Commvault Systems Inc (CVLT) 2016 Q1 法說會逐字稿

Welcome to the first quarter FY16 CommVault earnings conference call.

(Operator Instructions)

Please note that this conference is being recorded.

I will now turn the call over to Mr. Michael Picariello.

Mr. Picariello you may begin.

Good morning.

Thanks for dialing in today for our fiscal first quarter 2016 earnings call.

With me on the call are Bob Hammer, Chairman, President, and Chief Executive Officer; Al Bunte, Chief Operating Officer; and Brian Carolan, Chief Financial Officer.

Before we begin, I'd like to remind everyone that statements made during this call, including the question-and-answer session at the end of the call, may include forward-looking statements, including statements regarding financial projections and future performance.

All of these statements that relate to our beliefs, plans, expectations or intentions regarding the future are made pursuant to the Safe Harbor provisions 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.

Such as competitive factors, difficulties and delays inherent in the development, manufacturing, marketing and sale of the software products and related services in general economic conditions.

For a discussion of these and other risks and uncertainties affecting our business, please see the risk factors contained in our annual report in form 10-K, and in our most recently quarterly report in form 10-Q and in our other 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.

In addition, the development and timing of any product release as well as any of its features or functionality remain at our sole discretion.

Our earnings press release was issued over the wire services earlier today, and has also been furnished to the SEC as an 8-K filing.

The press release is also available on our Investor Relations website.

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

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

This conference call is also being recorded for replay and 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, Mike.

Good morning, everyone, and thanks for joining our fiscal first quarter FY16 earnings call.

The headlines for the quarter 1, we had a more challenging Q1 than expected.

We did, however, make excellent progress on the company's transformation initiatives.

Our sales funnel and large deal momentum significantly improved in the July period.

We had good success in building out the America sales management team heading sales capacity.

Our stand alone products continue to gain traction, and our Next Generation platform is on schedule for a full release.

As I said last quarter, it will take us into the second half of FY16 for the key elements of repositioning to have a positive impact on our financial performance.

The likelihood that we will see good sequential quarter-on-quarter growth increases beginning in the December quarter has now increased.

Good year-on-year comparisons most likely will not occur until the March 2016 quarter.

I will comment on CommVault's Next foundation later on in the call.

We communicated on the last earnings call that the first quarter is historically our most challenging quarter.

And that the first quarter FY16 would be no different.

Our results were poorer than expected due to our lower than forecasted close rate on large deals, particularly in the Americas.

The Americas results were also impacted as we continued the Americas restructuring and staffing.

On the positive side, we have recently seen a substantial improvement in the Americas' funnel inflow and big deal flow.

At this point, I would call that a solid data point.

However, it is too soon to call it a trend.

In addition, we have a better EMEA outlook as we enter Q2.

We also saw good growth from our stand alone solution set, as well as from our cloud and managed service provider partners.

Let me briefly summarize our Q1 financial results.

Total revenues were down 8% sequentially and 9% year-over-year.

Software revenues were down 19% sequentially and 22% year-over-year.

EBIT margin was 6.7%, EPS was $0.12 per share.

We generated approximately $21.9 million of cash flow from operations ending the quarter.

With approximately $411 million of cash and short term investments.

Our competitive product advantage and vision are recognized as the best in the by respected third parties, such as Gartner.

For the fifth year in a row CommVault once again earned the strongest position in the latest quadrant of Gartner's covenant 2015 Magic Quadrant, for enterprise back-up software and integrated appliances.

Being recognized as a leader by Gartner for five straight years is a remarkable achievement.

We believe this validates our continued market leadership, innovation, and ability to execute in an extremely competitive industry.

We have the best core fundamental technology in the market, combined with the industry's best support.

Now let me provide you with an update our on business transformation, CommVault Next.

As a reminder, our transformation has been driven by changes in the market that have significantly impacted CommVault, and have required fundamental changes or our business and organizational structure, including the establishment of business units.

These changes include enhancements to our unique core software platform, the addition of leading stand-alone leading products including appliances, and cloud gateway solutions tied to new value propositions and sales plays.

We have also enhanced our distribution alliances, go-to-market strategies, that will contribute to driving increased leverage and sales productivity.

The changes we're making to CommVault are strengthening our competitive position, increasing our available market, making it easier for our channel partners to sell.

And enabling us to execute our plans as significantly improve revenue earnings growth.

There is no question that the transformation we are making is formidable, complex and difficult.

But with our focused and motivated team we have made substantial progress building the key foundational elements.

They include strengthening CommVault's position in the enterprise, with the introduction of our Next Generation platform, which enhances our close proprietary platform to a best-in-class open platform, that can be used for key data related use cases for data protection and recovery, to business analytics on premise, in the cloud, or in mobile.

We introduced stand alone solutions that leverage the underlying unique functionality of the platform, for both the enterprise and mid-market.

We have refined these solutions over the past several quarters, including new pricing and packaging initiatives to meet customers' buying priorities.

Restructured the Americas, which included strengthening sales management capability, realigning territories to improved sales productivity, to get more effective sales capacity with existing sales resources.

Redeploying existing sales overlay resources to better align with our new product initiatives.

And adding targeted resources to support our high velocity channel partners, as we roll out our new stand-alone products.

Expanding the delivery of our XIS solutions services from both CommVault and our cloud MSP partners, to new cloud-based managed services being launched in Q2.

Developing solutions for four, and targeting selling efforts just like the vertical segments of the market, the initial focus is health care.

Expanding and strengthening distribution channels and alliances both in the enterprise, cloud and mid-market.

Expanded services lead in proactive support capabilities, and increasing marketing demand generation capabilities.

We have not yet seen the full impact of the transformation and revenue growth, but we are confident we will see licensed revenue momentum begin to build in the December quarter, and be sustainable after that.

I will now address our current FY16 outlook.

As stated last quarter, it's going to take us to the end of September for our new products in combination with added sales capacity, new products and new distribution partnerships, to increase our funnels to the levels we need to drive substantial license revenue growth.

While the progress we have made has definitely improved our confidence in successfully making our transition, it is clearer now that it will take us into the second half of FY16, for the key elements of repositioning to have a positive impact on our financial performance.

We expect the growth and trends to continue through FY17.

We believe that Q2 revenues will be flat sequentially, and then begin to sequentially increase starting in the fiscal third quarter.

Due to our challenging first half, we now believe FY16 total revenue will be flat to slightly down in comparison to FY15 levels.

Brian will discuss more details on software and services revenue growth rates, as well as operating margins later on in the call.

In summary, I remain confident that the company is well-positioned in the market.

We have the best core fundamental technology in the market validated by leading industry analysts.

Our products and support service remain best-in-class, and our partners and strategic relationships are gaining strength.

We are making important progress transforming CommVault in order to drive revenue growth, as evident by the early data points I mentioned earlier.

Fundamentally, what we're building now is going to be stronger and more sustainable than what we had built before.

The business foundation is firming and momentum is building.

We should see sequential improvement in Q3 going forward, based on better product positioning, bigger contribution from the Americas, better EMEA outlook, and increased distribution leverage.

I will now turn the call over to Brian.

Thanks, Bob, and good morning everyone.

I will now cover some key financial highlights for the first quarter of FY16.

The strengthening of the US dollar compared to foreign currencies had a significant impact on the year-over-year results for the quarter.

Foreign currency movements had a minimal impact on a sequential constant currency basis.

I will state our as-reported results first.

And also state the year-over-year results on a constant currency basis.

First quarter, total revenues were $139.1 million, representing a decrease of 8% sequentially and 9% over the prior year period.

Total revenues were down 2% year-over-year on a constant currency basis.

We reported software revenue of $56.5 million, which was down 19% sequentially, and 22% from the prior year period.

Software revenue was down 15% year-over-year on a constant currency basis.

Revenue from enterprise deals, which we define as deals over $100,000 in software revenue in a given quarter, represented 49% of total software revenue, versus 56% in the fourth quarter of FY15.

The number of enterprise deals decreased 29% sequentially.

Our average enterprise deal size was approximately $250,000 during the current quarter, which was flat sequentially.

Americas, EMEA and APAC represented 55%, 31% and 14% of total software revenue respectively for the quarter.

On a year-over-year constant currency basis, Americas and APAC software revenue declined 31% and 8% respectively, while EMEA's software revenue increased 29%.

The revenue mix for the quarter was split 41% software and 59% services.

Please remember, services revenue is a combination of both the Maintenance and Support revenue and Professional Services Reveune.

Services revenue for Q1 was $82.6 million, an increase of 2% sequentially and 3% year-over-year.

Services revenue was up 9% year-over-year on a constant currency basis.

Our Maintenance and Support renewal rates remained strong.

We added approximately 340 new customers in the quarter.

Our historical customer count now totals over 21,500 customers.

For the quarter, revenue transacted through Arrow was approximately 35% of total revenue, declining 3% year-over-year and 14% sequentially.

Let me provide you an update on our new pricing models.

Our software licenses typically provide for a perpetual right to use our software and are typically sold on a per Terra bite capacity basis, on a per copy basis, or as a solution set.

During the quarter ended June 30th, approximately 72% of software license revenue was sold on a per Terra bite capacity basis.

This is down from 81% in Q4 2015.

Capacity-based software licenses provide our customers with licenses to specified software products, based on a defined level of Terra bites and data under management.

We anticipate that capacity-based licenses will continue to account for the majority of our software license revenue for the foreseeable future.

However, we expect that our capacity-based license sales, as a percentage of total license revenue, will decline as sales of our stand-alone solution sets continue to ramp.

Our stand-alone solution sets are generally sold on a per-unit basis, and can be individually deployed or combined as part of a comprehensive data protection and information management solution.

The aggregate deal value from sales of our stand-alone solution sets was approximately two times the revenue of the solution sets alone.

And are close to our overall ASPs.

This early success reflects the overall transformation work we have been doing in pricing and packaging, new solution offerings, enhanced marketing and demand generation, and our new business unit structure.

During Q1, our demand was driven by data protection for virtualized environments, source-side deduplication, archiving, and snap-based modern data protection solutions.

We continue to have strong market response to our stand-alone virtualization solution sets, which includes VM Backup, Recovery, and cloud management solutions.

Since its launch three quarters ago, we have had over 800 customers purchase this product with approximately half of these being sales to new customers.

Some of our products are being sold as term or subscription-based pricing models.

We expect that there will continue to be a gradual shift to more subscription-based revenue.

Moving onto gross margins, operating expenses and EBIT margin.

Gross margins were 85.7% for the quarter.

Total operating expenses were $107.5 million for the quarter, up approximately 10% year-over-year, and flat sequentially.

Sales and marketing expenses, as a percentage of total revenues, increased to 57% in the current quarter, which was up from 48% in the prior-year period.

This increase is due to a challenging first quarter, from the software revenue perspective, and ongoing investments we are making for software revenue growth in the second half of the fiscal year.

Non-GAAP operating margins were 6.7% for the quarter.

Resulting in operating income or EBIT of $9.3 million.

EBIT margins were approximately 7.9% on a year-over-year constant currency basis.

Net income for the quarter was $5.8 million, and EPS was $0.12, based on a diluted weighted average share count of approximately 46.9 million shares.

EPS was approximately $0.15 on a year-over-year cost and currency basis.

We added 18 net employees in fiscal Q1, down from 41 in Q4, and ended the quarter with 2,305 employees.

We experienced a higher than normal rate of attrition in Q1.

We have seen signs of improvement in this area in the first part of Q2.

Although Q1 '16 was a light quarter in regards to net employees adds, we will likely see this number increase for the rest of FY16.

Over the past 12 months, we have added 232 net employees.

The majority of which were sales, marketing and technical field resources.

Interest expense on the revolving credit facility was nominal in the quarter, while there have been no borrowings on our credit facilities, we do incur interest expense relate related to the commitment fee.

We anticipate that we will have no net interest income in FY16.

I would now like to spend a few minutes discussing our anticipated revenue and EBIT margin outlook.

Due to our challenging first quarter and slowed momentum exiting Q1, we believe that Q2 revenues will be flat sequentially.

There could be modest upside based on recent improvement in funnel inflows.

We continue to believe it will take us into the second half of FY16 for the key elements of repositioning to have a positive impact on our financial performance.

Our prior stated objective of returning our software license revenue growth to historical levels in the second half of FY16 is no longer realistic.

However, we still believe that we can demonstrate sequential growth for fiscal Q3 and Q4.

We believe that our total revenues for FY16 will be flat to slightly down in comparison to FY15.

We expect the quarterly sequential growth in services revenue for the remainder of FY16, to be less than the sequential growth in software revenue, as a result of declining software revenue in FY15 and Q1 2016, and an ongoing realignment of our Maintenance pricing to the competitive market trends.

We expect FY16 annual operating margins to be approximately 10%.

We anticipate Q2 2016 operating margins to be in line with Q1 2016, and then improve sequentially as the year progresses.

Especially as the top line growth rate increases.

Our operating margin expectations for FY16 are lower than originally expected, due to repressed soft waiver revenue, slowing services revenue new growth rates, and ongoing investments we are making for software revenue growth, in the second half the fiscal year and FY17.

These investments include, but are not limited to increased field resources, enablement, channel programs, our business unit structure, re-branding and market awareness, services-led selling, and development of our NextGen solution.

We are increasing our hiring and will continue to make strategic and prudent investments, tied to achieving our revenue and earnings growth objectives.

We continue to be focused on improving the productivity of our existing resources, through sales employee enablement, retention and redeployment.

Our resellers and distribution partners are very important to our growth and market reach.

We have various programs in place with our resellers, systems integrators, storage partners, managed service providers, and cloud service providers.

We'll continue to invest in such programs.

Our revenue and margin outlook assumes current FX exchange rates.

Let me now comment on tax rates and share count.

We will continue to use a pro forma non-GAAP tax rate of 37% for FY16.

The current fiscal year GAAP tax rate is projected to be higher than recent fiscal years' rates, due to the combination of lower projected GAAP pre-tax income for FY16, and permanent differences.

The Q1 GAAP tax rate is not indicative of our anticipated longer-term tax rate of approximately 37%.

In addition, cash taxes paid in FY16 are projected to be less compared to FY15, based on current estimates of taxable income.

Over the long-term, we expect our cash tax rate to align with our pro forma non-GAAP tax rate.

For FY16, we anticipate that our annual diluted weighted average share count will be approximately 47 million to 48 million shares.

Please note, that certain senior executives have approximately 400,000 outstanding stock options that will reach the end of their tenure lives, and will therefore expire in the next three months.

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

Now moving onto our balance sheet and cash flows.

As of June 30th, our cash around short term investments balance was approximately $411.4 million.

Free cash flow, which we define as cash flow from operations, less capital expenditures not related to the new headquarters, was $20.2 million.

Capital expenditures related to the new headquarters construction were completed in the first quarter.

As of June 30th, 2015, our deferred revenue balance was approximately $231.7 million, which is an increase of $17.8 million or 8% over the prior year period, and up $1.9 million or 1% sequentially.

On a constant currency basis, deferred revenue was flat sequentially and up 16% year-over-year.

Please remember, the vast majority of our deferred revenue is Maintenance and Support revenue, not software revenue.

As of June 30th, 2015, our deferred software revenue balance represented less than 1% of total deferred revenue.

For the quarter, our days sales outstanding, or DSO, was 69 days, which is up from 66 days in Q1 FY15, and flat sequentially.

That concludes the financial highlights.

I'll now turn the call back over to Bob.

Thank you, Brian.

Let me now address our unique platform strategy.

As I mentioned earlier, changes in the market are accelerating the demand for a more comprehensive holistic platform for companies to migrate, manage and secure data in various clouds, geographically dispersed data centers, and in mobile devices.

CommVault has developed that platform.

The underlying unique technical advantages of our platform enables us to deliver best-in-class solutions, services, and support.

Our platform will be significantly enhanced with a new release this fall.

Our platform allows customers to buy CommVault and leverage different technologies as plug-ins to the base capability.

It unifies our product portfolio, and effectively demonstrates a significant differentiator.

That CommVault products are integrated using the same underlying technology, whereas competitors piece together full solutions.

Our product platform is targeted to four key solution plays.

We have been able to refine our packaging, pricing and development of our stand-alone solutions.

I will now consolidate them in four solution categories.

Data protection and Recovery, virtualization solutions for core protection and VM management.

Active content archive, which includes compliance, governance, legal and [discovery], and cloud mobility, which includes automated back-up to cloud, disaster recovery, [deb test], file synch, and share.

These solutions will be enhanced and expanded with our Next Generation of platform release this fall.

This consolidation was important to get the organization focused and aligned.

Our Next Generation platform is currently in beta testing.

We expect to release it later in the fall of calendar 2015.

This Next Generation creates an open platform, which customers are demanding as they shift to building IT infrastructures on open components, that they perceive will get them out from under vendor lock-in.

An open platform will enable the customer to access and read data that we store under more sophisticated security functionality.

And there will be operational APIs through the stack.

The Next Generation will include significant changes to how we index, transport data.

In order to make it much easier less costly to manage data in and out of the cloud, and to provide a much more powerful platform for business analytics.

These capabilities will provide customers with significant cost savings, performance, scale, access, recovery and enhanced security.

The new platform will enable customers to achieve significant cost saving in the data center, for data transport, and in the cloud.

Back-up windows will be eliminated, and all the data will be accessible in native production-ready formats.

The Next platform will expand the current native access capabilities to other platforms and applications, eliminating the need for recovering data almost entirely.

Native access allows a copy from the content store to be directly mounted to the application requesting the data, without waiting for the restore to complete, allowing data access within minutes if not seconds.

The native process represents a paradigm shift in the value of the secondary back-up copies from being static copies, that are only accessed for restores when something goes wrong.

Native access turns the static copies into versioned active copies, that allow a large number of business operations on them; like disaster recovery, tests, secondary processing, cloning applications, and DevOps.

Solutions on this platform will be highly differentiated since the cost performance and functionality advantages come from a new converged capability, which combines the benefits of replication.

Such as live, native use, real-time copies with fully indexed application aware, policy aware, data protection and management solutions.

We're using the new functionality of the platform to develop highly differentiated versions for the large global health care industry.

The first customized health care solution will be released later this calendar year.

The New Generation will include significant new operations management and analytics capabilities.

In recent discussions with one of our major customers, they have confirmed and validated our product vision.

They have told us by creating an open platform that allows them to standardize and automate their data services, they see significant value in our Next Generation platform.

We can simplify their environment to a single index map of all data, regardless of application, location, infrastructure or type.

And distribute a virtual repository to ensure a policy-based data handling, and a searchable historical repository to for business, operational, governance, and analytics.

The monetization and customer's strategic value of our open platform will be enhanced by delivering the capability for customers to easily develop business analytics applications, and find additional value from their existing business analytics tools.

A number of business analytics applications have been developed during the beta process.

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

In closing, we have industry-leading core fundamental technologies as recently recognized by Gartner.

We are seeing traction as we execute our transformation initiatives, that will enable us to re-accelerate our revenue growth.

We have introduced new products, and implemented new pricing and product initiatives, to meet the changing dynamics of the market and customer buying priorities.

These changes strengthen our competitive position, increase our available market, make it easier for our channel partners to sell, and will enable us to execute our plans of significantly improved revenue and earnings growth.

We have a well -defined strategy, and a focused game plan in place.

Our foundation is firming.

The Q1 financial results are not pretty, and we aren't happy with them.

However, internally we're feeling good about the future of the business.

Fundamentally, what we are building is going to be stronger and more sustainable than what we had built before.

However, it's on a different model that's substantially different from the one we built the company on over the past 15 years.

We are well aware that this is an aggressive strategy, that has significant near-term negative impact on our earnings.

We are now focusing on those key elements of our transformation, to ensure we achieve our objective of improving revenue and earnings performance, in the second half of FY16 and FY17.

I will now turn the call over to Michael.

Operator, can we please open the call for questions.

Thank you.

(Operator Instructions)

Our first question comes from Jason Ader from William Blair.

Please go ahead.

Thank you.

Bob, can you talk -- why you think it's taking longer than you expected to turn things around, and maybe some just specific areas where you're behind where you wanted to be at this point?

And then maybe address, as part of that, what's happening with sales attrition, because I know that's been a challenge for you.

When you look at -- you get underneath the numbers, the biggest issue was in the Americas.

And we took a very aggressive long-term approach to restructuring the Americas to get the foundation right.

That impacted us in Q1 more than anything else.

As I said on the call, we made a series of key leadership changes there; we changed -- we optimized sales territories; we changed the structure on how -- and provided a lot more coverage for our channel management.

We moved resources and got better focus on our overlay teams, particularly on the information management side.

We added some more resources to our high-velocity channels.

We put an alliance function in place because we're getting a lot of calls from major players in the industry regarding the platform.

We made a massive amount of changes, and it impacted attrition when we made these changes.

We had held up hiring in the Americas for about two quarters while we were going through this.

And we were way behind on capacity, and we just had to get through it.

There's no easy way to do it.

We chose the -- I call it the hard fundamental way of getting it done.

Now, the back side of that, for all practical purposes, all the new management is in place, and we've dramatically swung around hiring over the last couple of months.

Our net adds have improved pretty significantly.

And as things settle down in the Americas, we start to see a big turnaround, and big deal funnel, and funnel in general -- dramatic turnaround.

So, we got stability there.

It was really clear to me going back, unless we got the Americas straightened out, restructured and had enough capacity in place, it didn't matter what we were going to do on product, we weren't going to get the traction.

Getting that behind us was really significant, even though it cost us a lot in Q1, but it's providing the momentum in Q2.

So, that was one.

Two, on the solution sets, the new products, we're clear to gaining some extremely good traction on that.

But we were refining those products, and we -- as much growth as we got, and it was pretty substantial, we want to significantly increase that.

Those products have been refined; pricing has been tightened down a bit.

We added some functionality, and now we're going back out to the field and channel a lot more focus on those plays.

That whole strategy is becoming a lot clearer.

In addition to that, we were starting to get a fair amount of traction -- I didn't talk a lot about this, but on new alliances, and mainly based on the new platform.

So, you'll see those start to emerge here over the next quarter or two.

There are certain of those that I'm 100% confident on that are moving forward.

In fact, you'll see some that start to hit the market by the end of this current quarter.

In addition to that, this health care market is really large.

Getting our health care solution sets in place, and we needed to develop a third-party relationship here that was strategically really significant.

That was signed in July, and we are off and rolling on that.

Those new solutions will be rolling out towards the end of the year.

In general, our numbers were not good, but the underlying fundamentals of the change are starting to come into place.

And for the first time since we started this, we've got set points.

I've said privately, and I may have said it publicly last quarter, that it was very difficult to predict the business when you are changing everything and you have no set points.

Now we're starting to get the foundation in place that we can really start to execute and build the Business going forward.

Clearly, it was messy and difficult.

But internally, as poor as the numbers are, we're feeling pretty good that we finally got a handle on this thing, and we can start, you know, building Commvault Next.

I think that summarizes it pretty well.

Just one quick follow-up -- thank you for the comprehensive answer.

In terms of -- maybe, Al, for you -- do you expect there to be any pause ahead of the new platform?

I mean, it does seem like it's a pretty big change; customers may spend some time evaluating it.

We also have some disruptions overall in the storage market, maybe not back-up in particular, but certainly the broader storage market, there's a lot of upheaval.

I'm wondering if the combination of all the changes you're making internally, together with the new product, together with all of the backdrop disruption in the storage market, are at play here?

Good question, Jason.

Some of you guys always ask me this on -- right before major releases, and I usually dismiss it.

Yet, over time, I think we have generally seen a little bit of a slowdown on demand.

We're certainly not seeing it, number one.

I'm not anticipating it, number two.

We're going to introduce this, Jason, a little bit different.

It's going to come out more on platform perspective -- up front versus a specific product.

We're thinking that will be a little bit smoother, and a little bit more accretive for everybody involved.

Again, I think we're feeling pretty good about this quarter.

We're really putting emphasis on some of our cloud solutions, DR to the cloud, some of the relationships Bob talked about, some of the alliance solution sets.

That will all hit this quarter.

And, again, that's pre-v11.

It should be fairly smooth, Jason, in a long-winded answer.

If you take what Al said, Jason -- so, you got these, call it, better focus now on our stand-alone products that we've been working on the last several quarters.

They will only be enhanced with v11, so the field channel customers will get focused on the capabilities, and will roll very quickly into an enhanced version of those.

We're really starting that process right now, with messaging and positioning.

That only moves up a level.

If you take the product sets we have, and you take significant added sales capacity on top of that, just those two things alone, there's your foundation for turn.

Now, you add to that, distribution leverage, not only with existing partners, but what Al was basically communicating is that as a number of companies in the industry see the capabilities of this next generation platform, it solves a lot of problems, whether they are some of the newer vendors in the hardware arena, or some of the bigger players in the public cloud arena.

They see that this platform solves a missing piece on how data is managed across these different data silos, and very effectively, efficiently and cost effectively.

That's what's going on in the background.

The other thing is that in certain key customer campaigns, we're working with them on the next generation platform, and are just starting to begin to build funnel for that platform, as it comes out later on in the fall.

We've been involved with some pretty comprehensive strategic discussions with -- and these are some newer deals that will be coming up.

There is no one thing that drives the turn.

It is a combination of multiple things and, yes, the strategy was extremely ambitious.

It was difficult.

But we took a long-term view, and it's starting to come together, I guess is the way I would describe it, if you start to look at the underlying pieces.

There's nothing different in this, Jason, than what you and I discussed when you were here a couple months ago.

It's just reinforcing on the positive side, and the near-term numbers are poorer than expected.

Thank you.

And our next question comes from [Bracelin] from Pacific Crest.

Thank you -- couple questions, if I could.

I wanted to go back to the Americas.

We haven't seen a falloff like this in the Americas, even during the great recession -- pretty meaningful falloff here.

It's still unclear to me why it got this much worse this quarter specifically?

I know the Americas has been under a re-org; for the last year you've been talking about this re-org and improvements and changes in the Americas.

Do you think this is all self-inflicted or have you evaluated the market in the Americas?

Is there other competitive factors also weighing in on the poor performance here in the quarter, tied to the Americas slowdown?

I would say -- look, there's a lot of forces that impact our Business competitively.

But on the near-term result, I would say 90% of this -- or 95% is self-inflicted this time.

Yes, we've been talking about the changes in the Americas on the leadership side, but all the structural changes, bringing the new leaders in some of these different regions, bringing those guys on board, we are organizing all the territories, realigning the channel overlays, bringing in new channel management -- that all happened in the June quarter.

And everybody was going to -- we were working through that stuff in the March quarter, but it was actually executed in the June quarter.

My view, this time, as difficult as this was, I think the team did a really good job in executing it.

It was just difficult and it was -- it had near-term disruption.

The flip side of that is -- now as things are settling down, we're seeing just about the opposite.

The funnel inflow on large deals and the numbers are extremely significant, but it's a month's worth.

It's not a trend yet.

But it wasn't a little turn; it was pretty significant.

I think the near-term results were clearly, to me -- and the other thing is, and we're not hiring so we had relatively weak funnels.

So, we knew we needed a relatively high close rate on the large deals, and we didn't get that.

My own feeling right now is I -- getting this behind us was, I call it, the critical element of making this turn, along with all the other things we're doing in pricing and packaging.

Having that behind us was critical -- to get that done.

Now we're finishing up getting capacity in place, which we basically haven't done for two quarters.

If you just look at the math, the odds are you're going to see the turn could happen as early as this quarter.

But as Brian and I both said, most likely you'll see it in the December quarter.

The odds of us pulling this off now have increased pretty significantly, but we still got work to do.

In terms of the competitive aspects, the lower-level competitors and things like that going on, there was no question that we see the impact of that.

On the flip side, as Al mentioned, we're getting -- there's a lot of activity now on the platform because the major guys in the cloud, and some of the newer guys in the hardware side of the Business are figuring out that without a -- call it a data operating system that cuts across all these different silos, so you really understand what data you have and what you can do with it, and how do you put a policy on it -- that's a big hole.

And we, more than anyone, fill that hole, so we're getting the phone calls.

We don't have to go after these partners, and those are firming up pretty well.

That will be interesting as we move forward.

Fair enough.

And then --

To be really clear, all we're counting on for the next two quarters is the things we already have in place in product and adding sales capacity.

In addition to that, the things we're doing for our next generation platform and our new alliances and our health care initiatives -- those are all additive.

Our forecast did not include a lot of revenue from those new initiatives until FY17.

That's why we think we're in pretty good shape here.

Fair enough.

Then just my last follow-up here, Bob, sounds like you're increasing the odds of pulling off the turn.

If I look at profits down 70% year over year this quarter, stock has been cut in half over the last couple of years.

If you're confident in Commvault Next, why not get more aggressive with your balance sheet?

You have over $400 million in cash and investments.

If you're confident, why not reinvest in your own stock, and buy back stock?

What's the disconnect there between your improving confidence and odds of a turn, and having $100 million authorized buyback but not necessarily re-investing in your own strategy?

I won't talk to you about my personal intentions.

But from a company standpoint, the trade-off and the things that we're having a little difficulty with here is that, as we expand the platform, as we start to move into areas like business analytics, there is clearly opportunity on the acquisition side to strengthen the Company.

We are likely to make a very small investment over the next quarter, which will be the first one.

My own feeling is, the odds of that happening, because I think we're in a really unique position here, are really high.

The issue is -- do you strengthen your -- do you do a buyback to get some near-term kick?

Or do you keep your powder dry from some very significant strategic investments we can make to increase shareholder value?

That is the issue.

My own gut, my own feeling here is that, for shareholders, and I'm obviously one of the largest ones, over the longer term -- and we've taken a long-term view, it looks like it's going to pay off for us -- that those bets are going to add more value to shareholders than a quick hit on a buyback.

But we're still evaluating that.

It's not to say we won't do some.

But clearly, I can tell you that we want to keep enough of our powder dry for the future because I think this thing is going to work.

There's your trade-off.

Thank you.

Our next question comes from Abhey Lamba from Mizuho Securities.

Please go ahead.

Yes, thanks.

Bob, speaking of this Maintenance price realignment, what percent of your clients have already been realigned?

And how much longer will it take for the rest to get on the new pricing structure?

A small a percent of very large customers have been aligned.

Some of the smaller customers at the low end of the market have been aligned.

This is something we're anticipating doing later on in the fall.

It will be a broad alignment.

So, the likelihood is that you'll have, as Brian mentioned, some impact on Maintenance.

There's a reasonably good potential upside on the license revenue side as we get this aligned globally.

We thought our way through it.

Net/net, it should be a positive for the Company.

But it will be a broader -- and we understand what the financial trade-off is here.

We have thought through this thing quite well, and plan to execute it this fall.

Got it.

What percent of your overall revenues are [factoring]?

And as you are realigning some of these contracts, what type of dollar-over-dollar uptake or flatness, or what are you seeing in those contract terms -- total contract terms?

Dollar to dollar, it's been pretty flat because what we're doing is getting Maintenance aligned and providing other areas of value to the customer.

So, the cash flow from these activities has been pretty steady.

In other words, we haven't seen a decrease in cash flow, but we've seen a difference in how that cash flow comes in, whether it's from services or from license revenue versus Maintenance, in terms of getting these major contracts realigned, so far.

Thank you.

Our next question comes from Aaron Rakers from Stifel.

Please go ahead.

Thanks.

Two questions, if I can?

First question, I want to go back to the hiring trajectory and some of the attrition that you are dealing with within the Company.

If we're to gauge the success of this transformation over the next couple of quarters, what should we be thinking about in terms of the growth of your sales capacity?

Or rather maybe the metric you give us in headcount additions over the next couple of quarters?

And I do have a follow-up.

We haven't discussed this, but I can -- just round numbers, Aaron if we're going to grow, and these numbers may sound a little silly, but I'll use them as an example.

If we're going to grow the Americas 30%, we're going to have to add a net steady 30% increase in sales capacity, round numbers.

If you look at the amount of the -- between not hiring and attrition, we built ourselves, in the Americas, a really big hole.

We're filling up that hole fast.

On a percentage basis, we have probably filled up 60% of it to date, and should fill up the other 40% within the next four or five weeks.

The Americas from a capacity standpoint should be in a lot better shape.

We, I think, did a much better job of aligning territories so they're more efficient, providing distribution leverage (technical difficulty), giving them a -- sales comp schemes that are better.

And now I have products that are a lot better aligned with the market, plus our next generation coming out.

We have a much better, stronger management structure on top of all that.

The odds are now that we will have capacity, that we will have improvements in attrition, and we'll have improved sales productivity on top of that capacity.

You start putting that together -- when you're asking those questions, Aaron, it's how are we tracking on -- did we fill all those spots?

Do we have full capacity?

And I'm talking about Americas primarily.

Has attrition slowed?

Are we getting the kind of productivity advances we need from these teams?

Just that alone with the Americas, you got your turn.

By the way, we're seeing much better outlook for EMEA, and APAC for that matter, by the way, as we move forward here.

There's your elements of your turn.

Then you put the strategic leverage on the platform on top of that, you can start to build on it.

So, those are the things you should look for.

Okay.

As a follow-up, and you talk a bit about the strategic elements, I think in your prepared comments you made some comments around new strategic alliances, and some of which could be announced by the end of this quarter.

In that, can you talk a little bit about your relationship with Microsoft, and whether you see that deepening, whether or not version 11 deepens that further?

Just update on that relationship would be helpful.

Clearly, we are doing more and more with Microsoft, at the corporate level and in the channel.

We've got, already, we've spun up -- they're bringing us into a lot of their major accounts to solve the problem I talked about earlier.

They've got Azure, and they're managing data in O-365, which is where they can manage data; outside O-365, they can't.

What we're helping them do is move data; the whole migration play of -- I've got data on premise or in remote offices or could be on edge kind of devices.

How do I index that data, understand what I'm going to do with it, put a policy on it, and then automatically manage the migration and security of that data, either into Azure in general or into O-365?

And then have our index tied to their index, so now you've got a federated index of all the data in an enterprise.

That's really hard to do.

Those are the things we're working on with Microsoft.

That's where they see the value, and that's where the customers see the value.

It's not just all the data management and understanding how do I deal with legal?

How do I deal with compliance?

How do I deal with selective business analytics?

There's also a massive cost savings in being able to use our platform to be a lot more efficient on how that data is managed on premise itself.

The data transport, the way -- the next generation dramatically reduces the cost of transporting data securely.

Once it's in the cloud, once it's in Azure, we can manage it a lot more effectively for a cost reduction and all those business-related functions as well.

So, that's what's going on.

It clearly has been better aligned and a steepening, and there's further potential there, is the way I would describe it.

Thank you.

Our next question comes from Alex Kurtz from Sterne, Agee.

Please go ahead.

Thanks, guys, for taking a couple questions here.

Brian, with the changes in how customers are buying the product, whether it's subscription or standalone, and I obviously saw the big decline here sequentially in capacity pricing.

Is that some of what we're seeing here impacting the revenue?

Or is it mostly around execution in the Americas and these larger deals?

And I have a follow-up.

Yes, Alex, I believe it's, for this past quarter, it's the latter.

We saw good results from our stand-alone solution sets.

We also saw a drag of additional software products; we're pleased with that.

We saw very good growth.

But this past quarter came down to close the rates on large deals in particular.

That was largely focused in the Americas.

And, Bob, just thinking about the next couple of quarters, just on this last point here from Brian, what's the expectation of large deal execution and the guidance for the remainder of the year?

I know we are still dependent on a handful every quarter, but would you say that the guidance you've outlined today minimizes that?

Yes, the guidance we gave minimizes [a miss], given the fact that we have a bigger funnel, more capacity.

We're building funnel, so the odds are higher.

But we wanted to make sure that the expectations were realistic, given our performance last quarter.

The expectation of large deals, more-than-normal closing in the next two quarters, that's below seasonal levels as far as how you look at guidance?

I would say that the opportunity in the September quarter is certainly better than it was in the June quarter, clearly.

Okay.

As we get to our internal -- what we're trying to achieve for the December and the March quarters -- as we look at it from here, there's quite a bit of improvement.

But relative to what we need to achieve, we have work to do yet to build those funnels -- to get them into a position where we are comfortable achieving our December quarter number.

What I mentioned and what Brian mentioned is, it's just encouraging that we're on a path that, if we keep executing to that path, we'll get those funnels built by the end of the quarter to a point where they need to be to execute the December quarter.

We're in, let's say, better shape, in terms of our guidance -- what Brian gave you in achieving our September quarter objectives than we were going into the June quarter.

Two reasons: one, there's more opportunity; and two, we've got this Americas restructuring behind us, which was a really big deal.

Ron Miller and Scott Little and the team put a massive amount of effort to orchestrate that.

It took them -- Ron, it was probably six, seven months of work to think their way through the plan, and then getting it executed was just a lot of work.

We had to get that behind us, and fortunately it's behind us now.

Thank you.

Thank you.

Our next question comes from Brad Zelnick from Jefferies.

Please go ahead.

Great, thanks for taking my question.

I have one for Brian and one for Bob.

For Brian, just on Maintenance renewal rates, I think in the prepared remarks you said they continue to be strong.

We also have the comment about realigning Maintenance pricing, with market, which sounds like it's really going to hit more in the back half.

Just trying to reconcile those two statements for us.

In the context, in the past I thought you had said the services line -- it was either 80% or 85% of that is still Maintenance.

Can you confirm that is the case?

And with all this together, as we look towards the back half, should we expect Maintenance renewal rates on a dollar basis to decline?

Thanks, Brad.

Good questions.

To your point, we did see strong renewal rates.

We continue to see that.

In fact, if you look at our deferred revenue on a constant-currency year-over-year basis, we're up 16% year over year, which is all positive.

The approach we take with customers and also our communications here, we're trying to be proactive with our communications.

We've been proactively dealing with our larger enterprise customers -- a smaller percentage of customers, but large in terms of dollars -- for the past year, and have been very successful in doing so, as Bob alluded to.

We've largely maintained a cash neutrality throughout any changes we've done at that segment of the market.

We're talking about our kind of broader programmatic changes that we will get into more details about, perhaps on the next earnings call.

We do see this happening in the second half of the fiscal year.

Yes, it might have suppression on the Maintenance revenue in relation to our total revenue.

But we believe it's going to be a catalyst which will drive other things like new customer acquisition, new software growth, overall customer retention.

We think this is the right move for the long term.

It is baked into our projections for the year.

Again, we're trying to be proactive here with our communications before those changes take effect.

Thanks, Brian.

That's helpful.

Bob, I ask this very respectfully, but how do you and the Board think about strategic alternatives for the Business?

Because if we look at valuations paid for similar assets, even the market value for Veritas, it would seem there are many other options at this point, even though I appreciate you've made a lot of progress, it would seem that your ability to forecast the Business at this point has gotten away from you a bit.

I don't think it's gotten away from us.

Our ability to forecast as we went through it was extremely difficult and uncertain, is the way I would describe it.

Because as we went -- embark on the strategy, you're changing every set point -- product, pricing, market, value prop, your field, your distribution.

There isn't a thing that, as we embarked on this, that we weren't changing to align with the changes in the market.

To try to forecast the Business when all that is going on, and you've got basically no set points, is extremely difficult, and obviously it shows up in some of our numbers.

But the fundamentals of what we're doing in the strategy and the validation of that, are coming together.

For the first time since we started on this thing, we're starting to get our foundation set so that we can execute and be, let's call it, more certain -- not like we were when we had a 10-year run, but more certain on our projections.

And if we have a few more quarters of this, and we get this model set in, we can be a lot more predictive.

Certainly, the management team here, and including myself personally, in terms of driving the Business, is to stay the course and have discussions with you guys on a quarterly basis because we think we can drive a significant amount of shareholder value over the next 12 months.

We think that is where the value is to the shareholders.

And that's where we're focused.

Thanks for taking my questions.

Thank you.

Our next question comes from Michael Turits from Raymond James.

One question for Brian, then for Bob.

Brian, this quarter you had good sequential growth in services.

How much of that was professional services that drove the upside?

And then, as we look into the next couple quarters, do you expect that we should see sequential growth in services, and at what kind of level?

I know you said less than software.

You've seen declines in that line sequentially in the past; I just want to make sure they're increasing.

And then I have a question for Bob.

Sure.

Michael, with respect to the overall distribution or mix between Maintenance and Support and Professional Services revenue, it was about the same as it's been historically.

So, there's no changes there.

Yes, we did see some sequential growth; especially on a year-over-year constant-currency basis, we saw good growth.

Moving forward, it's built into our projections; overall revenues are expected to be flat to slightly down for the full year.

I would expect the services to be more flat than anything else for the remainder of the year.

Flat on a year-over-year basis or quarter over quarter?

Just quarter-on-quarter basis.

So, flat services basically going forward from here, quarter over quarter.

Correct.

Flat to maybe slightly up.

Okay.

Bob, I know we've been through a lot of big-picture stuff, but if we had to just really summarize it, you've talked about changes in the market.

Can we really narrow it down in a concise way to what you think the real major changes have been in the market?

Certainly.

To me, bar none, the big change has been the cloud on both sides, particularly the impact of the public cloud; I'm talking about Microsoft and AWS.

Bar none, that has been the biggest catalyst to change.

And then you've got, in the enterprise, you've got the move to your private cloud, based on open infrastructures, whether it's open stack or stack.

Those types of -- those are your big changes.

Then you start to look at the value of software like Commvault, and what problems are you trying to solve with that value?

If you look at what we did -- I'm just going to exaggerate the point, but if you look at the platform we built, and you look at -- quote the back-up -- take a copy that's written on a primary layer, and we grab it, index it, and we put it away somewhere in case something happens.

I'm keeping this really simple.

That model started to break a while ago.

Now you add the cloud to this, and you say, well, what are the -- what kind of values are you delivering to the market?

What's the strategic value of the platform?

And clearly, to me -- I mean, if you look at it longer term.

I'm not talking about point products coming in and solving a cloud problem, which we do, by the way.

We do all those things really well.

But the underlying strategic value, as you have this massive move to the cloud, it's not just data that's moving up there, but data and applications.

You look at the enterprise and how do you -- and I had this discussion with the CTO of one of the top five corporations in the world here last week.

As he's moving his apps, as he's got data all over the world, and tying it together, he didn't have a -- how does he deal with compliance?

How does he deal with legal?

How does he deal with some very specific business analytic needs he has, in addition to the securitization and the protection of that data, and fundamental things you have to do.

He couldn't just do it with a cloud provider, or he couldn't just do it with a Snap replicate from the array or from the virtual machine.

He needed a lot more comprehensive understanding of that data and how he could deal with it.

There's your underlying strategic value.

Now you can scoot that down into specific use cases.

That same issue on data migration occurs in the health care industry.

They have all these different silos in a hospital, and how do you take all that legacy data and then move it and consolidate it and save them money?

Or how do you capture that in real time for, they call it vendor-neutral archive, the single patient record and things like that.

These are all similar use cases that require a lot more sophistication and scale, and knowledge of the underlying data.

And it's the sophistication of the index, association of transport, the securitization, all those underlying fundamentals is where the value is.

Those are different value propositions and use cases and I'll, quote, say back-up.

But the importance of back-up, netted down, it's in the index and it's in the understanding.

Certainly, a number of our large customers are going through this to fully understand that value proposition from us.

I don't know if that helps you.

Thank you.

Our next question comes from Andrew Nowinski from Piper Jaffray.

Please go ahead.

Good morning, guys.

It looks like your funnel's improving.

Are you assuming any change in your current close rates?

And if so, what are you doing to improve those close rates?

For the quarter, we are assuming a slight uptick in improvement in the close rate, and that -- mainly, mainly due to where these deals are and the added stability in the Americas.

In the Americas, it's been the major issue.

It's just settling things down now.

Now, the team can go through its rigorous scrutiny of these larger deals, which has, by the way, been enhanced with -- we made a lot of changes in terms of how we manage deals and overlays and all of that.

But the fundamental thing is just getting the Organization, getting the capacity in place and getting stability.

The other thing is some of these deals are likely to come in a little bit earlier in the quarter than occurred last quarter, and they're relatively large.

Meaning: We're talking about $1 million or multi-million-dollar deals that certainly help in the process.

Sure.

Okay.

You said you're increasing your hiring, which should certainly help capacity.

I'm just wondering if you know what triggered the uptick in attrition this quarter?

And if there's anything you can do to slow the attrition rather than hiring more sales people, which usually take about 12 months to reach full productivity?

That's a good point.

Some of the attrition -- we change territories.

We made a lot of change.

And some of our teams just didn't like the change.

And some of the people that left are outstanding people.

We didn't want to lose them, but you're making changes and not everybody is going to like it, as much as we communicate and everything else.

But it certainly exacerbated it last quarter, and that was unfortunate.

But I think Ron Miller and the team did everything they could in terms of communication.

We've done -- underneath, we've done a lot of things to mitigate.

I'm not going to go through all of them, but a lot of things, to solidify and mitigate further attrition, whether it's comp plans or other things that we could do to help the team through this transition.

I'm just going to give you the odds.

The odds are -- well, I know we're going to add a lot more people because we've already done it.

And so far, the attrition has been better than it was last quarter.

And we'll see.

You can ask me this question at the end of this quarter, but if I had to say where the odds are, my comment would be: We've added a lot of people, and attrition is going to be lower than it was in [Q1].

That's where the trend is right now.

Thank you.

Our next question comes from Rajesh Ghai from Macquarie.

Please go ahead.

Thanks.

Bob, one question on product: In the past you mentioned that, stand-alone products, (inaudible) were causing a challenge to you, especially in the mid-market.

My question is that, with the [Veeam] launching, getting an enterprise product out (inaudible), is that impacting the enterprise or there's no impact on that side?

And secondly, given all of the commentary around stand-alone products, I noticed that your next product cycle is the next product that you're going to launch is going to be a platform product.

Wanted to understand how you see the enterprise?

Are they going to go ahead and keep buying the platform?

Or are they going to also look at the stand-alone products going forward?

Just a point, so, yes, but launching the new platform this fall, but we're also launching upgraded versions of all our stand-alone products, plus a number of new stand-alone products.

It's not just the platform.

The platform is the story, but we're taking the underlying functionality of that new platform, and enhancing our current standalones and adding new ones.

So, it's not just a platform play.

It's the platform plus leverage.

Okay.

(multiple speakers) Sorry.

And as far as Veeam and Enterprise, Veeam does not have a platform.

If you want to talk about Enterprise, you can incrementally improve scale but -- and I'll let Al take this in a second, but the scale we're talking about is nowhere near what Veeam is talking about here, in terms of the identified scale.

And, Al, why don't you frame this for --

That's accurate, Rajesh.

Without getting into all the details, as Bob said, it's hard to do big enterprise scale, operational automation without a platform.

I think that's a key part of the element here.

What we're talking about in terms of scale is number of VMs, the amount of storage, the amount of data, number of users, how geographically widespread it is, amount of access.

You know, all those issues tend to need to be built on a very distributed platform with a lot of operational automation.

And, to my knowledge, the Veeam folks aren't there yet.

As Bob indicated, it usually starts with architecture, we believe in.

Again, it's not to say people can't get there, but usually you may have to start with a different architectural approach.

We feel pretty confident about our enterprise capabilities, and we think all the things with v11, or the next release, will enhance it, particularly, as Bob said, on the platform side and the operational automation, putting all our data analytics, a lot of reporting capabilities, all our monitoring, alerting -- everything built for big size into this environment.

And you're marrying that with, underneath, a very sophisticated kind of marriage of, I'll call it, next generation replication with very sophisticated indexing, which is extremely hard to do.

Yes, there's a ton of things.

Lots of virtualization enhancements, on and offs on your VMs, very efficient in how they're used and utilized in there.

There's just a number of things.

And the point is, you cannot -- this is a key point -- you can't do all this unless you understand the data.

And you can't understand the data unless you have it all indexed, and it's got -- and you've got a single repository for [meta data].

You can't do it.

We're focused on that part of the market where those things are really important.

The commodity things -- I just want to take an image and move it somewhere and then move it back -- that's commodity.

And that's going to -- right now, some companies are doing really well with that, but that is not a sustainable -- a lot of companies are making a lot of money on that right now.

But we're thinking long term here, and that we don't think is a long-term, sustainable way, for this particular Company anyway, to drive our Business going forward.

Thank you.

Our next question comes from Ittai Kidron from Oppenheimer.

Please go ahead.

Thanks.

Bob, appreciate all the color.

It's been very helpful in understanding what's going on.

I guess, through this presentation, you talked about how the model will ultimately change for the Company when you emerge from this.

Maybe can you give us a little bit more of a forward-looking, let's say two-, three-year out on how -- if you manage to transition through this appropriately to your plans, what is the growth profile of the Company?

What is the long-term margin profile of the Company?

Is Maintenance ever going to grow the same pace as product again, given the pricing pressures and changes to your product?

I'm just trying to think about not just the next two, three quarters in trying to gauge how you maneuver through the transition, but more about how does the new Commvault look like at the end of the day?

We've modeled it.

From a business model standpoint, there's no reason this Company shouldn't be a relatively high-growth company.

Let's call that, certainly in the mid- to high-teens is reasonable.

Since we've been through this kind of drill a few times, even as we started the Company, there's no reason why we can't bring our operating margins back in line to the mid-20%s, what we talked about.

That is a doable objective.

Once you get your license revenue growth, even though it will be on different models, your Maintenance growth comes back in line to that license revenue growth.

It will take a few years for all that to turn.

But that will come back in line.

You'll have more services.

Al -- we didn't talk about this, but our first managed services products that Al's been working on are actually going to be released this quarter.

Those are not in our forecast.

But those are cloud-based services where we can manage a customer's operations.

We are building those on our own.

We are going to make those available to our partners as well.

Those are coming to [fore].

And there's no question in my mind, over the long term, we will very selectively take the underlying capabilities of the platform and move into the business analytics side.

We'll do this starting in the December quarter as we move it out, we'll do it through services-led approaches, and we'll start building that selectively.

I'm sure, on the algorithm side of this, and in certain verticalizations, we will take some vertical positions in that.

There's your model.

We've modeled it out.

I can tell you, I've gone through a lot of transitions, but this has been the most comprehensive, and certainly the most difficult one I've done, and the team has done here.

But we're starting to see the light of day finally, at the other end of this.

Now, even though our near-term numbers didn't look pretty, the outlook is starting to look pretty interesting, from our view.

Thank you.

And our next question comes from Eric Martinuzzi from Lake Street Capital Markets.

Please go ahead.

The vertical exposure here in America, just curious if there was any particular verticals that were -- were there any pockets of strength or was it pretty broad-based weakness?

And then the other thing I wanted to hear from Brian -- I know you've had tough FX comps the June quarter and March quarter.

But refresh my memory -- when do those, assuming FX doesn't swing too much, when do we start to get some relief there quarter-wise?

Thanks.

The weakness was right across the board.

It was pretty fundamental, and is the turn.

The weakness was fundamental and the July increase in funnel was pretty much across the board as well.

Brian?

Eric, with respect to FX, the big move started occurring, I believe, in January of 2015.

So, once we hit, certainly Q4, I think you'll see some more normalized comps on a year-over-year basis.

But in terms of our projections, as stated earlier, they assume current FX rates for the remainder of this fiscal year.

Thanks.

Thank you.

And our next question comes from Philip Winslow from Credit Suisse.

Please go ahead.

Hi.

This is Siti Panigrahi for Phil.

Bob, thanks for all the color about transformation in the Americas.

Just wondering if you could talk about the progress you have made outside the Americas?

Well, in general, our EMEA team has been strong.

What EMEA is doing is, in certain selected areas, they're strengthening the team, but in general they've got a good foundation over there.

A lot of work being done in the [EMEAs], both in channel and the cloud to build that out.

So, you got a good, solid team there.

We have made a change in APAC.

We have a new leader coming in there late summer or early fall.

That person has been hired, and [Rick Tyler], who ran APAC, has come back to focus on our cloud business and our global GSIs, which is another area of distribution, which is, we're seeing a pretty good, solid pickup on it and is an area of focus for us, particularly as we bring the new platform out.

So, I think, both EMEA, as far as the outlook is concerned, EMEA's outlook is right now for the quarter looks pretty good, as does APAC on a relative basis.

I should mention, sorry, we did, in APAC, we did sign a new agreement with one of our major partners over there -- agreement which was recently signed to expand distribution, particularly in the -- not everybody's favorite subject, but to extend distribution in the area around China.

Thank you.

And thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.