思杰系統 (CTXS) 2012 Q2 法說會逐字稿

Good afternoon. My name is Ally and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Citrix Systems second quarter 2012 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period.

(Operator Instructions) Thank you. I would now like to introduce Mr. Eduardo Fleites, Vice President, Investor Relations. Mr. Fleites, you may begin your conference.

Thank you, Ally. Good afternoon, everyone, and thank you for joining us for today's call where we will be discussing Citrix's second 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 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 EVP, Operations, and Chief Financial Officer. David?

Thanks, Eduardo, and welcome to everyone joining us today. As you can see from our release, in Q2 total revenue was $615 million, up 16% from last year. Adjusted EPS was $0.71, including a unique tax item that contributed $0.11 a share. Deferred revenue was up $45 million sequentially, or 24% year-on-year. And cash flow from Ops was $168 million, bringing the trailing 12-month total to nearly $770 million.

From a mix perspective, the Americas region was up 11% from last year, EMEA grew 21%, Japan and Pacific combined for 24% total revenue growth, and our SaaS business increased 18%. While we're generally pleased with this level of growth and diversification across the business, results were uneven in Q2. We saw some customers, particularly in EMEA, becoming more conservative late in the quarter, delaying orders or reducing the size of these transactions based on uncertainty in the economic environment. We haven't seen any changes in the underlying market dynamics, however, so the majority of these opportunities remain in active pipeline.

Despite the macro issues, we're executing very well on a competitive and strategic level with customers looking to transform their infrastructure. In Q2, the number of $1-million-plus deals increased 50% from last year to 39, with the average size of each of these deals increasing, as well. The Americas region closed 26 of these transactions, EMEA had nine, and Pacific accounted for four. This trend is also evident in deferred revenue. Our deferred balance at the end of Q2 was over $1 billion, up 24% from last year.

The $45 million sequential increase, much of it in long-term deferred, reflects this evolution and engagement that we've talked about over the past few quarters as more customers have initiated multi-year commitments for either term-based licenses or maintenance subscriptions. So now let's look at the Q2 results within our primary markets. First, our desktop solutions business grew 13% to over $343 million, including license growth of 7%. For some context on this business, there's a few metrics that really help demonstrate the market adoption we're seeing and the value that customers are placing on desktop virtualization within their infrastructure.

In Q2, there were 20 different $1-million-plus deals for the desktop products, representing customers in services, government, financial and technical verticals. We transacted with over 3,000 different customers, including 144 deals for more than 1,000 [seats] in XenDesktop and 25 deals for more than 5,000 seats. New licenses contributed over 80% of the product mix and we now have over 1,800 cloud providers delivering several hundred thousand desktop licenses as a subscription service to their end customers.

Virtualization of the desktop is playing an increasingly important role in enterprise IT, serving as an enabling technology to accelerate business imperatives. For example, in Q2, a US healthcare organization purchased 15,000 XD licenses, plus NetScaler appliances, to build a solution that provides access to multiple isolated networks from a single thin client, lowering client device costs and enhancing security. Or a European financial services Company that purchased 16,000 XenDesktop licenses to accelerate application deployment to users across both the corporate HQ, as well as several hundred branch offices, in order to reduce IT management cost and accelerate application migration.

Or for example, a government agency in Asia which increased their investment in Citrix by purchasing an additional 50,000 seats to cover the desktop requirements for the complete department allowing for secure managed access across locations and devices. So we're increasingly engaging with customers at this level as the conversation has moved from a technology solution to one that's focused on enablement and acceleration of their imperatives. We're also continuing to innovate around user experience, management and integration that will help further extend our differentiation in the market.

So next, in our datacenter and cloud business, total revenue was up 20% in the quarter to $112 million, with product revenue increasing 15%. Growth in this business was again led by NetScaler where license revenue was up 15% year-on-year. We also continue to see solid early traction across the cloud provider segment with a number of high profile design wins for our CloudPlatform business. The NetScaler growth is coming from a number of different areas. First, we're driving a cross-sell motion into our enterprise account base with over 500 desktop deals including NetScaler as part of the solution.

Second, we're expanding the customer base with both the MPX hardware appliance and VPX virtual appliance versions of the products, adding more than 700 net new accounts in Q2. And third, the new high end SDX service delivery platform is gaining momentum with service providers and large enterprise, up 20% sequentially, and now representing more than 10% of total NetScaler license revenue. So overall, the datacenter and cloud business had a strong first half of 2012, up 25% through mid-year.

Our networking solutions are leading the growth across multiple market categories and we're optimistic about the recent introduction of NetScaler 10, a platform that brings a new level of performance and cost savings to both enterprise and carrier networks. So within our Software-as-a-Service business, revenue was up 18% from last year. Our collaboration and data sharing products, which account for over half of the total SaaS revenue, increased 33%. In general, we saw steady gains in new customer acquisition from both direct and online channels, as well as solid retention rates across the subscriber base.

We continue to have a sharp focus on mobile collaboration and powering mobile work styles. So in Q2, we announced ShareFile with StorageZones which gives IT the ability to choose the location for storing corporate data; on-premise within their private cloud, in a secure ShareFile managed cloud, or in a combination of the two. We also released GoToWebinar Premier Event, a multimedia webcasting service for large scale Web events with up to 20,000 attendees. We also introduced Podio, the Company's new team-based collaboration platform to extend our solutions in a social setting through a unique apps concept that adds structure and activity streams to any type of work in collaboration.

So turning now to expenses and operation, as forecasted we've seen a slow but steady increase in COGS as a percent of revenue, and the main reason has been just the mix of revenue as we've seen higher contribution from professional services, SaaS, and hardware appliances. We added over 250 new people to Citrix in the second quarter, bringing total headcount to over 7,300. And our hiring continues to be focused on expanding go-to-market capacity and customer touch and on product innovation to bring the market new technologies, as well as improving integration across the solutions.

On the rest of the P&L, the primary item to point out was the tax rate for the quarter, about 8% on a non-GAAP basis. The tax rate was impacted by a $22 million reserve adjustment that was recognized in conjunction with the conclusion of open audits that we had going on with the IRS. Excluding this adjustment, the quarterly non-GAAP tax rate would have been approximately 23%. The last item I want to talk about is the acquisition of Bytemobile which closed in early July. Byte is a leading provider of mobile data and video optimization, already deployed at more than 130 mobile network operators in 60 countries. This acquisition will give Citrix a new significant presence in the mobile and telco markets.

And financially, there's a couple of items to note on this transaction. The main issue is related to revenue recognition accounting. So going forward, we will be deferring new revenue for about 90 days from the date of product shipment on all new Bytemobile sales. This is typically the amount of time it takes to complete the professional services that are attached to most deals. Also, due to standard purchase accounting rules, we will not be able to recognize the majority of the deferred revenue that Byte had on the books at the time of acquisition.

So due to these two factors, we expect to recognize only about $1 million of revenue in Q3, but increasing to about $15 million in Q4. Together, these accounting adjustments will translate into $0.07 to $0.08 of EPS dilution for the third quarter, but we expect the business to be neutral to EPS in Q4. So overall, looking at the results in total, we're executing well in a challenging macro environment. We're seeing growth in all of our primary markets, and we're making the investments necessary to extend our leadership position. Finally, I'd like to discuss our current outlook and expectations for 2012.

Entering the second half of the year, the opportunity pipeline is at a record level. However, we think it's appropriate to assume that the spending environment will continue to be volatile over the balance of the year, especially in Europe, and in public sectors around the world. So for the full year of 2012, including the impact from the Bytemobile acquisition that I just referred to, our current expectations are now for total revenue in a range of $2.56 billion to $2.58 billion, adjusted EPS of between $2.78 and $2.81 per share.

And for the third quarter 2012, we currently expect total revenue to be in the range of $645 million to $655 million, and adjusted EPS of between $0.64 and $0.66. So now I'd like to turn it over to Mark to give you additional details on the quarter's performance and discuss our ongoing businesses. Mark?

Thanks, David, and good afternoon, everyone. I'm quite pleased with our Q2 execution despite the uncertain macro environment that everyone's facing and some headwind we saw that David mentioned. In Q2, we continued to see great trajectories and opportunity pipelines, consulting services and new customer acquisition, all solid indicators for our core collaboration, virtualization and networking businesses. We also heard this firsthand at Synergy San Francisco where we talked with customers about the convergence of cloud, virtualization, mobility and networking. The conference was sold out again and drew record attendance.

Customer enthusiasm for going mobile and building clouds was quite broad, positioning Citrix as a key enabler to their evolution to IT as a cloud service. So we're seeing three strong drivers that are shaping the markets we serve. The first is personal mobility, creating a growing urgency for IT to enable personal devices, individual productivity, and work life harmony. The second is enterprise cloud evolution with enterprises transforming their datacenters into Amazon-style private clouds. And the third is the cloud services build-out, fueling a broad global investment in new infrastructure by service providers, telcos, and mobile operators.

So next, I'd like to briefly highlight a few of the newest things we're doing to leverage these forces. Our first focus is in the area of mobility, where the explosive adoption of new devices and the quest for greater user productivity are rapidly making enterprise mobility an IT imperative. Mobilizing people, data and apps across millions of employee and Company-owned devices has been at the core of our mobile strategy, enabled by GoToMeeting for online collaboration, ShareFile for cloud-based data sharing, XenDesktop for virtual apps in desktops, and CloudGateway to provide access to corporate apps from any device in a consumer-like app store.

At Synergy, we announced a major expansion of our mobile enterprise strategy with the debut of CloudGateway 2, adding extensive mobile app management capabilities including full support for native iOS, native Android, and native HTML5 apps. Version 2 also integrates seamlessly with XenDesktop and adds enterprise-class cloud data sharing through smooth integration with ShareFile. And because it works with our popular Citrix receiver software client it already supports more than 2 billion devices out-of-the-box.

So we're really excited about the early customer response to CloudGateway, and equally excited about our road map going forward. Our second area of focus is to continue capitalizing on the evolution of Windows with our XenDesktop business. I'm really optimistic about our upside in this market, the innovation we're driving to stay ahead of the competition, and to drive primary demand. We're winning with our market leading HDX technology that continues to deliver a clearly superior user experience, our unique FlexCast technology, which allows customers to deliver the right desktop for each user, and continued innovations that reduce the cost of deploying and operating virtual desktops.

Going forward, we'll be taking desktop virtualization to a new level with project Avalon, an exciting new solution that transforms any Windows app or desktop in a true cloud service that we announced at Synergy San Francisco. Project Avalon builds on the market leadership of XenApp and XenDesktop, then adds the ability to seamlessly shift these apps in desktops across any mix of public and private clouds and deliver them seamlessly to any device.

Three core innovations enable this. The first is an entirely new cloud app orchestration technology. Second, is a streamlined cloud-optimized XenDesktop. And the third is optimized integration with CloudStack. Working together, these technologies enable app and desktop virtualization to go multi-tenant across any mix of locations, platforms, hypervisors and clouds to be autonomically provisioned and scaled, and to provide true federated administration and management.

The many enterprise and service provider customers I've seen lately really get it and they're really excited. They see Avalon as a strategic platform, one that extends our XenDesktop market leadership and promises unprecedented levels of simplicity, flexibility, and economy. The third major driver to our business is the build-out of new infrastructure to support the move to mobile and cloud. We believe three strategic product categories will emerge as big beneficiaries here.

First, a new generation of cloud platforms designed from the ground up to let anyone build true anything as a service clouds. The second is a new generation of cloud networking solutions that deliver all these new services to any device, with the best performance, security, and reliability. And the third is a new generation of mobile optimization solutions that extend this value to mobile network operators, allowing them to keep pace with the explosive growth of data and media-rich services to mobile devices.

At the platform level, our strategy continues to be focused on CloudStack, the most widely deployed platform in this emerging market with more than 100 customers in production, representing some of the biggest brands in the world. In April, we announced our strategy to further accelerate the adoption of CloudStack by contributing it to the Apache Software Foundation, home of the world's most successful open source cloud projects. The response to this move has exceeded our expectations, with hundreds of new developers across 140 different companies joining the project, and more than 100 new CloudStack clouds going live each month.

At Synergy, we launched Citrix CloudPlatform, our commercial implementation of Apache CloudStack. Building on the strong installed base, we're seeing solid license growth with existing customers, strong attach rates of our cloud networking products, and a healthy number of design wins in new clouds. Third is the network itself, it's the second beneficiary of the build-out.

Some of this transformation will occur at the low-level transport network through the notion of software defined networking, a topic getting a lot of attention right now. The other center of opportunity is higher up the stack, at the app content and service delivery level. That's where our NetScaler product line is strongly positioned. NetScaler already delivers the world's largest and fastest growing cloud services for search, eCommerce, entertainment, and infrastructure as a service. With our new NetScaler 10 release, we're broadening our market reach.

The highlight of NetScaler 10 is our new TriScale Technology, making it really easy to scale delivery networks up, in, and out for customers of any size. This amazing product can now scale up to 1.4 terabytes in a single cluster. That's more than eight times the capacity of our largest competitor, giving us new cloud service growth opportunity in both service provider and telco market segments. The third beneficiary of the build-out will be solutions that optimize the mobile operator network.

Over the next five years, mobile devices will become the primary way computing services are consumed worldwide, driven by millions of new devices, and massive demand for data, video, and multimedia content. This is a serious problem for mobile network operators, creating a huge growth rate gap between mobile data revenue and expensive bandwidth consumption. This quarter, we became a significant player in the mobile operator network with the acquisition of Bytemobile, an innovator and market leader in mobile data and video optimization. With significant presence in more than 130 mobile carriers around the world, Bytemobile already touches more than 2 billion mobile subscribers, processing a stunning 20 petabytes of data every single day.

In short, Bytemobile gives Citrix a highly strategic position in the mobile network, increasing our cloud networking market opportunity by $1 billion over the next three years, and giving us a great opportunity to upsell products like NetScaler into an untapped customer segment, the telco network. It also gives us tremendously valuable core IT and a world-class sales and services team dedicated to the telco space. So from cloud platforms to cloud networking and mobile optimization, we're really well positioned to capitalize on the build-out of cloud services.

So wrapping up, going forward we will continue to focus on our core mission of powering mobile work styles and cloud services, enabling people to work from anywhere and empowering IT to deliver services that can be made anywhere. The current environment doesn't change our view of these markets in any way. Going into the second half of the year, we're more confident than ever in our strategy, execution, relevance and competitive position. So now I'd like to open it up for questions.

(Operator Instructions) Your first question comes from Steve Ashley with Robert W. Baird.

Thanks very much. I guess I would just like to drill down on desktop solutions, the license grew 7%. David, I was wondering if you could just give us some more color on where you saw the weakness there, whether it was by geography or deal size? You seem to have a decent number of large deals. Just looking for some color there?

Sure, Steve. I think it's a combination of external factors. Some of what I talked about in terms of the macro environment, having deals slide into outer quarters, some deals actually being split into a couple of transactions that will come in over time. But overall, at the highest level, we're doing really well with medium and large customers and that's true across all geos.

In my prepared remarks, I talked about a number of statistics in terms of like the size of transaction we're seeing with desktop, 144 customers, over 1,000 seats, 25 more than 5,000 seats, 20-plus, $1 million deals. So I think it's a nice, broad base of business. We don't see any change on a competitive or underlying market dynamic standpoint. It's really just more of a temporary issue based on the external environment.

The last thing I'd add is just on the growth in deferred, the vast majority of that, of course, is related to the desktop business, as well. So we are continuing to see that trend that we've been highlighting for a few quarters now with customers looking to engage on a multi-year basis, either to lock in price or they're kind of their kind of big strategic project. Or in some cases, frankly, just giving them the flexibility to deploy on their own time schedule.

Great. And then, Mark, on Avalon, I guess my question is when is that market, when do you expect to see some more, broader-based adoption by service providers there?

Steve, in the Avalon space, we'll go to beta later this year and we'll make some product announcements in 2013. The pieces of Avalon, especially the app orchestration, are already in use by a number of our large service providers that are consuming pretty large quantities of XenApp and XenDesktop licenses on a subscription basis. We're already seeing revenue from that investment, but as we go into 2013, and we package this up as a solution that consists of the three core technologies and offer it to new service providers, in addition to the existing, as well as enterprise customers, we'll start to see that uptake next year.

So it's really -- it's definitely a future but it's really all about where we go next with desktop virtualization, giving customers on the enterprise side and the service provider side to really blur those lines and have the kind of flexibility, economics, and simplicity they're looking for.

Thanks so much.

Your next question comes from Rob Owens with Pacific Crest.

Thank you very much. Good afternoon, guys. Could you talk a little about your partner contribution to the quarter from some of your strategic partners and systems integrators? I know you've been doing a lot to build up that ecosystem, specifically around XenDesktop.

Sure, Rob. This is David. I'd say overall, SIs continue to be a very important go-to-market vehicle for us. From a contribution standpoint, it was between 15% and 20% of total product bookings came from SIs. The three biggest in the period included IBM, Hewlett-Packard and Fujitsu. In terms of how that compares to a year ago, dollar-wise, it's actually up more than 50% year-on-year. So it certainly doesn't go up in a straight line, but all the work that we've been putting into this area is definitely paying off, and I think over time it will continue to be a larger and larger part of our go-to-market effort.

Great. And then second, around the datacenter and cloud business, and more specifically NetScaler, you guys saw some slowing there. I think some your competition did, as well. Is that a market dynamic? I know you've had some big deals in the past, you've got some tough comps coming up. Maybe just give us a sense of how that market's playing out, what the competitive landscape looks like and where your outlook is? Thanks.

Sure. Rob, a couple of things on that. If you recall a year ago, business was up 90% year-on-year, so a real tough comp in Q2. We're still seeing growth, over 15% year-on-year and more than 20% sequentially. I think we're executing, continue to execute faster than the underlying market.

Don't believe there's a big shift in the market, per se. NetScaler as a technology is leveraging a number of different capabilities, acceleration, consolidation, virtualization, et cetera, to really help us drive unique, differentiated solutions. And then from a strategic or more like a go-to-market strategy, I talked about some of the areas that we've really been focused on and driving results and that's cross-selling into the traditional enterprise or desktop account. We had over 500 transactions last quarter that included both NetScaler and XenDesktop.

We're expanding the market in a couple of places, like through our virtual appliances where we're adding hundreds of new customers each quarter, as well as at the highest end around cloud service providers with the SDX platform which has only been in the market about a year now and is hard contributing more than 10% of NetScaler license revenue. And then brand new things. We're bringing in a ton of innovation with NetScaler 10 which is just coming to market now. So new levels of scalability and clustering and areas that we think that have the potential to continue to differentiate going forward.

Great. Thanks, David.

Your next question comes from Kirk Materne with Evercore Partners.

Yes, thanks very much. David, I want to ask about the guide for the third quarter. I think on the mid-point it's up about 6% which is perhaps a little bit higher than what we've traditionally seen from the second to third quarter. So I know you guys are, obviously, taking into account some of the macro factors. Is that just a comfort level of you seeing more of the revenue come off the balance sheet, obviously, a higher diversification in terms of license and support. Could you just give us a little bit more color about how you get there versus say what we've seen traditionally from a sequential standpoint?

Sure, Kirk. Yes, sequentially, you're right, 5%, 6% sequentially, 15%, 16% year-on-year for total license growth. We're looking at the environment and we're certainly factoring in lower close rates to account for macro volatility that we've seen the last couple of quarters, and we're certainly taking the position that we're prepared to assume the data is the same environment for the next couple of quarters, so no change on that front.

But at the same time, we're sitting on record pipeline, great product and geo diversification. The activity metrics across most of the businesses are very, very healthy. So it's just -- it's balancing all of those factors with just a prudent conservatism on the overall environment.

Great. And then just maybe a really quick one for Mark around Bytemobile. How long do you think it will take for the Bytemobile reps to start getting their hands on NetScaler and maybe seeing some opportunity in terms of cross-selling those into mobile carriers that you guys haven't -- or perhaps had as much penetration with thus far? Thank you.

Thanks, Kirk. So first of all, everyone should know that we had an OEM relationship with the Bytemobile team that really launched early this year. And so the reps actually have knowledge of NetScaler and have had their hands on it and selling it into their accounts in the context of mobile data optimization going back to early this year. So we'll get a faster ramp on that just because they've had that familiarity with the product already, and get it integrated into the sales process in the mobile data space.

Then in terms of cross-selling, I think that will take a little bit longer and probably more of a 2013 activity in terms of where we'll start to see some deals that are outside of the mobile data solutions stack that we can now, through Bytemobile and NetScaler, offer really a complete solution. No one else in the market can. And -- but it will be next year before we start to leverage that more into the ADC space within the carrier network.

Your next question comes from Bhavan Suri with William Blair.

Thanks for taking my question. David, given sort of the comments you made about sort of multi-year deals and sort of their impact on deferred, it feels a little like Q4 last year, some of that quarter. Could you give us some sense of how much of the increase in deferred was from the desktop solutions license part of the business?

Sure, Bhavan. Of the growth in deferred, the vast majority was related to desktop solutions. We've never really broken out how much of that is deferred license versus deferred maintenance or other types of subscriptions. But it is largely driven by the desktop business.

Okay. And then, as you look at the service providers and their consumption, you've commented about that growing pretty fast. Did their consumption of license on the subscription basis have any impact sort of on that revenue line either?

No, not materially. We've called that out. It's a great recurring revenue source for us. It's all subscription so there's high visibility and the growth rates have been very, very strong because it's a fairly small number still, but growing well. So I wouldn't call that out as impacting the Q2 business specifically.

Q2, like I said before, was influenced by a few macro factors, especially in the last couple of weeks of June. If you remember, there was a fair bit of news flow coming out of EMEA that I think really caused a number of businesses to pause, change the shape or the timing of the transaction. As I said earlier, the underlying market dynamics really haven't changed. The competitive dynamics certainly haven't changed. All of those transactions are still opportunity pipeline that's very active. In fact, we've actually had a few seven-figure deals already close this quarter that were in that bucket.

Great. That's helpful. And then just one quick one for Mark here. Mark, on CloudStack and the public cloud market, do you see Red Hat's hypervisor management tools, how do you think that plays out competitively, especially given their operating systems are used pretty broadly in that space?

I think Red Hat, from our view through the lens of CloudStack, which runs on their metal, by the way, in many, many cases and with our cloud service providers, as well as pretty much any hypervisor including KBM which Red Hat is a huge sponsor for. Through that lens, they're up a stack from us. They run at the application logic presentation layer and data layers and run broadly on the platform.

So as far as their tools, I'd say that most of our cloud service providers are using some combination of open source and home grown tools and leveraging a lot of our CloudStack APIs that are very Amazon, AWS-like. And so we don't really see them as a serious alternative or making a serious impact on that business at this point. Still early, early days, I'd say, in this sort of -- the way I think of it as the post-server virtualization era of building clouds.

Great. That's helpful. Thanks for taking my questions, guys.

Thanks, Bhavan.

Your next question comes from Adam Holt with Morgan Stanley.

Hi. Thanks. My first question is just a follow-up on the deferred license. I know you don't break it out, or the term deals, but could you try and frame for us when you started to see this, because we're sort of looking back at the models and trying to figure out what normalized growth rates are and how billings correlates to license revenue. I think the previous caller asked, license revenue's been light now for a couple quarters out of the last few, and so we're just trying to get a sense for how big those term licenses are and when you started to see that shift towards term?

Sure. In terms of license revenue being light in the last couple quarters, it was actually about 20% in Q1. So we had a very strong Q1 year-on-year, with desktop business growing in the high-teens, right around 20%. So I think the best way to track overall is just when we talk about the number of large deals, because that's going to be the best correlation point. And you look at where we were a year ago and we did 26 $1-million-plus deals, I believe, versus 39 this quarter. So we're up about 50%.

All of last year, we had just under 130 of these transactions, which was almost double from 2010. So this is a phenomenon that is -- it didn't really start in any specific period, but it's certainly been much more pronounced over the last, call it, four quarters or so, and it will be a trend that will continue up until the right, probably -- for certainly the balance of the year.

And if I could just ask a follow-up on the buyback. It looked like the buyback slowed a little bit in this quarter, but you, obviously, you refreshed it so you got some capacity looking into the back of the year. What is in the guidance with respect to what you expect to buy back and how are you thinking about the stock at current levels? Thank you.

Sure. Historically, as I think everyone knows, we've been repurchasing, order of magnitude about $100 million per quarter, and we didn't -- we weren't active in the market in Q2 related to the Bytemobile acquisition. The Board has authorized another $400 million to our program, which brings our available capacity to just under $500 million. We anticipate being active again here in Q3 and kind of going back to our normal program. That's the way we think about it.

Operator, next question.

Your next question comes from Israel Hernandez with MKM Partners.

Good afternoon, guys. Can you provide a little bit more color with respect to what you're seeing across some of your verticals, particularly your key verticals? You touched on the ongoing softness in the public sector, but maybe you could touch a bit more on what else you're seeing out there in some of the key verticals like financial? Thanks.

Sure, Israel. Let me start out actually on a geo level and kind of work our way down. If we look at the Americas first, which is by far our largest area, which had a terrific last couple of years, I mean, they're certainly coming off of very difficult comps. Within the Americas region, most areas were actually pretty solid with the exception of Latin America and the US Fed. US Fed continues to suffer from, call it, lack of visibility, given the ongoing budget issues around, well, just around Washington, and the ability to time when a specific project gets over the goal line.

So that was within our forecast. But it's certainly been an area of weakness. I expect the business to pick up in Q3. We are being a little cautious on that, just given the state of the union right now.

In EMEA, I think we saw solid growth in a few markets with more pronounced volatility in Southern and Eastern Europe, and then Japan and Pacific both continue to execute and perform really, really well, both in terms of, well, frankly, it's just opportunity is not the issue, we're more capacity constrained across most of these markets and our product set plays very well into the types of issues that customers are grappling with right now. In terms of verticals, in the quarter we continued to have very broad diversification, whether it's been services, technology, manufacturing, retail, no real shift on that front except public sector. That's the one area that we would call out as just being very, very lumpy.

Great. Thank you.

Your next question comes from Daniel Ives with FBR.

Yes. Could you talk about, maybe anecdotally, customer conversations that you've had? Some of the deals you were talking about that pushed out, some that have closed, just is it more caution, is it more deals going to the second half of the year, is it more things that just happened in the quarter, just maybe talk about that and compare that with other situations you've seen in terms of macro weakness over the last few years, how you could compare and contrast?

Sure, Dan. I think it's just a simple conversation around hesitation to initiate a project. I think most companies that are talking about this right now, a lot of people saw it in the latter part of June, and like I said earlier, if you recall, there was a lot of news flow right around that period of time causing people to pause.

So I don't think there's any change in the underlying dynamics about market opportunity, competitive change, or, frankly customers' desire to get many of these projects done. Simply a timing issue. And so I'm not aware of any large deals that have been removed from pipeline, for example. I don't think that any of them have gone away, simply, just getting them over the goal line.

Thanks.

Your next question comes from Raimo Lenschow with Barclays Capital.

Hey, quick question on the XenApp business. I know you don't break out the numbers, but what we see in the quarter, is a big adoption on the iPad, and so I was just wondering how XenApp qualitatively is doing at this point? Thank you.

Sure, Raimo. XenApp and XenDesktop together are doing well, execution is great. David talked about that. And the customers that we're serving are using XenApp and XenDesktop interchangeably for certain types of solutions, for delivering a hosted desktop, or delivering line of business in core apps.

So we're seeing the impact of mobile devices like the iPad and other tablets like it to be really positive to the XenApp and XenDesktop business, maybe a little bit -- a little bit more energy going toward XenApp, given that on a tablet there really isn't the notion of a desktop, and so we see a lot of customers wanting to selectively deliver line of business type Windows-based apps to that kind of platform. But overall, that's what we're seeing in the market and, certainly, on an anecdotal basis and kind of how the ebb and flow of business is going.

Thank you.

Your next question comes from Walter Pritchard with Citigroup.

Hi. Thanks. David, we got the explicit guidance for Q3 on the Bytemobile. I was wondering if you could maybe for the second half of the year talk about, in your guidance how much of that is revenue that you didn't have 12 months ago that's acquired? I understand Bytemobile and then there's a little bit other contributors in that number.

Didn't have 12 months of it. Okay. When we did a few acquisitions over the course of the last four quarters or so and the prior guidance that we had given around those is that the contribution from all of those would be on a run rate of as much as $50 million by the end of the year. You can imply that that's, plus Bytemobile, is, call it, $25 million to $35 million full year revenue, recognized revenue is related to acquisitions.

That's for the year, that's for '12?

Yes, that's for the year.

Got it.

It's a very immaterial number. As you know, most of our acquisition strategy has been around two areas. One of them is around just accelerating time to market by technologies, very nascent businesses, and in some cases like Byte, just a natural adjacency, where not only are we now participating in a really important category across mobile data optimization, et cetera, but also opening up new market opportunities for products like NetScaler, which had never really participated in this category. So it's kind of a two-fold.

Got it. Just maybe for Mark, on the US business, that business looks like it grew about half the rate of Europe. I heard you talk about the Fed being a little soft. Does the Fed softness explain all the disparity in growth between US and Europe? And I'm just wondering, related to that, it looks like your large deal metrics were very good. Did you guys see weakness in kind of the mid-sized deal stuff that would have traditionally gone through the channel where it appears you're steering your incremental effort away from -- towards the SIs?

Walter, it's David. Let me take that question. Part of what you see between the difference in growth rates is just the Americas is, as I said earlier, by far and away our largest region. It represents more than 40% of our total global business, and they're coming off a couple years of very, very strong performance. We have had tough comps year-on-year.

EMEA has been -- don't get me wrong -- EMEA executed very well in the quarter, but had much easier comparable from a year earlier. So that's kind of the skew in growth rates. Within the Americas, as I said, there's really -- there's a number of different regions. Most of the US, for example, did very well, continued to execute very well. We did have weakness in Latin America and we had weakness in US Fed that I called out. And so those are really the two areas that have been unique. Everything else is fine at this point.

Then just on smaller deals, was there any disparity there between the kind of smaller, more tactical deals and the large deals which were clearly very strong?

Yes, large deals were, as I said, were really good actually in the US. We had good metrics across medium and large customers with -- really with all products. In terms of smaller business, at a high level that does tend to be the area that is more impacted by external factors, economic items, but I wouldn't really call that out specifically in second quarter. So it's just a combination of the Latin America issue, US Fed issues, really probably the two things that are worth talking about.

There were some changes in the North American channel. I know that there's been a little bit of conversation around that so maybe it's worth me just talking about that for a brief minute. As everyone knows, we occasionally make changes to the incentive programs to really align our channel objectives with our overall go-to-market investments, usually around just increasing enablement, productivity, et cetera.

And so what we did in North America was effectively eliminate double comping across high touch accounts, where we already have a significant presence. In these customers, Platinum Partners, for example, can still continue to be rewarded for influence so long as they're part of the account plan developed by Citrix. And then Gold and Silver Partners are, of course, still able to participate in the sales process, fulfill the deal implementation, et cetera.

So overall, in terms of just the net impact of our advisory awards, we're reducing in certain areas, but we're actually increasing in other areas to make sure that our business for these partners continues to be very profitable, very robust, while targeting them on the things that are aligned with our motion, driving net new accounts, product training, building a networking practice, et cetera. So that's really the way to think about that. I don't believe that there's any changes to our go-to-market strategy that impacted numbers in Q2.

Great. Thanks.

Your next question comes from Michael Turits with Raymond James.

Hey, guys, a couple questions on licenses. Just wanted to confirm, it sounded like you said that you would see license growth of 15%, 16%, you think, next quarter, does that seem like the right rate into fourth quarter, as well? Then I have some other questions.

Michael, we actually didn't call out specific license growth rates for either Q3 or Q4. We just gave top level guidance of total revenue, 15%, 16%, and then you roll out our full year guidance that points you to about 16%, 17% total revenue growth for the year. That's the guidance that we provided.

So any general thoughts directionally on whether or not we should see a recovery in license, given that we've got a pretty nice ramp in total [revs?]

Yes, I think I would expect license revenue to be at least flat, but likely up from the levels we're seeing right now. It's one of those, it's a little bit hard to guide to the specific individual products just given the environment right now and the uncertainty around close rates. But overall, like I've said a couple of times on the call, all of the activity metrics and what not are all looking very strong. So assuming that the environment is stable or even more constructive, I think we definitely have the capacity to outperform our current expectations.

Okay. And then both datacenter and desktop license decelerated. Can you talk a little about any difference in the way macro influenced both of those? In other words, your NetScaler and desktop, NetScaler and datacenter, obviously, a lot of functional capacity build-out, desktop has a lot to do with transformation. How did the weaker macro impact decision making differently in those two segments?

Well, I'd say in the networking category in particular, I'm not sure that there's anything specific to macro that I've heard highlighted around Q2. As I said on an earlier question, the networking business for the first half of the year is up 25%. So we're continuing to out-execute the overall market opportunity. Remember last year in Q2, it was up 90%. So we're coming off a really, really difficult comp. But our strategy remains unchanged. We're cross-selling in the enterprise. We're continuing to drive a huge share of the cloud Internet segment and we're expanding our opportunity into new markets, so really unchanged on that front. Still think this is a very, very important category and one that we'll be able to grow faster than the underlying market.

And then on the desktop side, how are people saying, hey, this is not enough ROI right now, or it's more discretionary, how does the macro impact the decision making there?

Well, I think the macro does impact that business more and that's simply because the desktop is part of -- usually part of a much larger transformation project. So we're doing well with medium and large accounts. We talked a lot about those metrics. We're helping customers address issues, tactical issues like cost savings, compliance, regulatory issues, M&A integration, as well as much more strategic transformation of the desktop around enabling different types of work styles, et cetera.

So most analysts are looking at this market opportunity still. The external markets has a 20% plus growth long-term opportunity. But given where we are right now, I think it's easy for customers to look at individual deals, delay them, if there's something going on in their business, resize them a little bit. It's not a value proposition conversation at all. It's simply just a timing issue.

Great. Thanks very much. Appreciate it, David.

Your next question comes from Heather Bellini with Goldman Sachs.

Great. Thank you. Just had a couple quick ones. I just was wondering if -- I think it was last quarter you talked about on the desktop license side that you expected to come in in the low- to mid-teens for this year. I'm just wondering if you could give us an update after this quarter's numbers? And then also, I guess I'm also just wondering given the VMware acquisition of Nicira this week, when you look out at the stack of cloud service providers competition that you're going up against, how do you see your stack comparing versus the competition? Where do you think you excel versus them? Thank you.

Sure, Heather. Let me talk about the desktop first and then ask Mark to talk about the other question. In terms of the overall guidance, we didn't update that this quarter. I think it's prudent given the environment to just talk about it at a high level in terms of our overall revenue growth being in that 16%, 17% range, and kind of leaving it there. We still feel very, very excited about the overall opportunity.

So don't read that as a change on that front. We just think it's going to be a little more volatile. As we get through Q3, we'll talk much more about the specific results, where that's playing out and then, obviously, start to talk about 2013, as well.

Yes, hi, Heather. On the Nicira, and generally the software defined networking conversation, just a couple of points. So first, Nicira is focused on layer two and three in the network, which is about moving low-level transport network functionality from the hardware switches where they've classically -- that's lived to commodity servers. So there's a big disruption potential there for what we consider to be sort of the low-level transport network.

By contrast, NetScaler, and everything that we've done, is focused on layer four through seven where the content and apps and services all live, and which is a very different part of the network and, obviously, runs on top of the transport, but is very different in technology, its value proposition, and the issues around deploying and running it. So when we look at that, those two sort of factors, and look at the competitive environment, really the Nicira acquisition doesn't really change anything there. And, obviously, it's got a bigger set of issues around it for the sort of core networking players in the marketplace.

But from our perspective, with NetScaler, we're all about participating in the refocusing of the network around service delivery sort of from the content, high up, going down, looking down with a fully app aware kind of environment. And then, we'll make sure that what we do with NetScaler, which is really a software-centered product that runs on the commodity hardware that we deliver. We'll make sure that NetScaler plays really well with the lower levels in software defined networking so that working together across all these layers we can enable a holistic set of controls for delivering cloud services. So that's how we're looking at this.

Great. Thank you very much.

Your next question comes from Ed Maguire from CLSA.

Hi. Good afternoon. I was wondering if you could discuss Windows 8, how you are preparing for the new product cycle and how you anticipate your conversations with customers over the next couple of months?

Hi, Ed. Great question. So when we think of Windows 8, we think of actually a set of things that includes Windows 8 client, the -- certainly, surface, as well as the new System Center, as well as Windows Server 2012, because all of those things are coming to market and part of what customers are looking at, both in the datacenter and on the client side.

So the things that we're focused on is, first of all, making sure that we have full compatibility with Citrix receiver, that brings along all of the existing XenApp and XenDesktop customers so that a Metro version of it that runs on the Windows 8 client will perform really well and give customers all those device options they may want to look at when Windows 8 ships. Secondly, we're doing a lot in the back end to leverage the new capabilities that are coming with Windows Server 2012. Those new capabilities will be exercised next year as we release service packs and new versions of our desktop virtualization technology. So that's in play and certainly part of our plan for Avalon.

And then the third area is really just greater integration and great integration with System Center, so as the new generation of System Center ships as part of the overall Windows 8 flow, we'll be nicely integrated there as we always have sought to be. So those are the things that we're doing. And then that's product, technology, et cetera. And then on the go-to-market side, continuing to focus on the relationship with Microsoft in the desktop area, driving both of our stacks of licensing and selling and winning in joint opportunity pipelines that we've worked hard to build together.

I think we're really excited about having won the Microsoft Infrastructure Partner of the Year award again for the third straight year, which is really sort of a way to characterize kind of how the companies work together, and not only in a retrospective but a prospective way. So anyway, that's what we're doing.

Great. Thank you.

Your next question comes from John DiFucci with JPMorgan. Mr. DiFucci, your line is open.

Okay, next question.

And your final question comes from Phil Winslow with Credit Suisse.

Hi, guys. Most of my questions have been asked, but just want to dig back in a little bit on XenDesktop and XenApp. One of the things you've talked about over the past 12 to 18 months was sort of the renaissance in XenApp and being driven by more form factors and delivering applications out, and then also just potentially being viewed as even a higher ROI sort of alternative to VDI.

Just curious what you're seeing there and then also just more from just a XenDesktop perspective too, just kind of what trends and feedback are you hearing from customers right now, just kind of in this macro backdrop? You touched on it a little earlier but a little more detail would be great. Thanks.

Yes, hi, Phil. So as David mentioned, the market dynamics around desktop virtualization haven't changed, and I think he spent a lot of time talking about sort of what we saw in the quarter and the specific impacts there on the headwind side, and also on the growth side in terms of the trend line toward these longer-term, multi-year term-based licensing. So we're seeing that, and we're seeing an acceleration in that area, which really is the best commentary for explaining that the dynamics here are really trending toward strategic platform sort of status within a larger customer base when it comes to virtual apps and desktops.

Now, I'm not -- you mentioned a word renaissance of XenApp. I'm not sure we ever really spoke to that point as much as we spoke to the point of having two products in the market. One super set product in XenDesktop that includes both the XenApp technology and the range of desktop delivery FlexCast technologies, and that over the course of a couple of years we've seen those products seek their own levels based upon what customers want to focus on, whether they want much more of a desktop focus, much more of an app focus, and giving them choices from using these products in more tactical kinds of projects or for really big, broad, wall-to-wall, multi-year strategic projects.

And so we're -- so that's what we see in the business and how we've crafted it so that we can be fulfilling what customers want as opposed to trying to do artificial things to drive customers one way or another. And so I think that's sort of the answer to the question. And hopefully that helps.

Great. Thanks.

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

I'd just like to say thanks again for joining the call today and we're looking forward with a healthy mix of caution on the macro, focus on execution, and aggressiveness in our strategy. So we'll see you again in Q3 for our report in three months. Thanks.

Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect.