What: Shares of Cytrix Systems closed Wednesday down 10% after the software virtualization company revealed its business model for the next two fiscal years, including the spinoff of its GoTo family of products.
So what: Recall that when Citrix announced strong third-quarter results last month, management promised this update was on the way, specifically to keep investors in the loop regarding progress in its ongoing transformation intended to reposition the business for sustained long-term growth.
Specifically, Citrix says as a result of its operations review, it determined "a spinoff of the GoTo family of products into a separate public company is in the best interest of all stakeholders, allowing both companies to enhance its strategic focus and respective competitive positions, while permitting Citrix to improve operational efficiency." In a separate press release, Citrix noted the transaction is expected to be completed in the second half of 2016 as a tax-free spinoff to Citrix shareholders. The new company will be made up of GoToAssist, GoToMeeting, GoToMyPC, GoToTraining, GoToWebinar, Grasshopper, and OpenVoice. Collectively these products totaled unaudited revenue of $600 million in the trailing 12 months ended Sept. 30, 2015.
Consequentially, Citrix announced plans to "increase emphasis and resources" to its core enterprise products including XenApp, XenDesktop, XenMobile, ShareFile, and NetScaler. To achieve that focus, Citrix will stop investing in "certain other products and programs, in some cases moving technologies into strategic products, in other cases providing an orderly end-of-life to non-core products."
"This separation will create a leading, pure-play [software-as-a-service] company that will have a targeted focus with the flexibility to invest in its portfolio of products," elaborated interim Citrix CEO Bob Calderoni. "It will also allow Citrix to refocus and amplify investment in our core mission to enable secure and reliable delivery of apps and data for the modern enterprise."
Finally, Citrix will restructure to eliminate roughly 1,000 full-time and contract employees, excluding the GoTo spinoff, with the majority being eliminated this month and in January.
Now what: Collectively, Citrix expects those actions to result in roughly $200 million in annualized pre-tax cost savings, with roughly $150 million anticipated to be realized next fiscal year. That said, Citrix also anticipates incurring pre-tax charges of $65 million to $85 million related to employee severance agreements between the fourth quarter of fiscal 2015 and into fiscal 2016.
In addition, Citrix offered its initial outlook for the full fiscal year ended Dec. 31, 2016, calling for net revenue growth of 1% to 2%, and adjusted earnings per diluted share of $4.40 to $4.50. Analysts, on average, were anticipating higher revenue growth of 4.7%, but slightly lower adjusted earnings of $4.21 per share.
Finally, Citrix also outlined targets for the full fiscal year ended Dec. 31, 2017, calling for revenue growth of 4% to 5%.
In the end -- the unfortunate layoffs notwithstanding -- there's no denying this is an ambitious effort to drive higher profits, achieve sustainable growth and, ultimately, maximize shareholder value. But given the uncertainty, cost, and amount of work these actions will take to fully implement -- from the employee severance, spinning off a promising line of products in GoTo, and narrowing Citrix's focus to a small number of core remaining products -- it's hard to blame investors for taking a step back as they process today's news. For now, that's why I'm also content watching Citrix's progress from the sidelines until the dust settles.
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The article Why Citrix Systems, Inc. Stock Dropped Today originally appeared on Fool.com.
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