Citrix Systems, Inc.
Q1 2018 Earnings Call Transcript

Published: 25 Apr 2018

[Operator:]

Hello, and welcome to the First Quarter 2018 Financial Results and Business Outlook Webcast. At the end of the presentation, we'll have a question-and-answer session. It is now my pleasure to turn today's program over to Eduardo Fleites. Eduardo, the floor is yours.

[Eduardo Fleites:]

Good afternoon, everyone, and thank you for joining us for today's first quarter 2018 earnings presentation. Participating on the call will be David Henshall, President and Chief Executive Officer; and Drew Del Matto, Executive Vice President and Chief Financial Officer. This call is being webcast on Citrix Systems Investor Relations website. The webcast replay will be posted immediately following the call. Before we begin, I want to state that we have posted product specification and historical revenue trends related to our product groupings to our Investor Relations website. I'd like to remind you that today's conversation will contain forward-looking statements made under the safe harbor provision of the U.S. securities law. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Obviously, these risks and uncertainties could cause actual results to differ from those anticipated. Additional information concerning these and other factors that may impact results is highlighted in today's press release and in the company's filings with the SEC. Copies are available from the SEC or on the company's Investor Relations website. Furthermore, we will discuss various non-GAAP financial measures, as defined by SEC's Reg G. A reconciliation of the differences between GAAP and non-GAAP financial measures discussed on today's call can be found at the end of today's press release and on the Investor Relations page of our website. Now I would like to turn it over to Drew, our Executive Vice President and Chief Financial Officer. Drew?

[Andrew H. Del Matto:]

Thank you, Eduardo, and welcome to everyone joining us today. We experienced positive results across Citrix in Q1. Our transition to the cloud continued to gain momentum, and our Q1 results were solid and above all of our guided ranges. In summary, total revenue grew 5% year-on-year. Subscription revenue was up 49% year-on-year. Adjusted operating margin was 32%, up more than 400 basis points versus last year. Adjusted EPS was $1.29 per share, up 34% versus last year, and cash flow from operations was a record $358 million. Please note that we adopted the new accounting standard ASC 606 in Q1 using the modified retrospective method. More details are posted to our Investor Relations website, but I'll share the key summary impacts. In the quarter, the adoption of the new accounting standard drove approximately $10 million decrease in reported revenue, a $3 million benefit to operating expense and a net decrease to non-GAAP EPS of about $0.04. Combined deferred and unbilled revenue was negatively impacted by about $100 million. Again, please see our website for further detail. Now looking back at Q1. Our Enterprise business continues to be solid. We closed 50 $1 million-plus transactions compared to 47 in the prior year with strength in technology, healthcare, financial services and government. There was a good balance across the portfolio with strength in both cloud and on-premise Workspace Services and Networking. Next, let's take a closer look at Q1 results within our primary businesses. Workspace Services was up 3% year-on-year to $413 million with several noteworthy aspects. Q1 subscription contracts mix was 42% of new products bookings within the Workspace business, excluding installed base migration. Within subscriptions, bookings for Citrix Cloud and our CSP offerings continue to grow sharply. This was offset by a decline in on-premise term licenses, which is expected given the changes we made to our internal offerings. And we continue to see progress with our Customer Success Services program, which have redefined higher-value software maintenance offerings we implemented at the beginning of 2017. The Networking business experienced good results across the product line as our investments in sales capacity and innovation are paying off. Q1 2018 Networking revenue increased 8% year-on-year to $209 million with an increasing contribution from subscriptions. Increasing demand balanced across both our SSP and Enterprise accounts drove our Networking business results. In fact, product bookings in both segments were up around 20% year-on-year. Finally, our Content Collaboration revenue was up about 15% year-on-year to about $45 million in the quarter. Let's now turn to operations. In Q1, our adjusted operating margin was 32%, up more than 400 basis points from last year. We are maintaining a very disciplined approach to spending, as you would expect, while beginning to invest more into our demand generation and quota-carrying capacity over the next few quarters in order to support our growth and transition. Cash flow from operations was a record $358 million, up 23%, bringing the trailing 12 months to over $1 billion. Deferred revenue was $1.69 billion, up 1% from last year while down 10% sequentially. The majority of the sequential decline was due to the adoption of ASC 606. At the end of Q1, we had over $2.2 billion in cash and investments, impacted in the quarter by the $750 million accelerated share repurchase program we announced in early February and a small acquisition of Cedexis. All-in, we repurchased 8.4 million shares in the period. Now turning to Q2 2018 and full year 2018 guidance. We continue to expect an acceleration in the adoption of Citrix Cloud services and subscription-based offerings, which create some headwinds to reported results. However, the strength of our first quarter and our outlook for the balance of the year, we are increasing our business outlook. We now expect for the full year 2018 revenue between $2.88 billion and $2.91 billion, adjusted operating margin of 30% to 31%, and EPS of $5.20 to $5.30 per share. For Q2 of 2018, we expect revenue between $710 million and $720 million and adjusted EPS of $1.18 to $1.22 per share. Now I'd like to turn it over to David to get further color on the quarter and our focus areas looking forward.

[David James Henshall:]

Thanks, Drew, and welcome, everyone. As Drew noted, Q1 was a solid quarter. We posted strong upside in the financial results, while, at the same time, we're continuing to execute on the operational transformation across the business and across our go-to-market. I'm really proud of how the team has been performing through all this change. More importantly, partners and our customers are embracing the subscription model, really driving the conversion that we introduced in October of last year. Despite the headwinds from the mix shift, the reported numbers were stronger than anticipated in Q1, largely due to the above-plan new product bookings in both Workspace and Networking. In fact, our total revenue growth of 5% compares to the 1% we saw a year ago, while, at the same time, the contribution from subscription license revenue increased from 10% to 15% of total revenue. You couple this with strong cost discipline, and we demonstrated a lot of upside against margin and EPS results from a year ago. Looking specifically at the business transition, I want to reiterate the important metrics we'll be using each quarter to measure and communicate progress. So in Q1, subscription revenue, which accelerated for the fifth straight quarter, grew 49% to over $103 million, as Drew mentioned. The mix of product bookings coming from subscriptions was 30% versus 24% a year ago. Remind everybody that for this current fiscal year, we're targeting up to 40% of the mix coming from subscription this year. In Q1, the growth rate from subscription bookings was just about 40%, and the balance of unbilled revenue from subscriptions increased over $10 million sequentially. What's happening in the business is that customers are realizing that Citrix Cloud can add a lot of value to their own initiatives, in terms of simplifying the adoption of hybrid cloud, but also in accelerating their own transformation through speed and flexibility. In fact, roughly 20% of all of our large enterprise deals in the quarter were cloud. In total, Citrix Cloud now includes more than a dozen services, with options for SaaS in hybrid models as well as cloud services for those customers with only on-premise implementations to help them better manage and monitor more effectively. So let me give you a few use cases, customer examples from Q1, to really highlight the diversity of what we're seeing. As part of their transformation of information technology services and in support of their growing digital business, Finning International, which is the world's largest distributor of Caterpillar products and support services, is moving from a traditional IT outsourced model to a cloud service delivery model on a global scale utilizing Citrix Cloud XenApp Service on Azure. In the service sector, ServiceMaster, a long-time customer began the migration to Citrix Cloud to simplify management and performance going forward while, at the same time, they're expanding into mobile services – mobile applications to improve the productivity in their customer-facing teams by unifying apps for scheduling, contracting and other job functions. ServiceMaster committed to a three-year cloud contract validating their belief in our strategic direction. BRF in Brazil, which is one of the world's largest food processing companies, selected Citrix Cloud over one of our competitor's solutions. And this multiyear contract provides this customer with the technology to securely deliver their innovative apps to any device all over the world. Their customers reside in 150 countries with a large variety of devices, networks and languages. Citrix provides simplicity and improved end-user experience regardless of those locations. And finally, one of the top five property and casualty insurers in the U.S. made a strategic decision to begin moving workloads into the public cloud. So working together with Microsoft, we developed a joint solution for this customer in Q1 that included Citrix Cloud and Microsoft Azure resource zones. This company has traditionally operated their Citrix environment in separate geographies. The cloud initiative drove them to consolidate the right key resources and centralize the management of these environments throughout the world, resulting in a five-year commitment to Citrix to more than 35,000 users. This represents commitment with a long-standing customer where we beat competitive pressures by sharing a strategic vision, but also helping jointly develop our cost model that fit their expectations for the cloud. Our close working relationship with Microsoft gave this customer the comfort that we would be there to jointly support them throughout their journey. These are just a few examples of why Citrix Cloud services are proving to be so valuable for both new and existing customers and why we're winning these types of opportunities against competition. These examples also demonstrate how our customers are committing for multiple years, validating our direction as part of their current and future roadmaps. So let's talk about Networking for a minute, as this business was strong in Q1 across both SSP, the hyperscale cloud segment of the business and the Enterprise accounts, as Drew mentioned. What's driving this is really three factors. First, for customers focused on the digital workspace, the integration that we've built across the portfolio create demonstrable added value for security, identity and performance. For ADC accounts, our industry-leading software first approach gives them unique flexibility to embrace hybrid cloud. And for all customers, Citrix Analytics is proving to be a big differentiator for visibility into the network, the workspace, the user and other important areas. In addition to these specific points, customers are responding to the roadmap for the for the secure digital perimeter, which will be increasingly important as more and more workloads move to the cloud as businesses continue to adopt native web and SaaS apps. Couple of Networking win examples from Q1 include, one of America's largest insurance companies purchasing Citrix Cloud as a new ADC standard to replace two of our main competitors' solutions. And they did this due to the performance advantages and flexibility of our architecture. With Citrix Networking, this customer is now able to increase their overall capacity, throughput and instances to accommodate current future growth. Another example is a global investment bank, which selected Citrix as their traffic management platform due to our security capabilities and analytics, which provide deep insights to speed up issue resolution and the ability to manage their entire Citrix Networking estate. This also represents another competitive replacement. And finally, SD-WAN, continues to scale and we're seeing larger deployments. Q1, for example, one of the leading vehicle insurers in the U.S., Esurance bought SD-WAN to reduce the risk of revenue impacting network outages and to provide better visibility in the performance of apps. This strategic decision helps Esurance reduce MPLS costs while increasing reliability for branch offices. And lastly, Content Collaboration remained strong. As you know, we've been pivoting this business to focus more directly on the Enterprise and on integrating with the Citrix Workspace. Since we can deploy content solutions seamlessly across the Citrix Cloud, private cloud or on-premise, our hybrid strategy remains a key differentiator in this space. So looking back on Q1, our products and engineering teams delivered advances really across the portfolio, driving innovation at a record pace. Some of the highlights include Citrix Analytics, which is a cloud-based service that correlates performance and security data across all Citrix offerings, generates intuitive and actionable insights to help IT administrators manage user security threats more effectively protect apps, improve app performance, and enhance operations. We also introduced real-time traffic management capabilities across public clouds, data centers, CDNs and ISPs to help enable dynamic infrastructure orchestration. This is based on the new Cedexis service that captures hundreds of billions of new data points each quarter. SD-WAN for service providers is new. And finally, we delivered network services for identity and access management and application security. So overall, one of the other benefits of focusing on services is increased pace of innovation. Not only has the rate of patent applications tripled over the last two years, but we can now deliver hundreds of independent updates per quarter to our services in addition to the continued innovations for our on-prem clients. So, strong focus on product innovation, on delivering value for our customers and incredible user experience is driving total product and subscription bookings, which grew in the high single digits in Q1. Entering Q2, I feel good about our momentum and purpose. We're more aligned and more focused on customer success than I've seen Citrix in a long, long time. Clearly, our financial results are strong, and we're proving that you can drive a cloud transition and accelerate revenue and margins together. It's a powerful combination. Looking forward, the focus remains on our three strategic motions. First, accelerating to the cloud to help our customers work the way they want to, on-prem, hybrid or the public cloud; second, unifying the portfolio to deliver a simple intuitive elegant workspace with a premium on experience, security and choice; and lastly, extending it into new areas to help our customers meet the demands of the future while driving incremental revenue and relevance for Citrix in areas, such as security, analytics and the secure digital perimeter. It's clear that our customers are looking to operate in a multi-cloud hybrid cloud world, and Citrix is clearly positioned to help provide simple, secure and unified solutions to help them address these challenges and simplify their roadmaps. In a couple of weeks, we will be with thousands of our customers at our Annual Synergy Conference in Anaheim, where we're also going to be hosting an Analyst Meeting. The theme of the event is around the future of work and the reality that all customers are facing with respect to work styles, mobility and security. We're going to be highlighting a number of important new innovations in the Citrix Workspace designed to help our customers realize the full benefits of cloud while avoiding complexity and security challenges. The new Workspace and Networking services secure and integrate technologies, platforms, devices and clouds, ensuring that organizations can operationalize the future of work and drive their business forward. Really hope that everyone can join us, either virtually or in person. We're excited about the future, and I'm confident in the progress we're making so far in 2018. Thank you. And as always, we look forward to your questions.

[Operator:]

Our first question comes from Philip Winslow. Please go ahead, your line is open.

[Philip Winslow:]

Hi, thanks guys and congrats on a great start to the year. A question for you, David, just wanted to focus on Workspace Services a bit. Obviously, the momentum you're seeing on the cloud subscription side is pretty strong here to begin the year. When you're talking to customers, what is actually the driver of the shift over to cloud subscriptions? Because obviously, you still have the license and maintenance model. What's the value add that you're seeing that's getting the shift idea over? And then just one quick follow-up to that.

[David James Henshall:]

Sure, Phil. It depends on the customer, of course. But overall, I'd say that on a simplified basis, the value is about reducing the complexity of the infrastructure, better overall user experience through the integrations that we've built, the security capabilities. And then further on, it's about being able to consume innovation on a much faster basis. We're seeing customers that had started out with a pretty simple story around simplifying the management of a Citrix state to now realizing that they can broadly accelerate everything from disaster recovery initiatives to just other things that are going to accelerate their business, to onboard new users or M&A or customers much more rapidly. So I think it's a good mix right now. Obviously, where we're going is to be talking much more about how customers accelerate their own businesses, and that'll open up a lot of use cases in the future.

[Philip Winslow:]

Great. And then just a quick question on the delivery network and obviously the product booking number was strong there, too. I know this is a lumpy business and things can shift around quarter-to-quarter. But how do you think about Q1 and sort of just the outlook – relative to the outlook for the rest of the year there?

[David James Henshall:]

Yes, Phil. Q1 was a great quarter. I mean, I think Drew talked about this in his prepared remarks. The one thing that I'd say about Networking was balance. If I look at the SSP or hyperscale cloud segment, both that and the Enterprise segment, both saw product bookings up about 20 points. In terms of mix, SSPs represented between 40% and 45% of the mix, which is exactly what it was a year ago in Q1, so just good balance across the board. I think that the things that we've talked about that are working are the capacity adds that we've made over the last couple years, the investments in innovation, the integration with Workspace, and they're all coming together pretty nicely. So we're happy with the performance there.

[Philip Winslow:]

Great, thanks for that.

[Operator:]

Your next question comes from the line of Michael Turits. Please go ahead, your line is open.

[Robert Majek:]

Hey, guys. This is actually Robert Majek on for Michael today. Congrats on the quarter, really strong EBIT margins. Can you just give us a little more color on what drove that, how sustainable that is? And furthermore, we're not too far off from your 2020 goal. How likely are we to see that goalpost get moved out at some point?

[David James Henshall:]

Well, Robert, we're not going to change 2020 yet. What we will do in sometime in the future is start to extend our multiyear model based on actuals and as we get more experience with the right pace of transformation. I'd say specific to the quarter right now, we're operating with a lot of discipline. As you mentioned, we're up 400 basis points, 450 basis points year-on-year in terms of margin. We will continue to spend and invest on things like demand marketing, quota-carrying capacity, innovation and cloud infrastructure, I mean the normal things you would expect over the next few quarters. But right now, the teams are just doing a great job. I think everybody's focused on execution and doing it in a disciplined manner.

[Robert Majek:]

That's helpful. And just one more from me. You touched on it in your prepared remarks, but can you just talk a little bit more about the speed of the customer migration to CSS and the full Citrix Cloud? And how much of your customers now use each?

[David James Henshall:]

Yeah, Robert, those are two different things. In terms of CSS migration, just to remind everybody, that is a – we're migrating our historical maintenance programs to Citrix Customer Success Services. That program is pretty much run a full cycle. It will by the end of – really, by the end of Q2, Q3, we'll have a reasonably full cycle. So we'll get all of the install base on that program, certainly by the end of this year, but the vast majority by the Q3 timeframe. Remind everybody that that comes with a higher per license cost on an annual subscription for that. And that we are phasing in over a three-year timeframe for a lot of customers. So a little bit of impact this year and then more gradual impact as we go into the next couple of years. In terms of customers on cloud, I mean, we've really been focused on net new whitespace up to this point. Last quarter, I talked about the focus on installed base. It's a motion that, you may remember, we called Trade-up and Transition. That's brand new. It's more of a second half ramp for us. First half is more focused on net new. In fact, the TTU motion is, I'd almost call it a distraction at this point, because we're building out the infrastructure, as you'd imagine, to have common commercial agreements, common terms and the things you would need for longer term customers. So expect that to be more of a second half story.

[Robert Majek:]

Thanks a lot. Appreciate it.

[David James Henshall:]

You bet.

[Operator:]

Your next question comes from the line of Gregg Moskowitz. Please go ahead. Your line is open.

[Gregg Moskowitz:]

Okay. Thank you very much. And I'll add my congratulations as well. David, subscription revenue is strong this quarter at close to 50% year-over-year growth, and you guys called acceleration prior to this. But how are you thinking about subscription revenue growth over the rest of the year?

[David James Henshall:]

Yeah. I mean, we certainly think it's going to continue to accelerate. It won't be a straight line. Growth rates get harder, obviously, as you get to the law of large numbers. But that's what our focus has been. We've woven it even into our various compensation plans, because we want everybody inside the company fully aligned against transitioning not only the business model, but over time, transitioning all of our customers towards more of a continuous service engagement model. So it's a primary focus. It will continue to grow this year. How rapidly it accelerates? Probably a little bit of that is predicated on the installed base migration, which comes with a reasonable uplift. And as those customers start moving off of maintenance and onto Citrix Cloud, that's obviously a very, very large number. But again, like I said on the last question, that's more of a second half and into 2019 story versus short-term.

[Gregg Moskowitz:]

Okay, great. And then if I look at revenue, so certainly, it was very strong in this quarter. Although if I'm not mistaken, your billings did decline by about 4% or I believe it declined by about 2%, if I adjust for unbilled revenue. And again, there's an accelerated transition to cloud although, if anything, I would have expect lower revenue rather than deferred. And so just wondering if there was anything else that you would call out with respect to the billings number.

[David James Henshall:]

Yeah, there was. Frankly, deferreds got a few moving parts in it this quarter. The largest of which is related to the adoption of 606 and the write-off there. Also, unbilled items had a fairly large adjustment. When you put the moving parts together and try to normalize deferred revenue, you get back to about a $30 million to $35 million sequential decline, which is right in line with what we'd expect on a normalized basis. And then on year-on-year, that would take it up somewhere between 10% and 11%.

[Gregg Moskowitz:]

Very helpful. Thank you.

[Operator:]

Your next question comes from the line of Heather Bellini. Please go ahead. Your line is open.

[Ted Lin:]

Hi. This is actually Ted Lin on for Heather. Congrats on the quarter. Just a couple of questions for me. Can you talk about the competitive landscape in Workspace Services now that you have CSS and Citrix Cloud and how sort of win rates been trending?

[David James Henshall:]

Yes. Overall, competitive environment continues to be intense. It has been for a long time, so no real change on that front. I think the change from our point of view is stronger execution. We have been speaking a lot more about the future of Citrix Cloud, the benefits that customers are going to attain from that, introducing, as I've referenced in my prepared remarks, innovation in a lot faster clip. So the conversation with customers is about application management, regardless of whether those are virtualized or other forms of apps. It's about security, it's about compliance. It's about those types of things that are really critical to their business. But we certainly expect competitive landscape to continue to be very intense, so no change on that front. When we look at our win-loss, we referred to it last quarter, our win-loss has continued to improve over the last four, five quarters just in terms of the deals that we track and we're competing head-to-head. So I put that back to better execution on the field and just a rapid pace of innovation.

[Ted Lin:]

Great. Thank you. That's very helpful. And then on churn rates, I think they've been relatively steady for you guys for the last couple of quarters. Just wanted to ask how they've been and how they're trending as you kind of head into year two of mandatory CSS migration. Thanks.

[David James Henshall:]

Yes. No change on churn rates. So, on-time renewal rates which is the easiest way to look at it in period has been unchanged.

[Ted Lin:]

Great. Thank you for taking my questions.

[David James Henshall:]

You bet.

[Operator:]

Your next question comes from the line of Walter Pritchard. Please go ahead. Your line is open.

[Tyler Maverick Radke:]

Hey, thanks. This is Tyler Radke on for Walter. So clearly, the subscription revenue outperformed relative to expectations in Q1. But it looks like maintenance revenue, after it declined sequentially. So I guess I'm wondering, how much of this subscription – and obviously the strong bookings of subscription, how much of this is coming from the installed base? And are you seeing customers just kind of move from Subscription Advantage into this Citrix Cloud or just trying to understand the moving parts, because it does look like maintenance revenue declined sequentially.

[David James Henshall:]

Tyler, I'd encourage you to go back and look at the way we have changed the reporting of revenue, because that will give you a better reconciliation, and all those details are available on our web. What's going on underneath the business is really net new bookings for both the CSP part of subscription and Citrix Cloud. Those are the two fastest-growing parts. As I mentioned, the installed base, that Trade-up and Transition motion that was a very, very small part of the business this quarter. So I mean it is really – it's net new that's driving it at this point and not much else. That will change in the back half and into 2019 as we start pushing more in terms of installed base migrations. But as those become material, we'll call them out and break out the delta between installed base and net new.

[Tyler Maverick Radke:]

So I guess, to clarify the first point, are you saying that maintenance was not down sequentially?

[David James Henshall:]

That's correct. But I encourage you can go back and look at the revenue line.

[Tyler Maverick Radke:]

Yeah. Okay. And then as a follow-up, you mentioned on the Networking business that you're starting to see an increasing contribution from subscription. Can you just remind us what the use case there is? I know in the CSP business, there's a piece of NetScaler attached to that, but what's kind of the main used cases for virtualized networking?

[David James Henshall:]

The primary use case is in the Enterprise accounts, and they're something called pooled capacity. And effectively, what that does is allow customers pay subscription to share capacity across instances that are on-prem and think of it as a data center appliance, instances that are in the cloud as a virtual appliance. And it just gives them a lot more flexibility across their own infrastructure. The story is really about embracing hybrid cloud. And so just to give you one more data point, of the Networking product bookings, 11% came from subscriptions in Q1, and that's up from 5% a year ago. And that's really only in the Enterprise accounts where that tends to be a popular phenomenon.

[Tyler Maverick Radke:]

Thank you.

[Operator:]

Your next question comes from the line of Abhey Lamba. Please go ahead. Your line is open.

[Abhey Lamba:]

Yeah, thank you. David, about a year ago, you had shared $200 million opportunity from CSS and $500 million opportunity from the cloud migration. Now that you've had some runtime and some customer feedback, how do you feel about those numbers? Are they still the targets we should think about, or do you think there's upside to those numbers?

[David James Henshall:]

Abhey, I think they're good targets. We haven't intentionally updated them necessarily. We'll take a look at it in the context of multiyear, but probably the best way to think about it is the pricing. And pricing, including the uplifts, have all held. And so no change on that front.

[Abhey Lamba:]

Got it. And quickly, any thoughts on how should we think about your propensity to initiate dividend given that you've repatriated cash now?

[David James Henshall:]

Yeah. I mean, we've talked a lot about capital return. I think last quarter we indicated that given the changes that occurred with tax reform, we now have access to the large majority of our global cash flow, which opens up a lot of degrees of freedom. And because of that, we would increase our intent. Obviously, absent M&A, our intent is to return about 75% of free cash flow to shareholders through various forms. We'll spend more time talking about capital at our Analyst Meeting in a couple weeks.

[Abhey Lamba:]

Thanks, David.

[Operator:]

Your next question comes from the line of Kirk Materne. Please go ahead. Your line is open.

[Tom Mao:]

Hi. This is actually Tom Mao on for Kirk. So just on the Networking business, those are some good results. Do you feel like you've gained some share in the quarter? And how are you thinking about the opportunity in the Enterprise segment of that market heading into the rest of the year?

[David James Henshall:]

Yeah. We're definitely gaining share. I mean, the market's certainly not growing 20% year-on-year to the best of my knowledge. At least if I add up our competitors' results, that wouldn't point to that. So I'd say the only answer is we're taking share. We're doing a good job. We've got a good product set, a good technology stack and a good story that's resonating with customers. I didn't mention it really, but analytics is also proving to be a nice differentiator. We've started to introduce a broad analytics platform. The first instance as applicable to NetScaler is called MAS, Management and Analytics System. And customers really like that. It gives them a lot broad visibility and new and unique insights, and that's proven to be a good competitive differentiator. So we're doing well across both, which is good because as everyone knows, the SSP segment is a little bit more volatile. And that's why we've been focusing on the Enterprise. And seeing this type of growth, I would not say it's sustainable, of course, just because the markets aren't growing that fast, but our ability to continue to take share we feel pretty good about.

[Tom Mao:]

Got it. And just one quick follow-up. You noted your Microsoft partnership being a positive as it relates to helping a couple customers move to the cloud. So when it comes to your own cloud offerings, do you think you're getting kind of a bit of a tailwind from some of the strong growth in Azure as – and Microsoft pivot to the cloud?

[David James Henshall:]

Well, they're really apples and oranges, I think. Azure growth is a bit independent. What customers are consuming Citrix Cloud for, which just to remind everybody is a collection of over a dozen independent services, including apps and desktops and mobile and networking and other things. We run our infrastructure on Azure, and then we give customers the flexibility to run their workloads wherever it makes most sense. They can actually run them on-prem if they want. They can run them in Azure, in AWS, in GCP, in Oracle Cloud, and that's an important part of the story. Cloud choice and cloud portability is really important. When it comes to Windows-based workloads, obviously Microsoft is a tremendous partner. And we do a lot of work not only on the Azure front, but work that we've done together regarding Windows 10 migrations, embracing and extending the EMS stack, work that we're doing to deliver Windows to Chromebooks. I mean, there's a lot of different use cases there that just make it very synergistic to work with our local counterparts on the Microsoft side. And together, we can create really compelling solutions for customers.

[Tom Mao:]

Great. Thanks.

[Operator:]

The next question comes from the line of Brad Reback. Please go ahead. Your line is open.

[Brad Robert Reback:]

Great. Thanks very much. Two quick questions. First, the share count expectation for the full year, what should we be using?

[David James Henshall:]

Good question. Probably somewhere between about 138 million and 140 million.

[Brad Robert Reback:]

Okay, great. I'm sorry, go ahead, Dave.

[David James Henshall:]

I was going to say make – million, 138 million to 140 million.

[Brad Robert Reback:]

Perfect. And then, Dave, as we think about cash flow for this year, obviously, a fantastic start to the year. Is there any reason to think that cash flow wouldn't be higher this year than 2017?

[David James Henshall:]

Well, we haven't guided cash flow, so that's my only hesitation there. Cash flow is very Q1, as you pointed out. I mean, Drew, who's joined the team, has got a very strong focus on cash flow yield and the levers on that front. And so, we're looking at all the things that we can do to drive cash flow. And I think the one variable, of course, is just unbilled revenue, which is continuing to grow. And that's just a function of customers signing up for longer-term contracts with shorter-term billing cycles. And so that's the one variable. But when you put those two together, we're seeing good results.

[Brad Robert Reback:]

Great. Thanks very much.

[David James Henshall:]

You bet. Thank you.

[Operator:]

Your next question comes from the line of Keith Weiss. Please go ahead. Your line is open.

[Sanjit K. Singh:]

Hi. This is Sanjit Singh for Keith. Thank you for taking the question and congrats on a strong start to the year. I guess I wanted to ask a question on product bookings. I think you mentioned it was sort of high single digits, which is a very strong result. But I think the subscription bookings mix, correct me if I'm wrong stood still at 30%. And just wanted to get some color on how we think the progression of that subscription mix evolves over time, why was it a little bit stagnant this quarter? And what type of assumptions should we be using for full year guidance in terms of that subscription bookings mix?

[David James Henshall:]

Yes, I wouldn't call it stagnant for the quarter. I mean it's best to look at it on a year-on-year basis. It was low 20%s a year ago, and it's 30% in Q1. So it's definitely an improving part of the story. And then what's offsetting that a little bit, maybe what you're trying to pick up on is the strength in perpetual networking. And so that influences the metric. If I look at Workspace specifically, Workspace is now up to 46% coming from subscriptions as compared to 35%, 36% a year ago. And those subscription bookings were growing about 40%. So all-in, it's moving exactly where we like it to be. In terms of the overall mix – and this is all products together, I stated last quarter that we were looking to get as much as 40% of the mix coming from subscriptions this year. And so I think you should – it's fair to expect that the percentage is going to continue to ramp sequentially throughout the year.

[Sanjit K. Singh:]

Got it. And then just to clarify. When we think about targeting about 40%, is that sort of an end of the year metric we want to get to 40% or for the full year you expect that mix to be around 40%?

[David James Henshall:]

It's a full year metric. And it will ramp. And depending upon how successful we are maybe with installed base migrations, exiting the year is where you've got a little bit more levers. But as I've said a couple of times, right now, the focus is on net new, on whitespace, on driving new license growth. And so we'll break that out and just show you how the two things come together as we get into the second half of the year.

[Sanjit K. Singh:]

Okay. Thank you very much, David.

[Operator:]

There are no further audio questions at this time. I will turn the call back over to the presenters.

[David James Henshall:]

I want to thank everybody again for joining us today. We're happy with the results coming out of Q2 or coming out of Q1 and then going into Q2 and the progress that we're making across multiple facets of the business. Again, we hope everybody can join us in a couple of weeks at our Synergy Conference, where we'll also be hosting a Analyst Meeting. Look forward to speaking with you then. Thank you very much.

[Operator:]

Thanks all participants for joining us today. We hope you found this webcast presentation informative. This concludes our webcast. You may now disconnect. Have a good day.