10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
March 31, 2007
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 1-33026
CommVault Systems,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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22-3447504
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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2 Crescent Place
Oceanport, New Jersey
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07757
(Zip Code)
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(Address of principal executive
offices)
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(732) 870-4000
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $0.01 par value
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 shorter 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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
rule 12b-2
of the Exchange Act.
Large accelerated
filer o Accelerated
filer o Non-accelerated
filer þ
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of voting and non-voting common stock
held by non-affiliates of the registrant as of
September 30, 2006, based upon the closing price of the
common stock as reported by The NASDAQ Stock Market on such date
was approximately $423 million.
As of April 30, 2007, there were 42,193,268 shares of
the registrants common stock ($0.01 par value)
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Information required by Part III (Items 10, 11,
12, 13 and 14) is incorporated by reference to portions of
the registrants definitive Proxy Statement for its 2007
Annual Meeting of Stockholders (the Proxy
Statement), which is expected to be filed not later than
120 days after the registrants fiscal year ended
March 31, 2007. Except as expressly incorporated by
reference, the Proxy Statement shall not be deemed to be part of
this report on
Form 10-K.
COMMVAULT
SYSTEMS, INC.
FORM 10-K
FISCAL
YEAR ENDED MARCH 31, 2007
TABLE OF
CONTENTS
FORWARD-LOOKING
STATEMENTS
The discussion throughout this Annual Report on
Form 10-K
contains forward-looking statements. In some cases, you can
identify these statements by our use of forward-looking words
such as may, will, should,
anticipate, estimate,
expect, plan, believe,
predict, potential, project,
intend, could or similar expressions. In
particular, statements regarding our plans, strategies,
prospects and expectations regarding our business are
forward-looking statements. You should be aware that these
statements and any other forward-looking statements in this
document reflect only our expectations and are not guarantees of
performance. These statements involve risks, uncertainties and
assumptions. Many of these risks, uncertainties and assumptions
are beyond our control and may cause actual results and
performance to differ materially from our expectations.
Important factors that could cause our actual results to be
materially different from our expectations include the risks and
uncertainties set forth under the heading Risk
Factors. Accordingly, you should not place undue reliance
on the forward-looking statements contained in this Annual
Report on
Form 10-K.
These forward-looking statements speak only as of the date on
which the statements were made. We undertake no obligation to
update or revise publicly any forward-looking statements,
whether as a result of new information, future events or
otherwise, except as required by law.
1
PART I
Company
Overview
CommVault is a leading provider of data management software
applications and related services in terms of product breadth
and functionality and market penetration. We develop, market and
sell a unified suite of data management software applications
under the QiNetix (pronounced kinetics) brand.
QiNetix is specifically designed to protect and manage data
throughout its lifecycle in less time, at lower cost and with
fewer resources than alternative solutions while minimizing the
cost and complexity of managing that data. QiNetix provides our
customers with:
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high-performance data protection, including backup and recovery;
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disaster recovery of data;
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data migration and archiving;
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global availability of data;
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replication of data;
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creation and management of copies of stored data;
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storage resource discovery and usage tracking;
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data classification; and
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management and operational reports and troubleshooting tools.
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Our products and capabilities enable our customers to deploy
solutions for data protection, business continuance, corporate
compliance and centralized management and reporting. We also
provide our customers with a broad range of highly-effective
professional services that are delivered by our worldwide
support and field operations.
QiNetix enables our customers to simply and cost-effectively
protect and manage their enterprise data throughout its
lifecycle, from data center to remote office, covering the
leading operating systems, relational databases and
applications. In addition to addressing todays data
management challenges, our customers can realize lower capital
costs through more efficient use of their enterprise-wide
storage infrastructure assets, including the automated movement
of data from higher cost to lower cost storage devices
throughout its lifecycle and through sharing and better
utilization of storage resources across the enterprise. QiNetix
also can provide our customers with reduced operating costs
through a variety of features, including fast application
deployment, reduced training time, lower cost of storage media
consumables, proactive monitoring and analysis, simplified
troubleshooting and lower administrative costs.
QiNetix is built upon an innovative architecture and a single
underlying code base that consists of:
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an indexing engine that systematically identifies and organizes
all data, users and devices accessible to our software products;
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a cataloging engine that contains a global database describing
the nature of all data, such as the users, applications and
storage with which it is associated;
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a policy engine that enables customers to set rules to automate
the management of data;
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a data movement engine that transports data using network
communication protocols; and
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a media management engine that controls and catalogs disk, tape
and optical storage devices, as well as the data written to them.
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We refer to this single, unified code base underlying each of
our QiNetix applications as our Common Technology Engine. Each
data management software application within our QiNetix suite is
designed to be
best-in-class
and is fully integrated into our Common Technology Engine. Our
unified architectural design is unique and differentiates our
products from those of our competitors, some of whom offer
similar applications built upon disparate underlying software
architectures, which we refer to as point products. We believe
the disparate underlying software architectures of their
products inhibit our competitors ability to match the
seamless management, interoperability and scalability of our
internally-developed, unified suite and common user interface.
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We have established a worldwide, multi-channel distribution
network to sell our software and services to large global
enterprises, small and medium sized businesses and government
agencies, both directly through our sales force and indirectly
through our global network of value-added reseller partners,
systems integrators, corporate resellers and original equipment
manufacturers. Our original equipment manufacturer partners
include Dell, Hitachi Data Systems and, more recently, Bull SAS
(Bull) and Incentra Solutions, Inc. As of
March 31, 2007, we had licensed our data management
software to approximately 5,900 registered customers.
CommVaults executive management team has led the growth of
our business, including the development and release of all our
QiNetix software, since its introduction in February 2000. Under
the guidance of our management team, we have sustained technical
leadership with the introduction of eight new data management
applications and have garnered numerous industry awards and
recognition for our innovative solutions.
Certain financial information with respect to geographic
segments is contained in Note 11 to our consolidated
financial statements set forth in Item 8.
Our internet address is www.commvault.com. On this
website, we post the following filings as soon as reasonably
practicable after they are electronically filed with or
furnished to the U.S. Securities and Exchange Commission
(SEC): our Annual Reports on
Form 10-K,
our quarterly reports on
Form 10-Q,
our current reports on
Form 8-K,
our proxy statements related to our annual stockholders
meetings and any amendment to those reports or statements filed
or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended. All such filings
are available on the Investors Relations portion of our web site
free of charge. The contents of our web site are incorporated by
reference into this
Form 10-K
or in any other report, statement or document we file with the
SEC.
Industry
Background
The driving forces for the growth of the data management
software industry are the rapid growth of data and the need to
protect and manage that data.
Data is widely considered to be one of an organizations
most valued assets. The increasing reliance on critical
enterprise software applications such as
e-mail,
relational databases, enterprise resource planning, customer
relationship management and workgroup collaboration tools is
resulting in the rapid growth of data across all enterprises.
New government regulations, such as those issued under the
Sarbanes-Oxley Act, the Health Insurance Portability and
Accountability Act (HIPAA) and the Basel Committee on Banking
Supervision (Basel II), as well as company policies
requiring data preservation, are expanding the proportion of
data that must be archived and easily accessible for future use.
In addition, ensuring the security and integrity of the data has
become a critical task as regulatory compliance and corporate
governance objectives affecting many organizations mandate the
creation of multiple copies of data with longer and more complex
retention requirements.
In addition to rapid data growth, data storage has transitioned
from being server-attached to becoming widely distributed across
local and global networked storage systems. Data previously
stored on primary disk and backed up on tape is increasingly
being backed up, managed and stored on a broader array of
storage tiers ranging from high-cost, high-performance disk
systems to lower-cost mid-range and low-end disk systems to tape
libraries. This transition has been driven by the growth of
data, the pervasive use of distributed critical enterprise
software applications, the decrease in disk cost and the demand
for 24/7
business continuity.
The recent innovations in storage and networking technologies,
coupled with the rapid growth of data, have caused information
technology managers to redesign their data and storage
infrastructures to deliver greater efficiency, broaden access to
data and reduce costs. The result has been the wide adoption of
larger and more complex networked data and storage solutions,
such as storage area networks (SANs) and network-attached
storage (NAS). In addition to those trends, regulatory
compliance and corporate governance objectives are creating
larger data archives having much longer retention periods that
require information technology managers of organizations
affected by these objectives to ensure the integrity, security
and availability of data.
We believe that these trends are increasing the demand for
software applications that can simplify data management, provide
secure and reliable access to all data across a broad spectrum
of tiered storage and computing systems and seamlessly scale to
accommodate growth, while reducing the total cost of ownership
to the customer.
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Our
Software
We provide our customers with a unified, comprehensive and
scalable suite of data management software applications that are
fully integrated into our Common Technology Engine. Our software
enables centralized protection and management of globally
distributed data while reducing the total cost of managing,
moving, storing and assuring secure access to that data from a
single browser-based interface. We provide our customers with
high-performance data protection, including backup and recovery,
disaster recovery of data, data migration and archiving, global
data availability, replication of data, creation and management
of copies of stored data, storage resource discovery and usage
tracking, data classification, management and operational
reports and troubleshooting tools.
Our software fully interoperates with a wide variety of
operating systems, applications, network devices, protocols,
storage arrays, storage formats and tiered storage
infrastructures, providing our customers with the flexibility to
purchase and deploy a combination of hardware and software from
different vendors. As a result, our customers can purchase and
use the optimal hardware and software for their needs, rather
than being restricted to the offerings of a single vendor. Key
benefits of our software and related services include:
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Dynamic Management of Widely Distributed and Networked
Data. Our software is specifically designed to
optimize management of data on tiered storage and widely
distributed data environments, including SAN and NAS. Our
architecture enables the creation of policies that automate the
movement of data based on business goals for availability,
recoverability and disaster tolerance. User-defined policies
determine the storage media on which data should reside based on
its assigned value.
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Unified Suite of Applications Built upon a Common Technology
Engine. All of our software applications share
common components of our underlying software code, which drives
significant cost savings versus the point products or loosely
integrated solutions offered by our competitors. In addition, we
believe that each of the individual data management applications
in our suite of software applications delivers superior
performance, functionality and total cost of ownership benefits.
These solutions can be delivered to our customers either as part
of our unified suite or as stand-alone applications. We also
believe that our architecture will allow us to more rapidly
introduce new applications that will enable us to expand beyond
our current addressable market.
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Global Scalability and Seamless Centralized Data
Management. Our software is highly scalable,
enabling our customers to keep pace with the growth of data and
technologies deployed in their enterprises. We use the same
underlying software architecture for large global enterprise,
small and medium sized business and government agency
deployments. We offer a centralized, browser-based management
console from which policies automatically move data according to
users needs for data access, availability and cost
objectives. With QiNetix, our customers can automate the
discovery, management and monitoring of enterprise-wide storage
resources and applications.
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State-of-the-Art
Customer Support Services. We offer
24/7 global
technical support. Our support operations center at our
Oceanport, New Jersey headquarters is complemented by local
support resources, including centers in Europe, Australia, India
and China. Our worldwide customer support organization provides
comprehensive local and remote customer care to effectively
address issues in todays complex storage networking
infrastructures. Our customer support process includes the
expertise of product development, field and customer support
engineers. In addition, we incorporate into our software many
self-diagnostic and troubleshooting capabilities and provide
automated web-based support capabilities to our customers.
Furthermore, we have implemented a
voice-over-IP
telephony system to tie our worldwide support centers together
with an integrated call center messaging and trouble ticket
management system.
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Superior Professional Services. We are
committed to providing high-value, superior professional
services to our customers. Our Global Professional Services
group provides complete business solutions that complement our
software sales and improve the overall user experience. Our
end-to-end
services include assessment and design, implementation,
post-deployment and training services. These services help our
customers improve the protection, disaster recovery,
availability, security and regulatory compliance of their global
data assets while minimizing the overall cost and complexity of
their data infrastructures.
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Lower Total Cost of Ownership. Our software
solutions built on our common architecture enable our customers
to realize compelling total cost of ownership benefits,
including reduced capital costs, operating expenses and support
costs.
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Products
Our suite of software applications is comprised of eight
distinct data management software applications, all of which
share our Common Technology Engine. Each application (other than
Data Classification and QNet) can be used individually or in
combination with other applications of our unified suite. The
following table summarizes the components of our unified suite:
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QiNetix Suite of Data Management Applications
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Functionality
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Galaxy Backup and
Recovery
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High-performance backup and
restoration of enterprise data
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QuickRecovery
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Recovery of files and applications
by taking advantage of snapshot technologies
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ContinuousDataReplicator
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Continuous capture of changes to
data and copying of those changes to a secondary location for
disaster recovery and fast recovery of individual files
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DataMigrator
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Active migration and archiving of
data to less expensive secondary storage indexed for search and
retrieval
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DataArchiver
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Archiving and indexing of
e-mail
messages and attachments for compliance and legal discovery
purposes
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Data
Classification
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Creation of a catalog of key
attributes about primary data to enable intelligent, automated
policy-based data movement and management
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StorageManager
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Storage resource discovery and
usage tracking of applications, files, organizations and
individual users
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QNet
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Consolidated management and
reporting on data management service levels and data movement
operations
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Galaxy
Backup and Recovery
Galaxy provides high-performance backup of enterprise
applications and data for restoration when information is
accidentally deleted, when disks fail, when servers need to be
rebuilt or for disaster recovery of servers. Policies define
when and how data is protected and stored, providing efficient
use of storage devices and media, including drive and device
sharing.
QuickRecovery
QuickRecovery recovers application data and files from disks to
minimize disruption of a customers operations. Using
snapshot technologies to create one or more
point-in-time
recovery images, QuickRecovery offers users the ability to
rapidly recover data from alternative points in time. The
software incorporates block-level data movement and features a
simple interface that creates, tracks, administers and manages
point-in-time
snapshots of data for testing, recovery
and/or
business continuance.
ContinuousDataReplicator
ContinuousDataReplicator continuously captures file-level
changes to data and copies those changes to a secondary system
to protect from disk, server or site loss. The software retains
multiple
point-in-time
copies of the data at the secondary location, offering flexible
recovery options back to the primary location.
ContinuousDataReplicator reduces risk of lost data and can
simplify a customers operations by centralizing data
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from many remote office locations into a single location,
leveraging systems and personnel expertise rather than having to
duplicate resources at every location.
DataMigrator
DataMigrator actively moves less-used or older data from
higher-cost primary storage to less expensive secondary storage
and indexes it for search and retrieval purposes without
disrupting how applications or end users access information. By
shrinking the amount of data stored on primary storage,
DataMigrator can also reduce the amount of time needed for
backup and information technology administration, while
improving computing system performance. A single, comprehensive
capacity management solution for Windows, UNIX, Linux, Microsoft
Exchange, Novell Netware and other environments, DataMigrator
can help reduce capital expenditures on new primary storage.
DataArchiver
DataArchiver archives and indexes
e-mail
messages and attachments to help organizations meet compliance,
regulatory and legal discovery requirements. The software offers
extensive search capabilities to rapidly locate and retrieve
e-mail
messages. Full-text indexing and keyword searching allows
administrators and compliance officers to find and retrieve
e-mail
messages by searching
e-mail
header data along with message and attachment content.
Data
Classification
Data Classification creates a catalog of key attributes of
unstructured data stored on primary computing systems,
complementing the indexing of applications and data on secondary
storage resources provided by other QiNetix applications. The
software enhances how administrators can manage data by offering
a broad set of attributes, instead of just its physical
location. Data Classification helps enterprises more precisely
organize and manage tiered classes of data throughout its
lifecycle. Currently, Data Classification can only be used in
combination with our other products.
StorageManager
StorageManager discovers, tracks and reports on primary disk
storage by users, enterprises, files and applications. Its
comprehensive view of hosts, applications and storage resources
provides detailed reports on disk storage assets, usage, trends
and costs. The software also offers the ability to view links
between logical entities (such as applications and files) and
physical storage resources. StorageManager enables enterprises
to better use storage resources that they already have, as well
as plan ahead for future needs.
QNet
QNet consolidates management and reporting of data management
service levels and data movement operations within a single
browser interface. QNet collects information from our data
management applications and can correlate it to primary and
secondary storage use, including data characteristics, giving an
end-to-end
lifecycle view of data. In addition, QNet can project secondary
storage resource consumption, enabling users to determine if
they have sufficient storage capacity and help plan for future
needs. The software also provides operational reports detailing
performance versus operation service level objectives. QNet can
only be used in combination with our other products.
Our suite includes intelligent operations management
capabilities (iQ Ops) to simplify the management of complex data
and network and storage information technology operations. iQ
Ops provides proactive and reactive monitoring and reporting
functions, alert notification and analysis enabling customers to
quickly detect, troubleshoot and resolve potential problems.
Combined with the reliability and resiliency features of our
Common Technology Engine, iQ Ops enables our customers to
improve overall operations with higher system availability.
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Services
A comprehensive global offering of customer support and other
professional services is critical to the successful marketing,
sale and deployment of our software. From planning to deployment
to operations, we offer a complete set of technical services,
training and support options that maximize the operational
benefits of our suite of software applications. Our commitment
to superior customer support is reflected in the breadth and
depth of our services offerings as well as in our ongoing
initiatives to engineer resiliency, automation and
serviceability features directly into our products.
We have established a global customer support organization built
specifically to handle our expanding customer base. We offer
multiple levels of customer support that can be tailored to the
customers response needs and business sensitivities. Our
customer support services consist of:
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Real-Time Support. Our support staff is
available
24/7 by
telephone to provide first response and manage the resolution of
customer issues. In addition to phone support, our customers
have access to an online product support database for help with
troubleshooting and operational questions. Innovative use of
web-based diagnostic tools provides problem analysis and
resolution often without the need for onsite support personnel.
Our software design is also an important element in our
comprehensive customer support, including root cause
problem analysis, intelligent alerting and troubleshooting
assistance. Our software is directly linked to our online
support database allowing customers to analyze problems without
engaging our technical support personnel.
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Significant Network and Hardware
Expertise. Our support engineers have extensive
knowledge of complex applications, servers and networks. We
proactively take ownership of the customers problem,
regardless of whether the issue is directly related to our
products or to those of another vendor. We have also developed
and maintain a knowledge library of storage systems and software
products to further enable our support organization to quickly
and effectively resolve customer problems.
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Global Operations. We enhanced our Oceanport,
New Jersey support operations with a new
state-of-the-art
technical support center which became operational in April 2006.
We also have established key support operations in Hyderabad,
India, Oberhausen, Germany and Shanghai, China, which are
complemented by regional support centers in other worldwide
locations. Furthermore, we have implemented a
voice-over-IP
telephony system to tie our worldwide support centers together
with an integrated call center messaging and trouble ticket
management system. We have designed our support infrastructure
to be able to scale with the increasing globalization of our
customers.
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We also provide a wide range of other professional services that
consist of:
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Assessment and Design Services. Our assessment
and design services assist customers in determining data and
storage management requirements, designing solutions to meet
those requirements and planning for successful implementation
and deployment.
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Implementation and Post-deployment
Services. Our professional services team helps
customers efficiently configure, install and deploy our QiNetix
suite based on specified business objectives. Our SystemCare
Review Services group assists our customers with assessing the
post-deployment operational performance of our QiNetix suite.
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Training Services. We provide global onsite
and offsite training for our products. Packaged or customized
customer training courses are available in instructor-led or
computer-based formats. We offer in-depth training and
certification for our resellers in pre- and post-sales support
methodologies, including web access to customizable
documentation and training materials.
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Strategic
Relationships
An important element of our strategy is to establish
relationships with third parties to assist us in developing,
marketing, selling and implementing our software and services.
We believe that strategic and technology-based relationships
with industry leaders are fundamental to our success. We have
forged numerous relationships with software application and
hardware vendors to enhance our combined capabilities and to
create the optimal
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combination of data management applications. This approach
enhances our ability to expand our product offerings and
customer base and to enter new markets. We have established the
following types of strategic relationships:
Product and Technology Relationships. We
maintain strategic product and technology relationships with
major industry leaders to ensure that our software applications
are integrated with, supported by and add value to our
partners hardware and software products. Collaboration
with these market leaders allows us to provide applications that
enable our customers to improve data management efficiency.
Our significant strategic relationships include Dell, Hitachi
Data Systems and Microsoft. In addition to these relationships,
we maintain relationships with a broad range of industry vendors
to verify and demonstrate the interoperability of our software
applications with their equipment and technologies. These
vendors include Brocade Communications Systems, Inc., Cisco
Systems, Inc., EMC Corporation (EMC), Hewlett-Packard Company
(Hewlett-Packard), International Business Machines Corporation
(IBM), Network Appliance, Inc., Novell, Inc., Oracle Corporation
and SAP AG.
Distributors, Value-Added Reseller, Systems Integrator,
Corporate Reseller and Original Equipment Manufacturer
Relationships. Our corporate resellers bundle or
sell our software applications together with their own products,
and our value-added resellers resell our software applications
independently. As of March 31, 2007, we had approximately
300 reseller partners and systems integrators distributing our
software worldwide.
In order to broaden our market coverage, we have original
equipment manufacturer distribution agreements with Dell,
Hitachi Data Systems and, more recently, Bull and Incentra
Solutions, Inc. Under these agreements, the original equipment
manufacturers sell, market and support our software applications
and services independently
and/or
incorporate our software applications into their own hardware
products. Our original equipment manufacturer agreements do not
contain any minimum purchase or sale commitments. In addition to
our original equipment manufacturer agreement with Dell, we also
have a corporate reseller agreement with the Dell Software and
Peripherals division. We have also signed a distribution
agreement with Arrow Electronics, Inc. (Arrow)
covering North American commercial markets. We believe that this
relationship will enable us to reach more resellers and
end-users and will increase the amount of resources focused on
our reseller channel.
Customers
We sell our suite of data management software applications and
related services directly to large global enterprises, small and
medium sized businesses and government agencies, and indirectly
through value-added resellers, systems integrators, corporate
resellers and original equipment manufacturer partners. As of
March 31, 2007, we had licensed our software applications
to approximately 5,900 registered customers in a broad range of
industries, including banking, insurance and financial services,
government, healthcare, pharmaceuticals and medical services,
technology, legal, manufacturing, utilities and energy.
Sales through our original equipment manufacturer agreement with
Dell accounted for approximately 7% of our total revenues for
both fiscal 2007 and 2006. Sales through our reseller agreement
with Dell accounted for approximately 12% of our total revenues
for fiscal 2007 and 11% of our total revenues for fiscal 2006.
Dell is an original equipment manufacturer and a reseller that
purchases software from us for resale to its customers, but is
not the end user of our software. Sales to the U.S. federal
government accounted for approximately 7% of our total revenues
for fiscal 2007 and approximately 8% of our total revenues for
fiscal 2006.
Technology
Our Common Technology Engine serves as a major differentiator
versus our competitors data management software products.
Our Common Technology Engines unique indexing, cataloging,
data movement, media management and policy technologies are the
source of the performance, scale, management, cost of ownership
benefits and seamless interoperability inherent in all of our
data management software applications. Additional options enable
content search, data encryption and auditing features to support
data discovery and compliance requirements. Each of these
applications shares a common architecture consisting of three
core components: intelligent agent software, data movement
software and command and control software. These components may
be installed on a single host server, or each may be distributed
over many servers in a global network. Additionally, the
8
modularity of our software provides deployment flexibility. The
ability to share storage resources across multiple data
management applications provides easier data management and
lower total cost of ownership. We participate in industry
standards groups and activities that we believe will have a
direct bearing on the data management software market.
Our software architecture consists of integrated software
components that are grouped together to form a CommCell.
Components of a CommCell are as follows:
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one CommServe;
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one or more MediaAgents; and
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one or more iDataAgents.
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Each highly scalable CommCell may be configured to reflect a
customers geographic, organizational or application
environment. Multiple CommCells can be aggregated into a single,
centralized view for policy-based management across a
customers local or global information technology
environment.
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CommServe. The CommServe acts as the command
and control center of the CommCell and handles all requests for
activity between MediaAgent and iDataAgent components. The
CommServe contains the centralized event and job managers and
the index catalog. This database includes information about
where data resides, such as the library, media and content of
data. The centralized event manager logs all events, providing
unified notification of important events. The job manager
automates and monitors all jobs across the CommCell.
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MediaAgent. The MediaAgent is a media
independent module that is responsible for managing the movement
of data between the iDataAgents and the physical storage
devices. Our MediaAgents communicate with a broad range of
storage devices, generating an index for use by each of our
software applications. The MediaAgent software supports most
storage devices, including automated magnetic tape libraries,
tape stackers and loaders, standalone tape drives and magnetic
storage devices, magneto-optical libraries, virtual tape
libraries, DVD-RAM and CD-RW devices.
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iDataAgent. The iDataAgent is a software
module that resides on the server or other computing device and
controls the data being protected, replicated, migrated or
archived, often referred to simply as the client
software. iDataAgents communicate with most open and network
file systems and enterprise relational databases and
applications, such as Microsoft Exchange, Microsoft SharePoint,
Notes Domino Server, GroupWise, Oracle, Informix, Sybase,
DB2 and SAP, to generate application aware indexes pertinent to
granular recovery of application objects. The agent software
contains the logic necessary to extract (or recover) data and
send it to (or receive it from) the MediaAgent software.
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Sales and
Marketing
We sell our data and storage management software applications
and related services to large global enterprises, small and
medium sized businesses and government agencies. We sell through
our worldwide direct sales force and our global network of
value-added resellers, systems integrators, corporate resellers
and original equipment manufacturer partners. As of
March 31, 2007, we had 176 employees in sales and
marketing. These employees are located in the Americas, Europe,
Australia, Africa and Asia.
We have a variety of marketing programs designed to create brand
recognition and market awareness for our product offerings and
for sales lead generation. Our marketing efforts include active
participation at trade shows, technical conferences and
technology seminars; advertising; publication of technical and
educational articles in industry journals; sales training; and
preparation of competitive analyses. In addition, our strategic
partners augment our marketing and sales campaigns through
seminars, trade shows and joint advertising campaigns. Our
customers and strategic partners provide references and
recommendations that we often feature in our advertising and
promotional activities.
9
Research
and Development
Our research and development organization is responsible for the
design, development, testing and certification of our data
management software applications. As of March 31, 2007, we
had 215 employees in our research and development group, of
which 48 are located at our Hyderabad, India development center.
Our engineering efforts support product development across all
major operating systems, databases, applications and network
storage devices. A substantial amount of our development effort
goes into certification, integration and support of our
applications to ensure interoperability with our strategic
partners hardware and software products. We have also made
substantial investments in the automation of our product test
and quality assurance laboratories. We spent $23.4 million
on research and development activities in fiscal 2007,
$19.3 million in fiscal 2006 and $17.2 million in
fiscal 2005.
Competition
The data storage management market is intensely competitive,
highly fragmented and characterized by rapidly changing
technology and evolving standards. We currently compete with
other providers of data management software as well as large
storage hardware manufacturers that have developed or acquired
their own data management software products. These manufacturers
have the resources and capabilities to develop their own data
management software applications, and many have been making
acquisitions and broadening their efforts to include broader
data management and storage products. These manufacturers
and/or our
other current and potential competitors may establish
cooperative relationships among themselves or with third
parties, creating new competitors or alliances. Large operating
system and application vendors, including Microsoft, have
introduced products or functionality that includes some of the
same functions offered by our software applications. In the
future, further development by these vendors could cause our
software applications and services to become redundant.
The following are our primary competitors in the data management
software applications market, each of which has one or more
products that compete with a part of or our entire software
suite:
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CA (formerly known as Computer Associates International, Inc.);
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EMC;
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Hewlett-Packard;
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IBM; and
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Symantec.
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The principal competitive factors in our industry include
product functionality, product integration, platform coverage,
ability to scale, price, worldwide sales infrastructure, global
technical support, name recognition and reputation. The ability
of major system vendors to bundle hardware and software
solutions is also a significant competitive factor in our
industry. Although many of our competitors have greater
resources, a larger installed customer base and greater name
recognition, we believe we compete favorably on the basis of
these competitive factors.
Intellectual
Property and Proprietary Rights
Our success and ability to compete depend on our continued
development and protection of our proprietary software and other
technologies. We rely primarily on a combination of trade
secret, patent, copyright and trademark laws, as well as
contractual provisions, to establish and protect our
intellectual property rights. We provide our software to
customers pursuant to license agreements that impose
restrictions on use. These license agreements are primarily in
the form of shrink-wrap or click-wrap licenses, which are not
negotiated with or signed by our end user customers. These
measures may afford only limited protection of our intellectual
property and proprietary rights associated with our software. We
also enter into confidentiality agreements with employees and
consultants involved in product development. We routinely
require our employees, customers and potential business partners
to enter into confidentiality agreements before we disclose any
sensitive aspects of our software, technology or business plans.
10
As of May 15, 2007, we had 15 issued patents and 113
pending patent applications in the United States, as well as 21
issued patents in foreign countries and 76 pending foreign
patent applications. Pending patent applications may receive
unfavorable examination and are not guaranteed allowance as
issued patents. We may elect to abandon or otherwise not pursue
prosecution of certain pending patent applications due to patent
examination results, economic considerations, strategic concerns
or other factors. We will continue to assess appropriate
occasions to seek patent and other intellectual property
protection for innovative aspects of our technology that we
believe provide us a significant competitive advantage.
Despite our efforts to protect our trade secrets and proprietary
rights through patents and license and confidentiality
agreements, unauthorized parties may still attempt to copy or
otherwise obtain and use our software and technology. In
addition, we intend to expand our international operations and
effective patent, copyright, trademark and trade secret
protection may not be available or may be limited in foreign
countries. If we fail to protect our intellectual property and
other proprietary rights, our business could be harmed.
We have entered into an original equipment manufacturer
agreement with Critical Technologies, Inc. whereby we embed
Critical Technologies indexing software in our software
applications for sale, as an option, to our customers. Our
agreement with Critical Technologies expires on March 31,
2008 unless prior thereto either party gives at least
90 days notice of termination. In addition to our agreement
with Critical Technologies, we currently resell certain software
from Microsoft, including Microsoft SQL Server, used in
conjunction with our software applications pursuant to an
independent software vendor royalty license and distribution
agreement that we have and plan to continue renewing annually.
We also currently resell certain other software from Microsoft,
including Windows Preinstallation Environment software, used in
conjunction with our software applications, pursuant to an
agreement with Microsoft that expires January 31, 2008. We
have entered into and expect to enter into agreements with
additional third parties to license their technology for use
with our software applications.
Some of the products or technologies acquired, licensed or
developed by us may incorporate so-called open
source software and we may incorporate open source
software into other products in the future. The use of such open
source software may ultimately subject some products to
unintended conditions which may negatively affect our business,
financial condition, operating results, cash flow and ability to
commercialize our products or technologies.
From time to time, we are participants or members of various
industry standard-setting organizations or other industry
technical organizations. Our participation or membership in such
organizations may, in some circumstances, require us to enter
into royalty or licensing agreements with third parties
regarding our intellectual property under terms established by
those organizations, which we may find unfavorable.
In the United States, we own or have common law trademark rights
in the following marks: CommVault, the CV logo,
CommVault Systems, Solving Forward, SIM, Singular Information
Management, CommVault Galaxy, Unified Data Management, QiNetix,
Quick Recovery, QR, QNet, GridStor, Vault Tracker, Quick Snap,
QSnap, Recovery Director, CommServe, CommCell, and InnerVault.
We also have several other trademarks and are actively pursuing
trademark registrations in several foreign jurisdictions.
Employees
As of March 31, 2007, we had 727 employees worldwide,
including 176 in sales and marketing, 215 in research and
development, 90 in general and administration and 246 in
customer services and support. None of our employees are
represented by a labor union. We have never experienced a work
stoppage and believe our relationship with our employees is good.
11
Executive
Officers of the Registrant
The following table presents information with respect to our
executive officers as of May 24, 2007:
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Name
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Age
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Position
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N. Robert Hammer
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65
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Chairman, President and Chief
Executive Officer
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Alan G. Bunte
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53
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Executive Vice President and Chief
Operating Officer
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Louis F. Miceli
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57
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Vice President and Chief Financial
Officer
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Ron Miiller
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40
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Vice President of Sales, Americas
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Anand Prahlad
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39
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Vice President, Product Development
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Suresh P. Reddy
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44
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Vice President, Worldwide
Technical Services & Support
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Steven Rose
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49
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Vice President, Europe, Middle
East and Asia
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David West
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41
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Vice President, Marketing and
Business Development
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N. Robert Hammer has served as our Chairman,
President and Chief Executive Officer since March 1998.
Mr. Hammer was also a venture partner from 1997 until
December 2003 of the Sprout Group, the venture capital arm of
Credit Suisses asset management business. Prior to joining
the Sprout Group, Mr. Hammer served as the chairman,
president and chief executive officer of Norand Corporation, a
portable computer systems manufacturer, from 1988 until its
acquisition by Western Atlas, Inc. in 1997. Mr. Hammer led
Norand following its leveraged buy-out from Pioneer Hi-Bred
International, Inc. and through its initial public offering in
1993. Prior to joining Norand, Mr. Hammer also served as
chairman, president and chief executive officer of publicly-held
Telequest Corporation from 1987 until 1988 and of privately-held
Material Progress Corporation from 1982 until 1987. Prior to
joining Material Progress Corporation, Mr. Hammer spent
15 years in various sales, marketing and management
positions with Celanese Corporation, rising to the level of vice
president and general manager of the structural composites
materials business. Mr. Hammer obtained his bachelors
degree and masters degree in business administration from
Columbia University.
Alan G. Bunte has served as our Executive Vice President
and Chief Operating Officer since October 2003 and served as our
senior vice president from December 1999 until October 2003.
Prior to joining our company, Mr. Bunte was with Norand
Corporation from 1986 to January 1998, serving as its senior
vice president of planning and business development from 1991 to
January 1998. Mr. Bunte obtained his bachelors and
masters degrees in business administration from the
University of Iowa.
Louis F. Miceli has served as our Vice President and
Chief Financial Officer since April 1997 and has over
30 years of experience in various finance capacities for
several high-technology companies. Prior to joining our company,
Mr. Miceli served as chief financial officer of University
Hospital, part of the University of Medicine and Dentistry of
New Jersey (UMDNJ), from 1994 until 1997 and as the corporate
controller of UMDNJ from 1992 until 1994. Prior to joining
UMDNJ, Mr. Miceli served as the chief financial officer of
Syntrex, Inc., a word processing software and hardware
manufacturer, from 1985 until 1992, and as its controller from
1980 until 1985. Mr. Miceli began his career as a staff
auditor at Ernst & Young LLP, where he served five
years. Mr. Miceli obtained his bachelors degree,
cum laude, in accounting from Seton Hall University and
is a certified public accountant in the State of New Jersey.
Ron Miiller has served as our Vice President of Sales,
Americas since January 2005. Prior to his current role,
Mr. Miiller served as our Central Region Sales Manager from
March 2000 to December 2004. Prior to joining our company,
Mr. Miiller served as Director, Central Region Sales for
Softworks, Inc., an EMC company, from March 1997 through March
2000, and prior to that Mr. Miiller was with Moore
Corporation, a diversified print and electronic communications
company from 1989 through March 1997 in various leadership
roles. Mr. Miiller received his bachelor of science degree
in marketing from Ball State University in 1989.
Anand Prahlad has served as our Vice President, Product
Development since May 2001 and has been with our company since
1994 as a software development and software developer manager
and, from February 1999 to
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May 2001, as our senior director of product development. As
a software developer, Mr. Prahlad oversaw the development
of our QiNetix Galaxy software applications. Prior to joining
our company, Mr. Prahlad was a software engineer with
Mortgage Guaranty Insurance Corporation, a provider of private
mortgage insurance coverage. Mr. Prahlad obtained his
bachelors degree from Jawaharlal Nehru Technological
University in India and his masters degree in electrical
and computer engineering from Marquette University.
Suresh P. Reddy has served as our Vice President,
Worldwide Technical Services & Technical Support since
April 2005. Mr. Reddy also served our company from 1990
through March 2005, serving as our Vice President, Worldwide
Technical Services from September 2001 through March 2005, as
our Western Regional Manager, Technical Services from March 1994
through July 1995 and again from March 1998 until August 2001,
as our Director of Technical Services, Europe, Middle East and
Asia from August 1995 to February 1998 and as a Systems Engineer
from February 1990 to February 1994. Mr. Reddy obtained his
bachelors degree in mechanical engineering from Jawaharlal
Nehru Technological University in India and his masters
degree in computer sciences from the New Jersey Institute of
Technology.
Steven Rose has served as our Vice President, Europe,
Middle East and Asia since June 2006. Prior to joining our
company, Mr. Rose served as Vice President, United Kingdom
and Ireland of Veritas Software Corp. from 2003 to July 2005
and, after Veritas merger with Symantec in July of 2005,
as the United Kingdom Managing Director for the combined entity.
Prior to joining Veritas, Mr. Rose served as Chief
Executive Officer of CopperEye, a United Kingdom based software
company, from 2002 to 2003, and prior to that served as Managing
Director, Europe for FatWire Corporation, a New York based
software company, from 2001 to 2002. Prior to joining FatWire,
Mr. Rose served as the Managing Director, Europe of NEON
Systems (UK) Ltd., a United Kingdom based company selling
software products for systems integration, from 1997 to 2001.
Prior to joining NEON Systems, Mr. Rose held several sales,
marketing and general management positions with several software
and systems companies, including TCAM Systems (UK) Ltd., Royal
Blue Technologies, Ltd., and Network Systems Corporation.
Mr. Rose attended the Royal Military Academy, Sandhurst and
served as an officer in the British Army for six years.
David West has served as our Vice President, Marketing
and Business Development since September 2005 and our Vice
President, Business Development from August 2000 to September
2005. Prior to joining our company, Mr. West served as a
director of strategic alliances from April 1999 to July 2000 and
vice president of storage solutions in July 2000 at Legato
Systems, Inc., which was subsequently acquired by EMC
Corporation. Prior to joining Legato Systems, Mr. West
served as vice president of sales at Intelliguard Software,
Inc., which was also subsequently acquired by EMC Corporation,
from 1990 to April 1999. Mr. West obtained his
bachelors degree in electrical engineering from Villanova
University.
Risks
Related to Our Business
We
have only recently become profitable and we may be unable to
sustain future profitability.
We have only recently become profitable, generating net income
of $10.8 million for fiscal 2006 and income before incomes
taxes of $18.8 million in fiscal 2007. In fiscal 2007, we
recorded an income tax benefit of $45.4 million primarily
due to the reversal of substantially all of our deferred income
tax valuation allowance which resulted in net income of
$64.3 million. As of March 31, 2007, we had an
accumulated deficit of $104.3 million. We may be unable to
sustain or increase profitability on a quarterly or annual basis
in the future. We intend to continue to expend significant funds
in developing our software and service offerings and for general
corporate purposes, including marketing, services and sales
operations, hiring additional personnel, upgrading our
infrastructure and expanding into new geographical markets. We
expect that associated expenses will precede any revenues
generated by the increased spending. If we experience a downturn
in business, we may incur losses and negative cash flows from
operations, which could materially adversely affect our results
of operations and capitalization.
13
Our
industry is intensely competitive, and most of our competitors
have greater financial, technical and sales and marketing
resources and larger installed customer bases than we do, which
could enable them to compete more effectively than we
do.
The data management software market is intensely competitive,
highly fragmented and characterized by rapidly changing
technology and evolving standards. Competitors vary in size and
in the scope and breadth of the products and services offered.
Our primary competitors include CA, Inc. (formerly known as
Computer Associates International, Inc.), EMC, Hewlett-Packard,
IBM and Symantec Corporation.
The principal competitive factors in our industry include
product functionality, product integration, platform coverage,
ability to scale, price, worldwide sales infrastructure, global
technical support, name recognition and reputation. The ability
of major system vendors to bundle hardware and software
solutions is also a significant competitive factor in our
industry.
Many of our current and potential competitors have longer
operating histories and have substantially greater financial,
technical, sales, marketing and other resources than we do, as
well as larger installed customer bases, greater name
recognition and broader product offerings, including hardware.
These competitors can devote greater resources to the
development, promotion, sale and support of their products than
we can and have the ability to bundle their hardware and
software products in a combined offering. As a result, these
competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements.
It is also costly and time-consuming to change data management
systems. Most of our new customers have installed data
management software, which gives an incumbent competitor an
advantage in retaining a customer because it already understands
the network infrastructure, user demands and information
technology needs of the customer, and also because some
customers are reluctant to change vendors.
Our current and potential competitors may establish cooperative
relationships among themselves or with third parties. If so, new
competitors or alliances that include our competitors may emerge
that could acquire significant market share. In addition, large
operating system and application vendors, such as Microsoft
Corporation, have introduced products or functionality that
includes some of the same functions offered by our software
applications. In the future, further development by these
vendors could cause our software applications and services to
become redundant, which could seriously harm our sales, results
of operations and financial condition.
New competitors entering our markets can have a negative impact
on our competitive positioning. In addition, we expect to
encounter new competitors as we enter new markets. Furthermore,
many of our existing competitors are broadening their operating
systems platform coverage. We also expect increased competition
from original equipment manufacturers, including those we
partner with, and from systems and network management companies,
especially those that have historically focused on the mainframe
computer market and have been making acquisitions and broadening
their efforts to include data management and storage products.
We expect that competition will increase as a result of future
software industry consolidation. Increased competition could
harm our business by causing, among other things, price
reductions of our products, reduced profitability and loss of
market share.
We may
experience a decline in revenues or volatility in our operating
results, which may adversely affect the market price of our
common stock.
We cannot predict our future revenues or operating results with
certainty because of many factors outside of our control. A
significant revenue or profit decline, lowered forecasts or
volatility in our operating results could cause the market price
of our common stock to decline substantially. Factors that could
affect our revenues and operating results include the following:
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the unpredictability of the timing and magnitude of orders for
our software applications during fiscal 2006 and
fiscal 2007, a majority of our quarterly revenues was earned and
recorded near the end of each quarter;
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the possibility that our customers may cancel, defer or limit
purchases as a result of reduced information technology budgets;
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the possibility that our customers may defer purchases of our
software applications in anticipation of new software
applications or updates from us or our competitors;
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the ability of our original equipment manufacturers and
resellers to meet their sales objectives;
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market acceptance of our new applications and enhancements;
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our ability to control expenses;
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changes in our pricing and distribution terms or those of our
competitors;
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the demands on our management, sales force and services
infrastructure as a result of the introduction of new software
applications or updates; and
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the possibility that our business will be adversely affected as
a result of the threat of terrorism or military actions taken by
the United States or its allies.
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Our expense levels are relatively fixed and are based, in part,
on our expectations of our future revenues. If revenue levels
fall below our expectations and we are profitable at the time,
our net income would decrease because only a small portion of
our expenses varies with our revenues. If we are not profitable
at the time, our net loss would increase. Therefore, any
significant decline in revenues for any period could have an
immediate adverse impact on our results of operations for that
period. We believe that
period-to-period
comparisons of our results of operations should not be relied
upon as an indication of future performance. In addition, our
results of operations could be below expectations of public
market analysts and investors in future periods, which would
likely cause the market price of our common stock to decline.
We
anticipate that an increasing portion of our revenues will
depend on our arrangements with original equipment manufacturers
that have no obligation to sell our software applications, and
the termination or expiration of these arrangements or the
failure of original equipment manufacturers to sell our software
applications would have a material adverse effect on our future
revenues and results of operations.
We have original equipment manufacturer agreements with Dell and
Hitachi Data Systems and a reseller agreement with Dell. These
original equipment manufacturers sell our software applications
and in some cases incorporate our data management software into
systems that they sell. A material portion of our revenues is
generated through these arrangements, and we expect this
contribution to grow as a percentage of our total revenues in
the future. However, we have no control over the shipping dates
or volumes of systems these original equipment manufacturers
ship and they have no obligation to ship systems incorporating
our software applications. They also have no obligation to
recommend or offer our software applications exclusively or at
all, and they have no minimum sales requirements and can
terminate our relationship at any time. These original equipment
manufacturers also could choose to develop their own data
management software internally and incorporate those products
into their systems instead of our software applications. The
original equipment manufacturers that we do business with also
compete with one another. If one of our original equipment
manufacturer partners views our arrangement with another
original equipment manufacturer as competing with its products,
it may decide to stop doing business with us. Any material
decrease in the volume of sales generated by original equipment
manufacturers we do business with, as a result of these factors
or otherwise, would have a material adverse effect on our
revenues and results of operations in future periods.
Sales through our original equipment manufacturer agreements
accounted for approximately 13% of our total revenues for fiscal
2007 and approximately 12% of our total revenues for fiscal
2006. Sales through our original equipment manufacturer
agreement with Dell accounted for approximately 7% of total
revenues for both fiscal 2007 and 2006. If we were to see a
decline in our sales through Dell it could have a significant
adverse effect on our results of operations.
The
loss of key personnel or the failure to attract and retain
highly qualified personnel could have an adverse effect on our
business.
Our future performance depends on the continued service of our
key technical, sales, services and management personnel. We rely
on our executive officers and senior management to execute our
existing business operations and
15
identify and pursue new growth opportunities. The loss of key
employees could result in significant disruptions to our
business, and the integration of replacement personnel could be
time consuming, cause additional disruptions to our business and
be unsuccessful. We do not carry key person life insurance
covering any of our employees.
Our future success also depends on our continued ability to
attract and retain highly qualified technical, sales, services
and management personnel. Competition for such personnel is
intense, and we may fail to retain our key technical, sales,
services and management employees or attract or retain other
highly qualified technical, sales, services and management
personnel in the future. Conversely, if we fail to manage
employee performance or reduce staffing levels when required by
market conditions, our personnel costs would be excessive and
our business and profitability could be adversely affected.
Our
ability to sell our software applications is highly dependent on
the quality of our services offerings, and our failure to offer
high quality support and professional services would have a
material adverse affect on our sales of software applications
and results of operations.
Our services include the assessment and design of solutions to
meet our customers storage management requirements and the
efficient installation and deployment of our software
applications based on specified business objectives. Further,
once our software applications are deployed, our customers
depend on us to resolve issues relating to our software
applications. A high level of service is critical for the
successful marketing and sale of our software. If we or our
partners do not effectively install or deploy our applications,
or succeed in helping our customers quickly resolve
post-deployment issues, it would adversely affect our ability to
sell software products to existing customers and could harm our
reputation with potential customers. As a result, our failure to
maintain high quality support and professional services would
have a material adverse effect on our sales of software
applications and results of operations.
We
rely on indirect sales channels, such as distributors,
value-added resellers, systems integrators and corporate
resellers, for the distribution of our software applications,
and the failure of these channels to effectively sell our
software applications could have a material adverse effect on
our revenues and results of operations.
We rely significantly on our value-added resellers, systems
integrators and corporate resellers, which we collectively refer
to as resellers, for the marketing and distribution of our
software applications and services. Resellers are our most
significant distribution channel. However, our agreements with
resellers are generally not exclusive, are generally renewable
annually and in many cases may be terminated by either party
without cause. Many of our resellers carry software applications
that are competitive with ours. These resellers may give a
higher priority to other software applications, including those
of our competitors, or may not continue to carry our software
applications at all. If a number of resellers were to
discontinue or reduce the sales of our products, or were to
promote our competitors products in lieu of our
applications, it would have a material adverse effect on our
future revenues. Events or occurrences of this nature could
seriously harm our sales and results of operations. In addition,
we expect that a significant portion of our sales growth will
depend upon our ability to identify and attract new reseller
partners. The use of resellers is an integral part of our
distribution network. We believe that our competitors also use
reseller arrangements. Our competitors may be more successful in
attracting reseller partners and could enter into exclusive
relationships with resellers that make it difficult to expand
our reseller network. Any failure on our part to expand our
network of resellers could impair our ability to grow revenues
in the future. Sales through our reseller agreement with Dell
accounted for approximately 12% of total revenues for fiscal
2007 and approximately 11% of total revenues for fiscal 2006.
Dell accounted for a total of approximately 14% of our accounts
receivable balance as of March 31, 2007 as a result of our
reseller agreement and our original equipment manufacturer
agreement. If we were to see an impairment of our receivable
balance from Dell, it could have a significant adverse effect on
our results of operations.
Some of our resellers possess significant resources and advanced
technical abilities. These resellers, particularly our corporate
resellers, may, either independently or jointly with our
competitors, develop and market software applications and
related services that compete with our offerings. If this were
to occur, these resellers might discontinue marketing and
distributing our software applications and services. In
addition, these resellers would have an advantage over us when
marketing their competing software applications and related
services
16
because of their existing customer relationships. The occurrence
of any of these events could have a material adverse effect on
our revenues and results of operations.
Sales
of one of our software applications make up a substantial
portion of our revenues, and a decline in demand for this
software application could have a material adverse effect on our
sales, profitability and financial condition.
We derive the majority of our software revenue from our Galaxy
Backup and Recovery software application. Sales of Galaxy Backup
and Recovery represented approximately 83% of our total software
revenue for fiscal 2007 and 90% for fiscal 2006. In addition, we
derive the majority of our services revenue from customer and
technical support associated with our Galaxy Backup and Recovery
software application. As a result, we are particularly
vulnerable to fluctuations in demand for this software
application, whether as a result of competition, product
obsolescence, technological change, budgetary constraints of our
customers or other factors. If demand for this software
application declines significantly, our sales, profitability and
financial condition would be adversely affected.
Our
software applications are complex and contain undetected errors,
which could adversely affect not only our software
applications performance but also our reputation and the
acceptance of our software applications in the
market.
Software applications as complex as those we offer contain
undetected errors or failures. Despite extensive testing by us
and by our customers, we have in the past discovered errors in
our software applications and will do so in the future. As a
result of past discovered errors, we experienced delays and lost
revenues while we corrected those software applications. In
addition, customers in the past have brought to our attention
bugs in our software created by the customers
unique operating environments. Although we have been able to fix
these software bugs in the past, we may not always be able to do
so. Our software products may also be subject to intentional
attacks by viruses that seek to take advantage of these bugs,
errors or other weaknesses. Any of these events may result in
the loss of, or delay in, market acceptance of our software
applications and services, which would seriously harm our sales,
results of operations and financial condition.
Furthermore, we believe that our reputation and name recognition
are critical factors in our ability to compete and generate
additional sales. Promotion and enhancement of our name will
depend largely on our success in continuing to provide effective
software applications and services. The occurrence of errors in
our software applications or the detection of bugs by our
customers may damage our reputation in the market and our
relationships with our existing customers and, as a result, we
may be unable to attract or retain customers.
In addition, because our software applications are used to
manage data that is often critical to our customers, the
licensing and support of our software applications involve the
risk of product liability claims. Any product liability
insurance we carry may not be sufficient to cover our losses
resulting from product liability claims. The successful
assertion of one or more large claims against us could have a
material adverse effect on our financial condition.
We may
not receive significant revenues from our current research and
development efforts for several years, if at all.
Developing software is expensive, and the investment in product
development may involve a long payback cycle. Our research and
development expenses were $23.4 million, or approximately
15% of our total revenues in fiscal 2007, and
$19.3 million, or 18% of our total revenues in fiscal 2006.
Our future plans include significant investments in software
research and development and related product opportunities. We
believe that we must continue to dedicate a significant amount
of resources to our research and development efforts to maintain
our competitive position. However, we do not expect to receive
significant revenues from these investments for several years,
if at all.
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We
encounter long sales and implementation cycles, particularly for
our larger customers, which could have an adverse effect on the
size, timing and predictability of our revenues.
Potential or existing customers, particularly larger enterprise
customers, generally commit significant resources to an
evaluation of available software and require us to expend
substantial time, effort and money educating them as to the
value of our software and services. Sales of our core software
products to these larger customers often require an extensive
education and marketing effort.
We could expend significant funds and resources during a sales
cycle and ultimately fail to close the sale. Our sales cycle for
all of our products and services is subject to significant risks
and delays over which we have little or no control, including:
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our customers budgetary constraints;
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the timing of our customers budget cycles and approval
processes;
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our customers willingness to replace their current
software solutions;
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our need to educate potential customers about the uses and
benefits of our products and services; and
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the timing of the expiration of our customers current
license agreements or outsourcing agreements for similar
services.
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If we are unsuccessful in closing sales, it could have a
material adverse effect on the size, timing and predictability
of our revenues.
If we
are unable to manage our growth, there could be a material
adverse effect on our business, the quality of our products and
services and our ability to retain key personnel.
We have experienced a period of significant growth in recent
years. Our revenues increased 38% for fiscal 2007 compared to
fiscal 2006 and 32% for fiscal 2006 compared to fiscal 2005. The
number of our customers increased significantly during these
periods. Our growth has placed increased demands on our
management and other resources and will continue to do so in the
future. We may not be able to maintain or accelerate our current
growth rate, manage our expanding operations effectively or
achieve planned growth on a timely or profitable basis. Managing
our growth effectively will involve, among other things:
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continuing to retain, motivate and manage our existing employees
and attract and integrate new employees;
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continuing to provide a high level of services to an increasing
number of customers;
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maintaining the quality of product and services offerings while
controlling our expenses;
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developing new sales channels that broaden the distribution of
our software applications and services; and
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developing, implementing and improving our operational,
financial, accounting and other internal systems and controls on
a timely basis.
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If we are unable to manage our growth effectively, there could
be a material adverse effect on our ability to maintain or
increase revenues and profitability, the quality of our data
management software, the quality of our services offerings and
our ability to retain key personnel. These factors could
adversely affect our reputation in the market and our ability to
generate future sales from new or existing customers.
We
depend on growth in the data management software market, and
lack of growth or contraction in this market or a general
downturn in economic and market conditions could have a material
adverse effect on our sales and financial
condition.
Demand for data management software is linked to growth in the
amount of data generated and stored, demand for data retention
and management (whether as a result of regulatory requirements
or otherwise) and demand for
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and adoption of new storage devices and networking technologies.
Because our software applications are concentrated within the
data management software market, if the demand for storage
devices, storage software applications, storage capacity or
storage networking devices declines, our sales, profitability
and financial condition would be materially adversely affected.
Segments of the computer and software industry have in the past
experienced significant economic downturns. The occurrence of
any of these factors in the data management software market
could materially adversely affect our sales, profitability and
financial condition.
Furthermore, the data management software market is dynamic and
evolving. Our future financial performance will depend in large
part on continued growth in the number of organizations adopting
data management software for their computing environments. The
market for data management software may not continue to grow at
historic rates, or at all. If this market fails to grow or grows
more slowly than we currently anticipate, our sales and
profitability could be adversely affected.
Our
services revenue produces lower gross margins than our software
revenue, and an increase in services revenue relative to
software revenue would harm our overall gross
margins.
Our services revenue, which includes fees for customer support,
assessment and design consulting, implementation and
post-deployment services and training, was approximately 44% of
our total revenues for fiscal 2007, 43% for fiscal 2006 and
approximately 40% of our total revenues for fiscal 2005. Our
services revenue has lower gross margins than our software
revenue. The gross margin of our services revenue was 70.2% for
fiscal 2007, 71.9% for fiscal 2006 and 69.8% for fiscal 2005.
The gross margin of our software revenue was 98.0% for fiscal
2007, 97.2% for fiscal 2006 and 97.0% for fiscal 2005. An
increase in the percentage of total revenues represented by
services revenue would adversely affect our overall gross
margins.
The volume and profitability of services can depend in large
part upon:
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competitive pricing pressure on the rates that we can charge for
our services;
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the complexity of our customers information technology
environments and the existence of multiple non-integrated legacy
databases;
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the resources directed by our customers to their implementation
projects; and
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the extent to which outside consulting organizations provide
services directly to customers.
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Any erosion of our margins for our services revenue or any
adverse change in the mix of our license versus services revenue
would adversely affect our operating results.
Our
international sales and operations are subject to factors that
could have an adverse effect on our results of
operations.
We have significant sales and services operations outside the
United States, and derive a substantial portion of our revenues
from these operations. We also plan to expand our international
operations. We generated approximately 30% of our revenues from
outside the United States in fiscal 2007 and approximately 29%
in fiscal 2006.
Our international operations are subject to risks related to the
differing legal, political, social and regulatory requirements
and economic conditions of many countries, including:
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difficulties in staffing and managing our international
operations;
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foreign countries may impose additional withholding taxes or
otherwise tax our foreign income, impose tariffs or adopt other
restrictions on foreign trade or investment, including currency
exchange controls;
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general economic conditions in the countries in which we
operate, including seasonal reductions in business activity in
the summer months in Europe and in other periods in other
countries, could have an adverse effect on our earnings from
operations in those countries;
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imposition of, or unexpected adverse changes in, foreign laws or
regulatory requirements may occur, including those pertaining to
export duties and quotas, trade and employment restrictions;
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longer payment cycles for sales in foreign countries and
difficulties in collecting accounts receivable;
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competition from local suppliers;
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costs and delays associated with developing software in multiple
languages; and
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political unrest, war or acts of terrorism.
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Our business in emerging markets requires us to respond to rapid
changes in market conditions in those markets. Our overall
success in international markets depends, in part, upon our
ability to succeed in differing legal, regulatory, economic,
social and political conditions. We may not continue to succeed
in developing and implementing policies and strategies that will
be effective in each location where we do business. Furthermore,
the occurrence of any of the foregoing factors may have a
material adverse effect on our business and results of
operations.
We are
exposed to domestic and foreign currency fluctuations that could
harm our reported revenues and results of
operations.
Our international sales are generally denominated in foreign
currencies, and this revenue could be materially affected by
currency fluctuations. We generated approximately 30% of our
revenues from outside the United States in fiscal 2007 and
approximately 29% in fiscal 2006. Our primary exposures are to
fluctuations in exchange rates for the U.S. dollar versus
the Euro and, to a lesser extent, the Australian dollar, British
pound sterling, Canadian dollar, Chinese yuan, Indian rupee and
Singapore dollar. Changes in currency exchange rates could
adversely affect our reported revenues and could require us to
reduce our prices to remain competitive in foreign markets,
which could also have a material adverse effect on our results
of operations. We have not historically hedged our exposure to
changes in foreign currency exchange rates and, as a result, we
could incur unanticipated gains or losses.
We are
currently unable to accurately predict what our long-term
effective tax rates will be in the future.
We are subject to income taxes in both the United States and the
various foreign jurisdictions in which we operate. Significant
judgment is required in determining our worldwide provision for
income taxes and, in the ordinary course of business, there are
many transactions and calculations where the ultimate tax
determination is uncertain. Our long-term effective tax rates
could be adversely affected by changes in the mix of earnings in
countries with differing statutory tax rates, changes in the
valuation of deferred tax assets and liabilities or changes in
tax laws, as well as other factors. Our judgments may be subject
to audits or reviews by local tax authorities in each of these
jurisdictions, which could adversely affect our income tax
provisions. Furthermore, we have had limited historical
profitability upon which to base our estimate of future
long-term effective tax rates.
Our
management and auditors have identified material weaknesses in
the design and operation of our internal controls as of
March 31, 2006 and December 31, 2006 which, if our
remediation efforts fail, could result in material misstatements
in our financial statements in future periods.
Our independent auditors reported to the Audit Committee of the
Board of Directors a material weakness in the design and
operation of our internal controls as of March 31, 2006. A
material weakness is defined by the Public Company Accounting
Oversight Board as a significant deficiency, or combination of
significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected.
The identified material weaknesses related to our revenue
recognition procedures for certain multiple-element sales
arrangements accounted for under Statement of Position
(SOP)
97-2,
Software Revenue Recognition, as amended by
SOP 98-4
and
SOP 98-9.
Specifically, during fiscal 2006 we changed our customary
business practice and began to require and utilize a signed
Statement of Work documenting the scope of our other
professional services offerings greater than $10,000 (excluding
training), in addition to a signed purchase order, when sold and
performed on a stand-alone basis or included in multiple-element
sales arrangements. Persuasive evidence of an arrangement does
not exist for such multiple-element sales arrangements until the
Statement of Work covering the other professional services is
signed by both CommVault and the end-user customer. During
fiscal 2006, we recorded software revenue of approximately
$2.5 million and services revenue of approximately
$0.1 million
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related to certain multiple-element sales arrangement
transactions before a signed Statement of Work covering the
other professional services was obtained. As a result, we
recorded a reduction to revenue and a corresponding increase to
deferred revenue of approximately $2.6 million in fiscal
2006 related to this material weakness. This revenue was
subsequently recognized during fiscal 2007. We believe we have
remediated this material weakness by implementing new policies
and procedures to identify all multiple-element sales
arrangements that contain subsequent agreements that must be
signed, even if the terms and conditions are the same as the
initial purchase order or other persuasive evidence.
At December 31, 2006, we determined that we did not have an
effective process in place to evaluate the appropriate revenue
recognition treatment for complex contractual arrangements with
customers involving multiple agreements. We have taken the
following actions that we believe have remediated this
identified material weakness: adopted formal procedures whereby
all significant contracts are independently reviewed by a
Contract Review Committee comprised of key members of our
management, legal and finance teams for identification of any
complex accounting issues; engage experts to consult with
management in conjunction with its selection and evaluation of
the appropriate accounting treatment for complex contractual
arrangements; and we continue to train technical accounting
personnel and enhance supervision with regard to timely review
and approval of significant revenue transactions.
If the remediated policies and procedures we have implemented
during fiscal 2007 are insufficient to address the material
weaknesses as of March 31, 2006 and December 31, 2006,
or if additional material weaknesses or significant deficiencies
in our internal controls are discovered in the future, we may
fail to meet our future reporting obligations and our financial
statements may contain material misstatements. Any such failure
could also adversely affect the results of the periodic
management evaluations and annual auditor attestation reports
regarding the effectiveness of our internal control over
financial reporting that will be required when the rules
of the SEC under Section 404 of the Sarbanes-Oxley Act of
2002 become applicable to us beginning with the required filing
of our Annual Report on
Form 10-K
for fiscal 2008.
We
develop software applications that interoperate with operating
systems and hardware developed by others, and if the developers
of those operating systems and hardware do not cooperate with us
or we are unable to devote the necessary resources so that our
applications interoperate with those systems, our software
development efforts may be delayed or foreclosed and our
business and results of operations may be adversely
affected.
Our software applications operate primarily on the Windows,
UNIX, Linux and Novell Netware operating systems and the
hardware devices of numerous manufacturers. When new or updated
versions of these operating systems and hardware devices are
introduced, it is often necessary for us to develop updated
versions of our software applications so that they interoperate
properly with these systems and devices. We may not accomplish
these development efforts quickly or cost-effectively, and it is
not clear what the relative growth rates of these operating
systems and hardware will be. These development efforts require
substantial capital investment, the devotion of substantial
employee resources and the cooperation of the developers of the
operating systems and hardware. For some operating systems, we
must obtain some proprietary application program interfaces from
the owner in order to develop software applications that
interoperate with the operating system. Operating system owners
have no obligation to assist in these development efforts. If
they do not provide us with assistance or the necessary
proprietary application program interfaces on a timely basis, we
may experience delays or be unable to expand our software
applications into other areas.
Our
ability to sell to the U.S. federal government is subject
to uncertainties which could have a material adverse effect on
our sales and results of operations.
Our ability to sell software applications and services to the
U.S. federal government is subject to uncertainties related
to the governments future funding commitments and our
ability to maintain certain security clearances complying with
the Department of Defense and other agency requirements. For
fiscal 2007 approximately 7% of our revenues and for fiscal 2006
approximately 8% of our revenues were derived from sales where
the U.S. federal government was the end user. The future
prospects for our business are also sensitive to changes in
government policies and funding priorities. Changes in
government policies or priorities, including funding levels
through
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agency or program budget reductions by the U.S. Congress or
government agencies, could materially adversely affect our
ability to sell our software applications to the
U.S. federal government, causing our business prospects to
suffer.
In addition, our U.S. federal government sales require our
employees to maintain various levels of security clearances.
Obtaining and maintaining security clearances for employees
involves a lengthy process, and it is difficult to identify,
retain and recruit qualified employees who already hold security
clearances. To the extent that we are not able to obtain
security clearances or engage employees with security
clearances, we may not be able to effectively sell our software
applications and services to the U.S. federal government,
which would have an adverse effect on our sales and results of
operations.
Protection
of our intellectual property is limited, and any misuse of our
intellectual property by others could materially adversely
affect our sales and results of operations.
Our success depends significantly upon proprietary technology in
our software, documentation and other written materials. To
protect our proprietary rights, we rely on a combination of:
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patents;
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copyright and trademark laws;
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trade secrets;
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confidentiality procedures; and
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contractual provisions.
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These methods afford only limited protection. Despite this
limited protection, any issued patent may not provide us with
any competitive advantages or may be challenged by third
parties, and the patents of others may seriously impede our
ability to conduct our business. Further, our pending patent
applications may not result in the issuance of patents, and any
patents issued to us may not be timely or broad enough to
protect our proprietary rights. We may also develop proprietary
products or technologies that cannot be protected under patent
law.
Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our software
applications or to obtain and use information that we regard as
proprietary. Policing unauthorized use of our software
applications is difficult, and we expect software piracy to
continue to be a persistent problem. In licensing our software
applications, we typically rely on shrink wrap
licenses that are not signed by licensees. We also rely on
click wrap licenses which are downloaded over the
internet. We may have difficulty enforcing these licenses in
some jurisdictions. In addition, the laws of some foreign
countries do not protect our proprietary rights to as great an
extent as do the laws of the United States. Our attempts to
protect our proprietary rights may not be adequate. Our
competitors may independently develop similar technology,
duplicate our software applications or design around patents
issued to us or other intellectual property rights of ours.
Litigation may be necessary in the future to enforce our
intellectual property rights, protect our trade secrets or
determine the validity and scope of the proprietary rights of
others. Litigation could result in substantial costs and
diversion of resources and management attention. In addition,
from time to time we are participants or members of various
industry standard-setting organizations or other industry
technical organizations. Our participation or membership in such
organizations may, in some circumstances, require us to enter
into royalty or licensing agreements with third parties
regarding our intellectual property under terms established by
those organizations which we may not find favorable.
Additionally, the loss of key personnel involved with
developing, managing or maintaining our intellectual property
could have an adverse effect on our business.
Claims
that we misuse the intellectual property of others could subject
us to significant liability and disrupt our business, which
could have a material adverse effect on our results of
operations and financial condition.
Because of the nature of our business, we may become subject to
material claims of infringement by competitors and other third
parties with respect to current or future software applications,
trademarks or other
22
proprietary rights. We expect that software developers will
increasingly be subject to infringement claims as the number of
software applications and competitors in our industry segment
grows and the functionality of software applications in
different industry segments overlaps. Any such claims, whether
meritorious or not, could be time-consuming, result in costly
litigation, cause shipment delays or require us to enter into
royalty or licensing agreements with third parties, which may
not be available on terms that we deem acceptable, if at all.
Any of these claims could disrupt our business and have a
material adverse effect on our results of operations and
financial condition.
We may not be able to respond to rapid technological
changes with new software applications and services offerings,
which could have a material adverse effect on our sales and
profitability.
The markets for our software applications are characterized by
rapid technological changes, changing customer needs, frequent
new software product introductions and evolving industry
standards. The introduction of software applications embodying
new technologies and the emergence of new industry standards
could make our existing and future software applications
obsolete and unmarketable. As a result, we may not be able to
accurately predict the lifecycle of our software applications,
and they may become obsolete before we receive the amount of
revenues that we anticipate from them. If any of the foregoing
events were to occur, our ability to retain or increase market
share in the data management software market could be materially
adversely affected.
To be successful, we need to anticipate, develop and introduce
new software applications and services on a timely and
cost-effective basis that keep pace with technological
developments and emerging industry standards and that address
the increasingly sophisticated needs of our customers. We may
fail to develop and market software applications and services
that respond to technological changes or evolving industry
standards, experience difficulties that could delay or prevent
the successful development, introduction and marketing of these
applications and services or fail to develop applications and
services that adequately meet the requirements of the
marketplace or achieve market acceptance. Our failure to develop
and market such applications and services on a timely basis, or
at all, could have a material adverse effect on our sales and
profitability.
We cannot predict our future capital needs and we may be
unable to obtain additional financing to fund acquisitions,
which could have a material adverse effect on our business,
results of operations and financial condition.
We may need to raise additional funds in the future in order to
acquire complementary businesses, technologies, products or
services. Any required additional financing may not be available
on terms acceptable to us, or at all. If we raise additional
funds by issuing equity securities, you may experience
significant dilution of your ownership interest, and the
newly-issued securities may have rights senior to those of the
holders of our common stock. If we raise additional funds by
obtaining loans from third parties, the terms of those financing
arrangements may include negative covenants or other
restrictions on our business that could impair our operational
flexibility, and would also require us to fund additional
interest expense. If additional financing is not available when
required or is not available on acceptable terms, we may be
unable to successfully develop or enhance our software and
services through acquisitions in order to take advantage of
business opportunities or respond to competitive pressures,
which could have a material adverse effect on our software and
services offerings, revenues, results of operations and
financial condition. We have no plans, nor are we currently
considering any proposals or arrangements, written or otherwise,
to acquire a business, technology, product or service.
Acquisitions involve risks that could adversely affect our
business, results of operations and financial condition.
We may pursue acquisitions of businesses, technologies, products
or services that we believe complement or expand our existing
business. Acquisitions involve numerous risks, including:
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diversion of managements attention during the acquisition
and integration process;
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costs, delays and difficulties of integrating the acquired
companys operations, technologies and personnel into our
existing operations and organization;
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adverse impact on earnings as a result of amortizing the
acquired companys intangible assets or impairment charges
related to write-downs of goodwill related to acquisitions;
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issuances of equity securities to pay for acquisitions, which
may be dilutive to existing stockholders;
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potential loss of customers or key employees of acquired
companies;
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impact on our financial condition due to the timing of the
acquisition or our failure to meet operating expectations for
acquired businesses; and
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assumption of unknown liabilities of the acquired company.
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Any acquisitions of businesses, technologies, products or
services may not generate sufficient revenues to offset the
associated costs of the acquisitions or may result in other
adverse effects.
Our
use of open source software could negatively affect
our business and subjects us to possible
litigation.
Some of the products or technologies acquired, licensed or
developed by us may incorporate so-called open
source software, and we may incorporate open source
software into other products in the future. Such open source
software is generally licensed by its authors or other third
parties under open source licenses, including, for example, the
GNU General Public License, the GNU Lesser General Public
License, the Common Public License,
Apache-style licenses, Berkley Software
Distribution or BSD-style licenses and other open source
licenses. We monitor our use of open source software to avoid
subjecting our products to conditions we do not intend. Although
we believe that we have complied with our obligations under the
various applicable licenses for open source software that we
use, there is little or no legal precedent governing the
interpretation of many of the terms of certain of these
licenses, and therefore the potential impact of these terms on
our business is somewhat unknown and may result in unanticipated
obligations regarding our products and technologies. The use of
such open source software may ultimately subject some of our
products to unintended conditions which may negatively affect
our business, financial condition, operating results, cash flow
and ability to commercialize our products or technologies.
Some of these open source licenses may subject us to certain
conditions, including requirements that we offer our products
that use the open source software for no cost, that we make
available source code for modifications or derivative works we
create based upon, incorporating or using the open source
software
and/or that
we license such modifications or derivative works under the
terms of the particular open source license. If an author or
other third party that distributes such open source software
were to allege that we had not complied with the conditions of
one or more of these licenses, we could be required to incur
significant legal expenses defending against such allegations.
If our defenses were not successful, we could be enjoined from
the distribution of our products that contained the open source
software and required to make the source code for the open
source software available to others, to grant third parties
certain rights of further use of our software or to remove the
open source software from our products, which could disrupt the
distribution and sale of some of our products. In addition, if
we combine our proprietary software with open source software in
a certain manner, under some open source licenses we could be
required to release the source code of our proprietary software.
If an author or other third party that distributes open source
software were to obtain a judgment against us based on
allegations that we had not complied with the terms of any such
open source licenses, we could also be subject to liability for
copyright infringement damages and breach of contract for our
past distribution of such open source software.
Risks
Relating to Ownership of Our Common Stock
The
price of our common stock may be highly volatile and may decline
regardless of our operating performance.
The market price of our common stock could be subject to
significant fluctuations in response to:
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variations in our quarterly or annual operating results;
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changes in financial estimates, treatment of our tax assets or
liabilities or investment recommendations by securities analysts
following our business;
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the publics response to our press releases, our other
public announcements and our filings with the SEC;
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changes in accounting standards, policies, guidance or
interpretations or principles;
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sales of common stock by our directors, officers and significant
stockholders;
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announcements of technological innovations or enhanced or new
products by us or our competitors;
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our failure to achieve operating results consistent with
securities analysts projections;
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the operating and stock price performance of other companies
that investors may deem comparable to us;
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broad market and industry factors; and
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other events or factors, including those resulting from war,
incidents of terrorism or responses to such events.
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The market prices of software companies have been extremely
volatile. Stock prices of many software companies have often
fluctuated in a manner unrelated or disproportionate to the
operating performance of such companies. In the past, following
periods of market volatility, stockholders have often instituted
securities class action litigation. If we were involved in
securities litigation, it could have a substantial cost and
divert resources and the attention of management from our
business.
Future
sales of our common stock, or the perception that such future
sales may occur, may cause our stock price to decline and impair
our ability to obtain capital through future stock
offerings.
A substantial number of shares of our common stock are available
for sale into the public market. The occurrence of such sales,
or the perception that such sales could occur, could materially
and adversely affect our stock price and could impair our
ability to obtain capital through an offering of equity
securities. The shares of common stock sold in our initial
public offering are freely tradable, except for any shares sold
to our affiliates which are subject to the volume limitations
and other restrictions of Rule 144 promulgated under the
Securities Act.
Approximately
34.7% of our outstanding common stock has been deposited into a
voting trust, which could affect the outcome of stockholder
actions.
Approximately 14,577,860 shares of our common stock
representing approximately 34.7% of our common stock
outstanding, is subject to a voting trust agreement pursuant to
which the shares are voted by an independent voting trustee.
The voting trust agreement requires that the trustee cause the
shares subject to the voting trust to be represented at all
stockholder meetings for purposes of determining a quorum, but
the trustee is not required to vote the shares on any matter and
any determination whether to vote the shares is required by the
voting trust agreement to be made by the trustee without
consultation with the owners. The voting trust agreement does
not provide any criteria that the trustee must use in
determining whether or not to vote on a matter. If, however, the
trustee votes the shares on any matter subject to a stockholder
vote, including proposals involving the election of directors,
changes of control and other significant corporate transactions,
the shares will be voted in the same proportion a votes cast
for or against those proposals by our
other stockholders. As long as these shares continue to be held
in the voting trust, if the trustee determines to vote the
shares on a particular matter, the voting power of all other
stockholders will be magnified by the operation of the voting
trust. With respect to matters such as the election of
directors, Delaware law provides that the requisite stockholder
vote is based on the shares actually voted. Accordingly, with
respect to these matters, the voting trust makes it possible to
control the majority vote of our stockholders with
only 32.7%, an amount equal to 50% of our outstanding common
stock not held in voting trust. In addition, with respect to
other matters, including the approval of a merger or acquisition
of our company or substantially all of our assets, a majority or
other specified percentage of our outstanding shares of common
stock must be voted in favor of the matter in order for it to be
adopted. If the trustee does not vote the shares subject to the
voting trust on these matters, the effect of the non-vote would
be equivalent to a vote against the matter, making
it substantially more difficult to achieve stockholder approval
of the matter.
25
Certain provisions in our charter documents and agreements
and Delaware law may inhibit potential acquisition bids for
CommVault and prevent changes in our management.
Our certificate of incorporation and bylaws contain provisions
that could depress the trading price of our common stock by
acting to discourage, delay or prevent a change of control of
our company or changes in management that our stockholders might
deem advantageous. Specific provisions in our certificate of
incorporation include:
|
|
|
|
|
our ability to issue preferred stock with terms that the board
of directors may determine, without stockholder approval;
|
|
|
|
a classified board in which only a third of the total board
members will be elected at each annual stockholder meeting;
|
|
|
|
advance notice requirements for stockholder proposals and
nominations; and
|
|
|
|
limitations on convening stockholder meetings.
|
As a result of these and other provisions in our certificate of
incorporation, the price investors may be willing to pay in the
future for shares of our common stock may be limited.
In addition, we are subject to Section 203 of the Delaware
General Corporation Law, which imposes certain restrictions on
mergers and other business combinations between us and any
holder of 15% or more of our common stock. Further, certain of
our employment agreements and incentive plans provide for
vesting of stock options
and/or
payments to be made to the employees thereunder if their
employment is terminated in connection with a change of control,
which could discourage, delay or prevent a merger or acquisition
at a premium price.
We do not expect to pay any dividends in the foreseeable
future.
We do not anticipate paying any cash dividends to holders of our
common stock in the foreseeable future. Consequently, investors
must rely on sales of their common stock after price
appreciation, which may never occur, as the only way to realize
any future gains on their investment. Investors seeking cash
dividends should not purchase our common stock.
Substantially all of our assets are pledged as collateral
to secure our term loan.
Our obligations under our term loan are secured by substantially
all of our assets. In the event we default under the terms of
our term loan, the lenders could accelerate our indebtedness
there under and we would be required to repay the entire
principal amount of the term loan, which would significantly
reduce our cash balances. In the event we do not have sufficient
cash available to repay such indebtedness, Silicon Valley Bank
could foreclose on its security interest and liquidate some or
all of our assets to repay the outstanding principal and
interest under our term loan. The liquidation of a significant
portion of our assets would reduce the amount of assets
available for common stockholders in a liquidation or winding up
of our business.
We will continue to incur increased costs as a result of
being a public company.
As a public company, we have incurred and will continue to incur
significant legal, accounting and other expenses that we did not
incur as a private company. The Securities Exchange Act of 1934,
the Sarbanes-Oxley Act of 2002 and new NASDAQ rules promulgated
in response to the Sarbanes-Oxley Act regulate corporate
governance practices of public companies. Compliance with these
public company requirements has increased our costs and we
expect that it will continue to increase our costs and make some
activities more time consuming. For example, in fiscal 2007 we
created a new internal Disclosures and Controls Committee, and
adopted new internal controls and disclosure controls and
procedures. In addition, we will continue to incur additional
expenses associated with our SEC reporting requirements. A
number of those requirements will require us to carry out
activities we have not done previously. For example, under
Section 404 of the Sarbanes-Oxley Act, for our Annual
Report on
Form 10-K
for fiscal year ending March 31, 2008, we will need to
document and test our internal control procedures, our
management will need to assess and report on our internal
control over financial reporting and our registered public
accounting firm will need to issue an opinion on that assessment
and the effectiveness of those controls.
26
Furthermore, if we identify any issues in complying with those
requirements (for example, if we or our registered public
accounting firm identify a material weakness or significant
deficiency in our internal control over financial reporting), we
could incur additional costs rectifying those issues, and the
existence of those issues could adversely affect us, our
reputation or investor perceptions of us. Our management and
auditors have identified material weaknesses in the design and
operation of our internal controls as of March 31, 2006 and
December 31, 2006. We believe we have remediated these
material weaknesses by implementing new policies and procedures
during fiscal 2007. We also expect that it will be difficult and
expensive to maintain and renew director and officer liability
insurance, and we may be required to accept reduced policy
limits and coverage or incur substantially higher costs to
obtain the same or similar coverage. As a result, it may be more
difficult for us to attract and retain qualified persons to
serve on our board of directors or as executive officers.
Advocacy efforts by stockholders and third parties may also
prompt even more changes in governance and reporting
requirements. We cannot predict or estimate the amount of
additional costs we may incur or the timing of such costs.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Our principal administrative, sales, marketing, customer support
and research and development facility is located at our
headquarters in Oceanport, New Jersey. We currently occupy
approximately 116,000 square feet of office space in the
Oceanport facility under the terms of an operating lease
expiring in July 2013. We believe that our current facility is
adequate to meet our needs for at least the next 12 months.
We believe that suitable additional facilities will be available
as needed on commercially reasonable terms. In addition, we have
offices in the United States in Arizona, California, Florida,
Georgia, Illinois, Massachusetts, New York, Oregon, Texas,
Virginia and Washington; and outside the United States in
Ottawa, Ontario; Mississauga, Ontario; Calgary, Alberta;
Reading, United Kingdom; Oberhausen, Germany; Utrecht,
Netherlands; Beijing, China; Shanghai, China; Sydney, Australia;
Col. Marte, Mexico; and Hyderabad, India.
|
|
Item 3.
|
Legal
Proceedings
|
From time to time, we are subject to claims in legal proceedings
arising in the normal course of our business. We do not believe
that we are party to any pending legal action that could
reasonably be expected to have a material adverse effect on our
business or operating results.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
27
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
for our Common Stock
Our common stock is listed and traded on The NASDAQ Global
Market under the symbol CVLT. Prior to
September 22, 2006, no established public trading market
for our common stock existed. The following table sets forth,
for the periods indicated, the high and the low closing sales
prices of our common stock, as reported on The NASDAQ Global
Market.
|
|
|
|
|
|
|
|
|
|
|
Sales Price
|
|
|
|
per Share
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year Ending
March 31, 2007
|
|
|
|
|
|
|
|
|
Second Quarter (September 22,
2006 through September 30, 2006)
|
|
$
|
18.15
|
|
|
$
|
14.74
|
|
Third Quarter
|
|
|
20.74
|
|
|
|
16.25
|
|
Fourth Quarter
|
|
|
20.85
|
|
|
|
15.00
|
|
Stockholders
As of March 31, 2007, there were 41,967,710 shares of
our common stock outstanding held by approximately 357 holders
of record. The number of record holders does not represent the
actual number of beneficial owners of shares of our common stock
because shares are frequently held in street name by securities
dealers and others for the benefit of individual owners who have
the right to vote their shares.
Dividend
Policy
We have never paid cash dividends on our common stock, and we
intend to retain our future earnings, if any, to fund the growth
of our business. We therefore do not anticipate paying any cash
dividends on our common stock in the foreseeable future. Our
future decisions concerning the payment of dividends on our
common stock will depend upon our results of operations,
financial condition and capital expenditure plans, as well as
any other factors that the board of directors, in its sole
discretion, may consider relevant.
28
Stock
Performance Graph
The graph set forth below compares the cumulative total
stockholder return on our common stock between
September 22, 2006 (the date our common stock began trading
on the NASDAQ Global Market) and March 30, 2007, with the
cumulative total return of (i) the NASDAQ Technology Index
and (ii) the NASDAQ Composite Index, over the same period.
This graph assumes the investment of $100,000 on
September 22, 2006 in our common stock, the NASDAQ
Technology Index and the NASDAQ Composite Index, and assumes the
reinvestment of dividends, if any. The graph assumes the initial
value of our common stock on September 22, 2006 was the
closing sales price of $17.00 per share.
The comparisons shown in the graph below are based upon
historical data. The stock price performance shown in the graph
below is not necessarily indicative of, nor is it intended to
forecast, the future performance of our common stock.
Information used in the graph was obtained from NASDAQ, a source
we believe to be reliable, but we are not responsible for any
errors or omissions in such information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/22/06
|
|
|
10/31/06
|
|
|
11/30/06
|
|
|
12/29/06
|
|
|
1/31/07
|
|
|
2/28/07
|
|
|
3/30/07
|
CommVault
|
|
|
|
100.0
|
|
|
|
|
105.1
|
|
|
|
|
117.4
|
|
|
|
|
117.7
|
|
|
|
|
105.4
|
|
|
|
|
97.8
|
|
|
|
|
95.3
|
|
NASDAQ Composite
Index
|
|
|
|
100.0
|
|
|
|
|
106.7
|
|
|
|
|
109.6
|
|
|
|
|
108.8
|
|
|
|
|
111.0
|
|
|
|
|
108.9
|
|
|
|
|
109.1
|
|
NASDAQ Technology
Index
|
|
|
|
100.0
|
|
|
|
|
104.5
|
|
|
|
|
110.1
|
|
|
|
|
106.9
|
|
|
|
|
107.5
|
|
|
|
|
107.2
|
|
|
|
|
106.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
Purchases of Equity Securities
None.
29
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data should be read in
conjunction with our financial statements and related notes,
Risk Factors and Managements Discussion
and Analysis of Financial Condition and Results of
Operations included elsewhere in this Annual Report on
Form 10-K.
The selected statements of operations and the selected balance
sheet data are derived from our audited financial statements.
The historical results presented below are not necessarily
indicative of the results to be expected in any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
$
|
83,870
|
|
|
$
|
62,422
|
|
|
$
|
49,598
|
|
|
$
|
39,474
|
|
|
$
|
29,485
|
|
Services
|
|
|
67,237
|
|
|
|
47,050
|
|
|
|
33,031
|
|
|
|
21,772
|
|
|
|
14,840
|
|
Hardware, supplies and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
151,107
|
|
|
|
109,472
|
|
|
|
82,629
|
|
|
|
61,246
|
|
|
|
44,419
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
1,640
|
|
|
|
1,764
|
|
|
|
1,497
|
|
|
|
1,168
|
|
|
|
932
|
|
Services
|
|
|
20,044
|
|
|
|
13,231
|
|
|
|
9,975
|
|
|
|
8,049
|
|
|
|
6,095
|
|
Hardware, supplies and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
21,684
|
|
|
|
14,995
|
|
|
|
11,472
|
|
|
|
9,217
|
|
|
|
7,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
129,423
|
|
|
|
94,477
|
|
|
|
71,157
|
|
|
|
52,029
|
|
|
|
37,320
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
68,240
|
|
|
|
51,326
|
|
|
|
43,248
|
|
|
|
37,592
|
|
|
|
29,842
|
|
Research and development
|
|
|
23,398
|
|
|
|
19,301
|
|
|
|
17,239
|
|
|
|
16,214
|
|
|
|
16,153
|
|
General and administrative
|
|
|
18,610
|
|
|
|
12,275
|
|
|
|
8,955
|
|
|
|
8,599
|
|
|
|
6,332
|
|
Depreciation and amortization
|
|
|
2,603
|
|
|
|
1,623
|
|
|
|
1,390
|
|
|
|
1,396
|
|
|
|
1,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
16,572
|
|
|
|
9,952
|
|
|
|
325
|
|
|
|
(11,772
|
)
|
|
|
(16,759
|
)
|
Interest expense
|
|
|
(326
|
)
|
|
|
(7
|
)
|
|
|
(14
|
)
|
|
|
(60
|
)
|
|
|
|
|
Interest income
|
|
|
2,600
|
|
|
|
1,262
|
|
|
|
346
|
|
|
|
134
|
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
18,846
|
|
|
|
11,207
|
|
|
|
657
|
|
|
|
(11,698
|
)
|
|
|
(16,462
|
)
|
Income tax benefit (expense)(1)
|
|
|
45,408
|
|
|
|
(451
|
)
|
|
|
(174
|
)
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
64,254
|
|
|
|
10,756
|
|
|
|
483
|
|
|
|
(11,698
|
)
|
|
|
(16,410
|
)
|
Less: accretion of preferred stock
dividends
|
|
|
(2,818
|
)
|
|
|
(5,661
|
)
|
|
|
(5,661
|
)
|
|
|
(5,676
|
)
|
|
|
(5,661
|
)
|
Less: accretion of fair value of
preferred stock upon conversion
|
|
|
(102,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
common stockholders
|
|
$
|
(41,309
|
)
|
|
$
|
5,095
|
|
|
$
|
(5,178
|
)
|
|
$
|
(17,374
|
)
|
|
$
|
(22,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
common stockholders per share:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.35
|
)
|
|
$
|
0.18
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.93
|
)
|
|
$
|
(1.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.35
|
)
|
|
$
|
0.17
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.93
|
)
|
|
$
|
(1.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in
computing per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,670
|
|
|
|
18,839
|
|
|
|
18,712
|
|
|
|
18,601
|
|
|
|
18,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
30,670
|
|
|
|
30,932
|
|
|
|
18,712
|
|
|
|
18,601
|
|
|
|
18,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
65,001
|
|
|
$
|
48,039
|
|
|
$
|
24,795
|
|
|
$
|
22,958
|
|
|
$
|
7,611
|
|
Working capital
|
|
|
34,889
|
|
|
|
24,139
|
|
|
|
13,441
|
|
|
|
13,164
|
|
|
|
5,633
|
|
Total assets
|
|
|
148,039
|
|
|
|
72,568
|
|
|
|
47,513
|
|
|
|
41,779
|
|
|
|
26,489
|
|
Cumulative redeemable convertible
preferred stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A through E, at
liquidation value
|
|
|
|
|
|
|
99,168
|
|
|
|
93,507
|
|
|
|
87,846
|
|
|
|
82,170
|
|
Total stockholders equity
(deficit)
|
|
|
78,322
|
|
|
|
(73,664
|
)
|
|
|
(81,010
|
)
|
|
|
(75,910
|
)
|
|
|
(75,561
|
)
|
|
|
|
(1) |
|
The income tax benefit in fiscal 2007 primarily reflects a
$52.2 million reversal of our deferred income tax valuation
allowance partially offset by the recognition of
$5.0 million for certain tax reserves. |
|
(2) |
|
See Note 2 in the consolidated financial statements for a
reconciliation of the basic and diluted per share calculation. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
You should read the following discussion and analysis along
with our consolidated financial statements and the related notes
included elsewhere in this Annual Report on
Form 10-K.
The statements in this discussion regarding our expectations of
our future performance, liquidity and capital resources, and
other non-historical statements are forward-looking statements.
These forward-looking statements are subject to numerous risks
and uncertainties, including, but not limited to, the risks and
uncertainties described under Risk Factors and
elsewhere in this Annual Report on
Form 10-K
. Our actual results may differ materially from those contained
in or implied by any forward-looking statements.
Overview
CommVault is a leading provider of data management software
applications and related services in terms of product breadth
and functionality and market penetration. We develop, market and
sell a unified suite of data management software applications
under the QiNetix brand. QiNetix is specifically designed to
protect and manage data throughout its lifecycle in less time,
at lower cost and with fewer resources than alternative
solutions. Our products and capabilities enable our customers to
deploy solutions for data protection, business continuance,
corporate compliance and centralized management reporting. We
also provide our customers with a broad range of highly
effective services that are delivered by our worldwide support
and field operations.
History
and Background
We began operations in 1988 as a development group within Bell
Labs and were later designated as an AT&T Network Systems
strategic business unit. We were formed to develop automated
backup, archiving and recovery products for AT&Ts
internal use. These products were comprised of internally
developed software integrated with third party hardware. Our
business became a part of Lucent Technologies, which was created
by and later spun-off from AT&T. Donaldson,
Lufkin & Jenrette Merchant Banking and the Sprout
Group funded and completed a management buyout of our Company
from Lucent in May 1996. After the buyout, we continued to sell
our software products integrated with third party hardware,
primarily UNIX servers and optical and magnetic tape libraries.
These combined hardware and software products were marketed as
ABARS, or Automated Backup and Recovery Solution, through 1997,
at which time we renamed the products Vault 98.
In April 1998, our board of directors and a new management team
changed our strategic direction. We believed that the data
management software industry would shift from local,
server-attached environments to more complex and widely
distributed data networks. We believed that a broad suite of
data management software applications built upon an innovative
architecture and a single underlying code base would more easily
and cost-effectively manage
31
data in this complex networked environment. We also believed
that our competitors would address this opportunity by adapting
their legacy platforms and by developing or acquiring new
applications built upon dissimilar underlying software
architectures. We believed, and continue to believe, that
managing data with this type of loosely integrated solution
would be more difficult and costly for the customer. We also
recognized that our legacy Vault 98 technology was too limited
to address the broader data management market opportunity. This
vision resulted in an almost two-year development project that
culminated in the introduction of our Galaxy data protection
software in February 2000. Galaxy represented the first of our
software applications built upon our new architectural platform,
and we now market it as one of the applications in our QiNetix
software suite. The introduction of Galaxy also marked the
beginning of the phasing out of both our Vault 98 products and
the sale of third party hardware. We substantially completed the
phase-out of our sales of Vault 98 products and third party
hardware in September 2001.
We have spent the past seven years developing, enhancing and
introducing the following eight applications as part of our
QiNetix software suite, all of which are built upon our unified
architectural design: QiNetix Galaxy Backup and Recovery
(released in 2000), QiNetix DataMigrator (released in 2002),
QiNetix QuickRecovery (released in 2002), QiNetix DataArchiver
(released in 2003), QiNetix StorageManager (released in 2003),
QiNetix QNet (released in 2003), QiNetix Data Classification
(released in 2005) and QiNetix ContinuousDataReplicator
(released June 2006). In addition to QiNetix Galaxy, the
subsequent release of our other QiNetix software has
substantially increased our addressable market. As of
March 31, 2007, we had licensed our software applications
to approximately 5,900 registered customers.
We completed our initial public offering on September 27,
2006 in which 12,777,778 shares of common stock were sold
to the public at a price of $14.50 per share. We sold
6,148,148 shares and certain of our stockholders sold
6,629,630 shares in the offering. After deducting the
underwriting discounts and commissions and the other offering
expenses, our net proceeds from the initial public offering were
approximately $80.2 million. In conjunction with the
initial public offering, we also sold 102,640 shares of
common stock in a concurrent private placement at the initial
public offering price pursuant to preemptive rights that arose
as a result of the initial public offering. Our net proceeds
from the concurrent private placement were approximately
$1.5 million. We used the net proceeds of the offering and
the private placement, together with borrowings under our term
loan and $10.1 million of our existing cash and cash
equivalents, to pay $101.8 million in satisfaction of
amounts due on our Series A, B, C, D and E preferred stock
upon its conversions into common stock, which occurred upon the
closing of the offering. In conjunction with the offering, all
of our outstanding shares of preferred stock were converted into
16,019,480 shares of our common stock.
We currently derive the majority of our software revenue from
our Galaxy Backup and Recovery software application. Sales of
Galaxy Backup and Recovery represented approximately 83% of our
total software revenue for fiscal 2007 and 90% in fiscal 2006.
In addition, we derive the majority of our services revenue from
customer and technical support associated with our Galaxy Backup
and Recovery software application. We anticipate that we will
continue to derive a majority of our software and services
revenue from our Galaxy Backup and Recovery software application
for the foreseeable future.
Given the nature of the industry in which we operate, our
software applications are subject to obsolescence. We
continually develop and introduce updates to our existing
software applications in order to keep pace with technological
developments, evolving industry standards, changing customer
requirements and competitive software applications that may
render our existing software applications obsolete. For each of
our software applications, we provide full support for the
current generally available release and one prior release. When
we declare a product release obsolete, a customer notice is
delivered twelve months prior to the effective date of
obsolescence announcing continuation of full product support for
the first six months. We provide an additional six months of
extended assistance support in which we only provide existing
workarounds or fixes that do not require additional development
activity. We do not have existing plans to make any of our
software products permanently obsolete.
Sources
of Revenues
We derive the majority of our revenues from sales of licenses of
our software applications. We do not customize our software for
a specific end user customer. We sell our software applications
to end user customers both directly through our sales force and
indirectly through our global network of value-added reseller
partners,
32
distributors, systems integrators, corporate resellers and
original equipment manufacturers. Our corporate resellers bundle
or sell our software applications together with their own
products, and our value-added resellers sell our software
applications independently. Our software revenue was 56% of our
total revenues for fiscal 2007, 57% for fiscal 2006 and 60% for
fiscal 2005. Software revenue generated through direct
distribution channels was approximately 31% of total software
revenue in fiscal 2007, 32% in fiscal 2006 and 38% in fiscal
2005. Software revenue generated through indirect distribution
channels was approximately 69% of total software revenue in
fiscal 2007, 68% in fiscal 2006 and 62% in fiscal 2005. We have
no current plans to focus future growth on one distribution
channel versus another. The failure of our indirect distribution
channels to effectively sell our software applications could
have a material adverse effect on our revenues and results of
operations.
We have original equipment manufacturer agreements with Dell and
Hitachi Data Systems pursuant to which they have agreed to
market, sell and support our software applications and services
on a stand-alone basis
and/or
incorporate our software applications into their own hardware
products. Dell and Hitachi Data Systems have no obligation to
recommend or offer our software applications exclusively or at
all, and they have no minimum sales requirements and can
terminate our relationship at any time. An increasing amount of
our software revenue is related to arrangements with original
equipment manufacturers that have no obligation to sell our
software applications. A material portion of our software
revenue is generated through these arrangements, and we expect
this contribution to grow in the future.
We recently signed an original equipment manufacturer agreement
with Bull pursuant to which they have agreed to market, sell and
support our software applications and services. To date, we have
not generated any revenue through Bull, but expect this
contribution to occur in the future.
We also recently signed a wide-ranging distribution agreement
with Arrow covering our North American commercial markets. We
expect that many of our value-added reseller partners will be
transitioned to Arrow and that revenues currently generated
through our reseller channel will be largely transitioned to
Arrow in fiscal 2008.
In recent fiscal years, we have generated approximately
two-thirds of our software revenue from our existing customer
base and approximately one-third of our software revenue from
new customers. Our total software revenue in any particular
period is, to a certain extent, dependent upon our ability to
generate revenues from large customer software deals. We expect
the number of software transactions over $0.1 million to
increase in fiscal 2008, although the size and timing of any
particular software transaction is more difficult to forecast.
Such software transactions typically represent approximately 30%
to 35% of our total software revenue in any given period.
Our services revenue is made up of fees from the delivery of
customer support and other professional services, which are
typically sold in connection with the sale of our software
applications. Customer support agreements provide technical
support and unspecified software updates on a
when-and-if-available
basis for an annual fee based primarily on the dollar amount of
software purchased and the level of service subscribed. Other
professional services include consulting, assessment and design
services, implementation and post-deployment services and
training, all of which to date have predominantly been sold in
connection with the sale of software applications. Our services
revenue was 44% of our total revenues for fiscal 2007, 43% for
fiscal 2006 and 40% for fiscal 2005. The gross margin of our
services revenue was 70.2% for fiscal 2007, 71.9% for fiscal
2006 and 69.8% for fiscal 2005. Our services revenue has lower
gross margins than our software revenue. An increase in the
percentage of total revenues represented by services revenue
would adversely affect our overall gross margins.
Description
of Costs and Expenses
Our cost of revenues is as follows:
|
|
|
|
|
Cost of Software Revenue, consists primarily of third
party royalties and other costs such as media, manuals,
translation and distribution costs; and
|
|
|
|
Cost of Services Revenue, consists primarily of salary
and employee benefit costs in providing customer support and
other professional services.
|
Our operating expenses are as follows:
|
|
|
|
|
Sales and Marketing, consists primarily of salaries,
commissions, employee benefits and other direct and indirect
business expenses, including travel related expenses, sales
promotion expenses, public relations expenses and costs for
marketing materials and other marketing events (such as trade
shows and advertising);
|
33
|
|
|
|
|
Research and Development, which is primarily the expense
of developing new software applications and modifying existing
software applications, consists principally of salaries and
benefits for research and development personnel and related
expenses; contract labor expense and consulting fees as well as
other expenses associated with the design, certification and
testing of our software applications; and legal costs associated
with the patent registration of such software applications;
|
|
|
|
General and Administrative, consists primarily of
salaries and benefits for our executive, accounting, human
resources, legal, information systems and other administrative
personnel. Also included in this category are other general
corporate expenses, such as outside legal and accounting
services and insurance; and
|
|
|
|
Depreciation and Amortization, consists of depreciation
expense primarily for computer equipment we use for information
services and in our development and test labs.
|
We anticipate that each of the above categories of operating
expenses will increase in dollar amounts, but will decline as a
percentage of total revenues in the long-term.
Critical
Accounting Policies
In presenting our consolidated financial statements in
conformity with U.S. generally accepted accounting
principles, we are required to make estimates and judgments that
affect the amounts reported therein. Some of the estimates and
assumptions we are required to make relate to matters that are
inherently uncertain as they pertain to future events. We base
these estimates on historical experience and on various other
assumptions that we believe to be reasonable and appropriate.
Actual results may differ significantly from these estimates.
The following is a description of our accounting policies that
we believe require subjective and complex judgments, which could
potentially have a material effect on our reported financial
condition or results of operations.
Revenue
Recognition
We recognize revenue in accordance with the provisions of
Statement of Position (SOP)
97-2,
Software Revenue Recognition, as amended by
SOP 98-4
and
SOP 98-9,
and related interpretations. Our revenue recognition policy is
based on complex rules that require us to make significant
judgments and estimates. In applying our revenue recognition
policy, we must determine which portions of our revenue are
recognized currently (generally software revenue) and which
portions must be deferred and recognized in future periods
(generally services revenue). We analyze various factors
including, but not limited to, the sales of undelivered services
when sold on a stand-alone basis, our pricing policies, the
credit-worthiness of our customers and resellers, accounts
receivable aging data and contractual terms and conditions in
making such judgments about revenue recognition. Changes in
judgment on any of these factors could materially impact the
timing and amount of revenue recognized in a given period.
Currently we derive revenues from two primary sources, or
elements: software licenses and services. Services include
customer support, consulting, assessment and design services,
installation services and training. A typical sales arrangement
includes both of these elements.
For sales arrangements involving multiple elements, we recognize
revenue using the residual method as described in
SOP 98-9.
Under the residual method, we allocate and defer revenue for the
undelivered elements based on relative fair value and recognize
the difference between the total arrangement fee and the amount
deferred for the undelivered elements as revenue. The
determination of fair value of the undelivered elements in
multiple element arrangements is based on the price charged when
such elements are sold separately, which is commonly referred to
as vendor-specific objective evidence (VSOE).
Software licenses typically provide for the perpetual right to
use our software and are sold on a per copy basis or as site
licenses. Site licenses give the customer the additional right
to deploy the software on a limited basis during a specified
term. We recognize software revenue through direct sales
channels upon receipt of a purchase order or other persuasive
evidence and when the other three basic revenue recognition
criteria are met as described in the revenue recognition section
in Note 2 of our Notes to Consolidated Financial
Statements. We recognize software revenue through all
indirect sales channels on a sell-through model. A sell-through
model requires that we recognize revenue when the basic revenue
recognition criteria are met and these channels complete the
sale of our
34
software products to the end user. Revenue from software
licenses sold through an original equipment manufacturer partner
is recognized upon the receipt of a royalty report or purchase
order from that original equipment manufacturer partner.
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 and bug fixes or patches. Customer
support revenue is recognized ratably over the term of the
customer support agreement, which is typically one year. To
determine the price for the customer support element when sold
separately, we primarily use historical renewal rates and, in
certain cases, we use stated renewal rates. Historical renewal
rates are supported by a rolling
12-month
VSOE analysis in which we segregate our customer support renewal
contracts into different classes based on specific criteria
including, but not limited to, dollar amount of software
purchased, level of customer support being provided and
distribution channel. The purpose of such an analysis is to
determine if the customer support element that is deferred at
the time of a software sale is consistent with how it is sold on
a stand-alone renewal basis.
Our other professional services include consulting, assessment
and design services, installation services and training. Other
professional services provided by us are not mandatory and can
also be performed by the customer or a third party. In addition
to a signed purchase order, our consulting, assessment and
design services and installation services are often evidenced by
a signed Statement of Work, which defines the specific scope of
the services to be performed when sold and performed on a
stand-alone basis or included in multiple-element sales
arrangements. Revenues from consulting, assessment and design
services and installation services are based upon a daily or
weekly rate and are recognized when the services are completed.
Training includes courses taught by our instructors or third
party contractors either at one of our facilities or at the
customers site. Training fees are recognized after the
training course has been provided. Based on our analysis of such
other professional services transactions sold on a stand-alone
basis, we have concluded that we have established VSOE for such
other professional services when sold in connection with a
multiple-element sales arrangement.
In summary, we have analyzed all of the undelivered elements
included in our multiple-element sales arrangements and
determined that we have VSOE of fair value to allocate revenues
to services. Our analysis of the undelivered elements has
provided us with results that are consistent with the estimates
and assumptions used to determine the timing and amount of
revenue recognized in our multiple-element sales arrangements.
Accordingly, assuming all basic revenue recognition criteria are
met, software revenue is recognized upon delivery of the
software license using the residual method in accordance with
SOP 98-9.
We are not likely to materially change our pricing and
discounting practices in the future.
Our sales arrangements generally do not include acceptance
clauses. However, if an arrangement does include an acceptance
clause, we defer the revenue for such arrangement and recognize
it upon acceptance. Acceptance occurs upon the earliest of
receipt of a written customer acceptance, waiver of customer
acceptance or expiration of the acceptance period.
We have offered limited price protection under certain original
equipment manufacturer agreements. Any right to a future refund
from such price protection is entirely within our control. We
estimate that the likelihood of a future payout due to price
protection is remote.
During the preparation of our financial statements for fiscal
2006 and as of December 31, 2006, we became aware of
material weaknesses related to our revenue recognition
procedures for certain multiple-element sales arrangements
accounted for under Statement of Position (SOP)
97-2,
Software Revenue Recognition, as amended by
SOP 98-4
and
SOP 98-9.
During fiscal 2006, we changed our customary business practice
and began to require and utilize a signed Statement of Work
documenting the scope of our other professional services
offerings greater than $10,000 (excluding training), in addition
to a signed purchase order, when sold and performed on a
stand-alone basis or included in multiple-element sales
arrangements. Persuasive evidence of an arrangement does not
exist for such multiple-element sales arrangements until the
Statement of Work covering the other professional services is
signed by both CommVault and the end-user customer. During
fiscal 2006, we recorded software revenue of approximately
$2.5 million and services revenue of approximately
$0.1 million related to certain multiple-element sales
arrangement transactions before a signed Statement of Work
covering the other professional services was obtained. As a
result, we recorded a reduction to revenue and a corresponding
increase to deferred revenue of approximately $2.6 million
in fiscal 2006 related to this material weakness. The revenue
was subsequently
35
recognized during fiscal 2007. We believe we have remediated
this material weakness related to the multiple-element sales
arrangements containing a Statement of Work.
At December 31, 2006, we determined that we did not have an
effective process in place to evaluate the appropriate revenue
recognition treatment for complex contractual arrangements with
customers involving multiple agreements. We have taken the
following actions that we believe have remediated this
identified material weakness: adopted formal procedures whereby
all significant contracts are independently reviewed by a
Contract Review Committee comprised of key members of our
management, legal and finance teams for identification of any
complex accounting issues; engage experts to consult with
management in conjunction with its selection and evaluation of
the appropriate accounting treatment for complex contractual
arrangements; and we continue to train technical accounting
personnel and enhance supervision with regard to timely review
and approval of significant revenue transactions.
See Risk Factors Risks Relating to Our
Business Our management and auditors have identified
material weaknesses in the design and operation of our internal
controls as of March 31, 2006 and December 31, 2006
which, if our remediation efforts fail, could result in material
misstatements in our financial statements in future
periods for more information about these material
weaknesses.
Stock-Based
Compensation
As of March 31, 2007, we maintain two stock-based
compensation plans, which are described more fully in
Note 9 of our Notes to Consolidated Financial
Statements. Prior to April 1, 2006, we accounted
for our stock option plan under the recognition and measurement
provisions of APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations, as
permitted by FASB Statement No. 123,
(SFAS 123), Accounting for Stock-Based
Compensation. Stock-based employee compensation cost was
recognized in the Statement of Operations for the years ended
March 31, 2006 and 2005 to the extent stock options granted
had an exercise price that was less than the fair value of the
underlying common stock on the date of grant. In Note 2 of
our consolidated financial statements, we have presented the pro
forma effect on net income (loss) attributable to common
stockholders as if we had applied the fair value recognition of
SFAS 123.
On April 1, 2006, we adopted the fair value recognition
provisions of SFAS Statement No. 123 (revised 2004),
Share-Based Payment, (SFAS 123(R)) using
the modified prospective method and therefore we have not
restated our financial results for prior periods. Under this
transition method, stock-based compensation costs during the
year ended March 31, 2007 includes the portion related to
stock options vesting in the period for (1) all options
granted prior to, but not vested as of April 1, 2006, based
on the grant date fair value in accordance with the original
provisions of SFAS 123 and (2) all options granted
subsequent to April 1, 2006, based on the grant date fair
value estimated in accordance with SFAS 123(R). As a result
of adopting SFAS 123(R)on April 1, 2006, our income
before income taxes and net income for fiscal 2007 is
$3.9 million and $2.5 million lower, respectively,
than if we had continued to account for stock-based compensation
under APB Opinion No. 25, Accounting for Stock Issued to
Employees. As of March 31, 2007, we have only granted
non-qualified stock options under our stock-based compensation
plans. We anticipate that future grants under our stock-based
compensation plans will include both non-qualified stock options
and restricted stock units.
Upon adoption of SFAS 123(R), we selected the Black-Scholes
option pricing model for determining the estimated fair value
for stock-based awards. The fair value of stock option awards
subsequent to April 1, 2006 is amortized on a straight-line
basis over the requisite service period of the awards, which is
generally the vesting period. Expected volatility was calculated
based on reported data for a peer group of publicly traded
companies for which historical information was available. We
will continue to use peer group volatility information until our
historical volatility is relevant to measure expected volatility
for future option grants. The average expected life was
determined according to the SEC shortcut approach as
described in SAB 107, Disclosure about Fair Value of
Financial Instruments, which is the mid-point between the
vesting date and the end of the contractual term. The risk-free
interest rate is determined by reference to U.S. Treasury
yield curve rates with a remaining term equal to the expected
life assumed at the date of grant. Forfeitures are estimated
based on a historical analysis of our actual stock option
forfeitures.
36
The assumptions used in the Black-Scholes option-pricing model
are as follows:
|
|
|
|
|
Year Ended
|
|
|
March 31, 2007
|
|
Dividend yield
|
|
None
|
Expected volatility
|
|
48% - 55%
|
Weighted average expected
volatility
|
|
51%
|
Risk-free interest rates
|
|
4.45% - 5.04%
|
Expected life (in years)
|
|
6.25
|
The following table presents the exercise price and fair value
per share for grants issued during fiscal 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
Value per
|
|
|
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Common
|
|
|
Intrinsic
|
|
Grant Date
|
|
Granted
|
|
|
Price
|
|
|
Share
|
|
|
Value
|
|
|
Fiscal Year 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 5, 2005
|
|
|
359,750
|
|
|
$
|
4.50
|
|
|
$
|
6.92
|
|
|
$
|
2.42
|
|
July 29, 2005
|
|
|
461,375
|
|
|
|
4.70
|
|
|
|
8.36
|
|
|
|
3.66
|
|
September 19, 2005
|
|
|
800,000
|
|
|
|
4.70
|
|
|
|
9.18
|
|
|
|
4.48
|
|
November 3, 2005
|
|
|
374,500
|
|
|
|
6.70
|
|
|
|
10.34
|
|
|
|
3.64
|
|
January 26, 2006
|
|
|
334,350
|
|
|
|
7.50
|
|
|
|
11.08
|
|
|
|
3.58
|
|
March 2, 2006
|
|
|
163,625
|
|
|
|
8.10
|
|
|
|
12.84
|
|
|
|
4.74
|
|
Fiscal Year 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 20, 2006
|
|
|
150,000
|
|
|
$
|
11.70
|
|
|
$
|
12.98
|
|
|
$
|
1.28
|
|
May 3, 2006
|
|
|
89,750
|
|
|
|
12.60
|
|
|
|
13.08
|
|
|
|
0.48
|
|
July 27, 2006
|
|
|
145,600
|
|
|
|
12.74
|
|
|
|
12.74
|
|
|
|
|
|
September 12, 2006
|
|
|
135,375
|
|
|
|
13.50
|
|
|
|
13.50
|
|
|
|
|
|
October 13, 2006
|
|
|
30,875
|
|
|
|
18.85
|
|
|
|
18.85
|
|
|
|
|
|
November 14, 2006
|
|
|
47,500
|
|
|
|
17.60
|
|
|
|
17.60
|
|
|
|
|
|
December 14, 2006
|
|
|
39,000
|
|
|
|
19.99
|
|
|
|
19.99
|
|
|
|
|
|
January 15, 2007
|
|
|
34,000
|
|
|
|
19.84
|
|
|
|
19.84
|
|
|
|
|
|
February 14, 2007
|
|
|
63,500
|
|
|
|
16.26
|
|
|
|
16.26
|
|
|
|
|
|
March 14, 2007
|
|
|
25,250
|
|
|
|
16.27
|
|
|
|
16.27
|
|
|
|
|
|
Prior to July 27, 2006, the exercise prices for options
granted were set by our board of directors based upon our
internal valuation model. Our internal valuation model used a
consistent formula based on
12-month
projected revenues in periods where we were not profitable and
alternatively
12-month
projected earnings when we started to achieve profitability on a
regular basis. Our internal valuation was based on multiples
(either revenue or earnings) of a comparable group of publicly
traded companies in our market sector. In connection with the
preparation of the financial statements for our initial public
offering, we performed a retrospective determination of fair
value of our common stock underlying stock option grants from
January 1, 2005 through May 3, 2006. The retrospective
determination of fair value of our common stock utilized the
probability weighted expected returns (PWER) method
described in the AICPA Technical Practice Aid, Valuation of
Privately-Held-Company Equity Securities Issued as Compensation
(Practice Aid).
Under the PWER method, the value of our common stock was
estimated based upon an analysis of future values for the
enterprise assuming various future outcomes. In our situation,
the future outcomes included two scenarios: (i) we become a
public company (public company scenario) and;
(ii) we remain a private company (remains private
scenario). We used a low probability assumption for our
January 2005 grants and this percentage increased as significant
milestones were achieved and as discussions with our investment
bankers increased as we
37
prepared for the initial public offering process. An increase in
the probability assessment for an initial public offering
increased the value ascribed to our common stock.
Under the public company scenario, fair value per
common share was calculated using our expected pre-initial
public offering valuation and a risk-adjusted discount rate
ranging from 20% to 25% based on the estimated timing of our
potential initial public offering. The risk-adjusted discount
rate was based on the inherent risk of a hypothetical investment
in our common stock. An appropriate rate of return required by a
hypothetical investor was determined based on: (1) well
established venture capital rates of return published in the
Practice Aid for firms engaged in bridge financing in
anticipation of a later IPO and (2) our calculated cost of
capital. Based on this data, we used a risk-adjusted discount
rate of 25% for the January 2005 valuation date and lowered such
a rate to 20% for the subsequent valuation dates based on the
decreased inherent risk of investing in our common stock as we
continued to develop our products and achieved increased levels
of profitability. In general, the closer a company gets to an
initial public offering, the higher the probability assessment
weighting is for the public company scenario. If
different discount rates had been used, the valuations would
have been different.
Determining the fair value of the common stock of a private
enterprise requires complex and subjective judgments. As such,
under the remains private scenario, our
retrospective estimates of enterprise value were based upon a
combination of the income approach and the market approach. The
significant portion of the value derived under the income
approach is based upon the calculation of the terminal value,
which in this analysis is based on data from publicly traded
guideline companies. In addition, the income approach allows for
the full utilization of the our net operating loss carryforwards
as it is a forward looking model, as compared to the market
approach that focuses on historical results. Lastly, based on
our stage of development and our ability to generate profits
only recently, it was more likely that a potential investor in
our common stock would place the bulk of their emphasis on
future expectations rather than on historical performance. As
such, it was our opinion that the income approach provided a
much more meaningful indication of value and we therefore placed
greater emphasis upon the conclusion as rendered by this
approach and relatively less weight upon the value determined by
the market approach. Accordingly, we applied a weight of 80% to
the income approach and a weight of 20% to the market approach.
If different weights were applied to the income and market
approach, the valuations would have been different.
Under the income approach, our enterprise value was based on the
present value of our forecasted operating results. The
assumptions underlying the estimates were consistent with the
business plan used by our management. Similar to the
public company scenario, a risk-adjusted discount
rate ranging from 20% to 25% was used based on the inherent risk
of an investment in CommVault. If different discount rates had
been used, the valuations would have been different.
Under the market approach, our estimated enterprise value was
developed based on revenue multiples of comparable companies.
Specifically, a search was conducted for companies with a
similar Standard Industrial Classification code. This search
revealed numerous publicly-traded companies in this industry.
From this total population of over 500 guideline companies,
eight companies were selected as comparable companies for
inclusion in the valuation analysis based on scope and breadth
of product offerings, annual revenue, stage of development,
prospects for growth and risk profiles. Although each of the
comparable companies differs in some respects from us, they are
generally influenced by similar business and economic conditions
and are considered to offer alternative investment
opportunities. If different comparable companies were used, the
valuations would have been different.
The fair value of our common stock under the remains
private scenario was determined by reducing the total
estimated remains private enterprise value by the
liquidation preferences that our Series A through E
cumulative redeemable convertible preferred stock had and the
conversion preferences that our Series AA, BB and CC
convertible preferred stock had as well as a discount for lack
of marketability of 35% assuming we remained a private company.
We had one significant restriction on the marketability of our
common stock related to the blocking rights that our
Series CC preferred stockholders had if we were to conduct
an IPO that has an offering price of less than $6.26 per
share, on an as adjusted basis. In addition, there was also no
guarantee of future dividends being paid. After considering
these factors, as well as the results of a number of empirical
studies, IRS Revenue Ruling
77-287
involving the issue of discounts for lack of marketability and
certain other company specific factors (such as the prospects
for liquidity absent an IPO and the estimated volatility of our
common stock), a 35% discount
38
for lack of marketability was deemed appropriate to apply to the
common stock. If a different discount for lack of marketability
was used, the valuations would have been different.
Valuation models require the input of highly subjective
assumptions. Because, prior to our initial public offering, our
common stock had characteristics significantly different from
that of publicly traded common stock and because changes in the
subjective input assumptions could have materially affected the
fair value estimate, in managements opinion, the existing
models did not necessarily provide a reliable, single measure of
the fair value of our common stock.
The foregoing valuation methodologies are not the only valuation
methodologies available and were not used to value our common
stock after our initial public offering. We cannot assure you of
any particular valuation of our stock. Accordingly, investors
are cautioned not to place undue reliance on the foregoing
valuation methodologies as an indicator of future stock prices.
In conjunction with each of the factors noted below, the primary
factors that contributed to the difference between the fair
value of our common stock as of each grant date prior to
July 27, 2006 and our initial offering price of
$14.50 per share included:
|
|
|
|
|
The continued execution of our business model which had resulted
in total revenues increasing 32% in fiscal 2006 compared to
fiscal 2005 and 52% in the three months ended June 30, 2006
compared to the three months ended June 30, 2005. We had
experienced such revenue growth in both the United States and in
our international operations.
|
|
|
|
Software revenue generated through our original equipment
manufacturer agreements had increased approximately
$8.5 million, or 425%, in fiscal 2006 compared to fiscal
2005 due to higher revenue from our arrangement with Dell as
well as revenue generated from an original equipment
manufacturer arrangement we entered into with Hitachi Data
Systems in March 2005.
|
|
|
|
We had achieved our fourth consecutive quarter of profitability
for the three months ended June 30, 2006.
|
|
|
|
As of June 30, 2006, we had licensed our software
applications to approximately 4,300 registered customers
representing an increase of approximately 50% compared to
March 31, 2005.
|
|
|
|
We had continued to enhance our QiNetix software suite with the
introduction of QiNetix Data Classification in 2005 and QiNetix
ContinuousDataReplicator in 2006. In addition, we have released
numerous enhancements to our existing QiNetix software
applications.
|
|
|
|
The passage of time between grant dates, which led to the
shifting of the time periods that such valuations are based upon.
|
|
|
|
The probability weighting of being able to proceed with an IPO
with an offering price of no less than $6.26 per share, on
an as adjusted basis, which is the minimum offering price
without being potentially blocked by the Series CC
preferred stockholders.
|
|
|
|
In January 2006, we engaged investment bankers to initiate the
process of an initial public offering and began drafting a
registration statement.
|
The reassessed fair value of our common stock underlying 359,750
options granted to employees on May 5, 2005 was determined
to be $6.92 per share. The increase in fair value as
compared to the January 27, 2005 value was primarily due to
the following:
|
|
|
|
|
For the three months ended March 31, 2005, we had the most
profitable quarter in our history at that time, generating
earnings of approximately $1.6 million;
|
|
|
|
We achieved our first fiscal year of profitability for the year
ended March 31, 2005;
|
|
|
|
We entered into an original equipment manufacturer arrangement
with Hitachi Data Systems in March 2005; and
|
|
|
|
The possibility of an initial public offering remained
relatively low and a probability estimate of 30% was assigned
under the PWER method as a result of the significant milestones
to be achieved.
|
39
The reassessed fair value of our common stock underlying 461,375
options granted to employees on July 29, 2005 was
determined to be $8.36 per share. The increase in fair
value as compared to the May 5, 2005 value was primarily
due to the following:
|
|
|
|
|
For the three months ended June 30, 2005, revenues and
earnings exceeded budget;
|
|
|
|
We increased our earnings forecast for the remainder of fiscal
2006; and
|
|
|
|
We increased the probability estimate for the initial public
offering scenario under the PWER method to 40% as a result of
our revenues and earnings exceeding budget.
|
The reassessed fair value of our common stock underlying 800,000
options granted to employees on September 19, 2005 was
determined to be $9.18 per share. On September 19,
2005, our compensation committee awarded options to several key
executives. The underlying assumptions that were in place as of
the July 29, 2005 grant date were still in place on
September 19, 2005, except we increased the probability
estimate for the initial public offering scenario under the PWER
method to 50% as a result of moving closer to a potential
initial public offering and anticipating a profitable quarter
ending September 30, 2005.
The reassessed fair value of our common stock underlying 374,500
options granted to employees on November 3, 2005 was
determined to be $10.34 per share. The increase in fair
value as compared to the September 19, 2005 value was
primarily due to the following:
|
|
|
|
|
For the three and six months ended September 30, 2005,
earnings exceeded our original budget and revised forecasts;
|
|
|
|
In the six months ended September 30, 2005, we started to
achieve substantial revenue growth from our original equipment
manufacturer arrangements with Dell and Hitachi Data
Systems; and
|
|
|
|
We increased the probability estimate for the initial public
offering scenario under the PWER method to 60% as a result of
our earnings exceeding forecast and the substantial revenue
growth we achieved from our original equipment manufacturer
agreements.
|
The reassessed fair value of our common stock underlying 334,350
options granted to employees on January 26, 2006 was
determined to be $11.08 per share. The increase in fair
value as compared to the November 3, 2005 value was
primarily due to the following:
|
|
|
|
|
On January 10, 2006, we initiated the process of an initial
public offering when we held an organizational meeting; as a
result, we increased the initial public offering scenario to 65%
under the PWER method;
|
|
|
|
We achieved consecutive quarters of profitability for the first
time;
|
|
|
|
For the three and nine months ended December 31, 2005,
earnings exceeded our original budget and revised
forecasts; and
|
|
|
|
We continued to generate cash flows from operations
significantly exceeding budgeted, revised forecast and prior
year amounts.
|
Despite holding an organizational meeting on January 10,
2006, we only increased the initial public offering scenario
from 60% at November 3, 2005 to 65% at January 26,
2006 for two primary reasons. First, we needed to conduct an
initial public offering at an offering price of at least
$6.26 per share otherwise it would potentially be blocked
by the Series CC preferred stockholders. There was no
assurance as of January 26, 2006 that such an offering
price could be obtained. It was our belief that we first needed
to achieve our forecasted results for the quarter and fiscal
year ending March 31, 2006 before we would be able to
obtain such a minimum price per share. Secondly, while we
formally initiated the offering process on January 10,
2006, there was no assurance that we would actually proceed with
the actual offering. We had also initiated an offering process
once before in early 2004, but subsequently decided to not
proceed with an actual offering.
The reassessed fair value of our common stock underlying 163,625
options granted to employees on March 2, 2006 was
determined to be $12.84 per share. On March 2, 2006,
our compensation committee awarded options to certain strategic
new hires. The underlying assumptions that were in place as of
the January 26, 2006 grant date were
40
still in place on March 2, 2006, except that we increased
the probability estimate for the initial public offering
scenario under the PWER method to 90% as a result of the
imminence of our potential initial public offering and
anticipating our fiscal 2006 earnings would exceed forecast and
budget amounts.
The reassessed fair value of our common stock underlying 150,000
options and 89,750 options granted to employees on
April 20, 2006 and May 3, 2006 was determined to be
$12.98 per share and $13.08 per share, respectively.
The increase in fair value as of April 20, 2006 and
May 3, 2006 as compared to the March 2, 2006 value was
primarily due to the following:
|
|
|
|
|
We achieved our third quarter of consecutive profitability and
completed our most profitable fiscal year for the year ended
March 31, 2006; and
|
|
|
|
We continued to generate cash flows from operations
significantly exceeding budgeted and prior year amounts.
|
We maintained a 90% probability estimate for the initial public
offering scenario under the PWER method for the April 20,
2006 and May 3, 2006 common stock valuations.
We estimated the fair value of our common stock on July 27,
2006 based on a contemporaneous valuation using the PWER method.
We estimated the fair value of our common stock on
September 12, 2006 based on the midpoint of the estimated
offering range contained in our registration statement on
Form S-1
related to our initial public offering. The fair market value of
our common stock subsequent to the closing of our initial public
offering on September 27, 2006 was based on the publicly
trade price as reported by The NASDAQ Stock Market.
As of March 31, 2007, there was approximately
$15.1 million of unrecognized stock-based compensation
expense related to non-vested stock option awards that are
expected to be recognized over a weighted average period of
2.58 years. The intrinsic value of the options outstanding
as of March 31, 2007, was $75.7 million, of which
$51.1 million related to vested options and
$24.6 million related to unvested options.
Accounting
for Income Taxes
As part of the process of preparing our financial statements, we
are required to estimate our income taxes in each of the
jurisdictions in which we operate. We record this amount as a
provision or benefit for taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. This
process involves estimating our actual current tax exposure,
including assessing the risks associated with tax audits, and
assessing temporary differences resulting from different
treatment of items for tax and accounting purposes. These
differences result in net deferred tax assets and tax reserves.
As of March 31, 2007, we had deferred tax assets of
approximately $52.2 million, which were primarily related
to federal, state and foreign net operating loss carryforwards
and federal and state research tax credit carryforwards. We
assess the likelihood that our deferred tax assets will be
recovered from future taxable income and, to the extent that we
believe recovery is not likely, we establish a valuation
allowance. As of March 31, 2007, we maintained a valuation
allowance for deferred tax assets of approximately
$1.3 million primarily related to net operating loss
carryforwards in certain international jurisdictions as there is
not sufficient evidence to enable us to conclude that it is more
likely than not that such deferred tax assets will be realized.
In addition, in evaluating the exposure associated with various
filing positions, we record estimated tax reserves for probable
exposures. Based on our evaluation of current tax positions, we
believe we have appropriately accrued for probable exposures and
have tax reserves of approximately $5.0 million recorded
within accrued liabilities. If our actual results differ from
our estimates, our provision for income taxes could be
materially impacted.
Software
Development Costs
Research and development expenditures are charged to operations
as incurred. SFAS No. 86, Accounting for the Costs
of Computer Software to Be Sold, Leased or Otherwise
Marketed, requires capitalization of certain software
development costs subsequent to the establishment of
technological feasibility. Based on our software development
process, technological feasibility is established upon
completion of a working model, which also requires certification
and extensive testing. Costs incurred by us between completion
of the working model and the point at which the product is ready
for general release, historically have been immaterial.
41
Results
of Operations
The following table sets forth each of our sources of revenues
and costs of revenues for the specified periods as a percentage
of our total revenues for those periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
56
|
%
|
|
|
57
|
%
|
|
|
60
|
%
|
Services
|
|
|
44
|
|
|
|
43
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
1
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
Services
|
|
|
13
|
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
14
|
%
|
|
|
14
|
%
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
86
|
%
|
|
|
86
|
%
|
|
|
86
|
%
|
Fiscal
year ended March 31, 2007 compared to fiscal year ended
March 31, 2006
Revenues
Total revenues increased $41.6 million, or 38%, from
$109.5 million in fiscal 2006 to $151.1 million in
fiscal 2007.
Software Revenue. Software revenue increased
$21.4 million, or 34%, from $62.4 million in fiscal
2006 to $83.9 million in fiscal 2007. Software revenue
represented 56% of our total revenues in fiscal 2007 compared to
57% in fiscal 2006. The increase in software revenue was
primarily the result of broader acceptance of our software
applications and increased revenue from our expanding base of
existing customers. Revenue through our resellers and our direct
sales force contributed $10.3 million and
$6.1 million, respectively, to our overall increase in
software revenue. Furthermore, revenue through our original
equipment manufacturers contributed $5.0 million to our
overall increase in software revenue primarily due to higher
revenue from our arrangements with Dell and Hitachi Data
Systems. Software revenue transactions greater than
$0.1 million increased approximately $4.9 million
during fiscal 2007 compared to fiscal 2006. The increase is
primarily due to a larger volume and higher average dollar
amount of transactions of this type. Movements in foreign
exchange rates accounted for approximately $1.3 million, or
6%, of the $21.4 million increase in software revenue.
Services Revenue. Services revenue increased
$20.2 million, or 43%, from $47.1 million in fiscal
2006 to $67.2 million in fiscal 2007. Services revenue
represented 44% of our total revenues in fiscal 2007 compared to
43% in fiscal 2006. The increase in services revenue was
primarily due to a $16.0 million increase in revenue from
customer support agreements as a result of software sales to new
customers and renewal agreements with our installed software
base. Movements in foreign exchange rates accounted for
approximately $0.9 million, or 4%, of the
$20.2 million increase in services revenue.
Cost of
Revenues
Total cost of revenues increased $6.7 million, or 45%, from
$15.0 million in fiscal 2006 to $21.7 million in
fiscal 2007. Total cost of revenues represented 14% of our total
revenues in both fiscal 2007 and fiscal 2006.
Cost of Software Revenue. Cost of software
revenue decreased approximately $0.1 million, or 7%, from
$1.8 million in fiscal 2006 to $1.6 million in fiscal
2007. Cost of software revenue represented 2% of our total
software revenue in fiscal 2007 compared to 3% in fiscal 2006.
The decrease is primarily due to lower translation and
third-party media costs, partially offset by higher third-party
royalties.
Cost of Services Revenue. Cost of services
revenue increased $6.8 million, or 51%, from
$13.2 million in fiscal 2006 to $20.0 million in
fiscal 2007. Cost of services revenue represented 30% of our
services revenue in
42
fiscal 2007 compared to 28% in fiscal 2006. The increase in cost
of services revenue was primarily the result of higher employee
compensation and travel expenses totaling approximately
$3.5 million resulting from higher headcount and increased
sales as well as higher third party outsourcing costs of
approximately $0.9 million.
Operating
Expenses
Sales and Marketing. Sales and marketing
expenses increased $16.9 million, or 33%, from
$51.3 million in fiscal 2006 to $68.2 million in
fiscal 2007. The increase was primarily due to a
$7.1 million increase in employee compensation resulting
from higher headcount, a $2.3 million increase in
stock-based compensation expense due to the adoption of
SFAS 123(R), a $2.2 million increase in commission
expense on higher revenue levels and a $1.9 million
increase in travel and entertainment expenses due to increased
headcount. Movements in foreign exchange rates accounted for
approximately $0.7 million, or 4%, of the
$16.9 million increase in sales and marketing expenses.
Research and Development. Research and
development expenses increased $4.1 million, or 21%, from
$19.3 million in fiscal 2006 to $23.4 million in
fiscal 2007. The increase was primarily due to $2.0 million
of higher employee compensation resulting from higher headcount,
a $0.6 million increase in stock-based compensation due to
the adoption of SFAS 123(R) and a $0.5 million
increase in legal expenses associated with patent registration
of our intellectual property.
General and Administrative. General and
administrative expenses increased $6.3 million, or 52%,
from $12.3 million in fiscal 2006 to $18.6 million in
fiscal 2007. The increase was primarily due to a
$2.5 million increase in employee compensation resulting
from higher headcount, a $1.7 million increase in
accounting, compliance and insurance costs associated with being
a public company and a $1.6 million increase in stock-based
compensation expense due to the adoption of SFAS 123(R).
Depreciation and Amortization. Depreciation
expense increased $1.0 million, or 60%, from
$1.6 million in fiscal 2006 to $2.6 million in fiscal
2007. This reflects higher depreciation associated with
increased capital expenditures primarily for product development
and other computer-related equipment.
Interest
Expense
Interest expense increased $0.3 million, from zero in
fiscal 2006 to $0.3 million in fiscal 2007. The increase
was due to interest incurred on the term loan facility we
entered into in connection with the payments due to the holders
of the Series A through E stock at the time of our initial
public offering.
Interest
Income
Interest income increased $1.3 million, from
$1.3 million in fiscal 2006 to $2.6 million in fiscal
2007. The increase was due to higher interest rates and higher
cash balances in our deposit accounts.
Income
Tax Benefit (Expense)
Income tax benefit (expense) was an expense of $0.5 million
in fiscal 2006 compared to a benefit of $45.4 million in
fiscal 2007. The income tax expense in fiscal 2006 is primarily
due to alternative minimum taxes due to the U.S. federal
government as well as various state income taxes. The income tax
benefit in fiscal 2007 primarily reflects a $52.2 million
reversal of our deferred income tax valuation allowance
partially offset by the recognition of approximately
$5.0 million for certain tax reserves. Until the fourth
quarter of fiscal 2007, we had recorded a valuation allowance to
fully reserve our net deferred tax assets based on our
assessment that the realization of the net deferred tax assets
did not meet the more likely than not criterion
under SFAS No. 109, Accounting for Income
Taxes. As of March 31, 2007, we determined that
based upon a number of factors, including our cumulative taxable
income over the past three fiscal years and expected
profitability in future years, that certain of our deferred tax
assets were more likely than not realizable through
future earnings. Accordingly, as of March 31, 2007 we
reversed substantially all of our deferred income tax valuation
allowance and recorded a corresponding tax benefit of
$52.2 million. In addition, based on our evaluation of
current tax positions during the
43
fourth quarter of fiscal 2007, we recorded a tax charge of
$5.0 million to appropriately accrue for probable exposures
associated with various filing positions.
Fiscal
year ended March 31, 2006 compared to fiscal year ended
March 31, 2005
Revenues
Total revenues increased $26.8 million, or 32%, from
$82.6 million in fiscal 2005 to $109.5 million in
fiscal 2006.
Software Revenue. Software revenue increased
$12.8 million, or 26%, from $49.6 million in fiscal
2005 to $62.4 million in fiscal 2006. Software revenue
represented 57% of our total revenues in fiscal 2006 compared to
60% in fiscal 2005. The increase in software revenue was
primarily the result of broader acceptance of our software
applications and increased revenue from our expanding base of
existing customers. Revenue through our original equipment
manufacturers contributed $8.5 million to our overall
increase in software revenue primarily due to higher revenue
from our arrangement with Dell as well as revenue generated from
an original equipment manufacturer arrangement we entered into
with Hitachi Data Systems in March 2005. Furthermore, revenue
through our resellers contributed $3.6 million and revenue
through our direct sales force contributed $0.7 million to
our overall increase in software revenue. Software revenue
transactions greater than $0.1 million contributed
approximately $3.8 million to our overall increase in
software revenue.
Services Revenue. Services revenue increased
$14.0 million, or 42%, from $33.0 million in fiscal
2005 to $47.1 million in fiscal 2006. Services revenue
represented 43% of our total revenues in fiscal 2006 compared to
40% in fiscal 2005. The increase in services revenue was
primarily due to a $12.1 million increase in revenue from
customer support agreements as a result of sales of software to
new customers and renewal agreements from our installed software
base.
Cost of
Revenues
Total cost of revenues increased $3.5 million, or 31%, from
$11.5 million in fiscal 2005 to $15.0 million in
fiscal 2006. Total cost of revenues represented 14% of our total
revenues in both fiscal 2006 and fiscal 2005.
Cost of Software Revenue. Cost of software
revenue increased $0.3 million, or 18%, from
$1.5 million in fiscal 2005 to $1.8 million in fiscal
2006. Cost of software revenue represented 3% of our total
software revenue in both fiscal 2006 and fiscal 2005. The
increase in cost of software revenue was primarily the result of
higher third party royalty costs associated with higher software
revenue.
Cost of Services Revenue. Cost of services
revenue increased $3.3 million, or 33%, from
$10.0 million in fiscal 2005 to $13.2 million in
fiscal 2006. Cost of services revenue represented 28% of our
services revenue in fiscal 2006 and 30% in fiscal 2005. The
increase in cost of services revenue was primarily the result of
higher employee compensation of $1.9 million resulting from
higher headcount and increased sales.
Operating
Expenses
Sales and Marketing. Sales and marketing
expenses increased $8.1 million, or 19%, from
$43.2 million in fiscal 2005 to $51.3 million in
fiscal 2006. The increase was primarily due to a
$3.5 million increase in employee compensation resulting
from higher headcount, a $2.0 million increase in
commission expense on higher revenue levels and a
$0.5 million increase in stock-based compensation resulting
from the issuance of stock options in fiscal 2006 with an
exercise price below fair market value.
Research and Development. Research and
development expenses increased $2.1 million, or 12%, from
$17.2 million in fiscal 2005 to $19.3 million in
fiscal 2006. The increase was primarily due to $1.1 million
of higher employee compensation resulting from higher headcount
and $0.3 million of increased legal expenses primarily
associated with patent registration of our intellectual property.
General and Administrative. General and
administrative expenses increased $3.3 million, or 37%,
from $9.0 million in fiscal 2005 to $12.3 million in
fiscal 2006. The increase was primarily due to a
$1.5 million increase in employee compensation resulting
from higher headcount, a $0.8 million increase in
stock-based compensation
44
resulting from both the issuance of stock options in fiscal 2006
with an exercise price below fair market value and the
acceleration of the vesting period for certain stock options and
a $0.5 million increase in recruiting costs.
Depreciation and Amortization. Depreciation
expense increased $0.2 million, or 17%, from
$1.4 million in fiscal 2005 to $1.6 million in fiscal
2006. This reflects higher depreciation associated with
increased capital expenditures primarily for product development
and other computer-related equipment.
Interest
Income
Interest income increased $0.9 million, from
$0.3 million in fiscal 2005, to $1.3 million in fiscal
2006. The increase was due to higher interest rates and higher
cash balances in our deposit accounts.
Income
Tax Benefit (Expense)
Income tax expense increased from $0.2 million in fiscal
2005 to $0.5 million in fiscal 2006 as a result of
alternative minimum taxes due to the U.S. federal
government as well as various state income taxes.
Liquidity
and Capital Resources
We intend to use estimated net proceeds of $4.2 million
from the proposed
follow-on
offering of our common stock, together with approximately
$2.1 million of our existing cash and cash equivalents to
pay the outstanding principal and accrued interest under our
term loan (an amount equal to $6.3 million as of
June 15, 2007, assuming interest accrued at a rate equal to
7.0% per annum for the applicable period) as soon as practicable
after the receipt of such proceeds.
As of March 31, 2007, we had $65.0 million of cash and
cash equivalents. We have historically financed our operations
primarily through the private placements of preferred equity
securities and common stock and, to a much lesser extent,
through funds from operations. On September 27, 2006, we
completed our initial public offering and related concurrent
private placement and generated net proceeds of approximately
$81.7 million. We used the net proceeds, together with net
borrowings of $10.0 million under our term loan and
$10.1 million of our existing cash and cash equivalents, to
pay $101.8 million in satisfaction of amounts due on our
Series A, B, C, D and E preferred stock upon its
conversions into common stock as discussed below.
Upon the closing of our initial public offering, our
Series A, B, C, D and E preferred stock converted into
6,332,508 shares of our common stock and also received
$101.8 million consisting of:
|
|
|
|
|
$14.85 per share, or $47.0 million in the
aggregate; and
|
|
|
|
accumulated and unpaid dividends of $1.788 per share per
year since the date the shares of preferred stock were issued,
or $54.8 million in the aggregate.
|
The outstanding shares of Series AA, BB and CC preferred
stock converted into a total of 9,686,972 shares of common
stock.
In May 2006, we entered into a $20.0 million term loan
facility (the term loan) in connection with the
payments due to the holders of our Series A, B, C, D and E
preferred stock upon our initial public offering. As of
March 31, 2007, there was $7.5 million outstanding
under the term loan. The term loan is secured by substantially
all of our assets. Borrowings under the term loan bear interest
at a rate equal to the
30-day LIBOR
plus 1.50% with principal and interest to be repaid in quarterly
installments over a
24-month
period, subject to acceleration, at the discretion of the
lender. The term loan requires us to maintain a quick
ratio, as defined in the term loan agreement, of at least
1.50 to 1. We are in compliance with the quick ratio covenant as
of March 31, 2007.
Net cash provided by operating activities was $30.6 million
in fiscal 2007, $25.9 million in fiscal 2006, and
$3.8 million in fiscal 2005. In fiscal 2007, cash generated
by operating activities was primarily due to net income adjusted
for the impact of non-cash charges and an increase in deferred
services revenue and accrued liabilities, partially offset by an
increase in accounts receivable due to higher revenues. We
anticipate that as our revenues continue to grow, accounts
receivable and deferred services revenue balances should
continue to grow as well. In
45
fiscal 2006 and 2005, cash provided by operating activities was
primarily due to net income adjusted for the impact of noncash
charges and an increase in deferred services revenue.
Net cash used in investing activities was $4.2 million in
fiscal 2007, $2.8 million in fiscal 2006, and
$1.9 million in fiscal 2005. Cash used in investing
activities in each period was due to purchases of property and
equipment. The increase in capital expenditures is primarily
related to the growth in our business as we continue to invest
in and enhance our global infrastructure. We anticipate that as
our business grows we will continue to explore opportunities to
invest in our global infrastructure.
Net cash used in financing activities was $9.0 million in
fiscal 2007. Net cash provided by (used in) financing activities
was minimal in fiscal 2006 and 2005. The cash used in financing
activities in fiscal 2007 was primarily due to the cash use of
$101.8 million in satisfaction of amounts due on our
Series A, B, C, D and E preferred stock upon its
conversions into common stock, partially offset proceeds
generated of approximately $82.2 million from our initial
public offering and concurrent private placement, net of
underwriting fees and offering costs. In addition, we incurred
net borrowings of $7.5 million in fiscal 2007 under our
term loan in connection with the payments due to the holders of
our Series A, B, C, D and E preferred stock upon our
initial public offering.
Working capital increased $10.8 million from
$24.1 million as of March 31, 2006 to
$34.9 million as of March 31, 2007. The increase in
working capital is primarily due to a $17.0 million
increase in cash and cash equivalents, a $9.6 million
increase in the recognized amount of our current portion of
deferred tax assets and a $3.8 million increase in our
accounts receivable. These increases were partially offset by an
$7.5 million increase in accrued liabilities primarily due
to a charge to record certain tax reserves, our net borrowing of
$7.5 million under our term loan used in connection with
the payments due to the holders of our Series A, B, C, D
and E preferred stock upon our initial public offering, and a
$6.4 million increase in deferred revenue. The increase in
cash and cash equivalents is primarily due to net income
generated during the period adjusted for the impact of non-cash
charges and the increase in deferred revenue, partially offset
by the net cash used in connection with the transactions
associated with our initial public offering.
Working capital increased $10.7 million from
$13.4 million as of March 31, 2005 to
$24.1 million as of March 31, 2006, primarily due a
$23.2 million increase in cash and cash equivalents,
partially offset by a $10.5 million increase in deferred
revenue and a $2.2 million increase in accrued liabilities
during the fiscal year ended March 31, 2006. The increase
in cash and cash equivalents is primarily due to higher net
income, stronger collection efforts of our accounts receivable
and the increase in deferred revenue.
We believe that our existing cash, cash equivalents and cash
from operations will be sufficient to meet our anticipated cash
needs for working capital and capital expenditures for at least
the next 12 months. We cannot assure you that this will be
the case or that our assumptions regarding revenues and expenses
underlying this belief will be accurate. We may seek additional
funding through public or private financings or other
arrangements during this period. Adequate funds may not be
available when needed or may not be available on terms favorable
to us, or at all. If additional funds are raised by issuing
equity securities, dilution to existing stockholders will
result. If we raise additional funds by obtaining loans from
third parties, the terms of those financing arrangements may
include negative covenants or other restrictions on our business
that could impair our operational flexibility, and would also
require us to fund additional interest expense. If funding is
insufficient at any time in the future, we may be unable to
develop or enhance our products or services, take advantage of
business opportunities or respond to competitive pressures, any
of which could have a material adverse effect on our business,
financial condition and results of operations.
Summary
Disclosures about Contractual Obligations and Commercial
Commitments
Our material capital commitments consist of obligations under
facilities and operating leases. We anticipate that we will
experience an increase in our capital expenditures and lease
commitments consistent with our anticipated growth in
operations, infrastructure and personnel and additional
resources devoted to building our brand name and marketing and
sales force.
46
We generally do not enter into binding purchase commitments. The
following table summarizes our existing long-term contractual
obligations as of March 31, 2007 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
Than 5
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
Years
|
|
|
Operating lease obligations
|
|
$
|
12,453
|
|
|
$
|
2,766
|
|
|
$
|
4,230
|
|
|
$
|
3,323
|
|
|
$
|
2,134
|
|
Term Loan(1)
|
|
|
7,500
|
|
|
|
5,000
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,953
|
|
|
$
|
7,766
|
|
|
$
|
6,730
|
|
|
$
|
3,323
|
|
|
$
|
2,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Borrowings under our term loan require principal and interest to
be repaid in quarterly installments over a
24-month
period through September 1, 2008, subject to acceleration,
at the discretion of the lender. We intend to use estimated net
proceeds of $4.2 million from the proposed follow-on
offering of our common stock, together with approximately
$2.1 million of our existing cash and cash equivalents to
pay the outstanding principal and accrued interest under our
term loan (an amount equal to $6.3 million as of
June 15, 2007, assuming interest accrued at a rate equal to
7.0% per annum for the applicable period) as soon as practicable
after the receipt of such proceeds. |
We offer a
90-day
limited product warranty for our software. To date, costs
relating to this product warranty have not been material.
Off-Balance
Sheet Arrangements
As of March 31, 2007 and 2006, we had no off-balance sheet
arrangements.
Indemnifications
Certain of our software licensing agreements contain certain
provisions that indemnify our customers from any claim, suit or
proceeding arising from alleged or actual intellectual property
infringement. Some of these provisions continue in perpetuity
along with our software licensing agreements. We have never
incurred a liability relating to one of these indemnification
provisions in the past and we believe that the likelihood of any
future payout relating to these provisions is remote. Therefore,
we have not recorded a liability during any period related to
these indemnification provisions.
Recent
Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
an interpretation of FASB Statement No. 109
(FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in
financial statements in accordance with FASB Statement
No. 109, Accounting for Income Taxes.
FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. We
were required to adopt the provisions of FIN 48 on
April 1, 2007. We are evaluating the impact of this
statement on our financial statements and currently expect the
cumulative effect of adopting FIN 48 will result in an
increase to beginning accumulated deficit of approximately
$1.0 million to $2.0 million as of the beginning of
fiscal 2008.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value in U.S. GAAP and expands disclosures
about fair value measurements. This statement is effective for
financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years. We are currently evaluating the impact of this Statement
on our financial statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities including an Amendment of
SFAS No. 115, (SFAS 159).
SFAS 159 permits entities to choose to measure eligible
items at fair value at specified election dates and report
unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting
date. SFAS 159 is effective for
47
financial statements issued for fiscal years beginning after
November 15, 2007. We are currently evaluating the impact
of this Statement on our financial statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Interest
Rate Risk
As of March 31, 2007, our cash and cash equivalents balance
consisted primarily of money market funds. Due to the short-term
nature of these investments, we are not subject to any material
interest rate risk on these balances.
As of March 31, 2007, we have $7.5 million outstanding
under our term loan used in connection with the payments due to
the holders of our Series A, B, C, D and E preferred stock
upon our initial public offering. Borrowings under the term loan
bear interest at a rate equal to the
30-day LIBOR
plus 1.50%. Our interest rate exposure is related to changes in
the LIBOR. A 1% increase in LIBOR would cause our interest
expense to increase by approximately $0.1 million over the
next twelve months based on our term loan balance outstanding at
March 31, 2007.
Foreign
Currency Risk
As a global company, we face exposure to adverse movements in
foreign currency exchange rates. Our international sales are
generally denominated in foreign currencies, and this revenue
could be materially affected by currency fluctuations. Sales
outside the United States were approximately 30% in fiscal 2007
and approximately 29% in fiscal 2006. Our primary exposures are
to fluctuations in exchange rates for the U.S. dollar
versus the Euro and, to a lesser extent, the Australian dollar,
British pound sterling, Canadian dollar, Chinese yuan, Indian
rupee and Singapore dollar. Changes in currency exchange rates
could adversely affect our reported revenues and require us to
reduce our prices to remain competitive in foreign markets,
which could also have a material adverse effect on our results
of operations. Historically, we have periodically reviewed and
revised the pricing of our products available to our customers
in foreign countries and we have not maintained excess cash
balances in foreign accounts. To date, we have not hedged our
exposure to changes in foreign currency exchange rates and, as a
result, could incur unanticipated gains or losses.
We estimate that a 10% change in foreign exchange rates would
impact our reported operating profit by approximately
$1.7 million annually. This sensitivity analysis disregards
the possibilities that rates can move in opposite directions and
that losses from one geographic area may be offset by gains from
another geographic area.
48
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
CommVault
Systems, Inc.
Consolidated Financial Statements
Fiscal Years Ended March 31, 2007, 2006 and 2005
Index to Consolidated Financial Statements
49
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
CommVault Systems, Inc.
We have audited the accompanying consolidated balance sheets of
CommVault Systems, Inc. and subsidiaries as of March 31,
2007 and 2006, and the related consolidated statements of
operations, stockholders equity (deficit), and cash flows
for each of the three years in the period ended March 31,
2007. Our audits also include the financial statement schedule
listed in Item 15. These financial statements and schedule
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of CommVault Systems, Inc. and subsidiaries
at March 31, 2007 and 2006, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended March 31, 2007, in conformity
with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial
statements, effective April 1, 2006, the Company adopted
Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment.
MetroPark, New Jersey
May 14, 2007
50
CommVault
Systems, Inc.
(In thousands, except per share data)
|
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|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
65,001
|
|
|
$
|
48,039
|
|
Trade accounts receivable, less
allowance for doubtful accounts of $311 and $475 at
March 31, 2007 and 2006, respectively
|
|
|
22,044
|
|
|
|
18,238
|
|
Prepaid expenses and other current
assets
|
|
|
3,657
|
|
|
|
1,877
|
|
Deferred tax assets
|
|
|
9,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
100,318
|
|
|
|
68,154
|
|
Property and equipment, net
|
|
|
4,624
|
|
|
|
3,322
|
|
Deferred tax assets, net
|
|
|
42,543
|
|
|
|
|
|
Other assets
|
|
|
554
|
|
|
|
1,092
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
148,039
|
|
|
$
|
72,568
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, CUMULATIVE
REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS
EQUITY (DEFICIT)
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,500
|
|
|
$
|
1,565
|
|
Accrued liabilities
|
|
|
20,215
|
|
|
|
12,685
|
|
Term loan
|
|
|
7,500
|
|
|
|
|
|
Deferred revenue
|
|
|
36,214
|
|
|
|
29,765
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
65,429
|
|
|
|
44,015
|
|
Deferred revenue, less current
portion
|
|
|
4,284
|
|
|
|
3,036
|
|
Other liabilities
|
|
|
4
|
|
|
|
13
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Cumulative redeemable convertible
preferred stock:
|
|
|
|
|
|
|
|
|
Series A through E, at
liquidation value
|
|
|
|
|
|
|
99,168
|
|
Stockholders equity
(deficit):
|
|
|
|
|
|
|
|
|
Convertible preferred stock,
$.01 par value: no shares of Series AA, BB and CC
authorized, issued and outstanding at March 31, 2007.
5,000 shares Series AA authorized, 4,362 issued and
outstanding; 5,000 shares Series BB authorized, 2,758
issued and outstanding; 12,150 shares Series CC
authorized, 12,132 issued and outstanding at March 31, 2006
|
|
|
|
|
|
|
94,352
|
|
Preferred stock, $.01 par
value: 50,000 shares authorized, no shares issued and
outstanding at March 31, 2007. No shares authorized, issued
and outstanding at March 31, 2006
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value,
250,000 and 60,425 shares authorized, 41,968 shares
and 18,960 shares issued and outstanding at March 31,
2007 and 2006, respectively
|
|
|
420
|
|
|
|
190
|
|
Additional paid-in capital
|
|
|
182,297
|
|
|
|
4,506
|
|
Deferred compensation
|
|
|
|
|
|
|
(8,134
|
)
|
Accumulated deficit
|
|
|
(104,333
|
)
|
|
|
(164,959
|
)
|
Accumulated other comprehensive
income (loss)
|
|
|
(62
|
)
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
(deficit)
|
|
|
78,322
|
|
|
|
(73,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
148,039
|
|
|
$
|
72,568
|
|
|
|
|
|
|
|
|
|
|
51
CommVault
Systems, Inc.
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
$
|
83,870
|
|
|
$
|
62,422
|
|
|
$
|
49,598
|
|
Services
|
|
|
67,237
|
|
|
|
47,050
|
|
|
|
33,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
151,107
|
|
|
|
109,472
|
|
|
|
82,629
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
1,640
|
|
|
|
1,764
|
|
|
|
1,497
|
|
Services
|
|
|
20,044
|
|
|
|
13,231
|
|
|
|
9,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
21,684
|
|
|
|
14,995
|
|
|
|
11,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
129,423
|
|
|
|
94,477
|
|
|
|
71,157
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
68,240
|
|
|
|
51,326
|
|
|
|
43,248
|
|
Research and development
|
|
|
23,398
|
|
|
|
19,301
|
|
|
|
17,239
|
|
General and administrative
|
|
|
18,610
|
|
|
|
12,275
|
|
|
|
8,955
|
|
Depreciation and amortization
|
|
|
2,603
|
|
|
|
1,623
|
|
|
|
1,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
16,572
|
|
|
|
9,952
|
|
|
|
325
|
|
Interest expense
|
|
|
(326
|
)
|
|
|
(7
|
)
|
|
|
(14
|
)
|
Interest income
|
|
|
2,600
|
|
|
|
1,262
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
18,846
|
|
|
|
11,207
|
|
|
|
657
|
|
Income tax benefit (expense)
|
|
|
45,408
|
|
|
|
(451
|
)
|
|
|
(174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
64,254
|
|
|
|
10,756
|
|
|
|
483
|
|
Less: accretion of preferred stock
dividends
|
|
|
(2,818
|
)
|
|
|
(5,661
|
)
|
|
|
(5,661
|
)
|
Less: accretion of fair value of
preferred stock upon conversion
|
|
|
(102,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
common stockholders
|
|
$
|
(41,309
|
)
|
|
$
|
5,095
|
|
|
$
|
(5,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
common stockholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.35
|
)
|
|
$
|
0.18
|
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.35
|
)
|
|
$
|
0.17
|
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in
computing per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,670
|
|
|
|
18,839
|
|
|
|
18,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
30,670
|
|
|
|
30,932
|
|
|
|
18,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
CommVault
Systems, Inc.
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Accumulated
|
|
|
Income
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
Total
|
|
|
Balance at March 31, 2004
|
|
|
19,252
|
|
|
$
|
94,352
|
|
|
|
18,780
|
|
|
$
|
188
|
|
|
$
|
|
|
|
$
|
(82
|
)
|
|
$
|
(170,689
|
)
|
|
$
|
321
|
|
|
$
|
(75,910
|
)
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152
|
|
Repurchase and retirement of common
stock
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Accretion of dividends on preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(152
|
)
|
|
|
|
|
|
|
(5,509
|
)
|
|
|
|
|
|
|
(5,661
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
483
|
|
|
|
|
|
|
|
483
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95
|
)
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2005
|
|
|
19,252
|
|
|
|
94,352
|
|
|
|
18,809
|
|
|
|
188
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
(175,715
|
)
|
|
|
226
|
|
|
|
(81,010
|
)
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
151
|
|
|
|
2
|
|
|
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
705
|
|
Acceleration of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263
|
|
Deferred compensation related to
stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,201
|
|
|
|
(9,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,128
|
|
|
|
|
|
|
|
|
|
|
|
1,128
|
|
Accretion of dividends on preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,661
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,756
|
|
|
|
|
|
|
|
10,756
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2006
|
|
|
19,252
|
|
|
|
94,352
|
|
|
|
18,960
|
|
|
|
190
|
|
|
|
4,506
|
|
|
|
(8,134
|
)
|
|
|
(164,959
|
)
|
|
|
381
|
|
|
|
(73,664
|
)
|
Reversal of deferred compensation
upon adoption of SFAS 123(R)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,506
|
)
|
|
|
8,134
|
|
|
|
(3,628
|
)
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
350
|
|
|
|
3
|
|
|
|
1,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,864
|
|
Issuance of common stock from
initial public offering and concurrent private placement, net
|
|
|
|
|
|
|
|
|
|
|
6,251
|
|
|
|
63
|
|
|
|
81,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,736
|
|
Issuance of common stock upon
conversion of Series A through E preferred stock
|
|
|
|
|
|
|
|
|
|
|
6,333
|
|
|
|
63
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154
|
|
Issuance of common stock upon
conversion of Series AA, BB and CC preferred stock
|
|
|
(19,252
|
)
|
|
|
(94,352
|
)
|
|
|
9,686
|
|
|
|
97
|
|
|
|
94,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless exercise of stock warrants
and related shares issued pursuant to preemptive rights
|
|
|
|
|
|
|
|
|
|
|
388
|
|
|
|
4
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of dividends on preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,818
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,969
|
|
Tax benefits from exercise of stock
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,270
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,254
|
|
|
|
|
|
|
|
64,254
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(443
|
)
|
|
|
(443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
41,968
|
|
|
$
|
420
|
|
|
$
|
182,297
|
|
|
$
|
|
|
|
$
|
(104,333
|
)
|
|
$
|
(62
|
)
|
|
$
|
78,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
CommVault
Systems, Inc.
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
64,254
|
|
|
$
|
10,756
|
|
|
$
|
483
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(52,159
|
)
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,893
|
|
|
|
1,682
|
|
|
|
1,431
|
|
Noncash stock-based compensation
|
|
|
5,969
|
|
|
|
1,391
|
|
|
|
21
|
|
Excess tax benefits from
stock-based compensation
|
|
|
(1,233
|
)
|
|
|
|
|
|
|
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,806
|
)
|
|
|
67
|
|
|
|
(2,759
|
)
|
Prepaid expenses and other current
assets
|
|
|
(1,780
|
)
|
|
|
109
|
|
|
|
(588
|
)
|
Other assets
|
|
|
(317
|
)
|
|
|
105
|
|
|
|
(120
|
)
|
Accounts payable
|
|
|
77
|
|
|
|
(664
|
)
|
|
|
(1,060
|
)
|
Accrued liabilities
|
|
|
9,008
|
|
|
|
2,234
|
|
|
|
2,617
|
|
Deferred revenue and other
liabilities
|
|
|
7,688
|
|
|
|
10,170
|
|
|
|
3,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
30,594
|
|
|
|
25,850
|
|
|
|
3,840
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(4,195
|
)
|
|
|
(2,814
|
)
|
|
|
(1,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(4,195
|
)
|
|
|
(2,814
|
)
|
|
|
(1,860
|
)
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments to Series A through
E preferred stockholders upon conversion to common stock
|
|
|
(101,833
|
)
|
|
|
|
|
|
|
|
|
Net proceeds from initial public
offering and concurrent private placement
|
|
|
82,242
|
|
|
|
(486
|
)
|
|
|
|
|
Proceeds from the exercise of
stock options
|
|
|
1,864
|
|
|
|
705
|
|
|
|
152
|
|
Excess tax benefits from
stock-based compensation
|
|
|
1,233
|
|
|
|
|
|
|
|
|
|
Proceeds from term loan
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
Repayments on term loan
|
|
|
(7,500
|
)
|
|
|
(166
|
)
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
(8,994
|
)
|
|
|
53
|
|
|
|
(48
|
)
|
Effects of exchange
rate changes in cash
|
|
|
(443
|
)
|
|
|
155
|
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
16,962
|
|
|
|
23,244
|
|
|
|
1,837
|
|
Cash and cash equivalents at
beginning of year
|
|
|
48,039
|
|
|
|
24,795
|
|
|
|
22,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of year
|
|
$
|
65,001
|
|
|
$
|
48,039
|
|
|
$
|
24,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of
cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
283
|
|
|
$
|
7
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
232
|
|
|
$
|
483
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
CommVault
Systems, Inc.
(In thousands, except per share data)
CommVault Systems, Inc. and its subsidiaries
(CommVault or the Company) is a leading
provider of data management software applications and related
services in terms of product breadth and functionality and
market penetration. The Company develops, markets and sells a
suite of software applications and services, primarily in the
United States, Europe, Canada, Mexico and Australia, that
provides its customers with high-performance data protection,
global data availability, disaster recovery of data for business
continuance and archiving for regulatory compliance and other
data management purposes. The Companys unified suite of
data management software applications, which is sold under the
QiNetix brand, shares an underlying architecture that has been
developed to minimize the cost and complexity of managing data
on globally distributed and networked storage infrastructures.
The Company also provides its customers with a broad range of
professional and customer support services.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The consolidated financial statements include the accounts of
the Company. All intercompany transactions and balances have
been eliminated.
Use of
Estimates
The preparation of financial statements and related disclosures
in conformity with U.S. generally accepted accounting
principles requires management to make judgments and estimates
that affect the amounts reported in the Companys
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 Companys 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, allowance for doubtful accounts, income
taxes, stock-based compensation and accounting for research and
development costs. Actual results could differ from those
estimates.
Revenue
Recognition
The Company derives revenues from two primary sources, or
elements: software licenses and services. Services include
customer support, consulting, assessment and design services,
installation services and training. A typical sales arrangement
includes both of these elements. The Company applies the
provisions of Statement of Position (SOP)
97-2,
Software Revenue Recognition, as amended by
SOP 98-4
and
SOP 98-9,
and related interpretations to all transactions to determine the
recognition of revenue.
For sales arrangements involving multiple elements, the Company
recognizes revenue using the residual method as described in
SOP 98-9.
Under the residual method, the Company allocates and defers
revenue for the undelivered elements based on relative fair
value and recognizes the difference between the total
arrangement fee and the amount deferred for the undelivered
elements as revenue. The determination of fair value of the
undelivered elements in multiple-element arrangements is based
on the price charged when such elements are sold separately,
which is commonly referred to as vendor-specific
objective-evidence, or VSOE.
The Companys software licenses typically provide for a
perpetual right to use the Companys software and are sold
on a per-copy basis or as site licenses. Site licenses give the
customer the additional right to deploy the software on a
limited basis during a specified term. The Company recognizes
software revenue through direct sales channels upon receipt of a
purchase order or other persuasive evidence and when all other
basic revenue recognition criteria are met as described below.
The Company recognizes software revenue through all indirect
sales channels on a sell-through model. A sell-through model
requires that the Company recognize revenue when the basic
revenue
55
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
recognition criteria are met as described below and these
channels complete the sale of the Companys software
products to the end user. Revenue from software licenses sold
through an original equipment manufacturer partner is recognized
upon the receipt of a royalty report or purchase order from that
original equipment manufacturer partner.
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 and bug fixes or patches. Customer
support revenue is recognized ratably over the term of the
customer support agreement, which is typically one year. To
determine the price for the customer support element when sold
separately, the Company primarily uses historical renewal rates
and, in certain cases, it uses stated renewal rates. Historical
renewal rates are supported by performing an analysis in which
the Company segregates its customer support renewal contracts
into different classes based on specific criteria including, but
not limited to, the dollar amount of the software purchased, the
level of customer support being provided and the distribution
channel. As a result of this analysis, the Company has concluded
that it has established VSOE for the different classes of
customer support when the support is sold as part of a
multiple-element sales arrangement.
The Companys other professional services include
consulting, assessment and design services, installation
services and training. Other professional services provided by
the Company are not mandatory and can also be performed by the
customer or a third party. In addition to a signed purchase
order, the Companys consulting, assessment and design
services and installation services are often evidenced by a
signed Statement of Work (SOW), which defines the
specific scope of such services to be performed when sold and
performed on a stand-alone basis or included in multiple-element
sales arrangements. Revenues from consulting, assessment and
design services and installation services are based upon a daily
or weekly rate and are recognized when the services are
completed. Training includes courses taught by the
Companys instructors or third party contractors either at
one of the Companys facilities or at the customers
site. Training fees are recognized after the training course has
been provided. Based on the Companys analysis of such
other professional services transactions sold on a stand-alone
basis, the Company has concluded that it has established VSOE
for such other professional services when sold in connection
with a multiple-element sales arrangement. The Company generally
performs its other professional services within 60 to
90 days of entering into an agreement. The price for other
professional services has not materially changed for the periods
presented.
The Company has analyzed all of the undelivered elements
included in its multiple-element sales arrangements and
determined that VSOE of fair value exists to allocate revenues
to services. Accordingly, assuming all basic revenue recognition
criteria are met, software revenue is recognized upon delivery
of the software license using the residual method in accordance
with
SOP 98-9.
The Company considers the four basic revenue recognition
criteria for each of the elements as follows:
|
|
|
|
|
Persuasive evidence of an arrangement with the customer
exists. The Companys customary practice is
to require a purchase order and, in some cases, a written
contract signed by both the customer and the Company, a signed
SOW evidencing the scope of certain other professional services,
or other persuasive evidence that an arrangement exists prior to
recognizing revenue on an arrangement.
|
|
|
|
Delivery or performance has occurred. The
Companys software applications are usually physically
delivered to customers with standard transfer terms such as FOB
shipping point. Software
and/or
software license keys for add-on orders or software updates are
typically delivered via email. If products that are essential to
the functionality of the delivered software in an arrangement
have not been delivered, the Company does not consider delivery
to have occurred. Services revenue is recognized when the
services are completed, except for customer support, which is
recognized ratably over the term of the customer support
agreement, which is typically one year.
|
56
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
|
|
|
|
|
Vendors fee is fixed or
determinable. The fee customers pay for software
applications, customer support and other professional services
is negotiated at the outset of an arrangement. The fees are
therefore considered to be fixed or determinable at the
inception of the arrangement.
|
|
|
|
Collection is probable. Probability of
collection is assessed on a
customer-by-customer
basis. Each new customer undergoes a credit review process to
evaluate its financial position and ability to pay. If the
Company determines from the outset of an arrangement that
collection is not probable based upon the review process,
revenue is recognized at the earlier of when cash is collected
or when sufficient credit becomes available, assuming all of the
other basic revenue recognition criteria are met.
|
The Companys sales arrangements generally do not include
acceptance clauses. However, if an arrangement does include an
acceptance clause, revenue for such an arrangement is deferred
and recognized upon acceptance. Acceptance occurs upon the
earliest of receipt of a written customer acceptance, waiver of
customer acceptance or expiration of the acceptance period.
The Company has offered limited price protection under certain
original equipment manufacturer agreements. Any right to a
future refund from such price protection is entirely within the
Companys control. It is estimated that the likelihood of a
future payout due to price protection is remote.
Net
Income (Loss) Attributable to Common Stockholders per
Share
The Company calculates net income (loss) attributable to common
stockholders per share in accordance with
SFAS No. 128, Earnings per Share
(SFAS 128) and EITF Issue
No. 03-6,
Participating Securities and the Two
Class Method under FASB Statement 128 (EITF
No. 03-6).
Prior to their conversion to common stock upon the closing of
the Companys initial public offering on September 27,
2006, the Companys Series AA, BB and CC convertible
preferred stock and Series A through E cumulative
redeemable convertible preferred stock were participating
securities due to their participation rights related to cash
dividends declared by the Company. The holders of the
Companys Series AA, BB and CC convertible preferred
stock were entitled to receive a proportionate share of cash
dividends declared on the Companys common stock,
calculated on an as if-converted basis. In addition, the holders
of the Companys Series A through E cumulative
redeemable convertible preferred stock were entitled to receive
dividends out of any assets legally available, prior and in
preference to any declaration or payment of any dividend
(payable other than in common stock or other non-redeemable
equity securities and rights entitling the holder to receive
additional shares of common stock of the Company) on the common
stock of the Company, at a per share rate of $1.788 per
annum, or, if greater, an amount equal to that paid on any other
outstanding shares of the Company. Such dividends accrued and
were cumulative.
EITF
No. 03-6
requires net income (loss) attributable to common stockholders
for the period to be allocated to common stock and participating
securities to the extent that each security may share in
earnings as if all of the earnings for the period had been
distributed. As a result, basic net income (loss) attributable
to common stockholders per share is calculated by dividing
undistributed net income (loss) allocable to common stockholders
by the weighted average number of shares outstanding during the
period. Diluted net income (loss) attributable to common
stockholders per share is computed by dividing net income (loss)
for the period by the weighted average number of common and
potential common shares outstanding during the period if the
effect is dilutive. Potential common shares are comprised of
incremental shares of common stock issuable upon the exercise of
stock options and warrants and upon the conversion of preferred
stock prior to the Companys initial public offering on
September 27, 2006. In compliance with EITF
No. 03-6,
the Companys preferred stock does not participate in
losses, and therefore they are not included in the computation
of net loss attributable to common stockholders per share.
57
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
The information required to compute basic and diluted net income
(loss) attributable to common stockholders per share is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Reconciliation of net income to
undistributed net income (loss) allocable to common stockholders
for the basic computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
64,254
|
|
|
$
|
10,756
|
|
|
$
|
483
|
|
Accretion of preferred stock
dividends(1)
|
|
|
(2,818
|
)
|
|
|
(5,661
|
)
|
|
|
(5,661
|
)
|
Accretion of fair value of
preferred stock upon conversion(2)
|
|
|
(102,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
common stockholders
|
|
|
(41,309
|
)
|
|
|
5,095
|
|
|
|
(5,178
|
)
|
Undistributed net income allocable
to Series AA, BB and CC convertible preferred stock, if
converted(3)
|
|
|
|
|
|
|
(1,730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed net income (loss)
allocable to common stockholders
|
|
$
|
(41,309
|
)
|
|
$
|
3,365
|
|
|
$
|
(5,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss)
attributable to common stockholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
outstanding
|
|
|
30,670
|
|
|
|
18,839
|
|
|
|
18,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss)
attributable to common stockholders per share
|
|
$
|
(1.35
|
)
|
|
$
|
0.18
|
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net income to
net income (loss) attributable to common stockholders for the
diluted computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
64,254
|
|
|
$
|
10,756
|
|
|
$
|
483
|
|
Accretion of preferred stock
dividends(1)
|
|
|
(2,818
|
)
|
|
|
(5,661
|
)
|
|
|
(5,661
|
)
|
Accretion of fair value of
preferred stock upon conversion(2)
|
|
|
(102,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
common stockholders
|
|
$
|
(41,309
|
)
|
|
$
|
5,095
|
|
|
$
|
(5,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss)
attributable to common stockholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
outstanding
|
|
|
30,670
|
|
|
|
18,839
|
|
|
|
18,712
|
|
Series AA, BB and CC
convertible preferred stock
|
|
|
|
|
|
|
9,686
|
|
|
|
|
|
Dilutive effect of stock options
|
|
|
|
|
|
|
2,192
|
|
|
|
|
|
Dilutive effect of common stock
warrants
|
|
|
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding
|
|
|
30,670
|
|
|
|
30,932
|
|
|
|
18,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss)
attributable to common stockholders per share
|
|
$
|
(1.35
|
)
|
|
$
|
0.17
|
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net income is reduced by the contractual amount of dividends
($1.788 per share) due on the Companys Series A
through E cumulative redeemable convertible preferred stock
prior to its conversion into common stock on September 27,
2006. |
|
(2) |
|
In the year ended March 31, 2007, net income attributable
to common stockholders is reduced by $102,745 related to the
accretion of fair value of the Series A through E
cumulative redeemable convertible preferred stock upon
conversion to common stock on September 27, 2006 as
required under EITF D-42, The Effect on the Calculation
of Earnings per Share for the Redemption or Induced Conversion
of Preferred Stock. |
|
(3) |
|
In the year ended March 31, 2006, net income attributable
to common stockholders is reduced by the participation rights of
the Series AA, BB and CC convertible preferred stock
related to assumed cash dividends |
58
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
|
|
|
|
|
declared by the Company. Net income attributable to common
stockholders is not allocated to the Series A through E
cumulative redeemable convertible preferred stock because such
stockholders only participate in cash dividends in excess of
their contractual dividend amount of $1.788 per share, and the
Company did not have the ability to distribute amounts in excess
of $1.788 per share during this period. In the year ended
March 31, 2005, net loss attributable to common
stockholders is not allocated to the preferred stockholders
because the Companys preferred stock did not participate
in losses. |
The following table summarizes the potential outstanding common
stock of the Company at the end of each period, which has been
excluded from the computation of diluted net income (loss)
attributable to common stockholders per share, as its effect is
anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Stock options
|
|
|
7,671
|
|
|
|
|
|
|
|
5,679
|
|
Convertible preferred stock
|
|
|
|
|
|
|
6,333
|
|
|
|
16,019
|
|
Common stock warrants
|
|
|
|
|
|
|
|
|
|
|
2,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total options, preferred stock and
warrants exercisable or convertible into common stock
|
|
|
7,671
|
|
|
|
6,333
|
|
|
|
24,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
Development Costs
Research and development expenditures are charged to operations
as incurred. SFAS No. 86, Accounting for the Costs
of Computer Software to Be Sold, Leased or Otherwise
Marketed, requires capitalization of certain software
development costs subsequent to the establishment of
technological feasibility. Based on the Companys software
development process, technological feasibility is established
upon completion of a working model, which also requires
certification and extensive testing. Costs incurred by the
Company between completion of the working model and the point at
which the product is ready for general release historically have
been immaterial.
Cash
and Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with maturity of three months or less at the date of
acquisition to be cash equivalents.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable consist of amounts due to the Company from
normal business activities. The Company maintains an allowance
for estimated losses resulting from the inability of its
customers to make required payments. The Company estimates
uncollectible amounts based upon historical bad debts,
evaluation of current customer receivable balances, age of
customer receivable balances, the customers financial
condition and current economic trends.
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.
One customer accounted for approximately 19%, 18% and 12% of
total revenues for the year ended March 31, 2007, 2006 and
2005, respectively. That customer accounted for 14% and 21% of
accounts receivable as of March 31, 2007 and 2006.
59
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
Fair
Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable and the term loan approximate their
fair values due to the short-term maturity of these instruments.
Property
and Equipment
Property and equipment are stated at cost, less accumulated
depreciation and amortization. The Company provides for
depreciation on property and equipment on a straight-line basis
over the estimated useful lives of the assets, generally
eighteen months to three years. Leasehold improvements are
amortized over the shorter of the useful life of the improvement
or the term of the related lease.
Long-Lived
Assets
The Company reviews its long-lived assets for impairment in
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, whenever events
or changes in circumstances indicate that the carrying amount of
the assets may not be fully recoverable. To determine the
recoverability of its long-lived assets, the Company evaluates
the estimated future undiscounted cash flows that are directly
associated with, and that are expected to arise as a direct
result of, the use and eventual disposition of the long-lived
asset. If the estimated future undiscounted cash flows
demonstrate that recoverability is not probable, an impairment
loss would be recognized. An impairment loss would be calculated
based on the excess carrying amount of the long-lived asset over
the long-lived assets fair value. The fair value is
determined based on valuation techniques such as a comparison to
fair values of similar assets. There were no impairment charges
recognized during the years ended March 31, 2007, 2006 and
2005.
Deferred
Offering Costs
The company had deferred offering costs of $0 and $855 at
March 31, 2007 and March 31, 2006, respectively,
included in Other Assets. The company offset its deferred
offering costs against the gross proceeds raised from the
initial public offering, which closed on September 27, 2006.
Deferred
Revenue
Deferred revenues represent amounts collected from, or invoiced
to, customers in excess of revenues recognized. This results
primarily from the billing of annual customer support
agreements, as well as billings for other professional services
fees that have not yet been performed by the Company and
billings for license fees that are deferred due to insufficient
persuasive evidence that an arrangement exists. The value of
deferred revenues will increase or decrease based on the timing
of invoices and recognition of software revenue. The Company
expenses internal direct and incremental costs related to
contract acquisition and origination as incurred.
Deferred revenue consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Deferred software revenue
|
|
$
|
252
|
|
|
$
|
2,957
|
|
Deferred services revenue
|
|
|
35,962
|
|
|
|
26,808
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,214
|
|
|
$
|
29,765
|
|
|
|
|
|
|
|
|
|
|
Non-current:
|
|
|
|
|
|
|
|
|
Deferred services revenue
|
|
$
|
4,284
|
|
|
$
|
3,036
|
|
|
|
|
|
|
|
|
|
|
60
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
Accounting
for Stock-Based Compensation
Prior to April 1, 2006, the Company accounted for it stock
option plan under the recognition and measurement provisions of
APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations, as permitted by FASB
Statement No. 123, (SFAS 123),
Accounting for Stock-Based Compensation. Effective
April 1, 2006, the Company adopted the fair value
recognition provisions of SFAS Statement No. 123
(revised 2004), Share-Based Payment,
(SFAS 123(R)) using the modified prospective
method and therefore has not restated the Companys
financial results for prior periods. Under this transition
method, stock-based compensation costs in the year ended
March 31, 2007 includes the portion related to stock
options vesting in the period for (1) all options granted
prior to, but not vested as of April 1, 2006, based on the
grant date fair value in accordance with the original provisions
of SFAS 123 and (2) all options granted subsequent to
April 1, 2006, based on the grant date fair value estimated
in accordance with SFAS 123(R). As a result of adopting
SFAS 123(R) on April 1, 2006, the Companys
income before income taxes for the year ended March 31,
2007 is $3,899 lower than if the Company had continued to
account for stock-based compensation under APB Opinion
No. 25. The Companys net income for the year ended
March 31, 2007 was $2,477, or $0.08 per basic and
diluted share, lower than if it had continued to account for
stock-based compensation under APB Opinion No. 25. As of
March 31, 2007, there was approximately $15,124 of
unrecognized stock-based compensation expense related to
non-vested stock option awards that is expected to be recognized
over a weighted average period of 2.58 years.
Prior to the adoption of SFAS 123(R), the Company presented
its unamortized portion of deferred compensation cost for
nonvested stock options in the statement of stockholders
equity (deficit) with a corresponding credit to additional
paid-in capital. Upon the adoption of SFAS 123(R), these
amounts were offset against each other as SFAS 123(R)
prohibits the
gross-up
of stockholders equity. Under SFAS 123(R), an equity
instrument is not considered to be issued until the instrument
vests. As a result, compensation cost is recognized over the
requisite service period with an offsetting credit to additional
paid-in capital.
61
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
The following table illustrates the effect on net income (loss)
and earnings (loss) per share if the Company had applied the
provisions of SFAS 123 to options granted under the
Companys stock option plan for all periods presented prior
to the adoption of SFAS 123(R).
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Net income
|
|
$
|
10,756
|
|
|
$
|
483
|
|
Less: Accretion of preferred stock
dividends
|
|
|
(5,661
|
)
|
|
|
(5,661
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
common stockholders, as reported
|
|
|
5,095
|
|
|
|
(5,178
|
)
|
Add: Stock-based compensation
recorded under APB 25
|
|
|
1,391
|
|
|
|
21
|
|
Less: Stock-based compensation
expense determined under fair value method for all awards
|
|
|
(5,321
|
)
|
|
|
(4,438
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
attributable to common stockholders
|
|
|
1,165
|
|
|
|
(9,595
|
)
|
Less: Undistributed net income
allocable to series AA, BB and CC convertible preferred
stock, if converted
|
|
|
(395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma undistributed net income
(loss) allocable to common stockholders
|
|
$
|
770
|
|
|
$
|
(9,595
|
)
|
Net income (loss) attributable to
common stockholders per share, as reported:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.18
|
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.17
|
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
attributable to common stockholders per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
The pro forma information presented above has been determined as
if employee stock options were accounted for under the fair
value method of SFAS No. 123. The fair value for these
options was estimated at the date of grant using the
Black-Scholes option-pricing model. The assumptions that were
used for option grants in the respective periods are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Dividend yield
|
|
|
None
|
|
|
|
None
|
|
Expected volatility
|
|
|
48
|
%
|
|
|
54
|
%
|
Risk-free interest rate
|
|
|
4.26
|
%
|
|
|
4.08
|
%
|
Expected life (in years)
|
|
|
7.00
|
|
|
|
7.00
|
|
Option valuation models require the input of highly subjective
assumptions, including the expected life of the option. Because
the Companys employee stock options have characteristics
significantly different from those of traded options and because
changes in the subjective input assumptions can materially
affect the fair value estimate, in managements opinion,
the existing models do not necessarily provide a reliable,
single measure of the fair value of its employee stock options.
Upon adoption of SFAS 123(R), the Company selected the
Black-Scholes option pricing for determining the estimated fair
value for stock-based awards. The fair value of stock option
awards subsequent to April 1, 2006 is amortized on a
straight-line basis over the requisite service period of the
awards, which is generally the vesting period. Expected
volatility was calculated based on reported data for a peer
group of publicly traded companies for
62
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
which historical information was available. The Company will
continue to use peer group volatility information until
historical volatility of the Company is relevant to measure
expected volatility for future option grants. The average
expected life was determined according to the SEC shortcut
approach as described in SAB 107, Disclosure about
Fair Value of Financial Instruments, which is the mid-point
between the vesting date and the end of the contractual term.
The risk-free interest rate is determined by reference to
U.S. Treasury yield curve rates with a remaining term equal
to the expected life assumed at the date of grant. Forfeitures
are estimated based on the Companys historical analysis of
actual stock option forfeitures. The assumptions used in the
Black-Scholes option-pricing model are as follows:
|
|
|
|
|
Year Ended
|
|
|
March 31, 2007
|
|
Dividend yield
|
|
None
|
Expected volatility
|
|
48%-55%
|
Weighted average expected
volatility
|
|
51%
|
Risk-free interest rates
|
|
4.45%-5.04%
|
Expected life (in years)
|
|
6.25
|
The following table presents the stock-based compensation
expense included in cost of services revenue, sales and
marketing, research and development and general and
administrative expenses for the years ended March 31, 2007,
2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cost of services revenue
|
|
$
|
100
|
|
|
$
|
25
|
|
|
$
|
|
|
Sales and marketing
|
|
|
2,736
|
|
|
|
468
|
|
|
|
|
|
Research and development
|
|
|
739
|
|
|
|
137
|
|
|
|
|
|
General and administrative(1)
|
|
|
2,394
|
|
|
|
761
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
$
|
5,969
|
|
|
$
|
1,391
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The year ended March 31, 2006 includes $263 of stock-based
compensation expense related to the acceleration of the vesting
period related to 41 stock options. |
The Company recognized a tax benefit of $2,193 related to
stock-based compensation recorded in the year ended
March 31, 2007. The Company recognized no tax benefits
related to the stock-based compensation expense in the years
ended March 31, 2006 and 2005.
Advertising
Costs
The Company expenses advertising costs as incurred. Advertising
expenses were $1,375, $1,551 and $1,268 for the years ended
March 31, 2007, 2006 and 2005, respectively.
Foreign
Currency Translation
The functional currency of the Companys foreign operations
are deemed to be the local countrys currency. In
accordance with SFAS No. 52, Foreign Currency
Translation, the assets and liabilities of the
Companys international subsidiaries are translated at
their respective year-end exchange rates, and revenues and
expenses are translated at average currency exchange rates for
the period. The resulting balance sheet translation adjustments
are included in Other comprehensive income (loss)
and are reflected as a separate component of stockholders
equity (deficit). Foreign currency transaction gains and losses
are immaterial in each year. To date, the Company has not hedged
its exposure to changes in foreign currency exchange rates.
63
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
Comprehensive
Income (Loss)
The Company applies the provisions of SFAS No. 130,
Reporting Comprehensive Income. Comprehensive income
(loss) is defined to include all changes in equity, except those
resulting from investments by stockholders and distribution to
stockholders, and is reported in the statement of
stockholders equity (deficit). Included in the
Companys comprehensive income (loss) are the net income
and foreign currency translation adjustments.
Recent
Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
an interpretation of FASB Statement No. 109
(FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in
financial statements in accordance with FASB Statement
No. 109, Accounting for Income Taxes.
FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The
Company is required to adopt the provisions of FIN 48 on
April 1, 2007. The Company is evaluating the impact of this
statement on it financial statements and currently expects the
cumulative effect of adopting FIN 48 will result in an
increase to beginning accumulated deficit of approximately
$1,000 to $2,000 as of the beginning of fiscal 2008.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value in U.S. GAAP and expands disclosures
about fair value measurements. This statement is effective for
financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years. The Company is currently evaluating the impact of this
Statement on its financial statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities including an Amendment of
SFAS No. 115, (SFAS 159).
SFAS 159 permits entities to choose to measure eligible
items at fair value at specified election dates and report
unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting
date. SFAS 159 is effective for financial statements issued
for fiscal years beginning after November 15, 2007. The
Company is currently evaluating the impact of this Statement on
its financial statements.
|
|
3.
|
Property
and Equipment
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Computer equipment
|
|
$
|
12,834
|
|
|
$
|
11,983
|
|
Other machinery and equipment
|
|
|
3,460
|
|
|
|
2,278
|
|
Leasehold improvements
|
|
|
1,844
|
|
|
|
912
|
|
Furniture and fixtures
|
|
|
1,566
|
|
|
|
1,344
|
|
Purchased software
|
|
|
1,171
|
|
|
|
924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,875
|
|
|
|
17,441
|
|
Less: Accumulated depreciation and
amortization
|
|
|
(16,251
|
)
|
|
|
(14,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,624
|
|
|
$
|
3,322
|
|
|
|
|
|
|
|
|
|
|
The Company recorded depreciation and amortization expense of
$2,893, $1,682 and $1,431 for the years ended March 31,
2007, 2006 and 2005, respectively.
64
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Compensation and related payroll
taxes
|
|
$
|
8,626
|
|
|
$
|
5,943
|
|
Income tax reserves
|
|
|
5,020
|
|
|
|
|
|
Other
|
|
|
6,569
|
|
|
|
6,742
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,215
|
|
|
$
|
12,685
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Line of
Credit and Term Loan
|
In January 2003, the Company entered into an agreement for a
revolving credit facility (the credit facility) of
up to $5,000 including an optional term loan of up to $500 for
existing and new equipment purchases. In March 2005, the Company
renewed the credit facility, which expired in March 2006, under
essentially the same terms and conditions as the existing
facility. The term loan accrued interest at the lenders
prime rate plus 1% and was repayable in declining monthly
amounts over a 30 month period from July 2003 through
January 2006.
In May 2006, the Company entered into a $20,000 term loan
facility (the term loan) in connection with the
payments due to the holders of its Series A through E Stock
upon an initial public offering. As of March 31, 2007,
there was $7,500 outstanding under the term loan. The term loan
is secured by substantially all of the Companys assets.
Borrowings under the term loan bear interest at a rate equal to
the 30-day
LIBOR plus 1.50% with principal and interest to be repaid in
quarterly installments over a
24-month
period, subject to acceleration, at the discretion of the
lender. The remaining quarterly installments will total $5,000
of principal payments in fiscal 2008 and $2,500 of principal
repayments in fiscal 2009. The term loan requires the Company to
maintain a quick ratio, as defined in the term loan
agreement, of at least 1.50 to 1. The Company is in compliance
with the quick ratio covenant as of March 31, 2007.
|
|
6.
|
Commitments
and Contingencies
|
The Company leases various office and warehouse facilities under
non-cancelable leases which expire on various dates through July
2013. Future minimum lease payments under all operating leases
at March 31, 2007 are as follows:
|
|
|
|
|
Year Ending
March 31:
|
|
|
|
|
2008
|
|
$
|
2,766
|
|
2009
|
|
|
2,337
|
|
2010
|
|
|
1,893
|
|
2011
|
|
|
1,731
|
|
2012
|
|
|
1,592
|
|
Thereafter
|
|
|
2,134
|
|
|
|
|
|
|
|
|
$
|
12,453
|
|
|
|
|
|
|
Rental expenses were $3,231, $2,844 and $2,618 for the years
ended March 31, 2007, 2006 and 2005, respectively.
The Company offers a
90-day
limited product warranty for its software. To date, costs
related to this product warranty have not been material.
65
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
In the normal course of its business, the Company may be
involved in various claims, negotiations and legal actions;
however, at March 31, 2007, the Company is not party to any
litigation that is expected to have a material effect on the
Companys financial position, results of operations or cash
flows.
The Company provides certain provisions within its software
licensing agreements to indemnify its customers from any claim,
suit or proceeding arising from alleged or actual intellectual
property infringement. These provisions continue in perpetuity,
along with the Companys software licensing agreements. The
Company has never incurred a liability relating to one of these
indemnification provisions, and management believes that the
likelihood of any future payout relating to these provisions is
remote. Therefore, the Company has not recorded a liability
during any period for these indemnification provisions.
On September 14, 2006, the Company effected a one for two
reverse stock split of its common shares. All share and per
share amounts related to common shares, options and warrants
included in the Companys consolidated financial statements
and notes to consolidated financial statements have been
restated to reflect the reverse stock split. The conversion
ratios of the Companys Series A through E Cumulative
Redeemable Convertible Preferred Stock (Series A
through E Stock), Series AA Preferred Stock
(Series AA Stock), Series BB Preferred
Stock (Series BB Stock) and Series CC
Preferred Stock (Series CC Stock) were also
adjusted to reflect the reverse stock split.
On September 27, 2006, the Company completed its initial
public offering of 11,111 shares of common stock at a price
of $14.50 per share. The Company sold 6,148 shares and
certain stockholders of the Company sold 4,963 shares in
this offering. In connection with the initial public offering,
the Company paid $6,240 in underwriting discounts and
commissions. In addition, the Company incurred an estimated
$2,660 of other offering expenses of which $486 was paid in
fiscal 2006, $2,154 was paid in the year ended March 31,
2007 and $20 was accrued at March 31, 2007. After deducting
the underwriting discounts and commissions and the other
offering expenses, the Companys net proceeds from the
initial public offering were approximately $80,248. In
conjunction with the initial public offering, the Company also
sold 103 shares of common stock in a concurrent private
placement at the initial public offering price pursuant to
preemptive rights as a result of the initial public offering.
The Companys net proceeds from the concurrent private
placement were approximately $1,488.
On September 27, 2006, the Company amended its Certificate
of Incorporation and authorized 250,000 shares of common
stock and 50,000 shares of preferred stock. As of
March 31, 2007, there are no shares of preferred stock
outstanding.
On October 3, 2006, the Companys underwriters
exercised their over-allotment option and purchased an
additional 1,667 shares of Companys common stock
owned by affiliates of Credit Suisse Securities (USA) LLC at the
initial public offering price of $14.50 per share. The
Company did not receive any proceeds as a result of the
underwriters exercise of their over-allotment option.
Common
Stock
The Company had 41,968 and 18,960 shares of common stock,
par value $0.01, outstanding at March 31, 2007 and
March 31, 2006, respectively. As of March 31, 2007,
approximately 14,578 shares of the Companys common
stock owned by affiliates of Credit Suisse Securities (USA) LLC,
representing approximately 34.7% of the common stock
outstanding, is subject to a voting trust agreement pursuant to
which the shares are voted by an independent voting trustee.
Subject to specified exceptions, the voting trust agreement also
requires Credit Suisse Securities (USA) LLC and its affiliates
to deliver to the trustee, and make subject to the voting trust
agreement, any shares of the Companys common stock owned
by it or its affiliates that would cause the aggregate shares of
the Companys common stock held by them to exceed 5% of the
Companys common stock then outstanding.
66
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
The voting trust agreement requires that the trustee cause the
shares subject to the voting trust to be represented at all
stockholder meetings for purposes of determining a quorum, but
the trustee is not required to vote the shares on any matter and
any determination whether to vote the shares is required by the
voting trust agreement to be made by the trustee without
consultation with Credit Suisse Securities (USA) LLC and its
affiliates. If, however, the trustee votes the shares on any
matter subject to a stockholder vote, including proposals
involving the election of directors, changes of control and
other significant corporate transactions, the shares will be
voted in the same proportion as votes cast for or
against those proposals by the Companys other
stockholders.
Cumulative
Redeemable Convertible Preferred Stock: Series A through E
Stock
At March 31, 2006, the Company has 7,000 authorized shares
and has issued 3,166 shares of Series A through E
Cumulative Redeemable Convertible Preferred Stock, par value of
$.01 per share (Series A through E Stock).
The consideration paid for each share of Series A through E
Stock was $14.90 and resulted in aggregate proceeds of
approximately $47,177.
Upon completion of the initial public offering, all 3,166
outstanding shares of the Companys Series A through E
Stock automatically converted on into 6,333 shares of
common stock on a 2:1 basis. In addition, the Company was
obligated to pay the holders of the Series A through E
Stock approximately $101,833 consisting of a payment of
$14.85 per share, or $47,019 in the aggregate; and all
accrued and unpaid dividends of $1.788 per share per year
since the date such shares were issued, or $54,814 in the
aggregate, due to such holders upon its conversion into common
stock. The Company had the option to pay the cash amount and
accrued dividends to predominantly all of the holders of
Series A through E Stock in cash, by means of a note
payable or any combination thereof. The Company paid all amounts
in cash upon the closing of the initial public offering in
September 2006.
Prior to their conversion to common stock upon completion of the
Companys initial public offering, the Series A
through E Stock were entitled to receive dividends out of any
assets legally available, prior and in preference to any
declaration or payment of any dividend (payable other than in
common stock or other non-redeemable equity securities and
rights entitling the holder to receive additional shares of
common stock of the Company) on the common stock of the Company,
at a per share rate of $1.788 per annum, or, if greater, an
amount equal to that paid on any other outstanding shares of the
Company. Such dividends accrued and were cumulative. The
aggregate amount of accrued dividends, the cash liquidation
amount of $14.85 per share plus the par value of common
shares was $99,015 at March 31, 2006.
In September 2006, the Company recorded a charge to net income
(loss) attributable to common stockholders of $102,745 related
to the accretion of fair value of the Series A through E
Stock upon conversion to common stock at the closing of the
Companys initial public offering as required under EITF
D-42, The Effect on the Calculation of Earnings per
Share for the Redemption or Induced Conversion of Preferred
Stock.
Convertible
Preferred Stock
Upon completion of the initial public offering all 19,252
outstanding shares of the Companys Series AA
Preferred Stock (Series AA Stock), the
Series BB Preferred Stock (Series BB Stock) and
the Series CC Preferred Stock (Series CC
Stock) automatically converted into 9,686 shares of
common stock. The conversion ratio of the Series AA, BB and
CC Stock was 0.514:1, 0.5:1, and 0.5:1, respectively. Prior to
their conversion to common stock, the Companys
Series AA, BB and CC Stock were entitled to receive a
proportionate share of cash dividends declared on the
Companys common stock, calculated on an as if-converted
basis. In the event the Company declared any other dividend or
distribution payable in securities of other persons, evidences
of indebtedness issued by the Company or other persons, assets
(excluding cash dividends) or options or rights to purchase any
such securities or evidence of indebtedness, holders of the
Companys Series AA Stock, Series BB Stock,
Series CC Stock and Series A through E Stock were
entitled to receive a proportionate share of any such dividend
or
67
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
distribution on an as if-converted basis. Prior to conversion,
the Series AA and BB Stock had anti-dilution protection on
a weighted-average basis, subject to customary exclusions.
Registration
Rights
Holders of shares of common stock which were issued upon
conversion of the Companys Series A through E Stock
and Series AA, BB and CC Stock are entitled to have their
shares registered under the Securities Act of 1933 (the
Securities Act), as amended. Under the terms of an
agreement between the Company and the holders of these
registrable securities, if the Company proposes to register any
of its securities under the Securities Act, either for its own
account or for the account of others, these stockholders are
entitled to include their shares in such registration.
Common
Stock Warrants
In connection with the issuance of Series BB Stock in
November 2000, one investor who is also a customer received a
fully vested warrant to purchase 2,233 shares of common
stock at an exercise price of $27.14. In July 2003, the warrant
was cancelled and replaced with a fully vested warrant to
purchase up to 1,500 shares of common stock at an exercise
price of $12.54 per share. The new warrant had an aggregate
fair value of approximately $30 and expired 15 days after
the Company gave notice to the holder of the warrant of its
intention to file a registration statement relating to an
initial public offering. The warrant expired without being
exercised in February 2006.
In December 2003, the Company issued a warrant to purchase up to
807 shares of common stock at an exercise price of
$10.50 per share to a customer at about the same time the
Company signed a Software License Agreement with this customer.
The Software License Agreement is cancelable by the customer
without cause at any time. The warrant was exercisable in equal
quarterly installments, commencing on the last day of the
quarter ending March 31, 2004 and ending on the last day of
the quarter ending December 31, 2005. The warrant also
contained provisions to be net exercised on a cashless basis.
The number of common shares issuable on a cashless basis is
equal to the vested warrants less the number of shares of common
stock having an aggregate market price equal to the aggregate
exercise price of the vested warrants. Market price is
determined as the greater of (i) a product obtained by
multiplying the Companys trailing
12-month
revenues by six and (ii) the price of common stock sold in
a qualified financing transaction within six months of the
cashless exercise. The Company recorded $1,696 as a non-cash
reduction of revenue during the year ended March 31, 2004
in connection with this transaction. On June 15, 2006, the
holder of the warrant to purchase up to 807 shares of
common stock elected to make a cashless exercise of the warrant
and received 315 shares of common stock. Pursuant to the
preemptive rights of the Series AA, BB and CC preferred
stockholders that were triggered by the exercise of the warrant,
such Series AA, BB and CC preferred stockholders (other
than individuals that also own Series A through E Stock)
purchased 73 shares of common stock on a cashless basis.
Shares Reserved
for Issuance
The Company has reserved 7,671 shares to allow for the
exercise of all outstanding options at March 31, 2007.
As of March 31, 2007, the Company maintains two stock
incentive plans, the 1996 Stock Option Plan (the
Plan) and the 2006 Long-Term Stock Incentive Plan
(the LTIP).
Under the Plan, the Company may grant non-qualified stock
options to purchase 11,705 shares of common stock to
certain officers and employees. At March 31, 2007 and
March 31, 2006, there were 302 and 499 options available
for future grant under the Plan, respectively.
On January 26, 2006, the Board of Directors authorized the
creation of the LTIP. Upon the closing of the Companys
initial public offering on September 27, 2006, the Company
became eligible to grant awards under the
68
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
LTIP. The LTIP permits the grant of incentive stock options,
non-qualified stock options, restricted stock awards, restricted
stock units, stock appreciation rights, performance stock awards
and stock unit awards based on, or related to, shares of the
Companys common stock.
The maximum number of shares of the Companys common stock
that may be initially awarded under the LTIP is 4,000. On each
April 1, the number of shares available for issuance under
the LTIP is increased, if applicable, such that the total number
of shares available for awards under the LTIP as of any
April 1 is equal to 5% of the number of outstanding shares
of the Companys common stock on that April 1. At
March 31, 2007, approximately 3,763 shares were
available for future issuance under the LTIP.
The following summarizes the activity for the Companys two
stock incentive plans from March 31, 2004 to March 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
of
|
|
|
Exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
Options
|
|
Options
|
|
|
Price
|
|
|
(Years)
|
|
|
Value
|
|
|
Outstanding at March 31, 2004
|
|
|
4,764
|
|
|
$
|
4.62
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
1,175
|
|
|
|
5.66
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(31
|
)
|
|
|
4.92
|
|
|
|
|
|
|
|
|
|
Options canceled
|
|
|
(229
|
)
|
|
|
5.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2005
|
|
|
5,679
|
|
|
|
5.53
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
2,492
|
|
|
|
5.57
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(151
|
)
|
|
|
4.62
|
|
|
|
|
|
|
|
|
|
Options canceled
|
|
|
(433
|
)
|
|
|
5.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2006
|
|
|
7,587
|
|
|
|
5.56
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
761
|
|
|
|
14.30
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(350
|
)
|
|
|
5.33
|
|
|
|
|
|
|
|
|
|
Options canceled
|
|
|
(327
|
)
|
|
|
6.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007
|
|
|
7,671
|
|
|
$
|
6.39
|
|
|
|
6.56
|
|
|
$
|
75,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at
March 31, 2007
|
|
|
7,453
|
|
|
$
|
6.31
|
|
|
|
6.48
|
|
|
$
|
74,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2007
|
|
|
4,804
|
|
|
$
|
5.56
|
|
|
|
5.43
|
|
|
$
|
51,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options are granted at the discretion of the Board and
expire 10 years from the date of the grant. Options
generally vest over a four-year period. The weighted average
fair value of stock options granted was $8.11, $6.36 and $3.45
during the year ended March 31, 2007, 2006 and 2005,
respectively. The total intrinsic value of options exercised was
$3,916, $959 and $21 in the years ended March 31, 2007,
2006 and 2005, respectively.
69
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
The following table summarizes information on stock options
outstanding under the Plan and LTIP at March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Options at
|
|
|
Remaining
|
|
|
|
|
|
Options Exercisable
|
|
|
Weighted-Average
|
|
Range of Exercise Prices
|
|
March 31, 2007
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
at March 31, 2007
|
|
|
Exercise Price
|
|
|
$ 0.01 - 1.00
|
|
|
8
|
|
|
|
2.10
|
|
|
$
|
0.025
|
|
|
|
8
|
|
|
$
|
0.025
|
|
3.00 - 4.00
|
|
|
819
|
|
|
|
5.82
|
|
|
|
4.00
|
|
|
|
775
|
|
|
|
4.00
|
|
4.00 - 5.00
|
|
|
2,504
|
|
|
|
6.67
|
|
|
|
4.80
|
|
|
|
1,301
|
|
|
|
4.90
|
|
5.00 - 6.00
|
|
|
2,379
|
|
|
|
5.59
|
|
|
|
5.89
|
|
|
|
2,038
|
|
|
|
5.93
|
|
6.00 - 7.00
|
|
|
259
|
|
|
|
8.58
|
|
|
|
6.70
|
|
|
|
82
|
|
|
|
6.70
|
|
7.00 - 8.00
|
|
|
830
|
|
|
|
6.29
|
|
|
|
7.58
|
|
|
|
573
|
|
|
|
7.66
|
|
8.00 - 9.00
|
|
|
137
|
|
|
|
8.92
|
|
|
|
8.10
|
|
|
|
27
|
|
|
|
8.10
|
|
11.00 - 12.00
|
|
|
150
|
|
|
|
9.05
|
|
|
|
11.70
|
|
|
|
0
|
|
|
|
0.00
|
|
12.00 - 13.00
|
|
|
223
|
|
|
|
9.23
|
|
|
|
12.69
|
|
|
|
0
|
|
|
|
0.00
|
|
13.00 - 14.00
|
|
|
125
|
|
|
|
9.45
|
|
|
|
13.50
|
|
|
|
0
|
|
|
|
0.00
|
|
16.00 - 17.00
|
|
|
88
|
|
|
|
9.90
|
|
|
|
16.26
|
|
|
|
0
|
|
|
|
0.00
|
|
17.00 - 18.00
|
|
|
48
|
|
|
|
9.62
|
|
|
|
17.60
|
|
|
|
0
|
|
|
|
0.00
|
|
18.00 - 19.00
|
|
|
29
|
|
|
|
9.54
|
|
|
|
18.85
|
|
|
|
0
|
|
|
|
0.00
|
|
19.00 - 19.99
|
|
|
72
|
|
|
|
9.75
|
|
|
|
19.92
|
|
|
|
0
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.01 - 19.99
|
|
|
7,671
|
|
|
|
6.56
|
|
|
$
|
6.39
|
|
|
|
4,804
|
|
|
$
|
5.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended March 31, 2007 and 2006, the Company
granted stock options with exercise prices as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
Value per
|
|
|
|
|
Grant Date
|
|
Granted
|
|
|
Exercise Price
|
|
|
Common Share
|
|
|
Intrinsic Value
|
|
|
Fiscal Year 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 5, 2005
|
|
|
360
|
|
|
$
|
4.50
|
|
|
$
|
6.92
|
|
|
$
|
2.42
|
|
July 29, 2005
|
|
|
461
|
|
|
|
4.70
|
|
|
|
8.36
|
|
|
|
3.66
|
|
September 19, 2005
|
|
|
800
|
|
|
|
4.70
|
|
|
|
9.18
|
|
|
|
4.48
|
|
November 3, 2005
|
|
|
375
|
|
|
|
6.70
|
|
|
|
10.34
|
|
|
|
3.64
|
|
January 26, 2006
|
|
|
334
|
|
|
|
7.50
|
|
|
|
11.08
|
|
|
|
3.58
|
|
March 2, 2006
|
|
|
164
|
|
|
|
8.10
|
|
|
|
12.84
|
|
|
|
4.74
|
|
Fiscal Year 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 20, 2006
|
|
|
150
|
|
|
$
|
11.70
|
|
|
$
|
12.98
|
|
|
$
|
1.28
|
|
May 3, 2006
|
|
|
90
|
|
|
|
12.60
|
|
|
|
13.08
|
|
|
|
0.48
|
|
July 27, 2006
|
|
|
146
|
|
|
|
12.74
|
|
|
|
12.74
|
|
|
|
|
|
September 12, 2006
|
|
|
135
|
|
|
|
13.50
|
|
|
|
13.50
|
|
|
|
|
|
October 13, 2006
|
|
|
31
|
|
|
|
18.85
|
|
|
|
18.85
|
|
|
|
|
|
November 14, 2006
|
|
|
48
|
|
|
|
17.60
|
|
|
|
17.60
|
|
|
|
|
|
December 14, 2006
|
|
|
39
|
|
|
|
19.99
|
|
|
|
19.99
|
|
|
|
|
|
January 15, 2007
|
|
|
34
|
|
|
|
19.84
|
|
|
|
19.84
|
|
|
|
|
|
February 14, 2007
|
|
|
64
|
|
|
|
16.26
|
|
|
|
16.26
|
|
|
|
|
|
March 14, 2007
|
|
|
25
|
|
|
|
16.27
|
|
|
|
16.27
|
|
|
|
|
|
70
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
In establishing the Companys estimates of fair value of
its common stock during the year ended March 31, 2006 and
on April 20, 2006 and May 3, 2006, the Company
performed a retrospective determination of the fair value of its
common stock. The retrospective determination of fair value of
the Companys common stock utilized the probability
weighted expected returns (PWER) method described in
the AICPA Technical Practice Aid, Valuation of
Privately-Held-Company Equity Securities Issued as
Compensation. The Company estimated the fair value of its
common stock on July 27, 2006 based on a contemporaneous
valuation using the PWER method. The Company estimated the fair
value of its common stock on September 12, 2006 based on
the midpoint of the estimated offering range contained in the
Companys registration statement on
Form S-1
related to its initial public offering. The fair market value of
the Companys common stock subsequent to the closing of its
initial public offering on September 27, 2006 was based on
the publicly trade price as reported by The NASDAQ Stock Market.
The reassessed fair value of the Companys common stock
underlying 360 options granted to employees on May 5, 2005
was determined to be $6.92 per share. The increase in fair
value as compared to the January 27, 2005 value was
primarily due to the following:
|
|
|
|
|
For the three months ended March 31, 2005, the Company had
its most profitable quarter in its history at that time,
generating earnings of approximately $1,600;
|
|
|
|
The Company achieved its first fiscal year of profitability for
the year ended March 31, 2005;
|
|
|
|
The Company entered into an original equipment manufacturer
arrangement with Hitachi Data Systems in March 2005; and
|
|
|
|
The possibility of an initial public offering remained
relatively low and a probability estimate of 30% was assigned
under the PWER method as a result of the significant milestones
to be achieved.
|
The reassessed fair value of the Companys common stock
underlying 461 options granted to employees on July 29,
2005 was determined to be $8.36 per share. The increase in
fair value as compared to the May 5, 2005 value was
primarily due to the following:
|
|
|
|
|
For the three months ended June 30, 2005, revenues and
earnings exceeded budget;
|
|
|
|
The Company increased its earnings forecast for the remainder of
fiscal 2006; and
|
|
|
|
The Company increased the probability estimate for the initial
public offering scenario under the PWER method to 40% as a
result of revenues and earnings exceeding budget.
|
The reassessed fair value of the Companys common stock
underlying 800 options granted to employees on
September 19, 2005 was determined to be $9.18 per share. On
September 19, 2005, the Companys compensation
committee awarded options to several key executives. The
underlying assumptions that were in place as of the
July 29, 2005 grant date were still in place on
September 19, 2005, except the Company increased the
probability estimate for the initial public offering scenario
under the PWER method to 50% as a result of moving closer to a
potential initial public offering and anticipating a profitable
quarter ending September 30, 2005.
The reassessed fair value of the Companys common stock
underlying 375 options granted to employees on November 3,
2005 was determined to be $10.34 per share. The increase in fair
value as compared to the September 19, 2005 value was
primarily due to the following:
|
|
|
|
|
For the three and six months ended September 30, 2005,
earnings exceeded the Companys original budget and revised
forecasts;
|
|
|
|
In the six months ended September 30, 2005, the Company
started to achieve substantial revenue growth from its original
equipment manufacturer arrangements with Dell and Hitachi Data
Systems; and
|
71
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
|
|
|
|
|
The Company increased the probability estimate for the initial
public offering scenario under the PWER method to 60% as a
result of earnings exceeding forecast and the substantial
revenue growth the Company achieved from its original equipment
manufacturer agreements.
|
The reassessed fair value of the Companys common stock
underlying 334 options granted to employees on January 26,
2006 was determined to be $11.08 per share. The increase in fair
value as compared to the November 3, 2005 value was
primarily due to the following:
|
|
|
|
|
On January 10, 2006, the Company initiated the process of
an initial public offering when it held an organizational
meeting; as a result, the Company increased the initial public
offering scenario to 65% under the PWER method;
|
|
|
|
The Company achieved consecutive quarters of profitability for
the first time;
|
|
|
|
For the three and nine months ended December 31, 2005,
earnings exceeded original budget and revised forecasts; and
|
|
|
|
The Company continued to generate cash flows from operations
significantly exceeding budgeted, revised forecast and prior
year amounts.
|
The reassessed fair value of the Companys common stock
underlying 164 options granted to employees on March 2,
2006 was determined to be $12.84 per share. On
March 2, 2006, the Companys compensation committee
awarded options to certain strategic new hires. The underlying
assumptions that were in place as of the January 26, 2006
grant date were still in place on March 2, 2006, except
that the Company increased the probability estimate for the
initial public offering scenario under the PWER method to 90% as
a result of the imminence of the Companys potential
initial public offering and anticipating fiscal 2006 earnings
would exceed forecast and budget amounts.
The reassessed fair value of the Companys common stock
underlying 150 options and 90 options granted to employees on
April 20, 2006 and May 3, 2006 was determined to be
$12.98 per share and $13.08 per share, respectively.
The increase in fair value as of April 20, 2006 and
May 3, 2006 as compared to the March 2, 2006 value was
primarily due to the following:
|
|
|
|
|
The Company achieved its third quarter of consecutive
profitability and completed its most profitable fiscal year for
the year ended March 31, 2006;
|
|
|
|
The Company continued to generate cash flows from operations
significantly exceeding budgeted and prior year amounts.
|
The Company maintained a 90% probability estimate for the
initial public offering scenario under the PWER method for the
April 20, 2006 and May 3, 2006 common stock valuations.
The components of income (loss) before income taxes were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Domestic
|
|
$
|
6,950
|
|
|
$
|
12,901
|
|
|
$
|
3,778
|
|
Foreign
|
|
|
11,896
|
|
|
|
(1,694
|
)
|
|
|
(3,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,846
|
|
|
$
|
11,207
|
|
|
$
|
657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
The components of current income tax benefit (expense) were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(6,236
|
)
|
|
$
|
(239
|
)
|
|
$
|
(83
|
)
|
State
|
|
|
(219
|
)
|
|
|
(172
|
)
|
|
|
(89
|
)
|
Foreign
|
|
|
(296
|
)
|
|
|
(40
|
)
|
|
|
(2
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
41,423
|
|
|
|
|
|
|
|
|
|
State
|
|
|
8,385
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
2,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,408
|
|
|
$
|
(451
|
)
|
|
$
|
(174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax benefit for the year ended March 31, 2007
primarily represents the Companys reversal of
substantially all its deferred tax valuation allowance of
$52,159, partially offset by the recognition of $5,020 for
certain tax reserves. The income tax expense for the years ended
March 31, 2006 and 2005 primarily represents alternative
minimum taxes due to the U.S. federal government as well as
various state income taxes.
A reconciliation of the statutory tax rates and the effective
tax rates for the years ended March 31, 2007, 2006 and 2005
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statutory federal income tax
benefit (expense) rate
|
|
|
(35.0
|
)%
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State and local income tax benefit
(expense), net of federal income tax effect
|
|
|
(5.0
|
)%
|
|
|
(0.9
|
)%
|
|
|
(13.5
|
)%
|
Foreign earnings taxed at
different rates
|
|
|
5.5
|
%
|
|
|
(0.5
|
)%
|
|
|
(12.6
|
)%
|
Permanent differences
|
|
|
26.4
|
%
|
|
|
3.6
|
%
|
|
|
(21.5
|
)%
|
Research credits
|
|
|
3.8
|
%
|
|
|
6.9
|
%
|
|
|
111.3
|
%
|
Tax reserves
|
|
|
(26.6
|
)%
|
|
|
|
%
|
|
|
|
%
|
Other differences, net
|
|
|
(5.0
|
)%
|
|
|
(1.9
|
)%
|
|
|
(11.2
|
)%
|
Change in valuation allowance
|
|
|
276.8
|
%
|
|
|
22.8
|
%
|
|
|
(45.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax benefit
(expense)
|
|
|
240.9
|
%
|
|
|
(4.0
|
)%
|
|
|
(26.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
Deferred tax assets arise due to the recognition of income and
expense items for tax purposes, which differ from those used for
financial statement purposes. The significant components of the
Companys deferred tax assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
32,164
|
|
|
$
|
38,120
|
|
Depreciation and amortization
|
|
|
2,321
|
|
|
|
2,974
|
|
Deferred and stock-based
compensation
|
|
|
2,454
|
|
|
|
425
|
|
Deferred revenue
|
|
|
1,586
|
|
|
|
1,045
|
|
Accrued expenses
|
|
|
449
|
|
|
|
512
|
|
Allowance for doubtful accounts
and other reserves
|
|
|
191
|
|
|
|
197
|
|
Tax credits
|
|
|
14,274
|
|
|
|
10,897
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
53,439
|
|
|
|
54,170
|
|
Less: valuation allowance
|
|
|
(1,280
|
)
|
|
|
(54,170
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
52,159
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Until the fourth quarter of fiscal 2007, the Company had
recorded a valuation allowance to fully reserve its net deferred
tax assets based on the Companys assessment that the
realization of the net deferred tax assets did not meet the
more likely than not criterion under
SFAS No. 109, Accounting for Income
Taxes. As of March 31, 2007 the Company
determined that based upon a number of factors, including the
Companys cumulative taxable income over the past three
fiscal years and expected profitability in future years, that
certain of its deferred tax assets were more likely
than not realizable through future earnings. Accordingly,
as of March 31, 2007 the Company reversed substantially all
of its deferred income tax valuation allowance and recorded a
corresponding tax benefit of $52,159. As of March 31, 2007,
the Company maintains a valuation allowance for deferred tax
assets of $1,280 primarily related to net operating loss
carryforwards in certain international jurisdictions.
The calculation of the Companys tax liabilities involves
dealing with uncertainties in the application of complex tax
regulations in each of its tax jurisdictions. The number of
years with open tax audits varies depending on the tax
jurisdiction. A number of years may lapse before a particular
matter is audited and finally resolved. In evaluating the
exposure associated with various filing positions, the Company
records estimated reserves for probable exposures. Based on the
Companys evaluation of current tax positions, the Company
believes it has appropriately accrued for probable exposures.
The Company includes its estimated reserves for probable
exposures in accrued liabilities. The total amount of income tax
reserves recorded in accrued liabilities at March 31, 2007
was $5,020.
Deferred U.S. income taxes have not been provided on
undistributed earnings of foreign subsidiaries of the Company.
The Company considers the undistributed earnings of its foreign
subsidiaries permanently reinvested in the businesses. These
undistributed foreign earnings could become subject to
U.S. income tax if remitted, or deemed remitted, as a
dividend. Determination of the deferred U.S. income tax
liability on these unremitted earnings is not practicable, since
such liability, if any, is dependent on circumstances existing
at the time of the remittance.
The cumulative amount of unremitted earnings from the foreign
subsidiaries that is expected to be permanently reinvested was
approximately $187 on March 31, 2007.
At March 31, 2007, the Company has federal and state net
operating loss (NOL) carryforwards of approximately
$76,052 and $60,037, respectively. The federal NOL carryforwards
expire from 2019 through
74
CommVault
Systems, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(In thousands, except per share data)
2024, and the state NOL carryforwards expire from 2008 to 2011.
At March 31, 2007, the Company also has NOL carryforwards
for foreign tax purposes of approximately $8,479 which begin to
expire in 2008.
At March 31, 2007, the Company has federal and state
research tax credit carryforwards of approximately $9,150 and
$4,678, respectively. The federal research tax credit
carryforwards expire from 2012 through 2027, and the state
research tax credit carryforwards expire through 2014. At
March 31, 2007, the Company has federal Alternative Minimum
Tax credit carryforwards of $446.
|
|
10.
|
Employee
Benefit Plan
|
The Company has a defined contribution plan, as allowed under
Section 401(k) of the Internal Revenue Code, covering
substantially all employees. The Company may make contributions
equal to a discretionary percentage of the employees
contributions determined by the Company. The Company has not
made any contributions to the defined contribution plan.
The Company operates in one reportable segment, storage software
solutions. The Companys products and services are sold
throughout the world, through direct and indirect sales
channels. The Companys chief operating decision maker, the
chief executive officer, evaluates the performance of the
Company based upon stand-alone revenue of product channels and
the two geographic regions of the segment discussed below and do
not receive discrete financial information about asset
allocation, expense allocation or profitability from the
Companys storage products or services.
The Company is organized into two geographic regions: the United
States and all other countries. All transfers between geographic
regions have been eliminated from consolidated revenues. This
data is presented in accordance with SFAS No. 131,
Disclosure about Segments of an Enterprise and Related
Information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
105,140
|
|
|
$
|
77,762
|
|
|
$
|
60,562
|
|
Other
|
|
|
45,967
|
|
|
|
31,710
|
|
|
|
22,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
151,107
|
|
|
$
|
|