Good morning, and welcome to the Citrix Q1 2021 conference call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Miss Traci Tsuchiguchi, Vice President of Investor Relations. Thank you, Rayo. Great. Thank you, Rayo. Good morning, and thank you for joining us today for today's first quarter 2021 earnings call. Participating on the call will be David Henshall, President and Chief Executive Officer, and Arlen Shenkman, Executive Vice President and Chief Financial Officer. Please note that we have posted our first quarter earnings letter to our investor relations website. I'd like to remind you that today's conversation will contain forward-looking statements made under the safe harbor provision of the U.S. securities law. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from those anticipated. Additional information concerning these and other factors is highlighted in today's earnings letter and in the company's filings with the SEC. Copies are available from the SEC or on our investor relations website. On this call, we will discuss various non-GAAP financial measures as defined by SEC's Regulation G. The reconciliation of the differences between GAAP and non-GAAP financial measures discussed on today's call can be found at the end of our earnings letter, found on the investor relations page of our website. Now I'd like to turn the call over to David, our President and Chief Executive Officer. David? Thanks, Traci. Good morning, everybody, welcome. Thanks for joining us today. Hey, I'm pleased with the momentum in the business, especially around our cloud adoption and the migration of our installed base. Our transition to the cloud is progressing well, we expect our first quarter results to mark the trough in terms of the impact on the business model, the income statement. Beginning the second quarter, then continuing throughout the year, we expect to see top-line acceleration on our income statement metrics as these headwinds that we've been dealing with on the model transition turn and become a tailwind. To provide insights into the transitioning business model, we've been reporting ARR metrics for subscription and SaaS. Beginning today, we're also disclosing total ARR, which includes perpetual license maintenance contracts. In Q1, the organic performance of these metrics, excluding any contribution from the Wrike acquisition, showed continuing strength. In fact, SaaS ARR accelerated to 43% year-on-year growth, and total ARR was up 15% from last year. Overall, the fundamentals in Q1 were actually quite strong. I'd like to note that this quarter really included three unique items that impacted recognized revenue, and I want to cover those briefly here in detail before we open up the call for Q&A. The first is the Wrike acquisition, which closed at the end of February. Second item is we experienced supply chain constraints in our hardware business impacting over $10 million worth of product. We expect these issues may persist for several quarters, so we're adjusting our full-year expectations accordingly. The third issue was the duration of on-premise term-based subscriptions, really influenced by the limited use licenses we sold to customers at the beginning of the COVID pandemic. As a reminder, in Q1 2020, it benefited by $47 million related to this license type. Far, we've either converted to cloud subscriptions or issued new term-based licenses for about $50 million of total bookings value against this group. We have ongoing conversations with many more about Citrix Cloud migration. The limited use business continuity licenses really generally fell into three categories. First one, project-specific use cases, like a U.S. government agency that planned on building field hospitals to treat COVID patients. Obviously, those licenses would have no use beyond the project term. Second group would be companies that are adopting a hybrid work style post-pandemic. Many of these customers are either evaluating or they're already beginning to migrate these licenses and their overall Citrix infrastructure to Citrix Cloud. The third group are employers that are supporting temporary work from home, and they're really still assessing their long-term work and their real estate plans. The customers in this third cohort tended to opt for shorter duration on-prem term contracts versus multi-year subscriptions in Q1. Let me just give you a little context here. We estimate that recognized revenue in the quarter would be about $25 million higher if it wasn't for the shorter on-prem term license duration. In hindsight, of course, these dynamics are really not surprising, but they are different than what our guidance had called for. In the aggregate, business continuity licenses expand our installed base, and of course, our subsequent opportunity for these to move to the cloud over time through migration. Going forward, we continue to encourage investors to focus on annualized recognized revenue, of course, which we believe provides the most accurate measure of the underlying business performance. Operator, with that, let's go ahead and open up the call for questions now. Thank you. We will now begin the question- and- answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question is from the line of Raimo Lenschow from Barclays. Please go ahead. Hey, thanks for taking my question. David, let's double-click a little bit more on the limited licenses and the renewals there. In terms of what were you able to do in terms of convincing clients to go one way or the other, and how did that play out then in reality? The follow-on is then a little bit is, if you think about on the networking side, you talked about the component shortage. How will that play through for the rest of the year? Thank you. Sure, Raimo. Let me start with networking and work backwards. There's definitely some component shortages, and I think supply chain constraints shouldn't be a surprise to anyone. It impacted our ability to ship over $10 million worth of revenue in the quarter. There's two things going on there. When you read through our earnings letter, you'll see that the networking business actually is very heavily weighted towards subscription. In fact, 89% of bookings in Q1 were subscription. Underlying that is an increasing run rate of hardware appliances to support these pooled capacity licenses. While we don't disclose it externally, the ARR of that business has been accelerating over the last several quarters. With that, you see a little pressure on COGS, given the increasing component prices, but also in the unique item in this quarter. The boxes out of Q1 will ship in Q2, but we're assuming that this is going to be a sliding problem. There could be some issue moving out of Q2 into Q3, et cetera. We just adjusted our full-year to account for that. We don't think the issue is more broad than that. The fortunate thing is that it is a reflection of just the underlying strength in our overall app delivery and security business. Second question, actually your first question regarding the limited use licenses. As I said just a minute ago in my remarks, reminding everybody, we had about $47 million of impact a year ago. We had put in place programs to really help customers through business continuity in a time of need. That was for all kinds of different use cases like I highlighted there. The focus over the last quarter or two has been on getting those customers to think about longer-term subscriptions, mostly Citrix Cloud. Those companies that have already adopted go-forward plans around hybrid work, around real estate, and around whatnot, those are the ones that have been successfully migrated towards Citrix Cloud or are part of an ongoing conversation right now. The third group were the ones that are really still thinking about this in the context of business continuity. Our underlying assumption had been that we'd be able to convert those to much longer-term subscriptions. In reality, what came back was one year in general, one-year term, because they're business continuity. We're going to approach those going forward as just opportunities to help the customer think through their long-term plans and ultimately migrate those to Citrix Cloud. Okay, perfect. Thank you. As I said a minute ago, Raimo, last point, as I said a minute ago, is that in the aggregate, we've booked about $50 million worth of commitments against this overall pool. Okay. Makes sense. Thank you. Thank you. The next question is from the line of Brent Thill from Jefferies. Please go ahead. Good morning, David. I think there are a lot of questions around the expected duration shrinking, and it's kind of counterintuitive to what you did in helping companies during the pandemic that they would come back and actually be shorter versus longer. Can you just explain a little more what you think is going on there? Well, it's three things, Brent. A similar answer to Raimo's question. Those customers that have already adopted longer-term use cases, like those that are adopting a hybrid work model, those contracts are longer in nature. If you look at the duration in our SaaS business, unchanged. It's still targeting a three-year duration for our typical contract. Actual duration is just a little bit shorter than that. In this group of licenses that are truly business continuity, and people are looking at those as business continuity, they're still related to the pandemic. Those customers haven't worked their way through yet, it would be natural for them to offer a shorter-term license as they figure out what their long-term plans are. Net net, this has just allowed us to increase our installed base. It increases our pool and our opportunity going forward for conversions. The $10 number you gave in cash flow, does that change in your view, or are you still committed to that number? Yeah, we haven't changed that. I mean, the 2022 numbers are unchanged at this point in time. I think the most important takeaway is that the duration is a limited impact item related to these unique one-off licenses that we created a year ago to help customers in need. That's not an ongoing phenomenon. The business model is transitioning nicely. You see the success across all of our ARR metrics, which have continued to accelerate. We believe that Q1 was the trough in terms of that business model evolution headwind. We're going to start re-accelerating here in Q2 and beyond, and that'll pull through the rest of the P&L metrics as well as cash flow. Great. Thank you. Thank you. The next question is from the line of Matthew Hedberg from RBC Capital Markets. Please go ahead. Hey, thanks. Good morning, David. I don't think you've actually disclosed the mix of hardware and software on app delivery and security, in your letter, you noted that you expect the software mix to increase. I'm wondering if you could just sort of give us general terms on maybe where that sits today and where that might go in the future. Matt, we really haven't. It is migrating more towards subscription and software right now, and then over a longer period of time, it'll be migrating to SaaS. If I step back a little bit and just provide a bit of context in that overall business. A couple of years ago, it was largely hardware-based, and we have a software heritage that underlies our business. We were able to deliver those technologies across a number of different form factors, virtual appliances, as a container and, coming soon as a service. What that has afforded us is the opportunity to start transitioning customers to what we call a pooled capacity. Just gives them incredible flexibility for delivering their network infrastructure across all types of hybrid cloud deployment models. That's really resonated, and that's one of the reasons why the volume of hardware and of subscriptions is up as much as it is. Going forward, it's going to continue to migrate towards more of a cloud-delivered platform for app delivery and security, being able to give customers a much more friction-free way to adopt different technology bundles based on their own network architecture and help modernize IT. Overall, I think that this quarter being 89% subscription bookings was probably a bit of a high mark. It's definitely been trending up and to the right. I think it's going to bounce around a little bit. We're still going to always have a hardware component, so long as customers are focused on a hybrid multi-cloud model. I would expect that part of it to continue for the next several years, but gradually moving towards a more complete subscription and then ultimately SaaS. Got it. Okay. In terms of just sort of the geographic performance, total ARR was up, I believe, mid 15% organically, which was great to see. Total revenue down 10%. When I look at a geographic basis, obviously based on revenue, all geos are down from a revenue perspective. I assume that's not necessarily the trend that you're seeing relative to ARR. I wonder if you can give us a bit more granularity from a geographic perspective, maybe based on ARR, what you saw, maybe which geos did better. Yeah, not a whole lot of change on a geo basis. In the aggregate, our sales teams exceeded their plans for Q1, the way that they're measured on ACV bookings. The geos have all been executing well. I mean, EMEA has been one that has done particularly well over the course of the last year or so. The Americas being our largest business was kind of leading the transition early in the business model evolution. I think that really throughout all three geos, you're going to see their business re-accelerate as we go into Q2 and beyond, and as I've said a couple of times, these headwinds from the model transition become tailwinds. We didn't necessarily have any problem geos whatsoever. Got it. Thanks a lot, David. Thank you. The next question is from the line of Mark Moerdler from Bernstein Research. Please go ahead. Thank you very much, appreciate the additional color. I'm going to stay on the Workspace side of the business, starting first on, can you give us more color on those term license, any sense of how much of the term licenses converted to SaaS versus term licenses as some sort of percentage? As a follow-up, and then I got one more after it, I apologize, but how much is still remaining of that $47 million that could convert? Is it meaningful that could convert in Q2? Mark, most of the unique program for limited use business continuity was contained in Q1. That's where the vast majority of it, if you remember last year. Given that there's a lot of permutations in terms of license type, in terms of what they bought and also where they're migrating, we've been trying to just aggregate it up into bookings dollars. That way we just don't confuse people. The way I look at it is, we had a special set of circumstances a year ago. We generated about $47 million of revenue. We've already booked $50 million of revenue commitments against that, and we probably have a large pool, an eight-figure pool of licenses that we're continuing to discuss about cloud migration. Then those that are on short-term on-prem term, we'll continue to work with those customers obviously as we do. A lot of those are existing customers today, so we have ongoing conversations about their longer-term plans. As they work those out, of course, the goal would be to just continue to roll those into Citrix Cloud migrations, which I mentioned a couple of times, and you see that in the investor letter. We've just seen great progress with our transition and trade-up motion. Good momentum coming out of the second half of last year, continued into first quarter of this year, and we expected that to continue throughout the year. All the things that we had talked about over the last nine months are really clicking and doing well, and we're seeing an acceleration of installed base migrations to Citrix Cloud. As a quick follow-up to that, if you put aside the limited use licenses, how did the team deliver otherwise on SaaS? Did you hit your numbers? Did you beat your numbers? Putting the one special terms to the side. Well, it's hard to put it aside when we talk about the overall business. Right. Because our teams are goaled in the aggregate. When I look at it on what they are measured on, our teams exceeded their plans. Thank you. I appreciate it. You bet. Thank you. The next question is from the line of Karl Keirstead from UBS. Please go ahead. Thank you. Two from me. One, David, just to clarify, just curious whether the shorter duration issue on on-prem term contracts was really a phenomenon from this pool of customers signing limited duration deals, or did you also see that phenomenon of shorter term commitments more broadly as your normal renewals came up in the quarter? That's my first question, maybe I'll just ask my second question right away, and it's for Arlen. Just on free cash flow. I know you've reaffirmed the comfort with the $10 in 2022. I think most investors and analysts are around $8 a share for this year. I just wanted to just ask whether that's still a reasonable assumption for this year, and if it is, then it requires a pretty decent improvement in your operating income to cash flow conversion in 2022 to get to $10 per share. This is probably the kind of bridge you'll offer at the next Analyst Day you do, but maybe you could sort of tease it out a little bit with us on this call to give us comfort in that $10 number. Thank you so much. Sure, Karl. Let me take your first question. Just to be clear, we did not see changes in duration in our SaaS business or our more strategic contracts. The duration item was simply a reflection of the renewal of these limited use business continuity things from a year ago. That's where this is isolated. This is not a broader scope issue whatsoever. In hindsight, it was a bad planning assumption on our part. We thought that these would extend from their short-term duration originally to a long-term contract. In reality, they rolled into another short-term duration because they are business continuity related. It's a very isolated item. It's a little messy in Q1 versus our anticipation, but it's not a broader issue. Karl, on cash flow, you're absolutely right. As we noted in the letter, we'll be holding an Analyst Day in the third quarter. We'll be providing some additional details. In terms of your comment, we had commented in our year-end letter that cash flow will be up modestly from 2020 to 2021. Obviously, and again, we'll walk you through this when we get together, there'll be an impact from the Wrike acquisition. We expect 2021 to be a transition, but to go into 2022 strongly, and our guidance remains unchanged. Okay. Thank you both. Thanks, Karl. Thank you. Next question is from the line of Sanjit Singh from Morgan Stanley. Please go ahead. Thank you for taking the questions. Thank you, Dave and Arlen, for the ARR disclosure. Sort of related to that, if I sort of just back into the maintenance ARR piece, it's about $1.4 billion, and so two questions there. Of the $1.4 billion, can you give us a rough sense of what the split between the Citrix Workspace and networking looks like on the maintenance ARR side? The second piece of that would be, we're seeing the SaaS mix of subscription bookings continue to move up and to the right. I think you guys are targeting 50%-60% for the year. As customers migrate over, are you seeing the type of uplift that you initially outlined a year or so ago in terms of seeing that 30%-40% uplift? Thank you. Sure, Sanjit. This is David. Yes, we are seeing the uplift. It's actually been very consistent. We're very happy with the progress we're making on the install base. Like I just said on an earlier question, that's been accelerating over the last few quarters, and I expect that to continue through the balance of the year. I think all the programs and the plans that we had talked about in the last nine months, they are delivering as expected. Happy with that progress. Yeah, directionally, we're of course trying to increase the mix around SaaS. Obviously on-prem term licenses, there's an accounting impact like we saw in Q1 that just creates more noise than it's worth. Obviously the long-term goal is to get everybody on our SaaS platform. Could you repeat the first part of your question? Just the maintenance ARR, the mix between workspace and networking. Oh, sure. The large majority of it is workspace. If you look at recognized revenue, it's probably an 80/20 split. Okay follow generally in that same direction. One more if I could just sneak in, it's just a higher level one. In terms of what you've seen your user base grow, I think you're up to 10 million cloud subs. We talked about 100 million overall users, I think some of them are concurrent. Broadly, since the pandemic, any sort of view on how much the base has grown since the pandemic has started? Yeah, it's definitely grown. I think the most important thing for us strategically is to be looking at how many of those are paid subscribers on Citrix Cloud. You just mentioned that it was well over 10 million. In the aggregate, the number's up over 30% year-over-year. Interestingly, in Q1, the absolute rate of additions is twice what it was a year ago, when we entered in the pandemic. We're seeing great progress there. I'm very happy with that overall migration. This was supposed to be the year where we start to accelerate installed base migration. That was absolutely true in Q1, and we expect that to continue to be the case. As far as I'm concerned, we're on track to ahead of plan in that aspect. Appreciate it. Thank you very much, David. Thank you. The next question is from the line of Tyler Radke from Citi. Please go ahead. Hey, thanks, and good morning, David. Maybe we could start with just ARR, and again, appreciate the disclosure on total ARR. If I look at the guide, it would seem to suggest that maybe there's a slight decel from where it grew in Q1 throughout the back half of the year. Maybe just help us understand your assumptions around the trajectory of that, the puts and takes, and what could potentially cause ARR to not decelerate in the back half of the year. Yeah. Let me talk about the three ARRs just for a minute here. Subscription ARR, and I'm going to speak exclusive of any contribution from Wrike. It continued to accelerate for, I don't know, the fourth or fifth quarter in a row now, up 63% year-on-year. That's clearly a reflection of the overall business model transition that we've been making. With that number now right around $1.4 billion, that scale, we're very happy with that performance. SaaS ARR, again, continued to accelerate, which is good. Total ARR is an interesting one. We're just releasing that metric right now. As we go through the year, we'll continue to disclose subsequent quarters and provide more visibility into historicals. Right now we think that that total ARR, pretty good reflection of the underlying growth rate in the overall business. We've said in our earnings letter that we think, somewhere in that low teens range is probably a good plan for the balance of the year. The only reason for a downtick of a point or two is just if there was any uplift related to this one-off limited use license, if that added a point or two, we just want to be a little bit careful there. Still think that's a double digit growth business, we'll work to keep it in the top end of the range. Thanks. That's helpful. Maybe just to follow up on the networking business. I understand that the component shortages, you're not the only ones dealing with that. What's your expectation on when that gets resolved, and for the products that you weren't able to ship, do you think this revenue that simply just gets deferred and you see a snap back in a future quarter once you resolve the supply chain issues? Just help us understand how you're thinking about that impact longer term, and how that gets resolved. Thanks. Yeah, there's definitely component pressures in the supply chain right now, and you're right. We see that across a lot of people in the industry. For us, it's not a huge number. We wanted to call it out because it was a unique item. That $10 million revenue will ship in Q2. We're just assuming that it's a sliding problem. There's some amount of revenue that slides out of Q2 into Q3 into Q4, et cetera. When it does snap back, we'll talk about it, and we'll talk about it openly. Again, it's not a huge number in the overall aggregate. Our expectation is that it's going to continue through the balance of the year. If that changes again, we'll disclose that. Thanks. Thank you. The next question is from the line of Robert Majek from Raymond James. Please go ahead. Great, thanks. On the $50 million of new term-based licenses from pandemic conversions, can you just clarify whether the average duration was in fact around one year? You mentioned that you don't expect the impact from the lower term duration to recover in subsequent quarters. I believe your comment was just in reference to 2021. Can you just help us understand whether we might see term duration recover in 2022? Just to be clear, I think the term duration that we have talked about in relation to these licenses is a Q1 phenomenon, not a 2021 phenomenon. As we look into the balance of the year, pipeline and our deal-based forecast and others show a duration that is much, much more normalized. This is a very, very isolated item. Those licenses that did convert to Citrix Cloud, for example. Citrix Cloud durations are unchanged. They're much longer because those tend to be much more strategic contracts. This is just an isolated issue related to people that are employing business continuity in the face of a pandemic. It's not a broader issue than that. One more question, if I can. In my checks, I've been picking up a lot of momentum for Desktop as a Service offerings. Can you just help explain the shortfalls of competing DaaS solutions, and why the growth of DaaS won't negatively impact your VDI business? Well, we have a DaaS solution as well. The reason why customers adopt DaaS is that it's just Desktop as a Service, it can be just a simple, easy way to turn on a handful of desktops in a fully managed, outsourced manner. I think, broader trends that we've seen throughout the pandemic is an adoption of cloud that's accelerated across the board. You see that in just about every aspect of the industry. One of the reasons why our business has been accelerating to cloud is just that. Gives customers more agility, more ability to manage, et cetera. Our strategy of course is focus on the idea of hybrid and multi-cloud. Where a lot of our customers are somewhere in between, we want to give them the ability to run DaaS, either Citrix DaaS or one of the cloud platforms, manage it with the overall Citrix Cloud, and still maintain on-premises licenses, running their workloads in public cloud, you name it. It's just that broad hybrid approach. I think that's going to continue. I think you'll certainly see more and more infrastructure move to cloud over time. Thanks a lot. Thank you. The next question is from the line of Kirk Materne from Evercore ISI. Please go ahead. Okay. Yeah. Thanks, David. Just a quick question for you around sort of the technology strategy as it relates to sort of the broader conversion to the cloud. Obviously, one of the benefits customers get from moving to the cloud with any company is to be on the most updated version of the technology. I was just kind of curious this year if there's any upcoming releases that are going to make the benefits of being on the cloud even more apparent, potentially, to your existing base that might still be on perpetual. If you're, I guess, anticipating any kind of inflection because of that, or that would be potential, I guess, upside in terms of a faster rate of conversion. Just trying to get a sense of how you're thinking about sort of the technology releases in terms of being a little bit more of a, I guess, a carrot for clients to move at a faster pace, potentially. Kirk, I can talk about inflections in terms of the actual underlying bookings, because it's all subscription and SaaS. You don't see the typical inflection in the P&L the way you would have back in the old days of perpetual licenses. We have seen an inflection in just the amount of customers migrating to the cloud. We talked about that beginning in the back half of last year and really continuing here with overall bookings up well into the triple figures on a year-over-year percentage basis. The reason that's happening are just the same things we've talked about before. It's easier to manage. It's easier to stay current, stay updated. In fact, the business that we're doing with some of our major partners like Microsoft, for example, is stronger than it's ever been. We can go in and demonstrate to a customer that, for example, Citrix Cloud plus Microsoft Azure and WVD, the three of them together is the cheapest alternative and the most flexibility for them to be able to manage and run their infrastructure. I think it's just a solid message, and that's the reason why it's been accelerating. Okay, just maybe put a finer point on it. Are there things that are going into the cloud technology that won't be available to the on-prem customers at some point in time, meaning at some point there's a more explicit sort of strategy around that too? That works in their benefit ultimately, but I'm just kind of curious if there's anything accelerating in terms of the gap between the technologies, just because cloud's going to innovate at a faster pace. It really already is, Kirk. It's a really important point, though. Most of our innovation is coming through the cloud, and all the things that we have delivered over the last year, the vast majority of that is cloud related. Whether we're talking about automation and micro-app workflows, whether we're talking about DaaS as a prior comment, whether we're talking about the ability to add Secure Internet Access, which is effectively, think of that as secure web gateway capabilities, and do it all in the context of a Citrix Cloud management profile. We now have instrumentation across all of our cloud properties, including networking that allows you to aggregate up analytics and give visibility into performance, into security, into other use cases that you just can't get on-prem. It's one of the reasons why the migration has been accelerating. It's just the value is there and more and more customers see it. Okay. That's helpful. Thanks, David. Thank you very much. That was the last question. This concludes our question- and- answer session. I would now like to turn the conference back over to Mr. David Henshall for any closing remarks. All right. Thanks, operator. I just want to thank everybody again for joining us this morning. I'd like to leave you with a few closing thoughts. First is, we are accelerating our transition of the installed base to the cloud as we've been forecasting and discussing this morning. We expect this to continue. Our acquisition of Wrike really extends our strategy, and it's expected to be neutral to 2022 non-GAAP earnings and cash flow, while obviously accelerating revenue pretty substantially. Finally, these secular trends, whether it's cloud or distributed hybrid work models, should provide a healthy tailwind for our organic and combined businesses in the future. With that, look forward to speaking with many of you throughout the quarter. Thank you very much. Thank you very much. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.