Citrix Systems, Inc.
Q4 2009 Earnings Call Transcript
Published:
- Operator:
- Good afternoon, my name is Elisa and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Citrix System’s fourth quarter 2009 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 session. (Operator instructions). Thank you, I would now like to introduce Mr. Eduardo Fleites, Senior Director of Investor Relations. Mr. Fleites you may begin your conference.
- Eduardo Fleites:
- Thank you, Elisa. Good afternoon everyone and thank you for joining us for today's call where we will be discussing Citrix’s fourth quarter and fiscal year 2009 financial results. Participating in the call are 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 to review the financial results, I want to state that we have posted product classification and historical revenue trends related to our product groupings to the Investor Relations page of our website. I would like to remind you that today's conversation will include forward-looking statements made under the Safe Harbor provisions of the United States Securities Laws. These statements are based on current expectations and assumptions that are subject to risks and uncertainties such as the impact of the global economic climate, uncertainty in the IT spending environment, risks associated with our products and competition. Obviously these risks could cause actual results to differ from those anticipated. Additional information concerning these and other factors is highlighted in today's press release and in the company's filings with the SEC including the risk factor disclosure contained in our most recent annual report on Form 10-K, which is available from the SEC or the company's Investor Relations website. Furthermore we will discuss various non-GAAP financial measures as defined by the SEC’s Reg G, a reconciliation of the differences between GAAP and non-GAAP financial measures discussed on today’s call can be found at the end of today's press release and on the IR page of our website. Now I would like to turn it over to David Henshall, our Chief Financial Officer. David?
- David Henshall:
- Thanks Eduardo and welcome to everyone joining us this afternoon. Today we announced our results for the fourth quarter and fiscal year 2009. As you can see from the release, we finished off the year with solid momentum, delivering over $1.6 billion in total revenue, $480 million in cash flow from operations and more than a 100 basis point expansion in adjusted operating margin. Entering the year we were appropriately cautious given the economic recession and decline in IT spending. We made profitable growth a top priority and focused on tight execution. Many of the transformations we made in 2009 have allowed us to build a more efficient infrastructure and drive long-term changes in our cost structure, all while materially increasing investment in those areas we believe are strategically important going forward. I am very pleased with our execution in the field, operationally and within our products organization during the quarter. So looking at the fourth quarter, results included record revenue across all geographic regions and strong growth in our desktop solutions following the mid-quarter release of XenDesktop 4. Overall, revenue growth accelerated to 9% year-on-year for a total of $451 million, and adjusted earnings per share were $0.66, up 39%. Note that the EPS growth reflects not only the strong operating performance, but also the benefit of certain tax items that I will highlight later. So drilling into the individual line items for Q4, revenue from new license sales was $168 million, up 4% from last year, and up 30% sequentially. License update revenue increased 6% from last year, a result of strong renewals for subscription advantage. Technical services increased 20%, led by support, maintenance agreements, and online SaaS revenue was $82 million, up 18%. From a geographic perspective, the Americas region continued to execute well in Q4, with revenue up 7% from last year to $189 million including a record number of million dollars plus deals. Internationally, EMEA saw nice improvement in the business environment leading to revenue, up 3% from last year and up 27% sequentially to $143 million. Similar to the Americas, EMEA we also saw a large rebound in large strategic transactions with customers. Finally, revenue in Japan and the Pacific region was up 21% from last year to $37 million. So overall really an excellent quarter. Customer interest, pipeline build and visibility continued to move in the right direction. We are going to remain focused on delivering results while building momentum across our main product categories of desktop, data center and cloud and online collaborations. So now I would like to discuss the Q4 results within these three areas. First, our desktop business which includes both Application and Desktop Virtualization solutions, grew 5% over last year to over $290 million. The results during the quarter were highlighted by the very positive customer response to our latest Desktop Virtualization product, XenDesktop 4. XD 4 contributed over $26 million in new license revenue during the period and $30 million overall. In addition, the XenDesktop Trade-up program which allows existing XenApp customers a path to upgrade to the licenses to the broader desktop solution far exceeded expectations. As a reminder the accounting for the trade ups is largely ratable in nature driving about $20 million of growth in deferred revenue. Within the desktop category, there’s a also a number of really encouraging metrics during Q4 including a sequential improvement in total license revenue of more than 30%, a record number of strategic million dollar plus license transactions, half of which included both Desktop and App Virtualization solutions. We had 5 new XenDesktop deals of 10,000 seats or larger and the overall ASPs trended up due to strong contribution from the platinum editions of both products. So good numbers really across the board. And as we reviewed last quarter, we will continue to call out certain metrics for the standalone products within this category, but they are clearly becoming less relevant as customers begin to acquire the full desktop virtualization which incorporates both of these capabilities. So next I would like to review the Data Center and Cloud business which consists primarily of our App Networking and Server Virtualization solutions. Led by NetScaler, revenue from this area was up 18% year-on-year to $70 million. Overall the NetScaler MPX and VPX product lines are gaining market share and setting the agenda for Web App delivery controllers. Our high end highest performance products continue to be the gold standard for Cloud and internet-centric customers, driving over 50% of Q4 revenue. And we saw record sales on the enterprise side, driven by our feature-rich, mid-range NetScalers including the brand new VPX virtual appliances with over 6500 downloads and a very solid early ramp of VPX revenue. The other key component in this business is XenServer where we saw a significant growth in downloads and expanding unit market share, which Mark will drill down into more in his comments. So finally touching on the Software as a Service business, SaaS revenue was up 18% in the quarter and 19% for the full year. The online services team continues to deliver solid results and this business now represents nearly 20% of total revenue for Citrix. The growth year is being led by the collaboration products and the GoToMeeting family which grew more than 35% in Q4. Our customers continue to be very focused on improving productivity while cutting costs and by leveraging our GoTo services they can immediately reduce travel budgets while expanding customer reach. So turning to expenses and operations, in Q4 adjusted operating margin was up sequentially by over 3 percentage points to 28%. For the full year, our App margin expanded by more than 110 basis points to 24% delivering on our 2009 guidance. This is a result of improved revenue performance and our continued focus on execution. Like I said before, our initiatives have been centered not only on cost structure changes, but also on a broad reallocation of investments to materially increase focus on those areas of the business such as desktop, SaaS and others. On the rest of the P&L, other income was down, both sequentially and year-on-year as we are realizing lower interest rates on invested cash and our tax rate declined significantly in Q4. The lower tax rate here was a function of various tax items that we have been working on throughout the year, the largest being an R&D tax credit project. So in total, these tax items contributed a net benefit of about $23 million. Looking at the balance sheet, cash and investments increased to over $1.2 billion driven by a record $178 million in cash flow from operations. Primary use of cash in Q4 was again for stock repurchase. We bought back almost 2 million shares at an average price of $38.50 and for the full year 2009 have repurchased just about 6.5 million shares in total. Deferred revenue increased $63 million sequentially or about 11% to a total of $619 million. As I discussed in last quarter's call, we expected that both new sales of XenDesktop 4 and the XenDesktop Trade-up program would generate a higher mix of deferred revenue than we have seen in prior quarters. This was true in Q4 and when combined with a solid Subscription Advantage renewals really drove this record balance. It’s a good indicator of true XenDesktop performance and also of customer commitment as we look into 2010. So finally I would like to discuss our current outlook and expectations for Q1 and for the full year 2010. But before I review numbers let me provide a little context on how we are managing the operating model this year. We are executing on a business plan to continue to drive an expansion to leverage while strongly reinvesting in critical areas of the portfolio and our ability to service customers around the globe. We are pretty encouraged by the improving spinning dynamics that were seen in most GOs, the high level of interest in Desktop Virtualization, our continued gains across networking and SaaS and really as well as the trend towards larger strategic transactions. So balancing this optimism against the global economic backdrop that is really still recovering, we currently expect it for the first quarter of 2010, total revenue to be in the range of $405 million to $410 million, interest income of $3 million to $4 million and adjusted EPS between $0.39 and $0.40. For the full year 2010, we are raising our outlook and currently expect that total revenue will be in the range of $1.74 billion to $1.76 billion. Adjusted operating margin will increase by 75 to a 100 basis points as compared to 2009, interest income in a range of $16 million to $19 million and adjusted EPS between $1.87 and $1.90 per share. So I would like to turn it over to Mark to give you additional details on the quarter's performance and discuss our going businesses. Mark?
- Mark Templeton:
- Thank you, David and welcome everyone. Today we are reporting record breaking Q4 results and overall an excellent 2009 performance especially when you consider the tenuous market conditions during the year. A disciplined approach to financial and operational management along with strong execution allowed us to gain share in some of the industry’s most exciting markets. Our goals were to drive short-term and long-term improvement in our cost model to strengthen our position in Desktop Virtualization, SaaS and the Cloud and to deliver growth in both revenue and profitability. I am really proud of the entire Citrix team who worked tirelessly and accomplished all of this. In addition, our thanks goes to thousands of Citrix customers and partners for their business, their trust and their enthusiasm for our vision. Virtualization wherever it's used means lower cost, greater flexibility, and new possibilities for IT. It's transforms service in the data center, it’s at the core of the Cloud, is the underlying technology for web collaboration, and next, it will transform the desktop. Ushering with it new virtual work styles for users and new on demand ways to manage IT service delivery. We are seeing it in the market. In Q4 pent up demand for Desktop Virtualization, a timely launch of XenDesktop 4 and uncommitted budget dollars really came together to give us a great tailwind. You can see in our results and it shows in the strategic deal metrics. For example, 7 figure deals doubled in Q4 to 22. So we are gaining good confidence in the strategic customer opportunities that lie ahead. CIOs are telling us two things, first, they want to simplify enterprise computing and second that they are ready to embrace the new ideas of IT as an on demand service. We think this is the promise and the opportunity of virtual computing infrastructure. As we look to 2010, our sights are on three things. First, mainstreaming desktop virtualization, by offering a revolutionary system for managing applications and desktops. Secondly, broadening the reach of web collaboration, by integrating a richer set of onscreen media into the world's fastest growing web collaboration suite and third, powering public and private clouds by delivering key networking and virtual infrastructure for the next generation data center that's bridged to the cloud. So next I would like to address each of these market opportunities. Our Q4 results indicates desktop virtualization is ready to go mainstream. Adoption has begun across all industry segments and customer sizes on a global basis. Market drivers include migrations to Window 7, a growing use of Macs in the enterprise, the explosion of consumer devices and the growing need to support a more virtual workshop. The net of this is that customers are rethinking their desktop strategy and virtualization is increasingly at the center of the picture. As a result, the launch of XenDesktop 4 in mid November really surpassed our expectations. We sold hundreds of thousands of new licenses with five deals exceeding 10,000 seats each. We closed over 1000 new customers and we saw more than 20,000 downloads of XenDesktop evaluation system. It’s an amazing performance in just six weeks of product availability. All told, we exited the year with 10 customers with 10,000 or more virtual desktops in full production. Customers are choosing XenDesktop 4 because it's the only complete desktop virtualization product on the market, offering powerful differentiators like FlexCast a new breakthrough technology that supports all the major virtual desktop models in one integrated solution dramatically improving ROI and making Desktop Virtualization a practical reality for broad enterprise wide deployment. The next difference is Citrix HDX, our market leading technology to enable a high-definition user experience. It won't choke your local network and it’s capable of running over high latency connections like 3G wireless. Additionally your XenApp for on demand apps approximately is included in XenDesktop 4, giving customers a single desktop virtualization system where both apps and desktops are centrally managed. All this gives XenDesktop customers the flexibility to deliver the desktop as a service simplifying desktop computing for the broadest range of users in three ways. First with XenApp, much of the ROI of desktop virtualization comes from centralized apps and XenApp is the clear market leader. It continues to a strong standalone product for app delivery projects. In fact, there were 6 deals over a million dollars in Q4. At the same time, it's an integral part of XenDesktop Enterprise and Platinum which deliver a full desktop virtualization stack. XenDesktop Enterprise and Platinum support all the major virtual desktop models in a single integrated solution going way beyond basic VDIs. These editions run on XenServer, Hyper-V and ESX and deliver a full desktop virtualization stack. Customers are choosing these more powerful product edition which represented over 95% of XenDesktop licenses in Q4, with 7 deals that were over a million dollars. Finally, for customers where basic VDIs fills a project need, we offer XenDesktop VDI addition. This solution competes head to head against the premier versions of competitive products at a better price and we are winning countless numbers of breakoff. We are winning here because of Citrix HDX technologies. In addition it's the most open, powerful and flexible DDI solution on the market. Both XenServer, and Microsoft Hyper-V are right in the box. And it also runs on ESX and (inaudible). So best in class products in each of these three areas gives us the largest market reach, customer choice and an optimal solution for every virtual desktop scenario. Ahead there’s an innovative roadmap that includes Xen client, a client hypervisor technology which is in beta trials at over 50 marquee customers today. This project is moving ahead rapidly and will become yet another game changing component for virtualization after desktop. So stay tuned. So virtual apps, virtual desktops virtual clients, we are really setting this stage for the broadest range of desktop virtualization solutions. Next I would like to move to our SaaS business. Web collaboration and desktop support actually virtualized the location of people allowing them to reduce travel, and work, anywhere. These SaaS-delivered services are a key part of our strategy for virtualization of the desktop. We are really bullish on the $3 billion web collaboration market and I'm really pleased with our trajectory. Our growth continues to be driven by increasing customer usage, moving web collaboration closer to becoming a mainstream tool for millions of people. GoToMeeting sessions increased 30% and Webinars were up 82% in Q4. And GoToAssist remote support sessions were up 23%. So overall, more than 25 million people experienced the virtual meeting or support sessions powered by Citrix online services resulting in broad exposure to our web based collaboration tools. GoToTraining, our newest collaboration service will launch this quarter entering us in the fast growing virtual training market and leveraging our highly scalable collaboration platform. For the first time, this market will have a simple, powerful product that sold over the web directly to thousands of training professionals. Looking into 2010, we have an exciting roadmap that will extend our geographic reach. That will enhance our collaboration services with support for richer onscreen media and we will begin to tap the enterprise collaboration market to the full suite. So, you can expect us to invest in these areas to drive additional share gains and to further solidify our position as well as one of the top five Software as a Service players in the industry. Next I would like to discuss our data center products where NetScaler and XenServer are bringing efficiency and flexibility to private and public clouds. Similar to the desktop and collaboration businesses, our app networking products delivered a great performance in Q4. Overall the NetScaler MPX and VPX product lines are gaining market share and setting the agenda for web app delivery controllers. The ADC market remains a two horse race and 2010 will be another year of great innovation and improvements in price performance. With growth coming from market expansion including much greater traction in EMEA and Asia, deeper penetration with cloud service providers and an increasing tax rate to our growing desktop virtualization business. Our other key components for powering private public cloud is the Citrix XenServer, XenServer in our essentials management product continue to gain share in the server virtualization market. And they serve as a powerful platform under XenApp, XenDesktop and NetScaler VPX. Downloads and activations of free XenServer and evaluations of essentials are running at record rates with over 20,000 production activations of XenServer in Q4 alone. XenServer is appealing to customers who are cost conscious, have mixed Windows Linux environment or who need the flexibility of a heterogeneous data center. In 2009, we estimate XenServer captured over 10% of newly virtualized servers and is now in production in over 40,000 organizations worldwide with the largest organization now at almost 20,000 physical servers. We are continuing to gain traction, and we expect to further our presence in the broader data center through the recently launched Xen cloud open source project. Xen cloud leverages the high performance [bare] metal power of the Xen Hypervisor. This open source project includes full support for windows and Linux work loads, full live migration, DM life cycle management, storage integration, full power, virtual switching, OBF support and the XEN AGI tool stat. By taking a more open approach, cloud and enterprise customers using the Xen Cloud platform will enjoy easy interoperability between private clouds and public clouds enjoying cloud service independence, all without locking them into any particular vendor. Going into 2010, XenServer and our Xen Cloud platform coupled with our NetScaler offering have us well positioned to provide a premier offering to cloud service providers as the market emerges Clearly we are at the threshold of a significant industry tipping point, away from the distributed computing era and into the virtual computing era where the power of virtualization to simplify, to consumerize and commoditize will create new industry leaders. That will radically change the economics of computing from desktop to data center. Some say it's a revolution, and others think of it as an evolution, either way Citrix is at the epicenter. We are helping customers get control of computing costs, flexibility and security, and to give control to their users of their personal devices and work stop. Apple’s iPad announcement today is emblematic of the consumerization, connectivity and new operating environment leading this revolution. For multi-touch tablets that always connected smartphone from Wi-Fi to 3G to 4G. So in the end we love the explosion of form factors and connection options. With Citrix virtual computing infrastructure, every device becomes a secure enterprise endpoint. Because there is a Citrix receiver for the Google phone, windows phone devices, android tablets, Windows 7 embedded devices chromium smart books and the list goes on and on. In fact, there is already a Citrix receiver for Apples iPad, it will give you full access to enterprise documents, applications and desktops, no downloading and always secure. So, you build the infrastructure once and you connect any device over any network powered by Citrix virtual computing infrastructure. We are starting 2010 with excellent financial, operational and strategic strength benefiting from many transformations during 2009 that David talked about. And giving us the platform to bring the power virtualization to meetings, to desktops, to networks and to servers with a full end-to-end platform. Our serious focus for 2010, is to increase our market visibility, customer reach and go-to-market effectiveness, so here is what to expect. First, a significant increase in brand awareness on a global basis. Secondly, investments to increase our sales and service capacity to drive larger, more strategic deals. Third, programs that allow channel partners to upgrade their capabilities in desktop virtualization. Fourth, deeper and new system integrated partnerships, an area where we are already seeing increasing success and notable pipeline build. Next, increased product, customer and field sales engagement with our strategic partners including Microsoft, HP, IBM and Dell. And as always an amazing innovation agenda with major releases of every product with a few great surprises of course. During closing we are witnessing an IT revolution, a tide that will drive accelerating remand for virtual computing infrastructure. This is how we will continue to deliver long-term value to shareholders, for our employees, for partners and for customers. I'm really delighted to share these results with you and now let's open it up for questions.
- Operator:
- (Operator instructions). We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Abhey Lamba with ISI Group.
- Abhey Lamba:
- I just wanted to know the shift of the greater portion of your revenue coming in on a ratable basis and going to the deferred, going to your balance sheet, is this a permanent shift in your revenue model or is it only through the transition and should we expect your business to revert back to the (inaudible) once this transition is over.
- David Henshall:
- It's really two things that I would point you to. First, similar to our discussions over the last few quarters you look at a brand new license sale and looking backwards a customer buying XenApp, we would defer somewhere about the 22% to 24%, of each initial booking and put that on the balance sheet as deferred revenue recognizing ratably over the service term. For a new full Desktop Virtualization solution, that number is a couple of points higher, so not really a material shift. The two other things that have impacted deferred revenue over the last few quarters are A, large deals and especially multi-year deals where customers are looking to really either lock in support, or annual licensing for multi-year period of time or two the Trade-up program. So XenDesktop Trade-up has deferral rates, and just as a reminder, there’s lots of different flavors of the Trade-up program, depending on what version the customers are on, whether they are active or not on subscription, whether they are looking for a full upgrade or just a partial. So lots of different variables, but netting it all out, those carry deferrals anywhere from about 45% to nearly 100%. So that’s really the two places that I would point you to. I think overall it is a subtle transition that going on over a long period of time and it probably makes sense to look at the company also on a bookings basis, in addition to recognized revenue going forward.
- Abhey Lamba:
- Mark can you talk about the competition in the desktop virtualization space, who do you see most and what is making you win projects there.
- Mark Templeton:
- Obviously we see VMware mostly with their view product in the marketplace. Let's face it, they've been actually out in the virtual desktop space for a long time and have stimulated a lot of customer interest. Half of that interest when we get engaged, we talk with the customer really I think a lot more strategically about desktop virtualization and the full stack and so forth, and they realize that VDI which is really what VMware has been able to offer so far, just by itself is limited in terms of its applicability and with XenDesktop 4, we actually have a system that provides all these different virtual desktop delivery methodologies including apps on demand and all the very robust HDX technology. So when you take user experience, optimizations in terms of being able to use these different types of virtual desktops and look at the open architecture and then you put XenApp in the mix, we are winning virtually, we are winning all the strategic deals because customers that deal with desktop virtualization project, have all of these used cases where networks are thin and highly latent or they have a wide range of devices or they want to stream desktops to an end point. They want to use client virtualization, you know there are a lot of elements there and when they take a look at that you know we are the winning solution. When we go head-to-head in VDI, we are winning most of those and again based on having a superior user experience, as well as better utilization of network resources and equal or better virtual machine densities, so you know there are a lot of competitive sort of points but most of the times when we get to look at the deal we’ve got a very, very high win rate and you can tell that by the numbers we reported and you can certainly see that most of the business, 95% of the licensing was skewed towards the Enterprise and Platinum edition which actually have all of the features that I mentioned.
- Operator:
- Your next question comes from the line of Bhavan Suri with William Blair.
- Bhavan Suri:
- Just a couple of quick questions here, you mentioned that 50% of XenDesktop was Enterprise and Platinum. I'm so, is it logical to think that the other 50% is potentially cannibalizing some of the XenApp base, so are folks from XenApp adding to the VDI version or the standard version of XenDesktop on top of their existing XenApp licenses.
- David Henshall:
- Actually Bhuvan, let me make a correction. It's actually more than 90%, actually 95% that's coming from the Enterprise and Platinum edition, and very little revenue is coming out of the VDI edition. There’s just not real high customer interest in the VDI only solution.
- Bhavan Suri:
- With the desktop virtualization market are you sort of replacing the VMware product primarily or is it a mix of greenfield or is it primarily greenfield.
- Mark Templeton:
- Yeah, it's definitely a mix. As I said earlier, where customers have done a pilot with VMware’s product and sort of gotten the overall idea and the potential of VDI, usually they end up with huge questions around the user experience, and scaling on the network and huge questions around the economics. And the fact is with VDI alone, you don't actually implement a VDI solution because of economics. You do it when security and speed trump the economics and there are some cases where that’s true. And so off of that kind of interest customers contact us and we are able to talk with them about the bigger picture. And so yes there are some replacements, but I think for the most part a lot of the pilots are their pilots where customers are still in consideration and we are getting more and more regular consideration in those deals.
- Bhavan Suri:
- Great and then one quick question on the SaaS business, you didn't give update on the HiDef and I was wondering how uptick was with the HiDef business and sort of the crossover between the GoToMeeting users that were using HiDef.
- David Henshall:
- Yeah, overall it’s good, I mean we are seeing good results across our HiDef conference. I think that as a standalone I would say good, but probably more importantly on the integrated toll free especially with the broader collaboration of products is where we are really seeing the tax rate that’s where I would expect to see a lot of the upside in the future.
- Operator:
- Your next question comes from the line of Sarah Friar from Goldman Sachs.
- Unidentified Analyst:
- Hey, guys, this is [Stephanie Weathers] on for Sarah. So looks likes it was a strong top line performance this quarter and we are seeing signs from your peers around the industry that the environment is getting a bit better. So could you maybe help us understand some of the assumptions going into your full-year guidance. I think maybe we given the solid performance we are seeing in this quarter, we might have expected a bit of a step up there.
- Mark Templeton:
- Sure. If you think about 2010, I mean our position is we are executing against backdrop of economic environment that's still somewhat fragile, it's improving and we saw better dynamics across all markets. We did move or guidance up, so I'm sure that most expectations will be moving up, just on the back of the strong traction we had in Q4 and our outlook from pipeline, pipeline coverage, deal opportunities, proof of concepts all the things that we look at give us confidence to do that. Certainly in the year, we always take a fairly prudent approach to guidance and continue to update that as we move over the next couple of quarters.
- Unidentified Analyst:
- Okay and just a couple more questions on that same topic. In terms of kind of your assumptions geographically are you assuming a bit more of a recovery in some of the markets that have still been tougher like Europe?
- Mark Templeton:
- Yeah, I think our expectation is that Europe continues to show slow but steady progress we had a great fourth quarter in EMEA, really across multiple industries and multiple countries, and really actually highlight the XenDesktop business where EMEA drove over half of the desktop revenue and bookings during the period including Trade-up, so lots of activity. The activity in pipeline metrics have been strong all year, and it’s really just been a case of budget availability. So, I think as the majority of those organizations just have, see higher confidence in their own business it will translate through to better spending pattern. So continuation of what we are seeing.
- Unidentified Analyst:
- Okay and just one last one on sales and marketing looking forward, what kind of assumptions do you have baked in there in terms of how much kind of hiring you need to get behind the VDI opportunity.
- Mark Templeton:
- I think from a hiring for VDI specifically and probably reframe that a little bit and because desktop virtualization is really in the power alley of a lot of our channel partners and existing go-to-market capacity. I think about our investments over the next few quarters really along the line of some of the things that Mark pointed out. From a go-to-market capacity it's around increasing the relationships with systems integrators and it’s around increasing our consulting capability or capacity to ensure customer success and I think we’ve got opportunities to expand coverage across all geographic regions because the demand is out there. We will do that where it makes sense to just continue to support customers. We’ve also been doing a similar to the other areas in the business a pretty big resource and reallocation inside the field, the organization to really improve productivity and enhance execution. So more of the same is really the way I would put it.
- Operator:
- Your next question comes from the line of Daniel Ives with FBR Capital.
- Unidentified Analyst:
- Actually Mike (inaudible) for Daniel. I have a follow up on the EMEA and how it's improved, I know you mentioned that larger deals have been the improved on that front. What about the smaller, on the smaller deals I believe that's one area that you said you had some issues in the past in terms of weakness, has that improved as well or is this really on the larger deals and on the larger deals which has really been the catalyst behind that as well.
- Mark Templeton:
- Couple of things on the small deal front, I mean we generally refer to this as the run rate business and that tends to be the smaller project, more tactical type transaction that comes largely through some of our channel partners and that was weak in most areas throughout 2009 and largely a reflection of the broader economic conditions. I think that as we have started to recover from the recessionary period, and in markets outside the US we’ve seen a general pick up in that business, not huge growth rates yet but I expect that to be a trend that we will see into 2010. On the strategic front we have good traction across a large strategic business all year, I mean the customers are really looking at managing their infrastructure, whether it's around performance security, cost, upgrades to new OS, et cetera, that's been there. And so even though we closed a record number of million dollar plus deals in Q4, we also increased or closed a lot of them in the first three quarters of the year. So I think what we are saying is that as conditions continue to improve, as desktop becomes much more mainstream, we’ll be able to see all of these continue up in to the right.
- Unidentified Analyst:
- Got you and then one final one, on the online services front, solid growth there, how do you see that growth rate going forward in 2010, not to get on a high level not to get too granular but if you can speak to that point overall. Thanks.
- David Henshall:
- Sure, I don't want to get too granular as you mentioned on the 2010 guidance at this point in the year but what I would say is that the expectation right now is pretty optimistic around our SaaS business. Mark pointed out some of the new things that are coming online in terms of our training products. We are continuing to rollout international expansion although we have been doing it fairly slowly and HiDef audio and audio integration is a new leg of growth for us. So even as the numbers get larger I would still expect growth in the SaaS business to be at least in the mid teens into 2010.
- Operator:
- Your next question comes from the line of Brad Whitt with Broadpoint Capital.
- Brad Whitt:
- Thanks for taking my questions. Just curious as to whether you think you saw much impact or demand generated from Windows 7 during the quarter or is it still a little early for that.
- David Henshall:
- I think Windows 7 [refresh] Brad is one of the catalysts that’s driving desktop virtualization overall and certainly due to the launch of Windows 7 and overall availability it was a huge driver of the strategic conversation with the customer around how do you get to Windows 7, efficiently and quickly. And from those conversations, we get consideration for the full virtualization stack we offer. Because remember when you buy a license to XenDesktop, for let's say platinum edition, you can take a physical PC that has Windows 7 on it sort of a refresh machine, and basically put our end point software on it and deliver all your applications into it without installing them. So it’s very quickly to get to a full Windows 7 implementation even when you refresh the end point and then of course because XenDesktop also has all of the desktop delivery capabilities included with it. You can implement desktop streaming or hosted desktops or server hosted desktop, there are a number of models and they can all be configured around Windows 7 and you can do that even more quickly in many cases and extend the life cycle of some of the desktop hardware that you already have. So by having that sort of bigger conversation, that's really catalyzed by Windows 7 we are able to have that a broader range and especially with the customer and that's what we do in strategic transaction.
- Brad Whitt:
- Okay, great, that makes sense. And just a follow up on you mentioned one of your initiatives for this year is to educate partners and launch new programs with the partners, I'm just curious as to count on a scale of 1 to 10 how do you feel your partners are at this point being able to sell XenDesktop 4 and to successfully implement that with your customers, with 10 being where you want to be and 1 being the worst it could be I guess.
- Mark Templeton:
- First of all, a couple of points. First, they are very capable kind of at the technical basic level already because there are so many concepts and technologies that XenDesktop shares with XenApp. So they’ve got the sort of basic technical platform of knowledge in place. But when you look at what channel partners do, they go where the money is and the money is where customer demand is and so what we saw in Q4 is a huge uptick in their activity with customers especially reengaging customers where they had a desktop virtualization project or need a pilot knowing and brought XenDesktop 4 and could offer them a really great set of offers whether they were a greenfield customer, when licensed for the whole stack or an existing customer with XenApp licenses where they could actually preserve the value of XenApp and step up and trade up to XenDesktop 4. And so we think there will be some growing momentum over the course of the year that we have to obviously step towards and do some training and education et cetera because we do have a lot of partners around the world to communicate the opportunity to. And so I think that it starts with now demand and having them go to where the money is and we can show them and train them how to get it and how deals will be bigger which makes them more productive, which makes them more profitable and that's the way to a channel partner’s heart.
- Operator:
- Your next question come from the line of Steve Ashley with Robert W. Baird
- Unidentified Analyst:
- This is actually [Joel Hammond] filling in for Steve. Thanks for taking my questions. In relation to the uptick in momentum that you are seeing in the larger and more strategic transactions, how many enterprise relationship managers or ERMs are on board at the end of the year and also how does that number compare to the number from a year ago, and what are your plans for hiring ERMs going forward?
- David Henshall:
- Hey Joel, this is David. I mean I will answer that with like our total quota carrying headcount which is you know it’s over a thousand people in the sales and services organization, and included in that are both you know ERMs, SEs et cetera and there isn’t many cases it really requires an account team. So in this increasing our capacity as we talked about earlier is one of those things that we are going to make a priority this year and we increased it during 2009, will increase again in 2010 and do that in addition to expanding relationships with the big strategic partners and other ways to make sure that we're able to service customers and meet this demand around the globe.
- David Henshall:
- The only other thing is during 2009, we actually simplified the organization and took some overlays out, which even on the same exact headcount made that headcount actually more skewed towards being able to touch a partner or touch a customer on more direct basis, so we had more quota-carrying people actually out there with customers for the entire year.
- Unidentified Analyst:
- Okay. And with respect to XenServer I'm hoping you can talk a little bit about the traction you are seeing in converting free XenServer customers to paid XenServer essential customers, thanks.
- Mark Templeton:
- I mean you can see in the numbers, while the growth rates are really good and encouraging, the activations are very strong, there are a lot evaluations in place for essentials. The conversion to licenses paid licenses has been slow and steady is the word. The importance of XenServer to us is really at the underlying platform not only to offer customers a server virtualization solution, but it's the underlying platform to run and virtualize XenApp as underlines in desktop in the back full stack and its underline NetScaler of VPX, and we also leverage a lot of the technology there in the Xen client project that you will see more of later this quarter and this year. So that's how we think about XenServer, it's one of the platform to drive and where we monetize it across essentials XenDesktop, XenApp and NetScaler VPX.
- Operator:
- Your next question comes from the line of John DiFucci with JPMorgan.
- Unidentified Analyst:
- Hi guys, this is (inaudible) on for John. Quick question; just regarding promotions in the quarter and the impact relative to your past quarters, and also just wondering how we should think about XenDesktop sequentially going forward? Thanks.
- Mark Templeton:
- As far as promotions, it's really nothing unique in Q4. We always have some level of promotion going on sourced through on a product or [GO] or a channel. But nothing terribly unique in Q4, except the trade-up programs, we've talked about a few times which is different than a promotion, more of a program approach. As far as the test options are embedded in our guidance, while we are not guiding on a product-by-product basis, I think it’s safe to assume that the broader desktop license will increase by mid to high single digits on a year-over-year basis.
- Operator:
- Your next question comes from the line of Adam Holt from Morgan Stanley.
- Unidentified Analyst:
- Thanks for taking my question. This is [Munish Jain] for Adam Holt. I had a question, just wanted some color on the trade-up promo. You said you saw some good activity could you talk little bit more about it and also if there was any impact on the XenApp Platinum.
- Mark Templeton:
- Sure. Overall, as we said in our prepared remarks we are extremely happy with the trade-up program exceeding our internal expectations by a pretty wide margin and generating a lot of buzz with customers. I mean a couple of metrics that I would point out that are pretty interesting is when we look at the trade-up, if it was a customer that was looking to renew an existing XenApp subscription in the quarter, the resulting trade-up ended up being two, three, even four times larger than that renewal might have been. So a customer is looking at this now as a much broader, more strategic solution than simply how they were deploying XenApp historically. In total, we traded up hundreds of thousands of licenses of XenApps, we were getting really good, early traction with our installed base and if you look across the broader opportunity we have about 15, as many as 15 million licenses out there that are active on subscription, that's really the hard target base that we are going after and then on a secondary level, 10 million or so that have lapsed on subscription that this program gives our partners and our field teams a great opportunity to go back and reengage with them talking about a broader desktop opportunity, so overall just really happy with the numbers and encouraged as we look in to 2010.
- David Henshall:
- The one thing I would add that I think is important is that we didn't really see customers buying XenDesktop whether from scratch or trade-up, unless they had done some sort of a pilot, so that's why when we think about this and when you think about it, this is really pent up demand for desktop virtualization where there was already a strategy and experience, so this wasn't kind of a convenient program to monetize existing licenses because the program still in place today and at this point it will time out at the end of Q2, but there is no artificial sort of reason for a customer to buy the trade-up program. We had active pilots in our pipeline, some of them were upside opportunities and those customers that were able to find uncommitted IT budget dollars we think that we actually increased our wallet share in the quarter by getting some of the loose dollars that were available at the end of the quarter.
- Unidentified Analyst:
- Thanks, I'll just have a follow-up, I don't know if you gave XenApp Platinum as a percentage, what it was in the last quarter?
- David Henshall:
- It was over 40% of the XenApp license mix.
- Unidentified Analyst:
- And then going forward how should we think about XenApp because of your new license scheme with the customers, you think it might cannibalize XenApp licenses and people might to go for more XenDesktop named licenses?
- Mark Templeton:
- Well, I think it's really important to understand how customers utilize the different solutions. The fact, that the way we think about it internally is in the broader category of the desktop and that's because it depends on what customers are looking to drive. Customers that have a project-by-project basis, it tends to be more XenApp focused high concurrency, and XenApp is where we sell a CCU license, but if a customer is looking to really manage their desktop infrastructure and have the flexibility to not only provide a virtual desktop, but also virtual applications to really maximize the flexibility user experience, economics et cetera, they are going to gravitate towards XenDesktop, that's what we are seeing now, so you really shouldn't think about it as a cannibalizing XenApp, but really think about these together as a broader desktop solution.
- Operator:
- Your next question comes from the line of Curtis Shauger, Caris & Company.
- Curtis Shauger:
- Dave, when you book a large VDI deal for multi-thousand seats, could you give us an idea of how the rev rep goes I mean, is it just what you can get into place and install in that current quarter and then the rest has to be placed in like off balance sheet deferral.
- David Henshall:
- Couple of things, first we don't look any large VDI deals. We did look however a whole bunch of large desktop virtualization deals. There is a difference, I think it's important to keep coming back to that, but as far as the normal transaction is concerned it really depends on how the deal is struck at the simplest level, say a customer buys a thousand XenDesk top licenses we will probably recognize on average 70% of that upfront, and will defer 30% a bit as a subscription recognized over a year, very similar to the way somebody deploys XenApp today. On a more kind of a business basis, what we have been seeing in the desktop is that customers that come back from an initial purchase, the rebuy if you will, is about 5X, the size of the initial purchase. So this is really a story about penetration as much as anything else. So the initial transactions maybe a proof of concept, 100, 200 seats, and then we will sell as the customer is deploying downstream.
- Curtis Shauger:
- That's my question I guess, it's more directly say you have the customer that has a very large deployment, there is no way they are going to deploy all of it in the current quarter, and you know contractionally that they are going to overtime. Does that give you anymore comfort now about your future backlog than it would have been previous points and time in history with just XenApp alone?
- David Henshall:
- Let me just talk a little bit what you said contractionally, I mean usually what will happen is the customer will be looking at their infrastructure and they may communicate to us that they have 50,000 desktops that they plan on virtualising over a period of time and they choose to purchase 5000 up front that will take them x period of time to implement and so we will bill and recognize that 5,000 up front and then simply, as the remaining (po's) are submitted is when we will book and recognize those transactions. There is no concept of off balance sheet backlog, everything that we book is either recognized revenue or deferred revenue.
- Curtis Shauger:
- Maybe but I guess as people look to standardize maybe is a better way of putting it oppose to just using XenApp as a remote access tool, does it give you anymore comfort that you know there is potentially a bigger pool of seats to come any given quarter as you sign some of the larger XenDesktop deals.
- David Henshall:
- Sure, I think it absolutely gives the sales teams much more visibility in to a customer and what their long-term potential is and again this is about penetration of the available opportunity inside that account and if we know the stage of their deployment call it a smaller desktop virtualization initiative we will certainly understand how that's going how it translates in to a larger opportunity overtime and really give the team something to work with. So I would say higher visibility in to the pipeline and surely one of the things we track going forward.
- Mark Templeton:
- Main thing I would add is that we don't really have a set of policies or contracts that encourage customers to buy shelf ware. I think that’s the question you are getting at and so if they make a decision that sort of wall-to-wall this is a standard piece of infrastructure, then they have intention to get it out there and get it out there quickly. Then they can buy everything on day one. But if they have a rolling project schedule where they are going to take this on by one division, another division, and another division. Then we have agreements that allow them to actually do that so maybe their commitment as David said might be 50,000 , licenses but they may start with the first 5,000. So for us, our policies around licensing, and contracts have not changed and we’ve never made it interesting or encourage customers to buy shelf ware because we think that's bad policy overall and I think there are some number of examples in software history where companies that did that are no longer with us and we think it's customer centric as well. That's why we are not worried about that trend because if you remember with the XenApp platform, we on average have only penetrated about 15% of the user in any given enterprise so when a customer says I'm going to step up to full desktop virtualization and I’m going to go with XenDesktop the likelihood of a penetration rate being higher than 15%, 30, 40, 50 or 100% is great. That's why we are not too worried because we have 15 million active licenses to make this value proposition offer to that probably would translate in to 50or 60 million people. All right. So it's just not an issue for us.
- Curtis Shauger:
- That's helpful. And one last question, I will turn the line over. You introduced a service license within the last year, can you give us perspective on what percentage of the business it maybe as it reached the material level or not and if it hasn't, do you think it might within 2010?
- David Henshall:
- It's actually getting more traction than we expected. It's still the numbers are still small. They are not material enough to breakout. We have over 300 (slaw) agreements in place and almost all of them are exercising either XenApp, or NetScaler VPX. XenDesktop is yet to get there because there are still some licensing complexities with Microsoft that we are hoping Microsoft will make a lot easier so that Windows 7 BECB licenses can go to a (Slaw) model so most of the traction that we’ve seen is where service providers have used XenApp or VPX in their cloud infrastructure to offer hosted apps or to or web app infrastructure.
- Operator:
- Your next question comes from the line of Tim Klasell with Thomas Weisel Partners.
- Unidentified Analyst:
- Hi this is (Dornien Guyer) for Tim Klasell. Just wanted to see about the any progress in the deployment rates, I know in the last couple of quarters I had seen it go from maybe 1,000 seats per quarter given customer to 2,000 does that continue to creep up? And then have a follow-up question.
- David Henshall:
- Sure (Dorien), on the first part of the question, I think two quarters ago we called out our top ten transactions well over 1,000 seats in the desktop business. Q3 they were all over 2,000, in fact they were all over 3, 000 in Q4 with five or six transactions that were over 10,000, so we are definitely seeing customers engaging in much more let's call it higher scale of deployments. And we’ve got a number of customers that have those active deployed and working well in their infrastructure. So the trend is moving sharply at this point in time.
- Unidentified Analyst:
- Okay. Then my follow-up question is just on the Xen client launch it sounds like its coming out later this quarter is that something that customers are sort of factoring in to the purchase decisions now or do you think that there is going to be potential for some freeze up when that comes out that people need to evaluate or could it potentially accelerate purchasing further?
- David Henshall:
- No I don't think customers are really strongly considering Xen client. I mean its visibility and availability to customers has been pretty limited and we haven't made any decisions or announcements about how we will pack package or price it. Customers are looking at the value of XenDesktop, it really allow sort of the delivered models that are in place, the on demands apps capability et cetera, and making their decision that way, and that's where the deployments are. In the future we think that obviously Xen client is a technology enabler to further possibilities in desktop virtualization overall and we will when we get to that part we will certainly tell you what we think about if what it should do to demand and so forth.
- Operator:
- Your next question comes from the line of Todd Raker with Deutsche Bank
- Unidentified Analyst:
- It’s actually (Jobien Matthew) on for Todd Raker When you talk about enterprise spending on desktop virtualization, are you seeing an increase in shift of overall dollars or are you seeing a shift away from spend on the desktop refreshers that they plan to do?
- David Henshall:
- The connection wasn’t great, but I think I understood your question. Honestly it's hard to know where, exactly where the wallet is that is funding desktop virtualization overall, I think we are clearly there that the desktop refresh budget is got to be the primary one because it's the primary driver of catalyst of the conversation with the customer. So I think that's the sort of the primary wallet that we are seeing the budget come from. I think secondly, I think IT is looking at how do we get more leverage on our staff and either cost avoidance on hiring et cetera, there have been reductions, maybe other reductions and so desktop virtualization infrastructure actually has a brings a lot of leverage to application and desktop and then can cut it in half, which means that you at any given admin can support many, many, many orders of magnitude more end points than usual. Some of that budget will come from the people budget. So I think those are the two primary ones and then a lot of the smaller transactions continue to be customers that are putting their toe in the water, doing projects and they have identified desktop virtualization as a technology that they want to get some experience with I think in that regard we will probably see those budget line items actually increase dramatically in 2010 especially as customers sort of make the association between server virtualization and the great benefits they got from server virtualization and why can't I get great economic flexibility agility benefits from desktop virtualization. And we see more and more customers sort of making that connection. And that's a wallet we think will get funded more so this year because of that.
- Unidentified Analyst:
- Okay. And second what's your outlook for on going stock buy backs do you see them as the current levels or plan on increasing?
- David Henshall:
- Sure. We’ve been pretty consistent in the share repurchase program, spending in dollar terms, $75 million a quarter. I think it's a good level, to expect to going in to 2010. Always taking a look at the cash balance and trying to determine if there is a better use of cash that means stepping up the share repurchase program, that 75 million is a good baseline for right now.
- Operator:
- Your next question comes from Kurt (Witterner).with (Raphody) Capital.
- Unidentified Analyst:
- Hey you guys thanks very much for taking the call, Mark can you just talk conceptually about where in the customer pool is there really a cut off point where going to a desktop virtualization system doesn't make a sense based on the number of PC's at a company and maybe it goes for a everybody. When we talk to people it seems that the customers right now very large implementations I usual see the value immediately where some of the mid sized customers have to do more work around it. I want to know if there is a rule of thumb there? I was just curious on your taught.
- Mark Templeton:
- Not honestly Kurt, not in the Citrix world. Because remember when you buy that desktop virtualization that platinum license, you buy it on a user or device basis and you can then use any and all parts of the stack, so where you have an end point that is a physical laptop, a new laptop you can use that license to simply drive apps there using sort of the classic XenApp, apps on demand model, where apps can be hosted or streamed to the end point and not installed. If you think about just that, you know there hasn’t been any real threshold to the size company, I mean clearly we’ve focused in ourselves on the business that typically going to have a thousand employees or 500 PC's or more, historically. But other than that I don't think there is a limit or a factor other than our focus there. And then obviously the more scale that a company or customer has, the more probability that they have different types of network connections, WANs and so forth, more and more user scenarios, more and more type of desktops and requirements locations et cetera, and that's where the value of all the other capabilities of XenDesktop come in and that's why it's really easy to conclude that you have to be big to buy XenDesktop. So that's the other end of the spectrum, so the more and bigger you are the more scenarios you have and the more likely you are to buy a XenDesktop platinum license for example.
- Operator:
- Your next question comes from the line of Brent Williams with Benchmark.
- Brent William:
- Hi this is actually Brent Williams in for Brent Williams, so wanting to potential risk of flogging an e-client corpse or beating a dead horse, on the large deals, you are giving color a lot of this stuff is coming from variety of factors, the deals that came in Q4 did you see these as deals that were in the pipeline, or maybe the percentage of deals that came in Q4 where they in the pipeline, they gotten frozen, they got put on hold and it just came back to life maybe with a little budget flush kind or is it just that is there a trend maybe that people just get it faster than they ever did and that the sales cycle for a given size of deployment at the higher end is getting shorter, and if you are seeing the sales cycle for a deal that's new in the funnel, getting shorter is that just a function of early stages of recovery or do you see any sort of on going changes to the sales cycle. I'm just trying to look at sales productivity and is that going to turn out to be a growth driver if people just get it faster?
- David Henshall:
- Hey Brent I would say yes to all, really its the answer. I mean if you look at a lot in the big deals, we scrubbed those to make sure that we weren't simply pulling in business from 2010, it really looked like most of the larger transactions were things that we have been tracking and working with customer and less of budget flush and more of a budget availability story. I do think that on the larger transactions, they are more strategy to customers and so they generally tend to come to fruition faster. And that's because it becomes top of mind at a high budget priority for them that gets visibility to the CIO et cetera, so those are all things that are real positives and playing in to our favor. Going forward, I definitely think that the fact that desktop is not a new scary technology but much more mainstream, will certainly help to consolidate the time line around proof of concepts and expansions to much larger enterprise class deployments. So these are all things that we are seeing right now and we think we will benefit 2010.
- Mark Templeton:
- Yeah also the thing I would add Brent is that everything we closed was in the pipeline, we didn't see anything that was surprise other than when something is in the pipeline and at the 80% probability sort of stage, then, it's 80% and its just that a lot of the deals that were in this sort of not 100% but range, actually came in and if you look at them, as I mentioned before they all had pilot in place for a quarter or two or more. And so the pent up demand was really plowed forward from the entire year as result of our sales teams engaging and partners engaging with customers talking about desktop virtualization, because remember we been since XenDesktop 4 started shipping in November but XenDesktop was launched in May of 2008 we have been in these conversations with customers for quite sometime and although we made it way simpler for them to license the product in November, we have had the server hosted desktops the desk VDI, and we've had desktop streaming since really early last year I think probably February of last year. So along with XenApp we have been able to tell a lot of the story to customers for quite sometime, and that drove pilots and demand and pipeline and we closed them.
- Brent William:
- And sort of relatively the move in to system integrators as part of the channel market is something that often turns out to be kind of challenging, because the criteria for success have been different. How are you sort of arming up to succeed there where some other folks in the business not necessarily direct competitors of yours, seem to have a new system integrator story every spring sort of like the cubs have in there how they got a shot at the pennant and often with the same results, and how do you look at what constitutes success in the SI channels.
- Mark Templeton:
- Well to be honest with you yeah, well first of all I agree with what you said in terms of working with SI and so forth, and the challenges there. So First, we have been successful with one and usually when you are successful with one you figure out how to repeat or replicate success. And we had just a tremendous 2009 with CST, they're going great guns and we are really proud of Xen, our partnership and frankly we have learned a lot in terms of what it takes to engage in SI. One of the things we learned is that it's really hard to get them to pay attention to something that customers are not asking for. When customers begin to ask for a solution, and they ask at strategic levels like the CIO or high level I.T., then they pay lots more attention to the vendors that are there knocking on their doors trying to get them to build a practice around it. So the second half of the year we saw more knocking on our door because customers are knocking on their doors and they saw what we learned in working with CSC, we know how to engage and one of those dimensions of learning has been that we have to make an investment in people, training, putting people on sight and doing a number of things like that. To help them get off the ground so. You will see us pick up momentum there with a number of the great integrators on a global basis whether based in India or they are second tier regional providers, various places in the world we have a lot of engagements going on with our global teams and we are making a lot of head count investments in that area in 2010.
- Operator:
- Your next question comes from the line of Kash Rangan, BOA.
- Unidentified Analyst:
- Hi thank you this is Mitesh calling in for Kash, just two quick questions, if I look at the first quarter guidance, it's a bit seasonally a little bit weaker than what I had modeled, I was wondering if this is just because you saw a seasonal stint in the fourth quarter and you obviously saw budget availability and it normalized in the first quarter or your assuming sort of lower close rates in the Q1.
- Mark Templeton:
- Not the latter but really the former. its just Q4 was such a huge up tick, across the board, that we just want to be thoughtful about how we are modeling Q1 at this point in time, nothing more than that.
- Unidentified Analyst:
- When you say thoughtful, do I assume that you are taking in some kind of cushion for deals of which might slip or its just you think that spend might just normalize?
- Mark Templeton:
- Well just looking at a normalized spend. It would point to revenue being up about 10- 11% year-on-year, product being up 8-10% year-on-year. We are getting back to a more normalized environment. I think 2009 was certainly unique in a lot of ways in you remember the way we described where with expectation around the first half being extremely slow as people really just trying to adjust to the practical realities of a recession and looking in to 2010 as a much more normal period of time. Now this is our outlook right now and we will obviously update as we get further in the year.
- Unidentified Analyst:
- Got it, and just two quick housekeeping, first is on the XenDesktop did I hear correctly that it was $30 million, right in the fourth quarter?
- Mark Templeton:
- Of recognized revenue, correct.
- Unidentified Analyst:
- Exactly, and how did this compare to the third quarter?
- Mark Templeton:
- It was up more than 200% on a sequential basis.
- Unidentified Analyst:
- Got it, and how many customers total customers do you have on XenDesktop at this point?
- Mark Templeton:
- Back in Q4 we added about 1,000 customers, 1,500 or so in total.
- Unidentified Analyst:
- So at this point your total customers for XenDesktop would be 1,500 or it’s just the Q4 customers your mentioning right now?
- Mark Templeton:
- Yeah, I'm just talking about Q4 overall we are probably approaching 3,000 customers or so on XenDesktop.
- Unidentified Analyst:
- Alright, That's it from me, thank you so much.
- Operator:
- Your next question comes from the line of Katherine Egbert with Jefferies.
- Katherine Egbert:
- If I remember correctly you guys had a court license agreement with Microsoft that expired last month is that right that ten year license?
- Mark Templeton:
- It was extended Katherine.
- Katherine Egbert:
- Okay. You want to tell us about it?
- Mark Templeton:
- Well, it's still -- it's still being finalized but it was extended and just so that everyone calibrates this correctly, the license that cements to be able to see and work with the source code of Windows Server so that we can support our product and support customers when there are issues and support Microsoft as well. So that's the purpose of the agreement. So we are continuing to work with them and it's a contractual sort of project we didn't meet the deadline so we extended it.
- Operator:
- There are no further questions.
- Mark Templeton:
- Okay. Well, we will adjourn the call. Thanks again for joining us and great quarter, we are excited about where we are as you can tell. But we are being pretty prudent about the outlook and really looking to execute one more quarter where we will have another data point around the overall business segments, desktop virtualization especially customer behavior and their plans for 2010, and we will have a lot more to say then so we will see you in three months, thank you.
- Operator:
- This concludes today's teleconference you may now disconnect.
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