Citrix Revenue Climbs on Licenses, Channel Growth

Platinum licenses are driving increased ASPs in average deal size for new customers in this business. David Henshall, senior vice president and CFO, said that in the first quarter ended March 31, there were three XenApp Platinum deals greater than $1 million and customers are also renewing subscription advanced contracts for XenApp at consistent levels.

In fact, the Fort Lauderdale, Fla.-based company is so optimistic about the continuing success of XenApp Platinum, that looking forward it believes that it could contribute upwards of a third of all new application virtualization license revenue for the full year.

Product license revenue increased 20 percent from $122 million in the same period a year ago to $147 million. Revenue from license updates grew 19 percent from $134 million to $113 million and online services contributed $62 million of revenue, representing an increase of 31 percent from $47 million. Technical services revenue, comprised of consulting, education and technical support, grew 31 percent; $34.2 million up from $26 million.

Total net revenue for the quarter was $377 million, up from $308.1 million in the same period a year ago. Net income for the quarter however fell from $34 million, or $0.18 per diluted share, compared to $38 million, or $0.20 per diluted share for the first quarter of 2007.

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Citrix's president and CEO Mark Templeton said that the company's partnership program is growing and had several key wins in the quarter: the company added 800 partners in the first quarter, bringing the total number to 2,400. Citrix also exceeded it certification goals, he said, for both sales and technical specialist with an addition 1,200 people.

Templeton also said that Citrix's early partners are becoming more active, and that 60 partners closed deals in both the fourth quarter 2007, and first quarter 2008.

"There is being a lot of focus on training along with creating an opportunity pipeline, which is looking good. So, I'm pleased with all the channel metrics that I see to this point," he said.

"Our partners added over 400 XenServer customers during the first quarter, 75 percent were first implementation involving one or two servers really planting seeds for the future. The rest were with customers implementing between 3-to-100 servers, the very early signs of committed implementation and our ability to win in various customer sizes. One of our North American partners won a 100-server deal with the well known dotcom customer in Q1. We also won a 50 server deal with an internet service provider, who was running out of datacenter power and space."

Other highlights that helped fuel revenue growth in the quarter include an expanded alliance with Microsoft to deliver desktop virtualization solutions and develop interoperability between Citrix XenServer and both Windows Server 2008 and Microsoft System Center.

In addition, the company cited a development and distribution agreement with Hewlett-Packard as a win. The partnership calls for the companies to integrate an enhanced version of Citrix XenServer into 64-bit HP ProLiant servers called Citrix XenServer HP Select Edition contributed to the rise in revenues.

Additional key drivers of revenue growth include a strategic partnership with NetApp to deliver a complete server virtualization solution that can leverage NetApp storage solutions called Citrix XenServer Adapter for NetApp Data ONTAP. An OEM agreement for Lenovo to certify, support and sell Citrix XenServer products with their hardware also contributed to growth as well as the release of Citrix XenServer 4.1.

The company also touted the release of Citrix Delivery Center, a new product family brand featuring four primary product lines: Citrix XenServer, Citrix XenDesktop, Citrix NetScaler and Citrix XenApp, the new name for Citrix Presentation Server.

Templeton acknowledged that the company has felt pressure in U.S. market.

"We've seen scintillating capital spending decisions due to macro concerns," he said. "They are clearly squeezing IT budgets. In odd way, tighter IT spending makes our value propositions more visible, more relevant, and even more compelling, allowing us to help customers rethink their strategies for lowering IT costs, enabling a virtual workforce, reducing travel, increasing employee productivity, and getting operationally green."

The company has plans to focus on five areas to spur growth in 2008, Templeton said.

- Strengthening the company's position in app virtualization by re-launching Presentation Server as the XenApp products family, driving aggressive Platinum edition revenue mix, and leveraging the new Windows Server 2008 platform.

- Increasing the company's share in enterprise WebApp delivery by improving the capabilities of NetScaler Platinum edition and releasing a next generation platform that Templeton said that "really pushes the envelope on scalability and extensibility."

- Building on the scale of investment Citrix has made in its online virtualization platform to further penetrate the SMB market and provide new products, globalize into new geographic markets, and to further simplify our customer experience.

- Building velocity and the company's go-to-market capacity in both desktop and server virtualization, by ramping up its channel and OEM programs throughout 2008, and by leveraging the Microsoft partnership, and introducing XenServer and XenDesktop to its partner network.

- Capturing all of its product lines in one family.

Looking forward, Citrix forecasted second quarter total revenue in the range of $380 million to $390 million, up from $334 million in the second quarter of 2007. Online services are expected to be approximately $65 million. For the full fiscal year, 2008 total revenue guidance is forecasted to be in the$1.60 billion to $1.645 billion range.

Some Wall Street analysts seemed cautiously optimistic about Citrix's future.

"We felt Citrix gave a more cautious tone as they saw a softening in demand for networking products and tighter spending among U.S. smaller businesses," said MKM Partners LLC analyst Kevin Shea.

"We acknowledge that there is significant upfront investment to get the server and desktop virtualization business off the ground," he said. "Nonetheless, we think it is a reasonable bet for Citrix, as the server virtualization market is growing very rapidly and is the company's principal growth driver in the medium-to-long run. Market leader VMWare just reported strong results, further validating the stability and growth of this market. As we look ahead into fiscal year 2009, we think the desktop virtualization market will begin to emerge, which should favor Citrix/Xen and its well-established reseller channel."