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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2011
or
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 1-33026
CommVault
Systems, Inc.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
22-3447504 (I.R.S. Employer Identification No.) |
|
| 2 Crescent Place Oceanport, New Jersey (Address of principal executive offices) |
07757 (Zip Code) |
(732) 870-4000
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
| Title of each class Common Stock, $0.01 par value |
Name of each exchange on which registered The NASDAQ Stock Market |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes o No þ
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
Yes o No þ
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by the Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that registrant was required to submit and post such files.) Yes
þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in rule 12b-2 of the
Exchange Act.
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of September 30, 2010, the last business day of the Registrant’s most recently completed
second fiscal quarter; the aggregate market value of voting and non-voting common stock held by
non-affiliates of the registrant (based upon the closing price of the common stock as reported by
The NASDAQ Stock Market) was approximately $1.0 billion.
As of April 29, 2011, there were 44,037,335 shares of the registrant’s common stock ($0.01 par
value) outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Part III (Items 10, 11, 12, 13 and 14) is incorporated by reference to
portions of the registrant’s definitive Proxy Statement for its 2011 Annual Meeting of Stockholders
(the “Proxy Statement”), which is expected to be filed not later than 120 days after the
registrant’s fiscal year ended March 31, 2011. Except as expressly incorporated by reference, the
Proxy Statement shall not be deemed to be part of this report on Form 10-K.
COMMVAULT SYSTEMS, INC.
FORM 10-K
FISCAL YEAR ENDED MARCH 31, 2011
FISCAL YEAR ENDED MARCH 31, 2011
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| EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
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| EX-101 DEFINITION LINKBASE DOCUMENT | ||||||||
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FORWARD-LOOKING STATEMENTS
The discussion throughout this Annual Report on Form 10-K contains forward-looking statements.
In some cases, you can identify these statements by our use of forward-looking words such as “may,”
“will,” “should,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” “potential,”
“project,” “intend,” “could” or similar expressions. In particular, statements regarding our plans,
strategies, prospects and expectations regarding our business are forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934. You should be aware that these
statements and any other forward-looking statements in this document reflect only our expectations
and are not guarantees of performance. These statements involve risks, uncertainties and
assumptions. Many of these risks, uncertainties and assumptions are beyond our control and may
cause actual results and performance to differ materially from our expectations. Important factors
that could cause our actual results to be materially different from our expectations include the
risks and uncertainties set forth under the heading “Risk Factors.” Accordingly, you should not
place undue reliance on the forward-looking statements contained in this Annual Report on Form
10-K. These forward-looking statements speak only as of the date on which the statements were made.
We undertake no obligation to update or revise publicly any forward-looking statements, whether as
a result of new information, future events or otherwise, except as required by law.
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PART I
Item 1. Business
Company Overview
CommVault is a leading provider of data and information management software applications and
related services. CommVault was incorporated in 1996 as a Delaware corporation. We develop, market
and sell data and information management software applications under the Simpana® brand. Our
Simpana software is a platform with licensable modules that work together seamlessly, sharing a
single code and common function set, to deliver Backup and Recovery, Archive, Replication, Search
and Resource Management capabilities across physical, virtual and cloud environments. With a single
platform approach, Simpana software is specifically designed to protect, manage and access data
throughout its lifecycle in less time, at lower cost and with fewer resources than alternative
solutions. Our Simpana software provides our customers with:
| • | high-performance data protection, including backup and recovery; |
| • | data migration and archiving; |
| • | snapshot management and replication of data; |
| • | integrated source and target data deduplication; |
| • | e-discovery and compliance solutions; |
| • | protection, recovery and discovery of data in virtual server environments; |
| • | enterprise-wide search capabilities; and |
| • | management and operational reports, remote services and troubleshooting tools. |
Our products and capabilities enable our customers to deploy solutions for data protection,
business continuance, corporate compliance and centralized management and reporting. We also
provide our customers with a broad range of professional services that are delivered by our
worldwide support and field operations.
Simpana software enables our customers to simply and cost effectively protect and manage their
enterprise data throughout its lifecycle, from the mobile worker to the remote office to the data
center, covering the leading operating systems, relational databases, virtualized environments and
applications. In addition to addressing today’s data and information management challenges, our
customers can realize lower capital costs through more efficient use of their enterprise-wide
storage infrastructure assets, including the automated movement of data from higher cost to lower
cost storage devices throughout its lifecycle and through sharing and better utilization of storage
resources across the enterprise. Simpana also can provide our customers with reduced operating
costs through a variety of features, including fast application deployment, reduced training time,
lower cost of storage media consumables, proactive monitoring and analysis, and lower
administrative overhead.
Simpana software is built upon an innovative architecture and a single, underlying code base
that consists of:
| • | a policy engine that enables customers to set rules to automate the management of data; |
| • | a data movement engine that transports data using network communication protocols; |
| • | a cataloging engine that contains a global database describing the nature of all data, such as the users, applications and storage with which it is associated; |
| • | an indexing engine that systematically identifies and organizes all data, users and devices accessible to our software modules; and |
| • | a media management engine that controls, catalogs and moves data to the most efficient tier of storage including disk, tape, optical and cloud storage devices. |
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We refer to this single, unified code base underlying each of our Simpana applications as our
Common Technology Platform. Each data and information management module within our Simpana
platform is designed to be best-in-class and is fully integrated into our Common Technology
Platform. Our single platform is unique and differentiates us from our competitors, some of whom
address the market by offering multiple and disparate point products. We believe that the disparate
and point product approach forces users to install and maintain separate products requiring their
own infrastructure, training, maintenance and management which can result in a complex and costly
environment for customers who are looking for solutions that will improve operations, minimize risk
and reduce overall costs.
We have established a worldwide, multi-channel distribution network to sell our software and
services to large global enterprises, small and medium sized businesses and government agencies,
both directly through our sales force and indirectly through our global network of value-added
reseller partners, systems integrators, corporate resellers and original equipment manufacturers.
Our original equipment manufacturer partners primarily include Dell, Inc. (“Dell”) and Hitachi Data
Systems. As of March 31, 2011, we had licensed our data and information management software to
approximately 14,000 registered customers.
CommVault’s executive management team has led the growth of our business, including the
development and release of all our software, since its introduction as Galaxy backup and recovery
in February 2000. Under the guidance of our management team, we have sustained technical leadership
with the introduction of new data and information management applications and have garnered
numerous industry awards and recognition for our innovative solutions.
Certain financial information with respect to geographic segments is contained in Note 11 to
our consolidated financial statements set forth in Item 8.
Our internet address is www.commvault.com. On this website, we post the following filings as
soon as reasonably practicable after they are electronically filed with or furnished to the U.S.
Securities and Exchange Commission (SEC): our Annual Reports on Form 10-K, our quarterly reports on
Form 10-Q, our current reports on Form 8-K, our proxy statements related to our annual
stockholders’ meetings and any amendment to those reports or statements filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. All such filings are
available on the Investors Relations portion of our web site free of charge. The contents of our
web site are not incorporated by reference into this Form 10-K or in any other report, statement or
document we file with the SEC.
Industry Background
The driving forces for the growth of the data and information management software industry are
the rapid growth of data; the need to reliably protect and quickly access that data; and the
ability to effectively manage the emerging regulations around compliance and e-discovery.
Data is widely considered to be one of an organization’s most valued assets. The increasing
reliance on critical enterprise software applications such as e-mail, relational databases,
enterprise resource planning, customer relationship management and workgroup collaboration tools is
resulting in the rapid growth of data across all enterprises. New government regulations, such as
those issued under the Sarbanes-Oxley Act, the Health Insurance Portability and Accountability Act
(HIPAA) and the Basel Committee on Banking Supervision (Basel II), as well as company policies
requiring data preservation, are expanding the proportion of data that must be archived and easily
accessible for future use. In addition, ensuring the security, availability and integrity of the
data has become a critical task as regulatory compliance and corporate governance objectives
affecting many organizations mandate the creation of multiple copies of data with longer and more
complex retention requirements.
In addition to rapid data growth, data storage has transitioned from being server-attached to
becoming widely distributed across local and global networked storage systems. Data previously
stored on primary disk and backed up on tape is increasingly being backed up, managed and stored on
a broader array of storage tiers ranging from high-cost, high-performance disk systems to
lower-cost, mid-range and low-end disk systems to tape libraries and more recently emerging cloud
storage services. This transition has been driven by the growth of data, the pervasive use of
distributed critical enterprise software applications, the decrease in disk cost and the demand for
24/7 business continuity.
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The recent innovations in storage and networking technologies, coupled with the rapid growth
of data, have caused information technology managers to redesign their data and storage
infrastructures to deliver greater efficiency, broaden access to data and reduce costs. The result
has been the wide adoption of virtualized environments coupled with larger and more complex
networked data and storage solutions, such as storage area networks (“SANs”) and network-attached
storage (“NAS”). We also believe cloud computing, in its various forms, will represent a major
new long term industry trend in the way that applications are delivered, data is stored and
information is retrieved.
We believe that these trends are increasing the demand for software applications that can
simplify data and information management, provide secure and reliable access to all data across a
broad spectrum of tiered storage and computing systems and seamlessly scale to accommodate growth,
while reducing the total cost of ownership to the customer.
Our Software
We provide our customers with a single, scalable platform of data and information management
software modules that are fully integrated into our Common Technology Platform. Our software
enables centralized protection and management of globally distributed data while reducing the total
cost of managing, moving, storing and assuring secure access to that data from a single,
browser-based interface. We provide our customers with high-performance data protection, including
backup and recovery; data migration and archiving; snapshot management and replication of data;
integrated source and target data deduplication; e-discovery and compliance solutions; protection,
recovery and discovery of data in virtual server environments; enterprise-wide search capabilities;
and management and operational reports, remote services and troubleshooting tools.
Our software fully interoperates with a wide variety of operating systems, applications,
network devices, protocols, storage arrays, storage formats and tiered storage infrastructures,
providing our customers with the flexibility to purchase and deploy a combination of hardware and
software from different vendors. As a result, our customers can purchase and use the optimal
hardware and software for their needs, rather than being restricted to the offerings of a single
vendor. Key benefits of our software and related services include:
| • | Dynamic Management of Widely Distributed and Networked Data. Our software is specifically designed to optimize management of data on tiered storage and widely distributed data environments, including SAN and NAS. Our architecture enables the creation of policies that automate the movement of data based on business goals for availability, recoverability and disaster tolerance. User-defined policies determine the storage media on which data should reside based on its assigned value. |
| • | Single Software Platform Delivering Applications Built upon a Common Technology Platform. All of our software applications share common components of our underlying software code, which drives significant cost savings versus the point products or loosely integrated solutions offered by our competitors. In addition, we believe that each of the individual data and information management applications in our Simpana software delivers superior performance, functionality and total cost of ownership benefits. These solutions can be delivered to our customers either as part of our single platform or as stand-alone applications. We also believe that our architecture will allow us to more rapidly introduce new applications that will enable us to expand beyond our current addressable market. |
| • | Global Scalability and Seamless Centralized Data and Information Management. Our software is highly scalable, enabling our customers to keep pace with the growth of data and technologies deployed in their enterprises. We use the same underlying software architecture for large global enterprise, small and medium sized business and government agency deployments. We offer a centralized, browser-based management console from which policies automatically move data according to users’ needs for data access, availability and cost objectives. With our Simpana software, our customers can automate the discovery, management and monitoring of enterprise-wide storage resources and applications. |
| • | Integrated Source and Target Data Deduplication. Our software brings a universal approach to deduplication by integrating and embedding deduplication throughout a customer’s data infrastructure: from clients to disk to tape, across all data types, sources and platforms, and across all backup and archive data sets and storage tiers, including VMware and Microsoft Hyper-V virtualized environments. Our unique and flexible data and information management architecture ensures that deduplication capabilities scale with an organizations enterprise data growth with minimal footprint. |
| • | Cloud Computing. Our software provides seamless integration with certain trusted cloud storage providers and extends the unified data and information management capabilities of our Simpana software platform to the cloud. The combination of key partner offerings and our Simpana software reduces the complexity of moving and managing data in the cloud while also easing top business concerns regarding security, reliability and robust performance. Our integrated cloud storage connector enables customers to move on-premises backup and archive data into, and out of, private and public cloud storage. |
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| • | State-of-the-Art Customer Support Services. We offer 24/7 global technical support. Our support operations center at our Oceanport, New Jersey headquarters is complemented by local support resources, including centers in Europe, Australia, India and China. Our worldwide customer support organization provides comprehensive local and remote customer care to effectively address issues in today’s complex storage networking infrastructures. Our customer support process includes the expertise of product development, field and customer support engineers. In addition, we incorporate into our software many self-diagnostic and troubleshooting capabilities and provide automated web-based support capabilities to our customers. Furthermore, we have implemented a voice-over-IP telephony system to tie our worldwide support centers together with an integrated call center messaging and trouble ticket management system. |
| • | Superior Professional Services. We are committed to providing high-value, superior professional services to our customers. Our Global Professional Services group provides complete business solutions that complement our software sales and improve the overall user experience. Our end-to-end services include assessment and design, implementation, post-deployment and training services. These services help our customers improve the protection, disaster recovery, availability, security and regulatory compliance of their global data assets while minimizing the overall cost and complexity of their data infrastructures. |
| • | Lower Total Cost of Ownership. Our software solutions built on our common architecture enable our customers to realize compelling total cost of ownership benefits, including reduced capital costs, operating expenses and support costs. |
Simpana Software Modules
Simpana software is comprised of five distinct data and information management software
application modules. Simpana software modules share a common platform that provides back-end
services and advanced capabilities, like encryption; integrated source and target data
deduplication; content indexing; policy-based automation; data classification; e-discovery and
role-based security. Our technology is shared by all Simpana software modules and breaks through
traditional data silos to allow a complete view of all managed data and enables shared servers,
networks and devices. The following table summarizes the modules of our Simpana software:
| Simpana Software | ||
| Application Modules | Functionality | |
Backup and Recovery
|
High-performance backup and restoration of enterprise data for file systems, applications, databases and virtual machine systems | |
Archive
|
Integrated data archiving solution that optimizes data tiering and improves information governance | |
| Enterprise-wide storage optimization for email and files reducing space on primary storage | ||
Replication
|
Protection of critical applications and data with snapshots and real-time replication | |
Storage Resource Management
|
Solutions to analyze, discover, track, trend, and report on physical and virtual storage usage | |
Search
|
Web browser allows search, sort, select and retrieval of corporate files and information from online, archive, and backup data copies |
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Backup and Recovery
The Simpana Backup and Recovery application module delivers reliable data protection, multiple
recovery options and sophisticated data retention capabilities for both enterprise protection as
well as small- and medium-business protection. Our Backup and Recovery solution is designed for
fast, easy deployment within an existing infrastructure. The Simpana Backup and Recovery
software products allow users to easily browse and find data, and then recover it reliably,
rapidly and efficiently. Compatible with a wide variety of applications and platforms, our Backup
and Recovery software provides easy-to-use data protection and retention that supports corporate
and federal policies. We believe that our Backup and Recovery application is the foundation of a
modern data management solution that allows enterprises to better manage information assets and
recover data. Our Simpana Backup and Recovery application module has been optimized to protect
data and information assets wherever they reside: in physical, virtual, and cloud environments.
Archive
The Simpana Archive application is an integrated data archiving solution that optimizes data
tiering and improves information governance. With built-in tiered storage and multi-platform
support including Microsoft Exchange servers, IBM Lotus systems, and Microsoft SharePoint data,
comprehensive archive management is simplified. Archiving network attached storage (NAS), e-mail
and file system data reclaims space on primary storage, reduces the amount of data to be backed up
and allows enterprises to keep more copies of its data to meet recovery time objectives and
recovery point objectives. Archived data is retained for compliance and eDiscovery purposes while
maintaining transparent end-user access. The benefits of our Archive application include the
ability to reclaim primary storage, manage data retention and address information governance needs;
provide visibility with non-intrusive data collection from physical and virtual environments with
integrated storage resource management; enforce retention and disposition policies to meet policy
requirements and reduce risk; enable a proactive and legally defensible information management
strategy from a common interface; and allow seamless migration of archived data into public or
private clouds.
Replication
The Simpana Replication application module enables enterprises to create replica copies of
production data quickly, efficiently and cost-effectively using a combination of host-based
replication and snapshot technologies. These copies of data can be immediately accessed for rapid
recovery, be used to create multiple recovery points or to perform traditional backups without
impacting server performance. Resuming business with minimal loss of data and being able to create
multiple points-in-time during the normal business day enables enterprises to get back to business
with minimal disruption. Our replication solution allows enterprises to meet recovery point and
recovery time objectives without taking production systems offline by leveraging continuous capture
byte-level replication to continuously protect data. Our replication module recovers files or
applications to a specific point-in-time. Finally, Simpana replication software can eliminate
exposures from site disaster, costly off-site tape storage and lower total cost of ownership by
leveraging remote or virtual sites for disaster recovery.
Storage Resource Management
The Simpana Storage Resource Management (“SRM”) application provides capabilities that
analyze, discover, track, trend, and report on physical and virtual storage usage. SRM provides
insight into data across file systems, applications, databases and geographies, all from a single
console. Our SRM software solution is fully integrated into backup and archive operations and
delivers intuitive reporting and predictive capabilities across an enterprise. Our SRM solutions
provide enterprises with the ability to analyze and view physical and virtual storage utilizations
and maximize their usage; make informed decisions on how best to deploy an application in a
virtualized environment; identify stale data and make informed decisions on archiving rules and
storage policies; leverage file-level analytics for physical and virtual environments; reclaim
physical and virtual storage capacities using integrated archiving actions within SRM reports; and
produce chargeback reports based on physical and virtual machine capacities.
Search
The Simpana Search module leverages a single console to search across multiple data types from
a single platform. This ensures that all data sources are accounted across online, archive and
backup copies. Simpana Search software is an intuitive and ergonomic web interface to search,
sort, select and retrieve corporate files and information over any source across the enterprise.
Simpana Search software allows users to intelligently mine into information based on meaning and
the characteristics of the information itself, including frequently used keywords and phrases, date
ranges and use of files and attachments.
Simpana Search software serves multiple stakeholders, such as legal or compliance teams,
records managers, knowledge workers as well as IT teams and end-users. It includes capabilities
designed to assist organizations in responding to legal discovery actions and compliance audits,
including classification and preservation features as well as data analytics, review, filtering and
workflow. All
these capabilities enable higher levels of business productivity, competitiveness and reduced
risk by offering users direct access to data.
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Services
A comprehensive global offering of customer support and other professional services is
critical to the successful marketing, sale and deployment of our software. From planning to
deployment to operations, we offer a complete set of technical services, training and support
options that maximize the operational benefits of our suite of software applications. Our
commitment to superior customer support is reflected in the breadth and depth of our services
offerings as well as in our ongoing initiatives to engineer resiliency, automation and
serviceability features directly into our products.
We have established a global customer support organization built specifically to handle our
expanding customer base. We offer multiple levels of customer support that can be tailored to the
customer’s response needs and business sensitivities. Our customer support services consist of:
| • | Real-Time Support. Our support staff is available 24/7 by telephone to provide first response and manage the resolution of customer issues. In addition to phone support, our customers have access to an online product support database for help with troubleshooting and operational questions. Innovative use of web-based diagnostic tools provides problem analysis and resolution. Our software design is also an important element in our comprehensive customer support, including “root cause” problem analysis, intelligent alerting and troubleshooting assistance. Our software is directly linked to our online support database allowing customers to analyze problems without engaging our technical support personnel. |
| • | Significant Network and Hardware Expertise. Our support engineers have extensive knowledge of complex applications, servers and networks. We proactively take ownership of the customer’s problem, regardless of whether the issue is directly related to our products or to those of another vendor. We have also developed and maintain a knowledge library of storage systems and software products to further enable our support organization to quickly and effectively resolve customer problems. |
| • | Global Operations. Our global customer support headquarters is located at our state-of-the-art technical support center in Oceanport, NJ. We also have established key support operations in Hyderabad, India; Oberhausen, Germany; Sydney, Australia and Shanghai, China, which are complemented by regional support centers in other worldwide locations. Our cloud-based support system creates a virtual global support center combining these locations to allow for the fastest possible resolution times for customer incidents. We have designed our support infrastructure to be able to scale with the increasing globalization of our customers. |
| • | Enhanced Support Options. We offer several enhanced customer support services such as Business Critical Support (“BCS”), Remote Operations Management Service (“ROMS”) and Residency Services. Our BCS service is for customers with critical support needs and builds on our 24/7 real-time support deliverables and includes various levels of enhanced services to ensure dedicated support and customized reporting. Our ROMS services provide an innovative web-based integrated support automation system that provides customers with overnight, weekend and holiday monitoring. Through a user-friendly, intuitive web dashboard, users can access and track real-time alert, trend and storage usage reports anytime, anywhere. Our Residency Services offer customers staff-augmentation options to assist with the rapid expert deployment of the Simpana software suite. |
We also provide a wide range of other professional services that include:
| • | Assessment and Design Services. Our assessment and design services assist customers in determining data and storage management requirements, designing solutions to meet those requirements and planning for successful implementation and deployment. |
| • | Implementation and Post-deployment Services. Our professional services team helps customers efficiently configure, install and deploy our Simpana suite based on specified business objectives. Our SystemCare Review Services group assists our customers with assessing the post-deployment operational performance of our Simpana suite. |
| • | Training Services. We provide global onsite training, offsite training and self-paced online alternatives for our products. Packaged or customized customer training courses are available in instructor-led or computer-based formats. We offer in-depth training and certification for our resellers in pre- and post-sales support methodologies, including web access to customizable documentation and training materials. |
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Strategic Relationships
An important element of our strategy is to establish relationships with third parties to
assist us in developing, marketing, selling and implementing our software and services. We believe
that strategic and technology-based relationships with industry leaders are fundamental to our
success. We have forged numerous relationships with software application and hardware vendors to
enhance our combined capabilities and to create the optimal combination of data and information
management applications. This approach enhances our ability to expand our product offerings and
customer base and to enter new markets. We have established the following types of strategic
relationships:
Product and Technology Relationships. We maintain strategic product and technology
relationships with major industry leaders to ensure that our software applications are integrated
with, supported by and add value to our partners’ hardware and software products. Collaboration
with these market leaders allows us to provide applications that enable our customers to improve
data and information management efficiency. Our significant strategic relationships include Dell,
Hitachi Data Systems McAfee and Microsoft. In addition to these relationships, we maintain
relationships with a broad range of industry operating system, application and infrastructure
vendors to verify and demonstrate the interoperability of our software applications with their
equipment and technologies.
Distributors, Value-Added Reseller, Systems Integrator, Corporate Reseller and Original
Equipment Manufacturer Relationships. Our corporate resellers bundle or sell our software
applications together with their own products, and our value-added resellers resell our software
applications independently. As of March 31, 2011, we had approximately 780 reseller partners and
systems integrators distributing our software worldwide.
In order to broaden our market coverage, we have original equipment manufacturer distribution
agreements primarily with Dell and Hitachi Data Systems. Under these agreements, the original
equipment manufacturers sell, market and support our software applications and services
independently and/or incorporate our software applications into their own hardware products. Our
original equipment manufacturer agreements do not contain any minimum purchase or sale commitments.
In addition to our original equipment manufacturer agreement with Dell, we also have a corporate
reseller agreement with the Dell Software and Peripherals division.
Additionally, we have distribution agreements covering our North American commercial and U.S.
Federal Government markets with Arrow Enterprise Computing Solutions, Inc. (“Arrow”), a subsidiary
of Arrow Electronics, Inc., and Avnet Technology Solutions (“Avnet”), a subsidiary of Avent Inc.
Pursuant to these distribution agreements, Arrow’s and Avnet’s primary role is to enable a more
efficient and effective distribution channel for our products and services by managing our reseller
partners and leveraging their own industry experience.
Customers
We sell Simpana software applications and related services directly to large global
enterprises, small and medium sized businesses and government agencies, and indirectly through
value-added resellers, systems integrators, corporate resellers and original equipment manufacturer
partners. As of March 31, 2011, we had licensed our software applications to approximately 14,000
registered customers in a broad range of industries, including banking, insurance and financial
services, government, healthcare, pharmaceuticals and medical services, technology, legal,
manufacturing, utilities and energy.
Sales through our reseller agreement and original equipment manufacturer agreement with Dell
accounted for approximately 23% of our total revenues for fiscal 2011 and 24% for fiscal 2010. Dell
is an original equipment manufacturer and a reseller that purchases software from us for resale to
its customers, but is not the end-user of our software. Sales generated through our distribution
agreement with Arrow accounted for approximately 25% of our total revenue in fiscal 2011 and 24% in
fiscal 2010. Sales to the U.S. Federal Government accounted for approximately 8% of our total
revenues in fiscal 2011 and 9% in fiscal 2010.
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Technology
Our Common Technology Platform serves as a major differentiator versus our competitors’ data
and information management software products. Our Common Technology Platform’s unique indexing,
cataloging, data movement, media management and policy technologies are the source of the
performance, scale, management, cost of ownership benefits and seamless interoperability inherent
in all of our data and information management software applications. Additional options enable
content search, data encryption and
auditing features to support data discovery and compliance requirements. Each of these
applications shares a common architecture consisting of three core components: intelligent agent
software, data movement software and command and control software. These components may be
installed on a single host server, or each may be distributed over many servers in a global
network. Additionally, the modularity of our software provides deployment flexibility. The ability
to share storage resources across multiple data and information management applications provides
easier data and information management and lower total cost of ownership. We participate in
industry standards groups and activities that we believe will have a direct bearing on the data and
information management software market.
Our software architecture consists of integrated software components that are grouped together
to form a CommCell. Components of a CommCell are as follows:
| • | one CommServe; |
| • | one or more MediaAgents; and |
| • | one or more iDataAgents. |
Each highly scalable CommCell may be configured to reflect a customer’s geographic,
organizational or application environment. Multiple CommCells can be aggregated into a single,
centralized view for policy-based management across a customer’s local or global information
technology environment.
| • | CommServe. The CommServe acts as the command and control center of the CommCell and handles all requests for activity between MediaAgent and iDataAgent components. The CommServe contains the centralized event and job managers and the index catalog. This database includes information about where data resides, such as the library, media and content of data. The centralized event manager logs all events, providing unified notification of important events. The job manager automates and monitors all jobs across the CommCell. |
| • | MediaAgent. The MediaAgent is a media independent module that is responsible for managing the movement of data between the iDataAgents and the physical storage devices. Our MediaAgents communicate with a broad range of storage devices, generating an index for use by each of our software applications. The MediaAgent software supports most storage devices, including automated magnetic tape libraries, tape stackers and loaders, standalone tape drives and magnetic storage devices, magneto-optical libraries, virtual tape libraries, DVD-RAM and CD-RW devices. |
| • | iDataAgent. The iDataAgent is a software module that resides on the server or other computing device and controls the data being protected, replicated, migrated or archived, often referred to simply as the “client” software. iDataAgents communicate with most open and network file systems and enterprise relational databases and applications, such as Microsoft Exchange, Microsoft SharePoint, Notes Domino Server, GroupWise, Oracle, Informix, Sybase, DB2 and SAP, to generate application aware indexes pertinent to granular recovery of application objects. The agent software contains the logic necessary to extract (or recover) data and send it to (or receive it from) the MediaAgent software. |
Sales and Marketing
We sell our Simpana data and information management software applications and related services
to large global enterprises, small and medium sized businesses and government agencies. We sell
through our worldwide direct sales force and our global network of distributors, value-added
resellers, systems integrators, corporate resellers and original equipment manufacturer partners.
As of March 31, 2011, we had 362 employees in sales and marketing. These employees are primarily
located in North America, Europe, Australia, Africa and Asia.
We have a variety of marketing programs designed to create brand recognition and market
awareness for our product offerings and for sales lead generation. Our marketing efforts include
active participation at trade shows, technical conferences and technology seminars; advertising;
public relations; social media; industry analyst relations; publication of technical and
educational articles in industry journals; sales training; and preparation of competitive analyses.
In addition, our strategic partners augment our marketing and sales campaigns through seminars,
trade shows and joint public relations and advertising campaigns. Our customers and strategic
partners provide references and recommendations that we often feature in our advertising and
promotional activities.
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Research and Development
Our research and development organization is responsible for the design, development, testing
and certification of our data and information management software applications. As of March 31,
2011, we had 326 employees in our research and development group, of which 105 are located at our
Hyderabad, India development center. Our engineering efforts support product development across all
major operating systems, databases, applications and network storage devices. A substantial amount
of our development effort goes into certification, integration and support of our applications to
ensure interoperability with our strategic partners’ hardware and software products. We have also
made substantial investments in the automation of our product test and quality assurance
laboratories. We spent $37.0 million on research and development activities in fiscal 2011, $33.4
million in fiscal 2010 and $30.7 million in fiscal 2009.
Competition
The data storage management market is intensely competitive, highly fragmented and
characterized by rapidly changing technology and evolving standards. We currently compete with
other providers of data and information management software as well as large storage hardware
manufacturers that have developed or acquired their own data and information management software
products. These manufacturers have the resources and capabilities to develop their own data and
information management software applications, and many have been making acquisitions and broadening
their efforts to include broader data and information management and storage products. These
manufacturers and/or our other current and potential competitors may establish cooperative
relationships among themselves or with third parties, creating new competitors or alliances. Large
operating system and application vendors, including Microsoft, have introduced products or
functionality that includes some of the same functions offered by our software applications. In the
future, further development by these vendors could cause some features of our software applications
to become redundant.
The following are our primary competitors in the data and information management software
applications market, each of which has one or more products that compete with a part of or our
entire software suite:
| • | CA; |
| • | EMC; |
| • | Hewlett-Packard; |
| • | IBM; and |
| • | Symantec. |
The principal competitive factors in our industry include product functionality, product
performance, product integration, platform coverage, ability to scale, price, worldwide sales
infrastructure, global technical support, name recognition and reputation. The ability of major
system vendors to bundle hardware and software solutions is also a significant competitive factor
in our industry. Although many of our competitors have greater resources, a larger installed
customer base and greater name recognition, we believe we compete favorably on the basis of these
competitive factors.
Our unique product architecture is one of the primary reasons why we compete so successfully.
Whereas other competitive solutions in the market are based on multiple, disparate products, our
modular offering is based on a single, unified, underlying code base resulting in favorable
efficiencies in functionality, integration, scalability and support. Our focused approach to data
and information management and our ability to respond to customer feedback also drives the
functionality and features of our products, which we believe lead the industry in terms of
performance and usability, as evidenced by numerous industry awards we have received in the past 12
months such as the 2011 Gartner Magic Quadrant for Enterprise Disk-Based Backup and Recovery; 2011
DCIG Best in Class Virtual Server Backup Software; 2011 Info-Tech Research Group’s Champion for
Enterprise Backup Software; the 2010 Storage Magazine/SearchStorage.com Quality Awards for
Enterprise-class Backup and Recovery software; and 2010 Gartner Magic Quadrant for Enterprise
Information Archiving.
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From a customer perspective, highly integrated products such as ours, which are based on a
single, unified, underlying code base, are easier and less expensive to deploy, operate and manage.
This flexibility, in turn, makes it significantly easier to scale our products
over a customer’s entire IT environment. Supporting and enhancing our products is made more
efficient due to this single, unified, underlying code base, unlike our competitors who are
required to support and enhance multiple, disparate products, most of which are based on differing
underlying software codes. Supporting multiple, disparate products places larger demands on our
competitors’ internal human and operational capital. We believe our Simpana product, because of its
unique architecture, creates a compelling functional, integration, scalability and support
advantage. We continue to expand our worldwide sales infrastructure and increase our distribution
throughout the Americas, Europe, Middle East/Africa, Australia and Asia to meet the needs of our
business.
Some of our competitors have greater financial resources and may have the ability to offer
their products at lower prices than ours. In addition, some of our competitors have greater name
recognition than us, which could provide them a competitive advantage at some customers. Some of
our competitors also have longer operating histories, have substantially greater technical, sales,
marketing and other global resources than we do, as well as a larger installed customer base and
broader product offerings, including hardware. As a result, these competitors can devote greater
resources to the development, promotion, sale and support of their products than we can.
Intellectual Property and Proprietary Rights
Our success and ability to compete depend on our continued development and protection of our
proprietary software and other technologies. We rely primarily on a combination of trade secret,
patent, copyright and trademark laws, as well as contractual provisions, to establish and protect
our intellectual property rights. We provide our software to customers pursuant to license
agreements that impose restrictions on use. These license agreements are primarily in the form of
shrink-wrap or click-wrap licenses, which are not negotiated with or signed by our end-user
customers. These measures may afford only limited protection of our intellectual property and
proprietary rights associated with our software. We also enter into confidentiality agreements with
employees and consultants involved in product development. We routinely require our employees,
customers and potential business partners to enter into confidentiality agreements before we
disclose any sensitive aspects of our software, technology or business plans.
As of
March 31, 2011, we had 118 issued patents and 174 pending patent applications in the
United States, as well as 55 issued patents in foreign countries and 76 pending foreign patent
applications. Pending patent applications may receive unfavorable examination and are not
guaranteed allowance as issued patents. We may elect to abandon or otherwise not pursue prosecution
of certain pending patent applications due to patent examination results, economic considerations,
strategic concerns or other factors. We will continue to assess appropriate occasions to seek
patent and other intellectual property protection for innovative aspects of our technology that we
believe provide us a significant competitive advantage.
Despite our efforts to protect our trade secrets and proprietary rights through patents and
license and confidentiality agreements, unauthorized parties may still attempt to copy or otherwise
obtain and use our software and technology. In addition, we intend to expand our international
operations and effective patent, copyright, trademark and trade secret protection may not be
available or may be limited in foreign countries. If we fail to protect our intellectual property
and other proprietary rights, our business could be harmed.
We currently resell certain software from Microsoft, including Microsoft SQL Server, used in
conjunction with our software applications pursuant to an independent software vendor royalty
license and distribution agreement that we have and plan to continue renewing annually. We also
currently resell certain other software from Microsoft, including Windows Pre-installation
Environment software, used in conjunction with our software applications, pursuant to an agreement
with Microsoft that expires May 31, 2012. We have entered into and expect to enter into
agreements with additional third parties to license their technology for use with our software
applications.
Some of the products or technologies acquired, licensed or developed by us may incorporate
so-called “open source” software and we may incorporate open source software into other products in
the future. The use of such open source software may ultimately subject some products to unintended
conditions, which may negatively affect our business, financial condition, operating results, cash
flow and ability to commercialize our products or technologies.
From time to time, we are participants or members of various industry standard-setting
organizations or other industry technical organizations. Our participation or membership in such
organizations may, in some circumstances, require us to enter into royalty or licensing agreements
with third parties regarding our intellectual property under terms established by those
organizations, which we may find unfavorable.
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In the United States, we own federal registrations for or have common law trademark rights in
the following marks: CommVault, CommVault and logo, the “CV” logo, CommVault Systems, Solving
Forward, SIM, Singular Information Management, Simpana, CommVault Galaxy, Unified Data Management,
QiNetix, Quick Recovery, QR, CommNet, Farline, GridStor, Vault Tracker, InnerVault, Quick Snap,
QSnap, Recovery Director, CommServe, CommCell, SnapProtect, ROMS and CommValue. We also have
several other trademarks and have obtained or are actively pursuing trademark registrations in
several foreign jurisdictions.
Employees
As of March 31, 2011, we had 1,268 employees worldwide, including 362 in sales and marketing,
326 in research and development, 136 in general and administration and 444 in customer services and
support. None of our employees are represented by a labor union. We have never experienced a work
stoppage and believe our relationship with our employees is good.
Executive Officers of the Registrant
The following table presents information with respect to our executive officers as of May 15,
2011:
| Name | Age | Position | ||||
N. Robert Hammer
|
69 | Chairman, President and Chief Executive Officer | ||||
Alan G. Bunte
|
57 | Executive Vice President and Chief Operating Officer | ||||
Louis F. Miceli
|
61 | Senior Vice President and Chief Financial Officer | ||||
Ron Miiller
|
44 | Senior Vice President of Worldwide Sales | ||||
David West
|
45 | Senior Vice President, Marketing and Business Development | ||||
Steven Rose
|
53 | Vice President, EMEA | ||||
N. Robert Hammer has served as our Chairman, President and Chief Executive Officer since March
1998. Mr. Hammer was also a venture partner from 1997 until December 2003 of the Sprout Group, the
venture capital arm of Credit Suisse’s asset management business. Prior to joining the Sprout
Group, Mr. Hammer served as the chairman, president and chief executive officer of Norand
Corporation, a portable computer systems manufacturer, from 1988 until its acquisition by Western
Atlas, Inc. in 1997. Mr. Hammer led Norand following its leveraged buy-out from Pioneer Hi-Bred
International, Inc. and through its initial public offering in 1993. Prior to joining Norand, Mr.
Hammer also served as chairman, president and chief executive officer of publicly-held Telequest
Corporation from 1987 until 1988 and of privately-held Material Progress Corporation from 1982
until 1987. Prior to joining Material Progress Corporation, Mr. Hammer spent 15 years in various
sales, marketing and management positions with Celanese Corporation, rising to the level of vice
president and general manager of the structural composites materials business. Mr. Hammer obtained
his bachelor’s degree and master’s degree in business administration from Columbia University.
Alan G. Bunte has served as our Executive Vice President and Chief Operating Officer since
October 2003 and served as our senior vice president from December 1999 until October 2003. Since
January 2008, Mr. Bunte has also served as a director of CommVault. Prior to joining our company,
Mr. Bunte was with Norand Corporation from 1986 to January 1998, serving as its senior vice
president of planning and business development from 1991 to January 1998. Mr. Bunte obtained his
bachelor’s and master’s degrees in business administration from the University of Iowa.
Louis F. Miceli has served as our Senior Vice President and Chief Financial Officer since
April 2011. Prior to his current role, Mr. Miceli served as our Vice President and Chief Financial
Officer from April 1997 to March 2011. Mr. Miceli has over 30 years of experience in various
finance capacities for several high-technology companies. Prior to joining our company, Mr. Miceli
served as chief financial officer of University Hospital, part of the University of Medicine and
Dentistry of New Jersey (UMDNJ), from 1994 until 1997 and as the corporate controller of UMDNJ from
1992 until 1994. Prior to joining UMDNJ, Mr. Miceli served as the chief financial officer of
Syntrex, Inc., a word processing software and hardware manufacturer, from 1985 until 1992, and as
its controller from 1980 until 1985. Mr. Miceli began his career as a staff auditor at Ernst &
Ernst LLP (currently Ernst &Young LLP), where he served five years. Mr. Miceli obtained his
bachelor’s degree, cum laude, in accounting from Seton Hall University and is a certified public
accountant in the State of New Jersey.
Ron Miiller has served as our Senior Vice President of Worldwide Sales since April 2011.
Prior to his current role, Mr. Miiller served as our Vice President of Sales, Americas from January
2005 to March 2011 and as our Central Region Sales Manager from March 2000 to December 2004. Prior
to joining our company, Mr. Miiller served as Director, Central Region Sales for Softworks, Inc.,
an EMC company, from March 1997 through March 2000, and prior to that Mr. Miiller was with Moore
Corporation, a
diversified print and electronic communications company from 1989 through March 1997 in
various leadership roles. Mr. Miiller received his bachelor of science degree in marketing from
Ball State University in 1989.
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David West has served as our Senior Vice President, Marketing and Business Development since
April 2011. Prior to his current role, Mr. West served as Vice President, Marketing and Business
Development from September 2005 to March 2011 and Vice President, Business Development from August
2000 to September 2005. Prior to joining our company, Mr. West served as a director of strategic
alliances from April 1999 to July 2000 and vice president of storage solutions in July 2000 at
Legato Systems, Inc., which was subsequently acquired by EMC Corporation. Prior to joining Legato
Systems, Mr. West served as vice president of sales at Intelliguard Software, Inc., which was also
subsequently acquired by EMC Corporation, from 1990 to April 1999. Mr. West obtained his bachelor’s
degree in electrical engineering from Villanova University.
Steven Rose has served as our Vice President, EMEA since June 2006. Prior to joining our
company, Mr. Rose served as Vice President, United Kingdom and Ireland of Veritas Software Corp.
from 2003 to July 2005 and after Veritas’ merger with Symantec in July of 2005, as the United
Kingdom Managing Director for the combined entity. Prior to joining Veritas, Mr. Rose served as
Chief Executive Officer of CopperEye, a United Kingdom based software company, from 2002 to 2003,
and prior to that served as Managing Director, Europe for FatWire Corporation, a New York based
software company, from 2001 to 2002. Prior to joining FatWire, Mr. Rose served as the Managing
Director, Europe of NEON Systems (UK) Ltd., a United Kingdom based company selling software
products for systems integration, from 1997 to 2001. Prior to joining NEON Systems, Mr. Rose held
several sales, marketing and general management positions with several software and systems
companies, including TCAM Systems (UK) Ltd., Royal Blue Technologies, Ltd., and Network Systems
Corporation. Mr. Rose attended the Royal Military Academy, Sandhurst and served as an officer in
the British Army for six years.
Item 1A. Risk Factors
You should consider each of the following factors as well as the other information in this
Annual Report in evaluating our business and our prospects. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties not presently known to us
or that we currently consider immaterial may also impair our business operations. If any of the
following risks actually occurs, our business and financial results could be harmed. In that case,
the trading price of our common stock could decline. You should also refer to the other information
set forth in this Annual Report, including our financial statements and the related notes.
Risks Related to Our Business
Our industry is intensely competitive, and most of our competitors have greater financial,
technical and sales and marketing resources and larger installed customer bases than we do, which
could enable them to compete more effectively than we do.
The data and information management software market is intensely competitive, highly
fragmented and characterized by rapidly changing technology and evolving standards, changing
customer requirements and frequent new product introductions. Competitors vary in size and in the
scope and breadth of the products and services offered. Our primary competitors include CA, Inc.,
EMC, Hewlett-Packard, IBM and Symantec Corporation.
The principal competitive factors in our industry include product functionality, product
integration, platform coverage, ability to scale, price, worldwide sales infrastructure, global
technical support, name recognition and reputation. The ability of major system vendors to bundle
hardware and software solutions is also a significant competitive factor in our industry. If we are
unable to address these competitive factors, our competitive position could weaken and we could
experience a decline in revenues that could adversely affect our business.
Most of our current and potential competitors have longer operating histories and have
substantially greater financial, technical, sales, marketing and other resources than we do, as
well as larger installed customer bases, greater name recognition and broader product offerings,
including hardware. These competitors can devote greater resources to the development, promotion,
sale and support of their products than we can and have the ability to bundle their hardware and
software products in a combined offering. As a result, these competitors may be able to respond
more quickly to new or emerging technologies and changes in customer requirements.
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It is also costly and time-consuming to change data and information management systems. Most
of our new customers have installed data and information management software, which gives an
incumbent competitor an advantage in retaining a customer because it already understands the
network infrastructure, user demands and information technology needs of the customer, and also
because some customers are reluctant to change vendors.
Our current and potential competitors may establish cooperative relationships among themselves
or with third parties. If so, new competitors or alliances that include our competitors may emerge
that could acquire significant market share. In addition, large operating system and application
vendors, such as Microsoft Corporation, have introduced products or functionality that includes
some of the same functions offered by our software applications. In the future, further development
by these vendors could cause our software applications and services to become redundant, which
could seriously harm our sales, results of operations and financial condition.
New competitors entering our markets can have a negative impact on our competitive
positioning. In addition, we expect to encounter new competitors as we enter new markets.
Furthermore, many of our existing competitors are broadening their operating systems platform
coverage. We also expect increased competition from original equipment manufacturers, including
those we partner with, and from systems and network management companies, especially those that
have historically focused on the mainframe computer market and have been making acquisitions and
broadening their efforts to include data and information management and storage products. We expect
that competition will increase as a result of future software industry consolidation. Increased
competition could harm our business by causing, among other things, price reductions of our
products, reduced profitability and loss of market share.
We may not be able to respond to rapid technological changes with new software applications and
services offerings, which could have a material adverse effect on our sales and profitability.
The markets for our software applications are characterized by rapid technological changes,
changing customer needs, frequent new software product introductions and evolving industry
standards. The introduction of software applications embodying new technologies and the emergence
of new industry standards could make our existing and future software applications obsolete and
unmarketable. As a result, we may not be able to accurately predict the lifecycle of our software
applications, and they may become obsolete before we receive the amount of revenues that we
anticipate from them. If any of the foregoing events were to occur, our ability to retain or
increase market share in the data and information management software market could be materially
adversely affected.
To be successful, we need to anticipate, develop and introduce new software applications and
services on a timely and cost-effective basis that keep pace with technological developments and
emerging industry standards and that address the increasingly sophisticated needs of our customers.
We may fail to develop and market software applications and services that respond to technological
changes or evolving industry standards, experience difficulties that could delay or prevent the
successful development, introduction and marketing of these applications and services or fail to
develop applications and services that adequately meet the requirements of the marketplace or
achieve market acceptance. Our failure to develop and market such applications and services on a
timely basis, or at all, could have a material adverse effect on our sales and profitability.
Volatility in the global economy could adversely impact our continued growth, results of
operations and our ability to forecast future business.
As our business has expanded globally, we have become increasingly subject to the risks
arising from adverse changes in domestic and global economic and political conditions. The global
economic conditions have been volatile in recent fiscal years and have resulted in slower economic
activity, decreased consumer confidence, reduced corporate profits and capital spending, adverse
business conditions and liquidity concerns. There has also been increased volatility in foreign
exchange markets. We believe that our sales and results of operations were impacted by these
economic factors. These factors make it difficult for our customers, our vendors and us to
accurately forecast and plan future business activities. In addition, these factors could cause
customers to slow or defer spending on our software and services products, which would delay and
lengthen sales cycles and negatively affect our results of operations. We cannot predict the timing
or duration of any economic slowdown or the timing or strength of a subsequent economic recovery on
either a worldwide basis or in our industry.
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We rely on indirect sales channels, such as value-added resellers, systems integrators, corporate
resellers, distributors and original equipment manufacturers, for the distribution of our software
applications, and the failure of these channels to effectively sell our software applications could
have a material adverse effect on our revenues and results of operations.
We rely significantly on our value-added resellers, systems integrators and corporate
resellers, which we collectively refer to as resellers, for the marketing and distribution of our
software applications and services. Resellers are our most significant distribution channel.
However, our agreements with resellers are generally not exclusive, are generally renewable
annually, generally do not contain minimum sales requirements and in many cases may be terminated
by either party without cause. Many of our resellers carry software applications that are
competitive with ours. These resellers may give a higher priority to other software applications,
including those of our competitors, or may not continue to carry our software applications at all.
If a number of resellers were to discontinue or reduce the sales of our products, or were to
promote our competitors’ products in lieu of our own, it would have a material adverse effect on
our future revenues. Events or occurrences of this nature could seriously harm our sales and
results of operations. If we fail to manage our resellers successfully, there may be conflicts
between resellers, or they could fail to perform as we anticipate, which could reduce our sales.
In addition, we expect that a significant portion of our sales growth will depend upon our ability
to identify and attract new reseller partners. We believe that our competitors also use reseller
arrangements. Our competitors may be more successful in attracting reseller partners and could
enter into exclusive relationships with resellers that make it difficult to expand our reseller
network. Any failure on our part to expand our network of resellers could impair our ability to
grow revenues in the future.
Some of our resellers possess significant resources and advanced technical abilities. These
resellers, particularly our corporate resellers, may, either independently or jointly with our
competitors, develop and market software applications and related services that compete with our
offerings. If this were to occur, these resellers might discontinue marketing and distributing our
software applications and services. In addition, these resellers would have an advantage over us
when marketing their competing software applications and related services because of their existing
customer relationships. The occurrence of any of these events could have a material adverse effect
on our revenues and results of operations.
In addition, we have distribution agreements covering our North American commercial markets
and our U.S. Federal Government market with Arrow Enterprise Computing Solutions, Inc. (“Arrow”), a
subsidiary of Arrow Electronics, Inc., and Avnet Technology Solutions (“Avent”), a subsidiary of
Avnet, Inc. Pursuant to these distribution agreements, these distributors primary role is to enable
a more efficient and effective distribution channel for our products and services by managing our
reseller partners and leveraging their own industry experience. Many of our North American
resellers have been transitioned to either Arrow or Avnet. Sales through our distribution
agreement with Arrow accounted for approximately 25% of our total revenues for fiscal 2011 and
approximately 24% for fiscal 2010. Arrow accounted for a total of approximately 32% of our accounts
receivable balance as of March 31, 2011 as a result of our reseller agreement. Avnet’s total
revenue contribution was not material for fiscal 2011 and 2010 and its accounts receivable balance
was not material as of March 31, 2011. If Arrow or Avnet were to discontinue or reduce the sales
of our products or if our agreement with Arrow or Avnet was terminated, and if we were unable to
take back the management of our reseller channel or find another North American distributor to
replace Arrow or Avnet, then it could have a material adverse effect on our future revenues.
Sales through Dell as a result of our reseller agreement and as well as our original equipment
manufacturer agreement, which is discussed below, accounted for approximately 23% of total revenues
for fiscal 2011 and approximately 24% of total revenues for fiscal 2010. Dell also accounted for a
total of approximately 25% of our accounts receivable balance as of March 31, 2011. If we were to
see an impairment of our receivable balance from Dell, it could have a significant adverse effect
on our results of operations.
Our original equipment manufacturer agreements are primarily with Dell and Hitachi Data
Systems. Our original equipment manufacturers sell our software applications and in some cases
incorporate our data and information management software into systems that they sell. A material
portion of our revenues is generated through these arrangements. However, we have no control over
the shipping dates or volumes of systems these original equipment manufacturers ship and they have
no obligation to ship systems incorporating our software applications. They also have no obligation
to recommend or offer our software applications exclusively or at all, and they have no minimum
sales requirements and can terminate our relationship at any time. These original equipment
manufacturers also could choose to develop their own data and information management software
internally and incorporate those products into their systems instead of our software applications.
The original equipment manufacturers that we do business with also compete with one another. If one
of our original equipment manufacturer partners views our arrangement with another original
equipment manufacturer as competing with its products, it may decide to stop doing business with
us. Any material decrease in the volume of sales generated by original equipment manufacturers we
do business with, as a result of these factors or otherwise, would
have a material adverse effect on our revenues and results of operations in future periods.
Sales through our original equipment manufacturer agreements accounted for approximately 10% of our
total revenues for both fiscal 2011 and fiscal 2010.
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In periods of worsening economic conditions, our exposure to credit risk and payment delinquencies
on our accounts receivable significantly increases.
Our outstanding accounts receivables are generally not secured. In addition, our standard
terms and conditions permit payment within a specified number of days following the receipt of our
product. During the recent economic downturn, certain of our customers and resellers have faced or
may face liquidity concerns which could result in our customers or resellers not to be able to
satisfy their payment obligations to us, which would have a material adverse effect on our
financial condition, operating results and cash flows. While we have procedures to monitor and
limit exposure to credit risk on our receivables and have not suffered any material losses to date,
there can be no assurance such procedures will continue to effectively limit our credit risk and
avoid future losses.
We may experience a decline in revenues or volatility in our operating results, which may adversely
affect the market price of our common stock.
We cannot predict our future revenues or operating results with certainty because of many
factors outside of our control. A significant revenue or profit decline, lowered forecasts or
volatility in our operating results could cause the market price of our common stock to decline
substantially. Factors that could affect our revenues and operating results include the following:
| • | the unpredictability of the timing and magnitude of orders for our software applications, particularly software transactions greater than $100,000 — in recent fiscal years, a majority of our quarterly revenues was earned and recorded near the end of each quarter; |
| • | the possibility that our customers may cancel, defer or limit purchases as a result of reduced information technology budgets; |
| • | the possibility that our customers may defer purchases of our software applications in anticipation of new software applications or updates from us or our competitors; |
| • | the ability of our original equipment manufacturers and resellers to meet their sales objectives; |
| • | market acceptance of our new applications and enhancements; |
| • | our ability to control expenses; |
| • | changes in our pricing and distribution terms or those of our competitors; and |
| • | the demands on our management, sales force and services infrastructure as a result of the introduction of new software applications or updates. |
Our expense levels are relatively fixed and are based, in part, on our expectations of our
future revenues. If revenue levels fall below our expectations and we are profitable at the time,
our net income would decrease because only a small portion of our expenses varies with our
revenues. Therefore, any significant decline in revenues for any period could have an immediate
adverse impact on our results of operations for that period. We believe that period-to-period
comparisons of our results of operations should not be relied upon as an indication of future
performance. In addition, our results of operations could be below expectations of public market
analysts and investors in future periods, which would likely cause the market price of our common
stock to decline.
We encounter long sales and implementation cycles, particularly for our larger customers, which
could have an adverse effect on the size, timing and predictability of our revenues.
Potential or existing customers, particularly larger enterprise customers, generally commit
significant resources to an evaluation of available software and require us to expend substantial
time, effort and money educating them as to the value of our software and services. Sales of our
core software products to these larger customers often require an extensive education and marketing
effort.
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We could expend significant funds and resources during a sales cycle and ultimately fail to
win the customer. Our sales cycle for all of our products and services is subject to significant
risks and delays over which we have little or no control, including:
| • | our customers’ budgetary constraints; |
| • | the timing of our customers’ budget cycles and approval processes; |
| • | our customers’ willingness to replace their current software solutions; |
| • | our need to educate potential customers about the uses and benefits of our products and services; and |
| • | the timing of the expiration of our customers’ current license agreements or outsourcing agreements for similar services. |
If we are unsuccessful in closing sales, it could have a material adverse effect on the size,
timing and predictability of our revenues.
We depend on growth in the data and information management software market, and lack of growth or
contraction in this market or could have a material adverse effect on our sales and financial
condition.
Demand for data and information management software is linked to growth in the amount of data
generated and stored, demand for data retention and management (whether as a result of regulatory
requirements or otherwise) and demand for and adoption of new storage devices and networking
technologies. Because our software applications are concentrated within the data and information
management software market, if the demand for storage devices, storage software applications,
storage capacity or storage networking devices declines, our sales, profitability and financial
condition would be materially adversely affected. Segments of the computer and software industry
have in the past experienced significant economic downturns. The occurrence of any of these factors
in the data and information management software market could materially adversely affect our sales,
profitability and financial condition.
Furthermore, the data and information management software market is dynamic and evolving. Our
future financial performance will depend in large part on continued growth in the number of
organizations adopting data and information management software for their computing environments.
The market for data and information management software may not continue to grow at historic rates,
or at all. If this market fails to grow or grows more slowly than we currently anticipate, our
sales and profitability could be adversely affected.
Our software applications are complex and contain undetected errors, which could adversely affect
not only our software applications’ performance but also our reputation and the acceptance of our
software applications in the market.
Software applications as complex as those we offer contain undetected errors or failures,
especially when products are first introduced or new versions are released. Despite extensive
testing by us and by our customers, we have in the past discovered errors in our software
applications and will do so in the future. As a result of past discovered errors, we experienced
delays and lost revenues while we corrected those software applications. In addition, customers in
the past have brought to our attention “bugs” in our software created by the customers’ unique
operating environments, which are often characterized by a wide variety of both standard and
non-standard configurations that make pre-release testing very difficult and time consuming.
Although we have been able to fix these software bugs in the past, we may not always be able to do
so. Our software products may also be subject to intentional attacks by viruses that seek to take
advantage of these bugs, errors or other weaknesses. Any of these events may result in the loss of,
or delay in, market acceptance of our software applications and services, which would seriously
harm our sales, results of operations and financial condition.
Furthermore, we believe that our reputation and name recognition are critical factors in our
ability to compete and generate additional sales. Promotion and enhancement of our name will depend
largely on our success in continuing to provide effective software applications and services. The
occurrence of errors in our software applications or the detection of bugs by our customers may
damage our reputation in the market and our relationships with our existing customers, and as a
result, we may be unable to attract or retain customers.
In addition, because our software applications are used to manage data that is often critical
to our customers, they may have a greater sensitivity to defects in our products than to defects in
other, less critical, applications. As a result, the licensing and support of our software
applications involve the risk of product liability claims. Any product liability insurance we carry
may not be sufficient to
cover our losses resulting from product liability claims. The successful assertion of one or
more large claims against us could have a material adverse effect on our financial condition.
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If our customers do not renew their annual maintenance and support agreements for our products or
if they do not renew them on terms that are favorable to us, our business might suffer.
Most of our maintenance agreements are for a one year term. As the end of the annual period
approaches, we pursue the renewal of the agreement with the customer. Historically, maintenance
renewals have represented a significant portion of our total revenue. Because of this
characteristic of our business, if our customers choose not to renew their maintenance and support
agreements with us on beneficial terms, our business, operating results and financial condition
could be harmed.
Sales of one of our software applications make up a substantial portion of our revenues, and a
decline in demand for this software application could have a material adverse effect on our sales,
profitability and financial condition.
We derive the majority of our software revenue from our Backup and Recovery software
application. Sales of Backup and Recovery represented approximately 59% of our total software
revenue for fiscal 2011 and 61% for fiscal 2010. In addition, we derive the majority of our
services revenue from customer and technical support associated with our Backup and Recovery
software application. As a result, we are particularly vulnerable to fluctuations in demand for
this software application, whether as a result of competition, product obsolescence, technological
change, budgetary constraints of our customers or other factors. If demand for this software
application declines significantly, our sales, profitability and financial condition would be
adversely affected.
We develop software applications that interoperate with operating systems and hardware developed by
others, and if the developers of those operating systems and hardware do not cooperate with us or
we are unable to devote the necessary resources so that our applications interoperate with those
systems, our software development efforts may be delayed or foreclosed and our business and results
of operations may be adversely affected.
Our software applications operate primarily on the Windows, UNIX, Linux and Novell Netware
operating systems and the hardware devices of numerous manufacturers. When new or updated versions
of these operating systems and hardware devices are introduced, it is often necessary for us to
develop updated versions of our software applications so that they interoperate properly with these
systems and devices. We may not accomplish these development efforts quickly or cost-effectively,
and it is not clear what the relative growth rates of these operating systems and hardware will be.
These development efforts require the cooperation of the developers of the operating systems and
hardware, substantial capital investment and the devotion of substantial employee resources. For
some operating systems, we must obtain some proprietary application program interfaces from the
owner in order to develop software applications that interoperate with the operating system.
Operating system owners have no obligation to assist in these development efforts. If they do not
provide us with assistance or the necessary proprietary application program interfaces on a timely
basis, we may experience delays or be unable to expand our software applications into other areas.
We may not receive significant revenues from our current research and development efforts for up to
several years, if at all.
Developing software is expensive, and the investment in product development may involve a long
payback cycle. Our research and development expenses were $37.0 million, or approximately 12% of
our total revenues in fiscal 2011, and $33.4 million, or 12% of our total revenues in fiscal 2010.
Our future plans include significant investments in software research and development and related
product opportunities. We believe that we must continue to dedicate a significant amount of
resources to our research and development efforts to maintain our competitive position. However, we
may not recognize significant revenues from these investments for up to years, if at all.
The loss of key personnel or the failure to attract and retain highly qualified personnel could
have an adverse effect on our business.
Our future performance depends on the continued service of our key technical, sales, services
and management personnel. We rely on our executive officers and senior management to execute our
existing business operations and identify and pursue new growth opportunities. The loss of key
employees could result in significant disruptions to our business, and the integration and training
of replacement personnel could be time consuming, cause additional disruptions to our business and
be unsuccessful. We do not carry key person life insurance covering any of our employees.
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Our future success also depends on our continued ability to attract and retain highly
qualified technical, sales, services and management personnel. Competition for such personnel is
intense, and we may fail to retain our key technical, sales, services and management employees or
attract or retain other highly qualified technical, sales, services and management personnel in the
future. The volatility of our stock price may from time to time adversely affect our ability to
attract or retain employees. If we are unable to hire or retain qualified employees, or conversely,
if we fail to manage employee performance or reduce staffing levels when required by market
conditions, our personnel costs would be excessive and our business and profitability could be
adversely affected.
Our international sales and operations are subject to factors that could have an adverse effect on
our results of operations.
We have significant sales and services operations outside the United States, and derive a
substantial portion of our revenues from these operations. We also plan to continue to expand our
international operations. We generated approximately 39% of our revenues from outside the United
States in fiscal 2011 and approximately 38% in fiscal 2010. Accordingly, international sales
increased 22% in fiscal 2011 compared to fiscal 2010. Expansion of our international operations
will require a significant amount of attention from our management and substantial financial
resources and might require us to add qualified management in these markets.
In addition to facing risks similar to the risks faced by our domestic operations, our
international operations are also subject to risks related to the differing legal, political,
social and regulatory requirements and economic conditions of many countries, including:
| • | difficulties in staffing and managing our international operations; |
| • | foreign countries may impose additional withholding taxes or otherwise tax our foreign income, impose tariffs or adopt other restrictions on foreign trade or investment, including currency exchange controls; |
| • | difficulties in coordinating the activities of our geographically dispersed and culturally diverse operations; |
| • | general economic conditions in the countries in which we operate, including seasonal reductions in business activity in the summer months in Europe and in other periods in other countries, could have an adverse effect on our earnings from operations in those countries; |
| • | imposition of, or unexpected adverse changes in, foreign laws or regulatory requirements may occur, including those pertaining to export restrictions, trade and employment restrictions and intellectual property protections; |
| • | longer payment cycles for sales in foreign countries and difficulties in collecting accounts receivable; |
| • | competition from local suppliers; |
| • | costs and delays associated with developing software in multiple languages; and |
| • | political unrest, war or acts of terrorism. |
Our business in emerging markets requires us to respond to rapid changes in market conditions
in those markets. Our overall success in international markets depends, in part, upon our ability
to succeed in differing legal, regulatory, economic, social and political conditions. We may not
continue to succeed in developing and implementing policies and strategies that will be effective
in each location where we do business. Furthermore, the occurrence of any of the foregoing factors
may have a material adverse effect on our business and results of operations.
Our international sales are generally denominated in foreign currencies, and this revenue
could be materially affected by currency fluctuations. Our primary exposures are to fluctuations in
exchange rates for the U.S. dollar versus the Euro and, to a lesser extent, the Australian dollar,
British pound sterling, Canadian dollar, Chinese yuan, Indian rupee, Korean won and Singapore
dollar. Changes in currency exchange rates could adversely affect our reported revenues and could
require us to reduce our prices to remain competitive in foreign markets, which could also have a
material adverse effect on our results of operations. In recent fiscal years, we have selectively
hedged our exposure to changes in foreign currency exchange rates on the balance sheet. In the
future, we may enter into additional foreign currency-based hedging contracts to reduce our
exposure to significant fluctuations in currency exchange rates on the balance sheet, although
there can be no assurances that we will do so.
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Our ability to sell our software applications is highly dependent on the quality of our services
offerings, and our failure to offer high quality support and professional services would have a
material adverse affect on our sales of software applications and results of operations.
Our services include the assessment and design of solutions to meet our customers’ storage
management requirements and the efficient installation and deployment of our software applications
based on specified business objectives. Further, once our software applications are deployed, our
customers depend on us to resolve issues relating to our software applications. A high level of
service is critical for the successful marketing and sale of our software. If we or our partners do
not effectively install or deploy our applications, or succeed in helping our customers quickly
resolve post-deployment issues, it would adversely affect our ability to sell software products to
existing customers and could harm our reputation with prospective customers. As a result, our
failure to maintain high quality support and professional services would have a material adverse
effect on our sales of software applications and results of operations.
Our services revenue produces lower gross margins than our software revenue, and an increase in
services revenue relative to software revenue would harm our overall gross margins.
Our services revenue, which includes fees for customer support, assessment and design
consulting, implementation and post-deployment services and training, has lower gross margins than
our software revenue. An increase in the percentage of total revenues represented by services
revenue would adversely affect our overall gross margins. The volume and profitability of services
can depend in large part upon competitive pricing pressure on the rates that we can charge for our
services; the complexity of our customers’ information technology environments and the existence of
multiple non-integrated legacy databases; the resources directed by our customers to their
implementation projects; and the extent to which outside consulting organizations provide services
directly to customers. Any erosion of our margins for our services revenue or any adverse change
in the mix of our license versus services revenue would adversely affect our operating results.
Our ability to sell to the U.S. Federal Government is subject to uncertainties, which could have a
material adverse effect on our sales and results of operations.
Our ability to sell software applications and services to the U.S. Federal Government is
subject to uncertainties related to the government’s future funding commitments and our ability to
maintain certain security clearances complying with the Department of Defense and other agency
requirements. Revenues derived from sales where the U.S. Federal Government was the end-user was
approximately 8% in fiscal 2011 and approximately 9% in fiscal 2010. The future prospects for our
business are also sensitive to changes in government policies and funding priorities. Changes in
government policies or priorities, including funding levels through agency or program budget
reductions by the U.S. Congress or government agencies, could materially adversely affect our
ability to sell our software applications to the U.S. Federal Government, causing our business
prospects to suffer.
In addition, our U.S. Federal Government sales require our employees to maintain various
levels of security clearances. Obtaining and maintaining security clearances for employees involves
a lengthy process, and it is difficult to identify, retain and recruit qualified employees who
already hold security clearances. To the extent that we are not able to obtain security clearances
or engage employees with security clearances, we may not be able to effectively sell our software
applications and services to the U.S. Federal Government, which would have an adverse effect on our
sales and results of operations.
If we are unable to manage our growth, there could be a material adverse effect on our business,
the quality of our products and services and our ability to retain key personnel.
We have experienced periods of growth in recent years. Our revenues increased 16% for fiscal
2011 compared to fiscal 2010 and also increased 16% for fiscal 2010 compared to fiscal 2009. The
number of our customers increased significantly during these periods. Our growth has placed
increased demands on our management and other resources and will continue to do so in the future.
We may not be able to maintain or accelerate our current growth rate, manage our expanding
operations effectively or achieve planned growth on a timely or profitable basis. Managing our
growth effectively will involve, among other things:
| • | continuing to retain, motivate and manage our existing employees and attract and integrate new employees; |
| • | continuing to provide a high level of services to an increasing number of customers; |
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| • | maintaining the quality of product and services offerings while controlling our expenses; |
| • | developing new sales channels that broaden the distribution of our software applications and services; and |
| • | developing, implementing and improving our operational, financial, accounting and other internal systems and controls on a timely basis. |
If we are unable to manage our growth effectively, there could be a material adverse effect on
our ability to maintain or increase revenues and profitability, the quality of our data and
information management software, the quality of our services offerings and our ability to retain
key personnel. These factors could adversely affect our reputation in the market and our ability to
generate future sales from new or existing customers.
We may be subject to information technology system failures, network disruptions and breaches in
data security.
Information technology system failures, network disruptions and breaches of data security
could disrupt our operations by causing delays or cancellation of customer orders, impeding the
shipment of software products, negatively affecting our service offerings, preventing the
processing transactions and reporting of financial results. Information technology system
failures, network disruptions and breaches of data security could also result in the unintentional
disclosure of customer or our information as well as damage to our reputation. While management has
taken steps to address these concerns by implementing sophisticated network security and internal
control measures, there can be no assurance that a system failure or data security breach will not
have a material adverse effect on our financial condition and operating results.
Protection of our intellectual property is limited, and any misuse of our intellectual property by
others could materially adversely affect our sales and results of operations.
Our success depends significantly upon proprietary technology in our software, documentation
and other written materials. To protect our proprietary rights, we rely on a combination of:
| • | patents; |
| • | copyright and trademark laws; |
| • | trade secrets; |
| • | confidentiality procedures; and |
| • | contractual provisions. |
These methods afford only limited protection. Despite this limited protection, any issued
patent may not provide us with any competitive advantages or may be challenged by third parties,
and the patents of others may seriously impede our ability to conduct our business. Further, our
pending patent applications may not result in the issuance of patents, and any patents issued to us
may not be timely or broad enough to protect our proprietary rights. We may also develop
proprietary products or technologies that cannot be protected under patent law.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our software applications or to obtain and use information that we regard as
proprietary. Policing unauthorized use of our software applications is difficult, and we expect
software piracy to continue to be a persistent problem. In licensing our software applications, we
typically rely on “shrink wrap” or “click wrap” licenses that are not signed by licensees. We may
have difficulty enforcing these licenses in some jurisdictions. In addition, the laws of some
foreign countries do not protect our proprietary rights to as great an extent as do the laws of the
United States. Our attempts to protect our proprietary rights may not be adequate. Our competitors
may independently develop similar technology, duplicate our software applications or design around
patents issued to us or other intellectual property rights of ours. Litigation may be necessary in
the future to enforce our intellectual property rights, protect our trade secrets or determine the
validity and scope of the proprietary rights of others. Litigation could result in substantial
costs and diversion of resources and management attention. In addition, from time to time we are
participants or members of various industry standard-setting organizations or other industry
technical organizations. Our participation or membership in such organizations may, in some
circumstances, require us to
enter into royalty or licensing agreements with third parties regarding our intellectual
property under terms established by those organizations, which we may not find favorable.
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Claims that we misuse the intellectual property of others could subject us to significant liability
and disrupt our business, which could have a material adverse effect on our results of operations
and financial condition.
Because of the nature of our business, we may become subject to material claims of
infringement by competitors and other third parties with respect to current or future software
applications, trademarks or other proprietary rights. We expect that software developers will
increasingly be subject to infringement claims as the number of software applications and
competitors in our industry segment grows and the functionality of software applications in
different industry segments overlaps. Any such claims, whether meritorious or not, could be
time-consuming, result in costly litigation, cause shipment delays or require us to enter into
royalty or licensing agreements with third parties, which may not be available on terms that we
deem acceptable, if at all. Any of these claims could disrupt our business and have a material
adverse effect on our results of operations and financial condition.
In addition, we license and use software from third parties in our business. These third-party
software licenses may not continue to be available to us on acceptable terms or at all, and may
expose us to additional liability. This liability, or our inability to use any of this third-party
software, could result in shipment delays or other disruptions in our business that could
materially and adversely affect our operating results.
Our use of “open source” software could negatively affect our business and subjects us to possible
litigation.
Some of the products or technologies acquired, licensed or developed by us may incorporate
so-called “open source” software, and we may incorporate open source software into other products
in the future. Such open source software is generally licensed by its authors or other third
parties under open source licenses, including, for example, the GNU General Public License, the GNU
Lesser General Public License, the Common Public License, “Apache-style” licenses, “Berkley
Software Distribution or BSD-style” licenses and other open source licenses. We monitor our use of
open source software to avoid subjecting our products to conditions we do not intend. Although we
believe that we have complied with our obligations under the various applicable licenses for open
source software that we use, there is little or no legal precedent governing the interpretation of
many of the terms of certain of these licenses, and therefore the potential impact of these terms
on our business is somewhat unknown and may result in unanticipated obligations regarding our
products and technologies. The use of such open source software may ultimately subject some of our
products to unintended conditions, which may negatively affect our business, financial condition,
operating results, cash flow and ability to commercialize our products or technologies.
Some of these open source licenses may subject us to certain conditions, including
requirements that we offer our products that use the open source software for no cost, that we make
available source code for modifications or derivative works we create based upon, incorporating or
using the open source software and/or that we license such modifications or derivative works under
the terms of the particular open source license. If an author or other third-party that distributes
such open source software were to allege that we had not complied with the conditions of one or
more of these licenses, we could be required to incur significant legal expenses defending against
such allegations. If our defenses were not successful, we could be enjoined from the distribution
of our products that contained the open source software and required to make the source code for
the open source software available to others, to grant third parties certain rights of further use
of our software or to remove the open source software from our products, which could disrupt the
distribution and sale of some of our products. In addition, if we combine our proprietary software
with open source software in a certain manner, under some open source licenses we could be required
to release the source code of our proprietary software. If an author or other third-party that
distributes open source software were to obtain a judgment against us based on allegations that we
had not complied with the terms of any such open source licenses, we could also be subject to
liability for copyright infringement damages and breach of contract for our past distribution of
such open source software.
We are currently unable to accurately predict what our long-term effective tax rates will be in the
future.
We are subject to income taxes in both the United States and the various foreign jurisdictions
in which we operate. Significant judgment is required in determining our worldwide provision for
income taxes, and in the ordinary course of business, there are many transactions and calculations
where the ultimate tax determination is uncertain. Our long-term effective tax rates could be
adversely affected by changes in the mix of earnings in countries with differing statutory tax
rates; changes in the valuation of deferred tax assets and liabilities; changes in tax laws; our
ability to utilize net operating loss carryforwards and research tax credit carryforwards; and
other factors. Our judgments may be subject to audits or reviews by local tax authorities in each
of these jurisdictions, which could
adversely affect our income tax provisions. As of March 31, 2011, we had net deferred tax
assets of approximately $33.8 million, which were primarily related to federal and state research
tax credit carryforwards, stock-based compensation and foreign net operating loss carryforwards.
Consequently, our cash tax rate will be significantly lower than our effective tax rate for the
next 12 months. However, we expect our cash taxes to continue to increase as our cash tax rate
approaches our effective tax rate.
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Our cash and cash equivalents could be adversely affected if the financial institutions in which we
hold our cash and cash equivalents fail.
Our cash and cash equivalents are highly liquid investments with original maturities of three
months or less at the time of purchase. We maintain the cash and cash equivalents with major
financial institutions. Deposits with these banks exceed the Federal Deposit Insurance Corporation
(“FDIC”) insurance limits or similar limits in foreign jurisdictions. While we monitor daily the
cash balances in the operating accounts and adjust the balances as appropriate, these balances
could be impacted if one or more of the financial institutions with which we deposit fails or is
subject to other adverse conditions in the financial or credit markets. To date, we have
experienced no loss or lack of access to our invested cash or cash equivalents; however, we can
provide no assurance that access to our invested cash and cash equivalents will not be impacted by
adverse conditions in the financial and credit markets.
We cannot predict our future capital needs and we may be unable to obtain additional financing,
which could have a material adverse effect on our business, results of operations and financial
condition.
We may need to raise additional funds in the future in order to acquire complementary
businesses, technologies, products or services. Any required additional financing may not be
available on terms acceptable to us, or at all. If we raise additional funds by issuing equity
securities, you may experience significant dilution of your ownership interest, and the
newly-issued securities may have rights senior to those of the holders of our common stock. If we
raise additional funds by obtaining loans from third parties, the terms of those financing
arrangements may include negative covenants or other restrictions on our business that could impair
our operational flexibility, and would also require us to fund additional interest expense. If
additional financing is not available when required or is not available on acceptable terms, we may
be unable to successfully develop or enhance our software and services through acquisitions in
order to take advantage of business opportunities or respond to competitive pressures, which could
have a material adverse effect on our software and services offerings, revenues, results of
operations and financial condition. We have no plans, nor are we currently considering any
proposals or arrangements, written or otherwise, to acquire a business, technology, product or
service.
Risks Relating to Ownership of Our Common Stock
The price of our common stock may be highly volatile and may decline regardless of our operating
performance.
The market price of our common stock could be subject to significant fluctuations in response
to:
| • | variations in our quarterly or annual operating results; |
| • | changes in financial estimates, treatment of our tax assets or liabilities or investment recommendations by securities analysts following our business or our competitors; |
| • | the public’s response to our press releases, rumors, our other public announcements and our filings with the SEC; |
| • | changes in accounting standards, policies, guidance or interpretations or principles; |
| • | sales of common stock by our directors, officers and significant stockholders; |
| • | announcements of technological innovations or enhanced or new products by us or our competitors; |
| • | our failure to achieve operating results consistent with securities analysts’ projections; |
| • | the operating and stock price performance of other companies that investors may deem comparable to us; |
| • | broad market and industry factors; and |
| • | other events or factors, including those resulting from war, incidents of terrorism or responses to such events. |
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The market prices of software companies have been extremely volatile. Stock prices of many
software companies have often fluctuated in a manner unrelated or disproportionate to the operating
performance of such companies. In the past, following periods of market volatility, stockholders
have often instituted securities class action litigation. If we were involved in securities
litigation, it could have a substantial cost and divert resources and the attention of management
from our business.
Future sales of our common stock, or the perception that such future sales may occur, may cause our
stock price to decline and impair our ability to obtain capital through future stock offerings.
A substantial number of shares of our common stock are available for sale into the public
market. The occurrence of such sales, or the perception that such sales could occur, could
materially and adversely affect our stock price and could impair our ability to obtain capital
through an offering of equity securities.
Certain provisions in our charter documents and agreements and Delaware law, as well as our
stockholder rights plan, may inhibit potential acquisition bids for CommVault and prevent changes
in our management.
Our certificate of incorporation and bylaws contain provisions that could depress the trading
price of our common stock by acting to discourage, delay or prevent a change of control of our
company or changes in management that our stockholders might deem advantageous. Specific provisions
in our certificate of incorporation include:
| • | our ability to issue preferred stock with terms that the Board of Directors may determine, without stockholder approval; |
| • | a classified board in which only a third of the total board members will be elected at each annual stockholder meeting; |
| • | advance notice requirements for stockholder proposals and nominations; and |
| • | limitations on convening stockholder meetings. |
In addition to the provision described above, on November 13, 2008, our Board of Directors
adopted a stockholders rights plan and declared a dividend distribution of one Right for each
outstanding share of our common stock to shareholders of record on November 24, 2008. Each Right,
when exercisable, entitles the registered holder to purchase from us one one-thousandth of a share
of Series A Junior Participating Preferred Stock, par value $0.01 per share, at a purchase price of
$80 per one one-thousandth of a share, subject to adjustment. The Rights may discourage a
third-party from making an unsolicited proposal to acquire us, as exercise of the Rights would
cause substantial dilution to such third-party attempting to acquire us.
As a result of the provisions in our certificate of incorporation and our stockholder rights
plan, the price investors may be willing to pay in the future for shares of our common stock may be
limited.
Also, we are subject to Section 203 of the Delaware General Corporation Law, which imposes
certain restrictions on mergers and other business combinations between us and any holder of 15% or
more of our common stock. Further, certain of our employment agreements and incentive plans provide
for vesting of stock options and/or payments to be made to the employees there under if their
employment is terminated in connection with a change of control, which could discourage, delay or
prevent a merger or acquisition at a premium price.
We do not expect to pay any dividends in the foreseeable future.
We do not anticipate paying any cash dividends to holders of our common stock in the
foreseeable future. Consequently, investors must rely on sales of their common stock after price
appreciation, which may never occur, as the only way to realize any future gains on their
investment. Investors seeking cash dividends should not purchase our common stock.
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We will continue to incur significant costs as a result of being a public company.
As a public company, we have incurred and will continue to incur significant legal, accounting
and other expenses that we did not incur as a private company. The Securities Exchange Act of 1934,
the Sarbanes-Oxley Act of 2002 and new NASDAQ rules promulgated in response to the Sarbanes-Oxley
Act regulate corporate governance practices of public companies. Compliance with these public
company requirements has increased our costs and we expect that it will continue to increase our
costs and make some activities more time consuming. For example, in recent fiscal years we created
a new internal Disclosures and Controls Committee and adopted new internal controls and disclosure
controls and procedures. In addition, we will continue to incur expenses associated with our SEC
reporting requirements. Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include in
our Annual Report our assessment of the effectiveness of our internal control over financial
reporting and our audited financial statement as of the end of each fiscal year. Furthermore, our
independent registered public accounting firm, Ernst & Young LLP, (“E&Y”), is required to report on
whether it believes we maintained, in all material respects, effective internal control over
financial reporting as of the end of the year. Our continued compliance with Section 404 will
require that we incur substantial expenses and expend significant management time on compliance
related issues. In future years, if we fail to timely complete this assessment, or if E&Y cannot
timely attest, there may be a loss of public confidence in our internal controls, the market price
of our stock could decline and we could be subject to regulatory sanctions or investigations by the
NASDAQ Stock Market, the Securities and Exchange Commission or other regulatory authorities, which
would require additional financial and management resources. In addition, any failure to implement
required new or improved controls, or difficulties encountered in their implementation, could harm
our operating results or cause us to fail to timely meet our regulatory reporting obligations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal administrative, sales, marketing, customer support and research and development
facility is located at our headquarters in Oceanport, New Jersey. We currently occupy approximately
134,000 square feet of office space in the Oceanport facility under the terms of an operating lease
expiring in July 2013. We believe that our current facility is adequate to meet our needs for at
least the next 12 months. We believe that suitable additional facilities will be available as
needed on commercially reasonable terms. In addition, we have offices in the United States in
Arizona, California, Colorado, Georgia, Illinois, Maryland, Massachusetts, Minnesota, New York,
Ohio, Oregon, Pennsylvania, Texas, and Washington; and outside the United States in Kanata,
Ontario; Mississauga, Ontario; Toronto, Ontario; Calgary, Alberta; Montreal, Quebec; Vancouver,
British Columbia; Reading, United Kingdom; Oberhausen, Germany; Utrecht, Netherlands; Beijing,
China; Shanghai, China; Guangzhou, China; Sydney, Australia; Melbourne, Australia; Canberra,
Australia; Mexico City, Mexico; Sao Paulo, Brazil; Seoul, South Korea; Mumbai, India and Hyderabad,
India.
Item 3. Legal Proceedings
From time to time, we are subject to claims in legal proceedings arising in the normal course
of our business. We do not believe that we are currently party to any pending legal action that
could reasonably be expected to have a material adverse effect on our business or operating
results.
Item 4. [Removed and Reserved]
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market for our Common Stock
Our common stock is listed and traded on The NASDAQ Global Market under the symbol “CVLT.”
The following table sets forth, for the periods indicated, the high and the low closing sales
prices of our common stock, as reported on The NASDAQ Global Market.
| Common Stock | ||||||||||||||||
| 2011 | 2010 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
First Quarter |
$ | 23.96 | $ | 19.29 | $ | 17.04 | $ | 10.33 | ||||||||
Second Quarter |
$ | 28.03 | $ | 17.80 | $ | 21.44 | $ | 15.40 | ||||||||
Third Quarter |
$ | 31.41 | $ | 25.51 | $ | 24.25 | $ | 19.59 | ||||||||
Fourth Quarter |
$ | 40.94 | $ | 28.93 | $ | 24.24 | $ | 20.90 | ||||||||
On April 29, 2011, the last reported sale price of our common stock as reported on The NASDAQ
Global Market was $39.39 per share.
Stockholders
As of April 29, 2011, there were approximately 77 holders of our common stock. The number of
record holders does not represent the actual number of beneficial owners of shares of our common
stock because shares are frequently held in street name by securities dealers and others for the
benefit of individual owners who have the right to vote their shares.
Dividend Policy
We have never paid cash dividends on our common stock, and we intend to retain our future
earnings, if any, to fund the growth of our business. We therefore do not anticipate paying any
cash dividends on our common stock in the foreseeable future. Our future decisions concerning the
payment of dividends on our common stock will depend upon our results of operations, financial
condition and capital expenditure plans, as well as any other factors that the Board of Directors,
in its sole discretion, may consider relevant.
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Stock Performance Graph
The graph set forth below compares the cumulative total stockholder return on our common stock
between September 22, 2006 (the date our common stock began trading on the NASDAQ Global Market)
and March 31, 2011, with the cumulative total return of (i) The NASDAQ Computer Index and (ii) The
NASDAQ Composite Index, over the same period. This graph assumes the investment of $100,000 on
September 22, 2006 in our common stock, The NASDAQ Composite Index and The NASDAQ Computer Index,
and assumes the reinvestment of dividends, if any. The graph assumes the initial value of our
common stock on September 22, 2006 was the closing sales price of $17.00 per share.
The comparisons shown in the graph below are based upon historical data. The stock price
performance shown in the graph below is not necessarily indicative of, nor is it intended to
forecast, the future performance of our common stock. Information used in the graph was obtained
from NASDAQ, a source we believe to be reliable, but we are not responsible for any errors or
omissions in such information.
The performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange
Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be
incorporated by reference into any filing of CommVault under the Securities Act or the Exchange
Act.
| 9/22/06 | 3/30/07 | 3/31/08 | 3/31/09 | 3/31/10 | 3/31/11 | |||||||||||||||||||
CommVault |
100.0 | 95.3 | 72.9 | 64.5 | 125.6 | 234.6 | ||||||||||||||||||
NASDAQ Composite
Index |
100.0 | 109.1 | 102.7 | 68.9 | 108.1 | 125.3 | ||||||||||||||||||
NASDAQ Computer
Index |
100.0 | 108.0 | 105.8 | 74.0 | 123.7 | 147.4 | ||||||||||||||||||
Issuer Purchases of Equity Securities
There were no repurchases of our common stock during the three months ended March 31, 2011.
As of March 31, 2011, we have repurchased $71.7 million of common stock (4,412,305 shares) out of
the $120.0 million in total that is authorized under our stock repurchase program. As a result, we
may repurchase an additional $48.3 million of our common stock under the current program through
March 31, 2012.
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Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with our financial
statements and related notes, “Risk Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K. The
selected statements of operations and the selected balance sheet data are derived from our audited
financial statements. The historical results presented below are not necessarily indicative of the
results to be expected in any future period.
| Year Ended March 31, | ||||||||||||||||||||
| 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||
Revenues: |
||||||||||||||||||||
Software |
$ | 149,798 | $ | 134,500 | $ | 121,685 | $ | 108,959 | $ | 83,870 | ||||||||||
Services |
164,978 | 136,525 | 112,834 | 89,344 | 67,237 | |||||||||||||||
Total revenues |
314,776 | 271,025 | 234,519 | 198,303 | 151,107 | |||||||||||||||
Cost of revenues: |
||||||||||||||||||||
Software |
2,369 | 3,017 | 2,469 | 2,398 | 1,640 | |||||||||||||||
Services |
38,646 | 32,628 | 28,177 | 24,586 | 20,044 | |||||||||||||||
Total cost of revenues |
41,015 | 35,645 | 30,646 | 26,984 | 21,684 | |||||||||||||||
Gross margin |
273,761 | 235,380 | 203,873 | 171,319 | 129,423 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Sales and marketing |
163,054 | 136,773 | 122,957 | 93,959 | 68,240 | |||||||||||||||
Research and development |
36,954 | 33,421 | 30,669 | 26,855 | 23,398 | |||||||||||||||
General and administrative |
34,207 | 29,823 | 26,159 | 23,812 | 18,610 | |||||||||||||||
Depreciation and amortization |
3,775 | 3,514 | 3,582 | 3,019 | 2,603 | |||||||||||||||
Income from operations |
35,771 | 31,849 | 20,506 | 23,674 | 16,572 | |||||||||||||||
Interest expense |
(106 | ) | (106 | ) | (175 | ) | (114 | ) | (326 | ) | ||||||||||
Interest income |
650 | 384 | 1,639 | 3,591 | 2,600 | |||||||||||||||
Income before income taxes |
36,315 | 32,127 | 21,970 | 27,151 | 18,846 | |||||||||||||||
Income tax (expense) benefit (1) |
(15,311 | ) | (13,722 | ) | (9,642 | ) | (6,347 | ) | 45,408 | |||||||||||
Net income |
21,004 | 18,405 | 12,328 | 20,804 | 64,254 | |||||||||||||||
Less: accretion of preferred stock dividends |
— | — | — | — | (2,818 | ) | ||||||||||||||
Less: accretion of fair value of preferred stock upon conversion |
— | — | — | — | (102,745 | ) | ||||||||||||||
Net income (loss) attributable to common stockholders |
$ | 21,004 | $ | 18,405 | $ | 12,328 | $ | 20,804 | $ | (41,309 | ) | |||||||||
Net income (loss) attributable to common stockholders per
share: (2) |
||||||||||||||||||||
Basic |
$ | 0.49 | $ | 0.44 | $ | 0.29 | $ | 0.48 | $ | (1.35 | ) | |||||||||
Diluted |
$ | 0.45 | $ | 0.41 | $ | 0.28 | $ | 0.46 | $ | (1.35 | ) | |||||||||
Weighted average shares used in computing per share amounts: |
||||||||||||||||||||
Basic |
43,283 | 42,133 | 41,983 | 43,188 | 30,670 | |||||||||||||||
Diluted |
46,301 | 45,022 | 44,013 | 45,699 | 30,670 | |||||||||||||||
| As of March 31, | ||||||||||||||||||||
| 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 217,170 | $ | 169,518 | $ | 105,205 | $ | 91,661 | $ | 65,001 | ||||||||||
Short-term investments |
1,150 | 5,043 | — | — | — | |||||||||||||||
Working capital |
179,380 | 143,185 | 84,590 | 77,513 | 34,889 | |||||||||||||||
Total assets |
342,499 | 286,015 | 206,987 | 200,830 | 148,039 | |||||||||||||||
Total stockholders’ equity |
188,130 | 158,300 | 111,289 | 109,535 | 78,322 | |||||||||||||||
| (1) | The income tax benefit in fiscal 2007 primarily reflects a $52.2 million reversal of our deferred income tax valuation allowance, partially offset by the recognition of $5.0 million for certain tax reserves. | |
| (2) | See Note 2 in the consolidated financial statements for a reconciliation of the basic and diluted per share calculation. |
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis along with our consolidated financial
statements and the related notes included elsewhere in this Annual Report on Form 10-K. The
statements in this discussion regarding our expectations of our future performance, liquidity and
capital resources, and other non-historical statements are forward-looking statements. These
forward-looking statements are subject to numerous risks and uncertainties, including, but not
limited to, the risks and uncertainties described under “Risk Factors” and elsewhere in this Annual
Report on Form 10-K. Our actual results may differ materially from those contained in or implied by
any forward-looking statements.
Overview
We are a leading provider of data and information management software applications and related
services in terms of product breadth and functionality and market penetration. We develop, market
and sell a unified suite of data and information management software applications under the
Simpana® brand. Our Simpana software is a platform with licensable modules that work together
seamlessly, sharing a single code and common function set, to deliver Backup and Recovery, Archive,
Replication, Search and Resource Management capabilities. With a single platform approach, Simpana
is specifically designed to protect, manage and access data throughout its lifecycle in less time,
at lower cost and with fewer resources than alternative solutions. Our products and capabilities
enable our customers to deploy solutions for data protection, business continuance, corporate
compliance and centralized management and reporting. We also provide our customers with a broad
range of highly effective services that are delivered by our
worldwide support and field operations. As of March 31, 2011, we had licensed our software
applications to approximately 14,000 registered customers.
History and Background
In early 2000, we launched CommVault Galaxy for backup and recovery, a storage industry award
winner. In the years since, CommVault has forged numerous alliances with top software application
and hardware vendors, such as Dell, HP, Hitachi Data Systems, Microsoft, Network Appliance, Novell
and Oracle, to enhance capabilities and to create a premiere suite of data and information
management solutions. In 2002, we launched our single-platform technology that provides the
foundation of our information management approach to storing, managing, and accessing data.
Our Simpana software suite is comprised of the following five distinct data and information
management software application modules: Data Protection (Back-up and Recovery), Archive,
Replication, Resource Management and Search. All of our software application modules share a
common platform that provides back-end services and advanced capabilities, like encryption;
deduplication; content indexing; policy-based automation; data classification; e-discovery and
role-based security. In addition to Back-up and Recovery, the subsequent release of our other
software application modules has substantially increased our addressable market. Each application
module can be used individually or in combination with other application modules from our single
platform suite.
In July 2007, we released our CommVault Simpana 7.0 software suite (“Simpana 7”), which
significantly expanded the breadth and depth of our existing data and information management suite
at that time. We believe that Simpana 7 provided us the foundation to shift to providing
information management solutions. Simpana 7 provided major enhancements to our existing Backup,
Archiving and Replication products and also delivered new product features that are non backup
related including Single Instancing, Advanced Archiving, Enterprise-wide Search and Discovery and
Data Classification.
In January 2009, CommVault Simpana 8.0 (“Simpana 8”) was made available for public release.
Simpana 8 included advances in recovery management, data reduction, virtual server protection and
content organization. In addition, we believe that Simpana 8 met a broad spectrum of customer’s
discovery and recovery management requirements and eliminated the need for a myriad of point level
products.
In August 2010, our CommVault Simpana 9.0 software suite (“Simpana 9”) was made available for
public release. We believe that Simpana 9, which builds on and significantly expands Simpana 8,
allows customers to deploy a modern data management solution to achieve gains in efficiency, cost
optimization and scale. We believe that Simpana 9 solves real-world IT challenges with major
technology advancements, including increased virtualization scalability and performance, integrated
source and target data deduplication, automatic and transparent integration with hardware
array-based snapshots, as well as new tools that ease migration to our next generation Simpana 9
platform.
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We currently derive the majority of our software revenue from our Backup and Recovery software
application. Sales of Backup and Recovery represented approximately 59% of our total software
revenue for fiscal 2011 and 61% of our total software revenue for fiscal 2010. In addition, we
derive the majority of our services revenue from customer and technical support associated with our
Backup and Recovery software application. The increase in software revenue generated by our
non-Backup and Recovery software products, or Advanced Data and Information Management Products
(“ADIM”), was primarily driven by new components and enhancements related to Simpana 8 and Simpana
9 software suites. We anticipate that ADIM software revenue will continue to increase in the future
as we expand our domestic and international sales activities and continue to build brand awareness.
However, we anticipate that we will continue to derive a majority of our software and services
revenue from our Backup and Recovery software application for the next few fiscal years.
More recently, the industry in which we currently operate is going through accelerating
changes as the result of the introduction of new technologies such as cloud computing. We believe
cloud computing, in its various forms, represents a major new long term trend in the way that
applications are delivered, data is stored and information is retrieved. We believe as a result of
our Simpana data and information management platform, that we are in a unique position to enhance
and extend the value of our Simpana software suite by developing innovative, industry leading ways
to manage data and information in the cloud.
In addition to extending the Simpana platform into the cloud, we are continuing to pursue an
aggressive product development program in both data and information management solutions. Our
data management solutions include not only traditional backup and recovery, but also new
innovations in de-duplication, data movement, virtualization, snap-based backups and enterprise
reporting. Our information management innovations are primarily in the areas of archiving,
eDiscovery, records management, governance and compliance. We remain focused on both the data and
information management trends in the marketplace and, in fact, a material portion of our existing
research and development expenses are utilized toward the development of such new technologies
discussed above. While we are confident in our ability to meet these changing industry demands
with Simpana 8 and Simpana 9 and potential future releases, the development, release and timing of
any features or functionality remain at our sole discretion and our solutions to cloud computing or
other technologies may not be widely adopted.
Given the nature of the industry in which we operate, our software applications are subject to
obsolescence. As noted above, we continually develop and introduce updates to our existing software
applications in order to keep pace with evolving industry technologies such as cloud computing. In
addition, we must address evolving industry standards, changing customer requirements and
competitive software applications that may render our existing software applications obsolete. For
each of our software applications, we provide full support for the current generally available
release and one prior release. When we declare a product release obsolete, a customer notice is
delivered twelve months prior to the effective date of obsolescence announcing continuation of full
product support for the first six months. We provide an additional six months of extended
assistance support in which we only provide existing workarounds or fixes that do not require
additional development activity. We do not have existing plans to make any of our software products
permanently obsolete.
Sources of Revenues
We
derive a significant portion of our total revenues from sales of
licenses of our software applications. We do not customize our software for a specific end-user customer. We sell our
software applications to end-user customers both directly through our sales force and indirectly
through our global network of value-added reseller partners, systems integrators, corporate
resellers and original equipment manufacturers. Our software revenue was 48% of our total revenues
for fiscal 2011, 50% for fiscal 2010 and 52% for fiscal 2009.
In recent fiscal years, we have generated approximately two-thirds of our software revenue from our
existing customer base and approximately one-third of our software revenue from new customers. In
addition, our total software revenue in any particular period is, to a certain extent, dependent
upon our ability to generate revenues from large customer software deals, which we refer to as
enterprise software transactions. We expect the number of enterprise software transactions
(transactions greater than $0.1 million) and resulting software revenue to increase throughout
fiscal 2012, although the size and timing of any particular software transaction is more difficult
to forecast. Such software transactions represented approximately 48% of our total software
revenue in fiscal 2011, approximately 47% of our software revenue in fiscal 2010 and approximately
40% of our software revenue in fiscal 2009.
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Software revenue generated through indirect distribution channels was approximately 84% of
total software revenue in fiscal 2011, 85% in fiscal 2010 and 81% in fiscal 2009. Software revenue
generated through direct distribution channels was approximately 16% of total software revenue in
fiscal 2011, 15% in fiscal 2010 and 19% in fiscal 2009. The dollar value of software revenue
generated through indirect distribution channels increased approximately $12.2 million in fiscal
2011 compared to fiscal 2010. The dollar value of software revenue generated through direct
distribution channels increased $3.1 million in fiscal 2011 compared to fiscal 2010. The increase
in the dollar value of software revenue growth generated through our indirect distribution channels
compared to our direct sales force in fiscal 2011 is primarily the result of an increase in
software revenue from our international operations, which is almost exclusively transacted through
indirect distribution. Deals initiated by our direct sales force are sometimes transacted through
indirect channels based on end-user customer requirements, which are not always in our control and
can cause this overall percentage split to vary from year to year. As such, there may be
fluctuations in the dollars and percentage of software revenue generated through our direct
distribution channels from time to time. We believe that the growth of our software revenue,
derived from both our indirect channel partners and direct sales force, are key attributes to our
long-term growth strategy. We will continue to invest in both our channel relationships and direct
sales force in the future, but we continue to expect more revenue to be generated through indirect
distribution channels over the long term. The failure of our indirect distribution channels or our
direct sales force to effectively sell our software applications could have a material adverse
effect on our revenues and results of operations.
We have a worldwide reseller and an original equipment agreement with Dell. Our reseller
agreement with Dell provides them the right to market, resell and distribute certain of our
products to their customers. Our original equipment manufacturer agreement with Dell is discussed
more fully below. Sales through our agreements with Dell accounted for 23% of our total revenues
for fiscal 2011, 24% of our total revenues for fiscal 2010 and 23% of our total revenues in fiscal
2009.
We have original equipment manufacturer agreements primarily with Dell and Hitachi Data
Systems for them to market, sell and support our software applications and services on a
stand-alone basis and/or incorporate our software applications into their own hardware products.
Dell and Hitachi Data Systems have no obligation to recommend or offer our software applications
exclusively or at all, and they have no minimum sales requirements and can terminate our
relationship at any time. A material portion of our software revenue is generated through these
arrangements, and we expect this contribution to grow in the future. Sales through our original
equipment manufacturer agreements accounted for 10% of our total revenues for fiscal 2011, 10% of
our total revenues for fiscal 2010 and 12% of our total revenues for fiscal 2009.
We also have non-exclusive distribution agreements covering our North American commercial
markets and our U.S. Federal Government market with Arrow Enterprise Computing Solutions, Inc.
(“Arrow”), a subsidiary of Arrow Electronics, Inc., and Avnet Technology Solutions (“Avnet”), a
subsidiary of Avnet, Inc. Pursuant to these distribution agreements, these distributors’ primary
role is to enable a more efficient and effective distribution channel for our products and services
by managing our reseller partners and leveraging their own industry experience. Many of our North
American resellers have been transitioned to either Arrow or Avnet. We generated approximately 25%
of our total revenues through Arrow in fiscal 2011, approximately 24% of our total revenues in
fiscal 2010 and approximately 21% of our total revenues in fiscal 2009. Avnet’s total revenue
contribution was not material in fiscal 2011, 2010 or 2009. If Arrow or Avnet were to discontinue
or reduce the sales of our products or if our agreement with Arrow or Avnet was terminated, and if
we were unable to take back the management of our reseller channel or find another North American
distributor to replace Arrow or Avnet, then it could have a material adverse effect on our future
revenues.
Our services revenue is made up of fees from the delivery of customer support and other
professional services, which are typically sold in connection with the sale of our software
applications. Customer support agreements provide technical support and unspecified software
updates on a when-and-if-available basis for an annual fee based on licenses purchased and the
level of service subscribed. Other professional services include consulting, assessment and design
services, implementation and post-deployment services and training, all of which to date have
predominantly been sold in connection with the sale of software applications. Our services revenue
was 52% of our total revenues for fiscal 2011, 50% for fiscal 2010 and 48% for fiscal 2009.
The gross margin of our services revenue was 76.6% for fiscal 2011, 76.1% for fiscal 2010 and
75.0% for fiscal 2009. The increase in the gross margin of our services revenue in fiscal 2011
compared to fiscal 2010 was primarily due to a higher percentage of our services revenue being
derived from customer support agreements as a result of sales to new customers and renewal
agreements with our installed customer base. Overall, our services revenue has lower gross margins
than our software revenue. The gross margin of our software revenue was 98.4% for fiscal 2011,
97.8% for fiscal 2010 and 98.0% for fiscal 2009. An increase in the percentage of total revenues
represented by services revenue may adversely affect our overall gross margins.
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Description of Costs and Expenses
Our cost of revenues is as follows:
| • | Cost of Software Revenue, consists primarily of third-party royalties and other costs such as media, manuals, translation and distribution costs; and |
| • | Cost of Services Revenue, consists primarily of salary and employee benefit costs in providing customer support and other professional services. |
Our operating expenses are as follows:
| • | Sales and Marketing, consists primarily of salaries, commissions, employee benefits, stock-based compensation and other direct and indirect business expenses, including travel and related expenses, sales promotion expenses, public relations expenses and costs for marketing materials and other marketing events (such as trade shows and advertising); |
| • | Research and Development, which is primarily the expense of developing new software applications and modifying existing software applications, consists principally of salaries, stock-based compensation and benefits for research and development personnel and related expenses; contract labor expense and consulting fees as well as other expenses associated with the design, certification and testing of our software applications; and legal costs associated with the patent registration of such software applications; |
| • | General and Administrative, consists primarily of salaries, stock-based compensation and benefits for our executive, accounting, human resources, legal, information systems and other administrative personnel. Also included in this category are other general corporate expenses, such as outside legal and accounting services, compliance costs and insurance; and |
| • | Depreciation and Amortization, consists of depreciation expense primarily for computer equipment we use for information services and in our development and test labs. |
We anticipate that each of the above categories of operating expenses will increase in dollar
amounts, but will decline as a percentage of total revenues in the long-term.
Foreign Currency Exchange Rates’ Impact on Results of Operations
Sales outside the United States were approximately 39% of our total revenue for fiscal 2011,
38% for fiscal 2010 and 39% for fiscal 2009. The income statements of our non-U.S. operations are
translated into U.S. dollars at the average exchange rates for each applicable month in a period.
To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign
currency denominated transactions generally results in increased revenue, operating expenses and
income from operations for our non-U.S. operations. Similarly, our revenue, operating expenses and
net income will generally decrease for our non-U.S. operations if the U.S. dollar strengthens
against foreign currencies.
Using the average foreign currency exchange rates from the corresponding fiscal 2010 period,
our total revenues, cost of revenues and operating expenses from non-U.S. operations for fiscal
2011 would have been lower by approximately $0.6 million, $0.1 million and $0.3 million,
respectively.
Using the average foreign currency exchange rates from the corresponding fiscal 2009 period,
our total revenues from non-U.S. operations for fiscal 2010 would have been lower by approximately
$0.9 million, and our cost of revenues and operating expenses from non-U.S. operations would have
been higher by less than $0.1 million and higher by approximately $1.8 million, respectively.
In addition, we are exposed to risks of foreign currency fluctuation primarily from cash
balances, accounts receivables and intercompany accounts denominated in foreign currencies and are
subject to the resulting transaction gains and losses, which are recorded as a component of general
and administrative expenses. We recognized net foreign currency transaction losses of $0.6 million
in fiscal 2011, net foreign currency transaction losses of $0.6 million in fiscal 2010 and net
foreign currency transaction gains of $0.9 million in fiscal 2009.
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Critical Accounting Policies
In presenting our consolidated financial statements in conformity with U.S. generally accepted
accounting principles, we are required to make estimates and judgments that affect the amounts
reported therein. Some of the estimates and assumptions we are required to make relate to matters
that are inherently uncertain as they pertain to future events. We base these estimates on
historical experience and on various other assumptions that we believe to be reasonable and
appropriate. Actual results may differ significantly from these estimates. The following is a
description of our accounting policies that we believe require subjective and complex judgments,
which could potentially have a material effect on our reported financial condition or results of
operations.
Revenue Recognition
Our revenue recognition policy is based on complex rules that require us to make significant
judgments and estimates. In applying our revenue recognition policy, we must determine which
portions of our revenue are recognized currently (generally software revenue) and which portions
must be deferred and recognized in future periods (generally services revenue). We analyze various
factors including, but not limited to, the sales of undelivered services when sold on a stand-alone
basis, our pricing policies, the credit-worthiness of our customers and resellers, accounts
receivable aging data and contractual terms and conditions in helping us to make such judgments
about revenue recognition. Changes in judgment on any of these factors could materially impact the
timing and amount of revenue recognized in a given period.
Currently, we derive revenues from two primary sources, or elements: software licenses and
services. Services include customer support, consulting, assessment and design services,
installation services and training. A typical sales arrangement includes both of these elements.
For sales arrangements involving multiple elements, we recognize revenue using the residual
method. Under the residual method, we allocate and defer revenue for the undelivered elements
based on relative fair value and recognize the difference between the total arrangement fee and the
amount deferred for the undelivered elements as revenue. The determination of fair value of the
undelivered elements in multiple-element arrangements is based on the price charged when such
elements are sold separately, which is commonly referred to as vendor-specific objective evidence
(“VSOE”).
Our software licenses typically provide for a perpetual right to use our software and are sold
on a per-copy basis, on a capacity basis or as site licenses. Software licenses sold on a capacity
basis provide the customer with unlimited licenses of specified software products based on a
defined level of terabytes of data under management. Site licenses give the customer the
additional right to deploy the software on a limited basis during a specified term. We recognize
software revenue through direct sales channels upon receipt of a purchase order or other persuasive
evidence and when the other three basic revenue recognition criteria are met as described in the
revenue recognition section in Note 2 of our “Notes to Consolidated Financial Statements.” We
recognize software revenue through all indirect sales channels on a sell-through model. A
sell-through model requires that we recognize revenue when the basic revenue recognition criteria
are met and these channels complete the sale of our software products to the end-user. Revenue from
software licenses sold through an original equipment manufacturer partner is recognized upon the
receipt of a royalty report or purchase order from that original equipment manufacturer partner.
Services revenue includes revenue from customer support and other professional services.
Customer support includes software updates on a when-and-if-available basis, telephone support,
integrated web-based support and
bug fixes or patches. Customer support revenue is recognized ratably over the term of the customer
support agreement, which is typically one year. To determine the price for the customer support
element when sold separately, we primarily use historical renewal rates and, in certain cases, we
use stated renewal rates. Historical renewal rates are supported by a rolling 12-month VSOE
analysis in which we segregate our customer support renewal contracts into different classes based
on specific criteria including, but not limited to, dollar amount of software purchased, level of
customer support being provided and distribution channel. The purpose of such an analysis is to
determine if the customer support element that is deferred at the time of a software sale is
consistent with how it is sold on a stand-alone renewal basis.
Our other professional services include consulting, assessment and design services,
installation services and training. Other professional services provided by us are not mandatory
and can also be performed by the customer or a third-party. In addition to a signed purchase order,
our consulting, assessment and design services and installation services are, in some cases,
evidenced by a Statement of Work, which defines the specific scope of the services to be performed
when sold and performed on a stand-alone basis or included in multiple-element sales arrangements.
Revenues from consulting, assessment and design services and installation services are based upon a
daily, weekly or monthly rate and are recognized when the services are completed. Training includes
courses taught by our instructors or third-party contractors either at one of our facilities or at
the customer’s site. Training fees are recognized after the training course has been provided.
Based on our analysis of such other professional services transactions sold on a stand-alone basis,
we have concluded we have established VSOE for such other professional services when sold in
connection with a multiple-element sales arrangement.
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In summary, we have analyzed all of the undelivered elements included in our multiple-element
sales arrangements and determined that we have VSOE of fair value to allocate revenues to services.
Our analysis of the undelivered elements has provided us with results that are consistent with the
estimates and assumptions used to determine the timing and amount of revenue recognized in our
multiple-element sales arrangements. Accordingly, assuming all basic revenue recognition criteria
are met, software revenue is recognized upon delivery of the software license using the residual
method. We are not likely to materially change our pricing and discounting practices in the
future.
Our sales arrangements generally do not include acceptance clauses. However, if an arrangement
does include an acceptance clause, we defer the revenue for such an arrangement and recognize it
upon acceptance. Acceptance occurs upon the earliest of receipt of a written customer acceptance,
waiver of customer acceptance or expiration of the acceptance period.
Stock-Based Compensation
As of March 31, 2011, we maintain two stock incentive plans, which are described more fully in
Note 8 of our “Notes to Consolidated Financial Statements.” We account for our stock incentive
plans under the fair value recognition provisions, which we adopted on April 1, 2006 using the
modified prospective method. Under this transition method, our stock-based compensation costs
beginning April 1, 2006 are based on a combination of the following: (1) all options granted prior
to, but not vested as of April 1, 2006, based on the grant date fair value in accordance with the
original provisions of ASC 718 and (2) all options and restricted stock units granted subsequent
to April 1, 2006, based on the grant date fair value.
We estimated the fair value of stock options granted using the Black-Scholes formula. The
fair value of restricted stock units awarded is determined based on the number of shares granted
and the closing price of our common stock on the date of grant. Compensation for all share-based
payment awards is recognized on a straight-line basis over the requisite service period of the
awards, which is generally the vesting period. Forfeitures are estimated based on a historical
analysis of our actual stock award forfeitures.
The average expected life was determined according to the “simplified” method, which is the
mid-point between the vesting date and the end of the contractual term. We currently use the
“simplified” method to estimate the expected term for share option grants as we do not have enough
historical experience to provide a reasonable estimate due to the limited period our equity shares
have been publicly traded. We will continue to use the “simplified” method until we have enough
historical experience to provide a reasonable estimate of expected term. The risk-free interest
rate is determined by reference to U.S. Treasury yield curve rates with a remaining term equal to
the expected life assumed at the date of grant. We anticipate that future grants under our stock
incentive plans will include both non-qualified stock options and restricted stock units.
Expected volatility through the quarter ended September 30, 2008 was calculated based on
reported data for a peer group of publicly traded companies for which historical information was
available. During the quarter ended December 31, 2008, we began to incorporate our own data into
the expected volatility assumption. We modified our expected volatility calculation because at that
time our common stock had been publically traded for 2 years and we believe that CommVault specific
volatility inputs should be included in the calculation of expected volatility. As a result,
expected volatility for the second half of fiscal 2009 and all of fiscal 2010 and 2011 was
calculated based on a blended approach that included historical volatility of a peer group, the
implied volatility of our traded options with a remaining maturity greater than six months and the
historical realized volatility of our common stock from the date of our initial public offering to
the respective stock option grant date.
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The assumptions used in the Black-Scholes option-pricing model in the fiscal year ended March
31, 2011 and 2010 are as follows:
| Year Ended March 31, | ||||
| 2011 | 2010 | |||
Dividend yield |
None | None | ||
Expected volatility |
40% – 45% | 40% – 45% | ||
Weighted average expected volatility |
44% | 42% | ||
Risk-free interest rates |
1.18% – 2.93% | 0.24% – 3.14% | ||
Expected life (in years) |
6.2 | 6.3 | ||
The weighted average fair value of stock options granted was $12.23 per share during the year
ended March 31, 2011 and $9.31 per share during the year ended March 31, 2010. In addition, the
weighted average fair value of restricted stock units awarded was $26.96 per share during the year
ended March 31, 2011 and $20.67 per share during the year ended March 31, 2010.
As of March 31, 2011, there was approximately $36.2 million of unrecognized stock-based
compensation expense, net of estimated forfeitures, related to non-vested stock option and
restricted stock unit awards that is expected to be recognized over a weighted average period of
2.67 years. The intrinsic value of the options outstanding as of March 31, 2011 was $183.8
million, of which $134.9 million related to vested options and $48.9 million related to unvested
options.
Accounting for Income Taxes
As part of the process of preparing our financial statements, we are required to estimate our
income taxes in each of the jurisdictions in which we operate. This process involves estimating our
actual current tax exposure, including assessing the risks associated with tax audits, and
assessing temporary differences resulting from different treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities. As of March 31, 2011,
we had net deferred tax assets of approximately $33.8 million, which were primarily related to
federal and state research tax credit carryforwards, stock-based compensation and foreign net
operating loss carryforwards. We assess the likelihood that our deferred tax assets will be
recovered from future taxable income, and to the extent that we believe recovery is not likely, we
establish a valuation allowance. During fiscal 2011, we recorded valuation allowances totaling $4.3
million against our deferred tax assets. Specifically, we recorded a valuation allowance of $4.2
million against certain state research tax credits due to uncertainties related to the ability to
utilize such state research tax credits before they expire. We based our valuation allowance on
our estimates of taxable income by legal entity and the period over which its state research tax
credits will be recoverable. In addition, we recorded a valuation allowance of $0.1 million
against foreign net operating loss carryforwards in a certain international jurisdiction. In
assessing the need for a valuation allowance against our net operating loss carryforwards in such
international jurisdiction, we considered projected future income as part of our analysis.
At March 31, 2011, we have state net operating loss (NOL) carryforwards of approximately $2.1
million and also have NOL carryforwards for foreign tax purposes of approximately $9.2 million.
At March 31, 2011, we have federal and state research tax credit (R&D) carryforwards of
approximately $11.4 million and $5.1 million, respectively. The federal research tax credit
carryforwards expire from 2014 through 2030, and the state research tax credit carryforwards expire
from 2014 through 2026. At March 31, 2011, we have federal Alternative Minimum Tax credit
carryforwards of $1.2 million.
As of March 31, 2011, we had unrecognized tax benefits of $4.5 million, all of which, if
recognized, would favorably affect the effective tax rate. In addition, we have accrued interest
and penalties of $0.8 million related to the unrecognized tax benefits. Interest and penalties, if
any, related to unrecognized tax benefits are recorded in income tax expense. Components of the
reserve are classified as either current or long-term in the Consolidated Balance Sheet based on
when we expect each of the items to be settled. Accordingly, our unrecognized tax benefits of $4.5
million and the related accrued interest and penalties of $0.8 million are included in Other
Liabilities on the Consolidated Balance Sheet. We believe that it is reasonably possible that
approximately $0.4 million of our currently remaining unrecognized tax benefits and approximately
$0.1 million of related accrued interest and penalties may be realized by the end of fiscal 2012 as
a result of the lapse of the statute of limitations.
We conduct business globally and as a result, file income tax returns in the United States and
in various state and foreign jurisdictions. In the normal course of business, we are subject to
examination by taxing authorities throughout the world, including such major jurisdictions as the
United States, Australia, Canada, Germany, Netherlands and United Kingdom. We are currently not
under audit in any tax jurisdiction.
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The following table summarizes the tax years in the major tax jurisdictions that remain
subject to income tax examinations by tax authorities as of March 31, 2011. The years subject to
income tax examination in our foreign jurisdictions cover the maximum time period with respect to
these jurisdictions. Due to NOL carryforwards, in some cases the tax years continue to remain
subject to examination with respect to such NOLs.
| Years Subject to Income | ||
| Tax Jurisdiction | Tax Examination | |
U.S. Federal
|
2001 — Present | |
New Jersey
|
2002 — Present | |
Foreign jurisdictions
|
2006 — Present |
Software Development Costs
Research and development expenditures are charged to operations as incurred. Based on our
software development process, technological feasibility is established upon completion of a working
model, which also requires certification and extensive testing. Costs incurred by us between
completion of the working model and the point at which the product is ready for general release are
immaterial.
Results of Operations
The following table sets forth each of our sources of revenues and costs of revenues for the
specified periods as a percentage of our total revenues for those periods:
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Revenues: |
||||||||||||
Software |
48 | % | 50 | % | 52 | % | ||||||
Services |
52 | % | 50 | % | 48 | % | ||||||
Total revenues |
100 | % | 100 | % | 100 | % | ||||||
Cost of revenues: |
||||||||||||
Software |
1 | % | 1 | % | 1 | % | ||||||
Services |
12 | % | 12 | % | 12 | % | ||||||
Total cost of revenues |
13 | % | 13 | % | 13 | % | ||||||
Gross margin |
87 | % | 87 | % | 87 | % | ||||||
Fiscal year ended March 31, 2011 compared to fiscal year ended March 31, 2010
Revenues
Total revenues increased $43.8 million, or 16%, from $271.0 million in fiscal 2010 to $314.8
million in fiscal 2011.
Software Revenue. Software revenue increased $15.3 million, or 11%, from $134.5 million in
fiscal 2010 to $149.8 million in fiscal 2011. Software revenue represented 48% of our total
revenues in fiscal 2011 compared to 50% in fiscal 2010. The increase in software revenue is
primarily due to increased software revenue derived from our foreign locations, which increased 18%
while software revenue derived from the United States grew 7% in fiscal 2011 compared to fiscal
2010. The growth in software revenue in foreign locations is primarily due to increases in Europe,
Canada, Australia and Asia as we expand our international operations.
Software revenue derived from enterprise software transactions (transactions greater than $0.1
million) increased by $9.0 million, or 14%, in fiscal 2011 compared to fiscal 2010. As a result,
software revenue derived from enterprise software transactions represented approximately 48% of our
software revenue in fiscal 2011 and approximately 47% of our software revenue in fiscal 2010. The
increase in software revenue derived from enterprise transactions is primarily due to an 18%
increase in the number of transactions of this type. The average dollar amount of such
transactions was approximately $226,000 in fiscal 2011 and was approximately $233,000 in fiscal
2010. Software revenue derived from transactions less than $0.1 million increased $6.3 million, or
9% in fiscal 2011 compared to fiscal 2010.
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Software revenue derived from our indirect distribution channel (resellers and original
equipment manufacturers) increased $12.2 million in fiscal 2011 compared to fiscal 2010, and
software revenue through our direct sales force increased $3.1 million in fiscal 2011 compared to
fiscal 2010. The increase in the dollar value of the software revenue through our indirect
distribution channel is primarily due to the higher growth percentage of software generated in
foreign locations, which is substantially sold through our channel partners. Software revenue
that is derived from both our indirect channel partners and direct sales force are key attributes
to our long-term growth strategy. We will continue to invest in both our channel relationships and
direct sales force in the future, but we continue to expect more revenue to be generated through
indirect distribution channels over the long term as more fully discussed above in the “Sources of
Revenue” section.
Services Revenue. Services revenue increased $28.5 million, or 21%, from $136.5 million in
fiscal 2010 to $165.0 million in fiscal 2011. Services revenue represented 52% of our total
revenues in fiscal 2011 compared to 50% in fiscal 2010. The increase in services
revenue is primarily due to a $24.7 million increase in revenue from customer support
agreements as a result of software sales to new customers and renewal agreements with our installed
software base.
Cost of Revenues
Total cost of revenues increased $5.4 million, or 15%, from $35.6 million in fiscal 2010 to
$41.0 million in fiscal 2011. Total cost of revenues represented 13% of our total revenues in both
fiscal 2011 and fiscal 2010.
Cost of Software Revenue. Cost of software revenue decreased approximately $0.6 million, or
21%, from $3.0 million in fiscal 2010 to $2.4 million in fiscal 2011. Cost of software revenue
represented 2% of our total software revenue in both fiscal 2011 and 2010. The decrease in cost of
software revenue is primarily due to lower distribution and third-party media costs related to our
Simpana software suite in fiscal 2011 compared to fiscal 2010.
Cost of Services Revenue. Cost of services revenue increased $6.0 million, or 18%, from $32.6
million in fiscal 2010 to $38.6 million in fiscal 2011. Cost of services revenue represented 23% of
our services revenue in fiscal 2011 compared to 24% in fiscal 2010. The increase in cost of
services revenue is primarily the result of higher employee compensation and travel expenses
totaling approximately $4.2 million.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased $26.3 million, or 19%, from
$136.8 million in fiscal 2010 to $163.1 million in fiscal 2011. The increase is primarily due to a
$16.3 million increase in employee compensation and related expenses primarily attributable to the
expansion of our sales force from the prior year and higher commissions due to record software
revenue in fiscal 2011. Sales and marketing expenses also increased due to a $3.3 million increase
in marketing expenses as we continue to build brand awareness for our Simpana software products, a
$3.3 million increase in travel and related expenses and a $1.2 million increase in employee
benefits expense. Sales and marketing expenses as a percentage of total revenues increased to 52%
in fiscal 2011 from 50% in fiscal 2010.
Research and Development. Research and development expenses increased $3.5 million, or 11%,
from $33.4 million in fiscal 2010 to $37.0 million in fiscal 2011. The increase is primarily due to
$2.1 million of higher employee compensation resulting from the expansion of our engineering group,
a $0.5 million increase legal fees primarily associated with patent registration and a $0.3 million
increase in employee benefits expense. Research and development expenses as a percentage of total
revenues was relatively flat at 12% in both fiscal 2011 and fiscal 2010. Investing in research and
development has been a priority for CommVault, and we anticipate continued spending related to the
development of our data and information management software applications.
General and Administrative. General and administrative expenses increased $4.4 million, or
15%, from $29.8 million in fiscal 2010 to $34.2 million in fiscal 2011. This increase is primarily
due to $1.9 million of higher employee compensation due to higher headcount and higher fiscal 2011
bonuses, a $0.9 million increase in stock-based compensation expense and a $0.4 million increase in
legal fees. General and administrative expenses as a percentage of total revenues were relatively
flat at 11% in both fiscal 2011 and 2010.
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Depreciation and Amortization. Depreciation expense increased $0.3 million, from $3.5 million
in fiscal 2010 to $3.8 million in fiscal 2011. This reflects higher depreciation associated with
increase capital expenditures primarily for product development and other computer-related
equipment.
Interest Income
Interest income increased $0.3 million, from $0.4 million in fiscal 2010 to $0.7 million in
fiscal 2011. The increase in interest income is primarily due to higher balances in our cash and
related investment accounts.
Income Tax Expense
Income tax expense was $15.3 million in fiscal 2011 compared to $13.7 million in fiscal 2010.
The effective tax rate in fiscal 2011 was 42% as compared to 43% in fiscal 2010. In fiscal 2011,
the effective rate is higher than the expected federal statutory rate of 35% primarily due to
recording a valuation allowance against certain state research tax credits as well as the impact of
state income taxes
and permanent differences in both the United States and foreign jurisdictions. These items
were partially offset by the reversal of certain tax reserves as a result of the expiration of a
statute of limitations in a foreign jurisdiction as well as recording additional research tax
credits. In fiscal 2010, the effective rate is higher than the expected federal statutory rate of
35% primarily due to state income taxes, adjustments to foreign tax credits and permanent
differences in both the United States and foreign jurisdictions, partially offset by recording
additional research tax credits.
Fiscal year ended March 31, 2010 compared to fiscal year ended March 31, 2009
Revenues
Total revenues increased $36.5 million, or 16%, from $234.5 million in fiscal 2009 to $271.0
million in fiscal 2010.
Software Revenue. Software revenue increased $12.8 million, or 11%, from $121.7 million in
fiscal 2009 to $134.5 million in fiscal 2010. Software revenue represented 50% of our total
revenues in fiscal 2010 compared to 52% in fiscal 2009. The increase in software revenue is
primarily driven by higher software revenue derived from our U.S. operations, which increased 19%
compared to fiscal 2009. Software revenue from our foreign locations was relatively flat in fiscal
2010 compared to fiscal 2009.
Software revenue derived from enterprise software transactions (transactions greater than $0.1
million) represented approximately 47% of our software revenue in fiscal 2010 and approximately 40%
of our software revenue in fiscal 2009. As a result, enterprise software transactions increased by
$14.1 million, or 29%, in fiscal 2010 compared to fiscal 2009. This increase was primarily driven
by the strength from our U.S. operations as well as a 33% increase in the total number of
transactions of this type. The average dollar amount of such transactions was approximately
$233,000 in fiscal 2010 and was approximately 241,000 in fiscal 2009. The overall increase in
enterprise software transactions was partially offset by a 2% decrease in software transactions
less than $0.1 million as a result of lower software revenue transactions of this type from our
foreign locations.
Software revenue through our indirect distribution channel (resellers and original equipment
manufacturers) increased $15.5 million in fiscal 2010 compared to fiscal 2009, while software
revenue derived from our direct sales force decreased $2.7 million in fiscal 2010 compared to
fiscal 2009. The increase in software revenue generated through our indirect distribution channel
is primarily due to more enterprise software transactions in our U.S. operations that were
transacted through indirect distribution channels. Overall, we believe growth in our software revenue that is derived from both our
indirect channel partners and direct sales force are key attributes to our long-term growth
strategy. We will continue to invest in both our channel relationships and direct sales force in
the future, but we continue to expect more revenue to be generated through indirect distribution
channels over the long term.
Services Revenue. Services revenue increased $23.7 million, or 21%, from $112.8 million in
fiscal 2009 to $136.5 million in fiscal 2010. Services revenue represented 50% of our total
revenues in fiscal 2010 compared to 48% in fiscal 2009. The increase in services revenue is
primarily due to a $21.4 million increase in revenue from customer support agreements as a result
of software sales to new customers and renewal agreements with our installed software base.
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Cost of Revenues
Total cost of revenues increased $5.0 million, or 16%, from $30.6 million in fiscal 2009 to
$35.6 million in fiscal 2010. Total cost of revenues represented 13% of our total revenues in both
fiscal 2010 and 2009.
Cost of Software Revenue. Cost of software revenue increased approximately $0.5 million, or
22%, from $2.5 million in fiscal 2009 to $3.0 million in fiscal 2010. Cost of software revenue
represented 2% of our total software revenue in both fiscal 2010 and 2009. The increase in cost of
software revenue is primarily due to higher distribution and third-party media costs related to our
Simpana 8 software suite.
Cost of Services Revenue. Cost of services revenue increased $4.5 million, or 16%, from $28.2
million in fiscal 2009 to $32.6 million in fiscal 2010. Cost of services revenue represented 24% of
our services revenue in fiscal 2010 compared to 25% in fiscal 2009. The increase in cost of
services revenue is primarily the result of higher employee compensation and travel expenses
totaling approximately $2.5 million as well as a $1.4 million increase in third-party outsourcing
costs to facilitate our services revenue growth.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased $13.8 million, or 11%, from
$123.0 million in fiscal 2009 to $136.8 million in fiscal 2010. The increase is primarily due to a
$12.4 million increase in employee compensation and related expenses attributable to the expansion
of our sales force from the prior year as well as higher commissions on higher software revenue in
fiscal 2010. Sales and marketing expenses also increased due to a $1.5 million increase in
stock-based compensation expense, a $0.5 million increase in employee benefits expense and a $0.4
million increase in travel and related expenses. These increases were partially offset by a $0.8
million decrease in recruiting expenses due to fewer headcount additions in fiscal 2010 compared to
fiscal 2009. Sales and marketing expenses as a percentage of total revenues decreased to 50% in
fiscal 2010 from 52% in fiscal 2009.
Research and Development. Research and development expenses increased $2.8 million, or 9%,
from $30.7 million in fiscal 2009 to $33.4 million in fiscal 2010. The increase is primarily due to
$2.0 million of higher employee compensation resulting from the expansion of our engineering group
and a $0.4 million increase in stock-based compensation expense. Research and development expenses
as a percentage of total revenues decreased to 12% in fiscal 2010 from 13% in fiscal 2009.
Investing in research and development has been a priority for CommVault, and we anticipate
continued spending related to the development of our data and information management software
applications.
General and Administrative. General and administrative expenses increased $3.7 million, or
14%, from $26.2 million in fiscal 2009 to $29.8 million in fiscal 2010. This increase is primarily
related to higher foreign currency transaction losses of $1.5 million. General and administrative
expenses for fiscal 2010 includes approximately $0.6 million of net foreign currency transaction
losses compared to approximately $0.9 million of net foreign currency transaction gains recognized
in general and administrative expenses during fiscal 2009. General and administrative expenses
also increased due to a $1.5 million increase in stock-based compensation expense as well as a $0.9
million increase in employee and related compensation due to higher headcount and higher fiscal
2010 bonuses. These increases to general and administrative expenses were partially offset by
lower legal fees of $0.4 million. General and administrative expenses as a percentage of total
revenues were relatively flat at 11% in both fiscal 2010 and 2009.
Depreciation and Amortization. Depreciation expense decreased $0.1 million, from $3.6 million
in fiscal 2009 to $3.5 million in fiscal 2010.
Interest Income
Interest income decreased $1.3 million, from $1.6 million in fiscal 2009 to $0.4 million in
fiscal 2010. The decrease is primarily due to lower interest rates, partially offset by higher
balances in our cash and investment accounts.
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Income Tax Expense
Income tax expense was $13.7 million in fiscal 2010 compared to $9.6 million in fiscal 2009.
The effective tax rate in fiscal 2010 was 43% as compared to 44% in fiscal 2009. In fiscal 2010,
the effective rate is higher than the expected federal statutory rate of 35% primarily due to state
income taxes, adjustments to foreign tax credits and permanent differences in both the United
States and foreign jurisdictions, partially offset by research tax credits. In fiscal 2009, the
effective rate is higher than the expected federal statutory rate of 35% primarily due to state
income taxes and permanent differences in the United States, partially offset by the net impact of
foreign tax credits and research credits.
Liquidity and Capital Resources
As of March 31, 2011, our cash and cash equivalents balance of $217.2 million primarily
consisted of money market funds. In addition, we have approximately $1.2 million of short-term
investments invested in certificates of deposit at March 31, 2011. In recent fiscal years, our
principal sources of liquidity have been cash provided by operations. Historically, our principle
source of liquidity had been cash provided by private placements of preferred equity securities and
common stock and cash provided from our public offerings of common stock.
In July 2009, we entered into an amended and restated credit facility in which we can borrow
up to $30.0 million over a three year period. Borrowings under the facility are available to
repurchase our common stock under our share repurchase program and to provide for working capital
and general corporate purposes. Repayments of principal amounts borrowed under the amended and
restated credit facility is required at the maturity date of July 2012. The credit facility also
requires that certain financial covenants be met on a quarterly basis. The amended and restated
credit facility contains financial covenants that require us to maintain a quick ratio and minimum
earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined in the credit
agreement. Borrowings under the amended and restated credit facility bear interest, at our option,
at either i) LIBOR plus a margin ranging from 2.25% to 2.75% or ii) the bank’s base rate plus a
margin ranging from 1.75% to 2.25%. The bank’s base rate is defined as the higher of the federal
funds rate plus 1.5%, one-month LIBOR plus 1.5%, or the lender’s prime rate. As of March 31, 2011,
we were in compliance with all required covenants, and there were no outstanding balances on the
amended and restated credit facility.
In January 2008, our Board of Directors approved a stock repurchase program, which authorized
us to repurchase up to $40.0 million of our common stock. Our Board of Directors authorized
additional increases of $40.0 million in July 2008 and $40.0 million in July 2010 to our existing
share repurchase program. As of March 31 2011, we are authorized to repurchase up to a total of
$120.0 million of our common stock through March 31, 2012. Under our stock repurchase program,
repurchased shares are constructively retired and returned to unissued status. Our stock
repurchase program has been funded by our existing cash and cash equivalent balances as well as
cash flows provided by our operations. During fiscal 2011, we repurchased 1.6 million shares of
common stock under our share repurchase plan with a total cost of $31.5 million. As of March 31,
2011, we have repurchased approximately $71.7 million, or 4.4 million shares, under our stock
repurchase plan at an average purchase price of $16.26 per share. As a result, we may repurchase
an additional $48.3 million of our common stock through March 31, 2012.
The primary business reason for our stock repurchase program is to reduce the dilutive impact
on our common shares outstanding associated with stock option exercises and our previous public and
private stock offerings. Under our stock repurchase program, we have bought back approximately 10%
of the common stock that was outstanding at the time the stock repurchase program was announced.
In addition, at the time we implemented our stock repurchase program in late fiscal 2008 we
believed that our share price was undervalued and the best use for a portion of our cash balance
was to repurchase some of our outstanding common stock. Our future stock repurchase activity is
subject to the business judgment of our management and Board of Directors, taking into
consideration our historical and projected results of operations, financial condition, cash flows
and other anticipated capital requirements or investment alternatives.
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Our summarized annual cash flow information is as follows (in thousands):
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Cash provided by operating activities |
$ | 52,410 | $ | 57,247 | $ | 43,109 | ||||||
Net Cash provided by (used in) investing activities |
28 | (8,413 | ) | (4,539 | ) | |||||||
Net Cash provided by (used in) financing activities |
(7,304 | ) | 13,679 | (22,138 | ) | |||||||
Effects of exchange rate — changes in cash |
2,518 | 1,800 | (2,888 | ) | ||||||||
Net increase in cash and cash equivalents |
$ | 47,652 | $ | 64,313 | $ | 13,544 | ||||||
Net cash provided by operating activities was $52.4 million in fiscal 2011, $57.2 million in
fiscal 2010 and $43.1 million in fiscal 2009. In fiscal 2011 and fiscal 2010, cash generated by
operating activities was primarily due to net income adjusted for the impact of non-cash charges,
an increase in deferred services revenue as a result of customer support agreements from new
customers and renewal agreements with our installed software base as well as an increase in accrued
liabilities. These increases were partially offset by an increase in accounts receivable due to
higher revenues and timing of cash receipts. In fiscal 2009, cash generated by operating
activities was primarily due to net income adjusted for the impact of non-cash charges and an
increase in deferred services revenue, partially offset by an increase in accounts receivable.
Net cash provided by (used in) investing activities was less than $0.1 million in fiscal 2011,
($8.4) million in fiscal 2010 and ($4.5) million in fiscal 2009. In fiscal 2011, cash provided by
investing activities was due to the net proceeds from maturity of short-term investments of $3.9
million offset by the purchase of property and equipment of $3.9 million as we continue to invest
in and enhance our global infrastructure. In fiscal 2010, cash used in investing activities was
due to the net purchases of short-term investments of $5.0 million as well as the purchase of
property and equipment of $3.4 million related to the growth in our business. In fiscal 2009, cash
used in investing activities was due to purchases of property and equipment. We anticipate that as
our business grows we will continue to explore opportunities to invest in our global
infrastructure.
Net cash provided by (used in) financing activities was $(7.3) million in fiscal 2011, $13.7
million in fiscal 2010 and $(22.1) million in fiscal 2009. The cash used in financing activities
in fiscal 2011 was due to $31.5 million used to repurchase shares of our common stock under our
share repurchase program partially offset by $17.2 million from the exercise of stock options and
$7.0 million of excess tax benefits recognized as the result of stock option exercises and vesting
of restricted stock units. The cash provided by financing activities in fiscal 2010 was due to
$10.3 million of proceeds from the exercise of stock options and $3.4 million of excess tax
benefits. The cash used in financing activities in fiscal 2009 was primarily due to $25.2 million
used to repurchase shares of our common stock under our share repurchase program, partially offset
by $2.7 million of proceeds from the exercise of stock options and $0.5 million of excess tax
benefits.
A summary of the cash used for the stock repurchase program consists of the following:
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Cash used for repurchases (in thousands)* |
$ | 31,506 | $ | — | $ | 25,229 | ||||||
Shares repurchased (in thousands)* |
1,559 | — | 1,825 | |||||||||
Average price per share |
$ | 20.21 | $ | — | $ | 13.83 | ||||||
| * | Based on settlement date, not trade date. |
Working capital increased $36.2 million from $143.2 million as of March 31, 2010 to $179.4
million as of March 31, 2011. The increase in working capital is primarily due to a $47.7 million
increase in cash and cash equivalents and a $15.8 million increase in accounts receivable,
partially offset by a $15.1 million increase in deferred revenue, a $7.7 million increase in
accrued liabilities and a $4.7 million decrease in net deferred tax assets. The increase in cash
and cash equivalents is primarily due to net income generated during the period, cash received from
the exercise of stock options and the increase in deferred revenue, partially offset by cash used
to repurchase approximately 1.6 million shares of our common stock under our share repurchase
program.
Working capital increased $58.6 million from $84.6 million as of March 31, 2009 to $143.2
million as of March 31, 2010. The increase in working capital is primarily due to a $64.3 million
increase in cash and cash equivalents, a $14.0 million increase in accounts receivable and $5.0
million increase in short-term investments, partially offset by a $21.8 million increase in
deferred revenue and a $7.3 million increase in accrued liabilities. The increase in cash and cash
equivalents is primarily due to net income generated during the period, cash received from the
exercise of stock options and the increase in deferred revenue.
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We believe that our existing cash, cash equivalents, cash from operations and our $30.0
million credit facility will be sufficient to meet our anticipated cash needs for working capital,
capital expenditures and potential stock repurchases for at least the next 12 months. We may seek
additional funding through public or private financings or other arrangements during this period.
Adequate funds may not be available when needed or may not be available on terms favorable to us,
or at all. If additional funds are raised by issuing equity securities, dilution to existing
stockholders will result. If we raise additional funds by obtaining loans from third parties, the
terms of those financing arrangements may include negative covenants or other restrictions on our
business that could impair our operational flexibility, and would also require us to fund
additional interest expense. If funding is insufficient at any time in the future, we may be
unable to develop or enhance our products or services, take advantage of business opportunities or
respond to competitive pressures, any of which could have a material adverse effect on our
business, financial condition and results of operations.
Summary Disclosures about Contractual Obligations and Commercial Commitments
Our material capital commitments consist of obligations under facilities and operating leases.
Some of these leases have free or escalating rent payment provisions. We recognize rent expense
under leases on a straight-line basis. We anticipate that we will
experience an increase in our capital expenditures and lease commitments consistent with our
anticipated growth in operations, infrastructure, personnel and resources devoted to building our
brand name and marketing and sales force.
The following table summarizes our obligations as of March 31, 2011 (dollars in thousands):
| Payments Due by Period | ||||||||||||||||||||
| More | ||||||||||||||||||||
| Less Than | Than 5 | |||||||||||||||||||
| Total | 1 Year | 1-3 Years | 4-5 Years | Years | ||||||||||||||||
Operating lease obligations |
$ | 18,645 | $ | 6,232 | $ | 11,423 | $ | 990 | $ | — | ||||||||||
Purchase obligations |
3,397 | 1,519 | 1,878 | — | — | |||||||||||||||
Total |
$ | 22,042 | $ | 7,751 | $ | 13,301 | $ | 990 | $ | — | ||||||||||
We generally do not enter into binding purchase obligations. The purchase obligations above
relate primarily to software licensing and IT infrastructure costs.
The contractual obligations table above excludes unrecognized tax benefits recorded in Other
Liabilities totaling $5.3 million because we cannot reasonably estimate in which future periods
these amounts will ultimately be settled. The $5.3 million is classified as a long-term liability
in our consolidated balance sheet as of March 31, 2011 as none of these obligations are anticipated
to be paid within one year from April 1, 2011.
We have certain software royalty commitments associated with the shipment and licensing of
certain products. Royalty expense is generally based on the number of units shipped or a
percentage of the underlying revenue. Royalty expense, included in cost of software revenues, was
$1.3 million in fiscal 2011, $1.3 million in fiscal 2010 and $1.2 million in fiscal 2009.
We offer a 90-day limited product warranty for our software. To date, costs relating to this
product warranty have not been material.
Off-Balance Sheet Arrangements
As of March 31, 2011 and 2010, other than our operating leases, we do not have off-balance
sheet financing arrangements, including any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or special purpose entities.
Indemnifications
Certain of our software licensing agreements contain certain provisions that indemnify our
customers from any claim, suit or proceeding arising from alleged or actual intellectual property
infringement. These provisions continue in perpetuity along with our software licensing
agreements. We have never incurred a liability relating to one of these indemnification provisions
in the past and we believe that the likelihood of any future payout relating to these provisions is
remote. Therefore, we have not recorded a liability during any period related to these
indemnification provisions.
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Impact of Recently Issued Accounting Standards
Fair Value Measurements
In January 2010, the FASB issued guidance requiring additional disclosure for significant
transfers in and out of Levels 1 and 2 fair value measurements and the reasons for such transfers.
This new guidance also requires separate disclosure information about purchases, sales, issuances,
and settlements (on a gross basis rather than as one net number) in the reconciliation for fair
value measurements using significant unobservable inputs (Level 3). In addition, this guidance
clarifies existing disclosures regarding fair value measurement for each class of assets and
liabilities and the valuation techniques and inputs used to measure fair value for recurring and
nonrecurring fair value measurements that fall in either Level 2 or Level 3. The changes under this
new guidance were effective for the quarterly period beginning January 1, 2010, except for the
disclosures about purchases, sales, issuances and settlements in the roll forward of activity in
Level 3 fair value measurements, which are effective for the Company’s fiscal year
beginning April 1, 2011. The adoption of these new accounting pronouncements will not have a
material impact on our consolidated financial position, results of operations or cash flows.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
As of March 31, 2011, our cash, cash equivalent and short-term investment balances consisted
primarily of money market funds and certificates of deposit. Due to the short-term nature of these
investments, we are not subject to any material interest rate risk on these balances.
In July 2008, we entered into a credit facility in which we could borrow up to $40.0 million
over the initial 12 months of the credit facility. The credit facility expired in July 2009
because no amounts were borrowed during the initial 12 months of the credit facility. In July
2009, we entered into an amended and restated credit facility in which we can borrow up to $30.0
million over a three year period. Borrowings under the amended and restated credit facility bear
interest, at our option, at either i) LIBOR plus a margin ranging from 2.25% to 2.75% or ii) the
bank’s base rate plus a margin ranging from 1.75% to 2.25%. The bank’s base rate is defined as the
higher of the federal funds rate plus 1.5%, one-month LIBOR plus 1.5%, or the lender’s prime rate.
There are no outstanding balances on the amended and restated credit facility. As a result, we are
currently not subject to any material interest rate risk on our credit facility.
Foreign Currency Risk
Economic Exposure
As a global company, we face exposure to adverse movements in foreign currency exchange rates.
Our international sales are generally denominated in foreign currencies, and this revenue could be
materially affected by currency fluctuations. Approximately 39% of our sales were outside the
United States in fiscal 2011 and 38% were outside the United States in fiscal 2010. Our primary
exposures are to fluctuations in exchange rates for the U.S. dollar versus the Euro, and to a
lesser extent, the Australian dollar, British pound sterling, Canadian dollar, Chinese yuan, Indian
rupee, Korean won and Singapore dollar. Changes in currency exchange rates could adversely affect
our reported revenues and require us to reduce our prices to remain competitive in foreign markets,
which could also have a material adverse effect on our results of operations. Historically, we
have periodically reviewed and revised the pricing of our products available to our customers in
foreign countries and we have not maintained excess cash balances in foreign accounts.
We estimate that a 10% change in all foreign exchange rates would impact our reported
operating profit by approximately $1.8 million annually. This sensitivity analysis disregards the
possibilities that rates can move in opposite directions and that losses from one geographic area
may be offset by gains from another geographic area.
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Transaction Exposure
Our exposure to foreign currency transaction gains and losses is primarily the result of
certain net receivables due from our foreign subsidiaries and customers being denominated in
currencies other than the functional currency of the subsidiary. Our foreign subsidiaries conduct
their businesses in local currency and we generally do not maintain excess U.S. dollar cash
balances in foreign accounts.
Foreign currency transaction gains and losses are recorded in “General and administrative
expenses” in the Consolidated Statements of Income. We recognized net foreign currency transaction
gains (losses) of approximately $(0.6) million in fiscal 2011, $(0.6) million in fiscal 2010, and
$0.9 million in fiscal 2009. The net foreign currency transaction losses recorded in “General and
administrative expenses” include settlement gains and losses on forward contracts disclosed below.
To date, we have selectively hedged our exposure to foreign currency transaction gains and
losses on the balance sheet through the use of forward contracts, which were not designated as
hedging instruments. The duration of forward contracts utilized for hedging our balance sheet
exposure is approximately one month. As of March 31, 2011 and March 31, 2010, we did not have any
forward
contracts outstanding. We recorded net realized gains (losses) in general and administrative
expenses of $0.1 million in fiscal 2011 and less than ($0.1) million in fiscal 2010. In the
future, we may enter into additional foreign currency based hedging contracts to reduce our
exposure to significant fluctuations in currency exchange rates on the balance sheet.
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Item 8. Financial Statements and Supplementary Data
CommVault Systems, Inc.
Consolidated Financial Statements
Fiscal Years Ended March 31, 2011, 2010 and 2009
Index to Consolidated Financial Statements
Fiscal Years Ended March 31, 2011, 2010 and 2009
Index to Consolidated Financial Statements
| Page | ||||
| 48 | ||||
| 49 | ||||
| 50 | ||||
| 51 | ||||
| 52 | ||||
| 53 | ||||
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
CommVault Systems, Inc.
CommVault Systems, Inc.
We have audited the accompanying consolidated balance sheets of CommVault Systems, Inc. as of March
31, 2011 and 2010, and the related consolidated statements of income, stockholders’ equity and cash
flows for each of the three years in the period ended March 31, 2011. Our audits also included the
financial statement schedule listed in the Index at Item 15. These financial statements and
schedule are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of CommVault Systems, Inc. at March 31, 2011 and
2010, and the consolidated results of their operations and their cash flows for each of the three
years in the period ended March 31, 2011, in conformity with U.S generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), CommVault Systems, Inc.’s internal control over financial reporting as of
March 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 17,
2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
MetroPark, New Jersey
May 17, 2011
May 17, 2011
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CommVault Systems, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
(In thousands, except per share data)
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 217,170 | $ | 169,518 | ||||
Short-term investments |
1,150 | 5,043 | ||||||
Trade accounts receivable, less allowance
for doubtful accounts of $106 and $292 at
March 31, 2011 and 2010, respectively |
73,891 | 58,049 | ||||||
Prepaid expenses and other current assets |
8,476 | 4,612 | ||||||
Deferred tax assets, net |
12,043 | 16,693 | ||||||
Total current assets |
312,730 | 253,915 | ||||||
Deferred tax assets, net |
21,736 | 24,485 | ||||||
Property and equipment, net |
6,400 | 6,356 | ||||||
Other assets |
1,633 | 1,259 | ||||||
Total assets |
$ | 342,499 | $ | 286,015 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts payable |
$ | 1,658 | $ | 1,891 | ||||
Accrued liabilities |
33,475 | 25,727 | ||||||
Deferred revenue |
98,217 | 83,112 | ||||||
Total current liabilities |
133,350 | 110,730 | ||||||
Deferred revenue, less current portion |
14,695 | 9,140 | ||||||
Other liabilities |
6,324 | 7,845 | ||||||
Commitments and contingencies (Note 6) |
||||||||
Stockholders’ equity: |
||||||||
Preferred stock, $0.01 par value: 50,000
shares authorized, no shares issued and
outstanding at March 31, 2011 and 2010 |
— | — | ||||||
Common stock, $0.01 par value, 250,000
shares authorized, 43,965 shares and 43,053
shares issued and outstanding at March 31,
2011 and 2010, respectively |
440 | 431 | ||||||
Additional paid-in capital |
271,622 | 239,012 | ||||||
Accumulated deficit |
(84,239 | ) | (81,031 | ) | ||||
Accumulated other comprehensive income (loss) |
307 | (112 | ) | |||||
Total stockholders’ equity |
188,130 | 158,300 | ||||||
Total liabilities and stockholders’ equity |
$ | 342,499 | $ | 286,015 | ||||
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CommVault Systems, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
(In thousands, except per share data)
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Revenues: |
||||||||||||
Software |
$ | 149,798 | $ | 134,500 | $ | 121,685 | ||||||
Services |
164,978 | 136,525 | 112,834 | |||||||||
Total revenues |
314,776 | 271,025 | 234,519 | |||||||||
Cost of revenues: |
||||||||||||
Software |
2,369 | 3,017 | 2,469 | |||||||||
Services |
38,646 | 32,628 | 28,177 | |||||||||
Total cost of revenues |
41,015 | 35,645 | 30,646 | |||||||||
Gross margin |
273,761 | 235,380 | 203,873 | |||||||||
Operating expenses: |
||||||||||||
Sales and marketing |
163,054 | 136,773 | 122,957 | |||||||||
Research and development |
36,954 | 33,421 | 30,669 | |||||||||
General and administrative |
34,207 | 29,823 | 26,159 | |||||||||
Depreciation and amortization |
3,775 | 3,514 | 3,582 | |||||||||
Income from operations |
35,771 | 31,849 | 20,506 | |||||||||
Interest expense |
(106 | ) | (106 | ) | (175 | ) | ||||||
Interest income |
650 | 384 | 1,639 | |||||||||
Income before income taxes |
36,315 | 32,127 | 21,970 | |||||||||
Income tax expense |
(15,311 | ) | (13,722 | ) | (9,642 | ) | ||||||
Net income |
$ | 21,004 | $ | 18,405 | $ | 12,328 | ||||||
Net income per common share: |
||||||||||||
Basic |
$ | 0.49 | $ | 0.44 | $ | 0.29 | ||||||
Diluted |
$ | 0.45 | $ | 0.41 | $ | 0.28 | ||||||
Weighted average common shares outstanding: |
||||||||||||
Basic |
43,283 | 42,133 | 41,983 | |||||||||
Diluted |
46,301 | 45,022 | 44,013 | |||||||||
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CommVault Systems, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(In thousands)
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Comprehensive | |||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Total | |||||||||||||||||||
Balance at March 31, 2008 |
42,750 | $ | 428 | $ | 204,386 | $ | (94,922 | ) | $ | (357 | ) | $ | 109,535 | |||||||||||
Stock-based compensation |
11,299 | 11,299 | ||||||||||||||||||||||
Tax benefits relating to share-based payments |
465 | 465 | ||||||||||||||||||||||
Exercise of common stock options and vesting of
restricted stock units |
668 | 7 | 2,719 | 2,726 | ||||||||||||||||||||
Repurchase of common stock |
(1,825 | ) | (19 | ) | (8,407 | ) | (16,803 | ) | (25,229 | ) | ||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Net income |
12,328 | 12,328 | ||||||||||||||||||||||
Foreign currency translation adjustment |
165 | 165 | ||||||||||||||||||||||
Total comprehensive income |
12,493 | |||||||||||||||||||||||
Balance at March 31, 2009 |
41,593 | 416 | 210,462 | (99,397 | ) | (192 | ) | 111,289 | ||||||||||||||||
Stock-based compensation |
14,912 | 14,912 | ||||||||||||||||||||||
Tax benefits relating to share-based payments |
3,378 | 3,378 | ||||||||||||||||||||||
Exercise of common stock options and vesting of
restricted stock units |
1,462 | 15 | 10,269 | 10,284 | ||||||||||||||||||||
Repurchase of common stock |
(2 | ) | (9 | ) | (39 | ) | (48 | ) | ||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Net income |
18,405 | 18,405 | ||||||||||||||||||||||
Foreign currency translation adjustment |
80 | 80 | ||||||||||||||||||||||
Total comprehensive income |
18,485 | |||||||||||||||||||||||
Balance at March 31, 2010 |
43,053 | 431 | 239,012 | (81,031 | ) | (112 | ) | 158,300 | ||||||||||||||||
Stock-based compensation |
15,623 | 15,623 | ||||||||||||||||||||||
Tax benefits relating to share-based payments |
7,084 | 7,084 | ||||||||||||||||||||||
Exercise of common stock options and vesting of
restricted stock units |
2,469 | 25 | 17,133 | 17,158 | ||||||||||||||||||||
Repurchase of common stock |
(1,557 | ) | (16 | ) | (7,230 | ) | (24,212 | ) | (31,458 | ) | ||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Net income |
21,004 | 21,004 | ||||||||||||||||||||||
Foreign currency translation adjustment |
419 | 419 | ||||||||||||||||||||||
Total comprehensive income |
21,423 | |||||||||||||||||||||||
Balance at March 31, 2011 |
43,965 | $ | 440 | $ | 271,622 | $ | (84,239 | ) | $ | 307 | $ | 188,130 | ||||||||||||
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CommVault Systems, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(In thousands)
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Cash flows from operating activities |
||||||||||||
Net income |
$ | 21,004 | $ | 18,405 | $ | 12,328 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
3,906 | 3,630 | 3,691 | |||||||||
Noncash stock-based compensation |
15,623 | 14,912 | 11,299 | |||||||||
Excess tax benefits from stock-based compensation |
(7,044 | ) | (3,395 | ) | (469 | ) | ||||||
Deferred income taxes |
3,766 | 4,044 | 3,883 | |||||||||
Changes in operating assets and liabilities: |
||||||||||||
Trade accounts receivable |
(14,206 | ) | (11,801 | ) | (3,890 | ) | ||||||
Prepaid expenses and other current assets |
(3,756 | ) | (786 | ) | (498 | ) | ||||||
Other assets |
(314 | ) | (97 | ) | (473 | ) | ||||||
Accounts payable |
(261 | ) | 27 | (264 | ) | |||||||
Accrued liabilities |
17,501 | 11,184 | 1,924 | |||||||||
Deferred revenue |
17,892 | 19,967 | 15,154 | |||||||||
Other liabilities |
(1,701 | ) | 1,157 | 424 | ||||||||
Net cash provided by operating activities |
52,410 | 57,247 | 43,109 | |||||||||
Cash flows from investing activities |
||||||||||||
Purchase of short-term investments |
(2,751 | ) | (5,293 | ) | — | |||||||
Proceeds from maturity of short-term investments |
6,644 | 250 | — | |||||||||
Purchase of property and equipment |
(3,865 | ) | (3,370 | ) | (4,539 | ) | ||||||
Net cash provided by (used in) investing activities |
28 | (8,413 | ) | (4,539 | ) | |||||||
Cash flows from financing activities |
||||||||||||
Repurchase of common stock |
(31,506 | ) | — | (25,229 | ) | |||||||
Debt issuance costs |
— | — | (104 | ) | ||||||||
Proceeds from the exercise of stock options |
17,158 | 10,284 | 2,726 | |||||||||
Excess tax benefits from stock-based compensation |
7,044 | 3,395 | 469 | |||||||||
Net cash provided by (used in) financing activities |
(7,304 | ) | 13,679 | (22,138 | ) | |||||||
Effects of exchange rate — changes in cash |
2,518 | 1,800 | (2,888 | ) | ||||||||
Net increase in cash and cash equivalents |
47,652 | 64,313 | 13,544 | |||||||||
Cash and cash equivalents at beginning of year |
169,518 | 105,205 | 91,661 | |||||||||
Cash and cash equivalents at end of year |
$ | 217,170 | $ | 169,518 | $ | 105,205 | ||||||
Supplemental disclosures of cash flow information |
||||||||||||
Interest paid |
$ | 106 | $ | 106 | $ | 175 | ||||||
Income taxes paid |
$ | 3,894 | $ | 4,130 | $ | 4,801 | ||||||
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CommVault Systems, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(In thousands, except per share data)
1. Nature of Business
CommVault Systems, Inc. and its subsidiaries (“CommVault” or the “Company”) is a leading
provider of data and information management software applications and related services. The
Company develops, markets and sells a suite of software applications and services, primarily in
North America, Europe, Australia and Asia, that provides its customers with high-performance data
protection; data migration and archiving; snapshot management and replication of data; integrated
source and target deduplication; e-discovery and compliance solutions; protection, recovery and
discovery of data in virtual server environments; enterprise-wide search capabilities; and
management and operational reports, remote services and troubleshooting tools. The Company’s
unified suite of data and information management software applications, which is sold under the
Simpana brand, shares an underlying architecture that has been developed to minimize the cost and
complexity of managing data on globally distributed and networked storage infrastructures. The
Company also provides its customers with a broad range of professional and customer support
services.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company. All intercompany
transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP
requires management to make judgments and estimates that affect the amounts reported in the
Company’s consolidated financial statements and the accompanying notes. The Company bases its
estimates and judgments on historical experience and on various other assumptions that it believes
are reasonable under the circumstances. The amounts of assets and liabilities reported in the
Company’s balance sheets and the amounts of revenues and expenses reported for each of its periods
presented are affected by estimates and assumptions, which are used for, but not limited to, the
accounting for revenue recognition, allowance for doubtful accounts, income taxes and related
reserves, stock-based compensation and accounting for research and development costs. Actual
results could differ from those estimates.
Revenue Recognition
The Company derives revenues from two primary sources, or elements: software licenses and
services. Services include customer support, consulting, assessment and design services,
installation services and training. A typical sales arrangement includes both of these elements.
For sales arrangements involving multiple elements, the Company recognizes revenue using the
residual method. Under the residual method, the Company allocates and defers revenue for the
undelivered elements based on relative fair value and recognizes the difference between the total
arrangement fee and the amount deferred for the undelivered elements as revenue. The determination
of fair value of the undelivered elements in multiple-element arrangements is based on the price
charged when such elements are sold separately, which is commonly referred to as vendor-specific
objective-evidence, or VSOE.
The Company’s software licenses typically provide for a perpetual right to use the Company’s
software and are sold on a per-copy basis, on a capacity basis or as site licenses. Software
licenses sold on a capacity basis provide the customer with unlimited licenses of specified
software products based on a defined level of terabytes of data under management. Site licenses
give the customer the additional right to deploy the software on a limited basis during a specified
term. The Company recognizes software revenue through direct sales channels upon receipt of a
purchase order or other persuasive evidence and when all other basic revenue recognition criteria
are met as described below. The Company recognizes software revenue through all indirect sales
channels on a sell-through model. A sell-through model requires that the Company recognize revenue
when the basic revenue recognition criteria are met as
described below and these channels complete the sale of the Company’s software products to the
end-user. Revenue from software licenses sold through an original equipment manufacturer partner
is recognized upon the receipt of a royalty report or purchase order from that original equipment
manufacturer partner.
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CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Services revenue includes revenue from customer support and other professional services.
Customer support includes software updates on a when-and-if-available basis, telephone support,
integrated web-based support and
bug fixes or patches. Customer support revenue is recognized ratably over the term of the customer
support agreement, which is typically one year. To determine the price for the customer support
element when sold separately, the Company primarily uses historical renewal rates, and in certain
cases, it uses stated renewal rates. Historical renewal rates are supported by performing an
analysis in which the Company segregates its customer support renewal contracts into different
classes based on specific criteria including, but not limited to, the dollar amount of the software
purchased, the level of customer support being provided and the distribution channel. As a result
of this analysis, the Company has concluded that it has established VSOE for the different classes
of customer support when the support is sold as part of a multiple-element sales arrangement.
The Company’s other professional services include consulting, assessment and design services,
installation services and training. Other professional services provided by the Company are not
mandatory and can also be performed by the customer or a third-party. In addition to a signed
purchase order, the Company’s consulting, assessment and design services and installation services
are, in some cases, evidenced by a Statement of Work, which defines the specific scope of such
services to be performed when sold and performed on a stand-alone basis or included in
multiple-element sales arrangements. Revenues from consulting, assessment and design services and
installation services are based upon a daily or weekly rate and are recognized when the services
are completed. Training includes courses taught by the Company’s instructors or third-party
contractors either at one of the Company’s facilities or at the customer’s site. Training fees are
recognized after the training course has been provided. Based on the Company’s analysis of such
other professional services transactions sold on a stand-alone basis, the Company has concluded it
has established VSOE for such other professional services when sold in connection with a
multiple-element sales arrangement. The Company generally performs its other professional services
within 90 days of entering into an agreement. The price for other professional services has not
materially changed for the periods presented.
The Company has analyzed all of the undelivered elements included in its multiple-element
sales arrangements and determined that VSOE of fair value exists to allocate revenues to services.
Accordingly, assuming all basic revenue recognition criteria are met, software revenue is
recognized upon delivery of the software license using the residual method.
The Company considers the four basic revenue recognition criteria for each of the elements as
follows:
| • | Persuasive evidence of an arrangement with the customer exists. The Company’s
customary practice is to require a purchase order and, in some cases, a written contract
signed by both the customer and the Company, or other persuasive evidence that an
arrangement exists prior to recognizing revenue on an arrangement. |
| • | Delivery or performance has occurred. The Company’s software applications are usually
physically delivered to customers with standard transfer terms such as FOB shipping point.
Software and/or software license keys for add-on orders or software updates are typically
delivered in an electronic format. If products that are essential to the functionality of
the delivered software in an arrangement have not been delivered, the Company does not
consider delivery to have occurred. Services revenue is recognized when the services are
completed, except for customer support, which is recognized ratably over the term of the
customer support agreement, which is typically one year. |
| • | Vendor’s fee is fixed or determinable. The fee customers pay for software
applications, customer support and other professional services is negotiated at the outset
of a sales arrangement. The fees are therefore considered to be fixed or determinable at
the inception of the arrangement. |
| • | Collection is probable. Probability of collection is assessed on a
customer-by-customer basis. Each new customer undergoes a credit review process to
evaluate its financial position and ability to pay. If the Company determines from the
outset of an arrangement that collection is not probable based upon the review process,
revenue is recognized at the earlier of when cash is collected or when sufficient credit
becomes available, assuming all of the other basic revenue recognition criteria are
met. |
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CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
The Company’s sales arrangements generally do not include acceptance clauses. However, if an
arrangement does include an acceptance clause, revenue for such an arrangement is deferred and
recognized upon acceptance. Acceptance occurs upon the earliest of receipt of a written customer
acceptance, waiver of customer acceptance or expiration of the acceptance period.
Net Income per Common Share
Basic net income per common share is computed by dividing net income by the weighted average
number of common shares during the period. Diluted net income per share is computed using the
weighted average number of common shares and, if dilutive, potential common shares outstanding
during the period. Potential common shares consist of the incremental common shares issuable upon
the exercise of stock options and the vesting of restricted stock units. The dilutive effect of
such potential common shares is reflected in diluted earnings per share by application of the
treasury stock method.
The following table sets forth the computation of basic and diluted net income per common
share:
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Net income |
$ | 21,004 | $ | 18,405 | $ | 12,328 | ||||||
Basic net income per common share: |
||||||||||||
Basic weighted average shares outstanding |
43,283 | 42,133 | 41,983 | |||||||||
Basic net income per common share |
$ | 0.49 | $ | 0.44 | $ | 0.29 | ||||||
Diluted net income per common share: |
||||||||||||
Basic weighted average shares outstanding |
43,283 | 42,133 | 41,983 | |||||||||
Dilutive effect of stock options and restricted stock units |
3,018 | 2,889 | 2,030 | |||||||||
Diluted weighted average shares outstanding |
46,301 | 45,022 | 44,013 | |||||||||
Diluted net income per common share |
$ | 0.45 | $ | 0.41 | $ | 0.28 | ||||||
The following table summarizes the potential outstanding common stock of the Company at the
end of each period, which has been excluded from the computation of diluted net income per common
share, as its effect is anti-dilutive.
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Stock options and restricted stock units |
1,002 | 728 | 3,162 | |||||||||
Software Development Costs
Research and development expenditures are charged to operations as incurred. Based on the
Company’s software development process, technological feasibility is established upon completion of
a working model, which also requires certification and extensive testing. Costs incurred by the
Company between completion of the working model and the point at which the product is ready for
general release are immaterial.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consist of amounts due to the Company from normal business activities. The
Company maintains an allowance for estimated losses resulting from the inability of its customers
to make required payments. The Company estimates uncollectible amounts based upon historical bad
debts, evaluation of current customer receivable balances, age of customer receivable balances, the
customer’s financial condition and current economic trends. The Company also maintains a sales
allowance to reserve for potential credits issued to customers. The amount of the reserve is
determined based on historical credits issued.
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CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Accounting for Income Taxes
As part of the process of preparing financial statements, the Company is required to estimate
its income taxes in each of the jurisdictions in which it operates. This process involves
estimating actual current tax exposure, including assessing the risks associated with tax audits,
and assessing temporary differences resulting from different treatment of items for tax and
accounting purposes. These differences result in deferred tax assets and liabilities. As of March
31, 2011, the Company had net deferred tax assets of approximately
$33,779, which were
primarily related to federal and state research tax credit carryforwards, stock-based compensation
and foreign net operating loss carryforwards. The Company assesses the likelihood that its
deferred tax assets will be recovered from future taxable income, and to the extent that the
Company believes recovery is not likely, the Company establish a valuation allowance. As of March
31, 2011, the Company maintains a valuation allowance against it deferred tax assets totaling $4,306
primarily related to the uncertainty of the Company’s ability to utilize certain state
research tax credits before they expire.
The calculation of the Company’s tax liabilities involves dealing with uncertainties in the
application of complex tax regulations in each of its tax jurisdictions. The number of years with
open tax audits varies depending on the tax jurisdiction. A number of years may lapse before a
particular matter is audited and finally resolved. On April 1, 2007, the Company adopted the
guidance issued to address the accounting for uncertain tax positions. This guidance clarifies the
accounting for income taxes, by prescribing a minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements as well as provides guidance
on derecognition, measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition.
As of March 31, 2011, the Company had unrecognized tax benefits of $4,481, all of which, if
recognized, would favorably affect the effective tax rate. In addition, the Company had accrued
interest and penalties of $842 related to the unrecognized tax benefits. Interest and penalties,
if any, related to unrecognized tax benefits are recorded in income tax expense. Components of the
reserve are classified as either current or long-term in the Consolidated Balance Sheet based on
when the Company expects each of the items to be settled.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with maturities of three months
or less to be cash equivalents. As of March 31, 2011, the Company’s cash and cash equivalents
balance consisted primarily of money market funds.
Concentration of Credit Risk
The Company grants credit to customers in a wide variety of industries worldwide and generally
does not require collateral. Credit losses relating to these customers have been minimal.
Sales through the Company’s reseller and original equipment manufacturer agreements with Dell
totaled approximately 23%, 24% and 23% of total revenues for the years ended March 31, 2011, 2010
and 2009, respectively. Dell accounted for 25% and 27% of accounts receivable as of March 31, 2011
and 2010, respectively. Sales through the Company’s distribution agreement with Arrow Enterprise
Computing Solutions, Inc. (“Arrow”) totaled approximately 25%, 24% and 21% of total revenues for
the years ended March 31, 2011, 2010 and 2009, respectively. Arrow accounted for approximately 32%
and 30% of total accounts receivable as of March 31, 2011 and 2010, respectively.
Fair Value of Financial Instruments
The carrying amounts of the Company’s cash and cash equivalents, accounts receivable and
accounts payable approximate their fair values due to the short-term maturity of these instruments.
As of March 31, 2011, the Company’s short-term investments balance consisted of certificates of
deposit.
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CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Fair value is defined as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for such asset or
liability in an orderly transaction between market participants on the measurement date. Valuation
techniques used to measure fair value should maximize the use of observable inputs and minimize the
use of unobservable inputs. To measure fair value, the Company uses the following fair value
hierarchy based on three levels of inputs, of which the first two are considered observable and the
last unobservable:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than Level 1 that are observable for the asset or liability, either
directly or indirectly, such as quoted prices for similar assets and liabilities in active markets;
quoted prices for identical or similar assets or liabilities in markets that are not active; or
other inputs that are observable or can be corroborated by observable market data by correlation or
other means.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
The following table summarizes the composition of the Company’s financial assets measured at
fair value on a recurring basis at March 31, 2011 and March 31, 2010:
| March 31, | ||||||||
| 2011 | 2010 | |||||||
Cash and cash equivalents: |
||||||||
Money market funds |
$ | 182,911 | $ | 143,236 | ||||
All of the Company’s financial instruments in the table above were classified and measured as
Level 1 instruments.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. The
Company provides for depreciation on a straight-line basis over the estimated useful lives of the
assets. Computer and related equipment is generally depreciated over eighteen months to three
years and furniture and fixtures are generally depreciated over three to five years. Leasehold
improvements are amortized over the shorter of the useful life of the improvement or the term of
the related lease. Expenditures for routine maintenance and repairs are charged against
operations. Major replacements, improvements and additions are capitalized.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully recoverable. To
determine the recoverability of its long-lived assets, the Company evaluates the estimated future
undiscounted cash flows that are directly associated with, and that are expected to arise as a
direct result of, the use and eventual disposition of the long-lived asset. If the estimated future
undiscounted cash flows demonstrate that recoverability is not probable, an impairment loss would
be recognized. An impairment loss would be calculated based on the excess carrying amount of the
long-lived asset over the long-lived asset’s fair value. The fair value is determined based on
valuation techniques such as a comparison to fair values of similar assets. There were no
impairment charges recognized during the years ended March 31, 2011, 2010 and 2009.
Deferred Revenue
Deferred revenues represent amounts collected from, or invoiced to, customers in excess of
revenues recognized. This results primarily from the billing of annual customer support
agreements, as well as billings for other professional services fees that have not yet been
performed by the Company and billings for license fees that are deferred due to insufficient
persuasive evidence that an arrangement exists. The value of deferred revenues will increase or
decrease based on the timing of invoices and recognition of software revenue. The Company expenses
internal direct and incremental costs related to contract acquisition and origination as
incurred.
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CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Deferred revenue consists of the following:
| March 31, | ||||||||
| 2011 | 2010 | |||||||
Current: |
||||||||
Deferred software revenue |
$ | 237 | $ | 578 | ||||
Deferred services revenue |
97,980 | 82,534 | ||||||
| $ | 98,217 | $ | 83,112 | |||||
Non-current: |
||||||||
Deferred services revenue |
$ | 14,695 | $ | 9,140 | ||||
Accounting for Stock-Based Compensation
The Company utilizes the Black-Scholes pricing model to determine the fair value of
non-qualified stock options on the dates of grant. Restricted stock units are measured based on
the fair market values of the underlying stock on the dates of grant. The Company recognizes
stock-based compensation using the straight-line method for all stock awards.
The Company classifies benefits of tax deductions in excess of the compensation cost
recognized (excess tax benefits) as a financing item cash inflow with a corresponding operating
cash outflow. For the years ended March 31, 2011, 2010 and 2009, the Company includes $7,044,
$3,395, and $469, respectively, as a financing cash inflow.
Share Repurchases
The Company considers all shares repurchased as cancelled shares restored to the status of
authorized but unissued shares on the trade date. The aggregate purchase price of the shares of
the Company’s common stock repurchased is reflected as a reduction to Stockholders’ Equity. The
Company accounts for shares repurchased as an adjustment to common stock (at par value) with the
excess repurchase price allocated between Additional Paid-in Capital and Accumulated Deficit. As a
result of the Company’s stock repurchases in the fiscal years ended March 31, 2011 and 2010, the
Company reduced common stock and additional paid-in capital by $7,246 and $9, respectively, and
accumulated deficit by $24,212 and $39, respectively.
Sales Tax
The Company records revenue net of sales tax.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expenses were $3,819, $2,121,
and $2,975 for the years ended March 31, 2011, 2010 and 2009, respectively.
Shipping and Handling Costs
Shipping and handling costs are included in cost of revenues for all periods presented.
Foreign Currency Translation
The functional currencies of the Company’s foreign operations are deemed to be the local
country’s currency. Assets and liabilities of the Company’s international subsidiaries are
translated at their respective period-end exchange rates, and revenues and expenses are translated
at average currency exchange rates for the period. The resulting balance sheet translation
adjustments are included in Other Comprehensive Income (Loss) and are reflected as a separate
component of Stockholders’ Equity.
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CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Foreign currency transaction gains and losses are recorded in “General and administrative
expenses” in the Consolidated Statements of Income. The Company recognized net foreign currency
transaction losses of $623 in the year ending March 31, 2011, net foreign currency transaction
losses of $647 in the year ending March 31, 2010, and net foreign currency transaction gains of
$907 in the year ending March 31, 2009. The net foreign currency transaction gains and losses
recorded in “General and administrative expenses” include settlement gains and losses on forward
contracts disclosed below.
To date, the Company has selectively hedged its exposure to foreign currency transaction gains
and losses on the balance sheet through the use of forward contracts, which were not designated as
hedging instruments. The duration of forward contracts utilized for hedging the Company’s balance
sheet exposure is approximately one month. As of March 31, 2011 and March 31, 2010, the Company
did not have any forward contracts outstanding. The Company recorded net realized gains of $48 and
net realized losses of $34 in general and administrative expenses related to the settlement of a
forward exchange contracts in the years ending March 31, 2011 and 2010, respectively. In the
future, the Company may enter into additional foreign currency-based hedging contracts to reduce
its exposure to significant fluctuations in currency exchange rates on the balance sheet.
Comprehensive Income
Comprehensive income is defined to include all changes in equity, except those resulting from
investments by stockholders and distribution to stockholders. Comprehensive income for the fiscal
years ending March 31, 2011, 2010 and 2009 is as follows:
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Net income |
$ | 21,004 | $ | 18,405 | $ | 12,328 | ||||||
Foreign currency translation adjustment |
419 | 80 | 165 | |||||||||
Total comprehensive income |
$ | 21,423 | $ | 18,485 | $ | 12,493 | ||||||
Impact of Recently Issued Accounting Standards
Fair Value Measurements
In January 2010, the FASB issued guidance requiring additional disclosure for significant
transfers in and out of Levels 1 and 2 fair value measurements and the reasons for such transfers.
This new guidance also requires separate disclosure information about purchases, sales, issuances,
and settlements (on a gross basis rather than as one net number) in the reconciliation for fair
value measurements using significant unobservable inputs (Level 3). In addition, this guidance
clarifies existing disclosures regarding fair value measurement for each class of assets and
liabilities and the valuation techniques and inputs used to measure fair value for recurring and
nonrecurring fair value measurements that fall in either Level 2 or Level 3. The changes under this
new guidance were effective for the quarterly period beginning January 1, 2010, except for the
disclosures about purchases, sales, issuances and settlements in the roll forward of activity in
Level 3 fair value measurements, which are effective for the Company’s fiscal year beginning April
1, 2011. The adoption of these new accounting pronouncements will not have a material impact on the
Company’s consolidated financial position, results of operations or cash flows.
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CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
3. Property and Equipment
Property and equipment consist of the following:
| March 31, | ||||||||
| 2011 | 2010 | |||||||
Computer equipment |
$ | 10,609 | $ | 10,382 | ||||
Other machinery and equipment |
8,167 | 6,603 | ||||||
Leasehold improvements |
4,375 | 4,229 | ||||||
Purchased software |
1,623 | 1,430 | ||||||
Furniture and fixtures |
1,684 | 1,347 | ||||||
| 26,458 | 23,991 | |||||||
Less: Accumulated depreciation and amortization |
(20,058 | ) | (17,635 | ) | ||||
| $ | 6,400 | $ | 6,356 | |||||
The Company recorded depreciation and amortization expense of $3,906, $3,630, and $3,691 for
the years ended March 31, 2011, 2010 and 2009, respectively.
4. Accrued Liabilities
Accrued liabilities consist of the following:
| March 31, | ||||||||
| 2011 | 2010 | |||||||
Compensation and related payroll taxes |
$ | 19,204 | $ | 14,122 | ||||
Other |
14,271 | 11,605 | ||||||
| $ | 33,475 | $ | 25,727 | |||||
5. Credit Facility
In July 2008, the Company entered into a credit facility in which the Company could have
borrowed up to $40,000 over the initial 12 months of the credit facility. Borrowings under the
facility were available to repurchase the Company’s common stock under its share repurchase program
and to provide for working capital and general corporate purposes. The credit facility expired on
July 9, 2009 because no amounts were borrowed during the initial 12 months of the credit facility.
In July 2009, the Company entered into an amended and restated credit facility in which the
Company can borrow up to $30,000 over a three year period. Borrowings under the amended and
restated credit facility are available to repurchase the Company’s common stock under its share
repurchase program and to provide for working capital and general corporate purposes. Repayment of
principal amounts borrowed under the amended and restated credit facility is required at the
maturity date of July 2012.
The amended and restated credit facility contains financial covenants that require the Company
to maintain a quick ratio and minimum earnings before interest, taxes, depreciation and
amortization (“EBITDA”), as defined in the credit agreement. Borrowings under the amended and
restated credit facility bear interest, at the Company’s option, at either i) LIBOR plus a margin
ranging from 2.25% to 2.75% or ii) the bank’s base rate plus a margin ranging from 1.75% to 2.25%.
The bank’s base rate is defined as the higher of the federal funds rate plus 1.5%, one-month LIBOR
plus 1.5%, or the lender’s prime rate. The Company pays a quarterly commitment fee that ranges
from 0.35% to 0.50% per annum based on the unused portion of the amended and restated credit
facility. As of March 31, 2011, the Company was in compliance with all required covenants, and
there were no outstanding balances on the amended and restated credit facility.
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CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
6. Commitments and Contingencies
Leases
The Company leases various office and warehouse facilities under non-cancelable leases, which
expire on various dates through March 2016. Future minimum lease payments under all operating
leases at March 31, 2011 are as follows:
| Year Ending March 31: | ||||
2012 |
$ | 6,232 | ||
2013 |
5,846 | |||
2014 |
3,390 | |||
2015 |
2,187 | |||
2016 |
990 | |||
| $ | 18,645 | |||
Rent expenses were $6,778, $5,628, and $5,187 for the years ended March 31, 2011, 2010 and
2009, respectively.
Rent expense is calculated by amortizing total rental payments (net of any rental abatements,
allowances and other rental
concessions), on a straight-line basis, over the lease term. Accordingly, rent expense charged to
operations differs from rent paid
resulting in the Company recording deferred rent.
Purchase Commitments
The Company, in the normal course of business, enters into various purchase commitments for
goods or services. Total non-cancellable purchase commitments as of March 31, 2011 are
approximately $1,519 for fiscal 2012, $1,337 for fiscal 2013 and $541 for fiscal 2014, totaling
$3,397 for all periods through fiscal 2014. These purchase commitments primarily result from
contracts for the acquisition of IT infrastructure, marketing and software development services.
The Company has certain software royalty commitments associated with the shipment and
licensing of certain products. Royalty expense is generally based on the number of units shipped
or a percentage of the underlying revenue. Royalty expense, included in cost of software revenues,
was $1,295 in fiscal 2011, $1,290 in fiscal 2010 and $1,224 in fiscal 2009.
Indemnifications
The Company offers a 90-day limited product warranty for its software. To date, costs related
to this product warranty have not been material.
Legal Proceedings
In the normal course of its business, the Company may be involved in various claims,
negotiations and legal actions; however, as of March 31, 2011, the Company is not a party to any
litigation that is expected to have a material effect on the Company’s financial position, results
of operations or cash flows.
The Company provides certain provisions within its software licensing agreements to indemnify
its customers from any claim, suit or proceeding arising from alleged or actual intellectual
property infringement. These provisions continue in perpetuity, along with the Company’s software
licensing agreements. The Company has never incurred a liability relating to one of these
indemnification provisions, and management believes that the likelihood of any future payout
relating to these provisions is remote. Therefore, the Company has not recorded a liability during
any period for these indemnification provisions.
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CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
7. Capitalization
As of March 31, 2011 and 2010, the Company had 250,000 shares of common stock and 50,000
shares of preferred stock authorized. As of March 31, 2011 and 2010, there were no shares of
preferred stock outstanding.
On November 13, 2008, the Board of Directors of the Company adopted a Rights Plan and declared
a dividend distribution of one Right for each outstanding share of common stock to shareholders of
record on November 24, 2008. Each Right, when exercisable, entitles the registered holder to
purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value
$0.01 per share, at a purchase price of eighty dollars per one one-thousandth of a share, subject
to adjustment. Of the 50,000 shares of preferred stock authorized under the Company’s certificate
of incorporation, 150 have been designated as Series A Junior Participating Preferred.
The Rights will become exercisable following the tenth business day after (i) a person or
group announces the acquisition of 15% or more of the Company’s common stock or (ii) commencement
of a tender or exchange offer, the consummation of which would result in ownership by the person or
group of 15% or more of the Company’s common stock. The Company is also entitled to redeem the
Rights at $0.001 per right under certain circumstances. The Rights expire on November 14, 2018, if
not exercised or redeemed.
Common Stock
The Company had 43,965 and 43,053 shares of common stock, par value $0.01, outstanding at
March 31, 2011 and March 31, 2010, respectively.
In January 2008, the Company’s Board of Directors approved a stock repurchase program, which
authorized the Company to repurchase up to $40,000 of its common stock. The Company’s Board of
Directors authorized additional increases of $40,000 in July 2008 and $40,000 in July 2010 to the
Company’s existing share repurchase program. As of March 31, 2011, the Company is authorized to
repurchase up to a total of $120,000 of its common stock through March 31, 2012. As of March 31,
2011, the Company has repurchased approximately $71,748 under the share repurchase authorization
and may repurchase an additional $48,252 of its common stock under the current program through
March 31, 2012.
Shares Reserved for Issuance
The Company has reserved 8,044 shares to allow for the exercise of all outstanding options and
vesting of restricted stock units at March 31, 2011.
8. Stock Plans
As of March 31, 2011, the Company maintains two stock incentive plans, the 1996 Stock Option
Plan (the “Plan”) and the 2006 Long-Term Stock Incentive Plan (the “LTIP”).
Under the Plan, the Company may grant non-qualified stock options to purchase 11,705 shares of
common stock to certain officers and employees. Stock options are granted at the discretion of the
Board and expire 10 years from the date of the grant. At March 31, 2011, there were 558 options
available for future grant under the Plan.
The LTIP permits the grant of incentive stock options, non-qualified stock options, restricted
stock awards, restricted stock units, stock appreciation rights, performance stock awards and stock
unit awards based on, or related to, shares of the Company’s common stock. On each April 1, the
number of shares available for issuance under the LTIP is increased, if applicable, such that the
total number of shares available for awards under the LTIP as of any April 1 is equal to 5% of the
number of outstanding shares of the Company’s common stock on that April 1. As of March 31, 2011,
approximately 718 shares were available for future issuance under the LTIP.
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CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
As of March 31, 2011, the Company has granted non-qualified stock options and restricted stock
units under its stock incentive plans. Equity awards granted by the Company under its stock
incentive plans generally vest quarterly over a four-year period, except that the shares that would
otherwise vest quarterly over the first 12 months do not vest until the first anniversary of the
grant. During fiscal 2011, the Company granted a total of 53 stock options and 28 restricted stock
units to members of the Company’s Board of Directors that vest over a one year period. The Company
anticipates that future grants under its stock incentive plans will continue to include both
non-qualified stock options and restricted stock units.
The Company estimated the fair value of stock options granted using the Black-Scholes formula.
The average expected life was determined according to the “simplified method”, which is the
mid-point between the vesting date and the end of the contractual term. The Company will continue
to use the “simplified” method until it has enough historical experience to provide a reasonable
estimate of expected term. The risk-free interest rate is determined by reference to U.S. Treasury
yield curve rates with a remaining term equal to the expected life assumed at the date of grant.
Forfeitures are estimated based on the Company’s historical analysis of actual stock option
forfeitures.
Expected volatility through the quarter ended September 30, 2008 was calculated based on
reported data for a peer group of publicly traded companies for which historical information was
available. During the quarter ended December 31, 2008, the Company began to incorporate its own
data into the expected volatility assumption. The Company modified its expected volatility
calculation because at that time its common stock had been publically traded for 2 years and it believed that
CommVault specific volatility inputs should be included in the calculation of expected volatility.
As a result, expected volatility during the second half of fiscal 2009 and all of fiscal 2010 and
2011 was calculated based on a blended approach that included historical volatility of a peer
group, the implied volatility of the Company’s traded options with a remaining maturity greater
than six months and the historical realized volatility of its common stock from the date of its
initial public offering to the respective stock option grant date.
The assumptions used in the Black-Scholes option-pricing model are as follows:
| Year Ended March 31, | ||||||||
| 2011 | 2010 | 2009 | ||||||
Dividend yield |
None | None | None | |||||
Expected volatility |
40% – 45% | 40% – 45% | 40% – 44% | |||||
Weighted average expected volatility |
44% | 42% | 43% | |||||
Risk-free interest rates |
1.18% – 2.93% | 0.24% – 3.14% | 1.54% – 3.84% | |||||
Expected life (in years) |
6.2 | 6.3 | 6.4 | |||||
The following table presents the stock-based compensation expense included in cost of services
revenue, sales and marketing, research and development and general and administrative expenses for
the years ended March 31, 2011, 2010 and 2009.
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Cost of services revenue |
$ | 346 | $ | 463 | $ | 303 | ||||||
Sales and marketing |
7,040 | 6,827 | 5,317 | |||||||||
Research and development |
1,719 | 2,030 | 1,605 | |||||||||
General and administrative |
6,518 | 5,592 | 4,074 | |||||||||
Stock-based compensation expense |
$ | 15,623 | $ | 14,912 | $ | 11,299 | ||||||
The Company recognized a tax benefit related to stock-based compensation of $5,352 in the year
ended March 31, 2011, $5,135 in the year ended March 31, 2010 and $4,057 in the year ended March
31, 2009.
As of March 31, 2011, there was approximately $36,181 of unrecognized stock-based compensation
expense, net of estimated forfeitures, related to non-vested stock option and restricted stock unit
awards that is expected to be recognized over a weighted average period of 2.67 years. To the
extent the actual forfeiture rate is different from what the Company has anticipated, stock-based
compensation related to these awards will be different from the Company’s expectations.
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Table of Contents
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
The following summarizes the activity for the Company’s two stock incentive plans from March
31, 2008 to March 31, 2011:
| Weighted- | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted- | Remaining | Aggregate | ||||||||||||||
| Number of | Average | Contractual | Intrinsic | |||||||||||||
| Options | Options | Exercise Price | Term (Years) | Value | ||||||||||||
Outstanding at March 31, 2008 |
8,086 | $ | 8.84 | |||||||||||||
Options granted |
1,307 | 11.35 | ||||||||||||||
Options exercised |
(460 | ) | 5.94 | |||||||||||||
Options forfeited |
(136 | ) | 12.44 | |||||||||||||
Options expired |
(18 | ) | 12.98 | |||||||||||||
Outstanding at March 31, 2009 |
8,779 | 9.30 | ||||||||||||||
Options granted |
743 | 20.81 | ||||||||||||||
Options exercised |
(1,246 | ) | 8.25 | |||||||||||||
Options forfeited |
(183 | ) | 14.46 | |||||||||||||
Options expired |
(23 | ) | 17.01 | |||||||||||||
Outstanding at March 31, 2010 |
8,070 | 10.38 | ||||||||||||||
Options granted |
1,191 | 27.27 | ||||||||||||||
Options exercised |
(2,066 | ) | 8.30 | |||||||||||||
Options forfeited |
(144 | ) | 15.62 | |||||||||||||
Options expired |
(17 | ) | 11.61 | |||||||||||||
Outstanding at March 31, 2011 |
7,034 | $ | 13.75 | 6.24 | $ | 183,818 | ||||||||||
Vested or expected to vest at March 31, 2011 |
6,908 | $ | 13.48 | 6.16 | $ | 181,724 | ||||||||||
Exercisable at March 31, 2011 |
4,437 | $ | 9.48 | 4.85 | $ | 134,890 | ||||||||||
The weighted average fair value of stock options granted was $12.23 per share, $9.31 per
share, and $5.14 per share during the years ended March 31, 2011, 2010 and 2009, respectively. The
total intrinsic value of options exercised was $39,119, $15,795, and $4,079 in the years ended
March 31, 2011, 2010 and 2009, respectively. The Company’s policy is to issue new shares upon
exercise of options as the Company does not hold shares in treasury.
Restricted stock unit activity is as follows:
| Weighted | ||||||||
| Number | Average | |||||||
| of | Grant Date | |||||||
| Non-Vested Restricted Stock Units | Awards | Fair Value | ||||||
Non-vested as of March 31, 2008 |
665 | $ | 15.81 | |||||
Granted |
593 | 11.92 | ||||||
Vested |
(208 | ) | 16.14 | |||||
Forfeited |
(58 | ) | 15.89 | |||||
Non-vested as of March 31, 2009 |
992 | 13.44 | ||||||
Granted |
329 | 20.67 | ||||||
Vested |
(216 | ) | 14.95 | |||||
Forfeited |
(94 | ) | 14.67 | |||||
Non-vested as of March 31, 2010 |
1,011 | 15.33 | ||||||
Granted |
507 | 26.96 | ||||||
Vested |
(403 | ) | 14.44 | |||||
Forfeited |
(105 | ) | 17.71 | |||||
Non-vested as of March 31, 2011 |
1,010 | $ | 21.27 | |||||
The total fair value of the restricted stock units that vested during the years ended March 31,
2011, 2010 and 2009 was $10,157, $4,245 and $2,660, respectively.
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Table of Contents
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
The following table summarizes information on stock options outstanding under the Plan and LTIP
at March 31, 2011:
| Options | Weighted-Average | Options | Weighted- | |||||||||||||||||
| Outstanding | Remaining | Exercisable at | Average | |||||||||||||||||
| Range of Exercise Prices | March 31, 2011 | Contractual Life | Exercise Price | March 31, 2011 | Exercise Price | |||||||||||||||
$4.00 – 5.30 |
1,593 | 3.52 | $ | 4.57 | 1,593 | $ | 4.57 | |||||||||||||
6.00 – 10.56 |
904 | 3.24 | 6.54 | 872 | 6.41 | |||||||||||||||
11.12 – 13.50 |
1,096 | 7.24 | 11.39 | 551 | 11.65 | |||||||||||||||
13.81 – 16.99 |
1,533 | 6.71 | 15.23 | 1,171 | 15.36 | |||||||||||||||
17.19 – 23.54 |
745 | 8.07 | 21.21 | 250 | 19.19 | |||||||||||||||
23.88 – 35.60 |
1,163 | 9.57 | 27.41 | 0 | 0.00 | |||||||||||||||
$4.00 – 35.60 |
7,034 | 6.24 | $ | 13.75 | 4,437 | $ | 9.48 | |||||||||||||
9. Income Taxes
The components of income before income taxes were as follows:
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Domestic |
$ | 31,553 | $ | 29,927 | $ | 19,579 | ||||||
Foreign |
4,762 | 2,200 | 2,391 | |||||||||
| $ | 36,315 | $ | 32,127 | $ | 21,970 | |||||||
The components of income tax (expense) benefit were as follows:
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Current: |
||||||||||||
Federal |
$ | (9,539 | ) | $ | (5,545 | ) | $ | (2,504 | ) | |||
State |
(2,242 | ) | (2,378 | ) | (1,137 | ) | ||||||
Foreign |
250 | (1,614 | ) | (2,210 | ) | |||||||
Deferred: |
||||||||||||
Federal |
345 | (4,569 | ) | (4,388 | ) | |||||||
State |
(4,040 | ) | 345 | (1,063 | ) | |||||||
Foreign |
(85 | ) | 39 | 1,660 | ||||||||
| $ | (15,311 | ) | $ | (13,722 | ) | $ | (9,642 | ) | ||||
A reconciliation of the statutory tax rates and the effective tax rates for the years ended
March 31, 2011, 2010 and 2009 are as follows:
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Statutory federal income tax expense rate |
(35.0 | )% | (35.0 | )% | (35.0 | )% | ||||||
State and local income tax expense, net of federal income tax effect |
(3.9 | ) | (4.4 | ) | (2.6 | ) | ||||||
Impact of state tax rate change on deferred tax assets |
(0.5 | ) | 0.5 | (5.1 | ) | |||||||
Foreign earnings taxed at different rates |
(0.5 | ) | (2.3 | ) | (1.2 | ) | ||||||
Permanent differences |
(1.5 | ) | (2.3 | ) | (2.4 | ) | ||||||
Foreign tax credits |
1.4 | (3.5 | ) | 2.1 | ||||||||
Research credits |
5.0 | 4.1 | 3.7 | |||||||||
Tax reserves |
4.6 | (1.9 | ) | (1.7 | ) | |||||||
Change in valuation allowance |
(11.9 | ) | — | — | ||||||||
Other differences, net |
0.1 | 2.1 | (1.7 | ) | ||||||||
Effective income tax expense |
(42.2 | )% | (42.7 | )% | (43.9 | )% | ||||||
65
Table of Contents
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Deferred tax assets arise due to the recognition of income and expense items for tax purposes,
which differ from those used for financial statement purposes. The Company assesses the likelihood
that its deferred tax assets will be recovered from future taxable income, and to the extent that
the Company believes recovery is not likely, the Company establishes a valuation allowance. The
significant components of the Company’s deferred tax assets are as follows:
| March 31, | ||||||||
| 2011 | 2010 | |||||||
Deferred tax assets: |
||||||||
Tax credits |
$ | 18,239 | $ | 22,223 | ||||
Stock-based compensation |
10,656 | 9,804 | ||||||
Deferred revenue |
3,438 | 3,139 | ||||||
Net operating losses |
2,625 | 3,119 | ||||||
Depreciation and amortization |
1,255 | 1,233 | ||||||
Allowance for doubtful accounts the other reserves |
961 | 238 | ||||||
Accrued expenses |
911 | 1,422 | ||||||
Total deferred tax assets |
38,085 | 41,178 | ||||||
Less: valuation allowance |
(4,306 | ) | — | |||||
Net deferred tax assets |
$ | 33,779 | $ | 41,178 | ||||
During the quarter ended March 31, 2011, the Company recorded valuation allowances totaling
$4,306 against its deferred tax assets. Specifically, the Company recorded a valuation allowance
of $4,212 against certain state research tax credits due to uncertainties related to the ability to
utilize such state research tax credits before they expire. The Company based its valuation
allowance on its estimates of taxable income by legal entity and the period over which its state
research tax credits will be recoverable. In addition, the Company recorded a valuation allowance
of $94 against foreign net operating loss carryforwards in a certain international jurisdiction.
In assessing the need for a valuation allowance against its net operating loss carryforwards in
such international jurisdiction, the Company considered projected future income as part of its
analysis.
It is the Company’s intention to reinvest undistributed earnings of its foreign subsidiaries
and thereby infinitely postpone their remittance. As a result, deferred U.S. income taxes have not
been provided on undistributed earnings of foreign subsidiaries of the Company. The cumulative
amount of unremitted earnings from the foreign subsidiaries that is expected to be permanently
reinvested was approximately $653 on March 31, 2011.
Excess tax benefits related to share-based payments are credited to equity. When determining
this excess tax benefit, the Company elected to follow the tax law approach. As a result, the
Company’s excess tax benefit which was recorded to equity was approximately $7,084 and $3,378 for
the years ended March 31, 2011 and 2010.
At March 31, 2011, the Company has state net operating loss (NOL) carryforwards of
approximately $2,074 and NOL carryforwards for foreign tax purposes of approximately $9,241.
At March 31, 2011, the Company has federal and state research tax credit (R&D credits)
carryforwards of approximately $11,443 and $5,078, respectively. The federal research tax credit
carryforwards expire from 2014 through 2030, and the state research tax credit carryforwards expire
from 2014 through 2026. At March 31, 2011, the Company has federal Alternative Minimum Tax credit
carryforwards of $1,202.
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Table of Contents
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
The Company conducts business globally and as a result, files income tax returns in the United
States and in various state and foreign jurisdictions. In the normal course of business, the
Company is subject to examination by taxing authorities throughout the world, including such major
jurisdictions as the United States, Australia, Canada, Germany, Netherlands and United Kingdom.
The Company is not currently under audit in any tax jurisdiction. The following table summarizes
the tax years in the Company’s major tax jurisdictions that remain subject to income tax
examinations by tax authorities as of March 31, 2011. The years subject to income tax examination
in the Company’s foreign jurisdictions cover the maximum time period with respect to these
jurisdictions. Due to NOL carryforwards, in some cases the tax years continue to remain subject to
examination with respect to such NOLs.
| Years Subject to Income | ||
| Tax Jurisdiction | Tax Examination | |
U.S. Federal |
2001 - Present | |
New Jersey |
2002 - Present | |
Foreign jurisdictions |
2006 - Present |
The calculation of the Company’s tax liabilities involves dealing with uncertainties in the
application of complex tax regulations in each of its tax jurisdictions. The number of years with
open tax audits varies depending on the tax jurisdiction. A number of years may lapse before a
particular matter is audited and finally resolved. A reconciliation of the amounts of unrecognized
tax benefits is as follows:
Balance at March 31, 2008 |
$ | 4,942 | ||
Additions for tax positions related to fiscal 2009 |
150 | |||
Additions for tax positions related to prior years |
— | |||
Settlements |
— | |||
Reductions related to the expiration of statutes of limitations |
— | |||
Foreign currency translation adjustment |
(553 | ) | ||
Balance at March 31, 2009 |
4,539 | |||
Additions for tax positions related to fiscal 2010 |
447 | |||
Additions for tax positions related to prior years |
127 | |||
Settlements |
— | |||
Reductions related to the expiration of statutes of limitations |
— | |||
Foreign currency translation adjustment |
116 | |||
Balance at March 31, 2010 |
5,229 | |||
Additions for tax positions related to fiscal 2011 |
512 | |||
Additions for tax positions related to prior years |
86 | |||
Settlements |
— | |||
Reductions related to the expiration of statutes of limitations |
(1,447 | ) | ||
Foreign currency translation adjustment |
101 | |||
Balance at March 31, 2011 |
$ | 4,481 | ||
All of the Company’s unrecognized tax benefits at March 31, 2011 of $4,481, if recognized,
would favorably affect the effective tax rate. Components of the reserve are classified as either
current or long-term in the Consolidated Balance Sheet based on when the Company expects each of
the items to be settled. Accordingly, the Company has recorded its unrecognized tax benefits of
$4,481 and $5,229 and the related accrued interest and penalties of $842 and $1,394 in Other
Liabilities on the Consolidated Balance Sheet at March 31, 2011 and March 31, 2010, respectively.
The Company believes that it is reasonably possible that approximately $352 of it currently
remaining unrecognized tax benefits and approximately $141 of related accrued interest and
penalties may be realized by the end of the fiscal year ending March 31, 2012 as a result of the
lapse of the statute of limitations. Interest and penalties related to unrecognized tax benefits
are recorded in income tax expense. In the years ended March 31, 2011, 2010 and 2009, the Company
recognized $152, $138 and $215, respectively, of interest and penalties in the Consolidated
Statement of Income.
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Table of Contents
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
10. Employee Benefit Plan
The Company has a defined contribution plan, as allowed under Section 401(k) of the Internal
Revenue Code, covering substantially all employees. The Company may make contributions equal to a
discretionary percentage of the employee’s contributions determined by the Company. The Company has
not made any contributions to the defined contribution plan.
11. Segment Information
The Company operates in one reportable segment, storage software solutions. The Company’s
products and services are sold throughout the world, through direct and indirect sales channels.
The Company’s chief operating decision maker, the chief executive officer, evaluates the
performance of the Company presented on a consolidated basis, accompanied by information about
revenue by geographic region for purposes of tracking distribution of resources and analyzing
overall return on investment for both domestic and international operations. The chief operating
decision maker does not receive discrete financial information about asset allocation, expense
allocation or profitability from the Company’s storage products or services.
Revenues by geography are based upon the billing address of the customer. All transfers
between geographic regions have been eliminated from consolidated revenues. The following table
sets forth revenue and long-lived assets by geographic area:
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Revenue: |
||||||||||||
United States |
$ | 190,706 | $ | 169,343 | $ | 143,047 | ||||||
Other |
124,070 | 101,682 | 91,472 | |||||||||
| $ | 314,776 | $ | 271,025 | $ | 234,519 | |||||||
No individual country other than the United States accounts for 10% or more of revenues in the
years ended March 31, 2011, 2010 and 2009. Revenue included in the “Other” caption above primarily
relates to the Company’s operations in Europe, Australia, Canada and Asia.
| March 31, | ||||||||
| 2011 | 2010 | |||||||
Long-lived assets: |
||||||||
United States |
$ | 4,768 | $ | 4,932 | ||||
Other |
3,265 | 2,683 | ||||||
| $ | 8,033 | $ | 7,615 | |||||
At March 31, 2011 and 2010, the United Kingdom had long-lived assets of $1,072 and $950,
respectively. At March 31, 2010, India had long-lived assets of $1,000. No other individual
country other than the United States accounts for 10% or more of long-lived assets as of March 31,
2011 and 2010.
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Table of Contents
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
12. Selected Quarterly Financial Data (unaudited)
| Quarter Ended | ||||||||||||||||
| June 30 | September 30 | December 31 | March 31 | |||||||||||||
Fiscal 2011 |
||||||||||||||||
Total revenue |
$ | 66,300 | $ | 75,226 | $ | 83,629 | $ | 89,621 | ||||||||
Gross margin |
56,780 | 65,709 | 73,475 | 77,797 | ||||||||||||
Net income |
3,498 | 5,419 | 7,252 | 4,835 | ||||||||||||
Net income per common share: |
||||||||||||||||
Basic (1) |
$ | 0.08 | $ | 0.13 | $ | 0.17 | $ | 0.11 | ||||||||
Diluted (1) |
$ | 0.08 | $ | 0.12 | $ | 0.16 | $ | 0.10 | ||||||||
| Quarter Ended | ||||||||||||||||
| June 30 | September 30 | December 31 | March 31 | |||||||||||||
Fiscal 2010 |
||||||||||||||||
Total revenue |
$ | 60,246 | $ | 66,650 | $ | 70,691 | $ | 73,438 | ||||||||
Gross margin |
51,896 | 57,675 | 61,594 | 64,215 | ||||||||||||
Net income |
2,435 | 4,718 | 5,440 | 5,812 | ||||||||||||
Net income per common share: |
||||||||||||||||
Basic (1) |
$ | 0.06 | $ | 0.11 | $ | 0.13 | $ | 0.14 | ||||||||
Diluted (1) |
$ | 0.06 | $ | 0.11 | $ | 0.12 | $ | 0.13 | ||||||||
| (1) | Per common share amounts for the quarters and full year have been
calculated separately. Accordingly, quarterly amounts do not add to
the annual amount because of differences in the weighted average
common shares outstanding during each period used in the basic and
diluted calculations. |
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Table of Contents
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of March 31, 2011. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of March 31, 2011.
(b) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
our financial reporting as defined in Rules 13a-15(f) of the Exchange Act. There are inherent
limitations in the effectiveness of any internal control, including the possibility of human error
and the circumvention or overriding of controls. Accordingly, even an effective internal control
can provide only reasonable assurance with respect to financial statement preparation. Further,
because of changes in conditions, the effectiveness of any internal control may vary over time.
Our management, with the participation of our principal executive officer and
principal financial officer, has evaluated the effectiveness of our internal control over financial
reporting as of March 31, 2011. In making this assessment, management used the framework set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework.
Based on our assessment, using those criteria, our management concluded that, as of
March 31, 2011, our internal control over financial reporting was effective. The effectiveness of
our internal control over financial reporting as of March 31, 2011 has been audited by Ernst &
Young LLP, our independent registered public accounting firm, as stated in their report, which is
included below in this Annual Report on Form 10-K.
(c) Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the
fourth quarter of fiscal 2011 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
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Table of Contents
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
The Board of Directors and Stockholders of
CommVault Systems, Inc.
CommVault Systems, Inc.
We have audited CommVault Systems, Inc.’s internal control over financial reporting as of March 31,
2011, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). CommVault
Systems, Inc.’s management is responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, CommVault Systems, Inc. maintained, in all material respects, effective internal
control over financial reporting as of March 31, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of CommVault Systems, Inc. as of March 31,
2011 and 2010, and the related consolidated statements of income, stockholders’ equity, and cash
flows for each of the three years in the period ended March 31, 2011 of CommVault Systems, Inc. and
our report dated May 17, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
MetroPark, New Jersey
May 17, 2011
May 17, 2011
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Table of Contents
Item 9B. Other Information
Not applicable
PART III
Item 10. Directors, Executive Officers and Corporate Governance
We will furnish to the SEC a definitive Proxy Statement not later than 120 days after the
close of the fiscal year ended March 31, 2011. Information with respect to this Item is
incorporated herein by reference from our 2011 Proxy Statement, including in the sections
captioned, “Our Board of Directors” and “Corporate Governance”.
Our Board of Directors has adopted a code of business ethics and conduct, which applies to all
our employees. The code of business ethics and conduct is in addition to our code of ethics for
senior financial officers. The full texts of our code of business ethics and conduct and our code
of ethics for senior financial officers can be found on our website, www.commvault.com.
Item 11. Executive Compensation
Information with respect to this Item is incorporated herein by reference from our 2011 Proxy
Statement, including in the section captioned “Compensation Discussion and Analysis”.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information with respect to this Item is incorporated herein by reference from our 2011 Proxy
Statement, including in the section captioned “Security Ownership of Certain Beneficial Ownership
and Management”.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of March 31, 2011 with respect to the shares of
our common stock that may be issuable upon the exercise of options, warrants and rights under or
existing equity compensation plans.
The following information is as of March 31, 2011:
| Number of Securities | ||||||||||||
| Number of | Weighted-Average | Remaining Available for | ||||||||||
| Securities to be | Exercise Price of | Future Issuance Under Equity | ||||||||||
| Issued Upon Exercise of | Outstanding | Compensation Plans (Excluding | ||||||||||
| Outstanding Options, | Options, Warrants | Securities Reflected in | ||||||||||
| Warrants and Rights | and Rights | Column (a)) | ||||||||||
| (a) | (b) | (c) | ||||||||||
Equity compensation plans
approved by security holders
(1) |
8,043,330 | $ | 13.75 | 1,275,760 | ||||||||
Equity compensation plans not
approved by security holder |
— | — | — | |||||||||
Totals |
8,043,330 | $ | 13.75 | 1,275,760 | (2) | |||||||
| (1) | Consists of shares of common stock to be issued upon exercise of outstanding options and vesting
of restricted stock awards under our 1996 Stock Option Plan and 2006 Long-Term Stock Incentive
Plan. |
|
| (2) | On each April 1, the number of shares available for issuance under the 2006 Long-Term Stock
Incentive Plan is increased, if applicable, such that the total number of shares available for
awards under the 2006 Long-Term Stock Incentive Plan as of any April 1 is equal to 5% of the
number of outstanding shares of our common stock on that April 1. |
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information with respect to this Item is incorporated herein by reference from our 2011 Proxy
Statement, including in the section captioned, “Transactions with Related Persons”.
72
Table of Contents
Item 14. Principal Accountant Fees and Services
Information with respect to this Item is incorporated herein by reference from our 2011 Proxy
Statement, including in the sections captioned “Audit, Audit-related, Tax and All Other Fees”.
PART IV
Item 15. Exhibits and Financial Statement Schedules
Financial Statements
See “Index to Consolidated Financial Statements” set forth in Item 8 for a list of financial
statements filed as part of this report.
Financial Statement Schedules
The following financial statement schedule should be read in conjunction with the Consolidated
Financial Statements set forth in Item 8 and appears below:
Schedule II — Valuation and Qualifying Accounts for the years ended March 31, 2009, 2010 and
2011.
All other schedules are omitted because they are not required or the required information is
shown in the financial statements or notes thereto.
Schedule II — Valuation and Qualifying Accounts
| Charged | ||||||||||||||||
| Balance at | (Credited) to | Balance at | ||||||||||||||
| Beginning of | Costs and | End of | ||||||||||||||
| Year | Expenses | Deductions | Year | |||||||||||||
| (In thousands) | ||||||||||||||||
Year Ended March 31, 2009 |
||||||||||||||||
Allowance for doubtful accounts |
$ | 275 | $ | 24 | $ | 106 | $ | 193 | ||||||||
Year Ended March 31, 2010 |
||||||||||||||||
Allowance for doubtful accounts |
$ | 193 | $ | 158 | $ | 59 | $ | 292 | ||||||||
Year Ended March 31, 2011 |
||||||||||||||||
Allowance for doubtful accounts |
$ | 292 | $ | (42 | ) | $ | 144 | $ | 106 | |||||||
Valuation allowance for deferred taxes (1) |
$ | — | $ | 4,306 | $ | — | $ | 4,306 | ||||||||
| (1) | During the year ended March 31, 2011, we recorded valuation allowances totaling
$4,306 against our deferred tax assets. Specifically, we recorded a valuation
allowance of $4,212 against certain state research tax credits due to uncertainties
related to the ability to utilize such state research tax credits before they expire.
In addition, we recorded a valuation allowance of $94 against foreign net operating
loss carryforwards in a certain international jurisdiction. |
73
Table of Contents
Exhibits
The following exhibits are incorporated by reference or filed herewith.
| Exhibit No. | Description | |||
| 3.1 | Amended and Restated Certificate of Incorporation of CommVault Systems, Inc. (Incorporated by
reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1, Commission File
No. 333-132550). |
|||
| 3.2 | Amended and Restated Bylaws of CommVault Systems, Inc. (Incorporated by reference to Exhibit 3.3
to the Registrant’s Registration Statement on Form S-1, Commission File No. 333-132550). |
|||
| 3.3 | Certification of Designation of Series A Junior Participating Preferred Stock of CommVault
Systems, Inc. (Incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K dated November
14, 2008). |
|||
| 4.1 | Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Registrant’s
Registration Statement on Form S-1, Commission File No. 333-132550). |
|||
| 4.2 | Rights Agreement between CommVault Systems, Inc. and Registrar and Transfer Company (Incorporated
by reference to Exhibit 4.1 to Registrant’s Form 8-K dated November 14, 2008). |
|||
| 9.1 | Form of Voting Trust Agreement (Incorporated by reference to Exhibit 9.1 to the Registrant’s
Registration Statement on Form S-1, Commission File No. 333-132550). |
|||
| 10.1 | * | CommVault Systems, Inc. 1996 Stock Option Plan, as amended (Incorporated by reference to Exhibit
10.2 to the Registrant’s Registration Statement on Form S-1, Commission File No. 333-132550). |
||
| 10.2 | * | Form of CommVault Systems, Inc. 2006 Long-Term Stock Incentive Plan (Incorporated by reference to
Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1, Commission File No.
333-132550). |
||
| 10.3 | * | Form of Non-Qualified Stock Option Agreement (Incorporated by reference to Exhibit 10.4 to the
Registrant’s Registration Statement on Form S-1, Commission File No. 333-132550). |
||
| 10.4 | * | Form of Restricted Stock Unit Agreement (Incorporated by reference to Exhibit 10.5 to the
Registrant’s Annual Report on Form 10-K for the year ended March 31, 2007). |
||
| 10.5 | * | Employment Agreement, dated as of February 1, 2004, between CommVault Systems, Inc. and N. Robert
Hammer (Incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on
Form S-1, Commission File No. 333-132550). |
||
| 10.6 | * | Form of Employment Agreement between CommVault Systems, Inc. and Alan G. Bunte and Louis F.
Miceli (Incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on
Form S-1, Commission File No. 333-132550). |
||
| 10.7 | * | Form of Corporate Change of Control Agreement between CommVault Systems, Inc. and Alan G. Bunte
and Louis F. Miceli (Incorporated by reference to Exhibit 10.7 to the Registrant’s Registration
Statement on Form S-1, Commission File No. 333-132550). |
||
| 10.8 | * | Form of Corporate Change of Control Agreement between CommVault Systems, Inc. and David West, Ron
Miiller, Scott Mercer and Steven Rose (Incorporated by reference to Exhibit 10.8 to the
Registrant’s Registration Statement on Form S-1, Commission File No. 333-132550). |
||
| 10.9 | * | Form of Indemnity Agreement between CommVault Systems, Inc. and each of its current officers and
directors (Incorporated by reference to Exhibit 10.9 to the Registrant’s Registration Statement
on Form S-1, Commission File No. 333-132550). |
||
| 10.10 | Software License Agreement, dated December 17, 2003, by and between Dell Products L.P. and
CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.18 to the Registrant’s
Registration Statement on Form S-1, Commission File No. 333-132550). |
|||
| 10.11 | † | Addendum One to the License and Distribution Agreement, dated May 5, 2004, by and between Dell
Products L.P. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.19 to the
Registrant’s Registration Statement on Form S-1, Commission File No. 333-132550). |
||
74
Table of Contents
| Exhibit No. | Description | |||
| 10.12 | † | Addendum Two to the License and Distribution Agreement, dated November 22, 2004, by and between
Dell Products L.P. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.20 to the
Registrant’s Registration Statement on Form S-1, Commission File No. 333-132550). |
||
| 10.13 | † | Addendum Three to the License and Distribution Agreement, dated April 28, 2005, by and between
Dell Products L.P. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.21 to the
Registrant’s Registration Statement on Form S-1, Commission File No. 333-132550). |
||
| 10.14 | † | Addendum Five to the License and Distribution Agreement, dated June 6, 2006, by and between Dell
Products L.P. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.22 to the
Registrant’s Registration Statement on Form S-1, Commission File No. 333-132550). |
||
| 10.15 | † | CommVault Systems Amended and Restated Reseller Agreement, effective as of April 6, 2005, between
CommVault Systems and Dell Inc. (Incorporated by reference to Exhibit 10.23 to the Registrant’s
Registration Statement on Form S-1, Commission File No. 333-132550). |
||
| 10.16 | † | Addendum Six to the Software License Agreement, dated August 9, 2007, by and between Dell
Products L.P. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.21 to the
Registrant’s Annual Report on Form 10-K for the year ending March 31, 2008). |
||
| 10.17 | † | Addendum Seven to the Software License Agreement, dated March 27, 2008, by and between Dell
Products L.P. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.22 to the
Registrant’s Annual Report on Form 10-K for the year ending March 31, 2008). |
||
| 10.18 | † | Addendum Nine to the Software License Agreement, dated September 1, 2008, by and between Dell
Global B.V. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.23 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ending September 30, 2008). |
||
| 10.19 | † | Addendum Ten to the Software License Agreement, dated October 1, 2008, by and between Dell Global
B.V. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.24 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ending September 30, 2008). |
||
| 10.20 | Direct Supplier Agreement, dated August 2, 2008, by and between CommVault Systems, Inc. and Dell
Products L.P. (Incorporated by reference to Exhibit 10.25 to the Registrant’s Quarterly Report
on Form 10-Q for the quarter ending September 30, 2008). |
|||
| 10.21 | † | Addendum Eleven to the Software License Agreement, dated April 9, 2009, by and between Dell
Global B.V. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.26 to the
Registrant’s Annual Report on Form 10-K for the year ending March 31, 2009). |
||
| 10.22 | † | Addendum Twelve to the Software License Agreement, dated June 23, 2009, by and between Dell
Global B.V. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.27 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ending September 30, 2009). |
||
| 10.23 | † | Addendum Thirteen to the Software License Agreement, dated July 31, 2009, by and between Dell
Global B.V. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.28 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ending September 30, 2009). |
||
| 21.1 | List of Subsidiaries of CommVault Systems, Inc. |
|||
| 23.1 | Consent of Ernst & Young LLP |
|||
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
| 32.1 | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|||
| 32.2 | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|||
75
Table of Contents
| Exhibit No. | Description | |||
| 101.INS | XBRL Instance Document |
|||
| 101.SCH | XBRL Taxonomy Extension Schema Document |
|||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
|||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
|||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
|||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
|||
| † | Confidential treatment has been requested for portions of this document. Omitted portions have been filed separately with the SEC. |
|
| * | Management contract or compensatory plan or arrangement. |
76
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Oceanport, State of New Jersey, on May 17, 2011.
| COMMVAULT SYSTEMS, INC. |
||||
| By: | /s/ N. ROBERT HAMMER | |||
| N. Robert Hammer | ||||
| Chairman, President and Chief Executive Officer | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the capacities indicated on May
17, 2011.
| Signature | Title | |
/s/ N. ROBERT HAMMER
|
Chairman, President and Chief Executive Officer | |
N. Robert Hammer |
||
/s/ LOUIS F. MICELI
|
Senior Vice President, Chief Financial Officer | |
/s/ BRIAN CAROLAN
|
Vice President, Chief Accounting Officer | |
/s/ ALAN G. BUNTE
|
Director | |
/s/ FRANK J. FANZILLI, JR.
|
Director | |
/s/ ARMANDO GEDAY
|
Director | |
/s/ KEITH GEESLIN
|
Director | |
/s/ F. ROBERT KURIMSKY
|
Director | |
/s/ DANIEL PULVER
|
Director | |
/s/ GARY SMITH
|
Director | |
/s/ DAVID F. WALKER
|
Director |
77
Exhibit 21.1
Subsidiaries of CommVault Systems, Inc.
| Subsidiary | Jurisdiction of Organization | |
Comm Vault Capital Inc.
|
Delaware | |
Comm Vault Americas Inc.
|
Delaware | |
Advanced Data Life Cycle Management Inc.
|
Delaware | |
Comm Vault Systems (Canada) Inc.
|
Ontario | |
Comm Vault Systems Mexico S. de R.L. de C.V.
|
Mexico | |
Comm Vault Systems International B.V.
|
The Netherlands | |
Comm Vault Systems (India) Private Limited
|
India | |
Comm Vault Systems (Australia) Pty. Ltd.
|
Australia | |
Comm Vault Systems (New Zealand) Limited
|
New Zealand | |
Comm Vault Systems (Singapore) Private Ltd.
|
Singapore | |
CommVault Systems Ltd.
|
England | |
Comm Vault Systems GmbH
|
Germany | |
CommVault Systems (Japan) KK
|
Japan | |
CommVault Systems Srl
|
France | |
CommVault Systems Iberia Srl
|
Spain | |
CommVault Systems Ireland Ltd.
|
Ireland | |
CommVault Systems Italia Srl
|
Italy | |
CommVault Systems AB Srl
|
Sweden | |
Commvault Systems (Hong Kong) Limited
|
China | |
CommVault Software Technology (Beijing) Co., Ltd
|
China | |
CV Simpana Software (Proprietary) Limited
|
South Africa |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (Form S-8 No.
333-138578) pertaining to the 1996 Stock Option Plan and the 2006 Long-Term Stock Incentive Plan of
CommVault Systems, Inc. of our reports dated May 17, 2011, with respect to the consolidated
financial statements and schedule of CommVault Systems, Inc. and the effectiveness of internal
control over the financial reporting of CommVault Systems, Inc. included in this Annual Report
(Form 10-K) for the year ended March 31, 2011.
| /s/ Ernst & Young LLP |
MetroPark, New Jersey
May 17, 2011
May 17, 2011
Exhibit 31.1
Certification of Chief Executive Officer
Required by Rule 13a-14(a) (17 CFR 240.13a-14(a))
I, N. Robert Hammer, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of CommVault Systems, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ N. ROBERT HAMMER |
||
N. Robert Hammer |
||
Chairman, President and Chief Executive Officer |
||
Date: May 17, 2011 |
Exhibit 31.2
Certification of Chief Financial Officer
Required by Rule 13a-14(a) (17 CFR 240.13a-14(a))
I, Louis F. Miceli, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of CommVault Systems, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ LOUIS F. MICELI |
||
Louis F. Miceli |
||
Senior Vice President and Chief Financial Officer |
||
Date: May 17, 2011 |
Exhibit 32.1
Certification Pursuant To
18 U.S.C. Section 1350
As Adopted Pursuant To
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of CommVault Systems, Inc. (the “Company”) on Form 10-K for the period ended March 31, 2011 as filed with the Securities and Exchange Commission (the “Report”), I, N. Robert Hammer, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ N. ROBERT HAMMER |
||
N. Robert Hammer |
||
Chairman, President and Chief Executive Officer |
||
May 17, 2011 |
Exhibit 32.2
Certification Pursuant To
18 U.S.C. Section 1350
As Adopted Pursuant To
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of CommVault Systems, Inc. (the “Company”) on Form 10-K for the period ended March 31, 2011 as filed with the Securities and Exchange Commission (the “Report”), I, Louis F. Miceli, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ LOUIS F. MICELI |
||
Louis F. Miceli |
||
Senior Vice President and Chief Financial Officer |
||
May 17, 2011 |