Citrix CEO Upbeat, But Clouds On Software Co.'s Horizon
05/05/2000
Dow Jones Newswires
(Copyright ¸ 2000 Dow Jones & Company, Inc.)
By Richard Hubbard
MIAMI (Dow Jones)--Talking with Citrix Systems Inc.'s (CTXS) upbeat Chief Executive Mark Templeton, one wouldn't readily think that the company's shares have taken such a drubbing these days on Wall Street - falling from a 52-week high of 122 5/16 on March 7 to a recent 45.
"We're in this game to win big. We're in this game as a marathon, not as a sprinter," Templeton, 47, told Dow Jones Newswires Thursday.
But analyst Sanjiv Hingorani, who follows Citrix for Brown Brothers Harriman & Co. in New York, has some advice for that sprinter:
The number of days it took the company to collect receivables widened in the first quarter to 59 days from 46 days. "A lot of people, including Mark Templeton, don't realize the significance of that rise in DSOs (days sales outstanding)," Hingorani said.
"The explanation that they (Citrix) are selling to customers with a longer leap time is true. However, the mathematics tells you that they are collecting cash at a slower rate," Hingorani said.
"They are being more aggressive in booking revenue in relationship to collecting cash," warned Hingorani. But he added, "I wouldn't be overly concerned about a one-time rise in DSOs. If the trend continues I would be concerned."
Templeton is a marketing man - not a "techmeister" like Citrix Systems founder and Chairman Ed Iacobucci - and it shows. Sitting in a conference room at Citrix's glitzy Fort Lauderdale campus, Templeton - casual in a pullover shirt - tries to put a positive spin on some very nagging concerns:
Not to worry about those DSOs, says Templeton. "We'll do more and more deals with larger scale customers that have an impact on DSOs," he predicts.
Templeton brushed aside concerns over a jump in the company's first quarter operating expenses - $72.8 million compared with $43.4 million for the year ago first quarter:
"Our operating expenses going up 68%, with revenue up 50%, indicates we are investing in future revenue streams. The only way to yield future revenue streams is to invest now," said Templeton.
Most tech companies "run out of market - they run out of runway," said Templeton. "But we have the inverse. Our investment supply is enormous," he said.
Citrix shares fell 20% on April 20, the day after it said first quarter net income rose 50% from the year-earlier quarter to $38.5 million, or 19 cents a share. Adjusted net income, excluding the amortization of some intangible assets relating to business combinations, was 21 cents a share.
The 52-week low for Citrix shares was 20 3/16 last May 5.
Templeton likes to talk about a tech trend where Citrix is trying to assume a leadership role - the trend toward software outsourcing through Application Service Providers, or ASPs. These firms run computer applications for other companies, with connections over the Internet and through networks. Some businesses have turned to ASPs: rather than buy 1,000 copies of Microsoft Office, for example, various applications can just be leased through a growing number of ASP firms.
These ASP companies operate off large central servers. And who makes the WinFrame and MetaFrame software which enables computers to run Windows-based applications from a central server? Why Citrix, of course.
"The whole ASP industry is looking at us as one of the key players to deliver on their vision," said Templeton. "This is a big idea. Big ideas take time to gestate," Templeton said.
But not so fast, said analyst Hingorani. "Practically speaking today, the ASP market is generating very little revenue for Citrix," Hingorani said. "I would estimate less than 5% of Citrix" quarterly revenue in the last quarter came from ASPs, Hingorani said.
In fact, Citrix' revenues from ASPs "for calendar 2000 will be less than 5%," Hingorani forecast.
Meanwhile, Citrix shares are trying to rebound from that April 19 slump when it reported on-the-mark first quarter earnings, longer DSOs and increasing operating expense.
"There were some concerns about Citrix's DSOs going up," Banc of America Securities LLC analyst Paul J. Dravis, who follows Citrix from San Francisco, told Dow Jones Newswires.
"We're in a market where tech stocks are volatile," said Dravis. Add even a small extra factor, and "that's enough to do it," he said of the stock's April slide.
For the first quarter ended March 31, Citrix reported net revenues of $127.5 million, up 50% from $85.0 million from a year ago. The company said gross margin was $122.4 million, up from $80.5 million for first quarter 1999.
Templeton, of course, is hopeful:
"I believe we have an increasingly strong financial foundation, customer base, and channel base to be successful," Templeton said.
"Great companies that are focused on big markets have a rich future," he said.
All in all, said analyst Hingorani, "Citrix is a neat company. However, there are a couple of things worth focusing on."
-Richard Hubbard, Dow Jones Newswires; 305-379-3744
(END) DOW JONES NEWS 05-05-00 |
