Symantec (SYMC) Q3 Earnings & Revenues Surpass Estimates

Symantec Corporation SYMC reported third-quarter fiscal 2019 non-GAAP earnings of 44 cents per share that surpassed the Zacks Consensus Estimate of 39 cents, and came above the guided range of 37-41 cents. However, the bottom line came below the year-ago quarter figure of 49 cents.

On a non-GAAP basis, Symantec generated revenues of $1.218 billion, which beat the consensus estimate of $1.178 billion and were up 0.7% from the year-ago quarter. The top line also came above the guided range of $1.160-$1.190 billion.

The company benefited from strong growth in Consumer Digital Safety segment, and significant improvement in the Enterprise Security revenues, which came above expectations.

Quarter in Detail

Consumer Digital Security revenues for the quarter were in line with the company’s expectations at $602 million, up 2% from the year-ago quarter in constant currency. For this segment, implied billings of $612 million grew 2.2%.

Enterprise Security revenues of $616 million grew 3% organically from the year-ago quarter despite a difficult year-to-date comparison due to the Equifax breach last year. Enterprise Security implied billings of $772 million declined 4% year over year, adjusted for WSS/PKI divestiture.

The quarter saw strong adoption of both Consumer Digital Safety and Enterprise security solutions.

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

Contract liabilities totaled $2.928 billion, up 7% year over year, and were negatively impacted by $192 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 Digital 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.

Margins

Symantec reported non-GAAP operating income of $395 million, which declined 14.7% from the year-ago quarter. Non-GAAP operating margin contracted 600 basis points (bps) to 32%.

Enterprise Security Operating margin of 16% declined from 23% due to the divestiture of website security and related PKI products. Consumer Digital Safety operating margin contracted 400 bps year over year to 49%.

Balance Sheet & Cash Flow

Symantec exited the fiscal third quarter with cash, cash equivalents and short-term investments of $2.58 billion compared with $2.44 billion in the prior quarter. The company ended the quarter with long-term debt of $4.447, marginally up from $4.442 billion in the previous quarter.

Symantec generated operating cash flow of $377 million compared with $240 million in the prior quarter.

No shares were repurchased during the quarter.

Outlook

Encouraged by better-than-expected performance of the Enterprise Security segment, Symantec raised its revenue and EPS guidance for the full fiscal-year 2019.

For fiscal 2019, Symantec now expects non-GAAP revenues in the range of $4.76-$4.79 billion compared with the earlier guided range of $4.67-$4.79 billion.

For fiscal 2019, Enterprise Security revenues within $2.36-$2.38 billion and Consumer Digital Safety revenues between $2.40 billion and $2.41 billion are expected.

This guidance indicates 1.5% revenue growth for the company at mid-point, on an organic basis and in constant currency. This also reflects relatively flat revenues for Enterprise Security and 3% growth for Consumer Digital Safety, year over year.

Non-GAAP operating margin is maintained at 30% for the fiscal year. Non-GAAP earnings per share are now anticipated to be in the range of $1.57-$1.61, up from $1.47 to $1.57 previously projected.

For the fourth quarter of fiscal 2019, Symantec anticipates non-GAAP revenues in the range of $1.19-$1.22 billion. At mid-point, the guidance implies approximately flat revenue growth on an organic basis and in constant currency.

Non-GAAP operating margin is projected to be around 30%. Further, management estimates earnings between 37 cents and 41 cents on a non-GAAP basis.

Enterprise Security revenues for the fiscal fourth quarter are expected to be between $595 million and $615 million, and for Consumer Digital Safety between $595 million and $605 million.

Management notes fiscal third and fourth quarters to be seasonally biggest for the Enterprise business. However, the Equifax breach is expected to lead to tough year-over-year comparisons for the Consumer Digital Safety segment.

Further, management notes that revenue growth in both Enterprise Security and Consumer Digital Safety segments coupled with cost reduction initiatives undertaken during the remainder of fiscal 2019 will have a positive impact on operating margin in fiscal 2020.

Any significant impact from Foreign Exchange on Symantec’s revenues and operating income is not expected for the rest of the fiscal year.

The company also announced its intention to restart its capital allocation program in the fiscal fourth quarter. It increased its repurchase authorization by $500 million to $1.3 billion. Share repurchases are expected to commence from the same quarter.

Zacks Rank and Stocks to Consider

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

A few better-ranked stocks in the broader technology sector are Marvell Technology Group Ltd. MRVL, Twitter, Inc. TWTR and CACI International CACI , 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 for Marvell, Twitter and CACI International is projected to be 9.38%, 22.05% and 10%, respectively.

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