Company Quick10K Filing
Quick10K
Citrix Systems
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$96.87 132 $12,800
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
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 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 Officers, Regulation FD, Exhibits
8-K 2018-01-31 Earnings, Exhibits
COG Cabot Oil & Gas 10,980
LPLA LPL Financial Holdings 6,840
CBD Brazilian Distribution Co Companhia Brasileira De Distr Cbd 5,620
THG Hanover Insurance Group 4,970
WDR Waddell & Reed Financial 1,340
SXI Standex 894
LTRX Lantronix 75
MMEX MMEX Resources 0
TTLO Torotel 0
BXNG Bang Holdings 0
CTXS 2019-03-31
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 a03-31x2019ex311.htm
EX-31.2 a03-31x2019ex312.htm
EX-32.1 a03-31x2019ex321.htm

Citrix Systems Earnings 2019-03-31

CTXS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ctxs03-31x201910xq.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
o
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
 
 
 
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 x   No  o
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 x   No o 
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.
x  Large accelerated filer
  
o    Accelerated filer
o    Non-accelerated filer
  
o    Smaller reporting company
 
 
o    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  o    No  x

1



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
As of May 3, 2019, there were 131,651,832 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 March 31, 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
 
March 31, 2019
 
December 31, 2018
 
(Unaudited)
 
(Derived from audited financial statements)
 
(In thousands, except par value)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,612,679

 
$
618,766

Short-term investments, available-for-sale
173,601

 
583,615

Accounts receivable, net of allowances of $6,323 and $4,530 at March 31, 2019 and December 31, 2018, respectively
482,647

 
688,420

Inventories, net
23,145

 
21,905

Prepaid expenses and other current assets
160,938

 
174,195

Total current assets
2,453,010

 
2,086,901

Long-term investments, available-for-sale
86,340

 
574,319

Property and equipment, net
243,132

 
243,396

Operating lease right-of-use assets
191,951

 

Goodwill
1,802,756

 
1,802,670

Other intangible assets, net
155,091

 
167,187

Deferred tax assets, net
104,448

 
136,998

Other assets
130,728

 
124,578

Total assets
$
5,167,456

 
$
5,136,049

Liabilities, Temporary Equity and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
81,476

 
$
75,551

Accrued expenses and other current liabilities
292,663

 
290,492

Income taxes payable
2,220

 
44,409

Current portion of convertible notes
1,163,199

 
1,155,445

Current portion of deferred revenues
1,303,210

 
1,345,243

Total current liabilities
2,842,768

 
2,911,140

Long-term portion of deferred revenues
453,507

 
489,329

Long-term debt
742,100

 
741,825

Long-term income taxes payable
285,626

 
285,627

Operating lease liabilities
203,580

 

Other liabilities
83,834

 
148,499

Commitments and contingencies

 

Temporary equity from convertible notes
1,163

 
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; 311,732 and 309,761 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively
312

 
310

Additional paid-in capital
5,495,935

 
5,404,500

Retained earnings
4,232,181

 
4,169,019

Accumulated other comprehensive loss
(5,483
)
 
(8,154
)
 
9,722,945

 
9,565,675

Less - common stock in treasury, at cost (179,832 and 178,327 shares at March 31, 2019 and December 31, 2018, respectively)
(9,168,067
)
 
(9,014,156
)
Total stockholders' equity
554,878

 
551,519

Total liabilities, temporary equity and stockholders' equity
$
5,167,456

 
$
5,136,049

See accompanying notes.

3



CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three Months Ended March 31,
 
2019
 
2018
 
(In thousands, except per share information)
Revenues:
 
 
 
Subscription
$
141,606

 
$
103,158

Product and license
135,022

 
160,697

Support and services
442,515

 
433,337

Total net revenues
719,143

 
697,192

Cost of net revenues:
 
 
 
Cost of subscription, support and services
71,428

 
63,385

Cost of product and license revenues
25,744

 
33,872

Amortization of product related intangible assets
10,301

 
11,029

Total cost of net revenues
107,473

 
108,286

Gross margin
611,670

 
588,906

Operating expenses:
 
 
 
Research and development
130,263

 
98,550

Sales, marketing and services
274,655

 
251,213

General and administrative
77,547

 
63,727

Amortization of other intangible assets
3,529

 
3,666

Restructuring
2,832

 
6,187

Total operating expenses
488,826

 
423,343

Income from operations
122,844

 
165,563

Interest income
9,674

 
8,731

Interest expense
(18,033
)
 
(20,336
)
Other income (expense), net
3,699

 
(3,012
)
Income before income taxes
118,184

 
150,946

Income tax expense
7,836

 
6,687

Net income
$
110,348

 
$
144,259

Earnings per share:
 
 
 
Basic
$
0.84

 
$
1.04

Diluted
$
0.78

 
$
0.99

Weighted average shares outstanding:
 
 
 
Basic
131,483

 
139,248

Diluted
141,025

 
146,388


See accompanying notes.

4



    
CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended March 31,
 
2019
 
2018
 
(In thousands)
Net income
$
110,348

 
$
144,259

Other comprehensive income:
 
 
 
Available for sale securities:
 
 
 
Change in net unrealized gains (losses)
2,188

 
(4,542
)
Less: reclassification adjustment for net (gains) losses included in net income
(558
)
 
1,001

Net change (net of tax effect)
1,630

 
(3,541
)
Cash flow hedges:
 
 
 
Change in unrealized gains
147

 
692

Less: reclassification adjustment for net losses (gains) included in net income
894

 
(1,219
)
Net change (net of tax effect)
1,041

 
(527
)
Other comprehensive income (loss)
2,671

 
(4,068
)
Comprehensive income
$
113,019

 
$
140,191


See accompanying notes.




5



CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
 
(In thousands)
Operating Activities
 
 
 
Net income
$
110,348

 
$
144,259

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and other
62,472

 
51,876

Stock-based compensation expense
65,234

 
35,723

Deferred income tax expense
23,993

 
8,160

Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies
(1,939
)
 
(1,906
)
Other non-cash items
845

 
3,302

Total adjustments to reconcile net income to net cash provided by operating activities
150,605

 
97,155

Changes in operating assets and liabilities, net of the effects of acquisitions:
 
 
 
Accounts receivable
204,406

 
285,104

Inventories
(1,876
)
 
34

Prepaid expenses and other current assets
17,534

 
(13,494
)
Other assets
(15,891
)
 
9,071

Income taxes, net
(49,379
)
 
(35,996
)
Accounts payable
6,134

 
1,828

Accrued expenses and other current liabilities
(81,979
)
 
(52,735
)
Deferred revenues
(77,855
)
 
(79,890
)
Other liabilities
5,519

 
2,519

Total changes in operating assets and liabilities, net of the effects of acquisitions
6,613

 
116,441

Net cash provided by operating activities
267,566

 
357,855

Investing Activities
 
 
 
Purchases of available-for-sale investments
(7,094
)
 
(125,687
)
Proceeds from sales of available-for-sale investments
772,954

 
358,465

Proceeds from maturities of available-for-sale investments
134,325

 
95,341

Purchases of property and equipment
(17,277
)
 
(15,997
)
Cash paid for acquisitions, net of cash acquired

 
(66,330
)
Cash paid for licensing agreements, patents and technology
(590
)
 
(535
)
Other
575

 
3,257

Net cash provided by investing activities
882,893

 
248,514

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

 
70

Repayment of acquired debt

 
(5,674
)
Stock repurchases, net
(93,805
)
 
(600,000
)
Accelerated stock repurchase program

 
(150,000
)
Cash paid for tax withholding on vested stock awards
(17,662
)
 
(13,602
)
Cash paid for dividends
(46,024
)
 

Net cash used in financing activities
(157,491
)
 
(769,206
)
Effect of exchange rate changes on cash and cash equivalents
945

 
2,404

Change in cash and cash equivalents
993,913

 
(160,433
)
Cash and cash equivalents at beginning of period
618,766

 
1,115,130

Cash and cash equivalents at end of period
$
1,612,679

 
$
954,697

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 (formerly Workspace Services and Content Collaboration), 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 months ended March 31, 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 an impact on its condensed consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while its 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




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.
Available-for-sale Investments
Short-term and long-term available-for-sale investments as of March 31, 2019 and December 31, 2018 primarily consist of agency securities, corporate securities, municipal securities and government securities. Investments classified as available-for-sale 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.

8



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 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.
The Company’s typical performance obligations include the following:

9



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.
Timing of revenue recognition
 
 
Three Months Ended
 
 
March 31, 2019
 
March 31, 2018
 
 
(In Thousands)
Products and services transferred at a point in time
 
$
162,964

 
$
182,326

Products and services transferred over time
 
556,179

 
514,866

Total net revenues
 
$
719,143

 
$
697,192


10



Contract balances
The Company's short-term and long-term contract assets were not significant for the periods presented. 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 $1.30 billion and $453.5 million, respectively, as of March 31, 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 months ended March 31, 2019, the Company recognized $455.7 million of revenue that was included in the deferred revenue balance as of December 31, 2018. During the three months ended March 31, 2018, the Company recognized $454.8 million of revenue that was included in the deferred revenue balance as of January 1, 2018.
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 months ended March 31, 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
 
$
459,569

 
$
45,384

 
$
658

 
$
505,611

Support and services
 
1,579,015

 
50,162

 
2,358

 
1,631,535

Total net revenues
 
$
2,038,584

 
$
95,546

 
$
3,016

 
$
2,137,146

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 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 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

11



period of benefit is one year or less.
For the three months ended March 31, 2019 and March 31, 2018, the Company recorded amortization of capitalized contract acquisition costs of $10.7 million and $7.9 million, respectively, which is recorded in Sales, marketing and services expense in the accompanying condensed consolidated statement of income. There was no impairment loss in relation to costs capitalized during the three months ended March 31, 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”) 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
 
March 31,
 
2019
 
2018
Numerator:
 
 
 
Net income
$
110,348

 
$
144,259

Denominator:
 
 
 
Denominator for basic earnings per share - weighted-average shares outstanding
131,483

 
139,248

Effect of dilutive employee stock awards
2,834

 
2,780

Effect of dilutive Convertible Notes
5,016

 
4,360

Effect of dilutive warrants
1,692



Denominator for diluted earnings per share - weighted-average shares outstanding
141,025

 
146,388

 
 
 
 
Basic earnings per share
$
0.84

 
$
1.04

 
 
 
 
Diluted earnings per share
$
0.78

 
$
0.99

For the three months ended March 31, 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 quarter was above the weighted-average warrant strike price of $94.62 per share. For the three months ended March 31, 2018, the weighted-average number of shares outstanding used in the computation of diluted earnings per share does not include common stock issuable upon the exercise of the Company's warrants. The effects of these potentially issuable shares were not included in the calculation of diluted earnings per share because the effect would have been anti-dilutive. 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, if applicable, because upon conversion the Company will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, in respect of the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted. The conversion spread will have a dilutive impact on diluted earnings per share when the average market price of the Company’s common stock for a given period exceeds the conversion price of $71.44 per share of common stock. For the three months ended March 31, 2019 and 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. See Note 11 for detailed information on the Convertible Notes offering.

12



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 preliminary cash consideration for this transaction was $182.9 million, net of $3.7 million cash acquired. Transaction costs associated with the acquisition were not significant. The Company continues to evaluate certain income tax assets and liabilities related to the Sapho acquisition that may be subject to change through the remainder of the measurement period, which will extend not more than twelve months from the acquisition date.

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.
6. INVESTMENTS
Available-for-sale Investments
Investments in available-for-sale securities at fair value were as follows for the periods ended (in thousands):
 
 
March 31, 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
$
69,987

 
$
249

 
$
(289
)
 
$
69,947

 
$
314,982

 
$
333

 
$
(2,367
)
 
$
312,948

Corporate securities
118,689

 
99

 
(490
)
 
118,298

 
612,698

 
116

 
(4,156
)
 
608,658

Municipal securities

 

 

 

 
2,500

 
4

 

 
2,504

Government securities
72,000

 
22

 
(326
)
 
71,696

 
234,668

 
91

 
(935
)
 
233,824

Total
$
260,676

 
$
370

 
$
(1,105
)
 
$
259,941

 
$
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.
The average remaining maturities of the Company’s short-term and long-term available-for-sale investments at March 31, 2019 were approximately seven months and two years, respectively.
Realized Gains and Losses on Available-for-sale Investments
For the three months ended March 31, 2019 and 2018, the Company received proceeds from the sales of available-for-sale investments of $773.0 million and $358.5 million, respectively.
For the three months ended March 31, 2019 and 2018, the Company had realized gains on the sales of available-for-sale investments of $1.0 million and $0.1 million, respectively. For the three months ended March 31, 2019 and 2018, the Company had realized losses on available-for-sale investments of $0.4 million and $1.1 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.

13



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 March 31, 2019 and December 31, 2018 were $1.1 million and $2.9 million, respectively. Because the Company does not currently intend to sell any of its investments in an unrealized loss position other than as noted above 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 $14.3 million and $13.4 million as of March 31, 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 months ended March 31, 2019 and 2018. 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 $10.6 million and $10.9 million as of March 31, 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 $1.0 million as of March 31, 2019.
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 hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Available-for-sale securities included in Level 2 are valued utilizing inputs obtained from an independent pricing service (the “Service”) which uses quoted market prices for identical or comparable instruments rather than direct observations of quoted prices in active markets. The Service applies a four level hierarchical pricing methodology to all of the Company’s fixed income securities based on the circumstances. The hierarchy starts with the highest priority pricing source, then subsequently uses inputs obtained from other third-party sources and large custodial institutions. The Service’s providers utilize a variety of inputs to determine their quoted prices. These inputs may include interest rates, known historical trades, yield curve information, benchmark data, prepayment speeds, credit quality and broker/dealer quotes. Substantially all of the Company’s available-for-sale investments are valued utilizing inputs obtained from the Service and accordingly are categorized as Level 2 in the table below. The Company periodically independently assesses the pricing obtained from the Service and historically has not adjusted the Service's pricing as a result of this assessment. Available-for-sale securities are included in Level 3 when relevant observable inputs for a security are not available.

14



The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of assets and liabilities within the fair value hierarchy. In certain instances, the inputs used to measure fair value may meet the definition of more than one level of the fair value hierarchy. The input with the lowest level priority is used to determine the applicable level in the fair value hierarchy.

Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
As of March 31, 2019
 
Quoted
Prices In
Active Markets
for Identical
Assets (Level 1)
 
Significant
Other
Observable
Inputs (Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
Cash
$
691,539

 
$
691,539

 
$

 
$

Money market funds
916,800

 
916,800

 

 

Corporate securities
4,340

 

 
4,340

 

Available-for-sale securities:
 
 
 
 
 
 
 
Agency securities
69,947

 

 
69,947

 

Corporate securities
118,298

 

 
117,298

 
1,000

Government securities
71,696

 

 
71,696

 

Prepaid expenses and other current assets:
 
 
 
 
 
 
 
Foreign currency derivatives
1,782

 

 
1,782

 

Total assets
$
1,874,402

 
$
1,608,339

 
$
265,063

 
$
1,000

Accrued expenses and other current liabilities:
 
 
 
 
 
 
 
Foreign currency derivatives
1,188

 

 
1,188

 

Total liabilities
$
1,188

 
$

 
$
1,188

 
$

 
As of December 31, 2018
 
Quoted
Prices In
Active Markets
for Identical
Assets (Level 1)
 
Significant
Other
Observable
Inputs (Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
Cash
$
505,363

 
$
505,363

 
$

 
$

Money market funds
88,126

 
88,126

 

 

Agency securities
3,296

 

 
3,296

 

Corporate securities
9,371

 

 
9,371

 

Government securities
12,610

 

 
12,610

 

Available-for-sale securities:
 
 
 
 
 
 
 
Agency securities
312,948

 

 
312,948

 

Corporate securities
608,658

 

 
607,945

 
713

Municipal securities
2,504

 

 
2,504

 

Government securities
233,824

 

 
233,824

 

Prepaid expenses and other current assets:
 
 
 
 
 
 
 
Foreign currency derivatives
764

 

 
764

 

Total assets
$
1,777,464

 
$
593,489

 
$
1,183,262

 
$
713

Accrued expenses and other current liabilities:
 
 
 
 
 
 
 
Foreign currency derivatives
2,543

 

 
2,543

 

Total liabilities
$
2,543

 
$

 
$
2,543

 
$


15



The Company’s fixed income available-for-sale security portfolio generally consists of investment grade securities from diverse issuers with a minimum credit rating of A-/A3 and a weighted-average credit rating of AA-/Aa3. The Company values these securities based on pricing from the Service, whose sources may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value, and accordingly, the Company classifies all of its fixed income available-for-sale securities as Level 2.
The Company measures its cash flow hedges, which are classified as Prepaid expenses and other current assets and Accrued expenses and other current liabilities, at fair value based on indicative prices in active markets (Level 2 inputs).
Assets Measured at Fair Value on a Non-recurring Basis Using Significant Unobservable Inputs (Level 3)
During the three months ended March 31, 2019, no direct investments in privately-held companies were determined to be impaired. For the three months ended March 31, 2018, the Company determined that certain direct investments in privately-held companies were impaired and recorded charges of $0.4 million, which were included in Other income (expense), net in the accompanying condensed consolidated statements of income. In determining the fair value of the investments, the Company considers many factors including but not limited to operating performance of the investee, the amount of cash that the investee has on-hand, the ability to obtain additional financing and the overall market conditions in which the investee operates.
Additional Disclosures Regarding Fair Value Measurements
The carrying value of accounts receivable, accounts payable and accrued expenses approximate their fair value due to the short maturity of these items.
As of March 31, 2019, the fair value of the $750.0 million of unsecured senior notes due December 1, 2027 (the “2027 Notes") and the Convertible Notes, which was determined based on inputs that are observable in the market (Level 2) based on the closing trading price per $100 as of the last day of trading for the quarter ended March 31, 2019, and carrying value of debt instruments (carrying value excludes the equity component of the Company’s Convertible Notes classified in equity) was as follows (in thousands):
 
Fair Value
 
Carrying Value
2027 Notes
$
741,825

 
$
742,100

Convertible Notes
$
1,651,210

 
$
1,163,199

See Note 11 for more information on the 2027 Notes and the Convertible Notes.
8. STOCK-BASED COMPENSATION
The Company’s stock-based compensation program is a long-term retention program that is intended to attract and reward talented employees and align stockholder and employee interests. As of March 31, 2019, the Company had one stock-based compensation plan under which it was granting equity awards. The Company is currently granting stock-based awards from its Amended and Restated 2014 Equity Incentive Plan (the "2014 Plan"), which was approved at the Company's Annual Meeting of Stockholders on June 22, 2017. In March 2019, the Company's Board of Directors approved an amendment to the Amended and Restated 2014 Equity Incentive Plan, which is subject to stockholder approval at the Company Annual Meeting of Stockholders on June 4, 2019. There will be no grants under this amended plan until the amendment is approved by the Company's stockholders. The Company’s superseded stock plans with outstanding awards include the Amended and Restated 2005 Equity Incentive Plan (the "2005 Plan").
Under the terms of the 2014 Plan, the Company is authorized to grant incentive stock options (“ISOs”), non-qualified stock options (“NSOs”), non-vested stock, non-vested stock units, stock appreciation rights (“SARs”), and performance units and to make stock-based awards to full and part-time employees of the Company and its subsidiaries or affiliates, where legally eligible to participate, as well as to consultants and non-employee directors of the Company. ISOs, NSOs, and SARs are not currently being granted. Currently, the 2014 Plan provides for the issuance of 46,000,000 shares of common stock. In addition, shares of common stock underlying any awards granted under the 2014 Plan or the 2005 Plan that are forfeited, canceled or otherwise terminated (other than by exercise) are added to the shares of common stock available for issuance under the 2014 Plan. Under the 2014 Plan, NSOs must be granted at exercise prices no less than fair market value on the date of grant. Non-vested stock awards may be granted for such consideration in cash, other property or services, or a combination thereof, as determined by the Company’s Compensation Committee of its Board of Directors. Stock-based awards are generally exercisable or issuable upon vesting. The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award. As of March 31, 2019, there were 19,011,885 shares of common stock reserved for issuance pursuant to the Company’s stock-based

16



compensation plans including authorization under its 2014 Plan to grant stock-based awards covering 14,756,769 shares of common stock.

In December 2014, the Company’s Board of Directors approved the 2015 Employee Stock Purchase Plan (the “2015 ESPP”), which was approved by stockholders at the Company’s Annual Meeting of Stockholders held on May 28, 2015. Under the 2015 ESPP, all full-time and certain part-time employees of the Company are eligible to purchase common stock of the Company twice per year at the end of a six-month payment period (a “Payment Period”). During each Payment Period, eligible employees who so elect may authorize payroll deductions in an amount no less than 1% nor greater than 10% of his or her base pay for each payroll period in the Payment Period. At the end of each Payment Period, the accumulated deductions are used to purchase shares of common stock from the Company up to a maximum of 12,000 shares for any one employee during a Payment Period. Shares are purchased at a price equal to 85% of the fair market value of the Company's common stock, on either the first business day of the Payment Period or the last business day of the Payment Period, whichever is lower. Employees who, after exercising their rights to purchase shares of common stock in the 2015 ESPP, would own shares representing 5% or more of the voting power of the Company’s common stock, are ineligible to continue to participate under the 2015 ESPP. The 2015 ESPP provides for the issuance of a maximum of 16,000,000 shares of common stock. As of March 31, 2019, 1,937,455 shares have been issued under the 2015 ESPP. The Company recorded stock-based compensation costs related to the 2015 ESPP of $2.9 million and $2.9 million for the three months ended March 31, 2019 and 2018, respectively.
The Company used the Black-Scholes model to estimate the fair value of 2015 ESPP awards with the following weighted-average assumptions:
 
Three Months Ended
 
March 31, 2019
 
March 31, 2018
Expected volatility factor
0.26 - 0.29
 
0.27 - 0.29

Risk free interest rate
2.19% - 2.49%
 
1.12% - 1.63%

Expected dividend yield
1.27% - 1.31%
 
0
%
Expected life (in years)
0.5
 
0.5

The Company determined the expected volatility factor by considering the implied volatility in six-month market-traded options of the Company's common stock based on third-party volatility quotes. The Company's decision to use implied volatility was based upon the availability of actively traded options on the Company's common stock and its assessment that implied volatility is more representative of future stock price trends than historical volatility. The risk-free interest rate was based on a U.S. Treasury instrument whose term is consistent with the expected term of the stock options. The Company's historical dividend yield input was zero in prior periods as it had not historically paid cash dividends on its common stock. The current dividend yield has been updated for expected dividend yield payout due to the Company's intention to pay a recurring quarterly dividend beginning in December 2018. The expected term is based on the term of the purchase period for grants made under the ESPP.
Stock-Based Compensation
The detail of the total stock-based compensation recognized by income statement classification is as follows (in thousands):
 
Three Months Ended
Income Statement Classifications
March 31, 2019

March 31, 2018
Cost of subscription, support and services
$
2,202

 
$
1,480

Research and development
27,837

 
10,793

Sales, marketing and services
19,926

 
13,567

General and administrative
15,269

 
9,883

Total
$
65,234

 
$
35,723

Non-vested Stock Units
Market Performance and Service Condition Stock Units
In March 2017, the Company granted senior level employees non-vested stock unit awards representing, in the aggregate, 275,148 non-vested stock units that vest based on certain target performance and service conditions. The number of non-vested

17



stock units underlying the award will be determined within sixty days of the three-year performance period ending December 31, 2019. The attainment level under the award will be based on the Company's relative total return to stockholders over the performance period compared to a pre-established custom index group. If the Company’s relative total return to stockholders is between the 41st percentile and the 80th percentile when compared to the index companies, the number of non-vested stock units earned will be based on interpolation. The maximum number of non-vested stock units that may vest pursuant to the awards is capped at 200% of the target number of non-vested stock units set forth in the award agreement and is earned if the Company's relative total return to stockholders when compared to the index companies is at or greater than the 80th percentile. If the Company’s total return to stockholders is negative, the number of non-vested stock units earned will be no more than 100% regardless of the Company’s relative total return to stockholders compared to the index companies. If the awardee is not employed by the Company at the end of the performance period, the extent to which the awardee will vest in the award, if at all, is dependent upon the timing and character of the termination as provided in the award agreement. Each non-vested stock unit, upon vesting, represents the right to receive one share of the Company's common stock. Certain awards for senior level employees, none of whom were executive officers, were modified in December 2018 to replace the pre-established custom index group used to measure performance and related award payout with companies that are part of the Nasdaq Composite index. As a result, the awards were revalued as of the modification date. The impact of the modification was not material to the condensed consolidated financial statements.
The market condition requirements are reflected in the grant date fair value of the award, and the compensation expense for the award will be recognized assuming that the requisite service is rendered regardless of whether the market conditions are achieved. The grant date fair value of the non-vested performance stock unit awards was determined through the use of a Monte Carlo simulation model, which utilized multiple input variables that determined the probability of satisfying the market condition requirements applicable to each award as follows:
 
March 2017 Grant (Modified)
March 2017 Grant
Expected volatility factor
0.16-0.32

0.27-0.32

Risk free interest rate
2.67
%
1.48
%
Expected dividend yield
0
%
0
%
For the unmodified March 2017 grant, the range of expected volatilities utilized was based on the historical volatilities of the Company's common stock and the average of its peer group. The Company chose to use historical volatility to value these awards because historical stock prices were used to develop the correlation coefficients between the Company and its peer group in order to model the stock price movements. The volatilities used were calculated over the most recent 2.75 year period, which is commensurate with the awards' performance period at the grant date. The risk free interest rate was based on the implied yield available on U.S. Treasury zero-coupon issues with remaining terms equivalent to the performance period. In addition, the Company used a dividend yield of zero in its model. The estimated fair value of each award as of the date of grant was $104.05.
For the modified March 2017 grant, all input variables chosen are as of the modification date. The range of expected
volatilities utilized was based on the historical volatilities of the Company's common stock and the average of the Nasdaq
Composite index peer group. The Company chose to use historical volatility to value these awards because historical stock
prices were used to develop the correlation coefficients between the Company and its peer group in order to model the stock
price movements. The volatilities used were calculated over the most recent 1.06 year period, which is commensurate with
the awards' remaining performance period at the modification date. The risk free interest rate was based on the implied yield
available on U.S. Treasury zero-coupon issues with remaining terms equivalent to the remaining performance period. The Company used a zero dividend yield input for this award as dividends are assumed to be reinvested. The estimated
incremental fair value of each modified award as of the modification date was $99.54.
Service-Based Stock Units
The Company also awards senior level employees, certain other employees and new non-employee directors, non-vested stock units granted under the 2014 Plan that vest based on service. The majority of these non-vested stock unit awards generally vest 33.33% on each anniversary subsequent to the date of the award. Each non-vested stock unit, upon vesting, represents the right to receive one share of the Company’s common stock. In addition, the Company awards non-vested stock units to all of its continuing non-employee directors. These awards vest monthly in 12 equal installments based on service and, upon vesting, each stock unit represents the right to receive one share of the Company's common stock.

18



Company Performance Stock Units
In February 2019, the Company awarded certain senior level employees 93,500 non-vested performance stock units granted under the 2014 Plan. The number of non-vested stock units underlying the award will be determined within sixty days following the completion of the performance period ending December 31, 2020 and will be based on the achievement of specific corporate financial performance goals related to annual free cash flow per share growth between the fiscal years ended December 31, 2018 and December 31, 2020. Within sixty days following an interim measurement period of 12 months, the Compensation Committee will determine the number of restricted stock units that would be deemed earned based on performance to date and up to 50% of the target award may be earned based on such performance. However, any stock units that are deemed earned will remain subject to continued service vesting until the end of the performance period, or a change in control, if earlier. The number of non-vested stock units issued will be based on a graduated slope, with the maximum number of non-vested stock units issuable pursuant to the award capped at 200% of the target number of non-vested stock units set forth in the award agreement. The Company is required to estimate the attainment expected to be achieved related to the defined performance goals and the number of non-vested stock units that will ultimately be awarded in order to recognize compensation expense over the vesting period. Each non-vested stock unit, upon vesting, represents the right to receive one share of the Company’s common stock. Compensation expense will be recorded through the end of the performance period on December 31, 2020 if it is deemed probable that the performance goals will be met. If the performance goals are not met, no compensation cost will be recognized and any previously recognized compensation cost will be reversed.
In March 2018, the Company awarded senior level employees 268,729 non-vested performance stock unit awards granted under the 2014 Plan. The number of non-vested stock units underlying the award will be determined within sixty days following completion of the performance period ending December 31, 2020 and will be based on the achievement of specific corporate financial performance goals related to subscription bookings as a percentage of total product bookings measured during the period from January 1, 2020 to December 31, 2020. As defined in the applicable award agreements, total product bookings includes subscription bookings. The number of non-vested stock units issued will be based on a graduated slope, with the maximum number of non-vested stock units issuable pursuant to the award capped at 200% of the target number of non-vested stock units set forth in the award agreement. The Company is required to estimate the attainment expected to be achieved related to the defined performance goals and the number of non-vested stock units that will ultimately be awarded in order to recognize compensation expense over the vesting period. Each non-vested stock unit, upon vesting, represents the right to receive one share of the Company’s common stock. Compensation expense will be recorded through the end of the performance period on December 31, 2020 if it is deemed probable that the performance goals will be met. If the performance goals are not met, no compensation cost will be recognized and any previously recognized compensation cost will be reversed.
On August 1, 2017, the Company awarded certain senior level employees 184,322 non-vested performance stock units granted under the 2014 Plan. The number of non-vested stock units underlying each award will be determined within sixty days following completion of the performance period ending December 31, 2019 and will be based on achievement of specific corporate financial performance goals related to non-GAAP net operating margin and subscription bookings as a percent of total product bookings measured during the period from January 1, 2019 to December 31, 2019. As defined in the applicable award agreements, total product bookings includes subscription bookings. The number of non-vested stock units issued will be based on a graduated slope, with the maximum number of non-vested stock units issuable pursuant to the award capped at 200% of the target number of non-vested stock units set forth in the award agreement. The Company is required to estimate the attainment expected to be achieved related to the defined performance goals and the number of non-vested stock units that will ultimately be awarded in order to recognize compensation expense over the vesting period. Each non-vested stock unit, upon vesting, represents the right to receive one share of the Company’s common stock. The non-GAAP net operating margin and subscription bookings as a percent of total product bookings targets were set in the first quarter of 2018. As a result, such awards were not outstanding under U.S. GAAP until the first quarter of 2018 when the performance goals were determined and subsequently communicated to employees who received the awards. Compensation expense will be recorded through the end of the performance period on December 31, 2019 if it is deemed probable that the performance goals will be met. If the performance goals are not met, no compensation cost will be recognized and any previously recognized compensation cost will be reversed.
Unrecognized Compensation Related to Stock Units
As of March 31, 2019, the total number of non-vested stock units outstanding, including company performance awards, market performance and service condition awards and service-based awards was 4,206,721. As of March 31, 2019, there was $325.0 million of total unrecognized compensation cost related to non-vested stock units. The unrecognized cost of the awards legally granted through March 31, 2019 is expected to be recognized over a weighted-average period of 1.7 years.

19



Subsequent Event
On April 1, 2019, the Company awarded senior level employees and certain other employees, 2,093,910 non-vested stock units granted under the 2014 Plan that vest based on service. These non-vested stock unit awards vest 33.33% on each anniversary subsequent to the grant date of the award.
Additionally, on April 1, 2019, the Company awarded senior level employees 293,991 non-vested performance stock unit awards granted under the 2014 Plan. The number of non-vested stock units underlying the award will be determined within sixty days following completion of the performance period ending December 31, 2021 and will be based on the achievement of specific corporate financial performance goals related to subscription bookings as a percentage of total subscription and product bookings measured during the period from January 1, 2021 to December 31, 2021. The number of non-vested stock units issued will be based on a graduated slope, with the maximum number of non-vested stock units issuable pursuant to the award capped at 200% of the target number of non-vested stock units set forth in the award agreement. The Company is required to estimate the attainment expected to be achieved related to the defined performance goals and the number of non-vested stock units that will ultimately be awarded in order to recognize compensation expense over the vesting period. Each non-vested stock unit, upon vesting, represents the right to receive one share of the Company’s common stock. Compensation expense will be recorded through the end of the performance period on December 31, 2021 if it is deemed probable that the performance goals will be met. If the performance goals are not met, no compensation cost will be recognized and any previously recognized compensation cost will be reversed.
The April 1, 2019 awards were accounted for as stock-settled debt as of March 31, 2019 as the dollar value of the awards was approved before the grant date and constitutes a fixed dollar value of awards that will be settled in a variable number of non-vested stock units on the April 1, 2019 grant date. Total unrecognized cost related to these awards as of March 31, 2019 was $237.3 million, which is expected to be recognized over a weighted-average period of 3.0 years.
9. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The Company accounts for goodwill in accordance with the authoritative guidance, which requires that goodwill and certain intangible assets are not amortized, but are subject to an annual impairment test. The Company performed a qualitative assessment in connection with its annual goodwill impairment test in the fourth quarter of 2018. As a result of the qualitative analysis, a quantitative impairment test was not deemed necessary. There was no impairment of goodwill or indefinite lived intangible assets as a result of the annual impairment test analysis completed during the fourth quarter of 2018.
The following table presents the change in goodwill during the three months ended March 31, 2019 (in thousands):
 
Balance at January 1, 2019
 
Additions
 
 
Other
 
 
Balance at March 31, 2019
Goodwill
$
1,802,670

 
$

 
 
$
86

(1)
 
$
1,802,756


(1)
Amount relates to adjustments to the preliminary purchase price allocation associated with 2018 acquisitions.
Intangible Assets
The Company has intangible assets which were primarily acquired in conjunction with business combinations and technology purchases. Intangible assets with finite lives are recorded at cost, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, generally three to seven years, except for patents, which are amortized over the lesser of their remaining life or ten years. In-process R&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When in-process R&D projects are completed, the corresponding amount is reclassified as an amortizable intangible asset and is amortized over the asset's estimated useful life.

20



Intangible assets consist of the following (in thousands):
 
March 31, 2019
 
December 31, 2018
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Product related intangible assets
$
747,888

 
$
612,295

 
$
746,152

 
$
601,993

Other
227,922

 
208,424

 
227,922

 
204,894

Total
$
975,810

 
$
820,719

 
$
974,074

 
$
806,887

Amortization of product-related intangible assets, which consists primarily of product-related technologies and patents, was $10.3 million and $11.0 million for the three months ended March 31, 2019 and 2018, respectively, and is classified as a component of Cost of net revenues in the accompanying condensed consolidated statements of income. Amortization of other intangible assets, which consist primarily of customer relationships, trade names and covenants not to compete was $3.5 million and $3.6 million for the three months ended March 31, 2019 and 2018, respectively, and is classified as a component of Operating expenses in the accompanying condensed consolidated statements of income.
The Company monitors its intangible assets for indicators of impairment. If the Company determines impairment has occurred, it will write-down the intangible asset to its fair value. For certain intangible assets where the unamortized balances exceeded the undiscounted future net cash flows, the Company measures the amount of the impairment by calculating the amount by which the carrying values exceed the estimated fair values, which are based on projected discounted future net cash flows.
Estimated future amortization expense of intangible assets with finite lives as of March 31, 2019 is as follows (in thousands): 
Year ending December 31,
 
2019 (remaining nine months)
$
37,362

2020
38,714

2021
24,725

2022
22,875

2023
19,524

Thereafter
11,891

     Total
$
155,091

10. SEGMENT INFORMATION
Citrix has one reportable segment. The Company's chief operating decision maker (“CODM”) reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company's CEO is the CODM.
Revenues by Product Grouping
Revenues by product grouping were as follows (in thousands):
 
Three Months Ended
 
March 31,
 
2019

2018
Net revenues:
 
 
 
Digital Workspace revenues(1)
$
514,607

 
$
457,260

Networking revenues(2)
171,233

 
208,623

Professional services(3)
33,303

 
31,309

Total net revenues
$
719,143

 
$
697,192


(1)
Digital Workspace revenues are primarily comprised of sales from the Company’s application virtualization solutions, which include Citrix Virtual Apps and Desktops, the Company's unified endpoint management solutions, which include Citrix Endpoint Management, related license updates and maintenance and support, Citrix Content Collaboration and cloud offerings.

21



(2)
Networking revenues primarily include Citrix ADC and Citrix SD-WAN, related license updates and maintenance and support and cloud offerings.
(3)
Professional services revenues are primarily comprised of revenues from consulting services and product training and certification services.

Revenues by Geographic Location
The following table presents revenues by geographic location, for the following periods (in thousands):
 
Three Months Ended
 
March 31,
 
2019

2018
Net revenues:
 
 
 
Americas
$
401,147

 
$
414,000

EMEA
236,813

 
214,575

APJ
81,183

 
68,617

Total net revenues
$
719,143

 
$
697,192


As of March 31, 2019, one distributor, The Arrow Group, accounted for 10% of the Company's total gross accounts receivable.
Strategic Service Providers
The Company defines Strategic Service Providers (SSP) as its three historically largest hyperscale Networking customers. The following table summarizes SSP revenue for the following periods (in thousands):
 
Three Months Ended
 
March 31,
 
2019
 
2018
Net revenues:
 
 
 
SSP revenue
$
22,101

 
$
62,316

Non-SSP revenue
697,042

 
634,876

Total net revenues
$
719,143

 
$
697,192

Subscription Revenue
Subscription revenue relates to fees which are generally recognized ratably over the contractual term. The Company's subscription revenue includes Software as a Service (SaaS), which primarily consists of subscriptions delivered via a cloud service whereby the customer does not take possession of the software and hybrid subscription offerings; and non-SaaS, which consists primarily of on-premise licensing, hybrid subscription offerings, CSP services and the related support. The Company's hybrid subscription offerings are allocated between SaaS and non-SaaS, which are generally recognized at a point in time. The following table presents subscription revenues by SaaS and non-SaaS components, for the following periods (in thousands):
 
Three Months Ended
 
March 31,
 
2019
 
2018
Subscription:
 
 
 
SaaS
$
85,447

 
$
59,916

Non-SaaS
56,159

 
43,242

Total Subscription revenue
$
141,606

 
$
103,158


22



11. DEBT
Senior Notes

On November 15, 2017, the Company issued $750.0 million of unsecured senior notes due December 1, 2027. The 2027 Notes accrue interest at a rate of 4.500% per annum. Interest on the 2027 Notes is due semi-annually on June 1 and December 1 of each year, beginning on June 1, 2018. The net proceeds from this offering were approximately $741.0 million, after deducting the underwriting discount and estimated offering expenses payable by the Company. Net proceeds from this offering were used to repurchase shares of the Company's common stock through an Accelerated Share Repurchase ("ASR") transaction which the Company entered into with Citibank, N.A. (the "ASR Counterparty") on November 13, 2017. The 2027 Notes will mature on December 1, 2027, unless earlier redeemed in accordance with their terms prior to such date. The Company may redeem the 2027 Notes at its option at any time in whole or from time to time in part prior to September 1, 2027 at a redemption price equal to the greater of (i) 100% of the aggregate principal amount of the 2027 Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments under such 2027 Notes, plus in each case, accrued and unpaid interest to, but excluding, the redemption date. Among other terms, under certain circumstances, holders of the 2027 Notes may require the Company to repurchase their 2027 Notes upon the occurrence of a change of control prior to maturity for cash at a repurchase price equal to 101% of the principal amount of the 2027 Notes to be repurchased plus accrued and unpaid interest to, but excluding, the repurchase date.
Credit Facility
Effective January 7, 2015, the Company entered into a credit agreement (the "Credit Agreement") with a group of financial institutions (the “Lenders”). The credit facility provides for a five year revolving line of credit in the aggregate amount of $250.0 million, subject to continued covenant compliance. The Company may elect to increase the revolving credit facility by up to $250.0 million if existing or new lenders provide additional revolving commitments in accordance with the terms of the Credit Agreement. A portion of the revolving line of credit (i) in the aggregate amount of $25.0 million may be available for issuances of letters of credit and (ii) in the aggregate amount of $10.0 million may be available for swing line loans, as part of, not in addition to, the aggregate revolving commitments. The credit facility bears interest at LIBOR plus 1.10% and adjusts in the range of 1.00% to 1.30% above LIBOR based on the ratio of the Company’s total debt to its adjusted earnings before interest, taxes, depreciation, amortization and certain other items (“EBITDA”) as defined in the Credit Agreement. In addition, the Company is required to pay a quarterly facility fee ranging from 0.125% to 0.20% of the aggregate revolving commitments under the credit facility and based on the ratio of the Company’s total debt to the Company’s consolidated EBITDA. As of March 31, 2019, there were no amounts outstanding under the credit facility.
The Credit Agreement contains certain financial covenants that require the Company to maintain a consolidated leverage ratio of not more than 3.5:1.0 and a consolidated interest coverage ratio of not less than 3.0:1.0. In addition, the Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the ability of the Company to grant liens, merge, dissolve or consolidate, dispose of all or substantially all of its assets, pay dividends during the existence of a default under the Credit Agreement, change its business and incur subsidiary indebtedness, in each case subject to customary exceptions for a credit facility of this size and type. The Company was in compliance with these covenants as of March 31, 2019.
Convertible Notes Offering
As noted below under “Subsequent Event,” all of the outstanding Convertible Notes were converted prior to their maturity on April 15, 2019. The following discussion gives effect to the Convertible Notes outstanding as of March 31, 2019.
During 2014, the Company completed a private placement of approximately $1.44 billion principal amount of 0.500% Convertible Notes due 2019. The net proceeds from this offering were approximately $1.42 billion, after deducting the initial purchasers’ discounts and commissions and the estimated offering expenses payable by the Company. The Company used approximately $82.6 million of the net proceeds to pay the cost of the Bond Hedges described below (after such cost was partially offset by the proceeds to the Company from the Warrant Transactions described below). The Company used the remainder of the net proceeds from the offering and a portion of its existing cash and investments to purchase an aggregate of approximately $1.5 billion of its common stock, as authorized under its share repurchase program. The Company used approximately $101.0 million to purchase shares of common stock from certain purchasers of the Convertible Notes in privately negotiated transactions concurrently with the closing of the offering, and the remaining $1.4 billion to purchase additional shares of common stock through an ASR which the Company entered into with the ASR counterparty on April 25, 2014 (the “ASR agreement”).
The Convertible Notes are governed by the terms of an indenture, dated as of April 30, 2014 (the “Indenture”), between the Company and Wilmington Trust, National Association, as trustee (the “Trustee”). The Convertible Notes are the senior

23



unsecured obligations of the Company and bear interest at a rate of 0.500% per annum, payable semi-annually in arrears on April 15 and October 15 of each year.

In accordance with the terms of the Indenture, the conversion rate for the Convertible Notes was adjusted to 13.9983 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, which corresponds to a conversion price of $71.44 per share of common stock, as a result of a cash dividend paid in March 2019. The conversion rate is subject to adjustment from time to time upon the occurrence of certain events, including, but not limited to, the issuance of certain stock dividends on common stock, the issuance of certain rights or warrants, subdivisions, combinations, distributions of capital stock, indebtedness, or assets, the payment of cash dividends and certain issuer tender or exchange offers.
As of October 15, 2018, the Company received conversion notices from noteholders with respect to $273.0 million in aggregate principal amount of Convertible Notes requesting conversion as a result of the sales price condition having been met during the second and third quarter of 2018. In accordance with the terms of the Convertible Notes, in the fourth quarter of 2018 the Company made cash payments of this aggregate principal amount and delivered 1.3 million newly issued shares of its common stock in respect of the remainder of the Company's conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted, in full satisfaction of such converted notes. The Company received shares of its common stock under the Bond Hedges (as defined below) that offset the issuance of shares of common stock upon conversion of the Convertible Notes. See the discussion under “Convertible Note Hedge and Warrant Transaction” in this Note 11 for detailed information on the Bond Hedges. In addition, on or after October 15, 2018 until the close of business on the second scheduled trading day immediately preceding the April 15, 2019 maturity date, holders of the Convertible Notes had the right to convert their notes at any time, regardless of whether the sales price condition was met. Any conversions with respect to conversion notices received by the Company on or after October 15, 2018 settled on the maturity date. As of March 31, 2019, the outstanding balance, net of discount, of $1.16 billion of the Convertible Notes was included in current liabilities and the difference between the face value and carrying value of $1.2 million was included in temporary equity in the accompanying condensed consolidated balance sheets.
In accounting for the settlement of the Convertible Notes, the Company allocated the fair value of the settlement consideration remitted to the noteholders between the liability and equity components. The portion of the settlement consideration allocated to the extinguishment of the liability component was based on the fair value of that component immediately before extinguishment. The Company allocated the remaining settlement consideration to the reacquisition of the equity component and recognized this amount as a reduction of Stockholders' equity.
The Company may not redeem the Convertible Notes prior to the maturity date and no “sinking fund” is provided for the Convertible Notes, which means that the Company is not required to periodically redeem or retire the Convertible Notes. Upon the occurrence of certain fundamental changes involving the Company, holders of the Convertible Notes may require the Company to repurchase for cash all or part of their Convertible Notes in principal amounts of $1,000 or an integral multiple thereof at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
In accounting for the issuance of the Convertible Notes, the Company separated the Convertible Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the estimated fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the face value of the Convertible Notes as a whole. The excess of the principal amount of the liability component over its carrying amount ("debt discount") is amortized to interest expense over the term of the Convertible Notes using the effective interest method with an effective interest rate of 3.0 percent per annum. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.
In accounting for the transaction costs related to the Convertible Note issuance, the Company allocated the total amount incurred to the liability and equity components based on their relative values. Issuance costs attributable to the $1.4 billion liability component are being amortized to expense over the term of the Convertible Notes, and issuance costs attributable to the equity component are included along with the equity component in stockholders' equity. Additionally, a deferred tax liability of $8.2 million related to a portion of the equity component transaction costs which are deductible for tax purposes is included in Other liabilities in the accompanying condensed consolidated balance sheets.

24



The Convertible Notes consist of the following (in thousands):
 
March 31, 2019
 
December 31, 2018
Liability component
 
 
 
     Principal
$
1,164,497

 
$
1,164,497

     Less: note discount and issuance costs
(1,298
)
 
(9,052
)
Net carrying amount
$
1,163,199

 
$
1,155,445

 
 
 
 
Equity component
 
 
 
Temporary equity
$
1,163

 
$
8,110

Additional paid-in capital
134,321

 
127,374

Total (including temporary equity)
$
135,484

 
$
135,484

The following table includes total interest expense recognized related to the Convertible Notes and the 2027 Notes (in thousands):
 
Three Months Ended
 
March 31,
 
2019

2018
Contractual interest expense
$
9,893

 
$
10,235

Amortization of debt issuance costs
989

 
1,005

Amortization of debt discount
6,987

 
8,665

 
$
17,869

 
$
19,905

See Note 7 to the Company's condensed consolidated financial statements for fair value disclosures related to the Company's Convertible Notes and 2027 Notes.
Convertible Note Hedge and Warrant Transactions
In connection with the pricing of the Convertible Notes, the Company entered into convertible note hedge transactions relating to approximately 16.0 million shares of common stock (the "Bond Hedges") and also entered into separate warrant transactions (the "Warrant Transactions") with each of the Option Counterparties relating to approximately 16.0 million shares of common stock. As a result of the spin-off of its GoTo Business, the number of shares of the Company's common stock covered by the Bond Hedges and Warrant Transactions was adjusted to approximately 20.0 million shares.
The Bond Hedges are generally expected to reduce the potential dilution upon conversion of the Convertible Notes and/or offset any payments in cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, that the Company is required to make in excess of the principal amount of the Convertible Notes upon conversion of any Convertible Notes, as the case may be, in the event that the market price per share of common stock, as measured under the terms of the Bond Hedges, is greater than the strike price of the Bond Hedges, which initially corresponds to the conversion price of the Convertible Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Convertible Notes. The Warrant Transactions will separately have a dilutive effect to the extent that the market value per share of common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants issued pursuant to the Warrant Transactions (the “Warrants”). The strike price of the Warrants was adjusted to $94.62 per share and the number of shares of the Company's common stock covered by the Warrant Transactions was adjusted to approximately 20.1 million shares as a result of the cash dividend paid in March 2019. The Warrants will expire in ratable portions on a series of expiration dates commencing after the maturity of the Convertible Notes. The Bond Hedges and Warrants are not marked to market as the value of the Bond Hedges and Warrants were initially recorded in stockholders' equity and continue to be classified within stockholders' equity. As of March 31, 2019, no warrants have been exercised.
Aside from the initial payment of a premium to the Option Counterparties under the Bond Hedges, which amount is partially offset by the receipt of a premium under the Warrant Transactions, the Company is not required to make any cash payments to the Option Counterparties under the Bond Hedges and will not receive any proceeds if the Warrants are exercised.

25



Subsequent Event
All Convertible Notes were converted by their beneficial owners prior to their maturity on April 15, 2019. In accordance with the terms of the Indenture, on April 15, 2019 the Company paid $1.16 billion in the outstanding aggregate principal amount of the Convertible Notes and delivered 4.9 million newly issued shares of its common stock in respect of the remainder of the Company's conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted, in full satisfaction of such converted notes. The Company received shares of its common stock under the Bond Hedges that offset the issuance of shares of common stock upon conversion of the Convertible Notes.
12. DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives Designated as Hedging Instruments
As of March 31, 2019, the Company’s derivative assets and liabilities primarily resulted from cash flow hedges related to its forecasted operating expenses transacted in local currencies. A substantial portion of the Company’s overseas expenses are and will continue to be transacted in local currencies. To protect against fluctuations in operating expenses and the volatility of future cash flows caused by changes in currency exchange rates, the Company has established a program that uses foreign exchange forward contracts to hedge its exposure to these potential changes. The terms of these instruments, and the hedged transactions to which they relate, generally do not exceed 12 months.
Generally, when the dollar is weak, foreign currency denominated expenses will be higher, and these higher expenses will be partially offset by the gains realized from the Company’s hedging contracts. Conversely, if the dollar is strong, foreign currency denominated expenses will be lower. These lower expenses will in turn be partially offset by the losses incurred from the Company’s hedging contracts. Derivative instruments are recognized as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Gains and losses on derivatives that are designated as cash flow hedges are initially reported as a component of Accumulated other comprehensive loss and are subsequently recognized in income when the hedged exposure is recognized in income. Gains and losses from changes in fair values of derivatives that are not designated as hedges are recognized in Other income (expense), net.
The total cumulative unrealized gain on cash flow derivative instruments was $0.1 million at March 31, 2019 and is included in Accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets. The total cumulative unrealized loss on cash flow derivative instruments was $1.0 million at December 31, 2018, and is included in Accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets. See Note 13 for more information related to comprehensive income. The net unrealized gain as of March 31, 2019 is expected to be recognized in income over the next 12 months at the same time the hedged items are recognized in income.
Derivatives not Designated as Hedging Instruments
A substantial portion of the Company’s overseas assets and liabilities are and will continue to be denominated in local currencies. To protect against fluctuations in earnings caused by changes in currency exchange rates when remeasuring the Company’s balance sheet, it utilizes foreign exchange forward contracts to hedge its exposure to this potential volatility.
These contracts are not designated for hedge accounting treatment under the authoritative guidance. Accordingly, changes in the fair value of these contracts are recorded in Other income (expense), net.

26



Fair Values of Derivative Instruments
 
Asset Derivatives
 
Liability Derivatives
 
(In thousands)
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
Derivatives Designated as
Hedging Instruments
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
Foreign currency forward contracts
Prepaid
expenses
and other
current
assets
 
$1,184
 
Prepaid
expenses
and other
current
assets
 
$708
 
Accrued
expenses
and other
current
liabilities
 
$1,133
 
Accrued
expenses
and other
current
liabilities
 
$1,811
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset Derivatives
 
Liability Derivatives
 
(In thousands)
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
Derivatives Not Designated as
Hedging Instruments
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
Foreign currency forward contracts
Prepaid
expenses
and other
current
assets
 
$598
 
Prepaid
expenses
and other
current
assets
 
$56
 
Accrued
expenses
and other
current
liabilities
 
$55
 
Accrued
expenses
and other
current
liabilities
 
$732

The Effect of Derivative Instruments on Financial Performance
 
For the Three Months Ended March 31,
 
(In thousands)
Derivatives in Cash Flow
Hedging Relationships
Amount of Gain (Loss) Recognized in Other
Comprehensive Income
 
Location of (Loss) Gain Reclassified
from Accumulated Other
Comprehensive Loss into
Income
 
Amount of (Loss) Gain Reclassified from
Accumulated Other 
Comprehensive Loss
 
2019
 
2018
 
 
 
2019
 
2018
Foreign currency forward contracts
$
1,041

 
$
(527
)
 
Operating expenses
 
$
(894
)
 
$
1,219


 
 
For the Three Months Ended March 31,
 
(In thousands)
Derivatives Not Designated as Hedging Instruments
Location of Loss Recognized in Income on
Derivative
 
Amount of Loss Recognized
in Income on Derivative
 
 
 
2019
 
2018
Foreign currency forward contracts
Other income (expense), net
 
$
(1,396
)
 
$
(3,559
)


27



Outstanding Foreign Currency Forward Contracts
As of March 31, 2019, the Company had the following net notional foreign currency forward contracts outstanding (in thousands):
Foreign Currency
Currency
Denomination
Australian Dollar
AUD 4,900
Brazilian Real
BRL 800
Pounds Sterling
GBP 8,500
Canadian Dollar
CAD 2,850
Chinese Yuan Renminbi
CNY 100,500
Danish Krone
DKK 14,182
Euro
EUR 2,564
Hong Kong Dollar
HKD 36,600
Indian Rupee
INR 448,000
Japanese Yen
JPY 1,513,000
Korean Won
KRW 830,000
New Zealand Dollar
NZD 200
Singapore Dollar
SGD 20,600
Swiss Franc
CHF 45,850
13. COMPREHENSIVE INCOME
The changes in Accumulated other comprehensive loss by component, net of tax, are as follows:
 
Foreign currency
 
Unrealized loss on available-for-sale securities
 
Unrealized (loss) gain on derivative instruments
 
Other comprehensive loss on pension liability
 
Total
 
(In thousands)
Balance at December 31, 2018
$
(2,946
)
 
$
(2,440
)
 
$
(985
)
 
$
(1,783
)
 
$
(8,154
)
Other comprehensive income before reclassifications

 
2,188

 
147

 

 
2,335

Amounts reclassified from accumulated other comprehensive loss

 
(558
)
 
894

 

 
336

Net current period other comprehensive income

 
1,630

 
1,041

 

 
2,671

Balance at March 31, 2019
$
(2,946
)
 
$
(810
)
 
$
56

 
$
(1,783
)
 
$
(5,483
)
Income tax expense or benefit allocated to each component of other comprehensive loss is not material.
Reclassifications out of Accumulated other comprehensive loss are as follows:
 
 
For the Three Months Ended March 31, 2019
 
 
(In thousands)
Details about accumulated other comprehensive loss components
 
Amount reclassified from accumulated other comprehensive loss, net of tax
 
Affected line item in the Condensed Consolidated Statements of Income
Unrealized net gains on available-for-sale securities
 
$
(558
)
 
Other income (expense), net
Unrealized net losses on cash flow hedges
 
894

 
Operating expenses *
 
 
$
336

 
 
* Operating expenses amounts allocated to Research and development, Sales, marketing and services, and General and administrative are not individually significant.

28



14. INCOME TAXES
The Company is required to estimate its income taxes in each of the jurisdictions in which it operates as part of the process of preparing its condensed consolidated financial statements. The Company maintains certain strategic management and operational activities in overseas subsidiaries and its foreign earnings are taxed at rates that are generally lower than in the United States.

The Company’s effective tax rate generally differs from the U.S. federal statutory rate primarily due to lower tax rates on earnings generated by the Company’s foreign operations that are taxed primarily in Switzerland.
The Company’s effective tax rate was 6.6% and 4.4% for the three months ended March 31, 2019 and 2018, respectively. The increase in the effective tax rate when comparing the three months ended March 31, 2019 to the three months ended March 31, 2018 was primarily due to an increase in the proportion of projected annual U.S. earnings relative to foreign earnings for the period ended March 31, 2019, and tax items unique to the period ended March 31, 2018.
The Company’s net unrecognized tax benefits totaled $95.9 million and $89.9 million as of March 31, 2019 and December 31, 2018, respectively. All amounts included in the balance at March 31, 2019 for tax positions would affect the annual effective tax rate if recognized. The Company recognizes interest accrued related to uncertain tax positions and penalties in income tax expense. As of March 31, 2019, the Company has accrued $5.0 million for the payment of interest.
The Company and one or more of its subsidiaries are subject to U.S. federal income taxes in the United States, as well as income taxes of multiple state and foreign jurisdictions. The Company is not currently under examination by the United States Internal Revenue Service. With few exceptions, the Company is generally not subject to examination for state and local income tax, or in non-U.S. jurisdictions, by tax authorities for years prior to 2015.
The Company's U.S. liquidity needs are currently satisfied using cash flows generated from its U.S. operations, borrowings, or both. The Company also utilizes a variety of tax planning strategies in an effort to ensure that its worldwide cash is available in locations in which it is needed. The Company expects to repatriate a substantial portion of its foreign earnings over time, to the extent that the foreign earnings are not restricted by local laws or result in significant incremental costs associated with repatriating the foreign earnings.
At March 31, 2019, the Company had $102.1 million in net deferred tax assets. The authoritative guidance requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company reviews deferred tax assets periodically for recoverability and makes estimates and judgments regarding the expected geographic sources of taxable income and gains from investments, as well as tax planning strategies in assessing the need for a valuation allowance. If the estimates and assumptions used in the Company's determination change in the future, the Company could be required to revise its estimates of the valuation allowances against its deferred tax assets and adjust its provisions for additional income taxes.
15. TREASURY STOCK
Stock Repurchase Program
The Company’s Board of Directors authorized an ongoing stock repurchase program, of which $750.0 million was approved in October 2018. The Company may use the approved dollar authority to repurchase stock at any time until the approved amount is exhausted. The objective of the Company’s stock repurchase program is to improve stockholders’ returns. At March 31, 2019, approximately $674.1 million was available to repurchase common stock pursuant to the stock repurchase program. All shares repurchased are recorded as treasury stock. A portion of the funds used to repurchase stock over the course of the program was provided by net proceeds from the Convertible Notes and 2027 Notes offerings, as well as proceeds from employee stock awards and the related tax benefit. The Company is authorized to make purchases of its common stock using general corporate funds through open market purchases, pursuant to a Rule 10b5-1 plan or in privately negotiated transactions.
In February 2018, the Company entered into an ASR transaction with a counterparty to pay an aggregate of $750.0 million in exchange for the delivery of approximately 6.5 million shares of its common stock based on current market prices. The purchase price per share under the ASR was based on the volume-weighted average price of the Company's common stock during the term of the ASR, less a discount. The ASR was entered into pursuant to the Company's existing share repurchase program. Final settlement of the ASR agreement was completed in April 2018 and the Company received delivery of an additional 1.6 million additional shares of its common stock.
During the three months ended March 31, 2019, the Company expended approximately $93.8 million on open market purchases under the stock repurchase program, repurchasing 911,060 shares of common stock at an average price of $102.96.

29



During the three months ended March 31, 2018, the Company had no additional open market purchases of its common stock.
Shares for Tax Withholding
During the three months ended March 31, 2019, the Company withheld 593,988 shares from equity awards that vested, totaling $60.1 million, to satisfy minimum tax withholding obligations that arose on the vesting of such equity awards. During the three months ended March 31, 2018, the Company withheld 507,274 shares from equity awards that vested, totaling $46.9 million, to satisfy minimum tax withholding obligations that arose on the vesting of such equity awards. These shares are reflected as treasury stock in the Company’s condensed consolidated balance sheets and the related cash outlays do not reduce the Company’s total stock repurchase authority.
16. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company accrues a liability for legal contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. The Company reviews these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and the Company's views on the probable outcomes of any pending claims, suits, assessments, regulatory investigations, or other legal proceedings change, changes in the Company's accrued liabilities would be recorded in the period in which such determination is made. In addition, in accordance with the relevant authoritative guidance, for matters in which the likelihood of material loss is at least reasonably possible, the Company provides disclosure of the possible loss or range of loss. If a reasonable estimate cannot be made, however, the Company will provide disclosure to that effect.
Due to the nature of the Company's business, the Company is subject to patent infringement claims, including current litigation alleging infringement by various Company solutions and services. The Company believes that it has meritorious defenses to the allegations made in its pending litigation and intends to vigorously defend itself; however, it is unable currently to determine the ultimate outcome of these or similar matters or the potential exposure to loss, if any. In addition, the Company is a defendant in various litigation matters generally arising out of the normal course of business. Although it is difficult to predict the ultimate outcomes of these cases, the Company believes that outcomes that will materially and adversely affect its business, financial position, results of operations or cash flows are reasonably possible but not estimable at this time.
The Company also is the victim of a cyberattack, in which, the Company believes, between October 13, 2018 and March 8, 2019, international cyber criminals gained intermittent access to Citrix’s internal network through “password spraying”, and over a limited number of days stole business documents and files from a shared network drive and a drive associated with a web-based tool used in the Company's consulting practice. The shared drive from which documents and files were stolen was used to store current and historical business documents and files, such as human resources and employee records, some of which contained sensitive and personal identification information of the Company's current and former employees and, in limited cases, their beneficiaries and dependents; customer engagement documents, including consulting services project materials, statements of work and proofs of concept, some of which were also stored on the drive associated with a web-based tool used in the Company's consulting practice; marketing materials; sales and finance documents; contracts and other legal records; and a wide assortment of other company records. The cyber criminals also may have accessed the individual virtual drives of a very limited number of compromised users, accessed the company email accounts of the same very limited number of compromised users, and launched without further exploitation a limited number of internal applications. The Company has commenced a substantial discovery process to review the documents and files stolen from the shared network drive and the drive associated with the web-based tool used in the Company's consulting practice, and the accessed documents and files on the individual virtual drives and the company e-mail accounts of the very limited number of comprised users. Based upon the Company’s investigation to date, there is no indication that the cyber criminals discovered and exploited any vulnerabilities in the Company’s products or customer cloud services to gain entry, and there is no indication that the security of any Citrix product or customer cloud service was compromised. The Company’s investigation remains ongoing. At this time, however, the Company is not aware of any impact to its financial reporting systems from this cyberattack. Additionally, the Company continues to assess its internal controls over financial reporting and disclosure controls and procedures related to cyberattacks as its investigation continues.
Further, the Company has a program of network-security (or cyber risk) insurance policies that, with standard exclusions, insure against the costs of detecting and mitigating cyber breaches, the cost of credit monitoring, and reasonable expenses for defending and settling privacy and network security lawsuits. These policies are subject to a $500,000 self-insured retention and a total insurance limit of $200.0 million. There can be no assurance, however, that this insurance coverage is sufficient to cover this or any other cyberattack. In addition to these insurance policies, the Company maintains customary business coverage under its crime, commercial general liability, and director and officer insurance policies.

30




Although it is difficult to predict the ultimate outcomes of this cyberattack, based on the Company’s investigation to date, the Company believes that it is reasonably possible that outcomes from potential unasserted claims related to this cyberattack could materially and adversely affect its business, financial position, results of operations or cash flows. However, due to the ongoing nature of the Company’s investigation, it is not possible to estimate the amount or a range of potential loss, if any, at this time.
Guarantees
The authoritative guidance requires certain guarantees to be recorded at fair value and requires a guarantor to make disclosures, even when the likelihood of making any payments under the guarantee is remote. For those guarantees and indemnifications that do not fall within the initial recognition and measurement requirements of the authoritative guidance, the Company must continue to monitor the conditions that are subject to the guarantees and indemnifications, as required under existing generally accepted accounting principles, to identify if a loss has been incurred. If the Company determines that it is probable that a loss has been incurred, any such estimable loss would be recognized. The initial recognition and measurement requirements do not apply to the provisions contained in the majority of the Company’s software license agreements that indemnify licensees of the Company’s software from damages and costs resulting from claims alleging that the Company’s software infringes the intellectual property rights of a third party. The Company has not made material payments pursuant to these provisions. The Company has not identified any losses that are probable under these provisions and, accordingly, the Company has not recorded a liability related to these indemnification provisions.
17. RESTRUCTURING
The Company has implemented multiple restructuring plans to reduce its cost structure, align resources with its product strategy and improve efficiency, which has resulted in workforce reductions and the consolidation of certain leased facilities.
For the three months ended March 31, 2019 and 2018, restructuring charges were comprised of the following (in thousands):
 
Three Months Ended March 31,
 
2019

2018
Employee severance and related costs
$
2,832

 
$
1,041

Consolidation of leased facilities

 
5,146

Total Restructuring charges
$
2,832

 
$
6,187

During the three months ended March 31, 2019 and 2018, the Company incurred costs of $2.8 million and $1.0 million, respectively, related to initiatives intended to accelerate the transformation to a cloud-based subscription business, increase strategic focus, and improve operational efficiency.
In connection with the Company's restructuring initiatives, the Company had previously vacated or consolidated properties and subsequently reassessed its obligations on non-cancelable leases. The fair value estimate of these non-cancelable leases was based on the contractual lease costs over the remaining term, partially offset by estimated future sublease rental income. During the three months ended March 31, 2018, the Company incurred costs of $5.1 million, related to the consolidation of leased facilities. No costs were incurred during the three months ended March 31, 2019 related to the consolidation of leased facilities.
Restructuring accruals
The activity in the Company’s restructuring accruals for the three months ended March 31, 2019 is summarized as follows (in thousands):
 
Total
Balance at January 1, 2019
$
45,095

Adjustment for ASC 842
(42,248
)
Restructuring charges
2,832

Payments
(1,026
)
Balance at March 31, 2019
$
4,653


31


As of March 31, 2019, the $4.7 million in outstanding restructuring accruals primarily relate to employee severance and related costs. As a result of the adoption on the new lease standard, the provision for lease losses was reclassified, resulting in a reduction to operating lease right-of-use assets as of January 1, 2019. Refer to Note 2 for additional information on adoption of the lease standard.

32


18. STATEMENT OF CHANGES IN EQUITY

The following tables presents the changes in total stockholders' equity during the three months ended March 31, 2019 and March 31, 2018 (in thousands):

 
Common Stock
 
Additional
Paid In Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive
loss
 
Common Stock
in Treasury
 
 
Total
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
Balance at December 31, 2018
309,761

 
$
310

 
$
5,404,500

 
$
4,169,019

 
$
(8,154
)
 
(178,327
)
 
$
(9,014,156
)
 
 
$
551,519

Shares issued under stock-based compensation plans
1,755

 
2

 
(2
)
 

 

 

 

 
 

Stock-based compensation expense

 

 
63,475

 

 

 

 

 
 
63,475

Temporary equity reclassification

 

 
6,947

 

 

 

 

 
 
6,947

Common stock issued under employee stock purchase plan
216

 

 
19,015

 

 

 

 

 
 
19,015

Stock repurchases, net

 

 

 

 

 
(911
)
 
(93,805
)
 
 
(93,805
)
Restricted shares turned in for tax withholding

 

 

 

 

 
(594
)
 
(60,106
)
 
 
(60,106
)
Cash dividends declared

 

 

 
(46,024
)
 

 

 

 
 
(46,024
)
Cumulative-effect adjustment from adoption of accounting standards

 

 

 
838

 

 

 

 
 
838

Other

 

 
2,000

 
(2,000
)
 

 

 

 
 

Other comprehensive income, net of tax

 

 

 

 
2,671

 

 

 
 
2,671

Net income

 

 

 
110,348

 

 

 

 
 
110,348

Balance at March 31, 2019
311,732

 
$
312

 
$
5,495,935

 
$
4,232,181

 
$
(5,483
)
 
(179,832
)
 
$
(9,168,067
)
 
 
$
554,878



33


 
Common Stock
 
Additional
Paid In Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive
loss
 
Common Stock
in Treasury
 
 
Total
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
Balance at December 31, 2017
305,751

 
$
306

 
$
4,883,670

 
$
3,509,484

 
$
(10,806
)
 
(162,044
)
 
$
(7,390,193
)
 
 
$
992,461

Shares issued under stock-based compensation plans
1,572

 
2

 
68

 

 

 

 

 
 
70

Stock-based compensation expense

 

 
35,723

 

 

 

 

 
 
35,723

Common stock issued under employee stock purchase plan
252

 

 
17,457

 

 

 

 

 
 
17,457

Accelerated stock repurchase program

 

 

 

 

 
(7,880
)
 
(750,000
)
 
 
(750,000
)
Restricted shares turned in for tax withholding

 

 

 

 

 
(507
)
 
(46,917
)
 
 
(46,917
)
Cumulative-effect adjustment from adoption of accounting standard

 

 

 
132,778

 

 

 

 
 
132,778

Other comprehensive loss, net of tax

 

 

 

 
(4,068
)
 

 

 
 
(4,068
)
Other

 

 
1,615

 

 

 

 

 
 
1,615

Net income

 

 

 
144,259

 

 

 

 
 
144,259

Balance at March 31, 2018
307,575

 
$
308

 
$
4,938,533

 
$
3,786,521

 
$
(14,874
)
 
(170,431
)
 
$
(8,187,110
)
 
 
$
523,378


Cash Dividend
On January 23, 2019 the Company announced that its Board of Directors approved a quarterly cash dividend of $0.35 per share which was paid on March 22, 2019 to all shareholders of record as of the close of business on March 8, 2019.
Subsequent Event
On April 24, 2019, the Company announced that its Board of Directors approved a quarterly cash dividend of $0.35 per share. This dividend is payable on June 21, 2019 to all shareholders of record as of the close of business on June 7, 2019. Future dividends will be subject to Board approval.



34


19. LEASES
The Company leases certain office space and equipment under various leases. In addition to rent, the leases require the Company to pay for taxes, insurance, maintenance and other operating expenses. The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets, accrued expenses and other current liabilities, and operating lease liabilities in the Company’s condensed consolidated balance sheets. Finance leases are included in property and equipment, net, accrued expenses and other current liabilities and other long term liabilities in the Company’s condensed consolidated balance sheets. Finance leases are not material to the condensed consolidated financial statements as of March 31, 2019.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the later of the adoption date of the new standard or the commencement date. The lease liability is based on the present value of lease payments over the lease term (or remaining term for existing leases). As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The operating lease ROU asset is based on the liability, subject to adjustment, such as for initial direct costs, and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. For most operating leases, expense for lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.
The Company has lease agreements with lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common-area maintenance costs), which are generally accounted for as a single lease component, such as for real estate leases. For certain equipment leases, such as colocation facilities, the Company accounts for the lease and non-lease components separately.
The components of lease expense were as follows (in thousands):
Lease Cost
 
 
 
Three Months Ended March 31,
 
Classification
 
2019
Operating lease cost
General and administrative expense
 
$
12,400

Variable lease cost
General and administrative expense
 
2,569