Citrix Systems, Inc.
Q3 2007 Earnings Call Transcript

Published: 18 Oct 2007

[Operator:]

Good afternoon. My name is Molly and you will be your conference facilitator today. At this time, I would like to welcome everyone to the Citrix Systems Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions]. Thank you. I would now like to introduce Mr. Eduardo Fleites, the Director of Investor Relations. Mr. Fleites, you may begin your conference.

[Eduardo Fleites:]

Thank you, Molly. Good afternoon everyone and thank you for joining us for today's call where we will be discussing Citrix's third quarter 2007 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 would… want to state that we have posted product classification and historic revenue trends related to our four product groupings to our website. As we get started, I want to emphasize that some of the information discussed in this call may be characterized as forward-looking statements made pursuant to the Safe Harbor provisions of the U.S. Securities Laws. These statements involve a number of factors that could cause actual results to differ materially, including risks associated with the Company's businesses, involving the Company's revenue growth, products, their development and distribution, product demand in the pipeline, economic and competitive factors, the Company's key strategic relationships, the effect of new accounting pronouncements on revenue and expense recognition, including the affects of FAS 123R on certain of the Company’s GAAP financial measures, acquisition and related integration risks. Additional information concerning these factors is highlighted in the earnings press release and in the Company's filings with the SEC including the Safe Harbor disclosure contained in our most recent 10-K filing, available from the SEC or the Company's investor relations website. Additionally, during this call, we will discuss various non-GAAP financial measures as defined by SEC Regulation G of certain adjusted figures, which include operating expenses, gross and operating margin, operating and net income, and earnings per share. The most directly comparable GAAP financial measures and a reconciliation of the differences discussed on today’s call can be found on the end of our press release dated today, and on the investor relations page of the Citrix Systems Corporate website. Now, I would like to turn it over to David Henshall, our Chief Financial Officer. David?

[David J. Henshall:]

Thank you, Eduardo. Today, I am pleased to report on the third quarter results for the Company. In addition, to providing you with commentary on our performance, I’ll discuss the trends in our business and review our current outlook for Q4 and full year 2007. Beginning with our financial results, I should note that certain numbers discussed are adjusted figures. Please refer to the press release and our Investor Relations website for a full reconciliation of adjusted figures to U.S. GAAP figures. So, as you can see from the numbers, we are experiencing continued momentum across the business and execution against our strategy. Specifically, reported revenue of $350 million up 26% over Q3 last year. License revenue up 24%, adjusted operating margin over 24%, and adjusted EPS of $0.41, a 21% increase year-over-year. So, overall, a great quarter for all product groups and geographies. Now, I would like to provide a little more color on the three main product areas and the trends in those businesses that we experienced during Q3. Including our App Virtualization business, primarily focused on the Presentation Server family of products. Our App Networking business and the progress we are making to establish Citrix as a leading player in the App Networking market, and our Online Services business and a continued success in the SMB market highlighted by strong GoToMeeting and GoToWebinar adoption. So, first, let me focus on our App Virtualization products, which provide customers with the best way to manage and deliver windows applications. In total, the Group grew 17% year-over-year to $243 million in revenue. Within this number, product license revenue increased 15% in the quarter. A key driver in Q3 was continued strength with the Platinum Edition of Presentation Server 4.5 with the added benefit of integrated adjacent products that add end-to-end value to Window App delivery such as Password Manager, Access Gateway, and EdgeSight. Customers responding to the products increased value and effectiveness. In fact, PS Platinum contributed 19% of total App Virtualization license revenue in the period. This strength in combination with the other product packaging changes really in the year has helped to increase the average deal size of this business by over 10% compared to the same quarter last year. License update revenue was also strong in Q3, up 21% over Q3 of ’06, driven by subscription advantage renewal rates in the mid ‘80s and getCurrent revenue of approximately $10 million. There remain significant opportunity for getCurrent in the future with several million licenses not currently on SA. So, depending on execution and the timing of program activity, this should contribute to the overall license update line and continue to build our recurring revenue line in the future. The secondary of focus is our Application Networking Business. Total revenue for this group grew 55% year-over-year to $46 million. The tactical issues that we highlighted last quarter were resolved as expected, and the product showed solid traction during the quarter. Half of the top 10 NetScaler deals win the enterprise best [ph] with the other App and more internet centric markets. And as we have discussed in prior quarters, we will focus on building out our capacity to serve those customers. And NetScaler work in process, we have doubled field sales and SE headcount since last year. One of the beneficiaries of this expansion has been EMEA, which had a great quarter and represented nearly 25% of the NetScaler business in Q3. And overall, the pipeline for App Networking products continues to be strong. We are specially encouraged by the growing pipeline of enterprise opportunities, and we are confident that we can continue to execute against our goal to establish Citrix as a leading player in the App Networking space. The last area I would like to highlight is our continued success delivering software and service to our Citrix online division. Citrix online delivered another excellent quarter with revenue exceeding $55 million up 43% from last year. The growth in this division is being led by GoToMeeting and GoToWebinar real time App collaboration solutions that continued to be some of the fastest growing products in the industry delivering greater than 90% year-over-year revenue growth. This resulted intangible pay-off our continued focus on the SMB market in products that are simple to use and predictably priced. Our online marketing and direct sales approach provides us with the balance revenue model, while managing cost effectively to fulfill demand to highly scalable and reliable infrastructure. In addition, the products continue to receive numerous accolades as best-in-class, including five new awards in Q3 alone. These included LAPTOP magazine which picked GoToMyPC for Ultimate Choice Award and GoToMeeting for an Editors’ Choice Awards. Moving forward, our online services business will continue to be focused on App collaboration and remote desktop access. This year, we are beginning the expansion of markets outside of North America, and while it’s going to take some time to these investments to contribute to the profitability of the division, this is one example of how we plan to invest for growth that compete vigorously in the markets to expand our leadership. So, in total, looking across all the products areas, we are happy to deliver this kind of performance, giving us the solid foundations, we exit 2007 and begin to prepare for next year. Now, let me talk about briefly about expenses and operations in the quarter. Adjusted gross margin was 92% compared to 93% than last year, reflecting the change in mix software appliances and services that we have been forecasting. Operating expenses were $235 million, up 26% year-over-year, and up 1% on a sequential basis. The annual increase was driven by several factors, including headcount growth across the Company, OpEx associated with acquisitions, and variable selling costs, driven by higher bookings. Regarding headcount, we currently have over 4,280 employees, up 200 from last quarter. The largest increases in the quarter were in the sales and services teams really focused on Application Networking and customer support. And finally cash flow from operations in the quarter was $86 million bringing the trailing 12 month total to $415 million, which is a record for the business. We currently have about $1 billion in cash and investments on the books. The cash balance has been increasing throughout the year since we have been precluded from repurchasing stock over the past few quarters. And after we closed the Xen acquisition now, we expect to be back in the open market. To remain in authority in our buyback program is over $200 million with an additional $100 million that’s already been committed to structure buyback programs over the next few quarters. So, really overall, I am very pleased with the Q3 performance. We continue to execute against our strategy and deliver strong growth and profitability, while balancing the need for significant investments in the new businesses and the routes to market that are going to be a success and important for our long-term success. So, finally, I would like to discuss our current outlook and expectations for the fourth quarter and the full year 2007. But before we discuss the numbers, let me provide you with some context around our forward outlook. Obviously, we are continuing to see solid revenue traction across multiple areas of the business. We are also optimistic that our App Delivery strategy with the investments we have been making will help sustain the momentum into the future quarters. To capitalize on this huge opportunity, there is a number of areas that we believe will benefit from additional investments focused on further enhancing our product development initiatives as well as our ability to affectively reach more customers around the world. In addition, the acquisition of XenSource is proceeding faster than expected. We currently believe that we will be able to close the transaction surely, and therefore, we will be consolidating about two months of financial results during Q4. So, included in our Q4 guidance today, we currently expect XenSource revenue of about $1 million to $2 million for the partial period, $4 million to $5 million in expenses, $100 million cash outlay upon closing the deal, and the issuance of approximately 8 million shares upon closing. So, all in, the XenSource items translate to about $0.03 of forecasted dilution for Q4 on adjusted basis. So, with these items I just mentioned, we currently expect consolidated results for the fourth quarter of total revenue in the range of $374 million to $382 million, including contribution of $58 million to $60 million from online services, adjusted tax rate of 23% to 24%, interest income of $12 million, shares outstanding of $194 million to $195 million, and adjusted EPS in the range of $0.42 to $0.43. So, including Q4, we now expect for the full year 2007, total revenue in the range of $1.36 billion to $1.37 billion, an adjusted EPS in the range of $1.52 to $1.53 per share. Looking ahead, I want to provide some yearly thoughts on our 2008 operating model. First, as we previously guided, we expect XenSource to contribute $50 million in total revenue, and generate total expenses of $60 million to $70 million. These investments plus the additional shares been issued for the acquisition will generate dilution of between $0.15 and $0.20 for the full year 2008, with the dilution being modestly front end loaded in the year. The tax rate next year in the range of 24% to 25% and with balance growth of investments to drive revenue plus the temporary dilution from XenSource investments, we expect adjusted operating margins in the lower 20% range during 2008, and then expanding back upward in 2009. So, now I would like to turn it over to Mark to give you additional details on the quarter’s performance and discuss our ongoing businesses. Mark?

[Mark B. Templeton:]

Thanks very much David and thanks every one for joining us today. I am really excited about our third quarter performance, exceeding expectations for the quarter, posting record revenue of $350 million and growing 26% over last year. 2007 is shaping up quite well, up 22% to the first three quarters with revenue of almost $1 billion. I am really impressed by the Citrix’s team and extremely proud. Keeping an eye on the ball, execution focus, strategically aligned. Last quarter, on boarding 200 new employees, integrating acquisition large and small, driving an unprecedented pipeline of new products, adding much needed go-to-market strengths, especially in App Networking, and turning in another stellar financial performance. Last quarter, I talked about the leading indicators across the business including opportunity pipelines, new product releases, and channel mind shift these indicators gained additional strength in Q3 and created great quarterly results. We are centered up on three high growth hot markets, with excellent long-term relative to individuals, small businesses, middle markets firms, and global enterprise. The online services market so real time App collaboration and remote desktop access is a 15% to 20% growth opportunity. Our online service division continues to tap this market at a healthy rate growing 43% in Q3, further solidifying our presence with SMB customers and giving us new products, market, and distribution opportunities going forward. The App Networking market to accelerating and optimizing the delivery of Web applications offers 20% to 30% growth. We delivered 55% growth in this space, driven by the new NetScaler 8.0 release, and early acceptance of the brand new NetScaler Platinum edition, and the Virtual Infrastructure market for applications, desktops, and service. It represents our largest opportunity growing 25% to 35% a year. Our virtualization products for windows Apps led by the flagship Presentation Server family showed another quarter of double digit growth. We are bullish about the relevance of that virtualization and our game plan to continue as a gold standard. On horizon as we close the acquisition of XenSource will strengthen our position in desktop virtualization, and enter the server virtualization market becoming the only Company with an end-to-end virtual infrastructure, architected to deliver applications at a lower cost and hire performance with greater security and maximum business agility. So, next, let’s talk about our trajectory each of these spaces. Our online services growth up 46% year-to-date reflects the compelling value preposition of using the internet for virtual meetings and virtual workings. Our focus on the consumer and SMB customer with products that require no capital investment, no training, and are very simple to use has been quite successful. We think enterprises and corporate users around the world will benefit from the same approach. Our GoTo products are supported by an online virtualization platform that’s secure, scalable, and fast. In fact in 2007 alone, this platform will deliver over 100 million online virtualization sessions. We also have some exciting plans to further leverage this platform within other Citrix products, like the integration we have done with our brand new online service for Workforce Continuity Project Kent. We are taking this product to market through an OEM relationship with IBM, launching later this quarter. Project Kent has now been re-branded as the new IBM Virtual Workforce Continuity Service. This on-demand service is the first giving customers a simple way to handle employee communications, collaborations, and access to vital applications in the face of the workforce destruction. IBM is a perfect partner for going to market and it’s a great example of leveraging our core technology, while expanding our opportunity in the online services marketplace. This year, we introduced new top of the line Platinum versions of both Presentation Server and NetScaler. They offer customers and end-to-end solution for delivering windows and web Apps, integrating powerful end-to-end features along the line of sight from datacenters to end-users, in a way that only Citrix can provide. During our Summit Conference early this year, we trained our sales and channel teams to lead customer meetings with Platinum additions. Positioning these products where competition cannot go and offering customers our best value solutions for Apps delivery. In its first full quarter on the market, NetScaler Platinum generated very strong results over 10% of NetScaler product revenue an early and promising indicator of customer acceptance helping us penetrate, enterprise accounts. In conjunction of the June release of NetScaler 8, NetScaler Platinum became the first web App Delivery System to offer a full integrated App firewall, SSL VPN and web app performance monitoring at one attractive price. This positions NetScaler as a comprehensive solution to delivering secure, fast enterprise web Apps, well beyond the layer 427 network box concepts promoted by competitors. Overall, our App Networking and Product Group is up 40% year-to-date, out growing the overall market once again. Our Access Gateway line of products continues to trend at a healthy pace, with much of the growth being reflected in the acceptance of our PS Platinum offering which includes Access Gateway. And we continue to rapidly enhance WANScaler as a core component of our overall delivery infrastructure. WANScaler’s newly available mobile client software for the micro branch and the branch of WAN, gives us a differentiated solutions for the mobile and small branch market where an appliance form of factor doesn’t make sense. With the huge growth in user mobility, the combination of Access Gateway and WANScaler gives us a great advantage for delivering applications to mobile users without compromising performance or security. Going forward, both Access Gateway and WANScaler products will significantly enhance the delivery of windows Apps, web Apps, and windows desktops as core components of our end-to-end architecture. While we are pleased with 40% growth year-to-date in App Networking, we are still go-to-market constraint, especially outside of North America. Early this year, we began to expand EMEA App Networking team, which positively impacted Q3 results. We need to do more of this. So, in Q4 and throughout 2008, we will be accelerating this expansion as part of our go-to-market investments. This will build worldwide presence to support customers and partners with NetScaler, WANScaler, and Access Gateway. The Platinum product strategy will continue as a strong differentiator for us going forward becoming the cornerstone of each product lines market positioning, enhancing the total application experience for end-users and IT administrators alike. Our App Virtualization business has grown 14% over the first three quarters of 2007, benefiting from repackaging and repositioning of PS 4.5. Presentations Sever Platinum is now a complete solution for delivering windows applications. With the ability to virtualize Apps on both the server and the desktop with real time monitoring, single sign-on, and full secure access controls. In the third quarter, the PS Platinum mix was strong, 19% of product licenses and significantly about double the mix of their previous access we are offering. Platinum is allowing partners to gain additional technical servicing engagements. It’s driving higher ASPs specifics and is enabling customers to really expand their use of App Virtualization across the enterprise. Platinum has allowed partners to stimulate new opportunities in the installed base. There were some really impressive Platinum deals during Q3. In fact of the top 10 Platinum deals, six came from international markets, six were new customers, and four were upgrades. So, market acceptance is broad based and worldwide. We expect to see more of this. Next week at iForum, we will show some additional capabilities designed to strength our Platinum strategy, and further demonstrate the power and value in App Virtualization. Going forward, we are extending our virtualization solutions. So, the datacenter behind the App and to the desktop in front of the App. Recently, we announced the acquisition of XenSource, a strategic acquisition that expands our virtual infrastructure of market opportunity. XenSource brings exciting possibilities to build out a set of dynamic virtualization services. Technologies that enabled to building of a full virtual infrastructures’ pack. This will allow Citrix to extend our dealership in the broader App Delivery market, any key enabling technologies that make the end-to-end computing environment far more flexible, more dynamic, and far more responses to business change. The acquisition will also extend our long time great partnership with Microsoft and extended into the windows desktop and server virtualization spaces and will present us a whole new opportunity for leveraging windows as an innovation platform. Since signing the definitive agreement, XenSource has continued its great momentum. It led the charge to create OVF, the new open virtual machine format for virtual machine portability. XenSource released the world’s first embedded hypervisor XenExpress OEM edition, and recently achieved a strong customer milestone, very impressive posting its 1,000th customer during Q3. All of this being supported by the exiting August introduction of XenEnterprise v4. Now in August when we announced the deal, we said “We will be on a very fast ramp planning to generate over $50 million in revenue in 2008 with a potential for $200 million by 2009”. All the integration planning has been pointed at these goals. As David mentioned our time line for closing on the acquisition is near. And so, I would like to reiterate the basic integration plan, which is an important component to understanding our outlook. XenSource will form the core of a new division, the Virtualization & Management Division we call it VMD for short, led by Peter Levine presently the CEO of XenSource. This division will drive our businesses in sever virtualization and App Delivery management and will execute three product groups, our Management System Group, our Advanced Solutions Group, and the new Xen Products Group. This division will also be responsible for our strategic business development and our OEM routes to market. Leveraging the new talent and experience on the XenSource team and allowing us to see the server virtualization market to create opportunities for our value added products sold through our broad based channel. The go-to-market plan for our new server virtualization business has been designed to ensure we get the speed, focus, and leverage we need to meet our aggressive growth objectives to gain market position and to avoid unnecessarily disruption of existing businesses. As recently reviewed by CRM XenEnterprise v4 is quickly catching up to its main rival. Customers and partners that are touched before are getting hands on proof. They love that it is 64 bit to the metal. They love its extreme performance with windows workloads. They love its Xen motion for live migration. XenCenter and its ability to create virtual pools of servers and storage, and they love how simple and affordable it is. Since the v4 release is new, it hasn’t been broadly exposed yet. So, we are going to do a lot to change that. At next week’s iForum conference, we will demonstrate the technology and many new features that have yet to be experienced by customers and partners. We have an amazing opportunity here. So, we are front loading the $60 million to $70 million investment over the course of 2008. Hiring almost over 300 new employees for product development, channel management, partnering, and OEM sales, building out a brand new infrastructure for training partners and customers, investing in customer based demand programs, and other investments to leverage the technology in our other product lines. I hope this gives you a better sense for our strategy and how we are building an execution and operating plan around it. End-to-end virtualization will be one of the main themes at next week’s iForum App delivery Expo. We had some exciting announcements queued up including some new products. One of the new products we will be showing is Citrix Provisioning Server, announced last week. Provisioning Server uses streaming technology to deliver any type of workload Windows or Linux based to any kind of server whether is physical or virtual. This product is based upon Ardence Technologies acquired earlier this year. It brings new possibilities to datacenter operations, impacting TCO, agility, and the ability to run green. Provisioning Server will extend however, beyond the server, beyond the datacenter. In fact, last week during the Gartner Symposium, Michael Dell announced their flexible computing initiatives. As part of the initiative, Dell is shifting their on-demand desktop streaming solution. A solution that allows a full window desktop whether it’s XP or Vista to be delivered from the datacenter, to a completely stateless, diskless PC over the network. The Dell solution includes diskless PC, backend streaming hardware, and Citrix Provisioning Server technology licensed under OEM terms for this ground breaking solution. We will have lots more to say and demonstrate in this area and in application desktop and server virtualization next week, and explain just how important and essential virtualization is to an end-to-end application delivery infrastructure. The response to this idea is making huge sense giving IT executives a clear and flexible architecture for really aligning IT with business objectives. The customers I talked to are struggling with the business relevance of IT. Enabling business change and market responsiveness really tops their list of priorities. So, Application Delivery is resonating extremely well with them, and we full intend to establish Citrix as the category leader. As you can see from our record results these infrastructure markets offered tremendous growth potential, rewarding us for continued investment in geographic, go-to-market gaps, the pace of product innovation, and the integration of acquisitions. App Delivery is a profoundly strategic opportunity for Citrix. Our vision, execution and financial, its results have put us in just in amazing position. So, now I would like to open it up for questions. Question and Answer

[Operator:]

[Operator Instructions]. Your first question comes from the line of Sarah Friar with Goldman Sachs.

[Sarah Friar:]

Good quarter. If I could just turn to the operating margins, you talked about lower 20% range for 2008 and then extending back upward again in ’09. If you exclude that XenSource piece, would you still see some decrement to the margins as you invest in the NetScaler business? Or would the idea be to be more or less keep those flat, and then, if the XenSource piece is dropping, you back down?

[David J. Henshall:]

Yes, I think… Sarah, this is Dave. I think the large… the largest part of this statement is related to XenSource. If you just factor in the investments we are making, it’s between 100 and 200 basis point impact on our margins on an adjusted basis 2008. I think where we are right now running this year between 23% and 24% is appropriate given the large investment year that we have been making. I think when we look forward, the opportunity that we have in front of us to continue to build out the go-to-market footprint across application networking, in particular and really across product development efforts throughout the Company, I think we see a lot of places where further investment will help drive long-term growth market share and sustainability. So, that’s the high level that really what we are thinking about going into 2008.

[Sarah Friar:]

But if all thinks for equal about XenSource you still be look at kind of a similar margin footprint what we saw in ’07, maybe slightly bigger given that there you are getting the topline growth rate, is that fair?

[David J. Henshall:]

Yes, I mean we’ve had a pretty big range for the last few years right now. We are probably operating closer to the lower end of that range as we focus on driving investments to grow topline. And I think we’ve got a lot of opportunities as I have said a couple of times to expand and grow market share for this points. So, I think that’s a fair statement.

[Sarah Friar:]

Okay. But the low end of your range was always mid 20, so, you haven’t dropped below that for the quarter?

[David J. Henshall:]

Well, I mean this is a… we are talking about an investment year in 2008, layering on the temporary XenSource dilution. And so, those are pushing us to the lower part or below that range on a temporary basis.

[Sarah Friar:]

Okay. And then, Mark, just on XenSource in terms of go-to-market for that $50 million, how do you think about it in terms of direct versus indirect versus OEM and when we might hear more about some of those OEM and channel partners that you are signing up?

[Mark B. Templeton:]

The way we think about it is a little over half of the revenue, we believe can come through our traditional one and two tier partnerships around the world, and the other focus on go-to-market integration is they are getting a fast ramp. In the mean time, the XenSource team has done a great job on sort of the other half of the part of the business laying the groundwork for OEM and on actually in online business, selling sort of direct from an online store. To think about that is the other half maybe a little bit left either directly coming through as revenue or influenced revenue when you look at some of the resellers that will be keyed up under the OEM agreements. So, that’s the way we are thinking about it. And I think there will be more to say about it. Fortunately, we can’t… we haven’t closed the deal, we can’t make any announcements here, but stay tuned, there is lots more coming.

[Sarah Friar:]

Sure. It sounds great. Well, thanks a lot.

[David J. Henshall:]

Thank you, Sarah.

[Operator:]

Your next question comes from the line of Phil Winslow from Credit Suisse.

[Philip Winslow:]

Hi, guys. Just want to spend a little on Presentation Server you obviously seem sort of mid teens growth, year-over-year past couple of quarters. I just wondered is your expectations for what you look to the December quarter and when you do think about this business longer term?

[David J. Henshall:]

Sure. Phil. It’s Dave. Let me take first part of that question. Yes, we are extremely happy with the performance of the business over the last couple of quarters. I think that the big story there continues to be around Platinum. We have talked about Platinum being nearly 20% contribution from the overall license mix within that business. Right now, as customers are looking at the broader solution instead of the tactical more… more tactical focus point products. And so, that’s driving a increase in deal size and an increase in overall ASP. I think that’s… it’s an early trend. We have got a couple of data points now. We are going to watch it over the next few quarters just to see how it develops.

[Mark B. Templeton:]

The expectation for Q4 right now is more back to normalize growth rate on a year-to-year basis. Really a statement of the great Q4 we had in 2006. If you remember we had really strong growth then. So, we’re looking at kind of lower single digit growth on a year-over-year basis for Q4 ’07. And then longer term, still think this is a mid single digit growth business for licenses. And then low double digits when you include the subscription businesses as well. But early trends on the Platinum, very encouraging and hopefully, we’ll have a lot more to say about that in the next couple of quarters.

[Philip Winslow:]

And then also ANG was obviously particularly strong in this quarter. You’ll talk about benefiting from the investment by that the internet… the portals, a quarter, quarter before the Q4 surge. How do you think about that in Q4 just given the sort of the extreme performance that you have this quarter?

[Mark B. Templeton:]

Yes, again Q3, great performance. We saw a lot of good blend actually between enterprise internet centric accounts, about 50-50 I think I mentioned earlier. And so, Q3 historically has been a really strong quarter for us and I think it continued to be this period. In Q4, from a license standpoint, I’d expect growth to be north of 40% year-over-year, while it will be somewhat muted on a sequential basis. We really do measure the business and manage it year-over-year. So, 40% growth, looking to continue to take some market share in Q4.

[Philip Winslow:]

All right. Thanks guys.

[Operator:]

Your next question comes from the line of Adam Holt with JP Morgan.

[Adam Holt:]

Thank you. I’ll also ask a question on Presentation Server. How would you characterize where we are in terms of the penetration related to this product cycle? And how long do you think we should expect the 4.5 impact to be from a sort of quarter-to-quarter perspective?

[David J. Henshall:]

Adam, I think most people would say, in spite of the tremendous uptake we’ve seen in 4.0 and 4.5. We are still early in the cycle. Certainly, Platinum is helping to get customers to upgrade and move forward maybe ahead of when they normally would, which would typically be on an infrastructure refresh, either server or server operating system or both. So, I think we are still at the front end and I think that will lead us into 5.0, which will move the bar higher. And I think we will be sort of on this endless cycle, never really catching up to the opportunity. And always staying out ahead of kind of how Microsoft enhances the platform and make sure that we are leveraging the platform. So, we are preparing as you know in a very significant way for next year’s launch of Window’s server 2008 with… obviously a product announcements and so forth that we are very confident in. And so, I would say that the goal here is to continue to elevate the strategic value and strategic positioning of App Virtualization and allow Presentation Server to arrive that wave and the results to be manifested in that. So, that’s why we are pretty excited about Platinum. And I would say that if we are continue to stay on the trajectory by increasing the mix of Platinum in the overall Presentation Server and mix, that will be core indicator of our success there. And we will show next week at the conference how we intend to do that even further with some announcements and demonstration and so forth. So, I think will be able to continue this trajectory.

[Adam Holt:]

Terrific. And if I could just for a minute shift back to the out here commentary understanding you are trying to get away from given specific guidance for calendar ’08, but you did give us some share count information, some tax rate information, and some margin commentary. Would you be comfortable talking about what you would expect earnings growth to be for calendar ’08?

[Mark B. Templeton:]

Not yet at this point in time, Adam. I think right now we are just trying to give an initial look in the 2008. Honestly, we haven’t even finished our internal 2008 planning. This is simply an early stage prudent outlook into the next year, and we give lot more granularity come… the January call.

[Adam Holt:]

Okay. Well then, if I could just go back to the margin commentary to clarify because there had been a little bit of violent reaction in the after market to your comments. So, if you look at the margins this year, you basically would suggest that you are going to see 100 to 200 basis points of decline on a year-over-year basis to reflect XenSource, so you margins will effectively be down 100 to 200 basis points next year?

[Mark B. Templeton:]

Well, I think we are talking about a range somewhere in the lower 20s now. And frankly, we have been operating kind of in the lower 20s throughout 2007, and this is a early stage comment about the opportunity we have in front of us. I think that number of places that we could invest to drive higher revenue growth, longer term sustainability are pretty pronounced. I think it is incumbent upon us to make sure that we are investing enough into that cycle. That said, we are seeing lots of traction as evidenced by Q3 and across the App Virtualization business, the App Networking and a lot of the investments we have been making this year starting to really pay off. So, is there opportunity to expand margins into next year? Sure. But we are going to balance that with the potential investments we maybe making. And again, these are early stage comments, and we will give a lot more granularity as we work through the plan.

[Adam Holt:]

Terrific. Thank you.

[Operator:]

Your next question comes from the line of Rob Owens with Pacific Crest Securities.

[Rob Owens:]

Yes, good afternoon everyone. I wanted to dig a little deeper into the Application Networking Group. I understand that there was a few carryover items from the prior quarter with 8.0 shipping late and the WANScaler deferral. Can you help me understand maybe just what the run rate businesses for Q3? And then maybe what we should expect for Q4? It sounded like from your commentary that it could be up sequentially from these levels.

[David J. Henshall:]

Yes, I think there was… remember carryover was, we talked about deferral of revenue around WANScaler couple of million dollars in Q2 that we didn’t recognize. We did recognize in Q3. So, a couple of million there. The other phenomenon was around just say a wait of availability of 8.0 platform and in normal circumstance, we see a positive orders as customers look any WAN order than new platforms. So, I think that the run rate business was pretty down close to the reported numbers. We said great strength across the globe and really led by NetScaler products.

[Mark B. Templeton:]

The other thing that I would add is the investment we made early in the year bringing on almost 30 specialist in the App Networking team in the EMEA specifically, really started to pay off in Q3, and we are just going do and see and do more of that, which should help us specially on the enterprise side, which is… where we are in huge opportunity remains for us.

[Rob Owens:]

And you are seeing that out more so on the NetScaler side or you certainly see more traction on the WANScaler side. Can you get some sense of maybe what booking did sequentially for WANScaler?

[Mark B. Templeton:]

Well, obviously WANScaler still look quite a young and new product for us. And it’s small in the shadow of NetScaler which is overwhelming majority of revenue from App Networking.

[Rob Owens:]

Thank you.

[Operator:]

Your next question comes from the line of Katherine Egbert with Jefferies.

[Katherine Egbert:]

Touch one more time on the operating margin? Dave, you said that it would be down a bit in ’08. But then you said it would recover in ’09. Can you give us a sense what you mean by recovery in ’09? Will you makeup that 100 to 200 basis points and then some?

[David J. Henshall:]

Well, I think, Katherine, this is the business that has got a lot of leverage potential in it. And when we are talking about 2008, I mean, obviously the biggest impact is that. We are investing against a enormous opportunity right now. And as we do that and build that out, we are obviously going to have the short-term dilution. Our plan right now, it would be to show flat to accretive in 2009 for the Xen business, and that’s biggest single swing factor. Yes, I think that you can certainly see some margin expansion in 2009 and beyond. Again, I mean that’s a long time from now, but that’s the way we are thinking about it.

[Katherine Egbert:]

Okay. And when do you expect XenSource to close, I mean is it going to close this week like, but before iForum?

[David J. Henshall:]

We’ve got California fairness hearing this Friday. So, I would say we are virtually done.

[Katherine Egbert:]

Okay. So that means that once it’s closed then there are press announcements, of course, will become press announcements, right?

[Mark B. Templeton:]

That’s correct.

[Katherine Egbert:]

Okay. And then last one, can you just comment on the taxes? You consistently see 23% to 24% on, but they are consistently below that. Are you seeing conservative and as you do more offshore, does the taxes come down over time?

[David J. Henshall:]

Yes, the single biggest factor is just where the earnings are coming in. On a geographic basis, we obviously have a lot lower tax rates in the international markets. And we had great quarters coming out of the specific region and the EMEA region in Q3, and so, there just more income there driving the tax rate lower. Yes, I think there is the potential for it to come down from our forecasted rate. But at this point in time, I mean, we are comfortable with that. We do think there will be more income coming from the North America markets in 2008 and beyond. So, at this point in time, kind of the 24% and 25% range is probably the right place to be.

[Katherine Egbert:]

Okay. Thanks Dave.

[Operator:]

Your next question comes from the line of Shaul Eyal from CIBC World Markets.

[Shaul Eyal:]

Thank you. Hi, good afternoon, guys. Two quick questions in my end. Deals size is obviously getting bigger and with that also the App be the… the ASP as you mentioned. Can you maybe quantify for us the approximately maybe on average the ASP this quarter by how much they have been kind of going up?

[Mark B. Templeton:]

It depends what business you are looking at. I mean really in the aggregate, we still have an average deal size of somewhere between $50,000 and $75,000 and to… obviously a great number of transactions. Our largest deals in the quarter and then you have 10 to 12 transactions over $1 million this period. So, a number of pretty big deals companies looking at the platform very strategically. But overall, I think probably the most important subset of that would be around the App Virtualization business. And the impact that we have seen from some of the product marketing changes in the Presentation Server family as well as the impact from Platinum has moved that ASP and average deal size up by more than 10% over where we were this quarter last year.

[Shaul Eyal:]

Got it. Fair enough. And obviously great success within EMEA region. Can you make this specifically tough on the countries within Europe that’s enhancing notable strength this quarter?

[Mark B. Templeton:]

Certainly we saw pretty balance growth really, frankly, across the globe and around the specific regions. When I look across like the largest deals the Southern part of Europe had a few Central Europe had a couple as well. So, a good balance of business really.

[Shaul Eyal:]

Got it. Thank you very much. Good luck.

[Mark B. Templeton:]

All right. Thank you.

[Operator:]

Your next question comes from the line of Michael Turits from Raymond James.

[Michael Turits:]

First question is just on the fourth quarter where you are at about 8% sequential growth which is lot lower than you have seen typically in the fourth quarter. And you may some of that comes from the… catch up on deferred revenue page from NetScaler, but it still seems a little low there. So, are you just thinking conservative, why should we see less seasonality?

[David J. Henshall:]

I am sorry. Can you repeat the first part of your question?

[Michael Turits:]

Okay. Let me try again. Just one question which is fourth quarter you have got into about 8% sequential growth in the midpoint. I understand… I think which lower than typical. There is some catch up I know because of the WANScaler recognition boost the things for couple million of dollars. But it does seems that a big conservative relative to you prior seasonality patterns.

[David J. Henshall:]

Yes, I mean WANScaler piece, frankly, was the insignificant part of the numbers right now. I think that Q4 are current guidance is going to point you for total revenues somewhere about 18% to 19% year-over-year growth. We are looking at the business more across the portfolio. That’s consistent with the growth we have seen historically and we are very comfortable with the pipeline any opportunities going into Q4. It’s always our biggest quarter, and we are… we just look to start closing business right now frankly.

[Michael Turits:]

Okay. And then just a clarification on margin and dilution, I think that the early you did say that the 23% to 24% on the core business which is about where you have been currently looks good going into 2008. Just wanted to clarify that, is that correct?

[David J. Henshall:]

Yes, I think the core business is unchanged and like I said a couple times earlier I think there is opportunities to continue to expand margins, whether it’s in ’08 or into ’09. But we are very, very focused on driving growth in market share at this point in time, and we will balance investments against the opportunity, of course. But we are going to maintain our standard focus in the long-term growth and sustainability.

[Michael Turits:]

I just wanted to make sure instead I miss this [ph]. You said this now also that you thought Xen would be flat to accretive in ’09. And kind of check where you were before I thought you said just accretive, but does that… Xen also flat to accretive?

[David J. Henshall:]

No change in our prior stats. No change.

[Michael Turits:]

Okay. Thanks a lot.

[Operator:]

Your next question comes from the line of Brian Essex from Morgan Stanley.

[Brian Essex:]

Good afternoon guys. Just want to get a sense around deferred revenue. It looks like it’s relatively flat over last quarter, similar dynamic to what we had last year when licenses were substantially down. That just because a sequential decline or whether a lot of one year deals in that fell off the balance sheet, or there is some different dynamics happening there that causing that build to flatter than expected?

[David J. Henshall:]

Yes, deferred revenue is really a function of the timing of the opportunity pool for subscription advantage. So what I mean by that is the when customers are coming up a renewal and Q3 each year is the low point for when the opportunity pool it. You go back and look at deferred revenue growth over prior year, so you will see the Q3 generally is flat. Q4, however, large opportunity pool I would expect significant growth in deferred revenue in the quarter. So, just a timing issue.

[Brian Essex:]

Okay. And then with respect to the conclusion of your stock option review process. Was there a lot of pent up exercises there on the employee side than you offset or is it pretty stabilize due to relatively quick timeframe in which we are able to conclude that?

[David J. Henshall:]

There were some employee exercises not being that’s if my radar has been terribly out of the ordinary. We did conclude that pretty close to when we went into our normal quarterly block out period, which is why we entered into structured share repurchase program instead of doing an open market one. Nothing, terribly interesting there.

[Brian Essex:]

Okay. Thank you.

[Operator:]

Your next question comes from the line of Daniel Ives with Friedman, Billings.

[Daniel Ives:]

A good quarter. I had a question just on enterprise spending and with everything went on treaty, you guys had a great quarter. But just… and talking to the customers and talking to the sales guys, was there any some more change throughout the quarter in regards to spending, trepidation? I mean obviously didn't show in your results but just more from a macro perspective, I mean, what’s the feel there as you guys are seeing industry things?

[Mark B. Templeton:]

Daniel, this is Mark. As I travel during the quarter, I didn’t see any change in outlook. Certainly, from a macro point of view everyone is concerned about sort of the state of equity markets and kind of how the Fed and sort of their analogs around the world are responding and trying to manage what’s pretty volatile environment. So, there I think there is a lot of concern, but in kind of lower to the ground. I think every customer I talk to is… has been bullish about their business and even into 2008. So, we are feeling the same way based upon the kind of value proposition that our products offer whether it’s to reduce the cost of IT operations or to gain kind of agility to respond to business opportunity kind of on the upside. So, we are blessed with having infrastructure that adds value in both dimensions, which is unusual and unique in the industry and part… parcel of having a strong infrastructure play, which really is the underlying rational for the kind of guidance we are giving as we look out and establish three year goals for the Company and look at the businesses that we understand extremely well and are obviously historical App Virtualization business where we know how to scale it, we know exactly what’s involved. And we are going into a period where we are going to be launching a whole new version of it running Microsoft Windows Server 2008. The online business, again, a business whose model we understand extremely well. We know kind of what we get out based upon what you put in, and we think there is a tremendous opportunity there and that’s sort of the next layer. App Networking, we took probably I would say a good 18 months maybe even two years most people would say to really get confident about how we go-to-market in terms of what partners the products, how to train, certify them, hiring our own people App Networking specialists and putting them in the field. And I think we understand now the metrics around doing that and we are going to… the market is huge and very strategic to us. So, that’s the kind of next layer. And then finally, I don’t need to explain the opportunity in market size for desktop and server virtualization being sort of the newest market we are entering in. We are not… we think we have a great combination with XenSource and the ability to combine technologies that are core to Citrix today with XenSource core technologies along with the great channel and Microsoft partnership, and we should be investing in that. And so, we are going to… we think we are doing exactly the right thing for getting the fastest growth rate on the topline, which then translates into a long-term market position that you monetize over and over and over again. So, we are in that mode, and that’s what Dave it’s been trying to explain and what we are very, very confident in doing.

[Daniel Ives:]

And just a final question. With the user conference next week, is the timing of the acquisition, are you… have you tried to proactively on the XenSource side get customers come to the user conference? Have you seen there could be a good opportunity I am just curious how you are handling that, just given the timing and everything?

[Mark B. Templeton:]

The answer is yes, but remember the XenSource customer base just across the 1,000 mark. And so, really what we are doing is getting the word out, attracting during this conference, the Citrix customer base, which is much, much larger and we are going to show that those attendees how we are going to bring them server and desktop virtualization in a complimentary way to App Virtualization, and how we can tie all three together in a very, very powerful infrastructure. And then, obviously, each year we up level the type of attendee that comes to this conference. So, this year you would see a record number of IT executives where architectural strategy where business relevance around how technologies can impact business strategies are really important. And so, that’s what we will be showing. And obviously, we… taking the bail off of some really exciting new things. We have a tremendous line up of media and industry analyst that will be there, partners from around the world within the industry and from within our go-to-market, ecosystem, and overall, should be a pretty exciting week and everyone totally geared up for it.

[Operator:]

Your next question comes from the line of Kirk Materne from Banc of America Securities.

[Kirk Materne:]

Thanks very much. I don’t want the answer this, but Mark and Dave, could you just talk about on the networking side, the improvement there? I guess how much of that was the channel finally starting to get a hold of it in places like Europe and Asia-Pac versus say building out the direct sales force, just give me some more color on that?

[Mark B. Templeton:]

Well, Kirk, you take sort of half of it and our model around the internet centric marketplace that the teams that do that or second-to-none and have done a tremendous job there. So, the other half of the business is really the enterprise business, and we are seeing two things. First of all, EMEA is coming on and I think it’s the first quarter where EMEA can probably stand up and say we made an impact in the App Networking business. And that came strictly from great execution around hiring the right people, putting them in the right place both SE’s and in channel partner in people in EMEA. And then, the other piece of came from partners in the U.S. that have just continue to mature in their knowledge of all of these products and are able to take them to market more and more independently. We also had a couple of late architectural wins with very large enterprises which really set the stage for repeat orders and a platform for references to other enterprise customers. So, that’s what we saw in the quarter kind of inside the App Networking business, from a color of commentary point of view.

[Kirk Materne:]

Okay. And then just one final on XenSource. I assume with the deal getting close shortly. Would the main impetus in terms of training of partners be at your traditional Solution Summit Meeting, is that what you guys are aiming for or do you think you can accelerate that a little bit in front of that?

[Mark B. Templeton:]

Well, we’d set some aggressive goals out to exit this year with 1,000 partners authorized on the XenSource products and to exit Q1 with an additional 1,000. So, as you can imagine we've already be on this process working closely with Peter and his team. And that includes having highly leverages ways to train and authorize partners. And as I think I mentioned earlier many partners that are already certified to sell VMwear products and trying get to be very, very easy to become authorized to sell XenSource products. In fact, they’re simpler to implement, faster to implement, and still offer partners a great platform for offering services. So, we are doing some things however that are in the investment side to make certification and training our partners much easier and much more leveraged for us and we will be announcing those once we close the deal, and so, stay tuned on that.

[Kirk Materne:]

Very good. Thanks very much.

[Operator:]

Your next question comes from the line of Todd Raker with Deutsche Bank. Todd Raker your line is now open for questions.

[Todd Raker:]

Hello. Dave, just quickly one financial question from an FX perspective. Any impacts on revenue?

[David J. Henshall:]

No, we bill pretty much in U.S. dollars around the world. So, there’s no way to impact the topline. We do have a lot of local currency expenses. So, there is… while we do hedge out two year in advance we have had some impact on expense as they have gone a bit higher. So, a slightly negative in the quarter, but nothing that I would call out.

[Todd Raker:]

Okay And then Mark, just very quickly. When you guys talked about the XenSource acquisition, you talked about spending Xen the open source project into some type of independent entity or oversight. Can you give us some insights into how you guys are progressing on that front?

[Mark B. Templeton:]

That part of the project is progressing very well. Obviously, we're working closely with all the major… are contributors to the open source project. And I can say all ready opened a new website for xen.org. And we've made just great progress in a lot of details a lot of this gets down to the details of how the project is managed. And I think all of the contributors are feeling pretty good about what we are doing there. And including Intel, AMD, HP, IBM et cetera. It's one of those where we’ll evolve. We’ll take one big step. And Citrix as part of the investment, we promised to fund it, including people and process and management and up leveling the sophistication around all of that. And to give it a level of independence that it hasn’t had. I think necessarily hasn’t had in order to actually get it to where it is. That’s needed strong leadership, via a deeply scientific team that invented it to get to where it is, and I think that now as we go forward, there is more interest in it with the .org, we will be able to gradually put it more into an independent status. So, I think we doing really well there, Todd.

[Todd Raker:]

Okay. Great. Thanks.

[Operator:]

Your next question comes from the line of Richard Sherman with MKM Partners.

[Richard Sherman:]

Dave, primarily on the NetScaler side of things. You had indicated I think earlier in the call that you thought to that will be taken through market share as we headed into the fourth quarter, and in light of the fact that you are in a nice products cycle here on NetScaler, should we infer from that some additional promotional type of activity going into the fourth quarter?

[David J. Henshall:]

Richard, not specifically, we do have a promotional program. It’s a channel based bonus program we call Spam. And it’s been running all of year and it really is a bonus that encourages and rewards Citrix partners for investing in their network practices, which is typically where NetScaler and WANScaler and Access Gateways sales originate from. But other than that, we don’t have any other specific promotional programs, the rest of the expectation around NetScaler specifically NetScaler growth in Q4, as a reflection of the pipeline and all the work that’s been done, going before because that typically a NetScaler sale, it is not a overnight sale, and usually range from 90 to a 120 days, I would say on the enterprise side and can’t be longer the enterprise is a much larger scale where they are making standards type decisions and across maybe multiple data centers.

[Richard Sherman:]

Okay. And then one more maybe you have given us some good hindsight to the performance in a by region international versus U.S. Could you provide maybe some clarity or some hindsight as well from the perspective on maybe the various vertical markets obviously financial government or probably the top of those people’s minds?

[Mark B. Templeton:]

We had a decent quarter for Federal… U.S. Federal government and so, which we typically do in Q3. On the financial services market, this question has come up quite a bit, we haven’t… despite the disruption and bankruptcy and all of this and sort of the mortgage brokerage, end of the world and so forth, we have yet to see any impact whatsoever or even here anecdotes. We are aware that a number of these companies are customers and… but they typically many of them brokerage firms you are tended to be smaller ones and with the large ones, we haven’t seen any change whatsoever. So… and then overall financial services market, for us is somewhere around figure 10% to 12% depending upon the of our overall business mix and it remains strong because remember we have got global business and we do business with financial institutions around the world, and for every one that’s having a headache, let’s say in U.S. markets there are multiples that are actually expanding and doing well in international markets and that’s the benefit of having a global brand.

[Richard Sherman:]

Okay. Great. Thank you for taking my questions.

[Mark B. Templeton:]

Thank you.

[Operator:]

Your next question comes from the line of Walter Pritchard from Cowen.

[Walter Pritchard:]

I maybe start investing in the online business in Europe. I am wondering if you start to see any revenue contribution from that geography in that business.

[David J. Henshall:]

Little bit, it’s starting to pickup. It’s still just a very, very minor percentage of the overall total. I think that 2008 as we build up the customer base when you start to see more of the material and material contribution.

[Walter Pritchard:]

Got you. And then just along… around the Platinum, you mentioned a 20% of the AVG business was Platinum. I am wondering if you have any internal goals you care to share or if we look forward in the next year, what you think Platinum could be as a percentage of that business.

[David J. Henshall:]

Well, I think just strategic question actually and it’s the answer is… it’s the higher percentage. I mean we are still working through with the actual specific numbers is right now. But over a long period of time, I think we’ve got a lot of opportunities to move that North of 25%, and we are going to do that through a combination of product integrations by providing great solution that solves real problem for customers, marketing efforts et cetera. And it’s going to be important part of not only the App Virtualization business but the App Networking business as well and the new Platinum Version there. So, it’s a key focus as we head into 2008.

[Walter Pritchard:]

And just lastly, Mark, around Windows Server 2008, you start to talk a little bit about on this call. I know it’s been a lot written and talk about in terms of competition between the two and I guess I am less interested in that aspect and more interested in maybe your views on how you think the release… we haven’t seen the Microsoft Server release about five years. How that release of Window server 2008 may impact the WAN customers purchase either do they accelerate purchases or differ purchases of Presentation Server or is that not something that you expect to be impacted?

[Mark Templeton:]

Yes, Walter, I think this will be the third significant Windows Server release that will go through with Microsoft. And we have never seen disruption as a result of the server release. I believe the primary reason is because customers will tend to take their time on… especially on a server release, and with Windows Server 2008, because the architectures has been changed in a good way. So, dramatically, I think they will actually take a little bit longer. And so, I think they will kind of go along with their normal sort of production systems and begin to feather in Windows Server 2008, and that will certainly be our strategy and will that play out next year when we make all the announcements as part of the Microsoft launch, which we are gearing up for and pretty excited about and we want to be able to offer customers the ability to bridge and have both platforms running in their data center and to do that seamlessly and obviously the new products that we have coming on line around like provisioning server or the XenSource technologies etc. will make it a lot easier for us to help customers make that migration. And that’s a key part of our game plan for the next few years. So, I don’t … We don’t see any disruption, see this as a positive force.

[Walter Pritchard:]

Right. Thank you very much.

[Operator:]

Your next question comes from the line of Scott Zeller with Needham and company.

[Scott Zeller:]

Thanks. Regarding Xen could you just verify… we were told somewhere between $1 million to $2 million revenue contribution for 4Q.

[David J. Henshall:]

Yes. That’s right for the partial period.

[Scott Zeller:]

Okay. So… and that’s a two month contribution, right?

[David J. Henshall:]

That’s correct.

[Scott Zeller:]

Could you just give us some color as to why the impact may not be greater with two months contribution? Because with us looking for 50 in ’08 and this being a seasonally strong 4Q why would the number not be higher?

[David J. Henshall:]

I think right now it’s just a common carry on. We haven’t closed the acquisition yet. We are just starting to get ramped up. Its very, very early days and it will need a quarter or two to have a lot of more experience and understand the dynamics of how it filters through our channel et cetera. we obviously have tremendous expectations for this business we are very confident in it. But in the partial period, I think a couple of million of revenue and obviously higher than that for our booking spaces… it’s the right place to be right now.

[Scott Zeller:]

Okay. Thank you.

[Operator:]

Your next question comes from the line of Stephen Ashley, from Robert W. Baird

[Stephen Ashley:]

Hi, just a real quick question. Branch office in a box? Are we still hoping to have that available late this calendar year?

[David J. Henshall:]

Steve, I think the branch office in a box project, Project evergreen. I think we said before that we expected to shift in the first half of next year, kind of, early next year. Right now the way it’s looking is that it may actually slip a few months and we are obviously getting our road maps recalibrated for 2008 right now and looking at that. But the product is within Alpha tests right now and I think it looks great but there is still more work to do on it. It will be at the conference and in the labs and those who attend can actually talk to the team and see how it’s going. But I think from a release perspective… point of view, we are probably looking more toward now a Q2 of next year release of the product.

[Stephen Ashley:]

Great. And David were the ten to twelve $1 million deals, were any of those in the App net working group?

[David J. Henshall:]

Let’s see. I know that there were three customers that had purchases that aggregated over a million in the App net working group. Definitely there is a single transaction that was over, it was over a $1 million in App networking.

[Stephen Ashley:]

Okay. Thank you.

[Operator:]

Your next question comes from the line of Israel Hernandez, from Lehman Brothers.

[David J. Henshall:]

Is he slipping?

[Israel Hernandez:]

Hey guys. Regarding the profitability the application networking group. Can you talk a little bit about the direction of where you think profitability will trend as we look into 2008. When do you think we are going to get to a respectable operating margin in that business and second, can you talk about WANScaler as quickly or are we still on track to get to $8 to $10 million for the full year.

[David J. Henshall:]

Yes. I’ll take the WANScaler first. It’s still a small contributor, a couple of million a quarter over the last few quarters so I think $8 million to $10 million is the right range, as far as profitability for that business. I mean they had a very solid quarter as you saw in Q3 so profitability was way up. I think the place that we can… we have talked about investing and we will continue to invest as predominantly around to go to market side and I think it will show more and more profitability each quarter going through next year, outside of normal seasonality. So I feel very good about the progress we have made there.

[Israel Hernandez:]

Thank you very much.

[Operator:]

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers and we will now turn the call back over to management for closing remarks.

[David J. Henshall:]

Well, once again thank you for attending the call this afternoon. Your continued support of Citrix on the tremendous journey we are on to establish application delivery infrastructure and the market places that surround it. Thanks and we will see you again in three months.

[Operator:]

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