思杰系統 (CTXS) 2012 Q4 法說會逐字稿

Good afternoon. My name is Jamariah and I will be your conference operator today. At this time, I would like to welcome everyone to the Citrix Systems fourth quarter and fiscal year 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)

Thank you. I will now turn the call over to Mr. Eduardo Fleites, Vice President of Investor Relations. Mr. Fleites, you may begin your conference.

Thank you, Jamariah. Good afternoon everyone and thank you for joining us for today's fourth quarter and fiscal year 2012 earnings presentation. 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 on Citrix Systems Investor Relations website. The webcast will be posted immediately following the call.

Before we begin, I want to state that we have posted product classification and historical revenue trends related to our product groupings to our Investor Relations website. I'd like to remind you that today's conversation will contain forward-looking statements made under the Safe Harbor provision of the US securities laws. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. 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. Copies are available from the SEC or on the Company's Investor Relations website.

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

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

Thanks, Eduardo and welcome to everyone joining us today.

As you can see from the release, we finished off the year with a strong Q4 and great momentum across our businesses, delivering $740 million in total revenue, up 19%, a 17% growth in product and license, $227 million in cash flow from ops and adjusted EPS of $0.90 a share.

I'd like to take this opportunity to thank all of our customers, partners and teams around the world for all the great work and continued support throughout 2012. Operationally we've been very focused on driving leadership across desktop virtualization, cloud infrastructure and collaboration, giving customers the tools they need to manage rapidly changing work styles. These trends can be clearly seen in our results.

In Q4, we closed 55 transactions greater than $1 million each, with strength coming from businesses in the healthcare and financial services sectors. Strategically important to us is the fact that 30% of these orders included multiple products, demonstrating the value of the integrated solutions that we can uniquely deliver to customers. Also, several of these orders included additional years of license updates and maintenance contributing to the growth we saw in the long-term deferred revenue balance.

Geographically, Q4 demand patterns were fairly stable around the world. The Americas grew 14%. EMEA was up 19%. And the Pacific Japan region increased 52% from last year. So overall, a very strong close, across the board, and a great way to finish the year.

Before we move on, I'd like to remind everyone that we closed the acquisition of Zenprise in early January. We expect that our new Mobile Platforms business will add about $30 million of total revenue in 2013, and be dilutive to EPS by about $0.09 largely in the first half of the year. Beginning in Q1 we'll be combining these results and the current desktop solutions grouping into a new category, simply called mobile and desktop. This closely aligns to our go-to-market motion and we are strategically positioning the products and how customers are currently thinking about enterprise mobility.

So let's look at the Q4 results within our three primary businesses. First, our Desktop business grew 11% to over $411 million, including license growth of 2% off a tough comp from a year ago. For context on the business in Q4, there's a few metrics that really demonstrate the breadth of adoption we're seeing and the strategic value that customers are placing on desktop virtualization within their infrastructure.

In Q4, there were 42 transactions greater than $1 million for the desktop products, representing customers in healthcare, federal government, financial services, education and others. In total, nearly 4,000 different customers bought XenDesktop in Q4 including more than 240 individual transactions for more than 1,000 seats, 48 orders greater than 5,000 seats, and 18 that were over 10,000 seats. And over $100 million of the sequential increase in deferred revenue was due to software license updates and maintenance for the desktop products.

Customers are looking at desktop transformation as a way to accelerate their business imperatives. For example, the global health services provider leveraging XenDesktop to enable thousands of employees with any device access to accessing desktops as part of their flex working and home sourcing initiatives. Or a financial services firm in Japan purchasing over 20,000 XD licenses as a key component of their Windows XP migration project, allowing them to manage application compatibility while reducing costs. Or, a European bank selecting XenDesktop, NetScaler SDX and CloudGateway to help the company mobilize their work force and support a broad BYOD program.

We're increasingly talking to customers about business enablement, reducing the cost of their desktop infrastructure and increasing productivity by enabling enterprise mobility options. With our unique flex cast delivery technology we've moved the conversation far beyond simple VDI to one where customers can choose the ideal solution tailored to different user groups, business needs and IT strategy.

Next, in our Networking and Cloud business, total revenue increased by 51% in the quarter to $156 million with product and license revenue increasing 57%. The NetScaler product family was again the major driver of growth in the quarter, with new licenses up 38% year on year. We're continuing to execute against our strategies to leverage NetScaler as part of delivering integrated solutions to customers, as well as broadening our go-to-market coverage.

For example, in the enterprise, the cross sell and attach motions drove over 700 desktop orders during Q4, that included NetScaler as part of the solution. Our NetScaler VPX virtual appliances were up nearly 80% year on year, contributing about 8% of NetScaler license revenue. And the NetScaler SDX platform, designed to enable full multi-tenancy and consolidation within the data center, continues to gain momentum with both service providers and large enterprise, growing more than 200% from last year and now representing more than 15% of NetScaler sales.

And finally, our business in mobile carrier networks contributed over $20 million in revenue, primarily driven by the ByteMobile solutions and the pull-through of NetScalers into these accounts. Within our Collaboration and Sharing business, SaaS revenue was up 18% to $135 million, and the GoToMeeting family continues to be the primary driver here, growing 26% in Q4.

Geographically, the investments we've been making to expand our SaaS business internationally are delivering good results with revenue from international markets now accounting for over 15% of the total. And also in Q4, we launched ShareFile with StorageZones giving users the convenience of cloud based data sharing across all devices while providing IT with the ability to choose where data is stored, including on premises within their own secured data centers.

Turning to operations. Adjusted gross margin in the quarter was 87%, down from 89% a year ago. So, as we forecasted, we've seen a slow but steady increase in cost of goods sold as a percent of revenue. And the driver behind this is simply the mix of revenue, as we've been very successful diversifying the business into networking and cloud and SaaS solutions.

This trend will continue through 2013 as we continue to grow these businesses. But despite the reduction in gross margin, adjusted operating margins were 30% in Q4, up more than 500 basis points sequentially, due primarily to the increase in total revenue.

Our investments in headcount growth continue to be in two primary areas. First, expanding go-to-market reach and customer direct touch through enterprise account managers, consulting capacity and tech support. And second, in product innovation, to bring to market new technologies, as well as improving integration of solutions to drive simplicity and better end user experience.

In total we added 121 new people in the fourth quarter and for the full year, added over 1,200 people across the Company, bringing year end headcount to about 8,200. Finally, the adjusted tax rate was 24%, up from 21.5% last year, reflecting the relative mix of domestic versus international results, partially offset by year end adjustments to our annual tax provision.

And looking at the balance sheet, cash and investments increased to $1.5 billion due to cash flow from operations of $227 million, up 34% year on year. For the full year, we generated $818 million (Sic-see presentation slide "819 million") from ops, an increase of 21% compared to 2011. In Q4, we bought back 1.2 million shares of stock, bringing the full year total to almost 4 million repurchased. The other item to note on the balance sheet is deferred revenue.

The total balance at the end of the year was $1.2 billion, an increase of $145 million sequentially. While the total was up 25% last year, the long-term deferreds increased by 65%, reflecting the evolution and customer relationships to a more strategic level. As I mentioned earlier, we had a larger number of orders in Q4 where customers initiated multi-year commitments that are generally recognized ratably over the term of the agreement.

So overall, we executed well in Q4 and throughout 2012. We're driving growth in all of our primary businesses and we're making the investments necessary to extend our leadership position in the future.

Finally, I'd like to discuss our current outlook and expectations for 2013. As we enter the year, customer activity metrics and pipeline remain strong in all geos. We're focused on delivering financial results while expanding our long-term capacity across our three main businesses. Including the dilution from the Zenprise acquisition, we're currently forecasting a business model with 25% adjusted operating margins for the full year.

This will allow us to invest in two main areas. First, go-to-market coverage to increase our market position around the world with a much stronger emphasis on networking, and second, in the adjacent market opportunities of mobile carrier networks and enterprise mobility management. This will include development, integration, and the product specialist teams necessary to bring these products to market.

So, for the full year 2013, we're increasing our current expectations to include total revenue in the range of $2.95 billion to $2.98 billion, and adjusted tax rate of 20% to 22%, and adjusted EPS of $3.12 to $3.15 per share. And for the first quarter of 2013, we currently expect total revenue to be in a range of $670 million to $680 million, and adjusted EPS of between $0.62 and $0.63 a share. Included in the first quarter guidance is $0.06 of EPS dilution related to the Zenprise acquisition, and a net tax benefit of approximately $9 million due to the extension of the 2012 federal R&D tax credit.

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.

We're pleased to report record results for the quarter today and for 2012, both financially and strategically. Steadfast execution across core markets and diverse routes to market is 2012's story, with strength in key measures including large deals with high touch accounts, new customer acquisition and retention, subscription and maintenance renewals, and technical services growth. I'm also quite pleased with how we performed in our new product lines like ShareFile, CloudPlatform and ByteMobile.

I'm really extremely proud of the Citrix team and our partners whose hard work and perseverance were tested by a tenuous macro environment throughout the year. I think this says something special about the Citrix culture and why, once again, we were recognized by Glassdoor as a top 50 best place to work.

The speed of transformation is accelerating across all our key businesses. Nothing, however, is dominating CIO Mindshare more than mobility and the drive to enable a more mobile work style for employees. As I talk with CIOs around the world, the message is clear. They're looking for better ways to embrace the challenges and opportunities of IT consumerization, generational changes, business consolidation, and geophysical disruptions.

At the same time, it's equal equally clear that IT is no longer in the driver seat. The agenda is increasingly being driven by the forces of BYO, personal cloud services, and a born digital workforce. Consumer innovation is driving the shift from Windows PCs as the singular platform for work, to a vast array of devices, apps and data that includes Windows. That's why we're completely focused on cloud computing technologies that enable mobile work styles, mobilizing apps, data, workloads, networks, and people. And helping customers drive true business value. As we look into 2013 and beyond, we're in great position to benefit from these trends in the way we work. The devices and apps we use and the way services are delivered to us.

So next I'd like to address each of these market opportunities, beginning with mobile and desktop. I'm pleased with the Q4 momentum we saw in desktop virtualization and our strong finish across the board. Our pipeline is at record levels, fueled by desktop PCO, data security, and business transformation, as well as the need to deliver Windows apps to a broader range of mobile and BYO devices.

The next generation of XenDesktop and XenApp, now in tech preview, will further accelerate this momentum with a focus on simplification, on mobility, and on building on the strength of Windows server 2012. The feedback we've heard from customers and partners so far has been fantastic. We're also expanding our reach beyond Windows with solutions for native mobile platforms like iOS, Android and HTML5, addressing the highly adjacent enterprise mobility market.

We took another major step in January with the acquisition of Zenprise, a Gartner Magic Quadrant leader in the rapidly growing mobile device management market. Zenprise gives Citrix an outstanding team of mobility experts, a great solution for managing mobile devices and impressive market momentum with over 1,400 customers across every industry segment.

The Zenprise MDM product is the perfect complement to CloudGateway, our solution for mobile app management. The new CloudGateway 2.5, announced at Synergy Barcelona, adds support for native mobile apps with our MPX technology, and has a natural adjacency to XenApp and XenDesktop. It's already creating great add-on and up sell opportunities.

In Q4 for example, we closed a large enterprise mobility deal with a global financial services team. The solution included CloudGateway, XenDesktop and NetScaler to service the mobility needs of nearly 10,000 users, supporting BYO, custom mobile apps and workplace mobility. This is our opportunity to deliver a complete enterprise mobility solution across devices, apps, and data, to leverage our base as they bridge between the worlds of Windows and mobility, and to do it all with a beautiful consumer-like experience that sets Citrix apart. We'll have a number of exciting announcements in this space throughout 2013, so stay tuned.

Next I'd like to discuss our Networking and Cloud business. Powering mobile work styles requires a new approach to building and delivering services for end users. Our business here is focused in two key areas, CloudPlatform solutions, designed from the ground up to let anyone build true anything as a service clouds and Cloud networking solutions, allowing enterprises and providers to deliver these services to any device with the best performance, security and reliability.

At the platform level, our strategy is focused on Apache CloudStack, the most widely deployed open source platform in this emerging market, with hundreds of customers in production including some of the biggest brands in the world. We've monetized this business through Citrix CloudPlatform, our commercial implementation of CloudStack. Last quarter we saw continued momentum in this space with significant deployments across the enterprise, university and telco segments. While others talk about the cloud, we're building it.

Next, is cloud networking, led by our NetScaler platform. NetScaler continues to out pace the market, gaining ground in all key segments and taking share. We're doing this by out-innovating the competition. First, is our tri-scale technology, making it really easy to scale delivery networks up, in and out, for customers of any size. This innovation lets NetScaler deliver a stunning 1.4 terabytes of throughput in a single cluster. That's more than eight times the capacity of our largest competitor.

We're also driving innovation in form factor with NetScaler MPX and VPX, making it easy to deploy any mix of virtual and physical appliances. And also making it easy to consolidate and simplify with our SDX platform which runs up to 40 independent NetScaler instances on a single appliance. Best of all, SDX is now open to third party vendors. So for the first time ever, customers can consolidate best-in-class app networking services in a single consolidated footprint with a single integrated way to apply app-driven policies company-wide. As industry momentum shifts up stack to more strategic software defined networks, we're in a great position to continue taking share.

In Q4, we also unveiled an exciting new alliance with Cisco focused on networking, cloud and mobility. We're working together to integrate NetScaler into a broad range of Cisco networking, security and data center solutions. As part of this agreement, Cisco is recommending NetScaler to customers who want to migrate from Cisco Ace to a next generation app delivery controller. We've already closed several significant deals, just two short months after the announcement. It's an exciting partnership we believe will have a positive impact, especially as we introduce new integrated solutions in the months ahead.

The final piece of our cloud networking strategy is ByteMobile which extends our reach into the mobile carrier network for the first time. Q4 was our first full quarter selling ByteMobile and I'm extremely pleased with the results. This market is still very new for us, but we're encouraged by the early signs and excited about the additional market reach it gives us.

Finally, I'd like to address how we're bringing it all together for end users with cloudbased services for collaboration and sharing. No matter how you look at it, the way people work is changing, driven by an unprecedented convergence of mobile, social and generational forces. Employees today want to move seamlessly across a diverse mix of devices and locations throughout the day, collaborating with others, sharing information as they go. Enabling this transformation is a central part of our mobile work style strategy and a key differentiator for us in the market.

Our relentless focus on simplicity and user experience has allowed products like GoToMeeting to outpace the rest of the collaboration market, taking share from competitors and giving us great market reach and brand visibility with end users. It's also given us a strong head start with new products like ShareFile, as we bring that same focus and mindset to the world of data sharing. I'm very pleased with our progress in these markets and our potential to drive even fester growth as we introduce them to a wider audience of enterprise customers through our mobile work styles message and strategy.

In closing, we feel good about the momentum we're carrying into 2013. We're confident in our core business strategies and our new investments in enterprise mobility, data sharing and cloud platforms. Workforce and technology transformations are driving a broad range of new business initiatives, IT strategies, and business model innovations.

Most transitions like this take longer than we think. For IT, however, this one is different. The forces of consumerization are dictating the pace, driving an urgency to move fast. No one is better positioned to help customers with these transitions than Citrix.

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

(Operator Instructions)

Rob Owens, Pacific Crest Securities.

Rob?

Can you hear me? Sorry about that.

Okay.

We can now.

Sorry about that. Looking at your guidance for Q1 and for the year, the midpoint of growth is roughly the same I think for Q1 as it is for all of 2013 and given the ramp in the ByteMobile business, the Cisco relationship and even inorganic contribution from Zenprise, why would growth not improve in the second half or is there something else that's weighing against that growth rate?

Yes, Rob, it's David. Let me try to characterize it for you. First off, it's early in 2013. We're not prepared to give too much granular guidance around the individual lines of business at this point in time, but I'd say at a high level the way to think about the guidance in total for 2013 is this. Total new product license growth in the kind of low to mid-teens. That would include networking and cloud, license up about 30% year on year. Mobile and desktop business with new licenses in kind of the mid-single-digit range and then the other line items are ratable, those flow from there.

Don't want to get too granular at this point in time on the individual products, partially because of the time of the year and frankly partially because we're more often going to market and selling strategic solutions that include multiple technologies together. And so as we go through the year, we'll update these numbers and we'll give a lot more context around each quarter's business, how customers are consuming it, what they're actually purchasing, et cetera. That's the way I'd think about that at this point.

Thanks, David. For Mark, you mentioned how mobility's definitely top of mind for CIOs. As you look across your portfolio of capabilities, now you have the addition of Zenprise, any missing holes there or do you think you have the complete solution at this point?

Rob, I think there are always things that we're doing on the innovation front to fill gaps, but they'll tend to be smaller ones at this point because I think right now we're lined up to be, I think, in the lead in terms of offering the most complete solution from the mobile OS all the way through the kinds of apps that you need to actually go mobile when it comes to collaboration, when it comes to communication, access to Internet apps, the wide variety of not only native apps but also the Windows apps and desktop's that are so important to a full mobility strategy.

We really like where we are in terms of completeness and a huge priority for the year will be to get to greater and greater levels of integration so that the user experience, the customer experience, the admin experience gets better and better and better, easier and easier, and that will be in conjunction with what we believe will be greater and greater number of devices and users under management.

Great. Thank you guys.

Thanks, Rob.

Steve Ashley, Robert W Baird.

Congrats on the quarter. I'd just like to drill down on the networking business and the kind of eye-opening growth here we're seeing, 57% growth in license and just like to get some color on were there any inordinately large deals, the status of the pipeline, did we drain the pipeline and maybe if any of the new products got particular traction. Thanks.

Sure, Steve. It's David. Thanks, by the way. We're really happy with the results for Q4.

Specifically to the networking business, let me take it up a click a little bit and talk about it more broadly because at a high level, we believe, like others, that the data center network is going through a pretty big transition currently and over the next few years, driven by cloud architecture, SaaS, mobility, et cetera, and this is the lens that we've been thinking about this for some time. And so when you look at the initiatives that I talked about in my prepared remarks and some of the individual results, you're seeing greater penetration into our traditional enterprise accounts, fastest growing part of the business in Q4. This is true from both a cross-sell motion as wells as attach motion. I called out 700 individual desktop orders that included NetScaler as part of the solution and this compares to about just 400 last quarter.

We're talking about increasing the flexibility of architectural deployments with virtual appliances, giving customers a lot more flexibility in how they look at their own infrastructure. That part of the business, new in the last six quarters, is up about 80% year on year. And then the big driver being the SDX platform which really helps effectively consolidate layers four through seven services in the data center and that's been up over 200% year on year. So you see all those things in what I call the core network business doing really, really well and of course, continued strong business from dot-coms and providers.

And then the last piece that I mentioned as our business in mobile carrier networks, we're starting to see what I'll call a ByteMobile effect. Okay? So we did about $20 million in this segment with more than 15 coming from ByteMobile products, as well as a pull-through related to NetScaler. So really just opening up a brand-new market opportunity we hadn't participated in, in the past. You put all these things together and we're very optimistic about the business, really happy with the execution.

And specific to Cisco as you mentioned, Mark talked about a few individual transactions so we're getting good, good traction there right out of the gate. But we're in the really early stages of working with Cisco on a long-term strategic partnership that's going to include go-to-market, joint development, joint selling, et cetera. So stay tuned on that front.

Thanks so much.

Heather Bellini, Goldman Sachs.

Hi. This is Sonya Banerjee on for Heather Bellini. Thanks for taking our question and congrats on the quarter.

Thank you.

Just in terms of the desktop solution business, we're curious what impact did shelfware related to XenDesktop licenses have on the growth rate in 2012 and how far has this been worked down? In other words, do you guys start 2013 with the chance for accelerating growth if that shelfware issue works through in 2012?

Yes, it's David. Let me talk about that. I'm not sure we've ever described a shelfware issue. We certainly don't look at the business that way. If you look at what is going on from individual quarters and I talked about some very specific statistics within just Q4 in terms of the types of business, types of initiatives that customers are looking at when they're deploying virtualization of the desktop and some stats around new customers, about 4,000 customers in total, purchasing new licenses of XenDesktop, 240 buy more than 1,000 seats and almost 20 with 10,000 seats.

So these are new deployments, new initiatives and new customers and so everybody is going to adopt and deploy at their own pace, depending on their own capabilities, business initiatives, funding, et cetera. We're not aware of a broad shelfware issue certainly in the market at all. I will say that as we look into 2013, we are doing a number of things to address the area of kind of complexity, ease of adoption, ease of management, ease of scale and that's where the releases under the Avalon umbrella come in to really transforming desktop virtualization into a delivered service, making it much, much easier for customers to adopt and scale. Number of new initiatives on that front.

All right. Thank you.

Adam Holt, Morgan Stanley.

Congratulations on a nice end to the year. Maybe just to start on that point, the tone around linearity and the demand environment seems to have changed quite a bit from the last conference call. Do you think that has to do with year end spend? Does it have to do with better execution on your part, more conservative assumptions? How would you contrast sort of what you saw in the market quarter on quarter?

Yes, Adam, I'd say there's nothing new on the economic front. In general there continues to be some level of volatility in the timing of closing business. That's true just in pockets throughout the world. But all geos had a good performance in Q4, very focused on execution, continuing to work with customers on opportunities from earlier in the year, really understanding their priorities and relative -- really relatively how we think about wallet share.

So the key verticals in Q4 I mentioned earlier included pretty much across the board, healthcare, fin services, cloud service providers, education, government, so good balance. The key is going to be trying to understand customers' priorities, make sure we have the right solutions to make their initiatives successful and then just stay very, very close to them and help get these transactions over the line.

If I could just ask a follow-up on the desktop business. There was a point this year where we were talking about double-digit license growth in the desktop business. Now it looks like you're guiding to sort of a flat to up slightly organic desktop number for calendar '13. What do you see as the difference between those two growth rates? Is there still the opportunity to get back to double-digit organic license growth in that business? Thank you.

Sure, Adam. If we think about the desktop business as a whole, it's actually a fairly large business for us right now. It's about -- well it's well over half (Inaudible) in new product license last year and about nearly $1.5 billion in total revenue. And so as we think about next year, the mid single digits is kind of where we want to be right now. The market is still, we believe, in its early phase. It is transitioning a little bit from a customer conversation to look at DV in the context of broader enterprise mobility and we're obviously doing a number of things on that front.

Then what I mentioned earlier on, Sonya's question, about continuing to make it easier for customers to adopt and scale and manage by bringing down the complexity, which I think has been a barrier to adoption in the past. As Avalon technologies come out in the latter parts of this year, we'll be really, really focused on that. So that's our current thinking. It's early in the year and we do remain very optimistic.

Great. Thank you.

Phil Winslow, Credit Suisse.

Congrats on a great quarter. Mark, just wanted to focus in actually on the Zenprise deal. Congratulations on that as well. Wondering if you can talk about just the early feedback you've had from customers, especially when you think of Zenprise in the context of CloudGateway that you've been talking plus just Citrix Receiver obviously.

Thanks for the kind comments, Phil. We're pretty excited about the deal and what it means to our ability to assert not only our strategy in enterprise mobility, but also how to actually incorporate our desktop virtualization technologies and business and leveraging that base. So it really feels good, adds sort of the glue that's going to bring all this together.

Turns out we have shared partners and customers that stepped up during the due diligence and really confirmed what we were thinking and it was pretty exciting, continues to be that way. So the business has continued to grow both on the CloudGateway side and the Zenprise side where customers are saying this is good, this can only be synergistic. And I'd say that of many, many adjacent technology transactions that we've done over the years, this one has the least amount of duplication and the most I'd say synergistic possibilities.

And that's really what we'll be in the marketplace talking about is how Zenprise MDM will allow us to configure and provision devices and manage all the settings and security and so forth from the mobile OS, and then hand off and push apps and then hand off to CloudGateway for all of the SSL, single sign-on, app store, and mobile app capabilities that we talked about at Synergy Barcelona that we're calling our Me at Work mobile app family. It really is sort of the keystone that brings it all together and then obviously every customer that already is running XenApp and XenDesktop, they'll be able to snap right into this infrastructure from a technical point of view, but also we're making it really easy for them to add on to a desktop virtualization solution, add this mobility capability as well.

So I'd say in our outlook, this is what we see now. We're going to be a little bit cautious about how fast the synergies actually are manifested in our revenue, but we're pretty excited about it and you can be sure that we're going to be extremely aggressive and run at a very high velocity here. So as I said in my comments, stay tuned.

Great. Thanks, guys.

Thanks, Phil.

Kirk Materne, Evercore Partners.

Thanks. I'll echo my congrats on the quarter. Mark, just as a little bit more of a follow-on to Phil's question about Zenprise, you guys have been talking to people about virtualizing apps and mobility from an apps standpoint for a long time. Just bringing the mobility factor in, how critical is that in terms of gaining Mindshare really with CIOs and really having almost a top-down approach to selling. And along those lines, is there anything you really need to do with the current sales motions with your sales guys to be able to bring in sort of the mobility piece of it? Is there anything you need to do from a marketing or go-to-market standpoint as you transition to even more of an enterprise mobility story. Thanks.

A few things. First, think about this as enabling three entry points into the customer around mobility now going forward. The first one is this add-on capability. So we've helped you mobilize Windows apps in desktops, now we can help you move beyond that with native mobile apps, data and devices and that's basically the combination of XenDesktop, XenApp, CloudGateway and Zenprise technologies in a seamless kind of package. That's very much a top-down where this is really a holistic approach to mobility that reaches beyond just lighting up a smartphone or tablet or a BYO initiative, et cetera. It really is very much a top-down strategic offer.

The second is the other end of the spectrum and that is the mobility and the security sort of dimension where the buyers that are responsible for the existing mobile platforms, very typically to support BlackBerry and so forth, they're looking at all the same issues that everyone's looking at, looking for management capabilities of devices from the OS up. So the Zenprise MDM gives us an entry point there and the specialty sales force that comes over from Zenprise and managed that way as an overlay allows us to continue that momentum and that entry point with obviously the prospects of up-selling, because as those buyers actually get more knowledgeable about these kinds of solutions, they naturally ask about what about data, what about native mobile apps, what about the security of these apps and so forth. That's the second one.

The third one is really the new customer where the entry point is all around mobility and that's one where we'll spend time really building our brand, tying it to mobile work styles and stimulating customers that haven't yet considered Citrix in their overall mobility infrastructure. In that area there's branding, there's messaging, there's a lot of demand generation activities to do. And that will build over the course of the year and you'll start to see that in the first half and as I said earlier, we'll be aggressive about it.

And as David mentioned, this is one of the key investment areas for us. So we need to have a focus on making the products beautifully integrated. That will be a two-step process. Secondly, build capacity in the go-to-market starting with the specialty overlay sales force and training the rest of our field, as well as recruiting our partners into the go-to-market motion, and then the third area is obviously around demand generation and getting visibility for Citrix in mobile and I think, obviously, it's not a big stretch. The Company has long stood for mobile, start going way back to the roots and remote access so it's actually -- it's not a stretch at all. It's just something that's about execution.

Great. Thanks so much.

Walter Pritchard, Citigroup.

Hi, David, this is Ken Wong from Citi in for Walter. I think earlier you said you guys saw $100 million in incremental deferred coming from desktop. I'm just wondering if you could perhaps give us a sense for what that number was last year?

From an incremental standpoint, I don't have that handy. It was definitely smaller than this year. That is the majority of the growth in deferred on a sequential basis. The other components would be our longer term SaaS business, support agreements and other types of maintenance.

Yes. Okay. And then also on Asia, you guys saw 50% growth there. Was there something significant there in terms of big deals or something one-time in nature there or is it just you guys are getting better traction?

Well, I think that in general our Pacific and Japan regions have just done a really good job this year. They are two smaller regions and they've been having much higher growth rates than the two larger markets. And they just continue to execute really well. Japan, in particular, had a really strong quarter in a number of different areas across both desktop and networking products. So very happy with the team there. And we continue to think about those as growth areas going forward and we'll be investing behind that pretty heavily.

Okay. Great. Thanks.

Raimo Lenschow, Barclays.

Congratulations to you on the great quarter from me as well. Just a follow-on, on the regions. One thing we've seen so far in the companies that reported was that Europe is actually doing pretty decent despite all the fears we had in there. [We already talked about the batch flush in] Q4 and was nervous about '13. What is your sense on what is going on there? Thank you.

Well, I think Europe has been in a fairly stable pattern for the last few quarters now and people are becoming more adjusted to the expectations, how to work with customers, how to think about backlog and the timing of getting individual transactions closed. And so we've done a lot of work across EMEA, both in terms of our teams where we've been very focused on it and the fact that we're just, like I said, more comfortable working in this type of environment.

So it's going to be -- it will continue to be volatile in certain periods of time. I think that's an appropriate assumption. However, let's call it the degree of uncertainty in the economic environment across the world has probably come down a little bit and should in 2013 because many of the unknown events are known events and that helps a lot because even if it's a somewhat negative outcome, you know how to plan for it and that's a big deal for customers.

Okay. Thank you.

Michael Turits, Raymond James.

Two questions. One, are you still expecting $15 million for ByteMobile next year? And how much should we expect of is built in for Zenprise? That's one question. Then I had a follow-up.

Sure, Michael. I said in my earlier remarks that we expect the mobile platforms business to be about $30 million of revenue in 2013. We'll be delivering that product, both in -- or those different solutions both in perpetual license form as well as in a more ratable SaaS type model. Obviously the mix will determine the exact amount of revenue but plan on about $30 million for right now.

As far as Bytes, we had said last quarter that we expect it to contribute about $50 million in 2013, and we'll likely be ahead of that if we continue to see the success that we've had. I think it will be somewhat uneven due to occasional large deals coming in but certainly up and to the right. We don't plan on breaking that out with a whole lot of granularity going forward, simply because it is becoming more and more integrated with the broader NetScaler motion. So we'll give more qualitative comments in each quarter's results, but don't plan on guiding to that as an individual line item.

If I could just get one more, little less quantitative. In the NetScaler business, outside of your traditional areas of strength there with cloud service providers and in attached desktop, are you making -- how would you describe your progress in the -- just the -- let's call it the standalone load balancer market where you might go up more directly against a file?

I think just in general when we think about NetScaler, we're doing extremely well across the board. When we talk about specific initiatives for cross-sell and attach sell, the attach is obviously just looking at networking and desktop as an integrated solution and the things that we can kind of uniquely deliver there to customers. On the cross-sell motion, that's more about just competing in a broad enterprise account for either related projects or in just core networking opportunities. And so the broader coverage we have, the more partnerships we have, the breadth of products that we've been delivering over the last many quarters have really helped out on that front. And in general, the enterprise is certainly by far the fastest growing part of the business in Q4 results.

Thanks, David. Good quarter.

Thank you.

Kash Rangan, Merrill Lynch.

Hi. Thank you very much. Looks like in the past few quarters the non-desktop solutions business has been accelerating and a lot of people still think of Citrix on Wall Street as a desktop virtualization company. The reality is that you guys are becoming more and more diversified. Where I'm going with this is as a management team where are the areas of investment as you look into 2013, based on your guidance it feels like you're not expecting much of a turn in the desktop solutions business. But should we be giving up those wonderful growth rates at 15%, 20% you did you a couple of years back?

Or, do you think that there is enough of an investment cycle that's going on and maybe certain internal factors specific to the industry, the cost of the virtualized desktop needs to come down, storage, network and technology. Do you think there's a chance of that business coming back up in 2013 and surprising you or is it going of to be more of looking for the networking, the mobile, and the cloud businesses to really pick up the growth trend here? That's it from me. Thank you.

Maybe I'll lead the discussion a little bit and then David can maybe add some more data to it. I think the way we think about this as a management team is we're in the mobile work styles business and what we're doing is offering the right mix of cloud computing infrastructure to actually enable mobile work styles. And if that requires a mix of SaaS and premise and Windows or native mobile or whatever mix is required to do that and to really be the company that stands for that and delivers that in the marketplace, then that's what we do. And I think if you look at the last -- if you look back in I suppose 2004, we were 100% about virtualizing Windows apps and desktops. Last year, to keep the numbers round and easy, think 60% and 20% around the collaboration in data sharing and 20% around cloud networking and platforms.

So that's been a very natural evolution based upon our overall vision and goal to emerge as the company that delivers on the mobile work style promise in the context of how we define this with device, network, location, et cetera, independence. So that's how we think about the business and how we're driving the growth and then any particular segment then will have its own strategy and we're obviously looking at all of those individually around share, share gains and what we do in each of the granular pieces as well.

I'd just add that, similar to what Mark said, it's hard to lump the business into one category. We're occasionally described as a virtualization company which is interesting but from our point of view, we're participating in a number of very different discrete markets that have different growth rates, like cloud networking, CloudPlatforms, mobile platforms, desktop virtualization and others and the strategy of bringing the unique technologies across some of these different areas to solve real problems for customers and doing it in a highly differentiated way that starts with a customer out point of view. And that's really been our focus and one of the reasons why when we talk about the business, we do tend to talk about it in more aggregated terms because frankly, that's how we plan, that's how we think about it strategically and that's how we go to market.

That's a great explanation. If you could very quickly talk about what percentage of the sales force, David and Mark, is trained to sell the complete, holistic solution and where do you see that going in the future?

100% of the sales force is trained to talk to our overall strategy as a company and positioning around mobile work styles. And then we have overlay groups that focus on various segments in terms of products as well as market segments in terms of customers that then work with our ERMs that are leading the conversation, let's say, with enterprise type accounts. So everyone tells the entire story and then we'll have tiers of various specialist teams that actually can sell networking or sell a CloudPlatform solution, or sell a collaboration or data sharing solution and the same thing goes for mobility.

And that's how we can leverage the base and leverage the brand and as well as execute because it's really hard for teams to actually have the capability to sell multiples of things all l the way through a sales cycle. So specialists are an important part of our formula for doing this and how we've been able to grow the Company around multiple products, multiple routes to market, and serving multiple types of customers from prosumers at one end through small business, through enterprise and service providers at the other end.

Okay.

We're ready for the next question.

Next question.

Gregg Moskowitz, Cowen and Company.

Thank you. Just a follow-up from a prior question. Wondering if you can give some additional insight into your incremental go-to-market investments that you plan to make around networking and also with the mobile carriers in 2013.

Sure, Gregg. Basically it's in go-to-market coverage. These are -- it's one of the areas that tends to require a little bit more specialization from a go-to-market standpoint and we need to hire up those unique skill sets. There are a number of markets that we are just frankly not covering or we're under-represented. The more we can bring this capacity to market, the faster we'll be able to grow that business and serve customers.

Then it sounds, Mark, as though customer interest and adoption on CloudStack or CloudPlatform is picking up. How do you expect this to sort of play out in 2013 and also was curious if you had any comments on relative positioning vis-a-vis OpenStack?

Yes, Gregg. So our strategy and investment there, you have to think of it as a multi-year program where we're in the front end where design wins matter and that's been the focus. Design wins in both service provider as well as enterprise segments, as these two types of customers build what we like to think of as anything as a service platforms that abstract the way storage, compute, and network.

So the focus has been on getting those design wins and as I mentioned in the comments, we saw continued traction with telcos, with service providers, with educational institutions and with what I like to think of as the enlightened enterprise, those that are thinking in the post server virtualization world context. So that's what we've been focused on and the score card is really good and so we like what we're doing there.

Additionally, what happens this year is as we then bring the Merlin release of Avalon out, that will really enable CloudPlatform to sit underneath our desktop virtualization products like XenApp and XenDesktop, and we'll be able to offer to those same types of customers the Windows as a service capability that David mentioned and that will give us additional leverage and additional solutions and revenue from those types of customers. So this is a multi-year investment that we're making on the bet that customers move beyond sort of the server virtualization sort of notion of data center to actually more of anything as a service type platform that you build in a very, very different way.

Okay. That's helpful. Thanks very much.

Matt Hedberg, RBC.

Offer my congratulations as well. Mark, you mentioned you had some nice early wins in the Cisco relationship. I wonder if you could kind of characterize that, what sort of customers are interested and how might that changes as the relationship continues to grow?

Yes, we had a couple of -- actually the top two deals were with financial services companies and not bolts bracket, but known brands and they were -- one was over seven figures, one was approaching seven. Then a handful sort of in the mid-range in terms of size. And that's really early, Matt, because we made the announcement in Barcelona in October and so if you think about sort of mid-October announcement and then kind of the end of year process, whether it's kind of holidays or traditional end of year close process, getting that much done that quickly actually gives us really good optimism for what's possible here working together and that's just on a reference and recommendation sell.

What's ahead is tighter integration from a technology perspective where customers will see great leverage working with Cisco and Citrix in this area, moving from the load balancing world which we really don't like to compete in because it's a commodity world, and moving into the app delivery controller and the application defined network space. So that's really where our focus is here and certainly working really technically in conjunction with Cisco.

That's great. Maybe a quick one for David. There's been a couple questions on headcount. According to my math, looks like headcount this year was up about 17% which was pretty close to the revenue growth rate. Is that a safe assumption to use for next year, headcount growing in line with revenue?

At this point, I think that we'd probably be using 1,000 people as a safe number and then that's just a function of consumption. We'll be investing in all the areas that we've talked about across the business and then as the year progresses, depending on market conditions, we dial that up or dial it down.

Great. Thanks.

You bet.

Joel Fishbein, Lazard Capital Markets.

I just wanted to follow up on the Amazon relationship with NetScaler and CloudBridge. If you could just give us any color on that and see if you're getting any traction there, that would be helpful.

So I think everyone probably knows we just announced that capability in Q4 where NetScaler went on the AWS marketplace and we're one of the early products on the marketplace and it's -- the growth is great but it's off of a zero base and I think what's ahead there is just the possibilities of promoting and selling more of an e-commerce and online way through the Amazon demand generation channels. We participated in their conference and with a standing room only crowd in our break-out, so lots of enthusiasm for NetScaler on that platform because it does actually help app developers with global scale, reliability, performance and security and those are all important things when you're building a cloud service anywhere, including especially on Amazon. So we like what's happening early on and there's more -- lots more to do there to drive consumption of it.

Just to follow-up. That was what I was trying to get to. Should we think of it as just an extension of a channel or could there be more to it in terms of deeper strategy?

I think the way to think about it is a channel and we've seen the incredible growth of NetScaler VPX, the virtual appliance version of NetScaler, and this is really a channel for delivering that to the AWS customer base. And then obviously as we do more and more with Amazon, and certainly we'd like to do more in the area of virtual desktops and apps and mobility and so forth, this component will be an important piece of an overall framework that customers will be able to use, just like where David talked about the multi-product customers and the number of customers that are buying a solution from us that includes multiple of our components, the same thing will go for our relationship on Amazon. But that's in the future.

Okay. Great. Thanks.

Kevin Buttigieg, Longbow Research.

Thank you. Just back to the desktop business for a minute. Just wondering if you could characterize kind of the -- where the cycle is in terms of new customers versus upgrade customers. And with Avalon coming out at the end of the year, do you see that as having particular appeal towards either one of those two groups?

Yes, Kevin, it's David. In terms of new customers versus customers that are upgrading from an app virtualization solution, the ratio is greater than 80/20. That's really -- the upgrade motion was a little bit more of a 2011, maybe early 2012 story. So when we talk about this business, it's really largely for new customers and new license.

Couple of interesting stats around that, that I've looked at recently and that is when you look at the type of mix of the different versions and alternatives the customers have, we've seen a continued shift towards the platinum version of the product as customers are looking more and more at solving different problems, depending upon the individual use cases, different user populations, et cetera. It's not a conversation about VDI. And that's probably a big misconception in the marketplace. In the platinum version, obviously giving you that full breadth of flex cast delivery technology that's unique in the market and that's helped to drive ASPs up a little bit too. ASPs were actually up, believe it or not, 25% year on year and again the units move around depending on the versions.

So as we think about this, we're having more strategic conversations, we're attacking more important business issues. And then with kind of the new things coming out this year that we've talked about a few times, it's focused on just making it easier, making it easier for customers to adopt, scale and manage and that's why I think it will apply to both existing customers but probably really open up that group that have found traditional desktop virtualization too complex or too hard at this point in time. So it's early but we're very excited about the opportunity.

Thank you, David.

MacMillan Ross, Citrix.

It's Ross McMillan from Jefferies. Congratulations as well from me. I had two questions. The first on the networking business. I think in Q3 your license growth was obviously a little bit slower than normal. I was curious as to whether any of the strength in Q4 was just a timing issue between deals that fell into Q3 -- or didn't fall in Q3 but fell in Q4 instead. Specifically around your typical e-commerce type customers that would typically buy in Q3. Thanks.

Sure, Ross. It's David. As far as Q3 and Q4, there's always a few deals that slide between quarters but I can't think of anything specific, certainly of anything really large scale, that moved from Q3 to Q4. I think the more pronounced issue was the year-over-year comps. Q3 2011 was just a monster quarter for NetScaler, I believe up about 50% as there was some pretty public cloud services build-outs going on around that time and we participated well with that. There just weren't as many in Q3 2012. So the biggest volatility point last quarter was around those e-com or dot-com/cloud service providers. But overall, the big, big driver which I mentioned a couple of times in Q4 was the enterprise, even significantly more so than any of the other categories.

That's great. That's helpful. Then just another one for you, David, on the sequential increase in deferred. You're obviously getting a benefit of the multi-year SA. I wasn't clear as to whether you're also actually signing more deals that are including a higher percentage of some sort of ratable licensing element. Could you just maybe go into that and help us understand if there's any of that increase as a reflection of that latter reason?

Ross, the majority of growth in deferred revenue continues to be around license updates, maintenance agreements and support agreements. There is some growth in software as a service, longer term contracts, but the majority of our individual customer transactions are not ratable in terms of new license. They tend to be more perpetual based with the multiple years of some level of updates or maintenance.

That's helpful. Could I squeeze one last in for Mark. As we think forward toward Avalon Merlin and we think about Windows as a service, are we at a stage now, today, that the Windows licensing from Microsoft is amenable to this Windows as a service model or do you think we still need to work through some changes on Windows licensing from Microsoft before this becomes a real viable option for companies? Thanks.

Ross, I'd say that for technologies like XenApp, I think all the licensing possibilities are in place already, both for enterprises and for service providers. I think when it comes to more VDI like solutions that would come with a product like XenDesktop, I think that's where the license -- there's more work to do on licensing and to make that much easier for customers. The way it works today is you can actually do any of these things with Microsoft licensing as long as you bring your own licenses.

But as soon as a service provider wants to offer this kind of capability proactively, then I think that's where there are some -- in some use cases, there are some licensing changes that we would like to see. I think Microsoft would like to see as well. So we're obviously close partners with Microsoft. One of the conversations that is ongoing with them to try to drive growth in this marketplace as more and more customers want to make Windows much more of a service to support what's happening around mobility and device heterogeneity and all the things that we talk about.

That's really helpful. Thanks again and congrats.

Thanks so much, Ross.

Pat Walravens, JMP Securities.

Great. Thank you. So with your acquisitions, you're entering two really hyper growth markets which is great, the online collaboration and mobile device management, but each of those markets has got a private vendor or two who's been gaining tremendous share over the last couple years. I'm just wondering how you compete with the likes of Box on one hand and how do you compete with the likes of MobileIron and AirWatch on the other. Thank you.

Yes, Pat, so the answer is we compete very, very well and the way you compete well is to make sure you differentiate in the marketplace and play to your strength and competencies. When it comes to private vendors, the examples that you gave, we will tend to go to market with our strengths and that is understanding enterprise requirements, having top-down relationships, having relationships through great partners that are SIs, whether they're like HP, IBM, CSC and others, so we'll leverage all of those tools that we have.

And then obviously we have a tremendous amount of partner coverage around the world. It's a huge competency of ours. So whether it's our platinum, gold or silver partners around the world, we'll reach through them as well. So using all the levers that we have and then obviously a key piece of competing is in product innovation and we go head to head there in many of the innovation areas, we like where we are and our road map and the core IP. But one of the differentiators that we have is actually integrating these things together so that when you buy more than one product from Citrix you start to get a one plus one equals three kind of outcome.

And you see that in, for example, in Barcelona we announced something called Citrix at WorkMail which is our iOS and Android secure mail app and it comes with beautiful integrations with ShareFile, with GoToMeeting and so it really makes the experience of being mobile on these devices when it comes to communications very, very easy, et cetera. When you compare that to private company that has only one solution, they don't have the kind of -- they can't offer the kind of user experience. And in the long term here I think that whether it's consumer markets or enterprise markets, more and more of the competition and lines of competition are drawn on user and customer experience because it's one of the effects of consumerization. So that's how we'll compete and we're doing really well, by the way.

Thank you.

Thanks, Pat.

John DiFucci, JPMorgan.

Thank you. Nice headlines here, guys. David, I have a question about the more strategic engagements with customers that are signing multi-year contracts and apparently paying multi-years up front. There's two questions. How is that going to affect future cash flow if you're pulling in multi-years of maintenance up front?

And then secondly, there's a lot of companies that sign multi-year deals for maintenance deals but customers typically pay annually still in those deals, I assume to get the up front payment, you have to entice them to do that. Can you kind of walk us through that, just explain why you would do that?

Sure, John. Really what we're doing is what the customer wants in most cases. As I've said many times over the years, we've never taken the approach of trying to drive EL8 style agreements and really focus on delivering what a customer needs in real-time. There's a budget issue or whether it's just them really wanting to lock something in over a period of time, we're providing no artificial incentives to drive this type of business. And it still, frankly, is the minority of our transactions and even the minority of large transactions.

And so when I reference that, I'm referencing the growth in long-term deferreds which is certainly influenced by this. So in that context, when you look at our total deferred revenue balance, long-term only represents 19%. So it's a much smaller base and that's one of the reasons why the growth rate is as high as it is.

In terms of overall cash flow, our cash flows have been certainly very strong over the last four quarters, where we delivered nearly $820 million in cash flow from ops which is up 21% year on year. While we don't guide to cash flow in forward quarters, I think it's certainly our expectation that we will be able to continue to grow cash flow faster than net income and that's the way we think about it. So hope that helps.

Yes, it does. But just a quick follow-up to what you said. When customers come in and I understand you want to satisfy the customers but when they come in, they say, we want to sign a multi-year deal and we want to pay it all up front and we want -- in order to do that -- we want an extra, I don't know, 10% discount or something. Is that how the discussion goes or they just say, we just want cash is burning a hole in our pocket and we just want to pay you three years up front instead of one year for maintenance?

John, there's no one way the conversations happen. I will say that from a -- when you think about incentives and why customers move one way or the other, we actually don't pay our field organization on these out years of subscription advantage or software maintenance when they come in. There's certainly no incentive there for anyone to really drive that business. Again, it's just customer focused.

If a customer is looking to give us cash up front and support them for the next two or three years, we're certainly going to take it. That's just a good piece of business. And it also allows us to -- I wouldn't say lock in the customer for that period of time but in effect that's what you're doing. You're talking about more infrastructure, net sale. They tend to be more strategic. They tend to be stickier from a competitive dynamic and so that's what drives that.

There are other customers, of course, that are looking at locking in multiple years of whatever and then we'll build that on an annual basis or whatever is part of the contractual arrangement. And in that case, we're not even going to talk about it. It won't show up anywhere because we don't refer to off-balance sheet backlog for example. Just not a big part of our business. So again, minority in the business and that's the way hopefully, again, that helps you think about it.

Yes, it does. Thanks a lot, David.

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

Thanks again, everyone. Obviously we feel really good about the quarter and 2012 and how we're positioned for 2013. And so we look forward to another great quarter and seeing you in about three months. Thanks again for joining the call today and for your ongoing confidence in Citrix. Thank you.

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