CommVault Systems, Inc. — FY2011 Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2011. Although the request references 2010 Q4, this filing is the FY2011 annual report; fourth-quarter figures are separately identified below. Amounts are in U.S. dollars.
Business context and reporting period
CommVault sells Simpana data and information management software and related support and professional services. Its integrated platform covers backup and recovery, archiving, replication, storage resource management, and search. The company reported approximately 14,000 registered customers and one reportable segment.
Key financial metrics
| Metric | FY2011 | FY2010 |
|---|---|---|
| Total revenue | $314.8 million | $271.0 million |
| Software revenue | $149.8 million | $134.5 million |
| Services revenue | $165.0 million | $136.5 million |
| Gross profit / gross margin | $273.8 million / 87% | $235.4 million / 87% |
| Operating income / operating margin | $35.8 million / 11.4% | $31.8 million / 11.7% |
| Net income / diluted EPS | $21.0 million / $0.45 | $18.4 million / $0.41 |
| Operating cash flow | $52.4 million | $57.2 million |
| Cash and cash equivalents at year-end | $217.2 million | $169.5 million |
| Working capital at year-end | $179.4 million | $143.2 million |
Year-end total assets were $342.5 million and stockholders’ equity was $188.1 million. No credit-facility borrowings were outstanding; the company had access to a $30 million revolving facility, maturing July 2012, and stated it complied with its covenants. FY2011 investing cash flow was approximately breakeven. Financing cash flow was negative $7.3 million, including $31.5 million of share repurchases.
FY2011 fourth quarter: Revenue was $89.6 million versus $73.4 million in FY2010 Q4; net income was $4.8 million versus $5.8 million; diluted EPS was $0.10 versus $0.13.
Material changes versus the prior comparable year
- Revenue rose 16%. Software revenue increased 11%, while services revenue grew 21%, primarily on customer support agreements and renewals. Services became 52% of revenue, versus 50% in FY2010.
- Operating income increased 12%, slower than revenue growth; operating margin declined from approximately 11.7% to 11.4%. Sales and marketing expense rose 19%, reflecting expanded sales capacity, commissions, marketing, and travel.
- Net income increased 14%; the effective tax rate was 42%, compared with 43% in FY2010. The company recorded a $4.3 million valuation allowance, primarily on certain state research credits.
- Operating cash flow decreased about 8%, despite higher earnings. Higher accounts receivable and other working-capital movements affected cash conversion; cash nevertheless increased by $47.7 million.
- International revenue grew to $124.1 million, or about 39% of total revenue, from $101.7 million. U.S. revenue was $190.7 million.
Outlook, commentary, risks, and unusual items
- Management expected enterprise software transactions above $100,000 and related software revenue to increase during FY2012, while noting deal size and timing were difficult to forecast. It anticipated continued growth in advanced data and information management products and investment in cloud-related capabilities; adoption and timing were uncertain.
- Management expected existing cash, operating cash flow, and the credit facility to cover anticipated working capital, capital expenditures, and potential repurchases for at least 12 months. No specific revenue or earnings guidance was provided.
- Revenue is concentrated in sales channels: Dell-related sales represented 23% of FY2011 revenue and Arrow 25%. Together, Dell and Arrow represented approximately 57% of year-end accounts receivable. Backup and Recovery generated 59% of software revenue, leaving results exposed to changes in demand for that product.
- Other key risks include intense competition, rapid technology change and product obsolescence, dependence on resellers and OEM partners, long and uneven sales cycles, customer credit exposure, international and foreign-exchange risk, and software defects, security events, or intellectual-property claims.
- The company repurchased 1.6 million shares for $31.5 million during FY2011; $48.3 million remained authorized through March 31, 2012. It did not expect to pay dividends in the foreseeable future.
- Unrecognized tax benefits were $4.5 million, with $0.8 million of accrued interest and penalties. Management said no pending legal matter was expected to have a material adverse effect. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether FY2012 software growth and enterprise-deal expectations were achieved, particularly after the stronger FY2011 fourth-quarter revenue but lower year-over-year quarterly net income.
- Revenue quality and cash conversion: services mix, support renewal trends, receivables growth, and collections from Dell and Arrow.
- Whether increased sales and marketing spending produces operating leverage, given the FY2011 decline in operating margin.
- Progress of Simpana 9, advanced-product growth, and cloud offerings, including customer adoption and development costs.
- Utilization and expiry risk for tax-credit carryforwards, the valuation allowance, and outstanding uncertain tax positions.