Citrix Systems, Inc. (NASDAQ:CTXS) today reported financial results for
the first quarter of fiscal year 2019 ended March 31, 2019.
Financial Results
For the first quarter of fiscal year 2019, Citrix achieved revenue of
$719 million, compared to $697 million in the first quarter of fiscal
year 2018, representing 3 percent revenue growth.
GAAP Results
Net income for the first quarter of fiscal year 2019 was $110 million,
or $0.78 per diluted share, compared to net income of $144 million, or
$0.99 per diluted share, for the first quarter of fiscal year 2018.
Non-GAAP Results
Non-GAAP net income for the first quarter of fiscal year 2019 was $172
million, or $1.27 per diluted share, compared to $184 million, or $1.29
per diluted share for the first quarter of fiscal year 2018. Non-GAAP
net income for the first quarter of fiscal years 2019 and 2018 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
per diluted share for the first quarter of fiscal years 2019 and 2018
reflects the anti-dilutive impact of the company’s convertible note
hedges.
In addition to financial results, Citrix also announced that its Board
of Directors declared a quarterly cash dividend of $0.35 per share
payable on June 21, 2019 to all shareholders of record as of the close
of business on June 7, 2019.
“We’re pleased to report solid first quarter results, which were driven
by accelerated revenue growth in our Workspace business,” said David
Henshall, president and CEO of Citrix. “Workspace revenue grew 13%
year-over-year, its fastest rate of growth since 2012. Our subscription
model transition continues to progress well, and SaaS, which accounted
for 60% of our subscription business, delivered strong 43% year over
year growth.”
Q1 Financial Summary
The results for the first quarter of fiscal year 2019 compared to the
first quarter of fiscal year 2018 are as follows:
- Subscription revenue increased 37 percent;
- Product and license revenue decreased 16 percent;
- Support and services revenue increased 2 percent;
-
Deferred and unbilled revenue totaled $2.14 billion as of March 31,
2019, compared to $1.77 billion as of March 31, 2018, an increase of
21 percent; and -
Cash flow from operations was $268 million for the first quarter of
fiscal year 2019, compared to $358 million for the first quarter of
fiscal year 2018.
During the first quarter of fiscal year 2019 (1):
- Subscription revenue as a percentage of total revenue was 20 percent;
-
GAAP gross margin was 85 percent, and non-GAAP gross margin was 87
percent; -
GAAP operating margin was 17 percent, and non-GAAP operating margin
was 28 percent; and - The company repurchased approximately 1.5 million shares.
Financial Outlook for Second Quarter 2019 (1)
Citrix management expects to achieve the following results for the
second quarter of fiscal year 2019:
-
Net revenue is targeted to be in the range of $765 million to $775
million; -
GAAP diluted earnings per share is targeted to be in the range of
$0.76 to $0.81; and -
Non-GAAP diluted earnings per share is targeted to be in the range of
$1.30 to $1.35.
Financial Outlook for Fiscal Year 2019 (1)
Citrix management expects to achieve the following results for fiscal
year 2019:
-
Net revenue is targeted to be in the range of $3.08 billion to $3.09
billion; -
GAAP operating margin is targeted to be in the range of 20.4 percent
to 20.9 percent; -
Non-GAAP operating margin is targeted to be in the range of 31.5
percent to 32.0 percent; -
GAAP diluted earnings per share is targeted to be approximately $3.69;
and -
Non-GAAP diluted earnings per share is targeted to be approximately
$6.00.
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.”
First Quarter Earnings Letter and Conference Call
Our first quarter earnings letter, discussing financial results,
quarterly highlights and business outlook is posted at http://www.citrix.com/investors.
Citrix will host a conference call today at 4:45 p.m. ET to address
questions.
The conference call may be accessed by dialing: (888) 799-0519 or (706)
634-0155, using passcode: CITRIX. A replay of the conference call can be
accessed for approximately 90 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 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 our
ability to continue to grow the company’s Workspace business and
continued demand for Citrix Workspace; our ability to transition to a
subscription business model, including our ability to deepen our
subscription customer relationships, and our ability to grow the
percentage of subscription bookings and paid subscribers; the impact of
the global economic and political environment on our business,
volatility in global stock markets, foreign exchange rate volatility and
uncertainty in IT spending; the risks associated with maintaining the
security of our products, services, and networks, including securing
customer data, and the risks associated with our ability to manage our
recent cyber security incident, and the impact of that incident; changes
in Citrix’s pricing and licensing models, promotional programs and
product mix, all of which may impact Citrix’s revenue recognition; our
ability to expand our customer base and attract more users within our
customer base; 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 innovate and develop 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; failure to execute Citrix’s sales and marketing
plans; failure to successfully partner with key distributors, resellers,
system integrators, service providers and strategic partners, such as
Microsoft; transitions in key personnel and succession risk; 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, and disruption to our ongoing business and diversion of
management’s attention from our ongoing business; the recruitment and
retention of qualified employees; risks in effectively controlling
operating expenses, and our ability to improve our operating margin in
the second half of the year; 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; 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 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; 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 March 31, | ||||||||
2019 | 2018 | |||||||
Revenues: | ||||||||
Subscription | $ | 141,606 | $ | 103,158 | ||||
Product and license | 135,022 | 160,697 | ||||||
Support and services | 442,515 | 433,337 | ||||||
Total net revenues | 719,143 | 697,192 | ||||||
Cost of net revenues: | ||||||||
Cost of subscription, support and services | 71,428 | 63,385 | ||||||
Cost of product and license revenues | 25,744 | 33,872 | ||||||
Amortization of product related intangible assets | 10,301 | 11,029 | ||||||
Total cost of net revenues | 107,473 | 108,286 | ||||||
Gross margin | 611,670 | 588,906 | ||||||
Operating expenses: | ||||||||
Research and development | 130,263 | 98,550 | ||||||
Sales, marketing and services | 274,655 | 251,213 | ||||||
General and administrative | 77,547 | 63,727 | ||||||
Amortization of other intangible assets | 3,529 | 3,666 | ||||||
Restructuring | 2,832 | 6,187 | ||||||
Total operating expenses | 488,826 | 423,343 | ||||||
Income from operations | 122,844 | 165,563 | ||||||
Interest income | 9,674 | 8,731 | ||||||
Interest expense | (18,033 | ) | (20,336 | ) | ||||
Other income (expense), net | 3,699 | (3,012 | ) | |||||
Income before income taxes | 118,184 | 150,946 | ||||||
Income tax expense | 7,836 | 6,687 | ||||||
Net income | $ | 110,348 | $ | 144,259 | ||||
Earnings per share: | ||||||||
Basic | $ | 0.84 | $ | 1.04 | ||||
Diluted | $ | 0.78 | $ | 0.99 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 131,483 | 139,248 | ||||||
Diluted | 141,025 | 146,388 |
CITRIX SYSTEMS, INC. | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
(In thousands – unaudited) | ||||||||
March 31, 2019 | December 31, 2018 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 1,612,679 | $ | 618,766 | ||||
Short-term investments, available-for-sale | 173,601 | 583,615 | ||||||
Accounts receivable, net | 482,647 | 688,420 | ||||||
Inventories, net | 23,145 | 21,905 | ||||||
Prepaid expenses and other current assets | 160,938 | 174,195 | ||||||
Total current assets | 2,453,010 | 2,086,901 | ||||||
Long-term investments, available-for-sale | 86,340 | 574,319 | ||||||
Property and equipment, net | 243,132 | 243,396 | ||||||
Operating lease right-of-use assets | 191,951 | — | ||||||
Goodwill | 1,802,756 | 1,802,670 | ||||||
Other intangible assets, net | 155,091 | 167,187 | ||||||
Deferred tax assets, net | 104,448 | 136,998 | ||||||
Other assets | 130,728 | 124,578 | ||||||
Total assets | $ | 5,167,456 | $ | 5,136,049 | ||||
LIABILITIES, TEMPORARY EQUITY, AND STOCKHOLDERS’ EQUITY | ||||||||
Accounts payable | $ | 81,476 | $ | 75,551 | ||||
Accrued expenses and other current liabilities | 292,663 | 290,492 | ||||||
Income taxes payable | 2,220 | 44,409 | ||||||
Current portion of convertible notes | 1,163,199 | 1,155,445 | ||||||
Current portion of deferred revenues | 1,303,210 | 1,345,243 | ||||||
Total current liabilities | 2,842,768 | 2,911,140 | ||||||
Long-term portion of deferred revenues | 453,507 | 489,329 | ||||||
Long-term debt | 742,100 | 741,825 | ||||||
Long-term income taxes payable | 285,626 | 285,627 | ||||||
Operating lease liabilities | 203,580 | — | ||||||
Other liabilities | 83,834 | 148,499 | ||||||
Temporary equity from convertible notes | 1,163 | 8,110 | ||||||
Stockholders’ equity: | ||||||||
Common stock | 312 | 310 | ||||||
Additional paid-in capital | 5,495,935 | 5,404,500 | ||||||
Retained earnings | 4,232,181 | 4,169,019 | ||||||
Accumulated other comprehensive loss | (5,483 | ) | (8,154 | ) | ||||
9,722,945 | 9,565,675 | |||||||
Less – common stock in treasury, at cost | (9,168,067 | ) | (9,014,156 | ) | ||||
Total stockholders’ equity | 554,878 | 551,519 | ||||||
Total liabilities, temporary equity and stockholders’ equity | $ | 5,167,456 | $ | 5,136,049 |
CITRIX SYSTEMS, INC. | ||||
Condensed Consolidated Statement of Cash Flows | ||||
(In thousands – unaudited) | ||||
Three Months Ended | ||||
March 31, 2019 | ||||
OPERATING ACTIVITIES | ||||
Net Income | $ | 110,348 | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||
Depreciation, amortization and other | 62,472 | |||
Stock-based compensation expense | 65,234 | |||
Deferred income tax expense | 23,993 | |||
Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies |
(1,939 | ) | ||
Other non-cash items | 845 | |||
Total adjustments to reconcile net income to net cash provided by operating activities |
150,605 | |||
Changes in operating assets and liabilities, net of the effects of acquisitions: |
||||
Accounts receivable | 204,406 | |||
Inventories | (1,876 | ) | ||
Prepaid expenses and other current assets | 17,534 | |||
Other assets | (15,891 | ) | ||
Income taxes, net | (49,379 | ) | ||
Accounts payable | 6,134 | |||
Accrued expenses and other current liabilities | (81,979 | ) | ||
Deferred revenues | (77,855 | ) | ||
Other liabilities | 5,519 | |||
Total changes in operating assets and liabilities, net of the effects of acquisitions |
6,613 | |||
Net cash provided by operating activities | 267,566 | |||
INVESTING ACTIVITIES | ||||
Purchases of available-for-sale investments | (7,094 | ) | ||
Proceeds from sales of available-for-sale investments | 772,954 | |||
Proceeds from maturities of available-for-sale investments | 134,325 | |||
Purchases of property and equipment | (17,277 | ) | ||
Cash paid for licensing agreements, patents and technology | (590 | ) | ||
Other | 575 | |||
Net cash provided by investing activities | 882,893 | |||
FINANCING ACTIVITIES | ||||
Stock repurchases, net | (93,805 | ) | ||
Cash paid for tax withholding on vested stock awards | (17,662 | ) | ||
Cash paid for dividends | (46,024 | ) | ||
Net cash used in financing activities | (157,491 | ) | ||
Effect of exchange rate changes on cash and cash equivalents | 945 | |||
Change in cash and cash equivalents | 993,913 | |||
Cash and cash equivalents at beginning of period | 618,766 | |||
Cash and cash equivalents at end of period | $ | 1,612,679 |
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 earnings letter and conference call 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 and charges associated with the Company’s restructuring
programs, 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. 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 or cash charges that
are the result of discrete activities 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. -
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 |
||
GAAP gross margin | 85.1% | |
Add: stock-based compensation | 0.3 | |
Add: amortization of product related intangible assets | 1.1 | |
Non-GAAP gross margin | 86.5% |
Three Months Ended |
||
GAAP operating margin | 17.1% | |
Add: stock-based compensation | 9.1 | |
Add: amortization of product related intangible assets | 1.1 | |
Add: amortization of other intangible assets | 0.5 | |
Add: restructuring charges | 0.4 | |
Non-GAAP operating margin | 28.2% |
Three Months Ended March 31, | |||||
2019 | 2018 | ||||
GAAP net income | $110,348 | $144,259 | |||
Add: stock-based compensation | 65,234 | 35,723 | |||
Add: amortization of product related intangible assets | 8,520 | 11,029 | |||
Add: amortization of other intangible assets | 3,529 | 3,666 | |||
Add: amortization of debt discount | 6,987 | 8,665 | |||
Add: restructuring charges | 2,832 | 6,187 | |||
Less: tax effects related to above items | (25,379 | ) | (25,905 | ) | |
Non-GAAP net income | $172,071 | $183,624 |
Three Months Ended March 31, | |||||
2019 | 2018 | ||||
Number of shares used in diluted earnings per share calculations: | |||||
GAAP weighted average shares outstanding | 141,025 | 146,388 | |||
Less: effect of convertible note hedges | (5,016 | ) | (4,360 | ) | |
Non-GAAP weighted average shares outstanding | 136,009 | 142,028 |
Three Months Ended March 31, | |||
2019 | 2018 | ||
GAAP earnings per share – diluted | $0.78 | $0.99 | |
Add: stock-based compensation | 0.46 | 0.25 | |
Add: amortization of product related intangible assets | 0.06 | 0.07 | |
Add: amortization of other intangible assets | 0.03 | 0.03 | |
Add: amortization of debt discount | 0.05 | 0.06 | |
Add: restructuring charges | 0.02 | 0.04 | |
Less: tax effects related to above items | (0.18) | (0.18) | |
Add: effect of convertible note hedges | 0.05 | 0.03 | |
Non-GAAP earnings per share – diluted | $1.27 | $1.29 |
Forward Looking Guidance
|
For the Three |
For the Twelve |
||
2019 | 2019 | |||
GAAP earnings per share – diluted | $0.76 to $0.81 | $3.69 | ||
Add: adjustments to exclude the effects of amortization of intangible assets |
0.08 | 0.33 | ||
Add: adjustments to exclude the effects of expenses related to stock-based Compensation |
0.54 | 2.14 | ||
Add: adjustments to exclude the effects of amortization of debt discount |
0.01 | 0.06 | ||
Add: adjustments to exclude the effects of restructuring | 0.02 | 0.07 | ||
Less: tax effects related to above items | (0.08 to 0.18) | (0.36) | ||
Add: effect of convertible note hedges | 0.02 | 0.07 | ||
Non-GAAP earnings per share – diluted | $1.30 to $1.35 | $6.00 |
Twelve Months Ended |
||
GAAP operating margin | 20.4% to 20.9% | |
Add: adjustment to exclude stock-based compensation | 9.4 | |
Add: adjustment to exclude amortization of intangible assets | 1.4 | |
Add: adjustment to exclude restructuring charges | 0.3 | |
Non-GAAP operating margin | 31.5% to 32.0% |
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