Good afternoon. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 20 18 fiscal earnings call. You. You.
I would now like to turn it over to the Head of Investor Relations, Mr. Nate Pollock. Mr. Pollock, you may begin.
Good afternoon, and thank you for joining our call to discuss our first quarter fiscal year 2018 earnings results. We posted an earnings Materials and 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 work sensitive financial metrics are non GAAP, unless otherwise stated. We provide year over year constant currency growth rates in upper benchmarks 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. Niveritas deferred revenue from those contracts will amortize into discontinued operations. As a result, implied billings growth calculated from the change in deferred revenue on the balance sheet will not be representative of standalone semantics performance as it will include an impact from Verintas. Please note, non GAAP financial measures during this call are reconciled to their comparable GAAP financial measures in the press release and supplemental materials posted on our website.
We believe our present 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 operating management 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 non financial measures also facilitate comparisons of our performance to prior periods and to our peers, and that investors benefit from our understanding of the non GAAP financial measures. Non GAAP financial measures is 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 the current date and as such involve risks and uncertainties and may cause actual results to differ materially from our current expectations. Please refer to the cautionary statement in our press release 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, 2017. And now, I'd like to introduce our CEO, Greg Clark, Cohen Greg. Thank you for joining us, and good afternoon.
I'm pleased to share that both our business segments have ceded their Q1 revenue outlook and have strong underlying growth drivers with attractive profitability. We continued 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 five line. At the same time, today, we are also announced Digicet's acquisition of our website security and related PKI assets. Later in my remarks, I will share a summary of the transaction, impact the customers and impact the Symantec.
Firstly, I'd like to touch on the dynamic threat environment and how Symantec continues to protect our customers. As many are aware, there were 2 major malware outbreaks in the past quarter, wannacry and Petra. 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 Vicking 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's software had to date, locked more than 1,000,000,000 attempt at Wannacry attacks. This is a testament to our significant presence on enterprise and consumer endpoint 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 In this regard, I'm pleased to report that innovation is thriving across Symantec. We are now regularly uploaded 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 implemented releases on the endpoint that are coming soon. The end of the calendar of our flagship Symantec Endpoint Protection product line and builds upon the highly successful launch of set 14 last November that includes some key innovation that we believe will improve our overall security posture for customers, including actionable intelligence on suspicious files in the customer's environment and aggressive tunable protection that can be adjusted for individual users or groups. In addition, SIP 14.1 is designed been highly effective, even in such with blood connectivity as it relies heavily on advanced machine learning and other signature list technologies. Does not meet frequent content updates.
We are seeing good early traction with customers in Ampeeta release. In addition, by the end of the calendar year, we'll also be launching to P3.0. The next major release of our EDI solution, which has wide data recorded capability, recording all activity on the end This will provide valuable contextual endpoint data to instant responders, increasing productivity and delivering cost savings. As well as close one of the remaining gaps in the hyperconverged endpoint. These new product releases further increased the value of our endpoint solution versus traditional antivirus providers and other point providers.
On the consumer side, we have now delivered the 1st shipment Norton core, which is 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's taking place Symantic. Core is a secure Wi Fi router that helps protect home networks from malware using network packet inspection, high speeds, using an omnidirect antenna and office advanced rental controls. All of this is controlled from an easy to use mobile app. Preorders have exceeded our expectation and core is now available at norton.com as well as other premier retail outlets, including Best Buy and Amazon dot com.
On the Inorganic side, we recently announced 2 important acquisitions, Five Glass and Sky Cure. That will bring significant innovation to our portfolio and allow us to reduce 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 5 of us. 5 of us 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 PHYBot solution represents a significantly to drive sites. Eyeglass provides a secure execution environment for users, whether they are on the web or on email. Dangerous thanks and attachments pose no threat to the users all catered from remotely in isolation and never reaches user's endpoint. In discussions with customers at BlackHat Conference this week, the High Glass Technology was seen as a direct extension of 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 proxy ST franchise. Now let's discuss Sky Cure. 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. Skytrailers 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 threads and app and OS vulnerability exploits with or without an internet connection.
Existing mobile tools like mobile device management, or enterprise mobile devices and are not able and a massive opportunity for an endpoint franchise. Symantec will now provide a comprehensive endpoint security portfolio for traditional devices like laptops, desktops and servers, as well as mobile devices. This is a key differentiator against traditional endpoint emerging endpoint security vendors who do not protect mobile platforms. We will be in a unique position to integrate mobile with network and a cloud security portfolio to enhance our integrated cyber defense platform for our customer base. For our Consumer business, we expect SkyQule to accelerate traction from our mobile offerings with major telcos who are seeking partners for improving secure closed operating systems are an attractive opportunity for improving cyber defense.
Skyfield brings 10 in-depth to close operating systems, occurrence. Importantly, both PHY Glass and SkyCure integrate easily on our core franchise. From an innovations perspective, have been actively tracking of IVOS and SkyQule bringing add on offerings to existing sales motions, and we're targeting the same buyer. We received very vocal support from May customers and industry analysts on these acquisitions, and they demonstrate our commitment to remain at the forefront of innovation, benefiting our customers and our long term revenue print. We continue to invest significantly in our organic development capabilities as well as pursue new technology solutions were prudent to accelerate our cyber defense offerings.
To our enterprise business. Here, our integrated time and defense platform is resonating with customers and driving increased pipeline. We are positioned as a clear leader for the cloud generation and are building more pipeline and winning more deal on superior technology and unmatched integration. Our integrated cyber defense platform is becoming a significant competitive facing incumbent security vendors on a more frequent 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 customers are consolidated for multiple security measures 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 $1,000,000 per year, while also increasing administrative efficiency and simplicity by standardizing on Samantha displacing 4 incumbent competitors and then being cloud security challenges 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. Our CASB product line continued to grow momentum winning many large enterprise customers either beating or displaced major competitors in cloud Arena.
Some of the wins include a 40,000 seat deal at 1 of the country's largest retailers and a 30 1000 Seat deal at a mobile payments company. Let me share a final example of our integration and integrated cyber defense platform winning deals. During the quarter, one of the largest software distributors was an existing Symantec DLP customer, but using a competitor endpoint security. Our account team introduced set 14 and APT as a customer who was immediately impressed with our EDI capabilities in integrated SEP ATP solution. This led to winning the endpoint business and displacing the incumbent endpoint in over 20,000 employees, another demonstration of the integration and the platform winning in the market.
Now, as many of you know, through the integration of Symantec and BlueCo, we also made significant improvements in our go to market programs and partner simplification. At the ended 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'm proud of the work that was done and won thank the team for executing and delivering strong results for customers and for Symantec. Now the sales team is leveraging all the work as they execute on strong and increasing pipeline.
Now I'd like to give an update regarding the recent developments related to our website security and related PKI solutions. As you may be aware, earlier this afternoon, we announced an agreement with Digisert to acquire our website security and related EKI Assets. Digicel is a portfolio company of Private Equity Farms, Thomas Bravo, and TA Associates, and is a leading provider of scalable identity and encryption solutions for enterprise web security. Pizza Hut is solely focused on providing leading SSL PKI solutions. With this transaction, we believe Digicel 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 Digicet at the closing transaction, allowing Symantec to continue to participate in the value created by this transaction ensures successful transition for customers on our website security and related PKI solutions. Nick will be sharing further financial details of the transaction in his remarks. This divestiture shopping our Enterprise Security business focus on our Integrated Cyber Defense Platform Strategy, which, as I've highlighted, throughout the call, is a top priority for and also positions us for achieving higher growth. As a result of this transaction, we are increasing our long term outlook for price security organic revenue growth to high single to low double digit 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 the to a subsea business model in our certificate authority operations. As a reminder, under the subsea business model, our SSL TLS certificates would be issued through 1 or more independently operated debt by the CAAs until we develop and deploy a Vonwise PKI platform into the acceptable trust and The Digicet acquisition accelerates the transition for our customers to a new PKI platform at Digicet and meets all industry standards and browser the might see 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 1 quarter ahead of our plan. This improvement in growth was driven by a number of factors across both Northern Man LifeLock. From a demand perspective, We believe recent ransomware tax drove improved activity across our Norton portfolio. Retention rates for Norton Security LifeLock exceeded our expectations, and we continue to optimize consumer engagement across the installed base. Our new Northern Wi Fi privacy app has also continued perform well globally.
BlackRock has performed better than expected since our acquisition. Unaided brand awareness has grown 40% our highest in history and more than 5x our nearest competitor. And to date, we've exceeded our acquisition plan for consumer growth while simultaneously decreasing our customer acquisition costs. As you know, identity theft is not just an issue in the United States, We're actively working on expanding LifeLock Internationally. We have plans to enter into the First International markets by the end of fiscal 2018 and expect to expand in to additional countries in fiscal 2019.
I'm also pleased to report that we completed most major elements of integrating LifeLock ahead of schedule. We are encouraged by the initial acceptance as a consumer message testing. Quarter and offering modern security as a highly differentiated feature to all new Livebox customers, which would result in higher ARPU, higher retention and lower cost of acquisition. In summary, I'm very pleased with the results from Q1 and the high 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. Across ability in the enterprise segment has improved dramatically year over year. In just 1 year, Symantec has made a major information 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 believe than the results, long term and 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 price security business and maintaining our market leading margins in the mode. This sets us up to be in position to realize the full benefits of our transformation in FY 2019. Our agreement to sell our website security business and related PKI assets to Digi for cloud generation. Let me turn the call over to Nick to go through the numbers.
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 fiscal year 2018 outlook and update our medium sets. 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 Let me start with leading the high end of our $1,185,000,000 to $1,215,000,000 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 $8,000,000 benefit to revenue relative to our Q1 guidance.
Total year over year percent 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 as our expected Blue Coat and LifeLock cost synergies, which gives us further confidence around As you may recall, we expect $580,000,000 in the aggregate by the end of fiscal year 2018. Currency tailwinds also provided $5,000,000 benefit to operating income compared to our Q1 guidance. Fully diluted earnings per share was $2.8 to $0.32 guidance range.
Fully diluted shares outstanding decreased by 3,000,000 shares, $664,000,000 relative to our Q1 guidance of $667,000,000, partially due to impact from our convertible notes, driven by a lower share price. Diluted share count from the convertible notes at various stock prices. Finally, cash flow from continuing operations during the quarter was 2 $51,000,000 and CapEx was $47,000,000. Well, let's review our operating segment performance for Q1 in more detail. First, I'll review this performance of Enterprise Security.
Our Enterprise Security segment revenue was $669,000,000 and grew 41% year over year. Enterprise security growth in constant currency adjusted for acquisitions was down to down 2%. As we discussed on our Q4 earnings call, our website security products comprised approximately $350,000,000 of revenue in our Enterprise Security business. In Q1, revenue from our website security products down 1%. Enterprise Security deferred revenue was $1,814,000,000, a excluding the impact from Veritas and adjusting for purchase accounting write downs compared to $1,820,000,000 at the end of fiscal year 2017.
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. Now turning to Consumer Digital Safety. Our Consumer Digital Safety segment revenue was $559,000,000 and grew 40% year over year.
Consumer Digital Safety grew 1% in constant currency adjusted for acquisitions, at the high end just 1 year ago, Q1 of FY 2017, when consumer security revenue was down 8% in constant currency. Q11 FY18 Consumer Digital Safety operating margin was 47%, driven in part by top line growth and a fast or realization of LifeLock synergies. Consumer Digital Safety deferred revenue was $1,040,000,000, adjusting for purchase accounting write downs compared to $1,059,000,000 at the end of fiscal year 2017. The amount of revenue that rolled off the balance sheet during the quarter was also consistent with our expectations. With respect to this segment, we 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 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. Norton And LifeLock that had different measurements historically, we will not be providing year ago comparisons to these For Q1, direct customer count was 21,100,000 at the end of the quarter. Direct ARPU was $7.87 per month. Recall that we expect these direct statistics to represent approximately 90% of the revenue stream at any one point in time.
And finally, revenue was $58,000,000. Further definitions of these metrics can be found in our CFO commentary. During the quarter, we repaid $2,000,000,000 in debt, consistent with our de leveraging commentary from Financial Analyst Day. As of June 30, we had $2,300,000,000 in cash of convertible notes. We completed our previously announced purchase during the first quarter and received 2,200,000 shares.
In total, we repurchased 16,400,000 shares under the March 2017 ASR. We have $800,000,000 remaining under our current repurchase authorization. As we mark the 1 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 1, we started integrating products and to date has completed over 12 major product integrations. We continue integrating additional Blue Coat and Symantec products with 10 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. 2nd, we remain ahead of plan on our commitment for cost synergies. At the same time, we have eliminated an enormous amount of complexity in the business. We streamlined our distribution and channel, simplified SKUs in pricing, and worked hard to achieved the goal of combining our 2 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 program, our distributors are now on abilities as a company and the hard work that our team took on. Now as Greg indicated earlier this afternoon, we announced that we have signed a definitive agreement with Digisert to acquire our website security and related PKI assets. We the transaction to by the to include the impact of today and the continuing and discontinued operations we will report as a result of the transaction. Today, I will first provide an outlook for fiscal year 2018 Q2, excluding the impact of the divestiture. And second, provide you with a framework to understand the associated 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 execution 2018 revenue at guided rates to increase to approximately $5,160,000,000 to 5 point $260,000,000,000 from $5,100,000,000 to $5,200,000,000 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% to for fiscal year 2018, up 36% to 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 previously. We continue to expect an effective tax rate of 29.5 percent and fully diluted weighted average shares of dollars.
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 $1,000,000,000 to $1,200,000,000. This incorporated approximately $500,000,000 of restructuring and transition payments and approximately $600,000,000 of stock based compensation expense. More than half of that stock based compensation expenses related to acquisitions, including Blue Coat or lockup restrictions have now been net. We expect this level of Moving to our 2nd 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 $1,260,000,000 to $1,290,000,000. We expect enterprise revenues to increase 15% to 18%, which implies growth adjusted for acquisitions of approximately 1% at the midpoint. We expect Consumer Digital Safety revenue to increase 40% to 42%, which implies growth adjusted for acquisitions of flat to up 1%. We expect total company operating margin of 34 percent to 36 percent.
We expect EPS of $0.40 to $0.44 and an underlying share of approximately $670,000,000. Our plan and guidance on each of these measures for the 2nd 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 site security and related TKI products by Digicert. We anticipate that the transaction will close during the fiscal third quarter following section of customary closing conditions. At that time, we expect to receive approximately $950,000,000 in upfront cash proceeds and receive a 30 percent common stock ownership stake in Digisert.
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 2010. Subsequently, in 2012, we us the remaining interest in VeriSign, Japan, though included in our Enterprise Security segment, our website security and related TKI solutions, are stature. When we report our 2nd 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 the website security and related PKI assets. Today for modeling per 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 $400,000,000 $50,000,000 related to select PKI assets and combined operating income of just over $180,000,000 in fiscal 2018. Given the nature of carve outs, after closing, we will continue to be burdened with stranded costs of just over $50,000,000 on a full year basis, that were previously allocated to the website security and related PKI products, which will not be transferred to Digisert. We expect the combined impact of would be a reduction of approximately and stranded costs.
Assuming acquisition adjusted total revenue growth for fiscal and our Enterprise Security Growth acquisition adjusted would be higher by approximately 1.5 points. 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 load fundies compared to our current outlook of the high 20s. Again, excluding website security and related PKI products for the entirety of the fiscal year, we would expect EPS to be approximately $0.20 lower in fiscal 2018 relative to our original guidance assuming relatively constant weighted average share count. Finally, run rate perspective to be approximately $200,000,000 lower than our current guidance.
When completed, we expect one time cash taxes, fees and expenses, approximately $350,000,000 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. 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 mid to high single digits previously. In fiscal 2019 2020, we continue to expect total company operating margin percentage in the high 30s and now expect enterprise security operating margins in the high 20s. And we continue to expect lowteens EPS growth as we provided at our Financial Analyst Day. Once closed, we will update and confirm all of these tax 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 2 sales teams and rolled out our new channel program. Even with all these we remain ahead of plan up in operating margins we expect this year. Our guidance for the fiscal second quarter is consistent with the first half guide we provided at Financial Analyst Day. With respect to our 2018 outlook, we've updated our fiscal year 2018 guidance to reflect the favorable foreign currency 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 We transformed our business in fiscal a great opportunity in fiscal 2019 and beyond to achieve 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 Thank you, and let me transition the call to Nate for Q And A.
Thank you, operator. Ready for Q And A. Questions.
Our first question is from the line of Sarah Hindlian from McGuire.
Hi, guys. Congratulations on the quarter, Greg and Nick. A couple of questions for you. I would love to get some clarity on the rationale behind sale of the search business and what that 30% stake is going to enable you to do and how that's going to impact the enterprise segment, if at all, going forward? And, Nick, you mentioned using the proceeds of the sale to delever the balance sheet.
Is that sort of the entirety of the proceed usage? And then a follow-up for Greg, I'd love to know how the subscription adoption of web proxies is progressing within Blue Coat as well.
Okay. Thanks, Sarah. So, let me start with, with some of the rationale under El Paso, but some of the financial numbers to Nick. So as many of you have followed in news, the sub CA and website security SSL TLS certificate business has been ongoing. And we feel that that, this area needs a very focused and dedicated team on it.
And we think the DigiCert is the right part for that, as people may be aware, we were looking through all of the certificate authority partners to find the best partner to to execute a model where certificates could be minted outside of Symantec also. And Digis definitely differentiated themselves. So in that space from a global nature of our business. And also, I think it's a very well run, excellent business. So we feel that, this part of the industry needs an extremely focus management team.
And, we also are a very pro customer here at Symantec, and this also removes some uncertainty for our customers. And gives the path forward for website security. I think this industry needs some investment and DigiCert is very well set up, especially when combined with Symantec website security to relieve that investment and really drive the state of the, state of the industry forward, especially around things like certificate management cycle, things like that. So we feel that this is a great move for our customers. It's also, something that allows us to focus on what our enterprise core business is, which as we discussed in our prepared remarks, is our integrated cyber defense platform.
And, we think that all in all, this is, a a great outcome for Symantec for long term Symantec growth and also for the certificate, industry and, also a great outcome for our customers. So with that, I'll pass over to Nick to get a couple of those financial questions. Go ahead, Nick. Hi,
Sarah. Let me, let me sum up a will teach this for you. And a little bit is in the script, but let me walk through it. So on the enterprise side of the fence, to in mind, if I look forward to 2019, FY 2018, we have to close the transaction, we've given you a perspective of a full year basis FY 'eighteen, but I think it's better for me to look forward to 'nineteen. And if I think about the enterprise business in 'nineteen, we think that benefits the growth outlook for enterprise in 2019.
So when we talked before about our medium term outlook at our Financial Analyst Day of Enterprise curity revenue of mid to high single digit growth, that gets benefited. So it's actually a little higher than that. So it's high single, the low double digit in terms of organic revenue growth for the enterprise group. On the profitability side, it impacted a bit the other way because we won't be over 30% in terms of margins, but we'll certainly be in the high 20s. That's a combination of the business itself, which we walk through the profitability of it, as well as stranded costs.
And the stranded costs, are really, you know, around as we support the transition services of the agreement and try to do our best to transition the business to Digisert, in and help them get it ramped up and going. So we just need to be thoughtful about that. I think importantly on those stranded costs, those will fall off over time. And again, that's a $50,000,000 number that will fall off over time. In terms of the, the overall transaction, the equity, we feel good about this business being managed by the experts at Digisert and that equity interest is they're running the business.
So that is equity interest for us, and that'll show up in other income go forward. We've not that into any models or thought about that in terms of any models at this point in time. We'll update you as we, once we close and get past those pieces. And then finally, you asked about proceeds and, you know, certainly this is a business where, once we get to close and once we get through determining evaluations and tax liability, etcetera, that will be a set of net cash proceeds and the split of that between domestic and international And you should expect that, you know, the U. S.
Proceeds, we will be able to use pretty quickly for, for debt reduction And then on the international side, we have to just work through our ongoing structures there. But that hopefully sums it up for you.
And so just one more comment. Digic soda is a very experience of migrating large web PKIs. So in their history, they have a substantial experience doing that. And we think that that's going to be extremely good for our customers. And, I think that's really in a big shout out on the call that we think that this is going to land things in a great spot.
For that very important enterprise customer and other folks in the world. So moving on to your next question about subscription and BlueCo. Think one of the things that we were very excited about in the quarter, which was in our prepared remarks, we have had some very nice, cloud network class success. What we've done in Integrated Cyber Defense is we've put a big effort into integrating our web security cloud, with our cloud access broker, with our data protection technology. So if you're a customer and you're and you're wanting to go old cloud for your sort of web security needs, we have that covered.
If you have any compliance issues, data compliance issues, that's in the stack. Through our DLP integration and then if you need multi factor authentication to reduce risk there, that's in the stack. That's all integrated. We had an outstanding quarter in displacing our competitors in that space and winning just net new business. We feel really good about that, from a booking to revenue situation over the last year and a half, if you think about what that number was like in Blue Coat prior to Symantec integration year and a half ago, that number is a lot more, to the balance sheet, which is really the the effect of selling a lot more cloud in the BlueCurve mix.
And our next question line of shaul Eyal from Oppenheimer.
Thank you. Good afternoon guys. Congrats on a solid set of results. Also, thank you for the color and transparency on the consumer on some of the ARPU numbers. Greg, I want to start with birds I view, type of questions.
So I know you mentioned bits and pieces of that during your prepared remarks, but WannaCry hit the tape on May 14th, Petya took place during the final week of June. Can you share with us whether, you've seen that as a headwind or a tailwind. I think clearly in your case, it appears to be a little bit of a tailwind. And And secondly, Symantec has a sizable European exposure, yet you showed a solid performance in that region unlike many other security players this quarter specifically. How do you see yourself different from some of the other players within that European arena?
Thank you for that.
Yes, let me start with the sort of the malware crisis that we had in the quarter, you know, want to cry Gotcha. There were serious things. One of the things that happened here at Symantec was how customers were protected from both of those those malware plagues. And I mentioned in my prepared remarks that as of a few days ago, we had blocked over 1,000,000,000 attempted infections from that tonal blue vulnerability and WannaCry, we were out in front of that one. It was, we had coverage in all kinds of pieces of technology, and that really helped us because some of our competitors didn't fare well in that, in that crisis.
We were a good operator for the 3, we shared our information through, through, I think, what is a very solid alliance that we have with the other network security players, other security players, there's cyber threat alliance. And help the world kind of get around that. It is, I think that the fact that one of crime petroate Petra didn't get our customers, was, really a testament to the innovation in R&D that we had put into said over the last few years, support team was a solid release. It definitely carried a lot of water on that. And also our threat labs were all that you might have seen us on the news really early in that attack.
We knew a lot about it and we shared that with all the various enforcement agency and whatnot. So I think we fared well there. What happened there is we did definitely saw an uptick in pipeline from some of the very major account that were affected by that malware. And that has given us a solid lift in our enterprise pipeline. Those things are placements of existing competitors.
They take a little while to get tested and deployed. We do hope to see some better outlook in in future quarters from what happened there. So that was quite good. Now moving to Symantec Europe, we're definitely not seeing, the same as many others had reported around, around issues in Europe in our business. I think what's happening there is we have our integrated cyber defense offer So we're in accounts.
We're taking some share. We've got a very, powerful story for kind of the higher end of the market. And that is something that is carrying the water for us. And then I think also in the middle market, our effectiveness around some of this powerware was, was great. And so if you think about that, we have a very powerful opportunity just mining in the install base.
Which is, really helping us out as we're bringing a differentiated value proposition to point vendors.
And our next question is from the line of Keith Weiss from Morgan Stanley.
You guys for taking the question. I wanted to dig in a little bit on the Salesforce reorg. It was a pretty significant change that you made in the overall organization. Can you kind of give us sort of a mark to market on where are we in terms of implementing those changes, like are we I mean, I guess the overall question, are we out of the woods in terms of feeling that there's not going to be any further disruptions in that business?
Yes. So, Saket, thanks for the question. So that's a good one. So we did enter the beginning of of Q1 with a completely aligned sales force. And, you know, summary is it worked, as you can see in the results, and that was where we had truly, if you think about it as a capacity, it's sort of the named account player.
We had had two people in the same account. We started April with, having realigned them sales force to, an account each that, a few accounts each. And so that gave us a massive capacity expansion in the coal piece of the market. We, as you know, from Financial Analyst Day and other remarks, we had put more emphasis on the back half of FY 2018. We expect that capacity to come into play in of information systems that we managed the sales force with that was that went live in the quarter.
They held up And so we do think that we are underway in a good place on that Salesforce alignment. We have some more to go in terms of systems and integration and making sure we've got all the pieces right. So I want to give us, help check that that transformation is in a good place. There's still a little bit to go in the next couple of quarters. And so we're keeping a real close eye on it.
The other thing I'd just like to mention is attrition is extremely low in our Salesforce, which is always the test of, of whether or not folks think we're set up for success in the future. So that was a big change. We were definitely, very focused on it as a management team and sales execution team enterprise and, we got through pretty well.
Got it. And maybe one follow-up for Nick. The $0.20 number, you gave for potential EPS impact in FY 2018 from a full year view. Just so we're clear, is just sort of the impact from the operating income that's going to come out of the equation? Or does that also include potential sort of benefit from sort of the other income?
Does it have anything in there for debt repurchases? That side of the ledger?
Yes. Good question, Keith. So what we're trying to do for FY 'eighteen is give you the perspective full year basis of the business So the $350,000,000 of the business we talked about in website security plus the related SKI assets gets you to the $400,000,000 level. It's the operating income associated with that. It is also, a set of the stranded costs.
There are some puts and takes otherwise for 2018, but we really have to get to close, which why I was really pointing at FY19 on the business side of the fence. We will expect that There is a result from the JV side of the fence that will show up in other income. Though, us talking about or guiding to any of that point in time is a little premature. So we want to wait until we get to closure and get past close, where we will update with certainty of the FY 2018 guidance for you and then be able to roll through those things for FY 2019 for you. As well.
But the big chunks here are you've got the business itself, and I walk through the operating income associated with the business issue business. And then the stranded costs, which are a good $50,000,000 in stranded costs. And the stranded costs, once we to FY 2019, and we mostly get out of the transition services arrangements some of those could go longer, that's when we'll be able to really be thoughtful about, going after costs, which will be beneficial to the EPS side.
And our next question is from the line of Gabriel Borges from Goldman Sachs.
Great. Good afternoon. Thanks for taking the question. Maybe for Greg on the M and A strategy from here. Could you elaborate a little on the process to select SkyCure and Fireglass and some of the key inputs that went into your discussion and valuation?
Going forward, what are the areas where you think you can still build up the technology? And is there also a scenario where you would consider divesting other pieces of the portfolio that may not be core to that cloud security umbrella?
So I think we are super excited about both fiberglass and SkyCure. And these things here, they stand on their own on every piece of M and A we do has got its own case, its own individual sort of details. So we really liked the Fygloss acquisition because at the, as I mentioned in the prepared remarks, it allows us to isolate potentially risky stuff that's coming from email consumption and also coming from consumption of the web. What that means is your endpoint is no longer running that risky stuff. It's running isolated off in the network somewhere And but the user doesn't really know that that's happening.
So it looks like exactly the same user experience without exposing that endpoint to a lot the risks of that kind of content consumption from the internet. That is something that is right alongside our end point franchise and also our network franchise from the proxy SG franchise, and we can quickly ramp that to the market. And so we were extremely excited about that. Results of the co face of the security operation centers, we're hearing from customers that have been doing kind of thing. Numbers, that our reduction in sock events that are in very high numbers can't be ignored.
And we run this past a large number of our customers, and they're very excited about it. Moving to SkyCure. SkyCure brings a technology to the table that we've been looking for in our consumer and in our sub franchise. It brings us in the iOS context, on the Apple phones, and iPads and whatnot from I would say, not number 1 in the industry, to definitely being right up the top of the industry around effectiveness on iOS. And mobile.
But even more importantly, SkyQule brings a technology approach to malware detection that also works in closed operating systems, and we believe the future will be almost 100% mobile in a few years and that many of the operating systems will become closed like Windows 10s in iOS and making sure that we can bring a defense in-depth back into the customer base there. So those two acquisitions really play straight into the franchises we got Same SEs can sell it, same buyers can buy it, and it's really a great adjacency for us. And we really like that kind of tuck in acquisition because we know we've got the sales force in the channel to drive it and we look for real value really moving the needle at the customer and at the And so we think those 2 are great. In terms of divesting other assets in the business, we announced the the Digicet acquisition of our website security business, we are always looking at the portfolio, making sure we got it lined upright for the the growth of this and the benefit to our shareholders. At this point, we don't have any other plans to do anything.
And, you know, also, you know, we're not on any kind of M and A quota, you know, if we find something, we're always got our eyes open.
And our next
I think we have time for one more question, folks, and we gotta run. Go ahead.
And our next question is from Andrew Nowinski from Piper Jaffray.
Thanks for squeezing me in. Nice quarter guys. So just want to ask a question on the consumer segment. So, consumer revenue exceeded the high end of your guidance. I know LifeLock was above expectations.
But can you give us any more color on the growth rates or demand trends you saw for both Norton and LifeLock in Q1? And then I have a follow-up
Yes. Nick, do you want to take that 1 or do you go ahead? Yes. I think
the first thing I'll say is, and we tried to make sure
it was in the script.
We're seeing a big difference from a business growing 1% in this first quarter this year from 1 a year ago that was shrinking 8%. So that's number one something we feel really good about. And the teams on the consumer side and deserve a lot of credit for making a lot of progress. We saw benefit on both the Norton side and LifeLock side. We're bringing together set of things now and we're rolling out those digital safety bundles.
We're rolling out of energy. I think what you also saw is on the operating margin side, some recognition of synergies early, which we also feel also feel good about. So all in all, a very different picture than a year ago, integration is I would say, almost ahead of schedule in places. So that's good as well.
I think that the shot in the arm that, Symantec gets from an organization like LifeLock bring a lot of talent, a lot of passion to the business. That's huge shout out to those guys in the company. They're really making a difference. And our Norton team, and Norton performed extremely well. That Wannacry and Petri outbreak out, Martin customers were protected from that.
I think that, that part of that business is absolutely on the front foot morale wise making a difference And we are very confident that that acquisition of LifeLock is going to do very well here.
That's great. And then I think you mentioned that you're going to start cross selling the LifeLock products this quarter into the Norton installed base. Do you intend on adjusting the pricing of the bundled product And what's your estimate for the number of Northern customers you think you can cross sell that life back into?
We think that there's that that percentage of people that are that are potential to purchase a combined bundle, what we call a digital safety concepts are very high Pricing on each of the different cohorts and the different packages and bundles is a pretty detailed discussion. There's a lot going on there, and we have an excellent set of folks that are that are working through that, and we're running a lot of surveys and tests, but we are bringing our combined bundles this quarter. As we mentioned in our prepared remarks, and we look forward to to that being well accepted. So with that, need to end the call, folks. Really appreciate your support.
Thanks for listening to us today. Thank you very much.
Ladies and gentlemen, thank you very much for participating in today's Q1 twenty eighteen fiscal earnings call. You may now disconnect.