Commvault Systems Inc (CVLT) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the CommVault's Fiscal Fourth Quarter and Fiscal 2008 Earnings Conference 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 will 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 are Bob Hammer, Chairman, President and Chief Executive Officer; Al Bunte, Chief Operating Officer; and Lou Miceli, Chief Financial Officer.

Before we begin, I'd like to remind everyone that statements made during this call, including in the Q&A session at the end of the call, that relate to future results and projections are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and are based on our current expectations.

Actual results may differ materially due to a number of risks and uncertainties, which are discussed in our SEC filings and 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 circumstance.

Our earnings press release was issued today over the wire services after the market closed and has also been furnished to the SEC as an 8-K filing. The press release is also available on our Investor Relations website. On this conference call, we will provide non-GAAP financial results. The reconciliation between the non-GAAP and GAAP measures can be found in Table 4 accompanying the press release and posted on our website.

This conference call is also being recorded for replay and is being webcast live. An archive of today's webcast will be available on our website following the call. I will now turn the call over to our CEO and President, Bob Hammer.

Thanks, Michael. Welcome, everyone, and thanks for joining our fiscal fourth quarter and 2008 year-end earnings call. We had a strong fourth quarter and fiscal year, with continued progress in all areas of our business. The demand for our Simpana 7.0 software suite remains very high and it has clearly helped us accelerate the growth of our emerging products. With Simpana, we continue to outperform our competition and increase our market share.

For the quarter, we achieved revenues of $56.6 million, up 33% on a year-over-year basis, versus $42.6 million in fiscal Q4 2007. Software revenue grew on a year-over-year basis by 32%, while our services business grew 34% year-over-year. For the year, we achieved record revenues of $198.3 million, up 31% on a year-over-year basis versus $151.1 million in fiscal 2007, exceeding the high end of our revenue guidance.

Software revenue grew on a year-over-year basis by 30%, while our services business grew 33% year-over-year. For the year, non-GAAP operating income or EBIT was $32.8 million, up 44% year-over-year versus EBIT of $22.7 million in fiscal 2007. Non-GAAP earnings per share for fiscal 2008 was $0.57. Lou Miceli will provide more details on the financial results, along with the fiscal 2009 guidance, later in the call.

I'm going to talk about the economic environment. The buying patterns for our solutions remains strong. At the present time we continue to see healthy demand for our products across all geographies, vertical market segments and distribution channels. We are well aware that the current economic climate has added a lot of uncertainty about future demand. While we are not naive about the economic climate, we have not see a slowdown in demand for our solutions.

We believe demand for data management solutions is driven by the need to manage the unabated growth for data, data protection and availability, compliance, e-discovery and disaster recovery. Demand for data management solutions is also being driven by the need to retain data longer and reduce the cost of both storage and energy. In addition, the adoption of disk space data management solutions and the need for improved recovery of data are causing customers to upgrade from traditional backup to more modern data protecting solutions, which utilize functions such as replication, continuous data protection and single instancing.

These industry trends have had a positive impact in our Q4 and we are seeing the benefit in our pipeline funnel as well. Gartner validated these industry trends in their recently released market scope for enterprise backup/recovery software 2008. CommVault was one of the two highest rated vendors in their new rating system.

The demand for our Simpana 7.0 software suite remains extremely strong and has clearly helped us accelerate the growth of our emerging products, which were up 103% in Q4 FY '08 from Q4 FY '07. The core backup business was up 13% sequentially and 16% year-on-year. We have seen a very high adoption rate of Simpana. Currently, about one-third of our entire installed base has either upgraded to or purchased the Simpana suite.

We believe CommVault is uniquely positioned to deliver data and information management solutions with a single unified software platform that delivers best in class functionality and reliability, with real cost and administrative savings. Our unique solution has enabled us to grow approximately three times faster than the market and gain market share.

I'll now talk about Simpana deal stats. We added 295 new customers in the quarter. As usual, the new customer additions do not include a large number of small orders from new OEM customers who registered through the Internet. Our customer base now totals approximately 8,000 customers.

We had solid growth across both our core backup products, as well as accelerating sales of our emerging products. For fiscal Q4 2008, sales of non-core backup or emerging products increased to approximately 28% of our software revenue versus 26% in Q3 2008 and versus 18% in Q4 of last year. Since the release of Simpana in July 2007, we have seen our emerging product revenue grow by over 140%, specifically archiving, single instancing, replication and search, are key components of this growth.

Since emerging products now represent a significant and increasing portion of our revenue, we are going to rename that category to advanced data and information management products. This also recognizes that the company is well past the point of being just a backup company.

In the fourth quarter of fiscal 2008, approximately 41% of our software revenue came from deals over $100,000, compared to 33% of software revenue generated from deals over $100,000 in the third quarter of fiscal 2008, and compared to 34% in the fourth quarter of last year.

The dollar volume of deals over $100,000 grew 55% in fiscal 2008. We attribute the increase in enterprise deals to increasing competitive advantage of a unified suite of products, leverage from our strategic distribution partners, increased market awareness, and from the increased number of highly experienced enterprise sales representatives that are now reaching full productivity levels. Our visibility to enterprise deals going into FY 2009 is extremely strong.

We continue to see customers purchasing a higher percentage of multiple elements of the Simpana suite in deals over $100,000. In deals over $100,000, sales of our advanced data and information management products represented approximately 35% of the sale in the fourth quarter. This is continued validation that our customers like our singular approach to the market. Large deals are contributing to a significant portion of the growth in our advanced data and information management product sales. It should be clear, based on this track record of growth and market share gains, that the company has established itself as a strong competitor in the enterprise segment of the market.

In summary, we continue to outperform our competition and increase our market share across all segments of our business.

Now let's talk about our geographical. On the international, the United States operations generated 63% of our total revenues in the quarter, with operations in the rest of the world generating the remaining 37%. We continue to expand our international distribution with strong growth in Europe, Canada, Australia, and China. International revenues was up 45% in Q4 FY '08, versus the same quarter a year ago. For the full year, the split was 64% of total revenues from the United States, and 36% coming from the rest of the world, compared to a split of 70/30 in fiscal 2007.

As we head into fiscal 2009, we have strengthened our distribution globally. International expansion is and will continue to be a major contributor to our growth. We now have strong sales and systems engineering teams in all of our key markets. We are getting solid distribution leverage internationally from our existing strategic distribution partners, Dell and HDS. We have added 2 new strategic partners, Bull and Sun.

We are also gaining nice leverage from our existing international resellers such as Horizon in the UK, and Avnet in Australia. Avnet's proposed purchase of Horizon should benefit us, as Avnet will bring a broader reach for our solutions in EMEA. We have also established positions in many new international markets such as China, Singapore, Latin America, South Africa and the Middle East.

Now I'll talk about Dell. Sales through our OEM and SMP relationship with Dell accounted for approximately 24% of total revenues for the fourth quarter of fiscal 2008, with the breakout being 19% through SMP and 5% through OEM. For the full fiscal year, sales through Dell accounted for 24% of revenue, with 18% to SMP and 6% to OEM. Fiscal 2008 Dell license revenues were up 63% year-over-year. We have a strong relationship with Dell and expect our relationship to continue to broaden.

I'll talk about HDS. We saw a significant increase in license revenue during Q4 FY '08, particularly in international markets. We continued to have success with Hitachi in the enterprise segment of the market on a global basis and we believe that this relationship will continue to drive revenues and contribute to our overall success.

I want to talk about now, our investments to increase our market penetration. As we spoke about last call, given the strength of our current position, confidence in our vision and the many opportunities to invest or grow, we think it is prudent to increase our near-term spending in sales and marketing, in order to maximize long-term growth and profitability and enhance long-term shareholder value.

When I speak about my confidence in our current position, specifically I mean the 77% growth we saw in advanced data and information management products in FY '08, which accounted for 28% of our license revenue in Q4; the growth in international business which grew 65% in FY '08 and represented 37% of our license revenue in Q4; and the growth in deals over $100,000 which grew 55% in FY '08 and represented 41% of our license revenue in Q4.

We have made significant progress in hiring quota-carrying representatives, particularly in the United States, and expect to be at our target headcount levels no later than the end of Q1 '09. In addition to quota-carrying reps, we continue to add field technical personnel and field domain specific technology specialists, in order to increase our distribution leverage. We have also significantly expanded our capabilities in marketing and brand awareness in order to improve the effectiveness of our field teams and provide broader market awareness.

In addition, as I mentioned on last quarter's earnings call, we are making very significant progress on our broad range of new technologies and products which will further enhance our competitive position in our core business, our advanced data management and information management products business and will enable us to enter new information management markets.

I'll talk about our brand awareness campaigns. Where we have had good sales representation and access to deals, we have a very high win rate. However, many perspective customers don't know about CommVault. Most of the CommVault prospects are very surprised to learn about the depth and breadth of our product offerings and the impact our products can have on reducing costs and improving business operations. It is clear that we need to effectively communicate our unique singular approach and value adds to a much broader market audience. As such, we are making investments in marketing and branding awareness to increase our brand awareness and again access to more opportunities over the coming year.

Let's talk about the impact of our increased investments. We strongly believe that the investments we are making today in our sales force, expanded distribution leverage, brand awareness and R&D, will enable us to accelerate our revenue and market share gains at rates that are higher than our historical rates. Our confidence is based on our previous success of accelerated growth in the following areas that we've invested in over the past two years; enterprise deals, advanced data and information management and international sales and marketing. In addition, we will continue to invest strongly in our R&D, as we develop our next generation portfolio of products.

The resulting revenue gains should enable us to continue operating margin expansion and healthy rates in the medium term. It is important to note that even with the additional near-term investments, we believe that we can still increase our operating leverage in fiscal 2009, by approximately 150 basis points.

I will now turn the call over to Lou, who will provide more details about our quarterly and annual results, as well as our FY 2009 guidance. Lou?

Thank you, Bob, and good afternoon, everyone. I will cover the financial highlights for both the fourth quarter and fiscal year 2008, along with our fiscal year 2009 guidance. As a reminder, I will be referring to non-GAAP results, and a full reconciliation of GAAP to non-GAAP results can be found on Table Four of our press release.

I'll begin with revenues. For the quarter, total revenues were $56.6 million, an increase of 33% year-over-year and 13% sequentially over the prior quarter. Software revenues were $31.3 million, an increase of 32% year-over-year and 16% sequentially. And services revenue was $25.3 million, an increase of 34% year-over-year and 8% sequentially.

For the year, total revenues were $198.3 million, an increase of 31% year-over-year. Software revenues were $109 million, an increase of 30% year-over-year, and services revenue was $89.3 million, an increase of 33% year-over-year.

The overall growth in software revenue for fiscal year 2008 was driven by two primary factors. We continued to see significant growth from our international operations and the number of deals greater than $100,000 increased in all geographic areas. For the quarter, the growth of software revenue internationally was 51%. In the US it was 22% over the prior year period. In Q4 2008, the number of software transactions greater than $100,000 was up by 82% over Q4 of fiscal year 2007.

Software revenue generated through indirect distribution channels was approximately 80% of software revenue for both the current quarter and for the full year, compared to 68% in Q4 2007, and 69% in the full prior year period.

The shift towards higher indirect revenue is the result of an increase in software revenue from our international operations, which is mostly sold through indirect channels, and a shift in the US to indirect distribution channels being driven predominantly through our growing relationship with Arrow. Approximately 19% of total revenue was sold through our distribution agreement with Arrow, in Q4 of fiscal year 2008, compared to 14% in Q3 of fiscal 2008.

In addition, we have higher revenue through our reseller arrangement with Dell in both the US and Europe, thereby increasing the indirect percentage. Furthermore, deals initiated by our direct sales force in the US are sometimes transacted through indirect channels based on end user customer requirements. While we will continue to invest in both our channel distribution and our direct sales force, we expect to see a trend of increasing revenue through indirect channels for the foreseeable future.

The revenue mix for the quarter and for the year was 55% software and 45% services. We are anticipating the same split of 55% software to 45% services for fiscal year 2009. We continue to see growth opportunities in our services revenue, which is supported by the increases to deferred revenue on the balance sheet. Our maintenance attach rates are very high and our renewal rates remain strong on a worldwide basis.

Gross margins were 86.7% for the quarter and 86.5% for the year. Gross margins on our software revenue were 97.6% in the current quarter versus 98.1% for the prior year quarter. The gross margin for services revenue was 73.2% in the current quarter versus 70.7% in the comparable prior year period, due to a higher mix of maintenance contracts relative to professional services.

Moving on to operating expenses, total operating expenses were $37.4 million for the quarter and $135.7 million for the full fiscal year. In Q4 2008, sales and marketing expenses increased $6.6 million or 36% over the prior year quarter. Approximately two-thirds of this increase was related to employee compensation, which includes the additions of new employees as well as increased commissions on higher revenue. The rest of the increase was due to higher travel and related expenses, additional advertising and slightly higher rent associated with geographic expansion.

Research and development spending increased by about $800,000 in the quarter or 14% over the prior year period. We continue to leverage our investments in R&D by expanding our Hyderabad, India location. We now have 92 employees in India.

G&A expenses increased by $1.5 million in the quarter, which is a 38% year-over-year increase. This increase primarily relates to compliance and insurance costs associated with being a public company, as well as higher recruiting costs. We added 33 employees during the quarter, bringing total worldwide headcount to 866 at the end of March. The headcount increases were primarily in customer service, support, sales and marketing and R&D.

Non-GAAP operating margins were 19.3% for the quarter, resulting in non-GAAP operating income of $10.9 million. For fiscal year 2008, non-GAAP operating margins were 16.5%, resulting in non-GAAP operating income of $32.8 million. This represents EBIT growth of approximately 44% year-over-year for the full fiscal year and a 150 basis point improvement on full year EBIT margin.

Non-GAAP net income for the quarter was $8.5 million and non-GAAP EPS was $0.19 per share, based on a diluted weighted average share count of approximately 45.5 million shares. For the year, net income was $26.1 million and non-GAAP EPS was $0.57 per share, based on a diluted weighted average share count of approximately 45.7 million shares.

Now onto the balance sheet. As of March 31st, our cash balance was $91.7 million, down approximately 4% from $95.1 million at the end of December, primarily due to our stock buyback program. During the quarter, we repurchased just over 1 million shares of common stock, totaling approximately $15 million under our previously announced share repurchase program. We are authorized to repurchase an additional $25 million under this program. We believe our stock is currently undervalued and we will continue to be active in our stock buyback program.

Cash flow from operations was approximately $11 million in Q4, and approximately $34.4 million for fiscal year 2008. Free cash flow, which we define as cash flow from operations less capital expenditures, came in at $9.7 million for fiscal Q4 2008, which is up 38% over fiscal Q4 2007. For the fiscal year 2008, free cash flow came in at $30.1 million, which is an increase of 14% over the prior year.

Our DSO was 63 days at March 31, 2008. This is up from 60 days in the prior quarter and is the result of several factors; a larger volume of deals greater than $100,000 that closed late in the quarter, higher accounts receivable balances caused by a higher percentage of indirect revenue, higher maintenance support billings in the quarter, and increased international revenues. It should be noted that the quality of our underlying receivables has been and continues to be very strong.

Deferred revenue increased $7.2 million or approximately 14% sequentially over the prior quarter. This is a strong validation of our growing services business. Capital spending was approximately $1.3 million in the fourth quarter and $4.3 million for the year. Our current estimate for fiscal year 2009 capital spending is between $4 million and $4.5 million.

Now I'll spend a few minutes on taxes. The company used a non-GAAP pro forma tax rate of 28% throughout fiscal year 2008. The GAAP tax rate for fiscal year 2008 was 23% and the actual cash tax rate was 13%. For fiscal year 2009, our guidance will be based on a non-GAAP pro forma tax rate of 30%.

The company has deferred tax assets on the balance sheet as of March 31st, 2008, in the amount of $54.9 million, which are comprised mostly of net operating loss tax benefits in the US. Consequently, our cash tax rate in the US will remain lower than the GAAP and pro forma non-GAAP rate for the foreseeable future. However, in most foreign locations we either do not have net operating loss tax benefits or we expect to fully utilize such benefits during fiscal year 2009. As a result, we expect the cash tax rate to increase from its current level of 13% in fiscal year 2008, to the high teens in fiscal year 2009. The company continues to implement tax planning measures that are expected to keep the long-term terminal tax rate to within a range of 30 to 32% over the next few years.

Moving on to fiscal year 2009 guidance. For the 12 months ending March 31, 2009, our initial total revenue guidance is $245 million, which represents revenue growth of 24% year-over-year. Based on this revenue level, we are expecting fiscal year 2009 non-GAAP gross margins to be 86.7%. We are also expecting to improve non-GAAP operating margins by about 150 basis points above FY 2008 levels, for a non-GAAP EBIT margin of 18% based on revenue of $245 million.

While we intend to be active with the remainder of our share buyback program, we did not take into consideration any stock buyback in our projected FY 2009 non-GAAP earnings per share calculations. Using a share count range of approximately 45.2 million to 46.2 million shares, and applying a pro forma tax rate of 30% for the full year, we are expecting non-GAAP earnings per share to be in the range of $0.70 to $0.72 per share, based on revenue of $245 million for fiscal year 2009.

Our guidance includes an interest rate assumption of 2% to 2.5% on expected cash balances. The non-GAAP guidance excludes approximately $0.16 to $0.18 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 $0.07 per share.

That concludes my prepared remarks and with that, I would like to turn the call back over to Bob. Bob?

Thank you very much, Lou. In summary, we are very confident about our future and our ability to create long-term shareholder value. We believe we have established a solid foundation for growth heading into fiscal 2009 and beyond. We believe we are the best positioned company to meet the current and future needs of the industry as outlined in Gartner's recently released market scope. All the key elements are in place which should enable us to execute and achieve our FY 2009 objectives.

The key elements for growth are solid growth in our core business, high growth in our advanced data and information management products, strong international growth, success in penetrating the enterprise with deals over $100,000, and investing in more feet on the street, expanding our distribution network, combined with achieving broader market awareness, and developing a compelling pipeline of new technologies and products. We are confident about our near-term outlook. We have a strong deal pipeline going into fiscal Q1 fiscal 2009 quarter, which indicates we could have a near-term upside impact to our first half growth prospects.

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

Thanks, Bob. Before we open up the lines for your questions, I would like to highlight an upcoming investor relations event. Bob will be speaking at the JPMorgan 36th Annual Technology Conference in Boston, on May 20th at 10:00 a.m. Eastern Time. Bob's presentation will be available live on our IR website and will also be archived for 90 days. Can we open up the lines for question, please?

(OPERATOR INSTRUCTIONS) Tom Curlin of RBC.

The strong quarter, healthy guidance, I know you guys don't do quarterlies, you just do fiscal, but given the incremental OpEx investments, is there any way you can help us with the linearity assumptions on the bottom line through the year on a quarterly basis? Is there an operating margin metric to think about in the first half versus the second, or should we think about operating margin maybe being flat year-over-year for the first half of the year and then accelerating in the second? Just what can you give us?

I'll give you a summary, Tom, and then Lou may have a comment on this. But in general, if you look at our historicals for the last two years, we've had slightly up quarters on revenue, and I indicated in my remarks that the near-term outlook looks quite promising. So, given our guidance, we're not going to provide quarterly guidance. Again, historically it was flat to slightly up, and until we see it and we do it, I indicated that we might see some upside to our guidance here. But we have to execute before we would -- and we'll talk about that in July. Lou, I don't know if you want to comment further on it?

No, I think we've historically, Q1 has historically been flat to slightly up and I would suggest that that trend may continue, but at this point--.

You're talking about year-over-year?

Quarter over quarter, Tom. Historically, Q1 has been flat to slightly up.

And what we're indicating, Tom, is we have a good pipeline, but we've got to see if we can translate that into our numbers.

All right. Just also on the competitive environment, any changes there? Last quarter Symantec made incrementally more aggressive. They've got a product cycle out as well, but also it seems like maybe there's more emphasis on backup executive stays and maybe less investment on the net backup front going forward. Do you see any of that? How would you describe that competitor and any changes elsewhere?

I think what everybody should look for is let our numbers speak for themselves. Obviously we saw accelerated growth in the enterprise and we've seen accelerated growth in our new -- our advanced data and information management products. And I think what that's coming from, I think these comments are really important.

We've been saying this for a number of years, but clearly, this is what's going on in the market. There's been a move from tape to disk. There's been a move on the market from focusing on backup to focusing on recovery. In both of those areas you're seeing -- when people talk about putting data management solutions in versus backup, they're talking about the comprehensive solutions, which include not just backup but replication, managing snapshots, continuous data protection, single instancing and management reporting tools. And the backup copy which used to be the copy, which companies used to retain for long periods of time, is becoming shorter. So, instead of having a backup copy for years, that copy now is only being kept for -- and a lot of companies who are acquiring modern data protection, they're just keeping that product for weeks or months.

So it's a very different dynamic. And it changes the whole switching element in the market, because companies, when they move from traditional backup to more modern data protection, if they're looking for the best integrated suite of products that can provide that solution, and that's CommVault. We're more scalable. We take complexity out, because we save them more money and we're easier to use, and we have the most modern architecture in the industry.

So, it just increases our -- with those trends in the market, which Gartner pretty well spelled out on our last market scope, it increases our differentiated value proposition in the market and it's a different game. It's not a backup game. Backup is not the issue. It's advanced data protection is the issue, and as we get into more sophisticated information management, those are the things that are driving this company and that's what people should focus on.

And just finally, are there any areas that are particularly hot in terms of the advanced archive and index and tracking capabilities you rolled out with Simpana?

Well, there's strong growth, Tom, and you know, those products were up over 100% in Q4 versus a year ago -- 103% to be exact. It's archiving, it's replication, it's single instancing and it's continuous data protection for managing remote offices. Those are the big ones. But you know, our other products are also getting traction, including our reporting tools.

Brent Bracelin with Pacific Crest Securities.

Bob, I had a follow-up question on the growth side. You talked about a site acceleration kind of in license enterprise business that looks like you had a healthy acceleration in the growth on deferred revenue. How much of the improvement here would you attribute to kind of the broader sales coverage, improving sales productivity versus kind of growing demand for the Simpana upgrades.

Well Brent, I think they go hand in hand. One, there's a market need out there and we're becoming more effective in market awareness to deliver our solutions to meet those needs. So, if you look at where the big growth is, go back 15 months, we invested very, very heavily in international. And that's on feet on the street and on distribution. And that obviously paid off really well for us. We transitioned our sales force to be more effective in selling at the enterprise and that clearly paid off for us. And we are seeing improvements in sales productivity, because as we move to -- because you're getting distribution leverage from channel and you're starting to get leverage into the larger accounts. So all those things will have an impact.

Okay. It's helpful just to understand that you guys are actually seeing improvement on the sales side. I didn't know if it was too early to expect improvement, but you would attribute--.

I think you've got to -- I understand where you're going. I think what you've got to separate is, you know, we talked last quarter about the Americas, we're making big investments there, but the impact of those investments you're going to see a bit later on in the fiscal year. The investment you're seeing in Q4 and you'll see in the next couple of quarters, those were investments we already made.

Okay, fair enough there. A follow-up question really that I had on the order pipeline. Clearly you saw a benefit from large deals that closed in Q4. Really wondering, as you think and look at that pipeline, do you have a composition of large deals still there or did you close a lot of those and what's the visibility like kind of entering fiscal 2009? Clearly you kind of took numbers up here and feel strong about it, but how do you think about large deals that drove upside in Q4 and as we go into next year, what's the composition of large deals going forward?

It's gone up, quarter-on-quarter. As always, the question is, can we get them closed? But the pipeline for big deals is very strong in this current quarter.

In the current quarter. That's helpful. My last question has to do with kind of the advanced data management section, 28% of the business now, doubling here year-over-year. How sustainable is that? Is it solely tied to the large deals or are you now starting to have good success with that on a standalone basis?

You know, what I was saying is when you think about data management, don't think about backup anymore. Backup, that copy is still important, but that's not the business, Brent. The business is providing a broader, more comprehensive data management solutions that deal with managing disk to disk and managing improved recovery. And that requires things like replication and managing synapse and using continuing data protection. You just can't use that backup copy, in terms of what customers need today in managing their data. It's just different. So, we're seeing a transition in this industry, and we're at the forefront of that in terms of having a leading technology to meet those needs.

Aaron Schwartz with JPMorgan.

I just wanted to revisit the comment you made about the investments in the Americas coming more into the model later in the year. Can you help us with some of the assumptions you have in your revenue guidance? Do you assume full productivity by those investments by the end of the year or do you sort of handicap the close rates and that would be a source of upside? I'm just wondering if you could help us with the assumptions to the growth rate?

We have productivity models that take into account longevity, and typically we would assume whole productivity four to five quarters out, after initial hire. And we have a progression on that and it's all built into our models.

Okay. That's helpful. And then the comments you just made about the advanced product groups and moving away from backup, can you maybe just talk a little bit about--?

I'm not saying we're moving away from backup, I'm just saying that the industry in terms of its requirements is changing. Where the backup copy, which used to be the copy to manage data, is now just one of many different technologies that are used to manage data. That's all I'm saying.

Right, understood. I just wanted to get -- you have a lot of advanced technology. It seems like a lot of the growth there has been from your enterprise customers, so I'm just wondering, as that sort of broadens out and hits more of the mainstream customer base, do you need some more specialization in your channel partners, or how do you sort of fully monetize that across the broader customer base?

Well, we're working with our channel partners now, all of them, and in terms of explaining what the value proposition is and how you solve a customer's problem today, you know, in these newer environments. So, you know, what we mention on the call is typically in a large deal, greater than $100,000, 35% of the revenue is in those advanced data and information management products today. And that percentage has been going up over time. I mentioned on our last earnings call that we have a very robust pipeline of new products and technology coming to market, and that will enhance our position in terms of driving revenue into these newer areas, whether it's on the data management side or on the information management side.

Okay. And then lastly for me, the increase in deferred was much stronger than I think you've ever seen in a quarter to quarter basis historically. Is that just the strength in maintenance renewals or are you seeing an increase in size in maintenance renewals with module add-ons or can you just walk through the dynamics there?

A good chunk of it is just the continued success we have in renewing maintenance agreements on a worldwide basis. We have now many customers that we sold a fair amount of software to, so they continue to renew their maintenance contracts, plus the growing annuity that comes from just add-on business. So, I mean, clearly we feel good about. We had a number of large maintenance renewals that we were able to obtain in the quarter and we also had a few customers that renew multiple year maintenance agreements and that's reflected in the numbers. So we feel really good about our support and our reputation in the marketplace and our customers continue to renew and the attach rate on new business is essentially 100%.

Derek Bingham of Goldman Sachs.

Hi everyone, congratulations on the quarter. On the margin expansion assumptions you said you expect something around 150 basis points. Can you talk a little bit about where you expect that to come from? Are there particular line items where you expect to see more leverage than others this year?

Well, it's just in general, in spite of my comments on increased spending, Derek, the bulk of that is going to come from sales and marketing line, as far as operating leverage.

So, when you've modeled it out, do you see the sales and marketing as a percentage of sales in FY '09 roughly the same as last year, and the leverage coming from the other line items?

We'll see operating leverage coming from that line as well. Al, you might want to say something.

Maybe across the board, Derek. Sales and marketing will stay roughly the same, maybe a little lower and we'll see maybe a little bit more leverage on a percent basis from R&D and G&A groups in our '09 model.

All right, that's helpful. And then just in the nearer term, we had sales and marketing up a little under 3 million sequentially in March. As you go through, if your partway through kind of your hiring ramp-up, should we see a similar kind of sequential increase in dollars in the June quarter, as you finish up your sales head adds?

Perhaps, yes.

Okay. So I'm not way off the mark there, it could be another couple of million sequentially?

You're usually not.

Okay. And last one, you mentioned that you've got Simpana 7.0 penetration at about a third of your customer base. Any thoughts on where you would expect that to go this year, just in terms of who you think are qualified customers or customers that are big enough to require those kinds of technologies?

Well, I mean, Simpana in general, if it's not our installed base, Derek, for all practical purposes, a new customer is going to be on Simpana from the get-go and then you've got conversion occurring in our installed base. And right now it's about 50/50. If you look at, you know, a third of our 8,000 customers that are on Simpana, about half of those are new and about half of those are installed base upgrades. So, that could be your perspective on it, but you know, Simpana is what we sell today.

Aaron Rakers of Wachovia Securities.

Thanks, guys, and congratulations on the quarter. Just a couple of questions as well. I guess everybody's trying to understand that ramp in terms of your new sales hires. Can you say how many of your sales additions over the last few months or how many there are that have been with the organization less than that four to five quarter type metric you look at in terms of productivity?

No, we don't give that out, Aaron, but you know, I think what we said clearly, the bulk of that ramp is occurring in the United States of Americas, and Americas meaning that's Canada, US and South America.

Okay. And on the Dell relationship, specifically around the OEM piece of it, given that that business is recognized one quarter in arrears, I guess I would have expected a little bit more of a tick up on that OEM side. Is there something to read into that?

The answer is, you know, the key reason is we launched 7.0 to Dell SMP in the third quarter, and we launched it through OEM in the fourth quarter and just from, I'll call it mechanics standpoint, you know, I mentioned Dell revenue was up -- I think the number was 62% year-on-year. I think that was the right number. So, we just saw stronger growth in SMP mainly because of the Simpana 7.0 launch -- longer with 7.0.

Right, so going forward, given that you just ramped on the OEM side this last quarter we should start to see that kick in, in the--?

I think the most important stat is look at the combined number. That's probably the most relevant number to look at.

Okay. And with regard to the Sun relationship, is there any contribution this last quarter from Sun, and if not, when do we start to see that flow into the model?

Well, you know, in our model, we included very little Sun revenue in our own FY '09 model. That doesn't mean that we're not seeing some really good activity out there and we should see it in the second half of FY '09, but in our models there's very little in the model.

Okay. Final two questions on Arrow, given the discontinuous of the Symantec relationship with them, have you seen any impact thus far and what is your expectation with regard to continuing to ramp that Arrow relationship going forward?

Well, I think Lou mentioned that Arrow went from 14% of revenue to 19% from Q3 to Q4, so clearly that channel is working for us and it certainly will make it a lot easier for us to work with Arrow, since they're focused on CommVault and not two vendors. It just makes it a lot more efficient, particularly as we move to their ATI division. So, it clearly will help.

Okay. And then final question, I was wondering if you could talk a little bit about your strategy around software as a service and what looks to be more of a subscription like model? Is there anything to think about that in terms of impacting the model as we go through fiscal '09?

Software as a service is a strategically important sector for us. We've been in that business now for many years actually, in terms of making sure that our core platform can be used as a very effective engine for companies who are selling software as a service. But we're selling to companies like the Incentras and the Rockspaces and the Atos Origins, they're using our product to support their SaaS customer base. We're being very aggressive there from an innovation standpoint and a go to market standpoint. We think it's really important, but we are not going to get into the brick and mortar side of that business in terms of building the data centers and providing the direct services, except some exceptions like ROMs and things like that.

But you know, what I think of this is we've got the best singular platform in the industry, which makes it easy to take complexity out and easier for companies to deploy that platform to provide those kind of data management and information management services to their customers. We're going to be very active in that sector.

Steve Koenig of KeyBanc Capital Markets.

I wanted to start just with a question about competition. You talked a little bit about your strategic advantage and your competitive advantage. I was wondering about tactically, are you still seeing competitors use pricing -- I mean, everyone uses pricing to win deals, but are you seeing anyone behave irrationally? Is Symantec still giving away licenses? Are you seeing maintenance being discounted? What are you seeing tactically out there?

We will see some of those things in the market, but I think we'd like just to let our numbers speak for themselves. We're growing about three times faster than the market, so whatever our competition is doing, we seem to be able to effectively compete, increase market share and have robust growth rates relative to anybody else out there. So, it doesn't mean that those things don't go on, but we seem to be able to compete effectively in spite of that.

Okay. And then just shifting gears to your product roadmap, you know, you addressed SaaS a little bit. I wonder if you can just comment generally, how you expect the market to be different a year from now, how your product roadmap expands to address that?

Well, on the last call I mentioned that we're focused on a number of areas that will come in our next release. We'll talk about the whole backup/recovery in terms of how that's going to be managed. We're going to be innovating there. We said clearly that we would be adding block level de-duplication in addition to our single instancing. We've got next generation technologies that are tied to inner managing data in virtual server environments.

We think managing remote devices, things like workstations and laptops, are going to be important to bring in under platform control. We talked about improving our data classification and extending that to Unix and Linux. We said data bases aren't being managed as effectively as they could and that some next generation data base management is required. So, those are some of the key things that we are working on and are making, I would say, outstanding progress in bringing some of those concepts to market.

Okay, great. And are you still expecting to target that by the end of this calendar year?

No, all we said was that typically we release products somewhere in the 18-month from prior releases, but we haven't given any dates. That's been kind of our historical--.

Okay, great. And then last one, just a financials question here. Cash flow from operations, how should we think about how that grows? Should it grow in line with adjusted earnings, etc., more or less?

I think you should think about it in terms of the historical track record we have. I think you'd probably find it'd be pretty similar to what we've done for the past couple of years.

EBIT is your key variable there.

Tim Klasell with Thomas Weisel Partners.

Congratulations on the quarter. Real quick question. On the new sales hires you've added throughout the quarter, was there some extra productivity there and did that help to drive the beat on the top line?

There was extra productivity, but those hires that we're hiring in Q4 and Q1, as I mentioned earlier, the full impact of those hires won't be felt for another couple of quarters. So, the growth that we saw was based on investments we made earlier in FY '08, and don't relate to that hiring. So that will come into play a little bit later in FY '09.

Very good. And then just real quickly on the pipeline, how do you feel about the pipeline at this point versus let's say this time last year as you were going into your Q1? How are your closure rates, I guess is probably the real question there, how have those tracked throughout the year?

I think it's very different, Tim. One, we're seeing many, many more very large deals in the pipeline than we did a year ago. And that's across the board -- all geographies, we're seeing success there. Clearly, and when you look at the pipeline, the impact of non-backup is really high. I mean, it's very different, because we didn't have Simpana a year ago. And the market clearly, you know, we're seeing that -- we're kind of pioneers in backup to disk and focusing on recovery, and now that's becoming a standard concept.

I was fully kind of happy and surprised to see Gartner come out in the latest market scope and I think they're right on the mark in terms of their perspective of what's going on out there. I'd suggest you all read it, because it's pretty accurate on what we see as far as current market dynamics from a customer needs point of view. So, as far as our pipeline, it's larger deals, clearly products like archiving and those kind of things we see having an impact to our pipeline, and clearly things like modern data protection or advanced data management are clearly having an impact on our growth. And then you've got the fact that our international engine is just a lot stronger than it was a year ago and we've had real good success in expanding internationally. So, I'd say the whole complexion of our pipe and outlook is quite a bit different than it was 12 months ago.

Okay, very good. And on the international side, yes, those are pretty impressive numbers. Is there any particular geo that's doing much better than the rest or is it pretty broad?

It's pretty broad, fortunately.

One final one for you, Lou. You have better international sales, larger deals, all that's good, but it does drive DSOs up. What's sort of the range we should be expecting going forward now that it looks like the business composition is a bit different?

I would expect it to be somewhere in the 60s, perhaps at the current level and I wouldn't be concerned if it went up a little bit. As I said, the quality of receivables is strong. I think we have best in class revenue recognition practices, and thorough review of it before we book it, from a credit point of view. So yes, as we continue to grow the business, you might see it go up a bit. I think it probably hangs in the 60s at some level.

Phil Winslow of Credit Suisse.

Most of my questions have been answered, but just wanted to focus a little bit on R&D. It's been trending up 100,000-200,000 a quarter for most of fiscal 2008. Just curios if you kind of expect that similar type of headcount add when you look at over the course of 2009? Then I just have one quick follow-up to that.

Yes, we expect something similar, Phil.

Okay. And then when you do look longer term at this model, obviously you're expecting a big kick up, 150 BPs and large expansion fiscal '09. You know, '08 was reasonably similar in EBIT. When you do think about this long-term model, are you comfortable with the 150 basis points over the next, call it three to five years or does that change at all?

We are really confident, Phil. You know, I mentioned prior call that our objective is to hit -- our internal objective is to hit $500 million. We haven't said when. And to have operating margins in the low 20s. We're right on the path to achieving that objective. If you just take our numbers and track them out, you can plot it out. So, all I'll say is that we're very confident here that we can achieve that kind of objective.

Michael Turits of Raymond James.

A couple of questions. First of all, the stuff that you said that helped this quarter was all the things that you've been working on for a while and in place for a while. There were two specific things that went up nicely this quarter that had been flat previously. Core software had been flat for a quarter and had a nice bump. And US has a nice bump. So what was it that happened differently? What did you see that got those two specific things going this quarter?

That's a good question. And both of those kind of tie together. Obviously, the US had a very solid quarter, and if you look at the stats, with that kind of quarter-on-quarter growth it drove up our core business, as well as accelerated the growth on our emerging. So, those were tied together. I would say that the US had very high sales productivity during the quarter. They had a very strong execution in the March quarter. You know, they just executed well across the board.

I know you're restructuring there. Does anything seem to work in particular?

Yes, I mean, our restructurings had a lot to do with that. Those restructurings were material in the improved productivity of the US. There is no question that those areas that we restructured performed exceptionally well. So those investments that we made, which were a little bit painful at the time, turned out to be, you know, those teams are doing extremely well. We're really happy with those new teams. That had a material impact on our ability to execute in the fourth quarter.

And then on the core, is it just the same thing? Because that had really been flat and it certainly was a concern to us that that kind of going a little bit of competitive where you're--?

No, it's just, you know, I wouldn't read too much into it from the December quarter. I think the market read a lot more into it than obviously was -- you know, that we understood here internally, in terms of things that were driving the business. And it's not that the core backup is unimportant, because it's still important to this company. I'm just saying that if you look at the broader industry trend, it's driving to things that are right in a line with the Simpana platform. So you're still selling backup. That backup copy is still an important copy, but it's part of a much more comprehensive solution. Those are the points I was trying to make.

But if you had to characterize the competition against Symantec, would you say that it's on the same level of difficulty or it's easier or better, this quarter versus last quarter?

Well actually, obviously our growth went up, growth rate accelerated, so I think that kind of speaks for itself. But you know, look Symantec, our toughest competitor out there, they do an effective job. They are a really good competitor, but we consistently have outperformed them. And our intention is to continue to do that through value to our customers.

And (inaudible) one last question, obviously a very strong top line quarter and you can see it on the bottom line, but the margins did come in a little bit below guidance and it looks like you spent a little bit more I would assume in sales and marketing the drove that. So is that right? Why is it that you'd end up -- why'd you end up spending more than you expected and how do we get some confidence going forward that you've got a handle on what the spending will be going forward?

I said last quarter that we were going to increase our spending. Obviously we're trying to do this, Mike, not to stave and we want to grow this company at consistently high rates relative to market growth, and we think with the changing dynamics out there and the broader product line we have and they're necessary to get broader reach, that those investments were appropriate. A year ago we spent a lot of money on international and bringing Simpana to market. Obviously that paid off for us.

We think that the additional investments we're making now, particularly in the Americas in terms of feet on the street, additional market awareness and a continuing investment, by the way, in international, will also pay off in the long run for our shareholders. And we're really confident about that. And we said that, you know, in light of that, that our operating margin growth would drop from 2 to 3% to about 1.5% and that's basically where it is. And that's the guidance we're giving for FY 2009. Pretty consistent with our investment strategy and growth objectives.

Walter Pritchard of Cowen.

Most of my questions have been answered. Just two quick ones. What was the impact on the quarter to revenue from currency?

For the quarter it was a couple of percent.

Obviously, Walter, with higher international and where the currency is, we're going to get some--.

For the full -- I don't have it for the quarter. For the year is was a couple of percent. If you want the quarter number, I'll have Mike follow up with the quarter number for you.

Okay, great. And then just any headcount number that you would associate with kind of your guidance for the year, ending headcount?

No, we haven't given out ending headcount for FY 2009.

And there are no more questions at this time. Thank you for your participation in today's conference. This concludes our presentation and you may now disconnect.