Commvault Systems Inc (CVLT) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to this CommVault fiscal fourth quarter and fiscal 2007 earnings call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session.

At this time for opening remarks and introductions, I would like to turn the call over to Mr. Michael Picariello, Director of Investor Relations. Please go ahead, sir.

Good afternoon. Thanks for dialing in today. With me on the call is Bob Hammer, Chairman and Chief Executive Officer; Lou Miceli, Chief Financial Officer; and Al Bunte, Chief Operating Officer.

As a reminder, CommVault is a March 31 year-end Company and therefore we are reporting our fiscal fourth quarter and fiscal 2007 year-end results today.

All statements made during this call that relate to future results and events are forward-looking statements that are based on our current expectations. Actual results could differ materially from those projected in the forward-looking statements because of a number of risks and uncertainties which are discussed in our SEC filings and in the cautionary statement contained in our press release and on our website. The Company undertakes no responsibility to update the information in this conference call under any circumstances. The current report on Form 8-K with our earnings press release was furnished to the SEC earlier this afternoon and is available on our website at www.commvault.com in the Investor Relations section under SEC filings.

On this conference call, we will provide non-GAAP financial results. The reconciliation between the non-GAAP and GAAP measures can be found in the table accompanying the press release and posted on our website.

This conference call is also being recorded for replay and is being webcast. An archive of today's webcast will be available on our website following the call.

I will now turn the call over to Bob Hammer.

Thanks, Michael. Welcome everyone and thanks for joining our fiscal fourth quarter and fiscal 2007 year-end earnings call. We had a very good fourth quarter and fiscal year with solid progress in all areas of our business. For the quarter, we achieved record revenues of $42.6 million, up 32% on a year-over-year basis versus $32.4 million in fiscal Q4 2006. Software revenue grew on a year-over-year basis by 28% while our services business, which includes both professional services and maintenance, grew 36% year-over-year.

For the year, we achieved record revenues of $151.1 million, up 38% on a year-over-year basis versus $109.5 million in fiscal 2006, exceeding the high end of our revenue guidance. Software revenue grew on a year-over-year basis by 34% while our services business grew 43% year-over-year.

For the year, non-GAAP operating income, or EBIT, was $22.7 million, up 100% year-over-year versus EBIT of $11.3 million in fiscal 2006. Non-GAAP earnings per share for fiscal 2007 was $0.47 exceeding the high end of our EPS guidance.

We have grown the top line by a compounded annual growth rate of 37-plus percent for the past five years. We are on target to reach our long-term operating goals to achieve our plan of $0.5 billion in revenue and corresponding EBIT targets within the next several years. This is an internal plan that we first developed in 2005 and against which we track our progress on a regular basis. We are tracking well against this plan and are confident we have the right mix of people, products, distribution, structure and momentum to achieve it.

For the quarter, non-GAAP operating income or EBIT was $7.5 million, up 23% year-over-year versus EBIT of $6.1 million for the same period a year ago. Non-GAAP net income was $6 million for the quarter, up 23% over the same period last year, and non-GAAP earnings per share was $0.14 versus $0.13 for the same period a year ago.

Cash flow from operations came in at $8.1 million for the quarter and approximately $30.6 million for the fiscal year. Free cash flow, which we define as cash flow from operations less capital expenditures, came in at $7 million for fiscal Q4 2007, up 50% over fiscal Q4 2006. For the fiscal year, free cash flow came in at $26.4 million. Lou will provide more details on the quarterly and financial results along with the fiscal 2008 guidance later in the call.

I would like to spend a few minutes commenting on the overall health and direction of IT and storage markets from a CommVault perspective. While industry analysts and recent reports project modest spending increases by IT, at CommVault we continue to see healthy demand for our products across all geographies, both our market segments and distribution channels. We also see (inaudible) shifting their IT spending-- shifting their spending to IT solutions that simplify and reduce the acquisition and administration costs of the infrastructure and storage. We call this trend rip and enhance. The brisk adoption of virtualization is just one example.

In addition, there is a lot of dissatisfaction in the market with competitor data management software products. As customers rearchitect their fiscal infrastructures to move to more virtualized environments based on disk based storage, they are much more likely to upgrade their data management solutions to ones that can simplify their management of data across a number of different application needs. As a result, customers today are much more open to looking at new solutions versus business as usual. Our unified suites ability to more simply manage data in virtualized environments combined with our comprehensive reporting capabilities has enabled us to increase our market penetration, particularly at the higher end of the market.

Moving now to our customer overview and deal stats. Our distribution channels remain strong with solid contributions from our direct sales, OEM partners, resellers and systems integrators. We continue to penetrate major accounts. We added 278 new customers in the quarter bringing total new customers added for fiscal 2007 to 971. These statistics do not include a large number of small orders from OEM customers who registered through the internet. Our customer base is now over 5,900.

In the fourth quarter of fiscal 2007, we generated approximately 34% of our software revenue from deals over 100,000 compared to 30% of software generated from deals over 100,000 in the third fiscal quarter of 2007. We are also seeing broader deployment of our full suite of products across a broader spectrum of deals.

As we have historically stated, there are going to be some quarterly fluctuations in the number of deals over 100,000. We continue to anticipate that about 1/3 of our software revenue in the short and medium term could come from deals greater than 100,000. We attribute this improvement to the strength of our market, increasing competitive advantage of our unified suite of products, leverage from our strategic distribution partners and from the addition of new, highly experienced enterprise sales representatives.

Let's talk about the reportable geographies. Geographically, the United States operations generated 60% of our total revenues in the quarter with operations in the rest of the world generating the remaining 34%. The rest of the world primarily relates to Europe, Australia and Canada. For the full year, the split was 70% of total revenues from the United States with 30% coming from the rest of the world. We expect this percentage split to be about 70/30 for fiscal 2008.

CommVault continues to invest in Asia-Pacific and other emerging markets. We now have distributors in Singapore, Malaysia and South Korea. In addition, we have broad coverage in China, including the establishment of a two-tiered distribution network which augments our direct sales (inaudible) in Shanghai, Beijing and [Kwanzo.]

Finally, during the fiscal year, we have added sales teams in East Europe, Scandinavia, the Middle East, India, China and South Africa.

I want to talk about our indirect channels for a moment. Let me begin first by talking about Dell. Our partnership with Dell is expanding and our revenue growth through the Dell channel has been strong. We are very confident about both the near-term and long-term prospects for increasing our revenues through Dell. Sales with both our reseller and OEM agreements with Dell accounted for approximately 19% of total revenues for both the fouth quarter and fiscal 2007 as well as for the fiscal year. Fiscal year 2007 Dell license revenues were up 41% year-over-year and we have very, very strong near-term visibility for Dell OEM-related revenue.

We believe one of Dell's key objectives is to simplify their management of storage and drive a lower TCO for their customers. Dell would also like to simplify the delivery of their data management solutions to their customers. Our understanding from Dell is that they have chosen CommVault as their strategic partner because our software is easy to install and manage. We have the unique advantage of having one platform that can meet their customers' needs across different account sizes and across many different data management software products. We also integrate very well with their hardware.

We have worked very hard to build strong relationships within the Dell organization. As a result of our solid sales execution and our good working relationships with the Dell team, Dell has recently increased their commitment to the CommVault relationship with the additions of CommVault HSM and archiving products into their OEM program and Dell recently has launched joint campaigns with us around virtualization and compliance.

We believe CommVault is one of two primary data management software offerings within the Dell OEM portfolio and we continue to take share in this space due to our product's ability to scale from the SMB market segment into the corporate customer base without having to rip and replace the product as customers grow. We believe this is critical to their scalable enterprise strategy.

We are a nimble, focused Company, and our experiences at Dell that this works well at Dell. In the end, we expect that Dell is going to work with companies that execute well and provide customers with products they want.

In summary, we have a strong relationship with Dell and we expect our relationship to continue to strengthen.

Moving on to our relationship with Hitachi. Our relationship and business with Hitachi Data Systems continues to develop as we refine our distribution strategy and improve our business execution. Our relationship with Hitachi continues to provide significant contributions to our license revenue and services revenue growth. Hitachi and CommVault are both making significant investments to ensure that we can meet our mutual long-term growth targets. As a result of these investments and more management focus, we are having success with Hitachi in the enterprise segment of the market on a global basis.

I want to talk a little bit about our distribution partners. To further enhance our channel, we have added top-tier distributors to enhance and broaden our channel program. You may have seen our recent announcements with Arrow Enterprise in the U.S., Horizon in the U.K., and with [Getronix] in the Middle East a few months back. We believe we have a lot of upside if we get better engagement and selling effectiveness through the channel. Signing with massive distributors like (inaudible) gives us the benefit of gaining immediate expertise in managing and training channel partners to be more effective in selling our broader suite of products.

So I'm going to talk about Arrow specifically for a moment. In mid-March, we announced that we signed a wide-ranging distribution agreement with Arrow Enterprise. Expanding our channel strategy with an experienced and efficient distribution partner like Arrow is a key part of our growth strategy. The agreement covers North American commercial markets and initially designates Arrow as the exclusive value-added distributor for CommVault's full suite of award-winning enterprise data management products and services.

As CommVault continues to expand its global footprint, this is the latest in a series of worldwide agreements that mark our commitment to developing a more efficient and effective two-tier distribution strategy. The relationship enables CommVault to reach more resellers and users through Arrow's extensive relationships, and also gives CommVault access to Arrow's community of storage resellers and systems integrators who fit our ideal channel partner profile of having strong storage practice, I mean a strong storage practice focused on data migration, data archive, compliance, disaster recovery and business continuity planning.

In addition, Arrow can provide much more focused attention to our resellers in regards to training, go-to-market initiatives, marketing collateral and providing much more efficient ordering.

In summary, the move to Arrow significantly increases the amount of resources focused on our reseller channel to ensure that we continue to strengthen and broaden this tier of distribution. Our data management products became available through Arrow as of April 2nd, so our fiscal 2007 revenue does not reflect any impact.

I'll talk a little bit about products. For fiscal Q4, 2007, sales of data protection products represented approximately 82% of software revenue. We are seeing strong growth in the following non-Galaxy products segments -- e-mail archiving, continuous data protection, remote office and capacity management. We will be offering new additional CommVault-developed products as part of our next generation technologies, thereby enhancing our position in our current addressable market, as well as extending our addressable market into new high-growth segments. We are expanding our global distribution and provide a tailored offerings of our product line to address both the SMB as well as the enterprise market spaces.

In addition, we are working with our strategic OEM partners to deliver data management solutions to the marketplace which are beyond traditional data protection. While we do not give guidance for our data protection products as a percent of revenue, we are tracking along our internal plans and are confident that we will continue to make significant progress in expanding our market positions in non-backup products in fiscal 2008.

It is important to note that we are achieving high growth in both our backup and non-backup products. However, our non-backup products have been growing faster as a percent of sales than backup and over time, we expect them to account for a higher percentage of our product revenue. We continue to believe that we are taking share in both the backup and non-backup markets.

I'm going to talk a little bit about our investments in distribution, marketing and sales. We have stepped up our spending in distribution and marketing to ensure, Number 1, that we will meet our internal revenue targets for fiscal 20008; and 2, that we will make the necessary investments to support our growth, our go-to-market initiatives for our next generation technologies. We have added additional sales representatives, major account representatives, field technical personnel, market and field specific technology specialists in early fiscal 2008 in order to increase distribution leverage much earlier in this fiscal year than in prior years.

I'll talk a bit about branding and marketing. In April, CommVault launched its first-ever worldwide comprehensive marketing and branding campaign. This is the first campaign we have done since our inception as our earlier focus was in product development, support and distribution, and that has been our focus with marketing efforts taking a back seat until recently. We are doing this now in order to increase our access to more deals and to better communicate the depth and breadth of CommVault's products and services. Where we have good sales representation and access to deals, we have a very high win rate. We hope more brand recognition will bring us more access to -- give us access to more deals.

In addition, many potential customers are very surprised about the depth and breath of our product offerings, and they think that our products and have on reducing costs and improving business operations. What we need to do a better job in is communicating that we are much, much more than just a backup company and we can offer unique value-add to our customers versus other competitors in the market.

In summary, the answer to why now regarding our branding campaign, the answer is to increase awareness, and two, to provide a much clearer picture to the market as to who we are, what we have to offer, and the unique value we bring to the market. In order to achieve this objective, we have launched a comprehensive branding and awareness campaign in Q1 of fiscal 2008. You may have seen our new ads recently in such publications as CIO, Computer World, Information Week and Storage, among others. Our expectation is that the investments we're making in marketing, advertising and branding will increase our brand awareness and access to more opportunities over the coming year.

Before I turn the call over to Lou to discuss our financials, I would like to take just a moment to thank one of our directors, Tom [Barry,] who recently resigned from our Board due to personal reasons. Tom has been on our board since our acquisition from Lucent in 1996 and his contributions to the Company have been significant and much appreciated. He has been a trusted advisor and a board member, and we owe him a great deal of thanks for all his efforts and years of dedicated service. We wish him well in the future.

I will now turn the call over to Lou Miceli, our CFO, who will provide more details about our quarterly results. Lou?

Thanks, Bob, and good afternoon, everyone. I will cover the financial highlights and fiscal year 2007 and then turn the call back over to Bob. The references to non-GAAP numbers have three adjustments. The first is the exclusion of all non-cash, stock-based compensation expense. The second is the adjustment for additional FICA expenses incurred by CommVault when employees exercise in-the-money stock options during the quarter. And the third adjustment is the inclusion of an imputed tax rate of 25%, which includes an adjustment for our deferred tax asset. Later in the call, I will discuss the reporting of the deferred tax asset on the balance sheet and the one-time impact on the income statement.

For the quarter, CommVault's total revenues increased 32% year-over-year and 11% sequentially over the prior quarter. Software revenues increased 28% year-over-year and 12% sequentially. Services revenues increased 36% year-over-year and 10% sequentially. For the year, total revenues increased 38% year-over-year. Software revenues increased 34% year-over-year. Services revenue increased 43% year-over-year. Approximately two-thirds of our software revenue continues to come from our install base with the rest coming from new customers. This makes us consistent with the trends for the past several quarters and in line with our expectations.

For the quarter, software revenue increased by $5.2 million year-over-year with approximately 64% of the increase coming from our indirect sales channels which includes resellers and OEM partners. The remaining 36% came from our direct sales organization.

We continue to see growth in services revenue, with a high maintenance attach and renewal rates as well as continued professional services revenue growth in both new accounts and our install base.

The revenue mix for the quarter and the year was 56% software and 44% services, which is in line with our expectations. We are anticipating the same split of approximately 56% software and 44% services to continue in fiscal 2008.

Gross margins were 85.9% for the quarter, 85.7% for the year, which is within our previously provided guidance.

Moving on to operating expenses, total operating expenses were $28.4 million for the quarter and $104.2 million for the year. For the quarter, sales and marketing expenses increased $4.9 million or 36% over the prior year period. Approximately three-quarters of this increase was related to employee compensation, which includes the additions of new employees as well as commissions on higher revenue. The rest of the increase was due to higher travel and entertainment and slightly higher marketing expenses.

Our total worldwide headcount increased from 709 at the end of December to 727 at the end of March. The headcount increases were primarily in sales and marketing, R&D, customer service and support.

R&D spending increased by about $600,000 in the quarter or 10% over the prior year period. The increase was primarily related to higher headcount.

G&A expenses increased by $1.5 million in the quarter which is 57% over the prior year period. The majority of this increase is a result of higher public company costs which include accounting and compliance.

Non-GAAP operating margins were 17.5% for the quarter resulting in non-GAAP operating income of 5 -- of $7.5 million. For fiscal 2007, non-GAAP operating margins were 15%, resulting in non-GAAP operating income of $22.7 million. This represents EBIT growth of approximately 100% year-over-year for the full fiscal year.

We were able to exceed the high end of our fiscal year 2007 operating margin guidance by 200 basis points. As we have stated previously, we continue to believe we can improve operating margin by 2 to 3 percentage points on an annual basis over each of the next few years. Our long-term operating margin goal is in the low to mid-20s. We believe we can achieve this and continue to make the necessary investments in sales and R&D.

Fiscal year 2008 will be our first full year as a public company, and therefore we will incur higher public company compliance costs. Nonetheless we believe we can continue-- we can increase our operating margins in line with our guidance as we continue to grow the revenue line.

The non-GAAP net income for the quarter was $6 million and non-GAAP EPS was $0.14 per share based on a diluted weighted average share count of approximately 44.7 million shares. For the year, net income was $19.9 million and non-GAAP EPS was $0.47 per share based on a diluted weighted average share count of approximately 42 million shares.

Turning now to the balance sheet and cash flow statement. As of March 31, our cash balance was $65 million, up approximately 15% from $56.5 million at the end of December. Cash flow from operations was approximately $8.1 million in Q4, and approximately $30.6 million for fiscal 2007.

Our DSO was 47 days, which is within the range of our historic average. We anticipate that our DSO will continue to be in the range of the high -- of the mid-to-high 40s to the mid-to-high 50s for the foreseeable future.

Deferred revenue increased $3.1 million or approximately 8.3% sequentially over the prior quarter. As a reminder, deferred revenue is comprised of mostly 12-month maintenance contracts and professional services. As you may remember, last quarter we deferred approximately $800,000 of new software revenue from one customer, which did not meet revenue recognition criteria at the end of December. We recognized the $800,000 of software revenue this quarter, and therefore it is no longer in the deferred balance.

Capital spending was approximately $1.1 million in the fourth quarter. Our total CapEx for fiscal 2007 was approximately $4.2 million, which was in line with our expectations and guidance. Our current estimate for fiscal year 2008 capital spending is between $4 million and $4.5 million.

Now on to taxes. I will spend a new minutes on three aspects of taxes for fiscal years 2007 and 2008. The first is a discussion of the deferred tax asset that we recorded on the balance sheet during the quarter. Secondly -- the second one is the difference in the GAAP tax rate and non-GAAP pro forma tax rate, and the third is our cash tax rate for fiscal year 2007 and the anticipated cash rate for fiscal year 2008. Until the fourth quarter of fiscal 2007, we had recorded a valuation allowance to fully reserve our deferred tax assets based on the accounting rules for income taxes. At March 31, 2007, we determined, based on a number of factors, that our deferred tax assets were more likely to be realized through future earnings. Therefore, during the fourth quarter, we reversed the majority of our valuation allowance and recorded a tax benefit of approximately $52 million, which is partially offset by approximately $5 million for certain tax reserves plus our current tax provision. In summary, you will see a one-time income tax benefit on the GAAP P&L for approximately $46 million for the quarter. This one-time GAAP adjustment has been included as a pro forma adjustment on Table 4 of our press release.

Secondly, let me speak to the GAAP and non-GAAP pro forma tax rates. As you can see, the GAAP tax rate for fiscal year 2007 was not reflective of our expected long-term GAAP tax rate as a result of the one-time reversal of the valuation allowance. For the presentation of non-GAAP numbers in our press release, we applied a 25% effective tax rate to the quarter, which blends to a non-GAAP pro forma tax rate of approximately 20% for fiscal 2007. For fiscal 2008, we believe that the GAAP tax rate on the P&L will likely will be in the range of 32% to 34%. However, the Company is considering tax planning measures that are designed to reduce the long-term terminal tax rate within a range of 28% to 32% over the next few years. So while the GAAP tax rate for fiscal 2008 is likely to be higher than 28%, we believe a ramped approach is appropriate and our guidance is based on a pro forma rate of 28%. Therefore, for fiscal 2008, we will measure ourselves to a non-GAAP pro forma tax rate of 28% in order to properly reflect gradual increase to our long-term terminal rate over the next few years.

In summary, we used a non-GAAP pro forma tax rate of 20% in fiscal year 2007, and we will use a non-GAAP pro forma tax rate of 28% for fiscal year 2008.

The third aspect of taxes that I will speak about is the actual cash rate -- the actual cash tax rate. The actual cash tax rate for Q4 and for fiscal 2007 was approximately 2%. We anticipate that the cash tax rate for fiscal year 2008 will be in the range of 4% to 7% based on current assumptions. This is mostly for state taxes, federal alternative minimum taxes and for taxes in locations around the world where we have used up all of our NOLs and are now profitable. In the United States, we believe we have sufficient net operating losses and tax credits to offset taxable income for the next two to three fiscal years, and as a result, our cash tax rate should continue to be substantially lower than the effective tax rate used for GAAP purposes for the next few years.

Moving on to fiscal year 2008 guidance. We will continue to only issue annual guidance which will be updated quarterly. In addition, we will continue to present non-GAAP numbers on a forward-looking basis, which will primarily exclude stock-based compensation charges and FICA costs associated with the exercise of stock options, along with a pro forma adjustment to reflect a tax rate of 28%. For fiscal year 2008, the guidance is as follows. For the 12 months ending March 31, 2008, revenue is expected to be in the range of $191 million to $193 million. Using the midpoint of our guidance, this represents revenue growth of 27% year-over-year.

Non-GAAP diluted earnings per share is expected to be in the range of $0.55 to $0.57 per share using a projected fully diluted share count of approximately 46 to 47 million shares and applying a pro forma tax rate of approximately 28% for the full year.

We are expecting fiscal year 2008 non-GAAP gross margins to be between 85.5% and 85.7%. We are also expecting non-GAAP operating margins to be between 17.2% and 17.7%. The non-GAAP guidance excludes approximately $0.13 to $0.15 per share related to the effects of stock-based compensation expense under FAS 123R, which is net of non-GAAP income tax expense of approximately $0.06 per share.

That concludes my prepared remarks, and with that, let me turn the call back over to Bob. Thank you.

Thank you very much, Lou. Now I want to spend a few minutes talking about where CommVault goes next before turning the call over to Q&A. CommVault is committed to staying on the cutting edge of technology and improving our competitive advantage by bringing unique value to our customers. We believe that we have a proven track record of success and consistent with our track record, we are confident we will continue to develop highly innovative products that have high value add for our customer base. We have thousands of customers and some of our best product innovations come from customer suggestions. We continue to work on a number of enhancements that address many of our customers' suggestions and combined with our own innovative ideas, have the potential to solve additional complex industry problems surrounding the management and retrieval of data.

Let me speak about some of the challenges that customers have asked CommVault to address. As you know, data growth continues unabated due to regulatory rules mandating longer and broader retention of data combined with organic growth driven by the digitization of almost everything data related. While IT has little advantage over primary data growth, it does have power over secondary copies of data like replicas, backups, backshots and archives. Customers are very interested in technologies that can reduce the amount of stored data such as deduplication to ease the burden of data retention. Compliance, SOX, and other regulations are forcing IT to realize that more value can be extracted from the vast amount of stored data and secondary copies. What customers tell us they want and need is a more efficient way to find, access, and retrieve only the relevant content of the data in order to bring unique value to their enterprises. We believe that customers will invest in solutions that better manage local and remotely stored data. Their objective is to eliminate the personnel and hardware costs at remote locations along with the support problems associated with legacy data protection approaches. In fact, recent headlines have, again, driven home the need to protect sensitive data outside the corporate center.

Additionally, customers have asked us to help improve the efficiency of managing encrypted data. They have asked us to address broader data security issues such as restricting access to secondary data based on user profile, offering secondary processing and data to meet business, operational or regulatory needs, along with simplifying the administration of encrypted data. We have taken our customers' suggestions to heart and are working to find ways to solve these complex industry problems.

We believe that CommVault is well positioned to take advantage of these customer needs, primarily because we have a unique single code base across all our product lines, data protection, archiving, replication and recovery markets. We can and will utilize this code base to provide new innovative products. We believe that CommVault's development approach is closely aligned with our customers' desires to reduce operational costs, while providing broader access to data in new and more flexible ways. We are meeting our internal product development targets for our next generation technologies. At the appropriate time, we'll provide you and the general public with more information about our next generation products.

In summary, we have the market opportunity. We have built a strong foundation of people, products and distribution, and continue to make the necessary investments in product innovation, support and marketing, and broader distribution in order to sustain our track record of growth and innovation into fiscal year 2008 and beyond. In addition, we have a very clear vision for our next generation technologies. We have excellent visibility for revenues across small, medium, and larger enterprise deals and across our product suite. This visibility reinforces our confidence in our execution of our balanced distribution strategy between small to medium sized businesses and enterprise businesses, and reinforces our conviction in our FY 2008 guidance.

Consistent with prior statements, we will always maintain discipline in issuing guidance. We are optimistic in our ability to achieve our long-term growth and profitability objectives and are similarly optimistic in our ability to continue to expand our available markets.

With that, I would like to turn the call back to Michael. We'll open it up for Q&A.

Thanks, Bob. Before we open up the line for your questions, as usual, we ask you to try to limit yourself to one question, including clarification. This will enable us to take as many questions as possible. Thank you all for your cooperation in this matter. Could you open up the line for questions, please?

Yes. Thank you. (OPERATOR INSTRUCTIONS) We'll take our first question from Tom Curlin with RBC Capital Markets.

Good guide. There wasn't any specific comment about the June quarter in there and I know you guys don't plan to give quarterly guidance and I think that's been the case, but just-- can you give us some sense of how June feels relative to prior June quarters from a seasonal perspective? Is it a typical seasonality type of quarter or do you feel slightly better about seasonality versus prior years? Or in particular, not so much last year, but-- ?

Yes, typically, Tom, and historically, our June quarter has been a down quarter. We had an exception last year, where we had an up June quarter. I would say this-- the expectation should be that you would assume that June would be more typically historical. Having said that, we have some things we didn't have a couple-- few years ago, and like our Dell channel and things like that which give us a little higher visibility. So just in summary, typically fiscal Q1 is our slowest quarter, and I think-- not only our slowest quarter, but it's usually our weakest quarter in the fiscal year, and I think that trend-- from a trend should continue.

Is that-- if you look at that and that was certainly the case last year, but you were up sequentially last year versus being flat or down the prior couple of years. Do you feel like it's closer to what we saw last year, or should we assume something at least flat or modest--?

I would assume flat or down, but it could be up. Okay, Tom?

All right. And then your international revenue was up nicely, but it looks like you continue to model basically the same mix for the coming fiscal year versus the fiscal year completed. Can you just walk through what happened with the strength in international for the quarter? And I would think international potentially could be growing faster than U.S. for you in the coming year. So what are your assumptions or how do you get to an equal mix, if you will, year-over-year?

That's a good question. I mean-- internationally, we had-- I would say solid performance from the European sector. We had solid performance from Australia. The emerging markets are beginning to kick in, and we know we're going to see some more of that as those franchises become more mature. We are clearly expanding our footprint. It takes some time in some of these emerging markets to get traction, but in general, it's-- our international business is really healthy.

Having that-- having said that, on the domestic side, we have really stepped up our investment in our distribution in the U.S. on a relative basis, relative to prior years. And that investment, as we said in the (inaudible) Tom, has primarily been in Q1, so the combination of our increased spending in the U.S.-- and we haven't said when, but at some point, we have got a fair amount of new technology coming to market. I think the combinations of those things should provide quite a robust growth in our U.S. market as well. We are also -- had success in getting a lot of these larger accounts and you saw that in the stats from last quarter. So bottom line is we see growth, strong growth, in both domestic and international. Could it be a little higher international? Yes, it could be, but right now that's not what we're forecasting.

And then just finally, any change in the relative win rates or who you are seeing the most in competitive situations?

No. I mean, the primary competitor is still Symantec. They are by far our largest competitor in the market. And the other competitors-- I would say EMC would be second, but it's a distant second.

Okay. Thank you.

Next we'll go to Ed Maguire with Merrill Lynch.

Yes, good afternoon. Could you comment on what spending conditions you may have seen in your federal business during the quarter?

It may -- just in general our government sector, Ed, has been-- I mean globally has been strong. And-- I mean, our federal-- I don't think there's anything remarkable about our federal-- , federal sector that's material.

Okay. And you've made-- recently made some new hires in some of the regions, Canada and Asia-Pacific, it looks like. Could you talk about what your-- what your expectations are for different regions as well as just a sense, really, from a top-down perspective of how healthy the overall IT spending is in the U.S. compared to the different regions overseas?

Well, I know I said in the call-- again, with our footprint in the market, we have seen healthy spending across the board. We have not seen-- I know some of the other companies have, if you look at their results, what they see. They saw poor results in the U.S. versus some of the other areas, but our funnels and pipeline builds globally have been strong across the board, Ed. I mean it's -- there's no material difference in funnel building in these markets. What you'll see a difference is, if we're relatively new in our markets, it's going to be different, but in general it's robust, pretty much across the board.

Okay. Thanks very much.

Next we'll go to Tim Klasell with Thomas Weisel Partners.

Hello, everybody. My first question just goes to-- you mentioned-- or in your guidance you got a little bit of operating leverage going to the bottom line. Which lines should we expect to get a little bit of leverage out of? Is it R&D? Sales and marketing? Which line?

It's typically been in the -- sales and marketing line has been the largest sector where we have been getting leverage, and that's what has happened the prior year. Over the year, the fiscal year of '08, that's what you are going to see. As I mentioned earlier in the year, you may not see that in terms of the full impact is where we're investing heavily in distribution right now, but that 200 to 300 basis points of increase, we are really confident we'll achieve that, Tim.

Okay. Good. And then as far as the shape, I know you don't give quarterly guidance, but you mentioned in your prepared remarks about front-end loading some sales and particularly some of the marketing efforts this year. Is that going to change the shape of how the bottom line flows this year relative to-- compared to prior years?

I just think-- what we said earlier is that your Q1 is going to be-- typically from an earnings standpoint, Q1 has always been the weakest quarter of the year and we progress, because your Q1 revenue growth quarter-on-quarter is the lowest. It's either flat or down or slightly up, but it's your lowest quarter-on-quarter growth so if you are investing heavy and you are not-- you don't have the-- as much growth on the top, you're going to-- you are always going to see some impact on earnings in Q1.

Okay, and then one more real quick one. I know you guys don't comment on product development but are you still on track with all of the new initiatives?

Absolutely. We're really confident about where we are.

Okay. Good. Thank you.

Next we'll go to Derek Bingham with Goldman Sachs.

Hi. Congratulations on the quarter. I just wanted to see if you had any early signs from Arrow in terms of how that's going, just in the short amount of time since you announced? And in addition, any expectations on the impact on your [VAR] count this year and how quickly we might expect that to happen?

The relationship got off to a very, very solid start, was well planned and really well executed. I mean clearly, it's facilitating revenue in the VAR channel. Makes it a lot easier for our VARs to order through Arrow. It's a lot simple-- much more simple for them. They are getting the attention that we are expecting from Arrow. We are expanding the amount of VARs that are being managed under Arrow at a-- at a planned rate or maybe a little faster rate than planned. So expectation looks really good, Tim. I mean, it's early, but the-- I mean, we-- things-- seems really effective in April, so we don't have a lot of time on it but the initial execution has been extremely good.

And then just on the direct side as well, just if I missed it, where did you end the year on direct sales heads and what your plans are this year for growing that number?

You didn't miss it, because we don't discuss it.

Okay.

I think what I did indicate is that we are investing more heavily in Q1 than we have in prior fiscal years, particularly in the Americas.

Thanks very much.

Okay.

Next we'll go to Brian Freed with Morgan Keegan.

Hi, guys. Good quarter. Can you comment on the appetite of your shareholders for the -- an orderly secondary given the recent unlock of the restricted shares?

I'll make comment just in general on the secondary. It's likely to occur-- although until we make some definitive announcement, there are no guarantees it will occur because obviously there are some factors that are not-- that are outside our control. The primary reason to do it is to remove the ownership overhang of some of our largest pre-IPO shareholders and get these shares into the market in an orderly fashion, and at this time, we think there's sufficient appetite to do something like that. Again, it's likely, but there's no guarantees.

Okay. And secondly, could you maybe offer a little more clarification in terms of the magnitude of the incremental spend you see related to marketing campaign and new product development in the early part of the year?

I don't think that's-- I don't think we have discussed that in the aggregate in our-- or will in our 10-K, so I can't comment. But what I will say, Brian, is we have done almost no outside advertising. We have built this Company by what I call guerrilla marketing, so we're in the press now. If you looked at our website, we have completely redone our branding. It ties into what we're doing today, and it fits a lot better for some of the new things that we'll announce when the time comes for our new products and technology. So I mean, it clearly -- it's a significant step-up, but we haven't -- the increased spend is basically part of our guidance.

Okay. Thank you.

Next we'll go to Phil Winslow with Credit Suisse.

Hi, guys, good quarter. I was wondering if you could just spend some time talking about sort of the competitive environment by customer segment when you look at sort of the very large enterprise versus the small and mid-sized business and if you've really sort of seen any change in that -- in those competitors or the competing offerings and just your win rates there?

Well, in general, I mean, we have got to focus on the enterprise. Obviously if you look at our stats from last quarter, we're having some good success in that sector. And our pipelines in that sector are building very fast, and our win rates are high. That's in the enterprise sector.

On the SMB sector of the markets, we've had success there in the past. Our products fit well there. We have strengthened our distribution channels with Arrow and other distributors and our Dell channel is working really, really well. So we feel real good about our ability to continue to grow rapidly in the SMB sector of the market. So if you look at our-- our products fit well in each of these sectors, our distribution channels are working and we are definitely having success in our results and our pipeline builds in all those sectors of the market. We're not seeing weakness at all. We're seeing really solid growth and visibility in those sectors.

Great. Thanks, guys.

(OPERATOR INSTRUCTIONS) It appears we have no further questions at this time. Mr. Hammer, I'll turn things back to you for any closing comments.

Okay. Thanks, everybody. I would like to thank everyone for your time and interest in CommVault and our recent performance. We are poised for a very successful fiscal year in 2008 and we are excited about our opportunities for continued growth. Thanks for listening in.

That does conclude today's conference call. Again, thank you all for your participation, and have a great day.