思杰系統 (CTXS) 2002 Q1 法說會逐字稿

This is an unedited realtime transcript. An edited version with proper case and full speaker names will be available shortly.

Good afternoon, my name is crystal. I will be your conference facilitator today. At this time, I would like to welcome everyone to the citrix systems incorporated 1st quarter earnings conference call. All lines are placed mute to prevent background noise. Mr. Jeff lilly will begin today's conference. Sir?

Thank you, crystal. Good afternoon and thank you, everyone, for joining us for our 1st quarter, 2002 conference call. Participating today are mark templeton, our president and ceo and john cunningham, our chief financial officer and over vice president of finance and operations. I would like to remind you that the call is being webcast with a slide presentation at our website, www.Citrix.Com/investors. The slides will be posted to our website after the call is completed. A replay will be available through friday, may 3rd. Certain comments made during the call may be forward-looking statements under the private security litigations reform act of 1995. The statements involve a number of factors that could cause actual results to differ materially, including risks associated with the company's business, including the risks and uncertainties with the company's products, distribution, economic and competitive factors and key strategic relationships. Additional information is highlighted in the slide presentation, the earnings press release and the filings with the sec. Copies of the company's sec frilgs available from the sec for the company's investor relations website. Now I'd like turn it over to mark templeton, president and ceo of citrix systems.

Thanks, jeff. Two weeks ago we talked about our q1 challenges and preliminary results. As you can see in our release, revenue was $142 million, up 7% over q1 last year and down sequentially 10% from q4. Adjusted eps was 16 cents, compared to 17 cents for q1 and 21 cents for q4. So, the quarter was very much in line with the discussion from our preliminary results announced on april theth and shows the raem impact that the ongoing it spending environment is having with the business. During q1, total license sales to end users were up slightly, proxl 2% when compared to q1 of last year, but were sequentially down approximately 13% from q4. The primary weakness was in our packaged products. During the last two weeks we've conducted a u.S. Channel survey and analyzed our storms under stand the underlying trends in our packaged products. The data leads us to one conclusion, that the softness was primarily attributable to the overall state of it spending. Specifically we didn't find any unusual impact from competition, the windows platform itself or other application architectures. This is what we've seen and expect to see over the next few quarters within the package product business. This environment calls for a balanced approach between expense management and investing for fpbd market leadership. So, we're going to focus on driving discretionary expenses down while staying the course and vestening our growth strategy. In this quarter alone, we have two key product introductions, the ramp-up of our very important customer care initiative and the roll-out of the global 2000 program to our channel partners. At the checkpoint, last week we discussed the plans with our customer advisory board, an insightful group of high-level executives from tyco, american express, united products and air, among others. They reviewed our plans to quarterback our partners on larger deals, to add more products to our virtual workplace suite toond better manage the customer experience with citrix. Their input helped to guide us and strongly supports what we're doing, from a product road map and a customer satisfaction perspective. As we move through q2, we're managing discretionary spending, but at same time we're investing in concert with the enormous opportunity we have as market leader. Given this expense management approach approach and the possibility of sew more quarters of weak it spendk, here's what we see for guidance. Our 1st half revenues will be about flat compared to 2001. We see the second half roughly flat compared to the second half of last year. This translates into our expectation for full-year revenues toe to be in the range of 585 to $610 million. For q2, we expect a down quarter from q1 as a result of $6 million less in microsoft revenue, coupled with the overall market uncertainty I've mentioned. Our revenue expectations are in the range of 130 to $140 million for the 2nd quarter. John will provide more detailed guidance, including operating margin and eps in a moment. Within all of this, it is really important to remember that we continue to be the market leader in our sector. Despite the it spending climate that we're in. As I've said before, leaders don't wait, they lead. That's what we're doing. In march, we launched the citrix solutions framework program to over 1400 enthusiastic channel partners. Earlier this month, we introduced the 2000 program to help accelerate our launch into large accounts. Today we rpmed an exciting new feature release for metaframe xt. And next month we will reduce the project formerly known at south beach. This is the world's first access portal server. We're not standing still and we're not waiting, either. Many of you attended our first analyst day in march and saw evidence of all of this firsthand. We're focused one thing, to establish ourselves at the forefront of business access infrastructure. I will talk more about this later. Now john will cover the financials for the quarter and give a more detailed outlook. John?

Thank you, mark. Good afternoon, everyone. I will discuss our key performance indicators for the quarter and give you specific details on our income statement, our balance sheet and our cash flow statement. I will also provide some more detail regarding our business outlook that mark has highlighted. All the numbers are adjusted to exclude the effects of the amortization of intangible assets. Please refer to the earnings release and the accompanying financials for more information about these adjustments. All of my comparisons refer back to q1 of '01. Total revenue this quarter was $122.3 million, up 7%. This was below our expectation, due to the softness experienced in our packaged product business. It was partially on offset by increased e-licensing and by the subscription program. Licensing amounted to 30% of product revenue, up from 19% in q1 of ''01. As we were continuing to focus on penetrating deeper into our enterprised customers. This strength demonstrates that during the march quarter, our continuing investment and our enterprise relationship manager program, which now numbers over oil, is paying off. From our product perspective, 85.6% of our revenue came from licenses. 7.5% from services, 6.9% on royalties, all of which were similar to last year and to last quarter. Geographically, our international revenue was 48% of our business and the u.S. Accounted forte%. Again, similar to the same period last year. I'd like remind you that with the $10 million microsoft royalty is attributable too the u.S. Geography. Approaching the end of this revenue amortization, our international revenue will make up a larger portion of our revenue mix. More specifically, by region, the americas revenue, including canada and latin america, was $79.9 million, or 56%. The revenue was $51 million or 36%. And asia pacific revenue was $11.6 million or 8 -- approximately 8% of our mix. Gross margin for the quarter was 96.7%. The implemenation of our new erp system enabled us to identify and allocate some consulting expenses from cost of goods to operating expense, more specifically, to sales, services and marketing. This reclassification amounted to $1.5 million in the quarter. Going forward, our gross margins will reflect this change and are expected to be in the range of 96 to 96.5%. Our total operating expense, excluding amortization of intangibles, were $103.3 million in the quarter. Research and development expenses were $18.8 million or 13% of our revenue. Sales marketing and support which now includes the cost of reallocation from cogs, was $61.2 million or 42% of revenue. Our gna expenses were $23.2 million or 16% of revenue. Our operating margins for the 1st quarter were 24%. This is inclusive of approximately $3 million, primarily attributable to the relocation of our salt lake city development team that mark discussed on the prior call. Our overall head count was 1887, which is essentially flat to where we ended the 4th quarter. Our other income was $2.8 million, which is reflective of the current interest rate environment. Our tax rate for the quarter was 21%, an improvement of four points from last quarter. This change is driven by the expected four-year reduction of income on the microsoft royalty and the increasing mix of our international profits. This tax rate reflects our expectations for the full year. Adjusted net income was $29.3 million or 16 cents per share, compared to 17 cents in the same period of last year. This calculation is based a weighted average shares outstanding of 187.5 million shares. Looking at our balance sheet, total cash and investments amounted to $701 million at the end of the quarter. This cash balance reflects $27.9 million and cash flow in operations. $19 million expenditures for capital and $57.7 million in stock and convertibles repurchased. For a net reduction in our cash and investment balance of $46 million from q4 of '01. The receivable balance was $79.5 million, which yielded the dsos of 50 days versus 37 days in the previous quarter. The increase -- this increase to the dsos was driven by the linearitiy of the quarter, specifically in the e-licensing transactions, which closed in the last month of the quarter. Our defered revenue from product and service increased sequentially by $8 million. And now amounts to approximately $80 million. This is a 51% increase over the same period of last year and is due to the success of our subscription advantage program. Our total defered revenue amounted to $84.2 million, an increase of $2 million from december 31st, due to the so million royalty and microsoft recognition in the quarter. During the quarter, we repurchased approximately 3.5 million shares of stock at an average price of $19.47. Additionally, we spent $35 million for the repurchase of outstanding did I ventures. As many of you know, there have been accounting rule changes for the amortization of intangible assets as related to fas 141 and 142. Going forward, goodwill won't be amortized, but will be assessed for impairment. We didn't record impairment upon the adoption of the rule. The amortization of intangibles for the march quarter was 3.3 million. We expect amortization expense of approximately 2.5 to $3 million for each of the remaining quarters this year. The decrease between q1 and the ongoing quarters is attributable to certain core technologies, who's advertised life matured during the 1st quarter of '02. Looking forward, I'd like expand a little more on the guidance that mark mentioned at the beginning of the call. In the 2nd quarter, as pa wa mentioned, we expect revenue in the range of 130 to $140 million, down from the $142 million that we reported in the 1st quarter. This reflects the following three elements. A $6 million reduction in the microsoft royalty amortization, improved activity in our e-licensing, which is offset by ongoing weakness which mark will talk more about in our packaged product business, which may result in an adjustment to channel inventory, which were, for the most part, flat compared to the previous quarter. As you would expect, we will prud yebtly manage our spending and head count growth, but will continue to invest in core components of our business. And they include a product launch and ongoing support activities, surrounding -- [ innaudible ] -- and the metaframe sp future release 2. We will continue to insflest our enterprise programs, including enterprise relationship managers and generation activities. This will result in operating margins in the mid- to upper teens in the 2nd quarter. More than previously expected. Eps was expected to range between 11 and 13 cents in the 3rd quarter -- in the 2nd quarter. For the full year, as mark mentioned, we expect revenue in the range of 585 to $610 million. Reflecting our view of the overall state of i.T. Spending. Operating margins for the full year are expected to range between 23 and 25%. Eps is expected range between 63 and 68 cents for the year. Based all the information that we have, this is our current expectation but it may vary depending on the overall external environment. With that being said, I want to make a few comments, some of which mark will extend on in his closing remarks. We will continue to invest in a few key areas, which i believe will benefit us in the future. And these will include ramping up our enterprise relationship management team. We now have over 80 on board, which is up from approximately 3040 at the end of '01. We have seen the performance of this initial group and remain optimistic about the program and continue to be encouraged by the contribution they are making. Second, we will continue to build a channel for our upcoming launch. We are all on track for the launch in the latter part of this quarter as we are on target with our fast track 500 program. And mark, I will expand on that in a little more detail. We will continue to expand our geographic reach and we believe that these investments will pay off over time as we have demonstrated in japan and in other parts of the pacific region. And by our efforts in latin america and south america. In closing, we are still cautious about the economic environment, which continues to be rough, but we are staying across with our strategy and investments. Thank you for your time and now I'd like to turn it back over to mark.

Okay, thanks, john. Next I'd like to talk about our progress in e-licensing and customer wins in the quarter. Then I will finish with a few thoughts about where we will continue to invest in the business and why. As john mentioned, our e-licensing business was flat sequentially in spite of the normal seasonality trends of larger deals. This is a positive. And about 65% over q1 of last year. In q1, every geographic region posted good e-license results. With any licensing, the mix between both corporate and enterprise license programs remains consistent from previous quarters, slid about 50/50. Initially, e-license orders, a bell weather for reorders in the future, were almost 2/3 of the mix in q1, up sharply over q4. This is a positive indicator because it is much easier for these customers to place follow-on orders without an additional sales cycle. Let's now shift to a couple of the customer wins we saw in the quarter. The largest win in q1 was if w her majesty's national probation service in the united kingdom. This deal was for a migration of 12,000 concurrent users from win frame to metaframe xp enterprise server. The system will help a group of probation officers keep track of parolees using an in-house case management system built on lotus notes. We're particularly pleased to see customers like this migrating to our newest, most advanced application server. We also had a great win with germany for 10,000 concurrent users during the quarter. This deal was for metaframe xp enterprise server and helped them move from a vine environment to a modern microsoft network environment supporting over 200 different applications. Next, a few initiatives that will help us perform as best we can despite the current market and more importantly, position us for more spending. Customer experience was essential in all the wins i mentioned. Each deal had a partner for licensing, a partner for integration and a partner for consulting. With a citrix enterprise relationship manager calling the plays. Over the last three months, we doubled the number of erms on board to over oil. In q1, new erms produced half of our named account revenue, so we're ramping them up very well. The investment we made in erms is creating a win/win for customers and our channel partners why an erm talks to a customer they're looking for an opportunity for our products to be designed in. The citrix solutions framework introduce made march is designed to do this and drive us into larger i.T. Infrastructure projects this positions citrix and our partners to better meet the needs of companies that have challenges with user mobility, branch office expansion and at any time systems. This helps customers expand the use of metaframe like leveraging more than one tool on a swiss army knife. It helps us rehire in the i.T. Organization with a larger scale value organization. Erms and solutions don't just happen. They require better-structured channel partnerships. So we've introduced the global 2000 program. Our first customer experience program designed to reward channel partners for consulting and selling into project architectures in larger markets. This is open no to any channel partner that meets our rigorous standards for selling, servicing and supporting this type of sales process. The partners increased their profit when they identify large accounts and projects, again gauge we did our erms and deliver a value-added evaluation and consulting services. Without respect to where the customer ultimately purchases product licenses. We believe the innovative program will proactively accelerate the large scale opportunities that will enable our most capable partners to grow and work with new system integrators. Our software is the foundation of our quarter-backing solutions and partnership initiatives. Earlier today, we our tm's golden code for the future release of metaframe xp. This will be provided at no additional charge to our subscription advantage customers. It has the secure gateway feature that allows you to use the internet to access any metaframe application without installing any client side software, completely secure over ssl from any browser. So now you can take your virtual workplace to an airport kiosk, internet cafe or your neighbor's home, completely, securely. Another great feature is add pop document sharing, allowing for the first time any group of metaframe users to work simultaneously on the same information, using any combination of networks and devices. So, we're really excited about the imminent launch of our first web-based product, the access portal. In march, we released the technology preview of the product right on schedule and will make these astribl customers later in the quarter. The lead is really the first web-based portal that could be implemented without a large scale consulting project. In fact, over and over we've demonstrated the capability to go from zero to a useful access solution in minutes. Hundreds of times faster and at lower cost than any portal server on the market today. Our first focus will be on existing metaframe customers, to really enhance their mobile commuting, remote office and other capabilities. We have about 500 channel partners to help us launch the product through our fast track 500 program. And partner training programs are under way. Early customer evaluations and pilots are already going forward. We're really getting ready to hit the ground running when this is available later this quarter. So, we're on track with this to release this on time, to a train channel and to begin to establish market share. This will give us another piece of the access infrastructure that customers will come to really rely on and give us more opportunity for cross-selling, upgrading, partnering and decisional products. So, new people, new programs, new products. Customer and market leadership. These are the critical areas where we have to continue to invest. Even with all these positives, we are not underestimating the management challenge facing us. The challenge is navigating through the most treacherous i.T. Market we've ever seen. We're making investments in the business, but prudently. We're taking the long view, focused on growth, while managing the bottom line appropriately. Overall, we're quite confident, confident in how we're managing in a very challenging environment. Confident in the direction we're going and confident we will be well-positioned to take advantage of our markets as the climate around them improves. So now we'd like to open it up to questions. Crystal?

In order to ask a question, please press star, then the number one on your telephone keypad at this time. To withdrawl your question, press the pound key. If you're on a speaker phone, pick up your handset before presenting your question. Please hold while we compile the q&a roster. Your first question comes from tom ernst of thomas weisel partners.

Good afternoon and thank you. Could you give us any feedback you're getting on the bundling of the subscription advantage and with the product? Are you seeing a pushback from customers or getting broad acceptance?

Tom, in recent quarters, actually over the last probably eight quarters we've seen the natural atax rate of subscription advantage climb from in the 40% area to now over 80% on a very natural basis. And so in our shrink wrap product. And our e-licensing is part of every e-license agreement. It is just a fraction of our business in recent quarters that is not buying into subscription advantage. So, we haven't seen any pushback at all and I think that the -- the feature releases, like we talked about just now, really establish the kind of value that customers get when they sign up four subscription advantage. We've been cranking these feature releases out in six to nine month time frames. The last time we talked about a feature release fr-1, it was in the september of last year. So, there's great value there. Now, you're going to mandate across the package product, as well, that subscription advantage is part of the sale in the go-forward; that right?

That's correct. And I will remind you, with infrastructure-like products, like metaframe xp, this is really not an issue because these kinds of systems are used for line of business and really core infrastructure solutions and so customers want to make sure that they're supported in terms of product features and upsdaits and upgrades as well azteckically right on through.

Okay, great. Looking internationally, can you breakdown where you saw signs of strength and weakness in the sales funnel by -- by specific countries or areas? Yeah, actually when we -- when we looked across the world, I think a made a comment about e-licensing in the area and our package product very similar, we saw the strengths and the weaknesses that we talked about across every geography, very consistently in the quarter. Mark, I meant specifically, or across the whole business, have you seen particular areas in europe, for example, stronger or weaker relative to the others?

No, even at that grandular level. I think, in fact, one of our analysis analysts looked alt each and drilled on the package product, the e-licensing and the services. They're all approximately, you know, the same, the vectors were very similar across all pieces of the business between the go and the product area.

One more question and i will turn it over. Any thoughts on where you might price the new product?

Thanks, tom. Yeah, we -- we're vectoring in on a decision as I think we mentioned on analyst day. We typically don't make final pricing decisions until two weeks out from launch. We've gotten vectored on that now and will announce it when we launch the project. I hope you and everyone else on the phone will join us at our launch event, which will be in new york city. And more about that coming.

Your next question is from michael cristinziano from gerard klauer and mattison company.

Thank you. A couple of questions on the e-licensing that went on during the quarter. First, how many ela deals were there?

Mike, we don't -- we don't give metrics on transaction rates, we've never actually done that.

You don't want to start now?

Now is not a good time to get into new metrics. I think the thing here, the vector -- I think you can figure this out, okay, but in q4 to q1, in dollars, our e-license revenue was pretty much flat from q4 to q1. The mix between corporate and e-license was about 50/50 and that's been consistent for probably about eight quarters now. So, I think that gives you a sense for if you're looking, was there change inside of e-licensing, mix-wise from one type of license, just reminding everyone, a corporate license is for a 500 concurrent user system up to 5,000 and an enterprise license is from 5,000 and above.

Let me try it at a slightly different angle. What was the average deal size on an ela?

Again, deal sizes and transaction rates are not metrics that we share, but I'd say -- I'd say this, that transaction rates for e-licenses were pretty -- up slightly from q4 to q1 and the transactions values were pretty much flat to maybe very slightly down.

Okay. And if you look at the -- the growth in the -- the enterprise relationship managers, you grew them quite significantly in the 1st quarter. Where -- where does it max out? How many quarter backs do you need?

Well, the way I'd answer that is this. I think we've talked about this before. We actually have this erm program in europe for some time. And then pilotted it in the u.S. In north american marketplace and now we're in step and repeat, rolling it out. I think that the 88 worldwide that we talked about during financial analyst day is the current target, we're sticking with that target and that doesn't mean we couldn't use more. That's the level of investment that we think we can make at one given time and what we can swallow at one time from an expense, you know, an internal training systems, all those kinds of things perspective. And based upon what we've seen and both john and I talked about what we've seen, early results from the new erms, which is quite good, we will be able to turn that into a little more definitive model and in -- if we get some pickup in the back half of the year, in the overall environment, we might be able to get some more on, but we definitely could use more and probably, was I say, a lot more.

Okay. And -- and for what it's worth, I'm glad you've decided to continue to invest in the business.

Thanks. These are hard times and hard decisions to make and we're -- we're playing along for the long view here and we think it's the wise thing to do, even though it's a hard thing to do.

Your next question is from don young with ubs warburg.

This is jerry talking for don. Regarding the packaged product inventory reduction, do you guys have a magnitude and a timing on that? And, you know, how it will affect you?

I will let john take this.

That.

This is john. Let me say that the inventory we have out there is not our inventory. It is our estimated inventory that is in the -- in the field.

Right.

When we look at the inventory as we came in to q1 and we talked, inventory was at an appropriate level both in terms of dollars and in terms of days on hand in the channel. When we exited the 1st quarter and we look at the current run rate of packaged product, all right, if we get to the high range that mark mentioned, 140, we will have an adequate amount of inventory in the channel and will not have to take any kind a reduction based upon the product run rate. If, in fact, the market tons deteriorate, then we will have to, as we have done in the past' just the inventory. So, I can't give you a number about how much inventory we will take out. It depends on what happens to the packaged product. In any event, in the 2nd quarter, and it would not be, you know, wouldn't be a large number based upon our current view of packaged product run rate.

All right, thanks.

Your next question is from john rizzuto with csfb.

Hi. I'm trying to figure out, what is it here, if you can, as much grandularity, that you're expected from n-fuse in the second half of the year, versus your core business? Are you -- just trying to get a feel for that.

So, john, I think we're going to stay consistent on this. You know, we're not breaking it out at this point and -- and we won't see any in q2. In fact, even though we will shift the product, we will certainly be conservative on red wreck, et cetera there. And we will see the ramp in the second half. And we've always maintained that we'd break it out when it was material. So, no change there. And I think from the comments -- we expect it will be less than 5% for the year at this point. But I think on the other side, see that we're -- as we get closer to introducing the product, it is in the hands of more and more products and more and more customers and we're seeing more and more confident in this product, but, you know, just reminding everyone that we still have the same i.T. Spending environment to deal with here, even though it's a very exciting and new product. But we're just trying to be pretty conservative about what our expectations are and in an external sense and obviously, internal, there's a lot of enthusiasm and a lot of big plans and big objectives on the inside here.

Now, did you say you actually have some of these deployed right now to customers in a beta-type basis?

Yes -- well, when you added beta, yes, we have -- we have early evaluations and pilots. So, an evaluation is when someone installs. They're kicking the tires and trying different things out, but don't try to load it up between other users. We have other things going on now off the technology preview more than anything. And we have a few that moved into the pilot phase, actually trying it with groups of users. We expect when we actually announce the project later this quarter that we'll be able to show you some real live customers doing real live things. So, so that's part of our -- our confidence, where our confidence is coming from in the product as we move through the quarter.

Okay. You talked about, you know, primarily when you saw the weakness, you -- I remember on your, I guess it was the 1st quarter call, one of the things you eluded to, when there is less people out there, as far as holding jobs, it means there is less to sell into. Have you seen any sort of stablezation, any correlation to an employment rate that would kind of give us an indication that maybe the inventory or excess licenses that are out there is starting to stablize?

You know, we've heard that theory and we've done our best, it's very difficult to test, as you know, but we continue to believe that that is not an impact point for a couple of reasons. The first and foremost reason is that our desktop penetration rate on a worldwide basis is still at 6%. And, by the way, that calculation is based on half of the, in fact, the actual desktops installed in enterprises. So, it is actually smaller -- it is a smaller fraction than 6%, you cut it in half if you want to think about it that way. And we just don't see this kind of, you know, the layoffs and the kinds of things that you're talking about impacting our licensing in any material way.

Okay. All right, thanks a lot.

Your next question is from christopher galvin with j.P. Morgan.

Hi, thanka lot. Guys, can you talk a little bit more about the guidance you gave? In the june quarter it seems like the guidance is reasonably consistent with the tough times and sequentially down doesn't seem all that surprising under the circumstances. The challenge I have is working back from your full year numbers and trying to make the second half make sense because it looks like it is a -- if we work back from the full year number, it is a dramatic acceleration in q3 and q4.

Yeah, chris, so, the second half of the year has some -- some -- some different factors that are under our control going -- going on. And, of course, we still have the potential for similar economic kind of environment, i.T. Spending environment. The two key things that are under our control in the second half that we believe will have more and more impact, would be the combination of infuselite and our erm/account penetration programs. These are things that we can actually pull the levers on and it gives us some confidence in our ability to impact our revenue a positive way in the second half of the year. Our expectations are really around a shrink wrap software business that may run pretty flat for the balance of the year. And then, obviously on the other side of the ledger would be something that's much more prickable and that I think we have much more tactical feel for and visibility on. And that's the e-licensing business, which we always maintained we're trying to drive the business around larger deals, account penetration, e-licensing is a key part of doing that, and that we would exit the year somewhere in the 40 to 50% of product mix area. We also think that the subscription business will continue to ramp now given the kinds of internal systems we've put in place, to streamline this whole process for customers, take a lot of the complexity out, that's part of our customer care program, by the way. And that turns real, real dollars. Then, as I said, the last piece is infusealite, where, you know, we have tempered expectations, but think, you know, there is some upside there.

Was I was working through the math in the second half it looks like infusealite would have to be a significant contributor to q3 and q4. Is there a zone you can help us out with w in understanding the potential contribution in the second half?

Yes, we want to stay away from -- from the mix issues now, chris, consistent with was I told john in terms of not breaking infusealite out right now.

Okay, thank you.

Your next question is from brent williams from mcdonald investments.

Okay. Just a couple of housekeeping things, on the enterprise relationship managers, the guys that you've cranked up heavily here in the last little while, what's the length of time to get them productive, you know, is it kind of the curve about a standard software sales rep, or are you pulling them out of other departments in the company? How do you look at that? These are all outside hires, brent, number one, number two, they come out with a background in this kind of sales process so that we're not training them from scratch. Number three, our experience right now is a four to six-month ramp time to be able to get to this sort of 75% effectiveness zone. And we were actually pleasantly surprised by the performance of these new people in the 1st quarter, contributing, as I mentioned, half of the named account revenue. So, I know it's not something a metric you can tie back to, but it is a strong indicator in the quarter.

Okay. Now, bouncing back, I want to be sure I heard something right, I'm not sure I got it light. Talking about e-licensing and how the corporate and the regular e-licensing deals are about 50/50. Then you said something, 2/3 of the mix, I couldn't figure out whether it was either new customers signing deals or existing customers, leading to reduce sales cycle?

We don't -- so, we don't track this on the basis of a new customer.

Right.

But the kind of customer presence we have with over 120,000 world wide, we don't look at it that way. We look at a e-license against an initial order of an e-license. So, in q1 we saw a very nice increase in initial e-licenses up to 2/3 of the e-licenses that were sold were actually initial e-licenses. And the backside of the statement is we have a very nice reorder of business that is fueled by initial orders. So, when you see growth in initial orders, it's -- it usually is a bell whether for a future reorder business, that is a lot easier in terms of sales cycles, et cetera, lower costs, sales costs for the channels, erms, et cetera. So, that's why I mentioned it in that way.

Okay. Apologies from my confusion on that.

No problem.

My typing skills as I age are going on the cunningham trajectory there!

No problem.

And then let's see, you meptioned you were going to launch new geographies here. Do you have insight on that?

Yeah, what john was referring to, we have launched new geographies. It's not a -- it's not something in the future. So, we -- this year we've launched major programs in terms of opening geographies in northern asia, latin america has gotten a lot more attention and eastern europe in the middle east has gotten a lot more attention from us in investment. So, those are the three that we've been focused.

Okay, that's from me right now. Thanks.

Your next question is from sarah mattson from rbc capital markets.

Hi, thank you very much. You seem to be focusing more on the enterprise are e-licensing, what's going on in the lower end of the market? What's impacting demand on that part? And any change on the competitive front? Sarah, on the low end of the market, if I peel back the packaged product a little bit for you, we do track it in the u.S. Pretty closely in the following way. We actually work with our partners to identify shrink wrap business that's at a $20,000 hurdle level and above and then there is sort of all other. And unfortunately, the all other in this area is the bigger piece of the two. The all other is the typical run rate where resellers sell one, two, three servers to customers. Who are the customers? They've really fallen into two categories. First, it's the small customer that is implementing a small system by definition. The second type of customer is what we call a first adopter. So, a first adopter is a customer that's putting their first servers on-line where they buy a few to solve a very specific application delivery program. So, it's these oncey, twoesy sorts of customers in both those forms that are impacting the shrink wrap, the packaged product business for the most part. Inside that, why? It's our belief that two things are happening. The smaller customer does not have the financial wear with all to ride out an extended economic environment and is very conservative on cash. So, they move out and delay these kinds of things because they're discretionary. Secondly, in a larger account, that's -- that may be is working a first adoption,, this is actually typically a smaller sthaim may or may not be moving the needle in terms of cost reduction projects. And so, it, too, is somewhat discretion ray and easy to move out and delay. All of the research we've done comes back with the word delay, move out and -- and due to budget restrictions. And so, this business is not gob, but in the bottom end, we think it is delayed and just don't know how long it will be delayed.

But based on your guidance, you say it could last into the june period, if not longer?

That's correct. Then, I'm sorry, your second--

I had a related question on the competitive front?

Yeah, we didn't see any change on the competitive front at all. The way we actually track that is we use our crm system and we look at win/loss analysis on a quarterly basis and that win loss analysis has been extremely consistent in total dars within the system and in the categories within the total dollars. And competitive is one -- is one of the smallest within that -- within that area. It's very, very small. The larger reasons that come up are budget, okay? And alternative ways of solving the problem and typically the majority of that is putting a -- a fat client on a desktop.

And on the smaller size deals or smaller implemenations, are you seeing customers because of cost start to look at using microsoft terminal services? Is that one of the alternative scenarios?

The data didn't uncover any of that in our channel survey we asked the question and did not get any indication that's the issue. At the bottom end, it seems to be across the board, just a budget and discretionary spending issue. And one final question, on the dso front, can you give us an idea of where you expect the number to stablize,?

Yeah, sarah, this is john. As I said many times, I've expect that he did the dso secretary of state would migrate into the 40s or low 50s. That's where we'll be going forward. If you look at other people, companies that are more electronic, then they're really up in the 70s. When you look at their dsos. Packaged products gives us more of a leveled quarter on dsos. I expect dsoes to remain at this level. We have to look at the quality of the a.R. And quality of our a.R. Is getting better when you look at it in terms of days and not in terms days, but in terms of aging.

Okay. Did you -- I'm sorry, did you give us the sense of what the aging is looking like at the current moment?

Actually, our aging is better than it was at the end of the year. It's closer in.

Okay.

Your next question comes from brendan barnicle from pacific crest investments securities.

Thank you. I wanted to follow-up on the inventory change question, when you're doing your channel survey, did you get a sense of the change to inventory levels from the channel during the quarter?

No, I'm not sure i understand the question, but if I look at inventory in terms of dollars, around the world they were essentially flat from the end of the year to the 1st quarter there. Was a mix by geography. The u.S. Inventory was actually down and the international inventory, you know, because of its performance, was slightly up, but, you know, we didn't see any indication from the channels, you know, regarding the inventory.

Okay, great. And at the analyst meeting you mentioned changing on the pricing for retail sellers. Have you made decision ease that?

Brendan, this is mark, i don't think we talked about, can you remind us what you think you heard? But we have not had any price change initiatives under way?

I thought it there was an initiative to realize where the reseller was involved in upselling something? So, it's not a pricing change?

Right, it's a margin change, I guess.

It's -- well, what it is is -- here's what that's about. So, my comments about the g 2 k, the global 2,000 program, that's what you're referring to.

Right. And the global 2000 program, our -- our -- the partners that qualify for it are paid, think of it as a sales commission, whether or not they get the order for the license itself. But they must do all the minutes that I mentioned on the call, they must engage within erm, they must identify and register the project. They must provide culling and pilot and evaluation services, okay? So, frankly, what this program is about is extending the reach and extending the effectivity of an erm to cover more territory and more ground without having more people. And so it really brings the bigger partners into the fold to do some of the sales process that we typically have done with erms by ourselves.

Okay, great. And lastly, I don't know if you mentioned it and I didn't catch it, was there any particular weakness across any of the geographies?

Yeah, I think we answered that. The strengths and weaknesses were similar across all geographies.

Okay, that's was I thought I heard. Thank you, guys.

Your final question comes from damon rinaldi from first albany corporation.

A question about the e-licensing program. You mentioned you'd seen an uptick in the initial sales activity. Can you give us some idea of what the typical lag is after the initial sale for a reorder and to the extent that you can give us any indication of whether those subsequent sales represent a multiple of the initial sale? Even if you're not prepared to give us a dollar amount, can you give us an idea of the multiple? Then I have a follow-up.

Okay. Let's see if I can step you through this. So, first of all there's no given seem frame from an initial order to a reorder, in fact, what -- what you see is there are multiple reorders afterwards. To understand this, you got to step back a level to understand how our e-licensing program is different from many, many others that you may be familiar with. Our programs, from day one, have been built to not drive the customer to put a lot of licenses on the shelf. So, you made -- you may commit for 5,000 or 10,000, but then you have a buying program where you have to buy a minimum amount and then, you know, we have a way in doing that,monitoring, allowing customers to true up at given points in time. I don't want to get into the details of how we do that, but the point here is that we don't drive for big lumps of licenses and then sit on shelves as they bleed off over a period of time. That's why customers will buy an e-license, get a quantity they need for the first part of the application rollout and implemenation, and then come back for subsequent incremental rollouts of that project, and add to it, so, there is a flow over time. That's the first thing. Secondly, in terms of size, it will vary depending upon how big a commitment you made up front, but for on an average basis, a reorder is a -- is -- is a fraction is about half of what an initial order is.

That's helpful. I want to go back to the dwhae christopher galvin asked about visibility. To the extent that, you know, you have this question -- open question about inventory and to the extent that the outlook for i.T. Spending seems to be, you know, flattish to down at best at this point in time, why,fact, are you raising the bar at this point? Even if you do have things under your control with infuse and with the sales force, why raise the bar in an environment where there is so much uncertainty on the demand side?

I think -- we don't see it at this point as raising the bar. If you look at our internal -- our internal expectations, i think I shared, that is the shrink wrap business that looks like it will go flat for the year. And we think that we -- we're seeing that -- that situation right now. Could it get worse? I think john mentioned that, yeah, if the i.T. Spending environment continues to deteriorate and deteriorate significantly, that -- that packaged product business could get softer. And that's why we gave such a -- such a broad range, frankly on the year. And then, secondly, the things are in our control are -- we're referring to here is feet on the street. And basically getting looks at business because in the whole context of i.T. Spending, we're still fractional in the whole concept of i.T. Spending and have a value that delivers roi and all the measurable kinds of economic results for customers. So, we think that -- that we can, with our enterprise relationship manager and account penetration strategies and -- and the g2k program tie all these pieces together and under our control get a look at more deals and more customer locations with a very large partner network that we have and influence that on the positive side and then layer the infusealite performance on top of that, which we believe will start to sell and ramp in the second half.

Ladies and gentlemen, we have reached the maximum time allotted for q&a. I'd now like to turn the call back over to our host for any final remarks.

Thank you, crystal. So, tough environment out there. We feel we're managing very well in an extremely difficult environment and we're taking the appropriate steps to ensure that we're well-positioned when all of this begins to turn. In fact, it will turn and the turn will go to market leaders and those that have vested well and wisely. So, thanks again for your confidence as we continue to build citrix into this world class, worldwide software company that we're beginning to come. Thank you and enjoy your evening.

Thank you for participating in today's conference call, you may now disconnect.

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