SYMANTEC CORPORATION 3Q11 EARNINGS PREPARED REMARKS

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1 Introduction Helyn Corcos, Vice President Investor Relations Good afternoon, and thank you for joining our call to discuss fiscal third quarter 2011 financial results. With me today are Enrique Salem, Symantec s President and CEO and James Beer, Symantec s Executive Vice President and CFO. In a moment, I will turn the call over to Enrique. He will discuss how Symantec executed during the quarter, then James will provide highlights of our financial results as well as discuss our guidance assumptions as outlined in the press release. This will be followed by a question and answer session. Today s call is being recorded and will be available for replay on Symantec s investor relations website at A copy of today s press release and supplemental financial information are posted on our website. And, a copy of today s prepared remarks will be available on our website shortly after the call is completed. Before we begin, I d like to remind you that we will review our financial results focusing on year over year constant currency growth rates unless otherwise stated. Sequential growth rates are based on as reported results. For the December 2010 quarter, the weighted average exchange rate was $1.35 per Euro and the end of period rate was $1.33 per Euro compared to our guided rate of $1.35 per Euro. For the December 2009 quarter, the weighted average rate was $1.48 per Euro and the end of period rate was $1.43 per Euro. We ve included a summary of the yearover-year constant currency and as reported growth rates in our press release and in our supplemental information. Please note, due to the recent fluctuations in currency rates, we have decided to guide to an exchange rate of $1.35 per Euro for the March 2011 quarter, contrary to our original foreign currency view of $1.30 as noted in our January 12, 2011 Foreign Currency Update. Some of the information discussed on this call, including our projections regarding revenue, operating results, deferred revenue, cash flow from operations, amortization of acquisitionrelated intangibles and stock-based compensation, for the coming quarter contain forwardlooking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in the statements. Additional information concerning these risks and uncertainties can be found in the company s most recent periodic reports filed with the U.S. Securities and Exchange Commission. Symantec assumes no obligation to update any forward-looking statements. In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Symantec reports non-gaap financial results. Investors are encouraged to review the reconciliation of these non-gaap financial measures to the most directly comparable GAAP results, which can be found in the press release and on our web site. And now, I would like to introduce our CEO, Mr. Enrique Salem. 1

2 Enrique Salem, President and CEO Thank you, Helyn, and good afternoon, everyone. I m very pleased with our double digit bookings growth and solid performance across all product lines and regions. This led to better than expected results and drove record deferred revenue. We benefitted from strength in consumer, backup and data loss prevention, as well as stability in the storage management business. In addition, our recent acquisitions exceeded expectations and continued to deliver strong results. Now, let s take a closer look at some of the highlights from the quarter. Consumer delivered another solid quarter of mid-single digit revenue growth, driven by the strength of our market leading products and breadth of our multi-channel distribution network. We continue to expand our free Norton Security Scan and Norton PC Checkup services into alternative channels such as DivX, W3i, LG Electronics, PalTalk, ICBC, and Adobe. These types of new relationships allow us to reach more than 350 million consumers that may not be using traditional Norton products and introduce them to our full line of security suites and services. The trend in our trial conversion rates stabilized during the quarter as the team continued to focus on enhancing the trial experience. Our ability to target offerings through our dynamic ecommerce platform benefited subscription renewals and helped us up-sell and crosssell consumers to our premium suites and services. Our new 2011 Norton products offer the fastest and most effective security protection without sacrificing PC performance. The 2011 products have won 54 awards and received 329 positive reviews, more than any other competitor. In our backup and archiving business, NetBackup posted double digit bookings growth driven by strong demand for virtual machine protection and deduplication. We are the only company to provide deduplication at the client and the media server through either software or an appliance. Our new NetBackup 5200 appliance series is the industry s first all-in-one hardware and software backup solution with integrated deduplication. Initial customer response has been very positive. We continue to see strong customer adoption of our capacity based pricing model which positions us well to take advantage of the growth in unstructured information. In the SMB segment, Backup Exec generated its third consecutive quarter of double digit bookings growth. We are seeing increased loyalty from our channel partners as we continue to build momentum in the SMB market. Windows IT Pro named Backup Exec the Best Backup Software Product. In addition, Redmond Magazine selected Backup Exec as the best backup and recovery product for the fifth consecutive year. Performance of our storage management business stabilized during the quarter. For example, State Street Bank chose to expand their use of Storage Foundation throughout their business critical data centers because of our unique ability to manage heterogeneous IT environments. Customers value our ability to help them reduce costs and accelerate the adoption of virtualization and cloud solutions. Our enterprise security business delivered solid results with strength in data loss prevention and our recent acquisitions. Recent media attention surrounding WikiLeaks and sophisticated 2

3 malware attacks such as Aurora and Stuxnet have resulted in increased CISO interest in our leading data protection solutions. The complementary nature of our encryption offerings coupled with our data loss prevention solutions help customers prevent information loss. In addition, we make it possible for customers to secure industrial control systems and build out smart grid infrastructures. By addressing these challenges, we are developing meaningful customer relationships, allowing us to cross-sell more of our endpoint and mail security suites, especially in the large enterprise. Our recent acquisitions also drove strength in our enterprise security business. I m very pleased with the team s focus on growing these businesses and integrating operations. The Trust Services team, which manages our SSL business, achieved its highest bookings in nine quarters and grew the installed base double digits. We are driving increased enterprise adoption of our premium VeriSign SSL offerings with unique features such as certificate management, malware scans, and seal-in-search. In addition, we are successfully taking advantage of our GeoTrust and Thawte brands to take share in the more price sensitive segments of the market. We completed the integration of VeriSign s management console into the Symantec Protection Center. We also completed the integration of seal-in-search into our Norton security products. Through Norton, we are already generating more than 75 million additional trust seal impressions per day. Furthermore, we are leveraging VeriSign s retail website to cross-sell our Norton products. We continue to leverage the PGP and GuardianEdge encryption products in our distribution channels and have moved quickly to integrate encryption technologies across the portfolio. We shipped Symantec Endpoint Encryption 8.0, which supports a wide range of operating systems including Windows, Mac OS X, Linux, Windows Mobile, and BlackBerry. With the global enterprise sales force now selling our user authentication and encryption offerings, we are generating healthy pipeline growth. In summary, the great strides we have made in effectively integrating acquired technologies and leveraging our distribution network are making a difference in our ability to drive value for customers and shareholders. Now, I would like to discuss a few of the initiatives driving long-term growth for Symantec in the areas of mobile, virtualization and cloud adoption. Let s start with mobile. Mobile devices are increasingly being used in both our personal and business lives, offering productivity increases but also creating new security and management challenges. Our solutions manage and protect mobile devices by enforcing governance, securing corporate data and increasing visibility of all mobile platforms. We offer mobile management and endpoint protection capabilities for Android and Apple ios, in addition to Windows Mobile, Symbian and BlackBerry. These solutions include features such as remote wipe, password policy enforcement and device inventory. Customers can utilize our DLP solutions to mitigate the risk of data loss 3

4 through mobile devices. Our cloud based security offerings allow enterprises to confidently adopt mobile solutions. In addition, our recent acquisitions extend our reach within the mobile market with advanced mobile encryption and authentication solutions. For the consumer, our Norton Everywhere initiative provides a hassle free online experience across mobile phones, tablets and smart devices. In January, we launched Norton DNS which provides faster and more reliable web browsing without requiring software to be downloaded onto the device. Our Norton Mobile Security offering is generating strong partner interest as we extend our multi-channel distribution network into these new opportunities. In retail, Best Buy Canada will soon offer Norton Mobile Security. Kingston Digital, the independent world leader in memory products, and its software partner FUHU selected Norton as the security provider for their USB Flash drives. Universo Online, Brazil s largest internet service provider, began offering Norton mobile solutions to its customers. Expect to hear more about how we are expanding distribution of these new offerings at the Mobile World Congress in Barcelona next month. While still early, I m pleased with the progress we are making in seeding the mobile market. Moving on to virtualization. Organizations are increasingly adopting virtualization to reduce costs, enhance flexibility and build public and private cloud infrastructures. As a result, environments become more complex and leave mission critical applications and data unprotected. Our solutions help organizations secure, manage and optimize their virtual environments from the datacenter to the endpoint. Our enterprise solutions are already helping customers secure information and identities in both virtual and physical environments. Our Symantec Endpoint Virtualization suite helps customers save operational costs, optimize license consumption, and employ a hybrid virtual solution in their environments. In addition, upcoming releases of our Data Insight solution will allow our products to proactively apply security and compliance controls in a virtualized world. NetBackup helps organizations protect, deduplicate and recover information in both physical and virtual environments through a single, unified platform. Results from benchmark testing conducted in partnership with Cisco and VMware highlight NetBackup s ability to protect more than 3,200 virtual machines on a single backup host and deduplicate more than 98 percent of redundant information. NetBackup received the Best of VMworld award in 2010 as a result of its market leading data protection and virtual machine capabilities. NetBackup has won awards for virtual server protection three times in the last four years. With its Monitoring Plug-in feature for VMware, Backup Exec is the leader in protecting virtual environments for small and medium sized businesses. This new capability reduces the complexity of protecting data environments as a result of direct integration with VMware vcenter. Backup Exec now protects an impressive 40,000 VMware hosts and an estimated 1 million VMware guests. For the data center, some of our new initiatives help customers virtualize applications and databases with confidence. ApplicationHA and VirtualStore, jointly developed with VMware, enable organizations to accelerate the virtualization of business-critical applications and reduce 4

5 storage costs in virtual environments. We are seeing very good customer interest for all of these solutions and expect them to provide long term growth opportunities for the company. And finally, customer adoption of the Cloud. We have a broad portfolio of cloud based solutions and services, from SaaS security to authentication services and online backup to cloud infrastructure management. These solutions help organizations lower costs and simplify IT administration, while keeping their information and identities secure. In addition to our cloud-based reputation security service, which processes over 4 billion ratings per day, we are delivering innovative solutions that can be accessed anytime and anywhere. Norton Online Backup continues to expand its cloud presence with 13 million users and 67 petabytes of stored data, a 35% increase year-over-year. As more consumers use web-enabled devices, it s key that they be able to access their personal files, videos and pictures from the cloud. Our internally developed Norton Connect application allows Norton Online Backup users to access their online information from their iphone, ipad or Android device. We recently expanded our global web-based Norton Online Family solution to include a paid premiere version, with features such as online video monitoring, 90-day histories and automatic activity reports. In the enterprise, our Symantec.cloud, or SaaS offerings, serve more than nine million business users in more than 100 countries. We continue to realize growth in our cloud-based messaging and web security solutions as customers look to simplify operations and reduce costs. Symantec Endpoint Protection.cloud, our internally developed hosted endpoint protection service, continues to garner customer interest from the SMB to the large enterprise. We will continue to deliver additional cloud services including data loss prevention and governance offerings in order to extend our lead in this fast growth market. Our Managed Security Services help customers drive efficient and effective security management. This outsourced service offers real-time protection, security monitoring, advanced analysis and early warning intelligence for companies of all sizes around the globe. Our solution enables clients to not only protect their information assets but also comply with industry regulations. As a result of increased demand for these types of solutions, our MSS business generated record double digit bookings growth this quarter. Our backup solutions are integrated with cloud partners such as Nirvanix to enable customers to utilize cloud solutions for disaster recovery and reduce information management costs. Our archiving solution enables customers to take advantage of cloud offerings such as Microsoft Office 365 and Exchange Online while maintaining on-premise archiving for easy compliance and e-discovery. Cloud computing creates opportunities for our storage and server management business with SaaS providers and as customers build out their private clouds. Our platform agnostic solutions help organizations reduce costs by commoditizing hardware and leveraging existing investments. Our products also help customers reduce complexity by simplifying the management of 5

6 heterogeneous environments to build a scalable private cloud. In addition, we are able to help enterprise customers leverage public clouds. For example, customers who use Amazon s Web Services can leverage Storage Foundation to manage online storage without interrupting access to servers and critical applications. In conclusion, these important trends will drive long term growth for our company. I look forward to sharing more with you about the progress we are making with our customers and partners in these three areas. I'll now turn the call over to James to provide the financial details for the quarter. James Beer, EVP & CFO Thank you Enrique and good afternoon. I am pleased to report that Symantec posted better than expected third quarter results for each of our key financial metrics. We generated strong bookings and cash flow from operations. Our solid performance in revenue and deferred revenue was driven by stability in the storage management business and strength in our consumer, backup, and data loss prevention businesses. GAAP revenue of $1.6 billion increased 5% in constant currency terms versus the December 2009 period. Excluding the purchase accounting deferred revenue write down, revenue growth would have been 9% in constant currency terms. The content, subscription and maintenance line grew 6% year-over-year and accounted for 84% of our revenue. Approximately 40 percentage points of this amount is subscription revenue from our consumer, SaaS and authentication solutions. License revenue declined 1% year-over-year, reflecting the second quarter of stabilization as compared to the previous six quarters of double digit declines. The US dollar strengthened 9% against the Euro as compared to the year ago period, decreasing our international revenue as measured in US dollars. Foreign currency movements negatively impacted revenue growth by 1 percentage point year-over-year and positively impacted revenue growth by 2 percentage points sequentially. GAAP deferred revenue at the end of December 2010 reached a record $3.4 billion, up 12% year-over-year, well exceeding our expectations. This was driven by solid bookings worldwide and our recent acquisitions. The tax rate for the quarter was 24%, below our guidance of 27% due to a one-time benefit from the retroactive extension of the R&D tax credit and other one-time tax benefits recognized in the quarter. Net income of $272 million resulted in fully diluted non-gaap earnings per share of of EPS benefit came from better than expected revenue, lower OEM placement fees and one-time tax benefits. These benefits were offset by 2 of EPS dilution from higher than expected sales commissions given the strong bookings and deferred revenue generated in the quarter. Excluding the purchase accounting related deferred revenue write down of $64 million from our three recent acquisitions, EPS would have been 6 higher at 41. The acquisitions were approximately 3 accretive to EPS excluding the deferred revenue haircut. 6

7 Looking at our geographic results, international revenue of $837 million increased 9% year-overyear and accounted for 52% of total GAAP revenue. Asia Pacific Japan revenue increased 8% year-over-year while the EMEA and Americas regions both increased 5% year-over-year. During the quarter, the Euro weakened against the U.S. dollar while the Yen and Singapore Dollar strengthened against the U.S. dollar. We have accounted for these movements in our currency adjusted growth rates. Now, I d like to move on to GAAP revenue and GAAP operating margin by segment. The Consumer business generated revenue of $498 million, up 5% year-over-year, as we leveraged our retail, OEM, ISP and on-line channels to attract and retain more consumers. Norton 360 generated another quarter of double-digit revenue growth and accounted for 38% of total Consumer revenue. We continue to expect stable revenue growth in the Consumer segment as we benefit from ongoing improvements in renewal rates driven by our ecommerce platform, growth in PC units and enhancements to the trial experience. GAAP operating margin for our Consumer segment was 44%, as compared to 43% in the December 2009 quarter. The operating margin improved year-over-year due to lower than expected OEM placement fees. Turning now to our enterprise business, we generated a total of 544 transactions valued at more than $300,000 each, up 18% year-over-year. 118 of these transactions generated more than $1 million, up 9% year-over-year. Of our deals valued at more than $300,000, 77% included more than one of our products and 38% of our deals over $1 million included sales from both our security and storage segments, emphasizing our ability to cross-sell our broad product portfolio. The Storage and Server Management segment generated revenue of $600 million, an increase of 3% as compared to the December 2009 quarter. Revenue from our backup and archiving business increased 5% year-over-year driven by the strength of our integrated solutions focused on deduplication and virtual environments. Revenue from our storage management business increased 1% year-over-year. GAAP operating margin for our Storage and Server Management segment was 46%, as compared to 49% in the December 2009 quarter, driven by higher sales commission expenses resulting from strong bookings growth during the quarter. The Security and Compliance segment generated revenue of $417 million, up 14% year-overyear, driven by strength in DLP and our acquisitions. Total revenue for the acquired businesses was $66 million compared to our expectation of $56 million. The VeriSign security acquisition performed better than expected, generating revenue of $48 million, while PGP and GuardianEdge posted revenue of $18 million. The combined EPS dilution from these acquisitions was 3.5, a penny less dilutive than our expectation of 4.5. GAAP operating margin for our Security and Compliance segment was 12%, as compared to 28% in the December 2009 quarter, primarily driven by increased expenses from our three 7

8 acquisitions and higher sales commissions. Excluding the deferred revenue write-down, the Security and Compliance operating margin would have totaled 23%. Our Services business generated revenue of $89 million, as we continue to transition our consulting practice to specialized partners. Our Managed Security Services business generated double digit bookings growth driven by increased adoption of our information security services within the enterprise segment. GAAP operating margin for our Services segment was 7%, as compared to 10% in the December 2009 quarter. Turning now to total company margins. Non-GAAP gross margin was 85.3% for the December 2010 quarter, down 110 basis points from the year ago period driven by the acquired VeriSign security business. Non-GAAP operating margin was 23.6%, down 460 basis points compared to the December 2009 quarter, primarily driven by the recent acquisitions and higher commission expenses. Excluding the effect of the acquired deferred revenue write-down, our operating margin for the December quarter would have been 26.7%. Cash flow from operating activities for the December quarter totaled $460 million, up 17% yearover-year as reported. Cash flow benefited from acquisitions, higher billings and lower tax payments. During the last twelve months, we have generated $1.8 billion in cash flow from operations. We exited the December quarter with $2.45 billion in cash, cash equivalents and short-term investments, with 49% of our cash balance in the U.S. During the quarter, we spent $265 million to repurchase approximately 16 million shares at an average price of $ We remain confident in the strength of our cash flow generation and continue to be committed to returning value to our shareholders. With that goal in mind, our Board of Directors has approved a new $1 billion share repurchase program. GUIDANCE: Now, I d like to spend a few minutes discussing our guidance for the March 2011 quarter. We are assuming an exchange rate of $1.35 per Euro versus the weighted average rate of $1.38 per Euro, and the end of period rate of $1.35 per Euro during the March 2010 quarter. Our guidance assumes a common stock equivalents total for the quarter of approximately 775 million shares and an effective tax rate, before consideration of any loss from our joint venture, of 27%. Thus, for the March 2011 quarter, we expect GAAP revenue to be in the range of $1.585 to $1.605 billion, as compared to revenue of $1.53 billion during the March 2010 quarter. We are expecting acquisition related revenue to total $70 million. The VeriSign security business is expected to generate $55 million and PGP and GuardianEdge are expected to contribute $15 million to our March quarter revenue. We expect year-over-year revenue to be up 4% to 5% on an as reported basis. GAAP earnings per share are estimated to be between 15 and 16 as compared to 23 in the year ago period. Non-GAAP earnings per share are estimated to be between 35 and 36 as 8

9 compared to 40 in the year ago period. We expect two cents of dilution as a result of our VeriSign acquisition. PGP and Guardian Edge will be neutral to EPS in the March quarter as expected. In addition, our EPS guidance includes approximately a penny of dilution resulting from our senior note issuance and credit facility replacement. Historically, PC unit shipments decline sequentially from December to March. While industry analysts are forecasting PC unit shipments to increase, a significant amount of unit growth will be driven from emerging markets. As a result, we expect OEM expenses to be flat sequentially. Including $48 million of deferred revenue write-down amortization for the March quarter, non-gaap earnings per share would be higher by approximately 5 and would be between 40 and 41. GAAP deferred revenue is estimated to be between $3.61 and $3.64 billion, compared to $3.21 billion at the end of March We are expecting deferred revenue to be up 13% to 14% on an as reported basis. 67% or $1.07 billion of our March quarter revenue is estimated to come from the balance sheet. We are expecting another strong deferred revenue quarter driving higher sales commissions as we complete our fiscal year. In closing, we were pleased with our performance during the December quarter and will continue to focus on consistent execution, M&A integration and expense management. And now, I ll turn it back to Helyn so that we can take some of your questions. Hand over to Helyn for Q&A Thanks. Operator will you please begin polling for questions. While the operator is polling for questions, I d like to update you on a few upcoming events. We will be presenting at the Goldman Sachs conference on February 16th and at the Morgan Stanley conference on March 1st. We will be reporting our fiscal fourth quarter results on May 11th. In addition, please save the dates for our Vision User conference on May 3rd and 4th and our Financial Analyst Day on May 26th. More information regarding details and registration for our events will be distributed later in the quarter. For a complete list of all of our investor related events, please visit our events calendar on the IR website. Operator, we are ready for the first question. Return to Enrique Salem for Final Remarks I m pleased with the team s execution and better than expected December quarter results. I m optimistic about our prospects for the March quarter. Thanks for joining us this afternoon. I look forward to speaking with you again soon. Thank you Please direct all questions to investor relations at