Shares of Citrix Systems Inc. (Nasdaq: CTXS) plunged 41 percent Monday after the company said it expects second quarter earnings to be between 9 and 11 cents a share, about half of what Wall Street was expecting.
Citrix, which makes software that enables networked computers to run Windows applications from a central server, was down 17 1/16 to 24 1/8 or 41 percent in morning trading. PaineWebber downgraded the stock to "neutral" from "buy."
On Friday, Citrix lost 20 percent as analysts worried that Microsoft's (Nasdaq: MSFT) break-up would toughen competition for the company. The company's CFO, John Cunningham, had also been absent from a PaineWebber investor conference Thursday; though "personal reasons" were cited, the no-show was also blamed for the stock's dive.
The Citrix tailspin had some analysts fuming on a morning conference call. One analyst said he was just as disappointed with the company's investor relations as its performance.
For the quarter ending June 30, Citrix expects to report total revenue in the range of $105 million to $110 million, compared to $94.4 million in the second quarter of 1999.
The company expects earnings, excluding amortization, to be between 9 and 11 cents a share, lower than the 16 cents a share earned in the second quarter of 1999, and much less than First Call's expectation of 21 cents a share.
In a conference call with analysts, CEO Mark Templeton said the company expects "similar challenges in the third quarter," though growth of about 10 percent sequentially, and more growth into the fourth quarter, are expected.
The company said lower results were due to three main factors.
The faster-than-expected transition from a shrink-wrap "box" licensing model to a paper/electronic licensing model has had a short-term negative impact on revenue. Although, Templeton said the company had about three times more paper licensing agreements worldwide than they had forecast, the paper deals are usually larger and take longer to close. Shrink-wrap deals usually closed within 90 days, whereas paper licensing lengthens the sales cycle to six to nine months.
The expansion of core business within large enterprise accounts is progressing more slowly than expected, as deals were taking longer to close. These trends will continue to impact business through the second half, Templeton said.
Thirdly, Citrix said the expansion of business in certain markets, including Asia, has been slower than expected. The company made heavy investments in developing new products to enter the Asian markets, and ramp-up was "not tracking to expectations," Templeton said.
Citrix plans to adjust its inventory down by $8 to $10 million in the quarter; analysts questioned whether this was enough during the call, and whether channel inventory would need to be brought down again in upcoming quarters.
>Citrix also said that for the year, gross margins will be closer to 40 percent; Wall Street had expected about 43 percent. The company couldn't provide any more guidance on the rest of fiscal 2000, but did say that the fourth quarter should be stronger than the third.
On the question of Microsoft, "There is no change in our relationship," Templeton said, adding that Citrix's products continued to drive Microsoft's Operating System and applications revenue, and he is optimistic about further partnerships with the company.
On the competitive front, Templeton said GraphOn (Nasdaq: GOJO) and Santa Cruz Operatons (Nasdaq: SCOC) have "taken a run at us," but the company is not seeing any loss due to competition.
The company will announce final results for the quarter on July 19, at 5:00 p.m. EST.
Templeton emphasized in the conference call that the company is still analyzing the data, and will announce full guidance with its July results. "We have put expense controls on as we work through the data, '' he added.