Company Quick10K Filing
Citrix Systems
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 317 $30,974
10-Q 2019-11-01 Quarter: 2019-09-30
10-Q 2019-08-06 Quarter: 2019-06-30
10-Q 2019-05-10 Quarter: 2019-03-31
10-K 2019-02-15 Annual: 2018-12-31
10-Q 2018-11-05 Quarter: 2018-09-30
10-Q 2018-08-03 Quarter: 2018-06-30
10-Q 2018-05-04 Quarter: 2018-03-31
10-K 2018-02-16 Annual: 2017-12-31
10-Q 2017-11-02 Quarter: 2017-09-30
10-Q 2017-08-04 Quarter: 2017-06-30
10-Q 2017-05-08 Quarter: 2017-03-31
10-K 2017-02-16 Annual: 2016-12-31
10-Q 2016-11-04 Quarter: 2016-09-30
10-Q 2016-08-05 Quarter: 2016-06-30
10-Q 2016-05-06 Quarter: 2016-03-31
10-K 2016-02-18 Annual: 2015-12-31
10-Q 2015-11-04 Quarter: 2015-09-30
10-Q 2015-08-07 Quarter: 2015-06-30
10-Q 2015-05-08 Quarter: 2015-03-31
10-K 2015-02-19 Annual: 2014-12-31
10-Q 2014-11-04 Quarter: 2014-09-30
10-Q 2014-08-05 Quarter: 2014-06-30
10-Q 2014-05-06 Quarter: 2014-03-31
10-K 2014-02-20 Annual: 2013-12-31
10-Q 2013-11-05 Quarter: 2013-09-30
10-Q 2013-08-06 Quarter: 2013-06-30
10-Q 2013-05-07 Quarter: 2013-03-31
10-K 2013-02-21 Annual: 2012-12-31
10-Q 2012-11-05 Quarter: 2012-09-30
10-Q 2012-08-07 Quarter: 2012-06-30
10-Q 2012-05-07 Quarter: 2012-03-31
10-K 2012-02-23 Annual: 2011-12-31
10-Q 2011-11-07 Quarter: 2011-09-30
10-Q 2011-08-08 Quarter: 2011-06-30
10-Q 2011-05-09 Quarter: 2011-03-31
10-K 2011-02-24 Annual: 2010-12-31
10-Q 2010-11-09 Quarter: 2010-09-30
10-Q 2010-08-09 Quarter: 2010-06-30
10-Q 2010-05-05 Quarter: 2010-03-31
10-K 2010-02-24 Annual: 2009-12-31
8-K 2019-11-26 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-10-24 Earnings, Other Events, Exhibits
8-K 2019-08-19 Officers, Regulation FD, Exhibits
8-K 2019-07-23 Earnings, Officers, Other Events, Exhibits
8-K 2019-06-04 Officers, Shareholder Vote, Exhibits
8-K 2019-04-19 Earnings, Officers, Other Events, Exhibits
8-K 2019-01-23 Earnings, Other Events, Exhibits
8-K 2018-12-10 Officers, Exhibits
8-K 2018-10-24 Earnings, Regulation FD, Other Events, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-06-06 Officers, Shareholder Vote, Exhibits
8-K 2018-05-08 Regulation FD, Other Events, Exhibits
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-04-18 Officers
8-K 2018-03-07 Amend Bylaw, Exhibits
8-K 2018-02-02 Enter Agreement, Other Events, Exhibits
8-K 2018-02-02 Officers, Regulation FD, Exhibits
8-K 2018-01-31 Earnings, Exhibits
CTXS 2019-09-30
Part I: Financial Information
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 a09-30x2019ex311.htm
EX-31.2 a09-30x2019ex312.htm
EX-32.1 a09-30x2019ex321.htm

Citrix Systems Earnings 2019-09-30

CTXS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
ATVI 35,351 17,495 5,518 7,426 1,549 1,685 2,415 33,452 21% 13.9 10%
ADSK 34,134 4,873 5,067 3,005 2,619 57 297 34,600 87% 116.6 1%
CTXS 30,974 3,935 3,427 3,002 2,567 528 814 30,469 86% 37.4 13%
SQ 30,173 4,654 3,470 3,923 1,595 -53 25 30,429 41% 1,214.1 -1%
EA 29,643 9,749 3,264 5,022 3,728 2,147 2,439 26,110 74% 10.7 22%
VEEV 23,190 1,860 415 969 707 288 321 22,362 73% 69.7 15%
SNPS 21,200 6,153 2,214 3,305 2,577 626 692 20,637 78% 29.8 10%
CDNS 19,514 2,612 1,182 2,304 0 426 645 18,880 0% 29.3 16%
TWLO 17,757 5,109 812 881 476 -203 -141 17,222 54% -122.3 -4%
SPLK 17,377 4,488 3,054 1,422 1,667 0 132 15,705 117% 119.4 0%

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form
10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission File Number 0-27084
 
 
 
CITRIX SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
 
 
 
    
Delaware
  
75-2275152
(State or other jurisdiction of
incorporation or organization)
  
(IRS Employer
Identification No.)
 
 
 
851 West Cypress Creek Road
  
 
Fort Lauderdale
 
 
Florida
 
33309
(Address of principal executive offices)
  
(Zip Code)
Registrant’s Telephone Number, Including Area Code:
(954) 267-3000
 
 
 
Securities registered pursuant to Section 12(b) of the Act
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, par value $.001 per share
CTXS
The NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

1



 ☒
Large accelerated filer
 Accelerated filer
 Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of October 25, 2019, there were 130,219,842 shares of the registrant’s Common Stock, $.001 par value per share, outstanding.

2



CITRIX SYSTEMS, INC.
Form 10-Q
For the Quarterly Period Ended September 30, 2019
CONTENTS

 
 
 
 
 
Page
Number
PART I:
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II:
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

2



PART I: FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
September 30, 2019
 
December 31, 2018
 
(Unaudited)
 
(Derived from audited financial statements)
 
(In thousands, except par value)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
493,834

 
$
618,766

Short-term investments, available-for-sale
55,372

 
583,615

Accounts receivable, net of allowances of $6,962 and $4,530 at September 30, 2019 and December 31, 2018, respectively
426,842

 
688,420

Inventories, net
18,518

 
21,905

Prepaid expenses and other current assets
199,434

 
174,195

Total current assets
1,194,000

 
2,086,901

Long-term investments, available-for-sale
21,374

 
574,319

Property and equipment, net
236,788

 
243,396

Operating lease right-of-use assets
218,625

 

Goodwill
1,798,408

 
1,802,670

Other intangible assets, net
119,055

 
167,187

Deferred tax assets, net
301,062

 
136,998

Other assets
141,781

 
124,578

Total assets
$
4,031,093

 
$
5,136,049

Liabilities, Temporary Equity and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
72,659

 
$
75,551

Accrued expenses and other current liabilities
294,915

 
290,492

Income taxes payable
45,615

 
44,409

Current portion of convertible notes

 
1,155,445

Current portion of deferred revenues
1,200,496

 
1,345,243

Total current liabilities
1,613,685

 
2,911,140

Long-term portion of deferred revenues
415,076

 
489,329

Long-term debt
742,704

 
741,825

Long-term income taxes payable
259,391

 
285,627

Operating lease liabilities
221,032

 

Other liabilities
66,294

 
148,499

Commitments and contingencies

 

Temporary equity from convertible notes

 
8,110

Stockholders' equity:
 
 
 
Preferred stock at $.01 par value: 5,000 shares authorized, none issued and outstanding

 

Common stock at $.001 par value: 1,000,000 shares authorized; 317,549 and 309,761 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively
318

 
310

Additional paid-in capital
6,170,577

 
5,404,500

Retained earnings
4,500,876

 
4,169,019

Accumulated other comprehensive loss
(6,482
)
 
(8,154
)
 
10,665,289

 
9,565,675

Less - common stock in treasury, at cost (187,661 and 178,327 shares at September 30, 2019 and December 31, 2018, respectively)
(9,952,378
)
 
(9,014,156
)
Total stockholders' equity
712,911

 
551,519

Total liabilities, temporary equity and stockholders' equity
$
4,031,093

 
$
5,136,049

See accompanying notes.

3



CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands, except per share information)
Revenues:
 
 
 
 
 
 
 
Subscription
$
159,873

 
$
111,539

 
$
457,312

 
$
325,493

Product and license
131,057

 
170,952

 
406,733

 
523,707

Support and services
441,971

 
449,985

 
1,336,696

 
1,322,833

Total net revenues
732,901

 
732,476

 
2,200,741

 
2,172,033

Cost of net revenues:
 
 
 
 
 
 
 
Cost of subscription, support and services
76,885

 
64,717

 
227,130

 
195,625

Cost of product and license revenues
27,411

 
27,571

 
75,033

 
91,150

Amortization and impairment of product related intangible assets
22,622

 
11,629

 
42,707

 
34,177

Total cost of net revenues
126,918

 
103,917

 
344,870

 
320,952

Gross margin
605,983

 
628,559

 
1,855,871

 
1,851,081

Operating expenses:
 
 
 
 
 
 
 
Research and development
126,420

 
111,557

 
390,712

 
323,050

Sales, marketing and services
274,874

 
262,562

 
847,958

 
800,505

General and administrative
80,042

 
86,084

 
238,751

 
227,151

Amortization of other intangible assets
4,937

 
4,063

 
11,671

 
11,748

Restructuring
8,879

 
(486
)
 
16,022

 
13,138

Total operating expenses
495,152

 
463,780

 
1,505,114

 
1,375,592

Income from operations
110,831

 
164,779

 
350,757

 
475,489

Interest income
2,649

 
10,896

 
16,193

 
29,029

Interest expense
(8,822
)
 
(19,962
)
 
(37,144
)
 
(60,840
)
Other income (expense), net
3,456

 
3,702

 
3,735

 
(1,847
)
Income before income taxes
108,114

 
159,415

 
333,541

 
441,831

Income tax (benefit) expense
(162,743
)
 
558

 
(141,159
)
 
31,882

Net income
$
270,857

 
$
158,857

 
$
474,700

 
$
409,949

Earnings per share:
 
 
 
 
 
 
 
Basic
$
2.08

 
$
1.18

 
$
3.62

 
$
3.00

Diluted
$
2.04

 
$
1.08

 
$
3.48

 
$
2.80

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
130,277

 
135,055

 
131,020

 
136,752

Diluted
132,655

 
147,568

 
136,297


146,554


See accompanying notes.

4



    
CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Net income
$
270,857

 
$
158,857

 
$
474,700

 
$
409,949

Other comprehensive income:
 
 
 
 
 
 
 
Available for sale securities:
 
 
 
 
 
 
 
Change in net unrealized gains (losses)
57

 
816

 
2,859

 
(3,394
)
Less: reclassification adjustment for net losses (gains) included in net income
7

 
62

 
(577
)
 
1,307

Net change (net of tax effect)
64

 
878

 
2,282

 
(2,087
)
Cash flow hedges:
 
 
 
 
 
 
 
Change in unrealized losses
(1,774
)
 
(1,636
)
 
(1,439
)
 
(4,367
)
Less: reclassification adjustment for net (gains) losses included in net income
(162
)
 
1,185

 
829

 
(1,031
)
Net change (net of tax effect)
(1,936
)
 
(451
)
 
(610
)
 
(5,398
)
Other comprehensive (loss) income
(1,872
)
 
427

 
1,672

 
(7,485
)
Comprehensive income
$
268,985

 
$
159,284

 
$
476,372

 
$
402,464


See accompanying notes.




5



CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
 
2019
 
2018
 
(In thousands)
Operating Activities
 
 
 
Net income
$
474,700

 
$
409,949

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and other
188,443

 
161,582

Stock-based compensation expense
202,523

 
144,306

Deferred income tax (benefit) expense
(184,573
)
 
2,508

Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies
2,712

 
7,226

Other non-cash items
7,888

 
5,558

Total adjustments to reconcile net income to net cash provided by operating activities
216,993

 
321,180

Changes in operating assets and liabilities, net of the effects of acquisitions:
 
 
 
Accounts receivable
256,628

 
296,286

Inventories
443

 
(7,549
)
Prepaid expenses and other current assets
(13,539
)
 
(51,726
)
Other assets
(50,068
)
 
(17,540
)
Income taxes, net
(42,119
)
 
(83,273
)
Accounts payable
(2,645
)
 
2,945

Accrued expenses and other current liabilities
(48,485
)
 
40,503

Deferred revenues
(219,000
)
 
(85,072
)
Other liabilities
4,111

 
3,233

Total changes in operating assets and liabilities, net of the effects of acquisitions
(114,674
)
 
97,807

Net cash provided by operating activities
577,019

 
828,936

Investing Activities
 
 
 
Purchases of available-for-sale investments
(19,999
)
 
(435,876
)
Proceeds from sales of available-for-sale investments
938,031

 
442,360

Proceeds from maturities of available-for-sale investments
165,944

 
320,259

Purchases of property and equipment
(50,453
)
 
(54,289
)
Cash paid for acquisitions, net of cash acquired

 
(65,983
)
Cash paid for licensing agreements, patents and technology
(2,405
)
 
(2,140
)
Other
919

 
1,399

Net cash provided by investing activities
1,032,037

 
205,730

Financing Activities
 
 
 
Proceeds from issuance of common stock under stock-based compensation plans

 
164

Proceeds from credit facility
200,000

 

Repayment of credit facility
(200,000
)
 

Repayment of acquired debt

 
(5,674
)
Repayment on convertible notes
(1,164,497
)
 

Stock repurchases, net
(353,904
)
 
(881,153
)
Cash paid for tax withholding on vested stock awards
(74,794
)
 
(53,589
)
Cash paid for dividends
(137,224
)
 

Net cash used in financing activities
(1,730,419
)
 
(940,252
)
Effect of exchange rate changes on cash and cash equivalents
(3,569
)
 
(4,362
)
Change in cash and cash equivalents
(124,932
)
 
90,052

Cash and cash equivalents at beginning of period
618,766

 
1,115,130

Cash and cash equivalents at end of period
$
493,834

 
$
1,205,182

See accompanying notes.

6



CITRIX SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Citrix Systems, Inc. (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. All adjustments, which, in the opinion of management, are considered necessary for a fair presentation of the results of operations for the periods shown, are of a normal recurring nature and have been reflected in the condensed consolidated financial statements and accompanying notes. The results of operations for the periods presented are not necessarily indicative of the results expected for the full year or for any future period partially because of the seasonality of the Company’s business. Historically, the Company’s revenue for the fourth quarter of any year is typically higher than the revenue for the first quarter of the subsequent year. The information included in these condensed consolidated financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report and the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
The condensed consolidated financial statements of the Company include the accounts of its wholly-owned subsidiaries in the Americas; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific and Japan (“APJ”). All significant transactions and balances between the Company and its subsidiaries have been eliminated in consolidation.
The Company's revenues are derived from sales of its Digital Workspace solutions, Networking products and related Support and services. The Company operates under one reportable segment. See Note 10 for more information on the Company's segment.
2. SIGNIFICANT ACCOUNTING POLICIES
During the first quarter of 2019, the Company adopted new accounting guidance related to leases, which is described below. There have been no other significant changes in the Company’s accounting policies during the three and nine months ended September 30, 2019 as compared to the significant accounting policies described in its Annual Report on Form 10-K for the year ended December 31, 2018.
Recent Accounting Pronouncements
Leases
In February 2016, the Financial Accounting Standards Board issued an accounting standard update on the accounting for leases (“ASC 842”). The new guidance requires that lessees in a leasing arrangement recognize a right-of-use (“ROU”) asset and a lease liability for most leases (other than leases that meet the definition of a short-term lease). The Company adopted this standard as of January 1, 2019 using a modified retrospective approach and recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification and not reassess whether any expired or existing contract is a lease or contains a lease.
Adoption of this standard had a material impact in the Company’s condensed consolidated balance sheets, but did not have a material impact on its condensed consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while the Company's accounting for finance leases remained substantially unchanged. Adoption of the new standard resulted in the recording of additional right-of-use assets for operating leases (net of previously recorded lease losses related to the consolidation of leased facilities of $42.2 million and deferred rent liability of $20.5 million under the old guidance) of approximately $194.5 million and operating lease liabilities of approximately $256.4 million, as of January 1, 2019. The difference between the additional lease assets and lease liabilities, net of the deferred tax impact, was recorded as an adjustment to retained earnings of $0.8 million. Adoption of this standard had no impact to cash from or used in operating, financing, or investing in the Company’s condensed consolidated cash flows statements. Adoption of this standard had no impact on the Company's debt covenant compliance under its current agreement or on liquidity. See Note 19 for additional information regarding the Company’s leases.


7



Current Expected Credit Losses
In June 2016, the Financial Accounting Standards Board issued an accounting standard update on the measurement of credit losses on financial instruments. Previously, credit losses were measured using an incurred loss approach when it was probable that a credit loss had been incurred. The new guidance changes the credit loss model from an incurred loss to an expected loss approach. It requires the application of a current expected credit loss (“CECL”) impairment model to financial assets measured at amortized cost (including trade accounts receivable) and certain off-balance-sheet credit exposures. Under the CECL model, lifetime expected credit losses on such financial assets are measured and recognized at each reporting date based on historical, current, and forecasted information. The standard also changes the impairment model for available-for-sale debt securities, eliminating the concept of other than temporary impairment and requiring credit losses to be recorded through an allowance for credit losses. The amount of the allowance for credit losses for available-for-sale debt securities is limited to the amount by which fair value is below amortized cost. The standard is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. A modified retrospective adoption method is required, with a cumulative-effect adjustment to the opening retained earnings balance in the period of adoption. The adoption of this standard is not expected to have a material impact on the Company's condensed consolidated financial position, results of operations and cash flows. Additionally, the Company is not planning to early adopt this standard.
Premium Amortization on Call Debt Securities
In March 2017, the Financial Accounting Standards Board issued an accounting standard update on the accounting for amortization of premium costs on purchased callable debt securities. The new guidance amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The standard does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The Company adopted the standard effective January 1, 2019 on a modified retrospective basis. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial position, results of operations and cash flows.
Accounting for Cloud Computing Costs
In August 2018, the Financial Accounting Standards Board issued an accounting standard update on the accounting for implementation costs incurred by customers in cloud computing arrangements that are service contracts. The new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company early adopted this standard on a prospective basis effective January 1, 2019. Adoption of this standard did not have a material impact on the Company's condensed consolidated financial position, results of operations and cash flows.
Fair Value Measurements
In August 2018, the Financial Accounting Standards Board issued an accounting standard update on fair value measurements. The new guidance modifies the disclosure requirements on fair value measurements by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty, and adding new disclosure requirements. The new guidance is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those fiscal years, and early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company's condensed consolidated financial position, results of operations and cash flows.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant estimates made by management include the standalone selling price related to revenue recognition, the provision for doubtful accounts receivable, the provision to reduce obsolete or excess inventory to market, the provision for estimated returns, as well as sales allowances, the assumptions used in the valuation of stock-based awards, the assumptions used in the discounted cash flows to mark certain of its investments to market, the valuation of the Company’s goodwill, net realizable value of product related and other intangible assets, the provision for income taxes, valuation allowance for deferred tax assets, uncertain tax positions, and the amortization and depreciation periods for contract acquisition costs, intangible and long-lived assets. While the Company believes that such estimates are fair when considered in conjunction with the condensed consolidated financial position and results of operations taken as a whole, the actual amounts of such items, when known, will vary from these estimates.

8



Available-for-sale Investments
Short-term and long-term available-for-sale investments in debt securities as of September 30, 2019 and December 31, 2018 primarily consist of agency securities, corporate securities, municipal securities and government securities. Investments classified as available-for-sale debt securities are stated at fair value with unrealized gains and losses, net of taxes, reported in Accumulated other comprehensive loss. The Company classifies its available-for-sale investments as current and non-current based on their actual remaining time to maturity. The Company does not recognize changes in the fair value of its available-for-sale investments in income unless a decline in value is considered other-than-temporary in accordance with the authoritative guidance.
The Company’s investment policy is designed to limit exposure to any one issuer depending on credit quality. The Company uses information provided by third parties to adjust the carrying value of certain of its investments to fair value at the end of each period. Fair values are based on a variety of inputs and may include interest rates, known historical trades, yield curve information, benchmark data, prepayment speeds, credit quality and broker/dealer quotes. See Note 6 for additional information regarding the Company’s investments.
Foreign Currency
The functional currency for all of the Company’s wholly-owned foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities of such subsidiaries are remeasured into U.S. dollars at exchange rates in effect at the balance sheet date, and revenues and expenses are remeasured at average rates prevailing during the year. Foreign currency transaction gains and losses are the result of exchange rate changes on transactions denominated in currencies other than the functional currency, including U.S. dollars. The remeasurement of those foreign currency transactions is included in determining net income or loss for the period of exchange.
Accounting for Stock-Based Compensation Plans
The Company has various stock-based compensation plans for its employees and outside directors and accounts for stock-based compensation arrangements in accordance with the authoritative guidance, which requires the Company to measure and record compensation expense in its condensed consolidated financial statements using a fair value method. See Note 8 for further information regarding the Company’s stock-based compensation plans.
3. REVENUE
The following is a description of the principal activities from which the Company generates revenue.
Subscription
Subscription revenues primarily consist of cloud-hosted offerings which provide customers a right to use, or a right to access, one or more of the Company’s cloud-hosted subscription offerings, with routine customer support, as well as revenues from the Citrix Service Provider ("CSP") program and on-premise subscription software licenses. For the Company’s cloud-hosted performance obligations, revenue is generally recognized on a ratable basis over the contract term beginning on the date that the Company's service is made available to the customer, as the Company continuously provides online access to the web-based software that the customer can use at any time. The CSP program provides subscription-based services in which the CSP partners host software services to their end users.
Product and license
Product and license revenues are primarily derived from perpetual offerings related to the Company’s Digital Workspace solutions and Networking products. For performance obligations related to perpetual software license agreements, the Company determined that its licenses are functional intellectual property that are distinct as the user can benefit from the software on its own.
Support and services
Support and services includes license updates, maintenance and professional services revenues. License updates and maintenance revenues are primarily comprised of software and hardware maintenance, when and if-available updates and technical support. For performance obligations related to license updates and maintenance, revenue is generally recognized on a straight-line basis over the period of service because the Company transfers control evenly by providing a stand-ready service. That is, the Company is continuously working on improving its products and pushing those updates through to the customer, and stands ready to provide software updates on a when and if-available basis. Services revenues are comprised of fees from consulting services primarily related to the implementation of the Company’s products and fees from product training and certification.

9



The Company’s typical performance obligations include the following:
Performance Obligation
When Performance Obligation
is Typically Satisfied
Subscription
 
Cloud hosted offerings
Over the contract term, beginning on the date that service is made available to the customer (over time)
CSP
As the usage occurs (over time)
On-premise subscription software licenses
When software activation keys have been made available for download (point in time)
Product and license
 
Software Licenses
When software activation keys have been made available for download (point in time)
Hardware
When control of the product passes to the customer; typically upon shipment (point in time)
Support and services
 
License updates and maintenance
Ratably over the course of the service term (over time)
Professional services
As the services are provided (over time)

Significant Judgments
At contract inception, the Company assesses the solutions or services, or bundles of solutions and services, obligated in the contract with a customer to identify each performance obligation within the contract, and then evaluates whether the performance obligations are capable of being distinct and distinct within the context of the contract. Solutions and services that are not both capable of being distinct and distinct within the context of the contract are combined and treated as a single performance obligation in determining the allocation and recognition of revenue.
The standalone selling price is the price at which the Company would sell a promised product or service separately to the customer. For the majority of the Company's software licenses and hardware, CSP and on-premise subscription software licenses, the Company uses the observable price in transactions with multiple performance obligations. For the majority of the Company’s support and services, and cloud-hosted subscription offerings, the Company uses the observable price when the Company sells that support and service and cloud-hosted subscription separately to similar customers. If the standalone selling price for a performance obligation is not directly observable, the Company estimates it. The Company estimates standalone selling price by taking into consideration market conditions, economics of the offering and customers’ behavior. The Company maximizes the use of observable inputs and applies estimation methods consistently in similar circumstances. The Company allocates the transaction price to each distinct performance obligation on a relative standalone selling price basis.
Revenues are recognized when control of the promised products or services are transferred to customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those products or services. The Company generates all of its revenues from contracts with customers.
Sales tax
The Company records revenue net of sales tax.

10



Timing of revenue recognition
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(In thousands)
Products and services transferred at a point in time
 
$
159,326

 
$
186,039

 
$
500,450

 
$
583,888

Products and services transferred over time
 
573,575

 
546,437

 
1,700,291

 
1,588,145

Total net revenues
 
$
732,901

 
$
732,476

 
$
2,200,741

 
$
2,172,033


Contract balances
The Company's short-term and long-term contract assets were $4.6 million and $3.7 million, respectively, as of December 31, 2018, and $9.1 million and $17.6 million, respectively, as of September 30, 2019. The Current portion of deferred revenues and the Long-term portion of deferred revenues were $1.35 billion and $489.3 million, respectively, as of December 31, 2018 and $1.20 billion and $415.1 million, respectively, as of September 30, 2019. The difference in the opening and closing balances of the Company’s contract assets and liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. During the three and nine months ended September 30, 2019, the Company recognized $478.7 million and $1.13 billion, respectively, of revenue that was included in the deferred revenue balance as of June 30, 2019 and December 31, 2018, respectively.
The Company performs its obligations under a contract with a customer by transferring solutions and services in exchange for consideration from the customer. Accounts receivable are recorded when the right to consideration becomes unconditional. The timing of the Company’s performance often differs from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. The Company recognizes a contract asset when the Company transfers products or services to a customer and the right to consideration is conditional on something other than the passage of time. The Company recognizes a contract liability when it has received consideration or an amount of consideration is due from the customer and the Company has a future obligation to transfer products or services. The Company had no asset impairment charges related to contract assets for the three and nine months ended September 30, 2019 and 2018
For the Company’s software and hardware products, the timing of payment is typically upfront for its perpetual offerings and the Company’s on-premise subscriptions. Therefore, deferred revenue is created when a contract includes performance obligations such as license updates and maintenance or certain professional services that are satisfied over time. For subscription contracts, the timing of payment is typically in advance of services, and deferred revenue is created as these services are provided over time.
A significant portion of the Company’s contracts have an original duration of one year or less; therefore, the Company applies a practical expedient to determine whether a significant financing component exists and does not consider the effects of the time value of money. For multi-year contracts, the Company bills annually.
Transaction price allocated to the remaining performance obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period (in thousands):
 
 
<1-3 years
 
3-5 years
 
5 years or more
 
Total
Subscription
 
$
644,959

 
$
74,039

 
$
1,148

 
$
720,146

Support and services
 
1,408,910

 
44,587

 
1,362

 
1,454,859

Total net revenues
 
$
2,053,869

 
$
118,626

 
$
2,510

 
$
2,175,005


Contract acquisition costs
The Company is required to capitalize certain contract acquisition costs consisting primarily of commissions paid and related payroll taxes when contracts are signed. The asset recognized from capitalized incremental and recoverable acquisition costs is amortized on a basis consistent with the pattern of transfer of the products or services to which the asset relates.
The Company’s typical contracts include performance obligations related to product and licenses and support. In these contracts, incremental costs of obtaining a contract are allocated to the performance obligations based on the relative estimated standalone selling prices and then recognized on a basis that is consistent with the transfer of the goods or services to which the asset relates. The commissions paid on annual renewals of support for product and licenses are not commensurate with the

11



initial commission. The costs allocated to product and licenses are expensed at the time of sale, when revenue for the product and functional software licenses is recognized. The costs allocated to customer support for product and licenses are amortized ratably over a period of the greater of the contract term or the average customer life, the expected period of benefit of the asset capitalized. The Company currently estimates an average customer life of three years to five years, which it believes is appropriate based on consideration of the historical average customer life and the estimated useful life of the underlying product and license sold as part of the transaction. Amortization of contract acquisition costs related to support are limited to the contractual period of the arrangement as the Company intends to pay a commensurate commission upon renewal of the related support. For contracts that contain multi-year services or subscriptions, the amortization period of the capitalized costs is the expected period of benefit, which is the greater of the contractual term or the expected customer life.
The Company elects to apply a practical expedient to expense contract acquisition costs as incurred where the expected period of benefit is one year or less.
For the three and nine months ended September 30, 2019, the Company recorded amortization of capitalized contract acquisition costs of $11.4 million and $33.0 million, respectively, and for the three and nine months ended September 30, 2018, the Company recorded amortization of capitalized contract acquisition costs of $9.5 million and $25.7 million, respectively, which is recorded in Sales, marketing and services expense in the accompanying condensed consolidated statements of income. As of September 30, 2019, the Company's short-term and long-term contract acquisition costs were $45.0 million and $69.7 million, respectively, and are included in Prepaid and other current assets and Other assets, respectively, in the accompanying condensed consolidated balance sheets. There was no impairment loss in relation to costs capitalized during the three and nine months ended September 30, 2019 and 2018.
4. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share is computed using the weighted-average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise or settlement of stock awards and shares issuable under the employee stock purchase plan (calculated using the treasury stock method) during the period they were outstanding and potential dilutive common shares from the conversion spread on the Company’s 0.500% Convertible Notes due 2019 (the “Convertible Notes”) during the period they were outstanding and the Company's warrants.
The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share information):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
Net income
$
270,857

 
$
158,857

 
$
474,700

 
$
409,949

Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share - weighted-average shares outstanding
130,277

 
135,055

 
131,020

 
136,752

Effect of dilutive employee stock awards
1,823

 
2,731

 
2,050

 
2,594

Effect of dilutive Convertible Notes

 
6,999

 
1,901

 
5,892

Effect of dilutive warrants
555


2,783

 
1,326

 
1,316

Denominator for diluted earnings per share - weighted-average shares outstanding
132,655

 
147,568

 
136,297

 
146,554

 
 
 
 
 
 
 
 
Basic earnings per share
$
2.08

 
$
1.18

 
$
3.62

 
$
3.00

 
 
 
 
 
 
 
 
Diluted earnings per share
$
2.04

 
$
1.08

 
$
3.48

 
$
2.80


For the three and nine months ended September 30, 2019, the weighted-average number of shares outstanding used in the computation of diluted earnings per share includes the dilutive effect of the Company's warrants, as the average stock price during the quarters was above the weighted-average warrant strike price of $94.18 per share and $94.52 per share, respectively. For the three and nine months ended September 30, 2018, the weighted-average number of shares outstanding used in the computation of diluted earnings per share includes the dilutive effect of the Company's warrants, as the average stock price

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during the quarters was above the weighted-average warrant strike price of $95.25 per share. Anti-dilutive stock-based awards excluded from the calculations of diluted earnings per share were immaterial during the periods presented.
The Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on its Convertible Notes on diluted earnings per share because upon conversion the Company paid cash up to the aggregate principal amount of the Convertible Notes converted and delivered shares of common stock in respect of the remainder of the Company’s conversion obligation in excess of the aggregate principal amount of the Convertible Notes converted. The conversion spread had a dilutive impact on diluted earnings per share when the average market price of the Company’s common stock for a given period exceeded the conversion price. For the nine months ended September 30, 2019 and three and nine months ended September 30, 2018, the average market price of the Company's common stock exceeded the conversion price; therefore, the dilutive effect of the Convertible Notes was included in the denominator of diluted earnings per share. For the three months ended September 30, 2019, there was no dilution as the Convertible Notes matured on April 15, 2019. See Note 11 for detailed information on the Convertible Notes offering.
5. ACQUISITIONS
2018 Business Combinations
Sapho, Inc.

On November 13, 2018, the Company acquired all of the issued and outstanding securities of Sapho, Inc. (“Sapho”), whose technology is intended to advance the Company’s development of the intelligent workspace. The acquired technology enables efficient workstyles by creating a unified and customizable notification experience for business applications. The total cash consideration for this transaction was $182.7 million, net of $3.7 million cash acquired. Transaction costs associated with the acquisition were not significant.

Cedexis, Inc.
On February 6, 2018, the Company acquired all of the issued and outstanding securities of Cedexis, Inc. (“Cedexis”), whose solution is a real-time data driven service for dynamically optimizing the flow of traffic across public clouds and data centers that provides a dynamic and reliable way to route and manage Internet performance for customers moving towards hybrid and multi-cloud deployments. The total cash consideration for this transaction was $66.0 million, net of $6.0 million cash acquired. Transaction costs associated with the acquisition were not significant. During the third quarter of 2019, the Company tested certain intangible assets for recoverability due to changes in facts and circumstances associated with the shift in strategic focus and reduced profitability expectations. As a result, the Company impaired a portion of the carrying value of the intangible assets related to this acquisition in the third quarter of 2019. See Note 9 for more information on the impairment.

6. INVESTMENTS
Available-for-sale Investments
Investments in available-for-sale securities at fair value were as follows for the periods ended (in thousands):
 
 
September 30, 2019
 
December 31, 2018
Description of the Securities
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Agency securities
$
1,681

 
$

 
$
(2
)
 
$
1,679

 
$
314,982

 
$
333

 
$
(2,367
)
 
$
312,948

Corporate securities
61,044

 
1

 
(160
)
 
60,885

 
612,698

 
116

 
(4,156
)
 
608,658

Municipal securities

 

 

 

 
2,500

 
4

 

 
2,504

Government securities
14,179

 
7

 
(4
)
 
14,182

 
234,668

 
91

 
(935
)
 
233,824

Total
$
76,904

 
$
8

 
$
(166
)
 
$
76,746

 
$
1,164,848

 
$
544

 
$
(7,458
)
 
$
1,157,934


The change in net unrealized gains (losses) on available-for-sale securities recorded in Other comprehensive income includes unrealized gains (losses) that arose from changes in market value of specifically identified securities that were held during the period, gains (losses) that were previously unrealized, but have been recognized in current period net income due to sales and other than temporary impairments, as well as prepayments of available-for-sale investments purchased at a premium. See Note 13 for more information related to comprehensive income.

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The average remaining maturities of the Company’s short-term and long-term available-for-sale investments at September 30, 2019 were approximately five months and two years, respectively.
Realized Gains and Losses on Available-for-sale Investments
For the three months ended September 30, 2019, the Company had no proceeds from the sales of available-for-sale investments. For the nine months ended September 30, 2019, the Company received proceeds from the sales of available-for-sale investments of $938.0 million. For the three and nine months ended September 30, 2018, the Company received proceeds from the sales of available-for-sale investments of $7.5 million and $442.4 million, respectively.
For the three months ended September 30, 2019, the Company had no realized gains on the sales of available-for-sale investments. For the nine months ended September 30, 2019, the Company had realized gains on the sales of available-for-sale investments of $1.5 million. For the three months ended September 30, 2018, the Company had no realized gains on the sales of available-for-sale investments. For the nine months ended September 30, 2018, the Company had $0.1 million in realized gains on the sales of available-for-sale investments.
For the three months ended September 30, 2019, the Company had no realized losses on available-for-sale investments. For the nine months ended September 30, 2019, the Company had realized losses on available-for-sale investments of $0.9 million. For the three and nine months ended September 30, 2018, the Company had realized losses on available-for-sale investments of $0.1 million and $1.5 million, respectively, primarily related to sales of these investments during these periods.
All realized gains and losses related to the sales of available-for-sale investments are included in Other income (expense), net, in the accompanying condensed consolidated statements of income.
Unrealized Losses on Available-for-Sale Investments
The gross unrealized losses on the Company’s available-for-sale investments that are not deemed to be other-than-temporarily impaired as of September 30, 2019 and December 31, 2018 were $0.2 million and $2.9 million, respectively. Because the Company does not currently intend to sell any of its investments in an unrealized loss position and it is more likely than not that it will not be required to sell the securities before the recovery of its amortized cost basis, which may not occur until maturity, it does not consider the securities to be other-than-temporarily impaired.
Equity Securities without Readily Determinable Fair Values
The Company held direct investments in privately-held companies of $12.3 million and $13.4 million as of September 30, 2019 and December 31, 2018, respectively, which are accounted for at cost, less impairment plus or minus adjustments resulting from observable price changes in orderly transactions for an identical or a similar investment of the same issuer. These investments are included in Other assets in the accompanying condensed consolidated balance sheets. The Company periodically reviews these investments for impairment and observable price changes on a quarterly basis, and adjusts the carrying value accordingly. The Company determined that there were no material adjustments resulting from observable price changes to the Company's investments in privately-held companies without a readily determinable fair value for the three and nine months ended September 30, 2019. The fair value of these investments represents a Level 3 valuation as the assumptions used in valuing these investments are not directly or indirectly observable. See Note 7 for detailed information on fair value measurements.
Equity Securities Accounted for at Net Asset Value
The Company held equity interests in certain private equity funds of $11.9 million and $10.9 million as of September 30, 2019 and December 31, 2018, respectively, which are accounted for under the net asset value practical expedient. These investments are included in Other assets in the accompanying condensed consolidated balance sheets. The net asset value of these investments is determined using quarterly capital statements from the funds, which are based on the Company’s contributions to the funds, allocation of profit and loss and changes in fair value of the underlying fund investments. These private equity funds focus on making venture capital investments, principally by investing in equity securities of early and late stage privately held corporations. The funds’ general partner shall determine the amount, timing and form (whether cash or in kind) of all distributions made by the funds. The Company may only transfer its investments in private equity fund interests subject to the general partner’s written consent and cannot trade its fund interests in established securities markets, secondary markets or equivalents thereof. The Company has unfunded commitments of $0.7 million as of September 30, 2019.

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7. FAIR VALUE MEASUREMENTS
The authoritative guidance defines fair value as an exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarc