Citrix (CTXS): Reports Earlier Preannounced 1Q; Guidance Reduced

More legacy software trouble. Aivars Lode avantce

Citrix  (CTXS):  Reports Earlier Preannounced 1Q; Guidance Reduced
Rating  HOLD Price Target $64.00 Price $64.77
Key Takeaway CTXS reported 1Q results that were a little better than what was anticipated when it preannounced on April 9. Revenue missed by $25M as Product & License declined 12% from a year ago, the worst performance since during the recession in 2009. Revenue guidance was reduced by $70-80M for the year, indicating the issues experienced in the first quarter will persist. Details. Non-GAAP EPS of $0.65 on total revenue of $761M and Product & License of $183M compared to the original consensus estimates (before the pre-announcement) of $0.72, $787M, and $202M, respectively. Guidance implies continued struggles into 2Q, with modest 2H improvement. Operating cash flow actually grew 1% from a year ago to $292M, while operating margin declined 170 bps to 19.5%. Somber Business Assessment. 1Q results and guidance paint a somber picture of the business of CTXS. For 1Q, Product & License declined 12% from a year ago, the worst growth since the last recession. Guidance implies that the Product & License decline accelerates in 2Q before improving modestly to flattish in 2H. In addition, the Mobility Apps business (previously SaaS) only grew 1% sequentially, which was the worst sequential growth since they bought the business in 2004. Logical Business Vision, But... We believe the technology vision of CTXS is logical, but the wind down of what we believe was overselling VDI has been painful and we’re not sure how close we are before things improve. Guidance implies that things stop getting worse by the end of the year. We continue to rate CTXS Hold with a $64 price target based on our DCF. We believe the recurring revenue is worth about $61 if it was run efficiently. Valuation/Risks We are maintaining our Hold rating and $64 Price Target based on our DCF. Key risks include low desktop virtualization growth and competition.