Citrix System Inc. (CTXS) declared better-than-expected third quarter results yesterday. GAAP net income in the reported quarter was $53.4 million or 29 cents per share, compared to a net income of $49.2 million or 26 cents per share in the prior-year quarter. However, adjusted (excluding intangible asset amortization and restructuring charges) EPS was 34 cents, well above the Zacks Consensus Estimate of 29 cents.
 
Net revenues came in a little over $401 million, up 0.5% year over year. Segment wise, License updates revenues were $151 million, up 7% year over year. Product Licenses revenues were $129.1 million, declining18% year-over-year. Online Services revenues were $78.9 million, increased 21% over prior-year quarter, and Technical Services revenues were $42.1 million, up 20% year over year.
 
However, major concern for the company is the continuation of weak demand for its historically biggest revenue-earning products, the Application Virtualization business. In the third quarter, this segment generated $250 million, declining 8% year over year. This disappointing performance is mainly due to the ongoing global economic turmoil. Geographically, although sales in the Americas region increased by 5% year over year, the weak economic conditions led to a 15% fall in sales in the Europe, Africa, and the Middle East region and a 5% decline in the Asia Pacific region.
 
On the other hand, the Desktop Virtualization business generated more than $9 million of quarterly revenue, up 200% year over year. Management expects that this business segment will perform much better in the upcoming quarters with the availability of the newly launched XenDesktop 4 product.
 
Gross margin in the third quarter was 88.7% compared to 89.4% in the year-ago quarter. Operating expenses in the reported quarter was $299.5 million compared to $308.9 million in the prior-year quarter. Quarterly operating margin was 14% compared to 12% in the prior-year quarter. This reflects the aggressive cost cutting measures taken by management during the past one year.
 
At the end of the third quarter 2009, the company had $1,093.4 million cash and marketable securities compared to $850.9 million at the end of the year-ago quarter. Balance sheet remains free of any debt obligations. During the reported quarter, Citrix generated $133.9 million of cash from operations and repurchased 2.1 million shares at an average price of $35.56.
 
Outlook
 
Management expects fourth-quarter revenues to increase 3%-4% year over year. For full year, the company expects revenues to rise modestly over the previous year. Citrix has given an encouraging outlook for fiscal 2010 as it expects total revenues to increase 8%-9% over fiscal 2009.
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