Monday, June 16, 1997

Citrix Systems, Inc.
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Phone: 503-641-6115
http://www.citrix.com
Phone: 954-267-3000
Price (6/16/97): $38 1/8

HOW DID IT DOUBLE?

Bill Gates loves me. He loves me not. He loves me. As petal plucking found Citrix deflowered in February only to bloom again in the spring, investors got a taste of how important a licensing agreement can be. From Microsoft's doghouse to the penthouse. From Daily Trouble tumbleweed to Daily Double bouquet.

The February 26 announcement that Microsoft would incorporate its own version of features currently provided by Citrix's WinFrame software into Windows NT slammed Citrix stock below $10 a share. The May announcement that Microsoft would in fact license WinFrame from Citrix caused the shares to quadruple from the late February lows.

BUSINESS DESCRIPTION

WinFrame, the flagship Citrix product, allows computer network users to run Windows applications no matter what their location or the type of computing device they are using. This means that network users can use Windows regardless of the type of computer they are using -- it doesn't have to be a Windows compatible PC. In April, WinFrame won the honor of being Network Magazine's "Best Application Server Product of the Year."

FINANCIAL FACTS

Income Statement

      12-month sales: $58.5 million
      12-month income: $23.3 million
      12-month EPS: $0.83
      Profit Margin: 39.8%
      Market Cap: $1083 million

      Balance Sheet
      Cash: $110.4 million
      Current Assets: $159.5 million
      Current Liabilities: $12.5 million
      Long-term Debt: N/A

      Ratios
      Price-to-earnings: 45.9
      Price-to-sales: 18.5

HOW COULD YOU HAVE FOUND THIS DOUBLE?

With more than $4 a share in debt-free cash and stunning 40% profit margins, it is easy to see how the February debacle may have been an overreaction. While having a place in the next generation of Windows NT software was critical, the company was also forging alliances with companies such as ENTEX, Cubix and Compaq. All of this was happening to a company that already had solid relationships with companies like Novell and Zenith.

As for Microsoft, a company under the watchful eyes of the FTC, the threat of developing a similar thin-client/server solution internally could very well have been taken as nothing other than a shrewd negotiation tactic. With the cash-rich Citrix stock price pummeled, it may actually have been eyed as an acquisition target rather than an adversary to the operating systems behemoth.

WHERE TO FROM HERE?

The May 12 deal struck with Microsoft will prove lucrative to Citrix. The company will receive $75 million initially and up to $100 million in royalties. Add that to the $110 million cash hoard and it is theoretically more than $10.50 in cash per share. Of course, that is in theory, since there are taxes to be paid on the windfall, and with the stock at $38 there is no need to rub salt in the wounds of the panic seller who sold his shares at $9 3/4 back in February.

Shares of Citrix have quadrupled over the past few months, yet are still trading for less than when a Robertson Stephens upgrade vaulted the stock over $50 back in January. One can also speculate that it was those rich margins, which had Wall Street salivating, that also had Microsoft drooling at the notion of cutting out the middleman.

In the end, all worked out well for Citrix, and now that the rocky relationship with Microsoft has been restored, analysts are beginning to once again hike up earnings estimates. As part of the new licensing deal, Microsoft will endorse Citrix as the preferred way to provide multi-user Windows access for devices other than Windows clients for the next 2 1/2 years. So, for the next 30 months monogamy will rule supreme. And a moratorium on falling petals until at least the year 2000.

-Rick Aristotle Munarriz ([email protected])

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