Business context and reporting period
This is Symantec Corporation’s Form 10-Q for fiscal 2019’s third quarter, the 13 weeks ended December 28, 2018, filed February 4, 2019. Symantec described its business as Enterprise Security and Consumer Digital Safety, including Norton and LifeLock. The filing is from Symantec, not under the name Gen Digital; investors should verify the issuer and corporate-history context.
Financial results and liquidity
| Metric | Q3 FY2019 | Q3 FY2018 | Nine months FY2019 | Nine months FY2018 |
|---|---|---|---|---|
| Revenue | $1.211B | $1.209B | $3.542B | $3.624B |
| Gross profit / margin | $945M / 78% | $960M / 79% | $2.771B / 78% | $2.856B / 79% |
| Operating income / margin | $169M / 14% | $96M / 8% | $273M / 8% | $43M / 1% |
| Net income (loss) | $65M | $1.342B | $(3)M | $1.197B |
| Diluted EPS | $0.10 | $2.01 | $(0.00) | $1.80 |
| Operating cash flow | Nine months: $948M | Prior nine months: $684M |
- Cash and liquidity: Cash, equivalents and short-term investments totaled $2.579B at quarter-end, versus $2.162B at March 30, 2018. Current assets were $3.724B and current liabilities $3.643B. The company also had an undrawn $1.0B revolving facility.
- Debt: Total debt principal was $5.1B, including $600M due within 12 months. The company planned to prepay the $600M term loan before fiscal year-end and reported compliance with debt covenants.
- Cash flows and capital allocation: Nine-month investing cash flow was $(61)M and financing cash flow was $(329)M. Financing included $169M of dividends and dividend equivalents and $168M of tax payments related to restricted stock units. The quarterly dividend was $0.075 per share; January 2019 repurchase authorization was increased to $1.3B, with repurchases planned to begin in Q4.
- Segments: Q3 Enterprise Security revenue was $609M, down 3%, with $91M operating income; Consumer Digital Safety revenue was $602M, up 3%, with $297M operating income. Nine-month revenue was $1.739B for Enterprise Security, down 11%, and $1.803B for Consumer Digital Safety, up 8%.
Material changes versus prior comparable periods
- Quarterly revenue was essentially flat. For the first nine months, revenue declined 2%, mainly reflecting the 2017 divestiture of website security and public key infrastructure (WSS/PKI); Consumer Digital Safety growth, especially identity and information protection, partly offset the decline.
- Operating income rose $73M in Q3 and $230M over nine months, helped by lower stock-based compensation and restructuring/transition costs. Nine-month operating cash flow increased $264M.
- Reported net income was sharply lower than the prior-year periods, chiefly because fiscal 2018 included a $658M WSS/PKI divestiture gain and substantial tax benefits associated with U.S. tax reform. The prior-year comparisons are therefore materially affected by unusual items.
- Q3 Enterprise Security operating income fell $45M year over year, including the loss of divested WSS/PKI contribution. Consumer Digital Safety nine-month revenue increased $136M, while Enterprise Security nine-month revenue declined $218M.
Outlook, commentary, risks and unusual items
- Guidance: The filing does not provide a clear numerical revenue or earnings forecast. Management noted results are not necessarily indicative of full-year results.
- Revenue recognition: The company adopted ASC 606 on a modified retrospective basis. Adoption increased reported revenue by $17M for Q3 and $26M for the nine months; it changed timing, shifting some license revenue to point-in-time recognition. Prior-year periods were not recast, limiting comparability.
- Restructuring: The fiscal 2019 plan targets reductions of up to approximately 8% of the global workforce, with estimated total costs of about $50M and completion expected in fiscal 2020. $9M had been incurred by December 28, 2018.
- Tax and investment items: The nine-month effective tax rate was 125%, reflecting a small pretax income base and tax expense; the filing reports $70M tax expense on $56M of continuing-operations pretax income. A new intra-entity asset-transfer tax standard added $742M to opening retained earnings. The company recorded an $84M nine-month loss on its equity-method investment received in the WSS/PKI divestiture.
- Contingencies: Securities and derivative lawsuits followed an Audit Committee investigation; the SEC investigation was ongoing, and the company could not estimate a potential loss range. For the GSA contract/FCA matter, Symantec accrued $25M as the low end of probable loss and said additional loss was reasonably possible, but the high end could not be estimated.
- Commitments and risks: Purchase obligations totaled $1.090B; operating lease payments were $243M before sublease income. The company also reported $703M of transition tax payable in installments through July 2025. Key disclosed risks include competition and customer renewals, cloud-service execution and reliability, cybersecurity and privacy regulation, litigation and investigations, tax uncertainty, and substantial indebtedness.
- Controls: Management concluded disclosure controls were effective at a reasonable assurance level at quarter-end; no material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Confirm the issuer identity and relationship, if any, to Gen Digital; the filing itself identifies Symantec Corporation.
- Assess underlying operating trends separately from the prior-year divestiture gain and tax benefits, and account for the non-recast ASC 606 comparison.
- Track Enterprise Security performance, Consumer Digital Safety growth and profitability, and the impact of the WSS/PKI divestiture.
- Monitor the planned $600M loan prepayment, debt maturities, repurchases, and the balance between shareholder returns and deleveraging.
- Follow developments in the SEC investigation, shareholder litigation, and GSA/FCA matter, including any change to the $25M accrual or estimated exposure.