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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: December 31, 2019
 
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
 
22-3447504
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1 Commvault Way
Tinton Falls, New Jersey
07724
(Address of principal executive offices)
(Zip Code)
(732) 870-4000
(Registrant’s telephone number, including area code) 
 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
CVLT
NASDAQ
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 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  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files.)    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, "accelerated filer", "smaller reporting company" and "emerging growth company" in rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company  
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  x
As of January 30, 2020, there were 46,601,042 shares of the registrant’s common stock, $0.01 par value, outstanding.

1


COMMVAULT SYSTEMS, INC.
FORM 10-Q
INDEX
 
 
 
Page
Part I – FINANCIAL INFORMATION
Item 1.
Financial Statements and Notes
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 
 


2



Commvault Systems, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
 
 
December 31,
2019
 
March 31,
2019
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
272,025

 
$
327,992

Restricted cash
 
8,000

 

Short-term investments
 
64,988

 
130,338

Trade accounts receivable
 
161,626

 
176,836

Other current assets
 
18,774

 
19,836

Total current assets
 
525,413

 
655,002

Property and equipment, net
 
115,972

 
122,716

Operating lease assets
 
15,248

 

Deferred commissions cost
 
31,990

 
33,619

Intangible assets, net
 
49,175

 

Goodwill
 
112,435

 

Other assets
 
12,335

 
11,116

Total assets
 
$
862,568

 
$
822,453

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
1,069

 
$
2,186

Accrued liabilities
 
89,474

 
85,721

Current portion of operating lease liabilities
 
7,730

 

Deferred revenue
 
235,513

 
238,439

Total current liabilities
 
333,786

 
326,346

Deferred revenue, less current portion
 
97,730

 
99,257

Deferred tax liabilities, net
 
1,726

 
2,594

Long-term operating lease liabilities
 
9,223

 

Other liabilities
 
2,470

 
2,953

Commitments and contingencies
 

 

Stockholders’ equity:
 
 
 
 
Preferred stock, $0.01 par value: 50,000 shares authorized, no shares issued and outstanding
 

 

Common stock, $0.01 par value: 250,000 shares authorized, 46,497 shares and 45,582 shares issued and outstanding at December 31, 2019 and March 31, 2019, respectively
 
463

 
454

Additional paid-in capital
 
962,097

 
887,907

Accumulated deficit
 
(533,154
)
 
(485,490
)
Accumulated other comprehensive loss
 
(11,773
)
 
(11,568
)
Total stockholders’ equity
 
417,633

 
391,303

Total liabilities and stockholders’ equity
 
$
862,568

 
$
822,453



See accompanying unaudited notes to consolidated financial statements

1


Commvault Systems, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
 
2019

2018
 
2019
 
2018
 
Revenues:
 
 
 
 
 
 
 
 
 
Software and products
 
$
76,631

 
$
84,515

 
$
208,900

 
$
229,069

 
Services
 
99,720

 
99,760

 
297,236

 
300,461

 
Total revenues
 
176,351

 
184,275

 
506,136

 
529,530

 
Cost of revenues:
 
 
 
 
 
 
 
 
 
Software and products
 
8,077

 
6,093

 
22,938

 
15,262

 
Services
 
22,446

 
22,760

 
67,546

 
68,070

 
Total cost of revenues
 
30,523

 
28,853

 
90,484

 
83,332

 
Gross margin
 
145,828

 
155,422

 
415,652

 
446,198

 
Operating expenses:
 
 
 
 
 
 
 
 
 
Sales and marketing
 
84,563

 
94,392

 
252,908

 
281,502

 
Research and development
 
30,503

 
22,005

 
77,310

 
69,751

 
General and administrative
 
23,864

 
20,900

 
71,124

 
69,001

 
Restructuring
 
2,021

 
4,953

 
18,951

 
13,342

 
Depreciation and amortization
 
5,356

 
2,728

 
10,681

 
7,961

 
Total operating expenses
 
146,307

 
144,978

 
430,974

 
441,557

 
Income (loss) from operations
 
(479
)
 
10,444

 
(15,322
)
 
4,641

 
Interest income
 
786

 
1,721

 
4,270

 
3,760

 
Income (loss) before income taxes
 
307

 
12,165

 
(11,052
)
 
8,401

 
Income tax expense (benefit)
 
957

 
(1,235
)
 
3,528

 
2,677

 
Net income (loss)
 
$
(650
)
 
$
13,400

 
$
(14,580
)
 
$
5,724

 
Net income (loss) per common share:
 
 
 
 
 
 
 
 
 
Basic
 
$
(0.01
)
 
$
0.29

 
$
(0.32
)
 
$
0.12

 
Diluted
 
$
(0.01
)
 
$
0.28

 
$
(0.32
)
 
$
0.12

 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
 
46,028

 
46,074

 
45,586

 
45,803

 
Diluted
 
46,028

 
47,357

 
45,586

 
47,674

 


See accompanying unaudited notes to consolidated financial statements

2


Commvault Systems, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
Net income (loss)
 
(650
)
 
13,400

 
(14,580
)
 
$
5,724

Other comprehensive loss:
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
 
960

 
(173
)
 
(205
)
 
$
(6,493
)
Comprehensive income (loss)
 
$
310

 
$
13,227

 
$
(14,785
)
 
$
(769
)


See accompanying unaudited notes to consolidated financial statements

3


Commvault Systems, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)

 
 
 
Common Stock
 
Additional
Paid – In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
 
Shares
 
Amount
 
 
 
 
Balance as of September 30, 2019
 
45,409

 
$
452

 
$
916,899

 
$
(532,504
)
 
$
(12,733
)
 
$
372,114

Stock-based compensation
 
 
 
 
 
18,974

 
 
 
 
 
18,974

Share issuances related to business combinations
 
 
 
 
 
1,616

 
 
 
 
 
1,616

Share issuances related to stock-based compensation
 
1,088

 
11

 
24,608

 
 
 
 
 
24,619

Net loss
 
 
 
 
 
 
 
(650
)
 
 
 
(650
)
Other comprehensive income
 
 
 
 
 
 
 
 
 
960

 
960

Balance as of December 31, 2019
 
46,497

 
$
463

 
$
962,097

 
$
(533,154
)
 
$
(11,773
)
 
$
417,633

 
 
 
Common Stock
 
Additional
Paid – In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
 
Shares
 
Amount
 
 
 
 
Balance as of March 31, 2019
 
45,582

 
$
454

 
$
887,907

 
$
(485,490
)
 
$
(11,568
)
 
$
391,303

Stock-based compensation
 
 
 
 
 
48,581

 
 
 
 
 
48,581

Share issuances related to business combinations
 
 
 
 
 
1,616

 
 
 
 
 
1,616

Share issuances related to stock-based compensation
 
1,745

 
17

 
30,927

 
 
 
 
 
30,944

Repurchase of common stock
 
(830
)
 
(8
)
 
(6,934
)
 
(33,084
)
 
 
 
(40,026
)
Net loss
 
 
 
 
 
 
 
(14,580
)
 
 
 
(14,580
)
Other comprehensive loss
 
 
 
 
 
 
 
 
 
(205
)
 
(205
)
Balance as of December 31, 2019
 
46,497

 
$
463

 
$
962,097

 
$
(533,154
)
 
$
(11,773
)
 
$
417,633

See accompanying unaudited notes to consolidated financial statements


4


Commvault Systems, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)

 
 
 
Common Stock
 
Additional
Paid – In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
 
Shares
 
Amount
 
 
 
 
Balance as of September 30, 2018
 
46,034

 
$
458

 
$
843,622

 
$
(415,143
)
 
$
(11,792
)
 
$
417,145

Stock-based compensation
 
 
 
 
 
15,832

 
 
 
 
 
15,832

Share issuances related to stock-based compensation
 
702

 
7

 
3,196

 
 
 
 
 
3,203

Repurchase of common stock
 
(937
)
 
(9
)
 
(7,767
)
 
(46,604
)
 
 
 
(54,380
)
Net income
 
 
 
 
 
 
 
13,400

 
 
 
13,400

Other comprehensive loss
 
 
 
 
 
 
 
 
 
(173
)
 
(173
)
Balance as of December 31, 2018
 
45,799

 
$
456

 
$
854,883

 
$
(448,347
)
 
$
(11,965
)
 
$
395,027

 
 
 
Common Stock
 
Additional
Paid – In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
 
Shares
 
Amount
 
 
 
 
Balance as of March 31, 2018
 
45,118

 
$
450

 
$
782,764

 
$
(373,678
)
 
$
(5,472
)
 
$
404,064

Stock-based compensation
 
 
 
 
 
51,586

 
 
 
 
 
51,586

Share issuances related to stock-based compensation
 
2,185

 
21

 
32,808

 
 
 
 
 
32,829

Repurchase of common stock
 
(1,504
)
 
(15
)
 
(12,275
)
 
(80,393
)
 
 
 
(92,683
)
Net income
 
 
 
 
 
 
 
5,724

 
 
 
5,724

Other comprehensive loss
 
 
 
 
 
 
 
 
 
(6,493
)
 
(6,493
)
Balance as of December 31, 2018
 
45,799

 
$
456

 
$
854,883

 
$
(448,347
)
 
$
(11,965
)
 
$
395,027

See accompanying unaudited notes to consolidated financial statements










5


Commvault Systems, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
Nine Months Ended December 31,
 
 
2019
 
2018
Cash flows from operating activities
 
 
 
 
Net Income (loss)
 
$
(14,580
)
 
$
5,724

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
11,618

 
9,112

Noncash stock-based compensation
 
48,581

 
51,586

Deferred income taxes
 

 
(150
)
Amortization of deferred commissions cost
 
13,150

 
13,006

Impairment of operating lease assets
 
2,195

 

Changes in operating assets and liabilities:
 
 
 
 
Trade accounts receivable
 
12,735

 
(17,918
)
Operating lease assets and liabilities, net
 
(512
)
 

Other current assets and Other assets
 
5,586

 
10,425

Deferred commissions cost
 
(11,352
)
 
(13,765
)
Accounts payable
 
(1,726
)
 
637

Accrued liabilities
 
(2,018
)
 
5,345

Deferred revenue
 
(6,262
)
 
9,368

Other liabilities
 
(1,407
)
 
224

Net cash provided by operating activities
 
56,008

 
73,594

Cash flows from investing activities
 
 
 
 
Purchase of short-term investments
 
(32,800
)
 
(98,150
)
Proceeds from maturity of short-term investments
 
98,150

 
99,243

Purchase of property and equipment
 
(1,911
)
 
(5,104
)
Business combination, net of cash acquired
 
(157,495
)
 

Net cash used in investing activities
 
(94,056
)
 
(4,011
)
Cash flows from financing activities
 
 
 
 
Repurchase of common stock
 
(40,026
)
 
(92,683
)
Proceeds from stock-based compensation plans
 
30,944

 
32,829

Net cash used in financing activities
 
(9,082
)
 
(59,854
)
Effects of exchange rate — changes in cash
 
(837
)
 
(13,115
)
Net decrease in cash, cash equivalents and restricted cash
 
(47,967
)
 
(3,386
)
Cash, cash equivalents and restricted cash at beginning of period
 
327,992

 
330,784

Cash, cash equivalents and restricted cash at end of period
 
$
280,025

 
$
327,398



See accompanying unaudited notes to consolidated financial statements


6

Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited
(In thousands, except per share data)



1.    Basis of Presentation
The consolidated financial statements of Commvault Systems, Inc. and its subsidiaries ("Commvault" or the "Company") as of December 31, 2019 and for the three and nine months ended December 31, 2019 and 2018 are unaudited, and in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the financial statements and notes in the Company’s Annual Report on Form 10-K for fiscal 2019. The results reported in these financial statements should not necessarily be taken as indicative of results that may be expected for the entire fiscal year.
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, income taxes and related reserves, stock-based compensation and accounting for research and development costs. Actual results could differ from those estimates.
2.    Summary of Significant Accounting Policies
Correction of an Immaterial Error in Previously Issued Financial Statements
Subsequent to the issuance of the financial statements for the year ended March 31, 2018 and for the interim periods in fiscal 2019, the Company concluded that the Consolidated Statement of Operations contained an immaterial error related to the classification of legal fees related to intellectual property as Research and development expenses and not General and administrative expenses.  These immaterial errors have been corrected for the comparative period shown by reclassifying $911 and $2,466 from Research and development expense to General and administrative expense for the three and nine months ended December 31, 2018. This immaterial error did not have any impact on our financial position, net loss or cash flow.
Recently Issued Accounting Standards
Leases

    In February 2016, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) No. 2016-02, Leases. Under the new guidance, the Company is required to recognize a lease liability and a right-of-use asset for leases. The Company adopted the new guidance on April 1, 2019 using the optional transition method, which allows for the prospective application of the standard, and as a result, the Company did not record an adjustment to retained earnings. In addition, the Company elected the package of practical expedients, for all of its leases, permitted under the transition guidance within the standard, which allowed the Company to carry forward its historical lease classification, to not reassess prior conclusions related to initial direct costs and to not reassess whether any expired or existing contracts are or contain leases. The Company also elected the lessee practical expedient to combine lease and non-lease components for new leases and modified leases. The Company also made an accounting policy election in accordance with the new standard to apply accounting similar to ASC 840 to short-term leases, which are defined as leases that have a term of twelve months or less. The new guidance does not have any impact on the Consolidated Statement of Operations or Consolidated Statement of Cash Flows.
Credit Losses on Financial Instruments

    In June 2016, the FASB issued ASU 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13). The standard amends guidance on the impairment of financial instruments. The ASU estimates credit losses based on expected losses and provides for a simplified accounting model for purchased financial assets with credit deterioration. The standard requires a modified retrospective basis adoption through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The amendments of this ASU are effective for the Company's fiscal 2021. The Company does not expect the adoption of ASU 2016-13 will have a material impact the financial statements.

7

Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)


There have been no other additional significant changes in the Company’s accounting policies during the nine months ended December 31, 2019 as compared to the significant accounting policies described in its Annual Report on Form 10-K for the year ended March 31, 2019 and to the changes disclosed above.
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 distribution agreement with Arrow Enterprise Computing Solutions, Inc. (“Arrow”) totaled 37% of total revenues for both the nine months ended December 31, 2019 and 2018. Arrow accounted for approximately 32% of total accounts receivable as of December 31, 2019 and 38% of total accounts receivable as of March 31, 2019.
Sales through the Company's original manufacturing agreement with Hitachi Vantara (formerly Hitachi Data Systems) ("Hitachi") accounted for 11% of total accounts receivables as of December 31, 2019.
Fair Value of Financial Instruments
The carrying amounts of the Company’s cash, cash equivalents and restricted cash, accounts receivable, and accounts payable approximate their fair values due to the short-term maturity of these instruments. The Company’s cash equivalents balance consists primarily of money market funds. The Company’s short-term investments balance consists of U.S. Treasury Bills with maturities of one year or less. The Company accounts for its short-term investments as held to maturity. The contingent consideration liability associated with the Hedvig acquisition as discussed further in Note 3 of the unaudited consolidated financial statements was valued based on a probability weighted-average approach.
The following table summarizes the composition of the Company’s financial assets measured at fair value at December 31, 2019 and March 31, 2019:
December 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
Cash equivalents
 
$
34,800

 

 

 
$
34,800

Short-term investments
 
$

 
66,262

 

 
$
66,262

Total assets
 
$
34,800

 
$
66,262

 

 
$
101,062

Liabilities:
 
 
 
 
 
 
 
 
Contingent consideration
 
$

 
$

 
$
(4,000
)
 
$
(4,000
)
March 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
Cash equivalents
 
$
102,702

 

 

 
$
102,702

Short-term investments
 
$

 
131,937

 

 
$
131,937

Total assets
 
$
102,702

 
$
131,937

 

 
$
234,639


Goodwill and Intangible Assets
Goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of net tangible and intangible assets acquired. The carrying value of goodwill is tested for impairment on an annual basis on January 1, or more often if an event occurs or circumstances change that would more likely than not reduce the fair value of its carrying amount. For the purpose of impairment testing, the Company has a single reporting unit. The impairment test consists of comparing the fair value with its carrying amount that includes goodwill. If the carrying amount of goodwill exceeds the fair value of goodwill, an impairment loss would be recognized to reduce the carrying amount to its fair value.

Purchased intangible assets with finite lives are valued using the income method and are amortized on a straight-line basis over their economic lives of five years for developed technology and two years for customer relationships as the Company believes this method most closely reflects the pattern in which the economic benefits of the assets will be consumed. Impairment losses are recognized if the carrying amount of an intangible is both not recoverable and exceeds its fair value.

8

Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)


3.    Business Combination
On October 1, 2019, the Company completed the acquisition of Hedvig Inc., a Delaware corporation, (“Hedvig”), for a purchase price of $163,205, which consisted of $157,589 of cash (exclusive of $4,000 of contingent consideration), and $1,616 of restricted stock units.
The Company also entered into compensation arrangements with the employees of Hedvig. This included the issuance of restricted stock units that vest over the next three years (a portion of which is allocated to the purchase price). Refer to Note 8 of the unaudited consolidated financial statements for further discussion on stock awards. Additionally, certain Hedvig shareholders will receive cash payments totaling $14,100 over the course of the 30 months following the date of acquisition, contingent on their continued employment with the Company. While these payments are proportionate to these shareholders' ownership of Hedvig, under US GAAP they are accounted for as compensation expense over the course of the 30 month service period, and not included in the purchase price.
The following table summarizes the purchase price and preliminary purchase price allocation made as of the date of acquisition:
Purchase price allocation:
 
Cash paid at closing
$
157,589

Fair value of restricted stock units included in purchase price
1,616

Fair value of contingent consideration
4,000

Total purchase price
$
163,205

 
 
Assets acquired and liabilities assumed:
 
Cash
$
94

Trade accounts receivable
1,074

Other current assets
104

Property and equipment
202

Intangible assets
52,000

Other assets
682

Accounts payable and accrued liabilities
(1,060
)
Deferred revenue
(2,231
)
Operating lease liability, net of operating lease assets
(11
)
Deferred tax liability
(84
)
Total identifiable net assets acquired and liabilities assumed
50,770

Goodwill
112,435

Total purchase price
163,205



Contingent consideration
The contingent consideration arrangement requires the Company to pay up to $8,000 of cash to the former owners of Hedvig, contingent on the Company receiving one or more bona fide and valid purchase orders from a specified customer, no later than April 30, 2020. The $8,000 is classified as Restricted cash on the Consolidated Balance Sheet. The actual consideration paid can range from $0 to $8,000 and is based on the amount of orders received. The fair value of the contingent liability was estimated to be $4,000 based on a probability weighted-average approach and was included in the purchase price. The $4,000 liability is included in Accrued liabilities on the Consolidated Balance Sheet. At the end of each reporting period after the acquisition date, the arrangement is remeasured at its fair value, with changes in fair value recorded in earnings. Changes in fair value will be recognized in General and administrative expense. As of December 31, 2019, the Company continues to estimate the fair value of the liability as $4,000.


9

Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)


Actual and Unaudited Pro Forma Information
The unaudited amounts of Hedvig’s revenue and net loss included in the Company’s consolidated income statement for both the three and nine months ended December 31, 2019, and the revenue and net loss of the combined entity had the acquisition date been April 1, 2018, are as follows:
    
 
Revenue
 
Net Loss
Actual from 10/01/2019 - 12/31/2019
$
240

 
$
(9,325
)
 
 
 
 
Fiscal 2020 supplemental pro forma from 04/01/2019 - 12/31/2019
$
507,241

 
$
(19,246
)
 
 
 
 
Fiscal 2019 supplemental pro forma from 04/01/2018 - 12/31/2018
$
532,825

 
$
(21,072
)

The Company's post-acquisition loss for the three and nine months ended December 31, 2019 includes expenses related to the noncash amortization of intangible assets, compensation paid to Hedvig employees, restricted stock units granted to Hedvig employees and the cash payments being made to Hedvig shareholders over a 30 month service period as discussed above.
The fiscal 2020 supplemental pro forma net loss was adjusted to exclude $5,639 of acquisition-related costs incurred in fiscal 2020. The fiscal 2019 supplemental pro forma net loss was adjusted to include these charges. In addition to estimated operating expenses, both periods include noncash amortization expenses related to intangible assets as if the acquisition had taken place on April 1, 2018.

4.    Goodwill and Intangible Assets, Net
Goodwill
The goodwill of $112,435 arising from the acquisition represents the estimated value of potential expansion with new customers, the opportunity to further develop sales relationships with new customer and intangible assets that do not qualify for separate recognition. None of the goodwill recorded is expected to be deductible for income tax purposes. The Company will perform the annual impairment test of goodwill on January 1.
Intangible assets, net
Intangible assets consist of developed technology and customer relationships which were valued using the income approach. Developed technology and customer relationships have estimated useful lives of five and two years, respectively, and are being amortized on a straight-line basis. Purchased intangible assets, net of amortization are summarized below:
 
 
December 31, 2019
 
 
Gross
 
Accumulated Amortization
 
Net Assets
Developed technology
 
$
49,000

 
$
(2,450
)
 
$
46,550

Customer relationships
 
3,000

 
(375
)
 
2,625

Total intangible assets
 
$
52,000

 
$
(2,825
)
 
$
49,175



10

Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)


Future amortization expense associated with intangible assets with finite lives is expected to be:
 
December 31, 2019
2020 (remaining)
$
2,825

2021
11,300

2022
10,550

2023
9,800

2024
9,800

Thereafter
4,900

 
$
49,175




5.    Revenue
The Company derives revenues from two primary sources: software and products, and services. Software and products revenue includes the Company's software and integrated appliances that combine the Company's software with hardware. Services include customer support (software updates and technical support), consulting, assessment and design services, installation services and customer education. A typical contract includes both licenses and services.
Historically, the Company’s software licenses typically provide for a perpetual right to use the Company’s software. The Company also sells term-based software licenses that expire, which are referred to as subscription arrangements. The Company does not customize its software and installation services are not required. The software is delivered before related services are provided and is functional without professional services, updates and technical support. The Company has concluded that its software license is functional intellectual property that is distinct as the user can benefit from the software on its own. Software revenue is typically recognized when the software is delivered and/or made available for download as this is the point the user of the software can direct the use of, and obtain substantially all of the remaining benefits from the functional intellectual property. The Company does not recognize software revenue related to the renewal of subscription software licenses earlier than the beginning of the subscription period.
 
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. The Company sells its customer support contracts as a percentage of net software purchases the support is related to. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year.

The Company’s other professional services include consulting, assessment and design services, installation services and customer education. Customer education services include courses taught by the Company’s instructors or third-party contractors. Revenue related to other professional services and customer education services is typically recognized as the services are performed.

Most of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of software and appliances are typically estimated using the residual approach. Standalone selling prices of services are typically estimated based on observable transactions when these services are sold on a standalone basis.

11

Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)



The Company’s typical performance obligations include the following:
Performance Obligation
When Performance Obligation
 is Typically Satisfied
When Payment is
Typically Due
How Standalone Selling Price is
Typically Estimated
Software and Products Revenue
Software Licenses
Upon shipment or made available for download (point in time)
Within 90 days of shipment except for certain subscription licenses which are paid for over time
Residual approach
Appliances
When control of the appliances passes to the customer; typically upon delivery
Within 90 days of delivery
Residual approach
Customer Support Revenue
Software Updates
Ratably over the course of the support contract (over time)
At the beginning of the contract period
Observable in renewal transactions
Customer Support
Ratably over the course of the support contract (over time)
At the beginning of the contract period
Observable in renewal transactions
Professional Services
Other Professional Services (except for education services)
As work is performed (over time)
Within 90 days of services being performed
Observable in transactions without multiple performance obligations
Education Services
When the class is taught (point in time)
Within 90 days of services being performed
Observable in transactions without multiple performance obligations


Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into the nature of the products and services and geographical regions. The geographic regions that are tracked are the Americas (United States, Canada, Latin America), EMEA (Europe, Middle East, Africa) and APAC (Australia, New Zealand, Southeast Asia, China). The Company operates in one segment.
 
Three Months Ended December 31, 2019
 
Americas
EMEA
APAC
Total
Software and Products Revenue
$
40,291

$
29,107

$
7,233

$
76,631

Customer Support Revenue
57,856

22,237

10,438

90,531

Professional Services
4,883

2,673

1,633

9,189

Total Revenue
$
103,030

$
54,017

$
19,304

$
176,351

 
Three Months Ended December 31, 2018
 
Americas
EMEA
APAC
Total
Software and Products Revenue
$
41,798

$
31,073

$
11,644

$
84,515

Customer Support Revenue
58,575

20,597

9,669

88,841

Professional Services
6,193

3,014

1,712

10,919

Total Revenue
$
106,566

$
54,684

$
23,025

$
184,275



12

Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)


 
Nine Months Ended December 31, 2019
 
Americas
EMEA
APAC
Total
Software and Products Revenue
$
107,375

$
71,922

$
29,603

$
208,900

Customer Support Revenue
173,450

65,810

30,756

270,016

Professional Services
14,179

8,035

5,006

27,220

Total Revenue
$
295,004

$
145,767

$
65,365

$
506,136


 
Nine Months Ended December 31, 2018
 
Americas
EMEA
APAC
Total
Software and Products Revenue
$
125,290

$
70,624

$
33,155

$
229,069

Customer Support Revenue
178,676

61,399

28,779

268,854

Professional Services
17,467

8,945

5,195

31,607

Total Revenue
$
321,433

$
140,968

$
67,129

$
529,530



Information about Contract Balances

Amounts collected in advance of services being provided are accounted for as deferred revenue. Nearly all of the Company's deferred revenue balance is related to services revenue, primarily customer support contracts.

In certain contracts the Company allows customers to pay for term-based, or subscription, software licenses and products over the term of the license. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables which are anticipated to be invoiced in the next twelve months are included in accounts receivable on the consolidated balance sheet. Long term unbilled receivables are included in other assets. The opening and closing balances of the Company’s accounts receivable, unbilled receivables, and deferred revenues are as follows:
 
Accounts Receivable
Unbilled Receivable
(current)
Unbilled Receivable
(long-term)
Deferred Revenue
(current)
Deferred Revenue
(long-term)
Opening Balance as of March 31, 2019
$
161,570

$
15,266

$
7,216

$
238,439

$
99,257

Increase/(decrease), net
(15,895
)
685

1,431

(2,926
)
(1,527
)
Ending Balance as of December 31, 2019
$
145,675

$
15,951

$
8,647

$
235,513

$
97,730



The decrease in accounts receivable is primarily a result of a decrease in software and products revenue relative to the fourth quarter of the prior year. The decrease in deferred revenue is primarily the result of a decrease in deferred customer support revenue related to software and products revenue transactions and customer support renewals relative to the fourth quarter of fiscal 2019 and a weakening of the U.S. dollar.

The amount of revenue recognized in fiscal 2020 that was included in the March 31, 2019 balance of deferred revenue was $51,753 and $207,938 for the three and nine months ended December 31, 2019, respectively. The vast majority of this revenue consists of customer support arrangements. The amount of software and products revenue recognized in the three and nine months ended December 31, 2019 related to performance obligations from prior periods was not significant.

Remaining Performance Obligations

In addition to the amounts included in deferred revenue as of December 31, 2019, $28,655 of revenue may be recognized from remaining performance obligations, of which $3,103 was related to software and products. The Company expects the majority of this software and products revenue to be recognized next quarter. The vast majority of the services revenue is related to other professional services which may be recognized over the next twelve months but is contingent upon a number of factors, including customers’ needs and schedules.

13

Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)


6.    Net Income per Common Share
The diluted weighted-average shares outstanding exclude outstanding stock options, restricted stock units, performance restricted stock units and shares to be purchased under the employee stock purchase plan totaling 5,459 and 1,045 for the three months ended December 31, 2019 and 2018, respectively, and 4,952 and 1,024 for the nine months ended December 31, 2019 and 2018, because the effect would have been anti-dilutive.
7.    Commitments and Contingencies
    
From time to time, the Company is subject to claims in legal proceedings arising in the normal course of business. The Company does not believe that it is currently party to any pending legal action that could reasonably be expected to have a material adverse effect on its business or operating results.

The Company has a contingent liability related to the acquisition of Hedvig. See Note 3 of the unaudited consolidated financial statements for further details on the arrangement.
8.    Capitalization
As of December 31, 2019, $159,974 remained in the Company's current stock repurchase authorization which expires on March 31, 2020.
9.    Stock Plans
The following table presents the stock-based compensation expense included in Cost of services revenue, Sales and marketing, Research and development, General and administrative and Restructuring expenses for the three and nine months ended December 31, 2019 and 2018. Stock-based compensation is attributable to stock options, restricted stock units, performance based awards and the employee stock purchase plan.
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
 
2019
 
2018
 
2019
 
2018
 
Cost of services revenue
 
$
635

 
$
705

 
$
2,023

 
$
2,217

 
Sales and marketing
 
9,128

 
8,395

 
24,133

 
26,990

 
Research and development
 
5,222

 
2,058

 
9,226

 
6,547

 
General and administrative
 
3,280

 
4,406

 
11,517

 
14,350

 
Restructuring
 
709

 
268

 
1,682

 
1,482

 
Stock-based compensation expense
 
$
18,974

 
$
15,832

 
$
48,581

 
$
51,586

 

As of December 31, 2019, there was $141,285 of unrecognized stock-based compensation expense related to non-vested stock option and restricted stock unit awards that is expected to be recognized over a weighted-average period of 2.26 years. The Company accounts for forfeitures as they occur. To the extent that awards are forfeited, stock-based compensation will be different from the Company’s current estimate.

14

Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)


Stock Options
Stock option activity for the nine months ended December 31, 2019 is as follows:
Stock Options
Number of
Options
 
Weighted-
Average Exercise Price
 
Weighted- Average Remaining Contractual Term (Years)
 
Aggregate Intrinsic Value
Outstanding options as of March 31, 2019
3,212

 
$
54.55

 
 
 
 
Options granted

 

 
 
 
 
Options exercised
(797
)
 
32.86

 
 
 
 
Options forfeited

 

 
 
 
 
Options expired
(67
)
 
$
73.81

 
 
 
 
Outstanding as of December 31, 2019
2,348

 
$
61.34

 
2.94
 
$
3,370

Exercisable as of December 31, 2019
2,348

 
$
61.34

 
2.94
 
$
3,370


Restricted Stock Units
Restricted stock unit activity for the nine months ended December 31, 2019 is as follows:
Non-vested Restricted Stock Units
Number of
Awards
 
Weighted-
Average Grant
Date Fair Value
Non-vested as of March 31, 2019
1,831

 
$
62.58

Awarded
2,556

 
46.60

Vested
(816
)
 
59.83

Forfeited
(195
)
 
60.48

Non-vested as of December 31, 2019
3,376

 
$
51.24


The weighted-average fair value of restricted stock units awarded was $46.21 and $46.60 per unit during the three and nine months ended December 31, 2019, and $58.55 and $63.30 per unit during the three and nine months ended December 31, 2018. The weighted-average fair value of awards includes the awards with a market condition described below.
The Company issued a total of 1,018 awards to Hedvig employees in the third quarter of fiscal 2020 as part of the total consideration. These awards were granted at a fair value of $44.49 per share and $43,653 of stock-based compensation expense is expected to be recognized over a weighted-average period of 2.68 years. The awards are included in the restricted stock unit table.
Performance Based Awards

In the nine months ended December 31, 2019, the Company granted 105 performance restricted stock units ("PSU") to certain executives. Vesting of these awards is contingent upon i) the Company meeting certain company-wide revenue and non-GAAP performance goals (performance-based) in fiscal 2020 and ii) the Company's customary service periods. The awards vest over three years and have a maximum potential to vest at 200% (210 shares) based on actual fiscal 2020 performance. The related stock-based compensation expense is determined based on the value of the underlying shares on the date of grant and is recognized over the vesting term using the accelerated method. During the interim financial periods, management estimates the probable number of PSU’s that would vest until the ultimate achievement of the performance goals is known. The awards are included in the restricted stock unit table.


15

Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)


Awards with a Market Condition
In the nine months ended December 31, 2019, the Company granted 95 market performance stock units to certain executives. The vesting of these awards is contingent upon the Company meeting certain total shareholder return ("TSR") levels as compared to the Russell 3000 market index over the next three years. The awards vest in three annual tranches and have a maximum potential to vest at 200% (190 shares) based on TSR performance. The related stock-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized using the accelerated method over the vesting term. The estimated fair value was calculated using a Monte Carlo simulation model. The fair value of the awards granted during the nine months ended December 31, 2019 was $48.26 per unit. The awards are included in the restricted stock unit table.
10.    Income Taxes
Income tax expense was $3,528 in the nine months ended December 31, 2019 compared to an expense of $2,677 in the nine months ended December 31, 2018. In fiscal 2018 the Company determined that it was more likely than not that it will not realize the benefits of its gross deferred tax assets and therefore recorded a valuation allowance to reduce the carrying value of these gross deferred tax assets, net of the impact of the reversal of taxable temporary differences, to zero. The Company’s position remains unchanged as of the period ended December 31, 2019. The tax expense for the nine months ended December 31, 2019 relates primarily to current foreign taxes.
11.    Restructuring
In fiscal 2019, the Company initiated a restructuring plan to increase efficiency in its sales, marketing and distribution functions as well as reduce costs across all functional areas. During the quarter, the Company incurred total restructuring charges of $2,021. These restructuring charges relate primarily to severance and related costs associated with headcount reductions and lease abandonment charges associated with five office leases. These charges include $709 of stock-based compensation related to modifications of existing unvested awards granted to certain employees impacted by the restructuring plan.

The activity in the Company’s restructuring accruals for the three and nine months ended December 31, 2019 and 2018 is summarized as follows:
 
 
Three Months Ended December 31,
 
 
2019
 
2018
Balance at September 30
 
$
10,358

 
$
1,763

Restructuring charges(1)
 
2,831

 
5,351

Payments
 
(8,040
)
 
(3,156
)
Accrual reversals
 
(955
)
 
(398
)
Balance at December 31
 
$
4,194

 
$
3,560










16

Commvault Systems, Inc
Notes to Consolidated Financial Statements - Unaudited (continued)
(In thousands, except per share data)


 
 
Nine Months Ended December 31,
 
 
2019
 
2018
Balance at March 31
 
$
1,089

 
$

Restructuring charges(1)
 
17,711

 
13,740

Payments
 
(13,651
)
 
(9,782
)
Accrual reversals
 
(955
)
 
(398
)
Balance at December 31
 
$
4,194

 
$