思杰系統 (CTXS) 2001 Q3 法說會逐字稿

Thank you for holding and welcome to the Citrix's third quarter earnings release call. All parties will be able to listen-only until the question and answer portion of the call. This call is recorded at the request of Citrix. If you have any objections, please disconnect at this time. I would like to introduce your speaker today, Mr. Jeff Alliley, Manager of Investor Relations. Thank you sir, you may begin.

Thank you for joining us today for our third quarter 2001 earnings conference call to discuss Citrix Systems financial results, quarterly highlights, and business outlook. I would like to remind you that this call is being website with the visual slide presentation at www.Citrix.com/investor. Joining me at Ft. Lauderdale today are Mark B. Templeton, our President and Chief Executive Officer and John P. Cunningham, our Senior Vice President of Finance and Operations and our Chief Financial Officer. Looking at the agenda today, Mark will begin with his opening comments and John will review the financial results for the third quarter and provide a business outlook for the company. Mark will follow with the operational highlights and we will conclude with the question and answer period. During the 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, precedent to the safe-harbor provisions of section 21E of the Securities and Exchange Act of 1934. Listeners are cautioned that statements made 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, product plans and performance, management's assessment of market factors, as well as statements regarding strategy and plans of the company and it's strategic partners constitute forward-looking statements which involve risks and uncertainties that could 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 in new geographic markets, the company's ability to expand its core business from marginal price accounts and to electronic licensing model, the size, timing, and recognition of revenue from significant orders, increased competition, the risks associated with new technologies and third party licensing arrangements, the company's reliance upon its strategic relationships, 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 and in the company's filings with the Securities and Exchange Commission. Citrix Systems undertakes 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 for joining for us today. The third quarter turned out to be an exceptional quarter as the economic uncertainty and the impact from September 11, 2001 left us very saddened. Especially two of our employees lost family members at the World Trade Center. The ability to come through in such a tough quarter in my mind is a strong indicator of the timely business value our customers are realizing. I am extremely proud of how the entire team responded to these events and really went above and beyond the call of duty in many cases. Our consulting services organization and our sales team have been proactive with customers who were severely impacted. So it is in this context that we are very pleased to report strong results today. Now, let me turn it over to John to talk about our Q3 financial and operating results. Then I will be back with some additional comments about the quarter, about the competitive landscape and about our direction. John, 00;04:00

Good afternoon, and thanks Mark. As Mark mentioned, we are very pleased with these results and especially the efforts that were made by all the Citrites that made it possible, especially in the light of the challenges that they faced during the quarter. Let me make a few overall comments regarding some major elements of the quarter, namely the impact of September 11, 2001, some operational issues, and financial transactions unique to the quarter before discussing the results in a little bit more detail. Moving through the quarter, we continued the momentum seen in the first half of the year. However, the events of September 11 did impact our progress, especially the package product run rate in the US and central Europe, specifically Germany. However, we have seen demand begin to recover in these regions during the first few weeks of October. Electronic licensing, which accounted for 29% of our product revenue remained strong throughout the quarter and reflects the benefits our customers derive from it during the larger deployments. Sales in the quarter were linear, with each month representing approximately of one-third of the quarterly revenue. Our financial systems for the Americas regions went live on ASP in July as part of our ongoing systems improvement. This process however slowed our invoicing cycle during July and August. As a result of this interruption, the accounts receivable balance has increased, and most of the DSO measurements does not accurately reflect the true linearity of the quarter. Currently, we are on a normal invoicing cycle. The results were affected by some special financial events, which I would delineate later. But the net result of all of these transactions was a positive impact of between $0.1 and $1.5 per share. My comments going forward will exclude the effects of amortization and the write offs of in process, Research & Development and are rounded to the nearest millions and percentages where appropriate. The reported revenue was a 153 million, a 35% increase over the third quarter of 2000. Operating margins were 30.8%, up from the 29.8% from the third quarter of 2000. Net income was 41 million, an increase of 14 million or 50% from the third quarter of 2000. EPS for the quarter was $0.21 a 47% increase when compared to the year ago period. DSOs were 46 days for the quarter, compared to 42 days in the third quarter of last year and 34 days in the second quarter. As I mentioned, the invoicing delays we experienced during the quarter was a primary cause for this increase. Electronic licensing as I mentioned was 29% of product sales, compared to 20% a year ago, and this represents the largest percentage of electronic licensing since we began the program. Cash flow from operations remained positive and was at $53 million for the quarter. The company repurchased 1.9 million shares during the quarter and our cash and investment balance at September 2001, amounted to $750 million. Let us go into a little bit more detail before we get to the outlook. Total revenue in the quarter, as I mentioned, was a $153.5 million, an increase of 35% from the corresponding period last year. Our international revenue continues to show strong growth with Japan being the fastest growing region of Citrix, even as that country faces one of its toughest recession environments. In this quarter, international revenue increased to 47% of our geography mix compared to 37% in the third quarter last year, while our domestic revenue accounted for 53%. And in more detail, the Pacific region accounted for 9% of our overall revenue, [_____ ] accounted for 35% and the Americas, which includes Canada and Latin America accounted for 56% of our revenue. Taking a look at the product breakdown, MetaFrame XP family of products approximated 2/3rds of the products sold this quarter in the Americas. As many of you know, we have packaged some core management capabilities, such as load balancing, resource management, and installation management services into the different versions of the MetaFrame XP platform. Consequently, management options will become a lesser portion of revenue, and we will be classifying revenue into the following three categories on an ongoing basis. First, licensing revenue will consist of application service, management options, and OEM. Second category would be the service revenue and the third would be the royalty revenue primarily from Microsoft. Looking at that breakdown, licensing revenue represented approximately 86% of our net revenue in the quarter, professional services 7%, and royalties also represented 7% of the total. The deferred revenue related to product sales also increased by $6.7 million in the quarter and brings the balance in that account to approximately to $70 million, an increase of 11% from June and about double this September 2000 balance of approximately $38 million. This increase in deferred revenue is primarily attributable to the ongoing customer acceptance of our subscription advantage program and we expect this to continue. Moving on to expenses, our expenses in the quarter were $98.6 million, an increase of approximately 39% from the third quarter of last year. There were several events this quarter that impacted expenses such as the realignment in July in which 65 people left the company, our special contribution to the New York Relief Fund, and the [French and Socialists] Security Tax on options. These events accounted for approximately $3 million in spending above our normal run rate. Our quarter end head count of 1786 people was essentially flat in the second quarter. Our operating income amounted to $47.3 million and represented a 40% increase over the comparable period of last year. And as I mentioned before, operating margins were in excess of 30% at 30.8%. If you look at the other income line, you will see an improvement in that line, which reflects the gains associated with the rebalancing of our investment portfolio. This rebalancing was done to reflect our current asset position around the world. The impact of this amounts to approximately $4 million and a positive contribution to pretax income. Net income for the third quarter was $41.4 million, an increase of $14 million or a 15.3% from the third quarter of last year. And as I mentioned earlier, EPS were $0.21, an increase of 47.3% compared to the same period last year. Our tax rate was 25%. When we use that to calculate the adjusted net income, and this was a reduction from the second quarter and mainly is attributable to the growing nature of our international operations and tax structures overseas. This 25% would represent what we believe would be an ongoing tax rate for us. So again let me repeat, the net effect of the onetime expense items that I mentioned, our portfolio rebalancing, and our lower tax rate amounts to a positive $01-$1.5 per share. During the quarter, 1.9 million shares were repurchased at an average price of $26.86. In addition, we funded another $50 million in our pre-funded control stock buy repurchase program similar to the one we did earlier last year. Our weighted average shares outstanding at the end of the quarter were 196.8 million shares, and I would say that on a year-to-date basis, the company has repurchased a little over 5 million shares at an average price of $25.99. Switching to the balance sheet, it remained strong with cash and investments at approximately 750 million. And this takes into account the generation of approximately 53 million in cash from operations, our open market stock repurchase program and the additional 50 million committed to the fixed stock buyback program. Now let us turn to the outlook for the balance of this year and take a look at next year. On a macro level, we remain positive but cautious about our business outlook for the balance of 2001 and we need to be respectful of the worldwide economic positions that we are operating in. As mentioned in the beginning, Citrix was not immune to the events of 09/11/2001. However, we have seen demand begin to recover as I mentioned earlier. So based on all that we know now in this environment, our outlook for the year remains constant with what we said in July. Namely, we continue to expect revenue growth in the mid 20% range and EPS growth in the mid-to-upper 20% range for the year with improving margins. Looking forward into 2002 is much more challenging and the results would depend on when the worldwide GNP bottoms out, and what is the timing and the strength of the recovery. That said the results we have demonstrated this year really do demonstrate the benefits of our offerings as we continue to grow both revenue and profit in a very difficult environment. We are, as most companies, carefully controlling our total expenses, but we will be increasing investments in areas that can directly drive growth now and growth in the future. So, we are viewing both internal and external elements and based upon what I know today, it is our expectation that this year's momentum will continue into next year. We would expect to see our revenues grow in the lower 20% range. We continue to expect long-term growth and IT spending and when the economies recover, we expect to participate in that growth also. I would end by saying that I continue to feel very good about our strategies, our products, our services, our people, and the value we provide to our customers. I am very encouraged about the prospects and the future of Citrix. Now, let me turn it back over to Mark to discuss some of the additional highlights.

Thanks a lot, John. Overall, the third quarter was highlighted by solid financial performance in both earnings and revenues as you heard John talk about. Right now, the overall tone of business is encouraging, as we have seen run rates in most areas return to more normal levels. There are a number of highlights in Q3 that are really worth putting some more color about. First, we are going into the quarter with solid fundamentals around product mix and financials. Secondly, our core business drivers continue to favor the markets that we are targeting. Third, we have a number of significant customer wins supported by our e-licensing programs. And fourth, we have really continued on track with our portal product and future market strategies. So now, I would like to briefly expand on each one of these. As you heard in John's comments, we saw a good year over year revenue growth. Along with another strong EPS and cash flow performance, we have added to our very strong financial foundation, a foundation on which we intend to build our product and channel expansion. Growth in primary demand for virtual access to Windows environments was good across all three of our geographies. Our new family of products in MetaFrame XP showed phenomenal strength this quarter. In fact, as John mentioned, the MetaFrame XP accounted for almost 2/3rds of MetaFrame sales in the billed weather Americas region. The uptake of our Windows 2000 products continues to improve as the mix from Q3 indicates that the majority of our business is now on the Windows 2000 server platform. This continues to demonstrate that MetaFrame is providing more important value-add in the Windows terminal services environment, helping customers scale up to large server farms and to scale out with a larger variety of virtual access solutions. Our focus on scale up and scale out continue to drive larger deals in the quarter, evidenced by the continued increase in our e-licensing programs, which accounted for 29% of product sales. A record number of e-license transactions were invoiced during the quarter as we saw more medium and large customers expand their systems. It is also interesting to highlight that reorders of electronic licensing from existing customers continued to increase further supporting 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. The continued uptake of Microsoft Windows 2000 server is helping. We find this Windows 2000 platform to be more stable and scalable for our customers. We highly recommend they migrate when practical. Platform migration usually creates a change point where our products can be considered as part of the new infrastructure, which is certainly helping to support the strong mix of Windows 2000 products in our results. And our strong Windows 2000 support is helping us partner on a local level with the Microsoft field as they work to migrate customers. In our recent announcement supporting Microsoft share point is a good example of how our XML based portal technologies will allow us to embrace a variety of Microsoft.net component and provide virtual access to them. Now let us talk a little bit about the business drivers for the quarter. Clearly, customers are back to basics and really being driven by economics today and they are buying their software infrastructure in this way. Back to basics means customers are trying to squeeze more value from existing computing and information system investments while trying to increase user productivity and overall business optimization. So our focus has been to promote the benefits of our products and partnerships that deliver a robust virtual access infrastructure with solid ROI value and great strategic benefit. Recent events have heightened interest in secured remote access and business continuity solutions, both of which are good markets for our products. Interest in virtual access, which allows the office to follow you anywhere you want to work, is stronger than ever. Our products are strong in supporting telecommuting, mobile commuting, and branch office solutions. So you can work from anywhere, far from the IT support center to minimize travel and maximize personal productivity. We believe that the market place for mobility, telecommuting, business continuity, and virtual access infrastructure will continue to provide a rich opportunity space for our current offerings as well as a great space to grow our portal products and services. Now let us turn to talking about customer wins. As we continue to ramp our ability to grow our relationships with global organizations, we produce some great wins with both medium and large customers in the quarter. Some of these included American Express, Nationwide Insurance, the State of Oregon, Career Education Corp, Merrill Lynch, and Centura Health in the U.S. region, and companies such as Ericsson, Ikea, Crane group, AOK Saxon, [S\u00e9glas] South Africa, and Telecom South Africa in our international locations. Today, I would like to highlight four of our larger deals that were closed in the quarter. The first is a 6000-user agreement with American Express. American Express will be working on the MetaFrame XP enterprise platform for access to Office 2000 and a variety of other applications running inside their organization. Next, we signed a 6000-user agreement with Nationwide Insurance giving their agents' access to agency anywhere; their vision of an agent's virtual workspace, which consists of internal applications written for them. Software Spectrum from one of our large account resellers that specializes in e-licensing services closed the business on the MetaFrame for Windows 2000 platform. The third is in the education market with Career Education Corp based in Illinois. This was a 3000-seat MetaFrame deployment on Windows 2000 server enabling virtual access to their campus management custom application in the Microsoft Office seat. Lastly, we signed a 3500-seat user agreement with AOK Saxon, a leading healthcare organization in Northern Europe. AOK is deploying MetaFrame 1.8 to support over 170 applications inside their organization including SAP, ADOBE ACROBAT, Checkpoint, Office 2000, and some AOK custom applications. We also made significant progress toward enhancing and expanding our product line in Q3. We released four enhanced products and we stayed on track on our South Beach portal server project. During the quarter, we released enhancements to MetaFrame XP, MetaFrame for UNIX, Citrix INFUSE, and our [Extranet] products. This release added over 50 new features designed to make it even easier to work anywhere, anytime, with any device. These enhancements free for all subscription advantage customers are designed to improve both IT flexibility and user productivity. The customer and integrator reaction has really been excellent with important new features for both expanding existing systems as well as features to build a broader set of virtual access solutions for new customers. Next we have stayed on track with our portal based product development and market strategies during the quarter. In fact, we will be pre-dealing the first Citrix product in this area, code named South Beach, at our eye forum customer conference in Orlando on October 30 and 31, 2001. South Beach is being designed to allow us to offer more innovated infrastructure for virtual access with a web centric approach. We believe it will break the ROI code that has historically limited portal solutions. It will provide a scalable, manageable, flexible infrastructure for creating a fully web-based solution to virtual access to any kind of web-based services in conjunction with any kind of legacy of legacy or traditional applications. At our eye forum conference the audience will see first hand that South Beach will go from zero to a complete virtual access solution more rapidly than any portal server in the market today. That it will provide access to rich web-based content right out of the box with configuration wizards, not software development, that it will leverage new Citrix web-based partnerships for collaboration, communication, and content management through partnerships with Microsoft share point, e-room, [_____], Intel woven, document, and [Sitescape] and others to be announced, and that it would tightly be integrated with MetaFrame server forms as an access point for Windows application in a very seamless way to build a very complete, very scalable virtual workplace environment. We are excited to show the South Beach product at our conference. Combined with MetaFrame XP, MetaFrame for UNIX, INFUSE, and [Extranet], along with some surprises at the conference, we will be the first to demonstrate a fully virtual workplace that is clearly accessible from anywhere from any kind of computing device. Before I wrap up, I would like to address the competitive landscape. Net, net there has been no significant change since we reported in the June quarter. Our primary competition continues to be the [inertia] behind more traditional and more expensive ways of providing virtual access. Additionally, for quite sometime, we have competed with smaller ISVs that have developed point products in our space. We take and evaluate all competition seriously. We compete with them vigorously through superior products, partnerships, and solutions. Good competition helps to stimulate primary demand for virtual access in the Windows world, which is good for Citrix, because we have the largest share of this market. Our strategy and performance here has been very clear. We have established this market through innovative software and solid execution. From a competitive point of view, we are moving the ball once again to a higher, more compelling level for medium and large customers looking for a strategic vendor to help them build out their virtual workplace. In short, we feel well positioned to continue to drive this market along product, partnership, and services fronts. I think you can tell we are feeling pretty good about our strategy. Our solutions for virtual information access are really about the simplifying the last mile of computing; the part of the computing infrastructure that is the most expensive piece to build, to manage, and to own. It is also the place where IT services are fully binary. They either work or they do not. Many are trying to solve these last mile problems in band aid ways by segmenting user populations, redeveloping applications, and driving everything to a lowest common denominator architecture, all very expensive and time consuming solutions. They are struggling with security models, network bandwidth, new standards, new content management architectures, and a host of other implementation challenges. Our strategy is simple; to provide a suite of virtual access infrastructure software that create a layer of independence between the last mile and the data center. Our solutions help customers carry forward the applications and content in the data center today, while they take advantage of all the great things and webcentric.netstyle computing. It helps them get a hand along that last mile. Make it more flexible, leverage their IT investment, achieve predictable cost, and really make it a mission critical access point for IT services from everywhere. So, it was a solid quarter for results in a tough environment. Our Q3 performance represents the fifth successive quarter of revenue growth and strategic progress. We approach Q4 and 2002 cautiously confident. Now we will open it up for questions.

Thank you. At this time, if you would like to ask a question, please press * 1 on your touchtone phone. You will be announced by name and we are ready for your question. Once again, if you have a question, please press *1 on your touchtone phone. One moment, [Tom Anthony], you may ask your question and please state your company name.

Yes, Thomas Weisel Partners. Good afternoon. Mark, could you comment or delineate between a general availability and beta availability of the South Beach project in terms of when you expect that out?

Sure, Tom. At our conference we will be showing a tech preview with a more widely distributed technology preview in the first quarter, and the general availability, we are still targeting the first half of the year. I am not being any more specific than that.

Okay, great. Now that you have the product quite a way down the development here, which do you see as the largest opportunity that the current custom type install of XP'S product, or the packaged wire-ready product or on OEM channel. Which do you think is going to bring the most revenue into the Citrix?

The package product we will promote through an indirect worldwide channel, Tom, and let me tell you why. First of all, it will be a product that is positioned not as a knowledge management enterprise information portal, which is really the kiss of death for a lot of these types of products driving long, long sales cycles, very difficult to put an ROI around, and very difficult to justify. So positioning of our portal server will be best time to value around the delivering a structure to provide virtual access. It really extends all of our strength as a virtual access system provider. Right now, we do not have imminent plans to do a lot of OEM business with it and we are still selling the XP'S product, which really is not the way you think about the entire enterprise information portal space. It is not software to drive services, but we are a software company and what we want to do is drive package software on a volume basis.

Okay, great. Well, given that is the outlook still for contribution from the new products here, approximately 25 million or so for 2002.

Yeah, tom. We are not providing that granularity for the quarter, but we stand by what we said about portal space in terms of how it can contribute to our growth in the future.

Okay, one last question, and I will turn it over to others. John, I realize that you do not typically talk about what field inventory levels are etc., but given the change here in the accounting systems and the movement of DSOs, can you at least qualitatively talk about what has happened with field inventory? Thank you.

Well, sure Tom. I am sure that you realize that the inventory is the inventory in the channel and we do the same kind of channel checks you do to get the information on the inventory out there. But if you look at the inventory in the U.S. and [_____] on a quarter-to-quarter basis, it actually went down. We managed that inventory as we saw the run rates go down. So we took the inventory down according to our model. It did increase in Japan, as I mentioned, Japan had a very strong quarter and has strong outlook for the fourth quarter, so the inventory in Japan went up, but is definitely within the metrics that we have for managing inventory and if we take that on a worldwide basis, our inventory was up slightly, but all of the increases I mentioned I was in Japan. But it is well within the parameters of the days on hand that we want in the channel and quite frankly, it is below where we target ourselves.

All right Great, thank you.

Thank you, [Terry Finn], you may ask your question and please state your company name.

ING Capital Management. Mark, just going back to the some of the strengths that you have seen, where are you seeing it, if you can, John referred to some of the resurgence here, can you be a little bit more granular in that, in bigger accounts, smaller accounts, medium size accounts, any particular characteristic that you are seeing.

Yeah, [Terry]. It is really in the medium-to-large type accounts where frankly the systems are returning an ROI that actually moved the needle and mean something. We did in September see an immediate slowdown in the package ... the run rate of the package products, which tend to be for systems under 500 concurrent users. They were more heavily impacted in the quarter that we just closed. But, we are seeing early signs of recovery in the run rate and as we said in our comments, we are encouraged by that run rate return in the packaged products business.

I am sorry, I did get on a little bit late ... I do not know if you addressed it, but I will throw it out because obviously there was some controversy with regards to Microsoft ... so do you have any comments relating to competitor and Microsoft earlier in the call?

Yeah. There were some rumors circulating around yesterday and frankly, we have not been able to confirm anything. In fact, Microsoft had no announcements. We have talked to our contacts there. There is nothing to share there. We have not been able to confirm anything.

So, you have been in contact with Microsoft?

Sure, we talk to Microsoft people all the time as our No. 1 strategic partner, you know, we do pretty much everyday somewhere in the world.

Okay. [_____] with Microsoft for you to begin to get any kind of clarity if there is any?

Well, Terry you know obviously you are asking me some questions, which I cannot confirm the particulars of any discussions, but in terms of the rumors, there is nothing out there to confirm.

Thank you.

Thank you and the next question comes from [John Rezudo], please state your company name.

Hi, this is John from CSFB. I wanted to ask you a quick question. Can you just ... I did not get enough from the table in front of me gentlemen. What was the deferred revenue this quarter and what was it last quarter?

The deferred revenue this quarter increased ... I think the number was 6.7 million and the total balance in that account is about 70 million now, basically double of where we were a year ago and I think in the second quarter, I would have to look that up for you John, I think, it was somewhere around 8 million ... 7 or 8 million plus in that quarter, but I will double check that with you and if that is not right, I will get back to you.

Okay, great. Talking about the business and how you did ... can you talk about or have you seen any qualitative that has translated into quantitative effects where people are taking a higher interest in your products or any drivers after that whereas do we wait until delay becomes more important?

As I mentioned in my comments, sadly, the events did heighten interest as companies started to look much more seriously at telecommuting, remote access kinds of solutions as well as how they were handling their business continuity/disaster recovery types of systems and there is a lot more interest and our sales people have been responding to that. We did actually see one large scale deal actually driven by and accelerated as a result of the events of September 11.

Okay and I mean it stands to reason right because the whole notion of virtual access from a disaster recovery perspective allows you to move the data center to another location and have actually a hot back up. In fact, that is what we do here at Citrix because we are in hurricane alley here. We actually have a hot site in Salt Lake City. We have a long-haul ATM connection and the back end here is an EMC symmetric system on both ends. That is funded by a very robust mainframe application server environment and if we are ever hit here and have a temporary outage, we can move our data center to Utah without any of our users around the world doing anything different from an access perspective and obviously the opposite applies in remote computing as users can work from home just as well as they can work from their office here because they have exactly the same virtual work place here as they have at home in that case.

How many people would you say ... how many customers of yours are actually deploying or using Citrix to deploy a hot backup such as that you just described that you yourselves are using?

It is actually more than we realized in the New York metro area. I was up last week talking to the New York tech forum and I cannot tell you how many customers came up to me after my key note and told me how much they appreciated our products, how much impact and positive way they have had as they have had a lot of employees that have been concerned for security. We were not able to get to the office in Manhattan, but we were still able to work seriously.

A couple of numbers ... John, do you have the number of the percentage of revenues you derived from your existing customers this quarter and what type of penetration rates have you been seeing at your installed base?

I will get you that off line. I don't have that with me.

Okay thanks. And the guidance ... as such you gave some pretty bullish guidance with respect to the economy ... what is it that gives you the confidence in that number and particularly with, you know, going out to next year as you go through the product transition and your expected uptake on South Beach ... what type of early returns do you expect from that product?

John, let me take this first. First of all, I would like to correct you. We are not facing a product transition. We are introducing a new product that sold leverages; the current product suite as well as one that can stand alone as a solution as well. So, it is not a product transition and we are looking for the upside opportunity on this product and South Beach will be designed to hit the ground running with our channels and our markets in English markets first, and then later in the year, we will be able to introduce a follow on product that will address some of the language-driven market places. So, we are looking for ... a part of our bullishness is around having a new product. Another part is about having a great relevance in our current product suite with plans for enhancement and so forth next year and then of course, as we articulate a higher level message around virtual access creating a whole lot more wide space for us to talk with customers around, and really help them articulate an architecture and a suite of products to solve virtual access kinds of issues that they have. We feel good about how we are positioned.

John, this is John again, I think, you mentioned I am bullish on the economy ... I am not trying to be bullish, I am trying to be realistic on everything I read mainly from you folks and others as to where, you know, we think the GNP is going and where other statistics are going and then try to give you a feel of where we think the growth rate can be based upon those indications that we have, and we have at looked internal indications that we have is load inventive and other statistics that we have been looking at and I think that the 20% number that I mentioned is a slower growth than we have had this year and I think that is indifferent to what we think is going to be a much slower economy. So, if you read it bullish ... you did not understand my statement ... I did not mean to be bullish; I meant to be realistic as to what we think is achievable based upon what we know today.

Okay, great fair enough thank you.

Thank you. The next question comes from Robert Stemson please state your company name.

Yeah, hi [Bob Simpson] from Merrill Lynch. One question I had John. You actually talked about the quarter that it came in at a third to third to third. Normally, they come in 30:30:40 ... should we make the assumption that a lot of business was basically pushed out because of the September 11 event.

That is a good question, but it like me asking [_____] what would have happened ... and I honestly don't know, I mean, we did see a significant drop in the run rate ... we looked at it daily and you can see the big drop on September 12, and then it started to recover, but I cannot tell. It is great question, but I don't know the answer to it and I will just have to watch it happen as it unfolds here in the fourth quarter.

Okay and then maybe if I can followup. One of the programs that were in place that I heard from the channel was basically the silver, gold, and platinum players ... there were some pricing kick back that they were getting kind of a marketing discount to help launch the product ... that kind of rolled off I think in the September month. Is there any plan to may be reinstate or will that basically just not flow into margin?

Bob, there is no such program that we have standing channel programs that allow them to generate marketing dollars and when they achieved certain sales levels they do get product from us as a reward ... it is our volume bonus program as what it is called and we have had it since 1995. So, nothing new there.

As far as we know or I know, I am not aware of any kinds of ...

And by the way it is designed to very simply to provide them product in rewards for certain levels of achievement, so that they can actually take this as bottom line revenue in the following quarter, if you will.

Okay great, thank you.

Thank you. The next question comes from [Brant Williams] you may ask your question and please state your company name.

Okay, I am with McDonald Investments. Looking at other sort of growth drivers or issues that may come up over the next year ... I have been hearing some companies saying that they are looking at all those PCs bought in 1998 or 1999, pre Y2K starting to age and they are sort of applying that 3-year replacement cycle rule and sort of predicting a pent up demand wave... now these guys I have talked to are in the hard ware business and so they might be a little biased or may be a little hopeful, but it seems to me ... if this breakpoint were to exist they might actually create more of an opportunity for you since your cost device story is at least as good as theirs. Now, do you see any kind of wave building or do you see people just in sort of steady state replacement or just dribbling machines and ...

Honestly Brant, we don't really track sort of desktop buying patterns ... or the demand for our products and I think you have heard me say this before. Our channels and our sales people are all trained to help customers to think about their desktop migration strategies and to support those and not to prevent them. So, we really don't get too tied up into that whole process. Because remember we are run on anything that you put on the desktop and our focus in on an access kind of message and there are just certain kinds of applications and certain kinds of information that are better delivered from the server for reliability, scalability, security, flexibility to enable access from anywhere and those kinds of things, and we don't really fight the desktop deployments. In fact, statistics still show that around 70% or so of the devices connected to mainframe server is running on the windows operating system are windows machines. So, our outlook is actually to be able to support the windows XP desktop in some interesting new ways that you will see in the future. So, we look forward to a great windows XP desktop uptake when it is finally released in a couple of days.

Okay, but I was not really looking at, you know, replacing PCs for non-PC devices ... I was suggesting in terms of leaving, you know, the existing PCs in place rather than people being on a very fixed time table as they had been in the past and allowing to even get six months extra out of these machines. Particularly, it seems to me this might come up as you move into more productivity ad-based approach.

You know, I think that it is certainly one of the ... being able to meet or manage desktop migration in terms of timing, sequencing, how much, and how fast ... it is one of the features of what we do, one of the capabilities. But it is not the driver. It is not a driver to our business.

Okay that will be it for me, thanks.

We do have a question on the Internet ... afterwards we would like to take two or three more questions afterwards. This one comes from [Bruce Levoff] of [_____] and he is asking us to comment on the accounts receivables position in the DSL.

Bruce if I understand your question ... let me come at it this way. The accounts receivables balance at the end of September was approximately $79 million ... that is up a little over 20 million from where we were at the end of June quarter. You would normally expect to see an increase based upon the sales growth quarter to quarter of about $4-5 million. The balance which is say 17-18 million is really the result of the delayed invoicing that I mentioned in the beginning where we were not able to and the team was doing a great job getting up ASAP, but in any kind of system start up, there are always difficulties. The delayed billing did not get out for the August billing until September, so it was not due from the customers until, you know, the first or second week of October depending upon when we got the invoice out and that is really what affected the accounts receivables. Your question may be what has happened to [ageing] of the accounts receivable and actually the [ageing] of our accounts receivable is better now than it was back in June when I look at the [ageing] in receivables over due over 30 and over due over 60 because we do not start the [ageing] until the invoice is cut to the customer. So, the bulk of the increase in the AR is really the billing issue. The team has worked very hard all the way through August and September and as I mentioned in my prepared remarks, we are now back on to a normal invoicing cycle. I hope that answers your question.

Thank you. The next question comes from [Doug Whitman] and please state your company name.

Yes, Whitman Capital. If you could go back a little bit, kind of, Mark and elaborate on [moon] because this obviously has been around for quite a while and we talked about it three to four years ago and it has been pretty widely rumored that [Lehman] is trying to sell them ... have you guys looked at them and kind of also have you seen them with any customers ... or have you competed head to head with them ... this is my basic question.

Doug, yeah we have looked at this product and this company. They have been in around for quite a while and have reinvented themselves a couple of times and as I said in my prepared comments we take all competition very seriously, and we really feel good about our position vis a vis this kind of product from this kind of company given that we have a much, much broader feature set and really go beyond just their approach to a windows-only server and client, and we understand the demands of a large scale type of deployment ... what customers look for and in terms of product, services, and in terms of a company relationship. So, we are really feeling good about all that and beyond that I am not sure there is much more to say other than what I said in my prepared remarks.

Thanks for another great quarter.

Thanks Doug.

Thank you. The next question comes from [Christian Cook] you may ask your question and please state your company name.

Hi, [Trescoe] Capital. Mark why don't you drill down a little bit on the RDP standard versus the ICA protocol in terms of the pros and cons with [new moon] and then secondly I had a question on ... you described a pause after 09/11/01 in your package product revenue stream ... can you quantify that ... put some numbers behind the pause ... that would help thank you.

Let me first about the protocol and then I will let John talk about the pause because he is really the guy on top of the numbers there. You know basically the answer here is that the protocol is not what we sell ... it is not what Microsoft sells, it is not what we sell and the way we like to think about it is that the protocol is free and we use the protocol to deliver a higher set of capabilities and additional features, and our value add on the Microsoft platform. That is what we use the ICA protocol for. So, we do take advantage of some of its unique features and capabilities that we invented many years ago, one of which is being able to address a heterogeneous type of clients on the end point of the network. Others are some of the other architectural aspects of it that allows us to do certain things to accelerate and improve the user experience over the wire, but when you boil it all down, really what we focus on is on the value add on the server side to provide virtual access to windows desktops, windows applications, and a very scalable, very managed kind of way that ties in with the other kinds of systems that you find in larger scale customers with they are managing directories, where they are finding to integrate with management systems like [Tevolli, Unicenter etc] and that is really where our focus is and as I said in my comments, that will continue to be a great part of our business. What we are about is extending ourselves across a broader set of virtual access solutions one of which is mainframe by itself and the other one will be South Beach by itself and then obviously you can see how these two products fit together to make even a more robust solution. We will have some other things that come together and that is our space ... really the more sophisticated kind of systems that these kinds of middle market and large-scale customers look for. It is not unlike parallel to the backup software or management software that comes on the windows 2000 server, you know, it is really good stuff, it is better in this release of windows server than it was in the last, but when you need a strategic partner with a sophisticated approach across multiple platforms that are heterogenous ... that are scalable etc managed that is where you go to great companies like [Vertoss] for solutions and that is how we positioned ourselves in this market place. And frankly, it is the core of our ability to strategically partner with Microsoft to drive their revenue by pulling through their platform when we sell ours and by additionally staying strategically aligned with them because we are a great value adder on their platform today, and as we have said in the past and we reiterate it today, we have got a really good Dot.Net story and you are going to see that in the South Beach products base and you are going to see it through the Dot.Net certification of mainframes. So, that is the way we look at this and we have from day 1 said to the world including our own people and really those who work with the Microsoft organization, that we do not want to get into a protocol discussion because customers don't buy protocols. You all will probably remember the TCP/IP wars where a lot of guys felt they could sell TCP/IP stag and that did not last very long. It is not the stag, it is not the protocol, it is the feature that enables, and capabilities it enables to build products that will solve real customer problems.

Can you talk just about the performance aspect versus RDP and ICA?

ICA has always been developed with a thin wire, thin device kind of an approach, so that we could address the dial-up kind of connection and obviously our roots and legacy when I got here over six years ago, a 14.4 modem was the industry's standard and everyone was dreaming about 28.8, okay, so ICA was developed with that kind of model and wire kind of design center. As well on the device side, it was designed to really take up a very think kind of footprint on the device, so that it could fit into all kinds of devices ranging from obviously very powerful PCs, but also these very thin appliances that have very little computing horse power, very little ramp, and really have enough firm ware to drive the screen, keyboard, and a mouse. So, because we started there, we are able to leverage that. But that is again part of our value add so we do very well over wide area networks and the Internet especially where there is latency involved. We do very well over dial-up types of connections. We do very well when there is broader range of device types with ICA and that is the platform that allows us to be heterogenous on the end point, heterogenous on the network, and more and more heterogenous on the applications side and that is why we talk about this sort of any, any, any kind of story and we have talked about it for a long time.

Regarding the question on the run rate, as we go through the quarter John and his sales team in all the geographies tracked the run rate on a daily basis and we take a look at that to get a sense of the pattern and how it checks up against previous quarters so that we can get a good indication of where we are going in the quarter and when we look, we look at it on a daily basis and you can see, if you looked at our charts, one day we had September 11, the next day the run rate actually dropped in half in the US and dropped in half Europe and then gradually just started to recover. It basically stayed flat for a couple of days in that week and then started to gradually recover. But it was a precipitous drop and something that we have never seen before happen in the quarter and that is what we attribute the effects of 09/11/01, but as I mentioned we are starting to see that recover. We are not yet back up to normal rates, but we are getting back up there and we are starting to see an improvement in the run rate each day. But, there was a noticeable drop for the whole week that included 09/11/01.

We can take two more questions.

What is the amplitude of the recovery?

We are starting back up and not back up to where we would be, but you know we are seeing a day by day increase as people get back and get back to normal.

Okay, thank you.

Thank you. The next question comes from [Jerry McQuarmik] please ask your question and please state your company name.

Sure, [_____] and actually my question has been answered. Thank you.

Thank you. The next question is with [Chris Gaven] please state your company name.

Sure, J. P. Morgan. John, I am still trying to get to the bottom of ... related to AR ... I hate to be a dead horse here, but what caused this billing issue? It sounds like it happened in August and had an impact in July and August and can you explain?

Yeah, as you install SAP, we go through a process where the invoices we sent to the customers are generated through SAP and once the invoice comes out, we check the invoices and we were checking the invoices manually to make sure the system was working correctly, and in any new system that was starting up, we were finding that there was miscodes or various issues with the invoices, so we decided not to ship the invoices to the customers until we went through a quality check and make sure that all of the invoices were accurate before they got shipped to the customers. That caused a delay in a time that we shipped the invoice to the customers say two, three, or four days whatever it happens to be on that particular invoice, so the clock on that does not start until the customer gets the invoice, so we were going through that process of insuring that all the invoices were correct and accurate and that did delay the time that we shipped it out and therefore it moves the AR to the following month, for example, if we had shipped all the invoices of August 24th on August 31 the pendulum would have been in to us on September 31th. We did not get that invoice out until say the 4th or 5th of September, so the customer does not owe us the money until 4th or 5th of October so it hangs up in that short period of time in the AR account at the end of September. What I talked to you before about the increase in the AR, you know, going into October, most of that has come in now as we said AR has come in as cash payments and the AR account is down and we did process the AR normally the invoices normally of the September billing, and there is no movement on the [ageing]. The [ageing] is the same.

So, AR as it stands now would be substantially down from ...

Yeah, we received, I know Dave told me the other day ... like it is probably somewhere around $10-12 million or $15 million has come in the first week, but it was due. The customers pay within 30 days. It is just a matter of us getting the invoice to them so that the clock can start to tick.

And would you anticipate that the AR number in aggregate would be down in the December quarter?

Yes, I would.

Okay.

One another thing that I would point though is that we have been installing SAP in the overseas environment in the first of the year, so although the US now [Jean Merino] and her team have got that thing working on SAP so there is no real issues in the US, but we have learnt our lesson and we have to install SAP overseas in January. So, there is no real issue within the US. We have learnt a lot of lessons, but we are going to have to install SAP overseas in January, but I would definitely expect AR to come down to normal levels in December.

And thinking about the 2002 guidance, can you talk about targeting revenue growth in the low 20% range, I guess, that is taking into consideration the cessation of the Microsoft revenue beginning in the second quarter ... so [_____]

Well, the number I gave you when I quoted the revenue growth was an all end number, which would reflect the expiration of the Microsoft agreement in May 2002.

Okay, may be I did not catch it, but did you also run through comps in your operating margin assumptions as well ... do you expect operating margins to actually expand in the 2002 time frame?

Well, as I mentioned, we are going to be investing where we think it is appropriate and we are going to run our businesses we have ... this year than last, so we will run balanced and we will balance our expenses to our revenue growth, but I would say right now, I would not expect margins to improve, but I would balance this, I would want to make investments in such areas as some of the overseas areas, in Asia, some governments, some educational areas where we feel that if we make the appropriate investment in people and some support, we can gather some additional revenue growth in the back half of 2002 in to 2003. So, I would look for a balanced year and not for an improvement in margin.

So, should I read into that comment as flat or as you start to spend more time, kind of, building a presence in the portal market that operating margins might affect a decline modestly in 2002?

Our objective is to maintain the margins flat and the philosophy we have is we grow in a balanced way. I mean if we see investments that will be significantly one offs, we would be sure to tell you about it, but than that we are going to run the plan on a balanced basis and run as we have this year and run our expenses and revenue on a balanced way.

Okay and thank you.

Operator, the last question please?

The next question comes from [John Bruselli] please state your company name.

AG Edwards. Congrats on a good quarter guys. I will do two ... one should be fairly quick. Mark, last quarter you gave a little bit of guidance on lines of more deals over 3000 seats that quarter than ever before ... I am wondering what the similar matrix was this quarter and a little bit more detail ... in May 2000 you got a press release talking about the 6 million cumulative concurrent user license ... I thought you are doing about a million concurrent users a quarter now and I am wondering if you would be willing to update that milestone number?

John thanks for your comments. First of all, we will update it, but not today and secondly the shape of the deal sizes in the 3000 and over category will be very similar to last quarter.

That's why everything that happened would indicate that was a number ... I just wanted to check.

Yeah, it was very, very similar to it, which again was different from what we have seen in the first half of the year with the skewing more towards obviously the larger-end deals so it is thicker to the larger deal size. I did talk about the three largest in the 6000 concurrent user range and then the one in the third that was 3500, but we had a number of others in the 3000-4000 range in there, so the shape of the E-licensing business was really good. In spite of what happened in September ... it is one of the things that John ... he talked about the packaged kind of flow and run rate in the quarter, but we saw almost of the deals that we tracked with our CRM system was expected to close in this E-licensing area.

Good deal and a good quarter and see you in a couple of weeks.

Thanks John.

So, lets just go ahead and wrap up. I appreciate all of you joining us on the call today. We feel we have done well on delivering on expectations and the business continues to be managed very well. Thanks again for the confidence you are showing in us as we continue to build Citrix as a worldwide and world-class infrastructure Software Company. Enjoy your evening.