Citrix 2014 Annual Report Download - page 50

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Cost of Net Revenues
Year Ended December 31, 2014
Compared to
2013
2013
Compared to
2012
2014 2013 2012
(In thousands)
Cost of product and license revenues $ 124,110 $ 114,932 $ 96,962 $ 9,178 $ 17,970
Cost of services and maintenance revenues 349,683 289,990 227,150 59,693 62,840
Amortization of product related intangible assets 146,426 97,873 80,025 48,553 17,848
Total cost of net revenues $ 620,219 $ 502,795 $ 404,137 $ 117,424 $ 98,658
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
Mobility Apps, which includes the cost to support the voice and video offerings in our Communications Cloud products. Also
included in Cost of net revenues is amortization of product related intangible assets.
Cost of product and license revenues increased during 2014 when compared to 2013 and during 2013 when compared to
2012 primarily due to increased sales of our Delivery Networking 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 2015 to the first quarter of 2014 consistent with the targeted
increase in sales of our hardware products.
Cost of services and maintenance revenues increased during 2014 compared to 2013 consistent with the increase in sales
of our Communications Cloud products and cost for infrastructure to support the voice and video offerings in our
Communications Cloud products of $26.6 million. Also contributing to the increase in Cost of services and maintenance
revenues is an increase in education costs of $14.8 million related to the increase in product training and certification programs
as described above and maintenance and support costs of $16.2 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 2013 compared to
2012 consistent with the increase in sales of our Communications Cloud products and cost for infrastructure to support the
voice and video offerings in our Communications Cloud 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. We
currently are targeting cost of services and maintenance revenues will increase when comparing the first quarter of 2015 to the
first quarter of 2014 consistent with the increase in Software as a Service revenues as discussed above.
Amortization of product related intangible assets increased during 2014 compared to 2013 primarily due to the
impairment of certain intangible assets related to our Enterprise and Service Provider division, partially offset by certain
intangible assets becoming fully amortized during 2014.
Gross Margin
Gross margin as a percent of revenue was 80.3% for 2014, 82.8% for 2013 and 84.4% for 2012. The decrease in gross
margin as a percentage of net revenue is primarily due to impairment charges recorded in relation to certain intangible assets
during 2014 and the increase in sales of our Delivery Networking 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 2015 to the first
quarter of 2014, we expect gross margin to remain consistent.
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. Effective in January 2015, the functional