In its third quarter 2017 earnings call, Citrix reported accelerated growth as the company’s transition toward a subscription model drives higher profitability by bringing the promise of a hybrid cloud for its customers.
Citrix reported $691 million in revenue, a 3 percent year-over-year increase. The company reported non-GAAP net income of $186 million in the quarter, or $1.22 per share, compared to $170 million, or $1.08 per share, in the third quarter of the previous year.
Subscription revenue makes up 12 percent of Citrix’s total revenue. The company’s subscription revenue grew 30 percent during the quarter reaching $81 million, representing a 7 percent increase in the mix of annual subscriptions bookings to product bookings year-over-year.
The company also introduced its new chief revenue officer, Mark Ferrer, in Q3. Ferrer came from SAP, where he helped in the company transition toward subscriptions in cloud services over a six-year period.
The plan to move Citrix’s cloud services and Software-as-a-Service (SaaS) applications to a subscription-based model is driven by customers’ desire to operate in a multi-cloud hybrid world, noted Citrix CEO David Henshall on the earnings call. “These challenges require a new approach and create this opportunity for Citrix to provide simple, secure, and unified solutions, helping our customers address these challenges and simplify the roadmap,” said Henshall.
Transitioning to a New Strategy
Citrix’s new business strategy is threefold: to build cloud services across the entire portfolio; create an integrated end user experience and simplified IT tool by unifying technologies both on premises and in the cloud; and to place its networking capabilities into a secure digital perimeter, delivered as a cloud service.
The subscription model drives this plan and creates what Henshall referred to as a “lifetime value,” where Citrix benefits from an increase in the number of fees and product usage over time.
By the end of the 2020 fiscal year, the company estimates that these subscriptions will compose 40 percent of its total revenue. In three years the company is targeting that more than 60 percent of new revenue will come from Citrix Cloud subscriptions.
Henshall was careful to note that as they make the move to the subscription model, there will be a temporary decline in revenue growth rate and profitability, but that he expects a re-acceleration by 2019.
In terms of guidance, net revenue at the fiscal year-end is expected to be between $2.82 billion and $2.83 billion, with a EPS price of $4.79 to $4.81 per share. Looking forward to 2018, Citrix estimated revenue growth between 1 percent and 2 percent over this year and adjusted non-GAAP operating margin of 29 percent to 30 percent.
A correction has been made to reflect an EPS of $4.79 to $4.81 per share.