Kirill Tatarinov out as Citrix CEO, CFO David Henshall takes over as CEO. Here's our full analysis:

Kirill Tatarinov and Citrix have parted ways after just 18 months as CEO. With CFO David Henshall taking the helm, here's our take on the situation.

It's hard to go on vacation! During the time I've been off, Ivanti bought RES, Dell made some announcements in our space, Microsoft released something that on the surface seems a lot like SPLA for Windows 10, and to trump them all, Citrix has parted ways with CEO Kirill Tatarinov.

I wrote about RES last week, and I'll get to the other things, but for now I want to take a look at this move and evaluate what it means for Citrix.

In yesterday's press release, which came out around 4:00pm ET, Citrix announced that, effective immediately, David Henshall has been appointed the President and CEO of Citrix. Henshall served as the CFO and COO at Citrix from 2003 until yesterday, and prior to that was the CFO of Rational Software, which was sold to IBM.

Tatarinov was only on the job for 18 months, and he was specifically hired because of his product management background and technology leadership experience. The quote included with the press release announcing Tatarinov's hiring, attributed to then-interim CEO Robert Calderoni, said that, "Following a thorough review of candidates, the board determined that Kirill's strong product management background and extensive technology leadership experience make him the right person to oversee Citrix's innovation and growth strategy."

This time around, Tatarinov's departure was positioned as a "mutual separation." According to the press release, Citrix now believes they have the "right team in place" to execute their vision of Citrix as a "cloud-based subscription business" in "high growth areas, such as data security and analytics services."

Based solely on those statements, I find it hard to believe that a career CFO is a better choice to lead a company into new areas and businesses than a person with "a strong product management background and extensive technology leadership experience." That said, I’m sure there’s a lot more going on than meets the eye.

But wait, there’s more...

There are other indications that this decision is more about finances than about products and directions. The announcement also mentioned the formation of an "Operations and Capital Committee that will work with Citrix's management team and advise the Citrix Board on a comprehensive review of opportunities to drive margin expansion and return capital to shareholders."

This basically means that Citrix has formed a committee to best determine how to keep the shareholders happy, which could mean layoffs, operational cuts, divestitures, or even paying a dividend (Citrix has money in the bank). Granted, it could also mean investing Citrix's cash in R&D or existing companies to create new offerings, but that would probably take time to put into effect and this board doesn't really seem to exemplify patience.

The are several possible reasons for a change like this. Citrix revenue has been flat, and though there have been some obvious operational cuts intended to prop up margins, it stands to reason that the board is unhappy with the current situation. That would explain why Henshall, a career finance and operations guy, has been put in charge instead of Tatarinov, who has a background in product development and management. One gets paid by profit margin, the other gets paid by revenue, and right now profit margin could be more important.

It’s also possible that, through the process of selling the company, Citrix encountered some resistance that Tatarinov wasn’t willing or able to deal with. For example, a potential buyer might have requested Citrix pare down the company even further, undoing the work that Tatarinov has done. If he were unwilling to do so, in contrast to the board, they have the power to make this change to see their vision through.

Even if those scenarios aren’t exactly what happened, there was clearly a disconnect between Tatarinov and the board. Appointing Henshall directly could have simply been a means to save face, since making Calderoni an interim CEO and launching yet another search would have looked like a dumpster fire. Then again, Henshall could have been the next in line this entire time. We’ll probably never know why this happened the way it did, but Henshall appears to be “the guy” for now.

It also seems as if Citrix anticipated a black mark (CTXS shares are reportedly down 4% on the news) because in the same press release announcing the leadership changes, they also reaffirmed their projected performance for Q2 2017. It’s sort of like saying, “Yeah, that happened, but we’re still going to be ok.”

What's next?

There are few bits of information in the release that could eventually lead to some more information about what's really going on at Citrix. Mark M. Coyle, formerly the Senior Vice President of Finance for Citrix, is now the interim CFO. The key word there is "interim," and the person that is selected to be the permanent CFO should provide some insight into the future of Citrix. (e.g. If the new CFO has a history of taking public companies private, that might indicate Citrix is positioning themselves to do the same thing.) The thing is, Citrix already has a seasoned CFO at the helm of the company, so the selection of a new CFO might be a non-starter.

The most interesting thing could be Citrix's Q2 earnings call, which will occur on August 2 at 4:45pm ET. It's not likely that they'll give us the real answers to the questions this move creates, but we're likely to find a few pieces of information that could explain how and why, along with some more indications of the eventual direction of the company.

In the meantime, we’ll have to wait for news out of Citrix HQ. It’s quite possible that there are big (and perhaps unpleasant) moves coming in the near future.

Tatarinov's legacy

We don't have a lot to go on, but Kirill Tatarinov was at the helm of Citrix during (well, at least at the beginning of) the most tumultuous time in the company's 28-year history. During that time, he led the sale of GoTo and the purging of unprofitable products such as Workspace Pod, while also investing resources into core Citrix products. Citrix also acquired Norskale and Unidesk, and, perhaps most importantly, doubled down on their relationship with Microsoft.

Overall, the moves that Tatarinov made while at Citrix needed to be done to give the company a chance of surviving. Under his command, Citrix was aggressive, even edgy. What goes on behind the scenes, though, can be quite different than what we all see, and we all know that the Elliott-controlled board is pulling the strings here.

This is tough, but I really get the impression that Citrix as we know it is done. This seems like a product guy wanting to build something, and the board saying, “Nah, we need to cut more, so we’re putting a finance guy in charge.” If that’s the case, then Tatarinov’s legacy will be that of a captain that refuses to scuttle his own ship.

I hope I’m wrong.

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At a guess, Kiril was trying to sell Citrix to his old bosses at Microsoft (like Nokia) and the deal fell through.
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Citrix needs to go private and shed the wall street money off of their back just like Dell did.  They can shed probably 25% of their admin staff and use that money to sink into R&D, new acquisitions and some lower prices to give VMW a run for their money in the EUC space.  
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I don't think that Citrix has the money or the product lines necessary to go private like Dell did. 

Fundamentally, the Citrix leadership is too inexperienced to see what is very obvious to anyone who has worked in a competitive section of the IT industry: Cloud products are only profitable at cloud scale.

Moving from XenApp on-premises to cloud isn't going to get the big fat profits that they are used to. That's why VMWare has built a portfolio of offerings alongside Horizon. I'd be surprised if Citrix's cloud sales even covers their Azure hosting costs.

In any case, I don't think that R&D is where David H is going to put the money. Squeezing money out of customers who don't have an escape plan is what I'd be doing in his position...
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Citrix is a great company - but it has a lot of empty suits running around in various places who treat the place like lifestyle destination. One has to wonder, after this move, what will Kirill's underlings whom he brought over do - now that he's gone? Will Henshell reduce dead weight and improve OPEX?
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