CommVault Systems, Inc. — Q1 FY2014 Form 10-Q
Reporting period: Three months ended June 30, 2013; comparisons are with the three months ended June 30, 2012 unless otherwise noted. Amounts are in U.S. dollars; financial statement figures are in millions except per-share data.
Business context and results
CommVault sells Simpana data and information management software and related support and professional services. It reported approximately 18,600 registered customers. Software and services each contributed about half of quarterly revenue.
| Metric | Q1 FY2014 | Q1 FY2013 | Change |
|---|---|---|---|
| Total revenue | $134.4 | $111.3 | +21% |
| Software revenue | $65.3 | $54.2 | +20% |
| Services revenue | $69.1 | $57.0 | +21% |
| Gross profit | $116.6 | $96.0 | +22% |
| Income from operations | $21.4 | $16.4 | +30% |
| Net income | $13.5 | $10.1 | +33% |
| Diluted EPS | $0.27 | $0.21 | +$0.06 |
Margins, cash flow and financial position
- Gross margin was approximately 86.8%, up from 86.3%. Software gross margin was 99.0%; services gross margin improved to 75.2% from 74.4%.
- Operating margin was approximately 15.9%, compared with 14.8%; net margin was approximately 10.0%, compared with 9.1%.
- Operating cash flow was $24.6 million, versus $17.9 million. Investing activities used $8.1 million, including $8.7 million of campus-related purchases and $1.3 million of other property and equipment purchases, partly offset by investment maturities. Financing activities provided $11.3 million, including $8.3 million of excess tax benefits from stock-based compensation and $3.1 million from option exercises.
- Cash and cash equivalents were $458.8 million at June 30, up from $434.0 million at March 31, 2013. Working capital was $360.9 million; current assets were $567.2 million and current liabilities $206.3 million.
- The balance sheet reports no borrowings or other debt. Deferred revenue totaled $189.2 million, including $32.6 million non-current.
- Stockholders’ equity was $386.7 million. The company recorded $9.5 million of stock-based compensation in the quarter.
Changes, outlook and risks
- Revenue growth reflected higher U.S. software sales and customer support revenue. International software revenue declined 6%, while U.S. software revenue rose 45%. Enterprise transactions over $0.1 million accounted for 55% of software revenue, versus 56% a year earlier.
- Operating expenses increased: sales and marketing by 19%, research and development by 17%, and general and administrative by 24%. Management attributed increases principally to staffing expansion, marketing, and stock-based compensation.
- Management expected enterprise software transactions and resulting software revenue to increase through fiscal 2014, but noted deal size and timing were difficult to forecast. No quantified earnings or revenue guidance was provided. The company anticipated continued R&D investment and expected more revenue to come through indirect channels over the long term.
- Management believed existing cash and operating cash flow would cover working capital, capital expenditures and potential repurchases for at least 12 months. The planned New Jersey headquarters was estimated at $130–$135 million, including land, with completion expected in approximately 16–24 months.
- Channel and customer concentration are notable: Arrow generated 29% of revenue and represented about 37% of receivables; Dell-related agreements generated 20% of revenue. Dependence on distributors and OEM partners could affect sales if relationships change.
- About 38% of revenue came from outside the U.S.; currency fluctuations may affect results. The company also cited tax uncertainty, including ongoing U.S. federal and German tax audits. Unrecognized tax benefits were $4.7 million, with $0.9 million of related accrued interest and penalties.
- No material pending legal action or disclosure-required contingency was identified. The company made no share repurchases during the quarter; $102.8 million remained available under its authorization through March 31, 2014.
Important facts for investors to verify
- Whether U.S. software growth can offset the reported decline in international software revenue, and whether large-deal timing supports management’s fiscal-year expectations.
- How much revenue and receivables remain concentrated in Arrow, Dell, and other indirect channel partners.
- The campus project’s final cost and cash requirements relative to the stated $130–$135 million estimate.
- The sustainability of operating cash flow and the effect of stock-based compensation and excess tax benefits on reported results and cash-flow classifications.
- Developments in the U.S. and German tax audits, currency exposure, and any changes to the repurchase program.