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CommVault Systems, Inc. Posted By : admin
Posted On : Saturday, January 03, 2015
Company Name : CommVault Systems, Inc. Investment Range : Long
Ticker : NASDAQ:CVLT M.Cap.Range : Mid-cap
Country : US Stock Price : 51.55
Description :        

Business Description

CommVault provides data management softwares, specializing in data protection, back up, recovery, archiving, storage optimization etc. under Simpana brand.

Revenue booked under two segments (a) Software segment where company sell licenses to use their software (b) Service segment where company receives a fee from the delivery of customer support and other professional services. CVLT sell its products primarily through their global network of value-added reseller partners, systems integrators, corporate resellers & OEM makers. Their OEM partners include NetApp & Hitachi Data Systems. They also maintain their direct sales force. As of March 2014 they have approx. 20,000 registered customers.

Geographic Scope

  • US Sales - 57% in the FY14
  • Non US Sales - 43% in the FY14

Positives

  • In recent fiscal years, the Company has generated approximately two-thirds of software revenue from their existing customer base. This shows the company’s strong and sticky customer base.
  • Business transformation plan aimed to achieve $1bn revenues
  • Software can fully integrate with wide variety of operating systems, application, devices, protocols etc so customers have flexibility to purchase and deploy hardwares & softwares from different vendors
  • Strong financials with good cash flow generation historically
  • It is costly and time consuming to change data and information management systems so customers are sticky

Negatives

  • Largest customer Dell is compelling its sales team to sell internal product over CVLT products. This resulted in the decline of revenues transacted through Dell. The Dell’s revenue contribution has been declined from $99.2mm (20% of Company’s revenues) in the fiscal 2013 to $87.9mm (15% of Company’s revenue) in the fiscal 2014. The company also expects the revenue contribution from Dell to decline further.
  • Large dependence on larger enterprise deals increases the volatility on quarterly profits
  • Risk of changing technology
  • Reseller partner may push competitor's products if they get a favorable terms

Industry Overview

  • Highly fragmented industry
  • Storage software industry generates about 3.5bn per quarter
  • CVLT's market share is about 4%

Competitors

EMC, IBM, Symantec, Veeam, Actifio, Dells Internal Product

Earnings Growth Driver

  • Increasing need to handle data within organization
  • Increasing regulatory burden puts pressure on corporate to protect and store data
  • Data storage transitioning from central server attached to widely distributed across local & global networked storage systems
  • Demand for 24/7 business continuity leading to more data management need

Valuations     

Valuations might look expensive right now given low FCF Yield. But this might improve and could result in much higher FCF flow.

Summary

  • Strong demand for data management with growing data every day
  • Technology leader with one of the best industry software
  • Stable recurring revenue stream of 50%
  • Currently at 3.5% expected FCF yield which is subdued with increasing sales force investment which impact could be seen in the next few years 
 
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