CTXS Citrix Systems Inc

Yesterday, after market close, Citrix Systems Inc. (CTXS) declared financial results for the fourth quarter of 2011, which managed to beat the Zacks Consensus Estimates. Global trends toward virtualization and cloud computing are facilitating the company to post solid results. However, management provided a weak financial outlook for fiscal 2012, primarily due to the company’s decision for more acquisition and its sales force reorganization. Just a couple of days ago Citrix’s major competitor, VMware Inc. (VMW), provided a rosy outlook for fiscal 2012.

Quarterly net revenue was $619.4 million, up 17% year over year and was in line with the Zacks Consensus Estimate of $619 million. GAAP net income was $108.7 million or 58 cents per share compared with a net income of $94.4 million or 49 cents per share in the prior-year quarter. Quarterly adjusted EPS of 66 cents slivered past the Zacks Consensus Estimate by a penny.

Gross margin in the fourth quarter of 2011 was 87.2% compared with 88% in the year-ago quarter. Operating expenses in the reported quarter were around $404.4 million compared with $353 million in the prior-year quarter. However, quarterly operating margin was 21.9% compared with 21.4% in the prior-year quarter.

During the fourth quarter of 2011, Citrix repurchased 1.4 million of its common outstanding shares for around $99.2 million. At the end of fiscal 2011, deferred revenue was $960 million, up 23.2% year over year.

During the fourth quarter of 2011, Citrix generated over $169.6 million of cash from operations and free cash flow (cash flow from operations less capital expenditures) during the reported quarter was approximately $146.5 million. At the end of fiscal 2011, the company had nearly $1,477.6 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 $229.1 million, up 20% year over year. License updates revenue was $192.9 million, up 9% year over year. Software Services revenue was $114.4 million, an increase of 19% over the prior-year quarter, and Technical Services revenue was $83 million, up 36% year over year.

Revenue by Product Grouping

Desktop solutions revenue in fiscal 2011 was $1,278.8 million, up 12.5% year over year. Data Center and Cloud Solutions revenue was $385.5 million, up 29.1% year over year. Online Services revenue was $427.7 million, up 18.6% year over year. Revenue from Other Products was $114.3 million, up 46.4% year over year.

Revenue by Geography

Revenue in the Americas (North & Latin America) region was $278 million. Revenue in Europe, Africa, and the Middle East region was $170.8 million. Revenue in the Asia Pacific region was $58.6 million.

First Quarter of 2012 Financial Outlook

Management forecasted that the company’s first-quarter 2012 revenue will be within the range of $555 million - $565 million. GAAP EPS will be within the range of 30 cents - 31 cents and non-GAAP EPS will be between 49 cents – 51 cents. Stock-based compensation expenses will be 16 cents per share.

Full Fiscal 2012 Financial Outlook

Management forecasted that the company’s fiscal 2012 revenue will be within the range of $2.49 billion - $2.51 billion. GAAP EPS will be within the range of $1.88 - $1.97 and non-GAAP EPS will be within the range of $2.70 - $2.74. Stock-based compensation expenses will be 71 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 Systems. 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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