Citrix Channel, Sales Orgs Under Fire, Missed Revenue Targets Again

Citrix’s David Henshall

After missing revenue targets for the second consecutive quarter, the Citrix channel and sales group have changes in store. Citrix CEO David Henshall acknowledged that the company lacks accurate visibility to its sales pipeline, resulting in planned leadership changes.

Citrix shares fell 12% on Thursday after disclosing its Q2 revenues of $812 million were 3.9% below consensus expectations. In Q1, Citrix revenues of $776 million also were lower than expected. Citrix also lowered guidance for the current quarter.

In Q3, Citrix now projects revenues between $765 million and $775 million, compared with consensus estimates of $847 million. According to Citrix, earnings per share are expected to fall between $0.85 to $0.90, compared with previous consensus estimates of $1.43. Henshall discussed the issues during the Citrix earnings webcast with analysts.

“It’s clear that we’ve had some sales execution challenges in some areas that are reflected in our Q2 results,” Henshall said. “We believe that the cause of this has been really the increased complexity around managing this faster transition to the cloud while simultaneously managing all the different license model types and motions that are key components of our reported revenue and overall P&L.”

“We believe we’ve identified the root causes, and we’re taking immediate actions to remedy these execution challenges.”

The changes include reorganizing Citrix’s sales team and leadership, restructuring the company’s customer-facing organizations and reallocating resources to increase capacity of quota carrying sales reps, Henshall explained. “And we’re refining our channel focus to prioritize landing and growing new business activities,” he said.

Channel Issues

Among the actions Citrix is considering for the channel includes reevaluating its incentives and removing what Hensall acknowledged are “complexity issues.” Henshall added that Citrix isn’t making wholesale changes,” but rather “eliminating some of the things that are slowing us down, and just getting much, much better alignment.”

Henshall also said Citrix channel partners, particularly traditional VARs, are failing to migrate more customers to SaaS. “I think they’re overly focused on fulfillment,” Henshall said. “And there’s been an inconsistent alignment of the field where they’re operating in a supporting cast. Or they’re actually driving net-new demand and servicing customers and refinements like that are really important, because complexity just slows you down [and] makes it harder to do business within Citrix. And all of those things impact our overall accuracy.”

Hector Lima Elevated to Chief Customer Officer

Citrix’s Hector Lima

While he didn’t elaborate beyond his letter to investors on forthcoming changes, Henshall announced he has created a new chief customer officer position at Citrix. Henshall has tapped Hector Lima, a 20-year Citrix veteran who currently leads its customer experience efforts, as chief customer officer. The Citrix channel and global sales teams will report to Lima, according to Henshall.

“Hector is no stranger to our channel partners, our alliance partners or, most importantly, our customers,” Henshall said in a blog post announcing the move. “In fact, he is arguably the executive that is closer to our customers and their needs than anyone else in the business. He is well liked and respected in the industry for his thoughtful approach.”

Appointing Lima chief customer officer was a good choice, said Nabeel Youakim, a 22-year Citrix veteran, who left last year. “Obviously they have issues. It is good to see they realize they need work to improve their channel,” Youakim told Channel Futures.

As a vice president Citrix, Youakim was on the team that developed Citrix Cloud. Youakim this week joined startup Tehama as chief development officer. Tehama is a cloud-native provider of virtual desktops that is a Citrix competitor.

“When you look at Tehama, it’s a more complete solution,” Youakim said. “Citrix will invest in other components of their business, and they are growing their business in other areas, but I think a pure DaaS play like Tehama really focuses on the enterprise and the remote workforce.”

Citrix Execution Issues

During the Citrix webcast, Henshall acknowledged execution failures stemming from its effort to transition customers from on-premises deployments to Citrix Cloud.

“There’s been, in my opinion, kind of a mixed message out in the field,” Henshall said. “And that includes both our direct sellers in our channel in terms of what our priorities are [and] how we’re balancing this transition. And that’s just…

…causing execution, as well as forecasting inaccuracies. A lot of this is about how do we land new customers very cleanly? And how do we do that with our channel? How do we make sure that incentives line up in the field, for example, and in the channel to support that?”

Good News from Morgan Stanley

A research report on Friday by Morgan Stanley pointed to some good news for Citrix. It noted that annual recurring revenues (ARR) for SaaS has grown for the third consecutive quarter. Renewal rates are rebounding, and Citrix reports having 11.4 million paid cloud customers, up from 10.3 million in Q1 and 7.5 million year-over-year.

However, because of the bad news, Morgan Stanley changed its share price target for Citrix to $90. The research note raised the following concerns:

“Perhaps more central to the challenge that Citrix has been facing is: 1) a tougher competitive environment given the efforts of rivals such as Windows 365, VMware and Zscaler and 2) less financial flexibility as management has been operating under a rigid financial framework that calls on the company to accelerate revenue growth, expand operating margins and significantly grow [free cash flow] in the midst of a cloud transition – the exact reverse of what is typically seen in model transition stories.”

Henshall believes Citrix can overcome these concerns. In his blog post, Henshall said: “As we move into the second half of 2021, I am more confident than ever in our strategy, our market-leading integrated workspace platform, and our ability to make working with Citrix the best possible experience for our customers and our partners.”