Citrix Q3 shows cloud promise as it plots restructuring in Q4
Enterprise Software
Citrix is planning to restructure in the fourth quarter to focus on growth businesses, shore up channel programs and become more efficient to boost profit margins.
Interim CEO Robert Calderoni said in a shareholder letter that the company would announce a "margin improvement program and related restructuring charges" in the fourth quarter. On a conference call, Calderoni elaborated a bit but noted that it was too early to discuss details given he needs to review the business more.
Calderoni outlined the following moving parts with Citrix. He said Citrix has strong assets and a solid foundation with leadership in virtual desktop infrastructure and desktop-as-a-service as well as cloud tools such as Workspace, which has thrived amid hybrid work models.
- ServiceNow, Citrix integrate IT service tools to better handle virtual infrastructure resets.
- Citrix buys Wrike for $2.25 billion, aims to bolster hybrid work portfolio.
However, he said there were "some missteps along the way" with Citrix's go-to-market efforts and its forecasting. Citrix's restructuring and retooling will focus on the following, according to Calderoni.
- Improving compensation to channel partners. "The channel is still there. The channel hasn't gone away. They're not selling somebody else's products," he said. "Like any part of the sales organization, and the channel is part of our sales organization, we want to make it more profitable for them to do business with us."
- Investment in the front-line and revenue-generating parts of the business.
- Reduce layers of sales management. "We introduced far too many overlays over the last 12 to 18 months. And we've got too many instances where we have too many people getting compensated on the same deal. I don't think that's a good thing. I think that not only adds more cost. I think it also takes away sales capacity at the same time," said Calderoni.
- Align research and development on the products with a strong market position. "Anything else that we don't have a lot of confidence in that's going to be a material driver of growth, we're going to remove those," said Calderoni. "Like every company, there's always investments that are being made around the edges of all of that stuff. And sometimes those investments are synergistic to what we're doing. And sometimes those investments are distractions. That's where we're doing a portfolio analysis right now."
The magnitude of the restructuring remains to be seen and Calderoni said that Citrix's strategy is intact, but there are a lot of "fixable operational things."
While most of the earnings conference call revolved around restructuring, Citrix did post a strong third quarter. Citrix reported third-quarter revenue, including the recent acquisition of Wrike, of $778 million with earnings of 41 cents a share and non-GAAP earnings of $1.20.
Wall Street was looking for third-quarter non-GAAP earnings of 89 cents a share on revenue of $772.8 million.
Citrix said it made good progress transitioning customers to a cloud model with third-quarter SaaS annual recurring revenue approaching $1 billion. However, only 15% of Citrix's current customers have transitioned to cloud contracts. The company said it had 12.2 million paid cloud subscribers in the third quarter.
By product line, Citrix Workspace had third-quarter revenue of $600 million, up 5% from a year ago. App delivery and security revenue was $155 million, down 7%.