Symantec CEO Cloud Confession: Traditional License, Appliance Product Sales Will Become An Exception In Our Business

Symantec CEO Greg Clark said customers are increasingly opting for cloud and subscription-based offerings over traditional appliances thanks to the company's tightly-integrated offerings.

The Mountain View, Calif.-based security vendor said that ratable (or ongoing) business now accounts for more than 80 percent of Symantec's bookings and billings, according to EVP and CFO Nick Noviello. In fact, Noviello said Symantec's ratable business came in five points higher than the company had projected just three months earlier.

"We now expect this ratable mix-shift to continue to a point where traditional license and appliance product sales become the exception in our business," Clark told Wall Street analysts Wednesday.

[Related: Symantec Global Sales Superstar John Sorensen To Depart After 12-Year Run]

For instance, Clark said the customers turning to Symantec in the fast-growing PII (personally identifiable information) compliance market are able to choose between an on-premises or a cloud proxy. The cloud proxy offered by Symantec includes multi-factor authentication, Clark said, and can be integrated with a cloud DLP (data loss prevention) module.

"Customers are picking the cloud form factor and the virtual appliance form factor way more often than we thought," Clark said. "Even in the more regulated industries, we're seeing cloud adoption faster than we thought."

Symantec's ability to integrate product sets together in a compelling manner has resulted in ratable software gaining far more traction than the company projected, Clark said. Increased adoption of Symantec's cloud proxy has also made it easier and more cost-effective for customers to adopt additional security from the company, according to Clark.

"You don't have to buy an appliance and deploy it," Clark said. "You don't have to go and do a bunch of work. You can turn it on just like you do with software delivered as a service."

The emerging form factors have also allowed Symantec to make good progress with MSSPs, Clark said. The company announced a deal with Airtel in India that would bring Symantec's product set into the country's top 2,000 customers, according to Clark.

"The ability for us to deliver in cloud does open up easier routes to deployment in new customer segments," Clark said.

Sales in the quarter ended Dec. 29 jumped to $1.21 billion, up 16.1 percent from $1.04 billion a year earlier. On a non-GAAP basis, revenue increased to $1.23 billion, up 13.4 percent from $1.09 billion last year. That fell short of Seeking Alpha's projection of $1.27 billion.

Net income skyrocketed to $1.34 billion, or $2.01 per diluted share, up 2,817.4 percent from just $46 billion, or $0.07 per diluted share, last year. On a non-GAAP basis, net income leapt to $328 million, or $0.49 per diluted share, up 56.9 percent from $209 million, or $0.32 per diluted share, last year. That beat Seeking Alpha's earnings estimate of $0.44 per share.

Symantec's stock tumbled $1.53 (5.62%) to $25.70 in after-hours trading Wednesday. Earnings were announced after the market closed.

Enterprise security sales tumbled to $625 million, down 3 percent from $644 million the year prior as an acceleration in the adoption of cloud products by enterprise customers led to lower in-period revenue recognition. Consumer digital safety revenue, though, skyrocketed to $584 million, up 47.1 percent from $397 million last year as the offering resonated strongly with customers, according to Symantec.

Since the beginning of April, when Symantec realigned its salesforce and simplified its enterprise business, Clark said the company has grown its number of deals over $1 million from 37 in the first quarter to 47 in the second quarter to more than 100 in the most recent quarter. Clark said Symantec displaced competitors in most of the million-dollar opportunities last quarter.

For the coming quarter, Symantec expects non-GAAP earnings of $0.37 to $0.41 per diluted share on adjusted sales of $1.175 billion to $1.205 billion. Analysts polled by FactSet had expected non-GAAP earnings of $0.44 per diluted share on sales of $1.3 billion.

Consumer digital safety revenue is expected to come in at between $600 million and $610 million, representing 6 percent year-over-year organic growth after factoring out changes in foreign currency exchange rates. And enterprise security revenue is projecting to land at between $575 million and $595 million, representing 4 percent organic decline in constant currency.