UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form10-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, 20192020
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)
    
Delaware75-2275152
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
Delaware75-2275152
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
851 West Cypress Creek Road
Fort Lauderdale
Florida33309
(Address of principal executive offices)(Zip Code)
Registrant’s Telephone Number, Including Area Code:
(954) (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
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
1


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 26, 2019,24, 2020, there were 130,902,113123,531,988 shares of the registrant’s Common Stock, $.001 par value per share, outstanding.

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CITRIX SYSTEMS, INC.
Form 10-Q
For the Quarterly Period Ended June 30, 20192020
CONTENTS

Page
Number
PART I:
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.

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3




PART I: FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2019 December 31, 2018June 30, 2020December 31, 2019
(Unaudited) (Derived from audited financial statements)(Unaudited)(Derived from audited financial statements)
(In thousands, except par value) (In thousands, except par value)
Assets   Assets
Current assets:   Current assets:
Cash and cash equivalents$504,720
 $618,766
Cash and cash equivalents$555,072  $545,761  
Short-term investments, available-for-sale58,425
 583,615
Short-term investments, available-for-sale312,598  43,055  
Accounts receivable, net of allowances of $7,510 and $4,530 at June 30, 2019 and December 31, 2018, respectively530,102
 688,420
Accounts receivable, net of allowances of $20,135 and $9,557 at June 30, 2020 and December 31, 2019, respectivelyAccounts receivable, net of allowances of $20,135 and $9,557 at June 30, 2020 and December 31, 2019, respectively614,150  720,359  
Inventories, net22,888
 21,905
Inventories, net17,767  15,898  
Prepaid expenses and other current assets155,579
 174,195
Prepaid expenses and other current assets186,390  187,659  
Total current assets1,271,714
 2,086,901
Total current assets1,685,977  1,512,732  
Long-term investments, available-for-sale30,484
 574,319
Long-term investments, available-for-sale12,648  16,640  
Property and equipment, net245,395
 243,396
Property and equipment, net218,790  231,894  
Operating lease right-of-use assets191,010
 
Operating lease right-of-use assets, netOperating lease right-of-use assets, net193,650  206,154  
Goodwill1,800,275
 1,802,670
Goodwill1,798,408  1,798,408  
Other intangible assets, net145,048
 167,187
Other intangible assets, net93,768  108,478  
Deferred tax assets, net116,929
 136,998
Deferred tax assets, net382,406  361,814  
Other assets134,341
 124,578
Other assets162,467  152,806  
Total assets$3,935,196
 $5,136,049
Total assets$4,548,114  $4,388,926  
Liabilities, Temporary Equity and Stockholders' Equity   
Liabilities and Stockholders' (Deficit) EquityLiabilities and Stockholders' (Deficit) Equity
Current liabilities:   Current liabilities:
Accounts payable$96,768
 $75,551
Accounts payable$122,154  $84,538  
Accrued expenses and other current liabilities284,385
 290,492
Accrued expenses and other current liabilities380,152  331,680  
Income taxes payable11,463
 44,409
Income taxes payable112,205  60,036  
Current portion of convertible notes
 1,155,445
Current portion of deferred revenues1,288,910
 1,345,243
Current portion of deferred revenues1,378,022  1,352,333  
Total current liabilities1,681,526
 2,911,140
Total current liabilities1,992,533  1,828,587  
Long-term portion of deferred revenues455,804
 489,329
Long-term portion of deferred revenues409,608  443,458  
Long-term debt742,482
 741,825
Long-term debt1,731,514  742,926  
Long-term income taxes payable259,391
 285,627
Long-term income taxes payable232,087  259,391  
Operating lease liabilities200,084
 
Operating lease liabilities198,712  209,382  
Other liabilities87,887
 148,499
Other liabilities77,256  67,526  
Commitments and contingencies

 

Commitments and contingencies
Temporary equity from convertible notes
 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; 316,969 and 309,761 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively317
 310
Stockholders' (deficit) equity:Stockholders' (deficit) equity:
Preferred stock at $.01 par value: 5,000 shares authorized, NaN issued and outstandingPreferred stock at $.01 par value: 5,000 shares authorized, NaN issued and outstanding—  —  
Common stock at $.001 par value: 1,000,000 shares authorized; 321,210 and 318,760 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectivelyCommon stock at $.001 par value: 1,000,000 shares authorized; 321,210 and 318,760 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively321  319  
Additional paid-in capital6,078,960
 5,404,500
Additional paid-in capital6,216,838  6,249,065  
Retained earnings4,277,586
 4,169,019
Retained earnings4,863,515  4,660,145  
Accumulated other comprehensive loss(4,610) (8,154)Accumulated other comprehensive loss(6,465) (5,127) 
10,352,253
 9,565,675
11,074,209  10,904,402  
Less - common stock in treasury, at cost (186,486 and 178,327 shares at June 30, 2019 and December 31, 2018, respectively)(9,844,231) (9,014,156)
Total stockholders' equity508,022
 551,519
Total liabilities, temporary equity and stockholders' equity$3,935,196
 $5,136,049
Less - common stock in treasury, at cost (197,693 and 188,693 shares at June 30, 2020 and December 31, 2019, respectively)Less - common stock in treasury, at cost (197,693 and 188,693 shares at June 30, 2020 and December 31, 2019, respectively)(11,167,805) (10,066,746) 
Total stockholders' (deficit) equityTotal stockholders' (deficit) equity(93,596) 837,656  
Total liabilities and stockholders' (deficit) equityTotal liabilities and stockholders' (deficit) equity$4,548,114  $4,388,926  
See accompanying notes.

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CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
 (In thousands, except per share information)
Revenues:
Subscription$243,450  $155,833  $511,686  $297,439  
Product and license129,933  140,654  302,791  275,676  
Support and services425,546  452,210  845,397  894,725  
Total net revenues798,929  748,697  1,659,874  1,467,840  
Cost of net revenues:
Cost of subscription, support and services93,877  78,817  179,917  150,245  
Cost of product and license revenues20,060  21,878  41,316  47,622  
Amortization of product related intangible assets8,303  9,784  16,584  20,085  
Total cost of net revenues122,240  110,479  237,817  217,952  
Gross margin676,689  638,218  1,422,057  1,249,888  
Operating expenses:
Research and development140,477  134,029  274,935  264,292  
Sales, marketing and services291,511  298,429  617,620  573,084  
General and administrative90,808  81,162  170,907  158,709  
Amortization of other intangible assets694  3,205  1,396  6,734  
Restructuring9,528  4,311  11,981  7,143  
Total operating expenses533,018  521,136  1,076,839  1,009,962  
Income from operations143,671  117,082  345,218  239,926  
Interest income589  3,870  2,194  13,544  
Interest expense(17,076) (10,289) (31,687) (28,322) 
Other income (expense), net1,911  (3,420) 4,009  279  
Income before income taxes129,095  107,243  319,734  225,427  
Income tax expense16,189  13,748  25,606  21,584  
Net income$112,906  $93,495  $294,128  $203,843  
Earnings per share:
Basic$0.91  $0.71  $2.37  $1.55  
Diluted$0.90  $0.70  $2.32  $1.48  
Weighted average shares outstanding:
Basic123,522  131,309  124,128  131,396  
Diluted125,735  134,277  126,659  137,635  
 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
 (In thousands, except per share information)
Revenues:       
Subscription$155,833
 $110,796
 $297,439
 $213,954
Product and license140,654
 192,058
 275,676
 352,755
Support and services452,210
 439,511
 894,725
 872,848
Total net revenues748,697
 742,365
 1,467,840
 1,439,557
Cost of net revenues:       
Cost of subscription, support and services78,817
 67,523
 150,245
 130,908
Cost of product and license revenues21,878
 29,707
 47,622
 63,579
Amortization of product related intangible assets9,784
 11,519
 20,085
 22,548
Total cost of net revenues110,479
 108,749
 217,952
 217,035
Gross margin638,218
 633,616
 1,249,888
 1,222,522
Operating expenses:       
Research and development134,029
 112,943
 264,292
 211,493
Sales, marketing and services298,429
 286,730
 573,084
 537,943
General and administrative81,162
 77,340
 158,709
 141,067
Amortization of other intangible assets3,205
 4,019
 6,734
 7,685
Restructuring4,311
 7,437
 7,143
 13,624
Total operating expenses521,136
 488,469
 1,009,962
 911,812
Income from operations117,082
 145,147
 239,926
 310,710
Interest income3,870
 9,402
 13,544
 18,133
Interest expense(10,289) (20,542) (28,322) (40,878)
Other (expense) income, net(3,420) (2,537) 279
 (5,549)
Income before income taxes107,243
 131,470
 225,427
 282,416
Income tax expense13,748
 24,637
 21,584
 31,324
Net income$93,495
 $106,833
 $203,843
 $251,092
Earnings per share:       
Basic$0.71
 $0.79
 $1.55
 $1.82
Diluted$0.70
 $0.73
 $1.48
 $1.72
Weighted average shares outstanding:       
Basic131,309
 135,993
 131,396
 137,614
Diluted134,277
 145,447
 137,635

145,709

See accompanying notes.

5
4




        
CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
 (In thousands)
Net income$112,906  $93,495  $294,128  $203,843  
Other comprehensive income:
Available for sale securities:
Change in net unrealized (losses) gains(24) 614  131  2,802  
Less: reclassification adjustment for net gains included in net income(8) (26) (21) (584) 
Net change (net of tax effect)(32) 588  110  2,218  
Gain on pension liability—  —   —  
Cash flow hedges:
Change in unrealized gains (losses)458  188  (2,127) 335  
Less: reclassification adjustment for net losses included in net income919  97  671  991  
Net change (net of tax effect)1,377  285  (1,456) 1,326  
Other comprehensive income (loss)1,345  873  (1,338) 3,544  
Comprehensive income$114,251  $94,368  $292,790  $207,387  
 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
 (In thousands)
Net income$93,495
 $106,833
 $203,843
 $251,092
Other comprehensive income:       
Available for sale securities:       
Change in net unrealized gains (losses)614
 332
 2,802
 (4,210)
Less: reclassification adjustment for net (gains) losses included in net income(26) 243
 (584) 1,244
Net change (net of tax effect)588
 575
 2,218
 (2,966)
Cash flow hedges:       
Change in unrealized gains (losses)188
 (3,422) 335
 (2,730)
Less: reclassification adjustment for net losses (gains) included in net income97
 (997) 991
 (2,216)
Net change (net of tax effect)285
 (4,419) 1,326
 (4,946)
Other comprehensive income (loss)873
 (3,844) 3,544
 (7,912)
Comprehensive income$94,368
 $102,989
 $207,387
 $243,180

See accompanying notes.




5
6




CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, Six Months Ended June 30,
2019 2018 20202019
(In thousands) (In thousands)
Operating Activities   Operating Activities
Net income$203,843
 $251,092
Net income$294,128  $203,843  
Adjustments to reconcile net income to net cash provided by operating activities:   Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other118,689
 106,266
Depreciation, amortization and other106,593  118,689  
Stock-based compensation expense133,554
 91,567
Stock-based compensation expense143,685  133,554  
Deferred income tax expense18,870
 5,756
Deferred income tax (benefit) expenseDeferred income tax (benefit) expense(20,952) 18,870  
Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies1,326
 6,021
Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies(166) 1,326  
Other non-cash items3,921
 5,166
Other non-cash items19,920  3,921  
Total adjustments to reconcile net income to net cash provided by operating activities276,360
 214,776
Total adjustments to reconcile net income to net cash provided by operating activities249,080  276,360  
Changes in operating assets and liabilities, net of the effects of acquisitions:   
Changes in operating assets and liabilities:Changes in operating assets and liabilities:
Accounts receivable155,170
 182,469
Accounts receivable95,329  155,170  
Inventories(2,594) (6,645)Inventories(1,894) (2,594) 
Prepaid expenses and other current assets22,733
 (38,080)Prepaid expenses and other current assets2,478  22,733  
Other assets(31,126) 1,795
Other assets(39,485) (31,126) 
Income taxes, net(67,283) (72,405)Income taxes, net25,621  (67,283) 
Accounts payable21,256
 19,851
Accounts payable37,864  21,256  
Accrued expenses and other current liabilities(62,812) 10,435
Accrued expenses and other current liabilities37,995  (62,812) 
Deferred revenues(89,858) (41,100)Deferred revenues(8,161) (89,858) 
Other liabilities4,224
 5,850
Other liabilities10,461  4,224  
Total changes in operating assets and liabilities, net of the effects of acquisitions(50,290) 62,170
Total changes in operating assets and liabilitiesTotal changes in operating assets and liabilities160,208  (50,290) 
Net cash provided by operating activities429,913
 528,038
Net cash provided by operating activities703,416  429,913  
Investing Activities   Investing Activities
Purchases of available-for-sale investments(19,984) (332,136)Purchases of available-for-sale investments(305,224) (19,984) 
Proceeds from sales of available-for-sale investments938,031
 434,901
Proceeds from sales of available-for-sale investments—  938,031  
Proceeds from maturities of available-for-sale investments153,708
 196,791
Proceeds from maturities of available-for-sale investments39,154  153,708  
Purchases of property and equipment(38,061) (32,929)Purchases of property and equipment(21,078) (38,061) 
Cash paid for acquisitions, net of cash acquired
 (65,983)
Cash paid for licensing agreements, patents and technology(2,158) (1,217)Cash paid for licensing agreements, patents and technology(3,210) (2,158) 
Other1,165
 3,002
Other707  1,165  
Net cash provided by investing activities1,032,701
 202,429
Net cash (used in) provided by investing activitiesNet cash (used in) provided by investing activities(289,651) 1,032,701  
Financing Activities   Financing Activities
Proceeds from issuance of common stock under stock-based compensation plans
 113
Repayment of acquired debt
 (5,674)
Proceeds from term loan credit agreement, net of issuance costsProceeds from term loan credit agreement, net of issuance costs998,846  —  
Repayment of term loan credit agreementRepayment of term loan credit agreement(750,000) —  
Proceeds from 2030 Notes, net of issuance costsProceeds from 2030 Notes, net of issuance costs738,107  —  
Repayment on convertible notes(1,164,497) 
Repayment on convertible notes—  (1,164,497) 
Stock repurchases, net(250,000) (764,978)Stock repurchases, net(999,903) (250,000) 
Accelerated stock repurchase programAccelerated stock repurchase program(200,000) —  
Cash paid for tax withholding on vested stock awards(70,552) (49,936)Cash paid for tax withholding on vested stock awards(101,156) (70,552) 
Cash paid for dividends(91,851) 
Cash paid for dividends(86,062) (91,851) 
Net cash used in financing activities(1,576,900) (820,475)Net cash used in financing activities(400,168) (1,576,900) 
Effect of exchange rate changes on cash and cash equivalents240
 (3,414)Effect of exchange rate changes on cash and cash equivalents(4,286) 240  
Change in cash and cash equivalents(114,046) (93,422)Change in cash and cash equivalents9,311  (114,046) 
Cash and cash equivalents at beginning of period618,766
 1,115,130
Cash and cash equivalents at beginning of period545,761  618,766  
Cash and cash equivalents at end of period$504,720
 $1,021,708
Cash and cash equivalents at end of period$555,072  $504,720  
See accompanying notes.

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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. However, during the three months ended March 31, 2020, this trend was impacted by the novel coronavirus ("COVID-19") pandemic, and the Company's first quarter revenues were higher than the fourth quarter of 2019 due to the Company's decision to make limited use Workspace licenses of Citrix Workspace available in the form of shorter-duration, discounted on-premises term offerings to quickly help the Company's customers with their immediate business needs. 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, 2018.2019.
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,and Networking productssolutions, and related Support and services. The Company operates under one1 reportable segment. See Note 10 for more information on the Company's segment.
2. SIGNIFICANT ACCOUNTING POLICIES
During the first quarter of 2019,2020, the Company adopted new accounting guidance related to leases,current expected credit losses and fair value measurements, which isare described below. There have been no other significant changes in the Company’s accounting policies during the three and six months ended June 30, 20192020 as compared to the significant accounting policies described in its Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Recent Accounting Pronouncements
LeasesCurrent Expected Credit Losses
In FebruaryJune 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update on the accounting for leases (“ASC 842”).measurement of credit losses on financial instruments. Previously, credit losses were measured using an incurred loss approach when it was probable that a credit loss had been incurred. The new guidance changes the credit loss model from an incurred loss to an expected loss approach. It 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 definitionapplication of a short-term lease).current expected credit loss (“CECL”) impairment model to financial assets measured at amortized cost (including trade accounts receivable) and certain off-balance-sheet credit exposures. Under the CECL model, lifetime expected credit losses on such financial assets are measured and recognized at each reporting date based on historical, current, and forecasted information. The standard also changes the impairment model for available-for-sale debt securities, eliminating the concept of other than temporary impairment and requiring credit losses to be recorded through an allowance for credit losses. The amount of the allowance for credit losses for available-for-sale debt securities is limited to the amount by which fair value is below amortized cost. The Company adopted this standard as of January 1, 20192020 using athe required 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 permittedadoption method. Results for periods beginning after January 1, 2020 are presented under the transitionnew guidance, withinwhile prior period amounts are not adjusted and continue to be reported under 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 a material impact on its condensed consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while itsprevious accounting for finance leases remained substantially unchanged.guidance. 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.


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. See Note 5 for additional information regarding the Company’s allowance for credit losses.
Accounting for Cloud Computing Costs
8

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 BoardFASB 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 ofCompany adopted this standard isas of January 1, 2020, and it did not expected to have a material impact on the Company's condensed consolidated financial position, results of operations and cash flows.
Income Taxes
In December 2019, the FASB issued an accounting standard update on income taxes. The new guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The new standard will be effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial position, results of operations and cash flows.
Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the FASB issued an accounting standard update to guidance applicable to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This update provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. An entity may elect to apply the amendments for contract modifications by topic or industry subtopic of the codification as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Company is currently evaluating the impact of the adoption of this standard on its 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 estimation for reserves for legal contingencies, the standalone selling price related to revenue recognition, the provision for doubtfulcredit losses related to accounts receivable, contract assets, and available-for-sale debt securities, 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 in debt securities as of June 30, 20192020 and December 31, 20182019 primarily consist of agency securities, corporate securities municipal securities and government 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. 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 investmentsdebt securities in income unless a decline in valuesecurity is considered other-than-temporary in accordance with the authoritative guidance.deemed to be impaired.
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.

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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 Citrix Service Provider ("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 includesrevenues include license updates, maintenance and professional services revenues.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. 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, theThe 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.

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The Company’s typical performance obligations include the following:
Performance Obligation
When Performance Obligation
is Typically Satisfied
Subscription
Cloud hostedSubscription
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)
Product and license
Software LicenseslicensesWhen 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 maintenanceRatably 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 andor 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 a 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 June 30,Six Months Ended June 30,
2020201920202019
(In thousands)
Products and services transferred at a point in time$195,695  $178,160  $475,106  $341,124  
Products and services transferred over time603,234  570,537  1,184,768  1,126,716  
Total net revenues$798,929  $748,697  $1,659,874  $1,467,840  
  Three Months Ended June 30, Six Months Ended June 30,
  2019 
2018(1)
 2019 
2018(1)
  (In thousands)
Products and services transferred at a point in time $178,160
 $215,523
 $341,124
 $397,849
Products and services transferred over time 570,537
 526,842
 1,126,716
 1,041,708
Total net revenues $748,697
 $742,365
 $1,467,840
 $1,439,557
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(1)Includes a net reclassification from Products and services transferred at a point in time to Products and services transferred over time of $10.0 million for the six months ended June 30, 2018. For the three months ended March 31, 2018, the Company reclassified $11.6 million from Product and services transferred over time to Product and services transferred at a point in time. For the three months ended June 30, 2018, the Company reclassified $21.6 million from Product and services transferred at a point in time to Product and services transferred over time. The change in presentation does not affect the Company's condensed consolidated financial position, results from operations or cash flows.
Contract balances
The Company's short-term and long-term contract assets, net of allowance for credit losses, were $4.6$17.1 million and $3.7$21.6 million, respectively, as of June 30, 2020. The Company's short-term and long-term contract assets were $12.2 million and $20.5 million, respectively, as of December 31, 2018, and $8.1 million and $14.3 million, respectively as of June 30, 2019. The Current portion of deferred revenues and the Long-term portion of deferred revenues were $1.38 billion and $409.6 million, respectively, as of June 30, 2020 and $1.35 billion and $489.3$443.5 million, respectively, as of December 31, 2018 and $1.29 billion and $455.8 million, respectively, as of June 30, 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 and six months ended June 30, 2019,2020, the Company recognized $467.6$489.7 million and $835.9$841.0 million, respectively, of revenue that was included in the deferred revenue balance as of March 31, 20192020 and December 31, 2018,2019, 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 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 no0 material asset impairment charges related to contract assets for either the three and six months ended June 30, 2019 and 2018.2020 or June 30, 2019. 
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 $577,291
 $65,164
 $2,128
 $644,583
Support and services 1,534,685
 47,078
 2,581
 1,584,344
Total net revenues $2,111,976
 $112,242
 $4,709
 $2,228,927



<1-3 years3-5 years5 years or moreTotal
Subscription$1,082,835  $83,904  $1,166  $1,167,905  
Support and services1,448,652  36,065  1,864  1,486,581  
Total net revenues$2,531,487  $119,969  $3,030  $2,654,486  
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 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. Amortization of contract acquisition costs related to support areis 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.
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The Company elects to apply a practical expedient to expense contract acquisition costs as incurred where the expected period of benefit is one year or less.
For the three and six months ended June 30, 2020, the Company recorded amortization of capitalized contract acquisition costs of $13.8 million and $26.9 million, respectively, and for the three and six months ended June 30, 2019, the Company recorded amortization of capitalized contract acquisition costs of $10.9 million and $21.6 million, respectively, and for the three and six months ended June 30, 2018, the Company recorded amortization of capitalized contract acquisition costs of $8.3 million and $16.2 million, respectively, which is recorded in Sales, marketing and services expense in the accompanying condensed consolidated statementstatements of income. The Company's short-term and long-term contract acquisition costs were $43.7$56.2 million and $66.5$93.8 million, respectively, as of June 30, 2019.2020, and $50.4 million and $81.0 million, respectively, as of December 31, 2019, and are included in Prepaid and other current assets and Other assets, respectively, in the accompanying condensed consolidated balance sheets. There was no0 impairment loss in relation to costs capitalized during either the three and six months ended June 30, 2019 and 2018.2020 or June 30, 2019.
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.


warrants 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 Ended Six Months Ended
 June 30, June 30,
 2019 2018 2019 2018
Numerator:       
Net income$93,495
 $106,833
 $203,843
 $251,092
Denominator:       
Denominator for basic earnings per share - weighted-average shares outstanding131,309
 135,993
 131,396
 137,614
Effect of dilutive employee stock awards1,453
 1,940
 2,145
 2,360
Effect of dilutive Convertible Notes782
 6,023
 2,867
 5,258
Effect of dilutive warrants733

1,491
 1,227
 477
Denominator for diluted earnings per share - weighted-average shares outstanding134,277
 145,447
 137,635
 145,709
        
Basic earnings per share$0.71
 $0.79
 $1.55
 $1.82
        
Diluted earnings per share$0.70
 $0.73
 $1.48
 $1.72

Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Numerator:
Net income$112,906  $93,495  $294,128  $203,843  
Denominator:
Denominator for basic earnings per share - weighted-average shares outstanding123,522  131,309  124,128  131,396  
Effect of dilutive employee stock awards2,213  1,453  2,531  2,145  
Effect of dilutive Convertible Notes—  782  —  2,867  
Effect of dilutive warrants—  733  —  1,227  
Denominator for diluted earnings per share - weighted-average shares outstanding125,735  134,277  126,659  137,635  
Basic earnings per share$0.91  $0.71  $2.37  $1.55  
Diluted earnings per share$0.90  $0.70  $2.32  $1.48  
For the three and six months ended June 30, 2020, there were 0 weighted-average number of shares outstanding used in the computation of diluted earnings per share for the Company's warrants, as they expired on November 18, 2019. For the three and six months ended June 30, 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 quarters was above the weighted-average warrant strike price of $94.53 per share and $94.69 per share, respectively. For the three and six months ended June 30, 2018, 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 quarters was above the weighted-average warrant strike price of $95.25 per share. Anti-dilutive stock-based awards excluded from the calculations of diluted earnings per share were immaterial during the periods presented. The Company used the treasury stock method to consider the dilutive effect of the forward sale contract related to the accelerated share repurchase transactions ("ASR") entered into in January 2020, and determined that the forward sale contract was anti-dilutive in calculating dilutive EPS.
The Company usesused the treasury stock method for calculating any potential dilutive effect of the conversion spread on its Convertible Notes on diluted earnings per share because upon conversion the Company paid cash up to the aggregate principal amount of the Convertible Notes converted and delivered shares of common stock in respect of the remainder of the Company’s conversion obligation in excess of the aggregate principal amount of the Convertible Notes converted. The conversion spread had a dilutive impact on diluted earnings per share when the average market price of the Company’s common stock for a given
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period exceeded the conversion price. For the three and six months ended June 30, 20192020, there was 0 dilution as the Convertible Notes matured on April 15, 2019. For the three and 2018,six months ended June 30, 2019, 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.
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 113 for detailedadditional information on the Convertible Notes offering.
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 cash consideration for this transaction was $182.7 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 acquisitionCompany's contract assets.
Accounts receivable, net
The Company's accounts receivable, which are typically due within one year, consist of the following (in thousands):
June 30, 2020
Accounts receivable, gross$634,285 
Less: allowance for returns(4,886)
Less: allowance for credit losses(15,249)
Accounts receivable, net$614,150 
The allowance for credit losses on accounts receivable is determined using a combination of specific reserves for accounts that may beare 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 change throughcredit 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, which for the remainderfirst half of 2020 included consideration of the measurement period, whichcurrent and expected future economic and market conditions surrounding the COVID-19 pandemic. The Company will extend not more than twelve monthscompare its current estimate of expected credit losses with the estimate of credit losses from the acquisition date.prior period and will report in net income the amount necessary to adjust the allowance for current expected credit losses. The Company recorded $2.8 million and $9.1 million of credit loss expense during the three and six months ended June 30, 2020, respectively, which 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, 2020 is summarized as follows (in thousands):
Cedexis, Inc.
Total
Balance of allowance for credit losses at January 1, 2020$6,161 
Adjustment for ASC 326 adoption1,245 
Current period provision for expected losses9,057 
Write-offs charged against allowance(1,214)
Balance of allowance for credit losses at June 30, 2020$15,249 
As of June 30, 2020, one distributor, the Arrow Group, accounted for 13% of the Company's total gross accounts receivable.
Available-for-sale Investments
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 income (expense), 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 income (expense), net. On February 6, 2018,the contrary, for impairment indicators due to other factors, management records the loss with a charge to Other comprehensive loss in the accompanying condensed balance sheets.
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Upon adoption of the credit loss standard, the Company acquired allestablished an allowance for credit losses and did 0t have any credit loss expense recorded related to available-for-sale debt securities for the three and six months ended June 30, 2020, respectively. See Note 6 for more information on allowances for credit losses related to available-for-sale debt securities.
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 issuedamortized cost basis, and outstanding securities of Cedexis, Inc. (“Cedexis”), whose solution is a real-time data driven service for dynamically optimizing(iii) the flow of traffic across public clouds and data centers that provides a dynamic and reliable wayunrealized losses are due to route and manage Internet performance for customers moving towardsmarket factors rather than credit loss factors.


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):
 June 30, 2020
Description of the SecuritiesAmortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for
Credit Losses
Fair Value
Agency securities$19,996  $—  $(3) $—  $19,993  
Corporate securities188,455  12  (23) (147) 188,297  
Government securities116,969  —  (13) —  116,956  
Total$325,420  $12  $(39) $(147) $325,246  
 June 30, 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$1,680
 $
 $(4) $1,676
 $314,982
 $333
 $(2,367) $312,948
Corporate securities73,291
 1
 (205) 73,087
 612,698
 116
 (4,156) 608,658
Municipal securities
 
 
 
 2,500
 4
 
 2,504
Government securities14,160
 6
 (20) 14,146
 234,668
 91
 (935) 233,824
Total$89,131
 $7
 $(229) $88,909
 $1,164,848
 $544
 $(7,458) $1,157,934

December 31, 2019
Description of the SecuritiesAmortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Agency securities$1,681  $ $—  $1,682  
Corporate securities49,027   (149) 48,884  
Government securities9,124   —  9,129  
Total$59,832  $12  $(149) $59,695  
The change in net unrealized gains (losses) on available-for-sale securities recorded in Other comprehensive income (loss) includes unrealized gains (losses) that arose from changes in market value, excluding credit-related factors, 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 June 30, 20192020 were approximately seventhree months and two years, respectively.
Realized GainsFor the three and Losses on Available-for-sale Investments
six months ended June 30, 2020, the Company did 0t receive any proceeds from the sales of available-for-sale investments. For the three and six months ended June 30, 2019, the Company received proceeds from the sales of available-for-sale investments of $165.0 million and $938.0 million, respectively,respectively.
Realized and forUnrealized Gains and Losses on Available-for-sale Investments
For the three and six months ended June 30, 2018,2020, the Company received proceeds from the sales ofdid 0t have any realized gains on available-for-sale investments of $76.4 million and $434.9 million, respectively.
investments. For the three and six months ended June 30, 2019, the Company had realized gains on the sales of available-for-sale investments of $0.5 million and $1.5 million, respectively.
Effective January 1, 2020, the new CECL guidance requires the recognition of an allowance for estimated credit losses on investments in available-for-sale debt securities. For the three months ended June 30, 2018, the Company had no realized gains on the sales of available-for-sale investments. For theand six months ended June 30, 2018,2020, the Company had $0.1 million indid 0t have any realized gainslosses on the sales of available-for-sale investments.
For the three and six months ended June 30, 2019, the Company had realized losses on available-for-sale investments of $0.5 million and $0.9 million, respectively, and for the three and six months ended June 30, 2018, the Company had realizedrespectively. Realized losses on available-for-sale investments of $0.3 million and $1.4 million, respectively, primarily related to sales of these investments during thesethe respective periods.
All realized gains and losses related to the sales of available-for-sale investments are included in Other (expense) income (expense), net,, in the accompanying condensed consolidated statements of income.
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Unrealized Losses on Available-for-Sale Investments
TheAs of December 31, 2019, the Company's gross unrealized losses on the Company’s available-for-sale investments that arewere $0.1 million and were not deemed to be other-than-temporarily impaired as of June 30, 2019 and December 31, 2018 were $0.2 million and $2.9 million, respectively. Becauseunder the Company does not currently intend to sell any of its investments in an unrealized loss position 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.prior accounting guidance.

14



Equity Securities without Readily Determinable Fair Values
The Company held direct investments in privately-held companies of $12.4$12.7 million and $13.4$12.3 million as of June 30, 20192020 and December 31, 2018,2019, 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 and six months ended June 30, 2019. The fair value of these investments representsrepresent 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 $11.7$10.2 million and $10.9$11.2 million as of June 30, 20192020 and December 31, 2018,2019, 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 heldprivately-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 $0.7$0.5 million as of June 30, 2019.2020.
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
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.
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.

16
15




Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of June 30, 2020Quoted
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$457,042  $457,042  $—  $—  
Money market funds20,288  20,288  —  —  
Corporate securities32,746  —  32,746  —  
Government securities44,996  —  44,996  —  
Available-for-sale securities:
Agency securities19,993  —  19,993  —  
Corporate securities188,297  —  187,797  500  
Government securities116,956  —  116,956  —  
Prepaid expenses and other current assets:
Foreign currency derivatives781  —  781  —  
Total assets$881,099  $477,330  $403,269  $500  
Accrued expenses and other current liabilities:
Foreign currency derivatives2,236  —  2,236  —  
Total liabilities$2,236  $—  $2,236  $—  
 As of June 30, 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$417,088
 $417,088
 $
 $
Money market funds84,666
 84,666
 
 
Corporate securities2,966
 
 2,966
 
Available-for-sale securities:       
Agency securities1,676
 
 1,676
 
Corporate securities73,087
 
 72,087
 1,000
Government securities14,146
 
 14,146
 
Prepaid expenses and other current assets:       
Foreign currency derivatives1,355
 
 1,355
 
Total assets$594,984
 $501,754
 $92,230
 $1,000
Accrued expenses and other current liabilities:       
Foreign currency derivatives1,239
 
 1,239
 
Total liabilities$1,239
 $
 $1,239
 $

 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 funds88,126
 88,126
 
 
Agency securities3,296
 
 3,296
 
Corporate securities9,371
 
 9,371
 
Government securities12,610
 
 12,610
 
Available-for-sale securities:       
Agency securities312,948
 
 312,948
 
Corporate securities608,658
 
 607,945
 713
Municipal securities2,504
 
 2,504
 
Government securities233,824
 
 233,824
 
Prepaid expenses and other current assets:       
Foreign currency derivatives764
 
 764
 
Total assets$1,777,464
 $593,489
 $1,183,262
 $713
Accrued expenses and other current liabilities:       
Foreign currency derivatives2,543
 
 2,543
 
Total liabilities$2,543
 $
 $2,543
 $

As of December 31, 2019Quoted
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$474,756  $474,756  $—  $—  
Money market funds42,019  42,019  —  —  
Agency securities19,993  —  19,993  —  
Corporate securities8,993  —  8,993  —  
Available-for-sale securities:
Agency securities1,682  —  1,682  —�� 
Corporate securities48,884  —  47,884  1,000  
Government securities9,129  —  9,129  —  
Prepaid expenses and other current assets:
Foreign currency derivatives1,889  —  1,889  —  
Total assets$607,345  $516,775  $89,570  $1,000  
Accrued expenses and other current liabilities:
Foreign currency derivatives1,390  —  1,390  —  
Total liabilities$1,390  $—  $1,390  $—  
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 allthe majority of its fixed income available-for-sale securities as Level 2.

17


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 June 30, 2020, 0 direct investments in privately-held companies were determined to be impaired. During the six months ended June 30, 2020, certain direct investments in privately-held companies with a carrying value of $1.3 million were determined to be impaired and written down to a fair value of 0, resulting in an impairment charge of $1.3 million. The impairment charges were included in Other income (expense), net in the accompanying condensed consolidated statements of income.
During the three and six months ended June 30, 2019, a certain direct investment in a privately-held company with a carrying value of $1.9 million was acquired by a third party and the Company received proceeds of $0.2 million. As a result, the Company wrote down the investment to a fair value of zerothe investment and recorded an impairment charge of $1.7 million, which is included in Other (expense) income (expense), net in the accompanying condensed consolidated statements of income.
For the three and six months ended June 30, 2018, the Company determined that certain direct investments in privately-held companies were impaired and recorded charges of $0.4 million and $0.9 million, respectively, which were included in Other (expense) income, 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.
During the three months ended June 30, 2020, the Company determined that there were 0 material adjustments resulting from observable price changes to the Company's investments in privately-held companies without a readily determinable fair value. During the six months ended June 30, 2020, the Company determined there was an upward adjustment of $1.8 million to one of the Company's investments in a privately-held company without a readily determinable fair value based on an observable input, specifically its ability to obtain additional financing at a favorable valuation. During the three and six months ended June 30, 2019, the Company determined that there were 0 material adjustments resulting from observable price changes to the Company's investments in privately-held companies without a readily determinable fair value.
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 June 30, 2019,2020, the fair value of the $750.0 million ofunsecured senior notes due March 1, 2030 (the "2030 Notes") and $750.0 million unsecured senior notes due December 1, 2027 (the “2027 Notes"), which was determined based on inputs that are observable in the market (Level 2) based. Based on the closing trading price per $100 as of the last day of trading for the quarter ended June 30, 2019, and2020, the carrying value of the 2027 Notes was as follows (in thousands):
 Fair Value Carrying Value
2027 Notes$777,015
 $742,482

 Fair ValueCarrying Value
2030 Notes$802,890  $738,516  
2027 Notes$863,363  $743,371  
See Note 11 for more information on the 2030 Notes and 2027 Notes.
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, 2019,2020, the Company had one1 stock-based compensation plan under which it was granting equity awards. The Company is currently granting stock-based awards from its Second Amended and Restated 2014 Equity Incentive Plan (the "2014 Plan"), which was approvedrecently amended at the Company's Annual Meeting of Stockholders on June 22, 2017. In March 2019, the Company's Board of Directors adopted an amendment to the Amended and Restated 2014 Equity Incentive Plan, which was approved at the Company's Annual Meeting of Stockholders on June 4, 2019. 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.3, 2020. Pursuant to the June 20192020 amendment, the maximum number of shares of common stock available for issuance under the 2014 Plan was reducedincreased to 43,400,000.51,300,000. In addition, the amendment removesextended the fungible share adjustment used to determine shares available for issuance. Under the original termsterm of the 2014 Plan shares availableto June 3, 2030 and updated the vesting provisions from monthly to annual vesting for issuance were adjusted by a 2.75 fungible share factor. Pursuant toannual director awards, consistent with the amendment, beginning on June 4, 2019, each share award granted under the 2014 Plan will reduce the share reserve by one share and all share awards granted on June 4, 2019 and thereafter that are later forfeited, canceled or terminated will be returned to the share reserve in the same manner. 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 grantedCompany's current compensation program 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. non-employee directors.
As of June 30, 2019,2020, there were 12,232,52218,537,938 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 5,797,04812,685,478 shares of common stock.
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In December 2014, the Company’s Board of Directors approved the 2015The Company also has an Employee Stock Purchase Plan (the “2015 ESPP”“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 June 30, 2019, 1,937,4552020, 2,438,105 shares have been issued under the 2015 ESPP. The Company recorded stock-based compensation costs related to the 2015 ESPP of $2.6 million and $2.5$2.6 million for the three months ended June 30, 2020 and 2019, respectively, and 2018, respectively,$4.6 million and $5.5 million for the six months ended June 30, 2020 and 2019, and 2018, respectively.
The Company used the Black-Scholes model to estimate the fair value of 2015the ESPP awards with the following weighted-average assumptions:
 Six Months Ended
 June 30, 2019 June 30, 2018
Expected volatility factor0.26 - 0.29 0.27 - 0.29
Risk free interest rate2.19% - 2.49% 1.12% - 1.63%
Expected dividend yield1.27% - 1.31% 0%
Expected life (in years)0.5 0.5

Six Months Ended
June 30, 2020June 30, 2019
Expected volatility factor0.21 - 0.220.26 - 0.29
Risk free interest rate1.56% - 2.06%2.19% - 2.49%
Expected dividend yield1.20% - 1.39%1.27% - 1.31%
Expected life (in years)0.50.5
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.payout. The expected term iswas 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 EndedSix Months Ended
Income Statement ClassificationsJune 30, 2020June 30, 2019June 30, 2020June 30, 2019
Cost of subscription, support and services$3,404  $2,956  $6,166  $5,158  
Research and development30,987  25,419  52,583  53,256  
Sales, marketing and services27,843  24,424  48,229  44,350  
General and administrative23,128  15,521  36,707  30,790  
Total$85,362  $68,320  $143,685  $133,554  
 Three Months Ended Six Months Ended
Income Statement ClassificationsJune 30, 2019
June 30, 2018 June 30, 2019 June 30, 2018
Cost of subscription, support and services$2,956
 $2,241
 $5,158
 $3,721
Research and development25,419
 17,715
 53,256
 28,508
Sales, marketing and services24,424
 19,618
 44,350
 33,185
General and administrative15,521
 16,270
 30,790
 26,153
Total$68,320
 $55,844
 $133,554
 $91,567

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 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. In December 2018, certain awards for senior level employees, none of whom were executive officers, were modified 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 factor0.16-0.32
0.27-0.32
Risk free interest rate2.67%1.48%
Expected dividend yield0%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 and 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 theseThese non-vested stock unit awards generally 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 one1 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 representsdirectors, which represent the right to receive one share of the Company's common stock.stock upon vesting. Previously, non-vested stock unit awards granted to the Company's continuing non-employee directors vested monthly in 12 equal installments. Beginning in 2020, new awards granted to non-employee directors will 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 the stockholders following the award date.
Company Performance Stock Units
InOn April 2019,1, 2020, the Company awarded senior level employees 293,991294,605 non-vested performance stock unit awards granted under the 2014 Plan. The number of non-vested performance stock units underlying the awardthat ultimately vest will be determined within sixty days following completion of the performance period ending December 31, 20212022 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 bookingsthe Company’s annualized recurring revenue (ARR) growth measured during the period from January 1, 20212020 to December 31, 2022. The number of non-vested stock units issued will be based on a
19


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, 2022 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 April 6, 2020, the Company awarded certain senior level employees 90,756 non-vested performance stock unit awards granted under the 2014 Plan that vest based on the Company’s ARR growth during the relevant performance periods, which span January 1, 2020 through December 31, 2021. The number of non-vested stock units issued upon the vesting of the award will be based on a graduated slope, with the maximum number of non-vested stock units issuable pursuant to the award capped


at 200%125% 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.
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 June 30, 2019,2020, the total number of non-vested stock units outstanding, including company performance awards market performance and service condition awards and service-based awards was 6,387,078.5,803,303. As of June 30, 2019,2020, there was $479.8$550.0 million of total unrecognized compensation cost related to non-vested stock units. The unrecognized cost of the awards legally granted through June 30, 20192020 is expected to be recognized over a weighted-average period of 1.961.87 years.

Modification of Market and Company Performance Stock Units

On April 22, 2019, the change in control provisions of the unvested and outstanding March 2017 market performance stock unit awards and the February 2019, March 2018 and August 2017 company performance stock unit awards were modified such that if a change in control were to occur prior to the end of the award’s performance period, the award would be deemed earned at 200% of the target award, subject to time-based vesting and the awardee’s continuous employment through the end of the award’s performance periods. Previously, the change in control provisions of these awards allowed for either pro rata vesting or vesting based on interim performance through the change in control date. No incremental compensation expense was recorded as a result of this modification given the improbable nature of a change in control event.
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 2018.2019. As a result of the qualitative analysis, a quantitative impairment test was not deemed necessary. There was no0 impairment of goodwill or indefinite lived intangible assets as a result of the annual impairment test analysis completed during the fourth quarter of 2018.
2019. The following table presents the change inbalance of goodwill during the six months endedat June 30, 2020 and December 31, 2019 (in thousands):was $1.80 billion.
 Balance at January 1, 2019 Additions  Other  Balance at June 30, 2019
Goodwill$1,802,670
 $
  $(2,395)(1) $1,800,275


(1)Amount relates to adjustments to the 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 seven to 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.
Intangible assets consist of the following (in thousands):
 June 30, 2019 December 31, 2018
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Product related intangible assets$750,832
 $622,078
 $746,152
 $601,993
Other227,923
 211,629
 227,922
 204,894
Total$978,755
 $833,707
 $974,074
 $806,887

 June 30, 2020December 31, 2019
 Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Product related intangible assets$738,243  $650,217  $734,973  $633,633  
Other187,173  181,431  187,173  180,035  
Total$925,416  $831,648  $922,146  $813,668  
Amortization of product-relatedproduct related intangible assets, which consists primarily of product-relatedproduct related technologies and patents, was $9.8$8.3 million and $11.5$9.8 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $20.1$16.6 million and $22.5$20.1 million for the six months ended June 30, 20192020 and 2018,2019, 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 $3.2$0.7 million and $4.0$3.2 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $6.7$1.4 million and $7.7$6.7 million for the six months ended


June 30,
20


2020 and 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 June 30, 20192020 is as follows (in thousands): 
Year ending December 31,
2020 (remaining six months)$17,430  
202123,251  
202221,053  
202316,785  
20245,751  
Thereafter9,498  
     Total$93,768  
Year ending December 31, 
2019 (remaining six months)$24,676
202039,148
202125,159
202223,309
202319,958
Thereafter12,798
     Total$145,048

10. SEGMENT INFORMATION
Citrix has one1 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 EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Net revenues:
Workspace (1)
$584,878  $535,063  $1,238,594  $1,049,670  
Networking (2)
186,069  178,204  366,003  349,437  
Professional services (3)
27,982  35,430  55,277  68,733  
Total net revenues$798,929  $748,697  $1,659,874  $1,467,840  

(1)Workspace revenues are primarily comprised of sales from the Company’s application virtualization solutions, which include Citrix Workspace, Citrix Virtual Apps and Desktops, the Company's unified endpoint management solutions, which include Citrix Endpoint Management and Citrix Content Collaboration.
(2)Networking revenues primarily include Citrix ADC and Citrix SD-WAN.
(3)Professional services revenues are primarily comprised of revenues from consulting services and product training and certification services.
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 Three Months Ended Six Months Ended
 June 30, June 30,
 2019
2018 2019 2018
Net revenues:       
Digital Workspace revenues(1)
$535,063
 $501,121
 $1,049,670
 $958,381
Networking revenues(2)
178,204
 207,342
 349,437
 415,965
Professional services(3)
35,430
 33,902
 68,733
 65,211
Total net revenues$748,697
 $742,365
 $1,467,840
 $1,439,557

(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.
(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.


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Revenues by Geographic Location
The following table presents revenues by geographic location, for the following periods (in thousands):
 Three Months Ended Six Months Ended
 June 30, June 30,
 2019
2018 2019 2018
Net revenues:       
Americas$432,281
 $430,184
 $833,428
 $844,184
EMEA240,388
 234,131
 477,201
 448,706
APJ76,028
 78,050
 157,211
 146,667
Total net revenues$748,697
 $742,365
 $1,467,840
 $1,439,557


Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Net revenues:
Americas$432,210  $432,281  $916,325  $833,428  
EMEA277,313  240,388  570,960  477,201  
APJ89,406  76,028  172,589  157,211  
Total net revenues$798,929  $748,697  $1,659,874  $1,467,840  
As of June 30, 2019, one distributor, The Arrow Group, accounted for 15% of the Company's total gross accounts receivable.
Strategic Service Providers
The Company defines Strategic Service Providers (SSP) as its three3 historically largest hyperscale Networking customers. The following table summarizes SSP revenue for the following periods (in thousands):
Three Months Ended Six Months EndedThree Months EndedSix Months Ended
June 30, June 30, June 30,June 30,
2019 2018 2019 2018 2020201920202019
Net revenues:       Net revenues:
SSP revenue$23,731
 $39,167
 $45,832
 $101,483
SSP revenue$29,659  $23,731  $49,502  $45,832  
Non-SSP revenue724,966
 703,198
 1,422,008
 1,338,074
Non-SSP revenue769,270  724,966  1,610,372  1,422,008  
Total net revenues$748,697
 $742,365
 $1,467,840
 $1,439,557
Total net revenues$798,929  $748,697  $1,659,874  $1,467,840  

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 cloudcloud-hosted 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 EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Subscription:
SaaS$130,618  $91,208  $253,188  $176,655  
Non-SaaS112,832  64,625  258,498  120,784  
Total Subscription revenue$243,450  $155,833  $511,686  $297,439  
 Three Months Ended Six Months Ended
 June 30, June 30,
 2019 2018 2019 2018
Subscription:       
SaaS$91,208
 $64,843
 $176,655
 $124,759
Non-SaaS64,625
 45,953
 120,784
 89,195
Total Subscription revenue$155,833
 $110,796
 $297,439
 $213,954

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11. DEBT
The components of the Company's long-term debt were as follows (in thousands):
June 30, 2020December 31, 2019
Term Loan Credit Agreement$250,000  $—  
2027 Senior Notes750,000  750,000  
2030 Senior Notes750,000  —  
Total face value1,750,000  750,000  
Less: unamortized discount(5,917) (1,291) 
Less: unamortized issuance costs(12,569) (5,783) 
Total long-term debt$1,731,514  $742,926  
Term Loan Credit Agreement
On January 21, 2020, the Company entered into a Term Loan Credit Agreement with Bank of America, N.A., as administrative agent, and the other lenders party thereto from time to time (collectively, the “Lenders”). The Term Loan Credit Agreement provides the Company with facilities to borrow term loans on an unsecured basis in an aggregate principal amount of up to $1.00 billion, consisting of (i) a $500.0 million 364-day term loan facility (the “364-day Term Loan”), and (ii) a $500.0 million 3-year term loan (the “3-year Term Loan”), in each case in a single borrowing, subject to satisfaction of certain conditions set forth in the Term Loan Credit Agreement. On January 30, 2020, the Company borrowed $1.00 billion under the term loans and used the proceeds to enter into the ASR with each of Goldman Sachs & Co. LLC and Wells Fargo Bank, National Association (each, a "Dealer") for an aggregate of $1.00 billion. See Note 15 for detailed information on the accelerated share repurchase.
Borrowings under the Term Loan Credit Agreement bear interest at a rate equal to (a) either (i) LIBOR or, upon a phase-out of LIBOR, an alternative benchmark rate as provided in the Credit Agreement, or (ii) a customary base rate formula, plus (b) the applicable margin with respect thereto, which initially will be determined based on the Company’s consolidated leverage ratio but may, if so elected by the Company, be based on the Company’s non-credit enhanced, senior unsecured long-term debt rating as determined by Moody’s Investors Service, Inc., Standard & Poor’s Financial Services, LLC and Fitch Ratings Inc., in each case as set forth in the Term Loan Credit Agreement.
The Term Loan Credit Agreement includes a covenant limiting the Company’s consolidated leverage ratio to not more than 3.5:1.0, subject to, upon the occurrence of a qualified acquisition, if so elected by the Company, a step-up to 4.0:1.0 for the 4 fiscal quarters following such qualified acquisition, and a covenant limiting the Company’s consolidated interest coverage ratio to not less than 3.0:1.0. The Term Loan Credit Agreement includes customary events of default, with corresponding grace periods in certain circumstances, including, without limitation, payment defaults, cross-defaults, the occurrence of a change of control of the Company and bankruptcy-related defaults. The Lenders are entitled to accelerate repayment of the loans under the Term Loan Credit Agreement upon the occurrence of any of the events of default. In addition, the Term Loan Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the ability of the Company to grant liens, merge or consolidate, dispose of all or substantially all of its assets, change its business and incur subsidiary indebtedness, in each case subject to customary exceptions. In addition, the Term Loan Credit Agreement requires the Company to make prepayments of any net cash proceeds received in connection with the Company issuing or incurring debt or issuing equity, subject to certain ordinary course exceptions described in the Term Loan Credit Agreement. The Term Loan Credit Agreement also contains representations and warranties customary for an unsecured financing of this type. The Company was in compliance with these covenants as of June 30, 2020.
Senior Notes
On February 25, 2020, the Company issued $750.0 million of unsecured senior notes due March 1, 2030. The 2030 Notes accrue interest at a rate of 3.300% per annum. Interest on the 2030 Notes is due semi-annually on March 1 and September 1 of each year, beginning on September 1, 2020. The net proceeds from this offering were $738.1 million, after deducting the underwriting discount and estimated offering expenses payable by the Company. Net proceeds from this offering were primarily used to repay amounts outstanding under the Company's unsecured Term Loan Credit Agreement. The 2030 Notes will mature on March 1, 2030, unless earlier redeemed in accordance with their terms prior to such date. The Company may redeem the 2030 Notes at its option at any time in whole or from time to time in part prior to December 1, 2029 at a redemption price equal to the greater of (i) 100% of the aggregate principal amount of the 2030 Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of such Notes under such 2030 Notes, plus in each case, accrued and unpaid interest to, but excluding, the redemption date. At any time on or after December 1, 2029, the redemption price shall be
23


equal to 100% of the aggregate principal amount of the 2030 Notes to be redeemed, plus accrued and unpaid interest to, but excluding the redemption date. Among other terms, under certain circumstances, holders of the 2030 Notes may require the Company to repurchase their 2030 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 2030 Notes to be repurchased plus accrued and unpaid interest to, but excluding, the repurchase date.
During the six months ended June 30, 2020, the Company used the net proceeds from the 2030 Notes and cash to repay $500.0 million under the 364-day Term Loan and $250.0 million under the 3-year Term Loan. As of June 30, 2020, $250.0 million in principal amount was outstanding under the 3-year Term Loan.
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.year. 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
Credit Facility
Effective January 7, 2015,On November 26, 2019, the Company entered into aan amended and restated credit agreement (the "Credit Agreement") with a group of financial institutions, (the “Lenders”).which amends and restates the Company’s Credit Agreement, dated January 7, 2015. The credit facilityCredit Agreement provides for a five year unsecured revolving line of credit facility 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 a rate equal to (a) either (i) LIBOR plus 1.10% and adjustsor, upon a phase-out of LIBOR, an alternative benchmark rate as provided in the range of 1.00% to 1.30% above LIBORCredit Agreement, or (ii) a customary base rate formula, plus (b) the applicable margin with respect thereto, which initially will be determined based on the Company’s consolidated leverage ratio ofbut may, if so elected by the Company, be based on the Company’s totallong-term debt to its adjusted earnings before interest, taxes, depreciation, amortization and certain other items (“EBITDA”)rating as definedset forth in the Credit Agreement. In addition, the Company is required to pay a quarterly facility fee ranging from 0.125%0.11% 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.EBITDA or long-term credit rating. As of June 30, 2020 and December 31, 2019, there0 amounts were no amounts outstanding under the credit facility.
The Credit Agreement contains certain financial covenants that requireand 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 June 30, 2019.2020.
Convertible Notes
During 2014, the Company completed a private placement of approximately $1.44 billion principal amount of 0.500% Convertible Notes due 2019. As of October 15, 2018, the Company had 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. 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. 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 governing the Convertible Notes, 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 (as defined below) that offset the issuance of shares of common stock upon conversion of the Convertible Notes.
24

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 following table includes total interest expense recognized related to the ConvertibleTerm Loan Credit Agreement, the 2030 Notes, the 2027 Notes and the 2027Convertible Notes (in thousands):
 Three Months Ended Six Months Ended
 June 30, June 30,
 2019
2018 2019 2018
Contractual interest expense$8,614
 $10,327
 $18,507
 $20,562
Amortization of debt issuance costs317
 1,374
 1,306
 2,379
Amortization of debt discount1,204
 8,811
 8,191
 17,476
 $10,135
 $20,512
 $28,004
 $40,417

Three Months EndedSix Months Ended
June 30,June 30,
2020201920202019
Contractual interest expense$16,386  $8,614  $29,816  $18,507  
Amortization of debt issuance costs392  317  1,387  1,306  
Amortization of debt discount161  1,204  249  8,191  
$16,939  $10,135  $31,452  $28,004  
See Note 7 to the Company's condensed consolidated financial statements for fair value disclosures related to the Company's 2030 Notes and 2027 Notes.
Convertible Note Hedge and Warrant Transactions
To minimize the impact of potential dilution upon conversion 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 to offset any payments in cash or shares of common stock at the Company’s election. As a result of the spin-off of its GoTo Business in January 2017, 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.
As noted above, the Bond Hedges reduced the dilution upon conversion of the Convertible Notes, as the market price per share of common stock, as measured under the terms of the Bond Hedges, was greater than the strike price of the Bond Hedges, which initially corresponded to the conversion price of the Convertible Notes and was subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Convertible Notes. The Warrant Transactions willwould have separately havehad a dilutive effect to the extent that the market value per share of common stock, as measured under the terms of the Warrant Transactions, exceedsexceeded the applicable strike price of the warrants issued pursuant to the Warrant Transactions (the “Warrants”).
The Warrants expired in ratable portions on a series of expiration dates that commenced on July 15, 2019 and concluded on November 18, 2019, and 0 Warrants remain outstanding. The Warrants were not marked to market as the value of the Warrants were initially recorded in stockholders' equity and remained classified within stockholders' equity through their expiration. During the three months ended June 30, 2019, the strike price of the Warrants was adjusted to $94.27 per share and the number of shares of the Company's common stock covered by the Warrant Transactions was adjusted to approximately 20.2 million shares as a result of the cash dividend paid in June 2019. The Warrants will expire in ratable portions on a series of expiration dates commencing on July 15, 2019. The Warrants are not marked to market as the value of the Warrants were initially recorded in stockholders' equity and continue to be classified within stockholders' equity.
Aside from the initial payment of a premium to the Option Counterparties under the Bond Hedges, which amount was partially offset by the receipt of a premium under the Warrant Transactions, the Company was 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.
12. DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives Designated as Hedging Instruments
As of June 30, 2019,2020, 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 (expense) income net.(expense), net.


The total cumulative unrealized gainloss on cash flow derivative instruments was $0.3$0.6 million at June 30, 20192020, and is included in Accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets. The total cumulative
25


unrealized lossgain on cash flow derivative instruments was $1.0$0.9 million at December 31, 2018,2019, 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 gainloss as of June 30, 20192020 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, itthe Company 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 (expense) income net.(expense), net.
Fair Values of Derivative Instruments
 Asset Derivatives Liability Derivatives
 (In thousands)
 June 30, 2019 December 31, 2018 June 30, 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
 $1,222 
Prepaid
expenses
and other
current
assets
 $708 
Accrued
expenses
and other
current
liabilities
 $835 
Accrued
expenses
and other
current
liabilities
 $1,811
                
 Asset Derivatives Liability Derivatives
 (In thousands)
 June 30, 2019 December 31, 2018 June 30, 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
 $133 Prepaid
expenses
and other
current
assets
 $56 
Accrued
expenses
and other
current
liabilities
 $404 
Accrued
expenses
and other
current
liabilities
 $732

 Asset DerivativesLiability Derivatives
 (In thousands)
 June 30, 2020December 31, 2019June 30, 2020December 31, 2019
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 contractsPrepaid
expenses
and other
current
assets
$605Prepaid
expenses
and other
current
assets
$1,335Accrued
expenses
and other
current
liabilities
$1,256Accrued
expenses
and other
current
liabilities
$371
 Asset DerivativesLiability Derivatives
 (In thousands)
 June 30, 2020December 31, 2019June 30, 2020December 31, 2019
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 contractsPrepaid
expenses
and other
current
assets
$176Prepaid
expenses
and other
current
assets
$554Accrued
expenses
and other
current
liabilities
$980Accrued
expenses
and other
current
liabilities
$1,019
The Effect of Derivative Instruments on Financial Performance
 For the Three Months Ended June 30,
 (In thousands)
Derivatives in Cash Flow
Hedging Relationships
Amount of Gain Recognized in Other
Comprehensive Income (Loss)
Location of Loss Reclassified
from Accumulated Other
Comprehensive Loss into
Income
Amount of Loss Reclassified from Accumulated Other
Comprehensive Loss
 20202019 20202019
Foreign currency forward contracts$1,377  $285  Operating expenses$(919) $(97) 
For the Six Months Ended June 30,
(In thousands)
Derivatives in Cash Flow
Hedging Relationships
Amount of (Loss) Gain Recognized in Other
Comprehensive Income (Loss)
Location of Loss Reclassified
from Accumulated Other
Comprehensive Loss into
Income
Amount of Loss Reclassified from Accumulated Other
Comprehensive Loss
2020201920202019
Foreign currency forward contracts$(1,456) $1,326  Operating expenses$(671) $(991) 
 For the Three Months Ended June 30,
 (In thousands)
Derivatives in Cash Flow
Hedging Relationships
Amount of Gain (Loss) Recognized in Other
Comprehensive Income (Loss)
 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$285
 $(4,419) Operating expenses $(97) $997
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 For the Six Months Ended June 30,
 (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$1,326
 $(4,946) Operating expenses $(991) $2,216

 
 For the Three Months Ended June 30,
 (In thousands)
Derivatives Not Designated as Hedging InstrumentsLocation of Loss Recognized in Income on
Derivative
Amount of Loss Recognized
in Income on Derivative
  20202019
Foreign currency forward contractsOther income (expense), net$(1,229) $(584) 
For the Six Months Ended June 30,
(In thousands)
Derivatives Not Designated as Hedging InstrumentsLocation of Gain (Loss) Recognized in Income on
Derivative
Amount of Gain (Loss) Recognized
in Income on Derivative
20202019
Foreign currency forward contractsOther income (expense), net$2,529  $(1,980) 
 For the Three Months Ended June 30,
 (In thousands)
Derivatives Not Designated as Hedging Instruments
Location of (Loss) Gain Recognized in Income on
Derivative
 
Amount of (Loss) Gain Recognized
in Income on Derivative
   2019 2018
Foreign currency forward contractsOther (expense) income, net $(584) $7,161

 For the Six Months Ended June 30,
 (In thousands)
Derivatives Not Designated as Hedging Instruments
Location of (Loss) Gain Recognized in Income on
Derivative
 
Amount of (Loss) Gain Recognized
in Income on Derivative
   2019 2018
Foreign currency forward contractsOther (expense) income, net $(1,980) $3,602

Outstanding Foreign Currency Forward Contracts
As of June 30, 2019,2020, the Company had the following net notional foreign currency forward contracts outstanding (in thousands):
Foreign CurrencyCurrency
Denomination
Australian DollarAUD 34,800
Brazilian RealBRL 2,000
Pounds SterlingGBP 700
Canadian DollarCAD 850
Chinese Yuan RenminbiCNY 47,725
Czech KorunaCZK 7,400
Danish KroneDKK 9,100
EuroEUR 936
Hong Kong DollarHKD 17,300
Indian RupeeINR 912,000
Japanese YenJPY 662,000
Korean WonKRW 2,768,000
Foreign CurrencySingapore Dollar
Currency
Denomination
SGD 14,400
Australian DollarSwedish KronaAUD 32,000SEK 5,900
Brazilian RealBRL 7,000
Pounds SterlingGBP 20,000
Canadian DollarCAD 2,850
Chinese Yuan RenminbiCNY 53,840
Danish KroneDKK 67,385
EuroEUR 9,336
Hong Kong DollarHKD 33,000
Indian RupeeINR 2,847,000
Japanese YenJPY 1,757,501
Korean WonKRW 1,079,000
Singapore DollarSGD 20,400
Swiss FrancCHF 27,280
Czech KorunaCZK 98,000
Swedish KronaSEK 10,000162,972


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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
 2,802
 335
 
 3,137
Amounts reclassified from accumulated other comprehensive loss
 (584) 991
 
 407
Net current period other comprehensive income
 2,218
 1,326
 
 3,544
Balance at June 30, 2019$(2,946) $(222) $341
 $(1,783) $(4,610)

 Foreign currencyUnrealized loss on available-for-sale securitiesUnrealized gain (loss) on derivative instrumentsOther comprehensive loss on pension liabilityTotal
 (In thousands)
Balance at December 31, 2019$(2,946) $(139) $868  $(2,910) $(5,127) 
Other comprehensive income (loss) before reclassifications—  131  (2,127)  (1,988) 
Amounts reclassified from accumulated other comprehensive loss—  (21) 671  —  650  
Net current period other comprehensive income (loss)—  110  (1,456)  (1,338) 
Balance at June 30, 2020$(2,946) $(29) $(588) $(2,902) $(6,465) 
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 June 30, 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 $(26) Other (expense) income, net
Unrealized net losses on cash flow hedges 97
 Operating expenses *
  $71
  
  For the Six Months Ended June 30, 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 $(584) Other (expense) income, net
Unrealized net losses on cash flow hedges 991
 Operating expenses *
  $407
  
For the Three Months Ended June 30, 2020
(In thousands)
Details about accumulated other comprehensive loss componentsAmount reclassified from accumulated other comprehensive loss, net of taxAffected line item in the Condensed Consolidated Statements of Income
Unrealized net gains on available-for-sale securities$(8)Other income (expense), net
Unrealized net losses on cash flow hedges919 Operating expenses *
$911 
For the Six Months Ended June 30, 2020
(In thousands)
Details about accumulated other comprehensive loss componentsAmount reclassified from accumulated other comprehensive loss, net of taxAffected line item in the Condensed Consolidated Statements of Income
Unrealized net gains on available-for-sale securities$(21)Other income (expense), net
Unrealized net losses on cash flow hedges671 Operating expenses *
$650 
* Operating expenses amounts allocated to Research and development, Sales, marketing and services, and General and administrative are not individually significant.
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 tax credits and 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 12.8%12.5% and 18.7%12.8% for the three months ended June 30, 2020 and 2019, and 2018, respectively. The decrease in the effective tax rate whenWhen comparing the three months ended June 30, 20192020 to the three months ended June 30, 2018 was primarily due to2019, the effective tax items unique to the period ended June 30, 2018, as well as additional tax benefit from stock-based compensation deductions in the period ended June 30, 2019.


rate did not materially change.
The Company’s effective tax rate was 9.6%8.0% and 11.1%9.6% for the six months ended June 30, 20192020 and 2018,2019, respectively. The decrease in the effective tax rate when comparing the six months ended June 30, 20192020 to the six months ended June 30, 20182019 was primarily due to an increase in the discrete tax items unique tobenefits for share-based payments and a tax benefit for the impact of the closure of a California audit during the six month period ended June 30, 2018, as well as additional2020.
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On May 19, 2019, Swiss voters approved the Federal Act on Tax Reform and AHV Financing (“TRAF”), which provides for broad changes to federal and cantonal taxation in Switzerland effective January 1, 2020. The TRAF requires the abolishment of certain favorable tax benefit from stock-based compensation deductions inregimes, provides for certain transitional relief, and directs the cantons to implement certain mandatory measures while other provisions are at the discretion of the canton. During the period ended June 30, 2019.December 31, 2019, the Company recorded a deferred tax asset and a partial valuation allowance for the cantonal and federal impact of the TRAF. The income tax impact of the TRAF may be subject to change due to the issuance of further legislative guidance from the Swiss taxing authorities.
The Company’s net unrecognized tax benefits totaled $101.6$72.7 million and $89.9$84.5 million as of June 30, 20192020 and December 31, 2018,2019, respectively. At June 30, 2019, $74.82020, $60.9 million included in the balance 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 June 30, 2019,2020, the Company has accrued $6.0$3.6 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 2015.2016.
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 June 30, 2019,2020, the Company had $114.6$380.2 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.
On July 24, 2018,March 27, 2020, the United States enacted the Coronavirus Aid, Relief & Economic Security (“CARES”) Act. The CARES Act includes a wide variety of tax and non-tax provisions aimed to provide relief to individuals and businesses adversely affected by the COVID-19 pandemic. This legislation includes an array of tax benefits and incentives for businesses, including in part, the deferral of payment of certain employer payroll taxes. Similarly, the Swiss government enacted a number of measures to help mitigate the negative effects of COVID-19 on the Swiss economy. The Company is evaluating the impact of global COVID-19-related laws and proposed laws, however, no material impact to the Company's financial results is expected as a result of legislation enacted to date. The Company will review any guidance issued in the future by applicable tax authorities and continue to evaluate the impact of any new developments or legislation.
On June 22, 2020, the US Supreme Court denied Altera Corp.’s petition for writ of certiorari and as a result the Supreme Court will not review the decision of the U.S. Ninth Circuit Court of Appeals overturned the U.S. Tax Court’s unanimous decision in Altera v. Commissioner, where the Tax Court held the Treasury regulation requiring participants in a qualified cost sharing arrangement to share stock-based compensation costs to be invalid. On August 7, 2018, the U.S. Ninth Circuit Court of Appeals, on its own motion, withdrew its July 24, 2018 opinion to allow time for a reconstituted panel to confer. Given the increased uncertainty as to the Ninth Circuit panel's eventual ruling andthat upheld the impact it will have on the Internal Revenue Service’s ability to challenge the technical meritsvalidity of the Company's position, the Company accrued amounts for this uncertain tax position as of the year ended December 31, 2018.
On June 7, 2019, a reconstituted panel issued a new opinion which again reversed the Tax Court's holding in Altera v. Commissioner and upheld a 2003 regulation that requiresU.S. Treasury Department’s regulations requiring participants in a cost-sharing arrangement to share stock-based compensation costs. The Ninth Circuit panel concluded that the 2003 regulations were valid under the Administrative Procedure Act. SinceBecause the Company previouslyhas already accrued amounts for this uncertain tax position, there wereare no changes to the Company's position or treatment of its cost-sharing arrangements in the current period. On July 22, 2019, Altera Corp. filed an appeal with the Ninth Circuit to rehear this case, which is ongoing. Therefore, the case's final disposition may result in a benefit for the Company in the future if the case is reversed.
15. TREASURY STOCK
Stock Repurchase Program
The Company’s Board of Directors has authorized an ongoing stock repurchase program, of which $750.0 million$1.00 billion was approved in October 2018.January 2020. 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 June 30, 2019, approximately $517.92020, $914.1 million ($714.1 million after taking into consideration the contracted but undelivered shares under the ASR of $200.0 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, andthe 2027 Notes offerings,and the Term Loan Credit Agreement, 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,
29


On January 30, 2020, the Company used the proceeds from its Term Loan Credit Agreement and entered into an ASR transactiontransactions with a counterparty to paygroup of Dealers for an aggregate of $750.0 million in exchange for$1.00 billion. Under the ASR transactions, the Company received an initial share delivery of approximately 6.5 million shares of its common stock, based on current market prices. The purchase price per share underwith the remainder, if any, delivered upon completion of the ASR wastransactions. The total number of shares of common stock that the Company will repurchase under each ASR agreement will be based on the average of the daily volume-weighted average priceprices of the Company'sits common stock


during the term of the applicable ASR agreement, less a discount. The ASR was entered into pursuantAt settlement, each Dealer may be required to deliver additional shares of common stock to the Company's existing share repurchase program.Company or, under certain circumstances, the Company may be required to deliver shares of common stock, at its election, or make a cash payment to the applicable Dealer. Final settlement of the ASR agreement wasis expected to be completed in April 2018 andby the end of the third quarter of 2020. See Note 11 for detailed information on the Term Loan Credit Agreement.
During the three months ended June 30, 2020, the Company received delivery of an additional 1.6made 0 open market purchases under the stock repurchase program. During the six months ended June 30, 2020, the Company expended $199.9 million additionalon open market purchases under the stock repurchase program, repurchasing 1,731,500 shares of its common stock.stock at an average price of $115.45.
During the three months ended June 30, 2019, the Company expended approximately $156.2 million on open market purchases under the stock repurchase program, repurchasing 1,599,822 shares of common stock at an average price of $97.63. During the six months ended June 30, 2019, the Company expended approximately $250.0 million on open market purchases under the stock repurchase program, repurchasing 2,510,882 shares of common stock at an average price of $99.57.
During the three and six months ended June 30, 2018, the Company expended approximately $15.0 million on open market purchases under the stock repurchase program, repurchasing 0.1 million shares of common stock at an average price of $106.83.
Shares for Tax Withholding
During the three and six months ended June 30, 2019,2020, the Company withheld 104,129 shares256,376 and 698,117739,600 shares, respectively, from equity awards that vested, totaling $10.4$35.8 million and $70.6$101.2 million, respectively, to satisfy minimum tax withholding obligations that arose on the vesting of such equity awards. During the three and six months ended June 30, 2018,2019, the Company withheld 30,502 shares104,129 and 537,776698,117 shares, respectively, from equity awards that vested, totaling $3.0$10.4 million and $49.9$70.6 million respectively, 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 litigationlitigation 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 subject to various other legal proceedings, including suits, assessments, regulatory actions and investigations generally arising out of the normal course of business. Although it is difficult to predict the ultimate outcomes of these matters, 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 was the victim of a previously disclosed cyber attack during which international cyber criminals gained intermittent access to Citrix’s internal network. The Company has conducted an investigation into this incident. The Company’s investigation confirmed that 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 some cases, their beneficiaries, dependents and others; 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 is reviewing documents and files that may have been accessed or were stolen in this incident, which include 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 email accounts of the very limited number of compromised users. The


Company’s investigation found no indication that the cyber criminals discovered and exploited any vulnerabilities in the Company’s products or customer cloud services to gain entry, and no indication that the security of any Citrix product or customer cloud service was compromised. The Company found no impact to its financial reporting systems from this cyberattack. Additionally, the Company has taken steps to enhance its internal controls over financial reporting and disclosure controls and procedures related to cyberattacks.
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.
Although it is difficult to predict the ultimate outcomes of this cyberattack, to date, three putative class action lawsuits have been filed against the Company in the United States District Court for the Southern District of Florida. These matters, Howard v. Citrix, Jackson and Sargent v. Citrix, and Ramus, Young and Charles v. Citrix, were filed on May 24, 2019, May 30, 2019, and June 23, 2019, respectively, and have been consolidated. The plaintiffs, who purport to represent various classes of current and former employees (and their dependents) of the Company, generally claim to have been harmed by the Company’s alleged actions and/or omissions in connection with this incident and their personal data. They assert a variety of common law and statutory claims seeking monetary damages or other related relief.
The Company is unable to currently determine the ultimate outcome of these legal proceedings or the potential exposure or loss, if any, because the legal proceedings remain in the early stages, there is uncertainty as to the likelihood of a class or classes being certified or the ultimate size of any class if certified, and there are significant factual and legal issues to be resolved.
Beyond the matters described above, 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, it is not possible to estimate the amount or a range of potential loss, if any, at this time, and the Company will continue to evaluate information as it becomes known, and will record an accrual for estimated losses at the time or times it is determined that a loss is both probable and reasonably estimable.

On July 25, 2019, a class action lawsuit was filed against Citrix, LogMeIn, Inc. (“LogMeIn”) and certain of their directors and officers in the Circuit Court of the 15th Judicial Circuit, Palm Beach County, Florida. The complaint alleges that the defendants violated federal securities laws by making alleged misstatements and omissions in LogMeIn’s Registration Statement and Prospectus filed in connection with the 2017 spin-off of Citrix’s GoTo family of service offerings and subsequent merger of that business with LogMeIn. The complaint seeks among other things the recovery of monetary damages. On April 28, 2020, the defendants filed motions to dismiss the complaint, which remain pending. The Company believes that Citrix and its directors have meritorious defenses to these allegations,allegations; however, the Company is unable to currently determine the ultimate outcome of this matter or the potential exposure or loss, if any.
30


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.
Other Purchase Commitments
In June 2019,May 2020, the Company entered into an amended agreement with a third-party provider, in the ordinary course of business, for the Company's use of certain cloud services through June 2021.2029. Under the amendedamended agreement, the Company is committed to a purchase of $25.0$1.00 billion throughout the term of the agreement. As of June 30, 2020, the Company had $987.9 million in fiscal year 2019 and $25.0 million in fiscal year 2020.of remaining obligations under the purchase agreement.

31


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 and six months ended June 30, 20192020 and 2018,2019, restructuring charges were comprised of the following (in thousands):
 Three Months Ended June 30, Six Months Ended June 30,
 2019
2018 2019 2018
Employee severance and related costs$4,311
 $1,278
 $7,143
 $2,319
Consolidation of leased facilities
 6,159
 
 11,305
Total Restructuring charges$4,311
 $7,437
 $7,143
 $13,624

For
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Employee severance and related costs$647  $4,311  $3,100  $7,143  
Right-of-use asset impairment8,881  —  8,881  —  
Total Restructuring charges$9,528  $4,311  $11,981  $7,143  
The Company reviews for impairment of long-lived assets, including right-of-use (“ROU”) assets, whenever events or changes in circumstances indicate that the three months ended June 30, 2019 and 2018,carrying amount of such assets may be impaired. Measurement of an impairment loss is based on the Company incurred costsfair value of $4.3 million and $1.3 million, respectively, and for the six months June 30, 2019 and 2018, the Company incurred costs of $7.1 million and $2.3 million, respectively, relatedasset compared 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.carrying value. The fair value estimate of these non-cancelable leases was based on the contractual lease costs overROU assets is determined by utilizing the remaining term, partially offset bypresent value of the estimated future sublease rental income. No costs were incurred during the three and six months ended June 30, 2019 relatedcash flows attributable to the consolidation of leased facilities.assets. During the three and six months ended June 30, 2018,2020, in connection with the COVID-19 pandemic, the Company incurred costsdetermined that a vacant facility partially impaired under a previous restructuring plan became fully impaired due to a reassessment of $6.2 millionthe timing and $11.3 million, respectively, related tofees of the consolidationassumed sublease rentals and recorded impairment charges of leased facilities.$8.9 million. This non-recurring fair value measurement was categorized as Level 3, as significant unobservable inputs were utilized.
Restructuring accruals
The activity in the Company’s restructuring accruals for the six months ended June 30, 20192020 is summarized as follows (in thousands):
Total
Balance at January 1, 2020$6,957 
Employee severance and related costs3,100 
Payments(8,113)
Balance at June 30, 2020$1,944 
 Total
Balance at January 1, 2019$45,095
Adjustment for ASC 842(42,248)
Restructuring charges7,143
Payments(6,209)
Balance at June 30, 2019$3,781

As of June 30, 2019, the $3.8 million in outstanding restructuring accruals primarily relate to employee severance and related costs. As a result of the adoption of 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.
31

32



18. STATEMENT OF CHANGES IN EQUITY
The following tables presents the changes in total stockholders' (deficit) equity during the three and six months ended June 30, 2020 (in thousands):
Common StockAdditional Paid In CapitalRetained EarningsAccumulated Other Comprehensive LossCommon Stock in TreasuryTotal (Deficit) Equity
SharesAmountSharesAmount
Balance at March 31, 2020320,437  $320  $6,125,589  $4,794,964  $(7,810) (197,436) $(11,131,992) $(218,929) 
Shares issued under stock-based compensation plans773   (1) —  —  —  —  —  
Stock-based compensation expense—  —  90,117  —  —  —  —  90,117  
Restricted shares turned in for tax withholding—  —  —  —  —  (257) (35,813) (35,813) 
Cash dividends declared—  —  —  (43,222) —  —  —  (43,222) 
Other—  —  1,133  (1,133) —  —  —  —  
Other comprehensive income, net of tax—  —  —  —  1,345  —  —  1,345  
Net income—  —  —  112,906  —  —  —  112,906  
Balance at June 30, 2020321,210  $321  $6,216,838  $4,863,515  $(6,465) (197,693) $(11,167,805) $(93,596) 
 Common StockAdditional
Paid In Capital
Retained
Earnings
Accumulated Other
Comprehensive
Loss
Common Stock
in Treasury
Total Equity (Deficit)
 SharesAmountSharesAmount
Balance at December 31, 2019318,760  $319  $6,249,065  $4,660,145  $(5,127) (188,693) $(10,066,746) $837,656  
Shares issued under stock-based compensation plans2,205   (2) —  —  —  —  —  
Stock-based compensation expense—  —  143,685  —  —  —  —  143,685  
Common stock issued under employee stock purchase plan245  —  21,035  —  —  —  —  21,035  
Stock repurchases, net—  —  —  —  —  (1,732) (199,903) (199,903) 
Restricted shares turned in for tax withholding—  —  —  —  —  (740) (101,156) (101,156) 
Cash dividends declared—  —  —  (86,062) —  —  —  (86,062) 
Accelerated stock repurchase program—  —  (200,000) —  —  (6,528) (800,000) (1,000,000) 
Cumulative-effect adjustment from adoption of accounting standard—  —  —  (1,641) —  —  —  (1,641) 
Other—  —  3,055  (3,055) —  —  —  —  
Other comprehensive loss, net of tax—  —  —  —  (1,338) —  —  (1,338) 
Net income—  —  —  294,128  —  —  —  294,128  
Balance at June 30, 2020321,210  $321  $6,216,838  $4,863,515  $(6,465) (197,693) $(11,167,805) $(93,596) 
32


The following tables presents the changes in total stockholders' equity during the three and six months ended June 30, 2019 (in thousands):

Common StockAdditional Paid In CapitalRetained EarningsAccumulated Other Comprehensive LossCommon Stock in TreasuryTotal Equity
SharesAmountSharesAmount
Balance at March 31, 2019311,732  $312  $5,495,935  $4,232,181  $(5,483) (179,832) $(9,168,067) $554,878  
Shares issued under stock-based compensation plans287  —  —  —  —  —  —  —  
Stock-based compensation expense—  —  70,080  —  —  —  —  70,080  
Temporary equity reclassification—  —  1,163  —  —  —  —  1,163  
Stock repurchases, net—  —  —  —  —  (1,600) (156,195) (156,195) 
Restricted shares turned in for tax withholding—  —  —  —  —  (104) (10,445) (10,445) 
Cash dividends declared—  —  —  (45,827) —  —  —  (45,827) 
Settlement of convertible notes and hedges4,950   509,519  —  —  (4,950) (509,524) —  
Other—  —  2,263  (2,263) —  —  —  —  
Other comprehensive income, net of tax—  —  —  —  873  —  —  873  
Net income—  —  —  93,495  —  —  —  93,495  
Balance at June 30, 2019316,969  $317  $6,078,960  $4,277,586  $(4,610) (186,486) $(9,844,231) $508,022  
 Common StockAdditional
Paid In Capital
Retained
Earnings
Accumulated Other
Comprehensive
Loss
Common Stock
in Treasury
Total
Equity
 SharesAmountSharesAmount
Balance at December 31, 2018309,761  $310  $5,404,500  $4,169,019  $(8,154) (178,327) $(9,014,156) $551,519  
Shares issued under stock-based compensation plans2,042   (2) —  —  —  —  —  
Stock-based compensation expense—  —  133,554  —  —  —  —  133,554  
Temporary equity reclassification—  —  8,110  —  —  —  —  8,110  
Common stock issued under employee stock purchase plan216  —  19,016  —  —  —  —  19,016  
Stock repurchases, net—  —  —  —  —  (2,511) (250,000) (250,000) 
Restricted shares turned in for tax withholding—  —  —  —  —  (698) (70,551) (70,551) 
Cash dividends declared—  —  —  (91,851) —  —  —  (91,851) 
Settlement of convertible notes and hedges4,950   509,519  —  —  (4,950) (509,524) —  
Cumulative-effect adjustment from adoption of accounting standard—  —  —  838  —  —  —  838  
Other—  —  4,263  (4,263) —  —  —  —  
Other comprehensive income, net of tax—  —  —  —  3,544  —  —  3,544  
Net income—  —  —  203,843  —  —  —  203,843  
Balance at June 30, 2019316,969  $317  $6,078,960  $4,277,586  $(4,610) (186,486) $(9,844,231) $508,022  
 Common Stock 
Additional
Paid In Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive
Loss
 
Common Stock
in Treasury
  
Total
Equity
 Shares Amount Shares Amount  
Balance at March 31, 2019311,732
 $312
 $5,495,935
 $4,232,181
 $(5,483) (179,832) $(9,168,067)  $554,878
Shares issued under stock-based compensation plans287
 
 
 
 
 
 
  
Stock-based compensation expense
 
 70,080
 
 
 
 
  70,080
Temporary equity reclassification
 
 1,163
 
 
 
 
  1,163
Stock repurchases, net
 
 
 
 
 (1,600) (156,195)  (156,195)
Restricted shares turned in for tax withholding
 
 
 
 
 (104) (10,445)  (10,445)
Cash dividends declared
 
 
 (45,827) 
 
 
  (45,827)
Settlement of convertible notes and hedges4,950
 5
 509,519
 
 
 (4,950) (509,524)  
Other
 
 2,263
 (2,263) 
 
 
  
Other comprehensive income, net of tax
 
 
 
 873
 
 
  873
Net income
 
 
 93,495
 
 
 
  93,495
Balance at June 30, 2019316,969
 $317
 $6,078,960
 $4,277,586
 $(4,610) (186,486) $(9,844,231)  $508,022


 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, 2018309,761
 $310
 $5,404,500
 $4,169,019
 $(8,154) (178,327) $(9,014,156)  $551,519
Shares issued under stock-based compensation plans2,042
 2
 (2) 
 
 
 
  
Stock-based compensation expense
 
 133,554
 
 
 
 
  133,554
Temporary equity reclassification
 
 8,110
 
 
 
 
  8,110
Common stock issued under employee stock purchase plan216
 
 19,016
 
 
 
 
  19,016
Stock repurchases, net
 
 
 
 
 (2,511) (250,000)  (250,000)
Restricted shares turned in for tax withholding
 
 
 
 
 (698) (70,551)  (70,551)
Cash dividends declared
 
 
 (91,851) 
 
 
  (91,851)
Settlement of convertible notes and hedges4,950
 5
 509,519
 
 
 (4,950) (509,524)  
Cumulative-effect adjustment from adoption of accounting standards
 
 
 838
 
 
 
  838
Other
 
 4,263
 (4,263) 
 
 
  
Other comprehensive income, net of tax
 
 
 
 3,544
 
 
  3,544
Net income
 
 
 203,843
 
 
 
  203,843
Balance at June 30, 2019316,969
 $317
 $6,078,960
 $4,277,586
 $(4,610) (186,486) $(9,844,231)  $508,022


The following tables presents the changes in total stockholders' equity during the three and six months ended June 30, 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 March 31, 2018307,575
 $308
 $4,938,533
 $3,786,521
 $(14,874) (170,431) $(8,187,110)  $523,378
Shares issued under stock-based compensation plans87
 
 43
 
 
 
 
  43
Stock-based compensation expense
 
 55,844
 
 
 
 
  55,844
Temporary equity reclassification
 
 (28,081) 
 
 
 
  (28,081)
Stock repurchases, net
 
 
 
 
 (1,783) (164,978)  (164,978)
Accelerated stock repurchase program
 
 150,000
 
 
 
 
  150,000
Restricted shares turned in for tax withholding
 
 
 
 
 (30) (3,019)  (3,019)
Other comprehensive loss, net of tax
 
 
 
 (3,844) 
 
  (3,844)
Net income
 
 
 106,833
 
 
 
  106,833
Balance at June 30, 2018307,662
 $308
 $5,116,339
 $3,893,354
 $(18,718) (172,244) $(8,355,107)  $636,176


 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, 2017305,751
 $306
 $4,883,670
 $3,509,484
 $(10,806) (162,044) $(7,390,193)  $992,461
Shares issued under stock-based compensation plans1,659
 2
 111
 
 
 
 
  113
Stock-based compensation expense
 
 91,567
 
 
 
 
  91,567
Temporary equity reclassification
 
 (28,081) 
 
 
 
  (28,081)
Common stock issued under employee stock purchase plan252
 
 17,457
 
 
 
 
  17,457
Stock repurchases, net
 
 
 
 
 (9,663) (914,978)  (914,978)
Accelerated stock repurchase program
 
 150,000
 
 
 
 
  150,000
Restricted shares turned in for tax withholding
 
 
 
 
 (537) (49,936)  (49,936)
Cumulative-effect adjustment from adoption of accounting standard
 
 
 132,778
 
 
 
  132,778
Other comprehensive loss, net of tax
 
 
 
 (7,912) 
 
  (7,912)
Other
 
 1,615
 
 
 
 
  1,615
Net income
 
 
 251,092
 
 
 
  251,092
Balance at June 30, 2018307,662
 $308
 $5,116,339
 $3,893,354
 $(18,718) (172,244) $(8,355,107)  $636,176


33




35



Cash Dividend
The following table provides information with respect to quarterly dividends on common stock during the six months ended June 30, 2019.2020.

Declaration DateDividends per Share Record Date Payable Date
January 23, 2019$0.35
 March 8, 2019 March 22, 2019
April 24, 2019$0.35
 June 7, 2019 June 21, 2019


Declaration DateDividends per ShareRecord DatePayable Date
January 22, 2020$0.35 March 6, 2020March 20, 2020
April 23, 2020$0.35 June 5, 2020June 19, 2020
Subsequent Event
On July 24, 201923, 2020, the Company announced that its Board of Directors approved a quarterly cash dividend of $0.35 per share which will be paid on September 20, 201925, 2020 to all shareholders of record as of the close of business on September 6, 2019.

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 were not material to the condensed consolidated financial statements as of June 30, 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):11, 2020.
   Three Months Ended Six Months Ended
   June 30, 2019
 Classification    
Operating lease costOperating expenses $12,377
 $24,777
Variable lease costOperating expenses 2,249
 4,818
Sublease incomeOther (expense) income, net (233) (431)
Net lease cost  $14,393
 $29,164
34




Supplemental cash flow information related to leases was as follows (in thousands):
  Six Months Ended
  June 30,
  2019
Cash paid for amounts included in the measurement of lease liabilities:  
Operating cash flows from operating leases $27,129
Right-of-use assets obtained in exchange for lease obligations:  
Operating leases $11,658


Lease Term and Discount Rate
June 30, 2019
Weighted-average remaining lease term (years)
Operating leases6.4
Weighted-average discount rate
Operating leases4.58%

Maturities of lease liabilities as of June 30, 2019 were as follows (in thousands):
Year ending December 31, Operating Leases
2019 (remaining six months) $27,615
2020 54,801
2021 44,184
2022 36,506
2023 32,876
After 2023 89,746
Total lease payments $285,728
Less: imputed interest (39,171)
Present value of lease liabilities $246,557

Supplemental balance sheet information related to leases was as follows (in thousands):
Operating Leases June 30, 2019
Operating lease right-of-use assets $191,010
   
Accrued expenses and other current liabilities $46,473
Operating lease liabilities 200,084
     Total operating lease liabilities $246,557



37



ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our operating results and financial condition have varied in the past and could in the future vary significantly depending on a number of factors. ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
From time to time, information provided by us or statements made by our employees contain “forward-looking” information that involves risks and uncertainties. In particular, statements contained in this Quarterly Report on Form 10-Q and in the documents incorporated by reference into this Quarterly Report on Form 10-Q, that are not historical facts, including, but not limited to, statements concerning our strategy and operational and growth initiatives, our transition to a subscription-based business model, our expansion of cloud-delivered services, changes in our product and service offerings and features, financial information and results of operations for future periods, revenue trends, the impacts of the COVID-19 pandemic and related market and economic conditions on our business, results of operations and financial condition, customer demand, business continuity, risk mitigation and expectations regarding remote work, the resiliency of our solutions and business model, expectations regarding our customers’ spending during a weak economic environment, seasonal factors or ordering patterns, stock-based compensation, licensing and subscription renewal programs, international operations, investment transactions and valuations of investments and derivative instruments, restructuring charges, reinvestment or repatriation of foreign earnings, fluctuations in foreign exchange rates, tax estimates and other tax matters, liquidity, stock repurchases and dividends, our debt, changes in accounting rules or guidance, changes in domestic and foreign economic conditions, acquisitions, litigation matters, and the security of our network, products and services, and the impact of the cybersecurity incident on our business and results of operations constitute forward-looking statements and are made under the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are neither promises nor guarantees. Our actual results of operationsReaders are directed to the risks and financial condition could vary materially from those stated in any forward-looking statements. The factors describeduncertainties identified in Part I, Item 1A, “Risk Factors,”Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, as updated by Part II, Item 1A in this Quarterly Report on Form 10-Q for additional detail regarding factors that may cause actual results to be different than those expressed in our forward-looking statements. Such factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q, in the documents incorporated by reference into this Quarterly Report on Form 10-Q or presented elsewhere by our management from time to time. Such factors, among others, could have a material adverse effect upon our business, results of operations and financial condition. We caution readers not to place undue reliance on any forward-looking statements, which only speak as of the date made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.
Overview
Management’s discussion and analysis of financial condition and results of operations is intended to help the reader understand our financial condition and results of operations. This section is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2019.2020. The results of operations for the periods presented in this report are not necessarily indicative of the results expected for the full year or for any future period, due in part to the seasonality of our business. Historically, our revenue for the fourth quarter of any year is typically higher than our revenue for the first quarter of the subsequent year.

During the first quarter of 2020, this historical trend was impacted by the COVID-19 pandemic.
Citrix is poweringan enterprise software company focused on helping customers improve the productivity and user experience of their most valuable assets, their employees. We do this by creating a better waydigital workspace that provides unified, secure, and reliable access to workall applications and content employees need to be productive - anytime, anywhere, on any device. Our Networking solutions, which can be consumed via hardware or software, complement our Workspace solutions by delivering applications and data employees need across any network with unified workspace, networking,security, reliability and analytics solutions that help organizations unlock innovation, engage customers, and boost productivity, without sacrificing security. With Citrix, users get a seamless work experience and IT has a unified platform to secure, manage, and monitor diverse technologies in complex cloud environments.speed. 
We market and license our solutions through multiple channels worldwide, including selling through resellers and direct over the Web. Our partner community comprises thousands of value-added resellers, or VARs, known as Citrix Solution Advisors, value-added distributors, or VADs, systems integrators, or SIs, independent software vendors, or ISVs, original equipment manufacturers, or OEMs, and Citrix Service Providers, or CSPs.
We are a Delaware corporation incorporated on April 17, 1989.
Executive Summary
During the three months ended June 30, 2019,2020, our results reflect an acceleration in subscription bookings compared tomodel transition regained momentum, with strong demand for our Workspace and Networking solutions. We believe that our second quarter performance reflects the year-ago period, demonstrating executionconfidence of our strategycustomers in Citrix’s vision and the critical role Citrix’s solutions have in helping customers drive continued sustainable growth over the long-term aided by the secular shifts towards remote work, security and employee experience.
As we continue to progress through our subscription model transition, we plan to discontinue offering new perpetual licenses for Citrix Workspace beginning on October 1, 2020. While there will be exceptions made for certain customers in specific industries or geographies, following this date the offering will no longer be generally available for new or existing
35


customers. After this time, customers will have the option of acquiring new Citrix Workspace seats in the form of on-premises subscription or SaaS offerings.
Longer term, our subscription transition is expected to result in more of our business to subscription.sustainable, recurring revenue growth over time as less revenue comes from one-time product and licensing streams and more revenue comes from predictable, recurring streams that will be recognized in future periods. We believe that this dynamic is best captured in our Subscription and SaaS Annualized Recurring Revenue, or ARR. This operating metric represents the contracted recurring value of all termed subscriptions normalized to a one-year period. It is calculated at the end of a reporting period by taking each contract’s recurring total contract value and dividing by the length of the contract. ARR includes only active contractually committed, fixed subscription fees. Our definition of ARR includes contracts expected to recur and therefore excludes contracts with durations of 12 months or less where licenses were issued to address extraordinary business continuity events for our customers. All contracts are annualized, including 30 day offerings where we take monthly recurring revenue multiplied by 12 to annualize. ARR may be influenced by seasonality within the year. ARR should be viewed independently of U.S. GAAP revenue, deferred revenue and unbilled revenue and is not intended to be combined with or to replace those items. ARR is not a forecast of future revenue. As we continue through this business model transition, we believe ARR is a key indicator of the overall health and trajectory of our business.


Management uses ARR to monitor the growth of our subscription business.
On March 6, 2019,January 21, 2020, we entered into a Term Loan Credit Agreement that provided us with facilities to borrow term loans on an unsecured basis in an aggregate principal amount of up to $1.00 billion, consisting of (1) a $500.0 million 364-day term loan facility (the “364-day Term Loan”), and (2) a $500.0 million 3-year term loan facility (the “3-year Term Loan”), in each case in a single borrowing, subject to satisfaction of certain conditions set forth in the FBI informed us that international cyber criminals had gained accessTerm Loan Credit Agreement.
On January 21, 2020, our Board of Directors approved an increase of an additional $1.00 billion in authorized repurchase authority to Citrix’s internal network through a “password spraying” attack, a technique that exploits weak passwords. Immediately,our existing share repurchase program.
On January 30, 2020, we engaged outside forensicsborrowed $1.00 billion under the term loans and security experts, took actions to expelused the cyber criminalsproceeds from our internal systems,Term Loan Credit Agreement to enter into accelerated share repurchase transactions ("ASR") with each of Goldman Sachs & Co. LLC and adopted additional security measures. Additionally, we launchedWells Fargo Bank, National Association (each, a comprehensive forensic investigation led by a leading, independent cybersecurity firm. From our investigation, we learned that"Dealer") for an aggregate of $1.00 billion. Under the cyberattack commenced on October 13, 2018, and encompassed a cyber incident that we became aware of in late 2018 and took certain steps to remediate based on our assessment at the time. Further,ASR transactions, we received an initial share delivery of 6.5 million shares of our common stock, with the remainder, if any, delivered upon completion of the ASR transactions. The price per share under the ASR is subject to adjustment and is expected to equal the average of the daily volume-weighted average prices of our common stock during the term of the applicable ASR agreement, less a notification from the Department of Homeland Security in late February 2019 concerning a network compromise that may have been part of this same cyberattack. While waiting for clarification from the Department of Homeland Security, we were contacteddiscount. The ASR is expected to be completed by the FBI onend of the third quarter of 2020. The ASR was entered into pursuant to our existing share repurchase program.
On February 25, 2020, we issued $750.0 million of unsecured senior notes due March 6, 2019.
We conducted an investigation, which confirmed that between October 13, 20181, 2030 (the "2030 Notes"). The net proceeds from this offering were $738.1 million, after deducting the underwriting discount and March 8, 2019, cyber criminals intermittently accessed Citrix's internal network and over a limited number of days stole business documents and filesestimated offering expenses payable by us. Net proceeds from a shared network drive and a drive associated with a web-based tool used in our consulting practice. The shared drive, from which documents and filesthis offering were stolen, wasprimarily 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 our current and former employees and, in some cases, their beneficiaries, dependents and others; 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 our 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. We are reviewing documents and files that may have been accessed or were stolen in this incident, which include files stolen from the shared network drive and the drive associated with the web-based tool used in our consulting practice, and the accessed documents and files on the individual virtual drives and the Company email accounts of the very limited number of compromised users. Our investigation found no indication that the cyber criminals discovered and exploited any vulnerabilities in our products or customer cloud services to gain entry, and no indication that the security of any Citrix product or customer cloud service was compromised. We found no impact to our financial reporting systems from this cyberattack. Additionally, we have taken steps to enhance our internal controls over financial reporting and disclosure controls and procedures related to cyberattacks.
Further, we have 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, we maintain customary business coveragerepay amounts outstanding under our crime, commercial general liability, and director and officer insurance policies. The costs associated with this incident, tounsecured Term Loan Credit Agreement. During the extent not covered by insurance, are not material to the quartersix months ended June 30, 2019.2020, we used the net proceeds from the 2030 Notes and cash to repay $750.0 million under the Term Loan Credit Agreement. As of June 30, 2020, $250.0 million was outstanding under the Term Loan Credit Agreement.
On July 24, 2019,23, 2020, we announced that our Board of Directors declared a $0.35 per share dividend payable September 20, 201925, 2020 to all shareholders of record as of the close of business on September 6, 2019. Our Board11, 2020.
Impact of DirectorsCOVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a pandemic, which continues to spread throughout the U.S. and the world. The impact from the rapidly changing market and economic conditions due to the COVID-19 outbreak remains uncertain. It has disrupted the business of our customers and partners, will impact our business and consolidated results of operations and could impact our financial condition in the future. While we have not incurred significant disruptions thus far from the COVID-19 outbreak, we are unable to accurately predict the full impact that COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to the business of our customers and partners and other factors identified in Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q. We also believe that our financial resources will allow us to manage the anticipated impact of COVID-19 on our business operations for the foreseeable future, which could include reductions in revenue and delays in payments from customers and partners. However, we are continuing to monitor the situation and are reviewing our preparedness plans should we begin to experience material impacts.
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Impact of COVID-19 on our Second Quarter Results
To provide a flexible solution to help our customers manage through this period, in the first quarter of 2020, we created a short-term on-premises term subscription license at discounted prices. This limited-use license program was intended to help our customers manage through the shock to the system created by the pandemic. We phased out this short-term license program at the end of April 2020. The contribution from this limited-use license program was not material in the second quarter of 2020.
Impact of COVID-19 on our Outlook and Liquidity
With respect to the latter part of 2020 and into 2021, the broader toll COVID-19 may take on the global economy and the slope of the economic recovery is unknown. We believe that our solutions and our business model are resilient. However, given the unknown magnitude, in terms of depth and duration, of this crisis, we view the increased demand we experienced in the first half of the year, as a potential offset against what could prove to be a more challenging macroeconomic environment in the second half of the year. Longer term, we believe this global health crisis will cause companies and their employees to change the way they think about remote work. We expect business continuity and risk mitigation to rise as areas of importance in boardroom discussions and on IT priority lists. We believe a greater number of employees will expect to continue to review our capital allocation strategy for potential modificationsbe able to work remotely, at least some of the time, even as social distancing restrictions abate.
Cash from operations, accounts receivable and will determine whetherrevenues could also be affected by various risks and uncertainties, including, but not limited to, repurchase sharesthe effects of our common stock and/or declare future dividendsthe COVID-19 pandemic and other risks detailed in Part II, Item 1A titled “Risk Factors” of this Quarterly Report on Form 10-Q. However, based on our current revenue outlook, we believe that existing cash balances, together with funds generated from operations and amounts available under our revolving credit facility, will be sufficient to finance our operations and meet our foreseeable cash requirements through at least the next twelve months. We have availed ourselves of certain tax deferrals allowed pursuant to the CARES Act in the U.S. and certain tax deferrals in Switzerland, and may continue to do so in the future. We are evaluating the impact of global COVID-19-related laws and proposed laws, and while there is an impact on the timing of cash flow, no material impact to our financial performance, business outlookresults is expected as a result of legislation enacted to date. In addition, while the pandemic has not materially impacted our liquidity and capital resources to date, it has led to increased disruption and volatility in capital markets and credit markets which could adversely affect our liquidity and capital resources in the future.
Other Impacts of COVID-19
In March 2020, we directed our global workforce to work from home and severely limited all international and domestic travel. We have extended our paid time-off and sick leave benefits for employees directly impacted by COVID-19 or caring for children or a member of their household impacted by COVID-19. We provided $1,000 per employee below the Vice President level to cover expenses related to transitioning to a work from home environment, helping support local restaurants and small businesses or charities, or lessening any other considerations.potential hardship. We also offer local employee assistance program resources if needed. Certain of our offices have re-opened and we continue to monitor developments at the local level and follow mandates as required by law. For offices that have re-opened, we have implemented new protocols to ensure the safety of our employees, including face coverings, temperature checks, social distancing and capacity limits.
In response to the COVID-19 pandemic, we expect to hold our largest customer and partner event, Synergy, as a series of virtual events, and we may deem it advisable to similarly alter, postpone or cancel additional customer, employee or industry events in the future.
We have also increased funding for corporate citizenship directed donations and created a relief recovery fund for the COVID-19 outbreak, doubled our charitable match for employee donations, continued to pay vendors no longer providing on-site services, and set up virtual volunteering opportunities.
Summary of Results
For the three months ended June 30, 20192020 compared to the three months ended June 30, 2018,2019, a summary of our results included:
Total net revenue increased 6.7% to $798.9 million;
Subscription revenue increased 40.6%56.2% to $155.8$243.5 million;
SaaS revenue increased 40.7%43.2% to $91.2 million and accounted for 58.5% of total subscription revenue;$130.6 million;
Product and license revenue decreased 26.8%7.6% to $140.7$129.9 million;
Support and services revenue increased 2.9%decreased 5.9% to $452.2$425.5 million;
Gross margin as a percentage of revenue decreased 0.2%0.5% to 85.2%84.7%;
37


Operating income decreased 19.3%increased 22.7% to $117.1$143.7 million;
Diluted net income per share decreased 4.1%increased 28.6% to $0.70;$0.90;
Unbilled revenue increased $267.5$382.6 million to $484.2$866.9 million;
Subscription ARR increased $152.0$334.2 million to $614.4$948.6 million; and
SaaS ARR increased $136.0$172.0 million to $418.0$590.0 million.


Our Subscription revenue increased primarily due to increasedan increase in on-premise license demand, mostly from our Workspace offerings and our Networking offerings, primarily from pooled capacity. Also contributing to the increase is continued customer adoption of our cloud-based solutions from our Digital Workspace offerings delivered via the cloud. Our Product and license revenue decreased primarily due to lower sales of our perpetual Networking products.Workspace solutions as customers continue to shift to our subscription offerings. The increasedecrease in Support and services revenue was primarily due to increaseddecreased sales of maintenance services across our Digitalperpetual Workspace perpetualand Networking offerings and increased salesprofessional services, as more of hardware maintenance related tothe revenue is reported in the Subscription revenue line commensurate with our perpetual Networking products.subscription model transition. We currently expect total revenue to decreaseincrease when comparing the third quarter of 20192020 to the third quarter of 20182019 and when comparing the fiscal year 2020 to the fiscal year 2019 due to the acceleration of our transition to a subscription-based model. The decreaseincrease in operating income was primarily due to an increase in gross margin partially offset by higher operating expenses, as we have realigned the organization to better support our subscription model transition and have made more intentional investments in product and engineering as well as customer facing resources.expenses. The decreaseincrease in diluted net income per share was primarily due to a decreasean increase in operating margin, partially offset byincome and a decrease in the number of weighted average shares outstanding due to share repurchases. Both Subscription and SaaS ARR increased due to the acceleration of subscription bookings.
2018 Business Combinations
Sapho, Inc.

On November 13, 2018, we acquired all of the issued and outstanding securities of Sapho, Inc. (“Sapho”), whose technology is intended to advance our development of the intelligent workspace. The acquired technology enables efficient workstyles by creating a unified and customizable notification experience for business applications. The total cash consideration for this transaction was $182.7 million, net of $3.7 million cash acquired. Transaction costs associated with the acquisition were not significant.

Cedexis, Inc.
On February 6, 2018, we 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.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. We base these estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances, and these estimates form the basis for our judgments concerning the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically evaluate these estimates and judgments based on available information and experience. Actual results could differ from our estimates under different assumptions and conditions. If actual results significantly differ from our estimates, our financial condition and results of operations could be materially impacted.
For more information regarding our critical accounting policies and estimates, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operations - Critical Accounting Policies and Estimates” contained in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, or the Annual Report, and Note 2 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. There have been no material changes to the critical accounting policies disclosed in the Annual Report.

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40




Results of Operations
The following table sets forth our unaudited condensed consolidated statements of income data and presentation of that data as a percentage of change from period-to-period (in thousands):
Three Months EndedSix Months EndedThree Months Ended June 30,Six Months Ended June 30,
 June 30,June 30,
 20202019202020192020 vs. 20192020 vs. 2019
Revenues:
Subscription$243,450  $155,833  $511,686  $297,439  56.2 %72.0 %
Product and license129,933  140,654  302,791  275,676  (7.6) 9.8  
Support and services425,546  452,210  845,397  894,725  (5.9) (5.5) 
Total net revenues798,929  748,697  1,659,874  1,467,840  6.7  13.1  
Cost of net revenues:
Cost of subscription, support and services93,877  78,817  179,917  150,245  19.1  19.7  
Cost of product and license revenues20,060  21,878  41,316  47,622  (8.3) (13.2) 
Amortization of product related intangible assets8,303  9,784  16,584  20,085  (15.1) (17.4) 
Total cost of net revenues122,240  110,479  237,817  217,952  10.6  9.1  
Gross margin676,689  638,218  1,422,057  1,249,888  6.0  13.8  
Operating expenses:
Research and development140,477  134,029  274,935  264,292  4.8  4.0  
Sales, marketing and services291,511  298,429  617,620  573,084  (2.3) 7.8  
General and administrative90,808  81,162  170,907  158,709  11.9  7.7  
Amortization of other intangible assets694  3,205  1,396  6,734  (78.3) (79.3) 
Restructuring9,528  4,311  11,981  7,143  121.0  67.7  
Total operating expenses533,018  521,136  1,076,839  1,009,962  2.3  6.6  
Income from operations143,671  117,082  345,218  239,926  22.7  43.9  
Interest income589  3,870  2,194  13,544  (84.8) (83.8) 
Interest expense(17,076) (10,289) (31,687) (28,322) 66.0  11.9  
Other income (expense), net1,911  (3,420) 4,009  279  (155.9) *
Income before income taxes129,095  107,243  319,734  225,427  20.4  41.8  
Income tax expense16,189  13,748  25,606  21,584  17.8  18.6  
Net income$112,906  $93,495  $294,128  $203,843  20.8 %44.3 %
*Not meaningful

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 Three Months Ended Six Months Ended
Three Months Ended
Six Months Ended
 June 30, June 30,
June 30, 2019
June 30, 2019
 2019 2018 2019
2018
vs. June 30, 2018
vs. June 30, 2018
Revenues:           
Subscription$155,833
 $110,796
 $297,439
 $213,954
 40.6 % 39.0 %
Product and license140,654
 192,058
 275,676
 352,755
 (26.8) (21.9)
Support and services452,210
 439,511
 894,725
 872,848
 2.9
 2.5
Total net revenues748,697
 742,365
 1,467,840
 1,439,557
 0.9
 2.0
Cost of net revenues:           
Cost of subscription, support and services78,817
 67,523
 150,245
 130,908
 16.7
 14.8
Cost of product and license revenues21,878
 29,707
 47,622
 63,579
 (26.4) (25.1)
Amortization of product related intangible assets9,784
 11,519
 20,085
 22,548
 (15.1) (10.9)
Total cost of net revenues110,479
 108,749
 217,952
 217,035
 1.6
 0.4
Gross margin638,218
 633,616
 1,249,888
 1,222,522
 0.7
 2.2
Operating expenses:
 
        
Research and development134,029
 112,943
 264,292
 211,493
 18.7
 25.0
Sales, marketing and services298,429
 286,730
 573,084
 537,943
 4.1
 6.5
General and administrative81,162
 77,340
 158,709
 141,067
 4.9
 12.5
Amortization of other intangible assets3,205
 4,019
 6,734
 7,685
 (20.3) (12.4)
Restructuring4,311
 7,437
 7,143
 13,624
 (42.0) (47.6)
Total operating expenses521,136
 488,469
 1,009,962
 911,812
 6.7
 10.8
Income from operations117,082
 145,147
 239,926
 310,710
 (19.3) (22.8)
Interest income3,870
 9,402
 13,544
 18,133
 (58.8) (25.3)
Interest expense(10,289) (20,542) (28,322) (40,878) (49.9) (30.7)
Other (expense) income, net(3,420) (2,537) 279
 (5,549) 34.8
 (105.0)
Income before income taxes107,243
 131,470
 225,427
 282,416
 (18.4) (20.2)
Income tax expense13,748
 24,637
 21,584
 31,324
 (44.2) (31.1)
Net income$93,495
 $106,833
 $203,843
 $251,092
 (12.5)% (18.8)%


Revenues
Net revenues include Subscription, Product and license and Support and services revenues.
Subscription revenue relates to fees which are generally recognized ratably over the contractual term. Our subscription revenue includes SaaS, which primarily consists of subscriptions delivered via a cloudcloud-hosted service whereby the customer does not take possession of the software and hybrid subscription offerings;offerings and the related support; and non-SaaS, which consists primarily of on-premise licensing, hybrid subscription offerings, CSP services and the related support. Our hybrid subscription offerings are allocated between SaaS and non-SaaS, which are generally recognized at a point in time. For our on-premise and hybrid subscription offerings, a portion of the revenue is recognized at a point in time. In addition, our CSP program provides subscription-based services in which the CSP partners host software services to their end users. The fees from the CSP program are recognized based on usage and as the CSP services are provided to their end users.
Product and license revenue primarily represents fees related to the perpetual licensing of the following major solutions:
Digital Workspace is primarily comprised of our Application Virtualization solutions, which include Citrix Virtual Apps and Desktops, our unified endpoint management solutions, which include Citrix Endpoint Management, Citrix Content Collaboration, and Citrix Workspace; and


Networking products, which primarily include Citrix ADC and Citrix SD-WAN.
We offer incentive programs to our VADs and VARs to stimulate demand for our solutions. Product and license and Subscription revenues associated with these programs are partially offset by these incentives to our VADs and VARs.
Support and services revenue consists of maintenance and support fees primarily related to our perpetual offerings and include the following offerings:following:
Customer Success Services, which gives customers a choice of tiered support offerings that combine the elements of product version upgrades, guidance, enablement, support and proactive monitoring to help our customers and our partners fully realize their business goals. Fees associated with this offering are recognized ratably over the term of the contract; and
Hardware Maintenancemaintenance fees for our perpetual Networking products, which include technical support and hardware and software maintenance, are recognized ratably over the contract term; and
Fees from consulting services related to the implementation of our solutions, which are recognized as the services are provided; and
Fees from product training and certification, which are recognized as the services are provided.
Three Months EndedSix Months EndedThree Months Ended June 30,Six Months Ended June 30,
 June 30,June 30,
 20202019202020192020 vs. 20192020 vs. 2019
 (in thousands)
Subscription$243,450  $155,833  $511,686  $297,439  $87,617  $214,247  
Product and license129,933  140,654  302,791  275,676  (10,721) 27,115  
Support and services425,546  452,210  845,397  894,725  (26,664) (49,328) 
Total net revenues$798,929  $748,697  $1,659,874  $1,467,840  $50,232  $192,034  
 Three Months Ended Six Months Ended
Three Months Ended
Six Months Ended
 June 30, June 30,
June 30, 2019
June 30, 2019
 2019 2018 2019
2018
vs. June 30, 2018
vs. June 30, 2018
 (in thousands)  
Subscription$155,833
 $110,796
 $297,439
 $213,954
 $45,037
 $83,485
Product and license140,654
 192,058
 275,676
 352,755
 (51,404) (77,079)
Support and services452,210
 439,511
 894,725
 872,848
 12,699
 21,877
Total net revenues$748,697
 $742,365
 $1,467,840
 $1,439,557
 $6,332
 $28,283

Subscription
Subscription revenue increased for the three months ended June 30, 20192020 compared to the three months ended June 30, 20182019 primarily due to an increase in on-premise license demand of $48.2 million, mostly from our Workspace offerings of $29.7 million and our Networking offerings of $18.5 million, primarily from pooled capacity. Also contributing to the increase is continued customer adoption of our solutions delivered via the cloud of $39.4 million, primarily from our Workspace offerings.
Subscription revenue increased for the six months ended June 30, 20192020 compared to the six months ended June 30, 20182019 primarily due to increasedan increase in on-premise license demand of $137.7 million, mostly from our Workspace offerings of $90.7 million driven by business continuity sales in the first quarter of 2020 and our Networking offerings of $47.0 million, primarily from pooled capacity. Also contributing to the increase is continued customer adoption of our cloud-based solutions delivered via the cloud of $76.5 million, primarily from our Digital Workspace offerings.
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We currently expect our Subscription revenue to increase when comparing the third quarter of 20192020 to the third quarter of 20182019 as customers continue to shift to our cloud-based solutions.subscription offerings.
Product and license
Product and license revenue decreased when comparing the three months ended June 30, 20192020 to the three months ended June 30, 2018 and when comparing the six months ended June 30, 2019 to the six months ended June 30, 2018 primarily due to lower sales of our perpetual Networking products,Workspace offerings, as customers continue to shift to our subscription offerings.
Product and license revenue increased when comparing the six months ended June 30, 2020 to the six months ended June 30, 2019 primarily due to cyclical ordering patterns at large hyperscale providers andhigher sales of our customers continuing to shiftperpetual Workspace offerings of $43.8 million, mostly from business continuity sales in response to the cloud. COVID-19 pandemic in the first quarter of 2020, partially offset by lower sales of our perpetual Networking products of $16.6 million.
We currently expect our Product and license revenue to decrease when comparing the third quarter of 20192020 to the third quarter of 20182019 as customers continue to shift to our cloud-based solutionssubscription offerings and away from our Networking hardware products.products, as well as our announced plan to discontinue offering new perpetual licenses for Citrix Workspace beginning on October 1, 2020.
SupportSupport and services
Support and services revenue increaseddecreased for the three months ended June 30, 20192020 compared to the three months ended June 30, 20182019 primarily driven by increaseddue to decreased sales of maintenance services across our Digital Workspace perpetual offerings of $8.4$11.1 million, Networking perpetual offerings of $8.2 million and higher salesprofessional services of hardware maintenance related to$7.4 million, as more of the revenue is reported in the Subscription revenue line commensurate with our perpetual Networking products of $2.7 million. subscription model transition.
Support and servicesservices revenue increaseddecreased for the six months ended June 30, 20192020 compared to the six months ended June 30, 20182019 primarily driven by increaseddue to decreased sales of maintenance services across our Digital Workspace perpetual offerings. offerings of $23.2 million, Networking perpetual offerings of $12.8 million and professional services of $13.3 million, as more of the revenue is reported in the Subscription revenue line commensurate with our subscription model transition.
We currently expect our Support and services revenue to remain consistentdecrease when comparing the third quarter of 20192020 to the third quarter of 2018.2019 as customers continue to shift to our subscription offerings.
Deferred Revenue, Unbilled Revenue and Backlog
Deferred revenues arerevenue is primarily comprised of Support and services revenue from maintenance fees, which include software and hardware maintenance, technical support related to our perpetual offerings and services revenue related to our consulting contracts. Deferred revenuesrevenue also includeincludes Subscription revenue from our Content Collaboration and cloud-based subscription offerings.


Deferred revenue primarily consists of billings or payments received in advance of revenue recognition and is recognized in our condensed consolidated balance sheets and statements of income as the revenue recognition criteria are met. Unbilled revenue primarily represents future billings under our subscription agreements that have not been invoiced and, accordingly, are not recorded in accounts receivable or deferred revenue within our condensed consolidated financial statements. Deferred revenue and unbilled revenue are influenced by several factors, including new business seasonality within the year, the specific timing, size and duration of customer subscription agreements, annual billing cycles of subscription agreements, and invoice timing. Fluctuations in deferred and unbilled revenue may not be a reliable indicator of future performance and the related revenue associated with these contractual commitments.
The following table presents the amounts of deferred revenue and unbilled revenue (in thousands):
June 30, 2020December 31, 20192020 compared to 2019
Deferred revenue$1,787,630  $1,795,791  $(8,161) 
Unbilled revenue866,856  704,829  162,027  
 June 30, 2019 December 31, 2018 2019 compared to 2018
Deferred revenue$1,744,714
 $1,834,572
 $(89,858)
Unbilled revenue484,213
 338,463
 145,750
Deferred revenue decreased $89.9$8.2 million as of June 30, 20192020 compared to December 31, 20182019 primarily due to a decrease in maintenance and support of $136.3$88.1 million, primarily due to seasonality,mostly from Workspace perpetual software maintenance of $56.2 million and Networking perpetual hardware maintenance of $23.3 million, partially offset by an increase infrom subscription of $54.9$81.4 million. Unbilled revenue as of June 30, 20192020 increased $145.8$162.0 million fromfrom December 31, 20182019 primarily due to an increase in multi-year subscription agreements as a result of an increase inincreased customer adoption of our cloud-basedmulti-year subscription offerings.agreements.
41


While it is generally our practice to promptly ship our products upon receipt of properly finalized orders, at any given time, we have confirmed product license orders that have not shipped and are unfulfilled. We referBacklog includes the aggregate amounts we expect to those unfulfilledrecognize as point in time revenue in the following quarter associated with contractually committed amounts for on-premise subscription software licenses, as well as confirmed product license orders at the end of a given period as “productthat have not shipped and license backlog.”are wholly unfulfilled. As of June 30, 2020 and June 30, 2019, the amountamount of product and license backlog was not material. As of June 30, 2018, we had product and license backlog of $37.8 million. We do not believe that backlog, as of any particular date, is a reliable indicator of future performance.
International Revenues
International revenues (sales outside the United States) accounted forfor 50.7% and 47.0% and 48.0% of our net revenues for the three and six months ended June 30, 2019, respectively,2020, and 46.4% and 45.7% of our net revenues for the three and six months ended June 30, 2018,2019, respectively. The increase in our international revenues as a percentage of our net revenues for the three months ended June 30, 20192020 compared to the three months ended June 30, 20182019 was primarily driven by an increasedue to the first quarter of 2020 including a higher volume of business continuity sales in revenue inthe United States, which impacted the mix of international revenues during the second quarter of 2020.
International revenues (sales outside the United States) accounted for 49.8% and 48.0% of our EMEA region, consisting primarily of increases in Subscription of $13.0 millionnet revenues for the six months ended June 30, 2020, and Support and services of $5.9 million, partially offset by a decrease in Product and license of $12.6 million.June 30, 2019, respectively. The increasechange in our international revenues as a percentage of our net revenues for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was primarily driven by an increase in revenue in our EMEA region of $28.5 million, consisting primarily of increases in Subscription of $24.3 million and Support and services of $15.5 million, partially offset by a decrease in Product and license of $11.3 million, and an increase in revenue in our APJ region of $10.5 million, consisting primarily of increases in Product and license of $6.0 million and Subscription of $4.9 million.not significant. See Note 10 to our condensed consolidated financial statements for detailed information on net revenues by geography.
Cost of Net Revenues
Three Months Ended Six Months Ended Three Months Ended Six Months EndedThree Months EndedSix Months EndedThree Months Ended June 30,Six Months Ended June 30,
June 30, June 30, June 30, 2019 June 30, 2019 June 30,June 30,
2019 2018 2019 2018 vs. June 30, 2018 vs. June 30, 2018 20202019202020192020 vs. 20192020 vs. 2019
(In thousands) (In thousands)
Cost of subscription, support and services revenues$78,817
 $67,523
 $150,245
 $130,908
 $11,294
 $19,337
Cost of subscription, support and services revenues$93,877  $78,817  $179,917  $150,245  $15,060  $29,672  
Cost of product and license revenues21,878
 29,707
 47,622
 63,579
 (7,829) (15,957)Cost of product and license revenues20,060  21,878  41,316  47,622  (1,818) (6,306) 
Amortization of product related intangible assets9,784
 11,519
 20,085
 22,548
 (1,735) (2,463)Amortization of product related intangible assets8,303  9,784  16,584  20,085  (1,481) (3,501) 
Total cost of net revenues$110,479
 $108,749
 $217,952
 $217,035
 $1,730
 $917
Total cost of net revenues$122,240  $110,479  $237,817  $217,952  $11,761  $19,865  
Cost of subscription, support and services revenues consists primarily of compensation and other personnel-related costs of providing technical support, consulting and cloud capacity costs, as well as the costs related to providing our offerings


delivered via the cloud. Cost of product and license revenues consists primarily of hardware, shipping expense, royalties, product media and duplication, manuals and packaging materials. Also included in Costcost of net revenues is amortization of product related intangible assets.
Cost of subscription, support and services revenues increasedincreased for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 and for the six months ended June 30, 20192020 compared to the three and six months ended June 30, 20182019 primarily due to an increase in costs related to providing our subscription offerings. We currently expect Cost of subscription, support and services revenues to increase when comparing the third quarter of 20192020 to the third quarter of 2018,2019, consistent with the expected increases in Subscription revenue as discussed above.
Cost of product and license revenues decreased for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 and for the six months ended June 30, 20192020 compared to the three and six months ended June 30, 20182019 primarily due to lower overall sales of our perpetual Networking products, which contain hardware components that have a higher cost than our software products. We currently expect Cost of product and license revenues to decrease when comparing the third quarter of 20192020 to the third quarter of 2018,2019, consistent with the expected decrease in Product and license revenue.
Amortization of product related intangible assets decreased for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 and for the six months ended June 30, 20192020 compared to the three and six months ended June 30, 20182019 primarily due to lower amortization of certain intangible assets becoming fully amortized.
Gross Margin
Gross margin as a percentage of revenue was 85.2%84.7% for the three months ended June 30, 2020, and 85.2% for the three and six months ended June 30, 2019, respectively, and 85.4% and 84.9%85.7% for the three and six months ended June 30, 2018,2020, and 85.2% for the six months ended June 30, 2019, respectively. The change in gross margin when comparing the three and six months ended June 30, 20192020 to June 30, 20182019 was not significant.
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Operating Expenses
Foreign Currency Impact on Operating Expenses
The functional currency for all of our wholly-owned foreign subsidiaries is the U.S. dollar. A substantial majority of our overseas operating expenses and capital purchasing activities are transacted in local currencies and are therefore subject to fluctuations in foreign currency exchange rates. In order to minimize the impact on our operating results, we generally initiate our hedging of currency exchange risks up to 12 months in advance of anticipated foreign currency expenses. 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 our 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 our hedging contracts. There is a risk that there will be fluctuations in foreign currency exchange rates beyond the timeframetime frame for which we hedge our risk.
Research and Development Expenses
Three Months EndedSix Months EndedThree Months Ended June 30,Six Months Ended June 30,
 June 30,June 30,
 20202019202020192020 vs. 20192020 vs. 2019
 (In thousands)
Research and development$140,477  $134,029  $274,935  $264,292  $6,448  $10,643  
 Three Months Ended Six Months Ended Three Months Ended Six Months Ended
 June 30, June 30, June 30, 2019 June 30, 2018
 2019 2018 2019 2018 vs. June 30, 2018 vs. June 30, 2018
 (In thousands)  
Research and development$134,029
 $112,943
 $264,292
 $211,493
 $21,086
 $52,799
Research and development expenses consist primarily of personnel related costs and facility and equipment costs directly related to our research and developmentdevelopment activities. We expensed substantially all development costs included in the research and development of our products.
Research and development expenses increased during the three months ended June 30, 20192020 compared to the three months ended June 30, 20182019 primarily due to an increase in compensation and other employee-related costs of $9.3 million related to a net increase in headcount and an increase in stock-based compensation of $7.7 million.compensation. Research and development expenses increased during the six months ended June 30, 20192020 compared to the six months ended June 30, 20182019 primarily due to an increase in stock-based compensation of $24.7 million and an increase in compensation and other employee-related costs of $19.6 million related to a net increase in headcount.

44



Sales, Marketing and Services Expenses
 Three Months Ended Six Months Ended Three Months Ended Six Months Ended
 June 30, June 30, June 30, 2019 June 30, 2019
 2019 2018 2019 2018 vs. June 30, 2018 vs. June 30, 2018
 (In thousands)  
Sales, marketing and services$298,429
 $286,730
 $573,084
 $537,943
 $11,699
 $35,141
Three Months EndedSix Months EndedThree Months Ended June 30,Six Months Ended June 30,
 June 30,June 30,
 20202019202020192020 vs. 20192020 vs. 2019
 (In thousands)
Sales, marketing and services$291,511  $298,429  $617,620  $573,084  $(6,918) $44,536  
Sales, marketing and services expenses consist primarily of personnel related costs, including sales commissions, pre-sales support, the costs of marketing programs aimed at increasing revenue, such as brand development, advertising, trade shows, public relations and other market development programs and costs related to our facilities, equipment, information systems and pre-sale demonstration related cloud capacity costs that are directly related to our sales, marketing and services activities.
Sales, marketing and servicesservices expenses increaseddecreased during the three months ended June 30, 20192020 compared to the three months ended June 30, 20182019 primarily due to the cancellation of in-person events in response to the COVID-19 pandemic of $15.1 million, including our largest customer and partner event, Synergy, and replacing them with virtual events or postponing to future periods. This decrease was partially offset by an increase in stock-based compensation of $4.8 million, an increase in compensation and other employee-relatedmarketing program costs of $3.7 million due to a net increase in sales and services headcount, and an increase in professional fees of $2.0$9.7 million. Sales,
Sales, marketing and services expenses increased during the six months ended June 30, 20192020 compared to the six months ended June 30, 20182019 primarily due to the impact from the COVID-19 pandemic, which included an increase in stock-basedvariable compensation of $11.2$39.6 million driven by an increase in compensationdemand of limited use licenses and other employee-related costs of $10.4 million due to a net increase inongoing business continuity sales, and services headcount, and an increase in professional feesmarketing programs of $5.1$10.7 million. These increases were partially offset by a decrease in costs of $12.6 million related to the cancellation of in-person events in response to the COVID-19 pandemic, including our largest customer and partner event, Synergy, and replacing them with virtual events or postponing to future periods.
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General and Administrative Expenses
 Three Months Ended Six Months Ended Three Months Ended Six Months Ended
 June 30, June 30, June 30, 2019 June 30, 2019
 2019 2018 2019 2018 vs. June 30, 2018 vs. June 30, 2018
 (In thousands)  
General and administrative$81,162
 $77,340
 $158,709
 $141,067
 $3,822
 $17,642
Three Months EndedSix Months EndedThree Months Ended June 30,Six Months Ended June 30,
 June 30,June 30,
 20202019202020192020 vs. 20192020 vs. 2019
 (In thousands)
General and administrative$90,808  $81,162  $170,907  $158,709  $9,646  $12,198  
General and administrative expenses consist primarily of personnel related costs and expenses related to outside consultants assisting with information systems, as well as accounting and legal fees.
General and administrativeadministrative expenses increased during the three months ended June 30, 20192020 compared to the three months ended June 30, 20182019 primarily due to stock-based compensation costs of $7.6 million, an increase in compensation and employee-related costs of $3.2 million, and an increase in credit loss expense of $2.4 million, primarily due to the impact of the COVID-19 pandemic. These increases were partially offset by a decrease in professional fees. fees of $4.8 million.
General and administrative expenses increased during the six months ended June 30, 20192020 compared to the six months ended June 30, 20182019 primarily due to the impact from the COVID-19 pandemic, which included an increase in professional feescredit loss expense of $9.1$8.8 million, and an increase in compensation and other employee-related costs of $4.7$8.1 million, an increase in stock-based compensation costs of $5.9 million, and an increase in charitable contributions of $5.6 million. These increases were partially offset by a decrease in professional fees of $15.1 million.
Restructuring Expenses
Three Months EndedSix Months EndedThree Months Ended June 30,Six Months Ended June 30,
June 30,June 30,
20202019202020192020 vs. 20192020 vs. 2019
(In thousands)
Restructuring$9,528  $4,311  $11,981  $7,143  $5,217  $4,838  
Restructuring expenses increased during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to the impairment of a net increaseright-of-use ("ROU") asset related to a restructuring facility of $8.9 million as a result of the COVID-19 pandemic, partially offset by a decrease in headcount.employee severance and related costs of $3.7 million.
Restructuring expenses increased during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the impairment of an ROU asset related to a restructuring facility of $8.9 million as a result of the COVID-19 pandemic, partially offset by a decrease in employee severance and related costs of $4.0 million.
2019See Note 17 to our condensed consolidated financial statements for additional details regarding our restructuring charges.
2020 Operating Expense Outlook
When comparing the third quarter of 20192020 to the third quarter of 2018,2019, we currently expect Operating expenses to increase with respect to sales, marketing and services expenses due to our continued investment in demand generation,to support our cloud transition and to better serve customer success. We also expect an increase with respect to research and development expenses as we continue to invest in product and engineering, and remain consistent with respect to general and administrativehigher compensation related expenses.
Interest Income
 Three Months Ended Six Months Ended
Three Months Ended
Six Months Ended
 June 30, June 30,
June 30, 2019
June 30, 2019
 2019 2018 2019
2018
vs. June 30, 2018
vs. June 30, 2018
 (In thousands)  
Interest income$3,870
 $9,402
 $13,544
 $18,133
 $(5,532) $(4,589)
Three Months EndedSix Months EndedThree Months Ended June 30,Six Months Ended June 30,
 June 30,June 30,
 20202019202020192020 vs. 20192020 vs. 2019
 (In thousands)
Interest income$589  $3,870  $2,194  $13,544  $(3,281) $(11,350) 
InterestInterest income primarily consists of interest earned on our cash, cash equivalents and investment balances. Interest income decreased for the three andmonths ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to lower yields on investments as a result of lower interest rates.
Interest income decreased for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 compared to the three and six months ended June 30, 2018


primarily due to lower average balances of cash, cash equivalents and investment balancesinvestments as a result of the repayment of the outstanding principal balance of our Convertible Notes on April 15, 2019.2019, as well as lower yields on investments as a result of lower interest rates. See Note 6 to our condensed consolidated financial statements for additional details regarding our investments.
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Interest Expense
Three Months EndedSix Months EndedThree Months Ended June 30,Six Months Ended June 30,
 June 30,June 30,
 20202019202020192020 vs. 20192020 vs. 2019
 (In thousands)
Interest expense$(17,076) $(10,289) $(31,687) $(28,322) $(6,787) $(3,365) 
 Three Months Ended Six Months Ended Three Months Ended Six Months Ended
 June 30, June 30, June 30, 2019 June 30, 2019
 2019 2018 2019 2018 vs. June 30, 2018 vs. June 30, 2018
 (In thousands)  
Interest expense$(10,289) $(20,542) $(28,322) $(40,878) $10,253
 $12,556
Interest expense primarily consists of interest paid on our Convertible2027 and 2030 Notes, 2027 NotesTerm Loan Credit Agreement and our credit facility. Interest expense decreasedincreased for the three and sixmonths ended June 30, 2020 compared to the three months ended June 30, 2019 comparedprimarily due to the threeinterest expense from our outstanding 2030 Notes and six months ended June 30, 2018Term Loan Credit Agreement of $8.3 million, partially offset by a decrease in interest expense from our Convertible Notes of $1.5 million due to the repayment of the outstanding principal balance on April 15, 2019.
Interest expense increased for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to interest expense from our outstanding 2030 Notes and Term Loan Credit Agreement of $14.1 million, partially offset by a decrease in interest expense from our Convertible Notes of $10.8 million due to the repayment of the outstanding principal balance on April 15, 2019. See Note 11 to our condensed consolidated financial statements for additional details regarding our debt.
Other (Expense) Income, Netincome (expense), net
Three Months EndedSix Months EndedThree Months Ended June 30,Six Months Ended June 30,
 June 30,June 30,
 20202019202020192020 vs. 20192020 vs. 2019
 (In thousands)
Other income (expense), net$1,911  $(3,420) $4,009  $279  $5,331  $3,730  
 Three Months Ended Six Months Ended Three Months Ended Six Months Ended
 June 30, June 30, June 30, 2019 June 30, 2019
 2019 2018 2019 2018 vs. June 30, 2018 vs. June 30, 2018
 (In thousands)  
Other (expense) income, net$(3,420) $(2,537) $279
 $(5,549) $(883) $5,828
Other (expense) income (expense), net is primarily comprised of gains (losses) from remeasurement of foreign currency transactions, sublease income, realized losses related to changes in the fair value of our investments that have a decline in fair value considered other-than-temporary and recognized gains (losses) related to our investments, which was not material for all periods presented.
The change in Other (expense) income (expense), net during the threethree and six months ended June 30, 20192020 compared to the three months ended June 30, 2018 was not significant. The change in Other (expense) income, net during theand six months ended June 30, 2019 compared to the six months ended June 30, 2018 wasis primarily driven by gains from fair value adjustments on our investments accounted for using net asset value of $2.3 million, realized gains on our available-for-sale investments of $1.9 millionthe remeasurement and gains from the remeasurementsettlement of foreign currency transactions of $1.1 million.transactions.
Income Taxes
We are required to estimate our income taxes in each of the jurisdictions in which we operate as part of the process of preparing our condensed consolidated financial statements. We maintain certain strategic management and operational activities in overseas subsidiaries and our foreign earnings are taxed at rates that are generally lower than in the United States.
Our effective tax rate generally differs from the U.S. federal statutory rate primarily due to tax credits and lower tax rates on earnings generated by our foreign operations that are taxed primarily in Switzerland.
Our effective tax rate was 12.8%12.5% and 18.7%12.8% for the three months ended June 30, 2020 and 2019, and 2018, respectively. The decrease in the effective tax rate whenWhen comparing the three months ended June 30, 20192020 to the three months ended June 30, 2018 was primarily due to2019, the effective tax items unique to the period ended June 30, 2018, as well as additional tax benefit from stock-based compensation deductions in the period ended June 30, 2019.rate did not materially change.
Our effective tax rate was 9.6%8.0% and 11.1%9.6% for the six months ended June 30, 20192020 and 2018,2019, respectively. The decrease in the effective tax rate when comparing the six months ended June 30, 20192020 to the six months ended June 30, 20182019 was primarily due to an increase in the discrete tax items unique tobenefits for share-based payments and a tax benefit for the impact of the closure of a California audit during the six month period ended June 30, 2018, as well as additional tax benefit from stock-based compensation deductions in the period ended June 30, 2019.
Our net unrecognized tax benefits totaled $101.6 million and $89.9 million as of June 30, 2019 and December 31, 2018, respectively. At June 30, 2019, $74.8 million included in the balance for tax positions would affect the annual effective tax rate if recognized. We have $6.0 million accrued for the payment of interest as of June 30, 2019.


On July 24, 2018, the U.S. Ninth Circuit Court of Appeals overturned the U.S. Tax Court’s unanimous decision in Altera v. Commissioner, where the Tax Court held the Treasury regulation requiring participants in a qualified cost sharing arrangement to share stock-based compensation costs to be invalid. On August 7, 2018, the U.S. Ninth Circuit Court of Appeals, on its own motion, withdrew its July 24, 2018 opinion to allow time for a reconstituted panel to confer. Given the increased uncertainty as to the Ninth Circuit panel's eventual ruling and the impact it will have on the Internal Revenue Service’s ability to challenge the technical merits of our position, we accrued amounts for this uncertain tax position as of the year ended December 31, 2018.
On June 7, 2019, a reconstituted panel issued a new opinion which again reversed the Tax Court's holding in Altera v. Commissioner and upheld a 2003 regulation that requires participants in a cost-sharing arrangement to share stock-based compensation costs. The Ninth Circuit panel concluded that the 2003 regulations were valid under the Administrative Procedure Act. Since we previously accrued amounts for this uncertain tax position, there were no changes to our position or treatment of our cost-sharing arrangements in the current period. On July 22, 2019, Altera Corp. filed an appeal with the Ninth Circuit to rehear this case, which is ongoing. Therefore, the case's final disposition may result in a benefit for us in the future if the case is reversed.
We and one or more of our subsidiaries are subject to U.S. federal income taxes in the United States, as well as income taxes of multiple state and foreign jurisdictions. We are not currently under examination by the United States Internal Revenue Service. With few exceptions, we are generally not subject to examination for state and local income tax, or in non-U.S. jurisdictions, by tax authorities for years prior to 2015.2020.
Our U.S. liquidity needs are currently satisfied using cash flows generated from our U.S. operations, borrowings, or both. We also utilize a variety of tax planning strategies in an effort to ensure that itsour worldwide cash is available in locations in which it is needed. We expect to repatriate a substantial portion of our 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 June 30, 2019, we had $114.6 million in net deferred tax assets. The authoritative guidance requires a valuation allowance See Note 14 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. We review 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 our determination change in the future, we could be required to revise our estimates of the valuation allowances against our deferred tax assets and adjust our provisionscondensed consolidated financial statements for additional details regarding our income taxes.
45


Liquidity and Capital Resources
During the six months ended June 30, 2020, we generated operating cash flows of $703.4 million. These operating cash flows related primarily to net income of $294.1 million, adjusted for, among other things, non-cash charges, stock-based compensation expense of $143.7 million and depreciation and amortization expenses of $104.9 million and a change in operating assets and liabilities of $160.2 million. The change in our operating assets and liabilities was mostly the result of an inflow from accounts receivable of $95.3 million, primarily due to an increase in collections from prior period sales, an inflow from accrued expenses and other current liabilities of $38.0 million, primarily due to an increase in employee-related accruals, and an inflow from accounts payable of $37.9 million, primarily due to cloud hosting fees. These inflows are partially offset by an outflow in other assets of $39.5 million, primarily due to an increase in capitalized commissions from higher subscription sales. Our investing activities used $289.7 million of cash consisting primarily of net purchases of investments of $265.4 million and cash paid for the purchase of property and equipment of $21.1 million. Our financing activities used cash of $400.2 million primarily for stock repurchases of $1.00 billion, amounts paid for but not settled under our accelerated stock repurchase program of $200.0 million, cash paid for tax withholding on vested stock awards of $101.2 million and cash dividends on our common stock of $86.1 million. These outflows are partially offset by net proceeds from the issuance of our 2030 Notes of $738.1 million and net borrowings from our Term Loan Credit Agreement of $248.8 million.
During the six months ended June 30, 2019, we generated operating cash flows of $429.9 million. These operating cash flows related primarily to net income of $203.8 million, adjusted for, among other things, non-cash charges, stock-based compensation expense of $133.6 million, depreciation and amortization expenses of $109.1 million, and deferred income tax expense of $18.9 million. Partially offsetting these cash inflows was a change in operating assets and liabilities of $50.3 million, net of effect of our acquisitions.million. The change in our net operating assets and liabilities was primarily a result of an outflow in deferred revenue of $89.9 million, an outflow in income taxes, net of $67.3 million due to decreases in income taxes payable, and an outflow in accrued expenses and other current liabilities of $62.8 million, primarily due to decreases in employee-related accruals of $39.7 million and payments on lease liabilities of $27.1 million. These outflows are partially offset by an inflow in accounts receivable of $155.2 million driven by an increase in collections and an inflow from prepaid expenses and other current assets of $22.7 million, primarily due to decreases from prepaid cloud commitment agreements. Our investing activities provided $1.03 billion of cash consisting primarily of cash received from the net proceeds from the sale of investments of $1.07 billion, partially offset by cash paid for the purchase of property and equipment of $38.1 million. Our financing activities used cash of $1.58 billion primarily due to the cash repayment of the outstanding principal balance of our Convertible Notes of $1.16 billion, stock repurchases of $250.0 million, cash dividends on our common stock of $91.9 million and cash paid for tax withholding on vested stock awards of $70.6 million.

Term Loan Credit Agreement

On January 21, 2020, we entered into the Term Loan Credit Agreement with Bank of America, N.A., as administrative agent, and the other lenders party thereto from time to time (collectively, the “Lenders”).The Term Loan Credit Agreement provides us with facilities to borrow term loans on an unsecured basis in an aggregate principal amount of up to $1.00 billion, consisting of (1) a $500.0 million 364-day Term Loan, and (2) a $500.0 million 3-year Term Loan, in each case in a single borrowing, subject to satisfaction of certain conditions set forth in the Term Loan Credit Agreement. On January 30, 2020, we borrowed $1.00 billion under the term loans and used the proceeds to enter into ASR transactions with each of the Dealers for an aggregate of $1.00 billion. See Notes 11 and 15 to our condensed consolidated financial statements for additional details on the Term Loan Credit Agreement and ASR.
Senior Notes
On February 25, 2020, we issued $750.0 million of unsecured senior notes due March 1, 2030. The 2030 Notes accrue interest at a rate of 3.300% per annum. Interest on the 2030 Notes is due semi-annually on March 1 and September 1 of each year, beginning on September 1, 2020. The net proceeds from this offering were $738.1 million, after deducting the underwriting discount and estimated offering expenses payable by us. Net proceeds from this offering were primarily used to repay amounts outstanding under our Term Loan Credit Agreement. The 2030 Notes will mature on March 1, 2030, unless earlier redeemed in accordance with their terms prior to such date.
During the six months ended June 30, 2018,2020, we generated operating cash flows of $528.0 million. These operating cash flows related primarily to net income of $251.1 million, adjusted for, among other things, non-cash charges, stock-based compensation expense of $91.6 million, depreciation and amortization expenses of $86.3 million, the effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies of $6.0 million and deferred income tax expense of $5.8 million. Also contributing to these cash inflows was a change in operating assets and liabilities of $62.2 million, net of effect of our acquisitions. The change in our net operating assets and liabilities was primarily a result of an inflow in accounts receivable of $182.5 million driven by an increase in collections from higher prior period bookings. This inflow is partially offset by an outflow in income taxes, net of $72.4 million due to decreases in income taxes payable and an increase in prepaid taxes, as well as changes in deferred revenue of $41.1 million primarily due to the upfront recognition of term licenses per the new revenue standard as well as seasonality. Our investing activities provided $202.4 million of cash consisting primarily of cash received fromused the net proceeds from the sale of investments of $302.6 million, partially offset by cash paid for acquisitions of $66.0 million2030 Notes and cash paid forto repay $500.0 million under the purchase364-day Term Loan and $250.0 million under the 3-year Term Loan. As of property and equipment of $32.9 million. Our financing activities used cash of $820.5June 30, 2020, $250.0 million primarily due to cash paid for stock repurchases of $765.0 million and cash paid for tax withholding on vested stock awards of $49.9 million.
Senior Noteswas outstanding under the 3-year Term Loan.
On November 15, 2017, we issued $750.0 million of the 2027 Notes. The 2027 Notes accrue interest at a rate of 4.5%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 us. Net proceeds from this offering were used to repurchase shares of our common stock through an ASR transaction which we entered into with the ASR Counterparty on November 13, 2017. The 2027 Notes will mature on December 1, 2027, unless earlier redeemed or repurchased in accordance with their terms prior
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to such date. We may redeem the 2027 Notes at our 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 (a) 100% of the aggregate principal amount of the 2027 Notes to be redeemed and (b) 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 us 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. See Note 11 to our condensed consolidated financial statements for additional details on the 2030 Notes and the 2027 Notes.
Credit Facility
On January 7, 2015,November 26, 2019, we entered into aan amended and restated credit agreement (the "Credit Agreement") with Banka group of America, N.A., as Administrative Agent,financial institutions, which amended and the other lenders party thereto from time to time collectively, the Lenders.restated our existing credit agreement, dated January 7, 2015. The Credit Agreement provides for a $250.0 millionfive year unsecured revolving credit facility for a termin the aggregate amount of five years.$250.0 million, subject to continued covenant compliance. We 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. The proceeds of borrowings under the Credit Agreement may be used for working capital and general corporate purposes, including acquisitions. Borrowings under the Credit Agreement will bear interest at a rate equal to either (a) a customary London interbank offered rate formula or (b) a customary base rate formula, plus the applicable margin with respect thereto, in each case as set forth in the Credit Agreement. As of June 30, 2019, there was2020, no amountamounts were outstanding under the credit facility.
The Credit Agreement contains certain financial covenants that require us 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. The Credit Agreement includes customary events of default, with corresponding grace periods in certain circumstances, including, without limitation, payment defaults, cross-defaults, the occurrence of a change of control and bankruptcy-related defaults. The Lenders are entitled to accelerate repayment of the loans under the Credit Agreement upon the occurrence of any of the events of default. In addition, the Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our ability to grant liens, merge or consolidate, dispose of all or substantially all of our assets, change our business and incur subsidiary indebtedness, in each case subject to customary exceptions for a credit facility of this size and type. We were in compliance with these covenants as of June 30, 2019. In addition, the Credit Agreement contains customary representations and warranties. Please see See Note 11 to our condensed consolidated financial statements for additional details on ourthe Credit Agreement.Agreement.
Convertible Notes
During 2014, we completed a private placement of approximately $1.44 billion principal amount of 0.500% Convertible Notes due 2019. As of October 15, 2018, we had 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, we made cash payments of this aggregate principal amount and delivered 1.3 million newly issued shares of our common stock in respect of the remainder of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted, in full satisfaction of such converted notes. We received shares of our common stock under the Bond Hedges that offset the issuance of shares of common stock upon conversion of the Convertible Notes. 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. 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 governing the Convertible Notes, on April 15, 2019 we paid $1.16 billion in the outstanding aggregate principal amount of the Convertible Notes and delivered 4.9 million newly issued shares of our common stock in respect of the remainder of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted, in full satisfaction of such converted notes. We received shares of our common stock under the Bond Hedges that offset the issuance of shares of common stock upon conversion of the Convertible Notes. Please see Note 11 to our condensed consolidated financial statements for additional details on our Convertible Notes and Bond Hedges.
Historically, significant portions of our cash inflows were generated by our operations. We currently expect this trend to continue throughout 2019.2020. We believe that our existing cash and investments together with cash flows expected from operations will be sufficient to meet expected operating and capital expenditure requirements and service our debt obligations for the next 12 months. For additional information, see section titled Impact of COVID-19 Pandemic above. We continue to search for suitable acquisition candidates and could acquire or make investments in companies we believe are related to our strategic objectives. We could from time to time continue to seek to raise additional funds through the issuance of debt or equity securities for larger acquisitions and for general corporate purposes.
Cash, Cash Equivalents and Investments 
 June 30, 2019 December 31, 2018 2019 Compared to 2018
 (In thousands)
Cash, cash equivalents and investments$593,629
 $1,776,700
 $(1,183,071)
June 30, 2020December 31, 20192020 Compared to 2019
 (In thousands)
Cash, cash equivalents and investments$880,318  $605,456  $274,862  
The decreaseincrease in Cash, cash equivalents and investments when comparing June 30, 20192020 to December 31, 2018,2019, is primarily due to the cash repaymentreceived from debt offerings of the outstanding principal amount$987.0 million and cash provided by operating activities of our Convertible Notes of $1.16 billion,$703.4 million, partially offset by the cash paid for stockshare repurchases of $250.0 million, cash dividends on$1.00 billion, amounts paid for but not settled under our commonaccelerated stock repurchase program of $91.9$200.0 million, cash paid for tax withholding on vested stock awards of $70.6$101.2 million, cash dividends on our common stock of $86.1 million and cash paid for property and equipment of $38.1 million, partially offset by cash provided by operating activities of $429.9$21.1 million.
As of June 30, 2019, $346.12020, $413.3 million of the $593.6$880.3 million of Cash, cash equivalents and investments was held by our foreign subsidiaries. As a result of the Tax Cuts and Jobs Act, which became effective January 1, 2018, theThe cash, cash equivalents and investments held by our foreign subsidiaries can be repatriated without incurring any additional U.S. federal tax. Upon repatriation of these funds, we could be subject to foreign and U.S. state income taxes. The amount of taxes due is dependent on the amount and manner of the repatriation, as well as the locations from which the funds are repatriated and received. We generally invest our cash and cash equivalents in investment grade, highly liquid securities to allow for flexibility in the event of immediate cash needs. Our short-term and long-term investments primarily consist of interest-bearing securities.
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Stock Repurchase Programs
Our Board of Directors authorized an ongoing stock repurchase program, of which $750.0 million$1.00 billion was approved in October 2018.January 2020. We may use the approved dollar authority to repurchase stock at any time until the approved amount is exhausted. The objective of the stock repurchase program is to improve stockholders’ returns. At June 30, 2019, $517.92020, $914.1 million ($714.1 million after taking into consideration the contracted but undelivered shares under the ASR of $200.0 million) was available to repurchase common stock pursuant to the stock repurchase program. We may repurchase shares under this program in future periods depending on a variety of factors, including among other things, macroeconomic factors, market conditions and business priorities.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, andthe 2027 Notes offerings,and the Term Loan Credit Agreement as well as proceeds from employee stock awards and the related tax benefit. We are authorized to make purchases of our 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,On January 30, 2020, we enteredused the proceeds from our Term Loan Credit Agreement to enter into an ASR transaction with a counterparty to paygroup of Dealers for an aggregate of $750.0 million in exchange for$1.00 billion. Under the ASR transactions, we received an initial share delivery of approximately 6.5 million shares of our common stock, based on current market prices. The purchase price per share underwith the remainder, if any, delivered upon completion of the ASR wastransactions. The total number of shares of common stock that we will repurchase under each ASR agreement will be based on the average of the daily volume-weighted average priceprices of our common stock during the term of the applicable ASR agreement, less a discount. The ASR was entered into pursuantAt settlement, each Dealer may be required to deliver additional shares of common stock to us, under certain circumstances, we may be required to deliver shares of common stock, at our existing share repurchase program.election, or make a cash payment to the applicable Dealer. Final settlement of the ASR agreement wasis expected to be completed in April 2018 andby the end of the third quarter of 2020. See Note 15 to our condensed consolidated financial statements for detailed information on the ASR.
During the three months ended June 30, 2020, we received delivery of an additional 1.6made no open market purchases under the stock repurchase program. During the six months ended June 30, 2020, we expended $199.9 million on open market purchases under the stock repurchase program, repurchasing 1,731,500 shares of our common stock.


stock at an average price of $115.45.
During the three months ended June 30, 2019, we expended approximately $156.2 million on open market purchases under the stock repurchase program, repurchasing 1,599,822 shares of common stock at an average price of $97.63. During the six months ended June 30, 2019, we expended approximately $250.0 million on open market purchases under the stock repurchase program, repurchasing 2,510,882 shares of common stock at an average price of $99.57.
During the three and six months ended June 30, 2018, we expended approximately $15.0 million on open market purchases under the stock repurchase program, repurchasing 0.1 million shares of common stock at an average price of $106.83.
Shares for Tax Withholding
During the three and six months ended June 30, 2019,2020, we withheld 104,129 shares256,376 and 698,117739,600 shares, respectively, from equity awards that vested, totaling $10.4$35.8 million and $70.6$101.2 million, respectively, to satisfy minimum tax withholding obligations that arose on the vesting of such equity awards. During the three and six months ended June 30, 2018,2019, we withheld 30,502 shares104,129 and 537,776698,117 shares, respectively, from equity awards that vested, totaling $3.0$10.4 million and $49.9$70.6 million respectively, to satisfy minimum tax withholding obligations that arose on the vesting of such equity awards. These shares are reflected as treasury stock in our condensed consolidated balance sheets and the related cash outlays do not reduce our total stock repurchase authority.
Contractual Obligations
With the exception of the new Term Loan Credit Agreement entered into on January 21, 2020, consisting of a $500.0 million 364-day Term Loan, and a $500.0 million 3-year Term Loan, and the $750.0 million 2030 Senior Notes issued on February 25, 2020, as discussed above under the subheading “Liquidity and Capital Resources”, there have been no material changes, outside the ordinary course of business to our contractual obligations since December 31, 2019. As of June 30, 2020, $250.0 million in principal amount was outstanding under the 3-year Term Loan. For further information, see “Contractual Obligations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Other Purchase Commitments
In June 2019,May 2020, we entered into an amended agreement with a third-party provider, in the ordinary course of business, with a third-party provider for ourthe use of certain cloud services through June 2021.2029. Under the amendedamended agreement, we are committed to a purchase of $25.0$1.00 billion throughout the term of the agreement. As of June 30, 2020, we had $987.9 million in fiscal year 2019 and $25.0 million in fiscal year 2020. of remaining obligations under the purchase agreement.
Off-Balance Sheet Arrangements
We do not have any special purpose entities or off-balance sheet financing arrangements.

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes during the quarter ended June 30, 20192020 with respect to the information appearing in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
ITEM 4.CONTROLS AND PROCEDURES
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of June 30, 2019,2020, our management, with the participation of our principal executive and principal financial officers, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our principal executive officer and our principal financial officer concluded that, as of June 30, 2019,2020, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such material information is accumulated by and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the three months ended June 30, 2019,2020, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
ITEM 1.LEGAL PROCEEDINGS
We are subject to various legal proceedings, including suits, assessments, regulatory actions and investigations. We believe that we have meritorious defenses in these matters; however, we are unable currently to determine the ultimate outcome of these or similar matters or the potential exposure to loss, if any. In addition, due to the nature of our business, we are subject to various litigation matters, including patent infringement claims alleging infringement by various Citrix products and services. We believe that we have meritorious defenses to the allegations made in our pending cases and intend to vigorously defend these lawsuits; however, we are unable currently to determine the ultimate outcome of these or similar matters or the potential exposure to loss, if any. Although it is difficult to predict the ultimate outcomes of these cases, we believe that outcomes that will materially and adversely affect our business, financial position, results of operations or cash flows are reasonably possible, but not estimable at this time.
We were the victim of a cyberattack, in which international cyber criminals gained intermittent access to our 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 our consulting practice. We recently conducted an investigation, and we are reviewing documents and files that may have been accessed or were stolen in this incident. Please also see Management’s Discussion and Analysis - Executive Summary.
Although it is difficult to predict the ultimate outcomes of this cyberattack, to date, three putative class action lawsuits have been filed against us in the United States District Court for the Southern District of Florida. These matters, Howard v. Citrix, Jackson and Sargent v. Citrix, and Ramus, Young and Charles v. Citrix, were filed on May 24, 2019, May 30, 2019, and June 23, 2019, respectively, and have been consolidated. The plaintiffs, who purport to represent various classes of our current and former employees (and their dependents), generally claim to have been harmed by our alleged actions and/or omissions in connection with this incident and their personal data. They assert a variety of common law and statutory claims seeking monetary damages or other related relief.
We are unable to currently determine the ultimate outcome of these proceedings or the potential exposure or loss, if any, because the legal proceedings remain in the early stages, there is uncertainty as to the likelihood of a class or classes being certified or the ultimate size of any class if certified, and there are significant factual and legal issues to be resolved. 
Beyond the matters described above, we believe that it is reasonably possible that outcomes from potential unasserted claims related to this cyberattack could materially and adversely affect our business, financial position, results of operations or cash flows. However, it is not possible to estimate the amount or a range of potential loss, if any, at this time, and we will continue to evaluate information as it becomes known and will record an accrual for estimated losses at the time or times it is determined that a loss is both probable and reasonably estimable.
Further, we have 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, we maintain customary business coverage under our crime, commercial general liability, and director and officer insurance policies.

On July 25, 2019, a class action lawsuit was filed against Citrix, LogMeIn and certain of their directors and officers in the Circuit Court of the 15th Judicial Circuit, Palm Beach County, Florida. The complaint alleges that the defendants violated federal securities laws by making alleged misstatements and omissions in LogMeIn’s Registration Statement and Prospectus filed in connection with the 2017 spin-off of Citrix’s GoTo family of service offerings and subsequent merger of that business with LogMeIn. The complaint seeks among other things the recovery of monetary damages. On April 28, 2020, the defendants filed motions to dismiss the complaint, which remain pending. We believe that Citrix and our directors have meritorious defenses to these allegations; however, we are unable to currently determine the ultimate outcome of this matter or the potential exposure or loss, if any.

ITEM 1A.
ITEM 1A.RISK FACTORS

The following information updates, and should be read in conjunction with, the information disclosed in Part 1, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, which was filed with the Securities and Exchange Commission on February 15, 2019.14, 2020.

The effects of the COVID-19 pandemic could adversely affect our business, results of operations, financial condition and cash flows, and such effects will depend on future developments.

The COVID-19 pandemic and the measures instituted to slow the spread of COVID-19, including travel bans and restrictions, quarantines, shelter in place or total lock-down orders and business limitations and restrictions, continue to weigh on the macroeconomic environment, and the pandemic has significantly increased economic uncertainty and reduced economic activity. The COVID-19 pandemic could cause a long-term global recession, depression, or other adverse economic conditions across the world. In the event of a recession, depression, or other downturn in the worldwide economy, our business could be adversely affected.

The effects of the COVID-19 pandemic on our business are uncertain and difficult to predict, but may include, the following, each of which could adversely affect our business, results of operations, financial condition and cash flows:
The rate of IT spending and the ability of our customers to purchase our offerings could be adversely impacted. Further, the impact of COVID-19 could delay prospective customers’ purchasing decisions, impact customers’ pricing expectations for our offerings, lengthen payment terms, reduce the value or duration of their subscription contracts, or adversely impact renewal rates. For example, even though we experienced an increase in demand for shorter duration limited use on–premises term subscriptions during the first quarter of fiscal year 2020 to meet the immediate needs of our customers during the COVID-19 pandemic, which increased our reported revenue, we also experienced customers electing to postpone discretionary projects and becoming less inclined to trade-up from existing solutions as the economic environment continues to weaken.
We could experience disruptions in our operations as a result of continued office closures, risks associated with our employees working remotely, a significant portion of our workforce suffering illness and travel restrictions. In March 2020, we temporarily closed Citrix offices, most of which will remain closed for the foreseeable future, and have instituted a global remote work mandate and instituted significant travel restrictions, which may limit the effectiveness and productivity of our employees.
We may not be ableunable to forecastcollect amounts due on billed and unbilled revenue if our customers or partners delay payment or fail to pay us under the rate at whichterms of our customers’ purchases trend away from perpetual licenses to subscriptions, which may impact our forecasted and actual revenue and operating results.

We are undergoing a business model transition and as our customers’ purchases trend away from perpetual licenses to subscriptions, our subscription bookingsagreements as a percentageresult of totalthe impact of COVID-19 on their businesses, including their seeking bankruptcy protection or other similar relief. As a result, our cash flows could be adversely impacted, which could affect our ability to repay or refinance our outstanding indebtedness, fund future product bookings increases. development and acquisitions or return capital to shareholders. Further, our ability to obtain outside financing or raise additional capital may be limited as a result of volatility in the financial markets during and following the COVID-19 pandemic.
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We forecastmay be unable to service our futuredebt arrangements, including the 2027 Notes, the 2030 Notes, the Credit Agreement and Term Loan Credit Agreement if we do not generate sufficient cash flow as a result of the impact of COVID-19. Further, we are required to comply with the covenants set forth in the indenture governing the 2027 Notes and the 2030 Notes, the Credit Agreement and the Term Loan Credit Agreement and an adverse impact on our business, results of operations, financial condition or cash flows as a result of COVID-19 could adversely affect our ability to comply with these covenants.
Our forecasted revenue, and operating results and provide financial projections based on a number of assumptions, including a forecasted rate at which our subscription bookings as a percentage of total product bookings will increase throughout our business model transition. If any of our assumptions about our business model transition or the estimated rate at which our subscription bookings as a percentage of total product bookings will increase and in which periods are incorrect, our forecasted revenue and operating results may be impacted andcash flows could vary materially from those we provide as guidance or from those anticipated by investors and analysts.analysts if the assumptions on which we base our financial projections are inaccurate as a result of the unpredictability of the impact that COVID-19 will have on our businesses, our customers’ and partners’ businesses and the global markets and economy.
We may experience disruptions or delays to our supply chain or fulfillment and delivery operations as a result of COVID-19. For example, we rely on a concentrated number of third-party suppliers and delivery vendors for our Networking products, and may experience disruptions from the temporary closure of third-party supplier and manufacturer facilities, interruptions in product supply, restrictions on export or shipment or disruptions in product fulfillment due to closure or delays of our delivery vendors.
Our marketing effectiveness and demand generation efforts may be impacted due to the cancelling of customer events or shifting events to virtual-only experiences. For example, we expect to hold our largest annual customer and partner event, Synergy, as a virtual event, or a series of events, which may prove less successful. We may need to postpone or cancel other customer, employee or industry events or other marketing initiatives in the second quarterfuture.
Our business is dependent on attracting and retaining highly skilled employees, and our ability to attract and retain such employees may be adversely impacted by intensified restrictions on travel, immigration, or the availability of work visas during the COVID-19 pandemic.
Increased cyber incidents during the COVID-19 pandemic and our increased reliance on a remote workforce could increase our exposure to potential cybersecurity breaches and attacks.
Our results of operations are subject to fluctuations in foreign currency exchange rates, which risks may be heightened due to increased volatility of foreign currency exchange rates as a result of COVID-19.
The effect of COVID-19 may become more severe and remain prevalent for a significant period of time, and as a result could adversely affect our business, results of operations, financial condition and cash-flows even after the COVID-19 outbreak has subsided.
To the extent the COVID-19 pandemic adversely affects our business, results of operations, financial condition and cash flows, it may also heighten many of the other risks described in the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year 2019, our subscription bookings as a percentageended December 31, 2019. The ultimate impact of total product bookings was higher than anticipated, which impacted our operating results for that period and our guidance for the third quarter and full fiscal year 2019.
The cyberattack involving our internal network that we announced on March 8, 2019 could have a material adverse impactCOVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic, the severity of the disease and outbreak, future and ongoing actions that may be taken by governmental authorities, the impact on the businesses of our customers and partners, and the length of its impact on the global economy, which are uncertain and are difficult to predict at this time.
Servicing our debt will require a significant amount of cash, which could adversely affect our business, financial condition.
On March 6, 2019, the FBI informed us that international cyber criminals had gained access to Citrix’s internal network through a “password spraying” attack, a technique that exploits weak passwords. Immediately, we engaged outside forensicscondition and security experts, took actions to expel the cyber criminalsresults of operations. We may not have sufficient cash flow from our internal systems, and adopted additional security measures. Additionally,business to make payments on our debt or repurchase our 2027 Notes or 2030 Notes upon certain events.
As of June 30, 2020, we launched a comprehensive forensic investigation led by a leading, independent cybersecurity firm. From our investigation, we confirmed that the cyberattack commenced on October 13, 2018, and encompassed a cyber incidenthad aggregate indebtedness of $1.73 billion that we became awarehave incurred in connection with the issuance of in late 2018our unsecured senior notes due December 1, 2027, or the 2027 Notes, the issuance of our unsecured senior notes due March 1, 2030, or the 2030 Notes, under the Credit Agreement and took certain stepsunder the Term Loan Credit Agreement. Our ability to remediate basedmake scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, depends on our assessment atfuture performance, which is subject to general economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the time. Further,future sufficient to service our debt and to make necessary capital expenditures. If we received a notification from the Department of Homeland Security in late February 2019 concerning a network compromiseare unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, reducing capital expenditures, restructuring debt or obtaining additional equity or debt financing on terms that may have been part of this same cyberattack. While waiting for clarification from the Department of Homeland Security, we were contacted by the FBI on March 6, 2019.
We conducted an investigation, which confirmed that between October 13, 2018 and March 8, 2019, cyber criminals intermittently accessed Citrix's internal network 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 inbe onerous or highly dilutive. Our ability to refinance our consulting practice. The shared drive from which documents and files were stolen was used to store current and historical business documents and files, suchindebtedness, as human resources and employee records, some of which contained sensitive and personal identification information of our current and former employees and, in some cases, their beneficiaries, dependents, and others; customer engagement documents, including consulting services project materials, statements of work and proofs of concept, some of which were also storedapplicable, will depend on the drive associated with a web-based tool used incapital markets and our consulting practice; marketing materials; sales and finance documents; contracts and other legal records; and a wide assortment of other company records. The cyber criminals alsofinancial condition at such time. We may have accessed the individual virtual drives of a very limited number of compromised users, accessed company email accounts of the same very limited number of compromised users, and launched without further exploitation a limited number of internal applications. Wenot be able to sell assets, restructure our indebtedness or obtain additional equity or debt financing on terms that are reviewing documents and files that may have been accessedacceptable to us or were stolen in this incident. Our investigation found no indication that the cyber criminals discovered and exploited any vulnerabilities in our products or customer cloud services to gain entry, and no indication that the security of any Citrix product or customer cloud service was compromised.

This cyberattack has resulted in three class action complaints related to the loss of personal data of current and former employees, and could result in (among other consequences):
lost sales, including from disruption of customer relationships;
disruptions in the operation of our business;
harm to our reputation or brand;
negative publicity;
lost trust from our customers, partners and employees;
regulatory enforcement action under the General Data Protection Regulation or other legal authority,at all, which could result in significant fines and/or penalties or injunctive remedies;a default on our debt obligations. See “Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources” and Note 11 to our condensed
individual and/or class action lawsuits, due
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consolidated financial statements included in this Quarterly Report on Form 10-Q for the period ended June 30, 2020 for information regarding our 2030 Notes, 2027 Notes, our Credit Agreement and our Term Loan Credit Agreement.
In addition, if a change in control repurchase event occurs with respect to among other things, the compromise of sensitive employee or customer information, which could result in financial judgments against us2027 Notes or the payment2030 Notes, we will be required, subject to certain exceptions, to offer to repurchase the 2027 Notes or 2030 Notes, as applicable at a repurchase price equal to 101% of settlement amounts, which would causethe principal amount of the 2027 Notes or 2030 Notes, as applicable, repurchased, plus accrued and unpaid interest, if any. In such event, we may not have enough available cash or be able to obtain financing to fund the required repurchase of the 2027 Notes or 2030 Notes, as applicable, or making such payments could adversely affect our liquidity. Our ability to repurchase the 2027 Notes or 2030 Notes may be limited by law, by regulatory authority or by agreements governing our other indebtedness.
Further, we are required to comply with the covenants set forth in the indentures governing the 2027 Notes and 2030 Notes, the Credit Agreement and the Term Loan Credit Agreement. In particular, each of the Credit Agreement and Term Loan Credit Agreement requires us to maintain certain leverage and interest ratios and contains various affirmative and negative covenants, including covenants that limit or restrict our ability to grant liens, merge or consolidate, dispose of all or substantially all of our assets, change our business or incur legal feessubsidiary indebtedness. The indenture governing our 2027 Notes and costs;2030 Notes contains covenants limiting our ability and the ability of our subsidiaries to create certain liens, enter into certain sale and leaseback transactions, and consolidate or merge with, or sell, assign, convey, lease, transfer or otherwise dispose of all or substantially all of our assets, taken as a whole, to, another person. If we fail to comply with these covenants or any other provision of the agreements governing our indebtedness and do not obtain a waiver from the lenders or noteholders, then, subject to applicable cure periods, our outstanding indebtedness may be declared immediately due and payable. Additionally, a default under an indenture, the Credit Agreement or Term Loan Credit Agreement could lead to a default under the other agreements governing our current and any future indebtedness. If the repayment of the related indebtedness were to be accelerated, we may not have enough available cash or be able to obtain financing to repay the indebtedness.
Our indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences. For example, it could:
make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry and competitive conditions and adverse changes in government regulation;
limit our flexibility in planning for, or reacting to, changes in our business and our industry;
place us at a disadvantage compared to our competitors who have less debt; and
limit our ability to borrow additional amounts to fund acquisitions, for working capital and for other general corporate purposes.
Any of these factors could materially and adversely affect our business, financial condition and results of operations. In addition, if we incur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase. Also, changes by any rating agency to our credit rating may negatively impact the value and liquidity of both our debt and equity securities, as well as the potential costs associated with respondingany potential refinancing of our indebtedness. Downgrades in our credit rating could also restrict our ability to obtain additional financing in the future and mitigating,could affect the incident in excessterms of insurance policy limits, or that may not be covered by insurance;any such financing.
disputes with our insurance carriers concerning coverage forTo the costs associated with responding to, and mitigating,extent the incident; and
longer-term remediation and security enhancement expenses.


Consequently, this cyberattack could have a material adverse impact onCOVID-19 pandemic adversely affects our business, results of operations, financial condition and financial condition.cash flows, it may also heighten these risks related to servicing our debt.
Further, we have 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, we maintain customary business coverage under our crime, commercial general liability, and director and officer insurance policies.

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ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer
The Company's Board of Directors authorized an ongoing stock repurchase program, of which $750.0 million$1.00 billion was approved in October 2018.January 2020. The objective of the stock repurchase program is to improve stockholders’ returns. As ofAt June 30, 2019, $517.92020, $914.1 million ($714.1 million after taking into consideration the contracted but undelivered shares under the ASR of $200.0 million) was available to repurchase common stock pursuant to the stock repurchase program.program. All shares repurchased are recorded as treasury stock. The following table shows the monthly activity related to our stock repurchase programrepurchases for the quarter ended June 30, 2019:2020:
Total Number
of Shares
(or Units)
Purchased
(1)
Average Price
Paid per Share
(or Unit)
Total Number of Shares
(or Units) Purchased as
Part of Publicly
Announced Plans or
Programs
Maximum Number (or Approximate Dollar 
Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
(In thousands)
(2)
April 1, 2020 through April 30, 2020213,597  $139.20  —  $914,140  
May 1, 2020 through May 31, 202013,387  $143.28  —  $914,140  
June 1, 2020 through June 30, 202029,392  $141.60  —  $914,140  
Total256,376  $139.69  —  $914,140  
(1)Includes 256,376 shares withheld from restricted stock units that vested in the second quarter of 2020 to satisfy minimum tax withholding obligations that arose on the vesting of restricted stock units.
(2)Shares withheld from restricted stock units that vested to satisfy minimum tax withholding obligations that arose on the vesting of awards do not deplete the dollar amount available for purchases under the repurchase program.
 
Total Number
of Shares
(or Units)
Purchased
(1)
 
Average Price
Paid per Share
(or Unit)
 
Total Number of Shares
(or Units) Purchased as
Part of Publicly
Announced Plans or
Programs
 
Maximum Number (or Approximate Dollar 
Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
(In thousands)
(2)
April 1, 2019 through April 30, 2019496,647
 $100.78
 408,985
 $632,889
May 1, 2019 through May 31, 2019643,716
 $96.78
 627,249
 $572,186
June 1, 2019 through June 30, 2019563,588
 $96.33
 563,588
 $517,896
Total1,703,951
 $97.80
 1,599,822
 $517,896
(1)Includes approximately 104,129 shares withheld from restricted stock units that vested in the second quarter of 2019 to satisfy minimum tax withholding obligations that arose on the vesting of restricted stock units.
(2)Shares withheld from restricted stock units that vested to satisfy minimum tax withholding obligations that arose on the vesting of awards do not deplete the dollar amount available for purchases under the repurchase program.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.MINE SAFETY DISCLOSURES
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.


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ITEM 5.OTHER INFORMATION

ITEM 5.OTHER INFORMATION
Not applicable.

Our policy governing transactions in Citrix securities by our directors, officers and employees permits our directors, officers and certain other persons to enter into trading plans complying with Rule 10b5-1 under the Exchange Act. We have been advised that Antonio Gomes, our Executive Vice President and Chief Legal Officer, Arlen Shenkman, our Executive Vice President and Chief Financial Officer and David Henshall, our President and Chief Executive Officer, each entered into a new trading plan in the second quarter of 2020 in accordance with Rule 10b5-1 and our policy governing transactions in our securities. We undertake no obligation to update or revise the information provided herein, including for revision or termination of an established trading plan.



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ITEM 6.EXHIBITS
(a)List of exhibits
ITEM 6.Exhibit No.EXHIBITS
(a)List of exhibits
Description
Exhibit No.10.1*Description
10.1*†
10.2*†
10.3*†
10.4*†
10.5*
31.1†10.4*†
10.5*†
31.1†
31.2†
32.1††
101.SCH101.SCH†Inline XBRL Taxonomy Extension Schema Document
101.CAL101.CAL†Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF101.DEF†Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB101.LAB†Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE101.PRE†Inline XBRL Taxonomy Extension Presentation Linkbase Document
104104†
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)


*Indicates a management contract or a compensatory plan, contract, or arrangement.
Filed herewith.
††Furnished herewith.

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 6th31st day of August, 2019.July, 2020.
 
CITRIX SYSTEMS, INC.
By:/s/ JESSICA SOISSONARLEN R. SHENKMAN
Jessica SoissonArlen R. Shenkman
InterimExecutive Vice President and Chief Financial Officer
(Authorized Officer and Principal Financial Officer)



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