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Mixed 3Q for Citrix, Share Raises

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Citrix Systems Inc. (CTXS - Free Report) declared mixed financial results for the third quarter of 2012. GAAP net income, in third-quarter 2012, was $78.2 million or 41 cents per share compared with $92.2 million or 49 cents per share in the prior-year quarter. Quarterly adjusted earnings per share of 53 cents were well above the Zacks Consensus Estimate of 49 cents. Third-quarter net revenue was $641.4 million, up 13.5% year over year but fell below the Zacks Consensus Estimate of $651 million.

Nevertheless, the company’s financial guidance for the ensuing fourth quarter was weak. Despite this, in the after market trade on NASDAQ, the stock price of Citrix raised $1.11 (1.73%) to $65.19. Just a few days ago, Citrix’s major competitor, VMware Inc. (VMW - Free Report) maintained its previously given outlook for fiscal 2012.

Gross margin in the third quarter of 2012 was 83.5% compared with 85.9% in the year-ago quarter. Operating expenses in the reported quarter were around $452.9 million compared with $381 million in the prior-year quarter. Quarterly operating margin was 12.9% compared with 18.5% in the prior-year quarter. At the end of the previous quarter, deferred revenue was $1,050 million, up 25.9% year over year. In the reported quarter, Citrix repurchased 1 million of its common shares for a total consideration of $76.3 million.

During the third quarter of 2012, Citrix generated over $181 million of cash from operations and free cash flow (cash flow from operations less capital expenditures) during the reported quarter was approximately $145 million. At the end of the third quarter of 2012, the company had nearly $1,406.3 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 $195.6 million, up 0.9% year over year. License updates and maintenance revenue was $285.1 million, up 19.4% year over year. Software as a Service revenue was $129.7 million, an increase of 18.3% over the prior-year quarter, and Professional Services revenue was $31 million, up 33.7% year over year.

Revenue by Product Grouping

Desktop solutions revenue in the second quarter of 2012 was $348.6 million, up 10.3% year over year. Data Center and Cloud Solutions revenue was $127.5 million, up 14.7% year over year. Online Services revenue was $129.7 million, up 18.3% year over year. Revenue from Other Products was $35.7 million, up 24.4% year over year.

Revenue by Geography

Revenue in the Americas (North & Latin America) region was $391.8 million. Revenue in Europe, Africa, and the Middle East region was $180.1 million. Revenue in the Asia Pacific region was $69.5 million.

Fourth Quarter of 2012 Financial Outlook

Management forecasted that the company’s fourth-quarter 2012 revenue will be within the range of $700 million to $710 million. GAAP earnings per share will be within the range of 55 cents to 57 cents and non-GAAP earnings per share will be between 83 cents and 85 cents. Stock-based compensation expenses will be 22 cents per share.

Initial Outlook for Fiscal 2013

Management has expected that the company’s fiscal 2013 revenue will grow 14% year over year and its non-GAAP operating margin will be expanded by 0.5% year over year.

Our Recommendation

We maintain our Neutral recommendation on Citrix Systems. Currently, it holds a short-term Zacks #4 Rank (Sell) on the stock.

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