SYMANTEC 1Q18 Prepared Remarks

Transcription

1 Good afternoon and thank you for joining our call to discuss our first quarter fiscal year 2018 earnings results. We ve posted the earnings materials and prepared remarks to our investor relations events webpage. Speakers on today s call are Greg Clark, Symantec s CEO, and Nick Noviello, Executive Vice President and CFO. This is a live call that will be available for replay via webcast on our website. I'd like to remind everyone that all references to financial metrics are non-gaap, unless otherwise stated. We provide year-over-year constant currency growth rates in our prepared remarks for revenue. During the call we may speak to a growth adjusted for acquisitions metric, which includes prior period non-gaap revenue from acquisitions adjusted for Symantec s accounting policies including quarterization. All non-gaap revenue and expenses excludes the impact of Veritas, however the continuing operations deferred revenue on the balance sheet includes a portion of Veritas deferred revenue from Symantec and Veritas bundled contracts entered into prior to operational separation. The Veritas deferred revenue from those contracts will amortize into discontinued operations. As a result implied billings growth calculated from the change in deferred on the balance sheet will not be representative of stand-alone Symantec s performance as it will include an impact from Veritas. Please note, non-gaap financial measures referenced during this call are reconciled to their comparable GAAP financial measure in the press release and supplemental materials posted on our website. We believe our presentation of non-gaap financial measures, when taken together with corresponding GAAP financial measures, provides a meaningful supplemental information regarding our operating performance for reasons discussed below. Our management team uses those non-gaap financial measures in assessing our operating results, as well as when planning, forecasting and annualizing future periods. We believe those non-gaap financial measures also facilitate comparisons of our performance to prior periods and to our peers and that investors benefit from understanding of the non-gaap financial measures. Non-GAAP financial measures are supplemental and should not be considered a substitute for financial information presented in accordance with GAAP. Today s call contains forward-looking statements based on the environment as we currently see it. Those statements are based on current beliefs, assumptions and expectations, speak only as of the current date and, as such, involve risks and uncertainties that may cause actual results to differ 1

2 materially from our current expectations. Please refer to the cautionary statement in our press release for more information. You will also find a detailed discussion about our risk factors in our filings with the SEC and, in particular, on our Annual Report on Form 10-K for the fiscal year ended March 31, And now, I'd like to introduce our CEO, Greg Clark. Go ahead Greg. 2

3 Thank you for joining us and good afternoon. I m pleased to share that both of our business segments exceeded their Q1 revenue outlook and have strong underlying growth drivers with attractive profitability. We continue to accelerate our leadership in the Enterprise Security and Consumer Digital Safety businesses as evidenced by customer success, technological innovation, and our financial results. We are on track to achieve our full year financial outlook and confident of the momentum building in our second half pipeline. At the same time, today we also announced DigiCert s acquisition of our Website Security and related PKI assets. Later in my remarks, I will share a summary of the transaction, impact to customers, and impact to Symantec. 3

4 First, I d like to touch on the dynamic threat environment and how Symantec continues to protect our customers. As many of you are aware, there were two major malware outbreaks this past quarter, WannaCry and Petya. Both are stark reminders of why the world needs Symantec more than ever. These attacks spread quickly, infecting many high-profile companies globally, and rendering data on victim computers unusable. Symantec s advanced endpoint security capabilities proactively protected against both WannaCry and Petya. Neither attack had virtually any impact on our customers. While some other security companies failed to protect their customers, Symantec software has, to-date, blocked more than one billion attempted WannaCry attacks. That is a testament to our significant presence on enterprise and consumer endpoints as well as the effectiveness of our advanced technologies. We are committed to protecting customers against all forms of cyber-attack across all attack surfaces and continue to evolve our Integrated Cyber Defense platform and Consumer Digital Safety offerings to fulfill that mission. In this regard, I m pleased to report that innovation is thriving across Symantec. We are now regularly applauded by customers for being on the forefront of innovation based upon what we have developed internally as well as what we have acquired and integrated. We are accelerating our leadership through both organic and inorganic development. On the organic front, we have important releases on the endpoint that are coming soon: By the end of the calendar year, we are releasing the next version of SEP, SEP 14.1, which is a significant new release of our flagship Symantec Endpoint Protection product line, and builds upon the highly successful launch of SEP 14 last November. It includes some key innovations that we believe will improve the overall security posture of our customers, including actionable intelligence on suspicious files in a customer s environment and aggressive tunable protection that can be adjusted for individual users 4

5 or groups. In addition, SEP 14.1 is designed to be highly effective even in sites with low connectivity, as it relies heavily on Advanced Machine Learning and other signature-less technologies, and does not need frequent content updates. We are seeing good early traction with customers in our beta release. In addition, by the end of the calendar year we will also be launching ATP 3.0, the next major release of our EDR solution, which adds Flight Data Recorder capability, recording all activity on the endpoint. This will provide valuable contextual endpoint data to incident responders increasing productivity and delivering cost savings as well as close one of the remaining gaps in the hyper-converged endpoint. These new product releases further increase the value of our endpoint solution versus traditional Antivirus providers and other point providers. On the consumer side, we have now delivered the first shipments of Norton Core, which was built from the ground up by our own consumer team and has received wide recognition. Norton Core is another great example of the innovation that is taking place at Symantec. Core is a secure WiFi router that helps protect home networks from malware using network packet inspection, provides high speeds using an omnidirectional antenna, and offers advanced parental controls. All of this is controlled from an easy to use mobile app. Preorders have exceeded our expectations and Core is now available at Norton.com as well as other premier retail outlets, including BestBuy and Amazon.com. 5

6 On the inorganic side, we also recently announced two important acquisitions Fireglass and Skycure that will bring significant innovation to our portfolio, and allow us to introduce new methods to stop attacks. Both transactions closed last week and will leverage our existing sales motion to bring value to customers. First, let me review Fireglass. Fireglass is a leading provider in the fast-growing Threat Isolation security category. The technology reduces the attack surface and decreases false positive alerts in the security operations center saving customers time and money. The Fireglass solution represents a significant leap forward in the CISO s ability to keep users safe, even when they are visiting risky or uncategorized sites. Fireglass provides a secure execution environment for users whether they are on the web or on . Dangerous links and attachments pose no threat to the user as all code is run remotely in isolation and never reaches the user s endpoint. In discussions with customers at the Black Hat conference last week, the Fireglass technology was seen as a direct extension to our current proxy environment. We believe it will act as a natural boost to our existing sales motion, particularly as part of the refresh cycle for our ProxySG franchise. Now let s discuss Skycure. With this acquisition, Symantec will be the only large endpoint vendor to provide customers with comprehensive Mobile Threat Defense across ios, Android, and Windows operating systems, as well as enable a new approach to BYOD for enterprises and consumers. Skycure s predictive technology uses a layered approach that leverages crowd-sourced threat intelligence, in addition to both device and server-based analysis, to proactively protect mobile devices from malware, network threats, and app/os vulnerability exploits, with or without an Internet connection. 6

7 Existing management tools like Mobile Device Management or Enterprise Mobility Management do not protect mobile devices and are not able to defend closed operating systems from attacks like Skycure can. We believe mobile security is going to be paramount for our customers and a massive opportunity for our endpoint franchise. Symantec will now provide a complete endpoint security portfolio for traditional devices like laptops, desktops, and servers, as well as mobile devices. This is a key differentiator against traditional endpoint and emerging endpoint security vendors who do not protect mobile platforms. We will be in a unique position to integrate mobile with network and our cloud security portfolio to enhance our Integrated Cyber Defense platform for our customer base. For our consumer business, we expect Skycure to accelerate traction for our mobile offerings with major telcos who are seeking partners for improving security. Closed operating systems are an attractive opportunity for improving cyber defense. Skycure brings defense-in-depth to closed operating systems, which is important for ios and Windows 10 S and differentiates our offerings from the competition. Importantly, both Fireglass and Skycure integrate easily into our core franchise. From an innovation perspective, we have been actively tracking the threat isolation and mobile threat spaces for over a year, which led us to these leaders. From a go-to-market perspective, Fireglass and Skycure bring add-on offerings to existing sales motions and we are targeting the same buyer. We ve received very vocal support from major customers and industry analysts on these acquisitions. And, they demonstrate our commitment to remain at the forefront of innovation benefitting our customers and our long-term revenue trajectory. We will continue to invest significantly in our organic development capabilities as well as pursue new technology acquisitions, where prudent, to accelerate our cyber defense offerings. Let me transition to our Enterprise business. Here, our Integrated Cyber Defense platform is resonating with customers and driving increased pipeline. 7

8 We are positioned as the clear leader for the cloud generation and are building more pipeline and winning more deals on superior technology and unmatched integration. Our Integrated Cyber Defense platform is becoming a significant competitive differentiator for us. We are beating or displacing incumbent security vendors on a more frequent basis and seeing more success with cross-selling of components within our Integrated Cyber Defense platform, as evidenced by larger deal sizes in the enterprise and additional customer examples of per user security savings. Let me provide you an example of a customer that consolidated from multiple security vendors to Symantec. In the quarter, one of the largest financial technology companies purchased nearly our entire Integrated Cyber Defense platform. The main driver here was our best of breed integration across the portfolio, which saved the customer millions of dollars per year while also increasing administrative efficiency and simplicity by standardizing on Symantec, displacing four incumbent competitors and beating cloud security challengers hoping to win new business. This deal would not have taken place without the combination of Blue Coat and Symantec. During Q1, individual components of our Integrated Cyber Defense platform showed strong competitive momentum, as well. Our CASB product line continued its growth momentum, winning many large enterprise customers, either beating or displacing major competitors in the cloud arena. Some of the wins include a 40,000 seat deal at one of the country s largest retailers and a 30,000 seat deal at a mobile payment company. Let me share a final example of our integration and Integrated Cyber Defense platform winning deals. During the quarter, one of the largest soft-drink distributors was an existing Symantec DLP customer but using a competitor for endpoint security. Our account team introduced SEP 14 and ATP to the customer who was immediately impressed with our EDR capabilities in the 8

9 integrated SEP/ATP solution. This led to winning the endpoint business and displacing the incumbent endpoint competitor for 20,000 employees, another demonstration of integration and the platform winning in the market. Now, as many of you know, through the integration of Symantec and Blue Coat, we also made significant improvements in our go-to-market programs and partner simplification. At the beginning of the quarter, we went live with our new combined enterprise sales organization, substantial improvements to our partner model, and simplification across the business. From external facing collateral to internal systems, the changes we made were substantial. I am proud of the work that was done, and want to thank the team for executing and delivering strong results for customers, and for Symantec. Now, the sales team is leveraging all of that work as they execute on our strong, increasing pipeline. Now, I d like to give an update regarding recent developments related to our Website Security and related PKI solutions. As you may be aware, earlier this afternoon we announced an agreement with DigiCert to acquire our Website Security and related PKI assets. DigiCert is a portfolio company of the private equity firms Thoma Bravo and TA Associates and is a leading provider of scalable identity and encryption solutions for enterprise web security. DigiCert is solely focused on providing leading SSL and PKI solutions. With this transaction, we believe DigiCert will have the resources needed to lead the next generation of global website security. We are excited about the prospects for the combined company and are deeply committed to its success. We will receive a minority ownership stake in DigiCert at the closing of the transaction, allowing Symantec to continue to participate in the value created by this transaction and ensure a successful transition for the customers of our Website Security and related PKI solutions. Nick will be sharing further financial details of the transaction in his remarks. 9

10 This divestiture sharpens our Enterprise Security business focus on our Integrated Cyber Defense platform strategy, which, as I ve highlighted throughout this call, is a top priority for us. It also positions us for achieving higher growth. As a result of this transaction, we are increasing our long-term outlook for Enterprise Security organic revenue growth to high single to low double digits compared to our previous outlook of mid to high single digit organic revenue growth. You may be aware that we ve been in ongoing discussions with Google and Mozilla regarding our shift to a SubCA business model in our Certificate Authority operations. As a reminder, under the SubCA business model, our SSL/TLS certificates would be issued through one or more independently operated third-party CAs until we develop and deploy a modernized PKI platform that is accepted into trust stores. The DigiCert acquisition accelerates the transition for our customers to a new PKI platform at DigiCert that meets all industry standards and browser requirements, ensuring continuity for our customers and providing a foundation for continued innovation. During our discussions with the browsers our goal has been to minimize the impact to our customers and we believe this transaction achieves that goal and commitment. Moving to our Consumer segment, Consumer Digital Safety is an entirely new category that is resonating with customers. Consumer Digital Safety revenue exceeded guidance and grew 1%, adjusted for acquisitions. This is one quarter ahead of our plan. This improvement in growth was driven by a number of factors across both Norton and LifeLock. From a demand perspective, we believe recent ransomware attacks drove improved activity across our Norton portfolio. Retention rates for Norton Security and LifeLock exceeded our expectations, as we continue to optimize customer engagement across the installed base. Our new Norton WiFi Privacy app has also continued to perform well globally. LifeLock has performed better than expected since our acquisition. Unaided brand awareness has grown to 40%, our highest in history and more than 5X our nearest competitor, and, to 10

11 date, we ve exceeded our acquisition plan for customer growth while simultaneously decreasing our customer acquisition costs. As you know, identity theft is not just an issue in the United States. We are actively working on expanding LifeLock internationally. We have plans to enter the first international market by the end of fiscal 2018 and expect to expand into additional countries in fiscal I m also pleased to report that we ve completed most major elements of integrating LifeLock ahead of schedule. We are encouraged by the initial acceptance of our efforts to create the new Digital Safety category and have received positive responses from partners and consumer message testing. We expect to be actively selling LifeLock into our Norton customer base this quarter and offering Norton Security as a highly differentiated feature to all new LifeLock customers, which should result in a higher ARPU, higher retention and lower cost of acquisition. 11

12 In summary: I m very pleased with the results from Q1 and the hard work from the team and feel great about the opportunity for the rest of the year. The pipeline is strong and we have solid momentum, which gives us confidence in our second half outlook. Profitability in the enterprise segment has improved dramatically year over year. In just one year, Symantec has made a major transformation across both Enterprise Security and Consumer Digital Safety. I want to thank our employees, customers, partners, and shareholders for being with us on this journey. It is evident that our strategy to combine best of breed technology with unmatched scale is working and we believe it will result in long-term market share gains. We expect both our Enterprise security and Consumer Digital Safety businesses to grow in the low to mid-single digits, adjusted for acquisitions, this fiscal year. We are achieving this growth while substantially improving profitability in our enterprise security business and maintaining our market-leading margins in the Consumer business. We are now in full execution mode this sets us up to be in position to realize the full benefits of our transformation in FY19. Our agreement to sell our Website Security and related PKI assets to DigiCert allows us to dedicate more focus toward delivering unparalleled protection for the cloud generation. Let me turn the call over to Nick to go through the numbers. 12

13 CFO Nick Noviello Thank you Greg and good afternoon everyone. Today I will: Review our first quarter fiscal 2018 results Discuss several critical achievements we ve now completed on our integration and transformation journey Update our fiscal second quarter and fiscal year 2018 outlook Update our medium term outlook from financial analyst day reflecting our planned divesture of our Website Security and related PKI assets We have also made additional details available in our CFO commentary, which has been posted on our Investor Relations website. I'd like to remind everyone that all references to financial metrics are non-gaap, unless otherwise stated. Let me start with an overview of our Q1 financial results. Our first quarter revenue was $1.228 billion, exceeding the high end of our $1.185 to $1.215 billion guidance range, driven by outperformance across both our Enterprise Security and Consumer Digital Safety segments. As the dollar depreciated during the quarter, currency tailwinds provided an $8 million benefit to revenue relative to our Q1 guidance. Total year over year revenue growth in constant currency adjusted for acquisitions was down 1% which was at the high end of our Q1 guidance of down 4% to down 1%. Operating margin for the first quarter was 31%, above our guided range of 27% to 29%, driven by top-line outperformance and continued execution against our cost savings initiatives and synergies. We remain ahead of schedule to achieve our expected net cost efficiencies, as well 13

14 as our expected Blue Coat and LifeLock cost synergies, which gives us further confidence around our guidance, and the significant increase in operating margins we expect this year. As you may recall, we expect to achieve net cost efficiencies, and Blue Coat and LifeLock cost synergies of $580 million in the aggregate, by the end of fiscal year Currency tailwinds also provided a $5 million benefit to operating income compared to our Q1 guidance. Fully diluted earnings per share was 33 above our 28 to 32 guidance range. Fully diluted shares outstanding decreased by 3 million shares to 664 million relative to our Q1 guidance of 667 million partially due to impact from our convertible notes, driven by a lower share price. Please see the dilution tables posted to our investor relations website where you can see the impact to diluted share count from the convertible notes at various stock prices. Finally, cash flow from continuing operations during the quarter was $251 million and capex was $47 million. Now let s review our operating segment performance for Q1 in more detail. First, I ll review the performance of Enterprise Security. Our Enterprise Security segment revenue was $669 million and grew 41% year over year. Enterprise Security growth in constant currency adjusted for acquisitions was down 2%, at the high end of our Q1 guidance of down 5% to down 2%. As we discussed on our Q4 17 earnings call, our website security products comprise approximately $350 million of revenue in our enterprise security business. In Q1, revenue from our website security products was down 1%. 14

15 Enterprise security deferred revenue was $1.814 billion excluding the impact from Veritas and adjusting for purchase accounting write-downs compared to $1.824 billion at the end of fiscal year Further details are available in our CFO commentary. The amount of revenue that rolled off the balance sheet during the quarter was consistent with our expectations. Enterprise Security operating margin was 17%, up 11 points year over year, driven by our cost savings initiatives. Turning to consumer digital safety Our Consumer Digital Safety segment revenue was $559 million and grew 40% year over year. Consumer Digital Safety grew 1% in constant currency adjusted for acquisitions, at the high end of our Q1 guidance of down 1% to plus 1% growth. It is important to contrast that to just 1 year ago, Q1 of FY17, when Consumer Security revenue was down 8% in constant currency. Q1 FY18 Consumer Digital Safety operating margin was 47% driven in part by top line growth and a faster realization of LifeLock synergies. Consumer Digital Safety deferred revenue was $1.042 billion adjusting for purchase accounting write-downs compared to $1.059 billion at the end of fiscal year The amount of revenue that rolled off the balance sheet during the quarter was also consistent with our expectations. With respect to this segment, over time, we do not expect deferred revenue to be the best metric to evaluate the business as we anticipate a shift from annual to monthly billings with our bundled solutions. Further details on deferred revenue are available in our CFO commentary. As we outlined at our financial analyst day, on a quarterly basis we will provide direct subscribers, direct ARPU, and partner revenue for our Consumer Digital Safety segment. We are presenting this on a going forward basis to give color as to the significant metrics driving this segment. As this is a combination of statistics from businesses Norton and LifeLock - that had different measurements historically, we will not be providing year ago comparisons to the metrics. 15

16 For Q1: o direct customer count was 21.1 million at the end of the quarter o direct ARPU was $7.87 per month o Recall that we expect these direct statistics to represent ~90% of the revenue stream at any one point in time o And finally, partner revenue was $58 million Further definitions of these metrics can be found in our CFO commentary. Turning to the balance sheet and capital allocation. During the quarter, we repaid $2.0 billion in debt, consistent with our deleveraging commentary from financial analyst day. As of June 30 th, we had $2.3 billion in cash and shortterm investments and $6.3 billion in gross debt including $1.75 billion of convertible notes. We completed our previously announced $500 million accelerated share repurchase during the first quarter and received 2.2 million shares. In total, we repurchased 16.4 million shares under the March 2017 ASR. We have $800 million remaining under our current repurchase authorization. As we mark the one year anniversary of the Blue Coat acquisition, I would like to recap some of the important achievements and successes in integrating Blue Coat and Symantec. First, as we have discussed, from day one, we started integrating products and to date have completed over twelve major product integrations. We continue integrating additional Blue Coat and Symantec products with ten more planned over the remainder of this fiscal year. These integrations have become a core driver of both customer wins and pipeline growth while creating, we believe, powerful competitive differentiation to uniquely solve customer problems that have otherwise been out of their reach. Second, we remain ahead of plan on our commitment for cost synergies. At the same, we have eliminated an enormous amount of complexity in the business. We ve 16

17 streamlined our distribution and channel, simplified SKUs and pricing, and worked hard to start to modernize back office systems all of which has benefitted customers and our own opportunity And third, on April 1 st, we successfully achieved the goal of combining our two sales teams into a single organization. Despite all of the change, our sales team delivered and the systems and process changes were successful. We also rolled out our New Secure One Channel Program - our distributors are now on standard contracts and have placed orders without challenges. This outcome is testament to our integration capabilities as a company and the hard work that our team took on. As Greg indicated, earlier this afternoon, we announced that we have signed a definitive agreement with DigiCert to acquire our Website Security and related PKI assets. We expect the transaction to close after the satisfaction of customary closing conditions, and therefore expect website security to be reported as part of discontinued operations by the time we report earnings in November. At that time, we expect to update our fiscal 2018 guidance to include the impact of the divestiture on our results. You should also expect that we will reconcile our Q2 results between our outlook today, and the continuing and discontinued operations we will report as a result of the transaction. Today, I will first, provide our outlook for fiscal year 2018 and Q2 excluding the impact of the divestiture and second, provide you with a framework to understand the associated impact of the divestiture on our future results. With respect to the outlook. While we are pleased with our Q1 outperformance and are even more confident now in our going forward pipeline and execution plans, we are maintaining our fiscal year 2018 outlook on a constant currency basis given the substantial transformation and execution still underway. On a nominal basis including favorability from foreign currency, we expect fiscal 2018 revenue at guided rates to increase to approximately $5.160 to $5.260 billion from $5.100 to $

18 billion previously. We expect approximately 3% constant currency revenue growth adjusted for acquisitions at the midpoint. For fiscal year 2018, we continue to expect Enterprise Security growth adjusted for acquisitions of 3-5%, and Consumer Security growth adjusted for acquisitions of 1-3%. We continue to expect operating margins for fiscal year 2018 of 36%-37%. We expect our earnings per share will benefit on a nominal basis from favorable foreign currency by approximately $0.04. As a result, we expect fiscal 2018 EPS at guided rates to increase to approximately $1.79 to $1.89 from $1.75 to $1.85. We continue to expect an effective tax rate of 29.5%, and fully diluted weighted average shares outstanding of approximately 675 million. We have not built substantial share repurchases into our share count estimates as our focus from a capital allocation perspective in fiscal year 2018 is on debt reduction. From a cash flow from operations standpoint, we are maintaining our previous guidance provided at our investor day of $1 billion to $1.2 billion. This incorporated approximately $500 million of restructuring and transition payments, and approximately $600 million of stock based compensation expense. More than half of that stock based compensation expense is related to acquisitions, including Blue Coat, where lock up restrictions have now been met. We expect this level of stock based compensation expense will decline over time. Moving to our second quarter outlook which also does not include the impact of the divestiture. We expect revenue to be up 25% to 28% in constant currency, which at guided rates, including favorability from foreign currency, translates to $1.260 billion to $1.290 billion. We expect Enterprise revenues to increase 15% to 18%, which implies growth adjusted for acquisitions of approximately 1% at the mid-point. We expect Consumer Digital Safety revenue to increase 40% to 42%, which implies growth adjusted for acquisitions of flat to up 1%. 18

19 We expect total company operating margin of 34-36%. We expect EPS of 40 cents to 44 cents and an underlying share count of approximately 670 million. Our plan and guidance on each of these measures for the second quarter is consistent with the first half guidance we discussed at our financial analyst day. Now onto the potential financial impact from the announcement of the acquisition of our website security and related PKI products by DigiCert. We anticipate that the transaction will close during the fiscal third quarter following satisfaction of customary closing conditions. At that time, we expect to receive approximately $950 million in up-front cash proceeds and receive a 30% common stock ownership stake in DigiCert. We expect to account for our ownership stake under the equity method of investment. Let me provide a brief background on our website security and related PKI products. As many of you may recall, we acquired the website security business from Verisign in Subsequently in 2012, we purchased the remaining interest in Verisign Japan. Though included in our enterprise security segment, our website security and related PKI solutions are not marketed or sold as part of our integrated cyber defense platform. Moving to the financial impact from the divestiture When we report our second quarter earnings in November, we expect website security will be reported as part of discontinued operations. At that time, we will update our fiscal 2018 guidance to exclude the impact of our website security and related PKI assets. Today, for modeling purposes, I will provide a framework for the financial impact of the divestiture to our ongoing business. As a reminder, these solutions are within our Enterprise Security business segment. Together, and on a full year basis, the website security and related PKI products are expected to contribute slightly over $400 million in revenue, approximately $350 million related to website 19

20 security and approximately $50 million related to select PKI assets, and combined operating income of just over $180 million in fiscal Given the nature of carveouts, after closing, we will continue to be burdened with stranded costs of just over $50 million on a full year basis that were previously allocated to the website security and related PKI products, which will not be transferred to DigiCert. We expect the combined impact of the transaction on a full year basis to our fiscal 2018 operating income would be a reduction of approximately $235 million, incorporating the combined operating income of the business and stranded costs. Assuming the divestiture, and again, on a full year basis, We expect our pro-forma, acquisition adjusted total revenue growth for fiscal year 2018 would be approximately half a point higher and our enterprise security growth, acquisition adjusted, would be higher by approximately a point and a half. We expect our operating margin in fiscal 2018 would be approximately 150 basis points lower than our previous guidance of 36% to 37%. And we would expect the Enterprise Security operating margin percentage, excluding the website security and related PKI products, to be in the low 20 s compared to our current outlook of the high 20 s. Again, excluding website security and related PKI products for the entirety of the fiscal year, we would expect EPS to be approximately 20 cents lower in fiscal 2018 relative to our original guidance, assuming relatively constant weighted average share count. Finally, we would expect fiscal 2018 cash flow from a run rate perspective to be approximately $200 million lower than our current guidance. When completed, we expect one-time cash taxes, fees, and expenses of approximately $350M in the aggregate resulting from the transaction with DigiCert, although that estimate is subject to change. We expect the transaction proceeds, net of expected taxes and expenses, will be primarily used to repay debt. 20

21 Now let me talk longer term with respect to the fiscal 2019 and fiscal 2020 perspective we gave at our Financial Analyst Day For fiscal 2019 and fiscal 2020, we continue to expect total organic revenue growth to be mid to high single digits. However post-divestiture, we expect to get to high single digit total company organic revenue growth faster than we originally expected. For this longer term outlook, we now expect Enterprise Security organic revenue growth of high single to low double digits up from mid to high single digits previously. In fiscal 2019 and 2020, we continue to expect total company operating margin percentage in the high 30 s and now expect enterprise security operating margins in the high 20 s. And, we continue to expect low-teens EPS growth as we provided at our financial analyst day. Once closed, we will update and confirm all of these impacts for you. In summary: In Q1, we outperformed our revenue guidance across both Enterprise Security and Consumer Digital Safety and we are optimistic about our sales pipelines which gives us confidence in our second half outlook. Within one year from the closing of the Blue Coat acquisition, we ve made significant progress integrating Blue Coat and Symantec products, eliminated an enormous amount of complexity in the business, successfully combined two sales teams and rolled out our new channel program. Even with all these changes, we remain ahead of plan on our cost savings and synergy initiatives which gives us confidence in our guidance and the significant ramp up in operating margins we expect this year. Our guidance for the fiscal second quarter is consistent with the first half guidance we provided at financial analyst day. 21

22 With respect to our 2018 outlook, we ve updated our fiscal year 2018 guidance to reflect the favorable foreign currency benefit, but we are maintaining our constant currency guidance, given the execution that is still to come in the second half of the fiscal year. As I discussed, the decision to divest our website security and related PKI assets is expected to provide us with greater focus and an improved top-line growth trajectory. To conclude, we transformed our business in fiscal year 2017 and this fiscal year is about executing. The execution taking place now will set us up for great opportunity in fiscal 2019 and beyond to achieve sustainable mid to high single digit organic revenue growth which we expect will come faster as a result of the divestment of our website security and related PKI assets, and to deliver industry-leading margins from our operational improvements, resulting in low-teens earnings growth and strong cash generation to drive shareholder value. Let me transition the call to Nate and Q&A. 22