Citrix Synergy (CTXS, Financial) is a provider of virtualization, mobility management, networking and Software as a Service, or SaaS, solutions globally to enable new ways for businesses and people to work better. The company’s solutions are in use by over 100 million users spread across 330,000 organizations worldwide.
The company posted mixed results for the first-quarter fiscal 2015, missing on top-line but topping on earnings estimate. During the last one year, the stock has appreciated a paltry 6% and is trading above 50- and 200-dday SMA. Is this a good stock for long-term gains? Let’s take a look.
First-quarter numbers
During the quarter, the company closed 39 deals worth $1 million and above. Half of this was from the Workspace Services business with remaining in Delivery Networking. Consolidated revenue grew 1.3% year-over-year to $760.8 million, missing Street’s expectations by $2.08 million. Geographically, Americas registered a decline of 1%; EMEA inched up 1.3% while APAC witnessed 2.3% decline year-over-year.
Adjusted operating margin was 19.5% in line with the expectations of the company. As a result of muted top-line growth, adjusted earnings per share came in at $0.65, in-line with analysts’ expectations.
Citrix exited the quarter with cash and marketable securities worth $983.3 million, generating record cash flow of about $291.9 million.
Cloud service to drive growth
Cloud computing is the new buzzword and Citrix made the move to cloud with a new product launch -- Citrix Workspace Cloud -- a new platform designed to simplify the on-demand delivery of a broad range of IT tools and services. This will provide partners and businesses with a means of addressing the increasing load that new devices, apps and work styles are putting on traditional infrastructure.
Jesse Lipson, Vice President and General Manager, Cloud Services, Citrix said:
“Citrix Workspace Cloud is the future of on-demand IT. People want access to all their apps and data, and this no longer equates to a desktop. Citrix has created the fastest and easiest way to deploy new resources, simplified infrastructure management, and provided freedom of choice in selecting the right hosting and delivery model. Today, we are excited to offer this test drive to our partners and customers so they can see how Citrix Workspace Cloud supports their business and on-demand IT strategies.”
Also, Jim Comfort, General Manager of Cloud Services, IBM said:
“IBM Cloud customers and partners look to us to help simplify their IT management and improve user experience. Soon, Citrix customers using the Workspace Cloud management plane will be able to select IBM Cloud’s SoftLayer infrastructure to easily deploy or migrate their workloads to the cloud. We also plan to offer the new SoftLayer-delivered service as part of our IBM Mobility Services portfolio. With these new offerings, we’re providing customers with even more options to adopt cloud - whether hybrid or private - to transform their businesses.”
During the quarter, the Workspace Services business grew 2% year-on-year to $391 million. This can be a good growth diver and Citrix expects the cloud segment to be stronger in the back half of current fiscal.
More innovations
According to a report from IDS, “the file synchronization and sharing (FSS) market will grow at a 23.1% five-year compound annual growth rate through 2018 to $2.3 billion. The healthy growth rate through 2018 will continue to be driven by the shift to cloud, mobile use of FSS, and the ability to share and collaborate with others effectively.”
In order to make the most of this opportunity, Citrix announced new innovations that advance the experience and security offered by a single enterprise file sharing service. The company has more than 55,000 corporate customers using ShareFile and according to a 2014 survey by independent research firm TechValidate, eight out of ten customers say that ShareFile increases productivity by more than 40 percent.
In addition, Citrix extended its lead in App delivery and Virtual Desktop Interface, or VDI, by unveiling innovations in this segment. These continuing innovations in app delivery and VDI has established XenApp and XenDesktop as the solutions of choice for industry leaders ranging from the top 10 global banks and the 10 largest pharmaceutical companies.
These innovations will lead to higher attach rates and also help Citrix win new deals.
Cost cutting initiatives to drive operating margin
Citrix is making moves to cut costs and keep expenses in line. The company has announced elimination of around 700 full-time positions around the world. The work has been completed in the U.S. and will be substantially completed internationally during the second quarter.
Secondly, it is on the move to consolidate more than 15% of our leased facilities to improve utilization and density. So far six offices have been closed and space reduced in the other five. By second-quarter additional six other locations will be completed.
As a part of restructuring, in EMEA the company consolidated one of the major areas into existing territories while evolving the channel engagement model.
With these and product consolidation initiatives, Citrix aims to increase operating margin by 100basis points year-over-year to hit a long-term goal of mid to high 20s.
Going forward, the cost cutting initiatives will improve profitability and trickle down to the bottom-line.
Fiscal 2015 projections
Citrix expects fiscal 2015 sales to be in the range of $3.22 billion to $3.25 billion and earnings per share in the range of $3.55 to $3.60. For the second-quarter fiscal 2015, sales is likely to be in the $785 to $795 million band and earnings per share is the $0.80 to $0.83 per share.
Wrapping up
Citrix is moving to future of IT – cloud. In addition, the company is innovating on its products in order to make life easier for IT managers. Also, the cost cutting and restructuring initiatives will lead to increase in profitability. Analysts expect the next five year growth to be at a CAGR of 11.27%
Hence, this is a good stock for the long haul.
