Commvault Systems Inc (CVLT) 2011 Q1 法說會逐字稿

Good morning, and welcome to the CommVault's fiscal first quarter 2011 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 Mike Picariello, Director of Investor Relations.

Please go ahead, sir.

Thank you for dialing in for fiscal first quarter 2011 earnings call.

With me one the call are Bob Hammer, Chairman, President, and Chief Executive Officer; Alan Bunte, Chief Operating Officer; and Lou Miceli, Chief Financial Officer.

Before we begin, I would like to remind everyone that statements made during this call, including in the question and answer 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 according to risks and uncertainties, which are discussed in our SEC filings and our cautionary statement contained in the 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 over the wire services earlier this morning, and it has also been furnished to the SEC as an 8-K filing.

The press release is also available on our IR website.

On this conference call, we will provide non-GAAP financial results.

The reconciliation between the non-GAAP and GAAP measures can be found on table four 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 our CEO and President, Mr.

Bob Hammer.

Thanks Michael.

Welcome everyone, and thank you for joining our fiscal first quarter 2011 earnings call.

Later in the call, Lou will provide the financial results for the quarter, which are the same as we reported in our July 12 press release.

The Q1 FY11 results were unacceptable to me, especially given the underlying strength of our business.

As I explained on the call on July 12--13--12, we experienced unexpected low close rates, both in the US and EMEA regions, due to an unprecedented amount of deals that slipped in both of these regions.The issues that caused our poor performance in Q1 FY11 are CommVault-specific, which is quite out of character for a company that had very solid execution all through FY10.

To summarize, I would attribute the first quarter performance to the distraction and lost productivity caused by the US sales organization transitioning to an enterprise-focused structure, and to the extended sales closing cycles in both the UK and Europe, resulting from the challenged economies.

I would say with caution, at this point, we believe this was a one quarter miss.

Q2 is off to a much better start, and the current outlook for Q2 looks promising, as does the outlook for Q3.

Since you know results from initial announcement, rather than rehash those figures, I would rather take this opportunity to update you on the following; the status of the deals slipped in to Q2, status of the sales force reorganization, distribution, and new strategic partnering opportunities, and the outlook for Q2.

Let's talk about the deals that slipped.

We expect that majority of the deals that slipped in the last 30 days of Q1 to close in Q2.

We have already closed many of those deals, which has enabled us to get off to a much better start in Q2.

Closing many of the deals that slipped, I believe that the deals slipped due to CommVault customer-specific procurement issues, and were not lost to competitors.

In addition, our software license revenues and funnel growth in July, for both enterprise accounts and high MSP, have definitely improved over the same period in April.

Since we had historically low close rates in Q1, we are driving much more aggressive funnel building, so we can increase the probability of achieving our quarterly goals.

So far, in Q2 European business bounced back, and forecasts look good for the quarter.

We remain cautious on the UK and European macroeconomic environment.

I want to spend a few minutes on the sales force reorganization; what did we do, and why did we do it.

As you are all aware, there are massive changes taking place in today's IT infrastructure, driven mainly by server virtualization.

As a result, many customers are updating data centers in regards to storage networking and data and information management.

CommVault has anticipated changes, and has developed a unique, singular, data and information management platform to more effectively and efficiently manage data and information in the new virtualization data center.

As a result, we have won a majority of deals that we compete for when are in a deal early enough to communicate the advantages of our singular Simpana platforms to the critical decision makers.

However, one of our biggest challenges is that most of the deals in the market are closed without the customer being aware of the CommVault alternative.

In order to sustain well-above industry average growth rates, we need to increase our market penetration to increase market awareness, and key account access in both the low-end and high-end enterprise accounts.

The recent reorganization of the sales force in the Americas is a key initiative in our strategy to improve our market penetration to increase awareness and access.

In addition to the sales force reorganization, our go-to market strategy includes a number of initiatives aimed at providing CommVault a broader, proactive footprint to sustain historical above market average growth rate.

These initiatives include increasing the number of sales teams in the field, expanding our strategic distribution partnerships, establishing a named account strategy for the high-end of the enterprise segment, and establishing a much more focused approach for the low-end enterprise, high-end S&B segments of the market.

We know an enterprise named account strategy will work to increase penetration in the enterprise accounts because we have successfully piloted over the past 18 months.

In fact, the largest field we won in the last quarter was from a relatively new name enterprise account rep.

This recent win, a major energy company, recently replaced a major competitor's data management software with Simpana.

They told us that the major reason they switched is that there were issues with the reliability and scalability of the competitor's solution.

Simpana's singular platform enabled the sales team to showcase our value proposition as well as our compelling technology.

The competitor simply cannot complete technically with the Simpana platform.

We became the trusted advisor, and turned a single storage device deal in to a full enterprise wide deployment.

In summary, the reorganization has focused with focused named account sales force was the right thing to do to enable us to sustain a high growth rate.

There is no question our execution of this change could have been much better managed.

At this point, the majority of the work is behind us and should not affect our ability to achieve the near term numbers, be we expect it will take a couple of more quarters before we see the full benefits of these changes.

I want to talk now about distribution and new strategic partnering opportunities.

We are seeing a significant increase in our new distribution and strategic partnering opportunities.

Q2 will be the first quarter that Avnet is selling Simpana 8.0.

We continue to make progress with our global distributors and resellers.

In regard to Dell and HDS, we believe they will both make solid contributions to our Q2 results.

In addition to our traditional distribution partners, we have added new strategic men-at-service providers who will use our product as the engine for them to provide data, and a permission management services to their customers.

More importantly, we have initiated work with two other strategic distribution partners who will begin to contribute revenue this quarter.

One of those agreements have signed, and the other will be signed this quarter.

We will publicly announce them at the appropriate time.

In addition, we are working on several other new partnership opportunities, which we will announce when they become finalized at some point later this fiscal year.

I want to talk about guidance and outlook.

I will restate what I said on the July 13 call.

We still have the opportunity to deliver double-digit revenue and earnings growth with improved operating margins in fiscal year 2011.

We clearly understand that the results of Q1 make this objective challenging.

In order to achieve that objective, we need to deliver a very solid Q2.

We are cautiously optimistic that we can do that.

As I said earlier, we're off to a good start to the quarter.

Our key major deals are progressing well.

We have also the potential to deliver a strong US federal core with the US government year's end in September.

Europe and the UK should have better results, and we expect continued strong performance out of the Asia Pacific region.

In addition, we are prudently managing operating expenses.

Due to the magnitude of the disappointment in Q1, we would remain cautious at this time, and say that the current Q2 street total revenue in earnings incentives is a reasonable perspective.

After Lou's comments, I will talk about why we believe the next generation Simpana will provide significantly more value to our customers strengthen our differentiation from our key competitors.

Good morning, everyone.

This morning we reported our first quarter results, which were unchanged from the preliminary results that we provided on July 12.

Total revenues for Q1 were $66.3 million, an increase of 10% year-over-year, and down 10% sequentially.

During Q1, revenue from US operations generated 64% of total revenues, resulting in a 10% year-over-year increase while revenue from international operations generated 36% of our total revenues, resulting in a 10% year-over-year increase.

On both a year-over-year and sequential constant currency basis, foreign currency movements did not have any material impact on Q1 revenues or earnings per share.

The revenue mix for the quarter was 43% software and 57% services.

Software revenues for the quarter were $28.3 million, a decrease of 3% year-over-year, and 23% sequentially.

In Q1, approximately 44% of our software revenue came from enterprise deals greater than $100,000.

This compares to 40% in the prior year period.

Our average enterprise deal size was approximately $250,000 during the current quarter compared to $220,000 in the prior year quarter.

Sales of our advanced data and information management products or ADIM, represented 34% of software revenue during Q1, compared to 43% in Q4, and 32% in the prior year quarter.

Sales from our ADIM products grew 2% year-over-year, a duplication and virtualization remain the key drivers if for growth of Simpana.

Sales through our Dell relationships accounted for approximately 26% of total revenues for the quarter.

Total quarterly Dell revenues were up 21% year-over-year, and 2% sequentially.

We continue to build our strategic partnership with Dell.

Total revenue through Arrow increased by 9% year-over-year while declining 15% sequentially, attributing 23% of total revenue.

This sequential decrease can be attributed to the overall decline in license revenue.

Services revenue was $38 million for the quarter, an increase of 22% year-over-year, and 3% sequentially.

While we can continue to have both higher tax rates, and strong renewal rates on our maintenance agreements, we do anticipate that the shortfall in Q1 software revenue will have a negative impact on planned maintenance and services revenue growth for the next few quarters.

Gross margins were 85.8% for the quarter.

The decrease in gross margin is primarily a result of revenue weighted more to services.

Total operating expenses were $48.4 million for the quarter, up approximately 16% over the prior year period, and down approximately 2% sequentially.

Sales and marketing expenses increased a $5.2 million or 18% over the prior year quarter.

Year-over-year increase in sales and marketing expenses is primarily due to additional sales capacity as well as sales support.

R&D expenses increased by about $1.1 million, in the quarter, or 15% over the prior year period.

This increase is primarily due to increased R&D head count, and additional IP legal costs.

G&A expenses increased by $370,000, or 6% over the prior year period.

We ended the quarter with 1191 employees, up from 1154 employees at the end of March.

The majority of the these new hires were sales reps and presales Systems engineers.

Non-GAAP operating margins were 11.5% for the quarter, resulting in non-GAAP operating income of $7.6 million.

The non-GAAP net income for the quarter was $5.1 million, or $0.11 per diluted share, based on a diluted weighted average share count of approximately 46.1 million shares.

In the quarter, certain of our senior executives directors and employees have in the aggregate exercised approximately 332,000 options which were approaching the end of their ten year life.

Certain executive officers directors and employees of CommVault still hold approximately 513,000 outstanding stock options, with a weighted average exercise price of $6.31.

That will reach the end of their ten year term in the next 12 months.

We anticipate that all of these stock options will be exercised prior to expiration.

As of June 30, our cash and short investments balance was $180.4 million, cash balance, including short-term investments, is up approximately 3%, or $5.9 million from $174.6 million at the end of March, representing $3.91 of cash per diluted share.

For Q1 cash flow from operations was $15.9 million.

Free cash flow, which we define as cash flow from operations less capital expenditures, was $15.1 million for the quarter, which is an increase of 26% over the prior year quarter.

During the quarter we repurchased approximately 623,000 shares of common stock, totaling approximately $12.9 million, under our share repurchase program.

Given the solid underlying fundamentals for the business, our board of directors has approved an additional $40 million to be added to our stock repurchase program.

We are now authorized to repurchase $66.9 million under this existing program, which the board has extended through March 31, 2012.

We believe our stock is currently undervalued, and we will continue to be opportunistic in our stock buy back program.

We generated $92,000 of net interest income for the quarter.

We do not anticipate that our interest income will improve much for the foreseeable future beyond increases attributable to higher cash balances.

For the quarter our DSO was 72 days, due to linearity in the quarter.

And finally, as of June 30, 2010, the company's deferred revenue balance was approximately $92 million, which is an increase of approximately $19 million, or 26% over the prior year, and flat sequentially.

That concludes my remarks I will now turn the call back over to Bob.

Thank you.

Thank you, Lou.

I want to wrap up with comments on our next generation Simpana release.

As I stated earlier, we are going through one of the most significant data center technological upgrades in the history driven by the increasing consolidation and virtualization of data center resources.

In parallel, we are seeing dramatic changes in the way applications are delivered and the way data is stored and accessed with the emergence of cloud computing.

These technological changes are also driving very rapid changes in the competitive landscape.

Customers are telling us their Legacy software and hardware-based data protection systems, and even some of the newer client-based systems are simply not capable of effectively meeting their needs.

As a result, many organizations have reached a threshold where their support and administrative overhead costs have escalated, storage and infrastructure cost have increased, and they are not able to easily accomplish many of their key data and information management objectives.

In fact, some of the industry's leading deduplication hardware products are running into scalability and flexibility issues, which can only be partially mitigated by costly additional storage capacity.

Highly consolidated virtualized environments require data management systems to efficiently and automatically manage data in the rapidly changing virtual environments, which frequently shift resources between virtual nodes, and must be automatically connected to physical storage.

These new data management systems have to be much more scalable and flexible.

They have to reduce the time it takes to store data and have to be able to access data, all the while, while reducing costs.

The Simpana platform with its single unifying code base is uniquely architected to bridge the fiscal and virtual words of computing.

Our current Simpana 8 platform has established a strong position in the market due to its scalability, flexibility, and reliability, and cost effectiveness.

Our next generation Simpana will build on the advantages of this platform by taking scalability, flexibility, performance, and cost effectiveness to the next level.

This will enable us to further distance ourselves from our major competitors.

We anticipate this release will become available in the near term.

Please note the development and timing of the release as well as any of its features or functionality remain at our sole discretion.

The objectives for the next generation of Simpana are to back up hundreds of virtual machines in minutes, scale to protect tens of thousands of machines across the enterprise, provide fast access, and enable rapid recoverability from a failure.

Our next generation's smart deduplication from either source or target will not only dramatically reduce the volume of data moved and stored, but also enable rapid granular recovery of application data.

We are making significant enhancements in terms of our ability to index and universally search and retrieve content to enable our customers to easily provide enterprise-wide data management--an enterprise-wide data management framework.

More specifically, we have focused on the next release of the following broad concepts.

One, streamlining protection and recovery across virtual data centers.

This means that our software will drive automated controls to adjust and optimize protection, slashing back up windows from hours to minutes, and unloading the impact from the production infrastructure.

Two, streamlining the management of data in the cloud.

Our next release will contain a next generation data mover, which seamlessly manages data on premise or in the cloud.

Additionally, we have added a highly scalable object-based content store for private or public clouds.

Third, driving next generation deduplication.

Our next version will deliver further on the idea that reduction and efficiency needs to drive across the entire end to end data lifecycle.

Data reduced at the source and preserved across the tiers of storage from the snapshot to the cloud, reduces time, bandwidth and storage costs, which have three critical constraints in the operating budget.

This also enables the rapid granular recovery of application data.

Customers can cut the whole nightly back up time in half by working a smarter way.

This is real out-of-the-box thinking.

Simplifying recovery and access; the key difference between a storage platform and a data management platform is a knowledge and understanding of the data that begins by indexing it as you move it.

The advantages--advantage now begins with a snapshot, seamlessly extends cross recovery, disaster recovery, and persistent copies as well as flows into and out of the final copies in the cloud.

Recovery is now a point and click action for the entire virtual server to critical messages or documents to complete cross-side disaster recovery into the cloud.

Ease and simplicity in data recovery at all levels, remains the key differentiator for us to compete, win, and drive customer success.

Four, revealing the value inside data with next generation information management.

Our next release will extend automatic content based classification, analytics and shared work flow capabilities into a new web desktop consul that puts relevant secure online, near-line, and offline information directly in the hands of the business user.

Five, scaling out into the enterprise.

We continue to push the boundaries of enterprise scale in our solution while driving down the costs of operations.

Our engineering team has outperformed our expectations with the new release by doubling the number of systems we can manage as group, and by increasing the number of operations six-fold.

Operating costs and performance differentiate CommVault as we continue to be successful in migrating customers to a modernized data management platform.

And lastly, reducing the barriers of selling.

Responding to the demand echoed in both our customer base and our distribution channels, we're offering new innovative capacity licensing capability that is entirely automated buyer and electronic key, which avoids costly manual periodic audits.

Customers have embraced the simplicity and predictability of the new model where they can take advantage of wider combinations of advanced features to meet the demands on the individual use cases define their businesses.

The next generation Simpana we are making it much easier for customers to replace Legacy Systems and switch to Simpana software with new tools and functionality that simplifies and automates the process of moving data from older Legacy Systems to Simpana.

The next generation Simpana is a landmark platform, that is uniquely aligned with the IT transformations we are seeing today.

We are excited, looking forward to its introduction to the market in the near future.

In summary, our Q2 is off to a good start.

Our underlying global demand remains strong, and our global pipeline growth is accelerating.

Our sales force reorganization is behind us.

We are expanding our strategic distribution partnerships, and we are on the verge of launching our compelling next generation data and information platform.

We are focused and committed to the challenge of achieving double digit revenue and earnings growth, with improving operating margins in FY11.

I will now turn the call over to Michael.

Operator, can we please open the call up for questions?

(Operator Instructions) I have the first question coming from the line of Joel Fishbein with Lazard.

Good morning, guys--two quick questions.

I'm going to hopefully get two in.

First on the distribution side, Bob I heard your comments about two potential partners.

Obviously, one of the things we that we've seen is that your distribution constraint, you are not seeing all the deals.

Can you give us little bit more detail on how these distribution partnerships that are soon to be announced are going to help you in that regard?

And any color would be very helpful.

The first one which is signed and actually delivering revenue, as we speak, is a global agreement with a major player in the industry.

And it's being rolled out by region.

The first region is in motion now with the significant effort in the region, and the then it will roll out globally.

I call it a material agreement for the Company.

There is no PR until this particular organization wants to do a press release with us, but more importantly, they are bringing us into accounts and we are doing deals with them as we speak.

The second one is a little bit more specific.

It's in one specific international region.

It is also material.

They have begin--begun marketing our product.

They're going to act as our massive distributer in this region.

They are already marketing our product in that region with their resellers and key customers.

And we expect to have revenue from that particular partner in the current quarter.

And then I mentioned there are several others that are in the works that we are confident we will sign on, also to expand our reach into the market.

Thanks, and just as a quick follow up, one of the big investor concerns out there is the competitive landscape.

Obviously, you have a couple of very large competitors that are in the marketplace.

Any color in that would be on that would be very helpful as well.

The two keys.

As I mentioned in my remarks, the competitive landscape is changing dramatically.

So, number one, technically, we are extremely confident of where we are today with is a Simpana 8, and the next generation Simpana, which will be launched in the near future.

We're extremely confident about the impact of that release versus any competitor out there.

Also, as I mentioned, we are in the process of rapidly expanding our footprint.

Starts with you know, the number of sales teams we have in the field, and we are at our objectives.

We got the horsepower in the field.

We just reorganized, as you are well aware, to get more focused both in the enterprise and the low enterprise and high S&B segments in the market, and we're seeing that in the funnel growth as we speak.

That is not something we are wishing for.

We are actually seeing that have impact to us.

So, in summary, clearly several of our virtualization is changing the--what's going on in with our customers and data centers, it is changing the competitive landscape.

Fortunately, we are in a--we feel in a really good position from standpoint of our technology and value proposition and support, and we are rapidly expanding our footprint to enable us to sustain our historically high growth rates.

Great, thank you.

Your next question comes from the line of Robert Breza with RBC Capital Markets.

Hi, thanks for taking my questions.

Bob, maybe you can just help us--it seems like you're confident in the outlook, you closed some of the large deals already.

Maybe from linearity perspective, can you give us a view on how your seeing, or how you think the set up for this quarter is from a linearity perspective?

Based on your comments I would assume it's more front-end loaded and not as back-end loaded, but help us quantify--think about your comments in a quantitative perspective would be helpful.

Thanks.

Well, I haven't quantified it.

I used the term it is definitely much better than it was last quarter.

Okay, thank you.

Your next question comes from the line of Glenn Hannus with Needham & Company.

Please proceed.

Good morning.

Bob, maybe you could talk a little bit about what, if any, incremental changes you've seen over the last three or four weeks since your last announcement by region US, EMEA, A-Pac.

And then in terms of the public sector, both in the US and Europe, just the trends from more from a macro perspective and how the business feels.

Sure.

Orr Asia Pacific region was strong last quarter.

It was the only region that was strong last quarter.

We expect it to be strong this quarter.

Europe--had it and--UK and Europe had a terrible quarter.

They clearly are having, as I said in my remarks, a much better start to Q2.

And the outlook looks good for the UK and Europe.

The US, clearly with the reorganization, caused a lot of distraction.

It too is off to a much better start, and we, in fact, have a much better result in the Americas.

So, in summary, we expect all three regions to have--well, we expect the Americas, UK , and Europe to have much better results than we did last quarter, and we expect APJ to continue to have good performance this

Then anything there on the public sector by US and Europe.

Well comment on the public sector in the US, clearly we are seeing a lot more activity, positive activity, in the US government sector.

We expect to have a good solid quarter, as I mentioned.

This is government year-end.

We've got a really good pipeline, and we are clearly seeing movement through that pipeline.

The government sector in the UK and Europe clearly is being hit by cutbacks, but even that is a little bit better than we saw last quarter, but we expect the government sector in the UK and EMEA to be--we expect it to be negatively impacted by the cutbacks in government spending in those regions.

Thank you.

Your next question comes from the line of Rajesh Ghai with ThinkEquity.

Please proceed.

Yes, thanks--a couple of more questions on distribution.

The addition of Avnet clearly is a big positive on the distribution side.

What is your sense as to the extended increase your reach--any metrics you can provide?

And what are your revenue expectations as a relationship, potentially ramp to where Arrow is right now, within a year or so.

No.

I think what I said is a combination of Arrow and Avnet, is not a one plus one equals two.

It's a one plus one equals one plus.

The combination will be better than just our alone, but we don't expect it to be a double.

The resellers had a choice of choosing Avnet or Arrow.

That's taking place.

And we expect to Avnet to bring us some incrementally more resellers as they build, which will occur over the next year.

I wouldn't set the expectations that we expect a major significant increase in Avnet immediately.

I think it will take them several quarters to build a foundation, in the Avnet business, and the Arrow business remains strong.

Okay, great.

And on the Simpana 9, you are adding target-based dedup, you're adding the cloud.

I wanted to understand your strategy with regard to go to market for these two specific, new adjacent markets that you will be targeting.

Does that mean more partnership with hardware vendors?

I think, clearly, as we said in the announcement, that the major changes taking place in IT infrastructure is driven by virtualization.

So, our virtualization technologies, a next generation data mover, which manages the movement of data much more affectively in a virtualized environment, again, connecting virtualized world to physical storage, is a significant new capability that we are building.

And we are taking our deduplication as a third generation, and the objective there was to enable a customer to dedup at the source, at the target, or in between, at very, very high scale and with the deduplication volumes being fully indexed.

All those are unique in the market.

Nobody has got fully indexed deduplication.

Nobody can seamlessly manage source, target, and manage deduplication in the stack, and across the different storage silos.

So, the combination of the three, virtualization, a next generation data movement capability, combined with a next generation deduplication capability, that's three areas of new technology that are unique in the market.

And provide advantages for the customer, in terms of making things a lot simpler, much higher scalability across an enterprise, enabling information management data management to be combined with a single product.

And offering the ability to significantly reduce the amount of data moved across networks, and the amount of data that is stored, so the storage costs go down.

So, the combination is very powerful.

Your next question comes from the line of Jason Ader with William Blair.

Please proceed.

Yes, thank you.

Bob, when I look back at the last four years, looks like the average sequential change from the Q1 to Q2 has been around 11%.

And looking at the street estimates, as you said, you're comfortable with where, you said reasonable right now.

That would be a 10% increase sequentially.

I guess my question is why wouldn't it be a little bit better just given that you had a lot of deals that slipped?

Why wouldn't it be a little bit above normal?

As I said, I think that 10% is a reasonable perspective at this point.

Obviously, the other point I made is that our objective is to achieve double-digit revenue and earnings growth, and to do that we would need to do a little bit better than that.

But I'm just being cautious, given the miss we had last quarter, and saying what is a reasonable perspective.

And I would say that street consensus is a reasonable perspective, at this point.

Okay, great.

And then one quick follow up, a little bit unrelated, but on the cloud connector feature module that you guys have introduced, could you guys give us some anecdotal sense of what customers are doing with cloud backup, and do you think it's going to be a big deal any time soon?

It's a big deal as we speak.

We're running a number of deals, and running a number of MSPs.

One of the major distribution partnerships is cloud-based.

So, it is impacting our revenue now, and in a reasonably big way, and we expect it to continue.

I want to turn this over to Al Bunte, and he can give a little bit more perspective on what is going in the cloud.

The two use cases that are really resonating in the marketplace are archival of mid to longer term information, and we're seeing, as Bob said, some success on that case, and as well as we are seeing, particularly through some of the MSPs, some interest in what we would call warm disaster recovery environments, primarily targeted at the mid to lower end of the marketplace.

And again, as Bob said, with all our virtualization and snapshot, data management capabilities, it's a really nice fit for these virtual environments what people are calling private/public files out there.

So, we are pleased with it.

Just to clarify the distribution partner, the MSPP, is that one of the ones that you talked about earlier Bob, or is that a separate from the two--

I mentioned two things.

One, there are two large top providers, one I mentioned in the past, that was British Telecom, and there was another major one we've won over in Europe, winning others.

The third one is a new one, a large company--another large telecom company, and that announcement should come out sometime in the next few months.

Alright, thank you.

Your next question comes from the line of Brian Freed with Morgan Keegan.

Please proceed.

Good morning.

With Simpana 9 shifting to beta this quarter, and potentially going GA, either late this quarter or next.

Can you talk a little bit about the specific actions you are taking to prevent purchase freeze ahead of the formal launches of Simpana 9?

Well, I've talked about these concepts for--not a lot new.

I think I put it--framed it a little bit better in this call, but we are--we are way ahead of schedule in terms of getting our people trained, and that's both our sales and SCs, and everybody in a position, so that when we do launch, we and our channel partners are well-positioned to sell the product.

And we've got a very targeted, controlled launch plan that Al has put together, and I would say we feel extremely good about where we are, the structure we put around it, and our launch capabilities.

I think we are in really good shape to manage the launch.

Okay, thanks.

Your next question comes from the line of Aaron Rakers with Stifel Nicolaus.

Please proceed.

Thanks for taking the question--a couple of them as well, real quick.

Bob, when you look at how the full year estimates shakeout right now for the street, obviously not giving you credit for that double-digit growth assumption topline, the first question on that is, that aside, are you continually supportive of the 100, to 150 basis points of operating margin expansion for the full year?

And, if that is the case, to me it looks like, based on the current estimates, you would be running somewhere close to 20%, if not plus 20% operating margin in the back part of the year.

Any thoughts around that in terms of ability to drive that type of operating leverage will be helpful.

And then I have one follow up.

That's the way the math works.

I think what I was saying on the call was the math definitely works that way.

All the smart guys like yourself would figure that out.

But the key is we got to deliver a Q2 that enables us to realistically achieve that objective.

What I'm saying is we got to put Q2 on the table, and then I think we can have a more constructive discussion on that.

Internally--internally, we clearly have the objective to deliver double-digit revenue and earnings growth, starting with that 100 basis point increase in operating margin.

And then the follow up would be, as we think about Simpana 9 coming out, can you update us on how much of your customer base is installed to, or upgraded to Simpana 8, and how maybe we should think about those Legacy customers when Simpana 9 comes out, and that ability to upgrade those?

That's an issue, we have a substantial install base on Simpana 8, but, I think more importantly, if you go through my remarks, clearly, I think we are really clear now that the market demand for product with the kind of functionality and performance that our next generation Simpana has, is really high.

The market wants and is looking for those kinds of characteristics.

We've had enough data, which have been really successful.

So, I would say our confidence about the next generation Simpana is as high or higher than it was for Simpana 8.

So, we're really confident about our ability to compete with anybody, and I mean anybody, with that platform, and this marketplace.

From a technology standpoint, as I said, we are in a really, really strong position.

The key for us is expanding our market footprint to get into more accounts, so that we can drive a high growth rate.

That is more the issue than our able to compete technically with anybody in the market.

Okay.

Thanks, Bob.

Your next question comes from the line of Michael Turits with Raymond James.

Please proceed.

Yes, two questions.

First on another angle on the margin question.

It seems to me if you just make it in to the double-digit top thrip growth range, then in order to get the margin expansion in double digit bottom line, you would have keep your OpEx at this run rate you got around $50 million.

Considering all that you've got ahead of you, between sales force reorg, continuing roll out, R&D, and Simpana 9, is that realistic to keep in the $50 million run rate for OpEx?

And then I have a follow up.

I think the issue is more where Aaron was going.

If you do the math, on any reasonable basis, we'd have to have a reasonably good double-digit topline growth, manage, in what we're doing to be really clear, is we are managing expenses.

Al has got the plan updated, and we are definitely continuing to invest in sales capacity to hit our topline growth.

That's not only sales capacity, but also managing a much broader number of key strategic distribution partners.

So, that investment is continuing to take place.

What we are doing, though, is constraining investment in other areas in order to make sure that happens.

And that's important, not only for the back end of FY11, that is critically important if we are going to hit our FY12 objectives.

If you look at our technology platform, increased sales capacity, reorganization of the sales force, increased distribution, the fundamental in the market demand is--the fundamentals are there for us to do a lot better in FY11 and move to a strong position for FY12.

So, that's the right way to look at it.

Not to try to nail you down too much, but it doesn't really sound like you are trying to keep expenses flat on a sequential basis.

I think flat is unrealistic.

A follow up on that, is on the pricing front, as you said, the competitive landscape has changed a lot.

There have also been a lot of products releases and some aggressiveness by competitors.

Any changing in terms of how much pricing pressure there is in the market?

I'll comment.

Symantec continues to, when they see us, to be very aggressive, and know, in selective areas, they're dropping prices 90%, giving software away free, rolling up maintenance.

That's been on going, and it goes in waves, in terms of the intensity of that, but that continues.

The EMC data domain will when we show up will dramatically cut prices on both hardware and software to compete against us.

I would say that the aggressiveness and pricing environment is relatively high, and we got to continue to sell on value, which we do.

And I think you seen, in spite of that, our ASP went up pretty dramatically in the enterprise last quarter, even though the quarter wasn't that good.

So, I would say the pricing competitiveness is relatively high, but we seem to be able to manage our way through it successfully.

Thanks guys.

Your next question comes from the line of Derek Bingham with Goldman Sachs.

Please proceed.

Hello, gentlemen.

Bob, I just wanted to make sure I was clear in terms of the impact of the sales reorg in near term.

Do you expect it it's going to take some more time to get folks back to the productivity level you want to see?

Well, I think, what I said was, I think we are past the point where it shouldn't impact our ability to hit our numbers, but the objective with this was to see dramatic improvements in sales productivity.

So, we wanted to get back to where it was.

We are moving in that direction pretty quickly.

The second comment was really directed at seeing significant enhancements to our sales productivity.

I said that will take several more quarters to be realized.

Okay.

Just one more if I could.

The advance products dipped relative to back up on a quarter-over-quarter basis.

I know those can be volatile.

But just is it the case that more of the slipped deals were related to the advanced products and if so, any details you could give on what particular products didn't come out the way you wanted?

That had nothing to do with products.

It's all tied to enterprise deals, and the level of enterprise deals, as I said before, our deals over $100,000 have a higher attach rate to the more advanced products.

It's as simple as that.

Nothing to do with demand of this or that product.

It's clearly a function of percent of enterprise deals.

As that goes up, you will see a dramatic change in ADIM growth rate.

Got it.

Appreciate it.

Yes.

It's that simple.

Your next question come from the line of Phil Winslow with Credit Suisse.

Hi guys.

Most of my questions have been asked, but just a question on margins, more longer term, though.

Bob, as you tried to continue to penetrate the large enterprise, and still putting focus on small to mid-size businesses, how should we think about just your goals for margin expansion longer term?

And where do you still have the most leverage in your model?

Thanks.

It's still on the marketing and sales line.

We are, I would say, laser focused on getting our operating margins north of 20%.

We got a big hole in Q1.

Our objective is to catch up, kind of get back on track, over next three quarters, and be in a position in FY12 to deliver some really good operating margins.

We haven't abandoned that objective at all.

We're all focused on it.

It's the right thing to do for the business.

I think our opportunity to deliver that is high.

Got it.

Your next question come from the line of Gary Spivak with Noble Financial Group.

Please proceed.

Thank you.

Bob, if I may, I wanted to get a little bit more color on the deals that slipped and have already closed.

Were those deals, as a pool, trend larger than your average deal size, and of the deals that did close this quarter, were they kind of on the average in that pool or above or below?

Thanks.

They're mainly--the ones that have impact to us, are deals over $100,000.

They're enterprise deals.

Last quarter, our deals over $100,000 were--the average was $250,000.

It was high because, as I mentioned in the prior call, that our deals, our seven figure deals, closed last quarter.

One of them I just mentioned in this call.

So, it was deals, and I call it--a lot of deals in the $100,00 to $400,000 range, that didn't close and there are a lot of them, and those are the ones that are closing right now.

And the ones that did close are just mayonnaise throughout that range, $100,000 to $400,000?

Yes.

There is some below that, but in general, you wanted a range, that probably brackets it pretty well.

That's helpful, thank you.

At this time, ladies and gentlemen, that concludes today's conference.

CommVault would like to thank you for your participation, you may now disconnect and have a great day.