The following table provides information with respect to quarterly dividends on common stock during the six months ended June 30, 2019.2020.
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 leases | | 6.4 |
|
Weighted-average discount rate | | |
Operating leases | | 4.58 | % |
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 |
|
| |
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.
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
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.
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.
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%;
•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.
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 Ended | | | | Six Months Ended | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | June 30, | | | | June 30, | | | | | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 vs. 2019 |
| Revenues: | | | | | | | | | | | |
| Subscription | $ | 243,450 | | | $ | 155,833 | | | $ | 511,686 | | | $ | 297,439 | | | 56.2 | % | | 72.0 | % |
| Product and license | 129,933 | | | 140,654 | | | 302,791 | | | 275,676 | | | (7.6) | | | 9.8 | |
| Support and services | 425,546 | | | 452,210 | | | 845,397 | | | 894,725 | | | (5.9) | | | (5.5) | |
| Total net revenues | 798,929 | | | 748,697 | | | 1,659,874 | | | 1,467,840 | | | 6.7 | | | 13.1 | |
| Cost of net revenues: | | | | | | | | | | | |
| Cost of subscription, support and services | 93,877 | | | 78,817 | | | 179,917 | | | 150,245 | | | 19.1 | | | 19.7 | |
| Cost of product and license revenues | 20,060 | | | 21,878 | | | 41,316 | | | 47,622 | | | (8.3) | | | (13.2) | |
| Amortization of product related intangible assets | 8,303 | | | 9,784 | | | 16,584 | | | 20,085 | | | (15.1) | | | (17.4) | |
| | | | | | | | | | | |
| Total cost of net revenues | 122,240 | | | 110,479 | | | 237,817 | | | 217,952 | | | 10.6 | | | 9.1 | |
| Gross margin | 676,689 | | | 638,218 | | | 1,422,057 | | | 1,249,888 | | | 6.0 | | | 13.8 | |
| Operating expenses: | | | | | | | | | | | |
| Research and development | 140,477 | | | 134,029 | | | 274,935 | | | 264,292 | | | 4.8 | | | 4.0 | |
| Sales, marketing and services | 291,511 | | | 298,429 | | | 617,620 | | | 573,084 | | | (2.3) | | | 7.8 | |
| General and administrative | 90,808 | | | 81,162 | | | 170,907 | | | 158,709 | | | 11.9 | | | 7.7 | |
| Amortization of other intangible assets | 694 | | | 3,205 | | | 1,396 | | | 6,734 | | | (78.3) | | | (79.3) | |
| | | | | | | | | | | |
| Restructuring | 9,528 | | | 4,311 | | | 11,981 | | | 7,143 | | | 121.0 | | | 67.7 | |
| Total operating expenses | 533,018 | | | 521,136 | | | 1,076,839 | | | 1,009,962 | | | 2.3 | | | 6.6 | |
| Income from operations | 143,671 | | | 117,082 | | | 345,218 | | | 239,926 | | | 22.7 | | | 43.9 | |
| Interest income | 589 | | | 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), net | 1,911 | | | (3,420) | | | 4,009 | | | 279 | | | (155.9) | | | * |
| Income before income taxes | 129,095 | | | 107,243 | | | 319,734 | | | 225,427 | | | 20.4 | | | 41.8 | |
| Income tax expense | 16,189 | | | 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 | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | 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 license | 140,654 |
| | 192,058 |
| | 275,676 |
| | 352,755 |
| | (26.8 | ) | | (21.9 | ) |
| Support and services | 452,210 |
| | 439,511 |
| | 894,725 |
| | 872,848 |
| | 2.9 |
| | 2.5 |
|
| Total net revenues | 748,697 |
| | 742,365 |
| | 1,467,840 |
| | 1,439,557 |
| | 0.9 |
| | 2.0 |
|
| Cost of net revenues: | | | | | | | | | | | |
| Cost of subscription, support and services | 78,817 |
| | 67,523 |
| | 150,245 |
| | 130,908 |
| | 16.7 |
| | 14.8 |
|
| Cost of product and license revenues | 21,878 |
| | 29,707 |
| | 47,622 |
| | 63,579 |
| | (26.4 | ) | | (25.1 | ) |
| Amortization of product related intangible assets | 9,784 |
| | 11,519 |
| | 20,085 |
| | 22,548 |
| | (15.1 | ) | | (10.9 | ) |
| Total cost of net revenues | 110,479 |
| | 108,749 |
| | 217,952 |
| | 217,035 |
| | 1.6 |
| | 0.4 |
|
| Gross margin | 638,218 |
| | 633,616 |
| | 1,249,888 |
| | 1,222,522 |
| | 0.7 |
| | 2.2 |
|
| Operating expenses: |
| |
| | | | | | | | |
| Research and development | 134,029 |
| | 112,943 |
| | 264,292 |
| | 211,493 |
| | 18.7 |
| | 25.0 |
|
| Sales, marketing and services | 298,429 |
| | 286,730 |
| | 573,084 |
| | 537,943 |
| | 4.1 |
| | 6.5 |
|
| General and administrative | 81,162 |
| | 77,340 |
| | 158,709 |
| | 141,067 |
| | 4.9 |
| | 12.5 |
|
| Amortization of other intangible assets | 3,205 |
| | 4,019 |
| | 6,734 |
| | 7,685 |
| | (20.3 | ) | | (12.4 | ) |
| Restructuring | 4,311 |
| | 7,437 |
| | 7,143 |
| | 13,624 |
| | (42.0 | ) | | (47.6 | ) |
| Total operating expenses | 521,136 |
| | 488,469 |
| | 1,009,962 |
| | 911,812 |
| | 6.7 |
| | 10.8 |
|
| Income from operations | 117,082 |
| | 145,147 |
| | 239,926 |
| | 310,710 |
| | (19.3 | ) | | (22.8 | ) |
| Interest income | 3,870 |
| | 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 taxes | 107,243 |
| | 131,470 |
| | 225,427 |
| | 282,416 |
| | (18.4 | ) | | (20.2 | ) |
| Income tax expense | 13,748 |
| | 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 Ended | | | | Six Months Ended | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | June 30, | | | | June 30, | | | | | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 vs. 2019 |
| | (in thousands) | | | | | | | | | | |
| Subscription | $ | 243,450 | | | $ | 155,833 | | | $ | 511,686 | | | $ | 297,439 | | | $ | 87,617 | | | $ | 214,247 | |
| Product and license | 129,933 | | | 140,654 | | | 302,791 | | | 275,676 | | | (10,721) | | | 27,115 | |
| Support and services | 425,546 | | | 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 license | 140,654 |
| | 192,058 |
| | 275,676 |
| | 352,755 |
| | (51,404 | ) | | (77,079 | ) |
| Support and services | 452,210 |
| | 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.
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, 2020 | | | December 31, 2019 | | 2020 compared to 2019 |
| Deferred revenue | $ | 1,787,630 | | | | $ | 1,795,791 | | | $ | (8,161) | |
| Unbilled revenue | 866,856 | | | | 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 revenue | 484,213 |
| | 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.
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 Ended | | Three Months Ended | | | Six Months Ended | | | Three 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 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | | 2020 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 revenues | 21,878 |
| | 29,707 |
| | 47,622 |
| | 63,579 |
| | (7,829 | ) | | (15,957 | ) | Cost of product and license revenues | 20,060 | | | 21,878 | | | 41,316 | | | 47,622 | | | (1,818) | | | | (6,306) | |
| Amortization of product related intangible assets | 9,784 |
| | 11,519 |
| | 20,085 |
| | 22,548 |
| | (1,735 | ) | | (2,463 | ) | Amortization of product related intangible assets | 8,303 | | | 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.
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 Ended | | | | Six Months Ended | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | June 30, | | | | June 30, | | | | | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 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.
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 Ended | | | | Six Months Ended | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | June 30, | | | | June 30, | | | | | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 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.
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 Ended | | | | Six Months Ended | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | June 30, | | | | June 30, | | | | | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 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 Ended | | | | Six Months Ended | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| June 30, | | | | June 30, | | | | | | |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 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 Ended | | | | Six Months Ended | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | June 30, | | | | June 30, | | | | | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 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.
Interest Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | June 30, | | | | June 30, | | | | | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 vs. 2019 |
| | (In thousands) | | | | | | | | | | |
| Interest expense | $ | (17,076) | | | $ | (10,289) | | | $ | (31,687) | | | $ | (28,322) | | | $ | (6,787) | | | $ | (3,365) | |
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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 |
| | (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 Ended | | | | Six Months Ended | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | June 30, | | | | June 30, | | | | | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 vs. 2019 |
| | (In thousands) | | | | | | | | | | |
| Other income (expense), net | $ | 1,911 | | | $ | (3,420) | | | $ | 4,009 | | | $ | 279 | | | $ | 5,331 | | | $ | 3,730 | |
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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 |
| | (In thousands) | | |
| Other (expense) income, net | $ | (3,420 | ) | | $ | (2,537 | ) | | $ | 279 |
| | $ | (5,549 | ) | | $ | (883 | ) | | $ | 5,828 |
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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.
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
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
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
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| | | | | | | | | | | |
| | 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, 2020 | | December 31, 2019 | | 2020 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.
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.
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.
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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.
PART II. OTHER INFORMATION
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.
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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 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 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.
•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
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, 2020 | 213,597 | | | $ | 139.20 | | | — | | | $ | 914,140 | |
| May 1, 2020 through May 31, 2020 | 13,387 | | | $ | 143.28 | | | — | | | $ | 914,140 | |
| June 1, 2020 through June 30, 2020 | 29,392 | | | $ | 141.60 | | | — | | | $ | 914,140 | |
| Total | 256,376 | | | $ | 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, 2019 | 496,647 |
| | $ | 100.78 |
| | 408,985 |
| | $ | 632,889 |
|
| May 1, 2019 through May 31, 2019 | 643,716 |
| | $ | 96.78 |
| | 627,249 |
| | $ | 572,186 |
|
| June 1, 2019 through June 30, 2019 | 563,588 |
| | $ | 96.33 |
| | 563,588 |
| | $ | 517,896 |
|
| Total | 1,703,951 |
| | $ | 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. |
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(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. |
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ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
Not applicable.
ITEM 6.EXHIBITS
(a)List of exhibits
| | | | | | | | |
ITEM 6.Exhibit No. | 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. |
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.
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| 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) |