UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020March 31, 2021
or
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number 0-27084
CITRIX SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
| Delaware | | 75-2275152 |
(State or other jurisdiction of
incorporation or organization) | | (IRS Employer
Identification No.) |
| | |
| 851 West Cypress Creek Road | | |
| Fort Lauderdale | | |
| Florida | | 33309 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s Telephone Number, Including Area Code:
(954) 267-3000
Securities registered pursuant to Section 12(b) of the ActAct:
| | | | | | | | |
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
| Common Stock, par value $.001 per share | CTXS | The NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
| ☒ | Large accelerated filer | ☐ | Accelerated filer |
| ☐ | Non-accelerated filer | ☐ | Smaller reporting company |
| | ☐ | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 24, 2020,April 29, 2021, there were 123,531,988124,167,045 shares of the registrant’s Common Stock, $.001 par value per share, outstanding.
CITRIX SYSTEMS, INC.
Form 10-Q
For the Quarterly Period Ended June 30, 2020March 31, 2021
CONTENTS
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| PART I: | | |
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| Item 1. | | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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| PART II: | | |
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| Item 1. | | |
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| Item 1A. | | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 5. | | |
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| Item 6. | | |
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PART I: FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | June 30, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
| | (Unaudited) | | (Derived from audited financial statements) | | (Unaudited) | | (Derived from audited financial statements) |
| | | (In thousands, except par value) | | | (In thousands, except par value) |
| Assets | Assets | | Assets | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 555,072 | | | $ | 545,761 | | Cash and cash equivalents | $ | 477,743 | | | $ | 752,895 | |
| Short-term investments, available-for-sale | Short-term investments, available-for-sale | 312,598 | | | 43,055 | | Short-term investments, available-for-sale | 20,433 | | | 124,113 | |
| Accounts receivable, net of allowances of $20,135 and $9,557 at June 30, 2020 and December 31, 2019, respectively | 614,150 | | | 720,359 | | |
| Accounts receivable, net of allowances of $24,030 and $25,868 at March 31, 2021 and December 31, 2020, respectively | | Accounts receivable, net of allowances of $24,030 and $25,868 at March 31, 2021 and December 31, 2020, respectively | 570,534 | | | 858,009 | |
| Inventories, net | Inventories, net | 17,767 | | | 15,898 | | Inventories, net | 21,210 | | | 20,089 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 186,390 | | | 187,659 | | Prepaid expenses and other current assets | 280,377 | | | 236,000 | |
| Total current assets | Total current assets | 1,685,977 | | | 1,512,732 | | Total current assets | 1,370,297 | | | 1,991,106 | |
| Long-term investments, available-for-sale | Long-term investments, available-for-sale | 12,648 | | | 16,640 | | Long-term investments, available-for-sale | 11,865 | | | 14,365 | |
| Property and equipment, net | Property and equipment, net | 218,790 | | | 231,894 | | Property and equipment, net | 220,179 | | | 208,811 | |
| Operating lease right-of-use assets, net | Operating lease right-of-use assets, net | 193,650 | | | 206,154 | | Operating lease right-of-use assets, net | 192,030 | | | 187,129 | |
| Goodwill | Goodwill | 1,798,408 | | | 1,798,408 | | Goodwill | 3,455,357 | | | 1,798,408 | |
| Other intangible assets, net | Other intangible assets, net | 93,768 | | | 108,478 | | Other intangible assets, net | 889,655 | | | 81,491 | |
| Deferred tax assets, net | Deferred tax assets, net | 382,406 | | | 361,814 | | Deferred tax assets, net | 230,858 | | | 386,504 | |
| Other assets | Other assets | 162,467 | | | 152,806 | | Other assets | 243,139 | | | 222,533 | |
| Total assets | Total assets | $ | 4,548,114 | | | $ | 4,388,926 | | Total assets | $ | 6,613,380 | | | $ | 4,890,347 | |
| Liabilities and Stockholders' (Deficit) Equity | | | | |
| Liabilities and Stockholders' Equity | | Liabilities and Stockholders' Equity | | | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Accounts payable | Accounts payable | $ | 122,154 | | | $ | 84,538 | | Accounts payable | $ | 117,901 | | | $ | 92,266 | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 380,152 | | | 331,680 | | Accrued expenses and other current liabilities | 358,245 | | | 507,185 | |
| Income taxes payable | Income taxes payable | 112,205 | | | 60,036 | | Income taxes payable | 35,405 | | | 42,760 | |
| | Current portion of deferred revenues | Current portion of deferred revenues | 1,378,022 | | | 1,352,333 | | Current portion of deferred revenues | 1,479,894 | | | 1,510,216 | |
| Total current liabilities | Total current liabilities | 1,992,533 | | | 1,828,587 | | Total current liabilities | 1,991,445 | | | 2,152,427 | |
| Long-term portion of deferred revenues | Long-term portion of deferred revenues | 409,608 | | | 443,458 | | Long-term portion of deferred revenues | 363,626 | | | 392,360 | |
| Long-term debt | Long-term debt | 1,731,514 | | | 742,926 | | Long-term debt | 3,472,779 | | | 1,732,622 | |
| Long-term income taxes payable | Long-term income taxes payable | 232,087 | | | 259,391 | | Long-term income taxes payable | 232,086 | | | 232,086 | |
| Operating lease liabilities | Operating lease liabilities | 198,712 | | | 209,382 | | Operating lease liabilities | 195,921 | | | 195,767 | |
| Other liabilities | Other liabilities | 77,256 | | | 67,526 | | Other liabilities | 107,831 | | | 72,942 | |
| Commitments and contingencies | Commitments and contingencies | | | | Commitments and contingencies | 0 | | 0 |
| | Stockholders' (deficit) equity: | | |
| Stockholders' equity: | | Stockholders' equity: | |
| Preferred stock at $.01 par value: 5,000 shares authorized, NaN issued and outstanding | Preferred stock at $.01 par value: 5,000 shares authorized, NaN issued and outstanding | — | | | — | | Preferred stock at $.01 par value: 5,000 shares authorized, NaN issued and outstanding | 0 | | | 0 | |
| Common stock at $.001 par value: 1,000,000 shares authorized; 321,210 and 318,760 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | 321 | | | 319 | | |
| Common stock at $.001 par value: 1,000,000 shares authorized; 323,154 and 321,964 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively | | Common stock at $.001 par value: 1,000,000 shares authorized; 323,154 and 321,964 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively | 323 | | | 322 | |
| Additional paid-in capital | Additional paid-in capital | 6,216,838 | | | 6,249,065 | | Additional paid-in capital | 6,752,058 | | | 6,608,018 | |
| Retained earnings | Retained earnings | 4,863,515 | | | 4,660,145 | | Retained earnings | 5,026,322 | | | 4,984,333 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (6,465) | | | (5,127) | | Accumulated other comprehensive loss | (5,385) | | | (3,649) | |
| | 11,074,209 | | | 10,904,402 | | | 11,773,318 | | | 11,589,024 | |
| Less - common stock in treasury, at cost (197,693 and 188,693 shares at June 30, 2020 and December 31, 2019, respectively) | (11,167,805) | | | (10,066,746) | | |
| Total stockholders' (deficit) equity | (93,596) | | | 837,656 | | |
| Total liabilities and stockholders' (deficit) equity | $ | 4,548,114 | | | $ | 4,388,926 | | |
| Less - common stock in treasury, at cost (199,778 and 199,443 shares at March 31, 2021 and December 31, 2020, respectively) | | Less - common stock in treasury, at cost (199,778 and 199,443 shares at March 31, 2021 and December 31, 2020, respectively) | (11,523,626) | | | (11,476,881) | |
| Total stockholders' equity | | Total stockholders' equity | 249,692 | | | 112,143 | |
| Total liabilities and stockholders' equity | | Total liabilities and stockholders' equity | $ | 6,613,380 | | | $ | 4,890,347 | |
See accompanying notes.
CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | Three Months Ended March 31, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 |
| | | (In thousands, except per share information) | | | (In thousands, except per share information) |
| Revenues: | Revenues: | | Revenues: | |
| Subscription | Subscription | $ | 243,450 | | | $ | 155,833 | | | $ | 511,686 | | | $ | 297,439 | | Subscription | $ | 342,129 | | | $ | 268,236 | |
| Product and license | Product and license | 129,933 | | | 140,654 | | | 302,791 | | | 275,676 | | Product and license | 44,235 | | | 172,858 | |
| Support and services | Support and services | 425,546 | | | 452,210 | | | 845,397 | | | 894,725 | | Support and services | 389,402 | | | 419,851 | |
| Total net revenues | Total net revenues | 798,929 | | | 748,697 | | | 1,659,874 | | | 1,467,840 | | Total net revenues | 775,766 | | | 860,945 | |
| Cost of net revenues: | Cost of net revenues: | | | | | | | | Cost of net revenues: | | | |
| Cost of subscription, support and services | Cost of subscription, support and services | 93,877 | | | 78,817 | | | 179,917 | | | 150,245 | | Cost of subscription, support and services | 110,745 | | | 86,040 | |
| Cost of product and license revenues | Cost of product and license revenues | 20,060 | | | 21,878 | | | 41,316 | | | 47,622 | | Cost of product and license revenues | 21,715 | | | 21,256 | |
| Amortization of product related intangible assets | Amortization of product related intangible assets | 8,303 | | | 9,784 | | | 16,584 | | | 20,085 | | Amortization of product related intangible assets | 11,009 | | | 8,281 | |
| | Total cost of net revenues | Total cost of net revenues | 122,240 | | | 110,479 | | | 237,817 | | | 217,952 | | Total cost of net revenues | 143,469 | | | 115,577 | |
| Gross margin | 676,689 | | | 638,218 | | | 1,422,057 | | | 1,249,888 | | |
| Gross profit | | Gross profit | 632,297 | | | 745,368 | |
| Operating expenses: | Operating expenses: | | | | | | | | Operating expenses: | | | |
| Research and development | Research and development | 140,477 | | | 134,029 | | | 274,935 | | | 264,292 | | Research and development | 144,158 | | | 134,458 | |
| Sales, marketing and services | Sales, marketing and services | 291,511 | | | 298,429 | | | 617,620 | | | 573,084 | | Sales, marketing and services | 293,284 | | | 326,109 | |
| General and administrative | General and administrative | 90,808 | | | 81,162 | | | 170,907 | | | 158,709 | | General and administrative | 94,990 | | | 80,099 | |
| Amortization of other intangible assets | Amortization of other intangible assets | 694 | | | 3,205 | | | 1,396 | | | 6,734 | | Amortization of other intangible assets | 7,532 | | | 702 | |
| | Restructuring | Restructuring | 9,528 | | | 4,311 | | | 11,981 | | | 7,143 | | Restructuring | 0 | | | 2,453 | |
| Total operating expenses | Total operating expenses | 533,018 | | | 521,136 | | | 1,076,839 | | | 1,009,962 | | Total operating expenses | 539,964 | | | 543,821 | |
| Income from operations | Income from operations | 143,671 | | | 117,082 | | | 345,218 | | | 239,926 | | Income from operations | 92,333 | | | 201,547 | |
| Interest income | Interest income | 589 | | | 3,870 | | | 2,194 | | | 13,544 | | Interest income | 321 | | | 1,605 | |
| Interest expense | Interest expense | (17,076) | | | (10,289) | | | (31,687) | | | (28,322) | | Interest expense | (24,360) | | | (14,611) | |
| Other income (expense), net | 1,911 | | | (3,420) | | | 4,009 | | | 279 | | |
| Other income, net | | Other income, net | 12,896 | | | 2,098 | |
| Income before income taxes | Income before income taxes | 129,095 | | | 107,243 | | | 319,734 | | | 225,427 | | Income before income taxes | 81,190 | | | 190,639 | |
| Income tax expense | 16,189 | | | 13,748 | | | 25,606 | | | 21,584 | | |
| Income tax (benefit) expense | | Income tax (benefit) expense | (8,858) | | | 9,417 | |
| | Net income | Net income | $ | 112,906 | | | $ | 93,495 | | | $ | 294,128 | | | $ | 203,843 | | Net income | $ | 90,048 | | | $ | 181,222 | |
| Earnings per share: | Earnings per share: | | | | | | | | Earnings per share: | | | |
| Basic | Basic | $ | 0.91 | | | $ | 0.71 | | | $ | 2.37 | | | $ | 1.55 | | Basic | $ | 0.73 | | | $ | 1.45 | |
| | Diluted | Diluted | $ | 0.90 | | | $ | 0.70 | | | $ | 2.32 | | | $ | 1.48 | | Diluted | $ | 0.71 | | | $ | 1.42 | |
| | Weighted average shares outstanding: | Weighted average shares outstanding: | | | | | | | | Weighted average shares outstanding: | | | |
| Basic | Basic | 123,522 | | | 131,309 | | | 124,128 | | | 131,396 | | Basic | 122,923 | | | 124,737 | |
| Diluted | Diluted | 125,735 | | | 134,277 | | | 126,659 | | | 137,635 | | Diluted | 126,026 | | | 127,577 | |
See accompanying notes.
CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | Three Months Ended March 31, | |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
| | | (In thousands) | | | (In thousands) |
| Net income | Net income | $ | 112,906 | | | $ | 93,495 | | | $ | 294,128 | | | $ | 203,843 | | Net income | $ | 90,048 | | | $ | 181,222 | | |
| Other comprehensive income: | Other comprehensive income: | | Other comprehensive income: | | |
| Available for sale securities: | Available for sale securities: | | Available for sale securities: | | |
| Change in net unrealized (losses) gains | (24) | | | 614 | | | 131 | | | 2,802 | | |
| Change in net unrealized gains | | Change in net unrealized gains | 20 | | | 155 | | |
| Less: reclassification adjustment for net gains included in net income | Less: reclassification adjustment for net gains included in net income | (8) | | | (26) | | | (21) | | | (584) | | Less: reclassification adjustment for net gains included in net income | 0 | | | (13) | | |
| Net change (net of tax effect) | Net change (net of tax effect) | (32) | | | 588 | | | 110 | | | 2,218 | | Net change (net of tax effect) | 20 | | | 142 | | |
| | Gain on pension liability | Gain on pension liability | — | | | — | | | 8 | | | — | | Gain on pension liability | 1,050 | | | 8 | | |
| | Cash flow hedges: | Cash flow hedges: | | Cash flow hedges: | | |
| Change in unrealized gains (losses) | 458 | | | 188 | | | (2,127) | | | 335 | | |
| Less: reclassification adjustment for net losses included in net income | 919 | | | 97 | | | 671 | | | 991 | | |
| Change in unrealized losses | | Change in unrealized losses | (863) | | | (2,585) | | |
| Less: reclassification adjustment for net gains included in net income | | Less: reclassification adjustment for net gains included in net income | (1,943) | | | (248) | | |
| Net change (net of tax effect) | Net change (net of tax effect) | 1,377 | | | 285 | | | (1,456) | | | 1,326 | | Net change (net of tax effect) | (2,806) | | | (2,833) | | |
| Other comprehensive income (loss) | 1,345 | | | 873 | | | (1,338) | | | 3,544 | | |
| Other comprehensive loss | | Other comprehensive loss | (1,736) | | | (2,683) | | |
| Comprehensive income | Comprehensive income | $ | 114,251 | | | $ | 94,368 | | | $ | 292,790 | | | $ | 207,387 | | Comprehensive income | $ | 88,312 | | | $ | 178,539 | | |
See accompanying notes.
CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | Six Months Ended June 30, | | | Three Months Ended March 31, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| | | (In thousands) | | | (In thousands) |
| Operating Activities | Operating Activities | | Operating Activities | |
| Net income | Net income | $ | 294,128 | | | $ | 203,843 | | Net income | $ | 90,048 | | | $ | 181,222 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation, amortization and other | Depreciation, amortization and other | 106,593 | | | 118,689 | | Depreciation, amortization and other | 70,206 | | | 53,701 | |
| Stock-based compensation expense | Stock-based compensation expense | 143,685 | | | 133,554 | | Stock-based compensation expense | 86,862 | | | 58,323 | |
| Deferred income tax (benefit) expense | (20,952) | | | 18,870 | | |
| Deferred income tax expense (benefit) | | Deferred income tax expense (benefit) | 6,929 | | | (5,575) | |
| Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies | Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies | (166) | | | 1,326 | | Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies | 10,771 | | | 2,794 | |
| Other non-cash items | Other non-cash items | 19,920 | | | 3,921 | | Other non-cash items | (13,118) | | | 7,871 | |
| Total adjustments to reconcile net income to net cash provided by operating activities | Total adjustments to reconcile net income to net cash provided by operating activities | 249,080 | | | 276,360 | | Total adjustments to reconcile net income to net cash provided by operating activities | 161,650 | | | 117,114 | |
| Changes in operating assets and liabilities: | | |
| Changes in operating assets and liabilities, net of the effects of acquisitions: | | Changes in operating assets and liabilities, net of the effects of acquisitions: | |
| Accounts receivable | Accounts receivable | 95,329 | | | 155,170 | | Accounts receivable | 302,824 | | | 11,314 | |
| Inventories | Inventories | (1,894) | | | (2,594) | | Inventories | (1,357) | | | (1,944) | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 2,478 | | | 22,733 | | Prepaid expenses and other current assets | (18,416) | | | (7,029) | |
| Other assets | Other assets | (39,485) | | | (31,126) | | Other assets | (27,533) | | | (23,277) | |
| Income taxes, net | Income taxes, net | 25,621 | | | (67,283) | | Income taxes, net | (38,020) | | | 7,011 | |
| Accounts payable | Accounts payable | 37,864 | | | 21,256 | | Accounts payable | 24,856 | | | 20,529 | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 37,995 | | | (62,812) | | Accrued expenses and other current liabilities | (190,809) | | | 17,149 | |
| Deferred revenues | Deferred revenues | (8,161) | | | (89,858) | | Deferred revenues | (92,145) | | | (40,989) | |
| Other liabilities | Other liabilities | 10,461 | | | 4,224 | | Other liabilities | 1,758 | | | 3,147 | |
| Total changes in operating assets and liabilities | 160,208 | | | (50,290) | | |
| Total changes in operating assets and liabilities, net of the effects of acquisitions | | Total changes in operating assets and liabilities, net of the effects of acquisitions | (38,842) | | | (14,089) | |
| Net cash provided by operating activities | Net cash provided by operating activities | 703,416 | | | 429,913 | | Net cash provided by operating activities | 212,856 | | | 284,247 | |
| Investing Activities | Investing Activities | | Investing Activities | |
| Purchases of available-for-sale investments | Purchases of available-for-sale investments | (305,224) | | | (19,984) | | Purchases of available-for-sale investments | (2,561) | | | (4,420) | |
| Proceeds from sales of available-for-sale investments | — | | | 938,031 | | |
| | Proceeds from maturities of available-for-sale investments | Proceeds from maturities of available-for-sale investments | 39,154 | | | 153,708 | | Proceeds from maturities of available-for-sale investments | 108,761 | | | 25,755 | |
| Purchases of property and equipment | Purchases of property and equipment | (21,078) | | | (38,061) | | Purchases of property and equipment | (23,894) | | | (10,503) | |
| | Cash paid for acquisitions, net of cash acquired | | Cash paid for acquisitions, net of cash acquired | (2,022,618) | | | 0 | |
| Cash paid for licensing agreements, patents and technology | Cash paid for licensing agreements, patents and technology | (3,210) | | | (2,158) | | Cash paid for licensing agreements, patents and technology | (2,065) | | | (1,682) | |
| Other | Other | 707 | | | 1,165 | | Other | 776 | | | 884 | |
| Net cash (used in) provided by investing activities | Net cash (used in) provided by investing activities | (289,651) | | | 1,032,701 | | Net cash (used in) provided by investing activities | (1,941,601) | | | 10,034 | |
| Financing Activities | Financing Activities | | Financing Activities | |
| Proceeds from term loan credit agreement, net of issuance costs | Proceeds from term loan credit agreement, net of issuance costs | 998,846 | | | — | | Proceeds from term loan credit agreement, net of issuance costs | 997,947 | | | 998,846 | |
| Repayment of term loan credit agreement | Repayment of term loan credit agreement | (750,000) | | | — | | Repayment of term loan credit agreement | 0 | | | (750,000) | |
| Proceeds from 2030 Notes, net of issuance costs | 738,107 | | | — | | |
| Proceeds from senior notes, net of issuance costs | | Proceeds from senior notes, net of issuance costs | 741,393 | | | 738,107 | |
| | Repayment on convertible notes | — | | | (1,164,497) | | |
| | Repayment of acquired debt | | Repayment of acquired debt | (190,000) | | | 0 | |
| | Stock repurchases, net | Stock repurchases, net | (999,903) | | | (250,000) | | Stock repurchases, net | 0 | | | (999,903) | |
| Accelerated stock repurchase program | Accelerated stock repurchase program | (200,000) | | | — | | Accelerated stock repurchase program | — | | | (200,000) | |
| Cash paid for tax withholding on vested stock awards | Cash paid for tax withholding on vested stock awards | (101,156) | | | (70,552) | | Cash paid for tax withholding on vested stock awards | (42,303) | | | (54,247) | |
| Cash paid for dividends | Cash paid for dividends | (86,062) | | | (91,851) | | Cash paid for dividends | (45,522) | | | (42,839) | |
| Net cash used in financing activities | (400,168) | | | (1,576,900) | | |
| Other | | Other | (5,438) | | | 0 | |
| Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | 1,456,077 | | | (310,036) | |
| Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (4,286) | | | 240 | | Effect of exchange rate changes on cash and cash equivalents | (2,484) | | | (5,125) | |
| Change in cash and cash equivalents | Change in cash and cash equivalents | 9,311 | | | (114,046) | | Change in cash and cash equivalents | (275,152) | | | (20,880) | |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 545,761 | | | 618,766 | | Cash and cash equivalents at beginning of period | 752,895 | | | 545,761 | |
| Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 555,072 | | | $ | 504,720 | | Cash and cash equivalents at end of period | $ | 477,743 | | | $ | 524,881 | |
See accompanying notes.
CITRIX SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Citrix Systems, Inc. (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. All adjustments, which, in the opinion of management, are considered necessary for a fair presentation of the results of operations for the periods shown, are of a normal recurring nature and have been reflected in the condensed consolidated financial statements and accompanying notes. The results of operations for the periods presented are not necessarily indicative of the results expected for the full year or for any future period partially because of the seasonality of the Company’s business. Historically, the Company’s revenue for the fourth quarter of any year is typically higher than the revenue for the first quarter of the subsequent year. However, during the three months ended March 31, 2020, this trend was impacted by the novel coronavirus ("COVID-19") pandemic, and the Company's first quarter revenues were higher than the fourth quarter of 2019 due to the Company's decision to make limited use Workspace licenses of Citrix Workspace available in the form of shorter-duration, discounted on-premises term offerings to quickly help the Company's customers with their immediate business needs. The information included in these condensed consolidated financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report and the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.
The condensed consolidated financial statements of the Company include the accounts of its wholly-owned subsidiaries in the Americas; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific and Japan (“APJ”). All significant transactions and balances between the Company and its subsidiaries have been eliminated in consolidation.
The Company's revenues are derived from sales of its Workspace solutions, App Delivery and Networking solutions,Security products and related Support and services. The Company operates under 1 reportable segment. See Note 10 for more information on the Company's segment.
2. SIGNIFICANT ACCOUNTING POLICIES
During the first quarter of 2020, the Company adopted new accounting guidance related to current expected credit losses and fair value measurements, which are described below. There have been no other significant changes in the Company’s accounting policies during the six months ended June 30, 2020 as compared to the significant accounting policies described in its Annual Report on Form 10-K for the year ended December 31, 2019.
Recent Accounting Pronouncements
Current Expected Credit Losses
In June 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update on the measurement of credit losses on financial instruments. Previously, credit losses were measured using an incurred loss approach when it was probable that a credit loss had been incurred. The new guidance changes the credit loss model from an incurred loss to an expected loss approach. It requires the application of a current expected credit loss (“CECL”) impairment model to financial assets measured at amortized cost (including trade accounts receivable) and certain off-balance-sheet credit exposures. Under the CECL model, lifetime expected credit losses on such financial assets are measured and recognized at each reporting date based on historical, current, and forecasted information. The standard also changes the impairment model for available-for-sale debt securities, eliminating the concept of other than temporary impairment and requiring credit losses to be recorded through an allowance for credit losses. The amount of the allowance for credit losses for available-for-sale debt securities is limited to the amount by which fair value is below amortized cost. The Company adopted this standard as of January 1, 2020 using the required modified retrospective adoption method. Results for periods beginning after January 1, 2020 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported under the previous accounting guidance. Adoption of the new standard did not have a material impact on the Company's condensed consolidated financial position, results of operations and cash flows. See Note 5 for additional information regarding the Company’s allowance for credit losses.
Fair Value Measurements
In August 2018, the FASB issued an accounting standard update on fair value measurements. The new guidance modifies the disclosure requirements on fair value measurements by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty, and adding new disclosure requirements. The Company adopted this standard as of January 1, 2020, and it did not have a material impact on the Company's condensed consolidated financial position, results of operations and cash flows.
Income Taxes
In December 2019, the FASBFinancial Accounting Standards Board (“FASB”) issued an accounting standard update on income taxes. The new guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The newCompany adopted this standard will be effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, and early adoption is permitted.January 1, 2021. The Company is currently evaluating the impact of the adoption of this standard did not have a material impact on itsthe Company's consolidated financial position, results of operations and cash flows.
Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the FASB issued an accounting standard update to guidance applicable to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This update provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. An entity may elect to apply the amendments for contract modifications by topic or industry subtopic of the codification as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Company is currently evaluating the impact of the adoption of this standard, but does not expect it to have a material impact on its condensed consolidated financial position, results of operations and cash flows.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant estimates made by management include estimation for reserves for legal contingencies, the standalone selling price related to revenue recognition, the provision for credit losses related to accounts receivable, contract assets, and available-for-sale debt securities, the provision to reduce obsolete or excess inventory to market,net realizable value, the provision for estimated returns, as well as sales allowances, the assumptions used in the valuation of stock-based awards and measurement of expense related to performance stock units, the assumptions used in the discounted
cash flows to mark certain of its investments to market, the valuation of the Company’s goodwill, valuation of acquired intangible assets and liabilities, net realizable value of product related and other intangible assets, the provision for income taxes, valuation allowance for deferred tax assets, uncertain tax positions, and the amortization and depreciation periods for contract acquisition costs, intangible and long-lived assets. While the Company believes that such estimates are fair when considered in conjunction with the condensed consolidated financial position and results of operations taken as a whole, the actual amounts of such items, when known, will vary from these estimates.
Available-for-sale Investments
Short-term and long-term available-for-sale investments in debt securities as of June 30, 2020March 31, 2021 and December 31, 20192020 primarily consist of agency securities, corporate securities and government securities. Investments classified as available-for-sale debt securities are stated at fair value, with unrealized gains and losses, net of taxes, reported in Accumulated other comprehensive loss. The Company classifies its available-for-sale investments as current and non-current based on their actual remaining time to maturity. The Company does not recognize unrealized changes in the fair value of its available-for-sale debt securities in income unless a security is deemed to be impaired.
The Company’s investment policy is designed to limit exposure to any one issuer depending on credit quality. The Company uses information provided by third parties to adjust the carrying value of certain of its investments to fair value at the end of each period. Fair values are based on a variety of inputs and may include interest rates, known historical trades, yield curve information, benchmark data, prepayment speeds, credit quality and broker/dealer quotes. See Note 6 for additional information regarding the Company’s investments.
Foreign Currency
The functional currency for all of the Company’s wholly-owned foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities of such subsidiaries are remeasured into U.S. dollars at exchange rates in effect at the balance sheet date, and revenues and expenses are remeasured at average rates prevailing during the year.Foreign currency transaction gains and losses are the result of exchange rate changes on transactions denominated in currencies other than the functional currency, including U.S. dollars. The remeasurement of those foreign currency transactions is included in determining net income or loss for the period of exchange.
Accounting for Stock-Based Compensation Plans
The Company has various stock-based compensation plans for its employees and outside directors and accounts for stock-based compensation arrangements in accordance with the authoritative guidance, which requires the Company to measure and record compensation expense in its condensed consolidated financial statements using a fair value method. See Note 8 for further information regarding the Company’s stock-based compensation plans.
3. REVENUE
The following is a description of the principal activities from which the Company generates revenue.
Subscription
Subscription revenues primarily consist of cloud-hosted offerings, which provide customers a right to access one or more of the Company’s cloud-hosted subscription offerings, with routine customer support, as well as revenues from the Citrix Service Provider ("CSP") program and on-premise subscription software licenses. For the Company’s cloud-hosted performance obligations, revenue is generally recognized on a ratable basis over the contract term beginning on the date that the Company's service is made available to the customer, as the Company continuously provides online access to the web-based software that the customer can use at any time. The CSP program provides subscription-based services in which the CSP partners host software services to their end users.
Product and license
Product and license revenues are primarily derived from perpetual offerings related to the Company’s Workspace solutions and Networking products. For performance obligations related to perpetual software license agreements, the Company determined that its licenses are functional intellectual property that are distinct as the user can benefit from the software on its own.
Support and services
Support and services revenues include license updates, maintenance and professional services which are primarily related to the Company's perpetual offerings. License updates and maintenance revenues are primarily comprised of software and hardware maintenance, when and if-available updates and technical support. For performance obligations related to license updates and maintenance, revenue is generally recognized on a straight-line basis over the period of service because the Company transfers control evenly by providing a stand-ready service. The Company is continuously working on improving its products and pushing those updates through to the customer, and stands ready to provide software updates on a when and if-available basis. Services revenues are comprised of fees from consulting services primarily related to the implementation of the Company’s products and fees from product training and certification.
The Company’s typical performance obligations include the following:
| | | | | | | |
Performance Obligation | When Performance Obligation
is Typically Satisfied
| | |
Subscription | | | |
Cloud-hosted offerings | Over the contract term, beginning on the date that service is made available to the customer (over time) | | |
CSP | As the usage occurs (over time) | | |
On-premise subscription software licenses | When software activation keys have been made available for download (point in time) | | |
Product and license | | | |
Software licenses | When software activation keys have been made available for download (point in time) | | |
Hardware | When control of the product passes to the customer; typically upon shipment (point in time) | | |
Support and services | | | |
License updates and maintenance | Ratably over the course of the service term (over time) | | |
Professional services | As the services are provided (over time) | | |
Significant Judgments
The Company generates all of its revenues from contracts with customers. At contract inception, the Company assesses the solutions or services, or bundles of solutions and services, obligated in the contract with a customer to identify each performance obligation within the contract, and then evaluates whether the performance obligations are capable of being distinct and distinct within the context of the contract. Solutions and services that are not both capable of being distinct and distinct within the context of the contract are combined and treated as a single performance obligation in determining the allocation and recognition of revenue.
The standalone selling price is the price at which the Company would sell a promised product or service separately to the customer. For the majority of the Company's software licenses and hardware, CSP and on-premise subscription software licenses, the Company uses the observable price in transactions with multiple performance obligations. For the majority of the Company’s support and services, and cloud-hosted subscription offerings, the Company uses the observable price when the Company sells that support and service or cloud-hosted subscription separately to similar customers. If the standalone selling price for a performance obligation is not directly observable, the Company estimates it. The Company estimates a standalone selling price by taking into consideration market conditions, economics of the offering and customers’ behavior. The Company maximizes the use of observable inputs and applies estimation methods consistently in similar circumstances. The Company allocates the transaction price to each distinct performance obligation on a relative standalone selling price basis.
Revenues are recognized when control of the promised products or services are transferred to customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those products or services.
Sales tax
The Company records revenue net of sales tax.
Timing of revenue recognition
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
| | (In thousands) | | | | | | |
| Products and services transferred at a point in time | | $ | 195,695 | | | $ | 178,160 | | | $ | 475,106 | | | $ | 341,124 | |
| Products and services transferred over time | | 603,234 | | | 570,537 | | | 1,184,768 | | | 1,126,716 | |
| Total net revenues | | $ | 798,929 | | | $ | 748,697 | | | $ | 1,659,874 | | | $ | 1,467,840 | |
Contract balances
The Company's short-term and long-term contract assets, net of allowance for credit losses, were $17.1 million and $21.6 million, respectively, as of June 30, 2020. The Company's short-term and long-term contract assets were $12.2 million and $20.5 million, respectively, as of December 31, 2019. The Current portion of deferred revenues and the Long-term portion of deferred revenues were $1.38 billion and $409.6 million, respectively, as of June 30, 2020 and $1.35 billion and $443.5 million, respectively, as of December 31, 2019. The difference in the opening and closing balances of the Company’s contract assets and liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. During the three and six months ended June 30, 2020, the Company recognized $489.7 million and $841.0 million, respectively, of revenue that was included in the deferred revenue balance as of March 31, 2020 and December 31, 2019, respectively.
The Company performs its obligations under a contract with a customer by transferring solutions and services in exchange for consideration from the customer. Accounts receivable are recorded when the right to consideration becomes unconditional. The timing of the Company’s performance often differs from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. The Company recognizes a contract asset when the Company transfers products or services to a customer and the right to consideration is conditional on something other than the passage of time. The Company recognizes a contract liability when it has received consideration or an amount of consideration is due from the customer and the Company has a future obligation to transfer products or services. The Company had 0 material asset impairment charges related to contract assets for either the three and six months ended June 30, 2020 or June 30, 2019.
For the Company’s software and hardware products, the timing of payment is typically upfront for its perpetual offerings and the Company’s on-premise subscriptions. Therefore, deferred revenue is created when a contract includes performance obligations such as license updates and maintenance or certain professional services that are satisfied over time. For subscription contracts, the timing of payment is typically in advance of services, and deferred revenue is created as these services are provided over time.
A significant portion of the Company’s contracts have an original duration of one year or less; therefore, the Company applies a practical expedient to determine whether a significant financing component exists and does not consider the effects of the time value of money. For multi-year contracts, the Company bills annually.
Transaction price allocated to the remaining performance obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | <1-3 years | | 3-5 years | | 5 years or more | | Total |
| Subscription | | $ | 1,082,835 | | | $ | 83,904 | | | $ | 1,166 | | | $ | 1,167,905 | |
| Support and services | | 1,448,652 | | | 36,065 | | | 1,864 | | | 1,486,581 | |
| Total net revenues | | $ | 2,531,487 | | | $ | 119,969 | | | $ | 3,030 | | | $ | 2,654,486 | |
Contract acquisition costs
The Company is required to capitalize certain contract acquisition costs consisting primarily of commissions paid and related payroll taxes when contracts are signed. The asset recognized from capitalized incremental and recoverable acquisition costs is amortized on a basis consistent with the pattern of transfer of the products or services to which the asset relates.
The Company’s typical contracts include performance obligations related to product and licenses and support. In these contracts, incremental costs of obtaining a contract are allocated to the performance obligations based on the relative estimated standalone selling prices and then recognized on a basis that is consistent with the transfer of the goods or services to which the asset relates. The commissions paid on annual renewals of support for product and licenses are not commensurate with the initial commission. The costs allocated to product and licenses are expensed at the time of sale, when revenue for the product and functional software licenses is recognized. The costs allocated to customer support for product and licenses are amortized ratably over a period of the greater of the contract term or the average customer life, the expected period of benefit of the asset capitalized. The Company currently estimates an average customer life of three years to five years, which it believes is appropriate based on consideration of the historical average customer life and the estimated useful life of the underlying product and license sold as part of the transaction. Amortization of contract acquisition costs related to support is limited to the contractual period of the arrangement as the Company intends to pay a commensurate commission upon renewal of the related support. For contracts that contain multi-year services or subscriptions, the amortization period of the capitalized costs is the expected period of benefit, which is the greater of the contractual term or the expected customer life.
The Company elects to apply a practical expedient to expense contract acquisition costs as incurred where the expected period of benefit is one year or less.
For the three and six months ended June 30, 2020, the Company recorded amortization of capitalized contract acquisition costs of $13.8 million and $26.9 million, respectively, and for the three and six months ended June 30, 2019, the Company recorded amortization of capitalized contract acquisition costs of $10.9 million and $21.6 million, respectively, which is recorded in Sales, marketing and services expense in the accompanying condensed consolidated statements of income. The Company's short-term and long-term contract acquisition costs were $56.2 million and $93.8 million, respectively, as of June 30, 2020, and $50.4 million and $81.0 million, respectively, as of December 31, 2019, and are included in Prepaid and other current assets and Other assets, respectively, in the accompanying condensed consolidated balance sheets. There was 0 impairment loss in relation to costs capitalized during either the three and six months ended June 30, 2020 or June 30, 2019.
4. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share is computed using the weighted-average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise or settlement of stock awards and shares issuable under the employee stock purchase plan (calculated using the treasury stock method) during the period they were outstanding and potential dilutive common shares from the conversion spread on the Company’s 0.500% Convertible Notes due 2019 (the “Convertible Notes”) and the Company's warrants during the period they were outstanding.
The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share information):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| | June 30, | | | | June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Numerator: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income | $ | 112,906 | | | $ | 93,495 | | | $ | 294,128 | | | $ | 203,843 | |
| Denominator: | | | | | | | |
| Denominator for basic earnings per share - weighted-average shares outstanding | 123,522 | | | 131,309 | | | 124,128 | | | 131,396 | |
| Effect of dilutive employee stock awards | 2,213 | | | 1,453 | | | 2,531 | | | 2,145 | |
| | | | | | | |
| Effect of dilutive Convertible Notes | — | | | 782 | | | — | | | 2,867 | |
| Effect of dilutive warrants | — | | | 733 | | | — | | | 1,227 | |
| Denominator for diluted earnings per share - weighted-average shares outstanding | 125,735 | | | 134,277 | | | 126,659 | | | 137,635 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Basic earnings per share | $ | 0.91 | | | $ | 0.71 | | | $ | 2.37 | | | $ | 1.55 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Diluted earnings per share | $ | 0.90 | | | $ | 0.70 | | | $ | 2.32 | | | $ | 1.48 | |
For the three and six months ended June 30, 2020, there were 0 weighted-average number of shares outstanding used in the computation of diluted earnings per share for the Company's warrants, as they expired on November 18, 2019. For the three and six months ended June 30, 2019, the weighted-average number of shares outstanding used in the computation of diluted earnings per share includes the dilutive effect of the Company's warrants, as the average stock price during the quarters was above the weighted-average warrant strike price of $94.53 per share and $94.69 per share, respectively. Anti-dilutive stock-based awards excluded from the calculations of diluted earnings per share were immaterial during the periods presented. The Company used the treasury stock method to consider the dilutive effect of the forward sale contract related to the accelerated share repurchase transactions ("ASR") entered into in January 2020, and determined that the forward sale contract was anti-dilutive in calculating dilutive EPS.
The Company used the treasury stock method for calculating any potential dilutive effect of the conversion spread on its Convertible Notes on diluted earnings per share because upon conversion the Company paid cash up to the aggregate principal amount of the Convertible Notes converted and delivered shares of common stock in respect of the remainder of the Company’s conversion obligation in excess of the aggregate principal amount of the Convertible Notes converted. The conversion spread had a dilutive impact on diluted earnings per share when the average market price of the Company’s common stock for a given
period exceeded the conversion price. For the three and six months ended June 30, 2020, there was 0 dilution as the Convertible Notes matured on April 15, 2019. For the three and six months ended June 30, 2019, the average market price of the Company's common stock exceeded the conversion price; therefore, the dilutive effect of the Convertible Notes was included in the denominator of diluted earnings per share.
5. CREDIT LOSSES
The Company is exposed to credit losses primarily through its accounts receivable, investments in available-for-sale debt securities, and contract assets. See Note 3 for additional information related to the Company's contract assets.
Accounts receivable, net
The Company's accounts receivable, which are typically due within one year, consist of the following (in thousands):
| | | | | |
| June 30, 2020 |
Accounts receivable, gross | $ | 634,285 | |
Less: allowance for returns | (4,886) | |
Less: allowance for credit losses | (15,249) | |
Accounts receivable, net | $ | 614,150 | |
The allowance for credit losses on accounts receivable is determined using a combination of specific reserves for accounts that are deemed to exhibit credit loss indicators and general reserves that are judgmentally determined using loss rates based on historical write-offs by geography and customer accounts subject to credit check versus non-credit check status and consideration of recent forecasted information, including underlying economic expectations. The credit loss reserves are updated quarterly for most recent write-offs and collections information and underlying economic expectations, which for the first half of 2020 included consideration of the current and expected future economic and market conditions surrounding the COVID-19 pandemic. The Company will compare its current estimate of expected credit losses with the estimate of credit losses from the prior period and will report in net income the amount necessary to adjust the allowance for current expected credit losses. The Company recorded $2.8 million and $9.1 million of credit loss expense during the three and six months ended June 30, 2020, respectively, which is included within General and administrative expenses in the accompanying condensed consolidated statements of income.
The activity in the Company's allowance for credit losses for the six months ended June 30, 2020 is summarized as follows (in thousands):
| | | | | |
| Total |
Balance of allowance for credit losses at January 1, 2020 | $ | 6,161 | |
Adjustment for ASC 326 adoption | 1,245 | |
Current period provision for expected losses | 9,057 | |
Write-offs charged against allowance | (1,214) | |
| |
Balance of allowance for credit losses at June 30, 2020 | $ | 15,249 | |
As of June 30, 2020, one distributor, the Arrow Group, accounted for 13% of the Company's total gross accounts receivable.
Available-for-sale Investments
The allowance for credit losses on the Company's investments in available-for-sale debt securities is determined using a quantitative discounted cash flow analysis if impairment triggers exist after a qualitative screen is completed. Impairment on available-for-sale debt securities is determined on an individual security basis and the security is subject to impairment when its fair value declines below its amortized cost basis. If the fair value is less than the amortized cost basis, management must then determine whether it intends to sell the security or whether it is more likely than not that it will be required to sell the security before it recovers its value. If management intends to sell the security or will more-likely-than-not be required to sell the impaired security before it recovers its value, a credit loss is recorded to Other income, (expense), net in the accompanying condensed consolidated statements of income. If management does not intend to sell the security, nor will it more-likely-than-not be required to sell the security before the security recovers its value, management must then determine whether the loss is due to credit loss or other factors. For impairment indicators due to credit loss factors, management establishes an allowance for credit losses with a charge to Other income, (expense), net. FOn the contrary, foror impairment indicators due to other factors, management records the loss with a charge to OtherAccumulated other comprehensive loss in the accompanying condensed balance sheets.
Upon adoption of the credit loss standard, the Company established an allowance for credit losses and did 0t have any credit loss expense recorded related to available-for-sale debt securities for the three and six months ended June 30, 2020, respectively. See Note 6 for more information on allowances for credit losses related to available-for-sale debt securities.
The Company has available-for-sale debt securities that have fair values below amortized cost; however, the Company does not consider a credit allowance necessary as (i) the Company does not intend to sell the securities, (ii) it is not more-likely-than-not that the Company will be required to sell the investments before recovery of the amortized cost basis, and (iii) the unrealized losses are due to market factors rather than credit loss factors.
6. INVESTMENTS
Available-for-sale Investments
Investments in available-for-sale securities at fair value were as follows for the periods ended (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | | | | | | | |
| Description of the Securities | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Allowance
for
Credit Losses | | Fair Value |
| Agency securities | $ | 19,996 | | | $ | — | | | $ | (3) | | | $ | — | | | $ | 19,993 | |
| Corporate securities | 188,455 | | | 12 | | | (23) | | | (147) | | | 188,297 | |
| | | | | | | | | |
| Government securities | 116,969 | | | — | | | (13) | | | — | | | 116,956 | |
| Total | $ | 325,420 | | | $ | 12 | | | $ | (39) | | | $ | (147) | | | $ | 325,246 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | | | | | |
| Description of the Securities | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair Value |
| Agency securities | $ | 1,681 | | | $ | 1 | | | $ | — | | | $ | 1,682 | |
| Corporate securities | 49,027 | | | 6 | | | (149) | | | 48,884 | |
| | | | | | | |
| Government securities | 9,124 | | | 5 | | | — | | | 9,129 | |
| Total | $ | 59,832 | | | $ | 12 | | | $ | (149) | | | $ | 59,695 | |
The change in net unrealized gains (losses) on available-for-sale securities recorded in Other comprehensive income (loss) includes unrealized gains (losses) that arose from changes in market value, excluding credit-related factors, of specifically identified securities that were held during the period, gains (losses) that were previously unrealized, but have been recognized in current period net income due to sales, and prepayments of available-for-sale investments purchased at a premium.See Note 13 for more information related to comprehensive income.
The average remaining maturities of the Company’s short-term and long-term available-for-sale investments at June 30, 2020 were approximately three months and two years, respectively.
For the three and six months ended June 30, 2020, the Company did 0t receive any proceeds from the sales of available-for-sale investments. For the three and six months ended June 30, 2019, the Company received proceeds from the sales of available-for-sale investments of $165.0 million and $938.0 million, respectively.
Realized and Unrealized Gains and Losses on Available-for-sale Investments
For the three and six months ended June 30, 2020, the Company did 0t have any realized gains on available-for-sale investments. For the three and six months ended June 30, 2019, the Company had realized gains on available-for-sale investments of $0.5 million and $1.5 million, respectively.
Effective January 1, 2020, the new CECL guidance requires the recognition of an allowance for estimated credit losses on investments in available-for-sale debt securities. For the three and six months ended June 30, 2020, the Company did 0t have any realized losses on available-for-sale investments. For the three and six months ended June 30, 2019, the Company had realized losses on available-for-sale investments of $0.5 million and $0.9 million, respectively. Realized losses primarily related to sales of these investments during the respective periods. All realized gains and losses related to the sales of available-for-sale investments are included in Other income (expense), net, in the accompanying condensed consolidated statements of income.
As of December 31, 2019, the Company's gross unrealized losses on available-for-sale investments were $0.1 million and were not deemed to be other-than-temporarily impaired under the prior accounting guidance.
Equity Securities without Readily Determinable Fair Values
The Company held direct investments in privately-held companies of $12.7 million and $12.3 million as of June 30, 2020 and December 31, 2019, respectively, which are accounted for at cost, less impairment plus or minus adjustments resulting from observable price changes in orderly transactions for an identical or a similar investment of the same issuer. These investments are included in Other assets in the accompanying condensed consolidated balance sheets.
The Company’s investment policy is designed to limit exposure to any one issuer depending on credit quality. The Company periodically reviews these investments for impairment and observable price changes on a quarterly basis, and adjustsuses information provided by third parties to adjust the carrying value accordingly. Theof certain of its investments to fair value at the end of these investments representeach period. Fair values are based on a Level 3 valuation as the assumptions used in valuing these investments are not directly or indirectly observable.variety of inputs and may include interest rates, known historical trades, yield curve information, benchmark data, prepayment speeds, credit quality and broker/dealer quotes. See Note 7 for detailedadditional information on fair value measurements.
Equity Securities Accounted for at Net Asset Value
The Company held equity interests in certain private equity funds of $10.2 million and $11.2 million as of June 30, 2020 and December 31, 2019, respectively, which are accounted for under the net asset value practical expedient. These investments are included in Other assets in the accompanying condensed consolidated balance sheets. The net asset value of these investments is determined using quarterly capital statements from the funds, which are based onregarding the Company’s contributions to the funds, allocation of profit and loss and changes in fair value of the underlying fund investments. These private equity funds focus on making venture capital investments, principally by investing in equity securities of early and late stage privately-held corporations. The funds’ general partner shall determine the amount, timing and form (whether cash or in kind) of all distributions made by the funds. The Company may only transfer its investments in private equity fund interests subject to the general partner’s written consent and cannot trade its fund interests in established securities markets, secondary markets or equivalents thereof. The Company has unfunded commitments of $0.5 million as of June 30, 2020.
7. FAIR VALUE MEASUREMENTSFair Value Measurements
The authoritative guidance defines fair value as an exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
•Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
•Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
•Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Available-for-sale securities included in Level 2 are valued utilizing inputs obtained from an independent pricing service (the “Service”) which uses quoted market prices for identical or comparable instruments rather than direct observations of quoted prices in active markets. The Service applies a four level hierarchical pricing methodology to all of the Company’s fixed income securities based on the circumstances. The hierarchy starts with the highest priority pricing source, then subsequently uses inputs obtained from other third-party sources and large custodial institutions. The Service’s providers utilize a variety of inputs to determine their quoted prices. These inputs may include interest rates, known historical trades, yield curve information, benchmark data, prepayment speeds, credit quality and broker/dealer quotes. Substantially all of the Company’s available-for-sale investments are valued utilizing inputs obtained from the Service and accordingly are categorized as Level 2 in the table below.2. The Company periodically independently assesses the pricing obtained from the Service and historically has not adjusted the Service's pricing as a result of this assessment. Available-for-sale securities are included in Level 3 when relevant observable inputs for a security are not available.
The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of assets and liabilities within the fair value hierarchy. In certain instances, the inputs used to measure fair value may meet the definition of more than one level of the fair value hierarchy. The input with the lowest level priority is used to determine the applicable level in the fair value hierarchy. See Note 7 for additional information regarding the Company’s fair value measurements.
Foreign Currency
The functional currency for all of the Company’s wholly-owned foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities of such subsidiaries are remeasured into U.S. dollars at exchange rates in effect at the balance sheet date, and revenues and expenses are remeasured at average rates prevailing during the year.Foreign currency transaction gains and losses are the result of exchange rate changes on transactions denominated in currencies other than the functional currency. The remeasurement of those foreign currency transactions is included in determining net income or loss for the period of exchange.
Accounting for Stock-Based Compensation Plans
The Company has various stock-based compensation plans for its employees and outside directors and accounts for stock-based compensation arrangements in accordance with the authoritative guidance, which requires the Company to measure and record compensation expense in its condensed consolidated financial statements using a fair value method. See Note 8 for further information regarding the Company’s stock-based compensation plans.
3. REVENUE
The following is a description of the principal activities from which the Company generates revenue.
Subscription
Subscription revenues primarily consist of cloud-hosted offerings, which provide customers a right to access one or more of the Company’s cloud-hosted subscription offerings, with routine customer support, as well as revenues from the Citrix Service Provider ("CSP") program, on-premise subscription software licenses, and hybrid subscription offerings. The CSP program provides subscription-based services in which the CSP partners host software services to their end users.
Product and license
Product and license revenues are primarily derived from perpetual offerings related to the Company’s Workspace solutions and App Delivery and Security products.
Support and services
Support and services revenues include license updates, maintenance and professional services which are primarily related to the Company's perpetual offerings. License updates and maintenance revenues are primarily comprised of software and hardware maintenance, when and if-available updates and technical support. Services revenues are comprised of fees from consulting services primarily related to the implementation of the Company’s products and fees from product training and certification.
The Company’s typical performance obligations include the following:
| | | | | | | |
| Performance Obligation | When Performance Obligation is Typically Satisfied | | |
| Subscription | | | |
| Cloud-hosted offerings | Over the contract term, beginning on the date that service is made available to the customer (over time) | | |
| CSP | As the usage occurs (over time) | | |
| On-premise subscription software licenses | When software activation keys have been made available for download (point in time) | | |
| On-premise subscription license updates and maintenance | Ratably over the course of the service term (over time) | | |
| Product and license | | | |
| Software licenses | When software activation keys have been made available for download (point in time) | | |
| Hardware | When control of the product passes to the customer; typically upon shipment (point in time) | | |
| Support and services | | | |
| License updates and maintenance for perpetual software licenses | Ratably over the course of the service term (over time) | | |
| Professional services | As the services are provided (over time) | | |
Significant Judgments
The Company generates all of its revenues from contracts with customers. At contract inception, the Company assesses the solutions or services, or bundles of solutions and services, obligated in the contract with a customer to identify each performance obligation within the contract, and then evaluates whether the performance obligations are capable of being distinct and distinct within the context of the contract. Solutions and services that are not both capable of being distinct and distinct within the context of the contract are combined and treated as a single performance obligation in determining the allocation and recognition of revenue.
The standalone selling price is the price at which the Company would sell a promised product or service separately to the customer. For the majority of the Company's software licenses and hardware, CSP and on-premise subscription software licenses, the Company uses the observable price in transactions with multiple performance obligations. For the majority of the Company’s support and services, and cloud-hosted subscription offerings, the Company uses the observable price when the Company sells that support and service and cloud-hosted subscription separately to similar customers. If the standalone selling price for a performance obligation is not directly observable, the Company estimates it. The Company estimates standalone selling price by taking into consideration market conditions, economics of the offering and customers’ behavior. The Company maximizes the use of observable inputs and applies estimation methods consistently in similar circumstances. The Company allocates the transaction price to each distinct performance obligation on a relative standalone selling price basis.
Revenues are recognized when control of the promised products or services are transferred to customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those products or services.
Sales tax
The Company records revenue net of sales tax.
Timing of revenue recognition
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2021 | | 2020 | | | | |
| | (In thousands) |
| Products and services transferred at a point in time | | $ | 141,799 | | | $ | 279,411 | | | | | |
| Products and services transferred over time | | 633,967 | | | 581,534 | | | | | |
| Total net revenues | | $ | 775,766 | | | $ | 860,945 | | | | | |
Contract balances
The Company's short-term and long-term contract assets, net of allowance for credit losses, were $37.1 million and $43.1 million, respectively, as of March 31, 2021, and $37.3 million and $41.7 million, respectively, as of December 31, 2020, and are included in Prepaid expenses and other current assets and Other assets, respectively, in the accompanying condensed consolidated balance sheets. The Current portion of deferred revenues and the Long-term portion of deferred revenues were $1.48 billion and $363.6 million, respectively, as of March 31, 2021 and $1.51 billion and $392.4 million, respectively, as of December 31, 2020. The difference in the opening and closing balances of the Company’s contract assets and liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. During the three months ended March 31, 2021, the Company recognized $532.7 million of revenue that was included in the deferred revenue balance as December 31, 2020.
The Company performs its obligations under a contract with a customer by transferring solutions and services in exchange for consideration from the customer. Accounts receivable are recorded when the right to consideration becomes unconditional. The timing of the Company’s performance differs from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. The Company recognizes a contract asset when the Company transfers products or services to a customer and the right to consideration is conditional on something other than the passage of time. The Company recognizes a contract liability when it has received consideration or an amount of consideration is due from the customer and the Company has a future obligation to transfer products or services. The Company had 0 material asset impairment charges related to contract assets for either the three months ended March 31, 2021 or March 31, 2020.
For the Company’s software and hardware products, the timing of payment is typically upfront for its perpetual offerings and the Company’s on-premise subscriptions. Therefore, deferred revenue is created when a contract includes performance obligations such as license updates and maintenance or certain professional services that are satisfied over time. For subscription contracts, the timing of payment is typically in advance of services, and deferred revenue is amortized as these services are provided over time.
A significant portion of the Company’s contracts have an original duration of one year or less; therefore, the Company applies a practical expedient to determine whether a significant financing component exists and does not consider the effects of the time value of money. For multi-year contracts, the Company bills annually.
Transaction price allocated to the remaining performance obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | <1-3 years | | 3-5 years | | 5 years or more | | Total |
| Subscription | | $ | 1,612,011 | | | $ | 70,094 | | | $ | 550 | | | $ | 1,682,655 | |
| Support and services | | 1,328,427 | | | 27,506 | | | 1,625 | | | 1,357,558 | |
| Total net revenues | | $ | 2,940,438 | | | $ | 97,600 | | | $ | 2,175 | | | $ | 3,040,213 | |
Contract acquisition costs
The Company is required to capitalize certain contract acquisition costs consisting primarily of commissions paid and related payroll taxes when contracts are signed. The asset recognized from capitalized incremental and recoverable acquisition costs is amortized over the expected period of benefit on a basis consistent with the pattern of transfer of the products or services to which the asset relates. The Company elects to apply a practical expedient to expense contract acquisition costs as incurred where the pattern of transfer is one year or less.
The Company’s typical contracts include performance obligations related to subscription, product and licenses, and support and services. Contract acquisition costs are allocated to performance obligations using a portfolio approach. The
Company assesses its sales compensations plans at least annually to evaluate whether contract acquisition costs for renewals and extensions are commensurate with those related to initial contracts. If concluded to be commensurate, the contract acquisition costs are amortized over the contractual term on a basis consistent with the pattern of transfer of the products or services to which the asset relates. If concluded not to be commensurate, the contract acquisition costs are amortized over the greater of the contractual term or estimated customer life on a basis consistent with the pattern of transfer of the products or services to which the asset relates. The Company estimates an average customer life of three years to five years, which it believes is appropriate based on consideration of the historical average customer life and the estimated useful life of the underlying product and license sold as part of the transaction.
For the three months ended March 31, 2021 and 2020, the Company recorded amortization of capitalized contract acquisition costs of $18.3 million and $13.1 million, respectively, which is recorded in Sales, marketing and services expense in the accompanying condensed consolidated statements of income. The Company's short-term and long-term contract acquisition costs were $72.0 million and $130.4 million, respectively, as of March 31, 2021, and $71.5 million and $124.7 million, respectively, as of December 31, 2020, and are included in Prepaid expenses and other current assets and Other assets, respectively, in the accompanying condensed consolidated balance sheets. There was 0 impairment loss in relation to costs capitalized during the three months ended March 31, 2021 and 2020, respectively.
4. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share is computed using the weighted-average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise or settlement of stock awards and shares issuable under the employee stock purchase plan (calculated using the treasury stock method) during the period they were outstanding.
The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share information):
| | | | | | | | | | | |
| Three Months Ended |
| | March 31, |
| | 2021 | | 2020 |
| Numerator: | | | |
| | | |
| | | |
| Net income | $ | 90,048 | | | $ | 181,222 | |
| Denominator: | | | |
| Denominator for basic earnings per share - weighted-average shares outstanding | 122,923 | | | 124,737 | |
| Effect of dilutive employee stock awards | 3,103 | | | 2,840 | |
| | | |
| Denominator for diluted earnings per share - weighted-average shares outstanding | 126,026 | | | 127,577 | |
| | | |
| | | |
| | | |
| | | |
| Basic earnings per share | $ | 0.73 | | | $ | 1.45 | |
| | | |
| | | |
| | | |
| | | |
| Diluted earnings per share | $ | 0.71 | | | $ | 1.42 | |
5. CREDIT LOSSES
The Company is exposed to credit losses primarily through its accounts receivable, investments in available-for-sale debt securities, and contract assets. See Note 3 for additional information related to the Company's contract assets.
Accounts receivable, net
The Company's accounts receivable consist of the following (in thousands):
| | | | | |
| March 31, 2021 |
| Accounts receivable, gross | $ | 594,564 | |
| Less: allowance for returns | (11,176) | |
| Less: allowance for credit losses | (12,854) | |
| Accounts receivable, net | $ | 570,534 | |
The allowance for credit losses on accounts receivable is determined using a combination of specific reserves for accounts that are deemed to exhibit credit loss indicators and general reserves that are judgmentally determined using loss rates based on historical write-offs by geography and customer accounts subject to credit check versus non-credit check status and consideration of recent forecasted information, including underlying economic expectations. The credit loss reserves are updated quarterly for most recent write-offs and collections information and underlying economic expectations. The Company will compare its current estimate of expected credit losses with the estimate of credit losses from the prior period and will report in net income the amount necessary to adjust the allowance for current expected credit losses. Credit loss expense is included within General and administrative expenses in the accompanying condensed consolidated statements of income.
The activity in the Company's allowance for credit losses for the three months ended March 31, 2021 is summarized as follows (in thousands):
| | | | | |
| Total |
| Balance of allowance for credit losses at January 1, 2021 | $ | 15,419 | |
| |
| Current period provision (credit) for expected losses | (2,835) | |
| Write-offs charged against allowance | (719) | |
| Recoveries of any amounts previously written off | 104 | |
Other (1) | $ | 885 | |
| Balance of allowance for credit losses at March 31, 2021 | $ | 12,854 | |
(1) Includes amounts established in connection with acquisitions.
As of March 31, 2021, one distributor accounted for 13% of the Company's total gross accounts receivable.
Available-for-sale Investments
The Company did 0t have any credit loss expense recorded related to available-for-sale debt securities for the three months ended March 31, 2021 and 2020, respectively.
The Company has available-for-sale debt securities that have fair values below amortized cost; however, the Company does not consider a credit allowance necessary as (i) the Company does not intend to sell the securities, (ii) it is not more-likely-than-not that the Company will be required to sell the investments before recovery of the amortized cost basis, and (iii) the unrealized losses are due to market factors rather than credit loss factors. See Note 7 for more information on available-for-sale debt securities.
6. ACQUISITIONS
2021 Business Combination
On February 26, 2021 (the “Closing Date”), the Company completed the acquisition of Wrangler Topco, LLC (“Wrangler”), the parent entity of Wrike, Inc. (“Wrike”), a leader in the SaaS collaborative work management space, for approximately $2.07 billion (“Purchase Consideration”). The Purchase Consideration consists of a base purchase price of $2.25 billion and is subject to certain adjustments as provided for under the related Agreement and Plan of Merger dated January 16, 2021 (the “Merger Agreement”). The Company expects that the addition of Wrike’s cloud-delivered capabilities will accelerate its business model transition to the cloud and strategy to become a complete SaaS-based work platform. Under the Merger Agreement, the Company acquired all of the issued and outstanding equity securities of Wrangler.
On the Closing Date, $35.0 million of the Purchase Consideration was deposited into a third party escrow fund, to be held for up to one year following the Closing Date, to fund (i) potential payment obligations of Wrangler equityholders with respect to post-closing adjustments to the Purchase Consideration and (ii) potential post-closing indemnification obligations of Wrangler equityholders, in each case in accordance with the terms of the Merger Agreement.
Under the terms of the Merger Agreement, certain unvested stock options held by Wrike employees were assumed by the Company and converted into options to purchase 526,113 shares of the Company's common stock that were valued at $54.3 million using the Black-Scholes option-pricing model. The portion of the fair value of the assumed stock options associated with pre-combination service of Wrike employees was valued at $28.9 million and represented a component of the Purchase Consideration. The remaining fair value of $25.4 million will be recognized as post-combination stock-based compensation expense over the service period. Of these assumed awards, 180,003 options continued with the same monthly vesting conditions under which they were originally granted. The majority of the remaining assumed options were reset to primarily cliff vest on December 31, 2021 or annually over two years. See Note 8 for detailed information on the assumed stock options.
The Merger Agreement contains representations, warranties and covenants believed to be customary for a transaction of this nature, including covenants as to indemnification for breaches of certain representations, warranties and covenants, subject to certain exclusions and caps. The Company has obtained a representation and warranty insurance policy under which it may seek coverage for breaches of certain of Wrangler’s representations, warranties, and covenants in the Merger Agreement.
The Company incurred $18.8 million of expenses related to the Wrike acquisition, of which $15.5 million were expensed during the three months ended March 31, 2021 and are included in General and administrative expense in the accompanying condensed consolidated statements of income.
In February 2021, the Company entered into a three-year term loan credit agreement providing for a $1.00 billion senior unsecured term loan (“2021 Term Loan”) and issued $750.0 million of unsecured senior notes due March 1, 2026 (the “2026 Notes”). The proceeds of the 2021 Term Loan and 2026 Notes were used to (i) fund a portion of the purchase price of the acquisition and (ii) to pay fees and expenses incurred in connection with the acquisition. The Company incurred $9.1 million of issuance costs that were netted against Long-term debt in the accompanying condensed consolidated balance sheets. See Note 11 for detailed information on the debt financing.
The Company has included the effect of the acquisition in its results of operations prospectively from the date of acquisition. Net revenues of Wrike included in the Company’s condensed consolidated statements of income from the Closing Date through March 31, 2021 was $7.9 million. Loss from operations of Wrike included in the Company's condensed consolidated statements of income from the Closing Date through March 31, 2021 was $20.7 million, primarily as a result of amortization of intangible assets acquired and stock based compensation associated with the assumed options and 2021 Inducement Plan. See Note 8 for detailed information on the 2021 Inducement Plan.
Purchase Accounting for Wrike
The purchase price for Wrike was allocated to the acquired net tangible and intangible assets based on estimated fair values as of the date of acquisition. The allocation of the total purchase price is summarized below (in thousands):
| | | | | | | | | | | | | | |
| | Wrike |
| | Purchase Price Allocation | | Asset Life |
| Current assets | | $ | 32,008 | | | |
| Intangible assets | | $ | 824,900 | | | 2 - 7 years |
| Goodwill | | $ | 1,656,949 | | | Indefinite |
| Other assets | | $ | 17,380 | | | |
| Assets acquired | | $ | 2,531,237 | | | |
| Current liabilities assumed | | $ | 84,969 | | | |
| Long-term liabilities assumed | | $ | 202,722 | | | |
| Deferred tax liabilities, non-current | | $ | 176,540 | | | |
| Net assets acquired | | $ | 2,067,006 | | | |
The fair values of Wrike's intangible assets were determined using the income approach with significant inputs that are not observable in the market. Key assumptions include, but are not limited to, the expected future cash flows, the timing of the expected future cash flows, royalty rates, customer churn, technology obsolescence and the discount rates consistent with the level of risk.
Current assets acquired in connection with the acquisition consisted primarily of cash, accounts receivable and other short term assets. Current liabilities assumed in connection with the acquisition consisted primarily of the current portion of deferred revenues, accounts payable and other accrued expenses, such as transaction expenses. The accrued transaction expenses were paid in full subsequent to the acquisition date. Long-term liabilities assumed in connection with the acquisition consisted of the long-term portion of deferred revenue, other long-term liabilities, and long-term debt, which was paid in full subsequent to the acquisition date. The Company continues to evaluate certain assets and liabilities related to the Wrike acquisition. Additional information, which existed as of the acquisition date but was at that time unknown to the Company, may become known to the Company during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
The Company estimated its obligation related to deferred revenue using the cost build-up approach. The cost build-up approach determines fair value by estimating the costs relating to supporting the obligation plus an assumed profit. The sum of the costs and assumed profit approximates the amount that the Company would be required to pay a third party to assume the obligation. The estimated costs to fulfill the obligation were based on the near-term projected cost structure for various revenue contracts, resulting in an adjustment to reduce Wrike's carrying value of deferred revenue. The acquired deferred revenue of $33.1 million represents the Company's estimate of the fair value of the contractual obligations assumed based on a preliminary valuation.
The goodwill related to the acquisition is 0t deductible for tax purposes and is comprised primarily of expected synergies from combining operations and other intangible assets that do not qualify for separate recognition.
Identifiable intangible assets acquired in connection with the Wrike acquisition (in thousands) and the weighted-average lives are as follows:
| | | | | | | | | | | | | | |
| | Wrike | | Asset Life |
| Core and product technologies | | $ | 347,900 | | | 6 years |
| Customer relationships | | $ | 446,400 | | | 7 years |
| Backlog | | $ | 13,500 | | | 2 years |
| Trade names | | $ | 17,100 | | | 3 years |
| Total | | $ | 824,900 | | | |
The following unaudited pro-forma information combines the consolidated results of the operations of the Company and Wrike as if the acquisition had occurred on January 1, 2020, the first day of the Company's fiscal year 2020 (in thousands, except per share data):
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2021 | | 2020 |
| Revenues | | $ | 798,019 | | | $ | 879,396 | |
| Income from operations | | $ | 63,654 | | | $ | 139,862 | |
| Net income | | $ | 62,581 | | | $ | 123,051 | |
| Earnings per share - basic | | $ | 0.51 | | | $ | 0.99 | |
| Earnings per share - diluted | | $ | 0.50 | | | $ | 0.96 | |
7. INVESTMENTS AND FAIR VALUE MEASUREMENTS
Investments
Available-for-sale Investments
The Company's short-term available-for-sale debt investments are measured to fair value on a recurring basis. Unrealized gains and losses related to the Company’s short-term investments are recorded in Other comprehensive loss and are generally due to interest rate fluctuations. The securities that are in an unrealized loss position are reviewed on an individual basis in order to evaluate if all or a portion of the unrealized loss is a result of a credit loss. For impairment indicators due to credit loss factors, the Company establishes an allowance for credit losses with a charge to current period net income. See Note 5 for additional information regarding the credit losses for available-for-sale investments. As of March 31, 2021 and December 31, 2020, unrealized gains and losses from the Company’s available-for-sale investments were not material and the amortized cost approximates their fair value. For the three months ended March 31, 2021 and 2020, realized gains and losses on available-for-sale investments were not material.
The average remaining maturities of the Company’s short-term and long-term available-for-sale investments at March 31, 2021 were approximately four months and two years, respectively.
For the three months ended March 31, 2021 and 2020, the Company did 0t receive any proceeds from the sales of available-for-sale investments.
Equity Securities Accounted for at Net Asset Value
The Company held equity interests in certain private equity funds of $18.1 million and $11.3 million as of March 31, 2021 and December 31, 2020, respectively, which are accounted for under the net asset value practical expedient. These investments are included in Other assets in the accompanying condensed consolidated balance sheets. The net asset value of these investments is determined using quarterly capital statements from the funds, which are based on the Company’s contributions to the funds, allocation of profit and loss and changes in fair value of the underlying fund investments. These private equity funds focus on making venture capital investments, principally by investing in equity securities of early and late stage privately-held corporations. The funds’ general partner shall determine the amount, timing and form (whether cash or in kind) of all distributions made by the funds. The Company may only transfer its investments in private equity fund interests subject to the general partner’s written consent and cannot trade its fund interests in established securities markets, secondary markets or equivalents thereof. The Company has unfunded commitments of $0.4 million as of March 31, 2021.
Equity Securities without Readily Determinable Fair Values
The Company held direct investments in privately-held companies of $24.3 million and $22.5 million as of March 31, 2021 and December 31, 2020, respectively, which are accounted for at cost, less impairment plus or minus adjustments resulting from observable price changes in orderly transactions for an identical or a similar investment of the same issuer. These investments are included in Other assets in the accompanying condensed consolidated balance sheets. The Company periodically reviews these investments for impairment and observable price changes on a quarterly basis, and adjusts the carrying value accordingly.
Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
| | | As of June 30, 2020 | | Quoted
Prices in
Active Markets
for Identical
Assets (Level 1) | | Significant
Other
Observable
Inputs (Level 2) | | Significant
Unobservable
Inputs (Level 3) | | As of March 31, 2021 | | Quoted
Prices in
Active Markets
for Identical
Assets (Level 1) | | Significant
Other
Observable
Inputs (Level 2) | | Significant
Unobservable
Inputs (Level 3) |
| | | (In thousands) | | | (In thousands) |
| Assets: | Assets: | | Assets: | |
| Cash and cash equivalents: | Cash and cash equivalents: | | Cash and cash equivalents: | |
| | Cash | Cash | $ | 457,042 | | | $ | 457,042 | | | $ | — | | | $ | — | | Cash | $ | 401,653 | | | $ | 401,653 | | | $ | 0 | | | $ | 0 | |
| | Money market funds | Money market funds | 20,288 | | | 20,288 | | | — | | | — | | Money market funds | 74,385 | | | 74,385 | | | 0 | | | 0 | |
| Corporate securities | Corporate securities | 32,746 | | | — | | | 32,746 | | | — | | Corporate securities | 1,705 | | | 0 | | | 1,705 | | | 0 | |
| Government securities | 44,996 | | | — | | | 44,996 | | | — | | |
| | Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
| Agency securities | 19,993 | | | — | | | 19,993 | | | — | | |
| | Corporate securities | Corporate securities | 188,297 | | | — | | | 187,797 | | | 500 | | Corporate securities | 27,298 | | | 0 | | | 26,798 | | | 500 | |
| | Government securities | Government securities | 116,956 | | | — | | | 116,956 | | | — | | Government securities | 5,000 | | | 0 | | | 5,000 | | | 0 | |
| Prepaid expenses and other current assets: | Prepaid expenses and other current assets: | | Prepaid expenses and other current assets: | |
| Foreign currency derivatives | Foreign currency derivatives | 781 | | | — | | | 781 | | | — | | Foreign currency derivatives | 14,334 | | | 0 | | | 14,334 | | | 0 | |
| Total assets | Total assets | $ | 881,099 | | | $ | 477,330 | | | $ | 403,269 | | | $ | 500 | | Total assets | $ | 524,375 | | | $ | 476,038 | | | $ | 47,837 | | | $ | 500 | |
| Accrued expenses and other current liabilities: | Accrued expenses and other current liabilities: | | | | | | | | Accrued expenses and other current liabilities: | | | | | | | |
| Foreign currency derivatives | Foreign currency derivatives | 2,236 | | | — | | | 2,236 | | | — | | Foreign currency derivatives | 1,101 | | | 0 | | | 1,101 | | | 0 | |
| Total liabilities | Total liabilities | $ | 2,236 | | | $ | — | | | $ | 2,236 | | | $ | — | | Total liabilities | $ | 1,101 | | | $ | 0 | | | $ | 1,101 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2019 | | Quoted
Prices in
Active Markets
for Identical
Assets (Level 1) | | Significant
Other
Observable
Inputs (Level 2) | | Significant
Unobservable
Inputs (Level 3) |
| | (In thousands) | | | | | | |
| Assets: | | | | | | | |
| Cash and cash equivalents: | | | | | | | |
| Cash | $ | 474,756 | | | $ | 474,756 | | | $ | — | | | $ | — | |
| Money market funds | 42,019 | | | 42,019 | | | — | | | — | |
| Agency securities | 19,993 | | | — | | | 19,993 | | | — | |
| Corporate securities | 8,993 | | | — | | | 8,993 | | | — | |
| | | | | | | |
| Available-for-sale securities: | | | | | | | |
| Agency securities | 1,682 | | | — | | | 1,682 | | | —�� | |
| Corporate securities | 48,884 | | | — | | | 47,884 | | | 1,000 | |
| | | | | | | |
| Government securities | 9,129 | | | — | | | 9,129 | | | — | |
| Prepaid expenses and other current assets: | | | | | | | |
| Foreign currency derivatives | 1,889 | | | — | | | 1,889 | | | — | |
| Total assets | $ | 607,345 | | | $ | 516,775 | | | $ | 89,570 | | | $ | 1,000 | |
| Accrued expenses and other current liabilities: | | | | | | | |
| Foreign currency derivatives | 1,390 | | | — | | | 1,390 | | | — | |
| Total liabilities | $ | 1,390 | | | $ | — | | | $ | 1,390 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2020 | | Quoted
Prices in
Active Markets
for Identical
Assets (Level 1) | | Significant
Other
Observable
Inputs (Level 2) | | Significant
Unobservable
Inputs (Level 3) |
| | (In thousands) |
| Assets: | | | | | | | |
| Cash and cash equivalents: | | | | | | | |
| Cash | $ | 375,874 | | | $ | 375,874 | | | $ | 0 | | | $ | 0 | |
| Money market funds | 23,089 | | | 23,089 | | | 0 | | | 0 | |
| | | | | | | |
| Corporate securities | 166,436 | | | 0 | | | 166,436 | | | 0 | |
| Government securities | 187,496 | | | 0 | | | 187,496 | | | 0 | |
| Available-for-sale securities: | | | | | | | |
| Agency securities | 3,300 | | | 0 | | | 3,300 | | | 0 | |
| Corporate securities | 70,684 | | | 0 | | | 70,184 | | | 500 | |
| | | | | | | |
| Government securities | 64,494 | | | 0 | | | 64,494 | | | 0 | |
| Prepaid expenses and other current assets: | | | | | | | |
| Foreign currency derivatives | 4,012 | | | 0 | | | 4,012 | | | 0 | |
| Total assets | $ | 895,385 | | | $ | 398,963 | | | $ | 495,922 | | | $ | 500 | |
| Accrued expenses and other current liabilities: | | | | | | | |
| Foreign currency derivatives | 1,447 | | | 0 | | | 1,447 | | | 0 | |
| Total liabilities | $ | 1,447 | | | $ | 0 | | | $ | 1,447 | | | $ | 0 | |
The Company’s fixed income available-for-sale security portfolio generally consists of investment grade securities from diverse issuers with a minimum credit rating of A-/A3 and a weighted-average credit rating of AA-/Aa3. The Company values these securities based on pricing from the Service, whose sources may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value, and accordingly, the Company classifies the majority of its fixed income available-for-sale securities as Level 2.
The Company measures its cash flow hedges, which are classified as Prepaid expenses and other current assets and Accrued expenses and other current liabilities, at fair value based on indicative prices in active markets (Level 2 inputs).
Assets Measured at Fair Value on a Non-recurring Basis Using Significant Unobservable Inputs (Level 3)
During the three months ended June 30, 2020, 0 direct investments in privately-held companies were determined to be impaired. During the six months ended June 30, 2020, certain direct investments in privately-held companies with a carrying value of $1.3 million were determined to be impaired and written down to a fair value of 0, resulting in an impairment charge of $1.3 million. The impairment charges were included in Other income (expense), net in the accompanying condensed consolidated statements of income.
During the three and six months ended June 30, 2019, a certain direct investment in a privately-held company with a carrying value of $1.9 million was acquired by a third party and the Company received proceeds of $0.2 million. As a result, the Company wrote down the fair value of the investment and recorded an impairment charge of $1.7 million, which is included in Other income (expense), net in the accompanying condensed consolidated statements of income.
In determining the fair value of the investments, the Company considers many factors, including, but not limited to, operating performance of the investee, the amount of cash that the investee has on-hand, the ability to obtain additional financing and the overall market conditions in which the investee operates.
During the three months ended June 30, 2020, the Company determined that there were 0 material adjustments resulting from observable price changes to See Note 12 for further information regarding the Company's investments in privately-held companies without a readily determinable fair value. During the six months ended June 30, 2020, the Company determined there was an upward adjustment of $1.8 million to one of the Company's investments in a privately-held company without a readily determinable fair value based on an observable input, specifically its ability to obtain additional financing at a favorable valuation. During the three and six months ended June 30, 2019, the Company determined that there were 0 material adjustments resulting from observable price changes to the Company's investments in privately-held companies without a readily determinable fair value.derivatives.
Additional Disclosures Regarding Fair Value Measurements
The carrying value of accounts receivable, accounts payable and accrued expenses approximate their fair value due to the short maturity of these items.
As of June 30, 2020,March 31, 2021, the fair valuevalues of the $750.0 million unsecured senior notes due March 1, 2030 (the "2030 Notes"“2030 Notes”) and, $750.0 million unsecured senior notes due December 1, 2027 (the “2027 Notes"Notes”) was, and $750.0 million 2026 Notes were determined based on inputs that are observable in the market (Level 2). Based on the closing trading price per $100 as of the last day of trading for the quarter ended June 30, 2020,March 31, 2021, the carrying value was as follows (in thousands):
| | | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
| 2030 Notes | 2030 Notes | $ | 802,890 | | | $ | 738,516 | | 2030 Notes | $ | 770,423 | | | $ | 739,401 | |
| 2027 Notes | 2027 Notes | $ | 863,363 | | | $ | 743,371 | | 2027 Notes | $ | 852,608 | | | $ | 744,039 | |
| 2026 Notes | | 2026 Notes | $ | 738,908 | | | $ | 741,596 | |
The Company also has variable debt instruments indexed to 1-Month LIBOR that resets monthly and the fair values of these instruments approximate the carrying value as of March 31, 2021. See Note 11 for more information on the 2030 Notes and 2027 Notes.Company's debt instruments.
8. STOCK-BASED COMPENSATION
Plans
The Company’s stock-based compensation program is a long-term retention program that is intended to attract and reward talented employees and align stockholder and employee interests. As of June 30, 2020,March 31, 2021, the Company had 13 stock-based compensation plan under which it was granting equity awards. plans with shares available for grant.
The Company is currently granting stock-based awards from its Second Amended and Restated 2014 Equity Incentive Plan (the "2014 Plan"“2014 Plan”), which was recently amended at the Company's Annual Meeting of Stockholders on June 3, 2020. Pursuant to the June 2020 amendment, the maximum number of shares of common stock available for issuance under the 2014 Plan was increased to 51,300,000. In addition, the amendment extended the term of the 2014 Plan to June 3, 2030 and updated the vesting provisions from monthly to annual vesting for annual director awards, consistent with the Company's current compensation program for non-employee directors.
As of June 30, 2020,March 31, 2021, there were 18,537,93817,165,879 shares of common stock reserved for issuance pursuant to the Company’s stock-based compensation plans, including authorization under its 2014 Plan to grant stock-based awards covering 12,685,47810,607,969 shares of common stock.
The Company also has an Employee Stock PurchaseIn connection with the Wrike acquisition, on February 26, 2021, the Company's Board of Directors adopted the 2021 Inducement Plan (the “ESPP”“2021 Inducement Plan”), which. The 2021 Inducement Plan provides for the grant of equity awards to induce highly-qualified prospective officers and employees to accept employment and to provide them with a proprietary interest in the Company. The Company is authorized to issue 320,000 shares of common stock for inducement awards under the 2021 Inducement Plan. During the three months ended March 31, 2021, the Company granted 268,248 non-vested stock units to Wrike employees who joined the Company, which vest based on service over a three-year term. As of March 31, 2021, there were 317,518 shares of common stock reserved for issuance pursuant to the 2021 Inducement Plan.
Effective February 26, 2021, the Company assumed the Wrangler Topco, LLC Second Amended and Restated 2018 Equity Incentive Plan (the “Wrangler Plan”) and the Wrike, Inc, Amended and Restated 2013 Stock Plan (the “Wrike Plan”). As of a maximumMarch 31, 2021, there were 698,658 shares of 16,000,000the Company’s common stock reserved and authorized for issuance under the terms of the Wrangler Plan, including authorization under the Wrangler Plan to grant stock-based awards covering 352,548 shares of common stock. As of June 30, 2020, 2,438,105March 31, 2021, there were 177,846 shares have been issued under the ESPP. The Company recorded stock-based compensation costs related to the ESPP of $2.6 million and $2.6 million for the three months ended June 30, 2020 and 2019, respectively, and $4.6 million and $5.5 million for the six months ended June 30, 2020 and 2019, respectively.
The Company used the Black-Scholes model to estimate the fair value of the ESPP awards with the following weighted-average assumptions:
| | | | | | | | | | | | | | | | | | | |
| Six Months Ended | | | | | | | | | | |
| June 30, 2020 | | June 30, 2019 | | | | | | | | |
| Expected volatility factor | 0.21 - 0.22 | | 0.26 - 0.29 | | | | | | | | |
| Risk free interest rate | 1.56% - 2.06% | | 2.19% - 2.49% | | | | | | | | |
| Expected dividend yield | 1.20% - 1.39% | | 1.27% - 1.31% | | | | | | | | |
| Expected life (in years) | 0.5 | | 0.5 | | | | | | | | |
The Company determined the expected volatility factor by considering the implied volatility in six-month market-traded options of the Company's common stock based on third-party volatility quotes. The Company's decision to use implied volatility was based uponreserved and authorized for issuance under the availability of actively traded options on the Company's common stock and its assessment that implied volatility is more representative of future stock price trends than historical volatility. The risk-free interest rate was based on a U.S. Treasury instrument whose term is consistent with the expected termterms of the stock options. The current dividend yield has been updated for expected dividend yield payout. The expected term was based on the termWrike Plan. All of the purchase periodWrike Plan awards are currently outstanding with no new shares available for grants made under the ESPP.issuance.
Stock-Based Compensation
The detail of the total stock-based compensation recognized by income statement classification is as follows (in thousands):
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended March 31, | |
| Income Statement Classifications | Income Statement Classifications | June 30, 2020 | | June 30, 2019 | | June 30, 2020 | | June 30, 2019 | Income Statement Classifications | 2021 | | 2020 | |
| Cost of subscription, support and services | Cost of subscription, support and services | $ | 3,404 | | | $ | 2,956 | | | $ | 6,166 | | | $ | 5,158 | | Cost of subscription, support and services | $ | 4,406 | | | $ | 2,762 | | |
| Research and development | Research and development | 30,987 | | | 25,419 | | | 52,583 | | | 53,256 | | Research and development | 31,127 | | | 21,596 | | |
| Sales, marketing and services | Sales, marketing and services | 27,843 | | | 24,424 | | | 48,229 | | | 44,350 | | Sales, marketing and services | 28,342 | | | 20,386 | | |
| General and administrative | General and administrative | 23,128 | | | 15,521 | | | 36,707 | | | 30,790 | | General and administrative | 22,987 | | | 13,579 | | |
| Total | Total | $ | 85,362 | | | $ | 68,320 | | | $ | 143,685 | | | $ | 133,554 | | Total | $ | 86,862 | | | $ | 58,323 | | |
Non-vested Stock Units
Service-Based Stock Units
The Company awards senior level employees and certain other employees non-vested stock units granted under the 2014 Plan that vest based on service. These non-vested stock unit awards vest 33.33% on each of the first, second and third anniversary subsequent to the grant date of the award. Each non-vested stock unit, upon vesting, represents the right to receive 1 share of the Company’s common stock. In addition, the Company awards non-vested stock units to all of its continuing non-employee directors, which represent the right to receive one share of the Company's common stock upon vesting. Previously, non-vested stock unit awards granted to the Company's continuing non-employee directors vested monthly in 12 equal installments. Beginning in 2020, new awardsAwards granted to non-employee directors will vest in full in one installment on the earlier of: (i) the first anniversary of the award date; or (ii) the day immediately prior to the Company’s next annual meeting of the stockholders following the award date.
Unrecognized Compensation Related to Stock Units
As of March 31, 2021, the total number of non-vested stock units outstanding, including company performance awards and service-based awards was 6,824,397. As of March 31, 2021, there was $641.7 million of total unrecognized compensation cost related to non-vested stock units. The unrecognized cost of the awards legally granted through March 31, 2021 is expected to be recognized over a weighted-average period of 1.96 years.
Company Performance Stock Units
On AprilMarch 1, 2020,2021, the Company awarded senior level employees 294,605305,229 non-vested performance stock unit awards granted under the 2014 Plan. The number of non-vested performance stock units that ultimately vest will be determined within sixty days following completion of the performance period ending December 31, 20222023 and will be based on the achievement of specific corporate financial performance goals related to the Company’s Software as a Service (SaaS) annualized recurring revenue (ARR) growth measured during the period from January 1, 20202021 to December 31, 2022.2023. The number of non-vested stock units issued will be based on a
graduated slope, with the maximum number of non-vested stock units issuable pursuant to the award capped at 200% of the target number of non-vested stock units set forth in the award agreement. Additionally, the awards have an explicit adjustment mechanism to prevent the attainment rates from being distorted should a material acquisition other than Wrike occur during the performance period. The Company is required to estimate the attainment expected to be achieved related to the defined performance goals and the number of non-vested stock units that will ultimately be awarded in order to recognize compensation expense over the vesting period. Each non-vested stock unit, upon vesting, represents the right to receive one share of the Company’s common stock. Compensation expense will be recorded through the end of the performance period on December 31, 20222023 if it is deemed probable that the performance goals will be met. If the performance goals are not met, no compensation cost will be recognized and any previously recognized compensation cost will be reversed.
On April 6,The Company recorded stock-based compensation costs related to its company performance stock units of $13.2 million and $2.1 million for the three months ended March 31, 2021 and 2020, respectively.
Assumed stock options
In connection with the acquisition of Wrike, the Company awarded certain senior level employees 90,756 non-vested performanceassumed 526,113 outstanding stock unit awards granted underoptions which expire ten years from the 2014 Plandate of grant and which were valued using the Black-Scholes option-pricing model. The fair value of the assumed stock options were estimated using the following assumptions:
| | | | | | | |
| Three Months Ended | | |
| March 31, 2021 | | |
| Expected volatility factor | 0.51 - 0.75 | | |
| Risk free interest rate | 0.04% - 0.14% | | |
| Expected dividend yield | 1.11% | | |
| Expected life (in years) | 0.08 - 1.00 | | |
The Company determined the expected volatility factor by considering the implied volatility in various market-traded options of the Company's common stock based on third-party volatility quotes. The Company's decision to use implied volatility was based upon the availability of actively traded options on the Company's common stock and its assessment that vestimplied volatility is more representative of future stock price trends than historical volatility. The risk-free interest rate was based on a U.S. Treasury instrument whose term is consistent with the expected term of the stock options. The current dividend yield has been updated for expected dividend yield payout. The expected term was based on the Company’s ARR growth duringaverage period the relevant performance periods, which span January 1, 2020 through December 31, 2021. The number of non-vested stock units issued uponoptions are expected to remain outstanding, generally calculated as the vestingmidpoint of the award will be based on a graduated slope, withstock options’ remaining vesting term and contractual expiration period, as the maximum numberCompany does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.
The estimated weighted-average grant date fair value for the assumed stock options was $103.22 per share and total fair value of non-vested stock units issuable pursuant to$54.3 million. For the award capped at 125% ofthree months ended March 31, 2021, the target number of non-vested stock units set forth in the award agreement. The Company is required to estimate the attainment expected to be achievedrecorded stock-based compensation costs related to the defined performance goals and the numberunvested assumed stock options of non-vested stock units that will ultimately be awarded in order to recognize compensation expense over the vesting period. Each non-vested stock unit, upon vesting, represents the right to receive one share$2.0 million. As of the Company’s common stock. Compensation expense will be recorded through the end of the performance period on DecemberMarch 31, 2021, if it is deemed probable that the performance goals will be met. If the performance goals are not met, no compensation cost will be recognized and any previously recognized compensation cost will be reversed.
Unrecognized Compensation Related to Stock Units
As of June 30, 2020, the total number of non-vested stock units outstanding, including company performance awards and service-based awards was 5,803,303. As of June 30, 2020, there was $550.0$23.4 million of total unrecognized compensation costcosts related to non-vestedunvested assumed stock units. The unrecognized cost of the awards legally granted through June 30, 2020 is expectedoptions to be recognized over a weighted-average period of 1.871.49 years. See Note 6 for detailed information on the Wrike acquisition.
9. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The Company accounts for goodwill in accordance with the authoritative guidance, which requires that goodwill and certain intangible assets are not amortized, but are subject to an annual impairment test. The Company performed a qualitative assessment in connection with its annual goodwill impairment test in the fourth quarter of 2019.2020. As a result of the qualitative analysis, a quantitative impairment test was not deemed necessary. There was 0 impairment of goodwill or indefinite lived intangible assets as a result of the annual impairment test analysis completed during the fourth quarter of 2019. 2020.
The balance offollowing table presents the change in goodwill at June 30, 2020 and Decemberduring the three months ended March 31, 2019 was $1.80 billion.2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at January 1, 2021 | | Additions | | Other | | Balance at March 31, 2021 |
| Goodwill | 1,798,408 | | | 1,656,949 | | (1) | 0 | | | 3,455,357 | |
(1) Amount relates to the Wrike acquisition. See Note 6 for more information.
Intangible Assets
The Company has intangible assets which were primarily acquired in conjunction with business combinations and technology purchases. Intangible assets with finite lives are recorded at cost, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, generally threetwo to seven years, except for patents, which are amortized over the lesser of their remaining life or seven to ten years.
Intangible assets consist of the following (in thousands):
| | | | June 30, 2020 | | | December 31, 2019 | | | March 31, 2021 | | December 31, 2020 |
| | | Gross Carrying
Amount | | Accumulated
Amortization | | Gross Carrying
Amount | | Accumulated
Amortization | | Gross Carrying
Amount | | Accumulated
Amortization | | Gross Carrying
Amount | | Accumulated
Amortization |
| Product related intangible assets | Product related intangible assets | $ | 738,243 | | | $ | 650,217 | | | $ | 734,973 | | | $ | 633,633 | | Product related intangible assets | $ | 1,092,654 | | | $ | 676,807 | | | $ | 742,949 | | | $ | 665,798 | |
| Other | Other | 187,173 | | | 181,431 | | | 187,173 | | | 180,035 | | Other | 664,791 | | | 190,983 | | | 187,791 | | | 183,451 | |
| Total | Total | $ | 925,416 | | | $ | 831,648 | | | $ | 922,146 | | | $ | 813,668 | | Total | $ | 1,757,445 | | | $ | 867,790 | | | $ | 930,740 | | | $ | 849,249 | |
Amortization of product related intangible assets, which consists primarily of product related technologies and patents, was $8.3$11.0 million and $9.8$8.3 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $16.6 million and $20.1 million for the six months ended June 30, 2020 and 2019, respectively, and is classified as a component of Cost of net revenues in the accompanying condensed consolidated statements of income. Amortization of other intangible assets, which consist primarily of customer relationships, trade names, backlog and covenants not to compete was $0.7$7.5 million and $3.2$0.7 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $1.4 million and $6.7 million for the six months ended June 30,
2020 and 2019, respectively, and is classified as a component of Operating expenses in the accompanying condensed consolidated statements of income.
The Company monitors its intangible assets for indicators of impairment. If the Company determines impairment has occurred, it will write-down the intangible asset to its fair value. For certain intangible assets where the unamortized balances exceeded the undiscounted future net cash flows, the Company measures the amount of the impairment by calculating the amount by which the carrying values exceed the estimated fair values, which are based on projected discounted future net cash flows.
Estimated future amortization expense of intangible assets with finite lives as of June 30, 2020March 31, 2021 is as follows (in thousands):
| | Year ending December 31, | Year ending December 31, | | Year ending December 31, | |
| 2020 (remaining six months) | $ | 17,430 | | |
| 2021 | 23,251 | | |
| 2021 (remaining nine months) | | 2021 (remaining nine months) | $ | 119,318 | |
| 2022 | 2022 | 21,053 | | 2022 | 156,320 | |
| 2023 | 2023 | 16,785 | | 2023 | 146,338 | |
| 2024 | 2024 | 5,751 | | 2024 | 129,443 | |
| 2025 | | 2025 | 126,916 | |
| Thereafter | Thereafter | 9,498 | | Thereafter | 211,320 | |
| Total | Total | $ | 93,768 | | Total | $ | 889,655 | |
10. SEGMENT INFORMATION
Citrix has 1 reportable segment. The Company's chief operating decision maker (“CODM”) reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company's CEO is the CODM.
Revenues by Product Grouping
Revenues by product grouping were as follows (in thousands):
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | |
| | | June 30, | | | June 30, | | | March 31, | |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
| Net revenues: | Net revenues: | | | | | | | | Net revenues: | | | | |
Workspace (1) | Workspace (1) | $ | 584,878 | | | $ | 535,063 | | | $ | 1,238,594 | | | $ | 1,049,670 | | Workspace (1) | $ | 580,962 | | | $ | 653,716 | | |
Networking (2) | 186,069 | | | 178,204 | | | 366,003 | | | 349,437 | | |
App Delivery and Security (2) | | App Delivery and Security (2) | 169,987 | | | 179,934 | | |
Professional services (3) | Professional services (3) | 27,982 | | | 35,430 | | | 55,277 | | | 68,733 | | Professional services (3) | 24,817 | | | 27,295 | | |
| Total net revenues | Total net revenues | $ | 798,929 | | | $ | 748,697 | | | $ | 1,659,874 | | | $ | 1,467,840 | | Total net revenues | $ | 775,766 | | | $ | 860,945 | | |
(1)Workspace revenues are primarily comprised of sales from the Company’s application virtualization solutions, which include Citrix Workspace, Citrix Virtual Apps and Desktops, the Company's unified endpoint management solutions, which include Citrix Endpoint Management, and Citrix Content Collaboration.Collaboration, and Collaborative Work Management.
(2)NetworkingApp Delivery and Security revenues primarily include Citrix ADC and Citrix SD-WAN.
(3)Professional services revenues are primarily comprised of revenues from consulting services primarily related to the Company's perpetual offerings and product training and certification services.
Revenues by Geographic Location
The following table presents revenues by geographic location, for the following periods (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| | June 30, | | | | June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Net revenues: | | | | | | | |
| Americas | $ | 432,210 | | | $ | 432,281 | | | $ | 916,325 | | | $ | 833,428 | |
| EMEA | 277,313 | | | 240,388 | | | 570,960 | | | 477,201 | |
| APJ | 89,406 | | | 76,028 | | | 172,589 | | | 157,211 | |
| Total net revenues | $ | 798,929 | | | $ | 748,697 | | | $ | 1,659,874 | | | $ | 1,467,840 | |
Strategic Service Providers
The Company defines Strategic Service Providers (SSP) as its 3 historically largest hyperscale Networking customers. The following table summarizes SSP revenue for the following periods (in thousands):
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | |
| | | June 30, | | | June 30, | | | March 31, | |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
| Net revenues: | Net revenues: | | | | | | | | Net revenues: | | | | |
| SSP revenue | $ | 29,659 | | | $ | 23,731 | | | $ | 49,502 | | | $ | 45,832 | | |
| Non-SSP revenue | 769,270 | | | 724,966 | | | 1,610,372 | | | 1,422,008 | | |
| Americas | | Americas | $ | 426,683 | | | $ | 484,115 | | |
| EMEA | | EMEA | 277,799 | | | 293,647 | | |
| APJ | | APJ | 71,284 | | | 83,183 | | |
| Total net revenues | Total net revenues | $ | 798,929 | | | $ | 748,697 | | | $ | 1,659,874 | | | $ | 1,467,840 | | Total net revenues | $ | 775,766 | | | $ | 860,945 | | |
Subscription Revenue
SubscriptionThe Company's subscription revenue relates to fees for SaaS, which are generally recognized ratably over the contractual term. The Company's subscription revenue includes Software asterm and non-SaaS, which are generally recognized at a Service (SaaS), whichpoint in time. SaaS primarily consists of subscriptions delivered via a cloud-hosted service whereby the customer does not take possession of the software and hybrid subscription offerings;offerings and non-SaaS, whichthe related support. Non-SaaS consists primarily of on-premise licensing, hybrid subscription offerings, CSP services and the related support. The Company's hybrid subscription offerings are allocated between SaaS and non-SaaS, which are generally recognized at a point in time.non-SaaS. The following table presents subscription revenues by SaaS and non-SaaS components, for the following periods (in thousands):
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | |
| | | June 30, | | | June 30, | | | March 31, | |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
| Subscription: | Subscription: | | | | | | | | Subscription: | | | | |
| SaaS | SaaS | $ | 130,618 | | | $ | 91,208 | | | $ | 253,188 | | | $ | 176,655 | | SaaS | $ | 171,081 | | | $ | 122,570 | | |
| Non-SaaS | Non-SaaS | 112,832 | | | 64,625 | | | 258,498 | | | 120,784 | | Non-SaaS | 171,048 | | | 145,666 | | |
| Total Subscription revenue | Total Subscription revenue | $ | 243,450 | | | $ | 155,833 | | | $ | 511,686 | | | $ | 297,439 | | Total Subscription revenue | $ | 342,129 | | | $ | 268,236 | | |
11. DEBT
The components of the Company's long-term debt were as follows (in thousands):
| | | June 30, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
| 2021 Term Loan Credit Agreement | | 2021 Term Loan Credit Agreement | $ | 1,000,000 | | | $ | 0 | |
| Term Loan Credit Agreement | Term Loan Credit Agreement | $ | 250,000 | | | $ | — | | Term Loan Credit Agreement | 250,000 | | | 250,000 | |
| 2027 Senior Notes | 750,000 | | | 750,000 | | |
| 2030 Senior Notes | 750,000 | | | — | | |
| 2026 Notes | | 2026 Notes | 750,000 | | | 0 | |
| 2027 Notes | | 2027 Notes | 750,000 | | | 750,000 | |
| 2030 Notes | | 2030 Notes | 750,000 | | | 750,000 | |
| Total face value | Total face value | 1,750,000 | | | 750,000 | | Total face value | 3,500,000 | | | 1,750,000 | |
| Less: unamortized discount | Less: unamortized discount | (5,917) | | | (1,291) | | Less: unamortized discount | (7,000) | | | (5,594) | |
| Less: unamortized issuance costs | Less: unamortized issuance costs | (12,569) | | | (5,783) | | Less: unamortized issuance costs | (20,221) | | | (11,784) | |
| Total long-term debt | Total long-term debt | $ | 1,731,514 | | | $ | 742,926 | | Total long-term debt | $ | 3,472,779 | | | $ | 1,732,622 | |
2021 Term Loan Credit Agreement
On January 21, 2020,February 5, 2021, the Company entered into a term loan credit agreement (the “2021 Term Loan Credit AgreementAgreement”) with JPMorgan Chase Bank, of America, N.A., as administrative agent, and the other lenders party thereto from time to time (collectively, the “Lenders”“2021 Lenders”). The 2021 Term Loan Credit Agreement provides the Company with a facility to borrow a term loan on an unsecured basis in an aggregate principal amount of up to $1.00 billion (the “2021 Term Loan”). The Company borrowed $1.00 billion on February 26, 2021 under the 2021 Term Loan, and the loan matures on February 26, 2024. The proceeds of borrowings under the 2021 Term Loan Credit Agreement were used to finance a portion of the purchase price for the Wrike acquisition. See Note 6 for detailed information on the Wrike acquisition.
Borrowings under the 2021 Term Loan Credit Agreement bear interest at a rate equal to (a) either (i) a customary LIBOR formula or, upon a phase-out of LIBOR, an alternative benchmark rate as provided in the 2021 Term Loan Credit Agreement, or (ii) a customary base rate formula, plus (b) the applicable margin with respect thereto, which initially will be determined based on the Company’s consolidated leverage ratio but may, if so elected by the Company, be based on the Company’s non-credit enhanced, senior unsecured long-term debt rating as determined by Moody’s Investors Service, Inc., Standard & Poor’s Financial Services, LLC and Fitch Ratings Inc., in each case as set forth in the 2021 Term Loan Credit Agreement.
The 2021 Term Loan Credit Agreement includes a covenant limiting the Company’s consolidated leverage ratio to not more than 4.0:1.0, subject to a mandatory step-down after the fiscal quarter ending March 31, 2022 to 3.75:1.0, and further subject to, upon the occurrence of a qualified acquisition in any quarter on or after the fiscal quarter ending March 31, 2022, if so elected by the Company, a step-up to 4.25:1.0 for the 4 fiscal quarters following such qualified acquisition. The 2021 Term Loan Credit Agreement also includes a covenant limiting the Company’s consolidated interest coverage ratio to not less than 3.0:1.0. The 2021 Term Loan Credit Agreement includes customary events of default, with corresponding grace periods in certain circumstances, including, without limitation, payment defaults, cross-defaults, the occurrence of a change of control of the Company and bankruptcy-related defaults. The 2021 Lenders are entitled to accelerate repayment of the loans under the 2021 Term Loan Credit Agreement upon the occurrence of any of the events of default. In addition, the 2021 Term Loan Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the ability of the Company to grant liens, merge or consolidate, dispose of all or substantially all of its assets, change its business and incur subsidiary indebtedness, in each case subject to customary exceptions. The 2021 Term Loan Credit Agreement also contains representations and warranties customary for an unsecured financing of this type. The Company was in compliance with these covenants as of March 31, 2021.
Certain 2021 Lenders and/or their affiliates have provided and may continue to provide commercial banking, investment management and other services to the Company, its affiliates and employees, for which they receive customary fees and commissions.
Term Loan Credit Agreement
On January 21, 2020, the Company entered into a term loan credit agreement with Bank of America, N.A., as administrative agent, and other lenders party thereto from time to time (the “Term Loan Credit Agreement”) that provides the Company with facilities to borrow term loans on an unsecured basis in an aggregate principal amount of up to $1.00 billion, consisting of (i) a $500.0 million 364-day term loan facility (the “364-day Term Loan”), and (ii) a $500.0 million 3-year term loan (the “3-year Term Loan”), in each case in a single borrowing, subject to satisfaction of certain conditions set forth in the Term Loan Credit Agreement. On January 30, 2020, the Company borrowed $1.00 billion under the term loans and used the
proceeds to enter into the ASR with each of Goldman Sachs & Co. LLC and Wells Fargo Bank, National Association (each, a "Dealer")accelerated share repurchase transactions for an aggregate of $1.00 billion. During the three months ended March 31, 2020, the Company used the net proceeds from the 2030 Notes and cash to repay $750.0 million under the Term Loan Credit Agreement. See Note 15 for detailed information on the accelerated share repurchase.
Borrowings under the Term Loan Credit Agreement bear interest at a rate equal to (a) either (i) LIBOR or, upon a phase-out of LIBOR, an alternative benchmark rate as provided in the Term Loan Credit Agreement, or (ii) a customary base rate formula, plus (b) the applicable margin with respect thereto, which initially will be determined based on the Company’s consolidated leverage ratio but may, if so elected by the Company, be based on the Company’s non-credit enhanced, senior unsecured long-term debt rating as determined by Moody’s Investors Service, Inc., Standard & Poor’s Financial Services, LLC and Fitch Ratings Inc., in each case as set forth in the Term Loan Credit Agreement.
TheOn February 5, 2021, the Company entered into the first amendment to the Term Loan Credit Agreement, includes awhich amends, among other things, the covenant limiting the Company’s consolidated leverage ratio. After giving effect to the amendment, the covenant limiting the Company’s consolidated leverage ratio will be consistent with the covenant limiting the Company’s consolidated leverage ratio in the 2021 Term Loan Credit Agreement, and will be limited to not more than 3.5:4.0:1.0, subject to a mandatory step-down after the fiscal quarter ending March 31, 2022 under the 2021 Term Loan Credit Agreement (the “Leverage Ratio Step-Down”) to 3.75:1.0, and further subject to, upon the occurrence of a qualified acquisition in any quarter on or after the fifth fiscal quarter ending after the Leverage Ratio Step-Down, if so elected by the Company, a step-up to 4.0:4.25:1.0 for the 4 fiscal quarters following such qualified acquisition, and a covenant limiting the Company’s consolidated interest coverage ratio to not less than 3.0:1.0. The Term Loan Credit Agreement includes customary events of default, with corresponding grace periods in certain circumstances, including, without limitation, payment defaults, cross-defaults, the occurrence of a change of control of the Company and bankruptcy-related defaults. The Lenders are entitled to accelerate repayment of the loans under the Term Loan Credit Agreement upon the occurrence of any of the events of default. In addition, the Term Loan Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the ability of the Company to grant liens, merge or consolidate, dispose of all or substantially all of its assets, change its business and incur subsidiary indebtedness, in each case subject to customary exceptions. In addition, the Term Loan Credit Agreement requires the Company to make prepayments of any net cash proceeds received in connection with the Company issuing or incurring debt or issuing equity, subject to certain ordinary course exceptions described in the Term Loan Credit Agreement. The Term Loan Credit Agreement also contains representations and warranties customary for an unsecured financing of this type.acquisition. The Company was in compliance with theseall covenants as of June 30, 2020.March 31, 2021.
Senior Notes
On February 18, 2021, the Company issued $750.0 million of unsecured senior notes due March 1, 2026. The 2026 Notes accrue interest at a rate of 1.250% per annum. Interest on the 2026 Notes is due semi-annually on March 1 and September 1 of each year, beginning on September 1, 2021. The net proceeds from this offering were $741.4 million, after deducting the underwriting discount and offering expenses payable by the Company. Net proceeds from this offering were used to fund a portion of the aggregate cash consideration for the Wrike acquisition. The 2026 Notes will mature on March 1, 2026, unless earlier redeemed in accordance with their terms prior to such date.
On February 25, 2020, the Company issued $750.0 million of unsecured senior notes due March 1, 2030. The 2030 Notes accrue interest at a rate of 3.300% per annum. Interest on the 2030 Notes is due semi-annually on March 1 and September 1 of each year, beginning on September 1, 2020. The net proceeds from this offering were $738.1 million, after deducting the underwriting discount and estimated offering expenses payable by the Company. Net proceeds from this offering were primarily used to repay amounts outstanding under the Company's unsecured Term Loan Credit Agreement.year. The 2030 Notes will mature on March 1, 2030, unless earlier redeemed in accordance with their terms prior to such date. The Company may redeem the 2030 Notes at its option at any time in whole or from time to time in part prior to December 1, 2029 at a redemption price equal to the greater of (i) 100% of the aggregate principal amount of the 2030 Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of such Notes under such 2030 Notes, plus in each case, accrued and unpaid interest to, but excluding, the redemption date. At any time on or after December 1, 2029, the redemption price shall be
equal to 100% of the aggregate principal amount of the 2030 Notes to be redeemed, plus accrued and unpaid interest to, but excluding the redemption date. Among other terms, under certain circumstances, holders of the 2030 Notes may require the Company to repurchase their 2030 Notes upon the occurrence of a change of control prior to maturity for cash at a repurchase price equal to 101% of the principal amount of the 2030 Notes to be repurchased plus accrued and unpaid interest to, but excluding, the repurchase date.
During the six months ended June 30, 2020, the Company used the net proceeds from the 2030 Notes and cash to repay $500.0 million under the 364-day Term Loan and $250.0 million under the 3-year Term Loan. As of June 30, 2020, $250.0 million in principal amount was outstanding under the 3-year Term Loan.
On November 15, 2017, the Company issued $750.0 million of unsecured senior notes due December 1, 2027. The 2027 Notes accrue interest at a rate of 4.500% per annum. Interest on the 2027 Notes is due semi-annually on June 1 and December 1 of each year. The 2027 Notes will mature on December 1, 2027, unless earlier redeemed in accordance with their terms prior to such date. The Company may redeem
Each of the 2026 Notes, 2030 Notes and 2027 Notes at its option at any timeare individually redeemable in whole or from time to time in part at the Company’s option, subject to a make-whole premium. In addition, upon the occurrence of certain change of control triggering events prior to September 1, 2027 at a redemption price equal to the greater of (i) 100% of the aggregate principal amount of the 2027 Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments under such 2027 Notes, plus in each case, accrued and unpaid interest to, but excluding, the redemption date. Among other terms, under certain circumstances,maturity, holders of the 2027 Notesnotes may require the Company to repurchase their 2027 Notes upon the occurrence of a change of control prior to maturitynotes for cash at a repurchase price equal toof 101% of the principal amount of the 2027 Notes to be repurchasednotes plus accrued and unpaid interest to, but excluding, the repurchase date.
Credit Facility
On November 26, 2019, the Company entered into an amended and restated credit agreement (the "Credit Agreement") with a group of financial institutions, which amends and restates the Company’s Credit Agreement, dated January 7, 2015. The Credit Agreement provides for a five year unsecured revolving credit facility in the aggregate amount of $250.0 million, subject to continued covenant compliance. The Company may elect to increase the revolving credit facility by up to $250.0 million if existing or new lenders provide additional revolving commitments in accordance with the terms of the Credit Agreement. A portion of the revolving line of credit (i) in the aggregate amount of $25.0 million may be available for issuances of letters of credit and (ii) in the aggregate amount of $10.0 million may be available for swing line loans, as part of, not in addition to, the aggregate revolving commitments. The credit facility bears interest at a rate equal to (a) either (i) LIBOR or, upon a phase-out of LIBOR, an alternative benchmark rate as provided in the Credit Agreement, or (ii) a customary base rate formula, plus (b) the applicable margin with respect thereto, which initially will be determined based on the Company’s consolidated leverage ratio but may, if so elected by the Company, be based on the Company’s long-term debt rating as set forth in the Credit Agreement. In addition, the Company is required to pay a quarterly facility fee ranging from 0.11% to 0.20% of the aggregate revolving commitments under the credit facility and based on the ratio of the Company’s total debt to the Company’s consolidated EBITDA or long-term credit rating. As of June 30, 2020 and December 31, 2019, 0 amounts were outstanding under the credit facility. The Credit Agreement contains certain financial covenants and the Company was in compliance with these covenants as of June 30, 2020.
Convertible Notes
During 2014, the Company completed a private placement of approximately $1.44 billion principal amount of 0.500% Convertible Notes due 2019. All Convertible Notes were converted by their beneficial owners prior to their maturity on April 15, 2019. In accordance with the terms of the indenture governing the Convertible Notes, on April 15, 2019 the Company paid $1.16 billion in the outstanding aggregate principal amount of the Convertible Notes and delivered 4.9 million newly issued shares of its common stock in respect of the remainder of the Company's conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted, in full satisfaction of such converted notes. The Company received shares of its common stock under the Bond Hedges (as defined below) that offset the issuance of shares of common stock upon conversion of the Convertible Notes.
The following table includes total interest expense recognized relatedconsolidated EBITDA or long-term credit rating. As of March 31, 2021 and December 31, 2020, 0 amounts were outstanding under the credit facility.
On February 5, 2021, the Company entered into the first amendment to the Credit Agreement, which amends, among other things, the covenant limiting the Company’s consolidated leverage ratio. After giving effect to the amendment, the covenant limiting the Company’s consolidated leverage ratio will be consistent with the covenant limiting the Company’s consolidated leverage ratio in the 2021 Term Loan Credit Agreement, and will be limited to not more than 4.0:1.0, subject to a mandatory step-down after the 2030 Notes,fiscal quarter ending March 31, 2022 (or such earlier date as the 2027 NotesCompany may elect by written notice to Bank of America, N.A., in its capacity as administrative agent) under the 2021 Term Loan Credit Agreement (the “Leverage Ratio Step-Down”) to 3.75:1.0, and further subject to, upon the Convertible Notes (in thousands):occurrence of a qualified acquisition in any quarter on or after the fifth fiscal quarter ending after the Leverage Ratio Step-Down, if so elected by the Company, a step-up to 4.25:1.0 for the 4 fiscal quarters following such qualified acquisition. The Company was in compliance with all covenants as of March 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| June 30, | | | | June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| Contractual interest expense | $ | 16,386 | | | $ | 8,614 | | | $ | 29,816 | | | $ | 18,507 | |
| Amortization of debt issuance costs | 392 | | | 317 | | | 1,387 | | | 1,306 | |
| Amortization of debt discount | 161 | | | 1,204 | | | 249 | | | 8,191 | |
| $ | 16,939 | | | $ | 10,135 | | | $ | 31,452 | | | $ | 28,004 | |
See Note 7 for fair value disclosures related to the Company's 2030 Notes and 2027 Notes.
Convertible Note Hedge and Warrant Transactions
To minimize the impact of potential dilution upon conversion of the Convertible Notes,On January 16, 2021, the Company entered into convertible note hedge transactions relatinga bridge facility and take-out facility commitment letter (the “Commitment Letter”) pursuant to approximately 16.0 million shareswhich JPMorgan Chase Bank, N.A. (1) committed to provide a senior unsecured 364-day term loan facility in an aggregate principal amount of common stock (the "Bond Hedges")$1.45 billion to finance the cash consideration for the Wrike acquisition in the event that the permanent debt financing was not available on or prior to the Closing Date and also entered into separate warrant transactions (the "Warrant Transactions") with each(2) agreed to use commercially reasonable efforts to assemble a syndicate of lenders to provide the Option Counterparties relatingnecessary commitments for the senior term loan facility. The commitments under the Commitment Letter were permanently reduced to approximately 16.0 million shares of common stock to offset any payments in cash or shares of common stock at the Company’s election. Aszero on February 18, 2021, as a result of (i) the spin-off of its GoTo Business in January 2017, the number of shareseffectiveness of the Company's common stock covered by2021 Term Loan Credit Agreement and (ii) the Bond Hedges and Warrant Transactions was adjusted to approximately 20.0 million shares.
As noted above, the Bond Hedges reduced the dilution upon conversioncompletion of the Convertible Notes, as the market price per share of common stock, as measured under the termsissuance of the Bond Hedges, was greater than2026 Notes. In connection with the strike price ofCommitment Letter, the Bond Hedges, which initially corresponded to the conversion price of the Convertible Notes and was subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Convertible Notes. The Warrant Transactions would have separately had a dilutive effect to the extentCompany incurred $5.4 million in issuance costs that the market value per share of common stock, as measured under the terms of the Warrant Transactions, exceeded the applicable strike price of the warrants issued pursuant to the Warrant Transactions (the “Warrants”).
The Warrants expiredwere expensed in ratable portions on a series of expiration dates that commenced on July 15, 2019 and concluded on November 18, 2019, and 0 Warrants remain outstanding. The Warrants were not marked to market as the value of the Warrants were initially recorded in stockholders' equity and remained classified within stockholders' equity through their expiration. During the three months ended June 30, 2019,March 31, 2021 and are included in Other income, net in the strike priceaccompanying condensed statements of the Warrants was adjusted to $94.27 per share and the number of shares of the Company's common stock covered by the Warrant Transactions was adjusted to approximately 20.2 million shares as a result of the cash dividend paid in June 2019.income.
12. DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives Designated as Hedging Instruments
As of June 30, 2020,March 31, 2021, the Company’s derivative assets and liabilities primarily resulted from cash flow hedges related to its forecasted operating expenses transacted in local currencies. A substantial portion of the Company’s overseas expenses are and will continue to be transacted in local currencies. To protect against fluctuations in operating expenses and the volatility of future cash flows caused by changes in currency exchange rates, the Company has established a program that uses foreign exchange forward contracts to hedge its exposure to these potential changes. The terms of these instruments, and the hedged transactions to which they relate, generally do not exceed 12 months.
Generally, when the dollar is weak, foreign currency denominated expenses will be higher, and these higher expenses will be partially offset by the gains realized from the Company’s hedging contracts. Conversely, if the dollar is strong, foreign currency denominated expenses will be lower. These lower expenses will in turn be partially offset by the losses incurred from the Company’s hedging contracts. Derivative instruments are recognized as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Gains and losses on derivatives that are designated as cash flow hedges are initially reported as a component of Accumulated other comprehensive loss and are subsequently recognized in income when the hedged exposure is recognized in income. Gains and losses from changes in fair values of derivatives that are not designated as hedges are recognized in Other income, (expense), net.
The total cumulative unrealized lossgain on cash flow derivative instruments was $0.6$0.8 million at June 30, 2020,March 31, 2021, and is included in Accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets. The total
net unrealized gain on cash flow derivative instruments was $0.9 million at December 31, 2019, and is included in Accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets. See Note 13 for more information related to comprehensive income. The net unrealized loss as of June 30, 2020March 31, 2021 is expected to be recognized in income over the next 12 months at the same time the hedged items are recognized in income. See Note 13 for more information related to comprehensive income.
Derivatives not Designated as Hedging Instruments
A substantial portion of the Company’s overseas assets and liabilities are and will continue to be denominated in local currencies. To protect against fluctuations in earnings caused by changes in currency exchange rates when remeasuring the Company’s balance sheet, the Company utilizes foreign exchange forward contracts to hedge its exposure to this potential volatility. These contracts are not designated for hedge accounting treatment under the authoritative guidance. Accordingly, changes in the fair value of these contracts are recorded in Other income, (expense), net.
Fair Values of Derivative Instruments
| | | | Asset Derivatives | | | Liability Derivatives | | | Asset Derivatives | | Liability Derivatives |
| | | (In thousands) | | | (In thousands) |
| | | June 30, 2020 | | | December 31, 2019 | | | June 30, 2020 | | | December 31, 2019 | | | March 31, 2021 | | December 31, 2020 | | March 31, 2021 | | December 31, 2020 |
Derivatives Designated as Hedging Instruments | Derivatives Designated as Hedging Instruments | Balance Sheet
Location | | Fair
Value | | Balance Sheet
Location | | Fair
Value | | Balance Sheet
Location | | Fair
Value | | Balance Sheet
Location | | Fair
Value | Derivatives Designated as Hedging Instruments | Balance Sheet
Location | | Fair
Value | | Balance Sheet
Location | | Fair
Value | | Balance Sheet
Location | | Fair
Value | | Balance Sheet
Location | | Fair
Value |
| Foreign currency forward contracts | Foreign currency forward contracts | Prepaid
expenses
and other
current
assets | | $605 | | Prepaid
expenses
and other
current
assets | | $1,335 | | Accrued
expenses
and other
current
liabilities | | $1,256 | | Accrued
expenses
and other
current
liabilities | | $371 | Foreign currency forward contracts | Prepaid
expenses
and other
current
assets | | $1,831 | | Prepaid
expenses
and other
current
assets | | $3,945 | | Accrued
expenses
and other
current
liabilities | | $986 | | Accrued
expenses
and other
current
liabilities | | $75 |
| | | | Asset Derivatives | | | Liability Derivatives | | | Asset Derivatives | | Liability Derivatives |
| | | (In thousands) | | | (In thousands) |
| | | June 30, 2020 | | | December 31, 2019 | | | June 30, 2020 | | | December 31, 2019 | | | March 31, 2021 | | December 31, 2020 | | March 31, 2021 | | December 31, 2020 |
Derivatives Not Designated as Hedging Instruments | Derivatives Not Designated as Hedging Instruments | Balance Sheet
Location | | Fair
Value | | Balance Sheet
Location | | Fair
Value | | Balance Sheet
Location | | Fair
Value | | Balance Sheet
Location | | Fair
Value | Derivatives Not Designated as Hedging Instruments | Balance Sheet
Location | | Fair
Value | | Balance Sheet
Location | | Fair
Value | | Balance Sheet
Location | | Fair
Value | | Balance Sheet
Location | | Fair
Value |
| Foreign currency forward contracts | Foreign currency forward contracts | Prepaid
expenses
and other
current
assets | | $176 | | Prepaid
expenses
and other
current
assets | | $554 | | Accrued
expenses
and other
current
liabilities | | $980 | | Accrued
expenses
and other
current
liabilities | | $1,019 | Foreign currency forward contracts | Prepaid
expenses
and other
current
assets | | $12,503 | | Prepaid
expenses
and other
current
assets | | $67 | | Accrued
expenses
and other
current
liabilities | | $115 | | Accrued
expenses
and other
current
liabilities | | $1,372 |
The Effect of Derivative Instruments on Financial Performance
| | | | For the Three Months Ended June 30, | | | For the Three Months Ended March 31, |
| | | (In thousands) | | | (In thousands) |
Derivatives in Cash Flow Hedging Relationships | Derivatives in Cash Flow Hedging Relationships | Amount of Gain Recognized in Other
Comprehensive Income (Loss) | | | Location of Loss Reclassified
from Accumulated Other
Comprehensive Loss into
Income | | Amount of Loss Reclassified from Accumulated Other
Comprehensive Loss | | Derivatives in Cash Flow Hedging Relationships | Amount of Loss Recognized in Other
Comprehensive Loss | | Location of Gain Reclassified
from Accumulated Other
Comprehensive Loss into
Income | | Amount of Gain Reclassified from Accumulated Other
Comprehensive Loss |
| | | 2020 | | 2019 | | | | 2020 | | 2019 | | 2021 | | 2020 | | | | 2021 | | 2020 |
| Foreign currency forward contracts | Foreign currency forward contracts | $ | 1,377 | | | $ | 285 | | | Operating expenses | | $ | (919) | | | $ | (97) | | Foreign currency forward contracts | $ | (2,806) | | | $ | (2,833) | | | Operating expenses | | $ | 1,943 | | | $ | 248 | |
| | For the Six Months Ended June 30, | | |
| (In thousands) | | |
Derivatives in Cash Flow Hedging Relationships | Amount of (Loss) Gain Recognized in Other
Comprehensive Income (Loss) | | | Location of Loss Reclassified
from Accumulated Other
Comprehensive Loss into
Income | | Amount of Loss Reclassified from Accumulated Other
Comprehensive Loss | | |
| 2020 | | 2019 | | | | 2020 | | 2019 | |
| Foreign currency forward contracts | $ | (1,456) | | | $ | 1,326 | | | Operating expenses | | $ | (671) | | | $ | (991) | | |
There was no material ineffectiveness in the Company’s foreign currency hedging program in the periods presented.
| | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | (In thousands) |
| Derivatives Not Designated as Hedging Instruments | Location of Gain Recognized in Income on
Derivative | | Amount of Gain Recognized
in Income on Derivative |
| | | | 2021 | | 2020 |
| Foreign currency forward contracts | Other income, net | | $ | 13,096 | | | $ | 3,758 | |
| | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, | | | | |
| | (In thousands) | | | | |
| Derivatives Not Designated as Hedging Instruments | Location of Loss Recognized in Income on
Derivative | | Amount of Loss Recognized
in Income on Derivative | | |
| | | | 2020 | | 2019 |
| Foreign currency forward contracts | Other income (expense), net | | $ | (1,229) | | | $ | (584) | |
| | | | | |
| For the Six Months Ended June 30, | | | | |
| (In thousands) | | | | |
| Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on
Derivative | | Amount of Gain (Loss) Recognized
in Income on Derivative | | |
| | | 2020 | | 2019 |
| Foreign currency forward contracts | Other income (expense), net | | $ | 2,529 | | | $ | (1,980) | |
Outstanding Foreign Currency Forward Contracts
As of June 30, 2020,March 31, 2021, the Company had the following net notional foreign currency forward contracts outstanding (in thousands):
| | | | | |
| Foreign Currency | Currency
Denomination |
| Australian Dollar | AUD 34,80025,600 |
| Brazilian Real | BRL 2,000 |
| Pounds Sterling | GBP 70010,400 |
| Canadian Dollar | CAD 8506,150 |
| Chinese Yuan Renminbi | CNY 47,72521,769 |
| Czech Koruna | CZK 7,4004,800 |
| Danish Krone | DKK 9,100900 |
| Euro | EUR 9369,336 |
| Hong Kong Dollar | HKD 17,30042,050 |
| Indian Rupee | INR 912,000722,000 |
| Japanese Yen | JPY 662,000598,000 |
| Korean Won | KRW 2,768,000761,000 |
| |
| Singapore Dollar | SGD 14,40015,400 |
| Swedish Krona | SEK 5,9006,700 |
| Swiss Franc | CHF 162,972187,330 |
13. COMPREHENSIVE INCOME
The changes in Accumulated other comprehensive loss by component, net of tax, are as follows:
| | | | Foreign currency | | Unrealized loss on available-for-sale securities | | Unrealized gain (loss) on derivative instruments | | Other comprehensive loss on pension liability | | Total | | Foreign currency | | Unrealized loss on available-for-sale securities | | Unrealized gain on derivative instruments | | Other comprehensive loss on pension liability | | Total |
| | | (In thousands) | | | (In thousands) |
| Balance at December 31, 2019 | $ | (2,946) | | | $ | (139) | | | $ | 868 | | | $ | (2,910) | | | $ | (5,127) | | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | $ | (2,946) | | | $ | (18) | | | $ | 3,562 | | | $ | (4,247) | | | $ | (3,649) | |
| Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | — | | | 131 | | | (2,127) | | | 8 | | | (1,988) | | Other comprehensive income (loss) before reclassifications | 0 | | | 20 | | | (863) | | | 1,050 | | | 207 | |
| Amounts reclassified from accumulated other comprehensive loss | Amounts reclassified from accumulated other comprehensive loss | — | | | (21) | | | 671 | | | — | | | 650 | | Amounts reclassified from accumulated other comprehensive loss | 0 | | | 0 | | | (1,943) | | | 0 | | | (1,943) | |
| Net current period other comprehensive income (loss) | Net current period other comprehensive income (loss) | — | | | 110 | | | (1,456) | | | 8 | | | (1,338) | | Net current period other comprehensive income (loss) | 0 | | | 20 | | | (2,806) | | | 1,050 | | | (1,736) | |
| Balance at June 30, 2020 | $ | (2,946) | | | $ | (29) | | | $ | (588) | | | $ | (2,902) | | | $ | (6,465) | | |
| Balance at March 31, 2021 | | Balance at March 31, 2021 | $ | (2,946) | | | $ | 2 | | | $ | 756 | | | $ | (3,197) | | | $ | (5,385) | |
Income tax expense or benefit allocated to each component of other comprehensive lossincome (loss) is not material.
Reclassifications out of Accumulated other comprehensive loss are as follows:
| | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, 2020March 31, 2021 | | |
| | (In thousands) | | |
| Details about accumulated other comprehensive loss components | | Amount reclassified from accumulated other comprehensive loss, net of tax | | Affected line item in the Condensed Consolidated Statements of Income |
Unrealized net gains on available-for-sale securities | | $ | (8) | | | Other income (expense), net |
Unrealized net lossesgains on cash flow hedges | | 919 (1,943) | | | Operating expenses * |
| | $ | 911 (1,943) | | | |
| | | | |
| | For the Six Months Ended June 30, 2020 | | |
| | (In thousands) | | |
Details about accumulated other comprehensive loss components | | Amount reclassified from accumulated other comprehensive loss, net of tax | | Affected line item in the Condensed Consolidated Statements of Income |
Unrealized net gains on available-for-sale securities | | $ | (21) | | | Other income (expense), net |
Unrealized net losses on cash flow hedges | | 671 | | | Operating expenses * |
| | $ | 650 | | | |
* Operating expenses amounts allocated to Research and development, Sales, marketing and services, and General and administrative are not individually significant.
14. INCOME TAXES
The Company is required to estimate its income taxes in each of the jurisdictions in which it operates as part of the process of preparing its condensed consolidated financial statements. The Company maintains certain strategic management and operational activities in overseas subsidiaries and its foreign earnings are taxed at rates that are generally lower than in the United States.
The Company’s effective tax rate generally differs from the U.S. federal statutory rate primarily due to tax credits and lower tax rates on earnings generated by the Company’s foreign operations that are taxed primarily in Switzerland.
The Company’s effective tax rate was 12.5%(10.9)% and 12.8%4.9% for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively. When comparing the three months ended June 30, 2020 to the three months ended June 30, 2019, the effective tax rate did not materially change.
The Company’s effective tax rate was 8.0% and 9.6% for the six months ended June 30, 2020 and 2019, respectively. The decrease in the effective tax rate when comparing the sixthree months ended June 30, 2020March 31, 2021 to the sixthree months ended June 30, 2019March 31, 2020, was primarily due to an increase in the discrete tax benefits 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, 2020.
On May 19, 2019, Swiss voters approved the Federal Act on Tax Reform and AHV Financing (“TRAF”), which provides for broad changesitems unique to federal and cantonal taxation in Switzerland effective January 1, 2020. The TRAF requires the abolishment of certain favorable tax regimes, provides for certain transitional relief, and directs the cantons to implement certain mandatory measures while other provisions are at the discretion of the canton. During the period ended DecemberMarch 31, 2019,2021 and the Company recordedgeographical mix of income towards lower tax regions. These amounts include a deferred$17.1 million tax asset andbenefit related to a partial valuation allowance for the cantonal and federal impactfavorable Indian tax ruling, net of the TRAF. The incomeU.S. tax impact, ofduring the TRAF may be subject to change due to the issuance of further legislative guidance from the Swiss taxing authorities.period ending March 31, 2021.
The Company’s net unrecognized tax benefits totaled $72.7$89.5 million and $84.5$74.7 million as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. At June 30, 2020, $60.9March 31, 2021, $76.8 million included in the balance for tax positions would affect the annual effective tax rate if recognized. The Company recognizes interest accrued related to uncertain tax positions and penalties in income tax expense. As of June 30, 2020,March 31, 2021, the Company has accrued $3.6$2.6 million for the payment of interest.
The Company and one or more of its subsidiaries are subject to U.S. federal income taxes in the United States, as well as income taxes of multiple state and foreign jurisdictions. The Company is not currently under examination by the United States Internal Revenue Service. With few exceptions, the Company is generally not subject to examination for state and local income tax, or in non-U.S. jurisdictions, by tax authorities for years prior to 2016.
The Company's U.S. liquidity needs are currently satisfied using cash flows generated from its U.S. operations, borrowings, or both. The Company also utilizes a variety of tax planning strategies in an effort to ensure that its worldwide cash is available in locations in which it is needed. The Company expects to repatriate a substantial portion of its foreign earnings over time, to the extent that the foreign earnings are not restricted by local laws or result in significant incremental costs associated with repatriating the foreign earnings.
At June 30, 2020,March 31, 2021, the Company had $380.2$177.9 million in net deferred tax assets. The authoritative guidance requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company reviews deferred tax assets periodically for recoverability and makes estimates and judgments regarding the expected geographic sources of taxable income and gains from investments, as well as tax planning strategies in assessing the need for a valuation allowance. If the estimates and assumptions used in the Company's determination change in the future, the Company could be required to revise its estimates of the valuation allowances against its deferred tax assets and adjust its provisions for additional income taxes.
On March 27, 2020,11, 2021, the United States enacted the Coronavirus Aid, Relief & Economic SecurityAmerican Rescue Plan Act of 2021 (“CARES”American Rescue Plan Act”) Act.. The CARESAmerican Rescue Plan Act includes a wide variety of tax and non-tax provisions aimed to provide relief to individuals and businesses adversely affected by the COVID-19 pandemic. This legislation includes an array ofThe American Rescue Plan Act also expands the limitation on deductions publicly held companies may take with respect to certain employee compensation effective for tax benefits and incentives for businesses, including in part,years beginning after December 31, 2026. Although the deferral of payment of certain employer payroll taxes. Similarly, the Swiss government enacted a number of measures to help mitigate the negative effects of COVID-19 on the Swiss economy. The Company is evaluating the impact of global COVID-19-related lawsproposed and proposed laws, however,enacted legislation, as of the end of the current period no material impact to the Company's financial results is expected as a result of legislation enacted to date.expected. The Company will continue to review and evaluate any future guidance, developments, or legislation issued in the future by applicable tax authoritiesauthorities.
The Company and continueone or more of its subsidiaries are subject to evaluateU.S. federal income taxes in the impactUnited States, as well as income taxes of any new developments or legislation.
On June 22, 2020,multiple state and foreign jurisdictions. The Company is currently under examination by the US Supreme Court denied Altera Corp.’s petition for writ of certiorari and as a result the Supreme Court will not review the decision of the U.S. Court of AppealsUnited States Internal Revenue Service for the Ninth Circuit that upheld the validity of the U.S. Treasury Department’s regulations requiring participants in a cost-sharing arrangement to share stock-based compensation costs. Because2017 and 2018 tax years. With few exceptions, the Company has already accrued amountsis generally not subject to examination for this uncertainstate and local income tax, position, thereor in non-U.S. jurisdictions, by tax authorities for years prior to 2017.
The Company's U.S. liquidity needs are no changescurrently satisfied using cash flows generated from its U.S. operations, borrowings, or both. The Company also utilizes a variety of tax planning strategies in an effort to ensure that its worldwide cash is available in locations in which it is needed. The Company expects to repatriate a substantial portion of its foreign earnings over time, to the Company's positionextent that the foreign earnings are not restricted by local laws or treatment of its cost-sharing arrangementsresult in significant incremental costs associated with repatriating the current period.foreign earnings.
15. TREASURY STOCK
Stock Repurchase Program
The Company’s Board of Directors has authorized an ongoing stock repurchase program, of which $1.00 billion was approved in January 2020. The Company may use the approved dollar authority to repurchase stock at any time until the approved amount is exhausted. The objective of the Company’s stock repurchase program is to improve stockholders’ returns.returns and mitigate earnings per share dilution posed by the issuance of shares related to employee equity compensation awards. At June 30, 2020, $914.1March 31, 2021, $625.6 million ($714.1 million after taking into consideration the contracted but undelivered shares under the ASR of $200.0 million) was available to repurchase common stock pursuant to the stock repurchase program. All shares repurchased are recorded as treasury stock. A portion of the funds used to repurchase stock over the course of the program was provided by net proceeds from the Convertible Notes, the 2027 Notes and the Term Loan Credit Agreement, as well as proceeds from employee stock awards and the related tax benefit. The Company is authorized to make purchases of its
common stock using general corporate funds through open market purchases, pursuant to a Rule 10b5-1 plan or in privately negotiated transactions.
During the three months ended March 31, 2021, the Company made 0 open market purchases under the stock repurchase program.On January 30, 2020, the Company used the proceeds from its Term Loan Credit Agreement and entered into ASRaccelerated share repurchase (“ASR”) transactions with a group of Dealers for an aggregate of $1.00 billion. Under the ASR transactions, the Company received an initial share delivery of 6.5 million shares of its common stock, with the remainder if any, delivered upon completion of the ASR transactions. The total number of shares of common stock that the Company will repurchaserepurchased under each ASR agreement will bewas based on the average of the daily volume-weighted average prices of its common stock during the term of the applicable ASR agreement, less a discount. At settlement, each Dealer may be required to deliver additionalThe Company received delivery of 0.8 million shares of its common stock to the Company or, under certain circumstances, the Company may be required to deliver shares of common stock, at its election, or make a cash payment to the applicable Dealer. Finalin August 2020 in final settlement of the ASR agreement is expected to be completed by the end of the third quarter of 2020.Agreement. See Note 11 for detailed information on the Term Loan Credit Agreement.
DuringIn addition to the ASR, during the three months ended June 30, 2020, the Company made 0 open market purchases under the stock repurchase program. During the six months ended June 30,March 31, 2020, the Company expended $199.9 million on open market purchases under the stock repurchase program, repurchasing 1,731,500 shares of common stock at an average price of $115.45.
During the three months ended June 30, 2019, the Company expended $156.2 million on open market purchases under the stock repurchase program, repurchasing 1,599,822 shares of common stock at an average price of $97.63. During the six months ended June 30, 2019, the Company expended $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.
Shares for Tax Withholding
During the three and six months ended June 30,March 31, 2021 and 2020, the Company withheld 256,376335,347 and 739,600483,224 shares, respectively, from equity awards that vested, totaling $35.8$46.7 million and $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, 2019, the Company withheld 104,129 and 698,117 shares, respectively, from equity awards that vested, totaling $10.4 million and $70.6$65.3 million, respectively, to satisfy minimum tax withholding obligations that arose on the vesting of such equity awards. These shares are reflected as treasury stock in the Company’s condensed consolidated balance sheets and the related cash outlays do not reduce the Company’s total stock repurchase authority.
16. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company accrues a liability for legal contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of, or a range of, the loss. The Company reviews these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and the Company's views on the probable outcomes of any pending claims, suits, assessments, regulatory investigations, or other legal proceedings change, changes in the Company's accrued liabilities would be recorded in the period in which such determination is made. In addition, in accordance with the relevant authoritative guidance, for matters in which the likelihood of material loss is at least reasonably possible, the Company provides disclosure of the possible loss or range of loss. If a reasonable estimate cannot be made, however, the Company will provide disclosure to that effect.
Due to the nature of the Company's business, the Company is subject to patent infringement claims, including current litigation alleging infringement by various Company solutions and services. The Company believes that it has meritorious defenses to the allegations made in its pending litigation and intends to vigorously defend itself; however, it is unable currently to determine the ultimate outcome of these or similar matters or the potential exposure to loss, if any. In addition, the Company is subject to various other legal proceedings, including suits, assessments, regulatory actions and investigations generally arising out of the normal course of business. Although it is difficult to predict the ultimate outcomes of these matters, the Company believes that outcomes that will materially and adversely affect its business, financial position, results of operations or cash flows are reasonably possible but not estimable at this time.
On July 25, 2019, a class action lawsuit was filed against Citrix, LogMeIn, Inc. (“LogMeIn”) and certain of their then current and former 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 seekssought, among otherother things, the recovery of monetary damages. On April 28, 2020, the defendants filed motions to dismiss the complaint, which remain pending. The Company believes that Citrix and its directors have meritorious defenses to these allegations; however, the Company is unable to currently determine the ultimate outcome of this matter or the potential exposure or loss, if any.were granted on March 15, 2021.
Guarantees
The authoritative guidance requires certain guarantees to be recorded at fair value and requires a guarantor to make disclosures, even when the likelihood of making any payments under the guarantee is remote. For those guarantees and indemnifications that do not fall within the initial recognition and measurement requirements of the authoritative guidance, the Company must continue to monitor the conditions that are subject to the guarantees and indemnifications, as required under existing generally accepted accounting principles, to identify if a loss has been incurred. If the Company determines that it is probable that a loss has been incurred, any such estimable loss would be recognized. The initial recognition and measurement requirements do not apply to the provisions contained in the majority of the Company’s software license agreements that indemnify licensees of the Company’s software from damages and costs resulting from claims alleging that the Company’s software infringes the intellectual property rights of a third party.party. The Company has not made material payments pursuant to these provisions. The Company has not identified any losses that are probable under these provisions and, accordingly, the Company has not recorded a liability related to these indemnification provisions.
Other Purchase Commitments
In May 2020, the Company entered into an amended agreement with a third-party provider, in the ordinary course of business, for the use of certain cloud services through June 2029. Under the amended agreement, the Company is committed to a purchase of $1.00 billion throughout the term of the agreement. As of June 30, 2020,March 31, 2021, the Company had $987.9927.8 million of remaining obligations under the purchase agreement.
17. RESTRUCTURING
The Company has implemented multiple restructuring plans to reduce its cost structure, align resources with its product strategy and improve efficiency, which has resulted in workforce reductions and the consolidation of certain leased facilities.
For the three and six months ended June 30, 2020 and 2019, restructuring charges were comprised of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| Employee severance and related costs | $ | 647 | | | $ | 4,311 | | | $ | 3,100 | | | $ | 7,143 | |
| Right-of-use asset impairment | 8,881 | | | — | | | 8,881 | | | — | |
| Total Restructuring charges | $ | 9,528 | | | $ | 4,311 | | | $ | 11,981 | | | $ | 7,143 | |
The Company reviews for impairment of long-lived assets, including right-of-use (“ROU”) assets, whenever events or changes in circumstances indicate that the carrying amount of such assets may be impaired. Measurement of an impairment loss is based on the fair value of the asset compared to its carrying value. The fair value of the ROU assets is determined by utilizing the present value of the estimated future cash flows attributable to the assets. During the three and six months ended June 30, 2020, in connection with the COVID-19 pandemic, the Company determined that a vacant facility partially impaired under a previous restructuring plan became fully impaired due to a reassessment of the timing and fees of the assumed sublease rentals and recorded impairment charges of $8.9 million. This non-recurring fair value measurement was categorized as Level 3, as significant unobservable inputs were utilized.
Restructuring accruals
The activity in the Company’s restructuring accruals for the six months ended June 30, 2020 is summarized as follows (in thousands):
| | | | | |
| Total |
Balance at January 1, 2020 | $ | 6,957 | |
| |
Employee severance and related costs | 3,100 | |
Payments | (8,113) | |
Balance at June 30, 2020 | $ | 1,944 | |
18.17. STATEMENT OF CHANGES IN EQUITY
The following tables presentspresent the changes in total stockholders' equity (deficit) equity during the three and six months ended June 30,March 31, 2021 and 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | Additional Paid In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Common Stock in Treasury | | | | Total (Deficit) Equity |
| Shares | | Amount | | | | | | | | Shares | | Amount | | |
| Balance at March 31, 2020 | 320,437 | | | $ | 320 | | | $ | 6,125,589 | | | $ | 4,794,964 | | | $ | (7,810) | | | (197,436) | | | $ | (11,131,992) | | | $ | (218,929) | |
| Shares issued under stock-based compensation plans | 773 | | | 1 | | | (1) | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation expense | — | | | — | | | 90,117 | | | — | | | — | | | — | | | — | | | 90,117 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Restricted shares turned in for tax withholding | — | | | — | | | — | | | — | | | — | | | (257) | | | (35,813) | | | (35,813) | |
| Cash dividends declared | — | | | — | | | — | | | (43,222) | | | — | | | — | | | — | | | (43,222) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Other | — | | | — | | | 1,133 | | | (1,133) | | | — | | | — | | | — | | | — | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | 1,345 | | | — | | | — | | | 1,345 | |
| Net income | — | | | — | | | — | | | 112,906 | | | — | | | — | | | — | | | 112,906 | |
| Balance at June 30, 2020 | 321,210 | | | $ | 321 | | | $ | 6,216,838 | | | $ | 4,863,515 | | | $ | (6,465) | | | (197,693) | | | $ | (11,167,805) | | | $ | (93,596) | |
| | | | Common Stock | | | Additional
Paid In Capital | | Retained
Earnings | | Accumulated Other
Comprehensive
Loss | | Common Stock
in Treasury | | | Total Equity (Deficit) | | Common Stock | | Additional
Paid In Capital | | Retained
Earnings | | Accumulated Other
Comprehensive
Loss | | Common Stock
in Treasury | | Total Equity |
| | | Shares | | Amount | | | Shares | | Amount | | | | Shares | | Accumulated Other
Comprehensive
Loss | | Shares | Amount | | Total Equity |
| Balance at December 31, 2019 | 318,760 | | | $ | 319 | | | $ | 6,249,065 | | | $ | 4,660,145 | | | $ | (5,127) | | | (188,693) | | | $ | (10,066,746) | | | $ | 837,656 | | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | 321,964 | | | $ | 322 | | | $ | 6,608,018 | | | $ | 4,984,333 | | | $ | (3,649) | | | (199,443) | | | $ | (11,476,881) | | | $ | 112,143 | |
| Shares issued under stock-based compensation plans | Shares issued under stock-based compensation plans | 2,205 | | | 2 | | | (2) | | | — | | | — | | | — | | | — | | | — | | Shares issued under stock-based compensation plans | 962 | | | 1 | | | (1) | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation expense | Stock-based compensation expense | — | | | — | | | 143,685 | | | — | | | — | | | — | | | — | | | 143,685 | | Stock-based compensation expense | — | | | — | | | 86,862 | | | — | | | — | | | — | | | — | | | 86,862 | |
| Common stock issued under employee stock purchase plan | Common stock issued under employee stock purchase plan | 245 | | | — | | | 21,035 | | | — | | | — | | | — | | | — | | | 21,035 | | Common stock issued under employee stock purchase plan | 228 | | | 0 | | | 25,757 | | | — | | | — | | | — | | | — | | | 25,757 | |
| Stock repurchases, net | — | | | — | | | — | | | — | | | — | | | (1,732) | | | (199,903) | | | (199,903) | | |
| | Restricted shares turned in for tax withholding | Restricted shares turned in for tax withholding | — | | | — | | | — | | | — | | | — | | | (740) | | | (101,156) | | | (101,156) | | Restricted shares turned in for tax withholding | — | | | — | | | — | | | — | | | — | | | (335) | | | (46,745) | | | (46,745) | |
| Cash dividends declared | — | | | — | | | — | | | (86,062) | | | — | | | — | | | — | | | (86,062) | | |
| Accelerated stock repurchase program | — | | | — | | | (200,000) | | | — | | | — | | | (6,528) | | | (800,000) | | | (1,000,000) | | |
| Cumulative-effect adjustment from adoption of accounting standard | — | | | — | | | — | | | (1,641) | | | — | | | — | | | — | | | (1,641) | | |
| Cash dividends declared ($0.37 per share) | | Cash dividends declared ($0.37 per share) | — | | | — | | | — | | | (45,522) | | | — | | | — | | | — | | | (45,522) | |
| | Value of assumed equity awards related to pre-combination service | | Value of assumed equity awards related to pre-combination service | — | | | — | | | 28,885 | | | — | | | — | | | — | | | — | | | 28,885 | |
| Other | Other | — | | | — | | | 3,055 | | | (3,055) | | | — | | | — | | | — | | | — | | Other | — | | | — | | | 2,537 | | | (2,537) | | | — | | | — | | | — | | | — | |
| Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (1,338) | | | — | | | — | | | (1,338) | | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (1,736) | | | — | | | — | | | (1,736) | |
| Net income | Net income | — | | | — | | | — | | | 294,128 | | | — | | | — | | | — | | | 294,128 | | Net income | — | | | — | | | — | | | 90,048 | | | — | | | — | | | — | | | 90,048 | |
| Balance at June 30, 2020 | 321,210 | | | $ | 321 | | | $ | 6,216,838 | | | $ | 4,863,515 | | | $ | (6,465) | | | (197,693) | | | $ | (11,167,805) | | | $ | (93,596) | | |
| Balance at March 31, 2021 | | Balance at March 31, 2021 | 323,154 | | | $ | 323 | | | $ | 6,752,058 | | | $ | 5,026,322 | | | $ | (5,385) | | | (199,778) | | | $ | (11,523,626) | | | $ | 249,692 | |
|
The following tables presents the changes in total stockholders' equity during the three and six months ended June 30, 2019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | Additional Paid In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Common Stock in Treasury | | | | Total Equity |
| Shares | | Amount | | | | | | | | Shares | | Amount | | |
| Balance at March 31, 2019 | 311,732 | | | $ | 312 | | | $ | 5,495,935 | | | $ | 4,232,181 | | | $ | (5,483) | | | (179,832) | | | $ | (9,168,067) | | | $ | 554,878 | |
| Shares issued under stock-based compensation plans | 287 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation expense | — | | | — | | | 70,080 | | | — | | | — | | | — | | | — | | | 70,080 | |
| Temporary equity reclassification | — | | | — | | | 1,163 | | | — | | | — | | | — | | | — | | | 1,163 | |
| | | | | | | | | | | | | | | |
| Stock repurchases, net | — | | | — | | | — | | | — | | | — | | | (1,600) | | | (156,195) | | | (156,195) | |
| Restricted shares turned in for tax withholding | — | | | — | | | — | | | — | | | — | | | (104) | | | (10,445) | | | (10,445) | |
| | | | | | | | | | | | | | | |
| Cash dividends declared | — | | | — | | | — | | | (45,827) | | | — | | | — | | | — | | | (45,827) | |
| Settlement of convertible notes and hedges | 4,950 | | | 5 | | | 509,519 | | | — | | | — | | | (4,950) | | | (509,524) | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Other | — | | | — | | | 2,263 | | | (2,263) | | | — | | | — | | | — | | | — | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | 873 | | | — | | | — | | | 873 | |
| Net income | — | | | — | | | — | | | 93,495 | | | — | | | — | | | — | | | 93,495 | |
| Balance at June 30, 2019 | 316,969 | | | $ | 317 | | | $ | 6,078,960 | | | $ | 4,277,586 | | | $ | (4,610) | | | (186,486) | | | $ | (9,844,231) | | | $ | 508,022 | |
| | | | Common Stock | | | Additional
Paid In Capital | | Retained
Earnings | | Accumulated Other
Comprehensive
Loss | | Common Stock
in Treasury | | | Total
Equity | | Common Stock | | Additional
Paid In Capital | | Retained
Earnings | | Accumulated Other
Comprehensive
Loss | | Common Stock
in Treasury | | Total
Equity (Deficit) |
| | | Shares | | Amount | | | Shares | | Amount | | | | Shares | | Accumulated Other
Comprehensive
Loss | | Shares | Amount | | Total
Equity (Deficit) |
| Balance at December 31, 2018 | 309,761 | | | $ | 310 | | | $ | 5,404,500 | | | $ | 4,169,019 | | | $ | (8,154) | | | (178,327) | | | $ | (9,014,156) | | | $ | 551,519 | | |
| Balance at December 31, 2019 | | Balance at December 31, 2019 | 318,760 | | | $ | 319 | | | $ | 6,249,065 | | | $ | 4,660,145 | | | $ | (5,127) | | | (188,693) | | | $ | (10,066,746) | | | $ | 837,656 | |
| Shares issued under stock-based compensation plans | Shares issued under stock-based compensation plans | 2,042 | | | 2 | | | (2) | | | — | | | — | | | — | | | — | | | — | | Shares issued under stock-based compensation plans | 1,432 | | | 1 | | | (1) | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation expense | Stock-based compensation expense | — | | | — | | | 133,554 | | | — | | | — | | | — | | | — | | | 133,554 | | Stock-based compensation expense | — | | | — | | | 53,568 | | | — | | | — | | | — | | | — | | | 53,568 | |
| Temporary equity reclassification | — | | | — | | | 8,110 | | | — | | | — | | | — | | | — | | | 8,110 | | |
| | Common stock issued under employee stock purchase plan | Common stock issued under employee stock purchase plan | 216 | | | — | | | 19,016 | | | — | | | — | | | — | | | — | | | 19,016 | | Common stock issued under employee stock purchase plan | 245 | | | 0 | | | 21,034 | | | — | | | — | | | — | | | — | | | 21,034 | |
| Stock repurchases, net | Stock repurchases, net | — | | | — | | | — | | | — | | | — | | | (2,511) | | | (250,000) | | | (250,000) | | Stock repurchases, net | — | | | — | | | — | | | — | | | — | | | (1,732) | | | (199,903) | | | (199,903) | |
| Restricted shares turned in for tax withholding | Restricted shares turned in for tax withholding | — | | | — | | | — | | | — | | | — | | | (698) | | | (70,551) | | | (70,551) | | Restricted shares turned in for tax withholding | — | | | — | | | — | | | — | | | — | | | (483) | | | (65,343) | | | (65,343) | |
| | Cash dividends declared | — | | | — | | | — | | | (91,851) | | | — | | | — | | | — | | | (91,851) | | |
| Settlement of convertible notes and hedges | 4,950 | | | 5 | | | 509,519 | | | — | | | — | | | (4,950) | | | (509,524) | | | — | | |
| Cash dividends declared ($0.35 per share) | | Cash dividends declared ($0.35 per share) | — | | | — | | | — | | | (42,839) | | | — | | | — | | | — | | | (42,839) | |
| Accelerated stock repurchase program | | Accelerated stock repurchase program | — | | | — | | | (200,000) | | | — | | | — | | | (6,528) | | | (800,000) | | | (1,000,000) | |
| | | Cumulative-effect adjustment from adoption of accounting standard | Cumulative-effect adjustment from adoption of accounting standard | — | | | — | | | — | | | 838 | | | — | | | — | | | — | | | 838 | | Cumulative-effect adjustment from adoption of accounting standard | — | | | — | | | — | | | (1,641) | | | — | | | — | | | — | | | (1,641) | |
| Other | Other | — | | | — | | | 4,263 | | | (4,263) | | | — | | | — | | | — | | | — | | Other | 0 | | | — | | | 1,923 | | | (1,923) | | | — | | | — | | | — | | | — | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | 3,544 | | | — | | | — | | | 3,544 | | |
| Other comprehensive loss, net of tax | | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (2,683) | | | — | | | — | | | (2,683) | |
| Net income | Net income | — | | | — | | | — | | | 203,843 | | | — | | | — | | | — | | | 203,843 | | Net income | — | | | — | | | — | | | 181,222 | | | — | | | — | | | — | | | 181,222 | |
| Balance at June 30, 2019 | 316,969 | | | $ | 317 | | | $ | 6,078,960 | | | $ | 4,277,586 | | | $ | (4,610) | | | (186,486) | | | $ | (9,844,231) | | | $ | 508,022 | | |
| Balance at March 31, 2020 | | Balance at March 31, 2020 | 320,437 | | | $ | 320 | | | $ | 6,125,589 | | | $ | 4,794,964 | | | $ | (7,810) | | | (197,436) | | | $ | (11,131,992) | | | $ | (218,929) | |
Cash Dividend
The following table provides information with respect to quarterly dividends on common stock during the sixthree months ended June 30, 2020.March 31, 2021:
| | | | | | | | | | | | | | | | | |
| Declaration Date | Dividends per Share | | Record Date | | Payable Date |
January 22, 202019, 2021 | $ | 0.350.37 | | | March 12, 2021 | | March 6, 2020 | | March 20, 2020 |
April 23, 2020 | $ | 0.35 | | | June 5, 2020 | | June 19, 202026, 2021 |
Subsequent Event
On July 23, 2020,April 29, 2021, the Company announced that its Board of Directors approved a quarterly cash dividend of $0.35$0.37 per share which will be paid on SeptemberJune 25, 20202021 to all shareholders of record as of the close of business on SeptemberJune 11, 2020.2021.
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 that are not historical facts, including, but not limited to, statements concerning our strategy and operational and growth plans and initiatives, our expansion of cloud-based solutions (as opposed to traditional on-premises delivery of our products) and our efforts to transition our customers from on-premises to the cloud (including the pace of the transition), our transition to a subscription-based business model our expansion(including the pace of cloud-delivered services,the transition), changes in our product and service offerings and features, financial information and results of operations for future periods, revenue and operating metrics trends, the impacts of the COVID-19novel coronavirus (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 and hybrid work, the resiliency of our solutionssupply disruptions and business model, expectations regarding our customers’ spending during a weak economic environmentdelays, customer demand, seasonal factors or ordering patterns, stock-based compensation, 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, including our debt in connection with the acquisition of Wrike, Inc. (“Wrike”), changes in accounting rules or guidance, acquisitions, including our acquisition of Wrike, litigation matters, and the security of our network, products and services, 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. Readers are directed to the risks and uncertainties identified in Part I, Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, 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 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, 2020.March 31, 2021. The results of operations for the periods presented in this report are not necessarily indicative of the results expected for the full year or for any future period, due in part to the seasonality of our business. Historically, our revenue for the fourth quarter of any year is typically higher than our revenue for the first quarter of the subsequent year. During the first quarter of 2020, this historical trend was impacted by the COVID-19 pandemic.
Citrix is an enterprise software company focused on helping customers improveorganizations deliver a consistent and secure work experience no matter where work needs to get done — in the productivity and user experience of their most valuable assets, their employees.office, at home, or in the field. We do this by creatingdelivering a digital workspace solution that provides unified, secure,gives each employee the resources and reliable access to all applications and content employeesspace they need to be productive - anytime, anywhere, on any device.do their best work. Our NetworkingApp Delivery and Security solutions, which can be consumed via hardware or software, complement our Workspace solutions by delivering the applications and data employees need across any network with security, reliability and speed.
On January 16, 2021, we entered into a definitive agreement to acquire Wrike, a leader in the SaaS collaborative work management space, for $2.25 billion in cash, subject to certain adjustments as set forth in the related agreement. The transaction, which was unanimously approved by the board of directors of both Citrix and Wrike, closed on February 26, 2021.
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, 2020,Our first quarter results reflect accelerated momentum in our subscription modelcloud transition regained momentum, with strong demand for our Workspace and Networking solutions. We believe that our second quarter performance reflects the confidencemore of our customersinstalled base moving to the cloud. As a result, we saw growth in Citrix’s visionour key operating metrics of Total ARR, Subscription 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, securitySaaS ARR and employee experience.
As we continueCitrix Cloud Paid Subscribers. However, our results also reflected a lower on-premise term average contract duration compared 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 existinghistorical
customers. After this time, customers will have the optionaverages as a result of acquiring new Citrix Workspace seatsshorter duration from converted expiring limited-use on-premises term licenses issued in the formfirst quarter of on-premises subscription or SaaS offerings.
Longer term,2020, as well as delays related to the supply of certain component parts required to deliver certain of our subscription transition is expected to result in more sustainable, recurring revenue growth over time as less revenue comes from one-time productApp Delivery and licensing streams and more revenue comes from predictable, recurring streams that will be recognized in future periods. We believe thatSecurity products. See Part II, Item 1A, “Risk Factors” of this dynamic is best captured in our Subscription and SaaS Annualized Recurring Revenue, or ARR. This operating metric representsQuarterly Report on Form 10-Q for 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,quarter ended March 31, 2021. Looking ahead, we believe ARR isour solutions enable distributed teams and growing momentum towards hybrid work that elevate the importance of an organization’s ability to securely deliver a key indicator of the overall health and trajectory of our business. Management uses ARRunified work experience wherever or however work needs to monitor the growth of our subscription business.get done.
On January 21, 2020,February 5, 2021, we entered into a term loan credit agreement (the “2021 Term Loan Credit AgreementAgreement”) that provided us with facilitiesa facility to borrow a term loansloan (the “2021 Term Loan”) 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 Term 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 our existing share repurchase program.
On January 30, 2020, webillion. We borrowed $1.00 billion on February 26, 2021 under the term loans and used the proceeds from our2021 Term Loan, Credit Agreementand the loan matures on February 26, 2024. The proceeds under the 2021 Term Loan were used to enter into accelerated share repurchase transactions ("ASR") with each of Goldman Sachs & Co. LLC and Wells Fargo Bank, National Association (each,finance a "Dealer") for an aggregate of $1.00 billion. Under the ASR transactions, we received an initial share delivery of 6.5 million shares of our common stock, with the remainder, if any, delivered upon completionportion of the ASR transactions. The price per share underaggregate cash consideration for 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 discount. The ASR is expected to be completed by the end of the third quarter of 2020. The ASR was entered into pursuant to our existing share repurchase program.Wrike acquisition.
On February 25, 2020,18, 2021, we issued $750.0 million of unsecured senior notes due March 1, 20302026 (the "2030 Notes"“2026 Notes”). The net proceeds from this offering were $738.1$741.4 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 unsecured Term Loan Credit Agreement. Duringfund a portion of the six months ended June 30, 2020, we usedaggregate cash consideration for 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.Wrike acquisition.
On July 23, 2020,April 29, 2021, we announced that our Board of Directors declared a $0.35$0.37 per share dividend payable SeptemberJune 25, 20202021 to all shareholders of record as of the close of business on SeptemberJune 11, 2020.2021.
Impact of COVID-19 Pandemic
InFor the quarter ended 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 to31, 2021, the COVID-19 outbreak remains uncertain. It has disruptedpandemic did not have a significant impact on our results of operations. However, we continue to monitor our supply chain for disruptions and evaluate steps to avoid future impacts that may arise from delays.
The ultimate impact of the business ofCOVID-19 pandemic on our customers and partners, will impact our business, and consolidated results of operations, and could impact our financial condition inand cash flows is dependent on future developments, including the future. While we have not incurred significant disruptions thus far fromduration of the COVID-19 outbreak, we are unable to accurately predict the full impact that COVID-19 will have due to numerous uncertainties, includingpandemic, the severity of the disease and outbreak, the durationimpact of new strains of the outbreak,virus, the effectiveness and availability of a vaccine, future and ongoing actions that may be taken by governmental authorities, the impact toon the businessbusinesses 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. We are conducting business with substantial modifications to employee travel, employee work locations, and virtualization or cancellation of certain sales and marketing events, among other factors identified in Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q.modifications. We also believe that our financial resources will allow uscontinue 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 toactively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are reviewingin the best interests of our preparedness plans should we begin to experience material impacts.
Impact of COVID-19employees, customers, partners, suppliers and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our Second Quarter Results
To provide a flexible solution to helpbusiness, including the effects on 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-19and prospects, or 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 be able to work remotely, at least some of the time, even as social distancing restrictions abate.financial results.
Cash from operations, accounts receivable and revenues could also be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part II,1, Item 1A, titled “Risk Factors” of this Quarterlyour Annual Report on Form 10-Q.10-K for the fiscal year ended December 31, 2020. 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 results is expected as a result of legislation enacted to date. In addition, whileWhile 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
Metrics
We use certain operating metrics in assessing the health and trajectory of COVID-19our business, including annualized recurring revenue (“ARR”) and Citrix Cloud Paid Subscriber count. These operating metrics do not have any standardized definition within our industry and therefore may not be comparable to similarly titled measures reported by other companies.
In March 2020, we directed our global workforceARR
Total ARR is an operating metric that represents the contracted recurring value of all termed subscriptions and perpetual maintenance agreements normalized to work from homea one-year period. Total ARR includes only active contractually committed, fixed fees and severely limited all internationalconsists of the following components: Subscription ARR 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 expensesMaintenance ARR. Subscription ARR represents ARR related to transitioningour Subscription offerings, including SaaS ARR, and 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. In the normal course of business, all contracts are annualized, including 30 day subscription offerings where we take monthly recurring revenue multiplied by 12 to annualize. Maintenance ARR is the contracted recurring value of all termed perpetual maintenance agreements normalized to a
one-year period. SaaS ARR represents the contracted recurring value of all cloud subscriptions normalized to a work from home environment, helping support local restaurantsone-year period. Our definitions of ARR include contracts expected to recur and small businessestherefore exclude contracts with durations of 12 months or charities,less where licenses were issued to address extraordinary business continuity events for our customers. ARR should be viewed independently of U.S. GAAP revenue, deferred revenue and unbilled revenue and is not intended to be combined with or lessening any other potential hardship.to replace those items. ARR is not a forecast of future revenue. We also offer local employee assistance program resources if needed. Certainbelieve ARR is a key indicator of the overall trajectory of our offices have re-openedbusiness and we continuethat certain investors and financial analysts may find this information helpful. Management uses ARR to monitor developments at the local levelperformance underlying our operations while the business model is in transition. We introduced Total ARR (including the Maintenance ARR component) in the first quarter of 2021 as we believe Total ARR provides further clarity on the holistic performance of the business and follow mandatesis intended to complement our existing Subscription ARR and SaaS ARR disclosures. Over the course of time, consistent with Support and services reported revenue, we expect the perpetual license maintenance component of Total ARR to decline, which is netted against growth in Subscription ARR.
Citrix Cloud Paid Subscribers
Citrix Cloud Paid Subscribers is defined as required by law. For offices that have re-opened, we have implemented new protocols to ensure the safetycount of users (or devices in the case of named device licensing) on a paid cloud-hosted subscription as of the end of the reporting period. It is not inclusive of all Citrix paid SaaS subscribers and excludes cloud services not delivered or accessed via the Citrix Cloud platform, cloud services not billed on a per subscriber basis, and CSP. Management uses Citrix Cloud Paid Subscriber count as a key measure of our employees, including face coverings, temperature checks, social distancingability to retain and capacity limits.
In responseexpand revenue from our cloud-based solutions over time. We believe this metric might be useful to certain investors and analysts to monitor the COVID-19 pandemic, we expect to holdhealth of 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.cloud business.
Summary of Results
For the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019,March 31, 2020, a summary of our results included:
•Total net revenue increased 6.7%decreased 9.9% to $798.9$775.8 million;
•Subscription revenue increased 56.2%27.5% to $243.5$342.1 million;
•SaaS revenue increased 43.2%39.6% to $130.6$171.1 million;
•Product and license revenue decreased 7.6%74.4% to $129.9$44.2 million;
•Support and services revenue decreased 5.9%7.3% to $425.5$389.4 million;
•Gross margin as a percentage of revenue decreased 0.5%5.1% to 84.7%81.5%;
•Operating income increased 22.7%decreased 54.2% to $143.7$92.3 million;
•Diluted net income per share increased 28.6%decreased 50.0% to $0.90;$0.71;
•UnbilledDeferred and unbilled revenue increased $382.6$506.2 million to $866.9$3.04 billion;
•Citrix Cloud Paid Subscriber count increased 33.8% from 7.7 million to 10.3 million;
•Total ARR increased 21.7%, or $523.9 million, from $2.42 billion to $2.94 billion;
•Subscription ARR increased $334.281.0%, or $677.8 million, to $948.6 million; and$1.51 billion;
•SaaS ARR increased $172.069.9%, or $387.9 million, to $590.0$943.1 million; and
•Operating cash flows decreased $71.4 million to $212.9 million.
Our Subscription revenue increased primarily due to an 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 cloud adoption of our solutions delivered via the cloud.cloud, mostly from our Workspace offerings. Also contributing to the increase was on-premise license demand, mostly from our App Delivery and Security offerings, primarily pooled capacity, and our Workspace offerings. Our Product and license revenue decreased primarily due to lowerdecreased sales of our perpetual Workspace solutions due to the decision to discontinue the broad availability of new perpetual licenses as customers continue to shift to our subscription offerings.of October 1, 2020. The decrease in Support and services revenue was primarily due to decreased salessales of maintenance services across our perpetual Workspace and Networkingperpetual offerings and professional services,App Delivery and Security perpetual offerings, as more of the revenue is reported in the Subscription revenue line commensurate with our subscription model transition. We currently expect total revenue to increase when comparing the thirdsecond quarter of 2021 to the second quarter of 2020 to the third quarter of 2019 and when comparing the fiscal year 20202021 to the fiscal year 20192020 due to the acceleration of our transition to a subscription-based model.model as well as the Wrike acquisition. The increasedecrease in gross margin as a percentage of revenue was primarily driven by the end of sale of Workspace perpetual licenses that have historically had a higher gross margin than our Subscription and Application Delivery and Security offerings. The decrease in operating income was primarily due to an increasea decrease in gross margin partially offset by higher operating expenses.margin. The increasedecrease in diluted net income per share was primarily due to an increaselower operating income, partially offset by a decrease in operating income taxes and a decrease in the number of weighted average shares outstandingoutstanding. Citrix Cloud Paid Subscriber count increased due to share repurchases. Both Subscription and SaaScontinued adoption of our cloud-based offerings. All ARR metrics increased due to the accelerationinclusion of converted limited-use on-premises business continuity licenses that were excluded from the year-ago period as their initial terms were
nonrenewable and therefore did not meet the definition to be included in this metric, the discontinuation of broad availability of perpetual Workspace licenses on October 1, 2020, which drove growth in on-premises term subscription bookings.licenses in the first quarter of 2021, as well as the acquisition of Wrike.
2021 Business Combination
On February 26, 2021 (the “Closing Date”), we completed the acquisition of Wrangler Topco, LLC (“Wrangler”), the parent entity of Wrike, a leader in the SaaS collaborative work management space, for approximately $2.07 billion (“Purchase Consideration”). The Purchase Consideration consists of a base purchase price of $2.25 billion and is subject to certain adjustments as provided for under the related Agreement and Plan of Merger dated January 16, 2021 (the “Merger Agreement”). We expect that the addition of Wrike’s cloud-delivered capabilities will accelerate our business model transition to the cloud and strategy to become a complete SaaS-based work platform. Under the Merger Agreement, we acquired all of the issued and outstanding equity securities of Wrangler. Wrike revenue is included in our Workspace product grouping.
Under the terms of the Merger Agreement, we assumed certain unvested stock options held by Wrike employees and converted them into options to purchase 526,113 shares of our common stock. Of these assumed awards, 180,003 options continued with the same monthly vesting conditions under which they were originally granted. The majority of the remaining assumed options were reset to primarily cliff vest on December 31, 2021 or annually over two years.
We incurred $18.8 million of expenses related to the Wrike acquisition, of which $15.5 million were expensed during the three months ended March 31, 2021 and are included in General and administrative expense in the accompanying condensed consolidated statements of income.
See Note 6 to our condensed consolidated financial statements for additional details regarding our acquisition of Wrike.
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 - Critical Accounting Policies and Estimates” contained in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, 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, | | Three Months Ended | | | Three Months Ended March 31, | |
| | | June 30, | | | June 30, | | | | | | | March 31, | | | Three Months Ended March 31, | |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 vs. 2019 | | 2021 | | 2020 | | | 2021 vs. 2020 | |
| Revenues: | Revenues: | | | | | | | | | | Revenues: | | | | | | | |
| Subscription | Subscription | $ | 243,450 | | | $ | 155,833 | | | $ | 511,686 | | | $ | 297,439 | | | 56.2 | % | | 72.0 | % | Subscription | $ | 342,129 | | | $ | 268,236 | | | | 27.5 | % | |
| Product and license | Product and license | 129,933 | | | 140,654 | | | 302,791 | | | 275,676 | | | (7.6) | | | 9.8 | | Product and license | 44,235 | | | 172,858 | | | | (74.4) | | |
| Support and services | Support and services | 425,546 | | | 452,210 | | | 845,397 | | | 894,725 | | | (5.9) | | | (5.5) | | Support and services | 389,402 | | | 419,851 | | | | (7.3) | | |
| Total net revenues | Total net revenues | 798,929 | | | 748,697 | | | 1,659,874 | | | 1,467,840 | | | 6.7 | | | 13.1 | | Total net revenues | 775,766 | | | 860,945 | | | | (9.9) | | |
| Cost of net revenues: | Cost of net revenues: | | | | | | | | | Cost of net revenues: | | | | | | |
| Cost of subscription, support and services | Cost of subscription, support and services | 93,877 | | | 78,817 | | | 179,917 | | | 150,245 | | | 19.1 | | | 19.7 | | Cost of subscription, support and services | 110,745 | | | 86,040 | | | | 28.7 | | |
| Cost of product and license revenues | Cost of product and license revenues | 20,060 | | | 21,878 | | | 41,316 | | | 47,622 | | | (8.3) | | | (13.2) | | Cost of product and license revenues | 21,715 | | | 21,256 | | | | 2.2 | | |
| Amortization of product related intangible assets | Amortization of product related intangible assets | 8,303 | | | 9,784 | | | 16,584 | | | 20,085 | | | (15.1) | | | (17.4) | | Amortization of product related intangible assets | 11,009 | | | 8,281 | | | | 32.9 | | |
| | Total cost of net revenues | Total cost of net revenues | 122,240 | | | 110,479 | | | 237,817 | | | 217,952 | | | 10.6 | | | 9.1 | | Total cost of net revenues | 143,469 | | | 115,577 | | | | 24.1 | | |
| Gross margin | 676,689 | | | 638,218 | | | 1,422,057 | | | 1,249,888 | | | 6.0 | | | 13.8 | | |
| Gross profit | | Gross profit | 632,297 | | | 745,368 | | | | (15.2) | | |
| Operating expenses: | Operating expenses: | | | | | | | | | Operating expenses: | | | | | | |
| Research and development | Research and development | 140,477 | | | 134,029 | | | 274,935 | | | 264,292 | | | 4.8 | | | 4.0 | | Research and development | 144,158 | | | 134,458 | | | | 7.2 | | |
| Sales, marketing and services | Sales, marketing and services | 291,511 | | | 298,429 | | | 617,620 | | | 573,084 | | | (2.3) | | | 7.8 | | Sales, marketing and services | 293,284 | | | 326,109 | | | | (10.1) | | |
| General and administrative | General and administrative | 90,808 | | | 81,162 | | | 170,907 | | | 158,709 | | | 11.9 | | | 7.7 | | General and administrative | 94,990 | | | 80,099 | | | | 18.6 | | |
| Amortization of other intangible assets | Amortization of other intangible assets | 694 | | | 3,205 | | | 1,396 | | | 6,734 | | | (78.3) | | | (79.3) | | Amortization of other intangible assets | 7,532 | | | 702 | | | | 972.9 | | |
| | Restructuring | Restructuring | 9,528 | | | 4,311 | | | 11,981 | | | 7,143 | | | 121.0 | | | 67.7 | | Restructuring | — | | | 2,453 | | | | (100.0) | | |
| Total operating expenses | Total operating expenses | 533,018 | | | 521,136 | | | 1,076,839 | | | 1,009,962 | | | 2.3 | | | 6.6 | | Total operating expenses | 539,964 | | | 543,821 | | | | (0.7) | | |
| Income from operations | Income from operations | 143,671 | | | 117,082 | | | 345,218 | | | 239,926 | | | 22.7 | | | 43.9 | | Income from operations | 92,333 | | | 201,547 | | | | (54.2) | | |
| Interest income | Interest income | 589 | | | 3,870 | | | 2,194 | | | 13,544 | | | (84.8) | | | (83.8) | | Interest income | 321 | | | 1,605 | | | | (80.0) | | |
| Interest expense | Interest expense | (17,076) | | | (10,289) | | | (31,687) | | | (28,322) | | | 66.0 | | | 11.9 | | Interest expense | (24,360) | | | (14,611) | | | | 66.7 | | |
| Other income (expense), net | 1,911 | | | (3,420) | | | 4,009 | | | 279 | | | (155.9) | | | * | |
| Other income, net | | Other income, net | 12,896 | | | 2,098 | | | | 514.7 | | |
| Income before income taxes | Income before income taxes | 129,095 | | | 107,243 | | | 319,734 | | | 225,427 | | | 20.4 | | | 41.8 | | Income before income taxes | 81,190 | | | 190,639 | | | | (57.4) | | |
| Income tax expense | 16,189 | | | 13,748 | | | 25,606 | | | 21,584 | | | 17.8 | | | 18.6 | | |
| Income tax (benefit) expense | | Income tax (benefit) expense | (8,858) | | | 9,417 | | | | (194.1) | | |
| | Net income | Net income | $ | 112,906 | | | $ | 93,495 | | | $ | 294,128 | | | $ | 203,843 | | | 20.8 | % | | 44.3 | % | Net income | $ | 90,048 | | | $ | 181,222 | | | | (50.3) | % | |
| | *Not meaningful | | |
Revenues
Net revenues include Subscription, Product and license and Support and services revenues.
Subscription revenue relates to fees for SaaS, which are generally recognized ratably over the contractual term. Our subscription revenue includesterm and non-SaaS, which are generally recognized at a point in time. SaaS which primarily consists of subscriptions delivered via a cloud-hosted service whereby the customer does not take possession of the software and hybrid subscription offerings and the related support; and non-SaaS, whichsupport. Non-SaaS 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.non-SaaS. 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:
•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
•NetworkingApp Delivery and Security 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:
•Customer Success Services, which gives customers a choice of tiered support offerings that combine the elements of technical support, 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 maintenance fees for our perpetual NetworkingApp Delivery and Security 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, | | Three Months Ended | | | Three Months Ended March 31, | |
| | | June 30, | | | June 30, | | | | | | | March 31, | | | Three Months Ended March 31, | |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | 2020 vs. 2019 | | 2021 | | 2020 | | | 2021 vs. 2020 | |
| | | (in thousands) | | | | | (in thousands) | |
| Subscription | Subscription | $ | 243,450 | | | $ | 155,833 | | | $ | 511,686 | | | $ | 297,439 | | | $ | 87,617 | | | $ | 214,247 | | Subscription | $ | 342,129 | | | $ | 268,236 | | | | $ | 73,893 | | |
| Product and license | Product and license | 129,933 | | | 140,654 | | | 302,791 | | | 275,676 | | | (10,721) | | | 27,115 | | Product and license | 44,235 | | | 172,858 | | | | (128,623) | | |
| Support and services | Support and services | 425,546 | | | 452,210 | | | 845,397 | | | 894,725 | | | (26,664) | | | (49,328) | | Support and services | 389,402 | | | 419,851 | | | | (30,449) | | |
| Total net revenues | Total net revenues | $ | 798,929 | | | $ | 748,697 | | | $ | 1,659,874 | | | $ | 1,467,840 | | | $ | 50,232 | | | $ | 192,034 | | Total net revenues | $ | 775,766 | | | $ | 860,945 | | | | $ | (85,179) | | |
Subscription
Subscription revenue increased for the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019March 31, 2020 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$48.5 million, primarily from our Workspace offerings.
Subscription revenue increased for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to There was also an increase in on-premise license demand of $137.7$25.4 million, mostly from our App Delivery and Security offerings of $13.3 million, mainly from pooled capacity and 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 solutions delivered via the cloud of $76.5 million, primarily from our Workspace offerings.
We currently expect our Subscription revenue to increase when comparing the thirdsecond quarter of 2021 to the second quarter of 2020 and the fiscal year 2021 to the third quarter of 2019 as customers continue to shiftfiscal year 2020 due to our subscription offerings.continued transition to a subscription-based business model as well as the Wrike acquisition.
Product and license
Product andand license revenue decreased when comparing the three months ended June 30, 2020March 31, 2021 to the three months ended June 30, 2019March 31, 2020 primarily due to lowerfrom a decrease in sales of our perpetual Workspace offerings, as customers continue to shift to our subscription offerings.
Product and license revenue increased when comparing the six months ended June 30, 2020solutions due to the decision to
six
months ended June 30, 2019 primarily due to higher sales
discontinue offering new perpetual licenses as of our perpetual Workspace offerings of $43.8 million, mostly from business continuity sales in response to the COVID-19 pandemic in the first quarter of 2020, partially offset by lower sales of our perpetual Networking products of $16.6 million.
October 1, 2020. We currently expect our Product and license revenue to decrease when comparing the thirdsecond quarter of 2021 to the second quarter of 2020 and the fiscal year 2021 to the third quarter of 2019fiscal year 2020 as customers continue to shift to our subscription offerings and away from our NetworkingApp Delivery and Security hardware products, as well as our announced plandecision to discontinue offeringthe broad availability of new perpetual licenses for Citrix Workspace beginning on October 1, 2020.
Support and services
Support and services revenue decreased for the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019March 31, 2020 primarily due to decreaseda decrease in sales of maintenance services across our Workspace perpetual offerings of $11.1$17.7 million Networkingand App Delivery and Security perpetual offerings of $8.2 million and professional services of $7.4$10.2 million, as more of the revenue is reported in the Subscription revenue line commensurate with our subscription model transition.
Support and services revenue decreased for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to decreased sales of maintenance services across our Workspace perpetual 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 decrease when comparing the thirdsecond quarter of 2021 to the second quarter of 2020 and the fiscal year 2021 to the third quarter of 2019fiscal year 2020 as customers continue to shift to our subscription offerings.
Deferred Revenue, Unbilled Revenue and Backlog
Deferred revenue 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 revenue also includes Subscription revenue from our Content Collaboration and cloud-based subscription offerings, as well as on-premise 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 | | March 31, 2021 | | December 31, 2020 | | March 31, 2021 compared to
December 31, 2020 |
| Deferred revenue | Deferred revenue | $ | 1,787,630 | | | | $ | 1,795,791 | | | $ | (8,161) | | Deferred revenue | $ | 1,843,521 | | | | 1,902,576 | | | $ | (59,055) | |
| Unbilled revenue | Unbilled revenue | 866,856 | | | | 704,829 | | | 162,027 | | Unbilled revenue | 1,196,692 | | | | 1,036,072 | | | 160,620 | |
Deferred revenuerevenues decreased $8.2approximately $59.1 million as of June 30, 2020March 31, 2021 compared to December 31, 20192020 primarily due to a decrease in maintenance and support of $88.1$90.4 million, mostly from Workspace perpetual software maintenance of $56.2$75.5 million and NetworkingApp Delivery and Security perpetual hardware maintenance of $23.3$14.8 million, partially offset by an increase from subscription of $81.4$30.7 million. UUnbillednbilled revenue as of June 30, 2020 March 31, 2021 increased $162.0$160.6 million from from December 31, 20192020 primarily due to increased customer adoption of multi-year subscription 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. Backlog includes the aggregate amounts we expect to recognize 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 that have not shipped and are wholly unfulfilled. As of June 30, 2020 and June 30, 2019,March 31, 2021, the amountamount of backlog was not material. 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 ffor 50.4% or 50.7% and 47.0%48.9% of our net revenues for the three months ended June 30,March 31, 2021 and March 31, 2020, and June 30, 2019, respectively. The increasechange in our international revenues as a percentage of our net revenues for the three months ended June 30, 2020March 31, 2021 as compared to the three months ended June 30, 2019March 31, 2020 was primarily due to the first quarter of 2020 including a higher volume of business continuity sales in the 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 net revenues for the six months ended June 30, 2020, and June 30, 2019, respectively. The change in our international revenues as a percentage of our net revenues was 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 June 30, | | | Six Months Ended June 30, | | Three Months Ended | | | Three Months Ended March 31, | |
| | | June 30, | | | June 30, | | | | | | | March 31, | | | Three Months Ended March 31, | |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 vs. 2019 | | | 2020 vs. 2019 | | 2021 | | 2020 | | | 2021 vs. 2020 | |
| | | (In thousands) | | | (In thousands) |
| Cost of subscription, support and services revenues | Cost of subscription, support and services revenues | $ | 93,877 | | | $ | 78,817 | | | $ | 179,917 | | | $ | 150,245 | | | $ | 15,060 | | | | $ | 29,672 | | Cost of subscription, support and services revenues | $ | 110,745 | | | $ | 86,040 | | | | $ | 24,705 | | |
| Cost of product and license revenues | Cost of product and license revenues | 20,060 | | | 21,878 | | | 41,316 | | | 47,622 | | | (1,818) | | | | (6,306) | | Cost of product and license revenues | 21,715 | | | 21,256 | | | | 459 | | |
| Amortization of product related intangible assets | Amortization of product related intangible assets | 8,303 | | | 9,784 | | | 16,584 | | | 20,085 | | | (1,481) | | | | (3,501) | | Amortization of product related intangible assets | 11,009 | | | 8,281 | | | | 2,728 | | |
| | Total cost of net revenues | Total cost of net revenues | $ | 122,240 | | | $ | 110,479 | | | $ | 237,817 | | | $ | 217,952 | | | $ | 11,761 | | | | $ | 19,865 | | Total cost of net revenues | $ | 143,469 | | | $ | 115,577 | | | | $ | 27,892 | | |
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.cloud and hardware costs related to certain on-premise subscription offerings. Cost of product and license revenues consists primarily of hardware, shipping expense, royalties, product media and duplication, manuals and packaging materials. Also included in cost of net revenues is amortization of product related intangible assets.
Cost of subscription, support and services revenues iincreasedncreased for the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019 and for the six months ended June 30,March 31, 2020, compared to the six months ended June 30, 2019 primarily due to an increase inhigher costs of providing our subscription offerings, which were mostly cloud capacity costs, as well as hardware costs related to providing our subscriptionon-premise subscriptions offerings. We currently expect Costcost of subscription, support and services revenues to increase when comparing the thirdsecond quarter of 2021 to the second quarter of 2020 and the fiscal year 2021 to the third quarter of 2019,fiscal year 2020, consistent with the expected increases in Subscription revenue as discussed above.
The increase in Cost of product and license revenues decreasedwas not significant for the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019 and for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to lower overall sales of our perpetual Networking products, which contain hardware components that have a higher cost than our software products.March 31, 2020. We currently expect Costcost of product and license revenues to decrease when comparing the thirdsecond quarter of 2021 to the second quarter of 2020 and the fiscal year 2021 to the third quarter of 2019,fiscal year 2020, consistent with the expected decrease in Productproduct and license revenue.
Amortization of product related intangible assets decreasedincreased for the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019 and for the six months ended June 30,March 31, 2020 compared to the six months ended June 30, 2019, primarily due to loweracquired intangible assets in connection with the Wrike acquisition. We currently expect amortization of certainproduct related intangible assets becoming fully amortized.to increase when comparing the second quarter of 2021 to the second quarter of 2020 and the fiscal year 2021 to fiscal year 2020, due to product related intangibles acquired in connection with the Wrike acquisition.
Gross Margin
Gross margin as a percentage of revenue was 84.7%81.5% for the three months ended June 30, 2020,March 31, 2021, and 85.2%86.6% for the three months ended June 30, 2019, respectively, and 85.7% for the six months ended June 30, 2020, and 85.2% for the six months ended June 30, 2019, respectively.March 31, 2020. The change in gross margin when comparingas a percentage of revenue was primarily driven by the threeend of sale of Workspace perpetual licenses that have historically had a higher gross margin than our Subscription and six months ended June 30, 2020 to June 30, 2019 was not significant.Application Delivery and Security offerings.
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 time 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 | | | | Three Months Ended March 31, | | |
| | March 31, | | | | |
| | 2021 | | 2020 | | | | | | 2021 vs. 2020 | | |
| | (In thousands) | | |
| Research and development | $ | 144,158 | | | $ | 134,458 | | | | | | | $ | 9,700 | | | |
Research and development expenses consist primarily of personnel related costs and facility and equipment costs directly related to our research and development 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, 2020March 31, 2021 compared to the three months ended June 30, 2019March 31, 2020 primarily due to stock-based compensation. Research and development expenses increased during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to compensation and other employee-related costs related to a net increase in headcount.
Sales, Marketing and Services 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) | | | | | | | | | | |
| Sales, marketing and services | $ | 291,511 | | | $ | 298,429 | | | $ | 617,620 | | | $ | 573,084 | | | $ | (6,918) | | | $ | 44,536 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Three Months Ended March 31, | | |
| | March 31, | | | | |
| | 2021 | | 2020 | | | | | | 2021 vs. 2020 | | |
| | (In thousands) | | |
| Sales, marketing and services | $ | 293,284 | | | $ | 326,109 | | | | | | | $ | (32,825) | | | |
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 decreased during the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019March 31, 2020 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 marketing program costs of $9.7 million.
Sales, marketing and services expenses increased during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the impact from the COVID-19 pandemic, which included an increasedecreases in variable compensation of $39.6$29.1 million, as the comparative period included higher amounts driven by an increase in demand of limited use licenseslimited-use licenses. Also contributing to the decrease were lower compensation and ongoing business continuity sales, and an increase in marketing programsother employee-related costs of $10.7 million. These increases were$15.2 million due to COVID-related travel restrictions, partially offset by a decreaseincreases in costsstock-based compensation 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.$8.0 million.
General and Administrative 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) | | | | | | | | | | |
| General and administrative | $ | 90,808 | | | $ | 81,162 | | | $ | 170,907 | | | $ | 158,709 | | | $ | 9,646 | | | $ | 12,198 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Three Months Ended March 31, | | |
| | March 31, | | | | |
| | 2021 | | 2020 | | | | | | 2021 vs. 2020 | | |
| | (In thousands) | | |
| General and administrative | $ | 94,990 | | | $ | 80,099 | | | | | | | $ | 14,891 | | | |
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, 2020March 31, 2021 compared to the three months ended June 30, 2019March 31, 2020 primarily due to stock-based compensationprofessional fees of $22.5 million, mainly Wrike acquisition 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 of $4.8 million.
General and administrative expenses increased during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the impact from the COVID-19 pandemic, which included an increase in credit loss expense of $8.8 million, an increase in compensation and other employee-related costs of $8.1 million, an increase in stock-based compensation costs of $5.9 million, and an increase in charitable contributions of $5.6$10.5 million. These increases were partially offset by a decrease in professional fees of $15.1 million.
Restructuring ExpensesAmortization of Other Intangible Assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Three Months Ended March 31, | | |
| | March 31, | | | | |
| | 2021 | | 2020 | | | | | | 2021 vs. 2020 | | |
| | (In thousands) | | |
| Amortization of other intangible assets | $ | 7,532 | | | $ | 702 | | | | | | | $ | 6,830 | | | |
Restructuring expensesAmortization of other intangible assets consists of amortization of customer relationships, trade names, backlog and covenants not to compete.
Amortization of other intangible assets increased during the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019 March 31, 2020 primarily due to the impairment of a right-of-use ("ROU") asset related to a restructuring facility of $8.9 millionacquired intangible assets as a resultpart of the COVID-19 pandemic, partially offset by a decrease in employee severance and related costs of $3.7 million.Wrike acquisition.
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.42
See Note 17 to our condensed consolidated financial statements for additional details regarding our restructuring charges.
2021 Operating Expense Outlook
When comparing the thirdsecond quarter of 2021 to the second quarter of 2020 and the fiscal year 2021 to the third quarter of 2019,fiscal year 2020, we currently expect Operating expenses to increase primarily due to continued investment to support our cloud transition and higher compensation related expenses.the Wrike acquisition.
Interest Income
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Three Months Ended March 31, | | |
| | March 31, | | | | |
| | 2021 | | 2020 | | | | | | 2021 vs. 2020 | | |
| | (In thousands) | | |
| Interest income | $ | 321 | | | $ | 1,605 | | | | | | | $ | (1,284) | | | |
Interest income primarily consists of interest earned on our cash, cash equivalents and investment balances. Interest income decreased for the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019March 31, 2020 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 primarily due to lower average balances of cash, cash equivalents and investments as a result of the repayment of the outstanding principal balance of our Convertible Notes on April 15, 2019, as well as lower yields on investments as a result of lower interest rates. See Note 67 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) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Three Months Ended March 31, | | |
| | March 31, | | | | |
| | 2021 | | 2020 | | | | | | 2021 vs. 2020 | | |
| | (In thousands) | | |
| Interest expense | $ | (24,360) | | | $ | (14,611) | | | | | | | $ | (9,749) | | | |
Interest expense primarily consists of interest paid on our 2026 Notes, 2027 Notes and 2030 Notes, 2021 Term Loan Credit Agreement, Term Loan Credit Agreement and our credit facility. Interest expense increased for the three months ended June 30, 2020 March 31, 2021 compared to the three months ended June 30, 2019March 31, 2020 primarily due to interest expense from our outstanding 2030 Notes and Term Loan Credit Agreement of $8.3 million, partially offset by a decrease in interest expense from our Convertible Notes of $1.5 million duefinancing costs related 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.Wrike acquisition. See Note 11 to our condensed consolidated financial statements for additional details regarding our debt.
Other income, (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 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Three Months Ended March 31, | | |
| | March 31, | | | | |
| | 2021 | | 2020 | | | | | | 2021 vs. 2020 | | |
| | (In thousands) | | |
| Other income, net | $ | 12,896 | | | $ | 2,098 | | | | | | | $ | 10,798 | | | |
Other income, (expense), net is primarily comprised of gains (losses) from remeasurement of foreign currency transactions and non-designated hedges, sublease income, realized losses related to changes in the fair value of our investments that have a decline in fair value and recognized gains (losses) related to our investments, which was not material for all periods presented.investments.
The changeincrease in Other income, (expense), net during the three and sixthree months ended June 30, 2020March 31, 2021 compared to the three and six months ended June 30, 2019March 31, 2020 is primarily driven by the remeasurement and settlement of foreign currency transactions.attributable to recognized gains on our strategic investments.
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 12.5%(10.9)% and 12.8%4.9% for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively. When comparing the three months ended June 30, 2020 to the three months ended June 30, 2019, the effective tax rate did not materially change.
Our effective tax rate was 8.0% and 9.6% for the six months ended June 30, 2020 and 2019, respectively. The The decrease inin the effective tax rate when comparing the sixthree months ended June 30, 2020March 31, 2021 to the sixthree months ended June 30, 2019March 31, 2020, was primarily due to an increasetax items unique to the period ended March 31, 2021 and the geographical mix of income towards lower tax regions. These amounts include a $17.1 million tax benefit related to a favorable Indian tax ruling, net of the U.S. tax impact, during the period ended March 31, 2021.
We are subject to tax in the discreteU.S. and in multiple foreign tax benefits 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, 2020.
jurisdictions. 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 our 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. See Note 14 to our condensed consolidated financial statements for additional details regarding our income taxes.
Liquidity and Capital Resources
During the sixthree months ended June 30, 2020,March 31, 2021, we generated operating cash flows of $703.4$212.9 million. These operating cash flows related primarily to net income of $294.1$90.0 million, adjusted for, among other things, non-cash charges, including stock-based compensation expense of $143.7$86.9 million, and depreciation and amortization expenses of $104.9$63.9 million and a change in operating assets and liabilities, net of $160.2acquisitions of $38.8 million. The change in our operating assets and liabilities, net of acquisitions was mostly the result of an inflow from accounts receivable of $95.3$302.8 million primarily due to an increase in collections from prior period sales, an inflow fromsales. These inflows were partially offset by outflows in accrued expenses and other current liabilities of $190.8 million, mostly from employee-related accruals of $133.6 million and payments on other accruals of $27.1 million, primarily from acquisition-related costs. Also contributing to operating outflows were changes in deferred revenue of $92.1 million, income taxes, net of $38.0 million, primarily due to an increase in employee-related accruals,prepaid taxes, and an inflow from accounts payableother assets of $37.9$27.5 million, primarily due to cloud hosting fees. These inflows arean increase in capitalized commissions. Our investing activities used $1.94 billion of cash consisting primarily of cash paid for the Wrike acquisition, net of cash acquired of $2.02 billion and cash paid for the purchase of property and equipment of $23.9 million, partially offset by net proceeds from investments of $107.0 million. Our financing activities provided cash of $1.46 billion, primarily net proceeds from the 2021 Term Loan of $997.9 million and 2026 Notes of $741.4 million, partially offset by repayment of Wrike acquired debt of $190.0 million, cash dividends on our common stock of $45.5 million and cash paid for tax withholding on vested stock awards of $42.3 million.
During the three months ended March 31, 2020, we generated operating cash flows of $284.2 million. These operating cash flows related primarily to net income of $181.2 million, adjusted for, among other things, non-cash charges, including stock-based compensation expense of $58.3 million and depreciation and amortization expenses of $52.6 million. Partially offsetting these cash flows was a change in operating assets and liabilities of $14.1 million. The change in our net operating assets and liabilities was primarily a result of an outflow in deferred revenue of $41.0 million and an outflow in other assets of $39.5$23.3 million, primarily due to an increase in capitalized commissions from higher subscription sales. These outflows are partially offset by an inflow from accounts payable of $20.5 million due to cloud hosting fees, an inflow from accrued expenses and current liabilities of $17.1 million due to an increase in commissions and an inflow from accounts receivable of $11.3 million. The inflow from accounts receivable is primarily due to an increase in collections from prior period sales, partially offset by increases in new accounts receivable balances during the first quarter of 2020 primarily from business continuity sales in response to COVID-19. Our investing activities used $289.7provided $10.0 million of cash consisting primarily of net purchasesproceeds from the sale of investments of $265.4$22.2 million, andpartially offset by cash paid for the purchase of property and equipment of $21.1$10.5 million. Our financing activities used cash of $400.2$310.0 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$54.2 million and cash dividends on our common stock of $86.1$42.8 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.
DuringTerm Loan Credit Agreements
On February 5, 2021, we entered into 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. 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.
2021 Term Loan Credit Agreement, consisting of a $1.00 billion 2021 Term Loan. We borrowed $1.00 billion on February 26, 2021 under the 2021 Term Loan, and the loan matures on February 25, 2024. The proceeds under the 2021 Term Loan were used to finance a portion of the aggregate cash consideration for the Wrike acquisition.
On January 21, 2020, we entered into thea $1.00 billion Term Loan Credit Agreement, with Bank of America, N.A., as administrative agent, and the other lenders party thereto from time to time (collectively, the “Lenders”).The Term Loan Credit Agreement provides us with facilities to borrow term loans on an unsecured basis in an aggregate principal amount of up to $1.00 billion, consisting of (1) a $500.0 million 364-day Term Loan facility (the “364-day Term Loan”), and (2) a $500.0 million 3-year Term Loan in each case in a single borrowing, subject to satisfaction of certain conditions set forth infacility (the “3-year Term Loan”). During the Term Loan Credit Agreement. On January 30,three months ended March 31, 2020, we borrowed $1.00 billion under the term loans and used the proceeds to enter into ASR transactions with each of the Dealers for an aggregate of $1.00 billion. See Notes 11 and 15 to our condensed consolidated financial statements for additional details onborrowings from the Term Loan Credit Agreement and ASR.to enter in an aggregate $1.00 billion accelerated share repurchase program.
Senior Notes
On February 18, 2021, we issued $750.0 million of unsecured senior notes due March 1, 2026, or the 2026 Notes. The 2026 Notes accrue interest at a rate of 1.250% per annum, which is due semi-annually on March 1 and September 1 of each year beginning on September 1, 2021. The net proceeds from this offering were $741.4 million. During the three months ended March 31, 2021, we used the net proceeds from the 2026 Notes to fund a portion of the aggregate cash consideration for the Wrike acquisition.
On February 25, 2020, we issued $750.0 million of unsecured senior notes due March 1, 2030.2030, or the 2030 Notes. The 2030 Notes accrue interest at a rate of 3.300% per annum. Interest on the 2030 Notesannum, which is due semi-annually on March 1 and September 1 of each year, beginning on September 1, 2020.year. 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.
million. During the sixthree months ended June 30,March 31, 2020, we used the net proceeds from the 2030 Notes and cash to repay $500.0 million under the 364-day Term Loan and $250.0 million under the 3-year Term Loan. As of June 30, 2020,March 31, 2021, $250.0 million was outstanding under the 3-year Term Loan.
On November 15, 2017, we issued $750.0 million of unsecured senior notes due December 1, 2027, or the 2027 Notes. The 2027 Notes accrue interest at a rate of 4.500% per annum. Interest on the 2027 Notesannum, which is due semi-annually on June 1 and December 1 of each year, beginning on June 1, 2018. The 2027 Notes will mature on December 1, 2027, unless earlier redeemed or repurchased in accordance with their terms prior
to such date. See Note 11 to our condensed consolidated financial statements for additional details on the 2030 Notes and the 2027 Notes.year.
Credit Facility
On November 26, 2019, we entered into a $250.0 million five-year unsecured revolving credit facility under an amended and restated credit agreement, (the "Credit Agreement") with a group of financial institutions, which amended and restated our existing credit agreement, dated January 7, 2015. Theor the Credit Agreement provides for a five year unsecured revolving credit facility in the aggregate amount of $250.0 million, subject to continued covenant compliance.Agreement. 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. As of June 30, 2020,March 31, 2021, no amountsamounts were outstanding under the credit facility. See Note 11
Bridge Facility and Take-Out Facility Commitment Letter
On January 16, 2021, we entered into a bridge facility and take-out facility commitment letter (the “Commitment Letter”) pursuant to our condensed consolidated financial statements for additional details on the Credit Agreement.
Convertible Notes
During 2014, we completedwhich JPMorgan Chase Bank, N.A. (1) committed to provide a private placement of approximately $1.44 billion principal amount of 0.500% Convertible Notes due 2019. 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 billionsenior unsecured 364-day term loan facility in the outstandingan aggregate principal amount of $1.45 billion to finance the Convertible Notescash consideration for the Wrike acquisition in the event that the permanent debt financing was not available on or prior to the Closing Date and delivered 4.9 million newly issued shares(2) agreed to use commercially reasonable efforts to assemble a syndicate of our common stock in respectlenders to provide the necessary commitments for the senior term loan facility. The commitments under the Commitment Letter were permanently reduced to zero on February 18, 2021, as a result of (i) the effectiveness of the remainder2021 Term Loan Credit Agreement and (ii) the completion 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 Convertible2026 Notes. Please see
See Note 11 to our condensed consolidated financial statements for additional details onregarding our Convertible Notes and Bond Hedges.debt.
Historically, significant portions of our cash inflows were generated by our operations. We currently expect this trend to continue throughout 2020.for the remainder of 2021. We believe that our existing cash and investments together with cash flows expected from operations will be sufficient to meet expected operating and capital expenditure requirements and service our debt obligations for the next 12 months. For additional information, see section titled Impact of COVID-19 Pandemic above. We continue to search for suitable acquisition candidates and could acquire or make investments in companies we believe are related to our strategic objectives. We could from time to time continue to seek to raise additional funds through the issuance of debt or equity securities for larger acquisitions and for general corporate purposes.
Cash, Cash Equivalents and Investments
| | | | | | | | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 | | 2020 Compared to 2019 |
| | (In thousands) | | | | |
| Cash, cash equivalents and investments | $ | 880,318 | | | $ | 605,456 | | | $ | 274,862 | |
| | | | | | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 | | 2021 Compared to 2020 |
| | (In thousands) |
| Cash, cash equivalents and investments | $ | 510,041 | | | $ | 891,373 | | | $ | (381,332) | |
The increasedecrease in Cash, cash equivalents and investments when comparing June 30, 2020March 31, 2021 to December 31, 2019,2020, is primarilyprimarily due to cash received from debt offerings of $987.0 million and cash provided by operating activities of $703.4 million, partially offset by the cash paid for share repurchasesthe Wrike acquisition, net of $1.00cash acquired of $2.02 billion, amounts paid for but not settled underrepayment of Wrike acquired debt of $190.0 million, cash dividends on our acceleratedcommon stock repurchase program of $200.0$45.5 million, cash paid for tax withholding on vested stock awards of $101.2 million, cash dividends on our common stock of $86.1$42.3 million and cash paid for property and equipment of $21.1$23.9 million, partially offset by cash received from debt offerings of $1.74 billion and cash provided by operating activities of $212.9 million.
As of June 30, 2020, $413.3March 31, 2021, $309.0 million of the $880.3$510.0 million of Cash, cash equivalents and investments was held by our foreign subsidiaries. The 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 $1.00 billion was approved in 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.returns and mitigate earnings per share dilution posed by the issuance of shares related to employee equity compensation awards. At June 30, 2020, $914.1March 31, 2021, $625.6 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, the 2027 Notes 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.
On January 30, 2020, we used the proceeds from our Term Loan Credit Agreement to enter into an ASR with a group of Dealers for an aggregate of $1.00 billion. Under the 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 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 prices of our common stock during the term of the applicable ASR agreement, less a discount. At 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 election, or make a cash payment to the applicable Dealer. Final settlement of the ASR agreement is expected to be completed by 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,March 31, 2021, we made nodid not have any 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 common stock at an average price of $115.45.
During the three months ended June 30, 2019, we expended $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 $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.
Shares for Tax Withholding
During the three and six months ended June 30, 2020,March 31, 2021, we withheld 256,376 and 739,600 shares, respectively,335,347 from equity awards that vested, totaling $35.8$46.7 million, and $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, 2019, we withheld 104,129 and 698,117 shares, respectively, from equity awards that vested, totaling $10.4 million and $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 $1.00 billion 2021 Term Loan Credit Agreement entered intodrawn on January 21, 2020, consisting of a $500.0 million 364-day Term Loan, and a $500.0 million 3-year Term Loan,February 26, 2021 and the $750.0 million 2030 Senior2026 Notes issued on February 25, 2020,18, 2021, 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.2020. 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, 2019.2020.
Other Purchase Commitments
In May 2020, we entered into an amended agreement with a third-party provider, in the ordinary course of business, for the use of certain cloud services through June 2029. Under the amended agreement, we are committed to a purchase of $1.00 billion throughout the term of the agreement. As of June 30, 2020,March 31, 2021, we had $987.9927.8 million 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.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes during the quarter ended June 30, 2020March 31, 2021 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, 2019.2020.
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of June 30, 2020,March 31, 2021, 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, 2020,March 31, 2021, 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, 2020,March 31, 2021, except for the acquisition of Wrike described below, 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.
On February 26, 2021, we completed the acquisition of Wrike. We are currently integrating Wrike into our operations and internal control processes and, pursuant to the Securities and Exchange Commission's guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment for a period not to exceed one year from the date of acquisition, the scope of our assessment of our internal controls over financial reporting at March 31, 2021 does not include Wrike.
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
We are subjectInformation with respect to various legal proceedings, including suits, assessments, regulatory actionsthis item may be found in Note 16, "Commitments and investigations. We believe that we have meritorious defensesContingencies-Legal Matters", to our condensed consolidated financial statements included 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.
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.Quarterly Report on Form 10-Q.
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, 2019,2020, which was filed with the Securities and Exchange Commission on February 14, 2020.8, 2021.
The effectsOur recent acquisition of the COVID-19 pandemicWrike involves a number of risks that could adversely affect our business, results of operations, financial condition and cash flows,operating results, and such effects will depend on future developments.we may not realize the financial and strategic goals we anticipate.
On February 26, 2021, we completed our previously announced acquisition of Wrike, Inc., a leading provider of SaaS collaborative work management solutions, pursuant to the terms of the Agreement and Plan of Merger dated January 16, 2021 (the “Merger Agreement”). The COVID-19 pandemicacquisition of Wrike involves certain risks, including:
•Our failure to realize the expected benefits or synergies of the Wrike acquisition;
•An uncertain revenue and the measures institutedearnings stream from Wrike, which could dilute our earnings;
•Difficulties and delays integrating Wrike’s personnel, operations, technologies, solutions and systems;
•Difficulties operating Wrike to slow the spread of COVID-19, including travel bansfurther our objectives and restrictions, quarantines, shelter in placestrategy;
•Undetected errors 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 eventunauthorized use of a recession, depression,third-party’s code in Wrike’s solutions;
•Our ongoing business may be disrupted and our management’s attention may be diverted by transition or integration activities involving Wrike, which may delay innovation, among other downturnthings;
•Challenges with implementing adequate and appropriate controls, procedures and policies in the worldwide economy,Wrike’s business;
•Potential difficulties in completing projects associated with Wrike’s in-process research and development;
•Difficulty providing complementary solutions that are purchased by our business could be adversely affected.
The effects of the COVID-19 pandemic onor Wrike’s customers, reaching new users and expanding our businesscustomer base, or competing effectively in markets in which we have no or limited direct prior experience and where competitors have stronger market positions and which are uncertain and difficult to predict, but may include, the following, each of which could adversely affect our business, results of operations, financial condition and cash flows:highly competitive;
•The ratepotential loss 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.Wrike’s key employees;
•We could experience disruptions inPotential difficulties integrating Wrike’s solutions and services into our operationssales channel or challenges selling Wrike’s products;
•The assumption of pre-existing contractual relationships of Wrike that we would not have otherwise entered into, the termination or modification of which may be costly or disruptive to our business;
•Being subject to unfavorable revenue recognition or other accounting treatment 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.Wrike’s practices;
•WeIncurring a significant amount of debt to finance the Wrike acquisition, which increased our debt service requirements, expense and leverage;
•Issuing equity awards to, and assuming existing equity awards of, Wrike’s employees, which may be unablemore rapidly deplete share reserves available under our shareholder-approved equity incentive plans;
•Increased exposure to collect amountsrisks related to foreign operations due on billed and unbilled revenue ifto the increase in our customers or partners delay payment or fail to pay us under the terms of our agreements as a result of the 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,employee presence in Russia, which could affect our ability to repay or refinance our outstanding indebtedness, fund future product 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 duringunavailability of key technical talent, cyber security risks, disruption resulting from the transfer of employees moving from current Russia offices to alternative locations, difficulty and followingexpenses associated with identifying alternative and adequate technical talent pools, and other risks related to the COVID-19 pandemic.political, security and policy uncertainty between the United States and Russia;
•Litigation arising from the transaction; and
•We may be unable to service our debt 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, operating results and cash flows could vary materially from those we provide as guidance or from those anticipated by investors and 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 future.
•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 risksOther factors described in the “Risk Factors” section in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K forfiled with the fiscal year ended December 31, 2019. The ultimate impactSEC on February 8, 2021.
Our failure to successfully integrate Wrike, or realize the expected benefits of COVID-19the acquisition, due to these or other factors could have a material adverse effect on our business, results of operations and financial conditioncondition. In addition, we may not be able to accelerate our strategy and cash flows is dependent on future developments, including the durationcloud transition, enhance our growth or accelerate Wrike’s growth expectations, provide complementary solutions that are purchased by our or Wrike’s customers, reach new users and expand our customer base, compete effectively in Wrike’s markets, or realize other expected benefits of the pandemic, the severity of the diseasemerger if we are unable to successfully integrate 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.operate Wrike.
Servicing ourthe debt we incurred in connection with the Wrike acquisition will require a significant amount of cash, which could adversely affect our business, financial condition and results of operations.
The consideration we paid for the Wrike acquisition consisted of a $2.25 billion base purchase price, subject to certain adjustments as set forth in the Merger Agreement. We may not have sufficient cash flowfunded the consideration with proceeds from our businessa term loan credit agreement, dated February 5, 2021, with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto from time to make paymentstime (the “2021 Term Loan Credit Agreement”), and the completion of the issuance of 1.250% Senior Notes due 2026 (the “2026 Notes”) pursuant to an Underwriting Agreement, dated February 9, 2021, with J.P. Morgan Securities LLC, BofA Securities, Inc. and Deutsche Bank Securities Inc., as representatives of the several underwriters named therein.
Taking on our debt or repurchase our 2027 Notes or 2030 Notes upon certain events.
As of June 30, 2020, we had aggregateadditional indebtedness of $1.73 billion that we have incurred in connection with the issuanceWrike acquisition, as a result of our 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 under the2021 Term Loan Credit Agreement. Our ability to make scheduled payments ofAgreement, the principal of, to pay interest on 2026 Notes and/or to refinance our indebtedness, depends on our future performance, which is subject to general economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operationsalternative financing in the future, sufficientincreased the risks that we face with our existing indebtedness. For example, in January 2021, we committed to servicea goal of maintaining our debtinvestment grade credit rating and indicated that we plan to make necessary capital expenditures.return to historical leverage levels within 24 months. If we are 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 be onerous or highly dilutive. Our ability to refinance our indebtedness, as applicable, will depend on the capital markets and our financial condition at such time. We may not be able to sell assets, restructure our indebtedness or obtain additional equity or debt financing on terms that are acceptable to us or at all, which could result in 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
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 the 2027 Notes or the 2030 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 the 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 restrictachieve these commitments, our ability to grant liens, mergeobtain additional financing or consolidate, dispose of all or substantially all ofto re-finance our assets, change our business or incur subsidiary indebtedness. The indenture governing our 2027 Notes and 2030 Notes contains covenants limiting our abilityexisting indebtedness in the future, and the abilityterms 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 maysuch financing, could 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.adversely affected.
Our aggregate indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences. For example, it could:
•makeMake us more vulnerable to adverse changes in general U.S. and worldwide economic, industry and competitive conditions and adverse changes in government regulation;
•limitLimit our flexibility in planning for, or reacting to, changes in our business and our industry;
•placePlace us at a disadvantage compared to our competitors who have less debt; and
•limitLimit 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,
Our App Delivery and Security business has encountered challenges meeting demand for certain products, and may continue to encounter challenges meeting demand for certain products, if we incur additional indebtedness,there are any interruptions or delays in the riskssupply of hardware or hardware components from our third-party sources.
We rely on a concentrated number of third-party suppliers, who provide hardware or hardware components for our App Delivery and Security products, and contract manufacturers. Our suppliers may encounter problems during manufacturing due to a variety of reasons, including failure to follow specific protocols and procedures, failure to comply with applicable regulations, or the need to implement costly or time-consuming protocols to comply with applicable regulations (including regulations related to conflict minerals), equipment malfunction, natural disasters and environmental factors, any of which could delay or impede their ability to meet our businessdemand. We also may experience disruptions or delays to our supply chain or fulfillment and delivery operations, including as a result of the COVID-19 pandemic from, among other things, the temporary closure of third-party supplier and manufacturer facilities, spikes in demand for manufacturing services, interruptions in product supply or insufficient supply of components, restrictions on export or shipment or disruptions in product fulfillment due to closure or delays of our delivery vendors. For example, in the first quarter of 2021, due in part to increased customer demand, we experienced challenges in procuring hardware components for certain of our Application Delivery and Security products, which led to hardware shipment delays and lower than expected recognized revenue during the quarter. We expect that these challenges may continue and could increase. If we are unable to procure hardware and hardware components in a timely manner from our existing suppliers or are required to change suppliers, there could be a delay in the supply of our hardware or hardware components and our ability to service or repay our indebtedness would increase. Also, changes by any rating agency to our credit rating may negatively impactmeet the value and liquidity of both our debt and equity securities, as well as the potential costs associated with any potential refinancingdemands of our indebtedness. Downgrades incustomers could be adversely affected, which could cause the
loss of App Delivery and Security sales and existing or potential customers and delayed revenue recognition, all of which could adversely affect our credit rating could also restrictresults of operations.
If our customers choose on-premises subscription licenses with short-term durations, our operating results may be adversely affected.
Our ability to obtain additional financingrecognize revenue depends on several factors, including the average duration of on-premises subscription licenses. If our customers choose licenses with short subscription term durations, operating results may be adversely affected and not meet our investors’ expectations. For example, in the first quarter of 2021, we sought to convert into longer-term subscriptions the expiring limited-use non-renewable, on-premises term licenses issued in 2020 at the onset of the pandemic. However, in the first quarter of 2021, a number of these customers chose to convert the expiring limited-use on-premises term licenses into short-term duration agreements for on-premises licenses. If customers were to choose short-term duration for other on-premises subscription licenses in future and could affect the terms of any such financing.
To the extent the COVID-19 pandemic adversely affectsperiods, we would expect our business, results of operations financial condition and cash flows, it may also heighten these risks related to servicing our debt.be adversely affected in those periods.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer
The Company's Board of Directors has authorized an ongoing stock repurchase program, of which $1.00 billion was approved in 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.returns and mitigate earnings per share dilution posed by the issuance of shares related to employee equity compensation awards. At June 30, 2020, $914.1March 31, 2021, $625.6 million ($714.1 million after taking into consideration the contracted but undelivered shares under the ASR of $200.0 million) was available to repurchase common stock pursuant to the stock repurchase program. All shares repurchased are recorded as treasury stock. The Company is authorized to make purchases of its common stock using general corporate funds through open market purchases, pursuant to a Rule 10b5-1 plan or in privately negotiated transactions.
The following table shows the monthly activity related to stock repurchases for the quarter ended June 30, 2020:March 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number
of Shares
Purchased
(1) | | Average Price
Paid per Share | | Total Number of Shares
Purchased as
Part of Publicly
Announced Plans or
Programs | | Approximate dollar
value of Shares that may yet be Purchased under the Plans or Programs
(in thousands)
(2) |
| January 1, 2021 through January 31, 2021 | 112,466 | | | $ | 143.14 | | | — | | | $ | 625,561 | |
| February 1, 2021 through February 28, 2021 | 45,761 | | | $ | 132.50 | | | — | | | $ | 625,561 | |
| March 1, 2021 through March 31, 2021 | 177,120 | | | $ | 138.80 | | | — | | | $ | 625,561 | |
| Total | 335,347 | | | $ | 139.39 | | | — | | | $ | 625,561 | |
(1)Includes 256,376The total number of shares purchased are shares withheld from restricted stock units that vested in the secondfirst quarter of 20202021 to satisfy minimum tax withholding obligations that arose on the vesting of restricted stock units.
(2)Shares withheld from restricted stock units that vested to satisfy minimum tax withholding obligations that arose on the vesting of awards do not deplete the dollar amount available for purchases under the repurchase program.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.OTHER INFORMATION
Our policy governing transactions in Citrix securities by our directors, officers and employees permits our directors, officers and certain other persons to enter into trading plans complying with Rule 10b5-1 under the Exchange Act. We have been advised that Antonio Gomes,David Henshall, our Chief Executive Officer and President, PJ Hough, our Executive Vice President and Chief LegalProduct Officer, Arlen Shenkman,and Sridhar Mullapudi, our Executive Vice President and Chief Financial Officer and David Henshall, our President and Chief Executive Officer,of Product Management, each entered into a new trading plan in the secondfirst quarter of 20202021 in accordance with Rule 10b5-1 and our policy governing transactions in our securities. We undertake no obligation to update or revise the information provided herein, including for revision or termination of an established trading plan.
ITEM 6.EXHIBITS
(a)List of exhibits
| | | | | | | | |
| Exhibit No. | | Description |
| | |
10.1*2.1** | | Agreement and Plan of Merger, dated as of January 16, 2021, by and among Citrix Systems, Inc., Wallaby Merger Sub, LLC, Wrangler Topco, LLC and Vista Equity Partners Management, LLC, as the representative (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on January 19, 2021). |
| | |
| 4.1 | | |
| | |
| 4.2 | | |
| | |
| 10.1 | | |
| | |
| 10.2** | | |
| | |
| 10.3 | | |
| | |
| 10.4 | | |
| | |
| 10.5* | | |
| | |
| 10.6* | | |
| | |
| 10.7*† | | |
| | |
| 10.8* | | |
| | |
| 10.9* | | |
| | |
| 10.10* | | |
| | |
| 10.11* | | |
| | |
| 10.12* | | |
| | | | | | | | |
| | |
| 10.13* | | |
| | |
| 10.14* | | |
| | |
| 10.15*† | | |
| | |
10.3*† | | |
| | |
10.4*10.16*† | | |
| | |
10.5*† | | |
| | |
| 31.1† | | |
| | |
| 31.2† | | |
| | |
| 32.1†† | | |
| | |
| 101.SCH† | | Inline XBRL Taxonomy Extension Schema Document |
| | |
| 101.CAL† | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
| 101.DEF† | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | |
| 101.LAB† | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | |
| 101.PRE† | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
| 104† | | 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. |
| ** | Schedules (or similar attachments) have been omitted pursuant to Item 601 of Regulation S-K. The registrant hereby undertakes to furnish supplemental copies of any of the omitted schedules (or similar attachments) upon request by the SEC. |
| † | 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 31st6th day of July, 2020.May, 2021.
| | | | | | | | |
| | |
| CITRIX SYSTEMS, INC. | |
| | |
| By: | /s/ ARLEN R. SHENKMAN |
| | Arlen R. Shenkman |
| | Executive Vice President and Chief Financial Officer |
| | (Authorized Officer and Principal Financial Officer) |