Citrix Systems – Recent Cloud Challenges & Pending Tibco Combination

Could you describe Citrix from a corporate and business perspective and how it’s evolved over the last couple of years? Citrix has historically been perceived as a remote access business. The company has looked to pivot and has highlighted two areas to shift the business model – going from more traditional software licences to subscriptions, and going from on-prem to cloud solutions. How has the company tried to adjust, in light of some of the trends that have changed or upended its earlier business model?

Is it fair to characterise the current macroeconomic backdrop as a recession? Is it simply weak and uncertain? How do you think Citrix is positioned in light of a weaker economic backdrop? How critical are the solutions? Is what companies are doing in the IT solutions category nice to have or need to have?

Citrix has had middling success with its top priority, which is transitioning its legacy customers to the cloud. There are a lot of different indications and metrics supporting the notion that the company has been investing and pushing forward on that. What challenges has the company had and where is it in terms of that transition? According to its Q2 2022 results, approximately 60% of revenues were associated with subscriptions. In what inning is the company in transitioning those legacy customers to the cloud?

You noted that, as Citrix pushes more to the cloud, perhaps it then prompts or enables its customers to look for and pursue other options. How is the company approaching moving to the cloud and is the 80% subscription number you highlighted a reasonable goal? I would imagine it’s swimming against the current, in light of what we were talking about. What could or should it do to jump start that process? You touched upon Adobe and Autodesk shifting a lot of customers from on-prem to the cloud, and they were among the most successful companies to do that, literally forcing a lot of their customers to do so. It doesn’t seem Citrix is doing that.

It seems what you’re suggesting is, Citrix really hasn’t been innovating at the pace it should’ve been and maybe there are structural reasons for that. One of its answers to accelerating the shift to the cloud was Wrike, which hasn’t perhaps had the desired effect, as you suggested. Now it appears the company is combining with Tibco, in part, to take a different approach to, maybe not the acceleration, but the way it’s thinking about the market opportunity. Is that a fair characterisation? Is that the right way forward for the company?

What are the odds that a combined Citrix-Tibco would look to divest Wrike or the ADC [app delivery controller] segment as one of its first orders of business?

What is the rationale to combining Citrix and Tibco? What opportunities do you see for revenue and cost? Many people were surprised about the combination, given Citrix does remote access and security and Tibco does middleware and analytics, with no obvious synergies there.

You made the case that there are possibilities and potential for this combination. What do you think is going to happen from an execution perspective once Citrix and Tibco combine?

You noted that Citrix has been having a significant challenge transitioning customers to the cloud and because Tibco is able to plug-in to all these data sources with its middleware solutions, that it essentially would grease the skids for the company’s customers making that shift to a cloud solution. I think it’s fair to say that Tibco has had its fair number of challenges when it comes to shifting its clients over to the cloud as well. To what extent could this be a situation where people might think one plus one equals three, but if anything, it could theoretically create more friction than is anticipated?

You talked about expectations for significant cost cutting as a result of the Citrix and Tibco merger. How should we be thinking about that quantitatively, in terms of number of employees or OPEX and a percentage that you would expect to be reduced, and over what period of time?

I find it interesting that you’re talking about thousands of people potentially being laid off by Citrix and last I saw, it had 9,000 or so employees. As you said, Citrix is much bigger than Tibco. Typically, when you have these types of combinations, the larger company will call the shots. However, the difference here is that you have a CEO coming in who has not been with Citrix. How might incoming management be thinking about cuts on the Tibco side of things as well?

There are questions about Citrix’s current customer contracts and customers are anticipating some disruption with the impending merger. How is the combined Citrix Tibco going to address that in a proactive fashion? You could have contracts expiring, and you could have the nature of the combination potentially triggering some elements of contracts that could enable customers to reopen negotiations or move on.

What are typical contract lengths for Citrix in particular? When you’re moving from licences to subscriptions and on-prem to cloud, many people think the contract length should be compressed. How has the length as well as the size of contracts generally changed for the company?

People would say VMware is the most significant of Citrix’s competitors in Workspace offerings. VMware is in the process of being acquired by Broadcom. To what extent does Citrix have an opportunity here or if, is this simply the equivalent of a melting ice cube because there is this transition to the cloud? As you alluded to, there is this paradox where, if you’re going to move everyone over to the cloud, then people are going to probably sit back and say, “I already have a relationship with an Azure, an AWS, even a GCP. Thus, I’m going to pursue that more holistically.” How should we be thinking about market share shifts, given what I just said about VMware and the dynamic we talked about earlier? Do you think the company can maintain or even gain market share over the near term?

Revenue growth expectations for Citrix over the next couple of years are 2-3%, which doesn’t account for the addition of Tibco. I’ve seen Tibco revenue growth indications not all that different from Citrix’s. Will this combined entity grow revenues in the same low-to-mid single-digit revenue range? Is that where the combined company is ordained to go? Even if it figures out the challenges we’ve noted, what’s the best- and worst-case scenario for growth?

What’s your 1-3-year outlook for the combined Citrix-Tibco entity?