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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form
10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission File Number 0-27084
CITRIX SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
    
Delaware  75-2275152
(State or other jurisdiction of
incorporation or organization)
  (IRS Employer
Identification No.)
851 West Cypress Creek Road  
Fort Lauderdale
Florida
33309
(Address of principal executive offices)  (Zip Code)
Registrant’s Telephone Number, Including Area Code:
(954) 267-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $.001 per shareCTXSThe NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 ☒
Large accelerated filer Accelerated filer
 Non-accelerated filerSmaller reporting company
Emerging growth company
1


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of July 18, 2022, there were 126,885,081 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 June 30, 2022
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.

3


PART I: FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2022December 31, 2021
(Unaudited)(Derived from audited financial statements)
 (In thousands, except par value)
Assets
Current assets:
Cash and cash equivalents$865,597 $513,993 
Short-term investments, available-for-sale 7,202 13,186 
Accounts receivable, net of allowances of $42,734 and $33,279 at June 30, 2022 and December 31, 2021, respectively
696,836 885,311 
Inventories, net24,911 23,158 
Prepaid expenses and other current assets303,289 283,337 
Total current assets1,897,835 1,718,985 
Long-term investments, available-for-sale  14,754 
Property and equipment, net207,082 219,031 
Operating lease right-of-use assets, net132,638 154,685 
Goodwill3,404,214 3,400,792 
Other intangible assets, net691,254 760,293 
Deferred tax assets, net398,538 417,016 
Other assets279,538 289,961 
Total assets$7,011,099 $6,975,517 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$146,746 $165,250 
Accrued expenses and other current liabilities354,954 444,767 
Income taxes payable88,353 35,996 
Short-term debt99,966  
Current portion of deferred revenues1,617,254 1,708,058 
Total current liabilities2,307,273 2,354,071 
Long-term portion of deferred revenues311,584 329,535 
Long-term debt3,228,617 3,326,327 
Long-term income taxes payable153,587 204,782 
Operating lease liabilities138,288 166,014 
Other liabilities47,394 47,531 
Commitments and contingencies
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; 327,925 and 325,174 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively
328 325 
Additional paid-in capital7,224,119 7,041,576 
Retained earnings5,276,925 5,100,624 
Accumulated other comprehensive loss(5,776)(2,896)
12,495,596 12,139,629 
Less - common stock in treasury, at cost (201,087 and 200,313 shares at June 30, 2022 and December 31, 2021, respectively)
(11,671,240)(11,592,372)
Total stockholders' equity824,356 547,257 
Total liabilities and stockholders' equity$7,011,099 $6,975,517 
See accompanying notes.
4


CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
 (In thousands, except per share information)
Revenues:
Subscription$509,595 $374,271 $973,232 $716,400 
Product and license34,302 58,683 67,599 102,918 
Support and services315,625 379,157 644,029 768,559 
Total net revenues859,522 812,111 1,684,860 1,587,877 
Cost of net revenues:
Cost of subscription, support and services112,590 116,027 219,616 226,772 
Cost of product and license revenues25,861 25,160 43,388 46,875 
Amortization of product related intangible assets17,471 20,119 34,814 31,128 
Total cost of net revenues155,922 161,306 297,818 304,775 
Gross profit703,600 650,805 1,387,042 1,283,102 
Operating expenses:
Research and development137,166 146,179 285,071 290,337 
Sales, marketing and services274,432 306,920 567,383 600,204 
General and administrative90,256 93,594 199,315 188,584 
Amortization of other intangible assets19,434 19,435 38,655 26,967 
Restructuring9,023  27,101  
Total operating expenses530,311 566,128 1,117,525 1,106,092 
Income from operations173,289 84,677 269,517 177,010 
Interest income941 272 1,383 593 
Interest expense(23,849)(22,905)(45,925)(47,265)
Other (expense) income, net(3,817)6,635 (4,894)19,531 
Income before income taxes146,564 68,679 220,081 149,869 
Income tax expense (benefit)31,107 5,913 44,392 (2,945)
Net income$115,457 $62,766 $175,689 $152,814 
Earnings per share:
Basic $0.91 $0.51 $1.39 $1.24 
Diluted$0.90 $0.50 $1.38 $1.21 
Weighted average shares outstanding:
Basic126,735 124,230 126,120 123,580 
Diluted127,832 126,003 127,757 126,019 

See accompanying notes.
5


    
CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
 (In thousands)
Net income$115,457 $62,766 $175,689 $152,814 
Other comprehensive income:
Available for sale securities:
Change in net unrealized (losses) gains(409) (412)20 
Less: reclassification adjustment for net losses included in net income415  415  
Net change (net of tax effect)6  3 20 
Gain on pension liability   1,050 
Cash flow hedges:
Change in unrealized (losses) gains(2,967)128 (3,995)(735)
Less: reclassification adjustment for net losses (gains) included in net income726 (758)1,112 (2,701)
Net change (net of tax effect)(2,241)(630)(2,883)(3,436)
Other comprehensive loss(2,235)(630)(2,880)(2,366)
Comprehensive income$113,222 $62,136 $172,809 $150,448 

See accompanying notes.



6



CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months Ended June 30,
 20222021
 (In thousands)
Operating Activities
Net income$175,689 $152,814 
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and impairment of intangible assets73,469 58,094 
Depreciation and amortization of property and equipment32,130 29,923 
Amortization of debt discount and transaction costs2,337 7,486 
Amortization of deferred costs43,732 37,175 
Amortization of operating lease right-of-use assets21,134 25,666 
Stock-based compensation expense145,435 168,793 
Deferred income tax expense114 8,202 
Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies24,764 7,944 
Other non-cash items21,292 (18,925)
Total adjustments to reconcile net income to net cash provided by operating activities364,407 324,358 
Changes in operating assets and liabilities, net of the effects of acquisitions:
Accounts receivable174,614 207,883 
Inventories(1,901)(2,006)
Prepaid expenses and other current assets(7,312)(22,928)
Other assets(39,071)(44,911)
Income taxes, net(15,895)(70,990)
Accounts payable(15,882)44,459 
Accrued expenses and other current liabilities(79,092)(188,413)
Deferred revenues(108,755)(43,869)
Other liabilities(411)243 
Total changes in operating assets and liabilities, net of the effects of acquisitions(93,705)(120,532)
Net cash provided by operating activities446,391 356,640 
Investing Activities
Purchases of available-for-sale investments(2,032)(12,151)
Proceeds from sales of available-for-sale investments12,983  
Proceeds from maturities of available-for-sale investments9,371 119,771 
Purchases of property and equipment(33,465)(44,876)
Cash paid for acquisitions, net of cash acquired (2,022,304)
Cash paid for licensing agreements, patents and technology(4,715)(4,417)
Other10,979 6,479 
Net cash used in investing activities(6,879)(1,957,498)
Financing Activities
Proceeds from issuance of common stock under stock-based compensation plan1,953 20 
Proceeds from term loan credit agreement, net of issuance costs 997,947 
Proceeds from senior notes, net of issuance costs 741,393 
Repayment of acquired debt (190,000)
Cash paid for tax withholding on vested stock awards(78,868)(101,718)
Cash paid for dividends (91,481)
Other (5,438)
Net cash (used in) provided by financing activities(76,915)1,350,723 
Effect of exchange rate changes on cash and cash equivalents(10,993)(1,648)
Change in cash and cash equivalents351,604 (251,783)
Cash and cash equivalents at beginning of period513,993 752,895 
Cash and cash equivalents at end of period$865,597 $501,112 
See accompanying notes.
7


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, 2021.
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 Workspace solutions, App Delivery and Security products and related Support and services. The Company operates under one reportable segment. See Note 10 for more information on the Company's segment.
Pending Merger
On January 31, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), with Picard Parent, Inc. (“Parent”), Picard Merger Sub, Inc., a wholly owned subsidiary of Parent (“Merger Sub”) and, for certain limited purposes detailed in the Merger Agreement, TIBCO Software, Inc. (“TIBCO”), pursuant to which Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent. Parent and Merger Sub were formed by affiliates of Vista Equity Partners (“Vista”). Vista is partnering with Evergreen Coast Capital Corp. (“Evergreen”), an affiliate of Elliott Investment Management L.P. (“Elliott”), to acquire all of the Company’s outstanding shares of common stock (the “Company Common Stock”) for $104.00 per share in cash. At a Special Meeting of Stockholders held on April 21, 2022, the Company's stockholders approved the Merger Agreement. The Merger is currently expected to close during the third quarter of 2022, subject to customary closing conditions, including receipt of final regulatory approvals. See Note 18 for more information on the pending merger transaction.
2. SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting Pronouncements
Business Combinations
In October 2021, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update on business combinations. The new guidance requires companies to apply revenue guidance under Accounting Standards Codification Topic 606 to recognize and measure contract assets and contract liabilities acquired in a business combination on the acquisition date. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. The update will be effective for the Company beginning in the first quarter of 2023, though early adoption is permitted. The Company is currently evaluating the timing of adoption and impact of this new standard.
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 estimation for reserves for legal contingencies, the standalone selling price of certain performance obligations related to revenue recognition, the provision for credit losses related to accounts receivable, contract assets, and available-for-sale debt securities, the provision to reduce
8


obsolete or excess inventory to net realizable value, the provision for estimated returns, as well as sales allowances, the assumptions used in the valuation of stock-based awards and measurement of expense related to performance stock units, the assumptions used in the discounted cash flows to mark certain of its investments to market, the valuation of the Company’s goodwill, valuation of acquired intangible assets and liabilities, 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 in debt securities as of June 30, 2022 and December 31, 2021 primarily consist of corporate securities. Investments classified as available-for-sale debt securities are stated at fair value, with unrealized gains and losses, net of taxes, reported in Accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets. 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 unrealized changes in the fair value of its available-for-sale debt securities in income unless a security is deemed to be impaired.
The allowance for credit losses on the Company's investments in available-for-sale debt securities is determined using a quantitative discounted cash flow analysis if impairment triggers exist after a qualitative screen is completed. Impairment on available-for-sale debt securities is determined on an individual security basis and the security is subject to impairment when its fair value declines below its amortized cost basis. If the fair value is less than the amortized cost basis, management must then determine whether it intends to sell the security or whether it is more likely than not that it will be required to sell the security before it recovers its value. If management intends to sell the security or will more-likely-than-not be required to sell the impaired security before it recovers its value, a credit loss is recorded to Other (expense) income, net in the accompanying condensed consolidated statements of income. If management does not intend to sell the security, nor will it more-likely-than-not be required to sell the security before the security recovers its value, management must then determine whether the loss is due to credit loss or other factors. For impairment indicators due to credit loss factors, management establishes an allowance for credit losses with a charge to Other (expense) income, net. For impairment indicators due to other factors, management records the loss with a charge to Accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets.
See Note 7 for additional information regarding the Company’s investments.
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. 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.
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
9


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. See Note 7 for additional information regarding the Company’s fair value measurements.
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. 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. The Company accounts for forfeitures as they occur. 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 access one or more of the Company’s cloud-hosted subscription offerings, with routine customer support, as well as revenues from the Citrix Service Provider (“CSP”) program, on-premise subscription software licenses, and hybrid subscription offerings. 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 App Delivery and Security products.
Support and services
Support and services revenues include license updates, maintenance and professional services which are primarily related to the Company's perpetual offerings. License updates and maintenance revenues are primarily comprised of software and hardware maintenance, when and if-available updates and technical support. 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.
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The Company’s typical performance obligations include the following:
Performance Obligation
When Performance Obligation
is Typically Satisfied
Subscription
Cloud-hosted offeringsOver the contract term, beginning on the date that service is made available to the customer (over time)
CSPAs the usage occurs (over time)
On-premise subscription software licensesWhen software activation keys have been made available for download (point in time)
On-premise subscription license updates and maintenanceRatably over the course of the service term (over time)
Product and license
Perpetual software licensesWhen software activation keys have been made available for download (point in time)
HardwareWhen control of the product passes to the customer; typically upon shipment (point in time)
Support and services
License updates and maintenance for perpetual software licensesRatably over the course of the service term (over time)
Professional servicesAs the services are provided (over time)
Significant Judgments
The Company generates all of its revenues from contracts with customers. 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 the 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.
Sales tax
The Company records revenue net of sales tax.
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Timing of revenue recognition
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
(In thousands)
Products and services transferred at a point in time$149,418 $142,835 $272,822 $284,634 
Products and services transferred over time710,104 669,276 1,412,038 1,303,243 
Total net revenues$859,522 $812,111 $1,684,860 $1,587,877 
Contract balances
The Company's short-term and long-term contract assets, net of allowance for credit losses, were $51.8 million and $40.7 million, respectively, as of June 30, 2022, and $46.6 million and $40.5 million, respectively, as of December 31, 2021, and are included in Prepaid expenses and other current assets and Other assets, respectively, in the accompanying condensed consolidated balance sheets. The Current portion of deferred revenues and the Long-term portion of deferred revenues were $1.62 billion and $311.6 million, respectively, as of June 30, 2022 and $1.71 billion and $329.5 million, respectively, as of December 31, 2021. 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 Company’s right to consideration or the customer’s payment. During the three and six months ended June 30, 2022, the Company recognized $605.3 million and $1.07 billion, respectively, of revenue that was included in the deferred revenue balance as of March 31, 2022 and December 31, 2021, respectively.
The Company performs its obligations under a contract with a customer by transferring solutions and services in exchange for consideration from the customer. Accounts receivable are recorded when the right to consideration becomes unconditional. The timing of the Company’s performance differs from the timing of the Company’s right to consideration or 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 material asset impairment charges related to contract assets for either the three and six months ended June 30, 2022 and 2021, respectively. 
For the Company’s perpetual offerings, the timing of payment is typically upfront. 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 amortized as these services are provided over time.
For contracts that have an original duration of one year or less, 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 years3-5 years5 years or moreTotal
Subscription$2,209,673 $91,926 $1,765 $2,303,364 
Support and services994,351 18,693 498 1,013,542 
Total net revenues$3,204,024 $110,619 $2,263 $3,316,906 
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 over the expected period of benefit on a basis consistent with the pattern of transfer of the products or services to which the asset relates. The Company elects to apply a practical expedient to expense contract acquisition costs as incurred where the pattern of transfer is one year or less.
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The Company’s typical contracts include performance obligations related to subscription, product and licenses, and support and services. Contract acquisition costs are allocated to performance obligations using a portfolio approach. The Company assesses its sales compensation plans at least annually to evaluate whether contract acquisition costs for renewals and extensions are commensurate with those related to initial contracts. If concluded to be commensurate, the contract acquisition costs are amortized over the contractual term on a basis consistent with the pattern of transfer of the products or services to which the asset relates. If concluded not to be commensurate, the contract acquisition costs are amortized over the greater of the contractual term or estimated customer life on a basis consistent with the pattern of transfer of the products or services to which the asset relates. The Company estimates an average customer life of three years to five years, which it believes is appropriate based on consideration of the historical average customer life and the estimated useful life of the underlying product and license sold as part of the transaction.
For the three and six months ended June 30, 2022, the Company recorded amortization of capitalized contract acquisition costs of $22.0 million and $43.7 million, respectively, and for the three and six months ended June 30, 2021, the Company recorded amortization of capitalized contract acquisition costs of $18.9 million and $37.2 million, respectively, which are recorded in Sales, marketing and services expense in the accompanying condensed consolidated statements of income. The Company's short-term and long-term contract acquisition costs were $85.4 million and $145.8 million, respectively, as of June 30, 2022, and $82.4 million and $144.2 million, respectively, as of December 31, 2021, and are included in Prepaid expenses and other current assets and Other assets, respectively, in the accompanying condensed consolidated balance sheets. There were no impairment losses in relation to costs capitalized during the three and six months ended June 30, 2022 and 2021, respectively.
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.
The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share information):
Three Months EndedSix Months Ended
 June 30,June 30,
 2022202120222021
Numerator:
Net income$115,457 $62,766 $175,689 $152,814 
Denominator:
Denominator for basic earnings per share - weighted-average shares outstanding126,735 124,230 126,120 123,580 
Effect of dilutive employee stock awards1,097 1,773 1,637 2,439 
Denominator for diluted earnings per share - weighted-average shares outstanding127,832 126,003 127,757 126,019 
Basic earnings per share$0.91 $0.51 $1.39 $1.24 
Diluted earnings per share$0.90 $0.50 $1.38 $1.21 
For the three and six months ended June 30, 2022, anti-dilutive stock-based awards excluded from the calculations of diluted earnings per share were 1.3 million shares and 1.4 million shares, respectively. For the three and six months ended June 30, 2021, anti-dilutive stock-based awards excluded from the calculations of diluted earnings per share were 3.3 million shares and 2.0 million shares, respectively.
5. CREDIT LOSSES
The Company is exposed to credit losses primarily through its accounts receivable, investments in available-for-sale debt securities, and contract assets. See Note 3 for additional information related to the Company's contract assets.
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Accounts receivable, net
The Company's accounts receivable consist of the following (in thousands):
June 30, 2022
Accounts receivable, gross$739,570 
Less: allowance for returns(12,495)
Less: allowance for credit losses(30,239)
Accounts receivable, net$696,836 
The allowance for credit losses on accounts receivable is determined using a combination of specific reserves for accounts that are deemed to exhibit credit loss indicators and general reserves that are judgmentally determined using loss rates based on historical write-offs by geography and customer accounts subject to credit check versus non-credit check status and consideration of recent forecasted information, including underlying economic expectations. The credit loss reserves are updated quarterly for most recent write-offs and collections information and underlying economic expectations. The Company will compare its current estimate of expected credit losses with the estimate of credit losses from the prior period and will report in net income the amount necessary to adjust the allowance for current expected credit losses. Credit loss expense is included within General and administrative expenses in the accompanying condensed consolidated statements of income.
The activity in the Company's allowance for credit losses for the six months ended June 30, 2022 is summarized as follows (in thousands):
Total
Balance of allowance for credit losses at January 1, 2022$20,737 
Current period provision (reversal) for expected losses10,575 
Write-offs charged against allowance(1,073)
Balance of allowance for credit losses at June 30, 2022$30,239 
As of June 30, 2022, one distributor accounted for 10% of the Company's total gross accounts receivable.
Available-for-sale Investments
The Company did not have any credit loss expense recorded related to available-for-sale debt securities for the three and six months ended June 30, 2022 and 2021, respectively.
The Company has available-for-sale debt securities that have fair values below amortized cost; however, the Company does not consider a credit allowance necessary as (i) the Company does not intend to sell the securities, (ii) it is not more-likely-than-not that the Company will be required to sell the investments before recovery of the amortized cost basis, and (iii) the unrealized losses are due to market factors rather than credit loss factors. See Note 7 for more information on available-for-sale debt securities.
6. ACQUISITIONS
2021 Business Combination
On February 26, 2021 (the “Closing Date”), the Company completed the acquisition of Wrangler Topco, LLC (“Wrangler”), the parent entity of Wrike, Inc. (“Wrike”), a leader in the SaaS collaborative work management space, for approximately $2.07 billion (the “Purchase Consideration”). The Purchase Consideration consisted of a base purchase price of $2.25 billion and was subject to certain adjustments as provided for under the related Agreement and Plan of Merger dated January 16, 2021 (the “Wrike Agreement”). The addition of Wrike’s cloud-delivered capabilities was intended to expand the Company's collaborative work management capabilities. Under the Wrike Agreement, the Company acquired all of the issued and outstanding equity securities of Wrangler.
Under the terms of the Wrike Agreement, certain unvested stock options held by Wrike employees were assumed by the Company and converted into options to purchase 526,113 shares of the Company's common stock that were valued at $54.3 million using the Black-Scholes option-pricing model. The portion of the fair value of the assumed stock options associated with pre-combination service of Wrike employees was valued at $28.9 million and represented a component of the Purchase Consideration. The remaining fair value of $25.4 million is being recognized as post-combination stock-based compensation expense over the service period. See Note 8 for detailed information on the assumed stock options.
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The Company incurred $20.4 million of expenses related to the Wrike acquisition, of which $0.3 million and $0.6 million were expensed during the three and six months ended June 30, 2022, respectively, and $0.3 million and $15.8 million were expensed during the three and six months ended June 30, 2021, respectively, and are included in General and administrative expense in the accompanying condensed consolidated statements of income.
In February 2021, the Company entered into a three-year term loan credit agreement providing for a $1.00 billion senior unsecured term loan (the “2021 Term Loan”) and issued $750.0 million of unsecured senior notes due March 1, 2026 (the “2026 Notes”). The proceeds of the 2021 Term Loan and the 2026 Notes were used (i) to fund a portion of the purchase price of the acquisition and (ii) to pay fees and expenses incurred in connection with the acquisition. The Company incurred $9.1 million of issuance costs that were netted against Long-term debt in the accompanying condensed consolidated balance sheets. See Note 11 for detailed information on the debt financing.
7. INVESTMENTS AND FAIR VALUE MEASUREMENTS
Investments
Available-for-sale Investments
The Company's short-term available-for-sale debt investments are measured to fair value on a recurring basis. Unrealized gains and losses related to the Company’s short-term investments are recorded in Other comprehensive loss and are generally due to interest rate fluctuations. The securities that are in an unrealized loss position are reviewed on an individual basis in order to evaluate if all or a portion of the unrealized loss is a result of a credit loss. For impairment indicators due to credit loss factors, the Company establishes an allowance for credit losses with a charge to current period net income. See Note 5 for additional information regarding the credit losses for available-for-sale investments. As of June 30, 2022 and December 31, 2021, unrealized gains and losses from the Company’s available-for-sale investments were not material and the amortized cost approximated their fair value. For the three and six months ended June 30, 2022 and 2021, realized gains and losses on available-for-sale investments were not material.
The average remaining maturities of the Company’s short-term available-for-sale investments at June 30, 2022 were approximately five months. As of June 30, 2022, the Company does not hold long-term available-for-sale investments.
For the three and six months ended June 30, 2022, the Company received $13.0 million from the sales of available-for-sale investments. For the three and six months ended June 30, 2021, the Company did not receive any proceeds from the sales of available-for-sale investments.
Equity Securities Accounted for at Net Asset Value
The Company held equity interests in certain private equity funds of $16.6 million and $21.5 million as of June 30, 2022 and December 31, 2021, 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 had no unfunded commitments as of June 30, 2022.
Equity Securities without Readily Determinable Fair Values
The Company held direct investments in privately-held companies of $24.3 million and $24.4 million as of June 30, 2022 and December 31, 2021, 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.
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Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of June 30, 2022Quoted
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$453,260 $453,260 $ $ 
Money market funds412,337 412,337   
Available-for-sale securities:
Corporate securities7,202  6,702 500 
Prepaid expenses and other current assets:
Foreign currency derivatives13,745  13,745  
Total assets$886,544 $865,597 $20,447 $500 
Accrued expenses and other current liabilities:
Foreign currency derivatives4,014  4,014  
Total liabilities$4,014 $ $4,014 $ 
As of December 31, 2021Quoted
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$425,650 $425,650 $ $ 
Money market funds70,893 70,893   
Corporate securities17,450  17,450  
Available-for-sale securities:
Corporate securities27,940  27,440 500 
Prepaid expenses and other current assets:
Foreign currency derivatives741  741  
Total assets$542,674 $496,543 $45,631 $500 
Accrued expenses and other current liabilities:
Foreign currency derivatives1,531  1,531  
Total liabilities$1,531 $ $1,531 $ 
The Company’s investment policy is designed to limit exposure to any one issuer depending on credit quality. 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 the majority 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). See Note 12 for further information regarding the Company's derivatives.
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.
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As of June 30, 2022, the fair values of the $750.0 million unsecured senior notes due March 1, 2030 (the “2030 Notes”), $750.0 million unsecured senior notes due December 1, 2027 (the “2027 Notes”), $750.0 million 2026 Notes, $1.00 billion term loan credit agreement entered into in 2021 (the “2021 Term Loan Credit Agreement”) and $100 million term loan credit agreement entered into in 2020 (“Term Loan Credit Agreement”) were 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 June 30, 2022, the carrying value was as follows (in thousands):
 Fair ValueCarrying Value
2030 Notes$732,923 $740,878 
2027 Notes$739,958 $745,153 
2026 Notes$725,108 $743,724 
2021 Term Loan Credit Agreement$948,130 $998,863 
Term Loan Credit Agreement$99,625 $99,965 
See Note 11 for more information on the Company's debt instruments.
8. STOCK-BASED COMPENSATION
Plans
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 June 30, 2022, the Company had three stock-based compensation plans with shares available for grant.
The Company is currently granting stock-based awards from its Second Amended and Restated 2014 Equity Incentive Plan (the “2014 Plan”), which was amended at the Company's Annual Meeting of Stockholders on June 3, 2020. Pursuant to the June 2020 amendment, the maximum number of shares of common stock available for issuance under the 2014 Plan was increased to 51,300,000. In addition, the amendment extended the term of the 2014 Plan to June 3, 2030 and updated the vesting provisions from monthly to annual vesting for annual director awards, consistent with the Company's current compensation program for non-employee directors. As of June 30, 2022, there were 13,651,187 shares of common stock reserved for issuance pursuant to the Company’s stock-based compensation plans, including authorization under its 2014 Plan to grant stock-based awards covering 10,268,094 shares of common stock.
In connection with the Wrike acquisition, on February 26, 2021, the Company's Board of Directors adopted the 2021 Inducement Plan (the “2021 Inducement Plan”). The 2021 Inducement Plan provides for the grant of equity awards to induce highly-qualified prospective officers and employees to accept employment and to provide them with a proprietary interest in the Company. The Company is authorized to issue 320,000 shares of common stock for inducement awards under the 2021 Inducement Plan. As of June 30, 2022, there were 144,998 shares of common stock reserved for issuance pursuant to the 2021 Inducement Plan, including authorization under the 2021 Inducement Plan to grant stock-based awards covering 48,322 shares of common stock.
Effective February 26, 2021, the Company assumed the Wrangler Topco, LLC Second Amended and Restated 2018 Equity Incentive Plan (the “Wrangler Plan”) and the Wrike, Inc. Amended and Restated 2013 Stock Plan (the “Wrike Plan”). As of June 30, 2022, there were 655,257 shares of the Company’s common stock reserved and authorized for issuance under the terms of the Wrangler Plan, including authorization under the Wrangler Plan to grant stock-based awards covering 226,616 shares of common stock. As of June 30, 2022, there were 127,838 shares of the Company's common stock reserved and authorized for issuance under the terms of the Wrike Plan. All of the Wrike Plan awards are currently outstanding with no new shares available for issuance.
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Stock-Based Compensation
The detail of the total stock-based compensation recognized by income statement classification is as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
Income Statement Classifications2022202120222021
Cost of subscription, support and services$3,126 $4,546 $6,666 $8,952 
Research and development25,714 25,792 59,242 56,919 
Sales, marketing and services17,759 28,649 40,523 56,991 
General and administrative19,428 22,944 39,004 45,931 
Total$66,027 $81,931 $145,435 $168,793 
Non-vested Stock Units
Service-Based Stock Units
The Company awards senior level employees and certain other employees non-vested stock units granted under the 2014 Plan that vest based on service. These non-vested stock unit awards primarily vest 33.33% on each of the first, second and third anniversary subsequent to the grant 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, which represent the right to receive one share of the Company's common stock upon vesting. Awards granted to non-employee directors vest in full in one installment on the earlier of: (i) the first anniversary of the award date; or (ii) the day immediately prior to the Company’s next annual meeting of stockholders following the award date.
During the three months ended June 30, 2022, the Company awarded certain non-executive senior level employees and certain other employees, 947,202 non-vested stock units granted under the 2014 Plan that vest based on service and 62,749 non-vested stock units granted under the Wrangler Plan that also vest based on service. During the six months ended June 30, 2022, the Company awarded certain non-executive senior level employees and certain other employees, 1,008,330 non-vested stock units granted under the 2014 Plan that vest based on service and 117,440 non-vested stock units granted under the Wrangler Plan that also vest based on service. These non-vested stock unit awards primarily vest 100% on the first anniversary of the grant date of the award, subject to continued employment through such date.
Unrecognized Compensation Related to Stock Units
As of June 30, 2022, the total number of non-vested stock units outstanding, including company performance awards and service-based awards was 3,621,373. As of June 30, 2022, there was $312.3 million of total unrecognized compensation cost related to non-vested stock units. The unrecognized cost of the awards legally granted through June 30, 2022 is expected to be recognized over a weighted-average period of 1.30 years.
Company Performance Stock Units
The Company recorded stock-based compensation costs related to its company performance stock units of $4.4 million and $16.4 million for the three and six months ended June 30, 2022, respectively, and $6.4 million and $19.6 million for the three and six months ended June 30, 2021, respectively.
Assumed stock options
In connection with the acquisition of Wrike, the Company assumed 526,113 outstanding stock options which expire ten years from the date of grant and which were valued using the Black-Scholes option-pricing model. Of these assumed awards, 180,003 options continued with the same monthly vesting conditions under which they were originally granted. The majority of the remaining assumed options were reset to primarily cliff vest on December 31, 2021 or annually over two years.
The estimated weighted-average grant date fair value for the assumed stock options was $103.22 per share and total fair value of $54.3 million. For the three and six months ended June 30, 2022, the Company recorded stock-based compensation costs related to unvested assumed stock options of $2.1 million and $4.6 million, respectively. For the three and six months ended June 30, 2021, the Company recorded stock-based compensation costs related to unvested assumed stock options of $