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Symantec (SYMC) Q4 Earnings Match, Revenues Miss Estimates

Zacks Equity Research

Symantec Corporation SYMC reported fourth-quarter fiscal 2019 non-GAAP earnings per share (EPS) of 39 cents that matched the Zacks Consensus Estimate and came within the guided range of 37-41 cents. The figure, however, declined 15.2% year over year.

On a non-GAAP basis, Symantec generated revenues of $1.195 billion, which missed the consensus estimate of $1.208 billion. Moreover, revenues were down 2.2% from the year-ago quarter. However, the top line came within the guided range of $1.19-$1.22 billion.

Notably, Symantec altered the name of the Consumer Digital Security segment to Consumer Cyber Safety.

The company benefited from strength in Consumer Cyber Safety segment. However, lower-than-expected bookings resulted in a weak quarter for the Enterprise Security segment, thus dragging the top line.

Quarter in Detail

Consumer Cyber Safety revenues for the quarter were $605 million, flat year over year in constant currency. Direct average revenue per user (ARPU) of $8.83 per month grew sequentially. However, for this segment, reported billings of $620 million fell 6.2% year over year.

Enterprise Security revenues of $590 million remained flat year over year. Lower-than-expected hardware and license sales affected revenues from this segment. Enterprise Security reported billings of $712 million declined 24% year over year.

The company shifted its business model to a more ratable one. For the fiscal fourth quarter, 81% of the company’s Enterprise Security revenues were ratable under ASC 606 compared with 76% in the previous quarter.

Contract liabilities totaled $3.07 billion, down 2% year over year, and were negatively impacted by $218 million as a result of ASC 606.

Contract length was 18 months during the quarter compared with just below 17 months in the preceding as well as the year-ago quarter.

In the Consumer Cyber Safety business, the company is witnessing improvement in ARPU on the back of successful cross-sell and improvement in retention rate for its direct customer base.

Notably, Symantec’s endpoint security products witnessed return to growth.

However, it faced significant headwinds from the ProxySG and Web Security Service product, and the advanced threat detection protection bundle. The ProxySG business (or the Blue Coat hardware proxy bundle) failed quicker than expected due to the rapid transition of companies to the cloud. This led to a refresh cycle, which was not as large as expected.

Margins

Symantec reported non-GAAP operating income of $347 million, which declined 20.2% from the year-ago quarter. Non-GAAP operating margin contracted 700 basis points (bps) to 29%.

Enterprise Security Operating margin of 8% declined from 18% due to lower revenues and higher spending. Consumer Digital Safety operating margin contracted 400 bps year over year to 49%.

Balance Sheet & Cash Flow

Symantec exited the fiscal fourth quarter with cash, cash equivalents and short-term investments of $2.04 billion compared with $2.58 billion in the previous quarter. The company ended the quarter with long-term debt of $3.96, lower than $4.45 billion in the previous quarter.

It generated operating cash flow of $547 million compared with $377 million in the prior quarter.

During the fiscal fourth quarter, the company repurchased 11 million shares.

Full-Year Highlights

For the full year of fiscal 2019, Symantec’s revenues of $4.76 billion declined 2.1% year over year. However, there was organic growth of 1% in the revenues, adjusted for acquisitions and divestitures.

Operating cash flow increased 57% year over year to $1.495 billion.

Non-GAAP EPS was $1.59, down from $1.67 in the prior fiscal year.

Outlook

For fiscal 2020, Symantec expects non-GAAP revenues in the range of $4.76-$4.9 billion. Enterprise Security revenues within $2.3-$2.4 billion and Consumer Cyber Safety revenues between $2.46 billion and $2.5 billion are expected.

This guidance indicates 1.3% revenue growth for the company at mid-point, on an organic basis and in constant currency. The Zacks Consensus Estimate for full-year fiscal 2020 revenues is pegged at $4.99 billion. The guidance also includes revenues from an additional week.

Non-GAAP operating margin is expected between 31% and 33% for the fiscal year. Non-GAAP EPS is anticipated to be in the range of $1.65-$1.80.

For the first quarter of fiscal 2020, Symantec anticipates non-GAAP revenues in the range of $1.18-$1.21 billion. At midpoint, it indicates 3.5% growth.

Non-GAAP operating margin is projected to be 25-27%. Further, management estimates earnings between 30 cents and 34 cents on a non-GAAP basis.

Enterprise Security revenues for the fiscal first quarter are expected to be between $555 million and $575 million, and for Consumer Digital Safety in the $620-$630 million range.

Increased costs in the Enterprise business are expected to keep the operating margin for the first quarter under pressure.

A 24% decline in recognized billings and timing differences on tax payments between the fourth quarter of fiscal 2019 and fiscal 2020, among others are expected to lead to a year- over-year drop in cash flows for full-year fiscal 2020.

Symantec Corporation Price, Consensus and EPS Surprise

Symantec Corporation Price, Consensus and EPS Surprise

Symantec Corporation price-consensus-eps-surprise-chart | Symantec Corporation Quote

Zacks Rank and Stocks to Consider

Symantec currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader Computer and Technology sector are ACI Worldwide, Inc. ACIW, Cadence Design Systems, Inc. CDNS and Verint Systems Inc. VRNT, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for ACI, Cadence and Verint is projected to be 12%, 12% and 11%, respectively.

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