Fourth Quarter Fiscal 2018 Results CFO Commentary

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Irma Fisher
6 years ago
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1 Non-GAAP Results for the Fourth Quarter of Fiscal Year 2018 Revenue (In millions, except for percentages) Q4FY18 Q4FY17 Adj. Growth Total revenue $1,234 $1,176 4% Enterprise Security revenue % Consumer Digital Safety revenue % Growth rate represents organic growth adjusted for acquisitions and divestitures in constant currency. See the definition of organic growth rate on Definitions page. Foreign currency impacts Compared to our Q4 guidance, foreign currency positively impacted total revenue by $13 million, Enterprise revenue by $8 million and Consumer Digital Safety revenue by $5 million. Compared to Q4 of last year, foreign currency positively impacted total revenue by $43 million, Enterprise revenue by $25 million and Consumer Digital Safety revenue by $18 million. Enterprise Security Metric Enterprise Security Implied Billings (In millions) Q4FY18 Q4FY17 Y/Y Growth Adj. Growth Total revenue $609 $656 Add: Deferred revenue at end of period 1,998 1,791 Less: Deferred revenue at beginning of period (1,685) (1,654) Add: Deferred revenue adjustments (2) Implied billings (Non-GAAP) $937 $825 14% 33% Adjusted year over year growth excludes implied billings from our WSS & PKI solutions that were sold to DigiCert on October 31, These products contributed $104 million in revenues and $120 million in implied billings in Q4 FY17. (2) Deferred revenue adjustment includes the change in deferred revenue related to Veritas discontinued operations. Consumer Digital Safety Metrics Quarterly Metric Q4FY18 Q3FY18 Consumer Digital Safety Direct Customer Count (at quarter end) 20.9 million 21.3 million Consumer Digital Safety Direct Average Revenue Per User $8.62/month $8.38/month Non-GAAP Partner Revenue $68 million $59 million Consumer Digital Safety Direct Customer Count: Consumers who have a direct billing relationship with Symantec, including online acquisition and retention, affiliates, co-marketing, and OEM channels, but excluding retail and other partners. Consumer Digital Safety Direct Average Revenue Per User (ARPU): Total non-gaap revenue from direct customers divided by the average Consumer Digital Safety Direct Customer Count for the period, expressed as a monthly figure. Consumer Digital Safety Partner Revenue: Non-GAAP revenue generated through billing relationships with partners. Examples are retailers, service providers, and corporations who often purchase on behalf of their end customers or employees. 1

2 Annual Metrics FY18 Annual Retention Rate 83% Consumer Digital Safety Adoption 11% Annual Retention Rate: Current number of Direct Customers who have more than one year tenure, divided by total number of Direct Customers from one year ago (i.e., inverse of annual churn) Digital Safety Adoption: Percentage of Direct Customers using paid offerings from two or more product families. Our Consumer Digital Safety metrics are derived from data related to our Norton and LifeLock products that had different measurements historically. Therefore, we are unable to provide comparative metrics for the prior fiscal year. Balance Sheet Metrics Cash, cash equivalents and short-term investments at the end of the quarter was $2.2 billion. Gross debt at the end of the quarter was $5.1 billion. During Q4 FY18, we prepaid principal amounts of $570 million as part of our plan to deleverage our balance sheet. A schedule of the dilutive impact from our convertible debt is available on our Investor Relations website. Tax Reform Impact Analysis The Tax Cuts and Jobs Act was enacted in December 2017 and, as updated in Q4FY19, impacted the FY18 tax provision as follows: U.S. statutory tax rate reduced from 35% to 21%, effective January 1, 2018 FY18 blended US statutory tax rate of 31.6% Provisional one-time impact of tax reform: Remeasurement of accrued deferred taxes on foreign earnings $ (1,421)M Other deferred tax adjustments (135)M One-time transition tax liability (2) 879 M Net impact (benefit) $ (677)M We have not completed our accounting for the tax effects of enactment of the Tax Cuts and Jobs Act; however, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. These amounts may require further adjustments as a result of additional future guidance from the U.S. Department of the Treasury, changes in our assumptions, and the availability of further information and interpretations. In other cases, we have not been able to make a reasonable estimate and we continue to account for those items based on our existing accounting policies and the provisions of the tax laws that were in effect immediately prior to enactment. (2) The transition tax liability on accumulated foreign profits is payable over 8 years. 2

3 OUTLOOK Our outlook is based on a number of assumptions that management believes are reasonable at the time of this commentary. Information regarding potential risks that could cause the actual results to differ from these forward-looking statements is set forth below and in our filings with the Securities and Exchange Commission. The following guidance does not reflect the impact of the new revenue recognition accounting standard that we adopted in the first quarter of fiscal Our Q1 FY19 outlook incorporates the following assumptions: o A basket of currencies including EUR/USD exchange rate of $1.23/ o Non-GAAP net interest expense and other income of $35 million o Non-GAAP effective tax rate of 20.4% o Non-GAAP fully diluted share count of 674 million Our FY19 outlook incorporates the following assumptions: o Non-GAAP net interest expense and other income of $165 - $170 million o Non-GAAP effective tax rate of 20.4% o Non-GAAP fully diluted share count of 680 million Dilutive shares related to our convertible debt included in our share count for our Q1 FY19 and FY19 are based on our average share price for the first 10 trading days of Q1. Below are additional metrics for modeling purposes. Q1 FY19 We expect the following results of operations for the periods indicated. Non-GAAP Revenue Guidance for Q1 FY19 - Adjusted for FX (In millions, except for percentages) Revenue Y/Y Change FX Adjusted Y/Y Change Total $1,135 - $1,165 (8%) - (5%) (10%) - (8%) Enterprise Security $535 - $555 (20%) - (17%) (22%) - (20%) Consumer Digital Safety $600 - $610 7% - 9% 5% - 6% Q1 FY19 percentage changes compared to the prior year comparable period are not adjusted for divestiture. Fiscal 2019 Non-GAAP Revenue Guidance for FY19 - Adjusted for FX (In millions, except for FX Adjusted percentages) Revenue Y/Y Change Y/Y Change Total $4,760 - $4,900 (4%) - (1%) (6%) - (3%) Enterprise Security $2,325 - $2,425 (12%) - (8%) (13%) - (9%) Consumer Digital Safety $2,435 - $2,475 4% - 6% 3% - 4% FY19 percentage changes compared to the prior year comparable period are not adjusted for divestiture. 3

4 Forward Looking Statements: This commentary contains statements which may be considered forward-looking within the meaning of the U.S. federal securities laws, including the information contained under the caption Outlook and the statements regarding Symantec s other projected financial and business results, including demand for its products and services, Symantec s enhanced capabilities, and Symantec s continued cost and operating efficiencies. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from results expressed or implied in this press release. Such risk factors include those related to: our ability to continue to integrate and fully achieve the expected benefits from acquired businesses; general economic conditions; fluctuations and volatility in Symantec s stock price; the ability of Symantec to successfully execute strategic plans; the ability to maintain customer and partner relationships; the ability of Symantec to achieve its cost and operating efficiency goals; the anticipated growth of certain market segments; Symantec s sales pipeline and business strategy; fluctuations in tax rates and foreign currency exchange rates and the impact of the recently enacted tax reform legislation; the impact related to Symantec s adoption of the new revenue and other accounting standards; the timing and market acceptance of new product releases and upgrades; and the successful development of new products and the degree to which these products gain market acceptance. Other risks include, but are not limited to, risks relating to the ongoing internal investigation by the Audit Committee, including: (i) the risk that the internal investigation identifies errors, which may be material, in the Company s financial results, or impacts the timing of Company filings; and (ii) the risk of legal proceedings or government investigations relating to the subject of the internal investigation or related matters. Actual results may differ materially from those contained in the forward-looking statements in this commentary. Symantec assumes no obligation, and does not intend, to update these forward-looking statements as a result of future events or developments. Additional information concerning these and other risk factors is contained in the Risk Factors sections of Symantec s Forms 10-K and Forms 10-Q filed with the Securities and Exchange Commission. 4

5 Use of GAAP and Non-GAAP Financial Information: To assist our readers understand our past financial performance and our projected future results, we supplement the financial results that we provide in accordance with generally accepted accounting principles, or GAAP, with non-gaap financial measures. The method we use to produce non-gaap measures is not computed according to GAAP and may differ from the methods used by other companies. Non-GAAP financial measures are supplemental, should not be considered a substitute for financial information presented in accordance with GAAP and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. We believe our presentation of non-gaap financial measures, when taken together with corresponding GAAP financial measures, provides meaningful supplemental information regarding the Company s operating performance. Our management team uses these non-gaap financial measures in assessing our operating results, as well as when planning, forecasting and analyzing future periods. We believe that these non-gaap financial measures also facilitate comparisons of our performance to prior periods and that investors benefit from an understanding of the non-gaap financial measures. Non-GAAP financial measures are supplemental and should not be considered a substitute for financial information presented in accordance with GAAP. Readers are encouraged to review the reconciliation of our non-gaap financial measures to the comparable GAAP results which can be found, along with other financial information, on the investor relations page of our website at: 5

Fourth Quarter and Fiscal 2018 Supplemental Information (1) (Dollars and shares in millions, except per share data, unaudited)

Fourth Quarter and Fiscal 2018 Supplemental Information (1) (Dollars and shares in millions, except per share data, unaudited) Q4FY18 Q4FY17 Y/Y Growth FY18 FY17 Y/Y Growth Revenues and Earnings Results