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Comm Vault was trading in upper fifties in early January and since then has come down to $45 by End of May-2015. This blog post looks at the fundamentals of the business and its future prospects. Reference - Company's Q1-2015 Earning's call , Latest 10-Q / 10-K reports
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BUSINESS OVERVIEW : CommVault is a leading provider of data and information management software applications and related services. CommVault was incorporated in 1996 as a Delaware corporation. They develop, market and sell data and information management software applications under the Simpana® Software brand. Simpana software is built from the ground up on a single platform and unified code base for integrated data and information management. The software helps in backup and archiving, it also has ability for user to search the archive. BROAD CUSTOMER BASE : As of March 31, 2015, they had licensed their software applications to over 21,000 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. LEADERSHIP : N. Robert Hammer has served as the company’s 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 Suisse’s 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 bachelor’s degree and master’s degree in business administration from Columbia University. CURRENT STATE A BIG HURDLE : Company is being forced to reduce its maint pricing, thus the furture revenues in maint will be less compared to product sales. CURRENT RESULTS (Q4-2015 , FULL FISCAL YEAR 2015) : 1. The strengthening of the U.S. dollar compared to foreign currency has had a significant impact on the results for the quarter. On a constant currency basis for the quarter, total revenues were up 2% sequentially, and year-over-year. Software revenues were up 1% sequentially, and down 5% year-over-year. 2. From an earnings perspective, on a sequential constant currency basis for the quarter, EBIT margin was 14.4%, and EPS was $0.30. For the full fiscal year, on a constant currency basis, total revenues were up 6% year-over-year, software revenues were down 1% year-over-year. EBIT margin was 17.8%, and EPS was $1.48. On an as reported basis, Q4 total revenues were $150.7 million, representing a decrease of 4% over the prior year period, and 1% sequentially. 3.For the full fiscal year, total reported revenues were $607.5 million, representing an increase of 4% over fiscal 2014. For a quarter, software revenue were $70.1 million, which was down by 11% from the prior year period, and down 2% sequentially. Revenue from enterprise deals, which are define as deals over $100,000 in software revenue in a given quarter, decreased by 12% from the prior year period, and was up 8% sequentially. The number of enterprise deals decreased 13% year-over-year, an increased 8% sequentially. The average enterprise deal size was approximately $250,000 during the current quarter, compared to $248,000 in the prior quarter, and $245,000 in the prior year period. 4.Americas, EMEA, and APAC represented 64%, 25%, and 11% of total software revenue respectively for the quarter. The sequential increase in Americas' software revenue was 11%, while EMEA declined 21%, and APAC declined 17%. On a sequential constant currency basis, EMEA software revenue declined 14%, and APAC software revenue declined 13%. For the quarter software revenues derived from indirect distribution channels decreased 9% over the prior year period, and represented 84% of software revenue. Their direct software revenue decreased 22% year-over-year, and represented the balance. 5. Currently 81% of software license revenue was sold on a per terabyte capacity basis. These capacity-based license sales also represented 81% of our full year software revenue, up from 80% in FY'14. Capacity-based software licenses provide customers with licenses with specified software products based on a defined level of terabytes of data under management. It is expected that capacity-based license sales, as a percentage of total license revenue, will decline. New products are being sold on a per unit basis, and can be individually deployed or combined as part of a comprehensive data protection and information management solution. Some of these products are being sold as term or subscription-based pricing model. WHAT TYPE OF PRODUCTS ARE IN DEMAND? stand-alone virtualization solution set, which includes VM backup recovery, and cloud management solutions. Since its launch two quarters ago, they have had over 500 customers purchase this product, with more than half of these being sales to new customers. OUTLOOK : They continue to have declining operating margins in Q4, mainly due to weaker than expected top line results, investments they made in the first half of FY'15, and the impact of foreign exchange rates. They expect the growth in services revenue to be less than the growth in software revenue in FY'16 as a result of declining software revenue growth in FY'15 in tact with FX rates, particularly in the first half of the year, and an anticipated realignment of their maintenance pricing due to competitive market trends. GAAP tax rate for fiscal 2015 was 34% and the company’s cash tax rate was approximately 26%. They expect their cash tax rate to remain lower than our GAAP tax rate for fiscal 2016, and to be in the 32% to 35% range based on the passage of expected legislations. Its estimated that cash tax rate will align with their long-term GAAP tax rate over the next two fiscal years. The company plans to use a pro forma tax rate of 37% for FY'16 which is the same pro forma rate used for fiscal 2015. NEXT GENERATION COMM VAULT SOFTWARE : In the next version, they will be making significant changes to how they index and transport data to make it much easier and less costly to manage data in and out of the cloud and to provide a much stronger platform for business analytic. These enhancements will also have significant cost performance, scale, access recovery, and added sophisticated security functionality. Backup windows will be eliminated, all data in the platform will be accessible, and highly cost-effective, native production-ready formats. The platform opens for seamless integration with new open infrastructures, and address customer demand to avoid vendor lock in. It will also enable the implementation of business analytic solutions, some of which are currently in beta. The next gen is expected to be released in Fiscal 2016. Disaster recovery manager is also launched in this current quarter. The solution runs in both Microsoft and Azure and Amazon Web Services cloud environment. It automates the disaster recovery process by using their unique orchestration, data transformation, and cloud provisioning capabilities. Additionally, their new VR solution set meets customers' new requirements to manage data between cloud vendors and locations by offering global management and reporting capabilities. COLLABORATION WITH MICROSOFT : Relationship with Microsoft has become substantially stronger. It's a really good alignment between their technology and what they're doing with Azure. Microsoft has brought Comm Vault a lot of new channel partners. CONCLUSION: The company’s recent sales has been hit because of strong dollar , change in sales model and increased competition. The company has some new products like the cloud based Disaster recovery manager which works well with Microsoft’s Azure and Amazon’s AWS. The most important asset of the company are its broad base of customers (more than 500,000 as of Mar-31-2015) . The company is able to grow its customer base without any acquisitions or enhanced capital expenditures. Thus its able to generate a healthy free cash flow while increasing its customer base. Fair value of the stock is around $60 and once the new products gain traction the stock should bounce to this level by early 2016. |
