思杰系統 (CTXS) 2009 Q2 法說會逐字稿

Good afternoon. I will be your conference facilitator today. At this time, I would like to welcome everyone to the Citrix Systems second quarter 2009 financial results teleconference. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. (Operator Instructions). Thank you. I would now like to introduce Mr. Eduardo Fleites, Senior Director of Investor Relations. Mr. Fleites, you may begin your conference.

Thank you, Kathleen. Good afternoon, everyone, and thank you for joining us for today's call, where we'll be discussing Citrix's second quarter 2009 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 our Investor Relations website. We will be posting the slide presentation to our website immediately following the call.

To provide additional contacts for our call today, we've also updated the Investor Relations page with product classification and historical revenue trends for our four product groupings. Also since we'll be discussing non-GAAP financial measures on this call, we've posted a reconciliation of the differences between GAAP and non-GAAP.

Before we get started, I'd like to remind you that today's conversation will include forward-looking statements made under the Safe Harbor provisions of the US Securities laws. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, such as the impact of the global economic climate, uncertainty in the IT spending environment, risks associated with our products, and competition.

Obviously these risks could cause actual results to differ from those anticipated. To fully understand these risk factors we encourage you to review today's press release along with the company's most recent annual report on Form 10-K, filed with the SEC.

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

Thanks, Eduardo, and welcome to everyone joining us this afternoon. So today we announce our results for the second quarter 2009, delivering on the expectations we've set, with total revenue of $393 million, flat from last year, and adjusted EPS of $0.39, an increase of 3%. So despite the ongoing challenges in the worldwide economic environment, we posted solid results in the second quarter.

Our customers continue to leverage Citrix products and services to deliver substantial cost savings, improved agility, and better performance for their IT infrastructure. I'm pleased with our execution in the quarter in the field, operationally, and within our products organization. So as expected, most customers are still focused on cost cutting and cash preservation, leading to delayed or reduced levels of new capital projects.

The result of this has really been a shift in our business mix, with our subscription services, which includes SASS and license updates, increasing to 57% of total revenue, new licenses contributing 33%, and tech services the remaining 10%. In the second quarter, revenue from new license sales was $130 million. While down about 15% from last year, this represents a sequential increase of 16% from Q1.

License update revenue increased 9% annually, as a result of strong renewals for our Subscription Advantage offering. Tech services increased 3%, and our online SASS revenue was $75 million, with growth actually accelerating to 18% over last year.

From a geographic perspective the Americas region was up 3% to $174 million, as the demand environment was stronger than what we've seen over the past couple quarters. Internationally, though, we did see mixed results. On the positive side conditions in APAC have shown some improvement, including Japan which delivered strong year-over-year growth.

EMEA, however, is still very challenging from a visibility point of view, especially when it comes to the timing of significant new IT projects. In total, revenue in EMEA decreased 12% year on year to $113 million, as customers are being very conservative with new spending. As we've seen before in prior economic cycles, the European markets are lagging somewhat, and are really now just showing dynamics comparable to what we experienced in the US two or three quarters ago.

So overall we expected Q2 to be challenging, but we're very encouraged by the level of customer commitment, pipeline build, and improved visibility in certain areas. In the second half of the year, we'll remain focused on operational and strategic execution, while building momentum in the emerging high growth categories, Desktop Virtualization, Datacenter and Cloud, and Online Collaboration.

So now let me drill down into our main product areas and the trends in those businesses. First, our App Virtualization business continues to be the most impacted by the spending environment ,with total revenue declining 8% year on year. We saw an improvement over Q1 in revenue and in the number of strategic million dollar plus transactions, as customers are beginning to deploy new larger projects. However, the run rate, tactical project business continues to be soft.

From an industry perspective, the government and federal services were the largest contributors, while industries like manufacturing and retail were the most challenging verticals. Demand has remained strong for all of our Subscription Advantage offerings, with renewal rates holding stable in the mid-80s during the quarter, but in some circumstances, however, this has meant that customers have chosen to renew existing subscriptions, essentially optimizing their current environments, instead of upgrading to the Platinum edition of XenApp, and while this contributes to higher deferred revenue, it comes at expense of new license growth.

Next, in our App Networking business, it was up 4% year on year to $57 million. Continuing the trend that we've seen in the past several quarters, revenue here was driven by Enterprise customers, and is much less dependent on the Internet Centric market, which has been impacted by slower e-commerce sales and web traffic growth. About two thirds of total revenue is generated through these traditional Enterprise accounts and government agencies, so the number of new Enterprise accounts has increased over last year, and the platinum edition of NetScaler, which is really targeted towards this segment, contributed 30% of NetScaler license, demonstrating the value that customers see in a single integrated webapp delivery product.

The third area I'd like to discuss is our business in Server and Desktop Virtualization. Q2 performance for these products was very strong, with revenue growing more than 50% sequentially, and over 250% from last year. The standout performer in Q2 was XenDesktop, where customer adoption has been accelerating.

In fact, more than 10 customers made commitments greater than 1,000 seats during the quarter, so the investments we've been making in this area are really starting to gain some traction. We remain very positive about the opportunity as well as our market position here.

On the Server side we now have a full quarter of data sense announcing the availability of XenServer as a free download. This strategy has driven a large uptick in leads, pipeline creation, and production implementations, with no negative impact on revenue. We're monetizing this through the new product line of Citrix Essentials for both XenServer and Microsoft Hyper-V, and Mark is going to discuss both of these products in much more detail later in the call.

Finally, touching on our Software-as-a-Service business, online revenue was up 18% during Q2 to $75 million, led by the collaboration products in the GoToMeeting family, which increased 40%. In this environment, customers are very focused on improving productivity while reducing costs, and by leveraging our GoTo products, they can immediately reduce travel budgets while expanding customer reach.

We're enhancing this value prop even further with our new Hi-def Audio Conferencing Services, which complement the collaboration products and create a true communication suite for S and B customers. And also in Q2 we saw good traction from GoToAssist Express, which is the newest addition of our Remote Services offering. In its first full quarter of availability, nearly 15% of the Express Beta customers have already converted to the paid edition.

So next let me turn over and talk about expenses and operations. In Q2 adjusted operating margin was over 22%, as compared to 19% in Q1. This is a result of the improved revenue performance in all product areas and continued focus on execution. This leverage has allowed us to make target investments in areas of the business that are strategically important, such as Desktop and SASS, while optimizing across other parts of the Company.

As we said in the past, our focus is on delivering operational leverage, while increasing our market and competitive position for leadership, once we see a change in the macroeconomic conditions. For Q3, we expect to maintain a relatively flathead count and total operating expenses at Q2 levels.

On the rest of the P&L, the adjusted tax rate was just over 22%. This is a reflection of the geographic mix of revenue. We currently expect the tax rate to remain in this range for the balance of the year.

Turning to the balance sheet, cash and investments have increased to nearly $1 billion. Cash flow from operations during the quarter was $86 million, bringing the trailing 12 month total to $450 million. Our primary use of cash in Q2 was again for share repurchase, where we bought back 1.3 million shares, and over the past 12 months we've re-purchased nearly seven million shares, and currently have more than $300 million remaining in our existing authorization.

So finally I'd like to discuss our current outlook and expectations for the third quarter of 2009. Before I review numbers, let me provide some context on how we're managing the operating plan for the second half of the year. Obviously, economic concerns have driven all customers to be more conservative.

IT spending has been impacted, leading to lower visibility, particularly with new licenses. Our sales pipelines have continued to grow throughout the downturn, but in the market climate it's extremely difficult to know exactly when those capital projects will go forward. So were encouraged by the improvements in the US and parts of APAC; however, Europe in general is clearly still in the middle of the recession, and given the lack of visibility, we want to maintain a reasonable revenue outlook until we see signs of sustainable improvement in this market.

So in total for the third quarter of 2009, we currently expect total revenue to be flat as compared to the third quarter of 2008, adjusted operating margin to increase by 100 basis points from the second quarter of this year, and interest income in the range of $3 million to $4 million. For the full year 2009, our expectations are unchanged from our prior guidance.

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

Thanks, David. I'm pleased with our second quarter results, great execution by our products and sales teams, building moment in both product and sales pipelines, and delivering solid results. Big picture, Q2 was a continuation of the Q1 environment, with customers preserving cash, trimming largest projects, and eliminating the smallest, and really being much more disciplined with their budget dollars.

As David mentioned, our European markets were the most challenging. 3Last month I spent several weeks with our AMEA teams, our partners, and many, many customers there. Overall the enthusiasm for our products was excellent, the direction fantastic, product pipelines really building, but customers are just simply being very conservative with their IT spending decisions right now. This will change in the future. So in the near term, we're being cautious about our European markets, while having much greater confidence in the US market during the second half.

During the first half, we really stepped up our velocity across virtualization, networking and collaboration businesses, in terms of product releases, demand generation, and pipeline development, really looking to capitalize on the IT transformation cycle that's just beginning to gain traction.

Leading indicators point to a growing desire to break with the legacy thinking of distributed computing, embracing IT as an on-demand service from Desktop, to Datacenter, to Cloud, and Citrix is at the epicenter of this transformation. It's exactly why we're sticking to our fiscal and strategic plan, and precisely how we're increasing our relative market position. As we look to 2010, we're on track to offer a revolutionary system for Desktop Virtualization, to enable core infrastructure for the Next generation Datacenter, extended to the Cloud, and to broaden our SASS footprint for web-based collaboration.

So next I'd like to address each of these market segments. First, Desktop Virtualization, where Citrix is playing a leading role in defining the market, driving innovation, leveraging strategic partnerships, and delivering. We believe there's a huge market, about 400 million to 500 million corporate desktop devices being driven by a need for better TCO, improved security, and a far simpler model for desktop computing.

In addition, the release of Windows 7 and Office 2010 will begin to unlock a pent desktop refresh cycle, resulting in excellent potential for our Desktop Virtualization products. As a system, XenDesktop, XenApp, and XenClient technologies really revolutionize the way desktops can be provisioned, secured and managed, delivering the desktop at a service. XenDesktop shipping, now, just for one year, has been on a really fast track, already enhanced multiple times. Demand for XenDesktop has continued to impress us, especially in this market environment and the Q2 metrics are encouraging.

We sold to 470 customers in the quarter, 200 of which were new to Citrix. 100 customers reordered more licenses to grow their existing implementations. Collier County Schools, our very first XenDesktop customer, passed 12,000 users in production. We have believe this is the world's largest Virtual Desktop deployment.

Over 50% of the orders in the quarter were for the Platinum edition, which includes XenApp, for the critical component of app delivery. Customer interest continued to grow with about 3,000 downloads in Q2 of the Express Edition, and leading to strong pipeline growth, and we closed our largest XenDesktop transaction to date, a seven figure deal. Q2 also marked strong project with GoToMarket partners.

CSC produced excellent results, as they continued to ramp up with us, now with over 400 people trained worldwide on XenDesktop. CSC is offering customers a minimum year one cost saving of 20% over traditional desktops, and up to 40% savings for longer term commitments, and we received multiple production orders from CSC during the quarter, including the first order of a 40,000 seat deal. We also expanded our VDI collaboration with Microsoft, unified under Microsoft's System Center, for management of both physical and virtual desktops, leveraging Hyper-V and Citrix Essentials, and including XenApp for app delivery via one universal client, Citrix Receiver.

And finally we also announced an OEM agreement with Jujitsu, where XenDesktop, XenServer, and Citrix HDX technologies are embedded in their virtual workplace solutions. XenDesktop continues to win head to head product reviews and customer bake offs, as we continue to differentiate with Citrix HDX, support for any device and an open architecture.

Virtual apps are a critical component for Desktop Virtualization. Citrix XenApp is the market leader there, leveraged by millions of users and customers every day, as the most cost effective secure and fastest way to deliver windows applications anywhere.

As David mentioned earlier, this business saw a year-over-year decline in the second quarter, with weakness coming from international markets especially EMEA, and strength coming from a much more stable Americas region. With tactical deployments down, we'll concentrate our focus on strategic customers and app deployments, replicating some of our large deals in Q2, driven by branch banking cost reduction, offshoring and outsourcing enablement, Windows app hosting, and eyes only information access control.

The XenApp product line and roadmap for the second half will bring innovations that significantly expand on XenApp's time to value, application performance, and compatibility, further broadening its appeal in the enterprise. Virtualizing apps has proven to reduce TCO by 40% over traditional app delivery.

Windows 7 and Office 2010 will create excellent market opportunities to demonstrate this, and for the first time, self-service app migration. We demonstrated this at our Synergy Conference by unveiling Citrix Dazzle, the first self-service storefront for enterprise applications, providing an iTunes like experience for selecting IT services, all delivered by XenApp. Dazzle lets users point and click to choose virtualized desktops, apps, and other IT services, powered by another innovation introduced in Q2, Citrix receiver.

Receiver is the first universal client for Enterprise IT services, fully enabling a hi-def computing experience on any device, PCs, Macs, thin clients, and even SmartPhones. Our new receiver for the Apple iPhone, in fact, has already been a key driver in several large XenApp deals in the government and financial sectors.

Citrix Dazzle and Receiver will be significant competitive differentiators in the battle for Desktop Virtualization. Combined with the rest of our technology leadership and great partners, we believe we can radically simplify desktop computing, allowing IT to transform every Enterprise desktop and app into an on-demand service.

We added to the synergy excitement by demonstrating our XenClient technology. XenClient is a bare metal hypervisor we're developing in collaboration with Intel. This technology makes virtual desktops a practical reality for disconnected mobile workers, allowing both personal and business desktops to run securely and independently on the same device. Customers were excited by the XenClient progress we demonstrated, including support is for high performance 3-D graphics and HD video, and work space security, and they were especially impressed by the surprised demo of XenClient running on Apple's MacBook.

Our goal is to drive the Desktop Virtualization market by offering first an unparalleled hi-definition user experience, with our market leading HDX technology delivered to any device. Second, by allowing centrally managed desktops to leverage processing power, either in the data center or on existing PCs. This is a major Citrix differentiator.

Third, by providing a complete out of the box solution built on an open architecture, allowing a broad choice of endpoints, storage arrays, and hypervisors. Fourth, by introducing for the first time self-service as a better way to choose ISP services, and fifth by bringing the flexibility of bare metal virtualization to client devices. This is what clearly separates the Citrix Desktop Virtualization system from the competition.

Next I'd like to discuss our Data Center Virtualization Business, where NetScaler and XenServer are bringing efficiency, flexibility, and cloud enablement to the Enterprise Data Center. Q2 was the first full quarter that XenServer was offered as a free download. Total downloads and product activations were just amazing, beating our best estimates by a very wide margin. In fact, there were over 100,000 XenServer downloads since March.

The feedback? It's that free XenServer is fully ready for the Enterprise Data Center, with robust multi-server management, LiveMotion, integrated storage, and support for unlimited servers and VM's. In the process, customers are learning why Xen is the hypervisor of choice for massively scalable clouds, including the world's largest, Amazon Web Services.

In May, we began shipping XenServer 55, adding consolidated backup, advanced search, and easy tools to convert existing VM's to XenServer, and achieving an exciting milestone, matching VMware as the only two products to meet 100% of Burton Group's Enterprise Virtualization requirements. All this is driving great interest in a new product, Citrix Essentials for XenServer and Hyper-V, bringing advanced virtualization management to the two fastest growing hypervisors in the industry, with dynamic workload balancing, automated lab and stage management, and powerful storage integration.

Essentials is how we monetize free XenServer, partner with Microsoft and server virtualization, and offer more important capabilities for cloud providers. In Q2, we also introduced our new open storage program and announced that every major storage vendor in the industry is now Citrix ready thanks to our innovative storage link technology. It's one certification that ensures broad storage inter-operability with both XenServer and Hyper-V, and it's another great example of the power of open systems over closed proprietary alternatives.

For customers, this means Citrix and Microsoft Virtualization work seamlessly with existing storage, backup, and data center disaster recovery systems. The momentum that began with our bold move with free XenServer has continued.

Partners and customers are telling us the combination of XenServer, Hyper-V, and Essentials offers everything they need at a fraction of the alternative costs. At Synergy we also announced an exciting new partnership with Amazon Web Services, anticipating the growing demand by enterprises to extend their data centers through cloud computing. We introduced a new service provider licensing program, two new versions of XenApp and XenDesktop for the cloud, and a new Citrix Cloud Center Lab hosted by Amazon, providing blueprints for app testing and modeling, all the way to full production deployments, all in Amazon's EC2.

The other key component of our Next Generation Data Center and Cloud Services strategy is Citrix NetScaler. NetScaler and our other app networking products continue to see strength in both government and enterprise market segments during the quarter. In Q2, we posted five NetScaler deals over $1 million, three internet-centric customers and two in the Enterprise segment.

We also made several very important product announcements. First we introduced nCore technology, a NetScaler software update that allows existing NetScaler MPX appliances to now serve up to seven times more users. Secondly, we began shipping three new appliances with price performance enhancements that for the first time extend NetScaler MPX to small and mid-market customers.

And third, for the first time we demonstrated NetScaler VPX. This is a groundbreaking virtual appliance that delivers all the functionality of NetScaler in a low cost, easy to consume virtual machine. Available now as a technical preview, VPX can be downloaded from the web and run on any standard server platform.

These NetScaler enhancements will broaden our reach with cloud providers, while bringing unparalleled price performance to small, medium, and large enterprises. So our broader strategy of enabling the Cloud and Next Generation Data Center is gaining traction, and we're keeping the pedal to the metal. So stay tuned.

Finally I'd like to highlight our Software-as-a-Service business, where we help customers reduce travel, increase teleworking, and enable cost effective remote access and support. As David said, Q2 growth accelerated, driven by almost 40% growth in our online collaboration products including GoToMeeting and GoToWebinar.

The economy and regulatory policies to reduce carbon emissions are clear long term drivers to this market. While S and B customers are still our biggest segment, we're seeing more deals with enterprise customers, attracted by our simple, easy to use products, and their immediate measurable ROI. In Q2, for example, we closed one GoToMeeting corporate deal for 5,000 users, our largest single transaction size to date.

Our new audio service, Hi-Def Conferencing, continued to gain momentum, offering the highest quality audio solutions completely online, at a fixed monthly price. It's revolutionary, and we're pleased with this the excellent progress we've made in cross-selling Hi-Def Conferencing to our GoToMeeting and GoToWebinar customers. Our category leading GoToAssist remote support service had another very strong quarter, driven by excellent uptake of GoToAssist Express in the [pro-sumer] and professional market, and Version 9 of GoToAssist Corporate in the service center and enterprise segment.

As businesses realize the economic and environmental benefits of virtualizing their workforce, we're in a great place to leverage these trends. Looking forward I'm really quite bullish about the rich pipeline of enhancements and new services coming from our Online Services platform.

Now wrapping up, our global footprint business model diversity and vibrant market segments are allowing us to deliver great results in a not so great market environment. This Citrix team has responded, resetting priorities, managing discretionary spending, getting more efficient, all while accelerating our product and go-to-market strategy. We made some huge strides in first half, and I'm even more enthusiastic and excited about our second half game plan.

Going forward, we'll continue to operate with conservative macro-assumptions, improved operating efficiencies, tightly managing our baseline spend, while also funding critically important initiatives for market awareness, demand generation, globalization of our online services, and core innovation and virtualization.

We're at the epicenter of a remarkable IT transformation, and I just love our position. It's a position that that's at the forefront of virtualization of desktops, of data centers, and of meetings, driving lower costs, greater flexibility, and new ways of working, exactly what customers need.

So now I'd like to open it up for questions.

(Operator Instructions). And your first question comes from the line of John DiFucci with JPMorgan.

Hi, this is Dave Hafner on for John. Thanks for taking our question. I guess the top line, guys, was better than expected this quarter, which is obviously good, especially in the environment. However, license did decline 15% year-over-year, which was better than the 24% in the previous period but still on a double-digit pace. I guess guidance for the next quarter implies some improvement, but again, it looks like another double-digit decline. The question is should we expect to see this sort of gradual improvement going forward, or will there likely be a sharper change when comps get easier in the March period?

Dave, this is David. Let me take a first crack at that, and then ask Mark to add on as well. I think, similar to what we've talked about in prior periods, we were looking at the first quarter of the year to really be a bottom of sorts, as we looked at it on a year-over-year growth rate basis, and that's just about really a statement of the way customers were looking at their own budgets, looking to put projects in place, and also a reflection of our pipeline which has remained strong, and growing throughout kind of this whole economic cycle. And in the second quarter we did see, as I mentioned in my remarks, really good performance out of a couple of [GOs], most specifically the US which is typically the first to enter a cycle and the first to exit a cycle, and really happy with the execution and a lot of the, call it the activity based metrics we're seeing there.

We're still cautious obviously on EMEA. A lot of the data points that you see in the press from a macroeconomic standpoint point to an improvement that's probably pushed out in the future a little bit, and I think it's our caution is what you're hearing a little bit there.

So as far as guidance is concerned, we do think that Q3 will be sequentially better, albeit on a modest basis, and still be down low double-digits on a year-over-year basis and then further improvement into the fourth quarter as well. So nothing specific in our guidance beyond just current expectations for the cycle, expecting US and APAC to continue to be stable and show improvement, and just being a little bit more cautious on the EMEA outlook.

And actually your EMEA point raises a quick follow-up for me. Could you guys potentially provide more detail about the weakness you're seeing in EMEA? Is it broad-based, or is it specific countries that are weaker than others?

Yes. The standout on the positive side is the Nordic region, and the standout probably on the bottom end predictably would be the UK given their sort of mirror image of the US in terms of the way their economy works. But look, southern Europe is also like Spain, and these markets and France are also very conservative and seeing some huge impact, and Germany weakened notably over the course of the quarter. And Eastern Europe, I think we all know what's going on with Eastern Europe, very much driven, especially the Russian market, where we have significant business rises and falls on the price of oil.

So it's pretty broad-based, in fact, and when I think of what are the catalysts to see a change in the license line going forward, there are the things that we can control that are honestly going to make the biggest difference, and that is some of the tactical kinds of projects that really create a lot of run rate business that have very low costs of sale and contribute significantly to licensing, and then EMEA overall in terms of the environment itself from an economic point of view. And these two things are not within our control, but those are the things that will create the biggest catalyst for change.

The things that we are in control of, that we are doing to work against these headwinds, are as I mentioned, first of all, we're going to focus more on the strategic kinds of relationships and customers where TCO and the impact of XenApp, et cetera and it's been quantified very well, can actually be justified even in this market environment.

Secondly, we're going to take advantage of the desktop refresh forces that grow every quarter, and I think will be somewhat unleashed when Windows 7 is launched, and then all of this is to build the pipeline up in the meantime, which we can control as well, and that means that as soon as there is a catalyst, we'll see a great, great uptick. So that's our game plan in a nutshell.

Thank you very much.

Dave, I'd actually like to add one kind of new metric that really highlights the way that the cycle is playing out right now, and we usually don't talk about GOs on a sequential basis, but in this case in the second quarter, the Americas improved by 12% sequentially. APAC was up by 9%, and EMEA was almost exactly flat and that's really representative I think of the broader demand environment right now.

Great. Thanks.

Your next question comes from line of Adam Holt with [Morgan Stanley].

Good afternoon. Thanks for taking my question. Had a couple questions about the XenServer and XenDesktop business. It sounds like you had really nice growth for the category on a year-on-year basis. Can you remind us what the run rate is there in terms of total revenue? And then secondly on the VDI deals, particularly the larger deals over 1,000 seats, first of all, congratulations on that traction, could you just walk us through how the economics work typically on those larger deals? Are you seeing that license revenue get recognized up front? Are those typically pilot deals that then go into production later? Maybe just walk us through what the standards of the economics are there.

Sure, Adam. This is David. As far as the overall scale of that business, I think right now we're well on track to reach our goal of doubling that to the mid-$40 million this year; I feel very comfortable about that given the traction that we're seeing on that front. As far as the way the deals are recognized, the majority of transactions look very, very similar to a regular license sale, where we'll recognize a portion of the license up front, call it ballpark 75%, and the remaining balance over the term of their subscription agreement, which is generally one year.

In the larger arrangements, they may be multi-year transactions, where a customer is looking to really deploy over a period of time, and so there could either be a higher maintenance over that or a staged rollout, and we'll only recognize that as the stages are delivered and billed. In the case of the 40,000 seat transaction that we talked about last quarter and again mentioned today, that one is phased, and so there's only a very small part of that that's actually hit the P&L or the balance sheet at this point in time.

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

Hi, guys. David, maybe you mentioned it in your comment there, but I just want to get to what XenApp licenses were down year-over-year and then also what the premium mix was. But also, Mark, I guess when you look over in Europe and as far as just the pipeline heading into the second half, do you see any sort of changes to the pipeline there, maybe like you saw in Q1 that give maybe a little bit of confidence that the US was starting to tick back, and then also anything in Asia Pacific too. That would be great.

Let me give you the metrics first and then Mark will fill in the context. As far as the mix we had 35% to 40% coming off of Platinum, so continuing to see good traction on the Platinum edition, and the overall growth rate, it was down mid-20s, which is an improvement from low 30s last quarter. So a modest improvement, still like to see it move further in the other direction.

Yes, Phil, I guess I'd just say that in EMEA the deals that didn't close that are on our radar that are larger ones are to be closed. Nothing's come off the pipeline. If anything, the pipeline continues to build, and the coverage ratios which we watch are they're imperceptively large, because they don't really mean anything anymore, because of the artificial sort of aspects of the way spending is working right now.

So that's why we have lots of confidence there, and while we're not economists and so forth, I think a year ago I said on this call that it was clear that EMEA was starting to - - the headlines in the news there looked like the headlines in the US about six months prior. So I think we're about six months or so off cycle there, and I think that we'll see some predictability, a little bit more predictability in Q4 is what I believe right now at least. [No] all anecdotal, and then I think that as we go into 2010 we'll see an improving environment in Europe, much as we've seen it stabilized here in the US.

So that's my belief based upon everything I know about it and observe, and all the data.

Okay. Thanks, guys.

Your next question comes from line of Israel Hernandez with Barclays Capital.

Good afternoon, gentlemen. A quick question around XenDesktop. Obviously it seems like momentum's starting to build here, still very early days, but Mark, can you talk about what are some of the catalysts here that are finally starting to move some of these early adopters into some of these larger deployments, and as we move into the Windows 7 refresh cycle and upgrade cycle, is that turning out to be a catalyst for getting some of these customers to move forward, and are the discussions just getting more serious as the technology starts to evolve?

Taking the first part, Israel, I think that what we're seeing here is now the results of a lot of hands-on proof of concepts, pilots then being tested at kind of the next level of complexity, is when you move a pilot from on the land into the real world where you're dealing with land links, and dial-up, and 3G, and kind of all the other conditions you see in a real environment, and that's where XenDesktop is standing out. So it's where we really win in any kind of bake off, when it comes to delivering this hi-def user experience.

And let's face it, a lot of these systems that are going in place right now are to support remote operations, whether they are remote within the US or they're offshore. And I think that's sort of the core of what allows us to win, and also when it works in these kinds of environments, especially there are environments where security is a big deal, turning things on and turning things off is a big deal and so, this kind of technology is just superior to the alternatives of classic distributed computing and the desktop management that goes with it. So I think that's what's happening to catalyze some of these to move from pilots into real production, and to move us from these several hundred user kinds of implementations to in the thousands.

I think obviously we're exposing customers to our roadmap. We have enhanced the product several times in the last 12 months. We've got a really exciting release coming soon, that moves the bar even further, and I think that when they are exposed to our roadmap in terms they see that we're driving the costs down further, so the density of the VMs, the TCO, et cetera, the compatibility, and the performance there, as well as how it inter-operates with existing systems, I think that further allows us to move to deployment.

And then I think the last piece is that there is the Win 7 environment that's weighing heavily on everyone's mind, because XP is old. And customers are hearing from their users all the time about when are we going to refresh, when are we going to migrate? The press on Win 7 is excellent. It's going to only get better, because it is a better desktop operating system than Microsoft ever shipped, and we think that that will be the catalyst for migrating.

And then we've got this great opportunity to be in the conversation, the migration and refresh conversation, that brings a different kind of way of doing it, and I think that customers are looking for new ways to do things that have great economic, as well as security, as well as flexibility advantages, and desktop virtualization in general brings all of that to the party. So that's why we're pretty excited about it, and I think you've probably seen me go from being pretty - - a year ago when we introduced it pretty cautious and cynical in some ways, I think, moving through a cycle where we've been impressed with uptake, to now it's very clear with real implementations and real customers showing us the way, that there's a big market here.

Great. Thanks a lot for hanging tough.

Thank you.

Your next question comes from line of Michael Turits with Raymond James.

Hi guys, first on the ANG side, it's actually been a pretty strong year, you're up 11% in the first half. Is that a rate that can continue in the second half, or do you feel like there's something that pulled a lot of stuff into the first half of the year?

Michael, I'm not sure there's anything that pulled business in in the first half of the year. I don't think that's the case, but what's going on there is really, I'd probably put it into two pieces. One thing is that it is a fairly lumpy business.

I mean we had a large federal transaction in the second quarter. We have one or two of those each year, it seems like. If you remember Q2 of last year, we had a monster quarter, partially reflecting the success that we've had in the federal space.

We're not forecasting one of those big deals in the third period right now. There's a number of them in the pipeline, but just not forecasting one at this point. But I think on a little bit higher level, what we're really seeing there is the success that we've had over the past couple of years, and really moving NetScaler into the enterprise. Selling into our traditional customer, our traditional enterprise customer, which is a much, much wider customer set, using NetScaler to either front the XenApp form or deliver enterprise web applications, and in the case of VPX, which we're going to be rolling out this quarter, really using that as a way to enhance or broaden the market opportunity for us at the same time, as well as tapping into cloud service providers and other new markets.

So happy with the performance. I'd expect it to continue to be a little choppy, just driven by some of the larger deals, but real happy with what we're seeing there.

And then on the XenApp side, I was wondering if you could clarify the comment that you made about customers optimizing the existing environment and was that as opposed to upgrading to Platinum? I'm sorry, I wasn't clear on what you were describing there.

Yes. That's really the comment, and that's really a budget issue as much as anything, where folks are hesitant to look at new projects. And in many cases when a customer of ours has been upgrading to Platinum, it's not just taking what they have and moving it to the next version. In many cases it's the driver for an expansion of a deployment, and so while we have seen the renewal business continue to be strong, we've seen a little weakness in the upgrade business, and really a reflection of just the broad hesitancy on new IT projects.

Okay. Great. Thanks very much.

Thank you.

Your next question comes from the line of Sarah Friar with Goldman Sachs.

Great. Thanks a lot. Good afternoon, everyone. David, if I could turn you to the cost side of the equation, clearly, you guys have done a good job of reigning in costs as the environment got tougher. As you look at into the back half of the year, what drives costs up from here? Is it having to come back and actually add in new headcount, or is there discretionary spends that you'll loosen up the spigots on if the top line is coming through? Trying to understand how much leverage we really get, if we get surprise to the upside.

Sure. Sarah, our leverage is really going to come from revenue. I'm happy with where our cost base is right now, and just to remind everybody about what we've really been doing over the last year or so is a pretty substantial cost reallocation internally, that's allowed us to optimize in many parts of the organization, while increasing investment pretty substantially in some of the new rogue businesses like XenDesktop, SASS, Virtual Appliances, and investing in future technologies like XenClient, Cloud-based initiatives, and others, some branding and awareness activities, just core demand that point us towards a recovery in a strong position.

But as far as the absolute dollars, Q3 I think is stable to where we are in Q2. We will enhance some of those new things that I just talked about by continuing to get savings elsewhere, and then in Q4, I think we're pretty comfortable with the level of headcount we have right now. You will see a little bit of uptake just in variable selling costs, as bookings are higher in Q4, but I wouldn't anticipate anything that will surprise you at this point.

Got it. And then just a follow-up, if I could, on XenDesktop, probably an unfair question, but you're on track to double revenue there, or Xen in total, Server and Desktop, double it in 2009.

As you look out to 2010, can you give us any boundaries on growth rates? Clearly a double from here possible if we had a good environment, but it might be a big goal to set, but it's difficult for us on this side of the world trying to think about where you could go from what's been a good growth rate in '09.

Yes. Tough question, Sarah. Definitely the answer is up.

Good.

We're very excited about where we see the opportunity and pipeline and what not. We're trying not to get too ahead of ourselves, but it's definitely on a terrific trajectory right now, from both activity level, pipeline, and actually big scale deployment.

I think, Sarah, we'll have a better opinion about that with another quarter of performance on both XenDesktop, which is in kind of a different place in terms of market development and market opportunity than XenServer with Essentials is, and remember with XenServer and Essentials, really pleased with what we saw in Q2. I mean above my own personal expectations and given the sort of new model and Go-to-market, some of the things we're doing with Microsoft, with Hyper-V, and Systems Center, et cetera, we get another quarter there, then we'll kind of look at those two revenue streams separately and be able to have a better opinion I think. But I think it's a little too early to talk about 2010.

Fair enough. Appreciate that. Thanks a lot.

Thank you.

Your next question comes from the line of Rob Owens with Pacific Crest Securities.

Great. Thank you. Could you guys expand a little bit more on what you're seeing in the federal vertical? I think it's been strong for a couple of quarters now. Are there a lot of major projects that you're tied to, and understanding that you did have a pretty sizable transaction in Q2, just the run rate business, would you expect an uptick there in Q3, just with the end of the fiscal year?

I think the answer is yes. I don't think that we're any different from most tech vendors. Look, Washington is spending a lot of money, and they're focusing on technology for I think all the right and good reasons around getting more efficient and so forth. We'll be a beneficiary just like many in the industry will.

I think that our relative advantage really comes from execution, because our federal team has gotten stronger and stronger. We've continued to build it, and their longevity with the company, et cetera, has built a pipeline, built relationships, and that's why we're seeing some of the strength that we've seen in federal literally over the last four quarters, and I think we will see the uptick in Q3 because it's the end of the fiscal year.

And were there any eight figure transactions in the quarter?

No.

Great. Thank you.

Your next question comes from the line of Bhavan Suri with William Blair & Company.

Hi, guys, thanks for taking my question and congrats on the quarter. I guess just a couple quick questions first on the SASS business. You know, it was a good solid quarter. How much of that was international? I know you guys had been building out a sales force in Europe, and I was wondering if uptick of that had been impacted by international at all.

That was one of the contributors. I think we've actually been slow rolling the international expansion a bit. The teams did meet or exceed their plans internationally over the last couple of quarters. So execution-wise it's been great, but as far as the investment level and just how much we've been pushing it, it's probably been a little slower given overall budget constraints.

A couple of big things going on in the overall business. One as we talked about, collaboration, is still really where the growth is coming from. It's up 40%, good traction from Webinar, which is a new product, great new traction, early traction, though, from the Audio Services team, and really just creating the idea of broad communication suite for S and B.

So the only other thing I'd point out like I did in my prepared remarks, was around GoToAssist Express, and if you remember, we added another product to the online assistance market a few quarters back, and we're just now converting some of those beta customers to paying customers, and all of these things together have really shown an acceleration in that business, which is year-over-year about 16% in Q1 and up to 18% in Q2, and I think we'll continue that level, maybe even a little bit higher in Q3.

Great. And then turning to the investment you were making in a team-to-target systems integrators and developing that channel, and that was sort of different than what you've done historically, especially given the XenDesktop opportunity, any update on that?

Yes. It's going extremely well. So we highlighted the CSC relationship, and it speaks for itself. They've really stepped into first place in terms of strategic partnership as a global SI, and doing some really great work and have a huge amount of resources committed to us. Making great progress along similar dimensions with EDS and Accenture, and then with some new work we're doing with some of the SI's out of India.

So overall I think that team, we've added some heads. We'll add some more heads, in terms of allocation, from the existing employee base to further strengthen what we're doing there. So we're doing a lot of training and we're doing a lot of in the field work with reference accounts, showing these kinds of SI's how to be successful with a Desktop Virtualization strategy.

And the fact that the opportunity here is to touch hundreds of millions of desktops is what's bringing the SI's to us, which is really a different kind of opportunity than we've been able to present to them in the past, when we think about XenApp with a more app-focused kind of value proposition. So all good up and to the right, very exciting.

Good. And then one quick question on XenDesktop. You know, given the traction you're seeing out there, could you provide a little color about the split between replacing competing solutions that customers are sort of dissatisfied with, versus kind of greenfield opportunities where customers haven't done any sort of desktop virtualization and you're going in as a bake off.

I don't think we're prepared to share stats there, but the interest in Desktop Virtualization has been longstanding, and I think everyone on the call knows that the position that we've taken for quite some time, probably almost two years now, that really the catalyst for success, from a technology point of view, is user experience. And this is an area that's a core competency of Citrix for a long time, and it really wasn't ready for prime time for this kind of solution until beginning about a year ago, and so a lot of the trials that were done with other products really seeded the interest and seeded the market, and we're obviously gaining a lot of advantage from that early work done by a range of other vendors in the industry delivering something that works.

And because of the approach that we've taken, which is this open architecture approach, we don't really prescribe for customers how they should actually implement XenDesktop. If they want to use another hypervisor or than XenServer that comes with XenDesktop, we're happy that they do that, if that's what works for them, and giving them a broad array of choices around endpoints and storage arrays and so forth. So I think it's been one of the big strengths of XenDesktop and why we're able to actually go to a customer that has some commitment to another solution and lay it right on top of it and/or replace it completely.

Great. Thanks, guys.

Thank you.

Your next question comes from the line of Walter Pritchard with Cowen and Company.

Hi, thanks. David, just one quick question on FX, could you give us any impact that you saw during the quarter on expenses, and as I recall, you're still pricing in dollars, but to the extent there's any revenue impact as well?

Really nothing material from what we saw in Q1. There's a little bit of revenue that's priced in a little currency now, but not enough to really move the needle, and no change from expectation on how it impacts expenses. I think the one place that we have seen a little bit of movement lately is just in the revaluation of accounts that flows through other income, and so you see a couple million up or down in any given quarter there, but really nothing material on the overall P&L.

Got you, and then just, I guess, Mark, how do you think about just headcount in general as a driver and how focused we should be on metrics, just such as unemployment and so forth, in terms of looking for a reacceleration in the XenApp business?

Walter, it's a hard question to actually nail down some real metrics that we can rely on. In fact, I'm not sure that headcount up or down is a huge determining factor in XenApp licensing. I think, because remember it's a concurrent user kind of model, and it really gives customers a lot of flexibility on both the up side and the down side when it comes to head count.

So I'd like to think that the biggest driver here is the time, the clock in terms of the longer that the economic environment looks like this, the longer that IT budgets are going to be squeezed, and the longer the clock ticks, the better the technologies become that are great alternatives to the traditional approach to putting a desktop in front of someone, for example, or how you build a data center, or how you extend that data center to the cloud, or how you actually do collaboration, forcing people to do the new things that are there. And I think that's more the catalyst than anything in headcount, because I think, again, I'm not an economist, but I guess I've been through a few recessions, and I think we should all expect, regardless of when it recovers, we're going to have a very different kind of recovery than we have had in the past, but one of the things that will be in common is a jobless recovery.

And look, a lot of companies that are posting results this quarter are showing improved profitability, and one of the reasons is they're figuring out how to eliminate fat and eliminate projects, reset priorities, many of the things that we've done, and those sort of behaviors have lasting impact. So I think that's actually the biggest catalyst for us on all of our products, as opposed to hiring and headcount.

Great. Thanks a lot.

Your next question comes from Steve Ashley with Robert Baird.

Maybe I could start with a housekeeping question. In total, do you know the number of $1 million deals that you did in the period?

Yes. In total there were, let's see, there were six individual transactions, and on the NetScaler front, I don't think there were any specific million dollar transactions but there were a handful of customers that in the aggregate purchased more than a million dollars in the quarter.

Then I'd like to talk about license update grew 9% in the period. Deferred revenue was up about $3 million sequentially, and the growth there has slowed. How should we think about the growth rate and license update as we go into the second half of this year and into next year?

Yes. I think the license update growth is a pretty simple function between two things. One of them is a renewal rate of customers that are existing on subscription, and the other one is new subscriptions, which are generated by new license. We've obviously talked about the pressure on new license a lot, which is the primary driver for the why growth has been slowing down on license updates, and I think it's going to slow a little bit further, too, until we see a real uptick in the pace of new license sales.

I do think that we still have a big opportunity to go back and capture some of these folks that have lapsed subscription, either through short-term budget constraints or other reasons, like we just haven't reached out to them. So we've got some things that we're going to be doing in the second half of the year to really re-engage a number of these customers in that one, two, three million seat range, that we think is attachable at this point in time, and that would be one of our focus areas there.

And you talked at the Analyst Day about maybe introducing some maintenance during the second half of the year as a new services offering. Can you update us on maybe the timing and maybe some of the pricing thinking around that?

Yes. We'll be doing a pilot in the second half of the year, just to make sure we understand exactly the best way to service customers here.

So I wouldn't expect a lot of incremental revenue in the second half of this year, but it's certainly something that on a go-forward basis gives us a chance to not only make sure customers are being successful implementing our technology, and a successful customer ends up being usually one that buys more product, but also generating a lot more recurring revenue downstream. So it's probably more of a 2010 item than second half '09.

Thank you.

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

Hi, guys, two quick questions. First on the modeling front, if you look at last year, your OpEx declined sequentially into Q4 from Q3, and given the guidance when I run my model, it looks like to hit your margin expectations here, we have to see OpEx come down again in Q4 versus Q3. Is that a reasonable assumption, is that how we should be thinking about it?

No, I wouldn't expect OpEx to come down from Q3 to Q4. If you remember why it came down last year, it was because we were in the middle of a number of significant cost cutting efforts, cost structure efforts, and this year I think it's going to be pretty flat going from Q3 to Q4. But, just on our guidance, we've reiterated that we would expect margins to expand as much as 100 basis points, and stand by that. So it's more of a revenue story than anything else at this point in time, and expect expenses to be pretty stable to where they are right now.

And then on a strategic front for Mark, if you look at XenServer, any sense for early attach rates your seeing with Essentials, and any sense for a change in the competitive landscape with vSphere out in the market, and how has that changed the dynamic?

Let's see, on the attach rates Todd, the answer kind of goes like this, great quarter, the viral aspect of free Xen Server, and the attach rate on Essentials, we've got two months of data.

So it's accelerating, and it takes some time, right? You download the product, you try it on a server, you activate that, you maybe activate a few more, you put some infrastructure on it, and then you realize, gee, I want to have (inaudible) stage management, I want to more attached to storage, I want provisioning capabilities, etc. And so that can be a multi-month cycle to actually wake up to that, and I'm talking about someone who discovers XenServer from a free download. So the attach rate is too early to call, but it's accelerating.

Then the other piece of it is, really the attach rate of Essentials with XenServer that's sold by our partners, and our partners go in and they are solving Datacenter Virtualization problems for customers, and that's where it's all wrapped together as a solution, XenServer and Essentials is either an Enterprise or a Platinum level sale. And we saw great uptake there, and skewed toward Platinum by the way, very nicely, and that attach rate is enormous, because they're actually going in on a solution basis and putting a system together for a customer.

In terms of the competitive landscape, VMwares obviously really set the pace in a lot of dimensions, especially at the very, very high end of the marketplace, and we continue to believe that there's still a massive mid-market open that appreciates the open architecture, the price points, and the simplicity and ease of implementation that XenServer and Essentials represents, along with the motion that we have with Microsoft there. I think that's the opportunity that's ahead of us.

And then we'll have some more to say in the second half about the cloud and how XenServer and Xen with Citrix force behind it plays in more of a cloud context, which is really what vSphere is driving more toward. So stay tuned there.

Thanks, guys.

Your next question comes from the line of Katherine Egbert with Jefferies & Company.

Hi, good afternoon. Nice quarter. On XenDesktop, Mark, so you have over ten customers with over 1,000 seats each, what was the sales cycle on these deals, and how many customers do you have total now, say about, with over 1,000 seats? And then can you just talk about the [pike] there?

Sure. So, let's see, the sales cycles are running about eight weeks, but usually there has been some level of experimentation and some early work that's gone before that, but once we get involved in the project, the cycles are actually much faster than we ever imagined they would be. And certainly the downloading of the Express Edition, Katherine, is giving customers kind of outside of our own need to control and be involved a lot of technology that allows them to do a lot of the experimentation before we actually get involved in the sales cycle.

Secondly, I think it's safe to say we have about 20 customers that are 1,000 or more seats, and this is kind of an upward spiral because they're serving as reference accounts. And we're still in that early crossing the chasm stage of the marketplace, where reference customers that have great credibility, that are early adopters, are the important customers to focus on.

In terms of the number of total customers, probably deceiving in that it's a big number, but you have a lot of people who have bought product to try smaller systems there in those early cycles. The total customer count is somewhere between 1,000 and 1,500, and so it bodes well for the future, because there are great seeds that can grow for us.

And then lastly, I'd say that the pipeline growth here is the fastest growing pipeline we have, both in percentage and in dollars, as well, and I think what accounts for that is all the things we've already talked about around Desktop Virtualization. But the interesting thing is that when a customer thinks about Desktop Virtualization, they think about touching many, many, many more endpoints than they do when they think about App Virtualization.

So I think that in the conversation, when the opportunity gets identified, et cetera, the potential then in the pipeline growth really reflects many, many more seats than lets say an equivalent conversation about App Virtualization. So hopefully that gives you a big perspective there.

Yes, that is helpful. That's a good comprehensive overview. Thanks, Mark. And then just quick, Dave, how is the linearity on the large deals this quarter? Was it typical, last minute rush?

I think it's pretty typical. I mean, big deals don't always flow to the back part of the quarter, but the business throughout the current economic cycle I think has been a little bit more back-end loaded than normal. But, nothing unique I'd say, as far as large deals.

Okay, great. Thank you.

Your next question comes from Aaron Schwartz with Ladenberg.

Good afternoon. Just had a quick question on Essentials. I know you've talked about that as being the monetization piece on top of XenServer. Can you just walk through your strategy of rolling out an Essentials Express version, or a free version, albeit, I know that's a limited version, but is that just a new customer acquisition vehicle, and then you'll convert those customers to pay customers over time? Or can you just walk through the strategy of why that was released so soon after the main essentials was released?

Sure Aaron. That's exactly why, and the timing of the release was in conjunction with the Worldwide Partner Conference. And look, it's not rocket science in that regard, and that consideration, based upon trial, is the most important metric. And by encouraging trial to get consideration and deals, that will really be the determining factor in really becoming part of the whole Hyper-V momentum.

And I think the feedback from the Conference was that, gee, we didn't even know about Essentials for Hyper-V, and also I think that because Microsoft is starting a new fiscal year, there's a big focus on the Datacenter and Virtualization, and Essentials for Hyper-V really brings some very important capabilities that allow Microsoft-centric customers to say yes to a Hyper-V implementation. You can take Hyper-V, you take Essentials, and you take Systems Center and you put them together and you have a very, very robust virtualization system that's quite competitive.

So really just a way to get in the marketplace, make the basic product for a limited number of servers free, and then benefit from the multi-server rollout, because the number of customers that end up with one or two servers in virtualization is just not an interesting market for anyone, and this gives us a toehold in one of the fastest growing Hypervisor markets that's out there, and that's the Hyper-V market.

Okay, and should we expect the same thing for Essentials on Xen, or is this purely a Hyper-V strategy?

Yes, it's purely a Hyper-V strategy, not sure we need it for XenServer, and so, yes.

Okay, terrific. Thanks for taking my questions.

Thank you.

Your next question comes from Tim Klasell with Thomas Weisel Partners.

Yes, good afternoon everybody. First question has to do with long-term or three-year maintenance contracts that I know you occasionally sell. Your deferred revenues long term are trending up, but that's flying in the face of many of my other companies who are seeing people break three years into one-year contracts, and what have you. So can you walk us through what's happening with your long-term maintenance contracts?

Sure, Tim. We actually don't do very many. It's really not a big percent of the overall, and if we did, it could either take the form of a customer paying for it up front, or simply contractually obligating them to an invoice that shows up in a year. But really, it's just not a big number for us, so I doubt you'd see it really reflected on the balance sheet.

Okay, and then the next question is on the (inaudible), obviously they're working with [Terraducci] to work out a protocol sometime this year. What are your thoughts on how that will affect the Desktop Virtualization market? Do you think it will freeze it up while people look at that, or do you think they'll look through that?

I think customers are smart and they'll test all the new technologies as they come out, and obviously the protocol is an important component of Desktop Virtualization, and as we've evolved, you've seen us really move way beyond the protocol. I mean, we continue to have the most powerful and most efficient protocol in the world on the wire, Citrix ICA, but the advent of this suite of HDX technologies that really are all about bringing adaptiveness to the connection between the endpoint and the head end, that [CPU] and the GPU can be tapped on either end, and to do that in a way that deals with the issues at layer four through seven on the network, are all uniquely characteristic of HDX, or Citrix, and what we've done, way above and beyond the protocol.

So the competitiveness at the protocol level will continue, but what we've tried to do is really take this end to end view, and by the way, we think it's critical because look, most vendors with most protocols that have been invented can pick up a few endpoints on a local area network, especially if they're (inaudible - microphone inaccessible) networks. But as soon as you get a lot of them, and as soon as you move into the real world where you have lots of networks between buildings, [LANs], long distance halls, et cetera, that's where the real hard stuff comes in, and what we've tried to address over and over and over again. So, yes, I think we'll see. This is where the battle plays out.

Very good. Thank you.

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

Well once again, thank you for joining us on the call today. We feel good about where we are in terms of coming through the first half, probably the toughest first half we've seen in this industry in 25 years, and looking forward to a second half where we really accelerate on our full range of strategies to bring Virtualization to bare on Desktop, the Datacenter, and for creating virtual work style. So, thanks for the confidence and we'll see you in three months. Thank you.

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