Citrix Systems is looking for a new CEO after the enterprise software company announced this week that David Henshall, an 18-year Citrix veteran and the top executive since 2017, had stepped down and was replaced on an interim basis by Bob Calderoni, who chairs the board of directors.
No reason was given for Henshall’s departure. In a statement Calderoni said the ex-president and CEO was key to helping the company transition to the cloud and to a software-as-a-service (SaaS) model, noting that Citrix has more than 11 million subscribers for its services.
“David has also been instrumental in helping the company and our employees navigate the pandemic, and successfully positioned Citrix to help customers around the world and across industries maintain business operations with minimal disruption,” he said.
For his part, Henshall said he was proud to lead Citrix and that the company was in good hands with Calderoni.
The executive-level reorganization came a month after activist investor Elliott Management, which had been a high-profile presence at Citrix since acquiring 7.1 percent of the company’s share in 2015, reportedly built a stake of more than $1 billion in Citrix.
It was unknown whether the re-emergence of Elliott in Citrix’s orbit had anything to do with Henshall’s departure, but it echoes what happened after the hedge fund took a large stake in the company six years ago. This time around, Elliott informed Citrix that it now held a stake of more than 10-percent stake, worth about $1.28 billion, according to the Wall Street Journal. The report also said that Elliott wanted to work with Citrix to improve the tech company’s valuation.
Elliott has a history of buying large stakes in companies, including in the IT space, and demanding changes aimed at benefiting shareholders. After Elliott bought shares in Citrix in 2015, the hedge fund had Jesse Cohn, its head of U.S. equity activism, installed on its board of directors. Soon after Mark Templeton left as CEO after more than a dozen years and the company spun off its GoToMeeting and related products, which were absorbed by LogMeIn in 2016.
Henshall, who in 2017 was the company’s CFO and COO, was named CEO after Templeton’s replacement, Kirill Tatarinov, left after two years. Elliott pulled back from its role with Citrix in 2019 and Cohn left the board last year.
A Transition to SaaS
Citrix has its share of challenges outside of Elliott. The company has been aggressive in expanding such offerings as desktop-as-a-service (DaaS), but is seeing growing competition from public cloud providers. At the same time, Citrix, like many established IT vendors, is trying to make the transition from a company that sells products to one that sells services, which means shifting to a recurring revenue model.
Such a transition isn’t always easy, according to Bob O’Donnell, principal analyst with TECHnalysis Research.
“It’s hard and, especially for companies who have sold software traditionally, it’s a big change and it’s a big hit initially to the cash flow and profitability and everything else,” O’Donnell told Enterprise Networking Planet. “Over time, it works out and in the end, companies find their way through it. Most companies who have done this have been successful and it proved to be clearly the right thing to do. I think it’s just taking Citrix a little longer than they thought.”
Q2 Financial Numbers
The second quarter echoed O’Donnell’s comments, with the company’s revenue increasing 2 percent year-over-year, to $812 million. However, subscription revenue increased 54 percent, to $374 million. In a letter to shareholders in July about the Q2 results, Henshall noted that Citrix’s annual recurring revenue (ARR) — a key metric for SaaS companies — was more than $1 billion, up 74 percent. He also said that the number of Citrix Cloud paid subscribers jumped 52 percent, to 11.4 million, and that the growth accelerated from last year, when the number had increased 34 percent.
The SaaS mix of subscription bookings was 63 percent.
“Looking ahead, we believe that the operational and organizational changes we are making in the business will enable us to increasingly capitalize on the secular trends of distributed teams and the heightened importance of securely delivering a unified work experience,” he wrote. “Over time, we believe that transitioning our customers to SaaS will result in greater predictability in and faster growth of our reported results.”
In announcing Henshall’s departure, Citrix officials also said they expected third-quarter revenue to come in at the high end of the guidance range of $765 million to $775 million. The company will report its quarterly results Nov. 4.
Also read: Managed Cloud Services for SaaS Companies
No Clear Reason for the Move
TECHnalysis’ O’Donnell said it’s difficult to pinpoint a reason for the leadership change. The second-quarter numbers weren’t terrible and the upcoming revenue is within range. However, pressure from either inside the company or out to accelerate Citrix’s SaaS plans could have played a role.
“It could be that this is a result of some of those pressures,” he said. “It could be that there was a sense that to really move more aggressively, it was time for new leadership, so they chose to do that.”
Citrix may have been later than other vendors to embrace the move to become a services-driven company, the analyst said. However, the company for many organizations was what they built their enterprise application architecture on and some of those customers may have been wary of moving to the cloud.
“A lot of their companies were very traditional companies that liked it the way it was and it was a very unique technology,” O’Donnell said. “It required Citrix specialists to be able to run it, but a lot of organizations have those people. It’s been a bit of a challenge for [Citrix] to get more of their people into the cloud. They talked a little bit in their last earnings about the fact that they’re seeing that number grow and it’s following some of the perceptually similar trajectories to what other enterprise or small enterprise software companies have had to do and [who] have faced some of these issues.”
Time for a Change
However, O’Donnell said, most likely the change was made because people in and around the company felt Citrix’s shift to services wasn’t happening fast enough and that new leadership was needed to get the organization over the hump.
“Everybody hits the wall” when making the transition, O’Donnell said. “It’s not a unique Citrix thing. The only thing unique for Citrix is they were a little bit later to do it. They’re moving a little bit slower and they have a lot of very traditional customers who are doing all their stuff on-prem. That’s why Citrix was so important to them, because it was all on-prem. Put that combination together and you can see why some of their customers have been slow to move to this new way of working.”
That said, Citrix was performing well from a product development perspective — from its Workspace Microapps and what they were doing with virtual desktops to work in the mobile area and with MacOS and windows.
“A lot of the technology that they have is actually pretty cool,” the analyst said.