Symantec Corporation (SYMC) reported fourth quarter 2011 earnings per share of 33 cents, in line with the Zacks Consensus Estimate. However, quarterly revenue of $1.67 billion surpassed the Zacks Consensus Estimate of $1.60 billion.
Revenue
Symantec reported fourth quarter 2011 GAAP revenue of $1.67 billion, up 9.0% from $1.53 billion reported in the year-ago quarter. However, revenue for the quarter improved 8.0% on the back of necessary currency adjustments. The increase in revenue was primarily attributed to improved business activities in Backup, Consumer, Data Loss Prevention and Software as Service offerings coupled with good performance by its acquired businesses.
The Consumer segment contributed 31.0% to the total revenue, up 6.0% from the year-ago quarter. Revenue climbed as a result of improving renewal rates, increase in customer base for the company’s premium suites and the cross selling of new service offerings to customers.
Security and Compliance contributed 27.0% to the total revenue, up 24.0% from the year-ago quarter. Revenue growth was driven by strength in DLP, Software as a Service and authentication services. In fiscal 2011, the company acquired 3 encryption and authentication businesses, which generated revenues of $81.0 million and exceeded the company’s expectation of $70.0 million. TheVeriSign Security business generated $61.0 million in revenues, while PGP and GuardianEdge generated revenue of $20.0 million.
Storage and Server Management accounted for 37.0% of the total revenue, up 8.0% from the year-ago quarter. Revenue from the Backup and Archiving business increased 16.0% from the year-ago quarter, driven by the company’s differentiated product offerings and virtual machine protection features. Storage Management business revenue declined 7.0% year over year as a result of weak bookings performance in the first half of fiscal 2011. However, in the reported quarter, the company witnessed the second consecutive quarter of stable year-over-year bookings in the Storage Management business.
Services contributed 5.0% to the total revenue and witnessed a year-over-year decline of 21%, as the company switched to a different consulting practice.
International revenue comprised almost 51.0% of the total revenue in the fourth quarter and increased 10.0% on a year-over-year basis. The EMEA (Europe, Middle East and Africa) region generated 29.0% of the total revenue in the quarter and increased 4.0% year over year. The APJ region (Asia Pacific/Japan) generated 16.0% of total revenue and up 22.0% year over year. The Americas (which includes the United States, Latin America and Canada) generated 55.0% of total revenue and increased 9.0% year over year.
Operating Results
Gross margin in the quarter was 85.8%, up 50 basis points (bps) from the year-ago period of 85.3%. However, non-GAAP operating margin declined 390 bps year over year to 24.1%, primarily driven by the company’s acquisitions and higher commission expenses. Excluding the effects of the acquired deferred revenue write-downs, operating margin for the March quarter stood at 26.4%.
Net income on a GAAP basis in the fourth quarter was $168.0 million compared with $184.0 million for the same quarter last year. This resulted in GAAP earnings per share of 22 cents versus 23 cents in the fourth quarter of fiscal 2010. Excluding special items like operating expense adjustment, non-cash interest expense and the related tax adjustments, non-GAAP net income was $256.0 million compared with $323.0 million reported in the year-ago quarter, which in turn resulted in non-GAAP earnings per share of 33 cents versus 40 cents in the year-ago quarter.
Balance Sheet & Cash Flow
The company generated cash flow from operating activities of $689 million, down 2.0% year over year. The company also recorded cash, cash equivalents and short-term investments of $2.96 billion during the reported quarter. During the fourth quarter of 2011, Symantec repurchased approximately 11 million shares for $180.0 million. In fiscal 2011, the company repurchased 57 million shares for $870.0 million. Currently, Symantec has $877.0 million remaining under its existing share repurchase program.
Guidance
For the first quarter of fiscal 2012, revenue is estimated at between $1.570 billion and $1.590 billion, up 10.0% to 11.0% year over year. GAAP diluted earnings per share are estimated at between 19 and 20 cents. Non-GAAP diluted earnings per share are estimated to be between 36 and 37 cents. Deferred revenue is expected to be in the range of $3.60 billion and $3.63 billion.
Our Take
Given its larger share in the fast-growing security market and the acquisition of VeriSign’s identity/authentication business, we believe Symantec will be able to capitalize on the vast opportunities in the security market. Customers and channel partners are providing positive feedback on the company and strategic ties with VMware Inc. (VMW) and Salesforce.com Inc. (CRM) are expected to work in favor of the company.
However, intense competition from big and small players as well as the threat from Microsoft Corp.’s (MSFT) new Windows operating systems may hamper margin expansion, but we believe Symantec’s technology will enable it to deliver decent results in the coming quarters.
Currently, Symantec has a Zacks #2 Rank, implying a short-term Buy recommendation.
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