思杰系統 (CTXS) 2001 Q2 法說會逐字稿

Thank you for holding and thank you for joining the Citrix Systems second quarter conference call. All lines shall be on a listen only mode throughout the conference call until the question and answer session. If you should need assistance on this conference call, press *0 and a conference coordinator will assist you. This call is being recorded. If you have any objections, thus you may disconnect at this time. I would now like to introduce your first speaker [Mr. Jeff Alliley]. Sir you may begin.

Thank you for joining us today for our second quarter 2001 earnings conference call to discuss Citrix systems financial results, quarterly highlights, and business outlook. Joining me today in Ft. Lauderdale are Mark B. Templeton, our President and Chief Executive Officer and John P. Cunningham, our Chief Financial Officer. Looking at the agenda for today, Mark would like to give a few opening comments. Then John will review the financial results for the second quarter and provide a business outlook for the third quarter and a reminder of the calendar year. We will then discuss the operational highlights for the quarter and conclude with a period of Q & A. During this question and answer period, we request that you limit your questions to one per person, as we would like to keep the call to under an hour. Before I continue, I would like to remind you that forward-looking statements during this conference call are made [_____] to the safe-harbor provisions of section 21E of the securities exchange act of 1934. Listeners are cautioned that statements during the conference call, which are not strictly historical statements including without limitations, statements regarding Citrix's current and future financial performance, management's plans and objectives for future operations, private plans and performance, management's assessment of market factors as well as statements regarding strategy and plans of the company and our strategic partners constitute forward-looking statements which involve risks and uncertainties. They can cause actual results to differ materially from such forward-looking statements. Listeners are cautioned not to place undue reliance on these forward-looking statements as they are subject to a number of risks and uncertainties including the success of the company's MetaFrame and portal software product lines, the acceptance of the company's ICA protocol, the company's success in expanding new geographic markets, the company's ability to expand its core business from marginal price accounts and engine electronic licensing model, the size, timing, recognition of revenue from significant orders, increased competition, the risks associated with new technologies and third party licensing arrangements. The company's ability to successfully integrate and manage growth for required companies, the company's reliance fund and strategic relationships, risks with the company's strategy will not succeed in the manner anticipated, changes in pricing policies, the possibility of undetected software areas as well as the risks of downturns in economic conditions generally and in the softer industry specifically as well as other risks detailed in the company's press release issued earlier today in the company's filings with the Securities and Exchange Commission. Citrix Systems has no obligations to update any forward-looking information in this conference call. Now I would like to introduce Mark B. Templeton, President and Chief Executive Officer of Citrix Systems.

Thanks Jeff and thanks everyone for joining us today. Let me begin by saying we are tremendously proud of our Q2 results as we really continued our momentum from the first quarter. I believe we made positive strides in execution and we are well positioned for the second half of the year. Overall, Q2 was highlighted by solid financial performance in both earnings and revenue driven by some strong customer winds. We saw good uptake about new MetaFrame XP product family and continued our momentum in our Windows 2000 server products. On the strategic front, we made good overall progress in our portal product and market strategies. On a personal note, its great to be leading Citrix again as CEO. We have an exciting vision and I have an incredibly strong passion for our team. Our channel partners, customers and our opportunity. So it's a true honor to be here today announcing these great results. Now let me turn it over to John to talk about our Q2 financial and operating results and then I will be back with some additional comments. John.

Good afternoon everyone and thanks Mark. The results this quarter demonstrate the continued strong progress that our team has made during the last 12 months. So lets begin with a few operational accomplishments and then move into the discussion of the financials. Overall our core business was strong and our results were driven by an accelerated adoption of our MetaFrame based solution. This acquired integration process remains on track and we plan to leverage this acquisition with the delivery of a channel ready portal product during the first half of 2002 and Mark will discuss that a little bit more in detail later on. Our SAP implementation went live during the first week of July. This when coupled with a previous roll out of our CRM system provides us with an upgrade to our Decision Support Systems. These improvements in our systems infrastructure will help us manage the business with more discipline and continue to bring us closer to our customers. Consequently, this gives us added confidence in terms of visibility into our business. Moving into discussion of the financials. Lets first review the highlights from the quarter. I'll follow that up with a discussion of the appropriate metrics and then I will conclude with our expectations for the remainder of the year 2001. My comments going forward here will be exclusive from the effects of amortization and the write off of in process, Research & Development and I have rounded to the nearest millions and percentages where appropriate. We have reported revenue of $147 million equating to a 39% increase over the second quarter of 2000. Operating expenses were $94 million up 27% from a year ago, which compares favorably given our revenue growth and is in line with our expectations. It should be noted that a portion of the increase was attributed to the sequoia acquisition, which we addressed with you previously this quarter. We will continue to manage our expenses in line with revenue or making the necessary investments to ensure our future growth. Operating margins remains steady at 31%. Operating profits increased by approximately 22 million or 94% over the second quarter 2000. Net earnings were 36 million an increase of 16 million or 75% from the second quarter of 2000. Earnings per share was 19 cents an 83% increase when compared to a year ago period. DSOs were 34 days for the quarter compared to 49 days in the second quarter of last year. Electronic licensing accounted for 26% of our product sales compared to 16% in the year ago period. Cash flow from operations was 56 million in the quarter and we expended approximately $29 million on our stock repurchase program and acquired 1.6 million shares. Our cash and investments on June 30th amounted to approximately 737 million and this takes into account the expenditures we made for the sequoia purchase and for the after mentioned stock repurchase. At this point, lets take a look at the financials in little bit more detail. Total revenue in the quarter as I said amounted to 147 million, an increase of 41 million or approximately 39% in the corresponding period last year and a 11% increase on a $132 million as we reported in the first quarter. Looking at our geographic mix, the US accounted for 53% of our revenue approximately the same as it was in the first quarter. On a year-to-year basis our international revenue increased to 47% of the geographic mix up from 43% in the second quarter of last year. Electronic licensing was 26% of our product revenue as compared to 16% in the comparable period last year and 19% in the first quarter of this year. We continue to expect that electronic licensing will be an important part of our revenue stream. However, our mix will vary depending on customer delivery preferences. From our product perspective, applications server products represented approximately 77% of our net revenue, management services 8%, professional services were 7%, Microsoft were 7 and OEM was 1. It is worth noting that with an introduction of MetaFrame XP the familiar products, some of the management capabilities such as load balancing, resource management, and installation management services are bungled into the solution. Therefore, as MetaFrame XP becomes a larger portion of our product mix, you'll note that the application server product portion of revenue will increase while the management services portion will decrease. If you look at MetaFrame XP in the first quarter, it represented approximately a quarter of our product sales in the first quarter. Expenses for the quarter were 94 million in line with our expectations, even as I mentioned before that some of the increase was accounted for, but the incremental costs were associated with the Sequoia acquisition. This represents an increase of approximately 20 million or 27% from the second quarter of last year and an increase of approximately 10 million from the first quarter of this year. Looking at our head count at the end of the quarter it is stood at 1783 up from 1471 in the first quarter and this includes approximately 220 people who have joined us from sequoia plus the additional hiring that we made during the quarter. Our operating income amounted to 46 million and represented a $22 million increase over last year or 94% and it was up 10% sequentially. The operating margins as I mentioned before was at 31%. Switching to net income for the second quarter, it amounted the 36 million or 19 cents per share and this represents an increase of 16 million or 75% from the second quarter of the year 2000. In the earnings per share calculation for the quarter, we used a weighted average shares outstanding of approximately 194 million. The company's balance sheet focusing they remained strong with cash and investments of approximately 737 million. This takes into account as I mentioned before the sequoia purchase and the stock repurchase plan, but if you look at it from a cash generation standpoint of free cash flow in the quarter was approximately $56 million and during the quarter we repurchased 1.6 million shares on an average price of 25.77. Our deferred revenue related to product sales stands at $63 million at the end of June up 10 million from where we where in the first quarter. This increases was primarily attributable to the increase acceptance of our subscription advantage program and to a smaller extent was attributable to the revenue associated with sales of E-license version of MetaFrame 1.8 sold after the XP announcement day. These products may be freely migrated, as you know to MetaFrame XP. So the portion of the sales cannot be recognized. Until such time the end-user migrates or enabling kits are delivered to the end user. We anticipate that this revenue will be recognized in the next few quarters as we fulfill these customer requirements. Total deferred revenue at the end of the second quarter was $97 million, which includes the remaining portion of the Microsoft revenue. Our DSOs were 34 days for the quarter and this compares to 29 days at the end of the first quarter and 49 days in the second quarter of last year. As I mentioned before DSOs will continue to fluctuate as business conditions change such as the introduction of new products, like MetaFrame XP, linearity of the quarter, and it present an timing of the electronic licensing all can cause this number to vary considerably. With that said lets now switch and focus on the outlook and my comments will be limited to this calendar year. On a macro level, we remain positive, but cautious on our business outlooks, as we need to remain respectful for the worldwide economic environment that we are operating in. Therefore, our outlook for the year remains unchanged from what we have told you previously. We continue to expect revenue growth in the mid 20% range and EPS growth in the mid to upper 20% range consistent with what we talked to you earlier in the month of June. Looking a little closer into the third quarter. On a year-over-year basis we expect our revenue growth would be in the lower to mid 30% range when compared to the 3rd quarter of 2000. Additionally, operating margins for the third quarter are expected to remain constant in the 30% range. As I mentioned earlier, the investments that we have made over the past year to improve our system's infrastructure will continue to help us operate our business with more discipline and confidence. So on closing and I would like to say that the Citrix's team is committed to grow and to manage the business by developing and selling solutions which would address real issues encountered by IT professionals on a worldwide basis. With the efforts of the whole Citrix's team, we feel well positioned to continue to move forward. Now I would like to turn it back over to Mark to discuss some of the additional highlights. Mark.

Thanks John. Looking back at the quarter there were a number of highlights worth adding color too. I will highlight these and lead you with some key take away. First we are going into the Q3 with a strong financial foundation and set up business drivers. We continue with a number of significant customer wings and thirdly we announced some strong partner activities in the quarter and fourth, we close the sequoia transactions and we are on track with our portal product and market strategies. All in all we are feeling confident but as John indicated in our guidance appropriately cautious about the business. This is in context with two things. The overall economic climate and secondly the need for crisp execution with new products and markets. Next I would like to briefly expand on each of these takeaways. The quarter was a solid one as we saw from acceleration in our core business. With this good year-to-year growth in both revenue and EPS we have once again added to our very strong financial foundation. A foundation on which we intend to build product and channel expansions to deliver a broader range of information access solutions to our customers. The modest acceleration we saw is a strong reinforcement of the business value our customers are realizing from that product as well as the continued strength of our channel based go to market model. That was reflected in the good sequential growth in overall product demand on a worldwide basis. This was particularly encouraging especially after reporting such good results in Q1 this year. From an external perspective continued uptake of Windows 2000 server in the market helped. Windows 2000 migrations cleared a change point where customers can consider our products as additional value added components to their Windows based computing infrastructure. We highly encourage our customers to migrate to Windows 2000 when practical. That helps us partner on a local level with Microsoft field since their goals are to migrate customers to Windows 2000 server. Our Q2 product mix story is a good one. The MetaFrame XP family, which we just introduced in February is already accounting for around a quarter of product revenue and sales of MetaFrame on Windows 2000 continues its growth trends from prior quarters. Taking together, we believe that well over a half of MetaFrame's sales in Q2 were for the Windows 2000 operating system. This continues to demonstrate that MetaFrame is providing important value add in the Windows 2000 terminal services environment. That value-add is helping customers scale up to larger server forms and it is helping them scale out with a larger variety of Windows based application-serving solutions. As John mentioned, our e-licensing program accounted for 26% of product revenue up strongly for the quarter and within e-licensing, we saw a good growth in both corporate and enterprise license programs. Additionally, reorders of electronic licensing from existing customers increased again. Continuing to support the notion that once an agreement is in place it is much easier for customers to place follow-on orders without an additional sales cycle. Overall, brand awareness continued to improve and we were once again pleased to see our products win industry awards. Our NFuse and XML portal products are helping us to get our web messages recognized which going forward is key. So we were proud to see our NFuse application portal. Let me exchange excellence award for best web strategy at the CMP Cyber Exchange Conference. Next I would like to talk about Q2 business drivers. The key term here is back to basics. Customers everywhere are once again focussing on IT fundamentals where the priority goes to ROI projects with both top line and expense management impact. Back to basics means customers are working on three fundamentals. First they are looking to squeeze more value from existing computing and information system investments. Secondly, they are trying to make users more productive by extending the work place beyond the office and third they are working to both optimize and streamline business processes. All of this back to basics thinking helped our business in Q2 since our MetaFrame application-serving platform has consistently delivered three core solutions. First MetaFrame leverages, existing desktop network, and application infrastructure allowing our customers to get more value from existing computing investments. Secondly, MetaFrame allows employees to work from any device with any application from any location supporting a growing customer trend around distance working and third MetaFrame extends the accessibility of corporate information in powerful ways that drive business optimization, especially when merger integration and business expansion projects loom larger than ever. So we are benefitting from these drivers, because our poor ability to virtualize and extend the accessibility to information systems is providing real solutions for the very real back to basics needs. Moving now to customer winds. So these drivers supported a solid base for our worldwide channel network to produce some great winds with both existing and new customers in Q2. Some of these included reliant resources, AT&T broadband, [Newlay] GMBH, Amdocs, voice stream, Siemens, New Zealand's Department of Corrections, Australian Telco Optics, Spain's weather vision wireless, and [Lacose] GMBH. Notable was that we had more deals larger than 3000 concurrent users than ever. As 8/10 of these winds were for more than 3000 users. Today, I'd like to highlight the largest 3 deals each of which were for 5000 concurrent users. The first is with reliant resources which is a rapidly growing provider of wholesale and resale energy services in the US and Western Europe. This enterprise license agreement with a MetaFrame XP sale driven by one of our most sophisticated platinum solution providers. The system will provide virtual access to Siebel, SAP, Office 2000, and over 200 other applications. Next, we signed a 5000-user agreement with AT&T broadband to help them drive their total desktop solution in their call centers. One of our large account resellers that specialize in e-licensing services closed the business on the MetaFrame 1.8 platform and the third 5000-user wind was with the famous German maker of home appliances [____]. [____] worked with one of our European large account resellers and purchased MetaFrame 1.8 to drive their Microsoft Office and SAP R3 implementations. The progress with sales were filled by large account resellers was encouraging in the quarter as they have been a key part of the channel upsizing program we began implementing one year ago. Next let me touch on our partnering activities in the quarter. A very key part of our business strategy is to partner across the industry in order to give leverage to our sales and marketing dollars. We continued to make progress in this important area through announcements with EMC, Nokia, and CRO Wireless in the quarter. In each case these partnerships drive a solutions focussed message allowing customers to better access information from a broader range of devices and network connectivity. Our work with Microsoft continued as we really began the process of expanding that relationship to their dot net initiative. We are doing this around our newly acquired XML foundation server and our portal products that can extend the reach of dot net making it more accessible to more people, devices, and applications. So, that's what drove our part of Microsoft's share point announcement last week and allows our current and future portal products to really leverage share points document search retrieval and management capabilities. This is a great example of how our portal technologies will allow us to embrace a wide variety of Windows applications, web content, and Dot Net services and expand virtual access to them. As John mentioned, we closed and made good progress towards fully integrating the sequoia team into Citrix's. We continued to be impressed by the energy and enthusiasm of this new Citrix's team. The merger also allowed us to add a member of the sequoia board to the Citrix's board, Marvin W. Adams. Marvin is VP and Chief Information Officer for Ford Motor Company reporting directly to Jacques Nasser Ford CEO. Marvin has a great technical background and years of experience managing large business units and IT organizations. He has already contributed strongly to our better understanding of large organization spending patterns, customer needs, and selling approaches. Next, I would like to catch you up on where we are in our portal market area. First, we made good progress towards the building of our channel ready portal product, which is now code-named South Beach. This portal product will bring a new level of access to the combination of web content and through MetaFrame Windows Applications. From a channel perspective we will go to market with South Beach to a large number of our integration channel, the Citrix Solutions Network, which is around 7000 members' strong today. Like MetaFrame, South Beach will be positioned to leverage our channel strength in providing installation, configuration, and system tuning services. All well driving hardware and software revenue for them and we are designing South Beach to include good leverage of the Microsoft Windows and Dot Net platforms, which is what we demonstrated as part of last week's share point announcement with Microsoft. The second area to highlight is the existing XPS product now being sold under Citrix XPS server brand. Given that we are involving the go to market strategy around this type of conflicts product offering, we made reasonable progress around XPS in the quarter. We continue to help existing customers with implementation services they need and we establish new customers as well. One thing we've already learnt is that XPS is more than just a portal server. It not only has robust portal functionality, it goes beyond that with capabilities for workgroup collaboration, information sharing and intelligent alert in business process integration. The combination of XPS, MetaFrame, and NFuse give customers complete virtual access to any information type Windows to web. We've really got a good sense for this in the last couple of weeks as we closed our first significant deal that included both the MetaFrame XP Application Services platform along with the Citrix's XPS portal platform. Next I would like to wrap up. I think you can tell we are feeling pretty good about our overall positioning and product strategy. That strategy is simple, powerful, and very compelling and that's to provide a soft [____]that gives customers very flexible, very practical ways to build a fully digital workplace and to extend it virtually everywhere. For customers its really like having a bridge that lets them carry forward the applications and content they have to today while they take advantage of all the great things coming from web computing. Our strategy gives customers many bridges between heterogenous devices and diverse application architectures between cost saving projects and business expansion projects, between resource constrained IP and service demanding users, and a really strong bridge between windows and web content. So it was an incredibly busy quarter for the company with great results and lots of energy laying important groundwork for future growth. We still have lots of work to do. We are confident in our strategy, but execution is paramount. I believe we have already assembled many of the pieces and that are committed enthusiastic and energetic Citrix's team is up to the challenge. Now, lets us open it up for questions. Thank you.

Thank you. At this time, if you would like to ask a question you will press the *1 on your touchtone phone. You shall be placed in two queues prior to asking your questions. Once again that is *1 on your touchtone phone you shall begin it now prior to asking your questions. Our first question comes from [Sarah Methine] with Dain Rauscher Wessels.

Hi thank you very much. Congratulations on the quarter. One more question for international revenues please. You did claim that it is Europe. Can you talk about what you are saying in that part of world and how you feel you are positioned in that particular market and is that market is indeed flowing as it may speculate high, if you took that into account your expectations with September quarter and what makes you feel confident about your business in that particular region.

John you want to talk a little a bit about the mix and I will talk about better margin.

No tell about the margin first and then I will talk about mix.

Okay. So in the European theater actually the quarter was strong as John indicated, you could see that there was an uptake of relative to last year. Through the quarter we saw strength and no change in the business across the quarter as I think some software companies and technologic companies did see. I think on an ongoing basis we are continuing to see as we said many times a couple of things in Europe has may be you do not see in the US. First a deeper and longer strong sensitivity to expenses, especially around computing systems and many European companies has never made the big jump to fully distribute the systems so our sort of server based approach has really ringed the bell with them as many of them are coming off unique type systems and in host based type systems to begin with. And then secondly, in Europe we have a very strong systems integrator network that can do larger scale deals, so we have always seen larger deals in Europe as a general rule because many of these integrators like Siemens and Bold unises and others have focussed on larger accounts, larger customers with larger systems and the they are the ones that get the biggest ROI because the more of our infrastructure you put in the more money is saved in terms of computing costs.

Have you see any changes sales cycles in Europe or additional requirement in terms of explaining that ROI case.

No. John do you want to talk a little bit about the mix there.

The mix, if you look at all of our geographies. All geographies participated in the growth on a year-to-year basis and also on a quarter-to-quarter basis. We had very strong growth in Japan as you know last year Japan was just coming up that all occurred and really had a very good June quarter and had significant year to year growth. Both the Europe and the United states grew at about the same rate first quarter to second quarter and of course you know Europe, I think if you look at it had a very strong quarter coming through on electronic licensing as it continued to focus close some of the larger deals as Mark was mentioning. So across all the geographies, I would say we had equal performance that was noted geography that demonstrated an each significant strength or any significant weakness. If we look forward into the third quarter, as you know Europe traditionally has a slower third quarter than second quarter. We anticipated that will be the case again this year as been in the past, but all the metrics that we look at tell us that as we look that the economy and the overall situation in European, we have taken that into account and had taken it into account and the guidance that we give it earlier in June.

Great thank you very much. Our next question comes from Terrick Ling with ING Asset Management.

Hi Mark. Just get into operational question. Can you talk about the reduction in for us that has taken place in the last few days where it has been despite again the psychology taking behind that as you done it was there any particular area of the company that was impacted more than others.

Over the last two to three months we have done a detail evaluation of all the skills within the company across all functions and across all geographies and we have looked at those skills and related that to where we believe we have to take the company as Mark told they add to, so it was in a evaluation of the skill level across all of our functions and across all of our geographies. And you are right yesterday we had a reduction of Europe of approximately 60 or 65 people that will be leaving the business on August 3, 2001. This was not done for expense reasons, this was not done for revenue or cost reduction, this was really done to align ourselves with the skilled based that we need going forward. It is the small percentage of our work force and we did make it announcement, because it really was we felt a minor and significant event significant for the people involved and their families and we have done what we think is appropriate to easy their transitions into the next phase if they likes, but it was really just looking at the skills and it touched everyone of the functions in the company.

Could you just talk second about the Mark of XP one of the things that some acquiring has been getting some very very good reviews by your channel and obviously that has been reflected in the uptake. Can you talk to is the market is reacting to the new features and changes in XP version is that accounting for some of the strength here or is it just the world going back to a ROI focus. MARK B. TEMPLETON/ JOHN P. CUNNINGHAM: I think there were two reasons for the strength in the MetaFrame XP Terry. The first is that it is feature based. And frankly it just is the kind of scalable product that our largest customers need and so the large deals like for example the reliant resources deal larger deal is closed on the MetaFrame XP platform just right out of the box. So it is very feature driven and it is about scalability and manageability of large-scale server farms so that was scaling up and then other customers that have a more diverse kind of computing infrastructure need the scale out features that we put in MetaFrame XP. So, the second reason is really of a sort of how the customers buy products. As you know traditionally, about 40% of our business especially in North America is with the new customers and about 60% approximately historically has been with existing customers. So we expected that XP would have a rapid ramp to about the 40% range just on the basis of new customers launching US products that are the most scalable, most reliable, etc. running on the most scalable reliable platform that is windows 2000. So, I think the window 2000 sort of uptake helped, the features helped and then obviously having new customers pick up your newest products helped as well. Our next question comes from Thomas Earnest of Thomas Weisel Partners.

Thank you good afternoon. Mark we have seen a number of exciting developments in partnerships here in terms of enabling wireless applications delivery. Could you help us understand over the better how high your approach to catalyzing the business for wireless application delivery might be different from the core business? In terms of far channel versus direct versus OEM and what sort of things we should look for the company doing in terms of making sure that we have to maximize the availability to trap this market. MARK B. TEMPLETON/ JOHN P. CUNNINGHAM: With our current MetaFrame platform which frankly the applications that you deploy on really designed for a large screen. Our focus in the wireless space has been sort of two fold. First wireless of LAN opportunities and we are seeing more and more of those happen as the 80211 D standard becomes more and more widely adopted. It is a great standard and you can go from great solutions on top of the Lan wireless local area network spaces. In the other area where the wireless was more about PDA in smaller screen kinds of detached devices we are approaching that again because the absolute typically large screen built as really approaching that with some interesting clients high technologies for the compact. [_____]for example or the Nokia 9210 communicator. In other devices of that source. All in those cases, however we are looking at wireless as another carrier network infrastructure to deliver across, because the server is diagnostics in the client is diagnostics to the transport type. As we move forward with the XPS product family and that entire platform where you can actually start to have the portal resize windows, and reshape data, and information depending upon the kind of connection the users making that is where we can expand our wireless strategies beyond what we are doing today. It really take a close look at working with some of the infrastructure providers, handset providers, and some of these types. So right now, it is pretty much right down in the middle with the kind of integration channel we already have.

Okay great. Do you think a larger part here of this new opportunity will be OEM or direct versus large specifically as it materializes? MARK B. TEMPLETON/ JOHN P. CUNNINGHAM: We have some future opportunity we believe around OEM type business, but our work throughout in the core of the business will be working with channels up and down the customer base in terms of customer size and within the IP organization. Direct selling, direct touch, yes, direct engagement yes, but when it comes to actually leaving the customers requirements with licensing, with consulting services, with system integration, and any other services that they need pre or post sale. We really rely on our channel and we will continue to do that and absolutely part of that hold a strategy for up sizing the channels as we up size the kind of solutions we are able to provide.

All right great thank you. Our next question comes from [John Dudo] with Credit Suisse First Boston.

Hi. I was wondering with one question with two parts. I was wondering if you could talk a little bit about the inventory level as you exit the channel and then your direct touch program how is that coming along, how much growing and if you have any metric related to that program to that what you calling core back, in terms of increased account penetration or an uptake of increasing factor sales cycles.

Let John take both of those, because there are really both operating programs.

First on the inventory. As you looked at the inventory and our days on hand we came out of the quarter in a very good shape well within older metrics we have said to look at it. I will tell you that we did ships some new languages which give us an increased in certain countries and as far as inventory is concerned, but the inventory levels are approximately the same as they were coming out of the first quarter with the exception of those language products that we shipped. If you look at it in terms of days and look at where we think the demand is days on hand are equal to our less than there were at the end of the first quarter. Switching over to the quarter back, it really is a program that we think will have merit and will help us to penetrate the large accounts. We will be dedicating resource to that as we go forward [_____]that out organization. It was started to say quarters and we are starting to put together all the pieces that the quarter back needs basically to manage the whole teams to penetrate those accounts. And I would expect we would start to see benefit of that as we go in here to the back half of the year. MARK B. TEMPLETON/ JOHN P. CUNNINGHAM: The only thing that I would add is that this is an initiative where we have actually be adding head accounts around the quarter back initiatives this quarter and next really preparing for 2002 in terms of help allowing these people to hit quarters and hit numbers. As you know that takes some ramp time around training at pipeline development.

Thank you. Our next question comes from Robert Stemson with Merrill Lynch.

Hi Michael and Hi John. How are you today? can you guys help me with little bit about what is your topline growth assumption as we I do not approach as John if you just look out in 2002 what assumptions are we making that kind of the numbers are not in the numbers regarding some of the new initiatives for instance the Korea had the ramp on the war side. is there anything around the how they glow to certain rate, is that mostly due to news to your port casters or something that is helping us to happen in the next three or four quarters.

Robert as I said we just talked about the year 2001. As I mentioned before we are starting talking about 2002 when we get to October 2001 as said that everyone will have a view of where we will go into 2002. However, that is said as Mark has adequately pointed out we are depending and doing a lot of work to bring the quarter product on and we will start to have that portal product in the first half of next year and the other products that you have mentioned will have to start to ramp out to grow in the year 2002, but on that to give you any guidance on 2002 until October.

And the may be you can give us a little bit on just a color I know you extended the buy back 200 million, is there a program to show some specific price range that it does not become as a credit of that what level will you think that is.

There was two as you may recall, there was two trenches to buyback. We had 200 million another 200. The first 200 as we may recall we divided between a program with a financial institution which goes over the next I believe about another a year and year and a half or it is drawn on a program basis buyback for us. Rest of it we are doing on an open market purchases and we will do that based upon what we feel the market is appropriate for us to do it. I believe we purchased about 1.6 on the European market and 1.6 in the second quarter and I think about $3 million year or so. In about $3 f the year we will continue to do that based upon conditions. I would point out we are also doing in mainly to manage our delusion as a pose to earnings per share as mainly for delusion. We are going to look at up to that and do it in conjunction with that program.

This is my final question to see what is happening in some of the evaluation in the software sector. Are your things both on opportunities that you guys think you can do and may be you can give us some examples of what those could be.

In terms of acquisitions.

Ya just a wear up. If you can kind of extend the product vote beyond on what it was.

No I would be inappropriate from need to count that on that.

Okay thanks guys. Good quarter thank you.

Okay thank you. Our next question comes from Michael Donna with Gerard Klauer Mattison.

Thank you. So you beat the number and you did not guide down ahead that rate.

Yes what I said is a number came in I do not know what your number was, but our number was 19 cents and 147 million and what I said is the guidance that I gave back in June is identical to the guidance that I gave to that.

Okay that is the first time I heard this quarter. Then my question is on XPS. You have announced recently that the Microsoft we do in the Microsoft developers program aligned for the portal survey. Probably a dozen players that have done similar things, could you explain how you said into will it be other players that are also in that reliance be partners potential acquisitions or competitors, are you are competing with gains share on top of share point portal survey.

There was a pretty wide array of partners announced I think there were about 12-14 and the types of companies and the way each one of those companies with leveraging the share point server would there a pretty widely. I can comment on whether they could be partners or competitors of potential acquisitions frankly, I did not study them to intensely, but I think surprise to say that one of the things to people and the share point server is a great product around document management server etc. So for example if you are in turning that kind of a portal would be an essential tool for your job because you are basically documents are productivity and ability to find in retrieve and share and mark us etc is key. Our portal product will incorporate and leverage the share point product so that it could be one of the deep components of it so we will not go deep into those kinds of areas and that is why we have leveraged the Microsoft share point server and then frankly there are quite a few other interesting products life share point in the document management area and some other collaboration areas and so forth as we go forward we will be able to talk about that will work with these product and so really this area is coming together and the announcement really well received and pretty clear as to how the products works together.

Followup on Southbeach, when were you expect the first partners to be trained on that product.

Probably in the Q4 timeframe going into Q1. We have not set those exact dates yet, but obviously this is kind of process type of project and so we have a lot of systems working towards that.

And finally last one XPS in the enterprise model as you acquired it how are sales done in the recent quarter.

As I said we are satisfied with the progress made there and in my prepared comments as I mentioned. We are really working with the pipeline that the supplier brought in the merger brought to the merger. We are also within that working with the existing customers to make sure there is successful in providing the services and then working we are evolving the goal of market model trying to bring some of our integrators and larger channel partners in their so, we are satisfied with the progress we have made.

Mark can you comment on all kind of directionally what the revenue has done sequentially.

As I said before, I want to comment on the portal mix and it is less than 5% and still becomes a significant product of revenue I do not want to start breaking it out quarter on quarter. It is something smaller part of the business at this point in time. I understand that John, I am trying to understand the directionally has that market softens every has a decline is a growing that will be helpful.

We think the market is growing.

We are satisfied with the revenue we have seen. We have had it in second quarter for two months and the revenue strength.

Do you feel like you have gained shares in that growing market.

I am not going to comment on share position.

Thanks. Our next question comes from Mike Stanic with Lehman Brothers.

Congratulations. Could you talk a little bit about Microsoft as I recalled the Microsoft portion of the revenue that you had recognize was running at about may be 10-11% if that consistent and if it is not please correct me and when that runs out and explain may be that and the second may be for Mark we have run into every so often you guys recall negative. We have run into two mega deals 1000 seeds or more in both Europe and United States respectively. Now bit around, we have been around long enough to know that they are just to that there in the harbor and they could take years to close, but as you talk to some of these larger potential implementations is it what is the economic environment about to converting those eventually or is it something else. I am not saying that your response after closing these today or tomorrow, but I am just to curious every once in a while you do bring one of these out.

Mike let me take it through to the Microsoft revenues first that revenues stream runs out in May 2002. As you know we had that agreement few years ago and the money is as you know is in or amortizing that into the earnings at approximately $10 million at the quarter. There is a little bit depending on the number of days in the quarter because it is on the day basis for round numbers $10 million quarter every quarter so if are question is what is the growth rate without Microsoft or growth rate on the topline as greater if you backout Microsoft because it is a constant in both of the periods you would be comparing. That is a $10 million quarter and it runs out in May 2002.

Terrific.

It is a mega deals. Some times these mega deals are just articulated in terms of potential. Okay so 100,000 user deal is basically articulated around sort of every employee in a company typically when they articulate them. But what they way they had actually closed and we actually do business is through our enterprise licensing program that allows customers to have a buying agreement get it in place and then take down the licenses they need as they implement in deploy. So we have never and not interested in licensing programs that Jam licenses in big quantities on customers because we are trying to build a business with smooth revenue growth quarter to quarter and trying not to hold guns to customer ahead and put licenses on shells that sit for quarters and quarters at a time.

So the rate is so you have to think about them more than markets that they almost become sort of longer term ingenuity once you bring them into door you see a sort of sale division by the division server form by server form.

That is right. That is why we do talk about reorders and our electronic licensing program and their importance because they are very much likely ingenuity because once you get the agreement in place. It really has about making it much easier fast and more convenience to customers to buy implementally.

This is on the technical basis where you have seen W2K server implementations. How is XP leveraging active directory? May be a little lock it for this call.

Very longish. Just in short it fully support AD. And end users AD as to support some application publishing functions obviously security functions as well as some applications sharing and product sharing. So it is from printing , so it is at there level. So leverage is in everywhere we can and that is really part of our key strategy and that is when you go on to a platform like Microsoft providers. They provide all these services and facilities in the platform today windows 2000 server in the future in the whole dot net platform and the whole notion of value add is reaching into that platform bringing components together in interesting in powerful ways to build the solutions an AD would be an example.

Terrific in this environment what more can people ask for greater execution. Thanks. At this time I am sure we are very close of the end of the hour. We will take our last question from Don Yong with [_____].

Operator is anybody else in the queue. We will go on the last question from D.J Pat from [_____].

Hi guys. Just two quick questions. Can you comment on what percentage of your users on the subscription of managed program now.

In recent trend as John indicated it is really increased and it is somewhere in around 75.

So we are currently user based. It is about in the 70s.

These are not of the total user base. This is the run rated as slow. So if you take if you do the list back, it is not going to be obviously the time, because subscription advantages is about 30 months old now and we still have plenty of customers with systems we have sold to them back to them. So it is probably our estimate from there.

I just looked in the book it is not of that high it is not 50-55%.

so the total base is 50-55%.

Yes.

Okay great and then other question John would you remind breaking our the inventory number.

Yes I would. As I said in the past that is not efficient, but you know to stop breaking it out, both by geography and breaking it out by I do not think it would add any values.

Just give in the actual number was it on the.

No we have not commented on what actual inventory is.

Okay thank guys. Thank you everyone. We appreciate taking the time on the call today and your continued support of Citrix systems and thank you and have a good evening.