my questions. Mike, you've got one of the broadest perspectives in security spending out there. And I'm curious, as you talk to CEOs around certainly your domestically and internationally, do you feel that 2015 security budgets could accelerate behind core IT? I think the assumption being a lot of the 2014 budgets were set after some of the biggest breaches occurred this year.

I clearly believe that. I am following, as you are, what we're reading in the headlines, the increased number of breaches. We talked about it in our comments today. You remember Jamie Diamond's comments -- they spent $250 million on security this past year and he's thinking about doubling that. He's not the only CEO out there that's thinking about what is required to be able to protect a business's reputation.

So, I think we're going to see not only an increase in budget but an increase in budget towards some of the more sophisticated offerings to protect customers. You're going to see that from us with these ATP offerings we talked about. And services. That's why we are so focused on services. Security is so complex, and there aren't enough qualified trained professionals in the security operations staff to deal that. Services presents a tremendous opportunity for us going forward. So, we want to be able to provide security how customers want to buy it, whether that's a product, a service, or a combination.

I think that's not only a statement for the private sectors, it's also a statement for the public and for the federal customers that we have worldwide.

That's great. Fantastic perspective. Thanks, guys.

Matthew Niknam, Goldman Sachs.

Hi, guys, thanks for taking the question. A question on enterprise endpoint -- you talked about stronger renewals and some stronger growth on that front. Wondering if you can comment on the state of competition in that market, and whether you've seen any impact to pricing and how pricing has been trending. Thanks

I think the endpoint market is one where you see competitors catch up in capability. Then there's price pressure. But as new capabilities come out, that presents an opportunity for an uplift in terms of pricing.

So, as we described today where we have a baseline, the biggest in terms of our Symantec endpoint protection because we are the leader there, as we introduce a leader like SES ATP it's an add-on capability where you get a lot more capability to protect the endpoint. And that will be sold as an add-on. So I think you will be able to see a potential to get more revenue from that installed base with that enhanced capability.

Okay. And then just one clarification, as we think about timing of the restructuring and separation related costs, how should we expect those to hit the income statement in upcoming quarters? Just trying to get a sense of whether we straight line or if there's more weighting towards a particular timeframe.

Yes, that's fair. I think when we talk about the separation costs we are going to incur, those are across the next five quarters pretty much, in more or less a linear fashion. When we talk about restructuring we will have pretty much 50% of those charges within this fiscal year. So, most of the restructuring is going to occur in the fourth quarter of this fiscal year and the first quarter of next fiscal year.

Got it. Thanks.

(Operator Instructions)

Gregg Moskowitz, Cowen and Company.

Okay, thank you very much. Thomas, as you indicated earlier, your consumer security margins are now 53%. They've expanded in an especially rapid pace over the last six quarters, and you pointed out some of the reasons why. In your view, how much more margin expansion potential do you think exist within consumer going forward?

There's always a little room for improvement. But I think what Mike said is important. We stabilized the business from a profitability perspective. Focusing on profitability was the big task, streamlining the product portfolio and getting out of revenue engagements that are not contributing to the bottom line. So, now moving forward, it's more about keeping the profitability that we have, maybe slightly improving it, but making sure that we get into our revenue and top-line development that Mike has indicated.

Okay, perfect. Then if I could just ask a follow-up to Mike. Just wondering your thoughts on the recent decision to stop selling the Backup Exec 3600 appliance in the market. And just if you had any broader comments on SMB-based backup for Symantec going forward?

That's one of the decisions that we made, as we talked about before, where we are taking a look at the product line to see if something is contributing to growth, is it contributing to profit, or neither. And if a product is not contributing to either then it's a candidate to be stopped. We've done some of those in the past. We done that with some things we haven't announced yet, that we stopped before they've gotten into the market. Here's an example of one that we have to stop selling because it doesn't make any sense for us to continue because it's not contributing to the bottom line.

Okay, perfect. Thank you.

Pat Walravens, JMP Securities

Yes, hi, guys. This is Matt Spencer in for Pat. Congrats on a good quarter. We noticed you added six key executives in the past several months. Just wanted to get you to maybe talk a little bit about where those folks came from, whether it's easier in general to get those types of candidates now, and what the other roles that you are looking to fill are. Thank you.

Sure. I'm excited about each one of what these executives brings, and then the combination has really improved our capability. Starting with Thomas who joined us last March as CFO. We announced just several weeks ago John Gannon, who is leading the information management business, has been Executive Vice President from HP. Thomas, a long time at AMD, as you recall.

Amy Cappellanti-Wolf who joined us as Head of Human Resources from Silver Spring and Cisco. Jeff Scheel who joined us recently to head up Corporate Development, Alliances and Strategy, joins us from FireEye, Mandiant, HP, ArcSite before that.

Adrian Jones, who heads up sales for Asia-Pacific and will be our worldwide leader for security sales. He also joins us from Oracle-HP. And we're excited about the improvements that [A. P. Jay] has seen since he's been onboard.

And then very significantly, Balaji, who will be joining us -- Balaji Yelamanchili -- from Oracle. He will be joining us starting next Monday and he will be leading our Enterprise Security Products organization. I couldn't be more pleased with the additions we've made.

In terms of whether it's easier, I think it's easier given the improved momentum. And I think having a permanent CEO has been important in the recruiting process, to be honest with you.

In terms of what we're looking for going forward, I think the team is pretty well complete at this point. We're searching right now for someone to lead our services business as a general manager, such an important area for our growth in the future. And we haven't had that organized as its own business, so that's the search that's underway.

Great, thanks. And congrats again.

Nikolay Beliov, Bank of America.

Hi, thanks for taking my question. I was wondering whether you are willing to share some of your preliminary thoughts on, one, the Company separating into security and storage, what will the strategies be on the new companies? And security specifically around network security. And in the storage business around the latest trend in the market, instead of having multiple backup copies and verification copies, you have one golden image of the information. And what the implications of whatever the new strategy is going to be around M&A? Thank you

Okay. We've talked briefly about the strategies. If you look at some of the material -- I believe it's on the investor website, too, on unified security. I'll cover it very briefly. But these are the strategies we would expect each of the businesses to go forward with.

Starting with unified security, it's all about building this intelligence platform that takes advantage of threat telemetry and global footprint that we have. That's the first thing. And that will be an area of investment for us.

Second is the growth in services that we talked about. And third has to do with what we do with the product portfolio to both simplify and integrate. And the integration here is not about suites of products, it's about integrating ATP and DLP capability across more of these products at the various control points. So, that's in a nutshell is what we're thinking about for security

On the information management side, it starts with improving the foundational product that we have. We're talking about NetBackup, the appliances, Storage Foundation. We talked about some of those improvements in the prepared remarks today.

It continues with what we can do to improve total cost of ownership, which really gets your question about the number of backup copies that are floating around enterprises. So, it's really going specifically to that point. And then it's also taking advantage of the end-to-end visibility we have of seeing the lifecycle of information. And we've got development underway that we talked about called Information Fabric that will allow IT professionals to see what data they have, where it's located, how it's protected, and so forth.

In terms of M&A activity, I would expect that we're going to continue to be looking at where we can enhance the portfolio. We need to be selective as we look at those opportunities. So, I would expect that to be complementary technologies. We don't need to buy revenue at Symantec so we're going to continue to look at those. That is underway at this point. And, so, I would expect we would be able to engage in some M&A activity even before the separation is complete.

That's very helpful. Thank you.

Operator, I believe we're at the top of the hour so that will be it for questions today.

Thank you. That concludes our question-and-answer session. I'd like to turn the conference back to our speakers for any closing remarks.

Thank you very much for joining us.