Paul Singer (Trades, Portfolio), the activist investor and founder of Elliott Management, on Thursday disclosed a stake in IT solutions company Citrix Systems Inc. (CTXS, Financial), where he is pushing for change.
Singer’s Citrix stake reported to the SEC consisted of 3,612,300 shares in his Elliott International entity, or 2.3% of the company. Collectively, three of his entities have “combined economic exposure and voting power” of approximately 7.1% of the company’s shares outstanding. The stake includes call options that expire on June 20 and July 18 of this year.
Singer wrote a letter to the company on Thursday saying he believed with his firm’s help the company could push its share price to between $90 and $100 by the end of 2016, a 50% increase.
“This outcome … is achievable because Citrix has leading technology franchises in attractive markets but has struggled operationally for years,” Singer said in the letter. “As a result, today Citrix’s operations and product portfolio represent an opportunity for improvement of uniquely significant magnitude.”
The letter went on to list a number of shortcomings Singer said were ripe for correction at the company as part of his “’New Citrix’ Operating Plan” he wanted to discuss with the company’s board, such as inefficient cost structure, retained high-value non-core assets, ineffective revenue generation, and high senior-level turnover.
“In early 2014, Citrix again made a series of promises to address the operational and share price underperformance,” the letter said. “Despite the fact that these promises were nearly identical to the promises made in 2010, many investors and analysts hoped that this time Citrix was finally going to remedy the serious deficiencies in its cost structure. However, operating expenses have continued to outpace revenue growth, and both profit margins and profit dollars have declined over the last 12 months.”
Over the past five years, Citrix’s revenue has grown at an average annual rate per year of 16.2%, EBITDA at 14.6%, free cash flow at 12.7% and book value at 4.6%.
In the first quarter of this year, Citrix reported revenue of $761 million, compared to $751 million in the same quarter a year ago. Its net income was $29 million, or $0.18 per diluted share, compared to $56 million, or $0.30 per diluted share, a year ago. This year’s results were impacted by $34 million in restructuring costs.
The company’s share price had risen 3.4% this year through June 10. It is up 10% year to date on Singer’s announcement and trades around $70.39 per share on Thursday afternoon.
