CTXS Citrix Systems Inc

Citrix Systems Inc. (CTXS) delivered strong financial results for the third quarter of 2011. Global trends toward virtualization and cloud computing facilitated the impressive results in the reported quarter. Based on the strong results, management raised its financial forecast for fiscal 2011.

Quarterly net revenue was $565.3 million, up 20% year over year and ahead of the Zacks Consensus Estimate of $545 million. GAAP net income was $92.2 million or 49 cents per share compared with $87.8 million or 46 cents per share in the prior-year quarter. However, quarterly adjusted EPS of 64 cents was well above the Zacks Consensus Estimate of 46 cents.

Gross margin in the third quarter of 2011 was 86.4% compared with 87.8% in the year-ago quarter. Operating expenses in the reported quarter were around $383.9 million compared with $333 million in the prior-year quarter. However, quarterly operating margin was 18.5% compared with 17.3% in the prior-year quarter.

During the third quarter of 2011, Citrix generated $188 million in cash from operations compared with $190 million in the year-ago quarter. At quarter end, the company had nearly $775 million in cash and marketable securities compared with $894 million at the end of fiscal 2010. The company had no debt on its balance sheet during the quarter. Free cash flow (cash flow from operations less capital expenditures) in the reported quarter was $158.6 million versus $101.1 million in the prior-year quarter.

Revenue by Product Mix

Product Licenses revenue was $193.9 million, up 27.7% year over year. License updates revenue was $187.2 million, up 7.5% year over year. Online Services revenue was $109.6 million, up 19.5% over the prior-year quarter, and Technical Services revenue increased 36.6% year over year to $74.7 million.

Fourth Quarter 2011 Financial Outlook

Management expects fourth quarter 2011 revenue in the range of $610 million - $620 million. GAAP EPS is projected in the range of 59 cents – 60 cents per share and non-GAAP EPS in the 75 cents – 76 cents range. Stock-based compensation expenses are estimated to be 15 cents per share.

Fiscal 2011 Financial Outlook

Management forecasted fiscal 2011 revenue in the range of $2.20 billion - $2.21 billion. GAAP EPS is expected between $1.88 and $1.90 per share and non-GAAP EPS in the range of $2.45 - $2.46. Stock-based compensation expenses are expected to be 48 cents per share.

Full Fiscal 2012 Financial Outlook

Management forecasted fiscal 2012 revenue in the range of $2.47 billion - $2.48 billion.

Our Recommendation

We believe the virtualization market will continue to flourish with desktop virtualization as its core theme. This trend is expected to drive future growth at both Citrix and its major competitor VMware Inc. (VMW).

Moreover, the recent acquisition of ShareFile, a leading provider of cloud-based data storage and App-DNA will further strengthen the company’s position in the virtual desktop market.

We, thus, maintain our long-term Neutral recommendation forCitrix Systems. Currently, Citrix Systems has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

 
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