CTXS Citrix Systems Inc

Citrix Systems Inc. (CTXS) declared robust financial results for the first quarter of 2011, significantly above the Zacks Consensus Estimates. Quarterly net revenue was $589.5 million, up 20% year over year, easily surpassing the Zacks Consensus Estimate of $562 million. GAAP net income was $68.3 million or 36 cents per share compared with $73.5 million or 39 cents per share in the prior-year quarter. Quarterly adjusted EPS of 45 cents was miles ahead of the Zacks Consensus Estimate of 39 cents.

Global trends toward virtualization and cloud computing are facilitating the company to post solid results. Management stated that all three of its business lines, e.g., desktop virtualization, cloud networking, and web collaboration services are performing extremely well.  

Virtualization and cloud computing services are getting rapidly adopted by business enterprises throughout the world. Just a few days ago, Citrix’s major competitor, VMware Inc. (VMW), provided a rosy outlook for fiscal 2012. Citrix also raised its previous guidance for fiscal 2012. In the after market trade on NASDAQ, the stock price of Citrix spiked $5.82 (7.54%) to $82.99.

Gross margin in the first quarter of 2012 was 85.4% compared with 87.8% in the year-ago quarter. Operating expenses in the reported quarter were around $422.4 million compared with $350 million in the prior-year quarter. However, quarterly operating margin was 13.7% compared with 16.5% in the prior-year quarter. During the first quarter of 2012, Citrix repurchased 1.6 million of its common outstanding shares for around $117 million. At the end of the previous quarter, deferred revenue was $983 million, up 24.6% year over year.

During the first quarter of 2012, Citrix generated over $243.1 million of cash from operations and free cash flow (cash flow from operations less capital expenditures) during the reported quarter was approximately $219.9 million. At the end of the first quarter of 2012, the company had nearly $1,608.7 million of cash and marketable securities compared with $1,477.6 billion at the end of 2011. Balance sheet remains free of any debt obligations.

Revenue by Product Mix

Product and Licenses revenue was $178.4 million, up 19% year over year. License updates and maintenance revenue was $264.5 million, up 19% year over year. Software as a Service revenue was $120.7 million, an increase of 21% over the prior-year quarter, and Professional Services revenue was $25.9 million, up 33% year over year.

Revenue by Product Grouping

Desktop solutions revenue in the first quarter of 2012 was $338.1 million, up 17% year over year. Data Center and Cloud Solutions revenue was $99.7 million, up 28.3% year over year. Online Services revenue was $120.7 million, up 20.9% year over year. Revenue from Other Products was $31 million, up 31.7% year over year.

Revenue by Geography

Revenue in the Americas (North & Latin America) region was $355.71 million. Revenue in Europe, Africa, and the Middle East region was $174.5 million. Revenue in the Asia Pacific region was $59.3 million.

Second Quarter of 2012 Financial Outlook

Management forecasted that the company’s second-quarter 2012 revenue will be within the range of $605 million - $615 million. GAAP EPS will be within the range of 34 cents - 37 cents and non-GAAP EPS will be between 58 cents – 59 cents. Stock-based compensation expenses will be 19 cents per share.

Full Fiscal 2012 Financial Outlook

Management forecasted that the company’s fiscal 2012 revenue will be within the range of $2.53 billion - $2.56 billion. GAAP EPS will be within the range of $1.87 - $1.92 and non-GAAP EPS will be within the range of $2.75 - $2.79. Stock-based compensation expenses will be 75 cents per share.

Our Recommendation

We believe the virtualization market will continue to flourish with desktop virtualization as its core theme. This trend is expected to sustain future growth of Citrix Systems. We maintain our long-term Neutral recommendation on Citrix Systems. Currently, it holds a short-term Zacks #4 Rank (Sell) on the stock. We believe this short-term sell recommendation is primarily attributable to the high-level of current valuation of Citrix, which soared 53.7% in the last year.

 
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