思杰系統 (CTXS) 2012 Q1 法說會逐字稿

Good afternoon. My name is David, and I will be your conference operator today. At this time, I would like to welcome everyone to the Citrix Systems first-quarter 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 session. (Operator Instructions). I would now like to turn the call over to Mr. Eduardo Fleites, Vice President of Investor Relations. Sir, you may begin your conference.

Thank you, David. Good afternoon, everyone, and thank you for joining us for today's call, where we will be discussing Citrix's first-quarter 2012 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, and the slide presentation associated with the webcast will be posted immediately following the call.

Before we begin with 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 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 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 on 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. David?

Thanks, Eduardo, and welcome, to everyone joining us today. As you see from the release, we continue to have great momentum across the business, delivering total revenue up 20% from last year, adjusted EPS of $0.59 a share, deferred revenue up $23 million sequentially, and $243 million in cash flow from ops, an increase of 53%. We're driving market leadership across desktop virtualization, delivering powerful new technologies in Cloud networking, and expanding the breadth of our SaaS products, all trends that can be clearly seen in the results.

From a geographic perspective, the Americas region had revenue growth of 16% from last year, up $252 million. The results within the geo were very fairly balanced, with strength coming from both Desktop and NetScaler products. The Americas had 18 individual transactions over $1 million each, compared to 11 a year ago, and really reflecting the more strategic engagement that we've built with the customers. On a vertical basis, only the US federal space was somewhat uneven.

In EMEA, revenue was up 20% to $160 million, performance was strong across the region in a number of different geos, especially with big deals. The team closed seven orders over $1 million each and a number of multi-year commitments, including a few very large deals in the government and financial services sector. And finally, Japan and APAC remain our fastest-growing markets, combining for a 40% total revenue growth and 48% growth in new product license. These regions are executing really well, and will continue to outpace the rest of the business throughout the year.

So next, let's look at our Q1 results within our primary markets. First, our Desktop Solutions business grew 17% to over $338 million, including license growth that was also at 17%. For some context on this business, there's a few metrics that I think really help demonstrate the market option we're seeing and the value that customers are placing on Desktop virtualization within their infrastructure. In Q1, there were 19 different $1 million-plus deals for the Desktop products, representing customers in technology, telecom, government, financial services and other verticals. We transacted with over 3,000 different customers, including 110 deals for more than 1000 seats at Desktop, and 26 deals of more than 5,000 seats, which is an increase of over 50% year-on-year.

New licenses contributed over 90% of the product mix, with the remaining 10% coming from existing customers trading up from XenApp, and while still a modest number in total revenue, we now have over 1,600 Cloud service providers delivering several hundred thousand desktop licenses as a subscription service to their own customers. So desktop virtualization is playing an increasingly prominent role in enterprise IT, considering it as an enabling technology to accelerate business imperatives.

For example, in Q1, a leading provider of healthcare IT bought 50,000 XD licenses to further support their hosted services practice, allowing healthcare providers to concentrate on patient care instead of worrying about IT. While a large telecom and equipment manufacturer, with over 100,000 employees worldwide, using XenDesktop and NetScaler appliances as a solution to enhance data security at the desktop, or a government agency, which purchased 4,000 XD licenses plus some NetScalers to build a computing solution that provides access to multiple isolated secure networks from a single thin client, lowering costs and enhancing security all while improving productivity.

We are increasingly engaging with customers at this level, and the conversation has moved from technology to business enablement. And over the past year, we have focused on reducing the costs of Desktop virtualization as really a driver for wide scale adoption and demonstrating innovation that dropped the capital cost of XenDesktop below that of physical desktops in many cases. We're also innovating rapidly around performance, management and simplicity to further extend our differentiation in the market.

Next, in our Datacenter and Cloud business, total revenue was up more than 28% to $100 million, with product revenue increasing 22%. Growth was again led by NetScaler, where product revenue was up 46% year-on-year, offsetting declines in both the standalone SSL VPN and WAN optimization solutions, both of which are increasingly being sold as add-on modules on top of NetScaler. Our networking success is coming from a number of different areas. First, we continue to see traction driving a cross-sell motion into our enterprise account base, with over 400 Desktop deals, including NetScaler as part of the solution.

Second, the new high-end SDX platform is gaining momentum with the service providers in large enterprises, up 20% sequentially, and now representing more than 10% of total NetScaler license. Third, we're seeing strong new customer growth in both the appliance and the VPX versions of our products adding more than 600 net new accounts in Q1. And finally, from dot-com accounts that are building out infrastructure to support large Cloud-based service offerings. So overall, the Datacenter Cloud business had a good start to 2012. Our networking solutions are growing faster than the underlying market, and we're very excited about the recent announcement of NetScaler 10, a platform that brings a new level of performance and cost savings to both enterprise and carrier networks.

Within our Software-as-a-Service business, revenue was up 21% from last year. The collaboration products, which account for over half of our total SaaS revenue, increased 29%. In general, we saw steady gains in new customer acquisitions from both the direct and online channels, as well as modestly higher retention rates within the subscriber base. Geographically, the investments we've been making to expand internationally are showing good results, with revenue from these markets up 50% and now accounting for about 15% of the total mix. We also continue to have a focus on mobile collaboration and on powering mobile work styles, so in Q1, we released HDFaces Video Conferencing for GoToMeeting on iPad. We began integrating ShareFile, our data sharing solution, into the enterprise sales motion, and we announced the acquisition of Podio, a social team collaboration platform, and Mark will discuss each of these in greater detail.

So turning to expenses and operations, in Q1, adjusted op margin was 23.5%. This is ahead of our guidance, due to the strong revenue performance and the timing of certain investments, especially hiring, which ran slower than we originally anticipated. In total, during Q1, we added about 140 people to Citrix, which brings total headcount to over 7,000. We do expect that the pace of hiring will increase in Q2, and we remain focused on expanding our go-to-market capacity and customer touch, through enterprise account managers, consulting and greater tech-support capacity. And also of course on product innovation, to bring to market new technologies, as well as improving integration across solutions to drive simplicity, differentiation and customer experience, areas that help accelerate adoption.

The last item I want to mention is cost of goods sold. As forecasted, we've seen a slow but steady increase in COGS as a percent of revenue, and the main reason here has been the mix of revenue as we drive higher contribution from Consulting Services, SaaS and Networking. Additionally, we also adjusted our internal methodology for allocating certain IT costs from OpEx up to COGS, to really just more closely align with employees that are actually consuming these services. So looking forward, we expect that adjusted gross margin will be in the range of 88% to 88.5% for the balance of the year.

Turning to the balance sheet, cash and investments increased to $1.6 billion, driven in large part by record cash flow from operations. As I mentioned earlier, cash flow in the quarter was $243 million, bringing the trailing 12-month total to over $762 million, an increase of 21%. The other item of note on the balance sheet is deferred revenue. Our deferred balance at the end of Q1 was $983 million, up 25% from a year ago. The $23 million sequential increase reflects the evolution in customer engagement that we've had, we've really talked about over the past few quarters as several initiated multi-year commitments, either for term-based licenses or multi-year subscription agreements. So overall, looking at the business, very strong Q1. We're executing well, we're seeing growth in all of our primary markets, and we're making the investments necessary to expand our leadership position.

So finally, I'd like to talk about our current outlook and expectations for 2012. The activity metrics and pipeline continue to be strong. We've remained focused on delivering financial results, while investing to expand long-term capacity across our main businesses plus the new markets we entered in over the past few quarters.

While we do expect to see some volatility in this spending environment, specifically within the US Fed, and EMEA, we're comfortable raising our 2012 outlook based on the strength of Q1 and the continuing momentum we see across the Company. Also, consistent with our guidance over the past two quarters, we're currently planning to run the business with an adjusted operating margin percent that is flat to 2011, which really gives us the capacity to invest across three main areas, go to market, to increase our market position and revenue growth around the world, innovation to extend differentiation, and of course to ramp the new acquisitions we made late last year.

As we said on the January call, these acquisitions will be dilutive to consolidated earnings for the first half of the year as we build out capacity and then accretive by Q4. So for the full year 2012, our current expectations have increased to total revenue in the range of $2.53 billion to of $2.56 billion, and adjusted EPS between $2.75 to $2.79 per share. And for the second quarter of 2012, we currently expect total revenue to be in the range of $605 million to $615 million, and adjusted EPS between $0.58 and $0.59 a share. So now I'd like to turn it over to Mark to give you additional details on the quarter's performance and discuss our ongoing businesses. Mark?

Thanks a lot, David. 2012 is clearly off to a strong start. I am really delighted with our Q1 results, building on the momentum we gained throughout 2011. I'd like to thank the entire Citrix team for great execution across strategy, innovation, and operations. I'm especially pleased with the continued growth of XenDesktop that David discussed. From here, we're taking desktop virtualization to a new level, with our upcoming synergy announcements and in partnership with Microsoft, as they introduce new versions of Windows Server, System Center and Azure, along with Windows 8 desktops and tablets.

In addition to desktop virtualization, we're making great strides in Web collaboration and Cloud networking, where our products are number 1 or number 2 in the world. Last year, seven strategic acquisitions strengthened those positions, and opened adjacent growth opportunities for data sharing and Cloud platforms. These new Euro markets are growing at double-digit rates, estimated to top $16 billion by 2015, fueled by three powerful continuous forces. The imperative for mobility, the enterprise Cloud evolution, and the build out of hosted Cloud services.

Next I'd like to briefly highlight a few of the new things we're doing to leverage these forces for growth. First is ShareFile. We've just completed our first full quarter in the Cloud data sharing market with ShareFile, executing currently well, bringing his team on board and growing it. ShareFile enables secure Cloud-based document sharing across all your devices, securing information, while enabling complete mobility. ShareFile growth hasn't missed a beat, and in fact, has accelerated, competing and winning on security, simplicity, and service in key vertical and departmental markets.

We're also seeing healthy interest from our enterprise customer base, where the Citrix brand and smooth integration with XenDesktop gives us a strong advantage, and is driving a dramatic increase in pipeline of six and seven-figure ShareFile deals. This market is highly fragmented from startups to industry giants. Our focus on the business user, where the Follow-Me-Data vision is resonating, and we're finding that our trusted brand differentiates us from start-up players, while the maturity of our product sets us apart from larger late entrants. We think of all of this as iCloud for business, because it's a platform for people, devices and apps to securely and seamlessly share data.

As David mentioned, we're seeing excellent growth and share gains in the Web collaboration market, especially after the addition of HDFaces Video Conferencing to GoToMeeting. As a natural extension to GoToMeeting style collaboration, we recently announced the acquisition of Podio, a Cloud-based team collaboration platform, with all the power of social. Podio brings together all the tools and content that teams need for the new Cloud era work styles, where mobility is paramount, where teams extend beyond the firewall, and where simpler is better. Podio integrates with many popular Cloud-based data storage, collaboration, and content tools including Dropbox, Google Apps, Google Docs to make a few. And as you might guess, we'll have a have a few new ones to add to that list at Synergy.

A truly unique feature is the built-in Podio app market, filled with hundreds of free apps that simplify project workflows for all the most common business processes. Users can even customize or build their own workflow apps, no training, coding or pocket protectors required. The way I like to think about Podio is team project collaboration for the Facebook generation. Social, organic, and connected. It's not just a place you talk about work. It's a place where work gets done. So I'm really thrilled about the powerful combination of GoToMeeting, ShareFile, and Podio, and what the move to mobile is all about.

The move to Cloud services is just as profound, when it comes to market and growth potential. We have great momentum for Citrix CloudStack, with over 100 customers in production Cloud deployments, running commercial clouds that are generating well over $1 billion in revenue today for some of the biggest brands in the world, including Korea Telecom, Go Daddy, Zynga, and many others. No other Cloud platform in the industry even comes close.

CloudStack adoption is a part of a massive build-out of Cloud infrastructure taking place today. A build-out led by open-source technologies that are first proven at scale by the likes of Zynga, Facebook and Google, then made broadly available under an open-source license. Now that CloudStack has been proven at scale in some of the world's biggest and fastest-growing clouds, we're taking a page from that playbook by moving it to the Apache software foundation, home of the world's most successful open-source projects, like Apache Web server, Tomcat, Hadoop, Cassandra, and Hive.

We believe this move will add significant energy to CloudStack's momentum, accelerating the development of open clouds and helping customers steer clear of proprietary lock-in approaches. We will of course be active contributors to Apache CloudStack, along with other great developers, and we'll deliver a commercially supported release of the technology as the centerpiece of our Cloud infrastructure portfolio, complemented by XenServer, CloudPortal and NetScaler. At Synergy, you'll hear a lot more about how all this comes together in a very powerful way to drive thousands of Anything-as-a-Service clouds.

The Cloud network is at the delivery core of scalable Cloud services, driving amazing growth of Citrix NetScaler. NetScaler already delivers the majority of the world's largest Internet sites, and its best-positioned to benefit from the Cloud build-out. Last week we launched NetScaler 10, a landmark release that brings the power of Cloud networking to customers of any size.

It includes ground-breaking TriScale technology, making it really easy to scale delivery networks up, in, and out. Scale up as you grow, without buying new hardware, scale in by consolidating multiple networking functions into a single appliance, and scale out to extend capacity at a far lower cost by adding new NetScalers in simple Amazon-style clusters. NetScaler's new TriScale technology leapfrogs the competition by scaling up to a stunning 1.4 terabytes in a single cluster. That's more than eight times the capacity of our largest competitor.

We'll be talking a lot more about NetScaler 10, and a lot more about everything Citrix at Synergy 2012 in two weeks, and I'd like to personally invite you to come. It's the premier event on the convergence of Cloud virtualization, mobility, and networking, taking center stage at San Francisco's Moscone Center from May 9 through 11. As always, we'll be introducing the future, with some excellent announcements, breakthrough technologies, and new partnerships, along, of course, with a few surprises. You can register at CitrixSynergy.com. It's definitely going to be another sellout event. I hope you'll join us.

In closing, we're executing well, seeing growth in all our primary businesses, and making the investments necessary to deliver shareholder, customer, and employee value. We're driving unprecedented improvements in the way people use computing, the way services are delivered, and how it all works behind the scenes. I believe we're well prepared for the road ahead, where mobility, connectedness and Cloud services are as fundamental as the air we breathe. And now, I'd like to open it up for questions.

(Operator Instructions). Your first question comes from the line of Heather Bellini of Goldman Sachs.

You mentioned that you've been able to take down the costs associated with Desktop Virtualization deployment. I was wondering if you could share with us how steep, how fast do you see that cost curve going down from here, if there's anything you could share with us about how much cheaper you think these solutions could get for people to help spur adoption?

Heather, this is Mark. At Synergy in Barcelona, we put out some technologies and a roadmap along with partnerships, where we predicted that by Synergy San Francisco, we see the marginal cost of the desktop in a DVI-type model, an overall desktop virtualization infrastructure would actually be less than the marginal cost of a physical desktop, and we still believe that to be true. And that will come from the combination of cost reductions at the end point, cost reductions obviously in the form of greater densities at the server, and cost reductions in terms of storage in the back-end. And I think we'll be able to demonstrate that in a couple of weeks at the conference.

I guess I was just wondering, as a follow-up to that, is just how are you just starting to see that curve, where you can really start to see a benefit if you look out a few years down the road, where you could really get an inflection? And kind of make it a no-brainer for this transition to occur?

I think cost is one of the things, but just one of the things that needs to happen around the sort of no-brainer-ness. And I think we're doing a number of things related to getting there including making the migration of legacy apps much, much easier. Certainly, we saw some great uptick in interest in AppDNA and that acquisition from Q4. There's another set of obstacles around overall strategies for desktop transformation, and we're investing heavily in services, support and consulting, et cetera, to do that. So I think there are a number of things that happen to drive a greater velocity of adoption, not just the cost of -- the marginal cost of a desktop. And I think we're working across all those fronts, and we'll continue to see I think, acceleration in the momentum in the DV beauty space.

Great. Very helpful. Thank you.

Your next question comes from the line of Rick Sherlund of Nomura. Mr. Sherlund, your line is open. There is no response from that line. We'll move to the next question. Your next question comes from the line of Adam Holt of Morgan Stanley.

My first question's about NetScaler, which continue to grow meaningfully ahead of consensus expectations, and David, you laid out four drivers that seem to me to be drivers that will persist for the next several quarters. Could you talk a little bit about the outlook there, and specifically your expectations around being able to maintain above-market growth?

Sure, Adam. I think in general all the things I highlighted have been trends we've talked about for the past couple of quarters, and they feel like they're really continuing to deepen. And we are very excited about everything from our increase in go-to--market capacity. We've talked a lot about just improving execution and cross-sell, et cetera. We're also increasing total capacity.

We've seen good uptake in markets outside the US, and have frankly been a little slower to adopt some of the networking technologies. So I think we've got a number of growth engines beyond just the ones that I talked about. As far as the outlook for the business, I think certainly in the short-term, we've got the capability and believe that we can outgrow the market over the next few quarters. And as we guide to the overall numbers, we'll be looking at the total Datacenter and Cloud business in the aggregate, of course, and that's the way we talk about it. That should still be in the north of 20% range in 2012.

Just a quick follow-up on the model, you had another quarter where billings outpaced revenue and cash flow meaningfully outpaced operating income. As the model transitions, as you suggested, would you expect that to continue, that relationship between billings and revenue and cash flow and operating income?

Yes, I do. I think that definitely deferred revenue will grow this year, you should expect that bookings will outpace revenue and from a cash flow standpoint, we had a great cash flow quarter, as you mentioned. I think trailing 12 cash flow is up more than 21%, which yields over $4 per share of cash flow. We're driving that actively right now and it's something we're very focused on. So I'd love to exit the year with cash flow from operations at a goal north of $800 million.

Thanks so much.

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

Nice job on the quarter there. It feels like Europe seems to be doing better for you than it has for a number of other folks. Any changes you've made in Europe? Obviously you hired a new Head of Europe, but are there any other changes that are going on in the region or anything you're seeing that's different than what everyone else is seeing?

Bhavan, as you know, we've been pretty cautious on EMEA for some time, and there's obviously a lot of macro-driven business confidence issues. And in my remarks, I pointed out that the expectation should be for a little lumpiness there, just driven by those external factors. But I will say we've been maniacally focused on the things that we can control, and that is around execution, building pipeline, focusing on customers and large deals, and I think you saw that in Q1. We had a number of big deals, the total big deal contribution from EMEA was up more than double from what it was a year ago. So that's really showing how we're executing a strategic level. What it's still a little bit uneven on the kind of low, mid-end business, that which is more economically sensitive or related to hiring and things like that. So again, we'll focus on what we can control, we feel good about the execution, the teams are driving good performance, but it's safe to expect a little bit of lumpiness there throughout the year.

Okay. And then turning to the SI channel, obviously that's been an important driver in the past. Any color on that this quarter, and what percentage of XenDesktop deals were driven by SI?

SIs actually performed really well in Q1. As you'd expect, most of the large deals, tend to be associated with SIs at some level. So we had great contribution from Hewlett-Packard, IBM, Fujitsu, just to name the three big ones. I'd say as far as percent of bookings, it's certainly the highest it's been in some time. The actual contribution in dollar terms was up more than 100% year-on-year. But again, that's one of those that does tend to be fairly lumpy, simply because it's associated with big deals, so it will bounce around quarter-to-quarter, but the trend is absolutely up and to the right. And in the aggregate, I think we've trained close to probably 10,000 people now, across all of the SIs, so it's a constant process, we're working it each and every quarter, but it's certainly moving in the right direction.

Great. And one last one for Mark on ShareFile, it's interesting that you're seeing enterprise interest in ShareFile and sort of the enterprise sales force is outselling online services for the first time. Two things. I guess one, any color on what the enterprise is looking to do, and are they comfortable with the Cloud for this offering, or is there plans to -- assuming it's a licensed offering here and then two, competition in the space with Google's drive and Microsoft SkyDrive seems to be heating up as your way of sharing collaborating. Just sort of a sense of how they sort of fit in, in the space, and how you'll play with them?

Just overall, the success we are seeing on the enterprise side is really evidence of the adjacency of dock and data sharing to apps and desktops. And so it's a very natural part of the conversation when you're talking about virtualizing desktops and apps. So there's great comfort in the sales organization in doing that. And customers have the interest. That interest, obviously, is heavily stimulated by the explosion of devices, the need to go mobile with documents, but yet secure, and at the same time, on the other side, great concern around governance, control, et cetera. And the evidence of Dropbox into the enterprise. And this actually gives them the kind of control point that they're looking for, to feel comfortable about mobility and sharing, but governance and compliance and control.

The interest around Cloud will range. So there are some customers that just say, look, I can't put documents in the Cloud. That's just the way it is right now, because of my own comfort and regulatory issues. We are working closely with them to imagine solutions to that problem. And so what we're focused on are the customers that really have the Cloud mentality and comfort, and that seems to be a very rich opportunity in our install base of customers. And as far as competition goes, it's a huge market, it's early stage. As I mentioned, it's fragmented. And when we look at what's happening, Google, Microsoft, Apple with iCloud, Dropbox, et cetera, it's more and more clear that there is a universe around personal and consumer that has massive opportunity and upside for those huge brands.

And at the same time on the other side, there is a market for those that focus on teams and business, which is really our focus, along with other types of players. And obviously our strategy is to make ShareFile and document sharing part of the whole mobile work styles solution, that includes Podio, GoToMeeting, all of the -- all we can get with virtual desktops and apps and bring all that together. And that will be our differentiated approach to the marketplace. And we think it's got a lot of legs.

That's helpful. Thanks for taking my question.

Your next question comes from the line of Kirk Materne of Evercore Partners.

I'll echo my congrats on the quarter. Two really quick ones. First, we have talked about the bigger desktop deals. Just kind of curious how some of the demand at those mid-tier levels coming, now that you've had VDI-in-a-Box out for three or six months. And then second, Mark, I was curious if you could just offer some comments around the decision to go with CloudStack on your own and pull out of OpenStack and some of the thought process around that? Thanks.

Yes, Kirk, this is David. Let me take the first part of the question. As far as the breadth of adoption we're seeing on desktop, I'd point you back to some of the metrics that I called out in my script. We've got just so many hundreds of customers now in that 1,000-seat plus range, and a very large number in 5,000 or 10,000, so those are covering customers across pretty much every vertical, and every size. So really, it's the same basic issues being addressed. Mobility, security, management, better agility in their own infrastructure. Things will accelerate their own business initiatives.

As far as the new products like VDI-in-a-Box, we're really just starting to ship that right now. We've got our teams trained up in the January time frame. We've got a new agreement with Dell that we had announced fairly recently, and I think that's going to start shipping shortly, so probably in the next six months, we will have much better actual data to talk about in terms of performance there.

As far as the CloudStack decision, Kirk, basically, if you look at this objectively, OpenStack community, which we're part of founding, lot of visibility, and a lot of big brands involved. But on the technology side, immaturity. And slow trajectory toward maturing as a platform that you can actually really run high-capacity, high-performance Cloud infrastructure, and CloudStack has that uniquely. As I mentioned in the prepared comments, we're powering over 100 in-production clouds from general-purpose kind of Infrastructure-as-a-Service clouds to more special-purpose types of gaming clouds.

And the issue there is the demand in the marketplace is around design wins, and it's now. And so we felt like we needed to do everything we could do to accelerate CloudStack, and to that, we decided to join the Apache software foundation where we think we'll get a lot of acceleration, a much larger developer community, one that has a track record of really producing some pretty outstanding open source projects. As I mentioned, Hadoop and Tomcat and Web Server and so forth. And so it's really that simple.

And that will help us, A, package commercial product that will certify support, et cetera, and support the kinds of customers we're already supporting, and B, allow us to then complement that with CloudPortal, with NetScaler, with XenServer, with some of our other products, so that our customers and those that build clouds on CloudStack can actually win in the marketplace. And what that means is acquire profitable customers and growth. And that's our focus, is to help customers like KT and IDC Frontier and Go Daddy and Zynga and many, many others achieve their goals, and that is growth and profitable growth through differentiation and providing Cloud services. So pretty straightforward.

Thanks very much.

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

Great quarter, guys. Just had a question about concurrency ratios. I know you have talked about this in the past, hovering around 3-ish, but with the proliferation of connected devices, high-speed broadband, et cetera, and people using XenApp and XenDesktop out to more and more devices, basically people logging in more, what are you seeing in terms of concurrency ratios to your customers? In other words, how should we think about, for the base of users growing of Citrix applications, versus the penetration or the paid for level inside that? Thanks.

Yes, Kirk, this is David. I'll take a first crack at it. I think concurrency's really not a metric that we track that closely anymore, and that's because the nature of usage has changed a lot over the years. If you look back, when concurrency really mattered, four, five, six years ago, it was because people were using app virtualization on much more of a tactical or project basis, and that implied intermittent usage. If you look at where we are today, and how customers are thinking about virtualization of the desktop, it tends to be much more a part of the infrastructure, and that can be either delivering a large set of applications across the organization, or it could be simply replacing a physical desktop with a virtual desktop. Or in many cases, it's the in addition to story, which includes enabling mobile devices for people that still maintain their physical. And for us, the long-term growth strategy is just about speeds so we're driving licenses across users, across devices, and in some cases across concurrency. But it's certainly less relevant than it has been in the past.

And, Kirk, the only thing I would add is that the way we look at concurrency is, it's a licensing model that customers can choose, based upon what lines up with their strategic and/or tactical goals. And there are certain types of customers like call centers, like healthcare providers, et cetera, where concurrency is actually a very strategic licensing model that enables their business model. So we see it more that way than kind of the scorecard on penetration these days.

Great. Thanks.

Your next question comes from the line of Daniel Ives of FBR.

In terms of NetScaler 10, just talk about how you're thinking about that product release and just the ramp throughout the second half of the year. What do you think that could do to the NetScaler base?

Well, I'll take the first piece of that and maybe David can add some color around ramp. But NetScaler 10 is, as I mentioned, it's really a huge milestone release of the NetScaler software. And this TriScale technology is, we think, quite profound because what we have now is really a product that can go from a very small virtual instance, where you're pushing megabits of capacity all the way through and break through the 1.4 terabyte capacity, which is unprecedented in the marketplace. I think we're first to actually break the 1 terabyte throughput limit.

And so this gives us access, Daniel, to every kind of market that's out there, from the full range of service providers in their core infrastructure, and as part of the service that they offer. And enterprises from medium to the world's largest, and the full range of dot-coms and e-coms that we have serviced so well for so long because they're looking for more scalable, simpler and easier to manage environments. So I think it just gives us a lot more market reach, further differentiates us and gives us a platform for some new innovations coming, that we're really, really excited about, that we'll hear more about later this year.

I would just add that in terms of the actual ramp rate, it's going to be all predicated on what customers have in place in their infrastructure in existing accounts, and that obviously opening up new accounts. And probably a pretty good proxy is looking at SDX, which we've been in the market now three full quarters, we're seeing, as I mentioned in my prepared remarks, actual sequential increase of over 20% from Q4 to Q1, representing between 10% and 15% of the mix in just that short period of time, so we're shipping thousands and thousands of boxes each quarter so we got a pretty big base out there. And give us a couple of quarters of actuals and we'll come back and give you a little bit more granularity on the mix.

Okay. Great quarter. Thanks.

And your next question comes from the line of Gregg Moskowitz of Cowen.

Great quarter as well. Wanted to follow up, Mark, on CloudStack being offered up to Apache. You still put out the industry momentum that expect as a result of this move. When should we will look for a commercially-supported release, specifically on Apache, and when you think that this could really start contributing to your financials?

Gregg, I'd rather reserve the answer to that for Synergy. Because we don't want to get into that here. That will be a significant part of the conference conversation, but we really feel good about the momentum we have built. And then it's a process to actually incubate a new project in Apache software foundation, and we're working that hard and we'll have more news about that in a couple weeks. So I'd rather answer your question then.

That's fine, Mark. I look forward to that in two weeks. On another note, been picking up some really positive buzz around Cisco and their VXI initiatives. And I know it's early days, but wanted to just hear, even anecdotally how the Cisco reselling relationship is going around that? Thanks.

Okay. It's actually going quite well. I think we've continued to see the ramp-up in the relationship with Cisco on VXI, XenDesktop, and actually extending beyond that to being one of the fastest ramp partnerships that we've ever seen. The last one that ramped this fast was our partnership with NetApp, once we got into this core virtualization market. So we're really delighted to see that. I think you'll see a lot more energy going toward that coming from Cisco, in terms of visibility, et cetera, later this year. And we're delighted to be working with them at the front lines on some pretty significant deals.

Great. Thanks.

Your next question is from the line of Steve Ashley of Robert W. Baird.

Great. I'd just like to start with a competitive question about VMWare and its ELAs. In the account in which VMWare has ELAs with Desktop Virtualization, is that a place where you have historically done business, and maybe more importantly, looking forward, do you view that as a place you could do business in the future? Or are those just kind of roped off and really not open for you guys to penetrate?

Sure, Steve. It's David. I'd say the answer is absolutely we do business in accounts that have ELAs in place. And most large enterprise have some level of server virtualization already out there. When you look at some of our statistics around XenDesktop being across whether it's Xen or ESX or Hyper-V or others, a large part of the strategy is just making sure that we are agnostic to that underlying level, and we give customers that ability to choose, so that they don't feel like they're locked into a specific platform. Give them the most powerful, best-performing solution for what they're really trying to accomplish.

The flip side of that of course is when you're selling into a large bundled transaction, that is driven by account control or bundled pricing or something, it's probably a little bit more challenging, but overall, we're extremely happy with the win rates that we see across the board for XenDesktop, that really haven't changed over the last couple of quarters. I know we've talked about those in the past, and it continues to be a very competitive market and I think that's actually really good for long-term growth of the entire industry.

And then a question on XenApp license, I know you're not going to give us specific numbers, but I was wondering if you might be able to qualitatively tell us some color on whether it was up or down year-over-year in the period.

Steve, I'm actually not going to give you details simply because it's not -- it doesn't really matter to us. I don't want to keep encouraging people to dig into the individual components so much. Overall, the thing to look at is just the combined license, which was up 17%, coming off a number of quarters last year that were also in the high teens. The majority of the growth in deferred revenue is related to Desktop and so all the metrics continue to be very positive on that front.

Thank you.

And your next question comes from the line Kash Rangan.

I noticed that it's a little hard to compare versus a year earlier because you restated some of your numbers, but it looks like you outperformed on the license update. I was just wondering what drove that, and how sustainable might that -- what looks to be catch up maintenance growth rate? That's it for me. Thank you.

Sure, Kash. You're right, the underlying component around license update did accelerate into the mid-teens, and it was certainly slower than that last year. Throughout all of last year, we talked about the lag effect that subscription advantage has from new license sales. And as we have been able to accelerate licenses over the last, let's say, eight quarters or so, you're starting to see that catch up now in subscriptions, and so that's been a nice, positive driver. But to reiterate why we combine both of those, is frankly to align with how we're going to market.

We've taken a much more focused, call it lifetime approach, or lifetime value approach to the customer, and we're now offering holistic software maintenance and hardware maintenance that will include what used to be subscription advantage, just upgrading licenses, as well as comprehensive tech-support solutions. So over the long-term, this allows us to stay much closer to customers, and should actually help drive this line, as we see higher and higher adoption of those solutions.

Got it. David, also it was nice out performance on the deferred revenue side, up $23 million sequentially. It looks like a lot of that debt was driven by XenDesktop. And when it comes to revenue recognition, will it show up as update or licenses? That's it for me. Thank you very much.

Sure, Kash. Just on deferred revenue, we didn't talk too much about this in the prepared remarks, but look at the delta between the short-term and the long term. And it's really representative of the overall trends that we see from a customer engagement standpoint. In fact, long-term deferreds are up 45% year-on-year. And that's a continuation of a lot of customers looking to by either long-term turn-based licenses, which we have a few, and those get recognized back to license, or in many cases, multiple years of maintenance or subscription and those will come back to the license update maintenance line. So there's not a percent break-out that I would give at this point in time. It just really depends quarter-to-quarter on how those deals are structured. Next question, operator?

Yes, sir. Your next question comes from the line of Walter Pritchard of Citigroup.

Mark, I'm wondering if you could talk a bit about what effect the happenings at Microsoft is having on your business. We know that you've got the Windows XP end-of-life in spring of 2014 and so that's one question. And related to that, we saw recently that Microsoft had, with Windows 8 is planning on adding an additional license called a companion device license for using desktops on non-Windows tablets and I'm wondering, just overall, how you're thinking about the impact of Microsoft on this desktop virtualization business at this point in time?

Sure, Walter. So first, the expiration of Windows XP is driving it a lot of consideration around how to deliver the next-generation desktop, whether it's Windows 7 or Windows 8. Whether it's kind of the legacy or legacy-oriented from a design point of view Windows-32 apps or even browser apps that are really built to take advantage of IE. So all of that is actually a good push and the clock is counting down. And I think positive overall for the classic business that we've had around XenApps, XenDesktop, and actually helps the AppDNA kind of acquisition that we've made in Q4.

More prospectively, and looking forward, what Microsoft is doing on Server, and at the client, in the Cloud and in the systems management area, we're plugging into all of that as part of the new platform that's built around the Windows 8 architecture and model. So we think actually we'll continue to leverage all of that as we always have, and take advantage of something that's new and that is Mike or soft really much more involved and supportive of the notion of virtual desktops and apps, which will grow the primary market in a way that it hasn't before. And obviously with right value add strategies and partnering, we'll be able to grow right along with that. We're pretty excited about it. We'll talk more about that at Synergy.

As far as the CD and license, this is just this new kind of just getting out there. I think there are a few interpretations of it out on the Internet. And I'd rather not interpret it here for you until we actually understand it better. But certainly, Microsoft's thinking hard about how to bring virtual desktops, virtual apps into more of a mainstream and primary market, and do that in a way that complies with licensing and their business model and so forth, which we have always been fully supportive of.

And we've been kind of through multiple cycles and eras of licensing around virtual desktops and apps with Microsoft. And it usually -- the way it usually happens is everyone's negative on the front end, and then everyone figures out how to leverage it in the end, and make it a positive. And my guess is this will be a similar sort of thing.

Great. And then, David, just on online area, I guess you're calling this the Software-as-a-Service business now, those growth rates have accelerated over the last five quarters here I think after seeing some slowdown. And we've also done some M&A there. So I guess I'm trying to figure out, is this 20% growth rate based on the mix of that business now with collaboration more? Is that more of a sustainable growth rate, or are we simply seeing some M&A benefits here that may subside as we get into the coming quarters?

Yes. I think we've got a number of sustainable businesses in there, and the big drivers are going to be, are certainly in the collaboration business, which we talked a lot about, at GoToMeeting, GoToTraining, GoToWebinar, et cetera, being the biggest component there and that's growing close to 30%. Followed by the IT services business, which is really GoToAssist, that's kind of a mid-teens grower and then of course with remote access and Cloud being more of a mature market. The new markets that you talked about around data sharing is starting to contribute and it will ramp as we get through the year, so I think the way to think about the actual growth rates is probably mid- to high-teens as for the full year. And then depending upon how quickly we're able to wrap the data sharing business, we may be able to accelerate that.

Great. Thanks a lot.

Your next question is from the line of Mark Moerdler of Sanford Bernstein.

Two questions for you. The first is, any sense now, I know we've had historically this question of a license overhang from licenses that were purchased in substantial numbers and then on the process of being implemented. Any sense of how you're doing in terms of the deployment of those?

Mark, I don't think we have great data terms of, in the aggregate of how many licenses are purchased and deployed in the time scales, but certainly on every large transaction, we've got our services people working hand-in-hand with customers to make sure that licenses are getting deployed, they're being successful and rolling them out, and we understand how the projects are going. The best metric we have around that is, we look at reorder rates as something that we look at and the time to reorder, and the measurement there is simply when a customer makes an initial large purchase, how long does it take before a subsequent one? And that has moved around anywhere from about six to eight months. And I think that's probably the way to think about it. It's obviously, is longer as the deals get much, much larger, and now that we've got a growing number of customers, north of 10,000 seats kind of a lot of the deals out there, so we're working on it, and I think that's about it.

So it's still staying within roughly the same range?

Yes, I think so. The only other thing I'd add on top of that is that the idea of ELA-type transactions, while we are doing a number of large deals, those are certainly the exception for us. Our large deals are typically customers have a specific identified project that they want to execute against, and it just happens to be very large number of users more so than taking down an all-you-can-eat type arrangement. So that's pretty consistent with where we've been in the last few years.

That's excellent. Second quick question. Any feedback. I know you've some changes in terms of the sales channel structure at the high end of clients. Any feedback on the success of that, as well as the sense from the channel as to whether that's been pushback?

Yes, Mark, I think we actually have continued to evolve our channel programs in a very, very consistent way. And that is to reward channel partners who are there in the marketplace, really delivering solutions and stimulating demand, and really engaged in the process, and doing less and less to reward harvesting. And I think that's it. And in exchange for that, what we're doing is investing much more energy in managing those partners that are doing those kinds of things. So they're actually -- it's an upward spiral. They make more money because they get more of our focus, and they get more rewards for doing the things that they're actually very competent at, and that is driving demand and solutions. So that's really the nature of what we've done. And maybe David can add a little color around this.

I would just add we introduced the concept of high-touch accounts, and we've been investing a lot in ERMs, corporate account managers across the globe. And this is a way for us to frankly not double comp from a financial perspective, but also get people focused, as Mark said, on driving core demand. Not necessarily selling alongside of Citrix or harvesting existing accounts but really driving brand-new demand, so that's where most of these changes took place. We also made a few minor tweaks to our, we call our subscription advantage agency fee. And that is, we lowered it, in a couple of areas, and use those funds to reinvest in driving other core initiatives. So when you hear channel changes and whatnot, you should think of those as simply tools, tools that we're using to turn the dials in terms of our current business initiatives, and generally it's not a net cost reduction or we'll call it a channel benefit reduction. Simply a reallocation.

Perfect. Thank you.

Your next question comes from the line of Brent Thill of UBS.

David, just back on the deferred, obviously one of the better growth year-on-year quarters you've had in a while. Are you seeing some of the contract terms elongated given the large deal count that's starting to get that much bigger where you're seeing your average contract term now lengthening?

Well, I'd say not lengthening. Average contract, most contracts are still a year. The large deal contracts are the ones that do tend to be sometimes two, three, four years in duration. But not enough of a material change right now. I think it's going to track relatively closely to large deals. And I talked about those earlier, what we did in the aggregate, 28 deals over $1 million in Q1, which compares to 14 a year ago, so the trend is certainly up and to the right.

And because of that, I think you'll see a continued growth in long-term deferred. They won't be growing at the percent it was in Q1, I would expect, but it's certainly a trend that is happening. And I'm not sure I'd add much more beyond that. That's something we'll continue to talk about each quarter. And just a reflection of the more strategic nature of the business.

Okay. A quick follow-up for Mark on NetScaler 10, are there any new markets that you feel this is going to open up? And if you could just comment maybe a little bit about the service provider market and what you're seeing in that end market? Thank you.

Brent, I think it does give us incremental reach directly into carrier networks, as well as into the expansion in the service provider space. And again, the core notion of TriScale includes the service delivery platform that can consolidate the higher-level set of delivery services. Not only the ones that we provide, but delivery services that our ecosystem partners provide around analytics, security, mobile data, some other kinds of functions that are important to carriers. So I think it does it give us incremental reach and we'll do some more to actually amplify the reach that we get into telcos and carriers. As well as just infrastructure as a service provider as well.

Terrific. Thank you.

And your next question comes from the line of Michael Turits of Raymond James.

Couple questions. First, just on last year, you give us a target for what Desktop license you thought would grow for the year. Obviously you put up a good quarter there. Any thoughts now in terms of that trend? Do you feel like this is a year in which you have acceleration in that, just given you set out a target and any visibility at this point this year?

Sure, Michael. We haven't really broken out the various line items of revenue right now. But I think that's coming off a good Q1, up 17% year-on-year and last year we were up almost 20%, we feel like this is certainly a business that is becoming very material. And while we do have hard comps, as we enter the back of the year, I think the early read would be somewhere in the low to mid teens. And we will update that as we go through the year.

Okay. And then the only question on license update and maintenance, 19% this year for the group overall, and that's something we felt like should have headed into the teens, just as all of that license rolled in. Any reason not to think that one's sustainable?

We had a huge growth in deferred Q4 and some of that's bleeding back in, So the baseline goes up, but as far as overall growth rates, it's probably in the mid-teens from license updates for this year.

Okay. And then had to be small, but any order in organic revenue?

In the license update and maintenance line? No.

No, I'm sorry in revenues overall this quarter. I may have missed it earlier.

Yes, there's a little bit. I think the acquisitions we did in the back half of last year, just to remind everybody, the way that we had talked about those, the dilution for those businesses over the first half of the year was about $0.10 from an EPS standpoint, and that's because we're taking a lot of brand-new nascent businesses, and we're building out everything from sales overlay teams, engineering teams to drive integration and core development and all the other ancillary parts. And we're ramping those pretty rapidly right now and I think by the time we exit Q4, we'll be on an annualized revenue run rate of north of $50 million. And by that point, at least neutral and probably accretive to EPS.

Great. Thanks a lot, guys.

And your next question comes from the line of Ed McGuire of CLSA.

I noticed that the Pacific region was notably strong. Could you comment on what may be behind that, and also, Dave, you had mentioned you're looking to accelerate your hiring. Maybe some color there in terms of where your planning to up your investments over the next quarter or so? Thank you.

Sure, Ed. In terms of APAC and Japan, or Pacific and Japan, both of those regions continue to just have terrific execution. We've had great teams there, we got early markets like China and India and others that are growing significantly faster than the overall business right now, we'll provide a lot a long-term opportunity. We've also been investing a lot in terms of overall capacity there. So we're bringing on board lots of people to service accounts locally, whether that is from a support standpoint, customer-facing engagement, et cetera. And we're going to continue to do that, because there's just a lot of opportunity there. And I expect them, as I said in my prepared, to continue to outgrow the market for at least the balance of this year. I'm sorry, can you repeat the second part of your question?

Just you mentioned you're looking to accelerate your hiring because it was off to a little bit of a slow start in the quarter. Just where you're hoping to invest geographically and in the product line? That's all for me. Thanks.

Got it. Yes, we hired about 140 people in the quarter, bringing our total headcount to actually 7,075 people across the Company right now. And hiring was slower than we had in our original plan, but a number of people have actually accepted offers, and they'll be starting early Q2, we expect that the pace is going to be able to pick up as we go into Q2 and probably early Q3. The places that hiring is going are all the identified areas that we talked about in the past, a lot of focus on go-to-market coverage, we do feel like we are capacity constrained in a number of areas around the world.

In customer support, to make sure that we're transferring the right level of knowledge, to be able to support customer deployments, as well as post-deployment support. And then of course across various elements of innovation, whether those are the new businesses that we're just ramping up or whether it's in just core innovation to drive integrations across our products, leveraging simplicity and solution approach, et cetera. Or new innovation. So, across the board in all those different spaces.

And your next question comes from the line of Rick Sherlund of Nomura.

Thanks, sorry before. Question on the pipeline relating to XenDesktop. I'm kind of curious if there is a bulge going through the pipe where a lot of deals might be coming up for a decision, or is it more linear? And kind of relating to that, if you could just chat for a moment about the sales cycle on XenDesktop, where are we? Have we gone past the evangelism stage and is the sales cycle getting shorter? I just be curious if they're more go to pilot or if they're bigger deals, do they not need as extensive a pilot, just some appreciation for that would be helpful.

Sure, Rick. Let me take the second part of that question. In terms of just overall sales cycle I think it's safe to assume that every large deal out there is first a competitive deal, and so you generally have us and some other technology tilted up side by side, as the customer go through more of a functionality approach, and then some level of proof of concept. That's generally the pattern that every customer is going to go through. And so as far as total cycle times, just depends on so many different factors. I'd say in existing account, it could be very short, measured in a matter of weeks, up through several quarters for a large new customer.

In terms of looking at whether we are in an evangelical phase or whatnot, good news is we've got thousands of accounts now that are out there running XenDesktop in deployment. We've got hundreds that are in the multi-thousands and we've got references across every geo, and I believe every major vertical out there. So it's not like it's a brand-new technology anymore. It's much more a function of just getting it in front of a customer, helping them understand how to deploy, and then focusing on ramping that long-term. In terms of the pipeline, I don't think there's a bulge in the pipeline, pent up demand, or anything along those lines. Pipeline and pipeline creation is something that we just focus on day-in and day-out across the globe, building new opportunity pipeline and working that through the chain.

I will say that the one kind of unique thing in the pipeline, which by the way has continued to grow in the aggregate, pipeline creation and coverage ratios are strong but the one unique thing is probably around the larger deals, that is what we see more and more and more of over time. And so the number of identified $1 million plus opportunities is effectively a record each and every quarter. So that's consistent with all the other dynamics that we have seen in this business.

And is Windows 7 helping or hurting? Is it causing some distraction right now where people feel like with the end-of-life coming for XP, they've got to focus on getting Windows 7 in place and later they'll come back and consider the infrastructure? Or is it actually helping?

I'd say it's definitely helping. It initiates the conversation around the desktop infrastructure. And that's the time when you have a great opportunity to talk about whether that is a physical or virtual. And we also participate pretty actively in migrations, to help customers understand how their app portfolio is going to perform across different platforms, et cetera. So it's been identified as a driver in some of our larger transactions, and it's certainly a driver for just overall conversations and opportunity.

Yes. Thanks. Great quarter.

Thank you.

And your next question comes from the line of Derrick Wood of Susquehanna International.

Couple questions on the desktop business. I'm not sure if you're still giving this, but if you are, what is the change in deferred revenue from the Desktop business?

We didn't really give that out but we did say that the majority of the change was related to the Desktop business.

Okay. Thanks. And second on the 5.5 release, think it was last December, I think that included the RingCube technology. I was hoping to get some feedback on what customers are saying and how this is impacting your pipeline. And last if I could just squeeze this in there from a high-level perspective, is there anything that suggests we are starting to hit more of an inflection point in adoption of desktop virtualization? Or should we really still think of it as a continued gradual rise as we've seen over the last couple of years?

Yes. I'm going to stick by the point that there's no such thing as inflection points in enterprise IT. I've said that quarter-in and quarter-out because I think that's the dynamics needed to really ramp these businesses are fairly labor-intensive. And that includes just our ability to train partners, our ability to hire consultants, our ability to make sure that customers have the appropriate level of knowledge and guidance to ramp. So I do think it's a gradual process. We're talking about very, very big numbers now so I mean, this is rapidly has become quite a real market. And we think a lot headroom's still out there.

In terms of 5.5 and the overall release, we've got very positive feedback from it. I'm not sure I have any specific statistics around RingCube, per se, but when you look at the reasons why we're winning, the reasons why customers are engaging, and the types of deployments, those are really unchanged. The 5.5 release had so many advancements in everything from performance, scalability, management, and then of course cost. Cost is one that we're bringing it down, as Mark talked about earlier, below the cost of physical in many cases, and RingCube office a core element of that. So we're onto version 5.6 now and stay tuned for what's coming.

All right. Thank you.

Ladies and gentlemen, we have reached the time allotted for questions. Are there any closing comments?

Thanks. So just a couple closing comments. First, thanks for the kind words that a number of you said. And we're pretty excited about our performance, as you can tell, and confident about what we're doing from here into the future. So please come to Synergy. If you can't come, pay attention to what we have to say. And I hope to see you in the next three months, where we'll have another report, and until then, take care.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may now disconnect.