Computer systems are not meant to be storage attics.
You can't just keep hoarding old data the way your aunt hoards
old magazines and figurines. Eventually, all those data start to
slow things down.
To prevent this from happening, businesses call on data
management and storage firms likeCommVault Systems (
CommVault's Simpana software suite provides backup,
restoration, and archive solutions to customers in the
enterprise, server message block (
) and federal government sectors.
The company is considered a pioneer in data deduplication
technology, which lets users store less data and save money. It's
an important service considering how much more data companies can
store amid the rise in mobile computing.
Demand has been particularly heavy the last couple of years,
helping CommVault string together eight straight quarters of
double-digit sales and earnings growth.
"The key is what you hear all the time from companies: Their
current data management and infrastructure models are broken from
just too much data," CommVault Chief Executive Robert Hammer told
IBD in an interview last month.
Old Ways Too Expensive
"They can't move the data from the front end fast enough,"
Hammer added. "Companies need to meet their compliance or
regulatory requirements, and the old ways of doing that are
getting too expensive."
CommVault competes with companies both large and small for its
business. A couple of the bigger players areDell (
) andEMC (
). Competition is expected to heat up as Dell, a long-time
partner of CommVault, moves into a few of CommVault's specialty
In July, Dell announced a $2.4 billion buyout ofQuest Software
), which makes products that manage databases and provide backup
services. That deal followed Dell's February buyout of AppAssure,
which makes backup software.
Those transactions figure to put Dell into competition with
CommVault in the market for small and midsize customers, watchers
say. But Hammer downplayed the threat during his conversation
"We think (Dell's) products fit a lower segment of the
market," he said. "Most of our focus in working with Dell is in
the enterprise. It's not in the lower end of the (small and
medium-size business) group."
Still, the prospect of increased competition has been a cause
for concern among some CommVault followers in recent months.
Those concerns eased somewhat thanks to CommVault's strong
performance during its first fiscal quarter, which ended in
"A strong Q1 bolsters our view that the competitive landscape
for data management, archive and backup remains fairly limited,
providing CommVault continued room for license growth
outperformance," Sterne Agee analyst Alex Kurtz noted in a report
following CommVault's first-quarter earnings release.
Ironically, CommVault still depends on Dell for a large chunk
of its business. The company's relationship with Dell accounted
for about one-fifth of CommVault's first-quarter revenue.
Total revenue for the quarter climbed 22% from the prior year
to $111.3 million, above consensus estimates for $108.9 million.
The gain was driven in part by an increase in seven-figure deals,
CEO Hammer said.
The government sector was the biggest contributor to Q1
revenue, though the financial services and service-provider
segments are becoming a bigger part of the business. Large
enterprise deals accounted for more than half of CommVault's
"CommVault delivered strong large enterprise deals, directly
addressing market concerns about the company's exposure to IT
head winds for large software deals," Kurtz noted.
Fiscal first-quarter earnings increased 43% to 30 cents a
share, topping views by 7 cents.
"The EPS upside was aided by strong operating margins of 20.3%
in the quarter," noted Brian Freed, analyst at Wunderlich
One area of concern was CommVault's deferred revenue, which is
not recorded on the income statement until services are actually
rendered. Although deferred revenue grew 21.9% year-over-year
during Q1, it was the lowest quarterly gain in three years.
"A further look reveals a $5.6 million sequential decline in
short-term deferred revenue," Freed said. "We note this marks the
company's first sequential decline in short-term deferred revenue
since at least fiscal 2007."
Freed called it a "clean quarter from a headline perspective."
But, he added, "we believe a further look into deferred revenue
and bookings metrics reveals a much less favorable demand
environment than otherwise implied."
There have been worries that IT spending will decline during
the second half of the year. Even if it does, CommVault might not
be as vulnerable as other companies in the data storage and
"Even when things are getting cut back, higher-priority
projects like ours are still being funded," Hammer told IBD. "We
remain a very high priority for spending because you've got to
manage your data. You have to be in compliance. You have got to
protect it and you have to meet regulatory issues."
Although CommVault doesn't issue formal guidance, the company
indicated that it is comfortable with Wall Street's fiscal 2013
outlook for double-digit revenue and operating income growth.
Analysts polled by Thomson Reuters expect full-year earnings
to rise 21% this fiscal year and 13% in fiscal 2014. CommVault's
stock price, which trades near 52, has risen more than 30% since