思杰系統 (CTXS) 2011 Q3 法說會逐字稿

Good morning. My name is Chrissie, and I will be your conference operator today. At this time I would like to welcome everyone to the Citrix Systems' third-quarter 2011 financial results 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 session. (Operator Instructions)

I would now like to turn the call over to Mr. Eduardo Fleites, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Chrissie. Good afternoon, everyone, and thank you for joining us for today's call where we will be discussing Citrix's third-quarter 2011 financial results. Participating in the call will be Mark Templeton, President and Chief Executive Officer, and David Henshall, Executive 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 our financial results I want to state that we have posted product classification and historical revenue trends related to our product groupings to the Investor Relations page of our website.

I would like to remind you that today's conversation will contain 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 assisted with our products, acquisitions, and competition. Obviously, these risks could cause actual results to differ from those anticipated.

Additional information concerning these and other factors is highlighted in today's press release and in the Company's filings with the SEC, including the risk factor disclosure contained in our most recent annual report on the Form 10-K, which is available from the SEC or on the Company's Investor Relations website.

Furthermore, we will discuss various non-GAAP financial measures as defined by SEC's Reg. G. A reconciliation of the differences between GAAP and non-GAAP financial measures discussed on today's call can be found at the end of today's press release and on the Investor Relations page of our website.

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

Thanks, Eduardo, and welcome to everyone joining us this morning. Today we are hosting the call from Citrix Synergy in Barcelona. It's our annual customer and partner event in Europe. We're really excited to actually have a record number of attendees this week, up more than 40% from last year. Mark will give you an update on the event later in the call.

So turning to Q3, revenue grew 20% to $565 million. Adjusted EPS was $0.64, and we generated almost $190 million in cash flow from operations.

We're continuing to drive leadership across desktop virtualization, delivering significant new technologies in cloud networking, and expanding the capabilities and footprint in our SaaS business, trends that can be clearly seen in the results. In the third quarter, revenue from new license sales was $194 million, up 28% from last year. License update revenue increased 7%. Tech services increased 37%, led by consulting demand and support agreements. And, finally, SaaS revenue was $110 million, up 20%.

From a geographic perspective, the Americas region continues to execute really well, with revenue up 21% from last year, including 26 individual deals greater than $1 million each. This is a metric that has more than doubled from a year ago.

In EMEA, revenue was up 12% to $137 million, and Japan Pacific posted another strong quarter with combined revenue growth of 39%. So overall, a very good quarter.

Now let's take a look at the Q3 results within our three main businesses. First, desktop solutions grew 14% in total revenue from last year to $316 million, including product license growth of 24%. Year-to-date this license revenue in this business is up 18%, and it's at the top of our 16% to 18% license growth target that we set for the full year.

In Q3, sales of XenDesktop product were up more than 65% year on year, with about 20% of revenue coming through the trade-up program and the balance from new licenses. XenApp also increased from last year, as more customers are looking to application virtualization as a great way to deliver apps to tablets and other mobile devices.

There's also a few other metrics I think really demonstrate the breadth of adoption we are seeing as well as the strategic value that customers are placing on desktop virtualization within their infrastructure. In Q3, there were 22 $1-million-plus deals for XenDesktop, easily a record, and representing customers from healthcare, retail, insurance, government, education, and other verticals. In total, over 3,000 different customers purchased XenDesktop, including 174 transactions for more than 1,000 seats each and 24 deals for over 5,000 seats each.

Customers are looking at Desktop Transformation as a way to accelerate their business imperatives. For example, a large insurance company in Asia with over 20,000 employees buying XenDesktop and XenServer in order to provide flex-working for employees, increasing productivity, and maximizing real estate savings. Or a major US retailer that purchased over 20,000 desktop licenses as part of their critical business infrastructure necessary to deliver on a vision for the store of the future in over 1,800 locations across the country. Or a US-based healthcare provider that rolled out more than 5,000 seats of XenDesktop to securely deliver sensitive medical information to affiliate clinics over a wide area network, and using our FlexCast technology, allowing them to support the full variety of use cases from doctors and nurses to office workers using PCs, laptops, thin clients, and tablets.

So are increasingly having conversations with customers at this level, as the conversation moves from technology to business enabling. We're providing them the tools to more efficiently transform their desktop infrastructure, including a brand-new solution announced yesterday through the pending acquisition of App-DNA. This tool allows customers to quickly assess their application portfolio and implement a strategy to deliver desktops and applications as a service to all users in the enterprise.

Next, in our data center and cloud business, total revenue was up more than 30% in the quarter, with product license revenue increasing 32%. Growth here was again led by NetScaler, with license revenue up 48% year on year and the strength really coming from three big areas.

First, continuing to see really strong traction driving a cross-sell motion into our traditional enterprise account base, with the number of new NetScaler customers up more than 50%. Second, the new NetScaler SDX platform which started shipping in June, really enabling customers to run numerous virtualized NetScaler instances with full multitenant support, giving service providers and other large enterprises significant economic benefits through consolidation. And finally, another big quarter from Internet-centric accounts as they are building out the infrastructure to support large retail and other cloud-based service offerings.

In the SaaS business, revenue was up 20% to $110 million. The growth continues to be led by our collaboration products which were up 30% and now account for over half of total SaaS revenue. Geographically the investments we have been making to expand this business internationally are delivering good results. In fact, in Q3, revenue from international markets accounted for about 15% of the total, up from just 10% a year ago.

Also in Q4, through the acquisition of ShareFile, we will begin offering customers a solution for cloud-based data storage, sharing, and collaboration, making it easy for businesses of all sizes to securely store, sync, and share business documents and files both inside and outside the company.

So turning to operations, in Q3 adjusted op margin was 26%, an increase of over 100 basis points from Q2. Our plan all year has been to invest slightly behind demand growth we are seeing in the market. So as bookings, pipeline, and POCs have accelerated we have continued to focus on really two main areas.

First, which is about expanding our go-to-market reach and customer touch through enterprise account managers, strategic partnerships, consulting, and tech support. And second, around product innovation, to bring to market new technologies as well as improving integration across our solutions in order to drive simplicity and a better end-user experience.

So in total, in the third quarter we added over 400 new people to Citrix, with more than half of those coming into the sales and services organization. In total, headcount now stands at over 6,500 employees, which is an increase of 1,100 people compared to the same time last year.

On the balance sheet, cash and investments is now $1.5 billion, driven by nearly $190 million in cash flow from operations. During Q3 we repurchased just over 2.2 million shares of stock at an average price of $57; and we spent about $200 million on M&A and licensing activities.

Deferred revenue at the end of the quarter was $834 million, which is up 23% from last year, and the main drivers here being really three things. First is an increasing number of XenDesktop customers that are involved in the Subscription Advantage program; the number of customers that are initiating multiyear agreements; and tech services contracts for consulting, maintenance, and support.

So we continue to execute really well. We are seeing growth across all of our strategic businesses and we are making the investments necessary to extend our leadership position in critical markets, while at the same time expanding our go-to-market capacity.

So given the strength that we are seeing across several facets of the business and the growth in our opportunity pipeline, we are increasing our revenue outlook for 2011. Just as a reminder, our guidance does include the impact of acquisitions that we have made to date.

So for the full year, our current expectations are now for total revenue to be in the range of $2.2 billion to $2.21 billion, and adjusted EPS in the range of $2.45 to $2.46 a share. For the fourth quarter of 2011, we currently expect total revenue to be in the range of $610 million to $620 million; adjusted tax rate between 22% and 23%; and adjusted EPS of $0.75 to $0.76.

With respect to 2012, our planning cycle is still in process, which is normal for early Q4. And at this point we're comfortable with the current revenue expectations that are in the range of $2.47 billion to $2.48 billion.

Our focus next year is going to be on helping customers accelerate Desktop Transformation, delivering the infrastructure to build both public and private clouds, and expanding our customer reach through both direct touch and go-to-market partnerships. We will update these expectations with more specifics on our fourth-quarter earnings call, but ultimately our confidence in the market position and our ability to drive long-term growth remains unchanged.

So now I would like to turn it over to Mark to give you a brief update on Synergy and all of the important announcements coming out this week. Mark?

Good morning, everyone, and thanks, David. I'm really delighted and proud of our Q3 performance across geographies, business lines, and financials. As David mentioned we're in Barcelona this week with business partners and customers attending our second European version of Synergy. Despite the tough economic state of Europe overall, attendance is up over 40% from last year, and it feels like customer enthusiasm is up over 100%.

Our long-held mission and belief in creating a world where people can work and play from anywhere is really resonating. It is clear that in a highly volatile, uncertain, complex, and ambiguous world this is how people and business will live better and work better.

Yesterday we unveiled enhanced technologies, future innovations, and acquisitions that will power mobile work styles and cloud services. Today I would like to focus my comments on a few of the important announcements we have made this week, putting them in context of our markets, strategy, and ambitions around growth.

First is empowering end-users. Empowering them with increasingly mobile work styles in their personal cloud.

To continue to lead and innovate in this area we demonstrated how our customers can create seamless access across people, data, and apps on any device. Our recent acquisition of ShareFile was the centerpiece. A fast product that enables secure, professional, and simple document sharing using any device, Windows and Mac, along with everything mobile from iOS to Android to Windows phone.

Getting to your data from any device is critical to going mobile. Integrating data within collaboration tools is just as critical.

So we announced Workspaces, a new feature for GoToMeeting that adds intuitively easy places to create, share, and store meeting content. With Workspaces, meetings can center around project teams and the content needed for productivity.

Making data available to enterprise and mobile apps is also critical. So we announced the addition of Follow-Me-Data to Citrix Receiver, allowing IT professionals to give employees easy, secure access to business documents from any company owned or personal device.

These data centered products and features are all built on the data cloud that has been the underlying infrastructure for ShareFile. We announced this as our new Follow-Me-Data fabric, an extensible platform for sharing business data across a wide range of apps, devices, and cloud services. We think of it as i-cloud for business.

Our Follow-Me-Data fabric powers our own personal cloud services, and we will make it easy for third-party developers to incorporate data services like search, share, sync, secure, and remote wipe through a set of open APIs, resulting in dynamic mesh-ups of data sharing in new and existing apps, and making user data securely and easily accessed from millions of business and consumer devices.

The second area of focus yesterday was around transformation. Transformation of traditional data centers into more elastic and economical private clouds.

Corralling, controlling, and delivering a wide array of services to the personal cloud is creating greater need for a single point of service and control at the front door of the data center. To enable this, we demonstrated Citrix CloudGateway, the industry's first unified service broker that aggregates controls and delivers Windows, Web, SaaS, and mobile apps to any user on any device. CloudGateway empowers end-users with self-service access to all their business apps and gives IT unmatched control, providing identity provisioning for authorized users, automatic account provisioning and de-provisioning, and remote wipe for data and apps on lost devices.

It also includes a unified dashboard for service-level monitoring and license optimization, among other things. CloudGateway is the connection and aggregation point for on-demand IT services, including Windows apps and desktops, where XenDesktop continues as the market leader.

Our focus is to make virtualization at the desktop more powerful and pervasive by expanding our market reach, by lowering acquisition costs, and by speeding adoption.

Now, virtualization at the desktop is being deployed by customers of all sizes with widely recognized ROI for virtual apps and virtual desktops, as David mentioned. We recently shipped new versions of both XenDesktop and XenApp with new features that address performance, management, and simplicity, including the biggest set of enhancements to our industry-standard HDX technology in the entire history of Citrix. These releases will help customers drive even greater business agility, tighter security, and wider availability across consumer and business endpoints.

To reach the SMB and departmental customers more rapidly, we announced Citrix VDI-in-a-Box, a simple, affordable all-in one VDI solution. This was especially well received by our European partners who service these smaller customers.

Over the past two years we have focused on reducing the cost of desktop virtualization as an enabler to wider scale adoptions. This week we showed how the first-year capital cost of a Citrix XenDesktop rollout is now materially below that of physical desktops in many cases.

We are achieving this through our industry-only FlexCast delivery technology, along with the addition of storage, networking, and management optimizations, leveraging the innovations of our partner ecosystems and Moore's Law for greater density of virtual apps and virtual desktops.

We also announced XenDesktop's new personal Personal vDisk technology, built on the recent acquisition of RingCube, that moves personal apps, preferences, and data to a virtual disk. It reduces VDI storage by 65% in most cases because only one image of a Windows VM is now required.

Over the next six months I think we will be able to drive the upfront cost of virtual desktops below a physical desktop across the board, inspiring even broader adoption, which is our third area of focus. Customers are asking for services and innovations that will speed them to the value of virtual desktops.

This week we announced updates and enhancements to all our Desktop Transformation model services, with more self-service tools and partner services. We also announced the agreement to acquire App-DNA to simplify the migration of Windows and browser apps to the new world of Win7, virtual desktops, and consumer devices, something that has been a significant obstacle for many customers. This acquisition will give our customers the ability to analyze their application portfolio, to know what their deployment options are, to quantify app remediation where needed, and to auto-package the apps for use with Microsoft installer, Microsoft's App-V, and Citrix XenApp.

The third area of focus for the conference has been around connecting -- connecting to the growing array of public cloud services in the simplest way possible. NetScaler, having a great, great quarter, is becoming the top brand in cloud networking as you can see in our business trajectory, connecting people, devices, apps, and data to cloud services.

NetScaler VPX, MPX, and SDX are the underlying service delivery fabric, leading the industry in the transition from app delivery to service delivery networking. We also announced enhancements to CloudBridge, securely connecting private clouds to the infinite capacity of public clouds at the back door of the data center. The enhancements include the industry's first infrastructure-as-a-service cloud catalog.

Leading cloud providers worldwide will be pre-certified for supporting CloudBridge, giving enterprises a one-sided set-up, choosing from a validated list of cloud data centers worldwide. It will be as simple as adding a new e-mail account to your smart phone.

The last area of focus this week has been around building clouds -- building new cloud services the way the world's most successful clouds are built. As the industry transitions from the PC era to the cloud era, the cloud services market is projected by IDC to exceed $55 billion by the end of 2014, comprised of thousands of providers of all sizes, for business and productivity applications, gaming, collaboration services, managed desktops, data storage, business continuity services, and infrastructure-as-a-service.

Today, more than 2,500 cloud providers around the world have chosen a combination of Citrix CloudStack, CloudPortal, XenServer, and NetScaler products as a key platform for building their cloud businesses, including four of the top five largest public clouds in production today.

We demonstrated some of them at yesterday's keynote. The Synergy audience really responded to the live demo of CloudStack and CloudPortal, XenServer and NetScaler customers like Go Daddy, Korea Telecom, and IDC Frontier, and super-scale specialty clouds like Zynga's Z Cloud, all built on Citrix cloud infrastructure.

Under the covers, they were seeing CloudStack 3, CloudPortal Services Manager, CloudPortal Business Manager, XenServer 6, and NetScaler SDX powering some amazing clouds from general purpose to special purpose. As more businesses shift to the cloud, our open solutions provide a powerful alternative that will challenge other vendors that are limited to providing proprietary and closed solutions.

So wrapping up, clearly we are building strong positions across SaaS, virtualization, networking, and cloud markets. And the investments we have made over the past year in people, infrastructure, innovation, and go-to-market is powering growth through geographical reach and business model diversity. And now, I would like to open it up for questions.

(Operator Instructions) Adam Holt, Morgan Stanley.

Hi, thank you, and congrats on the quarter. My first question is about the acceleration in large deals, if you could give us a little bit of color as to why you think you saw such an uptick in the $1-million-plus deals.

Also, how is that changing distribution? Are you taking more of those deals direct? What kind of shifts are you seeing in the ability to accommodate that kind of deal flow in your model?

Sure, Adam, this is David. Yes, as you pointed out, we had a terrific quarter for large deals. It was 40, which is -- frankly that is about double what we saw in most quarters a year ago. So a lot of movement in that direction.

It has certainly been a trend that we have seen over some period of time. If you recall last quarter we were up to 26, which was clearly a record for a Q2.

We are seeing a good mix across products. We have some of the largest deals coming out of NetScaler as well as XenDesktop, and a surprising number of combined transactions -- those customers that are buying both a hardware and a software solution as well as customers are looking at both XenDesktop and XenApp standalone products as a component.

I would also add that contribution from SIs -- as you know one of our big focus areas over the course of the last couple of years -- continues to move up. It's up about 65% year on year in Q3. And remember that is a little bit lumpy because it is related to large deals, but still representing somewhere in the 15% of product bookings neighborhood. Big contribution in Q3 from EDS HP, IBM, Fujitsu, and others.

I would also add we had a good geographic mix. We had about 10 of the large deals come from EMEA. And even though EMEA is our slowest growing region and one that is clearly in the middle of working through a number of political and macroeconomic issues, customers are still stepping up for large strategic transactions. And it is just a lot of positive forces moving in that direction.

If I could just ask a quick follow-up about the Q4 numbers, there has been a lot of question about the aggregate spending environment. What is your level of visibility on the fourth quarter in terms of pipeline coverage, etc.?

Are you still feeling like the desktop business can be a 20% grower in Q4? Thank you.

Sure, Adam. Yes, I think the environment has proven to be relatively constructive. I think we are seeing good results coming up out of all of our regions.

Some of it is simply the categories we are in. Obviously, Desktop Transformation and networking and these areas are high priorities for a lot of CIOs, driving high wallet share and mind share. So that is certainly a positive.

We have been executing for the last year under a set of expectations around continued market volatility in some areas, in particular EMEA. So the -- call it the metrics that we apply and the lens that we look at pipeline has adjusted a bit to accommodate that.

But frankly heading into Q4 we have got a record level of pipeline. We have got a record opportunity for large deals. The challenge as always is just getting them closed. But we feel good about our market position right now.

Great, thank you.

Daniel Ives, FBR Capital.

Congrats. Great quarter. Could you just -- sort of to the last question, what type of budget flush are you factoring into Q4? Maybe relative to historical, what you have seen.

Yes, this is David. I don't really think we factor in the concept of budget flush. We really don't see it the way we would have four or five years ago.

Companies and customers in general just react in much more real-time and adjust their budgets to their spending. It tends to be the large, more public-sector government-type entities that operate more on an annual basis. So I wouldn't anticipate any what you would call budget flush; just normal seasonality that is backed up by our level of activity metrics, pipeline, etc.

Okay. Then just on the NetScaler, obviously that continues to be very strong. Anecdotally what do you think is going on with the business? Is it share gains, is it cross-sell, is it customer adoption?

Obviously that continues to be white-hot. So what's your thoughts there?

The short answer is yes to all of the above. I mentioned a few of the drivers in my comments. We have just been more and more successful driving a cross-sell notion over the last couple of years. It's been a big focus for us, and so as our sales teams and our partners add more capacity we are able to go out and touch a number more.

We have had good success with customers. They are looking at just expansion of capacity, replacement of legacy gear, a number of those factors, particularly in the Internet vertical. And then the new products.

We have got virtual instances of VPX for all of our major hardware products that are contributing incremental opportunities for us. We are looking at the SDX platform and a new high-end platform really targeted towards some of the largest cloud service providers and large enterprises as a way to drive incredible economics through combining virtual instances of NetScaler technology.

And then as I mentioned earlier the combination of hardware and software -- we are seeing upwards of 500 customers per quarter now deploying a hardware appliance as part of a broader solutions set for delivering virtual apps and virtual desktops across their entire enterprise.

Okay, thanks.

Steve Ashley, Robert W. Baird.

Maybe I can start with a housekeeping question. You talked about XenDesktop being up 65% year over year. Was that license up 65% or was that revenue up 65%?

That was license revenue, Steve.

Okay, great. As just kind of following on, as we look forward for the data center business into the December quarter, is that something you would expect to be sequentially up? Or can you give us any kind of directionally what you are thinking on the business going forward?

Yes, for the broader data center and cloud group, the way we report externally, I think modest up sequentially. If you look at the pattern that we have had every year, Q3 is a big, big quarter because that is when most of the big Internet properties are building out capacity, getting ready for end of year and whatnot.

So if it is modestly up on a sequential basis that will still mean that it is up in the mid-30% range on year-over-year. So that is how I would think about it.

Just lastly, another kind of housekeeping question, other net income was lower than we had expected. It was actually a net expense. Maybe some color explanation around that; and how should we think about that going forward?

Yes, three things going on in that line last quarter. One is just the interest rate on invested cash is not very high.

Second is that is where FX volatility, where we remeasure our balance sheet accounts, flows through the income statement. That was a negative $2 million, $2.5 million.

And then we took an impairment for a minority investment for a few million dollars, which is a one-time item. So those are the three things that are contributing to other income.

Perfect, thank you.

Rob Owens, Pacific Crest.

Great. Thank you very much. Could you talk a little bit about just the XenApp performance in the quarter, and license having steadily improved over the last couple years, and just what the outlook is there?

Yes, it's a good question. Remember when we talk about the desktop solutions business, we always talk about XenApp and XenDesktop together because, frankly, that is the way customers look at it. That is the way we sell it on a go-to-market basis.

But XenApp is a standalone product. It is still a fantastic, cost-effective way to deliver apps and desktops, whether that is on a project basis or remote location or even enterprise-wide. Frankly it is probably the cheapest way to deliver virtual desktops of all the options that are out there.

But I think one of the things that is really driving activity is the broad trends around mobile right now. So customers are looking at an app-centric world and delivering applications to iPads, tablets, etc. It is a perfect tool to be able to do that.

So we are looking at -- we are seeing customers purchasing what makes sense for their own infrastructure and what makes sense for the projects that they are looking to initiate.

So as I mentioned earlier, a pretty good mix of the largest deals were both XenApp and XenDesktop. So I think that is what you should expect going forward.

Right now the mix is somewhere 50-50 in the desktop solutions business, and it will move around that over time.

Great. Then second -- apologize if you already covered this. But what is the drag from acquisitions in Q4?

Yes, everything from acquisitions is included in our guidance, so there is nothing incremental. But the overall dilution really coming from predominantly the Cloud.com acquisition is about between $0.02 and $0.03.

Great, thank you.

Bhavan Suri, William Blair & Company.

This is actually Patrick in for Bhavan. Congrats on the good quarter, and just a couple of quick questions for you. We had heard of a reduction in partners within the European region. Is that the case? And if so could you provide a little bit more color on that?

Well, we're always working through the partner network and making sure that we have got the right partners, the right programs, etc., to be most effective. But I'd say nothing on a material basis to report.

Yes, just the thing to point out -- it's really important -- is that we do this on a normal basis. We always look at partners and their performance. So in this particular case these are partners that have done zero business with us in the last 12 months, so there is no business impact going forward, certainly. And it is because they decided to focus on other priorities.

It's something that we are always doing, adding and pruning to try to up-level the overall capabilities of the partner network. And obviously investing in those that are actually investing in our product lines.

Great. That's helpful. Then moving towards the Kaviza acquisition, I know it is new; but could you guys provide any color on how that is tracking within the SMB market with the new appliance?

Yes, I will say we officially launched the products yesterday. So VDI-in-a-Box, that is the Citrix-branded product coming from the Kaviza acquisition. So I would say stay tuned. We will have a lot to talk about on the end of the Q4 call.

Great. That's all for me.

John DiFucci, JPMorgan.

Thank you. Mark, you said you wanted to expand desktop virtualization in a number of different ways. One was by lowering costs, which makes a lot of sense especially given the uncertainty out there. That actually shows in some of your acquisitions in the desktop area, with Kaviza and maybe I guess even RingCube.

I was just wondering. Can you tell us about how much contribution to the top line those acquisitions gave this quarter? And, David, maybe -- I know you just gave us what the dilution impact will be to acquisitions in your guidance for the fourth quarter. But how much does your increasing guidance for the year -- how much of that is due to recent acquisitions? For the top line.

Yes, top line it's minimal. Most of the acquisitions we have done, as you know, are technology focused or very, very early-stage nascent markets. So at this point in time there is no material contribution that is included in our guidance.

We will talk more about that certainly on the Q4 call as we get into 2012 and we start expecting more material contribution. We will be able to give you a much better feel for how that is incorporated into our numbers.

But as far as like RingCube that you mention, as Mark pointed out in his comments, that is really about making it easier for customers to deploy. Therefore accelerating deployments of virtual apps and virtual desktops. Bringing down the costs so that the cost now is -- the first-year cost is below that of a physical piece, say.

Those types of things that we are doing to make the technology more personal, more accessible, and certainly a much higher ROI proposition for customers are all going to be beneficial long-term.

Okay. So I assume then that is just sort of embedded in the product. But something like Kaviza, isn't that like -- hasn't that resulted in VDI-in-a-Box? And wouldn't that be something that would be incremental? And again it does make a lot of sense right now.

Sure. I mean of course it will be incremental. But as of right now, as I said, we just launched the product a day ago, and we will be able to come back and talk about it in Q4.

Like any new product, we don't expect to be a huge ramp right out of the gate. But post-Q4, we will certainly be able to come back and tell you some details and some stories around that.

Great. Thanks, David. Nice job.

Thank you.

Kirk Materne, Evercore Partners.

Thanks very much and congrats on the quarter. I guess maybe my first question would be, clearly you guys are seeing broad-based strength across a lot of your regions. I was just in particular curious about Asia-Pac, if there is anything in terms of the dynamics of buying behavior or technology deployment in that region, why you are seeing really such strong growth there. And then I just have a quick follow-up.

Sure, Kirk. I think specific to Pacific and Japan, first of all we have just had a great team, a great team there. We have been expanding it, adding capacity over a period of time. So we just have the ability to touch more customers, and that is all about execution.

There has been broadening adoption on some of the newer products. In this case it would be the NetScalers and others.

Even Japan, for example, had a fantastic quarter, recovering from the natural disasters that we have seen in that area. So across the board I think it is just we have been underpenetrated and this is becoming our fastest growing regions, as we piggyback on the broad technology buildout that is going on across the region.

A lot of our solution sets are just perfect complements for what those types of businesses are trying to accomplish, dealing with wide geographic regions, etc.

Great. Then just my follow-up question is, license update revenue had solid growth this quarter. But given the strength and new license sales recently, will that become a little bit perhaps more of a tailwind? Or will you see some acceleration into next year?

I guess if not, I assume there are some dynamics around some of the trade-up activity that would keep that from perhaps being a little less I guess prolific as you head into calendar '12. I just want to get a sense on how I should think about the license update number.

Sure, Kirk. It's definitely our slowest growing line item right now, the maintenance business. And that is just a function of, as you had mentioned, trade-up from a year ago; but also the slowing -- or slow and low license growth from one and a half, two years ago. It is kind of how it manifests itself as that bleeds back in.

The underlying dynamics in that business around renewal rates -- unchanged. We are still seeing mid to upper 80%s renewal rates. More customers are looking at multiyear subscriptions.

It is one of the things that aids in the long-term deferred revenue growth. But I would expect it to be in about this range percentagewise into 2012.

Okay, that's helpful. Thank you.

Heather Bellini, Goldman Sachs.

Thank you very much and good morning. I was just wondering if you could talk a little bit about next year. I know you gave revenue guidance, which was very good.

I am just wondering if you can give us a sense, with some of these acquisitions that you have made, how we should think about your operating margin expansion in next year. Given all the investments that you seem to be making in terms of helping to accelerate XenDesktop or desktop virtualization in general, should we keep thinking about the traditional type of margin expansion you have been giving in the past?

Yes, Heather, we are working through our plan right now, as you would expect this time of year. We will be able to come back and give a lot more specificity after the Q4 call around the other line items in the P&L, and much more broad strokes. But just in general, as you mentioned, we are investing in a number of different areas. We are very excited about the market categories and our market position that we are executing in right now.

I think that we have got an ability to drive very strong top-line growth over a protracted period. So that is certainly where we are focused. But we will be able to come back in three months and give you more detail there.

As far as acquisitions and specific dilution and whatnot, most of the acquisitions we have been doing are not terribly material in size and are focused on accelerating some of these market categories or becoming features or infrastructure of existing products. Because of that, it becomes more of a build-buy, right? So it's kind of in the number already.

The only area that I would say has some dilutive drag, if you want to call it that, into next year would be around the cloud -- cloud platforms group. That is just because it is a very nascent market. We are investing to capture what we believe is a huge, multibillion-dollar opportunity in a few years.

So that is kind of a high-level characterization, and stay tuned. After this quarter we will be able to give you much more detail.

Great, thank you.

Michael Turits, Raymond James.

Hey, guys. Just a mechanical question. You said that XenApp was up. Can you quantify that for us? Is that on a license -- maybe give us just license as well as the full XenApp versus XenDesktop for desktop.

Honestly I would rather have you just focus on the combined number of those two products are on desktop solutions. That is the way we have been reporting it, and that is really the way the customers are buying and we are going to market. I think it is a little -- frankly it is just not helpful to be digging into the individual products too much.

But XenApp sounds like it is still healthy. No reduction in the deployments of that type of technology?

No, not at all. In fact, I think it's being looked at in many ways for customers as a great way to embrace new ideas, new technologies around mobility and tablets and others. So it is very strong.

Great. Thanks, David.

Philip Winslow, Credit Suisse.

Hi, guys, just a follow-up on the last question on XenApp. If I back into it, it looks like XenApp licenses were up 3%, 4% year-over-year. That is a big change, obviously, from what we were doing 9, 12 months ago.

David, back in '07, '08 you used to talk about XenApp growing 2% to 4% in license. Do you think we are back in that range now sustainably? Or is there a reason -- with some of your comments earlier -- that you think we actually could be above or below that?

Then also just one quick follow-up on technical services. You guys continue to have just fantastic year-over-year growth there, north of 30%. When you think about Q4 and then next year, how should this technical services line keep trending? Thanks.

Sure, Bill. You know, on the first question about XenApp and XenDesktop, I really think it is so different from the '07-'08 time frame you mentioned right now that honestly it is just not relevant anymore. The way to think about it is desktop solutions. That number that we talked about in a guidance range of 16% to 18% growth for the year -- and as I mentioned we are already at or above the top end of that range -- and so that is the way you should be thinking about that business.

In terms of tech services, we have seen growth, tremendous growth across all four major areas. That includes technical support revenue, consulting, education, maintenance.

The big driver, frankly, the largest year-on-year growth rate was around consulting. This is the demand we are seeing from customers that are either looking at Desktop Transformation in earlier stages or they are in the process of architecting and deploying XenApp, XenDesktop on a more broad basis.

That is a people business. So our ability to grow that revenue is somewhat linked to our ability to hire and bring new people onboard. So the way to think about it financially is probably for Q4 I would expect that business to be up a little sequentially, and in the mid-20% range on a year-over-year basis.

Got it. Thanks.

Kash Rangan, Merrill Lynch.

Hi, thank you very much for taking my question. My question was on the desktop solutions business. David or Mark, it looks like this year we saw a very good benefit from the renewed launch of the desktop solution from last year; and also XenApp started to grow. So I guess this year we had two significant drivers for the business. You are probably headed towards high teens, maybe 20% growth.

As you look at next year, how should we think about the growth rate of the desktop solutions business? Given that you probably have a not so easy comparison on the XenDesktop set and also XenApp. The trends have improved. You started to grow the licenses there.

So looking at your overall guidance for revenue, how should we think about the growth rate, given these two dynamics that have helped your business this year? That's it. Thank you.

Sure, Kash. Overall I wouldn't read too much into the 2012 growth rate at this point. It is early. This is an early market statement.

I would say as far as the actual growth of desktop solutions, it depends on the category growth. We think that it is one of those areas that is going to continue to be top of mind for CIOs. If you look at many of the surveys that have come out from many of you, desktop virtualization and kind of broader virtualization at the desktop -- which includes a little bit more of a broad definition -- is near the top. It's one of those areas that CIOs are actually looking at increasing spending in.

So you look at that and then you apply our market position, which we feel very good about. When we look at our competitive win-loss, the breadth of solution we are delivering, as well as new things like VDI-in-a-Box, targeted towards new markets, smaller customers, more departmental or regional deployments. These types of things make us feel very good about our ability to execute.

So we certainly believe that this is a category discussion and one that we are pretty excited about right now. So more specifics on targeted growth rates after Q4; but in broad strokes that is how I would think about it.

Yes, I think strategically as we look into 2012, there are two big things on my mind. First of all, on the drivers side, whether it is consumerization, security, simplicity, devices, and ubiquity around them -- that I think continues to gain momentum. In fact, stronger in all those areas from a market drivers perspective next year.

Then on the other side of the formula would be innovations and introductions of improvements, enhancements, new products, etc. And we have a great pipeline and line-up there as well, including the beginnings of some really great impact from the acquisitions we have made in the second half in this particular space, whether it's the Personal vDisk technology or it's the AppTitude technology that we just announced, the acquisition of -- the integration of Follow-Me-Data, which will have a material impact on the value and capabilities of virtual apps in desktops and mobility. So I think we will see that start to gain some traction as we push into the first half of the year. So we are optimistic and confident.

I would just like to add as a final comment that to see all this in action I'd encourage anyone to go to Citrix.com and actually watch the keynote from Synergy Barcelona that is available there. You see a lot of these products in action and how all the components are leveraging one another. Operator?

Would you like to take further questions?

No, I think we are just about out of time. Want to thank everyone for joining us today here in Barcelona, and we look forward to talking to everybody again in three months. Thank you.

This concludes today's conference call. You may now disconnect.