CTXS Citrix Systems Inc

Quarterly revenue of $693 million up 3% year-over-year

Quarterly GAAP diluted EPS of $0.70; non-GAAP diluted EPS of $1.03 on a continuing operations basis

Deferred revenue of $1.7 billion up 13 percent year-over-year

Citrix Systems, Inc. (NASDAQ:CTXS) today reported financial results for the second quarter of fiscal year 2017 ended June 30, 2017.

Financial Results

For the second quarter of fiscal year 2017, Citrix achieved revenue from continuing operations of $693 million, compared to $674 million in the second quarter of fiscal year 2016, representing 3 percent revenue growth.

GAAP Results

Net income from continuing operations for the second quarter of fiscal year 2017 was $109 million, or $0.70 per diluted share, compared to $106 million, or $0.68 per diluted share, for the second quarter of fiscal year 2016. Net income for the second quarter of fiscal year 2017 includes a net international tax benefit of approximately $10 million, or $0.06 per diluted share, primarily related to an international statutory tax transaction.

Non-GAAP Results

Non-GAAP net income from continuing operations for the second quarter of fiscal year 2017 was $158 million, or $1.03 per diluted share, compared to $157 million, or $1.00 per diluted share for the second quarter of fiscal year 2016. Non-GAAP net income from continuing operations for the second quarter of fiscal year 2017 and 2016 excludes the effects of stock-based compensation expense, amortization of acquired intangible assets, amortization of debt discount, restructuring charges, separation costs, and the tax effects related to these items. Non-GAAP net income per diluted share also reflects the anti-dilutive impact of the company’s convertible note hedges.

“Q2 demonstrated a clear acceleration in the momentum of our cloud transformation, with a strong demand for Citrix Cloud and our subscription-based solutions,” said David Henshall, president and CEO of Citrix. “As a result, we are seeing double-digit growth in deferred revenue and an acceleration in overall billings, which proves the value of the innovation that we are delivering to customers and partners and the success we can expect in the future.”

Q2 Financial Summary

In reviewing the results from continuing operations for the second quarter of fiscal year 2017 compared to the second quarter of fiscal year 2016:

• Product and license revenue decreased 4 percent;
• Software as a service revenue increased 27 percent;
• Revenue from license updates and maintenance increased 6 percent;
• Professional services revenue, which is comprised of consulting, product training and certification, decreased 9 percent;
• Net revenue increased in the Pacific region by 10 percent, increased in the EMEA region by 6 percent, and remained consistent in the Americas region;
• Deferred revenue totaled $1.7 billion as of June 30, 2017, compared to $1.5 billion as of June 30, 2016, an increase of 13 percent; and
• Cash flow from continuing operations was $164 million for the second quarter of fiscal year 2017, compared to $194 million for the second quarter of fiscal year 2016.

During the second quarter of fiscal year 2017:

• GAAP gross margin was 84 percent. Non-GAAP gross margin was 86 percent, excluding the effects of amortization of acquired product related intangible assets and stock-based compensation expense; and
• GAAP operating margin was 18 percent. Non-GAAP operating margin was 26 percent, excluding the effects of stock-based compensation expense, amortization of acquired intangible assets, and costs associated with restructuring programs.

Financial Outlook for Third Quarter 2017

Citrix management expects to achieve the following results for the third quarter of fiscal year 2017 ending September 30, 2017:

• Net revenue is targeted to be in the range of $685 million to $695 million.
• GAAP diluted earnings per share is targeted to be in the range of $0.68 to $0.70. Non-GAAP diluted earnings per share is targeted to be in the range of $1.02 to $1.05, excluding $0.32 related to the effects of stock-based compensation expenses, $0.11 related to the effects of amortization of acquired intangible assets, $0.06 related to the effects of amortization of debt discount, $0.03 to $0.04 related to restructuring charges and $0.16 to $0.20 for the tax effects related to these items. Non-GAAP diluted earnings per share reflects the anti-dilutive impact of the convertible note hedges, which cannot be calculated without unreasonable efforts.

Financial Outlook for Fiscal Year 2017

Citrix management expects to achieve the following results from continuing operations for the fiscal year ending December 31, 2017:

• Net revenue is targeted to be in the range of $2.81 billion to $2.83 billion.
• GAAP diluted earnings per share from continuing operations is targeted to be in the range of $2.59 to $2.74. Non-GAAP diluted earnings per share from continuing operations is targeted to be in the range of $4.60 to $4.65, excluding $1.07 related to the effects of stock-based compensation expenses, $0.42 related to the effects of amortization of acquired intangible assets, $0.22 related to the effects of amortization of debt discount, approximately $60 to $70 million or $0.36 to $0.44 related to restructuring charges, and $0.39 to $0.51 for the tax effects related to these items. Non-GAAP diluted earnings per share from continuing operations also excludes $0.30 related to certain tax charges incurred in connection with the separation of the GoTo business. Non-GAAP diluted earnings per share reflects the anti-dilutive impact of the convertible note hedges, which cannot be calculated without unreasonable efforts.

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

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) aims to power a world where people, organizations and things are securely connected and accessible to make the extraordinary possible. We help customers reimagine the future of work by providing the most comprehensive secure digital workspace that unifies the apps, data and services people need to be productive, and simplifies IT’s ability to adopt and manage 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.

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 transitions in key personnel and succession risk, including transitions in the company's Chief Executive Officer, President and Chief Financial Officer; the impact of the global economy, volatility in global stock markets, foreign exchange rate volatility and uncertainty in the IT spending environment; changes in Citrix’s pricing and licensing models, promotional programs and product mix, all of which may impact Citrix's revenue recognition; the success and growth of the company's product lines, including competition, demand and pricing dynamics and our ability to transition to new business models, including a subscription model, and markets for Citrix's virtualization and networking products and secure data services; the introduction of new products by competitors or the entry of new competitors into the markets for Citrix's products and services; the concentration of customers in Citrix’s networking business; the company's ability to develop, maintain a high level of quality and commercialize new products and services while growing its established virtualization and networking products and services; changes in our revenue mix towards products and services with lower gross margins; seasonal fluctuations in the company's business; disruptions to execution due to actions that may be taken as a result of Citrix's operational reviews; failure to execute Citrix's sales and marketing plans; 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 company's ability to maintain and expand its business in large enterprise accounts and reliance on large service provider customers; the size, timing and recognition of revenue from significant orders; the success of investments in its product groups, foreign operations and vertical and geographic markets; 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, disruption to our ongoing business and diversion of management's attention from our ongoing business, and failure to realize expected benefits or synergies from divestitures; risks associated with the failure to achieve the expected strategic, operational and competitive benefits of the separation of the GoTo business, and the effect of the separation on Citrix’s shareholders, customers, partners and employees; tax risks related to the separation of the GoTo business; the recruitment and retention of qualified employees; 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 risks associated with securing data and maintaining security of our networks and customer data stored by our services; failure to comply with federal, state and international regulations; litigation and disputes, including challenges to our intellectual property rights or allegations of infringement of the intellectual property rights of others; the inability to further innovate our technology or enter into new businesses due to the intellectual property rights of others; the ability to maintain and protect our collection of brands; charges in the event of a write-off or impairment of acquired assets, underperforming businesses, investments or licenses; international market readiness, execution and other risks associated with the markets for Citrix's products and services; risks related to servicing our debt; unanticipated changes in tax rates, non-renewal of tax credits or exposure to additional tax liabilities; risks of political uncertainty and social turmoil; 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,

2017   2016 2017   2016 Revenues: Product and licenses $ 211,009 $ 219,507 $ 402,606 $ 421,540 Software as a service 41,513 32,764 80,243 63,879 License updates and maintenance 409,028 386,864 811,783 779,882 Professional services 31,677   34,852   61,272   67,459 Total net revenues 693,227   673,987   1,355,904   1,332,760   Cost of net revenues: Cost of product and license revenues 32,735 33,623 62,446 65,018 Cost of services and maintenance revenues 64,167 59,178 123,826 113,537 Amortization of product related intangible assets 12,410   14,390   25,498   28,447 Total cost of net revenues 109,312   107,191   211,770   207,002 Gross margin 583,915   566,796   1,144,134   1,125,758   Operating expenses: Research and development 106,696 100,651 209,365 202,883 Sales, marketing and services 268,300 245,921 515,065 479,848 General and administrative 81,146 78,883 157,655 157,158 Amortization of other intangible assets 3,692 3,822 7,338 7,542 Restructuring 2,140   3,580   10,126   49,136 Total operating expenses 461,974   432,857   899,549   896,567 Income from operations 121,941 133,939 244,585 229,191 Interest income 5,560 4,164 11,172 7,915 Interest expense (12,007) (11,196) (23,560) (22,351) Other (expense) income, net (1,141)   (272)   2,185   (1,275) Income from continuing operations before income taxes 114,353 126,635 234,382 213,480 Income tax expense 5,524   20,346   55,228   33,937 Income from continuing operations 108,829 106,289 179,154 $ 179,543 Income (loss) from discontinued operations, net of income taxes —   14,609   (42,704 ) $ 24,818 Net income $ 108,829   $ 120,898   $ 136,450   $ 204,361   Diluted earnings (loss) per share: Income from continuing operations $ 0.70 $ 0.68 $ 1.14 $ 1.15 Income (loss) from discontinued operations —   0.09   (0.27 ) 0.16 Diluted earnings per share: $ 0.70 $ 0.77 $ 0.87 $ 1.31   Weighted average shares outstanding: Weighted average shares outstanding - diluted 156,036   156,666   157,239   156,258     CITRIX SYSTEMS, INC. Condensed Consolidated Balance Sheets

(In thousands - unaudited)

      June 30, 2017   December 31, 2016 ASSETS     Cash and cash equivalents $ 844,771 $ 836,095 Short-term investments 511,092 726,923 Accounts receivable, net 541,315 681,206 Inventories, net 13,229 12,522 Prepaid expenses and other current assets 176,080 124,842 Current assets of discontinued operations —     179,689   Total current assets 2,086,487 2,561,277 Long-term investments 1,045,384 980,142 Property and equipment, net 252,925 261,954 Goodwill 1,617,105 1,585,893 Other intangible assets, net 187,550 173,681 Deferred tax assets, net 177,375 233,900 Other assets 64,083 54,449 Long-term assets of discontinued operations —     538,931   Total assets $ 5,430,909     $ 6,390,227     LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY Accounts payable $ 65,265 $ 72,724 Accrued expenses and other current liabilities 240,808 256,799 Income taxes payable 4,724 39,771 Current portion of deferred revenues 1,205,692 1,208,229 Short-term debt 30,000 — Convertible notes, short-term — 1,348,156 Current liabilities of discontinued operations —     172,670   Total current liabilities 1,546,489 3,098,349   Long-term portion of deferred revenues 510,209 476,135 Convertible notes, long-term 1,367,092 — Other liabilities 125,418 119,813 Long-term liabilities of discontinued operations — 7,708 Temporary equity from Convertible notes — 79,495 Stockholders' equity: Common stock 305 303 Additional paid-in capital 4,922,187 4,761,588 Retained earnings 3,663,732 4,010,737 Accumulated other comprehensive loss (8,779 ) (28,704 ) Less - common stock in treasury, at cost (6,695,744 )   (6,135,197 ) Total stockholders' equity 1,881,701     2,608,727   Total liabilities, temporary equity and stockholders' equity $ 5,430,909     $ 6,390,227     CITRIX SYSTEMS, INC. Condensed Consolidated Statement of Cash Flows

(In thousands - unaudited)

  Six Months Ended June 30, 2017   OPERATING ACTIVITIES Net Income $ 136,450 Loss from discontinued operations 42,704 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other 97,403 Stock-based compensation expense 75,487 Deferred income tax expense 56,584 Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies (6,049 ) Other non-cash items 7,812   Total adjustments to reconcile net income to net cash provided by operating activities 231,237 Changes in operating assets and liabilities, net of the effects of acquisitions: Accounts receivable 140,471 Inventories (1,398 ) Prepaid expenses and other current assets (5,957 ) Other assets (9,597 ) Income taxes, net (73,567 ) Accounts payable (9,272 ) Accrued expenses and other current liabilities (20,536 ) Deferred revenues 26,084 Other liabilities (790 ) Total changes in operating assets and liabilities, net of the effects of acquisitions 45,438   Net cash provided by operating activities of continuing operations 455,829 Net cash used in operating activities of discontinued operations (56,070 ) Net cash provided by operating activities 399,759 INVESTING ACTIVITIES Purchases of available-for-sale investments (590,004 ) Proceeds from sales of available-for-sale investments 562,098 Proceeds from maturities of available-for-sale investments 179,330 Purchases of property and equipment (38,650 ) Cash paid for acquisitions, net of cash acquired (60,449 ) Cash paid for licensing agreements and technology (5,155 ) Other 987   Net cash provided by investing activities of continuing operations 48,157 Net cash used in investing activities of discontinued operations (3,891 ) Net cash provided by investing activities 44,266 FINANCING ACTIVITIES Proceeds from issuance of common stock under stock-based compensation plans 1,490 Proceeds from credit facility 125,000 Repayment of credit facility (95,000 ) Repayment of acquired debt (4,000 ) Stock repurchases, net (500,000 ) Cash paid for tax withholding on vested stock awards (60,547 ) Transfer of cash to GoTo Business resulting from the separation (28,523 ) Net cash used in financing activities (561,580 ) Effect of exchange rate changes on cash and cash equivalents 5,370   Change in cash and cash equivalents (112,185 ) Cash and cash equivalents at beginning of period 956,956   Cash and cash equivalents at end of period $ 844,771    

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, the related tax effect of those items and separation-related tax charges or benefits. 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.
• Separation-related tax charges or benefits, which may include reversals of certain state R&D credits due to changes in expectations of realizability as a result of the separation of a significant business of the Company. The Company believes that these items 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, 2017

GAAP gross margin 84.2% Add: stock-based compensation 0.1 Add: amortization of product related intangible assets 1.8 Non-GAAP gross margin 86.1%    

Three Months Ended June

30, 2017

GAAP operating margin 17.6% Add: stock-based compensation 5.9 Add: amortization of product related intangible assets 1.8 Add: amortization of other intangible assets 0.5 Add: restructuring charges 0.3 Non-GAAP operating margin 26.1%     Three Months Ended June 30, 2017   2016 GAAP net income from continuing operations $108,829   $106,289 Add: stock-based compensation 40,679 38,367 Add: amortization of product related intangible assets 12,410 14,390 Add: amortization of other intangible assets 3,692 3,822 Add: amortization of debt discount 8,472 8,222 Add: separation costs 216 374 Add: restructuring charges 2,140 3,580 Less: tax effects related to above items (18,731)   (18,097) Non-GAAP net income from continuing operations $157,707   $156,947

 

  Three Months Ended June 30, 2017   2016 Number of shares used in diluted earnings per share calculations:   GAAP weighted average shares outstanding 156,036 156,666 Less: effect of convertible note hedges (2,644 )   — Non-GAAP weighted average shares outstanding 153,392     156,666  

 

  Three Months Ended June 30, 2017   2016 GAAP earnings per share from continuing operations - diluted $0.70   $0.68 Add: stock-based compensation 0.27 0.25 Add: amortization of product related intangible assets 0.08 0.09 Add: amortization of other intangible assets 0.03 0.02 Add: amortization of debt discount 0.06 0.05 Add: restructuring charges 0.01 0.02 Less: tax effects related to above items (0.12)   (0.11) Non-GAAP earnings per share from continuing operations - diluted $1.03   $1.00  

Forward Looking Guidance

   

 

For the Three

Months Ended

September 30,

For the Twelve

Months Ended

December 31,

2017   2017 GAAP earnings per share from continuing operations - diluted $0.68 to $0.70 $2.59 to $2.74 Add: adjustments to exclude the effects of expenses related to stock-based compensation 0.32 1.07 Add: adjustments to exclude the effects of amortization of intangible assets 0.11 0.42 Add: adjustments to exclude the effects of amortization of debt discount 0.06 0.22 Add: adjustments to exclude the effects of restructuring charges 0.03 to 0.04 0.36 to 0.44 Less: tax effects related to above items (0.16) to (0.20) (0.39) to (0.51) Add: adjustments to exclude the effects of separation related tax charges —   0.30 Non-GAAP earnings per share from continuing operations - diluted $1.02 to $1.05   $4.60 to $4.65

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Citrix Systems, Inc.For media inquiries:Eric Armstrong, 954-267-2977eric.armstrong@citrix.comorFor investor inquiries:Eduardo Fleites, 954-229-5758eduardo.fleites@citrix.com