What happened
Shares of Micro Focus International PLC (MFGP +0.00%) plummeted on Monday following the sudden resignation of the company's CEO and a downward revision to the full-year guidance. The stock was down about 45.8% as of 12:30 p.m. EDT.
So what
In a press release, Micro Focus announced that Chris Hsu had submitted his resignation and will step down immediately as CEO of the software company. COO Stephen Murdoch will take on the role and join the board of directors.
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The company's performance likely played a role in the management shake-up. Along with the news of the CEO's resignation, Micro Focus updated its guidance for the full year. "Since the interim results on 8 January 2018, the rate of year-on-year revenue decline has been greater than anticipated," read the press release.
Micro Focus now expects revenue for the year ending on Oct. 31 to contract by 6% to 9% year over year. The company's guidance in January, which came along with disappointing results, called for a gentler decline between 2% and 4%. The company expects its cost-reduction program to offset this revenue decline in terms of adjusted EBITDA margin. Revenue for the six-month period ending on April 30 is expected to tumble by 9% to 12% year over year.
Micro Focus blamed lower-than-expected license income for the revenue shortfall, driven by issues with its new IT system implementation, higher attrition of sales personnel, disruption related to the merger with HP Enterprise's software business, and sales execution issues in North America.
Now what
Despite the ongoing issues with the HP Enterprise software merger, Micro Focus still sees it as the right move: "[T]he Board believes that the fundamental thesis of the HPE software acquisition remains intact. Micro Focus' strategy, dividend policy, leverage target, and Return of Value approach remain unchanged."
It seems that Micro Focus underestimated the difficulty of integrating the HP Enterprise software acquisition. The company will need work through these issues before the stock has any chance of recovering.
