CITRIX SYSTEMS, INC. From time to time, information provided by us or statements made by our employees contain "forward-looking" information that involves risks and uncertainties. In particular, statements contained in this Quarterly Report on Form 10-Q that are not historical facts, including, but not limited to, statements concerning our strategy and operational and growth initiatives, our transition to a subscription-based business model, our expansion of cloud-delivered services, changes in our product and service offerings and features, financial information and results of operations for future periods, revenue trends, the impacts of the COVID-19 pandemic and related market and economic conditions on our business, results of operations and financial condition, customer demand, business continuity, risk mitigation and expectations regarding remote work, the resiliency of our solutions and business model, expectations regarding our customers' spending during a weak economic environment, seasonal factors or ordering patterns, stock-based compensation, international operations, investment transactions and valuations of investments and derivative instruments, restructuring charges, reinvestment or repatriation of foreign earnings, fluctuations in foreign exchange rates, tax estimates and other tax matters, liquidity, stock repurchases and dividends, our debt, changes in accounting rules or guidance, acquisitions, litigation matters, and the security of our network, products and services, constitute forward-looking statements and are made under the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are neither promises nor guarantees. Readers are directed to the risks and uncertainties identified in Part I, Item 1A, "Risk Factors", in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , as updated by Part II, Item 1A in this Quarterly Report on Form 10-Q for additional detail regarding factors that may cause actual results to be different than those expressed in our forward-looking statements. Such factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q or presented elsewhere by our management from time to time. Such factors, among others, could have a material adverse effect upon our business, results of operations and financial condition. We caution readers not to place undue reliance on any forward-looking statements, which only speak as of the date made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made. Overview Management's discussion and analysis of financial condition and results of operations is intended to help the reader understand our financial condition and results of operations. This section is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for the three and six months endedJune 30, 2020 . The results of operations for the periods presented in this report are not necessarily indicative of the results expected for the full year or for any future period, due in part to the seasonality of our business. Historically, our revenue for the fourth quarter of any year is typically higher than our revenue for the first quarter of the subsequent year. During the first quarter of 2020, this historical trend was impacted by the COVID-19 pandemic.Citrix is an enterprise software company focused on helping customers improve the productivity and user experience of their most valuable assets, their employees. We do this by creating a digital workspace that provides unified, secure, and reliable access to all applications and content employees need to be productive - anytime, anywhere, on any device. Our Networking solutions, which can be consumed via hardware or software, complement our Workspace solutions by delivering applications and data employees need across any network with security, reliability and speed. We market and license our solutions through multiple channels worldwide, including selling through resellers and direct over the Web. Our partner community comprises thousands of value-added resellers, or VARs, known asCitrix Solution Advisors , value-added distributors, or VADs, systems integrators, or SIs, independent software vendors, or ISVs, original equipment manufacturers, or OEMs, and Citrix Service Providers, or CSPs. We are aDelaware corporation incorporated onApril 17, 1989 . Executive Summary During the three months endedJune 30, 2020 , our subscription model transition regained momentum, with strong demand for our Workspace and Networking solutions. We believe that our second quarter performance reflects the confidence of our customers inCitrix's vision and the critical roleCitrix's solutions have in helping customers drive continued sustainable growth over the long-term aided by the secular shifts towards remote work, security and employee experience. As we continue to progress through our subscription model transition, we plan to discontinue offering new perpetual licenses for Citrix Workspace beginning onOctober 1, 2020 . While there will be exceptions made for certain customers in specific industries or geographies, following this date the offering will no longer be generally available for new or existing 35 -------------------------------------------------------------------------------- customers. After this time, customers will have the option of acquiring new Citrix Workspace seats in the form of on-premises subscription or SaaS offerings. Longer term, our subscription transition is expected to result in more sustainable, recurring revenue growth over time as less revenue comes from one-time product and licensing streams and more revenue comes from predictable, recurring streams that will be recognized in future periods. We believe that this dynamic is best captured in our Subscription and SaaS Annualized Recurring Revenue, or ARR. This operating metric represents the contracted recurring value of all termed subscriptions normalized to a one-year period. It is calculated at the end of a reporting period by taking each contract's recurring total contract value and dividing by the length of the contract. ARR includes only active contractually committed, fixed subscription fees. Our definition of ARR includes contracts expected to recur and therefore excludes contracts with durations of 12 months or less where licenses were issued to address extraordinary business continuity events for our customers. All contracts are annualized, including 30 day offerings where we take monthly recurring revenue multiplied by 12 to annualize. ARR may be influenced by seasonality within the year. ARR should be viewed independently ofU.S. GAAP revenue, deferred revenue and unbilled revenue and is not intended to be combined with or to replace those items. ARR is not a forecast of future revenue. As we continue through this business model transition, we believe ARR is a key indicator of the overall health and trajectory of our business. Management uses ARR to monitor the growth of our subscription business. OnJanuary 21, 2020 , we entered into a Term Loan Credit Agreement that provided us with facilities to borrow term loans on an unsecured basis in an aggregate principal amount of up to$1.00 billion , consisting of (1) a$500.0 million 364-day term loan facility (the "364-day Term Loan"), and (2) a$500.0 million 3-year term loan facility (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. OnJanuary 21, 2020 , our Board of Directors approved an increase of an additional$1.00 billion in authorized repurchase authority to our existing share repurchase program. OnJanuary 30, 2020 , we borrowed$1.00 billion under the term loans and used the proceeds from our Term Loan Credit Agreement to enter into accelerated share repurchase transactions ("ASR") with each ofGoldman Sachs & Co. LLC andWells Fargo Bank, National Association (each, a "Dealer") for an aggregate of$1.00 billion . Under the ASR transactions, we received an initial share delivery of 6.5 million shares of our common stock, with the remainder, if any, delivered upon completion of the ASR transactions. The price per share under the ASR is subject to adjustment and is expected to equal the average of the daily volume-weighted average prices of our common stock during the term of the applicable ASR agreement, less a discount. The ASR is expected to be completed by the end of the third quarter of 2020. The ASR was entered into pursuant to our existing share repurchase program. OnFebruary 25, 2020 , we issued$750.0 million of unsecured senior notes dueMarch 1, 2030 (the "2030 Notes"). The net proceeds from this offering were$738.1 million , after deducting the underwriting discount and estimated offering expenses payable by us. Net proceeds from this offering were primarily used to repay amounts outstanding under our unsecured Term Loan Credit Agreement. During the six months endedJune 30, 2020 , we used the net proceeds from the 2030 Notes and cash to repay$750.0 million under the Term Loan Credit Agreement. As ofJune 30, 2020 ,$250.0 million was outstanding under the Term Loan Credit Agreement. OnJuly 23, 2020 , we announced that our Board of Directors declared a$0.35 per share dividend payableSeptember 25, 2020 to all shareholders of record as of the close of business onSeptember 11, 2020 . Impact of COVID-19 Pandemic InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 to be a pandemic, which continues to spread throughout theU.S. and the world. The impact from the rapidly changing market and economic conditions due to the COVID-19 outbreak remains uncertain. It has disrupted the business of our customers and partners, will impact our business and consolidated results of operations and could impact our financial condition in the future. While we have not incurred significant disruptions thus far from the COVID-19 outbreak, we are unable to accurately predict the full impact that COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to the business of our customers and partners and other factors identified in Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q. We also believe that our financial resources will allow us to manage the anticipated impact of COVID-19 on our business operations for the foreseeable future, which could include reductions in revenue and delays in payments from customers and partners. However, we are continuing to monitor the situation and are reviewing our preparedness plans should we begin to experience material impacts. 36 -------------------------------------------------------------------------------- Impact of COVID-19 on our Second Quarter Results To provide a flexible solution to help our customers manage through this period, in the first quarter of 2020, we created a short-term on-premises term subscription license at discounted prices. This limited-use license program was intended to help our customers manage through the shock to the system created by the pandemic. We phased out this short-term license program at the end ofApril 2020 . The contribution from this limited-use license program was not material in the second quarter of 2020. Impact of COVID-19 on our Outlook and Liquidity With respect to the latter part of 2020 and into 2021, the broader toll COVID-19 may take on the global economy and the slope of the economic recovery is unknown. We believe that our solutions and our business model are resilient. However, given the unknown magnitude, in terms of depth and duration, of this crisis, we view the increased demand we experienced in the first half of the year, as a potential offset against what could prove to be a more challenging macroeconomic environment in the second half of the year. Longer term, we believe this global health crisis will cause companies and their employees to change the way they think about remote work. We expect business continuity and risk mitigation to rise as areas of importance in boardroom discussions and on IT priority lists. We believe a greater number of employees will expect to continue to be able to work remotely, at least some of the time, even as social distancing restrictions abate. Cash from operations, accounts receivable and revenues could also be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part II, Item 1A titled "Risk Factors" of this Quarterly Report on Form 10-Q. However, based on our current revenue outlook, we believe that existing cash balances, together with funds generated from operations and amounts available under our revolving credit facility, will be sufficient to finance our operations and meet our foreseeable cash requirements through at least the next twelve months. We have availed ourselves of certain tax deferrals allowed pursuant to the CARES Act in theU.S. and certain tax deferrals inSwitzerland , and may continue to do so in the future. We are evaluating the impact of global COVID-19-related laws and proposed laws, and while there is an impact on the timing of cash flow, no material impact to our financial results is expected as a result of legislation enacted to date. In addition, while the pandemic has not materially impacted our liquidity and capital resources to date, it has led to increased disruption and volatility in capital markets and credit markets which could adversely affect our liquidity and capital resources in the future. Other Impacts of COVID-19 InMarch 2020 , we directed our global workforce to work from home and severely limited all international and domestic travel. We have extended our paid time-off and sick leave benefits for employees directly impacted by COVID-19 or caring for children or a member of their household impacted by COVID-19. We provided$1,000 per employee below the Vice President level to cover expenses related to transitioning to a work from home environment, helping support local restaurants and small businesses or charities, or lessening any other potential hardship. We also offer local employee assistance program resources if needed. Certain of our offices have re-opened and we continue to monitor developments at the local level and follow mandates as required by law. For offices that have re-opened, we have implemented new protocols to ensure the safety of our employees, including face coverings, temperature checks, social distancing and capacity limits. In response to the COVID-19 pandemic, we expect to hold our largest customer and partner event, Synergy, as a series of virtual events, and we may deem it advisable to similarly alter, postpone or cancel additional customer, employee or industry events in the future. We have also increased funding for corporate citizenship directed donations and created a relief recovery fund for the COVID-19 outbreak, doubled our charitable match for employee donations, continued to pay vendors no longer providing on-site services, and set up virtual volunteering opportunities. Summary of Results For the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 , a summary of our results included: •Total net revenue increased 6.7% to$798.9 million ; •Subscription revenue increased 56.2% to$243.5 million ; •SaaS revenue increased 43.2% to$130.6 million ; •Product and license revenue decreased 7.6% to$129.9 million ; •Support and services revenue decreased 5.9% to$425.5 million ; •Gross margin as a percentage of revenue decreased 0.5% to 84.7%; 37 -------------------------------------------------------------------------------- •Operating income increased 22.7% to$143.7 million ; •Diluted net income per share increased 28.6% to$0.90 ; •Unbilled revenue increased$382.6 million to$866.9 million ; •Subscription ARR increased$334.2 million to$948.6 million ; and •SaaS ARR increased$172.0 million to$590.0 million . Our Subscription revenue increased primarily due to an increase in on-premise license demand, mostly from our Workspace offerings and our Networking offerings, primarily from pooled capacity. Also contributing to the increase is continued customer adoption of our solutions delivered via the cloud. Our Product and license revenue decreased primarily due to lower sales of our perpetual Workspace solutions as customers continue to shift to our subscription offerings. The decrease in Support and services revenue was primarily due to decreased sales of maintenance services across our perpetual Workspace and Networking offerings and professional services, as more of the revenue is reported in the Subscription revenue line commensurate with our subscription model transition. We currently expect total revenue to increase when comparing the third quarter of 2020 to the third quarter of 2019 and when comparing the fiscal year 2020 to the fiscal year 2019 due to the acceleration of our transition to a subscription-based model. The increase in operating income was primarily due to an increase in gross margin partially offset by higher operating expenses. The increase in diluted net income per share was primarily due to an increase in operating income and a decrease in the number of weighted average shares outstanding due to share repurchases. Both Subscription and SaaS ARR increased due to the acceleration of subscription bookings. Critical Accounting Policies and Estimates Our discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. We base these estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances, and these estimates form the basis for our judgments concerning the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically evaluate these estimates and judgments based on available information and experience. Actual results could differ from our estimates under different assumptions and conditions. If actual results significantly differ from our estimates, our financial condition and results of operations could be materially impacted. For more information regarding our critical accounting policies and estimates, please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" contained in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , or the Annual Report, and Note 2 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. There have been no material changes to the critical accounting policies disclosed in the Annual Report. 38 -------------------------------------------------------------------------------- Results of Operations The following table sets forth our unaudited condensed consolidated statements of income data and presentation of that data as a percentage of change from period-to-period (in thousands): Three Six Three Months Ended Six Months Ended Months Months Ended Ended June 30, June 30, June 30, June 30, 2020 2019 2020 2019 2020 vs. 2019 2020 vs. 2019 Revenues: Subscription$ 243,450 $ 155,833 $ 511,686 $ 297,439 56.2 % 72.0 % Product and license 129,933 140,654 302,791 275,676 (7.6) 9.8 Support and services 425,546 452,210 845,397 894,725 (5.9) (5.5) Total net revenues 798,929 748,697 1,659,874 1,467,840 6.7 13.1 Cost of net revenues: Cost of subscription, support and services 93,877 78,817 179,917 150,245 19.1
19.7
Cost of product and license revenues 20,060 21,878 41,316 47,622 (8.3)
(13.2)
Amortization of product related intangible assets 8,303 9,784 16,584 20,085 (15.1) (17.4) Total cost of net revenues 122,240 110,479 237,817 217,952 10.6 9.1 Gross margin 676,689 638,218 1,422,057 1,249,888 6.0 13.8 Operating expenses: Research and development 140,477 134,029 274,935 264,292 4.8 4.0 Sales, marketing and services 291,511 298,429 617,620 573,084 (2.3) 7.8 General and administrative 90,808 81,162 170,907 158,709 11.9 7.7 Amortization of other intangible assets 694 3,205 1,396 6,734 (78.3) (79.3) Restructuring 9,528 4,311 11,981 7,143 121.0 67.7 Total operating expenses 533,018 521,136 1,076,839 1,009,962 2.3 6.6 Income from operations 143,671 117,082 345,218 239,926 22.7 43.9 Interest income 589 3,870 2,194 13,544 (84.8) (83.8) Interest expense (17,076) (10,289) (31,687) (28,322) 66.0 11.9 Other income (expense), net 1,911 (3,420) 4,009 279 (155.9) * Income before income taxes 129,095 107,243 319,734 225,427 20.4 41.8 Income tax expense 16,189 13,748 25,606 21,584 17.8 18.6 Net income$ 112,906 $ 93,495 $ 294,128 $ 203,843 20.8 % 44.3 % *Not meaningful 39
--------------------------------------------------------------------------------
Revenues
Net revenues include Subscription, Product and license and Support and services
revenues.
Subscription revenue relates to fees which are generally recognized ratably over
the contractual term. Our subscription revenue includes SaaS, which 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; and non-SaaS, which consists primarily of
on-premise licensing, hybrid subscription offerings, CSP services and the
related support. Our hybrid subscription offerings are allocated between SaaS
and non-SaaS, which are generally recognized at a point in time. In addition,
our CSP program provides subscription-based services in which the CSP partners
host software services to their end users. The fees from the CSP program are
recognized based on usage and as the CSP services are provided to their end
users.
Product and license revenue primarily represents fees related to the perpetual
licensing of the following major solutions:
•Workspace is primarily comprised of our Application Virtualization solutions,
which include Citrix Virtual Apps and Desktops, our unified endpoint management
solutions, which include Citrix Endpoint Management, Citrix Content
Collaboration, and Citrix Workspace; and
•Networking products, which primarily include Citrix ADC and Citrix SD-WAN.
We offer incentive programs to our VADs and VARs to stimulate demand for our
solutions. Product and license and Subscription revenues associated with these
programs are partially offset by these incentives to our VADs and VARs.
Support and services revenue consists of maintenance and support fees primarily
related to our perpetual offerings and include the following:
•Customer Success Services, which gives customers a choice of tiered support
offerings that combine the elements of product version upgrades, guidance,
enablement, support and proactive monitoring to help our customers and our
partners fully realize their business goals. Fees associated with this offering
are recognized ratably over the term of the contract; and
•Hardware maintenance fees for our perpetual Networking products, which include
technical support and hardware and software maintenance, are recognized ratably
over the contract term; and
•Fees from consulting services related to the implementation of our solutions,
which are recognized as the services are provided; and
•Fees from product training and certification, which are recognized as the
services are provided.
Three Six
Three Months Ended Six Months Ended Months Months
Ended Ended
June 30, June 30, June 30, June 30,
2020 2019 2020 2019 2020 vs. 2019 2020 vs. 2019
(in thousands)
Subscription $ 243,450 $ 155,833 $
511,686
129,933 140,654 302,791 275,676 (10,721) 27,115
Support and services 425,546 452,210 845,397 894,725 (26,664) (49,328)
Total net revenues$ 798,929 $ 748,697 $ 1,659,874 $ 1,467,840 $ 50,232 $ 192,034 Subscription Subscription revenue increased for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 primarily due to an increase in on-premise license demand of$48.2 million , mostly from our Workspace offerings of$29.7 million and our Networking offerings of$18.5 million , primarily from pooled capacity. Also contributing to the increase is continued customer adoption of our solutions delivered via the cloud of$39.4 million , primarily from our Workspace offerings. Subscription revenue increased for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 primarily due to an increase in on-premise license demand of$137.7 million , mostly from our Workspace offerings of$90.7 million driven by business continuity sales in the first quarter of 2020 and our Networking offerings of$47.0 million , primarily from pooled capacity. Also contributing to the increase is continued customer adoption of our solutions delivered via the cloud of$76.5 million , primarily from our Workspace offerings. 40 -------------------------------------------------------------------------------- We currently expect our Subscription revenue to increase when comparing the third quarter of 2020 to the third quarter of 2019 as customers continue to shift to our subscription offerings. Product and license Product and license revenue decreased when comparing the three months endedJune 30, 2020 to the three months endedJune 30, 2019 primarily due to lower sales of our perpetual Workspace offerings, as customers continue to shift to our subscription offerings. Product and license revenue increased when comparing the six months endedJune 30, 2020 to the six months endedJune 30, 2019 primarily due to higher sales of our perpetual Workspace offerings of$43.8 million , mostly from business continuity sales in response to the COVID-19 pandemic in the first quarter of 2020, partially offset by lower sales of our perpetual Networking products of$16.6 million . We currently expect our Product and license revenue to decrease when comparing the third quarter of 2020 to the third quarter of 2019 as customers continue to shift to our subscription offerings and away from our Networking hardware products, as well as our announced plan to discontinue offering new perpetual licenses for Citrix Workspace beginning onOctober 1, 2020 . Support and services Support and services revenue decreased for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 primarily due to decreased sales of maintenance services across our Workspace perpetual offerings of$11.1 million , Networking perpetual offerings of$8.2 million and professional services of$7.4 million , as more of the revenue is reported in the Subscription revenue line commensurate with our subscription model transition. Support and services revenue decreased for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 primarily due to decreased sales of maintenance services across our Workspace perpetual offerings of$23.2 million , Networking perpetual offerings of$12.8 million and professional services of$13.3 million , as more of the revenue is reported in the Subscription revenue line commensurate with our subscription model transition. We currently expect our Support and services revenue to decrease when comparing the third quarter of 2020 to the third quarter of 2019 as customers continue to shift to our subscription offerings. Deferred Revenue, Unbilled Revenue and Backlog Deferred revenue is primarily comprised of Support and services revenue from maintenance fees, which include software and hardware maintenance, technical support related to our perpetual offerings and services revenue related to our consulting contracts. Deferred revenue also includes Subscription revenue from our Content Collaboration and cloud-based subscription offerings. Deferred revenue primarily consists of billings or payments received in advance of revenue recognition and is recognized in our condensed consolidated balance sheets and statements of income as the revenue recognition criteria are met. Unbilled revenue primarily represents future billings under our subscription agreements that have not been invoiced and, accordingly, are not recorded in accounts receivable or deferred revenue within our condensed consolidated financial statements. Deferred revenue and unbilled revenue are influenced by several factors, including new business seasonality within the year, the specific timing, size and duration of customer subscription agreements, annual billing cycles of subscription agreements, and invoice timing. Fluctuations in deferred and unbilled revenue may not be a reliable indicator of future performance and the related revenue associated with these contractual commitments. The following table presents the amounts of deferred revenue and unbilled revenue (in thousands): June 30, 2020 December 31, 2019 2020 compared to 2019 Deferred revenue$ 1,787,630 $ 1,795,791 $ (8,161) Unbilled revenue 866,856 704,829 162,027 Deferred revenue decreased$8.2 million as ofJune 30, 2020 compared toDecember 31, 2019 primarily due to a decrease in maintenance and support of$88.1 million , mostly from Workspace perpetual software maintenance of$56.2 million and Networking perpetual hardware maintenance of$23.3 million , partially offset by an increase from subscription of$81.4 million . Unbilled revenue as ofJune 30, 2020 increased$162.0 million fromDecember 31, 2019 primarily due to increased customer adoption of multi-year subscription agreements. 41 -------------------------------------------------------------------------------- While it is generally our practice to promptly ship our products upon receipt of properly finalized orders, at any given time, we have confirmed product license orders that have not shipped and are unfulfilled. Backlog includes the aggregate amounts we expect to recognize as point in time revenue in the following quarter associated with contractually committed amounts for on-premise subscription software licenses, as well as confirmed product license orders that have not shipped and are wholly unfulfilled. As ofJune 30, 2020 andJune 30, 2019 , the amount of backlog was not material. We do not believe that backlog, as of any particular date, is a reliable indicator of future performance. International Revenues International revenues (sales outsidethe United States ) accounted for 50.7% and 47.0% of our net revenues for the three months endedJune 30, 2020 , andJune 30, 2019 , respectively. The increase in our international revenues as a percentage of our net revenues for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 was primarily due to the first quarter of 2020 including a higher volume of business continuity sales inthe United States , which impacted the mix of international revenues during the second quarter of 2020. International revenues (sales outsidethe United States ) accounted for 49.8% and 48.0% of our net revenues for the six months endedJune 30, 2020 , andJune 30, 2019 , respectively. The change in our international revenues as a percentage of our net revenues was not significant. See Note 10 to our condensed consolidated financial statements for detailed information on net revenues by geography. Cost of Net Revenues Three Six Three Months Ended Six Months Ended Months Months Ended Ended June 30, June 30, June 30, June 30, 2020 2019 2020 2019 2020 vs. 2019 2020 vs. 2019 (In thousands) Cost of subscription, support and services revenues$ 93,877 $ 78,817 $ 179,917 $ 150,245 $ 15,060 $ 29,672 Cost of product and license revenues 20,060 21,878 41,316 47,622 (1,818) (6,306) Amortization of product related intangible assets 8,303 9,784 16,584 20,085 (1,481) (3,501) Total cost of net revenues$ 122,240 $ 110,479 $ 237,817 $ 217,952 $ 11,761 $ 19,865 Cost of subscription, support and services revenues consists primarily of compensation and other personnel-related costs of providing technical support, consulting and cloud capacity costs, as well as the costs related to providing our offerings delivered via the cloud. Cost of product and license revenues consists primarily of hardware, shipping expense, royalties, product media and duplication, manuals and packaging materials. Also included in cost of net revenues is amortization of product related intangible assets. Cost of subscription, support and services revenues increased for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 and for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 primarily due to an increase in costs related to providing our subscription offerings. We currently expect Cost of subscription, support and services revenues to increase when comparing the third quarter of 2020 to the third quarter of 2019, consistent with the expected increases in Subscription revenue as discussed above. Cost of product and license revenues decreased for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 and for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 primarily due to lower overall sales of our perpetual Networking products, which contain hardware components that have a higher cost than our software products. We currently expect Cost of product and license revenues to decrease when comparing the third quarter of 2020 to the third quarter of 2019, consistent with the expected decrease in Product and license revenue. Amortization of product related intangible assets decreased for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 and for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 primarily due to lower amortization of certain intangible assets becoming fully amortized. Gross Margin Gross margin as a percentage of revenue was 84.7% for the three months endedJune 30, 2020 , and 85.2% for the three months endedJune 30, 2019 , respectively, and 85.7% for the six months endedJune 30, 2020 , and 85.2% for the six months endedJune 30, 2019 , respectively. The change in gross margin when comparing the three and six months endedJune 30, 2020 toJune 30, 2019 was not significant. 42 -------------------------------------------------------------------------------- Operating Expenses Foreign Currency Impact on Operating Expenses The functional currency for all of our wholly-owned foreign subsidiaries is theU.S. dollar. A substantial majority of our overseas operating expenses and capital purchasing activities are transacted in local currencies and are therefore subject to fluctuations in foreign currency exchange rates. In order to minimize the impact on our operating results, we generally initiate our hedging of currency exchange risks up to 12 months in advance of anticipated foreign currency expenses. 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 our 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 our hedging contracts. There is a risk that there will be fluctuations in foreign currency exchange rates beyond the time frame for which we hedge our risk. Research and Development Expenses Three Six Three Months Ended Six Months Ended Months Months Ended Ended June 30, June 30, June 30, June 30, 2020 2019 2020 2019 2020 vs. 2019 2020 vs. 2019 (In thousands) Research and development$ 140,477 $ 134,029 $ 274,935 $ 264,292 $ 6,448 $ 10,643 Research and development expenses consist primarily of personnel related costs and facility and equipment costs directly related to our research and development activities. We expensed substantially all development costs included in the research and development of our products. Research and development expenses increased during the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 primarily due to stock-based compensation. Research and development expenses increased during the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 primarily due to compensation and other employee-related costs related to a net increase in headcount. Sales, Marketing and Services Expenses Three Six Three Months Ended Six Months Ended Months Months Ended Ended June 30, June 30, June 30, June 30, 2020 2019 2020 2019 2020 vs. 2019 2020 vs. 2019 (In thousands)
Sales, marketing and services
Sales, marketing and services expenses consist primarily of personnel related costs, including sales commissions, pre-sales support, the costs of marketing programs aimed at increasing revenue, such as brand development, advertising, trade shows, public relations and other market development programs and costs related to our facilities, equipment, information systems and pre-sale demonstration related cloud capacity costs that are directly related to our sales, marketing and services activities. Sales, marketing and services expenses decreased during the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 primarily due to the cancellation of in-person events in response to the COVID-19 pandemic of$15.1 million , including our largest customer and partner event, Synergy, and replacing them with virtual events or postponing to future periods. This decrease was partially offset by an increase in marketing program costs of$9.7 million . Sales, marketing and services expenses increased during the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 primarily due to the impact from the COVID-19 pandemic, which included an increase in variable compensation of$39.6 million driven by an increase in demand of limited use licenses and ongoing business continuity sales, and an increase in marketing programs of$10.7 million . These increases were partially offset by a decrease in costs of$12.6 million related to the cancellation of in-person events in response to the COVID-19 pandemic, including our largest customer and partner event, Synergy, and replacing them with virtual events or postponing to future periods. 43 --------------------------------------------------------------------------------
General and Administrative Expenses
Three Six
Three Months Ended Six Months Ended Months Months
Ended Ended
June 30, June 30, June 30, June 30,
2020 2019 2020 2019 2020 vs. 2019 2020 vs. 2019
(In thousands)
General and administrative $ 90,808 $ 81,162 $ 170,907 $ 158,709 $ 9,646 $ 12,198
General and administrative expenses consist primarily of personnel related costs
and expenses related to outside consultants assisting with information systems,
as well as accounting and legal fees.
General and administrative expenses increased during the three months ended
June 30, 2020 compared to the three months ended June 30, 2019 primarily due to
stock-based compensation costs of $7.6 million , an increase in compensation and
employee-related costs of $3.2 million , and an increase in credit loss expense
of $2.4 million , primarily due to the impact of the COVID-19 pandemic. These
increases were partially offset by a decrease in professional fees of $4.8
million .
General and administrative expenses increased during the six months ended
June 30, 2020 compared to the six months ended June 30, 2019 primarily due to
the impact from the COVID-19 pandemic, which included an increase in credit loss
expense of $8.8 million , an increase in compensation and other employee-related
costs of $8.1 million , an increase in stock-based compensation costs of $5.9
million , and an increase in charitable contributions of $5.6 million . These
increases were partially offset by a decrease in professional fees of $15.1
million .
Restructuring Expenses
Three Six
Three Months Ended Six Months Ended Months Months
Ended Ended
June 30, June 30, June 30, June 30,
2020 2019 2020 2019 2020 vs. 2019 2020 vs. 2019
(In thousands)
Restructuring $ 9,528 $ 4,311 $ 11,981 $ 7,143 $ 5,217 $ 4,838
Restructuring expenses increased during the three months ended June 30, 2020
compared to the three months ended June 30, 2019 primarily due to the impairment
of a right-of-use ("ROU") asset related to a restructuring facility of $8.9
million as a result of the COVID-19 pandemic, partially offset by a decrease in
employee severance and related costs of $3.7 million .
Restructuring expenses increased during the six months ended June 30, 2020
compared to the six months ended June 30, 2019 primarily due to the impairment
of an ROU asset related to a restructuring facility of $8.9 million as a result
of the COVID-19 pandemic, partially offset by a decrease in employee severance
and related costs of $4.0 million .
See Note 17 to our condensed consolidated financial statements for additional
details regarding our restructuring charges.
2020 Operating Expense Outlook
When comparing the third quarter of 2020 to the third quarter of 2019, we
currently expect Operating expenses to increase due to continued investment to
support our cloud transition and higher compensation related expenses.
Interest Income
Three Six
Three Months Ended Six Months Ended Months Months
Ended Ended
June 30, June 30, June 30, June 30,
2020 2019 2020 2019 2020 vs. 2019 2020 vs. 2019
(In thousands)
Interest income $ 589 $ 3,870 $ 2,194 $ 13,544 $ (3,281) $ (11,350)
Interest income primarily consists of interest earned on our cash, cash
equivalents and investment balances. Interest income decreased for the three
months ended June 30, 2020 compared to the three months ended June 30, 2019
primarily due to lower yields on investments as a result of lower interest
rates.
Interest income decreased for the six months ended June 30, 2020 compared to the
six months ended June 30, 2019 primarily due to lower average balances of cash,
cash equivalents and investments as a result of the repayment of the outstanding
principal balance of our Convertible Notes on April 15, 2019 , as well as lower
yields on investments as a result of lower interest rates. See Note 6 to our
condensed consolidated financial statements for additional details regarding our
investments.
44
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Interest Expense
Three Six
Three Months Ended Six Months Ended Months Months
Ended Ended
June 30, June 30, June 30, June 30,
2020 2019 2020 2019 2020 vs. 2019 2020 vs. 2019
(In thousands)
Interest expense $ (17,076) $ (10,289) $
(31,687)
Interest expense primarily consists of interest paid on our 2027 and 2030 Notes, Term Loan Credit Agreement and our credit facility. Interest expense increased for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 primarily due to interest expense from our outstanding 2030 Notes and Term Loan Credit Agreement of$8.3 million , partially offset by a decrease in interest expense from our Convertible Notes of$1.5 million due to the repayment of the outstanding principal balance onApril 15, 2019 . Interest expense increased for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 primarily due to interest expense from our outstanding 2030 Notes and Term Loan Credit Agreement of$14.1 million , partially offset by a decrease in interest expense from our Convertible Notes of$10.8 million due to the repayment of the outstanding principal balance onApril 15, 2019 . See Note 11 to our condensed consolidated financial statements for additional details regarding our debt. Other income (expense), net Three Six Three Months Ended Six Months Ended Months Months Ended Ended June 30, June 30, June 30, June 30, 2020 2019 2020 2019 2020 vs. 2019 2020 vs. 2019 (In thousands) Other income (expense), net$ 1,911 $ (3,420) $ 4,009 $ 279 $ 5,331 $ 3,730 Other income (expense), net is primarily comprised of gains (losses) from remeasurement of foreign currency transactions, sublease income, realized losses related to changes in the fair value of our investments that have a decline in fair value and recognized gains (losses) related to our investments, which was not material for all periods presented. The change in Other income (expense), net during the three and six months endedJune 30, 2020 compared to the three and six months endedJune 30, 2019 is primarily driven by the remeasurement and settlement of foreign currency transactions. Income Taxes We are required to estimate our income taxes in each of the jurisdictions in which we operate as part of the process of preparing our condensed consolidated financial statements. We maintain certain strategic management and operational activities in overseas subsidiaries and our foreign earnings are taxed at rates that are generally lower than inthe United States . Our effective tax rate generally differs from theU.S. federal statutory rate primarily due to tax credits and lower tax rates on earnings generated by our foreign operations that are taxed primarily inSwitzerland . Our effective tax rate was 12.5% and 12.8% for the three months endedJune 30, 2020 and 2019, respectively. When comparing the three months endedJune 30, 2020 to the three months endedJune 30, 2019 , the effective tax rate did not materially change. Our effective tax rate was 8.0% and 9.6% for the six months endedJune 30, 2020 and 2019, respectively. The decrease in the effective tax rate when comparing the six months endedJune 30, 2020 to the six months endedJune 30, 2019 was primarily due to an increase in the discrete tax benefits for share-based payments and a tax benefit for the impact of the closure of aCalifornia audit during the six month period endedJune 30, 2020 . OurU.S. liquidity needs are currently satisfied using cash flows generated from ourU.S. operations, borrowings, or both. We also utilize a variety of tax planning strategies in an effort to ensure that our worldwide cash is available in locations in which it is needed. We expect to repatriate a substantial portion of our 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. See Note 14 to our condensed consolidated financial statements for additional details regarding our income taxes. 45 -------------------------------------------------------------------------------- Liquidity and Capital Resources During the six months endedJune 30, 2020 , we generated operating cash flows of$703.4 million . These operating cash flows related primarily to net income of$294.1 million , adjusted for, among other things, non-cash charges, stock-based compensation expense of$143.7 million and depreciation and amortization expenses of$104.9 million and a change in operating assets and liabilities of$160.2 million . The change in our operating assets and liabilities was mostly the result of an inflow from accounts receivable of$95.3 million , primarily due to an increase in collections from prior period sales, an inflow from accrued expenses and other current liabilities of$38.0 million , primarily due to an increase in employee-related accruals, and an inflow from accounts payable of$37.9 million , primarily due to cloud hosting fees. These inflows are partially offset by an outflow in other assets of$39.5 million , primarily due to an increase in capitalized commissions from higher subscription sales. Our investing activities used$289.7 million of cash consisting primarily of net purchases of investments of$265.4 million and cash paid for the purchase of property and equipment of$21.1 million . Our financing activities used cash of$400.2 million primarily for stock repurchases of$1.00 billion , amounts paid for but not settled under our accelerated stock repurchase program of$200.0 million , cash paid for tax withholding on vested stock awards of$101.2 million and cash dividends on our common stock of$86.1 million . These outflows are partially offset by net proceeds from the issuance of our 2030 Notes of$738.1 million and net borrowings from our Term Loan Credit Agreement of$248.8 million . During the six months endedJune 30, 2019 , we generated operating cash flows of$429.9 million . These operating cash flows related primarily to net income of$203.8 million , adjusted for, among other things, non-cash charges, stock-based compensation expense of$133.6 million , depreciation and amortization expenses of$109.1 million , and deferred income tax expense of$18.9 million . Partially offsetting these cash inflows was a change in operating assets and liabilities of$50.3 million . The change in our net operating assets and liabilities was primarily a result of an outflow in deferred revenue of$89.9 million , an outflow in income taxes, net of$67.3 million due to decreases in income taxes payable, and an outflow in accrued expenses and other current liabilities of$62.8 million , primarily due to decreases in employee-related accruals of$39.7 million and payments on lease liabilities of$27.1 million . These outflows are partially offset by an inflow in accounts receivable of$155.2 million driven by an increase in collections and an inflow from prepaid expenses and other current assets of$22.7 million , primarily due to decreases from prepaid cloud commitment agreements. Our investing activities provided$1.03 billion of cash consisting primarily of cash received from the net proceeds from the sale of investments of$1.07 billion , partially offset by cash paid for the purchase of property and equipment of$38.1 million . Our financing activities used cash of$1.58 billion primarily due to the cash repayment of the outstanding principal balance of our Convertible Notes of$1.16 billion , stock repurchases of$250.0 million , cash dividends on our common stock of$91.9 million and cash paid for tax withholding on vested stock awards of$70.6 million . Term Loan Credit Agreement OnJanuary 21, 2020 , we entered into the Term Loan Credit Agreement withBank of America, N.A ., as administrative agent, and the other lenders party thereto from time to time (collectively, the "Lenders"). The Term Loan Credit Agreement provides us with facilities to borrow term loans on an unsecured basis in an aggregate principal amount of up to$1.00 billion , consisting of (1) a$500.0 million 364-day Term Loan, and (2) a$500.0 million 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. OnJanuary 30, 2020 , we borrowed$1.00 billion under the term loans and used the proceeds to enter into ASR transactions with each of the Dealers for an aggregate of$1.00 billion . See Notes 11 and 15 to our condensed consolidated financial statements for additional details on the Term Loan Credit Agreement and ASR. Senior Notes OnFebruary 25, 2020 , we issued$750.0 million of unsecured senior notes dueMarch 1, 2030 . The 2030 Notes accrue interest at a rate of 3.300% per annum. Interest on the 2030 Notes is due semi-annually onMarch 1 andSeptember 1 of each year, beginning onSeptember 1, 2020 . The net proceeds from this offering were$738.1 million , after deducting the underwriting discount and estimated offering expenses payable by us. Net proceeds from this offering were primarily used to repay amounts outstanding under our Term Loan Credit Agreement. The 2030 Notes will mature onMarch 1, 2030 , unless earlier redeemed in accordance with their terms prior to such date. During the six months endedJune 30, 2020 , we used the net proceeds from the 2030 Notes and cash to repay$500.0 million under the 364-day Term Loan and$250.0 million under the 3-year Term Loan. As ofJune 30, 2020 ,$250.0 million was outstanding under the 3-year Term Loan. OnNovember 15, 2017 , we issued$750.0 million of the 2027 Notes. The 2027 Notes accrue interest at a rate of 4.500% per annum. Interest on the 2027 Notes is due semi-annually onJune 1 andDecember 1 of each year, beginning onJune 1, 2018 . The 2027 Notes will mature onDecember 1, 2027 , unless earlier redeemed or repurchased in accordance with their terms prior 46 -------------------------------------------------------------------------------- to such date. See Note 11 to our condensed consolidated financial statements for additional details on the 2030 Notes and the 2027 Notes. Credit Facility OnNovember 26, 2019 , we entered into an amended and restated credit agreement (the "Credit Agreement") with a group of financial institutions, which amended and restated our existing credit agreement, datedJanuary 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. We 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. The proceeds of borrowings under the Credit Agreement may be used for working capital and general corporate purposes, including acquisitions. As ofJune 30, 2020 , no amounts were outstanding under the credit facility. See Note 11 to our condensed consolidated financial statements for additional details on the Credit Agreement. Convertible Notes During 2014, we completed a private placement of approximately$1.44 billion principal amount of 0.500% Convertible Notes due 2019. All Convertible Notes were converted by their beneficial owners prior to their maturity onApril 15, 2019 . In accordance with the terms of the indenture governing the Convertible Notes, onApril 15, 2019 we paid$1.16 billion in the outstanding aggregate principal amount of the Convertible Notes and delivered 4.9 million newly issued shares of our common stock in respect of the remainder of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted, in full satisfaction of such converted notes. We received shares of our common stock under the Bond Hedges that offset the issuance of shares of common stock upon conversion of the Convertible Notes. Please see Note 11 to our condensed consolidated financial statements for additional details on our Convertible Notes and Bond Hedges. Historically, significant portions of our cash inflows were generated by our operations. We currently expect this trend to continue throughout 2020. We believe that our existing cash and investments together with cash flows expected from operations will be sufficient to meet expected operating and capital expenditure requirements and service our debt obligations for the next 12 months. For additional information, see section titled Impact of COVID-19 Pandemic above. We continue to search for suitable acquisition candidates and could acquire or make investments in companies we believe are related to our strategic objectives. We could from time to time continue to seek to raise additional funds through the issuance of debt or equity securities for larger acquisitions and for general corporate purposes. Cash, Cash Equivalents and Investments 2020 Compared to June 30, 2020 December 31, 2019 2019 (In thousands) Cash, cash equivalents and investments$ 880,318
The increase in Cash, cash equivalents and investments when comparingJune 30, 2020 toDecember 31, 2019 , is primarily due to cash received from debt offerings of$987.0 million and cash provided by operating activities of$703.4 million , partially offset by the cash paid for share repurchases of$1.00 billion , amounts paid for but not settled under our accelerated stock repurchase program of$200.0 million , cash paid for tax withholding on vested stock awards of$101.2 million , cash dividends on our common stock of$86.1 million and cash paid for property and equipment of$21.1 million . As ofJune 30, 2020 ,$413.3 million of the$880.3 million of Cash, cash equivalents and investments was held by our foreign subsidiaries. The cash, cash equivalents and investments held by our foreign subsidiaries can be repatriated without incurring any additionalU.S. federal tax. Upon repatriation of these funds, we could be subject to foreign andU.S. state income taxes. The amount of taxes due is dependent on the amount and manner of the repatriation, as well as the locations from which the funds are repatriated and received. We generally invest our cash and cash equivalents in investment grade, highly liquid securities to allow for flexibility in the event of immediate cash needs. Our short-term and long-term investments primarily consist of interest-bearing securities. 47 -------------------------------------------------------------------------------- Stock Repurchase Programs Our Board of Directors authorized an ongoing stock repurchase program, of which$1.00 billion was approved inJanuary 2020 . We may use the approved dollar authority to repurchase stock at any time until the approved amount is exhausted. The objective of the stock repurchase program is to improve stockholders' returns. AtJune 30, 2020 ,$914.1 million ($714.1 million after taking into consideration the contracted but undelivered shares under the ASR of$200.0 million ) was available to repurchase common stock pursuant to the stock repurchase program. We may repurchase shares under this program in future periods depending on a variety of factors, including among other things, macroeconomic factors, market conditions and business priorities. 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. We are authorized to make purchases of our common stock using general corporate funds through open market purchases, pursuant to a Rule 10b5-1 plan or in privately negotiated transactions. OnJanuary 30, 2020 , we used the proceeds from our Term Loan Credit Agreement to enter into an ASR with a group of Dealers for an aggregate of$1.00 billion . Under the ASR transactions, we received an initial share delivery of 6.5 million shares of our common stock, with the remainder, if any, delivered upon completion of the ASR transactions. The total number of shares of common stock that we will repurchase under each ASR agreement will be based on the average of the daily volume-weighted average prices of our common stock during the term of the applicable ASR agreement, less a discount. At settlement, each Dealer may be required to deliver additional shares of common stock to us, under certain circumstances, we may be required to deliver shares of common stock, at our election, or make a cash payment to the applicable Dealer. Final settlement of the ASR agreement is expected to be completed by the end of the third quarter of 2020. See Note 15 to our condensed consolidated financial statements for detailed information on the ASR. During the three months endedJune 30, 2020 , we made no open market purchases under the stock repurchase program. During the six months endedJune 30, 2020 , we 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 . During the three months endedJune 30, 2019 , we expended$156.2 million on open market purchases under the stock repurchase program, repurchasing 1,599,822 shares of common stock at an average price of$97.63 . During the six months endedJune 30, 2019 , we expended$250.0 million on open market purchases under the stock repurchase program, repurchasing 2,510,882 shares of common stock at an average price of$99.57 . Shares for Tax Withholding During the three and six months endedJune 30, 2020 , we withheld 256,376 and 739,600 shares, respectively, from equity awards that vested, totaling$35.8 million and$101.2 million , respectively, to satisfy minimum tax withholding obligations that arose on the vesting of such equity awards. During the three and six months endedJune 30, 2019 , we withheld 104,129 and 698,117 shares, respectively, from equity awards that vested, totaling$10.4 million and$70.6 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 our condensed consolidated balance sheets and the related cash outlays do not reduce our total stock repurchase authority. Contractual Obligations With the exception of the new Term Loan Credit Agreement entered into onJanuary 21, 2020 , consisting of a$500.0 million 364-day Term Loan, and a$500.0 million 3-year Term Loan, and the$750.0 million 2030 Senior Notes issued onFebruary 25, 2020 , as discussed above under the subheading "Liquidity and Capital Resources", there have been no material changes, outside the ordinary course of business to our contractual obligations sinceDecember 31, 2019 . As ofJune 30, 2020 ,$250.0 million in principal amount was outstanding under the 3-year Term Loan. For further information, see "Contractual Obligations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 . Other Purchase Commitments InMay 2020 , we entered into an amended agreement with a third-party provider, in the ordinary course of business, for the use of certain cloud services throughJune 2029 . Under the amended agreement, we are committed to a purchase of$1.00 billion throughout the term of the agreement. As ofJune 30, 2020 , we had$987.9 million of remaining obligations under the purchase agreement. Off-Balance Sheet Arrangements We do not have any special purpose entities or off-balance sheet financing arrangements. 48
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