Good day and welcome to Symantec first quarter 2009 earnings conference call. At this time I would like to turn the call over to Ms. Helyn Corcos, Vice President of Investor Relations; please go ahead.
Good afternoon and thank you for joining our fiscal first quarter 2009 earnings conference call. With me today are John Thompson, Chairman of the Board and Chief Executive Officer of Symantec; Enrique Salem, Chief Operating Officer; and James Beer, Executive Vice President and Chief Financial Officer.
In a moment I will turn the call over to John. He will provide high level comments on the company, Enrique will follow with quarterly highlights and James will wrap it up with the review of the financials and 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 homepage at www.symantec.com/invest. A copy of today’s press release and supplemental financial information are available on our website and a copy of today’s prepared remarks will be available on the Investor Relations website shortly after the call is completed.
During the June, 2008 quarter we reclassified the Altiris Services revenue from Security and Compliance to the Services segment. We have provided the corresponding historical comparisons in our press release and supplemental information which has been has been posted on our website.
Before we begin I’d 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 quarter 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 reports filed with the US 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 principals 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 website.
And now I would like to introduce our CEO, Mr. John Thompson.
Thanks Helyn and good afternoon everyone. I’m excited by the team’s ability to execute our operating plan and deliver solid June quarter results. Performance was strong in all geographies with international growth remaining robust and with North America posting strong double-digit results.
The sales force continues to focus on up-sell and cross-sell opportunities resulting in record June quarter large transaction volumes. Healthy spending on storage management solutions continued during the quarter as growth in data volumes continues for our customers around the world. In addition our investments in higher growth areas like archiving and data protection are paying off.
As an example, the integration of our de-duplication technology with Net Backup has ignited an important growth opportunity for us and our archiving business continues to build on its market leading position.
The June quarter results highlight the critical nature of our product portfolio to customers around the world. In addition we saw CIOs of large enterprises purchase more products from Symantec as they strive to reduce the number of vendors they much manage. This is a trend we expect to continue particularly during these more challenging economic times.
In addition to strong revenue and earnings results our deferred revenue and strong cash flow generation during the June quarter underscored the financial strength of our company. This performance is a terrific start to our fiscal year. Looking ahead we believe the pipeline for September is strong and visibility continues to improve.
We intend to leverage our core strengths in endpoint security, data protection, storage management and our consumer franchise to accelerate new growth opportunities. We will continue to up-sell new functionalities and drive incremental business across our global customer base. And we will continue to invest in areas such as software as a service and virtualization.
At our Financial Analyst Day we provided an update on our endpoint virtualization strategy as one of our emerging growth areas. Additionally according to IDC the X86 server virtualization market is growing in excess of 25% annually and is expected to exceed $3 billion by 2011. We made a number of important moves over the last few years to position our company to be able to take advantage of these opportunities. They include the purchase of Altiris with its software virtualization solution; that acquisition of AppStream to compliment the SVS solution as well as the recent announcement of our Veritas Virtualization Infrastructure Solution.
So let me put our strategic intent around virtualization in context for you today. At the endpoint our strategy is based on freeing valuable information from the underlying systems functions. Today important enterprise information is scattered across a broad range of devices from PDAs to storage arrays. This valuable information is deeply entangled with other data such as operating systems and application code, which is far less valuable to any enterprise.
We believe that virtualization when properly applied can decouple information that matters from the rest of IT environment so that it can be independently secured and managed. To help our customers achieve this benefit Symantec is infusing virtualization capabilities across our portfolio from server management and high availability to security.
For instance in the data center, server and storage virtualization coupled together can separate unique information from redundant copies of an application or operating system, dramatically lowering storage costs. In June we announced the Veritas Virtual Infrastructure as the only product that can provide a total server and storage management solution for both virtual and physical environments.
Available on the X86 platform this will allow us to leverage our customers’ interest in Linux and Windows service consolidation. On the endpoint the user experience can be separated from the OS and application to provide better portability in today’s highly mobile environment. Together Symantec’s application streaming technology and our client software virtualization solution provides end users with the applications they require on demand allowing IT managers to optimize the cost of delivery of critical applications without impacting the users’ experience.
We believe customers will use virtualization technologies to help them simplify their environments by separating out the information that matters from that which does not and we believe Symantec is well positioned to help them secure and manage that information by putting virtualization to work across our portfolio.
With enterprise data volumes doubling every two years we believe we have the right products right now with additional enhancements and innovations planned to meet the critical need to secure and manage the information explosion. We will continue to strengthen our position in both our consumer and enterprise customers around the world as this opportunity represents a significant growth catalyst for our company.
With that I’ll turn it over to Enrique who will provide some details on the June quarter highlights.
Thanks John and good afternoon everyone, I’m very pleased with the strong performance or our team during the June quarter. Sales activity continued to improve around the world with all regions posting double-digit revenue growth. In addition all key product areas generated strong growth.
The sales force executed well, effectively up-selling and cross-selling the broader Symantec portfolio. This was evident in our large transactions. During the June quarter we generated a total of 336 transactions valued at more than $300,000 each, up 35% compared to 249 transactions in the year-ago quarter.
We generated 85 transactions worth more than $1 million each, up 77% compared to the 48 transactions in the June, 2007 quarter. In addition nearly 80% of all large transactions included multiple products or services driven by the trend that large enterprises prefer to deal with fewer vendors.
During the quarter we generated strong sales and revenue performance across all of our segments and geographies. Within our storage and server management segment our data protection business posted outstanding results as we continue to extend our leadership position by gaining market share from our competitors.
The revenue from our backup business grew by more than 20% year-over-year. Sales of Net Backup 6.5 were driven by our unique capabilities around virtual machine protection, disk data protection, and by our de-duplication technology in pure disk. During the quarter we launched a Beta version of our new Continuous Data Protection Technology. This innovative technology dramatically reduces IT risk and improves backup and recovery service levels.
At the same time it minimizes infrastructure costs through advanced disk space protection and more efficient usage of server and storage resources. This product has already garnered interest from our customer base.
Backup Exec 12 which launched in mid-February continues to perform extremely well in the small and mid market segments. We also continue to leverage technology between Net Backup and Backup Exec in order to deliver innovation across our product portfolio across all market segments.
We protect more than half the world’s data and we will continue to bring next generation technology to the market in a timely manner. On the data center side of the business our storage foundation products their best result in years. The performance was driven by our customers’ desire to simplify their data center infrastructure and reduce costs by standardizing the storage management software across their heterogeneous environments.
In our security and compliance segment our market leading endpoint security franchise posted strong results and generated double-digit year-over-year revenue growth. Customers value Symantec endpoint protection’s superior feature set and smaller footprint. We continue to garner new customers and have won a number of competitive displacements.
Our endpoint management business generated strong sales activity and posted year-over-year revenue growth in the high teens. We continue to see strong win rates against our competitors. In the June quarter we announced the release of new Symantec Endpoint Management Suite. This suite defines the next generation of integrated best-of-breed systems management, endpoint security, and backup and recovery.
The Suite uniquely differentiates Symantec versus others in this marketplace. We believe our integrated approach provides organizations with the visibility into and control of an entire endpoint environment thereby minimizing the exposure of security and compliance risks. Looking ahead one of our key product deliverables this year is Altiris 7.0 built on the Symantec open collaborative architecture.
It provides us the opportunity to integrate other Symantec solutions such as our endpoint products within this new architecture. Now moving on to our archiving business we continue to win against our competition in the archiving space. Enterprise Vault had another outstanding quarter with revenue posting 30% year-over-year growth.
We believe Enterprise Vault has become the de facto standard for addressing the ever increasing regulations around E discovery. Once again Gardner positioned Enterprise Vault in the leaders quadrant of the 2008 Magic Quadrant for Email Archiving. In addition for the fifth consecutive time we are the only, the only vendor positioned in the leadership quadrant.
Our Vontu team had the best quarter in their history. The continued momentum of our data loss prevention business demonstrates the successful integration of our teams. During the quarter we closed our largest DLP deal ever and we won our largest international deal to date. Gardner recently positioned us Vontu Data Loss Prevention 8 in the leaders quadrant for constant monitoring, filtering and data loss prevention.
DLP is a key component in Symantec’s product strategy to secure and manage the world’s information. Now moving to the consumer business, we continue to enhance our leadership position by delivering the most innovative products and services that address the evolving needs of customers today.
Our Suite products, Norton Internet Security and Norton 360, continue to perform well increasing their share of total consumer sales and driving ASPs higher. Norton 360 now represents almost 25% of our consumer revenue and more than 35% of consumer sales. During the quarter we closed the Swap Drives acquisition. With the explosion of digital information such as photos, music and videos consumers have more files on their computers than ever before.
Adding Swap Drives technology into the Norton portfolio gives consumers access to a world class service to help secure and manage their information. While we already leveraged swap drives online backup service in Norton 360, this acquisition allows us to enhance operating results for this product and gives us the capability to utilize Swap Drives online backup and storage platform in our other consumer offerings.
Our consumer services continue to generate strong customer interest. Our most popular services such as PC Tune-up, PC Installation and Green PC are finding that these services lead to higher customer satisfaction levels and build even greater loyalty for the Norton family of products.
We also recently launched the public Betas of the 2009 editions of Norton Anti Virus and Norton Internet Security. The 2009 products have been designed to be the fastest security products in the industry. This is supported by more than 300 improvements that span nearly every aspect of the product from the scanning engines to the user interface.
Examples include an install time of one minute or less with one click; the industry’s fastest update capability and memory usage reduced to less than 50% of our nearest competitor. Our Beta users are consistently giving us high marks for performance and usability and finally we expect these products to ship during the usual September timeframe.
Looking ahead the September quarter pipeline looks strong and I believe security and storage are priority areas for IT spending even in this environment.
And with that I’ll hand the call over to James.
Thank you Enrique and good afternoon everyone. It is very encouraging to see the combination of consistent execution, further margin expansion and solid cash generation driving better results in each of our four key financial metrics.
First I’ll review with you the financial details of the June quarter which as a reminder included 14 weeks of activity versus the normal 13 weeks. GAAP revenue came in at $1.65 billion, non-GAAP revenue grew 16% over the June, 2007 period to $1.66 billion driven by both our success in selling more to our installed base as well as new customers around the world.
Our June quarter revenue included approximately $75 million of one-time benefit generated from the extra week. Foreign currency movements positively impacted non-GAAP revenue by seven percentage year-over-year. The June quarter’s fully diluted GAAP earnings per share were $0.22, non-GAAP fully dilute earnings per share for the quarter were $0.40, up 38% year-over-year reflecting that even as our top line growth strengthened we continued to judiciously manage expenses.
Our June quarter EPS included approximately $0.03 of one-time benefit generated from the extra week. International non-GAAP revenue of $866 million grew 19% versus the year-ago period with all regions posting double-digit growth. International revenue accounted for 52% of total non-GAAP revenue.
We are also particularly pleased with the Americas performance which grew 13% year-over-year. Now I’d like to move on to non-GAAP revenue by segment. The consumer business generated record revenue of $473 million up 12% versus the June, 2007 quarter. Electronic distribution grew by more than 20% year-over-year reaching a new high of nearly 80% of our total consumer revenue.
Online sales were driven primarily by strong subscription renewals, ISP and OEM activity. In the enterprise arena the competitiveness of our security, availability and services solutions along with excellent sales execution drove the improved top line growth. Storage and server management segment generated revenue of $616 million up 20% as compared to the June, 2007 results driven by strong data protection and storage management performance.
Our security and compliance segment generated revenue of $449 million up 12% versus the year-ago period. Our endpoint security products generated record revenue during the quarter growing approximately 10% year-over-year. We were also pleased with the performance of our endpoint management team for posting another very solid quarter.
In addition we continued to see strong double-digit growth from our industry leading archiving solutions. Our services segment generated revenue of $117 million, up 35% year-over-year representing 7% of our total revenue. We continue to focus on improving the cost efficiency of our services operations and we are pleased with the contribution improvements that the group has made during the past couple of quarters.
Please note that we have reclassified the Altiris services revenue from security and compliance to the services segment. We have provided the corresponding historical comparisons on the Investor Relations website.
Non-GAAP gross margin increased 170 basis points to 86.5% for the June, 2008 as compared to the year-ago period. This is as a result of our cost of goods sold remaining approximately constant year-over-year while revenue grew by more than $230 million. Improved revenue production and a focus on cost management have also increased non-GAAP operating margins for the June quarter to 29.3% up 360 basis points year-over-year.
This is the third consecutive quarter in which operating margins have increased strongly versus the prior year. As I mentioned at our Financial Analyst Day strong top line performance can lead to operating margin improvements above our planned annual goal of 100 basis points year-over-year.
GAAP net income was $187 million for the June, 2008 quarter. Non-GAAP net income was $342 million, up 30% year-over-year. We excited June with a cash and short-term investments balance of nearly $2.3 billion. During the June quarter we repurchased 9.7 million shares at an average price of $20.55. This $200 million repurchase volume is consistent with our annual target of spending half of our cash flow from operations on share buybacks.
Our net accounts receivable balance at the end of the June, 2008 quarter was $652 million. Days sales outstanding or DSO was 36 days, in line with normal seasonal trends. Cash flow from operating activities for the June quarter was up 18% to $414 million as compared to the June, 2007 quarter primarily due to strong collections and the benefit from prior period litigation settlements offset by increased cash tax payments.
GAAP deferred revenue at the end of June, 2008 was approximately $3.01 billion. Non-GAAP deferred revenue grew 12% year-over-year to $3.02 billion assisted by strong selling activity particularly at the end of the quarter. Foreign currency movements positively impacted non-GAAP deferred revenue by seven percentage points year-over-year. Our deferred revenue included a one-time negative impact of approximately $5 million from the June quarter’s extra week.
As you may recall in May, 2006 we paid $130 million of additional US taxes associated with repatriation of offshore funds by Veritas in 2005. Earlier this month we reached a settlement with the IRS which we expect will result in our obligation being only 10% of the original $130 million at issue.
Now I’d like to spend a few minutes discussing our expectations for the September quarter which as I noted earlier contains only 13 weeks. We expect GAAP revenue to be in the range of $1.52 billion to $1.56 billion. Non-GAAP revenue is estimated to be in the range of $1.525 billion to $1.565 billion as compared to $1.437 billion in the September, 2007 quarter.
GAAP earnings per share are forecasted to be in the range of between $0.15 and $0.17. Non-GAAP earnings per share are estimated to be in the range of between $0.34 and $0.36 as compared to $0.29 in the year-ago period.
At the end of the September quarter we expect GAAP deferred revenue to be between $2.865 billion and $2.965 billion. We expect non-GAAP deferred revenue to be between $2.875 billion and $2.975 billion as compared to $2.62 billion at the end of September, 2007.
We expect about 64% or approximately $990 million of our September quarter revenue to come from the balance sheet. This percentage once again illustrates the degree of predictability that we have built into our income statement during the last few years.
This guidance assumes a common stock equivalents total for the quarter of approximately 860 million shares. We have also assumed an exchange rate of $1.53 per euro for the September quarter.
In closing we are very pleased with the June quarter results and are encouraged with the prospect of building on this momentum during the September quarter.
And now I’ll turn it back to Helyn so we can take some of your questions.
I’d like to announce that Symantec plans to attend the Pacific Crest Conference on August 5th, the Citi Conference on September 3rd, and Deutsche Bank Conference on September 11th. Finally we will be reporting our fiscal second quarter results on October 29th. For a complete list of the investor related events, please visit our events calendar on the Investor Relations website.
(Operator Instructions) Your first question comes from the line of Sarah Friar - Goldman Sachs
Sarah Friar - Goldman Sachs
On the enterprise security side, could you talk about the penetration of SEP 11 to date and what’s next there, what keeps driving the enterprise security business from here?
I think when you look at our success rate with SEP we continue to see adoption by the larger customers. As you know when you initially ship a product, what happens is some of the larger customers are putting it in pilots and Beta testing. We are starting to see movement in the high end of the market. Now as you know some of the things that we’ve added to the product are not only the [NAC] functionality but also our encryption option that we partnered for and so that allows us to continue to drive the ASPs up for the per node sale of our product.
The other piece that we’ve done that I think is more interesting and I touched on it is that we are positioning to ship Altiris 7.0 where we bring together the management capabilities that we acquired when we bought Altiris and that allows us to further deliver on our vision of the only way you have a secure endpoint is it has to well managed. And so we feel very confident that it’ll continue to strengthen our position at the endpoint.
Sarah Friar - Goldman Sachs
You talk about the ASP going up on a per node basis, can you give us a sense for what that uplift is and then in particular if you can get someone to take the Altiris piece, are they paying double, effectively 100% again or what is it as a percent of what they would pay per node?
I think it varies on the contract size. If you look at it each segment is going to be a little bit different but definitely it enhances it because if you think about it, it’s a significant new functionality. Systems management is a whole category onto itself that we’ve not successfully integrated and quite frankly I think folks have got to start looking at it from the perspective of if you don’t deliver both security and management, you’ve only got half the solution.
Your next question comes from the line of Heather Bellini - UBS
Heather Bellini – UBS
I was wondering if you could give us an idea, you are seeing great results in cross-selling and I was wondering how much of this would you say is due to the change in the sales force compensation and do you think you’re getting the full benefit from the changes you made on that front as of yet?
When you look at it, these changes have been in the works through last fiscal year and this fiscal year and it’s still early to get the what I would say the full effect of the changes we made at the beginning of this new fiscal year. So I expect that the change will take effect as we go through the year and so there’s more benefit to be derived from those changes.
Heather Bellini – UBS
So does that mean that you expect the average sale of ASPs of your sales to increase over the course of the year if this plays out as expected?
I don’t know that it has as much of an effect on the ASPs, what it does is it--
Heather Bellini – UBS
In terms of the average revenue per customer.
It will drive higher license content if anything as opposed to affect the ASP because the focus in the operating plan is for the team to try to drive net new licenses or new placements within an enterprise. So in that context perhaps you could translate that into higher ASP but in our view it’s much more about license content.
Your next question comes from the line of Brett Thill – Citigroup
Brett Thill – Citigroup
On the deals over a million, last year in the first half those deals seemed to stall out and obviously you’re showing a complete reversal of that trend with 85 up 77% year-over-year, can you just walk through what you’re seeing, I know you mentioned there’s an attach of additional multiple products but can you tell us what’s being attached and if you look at product lines or it you look at seats?
I think you’ve got it exactly right and that is we are seeing multiple products being part of these larger transactions. I also think you’re starting to see a little bit more of products that are not just either storage or security but the combination of the two. I think those are probably the two biggest factors plus I think as we mentioned, our storage foundation business had its best quarter in many years so I feel very good about some of our core data center products performed very, very well. So the combination of those three factors I think drove the large deal volume.
Your next question comes from the line of Adam Holt – Morgan Stanley
Adam Holt – Morgan Stanley
On the storage and server management business, you seem to have had a complete reversal or at least a real strengthening on the foundation business over the last several quarters you noted more broad based buying into the foundation consolidation vision, but can you talk about what you think is behind the recent strength in foundation and do you think its sustainable mid to high single-digit grow from here going forward?
I think when you look at the success there is folks are trying to manage down the costs of managing their infrastructure and when you look at what we’re able to do there the combination of having a common storage management layer that works across a heterogeneous environment absolutely helps folks reduce their costs.
The second thing is that we’ve added some new capabilities in products like Command Central storage where you can get much better utilization of your storage. So for example if you look at the Gardner data, 37% of storage is currently utilized in the enterprise. When you take a product like Command Central you can help customers drive down their costs of acquiring more storage which is an important aspect of this business. And quite frankly that’s why we feel that we continue to do an even better job of driving more products into the data center.
The other aspect that I think is important is we’ve had tremendous sales force stability. I think if you look across last year compared to this year, our geographic leaders have been in place now for over a year, we also have our leadership team across all geographies being very, very stable and that translates into more affective and better results in our entire product line but specifically in storage and server foundations.
Adam Holt – Morgan Stanley
On operating margins, even if you back out the impact of the extra week for the quarter you still had quite strong margins, better than we were looking for, you noted cost control and headcount in your commentary but are you also starting to see any potentially favorable impact from some of the consumer distribution deals starting to get more productive and more profitable?
That is absolutely part of the equation. I think we’ve discussed in the past as to how the accounting for those new consumer OEM arrangements is the toughest in the earliest part of the contract and so we are starting to see now, now that the trial wave period has passed, now that we’ve been able to build our [take] rates and so forth, a better top line impact to go along with what had previously been a substantial cost line impact.
Adam Holt – Morgan Stanley
So is it too early to say margins are stabilized there or are we comfortable that margins should be more stable in the consumer business going forward?
Well we’re sticking by our long-term goal of 100 basis points improvement on margin year-over-year so I think I’ll just leave it at that. We’re obviously always going to be looking to over perform as we have done in this past quarter and that’s going to be a combination of revenue growth and maintaining the discipline around the cost line.
Your next question comes from the line of Philip Winslow - Credit Suisse
Philip Winslow - Credit Suisse
Just on the sales force side, I wonder if you give us a sense for just attrition in sales force and how that’s been trending over the past several quarters I know it seemed to hit a high point in the year-ago quarter, and then also we recently just saw an announcement of [Sofo’s] intent to acquire [Udimacko]. This is now your second competitor to move into the hard disk encryption market I know you have an OEM relationship there but does this affect your plans there at all?
When you look at attrition definitely its trending down in the sales force and that is to the point of having stability not only in the leadership team but also at the various levels of management. I think that definitely has a positive affect on our overall sales performance.
We’ve been quite pleased with the relationship with Guardian Edge. Obviously as the pipeline continue to build that represents a good opportunity for both of our companies. We’ve made no decisions about changing that relationship or any other as I might add to purchase something in the encryption space. And so when we have something to say other than what we’re doing we’ll talk about it then.
Your next question comes from the line of Israel Hernandez - Lehman Brothers
Israel Hernandez - Lehman Brothers
On the large deals, obviously a lot of success closing those during the quarter and over the last couple of quarters, any risk as we go into a more challenging macro environment that we could start to see some of these deals slip, how are you gauging the pipeline for these large deals and the predictability around those?
I think its fair to say that there are a number of customers out there that are cautious in their view of what their spending plans are for the second half of this calendar year and so we can’t be unmindful of that but by the same token we happen to have key product portfolio items in security and storage management which are almost un-deferrable expenditures for them as their data volumes continue to grow. So as data volumes grow so will our business independent of perhaps the broader macroeconomic environment. While we’re not immune we think we do have some degree of insulation from that problem.
Your next question comes from the line of Daniel Ives - Friedman Billings Ramsey
Daniel Ives - Friedman Billings Ramsey
In regards to acquisitions especially on the private side, can you talk to being in an environment like this both on acquisitions and probably there are a lot of pickings out there, just how are you going through them and what’s your thought process in regards to bolt-ons and what specific areas?
Most of the things that we’ve done of late have been small transactions, actually small private company transactions. I think as the liquidity opportunities for private companies continues to be challenging it would make it much more attractive for them to consider a strategic purchase by a buyer like Symantec. We believe that that will create an opportunity for us for the next few years because there are forecasts that would suggest there’s going to be a tight IPO market for probably 12 to 18 months and so as we said at our Analyst Conference, we intend to continue to be acquisitive around the notion of securing and managing the world’s information content.
And to the extent that there’s something out there that compliments that vision for us, you should expect to see us be active acquirers.
Your next question comes from the line of John DiFucci – JP Morgan
John DiFucci – JP Morgan
On guidance this quarter the numbers look really strong even if you back out that extra week and the guidance although looks decent at 7% revenue growth and calculated bookings and realizing some of the revenue comes off the balance sheet but with the deferred revenue anticipated sequentially to go down a little bit, about 5% calculated bookings growth foreign exchange is probably going to benefit you by about that much anyway, are you, just given the economic backdrop is it—are you just trying to be prudent and what’s happening out there in the world or was there something this quarter that perhaps you may see fall off a little bit like even in the backup business you said you were up about 20% year-over-year again yet the extra week but you had two big product releases and you think that’ll sort of maintenance catch-up things might fall off or just trying to understand looking forward here?
We’re very optimistic about the September quarter. We feel as though we’ve got a strong pipeline coming into the quarter. The product portfolio if in terrific shape. We’ve got important new products in late stages of development so we feel as though we have a lot of momentum as really has been evidenced by the results of recent quarters. As to how we set guidance, I wouldn’t say that we have tried to take a different approach this quarter to the way we do it each quarter and obviously now it’s about doing our best, work hard to beat that guidance. But we have set it, we feel good and it very much reflects the momentum of the business.
Your next question comes from the line of Katherine Egbert - Jefferies and Company
Katherine Egbert - Jefferies and Company
On the IRS settlement it looks like you’re going to pay a lot less then what you thought, are you going to reverse the reserve on that and is it going to have an impact on cash flow this quarter?
Well in terms of cash flow we wouldn’t expect it to have an impact. We have another large tax issue that has just finished at trail that I suspect you’re aware of and so I wouldn’t see us having any refund necessarily. We’ll likely leave that money on deposit at the IRS so I wouldn’t look for any particular cash flow impact and we’ve paid the taxes a couple of years back and so there’s no particular reversal of any reserves to take care of either.
Katherine Egbert - Jefferies and Company
You talked about the Analyst Day that you had a very good coverage ratio for the June quarter can you give us any indication what it looks like for September?
Its equally strong for September, I don’t think we quoted a specific number in June for the June quarter but I would tell you that as we look at the statistics that we review weekly on salesforce.com we feel very, very strong about, are solid about what’s going on this quarter and how deals greater than 50% [odds] the coverage for those are in our pipeline so we’re feeling good about the quarter.
Your next question comes from the line of Robert Breza - RBC Capital Markets
Robert Breza - RBC Capital Markets
On the consumer side, the new service offerings, can you give us a sense for volume that you saw in the quarter and maybe tell us about typical ASPs on some of those services?
The typical ASPs are anywhere from $49.00 to $69.00 and the products, as we mentioned, we’re getting some good take rates on the Tune-up service and given what’s going on the Green PC service where we tune your PC to be more energy efficient is of interest to folks who are trying to do the right thing for the environment and conserve costs. So we’re where we would expect it to be with consumer services.
Your next question comes from the line of Walter Pritchard – Cowen & Company
Walter Pritchard – Cowen & Company
On the products, it seems like data protection is strong, its been strong for your competitors as well, is there some sort of recent up swell in this market or do you think you did mention you’re taking share but it seems like everybody in this space is seeing pretty good growth?
I think what’s driving this is data volumes for all of our customers are growing and to the extent that they have made a choice of a provider or a platform, that certainly gives you as the platform option the opportunity to grow as their volumes grow. In our particular case I think what you’re seeing is the results of the team being very, very focused on integrating innovative technologies into the core Net Backup or Backup Exec products and with de-duplication now integrated into that backup with a number of really, really snazzy features in our Backup Exec product you’re starting to see the market leader take share as it should always.
Walter Pritchard – Cowen & Company
On the seasonality I know you’re not guiding for the rest of the year, the seasonality is a little strange this quarter and next just because of the 14 weeks, should we expect sort of a return over the next couple of quarters to normal seasonality for the company?
Yes you should, the only difference in seasonality for this fiscal year versus the norm is really driven by the June quarter having that extra 14th week.
Your next question comes from the line of Todd Raker - Deutsche Bank
Todd Raker - Deutsche Bank
We’ve seen in software some of the very large vendors starting to take pricing up on their installed base, if you look at your business especially on the storage side, do you think you have any kind of pricing power if you look out over the next two or three years?
It’s hard to even think about pricing power when our customers are hurting economically and so I think we look at new functions and capabilities that we want to deliver into the marketplace and I think the best way to exercise price power if you want to call it that is through new innovation. Customers are certainly willing to pay for new innovation; they’re less willing to pay for across the board price increases. We just don’t think that’s the smart thing to do particularly in challenging economic times.
Todd Raker - Deutsche Bank
On the consumer side, I recognize that the revenue is very visible coming off of the balance sheet but if you look at it from a bookings perspective how much visibility do you have on the consumer business and what kind of expectations or concerns do you have if we get a general macro slowdown and the consumer business decelerates?
Clearly with 80% or more of the activity being online we have very, very solid visibility into daily if not weekly activity in the online channel. We operate with a sell through and a reporting structure that allows us to understand what’s going on at retail and if anything we worry about a continued decline in retail as a part of our overall consumer business.
Your next question comes from the line of Tim Klasell - Thomas Weisel Partners
Tim Klasell - Thomas Weisel Partners
Have you seen any change in the behavior of the consumer i.e. swapping out products, renewal rates, anything like that?
Actually we’ve seen consistent behavior in our online business as we noted, a combination of strong performance in online and weakening in retail has now become 80% of our overall business and as John stated we have good visibility into how many users come back to our sites, renewal rates haven’t been affected from what we can tell and our products are necessary for anyone who wants to go online and uses a PC so we haven’t seen any changes there.
Your next question comes from the line of Garrett Bekker – Merrill Lynch
Garrett Bekker – Merrill Lynch
I know you had mentioned awhile ago that heading into June the pipeline was maybe the strongest you had seen in quite awhile so could you talk a little bit about the linearity and also on maybe the close rates that you’ve seen and how your close rates, maybe you’ve thought about that as you’ve looked ahead with your guidance?
Well if I were to reflect on the June quarter what I would say is because our quarter closed on July 4th it was a much smoother quarter close then we have historically had. And so we did not have the back end loaded last day, last 48 hour kind of activity in the June quarter that we’ve seen in other quarters. Ironically enough as we move forward to this quarter we have a similar situation where the quarter will close on October 3rd I think, which should give us a chance to kind of smooth things out because of normal behavior if you will of our customers who would tend to look to the last day of the quarter as the last day in which we would be looking to book a deal.
In terms of visibility as I had mentioned earlier, we opened this quarter with very, very good pipeline coverage. As you look at deals in the pipeline with 50% or greater odds, look at deals with total odds, all of those things are very solid consistent with similar metrics as we entered the June quarter. So we feel good about our business and we feel even better about quite frankly how the team is executing around the world.
Your next question comes from the line of Philip Rueppel - Wachovia Securities
Philip Rueppel - Wachovia Securities
We talked a lot about how the strength in big deals was a key contributor to the revenue outperformance, can you talk about the other end of the spectrum, SMB, were there any changes there, was that also strong, and looking forward is that a segment that might be more at risk due to the economic headwinds or does it have a similar characteristic as your large customers?
While we saw good traction in our large deals, I think in some ways it’s easier to highlight what’s happened at the high end of the market or the larger deals but we did see performance across all product lines and all segments and across the geographies. And so what that means to us is that we are getting the benefit of our broader portfolio and that our products are necessary in this current environment.
The other thing is we mentioned that our Backup Exec business in our backup business was growing at 20%, a lot of the success of that product line is in the SMB segment where you get a lot of folks who are using the Windows platform and we’re clearly the market leader in backup and recovery for the small and medium sized companies so we haven’t seen any changes there and don’t expect anything to be different in the September quarter.
Philip Rueppel - Wachovia Securities
The strength in DLP the Vontu deals, are they still primarily standalone or are you starting to see them be part of the big deals, part of the overall Symantec solution?
I think that what we’re getting right now is while we continue to do large standalone deals you are seeing the benefits of the other parts of the security portfolio and what’s important in DLP that initially it was DLP at the network level, now what you’re seeing our customers say is they want the benefit at the endpoint and so given our strong position at the endpoint with Symantec Endpoint Protection, the Altiris client management suite, we think that the combination of DLP, systems management and our core endpoint security products gives us a very strong position and we can definitely see DLP becoming part of more and more of our security deals.
The typical sell cycle for a DLP deal will range in the six to nine month range, closer to nine then six, and so what we are seeing is really, really good cooperation at the field level between the Vontu team and the established Symantec account managers and I think as time goes on as those relationships continue to build and get stronger I don’t know that we’ll improve the sell cycle but I think we can expect to see much, much broader deal coverage of very large deals given the nature of the technology itself.
Your next question comes from the line of Rob Owens - Pacific Crest Securities
Rob Owens - Pacific Crest Securities
Can you talk about your revenue yield on billings business, if I look at the overage on revenue and the overage on deferred relative to guidance it seemed like your in period revenue realization was a little bit better then you had forecasted, is that a function of product set or is there something else going on there?
I think there are a few different things going on here, I think as we’ve said a few times, the product set is strong, we’ve seen good traction behind new recent releases like NBU 6.5, SEP 11 obviously been very important as well. At the same time we have continued the theme of the last year and a half or so now of really close cooperation between those out there on the front line doing the selling and the back office so that we get cleanly written contracts, contracts that allow us to take some of our selling activity into revenue during the period in which the deal is booked.
In addition Enrique alluded to earlier the new comp model, so it’s a variety of different things that are allowing us to see a better revenue yield in period and that’s particularly encouraging when you remember that in the June quarter last year we had strong revenue performance. So a relatively tough year-over-year revenue comp for us. So very pleased with that overall result.
Rob Owens - Pacific Crest Securities
If we look at that extra $75 million that impacted the quarter is the mix pretty consistent which is the general mix of business or was there one area that benefited more from the extra week?
No I’d say it’s pretty much a mix of the overall business; I wouldn’t call out anything in particular there.
Your final question comes from the line of Steven Ashley – Robert W. Baird & Co.
Steven Ashley – Robert W. Baird & Co.
On the continuous data protection feature that you’re going to be offering, in terms of timing is that something that we might see this quarter and is that an add-on feature to both the Net Backup and the Backup Exec products?
That feature is very important because as John has highlighted as data volumes go up folks are struggling to complete their backups and given the amount of data that needs to be backed up so this new technology, the new improvement allows you to continue to backup all of the critical information without having to worry about is the backup not going to complete in the backup window. The functionality is going to be obviously part of both our high end Net Backup product and our Backup Exec technology. It’s definitely going to be included or definitely going to be an add-on to the Net Backup 6.5 platform and it is a for-fee offering. Meaning it’s an up-sell for the customer.
Steven Ashley – Robert W. Baird & Co.
Is Altiris 7 in Beta use right now?
Steven Ashley – Robert W. Baird & Co.
Is there any feedback by people using that and integrating it with the SEP 11 product?
I think the feedback we’re getting is positive because one of the great things that we’ve added is a new work flow engine that allows us to do a better job of not only managing the existing environment but also integrating with the other applications that the customer has and so feedback has been positive. We have deliverables this quarter to some of our partners and as we said this product will be available this fall.
There are no further questions; at this time I would like to turn the call back over to management for any closing remarks.
Thank you very much for joining in this afternoon. I’m quite proud of our teams’ performance in the June quarter. We have a very solid pipeline and very strong visibility as we head into September. Execution is improving, our product portfolio is quite strong and so I think we’re starting to hit our stride and I’m quite proud of our team and thanks for doing another great job guys.
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