Citrix 2013 Annual Report Download - page 47

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Cost of Net Revenues
Year Ended December 31, 2013
Compared to
2012
2012
Compared to
2011
2013 2012 2011
(In thousands)
Cost of product and license revenues $ 114,932 $ 96,962 $ 74,393 $ 17,970 $ 22,569
Cost of services and maintenance revenues 289,990 227,150 164,465 62,840 62,685
Amortization of product related intangible assets 97,873 80,025 54,741 17,848 25,284
Total cost of net revenues $ 502,795 $ 404,137 $ 293,599 $ 98,658 $ 110,538
Cost of product and license revenues consists primarily of hardware, shipping expense, royalties, product media and
duplication, manuals and packaging materials. Cost of services and maintenance revenues consists primarily of compensation
and other personnel-related costs of providing technical support and consulting, as well as the costs related to providing our
SaaS, which includes the cost to support the voice and video offerings in our Collaboration products. Also included in Cost of
net revenues is amortization of product related intangible assets.
Cost of product and license revenues increased during 2013 when compared to 2012 and during 2012 when compared to
2011 primarily due to increased sales of our Networking and Cloud products, as described above, many of which contain
hardware components that have a higher cost than our other software products. We currently are targeting cost of product and
license revenues will increase when comparing the first quarter of 2014 to the first quarter of 2013 consistent with the targeted
increase in sales of our hardware products.
Cost of services and maintenance revenues increased during 2013 compared to 2012 consistent with the increase in sales
of our Collaboration products and cost for infrastructure to support the voice and video offerings in our Collaboration products
of $30.5 million. Also contributing to the increase in Cost of services and maintenance revenues is an increase in consulting
costs of $16.8 million and maintenance and support costs of $15.1 million related to increased sales of our Enterprise and
Service Provider division's products as described above. Cost of services and maintenance revenues increased during 2012
compared to 2011 consistent with the increase in sales of our Collaboration products and continuing investment in
infrastructure to support the voice and video offerings in our Collaboration products of $20.0 million. Also contributing to the
increase in Cost of services and maintenance revenues is an increase in maintenance and support costs of $16.6 million and
consulting costs of $15.7 million related to increased sales of our Enterprise and Service Provider division's products as
described above. We currently are targeting cost of services and maintenance revenues will increase when comparing the first
quarter of 2014 to the first quarter of 2013 consistent with the increase in Software as a Service and Professional services
revenues as discussed above.
Gross Margin
Gross margin as a percent of revenue was 82.8% for 2013, 84.4% for 2012 and 86.7% for 2011. The decrease in gross
margin as a percentage of net revenue is primarily due to the increase in sales of our Networking and Cloud products with a
hardware component and increased sales of our services, both of which have a higher cost than our software products. When
comparing the first quarter of 2014 to the first quarter of 2013, we expect a slight decline in gross margin, consistent with our
targeted increase in sales of our hardware products and services.
Operating Expenses
Foreign Currency Impact on Operating Expenses
The functional currency for all of our wholly-owned foreign subsidiaries in our Enterprise and Service Provider division
is the U.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. When the dollar is weak, the resulting increase to foreign currency denominated expenses will be
partially offset by the gain in our hedging contracts. When the dollar is strong, the resulting decrease to foreign currency
denominated expenses will be partially offset by the loss in our hedging contracts. There is a risk that there will be fluctuations
in foreign currency exchange rates beyond the timeframe for which we hedge our risk.