UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 20202023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-33026
Commvault Systems, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 22-3447504 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
1 Commvault Way
Tinton Falls,, New Jersey
07724
(Address of principal executive offices)
(732) 870-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, $0.01 par value | CVLT | The | ||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by the Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer,” "smaller reporting company" and “emerging growth company” in rule 12b-2 of the Exchange Act.
| Large accelerated filer | þ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||||||||||
| Emerging growth company | ☐ | ||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act o¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements ¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
As of September 30, 2019,2022, the last business day of the Registrant’sregistrant’s most recently completed second fiscal quarter; the aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant (based upon the closing price of the common stock as reported by The NASDAQNasdaq Stock Market) was approximately $2.0$2.3 billion.
As of May 14, 2020,3, 2023, there were 46,170,35043,973,836 shares of the registrant’s common stock ($0.01 par value) outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Part III (Items 10, 11, 12, 13 and 14) is incorporated by reference to portions of the registrant’s definitive Proxy Statement for its 20202023 Annual Meeting of Stockholders (the “Proxy Statement”), which is expected to be filed not later than 120 days after the registrant’s fiscal year ended March 31, 2020.2023. Except as expressly incorporated by reference, the Proxy Statement shall not be deemed to be part of this report on Form 10-K.
COMMVAULT SYSTEMS, INC.
FORM 10-K
FISCAL YEAR ENDED MARCH 31, 20202023
TABLE OF CONTENTS
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| PART I | ||||||||
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| Item 4. | ||||||||
| PART II | ||||||||
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| Item 7. | ||||||||
| Item 7A. | ||||||||
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| Item 9. | ||||||||
| Item 9A. | ||||||||
| Item 9B. | ||||||||
| Item 9C. | ||||||||
| PART III | ||||||||
| Item 10. | ||||||||
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| Item 12. | ||||||||
| Item 13. | ||||||||
| Item 14. | ||||||||
| PART IV | ||||||||
| Item 15. | ||||||||
| Item 16. | ||||||||
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FORWARD-LOOKING STATEMENTS
The discussion throughout this Annual Report on Form 10-K contains forward-looking statements. In some cases, you can identify these statements by our use of forward-looking words such as “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” “potential,” “project,” “intend,” “could”“could,” “feel” or similar expressions. In particular, statements regarding our plans, strategies, prospects and expectations regarding our business are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). You should be aware that these statements and any other forward-looking statements in this document reflect only our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Many of these risks, uncertainties and assumptions are beyond our control and may cause actual results and performance to differ materially from our expectations. Important factors that could cause our actual results to be materially different from our expectations include the risks and uncertainties set forth under the heading “Risk Factors.” Accordingly, you should not place undue reliance on the forward-looking statements contained in this Annual Report on Form 10-K. These forward-looking statements speak only as of the date on which the statements were made. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
References in this Annual Report on Form 10-K to "Commvault," the "Company", "we," "our" or "us" refer to Commvault Systems, Inc., including as the context requires, its direct and indirect subsidiaries.
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PART I
| Item 1. | Business | ||||
Company Overview
Incorporated in Delaware in 1996, Commvault isSystems, Inc. provides its customers with a leading provider of data protection platform that helps them secure, defend and information managementrecover their most precious asset, their data. We provide these products and services for their data across the following environments: on-premises, hybrid, or multi-cloud. Our data protection offerings are delivered via self-managed software, applicationssoftware-as-a-service (SaaS), integrated appliances, or managed by partners. Customers use our technology to protect themselves from threats like ransomware and related services. Commvault was incorporatedrecover their data efficiently.
We believe in 1996 assolving hard problems for our customers by enabling them to accelerate their digital transformation and protect their data in a Delaware corporation. The Commvault softwaredifficult world. Our platform is an enterprise level, intelligentdrives automation, reduces complexity, reigns in data management solution, built from the ground up onfragmentation, and helps accelerate a single platform and unified code base. All software functionality shares the same back-end technologies to deliver the benefits ofcustomer’s cloud journey with a holistic approach to protecting, managing, and accessingsecuring data. The software addresses manyOur comprehensive solutions address the critical aspects of storagemodern data protection, from data security to data recovery, data governance and data managementcompliance, in a flexible and scalable platform. We believe our technology and service offerings provide the broadest set of capabilities in the enterprise, while providing scalability and control of data and information. We also provide our customers with a broad range of professional services that are delivered by our worldwide support and field operations.
Products
Commvault helps customers protect and manage their enterprise data throughout its lifecycle, from the mobile worker to the remote office, to the data center, covering the leading operating systems, relational databases, virtualized environments and applications. In addition to addressing today’s data and information management challenges, our customers can realize lower capital costs through more efficient usein a hybrid multi-cloud environment. Commvault delivers a portfolio of their enterprise-wide storage infrastructure assets. This includes the automated movement of data from higher cost to lower cost storage devices, including cloud storage, and through sharing and better utilization of storage resources across the enterprise. We can also provide our customers with reduced operating costs through a variety of methods, including fast application deployment, reduced training time, lower cost of storage media consumables, proactive monitoring and analysis, and lower administrative overhead.
Commvault's platform is managed through a single pane of glass called the Commvault Command Center. The Command Center provides configuration values and streamlined procedures for data protection and recovery tasks. Customers use the Command Center to establish their data protection environment, identify content to be protected, and initiate and monitor backups and restores. The main navigation pane provides customers with or furnishedeasy access to various components including downloads, forms, analytics, and monitoring. The Command Center provides a controlled foundation for self-service, helping to reduce the U.S. Securitiesload on administrators and Exchange CommissionIT support staff.
Data Recovery
Commvault Backup and Recovery ("SEC"CBR") including: our Annual Reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, our proxy statements relatedis designed to our annual stockholders’ meetingsmeet the needs of any size business protecting workloads across all locations: hybrid environments including on-premise and any amendmentmultiple cloud providers; physical servers; virtual machines; applications and databases; endpoint devices; cloud applications and more. CBR provides backup, verifiable recovery and cost-optimized cloud workload mobility, helping to those reports or statements filed or furnished pursuantensure data availability and granular recovery, even across multiple clouds. Our simplified backup and recovery solution allows customers to Section 13(a) or 15(d)protect all workloads – cloud, virtual machines ("VMs"), containers, applications, databases and endpoints – from the Command Center.
Commvault Disaster Recovery (“CDR”) provides an easy-to-use replication and disaster recovery solution from a single extensible platform, all managed through the Command Center. Commvault’s standalone disaster recovery solution is both easy to implement and cost-effective. It provides recovery orchestration and recovery validation for enterprise workloads across on-premise and leading clouds.
Commvault Complete Data Protection is a comprehensive, easy-to-use data protection solution that combines CBR with CDR. It delivers backup, replication, and disaster recovery for all workloads, on-premises, in the cloud, across multiple clouds, and in hybrid environments. It provides trusted recovery of the Securities Exchange Actdata and applications, virtual machines, and containers, along with verifiable recoverability of 1934, as amended. All such filings are available on the Investors Relations portion of our web site free of charge. The contents of our web site are not incorporated by reference into this Form 10-K or in any other report, statement or document we filereplicas, cost-optimized cloud data mobility, security and resilient ransomware protection.
Metallic Data Protection as-a-service (“Metallic”) delivers data protection technology with the SEC.simplicity and agility of SaaS, getting companies up and running to protect critical business data within minutes. Powered by
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Data Compliance & Governance
Commvault's Data Insights portfolio is an integrated family of solutions for actionable insights, combining Commvault Data Governance, Commvault File Storage Optimization, and Commvault eDiscovery and Compliance. These solutions can operate independent of Commvault Complete Data Protection or as part of a combined solution to maximize data protection capabilities for any business. This means that customers can gain insights to data that isn’t protected by Commvault to drive analytics and other tasks.
Data Storage
Hyperscale X
Commvault HyperScale X is an intuitive, easy-to-deploy and scale-out, integrated data protection solution to help enterprises transition from legacy scale-up infrastructures. It provides security and resiliency to accelerate an organization’s digital transformation journey as they move to hybrid cloud, container and virtualized environments. Its flexible architecture allows customers to get up, run quickly and scale. HyperScale X technology accelerates hybrid cloud adoption with an integrated solution that delivers comprehensive data protection for all workloads, including containers, VMs and databases, from a single, extensible platform. With HyperScale X, customers can leverage the growth ofentire Commvault portfolio giving them access to all the features, functions, and industry leading integration with applications, databases, public cloud environments, hypervisors, operating systems, NAS systems and primary storage arrays, wherever the data resides. It is available in two form factors giving customers the flexibility to choose an implementation based on specific needs and information management software industrypreferences:
•Commvault HyperScale X Appliance: A fully integrated data protection appliance that streamlines operations and infrastructure and is ideally suited for smaller deployments that want the simplicity of an all-in-one integrated appliance from a single vendor.
•Commvault HyperScale X Reference Architecture: Our pre-validated designs for popular server platforms provides greater flexibility and allows customers to leverage existing vendor relationships and is ideally suited for larger environments that require greater scale.
Metallic Recovery Reserve
Metallic Recovery Reserve ("MRR") is the rapid growth of data, coupled with the need“easy button” to reliably protectadopt secure and quickly access that data, while maintaining the ability to effectively manage the emerging regulations around compliance and e-discovery.
Data Security
Leveraging patented deception technology, Metallic ThreatWise combines sophisticated early warning and early action with comprehensive data protection. It enables businesses of data, the pervasive use of distributed critical enterprise software applications, the decrease in disk cost,every size to neutralize attacks before they cause harm; detecting and the demand for 24/7 business continuity.diverting zero-day attacks that evade conventional detection technology and circumvent security controls.
Professional & Customer Support Services
Commvault Software Solutions
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Our customer support services consist of:
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support database allowingfor help with troubleshooting and operational questions. Innovative use of web-based diagnostic tools provides problem analysis and resolution. Our solution design is also an important
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element in our comprehensive customer support, including “summary of findings” problem analysis, intelligent alerting and troubleshooting assistance.
•Broad Expertise. Our support engineers have extensive knowledge of complex applications, servers and networks. We proactively take ownership of the customer’s problem. We have also developed and maintain a knowledge library of storage systems and software products to further enable our support organization to quickly and effectively resolve customer problems.
•Global Operations. We offer our global customer support from physical locations around the world, which allows us to provide 24/7 support. Our cloud-based support system creates a virtual global support center combining these locations to allow for the fastest possible resolution times for customer incidents. We have designed our support infrastructure to be able to scale with the increasing globalization of our customers.
•Customer Success Options. We offer various enhanced Customer Success options including the Enterprise Success Program ("ESP") and Metallic Customer Success. Our ESP provides industry experts who provide strategic guidance and technical advice, alongside Success Account Managers, who are all focused on proactively helping our enterprise customers to analyze problems without engaging ourachieve their goals and are aligned to their business initiatives. The entire program is centered around driving customer adoption, customer satisfaction and quick time to value.
•Technology Consulting Services. Our technical support personnel.
•Ransomware Recovery Services. Commvault Readiness Solutions provide the resources and expertise to quickly accelerate returning to normal business operations through the proper design, implementation, administration, and support of our customers' data protection environment.
•Education Services. We offer training content for learners at all levels, with basic, intermediate, and expert certifications available. We also provide a selection of self-paced online content for our products in our On-Demand Learning Library.
•Remote Managed Services. The Commvault Remote Managed Services offering complements our software and SaaS platforms, providing results-oriented data protection to customers worldwide. Commvault experts can install, configure, personalizeprovide secure, reliable, and validate that environment socost-effective remote monitoring and management of our customers' data protection environment.
Customers
Our current customer base spans thousands of organizations across a variety of sizes, including large global enterprise companies, and small or mid-sized businesses and government agencies. We support customers can achievein a better return on investment, fasterrange of industries, including banking, insurance and with more confidence.
financial services, government, healthcare, pharmaceuticals and medical services, technology, legal, manufacturing, utilities and energy.
Strategic Relationships
An important element of Commvault’s strategy is to establish relationships with third partiespartnerships that assist us in developing,support development, marketing, selling and implementingimplementation of our software and services.technology solutions. We believe that strategic and technology-based relationships with industry leaders are fundamental to our success. We have forged numerous relationships with software application, hardware and hardwarecloud vendors to enhance our combined capabilities and to create the optimal combination of data and information management applications. ThisWe believe this approach enhances our ability to expand our product offerings and customer base and to enter new markets. We have established the following types of strategic relationships:
Alliance and Technology Alliance Partners. We maintain strategic product and technology relationships with major industry leaders to ensure that our software applicationsproducts are integrated with, supported by and add value to our partners’ hardware and software products.portfolios. Collaboration with these market leaders allows us to provide applications that enable our customers to improve data and information management efficiency. Our significant strategic relationships include Atos, Cisco, Citrix, Fujitsu, Hewlett Packard Enterprise ("HPE"), Microsoft, Oracle, SAP, Netapp, AWS and VMware. In addition to these relationships, weWe also maintain relationships with a broad range of industry operating system, application and infrastructure vendors to verify and demonstrate the interoperability of our software applicationsportfolio with their equipment and technologies.
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Distributors, Value-Added Reseller, Systems Integrator, Corporate Reseller and Original Equipment Manufacturer Relationships. Our corporatenetwork of resellers bundle or sell our software applicationssolutions together with their own products, and our value-added resellers resell our software applicationssolutions independently. As of March 31, 2020, we had more than 500 reseller partners and systems integrators that have distributed our software worldwide.
In order to broaden our market coverage, we work closely with our Global Original Equipment Manufacturerglobal original equipment manufacturer ("OEM") Partners,partners, investing significant time and resources to deliver unique, joint solutions incorporating Commvault software.solutions. These partners team with our technical, engineering, marketing and sales force on helping to enhance integration, tuning, operational management, implementation and vision for solutions that are designed to meet current and future data and information managementprotection needs. Our alliance managers work directly with Globalglobal OEM Partnerspartners to design, deliver and support field activities that make it easier for customers to locate, learn about, and purchase these differentiated solutions. Our most significant OEM partner is Hitachi Vantara ("Hitachi"). Hitachi has no obligation to recommend or offer our software applications exclusively or at all, and they have no minimum sales requirements and can terminate our relationship at any time. Sales through our original equipment manufacturer agreement, accounted for 10% of our total revenues in fiscal 2020 and 11% of our total revenues for fiscal 2019.
Additionally, we have a non-exclusive distribution agreement covering our North American commercial markets and our U.S. Federal Government markets with Arrow Enterprise Computing Solutions, Inc. ("Arrow"), a subsidiary of Arrow Electronics, Inc. Pursuant to this distribution agreement, Arrow's primary role is to enable a more efficient and effective distribution channel for our products and services by managing our reseller partners and leveraging their own industry experience. Sales generated through our distribution agreement with Arrow accounted for approximately 37% of our total revenue in both fiscal 20202023 and 38% of our total revenue in fiscal 2019.2022.
Service Provider Partners. Our software issolutions are the data protection platform for over 200many service providers, which provide cloud-based solutions to client systemscustomers worldwide. As companies of all sizes and markets rapidly adopt cloud infrastructures for improved costs,cost efficiencies, speed and agility, we remain committed to these strategic relationships to address this growing trend. Customers looking to move IT operations intoto the cloud depend on service providers to help them migrate, manage and protect their data and cloud infrastructures. We have partneredpartner with a broad ecosystem of managed service providerproviders and cloud partners so they canto effectively deliver data management-as-a-serviceprotection-as-a-service solutions based on Commvault softwaresolutions across geographies, vertical markets and offerings. Leading providers who have integrated Commvault software into their solution portfolios
Competition
The data protection and replication market is intensely competitive and highly fragmented. The principal competitive factors in our industry include Microsoft Windows Azure, Amazon Web Services ("AWS"), Google Cloud, Dimension Data, NetApp,product functionality, performance, integration, platform coverage, scalability, price, global sales infrastructure, technical support, branding and Rackspace.reputation. The ability of major system vendors to bundle solutions is also a significant competitive factor in our industry.
Sales and Marketing
We sell our data and information management software applications and related servicesprotection solutions to large global enterprises, small and medium sized businesses of all sizes, and government agencies. We sell through our worldwideglobal direct sales force and our global network of distributors, value-added resellers, systems integrators, corporate resellers and OEM partners. As of March 31, 2020, we had 653 employees in sales and marketing located worldwide.partner channels.
We have a variety of marketing programs designed to create brand awareness and market recognition for our product offerings and for sales lead generation. Our marketing efforts include sales campaigns, webinars, active participation at trade shows, technical conferences and technology seminars; advertising; content development and distribution; public relations; social media; industry analyst relations; publication of technical and educational articles in industry journals; sales training; and preparation of competitive analyses. In addition, our strategic partners augment our marketing and sales campaigns through seminars, trade shows, and joint public relations and advertising campaigns. Our customers and strategic partners provide references and recommendations that we often feature in external marketing activities.
Research and Development
Our research and development organization is responsible for the design, development, testing and certification of our data and information management software applications. As of March 31, 2020, we had 615 employees in our research and development group, more than half of which are located in New Jersey.protection solutions. Our engineering efforts support product development across all major
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operating systems, databases, applications, hyperscalers and network storage devices. A substantial amount of our development effort goes into certification, integration and support of our applicationssolutions to ensure interoperability with our strategic partners’ hardware and software products.solutions. We have also made substantial investments in the automation of our product test and quality assurance laboratories.
Technology, Intellectual Property and Proprietary Rights
We believe our solutions are a major differentiator versus our competitors’ portfolios. Our solutions’ unique indexing, cataloging, data movement, media management, AI/ML, and policy technologies are the source of the performance, scale, management, cost of ownership benefits and seamless interoperability inherent in all of our data protection solutions. Additional options enable content search, data encryption and auditing features to support data discovery and compliance. Our success and ability to compete depend on our continued development and protection of our proprietary software and other technologies.solutions. We rely primarily on a combination of trade secret, patent, copyright and trademark laws, as well as contractual provisions, to establish and protect our intellectual property rights.
We providepatent our softwaretechnical infrastructure and key usability and design concepts. Our software’s unique capabilities are covered by a robust portfolio of patents worldwide. Areas such as data protection, security, transformation, insights, and compliance and governance, including our Metallic SaaS and HyperScale X solutions, are core to customers pursuantour competitive advantage. More than 1,350 patents have been issued to license agreements that impose certain restrictions on use. These license agreements are primarily in the form of shrink-wrap or click-wrap licenses, which are not negotiated with or signed by our end-user customers. These measures may afford only limited protectionCommvault globally as a result of our strategic patenting. We also have established proprietary trademark rights in markets across the globe, and Commvault owns hundreds of worldwide trademark registrations and pending registration applications. Refer to our “Risk Factors” below.
Government Regulations
The global legal environment of technology businesses is evolving rapidly and is often unclear. These topics include data privacy and security, pricing, advertising, taxation, economic sanctions, content regulation and intellectual property ownership and proprietary rights associated with our software. infringement.
We also enter into confidentiality agreements with employeesare subject to several local, state, federal and consultants involved in product development. We routinely require our employees, customersforeign laws and potential business partners to enter into confidentiality agreements before we disclose any sensitive aspectsregulations regarding privacy and data protection. Regulators around the world have adopted or proposed limitations on, or requirements regarding, the collection, distribution, use, security and storage of our software, technology or business plans.
People
Commvault aims to unlock potential in foreign countries. If we fail to protect our intellectual property and other proprietary rights, our business could be negatively impacted.
team. As of March 31, 2020,2023, we had 2,5332,779 employees worldwide, of which approximately 44% were in the United States and 56% were located internationally.
We remain committed to providing employees with opportunities and resources that enable them to work successfully and creatively, while also investing in their professional and personal development. Throughout fiscal 2023, our employees participated in over 900 training programs, totaling more than 15,000 hours.
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Diversity, Equity and Inclusion
At Commvault, we believe that diversity is a business imperative at the heart of our human capital management strategy. We not only drive the ability to be a best-in-class data protection organization but also uphold our value in the marketplace by leading as an employer of choice.
We continue to elevate our employee engagement and belonging efforts – which is the foundation of our approach. We have implemented an Employee Resource Group (“ERG”) operating model and have established five ERGs for cross-cultural learning, mentoring and relationship building across employees:
1.CV WIT (Women in Technology)
2.Multi-Culture
3.PRISM (LGBTQ+ & Allies)
4.VALOR (Veterans & Military)
5.CapAbilities (Disability inclusion & Allies)
This year, we expanded our culture of belonging through two additional Employee Affinity Groups ("EAG"), Family Support Network and VAST - Vaulters Advocating Sustainable Technology. Foundational to these engagement initiatives is our Courageous Conversations program designed to foster difficult conversations in an open, safe and respectful manner. This program has become the hub for all diversity, equity and inclusion ("DEI") related conversations, where employees and senior leaders share courageous life experiences related to bias and social injustice. Since its inception, we have hosted powerful sessions, each virtually, reaching our workforce around the globe.
We continue to be committed to securing the best talent with a concerted effort to expound on and build an inclusive and diverse pipeline of candidates. We are committed to providing a clear vision to career progression while investing in the development, creativity and aspirational needs of all employees.
Employee Health, Safety and Wellness
Commvault values its people. A critical part of our corporate culture is the health, safety and wellness of our employees. We take a holistic approach to health and wellness to support the dynamic aspects of our employees’ lives, including 653their physical, social, mental, emotional, and financial well-being. We operate in salesaccordance with applicable safety laws and marketing, 615 in research and development, 912 in customer services and support and 353 in general and administration.procedures to ensure we provide a safe work environment for all.
Information about our Executive Officers
The following table presents information with respect to our executive officers as of May 14, 2020:3, 2023:
| Name | Age | Position | ||||||||||||
| Sanjay Mirchandani | President and Chief Executive Officer | |||||||||||||
| 48 | ||||||||||||||
| Riccardo Di Blasio | ||||||||||||||
Sanjay Mirchandani, has served as our President and Chief Executive Officer since February 2019. Prior to joining Commvault, Mr. Mirchandani served from September 2016 to January 2019 as the Chief Executive Officer of Puppet, Inc. (“Puppet”), an Oregon-based IT automation company. Mr. Mirchandani joined Puppet in May 2016 as President and Chief Operating Officer. Mr. Mirchandani brings a wealth of international business experience through his diverse well-rounded career in technology. Before joining Puppet, from October 2013 to April 2016, Mr. Mirchandani served as Corporate Senior Vice President and General Manager of Asia Pacific and Japan at VMware, Inc. and, from June 2006 to October 2013, Mr. Mirchandani held various senior leadership positions at EMC Corporation, including Chief Information Officer and leader of the Global Centers of Excellence. Prior to that, Mr. Mirchandani held various positions at Microsoft Corporation and Arthur Andersen LLP. Mr. Mirchandani has a Master of Business Administration degree from the University of Pittsburgh and a bachelor’s degree in mathematics from Drew University.
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publicly traded companies. Mr. Merrill began his career with Arthur Anderson LLP in its Technology, Communications and Entertainment audit practice from 1993 until January 2001.practice. Mr. CarolanMerrill obtained his bachelor’s degree in accounting from Villanova University, his master’s degree in business administration from New York University and is a certified public accountant in the State of New Jersey.Elizabethtown College.
Riccardo Di Blasio has served as our Vice President, Chief Revenue Officer since May 2019. Prior to joining Commvault, Mr. Di Blasio led DXC Technology as Global Head of Sales for VMware Cloud Platform Services. Prior to that role, he was Chief Executive Officer at Globetouch, Inc., leading the company growth in the IoT and connected cars industry from January 2017 until April 2018. He also served as Chief Operating Officer at Cohesity from October 2015 until November 2016, where he significantly grew the sales and support organizations while expanding global operations and achieving double digit growth in sales. Previous to those positions, he served in various leadership roles for more than a decade across US and EMEA,Europe, as Senior Vice President of Sales and Marketing at VMware and EMC Corporation.
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| Item 1A. | Risk Factors | ||||
You should consider each of the following factors as well as the other information in this Annual Report in evaluating our business and our prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the following risks actually occur, our business and financial results could be harmed. In that case, the trading price of our common stock could decline. You should also refer to the other information set forth in this Annual Report, including our financial statements and the related notes.
Risks Related to Our Business
Our industry is intensely competitive, and many of our competitors have greater financial, technical and sales and marketing resources and larger installed customer bases, than we do, which could enable them to compete more effectively than we do.
The data protection and information management softwarereplication market is intensely competitive, highly fragmented and characterized by rapidly changing technology and evolving standards, changing customer requirements and frequent new product introductions. Competitors vary in size and in the scope and breadth of the products and services offered. Our primary competitors include Dell-EMC, IBM, Veritas, Veeam, Rubrik and Cohesity.
The principal competitive factors in our industry include product functionality productand integration, platform coverage, ability to scale, price, worldwide sales infrastructure, global technical support, namebrand recognition and reputation. The ability of major system vendors to bundle hardware and software solutions is also a significant competitive factor in our industry. If we are unable to address these factors, our competitive position could weaken and we could experience a decline in revenues that could adversely affect our business.
It is also costly and time-consuming to change data and information management systems. Most of our new customers have installed data and information management software,systems, which gives an incumbent competitor an
advantage in retaining a customer because itthe incumbent already understands the network infrastructure, user demands and information technology needs of the customer, and also because some customers are reluctant to invest the time and money necessary to change vendors.
New competitors entering our markets can have a negative impact on our competitive positioning. In addition, we expect to encounter new competitors as we enter new markets. Furthermore, many of our existing competitors are broadening their operating systems platform coverage. We also expect increased competition from OEMs, including those we partner with, and from systems and network management companies, especially those that have historically focused on the mainframe computer market and have been making acquisitions and broadening their efforts to include data and information management and storageprotection products. We expect that competition will increase as a result of future software industry consolidation. Increased competition could harm our business by causing, among other things, price reductions of our products, reduced profitability and loss of market share.
We rely on indirect sales channels, such as value-added resellers, systems integrators, corporate resellers, distributors, and OEMs, for the distribution of our software applications,solutions, and the failure of these channels to effectively sell our software applicationssolutions could have a material adverse effect on our revenues and results of operations.
We rely significantly on our value-added resellers, systems integrators and corporate resellers, which we collectively refer to as resellers, for the marketing and distribution of our software applications and services. Resellers are our most significant distribution channel. However, our agreements with resellers are generally not exclusive, are generally renewable annually, typically do not contain minimum sales requirements and in many cases may be terminated by either party without cause. Many of our resellers carry software applicationsdata protection solutions that compete with ours. These resellers may give a higher priority to other software applications, including those of our competitors, or may not continue to carry our software applications at all.data protection solutions. If a number of resellers were to discontinue or reduce the sales of our products, or were to promote our competitors’ products in lieu of our own, it could have a material adverse effect on our future revenues. Events or occurrences of this nature could seriously harm our sales and results of operations. If we fail to manage our resellers successfully, there may be conflicts between resellers or they could fail to perform as we anticipate, including required compliance with the terms and obligations of our reseller agreement, either of which could reduce our sales or impact our reputation in the market. In addition, we expect that a portion of our sales growth will depend upon our ability to identify and attract new reseller partners.resellers. Our competitors also use reseller arrangements and may be more successful in attracting reseller partners and could enter into exclusive relationships with resellers that make it difficult to expand our reseller network. Any failure on our part to maintain and/or expand our network of resellers could impair our ability to grow revenues in the future.
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Some of our resellers possess significant resources and advanced technical abilities. These resellers, particularly our corporate resellers may, either independently or jointly with our competitors, develop and market products and related servicessolutions that compete with our offerings. If this were to occur, these resellers might discontinue marketing and distributing our software applications and services.solutions. In addition, these resellers would have an advantage over us when marketing their competing products and related services because of their existing customer relationships. The occurrence of any of these events could have a material adverse effect on our revenues and results of operations.
In addition, we have a non-exclusive distribution agreement covering our North American commercial markets and our U.S. Federal Government market with Arrow. PursuantArrow pursuant to this distribution agreement,which Arrow’s primary role is to enable a more efficient and effective distribution channel for our products and services by managing our reseller partnersresellers and leveraging their own industry experience. Many of our North American resellers buy from Arrow. Sales through our distribution agreement with Arrow accounted for approximately 37% of our total revenues for both fiscal 20202023 and 38%fiscal 2022 and 36% of our total revenues forin fiscal 2019.2021. If Arrow waswere to discontinue or reduce the sales of our productssolutions or if our agreement with Arrow was terminated, and if we were unable to take back the management of our reseller
channel or find another North American distributor to replace Arrow, then itthere could havebe a material adverse effect on our future revenues.business.
Our OEMs sell and integrate our software applications and in some cases incorporate our data and information management software into systems that they sell. Asolutions which represents a material portion of our revenues is generated through these arrangements. However, werevenues. We have no control over the shipping dates or volumes of systems these OEMs shipsell and they have no obligation to shipsell systems incorporating our software applications.solutions. They also have no obligation to recommend or offer our software applicationssolutions exclusively or at all, and theyall. They have no minimum sales requirements and can terminate our relationship at any time. These OEMs also could choose to develop their own data and information management software internally and incorporate those products into their systems instead of our software applications. The OEMs that we do business with alsoprotection solutions. Our OEM partners compete with one another. If one of our OEM partners views our arrangement with another OEM as competing, with its products, it may decide to stop doing business with us. Any material decrease in the volume of sales generated by OEMs we do business with, as a result of these factors or otherwise, could have a material adverse effect on our revenues and results of operations in future periods. Sales through our OEM agreements accounted for approximately 10% of our total revenues for fiscal 2020 and 11% of our total revenues for fiscal 2019.
If the cost for annual maintenance and support agreements, or our term-based subscription licenses, with our customers is not competitive in the market or if our customers do not renew their agreements either at all, or on terms that are less favorable to us, our business and financial performance might be adversely impacted.
Most of our support and maintenance agreements are for a one-year term. As the end of the annual period approaches,term and thereafter, we pursue the renewal of the agreement with the customer.thereof. Historically, maintenancesuch renewals have represented a significant portion of our total revenue. Because of this characteristic of our business, ifIf our customers do not renew their annual maintenance and support agreements either at all, or on terms that are less favorable to us, our business and financial performance might be adversely impacted.
Additionally, beginning in fiscal 2018 we began to increase a significant amount of our sales torevenues are from term-based, or subscription license arrangements. The arrangements are typically one to three years in duration. If at the end of the initial term, customers elect to not renew, their licenses, or they renew them on terms that are less favorable to us, our business and financial performance might be adversely impacted.
In periods of volatile economic conditions, our exposure to credit risk and payment delinquencies on our accounts receivable significantly increases.
Our outstanding accounts receivables are generally not secured. Our standard terms and conditions permit payment within a specified number of days following the receipt of our solution. Volatile economic conditions, including those related to the COVID-19 pandemic and its variants, the war in Ukraine and the global response, or the financial instability of banking institutions could result in our customers and resellers facing liquidity concerns leading to them not being able to satisfy their payment obligations to us, which would have a material adverse effect on our financial condition, operating results and cash flows.
In addition, we have transitioned a more significant percentage of our revenue to subscription, or term based, arrangements. In these arrangements, our customers may pay for solutions over a period of several years. Due to the potential for extended period of collection, we may be exposed to more significant credit risk.
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We develop solutions that interoperate with certain products, operating systems and hardware developed by others, and if the developers of those operating systems and hardware do not cooperate with us or we are unable to devote the necessary resources so that our solutions interoperate with those systems, our development efforts may be delayed or foreclosed and our business and results of operations may be adversely affected.
Our solutions operate primarily on the Windows, UNIX, Linux and Novell Netware operating systems; used in conjunction with Microsoft SQL; and on hardware devices of numerous manufacturers. When new or updated versions of these operating systems, solution applications, and hardware devices are introduced, it is often necessary for us to develop updated versions of our solution applications so that they interoperate properly with these systems and devices. We may not accomplish these development efforts quickly or cost-effectively, and it is not clear what the relative growth rates of these operating systems and hardware will be.
We encounter long sales and implementation cycles, particularly for our larger customers, which could have an adverse effect on the size, timing and predictability of our revenues.
Potential or existing customers, particularly larger enterprise customers, generally commit significant resources to an evaluation of available solutions and require us to expend substantial time, effort and money educating them as to the value of our solutions. Sales often require an extensive education and marketing effort.
We could expend significant funds and resources during a sales cycle and ultimately fail to win the customer. Our sales cycle for all of our products and services is subject to significant risks and delays over which we have little or no control, including:
•our customers’ budgetary constraints;
•the timing of our customers’ budget cycles and approval processes;
•our customers’ willingness to replace their current solutions;
•our need to educate potential customers about the uses and benefits of our solutions; and
•the timing of the expiration of our customers’ current agreements for similar solutions.
If our sales cycles lengthen unexpectedly, they could adversely affect the timing of our revenues or increase costs, which may cause fluctuations in our quarterly revenues and results of operations. Finally, if we are unsuccessful in closing sales of our solutions after spending significant funds and management resources, our operating margins and results of operations could be adversely impacted, and the price of our common stock could decline.
We depend on growth in the data protection solutions market, and lack of growth or contraction in this market could have a material adverse effect on our sales and financial condition.
Demand for data protection solutions is linked to growth in the amount of data generated and stored, demand for data retention and management (whether as a result of regulatory requirements or otherwise) and demand for and adoption of new backup devices and networking technologies. Because our solutions are concentrated within the data protection market, if the demand for backup and data protection solutions devices declines, our sales, profitability and financial condition would be materially adversely affected.
Furthermore, the data protection solutions market is dynamic and evolving. Our future financial performance will depend in large part on continued growth in the number of organizations adopting data protection solutions for their environments. The market for data protection solutions may not continue to grow at historic rates, or at all. If this market fails to grow or grows more slowly than we currently anticipate, our sales and profitability could be adversely affected.
Our as-a-service offerings require costly and continual infrastructure investments and if these investments do not yield the expected return, our business and financial performance might be adversely impacted.
In order to deliver our as-a-service offerings via a cloud-based deployment, we have made and will continue to make capital investments and incur substantial costs to implement and maintain this alternative business model. In addition, as we look to deliver new or different cloud-based services, we are making significant technology investments to deliver new capabilities and advance our software to deliver cloud-native customer experiences. We expect that over time the percentage of our revenue attributable to our as-a-service offerings will continue to
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increase. If these offerings do not garner widespread market adoption, or there is a reduction in demand for these services caused by a lack of customer acceptance, technological challenges, weakening economic or political conditions, security or privacy concerns, inability to properly manage such services, competing technologies and products, decreases in corporate spending or otherwise, our financial results and competitive position could suffer. If these investments do not yield the expected return, or we are unable to decrease the cost of delivering our cloud services, our gross margins, overall financial results, business model and competitive position could suffer.
We rely on third-party hosting providers to deliver our as-a-service offerings. Therefore, any disruption or interference with our use of these services could adversely affect our business.
Our use of third-party hosting facilities requires us to rely on the functionality and availability of the third parties’ services, as well as their data security, which despite our due diligence, may be or become inadequate. Our continued growth depends in part on the ability of our existing and potential customers to use and access our cloud services or our website to download our software within an acceptable amount of time. Third-party service providers operate platforms that we access, and we are vulnerable to their service interruptions. We may experience interruptions, delays, and outages in service and availability due to problems with our third-party service providers’ infrastructure. This infrastructure’s lack of availability could be due to many potential causes, including technical failures, power shortages, natural disasters, fraud, terrorism, or security attacks that we cannot predict or prevent. Such outages could trigger our service level agreements and the issuance of credits to our customers, which may impact our business and consolidated financial statements.
If we are unable to renew our agreements with our cloud service providers on commercially reasonable terms, an agreement is prematurely terminated, or we need to add new cloud services providers to increase capacity and uptime, we could experience interruptions, downtime, delays, and additional expenses related to transferring to and providing support for these new platforms. Any of the above circumstances or events may harm our reputation and brand, reduce our platforms’ availability or usage, and impair our ability to attract new users, any of which could adversely affect our business, financial condition, and results of operations.
We sell a backup appliance which integrates our solution with hardware. If we fail to accurately predict manufacturing requirements and manage our supply chain we could incur additional costs or experience manufacturing delays that could harm our business.
We generally provide forecasts of our requirements to our supply chain partners on a rolling basis. If our forecast exceeds our actual requirements, a supply chain partner may assess additional charges or we may incur costs for excess inventory they hold, each of which could negatively affect our gross margins. If our forecast is less than our actual requirements, the applicable supply chain partner may have insufficient time or components to produce or fulfill our solutions' requirements, which could delay or interrupt manufacturing of our products or fulfillment of orders for our solutions, and result in delays in shipments, customer dissatisfaction, and deferral or loss of revenue. If we fail to accurately predict our requirements, we may be unable to fulfill those orders or we may be required to record charges for excess inventory. Any of the foregoing could adversely affect our business, financial condition or results of operations.
Our complex solutions may contain undetected errors, which could adversely affect not only their performance but also our reputation and the acceptance of our solutions in the market.
Our complex solutions may contain undetected errors or failures, especially when they are made generally available or new versions are released. Despite extensive testing by us and customers, we have discovered errors in our solutions in the past and will do so in the future. As a result of past discovered errors, we experienced delays and lost revenues while we corrected those solutions. In addition, customers in the past have brought to our attention “bugs” in our software created by the customers’ unique operating environments, which are often characterized by a wide variety of both standard and non-standard configurations that make pre-release testing very difficult and time consuming. Although we have been able to fix these bugs in the past, we may not always be able to do so. Our solutions may also be subject to intentional attacks by viruses that seek to take advantage of these bugs, errors or other weaknesses. Any of these events may result in the loss of, or delay in, market acceptance of our solutions or damage to our reputation, which would seriously harm our sales, results of operations and financial condition.
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We may not receive significant revenues from our current research and development efforts for several years, if at all.
Developing software is expensive, and the investment in product development may involve a long payback cycle. Our research and development expenses were $141.8 million, or 18% of our total revenues in fiscal 2023, $153.6 million, or 20% of our total revenues in fiscal 2022 and $133.4 million, or 18% of our total revenues in fiscal 2021. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. However, we may not recognize significant revenues from these investments for several years, if at all.
Our ability to sell our solutions is highly dependent on the quality of our customer support and professional services, and failure to offer high quality customer support and professional services would have a material adverse effect on our sales and results of operations.
Our services include the assessment and design of solutions to meet our customers’ storage management requirements and the efficient installation and deployment of our software applications based on specified business objectives. Further, once our software applications are deployed, our customers depend on us to resolve issues relating to our software applications. A high level of service is critical for the successful marketing and sale of our software. If we or our partners do not effectively install or deploy our applications, or succeed in helping our customers quickly resolve post-deployment issues, it would adversely affect our ability to sell software products to existing customers and could harm our reputation with prospective customers. As a result, our failure to maintain high quality support and professional services would have a material adverse effect on our sales of software applications and results of operations.
We implemented a restructuring program in fiscal 2022, which we cannot guarantee will achieve its intended result.
In fiscal 2022, we initiated a restructuring plan to increase efficiency in our sales, marketing and distribution functions while reducing costs across all functional areas. We cannot guarantee the restructuring program will achieve its intended result. Risks associated with this restructuring program also include additional unexpected costs, adverse effects on employee morale and the failure to meet operational and growth targets due to the loss of key employees, any of which may impair our ability to achieve anticipated results of operations or otherwise harm our business.
We have engaged, and may continue to engage, in strategic acquisitions or transactions, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Acquisitions involve a number of risks, including diversion of management’s attention, ability to finance the acquisition on attractive terms, failure to retain key personnel or valuable customers, legal liabilities, the need to amortize acquired intangible assets, and intellectual property ownership and infringement risks, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows. Any additional future acquisitions may also result in the incurrence of indebtedness or the issuance of additional equity securities.
We could also experience financial or other setbacks if transactions encounter unanticipated problems, including problems related to governmental approval, execution, integration or underperformance relative to prior expectations. Acquisitions may not result in long-term benefits to us or we may not be able to further develop the acquired business in the manner we anticipated.
Following the completion of acquisitions, we may have to rely on the seller to provide administrative and other support, including financial reporting and internal controls, and other transition services to the acquired business for a period of time. There can be no assurance that the seller will do so in a manner that is acceptable to us.
Actual or threatened public health crises could adversely affect our business in a material way.
As a global company, with employees and customers located around the world in a variety of industries, our performance may be impacted by public health crises, including the COVID-19 pandemic, which has caused global economic uncertainty. The emergence of a public health threat could pose the risk that our employees, partners, and customers may be prevented from conducting business activities at full capacity for an indefinite period, due to
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the spread of the disease or suggested or mandated by governmental authorities. Moreover, these conditions can affect the rate of information technology spending and may adversely affect our customers’ willingness to purchase our solutions, delay prospective customers’ purchasing decisions, reduce the value or duration of their contracts, cause our customers to request concessions including extended payment terms or better pricing, or affect attrition rates, all of which could adversely affect our future sales and operating results. The global spread of COVID-19 has created significant uncertainty, and economic disruption. We have undertaken measures to protect our employees, partners, and customers, including allowing our employees to work remotely; however, there can be no assurance that these measures will be sufficient or that we can implement them without adversely affecting our business operations.
A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.
Sales to global federal, state, and local governmental agencies account for a portion of our revenue, and we may in the future increase sales to government entities. This customer base experiences budgetary constraints or shifts in spending priorities regularly which may adversely affect sales of our solutions to government entities.
Selling to government entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that we will successfully sell our solutions. Government entities may require contract terms that differ from our standard terms and conditions including termination rights favorable for the customer, audit rights, and maintenance of certain security clearances for facilities and employees which can entail administrative time and effort resulting in costs and delays. Government demand for our solutions may be more volatile as they are affected by stringent regulations, public sector budgetary cycles, funding authorizations, and the potential for funding reductions or delays, making the time to close such transactions more difficult to predict.
We are subject to several local, state, federal and foreign laws and regulations regarding privacy and data protection, and any actual or perceived failure by us to comply with such laws and regulations could adversely affect our business.
We are currently subject, and may become further subject, to federal, state and foreign laws and regulations regarding the privacy and protection of personal data or other potentially sensitive information. In the United States, federal, state, and local governments have enacted numerous data privacy security laws, including data breach notification laws, data privacy laws, consumer protection laws, and other similar laws. For example, the California Consumer Privacy Act of 2018, as amended by the California Privacy Rights Act of 2020 (collectively, the "CCPA"), imposes obligations on certain businesses to provide specific disclosures in privacy notices and grant California residents certain rights related to their personal data. The CCPA imposes statutory fines for noncompliance (up to $7,500 per violation). Other states have enacted or proposed similar laws. These developments may increase legal risk and compliance costs for us and our customers.
Outside the United States, an increasing number of laws, regulations, and industry standards govern data privacy and security. For example, the European Union’s ("E.U.") General Data Protection Regulation ("E.U. GDPR"), and the United Kingdom’s ("U.K.") GDPR ("U.K. GDPR"), impose strict requirements for processing the personal data of individuals. Violations of these obligations carry significant potential consequences. For example, under the E.U. GDPR, government regulators may impose temporary or definitive bans on processing, as well as fines of up to €20 million or 4% of the annual global revenue, whichever is greater. Additionally, new and emerging data privacy regimes may be applicable in Asia, including China's Personal Information Protection Law, Japan's Act on the Protection of Personal Information, and Singapore's Personal Data Protection Act.
In addition, as a technology provider, our customers expect us to demonstrate compliance with current data privacy laws and further make contractual commitments and implement processes to enable the customer to comply with their own obligations under data privacy laws, and our actual or perceived inability to do so may adversely impact sales of our products and services, particularly to customers in highly regulated industries.
Our actual or perceived failure to comply with laws, regulations, contractual commitments, or other actual or asserted obligations, including certain industry standards, regarding personal information, or other confidential information of individuals could lead to costly legal action, brand and reputational damage, significant liability, inability to process data, and decreased demand for our services, which could adversely affect our business. In addition, any security breach that results in the release of, or unauthorized access to, personal information, or other confidential information of individuals could subject us to incident response, notice and remediation costs. Failure to
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safeguard data adequately or to destroy data securely could subject us to regulatory investigations or enforcement actions under applicable data security, unfair practices or consumer protection laws which could have an adverse effect on our business, financial condition or operating results. The scope and interpretation of these laws could change and the associated burdens and our compliance costs could increase in the future.
Changes in senior management or key personnel could cause disruption in the Company and have a material effect on our business.
We have had, and could have, changes in senior management which could be disruptive to management and operations of the Company and could have a material effect on our business, operating results and financial conditions. Turnover at the senior management level may create instability within the Company, which could impede the Company’s day-to-day operations. Such instability could impede our ability to fully implement our business plan and growth strategy, which would harm our business and prospects.
We rely on our key personnel to execute our existing business operations and identify and pursue new growth opportunities. The loss of key employees could result in significant disruptions to our business, and the integration and training of replacement personnel could be costly, time consuming, cause additional disruptions to our business and be unsuccessful.
Borrowing against our revolving credit facility could adversely affect our operations and financial results.
We have a $100 million revolving credit facility. As of March 31, 2023, there were no borrowings under the credit facility. If we were to borrow substantially against this facility the indebtedness could have adverse consequences, including:
•requiring us to devote a portion of our cash flow from operations to payments of indebtedness, which would reduce the availability of cash flow to fund working capital requirements, capital expenditures and other general purposes;
•limiting our flexibility in planning for, or reacting to, general adverse economic conditions or changes in our business and the industry in which we operate in;
•placing us at a competitive disadvantage compared to our competitors that have less debt; and
•limiting our ability to fund potential acquisitions.
The credit facility also contains financial maintenance covenants, including a leverage ratio and interest coverage ratio, and customary events of defaults. Failure to comply with these covenants could result in an event of default, which, if not cured or waived, could accelerate our repayment obligations. For further discussion on our revolving credit facility, see Note 17 of the notes to the consolidated financial statements.
Risks Related to our International Operations
If we are unable to effectively manage certain risks and challenges related to our India operations, our business could be harmed.
Our India operations are a key factor to our success. We believe that our significant presence in India provides certain important advantages for our business, such as direct access to a large pool of skilled professionals and assistance in growing our business internationally. However, it also creates certain risks that we must effectively manage. As of March 31, 2023, we had approximately 850 employees located in India. Wage costs differentiate depending on regions throughout the world. Wages in India are increasing at a faster rate than in the many other countries, including the United States. These increases could result in us incurring increased costs for technical professionals and reduced margins. There is intense competition in India for skilled technical professionals, and we expect such competition to increase. As a result, we may be unable to cost-effectively retain our current employee base in India or hire additional new talent. In addition, India has experienced significant inflation, low growth in gross domestic product and shortages of foreign exchange. India also has experienced civil unrest and has been involved in conflicts with neighboring countries. The occurrence of any of these circumstances could result in disruptions to our India operations, which, if continued for an extended period of time, could have a material adverse effect on our business. In recent years, India’s government has adopted policies that are designed to promote foreign investment, including significant tax incentives, relaxation of regulatory restrictions, liberalized import and export duties and preferential rules on foreign investment and repatriations. These policies may not
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continue. If we are unable to effectively manage any of the foregoing risks related to our India operations, our development efforts could be impaired, our growth could be slowed and our results of operations could be negatively impacted.
Volatility in the global economy could adversely impact our continued growth, results of operations and our ability to forecast future business.
As our business has expanded globally,a global company, we have become increasingly subject to the risks arising from adverse changes in domestic and global economic and political conditions. Uncertainty in the macroeconomic environment and associated global economic conditions have resulted in volatility in credit, equity, debt and foreign currency markets as well as government budgets worldwide.
markets.
These global economic conditions can result in slower economic activity, decreased consumer confidence, reduced corporate profits and capital spending, inflation, adverse business conditions and liquidity concerns. There has also been increased volatility in foreign exchange markets. These factors make it difficult for our customers, our vendors and us to accurately forecast and plan future business activities. In addition, theseThese factors could cause customers to slow or defer spending on our software products and services,solutions, which would delay and lengthen sales cycles and negatively affect our results of operations. If such conditions deteriorate or if the pace of economic recovery is slower or more uneven, our results of operations could be adversely affected, we may not be able to sustain the growth rates we have experienced recently, and we could fail to meet the expectations of stock analysts and investors, which could cause the price of our common stock to decline.
We continue to invest in our business in the Asia-Pacific and Europe, Middle East, and Africa regions. There areinternationally where there may be significant risks with overseas investments and growth prospects in these regions.prospects. Increased volatility or declines in the credit, equity, debt and foreign currency markets in these regions could cause delays in or cancellations of orders. Deterioration of economic conditions in the countries in which we do business could also cause slower or impaired collections on accounts receivable. In addition, we could experience delays in the payment obligations of our worldwide resellers if they experience weakness in the end-user market, which would increase our credit risk exposure and harm our financial condition.
We may experience fluctuations in foreign currency exchange rates that could adversely impact our results of operations.
Our international sales are generally denominated in foreign currencies, and this revenue could be materially affected by currency fluctuations. Our primary exposure is to fluctuations in exchange rates for the U.S. dollar versus the Euro and, to a lesser extent, the Australian dollar, British pound sterling, Canadian dollar, Chinese yuan, Indian rupee, Korean won and Singapore dollar. Changes in currency exchange rates could adversely affect our reported revenues and could require us to reduce our prices to remain competitive in foreign markets, which could also have a material adverse effect on our results of operations. An unfavorable change in the exchange rate of foreign currencies against the U.S. dollar would result in lower revenues when translated into U.S. dollars, although operating expenditures would be lower as well.
In recent fiscal years, we have selectively hedged our exposure to changes in foreign currency exchange rates on the balance sheet. In the future, we may enter into additional foreign currency-based hedging contracts to reduce our exposure to significant fluctuations in currency exchange rates on the balance sheet, although there can be no assurances that we will do so. However, as our international operations grow, or if dramatic fluctuations in foreign currency exchange rates continue or increase or if our hedging strategies become ineffective, the effect of changes in the foreign currency exchange rates could become material to revenue, operating expenses, and income.
Our international sales and operations are subject to factors that could have an adverse effect on our results of operations.
We have significant sales and services operations outside the United States and derive a substantial portion of our revenues from these operations. We generated approximately 47% and 48% of our revenues from outside the United States in fiscal 2023 and fiscal 2022, respectively. International revenue decreased 1% in fiscal 2023 compared to fiscal 2022. Expansion of our international operations will require a significant amount of attention from our management and substantial financial resources and might require us to add qualified management in these markets.
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In addition to facing risks similar to the risks faced by our domestic operations, our international operations are also subject to risks related to the differing legal, political, social and regulatory requirements and economic conditions of many countries, including:
•adverse effects in economic conditions in the countries in which we operate related specifically to the COVID-19 pandemic and the governmental regulations put in place as a result of the virus, the war in Ukraine, and the financial instability of banking institutions;
•difficulties in staffing and managing our international operations;
•foreign countries may impose additional withholding taxes or otherwise tax our foreign income, impose tariffs or adopt other restrictions on foreign trade or investment, including currency exchange controls;
•difficulties in coordinating the activities of our geographically dispersed and culturally diverse operations;
•general economic conditions in the countries in which we operate, including seasonal reductions in business activity in the summer months in Europe and in other periods in other countries, could have an adverse effect on our earnings from operations in those countries;
•imposition of, or unexpected adverse changes in, foreign laws or regulatory requirements may occur, including those pertaining to sanctions, export restrictions, privacy and data protection, trade and employment restrictions and intellectual property protections;
•longer payment cycles for sales in foreign countries and difficulties in collecting accounts receivable;
•competition from local suppliers;
•greater risk of a failure of our employees and partners to comply with both U.S. and foreign laws, including antitrust regulations, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act of 2010, and any trade regulations ensuring fair trade practices;
•costs and delays associated with developing solutions in multiple languages; and
•political unrest, war or acts of terrorism.
Our business in emerging markets requires us to respond to rapid changes in market conditions in those markets. Our overall success in international markets depends, in part, upon our ability to sell our software applications is highly dependent onsucceed in differing legal, regulatory, economic, social and political conditions. We may not continue to succeed in developing and implementing policies and strategies that will be effective in each location where we do business. The occurrence of any of the quality of our service offerings, and our failure to offer high quality support and professional services wouldforegoing factors may have a material adverse effect on our sales of software applications and results of operations.
We may be subject to information technologyIT system failures, network disruptions and breaches in data security.
Bad actors regularly attempt to gain unauthorized access to our IT systems, and many such attempts are increasingly sophisticated. The perception that the COVID-19 pandemic has made companies’ IT systems more vulnerable has increased the already significant volume of such attempts. These attempts, which might be related to industrial, corporate or other espionage, criminal hackers or state-sponsored intrusions, include trying to covertly introduce malware or ransomware to our environments and impersonating authorized users.
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Third-party service providers that we may rely on to back up and process our confidential information may also be subject to similar threats. Such threats could result in the misappropriation, theft, misuse, disclosure, loss or destruction of the technology, intellectual property, or the proprietary, confidential or personal information, of us or our employees, customers, licensees, suppliers or partners, as well as damage to or disruptions in our IT systems. These threats are constantly evolving, increasing the difficulty of successfully defending against them or implementing adequate preventative measures. We seek to detect and investigate all security incidents and to prevent their recurrence, but attempts to gain unauthorized access to our IT systems or other attacks may be successful, and in some cases, we might be unaware of an incident or its magnitude and effects.
In addition, any failure to successfully implement new information systems and technologies, or improvements or upgrades to existing information systems and technologies in a timely manner could adversely impact our business, internal controls, results of operations, and financial condition.
Risks Related to Legal Matters
We have been, and may in the future become, involved in litigation that may have a material adverse effect on our results of operations and financial condition.business.
Our effective tax rate is difficult to project, and changes in such tax rate or adverse results of tax examinations could adversely affect our operating results.
We are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Our results of operations would be adversely affected to the extent that our geographical mix of income becomes more weighted toward jurisdictions with higher tax rates and would be favorably affected to the extent the relative geographic mix shifts to lower tax jurisdictions. Any change in our mix of earnings is dependent upon many factors and is therefore difficult to predict.
The process of determining our anticipated tax liabilities involves many calculations and estimates that are inherently complex and make the ultimate tax obligation determination uncertain. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate prior to the completion and filing of tax returns for such periods. These estimates involve complex issues, require extended periods of time to resolve, and require us to make judgments, such as anticipating the outcomes of audits with tax authorities and the positions that we will take on tax returns prior to our actually preparing the returns. In the normal course of business, we are subject to examination by taxing authorities throughout the world. The final determination of tax audits and any related litigation could be materially different from our historical tax provisions and accruals. For further discussion on income taxes, see Note 12 of the notes to the consolidated financial statements.
Furthermore, our overall effective income tax rate and tax expenses may be affected by various factors in our business, including changes in our legalentity structure, changes in the geographic mix of income and expenses, changes in tax laws, and applicable accounting pronouncements and variations in the estimated and actual level of annual profits before income tax.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and may even affect the reporting of transactions completed before the announcement or effectiveness of a change.
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Risks from investing in growth opportunitiesRelated to our Common Stock
Goodwill represents a portion of our assets and any impairment of these assets could negatively impact our business.results of operations.
At March 31, 2023, our goodwill was approximately $127.8 million, which represented approximately 16% of our total assets. We test goodwill for impairment at least annually at the reporting unit level, or more often if an event occurs or circumstances change that would more likely than not reduce the fair value of its carrying amount. This quantitative assessment requires us to assess and make judgments regarding a variety of factors which impact the fair value of the reporting unit or asset being tested, including business plans, anticipated future cash flows, economic projections and other market data. Because there are inherent uncertainties involved in these factors, significant differences between these estimates and actual results could result in future impairment charges and could materially impact our future financial results. For additional information on our goodwill impairment testing, see Note 2 of the notes to the consolidated financial statements included in this Annual Report on Form 10-K. Any future impairment of this asset could have a material adverse effect on our results of operations.
We may investexperience a decline in growth opportunities, such as high-valuerevenues or volatility in our quarterly operating results, which may adversely affect the market segmentsprice of enterprise computing, managed servicesour common stock.
We cannot predict our future quarterly revenues or operating results with certainty because of many factors outside of our control. A significant revenue or profit decline, lowered forecasts or volatility in our operating results could cause the market price of our common stock to decline substantially. Factors that could affect our revenues and cloud computing. Even though we believe cloud computing,operating results include the following:
•the unpredictability of the timing and magnitude of orders for our solutions, particularly transactions greater than $100,000 in its various forms, representsrecent fiscal years, a long term industry trend inmajority of our quarterly revenues were earned and recorded near the way that applications are delivered, data is stored and information is retrieved, there can be no assuranceend of each quarter;
•the possibility that our investment in cloud, and related managed services and infrastructure management will be validated in customers may cancel, defer or limit purchases as a result of reduced information technology budgets;
•the marketplace. Similarly, there is no assurancepossibility that our investmentscustomers may defer purchases of our solutions in high-value anticipation of new solutions or updates from us or our competitors;
•the ability of our OEMs and resellers to meet their sales objectives;
•market segments will driveacceptance of our new solutions and enhancements;
•our ability to control expenses;
•changes in our pricing, packaging and distribution terms or those of our competitors; and
•the demands on our management, sales force and customer services infrastructure as a result of the introduction of new solutions or updates.
Our expense levels are relatively fixed and are based, in part, on our expectations of future revenues. If revenue growth orlevels fall below our expectations and we are profitable at the time, our net income would decrease because only a small portion of our expenses varies with our revenues. Therefore, any significant decline in revenues for any period could have an immediate adverse impact on our results of operations for that period. We believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of future performance. Our results of operations could be below expectations of public market share gains. Customer adoption ratesanalysts and viable economic models are less certaininvestors in high-value and rapidly-growing segments, and new product and services offerings may unfavorably impact demand forfuture periods which would likely cause the market price of our other products or services.
The price of our common stock may be highly volatile and may decline regardless of our operating performance.
The market price of our common stock could be subject to significant fluctuations in response to:
•variations in our quarterly or annual operating results;
•changes in financial estimates, treatment of our tax assets or liabilities or investment recommendations by securities analysts following our business or our competitors;
•the public’s response to our press releases, rumors, our other public announcements and our filings with the SEC;
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•changes in accounting standards, policies, guidance or interpretations or principles;
•sales of common stock by our directors, officers and significant stockholders;
•announcements of technological innovations or enhanced or new products by us or our competitors;
•our failure to achieve operating results consistent with securities analysts’ projections;
•the operating and stock price performance of other companies that investors may deem comparable to us;
•broad market and industry factors;factors, including financial instability of banking institutions; and
•other events or factors, including those resulting from war, incidents of terrorism or responses to such events.
The market prices of softwaredata protection solutions companies have been extremely volatile. Stock prices of many softwareof those companies have often fluctuated in a manner unrelated or disproportionate to thetheir operating performance of such companies.performance. In the past, following periods of market volatility, stockholders have often instituted securities class action litigation. Securities litigation could have a substantial cost and divert resources and the attention of management from our business.
Although we believe we currently have adequate internal control over financial reporting, we are required to assess our internal control over financial reporting on an annual basis, and any future adverse results from such assessment could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.
Our certificate of formation, amended and restated bylaws and the laws in the State of Delaware contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the prospective acquirer and to encourage prospective acquirers to negotiate with our Board of Directors rather than to attempt a hostile takeover. Delaware law also imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock.
We believe that these provisions protect our shareholders from coercive or otherwise unfair takeover tactics by effectively requiring those who seek to obtain control of the Company to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess any acquisition of control. However, these provisions could apply even if an acquisition of control of the Company may be considered beneficial by some shareholders and could delay or prevent an acquisition of control that our Board of Directors determines is not in the best interests of our Company and our shareholders.
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General Risks
Our business could be materially and adversely affected as a result of natural disasters, terrorism or other catastrophic events.
Any economic failure or other material disruption caused by war, climate change or natural disasters, including fires, floods, hurricanes, earthquakes, and tornadoes; power loss or shortages; environmental disasters; telecommunications or business information systems failures or similar events could also adversely affect our ability to conduct business. If such disruptions result in cancellations of customer orders or contribute to a general decrease in economic activity or corporate spending on IT, or impair our ability to meet our customer demands, our operating results and financial condition could be materially adversely affected.
There is also an increasing concern over the risks of climate change and related environmental sustainability matters. In addition to physical risks, climate change risk includes longer-term shifts in climate patterns, such as extreme heat, sea level rise, and more frequent and prolonged drought. Such events could disrupt our operations or those of our customers or third parties on which we rely, including through direct damage to assets and indirect impacts from supply chain disruption and market volatility.
Our business may be adversely affected by the impact of the war in Ukraine and a widespread outbreak of contagious diseases, including the COVID-19 pandemic and its variants. These events may cause us or our customers to temporarily suspend operations and could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our solutions, our ability to collect against existing trade receivables and our operating results.
We currently, and may in the future, have assets held at financial institutions that may exceed the insurance coverage offered by the Federal Deposit Insurance Corporation (“FDIC”), the loss of which would have a severe negative affect on our operations and liquidity.
We may maintain our cash assets at financial institutions in the U.S. in amounts that may be in excess of the FDIC insurance limit of $250,000. Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past several years, our organizational structure has increasedand may in complexity duethe future lead to compliance with tax regulations and tax accounting requirements and other regulatory and compliance requirements, including compliance with anti-corruption and anti-bribery laws such asmarket-wide liquidity problems. For example, in response to the U.S. Foreign Corrupt Practices Act (the “FCPA”rapidly declining financial condition of regional banks Silicon Valley Bank (“SVB”) and Signature Bank (“Signature”), the UK Bribery ActCalifornia Department of 2010 (the “UK Bribery Act”). Further, we have expanded our presence inFinancial Protection and Innovation and the Asia-Pacific region, where business practices can differ from those in other regionsNew York State Department of Financial Services closed SVB and Signature on March 10, 2023 and March 12, 2023, respectively, and the FDIC was appointed as receiver for SVB and Signature. In the event of a failure or liquidity issues of or at any of the worldfinancial institutions where we maintain our deposits or other assets, we may incur a loss to the extent such loss exceeds the FDIC insurance limitation, which could have a material adverse effect upon our liquidity, financial condition and can create internal control risks. We provide business practices trainingour results of operations.
Similarly, if our customers or partners experience liquidity issues as a result of financial institution defaults or non-performance where they hold cash assets, their ability to pay us may become impaired and could have a material adverse effect on our employees worldwide. Overall,results of operations, including the combinationcollection of increased structural complexityaccounts receivable and the ever-increasing regulatory complexity make it more critical for us to attract and retain qualified and technically competent employees.cash flows.
| Item 1B. | Unresolved Staff Comments | ||||
None.
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| Item 2. | Properties | ||||
Our principal administrative, sales, marketing, customer support and research and development facility is located at our owned corporate headquarters in Tinton Falls, New Jersey. In January 2023 we entered into an agreement to sell the property. The agreement includes a due diligence period for the buyer, is contingent on receiving approvals from certain government agencies, and includes other customary closing conditions. We believe the sale will likely close in the first half of fiscal 2024. Upon closing of the transaction, Commvault will enter into a lease for a portion of the premises.
In addition, we have offices in the United States in California, Illinois, Minnesota, New York, Texas,Florida and Virginia;Texas; and outside the United States in Australia, Austria, Belgium, Brazil, Canada, China, Denmark, France, Germany, Hong Kong, India, Israel, Italy, Japan, Netherlands, New Zealand, Poland, Russia,Saudi Arabia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, United Arab Emirates, and United Kingdom.
| Item 3. | Legal Proceedings | ||||
From time to time, we are subject to claims in legal proceedings arising in the normal course of our business. We do not believe that we are currently party to any pending legal action that could reasonably be expected to have a material adverse effect on our business or operating results.
| Item 4. | Mine Safety Disclosures | ||||
Not Applicable.
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PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | ||||
Market for our Common Stock
Our common stock is listed and traded on The NASDAQ GlobalNasdaq Stock Market under the symbol “CVLT”.
Stockholders
As of May 14, 2020,3, 2023, there were approximately 4943 holders of our common stock. The number of record holders does not represent the actual number of beneficial owners of shares of our common stock because shares are frequently held in street name by securities dealers and others for the benefit of individual owners who have the right to vote their shares.
Dividend Policy
We have never paid cash dividends on our common stock, and we intend to retain our future earnings, if any, to fund the growth of our business. We therefore do not anticipate paying any cash dividends on our common stock in the foreseeable future. Our future decisions concerning the payment of dividends on our common stock will depend upon our results of operations, financial condition and capital expenditure plans, as well as any other factors that the Board of Directors, in its sole discretion, may consider relevant.
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Stock Performance Graph
The graph set forth below compares the cumulative total stockholder return on our common stock between March 31, 20152018 and March 31, 2020,2023, with the cumulative total return of (i) The NASDAQNasdaq Computer Index and (ii) The NASDAQNasdaq Composite Index, over the same period. This graph assumes the investment of $100,000 on March 31, 20152018 in our common stock, The NASDAQNasdaq Composite Index and The NASDAQNasdaq Computer Index, and assumes the reinvestment of dividends, if any. The graph assumes the initial value of our common stock on March 31, 20152018 was the closing sales price of $43.70$57.20 per share.
The comparisons shown in the graph below are based upon historical data. The stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the future performance of our common stock. Information used in the graph was obtained from NASDAQ,Nasdaq, a source we believe to be reliable, but we are not responsible for any errors or omissions in such information.
| 3/31/2018 | 3/31/2019 | 3/31/2020 | 3/31/2021 | 3/31/2022 | 3/31/2023 | |||||||||||||||
| Commvault | 100.00 | 113.18 | 70.77 | 112.76 | 116.00 | 99.20 | ||||||||||||||
| Nasdaq Composite Index | 100.00 | 109.43 | 109.01 | 187.54 | 201.33 | 173.03 | ||||||||||||||
| Nasdaq Computer Index | 100.00 | 111.52 | 125.07 | 219.28 | 263.47 | 235.80 | ||||||||||||||
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| 3/31/2015 | 3/31/2016 | 3/31/2017 | 3/31/2018 | 3/31/2019 | 3/31/2020 | |||||||
| Commvault | 100.0 | 98.8 | 116.2 | 130.9 | 148.1 | 92.6 | ||||||
| NASDAQ Composite Index | 100.0 | 99.4 | 120.6 | 144.1 | 157.7 | 157.1 | ||||||
| NASDAQ Computer Index | 100.0 | 105.8 | 132.9 | 167.5 | 186.8 | 209.5 | ||||||
Issuer Purchases of Equity Securities
During the three months ended March 31, 2020,2023, we repurchased $37.2$60.8 million of common stock, (0.9or approximately 1.0 million shares),shares, under our repurchase program. DuringAs a result, $99.1 million remained available under the year ended March 31, 2020, we repurchased $77.2 millioncurrent authorization. A summary of our repurchases of common stock (1.7is as follows:
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced programs | Approximate dollar value of shares that may yet be purchased under the program (in thousands) | |||||||||||||||||||||||||
| January 1-31, 2023 | 284,000 | $ | 60.37 | 284,000 | $142,725 | ||||||||||||||||||||||||
| February 1-28, 2023 | 513,000 | 62.77 | 513,000 | 110,526 | |||||||||||||||||||||||||
| March 1-31, 2023 | 203,500 | 56.25 | 203,500 | 99,079 | * | ||||||||||||||||||||||||
| Three months ended March 31, 2023 | 1,000,500 | $ | 60.76 | 1,000,500 | |||||||||||||||||||||||||
*On April 20, 2023, the Board of Directors approved an increase in our share repurchase program so that $250.0 million shares), under our repurchase program.was available. The Board's authorization has no expiration date.
| Period | Total number of shares purchased as part of publicly announced programs | Average price paid per share | Total of Purchases | Approximate dollar value of shares that may yet be purchased under the program | |||||||||||
| January 2020 | 17,786 | $ | 43.96 | $ | 781,791 | $ | 199,218,209 | ||||||||
| February 2020 | 361,100 | $ | 45.91 | $ | 16,577,950 | $ | 182,640,259 | ||||||||
| March 2020 | 492,800 | $ | 40.20 | $ | 19,811,466 | $ | 162,828,793 | ||||||||
| Three months ended March 31, 2020 | 871,686 | $ | 42.64 | $ | 37,171,207 | ||||||||||
| Item 6. | |||||
Statement of Operations Data | Year Ended March 31, | |||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Software and products | $ | 275,308 | $ | 309,899 | $ | 311,745 | $ | 290,668 | $ | 258,091 | ||||||||||
| Services | 395,577 | 401,058 | 387,648 | 354,337 | 335,676 | |||||||||||||||
| Total revenues | 670,885 | 710,957 | 699,393 | 645,005 | 593,767 | |||||||||||||||
| Cost of revenues: | ||||||||||||||||||||
| Software and products | 28,082 | 25,691 | 7,223 | 3,045 | 2,385 | |||||||||||||||
| Services | 88,996 | 91,315 | 90,929 | 82,147 | 80,327 | |||||||||||||||
| Total cost of revenues | 117,078 | 117,006 | 98,152 | 85,192 | 82,712 | |||||||||||||||
| Gross margin | 553,807 | 593,951 | 601,241 | 559,813 | 511,055 | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Sales and marketing | 335,785 | 370,088 | 410,727 | 383,933 | 349,199 | |||||||||||||||
| Research and development | 110,020 | 92,647 | 91,030 | 79,558 | 66,936 | |||||||||||||||
| General and administrative | 92,130 | 100,946 | 90,709 | 88,929 | 81,199 | |||||||||||||||
| Net change in contingent consideration | (3,783 | ) | — | |||||||||||||||||
| Restructuring | 21,348 | 14,765 | — | — | — | |||||||||||||||
| Depreciation and amortization | 15,815 | 10,597 | 9,721 | 8,635 | 9,611 | |||||||||||||||
| Total operating expenses | 571,315 | 589,043 | 602,187 | 561,055 | 506,945 | |||||||||||||||
| Income (loss) from operations | (17,508 | ) | 4,908 | (946 | ) | (1,242 | ) | 4,110 | ||||||||||||
| Other income and expenses: | ||||||||||||||||||||
| Interest income | 4,962 | 5,519 | 2,228 | 1,163 | 862 | |||||||||||||||
| Interest expense | — | — | (1,161 | ) | (957 | ) | (933 | ) | ||||||||||||
| Equity in loss of affiliate | — | — | (3,621 | ) | (958 | ) | (83 | ) | ||||||||||||
| Income (loss) before income taxes | (12,546 | ) | 10,427 | (3,500 | ) | (1,994 | ) | 3,956 | ||||||||||||
| Income tax expense (benefit) | (6,901 | ) | 6,866 | 58,400 | (1,486 | ) | 2,236 | |||||||||||||
| Net income (loss) | $ | (5,645 | ) | $ | 3,561 | $ | (61,900 | ) | $ | (508 | ) | $ | 1,720 | |||||||
| Net income (loss) per common share: | ||||||||||||||||||||
| Basic | $ | (0.12 | ) | $ | 0.08 | $ | (1.37 | ) | $ | (0.01 | ) | $ | 0.04 | |||||||
| Diluted | $ | (0.12 | ) | $ | 0.07 | $ | (1.37 | ) | $ | (0.01 | ) | $ | 0.04 | |||||||
| Weighted average shares used in computing per share amounts: | ||||||||||||||||||||
| Basic | 45,793 | 45,827 | 45,242 | 44,700 | 45,159 | |||||||||||||||
| Diluted | 45,793 | 47,601 | 45,242 | 44,700 | 46,489 | |||||||||||||||
| Balance Sheet Data | As of March 31, | |||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Cash, cash equivalents and restricted cash (1) | $ | 296,082 | $ | 327,992 | $ | 330,784 | $ | 329,491 | $ | 288,107 | ||||||||||
| Short-term investments | 43,645 | 130,338 | 131,637 | 120,693 | 99,072 | |||||||||||||||
| Working capital | 185,132 | 328,656 | 322,615 | 318,142 | 252,413 | |||||||||||||||
| Total assets | 845,076 | 822,453 | 818,642 | 829,878 | 714,573 | |||||||||||||||
| Deferred revenue | 326,220 | 337,696 | 325,774 | 279,902 | 244,866 | |||||||||||||||
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
You should read the following discussion and analysis along with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. The statements in this discussion regarding our expectations of our future performance, liquidity and capital resources, and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements. For discussion comparing the period ended March 31, 2022 to March 31, 2021, please refer to our Annual Report on Form 10-K, filed with the SEC on May 6, 2022.
Overview
Industry
The industry in which we currently operate continues to go through accelerating changes as the result of compounding data growth and the introduction of new technologies. We are continuing to pursue an aggressive product development program in both data and information management solutions. Our data managementprotection solutions include not only traditional backup, but also new innovations in de-duplication, data movement, virtualization, snap-based backups and enterprise reporting. Our information management innovations are primarily in the areas of archiving, eDiscovery, records management, governance, operational reporting and compliance. We remain focused on both the data and information management trends in the marketplace and, in fact, a material portion of our existing research and development expenses are utilized toward the development of such new technologies discussed above. While we are confident in our ability to meet these changing industry demands with our Commvault suite and potential future releases, the development, release and timing of any features or functionality remain at our sole discretion and our solutions or other technologies may not be widely adopted.technologies.
Given the nature of the industry in which we operate, our software applications are subject to obsolescence. We continually develop and introduce updates to our existing software applications in order to keep pace with evolving industry technologies. In addition, we must address evolving industry standards, changing customer requirements and competitive software applications that may render our existing software applications obsolete. We also sell a backup appliance which integrates our software with hardware. If our forecast exceeds our actual requirements, a supply chain partner may assess additional charges or we may incur costs related to excess inventory, each of which could negatively affect our gross margins.
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Sources of Revenues
We derive a significant portion of our total revenues from sales of licenses of our software applications and related appliance products.applications. We do not customize our software or products for a specific end-user customer. We sell our software applications and products to end-user customers both directly through our sales force and indirectly through our global network of value-added reseller partners, systems integrators, corporate resellers and original equipment manufacturers. Our software and products revenue was 41%45% of our total revenues for fiscal 2020, 44%2023, 46% in fiscal 20192022 and 45% in fiscal 2018.2021.
Software and products revenue generated through indirect distribution channels was 92%accounted for approximately 90% of total software and products revenue in recent fiscal 2020, 93% in fiscal 2019 and 86% in fiscal 2018.years. Software and products revenue generated through direct distribution channels was 8%accounted for approximately 10% of total software and products revenue in recent fiscal 2020, 7% in fiscal 2019 and 14% in fiscal 2018. The dollar value of software and products revenue generated through indirect distribution channels decreased $33.6 million, or 12%, in fiscal 2020 compared to fiscal 2019. The dollar value of software and products revenue generated through direct distribution decreased $1.0 million, or 4%, in fiscal 2020 compared to fiscal 2019.years. Deals initiated by our direct sales force are sometimes transacted through indirect channels based on end-user customer requirements and vice versa, which are not always in our control and can cause this overall percentage split to vary from fiscal year to fiscal year. As such, there may be fluctuations in the dollars and percentage of software and products revenue generated through our direct distribution channels from time to time. We believe that the growth of our software and products revenue, derived from both our indirect channel partners and direct sales force, are key attributes to our long-term growth strategy. We willintend to continue to invest in both our channel relationships and direct sales force in the future, but we continue to expect more revenue to be generated through indirect distribution channels over the long term. The failure of our indirect distribution channels or our direct sales force to effectively sell our software applications could have a material adverse effect on our revenues and results of operations.
We have a non-exclusive distribution agreement covering our North American commercial markets and our U.S. Federal Government market with Arrow Enterprise Computing Solutions, Inc. ("Arrow"), a subsidiary of Arrow Electronics, Inc. Pursuantpursuant to this distribution agreement,which Arrow's primary role is to enable a more efficient and effective distribution channel for our products and services by managing our reseller partners and leveraging their own industry experience. We generated approximately 37% of our total revenues through Arrow in both fiscal 2020, approximately 38% of our total revenues in2023 and fiscal 20192022, and approximately 36% of our total revenues in fiscal 2018.2021. If Arrow waswere to discontinue or reduce the sales of our products or if our agreement with Arrow was terminated, and if we were unable to take back the management of our reseller channel or find another North American distributor to replace Arrow, then itthere could havebe a material adverse effect on our future business.
Our services revenue was 59%55% of our total revenues for fiscal 2020, 56%2023, 54% in fiscal 20192022 and 55% in fiscal 2018.2021. Our services revenue is made up of fees from the delivery of customer support, SaaS, and other professional services, which are typically sold in connection with the sale of our software applications. Customer support agreements provide technical support and unspecified software updates on a when-and-if-available basis for an annual fee based on licenses purchased and the level of service subscribed. Metallic, our SaaS solution, allows customers to use hosted software over the contract period without taking possession of the software. Revenue related to Metallic is generally recognized ratably over the contract term as services revenue. Other professional services include consulting, assessment and design services, implementation and post-deployment services and training, all of which to date have predominantly been sold in connection with the sale of software applications. Our newly launched software-as-a-service solution, branded Metallic, is also included in services revenue. Revenue from Metallic, which has not been material to date, is recognized ratably over the contract period.
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Most of our customer support agreements related to perpetual licenses are for a one-year term. As the end of the annual period approaches, we pursue the renewal of the agreement with the customer. Historically, maintenance renewals have represented a significant portion of our total revenue. Because of this characteristic of our business, if our customers choose not to renew their maintenance and support agreements with us on beneficial terms, or at all, our business, operating results and financial condition could be harmed.
The gross margin of our services revenue was 78%72% for fiscal 20202023, 76% for fiscal 2022 and 77%79% for both fiscal 2019 and fiscal 2018.2021. Overall, our services revenue has lower gross margins than our software and products revenue. The gross margin of our software and products revenue was 90%96% for both fiscal 2020,2023 and fiscal 2022, and 92% for fiscal 2019 and 98% for fiscal 2018.2021. The decreaseincrease in gross margin percentage of software and products is a result of the decrease inreduced sales of hardware associated with our appliance as well as reduced software royalties associated with sales of HyperScale appliances and software. With the launch of HyperScale X in the second half of fiscal 2021, we now typically sell software to a third party that sells an integrated appliance which includes hardware.to end user customers. As a result, our hardware revenues and cost of sales have been decreasing.
Description of Costs and Expenses
Our cost of revenues is as follows:
•Cost of Software and Products Revenue, consists primarily of the cost of third-party royalties and other costs such as media, manuals, translation and distribution costs, and hardware associated with our appliances; and
•Cost of Services Revenue, consists of salary and employee benefit costs in providing customer support and other professional services as well as third-party hosting fees related to our as-a-service offerings.
Our operating expenses are as follows:
•Sales and Marketing, consists primarily of salaries, commissions, employee benefits, stock-based compensation and other direct and indirect business expenses, including travel and related expenses, sales promotion expenses, public relations expenses and costs for marketing materials and other marketing events (such as trade shows and advertising); •Research and Development, which is primarily the expense of developing new software applications and modifying existing software applications, consists principally of salaries, stock-based compensation and benefits for research and development personnel and related expenses; contract labor expense and consulting fees as well as other expenses associated with the design, certification and testing of our software applications; and legal costs associated with the patent registration of such software applications; •General and Administrative, consists primarily of salaries, stock-based compensation and benefits for our executive, accounting, human resources, legal, information systems and other administrative personnel. Also included in this category are other general corporate expenses, such as outside legal and accounting services, compliance costs and insurance; and •Depreciation and Amortization, consists of depreciation expense primarily for our owned corporate campus headquarters location, computer equipment we use for information services and in our development and test labs and amortization of intangible assets. |
Foreign Currency Exchange Rates’ Impact on Results of Operations
Sales outside the United States were approximately 49% of our total revenue for fiscal 2020, 47% of our total revenue for fiscal 20192023 and 46%48% for both fiscal 2018.2022 and fiscal 2021. The income statements of our non-U.S. operations are translated into U.S. dollars at the average exchange rates for each applicable month in a period. To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions generally results in increased revenue, operating expenses and income from operations for our non-U.S. operations. Similarly, our revenue, operating expenses and net income will generally decrease for our non-U.S. operations if the U.S. dollar strengthens against foreign currencies.
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Using the average foreign currency exchange rates from fiscal 2019,2022, our software and products revenue would have been higher by $4.6$15.1 million, our services revenue would have been higher by $5.9$19.7 million, our cost of sales would have been higher by $1.6$4.2 million and our operating expenses would have been higher by $5.8$18.6 million from non-U.S. operations for fiscal 2020.2023.
In addition, we are exposed to risks of foreign currency fluctuation primarily from cash balances, accounts receivables and intercompany accounts denominated in foreign currencies and are subject to the resulting transaction gains and losses, which are recorded as a component of general and administrative expenses. We recognized net foreign currency transaction gainslosses of $0.4$1.2 million in fiscal 2020, $1.02023, insignificant losses in fiscal 2022 and losses of $1.9 million in fiscal 2019, and $0.1 million in fiscal 2018.2021.
Critical Accounting Policies
In presenting our consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"), we are required to make estimates and judgments that affect the amounts reported therein. Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate. Actual results may differ significantly from these estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows may be affected.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application, while in other cases, significant judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions. We consider these policies requiring significant management judgment to be critical accounting policies. The following is a description of ourthese critical accounting policies that we believe require subjective and complex judgments, which could potentially have a material effect on our reported financial condition or results of operations.
policies.
Revenue Recognition
We account for revenue in accordance with ASC 606, Revenue from Contracts with Customers. Our revenue recognition policies require us to make significant judgments and estimates. In applying our revenue recognition policy, we must determine which portions of our revenue are recognized currently (generally software and products revenue) and which portions must be deferred and recognized in future periods (generally services revenue). We analyze various factors including, but not limited to, the selling price of undelivered services when sold on a stand-alone basis, our pricing policies, the credit-worthiness of our customers, and contractual terms and conditions in helping us to make such judgments about revenue recognition. Changes in judgment on any of these factors could materially impact the timing and amount of revenue recognized in a given period. We record revenue net of sales tax.
We derive revenue from two primary sources: software and products, and services. Software and products revenue includes our software and integrated appliances that combine our software with hardware. Services include customer support (software updates and technical support), consulting, assessment and design services, installation services, customer education and customer education. A typical contract includesas-a-service, which is branded as Metallic.
We sell both perpetual and term-based licenses and services.
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We also selloffer appliances that integrate our software with hardware and address a wide-range of business needs and use cases, ranging from support for remote or branch offices with limited IT staff up to large corporate data centers. Revenue relatedWe typically offer appliances via a software only model in which we sell software to appliancesa third party, which assembles an integrated appliance that is recognized when control ofsold to end user customers. As a result, the appliances passes to the customer; typically upon delivery.
Services revenue includes revenue from customer support, SaaS, and other professional services. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. We sell our customer support contracts as a percentage of net software purchases the support is related to. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year.year on our perpetual licenses. The term of our subscription arrangements is typically three years but can range between one and five years.
Our other professional services include consulting, assessment and design services, installation services and customer education. Customer education services include courses taught by our instructors or third-party contractors. Revenue related to other professional services and customer education services is typically recognized as the services are performed.
Most of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of software and productsappliances are typically estimated using the residual approach. Standalone selling prices of services are typically estimated based on observable transactions when these services are sold on a standalone basis.
Our typical performance obligations include the following:
| Performance Obligation | When Performance Obligation is Typically Satisfied | When Payment is Typically Due | How Standalone Selling Price is Typically Estimated | |||||||||||
| Software and Products Revenue | ||||||||||||||
| Software Licenses | Upon shipment or made available for download (point in time) | Within 90 days of shipment except for certain subscription licenses which are paid for over time | Residual approach | |||||||||||
| Customer Support Revenue | ||||||||||||||
| Software Updates | Ratably over the course of the support contract (over time) | At the beginning of the contract period | Observable in renewal transactions | |||||||||||
| Customer Support | Ratably over the course of the support contract (over time) | At the beginning of the contract period | Observable in renewal transactions | |||||||||||
| Other Services Revenue | ||||||||||||||
| Other Professional Services (except for education services) | As work is performed (over time) | Within 90 days of services being performed | Observable in transactions without multiple performance obligations | |||||||||||
| Education Services | When the class is taught (point in time) | Within 90 days of services being performed | Observable in transactions without multiple performance obligations | |||||||||||
| Ratably over the course of the contract (over time) | Observable in transactions without multiple performance obligations | |||||||||||||
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Accounting for Income Taxes
Under ASC 740, deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts. Valuation allowances are established when, in our judgment, it is more likely than not that deferred tax assets will not be realized. In assessing the need for a valuation allowance, we weigh the available positive and negative evidence, including historical levels of pre-tax income, legislative developments, expectations and risks associated with estimates of future pre-tax income, and prudent and feasible tax planning strategies. During the year ended March 31, 2018, we concludedWe believe that based on the amount, and trend, of pre-tax loss in recent fiscal years it is more likely than not that we will not realize the benefits of itsour gross deferred tax assets and therefore have recorded a valuation allowance to reduce the carrying value of these gross deferred tax assets, net of the impact of the reversal of taxable temporary differences, to zero. The valuation allowance is material to our financial statements. In the future, changes to our estimates regarding the realizability of our gross deferred tax assets could materially impact our results of operations.
We conduct business globally and as a result, file income tax returns in the United States and in various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States, Australia, Canada, Germany, Netherlands and United Kingdom.
Goodwill and Purchased Intangible Asset
We test goodwill and indefinite-lived intangible assets for impairment at least annually, (January 1)on January 1, by performing a quantitative assessment of whether the fair value of each reporting unit or asset exceeds its carrying amount. We have one reporting unit. Goodwill is tested at this reporting unit level and indefinite-lived intangible assets are tested at the individual asset level. This requires us to assess and make judgments regarding a variety of factors which impact the fair value of the reporting unit or asset being tested, including business plans, anticipated future cash flows, economic projections and other market data. Because there are inherent uncertainties involved in these factors, significant differences between these estimates and actual results could result in future impairment charges and could materially impact our future financial results. During the fourth quarter of 2020,fiscal 2023, we
completed the annual impairment test for goodwill and determined that these assetsit had not been impaired as of the test date, January 1, 2020. No other events or circumstances changed during the year ended March 31, 2020 that would indicate that the fair values of our reporting unit and indefinite-lived intangible asset are below their carrying values.2023.
Results of Operations
Fiscal year ended March 31, 20202023 compared to fiscal year ended March 31, 20192022
Revenues (in millions)
- Total revenues decreased $40.1increased $15.0 million, or 6%2% as a result of the following:
•Software and products revenue represented 41%45% of our total revenues in fiscal 20202023 and 44%46% of our total revenues in fiscal 2019.2022.
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•Services revenue represented 55% of our total revenues in fiscal 2023 and 54% of our total revenues in fiscal 2022.
•Using the average foreign currency exchange rates from the fiscal year ended March 31, 2022, our total revenues would have increased 6% compared to the fiscal year ended March 31, 2022.
Software and products revenue decreased $1.4 million, primarily due to:
•The impact of the year over year strengthening of the U.S. dollar, particularly as compared to the Euro and British Pound. Using the average foreign currency exchange rates from the fiscal year ended March 31, 2022, our software and products revenue would have increased 4% compared to the fiscal year ended March 31, 2022.
•The foreign currency impact was partially offset by an increase of $3.2 million, or 1%, in larger deal transactions (deals greater than $0.1 million)million in software and products revenue). Larger deal transactions represented approximately 65%73% of our software and products revenue in both fiscal 20202023 and 72% of our software and products revenue in fiscal 2019.2022.
•The average dollar amount of enterpriselarger deal transactions was approximately $298,000$345 thousand in fiscal 20202023 and approximately $272,000$320 thousand in fiscal 2019.2022. There were 750 larger deal revenue transactions in fiscal 2023 compared to 799 deals in fiscal 2022.
- Services revenue decreased $5.5increased $16.4 million, or 1%4%, primarily due toto:
•An increase in other services revenue, driven primarily by the following:
•Using the average foreign currency exchange rates from the fiscal year ended March 31, 2022, our services revenue would have increased 9% compared to new customers and renewal agreements with our installed software base
We track software and products revenue on a geographic basis. The geographic regions that are tracked areOur International region encompasses Europe, Middle East, Africa, Australia, India, Japan, Southeast Asia, and China. Our Americas region includes the Americas (UnitedUnited States, Canada, and Latin America), EMEA (Europe, Middle East, Africa)America. Americas and APJ (Australia, New Zealand, Southeast Asia, China). Americas, EMEAInternational represented 60% and APJ represented 51%, 35% and 14%40% of total software and products revenue, respectively, for the fiscal year ended March 31, 2020. The2023. Software and products revenue was flat year over year decrease of Software and Products Revenue was 17% in the Americas and decreased 1% in EMEAInternational.
▪The decrease in International software and 13% in APJ.products revenue was primarily due to the year over year strengthening of the U.S. dollar, particularly as compared to the Euro and British Pound. Using the average foreign currency exchange rates from the fiscal year ended March 31, 2022, our International revenue would have increased 10% compared to the fiscal year ended March 31, 2022.
Our software and products revenue in EMEA and APJInternational is subject to changes in foreign exchange rates as more fullyfurther discussed above in the “Foreign Currency Exchange Rates’ Impact on Results of Operations” section.
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Cost of Revenues and Gross Margin ($ in millions)
- Total cost of revenues increased $0.1$21.5 million representingand represented 17% and 15% of our total revenues in fiscal 2020 compared to 16% in2023 and fiscal 2019. The increase as a percentage of revenue is related to the cost of sales associated with our Hyperscale software and products.2022, respectively.
- Cost of software and products revenue increased $2.4$0.6 million representing 10%and represented 4% of software and products revenue in both fiscal 2020 compared to 8% in2023 and fiscal 2019. The increase is related to additional hardware and software royalty costs associated with our appliance and Hyperscale product offerings. As sales of our appliances and hyperscale products continue to ramp, we expect the cost of software and products as a percentage of software and products revenue will continue to increase.2022.
- Cost of services revenue decreased $2.3increased $20.9 million representing 22%and represented 28% of our services revenue in fiscal 2020 and 23%2023 compared to 24% in fiscal 2019.2022. The increase in cost of services revenue primarily related to an increase in the cost of infrastructure related to Metallic as-a-service offerings as they continue to scale.
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Operating Expenses ($ in millions)
- Research and development expenses decreased $11.8 million, or 8%, due to decreases in employee compensation and related expenses, mainly attributable to our restructuring initiatives
fiscal 2022. Investing in research and development has been a priority for Commvault, and we anticipate continued spending related to the development of our data and information managementprotection software applications.
- General and administrative expenses: decreased $8.8expenses increased $1.2 million, or 9%1%, primarily due to the following:
- Restructuring: Our restructuring plan, initiated in the fourth quarter of the increasefiscal 2022, is related to the restructuring and centralization of certain activities across the company.
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- Depreciation and amortization expense: increased $5.2expense decreased $0.4 million, from $10.6$9.7 million in fiscal 20192022 to $15.8$9.3 million in fiscal 2020,2023, driven by the amortizationreclassification of intangibleour owned corporate headquarters as assets acquiredheld for sale.
- Impairment charges: During the fourth quarter of fiscal 2023, we entered into an agreement to sell our owned corporate headquarters in Tinton Falls, New Jersey. The property was reclassified as assets held for sale and the previous carrying amount was written down to its estimated fair value, less estimated costs to sell, resulting in a resultnoncash impairment charge of the Hedvig business combination. Depreciation and amortization expense will increase in fiscal 2021 as a result of a full year of Hedvig intangible asset amortization.$53.5 million.
Interest Income
Interest income decreasedincreased $0.6 million, from $5.5$0.7 million in fiscal 20192022 to $5.0$1.3 million in fiscal 2020. The decrease was the2023 primarily as a result of an increase in long term receivables that include a decreasefinancing component.
Interest Expense
Interest expense increased $0.4 million as a result of entering into a revolving credit facility in short term investments and decreased yield on those investments. Our short-term investments are in U.S. Treasury Bills.late fiscal 2022.
Income Tax Expense
Income tax benefitexpense was $6.9$20.4 million in fiscal 20202023 compared to expense of $6.9$9.8 million in fiscal 2019. The income tax benefit for the year ended March 31, 2020 relates primarily to the impact of the U.S. CARES Act. As a result of the CARES act, we have estimated that we will receive an income tax refund of approximately $10.0 million related to the ability to carryback net operating losses. This benefit was partially offset by current foreign taxes.2022. The income tax expense for the year ended March 31, 20192023 relates primarily to current U.S. and foreign taxes. The increase in income tax expense relative to the prior year relates primarily to current federal and state taxes driven by the effects of capitalization and amortization of research and development expenses starting in fiscal year 2023 as required by the 2017 Tax Cuts and Jobs Act. Given we have recorded a valuation allowance against our deferred tax assets, there is no corresponding deferred tax benefit related to the current tax expense associated with the capitalization of research and development expenses.
Liquidity and Capital Resources
As of March 31, 2020,2023, our cash balance was $296.1 million, which included $8.0 million of restricted cash. In addition, we have approximately $43.6 million of short-term investments invested in U.S. Treasury Bills. In recent fiscal years, our principal source of liquidity has been cash provided by operations.
On December 13, 2021, we entered into a five-year $100 million senior secured revolving credit facility (the “Credit Facility”) with JPMorgan Chase Bank, N.A.. The Credit Facility is available for share repurchases, general corporate purposes, and letters of credit. The Credit Facility contains financial maintenance covenants including a leverage ratio and interest coverage ratio. The Credit Facility also contains certain customary events of default which would permit the lender to, among other things, declare all loans then outstanding to be immediately due and payable if such default is not cured within applicable grace periods. The Credit Facility also limits our ability to incur certain additional indebtedness, create or permit liens on assets, make acquisitions, make investments, loans or advances, sell or transfer assets, pay dividends or distributions, and engage in certain transactions with foreign affiliates. Outstanding borrowings under the Credit Facility accrue interest at an annual rate equal to Secured Overnight Financing Rate plus 1.25% subject to increases based on our actual leverage. The unused balance on the Credit Facility is also subject to a 0.25% annual interest charge subject to increases based on our actual leverage. As of March 31, 2023, there were no borrowings under the Credit Facility and we were in compliance with all covenants.
During the year ended March 31, 2020,2023, we repurchased $77.2$150.9 million of common stock, (1.7or approximately 2.5 million shares) undershares. On April 20, 2023, the Board of Directors approved an increase in our share repurchase program. Our future stock repurchase activityprogram so that $250.0 million was available. The Board's authorization has no expiration date. While we are not obligated to, our current practice is subject to the business judgment of our management and Board of Directors, taking into consideration our historical and projected results of operations, financial condition, cash flows and other anticipated capital requirements or investment alternatives. As of May 11, 2020, there is $162.8 million remaining in the share repurchase program which expires on March 31, 2021. Our stock repurchase program has been funded by our existing cash and cash equivalent balances as well as cash flows provided by our operations.
(operating cash flow less capital expenditures).
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| Year Ended March 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Net cash provided by operating activities | $ | 88,464 | $ | 110,180 | $ | 84,169 | ||||||
| Net cash used in investing activities | (74,005 | ) | (5,261 | ) | (17,991 | ) | ||||||
| Net cash used in financing activities | (39,403 | ) | (90,713 | ) | (82,104 | ) | ||||||
| Effects of exchange rate — changes in cash | (6,966 | ) | (16,998 | ) | 17,219 | |||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | (31,910 | ) | $ | (2,792 | ) | $ | 1,293 | ||||
A summary of the cash used for the stock repurchase program consists of the following:
| Year Ended March 31, | ||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||
| Cash used for repurchases (in thousands) | $ | 150,921 | $ | 305,239 | $ | 95,259 | $ | 77,198 | $ | 132,697 | ||||||||||||||||||||||
| Shares repurchased (in thousands) | 2,521 | 4,307 | 1,643 | 1,701 | 2,115 | |||||||||||||||||||||||||||
| Average price per share | $ | 59.90 | $ | 70.87 | $ | 57.97 | $ | 45.37 | $ | 62.74 | ||||||||||||||||||||||
Our summarized cash flow information is as follows (in thousands):
| Year Ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Net cash provided by operating activities | $ | 170,288 | $ | 177,180 | ||||||||||
| Net cash used in investing activities | (5,286) | (24,444) | ||||||||||||
| Net cash used in financing activities | (135,579) | (276,088) | ||||||||||||
| Effects of exchange rate — changes in cash | (9,152) | (6,378) | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 20,271 | $ | (129,730) | ||||||||||
- Net cash provided by operating activities was impacted by:
•Fiscal 2023: net loss adjusted for the impact of non-cash charges, including the impairment of our owned corporate headquarters, and increases in deferred revenue partially offset by decreases in accrued expenses.
•Fiscal 2022: net income adjusted for the impact of non-cash charges and increases in deferred revenue and accrued expenses, partially offset by increases in accounts receivable and deferred commissions.
- Net cash used in investing activities was impacted by:
•Fiscal 2023: $3.2 million of capital expenditures and $2.1 million for the purchase of equity securities.
•Fiscal 2022: $16.9 million used for the acquisition of TrapX, $3.9 million of capital expenditures and $4.1 million for the purchase of equity securities partially offset by proceeds of $0.5 million related to the sale of an equity investment.
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| Year Ended March 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
| Cash used for repurchases (in thousands) | $ | 77,198 | $ | 132,697 | $ | 112,218 | $ | 49,998 | $ | 91,477 | ||||||||||
| Shares repurchased (in thousands) | 1,701 | 2,115 | 2,098 | 982 | 2,563 | |||||||||||||||
| Average price per share | $ | 45.37 | $ | 62.74 | $ | 53.49 | $ | 50.91 | $ | 35.69 | ||||||||||
•Fiscal 2023: $150.9 million used to repurchase shares of our common stock under our repurchase program, $0.1 million of debt issuance costs paid partially offset by $15.4 million of proceeds from the exercise of stock options and the Employee Stock Purchase Plan.
•Fiscal 2022: $305.2 million used to repurchase shares of our common stock under our repurchase program, $0.6 million of debt issuance costs paid partially offset by $29.7 million of proceeds from the exercise of stock options and the Employee Stock Purchase Plan.
Working capital decreased $143.6increased $50.8 million from $328.7$90.0 million as of March 31, 20192022 to $185.1$140.8 million as of March 31, 2020.2023. The decreaseincrease in working capital is primarily due to cash used to acquire the investment in Hedvig during the fiscal year.reclassification of our owned corporate headquarters as assets held for sale.
We believe that our existing cash, cash equivalents and our cash from operations will be sufficient to meet our anticipated cash needs for working capital, income taxes, capital expenditures and potential stock repurchases for at least the next 12twelve months. We may seek additional funding through public or private financings or other arrangements during this period. Adequate funds may not be available when needed or may not be available on terms favorable to us, or at all. If additional funds are raised by issuing equity securities, dilution to existing stockholders will result. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibility, and would also require us to fund additional interest expense. If funding is insufficient at any time in the future, we may be unable to develop or enhance our products or services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.
Summary Disclosures about Contractual Obligations and Commercial Commitments
Our material capital commitments consist of obligations under facilities and operating leases. Some of these leases have free or escalating rent payment provisions. Refer to Notes 2 and 15 of the notes to the consolidated financial statements for further discussion on operating leases. We anticipate that we will experience an increase in our capital expenditures and lease commitments as a result of our anticipated growth in operations, infrastructure, personnel and resources devoted to building our brand name.
| Payments Due by Period | |||||||||||||||
| Total | Less Than 1 Year | 2-3 Years | 4-5 Years | More Than 5 Years | |||||||||||
| Operating lease obligations | 17,818 | 7,520 | 7,230 | 2,393 | 675 | ||||||||||
| Purchase obligations | 26,041 | 18,590 | 6,205 | 1,246 | — | ||||||||||
| Total | 43,859 | 26,110 | 13,435 | 3,639 | 675 | ||||||||||
We have certain software royalty commitments associated with the shipment and licensing of certain products. Royalty expense is generally based on a fixed cost per unit shipped or a fixed fee for unlimited units shipped over a designated period. Royalty expense, included in cost of software and products revenues, was $12.5$9.3 million in fiscal 20202023 and $12.3$11.2 million in fiscal 2019.2022.
We offer a 90-day limited product warranty for our software. To date, costs relating to this product warranty have not been material.
Off-Balance Sheet Arrangements
As of March 31, 2019, we had operating leases that were classified as off-balance sheet arrangements. Upon adoption of ASC 842, Leases on April 1, 2019, leases were classified as right of use assets and presented on the balance sheet as discussed in Note 15 of the consolidated financial statements. As such, as of March 31, 2020,2023, we did not have off-balance sheet financing arrangements, including any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.
Indemnifications
Certain of our software licensing agreements contain certain provisions that indemnify our customers from any claim, suit or proceeding arising from alleged or actual intellectual property infringement. These provisions continue in perpetuity along with our software licensing and as-a-service agreements. We have never incurred a liability relating to one of these indemnification provisions in the past and we believe that the likelihood of any future payout relating to these provisions is remote. Therefore, we have not recorded a liability during any period related to these indemnification provisions.
Impact of Recently Issued Accounting Standards
See Note 2 of the notes to the consolidated financial statements for a discussion of the impact of recently issued accounting standards.
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| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk | ||||
Interest Rate Risk
None.
Foreign Currency Risk
Economic Exposure
As a global company, we face exposure to adverse movements in foreign currency exchange rates. Our international sales are generally denominated in foreign currencies and this revenue could be materially affected by currency fluctuations. Approximately 49%47% of our sales were outside the United States in fiscal 20202023 and 47% were outside the United States48% in fiscal 2019.2022. Our primary exposures are to fluctuations in exchange rates for the U.S. dollar versus the Euro, and to a lesser extent, the Australian dollar, British pound sterling, Canadian dollar, Chinese yuan, Indian rupee, Korean won and Singapore dollar. Changes in currency exchange rates could adversely affect our reported revenues and require us to reduce our prices to remain competitive in foreign markets, which could also have a material adverse effect on our results of operations. Historically, we have periodically reviewed and revised the pricing of our products available to our customers in foreign countries and we have not maintained excess cash balances in foreign accounts.
We estimate that a 10% change in all foreign exchange rates would impact our reported operating profit by approximately $9.6$11.0 million annually. This sensitivity analysis disregards the possibilities that rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area.
Transaction Exposure
Our exposure to foreign currency transaction gains and losses is primarily the result of certain net receivables due from our foreign subsidiaries and customers being denominated in currencies other than the functional currency of the subsidiary. Our foreign subsidiaries conduct their businesses in local currency and we generally do not maintain excess U.S. dollar cash balances in foreign accounts.
Foreign currency transaction gains and losses are recorded in Generalgeneral and administrative expenses in the Consolidated Statementsconsolidated statements of Operation.operations. We recognized net foreign currency transaction gainslosses of $0.4 million, $1.0 million and $0.1$1.2 million in fiscal 2020,2023, insignificant losses in fiscal 2019, and fiscal 2018 respectively. The net foreign currency transaction gains2022, and losses recordedof $1.9 million in General and administrative expenses include settlement gains and losses on forward contracts disclosed below.
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| Item 8. | Financial Statements and Supplementary Data | ||||
Commvault Systems, Inc.
Consolidated Financial Statements
Fiscal Years Ended March 31, 2020, 20192023, 2022 and 20182021
Index to Consolidated Financial Statements
| Page | |||||
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Commvault Systems, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Commvault Systems, Inc. (the "Company")Company) as of March 31, 20202023 and 2019,2022, the related consolidated statements of operations, comprehensive loss,income (loss), stockholders' equity and cash flows for each of the three years in the period ended March 31, 2020,2023, and the related notes and financial statement schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2020,2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of March 31, 2020,2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 15, 20205, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MattersMatter
The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the financial statements that werewas communicated or required to be communicated to the audit committee and that: (1) relaterelates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit mattersmatter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accountsaccount or disclosuresdisclosure to which they relate.
it relates.
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| Accounting for Revenue Recognition | ||||||||
Description of the Matter | As described in Note 3 to the consolidated financial statements, the Company derives revenues from two primary sources: software and products, and services. Most of the Company’s contracts with customers contain multiple performance obligations which are accounted for separately if they are distinct. The transaction price is allocated to separate performance obligations on a relative standalone selling price basis. Auditing the identification of performance obligations in a software contract requires significant judgment as it relates to the evaluation of the contractual terms of the arrangement. | |||||||
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s revenue recognition process, including the evaluation of the contractual terms of the revenue arrangements. To test the amount of revenue recognized, we performed audit procedures that included, among others, testing a sample of revenue transactions during the year and evaluating the identification of performance obligations based on an analysis of the contractual terms and independent confirmations of the terms and conditions of the contract directly with customers. | |||||||
We have served as the Company’s auditor since 1998.
/s/ Ernst & Young LLP
Iselin, New Jersey
May 15, 2020
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Commvault Systems, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
| March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 287,778 | $ | 267,507 | ||||||||||
| Trade accounts receivable, net | 210,441 | 194,238 | ||||||||||||
| Assets held for sale | 38,680 | — | ||||||||||||
| Other current assets | 14,015 | 22,336 | ||||||||||||
| Total current assets | 550,914 | 484,081 | ||||||||||||
| Property and equipment, net | 8,287 | 106,513 | ||||||||||||
| Operating lease assets | 11,784 | 14,921 | ||||||||||||
| Deferred commissions cost | 59,612 | 52,974 | ||||||||||||
| Intangible assets, net | 2,292 | 3,542 | ||||||||||||
| Goodwill | 127,780 | 127,780 | ||||||||||||
| Other assets | 21,905 | 26,269 | ||||||||||||
| Total assets | $ | 782,574 | $ | 816,080 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | 108 | $ | 432 | ||||||||||
| Accrued liabilities | 97,888 | 121,837 | ||||||||||||
| Current portion of operating lease liabilities | 4,518 | 4,778 | ||||||||||||
| Deferred revenue | 307,562 | 267,017 | ||||||||||||
| Total current liabilities | 410,076 | 394,064 | ||||||||||||
| Deferred revenue, less current portion | 174,393 | 150,180 | ||||||||||||
| Deferred tax liabilities, net | 134 | 808 | ||||||||||||
| Long-term operating lease liabilities | 8,260 | 11,270 | ||||||||||||
| Other liabilities | 3,613 | 3,929 | ||||||||||||
| Commitments and contingencies (Note 9) | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
| Preferred stock, $0.01 par value: 50,000 shares authorized, no shares issued and outstanding | — | — | ||||||||||||
| Common stock, $0.01 par value, 250,000 shares authorized, 44,140 shares and 44,511 shares issued and outstanding at March 31, 2023 and 2022, respectively | 440 | 443 | ||||||||||||
| Additional paid-in capital | 1,264,608 | 1,165,948 | ||||||||||||
| Accumulated deficit | (1,062,900) | (898,699) | ||||||||||||
| Accumulated other comprehensive loss | (16,050) | (11,863) | ||||||||||||
| Total stockholders’ equity | 186,098 | 255,829 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 782,574 | $ | 816,080 | ||||||||||
| March 31, | ||||||||
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 288,082 | $ | 327,992 | ||||
| Restricted cash | 8,000 | — | ||||||
| Short-term investments | 43,645 | 130,338 | ||||||
| Trade accounts receivable, net | 146,990 | 176,836 | ||||||
| Other current assets | 26,969 | 19,836 | ||||||
| Total current assets | 513,686 | 655,002 | ||||||
| Property and equipment, net | 114,519 | 122,716 | ||||||
| Operating lease assets | 15,009 | — | ||||||
| Deferred commissions cost | 31,394 | 33,619 | ||||||
| Intangible assets, net | 46,350 | — | ||||||
| Goodwill | 112,435 | — | ||||||
| Other assets | 11,683 | 11,116 | ||||||
| Total assets | $ | 845,076 | $ | 822,453 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 307 | $ | 2,186 | ||||
| Accrued liabilities | 87,051 | 85,721 | ||||||
| Current portion of operating lease liabilities | 7,699 | — | ||||||
| Deferred revenue | 233,497 | 238,439 | ||||||
| Total current liabilities | 328,554 | 326,346 | ||||||
| Deferred revenue, less current portion | 92,723 | 99,257 | ||||||
| Deferred tax liabilities, net | 849 | 2,594 | ||||||
| Long-term operating lease liabilities | 8,808 | — | ||||||
| Other liabilities | 2,238 | 2,953 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $0.01 par value: 50,000 shares authorized, no shares issued and outstanding | — | — | ||||||
| Common stock, $0.01 par value, 250,000 shares authorized, 46,011 shares and 45,582 shares issued and outstanding at March 31, 2020 and 2019, respectively | 458 | 454 | ||||||
| Additional paid-in capital | 978,659 | 887,907 | ||||||
| Accumulated deficit | (553,790 | ) | (485,490 | ) | ||||
| Accumulated other comprehensive loss | (13,423 | ) | (11,568 | ) | ||||
| Total stockholders’ equity | 411,904 | 391,303 | ||||||
| Total liabilities and stockholders’ equity | $ | 845,076 | $ | 822,453 | ||||
See accompanying notes to consolidated financial statements
43
Commvault Systems, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
| Year Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Software and products | $ | 355,082 | $ | 356,487 | $ | 326,843 | ||||||||||||||
| Services | 429,508 | 413,104 | 396,629 | |||||||||||||||||
| Total revenues | 784,590 | 769,591 | 723,472 | |||||||||||||||||
| Cost of revenues: | ||||||||||||||||||||
| Software and products | 14,684 | 14,057 | 27,218 | |||||||||||||||||
| Services | 120,718 | 99,802 | 82,155 | |||||||||||||||||
| Total cost of revenues | 135,402 | 113,859 | 109,373 | |||||||||||||||||
| Gross margin | 649,188 | 655,732 | 614,099 | |||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Sales and marketing | 340,783 | 341,644 | 331,948 | |||||||||||||||||
| Research and development | 141,847 | 153,615 | 133,401 | |||||||||||||||||
| General and administrative | 104,240 | 103,049 | 92,214 | |||||||||||||||||
| Restructuring | 15,452 | 6,192 | 23,471 | |||||||||||||||||
| Depreciation and amortization | 9,270 | 9,666 | 14,628 | |||||||||||||||||
| Impairment charges | 53,481 | — | 40,700 | |||||||||||||||||
| Total operating expenses | 665,073 | 614,166 | 636,362 | |||||||||||||||||
| Income (loss) from operations | (15,885) | 41,566 | (22,263) | |||||||||||||||||
| Interest income | 1,300 | 656 | 1,028 | |||||||||||||||||
| Interest expense | (472) | (109) | — | |||||||||||||||||
| Other income (loss), net | (305) | 1,301 | — | |||||||||||||||||
| Income (loss) before income taxes | (15,362) | 43,414 | (21,235) | |||||||||||||||||
| Income tax expense | 20,412 | 9,790 | 9,719 | |||||||||||||||||
| Net income (loss) | $ | (35,774) | $ | 33,624 | $ | (30,954) | ||||||||||||||
| Net income (loss) per common share: | ||||||||||||||||||||
| Basic | $ | (0.80) | $ | 0.74 | $ | (0.66) | ||||||||||||||
| Diluted | $ | (0.80) | $ | 0.71 | $ | (0.66) | ||||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||
| Basic | 44,664 | 45,443 | 46,652 | |||||||||||||||||
| Diluted | 44,664 | 47,220 | 46,652 | |||||||||||||||||
| Year Ended March 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Revenues: | ||||||||||||
| Software and products | $ | 275,308 | $ | 309,899 | $ | 311,745 | ||||||
| Services | 395,577 | 401,058 | 387,648 | |||||||||
| Total revenues | 670,885 | 710,957 | 699,393 | |||||||||
| Cost of revenues: | ||||||||||||
| Software and products | 28,082 | 25,691 | 7,223 | |||||||||
| Services | 88,996 | 91,315 | 90,929 | |||||||||
| Total cost of revenues | 117,078 | 117,006 | 98,152 | |||||||||
| Gross margin | 553,807 | 593,951 | 601,241 | |||||||||
| Operating expenses: | ||||||||||||
| Sales and marketing | 335,785 | 370,088 | 410,727 | |||||||||
| Research and development | 110,020 | 92,647 | 91,030 | |||||||||
| General and administrative | 92,130 | 100,946 | 90,709 | |||||||||
| Net change in contingent consideration | (3,783 | ) | — | — | ||||||||
| Restructuring | 21,348 | 14,765 | — | |||||||||
| Depreciation and amortization | 15,815 | 10,597 | 9,721 | |||||||||
| Total operating expenses | 571,315 | 589,043 | 602,187 | |||||||||
| Income (loss) from operations | (17,508 | ) | 4,908 | (946 | ) | |||||||
| Interest income | 4,962 | 5,519 | 2,228 | |||||||||
| Interest expense | — | — | (1,161 | ) | ||||||||
| Equity in loss of affiliate | — | — | (3,621 | ) | ||||||||
| Income (loss) before income taxes | (12,546 | ) | 10,427 | (3,500 | ) | |||||||
| Income tax expense (benefit) | (6,901 | ) | 6,866 | 58,400 | ||||||||
| Net income (loss) | $ | (5,645 | ) | $ | 3,561 | $ | (61,900 | ) | ||||
| Net income (loss) per common share: | ||||||||||||
| Basic | $ | (0.12 | ) | $ | 0.08 | $ | (1.37 | ) | ||||
| Diluted | $ | (0.12 | ) | $ | 0.07 | $ | (1.37 | ) | ||||
| Weighted average common shares outstanding: | ||||||||||||
| Basic | 45,793 | 45,827 | 45,242 | |||||||||
| Diluted | 45,793 | 47,601 | 45,242 | |||||||||
See accompanying notes to consolidated financial statements
44
Commvault Systems, Inc.
Consolidated Statements of Comprehensive LossIncome (Loss)
(In thousands)
| Year Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Net income (loss) | $ | (35,774) | $ | 33,624 | $ | (30,954) | ||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||
| Foreign currency translation adjustment | (4,187) | (1,513) | 3,073 | |||||||||||||||||
| Comprehensive income (loss) | $ | (39,961) | $ | 32,111 | (27,881) | |||||||||||||||
| Year Ended March 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Net income (loss) | $ | (5,645 | ) | $ | 3,561 | $ | (61,900 | ) | ||||
| Other comprehensive income (loss): | ||||||||||||
| Foreign currency translation adjustment | (1,855 | ) | (6,096 | ) | 6,843 | |||||||
| Comprehensive loss | $ | (7,500 | ) | $ | (2,535 | ) | (55,057 | ) | ||||
See accompanying notes to consolidated financial statements
45
Commvault Systems, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
| Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | 46,011 | $ | 458 | $ | 978,659 | $ | (553,790) | $ | (13,423) | $ | 411,904 | |||||||||||||||||||||||||||
| Cumulative effect of adoption of ASU 2016-13 | (84) | (84) | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 84,833 | 84,833 | ||||||||||||||||||||||||||||||||||||
| Share issuance related to stock-based compensation | 2,115 | 21 | 20,500 | 20,521 | ||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (1,644) | (16) | (14,297) | (80,946) | (95,259) | |||||||||||||||||||||||||||||||||
| Net loss | (30,954) | (30,954) | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 3,073 | 3,073 | ||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | 46,482 | 463 | 1,069,695 | (665,774) | (10,350) | 394,034 | ||||||||||||||||||||||||||||||||
| Stock-based compensation | 105,163 | 105,163 | ||||||||||||||||||||||||||||||||||||
| Share issuance related to stock-based compensation | 2,336 | 23 | 29,737 | 29,760 | ||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (4,307) | (43) | (38,647) | (266,549) | (305,239) | |||||||||||||||||||||||||||||||||
| Net income | 33,624 | 33,624 | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (1,513) | (1,513) | ||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 44,511 | 443 | 1,165,948 | (898,699) | (11,863) | 255,829 | ||||||||||||||||||||||||||||||||
| Stock-based compensation | 105,746 | 105,746 | ||||||||||||||||||||||||||||||||||||
| Share issuance related to stock-based compensation | 2,150 | 22 | 15,383 | 15,405 | ||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (2,521) | (25) | (22,469) | (128,427) | (150,921) | |||||||||||||||||||||||||||||||||
| Net loss | (35,774) | (35,774) | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (4,187) | (4,187) | ||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | 44,140 | $ | 440 | $ | 1,264,608 | $ | (1,062,900) | $ | (16,050) | $ | 186,098 | |||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||
| Balance at March 31, 2017 | 44,816 | $ | 447 | $ | 694,477 | $ | (215,677 | ) | $ | (12,315 | ) | $ | 466,932 | ||||||||||
| Cumulative effect of adoption of ASU 2016-09 | 435 | (271 | ) | 164 | |||||||||||||||||||
| Stock-based compensation | 74,129 | 74,129 | |||||||||||||||||||||
| Share issuances related to stock-based compensation | 2,400 | 24 | 30,090 | 30,114 | |||||||||||||||||||
| Repurchase of common stock | (2,098 | ) | (21 | ) | (16,367 | ) | (95,830 | ) | (112,218 | ) | |||||||||||||
| Net loss | (61,900 | ) | (61,900 | ) | |||||||||||||||||||
| Other comprehensive loss | 6,843 | 6,843 | |||||||||||||||||||||
| Balance at March 31, 2018 | 45,118 | 450 | 782,764 | (373,678 | ) | (5,472 | ) | 404,064 | |||||||||||||||
| Stock-based compensation | 80,487 | 80,487 | |||||||||||||||||||||
| Share issuances related to stock-based compensation | 2,579 | 25 | 41,959 | 41,984 | |||||||||||||||||||
| Repurchase of common stock | (2,115 | ) | (21 | ) | (17,303 | ) | (115,373 | ) | (132,697 | ) | |||||||||||||
| Net income | 3,561 | 3,561 | |||||||||||||||||||||
| Other comprehensive income | (6,096 | ) | (6,096 | ) | |||||||||||||||||||
| Balance at March 31, 2019 | 45,582 | 454 | 887,907 | (485,490 | ) | (11,568 | ) | 391,303 | |||||||||||||||
| Stock-based compensation | 65,888 | 65,888 | |||||||||||||||||||||
| Share issuances related to business combinations | 1,616 | 1,616 | |||||||||||||||||||||
| Share issuances related to stock-based compensation | 2,131 | 21 | 37,774 | 37,795 | |||||||||||||||||||
| Repurchase of common stock | (1,702 | ) | (17 | ) | (14,526 | ) | (62,655 | ) | (77,198 | ) | |||||||||||||
| Net loss | (5,645 | ) | (5,645 | ) | |||||||||||||||||||
| Other comprehensive loss | (1,855 | ) | (1,855 | ) | |||||||||||||||||||
| Balance at March 31, 2020 | 46,011 | $ | 458 | $ | 978,659 | $ | (553,790 | ) | $ | (13,423 | ) | $ | 411,904 | ||||||||||
See accompanying notes to consolidated financial statements
46
Commvault Systems, Inc.
Consolidated Statements of Cash Flows
(In thousands)
| Year Ended March 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Cash flows from operating activities | ||||||||||||
| Net income (loss) | $ | (5,645 | ) | $ | 3,561 | $ | (61,900 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 17,065 | 12,060 | 11,785 | |||||||||
| Noncash stock-based compensation | 65,888 | 80,487 | 74,129 | |||||||||
| Non-cash change in contingent consideration | (3,783 | ) | — | — | ||||||||
| Deferred income taxes | (1,783 | ) | 164 | 53,737 | ||||||||
| Equity in loss of affiliate | — | — | 3,621 | |||||||||
| Amortization of deferred commissions cost | 17,717 | 17,348 | 16,587 | |||||||||
| Impairment of operating lease assets | 2,761 | — | — | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Trade accounts receivable | 26,096 | (24,092 | ) | (25,082 | ) | |||||||
| Operating lease assets and liabilities, net | (1,226 | ) | — | — | ||||||||
| Other current assets and Other assets | (1,246 | ) | 11,400 | (6,876 | ) | |||||||
| Deferred commissions cost | (16,063 | ) | (18,967 | ) | (17,984 | ) | ||||||
| Accounts payable | (2,474 | ) | 1,485 | 618 | ||||||||
| Accrued liabilities | (1,997 | ) | 5,075 | 3,496 | ||||||||
| Deferred revenue | (6,230 | ) | 21,719 | 33,971 | ||||||||
| Other liabilities | (616 | ) | (60 | ) | (1,933 | ) | ||||||
| Net cash provided by operating activities | 88,464 | 110,180 | 84,169 | |||||||||
| Cash flows from investing activities | ||||||||||||
| Purchase of short-term investments | (43,645 | ) | (130,338 | ) | (142,424 | ) | ||||||
| Proceeds from maturity of short-term investments | 130,338 | 131,637 | 131,480 | |||||||||
| Purchase of property and equipment | (3,203 | ) | (6,560 | ) | (7,047 | ) | ||||||
| Business combination, net of cash acquired | (157,495 | ) | — | — | ||||||||
| Net cash used in investing activities | (74,005 | ) | (5,261 | ) | (17,991 | ) | ||||||
| Cash flows from financing activities | ||||||||||||
| Repurchase of common stock | (77,198 | ) | (132,697 | ) | (112,218 | ) | ||||||
| Proceeds from stock-based compensation plans | 37,795 | 41,984 | 30,114 | |||||||||
| Net cash used in financing activities | (39,403 | ) | (90,713 | ) | (82,104 | ) | ||||||
| Effects of exchange rate — changes in cash | (6,966 | ) | (16,998 | ) | 17,219 | |||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | (31,910 | ) | (2,792 | ) | 1,293 | |||||||
| Cash, cash equivalents and restricted cash at beginning of year | 327,992 | 330,784 | 329,491 | |||||||||
| Cash, cash equivalents and restricted cash at end of year | $ | 296,082 | $ | 327,992 | $ | 330,784 | ||||||
| Supplemental disclosures of cash flow information | ||||||||||||
| Interest paid | $ | — | $ | — | $ | 592 | ||||||
| Income taxes paid | $ | 6,002 | $ | 11,491 | $ | 6,448 | ||||||
| Year Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Cash flows from operating activities | ||||||||||||||||||||
| Net income (loss) | $ | (35,774) | $ | 33,624 | $ | (30,954) | ||||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||||
| Depreciation and amortization | 10,323 | 10,950 | 15,878 | |||||||||||||||||
| Noncash stock-based compensation | 105,746 | 105,163 | 84,833 | |||||||||||||||||
| Noncash change in fair value of equity securities | 305 | (301) | — | |||||||||||||||||
| Noncash impairment charges | 53,481 | — | 40,700 | |||||||||||||||||
| Deferred income taxes | (674) | 49 | (92) | |||||||||||||||||
| Amortization of deferred commissions cost | 22,626 | 18,339 | 18,318 | |||||||||||||||||
| Impairment of operating lease assets | — | — | 1,684 | |||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||||
| Trade accounts receivable | (11,596) | (20,371) | (34,622) | |||||||||||||||||
| Operating lease assets and liabilities, net | (56) | (925) | (1,157) | |||||||||||||||||
| Other current assets and Other assets | 6,179 | 3,732 | 11,887 | |||||||||||||||||
| Deferred commissions cost | (30,529) | (33,512) | (24,095) | |||||||||||||||||
| Accounts payable | (297) | 60 | 49 | |||||||||||||||||
| Accrued liabilities | (24,213) | 10,400 | 10,660 | |||||||||||||||||
| Deferred revenue | 73,756 | 48,295 | 31,740 | |||||||||||||||||
| Other liabilities | 1,011 | 1,677 | (874) | |||||||||||||||||
| Net cash provided by operating activities | 170,288 | 177,180 | 123,955 | |||||||||||||||||
| Cash flows from investing activities | ||||||||||||||||||||
| Proceeds from maturity of short-term investments | — | — | 43,645 | |||||||||||||||||
| Purchase of property and equipment | (3,241) | (3,911) | (8,176) | |||||||||||||||||
| Purchase of equity securities | (2,045) | (4,139) | — | |||||||||||||||||
| Business combination, net of cash acquired | — | (16,894) | — | |||||||||||||||||
| Other | — | 500 | — | |||||||||||||||||
| Net cash provided by (used in) investing activities | (5,286) | (24,444) | 35,469 | |||||||||||||||||
| Cash flows from financing activities | ||||||||||||||||||||
| Repurchase of common stock | (150,921) | (305,239) | (95,259) | |||||||||||||||||
| Proceeds from stock-based compensation plans | 15,405 | 29,760 | 20,521 | |||||||||||||||||
| Debt issuance costs | (63) | (609) | — | |||||||||||||||||
| Net cash used in financing activities | (135,579) | (276,088) | (74,738) | |||||||||||||||||
| Effects of exchange rate — changes in cash | (9,152) | (6,378) | 16,469 | |||||||||||||||||
| Net increase (decrease) in cash and cash equivalents | 20,271 | (129,730) | 101,155 | |||||||||||||||||
| Cash and cash equivalents at beginning of year | 267,507 | 397,237 | 296,082 | |||||||||||||||||
| Cash and cash equivalents at end of year | $ | 287,778 | $ | 267,507 | $ | 397,237 | ||||||||||||||
| Supplemental disclosures of cash flow information | ||||||||||||||||||||
| Interest paid | $ | 253 | $ | 13 | $ | — | ||||||||||||||
| Income taxes paid | $ | 15,175 | $ | (1,493) | $ | 2,959 | ||||||||||||||
See accompanying notes to consolidated financial statements
47
Commvault Systems, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
1. Nature of Business
Commvault Systems, Inc. and its subsidiaries ("Commvault," "we," "us," or "our") is a provider of data protection and information management software applications and products. We develop, market and sell a suite of software applications and services, globally, that provides our customers with data protection solutions. We also provide ourits customers with a broad range of professionaldata protection platform that helps them secure, defend and customer support services.recover their data. We provide these products and services: on-premises, hybrid, or multi-cloud. Our data protection offerings are delivered via self-managed software, software-as-a-service (SaaS), integrated appliance, or managed by partners.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Commvault. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires management to make judgments and estimates that affect the amounts reported in our consolidated financial statements and the accompanying notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The amounts of assets and liabilities reported in our balance sheets and the amounts of revenues and expenses reported for each of the periods presented are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, income taxes and related reserves, and goodwill anddeferred commissions, purchased intangible assets.assets and goodwill. Actual results could differ from those estimates.
Revenue
We account for revenue in accordance with Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC 606"). We record revenue net of sales tax. For a further discussion of our accounting policies related to revenue, see Note 3 of the notes to the consolidated financial statements.
Accounting for Stock-Based Compensation
Software Development Costs
Advertising Costs
We expense advertising costs as incurred. Advertising expenses were $5,579, $4,678,$8,663, $9,572, and $5,704$9,560 for the years ended March 31, 2020, 20192023, 2022 and 2018,2021, respectively.
Accounting for Income Taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes ("ASC 740"). The provision for income taxes and effective tax rates are calculated by legal entity and jurisdiction and are based on a number of
48
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
factors, including the level of pre-tax earnings, income tax planning strategies, differences between tax laws and accounting rules, statutory tax rates and credits, uncertain tax positions and valuation allowances. We provide for global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries in the year the tax is incurred and record an estimate of GILTI as a component of the tax provision. We use significant judgment and estimates in evaluating tax positions. The effective tax rate in a given financial statement period may be materially impacted by changes in the mix and level of earnings by taxing jurisdiction.
Under ASC 740, deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts. Valuation allowances are established when, in our judgment, it is more likely than not that deferred tax assets will not be realized. In assessing the need for a valuation allowance, we weigh the available positive and negative evidence, including historical levels of pre-tax income, legislative developments, expectations and risks associated with estimates of future pre-tax income, and prudent and feasible tax planning strategies.
Foreign Currency Translation
The functional currencies of our foreign operations are deemed to be the local country’s currency. Assets and liabilities of our international subsidiaries are translated at their respective period-end exchange rates, and revenues and expenses are translated at average currency exchange rates for the period. The resulting balance sheet translation adjustments are included in Otherother comprehensive lossincome (loss) and are reflected as a separate component of Stockholders’stockholders’ equity.
Foreign currency transaction gains and losses are recorded in Generalgeneral and administrative expenses in the Consolidated Statementsconsolidated statements of Operations.operations. These gains and losses relate primarily to receivables and payables that are not denominated in the functional currency of the subsidiary they relate to. We recognized net foreign currency transaction gainslosses of $355, $984 and $109$1,163 in the yearsyear ended March 31, 2020, 2019, and 2018, respectively. The net foreign currency transaction gains recorded2023, insignificant losses in General and administrative expenses include settlement gainsthe year ended March 31, 2022, and losses on forward contracts disclosed below.of $1,918 in the year ended March 31, 2021.
Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares during the period. Diluted net income (loss) per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options, vesting of restricted stock units, and shares to be purchased under the Employee Stock Purchase Plan.Plan ("ESPP"), and the exercise of stock options. The dilutive effect of such potential common shares is reflected in diluted earnings (loss) per share by application of the treasury stock method.
| Year Ended March 31, | |||||||||
| 2020 | 2019 | 2018 | |||||||
| Basic weighted-average shares outstanding | 45,793 | 45,827 | 45,242 | ||||||
| Dilutive effect of stock options, restricted stock units, and employee stock purchase plan | — | 1,774 | — | ||||||
| Diluted weighted-average shares outstanding | 45,793 | 47,601 | 45,242 | ||||||
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
The following table summarizes our potential outstandingsets forth the reconciliation of basic and diluted net income (loss) per common stock equivalents at the end of each period, whichshare:
| Year Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Net income (loss) | $ | (35,774) | $ | 33,624 | $ | (30,954) | ||||||||||||||
| Basic net income (loss) per common share: | ||||||||||||||||||||
| Basic weighted average shares outstanding | 44,664 | 45,443 | 46,652 | |||||||||||||||||
| Basic net income (loss) per common share | $ | (0.80) | $ | 0.74 | $ | (0.66) | ||||||||||||||
| Diluted net income (loss) per common share: | ||||||||||||||||||||
| Basic weighted-average shares outstanding | 44,664 | 45,443 | 46,652 | |||||||||||||||||
Dilutive effect of stock options and restricted stock units (1) | — | 1,777 | — | |||||||||||||||||
| Diluted weighted-average shares outstanding | 44,664 | 47,220 | 46,652 | |||||||||||||||||
| Diluted net income (loss) per common share | (0.80) | 0.71 | (0.66) | |||||||||||||||||
(1) In fiscal 2023 and 2021 dilutive shares have been excluded from the computation of dilutedbecause we were in a net income per common share, as its effect is anti-dilutive.loss position.
| Year Ended March 31, | |||||||||
| 2020 | 2019 | 2018 | |||||||
| Stock options, restricted stock units, and shares under the employee stock purchase plan | 4,933 | 998 | 7,312 | ||||||
The diluted weighted-average shares outstanding exclude restricted stock units, performance restricted stock units, shares to be purchased under the ESPP and outstanding stock options totaling 3,939, 505 and 5,024 for the fiscal years ended March 31, 2023, 2022 and 2021, respectively, because the effect would have been anti-dilutive.
Cash and Cash Equivalents and Restricted Cash
We consider all highly liquid investments purchased with maturities of three months or less at the date of purchase to be cash equivalents. As of March 31, 2020, our cash and cash equivalents balance consisted primarily of money market funds. Amounts held in Restricted cash, and classified as such on the Consolidated Balance Sheets, relate to a contingent consideration arrangement which requires us to pay up to $8,000 of cash, contingent on us receiving one or more bona fide and valid purchase orders from a specified customer, no later than April 30, 2020 (see Note 4).
Trade and Other Receivables
Trade and other receivables are primarily comprised of trade receivables that are recorded at the invoice amount, net of an allowance for doubtful accounts, which is not material. Unbilled receivables represent amounts for which revenue has been recognized but which have not yet been invoiced to the customer. The current portion of unbilled receivables is included in Tradetrade accounts receivable on the Consolidated Balance Sheets.consolidated balance sheets. Long-term unbilled receivables are included in Otherother assets. The allowance for doubtful accounts was $197 as of March 31, 2023 and $705 as of March 31, 2022. For the years ended March 31, 2023, 2022 and 2021, bad debt expense was immaterial.
Historically, we have not experienced material losses related to the inability to collect receivables from our customers. While thereThere is presently no indication that we will not collect material amounts of accounts receivable as of March 31, 2020, we are closely monitoring the impact of COVID-19 on our customers. In these deteriorating economic conditions, payment from our customers may be delayed or receivables may become uncollectible.2023. The inability to collect receivables could have a material impact on our results of operations.
Concentration of Credit Risk
We grant credit to customers in a wide variety of industries worldwide and generally do not require collateral. Credit losses relating to these customers have been minimal.
Sales through our distribution agreement with Arrow Enterprise Computing Solutions, Inc. ("Arrow") totaled approximately 37%, 38% for the years ended March 31, 2023 and 2022, and 36% of total revenues for the yearsyear ended March 31, 2020, 2019 and 2018, respectively.2021. Arrow accounted for approximately 31%34% and 38%30% of total accounts receivable as of March 31, 20202023 and 2019,2022, respectively.
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Fair Value of Financial Instruments
The carrying amounts of our cash, cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses approximate their fair values due to the short-term maturity of these instruments. Our cash equivalents balance consists primarily of money market funds and our short-term investments balance consists of U.S. Treasury Bills with maturities of one year or less. We account for our short-term investments as held to maturity. The contingent consideration liability associated with the Hedvig acquisition as discussed further in Note 4 of the consolidated financial statements was valued based on the total bona fide and valid purchase orders received through April 30, 2020 from the specified customer.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for such asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair value, we use the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable:
Level 1 — QuotedObservable inputs such as quoted prices in active markets for identical assets or liabilities.liabilities;
Level 2 — Inputs other than Level 1, that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assetsindirectly; and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significantrequire the reporting entity to the fair value of thedevelop its own assumptions.
There were no financial assets or liabilities.
Equity Securities Accounted for at Net Asset Value
We held equity interests in private equity funds of $5,900 as of March 31, 2019:
| March 31, 2020 | Level 1 | Level 2 | Level 3 | Total | |||||||||||
| Assets: | |||||||||||||||
| Short-term investments | — | $ | 44,484 | — | $ | 44,484 | |||||||||
| Liabilities: | |||||||||||||||
| Contingent consideration | — | — | $ | (217 | ) | $ | (217 | ) | |||||||
| March 31, 2019 | Level 1 | Level 2 | Level 3 | Total | |||||||||||
| Assets: | |||||||||||||||
| Cash equivalents | $ | 102,702 | — | — | $ | 102,702 | |||||||||
| Short-term investments | — | $ | 131,937 | — | $ | 131,937 | |||||||||
| Total assets | 102,702 | $ | 131,937 | — | $ | 234,639 | |||||||||
Leases
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. Land is not depreciated. We provide for depreciationDepreciation is calculated on a straight-line basis over the estimated useful lives of the assets. The depreciable assets that comprise our owned headquarters classified as Buildings are being depreciated over lives ranging from ten to sixty years. Computer and related equipment is generally depreciated over eighteen months to three years and furniture and fixtures are generally depreciated over three to twelve years. Leasehold improvements are amortized over the shorter of the useful life of the improvement or the term of the related lease. Expenditures for routine maintenance and repairs are charged against operations. Major replacements, improvements and additions are capitalized.
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Commvault Systems, Inc.
Notes to its original condition upon vacating the premises. Accordingly, the balance of the asset retirement obligation was $1,420 as of March 31, 2020 and $1,479 as of March 31, 2019.Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Goodwill and Intangible Assets
Goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of net tangible and intangible assets acquired. The carrying value of goodwill is tested for impairment on an annual basis on January 1, or more often if an event occurs or circumstances change that would more likely than not reduce the fair value of its carrying amount. For the purpose of impairment testing, we have a single reporting unit. The impairment test consists of comparing the fair value of the reporting unit with its carrying amount that includes goodwill. If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, an impairment loss would be recognized to reduce the carrying amount to its fair value.
Long-Lived Assets
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine the recoverability of our long-lived assets, we evaluate the estimated future undiscounted cash flows that are directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of the long-lived asset. If the estimated future undiscounted cash flows demonstrate that recoverability is not probable, an impairment loss would be recognized. An impairment loss would be calculated based on the excess carrying amount of the long-lived asset over the long-lived asset’s fair value. The fair value would be determined based on valuation techniques such as a comparison to fair values of similar assets. There were 0 impairment charges recognized during the years ended March 31, 2020, 2019 and 2018.
Deferred Commissions Cost
Sales commissions, bonuses, and related payroll taxes earned by our employees are considered incremental and recoverable costs of obtaining a contract with a customer. Our typical contracts include performance obligations related to software licenses, software updates, customer support and other professional services.services, including as-a-service offerings. In these contracts, incremental costs of obtaining a contract are allocated to the performance obligations based on the relative estimated standalone selling prices and then recognized on a systematic basis that is consistent with the transfer of the goods or services to which the asset relates. We do not pay commissions on annual renewals of contracts for software updates and customer support for perpetual licenses. The costs allocated to software and products are expensed at the time of sale, when revenue for the functional software license or appliance is recognized. The costs allocated to software updates and customer support for perpetual licenses are amortized ratably over a period of approximately five years, the expected period of benefit of the asset capitalized. We currently estimate a period of five years is appropriate based on consideration of historical average customer life and the estimated useful life of the underlying software or appliance sold as part of the transaction. The commission paid on the renewal of a term-based or subscription software license is not commensurate with the commission paid on the initial purchase. As a result, the cost of commissions allocated to software updates and customer support on the initial term-based software license transactions are amortized over a period of approximately five years, consistent with the accounting for these costs associated with perpetual licenses. The costs of commissions allocated to software updates and support for the renewal of term-based software licenses is limited to the contractual period of the arrangement, as we pay a commensurate renewal commission upon the next renewal of the subscription license and related updates and support.
The incremental costs attributable to as-a-service offerings and professional services are generally amortized within one quarter following the date of the related software or appliance sale, which is typicallyover the period the related professional services are provided and revenue is recognized. Amortization expense related to these costs is included in Salessales and marketing expenses in the accompanying consolidated statements of operations.
52
Commvault Systems, Inc.
Notes to Consolidated Financial Statements of Operations.— (Continued)
Deferred Revenue
Deferred revenues represent amounts collected from, or invoiced to, customers in excess of revenues recognized. This results primarily from the billing of annual customer support agreements, and billings for other professional services fees that have not yet been performed by us. The value of deferred revenues will increase or decrease based on the timing of invoices and recognition of revenue.
Share Repurchases
We consider all shares repurchased as canceled shares restored to the status of authorized but unissued shares on the trade date. The aggregate purchase price of the shares of our common stock repurchased is reflected as a reduction to Stockholders’stockholders’ equity. We account for shares repurchased as an adjustment to common stock (at par value) with the excess repurchase price allocated between Additionaladditional paid-in capital and Accumulatedaccumulated deficit.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined to include all changes in equity, except those resulting from investments by stockholders and distribution to stockholders.
Recently IssuedAdopted Accounting Standards
3. Revenue
We account forderive revenue in accordance with ASC 606, which was adopted on April 1, 2017, using the full retrospective method.
We sell both perpetual and term-based licenses toof our software. We refer to our term-based software licenses as subscription arrangements. We do not customize our software and installation services are not required. The software is delivered before related services are provided and is functional without professional services, updates and technical support. We have concluded that our software licenses (both perpetual and subscription) are functional intellectual property that is distinct, as the user can benefit from the software on its own. Software revenue for both perpetual and subscription licenses is typically recognized when the software is delivered and/or made available for download as this is the point the user of the software can direct the use of, and obtain substantially all of the remaining benefits from, the functional intellectual property. We do not recognize software revenue related to the renewal of subscription software licenses earlier than the beginning of the new subscription period.
We also selloffer appliances that integrate our software with hardware and address a wide-range of business needs and use cases, ranging from support for remote or branch offices with limited IT staff up to large corporate data centers. Revenue relatedWe typically offer appliances via a software only model in which we sell software to appliancesa third party, which assembles an integrated appliance that is recognized when control ofsold to end user customers. As a result, the appliances passes to the customer; typically upon delivery.revenue and costs associated with hardware are usually not included in our financial statements.
Services revenue includes revenue from customer support, as-a-service, and other professional services. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. We sell our customer support contracts as a percentage of net software purchases the support is related to. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year.year on our perpetual licenses. The term of our subscription arrangements is typically three years, but can range between one and five years.
53
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Commvault's as-a-service offerings, which are branded as Metallic, allow customers to use hosted software over the contract period without taking possession of the software. Revenue related to Metallic is generally recognized ratably over the contract term as services revenue.
Our other professional services include consulting, assessment and design services, installation services and customer education. Customer education services include courses taught by our instructors or third-party contractors. Revenue related to other professional services and customer education services is typically recognized as the services are performed. In fiscal 2020 Commvault launched Metallic, which is a Commvault software-as-a-service offering. Revenue from Metallic is recognized ratably as services revenue. Revenue to date from Metallic has not been material.
Most of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of software and appliances are typically estimated using the residual approach. Standalone selling prices of services are typically estimated based on observable transactions when these services are sold on a standalone basis.
Our typical performance obligations include the following:
| Performance Obligation | When Performance Obligation is Typically Satisfied | When Payment is Typically Due | How Standalone Selling Price is Typically Estimated | |||||||||||
| Software and Products Revenue | ||||||||||||||
| Software Licenses | Upon shipment or made available for download (point in time) | Within 90 days of shipment except for certain subscription licenses which are paid for over time | Residual approach | |||||||||||
| Customer Support Revenue | ||||||||||||||
| Software Updates | Ratably over the course of the support contract (over time) | At the beginning of the contract period | Observable in renewal transactions | |||||||||||
| Customer Support | Ratably over the course of the support contract (over time) | At the beginning of the contract period | Observable in renewal transactions | |||||||||||
| Other Services Revenue | ||||||||||||||
| Other Professional Services (except for education services) | As work is performed (over time) | Within 90 days of services being performed | Observable in transactions without multiple performance obligations | |||||||||||
| Education Services | When the class is taught (point in time) | Within 90 days of services being performed | Observable in transactions without multiple performance obligations | |||||||||||
| Ratably over the course of the contract (over time) | Observable in transactions without multiple performance obligations | |||||||||||||
54
| Year Ended March 31, 2020 | ||||||||||||
| Americas | EMEA | APJ | Total | |||||||||
| Software and Products Revenue | $ | 141,856 | $ | 95,356 | $ | 38,096 | $ | 275,308 | ||||
| Customer Support Revenue | 230,226 | 88,965 | 40,939 | 360,130 | ||||||||
| Professional Services | 18,778 | 10,459 | 6,210 | 35,447 | ||||||||
| Total Revenue | $ | 390,860 | $ | 194,780 | $ | 85,245 | $ | 670,885 | ||||
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
| Year Ended March 31, 2023 | |||||||||||
| Americas | International | Total | |||||||||
| Software and Products Revenue | $ | 214,627 | $ | 140,455 | $ | 355,082 | |||||
| Customer Support Revenue | 184,568 | 129,745 | 314,313 | ||||||||
| Other Services Revenue | 70,049 | 45,146 | 115,195 | ||||||||
| Total Revenue | $ | 469,244 | $ | 315,346 | $ | 784,590 | |||||
| Year Ended March 31, 2022 | |||||||||||
| Americas | International | Total | |||||||||
| Software and Products Revenue | $ | 215,264 | $ | 141,223 | $ | 356,487 | |||||
| Customer Support Revenue | 202,867 | 144,248 | 347,115 | ||||||||
| Other Services Revenue | 39,764 | 26,225 | 65,989 | ||||||||
| Total Revenue | $ | 457,895 | $ | 311,696 | $ | 769,591 | |||||
| Year Ended March 31, 2019 | Year Ended March 31, 2021 | ||||||||||||||||||||||
| Americas | EMEA | APJ | Total | Americas | International | Total | |||||||||||||||||
| Software and Products Revenue | $ | 170,114 | $ | 95,913 | $ | 43,872 | $ | 309,899 | Software and Products Revenue | $ | 187,027 | $ | 139,816 | $ | 326,843 | ||||||||
| Customer Support Revenue | 237,190 | 82,895 | 38,662 | 358,747 | Customer Support Revenue | 215,831 | 141,950 | 357,781 | |||||||||||||||
| Professional Services | 23,076 | 12,380 | 6,855 | 42,311 | |||||||||||||||||||
| Other Services Revenue | Other Services Revenue | 21,264 | 17,584 | 38,848 | |||||||||||||||||||
| Total Revenue | $ | 430,380 | $ | 191,188 | $ | 89,389 | $ | 710,957 | Total Revenue | $ | 424,122 | $ | 299,350 | $ | 723,472 | ||||||||
| Year Ended March 31, 2018 | ||||||||||||
| Americas | EMEA | APJ | Total | |||||||||
| Software and Products Revenue | $ | 167,858 | $ | 100,452 | $ | 43,435 | $ | 311,745 | ||||
| Customer Support Revenue | 233,991 | 75,807 | 36,257 | 346,055 | ||||||||
| Professional Services | 23,453 | 11,289 | 6,851 | 41,593 | ||||||||
| Total Revenue | $ | 425,302 | $ | 187,548 | $ | 86,543 | $ | 699,393 | ||||
Information about Contract Balances
Amounts collected in advance of services being provided are accounted for as deferred revenue. Nearly all of our deferred revenue balance is related to services revenue, primarily customer support contracts.revenue.
In some arrangements we allow customers to pay for term-based software licenses and products over the term of the software license. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables, which are anticipated to be invoiced in the next twelve months, are included in Accountsaccounts receivable on the Consolidated Balance Sheets.consolidated balance sheets. Long-term unbilled receivables are included in Otherother assets. The opening and closing balances of our accounts receivable, unbilled receivables and deferred revenues are as follows:
| Accounts Receivable | Unbilled Receivable (current) | Unbilled Receivable (long-term) | Deferred Revenue (current) | Deferred Revenue (long-term) | |||||||||||||
| Opening balance as of March 31, 2022 | $ | 177,182 | $ | 17,056 | $ | 14,296 | $ | 267,017 | $ | 150,180 | |||||||
| Increase/(decrease), net | 11,554 | 4,649 | (4,429) | 40,545 | 24,213 | ||||||||||||
| Ending balance as of March 31, 2023 | $ | 188,736 | $ | 21,705 | $ | 9,867 | $ | 307,562 | $ | 174,393 | |||||||
| Accounts Receivable | Unbilled Receivable (current) | Unbilled Receivable (long-term) | Deferred Revenue (current) | Deferred Revenue (long-term) | |||||||||||
| Opening Balance as of March 31, 2019 | $ | 161,570 | $ | 15,266 | $ | 7,216 | $ | 238,439 | $ | 99,257 | |||||
| Increase/(decrease), net | (31,714 | ) | 1,868 | 641 | (4,942 | ) | (6,534 | ) | |||||||
| Ending Balance as of March 31, 2020 | $ | 129,856 | $ | 17,134 | $ | 7,857 | $ | 233,497 | $ | 92,723 | |||||
The decreasenet increase in accounts receivable is primarily(inclusive of unbilled receivables) and deferred revenue are a result of a decreasean increase in software and products revenue relative to the prior year. The decrease in deferred revenue is primarily the result of a decrease in deferred customer support revenue related to software and products revenue transactions and a weakening of the U.S. dollar.
55
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
4. Business Combination
In fiscal 2022, we completed the acquisition of TrapX Security, an Israeli-based cyber deception technology company, acquiring 100% of the equity interest for a purchase price of $18,653, paid in cash. The primary reason for the business combination is to expand the security features of our software-as-a-service offerings. The technology was valued using the replacement method. The following table summarizes the purchase price and purchase price allocation made as of the date of acquisition:
| Purchase price allocation: | |||
| Cash paid at closing | 157,589 | ||
| Fair value of restricted stock units included in purchase price | 1,616 | ||
| Fair value of contingent consideration | 4,000 | ||
| Total purchase price | $ | 163,205 | |
| Assets acquired and liabilities assumed: | |||
| Cash | 94 | ||
| Trade accounts receivable | 1,074 | ||
| Other current assets | 104 | ||
| Property and equipment | 202 | ||
| Intangible assets | 52,000 | ||
| Other assets | 682 | ||
| Accounts payable and accrued liabilities | (1,060 | ) | |
| Deferred revenue | (2,231 | ) | |
| Operating lease liability, net of operating lease assets | (11 | ) | |
| Deferred tax liability | (84 | ) | |
| Total identifiable net assets acquired and liabilities assumed | 50,770 | ||
| Goodwill | 112,435 | ||
| Total purchase price | $ | 163,205 | |
| Assets acquired and liabilities assumed: | |||||
| Cash | $ | 1,759 | |||
| Trade accounts receivable | 700 | ||||
| Developed technology | 3,750 | ||||
| Pre-acquisition tax contingencies | (736) | ||||
| Accrued expenses | (523) | ||||
| Deferred revenue | (1,642) | ||||
| Total identifiable net assets acquired and liabilities assumed | 3,308 | ||||
| Goodwill | 15,345 | ||||
| Total purchase price | $ | 18,653 | |||
| Unaudited | |||||||
| Year Ended March 31, | |||||||
| 2020 | 2019 | ||||||
| Revenue | $ | 672,533 | $ | 714,252 | |||
| Net loss | $ | (8,186 | ) | $ | (20,035 | ) | |
5. Goodwill and Intangible Assets, Net
Goodwill
There were no impairments to the carrying amount of goodwill during the fiscal years ended March 31, 2023, 2022 or 2021.
Goodwill balances are as follows:
| 2023 | 2022 | |||||||||||||
| Opening balance | $ | 127,780 | $ | 112,435 | ||||||||||
| Additions | — | 15,345 | ||||||||||||
| Ending balance | $ | 127,780 | $ | 127,780 | ||||||||||
| Year Ended March 31, 2020 | |||||
| Beginning balance | $ | — | |||
| Acquisition | 112,435 | ||||
| Ending balance | $ | 112,435 | |||
| Gross | Accumulated Amortization | Net Carrying Value | Remaining Useful Life (months) | |||||||||||
| Developed technology | $ | 49,000 | $ | (4,900 | ) | $ | 44,100 | 54 | ||||||
| Customer relationships | 3,000 | (750 | ) | 2,250 | 18 | |||||||||
| Total intangible assets | $ | 52,000 | $ | (5,650 | ) | $ | 46,350 | |||||||
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | ||||||||||||||||||||||||||||||
| Developed technology | $ | 3,750 | $ | (1,458) | $ | 2,292 | $ | 3,750 | $ | (208) | $ | 3,542 | |||||||||||||||||||||||
Estimated future amortization expense associated withof intangible assets with finite lives as of March 31, 2023 is expected to be:as follows:
| Year ending March 31, | ||||||||
| 2024 | $ | 1,250 | ||||||
| 2025 | 1,042 | |||||||
| Total | $ | 2,292 | ||||||
| 2021 | $ | 11,300 | |
| 2022 | 10,550 | ||
| 2023 | 9,800 | ||
| 2024 | 9,800 | ||
| 2025 | 4,900 | ||
| $ | 46,350 | ||
6. Assets Held for Sale
During the fourth quarter of fiscal 2023, we entered into an agreement to sell our owned corporate headquarters in Tinton Falls, New Jersey for $40,000 in cash consideration and determined the assets and land related to headquarters met the criteria for classification as assets held for sale in accordance with ASC 360, Impairment and Disposal of Long-Lived Assets. The property's previous carrying amount of $92,161 was written down to its estimated fair value, less estimated costs to sell, of $38,680, resulting in a non-cash impairment charge of $53,481 on our consolidated statements of operations for the period ended March 31, 2023. We believe the sale will likely close in the first half of fiscal 2024. Upon closing of the transaction, we will enter into a lease for a portion of the premises.
7. Property and Equipment
Property and equipment consist of the following:
| March 31, | ||||||||
| 2020 | 2019 | |||||||
| Land | $ | 9,445 | $ | 9,445 | ||||
| Buildings | 103,244 | 103,244 | ||||||
| Computers, servers and other equipment | 40,044 | 38,551 | ||||||
| Furniture and fixtures | 14,919 | 15,184 | ||||||
| Leasehold improvements | 9,252 | 10,251 | ||||||
| Purchased software | 1,637 | 1,473 | ||||||
| Construction in process | 2,021 | 2,091 | ||||||
| 180,562 | 180,239 | |||||||
| Less: Accumulated depreciation and amortization | (66,043 | ) | (57,523 | ) | ||||
| $ | 114,519 | $ | 122,716 | |||||
| March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Land | $ | — | $ | 9,445 | ||||||||||
| Buildings | — | 103,244 | ||||||||||||
| Computers, servers and other equipment | 43,135 | 45,557 | ||||||||||||
| Furniture and fixtures | 3,264 | 15,031 | ||||||||||||
| Leasehold improvements | 8,433 | 9,349 | ||||||||||||
| Purchased software | 1,862 | 2,016 | ||||||||||||
| Construction in process | 111 | 2,119 | ||||||||||||
| 56,805 | 186,761 | |||||||||||||
| Less: Accumulated depreciation and amortization | (48,518) | (80,248) | ||||||||||||
| $ | 8,287 | $ | 106,513 | |||||||||||
| March 31, | ||||||||
| 2020 | 2019 | |||||||
| Compensation and related payroll taxes | $ | 47,356 | �� | $ | 48,332 | |||
| Other | 39,695 | 37,389 | ||||||
| $ | 87,051 | $ | 85,721 | |||||
57
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
8. Accrued Liabilities
Accrued liabilities consist of the following:
| March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Compensation and related payroll taxes | $ | 58,112 | $ | 73,409 | ||||||||||
| Other | 39,776 | 48,428 | ||||||||||||
| $ | 97,888 | $ | 121,837 | |||||||||||
9. Commitments and Contingencies
Purchase Commitments
We, in the normal course of business, enter into various purchase commitments for goods or services. Total non-cancellable purchase commitments as of March 31, 2020, which2023, relate primarily to marketing and IT services are as follows:and also include the remaining purchase commitments for our use of certain cloud services with third-party providers.
| 2024 | 2025 | 2026 | 2027 and beyond | Total | ||||||||||||||||||||||||||||
| Purchase commitments | $ | 21,413 | $ | 10,348 | $ | 1,122 | $ | 164,600 | $ | 197,483 | ||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2024 and beyond | Total | ||||||||||||||||
| Purchase commitments | $ | 18,590 | $ | 4,960 | $ | 1,245 | $ | 1,246 | $ | 26,041 | ||||||||||
In June 2022, we entered into an amended agreement with a third-party provider, in the ordinary course of business, for the use of certain cloud services through June 2027. Under the amended agreement, we committed to a purchase of $200,000 throughout the term of the agreement. As of March 31, 2023, we had $164,600 of remaining obligations under the purchase agreement.
We have certain software royalty commitments associated with the shipment and licensing of certain products. Royalty expense is generally based on a fixed cost per unit shipped or a fixed fee for unlimited units shipped over a designated period. Royalty expense, included in Costcost of software and products revenues, was as follows:
| Year Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Royalty expense | $ | 9,339 | $ | 11,188 | $ | 16,256 | ||||||||||||||
| Year Ended March 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Royalty expense | $ | 12,545 | $ | 12,319 | $ | 4,462 | ||||||
Warranties and Indemnifications
We typically offer a 90-day limited product warranty for our software. To date, costs related to this product warranty have not been material.significant.
We provide certain provisions within our software licensing agreements to indemnify our customers from any claim, suit or proceeding arising from alleged or actual intellectual property infringement. These provisions continue in perpetuity, along with our software licensing agreements. We have never incurred a liability relating to one of these indemnification provisions, and management believes that the likelihood of any future payout relating
58
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
to these provisions is remote. Therefore, we have 0tnot recorded a liability during any period for these indemnification provisions.
Lease Obligations
Please refer to Note 16 of the notes to the financial statements for more detail on our minimum lease commitments.
Legal Proceedings
During fiscal 2022, we entered into settlement agreements resulting in a $7,900 gain which resolved certain legal matters. The settlement amounts are recorded in general and administrative expenses net against related legal expenses.
Common Stock
We have 46,01144,140 and 45,58244,511 shares of common stock, par value $0.01, outstanding at March 31, 20202023 and March 31, 2019,2022, respectively.
The Board of Directors (the "Board") had previously approved a share repurchase program of $250,000 in April 2022. The Board's authorization has no expiration date. During fiscal 2020,2023, we repurchased $77,198$150,921 of our common stock, or 1,701 shares,approximately 2,521 shares. As a result, $99,079 remained available under our share repurchase program. Asthe current authorization as of March 31, 2020, $162,829 remained in our current stock2023.
Subsequent Event
On April 20, 2023, the Board approved an increase of the existing share repurchase program so that $250,000 was available. The Board’s authorization which expires on March 31, 2021.has no expiration date.
Shares Reserved for Issuance
At March 31, 2020,2023, we have reserved 4,4624,366 shares in connection with our Stock Plans discussed in Note 1011 of the notes to the consolidated financial statements.
We maintain the Omnibus Incentive Plan (the “2016 Incentive Plan”) for granting awards to employees. On August 23, 2019,24, 2022, our shareholders approved an amendment to the 2016 Incentive Plan to increase the maximum number of shares of common stock that may be delivered under the plan to 7,050,11,050, an increase of 1,5001,000 shares. The 2016 Incentive Plan authorizes a broad range of awards including stock options, stock appreciation rights, full value awards (including restricted stock, restricted stock units, performance shares or units and other stock-based awards) and cash-based awards.
59
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
As of March 31, 2020,2023, we have granted non-qualified stock options, restricted stock units and performance stock awards under our stock incentive plans. Historically, most equity awards granted by us under our stock incentive plans generally vest quarterly over a three-year period, except that the shares that would otherwise vest quarterly over the first twelve months do not vest until the first anniversary of the grant. We anticipate that future grants under our stock incentive plans will be restricted stock units and performance stock awards and do not anticipate that itwe will grant stock options.
The following table presents the stock-based compensation expense included in cost of services revenue, sales and marketing, research and development, general and administrative and restructuring expenses for the years ended March 31, 2023, 2022 and 2021.Stock-based compensation is attributable to restricted stock units, performance-based awards and the Employee Stock Purchase Plan ("ESPP").
| Year Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Cost of services revenue | $ | 4,787 | $ | 4,474 | $ | 3,317 | ||||||||||||||
| Sales and marketing | 43,081 | 37,431 | 35,577 | |||||||||||||||||
| Research and development | 28,540 | 33,870 | 24,823 | |||||||||||||||||
| General and administrative | 26,731 | 27,679 | 18,369 | |||||||||||||||||
| Restructuring | 2,607 | 1,709 | 2,747 | |||||||||||||||||
| Stock-based compensation expense | $ | 105,746 | $ | 105,163 | $ | 84,833 | ||||||||||||||
As of March 31, 2020,2023, there was approximately $123,820$135,912 of unrecognized stock-based compensation expense related to all of our employee stock plans that is expected to be recognized over a weighted-average period of 2.091.81 years. To the extent the actual forfeiture rate is different from what we have anticipated, stock-based compensation related to these awards will be different from our expectations.
| Options | Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||||||||||
| Outstanding at March 31, 2022 | 917 | $ | 68.03 | |||||||||||||||||||||||
| Granted | — | — | ||||||||||||||||||||||||
| Exercised | (91) | 49.82 | ||||||||||||||||||||||||
| Forfeited | — | — | ||||||||||||||||||||||||
| Expired | (273) | 62.86 | ||||||||||||||||||||||||
| Outstanding at March 31, 2023 | 553 | $ | 73.58 | 0.87 | $ | 1,985 | ||||||||||||||||||||
| Exercisable at March 31, 2023 | 553 | $ | 73.58 | 0.87 | $ | 1,985 | ||||||||||||||||||||
The total intrinsic value of options exercised was $1,176, $12,704, and $4,306 in the years ended March 31, 2023, 2022 and 2021, respectively.
60
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
| Options | Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||
| Outstanding at March 31, 2017 | 5,300 | $ | 44.74 | ||||||||||
| Options granted | — | — | |||||||||||
| Options exercised | (842 | ) | 23.57 | ||||||||||
| Options forfeited | (26 | ) | 43.30 | ||||||||||
| Options expired | (30 | ) | 68.27 | ||||||||||
| Outstanding at March 31, 2018 | 4,402 | 48.64 | |||||||||||
| Options granted | — | — | |||||||||||
| Options exercised | (1,091 | ) | 28.92 | ||||||||||
| Options forfeited | (15 | ) | 44.55 | ||||||||||
| Options expired | (84 | ) | 80.02 | ||||||||||
| Outstanding at March 31, 2019 | 3,212 | 54.55 | |||||||||||
| Options granted | — | — | |||||||||||
| Options exercised | (860 | ) | 32.73 | ||||||||||
| Options forfeited | — | — | |||||||||||
| Options expired | (448 | ) | 73.15 | ||||||||||
| Outstanding at March 31, 2020 | 1,904 | $ | 60.03 | 2.67 | $ | 1,080 | |||||||
| Exercisable at March 31, 2020 | 1,904 | $ | 60.03 | 2.67 | $ | 1,080 | |||||||
Restricted stock unit activity is as follows:
| Non-Vested Restricted Stock Units | Number of Awards | Weighted- Average Grant Date Fair Value | ||||||||||||
| Non-vested as of March 31, 2022 | 3,310 | $ | 58.16 | |||||||||||
| Granted | 1,910 | 63.49 | ||||||||||||
| Vested | (1,845) | 56.01 | ||||||||||||
| Forfeited | (422) | 61.22 | ||||||||||||
| Non-vested as of March 31, 2023 | 2,953 | $ | 62.52 | |||||||||||
| Non-Vested Restricted Stock Units | Number of Awards | Weighted- Average Grant Date Fair Value | |||||
| Non-vested as of March 31, 2017 | 2,396 | $ | 45.53 | ||||
| Granted | 1,235 | 59.71 | |||||
| Vested | (1,324 | ) | 46.74 | ||||
| Forfeited | (141 | ) | 48.24 | ||||
| Non-vested as of March 31, 2018 | 2,166 | 54.13 | |||||
| Granted | 1,256 | 64.65 | |||||
| Vested | (1,276 | ) | 51.38 | ||||
| Forfeited | (315 | ) | 57.76 | ||||
| Non-vested as of March 31, 2019 | 1,831 | 62.58 | |||||
| Granted | 2,654 | 46.54 | |||||
| Vested | (999 | ) | 60.10 | ||||
| Forfeited | (249 | ) | 59.03 | ||||
| Non-vested as of March 31, 2020 | 3,237 | $ | 50.47 | ||||
The total fair value of the restricted stock units that vested during the years ended March 31, 2020, 20192023, 2022 and 20182021 was $48,221, $82,957$114,422, $122,259 and $76,193,$72,544, respectively.
The following table presentsfair value of awards includes the stock-based compensation expense included in Cost of services revenue, Sales and marketing, Research and development and General and administrative expenses for the years ended March 31, 2020, 2019 and 2018.
| Year Ended March 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Cost of services revenue | $ | 2,604 | $ | 2,922 | $ | 3,182 | ||||||
| Sales and marketing | 31,779 | 34,874 | 36,917 | |||||||||
| Research and development | 14,594 | 8,601 | 8,411 | |||||||||
| General and administrative | 15,158 | 31,458 | 25,619 | |||||||||
| Stock-based compensation expense | $ | 64,135 | $ | 77,855 | $ | 74,129 | ||||||
Performance Based Awards
In May 2019,fiscal 2023, we granted 88126 performance stock units ("PSUs") to certain executives and in November 2019, we granted an additional 17 PSUs to certain executives for a total of 105 granted PSUs for fiscal 2020.executives. Vesting of these awards is contingent upon i) us meeting certain company-wide revenue and non-GAAP performance goals (performance-based) in fiscal 20202023 and ii) our customary service periods. The awards vest in 3 annual tranches and have a maximum potential to vest at 200% (210 shares) based on actual fiscal 2020 performance.over three years. The related stock-based compensation expense is determined based on the value of the underlying shares on the date of grant and is recognized over the vesting term using the accelerated method. During each financial period, management estimates the probable number of PSUs that would vest until the ultimate achievement of the performance goals is known. Based on our results, the PSUs granted in May 2019 will be eligible to vestvested at 0% and the PSUs granted in November 2019 will be eligible to vest at 46%128%. The awards are included in the restricted stock unitsunit table.
Awards with a Market Condition
In fiscal 2020,2023, we granted 95126 market performance stock units to certain executives. The vesting of these awards is contingent upon us meeting certain total shareholder return ("TSR") levels as compared to athe Russell 3000 market index over the next three years. The awards vest in 3three annual tranches and have a maximum potential to vest at 200% (190(252 shares) based on TSR performance. The related stock-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized using the accelerated method over the vesting term. The estimated fair value iswas calculated using a Monte Carlo simulation model. The weighted-average fair value of the awards granted during the year was $48.26$76.48 per share.unit. The awards are included in the restricted stock unit table above.
In fiscal 2022, we granted 105 market performance stock units to certain executives. The vesting of these awards is contingent upon us meeting certain TSR levels as compared to the Russell 3000 market index over the next three years. The awards vest in three annual tranches and have a maximum potential to vest at 200% (210 shares) based on TSR performance. The related stock-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized using the accelerated method over the vesting term. The estimated fair value was calculated using a Monte Carlo simulation model. The fair value of the awards granted during the year was $87.74 per unit. The awards are included in the restricted stock unit table above.
61
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Employee Stock Purchase Plan
The Employee Stock Purchase Plan (the “Purchase Plan”)ESPP is a shareholder approved plan under which substantially all employees may purchase our common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the Purchase PlanESPP are limited to 10% of the employee’s salary and employees may not purchase more than $25 of stock during any calendar year. Employees purchased 273213 shares in exchange for $9,670$10,873 of proceeds in fiscal 20202023 and 211187 shares in exchange for $10,407$10,816 of proceeds in fiscal 2019.2022. The Purchase PlanESPP is considered compensatory and the fair value of the discount and look back provision are estimated using the Black-Scholes formula and recognized over the six-month withholding period prior to purchase. The total expense associated with the Purchase PlanESPP for fiscal 2020, 20192023, 2022 and 20182021 was $2,939, $3,080$3,740, $3,341 and $2,848,$3,417, respectively. As of March 31, 2020,2023, there was approximately $1,002$1,298 of unrecognized cost related to the current purchase period of our Purchase Plan.
| Year Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Domestic | $ | (35,288) | $ | 25,905 | $ | (28,628) | ||||||||||||||
| Foreign | 19,926 | 17,509 | 7,393 | |||||||||||||||||
| $ | (15,362) | $ | 43,414 | $ | (21,235) | |||||||||||||||
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act reduces the US federal corporatecomponents of income tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries thatexpense (benefit) were previously tax deferred and created new taxes on certain foreign sourced earnings. The most significant impactas follows:
| Year Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | 6,986 | $ | 284 | $ | 3,399 | ||||||||||||||
| State | 3,375 | 361 | 196 | |||||||||||||||||
| Foreign | 10,725 | 9,096 | 6,215 | |||||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | (607) | 28 | (113) | |||||||||||||||||
| State | — | — | — | |||||||||||||||||
| Foreign | (67) | 21 | 22 | |||||||||||||||||
| $ | 20,412 | $ | 9,790 | $ | 9,719 | |||||||||||||||
A reconciliation of the legislationstatutory tax rates and the effective tax rates for the Company was the reductionyears ended March 31, 2023, 2022 and 2021 are as follows:
| Year Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Statutory federal income tax expense (benefit) rate | (21.0) | % | 21.0 | % | (21.0) | % | ||||||||||||||
| State and local income tax expense, net of federal income tax effect | (11.8) | % | 0.8 | % | 0.9 | % | ||||||||||||||
| Foreign earnings taxed at different rates | 28.0 | % | 6.2 | % | 10.0 | % | ||||||||||||||
| U.S. tax on Global Intangible Low-Taxed Income | (17.1) | % | 0.5 | % | 1.8 | % | ||||||||||||||
| Domestic permanent differences including acquisition items | 4.7 | % | 3.6 | % | 1.7 | % | ||||||||||||||
| Foreign tax credits | (35.5) | % | (5.3) | % | (7.8) | % | ||||||||||||||
| Research credits | (74.6) | % | (28.3) | % | (68.6) | % | ||||||||||||||
| Tax reserves | (1.2) | % | 2.6 | % | (0.1) | % | ||||||||||||||
| Valuation allowance | 219.9 | % | 18.3 | % | 74.4 | % | ||||||||||||||
| Enacted tax law changes | 3.6 | % | 0.3 | % | — | % | ||||||||||||||
| Stock-based compensation | 41.6 | % | (1.6) | % | 36.3 | % | ||||||||||||||
| CARES Act Impact | — | % | — | % | 15.0 | % | ||||||||||||||
| Reduction of NOL for carryback | — | % | — | % | — | % | ||||||||||||||
| Other differences, net | (3.7) | % | 4.5 | % | 3.2 | % | ||||||||||||||
| Effective income tax expense | 132.9 | % | 22.6 | % | 45.8 | % | ||||||||||||||
63
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
The significant components of the value of the Company's netour deferred tax assets (which represent future tax benefits)and liabilities are as a result of lowering the U.S. corporate income tax rate from 35% to 21%. The Act also included a requirement to pay a one-time transition tax on the cumulative value of earnings and profits that were previously not repatriated for U.S. income tax purposes. We have concluded that the one-time transition tax is 0. In addition, we no longer consider the undistributed earnings held outside of the U.S. by most of its foreign subsidiaries to be indefinitely reinvested.follows:
| March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Deferred tax assets: | ||||||||||||||
| Net operating losses | $ | 9,106 | $ | 12,937 | ||||||||||
| Equity investment/Capital losses | 889 | 948 | ||||||||||||
| Stock-based compensation | 11,912 | 15,726 | ||||||||||||
| Deferred revenue | 24,025 | 19,125 | ||||||||||||
| Tax credits | 42,986 | 50,587 | ||||||||||||
| Accrued expenses | 1,816 | 2,148 | ||||||||||||
| Allowance for doubtful accounts and other reserves | 572 | 493 | ||||||||||||
| R&D Capitalization under IRC § 174 | 32,091 | — | ||||||||||||
| Depreciation and amortization | 9,449 | — | ||||||||||||
| Other | 98 | 115 | ||||||||||||
| Less: valuation allowance | (122,921) | (90,242) | ||||||||||||
| Total deferred tax assets | 10,023 | 11,837 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Depreciation and amortization | — | (3,945) | ||||||||||||
| Withholding taxes | (393) | — | ||||||||||||
| Deferred commissions and other | (9,764) | (8,700) | ||||||||||||
| Total deferred tax liabilities | $ | (10,157) | $ | (12,645) | ||||||||||
| Net deferred tax liability | $ | (134) | $ | (808) | ||||||||||
Net deferred tax assets arise due to the recognition of income and expense items for tax purposes, which differ from those used for financial statement purposes. ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. In assessing the need for a valuation allowance, we considered all available objective and verifiable evidence both positive and negative, including historical levels of pre-tax income (loss) both on a consolidated basis and tax reporting entity basis, legislative developments, expectations and risks associated with estimates of future pre-tax income, and prudent and feasible tax planning strategies. As a result of this analysis, we determined that it is more likely than not that we will not realize the benefits of our gross deferred tax assets and therefore have recorded a valuation allowance to reduce the carrying value of these gross deferred tax assets, net of the impact of the reversal of taxable temporary differences. At March 31, 2023 and 2022, we recorded valuation allowances of $122,921 and $90,242, respectively, representing an increase in the valuation allowance of $32,679 in 2023, due to the uncertainty regarding the realization of such deferred tax assets.
| Year Ended March 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Domestic | $ | (16,670 | ) | $ | (1,762 | ) | $ | (18,159 | ) | |||
| Foreign | 4,124 | 12,189 | 14,659 | |||||||||
| $ | (12,546 | ) | $ | 10,427 | $ | (3,500 | ) | |||||
At March 31, 2023, we had federal net operating loss ("NOL") carryforwards of $19,980, all of which will not expire. As of March 31, 2023, we had deferred tax assets related to state NOL carryforwards of $1,126 which expire over various years beginning in 2031 depending on the jurisdiction. As of March 31, 2023, we had foreign NOL carryforwards of $2,926 that will expire over various years beginning in 2028 depending on the jurisdiction and $33,635 that will not expire. As of March 31, 2023, we had capital loss carryforwards of $3,988 that will expire in 2027.
We also had federal and state research tax credits ("R&D credit") carryforwards of approximately $22,350 and $23,597, respectively. The federal R&D credit carryforwards expire from 2039 through 2043, and the state R&D credit carryforwards expire from 2024 through 2038. We also had federal foreign tax credits (“FTC”) carryforwards of approximately $3,590. The federal FTC carryforwards expire from 2030 through 2033.
64
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
| Year Ended March 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Current: | ||||||||||||
| Federal | $ | (10,071 | ) | $ | (1,772 | ) | $ | (1,036 | ) | |||
| State | (613 | ) | 103 | (383 | ) | |||||||
| Foreign | 5,566 | 8,371 | 7,307 | |||||||||
| Deferred: | ||||||||||||
| Federal | 284 | 144 | 57,582 | |||||||||
| State | — | — | (4,601 | ) | ||||||||
| Foreign | (2,067 | ) | 20 | (469 | ) | |||||||
| $ | (6,901 | ) | $ | 6,866 | $ | 58,400 | ||||||
| Year Ended March 31, | |||||||||
| 2020 | 2019 | 2018 | |||||||
| Statutory federal income tax expense (benefit) rate | (21.0 | )% | 21.0 | % | (31.6 | )% | |||
| State and local income tax expense, net of federal income tax effect | (4.9 | )% | 1.0 | % | 20.5 | % | |||
| Foreign earnings taxed at different rates | 12.3 | % | 25.5 | % | 63.0 | % | |||
| U.S. tax on Global Intangible Low-Taxed Income | 14.5 | % | 72.9 | % | — | % | |||
| Domestic permanent differences including acquisition items | 7.7 | % | 7.8 | % | 65.6 | % | |||
| Foreign tax credits | (19.3 | )% | (22.4 | )% | (39.2 | )% | |||
| Research credits | (32.9 | )% | (51.8 | )% | (83.2 | )% | |||
| Tax reserves | (0.6 | )% | (5.2 | )% | (7.0 | )% | |||
| Valuation allowance | 64.0 | % | (76.7 | )% | 1,626.5 | % | |||
| Enacted tax law changes | 10.6 | % | (7.8 | )% | 451.9 | % | |||
| Stock-based compensation | (43.1 | )% | 97.2 | % | (377.6 | )% | |||
| CARES Act Impact | (82.1 | )% | — | % | — | % | |||
| Reduction of NOL for carryback | 59.2 | % | — | % | — | % | |||
| Other differences, net | (19.4 | )% | 4.3 | % | (20.3 | )% | |||
| Effective income tax expense (benefit) | (55.0 | )% | 65.8 | % | 1,668.6 | % | |||
| March 31, | ||||||||
| 2020 | 2019 | |||||||
| Deferred tax assets: | ||||||||
| Net operating losses | $ | 16,075 | $ | 6,223 | ||||
| Equity investment | 1,192 | 1,298 | ||||||
| Stock-based compensation | 20,792 | 13,926 | ||||||
| Deferred revenue | 16,027 | 15,144 | ||||||
| Tax credits | 24,936 | 23,632 | ||||||
| Accrued expenses | 4,675 | 2,138 | ||||||
| Allowance for doubtful accounts and other reserves | 546 | 661 | ||||||
| Less: valuation allowance | (61,702 | ) | (50,160 | ) | ||||
| Total deferred tax assets | 22,541 | 12,862 | ||||||
| Deferred tax liabilities: | ||||||||
| Depreciation and amortization | (16,349 | ) | (6,673 | ) | ||||
| Deferred commissions and other | (7,041 | ) | (8,783 | ) | ||||
| Total deferred tax liabilities | $ | (23,390 | ) | $ | (15,456 | ) | ||
| Net deferred tax liability | $ | (849 | ) | $ | (2,594 | ) | ||
We conduct business globally and as a result, file income tax returns in the United States and in various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world. The following table summarizes the tax years subject to income tax examinations by tax authorities as of March 31, 2020.2023. The years subject to income tax examination in our foreign jurisdictions cover the maximum time period with respect to these jurisdictions. Due to NOLs, in some cases the tax years continue to remain subject to examination with respect to such NOLs.
| Tax Jurisdiction | Years Subject to Income Tax Examination | ||||
| U.S. Federal | |||||
| Foreign jurisdictions | |||||
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in each of our tax jurisdictions. The number of years with open tax audits varies depending on the tax jurisdiction. A number of years may lapse before a particular matter is audited and finally resolved. A reconciliation of the amounts of unrecognized tax benefits is as follows:
| Balance at March 31, 2017 | $ | 2,098 | |
| Additions for tax positions related to fiscal 2018 | — | ||
| Additions for tax positions related to prior years | 150 | ||
| Settlements and effective settlements with tax authorities and remeasurements | — | ||
| Reductions related to the expiration of statutes of limitations | (397 | ) | |
| Foreign currency translation adjustment | (111 | ) | |
| Balance at March 31, 2018 | 1,740 | ||
| Additions for tax positions related to fiscal 2019 | — | ||
| Additions for tax positions related to prior years | 547 | ||
| Settlements and effective settlements with tax authorities and remeasurements | — | ||
| Reductions related to the expiration of statutes of limitations | (695 | ) | |
| Foreign currency translation adjustment | — | ||
| Balance at March 31, 2019 | 1,592 | ||
| Additions for tax positions related to fiscal 2020 | 170 | ||
| Additions for tax positions related to prior years | — | ||
| Settlements and effective settlements with tax authorities and remeasurements | — | ||
| Reductions related to the expiration of statutes of limitations | (100 | ) | |
| Foreign currency translation adjustment | — | ||
| Balance at March 31, 2020 | 1,662 | ||
| Balance at March 31, 2020 | $ | 1,662 | |||
| Additions for tax positions related to fiscal 2021 | 614 | ||||
| Additions for tax positions related to prior years | — | ||||
| Settlements and effective settlements with tax authorities and remeasurements | — | ||||
| Reductions related to the expiration of statutes of limitations | (65) | ||||
| Foreign currency translation adjustment | — | ||||
| Balance at March 31, 2021 | 2,211 | ||||
| Additions for tax positions related to fiscal 2022 | 2,808 | ||||
| Additions for tax positions related to prior years | 90 | ||||
| Settlements and effective settlements with tax authorities and remeasurements | — | ||||
| Reductions related to the expiration of statutes of limitations | (117) | ||||
| Additions for tax positions related to purchase accounting | 4,232 | ||||
| Foreign currency translation adjustment | — | ||||
| Balance at March 31, 2022 | 9,224 | ||||
| Additions for tax positions related to fiscal 2023 | 394 | ||||
| Reductions for tax positions related to prior years | (90) | ||||
| Settlements and effective settlements with tax authorities and remeasurements | — | ||||
| Reductions related to the expiration of statutes of limitations | (140) | ||||
| Additions for tax positions related to purchase accounting | — | ||||
| Foreign currency translation adjustment | — | ||||
| Balance at March 31, 2023 | $ | 9,388 | |||
We estimate that 0no significant remaining unrecognized tax benefits will be realized during the fiscal year ending March 31, 2021.2024. Interest income, expense and penalties related to unrecognized tax benefits are recorded in Incomeincome tax expense.expense in the consolidated statements of operations. In the years ended March 31, 2020, 20192023, 2022, and 2018, we recognized $6, $40 and $80, respectively, of net2021, the impact related to interest expense, interest income and penalties in the Consolidated Statements of Operations.was not significant.
We have a defined contribution plan, as allowed under Section 401(k) of the Internal Revenue Code, covering substantially all employees. Effective January 1, 2012, we make contributions equal to a discretionary percentage of the employee’s contributions determined by us. During the years ended March 31, 2020, 20192023, 2022 and 2018,2021, we made contributions of $2,487, $2,786,$2,525, $2,923, and $2,959,$2,445, respectively.
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
14. Segment Information
We operate in 1one segment. Our products and services are sold throughout the world, through direct and indirect sales channels. Our chief operating decision maker (the “CODM”) is the Chief Executive Officer. The CODM makes operating performance assessment and resource allocation decisions on a global basis. The CODM does not receive discrete financial information about asset allocation, expense allocation or profitability by product or geography.
Revenues by geography are based upon the billing address of the customer. All transfers between geographic regions have been eliminated from consolidated revenues. The following table sets forth revenue and long-lived assets by geographic area:
| Year Ended March 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Revenue: | ||||||||||||
| United States | $ | 342,660 | $ | 379,221 | $ | 377,934 | ||||||
| Other | 328,225 | 331,736 | 321,459 | |||||||||
| $ | 670,885 | $ | 710,957 | $ | 699,393 | |||||||
| Year Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| United States | $ | 416,347 | $ | 398,632 | $ | 379,106 | ||||||||||||||
| Other | 368,243 | 370,959 | 344,366 | |||||||||||||||||
| $ | 784,590 | $ | 769,591 | $ | 723,472 | |||||||||||||||
No individual country other than the United States accounts for 10% or more of revenues in the years ended March 31, 2020, 20192023, 2022 and 2018.2021. Revenue included in the “Other” caption above primarily relates to our operations in Europe, Australia, Canada and Asia.
| March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Long-lived assets: | ||||||||||||||
| United States | $ | 184,356 | $ | 275,546 | ||||||||||
| Other | 47,304 | 56,453 | ||||||||||||
| $ | 231,660 | $ | 331,999 | |||||||||||
| March 31, | ||||||||
| 2020 | 2019 | |||||||
| Long-lived assets: | ||||||||
| United States | $ | 300,662 | $ | 143,591 | ||||
| Other | 30,727 | 23,860 | ||||||
| $ | 331,389 | $ | 167,451 | |||||
At March 31, 20202023 and 20192022 no other individual country, other than the United States, accounts for 10% or more of long-lived assets.
For the years ended March 31, 20202023, 2022 and 2019, respectively.2021, restructuring charges were comprised of the following:
| Year Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Employee severance and related costs | $ | 12,845 | $ | 4,483 | $ | 19,040 | ||||||||||||||
Lease impairments related costs (1) | — | — | 1,684 | |||||||||||||||||
| Stock-based compensation | 2,607 | 1,709 | 2,747 | |||||||||||||||||
| Total restructuring charges | $ | 15,452 | $ | 6,192 | $ | 23,471 | ||||||||||||||
| Year Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Beginning balance | $ | 1,089 | $ | — | ||||
| Restructuring charges, net (1) (2) | 18,587 | 13,731 | ||||||
| Payments | (17,145 | ) | (12,642 | ) | ||||
| Ending balance | $ | 2,531 | $ | 1,089 | ||||
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Restructuring accrual
The activity in our restructuring accrual for the outstanding restructuring accruals primarily relate to future severanceyears ended March 31, 2023 and lease payments.2022 is as follows:
| Year Ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Beginning balance | $ | 2,261 | $ | 3,095 | ||||||||||
| Employee severance and related costs | 12,845 | 4,483 | ||||||||||||
| Payments | (11,895) | (5,317) | ||||||||||||
| Ending balance | $ | 3,211 | $ | 2,261 | ||||||||||
16. Leases
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of approximately $18,900lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at the commencement date.
We recognize operating lease costs over the estimated term of the lease, which includes options to extend lease terms that are reasonably certain of being exercised, starting when possession of the property is taken from the landlord. When a lease contains a predetermined fixed escalation of the minimum rent, we recognize the related operating lease cost on a straight-line basis over the lease term. In addition, certain of our lease agreements include variable lease payments, such as estimated tax and $19,300, respectively, asmaintenance charges. These variable lease payments are excluded from minimum lease payments and are included in the determination of April 1, 2019.lease cost when it is probable that the expense has been incurred and the amount can be reasonably estimated.
Our lease liabilities relate primarily to operating leases for our global office infrastructure. These operating leases expire at various dates through fiscal 2026.
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Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Net lease cost recognized onin our Consolidated Statementsconsolidated statements of Operationsoperations is summarized as follows:
| Year Ended March 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Operating lease cost | $ | 5,449 | $ | 7,129 | $ | 9,048 | |||||||||||
| Short-term lease cost | 631 | 123 | 232 | ||||||||||||||
| Variable lease cost | 1,360 | 1,608 | 1,938 | ||||||||||||||
| Net lease cost | $ | 7,440 | $ | 8,860 | $ | 11,218 | |||||||||||
| Year Ended March 31, 2020 | |||
| Operating Lease Cost | $ | 8,795 | |
| Short-term Lease Cost | 410 | ||
| Variable Lease Cost | 2,088 | ||
| Net Lease Cost | $ | 11,293 | |
Cash flow information
| Year Ended March 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cash paid for operating lease liabilities | $ | 5,421 | $ | 8,277 | $ | 10,370 | |||||||||||
| Additions of operating lease assets (non-cash) | $ | 3,023 | $ | 1,827 | $ | 17,603 | |||||||||||
As of March 31, 2020,2023, the minimum lease commitment amount for operating leases signed but not yet commenced was immaterial.
As of March 31, 2023, the maturities of lease liabilities based on the total minimum lease commitment amount including options to extend lease terms that are reasonably certain of being exercised are as follows:
| 2021 | $ | 7,520 | |
| 2022 | 5,070 | ||
| 2023 | 2,160 | ||
| 2024 | 1,369 | ||
| 2025 | 1,024 | ||
| Thereafter | 675 | ||
| Total Minimum Lease Payments | $ | 17,818 | |
| Less: Imputed Interest | (1,311 | ) | |
| Present value of operating lease liabilities | $ | 16,507 | |
| Less: Current Portion of operating lease liabilities | 7,699 | ||
| Long-term operating lease liabilities | $ | 8,808 | |
| 2024 | $ | 4,443 | |||
| 2025 | 4,208 | ||||
| 2026 | 2,250 | ||||
| 2027 | 815 | ||||
| 2028 | 745 | ||||
| Thereafter | 1,204 | ||||
| Total minimum lease payments | $ | 13,665 | |||
| Less: Imputed interest | 887 | ||||
| Present value of operating lease liabilities | $ | 12,778 | |||
| Less: Current portion of operating lease liabilities | 4,518 | ||||
| Long-term operating lease liabilities | $ | 8,260 | |||
Lease term and Discount rate
| Year Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Weighted-average remaining term (in years) | 3.72 | 4.18 | |||||||||
| Weighted-average discount rate | 4 | % | 4 | % | |||||||
68
Commvault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
| Quarter Ended | ||||||||||||||||
| June 30 | September 30 | December 31 | March 31 | |||||||||||||
| Fiscal 2020 | ||||||||||||||||
| Total revenue | $ | 162,203 | $ | 167,582 | $ | 176,351 | $ | 164,749 | ||||||||
| Gross margin | 133,483 | 136,341 | 145,828 | 138,155 | ||||||||||||
| Net income (loss) | (6,846 | ) | (7,084 | ) | (650 | ) | 8,935 | |||||||||
| Net income (loss) per common share: | ||||||||||||||||
| Basic (1) | $ | (0.15 | ) | $ | (0.16 | ) | $ | (0.01 | ) | $ | 0.19 | |||||
| Diluted (1) | $ | (0.15 | ) | $ | (0.16 | ) | $ | (0.01 | ) | $ | 0.19 | |||||
| Quarter Ended | ||||||||||||||||
| June 30 | September 30 | December 31 | March 31 | |||||||||||||
| Fiscal 2019 | ||||||||||||||||
| Total revenue | $ | 176,177 | $ | 169,078 | $ | 184,275 | $ | 181,427 | ||||||||
| Gross margin | 148,571 | 142,205 | 155,422 | 147,753 | ||||||||||||
| Net income (loss) | (8,567 | ) | 891 | 13,400 | (2,163 | ) | ||||||||||
| Net income (loss) per common share: | ||||||||||||||||
| Basic (1) | $ | (0.19 | ) | $ | 0.02 | $ | 0.29 | $ | (0.05 | ) | ||||||
| Diluted (1) | $ | (0.19 | ) | $ | 0.02 | $ | 0.28 | $ | (0.05 | ) | ||||||
| Item 9. | Changes in and Disagreements | ||||
None.
| Item 9A. | Controls and Procedures | ||||
(a)Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of March 31, 2020.2023. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2020.2023.
(b)Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(f) of the Exchange Act. There are inherent limitations in the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective internal control can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of any internal control may vary over time.
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our internal control over financial reporting as of March 31, 2020.2023. In making this assessment, management used the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in the 2013 Internal Control—Integrated Framework.
Based on our assessment, using those criteria, our management concluded that, as of March 31, 2020,2023, our internal control over financial reporting was effective. The effectiveness of our internal control over financial reporting as of March 31, 20202023 has been audited by Ernst & Young LLP, our independent registered public accounting firm, as stated in their report, which is included below in this Annual Report on Form 10-K.
69
(c)Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fourth quarter of fiscal 20202023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.