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Citrix Systems CEO Discusses Q3 2010 Results - Earnings Call Transcript

Citrix Systems CEO Discusses Q3 2010 Results - Earnings Call Transcript

Citrix Systems (



Q3 2010 Earnings Call

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October 21, 2010 4:45 pm ET


Mark Templeton - Chief Executive Officer, President and Director

David Henshall - Chief Financial Officer, Principal Accounting Officer and Senior Vice President of Finance

Eduardo Fleites - Senior Director of Investor Relations


Bhavan Suri - William Blair & Company.

Sarah Friar - Goldman Sachs Group Inc.

Israel Hernandez - Barclays Capital

Philip Winslow - Crédit Suisse AG

Steve Ashley - Robert W. Baird

Giuseppe Incitti - J.P. Morgan

Kash Rangan - Banc of America, Merrill Lynch

Heather Bellini - ISI Group

Rob Owens - Pacific Crest

Todd Raker - Deutsche Bank AG

Walter Pritchard - Citi

Robert Breza - RBC Capital Market

Adam Holt - Morgan Stanley

Brent Thill - UBS

Tim Klasell - Stifel Nicolaus

Edward Maguire - CLSA

Bradley Whitt - Gleacher & Company, Inc.

Curtis Shauger- Caris & Company



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At this time, I would like to welcome everyone to the Citrix Systems Third Quarter Earnings Call. (Operator Instructions) I would now like to introduce Mr. Eduardo Fleites, Senior Director of Investor Relations. Mr. Fleites, you may begin the conference.

Eduardo Fleites

Good afternoon everyone, and thank you for joining us for today's call where we will be discussing Citrix's third quarter 2010 financial results. Participating in the call will be Mark Templeton, President and Chief Executive Officer; and David Henshall, Senior Vice President and Chief Financial Officer.

This call is being webcast with a slide presentation on the Citrix Systems Investor Relations website, and the slide presentation associated with the webcast will be posted immediately following the call.

Before we begin the review of our financial results, I want to state that we have posted product classification and historical revenue trends related to our product groupings to the Investor Relations page of our website.

I'd like to remind you that today's conversation will include forward-looking statements made under the Safe Harbor provisions of the US Securities laws. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, such as the impact of the global economic climate, uncertainty in the IT spending environment, risks associated with our products and competition. 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, including the risk factor disclosure contained in our most recent annual report on Form 10-K, which is 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 would like to turn it to David Henshall, our Chief Financial Officer. David?

David Henshall

Thanks, Eduardo, and welcome to everyone joining us this afternoon. Today we announced our results for the third quarter 2010 delivering total revenue of 18% to $472 million, adjusted operating margin of over 27% and a record cash flow from operations.

I am very pleased with our execution in the field, gains in networking, SaaS and growing leadership position across the emerging desktop virtualization opportunity. So looking at the third quarter revenue from new license sales was $152 million up 18% from last year. License update revenue increased 15% annually driven by strong year to date demand in XenDesktop Trade-up program.

Capital services increased 30% led by record consulting utilization and maintenance agreements that are attached to our NetScaler products. Online SaaS revenues is $92 million with growth of 16% over last year and once again led by the strengthening of over the collaboration products.

From a geographic perspective the Americas region continues to execute extremely well, delivering total revenue up 22% from last year for a total of $217 million and included in this number is product license growth of about 28%.

Internationally business environment was mixed in Q3. Japan and Pacific combined for a healthy 27% year-on-year growth, while EMEA was up 9% to $123 million as we saw some customer caution in Q3 delaying decisions on new capital purchases. We will talk more about this later in the call.

So overall a very solid quarter within a mixed economic environment. As we exit Q3 customer interest in pipeline build were record levels and we remain focused on delivering financial results, while building momentum across our main product categories of Desktop, Data centre and Cloud and SaaS.

So now I would like to discuss the Q3 results within these three areas. Our Desktop business increased to 11% from last year to $277 million, including license revenue growth of 5% in the period. Within these numbers there were some particular dynamics I would like to highlight.

First, while license revenue was up from last year it was down 6% sequentially due to the timing of XenDesktop Trade-up orders. As you recall early this year we were running a Trade-up promotion that ended in Q2, which was extremely successful in generating interest for Desktop virtualization on install base, reengaging customers and increasing channel vibrancy.

Financially the net result was that the promotion pulled in more business expect in the third quarter, but despite this specific timing issues from Q2 and Q3, remain very bullish on the program and expect that many existing customers who continue to take advantage of these easy upgrade path leading to much stronger Q4 trade up revenue.

The next item I’d like to point is the non trade-up business essentially new customer licenses and desktop and this is an area that was very strong posting revenue growth of 17% sequentially and well over 200% from last year.

Additionally there is few Q3 metrics within the total desktop business that really demonstrate the breadth of adoption we are seeing and the strategic value the customers are placing on desktop virtualization within their infrastructure.

In fact $10 million of the $19 million plus transactions included XenDesktop licenses. Approximately 2000 different customers XenDesktop in Q3, many of these net to Citrix. There were 85 XenDesktop transactions from more than 1000 seat each, while 13 customers purchased over 5000 XD seats. More than two thirds of the total XenDesktop revenue came from the higher ASP platinum edition where customers can leverage the greatest flexibility and delivery models for both its virtual labs and virtual desktops.

So looking ahead into Q4, we are confident about the overall desktop business. We expect to see the year-over-year license growth rate increase from Q3 about levels and for deferred revenue to be up sequentially.

So next let’s review the data center and cloud business, which consists primarily of our app net working and server virtualization solutions. In total revenue was up 47% from last year to $84 million led by the NetScaler products where we saw significantly demand from Cloud service providers and internet centric businesses.

We are also continuing to gain traction with enterprise accounts accounting for more than half of the top 20 deals. This is the result of the programs we had in place this year to cross-sell networking insulations in to our traditional base.

So regarding these specific platforms we continue to see the transition to the higher end MPX appliances that were introduced in Q1 while two new products the 21000 series our most scalable product ever and a fifth edition targeted the government verticals both generated solid business as well. Additionally the VPX line of virtual appliances posted strong momentum growing 40% sequentially.

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