CTXS Citrix Systems Inc

Yesterday, after market close, Citrix Systems Inc. (CTXS) declared strong financial results for the second quarter of 2011. Global trends toward virtualization and cloud computing are facilitating the company to post impressive results. Management raised its financial forecast for full fiscal 2011.

Quarterly net revenue was $530.8 million, up 16% year over year, beating the Zacks Consensus Estimate of $522 million. GAAP net income was $82 million or 43 cents per share compared with a net income of $47.6 million or 25 cents per share in the prior-year quarter. However, quarterly adjusted EPS of 49 cents was well above the Zacks Consensus Estimate of 46 cents.

Gross margin in the second quarter of 2011 was 87% compared with 88.3% in the year-ago quarter. Operating expenses in the reported quarter were around $366.3 million compared with $331.1 million in the prior-year quarter. However, quarterly operating margin was 18% compared with 16.1% in the prior-year quarter.            

During the second quarter of 2011, Citrix repurchased 1.2 million of its common outstanding shares for around $99.3 million. At the end of the reported quarter, deferred revenue was $830 million, up 21% year over year.

During the second quarter of 2011, Citrix generated over $161.9 million of cash from operations and free cash flow (cash flow from operations less capital expenditures) during the reported quarter was approximately $129.3 million. At the end of the second quarter of 2011, the company had nearly $1,699.1 million of cash and marketable securities compared with $1,685.6 billion at the end of fiscal 2010. Balance sheet remains free of any debt obligations.

Revenue by Product Mix

Product Licenses revenue was $171.3 million, up 15% year over year. License updates revenue was $183.9 million, up 9% year over year. Online Services revenue was $106.5 million, an increase of 19% over the prior-year quarter, and Technical Services revenue was $69.1 million, up 33% year over year.

Revenue by Reportable Segment

Enterprise Division revenue was $424.3 million, up 8.5% sequentially. Online Services Division revenue was $106.5 million, up 6.7% sequentially.

Revenue by Product Grouping

Desktop solutions revenue was $304.7 million, up 8.9% year over year. Data Center and Cloud Solutions revenue was $93.3 million, up 32% year over year. Online Services revenue was $106.5 million, up 19% year over year. Revenue from Other Products was $26.4 million, up 41.2% year over year.

Revenue by Geography

Revenue in the Americas (North & Latin America) region was $325.66 million. Revenue in Europe, Africa, and the Middle East region was $149.4 million. Revenue in the Asia Pacific region was $55.8 million.

Third Quarter of 2011 Financial Outlook

Management forecasted that the company’s third-quarter 2011 revenue will be within the range of $540 million - $547 million. GAAP EPS will be within the range of 39 cents - 41 cents and non-GAAP EPS will be between 56 cents – 58 cents. Stock-based compensation expenses will be 14 cents per share.

Full Fiscal 2011 Financial Outlook

Management forecasted that the company’s fiscal 2011 revenue will be within the range of $2.16 billion - $2.19 billion. GAAP EPS will be within the range of $1.80 - $1.84 and non-GAAP EPS will be within the range of $2.38 - $2.41. Stock-based compensation expenses will be 48 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 both Citrix and its major competitor VMware Inc. (VMW). We maintain our long-term Neutral recommendation on Citrix Systems. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.

 
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