Citrix Systems (CTXS) Earnings Report: Q1 2016 Conference ... · The following Citrix Systems...
Transcript of Citrix Systems (CTXS) Earnings Report: Q1 2016 Conference ... · The following Citrix Systems...
CompanyName:CitrixSystemsIncCompanyTicker:CT XSSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q12016EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:86.19
©2014TheStreet,Inc.Al l R ightsReserved Page1of21
CitrixSystems(CTXS)EarningsReport:Q12016ConferenceCallTranscriptThefollowingCitrixSystemsconferencecalltookplaceonApril20,2016,04:45PMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
EduardoFleites;CitrixSystemsInc.;VPofIRDavidHenshall;CitrixSystemsInc.;COO&CFOKirillTatarinov;CitrixSystemsInc.;President&CEO
OtherPart icipants
RaimoLenschow;BarclaysCapital;AnalystKashRangan;BoAMerrillLynch;AnalystWalterPritchard;Citigroup;AnalystHeatherBellini;GoldmanSachs;AnalystJohnDiFucci;JefferiesLLC;AnalystScottZeller;Needham&Company;AnalystJamesWesman;RaymondJames;AnalystPhilWinslow;CreditSuisse;AnalystPatrickFalzman;EvercoreISI;AnalystSteveAshley;RobertW.Baird&Company,Inc.;AnalystGreggMoskowitz;CowenandCompany;AnalystBradReback;StifelNicolaus;AnalystSanjitSingh;MorganStanley;AnalystEdMaguire;CLSA;AnalystZaneCreain;Bernstein;AnalystUnidentifiedParticipant;Mizuhosecurities;AnalystJohnRizzuto;SunTrustRobinsonHumphrey;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Atthistime,IwouldliketowelcomeeveryonetotheCitrixSystemsfirstquarter2016earningsconferencecall.
(OperatorInstructions)
IwouldnowliketointroduceMr.EduardoFleites,VicePresidentofInvestorRelations.Mr.Fleites,youmaybeginyourconference.
EduardoFleites (VPofIR):
Thankyou,Operator.Goodafternoon,everyone.Thankyouforjoiningusfortoday'sfirstquarter2016earningspresentation.
ParticipatingonthecallwillbeKirillTatarinov,PresidentandChiefExecutiveOfficer;andDavidHenshall,
CompanyName:CitrixSystemsIncCompanyTicker:CT XSSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q12016EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:86.19
©2014TheStreet,Inc.Al l R ightsReserved Page2of21
ChiefOperatingOfficerandChiefFinancialOfficer.
ThiscallisbeingwebcastonCitrixSystemsInvestorRelationswebsite.Thewebcastwillbepostedimmediatelyfollowingthecall.
Beforewebegin,IwanttostatethatwehavepostedproductspecificationandhistoricalrevenuetrendsrelatedtoourproductgroupingstoourInvestorRelationswebsite.Iwouldliketoremindyouthattoday'sconversationwillcontainforward-lookingstatementsmadeundertheSafeHarborprovisionoftheUSsecuritieslaw.Thesestatementsarebasedoncurrentexpectationsandassumptionsthataresubjecttorisksanduncertainties.
Obviously,theseriskscouldcauseactualresultstodifferfromthoseanticipated.
Additionalinformationconcerningtheseandotherfactorsishighlightedintoday'spressrelease,andintheCompany'sfilingswiththeSEC.CopiesareavailablefromtheSEC,orontheCompany'sInvestorRelationswebsite.
Furthermore,wewilldiscussvariousnon-GAAPfinancialmeasuresasdefinedbySEC'sRegG.AreconciliationofthedifferencesbetweenGAAPandnon-GAAPfinancialmeasuresdiscussedontoday'scallcanbefoundattheendoftoday'spressrelease,andontheInvestorRelationspageofourwebsite.
NowIwouldliketoturnitovertoDavidHenshall,ourChiefOperatingOfficerandChiefFinancialOfficer.David?
DavidHenshall(COO&CFO):
Thanks,Eduardo.Welcometoeveryonejoiningustoday.
Asyoucansee,wecontinuetoshowgreatprogresswiththeoperationalinitiativesweintroducedlastyear.We'refocusingourenergytowardsourcorestrategy,thesecuredeliveryofappsanddata,reallysettingtheCompanyupforevenbetterresults,efficiency,andgrowthaswelookforward.
Asyoucanseefromtherelease,totalrevenuewasup9%yearonyearinQ1,withperpetualproductlicenseup10%,andSaaSup17%.Adjustedoperatingmarginjumpedto29%.AdjustedEPSwas$1.18pershare,up80%fromQ1ayearago,andwegeneratedarecord$340millionincashflowfromoperations.
Intotal,weclosed51$1million-plustransactionsacrossproductandservices,anincreaseof30%.TheAmericasregionbookedthemajority,with42ofthese,whileEMEAhad5,andAPJhad4.Acoupleofpointsworthnoting,wasthattheaveragevalueoftheselargedealsincreasedsignificantlyfromlastyear.Andataproductlevel,there'sgoodbalanceacrosstheportfolio,withroughlyhalfcomingfromWorkspaceservicessolutions,andhalffromdeliverynetworking.Fromageoperspective,whenyouexcludeSaaS,theAmericaswasreallythebigdriverinthequarterwithrevenueup13%.EMEAfinishedup1%,whileresultsinAPJdeclinedby8%yearonyear.SinceourrestructuringlastyearoccurredearlierintheUS,versustheothergeos,theAmericasteamshavereallyhadthemosttimetostabilizeandadapttothisnewstructure,akeycontributortothisperformance.
Next,let'stakealookattheQ1resultswithinourthreeprimarygroups.OurWorkspaceservicesbusinessgrew3%toabout$400million,includingflatlicenserevenue.Reallymorethananyother,Workspaceservicesshouldbenefitfromtheworkwe'redoingtosimplifyourfocusandstrategy.Andaswe'vereviewedbefore,there'sanumberofreallyspecificinitiativeswe'redrivingtoaccelerategrowthinthisarea,throughfasterinnovation,amoreverticalizedfocus,andaggravationofouruniqueassets.
Withinthisbusiness,there'safewdynamicsI'dliketopointout.First,growthintheWorkspaceSuite,whichisourcomprehensivesolutionforsecureappanddatadeliverywasupmorethan100%,
CompanyName:CitrixSystemsIncCompanyTicker:CT XSSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q12016EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:86.19
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contributing8%oflicenserevenue,ascomparedtojust3%ayearago.Second,wecontinuetogrowourCSPsubscriptions,wherepartnersprimarilyutilizeXenApptodelivercloud-basedofferingstotheircustomers.Overall,CSPrevenuegrewover30%inthequarter.
Third,customerinterestwasmorefocusedonapplicationdeliveryversusVDIinQ1,liftingXenAppstandalonelicensesalesbymorethan10%fromQ1ayearago.Andfinally,wesawreallygoodresultsintheAmericasgeoforoverallWorkspaceservicelicense.Intotal,itgrew7%,andreflectedthesuccessfromtherestructuringwithinthisbusiness.Thiscomparestoflatyear-on-yearlicensegrowthinEMEA,andadeclineof24%intheAPACregion.
Nextlet'slookatthedeliverynetworkingbusiness,wheretotalrevenueincreased20%inthequarterto$195million.Thisincludeslicenserevenuegrowthof25%.FocusingonNetScaler,I'llremindeverybodythatthebusinessisessentiallymadeupofthreesegments:cloudserviceproviders,CitrixSolutionsales,andenterpriseADC.
Demandfromthecloudproviderscontinuestobereallystrong,contributingmorethan60%ofsalesintheperiodduetogrowthinpubliccloudandcloudservices,plustheadditionofmorethan100newcustomersinthissegmentasweexpandtheopportunitybase.Solutionattachsalesrepresentedover10%ofthemixinQ1,withthenumberofappandmobileopportunitiesthatincludednetworkingaspartoftheoverallCitrixsolutionupabout30%fromayearago.
CoreenterpriseADCwasabout25%ofthemixinQ1,andwe'rebeginningtoseeearlytractionfromthenewNetScalerSD-WANproducts,whichareaddressingthenascentmarketthat'sexpectedtogrowsignificantlyoverthenextfewyears.All-in,wesoldover2,100networkingcustomersintheperiod,withaboutone-thirdofthembeingnew.
Finally,withinourSaaSservices,revenueinthequarterapproached$200million,growinginthemid-teens.About85%oftheSaaSrevenueisbeinggeneratedbytheGoTosolutionsthatwe'llbespinningofflaterthisyear.Thespinprojectoverallremainsontrackforthesecondhalf,andweexpecttoprovidemoredetail,andtheperformanceofthisunitwithintheQ2timeframe.
ThemajorityoftheotherSaaSrevenueiscomingfromShareFile,oursecuredataplatform.InQ1,thisbusinessgrew40%,andisbeingdrivenbyintegrationswithourenterprisesolutionsandenterprisesalesmotion.
Turningtooperations,we'veobviouslyshownrapidincreaseinmarginsoverthepastfewquarters,despitefundingincrementalinvestmentsinourgrowthbusinesses,andcertaingo-to-marketareas.Aswehaverepeatedlydiscussed,ourrestructuringplansacrosstheCompanyareintendedtogeneratepermanentexpensereductions,thatallowtheCompanytoexecutemoreefficiently,whileatthesametimedrivinggreaterscalabilityintothefuture.InQ1,weposted29%adjustedoperatingmargin,upover900basispointsfromlastyear,andthehighestQ1inoveradecade.We'reobviouslywellonourwaytoachievingthe30%-plusgoalforFY17.
Thefocusonleveragehasalsohelpedtoincreasecashflowfromoperations,whichwasarecord$340millioninQ1,and$1.1billionforthetrailing12months.Thistranslatesintoapproximately$2.18pershareinthequarter,andover$6.83pershareforthepastfourquarters.Andfinally,weremainedactiveinoursharerepurchaseprogram,buyingbackabout850,000shareslastquarter.
BeforeIwrapup,letmetalkaboutthecurrentoutlookandexpectationsforQ2,andforthefullyear.Ouroperationalprogramsareclearlyworking.We'rehappywiththeresultssofar,andconfidentinourplansfortheyear.Atthesametime,wewanttoremainmindfulofthepotentialdisruptionsthatcanoccurwithanyrestructuring,theGoTospinproject,andthesignificantrevenueupsidewedeliveredinQ1.
CompanyName:CitrixSystemsIncCompanyTicker:CT XSSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q12016EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:86.19
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Withthat,weintendtoremainconservativewithallofourassumptionsforQ2,whileatthesametimestillincreasingcurrentexpectations.SoforQ22016,weexpectrevenueinarangeof$810millionto$820million,andadjustedEPSofbetween$1.12and$1.15pershare.Forthefullyearof2016,we'reincreasingourexpectationstoincluderevenuebetween$3.34billionand$3.36billion,andadjustedEPSof$4.90to$5.00pershare.Iwanttoremindeverybodythatthisguidancerepresentsallthebusinesses,includingthosethatarepartoftheplannedGoTospin.
Sonow,I'dliketoturnitovertoKirilltoprovidefurthercoloronthequarter,andourfocusareasgoingforward.Kirill?
KirillT atarinov(President&CEO):
Thankyou,David.Hello,andwelcomeeverybody.
Obviously,I'mverypleasedwithourperformancethisquarter,onboththetoplineandthebottomline.It'sclearthatoureffortstorefocustheCompanyarestartingtowork.Aswesimplifiedourportfolioandsharpenedourmessage,itmadeiteasierforoursellersandchannelpartnerstoexecuteanddeliver.
Thisisreallythecase,whererefocusandrestructuringisproducingnotonlybottomlineresults,butalsodrivingtherevenuegrowth.Inparticular,I'mreallyexcitedaboutdouble-digitgrowthinthelicenserevenue.Allinall,thiswasanotherquarterofgreatexecutionbyourworldwidesalesteam.Italsogivesusconfidencethatthenewcommercialleadership,togetherwiththerevitalizedchannelprogramsetsusuponapathforcontinuedhealthyexecution.
Withalargenumberofsignificantcustomeradds,wecontinuedtodemonstrategrowthinourtargetedindustryverticals,especiallyinthepublicsector,financialservices,andhealthcare,wherecustomersaretransitioningfromothervirtualization,networkingandmobilityproviderstoCitrix.Specifically,JohnHopkinshaschosenCitrixXenDesktopforVGIdeployment,expandingourlong-standingapplicationandvirtualizationpartnership.Thedecisiontoreplacethecompetitiveofferingwasdrivenbytheneedtounifytheirclientvirtualizationsolutionandimproveperformance.
Onthenetworkdeliveryside,[Salem]HealthmovedfromanothervendortoCitrixNetScalerbecauseoftheseamlessintegrationwiththerestofourportfolio,richnessoftheexperience,andreducedTCL.Inenterpriseandmobility,wewereselectedmultipletimesovercompetitionduetoouruniquecapabilitiessuchasmicroVPNforapplicationsecurity,andourintegratedcrossdeviceplatform.
CustomerschoosingXenMobileincludedthecountry'sleadingcommercialrealestatedevelopmentfirm,andamajorenergyprovider.Thesewereallgreatwins,andthey'rejustfewofmanyexampleswhereCitrixwaschosenoverthecompetition.
OurengineeringteamsperformedverywellinQ1,andproductdeliverywasstrong.Specifically,weannouncedanddeliveredcapabilitiestoaccelerateandsimplifythedeploymentofMicrosoftSkypeforBusinessintheenterprise.WeseeverystronginterestamongstlargestcustomersdeployingSkypeforBusinesstorollitoutonCitrixvirtualizationinfrastructure.
Overall,weseeourWorkspaceservicesbusinesstrendingverypositively.
InadditiontointroducingnewreleasesfortheentireXenfamilyofproductsthisquarter,wealsolaunchedournewsecurebrowserservicewhichexpandssecureInternetaccesstowebandSaaSapplications.
Q1wasalsoabigquarterfornetworkinginnovations,andweseegrowinginterestinouradvancedSD-WANcapabilitiesthatweannouncedinthequarter.Wealsohitanewperformancemilestonefortheindustry,releasingvirtualizedNetScalerVPX,withdeliveryspeedstopping100gigabytespersecond.
CompanyName:CitrixSystemsIncCompanyTicker:CT XSSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q12016EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:86.19
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InQ1,wealsoreleasedNetScalerCPX,basicallyNetScalerinadockercontainer,givingdevopsteamstheproductiongradetooltheycanusetospeeddevelopmentofnewapps.WealsoexpectNetScalerCPXtohelpaccelerateIoTstrategies.
Finally,wehavefurtherextendedtheenterprisecloudsecurityandusabilityofourShareFileportfolio,allowingcustomerstosecurelysharedataandfilesfromanysourceorlocationon-premise,inthecloud,oracrossotherfilesharingservices.Overall,IfeelgreataboutproductdeliverablesinQ1.Ifeeltheysetusreallywellforthefuture,andI'msuperexcitedabouttheproductroadmap.
I'dalsoliketogiveyouabitofcontextonhowweareevolvingtheCitrixstrategy.[Organizations]ofallsizesareexperiencingdramaticchangesinthewaybusinessesoperate,andthewaypeoplework,movingmoreworkloadstomobiledevices,intothecloud,andacrossanarrayofnetworks.
Thegrowingnumberofnewconnectedthingsorendpointsarecreatinghugevolumesofdatathatneedtobeaccessed,secured,transported,andmanaged.AndasIapproachthismythical90daymilestoneasCEOofCitrix,therearetworecurringthemesthatI'mhearinginmydialogueswithcustomers,partners,andkeyindustryanalysts.
First,CIOs,IT,andnetworkingprofessionalsfeeloverwhelmedbytheheterogeneousenvironmentsthey'rebeingaskedtomanagetoday.They'reevenmoreconcernedaboutallthenewcloudapps,mobiledevices,andotherconnectedthingsthey'rebeingaskedtocontrol.Cybersecurityisthetopconcernforallofthem,andthereforetheirabilitytosecurelydeliverappsanddatatotheirpeopleistopofmind.
ThesecondthingIlearnedfromseveralsurveysanddirectdialoguewithcustomersandtheindustryisthattheCitrixbrandisverywell-trusted,andthatourcustomersreallyloveworkingwithus.Theyloveourproducts,andthevaluetheydeliver.However,inmanycases,theydon'tyetseeourend-to-endstrategy,thebreadthofourportfolio,andhowthewholeismorethanthesumoftheparts.AndthisispreciselywhereIfeelCitrixhasahugeopportunity.
Itallstartswithourvision.Weaimtopoweraworldwherepeople,organizations,andthingsaresecurelyconnectedandaccessibletomaketheextraordinarypossible.Andourstrategyistobuildtheworld'sbestintegratedtechnologyservicesforsecuredeliveryofappsanddataanytime,anywhere,onanydevice,fromanycloud.
Weenablepeopletoworkandlivebetter,bygivingthemsecure,reliableandperformanceenterprise[storeage],togetaccesstoalltheappsanddatatheyneedtoexcelattheirjobs.
Securityisthecoreunderlyingfeature,andthemostimportantoutcomeofdeployingCitrixtechnology,withournetworkdeliverythroughNetScaler,WorkspaceservicesthroughtheXenfamily,andsecurefileandsyncsharingthroughsharecloud,allintegratedandworkingtogethertodeliveronthissingularmission.WewillprovidemoredetailsonourstrategyintheupcomingAnalystDayatSynergyeventnextmonth.
Buteventoday'sresultsclearlydemonstratethatthemarketisbeginningtovalidateourvisionandourstrategy.Whenweexaminetheprimaryreasonswhywe'rewinninginthemarkets,it'sbecauseofourreliableproductperformanceandscalability,theopennessandflexibilityofoursolutions,lowTCL,andourabilitytoprovideitallasintegratedsolutionsworkingtogether.
Thankyou,andnowwelookforwardtoyourquestions.
QUESTIONS&ANSWERS
Operator :
CompanyName:CitrixSystemsIncCompanyTicker:CT XSSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q12016EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:86.19
©2014TheStreet,Inc.Al l R ightsReserved Page6of21
(OperatorInstructions)
RaimoLenschow,Barclays.
RaimoLenschow(Analyst-BarclaysCapital):
Hi.Congratulationstoagreatstart,guys.AndKirill,welcomeonboard.FirstquestionforyouKirill,canyoutalkalittlebitaboutthe--youcamefromMicrosoft.Microsofthastheirownmobilesolution.HowdoyouenvisionthatrelationshipwithMicrosofttoevolveforCitrixgoingforward,withyouonboardnow?
KirillT atarinov(President&CEO):
Yes,thankyouverymuch,andthanksforthewelcome.Obviously,CitrixandMicrosofthavealong-standinghistoryofpartnershipandterrificrelationship,andthatpartnershipcertainlycontinuesandexpandstomanyareas.Ithinktheworkthatwe'vedonetogetheronSkypeforBusinessisoneexampleofthatterrificpartnership,theworkthatwe'redoingwithMicrosoftonWindows10,andhelpingMicrosoftcustomersrolloutWindows10quicklyisanotherexampleofthatpartnership.Andwe'relookingformanyotherwaystocollaborate,andwecontinuetoworkverycloselytogetherinmanyotherareasincludingenterpriseandmobility.
RaimoLenschow(Analyst-BarclaysCapital):
Okay,perfect.Thankyou.AndDavid,onequestion.Likeyou'veobviouslyhadaverystrongstarttotheyearontheoperatingmargins,howmuchofthatwasjustcoming,stuffcomingthroughquickerthanexpected,versusactuallyyouwereidentifyingnewareas?Thankyou
DavidHenshall(COO&CFO):
Raimo,ifyou'reaskingintermsof--fromtheexpensepointofview,obviouslymarginswereafunctionofthe(inaudible)plusexpense.Butourrestructuringisalittlebitaheadofplan.Imean,we'vebeenexecutingacrosstheCompanyveryeffectively.Ithink,we're--wehavetakenabottoms-upapproachaswediscussedoverthelastcoupleofquarters,andthisjustallowstheteamstoreallyownthebusiness,andowntheirrestructuringitems.Ithinkwe'rejustdoingagreatjobacrosstheCompany.Soobviously,we'retakingupourfull-yearmarginexpectationbyabout100basispointsalreadyhereinQ1,sofeelingreallygoodaboutthataswell.
RaimoLenschow(Analyst-BarclaysCapital):
Lovely.Thankyou,welldone.
Operator :
KashRangan,BankofAmerica/MerrillLynch
KashRangan (Analyst-BoAMerrillLynch):
Hey,guys.Thankyouverymuch.I'llechomycongratulationsaswell.SowhenIlookatthewayinwhichyoubeattheoperatingincome,morethantwo-thirdsofthatcamefromgrossprofitsbeats.Soitdoesn'tlooklikeit'spurelyanexpensereductionstory.SocanyoutalktothedriversofupsideperformanceontheXenside?AndIthinkclearly,foryears,we'vebeenhearingXenlicenseflattodown.Sothistimeit'sflat,whichisobviouslyanicepositivereversal.Andalso,Idon'tbelievethatwe'veseenastrongdouble-digitgrowthonthenetworkingside.Canyoujusttalktoindustryfundamentals,versushowmuchofthisisfundamentalsinyourendindustry,versusyourexecution?AndcoloronwhyAsia-Pacificwasdownsomuchaswell,notwithstanding,otherwiseagreatresult.Thankssomuch.
CompanyName:CitrixSystemsIncCompanyTicker:CT XSSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q12016EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:86.19
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DavidHenshall(COO&CFO):
Thanks,Kash.Afewquestionsinthere,soletmeparsethatoutabit.Imean,overall,talkingabouttheindustryandthedemandenvironment,I'dsaythebigstoriesinthequarterweretheAmericasperformance,reallydidagreatjob,drovealotoftherevenue,drovealotoftherevenueupsideaswell.Sothoseteamshavebeenworkingthroughtherestructuringfromreallythebeginningof2015.Sothey'rejust--they'rejusthummingalong.We'realittlebitfurtherbehindwhenitcomestotheothertworegions,inthetermsoftheworkthatwe'vebeenoperatingagainst.
Fromaproductsstandpoint,yes,NetScalerhadaterrificquarteragain,similartothelast,reallythelastninemonthshavebeenverystrong.It'sacombinationofstrengthacrossthebigtrendsaroundcloudbuild-out,cloudservices,etcetera.We'realsocontinuingtoexpandthecustomeropportunitysize.Icalledoutmorethan20%growthincustomerswithinthatsegment.Interestinglyenough,we'realsoseeingaprettyrapidgrowthofNetScalerbeingconsumedasacloudservice.Andso,whilestillonlyamidsingle-digitsofthemix,thatbusinessisgrowingwellover100%aswell.
Shiftinggears,andtalkingaboutWorkspaceservices,acoupleofthingstopointout.Clearly,they'remakinggoodprogressoverthelastseveralquarters.Someofthestatsthatwereferencedinthepreparedremarks,thesuitebeingthecompletesolutionfortalkingwithcustomersaboutappanddatadelivery,thatwasupabout100%.TheoverallCSPbusiness,whichremindyou,isfullsubscription,wasupabout30%.
AndonedatapointthatIdidn'tputinthepreparedremarks,butit'salsointeresting,isthatwhenIlookatunits,unitsareactuallygrowingyear-on-yearinthemid-singledigitrange.Andthat'sjustafunctionofthemixoflicensetype.SooverallfortheWorkspaceservicesbusiness,about18%oflicensethisquarterwascomingviasubscription.Thatcomparesto14%ayearago.SoI'vegotacoupleofdifferentdynamicsinplay,buttheoverallmessageisthat,we'reupandtotherightacrossallofourmajorproductareas.We'reseeingterrificexecutionoutoftheAmericas.Wewerehappy,andaboveourinternalexpectationatmultipleproductareas,andwestillseefurtherupside,becausethere'smoreworktodo.
KashRangan (Analyst-BoAMerrillLynch):
(multiplespeakers)Thankyou.
KirillT atarinov(President&CEO):
Perhapsjustacoupleofthings,ontheseculartrendsthatwe'reseeingthatareclearlyplayingtherole,anddrivingresultsforthebusiness.Onthenetworkingside,weallseethetremendousbuildoutofthedatacentersthatcontinues,andNetScalerofferinguniquecapabilitiesinasoftware-definedfashiontrulyparticipatesinthatbuild-out.Andthat'swhatweseeinthegrowth,inthecloudprovidersegment.
Atthesametime,thegrowthine-commerce,andthefactthateventhosecompaniesthathistoricallyweren'tparticipatingindeliveryofonlinegoodsandservices,now,rightinthereandtheyneedtoincreasetheirnetworkingthroughputandcapacity.Thatplaysasignificantrole.And,ofcourse,manyuseNetScalerasessentiallysecurityproduct,orpartoftheircybersecuritystrategy.Andthat'sanothertrendthatplaystothat.
Ontheappvirtualization,andontheoverallWorkspaceandWorkspacesservices.XenAppis,we'reseeingsignificantinterestinXenApp,andweseeasignificantinterestinlargecustomersgoingtovirtualizedapplication,andweseegoodgrowthinthatparticularproduct.
Fromthe[trends]pointofview,IwouldsaytheintroductionofWindows10intheenterpriseisstartingtobeadriverthatwe'reseeing.AndmanylargecustomersthatIhadachancetohavedialoguewithinthe
CompanyName:CitrixSystemsIncCompanyTicker:CT XSSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q12016EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:86.19
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lastfewweeks,certainlylookingatXenAppandXenDesktopastheverysignificantimportantinfrastructureforthemtorolloutWindows10intheenterprise.Andweobviouslyexpectthattogrowandaccelerateandcontinue.AndnewproductintroductionsthathappeninQ1willonlyhelpwiththat,alsothroughtheSkypeforBusinessandsecurewebbrowser.
KashRangan (Analyst-BoAMerrillLynch):
Kirill,thankssomuch,andnicetohearfromapersonwhosenamealsostartswithaK.
KirillT atarinov(President&CEO):
Thanks,Kash(laughter).
Operator :
WalterPritchard,Citi.
WalterPritchard (Analyst-Citigroup):
Hi,thanks.Justfollowingonthelastquestion,thisXenAppresurgence,Ithinkmanyofusaretryingtounderstand--yousawagoodbusinesstherelastquarter.Andyou'vehadlikethe7.6release,whichIthinkmayhavereleasedpent-updemand.Kirill,canyouhelpusunderstandjusthowsustainableyouthinkgrowth,Iguess,inXenApplicenseis?Andmaybeaspartofthat,couldyouhighlightsomeoftheusecasesorvaluepropositionsbeyondsortofgenericappvirtualizationthataredrivingdemandthere?Becausethatproducthasgonethroughsortofphasesofgrowthandmaturity,andit'ssurprisingtoseehowwellit'sdoing.
KirillT atarinov(President&CEO):
Well,Ithinkit'sworthremembering,thatabouttwoorthreeyears,theCompanywentthroughaverysignificantengineeringefforttolayoutVDIandXenDesktopandXenApponthesameinfrastructure.Andthat,aswe'veseeninsomeexamples,andJohnsHopkinsinparticularthatwementioned,weseecustomerswhowanttorunbothvirtualizeddesktopandvirtualizedappoffboththesameinfrastructure.Andthat'sbecomingmoreandmoreprominent,andweseemoreandmoreofthat.
WealsoseecustomerswhowanttoessentiallycreateonesinglestorefrontforalloftheiremployeestoaccesstheirWorkspaces.Whetherit'svirtualizeddesktoptheyaccess,virtualizedapp,orfiles.Theybasicallywanttocreatetheenterpriseportal,enterprisestoreforthemtouse.Andthat'spreciselywhere,sotheunificationplaysanimportantrole,andwhereallofthatworkingonthesameinfrastructureisquitesignificant.Thesearejustacoupleofthingsthatwe'reseeing,andthatgoingthroughmanycustomerdiscussionstome,createbothexcitementonwhathappenedinthelastcoupleofquarters,butatthesametimeconfidencethatweseesomebrightfutureforXenAppinparticular.
WalterPritchard (Analyst-Citigroup):
Andthen,David,onthecostside,theoneareathatstuckouttouswastheR&Dspend,whichwasdown--becausewecalculatesomewhereinthemid-teensyear-over-year.Thatstrikesmeasmaybedownmorethanitshouldbe,ormorethanitcanbeforsomesustainedperiodoftime.Couldyouhelpusunderstandwhat'sdrivingthat,andhowweshouldthinkaboutyourlevelofR&Dspendgoingforward?
DavidHenshall(COO&CFO):
Yes,Iwouldn'tfocustoomuchontheindividuallineitemsquartertoquarter.Let'sgetacouplemorequartersintotheyear.There'sreallytwothings.Thefirst,thereasonIsaythat,isthatthereisalways
CompanyName:CitrixSystemsIncCompanyTicker:CT XSSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q12016EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:86.19
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individualproductsgoingonthatmayormaynothavelargeconsultingexpense.Thereareevents,otherthingsthatflowthroughthere.
Thesecondoneis,alargepartofourfocusandstreamliningwasaroundtheportfolio.Andso,aswehaveremovedorsoldorshutdownproductinitiatives,thatcomeswiththeexpense,thatwaseverythingfromengineeringthroughsupport,throughsales,etcetera.Sothat'sreallywhatyouareseeingthere.
Overall,we'vetalkedaboutfreeingupcapital,sothatwecanreinvestintheareasthatarestrategic,andthey'regoingtodrivegrowthlong-term.Andthat'sbeenacorepartofthestrategy,andwe'reexecutingonthat.Sooverall,overallR&Dsomewhererunninginthat12%to16%ofrevenueisprettytypical,andIthinkthat'swherewe'regoingtobeaswell.
WalterPritchard (Analyst-Citigroup):
Okay.Thankyou.
Operator :
HeatherBellini.
HeatherBellini(Analyst-GoldmanSachs):
Great,thankyou.Iguess,David,Ihadaquestion,twoquestions.Thecloudproviders,Ibelieveyousaidtheywere60%ofsalesintheperiod,andobviouslytheNetScalerbusinesslookedreallygood.I'mjustwondering,thatdoesseemhigherthannormal.Ithoughtinthepast,you'vetalkedaboutitbeingmorelike25%to30%.AndI'mjustwondering,aretheseguyskindofbuyinginbiggerburstslessfrequentlythantheyhadinthepast?Areyouseeinganychange,Iguess,intheirbuyingbehavior?Andthen,theotherwouldbe--thequestionontopofthatwouldbe,howdowethinkaboutthedipdownsequentiallyoffwhat'sahugenumberinQ1?Andthen,Ijusthadafollow-uponlong-termdeferred.
DavidHenshall(COO&CFO):
Sure.Onthemiddlepartofyourquestion,aboutthesequentialchangefromQ1toQ2,it'sjustafunctionof,asyousaid,thereallystrongoutperformanceinQ1.WewanttobeconservativegoingintoQ2,nothingmorethanthat.Intermsofthecloudserviceproviders,itrepresentedabout60%ofthemixinQ1.It'salloftheabove,fromyourearlierquestion.They'recontinuingtobuildoutjustcoreinfrastructure,asthemetatrendofcloudcontinues.Therearenewservicesbeingdeliveredallthetime,thatrequireincrementalcapacity.AndasImentionedalittleearlier,we'vebeenexpandingthatbase.Sotryingtokeepthesizeoftheopportunityexpandingatthesametime.
Soweaddedacouplehundredcustomerstothatsegment,andit'sreallyacombinationofallthreeofthose,thataredrivingthegrowth.Overthepastfewquarters,Q4forexample,itrepresentedabout45%ofthemix,itwas60%inQ1.Andso,itdoeshavethepotentialtobealittlevolatile,andthat'soneofthereasonswhywe'rebeingconservativeforQ2,butnothingbeyondonthat.
HeatherBellini(Analyst-GoldmanSachs):
Okay.Andthen(multiplespeakers).Sorry,goahead.
KirillT atarinov(President&CEO):
Iwasjustgoingtoaddthatthebaseisexpanding,andtherearemorecustomersthat'sbeingaddedtothatpool.
HeatherBellini(Analyst-GoldmanSachs):
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Andthequestiononlong-termdeferredwasreally,the--itlookslikeyourcontractdurations,peoplearewillingtopayyoumoreupfront.Yourlong-termdeferredtrendsoverthelastthreequartershavebeenwaystrongerthanwhatseasonalitywouldsuggestinthepast.Canyoujusttalkalittlebitaboutwhat'sdrivingthat?
DavidHenshall(COO&CFO):
Yes,customersaredrivingthatactually.Imean,we'renotincentingtheteamstodrivemulti-yeararrangements,moresothancustomersaresimplyaskingforthat.Andit'sjustafunctionofbecomingmoreandmorestrategicintheirinfrastructure.
Icanthinkof,thelargesttransactioninthequarter,whichwaswithaUSfederalentitythatincludedfouryearsofunderlyingmaintenance,andthatwaspartoftheoverallcontract.Itmappedtotheoutsourcingthattheyweredoingwithanadditionalprovider.Andso,it'sinstanceslikethatthatarereallydrivingthelong-termdeferred.Butoverall,it'sjustafunctionof--it'sacriticalpartoftheirinfrastructure,andwe'rebecomingmorestrategic.AndIthinkthattrend,asit'scontinuedoverthelastcoupleofyearsshouldcontinuegoingforward.
HeatherBellini(Analyst-GoldmanSachs):
Okay,great.Thankyou.
Operator :
JohnDiFucci,Jefferies.
JohnDiFucci(Analyst-JefferiesLLC):
Thankyou.Ihadtwoquestions,thefirstoneit'sbeingaskedquiteabit.AndDavid,IthinkIaskedyou--mighthaveaskedyouthisquestionlastquarter.Imean,IthinkwhenyoufirstgotintothisbusinesswithNetScaler,therewassomecriticism--notcriticism--someconcern,thattherewasahighconcentrationthatNetScalersoldtocloudproviders.Andbutnowthisturnsouttobe--lookstobeanyway.agoodthing.You'vetypicallysaid,thatthisisgoingtobereallylumpygoingforward.Butasyoujustpointedout,you'veseeninemonthsofprettystrongresultshere.AndI'mjustcuriousifnowyourviewonthathaschanged,andisnow--thislooksmoretobeatrendversusjustaprettylumpybusiness?
DavidHenshall(COO&CFO):
Yes,Iwouldcallitslightlyvolatile,morethanlumpy.Butit's--itisstillconcentratedintoacoupleofhundredcloudproviders,withthetop50beingvery,verylargehouseholdnames,ofcourse.Ithinkthatit'sjustareflectionofthemetatrendthat'sgoingon,acrossourindustryaroundcloud,andcloudbuild-out.Andso,there's--Iwouldn'tcallitaninsatiableappetiteforcapacity,butit'sbeenextreme.Andso,therewillcontinuetobesomequartertoquartervolatility.Ithinkthatthatshouldbetheexpectation.Butoverall,it'sareallyimportantsegmentforus,andonethatweexpecttoseesolidgrowthinforthefull-year.
JohnDiFucci(Analyst-JefferiesLLC):
Okay.AndifImight,thefollow-uptoWalter'squestion,becauseInoticedonthecashflowstatement,cashpaidforlicensingagreementsandtechnology,whichI'mnotsurewhat--it'susuallyasmallnumber.Thisquarteritwas$24.3millionwhichisIthinkmorethan2timesitwasalloflastyear.There'susuallyalittlebitinthereeveryquarter.AndI'mjustcurious,ifthathadanyimpactastowhyR&Dwaslower?Andmaybeyoucanexplainthatalittlebit,justlikewhatisinthere,especiallythebigjumpthisquarter?
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DavidHenshall(COO&CFO):
Yes,notalottoexplain.Imean,there'salwaysdifferentthingswe'redoingfromaninboundlicensingpointofview,assetpurchases,technologypurchasesandotherM&A.Andthosearegenerally,thefourbucketsofone-offitemsthatshowintoR&D.NotareflectiononwhyOpExwashigherorlower,reallyanunrelateditem.
JohnDiFucci(Analyst-JefferiesLLC):
Butwhydiditjumpthisquarterthough?Whatisin--likewhatwasspecialthisquarter,thatitwouldjumpto2timestowhatitwaslastyear,andit'susuallyprettysteadyatlowsingle-digitmillions?
DavidHenshall(COO&CFO):
Yes,wedidaone-timelicensingagreementforatechnologythatwillbecomeanentitlementforourcustomersonsubscriptionandmaintenance.
JohnDiFucci(Analyst-JefferiesLLC):
Soweshouldn'texpectthatgoingforward?Itshouldgobacktosortoflowsingle-digitsofmillions,orImean,theremightbesomethinglikethathappening,butgenerally?
DavidHenshall(COO&CFO):
Yes,generallybacktowhereithasbeen.
JohnDiFucci(Analyst-JefferiesLLC):
Okay,great.Okay,thanksalotguys.
Operator :
ScottZeller.
Scott Zeller (Analyst-Needham&Company):
Hi,thankyou.AnotherquestiononXenApp,therehavebeenseveral.ButIbelieve--weheardoverthepastyearorso,ofthedevelopment,andthatwasmentionedinthepreparedremarks,thetwotothreeyearsofdevelopment.Andwonderedifthisisreallyarefreshcyclemorethananythingelse?Couldyouaddsomecoloraroundthat,becauseitseemedthat--Ithinkbeforetheinvestmentandtherewrite,weheardthatithadnotbeentouchedfor,Ibelievefiveoreightyears.Soisthisactuallyarefreshcycle?
KirillT atarinov(President&CEO):
Well,Ithinkit'sarefreshcyclefromtwovectors.It'sabsolutelyatechnologyrefreshcyclefromCitrixpointofview.Therewasamassiveengineeringeffortconductedoverthelastfewyearsaswementionedearlier,thatresultedinthishighlyscalable,highlyperformingsolutionthatisbuiltonsingleplatform,withhighlyperformingpatentedprotocol.That'soneangle,andthat'scertainlydrivesadoption.
TheotheranglethereisWindows10phenomenonintheenterprise,thatessentiallydrivesreinvigorationofadesiretoputtraditionalapps,legacyappsforlackofabetterword,intothemoderndesktops.OrdelivermoderndesktopsthroughXenDesktoptothelegacyhardware.Bothtrendswouldbeplayinghereinthefuturewithoutadoubt.
Scott Zeller (Analyst-Needham&Company):
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Okay.Andthen,justtofollowup,anycommentsaboutyourinitialthoughtsyou'vegivenonFY17previously,ofthe30%operatingmargin,and4%to5%topline?
DavidHenshall(COO&CFO):
Nowwehaven'tupdatedthe2017numbers,andwereallyaren'tplanningto,untilwegetfurtherintheyear.JusttheonecommentthatImadeearlier.Obviously,we'retrackingaheadofourpriorguidancewhenitcomestooperatingleverage.Wefeelgoodaboutalltheprogresswe'remakingthere.
Scott Zeller (Analyst-Needham&Company):
Thankyou.
Operator :
MichaelTurits,RaymondJames.
JamesWesman (Analyst-RaymondJames):
Hey,guys.Goodafternoon.It'sJamesWesmansittinginforMichael.FirstquestionforKirillorDavid,canyoujusttalkaboutthecompetitiveenvironmentindesktopversusVMwarethisquarter,andyourothercompetitors?AndIhaveafollow-upforDavidonNetScaler.
KirillT atarinov(President&CEO):
Well,obviouslycompetitioncontinues,andcompetitionisverystrong,anditisahighlycompetitiveenvironment.Asweshared,wehaveseensomegoodstrongwins,andwe'requiteexcitedaboutthose.Andweseecustomerswhoreallywanttoworkwithus,customerswholoveourunifiedstory,customerswholoveourcapability.TherewasoneparticularonethatImentioned,thatIhadachancetositdown,talkFridayactuallyinParis.It'salargefinancialinstitution.
They'vejustselectedXenDesktopoverVMwareVDIfortwomainreasons.Onewasoverallcostofownershipandimplementation,andtwowascapabilities,andasetofscenariosthatonlyCitrixcouldsupport.Andinparticular,theydiscoveredintheirproof-of-conceptthatonlyCitrixsolutioncouldsupportallbroadrangeof[peer]referralstheywantedtorunforavirtualizeddesktop,andthatdrovethemtous.Andagain,it'sjustoneexampleofmanythatweareseeing.Butatthesametime,it'sacompetitiveenvironment.Weseeourcompetitorsdiscountingtheirsolutionsheavily.Andinmanycases,it'sacombat,butwe'reheretowin.
JamesWesman (Analyst-RaymondJames):
Great.Thanks,Kirill.AndDavid,afollow-uponNetScaler,Iknowseveralpeoplehavebeenaskingthis,butjustgiventherecentsuccessofit,andwithinthecloudprovidersandthebusinessoverall.You'vegrownthetoplineandlicensedouble-digitsplusforthelastninemonthsorso.Doyoufeellikethisisasustainablegrowthrateinto2016?Shouldwebethinkingthatthisisadouble-digitgrowergoingforward?
DavidHenshall(COO&CFO):
Yes,we'reobviouslybeingconservativeandcautious,whenweprovideforwardoutlook.We'reincrediblyhappywiththebusinessoverthelast--well,reallyoverthelast10years.Butlike,asyoupointedout,thelastninemonthshavebeenparticularlystrong.Andso,we'reclearlytakingshare.Shareisnotbrokenoutintermsofindividualsegments,butwetookseveralpointsofsharelastyear,andIthinkwe'vegotthecapabilitiestodothatgoingforward.
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Ifyoulookacrossourproductportfolio,wegotauniquetechnologyapproach,whereweareasoftwarecompany,andthatgivesusthecapabilitytodeliverthesetypesoftechnologiesinaformfactorofanappliance,inahighlyvirtualizedappliance,inasoftwarepackage,orviaacloudconsumption.Ithinkthatgivesustheabilitytodosomereallyuniquethingswithcustomersthataregoingtoplayverywell,withallthemeta-trendsthataregoingonaroundus.
JamesWesman (Analyst-RaymondJames):
Great.Thankyou,guys.
Operator :
PhilipWinslow,CreditSuisse.
PhilWinslow(Analyst-CreditSuisse):
Hi,thanks,guys,andcongratsonagreatquarter.JustgoingbacktotheXenAppandXenDesktopandWorkspaceSuiteside.Imean,youtalkedaboutobviouslythebackendinfrastructure,theupgradethatyouhad,butalsotherewasthereleaseswhereyouareaddingbackend,callitfrontendcapabilitiesaswell.Andthen,obviouslywithWorkspaceSuite,bundlingintheXenMobilecapabilities.Thenyouguysalsotalkedaboutthemessagingthroughthechannel,andhowitwasbackontrack,beginninglastyearandisbuilding.
SoIguess,asyoubalancethese--allthesetogether,arewepastthepointwheretherearenoproductissues,andpeoplearereadytogointermsofupgradingthebackend?Andsimilarly,whereiflikeiftherehadbeenconfusioninthepastinthechannel,arewekindofcompletetheretoo,andisthistherunratetoexpect,oristhereanotherlegthatstillneedstobuildhere,intermsoftheturnaround?
KirillT atarinov(President&CEO):
Well,Ithinkourrefocusingandrestructuringeffortsareclearlypayingoff,andthefeedbackthatwe'regettingfromthechannelfromcustomers,andevenfromourownsellershavebeenresoundinglypositive.IwouldsayourSuitemessageresonatesincrediblywell,becausethisispreciselywhatcustomerswanttoimplement.Ourlatestreleasesareverystrong,XenAppandDesktop7.8hasregionsoffunctionality,andlotsoffeaturesthatourcompetitorsaresimplymissing.Atthesametime,they'reclearlyprovidingthisintegratedenvironment.
XenMobile,10.3,ourlatestreleaseinthatareaisverycompetitive,andwesawsomeveryinterestingtakeoutswithapplicationmanagement,mobileapplicationmanagementbeingthecorestrengthareaofours.Andthat'sagain,thecasewhere'sXenMobile,workingtogetherwithNetScaler,workingtogetherwithShareFileprovidesthisuniquebettertogetherscenario.Andthosearesimplyunmatchedbycompetitors.SoIthinkthisisthecasewherewehavesomethinguniqueinourhands.
Ofcourse,there'salwaysmorethingsweneedtodo.Ofcourse,we'llcontinuetoevolveoursolution,andwecontinuetoinvest,andcontinuousresearchanddevelopmenttoaddthosenewuniquescenarios,andembracetheneedsofthenewmoderninfrastructures,andthathelpenterprisemovewiththetrendsofdigitaltransformation.Butwefeelverygoodwithwhereweare,andveryenergizedaboutthefuture.
PhilWinslow(Analyst-CreditSuisse):
Gotit.That'sgreat.Andthen,David,justafollow-upforyou.Intermsofjustthecostsavingsfromtherealignmentthatyouhavedone,obviously,youtalkedaboutinthepast,acertainpercentageactuallybleedingintonextyear,sortofjustaquarterinto2016here,anychangeonthatsplit,ofwhenthesecostsavingsstartshowingup,2016versus2017?
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DavidHenshall(COO&CFO):
No,Ithinkit's--alotoftheshort-termactionsarethingsthatweexecutedattheendofQ4andintoQ1,thosearearoundpeople-relateditems.Thelongertermitems,thebigstructuralthingslikebringingdown,facilitiescapacity,andoptimizingthere,whichuptodate,we'vetouchedabout27facilities,whichisover20%oftheoverallportfolio.Thosethingshavelong-termtailsonthem,butthey'realsopermanentbenefits,changestoourprocurementandsourcingorganizations,thingslikethat,thatwillbelayeringingraduallyovertime,plusjusttheeliminationofothertypesofeventsandprogramsandprojects,etcetera.
Thesethingswilllayerin.Ithinktheteamsarerunningfulloutnowrightnow,intermsofexecutioncapacity.AndasI'vesaidacoupleoftimes,we'realittleaheadofourinternalplanonthetimelinethere.Ithinkwewilljustkeepfocusedonthat.Moretodo.
PhilWinslow(Analyst-CreditSuisse):
Great.Thanks,guys,andcongratsagain.
KirillT atarinov(President&CEO):
Thanks.
Operator :
KirkMaterne,EvercoreISI.
PatrickFalzman (Analyst-EvercoreISI):
Hi,it'sactually[PatrickFalzman]onforKirk.David,youtouchedonthisbefore,butonthestrengthintheUS,wasthereanythingfromamacrocompetitivebackdropanydifferentversuspriorquarter?Orisit,doyouthinkit'sjustaboutusingyourchannelpartners,executingbetter?
DavidHenshall(COO&CFO):
Well,Ithinkthat,fromamacrostandpoint,Imean,Q1alwaystendstobealittledifferentthanQ4.Imean,mostorganizationsarestillfinalizingandlockingdownbudgets.They'reabsorbingtheupliftofpurchasesthattheyincurredinQ4.Andso,ittendstostartoutalittlebitslower,andthat'sjustvery,verytypicalacrossITbuyingpatterns.SoIwouldsayQ1wasasexpected.
US,weareexecutingwell,theteamsaredoingwell,asIpointedoutacoupleoftimes.Competition,asKirillsaid,isverystronginallregions.Ithinkwe'veseenahighlevelofdiscountingfromalotofvendors.We'veseenahighlevelofbundling,whichisadifferenttypeofdiscountingandthat'spersistent.Soverycompetitive.Customersareveryfocusedonthebig--samethemescloud,mobility,security,etcetera,waystosimplifytheirowninfrastructure.Andso,atthispoint,Iwouldjustcallitexecution.
KirillT atarinov(President&CEO):
Absolutely.
PatrickFalzman (Analyst-EvercoreISI):
Thankyou.
Operator :
SteveAshley,RobertBaird.
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SteveAshley(Analyst-RobertW.Baird&Company,Inc.):
Terrific.Mycongratsaswell.I'dliketoaskaboutthechannel.Ithinkalotofthediscussionsofarhasbeenontheproducts,butIknowthatmakingchangesinthechannelwasanimportantpartoftherecentquarter.Justliketoaskyoutomaybecallout,whatyouarethinkaresomeofthebiggerandmoreimportantthingsthatmighthavechangedhereinthefirstquarter?
KirillT atarinov(President&CEO):
Well,obviously,channelplaysahugelyimportantroleinourfuturesuccess,andhasbeenpartofourgo-to-marketstrategyformanyyears.Ithinkeverytimeyouhavealargeandvibrantchannellikewehave,addingelementsthathelpreinvigorateitandencouragegrowthissomethingthatyouneedtocontinuouslydo.Andthat'swhatpreciselywhatwe'vedoneandcommunicatedinthelastquarter.It'sbasicallyaprogramthatencouragesaccelerationofcustomeraddsandgrowthinthebusiness,andessentiallyrewardingourchannelpartnersfordoingmoreofthat.
DavidHenshall(COO&CFO):
AndSteve,we'restillworkingourwaythroughthat.There'smoreworktodofromachannelstandpoint,gettingthemessageout,andaligningtrainingandcertificationsandeverythingelse.Butintermsofanearlydatapointthat'spositive,Imean,aggregatecontributionfromourreseller,theresellerpartofourchannelwasup,northof10%Q1toQ1.SoImean,we'reseeinggoodvibrancyinthatrespect.Andthen,contributionfromthereallylargenamedpartnerswasupsubstantiallyhigherthanthat.SoastrongquarterfromanSIpointofview.
SteveAshley(Analyst-RobertW.Baird&Company,Inc.):
Terrific.Andthen,anotherthingthatyoutalkedabout,ontermsofgo-to-marketwasmaybedoingsomemoretargetingofthemidmarket,andreallytryingtomakeanextendedefforttoreachout.Anyupdatethere,isthatsomethingthathasbegunhereinthefirstquarter?
DavidHenshall(COO&CFO):
Yes,earlydays,butwe--that'sgoingtobeacombinationofbothgo-to-marketandproduct.Andso,someoftheproductareasthatwehavetalkedabout,[particularly]inQ1likethebrowserserver,whichgivesreallybusinessesofallsize,buttargetedtowardsmidmarketinmanydimensions,theabilitytodeliverbrowser-basedapps,whilemanagingperformance,security,browsercompatibility,etcetera,inamoresimplifiedfashion.
ConsumptionacrossareaslikeCSPthat'sbeengrowingsoquickly,targetedtowardsthatsmallerandmidsizedcustomer,wheretheycanconsumecloudservicesandnothavetomanagetheinfrastructure.Imean,thosearealltrendsmovinginthatdirection.Butintermsofthego-to-marketefforts,we'rejustgettinggoingonthatfront,andyoushouldexpectmorethroughthebalanceoftheyear.
KirillT atarinov(President&CEO):
AndIwouldaddoneveryimportantelementofourstrategyandexecution,asitrelatestoShareFile,whichhasbeenafantasticsolutionformidmarketandessentiallyoptimizedformidmarket,withanSMBessentially,withitscloud-basedself-servedeliverymodel.Andnow,asShareFilebecomesveryintegral,integratedpartoftheportfolio,thoseingredientsfromtheproductsideandthosecharacteristicsonself-service,easytodeploytypeofmethodologyisstartingtoresonateacrossCitrix.Andwecertainlyexpecttoseemoreofthathappeningthroughtherestoftheportfolio,whichfromtheproductsidewouldpositionusmuchbetterintheSMBsegmentwithaclouddeliverymodel.
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SteveAshley(Analyst-RobertW.Baird&Company,Inc.):
Perfect.Thankyou.
Operator :
GreggMoskowitz.
GreggMoskowitz (Analyst-CowenandCompany):
Thankyou,andI'lladdmycongratulations.Gettingbacktothestrengthofthedeliverynetworkingbusinessthisquarter,younotedDavid,thatthereweremorethan100newcustomersinthissegment.Actually,itsoundedmorelikeacoupleofhundred,justinanswer--inyouranswerstoHeather'squestion.Canyougiveusasenseofhowthosenetaddscomparetoatypicalquarter,excludingofcourse,seasonallystrongQ4s?
DavidHenshall(COO&CFO):
Yes,whenIcalledthatout,itwasjustspecificallyinaquarteronetoquarteronecomparisonnot--becausethereissomeseasonalitythatmovesaroundit.Andso,ascomparedtolastquarter.Sooverall,it'sup,andIthinkjustafunctionofNetScalerbecomingmoreandmorevisible,andit'sjustasolidsolution.SonotmuchmoreI'daddbeyondthat.
GreggMoskowitz (Analyst-CowenandCompany):
Okay.AndthenontheNetScalermarketshare,IbelievewhatyousaidinthepastisthatyouexpectyourNetScalerbusinesstogrowinlinewithorfasterthanthemarketin2016.Basedonhowyou'vestartedtheyearfromanexecutionstandpoint,hasyourlevelofoptimismincreasedasitrelatestomarketsharegainsgoingforward?
DavidHenshall(COO&CFO):
We'recertainlyhappywiththeperformanceofQ1,andoptimisticaboutourabilitytoexecuteforthebalanceoftheyear.SoI'moptimisticaboutthisbusinessforsure.
KirillT atarinov(President&CEO):
Andthereareadditionalelementstothisbusinessthatarealsoquiteinteresting,inparticularinSD-WAN,whichisanewanduniquecapabilitythatwehaveaddedinpuresoftwaredeliveredfashion.IDCjustcameoutwiththeirassessmentofSD-WANmarket,andit'sgoingtogrowquitephenomenally,andwewillhaveanopportunitytoparticipateinit.
GreggMoskowitz (Analyst-CowenandCompany):
Veryhelpful.Thankyou.
Operator :
BradReback,Stifel.
BradReback(Analyst-StifelNicolaus):
Thanksverymuch.David,couldyougiveusasenseofwhatthecoreCitrixoperatingmarginwasinthequarter?
DavidHenshall(COO&CFO):
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YesBrad,wehaven'tbrokenitoutyet.IthinktheexpectationshouldbewhenwefiletheForm10,whichwillhappenlaterthisquarter,we'llgiveclarityintothetwooperatingsegments.Butconsistentwithwhatwe'vetalkedaboutinthepast,coreCitrixishigherthanwhatwecallspincoatthispointintime.Soitoperatednorthofthe29%marginthatwepostedforQ1.
BradReback(Analyst-StifelNicolaus):
Great.Andthen,justonequickfollow-up.APJ,isthatamacroissueoranexecutionissue?
DavidHenshall(COO&CFO):
Well,it'salittleofboth.Imean,theteamsareworkinghardtoevolvethego-to-marketmodelthere,tobealittlebitmoreindirect,andthat'smoreontheexecutionside.There'sclearlymacroissuesandpoliticalissuesthatwe'vebeendealingwith,insomeofthelargergeosoverthelastyearplus.
BradReback(Analyst-StifelNicolaus):
Great.Thanksverymuch.
Operator :
KeithWeiss,MorganStanley.
Sanjit Singh (Analyst-MorganStanley):
HithisisSanjitSinghinforKeith.Thankyoufortakingthequestion.WantedtotogglebacktotheWorkspaceservicesdivision.Whenyoutalkaboutoveralllicensegrowthbeingflat,Iguessmyquestionishere,howmuchdoes--towhatpercentagedoes,doweneedtogettointermsoftheCSPbusinessandtheWorkspaceservicesbusinessasapercentagetogetthatlicensegrowthtostarttoaccelerate,intothelowtopositive,lowtomidsingle-digitlicensegrowth?
DavidHenshall(COO&CFO):
Well,it'snotjustafunctionofwhatpercentagethathastogetto,becausethat'satwovariableequation.ButI'dsaythatoverall,we'reworkingongrowingallelementsofthatbusiness.Icalledoutafewstatisticsearlier.Butthefactthatintheaggregate,weareapproaching20%comingfromsubscriptions,whichwas14%ayearago.That'sthedirectionthisbusinesswillcontinuetomoveovertime,plusalltheworkthatKirillandIhavetalkedaboutaroundtheproductarea,justaddressingsomebroadertrendsintheindustry,makingtheproductsfeelmoreintegrated,andeverythingthatwe'redoingtodriveonthefullybakedSuiteapproachonthetopsdown.SoIthinkit'sacombinationofallofthose.Clearly,weseethisasabusinessthatneedstogrow,andwe'reworkingreallyhardtomakeitintoasustainablegrowthbusinessonthelicenseline.
Sanjit Singh (Analyst-MorganStanley):
Andaquickfollow-up,withacouplequartersofreallystrongperformanceonthetopline,isthereanythingthatmakesyouthinkaboutacceleratingtheinvestmentprofile,givensomeofthestrongtoplineresultsthatyouhaveseeninthepastcoupleofquarters?Andalsofromastrategicpointofview,isthereanythingthatneedstoberefinedstrategically,giventhehealthierstateofthebusinessaswelookatittoday?
DavidHenshall(COO&CFO):
Well,I'dsaystrategically,Imean,we'restartingtotalkalittlebitmoreaboutthat,andcome--weinviteyoutocomejoinusatourAnalystDayatSynergyattheendofMay.We'llbetalkingmuchmoreabout
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overallCitrixstrategy,andhowtothinkaboutthatgoingforward.Intermsofrevenueoutperformance,clearly,that'sbeendrivinganaccelerationofourmargingoals.Wearefullyontargetfordeliveringthat30%-plushere,beforetoolong.Andthat'snotgoingtochange.
We'realwaysinvestinginthingswebelievearegoingtodrivelong-termgrowth.AndIthinkthat'sourresponsibilitytomakesurewe'reinvestinginjustthosethingsthatarealignedtightlytothestrategy,veryfocused,andhavethehighestprobabilityofreturn.Asweseethose,we'llbeinvestinginthose.Thereasonwhywe'vegonethroughsomuchhardworkontherestructuringisthatitfreesupthecapitaltobeabletodothat,anddelivertheupsidetomarginsonanongoingbasis.So,Imean,that'sthegoal.
Sanjit Singh (Analyst-MorganStanley):
Thankyou.
Operator :
EdMaguire.
EdMaguire (Analyst-CLSA):
Hi,thanksfortakingmyquestion.IhadaquestionaboutWindows10,andthepotentialupgradecycleintheenterprise,howyoulookatthatasreallyanopportunitytoreintroducesomeofyournewerproducts,andnewofferingsandwhetheryouseethatimpactingthedemandprofileinyourcorecustomerbase?
KirillT atarinov(President&CEO):
Yes,thanks.That'sagreatquestion.Andobviously,weseeWindows10asahugeopportunity.It'sarealityintheenterprise,andweseetheenterpriseupgradeacceleratingtoWindows10,andCitrixhasaveryimportantroletoplayinthat.AveryimportantroleondeliveringappstoWindows10,deliveringappstoWindows10desktops,thatpeopleandtheirorganizationsjustbringanupgradebythemselves.Butatthesametime,givingITprofessionalsandinfrastructuremanagers,theabilitytodelivermanagedandcontrolledWindows10desktopsto--andso,they'remorecontrolledregulatedenvironments.AndIthinkbothofthat,bothofthoseareveryimportanttrends,andourcustomersaretellingusthatthisisreally,Iwouldsayverysignificanttothebeginningoftheupgradecyclethatwecertainlylookforwardtoparticipating.
EdMaguire (Analyst-CLSA):
Great.Thankyou.
Operator :
MarkMoerdler,Bernstein.
ZaneCreain (Analyst-Bernstein):
Hi,thisis[ZaneCreain]forMark.Thanksfortakingmyquestion,andcongratsonagreatquarter.IwasjustwonderingifyoucangiveanupdateonsomeoftheretentionratesacrossWorkspaceservicesandNetScaler,especiallywithWindows10comingout?AnypotentialpositiveimpactsonretentionratesinWorkspace?Thankyou.
DavidHenshall(COO&CFO):
Sure.Ifyou'rereferringtosubscriptionandmaintenanceretentionrates,they'vebeenbasicallyunchanged.Weruninthemid-tohigh80%s,continuedtodothatinQ1.
CompanyName:CitrixSystemsIncCompanyTicker:CT XSSector:T echnologyIndustry:ComputerSof tware&Services
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ZaneCreain (Analyst-Bernstein):
Great.Thankyou.
Operator :
AbheyLamba,MizuhoSecurities.
Unidentif iedPart icipant (Analyst-Mizuhosecurities):
Hi,thisis[Patov]sittinginforAbhey.Thanksfortakingthequestion.Onthecapitalallocationfront,whatareyourthoughtsonpayingadividend?Isitsomethingthat'sonthetablepostspin-off?
DavidHenshall(COO&CFO):
Well,wehaven'tdiscusseditpublicly,ofcourse.ButIthinkrightnow,themessagewehavetalkedaboutoverthelastcoupleofquarters,thatthecapitalstrategyissomethingwe'llbeaddressingpost-spin.Andwe'lladdressitwithclarity,intermsofhowwe'rethinkingaboutthebalancesheet,howwe'rethinkingaboutcapitalusegoingforward,etcetera.SoI'dsay,let'sjusthangtightuntilwegetthroughthespin,andwecanhaveamorefocusedconversationoncapitalstructure.
Unidentif iedPart icipant (Analyst-Mizuhosecurities):
Great.Thanks.
Operator :
JohnRizzuto,SunTrust.
JohnRizzuto (Analyst-SunTrustRobinsonHumphrey):
Yes,hi.JustapointofclarificationDavidorKirill,whenyouweretalkingearlieraboutXenDesktop,orXenDesktopasit'susedatJohnHopkinsIbelieveasanexample,somethingdrivingXenAppsales,thatunifiedinfrastructure.IwasundertheimpressionthatifyouaregettingXenDesktop,youarestillgettingXenAppaspartofthatXenAppvirtualization.I'mwonderinghowyou--isthattrue?Andwell,isthattrue?
KirillT atarinov(President&CEO):
Well,ifyou'regettingasuite,you'regettingboth.Butifyouboughtastandaloneproduct,andnowyouwanttoexpand,youwouldwanttoexpandeitherbyaddinganotherproduct,orexpandingintoasuite.Andthat'sthedynamicthatwe'reseeing.Anditgetstobe--it'sveryeasytodonow,becausethetwoareunderthesameinfrastructure,andthatexpansionbecomesnaturalforcustomers,unlikeourcompetitors.
JohnRizzuto (Analyst-SunTrustRobinsonHumphrey):
Okay.SoXenDesktopdoesnotcomewithapplicationvirtualizationthen,correct?Isthatwhatyouaresaying,becausethatiswhatIamasking?
DavidHenshall(COO&CFO):
John,theunderlyingexamplethatwetalkedaboutwas,whereacustomerisusingaVDIsolutionfromadifferentvendor,andstillusingXenApptodeliverapplications.
JohnRizzuto (Analyst-SunTrustRobinsonHumphrey):
CompanyName:CitrixSystemsIncCompanyTicker:CT XSSector:T echnologyIndustry:ComputerSof tware&Services
EventDescription:Q12016EarningsCallMarketCapasofEventDate:12.40BPriceasofEventDate:86.19
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Okay.Oh,itwasn'tyourVDIsolution?Okay,gotyou.
DavidHenshall(COO&CFO):
Correct,andthisisaboutunifyingthetwotogether.
JohnRizzuto (Analyst-SunTrustRobinsonHumphrey):
Okay.Because,Iguess,whatIwasafteris,ifyouhave--ifthere'salotofXenDesktopouttherehistorically,isthereapotentialforXenAppupsell,andisthatoneofthethingsthatmightbedrivingtheadoptionthere?Orthatwouldn'tmakesense,becausetheXenDesktopdoescomeswiththeXenAppinclusion?
DavidHenshall(COO&CFO):
No,Johnthere'sanupsellopportunitytoWorkspaceSuite.That'sanimportantpartforexistingXenAppcustomers.Butmorebroadly,it'sjustaboutexpandingtheapplicabilityofthesolutiontodrivegreaterpenetration.
JohnRizzuto (Analyst-SunTrustRobinsonHumphrey):
Okay.Andthen,inthatbeingsaid,whendidthenew--becauseforawhilethere,youdidn'thavetheSKUforXenApp,andthenyoureintroducedtheSKU,isthatcorrect?
DavidHenshall(COO&CFO):
Wereintroducetheproductoverayearago,andweeffectivelyend-of-lifedtheproduct,andwereintroducedit,atthatpointoftime,andwe'vebeenjustmovingitforwardsincethen.
JohnRizzuto (Analyst-SunTrustRobinsonHumphrey):
Okay.Okay.Thankyou.
Operator :
Andwehavenofurtherquestionsatthistime.Iwillnowturnthecallbackovertomanagementforclosingcomments.
KirillT atarinov(President&CEO):
Well,thankyouverymuchforjoiningustoday,andthankyouforfollowingCitrixaswemoveourbusinessforward.Afteralmost90dayswiththeCompany,followingmanydiscussionswithourcustomers,analysts,andmanyofyouactually,I'mconvincedthatCitrixtodayhastherightfocus,anexcitingproductroadmap,andtherightstrategyforthefuture.IlookforwardtoseeingmanyofyouattheendofMayforourAnalystDay,wherewewillbesharingdetailsofourstrategyforgrowingthebusinessfarther.Thankyouallverymuch,andhaveagreatday.
Operator :
Thankyouforparticipatingintoday'sCitrixconferencecall.
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