思杰系統 (CTXS) 2004 Q4 法說會逐字稿

Good afternoon. My name is Brianna (ph). I will be your conference facilitator today. I would like to welcome everyone to the Citrix Systems fourth quarter and full year 2004 conference call.

[Operator Instructions].

Thank you. I would like to introduce Mr. Jeff Lilly, Manager of Investor Relations. Mr. Lilly, you may now begin your conference.

Thank you, Brianna good afternoon everyone and thank you for joining us today and. Today we will discuss Citrix's fourth quarter and fiscal 2004 financial results, participating will be Mark Templeton President and Chief Executive Officer and David Henshall Vice President and Chief Financial Officer. This call is being web cast with slides on the Citrix investor relations web site, and a slide presentation associated with the web cast will be posted immediately following the call.

Before we get started, I want to emphasize that some of the information discussed this call may be characterized as forward-looking statements made pursuant to the Safe Harbor provisions of Section 21-E of the Securities Exchange Act of 1934.

Those statements involve factors that could cause actual results to differ materially including risks associated with the company's business; involving the company's revenue growth and recognition of revenue, products their development and distribution; product demand and pipeline; economic and competitive factors; the company's key strategic relationships as well as acquisitions and related integration risks.

Additional information concerning these factors is highlighted in the earnings press release and the company's filings with the SEC, including the Safe Harbor disclosure contained in our most recent 10-Q filing available from the SEC or the company's investor's relations web site.

Additionally, during the call, we will discuss various non-GAAP financial measures as defined by SEC regulation G, including certain adjusted figures which include operating expenses, operating income, operating margin, net income and earnings per share.

The most directly comparable GAAP financial measures and reconciliation of the differences discussed on today's call can be found at the end of our press release dated today and on the investor's relations page of the Citrix corporate web site. Now, I would like to introduce David Henshall, Vice President and Chief Financial Officer of Citrix Systems.

Thank you Jeff and good afternoon. Today I am pleased to report on another quarter of solid financial performance, strong execution and growth across the company. In my commentary, I would like to discuss our financial results for the fourth quarter and the current trends in our business, specifically around license revenue growth, new product contribution, deferred revenue and cash flow from operations. I will also provide you with an outlook for our first quarter of 2005.

Beginning with our financial results, I should note that certain numbers discussed are adjusted to exclude the effects of amortization of intangible assets and other one-time adjustments. Please refer to the press release for a full reconciliation of adjusted figures to US GAAP figures.

So let's take a look at the snapshot of our performance in Q4. Net revenue was $214 million, an increase of 36% over last year. Excluding acquisitions, we grew at over 25% in Q 4. This really highlights the balanced growth across all facets of our business.

Our GAAP EPS was $0.30 per share compared to $0.21 a year ago, an increase of 41%. Adjusted EPS was $0.29 compared to $0.22 last year, an increase of 33%. Adjusted operating margin was 27% compared to 29 last year, and cash flow from operations was another record, coming in at over $80 million. So across the board, really an excellent quarter.

To review the results in more detail, I would like to discuss our revenue by product mix and geography as well as our operating performance. So, turning to the revenue mix, license revenue was $106 million, up 12% year-over-year and up 20% on a sequential basis.

As I have discussed throughout the year, we are very focused on driving new license growth. We have seen continued progress throughout 2004 in terms of generating new customers as well as increasing penetration in our existing base. This has been supported by expanded account coverage, new product enhancements and programs designed to further engage the challenge to drive leverage.

The results in Q4 demonstrate that we are seeing a return on these investments. In fact, for the first time, new products represented more than 9% of reported license revenue. This performance was led by the full Access Suite as well as significant traction with the Step-up suite targeted at existing presentation server customers. In total, new product contribution is at the high end of our target range of 5 to 10%.

License update revenue was $75 million, up 49% year-over-year and up 7% sequentially driven by consistent renewal rates and our subscription advantage program. Consulting, education and support service revenue was $16 million, up 32% year-over-year, and finally, Citrix on-line contributed $17 million, representing 19% sequential growth.

Our on-line products, which, as you know, deliver software as a subscription service, continue to post impressive growth. In the quarter, GoToMyPC grew more than 50% over last year. GoToAssist grew by more than 90%, and we saw an increasing contribution from the newly launched GoToMeeting product.

Looking at revenue by segment, North America generated over $84 million, a 23% increase from last year. Latin America generated $5 million, a 57% increase. EMEA was $89 million, up 23%. The Pacific region was up 38% from last year to 19 million and finally Citrix on-line, which is not included in these segments grew --contributed $17 million.

So looking at our largest transactions in Q4, our enterprise business continues to be strong. During the quarter, we closed 6 deals greater than $1 million, the most ever in a single quarter, and all of our top ten deals were greater than $500,000. I would also like to point out that within the top ten transactions, 3 of these were full Access Suite deals. By geography, 7 were in Europe, 2 were in North America, and 1 was in Latin America.

So now, let's look at expenses and operations. Adjusted operating expenses were $151 million, up 40% year-over-year. This growth is primarily related to the addition of Citrix on-line increased headcount in marketing programs. On a sequential basis, adjusted operating expenses grew 16%. Most of this increase was in the sales and marketing line and was primarily related to variable compensations due to higher sales bookings and costs associated with headcount investments.

In fact, during the quarter, we added 179 employees; bringing total headcount at the end of the year to approximately 2650. For the full year, we added 771 new people, almost half of whom came through the acquisitions of ExpertCity and Net6. This growth in headcount reflects the conscience investments we have made to aggressively attack a very large and growing opportunity in the access infrastructure market.

These investments are primarily focused on enhancing our sales and services capacity, and supporting the development and launch of the new products that address this opportunity. As I mentioned earlier, adjusted operating margin in Q4 was strong at 27%, so even with these focused investments we are able to maintain operating margin in our targeted range of mid to upper 20%.

One more thing I would like to point out is in the GAAP expenses for Q4, amortization was a benefit of $2 million due to an adjustment of intangible assets related to a prior acquisition. The adjustment resulted in a $4.4 million reduction of amortization expense net of income taxes. This benefit is excluded from our adjusted results.

Our adjusted tax rate for the year was 20%. This number was slightly lower than expected due to the exceptional performance of the EMEA region in the fourth quarter. This figure compares to 22% last year. For 2005, we expect adjusted tax rate to be in the 22 to 24% range.

Looking at the balance sheet, deferred revenue grew by 23 million in Q4 to a total of over $225 million. This was driven largely by the strength of our subscription businesses. Cash and investments now stand at $566 million. DSL is 46 days (ph) , and cash flow from operations was over $80 million in the fourth quarter. For the full year, the company generated over $265 million in cash flow from operations.

So finally, I'd like to discuss our outlook and expectations for the first quarter ending March 31, 2005. It should be noted that we are about to make forward looking statements that incorporate certain risks, so please refer to the Safe Harbor statement noted in our press release and risks that are stated in our SEC filings.

For our first quarter, we expect the following -- total revenue in the range of 190 to $200 million. On a GAAP basis, earnings per share of 19 to $0.21 and on an adjusted basis, earnings per share in the range of 21 to $0.23.

So closing out the year, we have momentum and solid financial metrics, in particular the areas of product license, new product traction, subscription services, deferred revenue and cash flow from ops. So 2004 was defined by investing to rapidly expand the product portfolio, to provide a complete access solution to customers, to expand our reach and to build the infrastructure required to support continued growth, 2005 is all about growth and leverage.

Our plans are focused on increasing productivity throughout the company and with our partners, focused on integrating and enhancing our product solutions and leveraging our huge base. So now I'd like to turn it over to Mark Templeton to give you additional details and to discuss our ongoing business as we enter 2005.

Thanks, David. Thanks, everyone, for joining us today on the call. As you heard from David, we had an extraordinary fourth quarter, capping off a super 2004. I'm really delighted to report these results to you today. As we enter 2004, we were actually less than a year into our transformation of Citrix.

Our goal, to lead the access infrastructure market. Our strategy, to offer a comprehensive portfolio of Access products. Our plan, to take the long view invest for growth, focus on the top line, grow revenue from new products and solid expense management.

Our results today speak for themselves. Thirty-six percent revenue growth in Q4. Record annual revenues of 741 million. That's 26% growth over 2003. Adjusted operating margins of 27%, a solid top core tower performance. And 9% new product revenue, at the high end of our targets. Q4 sales bookings were enormous, topping $237 million when you look at our GAAP revenue and growth in deferred revenue together. This is up 33% from our Q4, 2003 bookings of 178 million. You heard the geo mix from David.

I'd just like to add my kudos to our EMEA team. They turned in a truly stunning Q4 performance, bringing in 7 of our top ten customers wins and all of our top ten -- top five million dollar plus deals with 13% license growth for the year. Congratulations to EMEA.

Clearly, we delivered on all facets of our commitment to strong managed growth. I'm especially pleased because at the same time we had a number of other balls in the air. We added a thousand new employees, integrated 2 strategic acquisitions, introduced significant product upgrades and new products, enhanced our industry leading channel program, and like many companies, operated with a huge focus on stocks compliance.

This is great execution by any standard. So (indiscernible) financial results, while transforming so many assets of our business and we did all this in an IT spending environment that Network World recently described as, and I quote, "almost boringly moderate." So I'm really, really proud of this Citrix team.

Next, I'd like to look ahead at our 2005 plan. 2003 was about strategy, beyond a single product; 2004 was about investment in a foundation for growth; 2005 is about leverage, really driving growth from the strategic investments we've made. The Access infrastructure market, growing at 12%, double the rate of software in general, and projected to reach $22 billion in hardware, software and services in just a couple of years.

Our game plan is to continue to leverage this market for growth, by taking the lead and defining and shaping it with innovations in access software, services and appliances that uniquely make on demand computing a reality. Our market drivers are unmistakable and compelling.

An increasing business need for remote access to get closer to customers and vendors, the cost of it complexity, the exploding opportunity for secure access using the low-cost connectivity of the internet, the elevated need for controlled access to meet new regulatory requirements, faster, cheaper mix on the server and the desk top, better more ubiquitous connectivity, heightened work wide balance concerns and industries in the midst of heavy consolidation.

Access is a fundamental component of all these business needs, which really explains why the access infrastructure market is growing so rapidly. One way that we're leveraging this market is through our ongoing branding campaign. I'm sure you have seen our ads in high profile business publications around the world, driving our brand based on a single critical customer value, Access.

In 2004 alone, we touched targeted audiences with more than 678 million impressions. We're moving the awareness needle with our constant and consistent message that Citrix is number one in access. A Business Week brand survey last year found that we have increased Citrix brand awareness from 2% in 2003 to 11.5% in 2004.

Another key way to leverage this market is to leverage our greatly expanded product portfolio. Last April, we launched version 3 of the Citrix Access Suite, introducing some very exciting and innovative capabilities like smooth roaming, secure by design, and end to end visibility that really drove our growth last year. This year, we'll continue to build on this momentum with a focus on systems scalability and performance, increased compatibility with enterprise applications and devices, tighter integration across suite components and system manageability.

Also this year, we're introducing Smart Access bringing for the first time the ability to automatically sense the end-user's access scenario and dynamically deliver an optimal and secure access experience. IT cannot anticipate every access scenario ahead of time. It's just impossible. Citrix Smart Access technologies will make system administration much easier, access more secure, and users more flexible in their work style.

The new Citrix Access Gateway really begins to deliver on the Smart Access promise. I believe it is a category redefining product, superior to ITSEC and traditional SSL VPN solutions. Why? Because as a simple to use, and affordable plug-in appliance, it provides a single point of access for both data and voice that is always on, even when users switch between office, home and public networks that's optimized to support the widest array of protocols, even voice, and that's simple and cost-effective for organizations small and large.

The Citrix Access Gateway is winning against first generation SSL-VPN, and as an integral part of our Smart Access capabilities, we're moving the competitive bar even higher. A key leverage point is that the Access Gateway is complementary to our existing products, presenting a cross sell opportunity with presentation servers and a great up sell opportunity with the Access Suite, plus, because it's so simple to use and administer, it's a great first access solution for small and medium customers.

Leveraging our customer base and partner network, we intend to really shake up this market, so stay tuned. You'll be hearing a lot more about the Access Gateway and Citrix Smart Access in 2005. The internet is only just getting started, really, and its impact only beginning to be felt. This is why in 2005 we'll be putting even more focus on leveraging the software as service model that Citrix on-line offers our customers and partners.

Citrix on-line had a brilliant year. On-line subscription revenue was about 6% of our revenue mix, and we exited the year at an 8% run rate. GoToMyPC, the gold standard of desktop remote access was up over 50%. GoToAssist, grew over 90%. Customer wins in Q4 included great companies like IBM, Allstate, Amadeus, and FedEx. The new innovations in GoToAssist had a big impact. In fact, making GoToAssist number one in the on demand assistance market and paving the way for acceleration in 2005.

In our entry into the market for on-line meeting products, Citrix GoToMeeting is rapidly winning market share based on its simpler is better approach, a best-user experience, and flat-free pricing model. In its first seven months on the market, GoToMeeting is showing exciting growth with many customers switching from more expensive and complex products and a massive greenfield opportunity for instant collaboration, a big competitive differentiator for us.

Our on-line products are examples of Citrix innovation at its best. In 2004, these products won 13 awards, including Forrester's Innovative Communications Technology award, and for the second consecutive year, PC World's World-class award. Annuity-based subscription revenues are a powerful revenue stream for Citrix and for our partners. So we're going even further in 2005 to leverage the tremendous opportunities that the internet offers.

Successful leverage of Citrix on-line is the cornerstone of our strategy in this area. 2005 is also about leveraging our partners, of course, and as you all know, our channel is our go-to-market engine. The way to leverage our partners is simple. By offering them more compelling opportunities and higher profits and making it easy and consistent to do business with us. This focus is working.

Just a couple of quick examples. In August last year, at Enterprise Vision, Citrix was awarded best alliance strategy and best enterprise vendor by over 1,000 senior IT executives. Just last week, CRN reported that our partnering programs are rated number one, by far.

Leveraging our partners got off to a great start last week, with our second annual global summit week. It was our biggest sales kickoff ever, with a record 1700 channel partners attending, plus our global sales and services team, more than 1,000 Citrix professionals. Our theme was growth, and the event was all about getting trained, getting certified, getting quotas, and getting excited about our radically expanding product offerings which have doubled from 5 to 10 in the past year alone.

The more products and opportunity we have, the more important training becomes, and this was reflected in the focus of the entire conference. The buzz was incredible. Partners are hearing from customers that Access is strategic to their business. They're becoming true believers in the benefits of Access infrastructure, and they are as excited as we are about the opportunities for growth that we're creating together.

Describing our focus on partners wouldn't be complete without a few words about Microsoft, our most strategic and longest-standing partnership. Last month, we took an important step to deepen the relationship. We signed a five-year technology collaboration agreement, which will take us well beyond the next major evolution of the Windows server platform, code name Longhorn.

This ensures we have the right level of ongoing technical dialogue with Microsoft, that we have a good understanding of what is coming, and that we'll be able to embrace and expand Microsoft's next generation platform with maximum value for our customers.

In 2005, we'll also leverage our install base of more than 160,000 customer organizations by continuing to innovate and expand our Access product portfolio. Innovation is how we deliver meaningful business value to our customers, and it's working. Our customers are finding even more value in Citrix.

Our 2004 customer surveys found that we jumped 3 points in customer loyalty to 94%. Another example, last year, CIO Insight surveyed 1,000 IT executives to see which technology companies provided the highest perceived value. Citrix ranked number 6. What customers think and say is the ultimate test of a company's sustainability.

In 2005, as always, we'll make customer success our top priority. So, we had a great year in 2004, great gains with new customers, great innovation in our product portfolio, a record increase in top-line revenues, in new product mix, and stunning growth in bookings.

It was also extraordinary year in our continuing transformation, and preparing Citrix for long-term growth. We made significant investments for a very exciting future, and this year, we'll be obsessively focused on leveraging the work that we've done. Now I'd like to open it up for questions.

[Operator Instructions].

Your first question comes from Robert Breza from RBC Capital Markets.

Nice quarter, everybody.

Thanks, Robert.

Quick question, David. Can you give us some kind of clarity on the guidance as it relates to the license line? Would you expect that to be up year-over-year then maybe a little more from where you think Citrix on-line will be going next quarter, and how we should build our models going throughout the year?

Okay. Let me answer the license component of that first. The answer is yes, I expect it to grow year-over-year. Let me kick it up a level and talk about the guidance in total. If you look at our revenue guidance of 190 million and 200 million that represents growth of about 20 to 25% over 2004. So we're looking to grow every facet of the business, not only our new licenses, but also our updates and our subscription businesses as well.

On the Citrix on-line component, that is a very -- there is very little linearity or seasonality in that business, so at this point in time, I think Q1 will be up a million or 2 over the Q4 performance.

Great. Thank you. Can you also give us a little clarity on the sales and marketing line, obviously that jumped and I understand the upside in bookings --what is the baseline that we should think about in terms of variable comp?

Well, you're right. Operating expenses grew about 16% sequentially and most of it did show up in the sales market and support line. Frankly, it is a result of just excellent performance. We paid out a lot of variable comps. We are expanding the base. We are also hiring more people to expand our delivery capacity, so on a go forward basis, we're going to have the full effect of all the people that we've added throughout Q4 and throughout the year, so I would think that, flattish, going into Q1 is appropriate.

Great. Thank you very much. Nice quarter.

Thank you.

Your next question comes from Israel Hernandez of Lehman Brothers.

Good afternoon. Great quarter. With respect to Citrix Access Gateway, can you talk about the reception or receptivity from your partners when you unveiled at the partner summit, what is the go- to-market strategy going to look like, and how are you going to price that relative to some of the competitors out there?

Israel, thank you. The reception at the summit was absolutely spectacular. I think it exceeded our expectations. The Citrix Gateway's team was swamped by partners from around the world trying to determine how they could be first to gain the availability of product. The excitement, I think, was based upon what makes this product unique and differentiated in the marketplace, and what makes it highly competitive against the alternative products. I talked a little bit about those things on the call, and one of them is the great licensing model that goes with it.

The appliance, we'll be pricing it very simply. The appliance itself, at 24.95, and then the licenses at $100 per concurrent user, and so it's really simple to buy. There aren't a lot of options and, configurations that you need to worry about, and it has all of the protocol support customers are looking for.

It has the smooth roaming capabilities that allow you to change physical networks without losing your context of your access environment, and has full end to end SSL encryption capability and is a tremendous complement to presentation server. So I think the reception was really about the differentiation of the product, the simplicity of the packaging and licensing model and the relevance to the install base of customers, especially around putting this in front of presentation server.

Great, thanks. With respect to the requirements of your sales guides particularly in North America. What are you seeing there are you starting to see the productivity improvements that you have been expecting?

They are ramping as planned and forecasted, so North America had a great year, with about 24% year-over-year growth and we're really pleased with that, and that's in spite of, having quite a few new people on the team that are ramping up with product knowledge, with account knowledge, and understanding how Citrix works, so we're real pleased with the performance of the North American team.

Thank you.

Your next question comes from Ed McGuire of Merrill Lynch.

Yes, good afternoon. Could you talk about the mix of your business across large enterprises and small enterprises?

Sure.

Pardon the cold there.

No problem. Our business -- I have to talk pretty much about our classical software licensing business and let me hold Citrix on-line to the side for a minute. Our software licensing business tends to be about 40% in the large customer space, which we defined that as 7,000 employees and above.

About 40% in the 1,000 to 7,000 employee range, and the balance being, 20% being less than 1,000 employees, so this has been the mix we've seen for quite a long time in our business, and over the past couple of years, I think if we've seen any skewing, it's been toward the larger end of the spectrum.

Did you see any progress since you extended the advisor rewards program down to lower deal sizes?

Advisor awards has been very successful, although there's still lots of upside left in the program. Approximately one-third of our partners are actually taking advantage of advisor rewards -- awards, and that's after one year of availability, so we're actually encouraging them to apply for and use this program, which is designed to actually make them more profitable and incentivise them to actually get out and promote the product.

At the bottom end of the marketplace, I'm not sure I can relate it directly to advisor awards yet, but we did see good stabilization at the bottom end of the market with our shrink wrapped sort of package product business, and that was really encouraging to see, which is really pointed at first to doctors, and then we saw growth in our easy licensing program, very nice growth in the easy licensing program, which is all about first adoptions and smaller customers.

I have a quick question for question for Dave. What was the impact of currency in the quarter?

The impact of currency had no effect on revenues. As you know, we sell in U.S. dollar pretty much around the world, so we had no currency benefit. It did impact expenses in a negative way. We do have local currency expenses, so on a sequential basis, we're hedged, so there's not much of an effect there, but on a year-over-year basis, it's probably a few million dollars to the negative.

Okay. Thanks very much.

Thanks.

Your next question is from the line of Adam Holt of JP Morgan.

Good afternoon. Back to the rewards program. Can you talk at all about the changes you made in the quarter and what impact that might have had license revenue?

Let's see. We didn't make any changes to the program Adam during the quarter. We did, as we do every quarter, as we look at exceptions that make good business sense, and we did provide on an exception basis a shorter grace period than the 45 days to a few of our partners. It really had no material impact on payments of rewards, nor impact on payment -- material impact on revenue, so, very, very small, but it made sense to make those exceptions based on the business condition.

Okay. On the license, can you break down what's the split between new and installed?

I'm sorry?

Yes, you spoke about progress with sales and new customers.

Yes, so our -- in our mix there, it continues to be about two-thirds sales to existing customers coming back for expansion and larger implementations, and about one- third new customers that are signing new agreements or first adoptions. That mix has stayed really, really steady over the last actually several years.

Okay, great. And then it was looking at the license number, it was a breakout quarter. If we look out in 12, 24 months, what do you think sustainable growth rate is on the core license?

Well, you know, we're obviously not providing really granular guidance in that area, but I think generally speaking, as we look at the marketplace and look at the relevant growth rate of access infrastructure, the needs and the drivers of that market, we are looking at sort of a double digit environment, kind of as far out as you want to plan at this point.

I think that we feel really good about the decisions we have made about product strategy, and we're really excited about the plans we have going forward, and all of those things we believe come together along with the right kind of partner selling model to bode well for license growth going forward.

Okay. One last question on the earnings guide, it is $0.21 to $0.23. Does that assume the slightly higher tax rate?

Yes, it does.

Okay. Thanks for taking my question.

Your next question comes from Todd Raker of Deutsche Bank.

Hi guys, nice quarter.

Thank you Todd.

Two quick questions, one can we get into EMEA, very strong results. Can you give us some feel for verticals that were strong or countries and what stood out in your mind?

Actually, a tremendous performance across the whole region. I think it seems to be coming up regularly on the Q and A, but as I think most of you know that we have a very mature and strong team in EMEA not only in Citrix employees on leaders, but also distribution and go-to market partners, and that combination, the maturity and the process that they have in place there just is -- it's a beautiful thing.

And so, we didn't see any particular segment that that broke out or any particular country that broke out. Our essential European team that was responsible for Switzerland, Germany, Austria and Eastern Europe had a particularly strong year, and Q4, but that really applies to the other regions within EMEA as well, so we're really pleased with their performance.

And the second question for you, I think you said the new products were roughly 9% of revenue. Can you give us a little bit more insight in terms of what the makeup of that was and where do you see that going over the course of '05?

So the makeup of the new products line, I think maybe we don't reiterate it often enough, when we talk new products, we're talking about the products that we introduced after the availability of presentation servers, so basically the Access Suite and the components of Access Suite, password manager conferencing manager and secure access manager, so that's the revenue. When we talk about new product revenue, we're talking about those products and the skews that they represent.

Early last year when the Access Suite was brand new and the components were also very new it had not gone through a complete sales cycle. We had a lot of questions about what should be expected in terms of the mix of new product revenue, because obviously everyone was looking at our ability to get a new product cycle going.

And so when we looked at the numbers and what was our strategy around those numbers, we felt very good about a 5 to 10% run rate exiting the year, so exiting the year at 9% at the high end of the range that we put on the table feels really good, and I think that laid the foundation for momentum in growth and obviously increasing mix of new products in 2005 and beyond. David, do you want to add something to that?

If you really want to drill down to where the growth came from and particularly the strength, really led by the full Access Suite. I think that the customers are seeing the value of an integrated solution to solve the multiple points and that's really new customers and deeper penetration into existing customers.

Also, particularly strong in Q4 was the step up suite. Those are really targeted towards existing presentation server customers so we had a lot of tracks selling back into the install base as well, so that's a good trend going forward. Couple that with our, solid pipeline creation in Q4around new products, and we're pretty happy about the traction overall.

Todd, I think that the thing I would add to help everyone connect the dots here is that when we introduce the Access Suite, it was really a bundling strategy of products that complemented one another, and that was version 2.0.Version 3.0 is when we started to bring these together with some integration and leverage of each other, and that increased the value, the real and perceived value for customers at the $600 SRP price point, and also, allowed customs to see a higher degree of relevance for the Access Suite to many more users in their enterprise.

As we go forward, that's the focus of the Access Suite, to increase the real and perceived value so that more and more customers are -- that our presentation server customers are looking to step up and expand their systems, but also expand the relevance and the penetration of the use of those systems to more employees and their enterprise, and that's how we get some real interesting growth rates going.

Just one quick follow-up on that. Can you guys, in terms of the new products, what percentage are going to a existing customer versus a new customer?

I honestly don't have those statistics handy, but I would say it tracks roughly in line with the overall business, probably about two-thirds going to existing customers and one-third going to brand new customers.

Okay. Thanks, guys.

Thank you.

Thanks, Todd.

Your next question comes from the line of Brent Williams of KeyBank Capital Market.

Okay, so, congratulations, guys.

Thanks, Brent.

Following up Todd's question, sort of another angle on it. Of the largest deals in the quarter, the mix of new products coming from -- contributing to those deals, is that substantially higher than the bread and butter-type deals or is it maybe a nudge higher or is there any definite trend emerging?

Yes, I think there is a trend emerging, and the trend is that -- I mean, the focus is selling the Access Suite. As Mark mentioned, it's a higher license yield per seat. It's about 50% higher yield than selling a presentation server. It drives the applicability inside an organization to allow us further penetration, just increasing the overall deal size, and in the quarter, in fact, there were three of the top ten deals more Access Suite -- full Access Suite transactions, and that's certainly a trend that is starting to develop right now.

So three of the top ten deals were -- the biggest SKU was the Access Suite?

That's correct.

Or even the only one?

That was the only one actually in those three.

Brent, this is Mark. The thing I would add is that it stands to reason, because the whole notion of the Access Suite is linked to all the strategic work we did around helping customers see that they need to have a holistic access strategy. So, when our sales teams are successful in telling that story, the customer says, you're right, how do I buy that, and the answer is you buy the suite.

And so the customer that needs a holistic strategy for access, especially, all right, is the larger customer, so it would stand to reason, and then we're about a year into the availability of the suite and all of the training that we did a year ago at our first annual global sales summit to really help our partners and our customer facing teams to be able to tell this kind of story, so it's starting to bear the kind of fruit that we invested in.

Great. and bouncing over to Citrix on-line, what was the largest deal in the quarter there in terms of the number of enabled PC's that was signed, and is the growth driver for this business more, larger corporate subscriptions, a greater number of corporate subscriptions or the same size kicking individuals into corporate subs or attaching this to larger deals? Where does this really come from?

Okay. Large deals in Citrix on-line are mostly focused around GoToAssist. In the quarter, we had three deals over $100,000. Those are annual commitments from customers. The GoToMyPC both in the personal, professional and corporate provision don't drive deals that size.

They tend to drive annuity, but not large-scale deals. And then GoToMeeting is, as I said in my prepared comments, again, doesn't -- it's very early in the cycle. It doesn't drive large-scale deals yet, but we'll look for that to start to happen. We did see in the quarter the average deal size at Citrix on-line increase in a material way, and that's very good.

We talked a long time about how the Citrix brand would help Citrix on-line and enterprise customers and I think we're seeing some evidence of that and we're seeing evidence of the power of GoToAssist as being the number one product in the category and great execution that's starting to gain traction with our partners, which was a key part of the solutions summit in that they were able, I think for the first real time, to see that we've packaged these products more like software products.

And we've integrated their availability and the partnering around them into our standard partnering program, so it's much easier to do business with us, and those partners that tend to be more true, true blue, if you will, they are already seeing traction with the product, especially GoToAssist. I think that's what accounted counts for it.

Great. Lastly, a sense of the largest deal in the quarter may be relative to the, you know, the number ten in the top ten deals or relative to other norms?

Honestly, with the top five being a million or more, it was skewed, and so all of them were over $500,000.

I understand. But if I just picked the number one deal relative to, you know-

What's the multiple?

Yes -- or -- yes.

How about from the top to bottom, it's 4X.

Great. Okay that's it for me thanks.

Your next question comes from Jason Kraft at SIG.

Thanks. On 2005, I know you don't want to get too granular on guidance, but any prelim thoughts on maybe what maybe your top line and bottom line, just kind of rough growth will be for 2005?

As Mark said, we are only giving guidance for the fourth quarter right now. As most software companies are we're going to stick to one-quarter guidance at a time right now. However, the overall market opportunity that Mark described and what we are trying to attack we believe is growing at a rate of low double digits. We're obviously focused on growing our business in line for greater than our market opportunity, but at this point, we're really just giving guidance for Q1.

On the geographic mix, the rest of the world is clearly still strong, but on North America, I know you don't disclose license revenue, the total revenue for North America grew 2.6% Q to Q. Do you feel, with the Q4 always being seasonally strong, are things finally in order, do you think, to where you enter '05 to where, you know, there's an opportunity there? I'm just trying to get color on where we've gone through in 2004 with a lot of struggles there.

Right Jason, I think we're at the front end of seeing the settle down and turn the corner. There are some really good leading indicators when you look at pipeline growth, right, when you look at the channel engagement numbers around advisor awards in North America. There is some really good leading indicators, but we're not going to declare victory, and we have a really focused year on ramping up the people that we added.

We've got a lot of fresh enthusiastic and talented new faces in the team, and we have redoubled program and leadership team around engaging our channel partners, and of course the availability of the Access Gateway and letting that be the subject of engagement is a pretty exciting opportunity for us. I think we will see this unfold during the year we are feeling really good about it and confident in the team.

Just to clarify, you mentioned sales and marketing flat from Q4 to Q1, as far as absolute business?

Yes.

And then from an interest income standpoint, a little higher than what you were looking for. What are your expectations for Q1?

I think in Q1 and throughout the year, it's going to be between 3 and $4 million, it's a function of not only interest income, but translation effect of foreign currency accounts, et cetera. There's a few moving parts there. I think using 3 to 4 is a reasonable expectation.

Okay. One last question for Mark. You mentioned on advisor awards the removal of the window as sort of opportunistic. Can you give any color on how much maybe license was attribute -- you could attribute to that and there really wasn't an impact. Why was the window removed?

The window is removed on an exception basis, Jason. In a typical quarter, we do about 7,000 transactions. the exception base was 30. Okay. The revenue that it drove was well under $1.5 million, okay, so just to give you, you know, put it in perspective and context on a quarter that we did about, what, 106 in product license.

So honestly we do these kinds of things on an exception basis every quarter, and we do them around making a smart business decision to try to service a customer and work with a partner in an effective way. So, those are the facts.

Okay. Thanks.

Thanks.

Your next question comes from Kirk Materne at Banc of America Securities.

I guess I have just one last question on the geographic breakout. Mark, when you look at the preponderance of our big deals coming from EMEA, I guess you mentioned that you feel you have a strong team in place as well as the channels there being a little more mature.

Is there something in the demand environment as well that they are taking this whole idea of access infrastructure, they are looking at it differently from the U.S. market or do you believe it is simply an execution story so that as you look out to 2005, the amount of deals in the U.S. are -- or big deals, I should say, in the U.S. is equal or greater than what has happened to EMEA right now?

Kirk, I think anyone who has done software business and especially enterprise software business around the world knows that there are some differences in international markets, especially in Europe, in terms of how IT organizations think, where their priorities are, et cetera.

But I think that 80 % of this is execution, and that's why we've spent so much time, money, effort on the kinds of things we've done in North America, and really, actually developing much more of a modeling in North America that mirrors EMEA in terms of how we're structured, and how we actually work with partners, and as I said earlier, I think we're on the front end of starting to see some really good results from it.

Okay. Thanks. And the Citrix on-line products, have you allowed some of the ERMS in the U.S. or EMEA to go out and sell those on their own, or is that channel still being segregated, I guess?

Well, -- well, since July, we've had a big focus on getting a lot of coordination between our sort of incumbent Citrix field teams, whether they're ERMs or they're working directly with partners and coordinating with the Citrix on-line teams that are out there, and over the course of the last six months, that activity has gotten better and better.

And now after a summit, we've got, I think, you know, for the first time, a really well coordinated programmatic approach to this, and so the teams, to answer your question directly, they've been able to, on a transactional basis, work together and coordinate. They share offices in some cases. They know each other, and this year, the team there will be lots tighter integration and leveraging the partner network.

Okay. Are the ERMs also getting stiffed on any Citrix on-line sales that they take part? In?

Well, they don't get stiffed. They do get revenue quota credit for those things.

Okay. Just a last question, Dave, I guess, with the acquisitions that are done, do you expect to have your buyback activity pick back up in the first quarter?

Yes. We definitely will be continuing that into 2005. That's exactly why the buyback activity at only a half million shares in Q4 was lighter than normal. We were just blacked out most of the period. However, I would point out that we do engage in a number of structured programs, and we contributed about $50 million to structured programs during the fourth quarter that will be returning shares back to the company in Q1 and Q2.

Great. Thanks very much.

Your next question comes from the line of Steve Ashley of Robert Baird.

My congratulations on the quarter as well.

Thank you.

Was there any from the Net6 acquisition? I know it won't be much but was there any increase.

We closed that acquisition in the early part of December. There was an immaterial amount, a couple hundred K of revenue and half million of expenses, dilutive to some extent but immaterial to overall results.

Did Citrix on-line contribute to the bottom line?

Citrix on-line was at a positive operating margin, yes.

Great. And, in terms of the Microsoft agreement, I know that it has not actually been a long period of time since that has come to fruition, but is there any indirect benefit that comes from that, either from resellers or from customers who may have been confused about Microsoft's future intention in the space, cease the deal and take any perceived clout off of Verizon, any benefit that could benefit going forward?

Always, Steve. It's -- our relationship with Microsoft is probably one of the, eight wonders of the world when it comes to the myths of that tended circle around it, so anytime we can make a public statement around an agreement where we're working together in a very, very official kind of way, always helps those perceptions and clears things up, but then there are always the people that don't see the press releases and don't read the magazines and so forth, so it's still a, very much everyday reiterating our partnership, working together with them on a worldwide basis.

Okay. What kinds of things might be happening with IBM and SAP? Have you expanded your relationships with those companies? I mean, are there new and incremental type programs you will be going to market with here in the first half of '05?

There are two different things, so with IBM, as with other of the large SI's in the world, both global and regional, we've continued to make really good progress, in fact, at solutions, I attend add breakout and talked to the group. We had 70 people from around the world representing all the big SI brands-- IBM, HP, EDS, Accenture, and a number of the really strong regional SI's.

So we're making lots of progress there around getting them to programmatically build a practice around access infrastructure, but we're still early in the process and so we're still being opportunistic. That's why the agreements with IBM and others are important, because they give the signal to various partners and leaders around the world to at least be taken opportunistic kind of position with us. with SAP, it's very different. SAP and Citrix have had a long-standing partnership.

They're also a great customer of ours and we're great customer of theirs, and the unique thing that we're doing is we're -- through our presentation server product, and through some unique channel-based bundling and recruiting and training strategies, we're going to help them drive their mid-market business with SAP Business One.

That will open up some new opportunities for our partners, for partners that are in their program, and increase our penetration in this small, medium business space where we have, in the under 1,000 employee space where we have, 20% of our business where we think there's big opportunity at that end of the market for us as we go forward. So, two very different things but both aimed at growth.

Great. Thanks.

Thanks, Steve.

Your next question comes from the line of Scott Kessler of Standard & Poor's Equity Research.

You guys answered a lot of questions. I will keep mine brief. Can you talk a little bit about how we should be thinking about amortization of intangibles for '05? Obviously that is related to some of the deals that you have done, but just trying to think about how we should be modeling for that.

Also, if you could talk a little bit about the tax rate, obviously, it was indicated that this is a big EMEA quarter so tax rate might go up as a result in '05 and you gave guidance related to that, but there really was a huge discrepancy between looking at '04 and the rest of-- sorry, Q4 and the rest of the year.

If you could go into a little more detail, because I think one of the recurring themes on this call and other calls I have been listening to you from this guys over the years, EMEA perpetually has been strong, in fact looking at the numbers, you put out only two of your top ten deals were based in North America, so a little color on how we should be thinking in terms of the tax rate and why 22-24% makes sense as opposed to 17% for the fourth quarter.

Okay, Scott. On the amortization line that, is simply amortization intangibles from prior acquisitions. I expect that each quarter of next year, it will be about 6 or $7 million. We have been running at about 5 for each quarter this year. When you add on the Net6 acquisition, that will go up a little bit, so factor that in at about, 6, 7 per quarter. Regarding the tax rate, obviously we had a tremendous quarter in EMEA in Q4.

It's a lower taxing jurisdiction, so it drives down the rate for the full year. As you know, each quarter we book a rate that forecasts the annual rate, so at that point in time, we're looking at what do we expect the full year to turn out to be, and Q4, being the last period of the fiscal year, we simply have to chew that up. Looking out into 2005, we certainly think that a slightly higher rate is the right thing to be thinking about at this time.

As Mark discussed earlier, the North American team has gone through a lot of reconstruction over the past 18 quarters, great leadership and they are really focused on driving growth throughout 2005. With that, we expect the relative contribution to be slightly different than 2004, so we feel very comfortable with the tax rate guidance right now and just look to execute across all geographies around the world.

One last question, if I may, looking at your operating expenses, the thing I found interesting, looking back over to '04 and '03 is the fact that sales and marketing picked up, and so did R&D, but G&A actually kicked down. As far as I'm thinking about '05, obviously you haven't given us a lot, but you have given us enough to start.

I'm looking for R&D and G&A on a percentage basis to be, flat down somewhat, but sales and marketing is increasing. Can you give us a concept as to why that is the case perhaps, and how we should be thinking about that in a general sense?

In general, when you are thinking about our business, think back about all the folks we have hired throughout this year, and as we talked about, over 770 people in 2004, including the head (ph) that we got through acquisition - the majority of those head counts were coming through sales and services to expand our customer reach and working with our channel and in the product development area.

Very few of those heads are coming in the G&A and infrastructure organizations. We are really focused on driving leverage and efficiency in those teams an driving down the percent of revenue that we're spending, frankly, on the G&A and OPs lines.

Looking forward we will continue to invest in our product development to bring out new products to integrate and enhance the existing products and on sales and services, there will be some absolute dollar contribution from new -- excuse me, just from higher bookings throughout 2005, so I would expect both of those lines to continue to move up modestly. You know, we have talked about a -- less hiring throughout 2005 than we have in the past. This year it is about leverage and growth, and that will be our focus.

Okay. Thank you.

Your final question comes from the line of Phil Winslow of CSFB.

Hi, guys, great quarter. Most of my questions have been answered, but focusing back on the secure access products, of those three top ten deals that you said, were for the full Access Suite what was the mix of those as far as current customers versus new customers of those three that you mentioned?

Phil, this is Mark. All of them were existing customers. So the way to think about this is when someone buys the Access Suite, they'll typically have had a relationship with us and seen sort of the kind of (indiscernible) that our presentation server delivers to them, and that really is the basis for the conversation around a more holistic approach to access and an access strategy, like I mentioned earlier.

And then that is what then turns into pilots, proof of concept around how these products can work together to provide even lower costs, better user experience, and a much better and more secure environment for controlling Access, so they were all -- they were all existing customers.

And then just one follow-on question. With the application of Gateway through Net6 with the voice or IP capability, with the strengths that you are seeing in the Access Suites, have you started to have the conversations focus back on that Application Gateway, and have you seen any initial customer interest in that?

I'm sorry. Are you asking about the Application Gateway or Access Gateway?

The Application Gateway.

Okay. So the focus of the first half of the year is on the Access Gateway. For all the obvious reasons. I mean, this is where the growth is, and the relevance in leverage of our customer base is, and the leverage of our channel is as well.

But I will speak about the Application Gateway as well. I think during our event last week, I personally spent some time Citrix Gateway area and the exhibit area, and was actually surprised on the upside in the level of interest that existed in the Application Gateway.

All mapping to a surprise in the number of our partners that actually do voiceover IP implementations, and so, that was actually pretty exciting and I think the Gateway's team learn add lot there, but, we just haven't sort of featured it a lot because we're putting tremendous energy in the Access Gateway.

As evidenced by what everyone saw last week, by the way, so we were 39 days into the acquisition and that team was showing a Citrix-branded Access Gateway product that will be available real, real soon now under the Citrix brand.

So that's how I would answer your question, and then a reminder that the App (ph) Gateway, right now the primary go-to market model for it is an OEM-type model, and so we do have relationships either directly reselling or reference selling with IT PDXs with Cisco, Nortel, Avaya, Siemens, Mitel, the guys who are really driving the IP telephony marketplace, so we will look to do more there.

Great. Thanks, guys.

Okay. Thank you.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers. I will turn over to the management for closing remarks.

Thank you very much. We will keep them very short. We appreciate you attending the call today and all your support. We are obviously excited about the kind of year and quarter we put up, the position we have in the marketplace, and how we're executing. So, with that, we'll see you in about three months. Thank you, Bye-bye.

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