2010 Annual Report to the Most Directly Comparable GAAP fi Nancial Measure
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Annual Report 2010 Better ways for people, IT and business to work. Financial Highlights Year ended December 31, (In thousands, except per share data) 2010 2009 2008 2007 Net revenues $ 1,874,662 $1,614,088 $ 1,583,354 $ 1,391,942 Cost of revenues: Cost of product license revenues 66,682 52,160 47,801 42,984 Cost of services revenues 106,234 87,233 79,303 65,027 Amortization of product related intangible assets 50,504 47,917 48,028 29,596 Total cost of revenues 223,420 187,310 175,132 137,607 Gross margin 1,651,242 1,426,778 1,408,222 1,254,335 Operating expenses Research and development 326,647 281,980 288,109 205,103 Sales, marketing and services 729,754 679,053 669,569 590,409 General and administrative 258,875 239,623 256,679 229,229 Amortization of other intangible assets 14,279 20,972 22,724 17,387 Restructuring 971 26,473 - - In-process research and development - - 1,140 9,800 Total operating expenses 1,330,526 1,248,101 1,238,221 1,051,928 Income from operations 320,716 178,677 170,001 202,407 Other income, net 13,104 15,215 26,922 48,501 Income before income taxes 333,820 193,892 196,923 250,908 Income taxes 57,379 2,875 18,647 36,425 Consolidated net income 276,441 $ 191,017 $ 178,276 $ 214,483 Less: Net loss attributable to non-controlling interest 624 - - - Total net income $ 277,065 $ 191,017 $ 178,276 $ 214,483 Earnings per share - diluted $ 1.46 $ 1.03 $ 0.96 $ 1.14 Weighted average shares outstanding - diluted 190,335 184,985 186,682 187,380 Revenue Earnings Per Share Operating Cash Flow (millions) (millions) $1,875 $1.46 $616 $1.03 $0.96 $462 $484 $1,614 $1,583 2008 2009 2010 2008 2009 2010 2008 2009 2010 Mark Templeton Fellow shareholders, President and CEO Long-standing boundaries separating economies, businesses and people are being removed, redrawn, and reinvented. Work is no longer a place. It’s something we do—whatever, whenever, wherever—to collaborate, to innovate and to grow. The consumerization of IT is eliminating the need for corporate-ownership of devices, networks and datacenters. Monolithic, complex systems are giving way to lighter, simpler, more fl exible approaches where people are at the center of computing—and cloud services are at their fi ngertips. This is precisely the kind of world we planned for. Citrix virtual computing products and services help over a hundred million people work and play from anywhere—gracefully adapting to the pace of change. This is our worthy, long-term purpose, delivering the business agility, productivity and effi ciency needed to thrive in a very dynamic world where geopolitical, geophysical and geographical change is everywhere. Citrix has always been a company motivated by beliefs, guided by principles, and powered by determination. We’ve been rewarded by growth. The Citrix way is to question generally accepted computing assumptions, and to innovate forward. We believe our vision for virtual computing—from collaboration to desktops to clouds—is more valuable every day. Certainly, our record 2010 results support this. Annual Report 2010 • Citrix Systems, Inc. 1 2010: another record year 2010 was a year of important milestones and record results in a range of fi nancial, operational and strategic dimensions. Revenue was up 16% to $1.87 billion and non-GAAP earnings per share increased 15% to $2.08. License revenue was supported by share gains in the desktop virtualization and app networking markets and grew 15% over 2009. Our other revenue lines—including our online services business, license updates, and technical services grew 17%, 13%, and 31% respectively—helped to increase deferred revenue by 26% to a record $779 million. Our focus on operational effi ciencies continued, generating a non-GAAP operating margin of 26% for the year, up more than two percentage points over 2009. Later, in the annual report section, you can fi nd a full reconciliation between our non-GAAP and GAAP performance. We fi nished 2010 with $1.7 billion in cash and investments on the balance sheet—up 40% for the year—driven by a record $616 million in total cash fl ow from operations. As a result, we had the fl exibility to repurchase over 8 million, or about 4%, of our outstanding shares. Overall, our 2010 business performance demonstrates the growing momentum in our core growth markets and excellence in execution. Web collaboration, desktop virtualization and cloud networking are being propelled by a broad set of tectonic forces reshaping the face of computing. Work is going virtual. Computing is going virtual. Citrix is capitalizing on these historic transformations by enabling better ways for people, IT and business to work. Convergence in collaboration Social media, web conferencing, document clouds and personal video are converging. Mass adoption of these integrated collaboration concepts, however, is still in early stages. So, we’re inventing and investing to make it easy for people to connect and work together across businesses, geographies and time zones. As one of the world’s top software-as-a-service, or SaaS, providers, we are leveraging the reach of our “GoTo” brand, its scalable SaaS platform, and our unique go-to-market know-how. Our idea is to offer easy-to-use, economical-to-consume virtual meeting and support products that require zero up-front capital for customers. This is compelling, and clearly the future for many aspects of computing—for even the world’s largest organizations. In 2010, our collaboration business grew 17%, representing 19% of total Citrix revenue. This growth was led by our GoToMeeting products, growing 33% in 2010, and achieving the #2 position in market share as measured by industry analysts. Collaborative experiences need to be immersive, and available everywhere. So, we’ve introduced important innovations including “one-click meetings,” the easiest way to start an online meeting, and breakthrough integrated HD video we call HDFaces. We’ve also initiated geographic expansion in Europe, making GoToMeeting and GoToAssist available in Germany, France, Austria and Switzerland. 2 Annual Report 2010 • Citrix Systems, Inc. We’ll continue to expand our addressable market geographically and push the innovation envelope—while keeping the user experience simple, fast and secure. We have one of the world’s most scalable SaaS platforms, hosting tens of millions of online support and collaboration sessions each year. This is the kind of capacity needed to be a long-term player and to win. It’s why Skype recently chose the Citrix GoToMeeting platform to add web collaboration to their ‘Skype for Business’ solution. Enabling the virtual desktop revolution Virtual desktops and apps are just as essential for enabling a fl exible, virtual workstyle as collaboration. Demand for virtualization at the desktop is increasing, supported by force multipliers: large-scale migration to Windows 7; fast aging of corporate-owned PCs; extreme pressure to reduce desktop computing costs; greater need to assure information security; and the diverse array of consumer devices coming into the workplace. These market forces helped our desktop solutions business grow 12% in 2010 to almost $1.14 billion, including license growth of 11%. These results were led by XenDesktop, where total revenue was $245 million, up over 400% for the year. Primary market demand, coupled with our innovative Trade-up Program, allowed us to capture over 10,000 customers, up 300% over 2009, and ship over 4 million XenDesktop licenses. Many of these customers are re-thinking desktop management, moving to delivery of the desktop as an on-demand service—instead of a device. XenDesktop enables this, and surged into the #1 market share position in 2010 based on its stunning user experience, feature completeness and designed-in security. It works with virtually any device because of Citrix Receiver—our universal client for PCs, Macs, thin clients, smartphones and tablets. With a simple click or touch, people get a high fi delity user experience provided by Citrix HDX technologies—even over wireless connections. At the same time, our industry- exclusive FlexCast technology allows IT professionals to enable enterprise users—from task workers to mobile executives. 2011 will mark another year of innovation to distance us from competitors through better design, broader device support, and full integration with cloud-based web and SaaS apps. IT professionals using our products will continue with the advantage of a system that can optimize desktop delivery around security, or mobility, or agility, or costs—or any mix of these. And users will continue to enjoy self-service apps, with an entirely new level of easy access to any Windows, SaaS or web app through a single click and a single login. Their apps even automatically synchronize across their devices—a Citrix invention we call “follow-me” apps. These are the innovations expected from the market leader. Annual Report 2010 • Citrix Systems, Inc. 3 Cloud consumerization Just as consumerization is fl ooding the workplace with “bring-your-own devices and apps,” the same phenomenon is coming to the datacenter with “bring-your-own infrastructure and SaaS.” In just a few clicks, cloud-based compute, storage and network infrastructure can be added—in a virtual way rather than physical—making new IT capacity infi nitely scalable and costs completely variable. Our datacenter and cloud businesses grew 29% last year, accounting for 16% of our total revenue. NetScaler products led this growth through product line expansion, faster performance and core innovation. For example, our new VPX-branded virtual appliances deliver all the power of NetScaler as a virtual machine on any standard Intel-based server.