Commvault Systems Inc (CVLT) 0 Q0 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to CommVault's fiscal first quarter 2012 earnings call.

At this time, all participants are in a listen-only mode.

Following today's presentation, instructions will be given for the question-and-answer session.

At this time for opening remarks and introductions, I would like to turn the call over to Mr.

Michael Picariello, Director of Investor Relations.

Please go ahead, sir.

Good morning.

Thanks for dialing in today for our fiscal first quarter 2012 earnings call.

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 in the cautionary statement contained in our press release and on our website.

The Company undertakes no responsibility to update the information in this conference call under any circumstance.

Our earnings press release was issued over the wire services earlier today, and it also has 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 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.

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.

Good morning, everyone, and thanks for joining our fiscal first quarter 2012 earnings call.

I am pleased that we had a solid start to fiscal 2012.

Our Q1 results are a good validation of the underlying strength of our business.

Let me briefly summarize our financial results.

For the quarter, total revenues were a record $91.5 million, up 38% year-over-year and up 2% sequentially.

Software revenue grew 55% year-over-year and was flat sequentially.

License revenue growth in Q1 was driven primarily by continued success in penetrating large Enterprise accounts on a global basis.

We had also excellent results from our service systems support organizations which grew 26% year-over-year and 5% sequentially.

For the quarter, non-GAAP operating income, or EBIT, was $15.2 million, up 100% year-over-year.

EBIT margins were 16.6%.

Non-GAAP diluted earnings per share for the quarter was $0.21.

We were able to make substantial investments to ensure future growth as well as achieve solid year-on-year earnings growth.

We finished the quarter with $254.2 million of cash and short-term investments on the balance sheet, up 16% from the end of fiscal 2011.

The solid results in fiscal Q1 FY12 were primarily due to the combination of three major factors; the continued strong reception to our Simpana 9 software, the improved capability of our Enterprise sales force to penetrate major Enterprise accounts, and three, the positive impact from increased industry recognition from respected third parties.

In summary, we're pleased with our results considering our fiscal Q1 is typically our most challenging quarter.

I'll now talk about our Enterprise account focus and driving growth.

Our ability to penetrate large Enterprise accounts has significantly improved as a result of the April 2010 sales force reorganization and the investments that we made in additional Enterprise field sales teams over the past year.

Enterprise deals in Q1, which we define as deals over $100,000 in software revenue, represented 52% of licensed revenue and grew 83% year-over-year.

The number of Enterprise deals grew by 67% year-over-year.

On average, Enterprise -- our Enterprise deal was $269,000 for the quarter, compared to $245,000 a year ago and $219,000 in Q4 FY 2011.

Enterprise deal flow momentum and funnel growth continued to be encouraging.

These stats validate the fact that we are continuing to gain strength in the Enterprise segment and certainly gaining market share.

There is no question that our execution in any Enterprise segment of the market has improved since we made the sales force segmentation transition in the year ago June quarter.

However, there is still room for improvement.

In order to take our worldwide sales execution to the next level and improve sales force productivity, we have consolidated worldwide sales under Ron Miller, former VP of Sales of the Americas and created a worldwide sales operations function.

We are focusing on the following areas -- Enterprise selling effectiveness, strategic partner engagement, channel leverage, strategic professional services, and sales and marketing alignment.

The following Enterprise win in Q1 is a good example of the impact that can be made by a focused, experienced, professional Enterprise selling team combined with our leading technology solutions.

This deal was in excess of $1 million in licensed revenue.

As part of a massive data center consolidation project, the customer who is in the government sector, replaced a major competitors' backup software with a comprehensive data management solution that included most of the products of the Simpana suite.

Existing competitive solutions, as well as competing bids, simply could not meet either the customers' broad data management needs nor their TCO requirements.

Specifically, their existing solution did not have the following critical capability that the customer required.

There was no central management interface.

There was no embedded data de-duplication ability.

There was no SRM visibility for business units to understand what data they were storing.

Remote sites could not back up outside of business hours, and their existing competing solutions cannot meet their acquisition and operational cost requirements.

The customer estimates that over a five-year period, our solution will reduce future TCO by approximately $10 million.

At the end of the day, CommVault was the clear choice for the customer.

The decision would not have been made, however, without the outstanding sales and field technical support team's ability to clearly articulate CommVault's value proposition and develop a business case with the customer.

It is wins like this that are helping accelerate our licensed revenue growth.

I'll now talk about increased industry recognition.

As we announced recently, CommVault was recognized as the 2001 Microsoft Server Platform Partner of the Year.

The Company was honored among a global field of top Microsoft partners for demonstrating excellence in innovation and implementation of customer solutions based on Microsoft technology.

This award recognizes CommVault for dramatically transforming customer server infrastructure resulting in higher levels of scalability, availability, and reliability, reduced IT labor or hardware cost, and streamline overall operational efficiency.

This award, along with recognition from respected independent third parties such as Gartner has clearly raised our stature in the industry and is positively impacting our ability to penetrate the market.

It is very gratifying to our team that so many in the industry have recognized that Simpana 9 is the industry's leading modern data and information management technology platform.

The following additional customer example shows the impact that increased industry recognition from respected third parties has had in aiding our Enterprise sales campaign.

This seven-figure win was developed from scratch by a focused Enterprise sales team and aided by our strong position in Gartner's Magic Quadrant.

The deal was completed from start to finish in less than five months.

Although the customer was not happy with their existing vendors data management solution, there was no project funded to replace that vendor when we first met them.

The customer called Gartner for an independent perspective on CommVault.

This gave our sales team added credibility to establish a formal dialogue with the customer on replacing their existing data management vendor with CommVault.

We were able to create a funded opportunity by developing a business case that showed the customer that they could achieve a payback on their entire investment in less than 17 months and a total TCO savings over the next few years of approximately $6 million.

The customer is a Fortune 500 technology company with annual revenues of over $5 billion.

Their previous solution had a 40% higher operating cost, inadequate reporting capabilities, no embedded de-duplication features, limited virtualization support, and required massive resources to manage and maintain.

Simpana solved all the key customer issues with a single software platform including industry-leading embedded de-duplication.

Our competitors, both the incumbent and other companies in our space who got wind of the opportunity, could not compete technically or economically with the Simpana platform-based solution.

There is also strong interest from this customer on our advanced data management capabilities around archiving, indexing, and search capabilities that will likely result in significant added revenue from this client in the coming quarters.

In summary, this major project was proposed and approved in a short amount of time because our Enterprise sales team supported by the additional credibility from Gartner was able to demonstrate compelling financial and business benefits for the customer.

I will now talk about our improving distribution leverage with Simpana 9.

Our Q1 results validate that we've made a lot of progress improving our distribution capability, and I am confident we will continue to broaden and strengthen our distribution capability throughout the balance of fiscal 2012.

It is important to note that in spite of the strong Q1, there were no revenue contributions from our new strategic partners, NetApp and Fujitsu during the quarter.

However, we are making good progress on developing those relationships.

For the balance of fiscal year 2012, we are continuing to work on expanding our footprint with our current key distribution partners, making sure our new distribution partners like NetApp and Fujitsu are successful, and developing other meaningful distribution channels.

I will now talk about outlook.

We are not providing specific guidance for fiscal year 2012.

However, the fact that we've gotten off to a good start to the fiscal year provides a strong foundation for us to build on, and we believe we will be able to achieve solid double-digit revenue and EBIT growth in fiscal year 2012.

For fiscal 2012, we believe we are well positioned to achieve well above industry average revenue growth rates and improved operating margins driven by strong market traction with Simpana 9, continued increases in sales effectiveness and capacity, and broadened distribution.

While we believe there could be upside to the current fiscal 2012 Street consensus for revenue and earnings, I would like to add the following few words of caution.

We continue to have quarterly revenue and earnings risk due to the timing of very large deals as our quarters remain mostly back-end loaded.

While the new distribution partnerships have great potential, there is uncertainty regarding the timing and potential impact of these new distribution opportunities.

While our second quarter is traditionally strong for the US federal government, growing uncertainty related to the federal budget has caused us to be more cautious even though our US federal government funnel appears to be strong.

While EMEA had good year-over-year revenue growth in Q1, we continue to be cautious on Europe given the economies and some of the sovereign debt concerns that exist, and the fact that in many cases, the government has significant influence on certain verticals.

While we are restating our longer term objective to achieve $1 billion in revenues and non-GAAP operating margins in the mid-20s percentile range.

We have developed a plan to achieve those objectives over the next several years.

In summary, noting there are some areas of caution, we have put the Company in a good position to successfully achieve our annual objectives for fiscal 2012 as well as establish a solid foundation for growth in fiscal year13.

I will now turn the call over to Lou.

Thanks, Bob, and good morning, everyone.

I will cover some key financial highlights for the first quarter of fiscal year 2012.

Total revenue for Q1 was $91.5 million, an increase of 38% year-over-year and 2% sequentially.

During Q1, revenue from US operations generated approximately 62% of total revenues, resulting in a 32% year-over-year increase while revenue from international operations generated 38% of total revenue, resulting in a 48% year-over-year increase.

The growth from international revenue is primarily due to strong results in Australia and certain regions of Europe.

However, there remain some pockets of weakness in certain international geographies.

On a year-over-year constant currency basis, foreign currency movements had a positive impact on earnings per share of approximately $0.01.

On a sequential constant currency basis, there was minimal impact on earnings per share.

The revenue mix for the quarter was 48% software and 52% services.

In the prior year period, the revenue mix was 43% software and 57% services.

For the quarter, we reported software revenue of $43.8 million which was up by $15.5 million over the prior year period and primarily driven by Enterprise transactions.

In addition, our SMB business grew 32% over the prior year period primarily on the strength of our global SMB channel partners.

Services revenue for Q1 was $47.7 million, an increase of 26% year-over-year.

As a result of our strong maintenance attach and renewal rates, deferred revenue continues to grow on our balance sheet and is currently at an all-time high of $118.1 million.

We continue to see increased demand for our capacity-based licensing models which makes it much easier for our customers to purchase multiple elements of the Simpana platform.

During Q1, capacity-based pricing continued to grow, and a significant portion of our software revenue was licensed and priced based on our capacity models.

We expect this trend to continue throughout fiscal year 2012.

As sales of our capacity licensing models continue to increase, customers are electing to purchase our full suite of products which include both backup recovery and ADIM software solutions as opposed to discrete licenses.

Sales of our advanced data and information management products, or ADIM, represented 44% of software revenue during Q1 compared to 45% in Q4 and 34% in the prior year period.

Sales from our ADIM products grew 103% year-over-year and declined 2% sequentially.

Software revenue derived from indirect distribution channels increased by $11.1 million, or 47% year-over-year, and declined $3.3 million, or 9% sequentially.

Sales through our Dell relationship accounted for approximately 21% of total revenue for the quarter.

Total quarterly Dell revenues grew 12% year-over-year and declined 1% sequentially.

Total revenue through Arrow contributed approximately 25% of total revenue, compared to 23% in the prior year period, representing increases of approximately 53% year-over-year and 1% sequentially.

Gross margins were 87% for the quarter, compared to 85.8% in the prior year period.

The change in gross margin is primarily the result of a better software and services mix.

Total operating expenses were $63.3 million for the quarter, up approximately 6% sequentially and 31% year-over-year.

We added 60 people during the quarter, and our ending headcount number at June 30, 2011 was 1,328.

Sales and marketing expenses increased by $13 million, or 38% over the prior year period, and $4.5 million over the prior quarter, or 11% sequentially.

The increase in sales and marketing expense is primarily due to increases in employee compensation and related expenses tied to the expansion of our sales force as well as higher commissioned on record revenue and additional headcount to support our new distribution partnerships and expanding market opportunities.

R&D expenses increased by approximately $600,000, or 7% over the prior year period, and declined $800,000 over the prior quarter, or 8% sequentially.

The year-over-year increase in R&D spending is primarily tied to increased headcount.

G&A expenses increased by approximately $1.4 million, or 23% over the prior year period, and 1% sequentially.

The increases in G&A are primarily due to increased compensation and higher legal, accounting, and compliance costs.

Operating margins were 16.6% for the quarter, resulting in operating income of $15.2 million.

On a year-over-year basis, Q1 EBIT increased by 100%.

We remain committed to improving operating margins in fiscal year 2012.

Our goal is to increase fiscal year 2012 EBIT margins by 50 to 75 basis points.

Net income for the quarter was $9.8 million, and diluted earnings per share was $0.21 per share based on a diluted weighted average share count of approximately 47.3 million shares and a 36% pro forma tax rate for Q1 of fiscal year 2012 versus a 34% pro forma tax rate used in Q1 of fiscal year 2011.

The Q1 share count is approximately 500,000 shares higher than the prior quarter and approximately 1.2 million shares higher than Q1 of the prior year.

We anticipate that our diluted weighted average share count for fiscal year 2012 will increase sequentially at an average rate that is comparable to the past three quarters, or approximately 500,000 per quarter.

We estimate the cash tax rate for fiscal year 2012 will be in the range of 20% to 25%.

We anticipate that our cash tax rate will remain lower than our GAAP tax rate in fiscal year 2012.

Our cash tax rate will approach our long-term terminal GAAP tax rate over the next 1 to 2 fiscal years.

As a reminder, the Company is using a pro forma tax rate of 36% for fiscal year 2012 compared to a 34% pro forma tax rate used in fiscal year 2011.

The GAAP tax rate for the quarter just ended was 31%.

As of June 30, our cash and short-term investments balance was $254.2 million.

Cash balance has increased by approximately $74 million since June 30, 2010.

For the quarter just ended, cash flow from operations was $31.1 million.

Free cash flow, which we define as cash flow from operations less capital expenditures, was a record $29.6 million which is an increase of 95% over the prior-year quarter and 63% sequentially.

The increase in free cash flow was the result of lower receivable balances and improved revenue linearity.

For the quarter, our DSO was 67 days, which is down from 70 days in the prior quarter and 72 days in the prior-year quarter mainly due to linearity.

As of June 30, 2011 the Company's deferred revenue balance was approximately $118.1 million which is an increase of $26.1 million, or 28% over the prior year period, and up 5% sequentially over the prior quarter.

That concludes the financial highlights.

I will now turn the call back over to Bob.

Thank you.

Thank you, Lou.

I will now spend a few minutes talking about industry dynamics and their implications for CommVault's strategic partnerships.

I will also briefly discuss some new product ideas and functionalities that we are planning to bring to market over the next several months.

In regard to industry dynamics, our strategic partnerships with key hardware vendors such as Dell, ATS, and now NetApp and Fujitsu are part of an industry-wide trend that realizes that the complexity and scale of today's IT environments require a much more holistic, comprehensive approach to solving customers' data and information management issues.

In that regard, optimized storage and data information management software solutions must be delivered by simplified and unified software and hardware solutions that include tight integration with applications, virtualized servers, network storage hardware, and a real-time understanding of data network capabilities.

Comprehensive services and support are also required.

The major technology catalyst of the driving changes in IT include massive amounts of data being generated, server virtualization, the move to the Cloud including SAS-based applications, and next generation mobile computing.

Our hardware partners realize they have daunting issues to solve the complexity cost and scale issues in the server storage and network infrastructure including integrating the various storage platforms, developing next-generation snap and replication technologies, and establishing global management capabilities including sophisticated scalable global file systems.

In summary, many of the storage hardware server and network providers are focusing on solving strategic technical issues tied to their core businesses and have not put a high priority on building the expertise and allocating the necessary resources to develop a next-generation data and information management software platform like Simpana.

CommVault, on the other hand, is totally focused on building on out its software platform and related services and is not in the hardware business.

CommVault is in the unique position of having solved the best and only singular data and information management platform.

However, it is strategically important for us to ensure that our customers can purchase well integrated software and hardware data and information management solutions.

As a result, it has now become strategically important and mutually beneficial for CommVault and the storage and virtual server providers to develop strategic partnerships to bring effective solutions to market.

The end result is that we, along with our partners, are bringing unique comprehensive solutions to the market based on each of our partners differentiated technology, services, and distribution capabilities.

The benefits of these partnerships is that our customers get much better solutions and services, and CommVault has gained significantly more distribution reach.

Going forward, CommVault will be working with each of its key partners to provide tighter integration and broader mutual solutions.

I will now talk about continuing innovation at CommVault.

Priority number one at CommVault is and always has been to enhance our leading technology foundation by bringing uniquely innovative products and technology to market faster than any of our competitors.

In keeping with that track record, we will be extending the Simpana platform with new products and functionality this summer and fall with new or enhanced products for mobile computing, next-generation archiving, and products that make it easier for IT administrators to manage their data-related IT infrastructure issues.

In summary, we had a good start to fiscal year 2012, achieving record revenues in Q1.

In addition, we were able to significantly improve year-on-year profitability while making key investments in order for us to achieve our target numbers for the balance of fiscal year 2012 and establish a foundation for growth for fiscal year 2013.

We believe we have the wherewithal to continue to be a disruptive force in the industry.

We believe the combination of our technology and leadership, Enterprise selling capability, significant new strategic distribution partners, and an increased industry recognition will enable us to outpace the industry in growth while increasing our profitability and cash flow.

We're very confident about our future and about our ability to create both short- and long-term shareholder value.

I will now turn the call back to Michael.

Thanks, Bob.

Before we open up the lines for your questions, I would like to highlight that we'll be hosting our annual stockholders' meeting on Wednesday, August 24 at 9.00 AM Eastern Time at our headquarters in Oceanport, New Jersey.

Details and a live webcast are available on the Investor Relations section of our website.

Can we now open up the lines for questions, please?

(Operator Instructions) Your first question comes from the line of Jason Ader with William Blair.

Thank you.

Hello.

I know you don't like commenting month to month, but given the macro environments today and some of the uncertainties out there, could you give us some sense of how the month of July has played out, especially close rates?

I think a lot of people -- a lot of investors are nervous about close rates given what's happened.

I know it's first month of the quarter so maybe a ton of business isn't done for you guys.

But given the quarter being pretty -- the June quarter being very linear, I just thought you might have some commentary there.

That's my first question.

We are also nervous, Jason, but we had a good July.

Okay.

And then on NetApp, you talked about September being the first quarter where you will see some contribution.

Could you give us a sense of when you think you are really going to see material contribution?

Do you have a sense of that yet?

Any update on the sales training and the reception from the NetApp organization to the Snap Protect product?

The training and reception has been very strong.

But at the end of the day, revenue is what counts.

And as I said all along, we would expect to see some revenue in September quarter and begin to really build in the December quarter.

And we will have to see -- at the end of the day, Jason, we will have to see what the results are.

I think with these relationships, you really don't know until you've had a track record established.

And we don't have that established yet.

Okay and then last question for me, just on the leverage.

We have been flirting with 20% operating margins the last couple of years.

I guess it's been mainly Q4.

Do you think you can get to 20% operating margins in Q4 this year, assuming all goes well and you hit the targets that you want to hit on the top line?

Just looking for when the leverage really kicks in.

You have some of these new partnerships.

You obviously have built out the sales force and front-end loaded some spending here in Q1.

How confident are you that you can get to that 20%-type of operating margin?

All I will say is that -- clearly as I said in the last quarter.

We, by design made significant investments in Q1, tied to the opportunity that we have in front of us.

And that worked really well, obviously, because we over achieved top and bottom.

As an organization, we are really focused on seeing if we can improve our operating leverage as we go forward.

That's the only comment I will make is that there is a very, very sharp focus within the whole CommVault organization on improving our operating leverage.

And all I can say is there is opportunity, and we will see how well we execute on it.

But we are clearly focused on it.

We should expect a sequential uptick in OpEx in Q2, correct?

There will be a sequential uptick in OpEx in Q2.

Okay, thank you.

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

Hi.

Maybe just as a quick follow-up to Jason's question.

The one -- or I should say the investments you made in Q1 above and beyond what you normally would have made -- can you help us understand the magnitude of that?

Well, you've seen the numbers.

Bob -- I mean, they're -- Rob, I mean.

They are -- Lou articulated them for you.

They're primarily in sales and marketing and in our investments to support our new channel -- strategic channel partners like NetApp and Fujitsu.

They were up, I believe, 6% sequentially was the number, and up about 38% year-over-year.

Those are the numbers I recall.

And we understand how substantial they were, and now we've got to make sure that they play out in growth in revenue and earnings.

All I can say is that we understood what we did, and we are really focused on making sure we get the desired results.

Maybe as a follow-up, Bob.

With the changes you are making to the sales force, bringing it under Ron Miller and the worldwide operations, what are your plans for the growth in the sales force?

And then maybe at a higher level, what kind of productivity gains are you looking for?

Thanks.

As I said before, we don't publish those numbers.

So that basically tells you what the guidance is.

But typically, we will increase our sales capacity at a level that is below our targets for improvement in operating margin.

So, I will exaggerate the point.

If we plan to grow 90%, were going to add 85%, 86% more capacity.

So, you get the leverage.

In this case, we increased a little bit more upfront because of the opportunity in front of us.

But we increased operating expenses at a rate that is lower than our expected increases in gross margin if you want to think of it that way.

Okay.

Thank you very much.

Nice quarter.

Your next question comes from the line of Eric Martinuzzi with Craig-Hallum.

Thanks, and congratulations on the good execution there in Q1.

Curious to know the competitive landscape here.

I would just like to hear from you who you still see -- or if you still see the similar landscape across competition?

And you're obviously taking share with the 38% growth rate.

Who do you feel like you're taking share from?

We're definitely taking share from Symantec.

That is clear.

We are taking share from IBM, and we are taking share from EMC who are our three largest competitors.

And what -- is it really about displacements of those competitors?

Or is there something else going on here?

As we have said in the past, this industry is in transformation from what we would call legacy backup or legacy data management environments in a much more modern, comprehensive modern data management which includes -- that's why the Simpana platform is so well received by our customers and by leading industry analysts.

Is that we have taken a much different approach than our competitors.

This is a singular platform with a comprehensive management layer that sits on the top of it.

We enable -- we are application-aware across the board.

So the minute we move data, we index and then catalog it.

That particular object against a specific version of an application.

And then we quickly are able to move it off that primary layer using efficient snap and replication technology and with embedded de-duplication.

And then move it to an efficient archive.

That is very different than the EMC approach or the appliance approach that Symantec has.

By taking a very different, more comprehensive approach to solving complex data management problems, we save customers a lot of money and provide a lot more functionality.

Because at the end of the day, your data ends up in a very -- what we call -- Smart archive.

Where you can recover data much more easily and then create value by using the content of that data for things like search and compliance.

So, it's a different approach.

It's a much more -- the benefits in cost and functionality are a lot higher.

And we are able to both displace existing competitors or when companies go into these major upgraded IT infrastructure projects, we are able to win those as well.

We're also very effective in the Cloud.

Winning a lot of the major hosted Cloud companies are using the Simpana data and information management platform as their core software platform.

Thank you.

(Operator Instructions) We ask that you limit your questions to one and one follow up.

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

Please proceed.

Congratulations on the strong quarter.

Were there any verticals, geographies where the strength in demand surprised you in the quarter, Bob?

Well, we were -- in this quarter, we were strong across this board.

The US had a very strong quarter.

Our European operations on a year-over-year basis were strong.

They had a relatively poor quarter a year ago, but our European operations look like they should sustain good performance.

Our APJ operation had good solid performance.

The performance was global on a vertical basis.

Most of our verticals were strong.

Even our government verticals in many places were strong.

We saw some weakness in some areas in state and local, but in general, it was an across-the-board strong performance both globally and from a vertical perspective.

Great.

Historically, your target market -- data management software market -- has been a little bit more sensitive to the health of the economy than storage hardware.

I appreciate your comments about the industry being in transition, and the fact that you are -- the hardware vendors are -- need a solution like Simpana to be able to optimize their deployments.

But if the economy becomes worse this year, how do you think the target market will behave given the historicals?

We will see some pressure.

Typically, we would see some slowdown in growth.

If we are growing at these levels, and we slow down to levels that have four or five times the industry, I think we will still do relatively well.

Okay, and one last question.

In terms of your operating margin trajectory through the fiscal year.

If you look at last year, you had about 800 basis point improvement between Q1 and Q4.

And to Lou's comments earlier, you expect about 50 to 75 basis point improvement for fiscal '12.

Is that baking in conservatism around the top line?

How should we think about the trajectory for the operating margin for the fiscal year given that you're starting off with -- (multiple speakers).

I think Lou's comment is -- I would take that as reasonable.

Because the challenge we have is investing now for strong growth in FY'13, and at the same time, trying to make sure that we improve our operating margin leverage.

At some point, we may be able to accelerate that.

But at this point, I would say that Lou's comments are reasonable.

All right, thank you.

Your next question comes from the line of Glenn Hanus with Needham & Co.

Good morning, and congrats as well.

So back on -- just in terms of the near-term business.

The Street had modeled you about 5% sequential growth, and you have in the past talked about September as being a quarter -- is typically a pretty good quarter.

And then you have some incremental contribution from partnerships that would accelerate growth.

In that context, can you comment at all on the 5%-ish growth that the Street has modeled for you for September off, obviously, a higher base now?

I wouldn't take that as a good reference point.

I think the Street consensus in the raw number for Q2 is about $88 million.

That's against our $91 million last quarter.

I think 5% off $88 million is one thing.

5% off $91 million is something else.

I wouldn't expect to see very much significant contribution from our new partnerships in the September quarter.

We will start to see those in December.

And we have a macro environment that's got uncertainty, Glenn.

So, I think that would be stretching the point here.

Okay.

So we would expect some sequential growth this quarter?

There is potential.

Okay.

And you're still sticking by 50 to 75 basis points of operating margin leverage for the fiscal year off of last year?

Is that right?

That is correct, Glenn.

Okay, I will cede the floor.

Thank you.

Okay.

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

Hello.

You mentioned some new products coming out in the fall.

Any further color you can give us on that?

And also how that would true up with the next major release of Simpana and the timeline for that?

We haven't announced when the next release was, and typically, it's 18 months from our prior release.

But the release this fall is unusually strong for an interim release.

Without getting into too much detail, I think Al can give you some general color on where we are headed without getting into too much specifics.

But you can talk about [DLL] and --.

Yes, Michael.

Bob commented in his script that we are looking at things like mobile devices, or desktop laptop solutions out there.

Being focused on archive, and we think some innovative ways to handle a whole series of archive environments.

There is some operational elements, particularly in a virtual environment, that we'll be putting forward.

Those types of things is where we will focus our new product activity this fall and going into the end of this calendar year.

Just on -- you did mention that there were still pockets of international weakness.

And although the year-over-year growth was strong on international, it looks it was down about 8% sequentially.

Can you talk about what is still weak there?

And what you are seeing and where you are seeing particularly that would cause you to have the most caution?

But what was weakest in the quarter since it was a [solid quarter]?

What Lou was referring to is that even though the year-over-year growth was strong, there is still some pockets of weakness in -- for example, in the UK.

But we have, let's call it the potential to have reasonably good growth in Europe, but we're cautious about it given all the macro issues over there.

Quick housekeeping.

Just currency impact on revenue year-over-year?

This past quarter?

I think it was 6%.

6 points of revenue tailwind.

Okay, thanks very much.

Good quarter.

Thanks, Michael.

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

Good morning.

Just a follow-up on Glenn's question on sequential trends.

If you look back over history in the last 5 years, you've had about 11% average sequential growth with 7.8% at the low end, 15.2% at the high end.

So, as you look at the -- compare and contrast the positives, the NetApp relationship, the incremental additions to OpEx and driving future revenue versus the macro uncertainty, how do you feel about your sequential trend versus normal seasonality?

Which would you weight higher?

I don't think you could call it normal given the strength of Q1 which was extremely strong relative to anything we have done historically.

So, I think you've got to put it in that context and not look at the normal sequential growth.

And on the flip side is, yes, the Company is extremely well positioned to execute.

But I wouldn't use that historical reference as a good guide.

And just as a follow-up.

As you look at the strength from the June quarter, do you feel like you got higher than typical close rates on your pipeline?

And that might give you a little bit less headroom into the September quarter?

We just had bigger pipe than normal.

Our close rates were pretty consistent, but our pipeline has been growing at a very good, solid, high rate.

Okay, thank you.

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

Yes, thank you.

I'll echo congratulations on the quarter.

Just want to ask a little bit more on the government.

I think coming into this quarter, there was an appropriate sense of caution, both from a macro perspective and from an execution perspective.

Just wondering what that customer vertical is leading you to feel on the heels of the debt ceiling deal about September?

And how you feel about your execution in that vertical?

Let's talk about our execution.

We did almost a complete restructuring of our government team in the last half of last fiscal year.

The team we have put together is executing extremely well.

And the funnel looks good, and so that's a real positive.

The uncertainty is what you just described.

Nobody knows, and typically, the government business is back-end loaded.

Until we get to the end of September, we really don't know.

The outlook looks really good, but there's a lot of uncertainty attached to it.

Okay.

I don't want to put words in your mouth, but is it safe to say that June came out better than anticipated, and is the pipeline in the government better than you anticipated?

The pipeline in the government is better than we anticipated, yes.

Thank you.

And the government team executed very well last quarter.

Thank you.

Your next question comes from the line of Joel Fishbein with Lazard.

Hello.

Great numbers.

Love to get some color on where you're getting your competitive displacements from?

Who you're getting them from?

And then what share gains you are thinking that you're actually getting?

And where you will be -- call it fiscal 2013 in terms of overall share.

Joel, in terms of the -- I think, in this order, in terms of major deals.

We have continued to be very successful against IBM in the big Enterprise deals.

We continue to be successful against Symantec in the big Enterprise deals, and then on a selective basis, we take out some legacy Legato installs.

In our competitive basis in terms of who we see, we still see in terms of activity in the open market, it's EMC and Symantec and then on IBM's install base, it's obviously IBM.

But those are three major competitors.

And then in terms of market share, you're clearly gaining share although they don't really break out these numbers per se.

Symantec tries to, but you've clearly taken some share here.

Were do you think you will be in terms of getting a greater piece of the pie?

We've got our own internal stats, but we don't publish those.

To be honest, our share on a relative basis is so small.

What we are trying to do is as we have discussed in the past is get the Company on a much higher growth rate both in revenue and earnings to sustain it for a long period of time and get us positioned to do that.

And we are clearly making progress on those high-level revenue and earnings objectives.

I just want to clear one thing up relative to NetApp.

Obviously, it was a big splash announcement.

There is no read-through here that there is no revenue.

You didn't expect any revenue until the back half of the year, right?

Out of the gate?

There is no read-through at all.

One, the revenue comes to us in arrears, and we just started this thing in June.

And we know any one of these partnerships, there is always a fairly large start-up period.

Our expectations were to start to see some revenue that's got some meaning in the December quarter, and I think we are on track to see that.

And are you already in the market doing deals with them or are trying to?

Or are you still in the technology integration phase?

I know they're selling Snap Protect, but anything else there?

We are in the market.

Both companies.

On doing deals, and as far as technology integration is concerned, that is an ongoing process.

There is a lot more to come there.

That was phase 1.

There is a significant amount of additional integration with NetApp that we have laid out.

So, we have a clear road map between the two companies on what the next steps are.

Great, thank you.

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

Thanks, and also congratulations on the quarter.

First question, I hate to go back to it, but I want to understand you're thinking a little bit.

When I think about the operating margin, one of the comments you made was that you see potential upside to fiscal 2012 Street estimates that are out there.

I know estimates can vary, but some of the estimates I see on the Street suggest that you are already expected to hit as much as 100 basis points of operating margin leverage.

With that in the context of the 50 to 75 basis points, if you see upside to the fiscal 2012 top line estimates, how can we think about that translating into operating margin leverage?

Relative to that 50 to 75 basis points seems quite conservative.

I don't think so Aaron.

I think we have a real challenge from an investment standpoint.

As you know, we start planning for FY '13 -- that planning process started in June.

And when Al lays all this stuff out, and we look at our investments, we have a real challenge to hit well above industry growth rates in '13 and make the investments.

And to make sure that we hit these operating margin targets.

It's not as easy as it sounds.

Internally, as I said earlier, we are very focused on it.

But it is not an easy task for us to achieve very, very high growth rates and sustain those over a several year period.

And get these operating margins where we really want them.

We know what to do.

The whole team is all over that issue, and I am confident over the next 18 months we are going to make a lot of progress on that.

But for FY'12, I would stick with Lou's comment of 50 to 75 as more reasonable given the challenges that we have.

Fair enough.

And then the follow-up question is back on the NetApp relationship.

I know you've obviously said that ramps in the December quarter.

As we think about that relationship, and we think about is coming out of NetApp, how important is operating system refreshes out of NetApp?

As far as either driving that ramp of opportunity for you?

Or as you've obviously indicated, a further deepening of that relationship?

How do we think about that as we look to see NetApp doing operating system refresh here going forward?

Every time they do an operating system refresh, you're replacing an existing installed base with the next generation hardware that's got the embedded CommVault solution in it.

That is a positive thing for the relationship.

In addition to that, we are adding more capability and functionality between the two companies.

So the combination of their refresh, if you want to call it that, and further integration should -- will clearly strengthen the relationship and impact.

Great.

Thanks, Bob.

(Operator Instructions) Your next question comes from the line of Shebly Seyrafi.

Yes, thank you very much.

So, your average Enterprise deal size grew to $269,000 from $219,000.

That's up $50,000 sequentially.

That's huge.

And so I'd like you to talk about your [meet] rates and win rates which I think have improved dramatically against Symantec, IBM, and EMC.

You've got it, Shebly.

It's the seven-figure -- or high six-figure -- deals that drives growth, and it drives up your ASP in the Enterprise sector.

And we've been focused on that, and over time we have become more and more successful in doing that and that's why you see the stats.

And it's [sales] big takeout.

It's not just replacing a department, but going in and completely displacing a competitor in a major Enterprise.

But do you have a quantification of the win rate change this quarter versus, say, a quarter or two ago?

No, but I can tell you that the high six-figure and seven-figure deals is what drove those numbers.

In other words, we had more deals over $1 million and more deals in the high six figures, and that's what drove the growth and the increase in the ASP in the Enterprise sector.

Last one for me.

Your ADIM software according to my estimate was down sequentially.

Backup was up.

But you expect the ADIM growth rate going forward to continue to be greater than backup?

Do you think it was just a one quarter anomaly, so to speak?

As you and I have discussed in the past, since customers are buying capacity-based licenses which are the vast majority of what we sell.

ADIM is embedded in there, and we will report the stats.

But the important thing is that becomes more difficult because they are buying -- customers are buying the whole platform.

And that platform -- it's not segregated product any more.

It is a process.

When a customer buys a virtual automation capability, and they buy Snap and replication capability, and they buy de-duplication which is absolutely required.

Or archiving in today's new environments which is a requirement.

That is now all part of a solution versus as Lou described in his commentary -- discrete products.

It's a little bit more difficult to separate the platform from the ADIM.

So those stats are --.

I think you have just got to watch the growth of the platform, Shebly.

It's more relevant.

Thank you.

Your final question today comes from the line of James Gilman with Capstone Investments.

Thank you.

Good morning, gentlemen.

Just wanted to maybe get -- receive a little bit more color around the government deal and a little bit maybe about the government pipeline.

Just curious if you could talk a little bit about whether that was a -- the deal was off the GSA?

Was it an RFQ?

How long it was in the pipeline?

Try to take that --.

It wasn't a deal.

Our government team is -- there are numerous accounts.

Both on the defense side of the business and the non-defense side of the business.

We've broadened out our team.

We've built a very big pipeline of major opportunities there.

And as I said earlier, it depends on -- the pipe is there.

The opportunity is there.

The uncertainty is the government spending environment, and we will just see.

That government vertical is, globally by the way, not just in the US.

Represents -- it's our largest vertical.

And in spite of government pullbacks in both state, US federal, and other governments around the world, it is still an area of major opportunity for us.

And understanding there's uncertainty attached to it.

Okay.

Thank you for the additional information there.

That does it for me.

You're welcome.

Ladies and gentlemen, that does conclude today's Q&A portion as well as the conference.

Thank you for your participation.

You may now disconnect.

Have a great day.