CTXS Citrix Systems Inc

By Nina Trentmann 

Citrix Systems Inc.'s new chief financial officer, Arlen Shenkman, faces a challenging task as he aims to advance the software company's transformation to a subscription-based business.

Citrix, a provider of digital workspace platforms and applications providing remote access to company servers, is looking to convert existing and new customers into subscribers instead of licensees, a model that provides the company with more recurring revenue and better visibility into its finances.

Under the new model, customers no longer pay upfront for an on-premise product, but buy a monthly subscription for a cloud-based service.

The company's transition to cloud-based services has accelerated, with 59% of total bookings in the third quarter coming in the form of subscriptions, compared with 42% in the prior-year quarter. Citrix plans to stop issuing new perpetual licenses for its workspace product, a core revenue driver, by 2020, Mr. Shenkman said.

"Our role is to drive financial discipline through the organization during the transition," Mr. Shenkman said. He added that he intends to explore external growth options for Citrix, potentially through partnerships or alliances.

Mr. Shenkman took over the finances of the Fort Lauderdale, Fla.-based company in September after nearly 15 years with German software giant SAP SE, where he served as CFO of its North American business and as global head of development and ecosystems.

Citrix on Thursday reported revenue of $733 million for the third quarter, exceeding its guidance of $700 million to $720 million, and beat its target for adjusted earnings per share. Subscription revenue growth of 43% more than offset a 23% decline in perpetual product and license revenue, as the majority of new bookings were generated by subscriptions.

Investors are concerned that the company might encounter difficulties further along into its transition to a subscription-based model, said Dan Ives, a managing director at Wedbush Securities Inc.

"It is a huge cost challenge trying to manage the transition while keeping margins and cash flows at a level that keeps investors happy," said Mr. Ives, pointing toward competitors such as Microsoft Corp., VMware Inc. and others that are encroaching on Citrix's turf.

Citrix said the transition has been a headwind to its financial results, with a larger portion of its revenue being recognized at a later point in time.

Citrix needs to make sure it stays relevant for its customers while rivals are expanding their offerings, said Walter Pritchard, a managing director at Citigroup Inc. "There are a lot of new ways of delivering applications, and they [Citrix] have to continue to give their customers these new technologies, or otherwise the customer will go away," Mr. Pritchard said.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

(END) Dow Jones Newswires

October 24, 2019 18:26 ET (22:26 GMT)

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