CommVault Systems, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended December 31, 2013; the quarter is fiscal Q3. Financial statements are unaudited. CommVault sells Simpana data and information management software and related services.
Financial performance
Amounts are in millions of dollars except per-share data. Comparisons are with the corresponding 2012 periods.
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $153.3 | $128.1 | $429.5 | $357.6 |
| Software revenue | $79.2 | $65.9 | $215.4 | $179.4 |
| Services revenue | $74.0 | $62.2 | $214.2 | $178.2 |
| Gross margin | $134.8 | $111.7 | $375.1 | $310.5 |
| Income from operations | $27.7 | $20.2 | $75.5 | $59.0 |
| Net income | $17.6 | $12.2 | $48.4 | $36.2 |
| Diluted EPS | $0.35 | $0.25 | $0.97 | $0.75 |
- Revenue increased 20% in both the quarter and nine-month period. Quarterly gross margin was 88%, versus 87%; operating income grew 37% in the quarter and 28% year to date.
- For the nine months, operating cash flow was $79.2 million, compared with $69.8 million. Investing cash flow was negative $70.4 million, chiefly reflecting $43.5 million of campus-related spending and $25.0 million spent on short-term investments. Financing cash flow was positive $33.5 million, including option-exercise proceeds and excess tax benefits.
- At December 31, cash and cash equivalents were $475.5 million and short-term investments were $25.0 million. Working capital was $413.7 million. The filing reports no debt balance; no borrowing facility is described in the supplied filing text.
- Total assets were $735.1 million and stockholders’ equity was $469.3 million. Deferred revenue totaled $192.8 million, compared with $184.3 million at March 31, 2013.
Material changes and drivers
- Quarterly software revenue rose 20%, supported by international growth and higher enterprise deal volume and size; services revenue rose 19%, mainly from customer support agreements. For nine months, software and services revenue each increased 20%.
- Sales and marketing, R&D, and G&A expenses rose year over year in both periods. Management attributed increases to staffing and expansion, marketing, and higher stock-based compensation. Nine-month stock-based compensation expense was $34.5 million, versus $21.1 million.
- Quarterly and nine-month effective tax rates declined to 37% and 36%, respectively, from 41% and 39%, with management citing increased R&D tax credits.
- Property and equipment increased to $68.7 million from $21.1 million at March 31, largely due to construction in progress for the planned corporate campus. Outstanding shares also increased during the nine months, including shares issued through option exercises and restricted stock vesting.
Outlook, risks and contingencies
- The filing provides no formal numerical revenue or earnings guidance. Management expects continued R&D spending and says depreciation is expected to increase over the next 12 months as the campus project progresses.
- The campus project was estimated at $130–$135 million, including land, building, and infrastructure, with completion expected in approximately 10–16 months from the filing. Management expected to fund it from cash and operating cash flow.
- Management believed existing cash, cash equivalents, and operating cash flow would cover anticipated needs for at least 12 months. Approximately $97 million of cash was held by foreign entities; repatriation could involve local restrictions or tax consequences. The company intended to indefinitely reinvest undistributed foreign earnings.
- Channel exposure is material: Arrow accounted for 31% of nine-month revenue; sales through Dell agreements accounted for 17%. Dell’s OEM agreement ended in December 2013, and management expected Dell’s share of revenue to continue declining as customers transition to other channels. The company cited potential risk if key distributors reduce or cease sales.
- Other cited risks include product obsolescence and adoption, foreign-currency movements, customer and channel concentration, and the ability to execute growth plans. U.S. federal and German subsidiary tax returns were under audit. The company reported no legal matter expected to have a material adverse effect and no claims requiring contingency disclosure as of December 31.
- The board authorized up to an additional $150 million of repurchases through March 31, 2015; no shares were repurchased during the nine months. The company had repurchased approximately $117.2 million under the program through December 31.
- Disclosure controls were assessed as effective. A new ERP system was implemented during the quarter; management said the implementation was designed to enhance financial-reporting controls.
Important facts for investors to verify
- Whether revenue growth, particularly enterprise deals and indirect-channel sales, continues while Dell-related revenue transitions to alternative channels.
- Campus project costs, remaining cash commitments, timing, and the expected effect on depreciation and future operating cash flow.
- The scale and timing of stock-based compensation, associated dilution, and the company’s use of the expanded repurchase authorization.
- Arrow and other partner concentration, and the status and potential outcome of the U.S. and German tax audits.
- Foreign-cash repatriation constraints and tax exposure, and the sensitivity of international results to currency movements.