Symantec F1Q08 (Qtr End 9/28/07) Earnings Call Transcript

Symantec Corp. (SYMC)

F2Q08 Earnings Call

October 24, 2007 5:00 pm ET

Executives

Helyn Corcos - VP, IR

John Thompson - CEO

James Beer - CFO

Analysts

Sarah Friar - Goldman Sachs

Adam Holt - JP Morgan

John Stewart for Heather Bellini – UBS

Heather Bellini – UBS

Phil Winslow - Credit Suisse

Walter Pritchard – Cowen

George Roberts for Katherine Egbert - Jefferies & Company

Robert Breza - RBC Capital Markets

Michael Turits - Raymond James

Steve Ashley - Robert W. Baird

Daniel Ives – FBR

Tim Klasell – Thomas Weisel Partners

Rob Owens - Pacific Crest Securities

Analyst for Phil Rueppel – Wachovia

Presentation

Operator

Good day and welcome to Symantec's 2008 quarterly conference call. Today's call is being recorded. At this time I'd like to turn the call over to Ms. Helyn Corcos, VP of Investor Relations.

Helyn Corcos

Good afternoon and thank you for joining us. With me today are John Thompson, Chairman of the Board and Chief Executive Officer of Symantec; and James Beer, EVP and Chief Financial Officer. In a moment I will turn the call over to John. He will provide you with highlights of our fiscal second quarter results which ended September 28, 2007. Then James will provide financial details and a review of our guidance 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 home page. A copy of today's press release and supplemental financial information are available on our website and a copy of today's prepared comments will be available on the website shortly after the call is completed.

Before we begin, I would like to remind everyone that some of the information discussed on this call including our projections regarding revenue, operating results, deferred revenue, cash flow from operations, amortization of acquisition-related intangibles and stock-based compensation for the coming quarters contain forward-looking 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 report 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 encourage 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 website.

Now I would like to introduce our CEO, Mr. John Thompson.

John Thompson

Thanks, Helyn. Our team’s performance during the fiscal second quarter demonstrated solid execution against our four key financial metrics: revenue, EPS, deferred revenue and operating cash flow. As we continue our focus on improving the operational efficiencies of our company, we continue to see higher in-period revenue contributions from key product innovations. These efforts have the obvious offset in deferred revenue as we recognize a greater portion of revenue in the period.

In addition, last year's shift in our business model drove a greater portion of our sales activity to the balance sheet as deferred revenue. Therefore, this year we were able to recognize an increasing amount of revenue off the balance sheet.

Performance for the September quarter was driven by two factors: we experienced strong demand in our emerging enterprise technologies, specifically end point management, our compliance solutions and Enterprise Vault. Some of our core products such as Backup Exec and Consumer Protection produced strong results.

While our first half performance has been solid, exceeding our operating plan in both quarters for revenue, EPS and cash flow from operations, we have not met our planned new business targets. As you may recall, our North America operations experienced weak new business generation in the June quarter. While we saw solid sequential improvements in the Americas, we remain cautious about the business outlook. This, coupled with the uncertain economic environment, causes us to take a more conservative view of the December quarter and the remainder of the fiscal year.

We continue to optimize our sales leadership team around the globe to improve execution. In addition, we are taking several actions to drive new business growth during the second half of the year:

First, we've initiated new sales incentives in North America to create more excitement within the salesforce.

Second, we continue to make operational improvements to make doing business with Symantec much easier for our customers and more productive for our team.

Third, we are focusing our hiring efforts within the sales operation on the faster growing emerging markets such as Asia Pacific, the Middle East and Eastern Europe.

In addition to these initiatives, we will continue our strong focus on controlling our costs with specific targets for each operating unit for the second half of the fiscal year.

Earlier this year, we started an active review of our product portfolio to ensure many of the investments made over the years are meeting our return expectations. During the September quarter we identified some non-strategic assets in the Data Center Management Group that have not met those expectations. As a result, we are taking an $87 million writedown of some assets in the data center management group acquired by Veritas during the 2003/2004 timeframe. Going forward, we will continue to evaluate our portfolio to ensure that we focus our investment efforts on a few key strategic areas that drive long-term revenue growth.

Now I'd like to highlight a few items from the quarter. One of the largest growth drivers over the next 12 months will be the two major product upgrade cycles that we are just beginning in the areas of enterprise protection and enterprise backup. We are encouraged by the prospects for Symantec Endpoint Protection 11.0. This is the first truly integrated single-agent endpoint security product that incorporates a strong compliance function.

We garnered several early customer wins during the September quarter. One large multi-million dollar displacement occurred with a European power company that has over 100,000 laptops and desktops, in addition to thousands of servers. Symantec's Network Access Control feature will be deployed on tens of thousands of laptops where we will displace McAfee in the account.

This customer valued our multilayer solution with a centralized management console managing all components, including a strong personal firewall.

We also generated solid interest for NetBackup 6.5, a single solution for centralized, end to end management of heterogeneous data protection environments. Other special features that customers particularly like are our data de-duplication and continuous disk space backup.

During the quarter we closed a multi-million dollars deal that replaces Legato at a large financial media company. The customer favored Net Backup’s increased functionality and reliability.

In addition to the strength of these two products, we are pleased with how Altiris is leveraging Symantec’s international presence to further expand its business. One of the largest Altiris transactions during the quarter came from an international food and agricultural company; and, we also saw a significant transaction with an important U.S. government agency.

While several of our large Altiris deals slipped into the December period, the team has been successful in upselling additional products to existing customers.

At the Altiris Managed Fusion conference last month, we demonstrated the integration of Altiris 7.0 client management suite with Backup Exec Systems Recovery. This solution offers our customers a more complete management solution for their distributed desktop environment and leverages the strengths of both companies. The Altiris technology is also playing a key role in migrating our enterprise antivirus customers to Symantec Endpoint Protection 11.0.

On the consumer front, we delivered new versions of our market leading security products. We continue to be pleased with the uptake of Norton 360. And, Norton Internet Security 2008 has a set of new features including stronger protection against web-based attacks, as well as password and identity management tools. PC Magazine recently awarded NIS the Editor’s Choice award again this year which represents the sixth win over the last seven years.

Looking at the business from a broader perspective, we believe long-term growth for our company will be driven by our customers’ desire to address the growing cost and complexity challenges associated with managing and securing their systems environments. In doing so, we can also help them meet the added challenge of ensuring compliance within the overall IT infrastructure.

Specifically, we think we are well positioned to address two high growth areas that customers are prioritizing in the coming 12 -24 months. These include systems and application virtualization and data loss prevention.

As some have noted, virtualization may be the biggest disruptor of data center technologies over the next few years. Server virtualization is being adopted rapidly by large enterprises to drive higher utilization rates and reduce hardware costs.

It’s clear to us that virtualization also brings a big opportunity to Symantec. As customers start to deploy virtualization technologies in their production and mission-critical environments, complexity will rise as they work to manage both the physical and virtual environments delivered from many different vendors. This in turn will create a greater need for sophisticated device and application management tools, as well as strong data- protection tools.

Symantec is directly addressing the growing challenges of managing today’s complex data centers by providing a single platform that can reduce downtime and improve manageability across heterogeneous physical and virtual environments. A single platform to secure, manage and provide business continuity, regardless of architecture, makes it easier for our customers to select and change hardware and platform vendors.

We are committed to ensuring interoperability with every major operating system, virtual machine, and storage device. No other company can match our breadth and depth of platform support.

One example of this is NetBackup 6.5. Our enterprise data protection solution not only protects physical platforms, but also delivers the most comprehensive protection for VMware environments, providing an industry first by enabling granular file-level and image level-recovery from a single backup. NetBackup 6.5 was also presented with the Best of Show Gold Award for Data Protection and Security at the VMworld conference.

Outside of data center, software virtualization is gaining traction as IT departments move to reduce the costs associated with patching, upgrading and maintaining a host of applications. Many customers want greater flexibility in deploying applications in an “on-demand” environment.

Our award winning Altiris Software Virtualization Solution provides a unique desktop approach that decouples software from the OS to simplify the deployment and management of applications running on virtual machines. Altiris Software Virtualization Solution allows users to instantly activate, deactivate or reset applications and to completely avoid conflicts between applications, without altering the base Windows platform. InfoWorld calls our Software Virtualization Solution a “paradigm-shifting technology that fundamentally alters your perception of what is possible with IT.”

One of our large transactions last quarter was an Altiris SVS deal. This large European financial institution chose Altiris for its focus on complete desktop lifecycle management. Our Software Virtualization Solution helped them reduce costs by reducing application conflicts and speeding up application deployment.

In addition to our own product efforts, Symantec is also actively partnering with both VMware and XenSource to offer a host of solutions to improve the manageability, functionality, and performance of their virtual machine environments. We have also partnered with Intel to deliver new security and management solutions designed to work on Intel’s vPro platform.

Another area of growing interest for our customers is Data Loss Prevention or DLP. There has been some recent speculation about our intentions in this space. Suffice it to say, it’s an important area for our customers and we have a very strong sense of how the technology solutions will evolve in this area. We believe that true DLP solutions require the layering of technologies in a similar manner as malicious code detection has evolved. No single technology addresses all of the requirements of a true DLP solution.

The reason this market is growing so rapidly is because nearly all corporate information exists in electronic form. Additionally, companies are opening up their infrastructure to enable new collaboration, providing employees, partners and customers with more access to more information.

At the same time, threats are proliferating from both external and internal sources making information not just a critical asset but also a potential liability. We believe a more policy driven and information centric approach to security is essential in today’s information intensive environment.

Data loss prevention solutions help organizations control the flow of sensitive information, whether that information is in-motion on the network, in-use at the device endpoint or at-rest within an organization’s IT infrastructure.

Over the past several years we have been adding complementary DLP technologies to our compliance, messaging security and archiving products through a number of important acquisitions.

We also continue to develop our own technology with our recent introduction of new or upgraded products that assist with data loss prevention. For instance, the integrated application and device control capabilities within Symantec Endpoint Protection 11.0 can help prevent data loss by enforcing policies and controls around the use of certain applications and disabling the use of USB ports.

Our newest version of Symantec Database Security, which was announced earlier this week, helps companies reduce the risk of losing sensitive information from backend databases by providing greater control over database traffic and insight into suspicious activity.

So, in conclusion, September was a solid quarter. And, while our over performance on revenue and EPS in the first half of the fiscal year could easily lead one to be very bullish for the remainder of the year, our lighter than expected new business generation and an uncertain economic environment leads us to be cautiously optimistic.

We are encouraged by the much improved execution of our team in the September quarter. But, we know we have much more work to do. We are excited about our recent product launches and are focusing our marketing efforts on demand creation. Overall, we believe that we are strengthening our position with both our enterprise and our consumer customers.

And with that, I’d like to hand the call to James.

James Beer

I am pleased to report that our September quarter results delivered on each of our four primary financial metrics. As we outlined at our analyst day in June, we measure the strength of our business by looking at the combined results of revenue, deferred revenue, earnings per share and operating cash flow.

As we’ve previously discussed, last year’s shift in our business model drove a greater portion of our sales activity to the balance sheet as deferred revenue. This year, therefore, we are able to recognize an increasing amount of revenue off the balance sheet.

In addition, our continued focus on operational execution has contributed to us being able to recognize a greater portion of our sales activity as revenue in the period.

It is also important to note that while our sales activity for the business remains seasonal, we are now seeing that the business model shift coupled with the focus on operational execution is having the effect of somewhat smoothing out our revenue and earnings performance. This has resulted in our revenue and earnings for the first half of the fiscal year accounting for approximately 50% of our full year forecast, as opposed to the traditional split of 45% versus 55% for the front versus back half of the year.

Going forward, seasonality will continue to generate fluctuations in our deferred revenue and cash flow metrics, with cash flow being the most volatile in any given quarter.

Now, I’ll review the financial details of the September quarter.

GAAP revenue was $1.42 billion. Non-GAAP revenue grew 13% versus the September 2006 period to $1.44 billion. The revenue acquired from Altiris accounted for 4.4 points of our year-over-year growth.

Foreign currency movements positively impacted non-GAAP revenue by $41 million in the September 2007 quarter as compared to September 2006. Sequentially, foreign currency movements had approximately an $11 million positive impact on revenue. Holding currency constant, revenue grew 10% year-over-year.

The September quarter’s diluted GAAP earnings per share were $0.06, which includes a write-down of $87 million related to our revaluation of some non-strategic data center management assets, as part of our ongoing review of our product portfolio.

Non-GAAP diluted earnings per share grew 11% to $0.29 as compared to September 2006.

International non-GAAP revenue for the September quarter grew 15% to $730 million versus the year ago period, and represented 51% of total non-GAAP revenue. The Europe/Middle East/Africa region grew 20% and Asia Pacific, including Japan grew 9%. The Americas grew 10% year-over-year.

Now, I’d like to move to the September quarter’s non-GAAP revenue by segment.

Consumer revenue generated $434 million up 10% versus the September 2006 quarter. Electronic distribution channels reached a new high during the quarter representing 72% of consumer revenue and grew 16% versus the September 2006 quarter. Norton Internet Security revenue grew 21% and remains the single largest product contributor to our consumer category - - generating approximately 61% of consumer revenue. We also continue to be pleased with the reception that Norton 360 is receiving in the marketplace.

Moving now to our enterprise segments. In the September quarter, including Altiris’ sales, we generated a total of 302 transactions valued at more than $300,000 each as compared to 292 in the September 2006 quarter. We also recorded, 64 deals worth more than $1 million each as compared to 67 in the September 2006 quarter. 75% of large transactions included multiple products or services which under scores both the success of our solution selling approach and the reality that as CIO’s try to lower their costs and minimize complexity, we are well positioned to meet their needs with a broad portfolio of products and services.

Our Security and Data Management revenue of $423 million grew by 7% over the September 2006 quarter. Within this business unit, Backup Exec continued to build momentum, posting double digit revenue growth for the third consecutive quarter. In addition, compliance, one of our emerging growth areas, continues to garner strong year- over-year growth rates. As expected, however, our corporate desktop security product slowed ahead of our Symantec Endpoint Protection 11.0 launch.

The Data Center Management group produced revenue of $402 million and grew 7% from the year ago period. NetBackup and Storage Foundation also grew revenue at double digit rates.

The Altiris business unit generated non-GAAP revenue of $92 million. We continue to be pleased with the performance of the products we acquired from Altiris which contributed $56 million in non-GAAP revenue during the quarter. Altiris’ non-GAAP revenue includes the impact of $13.5 million worth of deferred revenue lost on a GAAP basis, as a result of the purchase accounting method related to the acquisition of Altiris.

Our Services group once again posted strong top line performance increasing revenue to $86 million up 30% versus the September 2006 quarter. Services represented 6% of our total revenue during the September 2007 quarter. Importantly, we believe that the participation of our services group in our solution selling process is leading to higher levels of customer satisfaction. Going forward, the services group will focus more on its profitability, while continuing to generate value by increasing both customer satisfaction and our ability to sell, deliver and implement more software.

Non-GAAP gross margin increased to 85.3% for the September 2007 quarter compared to 83.5% for the year ago period, driven by the movement of consumer OEM fees from the cost of goods sold line to operating expenses, as we discussed on our May conference call.

Non-GAAP operating expenses of $865 million for the September 2007 quarter were up 20% year-over-year. Expenses grew primarily due to three factors. Altiris added $37 million, foreign exchange movements added $26 million and the OEM issue I just mentioned added $56 million to our operating expense base. However, we were able to offset a portion of this expense growth as a result of our cost reduction activities which continue to run ahead of plan. Thus, operating expenses grew 3.5% year-over-year, after adjusting for Altiris, exchange rates and OEM fees.

GAAP net income was $50 million for the September 2007 quarter. Non-GAAP net income equaled $263 million, flat versus the September 2006 quarter.

Symantec exited September with a cash and short-term investments balance of $2 billion. We remain committed to returning excess cash flow to our shareholders. As such, during the quarter, we repurchased $400 million of our outstanding shares, or 21.6 million shares at an average price of $18.51.

Our net accounts receivable balance at the end of the September 2007 quarter was $602 million. Days-sales-outstanding, or DSO, was 38 days, in line with normal seasonal patterns.

Cash flow from operating activities for the September 2007 quarter totaled $331 million. This figure was higher than previously projected due to unexpected foreign tax refunds and our continued focus on cost reduction activities.

GAAP deferred revenue at the end of the September 2007 quarter was approximately $2.6 billion. Non-GAAP deferred revenue at the end of the quarter was approximately $2.62 billion, up 12% as compared to the September 2006 quarter. Foreign exchange

rates positively benefited deferred revenue by approximately $115 million versus the September 2006 quarter.

Now, I’d like to spend a few minutes discussing our guidance for the December quarter.

Taking into account the currently somewhat uncertain business environment and an exchange rate of $1.37 per euro, our forecast for the December quarter is as follows.

GAAP revenue is estimated to be between $1.41 and $1.45 billion. Non-GAAP revenue is estimated to be between $1.425 and 1.465 billion.

GAAP earnings per share are forecasted between $0.06 and $0.11. Non-GAAP earnings per share are estimated between $0.25 and $0.30.

As I mentioned in my opening comments, we expect our revenue and earnings results during the second half of the fiscal year to be similar to our revenue and earnings results during the first half.

During the December quarter, we expect about $900 million of our non-GAAP deferred revenue balance to convert into recognized revenue. This is 16% higher than the year ago figure as we are now seeing the benefits in the Profit and Loss Statement of the model shift that last year placed more of our sales activity on the balance sheet. Going forward, we expect deferred revenue growth to stabilize and be more aligned with revenue growth rates.

GAAP deferred revenue at the end of the December quarter is estimated to be between $2.635 and $2.785 billion. We expect non-GAAP deferred revenue to be in the range of $2.65 to $2.8 billion.

The December 2007 quarter operating cash flow is expected to be below the $454 million we recorded in the December 2006 quarter. The lower cash flow estimate is being driven by lower than expected business activity in the first half of the fiscal year and higher consumer OEM fees. As noted earlier, I should emphasize that quarterly operating cash flow is the most volatile of our four primary financial metrics.

With that, I’ll turn the call back over to Helyn so that we can take some of your questions.

Helyn Corcos

Thank you, James. Rodney, will you please begin polling for questions? While the operator is polling for questions, I’d like to announce that Symantec plans to attend the Goldman Sachs conference on November 7th, the UBS conference on November 13th, the Lehman conference on December 6th, and the CIBC virtualization conference on December 11th.

In addition, we will be reporting our fiscal third quarter results on January 23rd. For a complete list of investor-related events, please visit our events calendar on the investor relations website.

Rodney, we are ready for the first question.

Question-and-Answer Session

Operator

Your first question comes from Sarah Friar - Goldman Sachs.

Sarah Friar - Goldman Sachs

Could you give us a little bit more granularity on the guidance? Specifically how do pipelines look on a year-over-year basis? Is that part of what's giving you pause? Are you giving yourself greater coverage rates than normal between what the pipeline was saying and how you have guided? Are there any early indications from verticals like financials where you are seeing them actually pull back or is this just more you trying to read tea leaves in advance?

John Thompson

Well, we actually have not seen anything from our largest financial services customers that would indicate that they are going to curtail their spending. However, we did see in the September quarter some of the mid-market customers pause or slow their purchasing decisions. We saw transactions that we had originally thought might occur in the September quarter shift to December -- or at least shift out of the quarter -- and that certainly would give us cause for pause.

As we look at backlog coverage to the outlook, we are ahead of where we were this time last year. In other words, we have stronger coverage of the outlook in the December quarter of '07 than we did in the December quarter of '06, so we feel good about that. We feel good that the team certainly is working every transaction, but we cannot ignore the uncertain economic environment that's out there nor can we ignore the fact that we've got more to do in the Americas business itself.

I think Bill and his team have done a terrific job in the first quarter that he's assembled that team but it would be a bit too bullish, I think, to assume the same kind of sequential improvement from September to December that we saw from June to September.

Operator

Your next question comes from Adam Holt - JP Morgan.

Adam Holt - JP Morgan

Just a follow up on the improved execution in the U.S. Can you talk a little bit about what the management changes have led to in terms of turnover and retention of your best talent? Should we look for any incremental changes to the management team going forward? Are we pretty well solidified at this point?

John Thompson

I think at this point Bill has done pretty much all of what he has wanted to do or is planning to do. He has actually consolidated some functions and taken some layers of management out. The intent there was to candidly speed our execution and obviously control costs a little bit better within the overall America sales operation.

We put a terrific young leader in place for our combined operations and specialists force, a guy who brings great product knowledge and experience out of our development organization. I think that has certainly invigorated or excited our SE force quite a bit.

I think Bill is on the right track, I just don't think we should get out ahead of him as he tries to assemble his team and get them focused. I think the work that Enrique and James did to identify incremental spending that we could direct towards sales incentives in the second half of the year in the Americas will certainly go a long way to energize, if you will, the sales force and we are all excited about that.

Adam Holt - JP Morgan

If I could just ask a quick follow up on the product side, obviously you have a couple of real important releases with the NetBackup 6.5 release and the Hamlet release just getting into the market a little bit, can you talk about the preliminary customer reaction to both products and in particular how the price increase in Hamlet is holding? Thank you.

John Thompson

Hamlet has done quite well in its initial launch. We are slightly ahead of track through the first few weeks of the quarter, but that does not necessarily mean the quarter for December is in the bag. It just means we are off to a really, really good start with what is in fact a great product.

I was in Europe a couple of weeks ago visiting that large win I referred to in my planned comments and the customer was quite, quite bullish on the performance improvements that they had seen as they deployed Symantec Endpoint Protection 11.0 through all of the phases of the beta program and rolled it into the production environment. I think we are going to see similar results or responses from customers around the world. It's a terrific product and the team has been anxiously awaiting its delivery into the market.

Operator

Your next question comes from Heather Bellini - UBS.

John Stewart for Heather Bellini – UBS

Can you talk a little bit about how we should be thinking about the growth rate of cash flow for the full year?

James Beer

We've talked back at the start of the year as to our view that we could grow cash flow year over year. We talked about 90 days ago about the fact that we are not going to be updating annual guidance each quarter by quarter. I won't go into any great specifics on that track. Obviously we are pleased that we are able to exceed our expectations for cash flow during the September quarter and yet we have, I think, appropriately guided that we are expecting cash flow to be down below last year's December quarter, particularly driven by the increase in the OEM consumer fees that we are now incurring.

We think that those fees will be a good investment over the longer run but that there is a timing issue between when the cash is physically paid to the OEM and when we see cash coming in from our subscribers.

Heather Bellini – UBS

James, it's Heather, sorry we are jumping in between conference calls here, but just to ask on that question in particular, how much did that impact you this quarter, the timing of the OEM contract that you're referring to?

I had a follow up for John related to are we looking at potentially is there room to take costs down further like you did earlier this year to try and size the business appropriately so we can get margins back to the 100 basis point a year goal?

James Beer

Well, in terms of the OEM fees, they cost a little over $50 million this quarter. That was reflective of continued growth in that figure quarter on quarter.

John Thompson

Heather, I think we are on track to deliver strong operating margin performance this year ex some of the incremental things we added like Altiris or like the OEM fees. That being said, however, we have issued cost targets for the second half of the year that we would expect our team to make in light of lighter new business generation in the first half that will yield slightly lower revenue than we might have assumed, if you will, for the second half of the year.

So we are going to continue to put cost items on the agenda until we see new business generation equal our plan levels, because that's the way we will deliver the operating margin expansion or the EPS results that we have forecasted.

Operator

Your next question comes from Phil Winslow - Credit Suisse.

Phil Winslow - Credit Suisse

I just wondered if I can get some clarification on your comment that the revenues for the fiscal year will be split more 50-50? That would almost imply that revenues for the next two quarters are basically flat if not down slightly from what you did in September.

Also tying that with your guidance for deferred revenue to be up, it just seems to be a mismatch there in my mind. From a deferred revenue standpoint, I wonder if you can give a sense of possibly what you would for the March quarter?

James Beer

Well we are not again to be talking about the March quarter on this call again. We will offer guidance one quarter at a time. My observation about the first half versus second half being 50-50 approximately on revenue EPS is exactly that. It's approximately. So I don't want you to read too much specifically into those words.

In terms of deferred revenue, the fact that we see that growing in the back half of the year is very typical for our business. We tended to see relatively flat to down deferred revenue depending upon the year in those first couple of quarters, and then when we have the bigger renewal quarters in December and March, we tend to see deferred revenue increasing more sharply. I would expect that to be the case this year.

Phil Winslow - Credit Suisse

When you talk about the softness in new business, can you be specific to Data Center Management or just where that was located?

John Thompson

think in our SDMG, our Security and Data Management business, it would be obvious to you, Phil, that there would be some softness ahead of the release of Symantec Endpoint Protection. That's been the experience that we've had for the last few quarters and we finally have the product out and so our hope is that the trends that we've seen in the early parts of this quarter will continue throughout the quarter, or better yet, throughout the fiscal year.

In SDMG, the Net Backup was strong from a revenue point of view. However, new license sales for a number of Data Center Management Group products was a little bit weaker than our forecast and hopefully as we re-incent and refocus the team in the Americas, which is the largest part, if will, of our sales channel, that will bode well not just for SDMG but for our Data Center Management Group as well.

Operator

Your next question comes from Walter Pritchard - Cowen.

Walter Pritchard – Cowen

In terms of the EPS range for the December quarter, it's a lot broader than you've provided over the last several quarters. I was wondering, James, what the major factors are outside of the revenue range that you have out there in terms of that EPS range?

James Beer

Well, it's largely driven by the revenue range because obviously expenses are easier to predict. We've got very specific plans in place as John was alluding to earlier on the expense side of the ledger versus trying to predict exactly how recognized revenue will play out. That's obviously more driven by specific sales and activity, how we wrote up, if will you, that sales activity. That's been a point that has definitely helped us I would say in the first half of the year. We've been able to convert more of our sales activity into recognized revenue in period, in both the September and June quarters. So that's been a big part as to why we've exceeded our guidance in those two past quarters.

I'm certainly encouraged by that because I think that is illustrative of how within our organization we are working very well right from the person on the front line doing the selling through sales management all the way through to the back office. So I think that's a very encouraging theme.

Walter Pritchard – Cowen

Just to follow up on that topic, around the composition of deferred revenue you've talked traditionally about a 60/40 mix between your enterprise and consumer. Could you update that for us given that it appears as though the consumer deferred dynamic hasn't changed much but it's really been the enterprise side that has.

James Beer

I think directionally I would stand by our earlier discussions. I wouldn't say that anything has materially changed in that regard.

Certainly to follow up on my earlier points, as you're building more in period recognized revenue then, yes, you are going to be building a little less deferred revenue on the enterprise side of the equation. So to some extent there, the balance favors the consumer side as a result. But I would not want to overstate that impact, frankly.

Operator

Your next question comes from Katherine Egbert - Jefferies & Company.

George Roberts for Katherine Egbert - Jefferies & Company

I was hoping I could get your early impressions on the Backup install base [inaudible] update? I know you spoke to it a little bit, but more broadly?

John Thompson

Well, it's still quite early. The product was only released at the end of September so it would be way, way, way too premature to talk about its update given what we've seen so far.

However, the one transaction that I did reference in my planned comments was one where NAC was a part of the deal. They will deploy the NAC function on all of the laptop machines that are part of that environment which represents about one-third of the 100,000 machines or so. So I think NAC, coupled with the enhanced management capabilities associated with Symantec Endpoint Protection will be a great driver of additional momentum in our security business.

George Roberts for Katherine Egbert - Jefferies & Company

Did any of those slipped Altiris deals close after the quarter?

John Thompson

Quite frankly, I don’t know. I haven't even looked.

James Beer

I think it's fair to say that some portion of them have, and obviously we are going to continue to build on the momentum that we have developed at Altiris in the last couple of quarters. So we are very pleased by how that part of the organization is developing and we are seeing, as we expected to, that there will be real opportunities for the Altiris product suite, particularly internationally across the EMEA region and across the Pacific so we will be very much focused on that as the quarter plays out.

Operator

Your next question comes from Robert Breza - RBC Capital Markets.

Robert Breza - RBC Capital Markets

First let me apologize for the background noise, I am in the airport. John, I was wondering if you could talk about some of the writedowns or the writeoff of products? In what specific areas there? Do you look at taking a strategic look at all the products that you have in your portfolio? Thanks.

John Thompson

Well, we go through that analysis once a year, as a matter of practice. In this particular instance, we started the activity early this year and concluded that we did have some assets that were not major products like Net Backup or Storage Foundation or what have you that are part of the Data Center Management Group that just aren't as strategic today as they may have been some time ago. We are in discussions with people about alternatives for those assets and therefore I'd rather not talk about the specific names before we talk to our customers about it.

Operator

Your next question comes from Michael Turits - Raymond James.

Michael Turits - Raymond James

On the SDM Group it was up mid to high single-digits, but in Net Backup it was actually up double-digits. It implies that enterprise security was flat, possibly down. With Symantec Endpoint Protection coming on, does it look to you like you will have a chance to get the security piece of enterprise either flat or growing? What do you think would be the specific drivers for that?

John Thompson

Well, the strength of SDMG’s performance this past quarter was clearly Backup Exec. In addition to that, we had very strong contributions from our compliance technologies and our enterprise vault or archiving technologies. So it's not just the backup business that's doing well. Many of the emerging technologies are doing quite well and we are encouraged by that.

However, the largest revenue stream in that BU or business unit is in fact the Endpoint Protection technologies and with SEP in the marketplace now, that should start to improve the performance of that set of products or that business area within SDMG.

We don't give specific product forecast or revenue outlooks but suffice it to say now that we no longer have the headwind of no product in the marketplace that should bode well for this whole business unit.

Operator

Your next question comes from Steve Ashley - Robert W. Baird.

Steve Ashley - Robert W. Baird

First a quick housekeeping question, James. How much was the foreign tax refund in the period that benefited cash flow from operations?

James Beer

We actually had a few different tax refunds that all came in roughly around the same time, either from Asia, Europe or some of the U.S. States. When you added it all together it was on the order of $50 million.

Steve Ashley - Robert W. Baird

I know it hasn't been in the market very long, but Information Foundation, can you comment on how the initial or early response has been to that product?

John Thompson

It is early, but it is a part of a collection of technologies focused on helping customers manage the digital content that they have created or they own, if you will, more effectively. So it's our mail security products, it's our archiving products. It's a full range of things like that. But the sub-segment of products did very, very well in the quarter. I won't give you specific revenue performance, but let's just say that we are pleased with what Francis and his team are doing. They are doing a really great job.

Operator

Your next question comes from Daniel Ives – FBR.

Daniel Ives – FBR

John, I just have a question in regards to guidance. How much comes into play, there have been false starts before where you have a good string of quarters, bullish on The Street and then you have missed numbers. Are you trying to bake in some breathing room here, thinking people were getting a little too bullish and the fact that you are still a transition story?

Could you talk about that with regard to what has happened in the past, and has that played into your guidance for next quarter? Thanks.

John Thompson

I don't want to keep describing or defining Symantec as a transition story, but I also don't want people to get overly excited about the first half and drive up the outlook for the second half beyond what we think are reasonable expectations for our company in an economic environment, quite frankly, that's quite uncertain.

So given some of the things that we have seen, given what we've seen from other companies that have a pretty good pulse on the global economic environment, we thought it would be prudent to be a bit more conservative, perhaps, and not let estimates run away from us.

Now that's certainly going to cause people to question the strength of our business. We are quite pleased with how our business is performing but we don't want estimates to get too far out ahead of us.

Daniel Ives – FBR

As a follow up, when you look at your business, is there anything structurally wrong with your company right now? I mean, you have been doing well. Anything that should cause investors concern, given the outlook, or is it just more a speed bump given the cautious environment?

Can you address that on the call rather than investors having to think about it tomorrow? Thanks.

John Thompson

I don’t think we have anything that is structurally wrong. Do we have things that we want to continue to do to improve overall business operations? Absolutely. We have made great progress in a number of the things that have made doing business with Symantec much easier than it was a quarter ago or even a year ago.

I think we also have made progress and turned the corner on our customer sat scores, that is an important indicator of what future performance might be for our company; and I think we have more work to do on our cost structure. That is not where we are going to take a hatchet to the company, we do need to take a scaffold, though, to certain areas of the company where we think we have allowed ourselves to get a little ahead of either the revenue performance or the operating return expectations that we have for that business segment.

Those are modest tweaks that we will make along the way, not major structural changes.

Operator

Your next question comes from Tim Klasell – Thomas Weisel Partners.

Tim Klasell – Thomas Weisel Partners

I want to dig into a little bit of your North American salesforce. You mentioned you made progress. How much longer will it take for you to completely reorganize your salesforce and have that totally behind you, do you think?

John Thompson

This was not about a salesforce reorganization, let me be clear. This was about making leadership changes at the top of the organization to make sure that we had the right focus on execution day in and day out. It was about streamlining the leadership of the organization such that we didn't have to go so many places to get so many things done. So we've made decisionmaking -- hopefully by the structural changes -- a lot easier and a lot faster and we've got a leader in place that is well respected by the team across the Americas.

So this is not we are reorganizing the salesforce, putting new quotas out, this is not that. This is let's make it easier for our team to execute, let's get an enhanced set of incentives in front of them so they will sell their way out of what was a tough first quarter and we can then start to feel good about performance as we wind down this fiscal year and head into the next one.

Tim Klasell – Thomas Weisel Partners

Would you say that the leadership changes are pretty much behind you at this point?

John Thompson

I think that's a fair characterization.

Operator

Your next question comes from Rob Owens - Pacific Crest Securities.

Rob Owens - Pacific Crest Securities

John, I was wondering if you could give us a little more color around your commentary around the SDMG group and Hamlet. Are you expecting a big attach rate of the NAC products? You talked about this being an upgrade cycle and my understanding of Hamlet being free to customers on maintenance, I was wondering how that is going to drive growth?

John Thompson

Actually where you get growth, Rob, is in the mid-market for un-penetrated machines or new machines that they add. But fundamentally for any of our customers who are on maintenance, it is a free upgrade to them. They have to pay, however, for the NAC component. We've seen tremendous interest through the beta customers and in the early proof of concept if you will, for some of the large enterprise customers that we've been with. We think over time NAC will be a revenue add for the SDMG business but that's not a huge, huge lift in the current fiscal year for sure.

Operator

Your final question comes from Phil Rueppel - Wachovia.

Analyst for Phil Rueppel – Wachovia

Would you expect seasonality to come back to historical levels as you look out to March?

John Thompson

We think as we have tuned the business model of the company to where more and more of our revenue is rolling from the balance sheet, it should make us more predictable and it should smooth results.

Now will it be a perfect 50-50? Probably not. But hopefully it wouldn't be skewed as dramatically as it has historically been. I think the value of changes that we have either incurred or endured here is that we should produce in the end a much more predictably consistent company and that's what we want, and we know that's what you want.

Operator

That is all the time we do have for the question-and-answer session. At this time I would like to turn the program back over to Mr. John Thompson for any additional or closing comments.

John Thompson

Thank you very much for dialing in this afternoon. I'm certainly proud of our team’s performance in our four key metrics through the first half of the year. We remain cautiously optimistic about our business, given the strength of our product portfolio, but we also think it's prudent to make sure that we are conservative in our guidance given the uncertain economic environment. We are about execution now and have been for some time.

We'll talk to you again at the end of the December quarter. Thanks for dialing in.

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