Citrix Systems Inc.

Citrix is a difficult company to describe, they provide software solutions to provide connectivity and security to companies and their employees and to apps and their users. You are likely using Citrix and don't even know it. Citrix serves over 400,000 companies and 100 million users. They have spurts of growth and then that growth moderates until they sharpen their pencils and focus on cost containment and then growth. They appear to be in another mode of focused cost containment and growth. Citrix enables customers to secure, manage, and monitor diverse technologies across a complex cloud infrastructure, enabling customers to manage workloads to different clouds of their choice. Simply put, Citrix is riding the cloud wave because they are an arms dealer to customers regardless of their cloud provider(s).

Ests: 4Q19 1Q20 FY19 FY20

Revs 802m 740.5 3b 3.11b

EPS 1.68 1.23 5.67 5.43

P=119.23, Dividend 1.40, yield=1.2%, D/C=14% not factoring 1.4bn in def revs, TTM EPS 5.69, P/E =21X, FY20 P/E=22X

4Q19 1.71 vs 1.67 est 1.68 down from 1.76, FY19 EPS 5.69 vs 5.65

Jan 22, 2019, P=119.23, TTM EPS 5.69, P/E =21X, FY20 P/E=22X
Revs +1% to 810m (49% subscription growth, 24% of Revs, offset by 5% decline in Support and Services, 54% of Revs, and 16% decline in perpetual license, 22% of Revs)
OM 34.4% vs 35%, FY19 OM 29.8%
Workspace +1% to 565m 27% of which was subscription, Networking +3% to 212m 33% of which was software, Prof Services -16% to 33m
Paid subscribers 7.1m vs 4.4m in 4Q18 and 6.1m in 3Q19
Subscription ARR+41% to 743m, SaaS ARR +49% to 520m, Total sub bookings 69% of total product bookings vs 51%, driven by a few large customers that elected to transition to pooled-capacity subscription agreements, including CTXS largest networking deal in history.
Networking sub bookings 63% of networking bookings vs 18% last year
Total bookings duration averaved 1.7 years
Deferred and unbilled revs +15% y/y to 2.5bn
FY19 sub bookings 62% of total product bookings vs 42%, subscription revs +43%
1Q20 Guidance: Revs 730-740m (+1.5-3%, est 740), EPS 1.15-1.20 (-5.5% to -9.5%, est 1.23)
FY20 Guidance: Revs same as prelim guidance in 3Q, 3.1-3.13bn (+3-4%), OM 28-29%, EPS boosted .10 to 5.35-5.55 (-2.5 to -6%, est 5.43, mgmt. expects subs to be 65-75% of total bookings up from 62% in FY19, also expects FY20 to be trough year in OM
Transition continues to show encouraging signs, stock has had a nice run since August, pushing the P/E up which might be warranted given higher multiple on more recurring revenues but might be worth taking some off the table if better opportunities arise.

3Q19 1.52 vs 1.40 +8.6%, est 1.25 down from 1.55

Oct 24, 2019, P=103.67, TTM EPS 5.68, P/E =18X, FY20 P/E=19X midpoint of mgmt. guidance
Revs flat at 733m (43% subscription growth offset 23% decline in perpetual license which is now only 18% of revs), OM 29% vs 31.8%, adj EBT -10%, EPS up due to lower tax rate and share count.
Subscription transition suppressed revs by 7-8% y/y
Subscription ARR +40% to 672m, SaaS ARR +52% to 463m, Total sub bookings 59% of total bookings vs 42% last year. Workspace sub bookings 75% of total Workspace bookings, Networking sub bookings 29% of Networking bookings vs 15% last year
Total bookings duration averaged 1.6 years vs 1.4 years last year.
Deferred and unbilled revs +13% to$2.18bn reflecting higher mix of subscription bookings
Revenues and EPS beat mgmt. guidance which suggests they were being very conservative, more importantly the transition continues to accelerate.
FY19 Guidance: Revs 2.99-3.01bn, EPS 5.60-5.70
FY20 preliminary Guidance: Revs +3-4%, EPS 5.25-5.45 with trough in OM
Mgmt expects to exit FY19 with >60% of product mix from subscriptions, FY20 to exit as high as 80% and hitting the long-awaited inflection point in FY20 for revenue and FCF to accelerate.
Mgmt Targets: 2022 Rev growth 7-8% with 31-33% Oms, 2024 Rev growth 8-10% with 33-35% OMs, Post Transition Rev growth 10%+ with OMs 34%+
Under the hood, transition is going well, near-term pressure on earnings in FY20 is not surprising but a little disappointing given softness in FY19

2Q19 1.21 vs 1.28, -5.5%, est 1.34 down from 1.42

July 24, 2019, P=100.72, TTM EPS 5.56, P/E =18X, FY20 P/E=15X
Revs +1% to 748.7m, GM 85.2% vs 85.4%, OM 27% vs 30.2%
Shift to subscription model accelerated, subscription bookings were 62% of total product bookings vs 42% last year and compared to their expectation of 50-55%, drove a 6-7% headwind to revenue
Subscription Revs +41% to 156m, product and license -27% to 141m, Support and Services +2.7% to 452m, Workspace +7% to 535m, Networking -14% to 178m, professional services +3% to 35m (Networking subscription revs +46%)
Subscription ARR (annualized recurring revenue) +33% to 614m, SaaS ARR +48% to 418m
Citrix Cloud paid subscribers 5.4m vs 2.7m last year and 4.8m in 1Q19
Deferred and unbilled revs +15% to 2.23bn
Guidance: 3Q Revs 700-720m, EPS 1.15-1.30 (-18% to -7%, est 1.55), FY19 Revs 2.97-3.01bn, OM 29-30%, EPS 5.35-5.60 vs previous est of EPS ~$6
Results appear weaker than expected given the accelerated transition, bookings were within management expectations.
Mgmt will update their targets and give more commentary around future profitability at their investor day in September.

1Q19 1.27 vs 1.29, est 1.17 down from 1.37

Apr 24, 2019, P=100.46, TTM EPS 5.63, P/E=18X, FY19 P/E=17X

Revs +3% to 719m, GM 86.5% vs 86.3%, OM 28.2% vs 31.9%
Revs ex 3 largest hyperscale networking strategic service provider customers +10% to just under 700m (can be very lumpy)
Subscription revs +37% to 142m, product and license -16%, Support and Services +2%, Deferred and unbilled revs +21% to 2.14bn, Workspace +13%, fastest since 2012
Guidance: 2Q Revs 765-775m (est 766.5m), EPS 1.30-1.35 (+1.6-5.5%, est 1.42)
FY19 Revs still 3.08-3.09bn and EPS ~$6, y/y cadence starting to improve in 2Q and likely stronger in 2H to get to guidance given soft 1Q impacted by SSP lumpiness.

4Q18 1.67 vs 1.66, +0.6%, est 1.59 up from 1.56, FY18 5.65 vs 4.85

Jan 23, 2019, P=108.66, TTM EPS 5.65, P/E =19X, FY19 P/E=18X
Revs +3% to 802m, GM 87.6% vs 88%, OM 35% vs 40%
Subscription revs +45% to 130m, product and license -11%, Support and Services +2%
EMEA +10%, APJ +4%, Americas -1%
Workspace +6% to 557m, Networking -4% to 206m due to ordering patterns of large hyperscale customers, SSP decline contributed -20m drag, networking subscriptions more than doubled but earlier in transition than in workspace.
Deferred and unbilled +12% to 2.17bn
Guidance: 1Q Revs 700-710m (+0.4-1.9%, est 726.6), EPS 1.15-1.20 (vs 1.29, est 1.37)
FY19 Revs 3.08-3.09bn (+3.6-3.9%, est 3.1bn), OM 31.5-32%, EPS ~6.00 (+6%), consistent with preliminary guidance last quarter, reflects decline in networking decline, Notably FY19 guidance implies acceleration through the year after 1Q as SSP decline headwind particularly prominent in 1Q
Subscriptions >50% of product bookings vs 30% last year, FY18 was 42%
Bookings from new Cloud customers grew strongly q/q and y/y, number of new customers accelerated q/q and more than doubled y/y, for FY, new customers more than tripled.
In FY18, less than 1/3 of cloud bookings were from migrations of existing customers, majority from new seats/customers.
Networking is more cyclical and are focused on transitioning the software side vs the hardware side
Mgmt feels they will exceed their target of $7/share in FCF by 2020.
Stock weak following results especially as some investors might be shifting to risk-on and while the stock isn’t cheap at 19X trailing with muted growth however the transition continues to weigh on reported results especially 1Q (with acceleration after 1Q), demonstrates resiliency, and company remains an eventual acquisition target especially as they help customers navigate between complexities of public/private cloud combinations.

3Q18 1.40 vs 1.22, +14.8%, est 1.25, up from 1.22

Oct 24, 2018, P=99.93, initiated div $1.40, yield 1.4%, TTM EPS=5.60, P/E=18X, FY19 P/E=17X
Revs +6% to 732m (est 721.9m), GM 87.7% vs 87.4%, OM 31.8% vs 31.6%
Subscription revs +37% to 112m, Product and license +1%, Support and Services +2%
55 $1m deals
Also added 750m to its share repurchase authorization which had 398m remaining
Deferred and unbilled 1.9bn, +11% y/y
Guidance: FY18 Revs raised to 2.95-2.97, EPS raised to 5.55-5.60, (implies 4Q roughly flat or slightly down), Preliminary FY19 Revs +4% (includes ~1-2% headwind from continued transition to subscription), EPS ~$6.00 (est 5.96)
Solid results, decent guidance, transition to cloud and hybrid cloud continues to drive results.

2Q18 1.28 vs 1.03, +24%, est 1.20 up from 1.07

July 25, 2018, P=109.24, TTM EPS=5.42, P/E=20X, FY19 P/E=19X
Revs +7% to 742m, est 717.2, GM 87.2% vs 86.1, OM 30.2% vs 26.1%, OpInc +24%
Subscription revs +49% again, Product and license +1%, support and services +3%
83 $1m deals vs 79 last year. Deferred and unbilled 1.94bn, +10% y/y
Guidance: 3Q Revs 715-725m, EPS 1.23-1.26 (+0.8%-3.3%, est 1.22)
FY Revs raised to 2.92-2.95bn, EPS also raised 5.30-5.40,
FY18 and FY19 EPS estimates look low.
Accelerated adoption of cloud services and subscription-based offerings continue to create headwinds in reported results but are fundamentally positive for the company.

Mid Quarter Update

Mgmt announced 2022 goals: Rev growth of at least 6% (per annum), OM at least 33%
Intends to declare quarterly dividend of 0.35, $1.40 per annum, 1.3% yield .

1Q18 1.29 vs .97 w 15% TR, est 1.05

Revs +5% to 697m (est 675), GM 86.3% vs 86.6%, OM 31.9% vs 27.5%, adj EBT +15%
Subscription based revenue +49%, accelerated for 5thconsecutive quarter and 15% of total revs, Product and License -6%, Support and services +3%
50 $1m deals vs 47 last year.
Guidance: 2Q Revs 710-720m, +2.5-3.9%, est 705, EPS 1.18-1.22, +14.6-18.4%, est 1.07
FY Revs 2.88-2.91bn, EPS 5.20-5.30, roughly 8% higher than previous guidance.
Repurchased 750m in stock, While deferred revs are +1% y/y, mostly due to accounting change and unbilled revs, normalized are up ~10% y/y
Steady improvement reflects in raised guidance, cloud continues to gain traction.

4Q17 1.66 vs 1.38, est 1.61, FY EPS 4.85 vs 4.45

Revs +6% to 778m, GM 88%, OM 40%
Product and Subscription bookings grew double digit
Outlook: 1Q18 Revs 670-680m (est 685), EPS 1.03-1.06 (est 1.03), FY18 Revs 2.86-2.88bn (est 2.88), EPS $4.80-4.90 (roughly flat y/y, est 4.77)

3Q17 1.22 vs 1.08, est 1.04

Revs +3.3% to 691m, GM 87.4%, OM 31.6%
Subscription revenue +30% to 81m
Guidance: FY Revs 2.82-2.83bn, EPS raised to 4.79-4.81
Preliminary FY18 Guidance: Revs +1-2%, OM 29-30%,
2020 targets: >40% of Revs on subscription, exit 2020 with OM >33%, FCF per share >$7,
CTXS is working on a multi-year business transformation, stock isn’t overly expensive but stock could be vulnerable in the short term as short-term oriented investors lose patience, the company could also be a takeout or go-private candidate. But this is more than just converting a license revenue model to a subscription one, it’s also about targeting faster growing parts of their market which should meaningfully expand their TAM (total addressable market).

2Q17 1.03 vs 1.00, est .99

Revs +3% to 693m, GM 86.1%, OM 26.1%
76 transactions >$1m
Seeing an acceleration in cloud transformation with strong demand for Citrix Cloud and subscription-based solutions, deferred revs +13% to 1.7bn
Guidance: 3Q Revs 685-695m (est 699.5), EPS 1.02-1.05, est 1.19, FY Revs 2.81-2.83bn, EPS still 4.60-4.65, 3Q guidance is a bit lower than est but FY hasn’t changed implying stronger 4Q
Decent results, transition to recurring revenue SaaS model obviously pressuring revenues and earnings in the near term but management is focused on execution and accelerating the transition (more than double the pace a year ago), bookings solid but variable comp and commissions paid up front while revs recognized over time so adding pressure to P&L.

1Q17 .97 vs 1.00, est .95

Revs +1% to 663m (tough comps), GM 86.6%, OM 27.5%
Company feels their cloud transformation is accelerating, subscription-based revenues >20% of product license vs 11% last year (not a bad thing but disruptive in the short term), deferred revs +11% to 1.5bn, repurchased 7.1m shares
1st time in >4 years, Workspace Services bookings grew double digits,
Guidance: 2Q Revs 685-695m, EPS .97-1.00, est 1.1, FY17 Revs 2.81-2.84bn (+3-4%), EPS 4.60-4.65, est4.65
Soft results, slight miss to expectations, stock selling off 6% in the after-market but stock had a 27% run from October, certainly expectations for improvement are baked into valuation but worth being patient given tough comps, continued solid end demand, and disruption due to shift to subscription.