CommVault: Fiscal 2FQ15 Financial Results

(in $ million)	2Q14	2Q15	6 mo. 14	6 mo. 15
Revenue	141.9	151.1	276.3	303.8
*Growth*		7%		*10%*
Net income (loss)	17.4	6.5	30.8	19.2

CommVault Systems, Inc. announced its financial results for the second quarter ended September 30, 2014.

“Throughout the second quarter, we enhanced our product and related go-to-market initiatives, strengthened our strategic partner programs, and added additional field selling capacity as we continued to transform CommVault,” said N. Robert Hammer, chairman, president and CEO. “Despite the strength of our strategic position, the depth and differentiation of our technology, and our strong financial position, we did not execute well enough to meet our own expectations for the quarter. Since these issues are rooted in execution challenges that are well within our control, we remain confident that we can return CommVault to historical growth rates. We remain steadfast to our strategy to take full advantage of the expanding market opportunities inherent in our dynamically changing industry.”

Total revenues for the second quarter of fiscal 2015 were $151.1 million, an increase of 7% over the second quarter of fiscal 2014 and a decrease of 1% sequentially. Software revenue in the second quarter of fiscal 2015 was $69.4 million, a decrease of 2% year-over-year and a decrease of 4% sequentially. Services revenue in the second quarter of fiscal 2015 was $81.7 million, an increase of 15% year-over-year and 1% sequentially.

On a GAAP basis, income from operations (EBIT) was $10.9 million for the second quarter compared to $26.4 million in the same period of the prior year. Non-GAAP income from operations (EBIT) decreased 31% to $26.2 million in the second quarter of fiscal 2015 compared to $37.8 million in the second quarter of the prior year. On a sequential basis, non-GAAP income from operations (EBIT) decreased 21% in the second quarter of fiscal 2015.

For the second quarter of fiscal 2015, CommVault reported net income of $6.5 million compared to $17.4 million in the same period of the prior year. Non-GAAP net income for the quarter decreased 31% to $16.5 million, or $0.35 per diluted share, from $23.9 million, or $0.48 per diluted share, in the same period of the prior year.

Operating cash flow totaled $32.2 million for the second quarter of fiscal 2015 which was an increase of $7.7 million, or 31%, compared to the second quarter of fiscal 2014. Total cash and short-term investments were $414.5 million as of September 30, 2014 compared to $482.7 million as of March 31, 2014. During the second quarter there were no borrowings against the revolving credit facility. In addition, CommVault did not repurchase any shares in the second quarter under its share repurchase program. As of October 28, 2014, there is $150.0 million remaining available in the repurchase program through March 31, 2016.

Recent Business Highlights:

On September 23, 2014, the company announced a new consulting service that enables customers to design data protection services as a critical component of their private cloud infrastructure. The new Private cloud Services Design offering leverages industry best practices and the expertise of its seasoned consultants, architects and engineers to help IT organizations create data management and protection services that ensure successful private cloud deployments.
On August 20, 2014, the firm announced new Simpana cloud management capabilities and Simpana Solution Sets designed to transform how companies of all sizes protect, manage and maximize the value of business information amidst a rising tide of data and compliance requirements. They can be individually deployed or combined as part of a comprehensive data protection and information management solution.

Comments

Is it the end of the success story of a software company with remarkable historical growth but with increasing competition? It's too early to confirm a new long-term negative trend but CommVault's revenue are decreasing sequentially since two quarters and profitability abruptly since four quarters.

Furthermore, the company didn't meet its expectations for the quarter as it did not execute well enough.

Bad sign is also the fact that CommVault didn't give any figures for its next quarter's guidance.

Chairman, president and CEO Bob Hammer only commented: "We expect that it will take CommVault two or three more quarters to get back to improved levels of revenue and earnings growth (...) Specifically we believe revenues will be flat to slightly up sequentially for 3FQ15. We are forecasting improvement in 4FQ15 over 3FQ15. Our objective is to return to our historical growth rates within the second half of FY16."

But CommVault continues to hope to achieve $1 billion plan over the next three years.

Nevertheless, there were some bright spots such as growth in EMEA and company's Cloud Services group during the most recent quarter.

Revenue from enterprise deals - over $100,000 in software revenue - decreased by 5% yearly and 14% sequentially. Average deal size was $281,000 during the quarter compared to $295,000 one-year ago period and $356,000 in the prior quarter.

Capacity-based license sales represented 82% of 2Q15 software revenue compared to 80% in the former year period. Software revenues derived from indirect distribution channels decreased 8% Y/Y and represented 88% of software sales.

For the quarter, revenue from U.S. operations generated 58% of total sales resulting, a 5% Y/Y increase, while revenue from international operations generated the balance resulting in a 9% Y/Y increase.

Revenue through Arrow was 36% of total sales, growing 18% Y/Y and 6% Q/Q. Revenue through HDS was 11%, growing 56% Y/Y and 5% Q/Q.

The company signed 300 new customers in the quarter, historical count being now 20,000.

CommVault added 122 employees in 2FQ15 and ended the quarter with 2,195 people. Most of the net new employees were field facing sales teams.

Next version of Simpana is scheduled to go into beta next quarter and to be reseased in FY16.

Entering into hardware for the first time, a new appliance was released in the U.S. and Canada this quarter in partnership with NetApp combining Simpana software and then with E-Series storage. The appliance will be configured and delivered by distribution partners beginning with Arrow and Avnet. The international launch is targeted for 1FQ16. Fujitsu is also launching a CommVault's branded appliance in Europe this quarter.