思杰系統 (CTXS) 2016 Q4 法說會逐字稿

Good afternoon. My name is Doris, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Citrix Systems' fourth quarter 2016 financial results conference call.

(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, Heidi. Good afternoon, everyone, and thank you for joining us for today's fourth-quarter and FY16 earnings presentation. Participating on the call will be 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 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 uncertainty. 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 the SEC's Reg G. A reconciliation of the differences between GAAP and non-GAAP financial measures discussed on today's call can be found at the end of today's press release, and on the Investor Relations page of our website. Now I'd like to turn it over to David Henshall, our Chief Operating Officer and CFO. David?

Thanks, Eduardo, and welcome to everyone joining us today. We continued to show good results and execution from the operational initiatives driving record profitability, to the strength in product portfolio driving [gross] and increased win rates. We're focusing all of our energy on our core strategy of securely delivering apps and data, setting the Company up for a sustainable, profitable growth throughout 2017.

As you can see from the release, total revenue was flat in the quarter, and up 4% for the year. Adjusted operating margin expanded to 35% in Q4, and 31% for FY16. Adjusted EPS was $1.61 per share, bringing the year to $5.32, up 23%. And we generated record deferred revenue, up more than $190 million sequentially, and 8% year-on-year due to the strength in cloud and multi-year customer commitments.

In Q4, we closed 96 $1 million-plus transactions with strength in cloud, financial services, healthcare, and government verticals. There's good balance across the portfolio, with more than half of these deals coming from the workspace services, and the balance coming from networking and SaaS.

Next, looking at the Q4 results within our four primary businesses. Our workspace service business, which includes virtualization and mobility grew 3% year-on-year [$464] million, with product license also growing 3%. Momentum here continued for the fifth quarter in a row, as our strategy and focus is showing results, often in accounts where security and compliance are major concerns.

As we've discussed, there are several specific initiatives we're driving to accelerate growth in this area, including much faster innovation, integration of our unique assets, stepped up competitive positioning, and reinvigoration of our channel partnerships, especially Microsoft. All of these efforts have resulted in an increase in win rates and competitive opportunities. A few other dynamics that are worth noting, include the continued license revenue growth in the Americas, up 10% in the quarter, and 15% for the year.

We're also beginning to see traction of our APJ restructuring, with workspace license revenue up 9% in Q4. We had stable growth in our CSP subscriptions, where partners are primarily utilize XenApp to deliver cloud-based offerings to their customers. Overall revenue in this area was up 30%, with an ARR of now over $[80] million.

Next, we're seeing great early traction from our new Citrix Cloud offerings, including [three] seven-figure transactions, and finally a really good response to Citrix Customer Success Services that redefined software maintenance programs we announced at the beginning of the quarter, helping to add to the strong increase in deferred revenue.

In the delivery networking business, total revenue decreased 9% in the quarter to $201 million, with license revenue down 20%. This result is in line with our guidance for Q4, as we had forecasted the sequential decline in cloud infrastructure and e-commerce bookings, which were really strong over the first three quarters of the year.

I will remind everyone that the NetScaler business is essentially made up of three groups, cloud infrastructure and e-com, solution attach sales, and enterprise ADC. In the quarter solution attach represented over half the mix, with a number of app and mobile opportunities that included networking as part of the overall Citrix solution up about 20% year-on-year. Cloud and e-com and the enterprise ADC segment were each about 20% of the mix.

These last two areas are the ones that should benefit most in 2017, from the capacity and management investments that we made in the second half of last year. All-in, we sold over 2,000 networking customers in the period, with 40% of them being net new, which reflects the strong competitive position, as well as provides expansion opportunities in the future. We're also encouraged by the results of our emerging SD-WAN business. While still small in absolute terms, this new product was up nearly 200% in the quarter, 60% for the full-year, and should be an additional growth lever, as we look into next year.

Finally, our total SaaS revenue was up 8% year-on-year, to $210 million in the quarter. The contribution from the GoTo business was $174 million, up 5%. And as for the merger of GoTo and LogMeIn, we expect this to close at the end of this month. Looking at the cloud-based services that are part of core Citrix, we recognized $36 million in revenue, growing about 25% in the quarter. The bulk of this is coming from ShareFile, our secure data platform, with other new offerings addressing the workspace-as-a-service and networking needs of our customers.

So clearly, we continue to see a shift in the way our products being delivered, evolving slowly toward a more ratable model, where unit growth will exceed revenue in the short-term. When we include the revenue that's coming from the Citrix Service Provider subscriptions plus our core cloud-based services and annual term license, the aggregate ARR was over $250 million in Q4. We expect this trend to accelerate this year, as more of our portfolio is being delivered as part of Citrix Cloud.

Turning to operations, we've driven a lot of efficiencies in the Company over the past couple of years. The actions across the business were designed to generate permanent expense reductions, while reallocating investments towards those areas that will drive profitable growth in the future. In Q4, our adjusted Op margin was 35%, up more than 350 basis points from last year.

We've been executing more than a year ahead of our stated goals, and in 2016 for the full-year, delivered adjusted Op margin of 31%. This focus on leverage has also helped drive an increased cash flow profile for the Company. In Q4, our cash flow from Ops was about $260 million, and over the trailing 12 months, we generated over $1.1 billion in operating cash flow.

As you begin to model the core business for FY17, I'd like to point out that historically between 80% and 90% of cash flow from operations can be attributed to the core business, with the remainder coming from GoTo. Exiting Q4, we had nearly $2.7 billion in cash and investments on the balance sheet which is up sharply from last quarter. For the last several years, our stated target has been to utilize at least half of free cash flow for capital return, a level which we've clearly regularly exceeded. As you know this program has been on hold due to the pending separation of the GoTo business.

Today we announced that our Board has approved an increase of $500 million for our existing share repurchase program, bringing the total current authorization to over $900 million. So we expect to be active again, as soon as the GoTo LogMeIn transaction closes later this month.

So our growth strategy and operational programs have clearly been working. We're happy with the results, and confident in our plans as we look into the coming year. But before I discuss our expectations for 2017, I'd like to provide a little color around our plan.

As always, at the beginning of the year, we're maintaining a conservative outlook on the next four quarters. Our view on workspace services opportunity continues to strengthen, and we expect cloud adoption to accelerate as we move through the year. In networking, we're taking a conservative view on the timing of NetScaler cloud infrastructure and e-com orders, which we expect to be more concentrated towards the middle of the year.

And finally, since the GoTo transaction is expected to close by the end of this month, our guidance will exclude all of the GoTo results for the quarter, and just include core Citrix. We will begin reporting GoTo as discontinued operations beginning in Q1, and we'll plan to provide the historical comparison each quarter as we go through the year.

So for 2017, we expect revenue between $2.81 billion and $2.84 billion for the core business, which is an increase of 3% to 4% over 2016, and adjusted EPS for the year of $4.60 to $4.65 per share. For Q1, we expect revenue between $655 million, $665 million, and adjusted EPS of $0.93 to $0.95 a share.

So we're feeling good about the continued improvement in results, and our product innovations, and the early returns on cloud. We're also continuing to make those go-to-market investments around capacity that should drive additional growth as we move throughout the year. So now, I'd like to turn it over to Kirill to provide further color on the quarter, and our focus areas looking forward. Kirill?

Thank you, David. Hello, and welcome, everyone. As you see overall, this was a strong quarter, demonstrating that our commitment to improved focus and streamlined execution is resonating well in the marketplace. Most notably, this was yet another quarter of growth in workspace services, proving that our efforts in accelerating product innovation, and improving operational effectiveness is clearly working. We're also continuing to see great early traction on our cloud transformation, with strong double-digit growth.

2016 was a transformational year for Citrix. We were refocused on our core products, and made significant strides in advancing our long-term vision, strategy and culture. Our efforts have helped us outperform on profits and EPS, speed the pace of innovation, increase our competitive position, and put us on a path for sustained growth in our core business, and accelerated growth in strategic areas such as Citrix Cloud.

As the next step in our transformation, we have transitioned Citrix to a unified functional organization, bringing out three business units, three core business units into one agile structure, enabling us to drive even stronger integrated innovation going forward. Our progress positions us well for accelerated and sustained practical growth in the years ahead.

We're very pleased that our global field teams executed very well, exceeding plan in all geographies in 2016. And with new leadership in place in APJ, and overall strengthening of the team in EMEA and APJ, we're well-positioned for even more success in the future.

As always during the quarter, I had a direct opportunity to engage with our customers and partners in North America and EMEA. The feedback on the focused and reinvigorated Citrix has been overwhelmingly positive. Similarly, the feedback on our newly-launched customer success services has been positive, with customers stating that this model of support has established a new standard for software maintenance in the industry.

I'm also very encouraged by the record number of $1 million class transactions and several seven-figure cloud deals amongst them, as more and more large enterprise embraced the cloud-first approach to secure and manage their workspaces.

Now a few extra comments on our solution areas. With now three quarters of consecutive growth in workspace services or our Xen family of products, it is clear that our efforts on innovation and execution are delivering solid competitive edge. Our Americas team has yet again delivered double-digit growth with Xen family in the quarter.

On the technology side, we continued with an accelerated quarterly update cadence for our cores and apps and depth of products, delivering the December release, which featured expanded Microsoft integration, enhanced application monitoring and reporting tools. And now with acquisition of Unidesk, and it's world best app layering technology, we further extended our leadership position. Our customers and partners have applauded the deal.

With some more than 850 competitive wins in virtual client computing this quarter, and our win rate continued to improve. And one significant win, a large European software company selected Citrix XenApp for their 15,000 users over the competition, because of XenApp clear position as market leader, and also motivated by security concerns that that the company had.

In 2017, we set a priority for ourselves and partners to lead with the Citrix Workspaces Suite, which pushes us towards our mission to providing the industry's most comprehensive and integrated platform for the secure delivery of apps and data. Already one large Q4 win, CenturyLink selected Citrix Workspace Suite choosing the full Citrix portfolio of products.

Moving onto our networking business. Coming on the heels of incredibly strong first nine months of the year, and recognizing some unique characteristics and volatility of the service provider segment, our Q4 results for networking came well as expect. However, despite muted performance in Q4, we're enthusiastic about networking, and the expanded the opportunities we have there. We're innovating rapidly, most notably with new NetScaler form factors enabled by our unique software-defined approach, and NetScaler Management and Analytics Systems or MAS, which gives IT pros better analytics and visibility into secure [network] applications amongst other benefits.

Our networking solutions are also shifting to a cloud delivery model, beginning with our recently announced release of NetScaler Gateway and management analytics service as a service. Another great growth opportunity for Citrix is in fact, SD-WAN market. While still not yet materially significant, our NetScaler SD-WAN solution grew strong triple-digits.

As an example of a large SD-WAN transaction, Pilot Travel Centers selected Citrix NetScaler SD-WAN for branch-wide area network optimization across all their retail solutions. And pilot has already seen revenue growth from implementation of SD-WAN. In 2017, we've made it a priority for our sellers and our partners to increase focus on networking solutions, by both driving better coverage and attach rates.

Onto data delivery, ShareFile continued to prove itself as a leader in the business file sync and share market, growing over 25% year-over-year. As with previous quarters, we'll continue to drive rapid innovation with ShareFile, further improving usability and connectivity for our customers. Such secure data collaboration has proven valuable to companies of all sizes, and has helped us accelerate our expansion into new market segments. For example, [Aire] Insurance, a mid-sized multi-line insurance company standardized on Citrix ShareFile to empower their secure file sharing and collaboration capabilities, across their national network of more than 5,000 independent insurance agents.

As we mentioned, our cloud transformation is picking up momentum, and we're seeing strong demand from both existing and net new customers delivering overall strong double-digit growth. For example, Partners Healthcare, the largest healthcare system in the Northeast selected Citrix Cloud to support their Windows 10 migration, the VDI expansion, while at the same time decreasing management overhead and infrastructure costs.

Broad focus on cybersecurity continued to be a strong catalyst for Citrix. More and more customers recognized that virtual client computing is in fact, a key part of their cyber defenses. During the quarter, we significantly enhanced our overall positioning in the security space. At our annual sales and partner kickoff this month, we trained the entire team on our security positioning, and highlighted our key security differentiators. This resonated tremendously well with our sellers and our partners alike.

A points about partnerships. I'm very happy to report that our partnership with Microsoft continues to gain strength and momentum, On the product side, we're now delivering to what we promised last year, XenApp, XenDesktop and XenMobile Essentials for Azure.

Citrix also remains the only solution in market that can virtualize Skype for Business across platforms, including Windows, Mac, Linux and now also Raspberry Pi, and Citrix ShareFile offers the only way to deliver Microsoft OneDrive in a virtualized environment. Our product teams are aligned, and our sales organizations are capitalizing on this effort.

And one example of a joint customer win with Microsoft, Vestus, the world's largest wind turbine company selected Citrix XenMobile and Microsoft MGM to provide true mobility for its global workforce of more than 15,000 users. And this was only one of many proof points of how the partnership is working.

Additionally, earlier this month, we announced our new Citrix (inaudible) hyper converged appliance program, and Hewlett-Packard Enterprise became the first partner to sign up for the program, announcing the delivery of hyper converged appliance for running end-to-end Citrix platform in first half of this year. This will allow us to accelerate growth in mid market where such fully integrated out-of-the-box solutions are truly required.

On a broader set of partners, we're seeing stable growth, and in 2017 we'll continue to reinvigorate our partner channel. In fact, as I mentioned early this month we held Citrix Summit, the annual conference for our sellers and partner teams around the world. We have more than 4,000 attendees from 70 countries, who communicated a broad range of product innovations and new partnership deals, some of which I highlighted, and mentioned earlier today.

We also delivered a comprehensive cloud and cybersecurity training. The feedback from partners was incredible, in their own words, Citrix is back on track, and demonstrating clear purpose and vision.

On a personal note, today, is my first year anniversary as CEO of Citrix. Looking back at the year, I am incredibly proud of what we were able to accomplish. Our vision is clear, our strategy is firmly in place. We have the right leadership and the talent to unify the team to drive sustained profitable growth, and continue to delight our customers. I am pleased with our results, and more enthusiastic than ever about the future of Citrix. Thank you, and we look forward to your questions.

(Operator Instructions)

[Ramera Lenschow].

I got a new name, thanks. Hey, thanks for taking my question. Two quick questions if I may. First of all, David, you were talking about improved visibility into NetScaler into the middle of the year. Can you just expand a little bit on that one? Obviously, that's going to be a key focus for investors.

And then, Kirill, on the second question, it's on XenMobile. You mentioned like a joint project with Microsoft. How does the market understand like the Microsoft positioning, versus what you guys, or some other guys are offering in this space? Is it competitive, or like are people understanding where these two different products fit? Thank you.

Sure, Raimo, it's David. Let me take that first question about NetScaler [SSPs] It's the same story we've been talking about for a couple of years, Nothing has changed. It's simply that we have pretty good visibility into a full year demand profile from the cloud infrastructure vendors. It's just that those orders tend to be concentrated within certain quarters.

Historically, that's been two quarters per year that we've seen a big uptick, and then two quarters that the demand is a little bit less. Last year we had three very, very strong quarters, and that's why we had forecasted Q4 and Q1 now to be a little bit less strong. When we look at the full-year, we feel very good about our position. And so, what we understand at this point in time, is that it's more of a Q2 to Q4 cycle this year. So nothing unexpected.

I will add that as we talked about last quarter, one of the major investments we've made in the back part of last year was around capacity adds, and leadership across networking. And that was to not only expand the enterprise ADC, our ability to service customers and compete for business, but it's to also expand into what I would call, Tier 2 cloud providers and other e-commerce, so that that segment of that business has a much broader base. And over the coming years, we'll be able to diversify away some of the volatility of that.

Yes, on to Microsoft question, and specific to XenMobile and Intune. The core part of our Microsoft partnership that was announced middle of last year was complete alignment of our product roadmaps. And with that, we essentially eliminated any friction which may have existed in the past, in enterprise mobility space. And from that point on, our teams worked very closely together and collaborated on delivering XenMobile Essentials on Azure, which essentially expands Intune capabilities by adding unique Citrix functionality such as our secure apps, such as more security profiles and settings, and also Micro VPN capabilities, [among] most notable things.

It's a special [SKU] for EMS essentially, expanding Microsoft capability. As you saw from at least one example that we highlighted, and there were many more. Customers are clearly recognizing it. We've trained our entire seller team and partner team on that solution during the Summit. It's going to be generally available this quarter, and we expect great traction with Microsoft on that front, amongst everything else we're doing with them.

Walter Pritchard. Walter, your line is open.

Okay, operator. Next question.

Philip Winslow.

See, I would not leave you guys hanging. (laughter) Thanks for taking my question. Once again, congrats on a great quarter on the margin side. You guys have continued to come in, ahead of consensus on the, with the OpEx and the COGS lines for multiple quarters now. And David, I know you gave commentary about just operational efficiencies, and obviously, where you are in executing that plan.

But as you look forward into -- end of 2017, versus the plan that you guys laid out over a year ago, on those cost savings, what has fully come out of the model? What's still left that can trickle into 2017? And I think on the last call, you said for the core margin would be 32% to [33]% for 2017. Any update on that too? Just help us correlate all these things, that would be great.

Sure, Phil. Absolutely. On core margins, yes, 32%, 33%. Same guide that we gave last quarter, that continues into 2017.

In terms of what's left, I mean, a lot of the work that we've been doing has been both to take cost out, permanent cost reductions that allow us to have better scalability and efficiencies. And also a broad reallocation of costs, two things that are going to drive growth long-term, and the investments we've been making across ShareFile data platform, across Citrix Cloud, across capacity adds, and a few other areas in the business. And we continue to make those, because right now we've been driving nearly 1,000 basis points of Op margin over the past couple of years.

We still expect to expand into 2017, but the stated plan right now is, a lot of those investments are expected to help accelerate growth. And so, as we make that trade off, it's a profitable growth story. We will do both. And so, and that's what we fully expect to do, as we look into the year.

In terms of things that we still have, I mean, there's lots of efficiencies that are still out there. I think more importantly, we're getting into a continuous cycle now where we can have an office of efficiency effectively set up, that looks into continuous improvement, and making that an ongoing discipline inside the Company. And so, it's never over. In fact, I still think there's some room to run on the front. And we'll just balance, based on how the year plays out, how much of that gets reinvested, and how much of that becomes incremental profit.

Yes. And I think I would absolutely emphasize the point of improved discipline on managing OpEx and running disciplined operations. There's new operating rigor that was introduced last year. It is firmly in place.

There's a completely different cadence of how we manage expenses, and how we manage headcount, how we manage allocations. There's also much improved sharing between different engineering teams that are now working much closer together, which helps us bring [best], and producing great products, and eliminates duplication. So all of those processes, we believe, will really help us drive the sustained profitable growth in 2017.

Got it. Thanks guys. I'll go back in the queue.

Thanks, Phil.

Walter Pritchard. Walter, your line is open. We will move onto our next question. Our next question is from the line of [Mark Moerlder].

Thanks, I appreciate it. So David, can you help us better understand the GoTo spin-out impact on 2016, so we can compare the FY17 guide to the FY16 numbers? You said that GoTo contributed about $174 million of revenue this quarter, but can you give us a bit more on the annual revenue, the margins, the EPS impact, or something so we can get a sense of the year-over-year growth within the guidance? Thanks. And then, I got a follow-up.

Yes, we're going to be actually providing the quarter by quarter as we go through the year. And some of that is just, we don't want to incur all the costs upfront, to go back and do those historicals right now. We're focused on actually, the split and the spin.

And so, when we back out those numbers, we talked last quarter about how much the core business represented in terms of 2016. And that was, core core business, just Citrix only, was about $[2.73 billion] of the consolidated numbers. You can kind of back into the math on that front.

In terms of what we're going to be providing. As you would imagine, when we're doing a spin-out like this, from an integrated operations, it will basically go down to about the operating income line. Below that, it's just a pure allocation estimate because those are all shared costs. So we'll be providing revenue breakouts and cost breakouts down to the operating line.

In terms of how that business has performed, earlier in the year, it was running at an operating margin -- the core business, excuse me, was running at an operating margin that was about 1.5 point higher than the consolidated entity. That number shrank a little bit as we went through the year. So exiting Q4, they were both around the same amount. So I would expect the core business to be a little bit higher on a full-year basis. And, again, we'll provide this quarter by quarter guidance as we go into the year.

Excellent. Can you also give us some sense on the [time] horizon, how to think about the $900 million buyback?

Yes, we haven't seen a specific one, but we've been out of the market for a long time, and accumulating a lot of cash. And historically we wanted to spend at least half of our free cash flow, and we've usually been above that. And so, once we get this separation done here at the end of the month, we're going to be active again, and don't really want to communicate exactly how much. But I would expect that we'll be back active, managing dilution going forward. And we continue to talk and look at capital structure on a broader basis.

So it's not -- I wouldn't call it mutually exclusive. These are two separate topics, that we'll continue to talk about through the year.

Excellent. Thank you. Appreciate it.

Kirk Materne.

Hey, it's actually [Tom Allen] on for Kirk Materne. Congrats on the strong year. Could you all discuss how you're thinking about M&A going forward, in terms of bolstering the app delivery and app networking businesses?

Sure. In terms of M&A, I mean, we've been active obviously for a long time, and looking at a lot of things that are not only incremental net new, so as long as they are very related to our core strategy of apps and data delivery. But more recently over the last couple of years, just changed our focus around discipline, to make sure that the things we're adding are tightly coupled with our existing products, that we can integrate with a low risk, low capital outlay, and we announced one of those in Q4.

We had a tech tuck-in acquisition that was actually really hailed by our field and our channel partners, where we're bringing, frankly, one of our ecosystem partners inside of Citrix, which just further extends the capabilities of the app delivery solution. Going forward, we'll look across the portfolio at both adjacencies and tech tuck-ins. There's really no change in strategy. I'd say our discipline is very, very high. And as you'd imagine, we are evaluating everything, but have a pretty high hurdle that we want to get over, before we actually move forward

Yes, absolutely. I would add. The Unidesk tuck-in is certainly indicative of types of transactions that fits square in our strategy, incredibly well-received by our customers, partners and sellers alike, and positions us for success. We're constantly on the outlook, but what's really important for us in staying true to our strategy of building the best in the world integrated cloud solutions for secure delivery of apps and data on any device, anywhere in the world at any time. That strategy essentially gives us permission to look at additional adjacencies. And as the Company has transformed, there's certainly ongoing activity that you should expect us to see, but everything we do will stay very disciplined and very aligned with our strategy.

Great. Thanks.

Gregg Moskowitz.

Okay. Thanks very much. Kirill, can you talk about XenDesktop Essentials briefly, and the demand that you expect to see from managing Windows 10 Enterprise on Azure? And I just have a follow-up.

Yes, it's a great question. The solution coming out of Microsoft [Azure] marketplace later this quarter, we see a tremendous amount of inquiries, and very strong interest indicating that, that solution will certainly be a very, very strong driver. First and foremost, as you may recall, in the middle of 2016, Microsoft essentially announced its discontinuation of Azure Remote Access service, which XenApp, XenDesktop Essentials will be replacing.

And so, first and foremost, we expect the solution to be very well-received by those (inaudible) adopted customers who were trialing Azure Remote Access. And then, we certainly see in lighter-weight scenarios, where that lighter weight solution would fit appropriately well, very high demand. And obviously, for customers who want to run virtualized Windows desktops and virtualized Windows apps, the most logical place to go is Azure. And so, whether it's XenDesktop, XenApp Essentials coming from our Microsoft marketplace, or full solution, expanded solution, or the entire Citrix Cloud Suite coming from Citrix, either way they will get what they need.

Okay. That's very helpful. Thanks, Kirill.

And then, David, so you did around $1.1 billion in cash from Ops this year, and taking the midpoint of the 80% to 90% [ex-co] that you articulated. So that would I think, get us to about $[945] million as a starting point. And I would assume you'll be growing off that base, given revenue growth and margin improvement that you've guided to this year. But first of all, is that a fair assumption? And secondly, just given that GoTo was a more capital intensive business for you, can you give us a sense of what 2017 CapEx might look like as well?

Sure, Gregg. I think that, yes, those are fair assumptions. In terms of CapEx, it's probably -- depends on exactly what we do from an infrastructure standpoint, to our real estate and some of the big items. But in general, I would expect CapEx to be down one-third or so from last year.

It's probably worth noting in cash flow -- I mean, cash flow is little bit tricky right now, just given the separation. And so, Q4 was impacted by separation, and Q1 will be as well. And so, starting in Q2, we'll be back to normal. In this past quarter, there was a few unique swings around pre-paid, the increase in payables that decreased. And a lot of those were due to out of cycle items related to the separation, and then the timing of that payments. A few one-offs like that. But for the full-year, I think that's the right set of assumptions. And, yes, we do expect to grow off that base.

Perfect. Thanks very much.

You bet.

Heather Bellini.

Great. Thank you. I was just wondering if you could give us a little bit more color on what's driving the increased win rates in virtual computing? How are you seeing the competitive market evolve, and how are you seeing the appetite for the solution? Thank you.

Yes, thank you, great question. And there are two things, two broad categories that's worth highlighting. First, changes that were implemented within Citrix, and then secular trends in the industry. For Citrix, essentially with XenApp and Desktop 712 that was introduced in December, and previous releases, three other releases that were introduced in early 2016. We have the strongest product (inaudible).

And our innovation agents run full cylinders, and the team has done an amazing job delivering great technology, truly rich, functional set of scenarios, with [necessary] level. of simplicity that is required in modern applications. That was enhanced by two tuck-in acquisitions. We did a small acquisition in Q3, Norskale that added end-user experience, and now Unidesk. So that's one chunk of real important technology innovation that always drive success in the technology world.

Increased focus on the core, and it's really helped, not only on the bottom line, but also on the top line. And really being clear with our sellers and with our partners what's important, and what's the core, and what's expected, and how it does aligns with our overall strategy.

With that, implementing much improved discipline on competitive [rigor], setting up a war room, making sure that we're really disciplined and track every competitive transaction, and put the right level of attention, and the right people on it. And that certainly helped, and that gave us a chance to essentially start tracking from about Q2 of last year, how we're doing competitively. And frankly and honestly, that was not in place in the past.

And then, there are, I'd say three secular trends in the industry that raised the water line of the overall virtual client computing marketplace, number one is security. And this is truly the case where cybersecurity is becoming a stronger and stronger catalyst for Citrix, and for the overall virtual client computing industry. More and more customers realize that virtualizing the endpoint, the [main fact], be the most secure way to run it. Not putting anything on that endpoint is what truly and honestly secures it completely. So that's one.

Then Microsoft operating cycle. We, in the second half of 2016, we started to see acceleration of Win 10 migration. And we certainly know that many customers run their desktops virtualized, and we actually see a shift to more customers wanting to run them virtualized as a thin client, and this thin form factor starts playing in a traditional desktop environment. And that's, we started to see that accelerating in Q3, and we saw more of that in Q4, as you saw in some [concrete] deal examples that we highlighted like Partner Healthcare.

And last, but not least, it's the cloud. The cloud will drive acceleration in the business. The cloud will be the catalyst. The cloud is starting to take much more [converged] shape, and conversations related to running workspaces for organizations of all sizes. And I think our alignment with Microsoft on cloud, and on Azure is certainly helping us, and I believe it will help us more, as the cloud transformation will occur.

Hey, Heather, this is David. I'm going to just add a couple of points on workspace services, that I think are really worth noting. So I called out in prepared remarks that in the Americas, workspace service grew double-digits in the quarter, net new license. That's actually the fourth quarter in a row of double-digit growth, for the full-year, it was around [15]%.

APJ is actually coming back, due to some of the restructuring we've done. They grew positive in the mid to high single-digits on net new license. We are also seeing a continued phenomenon, where unit volume is growing faster than recognized license volume. Some of that is coming from CSP, other elements coming from term-based, and then Citrix Cloud. So I think they all point to more robust market, looking forward.

Thank you very much.

Abhey Lamba. Your line is open. We'll move on to our question. Our next question is from the line of Ed Maguire. Ed, your line is open. We will move on to Keith Weiss.

Weiss. I wanted to see if I could get -- understand a little bit about the impact of the new software maintenance program, both on your overall billings growth, given the nice deferred that you've guys have posted this quarter, but also in terms of margins and EPS? If there's any way to quantify that impact? And I guess, the follow up there would also be, how much of the base has been transitioned to the new software program, and where can that go over the next year to two years?

Sure, Keith. Take the last part of the question first. It's going to go to 100% of the base, the active base over a period of time. The way we have structured the customer success services is this.

We have stopped selling subscription advantage on net new licenses as of January 1. We will stop renewing subscription advantage as of July 1. And so, we've got this interim period right now, where if customers are coming up for renewal on their subscription advantage. We will give them the opportunity to renew for one year. We are no longer doing multi-year renewals or anything else. We're actually going to start transitioning the base pretty aggressively in the second half of the year.

Remind everybody that the, in many cases this is a material price uplift for customers, and therefore we are stepping some of them up over the course of three years. So this will flow into the model, beginning in the second half of this year, much more aggressively into 2018 and 2019. In terms of the percentage of the base that's already migrated, prior to Q4, we had roughly 20% of the active installed base had migrated to the maintenance offerings.

During Q4, about 20% of the eligible base chose to upgrade voluntarily to the new program, even though it wasn't mandatory yet. And that is some of what's driving the really, really strong deferred revenue growth we saw. That plus, some of the unique Citrix Cloud transactions that we called out which are all multi-year, and just many, many multi-year transactions that tend to be aligned with the number of large deals like we saw in Q4. Hopefully that answers your question.

That's really helpful. Just to follow up. If there's any sense on how, on this view, the adoption of the new maintenance program, how much of that is a catalyst to your margin trajectory next year? And then, my last follow-up is, you got any comments on Europe, that business, in terms of did you see any weakness there, on how the trends performed there, particularly post-election? And your views on going forward?

Sure. In terms of a maintenance progression on the actual margins, there is less impact in the current guidance in 2017. The impact would occur at a much more pronounced fashion in 2018 and 2019. That's because these are all ratable contracts. If we start a more aggressive migration in the back half of the year, there's only a small portion of that that actually hits the P&L. You'll see more of it show up in growth and deferred.

In terms of customer adoption, we actually had tremendous feedback. It's one of those things that we spent a lot of time, actually working with customers and partners and others to understand the value that we are delivering. And so, this is not a simple migration to a -- back into a price increase, but really approaching it from, what types of value do we need to add to customers? And what type of incremental services can we give them to, a, make them very successful with their current implementations, and b, really give them the tools to migrate to the cloud, when it's appropriate for their business?

So, some of it is about uplifting opportunity, and the rest of it is about really laying the foundation for the bigger opportunity over the next several years. And so, it's, I'd say, better than expected reception so far.

Yes, and I would stress one thing that David just said. It is -- don't think of it as a price increase, and don't think of it as some folks in the industry have done in years past. This is truly a new program, which will dramatically increase service.

And every analyst, and we spent time with all of the usual industry analyst suspects, who studied this program provide us terrific feedback, and really told us that this is game-changing. And therefore, all the customers who see this program, they see this dramatic, new, modern way to deliver service from a software and cloud company, versus what was there in the past. So it's not just a price increase, it's much greater service, and it's truly a unique product that delivers terrific service to our customers. And we are really excited about it, and therefore, the feedback has been terrific.

Now on the second part of your question, on EMEA, I have spend some time in EMEA during the quarter, and we didn't see any anomalies. To be honest with you, unlike in past quarters, I did hear some anecdotal commentary from some of our partners, and a couple of our sellers, and several large transactions that were delayed. And those delays were blamed on Brexit. Again, this is anecdotal evidence, but we did not hear any of that in Q3. We heard a little bit of that in Q4, none that were linked to the elections here in the United States

And overall, I would say our execution in EMEA have increased dramatically in Q4. Also in prior quarters, we talked about some execution challenges in northern Europe, specifically in the UK and Ireland. And I'm very pleased that during Q4, we've brought onboard a new leader, who will be based in the UK. She came to us from [Vodafone]. She has tremendous cloud background and networking background, and we have very high confidence that we'll see just as much improvement in northern Europe, as we're now already seeing in APJ since we brought onboard a new leader there in August.

That's tremendously helpful commentary. Thank you so much.

Thanks, Keith.

Thanks.

Abhey Lamba. Abhey?

(inaudible)

Abhey, your line is open. Sir, we have no other questions in queue at this time.

All right. Well, that's terrific, operator. Well, folks, we really thank you for joining us today, and thank you for following Citrix over the years and the past few quarters, as we continue our journey to make Citrix greater than ever. We clearly have a very exciting year ahead of us, tremendous product roadmap, really new operating rigor and discipline, to execute on all cylinders, as we move forward into 2017. It's really exciting to see how our hard work is being validated by the results, and we're very excited about the future. Thank you all very much, and have a great rest of the day.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.