Symantec Corporation (NASDAQ:SYMC)
October 25, 2011 12:00 pm ET
Christopher Hummel -
Stephen M. Bennett - Chairman and Member of Compensation Committee
Enrique T. Salem - Chief Executive Officer, President and Director
Scott C. Taylor - Executive Vice President, Secretary and General Counsel
Richard Robinson - Chairman of the Board, President, Chief Executive Officer
Gregory King -
Stephen M. Bennett
Good morning, everybody. I'm Steve Bennett, Chairman elect of Symantec, Board of Directors, and I'd like to welcome all of you to the Annual Shareholder Meeting for 2011 from Symantec employees, its board and its management team.
Before we get started on the business of the day, I'd like to introduce the board members that are present. Paul Unruh, Steve Miller, Dan Schulman, David Mahoney, Geraldine Laybourne, Michael Brown and Enrique Salem, Symantec's CEO and President. Also some of the key members of the Management team, Bill Robbins, EVP of Worldwide Sales and Services, I I think, right? Francis de Souza, Group President of Enterprise Products and Services; James Beer, Executive Vice President and CFO; Janice Chaffin, Group President of Consumer Business, and did I miss anybody? Scott Taylor, EVP, General Counsel and Corporate Secretary and last but not least, EVP and Chief Human Resource Officer, Becky Ranninger.
So I want to remind everybody that we are video conferencing this and recording it, and so there will be a replay available later in the day.
Also Helyn Corcos, Vice President, Investor Relations is with us today and also Jana Barsten and Chantal Adam of KPMG, our independent registered public accounting firm. They will be available to answer any questions any of you have later in the meeting.
And at this time, Scott Taylor, our Executive Vice President, General Counsel and Secretary will conduct the formal portion of the meeting and record the minutes. Then, Mr. Salem will present an overview of Symantec's corporate strategy. Then, we'll address your questions.
Over to you, Scott.
Scott C. Taylor
Thank you, Steve, and good morning, everybody. If there are any stockholders who have not registered their attendance at the meeting, please go to the registration desk located at the entrance of the room and register at this time. Upon registration, you are provided with an agenda for the meeting and the Rules of Conduct for the meeting. The agenda and Rules of Conduct are also posted on our Investor Relations website at www.symantec.com/invest. In order to allow for an orderly meeting and permit sufficient time for any questions, we ask that you abide by these rules.
After the proposals are presented, you'll be given an opportunity to ask questions regarding the proposals. There will also be a question-and-answer period for company-related questions after the management proposal -- management presentation, excuse me.
If you would like to ask a question, please raise your hand and a microphone will be passed to you. Once you have been recognized, please identify yourself by name and state whether you are a stockholder or a holder of the proxy of a stockholder. Any such questions will be subject to the Rules of Conduct for the meeting.
We have an affidavit from Broadridge certifying that the stockholders of record as of August 26, 2011, were mailed a notice of Internet availability of proxy materials on or about September 6, 2011. The affidavit of mailing and notice will be filed with the minutes of this meeting.
Board of Directors has appointed Christopher Hummel from Broadridge to serve as the inspector of elections. Mr. Hummel, who's sitting in the back of the room, has taken the oath of office and is prepared to serve. Mr. Hummel has advised me that we have present in person or by proxy a sufficient number of shares to constitute a quorum. Accordingly, the meeting is duly constituted, and we may proceed with the business. It's 9:05 a.m. on October 25 and the polls are now open for voting. They will be closed at the conclusion of the formal portion of this meeting. Until the polls have closed, any stockholders may revoke or change his or her vote on any matter. However, once the polls are closed no further ballots, proxies or votes or any revocations or changes will be accepted.
If you previously voted via the Internet, telephone or mail, you don't need to take any further action at this meeting. If you didn't previously vote or wish to change your vote, please raise your hand and we'll provide you with the ballot to vote with this morning. Would any one like a ballot?
We will collect the ballots after the voting has been completed on all matters on the agenda. Upon receipt of the ballots, the polls will officially close, and we will announce the preliminary results of the voting at the end of the formal portion of the meeting.
Let's move on to the proposals and the discussion. There are 6 proposals on the agenda today. The first proposal is to elect 9 directors of Symantec's Board of Directors. The Board nominees for election to the Board of Directors are Stephen Bennett, Michael Brown, Frank Dangeard, Geraldine Laybourne, David Mahoney, Robert Miller, Enrique Salem, Daniel Schulman and Paul Unruh. We did not receive any other nominations for Directors. The second proposal is to ratify the appointment of KPMG LLP to serve as Symantec's independent registered public accounting firm for 2012 fiscal year. The third proposal is to approve an amendment to our 2000 Director equity incentive plan, as amended, to increase the number of authorized shares issuable thereunder by 50,000 shares. The fourth proposal is an advisory vote on executive compensation, and the fifth proposal is an advisory vote on the frequency of future advisory votes on executive compensation, and the sixth and final proposal is a stockholder proposal regarding special stockholder meetings, which is described on Pages 24 and 25 of the proxy statement.
At this time, I will ask a representative of the proponent of this stockholder proposal, Richard Robinson, to address the meeting. Mr. Robinson is a qualified representative for Kenneth Steiner, the proponent. Mr. Robinson, please join me.
This is proposal 6, stockholder proposal regarding special stockholder meetings sponsored by Ken Steiner of Great Neck, New York. Resolved: Shareholders ask our board to take necessary steps unilaterally to amend our bylaws governing the documents to give holders of 10% of our outstanding common stock the power to call special shareholders meetings. Special meetings allow shareholders to vote on important matters and shareholders' input on the timing of shareholders meetings that's especially needed for events to unfold quickly and issues may become moot by the next shareholder annual meeting.
This proposal topic won more than 60% support at the following companies: The companies were CVC Caremark (sic) [CVS Caremark], Nextel, Safeway and R.R. Donnelley. Please encourage our board to respond positively to this proposal, Special Shareholder Meetings, Proposal #6. Thank you for your time.
Scott C. Taylor
Thank you. At this time, I would like to ask Greg King, Vice President of Corporate Legal Services and Assistant Secretary to provide Symantec's Board of Directors recommendation with respect to this proposal.
Thank you, Scott. Symantec's Board of Directors recommends a vote against this proposal. We believe that it is important for stockholders to have the ability to call a special meeting, but a reasonable threshold is necessary to reduce the expense and disruptions of the company and to prevent a small group of stockholders from calling a special meeting to serve their self interest rather than the best interest of the company and its stockholders.
Furthermore, we believe the passage of this proposal is not necessary because the company's bylaws already provide stockholders with the ability to call special meetings and other meaningful rights to take action and influence the governance of the company.
Scott C. Taylor
Mr. King. Okay. Anyone has any questions regarding any of the 6 proposals, please your raise your hand at this time. For those on the phone, operator, please provide instruction.
Scott C. Taylor
Do we have any questions in the room? Operator, do we have any questions on the telephone?
There are no questions at this time.
Scott C. Taylor
Pause for a minute more.
Scott C. Taylor
Okay, since there are no questions, we'll move on. Stockholders who are voting in person should now mark their ballots on Proposals 1 through 6. Is there any ballots to collect in the room?
Okay, let's move on to the results of the voting. It is now 9:12 a.m. on October 25, and the polls are closed. No additional ballots, proxies or votes, changes or revocations will be accepted. I will now ask Mr. Hummel to give his report on the preliminary voting results.
Thank you and good morning. As inspector of elections, I have completed the preliminary tally of the votes. Based on the proxies and ballots received, the preliminary results of the meeting are as follows: Each of the boards 9 nominees have been elected to the Board of Directors. Each nominee was elected by a majority of the votes passed.
Proposal 2. Proposal to ratify the appointment of KPMG LLP to serve as Symantec's independent registered public accounting firm for the 2012 fiscal year has been approved by the affirmative vote by holders of at least the majority of the shares of the company's common stock who attended the meeting either in person or by proxy.
Proposal 3. The proposal to approve the amendment to our 2000 Director equity incentive plan as amended to increase the number of authorized shares issuable thereunder by 50,000 shares has been approved by the affirmative vote by holders of at least the majority of the shares of the company's common stock who attended the meeting either in person or by proxy.
Proposal 4. The advisory vote on executive compensation has been approved by the affirmative vote by holders of at least the majority of the shares of the company's common stock who attended the meeting either in person or by proxy.
Proposal 5. The frequency of future advisory vote on executive compensation recommended by stockholders is every one year.
And finally, Proposal 6. The stockholder proposal has been approved by the affirmative vote by holders of at least the majority of shares of the company's common stock who attended the meeting either in person or by proxy. Thank you.
Scott C. Taylor
Thank you, Mr. Hummel. Final report by the inspector of elections will be filed with the minutes of this annual meeting of stockholders. In addition, we will report the final voting results on our Investor Relations website and in the current report Form 8-K within 4 business days.
I would now like to turn the floor to Mr. Bennett.
Stephen M. Bennett
Thanks, Scott. This ends the formal portion of our meeting. There being no further business to come before this meeting, this meeting is adjourned. We would now like to proceed by introducing Enrique Salem, Symantec's President and CEO, to give an update on Symantec's strategy. Enrique?
Enrique T. Salem
Thank you, Steve. Good morning, everyone. Thank you for joining us today. I'll take just a few minutes to give you an update on our strategy and vision for the company. Let me start off though with this presentation contains a number of forward-looking statements, and I'd refer you to our SEC filings for further understanding of the risk factors. Also as we run the business, we use both GAAP and non-GAAP financial metrics to manage and report our results.
Just some quick facts on Symantec. The company was founded in 1982, and we went public in 1989. The company over that period of time has grown to approximately 20,000 employees, and at the end of fiscal year 2011, we reported $6.2 billion in revenue.
It's important to note a couple of things that we're very proud of is today, we have over 1,200 patents that are in Symantec's name, and we also are recognized one of the most admired companies in the United States. We're also very proud of the fact that 100% of the Fortune 500 currently uses Symantec products.
A little more about our business, as we look at the composition of our revenue, today, about 32% of our revenues come from our Consumer business, 25% comes from the Security and Compliance segment and another 37% from our Storage and Server Management business.
About 6% comes from our Services business, and that represents the total composition of our revenue.
If you look at across the geographies, we have a very distributed revenue generation capability with about 55% of our revenue coming from the Americas, 29% from Europe and 16% from Asia-Pacific and Japan.
It's also important to note that our segments have a range of profitabilities, but our Storage and Server Management business today has a 46% operating margin when you exclude G&A from the calculation.
Our Consumer business is at 46%, and then we've got our Security and Compliance at 16% and our Services business at 7%. Obviously, our goal is to continue to improve the profitability of all of our segments.
What I'd like to do now is to turn our attention to what are we trying to do with Symantec. We have to ground our thinking in what are the biggest issues that are facing our customers. When we look at the issues that are facing them today, what they talk about is what are the big changes that are driving their business. Today, there are 5 big trends. First and foremost, they're talking about how the cloud or cloud-based services will redefine or change their business going forward. Secondarily, everybody is trying to do more with less, and virtualization really enables them to do that by allowing them to better utilize their servers, their storage infrastructure and their endpoint devices.
The next major trend is mobility. I think this one goes without saying in the December quarter of last year more mobile devices were sold than PCs. We expect that by 2015, there'll be 15 billion devices connected to the Internet, and so this is probably one of the biggest changes that will happen in endpoint computing over the last 30 years.
Two trends that are very specific to Symantec is what we call the explosion or the growth in information. At the beginning of 2010, when I first started talking about what would happen this year, it became very clear that data would grow very rapidly, and we predicted that it would grow at 40%. But it actually grew at 62% over the 2010 period, and that number continues to grow at a very rapid rate. We expect that at the end of this year, there'll be over 800 billion -- sorry, 800,000 petabytes of data in the world.
And lastly, the threat environment. Threats have become much more targeted. When I started working at Symantec in 1990, threats used to move on floppy disks. Today, they spread very, very rapidly. It takes only moments for a threat to go from one end of the world to the other. Companies, individuals, governments have all become targets, and so these threats continue to provide a backdrop for our business because, clearly, people need to be protected.
Now what does Symantec do? Given these threats and these trends, our business is really focused on solving a couple of key customer problems. The first need that we're seeing that's becoming very critical is that people's business and personal lives are starting to converge. Wherever you go, you still want to be able to access the information that you use whether from a personal perspective or for a business perspective. People want simple and secure access to information, and when I meet with CIOs, they're always struggling to figure out how they can scale up their infrastructure in a secure and cost-effective way.
Our vision is specifically about how do we help people work and play clearly in a connected world. This has never been more relevant because people are trying to get out on the Internet, and they're trying to take advantage of the great resources that are available, but they need to be able to do it in a secure way. Businesses have become completely interconnected from the production of raw materials to the end products, and as this connectivity has happened, people need help being protected.
Now our strategy becomes very clear in a couple of ways. Our goal is to make sure that we can secure and manage information and identities, because we believe it's about people, not devices. With all due respect to all the device manufacturers, a device today, you may have a different one tomorrow, and so from our perspective what becomes very important is: what are people trying to do, how do we keep them secure and how do we protect the information that they're using. A couple of things that we will absolutely execute against is making sure that we can secure identities and secure the devices.
We will also focus on protecting the information, but protecting information is not just keeping bad people away from it. It's also about being able to recover it in the case of a disaster. Symantec is uniquely positioned given the combination of assets that we have. We're the market leader in backup and recovery. We're the market leader in security.
And then the last point is around context and relevance. There is so much information in the world that how do you get the right information to the right people at the right time. Recently, we did an acquisition of a company called Clearwell. It's a quintessential example of this point because in the legal discovery process, you start with terabytes of data, and you're ultimately looking just for a few documents that really matter. So those are the documents that are appropriate for specific conversation. In this case, a lawsuit. And so it's a quintessential example of what we mean by context and relevance, which is finding the right information and making it available to the right people at the right time.
If we look back at FY '11, we set out to do a number of things. First and foremost, we felt it was important for us to improve our customer and partner loyalty. Our focus on measuring what we call the Net Promoter Score, and we took a number of activities and actions to make sure that our customer loyalty scores were improving across the enterprise, consumer and partner segment. And I'm pleased to report that over the fiscal year '11 period, all of the metrics improved, and we will continue to see improvements in those numbers given the actions we took in FY '11.
What do customers care about? Three things: They want products that are easy to use. They want high-quality offerings. They want to have it -- make it easy to work with their company or partner, and then lastly, they also want to make sure that the support experience is as easy to interact with the company as possible. And so those 3 things, quality, support, and ease of doing business are what matter to our customers.
When we set through to the year, we did 3 meaningful acquisitions. We acquired Verisign Security Business. We acquired PGP, and we acquired GuardianEdge. I'm happy to report that we achieved all of the metrics that we set out for ourselves at the time of those acquisitions, and we are clearly seeing the ability to not only deliver on those results but exceed the expectations that we set for ourselves. We've become much better at driving integration and growing the revenue streams from the acquired businesses.
And lastly, one of the most important things is we have to be able to execute consistently. A number of businesses really shine through at this point. Our consumer businesses continued to grow now over a 3-year period. They've grown every quarter. Our backup business is showing strong results and is continuing to perform well as customers move from tape-based businesses to disk-based backup and using new technologies like deduplication. We've also successfully launched our .cloud business, which is really taking advantage of customers' interest in moving from on-premise solutions to cloud-based solutions.
Now lastly, we've seen significant strength in our data loss prevention. As I talked about our business and the new threats that are attacking businesses and individuals, the need to protect information has never been higher. In the March quarter of 2011, this business doubled on a year-over-year basis, and we continue to see momentum in helping businesses protect their critical information.
Lastly, we were able to stabilize our Storage Management business, and we continue to see stability in that business over the first 2 quarters of this fiscal year.
Now let's turn our attention to fiscal year '12. As we set the priorities for the business, we took a very segmented approach, and we said first and foremost, we have to strengthen our core businesses across enterprise, small business and consumer. And then we also have to capitalize on the new growth opportunities around virtualization, cloud computing and mobility. Let's take a little closer as to how we're focused on these priorities.
First in the consumer business, it's important that we continue to protect consumers' information what they sometimes refer to as their stuff wherever it is, on any device, whether it be a mobile device, a PC or a non-PC device. One of the things that we've done to make sure that we can be successful in this businesses is we have been focused on driving new multi-channeled approaches to reaching the market. We've got a whole new set of partners, and we've also invested in our eStore that is allowing us to customize and tailor the solutions and offerings that we deliver to our customers.
We also have been recognized as having the best overall experience. We will continue to drive significant improvements, and in 2012, the new 2012 version of our products has recently won PC Magazine Editors' Choice for its new capabilities around protecting the customer and also the quality of its user experience.
And lastly, we continue to expand our services beyond the typical services that we've delivered by offering things like new help desk solutions for the consumer, offering Norton Data Services where you can back up your data over the Internet and lastly, the new capabilities around mobile platforms.
In May of 2011, we created a new group to focus on the SMB segment. The reason we did that was we felt that there is a lot of opportunity across small businesses around the world. The solutions that are required for small businesses are actually different than are required for consumers or large enterprises, and so we've created a new group to make sure that we were able to deliver the appropriate solutions to those markets.
We also are driving new solutions in new cloud-based offerings that we feel are appropriate for this segment because they are the early adopters of these simple-to-use solutions that don't require on-premise IT staff.
Lastly, we'll continue to partner to extend our reach in the SMB segment because, as you know, there are millions of small businesses around the world. It's important to have a healthy partner community to reach them, and then obviously, we will continue to drive the overall understanding of Symantec's offering for that segment.
Lastly, in the enterprise and public sector, a couple of things are important. First, we have to be able to cross sell our portfolio. We have a very robust portfolio across storage, storage management, availability, security, and we need to be able to sell the entire portfolio.
In the March quarter of 2011, 49% of our deals over $1 million included products across both segments. As we think about our business, the most important asset of any business is the information they use everyday, and so Symantec is taking a very information centric approach to serving our business customers. And then lastly, we want to make sure to simplify the overall experience for all of our enterprise customers.
As we look forward though, it's important to think about the 3 big trends that we think are impacting customers the most: cloud computing, virtualization and mobility. These are creating new opportunities as we outline a vision that says people need access to information on any device at any time. It creates new challenges for businesses. People come in with their new device and they say to IT, I want to use this device. Unfortunately, that creates risk and complexity for the environment. Our goal is to help our customers be able to manage those devices, to secure those devices in a very efficient way.
Cloud computing when it was initially discussed really looked like it was just going to be another name or fad that would replace previous things like utility computing. We fundamentally believe, as we talk to our customers, that cloud computing is a fundamental rethink of how IT services will be delivered. We absolutely believe that it will move the center of control from IT to the lines of business, and Symantec has to help IT manage through this transition because the biggest barrier to the adoption of cloud computing today is security. Where does your information live? Do you have control? Are you going to be able to recover it if you need to? So Symantec is very focused on helping our customer secure the information that is being utilized inside of cloud-based offerings.
And lastly, in virtualization, I think what's important is every IT executive is being asked to do more with less. Virtualization really gives you that opportunity. As customers try to move from their tests and dev environments to their production environment, they need help. They need help securing it. They need help managing it. They need help optimizing it. Symantec is uniquely positioned to help our customers drive the adoption of virtual technologies, and so we've created a whole portfolio of solutions that help us deliver those capabilities from a small businesses to large enterprises.
So the investment pieces here at Symantec is very straightforward. We have a continuing growing business. We continue to drive improving cash flows and revenue growth. We've got a measured strategy that allows us to use a combination of organic development and M&A to strengthen our portfolio.
As we look at the revenue streams, 65% of our business -- 65% to 75% of our business currently comes off the balance sheet. We expect to see a number of additions to our portfolio that will drive more of a subscription-oriented licensing model, which will drive a higher deferred revenue component, which makes our business even more predictable. And we continue to drive growth in margins and improvements. As you look at our current margins, we believe that year in and year out, we will be able to continue to drive those improvements as some of our investment areas start to scale. We've made big investments in cloud computing, appliances, that today our relatively small businesses, but as they scale up, they will drive improvements in the overall profitability of the business.
And then lastly, from a cash balance perspective, as of July 1, 2011, we had $2.3 billion in cash. Our operating cash flow for fiscal year 2011 is $1.8 billion, and as a way of returning value to shareholders, we repurchased $870 million of our stock in fiscal year 2011. Lastly, our Board of Directors authorized $1 billion stock repurchase at the beginning of 2011.
With that, I'd like to stop and see if there are any questions from the audience or on the phone, operator?
Enrique T. Salem
We have a question in the room. Go ahead. Here's a microphone.
My name is Daniel Goldsmith. I'm a shareholder. My questions are financial, not technological in nature. I read somewhere and I apologize for not bringing with me that the Symantec's acquired many companies over the last few years that the value of the acquisitions was actually in aggregate greater than the market cap of the company currently. So I want to know if you can comment on that because that doesn't sound very positive?
Enrique T. Salem
When you look at the acquisitions the company has done, the total value is a number probably close to about $19 billion. What you have to look at is multiples in the technology industry have changed dramatically. At one point, the NASDAQ traded at 5,000 and today, it trades at half of that value. So multiples have changed over that period of time. What I like to focus on though is the acquisitions that we're currently doing, where the 3 acquisitions we did last year and we gave very detailed guidance around our expectations. We've exceeded those targets for all of the acquisitions, and so I believe that we will continue to invest 14% or so of our dollars in internal R&D, but then, we will also continue to look to what are the opportunities to buy companies that can extend our portfolio and help us execute on our business. Thank you for the question. Operator, any questions on the phone?
There are no questions at this time.
Enrique T. Salem
Oh, we have another one here in the room.
Okay, these 2 are related. In looking through the material sent, the profits have gone down the last 3 years even as the shares outstanding has gone down. So that's usually not good either because just by buying back shares, it should -- if everything was flat, it should increase the earnings per share. So related to that, over -- even the 5 years shown in here, the stock price has hardly increased at all, so I was just wondering what's being done to address shareholder interest.
Enrique T. Salem
Absolutely. When you look at the current operating margins of the company, a number of things do impact those margins. Two things, in particular. As we acquire certain companies, we have to use purchase accounting to basically consolidate our results, and so what that does is it has a temporary effect of lowering our margins as we rebuild the business that was done by the company that we acquired. The second point is we have made investments in the areas of virtualization, cloud computing and mobility that we think are important to drive the future growth of the company. If you look at our performance over the last 12 months, today, our stock is up about 20% in the year-to-year period, and we continue to believe that by consistently executing which has been one of the goals for this management team, we will create shareholder value. As we reported on our last earnings call, we've had 4 consecutive quarters of at or above expectation results, and we expect that to continue. Thank you for your question.
Okay, if there are no further questions, then at this point, I'd like to conclude my presentation and the annual shareholder meeting. Thank you very much for attending.
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