NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Citrix Systems, Inc. (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. All adjustments, which, in the opinion of management, are considered necessary for a fair presentation of the results of operations for the periods shown, are of a normal recurring nature and have been reflected in the condensed consolidated financial statements and accompanying notes. The results of operations for the periods presented are not necessarily indicative of the results expected for the full year or for any future period partially because of the seasonality of the Company’s business. Historically, the Company’s revenue for the fourth quarter of any year is typically higher than the revenue for the first quarter of the subsequent year. The information included in these condensed consolidated financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report and the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
The condensed consolidated financial statements of the Company include the accounts of its wholly-owned subsidiaries in the Americas; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific and Japan (“APJ”). All significant transactions and balances between the Company and its subsidiaries have been eliminated in consolidation.
The Company's revenues are derived from sales of its Workspace solutions, App Delivery and Security products and related Support and services. The Company operates under one reportable segment. See Note 10 for more information on the Company's segment.
2. SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting Pronouncements
Income Taxes
In December 2019, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update on income taxes. The new guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The Company adopted this standard effective January 1, 2021. The adoption of this standard did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the FASB issued an accounting standard update to guidance applicable to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This update provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. An entity may elect to apply the amendments for contract modifications by topic or industry subtopic of the codification as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Company is currently evaluating the impact of the standard, but does not expect it to have a material impact on its condensed consolidated financial position, results of operations and cash flows.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant estimates made by management include estimation for reserves for legal contingencies, the standalone selling price related to revenue recognition, the provision for credit losses related to accounts receivable, contract assets, and available-for-sale debt securities, the provision to reduce obsolete or excess inventory to net realizable value, the provision for estimated returns, as well as sales allowances, the assumptions used in the valuation of stock-based awards and measurement of expense related to performance stock units, the assumptions used in the discounted
cash flows to mark certain of its investments to market, the valuation of the Company’s goodwill, valuation of acquired intangible assets and liabilities, net realizable value of product related and other intangible assets, the provision for income taxes, valuation allowance for deferred tax assets, uncertain tax positions, and the amortization and depreciation periods for contract acquisition costs, intangible and long-lived assets. While the Company believes that such estimates are fair when considered in conjunction with the condensed consolidated financial position and results of operations taken as a whole, the actual amounts of such items, when known, will vary from these estimates.
Available-for-sale Investments
Short-term and long-term available-for-sale investments in debt securities as of March 31, 2021 and December 31, 2020 primarily consist of agency securities, corporate securities and government securities. Investments classified as available-for-sale debt securities are stated at fair value, with unrealized gains and losses, net of taxes, reported in Accumulated other comprehensive loss. The Company classifies its available-for-sale investments as current and non-current based on their actual remaining time to maturity. The Company does not recognize unrealized changes in the fair value of its available-for-sale debt securities in income unless a security is deemed to be impaired.
The allowance for credit losses on the Company's investments in available-for-sale debt securities is determined using a quantitative discounted cash flow analysis if impairment triggers exist after a qualitative screen is completed. Impairment on available-for-sale debt securities is determined on an individual security basis and the security is subject to impairment when its fair value declines below its amortized cost basis. If the fair value is less than the amortized cost basis, management must then determine whether it intends to sell the security or whether it is more likely than not that it will be required to sell the security before it recovers its value. If management intends to sell the security or will more-likely-than-not be required to sell the impaired security before it recovers its value, a credit loss is recorded to Other income, net in the accompanying condensed consolidated statements of income. If management does not intend to sell the security, nor will it more-likely-than-not be required to sell the security before the security recovers its value, management must then determine whether the loss is due to credit loss or other factors. For impairment indicators due to credit loss factors, management establishes an allowance for credit losses with a charge to Other income, net. For impairment indicators due to other factors, management records the loss with a charge to Accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets.
The Company’s investment policy is designed to limit exposure to any one issuer depending on credit quality. The Company uses information provided by third parties to adjust the carrying value of certain of its investments to fair value at the end of each period. Fair values are based on a variety of inputs and may include interest rates, known historical trades, yield curve information, benchmark data, prepayment speeds, credit quality and broker/dealer quotes. See Note 7 for additional information regarding the Company’s investments.
Fair Value Measurements
The authoritative guidance defines fair value as an exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
•Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
•Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
•Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Available-for-sale securities included in Level 2 are valued utilizing inputs obtained from an independent pricing service (the “Service”) which uses quoted market prices for identical or comparable instruments rather than direct observations of quoted prices in active markets. The Service applies a four level hierarchical pricing methodology to all of the Company’s fixed income securities based on the circumstances. The hierarchy starts with the highest priority pricing source, then subsequently uses inputs obtained from other third-party sources and large custodial institutions. The Service’s providers utilize a variety of inputs to determine their quoted prices. These inputs may include interest rates, known historical trades, yield curve information, benchmark data, prepayment speeds, credit quality and broker/dealer quotes. Substantially all of the Company’s available-for-sale investments are valued utilizing inputs obtained from the Service and accordingly are categorized as Level 2. The Company periodically independently assesses the pricing obtained from the Service and historically has not adjusted the Service's pricing as a result of this assessment. Available-for-sale securities are included in Level 3 when relevant observable inputs for a security are not available.
The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of assets and liabilities within the fair value hierarchy. In certain instances, the inputs used to measure fair value may meet the definition of more than one level of the fair value hierarchy. The input with the lowest level priority is used to determine the applicable level in the fair value hierarchy. See Note 7 for additional information regarding the Company’s fair value measurements.
Foreign Currency
The functional currency for all of the Company’s wholly-owned foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities of such subsidiaries are remeasured into U.S. dollars at exchange rates in effect at the balance sheet date, and revenues and expenses are remeasured at average rates prevailing during the year. Foreign currency transaction gains and losses are the result of exchange rate changes on transactions denominated in currencies other than the functional currency. The remeasurement of those foreign currency transactions is included in determining net income or loss for the period of exchange.
Accounting for Stock-Based Compensation Plans
The Company has various stock-based compensation plans for its employees and outside directors and accounts for stock-based compensation arrangements in accordance with the authoritative guidance, which requires the Company to measure and record compensation expense in its condensed consolidated financial statements using a fair value method. See Note 8 for further information regarding the Company’s stock-based compensation plans.
3. REVENUE
The following is a description of the principal activities from which the Company generates revenue.
Subscription
Subscription revenues primarily consist of cloud-hosted offerings, which provide customers a right to access one or more of the Company’s cloud-hosted subscription offerings, with routine customer support, as well as revenues from the Citrix Service Provider ("CSP") program, on-premise subscription software licenses, and hybrid subscription offerings. The CSP program provides subscription-based services in which the CSP partners host software services to their end users.
Product and license
Product and license revenues are primarily derived from perpetual offerings related to the Company’s Workspace solutions and App Delivery and Security products.
Support and services
Support and services revenues include license updates, maintenance and professional services which are primarily related to the Company's perpetual offerings. License updates and maintenance revenues are primarily comprised of software and hardware maintenance, when and if-available updates and technical support. Services revenues are comprised of fees from consulting services primarily related to the implementation of the Company’s products and fees from product training and certification.
The Company’s typical performance obligations include the following:
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Performance Obligation
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When Performance Obligation
is Typically Satisfied
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Subscription
|
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|
|
Cloud-hosted offerings
|
Over the contract term, beginning on the date that service is made available to the customer (over time)
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CSP
|
As the usage occurs (over time)
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On-premise subscription software licenses
|
When software activation keys have been made available for download (point in time)
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|
On-premise subscription license updates and maintenance
|
Ratably over the course of the service term (over time)
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Product and license
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Software licenses
|
When software activation keys have been made available for download (point in time)
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Hardware
|
When control of the product passes to the customer; typically upon shipment (point in time)
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Support and services
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|
License updates and maintenance for perpetual software licenses
|
Ratably over the course of the service term (over time)
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Professional services
|
As the services are provided (over time)
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Significant Judgments
The Company generates all of its revenues from contracts with customers. At contract inception, the Company assesses the solutions or services, or bundles of solutions and services, obligated in the contract with a customer to identify each performance obligation within the contract, and then evaluates whether the performance obligations are capable of being distinct and distinct within the context of the contract. Solutions and services that are not both capable of being distinct and distinct within the context of the contract are combined and treated as a single performance obligation in determining the allocation and recognition of revenue.
The standalone selling price is the price at which the Company would sell a promised product or service separately to the customer. For the majority of the Company's software licenses and hardware, CSP and on-premise subscription software licenses, the Company uses the observable price in transactions with multiple performance obligations. For the majority of the Company’s support and services, and cloud-hosted subscription offerings, the Company uses the observable price when the Company sells that support and service and cloud-hosted subscription separately to similar customers. If the standalone selling price for a performance obligation is not directly observable, the Company estimates it. The Company estimates standalone selling price by taking into consideration market conditions, economics of the offering and customers’ behavior. The Company maximizes the use of observable inputs and applies estimation methods consistently in similar circumstances. The Company allocates the transaction price to each distinct performance obligation on a relative standalone selling price basis.
Revenues are recognized when control of the promised products or services are transferred to customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those products or services.
Sales tax
The Company records revenue net of sales tax.
Timing of revenue recognition
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Three Months Ended March 31,
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2021
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2020
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(In thousands)
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Products and services transferred at a point in time
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$
|
141,799
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|
|
$
|
279,411
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Products and services transferred over time
|
|
633,967
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|
|
581,534
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Total net revenues
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|
$
|
775,766
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|
|
$
|
860,945
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|
|
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|
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Contract balances
The Company's short-term and long-term contract assets, net of allowance for credit losses, were $37.1 million and $43.1 million, respectively, as of March 31, 2021, and $37.3 million and $41.7 million, respectively, as of December 31, 2020, and are included in Prepaid expenses and other current assets and Other assets, respectively, in the accompanying condensed consolidated balance sheets. The Current portion of deferred revenues and the Long-term portion of deferred revenues were $1.48 billion and $363.6 million, respectively, as of March 31, 2021 and $1.51 billion and $392.4 million, respectively, as of December 31, 2020. The difference in the opening and closing balances of the Company’s contract assets and liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. During the three months ended March 31, 2021, the Company recognized $532.7 million of revenue that was included in the deferred revenue balance as December 31, 2020.
The Company performs its obligations under a contract with a customer by transferring solutions and services in exchange for consideration from the customer. Accounts receivable are recorded when the right to consideration becomes unconditional. The timing of the Company’s performance differs from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. The Company recognizes a contract asset when the Company transfers products or services to a customer and the right to consideration is conditional on something other than the passage of time. The Company recognizes a contract liability when it has received consideration or an amount of consideration is due from the customer and the Company has a future obligation to transfer products or services. The Company had no material asset impairment charges related to contract assets for either the three months ended March 31, 2021 or March 31, 2020.
For the Company’s software and hardware products, the timing of payment is typically upfront for its perpetual offerings and the Company’s on-premise subscriptions. Therefore, deferred revenue is created when a contract includes performance obligations such as license updates and maintenance or certain professional services that are satisfied over time. For subscription contracts, the timing of payment is typically in advance of services, and deferred revenue is amortized as these services are provided over time.
A significant portion of the Company’s contracts have an original duration of one year or less; therefore, the Company applies a practical expedient to determine whether a significant financing component exists and does not consider the effects of the time value of money. For multi-year contracts, the Company bills annually.
Transaction price allocated to the remaining performance obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period (in thousands):
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<1-3 years
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3-5 years
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5 years or more
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Total
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Subscription
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$
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1,612,011
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|
|
$
|
70,094
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|
|
$
|
550
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|
|
$
|
1,682,655
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|
Support and services
|
|
1,328,427
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|
|
27,506
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|
|
1,625
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|
|
1,357,558
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Total net revenues
|
|
$
|
2,940,438
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|
|
$
|
97,600
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|
|
$
|
2,175
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|
|
$
|
3,040,213
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Contract acquisition costs
The Company is required to capitalize certain contract acquisition costs consisting primarily of commissions paid and related payroll taxes when contracts are signed. The asset recognized from capitalized incremental and recoverable acquisition costs is amortized over the expected period of benefit on a basis consistent with the pattern of transfer of the products or services to which the asset relates. The Company elects to apply a practical expedient to expense contract acquisition costs as incurred where the pattern of transfer is one year or less.
The Company’s typical contracts include performance obligations related to subscription, product and licenses, and support and services. Contract acquisition costs are allocated to performance obligations using a portfolio approach. The
Company assesses its sales compensations plans at least annually to evaluate whether contract acquisition costs for renewals and extensions are commensurate with those related to initial contracts. If concluded to be commensurate, the contract acquisition costs are amortized over the contractual term on a basis consistent with the pattern of transfer of the products or services to which the asset relates. If concluded not to be commensurate, the contract acquisition costs are amortized over the greater of the contractual term or estimated customer life on a basis consistent with the pattern of transfer of the products or services to which the asset relates. The Company estimates an average customer life of three years to five years, which it believes is appropriate based on consideration of the historical average customer life and the estimated useful life of the underlying product and license sold as part of the transaction.
For the three months ended March 31, 2021 and 2020, the Company recorded amortization of capitalized contract acquisition costs of $18.3 million and $13.1 million, respectively, which is recorded in Sales, marketing and services expense in the accompanying condensed consolidated statements of income. The Company's short-term and long-term contract acquisition costs were $72.0 million and $130.4 million, respectively, as of March 31, 2021, and $71.5 million and $124.7 million, respectively, as of December 31, 2020, and are included in Prepaid expenses and other current assets and Other assets, respectively, in the accompanying condensed consolidated balance sheets. There was no impairment loss in relation to costs capitalized during the three months ended March 31, 2021 and 2020, respectively.
4. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share is computed using the weighted-average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise or settlement of stock awards and shares issuable under the employee stock purchase plan (calculated using the treasury stock method) during the period they were outstanding.
The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share information):
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Three Months Ended
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|
March 31,
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2021
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2020
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Numerator:
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Net income
|
$
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90,048
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$
|
181,222
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|
Denominator:
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|
|
Denominator for basic earnings per share - weighted-average shares outstanding
|
122,923
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|
|
124,737
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Effect of dilutive employee stock awards
|
3,103
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|
|
2,840
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|
|
|
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|
Denominator for diluted earnings per share - weighted-average shares outstanding
|
126,026
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|
|
127,577
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|
|
Basic earnings per share
|
$
|
0.73
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|
|
$
|
1.45
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Diluted earnings per share
|
$
|
0.71
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|
|
$
|
1.42
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5. CREDIT LOSSES
The Company is exposed to credit losses primarily through its accounts receivable, investments in available-for-sale debt securities, and contract assets. See Note 3 for additional information related to the Company's contract assets.
Accounts receivable, net
The Company's accounts receivable consist of the following (in thousands):
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March 31, 2021
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Accounts receivable, gross
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$
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594,564
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Less: allowance for returns
|
(11,176)
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|
Less: allowance for credit losses
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(12,854)
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Accounts receivable, net
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$
|
570,534
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The allowance for credit losses on accounts receivable is determined using a combination of specific reserves for accounts that are deemed to exhibit credit loss indicators and general reserves that are judgmentally determined using loss rates based on historical write-offs by geography and customer accounts subject to credit check versus non-credit check status and consideration of recent forecasted information, including underlying economic expectations. The credit loss reserves are updated quarterly for most recent write-offs and collections information and underlying economic expectations. The Company will compare its current estimate of expected credit losses with the estimate of credit losses from the prior period and will report in net income the amount necessary to adjust the allowance for current expected credit losses. Credit loss expense is included within General and administrative expenses in the accompanying condensed consolidated statements of income.
The activity in the Company's allowance for credit losses for the three months ended March 31, 2021 is summarized as follows (in thousands):
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Total
|
|
Balance of allowance for credit losses at January 1, 2021
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$
|
15,419
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|
|
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|
|
Current period provision (credit) for expected losses
|
(2,835)
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|
|
Write-offs charged against allowance
|
(719)
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|
|
Recoveries of any amounts previously written off
|
104
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|
|
Other (1)
|
$
|
885
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|
|
Balance of allowance for credit losses at March 31, 2021
|
$
|
12,854
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|
(1) Includes amounts established in connection with acquisitions.
As of March 31, 2021, one distributor accounted for 13% of the Company's total gross accounts receivable.
Available-for-sale Investments
The Company did not have any credit loss expense recorded related to available-for-sale debt securities for the three months ended March 31, 2021 and 2020, respectively.
The Company has available-for-sale debt securities that have fair values below amortized cost; however, the Company does not consider a credit allowance necessary as (i) the Company does not intend to sell the securities, (ii) it is not more-likely-than-not that the Company will be required to sell the investments before recovery of the amortized cost basis, and (iii) the unrealized losses are due to market factors rather than credit loss factors. See Note 7 for more information on available-for-sale debt securities.
6. ACQUISITIONS
2021 Business Combination
On February 26, 2021 (the “Closing Date”), the Company completed the acquisition of Wrangler Topco, LLC (“Wrangler”), the parent entity of Wrike, Inc. (“Wrike”), a leader in the SaaS collaborative work management space, for approximately $2.07 billion (“Purchase Consideration”). The Purchase Consideration consists of a base purchase price of $2.25 billion and is subject to certain adjustments as provided for under the related Agreement and Plan of Merger dated January 16, 2021 (the “Merger Agreement”). The Company expects that the addition of Wrike’s cloud-delivered capabilities will accelerate its business model transition to the cloud and strategy to become a complete SaaS-based work platform. Under the Merger Agreement, the Company acquired all of the issued and outstanding equity securities of Wrangler.
On the Closing Date, $35.0 million of the Purchase Consideration was deposited into a third party escrow fund, to be held for up to one year following the Closing Date, to fund (i) potential payment obligations of Wrangler equityholders with respect to post-closing adjustments to the Purchase Consideration and (ii) potential post-closing indemnification obligations of Wrangler equityholders, in each case in accordance with the terms of the Merger Agreement.
Under the terms of the Merger Agreement, certain unvested stock options held by Wrike employees were assumed by the Company and converted into options to purchase 526,113 shares of the Company's common stock that were valued at $54.3 million using the Black-Scholes option-pricing model. The portion of the fair value of the assumed stock options associated with pre-combination service of Wrike employees was valued at $28.9 million and represented a component of the Purchase Consideration. The remaining fair value of $25.4 million will be recognized as post-combination stock-based compensation expense over the service period. Of these assumed awards, 180,003 options continued with the same monthly vesting conditions under which they were originally granted. The majority of the remaining assumed options were reset to primarily cliff vest on December 31, 2021 or annually over two years. See Note 8 for detailed information on the assumed stock options.
The Merger Agreement contains representations, warranties and covenants believed to be customary for a transaction of this nature, including covenants as to indemnification for breaches of certain representations, warranties and covenants, subject to certain exclusions and caps. The Company has obtained a representation and warranty insurance policy under which it may seek coverage for breaches of certain of Wrangler’s representations, warranties, and covenants in the Merger Agreement.
The Company incurred $18.8 million of expenses related to the Wrike acquisition, of which $15.5 million were expensed during the three months ended March 31, 2021 and are included in General and administrative expense in the accompanying condensed consolidated statements of income.
In February 2021, the Company entered into a three-year term loan credit agreement providing for a $1.00 billion senior unsecured term loan (“2021 Term Loan”) and issued $750.0 million of unsecured senior notes due March 1, 2026 (the “2026 Notes”). The proceeds of the 2021 Term Loan and 2026 Notes were used to (i) fund a portion of the purchase price of the acquisition and (ii) to pay fees and expenses incurred in connection with the acquisition. The Company incurred $9.1 million of issuance costs that were netted against Long-term debt in the accompanying condensed consolidated balance sheets. See Note 11 for detailed information on the debt financing.
The Company has included the effect of the acquisition in its results of operations prospectively from the date of acquisition. Net revenues of Wrike included in the Company’s condensed consolidated statements of income from the Closing Date through March 31, 2021 was $7.9 million. Loss from operations of Wrike included in the Company's condensed consolidated statements of income from the Closing Date through March 31, 2021 was $20.7 million, primarily as a result of amortization of intangible assets acquired and stock based compensation associated with the assumed options and 2021 Inducement Plan. See Note 8 for detailed information on the 2021 Inducement Plan.
Purchase Accounting for Wrike
The purchase price for Wrike was allocated to the acquired net tangible and intangible assets based on estimated fair values as of the date of acquisition. The allocation of the total purchase price is summarized below (in thousands):
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Wrike
|
|
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|
Purchase Price Allocation
|
|
Asset Life
|
|
Current assets
|
|
$
|
32,008
|
|
|
|
|
Intangible assets
|
|
$
|
824,900
|
|
|
2 - 7 years
|
|
Goodwill
|
|
$
|
1,656,949
|
|
|
Indefinite
|
|
Other assets
|
|
$
|
17,380
|
|
|
|
|
Assets acquired
|
|
$
|
2,531,237
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|
|
|
|
Current liabilities assumed
|
|
$
|
84,969
|
|
|
|
|
Long-term liabilities assumed
|
|
$
|
202,722
|
|
|
|
|
Deferred tax liabilities, non-current
|
|
$
|
176,540
|
|
|
|
|
Net assets acquired
|
|
$
|
2,067,006
|
|
|
|
The fair values of Wrike's intangible assets were determined using the income approach with significant inputs that are not observable in the market. Key assumptions include, but are not limited to, the expected future cash flows, the timing of the expected future cash flows, royalty rates, customer churn, technology obsolescence and the discount rates consistent with the level of risk.
Current assets acquired in connection with the acquisition consisted primarily of cash, accounts receivable and other short term assets. Current liabilities assumed in connection with the acquisition consisted primarily of the current portion of deferred revenues, accounts payable and other accrued expenses, such as transaction expenses. The accrued transaction expenses were paid in full subsequent to the acquisition date. Long-term liabilities assumed in connection with the acquisition consisted of the long-term portion of deferred revenue, other long-term liabilities, and long-term debt, which was paid in full subsequent to the acquisition date. The Company continues to evaluate certain assets and liabilities related to the Wrike acquisition. Additional information, which existed as of the acquisition date but was at that time unknown to the Company, may become known to the Company during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
The Company estimated its obligation related to deferred revenue using the cost build-up approach. The cost build-up approach determines fair value by estimating the costs relating to supporting the obligation plus an assumed profit. The sum of the costs and assumed profit approximates the amount that the Company would be required to pay a third party to assume the obligation. The estimated costs to fulfill the obligation were based on the near-term projected cost structure for various revenue contracts, resulting in an adjustment to reduce Wrike's carrying value of deferred revenue. The acquired deferred revenue of $33.1 million represents the Company's estimate of the fair value of the contractual obligations assumed based on a preliminary valuation.
The goodwill related to the acquisition is not deductible for tax purposes and is comprised primarily of expected synergies from combining operations and other intangible assets that do not qualify for separate recognition.
Identifiable intangible assets acquired in connection with the Wrike acquisition (in thousands) and the weighted-average lives are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wrike
|
|
Asset Life
|
|
Core and product technologies
|
|
$
|
347,900
|
|
|
6 years
|
|
Customer relationships
|
|
$
|
446,400
|
|
|
7 years
|
|
Backlog
|
|
$
|
13,500
|
|
|
2 years
|
|
Trade names
|
|
$
|
17,100
|
|
|
3 years
|
|
Total
|
|
$
|
824,900
|
|
|
|
The following unaudited pro-forma information combines the consolidated results of the operations of the Company and Wrike as if the acquisition had occurred on January 1, 2020, the first day of the Company's fiscal year 2020 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
Revenues
|
|
$
|
798,019
|
|
|
$
|
879,396
|
|
|
Income from operations
|
|
$
|
63,654
|
|
|
$
|
139,862
|
|
|
Net income
|
|
$
|
62,581
|
|
|
$
|
123,051
|
|
|
Earnings per share - basic
|
|
$
|
0.51
|
|
|
$
|
0.99
|
|
|
Earnings per share - diluted
|
|
$
|
0.50
|
|
|
$
|
0.96
|
|
7. INVESTMENTS AND FAIR VALUE MEASUREMENTS
Investments
Available-for-sale Investments
The Company's short-term available-for-sale debt investments are measured to fair value on a recurring basis. Unrealized gains and losses related to the Company’s short-term investments are recorded in Other comprehensive loss and are generally due to interest rate fluctuations. The securities that are in an unrealized loss position are reviewed on an individual basis in order to evaluate if all or a portion of the unrealized loss is a result of a credit loss. For impairment indicators due to credit loss factors, the Company establishes an allowance for credit losses with a charge to current period net income. See Note 5 for additional information regarding the credit losses for available-for-sale investments. As of March 31, 2021 and December 31, 2020, unrealized gains and losses from the Company’s available-for-sale investments were not material and the amortized cost approximates their fair value. For the three months ended March 31, 2021 and 2020, realized gains and losses on available-for-sale investments were not material.
The average remaining maturities of the Company’s short-term and long-term available-for-sale investments at March 31, 2021 were approximately four months and two years, respectively.
For the three months ended March 31, 2021 and 2020, the Company did not receive any proceeds from the sales of available-for-sale investments.
Equity Securities Accounted for at Net Asset Value
The Company held equity interests in certain private equity funds of $18.1 million and $11.3 million as of March 31, 2021 and December 31, 2020, respectively, which are accounted for under the net asset value practical expedient. These investments are included in Other assets in the accompanying condensed consolidated balance sheets. The net asset value of these investments is determined using quarterly capital statements from the funds, which are based on the Company’s contributions to the funds, allocation of profit and loss and changes in fair value of the underlying fund investments. These private equity funds focus on making venture capital investments, principally by investing in equity securities of early and late stage privately-held corporations. The funds’ general partner shall determine the amount, timing and form (whether cash or in kind) of all distributions made by the funds. The Company may only transfer its investments in private equity fund interests subject to the general partner’s written consent and cannot trade its fund interests in established securities markets, secondary markets or equivalents thereof. The Company has unfunded commitments of $0.4 million as of March 31, 2021.
Equity Securities without Readily Determinable Fair Values
The Company held direct investments in privately-held companies of $24.3 million and $22.5 million as of March 31, 2021 and December 31, 2020, respectively, which are accounted for at cost, less impairment plus or minus adjustments resulting from observable price changes in orderly transactions for an identical or a similar investment of the same issuer. These investments are included in Other assets in the accompanying condensed consolidated balance sheets. The Company periodically reviews these investments for impairment and observable price changes on a quarterly basis, and adjusts the carrying value accordingly.
Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021
|
|
Quoted
Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
401,653
|
|
|
$
|
401,653
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
74,385
|
|
|
74,385
|
|
|
—
|
|
|
—
|
|
|
Corporate securities
|
1,705
|
|
|
—
|
|
|
1,705
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
27,298
|
|
|
—
|
|
|
26,798
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
Government securities
|
5,000
|
|
|
—
|
|
|
5,000
|
|
|
—
|
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
14,334
|
|
|
—
|
|
|
14,334
|
|
|
—
|
|
|
Total assets
|
$
|
524,375
|
|
|
$
|
476,038
|
|
|
$
|
47,837
|
|
|
$
|
500
|
|
|
Accrued expenses and other current liabilities:
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
1,101
|
|
|
—
|
|
|
1,101
|
|
|
—
|
|
|
Total liabilities
|
$
|
1,101
|
|
|
$
|
—
|
|
|
$
|
1,101
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
Quoted
Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Cash
|
$
|
375,874
|
|
|
$
|
375,874
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Money market funds
|
23,089
|
|
|
23,089
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
166,436
|
|
|
—
|
|
|
166,436
|
|
|
—
|
|
|
Government securities
|
187,496
|
|
|
—
|
|
|
187,496
|
|
|
—
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
Agency securities
|
3,300
|
|
|
—
|
|
|
3,300
|
|
|
—
|
|
|
Corporate securities
|
70,684
|
|
|
—
|
|
|
70,184
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
Government securities
|
64,494
|
|
|
—
|
|
|
64,494
|
|
|
—
|
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
4,012
|
|
|
—
|
|
|
4,012
|
|
|
—
|
|
|
Total assets
|
$
|
895,385
|
|
|
$
|
398,963
|
|
|
$
|
495,922
|
|
|
$
|
500
|
|
|
Accrued expenses and other current liabilities:
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
1,447
|
|
|
—
|
|
|
1,447
|
|
|
—
|
|
|
Total liabilities
|
$
|
1,447
|
|
|
$
|
—
|
|
|
$
|
1,447
|
|
|
$
|
—
|
|
The Company’s fixed income available-for-sale security portfolio generally consists of investment grade securities from diverse issuers with a minimum credit rating of A-/A3 and a weighted-average credit rating of AA-/Aa3. The Company values these securities based on pricing from the Service, whose sources may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value, and accordingly, the Company classifies the majority of its fixed income available-for-sale securities as Level 2.
The Company measures its cash flow hedges, which are classified as Prepaid expenses and other current assets and Accrued expenses and other current liabilities, at fair value based on indicative prices in active markets (Level 2 inputs). See Note 12 for further information regarding the Company's derivatives.
Additional Disclosures Regarding Fair Value Measurements
The carrying value of accounts receivable, accounts payable and accrued expenses approximate their fair value due to the short maturity of these items.
As of March 31, 2021, the fair values of the $750.0 million unsecured senior notes due March 1, 2030 (the “2030 Notes”), $750.0 million unsecured senior notes due December 1, 2027 (the “2027 Notes”), and $750.0 million 2026 Notes were determined based on inputs that are observable in the market (Level 2). Based on the closing trading price per $100 as of the last day of trading for the quarter ended March 31, 2021, the carrying value was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Carrying Value
|
|
2030 Notes
|
$
|
770,423
|
|
|
$
|
739,401
|
|
|
2027 Notes
|
$
|
852,608
|
|
|
$
|
744,039
|
|
|
2026 Notes
|
$
|
738,908
|
|
|
$
|
741,596
|
|
The Company also has variable debt instruments indexed to 1-Month LIBOR that resets monthly and the fair values of these instruments approximate the carrying value as of March 31, 2021. See Note 11 for more information on the Company's debt instruments.
8. STOCK-BASED COMPENSATION
Plans
The Company’s stock-based compensation program is a long-term retention program that is intended to attract and reward talented employees and align stockholder and employee interests. As of March 31, 2021, the Company had three stock-based compensation plans with shares available for grant.
The Company is currently granting stock-based awards from its Second Amended and Restated 2014 Equity Incentive Plan (the “2014 Plan”), which was amended at the Company's Annual Meeting of Stockholders on June 3, 2020. Pursuant to the June 2020 amendment, the maximum number of shares of common stock available for issuance under the 2014 Plan was increased to 51,300,000. In addition, the amendment extended the term of the 2014 Plan to June 3, 2030 and updated the vesting provisions from monthly to annual vesting for annual director awards, consistent with the Company's current compensation program for non-employee directors. As of March 31, 2021, there were 17,165,879 shares of common stock reserved for issuance pursuant to the Company’s stock-based compensation plans, including authorization under its 2014 Plan to grant stock-based awards covering 10,607,969 shares of common stock.
In connection with the Wrike acquisition, on February 26, 2021, the Company's Board of Directors adopted the 2021 Inducement Plan (the “2021 Inducement Plan”). The 2021 Inducement Plan provides for the grant of equity awards to induce highly-qualified prospective officers and employees to accept employment and to provide them with a proprietary interest in the Company. The Company is authorized to issue 320,000 shares of common stock for inducement awards under the 2021 Inducement Plan. During the three months ended March 31, 2021, the Company granted 268,248 non-vested stock units to Wrike employees who joined the Company, which vest based on service over a three-year term. As of March 31, 2021, there were 317,518 shares of common stock reserved for issuance pursuant to the 2021 Inducement Plan.
Effective February 26, 2021, the Company assumed the Wrangler Topco, LLC Second Amended and Restated 2018 Equity Incentive Plan (the “Wrangler Plan”) and the Wrike, Inc, Amended and Restated 2013 Stock Plan (the “Wrike Plan”). As of March 31, 2021, there were 698,658 shares of the Company’s common stock reserved and authorized for issuance under the terms of the Wrangler Plan, including authorization under the Wrangler Plan to grant stock-based awards covering 352,548 shares of common stock. As of March 31, 2021, there were 177,846 shares of the Company's common stock reserved and authorized for issuance under the terms of the Wrike Plan. All of the Wrike Plan awards are currently outstanding with no new shares available for issuance.
Stock-Based Compensation
The detail of the total stock-based compensation recognized by income statement classification is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
Income Statement Classifications
|
2021
|
|
2020
|
|
|
|
|
|
Cost of subscription, support and services
|
$
|
4,406
|
|
|
$
|
2,762
|
|
|
|
|
|
|
Research and development
|
31,127
|
|
|
21,596
|
|
|
|
|
|
|
Sales, marketing and services
|
28,342
|
|
|
20,386
|
|
|
|
|
|
|
General and administrative
|
22,987
|
|
|
13,579
|
|
|
|
|
|
|
Total
|
$
|
86,862
|
|
|
$
|
58,323
|
|
|
|
|
|
Non-vested Stock Units
Service-Based Stock Units
The Company awards senior level employees and certain other employees non-vested stock units granted under the 2014 Plan that vest based on service. These non-vested stock unit awards vest 33.33% on each of the first, second and third anniversary subsequent to the grant date of the award. Each non-vested stock unit, upon vesting, represents the right to receive one share of the Company’s common stock. In addition, the Company awards non-vested stock units to all of its continuing non-employee directors, which represent the right to receive one share of the Company's common stock upon vesting. Awards granted to non-employee directors vest in full in one installment on the earlier of: (i) the first anniversary of the award date; or (ii) the day immediately prior to the Company’s next annual meeting of the stockholders following the award date.
Unrecognized Compensation Related to Stock Units
As of March 31, 2021, the total number of non-vested stock units outstanding, including company performance awards and service-based awards was 6,824,397. As of March 31, 2021, there was $641.7 million of total unrecognized compensation cost related to non-vested stock units. The unrecognized cost of the awards legally granted through March 31, 2021 is expected to be recognized over a weighted-average period of 1.96 years.
Company Performance Stock Units
On March 1, 2021, the Company awarded senior level employees 305,229 non-vested performance stock unit awards granted under the 2014 Plan. The number of non-vested performance stock units that ultimately vest will be determined within sixty days following completion of the performance period ending December 31, 2023 and will be based on the achievement of specific corporate financial performance goals related to the Company’s Software as a Service (SaaS) annualized recurring revenue (ARR) growth measured during the period from January 1, 2021 to December 31, 2023. The number of non-vested stock units issued will be based on a graduated slope, with the maximum number of non-vested stock units issuable pursuant to the award capped at 200% of the target number of non-vested stock units set forth in the award agreement. Additionally, the awards have an explicit adjustment mechanism to prevent the attainment rates from being distorted should a material acquisition other than Wrike occur during the performance period. The Company is required to estimate the attainment expected to be achieved related to the defined performance goals and the number of non-vested stock units that will ultimately be awarded in order to recognize compensation expense over the vesting period. Each non-vested stock unit, upon vesting, represents the right to receive one share of the Company’s common stock. Compensation expense will be recorded through the end of the performance period on December 31, 2023 if it is deemed probable that the performance goals will be met. If the performance goals are not met, no compensation cost will be recognized and any previously recognized compensation cost will be reversed.
The Company recorded stock-based compensation costs related to its company performance stock units of $13.2 million and $2.1 million for the three months ended March 31, 2021 and 2020, respectively.
Assumed stock options
In connection with the acquisition of Wrike, the Company assumed 526,113 outstanding stock options which expire ten years from the date of grant and which were valued using the Black-Scholes option-pricing model. The fair value of the assumed stock options were estimated using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31, 2021
|
|
|
|
Expected volatility factor
|
0.51 - 0.75
|
|
|
|
Risk free interest rate
|
0.04% - 0.14%
|
|
|
|
Expected dividend yield
|
1.11%
|
|
|
|
Expected life (in years)
|
0.08 - 1.00
|
|
|
The Company determined the expected volatility factor by considering the implied volatility in various market-traded options of the Company's common stock based on third-party volatility quotes. The Company's decision to use implied volatility was based upon the availability of actively traded options on the Company's common stock and its assessment that implied volatility is more representative of future stock price trends than historical volatility. The risk-free interest rate was based on a U.S. Treasury instrument whose term is consistent with the expected term of the stock options. The current dividend yield has been updated for expected dividend yield payout. The expected term was based on the average period the stock options are expected to remain outstanding, generally calculated as the midpoint of the stock options’ remaining vesting term and contractual expiration period, as the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.
The estimated weighted-average grant date fair value for the assumed stock options was $103.22 per share and total fair value of $54.3 million. For the three months ended March 31, 2021, the Company recorded stock-based compensation costs related to unvested assumed stock options of $2.0 million. As of March 31, 2021, there was $23.4 million of total unrecognized compensation costs related to unvested assumed stock options to be recognized over a weighted-average period of 1.49 years. See Note 6 for detailed information on the Wrike acquisition.
9. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The Company accounts for goodwill in accordance with the authoritative guidance, which requires that goodwill and certain intangible assets are not amortized, but are subject to an annual impairment test. The Company performed a qualitative assessment in connection with its annual goodwill impairment test in the fourth quarter of 2020. As a result of the qualitative analysis, a quantitative impairment test was not deemed necessary. There was no impairment of goodwill or indefinite lived intangible assets as a result of the annual impairment test analysis completed during the fourth quarter of 2020.
The following table presents the change in goodwill during the three months ended March 31, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2021
|
|
Additions
|
|
Other
|
|
Balance at March 31, 2021
|
|
Goodwill
|
1,798,408
|
|
|
1,656,949
|
|
(1)
|
—
|
|
|
3,455,357
|
|
(1) Amount relates to the Wrike acquisition. See Note 6 for more information.
Intangible Assets
The Company has intangible assets which were primarily acquired in conjunction with business combinations and technology purchases. Intangible assets with finite lives are recorded at cost, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, generally two to seven years, except for patents, which are amortized over the lesser of their remaining life or seven to ten years.
Intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Product related intangible assets
|
$
|
1,092,654
|
|
|
$
|
676,807
|
|
|
$
|
742,949
|
|
|
$
|
665,798
|
|
|
Other
|
664,791
|
|
|
190,983
|
|
|
187,791
|
|
|
183,451
|
|
|
Total
|
$
|
1,757,445
|
|
|
$
|
867,790
|
|
|
$
|
930,740
|
|
|
$
|
849,249
|
|
Amortization of product related intangible assets, which consists primarily of product related technologies and patents, was $11.0 million and $8.3 million for the three months ended March 31, 2021 and 2020, respectively, and is classified as a component of Cost of net revenues in the accompanying condensed consolidated statements of income. Amortization of other intangible assets, which consist primarily of customer relationships, trade names, backlog and covenants not to compete was $7.5 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively, and is classified as a component of Operating expenses in the accompanying condensed consolidated statements of income.
The Company monitors its intangible assets for indicators of impairment. If the Company determines impairment has occurred, it will write-down the intangible asset to its fair value. For certain intangible assets where the unamortized balances exceeded the undiscounted future net cash flows, the Company measures the amount of the impairment by calculating the amount by which the carrying values exceed the estimated fair values, which are based on projected discounted future net cash flows.
Estimated future amortization expense of intangible assets with finite lives as of March 31, 2021 is as follows (in thousands):
|
|
|
|
|
|
|
|
Year ending December 31,
|
|
|
2021 (remaining nine months)
|
$
|
119,318
|
|
|
2022
|
156,320
|
|
|
2023
|
146,338
|
|
|
2024
|
129,443
|
|
|
2025
|
126,916
|
|
|
Thereafter
|
211,320
|
|
|
Total
|
$
|
889,655
|
|
10. SEGMENT INFORMATION
Citrix has one reportable segment. The Company's chief operating decision maker (“CODM”) reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company's CEO is the CODM.
Revenues by Product Grouping
Revenues by product grouping were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
Workspace (1)
|
$
|
580,962
|
|
|
$
|
653,716
|
|
|
|
|
|
|
App Delivery and Security (2)
|
169,987
|
|
|
179,934
|
|
|
|
|
|
|
Professional services (3)
|
24,817
|
|
|
27,295
|
|
|
|
|
|
|
Total net revenues
|
$
|
775,766
|
|
|
$
|
860,945
|
|
|
|
|
|
(1)Workspace revenues are primarily comprised of sales from the Company’s application virtualization solutions, which include Citrix Workspace, Citrix Virtual Apps and Desktops, the Company's unified endpoint management solutions, which include Citrix Endpoint Management, Citrix Content Collaboration, and Collaborative Work Management.
(2)App Delivery and Security revenues primarily include Citrix ADC and Citrix SD-WAN.
(3)Professional services revenues are comprised of revenues from consulting services primarily related to the Company's perpetual offerings and product training and certification services.
Revenues by Geographic Location
The following table presents revenues by geographic location, for the following periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
Americas
|
$
|
426,683
|
|
|
$
|
484,115
|
|
|
|
|
|
|
EMEA
|
277,799
|
|
|
293,647
|
|
|
|
|
|
|
APJ
|
71,284
|
|
|
83,183
|
|
|
|
|
|
|
Total net revenues
|
$
|
775,766
|
|
|
$
|
860,945
|
|
|
|
|
|
Subscription Revenue
The Company's subscription revenue relates to fees for SaaS, which are generally recognized ratably over the contractual term and non-SaaS, which are generally recognized at a point in time. SaaS primarily consists of subscriptions delivered via a cloud-hosted service whereby the customer does not take possession of the software and hybrid subscription offerings and the related support. Non-SaaS consists primarily of on-premise licensing, hybrid subscription offerings, CSP services and the related support. The Company's hybrid subscription offerings are allocated between SaaS and non-SaaS. The following table presents subscription revenues by SaaS and non-SaaS components, for the following periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Subscription:
|
|
|
|
|
|
|
|
|
SaaS
|
$
|
171,081
|
|
|
$
|
122,570
|
|
|
|
|
|
|
Non-SaaS
|
171,048
|
|
|
145,666
|
|
|
|
|
|
|
Total Subscription revenue
|
$
|
342,129
|
|
|
$
|
268,236
|
|
|
|
|
|
11. DEBT
The components of the Company's long-term debt were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
2021 Term Loan Credit Agreement
|
$
|
1,000,000
|
|
|
$
|
—
|
|
|
Term Loan Credit Agreement
|
250,000
|
|
|
250,000
|
|
|
2026 Notes
|
750,000
|
|
|
—
|
|
|
2027 Notes
|
750,000
|
|
|
750,000
|
|
|
2030 Notes
|
750,000
|
|
|
750,000
|
|
|
Total face value
|
3,500,000
|
|
|
1,750,000
|
|
|
Less: unamortized discount
|
(7,000)
|
|
|
(5,594)
|
|
|
Less: unamortized issuance costs
|
(20,221)
|
|
|
(11,784)
|
|
|
Total long-term debt
|
$
|
3,472,779
|
|
|
$
|
1,732,622
|
|
2021 Term Loan Credit Agreement
On February 5, 2021, the Company entered into a term loan credit agreement (the “2021 Term Loan Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto from time to time (collectively, the “2021 Lenders”). The 2021 Term Loan Credit Agreement provides the Company with a facility to borrow a term loan on an unsecured basis in an aggregate principal amount of up to $1.00 billion (the “2021 Term Loan”). The Company borrowed $1.00 billion on February 26, 2021 under the 2021 Term Loan, and the loan matures on February 26, 2024. The proceeds of borrowings under the 2021 Term Loan Credit Agreement were used to finance a portion of the purchase price for the Wrike acquisition. See Note 6 for detailed information on the Wrike acquisition.
Borrowings under the 2021 Term Loan Credit Agreement bear interest at a rate equal to (a) either (i) a customary LIBOR formula or, upon a phase-out of LIBOR, an alternative benchmark rate as provided in the 2021 Term Loan Credit Agreement, or (ii) a customary base rate formula, plus (b) the applicable margin with respect thereto, which initially will be determined based on the Company’s consolidated leverage ratio but may, if so elected by the Company, be based on the Company’s non-credit enhanced, senior unsecured long-term debt rating as determined by Moody’s Investors Service, Inc., Standard & Poor’s Financial Services, LLC and Fitch Ratings Inc., in each case as set forth in the 2021 Term Loan Credit Agreement.
The 2021 Term Loan Credit Agreement includes a covenant limiting the Company’s consolidated leverage ratio to not more than 4.0:1.0, subject to a mandatory step-down after the fiscal quarter ending March 31, 2022 to 3.75:1.0, and further subject to, upon the occurrence of a qualified acquisition in any quarter on or after the fiscal quarter ending March 31, 2022, if so elected by the Company, a step-up to 4.25:1.0 for the four fiscal quarters following such qualified acquisition. The 2021 Term Loan Credit Agreement also includes a covenant limiting the Company’s consolidated interest coverage ratio to not less than 3.0:1.0. The 2021 Term Loan Credit Agreement includes customary events of default, with corresponding grace periods in certain circumstances, including, without limitation, payment defaults, cross-defaults, the occurrence of a change of control of the Company and bankruptcy-related defaults. The 2021 Lenders are entitled to accelerate repayment of the loans under the 2021 Term Loan Credit Agreement upon the occurrence of any of the events of default. In addition, the 2021 Term Loan Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the ability of the Company to grant liens, merge or consolidate, dispose of all or substantially all of its assets, change its business and incur subsidiary indebtedness, in each case subject to customary exceptions. The 2021 Term Loan Credit Agreement also contains representations and warranties customary for an unsecured financing of this type. The Company was in compliance with these covenants as of March 31, 2021.
Certain 2021 Lenders and/or their affiliates have provided and may continue to provide commercial banking, investment management and other services to the Company, its affiliates and employees, for which they receive customary fees and commissions.
Term Loan Credit Agreement
On January 21, 2020, the Company entered into a term loan credit agreement with Bank of America, N.A., as administrative agent, and other lenders party thereto from time to time (the “Term Loan Credit Agreement”) that provides the Company with facilities to borrow term loans on an unsecured basis in an aggregate principal amount of up to $1.00 billion, consisting of (i) a $500.0 million 364-day term loan facility (the “364-day Term Loan”), and (ii) a $500.0 million 3-year term loan (the “3-year Term Loan”), in each case in a single borrowing, subject to satisfaction of certain conditions set forth in the Term Loan Credit Agreement. On January 30, 2020, the Company borrowed $1.00 billion under the term loans and used the
proceeds to enter into accelerated share repurchase transactions for an aggregate of $1.00 billion. During the three months ended March 31, 2020, the Company used the net proceeds from the 2030 Notes and cash to repay $750.0 million under the Term Loan Credit Agreement. See Note 15 for detailed information on the accelerated share repurchase.
Borrowings under the Term Loan Credit Agreement bear interest at a rate equal to (a) either (i) LIBOR or, upon a phase-out of LIBOR, an alternative benchmark rate as provided in the Term Loan Credit Agreement, or (ii) a customary base rate formula, plus (b) the applicable margin with respect thereto, which initially will be determined based on the Company’s consolidated leverage ratio but may, if so elected by the Company, be based on the Company’s non-credit enhanced, senior unsecured long-term debt rating as set forth in the Term Loan Credit Agreement.
On February 5, 2021, the Company entered into the first amendment to the Term Loan Credit Agreement, which amends, among other things, the covenant limiting the Company’s consolidated leverage ratio. After giving effect to the amendment, the covenant limiting the Company’s consolidated leverage ratio will be consistent with the covenant limiting the Company’s consolidated leverage ratio in the 2021 Term Loan Credit Agreement, and will be limited to not more than 4.0:1.0, subject to a mandatory step-down after the fiscal quarter ending March 31, 2022 under the 2021 Term Loan Credit Agreement (the “Leverage Ratio Step-Down”) to 3.75:1.0, and further subject to, upon the occurrence of a qualified acquisition in any quarter on or after the fifth fiscal quarter ending after the Leverage Ratio Step-Down, if so elected by the Company, a step-up to 4.25:1.0 for the four fiscal quarters following such qualified acquisition. The Company was in compliance with all covenants as of March 31, 2021.
Senior Notes
On February 18, 2021, the Company issued $750.0 million of unsecured senior notes due March 1, 2026. The 2026 Notes accrue interest at a rate of 1.250% per annum. Interest on the 2026 Notes is due semi-annually on March 1 and September 1 of each year, beginning on September 1, 2021. The net proceeds from this offering were $741.4 million, after deducting the underwriting discount and offering expenses payable by the Company. Net proceeds from this offering were used to fund a portion of the aggregate cash consideration for the Wrike acquisition. The 2026 Notes will mature on March 1, 2026, unless earlier redeemed in accordance with their terms prior to such date.
On February 25, 2020, the Company issued $750.0 million of unsecured senior notes due March 1, 2030. The 2030 Notes accrue interest at a rate of 3.300% per annum. Interest on the 2030 Notes is due semi-annually on March 1 and September 1 of each year. The 2030 Notes will mature on March 1, 2030, unless earlier redeemed in accordance with their terms prior to such date.
On November 15, 2017, the Company issued $750.0 million of unsecured senior notes due December 1, 2027. The 2027 Notes accrue interest at a rate of 4.500% per annum. Interest on the 2027 Notes is due semi-annually on June 1 and December 1 of each year. The 2027 Notes will mature on December 1, 2027, unless earlier redeemed in accordance with their terms prior to such date.
Each of the 2026 Notes, 2030 Notes and 2027 Notes are individually redeemable in whole or from time to time in part at the Company’s option, subject to a make-whole premium. In addition, upon the occurrence of certain change of control triggering events prior to maturity, holders of the notes may require the Company to repurchase the notes for cash at a repurchase price of 101% of the principal amount of the notes plus accrued and unpaid interest to, but excluding, the repurchase date.
Credit Facility
On November 26, 2019, the Company entered into an amended and restated credit agreement (the "Credit Agreement") with a group of financial institutions, which amends and restates the Company’s Credit Agreement, dated January 7, 2015. The Credit Agreement provides for a five year unsecured revolving credit facility in the aggregate amount of $250.0 million, subject to continued covenant compliance. The Company may elect to increase the revolving credit facility by up to $250.0 million if existing or new lenders provide additional revolving commitments in accordance with the terms of the Credit Agreement. A portion of the revolving line of credit (i) in the aggregate amount of $25.0 million may be available for issuances of letters of credit and (ii) in the aggregate amount of $10.0 million may be available for swing line loans, as part of, not in addition to, the aggregate revolving commitments. The credit facility bears interest at a rate equal to (a) either (i) LIBOR or, upon a phase-out of LIBOR, an alternative benchmark rate as provided in the Credit Agreement, or (ii) a customary base rate formula, plus (b) the applicable margin with respect thereto, which initially will be determined based on the Company’s consolidated leverage ratio but may, if so elected by the Company, be based on the Company’s long-term debt rating as set forth in the Credit Agreement. In addition, the Company is required to pay a quarterly facility fee ranging from 0.11% to 0.20% of the aggregate revolving commitments under the credit facility and based on the ratio of the Company’s total debt to the Company’s
consolidated EBITDA or long-term credit rating. As of March 31, 2021 and December 31, 2020, no amounts were outstanding under the credit facility.
On February 5, 2021, the Company entered into the first amendment to the Credit Agreement, which amends, among other things, the covenant limiting the Company’s consolidated leverage ratio. After giving effect to the amendment, the covenant limiting the Company’s consolidated leverage ratio will be consistent with the covenant limiting the Company’s consolidated leverage ratio in the 2021 Term Loan Credit Agreement, and will be limited to not more than 4.0:1.0, subject to a mandatory step-down after the fiscal quarter ending March 31, 2022 (or such earlier date as the Company may elect by written notice to Bank of America, N.A., in its capacity as administrative agent) under the 2021 Term Loan Credit Agreement (the “Leverage Ratio Step-Down”) to 3.75:1.0, and further subject to, upon the occurrence of a qualified acquisition in any quarter on or after the fifth fiscal quarter ending after the Leverage Ratio Step-Down, if so elected by the Company, a step-up to 4.25:1.0 for the four fiscal quarters following such qualified acquisition. The Company was in compliance with all covenants as of March 31, 2021.
Bridge Facility and Take-Out Facility Commitment Letter
On January 16, 2021, the Company entered into a bridge facility and take-out facility commitment letter (the “Commitment Letter”) pursuant to which JPMorgan Chase Bank, N.A. (1) committed to provide a senior unsecured 364-day term loan facility in an aggregate principal amount of $1.45 billion to finance the cash consideration for the Wrike acquisition in the event that the permanent debt financing was not available on or prior to the Closing Date and (2) agreed to use commercially reasonable efforts to assemble a syndicate of lenders to provide the necessary commitments for the senior term loan facility. The commitments under the Commitment Letter were permanently reduced to zero on February 18, 2021, as a result of (i) the effectiveness of the 2021 Term Loan Credit Agreement and (ii) the completion of the issuance of the 2026 Notes. In connection with the Commitment Letter, the Company incurred $5.4 million in issuance costs that were expensed in the three months ended March 31, 2021 and are included in Other income, net in the accompanying condensed statements of income.
12. DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives Designated as Hedging Instruments
As of March 31, 2021, the Company’s derivative assets and liabilities primarily resulted from cash flow hedges related to its forecasted operating expenses transacted in local currencies. A substantial portion of the Company’s overseas expenses are and will continue to be transacted in local currencies. To protect against fluctuations in operating expenses and the volatility of future cash flows caused by changes in currency exchange rates, the Company has established a program that uses foreign exchange forward contracts to hedge its exposure to these potential changes. The terms of these instruments, and the hedged transactions to which they relate, generally do not exceed 12 months.
Generally, when the dollar is weak, foreign currency denominated expenses will be higher, and these higher expenses will be partially offset by the gains realized from the Company’s hedging contracts. Conversely, if the dollar is strong, foreign currency denominated expenses will be lower. These lower expenses will in turn be partially offset by the losses incurred from the Company’s hedging contracts. Derivative instruments are recognized as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Gains and losses on derivatives that are designated as cash flow hedges are initially reported as a component of Accumulated other comprehensive loss and are subsequently recognized in income when the hedged exposure is recognized in income. Gains and losses from changes in fair values of derivatives that are not designated as hedges are recognized in Other income, net.
The total cumulative unrealized gain on cash flow derivative instruments was $0.8 million at March 31, 2021, and is included in Accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets. The net unrealized gain as of March 31, 2021 is expected to be recognized in income over the next 12 months at the same time the hedged items are recognized in income. See Note 13 for more information related to comprehensive income.
Derivatives not Designated as Hedging Instruments
A substantial portion of the Company’s overseas assets and liabilities are and will continue to be denominated in local currencies. To protect against fluctuations in earnings caused by changes in currency exchange rates when remeasuring the Company’s balance sheet, the Company utilizes foreign exchange forward contracts to hedge its exposure to this potential volatility. These contracts are not designated for hedge accounting treatment under the authoritative guidance. Accordingly, changes in the fair value of these contracts are recorded in Other income, net.
Fair Values of Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
(In thousands)
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Derivatives Designated as
Hedging Instruments
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Foreign currency forward contracts
|
Prepaid
expenses
and other
current
assets
|
|
$1,831
|
|
Prepaid
expenses
and other
current
assets
|
|
$3,945
|
|
Accrued
expenses
and other
current
liabilities
|
|
$986
|
|
Accrued
expenses
and other
current
liabilities
|
|
$75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
(In thousands)
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Derivatives Not Designated as
Hedging Instruments
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Foreign currency forward contracts
|
Prepaid
expenses
and other
current
assets
|
|
$12,503
|
|
Prepaid
expenses
and other
current
assets
|
|
$67
|
|
Accrued
expenses
and other
current
liabilities
|
|
$115
|
|
Accrued
expenses
and other
current
liabilities
|
|
$1,372
|
The Effect of Derivative Instruments on Financial Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
(In thousands)
|
|
Derivatives in Cash Flow
Hedging Relationships
|
Amount of Loss Recognized in Other
Comprehensive Loss
|
|
Location of Gain Reclassified
from Accumulated Other
Comprehensive Loss into
Income
|
|
Amount of Gain Reclassified from Accumulated Other
Comprehensive Loss
|
|
|
2021
|
|
2020
|
|
|
|
2021
|
|
2020
|
|
Foreign currency forward contracts
|
$
|
(2,806)
|
|
|
$
|
(2,833)
|
|
|
Operating expenses
|
|
$
|
1,943
|
|
|
$
|
248
|
|
There was no material ineffectiveness in the Company’s foreign currency hedging program in the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
(In thousands)
|
|
Derivatives Not Designated as Hedging Instruments
|
Location of Gain Recognized in Income on
Derivative
|
|
Amount of Gain Recognized
in Income on Derivative
|
|
|
|
|
2021
|
|
2020
|
|
Foreign currency forward contracts
|
Other income, net
|
|
$
|
13,096
|
|
|
$
|
3,758
|
|
Outstanding Foreign Currency Forward Contracts
As of March 31, 2021, the Company had the following net notional foreign currency forward contracts outstanding (in thousands):
|
|
|
|
|
|
|
|
Foreign Currency
|
Currency
Denomination
|
|
Australian Dollar
|
AUD 25,600
|
|
Brazilian Real
|
BRL 2,000
|
|
Pounds Sterling
|
GBP 10,400
|
|
Canadian Dollar
|
CAD 6,150
|
|
Chinese Yuan Renminbi
|
CNY 21,769
|
|
Czech Koruna
|
CZK 4,800
|
|
Danish Krone
|
DKK 900
|
|
Euro
|
EUR 9,336
|
|
Hong Kong Dollar
|
HKD 42,050
|
|
Indian Rupee
|
INR 722,000
|
|
Japanese Yen
|
JPY 598,000
|
|
Korean Won
|
KRW 761,000
|
|
|
|
|
Singapore Dollar
|
SGD 15,400
|
|
Swedish Krona
|
SEK 6,700
|
|
Swiss Franc
|
CHF 187,330
|
13. COMPREHENSIVE INCOME
The changes in Accumulated other comprehensive loss by component, net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
Unrealized loss on available-for-sale securities
|
|
Unrealized gain on derivative instruments
|
|
Other comprehensive loss on pension liability
|
|
Total
|
|
|
(In thousands)
|
|
Balance at December 31, 2020
|
$
|
(2,946)
|
|
|
$
|
(18)
|
|
|
$
|
3,562
|
|
|
$
|
(4,247)
|
|
|
$
|
(3,649)
|
|
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
20
|
|
|
(863)
|
|
|
1,050
|
|
|
207
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
—
|
|
|
(1,943)
|
|
|
—
|
|
|
(1,943)
|
|
|
Net current period other comprehensive income (loss)
|
—
|
|
|
20
|
|
|
(2,806)
|
|
|
1,050
|
|
|
(1,736)
|
|
|
Balance at March 31, 2021
|
$
|
(2,946)
|
|
|
$
|
2
|
|
|
$
|
756
|
|
|
$
|
(3,197)
|
|
|
$
|
(5,385)
|
|
Income tax expense or benefit allocated to each component of other comprehensive income (loss) is not material.
Reclassifications out of Accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2021
|
|
|
|
(In thousands)
|
|
Details about accumulated other comprehensive loss components
|
|
Amount reclassified from accumulated other comprehensive loss, net of tax
|
|
Affected line item in the Condensed Consolidated Statements of Income
|
|
|
|
|
|
|
|
Unrealized net gains on cash flow hedges
|
|
(1,943)
|
|
|
Operating expenses *
|
|
|
|
$
|
(1,943)
|
|
|
|
* Operating expenses amounts allocated to Research and development, Sales, marketing and services, and General and administrative are not individually significant.
14. INCOME TAXES
The Company is required to estimate its income taxes in each of the jurisdictions in which it operates as part of the process of preparing its condensed consolidated financial statements. The Company maintains certain strategic management and operational activities in overseas subsidiaries and its foreign earnings are taxed at rates that are generally lower than in the United States.
The Company’s effective tax rate generally differs from the U.S. federal statutory rate primarily due to tax credits and lower tax rates on earnings generated by the Company’s foreign operations that are taxed primarily in Switzerland.
The Company’s effective tax rate was (10.9)% and 4.9% for the three months ended March 31, 2021 and 2020, respectively. The decrease in the effective tax rate when comparing the three months ended March 31, 2021 to the three months ended March 31, 2020, was primarily due to tax items unique to the period ended March 31, 2021 and the geographical mix of income towards lower tax regions. These amounts include a $17.1 million tax benefit related to a favorable Indian tax ruling, net of the U.S. tax impact, during the period ending March 31, 2021.
The Company’s net unrecognized tax benefits totaled $89.5 million and $74.7 million as of March 31, 2021 and December 31, 2020, respectively. At March 31, 2021, $76.8 million included in the balance for tax positions would affect the annual effective tax rate if recognized. The Company recognizes interest accrued related to uncertain tax positions and penalties in income tax expense. As of March 31, 2021, the Company has accrued $2.6 million for the payment of interest.
At March 31, 2021, the Company had $177.9 million in net deferred tax assets. The authoritative guidance requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company reviews deferred tax assets periodically for recoverability and makes estimates and judgments regarding the expected geographic sources of taxable income and gains from investments, as well as tax planning strategies in assessing the need for a valuation allowance. If the estimates and assumptions used in the Company's determination change in the future, the Company could be required to revise its estimates of the valuation allowances against its deferred tax assets and adjust its provisions for additional income taxes.
On March 11, 2021, the United States enacted the American Rescue Plan Act of 2021 (“American Rescue Plan Act”). The American Rescue Plan Act includes a wide variety of tax and non-tax provisions aimed to provide relief to individuals and businesses adversely affected by the COVID-19 pandemic. The American Rescue Plan Act also expands the limitation on deductions publicly held companies may take with respect to certain employee compensation effective for tax years beginning after December 31, 2026. Although the Company is evaluating the impact of global COVID-19-related proposed and enacted legislation, as of the end of the current period no material impact to the Company's financial results is expected. The Company will continue to review and evaluate any future guidance, developments, or legislation issued by applicable tax authorities.
The Company and one or more of its subsidiaries are subject to U.S. federal income taxes in the United States, as well as income taxes of multiple state and foreign jurisdictions. The Company is currently under examination by the United States Internal Revenue Service for the 2017 and 2018 tax years. With few exceptions, the Company is generally not subject to examination for state and local income tax, or in non-U.S. jurisdictions, by tax authorities for years prior to 2017.
The Company's U.S. liquidity needs are currently satisfied using cash flows generated from its U.S. operations, borrowings, or both. The Company also utilizes a variety of tax planning strategies in an effort to ensure that its worldwide cash is available in locations in which it is needed. The Company expects to repatriate a substantial portion of its foreign earnings over time, to the extent that the foreign earnings are not restricted by local laws or result in significant incremental costs associated with repatriating the foreign earnings.
15. TREASURY STOCK
Stock Repurchase Program
The Company’s Board of Directors has authorized an ongoing stock repurchase program, of which $1.00 billion was approved in January 2020. The Company may use the approved dollar authority to repurchase stock at any time until the approved amount is exhausted. The objective of the Company’s stock repurchase program is to improve stockholders’ returns and mitigate earnings per share dilution posed by the issuance of shares related to employee equity compensation awards. At March 31, 2021, $625.6 million was available to repurchase common stock pursuant to the stock repurchase program. All shares repurchased are recorded as treasury stock. A portion of the funds used to repurchase stock over the course of the program was provided by net proceeds from the Convertible Notes, the 2027 Notes and the Term Loan Credit Agreement, as well as proceeds from employee stock awards and the related tax benefit. The Company is authorized to make purchases of its
common stock using general corporate funds through open market purchases, pursuant to a Rule 10b5-1 plan or in privately negotiated transactions.
During the three months ended March 31, 2021, the Company made no open market purchases under the stock repurchase program.
On January 30, 2020, the Company used the proceeds from its Term Loan Credit Agreement and entered into accelerated share repurchase (“ASR”) transactions with a group of Dealers for an aggregate of $1.00 billion. Under the ASR transactions, the Company received an initial share delivery of 6.5 million shares of its common stock, with the remainder delivered upon completion of the ASR transactions. The total number of shares of common stock that the Company repurchased under each ASR agreement was based on the average of the daily volume-weighted average prices of its common stock during the term of the applicable ASR agreement, less a discount. The Company received delivery of 0.8 million shares of its common stock in August 2020 in final settlement of the ASR Agreement. See Note 11 for detailed information on the Term Loan Credit Agreement.
In addition to the ASR, during the three months ended March 31, 2020, the Company expended $199.9 million on open market purchases under the stock repurchase program, repurchasing 1,731,500 shares of common stock at an average price of $115.45.
Shares for Tax Withholding
During the three months ended March 31, 2021 and 2020, the Company withheld 335,347 and 483,224 shares, respectively, from equity awards that vested, totaling $46.7 million and $65.3 million, respectively, to satisfy minimum tax withholding obligations that arose on the vesting of such equity awards. These shares are reflected as treasury stock in the Company’s condensed consolidated balance sheets and the related cash outlays do not reduce the Company’s total stock repurchase authority.
16. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company accrues a liability for legal contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of, or a range of, the loss. The Company reviews these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and the Company's views on the probable outcomes of any pending claims, suits, assessments, regulatory investigations, or other legal proceedings change, changes in the Company's accrued liabilities would be recorded in the period in which such determination is made. In addition, in accordance with the relevant authoritative guidance, for matters in which the likelihood of material loss is at least reasonably possible, the Company provides disclosure of the possible loss or range of loss. If a reasonable estimate cannot be made, however, the Company will provide disclosure to that effect.
Due to the nature of the Company's business, the Company is subject to patent infringement claims, including current litigation alleging infringement by various Company solutions and services. The Company believes that it has meritorious defenses to the allegations made in its pending litigation and intends to vigorously defend itself; however, it is unable currently to determine the ultimate outcome of these or similar matters or the potential exposure to loss, if any. In addition, the Company is subject to various other legal proceedings, including suits, assessments, regulatory actions and investigations generally arising out of the normal course of business. Although it is difficult to predict the ultimate outcomes of these matters, the Company believes that outcomes that will materially and adversely affect its business, financial position, results of operations or cash flows are reasonably possible but not estimable at this time.
On July 25, 2019, a class action lawsuit was filed against Citrix, LogMeIn, Inc. (“LogMeIn”) and certain of their then current and former directors and officers in the Circuit Court of the 15th Judicial Circuit, Palm Beach County, Florida. The complaint alleges that the defendants violated federal securities laws by making alleged misstatements and omissions in LogMeIn’s Registration Statement and Prospectus filed in connection with the 2017 spin-off of Citrix’s GoTo family of service offerings and subsequent merger of that business with LogMeIn. The complaint sought, among other things, the recovery of monetary damages. On April 28, 2020, the defendants filed motions to dismiss the complaint, which were granted on March 15, 2021.
Guarantees
The authoritative guidance requires certain guarantees to be recorded at fair value and requires a guarantor to make disclosures, even when the likelihood of making any payments under the guarantee is remote. For those guarantees and indemnifications that do not fall within the initial recognition and measurement requirements of the authoritative guidance, the Company must continue to monitor the conditions that are subject to the guarantees and indemnifications, as required under existing generally accepted accounting principles, to identify if a loss has been incurred. If the Company determines that it is probable that a loss has been incurred, any such estimable loss would be recognized. The initial recognition and measurement requirements do not apply to the provisions contained in the majority of the Company’s software license agreements that indemnify licensees of the Company’s software from damages and costs resulting from claims alleging that the Company’s software infringes the intellectual property rights of a third party. The Company has not made material payments pursuant to these provisions. The Company has not identified any losses that are probable under these provisions and, accordingly, the Company has not recorded a liability related to these indemnification provisions.
Other Purchase Commitments
In May 2020, the Company entered into an amended agreement with a third-party provider, in the ordinary course of business, for the use of certain cloud services through June 2029. Under the amended agreement, the Company is committed to a purchase of $1.00 billion throughout the term of the agreement. As of March 31, 2021, the Company had $927.8 million of remaining obligations under the purchase agreement.
17. STATEMENT OF CHANGES IN EQUITY
The following tables present the changes in total stockholders' equity (deficit) during the three months ended March 31, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid In Capital
|
|
Retained
Earnings
|
|
Accumulated Other
Comprehensive
Loss
|
|
Common Stock
in Treasury
|
|
Total Equity
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
Balance at December 31, 2020
|
321,964
|
|
|
$
|
322
|
|
|
$
|
6,608,018
|
|
|
$
|
4,984,333
|
|
|
$
|
(3,649)
|
|
|
(199,443)
|
|
|
$
|
(11,476,881)
|
|
|
$
|
112,143
|
|
|
Shares issued under stock-based compensation plans
|
962
|
|
|
1
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Stock-based compensation expense
|
—
|
|
|
—
|
|
|
86,862
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
86,862
|
|
|
Common stock issued under employee stock purchase plan
|
228
|
|
|
—
|
|
|
25,757
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares turned in for tax withholding
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(335)
|
|
|
(46,745)
|
|
|
(46,745)
|
|
|
Cash dividends declared ($0.37 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(45,522)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(45,522)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of assumed equity awards related to pre-combination service
|
—
|
|
|
—
|
|
|
28,885
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,885
|
|
|
Other
|
—
|
|
|
—
|
|
|
2,537
|
|
|
(2,537)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,736)
|
|
|
—
|
|
|
—
|
|
|
(1,736)
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
90,048
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
90,048
|
|
|
Balance at March 31, 2021
|
323,154
|
|
|
$
|
323
|
|
|
$
|
6,752,058
|
|
|
$
|
5,026,322
|
|
|
$
|
(5,385)
|
|
|
(199,778)
|
|
|
$
|
(11,523,626)
|
|
|
$
|
249,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid In Capital
|
|
Retained
Earnings
|
|
Accumulated Other
Comprehensive
Loss
|
|
Common Stock
in Treasury
|
|
Total
Equity (Deficit)
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
Balance at December 31, 2019
|
318,760
|
|
|
$
|
319
|
|
|
$
|
6,249,065
|
|
|
$
|
4,660,145
|
|
|
$
|
(5,127)
|
|
|
(188,693)
|
|
|
$
|
(10,066,746)
|
|
|
$
|
837,656
|
|
|
Shares issued under stock-based compensation plans
|
1,432
|
|
|
1
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Stock-based compensation expense
|
—
|
|
|
—
|
|
|
53,568
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued under employee stock purchase plan
|
245
|
|
|
—
|
|
|
21,034
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,034
|
|
|
Stock repurchases, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,732)
|
|
|
(199,903)
|
|
|
(199,903)
|
|
|
Restricted shares turned in for tax withholding
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(483)
|
|
|
(65,343)
|
|
|
(65,343)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared ($0.35 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(42,839)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(42,839)
|
|
|
Accelerated stock repurchase program
|
—
|
|
|
—
|
|
|
(200,000)
|
|
|
—
|
|
|
—
|
|
|
(6,528)
|
|
|
(800,000)
|
|
|
(1,000,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative-effect adjustment from adoption of accounting standard
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,641)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,641)
|
|
|
Other
|
—
|
|
|
—
|
|
|
1,923
|
|
|
(1,923)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,683)
|
|
|
—
|
|
|
—
|
|
|
(2,683)
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
181,222
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
181,222
|
|
|
Balance at March 31, 2020
|
320,437
|
|
|
$
|
320
|
|
|
$
|
6,125,589
|
|
|
$
|
4,794,964
|
|
|
$
|
(7,810)
|
|
|
(197,436)
|
|
|
$
|
(11,131,992)
|
|
|
$
|
(218,929)
|
|
Cash Dividend
The following table provides information with respect to quarterly dividends on common stock during the three months ended March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration Date
|
Dividends per Share
|
|
Record Date
|
|
Payable Date
|
|
January 19, 2021
|
$
|
0.37
|
|
|
March 12, 2021
|
|
March 26, 2021
|
Subsequent Event
On April 29, 2021, the Company announced that its Board of Directors approved a quarterly cash dividend of $0.37 per share which will be paid on June 25, 2021 to all shareholders of record as of the close of business on June 11, 2021.