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| CTXS > SEC Filings for CTXS > Form 10-Q on 5-Nov-2012 | All Recent SEC Filings |
5-Nov-2012
Quarterly Report
Our operating results and financial condition have varied in the past and could
in the future vary significantly depending on a number of factors. From time to
time, information provided by us or statements made by our employees contain
"forward-looking" information that involves risks and uncertainties. In
particular, statements contained in this Quarterly Report on Form 10-Q, and in
the documents incorporated by reference into this Quarterly Report on Form 10-Q,
that are not historical facts, including, but not limited to, statements
concerning new products, research and development, offerings of products and
services, market positioning and opportunities, headcount, customer demand,
distribution and sales channels, financial information and results of operations
for future periods, product and price competition, strategy and growth
initiatives, seasonal factors, international operations and expansion,
investment transactions and valuations of investments and derivative
instruments, reinvestment or repatriation of foreign earnings, fluctuations in
foreign exchange rates, tax matters, the expected benefits of acquisitions,
changes in domestic and foreign economic conditions and credit markets,
liquidity, litigation and intellectual property matters, constitute
forward-looking statements and are made under the safe harbor provisions of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are neither
promises nor guarantees. Our actual results of operations and financial
condition have varied and could in the future vary materially from those stated
in any forward-looking statements. The factors described in Part I, Item 1A,
"Risk Factors," in our Annual Report on Form 10-K for the year ended
December 31, 2011, as may be updated in Part II, Item 1A in this Quarterly
Report on Form 10-Q, among others, could cause actual results to differ
materially from those contained in forward-looking statements made in this
Quarterly Report on Form 10-Q, in the documents incorporated by reference into
this Quarterly Report on Form 10-Q or presented elsewhere by our management from
time to time. Such factors, among others, could have a material adverse effect
upon our business, results of operations and financial condition. We caution
readers not to place undue reliance on any forward-looking statements, which
only speak as of the date made. We undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made.
Overview
Management's discussion and analysis of financial condition and results of
operations is intended to help the reader understand our financial condition and
results of operations. This section is provided as a supplement to, and should
be read in conjunction with, our financial statements and the accompanying notes
to our condensed consolidated financial statements included in this Quarterly
Report on Form 10-Q for the three months ended September 30, 2012. The results
of operations for the periods presented in this report are not necessarily
indicative of the results expected for the full year or for any future period,
due in part to the seasonality of our business. Historically, our revenue for
the fourth quarter of any year is typically higher than our revenue for the
first quarter of the subsequent year.
We design, develop and market technology solutions that enable information
technology, or IT, services to be securely delivered on demand - independent of
location, device or network. Our customers achieve lower IT operating costs,
increased information security, and greater business agility using Citrix
technologies that enable mobile workstyles and power cloud services. We market
and license our products directly to enterprise customers, over the web, and
through systems integrators, or SIs. We also market and license our products
indirectly through value-added resellers, or VARs, value-added distributors, or
VADs, and original equipment manufacturers, or OEMs.
Executive Summary
We are a strategic technology provider transforming how people, business and IT
work and collaborate in the Cloud Era. With our virtualization, networking and
cloud technologies, we make complex enterprise IT simpler and more accessible
for a diverse, global, and mobile workforce. We deliver a secure and familiar
virtual workplace experience that powers mobile work styles and cloud services,
so people can work and collaborate virtually anywhere, with anyone on virtually
any device, simply accessing the services they need. These technologies give
individuals more control over their work and life, while helping business and IT
be more flexible and agile.
We believe our approach is unique in the market because we have combined
innovative technologies in the area of desktop management, including desktop
virtualization and application virtualization, marketed as our Desktop
Solutions, and cloud networking and cloud platform products, marketed as our
Datacenter and Cloud Solutions. This combination allows us to deliver a
comprehensive end-to-end application delivery solution, and one that we believe,
when considered as a whole, is competitively differentiated by its feature set
and interoperability.
In today's business environment, however, there is a sharp focus on IT products
and services that can reduce cost and deliver a quick, tangible return on
investment, or ROI. With our customers focused on economic value in technology
solutions,
we intend to continue highlighting our solutions' abilities to reduce IT costs,
increase business flexibility and deliver ROI with a simpler more flexible
approach to computing.
In 2011, we saw uncertainties surrounding IT spending, particularly in the
European markets. Throughout the third quarter of 2012, we encountered hesitancy
on the part of customers in initiating large capital projects causing an
unusually large number of opportunities to be pushed into the future or to be
split into smaller transactions with only a portion of those transactions
closing in the third quarter of 2012. This dynamic was experienced across our
different markets and products but was most pronounced in North America and
contributed to our flat Product and licenses revenue results when comparing the
third quarter of 2012 to the third quarter of 2011. See our Summary of Results
section below.
The continued economic uncertainty may adversely affect sales of our products
and services and may result in longer sales cycles, slower adoption of
technologies and increased price competition, particularly in North America and
Europe.
For the remainder of 2012, we plan to sustain the long-term growth of our
businesses around the world by: expanding our go-to-market reach, customer touch
and consulting and technical support capacity; investing in product innovation,
bringing new technologies to market and improving integration across our product
portfolio to drive simplicity, differentiation and customer experience; and
making selective and strategic acquisitions of technology, talent and/or
businesses. In 2013, we expect to continue these efforts as well as focus on
helping our customers embrace and power mobile workstyles and build cloud
infrastructure so cloud services can be delivered virtually anywhere with a high
quality user experience.
We continue to make strategic investments in research and development of
existing and new products, and to invest in research and development of advanced
and innovative technologies for future application, including increasing
research and development capacity and headcount. We believe that delivering
innovative and high-value solutions through our Enterprise division's products
and services and our Online Services division's products is the key to meeting
customer and partner needs and achieving our future growth. We plan to increase
sales, consulting and technical support capacity and headcount to support larger
strategic customer engagements. We also plan to increase our focus on SI
partnerships as well as investing in new service provider channel programs that
allow our partners to upgrade their capabilities in desktop virtualization,
giving us more capacity to drive strategic desktop deals and to cross-sell
networking, data sharing and collaboration.
Enterprise division
Our Desktop Solutions are built to transform and reduce the cost of traditional
desktop management by virtualizing the desktop, with our XenDesktop product, and
virtualizing applications, with our XenApp product, in a customer's datacenter.
We are moving the delivery of desktops and related applications to an on-demand
service rather than the delivery of a device. We continue to see growing
customer interest in XenDesktop and, in addition, by making the XenDesktop
trade-up program a standard program, we are maximizing our XenApp install base
and driving continued XenDesktop adoption. Further, we are helping customers
accelerate the implementation of desktop virtualization enterprise-wide through
our Desktop Transformation Model. Our Desktop Transformation Model has been
enhanced by technologies originating from our acquisition of RingCube, which
facilitates user personalization in virtual desktop deployments, and our App-DNA
acquisition, which provides customers a means of analyzing an enterprise's
application portfolio, offering deployment guidance and calculating project
effort.
Our Datacenter and Cloud Solutions, including our cloud networking products and
cloud platform products, can alter the traditional economics of the datacenter
by providing greater levels of flexibility of computing resources, especially
with respect to servers, improving application performance and thereby reducing
the amount of processing power involved, and allowing easy reconfiguration of
servers by permitting storage and network infrastructure to be added-in
virtually rather than physically. Our cloud networking products are also
enhancing our differentiation and driving customer interest around desktop
virtualization as enterprises are finding good leverage in deploying these
technologies together.
We continue to invest in innovative products and services for the Enterprise
division through strategic acquisitions. In July 2011, we acquired Cloud.com,
Inc., or Cloud.com, a privately-held market leading provider of software
infrastructure platforms for cloud providers. Cloud.com's product lines help
providers of all types deploy and manage simple, cost-effective cloud services
that are scalable, secure, and open by design. In August 2011, we acquired
RingCube, a privately-held company that specializes in user personalization
technology for virtual desktops. In November 2011, we acquired App-DNA™, a
privately-held leader in application migration and management. App-DNA's
technology adds a significant component to our Desktop Transformation Model,
which is aimed at helping customers speed deployments of desktop virtualization
enterprise-wide. The App-DNA AppTitude™ product enables organizations to quickly
and intelligently assess their application portfolio and migration plans.
In July 2012, we acquired Bytemobile, Inc., or Bytemobile, a privately held
leading provider of data and video optimization solutions for mobile network
operators. We believe that the Bytemobile acquisition gives us a strategic
foothold in the core infrastructure of certain mobile operators which are
experiencing rapid growth in network traffic, driven by the
combination of new consumer devices, rich multimedia content, and high speed 3G,
4G and LTE networks. We further believe that this acquisition will enhance our
broader strategy of powering mobile workstyles and cloud services and will allow
us to offer mobile operators combined solutions that deliver a high quality user
experience to mobile subscribers, including solutions that combine the
Bytemobile Smart Capacity™ technology with our Citrix NetScaler® line of cloud
networking solutions.
Online Services division
Our Online Services division is focused on developing and marketing web-based
access, support, collaboration and data sharing products. These products are
primarily marketed via the web to large enterprises, medium and small
businesses, prosumers and individuals. Our Online Services division's web
collaboration products offer secure and cost-effective solutions that allow
users to host and actively participate in online meetings, webinars and training
sessions remotely and reduce costs associated with business travel. Our remote
access solution offers a secure, simple and cost efficient way for users to
access their desktops remotely, and our remote support solutions offer secure,
on-demand support over the Internet.
We continue to grow our Online Services division by increasing our addressable
market geographically and offering products that appeal to a wider range of
customers. To accelerate the European expansion of our Online Services division,
in February 2011, we acquired Netviewer AG, or Netviewer, a privately held
European software as a service, or SaaS, vendor in collaboration and IT
services. Netviewer is part of our Online Services division and has further
enabled the extension of our SaaS leadership in Europe. In October 2011, we
acquired Novel Labs, Inc., or ShareFile, a privately-held market leading
provider of secure data sharing and collaboration. The ShareFile product line
makes it easy for businesses of all sizes to securely store, sync and share
business documents and files, both inside and outside the company. ShareFile's
centralized cloud storage capability also allows users to share files across
multiple devices and access them from any location.
In addition, in the second quarter of 2012, we acquired Podio ApS, or Podio, a
privately held provider of a cloud-based collaborative work platform. Podio
became part of our Online Services division and is a natural extension of our
web collaboration business, providing today's mobile and distributed workforce
an easy, secure and social way to come together and work as teams.
Reclassifications
During the first quarter of 2012, we performed a review of the presentation of
certain of our revenue categories and adopted a revised presentation, which we
believe is more comparable to those presented by other companies in our industry
and better reflects our evolving product and service offerings. As a result,
technical support, hardware maintenance and software updates revenues, which
were previously presented in Technical services and License updates are
classified together as License updates and maintenance. A corresponding change
was made to rename Cost of services revenues to Cost of services and maintenance
revenues; however, there was no change in classification. Product training and
certification and consulting services, which were previously presented in
Technical services, are classified together as Professional services. Product
licenses has been renamed to Product and licenses to more appropriately describe
its composition of both software and hardware, however, there was no change in
classification. The composition and classification of Software as a service
remained unchanged. This change in presentation will not affect our total net
revenues, total cost of net revenues or gross margin.
Additionally, during the first quarter of 2012, we revised our methodology for
allocating certain IT support costs to more closely align these costs to the
employees directly utilizing the related assets and services and to reflect how
management assesses the cost of headcount. As a result, certain IT support costs
have been reclassified from General and administrative expenses to Cost of
services and maintenance revenues, Research and development expenses and Sales,
marketing and services expenses based on the headcount in each of these
functional areas. This change in presentation will not affect our income from
operations or cash flows.
Conforming changes have been made for all prior periods presented. See Note 1 to
our condensed consolidated financial statements for more information regarding
the reclassifications described above.
Summary of Results
For the three months ended September 30, 2012 compared to the three months ended
September 30, 2011, a summary of our results included:
• Product and licenses revenue increased 0.9% to $195.7 million;
• Software as a service revenue increased 18.3% to $129.7 million;
• License updates and maintenance revenue increased 19.4% to $285.1 million;
• Professional services revenue increased 33.7% to $31.0 million;
• Operating income decreased 21.3% to $82.4 million; and
• Diluted net income per share decreased 15.1% to $0.41.
The increase in our Product and licenses revenue was not significant. See our
Executive Summary above for factors contributing to our Product and licenses
revenue results. We currently target our Product and licenses revenue to
increase when comparing the fourth quarter of 2012 to the third quarter of 2012.
Our Software as a service revenue increased due to increased sales of our web
collaboration products, led by GoToMeeting. The increase in License updates and
maintenance revenue was primarily due to an increase in sales and renewals of
our Subscription Advantage product and an increase in maintenance revenues,
primarily driven by increased sales of our Datacenter and Cloud Solutions
products, led by NetScaler. Professional services revenue increased primarily
due to increases in consulting revenues related to increased implementation
sales of our Enterprise division's products. We currently target that total
revenue to increase when comparing the fourth quarter of 2012 to the third
quarter of 2012. In addition, when comparing the 2012 fiscal year to the 2011
fiscal year we target total revenue to increase. The decrease in Operating
income and diluted net income per share when comparing the third quarter of 2012
to the third quarter of 2011 was primarily due to an increase in stock-based
compensation costs primarily related to our annual stock grant and our recent
acquisitions and an increase in amortization of intangible assets primarily
related to our recent acquisitions.
2012 Acquisitions
Podio
In April 2012, we acquired all of the issued and outstanding securities of Podio
ApS, or Podio, a privately-held provider of a cloud-based collaborative work
platform. Podio became part of our Online Services division and expands our
offerings of integrated cloud-based support for team-based collaboration. The
total consideration for this transaction was approximately $43.6 million, net of
$1.7 million of cash acquired, and was paid in cash. Transaction costs
associated with the acquisition were approximately $0.5 million, all of which we
expensed during the nine months ended September 30, 2012 and are included in
General and administrative expense in our condensed consolidated statements of
income. There were no transaction costs associated with the acquisition during
the three months ended September 30, 2012. In addition, in connection with the
acquisition, we assumed non-vested stock units, which were converted into the
right to receive up to 127,668 shares of our common stock, for which the vesting
period reset fully upon the closing of the transaction.
Bytemobile
In July 2012, we acquired all of the issued and outstanding securities of
Bytemobile, a privately-held provider of data and video optimization solutions
for mobile network operators. Bytemobile became part of our Enterprise division
and extends our industry reach into the mobile and cloud markets. The total
consideration for this transaction was approximately $400.7 million, net of $5.6
million of cash acquired, and was paid in cash. Transaction costs associated
with the acquisition were approximately $2.1 million, all of which we expensed
during the nine months ended September 30, 2012 and are included in General and
administrative expense in our condensed consolidated statements of income. There
were no transaction costs associated with the acquisition during the three
months ended September 30, 2012.
2012 Other Acquisitions
During the first quarter of 2012, we acquired all of the issued and outstanding
securities of a privately-held company for total cash consideration of
approximately $24.6 million, net of $0.6 million of cash acquired. This target's
business became part of our Enterprise division. Transaction costs associated
with the acquisition were approximately $0.5 million, of which we expensed $0.4
million during the nine months ended September 30, 2012 and are included in
General and administrative expense in our condensed consolidated statements of
income. There were no transaction costs associated with the acquisition during
the three months ended September 30, 2012. In addition, in connection with this
acquisition, we assumed non-vested stock units which were converted into the
right to receive up to 13,481 shares of our common stock and assumed certain
stock options which are exercisable for 12,017 shares of our common stock, for
which the vesting period reset fully upon the closing of the transaction.
During the second quarter of 2012, we acquired all of the issued and outstanding
securities of two privately-held companies for total cash consideration of
approximately $15.4 million, net of $0.2 million of cash acquired. The targets'
businesses became part of our Enterprise division. Transaction costs associated
with the acquisitions were approximately $0.4 million, all of which we expensed
during the nine months ended September 30, 2012 and are included in General and
administrative expense in the accompanying condensed consolidated statements of
income. There were no transaction costs associated with the acquisition during
the three months ended September 30, 2012. In addition, in connection with these
acquisitions, we assumed non-vested stock units which were converted into the
right to receive up to 66,459 shares of our common stock, for which the vesting
period reset fully upon the closing of each respective transaction.
During the third quarter of 2012, we acquired all of the issued and outstanding
securities of two privately-held companies for total cash consideration of
approximately $5.3 million. One of the targets became part of our Enterprise
division and the other became part of our Online Services division. Transaction
costs associated with the acquisitions were approximately $0.2 million, all of
which we expensed during the three and nine months ended September 30, 2012 and
are included in General and
administrative expense in the accompanying condensed consolidated statements of
income. In addition, in connection with these acquisitions, we assumed
non-vested stock units which were converted into the right to receive up to
13,487 shares of our common stock, for which the vesting period reset fully upon
the closing of each respective transaction.
We have included the effects of all of the companies acquired in 2012 in our
results of operations prospectively from the date of the acquisition. We do not
currently target that revenue from companies acquired in 2012 will be material
for the remainder of 2012.
2011 Acquisitions
Netviewer AG
In February 2011, we acquired all of the issued and outstanding securities of
Netviewer, a privately-held European SaaS vendor in collaboration and IT
services. Netviewer became part of our Online Services division and the
acquisition enables the extension of our Online Services business in Europe. The
total consideration for this transaction was approximately $107.5 million, net
of $6.3 million of cash acquired, and was paid in cash. Transaction costs
associated with the acquisition were approximately $3.1 million, of which we
expensed $0.1 million and $0.9 million during the three and nine months ended
September 30, 2011, respectively, and are included in General and administrative
expense in our condensed consolidated statement of income. In addition, in
connection with the acquisition, we assumed non-vested stock units, which were
converted into the right to receive up to 99,100 shares of our common stock, for
which the vesting period reset fully upon the closing of the transaction.
Cloud.com
In July 2011, we acquired all of the issued and outstanding securities of
Cloud.com, a privately-held provider of software infrastructure platforms for
cloud providers. Cloud.com became part of our Enterprise division and the
acquisition further establishes us as a leader in infrastructure for the growing
cloud provider market. The total consideration for this transaction was
approximately $158.8 million, net of $5.6 million of cash acquired, and was paid
in cash. Transaction costs associated with the acquisition were approximately
$2.9 million, of which we expensed $2.3 million and $2.9 million during the
three and nine months ended September 30, 2011, respectively, and are included
in General and administrative expense in our condensed consolidated statement of
income. In addition, in connection with the acquisition we assumed non-vested
stock units, which were converted into the right to receive up to 288,742 shares
of our common stock and assumed certain stock options which are exercisable for
183,780 shares of our common stock, for which the vesting period reset fully
upon the closing of the transaction. In the first quarter of 2012, we made a
decision to contribute our CloudStack tradename acquired in conjunction with our
acquisition of Cloud.com to the Apache Software Foundation and recorded a $5.2
million impairment charge which is included in Amortization of other intangible
assets in our condensed consolidated statements of income for the nine months
ended September 30, 2012.
RingCube
In August 2011, we acquired all of the issued and outstanding securities of
RingCube, a privately-held company that specializes in user personalization
technology for virtual desktops. RingCube became part of our Enterprise division
and the acquisition further solidifies our position in desktop virtualization.
The total consideration for this transaction was approximately $32.2 million,
net of $0.5 million of cash acquired, and was paid in cash. Transaction costs
associated with the acquisition were approximately $0.6 million, of which we
expensed $0.5 million and $0.6 million during the three and nine months ended
September 30, 2011, respectively, and are included in General and administrative
expense in our condensed consolidated statement of income. In addition, in
connection with the RingCube acquisition, we assumed non-vested stock units,
which were converted into the right to receive up to 58,439 shares of our common
stock, for which the vesting period reset fully upon the closing of the
transaction.
ShareFile
In October 2011, we acquired all of the issued and outstanding securities of
ShareFile, a privately-held provider of secure data sharing and collaboration
solutions. ShareFile initially became part of our Enterprise division and in the
first quarter of 2012 it was transferred to our Online Services division. The
total consideration for this transaction was approximately $54.0 million, net of
$1.7 million of cash acquired, and was paid in cash. Transaction costs
associated with the acquisition were approximately $0.7 million, of which we
expensed $0.4 million during the three and nine months ended September 30, 2011
and are included in General and administrative expense in the accompanying
condensed consolidated statements of income. In addition, in connection with the
acquisition we assumed non-vested stock units, which were converted into the
right to receive up to 180,697 shares of our common stock and assumed certain
stock options which are exercisable for 390,775 shares of our common stock, for
which the vesting period reset fully upon the closing of the transaction.
App-DNA
In November 2011, we acquired all of the issued and outstanding securities of
App-DNA. App-DNA specializes in application migration and management and became
part of our Enterprise division. The total consideration for this transaction
was approximately $91.3 million, net of $3.2 million of cash acquired, and was
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