Gen Digital Inc (GEN) — Q1 2020 Earnings Call Transcript

Right, good afternoon everyone. This is Cynthia Hiponia, Vice President of Investor Relations at Symantec, and I'm pleased to welcome you to our call to discuss our first quarter fiscal year 2020 earnings results and Symantec’s divestiture of its Enterprise Security assets. We posted the earnings materials and slides to our Investor Relations events webpage. Speakers on today's call are Rick Hill, Symantec's Interim President and CEO and Vincent Pilette, our Executive Vice President and CFO. This call will be available for replay via the webcast on our website. I'd like to remind everyone that all references to financial metrics are non-GAAP unless otherwise stated. Please refer to the supplemental materials posted on the investor relations website for further definitions of our non-GAAP metrics. Please note, non-GAAP financial measures referenced during this call are reconciled to their comparable GAAP measures 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 more 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 and forecasting future periods. We believe our non-GAAP financial measures also facilitate comparisons of our performance to prior periods and that investors benefit from understanding our non-GAAP financial measures. Non-GAAP financial measures are supplemental and should not be considered as substitutes for financial information presented in accordance with GAAP. Today's call contains forward-looking statements based on conditions as we currently see them. 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 materially from our current expectations. In particular, our statements regarding our proposed sales of our Enterprise Security assets and plans following completion of the sale are subject to a variety of risks, including the risks that the transaction does not close. Please refer to the cautionary statements and 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 in our annual report on Form 10-K for the fiscal year ended March 29, 2019. With that, let me now turn the call over to Rick.

Thank you, Cynthia and thank all of you for joining us today. When I joined Symantec, I was informed there's never a dull moment at the company. Well, needless to say it's been quite an inning since I joined Symantec in April, and I have been very fortunate to have Vincent Pilette, who is here with me today having joined in early May. During that time, we as a management team undertook a deep dive of the organization from the products and underlying technology to the go-to-market strategies for both Enterprise and Consumer. We implemented cost-cutting initiatives and spend control programs while identifying key growth opportunities for both enterprise and consumer. Despite the leadership and organizational changes and external noise, our team delivered solid Q1 results with non-GAAP revenue, operating margin, and EPS all above our guidance. We were up both year-over-year and quarter-over-quarter. As many have heard me say, I'd rather be lucky than good, and I am lucky to work with a talented group of executives and employees who have the capability of delivering superior results to both our customers and employees and shareholders. Now, let me turn to the big news today. What first attracted me to Symantec was a clear opportunity to unlock the value in both our Enterprise and Consumer Groups. Our announcement today, the sale of the Enterprise Security assets to Broadcom for $10.7 billion in cash, achieved this by obtaining an attractive valuation for Enterprise Security. For an asset that produced approximately 50% of our revenue and approximately $2.5 billion in revenue, which is about $2.5 billion and 10% of our operating income in the first quarter of fiscal 2020. Think about that for a moment, $10.7 billion in cash for approximately 10% of our operating income. As stated on our earnings call last quarter, we are committed to our Integrated Cyber Defense platform, which has produced a strong and competitive portfolio of industry-leading enterprise solutions. Broadcom's acquisition of these solutions validates Symantec’s Enterprise Integrated Cyber Defense Strategy and ensures seamless service for existing customers and the continued development of innovative and market-leading products in a dynamically growing market. Combining Symantec’s technology with Broadcom's reach and proven operational excellence will delight customers and create a powerful force in the market, enabling our enterprise business to grow without us having to invest in fixing our go-to-market model. As Vincent and I will discuss in our comments, this transaction delivers a superior outcome to our shareholders and there are four key elements to understand. The attractive valuation we are receiving for our enterprise assets, $10.7 billion for a business that generated 10% of our operating income for quarter one, granted a huge opportunity for growth, but given the go-to-market strategy we had employed, we were consistently falling short of that objective. Second, the size and cash expense of stranded costs in the remaining company and how long it will take us to eliminate those costs. Vincent will discuss this in detail. The third thing is the attractive long-term model for the Consumer Cyber Safety business, also known as Norton LifeLock. And finally, our commitment as a Board and Management Team to return capital to shareholders. We believe that the $10.7 billion is an attractive valuation for a business with industry-leading solutions in a fast-growing market. Now, using my reverse Polish HP 35 calculator, let me put this in perspective. The $8.2 billion after-tax proceeds is roughly the equivalent of $12 per share. We believe that post the 12-month transition period as a standalone company, our Consumers Cyber Safety business can generate $1.50 in non-GAAP annual earnings per share. Now you apply a multiple of 13 to that number, add it to the $12 per share we are getting for our Enterprise Assets and you get a share price in excess of $30 a share for Symantec. Now obviously, a stable dividend-generating company in a low interest to negative interest rate environment would clearly garner higher than a 13x multiple. We believe this represents a nice premium to the share price prior to our announcement today. Now once the agreement is closed, the remaining company will have approximately $1.5 billion in stranded costs, which we have determined will cost approximately $1 billion in cash to eliminate. Vincent will address this in more detail, but we believe we can self-fund the majority of these restructuring costs using the value of the underutilized assets such as real estate that is located in a highly attractive location. We believe this transition period will take approximately 12 months from the close of this agreement to realize all of the cost savings, after which we will have a more nimble and unencumbered pure-play consumer safety business. We will be able to use the significant cash generation from operations to fund growth and continue the innovation within Norton LifeLock. We have all seen recent breach headlines that affect tens of millions of people. These incidences are just one example of what is driving the consumers' increasing need for cyber safety. As corporations harden their defenses against cybercrime, cybercriminals will continue to try and infect consumers, making them potential carriers into the business where they work. No different than the proliferation of the flu virus during flu season. It is our job as a consumer company to inoculate these carriers, and our consumer B-to-B-to-C strategy will play a major role on the front lines in the battle against cybercrime. Now with a large and growing market, Norton LifeLock addresses the consumers' increasing need for cyber safety. Our integrated solutions built around our core technologies across device security, identity protection, privacy, and home and family safety are enhanced value to all our members. Consumer Cyber Safety delivered solid results in the first quarter, driven by the increasing value we delivered to our members. We increased investment in advertising and promotion at the beginning of fiscal year 2020 and will continue to invest in direct customer acquisition programs to drive direct member additions. Our partner programs continue to grow members, and our retention rate is approximately 85% across the business. We believe in the long term that our Consumer Cyber Safety business can grow revenue in the mid-single digits with operating margins of approximately 50% and earnings growth above revenue growth. This model can provide an attractive dividend yield and generate free cash flow of approximately $7 million annually. So let's summarize. We’ve announced a transaction that we believe delivers an attractive valuation for our Enterprise Security asset. We’ve identified our stranded costs and how long it'll take to remove them from the remaining business, and we have provided our view on the long-term financial model that a pure-play Consumer Cyber Safety business can achieve with an optimized cost structure. Now let me outline the signals we have sent on returning capital to shareholders. We intend to deliver a $12 per share special dividend to shareholders after the close of the transaction, which represents approximately 100% of the after-tax proceeds from this transaction. We announced an increase in our share repurchase program of $1.6 billion, and we expect to raise our quarterly dividend by 67% to $12.05 per share or $0.50 annually after the close of the transaction. Additionally, we are committed to continue to return capital to shareholders as the cash flows of the company permit. The sale of our Enterprise Security assets delivers a win for our Enterprise and Consumer customers and for our shareholders. Hock Tan, Broadcom’s President and CEO will begin the integration planning process immediately. Hock has built a leading technology company and Symantec Enterprise Security will be another key asset in a software company portfolio. Looking forward, as we work towards closing this agreement in the December quarter, we’ll continue to focus on operational discipline and execute on multiple initiatives to drive revenue growth in the Consumer Cyber Safety business. I'd like to thank all of our shareholders for the patience they have shown, and we hope you see the commitment the board and the management team have to you and our employees. Let me now turn the call over to Vincent, the best hire Symantec has ever made, who will review our quarter one results, give our outlook for the second quarter and provide more details on the agreement.

Thank you, Rick. As Rick mentioned, we demonstrated our capacity to execute on our plan and deliver solid Q1 results. This quarter, we delivered broad-based performance on revenue growth and profit levels across our business. We also developed a restructuring plan to improve productivity and simplify the way we manage the business, and finally, we negotiated the sale of our Enterprise Security assets to Broadcom for $10.7 billion in cash, representing about 36 times FY ‘19 Enterprise Segment operating income, about 27x after tax. The completion of this transaction will unlock the embedded value in Enterprise Security, while enabling Consumer Cyber Safety to emerge as a pure-play market leader with strong earnings power. No doubt that this transformational transaction, repositioning our company as a pure-play consumer business, will be at the center of every discussion. However, allow me to first comment on Q1. In this first quarter of fiscal year 2020, we delivered better than expected revenue of $1.251 billion, up 9% year-over-year in constant currency. Excluding the extra week that we had this quarter, revenue grew 2% year-over-year in constant currency. For the quarter, we generated an operating profit margin of 30%, up 2 points year-over-year driven by revenue growth and disciplined cost management. Fully diluted earnings per share was $0.43, up 23% year-over-year. In the quarter, we generated $325 million of cash flow from operations. In our Enterprise Security Segment, we delivered revenue of $615 million, up 11% year-over-year in constant currency and up 4% year-over-year excluding the extra week. Revenue was $40 million above the high end of our guidance due to a higher mix of sales yielding upfront revenue in the quarter, as well as higher than expected ratable revenue. Our Q1 Enterprise Security reported billings were $497 million, up 10% year-over-year, slightly better than expectations built into our revenue guidance communicated three months ago. In Q1, we generated Enterprise Security operating margins of 7%. In our Consumer Cyber Safety segment, we generated revenue of $636 million, slightly better than expected due to higher partner revenue and strength in our subscription revenue. We delivered revenue growth of 7% year-over-year in constant currency and flat year-over-year excluding the extra week. In Q1, average revenue per user or ARPU increased to $8.83 per month, up 2% over year-over-year normalized for that extra week. Our average direct customer count was $20.2 million, down 3% year-over-year. We also protect millions of consumers through our partners, and partner revenue was up 5% in the quarter. In Q1, we began increasing investments in direct customer acquisition marketing spend. The increase in marketing investments will continue into Q2 in order to capture our long-term growth opportunities as we look ahead to operating as a pure play market leader in this space. Keep in mind there is a lag effect on when we begin to see the positive impact on subscriber growth from when direct customer acquisition programs launch. These investments are expected to be funded by reductions in infrastructure and G&A costs. In Q1, we launched our Integrated Solution memberships on the Norton and LifeLock websites in the U.S. Internationally in Canada, the UK, and Germany the Norton.com website now offers integrated offerings that include secure backup, VPN, and privacy controls. Adding value to our membership subscriptions will allow us to grow subscribers and ARPU. As such, we believe we will see a meaningful impact on both ARPU and customer accounts in the back half of FY ’20 and in a more meaningful way in FY ‘21. Finally, Consumer Cyber Safety operating margin was 53% compared to 44% a year ago, a growth of 9 points year-over-year. Moving forward, we intend to maintain an optimal level of investment to support our growth objectives, with an operating margin target of around 50%. I'm incredibly excited by the long-term prospects of our Consumer Cyber Safety business, which will have full ownership of its own destiny following the completion of the sale of our Enterprise Security assets. Before I turn to Q1 balance sheet and cash flow, I want to say a few words about our cost structure. The three main changes of operations across the company are speed of execution, productivity, and customer focus. As part of our plan we developed over the last couple of months, we announced today a $100 million restructuring program aimed at improving productivity and reducing complexity in the way we manage the business. This plan includes a 7% reduction of headcount and closures of certain sites. We expect the majority of these actions which we have already started today to be done by the third quarter. In the quarter, we generated cash flow from operating activities of $325 million compared to $331 million in Q1 ’19. As expected, Q1 CapEx was $49 million, with the majority associated to the enterprise business. We ended Q1 with $1.694 billion in cash and short-term investment. In the quarter we executed repurchases of $541 million worth of shares, leading to a weighted average diluted share count of 642 million. Now, turning to our guidance. Due to the announcement of the sale of our Enterprise Security assets which we expect to close in our fiscal third quarter, we are not providing full-year 2020 guidance at this time. For Q2, we are increasing the guidance range to reflect the uncertainty that might be caused by the announcement of the sale of our Enterprise Security asset. We are forecasting a Q2 fiscal year 2020 revenue range of $1.155 billion to $1.205 billion comprised of $565 million to $600 million in Enterprise Security and $590 million to $605 million in Consumer Cyber Safety. At the midpoint of our guidance, it implies approximately flat year-over-year for the total company. We are forecasting operating margin to be in the range of 31% to 33%, and finally EPS is forecasted to be in the range of $0.40 to $0.44 per share – actually, yes $0.40 to $0.44 per share assuming a fully diluted share count of approximately 648 million and a tax rate constant to Q1. We are confident that we’ll smoothly and successfully manage the Enterprise Security asset sale and expect to ensure minimal disruption through the quarter. Now let me go into the more exciting piece of the news we have announced today, and because there is a lot to absorb, allow me to be a little bit repetitive with what we have already shared so far. We agreed to sell our Enterprise Security asset to Broadcom for $10.7 billion or an estimated $8.2 billion after tax, which will enable us to return $12 per share through a special dividend. Following the asset sale, we plan to eliminate approximately $1.5 billion of stranded costs, which we expect to accomplish within 12 months of the closing of the transaction. We believe we can complete that task without disrupting the Consumer Cyber Safety given the business largely runs independently. We expect that it will cost us approximately $1 billion in cash to eliminate those stranded costs and we will fund those in large part by the sales of under-utilized assets such as real estate. After the transition period, we will emerge as a pure-play Consumer Cyber Safety business with a long-term growth potential of mid-single digits, operating profit margin of approximately 50% and an annual EPS of approximately $1.50. We expect the Consumer Cyber Safety business to generate a free cash flow of approximately $900 million after the transition period on an annual basis and I will repeat that because I think we may have heard Rick quoting $700 million and that was a mistake.

Yes, he caught me. Thank you.

We expect the Consumer Cyber Safety to generate annual free cash flow of approximately $900 million after the transition period, the majority of which we expect to return to shareholders via a mix of regular dividends and share buybacks. Consistent with this objective, we expect that our regular quarterly dividend will be increased to $12.05 per share or $0.50 annually, following the close of the transaction. In addition, our Board of Directors has increased our share buyback authorization by $1.1 billion to a total of $1.6 billion. We expect the incremental share repurchases will be executed over time after the close of the transaction, when all sales proceeds have been repatriated. Accordingly, the completion of these buyback authorizations has been factored into our EPS calculation and expectation for Consumer Cyber Safety. We believe this disciplined approach to capital allocation, together with our expectations for the growth of Consumer Cyber Safety, should deliver an attractive total return to shareholders. Following the transaction, we expect to maintain a debt balance approximately consistent with the debt on our balance sheet today. As a go-forward business, we will retain approximately 80% of the fiscal year 2019 operating income. Our current debt of $4.5 billion would represent approximately 3.5x gross leverage on the Consumer Cyber Safety business after adjusting for the elimination of the stranded costs. We believe this approach is appropriately leveraged returns to shareholders while also managing fiscal risk and maintaining financial flexibility and is supported by the predictable and highly cash-generated nature of Consumer Cyber Safety. We are very excited about unleashing the full potential of Consumer Cyber Safety, which will emerge as a focused pure-play leader in the consumer market. Our Norton LifeLock products have the number one revenue share in both Consumer Security and Identity Protection and strong brand recognition. Our integrated solutions built around the core tenets of security, privacy, identity protection, and home and family safety have redefined how consumers think about Cyber Safety. We expect that the ability to fund further investment in product innovation and sales and marketing will create an attractive financial model and enhance total shareholder returns. There has been a lot of information shared today, so let me summarize them once again. We delivered strong Q1 results with EPS growth of 23% year-over-year. We announced the sale of our Enterprise Security assets for $10.7 billion in cash, about 36x its fiscal year 2019 operating income. We have identified approximately $1.5 billion of stranded costs, which we expect to eliminate over 12 months at the cash cost of $1 billion and funded by the sales of underutilized assets such as real estate. We are retaining 80% of our fiscal 2019 operating income. We are refocusing the company as a pure-play market leader in Consumer Cyber Safety with earnings power of approximately $1.50 per share after transition. With an expected $12 special dividend per share, an increase in our buyback authorization to $1.6 billion, and an expected increase in our regular dividend, we are focusing and we are focused on maximizing our total shareholder return. In short, we expect to return in cash about 59% of Monday's market capitalization to our shareholders while at the same time keeping an ownership in a predictable business that generates over 80% of today’s operating income. And with that, Rick and I are happy to take your questions.

Good afternoon and thank you for taking the question. I have a couple if I may. Maybe to start out with the aggregate headcount at Symantec has been in the 12,000 neighborhood. So I’m wondering, as you undertake this divestiture, how the employee footprint will split out between standalone consumer business and the now divested Enterprise Security Business.

Absolutely! So we have 12,000 employees today. We are marching in our improvement plan towards a 10,000 in aggregate for the full company. We’ve started to reduce the headcount, as you may have seen in our report, and we do more as we go forward. When you talk about the remaining company post-transition period, we’ll have about $2.5 billion of revenue, and we believe that $1 million per employee is the right long-term target. 2,500 is the long-term target. We should be very close to that after the end of the transition period.

Understood! And you talked very specifically about measured rates of investment while maintaining sort of the 50% operating margin perspective for the consumer business. So I wanted to better understand where in particular those marketing investments will go. Just as we think about historically there's been some varying degrees of success you've had with retail partnerships and OEM arrangements. So I really wanted to better understand where exactly the marketing investment will be.

I’m sorry, let me first really explain the room we have in P&L. We’ve been running this business, the consumer business, at around 50%. In fiscal year ’18, you see in our segment 50% margin, fiscal year ’19, 48%, very much along that line. Marketing expenses have been rationalized over time as they were trying to free up allocation at the corporate level to fund the turnaround of the enterprise business, and that's the normal process of corporate budgeting and allocations. You look at the Q1 results we’ve just posted, the consumer segment is running at the 53% operating margin, and we believe there is a sub-investment compared to the opportunity, to be able to turn around the customer count mainly. So direct marketing, online marketing is our target and we believe we have one to two points of margin here we can invest in our business without changing our long-term target of 50% and be able to grow in this low single-digit to the mid-single digit. We also at the same time have moved from product and point-of-sale licensed product if you want sales into more of a membership approach. And they are trying to upgrade customers from basic membership to higher membership, providing additional functionality from security to identity to privacy is the long-term strategy of the business, unless you want to add anything Rick. No, it was perfect. I think the thing to recognize with this business is there are multiple knobs to grow revenue, and Vincent just articulated clearly the knobs of greater membership, and greater membership is also a function of the value of the product offerings that we're creating, which is part of our strategy to improve that value, targeted at safety within the home and even in small business. Now the other knob that we don't talk much about is ARPU, and clearly while our overall customer or our membership has continued to grow, we have had this slow decline in direct acquired customers and that is due to the fact that we had made a conscious decision a couple of years ago to bring down the spending in advertising and promotion by about $40 million, and we have put in programs to basically determine and monitor incremental increases in advertising and promotion to determine the optimum investment levels in order to begin growth in our directly acquired customers. In addition to that, we're putting in programs with our partners that will also allow us to increase the number of directly acquired members, and all of this allows us to basically more efficiently get the customer and therefore offer them a full range of services that we don't necessarily offer to all the partner channels. So there's a multi-pronged strategy that the business has put in place. It started at the beginning of the fiscal year. We're beginning to see results in those areas and allowing us to focus on that business solely and not having it encumbered at all. With the performance of enterprise, it should allow us to get that back to the mid-single-digit growth that we desire. Thank you.

Hi, good afternoon. I just wanted to start with maybe Norton and the SEP Endpoint business. Can you maybe give us a sense of, you know, what if any overlapping impacts there might be from the separation and just how to think about that in terms of impacting R&D, the sell side in terms of overlapping capabilities?

Yeah, well clearly you know endpoint is endpoint. Obviously in the case of SEP, SEP goes into a control panel and it's ideally suited for enterprise applications where Norton Antivirus doesn't really do that; it's not as extensive. But there is some overlap, but our focus and our definition going forward is the consumer marketplace, and that consumer marketplace also includes small business, because we obviously have had a Norton small business product offering you know along the way. And there's a clear delineation and I don't really envision a huge conflict, because if you are in a large enterprise and you want to control endpoint, you really require more ability to control it, where in the consumer, it's the individual who is controlling it. Now having said that, the common thing is, is that they both provide valuable threat intelligence. SEP provides threat intelligence in the enterprise environment which is a, what I would classify as a more benign environment, because corporations are controlling cyber threats at multiple points in their network. Where in the consumer business our access to threat, consumers go anywhere on the net and therefore are subjected to more potential viruses that they can inadvertently bring into the corporation. We share that data. We will be sharing that data with Broadcom and our enterprise business ongoing to make sure all our customers, whether they were our former enterprise customers or our continuing and growing consumer companies, get the best engines and the best coverage dynamically and I think is a win-win for both companies. I'm excited for our enterprise people, and I'm equally excited for our consumer people because they've got great ideas and they understand the market and there's great opportunity. And as I said in my talk, as the corporation gets hardened, criminals are more and more going to try to use consumers to get into the corporation, and I think, as I said in the very first call, I think it's very important that consumers be inoculated prior to going back into their place of work. So thank you very much for that question, Jonathan.

Excellent! And then just as a follow-up, how do you think about balancing the need to maybe return value back to shareholders along with your growth initiatives? Is there some type of formula that we should be thinking about? And I guess relative to prior management teams that have tried to achieve the same goals, how do you think about this a little bit differently? Thank you.

Well, first of all the beauty of focusing on consumer is a very steady, consistent business. So the predictability of cash flows, the predictability of growth, the predictability of profitability is a lot greater. So our ability ultimately to hone in on what percentage we're going to do dividends, what percentage we are going to do buybacks and what percentage we're going to reinvest will be much, much easier to define. As you can imagine, in the enterprise business with the episodic nature of the revenue, when it's overlaid on top of a consumer business, huge big elephant orders that come in or don't come in at the end of the quarter can really greatly affect your cash flows, consequently inhibit your ability to develop a pretty well refined capital allocation strategy. We are not announcing one today, but we will, after the deal closes, try to give you a solid picture of what our intent will be with capital allocation. But as I said in my talk, clearly the board and the management is committed to the return of capital to shareholders as is appropriate and is optimized for our investors. So that's my answer and thanks Jonathan. Next question.

Thank you, Vincent. Is there a way to allocate the $1.5 billion of stranded costs to the consumer and enterprise piece so that we can take a stab at calculating the multiple of EBITD you are getting for enterprise x, its share of the stranded costs, because it seems to me that might be a more fair way to look at it given that Broadcom is not absorbing that or maybe you disagree? Thanks.

No absolutely. Let me tell you about how we think about it, right. So the consumer business has a segment and the Enterprise Segment fairly separates distinct businesses, and in the P&L report we have fully allocated those costs where based on the utilization to the right segment. You see today, the fully loaded, the consumer business is running at in Q1, a 53% operating margin target and we have a long-term target to run it at around 50% plus or minus one or two points depending on the gross objectives. The Enterprise Business has the remaining cost, plus the corporate functions that are serving that Enterprise business. The $1.5 billion of stranded costs is made of those two pieces. The asset of the enterprise business that Broadcom will not take, plus the portion of the corporate services that are serving the Enterprise business, that’s the entire cost. It will cost us about $1 billion in cash to eliminate over 12 months and the consumer business should continue to operate fairly independently based on that unless you want to add anything Rich.

Yeah, what I would like to add to that is one of the beauties of this transaction is that Broadcom is taking the business and they have an infrastructure for the go-to-market that already exists, which allows an easy transition of our ongoing business to that platform, and what it does is in the situation that our team was working on to restructure, to deliver the results within the Symantec Holdco, obviously you have the problem that you can't shut down your – you risk shutting down your revenue stream while you know you are running the business. And the consequence is as they move this over, we have these stranded costs that are immediately vacated and so it makes carving them out much easier and during this deal we also retained as part of this deal assets that have embedded gains in them that are substantial, that we can use to offset this cost. Vincent is going to add something.

I just want to add one thing because your question is missing that maybe there’s a perception that this is a modeling exercise. We went extensively through RGS, to our set list, asset by asset to tag them. Do we think they will go with the Broadcom business or do they think that’ll stay here, and how are we going to eliminate those assets over the next 12 months? So we have a very rigorous approach that's more at the transaction level than at the modeling level.

Okay, thank you so much.

Hey, thanks for taking my question. So I look at what you are saying about the consumer business, but if you look historically it declined for years until the LifeLock acquisition, which certainly benefited from the timing of the Equifax breach, and I'm just trying to sort of figure out how you're going to accelerate the strong low single-digit growth to mid-single-digit growth over the long term. I get like what you are saying, Rick, about cross-selling and selling more products, but that's something Symantec’s been trying to do for a long time. So is there something different that you foresee at this point in order to make this happen?

Well, I think one of the things is LifeLock was an absolutely great acquisition; there's no question about it, and it continues to be a great acquisition, and our ability to make equivalent type of services available outside of the United States are an opportunity to take that model, which goes back to protecting individuals' identity, which we do have new products to do. We're going to expand that model of LifeLock outside of the United States and by the way, Equifax was a bump, but within that, LifeLock continues to grow and be very successful. I think you even heard David Faber this morning highlighting how he uses LifeLock, and even though we're not going to have a coupon on this call for everybody to call in, it shows you the value that everyone sees because there's hardly a person on this planet who hasn't had their identity somehow compromised, and so we don't see an end to the growth in LifeLock. In fact, what we see is our opportunity to take the attributes of LifeLock and expand it outside of the United States where it's been enormously successful and that's the only thing that’s different. Go ahead, Vincent.

If I can add, so we’re targeting a 3% to 5% over the next couple of years. It has grown 3% over the last two years, and you're right, currently the business is flattish. There are really three areas we are focusing on. One is the custom account and investing more direct marketing; the second one is what Rick mentioned, which is this ARPU, adding functionalities to the offering and with that increasing the membership and then including the retention rate also, which we've moved from lower to now 85%. I think if I looked at the number we were at around 80% a couple of years ago. Those are the growth, but our goal is the GDP plus type of growth, so it's not over-ambitious. I do believe with all the IODs and other environments, now as we singly focus on consumer, we have the potential to do more, but we’ll be very prudent and will focus on operational discipline, setting the target that we can deliver and constructively investing in innovation and sales.

Okay, thank you, and if I could just a quick follow-up. It’s actually for Rick. You know Rick; I believe your title is still Interim CEO. You've obviously been very active here since you've come onboard. Should we be expecting you to continue to orchestrate in partnership with Vincent this whole transition or I don’t know if you have any comments on that will be helpful.

Yeah, my active involvement is a personal flaw, but the reality is I could not be more proud of the entire management team, and I could not have a better partner than Vincent. And you know I enjoy working with him, but as I said in the last call, I’m a three-inning relief pitcher, and we clearly had a big inning in quarter one, and we've got a big job between now and close. As we announced in our press release, we are also taking the opportunity to relieve both internal and external candidates in order to run the ongoing consumer business. Vincent is going to drive – clearly be the major player and I could not have a better partner than Vincent to do this, and I believe the whole management team believes that, and so again, I'm still a relief pitcher. I'll be a relief pitcher for a little bit longer, but I am not in any way, shape or form, a personal, a permanent structure here. I love the company, love the people, love the products, great mission, and I just hope all the investors see it as I do. It’s a great opportunity and what we've done here has really freed up the ongoing RemainCo to be enormously successful.

And if I can add to that, because I knew investors always worry about Interim CEO and I've read a few reports. We have a very solid management team who spent a lot of weekends, a lot of pizzas, as we build this transaction, and the team has a lot of experience in separating assets and really driving what needs to be driven over the next 12 months. And independently from that, the Consumer Management team is also very strong, because all of our investors focus on Enterprise over the last two years. They haven't been too much exposed to that, but I think we have a very strong capable consumer business today.

Excellent! Thank you guys for taking the questions and congratulations. I mean you guys really got a great price for those Enterprise assets, so fabulous job in monetizing that business for the shareholders.

Thank you.

A couple of just like I guess more detailed questions. In terms of sort of share technology between the consumer and the Enterprise endpoint business, so what degree is there kind of share technology? Do you have to license like the AV Engine back from Broadcom or anything out of that ilk in terms of the shared - the common technologies between the two? And then the other way, are you getting paid by Broadcom for that data, like the consumer data you are going to send to them?

So, I am going to turn this over to the expert and one of the key people involved in this transaction who is irreplaceable, Hugh Thompson.

Hi, this is Hugh here, CTO over at Symantec. And yeah, you know, I think one of the great benefits of this transaction is we do still get to enjoy the benefit of the diversity of threat intelligence data that exists both in the Enterprise and in the consumer, and we certainly will benefit from that in the remaining consumer company, and Broadcom I believe will also benefit from that telemetry. And your point is well taken. I think we've spent a lot of time at Symantec over its long history in building engines and endpoint technology that really is leading in its class, and will continue to be able to benefit from that intellectual property and from that code base with this agreement.

Yeah, why there is a cross-licensing agreement?

There is a cross-license; we are focused on the consumer business and small business, okay, and Broadcom is focused on the enterprise systems, our enterprise customers. That is the agreement, but we cross-license both ways, but each of us simultaneously owns specific patents. Ours are the ones that are most closely aligned with the consumer business and Broadcom's are most closely aligned with the enterprise business. There are some overlaps and in those overlap cases, they are shared. We have some that still have enterprise capability, they have some that still have consumer capability, but it's in the best interest of both companies, customers, and our shareholders and the world at large that we have these capabilities. Thanks.

Got it. And then on the consumer side of the equation in terms of the go-to-market, you talked about increased marketing activities. One of the things that I think really precipitated the declining sort of market share and declining base on the consumer business is when you exited a lot of those distribution agreements with big PC OEMs. Is there any consideration or should we be thinking about potentially you guys heading back into those types of agreements or bidding again for like in HP distribution deal or anything of that ilk kind of go-forward basis?

Okay, so I would tell you, and Vincent spoke to the quality and the depth of management we have within consumer. That was a financially driven decision that when you look at the cost to go into an OEM relationship with PCs, which is not a hugely growing market, by the way, the cost to acquire that customer is so high they're all our alternative ways to acquire customers that are much more efficient and the pay back was way too long for acquiring a PC company, and so they elected to pull out of that. Going forward, the thing I want you to understand is we will look at all ways that we can to acquire new customers, but it's all going to be driven with a financial lens as the reason we go into those particular businesses. It's not going to be driven by everybody else doing it, and oh gee! It gives a big top line number. I've told everybody for years, anyone can sell $10 bills for $9. The real key is to be able to sell those $10 bills for about $40, and that's our goal in life.

Yeah, thanks guys for taking my question and I know you keep referring to yourself as relief, but you're basically pretty good at the place too.

Your kind.

So just a question on the unit count metric on the consumer side. We talked about just now I guess some of the things that have weighed on that. When you think about the near-term guidance of getting back to single digits and mid-single digits revenue growth, how are you thinking about the trend in that unit count? Obviously, we’ve talked about ARPU, but what do you think we see for the unit count you know that it gets declined for you're easing and then you know could that grow again in your numbers.

Okay, there are two variables again to grow the top line; one is ARPU, which is your average price per user and the other one is user. So we don't even have to get to positive directly acquired customers in order to get growth. We just need to slow the decline, which in fact our data suggests we've already done, and we're titrating the advertising and promotion to keep turning that till we can get it to just zero, that’s sort of the optimum. And then we can start adding customers and simultaneously up-selling customers. The beauty of directly acquired customers is that we know who they are as individuals gives us contact and on every, you know, basically renewal, as we generate more products, we can give our customers more value, and in the renewal process, we have the ability to sell more of our products with someone we know who has a high likelihood of buying. That's how we think of this business, and that's really how we're going to run it going forward and that's the variable. But realistically, our decline right now has slowed dramatically, and as I said, our actual customer acquisition is up; you know our users are up. But part of that through our partnership we don't get the same ARPU and we can't effectively sell all the other value we have, so we want to be able to do more, give those customers more value, so we're going to also be working with our partners to make sure they can sell more value. And now that we won't have to fund any other business than this, we can look at the P&L of this business and allocate resources based on its net present value of future cash flows by what we're doing, and we won't be or have to get it mixed up. It's simple and we have management that’s very, very capable. The one thing on this call that I want to tell you that there is no way, unless you have the quality of people that we have here, you can pull off an asset sale in less than a quarter. And believe me it's not a one-man show, and when Vincent talks about detail down to the asset tag, we know exactly what's transferring out of this business and we know what's remaining into this business. From the headcount, we know what is transferring out of this business, what our objective is for the ongoing business and the unfortunate part of what we have to reduce within this business, which will also include people who have been instrumental in making this deal happen. I could not be more proud to work with people that I am, with these people. So that's my view.

I second that.

Thank you for joining us today. Obviously there has been a lot of news, a lot of good news for our shareholders, for our employees. I can tell you on this side, around the table in the company we are incredibly excited first to partner with Broadcom to make this transfer of the enterprise business a very smooth process for our customers. We will be a partner to Broadcom in making that happen successfully. And secondly, I think the excitement to become a consumer company focused solely on that consumer opportunity is shared across the whole team. Thank you, and we look forward to updating you as we make progress.

Thanks very much.