Market Overview

Citrix Reports Second Quarter 2018 Financial Results

Share:

Quarterly revenue of $742 million up 7% year-over-year

Quarterly subscription revenue of $111 million up 49% year-over-year

Quarterly GAAP diluted EPS of $0.73; non-GAAP diluted EPS of $1.28

Quarterly GAAP operating margin of 20 percent; non-GAAP operating
margin of 30 percent

Citrix Systems, Inc. (NASDAQ:CTXS) today reported financial results for
the second quarter of fiscal year 2018 ended June 30, 2018.

Financial Results

For the second quarter of fiscal year 2018, Citrix achieved revenue of
$742 million, compared to $693 million in the second quarter of fiscal
year 2017, representing 7 percent revenue growth.

GAAP Results

Net income for the second quarter of fiscal year 2018 was $107 million,
or $0.73 per diluted share, compared to $109 million, or $0.70 per
diluted share, for the second quarter of fiscal year 2017. Net income
for the second quarter of fiscal years 2018 and 2017 includes
restructuring charges of $7 million and $2 million, respectively,
primarily for facility closing costs.

Non-GAAP Results

Non-GAAP net income for the second quarter of fiscal year 2018 was $178
million, or $1.28 per diluted share, compared to $158 million, or $1.03
per diluted share for the second quarter of fiscal year 2017. Non-GAAP
net income for the second quarter of fiscal years 2018 and 2017 excludes
the effects of stock-based compensation expense, amortization of
acquired intangible assets, amortization of debt discount, restructuring
charges and the tax effects related to these items. Non-GAAP net income
for the second quarter of fiscal year 2017 also excludes separation
costs and the tax effect related to this item. Non-GAAP net income per
diluted share for the second quarter of fiscal years 2018 and 2017
reflects the anti-dilutive impact of the company's convertible note
hedges.

"Q2 was yet another strong quarter for Citrix, posting upside to
financial expectations and, at the same time, continuing to execute on
our operational transformation across the company and in our
go-to-market," said David Henshall, president and CEO. "Our customers
and partners are embracing our cloud strategy, which is driving the
multi-year plan that we introduced last year and the progress we've made
so far in 2018."

Q2 Financial Summary

The results for the second quarter of fiscal year 2018 compared to the
second quarter of fiscal year 2017 are as follows:

  • Subscription revenue increased 49 percent;
  • Product and license revenue increased 1 percent;
  • Support and services revenue increased 3 percent; and
  • Net revenue increased in the EMEA region by 8 percent; increased in
    the Americas region by 7 percent; and increased in the APJ region by 7
    percent.

During the second quarter of fiscal year 2018(1):

  • GAAP gross margin was 85 percent and non-GAAP gross margin was 87
    percent;
  • GAAP operating margin was 20 percent and non-GAAP operating margin was
    30 percent;
  • Subscription revenue as a percentage of total revenue was 15%;
  • Deferred and unbilled revenue totaled $1.94 billion as of June 30,
    2018, compared to $1.77 billion as of March 31, 2018, an increase of
    10 percent;
  • Cash flow from operations was $170 million; and
  • The company repurchased approximately 1.8 million shares during the
    second quarter.

Financial Outlook for Third Quarter 2018(1)

Citrix management expects to achieve the following results for the third
quarter of fiscal year 2018:

  • Net revenue is targeted to be in the range of $715 million to $725
    million.
  • GAAP diluted earnings per share is targeted to be in the range of
    $0.72 to $0.74.
  • Non-GAAP diluted earnings per share is targeted to be in the range of
    $1.23 to $1.26.

Financial Outlook for Fiscal Year 2018(1)

Citrix management expects to achieve the following results for the
fiscal year ending December 31, 2018:

  • Net revenue is targeted to be in the range of $2.92 billion to $2.95
    billion.
  • GAAP diluted earnings per share is targeted to be in the range of
    $3.40 to $3.49.
  • Non-GAAP diluted earnings per share is targeted to be in the range of
    $5.30 to $5.40.
  • In addition, Citrix management is targeting GAAP operating margin to
    be in the range of 20 percent to 21 percent, and non-GAAP operating
    margin to be in the range of 30 percent to 31 percent.

The above statements are based on current targets. These statements are
forward-looking, and actual results may differ materially.

(1) A reconciliation of GAAP to non-GAAP measures has been provided in
the financial statement tables included in this press release. An
explanation of these measures is also included below under the heading
"Reconciliation of Non-GAAP Financial Measures to Comparable U.S. GAAP
Measures."

Second Quarter Earnings Conference Call

Citrix will host a conference call today at 4:45 p.m. ET to discuss its
financial results, quarterly highlights and business outlook. The call
will include a slide presentation, and participants are encouraged to
listen to and view the presentation via webcast at http://www.citrix.com/investors.

The conference call may also be accessed by dialing: (888) 799-0519 or
(706) 634-0155, using passcode: CITRIX. A replay of the webcast can be
viewed for approximately 30 days on the Investor Relations section of
the Citrix corporate website at http://www.citrix.com/investors.

About Citrix

Citrix (NASDAQ:CTXS) is powering a better way to work with unified
workspace, networking, and analytics solutions that help organizations
unlock innovation, engage customers, and boost productivity, without
sacrificing security. With Citrix, users get a seamless work experience
and IT has a unified platform to secure, manage, and monitor diverse
technologies in complex cloud environments. Citrix solutions are in use
by more than 400,000 organizations including 99 percent of the Fortune
100 and 98 percent of the Fortune 500. Learn more at www.citrix.com.

For Citrix Investors

This release contains forward-looking statements that are made pursuant
to the safe harbor provisions of Section 27A of the Securities Act of
1933 and of Section 21E of the Securities Exchange Act of 1934. The
forward-looking statements in this release do not constitute guarantees
of future performance. Investors are cautioned that statements in this
press release, which are not strictly historical statements, including,
without limitation, statements by Citrix's CEO and president, statements
contained in the Financial Outlook sections and under the Non-GAAP
Financial Measures Reconciliation section, and statements regarding
management's plans, objectives and strategies, constitute
forward-looking statements. Such forward-looking statements are subject
to a number of risks and uncertainties that could cause actual results
to differ materially from those anticipated by the forward-looking
statements, including, without limitation, risks associated with the
success and growth of the Company's product lines, including
competition, demand and pricing dynamics and the impact of our
transition to new business models, including a subscription model; the
impact of the global economy, volatility in global stock markets,
foreign exchange rate volatility and uncertainty in the IT spending
environment; the risks associated with maintaining the security of our
products, services, and networks, including securing customer data
stored by our services; changes in Citrix's pricing and licensing
models, promotional programs and product mix, all of which may impact
Citrix's revenue recognition; changes to Citrix's product and service
naming and branding; increased competition in markets for Citrix's
virtualization and networking products and secure data services and the
introduction of new products by competitors or the entry of new
competitors into these markets; the concentration of customers in
Citrix's networking business; seasonal fluctuations in the Company's
business; failure to successfully partner with key distributors,
resellers, system integrators, service providers and strategic partners
and the Company's reliance on the success of those partners for the
marketing and distribution of the Company's products; the size, timing
and recognition of revenue from significant orders; conversion of
unbilled revenue and backlog into future revenue; the recruitment and
retention of qualified employees; transitions in key personnel and
succession risk; risks in effectively controlling operating expenses;
ability to effectively manage our capital structure and the impact of
related changes on our operating results and financial condition; the
effect of new accounting pronouncements on revenue and expense
recognition; the impact of U.S. tax reform, including unanticipated
transition taxes, changes in valuation of tax assets and liabilities,
non-renewal of tax credits or exposure to additional tax liabilities;
the ability of Citrix to make suitable acquisitions on favorable terms
in the future; risks associated with Citrix's acquisitions and
divestitures, including failure to further develop and successfully
market the technology and products of acquired companies, failure to
achieve or maintain anticipated revenues and operating performance
contributions from acquisitions, which could dilute earnings, the
retention of key employees from acquired companies, difficulties and
delays integrating personnel, operations, technologies and products, and
disruption to our ongoing business and diversion of management's
attention from our ongoing business; litigation and disputes, including
challenges to our intellectual property rights or allegations of
infringement of the intellectual property rights of others; charges in
the event of a write-off or impairment of acquired assets,
underperforming businesses, investments or licenses; and other risks
detailed in Citrix's filings with the Securities and Exchange
Commission. Citrix assumes no obligation to update any forward-looking
information contained in this press release or with respect to the
announcements described herein.

Citrix® is a trademark or registered trademark of Citrix Systems, Inc.
and/or one or more of its subsidiaries, and may be registered in the
U.S. Patent and Trademark Office and in other countries. All other
trademarks and registered trademarks are property of their respective
owners.

CITRIX SYSTEMS, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share data - unaudited)
   
Three Months Ended June 30,   Six Months Ended June 30,
2018   2017   2018   2017
Revenues:    
Subscription $ 110,796 $ 74,596 $ 213,954 $ 143,686
Product and license 192,058 190,376 352,755 361,275
Support and services 439,511     428,255     872,848     850,943  
Total net revenues 742,365     693,227     1,439,557     1,355,904  
Cost of net revenues:
Cost of subscription, support and services 67,523 64,167 130,908 123,826
Cost of product and license revenues 29,707 32,735 63,579 62,446
Amortization of product related intangible assets 11,519     12,410     22,548     25,498  
Total cost of net revenues 108,749     109,312     217,035     211,770  
Gross margin 633,616     583,915     1,222,522     1,144,134  
Operating expenses:
Research and development 112,943 106,696 211,493 209,365
Sales, marketing and services 286,730 268,300 537,943 515,065
General and administrative 77,340 81,146 141,067 157,655
Amortization of other intangible assets 4,019 3,692 7,685 7,338
Restructuring 7,437     2,140     13,624     10,126  
Total operating expenses 488,469     461,974     911,812     899,549  
Income from operations 145,147 121,941 310,710 244,585
Interest income 9,402 5,560 18,133 11,172
Interest expense (20,542 ) (12,007 ) (40,878 ) (23,560 )
Other (expense) income, net (2,537 )   (1,141 )   (5,549 )   2,185  
Income from continuing operations before income taxes 131,470 114,353 282,416 234,382
Income tax expense 24,637     5,524     31,324     55,228  
Income from continuing operations 106,833 108,829 251,092 179,154
(Loss) from discontinued operations, net of income taxes             (42,704 )
Net income $ 106,833     $ 108,829     $ 251,092     $ 136,450  
Diluted earnings (loss) per share:
Income from continuing operations $ 0.73 $ 0.70 $ 1.72 $ 1.14
(Loss) from discontinued operations             (0.27 )
Diluted net earnings per share: $ 0.73 $ 0.70 $ 1.72 $ 0.87
             
Weighted average shares outstanding - diluted 145,447     156,036     145,709     157,239  

CITRIX SYSTEMS, INC.
Condensed Consolidated Balance Sheets
(In thousands - unaudited)
   
June 30, 2018 December 31, 2017
ASSETS
Cash and cash equivalents $ 1,021,708 $ 1,115,130
Short-term investments, available-for-sale 487,367 632,516
Accounts receivable, net 528,386 712,535
Inventories, net 20,282 13,912
Prepaid expenses and other current assets 208,648     147,330  
Total current assets 2,266,391 2,621,423
Long-term investments, available-for-sale 825,444 984,328
Property and equipment, net 246,025 252,932
Goodwill 1,662,438 1,614,494
Other intangible assets, net 141,989 141,952
Deferred tax assets, net 119,760 152,362
Other assets 104,015     52,685  
Total assets $ 5,366,062     $ 5,820,176  
 
LIABILITIES, TEMPORARY EQUITY, AND STOCKHOLDERS' EQUITY
Accounts payable $ 86,533 $ 66,893
Accrued expenses and other current liabilities 277,275 277,679
Income taxes payable 1,261 34,033
Current portion of convertible notes 1,406,157
Current portion of deferred revenues 1,243,032     1,308,474  
Total current liabilities 3,014,258 1,687,079
Long-term portion of deferred revenues 480,942 555,769
Long-term debt 741,277 2,127,474
Long-term income taxes payable 321,651 335,457
Other liabilities 143,677 121,936
Temporary equity from convertible notes 28,081
Stockholders' equity:
Common stock 308 306
Additional paid-in capital 5,116,339 4,883,670
Retained earnings 3,893,354 3,509,484
Accumulated other comprehensive loss (18,718 )   (10,806 )
8,991,283 8,382,654
Less - common stock in treasury, at cost (8,355,107 )   (7,390,193 )
Total stockholders' equity 636,176     992,461  
Total liabilities, temporary equity and stockholders' equity $ 5,366,062     $ 5,820,176  

CITRIX SYSTEMS, INC.
Condensed Consolidated Statement of Cash Flows
(In thousands - unaudited)
 
Six Months Ended
June 30, 2018
OPERATING ACTIVITIES
Net Income $ 251,092
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and other 106,266
Stock-based compensation expense 91,567
Deferred income tax expense 5,756
Effects of exchange rate changes on monetary assets and liabilities
denominated in foreign currencies
6,021
Other non-cash items 5,166  
Total adjustments to reconcile net income to net cash provided by
operating activities
214,776
 
Changes in operating assets and liabilities, net of the effects of
acquisitions:
Accounts receivable 182,469
Inventories (6,645 )
Prepaid expenses and other current assets (38,080 )
Other assets 1,795
Income taxes, net (72,405 )
Accounts payable 19,851
Accrued expenses and other current liabilities 10,435
Deferred revenues (41,100 )
Other liabilities 5,850  
Total changes in operating assets and liabilities, net of the
effects of acquisitions
62,170  
Net cash provided by operating activities 528,038
 
INVESTING ACTIVITIES
Purchases of available-for-sale investments (332,136 )
Proceeds from sales of available-for-sale investments 434,901
Proceeds from maturities of available-for-sale investments 196,791
Purchases of property and equipment (32,929 )
Cash paid for acquisitions, net of cash acquired (65,983 )
Cash paid for licensing agreements and technology (1,217 )
Other 3,002  
Net cash provided by investing activities 202,429
 
FINANCING ACTIVITIES
Proceeds from issuance of common stock under stock-based
compensation plans
113
Repayment of acquired debt (5,674 )
Stock repurchases, net (764,978 )
Cash paid for tax withholding on vested stock awards (49,936 )
Net cash used in financing activities (820,475 )
 
Effect of exchange rate changes on cash and cash equivalents (3,414 )
 
Change in cash and cash equivalents (93,422 )
Cash and cash equivalents at beginning of period 1,115,130  
Cash and cash equivalents at end of period $ 1,021,708  

Reconciliation of Non-GAAP Financial Measures to Comparable U.S. GAAP
Measures

(Unaudited)

Pursuant to the requirements of Regulation G, the Company has provided a
reconciliation of each non-GAAP financial measure used in this earnings
release and related conference call, slide presentation or webcast to
the most directly comparable GAAP financial measure. These measures
differ from GAAP in that they exclude amortization primarily related to
acquired intangible assets and debt discount, stock-based compensation
expenses, charges associated with the Company's restructuring programs,
separation costs and the related tax effect of those items. The income
tax effect on non-GAAP items is calculated based upon the tax laws and
statutory income tax rates applicable in the tax jurisdiction(s) of the
underlying non-GAAP adjustment. The Company also reflects the effect of
anti-dilutive convertible note hedges in the number of shares used in
non-GAAP diluted earnings per share. These non-GAAP financial measures
are presented on a continuing operations basis. The Company's basis for
these adjustments is described below.

Management uses these non-GAAP measures for internal reporting and
forecasting purposes, when publicly providing its business outlook, to
evaluate the Company's performance and to evaluate and compensate the
Company's executives. The Company has provided these non-GAAP financial
measures in addition to GAAP financial results because it believes that
these non-GAAP financial measures provide useful information to certain
investors and financial analysts for comparison across accounting
periods not influenced by certain non-cash items that are not used by
management when evaluating the Company's historical and prospective
financial performance. In addition, the Company has historically
provided this or similar information and understands that some investors
and financial analysts find this information helpful in analyzing the
Company's operating margins, operating expenses and net income and
comparing the Company's financial performance to that of its peer
companies and competitors.

Management typically excludes the amounts described above when
evaluating the Company's operating performance and believes that the
resulting non-GAAP measures are useful to investors and financial
analysts in assessing the Company's operating performance due to the
following factors:

  • The Company does not acquire businesses on a predictable cycle. The
    Company, therefore, believes that the presentation of non-GAAP
    measures that adjust for the impact of amortization of intangible
    assets and stock-based compensation expenses and the related tax
    effects that are primarily related to acquisitions, provide investors
    and financial analysts with a consistent basis for comparison across
    accounting periods and, therefore, are useful to investors and
    financial analysts in helping them to better understand the Company's
    operating results and underlying operational trends.
  • Amortization of intangible assets and the related tax effects are
    fixed at the time of an acquisition, are then amortized over a period
    of several years after the acquisition and generally cannot be changed
    or influenced by management after the acquisition.
  • Although stock-based compensation is an important aspect of the
    compensation of the Company's employees and executives, stock-based
    compensation expense is generally fixed at the time of grant, then
    amortized over a period of several years after the grant of the
    stock-based instrument, and generally cannot be changed or influenced
    by management after the grant.
  • Under GAAP, certain convertible debt instruments that may be settled
    in cash on conversion are required to be accounted for as separate
    liability (debt) and equity (conversion option) components in a manner
    that reflects the issuer's non-convertible debt borrowing rate. The
    difference between the imputed interest expense and the coupon
    interest expense, net of the interest amount capitalized, is excluded
    from management's assessment of the company's operating performance
    because management believes that the exclusion of these charges will
    better help investors and financial analysts understand the Company's
    operating results and underlying operational trends.

  • The Company has engaged in various restructuring activities over the
    past several years that have resulted in costs associated with
    reductions in headcount, consolidation of leased facilities and
    related costs. Each restructuring activity has been a discrete event
    based on a unique set of business objectives or circumstances, and
    each has differed from the others in terms of its operational
    implementation, business impact and scope. While the Company's
    operations previously benefited from the employees and facilities
    covered by the various restructuring charges, these employees and
    facilities have benefited different parts of the Company's business in
    different ways, and the amount of these charges has varied
    significantly from period to period. The Company, therefore, believes
    that the exclusion of these charges will better help investors and
    financial analysts understand the Company's operating results and
    underlying operational trends as compared to prior periods.
  • Separation costs represent transaction and transition costs associated
    with preparing businesses for independent operations consisting
    primarily of financial advisory fees, legal fees, accounting fees, tax
    services and information systems infrastructure duplication. These
    charges are not anticipated to be ongoing costs; and, thus, are
    outside of the normal operations of the Company's business. As such,
    the Company believes that these expenses do not accurately reflect the
    underlying performance of continuing operations for the period in
    which they are incurred.
  • The Company has convertible note hedges in place to offset potential
    dilution from the embedded conversion feature in its convertible
    notes. For GAAP diluted earnings per share purposes, the Company
    cannot reflect the anti-dilutive impact of the convertible note
    hedges. The Company believes that reflecting the anti-dilutive impact
    of the convertible note hedges in non-GAAP diluted earnings per share
    provides investors with useful information in evaluating the financial
    performance of the Company on a per share basis.

These non-GAAP financial measures are not prepared in accordance with
accounting principles generally accepted in the United States ("GAAP")
and may differ from the non-GAAP information used by other companies.
There are significant limitations associated with the use of non-GAAP
financial measures. The additional non-GAAP financial information
presented here should be considered in conjunction with, and not as a
substitute for or superior to, the financial information presented in
accordance with GAAP (such as net income and earnings per share) and
should not be considered measures of the Company's liquidity.

CITRIX SYSTEMS, INC.

Non-GAAP Financial Measures Reconciliation

(In thousands, except per share, gross margin and operating margin data
- unaudited)

The following tables show the non-GAAP financial measures used in this
press release reconciled to the most directly comparable GAAP financial
measures.

 

Three Months Ended
June 30, 2018

GAAP gross margin 85.4%
Add: stock-based compensation 0.3
Add: amortization of product related intangible assets 1.5
Non-GAAP gross margin 87.2%
 

Three Months Ended
June 30, 2018

GAAP operating margin 19.6%
Add: stock-based compensation 7.5
Add: amortization of product related intangible assets 1.6
Add: amortization of other intangible assets 0.5
Add: restructuring charges 1.0
Non-GAAP operating margin 30.2%
  Three Months Ended June 30,
2018     2017  
GAAP net income $106,833   $108,829
Add: stock-based compensation 55,844 40,679
Add: amortization of product related intangible assets 11,519 12,410
Add: amortization of other intangible assets 4,019 3,692
Add: amortization of debt discount 8,771 8,472
Add: separation costs 216
Add: restructuring charges 7,437 2,140
Less: tax effects related to above items (16,152 )   (18,731 )
Non-GAAP net income $178,271     $157,707
  Three Months Ended June 30,
2018   2017
Number of shares used in diluted earnings per share calculations:  
GAAP weighted average shares outstanding 145,447 156,036
Less: effect of convertible note hedges (6,023 )   (2,644 )
Non-GAAP weighted average shares outstanding 139,424     153,392  

  Three Months Ended June 30,
2018   2017
GAAP earnings per share - diluted $0.73   $0.70
Add: stock-based compensation 0.39 0.27
Add: amortization of product related intangible assets 0.08 0.08
Add: amortization of other intangible assets 0.03 0.03
Add: amortization of debt discount 0.06 0.06
Add: restructuring charges 0.05 0.01
Less: tax effects related to above items (0.11) (0.12)
Add: effect of convertible note hedges 0.05  
Non-GAAP earnings per share - diluted $1.28   $1.03

Forward Looking Guidance

  For the Three   For the Twelve
Months Ended Months Ended
September 30, December 31,
2018   2018
GAAP earnings per share - diluted $0.72 to $0.74 $3.40 to $3.49
Add: adjustments to exclude the effects of amortization of
intangible assets
0.11 0.44
Add: adjustments to exclude the effects of expenses related to
stock-based
compensation 0.41 1.50
Add: adjustments to exclude the effects of amortization of debt
discount
0.06 0.25
Add: adjustments to exclude the effects of restructuring charges 0.01 0.13
Less: tax effects related to above items (0.09 to 0.14) (0.51 to 0.70)
Add: effect of convertible note hedges 0.04   0.19
Non-GAAP earnings per share - diluted $1.23 to $1.26   $5.30 to $5.40

Note: Non-GAAP diluted earnings per share does not include any
additional impacts related to our convertible note warrants or U.S. tax
reform, all of which cannot be calculated without unreasonable efforts.

  For the Twelve
Months Ended
December 31, 2018
GAAP operating margin 20.1% to 21.1%
Add: stock-based compensation 7.2
Add: amortization of intangible assets 2.1
Add: restructuring charges 0.6
Non-GAAP operating margin 30.0% to 31.0%

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