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Citrix Systems Beats, Shares Tank

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Citrix Systems Inc. (CTXS - Analyst Report) declared robust financial results for the second quarter of 2012, well above the Zacks Consensus Estimates. GAAP net income, in second-quarter 2012, was $92 million or 49 cents per share compared with $81.9 million or 43 cents per share in the prior-year quarter. Quarterly adjusted earnings per share of 56 cents were miles ahead of the Zacks Consensus Estimate of 47 cents. Second-quarter net revenue was $615.2 million, up 15.9% year over year, beating the Zacks Consensus Estimate of $613 million.

However, the company’s financial guidance for the ensuing third quarter was weak. Consequently, in the after market trade on NASDAQ, the stock price of Citrix dropped $2.89 (3.85%) to $72.22. Nevertheless, the company raises its financial guidance for fiscal 2012. Just a few days ago, Citrix’s major competitor, VMware Inc. (VMW - Snapshot Report) also provided a rosy outlook for fiscal 2012. Furthermore, the Board of Directors of Citrix has authorized an additional $400 million to repurchase its common outstanding shares.

Global trends toward virtualization and cloud computing are facilitating the company to post solid results. Management stated that all three of its business lines, e.g., desktop virtualization, cloud networking, and web collaboration services are performing extremely well.

Gross margin in the second quarter of 2012 was 84.7% compared with 86.5% in the year-ago quarter. Operating expenses in the reported quarter were around $438.7 million compared with $363.4 million in the prior-year quarter. Quarterly operating margin was 13.4% compared with 18% in the prior-year quarter. At the end of the previous quarter, deferred revenue was $1,030 million, up 24.1% year over year.

During the second quarter of 2012, Citrix generated over $167.8 million of cash from operations and free cash flow (cash flow from operations less capital expenditures) during the reported quarter was approximately $139.6 million. At the end of the second quarter of 2012, the company had nearly $1,708.2 million of cash and marketable securities compared with $1,477.6 million at the end of 2011. Balance sheet remains free of any debt obligations.

Revenue by Product Mix

Product and Licenses revenue was $187.9 million, up 10% year over year. License updates and maintenance revenue was $272.5 million, up 18% year over year. Software as a Service revenue was $125.5 million, an increase of 18% over the prior-year quarter, and Professional Services revenue was $29.3 million, up 37% year over year.

Revenue by Product Grouping

Desktop solutions revenue in the second quarter of 2012 was $343.2 million, up 12.6% year over year. Data Center and Cloud Solutions revenue was $112.1 million, up 20.2% year over year. Online Services revenue was $125.5 million, up 17.8% year over year. Revenue from Other Products was $34.4 million, up 30.3% year over year.

Revenue by Geography

Revenue in the Americas (North & Latin America) region was $366.6 million. Revenue in Europe, Africa, and the Middle East region was $179.6 million. Revenue in the Asia Pacific region was $69.1 million.

Third Quarter of 2012 Financial Outlook

Management forecasted that the company’s third-quarter 2012 revenue will be within the range of $645 million - $655 million. GAAP earnings per share will be within the range of 36 cents - 38 cents and non-GAAP earnings per share will be between 64 cents and 66 cents. Stock-based compensation expenses will be 21 cents per share.

Full Fiscal 2012 Financial Outlook

Management forecasted that the company’s fiscal 2012 revenue will be within the range of $2.56 billion - $2.58 billion. GAAP earnings per share will be within the range of $1.76 - $1.79 and non-GAAP earnings per share will be within the range of $2.78 - $2.81. Stock-based compensation expenses will be 80 cents per share.

Our Recommendation

Virtualization and cloud computing services are getting rapidly adopted by business enterprises throughout the world. We believe the virtualization market will continue to flourish with desktop virtualization as its core theme. This trend is expected to sustain future growth of Citrix Systems.

We maintain our long-term Outperform recommendation on Citrix Systems. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock primarily due to the high-level of current valuation of Citrix, which soared 49.6% in the last year.

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