思杰系統 (CTXS) 2008 Q1 法說會逐字稿

Good afternoon. My name is Jennifer, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Citrix Systems first quarter 2008 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, Jennifer. Good afternoon, everyone, and thank you for joining us for today's call, where we will be discussing Citrix's first quarter 2008 financial results. Participating in the 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 the slide presentation associated with the webcast will be posted immediately following the call. Before we begin the review of the financial results, I want to state that we have posted product classification and historical revenue trends related to our four product groupings to the Investor Relations page of our website.

As we get started, I want to emphasize that some of the information discussed on this call may be characterized as forward-looking statements made pursuant to the Safe Harbor Provisions of the US Securities Laws. These statements involve a number of factors that could cause actual results to differ materially from the statements made today including risks associated with the company's businesses, general economic conditions, the company's revenue growth, the company's products, and the demand for our products, their development and distribution, competitive factors, the company's key strategic relationships, the effect of new accounting pronouncements on revenue and expense recognition including the effects of FAS123R on certain of the Company's GAAP financial measures, acquisitions and related integration risks.

Additional information concerning these factors is highlighted in today's press release and in the company's filings with the SEC, including the Risks Factor disclosure contained in our most recent annual report on Form 10-K filing available from the SEC or the company's investor relations website.

Additionally, during this call, we will discuss various non-GAAP financial measures as defined by the Securities and Exchange Commission's Regulation G, which include adjusted operating expenses, gross and operating margin, operating and net income and earnings per share. The most directly comparable GAAP financial measures and a reconciliation of the differences between the non-GAAP financial measures discussed on today's call, and the most directly comparable GAAP financial measures can be found at the end of our press release dated today and on the investor relations page of our website.

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

Thank you, Eduardo, and welcome to everyone joining us this afternoon.

Today Citrix reports another solid quarter of revenue growth. Our app virtualization business, up 19% over last year, is continuing the momentum from 2007. Our online services had a great quarter, up 31%. Our app networking business was up 17% and we made tremendous progress building the foundation of two high potential businesses in desktop and server virtualization.

From a geographic perspective, our international businesses continue to execute extremely well, growing about 30%, offsetting a couple of pockets of weakness that developed in the US during the quarter. Our focus and investment in building a more global footprint, product line breadth and business model diversity is serving us well in spite of the economic headwinds in the US.

Turning to the numbers. In total, we reported quarterly revenue of $377 million, up 22% over last year. Product license revenue in the quarter was $147 million, a 20% increase, adjusted EPS of $0.35 and the adjusted operating margin was 20%. So overall, solid numbers for the quarter.

Now, I'm going to provide more detail on our results by region and product area. As I mentioned, performance by geography was varied during Q1. Europe, Middle East and Africa revenue was $127 million, growing 31%, while revenue in the Pacific geo was $31 million, up 28% year-on-year. Since we price in US dollars globally, these results are on a constant currency basis.

The performance here also demonstrates a return on many of the go-to-market investments that we have made in these markets over the last year. The Americas business was mixed in Q1 with revenue increasing 13% year-over-year to $157 million. Within the US, it appears that economic concerns are causing some customers to be a bit more cautious especially with the smaller recurring transactions typically seen in small to mid-size customers. I expect this revenue to be less predictable for a while leaving us to be a little more cautious in our US forecast.

Next, I would like to review certain product areas and the trends in those businesses. First, our app virtualization group grew 19% year-over-year to $268 million with license revenue increasing over 20%. The key driver in Q1 was the continued success of XenApp Platinum, which contributed 28% of total app virtualization license revenue. As we have seen in prior quarters, Platinum licenses are driving increased ASPs and average deal size for new customers in this business.

In Q1, there were three XenApp Platinum deals greater than $1 million, demonstrating the strategic value that customers are seeing with this solution. Looking forward, we believe that XenApp Platinum could contribute upwards of one-third of all new app virtualization license revenue for the full year, and customers are also renewing subscription advanced contracts for XenApp at consistent levels in the mid 80s percent range, which helped increase deferred revenue by over $18 million during the period.

The second product area is our app networking business. Total revenue in this group was $38 million, an increase of 17% year over year. As we discussed in prior quarters, we've been increasing our capacity to service customers in enterprise accounts particularly in the international markets, which showed strong growth in Q1. In fact, the number of new enterprise accounts in the ANG business continue to increase sequentially and the Platinum addition of NetScaler, which is targeted towards these customers, contributed about 20% of group license revenue. The one area of weakness here was within the US market. We've seen some delay in capital spending decisions due to macro concerns. We've also witnessed a product cycle pause as customers are looking forward to the delivery of our new NetScaler MPX platform, which is scheduled to ship this quarter.

The last area I'd like to touch on is our business in server and desktop virtualization. In Q1, we recognized 3 million of revenue. The large majority of early business here is being generated through our channel where we now have 2,400 authorized partners. In Q1, we were focused closely on building the go-to market foundation, getting partners certified, trained and preparing for a broader ramp in the second half as we stated in the past. Additionally, our new OEM partners HP and Dell began shipping their embedded server offerings earlier this month. With the way these arrangements are structured, we will begin to recognize revenue in the third quarter. Mark will provide greater details on this business later in the call. Now, let me talk about expenses and operations in the quarter and some of the items that impacted the Q1 results.

Adjusted operating expenses were $274 million, up 24% year-on-year and 1% sequentially, driving an unadjusted op margin of 20%. While currency fluctuations are negatively impacting our expenses, the largest increase in cost was due to additions in headcount. We added about 200 people since the beginning of the year and now have 4,850 total employees. Functionally, the largest increases continue to be in the sales and services teams, many focused on server and desktop virtualization. Our adjusted tax rate in Q1 was 20%. It was a few percentage points lower than our forecasted rate as a higher proportion of income was generated in international markets.

Turning to the balance sheet. We currently have $850 million of cash and investments. And within our investment portfolio, we hold $45 million of auction rate securities. While these securities are all AAA-rated instruments, we have reclassified them to long-term investments due to the ongoing liquidity issues in this market. We also recognized an impairment charge here during the quarter of $2.1 million.

From operations, we generated $107 million of cash flow in Q1, bringing the 12-month total to over $400 million. Our primary use of cash in the first quarter was for share repurchase. During the period, we received over 4 million shares from open market purchases and other structures and the company now has about $260 million available in the program as we enter the second quarter. So overall, looking at the results, I am pleased with the Q1 financial performance. We have continued to execute against our strategy while delivering solid growth.

Finally, I would like to talk about our current outlook and expectations for the second quarter and the rest of 2008. Before we discuss numbers, let me provide you with some context around our forward outlook. Obviously, we are continuing to see solid demand across many areas of the business. We are also optimistic that our strategy is becoming more mainstream for customers and the investments we've made will help strengthen our competitive advantage in the future quarters.

We are unchanged in our position regarding the huge market opportunity in front of us. We will be mindful about the current US economic climate that may be impacting some of our customers. So in order to be proactive, we are reprioritizing some of our investment plans in order to maintain our focus on profitability targets. Additionally, the rapid reduction in market interest rates has caused the return on our investment portfolio to decline from our original plan. With rates trending down as rapidly as they have, the impact on investment income could be up to $15 million over the balance of the year. To account for all of these items, we are modestly expanding our 2008 guidance range.

So turning back to the numbers. We currently expect for the second quarter of 2008 total revenue in a range of $380 million to $390 million, interest income of 7 to 8 million, an adjusted tax rate of 21 to 23%, an adjusted EPS in the range of $0.35 to $0.38 a share. For the full year 2008, our current outlook is total revenue in the range of $1.6 to $1.645 billion and adjusted EPS in a range of $1.54 to $1.64 per share.

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

Thanks a lot, David. I am delighted to report another great quarter of growth and I am really proud of our excellent operational and strategic execution. As David mentioned, US market conditions have made us a little cautious, in the short run, we'll balance spending plans, focusing on those areas where we see the most growth potential, but we won't lose focus on our goal of offering the world's most complete set of solutions for application delivery, both premise based and as an online service.

Over the past two months, I have had the pleasure of seeing quite a few customers and partners in the US. Universally, our message is resonating with them, a single architecture that gives them a long-term solution to what matters the most, getting applications to users precisely when and where they are needed. At the same time, they are clearly squeezing IT budgets. In odd way, tighter IT spending makes our value propositions more visible, more relevant, and even more compelling, allowing us to help customers rethink their strategies for lowering IT costs, enabling a virtual workforce, reducing travel, increasing employee productivity, and getting more operationally green. This listening to customers is how Citrix grows.

For 2008, our focus is on execution and investment in five priority areas. First, strengthening our position in app virtualization by re-launching Presentation Server as the XenApp product family, driving aggressive Platinum edition revenue mix, and leveraging the new Windows Server 2008 platform. Secondly, increasing our share in enterprise WebApp delivery by improving the capabilities of NetScaler Platinum edition and releasing a next generation platform that really pushes the envelope on scalability and extensibility. Third, build on the scale out investments we have made in our online virtualization platform to further penetrate the SMB market, to provide innovative new products, to globalize into new geographic markets, and to further simplify our customer experience.

Fourth priority, to build velocity and our go-to-market capacity in both desktop and server virtualization, by ramping our channel and OEM programs throughout 2008, by leveraging our Microsoft partnership, and by introducing XenServer and XenDesktop to our partner network. And the fifth priority is to really step up the volume of our Citrix Delivery Center message. Citrix Delivery Center, our Uber-brand to capture all of our product lines in one family. And the message to drive an end-to-end system vision to increase the breadth of our partnerships and to improve the cross integration of our product into a system. We are doing well against each of these priorities and next I would like to double pick on each one a bit.

Over the past 18 months, we put in place all the elements needed to reposition Presentation Server as core mainstream infrastructure, a system for virtualizing Windows applications that separates the application from the Desktop OS, transforming it into an on-demand asset. This provides amazing customer value, saving significant time and money for IT, providing powerful information security controls, improving application performance, and making Windows apps much more manageable.

To re-launch Presentation Server, we chose the biggest stage of all, joining Microsoft in over 40 countries as they introduced Windows Server 2008 to millions of customers around the world. We also announced a bold move to rename Presentation Server to Citrix XenApp, joining our XenDesktop and XenServer brands and uniquely positioning Citrix with end-to-end virtualization for apps, desktops, and servers.

Citrix XenApp virtualized Windows applications by separating them from the Desktop OS on both the service side and the client side. In simple terms, this means never having to install apps into the desktop again, dramatically improving the cost, performance and useful life of the PC. XenApp is being seen in a whole new light, but there is lots more to come. We have an exciting innovation pipeline for XenApp that we'll begin to deliver in the second half including full support for Windows Server 2008.

Next, I would like to talk about our App Networking business. After a banner year in 2007 that saw us gain market share on our key competitors, the growth rate in our app networking business slowed a bit last quarter with partners and customers eagerly anticipating the release of our next generation appliance in Q2, the NetScaler MPX series. We are not ready to fully unveil it here, but let me give you a sneak peek. NetScaler MPX will be the world's most powerful line of Web application delivery appliances. MPX features a massively parallel hardware architecture that leverages all the latest advances in Intel's multicore technology to deliver unmatched scalability and extensibility.

In addition to setting new performance standards for our largest Internet-centric accounts, NetScaler MPX also represents an exciting new breakthrough for enterprise customers, clocking in at more than double the capacity of the previous generation. NetScaler MPX can deliver twice as many enterprise apps with the same infrastructure footprint, dramatically improving data center efficiency and green computing initiatives. This advanced processing power also meets the emerging needs of next generation Web apps including XML-based SOA, Web 2.0 apps, and even rich media apps that make heavy use of audio and video. This exciting new release puts Citrix in an ideal position to capitalize on the rapid growth in Web applications and gives us confidence that growth rates in our app networking business will rebound going into second of half of this year.

Next, I let's [double pick] on our online services. The scale out investment we have been making in our online virtualization platform continues to pay off. Our online services division delivered another solid growth quarter driven by great execution and demand across customers of all sizes.

The business was led by one of the fastest growing Web services in the world, Citrix GoToMeeting. With revenues of 67% year over year, this product is being driven by market factors such as escalating fuel costs, cuts in travel budgets, and increased teleworking needs. In addition, our remote access and support services achieved a 19% year-over-year growth rate led by GoToMyPc, which continues as the market leader. The beta version of GoToAssistExpress, our new remote support solution for professionals, has been a huge hit.

Following in the footsteps of the ever popular GoToAssistCorporate, which saw 85% session growth year over year. The GoToAssist product family can now meet the needs of any organization from one-to-one interactions in the smallest business to the high volume customer service needs of the enterprise. Our real time collaboration products are known to be innovative, easy, fast, and secure, focused on exactly the right features and unequalled user experience. Beginning this quarter, we will begin introducing improvements and new products that will raise the bar again, so stay tuned for this.

Next, let's drill in on our newer virtualization opportunities enabled by the Q4 acquisition of XenSource. Q1 '08 was our first full quarter of integrated operations with the XenSource team. As you know, our 2008 plan is to invest in the first half in order to ramp up second half revenue in both desktop and server virtualization markets. We are on track hitting our technical milestones, achieving organizational growth and putting channel and OEM routes to market in place. I am amazed at how much building we have accomplished in such a short time.

XenServer version 4.1 was announced and released in Q1, many customers and partners were waiting for 4.1 to begin evaluations, pilots and competitive bake-offs. This release added over 50 additional features focused on scalability, performance, usability and storage integration. The 4.1 release also included the build of the OEM embedded edition of XenServer. And last week, we released the Platinum addition of XenServer. It is the first server virtualization product that can dynamically deliver workloads to both virtual and physical servers on demand. Bringing the overall value proposition of virtualization to every server in the data center.

The XenServer road map gets even more exiting from here as we enhance its enterprise capabilities offer interoperability with Microsoft's Hyper V. And continue to work toward bare metal workload performance. There is a lot of excitement coming for both customers and partners. From a channel prospective, we authorized an additional 800 partners during the quarter exiting with 2400 in total. We exceeded our certification goals for both sales and technical specialists adding over 1200 in Q1. Early partners are becoming more active, in fact 60 partners closed deals in both Q4 and Q1. There has been a lot of focus on training along with creating an opportunity pipeline, which is looking good. So I'm pleased with all the channel metrics that I see to this point.

Our partners added over 400 new XenServer customers during Q1, 75% were first implementations involving one or two servers really planting seeds for the future. The rest were with customers implementing between 3 to 100 servers, the very early signs of committed implementations and our ability to win in various customer sizes. We are doing this by offering a high performance and a package that's faster, simpler and lower cost to implement.

One of our North American partners won a 100 server deal with a well known dotcom customer in Q1. They are running hundreds of application workloads. The customer was using first generation virtualization looking to upgrade. We won the business by demonstrating XenServer's robust feature set, virtual machine portability and a fast time to implementation.

We also won a 50 server deal with an internet service provider, who was running out of data center power and space. They evaluated XenServer head to head against other solutions including extensive load testing and system overhead analysis. In the end, they chose Xenserver for its bare metal installation without a dedicated host operating system, open interfaces and fast provisioning of VMs from their existing storage infrastructure. Wins like these are giving our channel partners the confidence they need to offer the unique qualities of XenServer to their customers. So, in short the channel metrics are solid, early customers wins are beginning and we are on track.

DELL and HP our embedded hyper-visor OEM partners used Q1 to conduct final testing for product shipments that began this quarter as David mentioned. So the OEM business is a front loading process too, involving a significant amount of upfront awareness and educational initiatives. We already held XEN seminars and training with almost 3000 people at Dell and HP. In this quarter we'll begin to focus on HP and Dell's channel partners creating demand for both embedded and add on XenServer solutions. This is why we will take a little longer that anticipated to produce revenue but we are confident in its ability to contribute significantly to our market entry and penetration.

Next is the other exciting new virtualization opportunity in the desktop virtualization market, XenDesktop our end-to-end desktop delivery solution is the most anticipated new product we have ever released. We are delighted with the press coverage, analyst reports and customer commentary that's been building in advance of our launch later this quarter. All-in-all we have maintained several points of view on this market.

First that 2008 will primarily be a pilot at the year with significant implementations in 2009. Secondly that success will lie first in providing a user experience that's equal to or better than an office or a physical desktop. Third that the economics have to provide a tangible savings to IT, this is even more true with the current economic environment. Fourth the operational scalability has to be built in from the beginning especially for early adopters. And that a value added partner ecosystem like Citrix Ready partners is essential for the complete end-to-end solution for customers. These are our views enlightened by our competency in the user tier of computing by our technical innovations, by the partnerships we built and by our strategy to reframe VDI in the industry with a strong collaboration partnership with Microsoft.

XenDesktop makes desktop virtualization viable, really for the first time, XenDesktop dynamically assembles a unique personalized desktop, from new pristine components each time the user logs on. And runs it on a powerful data center server and provides access from a no maintenance desktop appliance over a LAN, WAN, or Internet connection. So as a user you feel like you are getting a fast brand new personalized PC every single day so now imagine that, imagine how that feels. Six weeks ago we offered a free public beta of XenDesktop and we're averaging 1,000 downloads a week. The feedback has been amazing with many customers queued up for early stage implementation when it goes to GA.

We also have a white glove beta program for about a dozen or so select customers. They intend to use on desktop across a broad set of solutions. Here are a few quick examples, there is a large regional healthcare organization that decided to use XenDesktop to centralize control of hundreds of desktops across a broad farflung healthcare network replacing PCs with Desktop appliances from our longtime partner Wise. There is a media contract provider in the UK that's providing access to proprietary content and services to their partners and customers relying on XenDesktop for a "like being there" user experience over a wide variety of network connections. There is an emergency call center that plans to use XenDesktop and XenApp together to deliver a Desktop employment that spans 8 displays along with all the applications needed to respond to a public emergency.

And there is a large US financial services firm that's leveraging the beta to deliver virtual Desktops to contract employees in India from their US data center. XenDestop will be released real soon and we'll have a lot more to say in May at our annual customer event now called Synergy. Citrix Synergy is a brand new global customer event that features thought leadership in virtualization, networking, and app delivery. It incorporates our iForum event and this year is the first step toward making Synergy an industry conference designed for a broader range of technical and business attendees.

Keynote speakers include senior executives at Microsoft, Intel, HP, and Cisco, as well as industry analysts from Gartner, IDC, and Forrester. We'll also have Nicholas Carr who is groundbreaking best seller, The Big Switch envisions a coming revolution in computing where every desktop and app will be delivered as an on-demand service. Citrix will also be making several exciting announcements at Synergy including the official launch of XenDesktop. We welcome you, everyone listening on today's call, to visit CitrixSynergy.com and register to join us at this exciting new conference. I guarantee you won't be disappointed.

So now wrapping up, we are enabling IT organizations to operate in a whole new way. Like the provider behind your cable or Satellite entertainment service, where a simple receiver in your home can provide all the on demand services you need. The Citrix Delivery Center includes the essential components of an application receiver along with all the matching headend infrastructure. It is a system that centralizes complexity and gives IT control of the most important parts of computing -- desktops, applications, and data. And like a service provider, it allows IT to operate with the efficiency, flexibility, and agility needed to keep pace with business change. The pace of investment in our vision has put Citrix in an amazing position; especially considering the velocity of business change that will be emblematic of the next five years.

So, thank you for listening and now I would like to open it up for Q&A.

(OPERATOR INSTRUCTIONS)

Your first question comes from Todd Raker at Deutsche Bank. Your line is now open.

Todd?

Mr. Raker, your line is now open.

Let's move to the next question, Jennifer, and we will see if we can get Todd back in.

Okay, sir. Okay sir, your next question comes from Phil Winslow from Credit Suisse. Your line is now open.

Hi, thanks. Guys just wanted to dig in a little bit on Presentation Server, obviously had continued strength in the migration of Platinum, but how should we think about just the linearity or the seasonality of Presentation Server? If you look back at, you know, '04, '05, '06 it's sort of flattish in the summer months and then big Q4 from a license revenue perspective, just curious what -- how you guys are thinking about that, and also in your commentary about seeing some slippage in the SMB business, I wonder if you could just categorize what you are seeing there. One would typically think the larger deals would push and not the smaller ratable ones?

Sure, Phil, this is David. Let me talk about the linearity first. Obviously, we are really excited about the XenApp business and it continues to just get, you know, terrific traction especially around the Platinum edition, as you know that's been ahead of our expectations for a couple of quarters now running nearly one-third of the total XenApp business.

If you look back at last year thinking about linearity, remember, we had a great second quarter. We used that as kind of the launch of Platinum. We increased prices. We brought a whole bunch of new technologies to market, so we had a really good second quarter and then you know strong third and fourth quarters on the back of that. In general, our linearity is -- tracks with the calendar year, you know, we tend to progress throughout the year on a sequential basis and then have a pretty big step up in Q4. I think that's what you should expect for this year as well.

As far as growth rates year-over-year, we got a tough comp obviously in Q2, but I think that the business you know continues to grow in that mid single digit range on a license basis into the second quarter and probably mid-to-high single digits for the full year. As far as the commentary around the economy, I think it's just as you would expect there's certain customers are being a bit more cautious, you see, I got the more discretionary, you know, small kind of run rate type transactions are the ones that would slip out and really no material change to the more strategic large enterprise. In fact we had seven transactions in Q1 that exceeded $1 million, which is -- I believe that's a record for a first quarter, so really good in the enterprise just being, you know, mindful and thoughtful of the SMB space right now.

Also just very briefly on the Xen side, you know, Xen coming in a bit lower than our estimates and at the low end in guidance. Curious what trends you are seeing there, any change on the pricing side, anything competitive?

No, Phil nothing, you know, nothing that we have not talked about before in terms of what it takes to put the foundation in place. I think that you know, most of the questions around this that we've had over the last three months have been you know, along the lines of, what should we be looking for out ahead of the revenue production. And really, it's the kind of metrics that we tried to report on today in terms of authorization, certifications, training; pipeline, customer wins, new customers, all of those metrics and all of those really amount to the kind of confidence we have in being able to deliver on the game plan that we put forward. So, we really feel good about what we are doing in both desktop and server virtualization spaces.

Great, good quarter guys, thanks.

Our next question comes from Michael Turits. Your line is now open.

Hi, guys, Two questions, one -- Michael Turits from Raymond James. First on the NetScaler side, you said that part of it was hesitation before the new product release but also that the capital budgets particularly in the US, were a little light. You did say you expected that the second half rebound there, I was wondering what's giving you some confidence on that besides the product release?

And then the second question just had to do with Presentation Server, it sounded like it was on, you said the smaller transaction kind of stuff fell short but it doesn't look like it really came through in the numbers which were very strong in the Presentation Server side you know where do you pick up that weakness and why didn't we see it in the aggregate?

Okay. Michael this is Mark, I will take your NetScaler question and David will talk about XenApp. On the NetScaler front with, there are couple things going on that David mentioned and maybe I will just provide a little color there. So first of all, we've been working on the MPX platform for quite some time. And had a tremendous amount of customer feedback and involvement in that so there has been a lot of visibility with our enterprise internet-centric customers on this project, and you know as it gets closer to release, you know, they'll definitely naturally kind of wait for the availability of the platform and buy only you know kind of what they absolutely have to have.

So that's you know one significant dimension of what we saw in Q1, and what we expect we'll see in Q2 as well because you know these units will start to ship around mid-quarter and there will be some customers that haven't had them before and we want to look at them before actually placed their POs. We have received some POs, already for MPX, we are really feeling good and excited about the prospects there. And that you know that will then bode for a much better second half based upon the availability and customer experience with MPX.

On the capital spending side it, you know honestly it's anyone's guess, we're kind of feeling like the year is going to look like this especially in the networking space all year. And I think that you know if you look at lot of the other networking vendors, you know, they are talking about this and I think when I talk to customers what I hear is for overall networking refreshing network infrastructure is not a got to do and it kind of is lower on the stack relative to things like the server virtualization, desktop virtualization you know certain security spaces, et cetera. So I think it will be rougher sledding for everyone in this space for the whole year; that's our expectation.

And Michael regarding the XenApp comment I think when we're talking about the small medium business, it's a little bit more of a U.S. phenomenon down to the small kind of discretionary purchases, but that's you know more than offset with the strength in the enterprise business we saw really in all geographies and right now the you know customers are really moving towards platinum. I mean as I mentioned a couple of times we had great success there; it's driving higher ASP's, higher deal sizes, and we expect that trend to be able to continue.

Your next question comes from Abhey Lamba from UBS. Your line is now open.

Thanks. Yes, thanks I guess can you talk a little bit about how the movement in currency impacted your cost structure and how should we think about the impact here, of foreign exchange movement, your ability to expand margins in 2009.

Sure, you bet, like all companies right now, you know we are chasing the falling dollar around world. We do price in dollars around the world, so we don't get any incremental benefit from a translation adjustment on revenue. However, we do have a lot of foreign currency denominated expenses. And you know while we do hedge out you know 6 to 9 even 12 months in advance in many cases, you know the rapid decline of the USD is just is putting some upward pressure on that. You know, we don't call it out, it is not a huge impact, you know, $2 million or $3 million a quarter, and we just manage the business through that and so, and I would be thinking about it in that context but, yes probably 2 to 3 million a quarter.

And in terms of the virtualization business when will the partner channel fully ramp up and when should we expect to see bigger revenue contributions from them, and can you also remainders us your revenue level you are targeting for 2008, and 2009, from that business?

I think you are asking about, well, we have three virtualization businesses.

The Xen business.

Okay, the XenServer business.

Yes.

So we talked about metrics and the front-end loading in the prepared comments and then what you would expect is, you know, think about a business that's doubling or more each quarter through the end of the year and also remember that XenServer is one piece of our virtualization business that is based on the Xen hypervisor and the other one is XenDesktop, so between the two of those products and market segments we believe we can, yes we are on track to generate the kind of revenue plan that we, you know, stated when we first acquired XenSource back in August of last year. And while you know there have been a lot of changes in the market place. We've learned a lot from our partners and customers and so forth, we still feel good about where we are and it's a front end, back end story and it's pretty much that simple.

Thank you.

Your next question comes from the Sarah Fier from Goldman Sachs. Your line is now open. Your line is now open.

Good afternoon, guys how are you doing. On operating expenses David maybe talk a little bit about at the at the Analyst Day you said, as there is a lot of macro headwinds and they continue to increase we can definitely pare back a little on this need to keep spending if we don't want to completely kill our operating margins. Could you talk a little bit about do you still feel like you have that flexibility and maybe the scenario that gets you to the $1.54 versus the scenario that gets you to the $1.64, it might be nice to put a little bit more color around that?

Sure, you bet Sarah, I think I would actually let me just take a little step back and reiterate some of my comments around guidance because there are a few moving parts here right now, you start with the below the line items first. I mentioned just the market change in interest rates is going to put a lot of pressure on investment income this year that will show up in the other income line.

It's probably $15 million decline over our original plan if you just multiply out a couple hundred basis points lower return on investments, good news is with the current shape of the business we'll be able to have a little bit lower tax rate than we were originally thinking offsetting some of that. We've also been more aggressive on our share repurchase being able to bring in more shares and keep the share count at a certain level, so net net we've got the below the line staff impacting us by a few pennies which is what's really bringing down the EPS number.

As far as the business goes, we believe that, you know, the right tactic right now is really to align our expense profile and our future investments with what we're seeing in the business and we can do that in real time. Our single biggest lever is around head count, you know, we've been adding somewhere between 150 and 250 people per quarter over some period of time and we will temper that and moderate that or probably more importantly focus that on the areas, that we believe are most strategic and you know, if we're facing some Macro headwinds we'll cut back in that area. So we are definitely very focused on that and we think we have got the ability to execute there.

Great, and then may be just you gave good color on the macro backdrop, but could you give us a sense on linearity? Did it flow more as you got in to the end of March which is what we have heard from other companies like IBM, EMC, and then any change in momentum in Europe, as you went through the quarter?

Yes Sarah, I think your first comment is a fair one. I think that we didn't get the big push in March or the end of any quarter that you usually get, and so I think that's what was really missing, the sense of urgency on the sense of customers. I would not say it necessary slowed, it just didn't accelerate like it normally would. As far as international markets no, I mean they are continuing to do really well both in the EMEA space as well as Pacific. They are executing quite well. We think it's prudent not to forecast them being significantly above plan the rest of the year however no impact at this point.

Great, thanks very much.

Our next question comes from Bhavan Suri with William Blair. Your line is now open.

Hi guys good quarter. I just had a couple of questions, the first one around XenServer, you know you are saying that Dell and HP are shipping XenServer embedded and I guess one of the things I am trying to understand is along the partners between you and competitors is the same. How do you talk to those partners about the XenServer value proposition versus you know VMWare. How do you convince them that's an option today where VMWare has been in the market sort of longer, has you know all the various pieces around it?

Pretty straightforward. It is a differentiated solution for Server virtualization. The pricing model is different; it's high performance, has all the high performance capabilities but it's put in a package that is much easier to consume, much faster to implement, supports the customer's existing storage infrastructure. It is friendly to the Microsoft upcoming release of Hyper-V et cetera, and supports importantly not only the delivery of App work loads to virtual machines but also can deliver workloads to physical machines as well.

So its really simple matter of not being a V2 product having a different position, a different value proposition and then the customer gets to decide, and the best way to work with partners is put them in a position where they can offer customers a choice and recommend a direction based upon what the customer's specific needs are. That's the role that the play and the role they -- and the position they would like to be in to establish credibility with the customer.

So that's basically you know what we are doing with XenServer and I think you know it's been successful so far, at the early stages and we got some announcements coming in May and later in the year that you see will continue to reinforce this approach to the market place and you know and we said all along and told our partners we don't want them to give up their VMWare franchise at all as a matter of fact. We want to offer the customer a choice, and we want to provide a differentiated offer.

Sure. So I guess could you provide little color so for say DELL and HP, what portion of servers are you expecting to ship with XenServer embedded, any color around that?

No, unfortunately, no one knows at this point. And the products have been on the market place for about three weeks. It's a user selectable option. I can tell you that when you order an HP ProLiant with the XenServer OEM Express edition, it looks like the software is a piece of the hardware, it looks like and feels like it's part of BIOS and that is what we believe happens in this market place that in the future, right know it's user selectable et cetera, but eventually this will be a property of the server and the hypervisor melts into the hardware while we are being aggressive on how we are building these products for companies -- great companies and partners like HP and Dell and while we believe that with every server in the data center needs to have that as property so that our XenServer capabilities can be utilized with every single server whether it's virtual or physical.

Okay, one last quick question turning to the online services segment, could you provide a little color on how that's -- plans are for expanding that internationally, I know we talked about that at the Analyst Day, I just wanted to see if you've got an update on that?

Yes, pretty much on track with the plan, we are open in the UK and Australia. We are and we have some core markets that we're starting to put the pieces in place around. Germany would be one of those key ones for example, and there are a lot of pieces that have to go in place before you can enter markets like this as we discussed at Analyst Day given that the buying methodologies and behavior and e-commerce and you know online are very different as you go from country to country and so the platform, you just don't open the website up with translate - with language translation. You literally have to do a lot of underlying technical work to adapt to the local way of doing business. So, we are on track with that and I think that again the geographic exposition is pretty deliberate, pretty step by step taking the first serious steps this year and it will take all year for that to start play out.

Great. And do you have a number for what online services will be in the next quarter?

You mean, a guidance number?

Yes, I don't know if I missed that because you typically give one out, I think.

No, we didn't provide one, but I think somewhere in the -- I don't know; say 65-ish million range.

Okay. Great, thanks guys.

Our next question comes from Steve Ashley from Robert Baird. Your line is now open.

I wonder first of all you could comment on the status of the getCurrent program. We have not talked about it in a while and you still put up very nice growth and your license update line is - is getCurrent still getting attraction and what's kind of the outlook there on that license outlook update line in terms of what kind of growth we might see.

Sure Steve, getCurrent is continuing to do pretty well, it's you know getCurrent bookings, in any one quarter are going to be somewhere in the $10 million to $20 million range. Got a you know millions of actually installed base seats out there that are on prior versions of the software and just and aren't currently on the Subscription Advantage program, so the more value you put into the product the more compelling it is to get current so to speak and get back on.

As far as the license update line you know the key driver there is really going to be the combination of incremental product license revenue. Because every new license you know creates a base of Subscription Advantage as well as just increasing the renewal rate, you know, we had a mid-80s renewal rates this quarter and we've got you know expectations for that to continue too, you know slowly move up towards 90% or even above over the couple of years. So, lot of headroom still continuing to do well.

Great, and then actually, Mark, you really talked you know quite extensively about some of the differences between the XenServer offering and what VMWare offers but one are that I know, I am confused on this. The relationship to high level management tools, specifically maybe Microsoft tools as it relates either to the XenServer or XenDesktop, is that an area of differentiation or importance or something we should - we should be aware of?

I think over the next couple of years it will become more important, as Microsoft does some things to basically integrate with the open interfaces that are in XenServer and I think they you know pretty much publicly said that they are going to first manage VMWare environments with their [SCGNM] tool and that you know we want them to get in and manage and allow us to snap in as well, but we think that's a little further out on the development road map for them.

So I think - I think the high level environments are important but you know there is a line between sort of snapping into systems management infrastructure and how products do that and the kind of management that you need for in depth configuration, control and even orchestration of products and that usually falls in the hands of the vendor that supplies the product itself. So you know it's not an either or story, it is of both.

Thank you.

Our next question comes from Aaron Schwartz at J.P. Morgan. Your line is now open.

Good afternoon, I had a follow up question on the license update line, I am just wondering given the traction you had with Platinum over the last several quarters and all the dynamics there with increased prices and higher ASPs, why the growth there wouldn't pick up or if that is still a downstream effect that we should look for for the balance of the year?

I think overall, I mean you just do the math. You are looking at over time the growth rates of license updates are going to line with the growth rates of total license and probably more specifically around the app virtualization license, which last year was up about 11%. Obviously, the last couple of quarters we have been accelerating past that and that's one of the things that's keeping the license update line growing as strongly as it has, I mean I think it grew 19% in Q1. I would expect it to grow north of 15% in Q2 and maintain this pretty good traction throughout the balance of the year.

Okay, but we shouldn't expect an outbreak there this year from the downstream impact of the outsize growth of the Platinum over the last several quarters?

No. I wouldn't expect it to accelerate, I mean the numbers are so big that Platinum is going to have some time to move in there, but I think you are spot on that it's a real good trend and as Platinum contributes more and more of the overall mix over time, it is certainly going to help that growth rate, maintain its current trajectory.

Okay, and the other question I have is just the OEM relationships you have with the XenSource business, I am wondering -- understanding the revenue mechanics around that and how it's recognized in arrears? Do you expect to generate to growth through the OEM's on their paper or is it more, they are seeding the market for you to have the up sell potential once they get the product out there?

It is both.

Okay, so you would expect to see material revenue contribution on the OEM paper?

Yes, I think that as far as just the OEM's back to the first part of your question, whatever they sell this quarter and in Q2, we'll get a report you know sometime 30 days into Q3 and we'll recognize that in Q3, you know once we get actually get the complete data. As far as them participating as a channel, they do have the ability to obviously offer a license key upgrade to turn on the bits that are already on the server and so we'll be working with the partners closely to just frankly make them part of the channel.

And we could see that revenue before the royalty reports potentially because that will come through our normal distribution mechanisms to resellers as opposed to being an in arrears piece of revenue on a royalty report.

Okay that's helpful and then the last question, should we anticipate any price change on MPX to back into the growth in the second half you talked to?

Price change, we haven't announced pricing yet. MPX is a new product.

I just meant a step up in pricing, is that part of the growth story in the second half?

Well. It's a step up in price but remember its scalability is you know 2X, the products that it would you know be purchased in lieu of and so you know basically it's priced to value and no, there isn't a big step up in price per you know kind of myth if you will ACTP transaction et cetera relative to the current platform.

So the growth will be a function of volume rather than price.

Yes.

Thanks for taking my questions.

Thank you.

Our next question comes from Katherine Egbert from Jeffries. Your line is now open.

Thanks, good afternoon. Couple of quick questions, first I want to go back to the guidance. You lowered the lower end of the forecast for the year and in June look somewhat conservative, is it correct that you are lowering this because specifically of the US based ANG business or is there more in there?

I think you know we expanded the range a little bit. We left the top end of the range intact, we took the bottom range down by $15 million which I mean it's not a big number against a $1.6 billion base but it's really just a commentary on you know probably less visibility with certain parts, certain segments of the US marketplace.

Is it specific to ANG?

Not specifically, just more of a general commentary.

Okay. And then can you help us with some guidance on the operating margin on a non-GAAP basis both for Q2 and the rest of the year. Can you just give us a feel of what you are tracking towards?

Yes, I think operating margins are going to be you know roughly in the expectation that people have right now for the full year kind of in that you know 22% - 23% range, and for the second quarter in that 20% - 22% range is probably an appropriate way to think about it right know.

Okay. That's helpful. Good quarter.

Thank you.

Our next question comes from Kirk Materne from BOA Securities. Your line is now open.

Yes, thanks very much. David, just in terms of the Xen app business clearly the shift to Platinum is pulling up growth a lot for that business. Has there being any real change though in terms of just the actual unit volume sold? Meaning I know there's obviously a very favorable impact of revenue because the ASPs are shifting higher, but I am just wondering over the last year have you guys been you know are the seat numbers going up you know at a rate higher than they were before we went into this upgrade cycle? And as you look as you look out over the course of the year is most of the growth you know above a certain level going to have to continue to come from shifting more to Platinum, I'm trying to get a sense on the underlying fundamentals of that the seed growth, not necessarily just the revenue impact as you shift to Platinum?

Right. No, it's a good point. It's a combination of both, the unit volume had been growing you know very modestly if you look back a couple of years and started to you know really started to pick up last year as you know really the components of the product started the shift. In Q1, we saw both you know modest overall blended ASP increase on a year-over-year basis and you know fairly substantial increase in units on a year-over-year basis.

Okay, it's helpful and then Mark, when you guys look to creating this broader suite of products around virtualization, yes does it make sense ultimately to start coming up with a bundling solution that would not only include XenApp with XenDesktop and XenServer together? I mean, it seems that you know if you put; if you offered some of these things are created another I don't know what kind of Platinum version would be but if you started to add in some of features from XenSource along with the XenApp does that not also help drag XenApp in to be more strategic versus being viewed as more tactical which I think has been the case over the past few years, over the longer term?

Yes, I think it's a really good idea, it makes lot of sense both operationally and strategically and then the rest of the question is really about when and the mechanics around doing that. So we are looking at a number of options actually to make it on one hand easier for customers to consume all of this infrastructure because in the end we have declared from day one that we are building a system here that is end to end and all the stuff is designed to eventually really interoperate very nicely together. And as soon as Workflow Studio is introduced we will have the kind of glue that we need to be able offer a customer kind of all these components maybe in one package. But there are a number of combinations and permutations we are looking at and so stay tuned on that.

Okay. Great. Thanks very much.

The next question come Israel Hernandez from Lehman Brothers. Your line is now open. Mr. Hernandez your line is now open. Have you muted your line, sir? We will go on to the next questioner. Your next question comes from Walter Pritchard from Cowen & Company. Your line is now open.

Hi, thanks. Just David one question on the numbers. I noticed there was in the cash flow there was $20 million payment I think it was for a license or a core technology something like that, could you just give us a little bit more detail as to what was that all about?

Yes, every quarter we do a number of -- not every quarter, but frequently we will do a number of small transactions, licensing a core piece of technology for one of the products or acquiring a very small product or service type organization. In this last quarter, there were -- there was actually three smaller transactions targeted towards our WANscaler business as well as our XenDesktop business.

Got it, and just kind of a follow on to that related to the -- a lot of talk about NetScaler and new product coming and so forth, any commentary on how WANScaler and the SSL VPN product which I know were probably a smaller part of that ANG business, how those products performed versus what you expected?

I think, those performed in line with expectations and you know just to remind you, the way we way look at the SSL products as well as the WAN optimization products is more of a differentiating technology than a point product solution and so we tend to sell those technologies as part of a larger, you know, larger end-to-end solution for customers but on a standalone basis albeit small numbers, they were fine, they were within plan.

Got it, and then just lastly around -- I think Mark, you mentioned you are looking for the same sort of $50 million contribution around Xen this year. In terms of your spending plans is that an area in terms of dialing back your spending where you may look to dial back spending around Xen? I think that was majority of reason why earnings had a headwind this year with I think spending $60-$70 million. I am just wondering how that factors into your spending plans?

Yes, not in any significant way, we also, I mean obviously we're, yes you put a plan together and as soon as you put it together it's wrong, I mean, it's just the way all business plans are, so we are managing this on a month-by-month basis and you know kind of doing slow control on hiring, on programs, on you know developments, some licensing things you know a full range but I think we are going to you know basically be on track because if we don't put the money in upfront then you know we are just not going to be on growth trajectory that we want to be on. We think we can be on going into 2009.

Thanks a lot.

Your next question comes from Robert Breza from RBC Capital Markets. Your line is now open.

Hi, thanks for taking my questions, most of my questions have been answered but you know Mark, I was wondering if you could maybe talk qualitatively as you met with customers and talked about the you know weakness in North America and then delays in the new products coming out for the networking group. Would you say it's you know 50% new product delays, 50% economy, or is there any kind of qualitative characterization you give us it would be helpful? Thanks.

Well, Robert you know, I mean honestly they are different - they're usually different conversations with customers, I would say that you know overall when I had these conversations I leave them feeling blessed by the kinds of technologies we are offering and how we package and license them because we're -- I mean, we had an incredible Q1 in terms of large deals, you know, seven figure deals but it's unusual and that serves us well when you are not a company that relies on that kind of flow in these kinds of times because, you know, a few things get cut when spending gets tight. The giant projects that you know, get put off and the really small ones that are discretionary and they just fall right off the bottom.

And so, I always leave feeling like gee, you know, we have tangible ROI and investment in Citrix products generally speaking provides tangible cash feedback and there is a strategic value that is on going forever and ever. And so, for us the impact is much lower. Now on the networking side those conversations you know, I characterized and I think that you know networking decisions other than putting on more capacity to support let's say web traffic when there is a public facing website or you know a buildout of a new branch operation or something like that of course those things are going to happen but big refreshers of infrastructure are being delayed I believe in the networking area.

And then the other sense is I think to generally caution everyone on is that this is a -- everyone watches CNN, CNBC gets depressed and it is because it's the same story over and over again. And this is a month by month kind of phenomenon that you know we'll just have to watch carefully and I think you know as a company that's had a long standing track record of great execution with a couple of quarters where we disappointed. We are very sensitive to watching the trends and making adjustments out ahead; even if they're a little conservative we can always accelerate and spend more but to unshoot the bullet is awfully difficult and painful. So, I just think we are being smart about it and it's pretty much that simple in terms of, how you know we are steering and looking into the future.

Great. Thank you.

Our next question comes from Richard Sherman from MKM Partners. Your line is now open.

Good afternoon guys, the question is about headcount, employee head count. You had about 200 heads this quarter. Just looking at revenue per employee, it dipped a little bit over last several quarters and I know there is some seasonal impact but just going back it looks like it's the lowest in about six quarters, as you look at the business going forward and as you are making measured investment in Xen and in other areas, you know maybe give us some idea what head count, you know, what rate of head count additions. Is it likely to be about 200 a quarter? Is it going to be significantly less, you know, how do you think about the decision process on what revenue your numbers you need to see in order to continue to hire at you know whatever the rate is that you have internally planned?

Right. Yes I think like you said we have been adding 200 people per quarter over the last several quarters, a lot of those focus really on our capacity to service customer around the globe both in terms of the app networking business and then really getting round up for the newer businesses around XenServer, XenDesktop et cetera.

And you know we are going to moderate our hiring really in the face of you know what we see from our customers and kind of our broader economy commentary. I got to freeze head count, but we'll be more selective and target head count growth into the parts of the business that are really early you know and strategic you know over the next couple of years. So you know, I would expect head count growth to be lower in Q2 and then you know Q3 and Q4 really are going to be predicated on what's going on with the you know overall customer base and the state of the economy. So a little bit slower in the short term and like I said in my prepared remarks just trying to make sure we are lining our investment spending with the current state in the business and trying to be proactive there.

And this may be a hard one to answer but when you look at XenServers and Desktop business about how many FTE's do you estimate that you have committed to that business right now? I know it gets hard when you get out, with sales our marketing overlap and the like?

Yes, I'll take, - it'll take I think we're probably be somewhere in the 180 to 200 FTEs. And you know you can track probably about 100 -- a little over the 100 in the sales team, that we can put our finger on. We can track about another you know 70 or so that are in the development [set] teams and in the rest would be you know kind of in admin and shared services and also you know so that's why to estimate of you know probably put on other 10, 15 FTEs on top of that.

Okay. Thanks for taking my questions.

Thank you, thanks Richard.

Our next question comes from Daniel Ives from Friedman Billings. Your line is now open.

Yes. No more questions but I appreciate having a candid discussion. I appreciate it. Thanks.

Thank you, Daniel.

Our next question comes from Manny Recarey from Kaufman Brothers. Your line is now open.

Thanks, just a couple of housekeeping questions, can you give the stock comp line item in operating expenses? Do you have that?

Actually we don't have that handy, we will post that on the investor relations site and make that available after the call.

Okay, looking at the R&D lines it seemed like you had a petty big jump from the fourth quarter to the first quarter on a GAAP basis just kind of curious is that a model that we can look at to model going forward? Or is there some items in there that are more kind of one time quarter related?

I think that the increase in R&D both on a GAAP and on an adjusted basis I mean it's going to be out materially on -- sequentially. We got a lot of capacity both to XenServer and XenDesktop largest increase coming from headcount growth and so we are front running some of that; it may moderate a little bit in the back on the year but, you got the full quarter impact of the XenSource acquisition in Q1 which you just hadn't had in the other quarters.

Okay, thanks.

Okay, our next question comes from Brent Williams from Benchmark Company. Your line is open.

On the NetScaler business looking at you know the one side of the house with the internet customers, the other with the commercial customers, is either one of those groups being more cautious about CapEx than the other right now?

I don't think so. I think they're about the same.

Okay and then secondly on their call last night those other virtualization folks talked about some new channel retention programs put in place very recently in the quarter, you know they had first wave after you guys went out in October and unveiled yours they came out with a wave of channel programs. It sounds like they are up to some more stuff; can you give any color what you are seeing from those from brand X there?

Not especially. I don't think there is anything that you know that's going on that we believe is an obstacle to what we are doing. We have a great channel relationships and a great track record and that's reflected in our programs as well as our relationships as well as our channel's profitability. And we are a predictable partner and that's what it takes to be a great channel company and so I haven't seen anything -- I've seen some of the reports on some of the programs, they are logical things that you would do if you are trying to do a better job with channels, so that's kind how I've seen it.

Okay. Thanks for taking my questions.

Okay, Brent.

Ladies and gentleman, we have reached the end of the allotted time for questions and answers. I will now turn the call back over to David Henshall for closing comments.

Alright. I think I'll close it out and just want to thank everyone again for joining us, and I hope you see that we are continuing to execute well. We have a unique strategy and a determined mindset passion as you always you know see in this company and I'm really proud of our performance and on behalf of 5000 Citrix employees, I thank all of you for your confidence, support, and trust, so we will see in three months. Thank you.

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