Why Is Citrix (CTXS) Down 4.9% Since Last Earnings Report?

It has been about a month since the last earnings report for Citrix Systems (CTXS). Shares have lost about 4.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Citrix due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Citrix Q3 Earnings and Revenues Beat Estimates

Citrix Systems reported third-quarter 2020 non-GAAP earnings of $1.38 per share, beating the Zacks Consensus Estimate by 12.2%. However, the bottom line declined 9.2% on a year-over-year basis.

Revenues of $767.17 million surpassed the Zacks Consensus Estimate by 1.24%. The top line improved 5% on a year-over-year basis. Robust adoption of the company’s offerings enabling secure remote work amid coronavirus crisis-induced work-from-home wave was a key catalyst.

Product and license revenues (11% of total revenues) declined 33% year over year to $87 million.

Support and services revenues (54%) decreased 6% on a year-over-year basis to $417 million.

Subscription revenues (34%) surged 56% from the year-ago figure to $263 million.

During the quarter under review, SaaS revenues were $138 million (52% of total subscription revenues), up 37% year over year. Notably, SaaS revenues account for significant part of subscription transition. Other subscription revenues in the reported quarter totaled $125 million, soaring 111% year over year.

Revenues as per Product Group

Workspace revenues (75% of total revenues) increased 12% year over year to $573 million courtesy of higher adoption of SaaS-bases subscription solutions. Workspace subscription revenues improved 26% year over year, and contributed 35% to the figure. Approximately 80% of Workspace product bookings were subscription based. Sharp increase in Workspace deployments benefited growth as employees were compelled to work remotely in the wake of the coronavirus pandemic, which called for secure remote work infrastructure.

However, Networking revenues (22%) declined 12% from the year-ago period to $166 million. Networking subscription revenues soared 136% from the prior-year figure. Networking software revenues contributed 48% to the figure. Approximately 66% of Networking product bookings were subscription based. The company anticipates shift toward software-based solutions from traditional hardware to weigh on Networking revenues in the days ahead. The company will report Networking product grouping to App Delivery and Security beginning fourth-quarter 2020.

Professional Services revenues (4%) declined 13% on a year-over-year basis to $28 million. As business shifts toward subscription solutions, Professional services revenues are anticipated to decline over time.

Customer Wise Revenues

Revenues from SSP customers amounted to $22 million (3% of total revenues) during the reported quarter, down 44% year over year. Revenues from non-SSP customers (97% of total revenues) improved 7% year over year to $746 million.

Geographic Revenues

Revenues in the Americas (54% of total revenues) were $414 million, down 1% on a year-over-year basis. Meanwhile, revenues in Europe, Middle East and Africa or EMEA (36% of total revenues) advanced 17% from the year-ago quarter to $276 million. Revenues in Asia-Pacific and Japan or APJ (10% of total revenues) declined 3% year over year to $76 million.

Margin Details

Total operating expenses increased 3.3% year over year to $511.6 million. As a percentage of revenues, the figure contracted 90 basis points (bps) to 66.7%. Non-GAAP operating margin was reported at 29%, which contracted 200 bps sequentially.

Balance Sheet & Cash Flow

As of Sep 30, 2020, Citrix had cash and cash equivalents and short-term investments of $938 million compared with $880 million as of Jun 30, 2020. As of Sep 30, 2020, long-term debt at the end of the quarter came in at $1.73 billion, flat sequentially.

Cash flow from operations was reported at $112 million, compared with $419 million in the prior quarter. The company has $714 million remaining in share repurchase authorization.

The company paid out quarterly dividends worth $43 million. Notably, Citrix’s board of directors approved a cash dividend of 35 cents per share, payable on Dec 22, to shareholders as on Dec 8.

Q4 Guidance

For fourth-quarter 2020, Citrix anticipates revenues between $775 million and $785 million. Moreover, non-GAAP earnings are expected in the range of $1.25 to $1.35 per share.

 

Tweaks 2020 Revenue Outlook

For full-year 2020, Citrix updated guidance on the heels of strong pipeline for secure, remote work offerings. The company now expects revenues between $3.20 billion and $3.21 billion, compared with the earlier guided range of $3.18-$3.21 billion.

Moreover, non-GAAP earnings are now expected between $5.89 and $5.99, compared with the previously guided range of $5.65-$5.85 per share.

Management now anticipates non-GAAP operating margin to be near 29.5%. Earlier, the company had guided non-GAAP operating margin in the range of 28-29%.

Preliminary 2021 View

For 2021, Citrix anticipates revenues to grow 4% on a year-over-year basis. Moreover, non-GAAP earnings are expected between $6.20 and $6.40 per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, Citrix has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Citrix has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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