思杰系統 (CTXS) 2015 Q4 法說會逐字稿

Good afternoon. My name is Kyle and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Citrix Systems fourth quarter 2015 financial results conference call.

(Operator Instructions)

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

Thank you, Kyle. Good afternoon, everyone, and thank you for joining us for today's fourth quarter and FY15 earnings presentation. Participating on the call will be Bob Calderoni, Executive Chairman; Kirill Tatarinov, President and Chief Executive Officer; and David Henshall, Chief Operating Officer 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 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 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 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 Chief Operating Officer and Chief Financial Officer. David?

Thank you, Eduardo, and welcome to everyone joining us today.

We're making great progress on the operational initiatives that we launched last year. At a high level, the most important activity has really been simplifying our strategic focus, driving both portfolio optimization and clarity in terms of what's most important to the Company, our partners and our customers. Our results for Q4 reflect the progress the team has made in absorbing and adjusting to these initiatives, cost structure work, org and leadership evolution, and changes to our field and channel strategy. We continue to focus our energy towards our core strategy, the secure delivery of absent data, really setting the Company up for even better results, efficiency and growth as we look forward.

As you saw from the release today, total revenue was up 6% year-on-year in Q4, with product license up 5%. Adjusted operating margins jumped to 32%. Adjusted EPS was $1.66 per share, up 50%, and we generated $282 million in cash flow from ops. In total, we closed 86, $1 million-plus transactions across products and services. The Americas region booked the majority of these, with 60, and EMEA had 23.

Just a couple of points that are worth noting in that the average value of these large deals increased significantly year on year in both the US and EMEA; and at a product level, I think we saw really good balance across the portfolio. Roughly 33% were made up of virtualization and mobile products, 33% from networking, 20% from the full workspace suite, and the remainder coming from subscription and services.

The combination of these large transactions, plus strong renewals in other businesses and the ongoing migration to higher value maintenance offerings, boosted total deferred revenue by $154 million sequentially. On an annual basis, short-term deferred is up 4%, while multi-year is up 16%.

From a geo perspective, when you exclude the SaaS businesses, the Americas was really the big driver in the quarter, with revenue up 11%. EMEA was flat, but results in APAC declined by 13% year on year. Since our restructuring last year occurred earlier in the US versus the other geos, the US teams have had much more time to stabilize and adapt to their structure, really a key contributor to this performance in Q4.

Next, let's take a look at the Q4 results within our three primary businesses. Our workspace services business grew 4% year on year, to $452 million (corrected by company after the call), including license growth of 1%, continuing the steady improvement in results we have seen over the past 5 quarters. Really more than any of our other businesses, workspace services should benefit the work we're doing to simplify focus and strategy. And as we have reviewed before, there's a number of very specific initiatives that we're driving to accelerate growth in this area through innovation, verticalization, and the aggregation of our unique assets.

We built the market-leading products that allow secure delivery of the world's most important applications, including Windows, web, mobile, and customer line of business apps. Plus, we've built the integrations into our enterprise file sharing and networking solutions that together create really a powerful mobility system for our customers, as well as market differentiation. In the quarter, the Workspace Suite, which is our comprehensive solution for app and data delivery, contributed nearly 20% of license revenue for this group, and this compares to just 9% a year ago.

Additionally, we continue to grow our CSP business, where partners primarily utilize XenApp to deliver subscription-based offerings to their customers. This quarter, CSP revenue grew over 30% year on year and closed the full year at just over $55 million in total recognized revenue. So we're delivering a complete mobility solution, allowing customers of all sizes to bridge between the worlds of Windows and mobility, on-premise or service-based. And we do it really all with a customer-centric experience that only Citrix can provide.

Next, looking at the delivery networking, total revenue increased 13% in the quarter, to $220 million, including license growth of 10%. The strength in this business was driven by NetScaler. Offsetting this was a significant decline in ByteMobile as we transition away from that product line.

But focusing on NetScaler, it's important to remind everybody that the business here is essentially made up of three segments, attach sales, enterprise ADC, and strategic service providers. Attach sales, where customers are purchasing networking and workspace services together as part of a larger Citrix solution, represented about 20% of the NetScaler mix in Q4. There were over 800 of these transactions, and this compares with just 700 a year ago.

Enterprise ADC was about 33% of the mix, growing modestly; and the service provider segment contributed more than 40% of license. And similar to what we discussed in Q3, we saw strong demand across the main major service cloud providers. All in, we sold to over 2,500 unique customers in the period, with 36% being new customers

Finally, in our SaaS-based solutions, we delivered revenue of $194 million, up 15% in the quarter. The communications cloud remains the largest part of this business, contributing over 60% of the mix and growing about 19% year-on-year. In the workflow area, our data platform, ShareFile, was up nearly 30% in subscription-based revenue, with the majority of this growth coming across regulated verticals.

Our focus on improving retention rates of the active user base has really helped net new business increase significantly year over year. This has been driven by changes across product packaging, as well as customer care organization.

Back in November, we announced the intention to spin our GoTo family of products in the second half of this year. And I'd say that these plans remain well on track; and in the coming quarters, we will provide much more visibility into this business, as well as into the ShareFile business that will remain part of Citrix going forward.

So turning to operations, we have delivered a rapid increase in margins over the past few quarters, really despite funding incremental investments in our higher growth businesses. As we discussed last year, we built detailed restructuring plans across the Company, with the intent that these would generate permanent expense reductions, allow the Company to execute more efficiently with fewer moving parts, and prepare for greater scalability in the future.

In November, we announced headcount actions primarily targeting non-quota carrying areas in order to minimize the impact on our ability to service customers and drive revenue. Generally speaking, I'd say we broke these notifications down into two events. The first one occurred in mid-November and the second one concluded in early January. I would point out that many of these roles have transition elements to them, so the expense realization will be phased in throughout the year.

In Q4, we posted 32% adjusted op margin. This is up nearly 600 basis points from last year and is actually the highest margin of any quarter over the last 10 years. For the full year, we delivered 26%, as compared to just 22% in 2014, well ahead of our original guidance at the beginning of the year. And currently, I'd say I think we're well on our way to achieving the 30% plus goal we laid out for FY17.

This focus on leverage has also helped increase cash flow from operations, which was $282 million in Q4 and over $1 billion for the full year. This is clearly a record for the Company. When you translate this, it's about $6.45 a share for all of 2015.

And finally, we remained active with our buyback program last quarter. We repurchased 4.3 million shares and this increases the total for the full year to over 11 million shares. We also announced today that the Board has authorized an additional $400 million to fund our ongoing program.

So before I wrap up, let me talk about our current outlook and expectations for Q1 2016 and for the full year. Our operational programs are clearly working. I'd say we're very happy with their results so far and we're confident in our plans for the balance of the year. At the same time, we want to remain mindful of any potential disruptions that can occur, really with any restructuring. So with that, we intend to remain conservative across many of our assumptions but we will be increasing our current expectations.

For Q1 2016, we expect revenue in a range of $785 million to $790 million and adjusted EPS between $0.91 and $0.93 a share. For FY16, revenue between $3.31 billion and $3.32 billion and adjusted EPS of $4.65 to $4.75 per share. And as a reminder, this guidance represents all businesses, including GoTo.

So now I'd like to turn it over to Bob to give further color on the quarter. Bob?

Thank you, David.

I am very excited to have the opportunity to speak with you today, for a host of reasons. First, I want to provide more context around the solid results David just shared. Next I want to give you an update on the progress we have been making to refocus our strategy and execute on the ongoing operating initiatives we outlined in November. And last, but certainly not least, I want to share my excitement and introduce you to Citrix's new President and Chief Executive Officer. So let's get started.

First, needless to say, I am very pleased with the performance this quarter on both the top line and the bottom line. On the top line, the performance was impressive in and of itself, and even more so when you consider that we were implementing a number of restructuring activities in the sales organization during the fourth quarter. Carlos Sartorius and his team demonstrated that it's possible to restructure the organization and keep focus on execution, not only delivering on our expectations but far exceeding, with a beat of more than $25 million, with most of that upside coming from product and license revenues.

After a few consecutive quarters of declining license revenues, we posted solid gains in both Q3 and Q4. As David pointed out, we had good performance once again in our NetScaler strategic service provider segment. However, it's also important to point out that performance continues to improve in workspace services, as well, where we saw positive license revenue growth for the first time in a while, which is even more encouraging when you consider the mix shift towards more subscription and term-based licenses.

I believe this is a function of improving execution and also the early benefits of our renewed focus on secure apps and data delivery, which has received excellent feedback from our employees, partners and customers alike. This focus allows us to put all of our energy and resources into what is most important to us and to our customers, which I believe is a key contributor to our top line performance this quarter.

A few weeks ago, I had the opportunity to participate in Citrix Summit, which is our annual kickoff with our sales team and our partners. You could feel the energy in the room, as the collective team had just participated in an excellent end of the year. Both our sales team and partners had very positive feedback about the event and they were particularly appreciative of the focus of the Company, our simplified go-to-market strategy, and our reenergized partner program.

On the partner front, they were excited not only about the clarity we provided on the portfolio, but also about the innovation we are driving in our core products. At the event, we showcased new capabilities for Microsoft technologies, browser-based apps, and software defined WAN. These innovations line up with some of the major buying cycles going on in the tech sector that play to Citrix strengths.

Citrix can significantly accelerate and simplify the migration to Windows 10. We will be ready with similar capabilities for Server 2016 when it launches later this year, and our new optimization pack delivers deep integration within the Skype architecture, allowing us to deliver virtualized Skype functionality to Windows, Mac and Linux desktops, making us a preferred partner for Skype for Business and giving us the lead competitive position.

There are also a host of other IT buying trends that Citrix is in great position to capitalize on. For example, the massive adoption of Chromebooks and explosion in the use of browser-based apps is creating new opportunities for us to simplify and secure the delivery of apps for our customers. At Summit, we announced our browser app service that eliminates the headaches of browser version compatibility and mitigates the security risks involved with browser-based apps.

In addition to these market trends, we're also benefiting from our focus on industry verticals, especially in financial services and healthcare. By focusing on these verticals, we add features to our core products that meet the needs of specific industry use cases, which gives us a significant competitive advantage.

Along with our focus and execution, this has enabled us to beat the competition and, in several cases, resulted in competitive takeouts versus VMware, which is reflected in our excellent results this quarter. The competitive winds are definitely turning in our favor. That is true of customers, evidenced by a number of competitive takeouts. It's true in partners, as well as on the recruiting front.

I'm equally pleased with the progress on cost and margin improvement. When we last met, I shared how the recommendations from our strategic and operating reviews would not only focus the business on our core competencies and segments where we have or can build a defensive leadership position, but also to streamline the organization to improve execution and reduce the ongoing cost structure of the business.

As you can see in the results this quarter, we're making great strides, with adjusted operating margins up nearly 600 basis points year on year. A number of our initiatives are already implemented and we are on track with more than 30 individual projects realizing faster savings, which is reflected in the quarter's results, as well as in the increased EPS guidance for 2016.

Back in November, we set goals for 2016, which I characterized as conservative. The team did an outstanding job this quarter of performing while implementing the restructuring. Yet I believe it's prudent to remain conservative and realize a few more quarters of consistent performance before we raise expectations further. Considering current performance and the recent trends in the business, I would say our 2016 guidance remains very conservative, if not more so today.

Before introducing Kirill, let me just say a few words of thanks to the team for the tremendous support they have given to me over the past six months since I first joined as Exec Chair, and more recently, as interim CEO.

We have a terrific team here at Citrix. It's a very smart team. They're dedicated and the culture is ingrained with a deep desire to win and a competitive spirit that I'm very accustomed to. They have given me all the support I could ask for and they have shown what they can do when focused on a core mission and freed from distractions. They rapidly embrace the changes in the business and have shown that less can be more, not only more profit, but more revenue, as well. And they have shown that they can drive results in the business while simultaneously implementing difficult restructuring actions.

The mission is not complete, far from it, but I'm encouraged by the progress to date. The winds are clearly shifting in our favor. The team is energized and confident. They are competing more aggressively and winning in the market. They're building momentum in the business, as evidenced not just by my words, but by their performance. I'm very proud to have been part of this team and thankful for the support I received as interim CEO.

I look forward to continuing on as Exec Chair as we build upon our great start. Going forward, my focus first and foremost is on providing Kirill and the team any support they need. And beyond that, I plan to continue to stay involved in the restructuring and operating actions we outlined in November, the spin out of our GoTo business, and the capital structure items.

So finally, let me say how pleased I am to have Kirill join us as our new Chief Executive Officer. I and the rest of the search committee conducted a very thorough search. We considered a number of candidates, focused on those with a background that includes both leadership experience, as well as technology and product expertise. Most importantly, we looked for leaders who shared our Company's core values and a relentless focus on customer and partner success.

Kirill has a proven track record of growing businesses and driving operational performance. When you couple that with his deep product background and the fact that he knows our space, our competitors, and our biggest partners, there could not be a better fit between a candidate and an opportunity. So I am really excited to have Kirill join and lead this Company to our next phase of growth.

So with that, let me officially welcome Kirill to Citrix and turn the call over to him so he can introduce himself and say hello. Kirill?

Thank you, Bob, and hello, everyone.

I'm extremely excited to be part of Citrix. I've obviously known Citrix over the years as a peer and a partner in the industry, and I always viewed Citrix as a great company with highly respected brand, differentiated products, strong team, large and loyal partner channel, and amazing customers around the world. In fact, many of whom I also served in my prior roles.

Today is only my third day with the Company, so I wanted to share just a couple thoughts on why I am so excited about joining Citrix. From my discussions with many CIOs over the years, it is clear that secure delivery of apps and data is one of their most important priorities in driving digital transformations in their companies and helping people in their organizations work better. And this is precisely what Citrix does.

Personally, joining Citrix feels a bit like a homecoming for me. Throughout my career, I have been passionate about helping people at work to be more productive. I have been fortunate to have an opportunity to build and lead innovative organizations with multi product portfolios, and I had an opportunity to grow businesses at scale through a partner-centric go-to-market model. So it seems like a perfect fit.

I am delighted Bob is staying on as our Executive Chairman, continuing with the projects initiated last fall and helping me onboard and immerse in the business. I look forward to working with Bob and the leadership team to execute on Citrix's operating plan and drive greater value for our customers, partners and shareholders. I want to thank you for joining us today and I look forward to engaging with many of you in the coming weeks and months.

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

(Operator Instructions)

Raimo Lenschow, Barclays.

Thanks for taking my question, and congratulations on a great quarter. And Kirill, welcome on board. Let me start with one quick question on workspace. You returned to license growth again. Can you talk a little bit about the areas of strength there? And if I look especially about the geographic performance, there seems to be almost room for further upside. Thank you.

Sure, Raimo, it's David. Let me just repeat a few things that I said earlier. And really, what's going on in the workspace services is the culmination of a lot of these activities that we have talked about over the last several quarters, not only to reinstate the focus on XenApp, but all of the other technologies that are around that to create those types of solutions.

In terms of the actual drivers, two big things I'd call out. First is the holistic workspace suite. Everyone knows that's our solution for enterprise mobility, talking about apps, mobility and data in one broader, more strategic conversation with customers. That is up to about 20% of the mix right now. That was less than 10% a year ago, growing at close to 200% year-on-year.

The second piece is actually around our service provider business, the CSPs. That is all subscription-based, monthly ratable, approaching a $60 million business and growing north of 30%. That's really the big one.

We're also driving lots of innovation forward. So things that Bob called out, whether it's the focus on helping customers with Win 10 migrations, virtualizing Skype for Business, browser servers, new management capabilities, lots of things in that area, really just demonstrating and accelerating the market leadership we've had for all these years. And that's the message we're carrying forth to partners. That's a message that our sales teams are driving, and it's allowing for the continuous improvement in overall execution.

I'd say back to the comment about the geos, yes, in Q4, the Americas was really the big driver. I made a comment in my prepared remarks about that's the place where we initiated the restructuring last year. So they've had a lot more time to work through all the changes, get settled into the new structure, engage with partners, et cetera. So we're certainly optimistic that as we roll into 2016, you'll see a similar type of performance flow through in the other geos.

Perfect. That's very clear. Thank you. Well done.

Thank you.

Walter Pritchard, Citi.

David, I'm wondering if you could outline for us some of the quarter by quarter trends on quarter by quarter headwinds from a revenue perspective that you expect through 2016. You talked about that, I think, on the November call and gave an aggregate number from some of the changes you're making to the business model. I'm wondering if you could give us a little bit more detail on that, now that we're into the end of the year, for quarters here.

I would encourage everybody to go back and look at the detail from the November call, because we called out a number of those very specific headwinds. But just to net it out for you, there's three big pieces that were either deemphasized, shut down or sold. And the three that I would call out would be ByteMobile, Podio and Cloud. So those three together represent about $85 million of revenue last year, and that is the bridge between what we had described as pro forma revenue growth in the November period and the guidance. Those are really the biggest headwinds there and the easiest way to normalize the 2015 to 2016 guide.

Seasonality, I guess, is what I'm trying to get at.

Walter, I'd say that our approach right now has been to be on a general basis, fairly cautious across everything on a guidance front. We're working through several dozen individual projects across the restructuring plan. I think we're incredibly happy with the progress we've made to date. We feel good about the outcome. But these things always have the potential for some level of volatility. Q4, we clearly worked through probably the most challenging period, ended up with a good result. But we want to be mindful of that this early in the year. That's probably the biggest headwind that I would talk about. Was there a follow-up question, Walter?

No, I'm good. Thank you. That's it. Thanks for taking the question.

Steve Ashley, Robert W. Baird.

Thank you very much. I would just like to ask about the changes that have taken place in the channel. Maybe you can talk about some of the things that have changed relative to your channel program and maybe more specifically, what and how incentives might be changing.

Steve, I'd say at a high level, the way to think about it is we have just simplified the approach for how we're engaging with partners. We've simplified everything from the types of accounts, where they are eligible to participate. There had been some segmentation in the past. We've removed that. The idea is just, how do we engage with the channel instead of driving a us versus yours. I think that's probably the easiest way to describe the changes between 2015 and 2016.

The other is around the simplification and focus message that we've talked about over the past couple of quarters. Certainly, our partners want to hear that, as well. Here's what we're focused on, here's what's most important to them, here's how they make money for their businesses, and then just driving a relentless focus against that. That's why we're seeing better and better results.

One stat I would just call out is, it's fairly early on, but in Q4, we had about a 15% increase in actual CSA partners that were selling products. So that's our ability to reengage with partners and show the vibrancy in our channel. Very important going forward.

Terrific. And then you talked about in the past about maybe building out a channel that would address the mid market or the lower end of the market that you haven't in the past. Is that something that's underway or how might we think about that?

Sure. There's a big focus that we placed on broader mid market when we were with partners just a couple of weeks ago. And it's not necessarily just a channel conversation, but it's much more holistic than that. And it needs to start with understanding the needs of the customers, making sure we've got the right products and services to address that and then the go-to-market motion that makes sense.

And so we're attacking that top to bottom. Some of the products that we have talked about today, whether they are browser servers or things that are just easier to adopt and manage in scale, more targeted towards the mid market. So internally, we talk a lot about land and expand, and you'll hear more about that certainly as we get into the second quarter, and Synergy, our event with partners and customers in the May timeframe.

Great. My congrats, as well. Thanks.

Philip Winslow, Credit Suisse.

Hello, guys. Thanks for taking my question. This is [Michael Barris] actually on for Phil. Delivery networking obviously had a pretty good quarter. Could you give us some more color on how you're thinking about the segment going into 2016? Thanks.

Sure. Delivery networking, the overall business is doing well. I talked about the three main pieces in my prepared remarks. And I think that's the way you should expect us to discuss networking going forward.

The attach motion is the first piece, and that is where customers are purchasing a workspace services solution and a networking product in conjunction to create more of a system. Not only does it provide more value for Citrix on a bookings level, but it creates a lot of differentiation and added value for customers. That's one. The stat that I called out is that we had 800 of those types of transactions in the quarter versus 700 a year ago. If you invert the metric, that's about a 12% attach rate to virtualization orders, and that's up from 9% a year ago. So that's one of the key focus areas.

The second is around what we would describe as core ADC, that is just enterprise ADC and that's largely a focus area for coverage. So one of the investments that we're making right now is to increase coverage in multiple geos that should allow us to be able to service many more of those engagements.

And then the third is around strategic service providers, which, as everyone knows, we have tremendous engagement with a handful of large customers, but their purchasing patterns tend to be a bit volatile. So overall, we expect to be able to grow in line or faster than the market in 2016, but be a little bit cautious about the timing of the SSPs and where those hit.

Great. Thanks.

Abhey Lamba, Mizuho.

Thank you. Congrats on a great quarter. Kirill, welcome to Citrix. And if we could just hear from you in terms of your commitment to the plan laid out by the previous management team and what's your vision for the Company? How do you think it would look in two to three years from now?

I would answer it in one word. The commitment is unwavering. I've obviously had opportunity to study the plan in depth. I think it's an amazing plan, and I think the team has done an amazing job last quarter executing on its plan. And my job one is to stay the course, continue the plan, continue executing on the plan, and drive it forward.

And what's your vision for the Company? How do you think it would look in two to three years from now? And David, if you could comment on any disruption at VMware helping the mobility space for you guys. That's it from me.

As I mentioned tonight in my remarks earlier, secure delivery of apps and data is very high on the priority list of CIOs around the world. Mobility plays an important part of that, and I'm really encouraged with the solutions we have and the future that it would bring to those customers. Taken beyond that, I'd probably take a couple more days before I'd start talking to you about the future vision two years out, and I hope you would give me those couple days.

The second part of the question -- this is Bob -- on VMware, I'd say the company had a very good quarter relative to the competition this quarter. Looking at a long list of competitive wins, some of those were head to head wins for new business and frankly, there are a number of pretty significant competitive take outs this quarter versus VMware. So I'd say, as I mentioned in my comments, the competitive wins are definitely moving in our favor. That was building as the quarter went on. I would say that's true from a customer point of view, given the wins. I would say that's true from a partner point of view. I think the partners have definitely noticed some very good changes in their relationship with Citrix here, from just the way we're partnering better in the field. They like the focus and the renewed energy around the core of our business. And I would say on the recruiting front, as well. So even with employees, I think we've definitely seen a shift in activity there, as well. So I would say we're feeling rather bullish right now and very optimistic going into 2016.

Thank you.

Gregg Moskowitz, Cowen.

Congratulations, as well, on a very good quarter. Bob, as you noted earlier, workspace services showed positive license growth for the first time in a while. Clearly, this was not something that was expected by the Street. I realize it's early in the game with respect to the refined strategy to focus on secure apps and data delivery, but do you think that positive license growth in this segment is sustainable?

Well, look, when we adjusted the plan here, it was all about focus. And we said we were going to focus on secure apps and data delivery, and that was going to allow us to streamline the organization and reduce costs. And I think there was probably too much emphasis, or maybe too many people attached that to a cost reduction focus. Yes, we are reducing costs and we are improving margins, but I fundamentally believe that a more focused organization is a better executing organization. We have all the wood behind fewer arrows in this organization. And so every single person, whether you're in sales, whether you're in services, whether you're in engineering, whether you're in customer support, every single person in this organization is going to execute better with that focus.

And I believe it's early still, but I believe the results and the improved results and the growth that we saw this quarter is the early science of the benefits we're going to see from that focus. And I expect, as we roll out 2016, we'll continue to see the benefits of that focus. We're not going to forecast revenue at that discrete line item. But I do expect continued improvement and continued execution as we benefit from that renewed focus.

Okay. That's helpful. Thanks. And then a follow-up for David. Your R&D expense, I believe, went down in Q4 by about $6 million and is now below 14% of revenues. How are you thinking about R&D this year versus 2015? Thanks.

Yes, I'd say overall, you take a step back and you look at OpEx as a percent of revenue. In 2014, we were running right around 63%. 2015, we were running 60%. And this year, our guidance would put you probably at 56%, 57% of revenue. And that's good from an op margin point of view. That's driving the direction that we're trying to get to. But when you take a step back, and if you recall what we talked about in November, a lot of our focused efforts were around actually increasing investment in our core solutions. And we're doing that by trimming away things that weren't contributing to revenue, were redundant, et cetera, et cetera. So if I look at very specific to core products, like XenApp, for example, there's not a single engineer has been removed from that organization. In fact, we'll be increasing investment there in networking and data, et cetera.

And so don't focus too much on the absolute. I think it would be more important to focus on the individual initiatives that we're driving. Long term, 14%, 15%, 16% of revenue is relatively typical for large software companies. Some economies of scale, but I feel pretty comfortable about the capacity we have overall in the system.

Great. Thank you.

Heather Bellini, Goldman Sachs.

Great. Thank you. Just two quick questions. One, David, I was wondering, I know it's early, but in November you gave us some early color on calendar 2017. I'm just wondering if you could give us a sense of, given Q4 results, if you could update us on whether or not that still stands.

And then just another question -- and I apologize if this was asked, I was on another call -- you had a competitor last night talking about market share gains. I'm just wondering if you could give a little bit of color on what you're seeing in the end user computing market and how you see the competitive environment evolving. Thank you.

Let me take the first part of that question and then have Bob address the second part. 2017, unchanged in terms of the way we're thinking about it. Honestly, Heather, just getting into 2016 right now, so that's the primary focus. But when we were in November, we laid out a growth rate of 4%, 5% on the top line for 2017 and north of 30% operating margin for the full year. And I feel very good about those at this point in time.

One of the things that we had covered was the impact of some of these discontinued businesses. That's the primary reason revenue is dipping into 2016. And once we normalize that, we'll have a much better, much clearer picture of the go-forward business. So once that normalizes, year-over-year comps look good, the accelerated investments that we're making into things that will facilitate and drive long-term growth, I think are still in place as we layer in increased capacity in areas, go-to-market areas like networking, et cetera. I think that all portends good things for 2017. So no change, feel good about the progress so far. And clearly, we're executing well. It shows up in Q4. Bob, do you want to talk about the competitive environment?

Yes. Thanks, David. Heather, I think earlier I made some comments about the competitive wins turning in our favor. And we certainly see that on the win-loss data, we see that competitive take outs. I think we see it in our results, where our workspace service business continues to improve. So what I see, our competitive wins, I see our results improving, I see our backlog increasing. That's what I see.

It's a little bit different than what I hear. I know you referred to that in your question, on some comments made yesterday. What I hear is a little bit different than what I see. What I hear is a $1 billion business growing at 30%. I hear a collection of $1 billion businesses growing at 20% or 30%. But when you look at the total results, you see a 1% decline in license revenue that quarter. So I guess I need somebody a little bit better than I with numbers to explain how that works. But the things I see look really good and the things I hear, I frankly don't believe.

Keith Weiss, Morgan Stanley.

Hello. This is Sanjit Singh for Keith Weiss. Thank you for taking my question. I wanted to see if you could give us some insight into the product road map over 2016 and 2017, with a renewed focus on the core data delivery side, the op delivery side of the product portfolio. What can your channel partners and your customers expect from a product road map standpoint?

And then as a quick follow-up, in terms of the geographic commentary, you didn't call any sort of macro weakness or any spending environment weaknesses, and we've heard some commentary to that end from a couple of software companies, though. I wanted to see your take on the spending environment, particularly in APAC. It sounds like you're talking about more restructuring going on there than anything related to the spending environment in APAC. Just wanted to get your thoughts on that point, as well.

Sure. Let me touch on those two separately. In terms of long-term product road maps, it's probably not an appropriate time to do that on the call like this. Shorter term, we've talked to partners about a pretty rapid ramp in innovation across late 2015, 2016 in the workspace services areas. For those of you that have followed the Company for a while, remember that we went through a major platform transition for a couple years around XenApps and desktop, et cetera. With that behind us, we've really been able to ramp the new innovation, new features, things like that, just focusing on what customers need, how to be more successful, how to bridge between on-prem, hybrid, and full cloud deployments, et cetera. So that thematically is what we're doing in that area.

You see a lot of new improvements coming out in terms of ways we integrate from a management layer, from end user experience, performance across lofty networks, the types of things that really matter to customers. We've laid all that out, and we'll be talking a lot more about that at Synergy in the May timeframe.

Networking, very similar. We've taken our software-based strategy and really extended that across the platforms over the last couple of years. For example, I didn't talk about this in the prepared remarks, but our virtual appliances, the VPX family, is actually the fastest growing element of all of networking. That grew well over 20% for the full year and in the quarter, as customers are utilizing a virtual appliance, more in the -- think of it in the context of a data fabric versus a physical box in the data center.

And so lots of things like that, we're going to continue to drive forward very aggressively. And then of course, cloud solutions, which are a little bit further out in the future. So core message is come to Synergy. Love to have everybody see the latest and greatest. And we'll talk much more about future road maps there.

In terms of the market environment, I think a number of companies have talked about macro and currency, and that's all true. Outside of the US, markets are a little bit more volatile than they are domestically. I think everybody is just operating under the same basic assumptions, and we saw some of that, as well. We really didn't feel worth calling it out, because frankly, that's the way it's been over the past two, three quarters anyway. Fairly challenging in parts of APAC, certainly challenging in places in South America and others, where you've just had lots of currency volatility' and frankly, the same holds true for EMEA, especially those markets that are more focused on energy.

So we're executing through that. We're really focused on the things we can control, and that's what we're talking about now. Happy with what's going on in the Americas. We've got great new leadership in the EMEA space. And we're excited about the things that we can accomplish in 2016. So stay with us, we'll give you an update event each and every quarter.

Thank you.

Scott Zeller, Citrix.

Scott Zeller from Needham & Company. Question on XenApp. You mentioned earlier in your comments that there were no engineering cuts to XenApp and we've heard about this product being a focus for management over several quarters, but can you offer some color around how the performance has been? Do you see it stabilizing? Anything would be helpful on that front.

Scott, if the question is XenApp versus XenDesktop, versus Suite, versus others, those are packaging discussions more than anything else. The way to think about the business is in the aggregate. We have certainly seen more individual transactions move from point products like XenApp or XenDesktop to Workspace Suite, and that's a good thing. That's a focus of our message right now is we're talking to customers at that level that encompasses all types of apps, all types of data, et cetera. That's why the Suite is growing as fast as it is. The individual products move up and down, depending on customer requirements for each individual transaction.

Okay. Thank you.

Katherine Egbert, Piper Jaffray.

Good afternoon. A couple questions. First on the operating margins, you mentioned, Dave, this is the best margin in, I think you said, 10 years. And for the year, you're up 400 basis points. But yet it seems that the full, I think you said some of the restructuring was still taking effect in January. So it seems like maybe -- can you just tell us about your margin guidance and how conservative it is, and then, of course, the impact of GoTo, I think you said, is in there, as well?

Sure, Katherine. Let me set the stage a little bit. When you look at the two big businesses, GoTo and the enterprise business, the enterprise business is currently operating at a bit of a higher margin than the GoTo. It's just fairly common for SaaS-based businesses. So when I talk about margin guidance, however, that is the whole co, for everything. We'll go back and update guidance as appropriate once the spin is complete sometime in the second half of the year.

So from a whole co point of view, we went from 22.5% in 2014 to a little over 25.5% in 2015, and our guidance for 2016 is north of 28%. I think when you run the numbers for our current financial guidance, you'll land somewhere around 28.5%, and so we're quite comfortable with that. In terms of whether it's conservative or not, hopefully with hindsight, everything is conservative. But that's our guidance as it stands today.

All right. Thanks, Dave. And then a quick question for you, Kirill. Traditionally, Microsoft and Citrix have had a historically tight relationship, and you are coming from Microsoft now. Can you talk about some areas that you see a high level where the companies can continue to work together, particularly as respects cloud?

I think it would be fair to say that the companies have worked together all the years very well. And studying what transpired earlier this month at the Summit, Microsoft participated at the Summit and was very excited about innovation that Citrix brings to market, in particular supporting Skype for business, Azure and several other initiatives. And I can only expect that this will continue and accelerate going forward. I look forward to being a part of this.

All right. Thank you very much. Congratulations.

Thanks, Katherine.

John DiFucci, Jefferies.

Thank you. David, I first had a question and then a question for Kirill. This is, I think, the second quarter in a row, maybe it's even more than that, of really strong service provider contribution to NetScaler. And this has historically been a periodic or cyclical sort of cadence with the major service providers. But has it turned into more than that? Is this more -- could this be the start of more of a secular trend, as service providers work to accommodate cloud build outs? I know it's hard to tell, but you have a pipeline you can see, too. And I'm just wondering when you look at the last couple quarters anyway and then you look out into the future, what's that look like?

Sure, John. The service providers are a really important segment of the business. For those of you that have followed NetScaler for a long time, remember that it was nearly 100% of total revenue, if you roll the clock back seven, eight years. We've diversified broadly across the idea of, the way I describe it, as attach, but selling solutions and then core enterprise ADC. It remains one of our most important, but like you said, it's a little bit volatile. What's happened over the years is that it's morphed from being a big spike in Q3, as dot coms were focused on what was, frankly, the holiday shopping season, building out capacity for that, to much more distributed now, where people are delivering services to mobile devices, services to SaaS and those types of things. So the business is much more broad than it used to be.

I'd say we have pretty good visibility into the full year. It's just that the timing of purchases tend to be concentrated, based on when customers need it. So one of the hesitations we have about giving quarter to quarter guidance at that level is that it does move around. If you remember back in 2014, we had a tremendous first half of the year with the SMB segment and then a little bit weaker in the back half of the year. Going into 2015, we said it was going to be the opposite. That came true, and the first half was lighter with the SSPs, and then the second half was very strong. When we look at it in hindsight, the full year, pretty much as expected. That is the only pause that I have when talking about guidance for that segment is that it's predicated on their build cycles.

Okay.

For the year, I think we've got great relationships, really happy with our share. And we're going to work very closely with them on all of their needs.

Okay. Great. So we're not quite sure, but this might continue to be somewhat volatile. And I guess I have a follow-up. First of all, congratulations, Kirill. That's great. It's great to hear your voice, too.

I realize you have operational experience with Microsoft and BMC, but I also know your roots are truly as a technologist. Listen, I know you had a couple questions there on this, and we want to give you a chance to assess what Citrix has, but from what I know of you, I'm sure you did your due diligence, and at least initially, I think you've said, listen, we have a plan and I'm going to execute on the plan. And that's great. But as far as in the context of a plan, Citrix is a technology company. And I'm sure you have taken a look. I'm just curious, even from a high level, from your perspective, what areas do you think there are opportunities to further advance Citrix's position in technology in a more meaningful way? Even from a high level, if you just give us your thoughts, I'm sure you have some.

Look, if you step back and look at the major drivers of the industry today and major drivers of digital transformation, you clearly see mobility, and you clearly see, related to mobility, secure delivery of apps and data. That's what every CIO wants to see in their organization. And that's what Citrix drives and I think the product portfolio supports it in a very significant way. And I'm really excited about that particular part of business, workspace services and how it can continue to play that role.

Obviously, cloud is another hugely significant trend and how NetScaler essentially is becoming such a huge enabler of the cloud worldwide, essentially serving such a huge portion of cloud transactions for the major service providers is just astounding. And I fully expect this to continue and accelerate, as the world continues to shift to the cloud, which is now unstoppable as people build out more data centers serving server and clouds, and more clouds around the world.

And then, of course, data and sharing data and enabling analytics empowered by big data and the role that ShareFile technology plays in that particular trend as it relates to highly regulated industries. That's another very important, powerful trend that I see only accelerating in the future. So with those three things combined, from the technology point of view, as I went through my due diligence on the Citrix technical portfolio, that gets me really excited about the opportunity. And I think that's what propels the Company into the future and to the next phase of greatness.

That's great. Listen, thank you for that perspective, Kirill, and we look forward to hearing more from you as we move forward.

Absolutely. Thank you, John. And good to hear your voice, as well.

Michael Turner, Raymond James.

Good afternoon. It's James Wesman sitting in for Michael. David, can you talk a little bit -- I know you guys have spoken a lot about workspace services, but can you guys talk about XenMobile and how it did this quarter? Any color around the business would be helpful.

We haven't broken out individual products for a while. But I'd say that when I look at mobile as a stand alone, more and more of the individual opportunities are morphing towards Suite. It's one of the big, big drivers for why customers would move from, let's say, XenApp to the full suite. That's where the conversations start, and that's the primary driver for why it's up in terms of overall mix.

From a market point of view, similar trends to what we've seen in the past. People are more concerned higher up the stack talking about EMM than anything at the device level. So no change on that front. I don't think we'll plan on breaking it out with a lot of granularity going forward, because there's packaging options that I think will skew the numbers a bit. But we'll provide more directional guidance as we get into 2016.

Great. Thank you.

Matt Hedberg, RBC Capital Markets.

Hello. It's Dan Bergstrom for Matt Hedberg. Thanks for taking the question. You've talked about the changes made in the US being done before the rest of the world a couple times on the call now. Just curious about the timing that the US has had. Is that one quarter? Is it four quarters? And then are you using essentially the same play book overseas? Thanks.

I'd say that the US initiated a lot of restructuring earlier in 2015. And whether that was just moving from a more distributed model to one that focuses on the product segments, some changes in the channel engagement model. So we started in, let's say, the first half of last year. I don't want to imply that the other geos haven't been going through restructuring, because they have. It's just that they're a couple, three quarters behind just in terms of maturity of the model. We've also gone through leadership evolution in EMEA, and so that is all completed, in the Q4 timeframe. So we're expecting good, solid, constant performance out of that geo in 2016.

Thank you.

Ed Maguire, CLSA.

Hello. Good afternoon, and welcome to the team, Kirill. It's great to have you join Citrix. Had a question about the restructuring and some of the divestitures. I know there were several products that you've divested over the last couple of months, but I just wanted to get a pulse check on how far along you are. How much is left to do on that front? And with some of the resources that are being either rationalized or repurposed, how much work do you guys have ahead of you on the operational side?

Sure. Ed, I'd say on the product front, we are largely through it, at least at an initiation level. Everything's got execution that trails a few quarters in. I made a high level comment about some of the people-related actions that we've got all behind us right now. But if you recall, the approach we took was not a top-down cost-cutting approach, but really a bottoms up, focus on the business, focus on long term, focus on the things that matter. And so because of that, there's a number of transitions in place right now. And many of those, frankly, are in the product area. Hard decisions have been made. That's behind us, and now it's just about execution. So I'd say we're well on our way.

Great. Thank you.

Brad Reback, Stifel.

Great. Thanks very much. David, can you remind us about how much of your free cash flow is generated in the US versus outside?

About half.

And just a follow-up on that, given some of the gyrations in the debt markets right now, are you at all concerned about your ability to potentially raise debt in order to fund future buybacks at an acceptable cost?

No, Brad, it's actually not a concern of mine. We're not looking to raise debt at this moment in time. We've got $2 billion in cash and liquidity in other ways, and we've been repurchasing a lot of stock, at the same time. So if we need to go approach the capital markets in the future, we'll address that based on the facts and circumstances that are present then.

Great. Thanks very much.

Derrick Wood, Susquehanna Financial Group.

Hello. This is Rakesh Kumar sitting in for Derrick Wood. Thanks for taking our questions. I was wondering if you can share your thoughts on opportunities around Windows 10 migration and Windows Server 2016? And also, are you doing anything to build services around Azure?

Rakesh, let me take that at a high level. Yes, we're doing a lot of things with Microsoft. I'm sure that if you go back and you look at some of the materials and announcements we've made, whether it's at Summit or Synergy a year ago, you'll see that everything from Windows Server updates to Windows endpoint migrations, always an important part of our strategy around workspace services. We had Brad Anderson on stage with us at Summit just a couple of weeks ago talking about all the great things we're doing together. And so yes, a lot of opportunity, definitely a driver in the business. And just allows us to collaborate that much tighter.

In terms of Azure as a stand-alone, yes, lots of things we're doing both with Azure, AWS and other major cloud providers, whether that's migrating workloads to the infrastructure, whether that's running control planes in the infrastructure, whether that's providing, frankly, infrastructure to the data centers, and we've got a multifaceted relationship there.

Thank you.

Kyle, are there any more questions?

We've reached the end of the allotted time for questions and answers. I now turn the call back over to management for closing remarks.

Okay. I just want to thank everyone again for joining us today. Really excited to have Kirill on board, part of the team. Looking forward to 2016, and we'll talk to everyone again at the middle of April. Thank you very much.

Thank you for participating in today's Citrix conference call. You may now disconnect.