Citrix Systems, Inc.
Q3 2014 Earnings Call Transcript

Published: 23 Oct 2014

[Operator:]

Good afternoon. My name is Dan and I 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, Vice President of Investor Relations. Mr. Fleites, please go ahead.

[Eduardo Fleites:]

Thank you, Dan. Good afternoon, everyone and thank you for joining us for today’s third quarter 2014 earnings presentation. Participating on the call will be Mark Templeton, President and Chief Executive Officer and David Henshall, Chief Operating Officer and Chief Financial Officer. This call is being webcast on Citrix Systems’ Investor Relations website. The webcast will be posted immediately following the call. Before we begin, I want to state that we have posted product specifications and historical revenue trends related to our product groupings to our Investor Relations website. I’d like to remind you that today’s conversation will contain forward-looking statements made under the Safe Harbor provision of the U.S. securities laws. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. 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. Copies are available from the SEC or on the company’s Investor Relations website. Furthermore, we will discuss various non-GAAP financial measures as defined by SEC’s Reg G. A reconciliation of the differences between GAAP and non-GAAP financial measures discussed on today’s call can be found at the end of today’s press release and on the Investor Relations page of our website. Now, I would like to turn it over to David Henshall, our Chief Operating Officer and Chief Financial Officer. David?

[David Henshall:]

Thank you, Eduardo and welcome to everyone joining us today. In Q3, we outlined our vision for the software defined workplace recognizing that customers are looking for a better way to mobilize their businesses while creating a more secure, flexible and easy-to-use infrastructure. At the same time, we are taking direct action to drive operating efficiencies and return capital to shareholders. This includes reallocating resources, delayering, centralization and other initiatives that will continue into Q4 and 2015. So, let’s review the specifics for the quarter. As you can see from the release, total revenue increased 6.5% year-on-year to $759 million, while product license revenue was down 4%. We generated cash flow from operations of over $164 million, while adjusted EPS increased 8% to $0.75 a share. Overall, many of our emerging businesses like mobility, data sharing and CSPs delivered strong growth, each increasing more than 50% year-on-year. NetScaler license growth was steady in the low double-digits, while desktop and app virtualization continue to experience the general weakness that we have seen all year and we will talk about more shortly. In Q3, we closed 40 transactions greater than $1 million each, up slightly from last year. About half of these deals came from the mobile and desktop business, including a few from the new workspace suite and one for XenMobile as a primary solution. Geographically, the EMEA region is delivering the highest relative growth despite really a mixed demand environment increasing total revenue 8% and driving 12 multimillion dollar transactions. Some of this growth is attributable to investments we made over a year ago in networking go-to-market coverage leading this specific segment, up more than 30% year-on-year. In the Americas, total revenue was up 4%, including 25 large transactions, while the Pacific Japan region also grew 4%. So next, let’s look at the Q3 results within our three primary businesses. First, mobile and desktop grew 3% from last year to $393 million. As we have discussed previously, we are driving the broader conversation with customers about transforming their delivery of IT services to enable mobile work-styles securely and efficiently. The XenApp products have been the primary catalyst to these conversations and we continue to set the bar in the enterprise mobility market with MBM, mobile apps, virtual apps and data all in a unified secured solution. 75% of our XenMobile customers have opted for this complete EMM edition showing the value of our integrated offering versus standalone MDM technologies. This really resonates with our existing customers as we are starting to see large app and desktop customers upgrading to the workspace suite as a vehicle to adopt their mobile solution. In the aggregate we are pleased with the revenue and pipeline momentum. And while still a relatively small component of overall revenue, the total XenMobile business grew more than 90% year-on-year in Q3. XenMobile 9, which was released last quarter really raises the bar for complete end user experience in this category and should continue to improve competitive differentiation and pipeline closure rates. Future releases will be focused on simplification really allowing customers and partners to accelerate adoption and time to value. We are also working to address the softness in the desktop and app virtualization where new licenses declined year-on-year impacting revenue growth for the whole company. But to understand this business let me address the three general segments. First for the largest most strategic transformation projects, we continue to execute well which you can see in $1 million plus opportunities. While demand in this segment has been roughly flat, we continue to win virtually every competitive opportunity due to the unmatched breadth and performance of XenDesktop with FlexCast. Second, for customers looking to consume simply as a service, XenApp is the foundational technology being leveraged by Citrix service providers to deliver apps and desktops to their customers. This subscription-based business now services over 500,000 users and again grew more than 50% year-on-year, now represented about 7% of app and desktop license mix. And finally, the broad project specific segment is where we have really experienced most of the bookings decline. Demand in this area has been impacted by customers focusing on deploying multiple different types of applications, not just Windows apps and additionally, our own internal challenges related to the XenApp product line where we have impacted market awareness and the pace at which customers are migrating to newer platforms. To address both of these we are innovating rapidly shipping Version 7.6 of both XenApp and XenDesktop in late September, our second major release for the year. These products included new enhancements to the user experience for audio, video and graphics. We added a mobile SDK helping customers to re-architect apps for mobile operating systems and we included specific improvements to directly target cost and complexity in areas like storage. The goal here is to continue expand the use cases for these technologies to broaden the market opportunity while helping our existing customers to upgrade and expand their current environments. So we are delivering a complete mobility solution, allowing customers of all sizes to bridge between the worlds of Windows and mobile on-premise or service based and to do it all with a people centric experience that only Citrix can provide. Next in delivery networking total revenue increased 6% in the quarter to $255 million. The NetScaler products were again the major driver of this business showing strong growth within the enterprise customers. This was offset by a decline in volume from the large .coms in Q3. As we have discussed in the past this part of the business is highly concentrated and therefore fairly volatile on a quarter-to-quarter basis. For more context on the overall delivery networking let me touch on a few metrics from Q3. First product integration initiatives led to over 525 virtualization orders that included networking as part of the solution. We transacted with over 2,200 different customers in the period compared with about 1,900 last year as we continue to expand the base of both new and the cross sell. And from a mix perspective the SDX platform represented 24% of NetScaler license sales, while virtual appliances were 13% in the mix growing 36% year-on-year. So we are driving innovation in the data center with our unique technologies across both physical and software defined networking platforms. Powering some of the world’s largest clouds and giving enterprises the capabilities to combine best in class app networking services on a single consolidated footprint. And finally, revenue from our SaaS delivered mobile apps grew 12% to $165 million. Collaboration remains the largest part of this business contributing over 60% of the mix and growing 13% in Q3. Our ShareFile product line had another solid quarter growing north of 50% year-on-year, surpassing 50,000 customers and over 10 million unique users. Growth here is coming across document-centric verticals, enterprise customers and tight integration. Strategically, this is an example of how are leveraging these inner individual applications across our other solutions to expand both reach and differentiation within the category. For example, XenMobile contains an integrated data fabric powered by ShareFile, which increases the value and experience of the total solution while giving customers the option to leverage either on-prem or cloud storage platforms depending on their business and security needs. Turning to operations, adjusted gross margin in the quarter was 85%, down about 75 basis points from a year ago, but up sequentially based on mix and ongoing cost optimizations. While margins will continue to reflect the mix of revenue, we continue to expect that this trend will level off as we move into next year. Adjusted op margin in the quarter was 21% slightly ahead of expectations due to the actions to rebalance resources directly against our most strategic imperatives, refinements to the structure and other targeted cost actions. And cash flow as I mentioned earlier was $164 million in the quarter and about $885 million for the trailing 12 months. This was approximately $5 per share. On the balance sheet, cash and investments totaled $1.8 billion at the end of the quarter, up primarily due to cash flow from ops. Deferred revenue increased to over $1.4 billion in Q3 growing $133 million from last year, but down sequentially from Q2 reflecting the period weakness in virtualization and the related maintenance bookings. And finally, as we have discussed earlier this year, we are working to optimize our cap structure and programmatically return capital to shareholders. In Q3, we repurchased approximately 1.5 million shares leaving about $300 million remaining under the current buyback authorization. Turning to our current outlook and expectations for Q4 and 2015, I would like to first provide some context around our guidance. We will be investing in the high growth businesses, future strategic categories like workspace services cloud and the tactical items necessary to reignite license growth, but doing so with an overall focus on continuing to optimize our business model and margin profile. We expect to see the strongest forward growth coming from NetScaler, XenMobile, CSPs and mobile apps. However, given recent results, we are going to remain very cautious on the expectations for desktop and app virtualization until we can see better traction within this business. Therefore, we are reducing our current full year expectations for total revenue growth, while reiterating our estimates for EPS. So for fiscal ‘14, our current expectations are now for total revenue growth in the range of $3.13 billion to $3.14 billion and adjusted EPS of between $3.22 and $3.25 per share. With respect to next year, we are currently in the middle of our planning cycle for 2015. Given our recent bookings volatility, we are going to wait until our next call to discuss the specific revenue outlook for 2015. However, we will continue to optimize our business and margin expectations and we will be targeting an increase in adjusted operating margin of 100 basis points for next year. So now, I’d like to turn it over to Mark to give you additional details on the quarter’s performance and discuss our ongoing businesses. Mark?

[Mark Templeton:]

Thanks, David and good afternoon, everyone. I am pleased with our overall operational and strategic performance in Q3. While our results were clearly mixed, we executed well on important product releases, channel programs and partnership initiatives. At the same time, our operational focus helps us deliver on profitability priorities. As David indicated, the pivot of our traditional desktop business, a pause in build-out and a tighter selling environment in a number of markets, including China, Russia and Japan were all headwinds to our top line. In Q3, we accelerated our focus on leading the market and industry conversation for mobile workspaces. Next, I’d like to highlight our execution and progress across business priorities I outlined in July for delivering customer value, competitive differentiation, and profitable growth. Let’s start with our workspace services business that provides secure access to any Windows, web and mobile app across any device. In June, we introduced the Citrix Workspace Suite, our solution that brings together apps, desktops, data and services under one licensing structure. It’s designed for a mid-market, large, and global enterprises and for the first full quarter of availability we closed several multi-million dollar deals in healthcare and financial services verticals. Though still early in the launch, we expect workspace suite to drive an uptick in strategic account penetration increasing recurring revenue per customer and further distance ourselves from competitors in the market. Windows app delivery is an essential part of delivering workspace as a service. Late in Q3 we have released Version 7.6 of XenApp and XenDesktop with user experience, security and performance enhancements that enable even the most compute and graphics intensive environments. Customers and partners are thrilled with HDX performance over mobile networks with native support for Chromebooks simple, no client access from any HTML5 browser and support for faster USB peripherals. Importantly, we also delivered migration tools that make it easier for customers to move XenApp and XenDesktop to Windows Server 2012, a simpler migration to a simpler platform to manage, while delivering the best Windows apps as the service experience. We have seen a significant increase in trial downloads as partners and customers begin making migration by and rollout plans. Now in its first quarter of availability, XenMobile 9 nine is fueling solid growth and adoption, especially in the most demanding customer segments where security and experience are paramount. XenMobile 9 is a milestone release that simplifies user experience, strengthens security and expands the works at family. It also includes of a concierge feature and an online support service for mobile users built on Citrix go to assist. This focus on the total experience is setting the competitive pace in the space. We are beating and displacing MDM centric offerings with superior user experience end to end data security beautifully integrated mobility apps and leveraging our technology across the portfolio. We have a very aggressive roadmap for our workspace services business, particularly designed to enable simplicity, speed and scale out for medium and large enterprises. Secondly, to deliver the industry’s most integrated solution for mobile workspace services. And third to accelerate growth for Citrix service providers. So now moving delivery networking, we were continuing to expand and go to market coverage and partnerships through technical integrations, OEM products and end market partnering with Cisco. We are also building our got to market capacity with new networking center channels. The product line roadmap is focused in several areas, including tighter net scale or configuration and security integrations with our workspace services, products, including XenMobile XenApp and XenDesktop. Secondly, enhancements that are pretty exciting. I would say for cloud bridge that auto-configure, support video caching and enable multisite, multi-cloud deployments of XenMobile, XenApp and XenDesktop over WAN links and significant enhancements that increase the opportunity for NetScaler in carrier networks. So, excellent innovation and go to market progress for our delivery network product line. Finally, I like to talk about our SaaS delivered mobile apps for secured communications document sharing and workflow. In Q3, our Share File product line had another solid quarter of growth coming from three areas document centric verticals like financial, medical and legal. Secondly, enterprise customer adoptions and –hard tight integration with XenMobile and our works apps, in the quarter, we closed two multimillion dollar deals we saw good traction in the EMEA and solid performance in our SMB segments. And with the recent acquisition of right signature we are expanding our document sharing offerings to include professional electronic document signing, saving time and money by going paperless wherever legally binding documents are regularly exchanged. This will add the stickiness and recurring revenue of ShareFile, it will open new avenues for customer acquisition and it will further build out our mobile productivity suite. Our GoToMeeting business has been focused on innovation like the new virtual whiteboard feature, HD audio and even faster ad-hoc meetings. In Q3, we also introduced a new freemium version of GoToMeeting and additional integrations with ShareFile and our XenMobile Worx Apps. All this is directed at enabling faster customer acquisition, better retention rates and competitive differentiation. Looking ahead, we will continue to expand our mobile app portfolio to gain further leverage of our SMB direct go-to-market model; secondly, to increase recurring revenue and retention in core verticals; and third, to continue to differentiate XenMobile with additional mobile apps. This will further leverage our audio, video, document and screen sharing technologies across product families. Looking forward, significant market and customer trends are fueling our business, BYO Everything and Consumerization 2.0, an intense focus on user experience and data security across many, many customer segments, expansion of infrastructure and services clouds giving customers more choices than ever for apps in infrastructure, broad initiatives we see driving employee engagement to drive retention rates, faster on-boarding and human capital leverage, and a greener and more collaborative workplace as workplaces get reinvented for higher occupancy rates and better productivity for the born-digital generation. As we look forward, we see a rapidly evolving world, where software-defined workplace is the way to a mobility transformed business. Citrix is enabling customers with the workspace apps and delivery infrastructure they need for a new era workforce, workplace and workflows. Our products deliver compelling business and human outcomes that put user experience, security and flexibility first. I am confident in this direction for Citrix. We will continue to streamline product offerings, consolidate infrastructure and optimize for increased profitability, while shifting investments to drive revenue growth, customer value and shareholder returns. And now, I’d like to open it up for questions.

[Operator:]

(Operator Instructions) Your first question comes from the line of Michael Turits of Raymond James. Your line is open. Michael Turits, your line is open. Your next question comes from the line of Rick Sherlund from Nomura. Your line is open.

[Rick Sherlund:]

Yes, thanks. I wonder if you could touch on the opportunity for more than 100 bps of operating margin expansion next year in terms of any possible restructuring. Would you say there is a chance to derive significantly more margin expansion out of next year? And also, if you could just touch on the environment out there, it seems like there is an awful lot of companies that are coming in light in the quarter, it seems like just about every company. Is there something you are seeing that it’s affecting big deals or that might kind of explain why we are seeing one company after another seeming to have a bigger challenge this quarter than we have seen recently?

[David Henshall:]

Sure, Rick. Let me take the second half of that question first. I’d say the environment was certainly mixed. The way I would characterize it in most places was simply a lack of urgency to complete large capital transactions. The only place that I would have like specifics to talk about would be around the markets that Mark talked about in his script, China, Russia and Japan probably really the three. Central Europe was strong. U.S. federal was strong. U.S. individual regions were mixed and probably had individual characteristics. So, I think the only thing I’d say is just the overall lack of urgency is probably the best way to phrase it. In terms of the overall margin structure looking at next year, the team is looking at 100 basis points as more of a planning objective. That’s how we are thinking about it at this point in time. We are still working through the ‘15 plan and upside to that will largely be driven by revenue upside. We are clearly not giving the revenue guidance right now. We are working through a lot of moving parts across the portfolio right now and we want to get that settled down before we give a specific goal, but think of the 100 basis points as a baseline and a pattern that we expect to be delivering for multiple years into the future.

[Rick Sherlund:]

Alright, thank you.

[Operator:]

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

[Phil Winslow:]

Hi. Thanks guys for taking my question. I just got a question back on the desktop and mobile sides, you guys have been pretty upfront about some of the technical issues you all had with XenMobile and then the XenApp and XenDesktop 7 and 7.5 releases, but as you mentioned, you had the XenMobile 9 release in June and then 7.6 for XenApp and XenDesktop in the month of September. How should we think about when sort of those newer product releases actually start to I guess turn the ship here positive again? What are the milestones you are looking for is it something with the channel, customers, pipeline how should I just think about this and when it starts to show up in the numbers again? Thanks.

[David Henshall:]

Yes. Phil, I’d say that there are really two different businesses and so there is different ways to think about it. For an emerging business like XenMobile, where most of the customers we are working with are new customers. Rapid release cycles don’t have quite the same impact. This just drives our ability to accelerate pipeline closure or closure rates as we look at it. So, from a pipeline closure rate just to give you one metric that improved on a sequential basis and a lot of that is attributable to XenMobile 9. With our larger big strategic customers, they have had very specific security features or unique elements that they want to see included into the solution. And so we build those in and that allows them to just broaden the deployment. So, that would be the way I think about XenMobile. The other thing that I mentioned just briefly in my script and I have talked about it in previous quarters is just really simplifying the overall architecture and experience of the solution to allow customers to get through the POC on-boarding and expansion cycles faster. That allows us to have much greater go-to-market leverage and reach and that’s where the next couple of releases are really focused as well. So, we are on a really rapid cycle, innovation wise. I think we are really happy with where we are from a differentiation point of view. And the overall business grew 90% last quarter. So, we are doing a lot of things in the right direction, clearly, a lot of work to do. The question about the app and desktop business, we are really focused especially on the XenApp side, where we are working out of a little bit of Citrix specific issues that have been caused over the last 1.5 years, 2 years or so. And so with this, our second major release of the year, 7.6, very much focused on expanding used cases as we describe it, where the products are going to be able to really leverage that long tail of windows, places where security is paramount, places where we can drive simplification for mobile app delivery etcetera. That is kind of critical for new customers. And then as we bring in more migration capabilities, that just allows our existing customer base to move to that new platform and take advantage of those features. So, short answer, much faster impact on mobile, multi-quarter impact on a big product line like app and desktop.

[Phil Winslow:]

Got it. Thanks, guys.

[Operator:]

Your next question comes from the line of Gregg Moskowitz of Cowen & Company. Your line is open.

[Gregg Moskowitz:]

Thank you very much. Good afternoon, guys. I wanted to ask about NetScaler, because I believe Q3 a year ago also did see a fairly big drop-off in volume from the large .coms. So, it was a bit surprising to hear of another decline here versus an easier compare and I do realize this business is lumpy, but really just wanted to get a sense of your outlook specifically of large .coms using NetScaler going forward? Thank you.

[David Henshall:]

Yes, Gregg. It’s David. I’d say, the overall outlook is still very positive. It shows that the concentration of that business makes it fairly volatile quarter-to-quarter. To give you a little bit more visibility into just NetScaler standalone, the business that is selling into what we call enterprise accounts, so think of that as attached to a virtualization or mobile sale or just a core ADC type opportunity, that business grew 20% year-on-year in Q3. That is offset by a single-digit decline in what we call .coms. And so that’s kind of the next click down. And then within the broader networking business there are a few other pieces. Our sales into telcos for example for video optimization was down year-on-year, offsetting some of the NetScaler growth. So I hope that helps.

[Gregg Moskowitz:]

It does. Thanks David.

[Operator:]

Your next question comes from the line of Raimo Lenschow of Barclays. Your line is open.

[Raimo Lenschow:]

Hi, can I just follow on from Rick’s question about like everyone missing Q3 and do you – and the lack of urgency is something that we heard at last year ready, is there maybe a structural shift going on from what you see in the business that we probably need to think about a greater weighting on Q4 and maybe slightly less – heavy weighting on the September quarter, just kind of wondering because we have the same like messy earnings seasons last year already and then Q4 everything got kind of came together and now it looks like the same thing is happening also again, just trying to get your perspective here? Thank you.

[David Henshall:]

I would say Raimo it’s possible. Over the 20 years that I have been here Q3 has always been a challenging quarter and the most variable quarter of the year. And so we may actually be seeing a pattern where customers are absorbing the investments from earlier in the year and planning on Q4 spending more so now than in the prior years. It’s just a speculation at this point. But I think the other thing to think about is in Q3 the general disruptions that we saw economic, geopolitical, etcetera around the world they do have an impact. And they do have an impact in the economies and cultures where people are more just naturally more conservative and we will wait, we will give it another month. They will give another week whatever they will give it another quarter. So I think we had a lot – I think everyone had a lot of help in Q3 from an uncertain set of circumstances that affect businesses of all shapes and sizes. So we don’t have – we are not economists, we don’t have those kinds of forecast or insights, but that’s kind of how it’s felt like overall. And we certainly see that in the reports and in many of our larger scale peers in the industry.

[Raimo Lenschow:]

Okay. Perfect. Thank you.

[Operator:]

Your next question comes from the line of Heather Bellini of Goldman Sachs. Your line is open.

[Heather Bellini:]

Great, thank you for taking the question. I just had a question about a lot of large tech companies have been looking at ways to enhance shareholder value of late and spin offs has become more popular, I am just wondering if you have ever looked at this as an option for any of your business segments and do you think it would make sense to consider?

[David Henshall:]

Heather we are always looking at the portfolio through a few lenses. One certainly is multi-year long-term strategic lens. Another lens is competitive landscape and growth. And the other one is profitability. And over the years, we have as we have acquired technologies, products and companies and developed, we have actually done this multiples of times, but most of our actions have been to either end-of-life of product or to move a product from being something that we go to market with or will put it, move it from there, narrow the investment in it and put it in the foundational set of technologies. So a couple of examples today, right now are how we are investing in cloud platform and XenServer across a narrower set of use cases that actually are to support our own platform and service providers. And what that does is significantly reduce the go to market costs and etcetera as well as it narrows the focus on the costs on development as well. So we are constantly looking at the portfolio and we will certainly consider all things that makes sense to make sure that we are putting all the effort and focusing our spending as well as our strategy around where customers are going. And I think we have been pretty clear about these three significant segments, delivery networking, workspace services and mobile apps. And so that’s where we will concentrate our investments from a product and go-to-market perspective and then streamlined in other areas around the foundation underneath them that we like to think of as convergence type infrastructure, so that our products can be provisioned in a any cloud kind of environment. So, whether it’s a software-defined datacenter, private cloud or infrastructure-as-a-service public cloud or the mix of those two in a hybrid model, that’s the real focus of these foundational technologies.

[Heather Bellini:]

Thank you.

[Operator:]

Your next question comes from the line of Kirk Materne of Evercore. Your line is open.

[Matt Williams:]

Hi, guys. It’s actually Matt Williams in for Kirk. Can you hear me okay?

[Mark Templeton:]

We sure can.

[Matt Williams:]

Great. Just maybe two quick questions from us and then I will hop back in the queue. Number one, could you just talk a little bit about whether the trade up program is really impacting the results or what you are seeing along those lines? And then secondly, the impact from RightSignature, is there anything in the guidance on the 4Q guidance there and maybe just talk a little bit about the decision to buy versus partner in the electronic signature market? That would be helpful. Thank you.

[Mark Templeton:]

Matt, I will take the second part of the question about RightSignature first and then we will talk a little bit about trade up. So, we have been partnering with RightSignature actually for quite some time over a year. And any ShareFile customer has been able to actually go into their ShareFile console, if you will and connect in RightSignature and get a nice integration between the two. As a result, we have been able to actually measure synergy, cross-selling capabilities and it’s very positive. And so the decision to acquire RightSignature was really based upon the work that we did to validate integration and validate the cross-selling and validate the customer segments that we are serving certainly on a verticals basis within the ShareFile business. And so what we will do there is bring our go-to-market engine to the RightSignature product line and add to the customer base there. And as I mentioned, it will help us from a cross-selling perspective with ShareFile continue to have better retention rates, etcetera because the product then is stickier, because you are using ShareFile for more document task flows. And then the second big piece is we will be able to acquire customers coming from a different perspective looking for an e-signature product and then cross-sell them, a license and service to ShareFile. And then the third thing is this will give us a platform for doing some interesting task flow and workflow integrations that will find their way into the works at family either as an additional product, but more likely as an integration that makes receiving documents, let’s say, in our secure mail product like WorxMail, very easy to then sign them electronically and move them on without ever touching them with the device beyond a smartphone or a tablet. So that’s what we have in mind there and pretty excited about it and stay tuned.

[David Henshall:]

Yes, Matt. Specifically, your question about trade-up, just looking specifically at the entire workspace suite trade-up, it’s early. We have got one quarter now, I would say that Q4 will be the real telling one, but early results are positive. I mean, we had a few million dollars coming out of just workspace suite trade-up and the workspace suite as a standalone was low double-digit millions. And so we are moving – we are certainly moving that message pretty aggressively right now and customers are looking at it as an easy way to adopt mobile. And for those customers that have already standardized on XenApp or XenDesktop for some element, it’s a great extension of that engagement.

[Matt Williams:]

Great. Thanks for the color guys.

[Operator:]

(Operator Instructions) Your next question comes from the line of from the line of Steve Ashley with Robert W. Baird. Your line is open.

[Steve Ashley:]

Thanks very much. Just like to go back to the XenDesktop business and wonder if shipping XenApp 7, 6 late in the quarter caused the market freeze and had an impact if you had any thought on that?

[Mark Templeton:]

Steve I think shipping a product late in the quarter is a general phenomenon that has that effect even though the more strategic customers will be in the early access program and any – maybe even the white glove program with us. And I think the main thing is that the addition of migration tools is the thing that will make the big difference here. And by the way we will be following the migration tool release with some other interesting things in Q1 that will move from migration to automation. And that will have an effect on customers in terms of making it really easy and simple to move. And we think that in conjunction with a general desire for customers to move to Windows Server 2012 to get some of the benefits that 2012 has as well as the things that we are continuing to put in we will have another point release coming on XenApp that will be – those will be catalysts for customers begin to plan and to move in the first half of the year. So, yes that’s the color I will give you around 7.6 and the timing of the release.

[Steve Ashley:]

Great. And then David I wonder if you could give us any maybe subjective color on fourth quarter guidance and the assumptions around kind of the NetScaler .com business and the XenApp and XenDesktop business what your thinking is kind of around those areas related to fourth quarter guidance? Thanks.

[David Henshall:]

Yes. Steve not really, I mean I would rather not get into granular by product guidance. I would say that just doing the math that points the year-on-year growth rates pretty similar to what we saw in Q3. Without being explicit about the individual components the big over writing element right now is just understanding the fundamental growth rates within app and desktop, everything else is a little bit secondary from that point of view. So that’s the way I would frame it.

[Steve Ashley:]

Thank you.

[Operator:]

Your next question comes from the line of Daniel Ives with FBR Capital Markets. Your line is open.

[Jim Warren:]

Great. Thanks. This is Jim Warren for Dan Ives. Can you guys just talk a little bit about the competitive environment in the desktop business specifically and maybe what kind of changes you see in there versus same time last year. And then also you can just address linearity in the quarter as well?

[David Henshall:]

Sure as far as competition, I would say that all the markets we participate in continue to be highly competitive whether we are talking about delivery networking, mobility or virtual apps and desktops. As far as the overall competitive environment change it hasn’t change much in the last couple of years. As far as standalone vendors it’s largely Citrix and VMware are the two primary players in that space and then there is other platform related technologies that will pick up simple use cases. When we look at individual win loss and I mentioned this just briefly earlier the stuff that we track like the larger transactions and we will go down 50 to 100 deep in the opportunity pipe. That hasn’t changed at all. We are still largely winning all of those at the large strategic end. The newer business around CSPs and I am not sure we have great visibility into that because it’s really a market expansion for us. These are customers we wouldn’t have sold to in the past. Generally it’s SMB or small – other small businesses looking to just consume IT infrastructure. I think the place that’s highly competitive is really that middle part project specific where competition may engage us as a direct extension of an existing data center transaction which we might not even see. So therefore, we wouldn’t track it as a loss, but overall, I wouldn’t say it’s changed much. Every large transaction and large meeting, let’s say, over 500 seats will be a competitive bake-off under pretty much all circumstances and it has been for the past couple of years.

[Mark Templeton:]

And the thing that I would add, Jim, is sort of the other side of the coin what we are doing about the competitive environment, because while our products are in their seventh generation and we are competing with first generation alternative products, we are taking that very seriously and applying everything we have come to know about app delivery in general, whether it’s Windows app delivery, web app delivery, or mobile app delivery. And we are focused heavily on invention and innovation in a few dimensions that actually make a difference in the competitive environment when it’s all said and done. The first is on experience and that’s where customers always begin is does it feel natural, native, local, is it high-performance and we have gotten to the point where we can actually deliver a professional experience for graphics intensive apps like Photoshop, Autodesk products, (indiscernible) products, etcetera and all of that actually accretes to all the other types of apps that people use. I mean, the most graphical app that I use day-to-day is PowerPoint and lot of people use PowerPoint. So, experience is the first. Second is peripherals to actually serve segments like healthcare, airlines, banking, etcetera, you have to have deep peripheral support. So, it’s not just about printers or some small piece, it’s about broad peripheral support. And as I mentioned in my comments, XenApp 6 has USB 3 peripheral support, which speeds scanning of documents, scanning of tickets at an airline counter, etcetera. The third area is compatibility and that takes relationships and deep knowledge of how sophisticated apps are configured and that’s a big place that we invest, especially on the alliance side. The fourth area I point out is scale. I mean, we test XenApp and XenDesktop at massive scale. Our largest customer today runs 250,000 concurrent users across two datacenters and the second largest is in the 150,000 concurrent user range. So, we are running at scale and understand the dynamics of scale. And then the last piece that’s critically important is the device heterogeneity piece. I’d say more than ever, CIOs, IT organizations, they can’t bet on the kind of device that they are going to need to provide an application service to. And we, through our very mature HDX and Citrix Receiver technologies, can support over 3 billion in theoretical devices on the planet, every smartphone, tablet, laptop, desktop, thin client that you can imagine, including some of the really interesting devices that we are seeing for conference rooms, the television in your home, etcetera. And all these matter when you are looking at competing and this is where we are investing heavily, innovating and where so that we can drive the profitable growth segments, which David outlined, the first set of seconds, our security, device and legacy app driven, but the second would be more application-specific segments that have security, legaciness and want to move to a cloud delivery model and then the third segment is actually service providers better serving geographic have geographic specialty, if you will or verticals specialty. And I think that is underestimated and underappreciated, especially in a world where data sovereignty actually matters and we are very likely to see computer sovereignty emerge as well which will actually favor more localized service providers. And one of the reasons we are investing in not only Tier 1 like most companies are doing, but Tier 2 and Tier 3 that are servicing more narrow geographies and segments. I know it’s a long answer, but it is the essence of how we are taking the game to the competition, leveraging our competencies, technology base and understanding of app delivery that is what the company has grown up on for – from the five years?

[Jim Warren:]

That’s great. Thanks for the color.

[Operator:]

Your next question comes from the line of Mark Moerdler with Sanford Bernstein. Your line is open.

[Mark Moerdler:]

Thank you very much. So, given that the growth in ShareFile was really nice at 50% year-over-year overall, but SaaS was much lower than that, where are the SaaS products that are growing so slowly, which ones are the ones where the issues are and what can we do to…?

[David Henshall:]

Yes. Mark, its David, I mean consistent with what we have talked about last few quarters I mean the way to think about that business is kind of in three big pieces. Collaboration apps, those are growing in the low teens, the ShareFile and the data platform growing north of 60. And then the place that’s been decelerator actually declining is remote access. The primary productivity there the people remember is GoToMyPC and it’s just secular decline of the overall market, the use cases have changed. And so the remote access part of the business continues to decline in the high-single digits year-on-year now represents right around 15% of the total mix and declining. So that’s really the three big pieces there.

[Mark Templeton:]

Mark, what I would add is that in a product like GoToMyPC that is handling well over 1 billion devices even today. We are actually leveraging that technology platform in some new ways to extend the life of the investment and give the customers a more mobile type of experience. So last quarter we released a product called ShareConnect that basically allows you to remotely connect to enroll your laptop or desktop and into the ShareConnect service, it uses GoToMyPC infrastructure for brokering the connection and for the speed of the experience, etcetera and then it slates on your tablet, it shows you your recent files, it gives the access to them allows you to edit them locally or edit them back on your PC, which then will launch an app. So there is the notion of application publishing that’s built into it. And then if you then want the full desktop, you can go there. So the notion here is that while GoToMyPC as a product is declining, the platform underlying technology around screen sharing, connection management and the deeper capabilities that are there are being used for new products that are related to ShareFile. And then there is that technology is also an app that’s in the Worx family called Worx Desktop. And it again if you buy XenMobile enterprise you get Worx Desktop and it allows every single laptop and desktop in the enterprise to be a virtual desktop.

[Mark Moerdler:]

Okay. Thank you.

[Operator:]

Your next question comes from the line of Ed Maguire with CLSA. Your line is open.

[Ed Maguire:]

Hi, good afternoon. I was wondering just looking back at how the business has historically been on the desktop business has been tied to Windows Server and Windows Client product cycles, how have you seen this business really decouple from the cycles around Windows, has the I guess what we will call less than exceptional adoption of Windows 8 at the corporate level does that have any impact on your desktop business and looking forward do you think that a Windows 10 release may change the conversations that you are having right now?

[Mark Templeton:]

Ed, I think it’s a great observation. I think it’s gotten much harder to tell, because Windows is now a cloud service across operating system and apps as well as an on-premise back-end service for cloud-based datacenters, and basically a mobile operating system more and more. So, the way – so on the back-end, we still see migration and customer uptake very much related to where they are going with Windows server. And with greater adoption of Windows server, XenApp and XenDesktop, they perform better, log on times are better, there are lot of improvements in the experience, because we take advantage of enhancements in Windows server. So, I would say there like always we are linked to that part of that migration process for customers. On the other end, on the client end, I would say it’s harder to tell there in that. Today, it’s even harder to buy a Windows 7 laptop. So, what does enterprise do if they don’t want to move to Windows 7, Windows 8 yet? So, I think we are – the way we are looking at it is that in fact Windows clients are an important, but a piece of the mix at the endpoint. And if anything, it shows that IT organizations that they have to design delivery services for apps independent of the endpoints whether they are running Windows 8, 8.1, Windows 10, Mac, Apple products, OS’s, Google, etcetera. And I think that helps us, but I don’t think it changes the fact that Windows apps themselves in the classic sense are in the long tail kind of cycle. And we are investing where the long tail opportunity happens to be and that’s where there are app-specific market segments around engineering, visualization, design, etcetera as well as big segments like healthcare, for example, that have a tremendous number of apps, including their electronic medical record apps that are very highly compute intensive and they are built on more legacy types of infrastructure and we are – we will see that long tail play out for quite sometime.

[Ed Maguire:]

Alright, thank you.

[Operator:]

Your next question comes from the line of Kash Rangan with Merrill Lynch. Your line is open.

[Kash Rangan:]

First one for you Dave, you gave us guidance for Q4, it looks to be in the 5%ish percent range. So, I know that you don’t – you will not give guidance for calendar ‘15 yet, but would it be right to think of your calendar ‘15 rough growth rate as not being terribly different from your Q4 growth rate or there are any other considerations in? A couple for you, Mark if I could, thanks for taking the time. What benefits do you primarily see as a result of the restructuring and reorganization? Are you solving for revenue? Are you solving for operating profits in the near-term? And also listening to you talk, it sounds like you see a lot of synergies between your businesses that it felt like maybe it’s a bit of a reach here, but it feels like you have done these strategic reviews and concluded that the portfolio needs to stay together, but what would be wrong with that assessment? Thank you.

[David Henshall:]

Yes, Kash. Let me take the first part of the question. As far as Q4 yes, they – our guidance would point to roughly 6% total revenue growth year-on-year similar to what we saw in Q3. So, I mean, we have decelerated throughout the year. We have had 10% growth in the first half, 6% or so in the second half. And so the primary reason why we haven’t given 2015 guidance yet, we are looking through the individual product families, the portfolio and understanding specifically app and desktop that’s really the big driver. And then how quickly the – either emerging businesses can impact overall growth rate or the specific actions we are taking around the more mature businesses. And so those are the big moving parts at this point in time. I am not prepared to give specific guidance about ‘15. I mean we have decided we are not going to do that yet. So if you are extending what you saw in the second half that’s – it’s really your call at this point.

[Mark Templeton:]

Kash, I will take your second question. And so in terms of restructuring I would say the things that talked about around restructuring in terms of consolidations, centralization, some de-layering are about both cost and about efficiency in terms of better execution and handoffs between teams. And both of those things I think then align to strategy to drive in the growth segments that we are in that we have outlined on the call today. And so I think Heather asked the questions in different way, but I would just reassert that we are actually narrowing and streamlining on the portfolio where we are investing. And that’s a constant process and we are doing it probably more aggressively than ever right now. And then in terms of the portfolio, if you look at what bets we are making and look at the dependencies then across, it’s pretty clear as to the strategic parts of the portfolio for sure. So, for example, XenMobile has a huge dependency on our mobile apps, okay as well as our delivery networking. And I mean it’s an end-to-end kind of a solution and that’s why – it’s why we are winning. And I think it’s why we will be able to lead this market and why this – what we like to call workspace services business will return to good growth as Windows becomes a smaller piece of and acknowledged as a piece of a workspace services offering as opposed to an offering, a lead offering and by itself. The second area you had seen I think for sometime that we get great differentiation and growth in our networking business as an attach sale to XenApp and XenDesktop. So without XenApp and XenDesktop we would get the attach sale. And on the other hand the attach sale gives us differentiation and advantage, competitive advantage when we are in the market competing especially for more strategic types of deals. And so – and the latest element that’s like that is ShareFile. So we are winning XenApp and XenDesktop deals that are more on the strategic in healthcare and public sector and financial services. Because of ShareFile and the DataFabric and what we have done to integrate with XenApp and XenDesktop you will see a lot more of that in 2015. So, really I think the portfolio actually is at the beginning part of its positive impact in allowing us to win in the various segments that we are playing. So that’s the way I think about the portfolio. And then within that envelope we are constantly making the streamlining adjustments to how much we are spending on a relative basis on any given component. And yes, there will be some end-of-life processes that we will have cost savings impact or we will have investment shift impact means the investments we are making in XenMobile, we have made some significant shifts from other areas of the business into XenMobile to accelerate our velocity there. So that’s how I address the portfolio question you are asking.

[Kash Rangan:]

Thank you very much.

[Operator:]

Your next question comes from the line of Karl Keirstead with Deutsche Bank. Your line is open.

[Karl Keirstead:]

Yes, a question for David on the operating cash flow, it’s just one quarter I realize, but it looks it was down fairly substantially year-over-year. Could you offer a little bit of color on that? And if there was any factors that you would encourage us to keep in mind as we model cash flow in 4Q and 2015? Thanks.

[David Henshall:]

Now, there wasn’t anything that really stands out beyond just the normal items. I would say that in Q3, it’s more of a reflection on the overall demand environment and where we closed bookings really more than anything else. Underneath the balance sheet, for example, DSOs are down. The structure of accounts receivable looks clean. So, I mean, it’s largely just a reflection of the current business.

[Karl Keirstead:]

Okay, got it. Thank you.

[David Henshall:]

Yes. I certainly expect that to depict back up again in Q4.

[Operator:]

Your next question comes from the line of Keith Weiss with Morgan Stanley. Your line is open.

[Keith Weiss:]

Excellent. Thank you guys for taking my question. I just want to dig into the margin commentary about the 100 basis points target for next year. And I know you said it, it is kind of planning target, but I am just interested in sort of understanding without a firm sense of kind of the revenue run rate, what are some of the levers that you guys have identified or are there levers you guys have identified or just what are some of the tools that you are going to use to sort of hit that 100 basis point target with an uncertainty around what the revenue rate is?

[Mark Templeton:]

Yes. So, let me put a little context around that and see if it answers your question. So, I mean, what I said earlier is that the team is looking at this as a part of a long-term objective. We have stated that we believe our operating margins for a company this size should be in the 25% to 30% range roughly. And we are operating below that right now for a number of reasons. Some of which are the investments required to build up new businesses, some of those are underperformance in other areas, and some of those are just scale, things that have happened over time. And so as we as a team look at this I would say some of the specifics that we are attacking right now and into next year could include everything from delayering certain organizations, driving a more rapid centralization of products, sub-functions, processes, consolidation in some areas, real estate, for example, where you have already brought down a couple of larger sites and we are looking to increase density elsewhere. I mean, things that are way outside the boundary of just cost-cutting, because those are – cost-cutting is temporary in nature and we are looking to drive things that are structural, that will lend to a multi-year margin expansion. That’s really the big thing. And all of those different elements can be applied at a functional level, at a product level, at a geo level. And so that’s probably the best way to describe how we are thinking about it. And within that, there is a big shift in reallocation of resource going on to make sure that we are aligned back against what we see as the most strategic or largest growth opportunities over the next couple of years. And so throughout this process, it’s simplification and prioritization, is a big theme and with that will come efficiencies, but the team feels very committed to doing this. And so that’s why we call it out as a specific planning objective even without talking about revenue levels.

[Keith Weiss:]

Got it. And if I could have one follow-up in terms of I mean simplification and prioritization as sort of the hallmarks on the strategy going forward, how should we think about M&A? I think we were a little surprised to see sort of M&A take place already this summer in lieu of the simplification. How does M&A factor into a simplification program?

[David Henshall:]

Well, I mean, like all companies you are going to continue to do M&A. I mean, most of our M&A has been very, very small in nature. I mean, we have announced a couple of things for various reasons and the largest transaction is still some $50 million of capital. So, that’s probably the way to think about it. In some cases, it’s about core innovation, a simple time to market, doing things we don’t have the capabilities or teams to do internally, other cases it’s about extending an existing product. So, you think about the e-signature business with ShareFile right now. I mean, that’s an extension of the core. It’s either another feeder to the destination of data sharing platform or just driving further differentiation of those capabilities, so that will drive incremental revenue over time. But we really haven’t done anything of scale in quite some time and that is largely because we continue to focus, continue to optimize. But within that a number of small tactical acquisitions are necessary. And so I mean those should be the way to think about going forward as well.

[Keith Weiss:]

Excellent, that’s great. Thank you, guys.

[Operator:]

Your next question comes from the line of Abhey Lamba with Mizuho. Your line is open.

[Abhey Lamba:]

Yes. Thanks. David you mentioned about the networking slowdown in Web 2.0 customers, was that specific to just one or two clients or a little more broad based and also were there any design changes on your end or is it just that they did not expand this quarter and they are still using NetScaler and they would come back down the road?

[David Henshall:]

Yes. In terms of the 2.0 as we all know it’s really concentrated handful of big, big cloud service providers. And so they tend to go through ebb and flow just big build outs and then small maintenance purchases for a few quarters after that. So you roll back and look at the results over the last 8 to 10 quarters and there were periods where we are going north of 50% year-on-year, because two or three of them were buying large amounts of infrastructure at the same time. And then we will decelerate down to mid-teens let’s say and that’s just a reflection of the maintenance purchases. So, I think the important metric in the way to think about the business is that the broader base enterprise where it’s much more sustainable, much more visible that actually increased north of 20% last quarter. And so that’s the base of the business that we are continuing to build out, that’s a reflection of like investments we have made in coverage. That’s really just a coverage conversation because there are places where we just don’t have enough capacity to actually reach and engage customers. So we have talked about maybe 6, 7 quarters ago about investing in EMEA. And we did that. We brought on a number of very specific resources to go and drive that opportunity and that business just in EMEA alone and that’s again we are something north of 30% year-on-year in Q3. So that’s one example. I do think we have got capacity to add coverage and in many other places. And we will do it as appropriate and where possible. I mean these are also pretty scarce resources, they are being chased by a lot of people and so it’s not as simple as just saying you are going to add dozens of them in one quarter for example. You have to be a bit more thoughtful. So that’s kind of the overall dynamics within the NetScaler business. And then when these large cloud service providers pop you will see a pop in that quarter for some incremental large chunk of revenue.

[Abhey Lamba:]

Got it. And I know you are not giving 2015 revenue outlook, but you did say that a lot of it would depend on how application and desktop business is going to do, can you give us some puts and takes on how should we think about drivers of that business next year, you clearly have a new XenApp product line, but what are the kind of tailwinds and headwinds that we should be thinking of as we project in that business?

[Mark Templeton:]

Yes. The reason why I called it out obviously is that, it’s the largest part of the overall business and B it’s been a decline for a year now. And so it’s an oversimplification to talk about in those three segments that I did earlier, but it’s an easy way to have the conversation. So on the CSP business that is a – that’s really about expanding the TAM, that is really targeting small medium business people that are wanting to consume as a service, that is still relatively small. It’s less than 10% of the overall mix, but it’s growing quite rapidly. And of course you will see incremental investment in those areas. And that becomes a nice bridge to workspace services cloud as well as and infrastructure that we will be delivering as an organization over the next 24 months. The higher end business and again that’s just a way to characterize the big, complex, strategic infrastructure. That is one that’s been your flat plus or minus 5% any quarter. And that’s just – that business is relatively steady state but more penetrated than others. And then that middle project base is largely about just making sure that we are focused on those use cases that are driving the long tail places where security is paramount, places where delivering graphic intense applications creates differentiated value, mobile specific capability so that you can help customers really take a – think about as a Windows app and mobilize it if you will for consumption across devices. I mean, these are examples of used cases, even down to Chromebooks and things like that that we have talked about in the last couple of quarters. So, I think the market is becoming a bit more verticalized over time against this backdrop. And until we see greater traction across these areas, it’s what you are hearing in our hesitation.

[Abhey Lamba:]

Thank you.

[Mark Templeton:]

So, that’s kind of the puts and takes there. We are continuing to innovate rapidly. As I mentioned earlier, we are on our second big release of the year, more technologies coming out and those will be addressing largely that middle project-based segment as well as CSPs.

[Operator:]

Your next question comes from the line of Richard Williams with Summit Research. Your line is open.

[Richard Williams:]

Hi, thanks for taking my question. Just wondering if you could talk a bit about seasonal impacts just of each product line going into the fourth quarter? And also if you have seen any significant changes over the last quarter or two in terms of sales cycles as it relates to the three businesses? Thank you.

[Mark Templeton:]

Let’s see. I’d say for mobile apps, not a lot of seasonality really. That tends to be high volume of transactions, fairly low – fairly low dollar size. In terms of the networking business, you just – well really all enterprise-based businesses. You do tend to have a forcing function in Q4. It’s always the largest quarter of the year and that’s just the way people are conditioned to purchase as well as the way that comp plans and everything else works. So, things do get stacked up into a Q4 just naturally. We talked about earlier the cloud-based business or the .coms, that is a bit mixed I’d say from a Q4 point of view. It used to be Q3 was a larger quarter back when it was tied to the holiday shopping season, but it’s just not the case anymore. It’s much more tied to large releases of individual cloud services, devices, things like that. They do tend to lock down their infrastructure as you go into the back end of the year. So, those transactions will happen usually in the – and I’d say the first half of the quarter, but not much beyond that. Mobility, because it’s brand new, there is not a lot of patterns there yet, but again, Q4 will likely be the largest quarter of the year for the traditional enterprise reasons that we talked about before.

[Richard Williams:]

Okay, thanks very much.

[Operator:]

Your next question comes from the line of Matt Hedberg with RBC Capital Markets. Your line is open.

[Matt Hedberg:]

Hey, guys. This is actually Matt Swanson on for Matt Hedberg. Thanks for taking my questions. I just have a couple of questions about some of the macro environments and relative to the Q3 guidance, remember, you are talking about it being a seasonally softer quarter in Europe. It sounds like maybe it was a little bit better than you are expecting and then the other would be just anymore color on the federal vertical, which sounds like it was good in the U.S.?

[David Henshall:]

Yes, Matt. Federal was strong. Federal, we had a good quarter. There was good demand. It was nice to have an end of their fiscal year, which wasn’t covered with a cloud of spending and shutdowns and things like that. So, it was I’d call it a fairly traditional quarter in fed. We did well there posting north of 20% growth year-on-year. As far as Europe, I think we are – you are seeing good execution from our teams in a mixed environment, clearly the political situation in Eastern Europe. And some of the impact is probably causing people to be more cautious on the timing. That one is hard to measure with a lot of granularity, but you kind of feel that overall tone. They have the bigger issues from a macro point of view at least from a Citrix perspective have been around Asian and Japan, the markets that we called out China in particular, Japan as a market for us. Those are the ones that I would say were more challenging from a macro point of view.

[Matt Hedberg:]

And then if I could just have one follow-up, we have heard a couple of stories about federal deals getting pushed just weight wise between Q3 and Q4, how do you view that pipeline I guess?

[David Henshall:]

Yes. I mean, federal usually has Q3 as the big quarter of the year. I did hear about things getting to stock and not being able to get through the fed funnel, but I believe fed’s funded through like fiscal year ‘17 now or something before we have the next major shutdown. So, I feel like they will be relatively normal, but I wouldn’t expect Q4 to be as large as Q3 it just never is for our business in the Fed specific areas.

[Operator:]

Your next question comes from the line of Michael Turits with Raymond James. Your line is now open.

[Michael Turits:]

Hey. David I may have missed but did you said at this point about what percentage of the networking space Web 2.0 makes up at this point, it used to be pretty big but where is it now?

[David Henshall:]

Yes, I didn’t call it out specifically. It was about 29% I believe in the quarter. I would have to go back and double check that. I will check that before we get off this call.

[Michael Turits:]

Okay. And then on the desktop side you talked about weakness and really lack of visibility next year as a toggle or a driver, but for the – you hit sort of street numbers and it was up 3% wasn’t that better I think commented that the implication was that bookings were weaker than reflected in net revenue number. Can you quantify that at all?

[David Henshall:]

No, I would say it’s pretty direct I mean in terms of overall bookings environment, mostly what I am picking up is just the overall impact of weakness on desktop and app virtualization, the related maintenance and in many cases multiyear maintenance that comes with large transactions, etcetera.

[Michael Turits:]

Alright. In other words, if revs were up 3% was – were bookings down in the desktop and mobile business?

[David Henshall:]

Yes. Bookings were down in desktop and mobile business.

[Michael Turits:]

Great. Thanks guys.

[David Henshall:]

And to answer your first question the .com customers were just over 30% of the mix in the quarter.

[Michael Turits:]

Okay. Thank you very much.

[Operator:]

(Operator Instructions) You next question comes from the line of Pat Walravens with JMP. Your line is open.

[Pat Walravens:]

Great. Thank you. I thought your comments about sovereignty and computer sovereignty were intriguing, can you expand on those and how those requirements might impact your business?

[Mark Templeton:]

Well, data sovereignty already has plenty of momentum around the world, I would say led by legislation, regulation in Germany and then many EU countries following suit at some level. Canada has joined that and then obviously there are some nations like China that are all about data sovereignty by default. So we expect to see more of that especially as you see breaches and governments then get the moral authority to find data – make data sovereignty a lot and it’s also good for their economy because it keeps data centers within a given region or a given country. I think the same phenomenon is likely to play out on the computer and the spectrum in that as you see the tax that actually attacked the compute layer especially as we have in memory databases and these types of technologies that actually use the CPU and GPU more in the infrastructure. Again an attack, a breach, etcetera plus the economics that are implied by build out of hyper clouds in various countries are likely to come under I think more likely to come under government jurisdiction. And under the umbrella of security, privacy kind of those things, but there is an economics, jobs, etcetera because these are pretty clean industries if you think about it. And they don’t employ tons of people, but they definitely add to the economy and so forth. So that’s basically my personal perspective. And so what we are – how that relates to our business is first of all data sovereignty is real and our ShareFile product line actually addresses this very directly with very cutting-edge and differentiating feature called ShareFile storage zones. So, it allows you to have all of the data collaboration, mobility, etcetera, but a storage zone can actually define exactly where the data is stored, including in a private cloud on NetApp server if you want it to be or in your choice a public cloud. Data sovereignty also helps our XenApp and XenDesktop business, because if you think about it, what this type of product does is it puts the compute, where the data is and that’s how you get high-performance. And so to the degree that data sovereignty is defined as the location of the database, then putting the compute next to the data helps our XenApp and XenDesktop business. So, hopefully that’s a little bit of color around what I was referring to earlier.

[Pat Walravens:]

Got it. That’s very helpful. Thank you.

[Operator:]

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

[Mark Templeton:]

I just like to reiterate my thanks and welcome for joining the call today. And I know we had an extended Q&A period, but we are certainly here to answer your questions and give you the insights into the business. And as we make the turn here, toward a world that’s more mobile, more collaborative and feeds I think many of the strategies that we have had in place for quite some time. So, with that, I will adjourn the call and we will see you in three months. Thank you very much.

[Operator:]

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