Good morning, ladies and gentlemen, and welcome to CommVault's Fiscal Fourth Quarter and Fiscal 2012 Year-End Earnings Call. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Michael Picariello, Director of Investor Relations. Please go ahead, sir.

Good morning. Thanks for dialing in today for our fiscal fourth quarter 2012 and 2012 year-end earnings call. With me on the call are Bob Hammer, Chairman, President and Chief Executive Officer; Al Bunte, Chief Operating Officer; and Lou Miceli, Chief Financial Officer. Before we begin, I'd like to remind everyone that statements made during this call, including in the question-and-answer session at the end of the call that relate to future results and projections, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on our current expectations. Actual results may differ materially due to a number of risks and uncertainties, which are discussed in our SEC filings and in the cautionary statement contained in our press release and on our website. The company undertakes no responsibility to update the information in this conference call under any circumstance. Our earnings press release was issued over the wire services earlier this morning, and it has also been furnished to the SEC as an 8-K filing. The press release is also available on our Investor Relations website. On this conference call, we will provide non-GAAP financial results. The reconciliation between the non-GAAP and GAAP measures can be found in Table 4 accompanying the press release and posted on our website. This conference call is also being recorded for replay and is being webcast live. An archive of today's webcast will be available on our website following the call. I will now turn the call over to our CEO and President, Mr. Bob Hammer.

Thank you, Michael. Good morning, everyone, and thanks for joining our fiscal fourth quarter and 2012 year-end earnings call. CommVault had an outstanding Q4 with strong performance in all aspects of our business and across all geographies. For the year, we achieved record revenue, operating profit, EPS and cash flows. I am also pleased that we met our fiscal '12 objectives of delivering solid double-digit revenue and earnings growth for the full fiscal year. We also met our objective of entering fiscal 2013 with good momentum. Let me briefly summarize our Q4 and full year FY '12 financial results. For the quarter, total revenues were a record $114 million, up 27% year-over-year and up 10% sequentially. Software revenue grew 34% year-over-year and 14% sequentially, while services grew 21% year-over-year and 6% sequentially. For the quarter, non-GAAP operating income, or EBIT, was $21.1 million, up 22% year-over-year. EBIT margins were 18.5%. Non-GAAP diluted earnings per share for the quarter was $0.29. For fiscal 2012, we grew total revenues by 29%, EBIT grew 39% and we expanded EBIT margins by 130 basis points. We generated approximately $30 million of cash flow from operations during the quarter and approximately $100 million of cash flow from operations for the year. We finished fiscal 2012 in a very strong financial position with over $300 million of cash and short-term investments and no debt. We continue to generate record results due to a combination of the following key factors: one, Simpana 9 software significantly increased the technology differentiation versus all competitors; secondly, CommVault is recognized more often as the vendor of choice since the massive growth, data growth, increased use of virtualization and the cloud are making other vendors' solutions obsolete, improved sales execution in major enterprise accounts as well as in the SMB sector, increased…

Thanks, Bob, and good morning, everyone. I will cover some key financial highlights for both the fourth quarter and the full fiscal year. We ended fiscal year 2012 with software revenue of $201.8 million, primarily driven by the strength of enterprise transactions. During fiscal 2012, enterprise software revenue, which we define as deals over $100,000 in software value, accounted for 52% of software revenue. This was an increase of $33.1 million, or 46%, over the prior year. In addition, the number of enterprise transactions increased by 37% in fiscal 2012. For the quarter, we reported software revenue of $58.8 million, which was up by 34%, or $14.8 million, over the prior-year period. Our software revenue from deals over $100,000 increased by 41% over the prior-year period and 32% over the prior quarter. The number of enterprise software deals over $100,000 increased 32% year-over-year and 51% sequentially. Our average enterprise deal size was approximately $235,000 during the current quarter compared to $219,000 in the prior-year period and $269,000 in the prior quarter. The average enterprise transaction was approximately $241,000 for the full fiscal year versus $226,000 in fiscal 2011. Our enterprise segmentation strategy has been validated by our solid results over the past several quarters. During Q4, the strength of our business was driven by strong demand for the following Simpana functionalities: virtualization solutions, source-side deduplication, archiving and Intel's Snap-based data management solutions, formerly known as SnapProtect. Also we continue to see an increased demand for our capacity-based licensing models, which has a direct correlation to the underlying volume of data under management. During Q4, over 60% of our software revenue was licensed and priced based on our capacity models. During fiscal 2012, approximately 62% of software license transactions were sold on a capacity basis. The revenue mix for the quarter…

Thank you, Lou. I want to spend a few minutes on CommVault's strategic overview and vision. CommVault has always been a data-focused company, and we have developed our solutions with a focus on data as opposed to storage. That's the reason why we have built a singular software platform that enables customers to more easily, less costly and more reliably store, protect, find, recover and search their data than competitive solutions. We are recognized by a key respective independent third-party analysts as the industry's innovation leader in the data management market and have established a solid financial track record since we went public in 2006. However, the world of data is changing rapidly and so are we. The world of data is changing because of the exponential growth of data, the velocity or speed, of which particular unstructured data is created and a new types of sources of unstructured digital content including social media, machine and sensor-generated data and streaming data like audio and video. The cloud is also changing the way data is generated, stored retrieved and managed. These fundamental changes related to data are rapidly obsoleting the traditional or legacy technologies in data management, IT infrastructure management and business intelligence. The industry lumps all these issues under the heading big data. For example, the massive scale and complexity of data is overwhelming to current IT infrastructures, making it more difficult to ingest, store, protect and recover data. It has increasing disaster recovery compliance and regulatory risk. It is also making it more difficult for enterprises to make intelligent timely decisions because current data retrieval and analytic techniques are also inadequate. Additionally, the consumerization of IT for the use of smart devices and the use of unsecured cloud repositories are exacerbating the data-related problems. The era of big data…

Thanks, Bob. Operator, can we please open the line for questions?

[Operator Instructions] And your first question comes from the line of Joel Fishbein of Lazard.

A couple of just quick questions. Bob, you mentioned the relationship or expanded relationship with Microsoft, I wanted to know did that include Microsoft sales people selling CommVault solutions? Or are you just part of the -- is your platform there? Any color there would be very helpful.

A kernel of Simpana is embedded in Azure, so they sell azure, they're selling a kernel of Simpana and we get a license fee on that sale.

So there's not an expansion where Microsoft people distributors or Microsoft is actually selling Simpana 9 as a solution to the end-point, right?

That solution is embedded in Azure, so when you buy a capacity of Azure for X, it includes CommVault.

Second question is just in terms of Simpana Edge and you mentioned smart devices, any update on how that's going and how do you perceive the market there? That would be helpful.

Well, I mean, those products are in development. The development is going exceptionally well, and we will hit our dates to bring those to market and we'll discuss the details at the appropriate time. But the development, Mr. Bunte to my right here, is doing a good job as that team and we're right on target to deliver those solutions.

And our next question comes from the line of Jason Ader of William Blair.

Bob, I wanted to ask you first on the change of the sales commission structure that's planned for this fiscal year. I was wondering if you could provide some details on how the commissions are going to change? And then also whether there could have been some bookings pull-in in Q4 as guys look for better payouts ahead of the change?

In FY '13, we're going to on more comprehensive sales segmentation strategy than we deployed in FY '12. And with that -- and there is a change in the commission structures. And that is being implemented, so it is a relatively significant change and that has been implemented with our field teams. If you're asking is there any risk attached to that? So when you make change, Jason, there's always risk. But as we've done before, we believe these changes will enable us to continue to have really outstanding results both in the enterprise segment of the market and the SMB segment of the market as well as the work we're doing with the MS piece. Regarding our Q4, our sales teams, like any sales teams, are always money motivated. They've got accelerators going into Q4, and they executed exceptionally well. So our sales teams are very happy. But as I mentioned earlier, we enter Q1 with really good visibility. In fact, the best visibility we've ever had going into a first quarter.

Just to follow up on the first part, a couple of years ago, we all remember, I'm sure you remember, Bob, the hiccup related to the change in the sales structure. How would you compare the change that's happening now to that change? And I know back then, you didn't anticipate it was going to have the impact that it did.

Well, it was -- that was the first time we ever had implemented a brand segmentation strategy. So one, it was a significant change; and two, our execution of the change wasn't that crisp. This is still, I'd say, reasonably significant, but it's kind of a phase 2. And our ability to execute is there. But when you make changes, Jason, there's always -- the risks aren't 0, but I'd say we've significantly minimized them, but there's still some potential risk.

And then just lastly for me. Just on Dell, you gave some -- you've had a balanced commentary, I think, on Dell. That was helpful. But I guess what -- question I would have is, if there is overlap, even today, why wouldn't there be more overlap going forward as they expand the development of the product and maybe even move up more into your area? And I guess what gives you the confidence that Dell will continue to be a very strong partner as you said fiscal '13 and beyond?

All right, two things. I mean, they can take that technology so far. Yes, they can move it up. But we believe that this market is going to shift again with other technologies that will complement some of these core data management technologies in the mid enterprise and the large enterprise, there's going to be a lot more technical functionality that's going to be required to be leading edge, and we are confident we will lead that. I'm sure Dell will be successful in the SMB and in the lower segment of the middle market, but I'm five-nine [ph] confident in our ability to: one, do extremely well in the market independently, and I think there's a lot of synergy where we can help Dell going forward. So in terms of downside impact of Dell, I think it's -- I think there's more opportunity there than there is downside. Operator, can we take the next question? Operator?

And our next question comes from the line of...

Operator, operator, what's going on over there?

I don't know, sir. [Technical Difficulty]

Just make sure you got support to make sure that doesn't happen, please?

Our next question comes from the line of Glenn Hanus of Needham.

Maybe you could talk a little bit more about some of the other distribution partners, if you could follow up a little bit more on NetApp? Are they going to be expanding beyond -- maybe what's some of the challenges are there and are they expanding beyond the SnapProtect into some of your other functionality? And any color around Hitachi, Fujitsu?

So let me start with -- just in general, our distribution partners like Arrow have executed exceptionally well in the market with us both tactically and strategically. So we're getting a lot of leverage from this around the world in our core resellers. They've done unexceptionally well. Our MSP partners, we've had some tremendous growth through our MSP channels. Our growth with Hitachi year-over-year was very high. And as I've said before, we don't have, what I call, a strategic relationship with Hitachi, but we do really well together in partnering in the field. We've had good traction with Hewlett-Packard. In the field, we've -- we're doing exceptionally well with Fujitsu and in that partnership, that is really working well. As I mentioned on the call, the net results weren't good. The 2 companies are working together to see if we can improve that, but I'm not going to comment on NetApp at all going forward until we have a track record. So I'm just not going to comment on it.

And maybe a little bit more on the SMB side. I think you said that's strong, if you could talk about how you're reaching those customers and how that's changing over time?

Yes, our SMB growth has been very, very strong. We basically enhanced our SMB strategy going back a couple of years ago with the addition of inside sales. So fundamentally, for the smaller deals, they are now handled almost exclusively by our inside sales teams as sales and SV teams and our reseller channel partners, and we've seen really good growth out of that strategy. It's a much lower cost strategy. It's been extremely effective, and we're going to continue to invest in it. So given that kind of performance, you can expect that our SMB growth is sustainable over the longer term.

And as you look at your direct versus indirect kind of mix and growth rates, the direct is clearly going stronger guns. Should we expect that trend to continue to have greater growth on that side?

No, our strategy is to continue to strengthen our indirect leverage. So over time, if we succeed in implementing our strategies, the percentage of our direct revenue will decrease.

And our next question comes from the line of Aaron Rakers of Stifel, Nicolaus.

Bob, you just mentioned HP continues to be strong with you guys. Can you remind us and update us again what your relationship -- where your relationship stands with HP and whether or not you foresee any kind of expansion opportunities within that?

No, I mean, it's a go-to-market relationship. It is not strategic. And we work really well with them in integrating our software with their hardware, particularly 3PAR and the X9000, where we can offer our mutual customers unique solutions with that combination. So they've been very open with us on that. They provide go-to-market support. And I think we'll continue to do that and as we build momentum, getting more and more traction with the HP partners and the sales reps. But strategically, at this point, I don't see any further expansion in relationship, but it's worked very well for both companies.

And then Bob, you've mentioned in the last couple of quarters now, obviously your expansion into mobile device management, you referenced also pushing to the smart--, I'm guessing, smart device or smartphone area. Can you elaborate a little bit on that where that stands today and when -- and how we should think about that materializing?

Yes, I mean, we introduced the first data, the Edge product, which was our laptop-desktop capability last calendar year where we can automatically manage the protection and retrieval of data on laptops and moved the ability for the user to have more command and control on recovering his data from a user versus having that done by an IT administrator. We're going to extend that capability to smart devices, the iPhones, iPads, Androids. And the other issue that our customers are facing is, they are really concerned about using technologies like Dropbox, which are relatively unsecured, and would like to have a secured cloud that they can manage from a corporate standpoint: one, in terms of moving data into the cloud; and two, using that repository for document sharing across the devices. And we're doing both. And within 12 months, we'll have capability both to the management of the devices and the management of data in regard to a secured cloud both for storage and also for document sharing.

And final question for me just so I understand it, your message for fiscal 2013, you're comfortable with the consensus revenue growth year-over-year percentage change that's currently out there, not necessarily the absolute number. And with that statement, also set for the current fiscal quarter as to why you're comfortable with the Street estimates? Just want to be clear what the message is there.

We are comfortable with those estimates.

Yes, the year-over-year growth or the absolute number?

Both. I'm sorry, growth is the answer.

And your next question comes from the line of Rajesh Ghai of ThinkEquity.

Bob, you mentioned some overlap at Dell with AppAssure in the SMB in the mid-market. Just trying to get a sense of the extended overlap, can you give us -- can you tell us how much of your Dell revenue would you characterize as mid-market or exposure to overlap? And how do you see AppAssure in the market? Have you seen them in the past and how do you see that trending going forward?

We've seen in the past and the impact has been de minimis. But now, they're in the hands of Dell, and Dell is taking a very aggressive stance on where they want to push that technology. I'm just saying, theoretically, there's going to be some overlap. And I think that it's manageable, and we'll see over time what it looks like. Right now, my comments are theoretical and not actual.

Yes, because that is what data center has got by talking to people in this industry that the overlap was pretty minimal in that SMB side. As far as the growth drivers that you mentioned, virtualization, virtualization is taking -- essentially moving into -- deeper into the data center this year. It's been -- and moving into more mission-critical applications. I'm just trying to understand the typical budgeting pattern of your enterprise customers, do they buy the data management suite to cover the mission-critical apps with their virtualizing those apps or do they buy it once that project is complete, and they are going to try to manage infrastructure after the virtualization is complete?

Your big enterprise deals are a combination of this: They've got massive growth of data. And as you point out more and more of that data is on virtualized services -- service for critical production data, not just the dev data, and so they've got big data on virtualized servers, on critical applications, and thus running into problems like, I can't make my backup window because I don't have enough time using standard backup techniques to stream data off those servers and get it off the primary and then get it to the back-end. So they can't -- and then they end up with lots of unprotected data or they don't have the policies in place and the virtual machines shows up and the data is not protected. So they're running into scale issues at the server side. They're clogging up their networks and then they are running into lots of storage-related issues because if you put too much data on the primary layer, it's just way too costly. And they will realize now they got to stop moving data much more quickly from primary to lower-cost secondary. Given all those issues -- and now you've got the cloud and you've got issues related to remote sites -- so what companies are doing is -- what they're doing today is inadequate. So they start thinking about how can they completely reengineer, like the example that I just described earlier, their whole infrastructure to solve their data protection issues, their cost issues, their reliability issues, their compliance issues and they go through massive reengineering. And when they go through massive reengineering, by far, we've got the best solutions and that's why we're gaining so much market share. So it's a combination of issues that customers are facing that is driving this massive change and we happen to be in a very strong position to solve problems related to those issues.

And my last question is, if you notice, direct sales was pretty strong this quarter, up 62% year-on-year. I'm just trying to understand what is included in that? Does that include your sales to the large cloud providers such as Azure? And did that contribute to that big jump this quarter?

No, it just we have a couple of big deals. Excuse the numbers, it's got no meaning at all. It does -- I would completely discount it. It doesn't mean anything.

And your deal with Azure, would that show up on the indirect side or will that show up on the direct side going forward?

That's indirect.

And your next question from the line of Robert Breza of RBC Capital Markets.

Bob, just based on your last comment there in thinking about the average deal size, you had a nice increase, you talked about a lot of the new features and functions that customers are taking, how high can the deal size go, I guess? And how much, like, headwind do you think you have in terms of what's driving that deal size? Are you thinking more product? Or is it going more deeper into their organization? Just what's driving that overall deal size?

Well, it's both. It's a breadth and depth of providing solutions across backup and disaster recovery and archive and remote sites and cloud. And so it's covering a wider breadth of applications. Number one, into bigger accounts. And I can give you some sense of this. When we started this with the enterprise 6, 7 years ago, we had targets for $100,000 accounts. Then we started getting to segmentation to focus more and more on, let's call it, 7-figure $1 million deals. And our last move on segmentation is focused on, called, the Fortune 200, where you can see 8-figure kind of deals. So -- there is an evolution and there is room to increase -- significantly increase our deal sizes as we go forward.

And your next question comes the line of James Wesman of Raymond James.

It's Michael Turits from Raymond James. Maybe I didn't get it a little bit -- the Microsoft deal sounds great, but then can you just be more specific on in terms of what SKUs of Azure you get? Well, it sounded -- it wasn't that clear but maybe I didn't understand.

It's a -- I wouldn't call it a pilot program, but Microsoft is taking a very aggressive stance on Azure. And they wanted a -- in data protection or archiving, are 2 of the major used cases for the cloud. And they wanted a leading-edge capability to do that, so they took a, what I call, a very small kernel of CommVault. It's not -- it doesn't scale very much, it's a small kernel to enable customers to begin to deploy those kinds of applications. And then if the customers want to do a broader application in their enterprise, then they can come to CommVault and we can sell them the broader apps. So the importance of it is clearly, there's a lot of collaboration between us and Microsoft. Two, since every time they sell Azure, they sell a kernel of our product with it. It gets us a lot of exposure out there, a lot of reach and those kinds of things help build recognition and brand out in the marketplace. In terms of -- from an analysts' standpoint, in terms of monetizing that, I wouldn't read too much into it right now, but it's -- it could be interesting if we go forward. Internally, we're not modeling a lot of revenue from it. But I think over time -- it's not only Azure, but we're doing a lot of work with the Rackspaces in that whole sector, that whole cloud sector has become very significant for both external cloud and I can tell you almost every enterprise customer that we work with is building some type of internal cloud-based managed service capability. So the whole area is important to CommVault.

Are you getting a royalty on that small kernel that goes on in the sensor?

Yes, we get a royalty. Yes, correct.

And then similar question on how we should talk about going up sequentially into the first quarter? Last 2 quarters, it's been up, I think, $5 million [indiscernible] the last 2 quarters. Are we that ballpark in terms of the absolute increase you get in the first quarter also?

We haven't given an exact number, but I think we mentioned that our investment rate across all disciplines is high. One, we have a lot of momentum. Two, we have a lot of confidence in our ability to pick up market share. Al has got a major initiative in terms of field-facing capabilities in terms of making sure that we've become a trusted advisor. Because there are very few out there that can help a customer to find the right data and information management solution. Get it and implement it correctly and then get it deployed and managed correctly. And that takes a lot of experience and skill resources. And we're making investments. So we've become the trusted advisor in the industry to help customers take their next step in developing a next-generation IT infrastructure related to data. So we are making those investments, and they're helping us. I mean, I've made a few calls recently and we are the -- they come to us now because we have a broader understanding of that infrastructure related to data than any other vendors in the market. So now, we're just waiting out -- we continue to invest in building that capability. We are also investing for hitting some aggressive sales targets in FY '13 on the sales side, where we continue to expand internally to provide the best-in-class support in the industry. We've got extremely aggressive innovative product roadmaps we need to execute on. So across the company, we're making some pretty substantial investments here to make sure that we sustain this kind of best-in-class industry, financial performance and record revenue and income growth. So -- and with that, if we miss, then we have to leverage on the other side, but these are the right investments to make at this point in time for the company's long-term shareholder value.

And just one more on Microsoft, is there any exclusive integrate to that data protection in managing your relationship?

It's not exclusive.

And your next question comes from the line of Brian Freed of Wunderlich Securities.

I have a couple of parked questions here. I guess the first is, can you give any comment in, rough guess is fine, on the percentage of your installed base that's currently on capacity-based licensing plans? And then secondarily, if you can give any rough breakout of what percentage of your license revenue is coming from new licenses versus capacity upgrades and then finally, if that trend is driving anymore predictability to your revenue outlook?

Round numbers, 60% plus is capacity-based -- round numbers, 60% or so is new customers versus existing.

And on visibility, are you getting any more visibility given the growing number of capacity-based customers?

Yes, we do have an algorithm. It's a bit early, but we do have it and we are beginning to track some visibility on it now.

And your next question comes of the line of Ryan Bergan of Craig-Hallum Capital Group.

I'm wondering if the sales investments that you've made over the last 8 to 12 months and the enhancements you've made on Simpana 9, if it's making the conversion -- your pipeline conversions any faster than in previous time periods? I mean, perhaps it's still based on the enterprise and how long you're taking to spend budget and to evaluate projects, but are you seeing your investments making those pipeline conversions quicker?

I don't have a hard data. I would say that over the past few quarters, our ability to bring accounts in and close has been quite good, but I don't have a quantitative number for you. I'll also say that given the macro environment, we are expecting that to be a little bit more difficult, so we're really paying attention to funnel some close rates and make sure we have extra coverage given the current uncertainties in the macro environment so I'd say, it probably got better but I don't have -- I can't give you a number to tell you that, that it really has. I'm also saying this is personally because I don't have any data on it that I would assume it's going to get a little bit worse.

And then in broad strokes, you spoke about verticals and saw that it was stronger across all of them, but can you give any specific commentary on areas like financial services and telco in Europe that -- from other companies we've seen that have had some challenges there?

Our largest vertical is government, it's strong. We are clearly increasing penetration in the financial services sector, so we are picking up share there. So our growth there has been strong. And in spite of the Europe's issues, which we have a very strong growth in EMEA, and on the continent, and we expect to have quite good results over the next 3 quarters in Europe despite the macro, but we're concerned about it. So I'd say on all our key verticals and in telco, we're making really good progress particularly on the MSP side of Telco, but also with some of their internal operations. But right now, the data related issues are trumping some of the macro issues out there.

And your next question comes from the line of Aaron Schwartz of Jefferies.

This is Fatima in behalf of Aaron. You briefly touched on the DI capabilities that you will start thinking about embedding in the software and Simpana. And I was just thinking about the data virtualization aspect and the vertical apps that you also spoke to, if that's an area of partnership that you are thinking about?

So in general, when you're dealing with solving a data problem, you've got to ingest the data, aggregate it from different sources, analyze it and present it in a way that humans can understand in either corporate-wide offers specific protocol applications. Our platform is unique in our ability because we're opening up our back-end so we can ingest data. Not only the data that we manage, but we can bring in data, for example -- for machine-generated data, we can bring in data from social networks, bring it into our back-end, provide sophisticated analytics and then we're building a much more comprehensive presentation layer. So some of these verticals solutions we will build on our own. And many of those, we will partner with companies that have specific domain expertise in those verticals. So it's going to be a combination of our own development, and we'll build a much broader partner ecosystem in the DI community as we move forward. Does that answer your question?

And your final question comes from the line of Philip Winslow of Crédit Suisse.

Most of my questions have been answered, but I just wanted to get a sense of what you're seeing out there from a pricing perspective versus your competitors because obviously, you guys continue to grow very well while some of your larger competitors are certainly struggling to grow. I'm just curious what reaction have you seen from them in terms of pricing out there?

Our -- the biggest weapon our competitors have first of all is price. So we see very aggressive--when they are about to lose an account, we. Always see very aggressive pricing action from our competitors. It doesn't work very well because we sell on business case and value and on total cost of ownership in ROI. And we're used to selling against 0 even if competitors will give away their product, which they do sometimes. And they'll give it away -- give away their maintenance. So one, we sell on value. And two, in more cases, these competitors can't solve the problem. So it doesn't matter what price they charge. But in general, we see very aggressive and have long-term but extremely aggressive pricing action from our major competitors.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect, and have a great day.