Citrix ekes out revenue, profit growth

Product license crunch

Citrix Systems managed to squeeze out a tiny bit of both revenue and profit growth in the third quarter, despite a big dip in product license revenues.

For the quarter ended September 30, product license sales were down 18 per cent to $129.1m. But updates and support for products already sold into Citrix accounts rose by 7 per cent, to $151m, and the company's online services business posted pretty decent growth too, rising by 21 per cent to $78.9m in the quarter. When you add in $42.1m in technical services (up 19.6 per cent, and including consulting, education, and technical support), Citrix had total revenues in the third quarter of just over $401m, up a half of a per cent compared to the year-ago quarter.

Flat sales in this economy is winning. And so is increasing profits, which is what Citrix was able to do. Even though Citrix had a much higher tax bill this time around, slashing research, development, and sales costs and an increase in interest and other income allowed Citrix to bring $53.4m to the bottom line, up 8.7 per cent. Citrix exited the quarter with $1.1bn in cash and equivalents, and it seems perfectly happy to sit on the cash unless a relatively nichey but interesting buying opportunity presents itself.

By product category, the Application Virtualization group accounts for most of the revenues at Citrix. It includes XenApp (formerly Presentation Server) and Password Manager. This group accounted for $250m in sales in Q3, up from $239.8m in the first quarter and from $244.6m in the second quarter. Sales in this group were down 8 per cent year-on-year, according to David Henshall, chief financial officer at Citrix, who spoke on a conference call with Wall Street analysts after the market closed.

And while Citrix was a bit cagey about the numbers, Henshall said that XenApp sales were down "in the mid to high 20s" year-on-year, which is a bit shocking. You can see now why Citrix is keen on mixing virtual desktops and application virtualization into a new product set, which it did with the just-announced XenDesktop 4. This product combines the XenDesktop VDI and XenApp app virtualization together with different packaging and licensing options than XenApp has separately.

The Online Services group, which is comprised of the GoTo family of Web services - GoToMyPC, GoToMeeting, GoToAssist, and GoToWebinar - posted sales of $78.9m in Q3, again rising sequentially from the $72m in Q1 and $75.3m in Q2.

The Application Networking group - including NetScaler virtual and physical appliances for caching applications and speeding up networks, as well as the Application Firewall, WANScaler, and SSL Access Getway products - had a dip sequentially. Sales came in at only $54.4m in Q3, down from the $56.6m level in Q2, but still up from the $45.4m in sales in Q1.

Other product sales accounted for $17.8m in revenues in Q3, a category that has also been growing sequentially. This hodgepodge grouping includes the Citrix Essentials add-on tools for XenServer server virtualization hypervisor, which itself has been free since February. The Others category also includes XenDesktop, the virtual desktop infrastructure management tool for virtualizing PCs back in the data center and serving them up over the network. EdgeSight, Application Gateway, EasyCall, and Provisioning Server are all lumped into this Other category.

Citrix provided a new dicing and slicing of its financial results along product lines in Q3 as well as the old way outlined above. The Application Virtualization group stays the same, and so does the Online Services group.

But now Citrix is carving out a Desktop Virtualization group, which is comprised of the XenDesktop product accounting for $9m in sales. Henshall said that XenDesktop sales had tripled compared to a year ago and that the top ten deals in the quarter were for virtualizing more than 2,000 PC seats using VDI.

The networking and server virtualization tools in the Other category are now being put into a new Data Center and Cloud group, which accounted for $60m in sales, up 16 per cent from a year ago. Server virtualization tools (mostly the Essentials tools for XenServer and Hyper-V) accounted for $5.5m in sales. (Citrix did not provide comparisons to the prior quarter since XenServer was a priced product back then and is free now). The remainder was mostly NetScaler physical and virtual appliances in this Data Center and Cloud group.

By geography, Citrix said that sales in the Americas region rose by 5 per cent, but sales in EMEA were down 15 per cent and sales in the Asia/Pacific region fell by 5 per cent.

Looking ahead to the fourth quarter, Citrix said it believed that overall revenues would grow by 3 to 4 per cent compared to Q4 2008 and that non-GAAP earnings (for what they are worth) would increase by a half to a full per cent. That would put Q4 2009 sales at somewhere between $428m and $432m.

The company's top brass was even brave enough to hazard a guess about how 2010 might look, saying that sales were expected to grow by 8 or 9 per cent compared to the fully 2009 year. If you take $430m as the midpoint between Q4 2009 estimates and add it to the $1.16bn that Citrix has brought in for the first three months of 2009, that puts the full-year at just under $1.6bn. And that means full year 2010 sales could hit around $1.74bn - again, at the midpoint of the estimates.

Mark Templeton, chief executive officer at Citrix, said on the call that the company was still working to get its XenClient bare metal hypervisor - which it is creating in conjunction with Intel - to market. But he did not say when it would be delivered. He also said that Citrix was reading a new service for early next year, called GoToTraining, that would allow it to be the backbone of online training services. ®