Shares of Citrix Systems (NASDAQ:CTXS) have risen 10% since the cloud and virtualization services specialist's most recent quarterly report in July. With its next announcement coming up later this month, now's a great time to revisit what Citrix has told investors to expect going forward. Here are five things that Citrix CFO David Henshall said during the company's most recent conference call:
1. The pivot to mobile is going well
First, though Citrix's Mobile & Desktop business grew just 4% to $396 million last quarter, Henshall assured investors that the company's mobile solutions are thriving. He cited Citrix's XenMobile solution as a main catalyst which "continue[s] to set the bar in the enterprise mobility market with [mobile device management], mobile productivity apps, and virtual apps and data in a unified, secure solution [...]." Henshall elaborated on the stickiness of XenMobile, saying:
Similar to the last few quarters, 80% of our mobile platform customers have opted for this complete solution, demonstrating the value of our integrated offerings versus stand-alone MDM technologies. In the aggregate, I'd say we're still very pleased with our revenue and pipeline momentum and while still a relatively small component of overall revenue, mobile platforms grew more than 50% year-on-year in Q2.
Mobile solutions might still represent a small slice of Citrix's overall business, but if it can continue growing the segment at anywhere near its current pace, it shouldn't be long before it materially boosts results.
2. Mobile isn't Citrix's only source of growth
But as Henshall began to detail Citrix's guidance -- which included steady expectations for revenue growth of 8.5% to 10%, and increased adjusted earnings per share of between $3.20 and $3.25 -- he also reminded investors mobile wasn't their only catalyst when he said, "We expect to see the strongest forward growth coming from our networking, mobile platforms, and data sharing businesses."
Networking & Cloud revenue jumped 9% to $179 million last quarter, driven primarily by Citrix's NetScaler products. Meanwhile, Citrix's software-as-a-service business grew 12% to $161 million. That included 60% growth in ShareFile sales, which now comprise around 9% of Citrix's overall SaaS mix. Henshall didn't elaborate on specific numbers, but it's certainly great for investors that these segments are expected to continue chugging along.
3. That growth comes at a cost
However, noting networking in particular is a lower-margin business for now, Henshall also says this growth has come at a cost of a "500 basis point decline over the last few years as we've been ramping up networking and SaaS [...] very aggressively." That included a 130 year-over-year basis point decline in gross margin to 85% last quarter.
On one hand, then, as networking and SaaS grow to represent a greater mix of Citrix's overall business, gross margin will inevitably continue to decline over the near-term. On the other hand, those declines are expected to plateau in the second half of this year and level off as Citrix moves into 2015.
4. Operational efficiencies will continue to take hold (shareholder value)
In the meantime, Citrix certainly isn't sitting on its hands. Early in the call, Henshall said "We're also taking direct actions to improve operating efficiencies. [...] This includes refinements to the portfolio, real estate, delayering and others, initiatives that will continue into the second half."
In Q2, for example, Citrix's operating expenses declined about 130 basis points, thanks mostly to a modest 200-point decline in sales and marketing as a percentage of revenue to 39%.
Better yet, Henshall says, once Citrix's networking-related gross margin declines abate, "that stops becoming a headwind to all the activities that we've been driving to just improve efficiencies." When that happens, those efficiencies should finally start translating to Citrix's bottom line.
5. Citrix will continue returning capital to shareholders
Finally, touching on the massive share repurchase plan announced back in April, Henshell stated [emphasis mine]:
[W]e've initiated new programs to better optimize our cap structure and programmatically return capital to shareholders. In Q2, we successfully completed the issuance of $1.4 billion in convertible securities, while simultaneously initiating a $1.5 billion share repurchase program. This allowed us to buyback an initial 21 million shares of our own stock last quarter and we still have over $400 million remaining under the current authorization.
In the upcoming quarter, investors should keep an eye on whether Citrix puts that remaining $400 million to work to retire even more shares. Considering both Henshell's "programmatic" verbiage and the fact that Citrix doesn't pay a quarterly dividend, I wouldn't be the least bit surprised if the company does so, and/or authorizes another expanded share repurchase in the coming quarter.
Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.