Citrix's plan to shift to a subscription business model and software-as-a-service delivered in the third quarter as the company's results and outlook for 2019 were better than expected.
The company showed strength in its Workplace subscriptions. CEO David Henshall said that Citrix business is shifting to subscriptions ahead of expectations. He said in a shareholder letter:
As we exit 2019, we expect more than 60% of product mix will come from subscriptions (70%+ of Workspace. Given this momentum and customer preference, we expect the subscription product bookings mix to be as high as 80% by the end of next year. Accelerating the subscription transition gives us confidence that we will reach an inflection point in the financial model during fiscal year 2020, allowing revenue and free cash flow to re-accelerate.
Citrix reported third quarter earning of $271 million, or $2.04 a share, on revenue of $733 million, flat with a year ago. Non-GAAP earnings for Citrix's third quarter was $1.52 a share. Subscription revenue was 14% of total revenue and subscriptions were 22% of the total sales pie.
Wall Street was expecting Citrix to report third quarter non-GAAP earnings of $1.25 a share on revenue of $715.3 million. Citrix said that subscription revenue growth of 43% in the quarter offset a decline of 23% for perpetual product and license revenue.
- Citrix Managed Desktops moves into general availability
- Citrix deepens cloud integrations with Google, Microsoft
- More details emerge on Citrix's plans for Microsoft's Windows Virtual Desktop
Over time, Citrix models its SaaS shift like this:
Bookings data from Citrix indicate that customers are increasingly shifting toward subscriptions of its Workplace product line. Citrix's networking business is expected to see decreases overtime as it shifts from hardware to software.
Citrix projected 2019 revenue of $2.99 billion to $3.01 billion with non-GAAP earnings of $5.60 a share to $5.70 a share. For 2019, Wall Street was expecting Citrix to report revenue of $2.99 billion with non-GAAP earnings of $5.48 a share. The outlook assumes that subscription revenue will be 60% to 65% of the total compared to 40% in 2018.
As for 2020, Citrix is projecting revenue growth of 3% to 4% with non-GAAP earnings of $5.25 a share to $5.45 a share. Wall Street was expecting Citrix to report non-GAAP earnings of $6.07 a share on revenue of $3.12 billion. "We expect 2020 to be the trough year for operating margin in our multi-year subscription transition," said Citrix, which also said it will invest to scale its cloud business.