Ever since it listed on Nasdaq in 1995, Florida-based Citrix Systems has lived with the helter-skelter stock chart of a technology company, soaring to over $100 per share and plummeting to $5. Still, it has usually outperformed the Nasdaq Composite Index, possibly because, as IRO Jeff Lilly points out, ‘Although we did peak during the dotcom craze and bottomed out with the market post-September 11, we have consistently grown, we have real earnings, and we’re very profitable as a company.’
In the course of Citrix’s ups and downs, Lilly has noticed that even otherwise rational investors never entirely adjust to scaling. ‘In reality, a $4 move for an $80 stock is the same as a $1 move for a $20 stock, but that’s not the way people look at it. If your stock is down four, five, six bucks in a day, you’ll soon begin to hear from investors.’
Lilly cut his teeth in the Texas high-tech arena, interning at Dell while studying finance in Austin – basically a computer salesman, he says, learning about hardware and software while getting his degree. After graduating he went to a Texas software company, where he was one of six people in treasury. He joined Citrix in 1998, recruited by someone with responsibility for IR, treasury and risk management – practically a one-man organization. ‘In my previous job I had always interacted with IR, but there was no direct involvement. At Citrix, I got over-the-shoulder IR training.’
Lilly’s bosses at Citrix told him: ‘You know about the industry; IR could be an evolving role for you.’ But his technological expertise was no preparation when, within two months of his arrival, the stock price plummeted and the phones started ringing off the hook. ’My training was finished and I was formally inducted in a baptism of fire,’ he recalls. ‘Actually, it was more like a fire hose.’
For his first three years at Citrix, Lilly had a dual function: treasury and investor relations. Since 2001 he has been wholly dedicated to IR, and his commitment is producing results – including the grand prix for best overall IR by a mid-cap company at this year’s IR Magazine US Awards.
Side-by-side training
Not all Lilly’s IR training was over-the-shoulder. Some of it was side-by-side, he says, citing Niri and its annual conference as ‘very positive factors, letting me network with my peers and learn from them when I was younger.’ He has clearly graduated: this year he was a featured speaker at Niri’s national conference, talking about best practices and how IR will become even more meaningful over time as the sell-side landscape changes. ‘Independent research shops are becoming more prevalent and may battle the traditional shops over time,’ he told the audience.
Back at Citrix, in response to the growing demands of the sell side (whose coverage has doubled to over 20 analysts as Citrix has grown from a small company to the upper-mid-cap range), Lilly is no longer a solo pilot. His department doubled in size when he hired an analyst, Rhett Butler, to help deal with analysts’ growing demands. ‘Some of our peers have been acquired as we have been growing, and with a market cap of $7 bn, we’re now in the top 20 or so publicly traded software companies,’ Lilly says. ‘We get a lot more visibility.’
Lilly reports to Citrix’s VP of strategic development, Mike Cristinziano, who devotes much of his time to mergers and acquisitions but attends to IR on an as-needed basis. He highlights the need for a tech company’s IR team to liaise particularly closely with corporate communications because so many investors follow the technology trade press closely. ‘We work as a team – for product releases, earnings reports and company announcements,’ he says. ‘I get a lot of value from corporate communications, and I hope they get some from me.’
Index benefit
Citrix stock is still held mostly by North Americans, with around 85 percent held by institutions and less than 5 percent by employees. ‘Most are growth or Garp in style,’ says Lilly. ‘We are also in the S&P 500 and Nasdaq 100, so almost one fifth of our investor base is index-related.’ Lilly identifies a collateral benefit of being in the indexes: Citrix has a higher profile with foreign investors, who, even if not as slavishly tied to the indexes as US index funds are, do use them as a reference. Once a year, Citrix makes a point of attending one of Nasdaq’s semi-annual European tech conferences: ‘It’s great exposure to international investors over a concentrated period of time,’ Lilly says.
Lilly is wary of distinguishing too much between mutual and hedge funds. ‘Hedge funds have different strategies, just like mutual funds do, so it is difficult to categorize them,’ he explains. ’When we have investor meetings, the issue is more whether the fund in question is able to take a concentrated position. There may be a mutual fund with $10 bn under management but that only holds a few of our peers’ shares, while a hedge fund with only $2 bn may own a half-million or a million.’
Lilly has a pool of six executives to call upon for non-deal roadshows. He usually takes one with him to meetings and tailors the agenda according to the individual. With CEO Mark Templeton, for example, Lilly tends to ‘stress the financial questions more and leave the strategy side to him, and vice versa with the CFO.’
Even just a few meetings can amplify Citrix’s message. ‘When we go on the road, we can’t meet with everyone,’ Lilly says. ‘But we have found that when we have a good story, investors pass it on. They’re a tight-knit community; they talk among themselves and share ideas, which can give you visibility that you wouldn’t have otherwise.’
Citrix has no formal retail investor program, though it does make occasional excursions to BetterInvesting events. ‘We have really revved up our web site, putting as much as possible out there so the average investor can get as much information as he or she needs,’ Lilly says, adding that individual investors can call the IR department any time: ‘We’re very responsive. Unless it’s earnings week or we’re traveling, we’ll get back to them the same day or within 24 hours, whoever they are.’
Tracking change
The concentration of Citrix’s top investors makes tracking the shareholder base a relatively easy matter. ‘When you look at our top 25 holders, some of them are index funds, so there’s not so much change,’ Lilly explains. ‘On the other hand, if someone is taking a large position in the company, they’re going to spend time talking to us or to the sell side, which often relays the messages.’
Lilly and Butler track changes in the investor base on a monthly basis. ‘Whenever there’s a spike or increase in activity, we may double-click and look deeper into it,’ says Lilly, who seems urbane enough not to cry panic when some investors rebalance to reduce exposure. ‘We keep a close enough relationship that they let us know their thoughts – whether they’re valuation-driven or sector-driven – so we understand,’ he adds.
Looking back at his career, from the vicissitudes of the late 1990s – ‘a challenging environment’ – right up to the present, Lilly stresses the long-term approach as the right one for a tech company. Despite what he calls ‘the challenge of telling investors about missing financial targets when they are investing people’s money in us,’ he balances discussions by focusing not only on the strong points but also on the genuine challenges.
The market is not always rational, however. ‘I’d like to think that as an established company we’d have a little less volatility in the market, but technology always tends to be more volatile, so you shouldn’t evaluate the company only on a short-term basis. We want to make the right investments that will drive long-term value for shareholders. If we generate products that enable us to grow our revenue stream and do so profitably, then we’ll have what shareholders are looking for – consistent growth, and a vision that shows the company is positioned to grow over time.’
