Good day, ladies and gentlemen. And welcome to the Symantec's Second Quarter 2016 Earnings Conference Call. As a reminder, today's call is being recorded. And at this time, I'd like to turn the call over to Jonathan Doros. Please go ahead, sir.

Thank you. Good morning. And thank you for joining our call to discuss second quarter 2016 earnings results. By now, you should have had the opportunity to review our earnings release and supplemental information. We’ve posted our presentation and CFO commentary that complements our prepared remarks. If you have not reviewed these documents, they can be found on our Investor Relations Events page. A copy of today’s prepared remarks will be available on the website after our call is completed. Speakers on today’s call are Mike Brown, Symantec’s President and CEO; and Thomas Seifert, Executive Vice President and CFO. This is a live call that will be available for replay via webcast on our website. I'd like to remind everyone that all references to financial metrics are non-GAAP, unless otherwise stated. Implied billings refer to revenue plus the change in sequential deferred revenue and we include a trended history of this metric in our supplemental information. Also, we provide year-over-year constant currency growth rates in our prepared remarks, except for statements about net income and EPS. I would like to take this opportunity to highlight a few dates for you. Thomas will be presenting at the Nasdaq Conference on December 2nd in London and the Barclay’s Technology Conference on December 9th in San Francisco. Mike will be presenting at the Credit Suisse Technology, Media and Telecom Conference in Scottsdale, Arizona on December 3rd. We intend to announce our third quarter earnings on February 4th. 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. Lastly, 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 the 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 and the year ended April 3, 2015. And now, I'd like to introduce our CEO, Mike Brown. Go ahead, Mike.

Thank you, Jon, and good morning. 18 months ago, we embarked on a three-year transformation to refocus Symantec’s product strategy, improve our cost structure, rebuild executive talent and deploy capital to maximize shareholder value. Over that period, we advanced our long-term strategy by separating Symantec into an Information Management provider, Veritas and a pure-play cybersecurity company focused on delivering upon our Unified Security strategy. We remain on track to close the Veritas transaction by January 1st. We have added new executive leadership across Symantec to complement an already talented employee base. During this transformation, we improved our cost structure, resulting in our non-GAAP operating margin increasing from 25% in the first quarter of fiscal ‘15 to 28% in the second quarter of fiscal ‘16. We also returned $1.4 billion of cash to shareholders through dividends and share repurchases. Now that we are entering the next stage of our transformation, we are focused on four priorities that include, realizing our Unified Security strategy, building our Enterprise Security pipeline and go-to-market capabilities, improving our cost structure, and efficiently allocating capital. Let’s start with why our Unified Security strategy is the right approach for today’s complex and evolving threat landscape. Cyber attacks are damaging the ability of enterprises across the world to conduct business efficiently. Today’s leaders including CISOs, CEOs and governments are looking to Symantec to be their trusted cybersecurity partner. Symantec’s current set of enterprise security solutions provide our more than 370,000 customers actionable visibility into the security control points across their on-premise data and in the cloud. In an environment where hacking has evolved into highly-funded cyber espionage, we must not only create better solutions, but we must think differently in order to stay ahead of zero day attacks. Our Unified Security strategy does just this by harnessing our vast…

Thank you, Mike, and good morning, everyone. Before I get start, let me point out that given that the Veritas transaction has increased the complexity of our results and guidance, we have included a CFO commentary document on our website this time which will provide additional detail to my prepared remarks. On October 3, we completed an important milestone with the operational separation of Veritas. This is a substantial accomplishment that would not have been possible without the hard work and commitment of our employees. We remain on track to close the Veritas transaction by the end of the fiscal third quarter. In conjunction with this separation, we have committed to returning significant cash to shareholders. We had previously announced our intention to return $2 billion to shareholders over 18 months after the closing of the Veritas transaction. I am pleased to announce that we are going to commence this $2 billion capital return ahead of the expected January close of the Veritas sale. The Board of Directors has authorized us to pursue a $500 million accelerated share repurchase to be executed as soon as possible. The expected $500 million ASR will be in addition to our normal repurchase activity of approximately $125 million of shares for the third fiscal quarter, of which about $105 million has been completed to-date. The ASR and our ongoing open market repurchases reflect the Board of Directors’ and Symantec’s confidence in our ability to achieve significantly improved performance and create sustainable value for shareholders, while it allows us to retain flexibility as we finalize our capital allocation strategy in anticipation of the transaction’s closing. Now, let me turn to second quarter financial results. Total revenue declined 1% year-over-year to $1.5 billion and was in-line with our guided range. As expected, growth in Enterprise Security…

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

Thank you. [Operator Instructions] And we will go first to Raimo Lenschow with Barclays.

Hey. Thanks for taking my question. My first main question is like there are obviously lots of moving parts in FY’16. Is there any change without giving guidance, obviously to talk maybe qualitatively about the FY ‘17 because that will be probably the first clean year after the split?

Right. Absolutely, Raimo. So if you think about the two components of the business, Consumer Security and Enterprise Security, our expectations for FY ‘17 would be unchanged from what we’ve talked about at the Financial Analyst Day. And that was to refresh everybody’s memory, the decline that we are seeing in Norton should moderate in FY ‘17 and the guidance we have for FY ’17 is a decline of between 3% and 6% and improvement of the range of 5% to 8% that we are operating within this year. The Consumer Security remains unchanged. So the change from the revenue standpoint for FY ‘17 would really be around Enterprise Security. We are clearly pleased with the momentum that we are seeing in Enterprise Security, in particular the recovery from the core Q1 performance. So, we could see that in some of the numbers that we talked about. We are seeing particular strengths in a couple of product areas today, DOP endpoint, cyber security services. As I talked today in my prepared remarks, we have a host of new products, in fact a dozen new products in Enterprise Security. However, it will take time for customers to integrate those and for those to be contributing materially to our financial results. So the guidance we gave a year ago for FY ’17 was that we would be in a range of 1% to 6% for revenue growth this year FY ’16. And as you can see from the guidance that Thomas just provided, we will be at the very low end of that range closer to 1%. As we look forward to FY ’17, it would not be conservative to think that will grow at the rate that we previously gave, which was 6% to 10%. So while it’s too early to give specific guidance on what we would see for Enterprise Security, we will do that as we get closer to the end of this fiscal year ’16. I think we have to say that it's going to be somewhere in between where we gave for FY ‘17 from our ending rate this year and the rate that we gave at Financial Analyst Day. On the margin side, we have a lot of work to do, as Thomas mentioned to reduce our cost structure, taking account of the TSAs and stranded costs as a result of the Veritas sale. In fact if you take the guidance that Thomas gave and you add about three points which would account for these costs, you can see we are operating very close, if not at the guidance we gave at Financial Analyst Day, which was a range for the security business of 30% to 31% operating margin. So, we have a lot of confidence that we will be able to get back to the earning potential of business, which would be our target of 30% operating margin. But it will take us through FY ’17, pick out those costs and have that show through.

And I have a question for Thomas. So, TSA cost, et cetera, they will all be done in ’17, so it’s going to be a clean year on the cost side as well, or is there still some spillover?

It’s a whole set of TSA agreements. It’s not just one. But the majority of those agreements are going to expire within the coming year -- within a year. That’s true.

And…

So we won’t start FY -- just to be clear, we won’t be starting FY17 with those gone. That's just a few months away. It will take us that fiscal year to be able to reduce those costs.

Yeah. Yeah. I know this what I meant.

Yeah.

Like it’s the, Thomas said, it takes years, is it like the whole calendar year or is it fiscal year that you are talking about?

For this year, yes, it’s pretty much a year to take out the stranded cost that we will take us until the end of the fiscal year.

Okay.

TSA’s four quarters pretty much from finishing the transaction, closing the transaction and then stranded cost really until the end of the fiscal year ’17.

Okay. Perfect. Thank you.

Thank you.

We will go next to Walter Pritchard with Citi.

Hi. Just one question for Mike. Just on the new endpoint product, internet product now had a data early access. Could you give, help us understand, give us some feedback currently you're seeing in that product? So how broader you are seeing interest in your customer base? And you released pricing, I think, last week or the week before? Can you talk about how much you think you'll actually be able to realize incrementally in accounts. It seem like the pricing there was actually multiples of, you might be getting for AV and you should have see this add-ons may come at fraction of what the AV is not multiples?

Sure, Walter. So we're very excited about the Advanced Threat Protection solutions. As you know it’s three modules. It is network, e-mail and endpoint. Network is available today, e-mail is also available but our endpoint to comes at the very end of the quarter. So we are in our controlled availability at this point and general availability comes at the end of the quarter. The real power of these three solutions come when you work with all three together, because the key differentiation here with Symantec Advanced Threat Protection is that we are able to operate across these street multiple control points and then prioritize for the stock analysts, what are the threats that they should be worried about was really improves the signal-to-noise ratio, you don't have to worry about threats that have been remediated by our endpoint as an example. And they were also allowing stock analyst to remediate either quarantine or eliminate threat with one click from a single console across those multiple control points. This is a huge productivity improvement for stock analysts. The other key benefits, obviously, are from a cost standpoint these capabilities available in a virtual appliance as oppose to a physical appliance that cost hundreds of thousands of dollars. And we are correlating that threat information you are seeing in your local environment across your enterprise with what we’re seeing globally. So you get advance notice of whatever is happening in your industry as an example from around the globe. So really key advantages and that's why the pricing is a multiple of what we're seeing today with our set products. The customer reaction has been enthusiastic as you’d imagine given those productivity benefits that I talked about because one of the big expenses when security staffs are maintaining their environment or protecting their environment is of course the labor cost. It’s not the cost of the technology that we’re providing. So if we can make those folks more productive, we save a whole lot of money. So the reaction that we've seen even from the control availability of the other modules that are available and what the beta has shown us from endpoint is this is going to be one of our most successful products. So already in use in beta at a number of customers that are global financial institutions, healthcare really across the board. So we're pretty enthused but it is early, obviously without having the product in general availability, it’d be too soon to start predicting what did that mean financially for us. And as I mentioned when I talk about FY ‘17 guidance, it’s going to take -- you pick the number six and nine months for customers to really do their own testing integrate this and start buying in a sufficient quantity to affect the financials.

And then just, like one of the product question, you mentioned in the script and I think it’s the first time we’ve heard you say that you were upgrading your customers of free to latest version on the enterprise side. We’ve seen other companies do that. Microsoft doing it with Win 10, there will others doing subscription like offering so they are keeping customers on the current version. I guess, the question on your end would be, are you foregoing a material amount of revenue by doing that that upgrade for free and how did you think about that versus the benefits of lower support costs and having everybody consuming your latest and greatest?

Walter, I’m not sure that I did say that. We are enthused about customers moving to more current versions of the product. What we do offer for free is working with customers to make sure they’ve turned on all the features of our products. For example, CEP today is in my view by far the best protection you can have on the endpoint. I think that’s why we are the leader in the market. It’s because we have so many protection engines in place beyond what you get from AV which I know a lot of folks in the market like to say that’s the only engine that we have. There is five or six engines in our CEP product today, including things like file reputation, intrusion prevention, behavioral analysis to understand what files are really doing. So we want to make sure that our customers have all those engines turned on and when they do, we’re blocking more threats than anyone else. And we have proof of that in third-party testing. So again not sure what I said that made you think we were doing a wholesale upgrade of our enterprise customers, but we are trying to make sure that sub-customers as an example have turned all the features on of the product they bought.

Okay. Thanks for the clarification.

We will go next to Daniel Ives with FBR.

Thanks. In terms of M&A, I mean how should we think about timing versus opportunity? I mean, is this just looking for the right situation, or do you feel like there's from a timing perspective more urgency to get a fuel in the tank in terms of the right acquisitions? That would be my first question.

Okay. Well, I think as we’ve said, we believe the M&A is a key part of the strategy. But let’s look back at what we've done so far this fiscal year and even go back to last year. We’ve made two acquisitions, so we’re being highly selective in terms of looking at these targets. One was a Narus acquisition, which was getting a select group of data scientists, who can really help us accelerate unified security analytics platform that we’re building. As we talked about earlier in my prepared remarks, we’re getting the first application, something called risk insight that will be available basically in the second half of fiscal year '16. And then more recently Blackfin, which was complementary technology to add to cybersecurity services, specifically in the simulation services area. So we've already begun looking for what are the complementary targets out there. They need to be tightly aligned with the strategy. One of the things that I could be critical about our past is that perhaps we haven't gone after acquisitions that we’re tightly aligned with the articulated strategy. And then as we’ve also talked about in the past, where really we’re going to be able to bring value if we look for complementary technology where we can use our distribution capability to grow that dramatically, perhaps the most successful example of that was our DOP business, which today is a flagship in the industry in terms of its performance. So I would say we're not in a hurry, I can’t remember the words we use, but we know we’re not in a hurry. There's a lot of opportunity out there, but we need to be very selective. It's not lost on us that most of these companies are trading at a multiple of revenue and obviously our multiple of revenue is quite low. So we’re going to be very selective about choosing the right target, but stick with the strategy that we can grow dramatically and then have the appropriate risk-adjusted return for shareholders.

And just a quick follow-up. Just given the head-scratcher last night from competitor, are you seeing less threats on the enterprise given improving U.S., China relations, just thought I’d ask it?

No, we are seeing the threat landscape continue to be quite scary, threats are clearly on the rise. And certainly, if you look at where most of the threats are coming from, it’s criminal activity with the greed motivation. So I’m not sure if your questions really around state sponsored activity, but that is a very small fraction of the total threat landscape.

Great. Thanks.

And we’ll go next to Brad Zelnick with Jefferies.

Great. Thanks so much. My first question for Thomas is on billings, which were actually stronger than we’d modeled and seasonally better than you typically see in Q2. But as we look forward ex-Veritas, can you help us with what to expect in terms of the seasonality and what the business looks like without Veritas baked in? And are you going to provide a pro forma balance sheet for us so we can model this out?

Yes. To the last question. As we talked about, actually we’ll adjust and clean up our historical numbers, so those numbers will be available to and after the transaction closes. And we do not expect our billings behavior from a seasonality perspective to materially change at the separation.

Thanks for clarifying. And just following up on Walters question, I think Thomas, it was actually in your prepared remarks where you say that the company's implemented a plan of action to upgrade customers to the latest version of all of our products, hoping you can tell us a little bit more about what that means? But if it's any different than what Mike had already said, but is there a risk that gives customers a reason to may be go to market and reconsider competitors if there’s some type of forced upgrade?

It’s not a forced upgrade, but it’s really convincing customers that there is a benefit moving to our latest version. And in my remarks it was less from a -- do we do this for free, we don’t. But if we have from an R&D and technical support cost structure as we have less versions to support, this of course frees up resources that you can redeploy towards high growth opportunities in the Enterprise Security segment. And that is the primary motivation behind driving this initiative on our side. So there’s a customer benefit and from us -- for us the benefit is really that we can get cleaner is our setup and continue to optimize our investment opportunities as we have done over the last 12 months.

And then maybe just -- maybe…

Just a couple more points on that. I think I did mention in my remarks that we have 370,000 enterprise customers. So you can imagine with the breadth of the product line and how many enterprise customers, how many different versions that we’re supporting. And of course, what we found as we look across that customer basis is that because it sometimes cumbersome to upgrade to new versions, companies can be reluctant to do that. And what we all know is the threat landscape as I mentioned a minute ago is evermore complex. And we need to have customers migrating to more recent versions and making sure all the features are turned on of the products where they really are not protected in a way the products are intended. So as I like to say it, you locked the front door, but you left the windows open. So it’s an conscious effort on our part to make sure that customers are protected. Now that benefits them, but from a business model standpoint, as Thomas referred too, that also gives us some more efficient business model.

Thanks, Mike. And thanks, Thomas.

You bet.

We’ll go next to Michael Turits with Raymond James.

Hey, guys. Just a clarification on the longer-term margin outlook. So should I understand that fiscal '17, let’s call it pro forma ex-TSA and stranded cost will be 30% and then how are you feeling about it for fiscal ’18?

Well, we’ll provide update on ’18 as we get closer.

Give me fiscal ’20, while you actually…

We -- I think we find the right balance in terms of trade-off getting the business to grow and delivering the profitability that we need. We think that 30% is the right target on compensated for stranded cost and TSA in fiscal ’17. And we excited about the momentum we see on the topline from a business momentum perspective that allows us to grow moving forward of cost that this will have scaling impacts and benefits, but it’s too early to call that in a specific number.

Okay. Thanks. And then, Mike, just a continuation of the question regarding industry in general, you said, you’re not seeing reduction in the tax. I assume that's both commercial and state-sponsored? And what about the question that was on last night’s call from a competitor regarding with what they thought was a slowing in spending from elevated rates to something less elevated? Are you seeing that slowing in spending in the industry?

We’re not. Now at -- we have a much broader product line than I think the competitor you might be referring to. So and we’re just entering. If you think about -- if your question really is related to FireEye’s comments, they’re clearly focused on Advanced Threat Protection. That’s the market we don’t even have exposure to yet in any material way. And of course, the other area of competitive overlap for us is services with Mandiant, which is so successful in the service arena. Our Incident Response business is newer than theirs. We are at capacity. We’re trying to grow that as fast as we can, but obviously, they have a much larger position in Incident Response than we do.

Yeah. So just…

We don’t overlap as much -- we don’t overlap as much. So my comments really are related to our business, and obviously, I don’t see what they think.

Yeah. I just was wondering if, anything is possible to make this observations from kind of general tone of the industry whether or not you thought that that there was some kind of change in the nature spending from a level of urgency to something less?

We’re not seeing at Symantec. We analyze 10 trillion security incidents a year. So the scale of what we’re seeing only continues to increase.

Thanks Mike, Thanks, Thomas.

We’ll next to Matt Hedberg with RBC Capital Markets.

Yeah. Thanks guys for taking my questions. I wanted to circle back on the consumer business, in your prepared remarks I know you guys mentioned the migration to cloud-based subscription sounds like it should be done by next summer? And given the context of Norton falling, I think, you said between 5% and 8% this fiscal year? Once this migration is completed, is that really would gives you the confidence that this business can re-accelerated and once it does, maybe remind as about what the margin structure that business looks like?

Sure. Well, I think, there’s a number of factors play here. So one is, of course, the move to a subscription model, the other is our primary means of acquiring customers, which shifted from OEM and retail to online. So we talked about that being up 8% year-over-year. We added 600,000 new customers for Norton this past quarter. So about half of our business now is online customers and those tend to be the stickiest because they have made the positive decision to go with the best. I think we have been awarded the PC Editors Choice Award 37 times at this point. So they're making a positive choice to go with the premium offering for security. And we find that those customers have a larger lifetime value, 30% more relative to in fact a customer that comes in through OEM or retail. So that’s what we’re excited about in terms of driving some improved numbers for this business and getting back to a topline, its flat if not growing. The market for paid consumer security growing at low single digits, the no reason why this business wanted transform all subscription, primarily acquisition of online customers can't get to that level. And as I mentioned previously, we’re looking at ways to leverage the Norton brand to get into some new areas. I’ve talked about Internet of Things as an example. More and more consumer devices in the home exposed to security threats. So we're looking at some ways to drive the business to grow faster that will be separate from kind of the offerings that are available today. So it is that combination of things that gives us confidence that this business should continue to improve not just next year but in the foreseeable future. Then the margin structure, we said that our margin target is 52% to 54%. We've been a little bit better than that. Recently 57% in the first quarter, this quarter 55%. We do expect to operate in that more normalized range and part of the reason we’re saying that is because we are making some investments in the business, improving the customer experience, investing in that acquisition channel, getting customer, more customers online. And then obviously some investment going to what can we do in new areas to leverage the Norton brand as I mentioned. So that will drive the margin a little bit lower than what we've seen in the last two quarters as we look further out.

That’s great. And then maybe, Thomas, looks like the Americas, I believe was maybe your lower growing yield this region. I think EMEA was a little closer to flat. Can you give us a sense, from a geographic perspective how we should think about performance in the second half of the fiscal year?

Yeah. So, when you talk of the Americas, it is a mixture of regions. I think it’s fair to say that our U.S. based business did well. Our federal business within that region did very well and EMEA met our expectations. We think moving forward there in the second half that that Europe could pick up a little bit in terms of overall contribution to our results and APJ is probably going to stay where it is. And we are just looking at the pipeline and how the momentum develops to see that the domestic business is continuing with the strengths we’ve seen in the second quarter.

In fact, I'll add to that. In the Americans in particular, for Enterprise Security new business activity, we saw the strongest year-over-year growth in the last 10 quarters. So, we wish we saw that consistently across the globe but Americas particularly strong.

Very helpful. Thanks Mike.

We'll go next to Keith Weiss with Morgan Stanley.

Thanks for taking the question guys. I wanted to follow-up. There is many several opportunites drill down a little bit more into that consumer side of the equation. And this is -- I guess, this is much of a clarification than anything. So, when you talk about the 600,000 new subscribers to Norton, is that only on the online side of the business? And can you give us a sense of sort of what’s the growth rate in the overall base and help us, how to understand the equation between sort of overall units versus ASPs, what's causing the declines in that business today? And how that like, which side of the equation is likely to recover and get you back to flat growth on a go-forward basis.

Sure, Keith. So, we are going to transition and because the business is ratable, we are talking about customers rolling off, a download model into a subscription model. That’s why we are taking so long for this transition. That’s compounded by the change in how we are acquiring customers, moving from primarily OEM and retail into primarily online. So that’s the dynamically that you are looking at. The 600,000 customers that we added were exclusively online acquisitions. So, obviously that’s being offset by continued declines in retail and OEM. But of course, as we start to get the millions of customers, as we talked about before, we protect 65 million consumer endpoints out there. So, as we begin to reach the second half year of that migration to the subscription service, the numbers begin to look better. And what we are really excited about is when we get through that complete transition, which we talked about summer of 2016. It would be very interesting to see obviously, what the year-over-year comparisons look like then. But we have to wait a while to get to that point but that point of business should be primarily customers that we required online.

Got it.

And maybe obvious to everyone is the fact that why do we feel that way. It’s because retail customers tend to be shopping for the lowest price. They are doing that comparison and OEM customers don’t necessarily renew it all. So you pay those fees up front a year later that customer may not renew with you at all. You paid that placement fee, you get no value for that, that’s why we are so excited about this transition.

Got it. And then one element of the consumer business that you guys haven’t talked about is the mobile side of the equation. Are you also seeing traction with sort of taking people using that mobile side of equation and is that helping ASPS to certain extent?

Not helping ASP because we are providing that for free today. I wish we had a way to monetize that, but today we’re providing mobile protection either for iOS or Android for free. You can download that Norton mobile at those apps stores. There may be a way in the future to monetize that. We don't have an idea for that today. There have been 10s of millions of downloads of Norton mobile. So that -- obviously it helps us with brand recognition of the top quality, consumer protection that we get benefit because we're incorporating that threat telemetry of what those mobile endpoints are seeing in our massive data base our intelligence network. But monetization is something that we'll have to wait for later day there.

Got it. And if I could sneak one last one in, on the channel program. You guys talked about the new channel program, you put into place. We’ve heard excitement from your channel partners about this new program and maybe sort of refreshed emphasis on the channel. We also recently lost your head of distribution, who people looked at as a real sort of channel champion. And there was some -- in the trader, I had some concern that that might upset momentum in the rollout of this channel program. How do we garner confidence that you guys are going to be able to sort of sustain the momentum, sustain the focus of your channel partners through this leadership transition on distribution?

So I think you are referring to our head of worldwide sales. He didn't leave -- he was terminated for cause. Now, the good news is, we have a pretty deep bench of folks with experience with the channel. Symantec always have been a channel company. We’ve been a channel company for 30 years. So I think those partners who work with us for a long time know that our commitment is unwavering there. And it’s great that we've now introduced Secure One, our new channel program, which now for the first time can be focused on security partners. I mean to be honest, our channel was the previously more geared towards our Veritas business, some of the larger deals that were stores deals versus security, that give us chance to work with those partners who are focused on security. And now we've got incentives in place a little bit as they get really trained on our products so we’re certified. There is better economics or incentives for them. So, I think we’ve got the right focus on getting those folks who specialized in security. And the right incentive so they can make more money by investing with us overtime.

And ladies gentlemen, that does conclude the Q&A session of today's call. I'd like to turn it back over to our speakers for any comments and closing remarks.

Thank you for being with us.