思杰系統 (CTXS) 2007 Q1 法說會逐字稿

Good afternoon. My name is Celeste, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Citrix Systems first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) Thank you.

I would now like to introduce Mr. Eduardo Fleites, Director of Investor Relations. Mr. Fleites, you may begin your conference.

Thank you, Celeste. Good afternoon, everyone, and thank you for joining us for today's call where we will be discussing Citrix's first quarter 2007 revenue and financial highlights. Participating in this call will be Mark Templeton, President and Chief Executive Officer; and David Henshall, Senior Vice President and Chief Financial Officer.

This call is being webcast with a slide presentation on the Citrix Systems investor relations website. And a slide presentation associated with the website will be posted immediately following the call. Before we begin our review, I want to reiterate changes introduced last quarter regarding the format of our product performance discussions. We have classified our products into four groupings that map to the evolution of our business. The four groupings include; Application Virtualization Products, Application Networking Products, Online Services and Other, which contains our emerging products. This product classification and historical revenue trends, related to these four groupings have been posted to our website. And David will be discussing their performance in his prepared remarks.

As we get started, I want to emphasize that some of the information discussed in this call may be characterized as forward-looking statements made pursuant to the Safe Harbor provision of the U.S. securities laws. These statements involve a number of factors that could cause actual results to differ materially including risks associated with the Company's businesses involving; the Company's revenue growth, product, their development and distribution, product demand in the pipeline, economic and competitive factors, the Company's key strategic relationships, the effect of new accounting pronouncements on revenue and expense recognition, including the effects of FAS 123-R on certain of the Company's GAAP financial measures, acquisition and related integration risks, intellectual property related risks, and the Company's ongoing review of its stock options granting practices and the related accounting. Additional information concerning these factors is highlighted in the earnings press release and in the Company's filings with the SEC, including the risk factors disclosure contained in our most recent form 10-K filing available from the SEC or the Company's investor relations website.

Additionally during this call, we may discuss various non-GAAP financial measures as defined by SEC Regulation G.

Now I would like to turn it over to David Henshall, our Chief Financial Officer. David?

Thank you, Eduardo. Today I'm pleased to report first quarter 2007 revenue and financial highlights for the Company demonstrating continued growth across our geographic segments and product areas. In addition to providing you with some commentary on our performance, I'll discuss the current trends in our Business and review our current outlook for Q2 and the full year 2007.

But before I get started, I want to provide you with an update to the ongoing stock option review. As we previously discussed at the end of Q4 last yea,r the Audit Committee initiated a voluntary, independent review of historical stock option administration over the past 11 years. Unfortunately, due to the scope of the work, and the number of parties involved, the review is not yet complete, so the Company has been unable to file its 2006 Form 10-K with the SEC. Because of this, the financial information reported today is preliminary and limited and does not take in to account any adjustments that will be required in connection with the completion of this review. Since the adjustments will affect historical FAS 123-R and other expenses, we are unable to provide a complete set of financial statements for the first quarter.

At this point, though, the Audit Committee is just about complete with the fact-finding portion of the review and has reached certain determinations. So please refer to our press release for more information. The various parties with working to conclude the accounting and tax analysis. We're obviously very eager to wrap that up as soon as possible so that we can become current with our SEC filings and NASDAQ requirements.

In addition, I think it's fair to say that we underestimated the amount of time and expense that it would take to complete the review. We incurred professional services fees in Q1 of about $6 million, including outside accounting, auditing, legal and tax advisors. The large majority of this expense was not included in our financial guidance for Q1.

So let's get back to the financial summary. As you can see from the reported revenue numbers, up 18% over Q1 '06, we started 2007 on a great note, demonstrating continuing momentum and solid execution across our strategy. So looking at the Business, there are four key areas I would like to review. First, our Application Virtualization Products and the momentum of our subscription advantage program. Second, the Company's continued success delivering softwares and service. Third, our work to establish Citrix as a leading player in the application networking market. And fourth, the emerging products and technologies that we have built and acquired to help fuel future growth.

First, let me focus on our App Virtualization Products. The group grew 8% in Q1to $224 million in overall revenue, including a 2% decline in license revenue. We anticipated a modest license revenue decline based on the tough comps resulting from last year's end of sale of Presentation Server, XP Edition. We also continue to see very strong demand for customers renewing their software update subscriptions, over 85% renewal rate in Q1, demonstrating the value delivered by PS 4.5 enhancements and other products. In addition, we have received very positive response from our channel and customers to the changes made for the Presentation Server line of products. Specifically, PS Platinum Edition showed solid adoption, generating am 4% of group license sales, while only being available for the last three weeks of the quarter. We believe the changes to the PS product line are positive for customers and partners, by delivering significantly more value than prior versions. And for Citrix, these changes should allow us to continue to increase adoption by new customers and also provide a compelling upgrade path to the installed base.

The second area of focus is regarding our continued success delivering software as a service. Our GoTo products continue to meet the needs of customers in this rapidly growing segment of the market, which demands secure, affordable, fast, and easy softwares and service offerings. Revenue from these products in Q1 was over $47 million, growing nearly 50% from Q1 '06. Within this group, the GoToMyPC products represented about half of total revenue and grew 33% over Q1 last year. GoToAssist contributed about a quarter of the revenue and grew over 30% from a year ago. And finally, the online collaboration products, including GoToMeeting and GoToWebinar, continued to be the fastest growth, up about 138% over last year.

The third area I would like to highlight is the progress we're making to establish Citrix as a leading player in the application networking market. Our App Networking Products group grew over 50% compared to Q1 '06. We saw continuing strength in the NetScaler products, with an increasing percentage of business coming from traditional enterprise customers. And we closed the quarter with over 430 certified NetScaler partners, up over 70 from the December quarter. In addition, we introduced our WAN optimization product, WANScaler, into the channel this quarter and generated about $1 million in revenue. We're working on training and certifying qualified partners, and to date, have certified over 120 WANScaler partners, globally.

The final area I would like to discuss is the performance of our emerging product areas. These groups grew in the triple digits in Q1, albeit off a very small base. The growth in this area was primarily driven by the additions of EdgeSight and Ardence acquisitions. Ardence targets enterprises with strategic (inaudible) initiatives, where cost, security and energy consumption are major requirements. During the first quarter, Ardence billed over $4 million to customers, but due to a purchase accounting adjustment, we recognized less than $2 million of revenue. While it's pretty early in the roll-out, we have added 10 North American partners in the quarter to resell the Ardence desktop and data center additions.

And finally, EdgeSight, which provides application performance visibility, continues to gain traction, really driving customers to upgrade to our PS Platinum Edition. So in total, we are proud to have delivered the performance that gives us a solid foundation to execute on for the remainder of 2007. And Mark will address some of these items in more detail during his comments.

Now I want to talk briefly about expenses and operations. As a reminder, cost and expenses reported today do not include stock-based compensation expense under FAS 123R. In the first quarter of fiscal 2007, total cost of revenue and operating expenses was approximately $250 million. Let me tell you what includes. It includes total cost of product license and service revenue, total R&D, sales and marketing and G&A expenses, amortization expense of approximately $10 million, a $1 million write-off of in-process R&D relating to the closing of the Ardence acquisition, and approximately $6 million of accounting, legal, and tax fees, related to the ongoing stock option review.

The increase in costs this quarter were driven primarily by the fees related to the option review, the OpEx associated with recent acquisitions and ongoing head count investments. Regarding head count growth, we ended the first quarter with over 3,900 employees, up 191 people. The largest increases were related to the 100 employees added through the Ardence acquisition and additions to the sales and services and Citrix online teams. But because of the ongoing options review, we're not in a position to provide any more detail on the P&L or our standard non-GAAP financial measures.

So on the balance sheet, cash and investments increased over $100 million from the December quarter, now total over $900 million. Deferred revenue grew $20 million in the quarter, bringing the total to $376 million, up 29% from Q1 '06. The driving factors here include the ongoing success of our Subscription Advantage and GetCurrent programs, as well as online subscriptions. Our AR balance at the end of that quarter was just over $168 million, yielding a DSO of 49 days, which is back within our target range of 45 to 55 days, which I talked about on the Q4 '06 call.

So before I talk about guidance, let me just pause for a second. I understand that the limits in this report may be disappointing to some of you, I can certainly tell you it is to me. And while I'm very pleased with the Q1 performance, I would much rather been talking about the results with our usual granularity. Like I said before, we're getting close on the options review, and really look forward to talking to you upon completion at that time. Notwithstanding that, the Company has the delivered consistent growth, while still balancing significant investments in the new businesses and the routes to market that are important for long-term success. And while many of our initiatives are still in their early stages, I believe that we have created a solid foundation to build on for the remainder of 2007.

Finally, I would like to discuss our current outlook and expectations for the second quarter, ending June 30th, and for the full year. It should be noted we're about to make forward-looking statements that incorporate certain risks, so please refer to the Safe Harbor statements noted in our press release and the rest that are stated in our SEC filings. So to provide you with some context around our forward outlook; we're continuing to see solid revenue traction across multiple areas of the Business and are optimistic that the investments that we have been making will help sustain the momentum over the next several quarters. We're also seeing a number of areas that we believe are additional investment opportunities to further enhance the platform in our ability to reach even more customers.

So with this, for the second quarter, we currently expect total revenue in the range of $317 to $324 million, including contribution of $49 to $50 million from our online services. Total cost of revenue and operating expenses in the range of approximately $254 million to $258 million. Included in this number are amortization expenses in the range of $10 to $11 million, and $3 million for accounting, legal, and tax fees related to the ongoing stock option review. This estimate of second quarter, however, does not take into account any stock-based compensation expense, or any other charges that may result from the conclusion of the voluntary stock option review.

For the full year 2007, we now expect total revenue in the range of $1.31 billion to $1.33 billion, an increase of approximately $20 million from our prior guidance. Total cost of revenue and operating expenses to be in the range of $1.03 billion to $1.04 billion. And included in this number is an estimated of amortization expenses in the range of $41 to $42 million, a $1 million write-off of in-process R&D related to the closing of the Ardence acquisition, and $9 million in total accounting, legal, and tax fees related to the ongoing stock option review. Again, this estimate for full year, fiscal 2007 spending does not take into account any stock-based compensation expense or other charges likely to result from the voluntary stock option review.

Now I would like to turn I it over to Mark to give you additional details on the quarter's performance and to discuss our ongoing business. Mark?

Thanks, David. I'm really pleased with our first quarter performance. 2007 is off to a terrific start. The Business is looking really solid. The pipeline growth for PS Platinum Edition is really impressive. It's giving us great confidence in the positioning, pricing, packaging, and integration moves we made in that area. We're also seeing EdgeSight have a really positive impact on PS business in general, and even influencing several significant upgrades to Platinum. Our App Networking products grew 50%, including a solid sequential growth from NetScaler.

Increasing renewal rates of license updates, as David mentioned, a record of 85% in Q1, really confirms the customer value and features we have added to our products over the past few quarters. Growth in technical services was 28% for the quarter, showing that we're now helping customers more and more architect and implement much larger, more strategic systems. And our online division growth of 50% now puts us on trajectory to exceed $200 million in that area in revenue this year. These are the positive indicators that really make me bullish about the Business.

Next I would highlight some other aspects of our first quarter, including the loss of our 6-4-3 program, as well as products we announced. In January, we hosted our annual sales and partner event, Summit '07, where we unveiled the industry's most comprehensive vision for application delivery. More than 3,000 Citrix partners and employees came to Orlando. We educated them and trained them based upon a well-defined game plan, called 6-4-3. This plan makes it simpler for them to capitalize on complete application delivery solutions. Here's what it means; for the next 12 to 18 months, our go-to-market strategy is focused on six strategic application delivery products, targeting four different IT buyers, and three core selling strategies for medium, large, and global enterprises around the world. Across our partner and field teams, 6-4-3 as been received enthusiastically, and it's already producing results.

There's six strategic points of presence for an end-to-end delivery system. It begins with a trio of products that deliver applications right at their point of origin; Presentation Server for delivering Windows-based client server and desktop applications, NetScaler for delivering web-based applications with the best performance and security, and Desktop Server for delivering Windows desktop through virtualization to office workers in a whole new way.

Next, there are a pair of products that live at the point of control. Access Gateway for securing access to all application types, whether they're Windows or web, WANScaler for accelerating the delivery of applications to branch office users, a product we introduced during Summit for the first time to Citrix's partners. And for visibility into the users' access experience we have a product that lives at the point of access, right with the use, and that's EdgeSight, for application performance monitoring. These six products are the focus of our field and partner organizations.

Our go-to-market strategy targets four different types of IT buyers. First, there is IT infrastructure ops, the person who is accountable for delivering Windows applications, especially for line of business purposes. Then there's the network architect, the person who is directly responsible for delivering web applications with the best security and performance. Then there are desktop operations, the person who deals with Windows desktops, who is now trying to figure out how to migrate to Microsoft Vista and Office 2007. And then there's the CIO, or the strategic IT buyer. This is the person responsible for the success of all applications, who oversees the infrastructure, networking and desktop delivery decisions and most importantly, makes sure that IT is enabling the business.

The third component of the plan focuses on the specific tools, programs and incentives to help our field teams execute these three sales strategies. First, we're amplifying our application delivery message. Our teams are out there telling the full Citrix story about, first, the business flexibility that our infrastructure enables. And second, how we can reduce cost, improve performance and ensure security from end-to-end when delivering any application. The second strategy is to penetrate and upgrade the Presentation Server installed base. We're selling and upselling a complete solution by leading with a new Platinum Edition of Presentation Server, a much more feature-rich offering. And the third strategy is to acceleration our Application Networking business by leveraging existing relationships. We're incentivizing every Citrix partner to get authorized and cross-sell our Application Networking products, bringing our App Delivery value to network buyers within many established Citrix accounts.

So that's our game plan for 2007. Our teams are really enthusiastic. Why? Because 6-4-3 is simple. It differentiates us. It differentiates them and aligns strategy, execution and compensation incentives for everyone. And it's already having an impact. Let me give you an example. Within a week after Summit, a North American rep had a customer meeting originally set up to discuss a deal for 100 seats of Presentation Server. Rather than having that discussion, he used his Summit training and lead with the full Citrix story around application delivery, and presented a more complete solution, which included all six products, including the new PS Platinum Edition. A $20,000 PS opportunity, turned into a broader solution featuring multiple products and a six-figure opportunity PS Platinum Opportunity for 1,000 to 2,000 seats. The visibility of this project may even lead to a larger opportunity for customer to standardize on over 15,000 seats. So a tactical customer meeting turned in to a strategic conversation, based upon the 6-4-3 game plan.

Our plan is helping our partners execute and win by leveraging the most compelling value proposition that Citrix has ever had to offer, at a time when application delivery is becoming a defining issue for IT. This plan relies on consistent delivery against the product pipeline we have established over the past year. So I would like to highlight the new product shipments that we have seen since the beginning of the year and mention others that are still in development.

First is Presentation Server. It was really a big quarter for our App Virtualization team, shipping Presentation Server 4.5. Version 4.5 includes the release of the new Platinum Edition, making Presentation Server the only product on the market that virtualizes and streams and secures and measures the delivery of both corporate and personal Windows apps. Simply stated, it's now a legitimate mainstream solution for the delivery of all Windows application. At $600 per CCU, Presentation Server Platinum is placed at the same level as the access suite, our previous top of the line bundled offering. But it delivers more value by integrating some of the newest technologies, including app performance monitoring with EdgeSight, secure application access with Access Gateway, our new streaming capability for the on-demand delivery of Windows desktop apps. And the early customer response has been impressive. We're seeing the leading indicators of customers moving up the product family stack to from Advanced to Enterprise, from Enterprise to Platinum, driving a higher ASP for the entire PS product family.

Next is Desktop Server. Desktop Server was introduced earlier this month and expands our product line to include the delivery of virtualized Windows desktop delivered securely from the data center. The debut of this new technology marks our entrance into the high potential virtual desktop market, a market expected to grow dramatically over the next few years. Analysts have estimated that as many as 400 million Windows desktops will be upgraded to Microsoft's new Windows Vista. Faced with large-scale migrations, many organizations are reevaluating their desktop delivery methods, looking for more cost effective, secure, and reliable ways to do this. We believe an on-demand service based in the data center is a better way to deliver a Windows desktop to most office workers.

The early feedback we're getting from customers and partners is very positive. In fact, the tech preview of Desktop Server has been downloaded by over 3,000 unique customers since it was first made available. We've already identified 10 Enterprise customers that will pilot version 1.0, which is available now. We continue to view 2007 as a year for educating, testing and piloting with desktop server customers. This is the state of the virtual desktop market for 2007 and we expect revenue to begin contributing in 2008.

In January, we closed the acquisition of Ardence. And it's now running as a Citrix division. Ardence has the core IT and technology for real-time provisioning of operating systems. It's amazing technology that allows IT operations teams to centrally boot desktops, servers, blades and other devices from Ardence vDisk images. Think of it this way, you can power on a bare metal device and the operating system can be streamed to it over the network in real-time, taking full advantage of local processing power. These provisioning capabilities are very effective in the data center.

In fact, Ardence's Data Center Edition is a powerful tool for simplifying the management and migration of larger scale Presentation Server environment. With Data Center Edition, a virtual disk image of a configured Presentation Server, or any of its components, can be streamed to disk-less, bare metal servers in real-time, saving hugely on data center storage, power, and administration. With the product's Roll Back, Roll Forward feature, it's simple to trial test and implement new versions of Presentation Server, even including patches to the underlying Windows server operating system. In Q1-- actually, in the last month of the quarter, we had five Citrix customers buy licenses for Ardence's Data Center Edition to provision their upgrade to Presentation Server 4.5. We expect to see more of this in Q2 and going forward.

Next, NetScaler 8.0. With the recent release of NetScaler version 8.0, we continue to raise the bar for delivering web applications with the best performance, security, and cost savings. In this release, NetScaler now fully integrates the market-leading web app firewall from our earlier Teros acquisition, making it easy to secure sensitive application data without deploying a separate product. This release also gives network managers the ability to monitor end user performance of web apps. By integrating our EdgeSight application performance monitoring technology, NetScaler becomes the first and only web app delivery system to offer this important capability built in. In we believe measuring end user experience is critical for customers and this feature is a game changer in the web app delivery landscape.

Version 8.0 also includes significant enhancements to the App Expert Policy Engine. Our App Expert Visual Policy Builder makes it easy for network architects to customize NetScaler for any enterprise web app. App Expert rules can be created via easy-to-use graphical interfaces and intuitive policy options. Network architects are not required to become software programmers or application experts, nor do they need to pay consultants thousands of dollars per day to write custom scripts for each application. Additionally, App Expert Policy framework makes it easy for customers to mix and match functions, offering higher levels of service. This release sets new ease-of-use standards for configuring powerful application and user-specific policies. While the competition in this market is strong, we have once again raised the bar and established a level of differentiation that we believe is unmatched.

Next is WANScaler. WANScaler just introduced at Summit, as I mentioned, addresses application delivery for branch offices. During the conference, we offered training classes, allowing partners to get authorized to sell this new product on-site. Training class attendance was standing room only and we've already authorized over 120 partners. Even though we're in the early stages of ramping WANScaler, the leading indicators are strong. There's strong interest from both customers and partners and increasing growth in our opportunity pipeline. It's both a green field and competitive market. So we're staying aggressive with development and distribution. Later this quarter, we'll be announcing WANScaler version 4.1. So stay tuned.

That's the progress we made overall during Q1 with the six products we are promoting to medium, large, and global enterprises. I'm pleased with it. And I think it's a tremendous, tremendous quarter.

Next, I would like to talk about our Online Services. As David mentioned, our software service products, really targeting the prosumer and SMB customer, continue to perform extremely well. Growing at a 50% clip, these products continue to set a high bar for competition and for financial results. We saw a record increase in deferred revenue from Online Services during Q1 in both GoToMyPC and GoToAssist, revenues grew over 30%. Revenue from GoToMeeting and GoToWebinar accounted for over one-quarter of the online services revenue and continued to grow at triple digit rates.

We like what we're seeing with GoToWebinar. It's a game-changing product that makes it very easy for anyone to demonstrate, train and present information to large audiences over the web. Historically, online events have been pretty complex, often involving 50 to 100 time-consuming steps. GoToWebinar is winning, because it reduces it to three, self-service steps, making it very simple to deliver a successful Webinar. It's also the only Webinar product that can simultaneously reach 1,000 attendees for less than the cost of a mobile phone service. Having contributed over $47 million this quarter, our Online Services are now on a trajectory to surpass $200 million in revenue this year.

Overall, our momentum continues to build. While IT spending is growing at a meager single-digit rate, we have been growing in the double digits, substantially faster than the market. I believe we can continue to do so. We're in some of the hottest areas in today's software market; virtualization, application networking and software-as-a-service. This gives us three business engines to deliver sustainable growth over the coming years. These growth engines give us tremendous confidence in our future. At the same time, we're anticipating customer needs by acquiring core technology and building an exciting pipeline of new products.

During Q1 we acquired Arema, technology that will enable us to improve monitoring and management of processor work loads across Presentation Server environments and all of our products that are built on top of Windows Server 2003 and LongHorn Server. We also acquired thinGenius, a product that provides an intuitive low-testing solution designed to determine how Presentation Server and Desktop Server configurations service will scale, helping our customers remove performance bottlenecks and eliminating risks associated with system changes. We're also expanding our partnership with Microsoft through the joint development of a new Branch Office In a Box appliance that we've discussed in this past. This will further extend our WAN optimization capabilities and increase our addressable market opportunity.

And we're also building a workforce continuity [FAS] product. A project we code name, Kent, that gives businesses on-demand communication, collaboration, and application delivery capabilities that they need to handle unforeseen events that prevent workers from getting to the office.

Our pace of investment and our vision for app delivery has put us in an amazing position. The business relevance of application delivery infrastructure is growing rapidly, driven by the velocity of business change that will be emblematic of the next five years. We're offering the kind of flexibility, security, and efficiencies that businesses need from IT, now and in the future.

So, next we would like to open it up for questions. Celeste?

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Sarah Friar with Goldman Sachs.

Good quarter. Mark, could you talk a little bit in the Application Virtualization area; do you think we're now at a point where license revenue can start to grow there, now that we've gotten through some of those difficult comps on your 4.5 and some of those price increases kicking in?

I think we're well positioned for that, Sarah. I think Q2 we still had a little hang over from the XP end of sale from last year. But I think all of the moves that we have made really are setting us up well for -- especially the back end of the year.

So then as you think of the full year license growth rate, is mid-single digits back to where you kind of used to guide to, does that seem realistic?

Hi, Sarah, this is David, let me answer that. I think that, consistent with what we have said for a long time, we still look at this as a low single-digit growth business.

Okay.

No change to that outlook at this point in time. As Mark mentioned, I think we're pretty optimistic about the changes we have made to the PS product line, the ability that we have got to bring a lot more value to customers through Platinum, which will ultimately have the effect of raising ASPs and things like that, if we're successful. We think we're making a lot of moves, we're positioned well. And looking forward to the rest of the year.

And then just one other quick one for you, David. Can you give us any sense on cash flow from ops? I know you weren't able to give a lot of detail.

Unfortunately, I'm really precluded from talking about a at of the other financial metrics that we usually discuss at this point in time, just given the fact that the P&L is not complete. But I would point you to the -- to the normal main drivers of cash flow; the change in AR, the change in deferred and net income. And we'll be in a position to give a more complete cash flow statement as soon as the ops review is concluded.

Okay, great. Thanks a lot.

Your next question comes from the line of Adam Holt with JPMorgan.

Good afternoon. Thank you. I had a couple of questions on the Application Networking business. You gave the license number for Virtualization. Would you be comfortable giving us the same number for App Networking? And then secondly, as you look at the trajectory around WANScaler and now tramping into the channel, do you still feel comfortable that business can do over $10 million in license revenue for this year?

Let me take the second part of that question, first. Consistent with where we were when we acquired Orbital, we talked about $10 million or so in revenue for the full year. I think we still feel comfortable with that, like I said in my prepared remarks, it's very, very early stage in this market. We're just getting the products in to the hands of partners. It is certainly going to be a ramping story, more towards the back half. But we're happy with where we are from a product stand point, we're making a lot of investments on that point -- on that front. And I think we have got a great opportunity, frankly, in that market space. So yes.

I'd say on the other question about overall revenue. We are looking at the products, the way they are disclosed on the slides that are on our website and also associated with this release, in terms of license support and services combined. And those are the remarks that I made about the App Networking business growing over 50% was all inclusive.

Adam, this is Mark. The thing I would add to the answer that David gave you about WANScaler is that every time we introduce a new product in to our channel at Summit, we see probably about a two quarter -- what I like to call a flat spot. And it's the time that's being taken to authorize and certify technical and selling people in the channels, conduct all of the field readiness, et cetera. And we saw that with Access Gateway. At midyear we were behind, and by the end of the year we blew the plan away that we had going in to the year. And it's because it takes some time for us to get into the sales cycle and into the rhythm of our partners. We've also only authorized about 120, and that's growing all the time. I spent some time in the Pacific last quarter and saw tremendous interest there in getting onboard and learning and being authorized on WANScaler.

We also have some fantastic new product releases coming to enhance the product, some of the areas that we know we have been a little bit behind in for certain types of applications. So we're excited about that. And that will be a building process. And then of course, the work we're doing with Microsoft. Last Friday, I got an in-depth briefing and demonstration of the WANScaler product running on the Microsoft platform. Very impressive and very bullish about what I saw there. So it will be a building kind of year for WANScaler, and I think we'll see a good second half with the product.

And if I could just a quick follow-up on the buyback, it sounds like we're getting close to resolution on the options review, presumably that would mean then that you will be in the market with a buyback once you get resolution?

Yes, we'll be back in the market at that point in time. Right now we have about 300 million or so remaining under the current authorization, and would expect to resume our normal program once the window opens up.

Great. Thanks for the help.

Your next question comes from the line of Phil Winslow with Credit Suisse.

Hi, guys, good quarter. This may have been answered in your remarks, but I got cut off from the call. But could you just comment on the ASP trends? And obviously with the May 15th date coming with the price increases, and what the early feedback has been from the channel partners and customers? But also, and isn't just simply raising prices, but the additional functionality that you all have put into the Enterprise Edition and then Platinum in particular.

Phil, this is Mark. So for Q1, we really didn't see any material change in the mix or ASPs for Presentation Server. And the key thing to note there is something that David mentioned in his comments, and that is PS 4.5 in the new configurations with Platinum, Enterprise and Advance, was only available the last three weeks of the quarter. Which on one hand makes it pretty impressive that Platinum accounted for 4% of the revenue -- of the Presentation Server revenue. But at the same time, we haven't seen -- haven't had enough of a runway to have it impact ASPs and to really measure the kind of mix changes we will actually see.

If you look at the pipeline and all of the anecdotal data, it's very encouraging seeing customers that were buying Standard will buy Advanced, customers that were buying Advanced will be much more interested in stepping up to Enterprise. And then many customers who are buying Enterprise were really buying Enterprise because they wanted, quote, to own our most powerful application virtualization product. Now that product is Platinum Edition, and so we're optimistic about those same customers as they come around in another buying cycle, either to update or upgrade their systems will actually step up to the Platinum Edition.

So I think we're going to see this play out. We'll certainly get a great indication this quarter. And we'll see that play out over the next two and three quarters, because some of these cycles, especially for Platinum, are longer because it's a much more robust solution.

Just one more question. If you do look at the Platinum Edition, what is sort of the most compelling additional feature set that you have put there? Is EdgeSight starting to resinate and move the needle with customers?

The answer is yes, very much so. We saw EdgeSight actually, in several cases -- notable cases, go from being an EdgeSight-only kind of conversation to a Platinum conversation. Which, frankly, we did not anticipate that kind of uplift from EdgeSight. But the big contribution of EdgeSight is -- as an added value and a must-have capability for any customer that is going to be serious about app delivery, and want to really know what kind of user experience they are delivering. So that's a big adder to the Platinum Edition.

And then of course Platinum inherits all of the enhancements that 4.5 in general bring, especially the streaming capability that we built into the Enterprise Edition. So now whether you want to virtualize or stream to deliver a Windows application, you can do that with all of the single sign-on, access control, secure transmission over the network through SSL, and user measurement with the Platinum Edition. So I think that's why everyone is pretty excited about it. I think we had one chart in the deck that really showed almost bar -- almost like a bar chart of value reading left to right. And I would refer you back to that to really get the top line view of what is new.

Great. All right. Thanks, guys.

Thanks, Phil.

Thanks, Phil.

Your next question comes from the line of Israel Hernandez with Lehman Brothers.

Good afternoon, gentlemen, and good quarter. Dave, can you comment on the linearity during the quarter? What did you see, particularly during the month of March? There has been some concern raised by IBM and EMC and some others that the U.S. is slowing. Wondering what your experience was? And also, I don't think you gave this in your prepared remarks, but can you talk about the international contribution of the business and how -- how do the regions fair?

Sure. Let me talk to the first part. I think the linearity that we saw in the first quarter was pretty standard for what we have seen in prior periods. I think we actually had a good March. So nothing that I would highlight on that point.

From a geographic standpoint, the Americas was really the stand-out region, including North America and Latin America, growing 27% year-over-year. In the EMEA market, EMEA was flat from a year-over-year perspective. They also had a pretty tough comp last year after posting a great first quarter in 2006. So that growth rate was a little bit slower than normal. The Pacific region grew over 15% year-over-year. And Online Services, as you know -- which is not included in the geographic segments, is growing nearly 50%, as I mentioned before. So pretty much in line with expectations around the world. And the same for linearity, I would say.

Are you seeing any changes, though, in terms of customer spending intentions at this point? Or is this just kind of business as usual right now?

I would say it's business as usual at this point in time. I think as Mark described in his comments in some of the questions, we're seeing a lot of discussions -- pretty constructive discussions around Platinum, around higher level, more holistic solutions than I think we have in the past. I think it's very constructive at this point.

Great. Thank you.

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

Dave, can you talk to -- maybe what the GetCurrent contribution (inaudible) ?

Yes, GetCurrent -- we continue to have another good quarter for GetCurrent across both, what we call reinstatement, which are people who that have lapsed less than a year, and recovery, which have lapse their scription for more than a year. I think both of which were up pretty substantially on a year-over-year basis and showed a little bit of seasonal decline from Q4 to Q1, like we expected. So all in, those programs and the teams that are driving those, are continuing to do a great job. I would refer people back to the slides that we used at our financial analysts' day to really drill into the opportunity set there is out there with several million licenses of what we believe are active customers that are not on current subscription right now. It will continue to be a focus area for us throughout the balance of the year, especially as we bring a lot of the newer technologies, Platinum and various upgrade alternatives, to that installed base.

Could the number have been around that 10 million mark where it was prior to the fourth quarter?

Yes, it was north of that.

Great. And then you also, in your prepared remarks, you referenced the -- you recognized some opportunities for increased investment. Is that a change? And did I hear that right? And are you spending or investing money in some new places?

No, I think that -- it's a continuation of really the stance and the position we have had for a long time. We're continuing to invest in a long-term focus of the business. We see a lot of growth opportunities, not only on the product side to ensure that our products are leaders in their categories, but also on the go-to-market side, in areas that are really just most effective for each region, whether that's incremental feet on the street or new market penetration, et cetera. So I think there's a lot of things that we want to do. And a lot of things that we're really going to be focused on driving over the balance of the year.

Lastly, is NetScaler gaining any traction outside the United States? Thank you.

The answer is yes, Steve. It's beginning to gain some traction. And it is spotty, based upon the depth of field capabilities that we have in certain areas. So parts of Europe, we're doing real well, parts of the Pacific, we're doing real well. And we're doing real well in places in Latin America, as a matter of fact. The common theme is wherever we have good, technical people in the field that can work with our partners, especially in those early transactions, to train them, that's where we're seeing traction. And then especially in Enterprise kinds of customers, in those regions as well. Again, Enterprise overall had a great quarter. But especially in international markets, we saw great traction there.

Thank you.

Your next question comes from the line of Todd Raker with Deutsche Bank.

Hi, guys, nice quarter.

Thanks, Todd.

Two questions for you. Back to Sarah's question around kind of the core growth rate in the Presentation Server side of business? With the price increase kicking in the back half of the year -- if you still think this is a low single-digit grower, it almost -- infer that on a unit basis, you could be down year-over-year on units. Just kind of walk us through how you are thinking units versus pricing, as we think about this six to 12 months out?

Todd, I'll take it and maybe David will jump on it. I think what -- we're answering the question this way, frankly, because we don't have any data yet to point to in terms of actuals. And then secondly, we don't know what the sales cycles will, in fact be, when it comes to Platinum and in terms of converting all of the love that we're seeing right now into cash. Okay? So I think that's -- giving us, sort of a -- two responses to you. First, it's to -- on the upside be cautious. And secondly, to feel confident about this sort of single -- mid-single-digit sort of growth rate that we think the licenses can perform at over a sustained period of time. So that's what you are hearing from us.

I think as we get more direct experience and actuals, we'll be able to comment a little bit more clearly on that. But it's just -- here we are, we are barely now six weeks into the availability of the products, we're coming up on the end of sale of Access Suite and 4.0 and so forth, May 15th. So there are a lot of moving parts here and we just want to be a little cautious about it.

Okay. And Mark, you commented on kind of Microsoft and your partnerships. Can you dive in -- around LongHorn Server, I believe Data 2 is shipping; what do you guys see in terms of functional improvement from Microsoft's perspective? And how do you think your value proposition changes as LongHorn Server shifts?

So without sort of getting overly granular about it, we do have some good internal -- kind of white papers and all that we made available to partners, et cetera. We certainly can make them available to you on LongHorn. But the strategy is pretty simple. First of all, LongHorn brings a whole bunch of technologies forward that improve the performance and scalability of Windows server. And a better Windows server means a better Presentation Server, a better Desktop Server, et cetera.

Secondly, we have done a lot already that you see coming out in 4.5 and then the next couple of releases of Presentation Server that continue to move Presentation Server up the -- up market toward the premium segments. Microsoft always gets the sort of entry level segments with their basic system, and we acknowledge that. We have never stood in the way of that. We have -- so we have worked closely with them to find value-add opportunities.

So you'll see us doing much more to allow more graphical types of applications to be virtualized, some of that is in 4.5. You'll see even more in the next release. We're doing a lot more in the manageability area, making -- plugging in to Microsoft's management structure, but also doing a lot more to instrument Presentation Server, and make that information visible to some of our own products and some of our partner's products. We'll do a lot more in making the infrastructure simpler to manage on a larger scale. Some of the intelligence that we're putting into load management, and the intelligence we're putting into the system around self healing; it is these kinds of thing that make a difference to the medium to global-sized enterprise that we think that we're really focused on serving in that Microsoft, I think, believes we're a great partner in. So that's the way to think about it.

Okay. Last question for you, Citrix Online has just been an absolute home run as an acquisition. Given that runs as an independent entity within you guys, would you ever think of spinning that out or selling it?

Not at this time. We think they are contributing greatly to the Company financially, but also strategically. As you see the first evidence of -- significant evidence of that when we release Project Kent in the back half of the year, with IBM as our go-to market partner. The GoToMyPC infrastructure is a key piece of the system. The entire system was built as a service, and a lot of -- so you'll get a sense for that. As we go further, you'll see us have a great opportunity to integrate application sharing into some of the other products that we have, and on-demand assistance in to other products we have. So that's what to expect.

Okay. Thanks, guys.

Thanks, Todd.

Your next question comes from the line of Ed Maguire with Merrill Lynch.

Yes, good afternoon. A question for Dave. I know you are hampered by the amount of detail you can give us around OpEx, but did the operating expenses during the quarter end up higher or lower than you had initially anticipated?

Interesting question. Beyond -- it is, unfortunately, one of those areas where I can't just drill into a whole lot right now. Simply because you got to start with a GAAP number and work backwards from there. And really the only granularity that I can give on expenses is what you see in the press release and in my prepared remarks. But the one thing that I would call out is say that the expenses associated with the option review, as I mentioned earlier, were obviously substantially higher than we had thought, coming in at about $6 million for the quarter. So we certainly missed that one.

Okay. Moving on to deal sizes; if you could talk about the average deal sizes that you saw in the quarter in your top 10 deals? And also -- I know you have got some incentives to encourage cross-selling across the different product lines. Could you just speak to how successful your initiatives there have been so far this quarter?

Let me take the second one first, Ed. So the cross-selling and the incentives we put in place -- I think you are talking about the jump and the span bonus programs. And some of the products that are eligible under that program shift late in the quarter -- in the last month of the quarter. So it's a -- we're encouraged -- those expenses come out of contra, so they are in the revenue numbers that David did talk about. And they were up in a good way, as a result of our partners taking advantage of both span and jump. We'll have a better read on that this quarter, obviously, when we have a -- pretty much a full quarter where all of the projects that eligable, specially Platinum Edition, specifically NetScaler, WANScaler, and Access Gateway, Enterprise Edition and EdgeSight -- excuse me -- are all eligible for this bonus program.

I would just add on the deal size, nothing terribly unique this quarter. We had a couple of individual transactions over $1 million. We had a number of other transactions between $0.5 million and $1 million. From a GO split, I would say half of those were in the North American markets, half were in the EMEA markets. And specific to NetScaler and the App Networking group, we had three customers that, in the aggregate, were over $1 million in total purchases but not against a single transaction. Two of those three were in the traditional media-metric space, and one of them I would classify in telecom infrastructure.

Okay. Thanks.

Pretty consistent across the board. As I did mention earlier, we're seeing a higher and higher percentage of the App Networking transactions coming from what we would consider be traditional Enterprise customers. Certainly along the expectation, as we train up more of our partners, get the products out there in to the hands of our existing customers and sales organizations.

Ed, I would add to that that this is the kind -- these are the kind of metrics we actually like to see, to not be overly dependent on seven figure deals and big deals in any quarter. When we look at the trends around, what are we selling to existing customers, either cross-selling or where we're selling licenses for new projects, versus a new customer or a brand new project. It still runs -- about two-thirds of our revenue comes from a customer that knows us, that we know them. And they're maybe -- they are not huge transactions, maybe up to $800,000. And there's more of a flow to that business with them. The new customer sort of part of the business still runs around one-third of revenue.

Your next question comes from Dino Diana from UBS.

Hi, sorry about that. With regard to operating margin, if we back out the amortization and the write-off and the $6 million legal fees, we get to about 24.6. If you follow the same guidance that you are guiding to, about 25% for 2Q; my question is one, is that math right? And two, what does it mean for your former operating margin guidance of mid-to high 20 range? Is it really -- should we read that it's more concentrated at the low end of that range for full year?

Coupe of things, Dino. One, like I said a couple of times, I'm not at liberty to dig in to a lot of the financial line items that I normally am, given the ongoing to review. And until there's a GAAP number, we just can't go in to a lot of detail. But I'd say at the highest level, we're not changing our stance that we have had for a long time on the way we're operating and running the business. Our forward outlook, beyond -- even beyond 2007 continues to be mid to upper quartile operating margin, which we consider to be in the -- excuse me, mid to upper 20% operating margin -- which we consider to be in the upper quartile of our peer group. And we'll balance that with what we consider to be, also, significantly above-average growth and investing for the long term. I can't help you with your math this quarter, just based on the limitations. But I hope that helps.

Okay. I guess from a revenue perspective, just one quick clarification on Ardence; is that included in that App Virtualization segment?

No, that's in the Other segment.

In the Other. Okay. All right. Thanks.

Your next question comes from the line of Steve Freitas with BMO Capital.

Hi, good afternoon. Nicely done this quarter.

Thank you, Steve.

Thanks, Steve.

This may not be a fair question, but I'm just curious as you look out a year or two years; what do you think will be a larger business, will it be the Application Networking group or the Software-as-a-Service group -- the Online property?

Wow. Two very different types of businesses in terms of how the revenue -- the type of revenue streams they are. I think sort of in scale, people, growth rates, et cetera, I think it's a horse race. And both of them are addressing very high growth rate, sort of primary markets that are green fields. And -- and I think that we have sort of market-leading technologies to go after those green field opportunities and I think -- in both cases. So I'm not sure I could answer you better than that, Steve.

Okay. I guess secondly, if you listen to a lot of the other WAN optimization vendors in the space, they make a lot of noise regarding some of the client software innovations that they either are shipping or planning. And from what I recall, WANScaler has a similar client software. I'm just wondering how important you think that piece of technology is going to be? And if there's any bundling advantages that you have relative to your competitors, given that you also sell SSL VPN, which has a client component, and the obvious bundling opportunities and pricing opportunities there.

Yes, we -- we have had alpha versions of our client out shown to customers. And it's great technology and we'll be one of those and one of the first to offer something to customers in the market that's real. I'd say this, that in the whole scheme of things in WAN optimization, I think we should expect this type of solution to make a difference sometime down the road. That right now, the opportunities are around sort of mesh-type configurations, point-to-point configurations, tying in branch offices, et cetera. And the client, actually, is more for the, quote, microbranch, someone who is working at home.

And we do have some advantages there, because we will be able to bake some of that technology into some of our other client software that is widely distributed, either through our App Virtualization businesses, or our -- our SSL VPN business, and so forth. So -- but we haven't -- we're not sort of thumping our chest about these kinds of things, we're going step by step after the meat and potatoes of the marketplace that I mentioned. And we have got some great innovations coming. And then we're pretty confident in what we're doing with Microsoft, in that, we believe that a tremendous number of customers would prefer to have a Windows-based device in the branch that has the broad set of services ranging from DHCP, DNS and so forth, that work very nicely and managed in conjunction with the WAN optimization capabilities that you are putting there. And then tying that into either a Windows or non-Windows kind of head-in device in the data center that sits in front of -- directly in front of either Windows or Web App. And I think we have some advantages there.

So we're going to take this step by step. And we have got a game plan, and we think it will take four to six quarters to really play out significantly. And e're doing it patiently and step by step.

Thanks a lot.

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

Thanks very much. Dave, understanding you are somewhat handcuffed in what you can say on the expense side, but if I look at what what you guys did this quarter and then look at the expense guidance for the second quarter and then the full year; is it fair to say that the investments are going to be somewhat front-end loaded this year?

I think the investment profile for the year is pretty consistent with the way we have looked at it in the past. We certainly aren't trying to necessarily put investments in a specific quarter. There's kind of an operational reality about the investments we are making in the business and our ability to consume, if you will. And we'll be investing throughout the year, because we really are focused on a multi-year view of this business, not simply trying to optimize quarter-to-quarter. The only unique thing in the two quarters was the stock option review costs, all of the accounting and legal fees, which are $6 million in Q1 in the actuals and a forecast for $3 million in the second quarter. Which we'll obviously go into in more granularity upon the Q2 call, just given that it is a forecast at this point.

Okay. I won't pursue that any further I guess. And then Mark, can you give me some idea with NetScaler 8.0 getting released; what are your expectations for that product, in terms of how long it's going to take to hit its stride? Obviously, you guys had a good quarter with NetScaler up sequentially. But with NetScaler 8.0, when should we really see it firing on all cylinders, in terms of getting into the channel and getting customers comfortable with it?

Yes, I think -- we don't expect to see step functions in this kind of thing, because remember, our customers are on maintenance. And we'll tend to update them in place. But the new capabilities, obviously, open up new opportunities. And that's all dependent upon the training, field readiness, et cetera, that we're doing around the App Expert area. Obviously -- really helps a lot, especially when you are going to market through partners and want partners to be able to go in and really set this up well for a customer and really take the load off the network architect, et cetera, and set up policies and rules. So I would say that we'll start to see some real impact, probably, later in Q3, as we get the training in place and get a sales cycle going. And obviously, we have got the summer season in between.

Okay. That's it for me. Thanks.

Thanks, Kirk.

Your next question comes from Rob Owens with Pacific-Crest Securities.

Yes, good afternoon. I wanted to focus a little bit on the NetScaler side of the business. You mentioned that you were seeing more Enterprise customers there. Can you discuss how that mix has changed quarter-over-quarter? And then are you seeing anything new on the competitive front or your win rates on either side of the business, the enterprise or the dot-com.

Let's see, Rob, how can I answer you? First, on the internet-centric business, we're still pretty much winning 100% of the deals that we are in there. And that's been sort of the hallmark of NetScaler for a long, long time. And we really understand the needs of internet-centric customers. We have been building now for a few quarters, this momentum in terms of partners, and in terms of the kind of product features you need to go to market through partners to the enterprise. And that's included kind of lower-end appliances for more entry-level type systems, the ease of use capabilities you see in 8.0, and then the additional authorizations of partners. And we see that we're up nicely in Q1, in terms of partner authorizations. So that has lead to -- actually a much higher transaction rate in the enterprise business. And that's growing nicely. Again, the transactions aren't six-figure transactions, they're -- they are going to be many sort of under $100,000 deals, but we like that. That's the kind of business that we like, especially when you have a larger scale partner network. Hoping to continue to grow the partner network, not only in North America, but outside the U.S.

I think I mentioned a little earlier, we were up -- I spent two weeks over in Asia, actually in China, in the quarter. And we actually held in the Pacific, a two-day training event we called Partner Accelerator. And over the course -- we had it in six cities, the final one was in Beijing. We had 300 people come to the Beijing event, spend two days, tremendous interest if you look at the attendance in the sessions on NetScaler and WANScaler. And we saw -- we actually trained over 1,200 people in the Pacific alone in our partner network across all of the -- all six strategic products in the quarter. So we're kind of this machine, right? Especially when you get outside the U.S. where it's -- the territories are a little more dispersed.

I would add one comment to that, Rob, just specific to the numbers and the trending you were asking about. I think it's fair to say that now we're running about 50/50, in terms of enterprise versus more traditional media metrics customers, when it comes to revenue. Certainly, on a new customer basis, the majority of them are more traditional, enterprise-type commerce. A year ago, I'd say that the mix was probably 75% media metrics, 25% enterprise. It was certainly trending in that direction. Really consistent with the way we have been talking about the growth of the Business for sometime.

Great. And the other question; across those two verticals, any sense of your win rate improving?

Across the two -- ?

Internet-centric and (inaudible) enterprise --

Win rate? It's hard to get better than 100% in the internet-centric market. And then the win rates in enterprise are obviously improving, because we're seeing good growth there. So we're happy with both of them. And we're especially happy with the leverage we're getting in the go-to-market with partners. I mean, I think that's super important to understand our game plan here, not only in terms of the ramp, but also the kind of features that we're adding to the products, the kind of go-to-market programs we're implementing in the advisor reward bonus program. All of that kind of comes together and builds momentum over time. So that's the answer to your question.

Great. Thanks.

Operator, I think we have time for one last call.

Your next question comes from the line of Jordan Robert.

Hi, this Katherine Egbert at Jefferies. Just a quick question, Dave, can you quantify the impact of the end of life of XP, the end of maintenance on 3.0, 4.0 and then the end of service on Access Suite that all come up in the next quarter?

Not really. I think that its's not a specific number, when we look forward. The major event is the end of sale of XP. That was the big one, if we looked back a year ago. We saw the major impact across the fourth quarter of 2005 and the first quarter of 2006. And we have talked about that a long time. I wouldn't expect any material impact from just the end of maintenance or end of support. I think it's just one of those additional incentives for customers to migrate to the more recent platforms to get current, to get that type of support. But I wouldn't look at it as a stair step, just another one of those incremental positives.

What about the end of sale of the Access Suite in May?

No, I think that's not a big deal, simply because current Access Suite customers will be able to participate with the Platinum version, so we're actually going to be giving that to them if they are on current subscription. So we look at it as a real positive for those customers to be able to get those incremental new products for what they have been paying for subscription against the Access Suite.

That's helpful. Thanks.

You bet.

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

One again, thank you for joining us today, and we look forward to seeing you in three months and reporting to you on our Q2 results. Thanks and have a good day.

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