Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Fiscal Year-End 2019 Commvault Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Jay Whalen, Chief Accounting Officer. Jay, you may begin.

Good morning. Thanks for dialing in today for our fiscal fourth quarter 2019 earnings call. With me on the call are Sanjay Mirchandani, President and Chief Executive Officer; Brian Carolan, Chief Financial Officer; and Al Bunte, Executive Advisor to the CEO. Before we begin, I’d like to remind everyone that the statements made during the 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 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 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 contains in our Annual Report in Form 10-K and in our most recently quarterly report in Form 10-Q, and in other SEC filings, and in the cautionary statement contained in our press release and our website. The company undertakes no responsibility to update the information in the conference call under any circumstance. In addition, the development and timing of any product release, as well as of its features or functionality remain at our sole discretion. Our earnings press release was issued over the Wire services earlier today and it also has 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 on Table IV accompanying the press release and posted on our website. Commvault adopted the new revenue standard ASC 606 on April 1, 2017. Our adoption was done on a retrospective basis, so all prior periods and our financial statements have been adjusted to comply with the new rules. As a result, the growth percentages we will discuss today are on a comparable basis. All references to software revenue are inclusive of dollar amounts or percentages for both software and products revenue as disclosed in our P&L. This conference call is 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 Sanjay. Sanjay?

Thanks, Jay. Good morning, and thank you for joining us today. I’m pleased to be speaking with you on my first conference call as President and CEO, and look forward to getting to know you. Since joining CommVault roughly three months ago, I’ve spent a significant amount of time engaging with our employees and talking with our customers, partners and industry influencers. I wanted to hear their views on the market in general and on CommVault in particular. These conversations have reinforced my confidence in the company and our opportunities. I consistently heard that CommVault has the best technology to protect, manage, and use data. Based on my many conversations, there is an overwhelming support for our company. People want us to win. One of the reasons people are rooting for CommVault is a rich heritage of innovation and customer focus. It has been the core of our success and will continue to differentiate our company in the future. In fact, the more time I spend with the CommVault products team, the more I believe that we can continue to drive the market in innovation and drive customer value for years to come. With that said, I want to make two key points. First, I am not pleased with the results we reported today, which larger reflect lumpiness in a large enterprise business and execution challenges. Second, I strongly believe that our recent performance is not an indication of the opportunity ahead for CommVault. As Brian will discuss shortly, there are solid indicators that we’re moving in the right direction including significant increases in annual contract value, repeatable revenue and earnings per share. However, our performance also shows that we have more work to do to ensure the CommVault reaches its full potential. In fiscal 2020, we will be focused on three key areas: one, simplifying our business operations; two, driving predictable and responsible growth through execution excellence; and three, continuing to innovate at a rapid pace. In my conversations with employees over the past couple of months, it is clear that they also recognize these areas as priorities for the company. They are aligned with this direction and energized by where we are now heading. As part of my listening tour, I met with more than 60% of our employees in my first 60 days. I experienced firsthand that we have an incredibly loyal and smart team that is passionate about solving customer’s heart problems today and in the future. In fact, an unprecedented 94% of employees share the feedback in our recent annual employee survey. So they are engaged and excited about the opportunity ahead. I will discuss each of our three priority areas in greater detail, but first, let me turn it over to Brian to review our Q4 and fiscal year 2019 results. Brian?

Thank you, Sanjay, and good morning, everyone. I’ll now cover some financial highlights for the fourth quarter and full fiscal year 2019. Total revenues in the fourth quarter were $181.4 million, representing a decrease of 2% both sequentially and year-over-year. For the full fiscal year, total revenues were approximately $711 million, representing an increase of 2% over fiscal 2018. As Sanjay mentioned, we believe differential in our revenues compared to expectations reflects two primary factors lower than expected revenues from large enterprise transactions and poor execution with the channel, particularly in the mid market. Large enterprise contracts can take longer to close and associated revenue can be lumpy due to their complexity. Our results are also tempered by our continued shift to more subscription based pricing models. Net income for the quarter was $23.9 million or $0.51 per share based on a diluted weighted average share counts of approximately 47.2 million shares. On a full year basis, EPS was $1.80, a 76% year-over-year increase driven by growth and repeatable revenue and are successful efforts can rightsizing our cost structure. Taking a closer look at Q4 revenue, software and products revenue was $80.8 million, which was down 4% sequentially and 3% year-over-year. Q4 year-over-year software results were flat on a constant currency basis. Revenue from enterprise software deals, which we define as deals over $100,000 represented 70% of software and products revenue for the quarter. Revenue from these transactions was up 13% year-over-year and the number of enterprise revenue transactions increased 2% year-over-year. Our average enterprise deal size was approximately $293,000 during the quarter, up 11% over the prior year. We believe that growth in the volume and size of our enterprise contracts underscores the value of that these enterprise customers see in CommVault’s innovation. And it is why we’re so…

Thank you, Brian. Throughout fiscal year 2019, the team worked hard to help our customers protect, manage and use data in their hybrid and multi-cloud environments, while also making significant progress both operationally and organizationally. This has enabled us to drive more repeatable revenue, which is up 14% year-over-year, right sized our cost structure with over $60 million of annualized cost reductions and continue to return cash to our shareholders as evidenced by a share buybacks. We’ve taken important foundational steps on our journey as a company and while we’re seeing early signs of progress, work remains. As Brian indicated, I look forward to sharing a more in-depth strategy discussion on our next earnings call. That set, as I referenced earlier, in fiscal year 2020, we are focused on making significant improvements in three key areas: one, simplifying our business operations, this is pivotal; two, driving predictable and responsible growth through execution excellence; and three, continuing to innovate at a rapid pace. I am raising the bar as I know we can do better. Let me start with simplifying our business operations. While last year’s operational improvements helped, there is more we can do to simplify processes, remove complexity and make it easier to work with us. Ultimately, we need to evolve from operational efficiency to driving true operational excellence. Accordingly in the last few weeks, we’ve made several changes to further improve our performance and ensure we have the right people in place to deliver on our strategy. We work to ensure the leadership team and I are much closer to our customers by realigning our field and partner teams globally, flattening our organization by eliminating the Chief Operating Officer role and recalibrating our partner organization. Also, as Brian mentioned, we’re actively recruiting our new Chief Revenue Officer. In…

Thank you. [Operator Instructions] Thank you. Our first question comes from Joel Fishbein with BTIG. Your line is now open.

Thank you. Good morning. I just wanted – Sanjay, I just wanted to ask when you were on the road with customers over the past several weeks, what were some of the key takeaways or key themes that came out of your conversations with the customers relative to Commvault and the competitive environment that you’re in?

Sure. Joel, having spent a ton of time in the field – and I’ll start by saying the first thing that was absolutely ubiquitous across every conversation was the appreciation around our road maps and our innovation. Our technology really works for our customers. And as we got into the journey they were on – and truly just about every customer going into multi-cloud and cloud native applications and SaaS applications, the question was, we’re using your stuff today. Please keep on innovating in this to be – so that you can be ready for us. So that was ubiquitous. The areas where we got feedback, which I hope came through in my comments earlier, were really around, can you make it easier to do business with? It’s just – your licensing or your packaging or your engagement models, there’s a little bit you can do there that would make it so much easier for us to do business with. So that’s reflected in the things I’m focused on. And between that and also making sure that our partner ecosystem was wide enough to meet the needs of our customers’ needs – our customers globally. Those are the two things that came through loud and clear.

Thank you.

Thanks, Joel.

Thank you. And our next question comes from Aaron Rakers with Wells Fargo. Your line is now open.

Yes. Thanks for taking the question. And I do have a follow-up as well, but first on the question side. Maybe building on that last comment, we’ve seen Commvault execute on several different kind of transitional elements in the product portfolio and packaging and simplification of kind of go-to-market. And now on this call, you mentioned yet again we’re kind of implementing another layer of kind of go-to-market changes. So Sanjay, I’d love to hear your thoughts on how we as investors should think about the metrics that you’re looking at to call things a success in the changes that you’re now implementing? And when maybe you think that those changes will really start to solidify themselves in terms of the execution side of the story, either be it through the course of this fiscal year? Or is it rather into the next fiscal year?

Yes. So what I’d like to say is that – I mean, you’ve been – you know this last year has been one of a significant transition and it’s across the company, self-imposed. We’ve been out there. We made management changes between the top layers of management across the business. And we’re making – we’ve done some proactive steps to truly move the company to where it needs to be. In addition, I will say to you, having been through a few of these in my career, this is not a perfect science, and so you’ve got to give it some time. There are some early signs of success, and like I said, there are some other pieces – other areas where we have work to do. The success: repeatable revenue up 14% year-on-year, rightsizing our cost structure with over $60 million of annualized savings, continued buybacks. We’re doing some good things in that area and progress is coming through. Areas where – frankly, when I was being talked about this role between Bob, Al and the Board, it was clear that the need – the pressing need was to really commit and make our go-to-market actions world-class, make sure that we’re truly – the packaging of our products, our licensing models, our engagement model with our customers, pivoting to a channel model which is not easy for a company that’s been on a certain way for a long time. All of these – these are – this is heavy lifting and it takes time. As Brian shared, we took a lot of those initiatives earlier last year and we sort of put them under Commvault Advance. I’m just saying that I’m building on that. I’m building on what’s been put into place and I’m focusing on simplification, execution excellence and absolutely stepping on the gas when it comes to more innovation. That’s how I’m thinking about it. In the next call, I’m hoping to share more on the strategy with you and obviously get feedback.

Very good. And then real quickly on a follow-up question. One of the things in the reported results that you’d see is that the gross margin on the product line has come down quite a bit and obviously that’s a function of kind of the royalty payments and the ramp of HyperScale. So can you talk about how we should think about that product gross margin and how – in that same kind of context, can you characterize what we’ve seen in terms of the ramp of HyperScale given that that’s really importantly competitive against Cohesity and Rubrik in the market? Thank you.

Good morning, Aaron. It’s Brian here. I will take the first part of that. So we were really pleased with the performance of HyperScale and Appliances this part quarter. It was the best quarter ever for those solutions. Yes, it did show up in the form of the gross margin impact. I think that will start normalizing into FY2020 as we get on a more consistent run rate. But we sold our appliance into over 20 different countries this past quarter. So we’re energized with that solution and that product line is taking hold and resonating in the market.

Yes, absolutely. The way I – when I came in and I looked at that – you have to think of HyperScale and what we do differently than our competitors I believe is we give our customers a choice without lock-in. It’s not about you can have it, but you can only have it in the appliance. We give it to you as a reference architecture that we deliver with partners. We give it to you as pure software. Or we give to you as a world-class appliance. The choice is – you can mix and match as a customer any way it fits your environment. So that’s the way I like to think about it. Appliance is one delivery mechanism. And we have done a ton of work in simplifying the product, making it easier to use, really scaling it out. It’s a great product – it’s a great product line.

Perfect, thank you.

Thank you. And our next question comes from Alex Kurtz with KeyBanc. Your line is now open.

Hi, thanks. This is Steve Enders on for Alex. I was just kind of wondering on what you’re seeing on the hybrid cloud initiatives that you guys have been talking about it, and you mentioned that there’s over 400 petabytes being managed in a public cloud in the last quarter. I just kind of wonder what you’re seeing there and what kind of retention rates you’re seeing with those customers and how that changes.

There is an absolute move to not just hybrid cloud, but a true multi-cloud, where customers are actively porting existing applications and then building brand new cloud native applications across this space. In our – at a high level, Steve, we’ve seen workloads have almost doubled or – yes, have doubled over the course of the last year. Conservatively – we are managing today for our customers conservatively over 0.5 exabyte in the cloud, in multi-cloud environments, and it’s growing. And it just reinforces in my opinion the technology that we have today and more or so the direction we’re taking, which we’ll share more about. So this is definitely the direction our solutions between abstract and portability, cloud native workloads, just skills transfer between one environments to the other – I think we are – I know we have the best platform and technology for our customers as they scale towards this new direction.

Okay, thanks. And is there any change there in terms of the retention rate of those customers and how they approach this from a subscription basis from there?

Well, we love the subscription model as you can see from our results, Steve, in terms of the repeatable nature and our growth in ACV and overall repeatable revenue. That’s going to translate into kind of longer term predictable and repeatable revenue for us. So we see the move to the cloud as being a stickier type solution for us. We’re able to span across a multitude of environments, both on-prem and off-prem. It’s resonating really well. So, I mean, everyone is talking cloud, I mean, 90%-plus of our conversations is around that and it’s something that’s going to be meaningful for us moving forward.

Okay, great. Thank you.

Thank you. And our next question comes from Andrew Nowinski with Piper Jaffray. Your line is now open.

Great. Thank you for taking the question. You talked about the lumpiness in large enterprise and I’m just trying to understand whether that means deals in Q4 slipped into Q1 or whether you lost some of those deals in the large enterprise space.

Yes. Hi, Andy, it’s Brian here. Yes, I mean, you saw the numbers. We’re not happy with the close rates as we said on the call. Coming off a major transitional year, the move to subscription becoming more channel focused, we just don’t yet have that predictable run rate business and we’re still reliant upon large deals. We said that on the last call, large enterprise deals was the basis of the Q4 outlook. We don’t like to blame that. We don’t like to blame deal slippage. But you’re always going to have that, doesn’t mean those deals were lost. We’re highly focused on it. Sanjay and I and the senior team have direct line of sight to the sales leaders, we’ve made some near-term tactical adjustments. We have a plan. We understand the importance of getting to a more predictable run rate. However, there were some bright spots, just pivoting off of that for a second. I mean, just we’re pleased with the repeatable revenue, our earnings growth, our free cash flow. So there are some bright spots coming out of Q4.

I just add to that – what Brian said. The good news is, we have a great enterprise space. The bad news is, we have a great enterprise based and would that comes large deals that sometimes move around based on customer needs. And to Brian’s point, we need to build – we have focused on building out a run rate business that – and a mid-market business. So those are focus areas for us.

Okay, thanks. And then I understand the subscription business will give you more visibility, but I’m wondering, if you could talk about some of the changes and the simplification changes you’re making are going to help and how they’re going to address this large enterprise lumpiness issue. Because this has been an ongoing problem, I think for Commvault for the last decade. And so it’s hard – I know it’s a hard problem to fix.

Those two areas at least in the enterprise side that I’ll touch on. Appointing Gary as our VP of Business Operations gives us the intelligence of the pipeline, the rigor around really managing the funnel. And we have a centralized capability that were rapidly rolling off the field, but also doing analytics. We’re doing all kinds of other capabilities around the technology and the intelligence. So we do a better job surrounding that. The other piece is having Tom Broderick come in as our VP of Strategy and Business Readiness, which really make sure that our go-to-market machinery, our go-to-market capabilities are world-class and predictable. Both of these working together with early move to getting up quotas, our territories and our commission plans all set and I will just help the enterprise get far more predictable as we grow. Support that with a channel – a better run rate channel play as well as our mid-market work, I think, over time you will see that give us the smoothness, if you would, on our predictions. I don’t know.

All right, thank you.

Thank you. And our next question comes from John DiFucci with Jefferies. Your line is now open.

Hey, guys. This is Joe on for John. Thanks for the question. I appreciate all the color and understand you’re not giving long-term guidance, but has anything fundamentally changed in the market competitively. Or do you think you can kind of get back to that 10%-ish revenue growth and 25% operating margins that you announced with Commvault Events?

Joe, again, I’m just going to say, I can’t get ahead of myself. I’m extremely bullish on our technology. I’m extremely bullish on the hard problems we solve of our customers, the place for our customers are ahead with multi-cloud. I think, as a company, as a product company, we have the best technology in the business and our approach is second to none. We’ve just got to get – sharpen our pencil on how we do things, i.e., the execution excellence and the simplification and we’re squarely focused on it. So you just got to give me a little more time to get back to you guys with the call.

And Joe, just another point on that, I think we demonstrated our ability to drive cost efficiencies. Now we want to shift the focus to more predictable and responsible growth. We’re starting from a great position with the strength of technology. We need to focus on making it easier for our customers and partners to buy CommVault and we’re confident that we can do that.

Awesome. And then, Brian, just a quick follow-up. I think you said that results were tempered by the repeatable revenue, but I think you had guided to 70% for the year two quarters ago. So was that just kind of a trajectory for the company as a whole comment. Or was that for like in the quarter results were tempered slightly by…

Yes, I would say that, it’s mostly the in of quarter number. It ended up being repeatable revenue was 71%. Software and products revenue was a meaningful percentage for us in terms of being subscription related. It was the high watermark for the year in Q4 and therefore that drove that.

Okay. Thanks guys.

Thank you. And our next question comes from Eric Martinuzzi with Lake Street. Your line is now open.

Yes. Just wanted to focus on the cost side. As you look out to Q1, we finished 2019 – fiscal 2019 with head count to 2,559. Where is that, at least in the near-term? Are we still optimizing the head count or are we pretty much where we needed to be?

Well, it’s something we take seriously in terms of just the overall headcount and the management of that. I mean it’s something that we – last year, we undertook a series of actions. I think, most of that heavy lifting is behind us. We’re focused more on just operational efficiencies this year. That’s the most important thing and focused on growth, especially at the top line.

So you wouldn’t expect much change in the head count.

That’s not an expectation.

Okay. And then just to follow-up, related to the addition of your – whoever that new Chief Revenue Officer is. Obviously, you’ve entered a year here, where you needed to have quotas and territories set up for your existing sales management and sales reps. Is there a chance to new CRO may come in and put his or her own stamp on what those quotas and territories are, in other words, a mid-year of course correction.

I’m hoping that whoever comes in has an opinion and how we do things. But needless dimension, I’ve been personally involved with our theater leaders as is Gary Merrill, our new VP of Operations. We’ve personally been working as a unit to make sure these things are well understood, well structured and well on their way. So not we haven’t held anything back and we’re well on our way. So I’m sure the new person will have an opinion, but we’ll obviously do that responsibly.

Thanks for taking my questions.

Thank you. And our final question comes from Erik Suppiger with JMP. Your line is now open.

Yes. Thanks for taking the question. Just on seasonality, would you say that you were surprised by the seasonal weakness in the March quarter? And what was the linearity, how did you exit, what kind of demand did you see exiting the quarter?

So, I mean, we’re not happy. That’s I said that on the call, Sanjay said it as well. We’re not happy with the close rates. They did come down for the large deals. It doesn’t mean all those are lost, some of those do always move into the next quarter into Q1. Linearity, yes, it was fairly typical backend loaded fiscal year for us, that showed up in the DSO number itself. But that’s not an indication there’s any underlying quality issues there, but it was a fairly typical linearity quarter for us.

Very good, thank you.

Thank you. Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program and you may all disconnect. Everyone have a great day.