思杰系統 (CTXS) 2011 Q4 法說會逐字稿

Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to the Citrix Systems fourth-quarter and 2012 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 period. (Operator Instructions). Thank you.

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

Thank you. Good afternoon, everyone, and thank you for joining us for today's call where we will be discussing Citrix fourth-quarter and fiscal year 2011 financial results.

Participating in the call will be Mark Templeton, President and Chief Executive Officer, and David Henshall, Executive Vice President Operations and Chief Financial Officer.

This call is being webcast with a slide presentation on the Citrix Systems Investor Relations website. 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'd like to remind you that today's call 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 associated 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 Form 10-K, which is available from the SEC or the Company's Investor Relations website.

Furthermore, we will discuss various non-GAAP financial measures as defined by the 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 Chief Financial Officer.

Thanks Eduardo. Welcome to everyone joining us here today.

As you can see from the release, we finished off the year with great momentum across all of our businesses, delivering $619 million in total revenue, a $126 million increase to deferred revenue, $170 million in cash flow from ops, and adjusted EPS a $0.78 a share.

For the full year of 2011, we had a record performance across all of our major metrics. Total revenue was up 18% to $2.2 billion. Product license revenue increased more than 20%. GAAP EPS was up 28% to $1.87, while adjusted EPS was $2.48 a share.

So we are continuing to drive leadership across Desktop virtualization. We are delivering innovative new technologies in cloud networking. We are expanding the breadth of our SaaS products to facilitate changing work styles. These are all trends that can be clearly seen in our results.

So drilling into the numbers for Q4, revenue from new license sales was $229 million, up 17% from last year, really led by the demand for the Desktop Solutions. License update revenue increased 9%, driven by subscription advantage renewals and the Desktop trade-up program. Technical Services increased 34%, again due to strong demand for consulting. Our Software as a Service business grew 21%.

From a geographic perspective, the Americas region is executing really well, delivering revenue growth of 16% from last year, total revenue of $278 million. The results of the geo were fairly balanced throughout Q4 with strength coming from both Desktop Solutions and from NetScaler. The Americas teams also drove 31 individual transactions over $1 million each, really reflecting more strategic engagement that we've been building with customers throughout the year.

International, the business environment was mixed in Q4, really similar to what we were seeing all year. In EMEA, revenue was up 12% to $171 million.

We continue to see solid engagement with big customers at a strategic level, including a number of multi-year commitments and 14 deals greater than $1 million each. However, the demand profile was uneven across the region, in some areas showing caution in initiating new capital projects.

Finally, Japan and Pacific remain our fastest-growing markets, combining for 37% total revenue growth and more than 40% growth in new product licenses. Strong teams in these two regions are continuing to post terrific numbers each quarter. So overall a very solid quarter to cap off a great year for Citrix.

So now let's look at the Q4 results within our three primary businesses. First, our Desktop Solutions business, which grew 14% over last year to $369 million, including license growth of 18%. For the full year, license revenue was also up 18% and at the top end of the range that we set for 2011.

So while we no longer break out revenue from the individual products within this business, growth has really been led by the momentum around desktop virtualization with XenDesktop now contributing well over half of total product revenue.

For more context on the Desktop Solutions business in Q4, there are a few metrics that I think really demonstrate the breadth of adoption we are seeing and the strategic value that customers are placing on Desktop virtualization within their infrastructure. In fact, in Q4, there were $35 million-plus deals for the Desktop products, easily a record and representing customers from healthcare, retail, government, financial services, and other verticals. Nearly $100 million of the sequential growth in deferred revenue is coming from multi-year enterprise deals, subscription advantage renewals, and the Desktop Trade-Up program.

Individually, there were more than 225 DB transactions for more than 1000 seats each. There were 40 deals for more than 5000 seats, and 10 transactions over 10,000 seats each in the quarter. All-in, more than 2700 new customers bought XenDesktop in Q4, an increase of more than 50% from last year.

So customers are looking at desktop transformation as a way to accelerate their business imperatives. For example, in Q4, a Fortune 100 company in the US with over 80,000 employees and aggressive cost focus buying XenDesktop and NetScaler to begin building out a foundation for mobility, bring your own device and VDI for more than 3000 users, or a Japanese insurance company with offices in 60 cities purchasing 30,000 XenDesktop licenses as part of a major work-life balance initiative, or a large financial services firm in Europe with nearly 20,000 retail outlets leveraging the Trade-Up program to buy more than 100,000 XenDesktop licenses to support their [Win 7] rollout plans. So we are increasingly talking to customers at this level as the conversations move from technology to business enablement.

Some of the important investments in 2011, like VDI-in-a-Box, RingCube and App-DNA, allow us to provide customers the tools to more efficiently transform their desktop infrastructure, including assessment, migration and delivery of apps and desktops as a service to all users in the enterprise.

Next, turning to our Datacenter and Cloud business, total revenue was up more than 21% in the quarter to $103 million, with product revenue increasing 15%. Growth here was again led by NetScaler, with license revenue up 40% year-on-year and contribution coming from a number of different areas.

First, we continue to see traction driving a cross-sell motion into our enterprise account base. In Q4 in fact, we had more than 500 desktop deals which included NetScaler as part of the solution. Next, our VTX virtual appliances growing more than 65% year-on-year and now contributing about 7% of NetScaler revenue. Third, the SDX platform continues to gain momentum with service providers and large enterprises. Finally growth from .com accounts that continue to build out the infrastructure to support large retail into their cloud-based service offerings.

All-in, the Datacenter and Cloud business had a terrific year growing 29%. The clear standout in 2011 was the NetScaler business, where we increased license revenue by more than 55% and significantly outpacing the market.

Within our Software as a Service business, revenue was up 21% to $114 million. The collaboration products, which were up 29%, continue to be the primary driver, and now account for over half of our total SaaS revenue.

Geographically, the investments we've been making to expand internationally are delivering good results and in Q4 revenue from international markets accounted for about 15% of the total, which is up from less than 10% a year ago.

Also in Q4, we launched our solution for cloud-based data name ShareFile, making it easy for businesses of all sizes to securely store, sync and share business documents and files, both inside and outside of the company.

So turning to expenses and operations, in Q4, adjusted op margin was 30%, up more than 150 basis points over last year. Included in these results is a dilution from the acquisitions that we made in the second half of 2011 as well as continued headcount growth across two main areas. Those areas are, first, the expanding our go-to-market reach and customer touch through enterprise account managers, consulting capacity, and tech-support; and second, around product innovation to bring to market new technologies as well as improving integration of the total solution in order to drive simplicity and better end-user experience.

In total, we added 380 new people to Citrix in the fourth quarter with about half coming via acquisition. For the full year, we hired 1300 people, bringing year-end headcount to about 6900.

The last item I want to mention is cost of goods sold. As we forecasted, we've seen a slow but steady increase in COGS as a percent of revenue. The driver behind this is simply the mix of revenue as we've diversified the business model towards higher contribution from SaaS, hardware appliances, and professional services. This is a trend we expect to continue through 2012.

Turning to the balance sheet, cash and investments decreased to $1.5 billion as we spent roughly $150 million on M&A activity and an additional $100 million to repurchase 1.4 million shares. For the full year, we repurchased 6.5 million shares. Offsetting this was cash flow from operations, which was $170 million in the quarter and nearly $680 million for the full year.

The other item to note on the balance sheet is deferred revenue. Deferred at the end of the year was $960 million, and in Q4, as I mentioned earlier, we added $126 million to the total deferred revenue balance, which is by far a record amount for any sequential growth. In fact, both short-term and long-term deferred increased by 23% from the prior year, really reflecting the evolution in customer engagement at a more strategic level.

Also, as I commented earlier, we had a number of ELA-style deals in Q4 where customers are initiating multi-year commitments. Based on our revenue policy, these types of transactions are often highly deferred or recognized ratably over the term of the agreement.

So overall, looking at the business in total, a great Q4 in 2007. We are executing well, we are seeing growth in all of our primary businesses, and we're making the investments necessary to extend our leadership position.

So finally, I'd like to discuss our current outlook and expectations for 2012. As we enter this year, customer activity metrics and pipeline continue to be very strong. We remain focused on delivering financial results while investing to expand our long-term capacity across our main businesses, plus the new markets we entered over the past two quarters. While we expect continued volatility in the demand environment, specifically in EMEA over the first half of the year, we are comfortable raising the high end of our full-year revenue guidance by $30 million based on the strength of pipeline business momentum. Given the long-term opportunity in our markets, we are currently planning to run the business with adjusted gross margin that's flat as compared to 2011, allowing us to invest in two primary areas.

The first is go-to-market coverage to increase our market position around the world, and the second being in the acquisitions that we made late last year in cloud and data sharing markets. These will include development, consulting and the product specialist teams needed to bring these products to market. So all-in, I expect these businesses will be dilutive to consolidated earnings in the first half of the year as we build out capacity, and then accretive by late Q3/Q4.

So for the full year of 2012, our current expectations have increased to total revenue in the range of $2.49 billion to $2.51 billion, and adjusted EPS of between $2.70 to $2.74 per share. For the first quarter of 2012, we currently expect total revenue to be in the range of $555 million to $565 million, adjusted tax rate of approximately 23%, and adjusted EPS of between $0.49 and $0.51.

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

Thanks David. Today, I am really pleased to report another record-breaking performance for Citrix in both revenue and profit supported by a great execution across strategy, innovation, and operations.

Diversity in products and channels is driving growth with increases in C-level engagements, SI pipelines and deal flows, upselling end-to-end technologies and cross-selling our adjacent products. You see all this in our results -- acceleration in strategic deals, use of our products as a system, and increased customer touch through technical services. All this strengthened our leadership in collaboration, desktop virtualization and cloud networking and allowed us to make some important new investments in data sharing and cloud orchestration.

We are combining these technologies into a compelling set of solutions that power global work styles and cloud services to dramatically improve business productivity, efficiency and agility. We owe thanks to thousands of Citrix customers and partners for their business, trust, and enthusiasm for our vision. I am really proud of this Citrix team for working tirelessly to accomplish all this, and at the same time for their recognition as a top 50 Best Place to Work. We are believers not only in what we do but how we do it. Growth, amazing products, a special culture, all this is pivotal to our mission, a mission based on a deep belief that people should be able to work and play from anywhere.

In the past couple of months, I've been with many customers, partners and Citrix teams worldwide. There was a big take-away for me, and that's IT organizations are struggling at the intersection of opposing forces the control of standardization versus the freedom of consumerization and the legacy of distributed computing versus the flexibility of cloud services. In simple terms, they are realizing the exceptions of the PC era, things like mobile users, personal devices, wireless access, app stores, SaaS, and cloud infrastructure. All these have become the new assumptions for the cloud era. We are in great position to help our customers make the difficult transition to the cloud era with market-leading products to embrace consumerization and adopt cloud services.

As we look into 2012, there are three significant market forces shaping our plan -- first, the mobility imperative; second, the Enterprise Cloud Evolution; and third, the cloud service buildout.

So first, mobility. Mobility is fast becoming an IT imperative driven by the use of personal devices, the economics of FlexDesk-ing, mandates for workforce continuity, and the quest for better productivity. The Bring Your Own movement is just unstoppable, making device independence essential. Citrix has been a long-time innovator and pioneer in device independence and in collaboration and in mobility, enabling anywhere access to people, data, and apps with three great products.

GoToMeeting is the fastest-growing Web collaboration service in the world, creates a high-definition experience that's just like being there with brilliant HD video, audio and, coming soon, workspaces for easily sharing documents within project teams. ShareFile, our newest SaaS product, enables secure, easy cloud-based document sharing across all your devices and with all your colleagues and friends. This team is ramping really well and doing a fantastic job building the foundation of our Follow-Me-Data vision.

Finally, there is Citrix Receiver that delivers self-service access to any Windows, Web, or SaaS app from any device. We are now seeing around 1 million downloads of Receiver every month, and the newest releases are better than ever. They are beautifully designed, up to 40% faster, and they consume 50% less bandwidth. Soon, Receiver will also deliver the ultimate Follow-Me-Desktops, apps and data experience through integration with ShareFile, mobility of people, data and apps. It's driving our SaaS business and demand for our vision for the evolution of the Enterprise Cloud, which I'll touch on next.

The promise of cloud computing has clearly captured the imagination of CIOs and business leaders everywhere. No matter where I go, I find customers focused on making their existing data centers more cloud-like and exploring secure and practical ways to leverage the innovation and economics of external cloud services. Our plan is to help customers drive this evolution with three key products.

The first is the XenDesktop. If you look at any enterprise customer today, it's clear that the vast majority of their apps run on Windows. XenDesktop with its embedded XenApp functionality helps customers transform these apps into more flexible, secure, and mobile cloud-like services, leveraging their past investments while giving them all the benefits of a cloud delivery model.

Next is our newly available CloudGateway, which sits at the front door of the data center and unifies the provisioning and security of Windows Web, SaaS, and mobile apps through an enterprise storefront. And CloudBridge sitting at the back door of data centers, making it easy to bridge into the infinite capacity of public clouds with all of the security, performance and reliability that enterprises require.

These three products work in concert to help our customers manage the evolution to the cloud era in a secure, practical and high-impact way, leveraging our innovative desktop virtualization and cloud convergence products, and enabling customers to tap into the enormous buildout of cloud services which is the third market for us I'd like to touch on.

Since yesterday, we learned that Apple's new iCloud service attracted more than 85 million users in its first three months. This is astounding. It's clear we are in the midst of a huge buildout of public and consumer clouds, a buildout that will transform everything we know about computing, creating thousands of new clouds to deliver everything from business and productivity apps to collaboration, desktops, data, core infrastructure and even gaming.

Citrix is capitalizing on this historic opportunity with three strategic cloud infrastructure products. The first is NetScaler. We saw tremendous growth in gains and share last year. Overall, our cloud networking business will continue to be one of the biggest benefactors of the cloud era as providers look to deliver services with the best performance, scalability, security, and economics.

Next are Citrix CloudStack and CloudPortal, two new strategic products from our Cloud.com acquisition last year. CloudStack helps customers create Amazon-style clouds, the way the world's largest and most innovative clouds are built. CloudPortal makes it easy to transform those clouds into real profitable businesses that offer infrastructure, platform and Software as a Service to business customers.

To date, more than 2500 cloud providers, including four of the top five in the world, have chosen Citrix cloud infrastructure. Each new win in these markets puts us in a position to share in their success as they grow. So, the confluence of these market forces, three forces -- the mobility imperative, the Enterprise Cloud Evolution and the cloud service buildout -- are driving the cloud era and we are perfectly aligned.

So finally, I'd like to highlight the key things you can expect from Citrix in 2012. First is intelligent integration across products, licensing, and packaging to deliver simpler, better, and more competitive solutions to mobile and cloud markets. Next, increased ROI for XenDesktop through integration of personal vDisk technology, new HDX-on-a-chip clients, and other innovations that will significantly reduce the CapEx and OpEx of desktop virtualization. Third is greater focus on accelerating desktop transformation, including programs and services built around our new App-DNA migration tools. Next, continued investment in go-to-market evolution, with greater focus on direct customer touch, giving us more capacity to drive strategic deals and to cross-sell networking, data sharing, and collaboration. Finally, more depth in strategic alliances to drive primary demand in mobility, desktop virtualization, and cloud infrastructure markets, along with a larger mix of business from SI and service provider channels. So this is how we are thinking about 2012 in context of our larger multi-year business objectives and ambitions for growth.

In closing I feel really good about our leadership in some of the hottest markets. I feel really confident about where we are investing and excited about the momentum we carry into 2012. Solutions for bring your own devices, work-shifting, desktop virtualization and Enterprise Cloud networks are at the top of every CIO's priority list. No one is better positioned to capitalize on these than Citrix. This is how we are helping customers embrace change in business, in IT, and how people work. This end-to-end perspective and focus on mobile work styles and cloud services are what sets Citrix apart.

Now I'd like to open it up for questions.

(Operator Instructions). Adam Holt, Morgan Stanley.

Congrats on the good end to the year. I actually had two product questions. My first is you pretty comfortably outperformed our NetScaler and our Desktop license targets in the quarter. But the total license number was a little bit lighter where consensus was. Were there any product areas in the quarter that were not where you wanted them to be?

Yes, this is David. The only thing I would call out in the individual products would be around our WAN optimization. If your remember, we had a very large government deal in Q4 of last year that didn't repeat in Q4 of this year, and so therefore we've just got a down -- a pretty material down year-on-year comp for that business. But besides that, everything else is looking great.

My second question is, if you drill down on the billings number for the Desktop, it looked I could was up 20% on a year-on-year basis. Obviously you had a very good second half in the Desktop business in general. As you look into next year, are you comfortable giving any broad ranges in terms of what that growth might be and what the impact, if any, would be of the shift towards ELAs and more deals going into deferred? Thank you.

Sure. Let me take the last part of the question first. In terms of the shift towards ELAs and large deals, it's still a fairly immaterial component of the overall business. It's certainly not a motion that we are driving to a large degree, but we are really responding to customers and where -- the way they are thinking about transactions. They tend to come later in the year, in Q3 and Q4, when more of the big deals are concentrated. That's just customers looking at longer-term multi-year engagements at some level of transformation. So they're choosing not to buy on a transactional basis, which is fine, and we'll do that. But we'll call them out as appropriate, probably in Q3 and Q4, but I wouldn't anticipate it materially changing the business dynamics.

In terms of the overall growth rates in the next year, I don't think it's appropriate to be breaking into individual line items yet. It's too early in the year, but I think, directionally, we certainly feel very comfortable that we'll be able to maintain or expand share, market share, per category across all of our strategic products, consistent with where we have been in 2011. So that's the way I think about it.

That's very helpful, thank you.

Philip Winslow, Credit Suisse.

Thanks guys. Just a couple of quick questions. First, David, I know you're not specifically breaking out XenApp versus XenDesktop, but based on your rough 50-50 math, it looks like we saw another sort of reacceleration in XenApp growth even versus Q3. Just in -- and Mark, A, is that a trend, and B, Mark, what do you think is driving that and how do you think about sort of XenApp, XenDesktop sort of license growth going forward if you are seeing this reacceleration in XenApp?

Then a quick question on the cost. You mentioned increased investment in sales and marketing and service. I'm wondering if you could give us a little more clarity on that, especially the flow of that over the course of the year. Thanks.

Mark, why don't you take the first part of the question and then I'll follow up on the cost.

Yes, so Phil, thanks. So what's happened over the course of the last six quarters is our field teams have really gotten quite good at really talking to desktop virtualization and the whole notion of FlexCast, which is our set of technologies that allow customers to optimize delivery of desktops and apps based upon the kind of environment they have in terms of the types of exec mobility they want to provide, knowledge worker solutions, and even pass worker. So we are seeing this sort of very nice consultative kind of sale go on with customers now through partners, etc., where we are positioning and they are buying the product that best suits what they are trying to accomplish. That's been our goal all along, to really drive a desktop virtualization message and practices in the field that allow customers to really get the best solution. So that's what we are seeing there. I think the better that our teams articulate this, the better the overall growth will be. If we continue to be optimistic and bullish around what we can do in this marketplace, especially as we get bigger deals, bigger customer references and the focus on FlexCast and what we've done with HDX, etc., continues to make a huge impact in rollout of these solutions with customers.

Regarding the go-to-market investments, I'd say there's really only three things. In general, just overall expansion of coverage. There's many places where we just don't have enough coverage to be able to service customer and customer demand effectively, so that will include enterprise account managers, consulting capacity and tech support. The next areas of focus on partners and continuing to work with, leverage, train and sell alongside SIs and other partners that allow us to drive the strategic deals long-term. Then the third is around the new businesses. Those are product specialist teams, as well as some consulting and support, that we will be building up right now, and they'll take probably the first half to ramp up. That's why, when we look at the new businesses, you'll see some dilution in the first half of the year, and then accretive with a strong run rate as we exit 2012.

Great.

Steve Ashley, Robert W. Baird.

I'm actually going to circle back and take a different variation of Adam's first question. It relates to the Desktop Solutions business. License revenue there grew 18% in 2011 which, again, was at the top end of the range. How should we think about that maybe as we go on to 2012?

(inaudible) way I asked answered Adam's question is I think it's just too early in the year for us to be talking about year-end targets because we really don't have a good view on how the category is growing. So that commentary is really just about category and macroeconomics.

I will say that, from a pipeline standpoint, both in terms of aggregate dollars and in relative coverage, we are entering the year at a record level, frankly as strong as we've ever been. We feel like our competitive position is unchanged over the past couple of quarters, and we'll plan to grow at least as fast as the market category over the course of 2012. So, it's really more stay tuned as we move into the next couple of quarters, and we've got more granularity in terms of how the environment is playing out and certainly specific product areas.

Great. Then I have a product question for Mark, and it just relates to the product roadmap. As we look at -- last year, you introduced the CloudGateway, the CloudBridge, kind of what we'll call the head end or back in the core data center. Is there more work and products still to be introduced back in the head end and in the data center around building out a more complete solution going forward?

I think we have actually the core brands and products that can actually serve us over the course of the next year in those areas. So as we've talked about, I mentioned again CloudGateway is this sort of front door. It provides the connection end for Citrix Receiver. It's the unification point across all of the kinds of IT services, enabling provisioning, authentication, access control, kind of all these capabilities that we think the next generation IT organization needs there. Then the CloudBridge is for the back door.

As far as the rest of what goes on in the private cloud, we are highly focused on making sure that enterprise customers can really build out these what we like to think of as Windows as a Service, desktop and app clouds based upon XenApp and XenDesktop technology, and the roadmaps around those products actually reflect that. So those are our focal points over the next year, and roadmaps actually add more strength and depth to those products rather than adding new pieces at the top level.

Perfect. Thank you.

Rob Owens, Pacific Crest Securities.

Great, thank you very much. I wanted to ask on the margin front, given your guidance, I think it implies roughly two years of flat margins here. So how do we think about that in terms of, if there is revenue upside, will that flow through? I'm guessing there's not further acquisitions in the guidance, so that could provide a drag. Just how in general should we think about margin expansion moving forward?

I think, in general, we are maintaining a consistent position to where we have been over the last few quarters, and that is that this is a market where we see tremendous opportunity over the next few years. Therefore, it's incumbent upon us to make sure we've got the right level of technology set as well as market coverage and ways to support customers long-term. So that's where the bias has been. You've seen the results as the growth has accelerated over the last few years. We see that really continuing into the future.

As far as the commentary about specific numbers around margin, that's more of a business model discussion in terms of how we are thinking about the shape of our investment, so flat to 2011, which takes you into the low 26 range is the way to model at this point. As we go through the year, and we are able to hopefully outperform on the topline, some portion of that will flow through to the bottom line in terms of just higher EPS and higher margin expansion. We are certainly not -- we are not operating down to that target, per se.

As far as additional M&A, and this is I think what's embedded in your question, is it would've been fairly acquisitive over the course of the last six quarters. We did seven individual transactions in 2011.

I think, as we look forward, we're in an environment right now that is very rich in terms of great small product technologies, things that could allow us to accelerate our roadmap, etc. So we'll continue to be acquisitive, but I think our bias would be towards smaller product featured things. I think it's safe to say that, in the short-term, I don't see anything that would be not already anticipated in our business model.

Great. As you look at the go-to-market strategy for the Desktop business, can you talk about specifically your systems integrator relationships and just where you guys are tracking there? Thanks.

Sure. I think SIs are continuing to be a very important part of the story. It's always a work in progress. Each quarter gets a little bit better. We keep focus on training and bringing these guys along. Q4 specifically contributed about 12% to 15% of total product bookings or deals that were fulfilled by strategic SIs. That's up -- actually the aggregate dollars are up about 18% to 20% year-on-year with the primary contributors being EDS, IBM, Fujitsu.

Heather Bellini, Goldman Sachs.

Thank you and good afternoon. I was wondering if you could talk a little bit about where we are in terms of ROI benchmarks for XenDesktop, and where do you think this needs to be in order to see a reacceleration in growth, given the relatively low penetration rates of desktop virtualization overall. I guess, if it's not ROI, what do you think is causing or I guess impeding the reacceleration of this business? Thank you.

Thanks for the question. So a couple of things. First, the business is accelerating, and we're very delighted with the performance of it. I think that the single ROI drag has really been on the VDI sort of front, and we've made a tremendous amount of progress over the last six quarters in actually reducing the CapEx and OpEx on the VDI component. When you take all of these FlexCast models into account from completely hosting a virtual app to a VDI style Desktop to streaming a Desktop or an app to an endpoint, the total ROI on desktop virtualization is quite strong with paybacks in under 12 months, which has really been a driver of our business for a long, long time.

So I think that the goal here is to continue to break the VDI piece down, to raise the overall ROI on desktop virtualization, and make it a lot more consumable across the board. I think the rest of it is really in the hands of partners, customers, and our ability to drive primary demand capacity to deliver technical services to really drive the Desktop Transformation process. We get some help from Windows 7 migration of course, and now with the prospect of a great Windows 8, so we get some tailwinds there. But I think a lot of this is execution and a customer's ability to make capital investments, which there's, frankly, there's an ebb and flow to I think as we see -- in terms of the overall economic environment.

So I guess my view of -- XenApp's license was flat in the second half, roughly speaking, then XenDesktop license was up a little bit better than 40% year-on-year, which -- that was my comment on deceleration. It just looks like, over the last few quarters, the trend had been decelerating. It just seems like such a big market opportunity that we should be seeing an inflection at some point.

Okay.

Maybe I'm not thinking about it the right way.

The way we think about it in sort of the state of the market is sort of transactions, reorder rates, and acceleration in new customers, etc., and all --

Okay.

-- accelerating. That's the way I think about it from a market point of view. I understand why you said that now.

Great, thank you very much.

Bhavan Suri, William Blair.

Hey guys. Just a couple of questions. Services line has been growing very well, and you've been adding consultants. Can you give us any sense of sort of, when you sell XenDesktop, what ratio of that is Services revenue vis-a-vis product revenue?

There's not a ratio I think that holds true. It's on a case-by-case basis. You can assume that in a large transaction we've got a full-time consultant, at least one, working hand-in-hand with that customer for some period of time.

I think, overall, when I look at the Services line, yes, you're right. It's been growing great over the past couple of years really, and just a function of our ability to bring on new heads. This is representative of the more strategic nature that we are engaged at right now, selling Desktop Transformation to customers and making sure that they're successful not only in the design, implementation, migration etc., but also on the back end when it comes to post-sales support and long-term success. So those have been areas we've invested in across the board. As much as I -- I didn't want to call out individual line items for 2012. I think the way to think about that is a decelerating growth in services as we plan right now. That's just a function of people. Obviously, if we are able to find and attract more capacity on that level, that growth rate will tick up throughout the year as well.

Right. I guess, David, if you can also provide a little color, so how does that then work with SIs? Obviously, they want to provide the services. So how does that relationship and with the customer and the Citrix consulting the SIs play out, just a little understanding of that would be helpful.

Yes, I'd say, overall, we still provide a fairly limited amount of the aggregate service that is customer-facing. That's true for historically looking backwards with our traditional businesses as well as when we engage with SIs. For large deals, big deals, $1 million-plus deals, chances are we are engaged side by side with a systems integrator or a major partner in those.

The thing to maybe point out is there are like three pieces to these services that customers need and get. The professional services that are typically upfront around architecture, we're very involved there, and very side-by-side with SIs. Then there is a sustaining kind of process that's really about the rollout and implementation. That's where SIs and our platinum and other types of partners really take over, where we'll take a back seat. We may have a technical relationship manager that's on site with the customer. Then there's sort of the back end, which is tech support, which we pick up, especially on the larger deals and larger customers, we pick a big responsibility there post-sale technical support. So maybe that helps you understand --

That's helpful. Then if I could squeeze one more in, when you take a look at the kind of service provider sales you're doing, there's a SaaS component to your sales of XenDesktop. As I look at that kind of sale, I wonder how is that growing and sort of that provides a recurring revenue stream that we don't necessarily see broken out of the deferred. So how do we think about that and how fast is that growing?

The concentration of -- I think you're talking about our service provider network. It's getting to be about 20 -- almost 2000 strong. Where we provide service provider licensing agreements, where they say sort of by the drink, buy the customer. That's primarily focused around XenApp and our networking products that work in conjunction with XenApp. That business has actually been really growing along a very, very nice track. One of the reasons that we invested in an acquisition like EMS-Cortex as well as some of the things we've done with the Cloud.com acquisition, because we see this FP channel to market to an SNB type customer or a more forward-thinking enterprise. This is how they want to buy product in the future. So we are early invested there and really like the performance. But in the overall numbers, it's still going to be let's say 1% of kind of quarterly business.

Yes, I'd just add on that specifically it's running somewhere in that $5 million-plus per quarter, and you're right. It's great. It's recurring, highly visible revenue.

Thanks for taking my question guys.

Walter Pritchard, Citigroup.

I'm wondering if you could talk a bit about the high-touch model that you're starting to move to on the sales and marketing side, and whether or not you're seeing any -- what impact do you expect to see from a revenue perspective and what impact do you expect to see from a cost side? I know you're talking about spending more money.

Yes, I think you are seeing the impact right now. It's not that much more high touch, but it's really about working with customers that are making a big strategic commitment. That's everything, as Mark said, from early assessment through migration through post-sales support. The impact is showing up in the large deals. That's really the place where you would see it. You can just look at the metrics that we talked about over the course of the last several quarters. Q3 was a huge record in terms of large deals where we -- I think we booked 40 deals over $1 million, and 48 in Q4. if I look into the pipeline, we've got a huge amount of opportunity out there. That's the kind of business we want to be driving with customers because we are moving from a transactional sale to one that is more -- looks and feels more like infrastructure. It's stickier; it's larger; it's a long-term relationship; and it's not on a case-by-case basis. So we are going to keep moving in that direction over time.

I'd just add that this is something we have been investing in for quite a while. I think we, in the last year, have seen this huge tick-up in the number of seven-figure deals per quarter and the year-on-year growth in the transaction count is amazing. That's a result of the investments we have made. So we'll just continue to do that, which means specializing the sales force more with enterprise relationship managers that specialize in the customer relationship and understanding where they want to go from a business perspective and how our technology can support that, and then acting as a quarterback, if you will, to bring in the right product specialists, including FEs and specialists in networking, collaboration, data sharing, etc. So that's how we see that playing out going forward, and it's really as much -- it's evolution is the way we think of it.

Then David, just a question of around deferred revenue. I think it was alluded to these more ELA style transactions. Anyway you could help us understand how much more license revenue is going into deferred that maybe a year ago you wouldn't have seen going into deferred and it would've been taken upfront?

No, I don't know a year-over-year comp. We've really never broken it out that way. But the long-term deferred growth, which was just under $20 million, is the way to think about those multi-year deals. That's usually where it shows up. It moves around quarter-to-quarter, so there's not a straight line trend here. It will be one of those dynamics that you will certainly see more in the second half of a year because that's when the big deals tend to be concentrated.

Great. Thanks guys.

Kash Rangan, Bank of America Merrill Lynch.

Hi. Thank you for taking my question. I had a question on the cash flow side, David. It looks like you had a fantastic deferred revenue quarter. You talked about the special improvement. On a year-over-year basis, it nonetheless looked like cash flows were down and it looks like account receivable DSOs edged up a little bit. Curious if you could give us a little color there, even if just for the deferred revenue increase. It does look like DSOs went up in Q4. Maybe you could just help us understand how to model the cash flows going forward, because you seem to have (inaudible) estimates at least for Q4.

Second, finally, just not to get too focused on the XenDesktop licensing, but overall, you think [different] assumptions to get to what the growth rate was? I know you are trying to steer us away from the granularity there, but when I look at the number of new customers, it looks like Q3 had about 3000 customers and Q4 about 2700 customers. At least based on my maybe incorrect assumptions, XenDesktop licensing growth looks to have been about 29%, 30%. I'm just trying to understand how you get the confidence. Is it something in the pipeline that you're seeing that gives you the confidence that this product family can continue to be a good grower and notwithstanding the fact that you've got some tough comps in 2012. That's it. Thanks.

Yes, You've got a few questions in there, so tell you what. Let me just to walk through those.

As far as the cash flow DSR and NAR, you're right. It's absolutely a function of deferred revenue growth. If you look at the nearly $130 million growth in deferred revenue, that's what's attributable to the bump in DSOs. You normalize that, that's close to 20 days right there, just from growth in deferred revenue.

So I guess the real question is the underlying quality of receivables. Those are unchanged over the course of -- over the course of the last year or so.

As far as XenDesktop and individual products, like I've been saying all year, it really isn't the right way to be looking at the business to be breaking these things out between individual products, because that's not the way we run the business. That's not the way customers think about it, and that's not the way we're going to market.

We are really focused on selling the right solution or whatever the customer requirement is. In that case, both XenApp and XenDesktop have a role to play.

And so I've been trying to break away from giving individual product granularity for some quarters now. This quarter, I think now that we are more, significantly more than 50-50 XenDesktop, it's the appropriate time to just start talking more qualitatively and less quantitatively.

I will say, on a couple of metrics though that I will point out that I think continue to give you some, say, more information on the business. In terms of new customers, you're right. In Q4, there was about 2700 new, net new customers that bought XenDesktop, which brings nearly 9000 for the full year. It's a huge step up from where we were in a prior period. You've got, in total, well over 12,000 customers that purchased XenDesktop, and the growth rate for the full year of the standalone business being north of 50%.

So when we think about the forward-looking guidance and our commentary around confidence, it's based on a number of factors, including record pipeline for our Desktop Solutions business, record number of large deals, solid coverage ratios, competitive position, etc., etc. So it's all analytically based. We think that's the right place to be.

Thank you very much David.

Michael Turits, Raymond James.

Two questions. First of all, license update, which had decelerated from double-digit growth and in the high single-digit growth this year. That I think was a function kind of a trailing impact of weaker bookings coming off recession. Shouldn't -- I think we originally expected that would start to re-accelerate at this point now that you're getting better bookings. Should we think of that as possibly now re-accelerating into double-digit into next year?

I think you started to see that in Q4. The commentary about why it has been declining is exactly right. It bumped up from about 7% year-on-year growth in Q3 to 9% in Q4. I think it's going to be a gradual increase because we've also got the trade-up program that's driving some impact in that aggregate number. But as far as directions, the trend is up from a growth rate perspective. Renewal rates are strong in that program, and the more of our customers we bring in on the topline for new license sales, the more it just feeds the pool. So yes.

So you're up and to the right, good. Second question, can you give us a sense of how much inorganic growth you might've had 2011 in revenue?

Yes, not a lot actually. Most of the transactions that we closed we did in the back end of the year, and so you just look at the accounting and the ramp rate, and so it's less than -- well less than 1% of our overall business.

I haven't completely thought it through, but any reason to think of any inorganic into next year? [Is that something] that might have been done at the end of this year?

Yes, I think that's really a large part of the business story, is we think about 2012 and a lot of the investments that I talked about, building out these new businesses, including businesses like Cloud.com, like ShareFile, like App-DNA, that while dilutive in the early part of the year, I think we're going to exit 2012 on a revenue run rate that is north of $50 million for those businesses.

Great. Thanks very much.

Raimo Lenschow, Barclays.

Thanks for taking my question. Can you talk a little bit on the online division on -- you mentioned ShareFile and things like that as new initiatives. What do you see in terms of competitive dynamics there, because some of the lower-end competitors like LogMeIn seems to be more aggressive on pricing, and pushing new solutions there as well. Does that mean there is going to be some change in the competitive dynamic, and then as a result growth rate? Thank you.

Yes, I think that's one of those businesses that has always been extremely competitive. There are a lot of different solutions in the market, and including many free solutions, and so price competition has been, always been tough.

Our strategy has really been about product differentiation. If you look back over the last couple of years, we've moved from sharing screens as collaboration to including audio, and now high-definition video. As we go forward, we've started to demonstrate how we're using our data sharing technology really as a platform for new initiatives around work spaces, which allowed teams to collaborate and create more stickiness as well as just increased differentiation in the market. So that's been our strategy there. Ever-competing on price is never a long-term winning strategy, so we've taken the product differentiation and kind of the customer success and simplicity path. We think that's the right one to be on.

Okay, thank you.

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

Thanks, everyone, for joining the call today. We are really feeling good about where we are, as you can tell. We look forward to seeing you in three months, talk about the business again. In the meantime, happy new year and here's to health and success for all in 2012. Thanks again.

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