Welcome to the first quarter fiscal year 2016 CommVault earnings conference call. My name is Lauren and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Michael Picariello. Mr. Picariello, you may begin.

Good morning. Thanks for dialing in today for our fiscal first quarter 2016 earnings call. With me on the call are Bob Hammer, Chairman, President and Chief Executive Officer, Al Bunte, Chief Operating Officer and Brian Carolan, Chief Financial Officer. Before we begin, I would like to remind everyone that statements made during this call, including in the question-and-answer session at the end of the call, may include forward-looking statements including statements regarding financial projections and future performance. All of these statements that relate to our beliefs, plans, expectations or intentions regarding the future are made pursuant to the Safe Harbor Provisions 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 such as competitive factors, difficulties and delays inherent in the development, manufacturing, marketing and sale of software products and related services and general economic conditions. For a discussion of these and other risks and uncertainties affecting our business, please see the risk factors contained in our Annual Report in Form 10-K and in our most recent quarterly report on Form 10-Q and in our other 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. In addition, the development and timing of any product release as well as any of its features or functionality remain at our sole discretion. Our earnings press release was issued over the wire services earlier today and 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. A reconciliation between the non-GAAP and GAAP measures can be found in table four accompanying the press release posted on our website. This conference call is also being recorded for replay and is being webcast. 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, Bob Hammer.

Thanks, Mike. Good morning, everyone and thanks for joining our fiscal first quarter and FY 2016 earnings call. The headlines for the quarter one, we had a more challenging Q1 than expected. We did however make excellent progress on the company's transformation initiatives. Our sales funnel and large deal momentum significantly improved in the July period. We had good success in building out the Americas sales management team and adding the sales capacity. Our standalone products continue to gain traction and our next-generation platform is on schedule for a fall release. As I said last quarter, it will take us into the second half of FY 2016 for the key elements of repositioning to have a positive impact on our financial performance. The likelihood that we will see good sequential quarter-on-quarter growth increases beginning in the December quarter has now increased. Good year-on-year comparisons most likely will not occur until the March 2016 quarter. I will comment on CommVault's Next foundation later on in the call. We communicated on last earnings call that the first quarter is historically our most challenging quarter and that the first quarter FY 2016 would be no different. Our results were poor than expected due to our lower than forecasted close rates on large deals, particularly in the Americas. The Americas results were also impacted as we continued the Americas restructuring and staffing. On the positive side, we have recently seen a substantial improvement in the Americas funnel inflow and big deal flow. At this point, I would call that a solid data point, however, it is too soon to call it a trend. In addition, we have a better EMEA outlook as we enter Q2. We also saw good growth from our standalone solution sets as well as from our cloud and managed service…

Thanks, Bob and good morning, everyone. I will now cover some key financial highlights for the first quarter of fiscal 2016. The strengthening of the U.S. dollar compared to foreign currencies had a significant impact on the year-over-year results for the quarter. Foreign currency movements had a minimal impact on a sequential constant currency basis. I will state our as reported results first and also state the year-over-year results on a constant currency basis. First quarter total revenues were $139.1 million, representing a decrease of 8% sequentially and 9% over the prior year period. Total revenues were down 2% year-over-year on a constant currency basis. We reported software revenue of $56.5 million, which was down 19% sequentially and 22% from the prior year period. Software revenue was down 15% year-over-year on a constant currency basis. Revenue from enterprise deals, which we define as deals over $100,000 in software revenue in a given quarter, represented 49% of total software revenue versus 56% in the fourth quarter of fiscal 2015. The number of enterprise deals decreased 29% sequentially. Our average enterprise deal size was approximately $250,000 during the current quarter, which was flat sequentially. Americas, EMEA and APAC represented 55%, 31% and 14% of total software revenue, respectively, for the quarter. On a year-over-year constant currency basis, Americas and APAC software revenue declined 31% and 8%, respectively, while EMEA software revenue increased 29%. The revenue mix for the quarter was split 41% software and 59% services. Please remember, services revenue is a combination of both the maintenance and support revenue and professional services revenue. Services revenue for Q1 was $82.6 million, an increase of 2% sequentially and 3% year-over-year. Services revenue was up 9% year-over-year on a constant currency basis. Our maintenance and support renewal rates remain strong. We added approximately 340…

Thank you, Brian. Let me now address our unique platform strategy. As I mentioned earlier changes in the market are accelerating the demand for a more comprehensive holistic platform for companies to migrate, manage and secure data in various clouds, geographically disbursed data centers and in mobile devices. CommVault has developed that platform. The underlying unique technical advantages of our platform enables us to deliver best in class solutions, services and support. Our platform will be significantly enhance with a new released this fall. Our platform allows customers to buy CommVault and leverage different technologies as plug-ins to the base capability. It unifies our product portfolio and effectively demonstrates a significant differentiator that CommVault products are integrated using the same underlying technology whereas competitors piece together full solutions. Our product platform is targeted to four key solution plays. We have been able to refine our packaging, pricing and development of our standalone solutions. I will now consolidate them at the four solution categories, data protection and recovery, virtualization solutions for core protection and VM management, active content archive, which includes compliance governance legal and eDiscovery and cloud mobility, which includes automated backup to cloud, disaster recovery, dev test, file sync and share. These solutions will be enhanced and expanded with our next-generation platform release this fall. This consolidation was important to get the organization focused and aligned. Our next-generation platform is currently in beta testing. We expect to release it later in the fall of calendar 2015. This next-generation create an open platform which customers are demanding as they shift to building IT infrastructures on open components that they perceive will get them out from under vendor lock-in. An open platform will enable the customer to access and read data that we store under more sophisticated security functionality and there…

Operator, can we please open the call for questions.

[Operator Instructions]. Our first question comes from Jason Ader from William Blair. Please go ahead.

Thank you. Bob, can you talk about why you think it's taking longer than you expected to turn things around? And may be some just specific areas where you are behind where you wanted to be at this point? And then maybe address as part of that, what's happening with sales attrition, because I know that's been a challenge for you?

When you look at, you get underneath the numbers, the biggest issue was in the Americas and we took a very aggressive long-term approach to restructuring Americas to get the foundation right. And that impacted us in the Q1 more than anything else. As I said on the call, we made a series of key leadership changes there. We optimized sales territories. We changed the structure and provide a lot more coverage for our channel management. We moved resources and got better focus on our overlay teams, particularly on the information management side. We added some more resources to our high velocity channels and we put alliance function in place because we are getting a lot of calls from major players in the industry regarding the platform. So we have made a massive amount of changes and it impacted attrition when we made these changes and we held up hiring in the Americas for about two quarters while we were going through this. So we are way behind in capacity and we just had to get through it. And there is no easy way to do it and we chose the hard fundamental way of getting it done. Now, on the back side of that, for all practical purposes, all the new management is in place and we have dramatically swung around hiring over the last of couple months. So, our net adds have improved pretty significantly. And as things settle down in the Americas, we start to see a big turnaround in big deal funnel and funnel in general. I mean dramatic turnaround. So we have got stability there. It was really clear to me going back that unless we got the Americas straightened out, restructured, added enough capacity in place, it didn't matter what we were going to…

Okay. And then just one quick follow-up. Just thank you for the comprehensive answer. In terms of, maybe Al for you, do you expect there to be any pause ahead of the new platform? It does seem like it's a pretty big change. Customers may spend some time evaluating it. We also have some disruptions overall in the storage market, maybe not backup, in particular, but certainly the broader storage market. There is lot of upheaval and I am wondering if the combination of all the changes you are making internally together with the new product, together with all of the backdrop disruption in the storage market are at play here.

Yes. A good question. Jason. So many guys have asked me right before major releases and I usually dismissed it. Yet over time, I think we have generally seen a little bit of a slowdown on demand. But we are certainly not seeing it, number one. I am not anticipating it, number two. I think we are going to introduce, Jason, a little bit different. It's going to come out more along a platform perspective upfront versus a specific product. So we are thinking that will be a little bit smoother and a little bit more accretive for everybody involved. And again, I think we are feeling pretty good about it this quarter. We are really putting emphasis on some of our cloud solutions, DR to the cloud, some of the relationships Bob talked about, some of alliance solution sets. So I think that will all hit this quarter and again that's pre-11. So I think it should be fairly smooth, Jason. I guess, a long winded answer.

So if you take what Al said, Jason, so you have got these, call it, better focus now on our standalone products sets that we have been working on the last several quarters. They will only be enhanced with the 11. So the field channel customers will get focused on the capabilities and we will roll very quickly into enhanced version of those. So we are really started that process right now with messaging and positioning that only moves up a level. So if you take the product sets we have and you take significant added sales capacity on top of that, just those two things alone, there is your foundation for turn. Now if you add to that distribution leverage, not only with existing partners but what Al was basically communicating is that as a number of companies in the industry see the capabilities this next generation platform, it solves a lot of problems whether they are some of the newer vendors in the hardware arena or some the bigger players in the public cloud arena, they see that this platform solves a missing piece on how data is managed across these different data silos and very effectively and efficiently and cost-effectively. So that's what's going on in the background. And the other thing is that in certain key customer campaigns, we are working with them on the next generation platform and are just starting to begin to build funnel for that platform as it comes out later on in the fall. We have been involved in some pretty comprehensive strategic discussions with others. And these are in some newer deals that will be coming up. So there is no one thing that drives the turn. It is a combination of multiple things. And, yes, the strategy was extremely ambitious. It was difficult. But we took a long-term view and it is starting to come together, I guess is the way I would describe it, if you start to look at the underlying pieces. So there is nothing different in this, Jason, than what you and I discussed when you were here a couple of months ago. It's just reinforcing on the positive side and the near-term numbers are poorer than expected.

Thank you. And our next question comes from Brent Bracelin from Pacific Crest. Please go ahead.

Thank you. A couple questions, if I could. I wanted to go back to the Americas. We haven't seen a falloff like this in the Americas even during the great recession. A pretty meaningful falloff here. I guess it's still unclear to me why it has gotten this much worse this quarter, specifically and I know the Americas has been under re-org for the last year, even talking about this re-org and improvements and changes in the Americas. So do you think this is all self-inflicted? Or have you evaluated the market in the Americas and is their other competitive factors also weighing in on the poor performance here in the quarter, tied to the Americas slowdown?

I would say, look, there's a lot of forces that impact our business competitively but on the near-term results, I would say 90% of this or 95% is self-inflicted this time. Yes, we have been talking about the changes in the Americas on the leadership side, but all the structural changes, bringing the new leaders in some of these different regions, bringing those guys on board, we are organizing all the territories, realigning the channel overlays, bringing in new channel management, that all happened in the June quarter. And everybody was going to -- we were working through that stuff in the March quarter, but it was actually executed in the June quarter. And my view this time, as difficult as this was, I think the team did a really good job in executing it. It was just difficult and it had near-term disruption. The flip side of that is now that things are settling down, we are seeing just about the opposite in the funnel inflow on large deals and the numbers are extremely significant. But it's a months worth. It's not a trend yet. But it wasn't a little turn, it was pretty significant. So I think the near-term results were clearly to me, -- and the other thing is and we are not hiring, so we had relatively weak funnel, so we knew we needed a relatively high close rate on the large deals. And we didn't get that. So my own feeling right now is, getting this behind us was, I call it, the critical element of making this turn along with all of things we are doing in pricing and packaging. So having that behind us was critical to get that done. And now we are finishing up getting capacity in place, which we basically…

Fair enough.

To be really clear, what we are counting for the next two quarters is the things we already have in place in product and adding sales capacity. In addition to that, the things we are doing for our next-generation platform and our new alliances and our healthcare initiatives, those are all additive. But our forecast did not include a lot of revenue from those new initiatives until FY 2017. So that's why we think we are in pretty good shape here.

Fair enough. And then just my last follow-up here, Al or Bob, your plan sounds like you are increasing the odds of pulling off the turn. If I look at profits down 70% year-over-year this quarter, stock has been cut in half over the last couple of years, if you are confident in CommVault Next, why not get more aggressive with your balance sheet? You have over $400 million in cash and investments. If you are confident, why not reinvestment in your own stock and buy back stock? What's the disconnect there between your improving confidence and odds of a turn and having $100 million authorized buyback, but not necessarily reinvesting in your own strategy?

I won't talk to you about my personal intentions, but from a company standpoint, the trade-off in the things that we are having a lot difficulty with here is that as we expand the platform and as we start to move into areas like business analytics, there is clearly opportunity on the acquisition side to strengthen the company. And we are likely to make a very small investment over the next quarter, which would be the first one. My own feeling is the odds of that happening, because I think we are in a really unique position here, are really high. So the issue is, to strengthen your -- do you do a buyback to get some near-term kick or do you keep your powder dry from some very significant strategic investments we can make to increase shareholder value, so that is the issue. My own gut, my own feeling here is that for shareholders and I am obviously one of the largest ones, over the longer-term and we have taken a long-term view and it looks like it is going to payoff for us, that those bets are going to add more value to shareholders than a quick hit on a buyback. But we are still evaluating that. So it's not to say we won't do some, but clearly I can tell you that we want keep enough of our powder dry for future, because I think this thing is going to work. So there is your trade-off.

Thank you. Our next question comes from Abhey Lamba from Mizuho Securities. Please go ahead.

Yes. Thanks. So Bob, speaking of this maintenance price realignment, what percent of your clients have already been realigned? And how much longer will it take for the rest to get on the new pricing structure?

A small percent of very large customers have been aligned. Some of the smaller customers at the low-end of the market have been aligned. And this is something we are anticipating doing later on in the fall. There will be a broader alignment. So the likelihood is that you will have, as Brian mentioned, some impact on maintenance, but there is a reasonably good potential upside on the license revenue side, as we get this aligned globally. So we thought our way through it. And net net, it should be a positive for the company. But it will be a broader -- and we would we understand what the financial trade-offs here are and I think we have thought this thing quite well and will try and execute it this fall.

Got it. And what percent of your overall revenues are re-occurring and as you are realigning some of these contracts, what type of dollar-over-dollar uptick or flatness, what are you seeing in those shorter contract terms?

On a per dollar, it's been pretty flat, because what we are doing is getting the maintenance aligned and providing other areas of value to the customers. So the cash flow from these activities has been pretty steady. In other words, we haven't seen a decrease in cash flow, but we have seen a difference in how that cash flow comes in, whether it's from services or from a license revenue versus maintenance, in terms of getting these major contracts realigned.

Thank you. And our next question comes from Aaron Rakers from Stifel. Please go ahead.

Yes. Thanks. Two questions, if I can. So first question, I want to go back to the hiring trajectory and some of the attrition that you are dealing with within the company. If we were to gauge the success of this transformation over the next couple of quarters, what should we be thinking about in terms of the growth of your sales capacity or rather, maybe the metric you gave us in headcount additions over the next couple of quarters? And I do have a follow-up.

We haven't discussed this, but I can -- just round numbers, Aaron. If we going to grow and these numbers may sound a little silly, but I will use them as an example. If we were going to grow the Americas 30%, we are going to have to add a net steady 30% increase in sales capacity, round numbers. And if you look at the amount of between not hiring and attrition, we have dig ourselves, in the Americas, a really big hole and we are filling up that hole fast. On a percentage basis, we have probably filled up 60% of it to-date and should fill up the other 40% within the next four or five weeks. So the Americas, from a capacity standpoint, should be in a lot better shape. We did a much better job of aligning territories so they are more efficient, providing distribution leverage to the guys, giving them sales comp gains that are better and now I have products that are a lot better aligned with the market plus our next generation coming out. And we have a much better stronger management structure on top of all that. So the odds are now that we will have capacity, that we will have improvements in attrition and we will have improved sales productivity on top of that capacity. You start putting that together, when you are asking those questions, Aaron, it's how we are tracking on, did we fill all those spots, do we have full capacity and I am talking about Americas, primarily, has attrition slowed, are we getting the productivity advances we need from these teams. Because if you just add along with the Americas, you have got your turn. And by the way, we are seeing much better outlook for EMEA and APAC for that matter by the way as we move forward here. So these are elements of your turn. And you put these strategic leverage on the platform on top of that and you can start to build on it. So those are things you should look for.

Okay. And as a follow-up, if you could talk a bit about the strategic elements? I think you your prepared comments you made some comments around new strategic alliances and some of which could be announced by the end of this quarter. In that, can you talk a little bit about your relationship with Microsoft? And whether you see that deepening? Whether or not Version 11 deepens that further? Just an update on that relationship would be helpful.

Clearly, we are doing more and more with Microsoft at the corporate level and in the channel. And we have got already, we have spun up with -- they are bringing us into a lot of their major accounts to solve the problem I talked about earlier. They have got Azure and they are managing data in O365 is, which is where they can manage data. Outside O365, they can't. So what we are helping them do is move data. The whole migration play of, I have got data on premise or in remote offices or could be on any kind of devices and how do I index that data, understand what I am going to do with it, put a policy on it and then automatically managed the migration and secure that data either into Azure in general or into O365 and then have our index tied to their index. So now you have got a federated index of all the data in that enterprise. That's really hard to do. So those are things we are working on with Microsoft. That's where they see the value. And that's where the customer see the value. So it's not just all the data management and understanding how do I deal with legal, how do I deal with compliance, how do I deal with collective business analytics, it's also a massive cost savings and being able to use our platform to be a lot more efficient on how that data is managed on premise itself. The data transport the way the next-generation dramatically reduces the cost of transporting data securely and once it's in the cloud, once it's in Azure, we can manage a lot more effectively for cost reduction and all those business related functions as well. So that's what's going on. So it clearly has been a better align and is deepening and has further potential there, is the way I would describe it.

Thank you. And our next question comes from Alex Kurtz from Sterne Agee. Please go ahead.

Yes. Thanks, guys, for taking a couple of questions here. Brian, with the changes in how customers are buying the product whether it's subscription or standalone and I obviously saw the big decline here sequentially in the capacity pricing, is that some of what we are seeing here impacting the revenue? Or is it mostly around execution in Americas and these larger deals And then I have a follow-up.

Yes, Alex, I believe for this past quarter, it's the latter. We saw good results from our standalone solution sets. We also saw a drag of additional software products. We are pleased with that. We saw very good growth, but this past quarter came down to close rates on large deals in particular and that was largely focused in the Americas.

And, Bob, just thinking about the next couple quarters, just on this last point here from Brian, what's the expectation of large deal execution and the guidance for the remainder of the year? I know we are still dependent on a handful every quarter, but would you say that the guidance you have outlined today minimizes that?

Yes. The guidance we gave minimizes the risk, given the fact that we have a bigger funnel, more capacity. We are building funnel. So the odds are higher, but we want to make sure that the expectations were realistic given our performance last quarter.

The expectation of large deals, more than normal closing, in the next two quarters, that's below seasonal levels as far as how you look at guidance?

I would say that the opportunity in the September quarter is certainly better than it was in the June quarter, clearly. As we get to our internal, what we are trying to achieve for the December and the March quarters, as we look at it from here, there is quite a bit of improvement, but relative to what we need to achieve, we have work to do yet to build those funnels to get them into a position where we are comfortable achieving our December quarter number. What I mentioned and what Brian mentioned is, it's just encouraging that we are on a path that if we keep executing to that path, we will get those funnels built by the end of the quarter to a point where they need to be to execute the December quarter. We are, let's say, in a better shape in terms of our guidance on what Brian gave you in achieving our September quarter objectives than we were going into the June quarter. Truly, there is not one, there is more opportunity until we have got this Americas restructuring behind us, which is a really big deal. And Ron Miller and the team put a massive amount of effort to orchestrate that. It took him, Ron, probably six, seven months of work to think their way through the plan and then getting and executing it. It was just a lot of work. And we had to get that behind us and fortunately it is behind us now.

Thank you. And our next question comes from Brad Zelnick from Jefferies. Please go ahead.

Great. Thanks for taking my question. I have one for Brian and one for Bob. For Brian, just on maintenance renewal rates. I think in the prepared remarks you said they continue to be strong and then we also have the comment about realigning maintenance pricing with market, which sounds like it's really going to hit more in the back half. So just try and reconcile those two statements for us? And in the context, in the past I though you had said the services line, it was either 80% or 85% of that is still maintenance. Can you confirm that that is the case? And with all this together, as we look towards the back half, should we expect maintenance renewal rates, on a dollar basis, to decline?

Thanks, Brad. Good questions. To your point, we did see strong renewal rates. We continue to see that. In fact, if you look at our deferred revenue on a constant currency year-over-year basis, we are up 16% year-over-year, which is all positive. I think the approach we take with customers and also our communications here, we are trying to be proactive with our communication. We have been proactively dealing with our larger enterprise customers, smaller percentage of customers, but large in terms of dollars for the past year and have been very successful in doing so, as Bob alluded to. We have largely maintained a cash neutrality throughout any changes we have done in that segment of the market. But we are talking about our broader programmatic changes that we will get into more details about perhaps on our next earnings call. We do see this happening in the second half of the fiscal year. And yes, it might have suppression on the maintenance revenue in relation to our total revenue, but we believe it's going to be a catalyst which will drive other things like new customer acquisition, new software growth, just overall customer retention. And we think this is the right move for the long-term. So it is baked into our projections for the year and again we are trying to be proactive here with our communications before those changes take effect.

Thanks, Brian. That's helpful. And just, Bob, I ask this very respectfully, but how do you and the Board think about strategic alternatives for the business, because if we look at valuations paid for similar assets, even the market value for Veritas, it would seem there are many other options at this point, even though I appreciate you have made a lot of progress, it would seem that your ability to forecast the business at this point has gotten away from you.

Well, I don't think it has gotten away from us. Our ability to forecast has been through. It was extremely difficult and uncertain, is the way I would describe it, because we went and embarked on this strategy, you are changing every setpoint, product, pricing, market, value prop, your field, your distribution. There isn't a thing that, as we embarked on this, that we weren't changing to align with the changes in the market. So to try to forecast the business when all that is going on and you have got basically no setpoint, is extremely difficult. And obviously, it shows up in some of our numbers. But the fundamentals of what we are doing in this strategy and the validation of that are coming together. For the first time since we started on this thing, we are starting to get our foundation set so that we can execute and be, let's call it, more certain, not like we were when we had a 10-year run, but more certain on our projections and if we have few more quarters of this and we get this models set then we can be a lot more predictive. So assuming that the management team here and including myself personally, in terms of driving the business is to stay the course and have discussions with you guys on a quarterly basis, because we think we can drive a significant amount of shareholder value over the next 12 months. So we think that is where the value is for the shareholders and that's where we are focused.

Thanks for taking my questions.

Thank you. And our next question comes from Michael Turits from Raymond James. Please go ahead.

Hi guys. One question for Brian and then for Bob. So Brian, this quarter you had good sequential growth in services. How much of that was professional services that drove the upside? And then as we look into the next couple quarters, do you expect that we should see sequential growth in services? And what kind of level, I know you said less than software, but you have seen declines in that line sequentially in the past, so I just wanted to make sure they are increasing? And then I have got a question for Bob.

Sure. So Michael just with respect to the overall distribution or mix between maintenance and support and professional services revenue, it was about the same as it has been historically. So there's no change there. And yes, we did not see some sequential growth, especially on a year-over-year constant currency basis. We saw good growth. Moving forward, it's built into our projections. Overall revenues are expected to be flat to slightly down for the full year. I would expect services to be more flat than anything else for the remainder of the year.

Flat on a year-over-year basis or quarter-over-quarter?

Just quarter-on-quarter basis.

So flat services basically going forward from here, quarter-over-quarter?

Yes. Flat, maybe slightly up.

Okay. And then, Bob, I know we have been through a lot of big picture stuff, but if we had to just really summarize it, you talked about changes in the market, can we really narrow it down in a concise way to what you think the real major changes have been in the market?

Certainly. To me, going on the big change has than the cloud on both sides particularly the impact of the public clouds. I am talking about Microsoft and AWS. Bar none, that has been the biggest catalyst to change. And then you have got in the enterprise, we got the move to your private cloud based on open infrastructures, whether it is OpenStack or stack, those both types. Those are your big changes. And then you start to look at the value of software like CommVault and what problems are you trying to solve with that value. And if you look at what we did, I am just going to exaggerate the point, but if you look at the platform we have built and you look the old backup, take a copy that's written on a primary layer and we grab it, index it and we put it away somewhere in case something happened. I am keeping this really simple. That model started to break a while ago. Now you add the cloud to this and you say, well, what kind of values are you delivering to the market? What's the strategic value of the platform? And clearly to me, if you look at it longer term, I am talking 20 products coming in and solving a cloud problem, which we do by the way. We do all things really well, but the underlying strategic value, as you have is massive move to the cloud, it's not just data that's moving up. They have data and applications and you look at the enterprise and how do, I had this discussion with a CTO of one of our top five corporations in the world here last week, as he is moving his apps and as he has got data all over…

Thank you. And our next question comes from Andrew Nowinski from Piper Jaffray. Please go ahead.

All right. Good morning. So just, it looks like your funnel is improving. But are you assuming any change in your current close rates? And if so, what are you doing to improve those close rates?

For the quarter, we are assuming a slight uptick in improvement in the close rate, mainly due to where these deals are and the added stability in the Americas. In the Americas, it's been the major issue. It's just set many things down. And now the team can go through a regular scrutiny of these larger deals, which is by the way been enhanced with -- we have made a lot of changes in terms of how we manage deals and overlays and all that, but the fundamental thing is just getting the organization, getting the capacity in place and getting stability. The other thing is, some of these deals are likely to come in a little bit earlier in the quarter than the current last quarter and they are relatively large, meaning I am talking about million or multimillion dollar deals that certainly help in the process.

Sure. Okay. And then you said you are increasing your hiring which not only should help with capacity, but I am just wondering if you know what triggered the uptick in attrition this quarter? And if there's anything you can do to slow the attrition rather than hiring more sales people which usually takes about 12 months to reach full productivity?

That's a good point. Some of the attrition, we changed territories. We made a lot of change. And some of our teams just didn't like the change. And some of those people have left or outstanding peoples and we didn't want to lose them, but you are making changes and not everybody is going to like it as much as much as we communicate and everything else. But it certainly exacerbated it last quarter and that was unfortunate. But I think Ron Miller and the team did everything they could in terms of communication. And we have got -- underneath we have done a lot of things to mitigate, I am not going to go through all of them but a lot of things to solidify and mitigate further attrition, whether it's comp plans or other things that we could do to help the teams through this transition. So I am just going to give you the odds. The odds are, well, I know we are going to add a lot more people because we have already done it. And so far the attrition has been better than it was last quarter. And we will see. Well, you can ask me question at the end of this quarter, but if I had to say where the odds are, then my comment would be, we have added a lot of people and attrition is going to be lower than it was in Q1. That's where the trend is right now.

Thank you. And our question comes from Rajesh Ghai from Macquarie. Please go ahead.

Yes. Thanks. Bob, one question on product. In the past you mentioned that standalone products or point products were causing a challenge to you, especially in the mid-market. My question is that with the Veeam launching, they are getting an enterprise product out, it's out there, is that going to impact the enterprise or there's no impact on that side? And secondly, given your old commentary on standalone products, I noticed that your next product cycle is the next product that you are going to launch is going to be a platform product. So I just wanted to understand how you see the enterprise? Are they going to go ahead and keep buying the platform? Or are they going to also going to have to look at the standalone products going forward?

Just the this point. So yes, but launching the new platform this fall, but we are also launching upgraded versions of all our standalone products plus a number of new standalone products. So it's not just the platform. The platform is a story, but we are taking the underlying functionality of that new platform and enhancing our current standalones and adding new ones. So it's not just a platform play. It's a platform plus leverage. And as far as the Veeam and enterprise, Veeam does not have a platform. If you want to talk about enterprise, you can incrementally improve scale, but that's -- and I will let Al take this in the second, but the scale we are talking about is nowhere near where Veeam's talking about here in terms of big enterprise scale. And Al, why don't you frame this further.

Yes. That's accurate, Rajesh. Without getting into all the details, as Bob said, it's hard to do big enterprise scale and operational automation without a platform. I think that's a key part of the element here. And what we are talking about in terms of scale is the number of VMs, the amount of storage, the amount of data, the number of users, how geographically widespread it is, amount of access and all those issues need to be built on a very distributed platform with a lot of operational automation. And to my knowledge, the Veeam folks aren't there yet. And as Bob indicated, it usually starts with architecture we believe in and again it's not to say people can't get there, but usually you may have to start with a different architectural approach. So we feel pretty confident about our enterprise capabilities and we think all the things would be 11 or the next release will be enhanced, particularly as Bob said on the platform side and the operational automation putting all of the data analytics or reporting capabilities or monitoring, alerting, everything built for big size into this environment.

And you are marrying underneath a very sophisticated marriage of, I will it next-generation replication, with very sophisticated indexing, which is extremely hard to do.

Yes. There's a ton of things. Lots of virtualization enhancements, on and offs on your VMs. Very efficient in how they are used and utilized in there. So clearly there's just a number of things.

And the point is, you cannot miss a key point. You can't do all this unless you understand the data. And you can't the data unless you have it all indexed and you have got a single repository for metadata. Can't do it. So we are focused on that part of the market where those things are really important. And the commodity things, I just want to take an image and move it somewhere and then move it back, that commodity. And that's going to -- right now some companies are doing really well that, but that is not a sustainable. A lot of companies are making a lot of money on that right now, but we are thinking long-term here and that we don't think is a long-term sustainable way for this particular company, anyway to drive our business going forward.

Thank you. And our next question comes from Ittai Kidron from Oppenheimer. Please go ahead.

Thanks. Bob, I appreciate all the color. It's been very helpful in understanding what's going on. Through this presentation, you talked about how the model will ultimately change for the company when you emerge from this. Maybe can you give us a little bit more of a forward-looking, let's say a two, three-year out on if you manage to transition through this appropriately to your plans, what is the growth profile of the company? What is the long-term margin profile of the company? Is maintenance ever going to grow the same pace as product again, given the pricing pressure and changes to your product? I am just trying to think about not just the next two three quarters and trying to gauge how you maneuver through the transition, but more about how does the new CommVault look like at the end of the day?

We have modeled it and from a business modeling standpoint, there is no reason this company shouldn't be a relatively high-growth company and let's call that certainly in the mid-to high teens, is reasonable. Since we have been through with this kind of drill a few times, even as we started the company, there is no reason why we can't bring our operating margins back in line to the mid-20s, which we talk about. That is a doable objective. Once you get your license revenue growth event though it will be on different model, your maintenance growth comes back in line to that license revenue growth. So it will take a few years for all that to turn. But that will come back in line. So you will have more services. We didn't talk about this, but our first managed services products that Al has been working on for us, is going to be released this quarter. Those are not in our forecast. But those are cloud-based services where we can manage a customer's operations and we are building those on our own and we are going to make those available to our partners as well. So those are coming to the floor and there is no question in my mind over the long-term we will very selectively take the underlying capabilities of the platform and move into the business analytics side. And we will do this starting in the December quarter. As we move it out, we will do it through services led approaches and we will start building that are selectively and I am sure on the algorithms side of this and in certain verticalizations we will take some vertical positions in that. So there is your model and we have model it out. I can tell you, I have gone through a lot of transitions, but this has been the most comprehensive and certainly the most difficult one I have done and the team has done here, but we are starting to see the light of day finally at the other end of this. So our near-term numbers didn't look pretty, the outlook is starting to look pretty interesting from our view.

Thank you. And our next question comes from the Eric Martinuzzi from Lake Street Capital Markets. Please go ahead.

The vertical exposure here in America, just curious if there was any particular verticals, were there any pockets of strength or was it pretty broad-based weakness? And then other thing I wanted to hear from Brian, I know you have had tough FX comps in the last, the June quarter and March quarter, but refresh my memory, assuming FX doesn't swing too much, when do we start to get some relief there quarter-wise? Thanks.

The weakness was right across the board. It was pretty fundamental and is the term. The weakness fundamental and the July increase in funnel was pretty much across the board as well. Brian?

Yes. So Eric, just with respect to FX, the big move start occurring, I believe in January 2015. So once we hit certainly Q4, I think you will see some more normalized comps on a year-over-year basis. But in terms of our projections, as stated earlier, they assume current FX rates for the remainder of this fiscal year.

Thanks.

Thank you. And our next question comes from Phil Winslow from Credit Suisse. Please go ahead.

Hi. This is Siti Panigrahi, for Phil. Bob, thanks for all the color about transformation in the Americas. But just wondering if you could you talk about the progress you have made outside the Americas?

Well, in general, our EMEA team has been strong. What EMEA is doing is in certain selected areas. They are the strengthening the team. But it in general, they have got a good foundation over there. A lot of work being done in the EMEA, both in channel and the cloud to build that out. So you have got a good solid team there. We have made a change in APAC. We have a new leader coming in there late summer or early fall. That person has been hired and Rick Tyler who ran APAC has come back to focus on our cloud business and our global GSIs, which is another area of distribution, in which we are seeing a pretty good solid pick up on and is an area of focus for us, particularly as we bring the new platform out. So I think both EMEA, as far as the outlook is concerned, EMEA's outlook is right now for the quarter, looks pretty as does APAC on a relative basis. I should mention, sorry. In APAC, we did sign a new agreement with one of our major partners over there. The agreement which was set recently signed to expand distribution, particularly in the, not everybody's favorite subject, but to expand distribution in and around China.

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.