思杰系統 (CTXS) 2013 Q2 法說會逐字稿

Good afternoon. My name is Rachel, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Citrix Systems Second Quarter 2013 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period.

(Operator Instructions)

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

Thank you Rachel. Good afternoon everyone, and thank you for joining us for today's second quarter 2013 earnings presentation. Participating on 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 specification and historical revenue trends related to our product grouping 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 Law. 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'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'd 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, overall results were very solid in Q2. Including $730 million in total revenue up 19% year on year, $227 million in product license up 21%, 24% annual growth in deferred revenue, cash flow from ops up 25%, and adjusted EPS of $0.66 a share. In Q2, we closed 46 transactions greater than $1 million each compared to 39 a year ago, with relative strength coming from customers in the financial services, telco, healthcare, and retail sectors. Geographically, we are continuing to see uneven capital spending across our various markets. Business in the Americas was generally solid throughout the quarter, with balanced execution across the product areas. In total, two-thirds of the strategic multi-million dollar orders were from this geo, leading to total revenue growth at 24% year on year. In EMEA, revenue was up 16%, led by strong expansion in the networking business as prior investments to expand market coverage are delivering good returns. And finally, revenue from the Pacific and Japan regions increased 10% from a year ago, impacted by tough comps from Q2 2012.

Next, I'd like to highlight the results within our three primary markets. First, in our mobile and desktop business, revenue grew 11% from last year to $382 million, including a 2% increase in product license. In Q1, we introduced XenMobile MDM providing CIOs with a solution to enable mobile work styles with device and add management. And last month, we expanded the solution with the release of XenMobile enterprise edition, which delivers an integrated product that addresses mobile devices, app and data management, along with secure e-mail, web, and other productivity tools really a differentiated solution. The business is in a transition right now, as mobile has quickly become a top priority for CIOs. The topic is leading to a lot of strategic conversations with brand new customers, where engagements will most likely start with XenMobile, and then pull through app or desktop virtualization as the customer addresses the broader requirements of enabling mobile work styles BYO, work shifting, data security, and other initiatives.

We're seeing significant XenMobile pipeline developing up over 40% sequentially, and we're very comfortable with our full-year goals for this solution. However, this ramp is having a near-term impact on the standalone desktop virtualization sales, and sales productivity as we've shifted focus to building up this business. We do believe that the impact should moderate over the next few quarters as our sales teams and partners get more comfortable selling the combined solutions.

In the mobile and desktop business, in total, there were 19 $1 million plus transactions in Q2 representing customers in Financial Services, telco, technology, healthcare, and other verticals. Additionally, more than $20 million of the sequential increase in deferred revenue was related to these solutions.

Some good examples of how customers during the quarter are utilizing these technologies as a way to accelerate their business imperatives included a Financial Services firm that purchased over 50,000 desktop virtualization seats to reduce their application delivery costs, increase the flexibility of their infrastructure, and enable mobile options. Or a pharmaceutical company, enabling over 10,000 salespeople to migrate to tablets to access several line of business apps. Or a leading energy company utilizing XenMobile and NetScaler SDX together to secure personal and corporate devices for employees in the field, while delivering apps securely through a single app store. Or finally, a major retail chain in the Pacific that is part of a project to adopt web-based productivity tools, purchased 20,000 DV licenses to deliver their traditional Windows applications across different devices. We're increasingly talking to customers about business enablement, reducing the cost of their app and desktop infrastructure, and increasing productivity by enabling enterprise mobility options.

Next, in our networking and cloud business, really performed well in Q2 with total revenue increasing 46% to $165 million including product license revenue that was up 54%. The NetScaler products were again the major driver of growth in the quarter. In addition to very strong growth from the build-out of public cloud within cloud services, we continue to leverage NetScaler as part of delivering integrated solution to our enterprise accounts. For example, the cross sell and attach initiatives led to more than 550 desktop virtualization orders that included NetScaler as part of the solution, and this is up about 20% from a year ago.

We transacted with over 2,000 different customers in the period, compared with only 1,500 last year as we worked to expand the base. This includes 1,000 net new networking customers, many of which adopted the VPX virtual appliances. And from a mix perspective, the NetScaler SDX platform really stood out in Q2, representing 20% of NetScaler license sales and increasing well over 100% year on year. SDX is differentiated in the market, running up to 40 independent instances, including third-party services on a single appliance delivering real customer benefits like multi-tenancy, and consolidation within the data center.

And finally, in emerging products, Bytemobile continues to ramp. While it contributed less than 10% of networking product in the period, we're focused on expanding the customer base which drives long-term revenue growth. An example of this included a new multi-year multi-million dollar contract with a large mobile network operator in the Pacific region. But consistent with many opportunities in this business, the revenue from the specific contract will be billed and recognized over an extended period of time. So very little impact in the actual Q2 results.

So next, with our collaboration and data business, SaaS revenue was up 15%. The GoToMeeting family continues to be the primary driver, growing 21% in Q2. Additionally, ShareFile our data sharing platform, is ramping well, up 75% from last year. Looking forward, the opportunity with ShareFile is expanding as we address enterprise requirements through new innovations like StorageZones connectors for SharePoint, network drives, Microsoft Azure, as well as tight integration across our mobility solutions.

Turning to operations, adjusted gross margin in the quarter was 86% down a point and a half from year ago as the mix of new product revenue reflects the success we're having in the networking business. We do expect this trend to continue over the next few quarters, leading to adjusted gross margin for the full year between 86% and 86.5%. During Q2, we added 228 new people to Citrix as we focus on expanding go to market reach and customer direct touch primarily to drive our opportunity in networking. Additionally, we've been investing to expand the data sharing and the mobile platform teams. And finally, the adjusted tax rate was 22% up from 8% a year ago. And as a reminder, last year the tax calculation included benefits of approximately $22 million or $0.11 a share primarily related to the closing of IRS audits for certain tax years.

Looking at the balance sheet, cash and investments increased to $1.5 billion at the end of June. We repurchased over 600,000 shares of stock in Q2, bringing the first half buyback to nearly 2 million shares. Cash flow from ops was more than $200 million up 25% from last year, and deferred revenue increased $40 million sequentially and 24% year-over-year.

So turning to our current outlook and expectations for the second half of 2013. Overall, we executed really well in Q2. Though it's reasonable to expect demand levels to remain mixed across our various markets, activity metrics like pipeline and POC have remained strong. We're very confident in our core business strategies, and the investments we're making in enterprise mobility, collaboration, cloud, and networking. We'll continue to focus on delivering financial results, while investing to expand our long-term capacity and differentiation across these areas. So for the full year 2013, we're modestly increasing expectations for total revenue and EPS based on the strength of Q2. For 2013, expectations are now for total revenue to be in the range of $2.96 billion to $2.98 billion, adjusted gross margin of approximately 86%, and adjusted EPS between $3.09 and $3.11 per share. And for the third quarter of 2013, we currently expect total revenue to be in the range of $730 million to $740 million, and adjusted EPS of $0.72 to $0.73 a share.

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

Thanks David, and good afternoon everyone.

I'm pleased with our overall Q2 performance, and proud of our strategic and financial results. We're executing well on product, go to market, and partnership investments to drive growth in business mobility and cloud infrastructure. In the bigger picture, Q2 was a continuation of the Q1 environment, with uneven capital spending, especially in European markets. And just like in Q1, we accelerated our focus on leading the market for mobile work styles.

We saw solid metrics in opportunity pipeline growth, especially for mobility solutions. In the growth of strategic consulting services that support large multi-product deals. And in share gains across the cloud networking, data sharing, and collaboration markets. These elements are critical to the success of our segment specific and overall business strategy, serving markets that are estimated to grow to $16 billion by 2015. A huge highlight for Q2 included the unveiling of important new products and partnerships at our Synergy Conference in Los Angeles. All designed to support our thrust in solutions for mobility, cloud networks, and SaaS services.

So next I'd like to highlight how we're continuing to evolve our innovation go to market partnerships going forward. First, let's focus on our mobility business. XenMobile and XenDesktop 7 released in late Q2, uniquely positioned Citrix to provide a complete mobility solution across any type of app, any type of data, any type of device. Our enterprise sales teams and partners are focusing on the whole solution, introducing XenMobile into our XenDesktop customer base and doing a really effective job of de-positioning competitive and point solutions. This is resulting in record pipeline build, larger scale customer engagements, and initiating new account relationships. The introduction of XenMobile enterprise edition is the catalyst to these conversations. Establishing the bar in the enterprise mobility market with MDM, mobile apps, virtual desktops, secured docs, and mobile support as the standard.

More than two thirds of our customers are opting for the enterprise edition, which also connects beautifully to XenDesktop and XenApp. It also includes secure mail, browsing, and documents powered by our works mail, works web, and ShareFile apps. The works enabled app ecosystem is also a powerful differentiator, enabling over 100 third-party mobile business apps to be securely delivered by XenMobile.

We're getting important early recognition for our innovations and thought leadership. Recently, Citrix received the top ranking by Gartner on the critical capability survey for MDM where Citrix lead in all five categories. And Gartner ranked Citrix as the market leader in the MDM magic quadrant. So with a fast-growing opportunity pipeline, technology leadership, industry momentum, and go to market intensity, we like our position in enterprise mobility going into the second half of the year.

Now let's shift to the desktop business. As Dave had mentioned earlier, we saw continued momentum in the number of large deals reflecting our ongoing strategic presence with enterprise customers. The announcement and release of XenDesktop 7 was not only a Q2 highlight, it represents the re-imagining of Windows desktop and app virtualization, re-imagined for the mobile centric cloud driven enterprise. This major new release brings virtual desktops and apps under a single infrastructure, optimized for private, public, and hybrid cloud environments. It includes new HDX mobile technologies that provide a native style multi-touch mobile user experience over any network including less capable networks like 3G. HDX mobile also radically improves mobile video performance, and reduces network utilization.

XenDesktop 7 delivers a cloud ready infrastructure for delivering Windows apps and desktops as a service from a single easy-to-use console. We've dramatically reduced installation time, accelerated app migrations, streamlined operations management, and reduced the cost of ownership. And XenDesktop 7 takes advantage of performance, cost saving, and platform innovation in Microsoft's newest releases of Windows Server and System Center. We think there's a solid multi-year product cycle ahead, as customers refresh their data center infrastructure, leverage hybrid clouds, and build bridges to public clouds. We also think XenDesktop 7 further solidifies our position in key verticals like healthcare and Financial Services, while opening new opportunities in more specialized app markets such as CAD, engineering, PLM, and multimedia design. Customers will really appreciate new cost efficiencies we are achieving with Cisco, Dell, HP, IBM, and NetApp, reducing data center hardware for VDI below $200 a user for the first time. At Synergy, NetApp announced solutions that can actually drop storage costs to as low as $30 per VDI user.

With continued innovation and partnering, we're reducing virtual desktop costs to new levels past the tipping point where enterprises can more easily see both business enabling benefits of mobilizing Windows apps and desktops, as well as the financial benefits of centralizing them. We're incredibly excited about this release, and the initial response from partners and customers has been phenomenal. So, we're delivering a complete enterprise mobility solution allowing customers to bridge between the worlds of Windows and mobility, and to do it all with an integrated experience that sets Citrix apart.

Next I'd like to talk about our collaboration and data sharing business. We're continuing to see an excellent adoption of our mobile collaboration products. GoToMeeting is top ranked among web conferencing products, and consistently ranks in the top 10 mobile apps for business across iOS and Android. GoToMeeting mobile apps have been downloaded nearly 5 million times. Scheduling meetings directly from mobile devices now allows our users to have a completely mobile experience, confirming our mobile first strategy is working effectively. And in Q2, we launched the new all you can speak toll-free audio feature. It's an industry first, and a valuable upsell feature for existing GoToMeeting customers.

We're also driving strong year-over-year growth in International markets, where e-commerce is becoming a more pervasive route to market and a growth driver for us. In Q2, we announced a partnership with China Unicom, our second partner in China. We're an aggressive early entrant in that emerging market, with the right partners to capture growth.

ShareFile had another amazing quarter of growth in both SMB and enterprise segments. We closed some large ShareFile enterprise deals in Q2, including seven that were six-figure transactions. In Q2, we significantly enhanced ShareFile mobile apps with simple document editing and annotation. Now you can easily annotate and sign PDF files, and even edit Word, Excel, and PowerPoint docs right inside the ShareFile app on your iPad. The new release also supports secure mobile access to SharePoint and file server documents based on our new StorageZones connector technology. We're continuing to scale and drive ShareFile as a premier solution for secure business data sharing. Across both SMB and enterprise segments, and as a core feature in our XenMobile product line.

Finally, I'd like to turn to our networking and cloud businesses. As David noted, the strongest business segment in the quarter was in cloud networking, where NetScaler grew over 50%. We're getting early payback from the significant investments we're making in our go to market capacity. In addition, we're benefiting from solid market drivers, and NetScaler's unique software defined architecture. This architecture is giving us great competitive advantage, product line breadth, and market velocity. In fact, almost a third of the Q2 business was driven by customers adopting software-based, virtualized, and multi tenant form factors like NetScaler VPX and SDX.

Additionally, NetScaler continues to be a core component in XenDesktop and XenApp architectures, with a similar opportunity emerging as the de facto gateway for XenMobile ahead. And Bytemobile continues to bring us good growth, and gives us a powerful base in the core network of mobile operators. Many of whom are now also considering and adopting NetScaler. Just a few weeks ago at the Cisco live event, we reached the second milestone in our strategic relationship with Cisco, the announcement of Citrix NetScaler 1000 V available only from Cisco. With this, Cisco is leveraging NetScaler to seamlessly integrate into their overall data center services portfolio. Customers will get best in class capabilities of NetScaler, fused into Cisco's virtual and data center Nexus fabrics.

We're already driving new opportunities, as partners and customers proactively approach both companies on next generation data center refreshes and new build outs. We had some great Q2 joint wins with Cisco, and we expect the NetScaler 1000 V to drive expanded partnering opportunity going into the second half of the year. With the rapid growth and the understanding of software defined networking, NetScaler is poised to continue to take share in this rapidly transforming market, driven by the edge we have in our core architecture.

Next, let's shift to cloud platforms. In the cloud platforms business, we continue to see both design wins and production scale ups, especially in enterprise, education, and telco market segments. Today, Citrix CloudPlatform powered by Apache CloudStack, is in production in almost 200 clouds across the globe. Recently, the University of Sao Paulo created the largest IT cloud project in Latin America built with Citrix CloudPlatform and CloudPortal, along with tight integrations to NetScaler and XenDesktop. The solution was the result of close collaboration between Cisco, Citrix, Microsoft and NetApp, and emblematic of the kind of large-scale production ready solutions our CloudPlatform is enabling.

In Q2, we also announced the release of XenServer 6.2 as a full-featured open-source project. This significantly extends our open-source strategy, and brings cloud ready features, openness, and simplicity to XenServer. The new release dramatically increases scale and performance, with huge step ups in DM density, and support for platform enhancements in Windows 8 and Windows Server 2012. XenServer 6.2 also includes new optimizations for XenDesktop with features like Intellicast, desktop director alerts, and dynamic memory control to drive lower TCO and best in class performance.

So overall, I'm really pleased with the execution in our networking and cloud businesses. Looking forward, we really like the trends that are fueling our business. IT as we've known it is being reshaped by new definitions of work and computing. Work is going mobile, computing is going cloud. This is the future of IT. This is how we'll capitalize on these better ways for people and IT to work. This is why we're confident in our fiscal and strategic plans, and this is precisely how we'll continue to increase our relative market position.

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

(Operator Instructions)

Rob Owens.

Great. Thank you very much for taking my question. Wanted to drill down a little bit into the desktop license line. And if I look at the first half of the year, I think it's down about 5% on a year-over-year basis. Initially when you guys kind of shaped the year, I think you talked about flat to slightly up in the desktop biz for 2013, then you added on the XenMobile components. So maybe just help us understand I think there's some confidence towards the back half. But just what gives you that confidence, and if you're still kind of holding to that more organic flattish type of number for XenApp and XenDesktop this year?

Sure Rob, this is David. Let me take that question. A couple things going on there. First, as we think about the mobile and desktop business, we are going to continue to report this as an aggregate number like we talked about last quarter. We're doing that simply because that's the way we're going to market. That's the way we're thinking about it, and that's how the customer conversation is really happening right now. So, we don't plan on breaking out the various components. So, as we think about the entire business there's a couple things going on.

Externally, Europe has been tough. That's probably the hardest area. Macro is certainly impacting that to a degree. But probably more specific than that, all the success and focus we were having around mobile as a topic has certainly impacted productivity of our sales teams, and the focus on standalone desktop virtualization. More so than we would have anticipated I'd say. So it's a double-edged sword. The good news is that these conversations are generating a tremendous amount of pipeline for mobile and desktop right now, and we expect that to moderate as a pressure over the balance of the year.

So in terms of the actual guidance as we look at the overall business, I think it does continue to accelerate as we get into the back half of the year. We're not going to be giving specific guidance at a product level, but I feel much better about the second-half going forward. And certainly as the teams get more comfortable with the combined solution, then again, those pressures ought to moderate.

Great. And then I guess for Mark on a strategic level, as you look at that combined solution, do you think you have all the components at this point? Is there other tuck ins that you'd like to do as we look at that moving forward? Thanks.

Yes Rob, I think we feel really good about the end-to-end and the complete solution that we have. I think where we have a lot of intensity is in better integrations, smoother integrations, and improving the user experience consistently. So we are on pretty fast paced road map with a couple of releases between here and the end of January. So it's much more of a focus on execution, integration, and less on kind of pieces that are missing.

Thanks Rob. Next Question.

(Operator Instructions)

Brent Thill from UBS.

Yes, good afternoon. I'm curious if you could give us a sense of is there an easy way to frame the mobile impact to revenue or bookings for '13 given the excitement around the new product line? Or is this something that we're just going to have to wait till '14 to get a little more granular on?

Yes Brent, as far as the standalone revenue, I think that it's one of those one of those things that, like I said, we won't break it out. When we did the acquisition, we talked about a number of $30 million of total revenue, and we're extremely comfortable with that at this point. It's going to get harder and harder for us to segment that out in a way that actually adds value to the conversation, because, as I mentioned earlier, it really is a unified go to market and a unified conversation with our customer. In many cases, what's going on is that the excitement around mobile is starting with devices or apps, and then as the customer gets more strategic in the conversation they start looking at how do I deliver all of my app infrastructure? In most cases, that means Win32. And that brings in app and desktop virtualization, so I think it's going to be a continuum. We did see right out of the gate a handful of transactions, big, on our top, call them our top 25 transactions, that included both XenMobile, XenDesktop, and NetScaler as individual products as part of the same project. So I think that's what we're going to see more and more going forward.

Thanks David.

Bhavan Suri.

Hello guys. Thanks for taking my question. Just on the sales process here around XenMobile and XenDesktop, XenMobile at least my understanding is that the ROI conversations that people might have had around XenDesktop don't occur and it's a faster implementation a faster sale. And despite the current bumps in execution, is it fair to start thinking about of this is that XenMobile could accelerate some of the growth in XenDesktop or are we thinking too aggressively about that opportunity?

Yes Bhavan, I think you're actually right. The degree of which is to be determined. We'll talk about it over the next few quarters. But from a conversation standpoint, the demonstrable ROI is right there. It's easy, it's a quick conversation, and it's top of mind for CIOs, probably mobile and security I'd say are the top two priorities right now. And so therefore, it's a really easy way to initiate a dialogue. A lot of transactions that I expect to open and close, even in the same quarters. So sales cycles are much, much lower. And as I've said a couple times, as you start that the easy simple conversation around devices or mobile apps, native mobile apps, and then you can get those transactions done and initiate a longer-term relationship that brings in things like app and desktop virtualization, networking, et cetera. So it's a terrific entry point right now. And we certainly feel good about it in the back half of the year and going into '14.

And then David, are you seeing similar interests for XenMobile in Europe? Because it feels like it's very North American centric today. And could it help the European business maybe gain some more traction given the challenges in that region?

Yes, no I think it's global right now in fact. We're seeing great traction -- it's early, but great traction in every geo. And so I think that the same dynamics are in play, certainly in the US and EMEA when it comes to as we think about mobile and desktop as a broader business, and we'll work through that over the next couple of quarters.

Okay. And then one quick one, just as we get to the close to the end-of-life of Windows XP, obviously we've talked about this in the past, it wasn't a huge driver for XenDesktop. But are you seeing any conversations with CIOs, not just about that transition, but that sort of accelerating XenDesktop growth as we get to the end-of-life next year for XP?

I think it's one of many conversations that we're having with CIOs right now. I'd say it's not the top of the list. Top of the list continues to be around topics like mobility, like data security, the end-of-life of XP is not new. And that's probably the biggest point. As we get closer, I'm sure it's an opportunity to have more conversations as customers start thinking about that. But as you'd imagine, we're at a much more strategic level and much more urgent priorities, I'd say in most accounts.

Okay. Thanks for taking my questions guys.

Walter Pritchard from Citigroup.

Hello, thanks. Just wondering, two product questions for you. On XenDesktop 7 which you're launching, you've launched here, I'm wondering how you're thinking about that impact the conversations that you're having in the second-half particularly around some of the cost benefits at that that platform brings. And then on the NetScaler side, just wondering if you could quantify any of the impact that you started to get at this point from Cisco. I know it is early, and you mentioned Cisco Live was after the quarter ended. But just trying to get a sense if you're starting to see some sort of halo benefit from the endorsement of Cisco for that product.

Sure. Walter, I'd say on the first part, XenDesktop 7, is a really important release, and it's important for a couple of reasons. Probably the biggest of which is that it's bringing down complexity materially. And we've talked a lot about that over the last few quarters of one of the barriers to adoption or expansion in many accounts is the fact that desktop virtualization is fairly complex. And so this release was really focused on making it more accessible, so that customers can get through POC's faster, ramp, and manage at scale. And so I think we made big steps forward on that front.

Secondarily, it is the first platform that's going to support Windows 2012. We've made a whole bunch of enhancements that Mark and I both talked about around performance and driving down cost. And so it's got -- it's by far the most powerful release we've ever had for XenDesktop. And of course unifying the architectures between app and desktop into really a single solution. So, I think it helps. There's no such thing as a hockey stick in these types of businesses, but for new conversations it will certainly allow them to move faster, and will help customers migrate on a pace that is right for whatever their business initiatives are.

And as far as Cisco is concerned, a great early-stage partnership in terms of the announcements that we made around cloud networking in June. NetScaler 1000 V. That will start to have an impact in Q4, so there's really no impact at this time. I'd say that the overall relationship is extremely positive really across networking, what we're doing in mobile work styles, which includes XenDesktop and UCS, as well as some of the cloud services work. A minor amount of business that I would attribute to Ace, and we've had that question a few times in the past, but we're doing a lot more I'd say with Cisco influence in the field for accounts that we're managing together, and we're able to solve larger problems by integrating various parts of the stack. So it's great. It's early-stage. And we're optimistic about it going forward.

Great. Thank you.

Abhey Lamba from Mizuho Securities.

Yes, thanks. David, can you talk a little bit about dynamics between the spread of revenue that goes into license bucket and license updates when you sign a desktop deal? Has there been any change in the last few quarters as those (inaudible) are diverging? And as part of that, do think we should focus more on your license plus maintenance growth rates as a better metric to analyze that segment instead of just focusing on the license?

Yes Abhey, it's a good question. It's how we think about the business internally, and how we measure our sales teams. It's a tough one for us to call out, because every quarter is unique and different. And so therefore, we try to keep you focused on the aggregate license, and then the aggregate to deferred growth. I will say in Q2 for example, the second-largest desktop virtualization transaction in the quarter, actually had no recognized revenue. Based on customer requests to deliver some things on the backend, that transaction will be recognized over a three-year period of time. So that's one where a large part of the growth in deferred, in this case more than half in Q2, is going to be attributed to desktop virtualization. So we'll talk about it at a high level, but probably the best way to think about the business in general is that the aggregate product license line, the aggregate revenue line, and then EPS. Because there really are a lot of moving parts. And strategically, we're having the conversation with a customer that brings together multiple products across the domain.

Got it. And one quick one, your third quarter guidance indicates a very modest sequential uptick. But you just launched project Avalon and mobility solutions, so qualitatively if you can talk about what are you baking in from these new products in the third quarter? Or is it primarily a fourth quarter phenomenon? That's it for me. Thanks.

Yes, what we think about guidance is, yes, we had a great Q2. We are feeling very good about the business in what is still a fairly uneven environment. We're raising the full-year expectations for the business, and we're going into the second half with what I hope to be conservative assumptions downstream. But what I think is prudent right now, there's still a number of unknowns in the market. I'd say EMEA is probably the most uncertain of the geos, and no expectation for that to get better anytime soon. Public-sector in the US continues to be more volatile than it would be historically, and therefore, want to maintain this posture in the back half of the year.

Thank you.

Steve Ashley from Robert W. Baird.

Great. I was just going to ask a question on the mobility offering. What is a more likely scenario going forward that a customer makes the initial kind of core XenMobile purchase, and then later, maybe quarters later, adds in the XenDesktop and XenApp kind of to fill out, or do you expect them to make a complete purchase and pull the desktop products kind of on the initial deal?

Steve, I think there's great potential for the future sale of desktop virtualization to get XenMobile customers if for no other reason than all of the things we've done in XenDesktop 7 and the road map there that makes it lower-cost, faster, and easier to implement at the margin. So migrating a set of apps from physical to virtual. Migrating a set of desktops from physical to virtual. We make that easier and easier and easier. Lower, lower costs to implement and to own. And so as mobility and the mobility solution within XenMobile itself our native mobile apps et cetera and device management take root, customers will find it very easy to add on a XenDesktop or XenApp capability to then bring Windows into the same total mobile context as everything else. So we're optimistic about that. Perfect. And then just on the NetScaler business, obviously you guys just continue to kill it. I was wondering if you felt that it was a normal quarter just in terms of not pulling business forward in the third quarter seasonally strong from NetScaler, are you expecting to just have a normal seasonal third quarter for the NetScaler business? Thank you.

Yes Steve, I think the NetScaler seasonality has been evolving over time. And the primary reason is there are a number of large vendors out there that are doing big scale data center build outs, either to support new cloud services or infrastructure as a service type thing. And because of that, we don't see the Q3 bump as much as we would have three or four years ago. So, we just posted our third quarter in a row North of 50% year on year growth, so I certainly don't expect those types of growth rates to continue. The numbers are just too big at this point. But the diversification of the business I think is the real story here, and that is we're getting good pull through, as I mentioned, from cloud service build outs. We're continuing to participate strongly in what I call e-commerce or Internet centric accounts.

And then on the enterprise side of the house, all the initiatives that we've talked about over the last several quarters including the expansion of coverage, which every one of our geos posted really good growth in networking. I think there's still some opportunities there. The expansion of products, as we mentioned, how many people are adopting both the virtual appliances as well as the SDX platform. And I tell you SDX continues to be probably the biggest story, where it's just really differentiated in the market.

And what you can do from a consolidation standpoint, from a multi-tenancy standpoint, and do it in software is really unique. And because of that, we had nearly 150 customers for SDX in the quarter, and 85% of those were enterprise customers. So, this is getting great adoption across the board. And I think it's a combination of all of those that makes us feel very good about continuing to take share across the category. But in terms of the overall growth rates, we still measure those year on year. And our guidance would point to a deceleration in the second-half back to closer to normal levels, because of just how strong it's been in the last few.

Thanks.

Heather Bellini from Goldman Sachs.

Great. Thank you very much, and congratulations. I was wondering if you could talk a little bit about the leverage you all think you can get out of your desktop install base as you go into accounts with your MDM solutions. And I'm also wondering how you see that product set evolving over time. We've talked to a lot of people about the market in some cases moving to mobile application management. And just wondering, how do you think you're positioned as the market continues to evolve there given your strength in the streaming of applications to people's desktops already? Thank you.

Hello Heather. I'd say that the opportunity is huge there. And in fact, over two-thirds of the business for XenMobile in Q2 was for the enterprise edition, which actually has all the MDM, all the mobile apps, all the mobile app management embedded and included with it, and also integrates smoothly with XenApp and XenDesktop. And if you look at the customers that are in that mix, many of them are the strategic customers for XenApp and XenDesktop, where we've already got an entree with the account and open up a broader conversation with their mobility or their mobile team. So we're already starting to see that in the business. And I think as we execute across a pretty aggressive road map that you'll see in the second half of the year, it will actually encourage the install base to actually check off the box, come to Citrix, because it's really it will be a very easy extension from a XenDesktop or XenApp installation to add a XenMobile install on top of it.

Great. And one follow-up question. In terms of you mentioned the sales force being somewhat preoccupied with on the XenMobile side. Maybe taking away from some time it might depend on traditional XenDesktop sales. Is this an area where you think eventually you'll need a specialized sales force, or do you do see them coming up to speed on the product and selling them all together?

Well, I think the answer is both. In fact, we already have both. We have a specialized team, and we obviously have our general enterprise sales force. And part of working through this process is that the bandwidth in the specialist team is limited, and it's outstripping the demand. The supply is not up to the demand, so a lot of the enterprise reps are having to learn the product and do a lot more than they probably needed to in the future when it comes to a very XenMobile centric and mobile device centric kind of conversation. So I think that's part of what we're working through this year, and we're looking to see better results in terms of productivity in Q4. And then as we do a number of things at the start of next year, around go to market, around the road map, around partnerships, et cetera, that productivity should increase significantly next year.

Thank you.

Israel Hernandez from MKM partners.

Hello guys. Just wanted to drill down a little bit on Europe and the desktop business, and the weakness that you've been seeing, it's been ongoing. How is the pipeline looking? Are deals still there, or are they evaporating? Is it the transaction business that's suffering? Any particular vertical? l just want to get some more color there as to what you guys are seeing. You're indicating you're not expecting any improvements certainly over the near term, but just kind of curious about the longer-term outlook there. Thank you.

Sure Israel. It's David. I'd say that consistent with what I said earlier, it's a mixed bag in EMEA. We had you mentioned large transactions. There were let's see, well I forgot the exact amount. I think there were 10 in the EMEA region. And that compares to about 10 last year. So, not a lot of change from a large deal point of view. The aggregate value of those was down a bit year on year, and I think that's just reflective of the macro environment. As we step back and we look at the individual markets, you're going to have some that are performing well one quarter and some that aren't. And it's been a long time since the majority of them were executing well based on the environment.

So last period, central was challenging, as was the Nordic region, and we had relative strength in what we call Western Europe. So it will be a mixed bag, but we're doing the things that we can control and helping customers through the environment where it makes sense. I'd say as it relates to the overall pipeline, though, things aren't going away. The conversations are still there. The ability for customers to pull the trigger with capital is what's been harder to predict. But we're still having active conversations at the same level we have been in the past. I'd say the one unique thing similar to what is happening in the US of course is around mobile, and the same dynamics of customers looking at this and saying, I can do it quickly, it's a simpler smaller opportunity, and so we can get those done. And similar to Mark's comments, those will pull through the broader strategic conversation and make it easier downstream. So we're executing. We've got good leadership there, and we'll keep focusing on the things that we can control.

Thank you.

Michael Curtis from Raymond James.

Hello David. Last quarter, you did say that, I know you're not breaking out between, but last quarter you did say that desktop and mobile combined would grow license at low single digits. So now that you've you did 2% instead of the double-digit this quarter, does it look like that will be probably more like negative or flat, or what would that be? What's the update to that? And secondly, what do you need to do in terms of OpEx? What's the plan in terms of spend to start to get both sales force and channel more effectively selling mobile and combined mobile desktop?

Yes, Michael, on the overall business, you're right. We're not going to give micro guidance at this point in time. There's too much or there's too many moving parts going on in the organization. And since we have a general team a generalist team to a large degree, they can focus on different parts of the business, and we'll keep guidance at the overall product license line. I will say though, regarding mobile and desktop, I believe that the growth will accelerate as we look into Q3 and Q4. And that's a function largely off productivity starting to flatten out, and mobile starting to ramp. As far as the individual products within that, that will be determined based on the types of projects that customers are engaging with in that period.

As far as OpEx, we're doing a lot of trading right now. We've spent the first part of this year getting the new teams up to speed. And getting the integrations underway, and getting the systems put together. A lot of activity training both channel partners, as well as core team on mobile and how mobile and desktop fit together into a larger solution. How to position those both as independent problem-solving tools, as well as a strategic solution. So not a huge amount of incremental investment on the go to market side.

Consistent with the last couple of quarters, the majority of investments we're making on go to market are around networking. And that's been an area that is fairly unique and fairly complex, and therefore requires more direct investment and you see the results there. We're having terrific growth across every geo, because we can just get in that many more conversations. And so we're doing very well there, and that's going to continue. There's definitely some places where we are opportunity -- excuse me, capacity constrained in networking around the globe.

Thanks David. So is the total license guide that was low double digits as of last quarter, that's still in place?

In terms of total license for the year, it's basically unchanged. It's low teens. With what would be implied in our guidance and at a total revenue number, it would be roughly 15%. And that's how we're thinking about the business right now.

Thanks very much guys. Appreciate it.

Phil Winslow from Credit Suisse.

Hello, thanks guys. And congrats on a good quarter. Most of my questions have been asked, but just wanted to focus back in on XenMobile and just sort of a broad industry question. Mark, just curious what you're seeing from a pricing perspective out there. Obviously you uniquely crossed both mobile application management and mobile device management. Just what are you seeing out there, and any sort of specifics between MDM versus MAM? Thanks.

Phil, I think what we see is that basic MDM is a very low-priced, low value kind of a technology and solution for most customers. And the more they understand about kind of how to manage a mobile environment and enable mobile work style, the less incremental value they have for MDM. And I think we see that in MDM sort of specific deals, and why we've packaged XenMobile in a way that allows us to sit on top of someone else's MDM if a customer wants to almost get it for free from somewhere else. Because the real value in terms of the security of data, the delivery and provisioning dynamically of apps, and the availability of core mobile apps as a suite, including mail, and browsing, and mobile data, et cetera, is really where the value is and the value proposition is.

And so I think as the market gets more educated on enterprise mobility in general, it really has everyone concluding the MDM is not where the value is. It's really in the whole stack that XenMobile enterprise represents. And so the pricing there, we've been delighted with. And when it comes to sort of a shootout on MDM, we try not to do bad business there. And we can sell customers value add on top of other MDM in those cases.

Got it. Thanks, guys.

Kash Rangan from Merrill Lynch.

It's like a lot of the call was focused on the very mournful, sorrowful piece, but I want to just stand here and congratulate you guys on putting up a 21% license growth rate number. Which compared to some of the other companies that reported, stands out. So a nice job on that. And also on the margin front, and the EPS front, and the balance sheet, and cash flows. So just to keep it a little more balanced, I wanted to understand more about what's going on the NetScaler side. Do you think these gains are sustainable? Is it market share that's really driving the gains in that business?

And also secondly wanted to hear, Mark, you on what do you think is the total available market for XenMobile? It would intuitively seem to me that anybody that's a XenDesktop user, it's for more XenDesktop users and XenApp users probably going to be likely candidates for something like this. I just want to understand how you looked at the TAM, and how you view your ability to be more differentiated and so-called locked in to the customer over a long period of time so we can view this business much like a XenDesktop, XenApp business with a long tail and trajectory? Thank you.

Kash, this is David. Let me take the NetScaler question. Actually, let me first say thank you. I appreciate the comments on the overall business. Yes, you're right. We're really happy with the total quarter being up 21% in product in a mixed environment is great. So the strategies are all coming together, and the product sets feel good for the second half of the year. Regarding NetScaler, maybe I'll just reiterate a couple of the things that I said earlier around where the business is coming from, and it's balanced. And that's a good thing. We're getting good participation growing business out of the International markets. I think we've had a couple of quarters in a row with EMEA up 40% 50%, which is great. And a lot of that is just due to expanded capacity. And we're getting strong growth in Japan and Pacific, as well.

So we're going to continue to invest in that area, so that we've got coverage enabled to actually have these conversations. But on the product front, I think we are taking share from a market standpoint simply because of the breadth and the performance of our product. The software-based approach to networking I think has proven to be something that customers are really gravitating towards, and that's because it works. It works for them. It allows them flexibility to scale up and scale down as they need to. And making it easier for customers to do what's right for their business is a good long-term proposition.

So I think from a market share standpoint, when the numbers come out I'm assuming we will take pretty good share in some places. But right now, we're really just focused on those different segments, and trying to be successful there. The one place I didn't mention yet is around telco, and that's a new market for us. We're still lightly penetrated there, and most of the time we're entering telco space through Bytemobile, where we're getting attached with pretty much every new transaction for Bytemobile will include a pull through of some NetScalers as well. So just another thing to keep an eye on as we go into 2014.

Yes Kash, regarding your question about TAM around desktop and mobile. First of all, TAMs and when you look at TAMs it's a bit of black magic, and it's based upon how you slice and dice the marketplace. And what we do, like most companies, we take all of the external data from industry analysts, et cetera, and add that to our own view. Now in the case of desktop and mobile, we are a huge player in the market. So a lot of the number you get to is, it's a combination of the external view that when analysts look at us and then when we look at what might be possible through execution and value proposition.

So when we put them together, which is how we believe customers over the long-term let's say the next two, three years are looking at this marketplace, we look at about a $6 billion TAM in 2015. And that takes into consideration the various segments of enterprise mobile, which does include MDM. It does include MAM. It does include some segments of core mobile apps. It does include certain segments of mobile analytics. It does include certain dimensions of mobile security. And then on the desktop side, obviously, we look much more purely at desktop virtualization and exclude things like classic desktop management and really focus in on virtual desktops and apps.

And obviously a big influence there over the next few years is based upon our view on our view on our execution and the product road map, but also how this kind of technology will get deployed in a cloud context. Not only by customers, but also by service providers. And we haven't talked much about service providers today, but that part of our business and on the desktop side continues to be pretty exciting. We think that there are great potential routes to market for XenMobile, and that as the road map evolves here it will be easier and easier for service providers to actually be out there in the marketplace with the complete solution. So probably a little bit longer answer than you expected, so think $6 billion 2015, a combination of both the desktop and mobile markets and a lot of segments within especially the mobile space.

Got it. Well thank you very much, and again congrats on crushing the license number and your cash flow and bookings metrics. Thank you.

Raimo Lenschow from Barclays Capital.

Thank you. And Kash made a great comment there, and I would echo that congratulation there. Just a question on the software as a service part of the business. If I look at the last two quarters, the growth rate has looked like it has changed somewhat and where this used to be like 18%, 20% grower we're now kind of more in the 13%, 14%, 15% range. Can you talk a little bit about the drivers that we should be thinking about if we model the business going forward? There's obviously the law of large numbers, but what are the other drivers to come up with the growth rates in the future? Thank you.

Sure Raimo. This is David. There's really four segments within the SaaS business that I've think are important to point out. The first is remote access. That's our go to my PC product. Remote support, which is largely go to assist. Collaboration, which we talk about as the GoToMeeting family. And data sharing which is ShareFile. And each one of those four are addressing different segments, and they're growing at different rates. I'd say the remote access market, is one that is very mature at this point in time, and so therefore it's been slowly shrinking. That business has been declining, and pulling down the overall growth rates.

The two, call them most strategic, that we've focused on certainly around collaboration, which is still growing north of 20%. We're doing really well with the GoToMeeting family there. And then ShareFile, which our data business is new, so it's still a relatively small percent of the overall total. But I mentioned it was growing 75% or so. The way to think about those is not only standalone products, but also part of a larger solution or a platform if you will for how we're thinking about mobility and ShareFile for example. Integrated with the XenMobile product, we've done integrations with receiver, therefore desktop and app virtualization, and so it's truly a platform. Reported revenue, I think this range where we are right now is a pretty good modeling range for the balance of the year. And then as the faster growing business businesses become a larger component of the total, we'll talk about as we get into 2014.

Okay, thank you.

Ed Maguire at CLSA.

Hello, good afternoon everyone. I was wondering if you could address your plans around Apache CloudStack. It's nice to see that it's in production in 200 clouds right now. But what are your plans in terms of investing around that, and expectations potentially of pull through or expansion of your products into some of those production sites? And customers?

Yes Ed, so the number I cited, almost 200 production cloud, those are actually CloudPlatform implementations, which is our product that has Apache CloudStack embedded in it. There are many more than 200 production clouds on Apache CloudStack. And in that it's a production ready environment far beyond anything else that's available in the market that's open source. And then secondly, when we're a great participant in that community we're continuing to invest as we have all along. And we've seen a lot more momentum come to the CloudStack community over the last year in terms of the number of companies that are contributing, and the number of net total contributors. Which is making CloudStack more and more and more robust, which then obviously helps us on the CloudPlatform side.

Part of what we do in the commercial availability of CloudPlatform is we add tight integrations with XenServer, tight integrations with NetScaler, and then we add on top of all of that a product line we call CloudPortal that actually makes it easier easy for service providers to publish and sell the finished goods that live underneath on top of CloudPlatform. So we're continuing to invest, and we're seeing that more and more, this is -- there are segments that are richer than others right now. And we've learned a lot about where that opportunity is. And the segments are where there's a high urgency for production, for a platform that's reliable, secure, that will scale, and there's less urgency where people are still crafting strategies and talking about it. So we've seen great uptake in telco, what we like to think of as the enlightened enterprise. And -- which is a smaller slice of the overall enterprise market, and education as well. All have been good segments for CloudPlatform. So hopefully that gives you a little bit more color around that segment of the business.

Great. Thank you.

Kirk Materne from Evercore.

Thanks very much. David, I just want to I guess circle back around on some of your comments around the distraction around mobile versus say some of the older products. Yes, I get there's always a shiny new toy syndrome that can come in when there's a really exciting product, but salespeople are also pretty -- they only do that if there's a real opportunity for them to exceed quota with those products and do even better than they were thinking. So, should we think about this as salespeople are taking a step back, they're integrating XenMobile I guess into their pipeline, but the pipeline is just going to be it gets pushed back? And along with that, if you sort of reset, meaning you have a deal but you want to start bringing XenMobile into the deal because you see an opportunity, I guess how long does that set you back? Meaning when you see salespeople potentially expanding their pipeline, but pushing out the conversion on that. Is it a three-month sort of push out? Is it a six-month? I guess, what are you seeing? Any color around that would be very really helpful.

Sure Kirk. The best way to think about it is the fact that most of our ERMs our sales teams are an annual quotas, and they think about the business in the context of a calendar fiscal for us, year. And therefore, the quarter-to-quarter boundaries are not as important as you'd think. And so it's really about building up the business within that context, or that timeframe. And so, it's not surprising that there is a productivity hit when we bring in a new market that every customer wants to talk about. Some of it is our teams actively driving that of course as they're really out there building pipeline, and doing things like that.

And the other frankly, is from customers. As customers understand the breadth of the portfolio and whether they were at synergy or just heard press announcements, and they want to understand what our capabilities are. So they may be trying to upsize a deal or reprioritize individual projects. So it will come from both angles. And it's one of those things where pipeline is about planning planting seeds, and you harvest those as you get later in the year. And confident that our teams are very focused on that. And so, they're not going to let it get away from them very long. They really solid sales orgs around the world.

And then just one follow-up if I could, we've heard mixed data points out of the AsiaPac region this quarter. You guys obviously price in dollars. So for your Japanese customers, your products are unfortunately getting more expensive. Can you just talk about what you guys are seeing? It's obviously a lot of different territories in AsiaPac, but what you're seeing if there's been any sort of impact from the macro getting slowing down a little bit at least in China.

Yes I think similar to Europe, it's hard to call Pacific a market. There's a whole bunch of individual market dynamics at play. We do price in dollars in a lot of areas. And so there's some pressure from an exchange rate point of view. And the flip side of that is we also price in local currency, and in a lot of our SaaS businesses, so we've got some headwinds there as well. So mixed bag for us. I'd say from and attainment point of view, both our attainment against plans both of our Pacific and Japan teams are doing really well. And there's a lot of opportunity and actually I think a record number of large strategic transactions coming out of the broader regions, certainly a record for a Q2. So we're having the right level of conversation, and we'll power through. Nothing that I would call out as a beyond the ordinary there. Certainly not as volatile as I would say the European continent is.

Great. Thanks. Congrats on the quarter.

Operator, I think we have time for one more question.

Daniel Ives from FBR Capital M markets.

Yes, thanks for squeezing me in. Guys, after some of those questions before I ought to check the press release to make sure it was beat and raise. I ought to re-look at it. My question is more around with NetScaler, are you starting to see some competitive displacements out there? In terms of just given the strength that you're seeing across the board?

Yes I'd say we focus less on competitive displacements and more of just on a customer by customer basis. What problems we're trying to solve, if that means we're displacing a specific vendor, great. But really looking at everything from EDC refresh cycles to incremental opportunities with virtual appliances to data center consolidation with SDX, so it's across-the-board. And I said earlier that from a product portfolio standpoint, we feel very good about the breadth of what we're delivering right now. We think we've got a really good combination of tools, and it's unique in the market right now. So it's execution for us to continue that capacity where we can, and the volatile part of this business of course will be around big data center build outs, cloud services. Those come and go from period-to-period. It's not steady-state, so it's one of the reasons why year on year growth rates will bounce around a little bit. But in the aggregate, I feel very good about our ability to take a lot of share this year.

All right. Thanks. Great quarter. Tough environment.

Thanks Daniel.

Ladies and gentlemen, 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 comments.

Thank you very much. And I'd just like to say, thank you for the kind comments and the great questions and discussion this afternoon. Obviously, it's a tough environment. I feel good about how we're executing in the face of that. And obviously as a team, we're feeling very confident in both the strategic plan and the fiscal plans we have in context with the kind of environment that we're seeing. So, thanks again for joining the call today. And we look forward to talking with you three months from now. Thank you.

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