Commvault Systems Inc (CVLT) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to CommVault's fiscal fourth-quarter and fiscal 2012 year-end 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 fourth-quarter 2012 and 2012 year-end 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 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 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 circumstances.

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 Investor Relations website.

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

The reconciliation between the non-GAAP and GAAP measures can be found on table 4 accompanying the press release and posted on our website.

This conference call is also being recorded for replay and is being webcast live.

An archive of today's webcast will be available on our website following the call.

I will now turn the call over to our CEO and President, Mr. Bob Hammer.

Thank you, Michael.

Good morning, everyone, and thanks for joining our fiscal fourth-quarter and 2012 year-end earnings call.

CommVault had an outstanding Q4, with strong performance in all aspects of our business and across all geographies.

For the year we achieved record revenue, operating profit, EPS, and cash flows.

I'm also pleased that we met our fiscal '12 objectives of delivering solid double-digit revenue and earnings growth for the full fiscal year.

We also met our objective of entering fiscal 2013 with good momentum.

Let me briefly summarize our Q4 and full year FY '12 financial results.

For the quarter total revenues were a record $114 million, up 27% year-over-year and up 10% sequentially.

Software revenue grew 34% year-over-year and 14% sequentially, while Services grew 21% year-over-year and 6% sequentially.

For the quarter, non-GAAP operating income or EBIT was $21.1 million, up 22% year-over-year.

EBIT margins were 18.5%, non-GAAP diluted earnings per share for the quarter was $0.29.

For fiscal 2012, we grew total revenues by 29%, EBIT grew 39%, and we expanded EBIT margins by 130 basis points.

We generated approximately $30 million of cash flow from operations during the quarter, and approximately $100 million of cash flow from operations for the year.

We finished fiscal 2012 in a very strong financial position with over $300 million of cash and short-term investments and no debt.

We continue to generate record results due to a combination of the following key factors.

One, Simpana 9 software significantly increased our technology differentiation versus all competitors.

Secondly, CommVault is recognized more often as the vendor of choice since the massive data growth, increased use of virtualization and the cloud are making other vendors' solutions obsolete.

Improved sales execution in major enterprise accounts as well is in the SMB sector, increased brand awareness aided by CommVault industry-leading positions by respected third parties such as Gartner, and lastly, increased distribution leverage from both our strategic and reseller partners.

Let me spend a minute on Simpana 9 and CommVault's technology advantages.

Simpana 9 is a key reason why we have seen acceleration in software license revenues, which has enabled us to outpace the industry in both growth and profitability.

With Simpana 9 we have significantly increased our differentiation versus our major competitors.

This includes supplanting previously leading technologies like appliance-based deduplication, and separate archive-based solutions.

We have positioned CommVault as the vendor of choice to solve major enterprise issues, which include scale-related data protection, data recovery, and disaster recovery -- issues tied to the explosion of data growth; virtualization; the cloud; the management of mobile devices; and compliance and regulatory issues.

Additionally, in the relatively near future we will address issues related to smart devices and the needs to address big data related issues tied to improved decision-making.

I will comment more on these subjects after Lou's comments.

With Simpana 9, we're able to solve our customers' complex data management problems globally and holistically across all IT environments with one single platform that is ultimately less expensive, provides more functionality, is more reliable, and is much easier to deploy and support.

As a result of our leading modern data management technology position and vision, we are displacing legacy incumbents at an accelerating rate.

We are displacing them because they are trying to solve very complex problems with a variety of disparate point products that have proven to be less reliable, are more difficult to deploy, use, and support.

The data stored on these point products are siloed, making it more difficult to access and search data for compliance, regulatory, legal and decision-making purposes.

More importantly, we are finding that in many, many situations our competitors just do not have viable solutions to solve the customers' critical issues.

I want to share with you a recent multiple seven-figure deal that we won for the reasons I just outlined.

This recent win, a major financial institution, is using most products in the Simpana suite to replace both a major competitor's backup software and another competitor's appliance-based deduplication product.

The customer is facing a big, expensive infrastructure upgrade needed to support existing products as its legacy solution could not scale.

They decided instead to design a more cost effective solution based on Simpana software, which could utilize much of their existing infrastructure.

The customer is also leveraging CommVault's deduplication to avoid an additional significant investment in hardware deduplication appliances.

The benefit to the customer included moving to an optimum scalable IT infrastructure and substantial cost savings and operational efficiencies.

The customer is expected to have a 60% to 70% reduction in hardware and storage infrastructure savings over the next few years.

Going forward, our objectives are to continue to improve our ability to penetrate major enterprise accounts, by increasing our relevance to our customers and our differentiation from our competitors with innovative new products and services.

We also plan to expand into new markets, which I will address later in the call after Lou's comments.

I'd like now to spend a few minutes to talk about our distribution partnerships.

We have increased our distribution leverage and (technical difficulty) strategic partners, distributors, high-end resellers, systems integrators, and managed services providers.

We believe there is still significant potential for us to substantially increase distribution leverage over the next several years.

Our partnership with Fujitsu continues to progress very well and they achieved their quarterly revenue objectives.

On the other hand, our Q4 '12 results for NetApp have not met our expectations and as a consequence we are not forecasting any meaningful revenue from this relationship in FY '13.

There are still major business benefits to both CommVault and NetApp in establishing a viable partnership.

Both companies remain committed to the relationship, and are currently working collaboratively on ways to maximize the potential of the partnership.

Microsoft.

As we announced a couple of weeks ago, CommVault has expanded its collaboration with Microsoft to offer a cloud storage capability that combines the power of Simpana software with the benefits and flexibility of storing data on the Windows Azure cloud platform.

In addition, we are also deepening our strategic alliance with Microsoft, expanding collaborative development and sales and marketing activities around the Azure platform.

Now let me spend a minute on our Dell relationship.

Sales through our Dell relationship accounted for approximately 23% of total revenues for the quarter.

Total quarterly Dell revenues grew 40% year-over-year, and 14% sequentially.

Our relationship with Dell continues to be strong, and we continue to work closely with Dell strategically.

I'm sure everyone is interested in my comments regarding Dell's recent acquisitions and the potential impact on CommVault's Dell-related revenue.

We believe that Dell will aggressively position the acquisition of Aperture in the SMB and mid-market and there will be some overlap with Dell in certain segments of the mid-market, which is to be expected.

We will deal with any overlap on a case-by-case basis with a focus on what is in the best interest of our customers.

I also believe there are significant opportunities open to us with the Dell partnership for collaborative solutions in the enterprise segment of the market for both current and future CommVault technologies.

The bottom line is we expect continued strong results from this partnership in FY '13 and beyond.

I'll talk a minute about plans for our new headquarters.

As a result of our strong growth and anticipated future growth we're simply running out of space in our current headquarters facility.

Over the past year or so, we've been exploring alternatives and have found there is no suitable commercial space in the area that meets our needs.

As a result we are in the process of purchasing a site which would be suitable for us to build a corporate headquarters.

We'll take some time to conclude the purchase transaction.

As we get further along in the process I will update you on the potential timing and estimated capital expenditure of the project.

At this point it is just too early in the process to do that.

But I wanted to make sure that our shareholders were aware of a potential use of our cash in the future.

Now let's take a look at our outlook.

Enterprise deal flow momentum and funnel growth continue to be good and we have increasing visibility to our current quarter forecast.

In the present time we see good demand across all vertical sectors in the market and across all geographies.

While we had a very strong Q4, and have good momentum entering fiscal 2013, I would like to add the following words of caution regarding our future outlook.

Major third-party analysts continue to forecast lower tech spending in calendar 2012 versus 2011.

Although we haven't seen it yet, the fight for budget money could become harder as the year goes on.

Our ability to grow becomes more dependent on not just big deals but the steady flow of really big multiple seven-figure deals which have quarterly revenue and earnings risk due to their timing.

There's earnings risk related to our increasing investment and operating expenses across all segments of the business, and if we miss our revenue targets, there could be significant impact to earnings.

As we enter an election year there's additional uncertainty in the public sector and we are particularly cautious as the US Federal Government remains our largest vertical.

While EMEA had a good year-over-year revenue growth in Q4, we continue to be concerned about the European IT spending outlook as sectors of the EMEA economy are now in recessions.

For fiscal 2013, we believe we are well positioned to achieve above industry average revenue growth rates and improved operating margins.

These are driven by strong market traction with Simpana 9 and its recent enhancements, continued increases in sales effectiveness and added sales capacity.

We expect to continue to release further enhancements of Simpana 9 during FY '13, and there is a possibility of a broader release later on in the fiscal year.

For FY '13, we are confident we can achieve solid double-digit revenue and EBIT growth.

However, we are concerned about the potential negative impact to our business tied to the difficult macro environment.

Based on our current momentum, we believe the current fiscal FY '13 Street consensus growth rates for total revenue is still reasonable.

We also believe we can improve operating margins by 75 to 100 basis points.

We would like you to keep in mind that our fiscal Q1 '13, the quarter ending in June, is typically our most challenging quarter.

Typically our revenues are flat to down and our operating expenses increase, which has a negative impact on earnings.

In Q1 '13 operating expenses will be impacted by increased spending on sales teams, front end technical support teams, professional services, marketing, product development, and the first global sales kickoff event that we've had in more than 10 years.

In summary, the Company had another solid record quarter and is in a good position to successfully achieve above average revenue growth rates and improve operating margins in fiscal 2013.

The acceleration of revenues, earnings and visibility over the past several quarters has enabled us to achieve our FY '12 financial objectives and increase the probability of achieving our objectives for FY '13.

I will now turn the call over to Lou.

Thanks, Bob.

And good morning, everyone.

I will cover some key financial highlights for both the fourth quarter and the full fiscal year.

We ended fiscal year 2012 with software revenue of $201.8 million, primarily driven on the strength of enterprise transactions.

During fiscal 2012, enterprise software revenue, which we define as deals over $100,000 in software value, accounted for 52% of software revenue.

This was an increase of $33.1 million or 46% over the prior year.

In addition, the number of enterprise transactions increased by 37% in fiscal 2012.

For the quarter we reported software revenue of $58.8 million, which was up by 34%, or $14.8 million over the prior-year period.

Our software revenue from deals over $100,000 increased by 41% over the prior-year period and 32% over the prior quarter.

The number of enterprise software deals over $100,000 increased 32% year-over-year, and 51% sequentially.

Our average enterprise deal size was approximately $235,000 during the current quarter, compared to $219,000 in the prior-year period, and $269,000 in the prior quarter.

The average enterprise transaction was approximately $241,000 for the full fiscal year versus $226,000 in fiscal 2011.

Our enterprise segmentation strategy has been validated by our solid results over the past several quarters.

During Q4 the strength of our business was driven by strong demand for the following Simpana functionalities.

Virtualization solutions, source side deduplication, archiving, and IntelliSnap based data management solutions formerly known as SnapProtect.

Also, we continue to see an increased demand for our capacity-based licensing models, which has a direct correlation to the underlying volume of data under management.

During Q4 over 60% of our software revenue was licensed and priced based on our capacity models.

During fiscal 2012, approximately 62% of software license transactions were sold on a capacity basis.

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

Services revenue for fiscal year 2012 was $204.8 million, an increase of 24% year-over-year.

Services revenue for Q4 was $55.3 million, an increase of 21% year-over-year and 6% sequentially.

As a result of our strong maintenance, attach and renewal rates, deferred revenue continues to grow on our balance sheet to record amounts.

During fiscal year 2012, revenue from the US generated 61% of total revenue, resulting in a 30% increase over fiscal year 2011, while revenue from international operations accounted for 39% of total revenue, resulting in an increase of 27% over fiscal year 2011.

For the quarter, revenue from US operations generated 61% of total revenues, resulting in a 34% year-over-year increase, while revenue from international operations generated the balance, resulting in an 18% year-over-year increase.

Geographically, we had strong growth in the Americas, Europe, and China.

On a year-over-year and sequential constant currency basis, foreign currency movements did not have a material impact on either Q4 revenues or earnings per share.

For the quarter, software revenue from our direct sales organization represented 17% of software revenue, which increased by 62% year-over-year or $3.8 million, and 56% or $3.6 million sequentially.

Software revenue from indirect distribution channels represented 83% of software revenue, which increased by $10.9 million or 29% year-over-year, and $3.7 million or 8% sequentially.

For the quarter, total revenue through Arrow contributed approximately 24% of total revenue, growing 18% year-over-year, and down 2% sequentially.

For the year, our US Federal Government business grew approximately 23% and represented 7% of total revenue.

For the quarter, the US Federal business declined 22% but grew 11% year-over-year.

We added over 500 new customers in the quarter.

Our historical customer count now totals approximately 16,100 customers.

Gross margins were 87.4% for the quarter, compared to 86.9% in the prior-year period.

For the year, gross margins were 87% compared to 87.1% in the prior fiscal year.

Total operating expenses were $77.4 million for the quarter, up approximately 12% sequentially and 30% year-over-year.

Sales and marketing expenses increased by $16.3 million or 38% over the prior-year period and $6.4 million over the prior quarter or 12% sequentially.

The increase in sales and marketing expenses is primarily due to higher commissions on record revenue and investments made in field sales and field technical resources.

These investments have enabled us to increase our market share and brand awareness as well as to continue our best in class support.

Non-GAAP operating margins were 18.5% for the quarter resulting in operating income of $21.1 million.

Q4 EBIT declined by 90 basis points year-over-year, and 50 basis points sequentially.

For the full fiscal year, EBIT margins increased by 130 basis points which was 30 points better than we had previously guided.

For fiscal year 2013, we expect to continue to make investments that will enhance our growth with both new innovation and solutions to support big data needs that will extend our leadership position in the market.

With this in mind, we expect to improve fiscal year 2013 operating margins by approximately 75 to 100 basis points.

In Q1 of fiscal 2013, we will continue to aggressively invest in customer facing sales and technical resources as we continue to penetrate the enterprise segment of the market.

Please keep in mind that a typical sales rep takes about 12 months to become fully productive, so in the short-term as we hire aggressively, they will have a negative impact on margins.

We ended the quarter with 1437 employees, up from 1389 at the end of December.

We had targeted a higher Q4 ending headcount, which will carry over into Q1.

As such, we expect the number of headcount adds in Q1 to continue to ramp as we build out our sales and support organizations to meet our growth targets for fiscal year 2013.

Net income for the quarter was $13.7 million, and earnings per share was $0.29 per share, based on a diluted weighted average share count of approximately 47.4 million shares.

For the year, net income was $47.6 million, and earnings per share was $1.01 per share, based on a diluted weighted average share count of approximately 47.2 million shares, and applying a 36% pro forma tax rate for fiscal 2012 versus a 34% pro forma tax rate used in fiscal 2011.

The Company is planning to use a pro forma tax rate of 37% for fiscal 2013, which is higher than the 36% rate we used in fiscal 2012.

We had previously communicated a pro forma tax rate of 38% for fiscal 2013.

For the past several years we have consistently increased the pro forma rate, and as a result of our tax planning we believe that a 37% pro forma rate is more appropriate for fiscal 2013.

We expect our cash tax rate to remain lower than our GAAP tax rate through fiscal 2013.

Our cash tax rate will approach our long-term terminal GAAP tax rate over the next few years.

During fiscal year 2012, our cash tax rate was approximately 14%.

For fiscal 2013, we anticipate that our diluted weighted average share count will be approximately 1.5 million to 2 million shares higher than the fiscal 2012 diluted share count.

As of March 31, our cash and short-term investments balance was $300.2 million.

For the quarter just ended, cash flow from operations was $30.1 million.

Free cash flow, which we define as cash flow from operations less capital expenditures, was $28.7 million, which is an increase of 59% over the prior year quarter and 10% sequentially.

The increase in free cash flow is a result of favorable changes in working capital on the balance sheet.

For the quarter, our DSO was 53 days, which is down from 59 days in the prior quarter and down from 70 days in the prior-year period.

The lower DSO was primarily due to improved linearity.

As of March 31, 2012, the Company's deferred revenue balance was approximately $147.4 million, which is an increase of $34.5 million or 31% over the prior-year period and up 13% sequentially.

That concludes the financial highlights.

I will now turn the call back over to Bob.

Thank you.

Thank you, Lou.

I want to spend a few minutes on CommVault's strategic overview and vision.

CommVault has always been a data focused Company, and we have developed our solutions with a focus on data as opposed to storage.

That's the reason why we have built a singular software platform that enables customers to more easily, less costly and more reliably store, protect, find, recover and search their data than competitive solutions.

We are recognized by a key respected independent third-party analyst as the industry's innovation leader in the data management market and have established a solid financial track record since we went public in 2006.

However, the world of data is changing rapidly, and so are we.

The world of data is changing because of the exponential growth of data, the velocity or speed at which particular unstructured data is created, and the new types of sources of unstructured digital content, including social media, machine sensor generated data and streaming data like audio and video.

The cloud is also changing the way data is generated, store, retrieved, and managed.

These fundamental changes related to data are rapidly obsoleting the traditional or legacy technologies in data management, IT infrastructure management, and business intelligence.

The industry lumps all these issues under the heading big data.

For example, the massive scale and complexity of data is overwhelming current IT infrastructures, making it more difficult to ingest, store, protect, and recover data.

It is increasing disaster recovery, compliance, and regulatory risk.

It is also making it more difficult for enterprises to make intelligent, timely decisions because current data retrieval and analytic techniques are also not adequate.

Additionally, the consumerization of IT for the use of smart devices and the use of unsecured cloud repositories are exacerbating the data related problems.

The era of big data is driving a major cycle of innovation in data management, IT infrastructure management and business intelligence.

At CommVault, we have been working on these fundamental data related issues long before anyone coined the term big data.

Let me give you a perspective on how big data fits into our CommVault future vision.

We are addressing these data related issues from a very unique position.

In Simpana, CommVault has the only software platform in the industry that has the potential with a single technical foundation to provide industry-leading solutions for the new fundamental requirements of data management, infrastructure management and business intelligence.

Specifically, over the next 6 to 12 months, we plan to bring to market enhancements and new product capabilities to our Simpana software platform.

This includes enhancements of Simpana's data management capabilities to address issues related to the scale of data, the management of smart mobile devices, documents, sharing, and secure cloud repositories.

Two, adding new innovative solutions related to IT infrastructure management, unique storage-as-a-service-based capabilities, and unique business intelligence solutions for both real-time and historical data.

By developing the ability to automatically merge and analyze real-time and historical data, we have the potential to provide our customers new capabilities to create applications to fit their specific business needs.

We are very excited about the breadth and depth of the new technologies we plan to bring to market over the next 12 months, which will have the potential to increase our value and relevance to our customers, partners, increase differentiation versus our competitors, and significantly expand our addressable market.

In closing, we had an outstanding Q4, achieving record revenues and earnings.

We are having continued success in penetrating major enterprises with our named accounts strategy.

We have established a firm foundation for fiscal 2013, despite lingering macroeconomic concerns.

We enter FY 2013 with much higher visibility and a much stronger competitive position than ever before in our Company's history.

We are currently tracking ahead of our schedule to achieve our $1 billion revenue plan objective and our objective to improve operating margins into the low to mid-20%s.

We are gaining share in our core data management business because of our increased product differentiation, improved sales effectiveness, and distribution leverage (technical difficulty) broader brand recognition.

We also have a well-defined product and services vision which has the potential to significantly improve our competitive position and expand our addressable markets.

I would like to take this time to thank the entire CommVault team and our partners for our record year.

We're excited about our future potential and are confident in our ability to create both short-term and long-term shareholder value.

I will now turn the call back to Michael.

Thanks, Bob.

Operator, can we please open the line for questions?

(Operator Instructions) Joel Fishbein, Lazard.

Good morning guys.

Congrats on the good quarter.

Couple of just quick questions.

Bob, you mentioned your relationship or expanded relationship with Microsoft.

I wanted to know, does that include Microsoft salespeople selling CommVault solutions?

Or are you just part of the Azure platform there?

Any color there would be very helpful.

A kernel of Simpana is embedded in Azure, so when they sell Azure they are selling a kernel of Simpana and we get a license fee on that sale.

Okay.

So there's not an expansion where Microsoft people distributors or Microsoft is actually selling Simpana 9 as a solution to the endpoint, right?

That solution is embedded in Azure.

So when you buy a capacity of Azure for X, it includes CommVault.

All right.

Great.

Second question is just in terms of Simpana Edge and you mentioned the smart devices, any update on how that's going and how you are perceiving the market there?

That would be helpful.

Those products are in development.

The development is going exceptionally well.

And we will hit our dates to bring those to market and we'll discuss the details at the appropriate time.

But the development -- Mr. Bunte to my right here is doing a good job with his step team and we're right on target to deliver those solutions.

Great.

Thanks a lot.

Jason Ader, William Blair.

Thanks.

Hi guys.

Bob, I wanted to ask you first on the change in the sales commission structure that's planned for this fiscal year, I was wondering if you could provide some details on how the commissions are going to change.

And then also whether there could have been some bookings pull-in in Q4 as guys look for better payouts ahead of the change?

In FY '13, we're going to a more comprehensive sales segmentation strategy than we deployed in FY '12.

And with that, there is a change in the commission structures.

And that is being implemented.

So it is a relatively significant change, and it has been implemented with our field teams.

If you are asking is there any risk attached to that?

When you make change, Jason, there's always risk.

But as we've done before, we believe these changes will enable us to continue to have really outstanding results both in the enterprise segment of the market and the SMB segment of the market, as well as work we're doing with MSPs.

Regarding Q4, our sales teams, like any sales teams, are always money motivated.

They've got accelerators going into Q4 and they executed exceptionally well.

So our sales teams are very happy, but as I mentioned earlier, we enter Q1 with really good visibility.

In fact, the best visibility we've ever had going into a first quarter.

Okay.

Just to follow-up on the first part, a couple years ago, we all remember, I'm sure you remember, Bob, the hiccup related to the change in the sales structure.

How would you compare the change that's happening now to that change?

I know back then you didn't anticipate it was going to have the impact that it did.

Well, it was -- that was the first time we had implemented a comprehensive segmentation strategy.

So, one, it was a significant change.

And two, our execution on the change wasn't that crisp.

This is still I'd say reasonably significant, but it's kind of a Phase II.

And our ability to execute is better.

But when you make changes, Jason, there's always -- the risks aren't zero, but I would say we've significantly minimized them.

But there is still some potential risk.

Okay.

And then just lastly for me, just on Dell, you gave some balanced commentary, I think on Dell that was helpful.

But I guess, question I would have is, if there is overlap, even today, why wouldn't there be more overlap going forward as they expand the development of the product and maybe even move up more into your area?

I guess what gives you the confidence that Dell will continue to be a very strong partner as I think you said fiscal '13 and beyond?

Two things.

They can take that technology so far.

Yes, they can move it up, but we believe that this market is going to shift again with other technologies that will complement some of these core data management technologies.

And in the mid-enterprise and the large enterprise, there's going to be a lot more technical functionality that's going to be required to be leading edge, and we are confident we will lead that.

I'm sure Dell will be successful in the SMB and the lower segment of the middle market, but I'm five-nines confident in our ability to, one, do extremely well in the market independently, and I think there's a lot of synergy where we can help Dell going forward.

So in terms of downside impact with Dell, I think there's more opportunity there than there is downside.

Put it that way.

Okay.

Thank you guys.

Operator, can we take the next question?

Glenn Hanus, Needham.

Congrats, guys.

Maybe you could talk a little bit more about some of the other distribution partners?

Maybe you could follow up a little bit more on NetApp?

Are they going to be expanding beyond maybe what some of the challenges are there?

And are they expanding beyond the SnapProtect into some of your other functionality?

And any color around Hitachi, Fujitsu?

Thanks.

Let me start with just in general, our distribution partners like Arrow have executed exceptionally well in the market with us, both tactically and strategically.

So we are getting a lot of good leverage from our disties around the world and our core resellers.

They've done exceptionally well.

Our MSP partners, we've had tremendous growth through our MSP channels.

Our growth with Hitachi year-over-year was very high.

As I said before we don't have what I call a strategic relationship with Hitachi, but we do really well together in partnering in the field.

We've had good traction with Hewlett-Packard, in the field.

We're doing exceptionally well with Fujitsu and that partnership.

That is really working well.

As I mentioned on the call, NetApp results were not good.

Our two companies are working together to see if we can improve that but I'm not going to comment on NetApp at all going forward until we have a track record.

So I'm just not going to comment on it.

Okay.

And maybe a little bit more on the SMB side.

I think you said that was strong.

If you could talk about how you are reaching those customers and how that's changing over time?

Yes, our SMB growth has been very, very strong.

We basically enhanced our SMB strategy going back a couple years ago with the addition of inside sales.

So fundamentally, for the smaller deals, they are now handled almost exclusively by our inside sales teams, that's both sales and SE teams and our reseller channel partners.

And we've seen really good growth out of that strategy.

It's a much lower cost strategy, it's been extremely effective.

And we're going to continue to invest in it.

So given that kind of performance, you can expect that our SMP growth is sustainable over the longer term.

And as you look at your direct versus indirect kind of mix and growth rates, the direct is clearly going stronger guns.

Should we expect that trend to continue of greater growth on that side?

No.

Our strategy is to continue to strengthen our indirect leverage.

So over time, if we succeed in implementing our strategies, (technical difficulty) percentage of our direct revenue will decrease.

Okay.

Thank you.

Aaron Rakers, Stifel Nicolaus.

Thanks guys.

My congratulations on a great quarter and fiscal year.

Bob, you just mentioned HP continues to be strong with you guys.

Can you remind us and update us again what your relationship, where your relationship stands with HP and whether or not you foresee any kind of expansion opportunities within that?

No.

It's a go-to-market relationship.

It is not strategic.

We've worked -- one, we've worked really well with them in integrating our software with their hardware, particularly 3PAR and the X9000 where we can offer our mutual customers unique solutions with that combination.

So they've been very open with us on that.

They provide go-to-market support and I think will continue to do that.

And as we build momentum, getting more and more traction with the HP partners and HP sales reps, strategically, at this point, I don't see any further expansion in the relationship.

But it's worked very well for both companies.

Very good.

And then, Bob, you mentioned the last couple quarters now obviously your expansion into mobile device management, you referenced also pushing into the smart -- I'm guessing smart device or smartphone area.

Can you elaborate a little bit on that, where that stands today and when -- how we should think about that materializing?

Yes.

We introduced the first data, the Edge product, which was our laptop desktop capability last calendar year.

Where we can automatically manage the protection and retrieval of data on laptops.

And moved the ability for the user to have more command and control on recovering his data from a user versus having that done by an IT administrator.

We are going to extend that capability to the smart devices, the iPhones, iPads, Androids.

And the other issue that our customers are facing is they are really concerned about using technologies like Dropbox, which are relatively unsecured, and would like to have a secure cloud that they can manage from a corporate standpoint.

One, in terms of moving data into the cloud; and two, using that repository for document sharing across devices.

And we're doing both.

Within 12 months, we'll have capability both for the management of the devices and the management of data in regard to a secure cloud, both for storage and also for document sharing.

Great.

And final question for me just so I understand it, your message for fiscal '13, you're comfortable with the consensus revenue growth, the year-over-year percentage change that's currently out there, not necessarily the absolute number.

Would that statement also fit for the current fiscal quarter as well, you're comfortable with the Street estimates?

Just want to be clear on what the message is there.

We are comfortable with those estimates.

No, the year-over-year growth or the absolute number?

Both.

Okay.

Thanks.

I'm sorry, growth.

Growth is the answer.

Rajesh Ghai, ThinkEquity.

Thanks and congratulations from my side.

Bob, you mentioned some overlap at Dell with Aperture in the SMB in the mid-market.

Just trying to get a sense of the extent of the overlap.

Can you give us -- can you tell us how much of your Dell revenue would be calculated as mid-market or exposed to the overlap?

And how often do you see Aperture in the market?

Have you seen them in the past?

And how do you see that trending moving forward?

We've seen the past and the impact has been de minimis.

But now they are in the hands of Dell, and Dell is taking a very aggressive stance on where they want to push that technology.

I'm just saying theoretically, there's going to be some overlap.

And I think that is manageable, and we'll see over time what it looks like.

Right now my comments are theoretical, they are not actual.

Yes.

Because that is what the since I've got, right, talking to people in the industry that the overlap was pretty minimal in that on the SMB side.

As far as the growth drivers that you mentioned, virtualization, virtualization is taking -- is essentially moving deeper into the data center this year and moving into more mission-critical applications.

I'm just trying to understand the typical budgeting pattern of your enterprise customers.

Do they buy the data management suite to go with their mission-critical apps?

Were they virtualizing those apps?

Or do they buy it once that project is complete and they try to manage infrastructure after the virtualization is complete?

Your big enterprise deals are a combination of this.

They've got massive growth of data.

And as you point out, more and more of that data is on virtualized servers for critical production data, not just dev data.

And so they've got big data on virtualized servers, on critical applications, and they start running into problems, like I can't meet my backup window because I don't have enough time using standard backup techniques to stream data off those servers and get it off the primary end and get it to the back end.

So they can't -- so then they end up with lots of unprotected data or they don't have the policies in place and a virtual machine shows up, and the data's not protected.

So they're running into scale issues at the server side, their clogging up their networks, and then they are running into lots of storage related issues because if you put too much it on the primary layer, it's just way too costly.

And they all realize now they've got to start moving data much more quickly from primary to lower cost secondary.

Given all those issues and now you've got the cloud and you've got issues related to remote sites, what companies are doing is saying what they're doing today is inadequate.

So they start thinking about how can they completely reengineer, like the example I just described earlier, their whole infrastructure to solve their data protection issues, their cost issues, their reliability issues, their compliance issues; and they go through massive reengineering.

When they go through massive reengineering, by far we've got the best solutions and that's why we're gaining so much market share.

So it's a combination of issues that customers are facing that are driving this massive change and we happen to be in a really strong position to solve problems related to those issues.

And my last question is, we know direct sales was up pretty strong this quarter, up 62% year-on-year.

I'm just trying to understand what is included in that?

Does that include your sales to the large cloud providers such as Azure?

And did that contribute to that big jump this quarter?

No.

You have a couple big deals.

It skews the number.

It's got no meaning at all.

I would complete discount it, it doesn't mean anything.

And your deal with Azure, would that show up on indirect side, or would that show up on the direct side going forward?

That's indirect.

Okay.

Thank you.

Congratulations.

Robert Breza, RBC Capital Markets.

Hi, thanks.

Nice quarter.

Bob, just based on your last comment there and thinking about the average deal size, it had a nice increase.

You talked about a lot of the new features and functions that customers are taking.

How high can the deal size go, I guess?

And how much headwind do you think you have in terms of what's driving that deal size?

Are they taking more product or are they going more deeper into the organization?

Just what's driving the overall deal size?

Thanks.

It's both.

It's the breadth and depth of product solutions across backup, and disaster recovery, and archive, and remote sites, and cloud.

So it's covering a wider breadth of applications, number one.

Two, we're into bigger accounts.

I can give you some sense of (technical difficulty) when we started this move to the enterprise six, seven years ago, we set a target for $100,000 accounts.

Then we started getting into segmentation to focus more and more of what's called seven-figure, $1 million deals.

And our last move on segmentation has focused on call it the Fortune 200.

Where you can see eight-figure kind of deals.

So there is an evolution and there is room to increase -- significantly increase our deal size as we go forward.

Great.

Thank you.

James Wesman, Raymond James.

It's Michael Turits in for James.

Maybe I didn't get a little bit, Microsoft's deal sounds great.

Can you just be more specific in terms of what SKUs of Azure you get (inaudible) on?

It wasn't that clear, but maybe I didn't understand.

It's -- I don't want to call it a pilot program, but Microsoft is taking a very aggressive stance on Azure, and they wanted -- and data protection or archiving are two of the major use cases for the cloud.

And they wanted a leading edge capability to do that, so they took what I call a very small kernel of CommVault, it doesn't scale very much, it's a very small kernel to enable customers to begin to deploy those kind of applications.

And then if the customers want to do a broader application in their enterprise then they can come to CommVault and we can sell them a broader app.

So the importance of it is clearly, there's a lot of collaboration between us and Microsoft.

Two, since every time they sell Azure, they sell a kernel of our product with it, that gets us a lot of exposure out there and a lot of reach.

And all those kind of things help build recognition and brand out in the marketplace.

So in terms of -- from an analyst standpoint, in terms of monetizing that, I wouldn't read too much into it right now, but it could be interesting as we go forward.

Internally, we're not modeling a lot of revenue from it, but I think over time, certainly Azure -- we're doing a lot of work with the rack spaces and that whole sector or that whole cloud sector has become very significant for us.

Both for external cloud and I can tell you almost every enterprise customer that we work with is building some type of internal cloud-based managed service capability.

So, the whole area is important to CommVault.

Are you getting a royalty on that small kernel that goes in every --

Yes.

(multiple speakers) We get a royalty, yes.

Correct.

Okay.

Then a separate question, on OpEx.

You talked about it going up sequentially into the first quarter, last two quarters have been up I think $5 million and $8 million in the last two quarters.

Are we in that ballpark in terms of the absolute increase you get in the first quarter also?

We haven't given an exact number but I think Lou mentioned that our investment rate across all disciplines is high.

One, we have a lot of momentum, two, we have a lot of confidence in our ability to pick up market share.

Al has got a major initiative in terms of field facing capability in terms of making sure that -- you know, we've become the trusted advisor, because there are very few out there that can help a customer define the right data and information management solutions, get it implemented correctly, and then get it deployed and managed correctly.

And that takes a lot of experience and skilled resources, and we're making those investments.

So we'd become the trusted advisor in the industry to help customers take that next step in developing a next-generation IT infrastructure related to data.

So we are making those investments, and they are helping us.

I've made a few calls recently, and we are the -- they come to us now, because we have a broader understanding of that infrastructure related to data than the other vendors in the market.

We continue to invest and build in that capability.

We're also investing for hitting some aggressive sales targets in FY '13 on the sales side.

We're continuing to expand to make sure that we provide the best in class support in the industry.

We've got extremely aggressive innovative product road maps we need to execute on.

So across the Company we're making some pretty substantial investments here to make sure that we sustain and can sustain this kind of best in class industry financial performance in regard to revenue and income growth.

And with that --

And just --

If we miss, then you have to leverage on the other side, but these are the right investments to make at this point in time for the Company's long-term shareholder value.

Just one more on Microsoft, is there any exclusivity to that data protection and management relationship?

That is not exclusive.

Okay.

Great.

Thanks very much, guys.

Brian Freed, Wunderlich Securities.

Good morning, I have a couple part question here.

I guess the first is, can you give any comment, and rough guess is fine, on the percentage of your installed base that's currently on capacity-based licensing plans?

And then secondarily, if you can give any rough breakout of what percentage of your license revenue is coming from new licenses versus capacity upgrades.

And then finally if that trend is driving any more predictability to your revenue outlook.

Round numbers, 60% plus is capacity-based.

Round numbers, 60% or so is new customers versus existing.

Okay.

And on visibility, are you getting any more visibility, given the growing number of capacity-based customers?

Yes.

We do have an algorithm.

It's a little bit early, but we do have it and we are beginning to track some visibility on it now.

Okay.

Thanks.

Ryan Bergen, Craig-Hallum Capital Group.

Thank you.

Wondering if the sales investments that you have made over the last say 12 months and the enhancements you've made to Simpana 9, if it's making the conversion, your pipeline conversions any faster than in previous time periods?

Perhaps it's still based on the enterprise and how long they're taking to spend, budget, and to evaluate projects.

But are you seeing your investments make those pipeline conversions quicker?

I don't have hard data.

I would say that over the past few quarters, our ability to bring accounts in and close has been quite good but I don't have a quantitative number for you.

I will also say that given the macro environment, we're expecting that to be a little bit more difficult, so we're really paying attention to funnels and close rates to make sure we have extra coverage given the current uncertainties in the macro environment.

So I'd say it probably got better.

But I don't have -- I can't give you a number to tell you that it really has.

I'm also saying this is personally -- because I don't have any data on it, that I would assume it's going to get a little bit worse.

Okay.

And then in broad strokes you spoke about verticals, you said that you were strong across all of them.

But can you give any specific commentary on areas like financial services and telco and Europe from other companies we've seen that have had some challenges there?

Well, our largest vertical is government, it's strong.

We are clearly increasing penetration in the financial services sector.

So we're picking up share there.

So our growth there has been strong.

In spite of the Europe's issues, we had very strong growth in EMEA and on the continent, and we expect to have quite good results over the next few quarters in Europe in spite of the macro, but we're concerned about it.

So I'd say on all our key verticals, and in telco, we're making really good progress particularly on the MSP side of telco, but also with some of their internal operations.

So right now, the data related issues are trumping some of the macro issues out there.

Thank you.

Aaron Schwartz, Jefferies.

Good morning.

This is Fatima on behalf of Aaron.

You briefly touched on the BI capabilities that you will start thinking about embedding in the software in Simpana.

And I was just thinking about the data visualization aspect and the vertical apps that you also spoke to, if that's an area of partnership that you are thinking about.

Thanks.

So in general, when you are dealing with solving a data problem you've got to ingest the data, aggregate it from different sources, analyze it and present it in the way that humans can understand, in either corporate-wide or for specific vertical applications.

Our platform is unique in our ability, because we're opening up our back end, so we can ingest data, not only the data that we manage, but we can bring in data.

For example, for machine generated data, we can bring in data from social networks, bring it into our back end, provide sophisticated analytics, and then we're building a much more comprehensive presentation layer.

So some of these verticals solutions, we will build on our own.

And many others, we will partner with companies that have specific domain expertise in those verticals.

So it's going to be a combination of our own development and we'll build a much broader partner ecosystem in the BI community as we move forward.

Does that answer your question?

Philip Winslow, Credit Suisse.

Hi guys.

Good quarter.

Most of my questions have been answered, but I just wanted to get a sense for what you're seeing out there from a pricing perspective versus competitors, because obviously you guys continue to grow very well, while some of your larger competitors are certainly struggling to grow.

Just curious what reaction you've seen from them in terms of pricing out there.

Thanks.

The biggest weapon our competitors have versus CommVault is price, so we see very aggressive -- when they're about to lose an account, we always see very aggressive pricing action from our competitors.

It doesn't work very well because we sell on business case and value and on total cost of ownership and ROI.

And we're used to selling against [the euro], even if the competitors will give away their product, which they do sometimes and they'll even give away their maintenance.

So, one, we sell on value; and two, in more and more cases, these competitors can't solve the problem period, so it doesn't matter what price they charge.

But in general, we see very aggressive and have for a long time, extremely aggressive pricing action from our major competitors.

Great.

Thanks, guys.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect, and have a great day.