UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: ~~December 31, 2007~~September 30, 2008


o		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		~~(I.R.S. Employer~~
incorporation or organization)		(I.R.S. Employer Identification No.)


2 Crescent Place
Oceanport, New Jersey		07757
(Address of principal executive offices)		(Zip Code)

(732) 870-4000
(Registrant’s telephone number, including area code)

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 period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See ~~the definitions~~definition of ~~“large~~“accelerated filer and large accelerated ~~filer,” “accelerated~~ filer” ~~and “smaller reporting company”~~ in ~~Rule~~rule 12b-2 of the Exchange Act. (Check one):


Large accelerated ~~filer~~o ~~Accelerated filer~~o ~~Non-accelerated~~ filerþ	Accelerated filero	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso Noþ

As of ~~January 31,~~October 29, 2008, there were ~~43,722,938~~41,378,759 shares of the registrant’s common stock, $0.01 par value, outstanding.

CommVault Systems, Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)


	December 31,			March 31,			September 30,			March 31,
	2007			2007			2008			2008
Assets
Current assets:
Cash and cash equivalents	$	95,108		$	65,001		$	101,259		$	91,661
Trade accounts receivable, less allowance for doubtful accounts of $247 at December 31, 2007 and $311 at March 31, 2007		33,786			22,044
Trade accounts receivable, less allowance for doubtful accounts of $233 at September 30, 2008 and $275 at March 31, 2008								38,357			44,284
Prepaid expenses and other current assets		3,685			3,657			4,314			3,409
Deferred tax assets		9,618			9,616			14,941			15,348

Total current assets		142,197			100,318			158,871			154,702

Deferred tax assets, net		45,550			42,543
Deferred tax assets								36,369			39,506
Property and equipment, net		5,492			4,624			6,499			5,868
Other assets		851			554			1,185			754

Total assets	$	194,090		$	148,039		$	202,924		$	200,830


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,672		$	1,500		$	2,315		$	2,218
Accrued liabilities		19,039			20,215			23,269			22,623
Term loan		—			7,500
Deferred revenue		46,237			36,214			57,069			52,348

Total current liabilities		66,948			65,429			82,653			77,189

Deferred revenue, less current portion		6,130			4,284			7,289			7,210
Other liabilities		6,323			4			7,251			6,896

Stockholders’ equity:
Preferred stock, $.01 par value: 50,000 shares authorized, no shares issued and outstanding at December 31, 2007 and March 31, 2007		—			—
Common stock, $.01 par value: 250,000 shares authorized, 43,679 shares and 41,968 shares issued and outstanding at December 31, 2007 and March 31, 2007, respectively		437			420
Preferred stock, $.01 par value: 50,000 shares authorized, no shares issued and outstanding at September 30, 2008 and March 31, 2008								—			—
Common stock, $.01 par value: 250,000 shares authorized, 41,854 shares and 42,750 shares issued and outstanding at September 30, 2008 and March 31, 2008, respectively								419			428
Additional paid-in capital		205,493			182,297			206,323			204,386
Accumulated deficit		(90,818	)		(104,333	)		(100,937	)		(94,922	)
Accumulated other comprehensive loss		(423	)		(62	)		(74	)		(357	)

Total stockholders’ equity		114,689			78,322			105,731			109,535

Total liabilities and stockholders’ equity	$	194,090		$	148,039		$	202,924		$	200,830

CommVault Systems, Inc.

Consolidated Statements of ~~Operations~~Income

(In thousands, except per share data)

(Unaudited)


	Three Months Ended					Nine Months Ended						Three Months Ended						Six Months Ended
	December 31,					December 31,						September 30,						September 30,
	2007		2006			2007			2006			2008			2007			2008			2007
Revenues:
Software	$	26,994	$	21,132		$	77,630		$	60,180		$	35,156		$	26,556		$	62,860		$	50,636
Services		23,304		17,198			64,063			48,310			28,180			20,850			55,471			40,759

Total revenues		50,298		38,330			141,693			108,490			63,336			47,406			118,331			91,395

Cost of revenues:
Software		648		528			1,651			1,191			634			542			1,338			1,003
Services		6,315		5,102			17,775			14,459			7,115			5,636			14,001			11,460

Total cost of revenues		6,963		5,630			19,426			15,650			7,749			6,178			15,339			12,463

Gross margin		43,335		32,700			122,267			92,840			55,587			41,228			102,992			78,932

Operating expenses:
Sales and marketing		23,420		17,379			67,735			48,958			32,302			23,088			59,866			44,315
Research and development		6,818		5,851			19,944			17,369			7,752			6,667			15,188			13,126
General and administrative		6,010		4,470			17,266			13,734			6,883			6,098			13,914			11,256
Depreciation and amortization		795		753			2,217			1,832			943			723			1,804			1,422

Income from operations		6,292		4,247			15,105			10,947			7,707			4,652			12,220			8,813

Interest expense		—		(167	)		(114	)		(184	)		(27	)		—			(27	)		(114	)
Interest income		998		665			2,701			1,865			588			886			1,197			1,703

Income before income taxes		7,290		4,745			17,692			12,628			8,268			5,538			13,390			10,402

Income tax benefit (expense)		908		(111	)		(3,077	)		(222	)
Income tax expense													(3,539	)		(2,100	)		(5,184	)		(3,985	)


Net income		8,198		4,634			14,615			12,406		$	4,729		$	3,438		$	8,206		$	6,417
Less: accretion of preferred stock dividends		—		—			—			(2,818	)
Less: accretion of fair value of preferred stock upon conversion		—		—			—			(102,745	)

Net income (loss) attributable to common stockholders	$	8,198	$	4,634		$	14,615		$	(93,157	)


Net income (loss) attributable to common stockholders per share:
Net income per common share:
Basic	$	0.19	$	0.11		$	0.34		$	(3.44	)	$	0.11		$	0.08		$	0.19		$	0.15

Diluted	$	0.18	$	0.10		$	0.32		$	(3.44	)	$	0.11		$	0.08		$	0.18		$	0.14


Weighted average shares used in computing per share amounts:
Weighted average common shares outstanding:
Basic		43,518		41,676			42,991			27,052			42,314			43,103			42,493			42,726

Diluted		46,136		46,164			45,593			27,052			44,498			45,677			44,701			45,321

CommVault Systems, Inc.

Consolidated Statement of Stockholders’ Equity

(In thousands)

(Unaudited)

Accumulated
Additional Other
Common Stock Paid-In Accumulated Comprehensive
Shares Amount Capital Deficit Loss Total
Balance as of March 31, 2007 41,968 $ 420 $ 182,297 $ (104,333 ) $ (62 ) $ 78,322
Stock-based compensation 6,233 6,233
Tax benefits from exercise of stock options 4,557 4,557
Stock options exercised 1,411 14 8,094 8,108
Issuance of common stock from follow-on public offering, net 300 3 4,312 4,315
Cumulative effect of adoption of FIN No. 48 (1,100 ) (1,100 )
Comprehensive Income:
Net income 14,615 14,615
Foreign currency translation adjustment (361 ) (361 )

Total Comprehensive Income 14,254

Balance as of December 31, 2007 43,679 $ 437 $ 205,493 $ (90,818 ) $ (423 ) $ 114,689


													Accumulated
							Additional						Other
	Common Stock						Paid - In			Accumulated			Comprehensive
	Shares			Amount			Capital			Deficit			Loss			Total
Balance as of March 31, 2008		42,750		$	428		$	204,386		$	(94,922	)	$	(357	)	$	109,535
Stock-based compensation								5,261									5,261
Tax benefits relating to share-based payments								731									731
Exercise of common stock options and vesting of restricted stock units		439			4			2,091									2,095
Repurchase of common stock		(1,335	)		(13	)		(6,146	)		(14,221	)					(20,380	)
Comprehensive income:
Net income											8,206						8,206
Foreign currency translation adjustment														283			283

Total Comprehensive income																	8,489

Balance as of September 30, 2008		41,854		$	419		$	206,323		$	(100,937	)	$	(74	)	$	105,731

See accompanying unaudited notes to consolidated financial statements

CommVault Systems, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine Months Ended						Six Months Ended
	December 31,						September 30,
	2007			2006			2008			2007
Cash flows from operating activities
Net income	$	14,615		$	12,406		$	8,206		$	6,417
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,326			2,045			1,857			1,500
Noncash stock-based compensation		6,233			4,326			5,261			4,026
Excess tax benefits from stock-based compensation		(4,497	)		—			(727	)		(2,486	)
Deferred income taxes		(3,647	)		—			1,678			356

Changes in operating assets and liabilities:
Accounts receivable		(10,935	)		(3,499	)		4,873			(8,268	)
Prepaid expenses and other current assets		313			(323	)		(1,031	)		(490	)
Other assets		(182	)		(160	)		(494	)		(231	)
Accounts payable		122			(316	)		197			641
Accrued liabilities		8,239			3,442			1,309			2,269
Deferred revenue and other liabilities		10,807			4,588			7,120			6,578

Net cash provided by operating activities		23,394			22,509			28,249			10,312

Cash flows from investing activities
Purchase of property and equipment		(3,083	)		(3,148	)		(2,719	)		(1,869	)

Net cash used in investing activities		(3,083	)		(3,148	)		(2,719	)		(1,869	)

Cash flows from financing activities
Repurchase of common stock								(17,448	)		—
Proceeds from the exercise of stock options		8,108			343			2,095			5,928
Excess tax benefits from stock-based compensation								727			2,486
Net proceeds from follow-on public offering of common stock		4,315			—			—			4,315
Excess tax benefits from stock-based compensation		4,497			—
Repayments on term loan		(7,500	)		(6,250	)		—			(7,500	)
Proceeds from term loan		—			15,000
Payments to Series A through E preferred stockholders upon conversion to common stock		—			(101,833	)
Net proceeds from initial public offering and concurrent private placement		—			82,242

Net cash provided by (used in) financing activities		9,420			(10,498	)		(14,626	)		5,229

Effects of exchange rate — changes in cash		376			(408	)		(1,306	)		510


Net increase in cash and cash equivalents		30,107			8,455			9,598			14,182
Cash and cash equivalents at beginning of period		65,001			48,039			91,661			65,001


Cash and cash equivalents at end of period	$	95,108		$	56,494		$	101,259		$	79,183

CommVault Systems, Inc.

Notes to Consolidated Financial Statements — Unaudited

(In thousands, except per share data)

1. Nature of Business

CommVault Systems, Inc. and its subsidiaries (“CommVault” or the “Company”) is a leading provider of data and information management software applications and related ~~services in terms of product breadth and functionality and market penetration.~~services. The Company develops, markets and sells a suite of software applications and services, primarily in North America, Europe, Australia and Asia, that provides its customers with high-performance data protection; disaster recovery of data; data migration and archiving; global availability of data; replication of data; creation and management of copies of stored data; storage resource discovery and usage tracking; enterprise-wide search capabilities; data classification; and management and operational reports and troubleshooting tools. The Company’s unified suite of data management software applications, which is sold under the Simpana brand, shares an underlying architecture that has been developed to minimize the cost and complexity of managing data on globally distributed and networked storage infrastructures. The Company also provides its customers with a broad range of professional and customer support services.

2. Basis of Presentation

The consolidated financial statements as of ~~December 31, 2007~~September 30, 2008 and for the three and ~~nine~~six months ended ~~December 31,~~September 30, 2008 and 2007 ~~and 2006~~ are unaudited, and in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the financial statements and notes in the Company’s Annual Report ~~incorporated by reference in~~on Form 10-K for fiscal ~~2007.~~2008. The results reported in these financial statements should not necessarily be taken as indicative of results that may be expected for the entire fiscal year. The balance sheet as of March 31, ~~2007~~2008 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

~~Other than the adoption of the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48,~~~~“Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”~~~~(“FIN 48”), there~~There have been no significant changes in the Company’s accounting policies during the ~~nine~~six months ended ~~December 31, 2007~~September 30, 2008 as compared to the significant accounting policies ~~prescribed~~described in its Annual Report on Form 10-K for the year ended March 31, ~~2007.~~2008.

3. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments and estimates that affect the amounts reported in the Company’s consolidated financial statements and the accompanying notes. The Company bases its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilities reported in the Company’s balance sheets and the amounts of revenues and expenses reported for each of its periods presented are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, allowance for doubtful accounts, income taxes and related reserves, stock-based compensation and accounting for research and development costs. Actual results could differ from those estimates.

Revenue Recognition

The Company derives revenues from two primary sources, or elements: software licenses and services. Services include customer support, consulting, assessment and design services, installation services and training. A typical sales arrangement includes both of these elements. The Company applies the provisions of Statement of Position (“SOP”) 97-2,Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9, and related interpretations to all transactions to determine the recognition of revenue.

CommVault Systems, Inc.
Notes to Consolidated Financial Statements — Unaudited (Continued)
(In thousands, except per share data)

For sales arrangements involving multiple elements, the Company recognizes revenue using the residual method as described in SOP 98-9. Under the residual method, the Company allocates and defers revenue for the undelivered elements based on relative fair value and recognizes the difference between the total arrangement fee and the amount deferred for the undelivered elements as revenue. The determination of fair value of the undelivered elements in multiple-element arrangements is based on the price charged when such elements are sold separately, which is commonly referred to as vendor-specific objective-evidence, or VSOE.

The Company’s software licenses typically provide for a perpetual right to use the Company’s software and are sold on a per-copy basis or as site licenses. Site licenses give the customer the additional right to deploy the software on a limited basis during a specified term. The Company recognizes software revenue through direct sales channels upon receipt of a purchase order or other persuasive evidence and when all other basic revenue recognition criteria are met as described below. The Company recognizes software revenue through all indirect sales channels on a sell-through model. A sell-through model requires that the Company recognize revenue when the basic revenue recognition criteria are met as described below and these channels complete the sale of the Company’s software products to the end user. Revenue from software licenses sold through an original equipment manufacturer partner is recognized upon the receipt of a royalty report or purchase order from that original equipment manufacturer partner.

Services revenue includes revenue from customer support and other professional services. Customer support includes software updates on a when-and-if-available basis, telephone support and bug fixes or patches. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year. To determine the price for the customer support element when sold separately, the Company primarily uses historical renewal rates, and in certain cases, it uses stated renewal rates. Historical renewal rates are supported by performing an analysis in which the Company segregates its customer support renewal contracts into different classes based on specific criteria including, but not limited to, the dollar amount of the software purchased, the level of customer support being provided and the distribution channel. As a result of this analysis, the Company has concluded that it has established VSOE for the different classes of customer support when the support is sold as part of a multiple-element sales arrangement.

The Company’s other professional services include consulting, assessment and design services, installation services and training. Other professional services provided by the Company are not mandatory and can also be performed by the customer or a ~~third party.~~third-party. In addition to a signed purchase order, the Company’s consulting, assessment and design services and installation services are generally evidenced by a Statement of Work (“SOW”), which defines the specific scope of such services to be performed when sold and performed on a stand-alone basis or included in multiple-element sales arrangements. Revenues from consulting, assessment and design services and installation services are based upon a daily or weekly rate and are recognized when the services are completed. Training includes courses taught by the Company’s instructors or ~~third party~~third-party contractors either at one of the Company’s facilities or at the customer’s site. Training fees are recognized after the training course has been provided. Based on the Company’s analysis of such other professional services transactions sold on a stand-alone basis, the Company has concluded it has established VSOE for such other professional services when sold in connection with a multiple-element sales arrangement. The Company generally performs its other professional services within 60 to 90 days of entering into an agreement. The price for other professional services has not materially changed for the periods presented.

The Company has analyzed all of the undelivered elements included in its multiple-element sales arrangements and determined that VSOE of fair value exists to allocate revenues to services. Accordingly, assuming all basic revenue recognition criteria are met, software revenue is recognized upon delivery of the software license using the residual method in accordance with SOP 98-9.

~~CommVault Systems, Inc.~~
~~Notes to Consolidated Financial Statements — Unaudited (Continued)~~
~~(In thousands, except per share data)~~


	•		Delivery or performance has occurred.The Company’s software applications are usually physically delivered to customers with standard transfer terms such as FOB shipping point. Software and/or software license keys for add-on orders or software updates are typically delivered ~~via email.~~in an electronic format. If products that are essential to the functionality of the delivered software in an arrangement have not been delivered, the Company does not consider delivery to have occurred. Services revenue is recognized when the services are completed, except for customer support, which is recognized ratably over the term of the customer support agreement, which is typically one year.

	•		Vendor’s fee is fixed or determinable.The fee customers pay for software applications, customer support and other professional services is negotiated at the outset of a sales arrangement. The fees are therefore considered to be fixed or determinable at the inception of the arrangement.

	•		Collection is probable.Probability of collection is assessed on a customer-by-customer basis. Each new customer undergoes a credit review process to evaluate its financial position and ability to pay. If the Company determines from the outset of an arrangement that collection is not probable based upon the review process, revenue is recognized at the earlier of when cash is collected or when sufficient credit becomes available, assuming all of the other basic revenue recognition criteria are met.

The Company’s sales arrangements generally do not include acceptance clauses. However, if an arrangement does include an acceptance clause, revenue for such an arrangement is deferred and recognized upon acceptance. Acceptance occurs upon the earliest of receipt of a written customer acceptance, waiver of customer acceptance or expiration of the acceptance period.

The Company has offered limited price protection under certain original equipment manufacturer agreements. The Company believes that the likelihood of a future payout due to price protection is remote.

CommVault Systems, Inc.
Notes to Consolidated Financial Statements — Unaudited (Continued)
(In thousands, except per share data)

Net Income ~~(Loss) Attributable to~~per Common ~~Stockholders per~~ Share

~~In the three and nine months ended December 31, 2006, the~~The Company ~~calculated~~calculates net income ~~(loss) attributable to common stockholders~~ per share in accordance with SFAS No. 128,Earnings per Share ~~(“SFAS 128”) and EITF Issue No. 03-6,~~~~Participating Securities and the Two — Class Method under FASB Statement 128~~~~(“EITF No. 03-6”)~~. ~~In the three and nine months ended December 31, 2007, the Company calculated~~Basic net income ~~attributable~~per common share is computed by dividing net income by the weighted average number of common shares during the period. Diluted net income per common share is computed by giving effect to all potential dilutive common ~~stockholders per share in accordance with SFAS 128.~~shares. The ~~information required to compute~~following table sets forth the computation of basic and diluted net income ~~attributable to~~per common ~~stockholders per share is as follows:~~share:

Three Months Ended Nine Months Ended
December 31, December 31,
2007 2006 2007 2006
Reconciliation of net income to net income (loss) attributable to common stockholders for the basic computation:

Net income $ 8,198 $ 4,634 $ 14,615 $ 12,406
Accretion of preferred stock dividends (1) — — — (2,818 )
Accretion of fair value of preferred stock upon conversion (2) — — — (102,745 )

Net income (loss) attributable to common stockholders $ 8,198 $ 4,634 $ 14,615 $ (93,157 )

Basic net income (loss) attributable to common stockholders per share:

Basic weighted average shares outstanding 43,518 41,676 42,991 27,052

Basic net income (loss) attributable to common stockholders per share $ 0.19 $ 0.11 $ 0.34 $ (3.44 )

Reconciliation of net income to net income (loss) attributable to common stockholders for the diluted computation:

Net income $ 8,198 $ 4,634 $ 14,615 $ 12,406
Accretion of preferred stock dividends (1) — — — (2,818 )
Accretion of fair value of preferred stock upon conversion (2) — — — (102,745 )

Net income (loss) attributable to common stockholders $ 8,198 $ 4,634 $ 14,615 $ (93,157 )

Diluted net income (loss) attributable to common stockholders per share:

Basic weighted average shares outstanding 43,518 41,676 42,991 27,052
Dilutive effect of stock options and restricted stock units 2,618 4,488 2,602 �� —

Diluted weighted average shares outstanding 46,136 46,164 45,593 27,052

Diluted net income (loss) attributable to common stockholders per share $ 0.18 $ 0.10 $ 0.32 $ (3.44 )


	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Net income	$	4,729	$	3,438	$	8,206	$	6,417

Basic net income per common share:
Basic weighted average shares outstanding		42,314		43,103		42,493		42,726

Basic net income per common share	$	0.11	$	0.08	$	0.19	$	0.15


Diluted net income per common share:
Basic weighted average shares outstanding		42,314		43,103		42,493		42,726
Dilutive effect of stock options and restricted stock units		2,184		2,574		2,208		2,595

Diluted weighted average shares outstanding		44,498		45,677		44,701		45,321

Diluted net income per common share	$	0.11	$	0.08	$	0.18	$	0.14


~~(1)~~		Net income is reduced by the contractual amount of dividends ($1.788 per share) due on the Company’s Series A through E cumulative redeemable convertible preferred stock prior to its conversion into common stock on September 27, 2006.

~~(2)~~		In the nine months ended December 31, 2006, net income attributable to common stockholders is reduced by $102,745 related to the accretion of fair value of the Series A through E cumulative redeemable convertible preferred stock upon conversion to common stock on September 27, 2006 as required under EITF D-42, “~~The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock.~~”

~~CommVault Systems, Inc.~~
~~Notes to Consolidated Financial Statements — Unaudited (Continued)~~
~~(In thousands, except per share data)~~ The diluted weighted average shares outstanding in the table above exclude outstanding stock options and restricted stock units totaling approximately 2,732 and 1,313 for the three months ended September 30, 2008 and 2007, respectively, and 2,724 and 1,170 for the six months ended September 30, 2008 and 2007, respectively, because the effect would have been anti-dilutive.

Concentration of Credit Risk

The Company grants credit to customers in a wide variety of industries worldwide and generally does not require collateral. Credit losses relating to these customers have been minimal.

~~One customer accounted for~~Sales to three customers totaled approximately ~~24%~~53% and ~~19%~~39% of total revenues for the ~~nine~~six months ended ~~December 31,~~September 30, 2008 and 2007, respectively. All three customers are distribution partners (Dell, Hitachi Data Systems and ~~2006, respectively. That customer~~Alternative Technologies, Inc.) that represent hundreds of underlying end-user transactions. These customers accounted for ~~24%~~approximately 67% and ~~14%~~53% of accounts receivable as of ~~December 31, 2007~~September 30, 2008 and March 31, ~~2007,~~2008, respectively. ~~In addition, another customer accounted for approximately 11% of total revenues for the nine months ended December 31, 2007 and approximately 22% of accounts receivable as of December 31, 2007.~~

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, as well as billings for other professional services fees that have not yet been performed by the Company and billings for license fees that are deferred due to insufficient persuasive evidence that an arrangement exists. The value of deferred revenues will increase or decrease based on the timing of invoices and recognition of software revenue. The Company expenses internal direct and incremental costs related to contract acquisition and origination as incurred.

CommVault Systems, Inc.
Notes to Consolidated Financial Statements — Unaudited (Continued)
(In thousands, except per share data)

The Company classifies benefits of tax deductions in excess of the compensation cost recognized (excess tax benefits) as a financing item cash inflow with a corresponding operating cash outflow. For the six months ended September 30, 2008 and 2007, the Company includes $727 and ~~2006.~~$2,486, respectively, as a financing cash inflow.

Three Months Ended Nine Months Ended
December 31, December 31,
2007 2006 2007 2006
Cost of services revenue $ 44 $ 24 $ 119 $ 75
Sales and marketing 1,073 701 2,990 1,978
Research and development 304 182 884 564
General and administrative 786 538 2,240 1,709

Stock-based compensation expense $ 2,207 $ 1,445 $ 6,233 $ 4,326

Share Repurchases

The Company considers all shares repurchased as cancelled shares restored to the status of authorized but unissued shares on the trade date. The aggregate purchase price of the shares of the Company’s common stock repurchased is reflected as a reduction to Stockholders’ Equity. In accordance with Accounting Principles Board Opinion No. 6,Status of Accounting Research Bulletins, the Company accounted for shares repurchased as an adjustment to common stock (at par value) with the excess repurchase price allocated between additional paid-in capital and accumulated deficit. As a result of the Company’s stock repurchases in the six months ended September 30, 2008, the Company reduced common stock and additional paid-in capital by $6,159 and accumulated deficit by $14,221.

Comprehensive Income

The Company applies the provisions of SFAS No. 130,Reporting Comprehensive Income. Comprehensive income is defined to include all changes in equity, except those resulting from investments by stockholders and distribution to stockholders, and is reported in the statement of stockholders’ equity. Comprehensive income for the three and ~~nine~~six months ended ~~December 31,~~September 30, 2008 and 2007 ~~and 2006~~ is as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended					Six Months Ended
	December 31,						December 31,						September 30,					September 30,
	2007			2006			2007			2006			2008		2007			2008		2007
Net income	$	8,198		$	4,634		$	14,615		$	12,406		$	4,729	$	3,438		$	8,206	$	6,417
Foreign currency translation adjustment		(51	)		(151	)		(361	)		(408	)		412		(95	)		283		(310	)

Total comprehensive income	$	8,147		$	4,483		$	14,254		$	11,998		$	5,141	$	3,343		$	8,489	$	6,107

CommVault Systems, Inc.
Notes to Consolidated Financial Statements — Unaudited (Continued)
(In thousands, except per share data)

In ~~December~~accordance with FAS 157, included within our cash and cash equivalents are $87,499 of money market funds that are classified as Level 1 financial assets as of September 30, 2008.

In February 2007, the ~~Securities and Exchange Commission (“~~~~SEC~~”)FASB issued ~~Staff Accounting Bulletin No. 110 (“~~~~SAB 110~~~~”). SAB 110 amends and replaces Question 6 of Section D.2 of Topic 14,~~~~Share-Based Payment~~~~. SAB 110 expresses the views of the staff regarding the use of the “simplified” method in developing an estimate of expected term of “plain vanilla” share options in accordance with FASB~~ Statement No. ~~123(R),~~159,~~Share Based Payment.~~The ~~use of~~Fair Value Option for Financial Assets and Financial Liabilities(“Statement 159”). Statement 159 permits companies to choose to measure certain financial instruments at fair value that are not currently required to be measured at fair value. Statement 159 was effective for the ~~“simplified” method was scheduled to expire~~Company on ~~December 31, 2007. SAB 110 extends the use of the “simplified” method for “plain vanilla” awards in certain situations.~~April 1, 2008. The Company ~~currently uses~~has elected not to measure eligible financial assets and liabilities at fair value. Accordingly, the ~~“simplified” method to estimate the expected term for share option grants as it does not have enough historical experience to provide a reasonable estimate due to the limited period~~adoption of Statement 159 had no impact on the Company’s equity shares have been publicly traded. The Company will continue to use the “simplified” method until it has enough historical experience to provide a reasonable estimate of expected term in accordance with SAB 110. SAB 110 is effective for options granted after December 31, 2007.consolidated financial statements.

4. ~~Term Loan~~Credit Facility

In ~~May 2006,~~July 2008, the Company entered into a ~~$20,000 term loan~~credit facility ~~(the “term loan”)~~ in ~~connection with~~which the ~~payments due~~Company can borrow up to $40,000 over the ~~holders~~initial 12 months of ~~its Series A through E Stock upon~~the credit facility. Borrowings under the facility are available to repurchase the Company’s ~~initial public offering. During the nine months ended December 31, 2007,~~common stock under its share repurchase program or to provide for working capital and general corporate purposes. The credit facility contains financial covenants that require the Company ~~paid $7,500~~to maintain a quick ratio and minimum earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined in ~~satisfaction~~the credit agreement.

Repayments of amounts borrowed under the credit facility will occur over a 2-year amortization period with a maximum maturity date of July 2011. Borrowings under the credit facility bear interest, at the Company’s option, at either a rate equal to LIBOR plus 1.5% or the bank’s base rate, as defined in the credit agreement. The credit facility also contains a quarterly commitment fee based on the unused portion of the credit facility, which is recorded in Accrued Liabilities as of September 30, 2008. As of September 30, 2008, the Company was in compliance with all required covenants, and there were no outstanding ~~principal balance~~balances on the ~~term loan.~~credit facility.

5. Contingencies

In the normal course of its business, the Company may be involved in various claims, negotiations and legal actions; however, as of ~~December 31, 2007,~~September 30, 2008, the Company is not party to any litigation that is expected to have a material effect on the Company’s financial position, results of operations or cash flows.

6. Capitalization

In June 2007, the Company completed a follow-on public offering of 7,870 shares of common stock at a price of $17.00 per share. The Company sold 300 shares and certain stockholders of the Company sold 7,570 shares in this offering. As a result of its follow-on offering, the Company raised a total of $5,100 in gross proceeds, or approximately $4,315 in net proceeds after deducting underwriting discounts, ~~and~~ commissions ~~of $281~~ and other offering ~~costs of $504.~~costs. In June 2007, the Company’s underwriters also exercised their over-allotment option and purchased an additional 1,172 shares of the Company’s common stock owned by affiliates of Credit Suisse Securities (USA) LLC at the public offering price of $17.00 per share. The Company did not receive any proceeds as a result of the underwriters exercise of their over-allotment option.

In ~~September 2006,~~January 2008, the Company’s Board of Directors approved a stock repurchase program which authorized the Company ~~completed~~to repurchase up to $40,000 of its ~~initial public offering~~common stock. In July 2008, the Company’s Board of ~~11,111~~Directors authorized an additional $40,000 increase to the Company’s existing share repurchase program. In the six months ending September 30, 2008, the Company repurchased approximately 1,335 shares with a total cost of approximately $20,380, of which $17,448 was paid as of September 30, 2008. The average price of the common stock ~~at a price of $14.50~~repurchased during the six months ended September 30, 2008 was $15.27 per share. ~~The Company sold 6,148 shares and certain stockholders~~As of September 30, 2008, the Company ~~sold 4,963 shares in this offering. As a result of its initial public offering,~~has repurchased approximately $35,393 under the ~~Company raised $89,148 in gross proceeds, or approximately $80,248 in net proceeds after deducting underwriting discounts and commissions and other offering costs.~~ share repurchase authorization.

~~CommVault Systems, Inc.~~
~~Notes to Consolidated Financial Statements — Unaudited (Continued)~~
~~(In thousands, except per share data)~~

The LTIP permits the grant of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance stock awards and stock unit awards based on, or related to, shares of the Company’s common stock. ~~Under the LTIP, the~~The maximum number of shares of the Company’s common stock that may be initially awarded ~~was~~under the LTIP is 4,000. On each April 1, the number of shares available for issuance under the LTIP is increased, if applicable, such that the total number of shares available for awards under the LTIP as of any April 1 is equal to 5% of the number of outstanding shares of the Company’s common stock on that April 1. As ~~of December 31, 2007,~~a result, there were ~~2,324~~2,138 shares available for future issuance under the LTIP at April 1, 2008. As of September 30, 2008, approximately 1,948 shares were available for future issuance under the LTIP.

~~Stock option~~As of September 30, 2008, the Company has granted non-qualified stock options and restricted stock units under its stock-based compensation plans. Equity awards granted by the Company under its stock-based compensation plans generally vest quarterly over a four-year period, except that the shares that would otherwise vest quarterly over the first 12 months do not vest until the first anniversary of the grant. The Company anticipates that future grants under its stock-based compensation plans will continue to include both non-qualified stock options and restricted stock units.

The following summarizes the activity for the ~~nine~~Company’s two stock incentive plans for the six months ended ~~December 31, 2007 is as follows:~~September 30, 2008:


															Weighted-
						Weighted-									Average
				Weighted-		Average							Weighted-		Remaining
	Number			Average		Remaining		Aggregate		Number			Average		Contractual		Aggregate
	of			Exercise		Contractual		Intrinsic		of			Exercise		Term		Intrinsic
Options	Options			Price		Term (Years)		Value		Options			Price		(Years)		Value
Outstanding as of March 31, 2007		7,671		$	6.39
Outstanding as of March 31, 2008											8,086		$	8.84
Options granted		1,159			17.29						155			13.58
Options exercised		(1,411	)		5.74						(358	)		5.86
Options canceled		(192	)		10.53						(103	)		12.42

Outstanding as of December 31, 2007		7,227		$	8.15		6.55	$	94,180
Outstanding as of September 30, 2008											7,780		$	9.02		6.29	$	32,549

Vested or expected to vest as of December 31, 2007		6,998		$	7.95		6.46	$	92,411
Vested or expected to vest as of September 30, 2008											7,650		$	8.90		6.22	$	32,515

Exercisable as of December 31, 2007		4,413		$	5.81		5.30	$	67,812
Exercisable as of September 30, 2008											4,897		$	6.71		5.00	$	28,249

CommVault Systems, Inc.
Notes to Consolidated Financial Statements — Unaudited (Continued)
(In thousands, except per share data)

Restricted stock unit activity for the ~~nine~~six months ended ~~December 31, 2007~~September 30, 2008 is as follows:


	~~Number of~~
~~Non-vested Restricted Stock Units~~	~~Awards~~
~~Non-Vested as of April 1, 2007~~		—
~~Granted~~		~~350~~
~~Vested~~		—
~~Forfeited~~		~~(11~~	)

~~Non-vested as of December 31, 2007~~		~~339~~

In the three and nine months ended December 31, 2007, the Company awarded 57 and 350 restricted stock units at a weighted average fair value of $20.56 and $17.66 per share, respectively. The restricted stock units vest over a four-year period.


				Weighted
	Number of			Average Grant
Non-vested Restricted Stock Units	Awards			Date Fair Value
Non-vested as of March 31, 2008		665		$	15.81
Awarded		124			15.39
Released		(81	)		17.05
Forfeited		(37	)		16.08

Non-vested as of September 30, 2008		671		$	15.57

8. Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting and the amount used for income tax purposes. The Company’s net deferred tax assets relate primarily to net operating loss (“NOL”) carry forwards, research and development tax credits (“R&D credits”), depreciation and amortization, deferred revenue and stock-based compensation. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent that the Company believes recovery is not likely, the Company establishes a valuation allowance.

~~CommVault Systems, Inc.~~
~~Notes to Consolidated Financial Statements — Unaudited (Continued)~~
(In ~~thousands, except per share data)~~

~~The provision (benefit) for~~addition, the Company reviews the expected annual effective income ~~taxes for the three and nine months ended December 31, 2007 was ($908) and $3,077, respectively, with effective tax rates of (12%) and 17%, respectively. The Company’s effective~~ tax rate ~~for~~and makes changes on a quarterly basis as necessary based on certain factors such as changes in forecasted annual income, changes to the ~~three~~actual and ~~nine months ended December 31, 2007 differs~~forecasted permanent book-to-tax differences, or changes resulting from the ~~U.S. federal statutory tax rate~~impact of ~~35% primarily due to a reversal of the Company’s deferred income tax valuation allowance, foreign tax credits and R&D credits, partially offset by state income taxes.~~

Until the third quarter of fiscal 2008, the Company had recorded a valuation allowance in certain international jurisdictions primarily related to net operating loss carryforwards based on the Company’s assessment that the realization of the net deferred tax assets did not meet the “more than likely not” criterion under SFAS No. 109,~~“Accounting for Income Taxes.”~~During the quarter ended December 31, 2007, the Company modified its transfer pricing policies for software sold to certain of its international subsidiaries. In assessing the need for a valuation allowance against its deferred tax assets in such international jurisdictions, the Company considered projected future income as part of its analysis. Due to the transfer pricing changes made during the quarter ended December 31, 2007, the Company projects that certain of its international subsidiaries will be in a profitable position for the foreseeable future. Therefore, the Company no longer believes that a valuation allowance is necessary against its deferred tax assets in these international operations and recorded a tax ~~benefit of $2,372 related to the reversal of such valuation allowances. As of December 31, 2007, the Company does not maintain a valuation allowance against any of its deferred tax assets.~~law change.

The provision for income taxes for the three and ~~nine~~six months ended ~~December 31, 2006~~September 30, 2008 was ~~$111~~$3,539 and ~~$222,~~$5,184, respectively, with effective tax rates of approximately 43% and 39%, respectively. The effective rates in the three and six months ended September 30, 2008 are higher than the expected federal statutory rate of 35% primarily due to state income taxes and permanent differences in the United States. The Company’s effective tax rate of 43% in the three months ended September 30, 2008 includes adjustments to permanent book-to-tax differences that were forecasted as part of the effective tax rate for the first quarter of fiscal 2009. The provision for income taxes for the three and six months ended September 30, 2007 was $2,100 and $3,985, respectively, with an effective tax rate of 2%approximately 38% in each period.

The ~~2% effective~~calculation of the Company’s tax ~~rate was primarily~~liabilities involves dealing with uncertainties in the ~~result~~application of complex tax regulations in each of its tax jurisdictions. The number of years with open tax audits varies depending on the tax jurisdiction. A number of years may lapse before a ~~full valuation allowance that the~~particular matter is audited and finally resolved. The Company ~~maintained against its deferred~~accounts for uncertain tax ~~assets at that time.~~

~~On April 1, 2007, the Company adopted~~positions in accordance with the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48,Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). ~~As a result~~A reconciliation of the ~~adoption~~beginning and ending amounts of ~~FIN 48, the Company recognized a charge of $1,100 to the April 1, 2007 accumulated deficit balance. As~~unrecognized tax benefits is as follows:


Balance at March 31, 2008	$	4,942
Additions for tax positions related to fiscal 2009		130
Additions for tax positions related to prior years		—
Settlements		—
Reductions related to the expiration of statutes of limitations		—

Balance at September 30, 2008	$	5,072

All of the ~~adoption date, the Company had~~Company’s unrecognized tax benefits of $6,120 which included accrued interest expense of $255 related to the unrecognized tax benefits. In the nine months ended December 31, 2007, the Company reduced its unrecognized tax benefits by $100 due to the expiration of the statute of limitations on a tax issue and recognized $171 of additional interest related to income tax. Interest and penalties, if any, related to unrecognized tax benefits, are recorded in income tax expense. As of December 31, 2007, the Company had unrecognized tax benefits of $6,191 which is included in Other Liabilities on the Consolidated Balance Sheet. All of these unrecognized tax benefits,$5,072, if recognized, would favorably affect the effective tax rate. The Company does not anticipate any material changes in the amount of unrecognized tax benefits ~~(exclusive of interest)~~ within the next twelve months. Components of the reserve are classified as either current or long-term in the consolidated balance sheet based on when the Company expects each of the items to be settled. Accordingly, the Company has recorded its unrecognized tax benefits of $5,072 and the related accrued interest and penalties of $1,471 in Other Liabilities on the Consolidated Balance Sheet. Interest and penalties related to unrecognized tax benefits are

CommVault Systems, Inc.
Notes to Consolidated Financial Statements — Unaudited (Continued)
(In thousands, except per share data)

recorded in income tax expense. In the three and six months ended September 30, 2008, the Company recognized $56 and $111 of interest and penalties in the Consolidated Statement of Income.

The Company conducts business globally and as a result, files income tax returns in the United States and in various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States, Australia, Canada, Germany, Netherlands and United Kingdom. The Company is not currently under audit in any tax jurisdiction. The following table summarizes the tax years in the Company’s major tax jurisdictions that remain subject to income tax examinations by tax authorities as of ~~December 31, 2007.~~September 30, 2008. Due to NOL carryforwards, in some cases the tax years continue to remain subject to examination with respect to such NOL’s.


		Years Subject to Income
Tax Jurisdiction		Tax Examination
U.S. Federal		~~1999~~2001 - Present
New Jersey		2001 - Present
Canada		~~2001~~2002 - Present
Other foreign jurisdictions		2004 - Present

~~9. Subsequent Events~~

~~On January 30, 2008, the Company’s Board of Directors approved a share-repurchase program permitting the Company to repurchase up to $40,000 of its common stock over the next 12 months.~~

1314

Item 2.2 — 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 quarterly report onForm 10-Q. 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 within the meaning of Section ~~21 E~~21E of the Securities Act of 1934. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Risk Factors” in our Annual Report onForm 10-K for the year ended March 31, ~~2007.~~2008. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

~~CommVault is~~We are a leading provider of data and information management software applications and related ~~services in terms of product breadth and functionality and market penetration.~~services. We develop, market and sell a unified suite of data management software applications under the Simpana ~~brand.~~brand in terms of product breadth and functionality and market penetration. Our ~~unified data management suite was formerly marketed under~~Simpana software is designed to work together seamlessly from the ~~QiNetix brand name.~~ground up, sharing a single code and common function set, to deliver Data Protection, Archive, Replication, Search and Resource Management capabilities. With a single platform approach, Simpana is specifically designed to protect and manage data throughout its lifecycle in less time, at lower cost and with fewer resources than alternative solutions. Our products and capabilities enable our customers to deploy solutions for data protection, business continuance, corporate compliance and centralized management and reporting. We also provide our customers with a broad range of highly effective services that are delivered by our worldwide support and field operations. As of ~~December 31, 2007,~~September 30, 2008, we had licensed our software applications to approximately ~~7,500~~9,100 registered customers.

Our Simpana software suite ~~includes~~is comprised of the following ~~eight applications which are built upon~~five distinct data and information management software application modules: Data Protection (Galaxy Back-up & Recovery), Archive, Replication, Resource Management and Search. All of our unified architectural design: Galaxy Backup and Recovery (released in 2000), DataMigrator (released in 2002), QuickRecovery (released in 2002), DataArchiver (released in 2003), StorageManager (released in 2003), QNet (released in 2003), Data Classification (released in 2005) and ContinuousDataReplicator (released June 2006).software application modules share our Common Technology Engine. In addition to Galaxy Back-up & Recovery, the subsequent release of our other software has substantially increased our addressable market. Each application module can be used individually or in combination with other application modules from our single platform suite.

In July 2007, we released our CommVault Simpana 7.0 software ~~suite which significantly expanded the breadth and depth of our existing data management~~ suite. We believe that CommVault Simpana 7.0, which builds on and significantly expands our previous QiNetix platform, will create competitive differentiation in the data management related markets as well as provide us a foundation to shift to providing information management solutions. CommVault Simpana 7.0 is the largest release in our history and contains major enhancements to our software suite of products. Specifically, CommVault Simpana 7.0 provides major enhancements to our existing Backup, Archiving and Replication products and also delivers new product features that are non backup related including Single Instancing, Advanced Archiving, Enterprise-wide Search and Discovery and Data Classification.

We currently derive the majority of our software revenue from our Galaxy Backup and Recovery software application. Sales of Galaxy Backup and Recovery represented approximately ~~79%~~71% of our total software revenue for the ~~nine~~six months ended ~~December 31, 2007~~September 30, 2008 and ~~83%~~77% of our total software revenue for fiscal ~~2007.~~2008. In addition, we derive the majority of our services revenue from customer and technical support associated with our Galaxy Backup and Recovery software application. The increase in software revenue generated by our non-Galaxy Backup and Recovery software products, or ~~emerging~~Advanced Data and Information Management products (“ADIM”), was primarily driven by new components and enhancements related to our CommVault Simpana 7.0 software suite. We anticipate that ~~emerging products~~ADIM software revenue as an overall percentage of our total software revenue will increase in the future as we expand our domestic and international sales activities and continue to build brand awareness. However, we anticipate that we will continue to derive a majority of our software and services revenue from our Galaxy Backup and Recovery software application for the foreseeable future.

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 technological developments, evolving industry standards, changing customer requirements and competitive software applications that may render our existing software applications obsolete. For each of our software applications, we

continuation of full product support for the first six months. We provide an additional six months of extended assistance support in which we only provide existing workarounds or fixes ~~only, which~~that do not require additional development activity. We do not have ~~existing~~ plans to make any of our existing software products permanently obsolete.

We completed our follow-on public offering in June 2007 in which we sold 300,000 shares and certain of our stockholders sold 7,570,000 shares of common stock to the public at a price of $17.00 per share. After deducting the underwriting discounts, our net proceeds from the offering were approximately $4.3 million. During the nine months ended December 31, 2007, we used the net proceeds from our follow-on public offering, together with approximately $3.2 million of our existing cash, to pay approximately $7.5 million in satisfaction of the outstanding principal on our term loan.

We completed our initial public offering in September 2006 in which we sold 6,148,148 shares and certain of our stockholders sold 4,962,963 shares of common stock to the public at a price of $14.50 per share. After deducting the underwriting discounts and commissions and the other offering expenses, our net proceeds from the initial public offering were approximately $80.2 million. In conjunction with the initial public offering, we also sold 102,640 shares of common stock in a concurrent private placement at the initial public offering price pursuant to preemptive rights as a result of the initial public offering. Our net proceeds from the concurrent private placement were approximately $1.5 million. We used the net proceeds of the offering and the private placement, together with borrowings under our term loan and $10.1 million of our existing cash and cash equivalents, to pay $101.8 million in satisfaction of amounts due on our Series A, B, C, D and E preferred stock upon its conversions into common stock, which occurred upon the closing of the offering. In conjunction with the offering, all of our outstanding shares of preferred stock were converted into 16,019,480 shares of our common stock.

Sources of Revenues

We derive the majority of our total revenues from sales of licenses of our software applications. We do not customize our software for a specific end user customer. We sell our software applications 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 corporate resellers bundle or sell our software applications together with their own products, and our value added resellers sell our software applications independently. Our software revenue was ~~55%~~53% of our total revenues in ~~both~~ the ~~nine~~six months ended ~~December 31, 2007~~September 30, 2008 and ~~2006.~~55% in the six months ended September 30, 2007.

Software revenue generated through indirect distribution channels was approximately ~~80%~~84% of total software revenue in the ~~nine~~six months ended ~~December 31, 2007~~September 30, 2008 and was approximately ~~70%~~79% of total software revenue in the ~~nine~~six months ended ~~December 31, 2006.~~September 30, 2007. Software revenue generated through direct distribution channels was approximately ~~20%~~16% of total software revenue in the ~~nine~~six months ended ~~December 31, 2007~~September 30, 2008 and was approximately ~~30%~~21% of total software revenue in the ~~nine~~six months ended ~~December 31, 2006.~~September 30, 2007. The continued shift in software revenue generated through indirect distribution channels compared to our direct sales force is the result of both an increase in software revenue from our international operations (which is almost exclusively transacted through indirect distribution) and a shift to indirect distribution channels from direct distribution in software revenue generated in the United States. In addition, deals initiated by our direct sales force in the United States are sometimes transacted through indirect channels based on ~~end-user~~end user customer requirements, which are not always in our control. As such, there may be fluctuations in the dollars and percentage of software revenue generated through our direct distribution channels from time to time. We believe that the growth of our software revenue, derived from both our indirect channel partners and direct sales force, are key attributes to our long-term growth strategy. We will continue to invest in both our channel relationships and direct sales force in the future, but would expect more revenue to be generated through indirect distribution 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 worldwide reseller and an original equipment manufacturer agreement with Dell. Our reseller agreement with Dell provides them the right to market, resell and distribute certain of our products to their customers. Our original equipment manufacturer agreement with Dell is discussed more fully below. We generated approximately 23% of our total revenues through Dell in the six months ended September 30, 2008 and approximately 24% of our total revenues through Dell during fiscal 2008.

We have original equipment manufacturer agreements with Dell and Hitachi Data Systems for them to market, sell and support our software applications and services on a stand-alone basis and/or incorporate our software applications into their own hardware products. Dell and Hitachi Data Systems have no obligation to recommend or offer our software applications exclusively or at all, and they have no minimum sales requirements and can

American resellers were transitioned to ATI throughout fiscal 2007 and fiscal 2008. We generated approximately ~~14%~~20% of our total revenue through ATI in the six months ended September 30, 2008 and approximately 13% of our total revenues ~~for~~through ATI during fiscal 2008. If ATI were to discontinue or reduce the ~~nine months ended December 31, 2006.~~sales of our products or if our agreement with ATI was terminated, and if we were unable to take back the management of our reseller channel or find another North American distributor to replace ATI, then it could have a material adverse effect on our future revenues.

In December 2007, we entered into a collaborative reseller agreement with Sun ~~Microsystems Inc. (“Sun”)~~ pursuant to which they have agreed to promote, market, resell and distribute certain of our products. Our agreement with Sun is a world-wide agreement. To date, we have not generated any material revenue through Sun.

In February 2007, we signed a wide-ranging distribution agreement with Arrow Electronics, Inc. (“Arrow”) covering our North American commercial markets. In July 2007, we amended our agreement with Arrow to include our U.S. Federal Government market. Pursuant to the distribution agreement, Arrow’s primary role is to enable a more efficient and effective two-tier distribution channel for our products and services by managing our reseller partners and leveraging their own industry experience. Many of our North American resellers have been transitioned to Arrow throughout fiscal 2007 and fiscal 2008. We generated approximately 11% of our total revenue through Arrow in the nine months ended December 31, 2007. If Arrow were 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 it could have a material adverse effect on our future revenues.

In May 2007, we signed an original equipment manufacturer agreement with Bull SAS (“Bull”) pursuant to which they have agreed to market, sell, and support our software applications and services. To date, we have not generated any revenue through Bull.

In recent fiscal years, we have generated approximately two-thirds of our software revenue from our existing customer base and approximately one-third of our software revenue from new customers. In addition, our total software revenue in any particular period is, to a certain extent, dependent upon our ability to generate revenues from large customer software deals. We expect the number of software transactions over $0.1 million to increase throughout fiscal ~~2008,~~2009, although the size and timing of any particular software transaction is more difficult to forecast. Such software transactions ~~typically represent~~represented approximately ~~30% to~~42% of our total software revenue in the six months September 30, 2008 and approximately 35% of our total software revenue ~~in any given period.~~for all of fiscal 2008.

Our services revenue is made up of fees from the delivery of customer support 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. 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 services revenue was 47% of our total revenues for six months ended September 30, 2008 and 45% of our total revenues ~~for both~~in the ~~nine~~six months ended ~~December 31, 2007 and 2006.~~September 30, 2007. The gross margin of our services revenue was ~~72.3% for~~74.8% in the ~~nine~~six months ended ~~December 31, 2007~~September 30, 2008 and ~~70.1% for~~71.9% in the ~~nine~~six months ended ~~December 31, 2006. Our~~September 30, 2007. The increase in the gross margin of our services revenue was primarily due to a higher percentage of our services revenue being derived from customer support agreements as a result of sales to new customers and renewal agreements with our installed customer base. Overall, our services revenue has lower gross margins than our software revenue. The gross margin of our software revenue was 97.9% in the six months ended September 30, 2008 and 98.0% in the six months ended September 30, 2007. An increase in the percentage of total revenues represented by services revenue ~~would~~may adversely affect our overall gross margins.

Description of Costs and Expenses

Our cost of revenues is as follows:

	•		Cost of Software Revenue, consists primarily of ~~third party~~third-party royalties and other costs such as media, manuals, translation and distribution costs; and

	•		Cost of Services Revenue, consists primarily of salary and employee benefit costs in providing customer support and other professional services.

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

			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 computer equipment we use for information services and in our development and test labs.

We anticipate that each of the above categories of operating expenses will increase in dollar amounts, but will decline as a percentage of total revenues in the long-term.

Critical Accounting Policies

In presenting our consolidated financial statements in conformity with U.S. generally accepted accounting principles, 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. The following is a description of our 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.

Revenue Recognition

We recognize revenue in accordance with the provisions of Statement of Position (“SOP”) 97-2,Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9, and related interpretations. Our revenue recognition policy is based on complex rules that 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 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 sales of undelivered services when sold on a stand-alone basis, our pricing policies, the credit-worthiness of our customers and resellers, accounts receivable aging data 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.

Currently, we derive revenues from two primary sources, or elements: software licenses and services. Services include customer support, consulting, assessment and design services, installation services and training. A typical sales arrangement includes both of these elements.

For sales arrangements involving multiple elements, we recognize revenue using the residual method as described in SOP 98-9. Under the residual method, we allocate and defer revenue for the undelivered elements based on relative fair value and recognize the difference between the total arrangement fee and the amount deferred for the undelivered elements as revenue. The determination of fair value of the undelivered elements in multiple-element arrangements is based on the price charged when such elements are sold separately, which is commonly referred to as vendor-specific objective evidence (“VSOE”).

Software licenses typically provide for the perpetual right to use our software and are sold on a per copy basis or as site licenses. Site licenses give the customer the additional right to deploy the software on a limited basis during a

products to the end user. Revenue from software licenses sold through an original equipment manufacturer partner is recognized upon the receipt of a royalty report or purchase order from that original equipment manufacturer partner.

Services revenue includes revenue from customer support and other professional services. Customer support includes software updates on a when-and-if-available basis, telephone support and bug fixes or patches. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year. To determine the price for the customer support element when sold separately, we primarily use historical renewal rates and, in certain cases, we use stated renewal rates. Historical renewal rates are supported by a rolling 12-month VSOE analysis in which we segregate our customer support renewal contracts into different classes based on specific criteria including, but not limited to, dollar amount of software purchased, level of customer support being provided and distribution channel. The purpose of such an analysis is to determine if the customer support element that is deferred at the time of a software sale is consistent with how it is sold on a stand-alone renewal basis.

Our other professional services include consulting, assessment and design services, installation services and training. Other professional services provided by us are not mandatory and can also be performed by the customer or a ~~third party.~~third-party. In addition to a signed purchase order, our consulting, assessment and design services and installation services are generally evidenced by a Statement of Work, which defines the specific scope of the services to be performed when sold and performed on a stand-alone basis or included in multiple-element sales arrangements. Revenues from consulting, assessment and design services and installation services are based upon a daily or weekly rate and are recognized when the services are completed. Training includes courses taught by our instructors or ~~third party~~third-party contractors either at one of our facilities or at the customer’s site. Training fees are recognized after the training course has been provided. Based on our analysis of such other professional services transactions sold on a stand-alone basis, we have concluded we have established VSOE for such other professional services when sold in connection with a multiple-element sales arrangement.

In summary, we have analyzed all of the undelivered elements included in our multiple-element sales arrangements and determined that we have VSOE of fair value to allocate revenues to services. Our analysis of the undelivered elements has provided us with results that are consistent with the estimates and assumptions used to determine the timing and amount of revenue recognized in our multiple-element sales arrangements. Accordingly, assuming all basic revenue recognition criteria are met, software revenue is recognized upon delivery of the software license using the residual method in accordance with SOP 98-9. We are not likely to materially change our pricing and discounting practices in the future.

Our sales arrangements generally do not include acceptance clauses. However, if an arrangement does include an acceptance clause, we defer the revenue for such an arrangement and recognize it upon acceptance. Acceptance occurs upon the earliest of receipt of a written customer acceptance, waiver of customer acceptance or expiration of the acceptance period.

We have offered limited price protection under certain original equipment manufacturer agreements. We believe that the likelihood of a future payout due to price protection is remote.

Stock-Based Compensation

~~On April 1, 2006,~~As of September 30, 2008, we ~~adopted~~maintain two stock-based compensation plans, which are described more fully in Note 7 of our“Notes to Consolidated Financial Statements.” We account for our stock compensation plans under the fair value recognition provisions of SFAS Statement No. 123 (revised 2004),Share-Based Payment~~, (“~~(“SFAS 123(R)”), which we adopted on April 1, 2006 using the modified prospective method. Under this transition method, our stock-based compensation costs beginning April 1, 2006 isare based on a combination of the following: (1) all options granted prior to, but not vested as of April 1, 2006, based on the grant date fair value in accordance with the original provisions of SFAS 123 and (2) all options and restricted stock units granted subsequent to April 1, 2006, based on the grant date fair value estimated in accordance with SFAS 123(R).

Forfeitures are estimated based on a historical analysis of our actual stock option forfeitures. Expected volatility was calculated based on reported data for a peer group of publicly traded companies, for which historical information was available. We will continue to use peer group volatility information until our ~~historical~~ volatility data is relevant to measure expected volatility for future option grants. ~~The average expected life was determined according to the “simplified method” as described in SAB 107,~~~~Disclosure about Fair Value of Financial Instruments~~~~, which is the mid-point between the vesting date and the end of the contractual term.~~ The risk-free interest rate is determined by reference to U.S. Treasury yield curve rates with a remaining term equal to the expected life assumed at the date of grant. ~~Forfeitures are estimated based on~~The average expected life was determined according to the “simplified method” as described in SAB 107 and 110, which is the mid-point between the vesting date and the end of the contractual term. We currently use the “simplified” method to estimate the expected term for share option grants as we do not have enough historical experience to provide a reasonable estimate due to the limited period our equity shares have been publicly traded. We will continue to use the “simplified” method until we have enough historical ~~analysis~~experience to provide a reasonable estimate of ~~our actual stock option forfeitures.~~expected term in accordance with SAB 110.

The assumptions used in the Black-Scholes option-pricing model in the three and ~~nine~~six months ended ~~December 31,~~September 30, 2008 and 2007 ~~and 2006~~ are as follows:


	Three Months Ended December 31,		Nine Months Ended December 31,		Three Months Ended September 30,						Six Months Ended September 30,
	2007	2006	2007	2006	2008			2007			2008			2007
Dividend yield	None	None	None	None	None			None			None			None
Expected volatility	43%	48%	43%-47%	48%-55%		41	%		44	%		41	%		44%-47	%
Weighted average expected volatility	43%	48%	47%	52%		41	%		44	%		41	%		47	%
Risk-free interest rates	3.76%-4.48%	4.57%-4.77%	3.76%-5.18%	4.57%-5.04%		2.79%-3.31	%		4.27%-4.97	%		2.79%-3.84	%		4.27%-5.18	%
Expected life (in years)	6.25	6.25	6.25	6.25		6.25			6.25			6.25			6.25

On April 1, 2007, we adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48,Accounting for Uncertainty in Income Taxes —– an interpretation of FASB Statement No. 109 (“FIN 48”). As ~~a result~~ of ~~the adoption of FIN 48, we recognized a charge of $1.1 million to the April 1, 2007 accumulated deficit balance. As of the adoption date,~~September 30, 2008, we had unrecognized tax benefits of ~~$6.1~~$5.1 million, all of which, ~~included~~if recognized, would favorably affect the effective tax rate. In addition, we have accrued interest ~~expense~~and penalties of ~~$0.3~~$1.5 million related to the unrecognized tax benefits. In the nine months ended December 31, 2007, we reduced our unrecognized tax benefits by $0.1 million as a result of tax positions resolved and recognized $0.2 million of additional interest related to income tax. Interest and penalties, if any, related to unrecognized tax benefits are recorded in income tax expense. As of December 31, 2007, we had unrecognized tax benefits of $6.2 million, which is included in Other Liabilities on the Consolidated Balance Sheet. All of these unrecognized tax benefits, if recognized, would favorably affect the effective tax rate. We do not anticipate any material changes in the amount of unrecognized tax benefits (exclusive of interest) within the next twelve months. Components of the reserve are classified as either current or long-term in the consolidated balance sheet based on when we expect each of the items to be settled. Accordingly, our unrecognized tax benefits of $5.1 million and the related accrued interest and penalties of $1.5 million are included in Other Liabilities on the Consolidated Balance Sheet.

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. We are not currently under audit in any tax jurisdiction. The following table summarizes the tax years in the major tax jurisdictions that remain subject to income tax examinations by tax authorities as of ~~December 31, 2007.~~September 30, 2008. Due to NOL carryforwards, in some cases the tax years continue to remain subject to examination with respect to such NOL’s.


		Years Subject to Income
Tax Jurisdiction		Tax Examination
U.S. Federal		~~1999~~2001 - Present
New Jersey		2001 - Present
Canada		~~2001~~2002 - Present
Other foreign jurisdictions		2004 - Present

Software Development Costs

Research and development expenditures are charged to operations as incurred. SFAS No. 86,Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed,requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on our software development process, technological feasibility is established upon completion of a working model, which also requires certification and extensive testing. Costs incurred by us between completion of the working model and the point at which the product is ready for general release are immaterial.

Results of Operations

The following table sets forth each of our sources of revenues and costs of revenues for the specified periods as a percentage of our total revenues for those ~~periods (due to rounding, numbers in column may not sum to totals):~~periods:


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	December 31,						December 31,						September 30,						September 30,
	2007			2006			2007			2006			2008			2007			2008			2007
Revenues:
Software		54	%		55	%		55	%		55	%		56	%		56	%		53	%		55	%
Services		46			45			45			45			44			44			47			45

Total revenues		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%


Cost of revenues:
Software		1	%		1	%		1	%		1	%		1	%		1	%		1	%		1	%
Services		13			13			13			13			11			12			12			13

Total cost of revenues		14	%		15	%		14	%		14	%		12	%		13	%		13	%		14	%


Gross margin		86	%		85	%		86	%		86	%		88	%		87	%		87	%		86	%

represented ~~54%~~56% of our total revenues for both the three months ended ~~December 31, 2007~~September 30, 2008 and ~~55% for the three months ended December 31, 2006. Our~~2007. The overall growth in software revenue was derived from a higher volume of purchases of our software applications from both new customers as well as from our expanding base of existing customers. In the three months ended December 31, 2007, the increase in software revenue was primarily driven by transactions greater than $0.1 million, which increased by $8.3 million in the three months ended September 30, 2008 compared to the three months ended September 30, 2007. As a result, software revenue derived from transactions greater than $0.1 million represented approximately 52% of our software revenue in the three months ended September 30, 2008 and approximately 37% of our software revenue in the three months ended September 30, 2007. The increase in software revenue derived from transactions greater than $0.1 million is primarily due to a 54% increase in the number of transactions of this type. The average dollar amount of such transactions was approximately $0.3 million in both the three months ended September 30, 2008 and 2007.

Software revenue derived from the United States increased 13% while software revenue derived from foreign locations ~~which increased 86%~~grew 71% in the three months ended September 30, 2008 compared to the three months ended ~~December 31, 2006.~~September 30, 2007. The growth in software revenue in foreign locations ~~was~~is primarily due to increases in Europe ~~Australia~~ and ~~Asia~~Canada as we expand our international operations. Movements in foreign exchange rates accounted for approximately $1.4 million of the $8.6 million increase in software revenue.

Software revenue through our resellers increased $2.3 million in the three months ended September 30, 2008 compared to the three months ended September 30, 2007, and software revenue derived from our direct sales force increased $0.9 million in the three months ended September 30, 2008 compared to the three months ended September 30, 2007. The increase in software revenue through our resellers is primarily due to the higher growth percentage of software generated in foreign locations, which is substantially sold through our channel partners. The overall shift in software revenue generated through indirect distribution channels compared to our direct sales force is more fully discussed above in the“Sources of Revenue”section. In addition, software revenue through our original equipment manufacturers contributed $5.4 million to our overall increase in software revenue primarily due to higher revenue from our arrangement with Hitachi Data Systems, partially offset by a reduction in revenue from our arrangement with Dell.

Services Revenue. Services revenue increased $7.3 million, or 35%, from $20.9 million in the three months ended September 30, 2007 to $28.2 million in the three months ended September 30, 2008. Services revenue represented 44% of our total revenues in both the three months ended September 30, 2008 and 2007. The increase in services revenue is primarily due to a $6.5 million increase in revenue from customer support agreements as a result of software sales to new customers and renewal agreements with our installed software base. Movements in foreign exchange rates accounted for approximately $0.9 million of the $7.3 million increase in services revenue.

Cost of Revenues

Total cost of revenues increased $1.6 million, or 25%, from $6.2 million in the three months ended September 30, 2007 to $7.7 million in the three months ended September 30, 2008. Total cost of revenues represented 12% of our total revenues in the three months ended September 30, 2008 compared to 13% in the three months ended September 30, 2007.

Cost of Software Revenue. Cost of software revenue increased approximately $0.1 million, or 17%, from $0.5 million in the three months ended September 30, 2007 to $0.6 million in the three months ended September 30, 2008. Cost of software revenue represented 2% of our total software revenue in both the three months ended September 30, 2008 and 2007. The increase in cost of software is primarily due to higher royalty costs associated with our CommVault Simpana 7.0 software suite, which was released in July 2007.

Cost of Services Revenue. Cost of services revenue increased $1.5 million, or 26%, from $5.6 million in the three months ended September 30, 2007 to $7.1 million in the three months ended September 30, 2008. Cost of services revenue represented 25% of our services revenue in the three months ended September 30, 2008 compared to 27% in the three months ended September 30, 2007. The increase in cost of services revenue is primarily the result of higher employee compensation and travel expenses totaling approximately $0.7 million resulting from higher headcount and a $0.7 million increase in third-party outsourcing costs.

Operating Expenses

Sales and Marketing. Sales and marketing expenses increased $9.2 million, or 40%, from $23.1 million in the three months ended September 30, 2007 to $32.3 million in the three months ended September 30, 2008. The increase is primarily due to a $6.1 million increase in employee compensation, which includes higher headcount costs as well as higher commissions on record revenues. Sales and marketing expenses also increased due to a $1.0 million increase in travel and related expenses primarily due to increased headcount and a $0.7 million increase in advertising and marketing related expenses. Movements in foreign exchange rates accounted for approximately $1.3 million of the total $9.2 million increase in sales and marketing expenses.

Research and Development. Research and development expenses increased $1.1 million, or 16%, from $6.7 million in the three months ended September 30, 2007 to $7.8 million in the three months ended September 30, 2008. The increase is primarily due to $0.8 million of higher employee compensation resulting from higher headcount and a $0.1 million increase in stock-based compensation expense recorded in accordance with SFAS 123(R).

General and Administrative. General and administrative expenses increased $0.8 million, or 13%, from $6.1 million in the three months ended September 30, 2007 to $6.9 million in the three months ended September 30, 2008. The increase is primarily due to a $0.5 million increase in employee compensation and related expenses resulting mainly from higher headcount and a $0.2 million increase in stock-based compensation expense recorded in accordance with SFAS 123(R).

Depreciation and Amortization. Depreciation expense increased $0.2 million, or 30%, from $0.7 million in the three months ended September 30, 2007 to $0.9 million in the three months ended September 30, 2008. This reflects higher depreciation associated with increased capital expenditures primarily for product development and other computer-related equipment.

Interest Income

Interest income decreased $0.3 million, from $0.9 million in the three months ended September 30, 2007 to $0.6 million in the three months ended September 30, 2008. The decrease is primarily due to lower interest rates, partially offset by higher cash balances in our deposit accounts.

Income Tax Expense

Income tax expense was $3.5 million in the three months ended September 30, 2008 compared to $2.1 million in the three months ended September 30, 2007. The effective tax rate in the three months ended September 30, 2008 was approximately 43% as compared to 38% in the three months ended September 30, 2007. The effective rate in the three months ended September 30, 2008 is higher than the expected federal statutory rate of 35% primarily due to state income taxes and permanent differences in the United States. In addition, the effective tax rate of 43% in the three months ended September 30, 2008 includes adjustments to permanent book-to-tax differences that were forecasted as part of the effective tax rate for the first quarter of fiscal 2009.

The effective tax rate in the three months ended September 30, 2007 is greater than the U.S. federal statutory tax rate of 35% primarily due to the full valuation allowance we maintained against our deferred tax assets in certain international jurisdictions at that time. As a result, we did not recognize any tax benefits related to losses incurred during the three months ended September 30, 2007 in such international jurisdictions.

Six months ended September 30, 2008 compared to six months ended September 30, 2007

Revenues

Total revenues increased $26.9 million, or 29%, from $91.4 million in the six months ended September 30, 2007 to $118.3 million in the six months ended September 30, 2008.

Software Revenue.Software revenue increased $12.2 million, or 24%, from $50.6 million in the six months ended September 30, 2007 to $62.9 million in the six months ended September 30, 2008. Software revenue represented 53% of our total revenues for the six months ended September 30, 2008 and 55% for the six months ended September 30, 2007. The overall increase in software revenue was primarily driven by transactions greater than $0.1 million, which increased by $10.2 million in the six months ended September 30, 2008 compared to the six months ended September 30, 2007. As a result, software revenue derived from transactions greater than $0.1 million represented approximately 42% of our software revenue in the six months ended September 30, 2008 and approximately 32% of our software revenue in the six months ended September 30, 2007. The increase in software revenue derived from transactions greater than $0.1 million is primarily due to a 46% increase in the number of transactions of this type. In addition, the average dollar amount of such transactions was $0.3 million in the six months ended September 30, 2008 compared to $0.2 million in the six months ended September 30, 2007.

Software revenue derived from the United States increased 4%7% while software revenue derived from foreign locations grew 53% in the ~~three~~six months ended ~~December 31, 2007~~September 30, 2008 compared to the ~~three~~six months ended ~~December 31, 2006.~~September 30, 2007. The growth in software revenue in foreign locations is primarily due to increases in Europe, Canada and Australia as we expand our international operations. Movements in foreign exchange rates accounted for approximately $3.0 million of the $12.2 million increase in software revenue.

Software revenue through our resellers increased ~~$7.1~~$7.0 million in the ~~three~~six months ended ~~December 31, 2007~~September 30, 2008 compared to the ~~three~~six months ended ~~December 31, 2006.~~September 30, 2007, and software revenue derived from our direct sales force decreased $0.5 million in the six months ended September 30, 2008 compared to the six months ended September 30, 2007. The ~~overall~~ increase in software revenue through our resellers ~~was~~and the related decrease in software revenue derived from our direct sales force is primarily due to the higher growth percentage of software generated in foreign locations, which is substantially sold through our channel partners as well as higher revenue through our reseller ~~arrangement~~agreement with Dell primarily in the United States. Software revenue through our direct sales force decreased $1.6 million in the three months ended December 31, 2007 compared to the three months ended December 31, 2006 primarily due to lower software revenue derived from our direct sales force in the United States. In addition, software revenue through our original equipment manufacturers contributed $0.4 million to our overall increase in software revenue primarily due to higher revenue from our arrangement with Hitachi Data Systems.States, Canada and Europe. The overall shift in software revenue generated through indirect distribution channels compared to our direct sales force is more fully discussed above in the“Sources of Revenue”section.

~~Software revenue derived from transactions greater than $0.1 million represented approximately 33% of our~~ In addition, software revenue through our original equipment manufacturers contributed $5.7 million to our overall increase in ~~the three months ended December 31, 2007 and approximately 30% of our~~ software revenue in the three months ended December 31, 2006. As a result, software revenue from transactions greater than $0.1 million increased by $2.7 million in the three months ended December 31, 2007 compared to the three months ended December 31, 2006. This increase was primarily due to higher revenue from our arrangement with Hitachi Data Systems, partially offset by a ~~47% increase~~reduction in the number of transactions of this type. In the both the three months ended December 31, 2007 and 2006, the average dollar amount of such transactions was $0.2 million. Movements in foreign exchange rates accounted for approximately $1.2 million, or 20%, of the $5.9 million increase in software revenue.revenue from our arrangement with Dell.

Services Revenue.Services revenue increased ~~$6.1~~$14.7 million, or 36%, from ~~$17.2~~$40.8 million in the ~~three~~six months ended ~~December 31, 2006~~September 30, 2007 to ~~$23.3~~$55.5 million in the ~~three~~six months ended ~~December 31, 2007.~~September 30, 2008. Services revenue represented ~~46%~~47% of our total revenues in the ~~three~~six months ended ~~December 31, 2007 and~~September 30, 2008 compared to 45% in the ~~three~~six months ended ~~December 31, 2006.~~September 30, 2007. The ~~overall growth~~increase in services revenue is primarily due to a ~~higher volume of purchases of our services offerings. Services~~$13.1 million increase in revenue from customer support agreements as a result of software sales to new customers and renewal agreements with our installed software ~~base increased $5.1 million in the three months ended December 31, 2007.~~base. Movements in foreign exchange rates accounted for approximately ~~$0.8~~$2.0 million ~~or 13%,~~ of the ~~$6.1~~$14.7 million increase in services revenue.

Cost of Revenues

Total cost of revenues increased ~~$1.3~~$2.9 million, or ~~24%~~23%, from ~~$5.6~~$12.5 million in the ~~three~~six months ended ~~December 31, 2006~~September 30, 2007 to ~~$7.0~~$15.3 million in the ~~three~~six months ended ~~December 31, 2007.~~September 30, 2008. Total cost of revenues represented ~~14%~~13% of our total revenues in the ~~three~~six months ended ~~December 31, 2007 and 15%~~September 30, 2008 compared to 14% in the ~~three~~six months ended ~~December 31, 2006.~~September 30, 2007.

2008 and ~~2006.~~2007. The increase in cost of software ~~revenue~~ is primarily due to higher ~~distribution and third party media~~royalty costs ~~related to~~associated with our CommVault Simpana 7.0 software suite.

Cost of Services Revenue.Cost of services revenue increased ~~$1.2~~$2.5 million, or ~~24%~~22%, from ~~$5.1~~$11.5 million in the ~~three~~six months ended ~~December 31, 2006~~September 30, 2007 to ~~$6.3~~$14.0 million in the ~~three~~six months ended ~~December 31, 2007.~~September 30, 2008. Cost of services revenue represented ~~27%~~25% of our services revenue in the ~~three~~six months ended ~~December 31, 2007 and 30%~~September 30, 2008 compared to 28% in the ~~three~~six months ended ~~December 31, 2006.~~September 30, 2007. The increase in cost of services revenue ~~was~~is primarily the result of ~~an increase in~~higher employee compensation and travel expenses totaling ~~$0.7~~approximately $1.1 million ~~resulting from higher headcount and increased sales~~ as well as a ~~$0.2~~$1.1 million increase in ~~third party~~third-party outsourcing costs. Movements in foreign exchange rates accounted for approximately $0.6 million of the total $2.5 million increase in cost of services revenue.

Operating Expenses

Sales and Marketing.Sales and marketing expenses increased ~~$6.0~~$15.6 million, or 35%, from ~~$17.4~~$44.3 million in the ~~three~~six months ended ~~December 31, 2006~~September 30, 2007 to ~~$23.4~~$59.9 million in the ~~three~~six months ended ~~December 31, 2007.~~September 30, 2008. The increase ~~was~~is primarily due to a ~~$3.9~~$10.3 million increase in employee compensation, which includes higher headcount costs as well as higher commissions on record ~~revenues,~~revenues. Sales and marketing expenses also increased due to a ~~$0.6~~$2.2 million increase in travel and related expenses primarily due to increased headcount, ~~and~~ a ~~$0.5~~$0.9 million increase in advertising and marketing related ~~expenses.~~expenses and $0.5 million in higher stock-based compensation expense recorded in accordance with SFAS 123(R). Movements in foreign exchange rates accounted for approximately ~~$1.0~~$2.8 million ~~or 17%,~~ of the ~~$6.0~~total $15.6 million increase in sales and marketing expenses. We anticipate that that our selling and marketing expenses will increase on an absolute basis in the future as we expand our domestic and international sales activities and continue to build brand awareness.

Research and Development.Research and development expenses increased ~~$1.0~~$2.1 million, or ~~17%~~16%, from ~~$5.9~~$13.1 million in the ~~three~~six months ended ~~December 31, 2006~~September 30, 2007 to ~~$6.8~~$15.2 million in the ~~three~~six months ended ~~December 31, 2007.~~September 30, 2008. The increase ~~was~~is primarily due to ~~$0.6~~$1.3 million of higher employee compensation resulting from higher headcount and ~~$0.1~~a $0.2 million ~~of higher~~increase in stock-based compensation ~~costs~~expense recorded in accordance with SFAS 123(R). ~~We plan to continue to invest in research and development as we develop new products and make further enhancements to our existing products.~~

General and Administrative.General and administrative expenses increased ~~$1.5~~$2.7 million, or ~~34%~~24%, from ~~$4.5~~$11.3 million in the ~~three~~six months ended ~~December 31, 2006~~September 30, 2007 to ~~$6.0~~$13.9 million in the ~~three~~six months ended ~~December 31, 2007.~~September 30, 2008. The increase ~~was~~is primarily due to a $0.7 million increase in employee compensation and related expenses resulting mainly from higher headcount, ~~and~~ a ~~$0.2~~$0.5 million increase in stock-based compensation ~~costs~~expense recorded in accordance with SFAS 123(R).

~~Interest Expense~~

~~Interest expense decreased $0.2~~, a $0.5 million from $0.2 million in the three months ended December 31, 2006 to zero in the three months ended December 31, 2007. Interest expense in the three months ended December 31, 2006 was related to interest incurred on our term loan which we entered into in connection with the payments due to the holders of the Series A through E stock at the time of our initial public offering. We repaid our term loan in the quarter ending June 30, 2007.

~~Interest Income~~

Interest income increased $0.3 million, from $0.7 million in the three months ended December 31, 2006 to $1.0 million in the three months ended December 31, 2007. The increase was due to higher cash balances in our deposit accounts.

~~Income Tax Benefit (Expen~~~~se)~~

Income tax benefit (expense) was an expense of $0.1 million in the three months ended December 31, 2006 compared to a benefit of $0.9 million in the three months ended December 31, 2007. The income tax benefit in the three months ended December 31, 2007 includes a $2.4 million reversal of our deferred income tax valuation

allowance. Until the third quarter of fiscal 2008, we recorded a valuation allowance in certain international jurisdictions primarily related to net operating loss carryforwards based on our assessment that the realization of the net deferred tax assets did not meet the “more than likely not” criterion under SFAS No. 109,~~“Accounting for Income Taxes.”~~During the quarter ended December 31, 2007, we modified our transfer pricing policies for software sold to certain of our international subsidiaries. In assessing the need for a valuation allowance against the deferred tax assets in such international jurisdictions, we considered projected future income as part of its analysis. Due to the transfer pricing changes made during the quarter ended December 31, 2007, we project that certain of our international subsidiaries will be in a profitable position for the foreseeable future. Therefore, we no longer believe that a valuation allowance is necessary against the deferred tax assets in these international operations and recorded a tax benefit of $2.4 million related to the reversal of such valuation allowances. In the three months ended December 31, 2006, the income tax expense of $0.1 million resulted in an effective tax rate of 2% which was primarily the result of the full valuation allowance we maintained against our deferred tax assets at that time.

~~Nine months ended December 31, 2007 compared to the nine months ended December 31, 2006~~

~~Revenues~~

~~Total revenues increased $33.2 million, or 31%, from $108.5 million in the nine months ended December 31, 2006 to $141.7 million in the nine months ended December 31, 2007.~~

~~Software Revenue~~. Software revenue increased $17.5 million, or 29%, from $60.2 million in the nine months ended December 31, 2006 to $77.6 million in the nine months ended December 31, 2007. Software revenue represented 55% of our total revenues in both the nine months ended December 31, 2007 and 2006. Our overall growth in software revenue is derived from a higher volume of purchases of our software applications from both new customers as well as from our expanding base of existing customers. In the nine months ended December 31, 2007, the increase in software revenue was primarily driven by software revenue derived from foreign locations, which increased 73% compared to the nine months ended December 31, 2006. The growth in software revenue in foreign locations was primarily due to increases in Europe, Asialegal costs and Canada as we expand our international operations. Software revenue derived from the United States increased 11% in the nine months ended December 31, 2007 compared to the nine months ended December 31, 2006.

~~Software revenue through our resellers increased $18.0~~a $0.4 million ~~in the nine months ended December 31, 2007 compared to the nine months ended December 31, 2006. The overall~~ increase in software revenue through our resellers was primarily due to the higher growth percentage of software generated in foreign locations which is substantially sold through our channel partners as well as higher revenue through our reseller arrangementcompliance, accounting and insurance costs associated with Dell in the United States. Software revenue through our direct sales force decreased $2.3 million in the nine months ended December 31, 2007 compared to the nine months ended December 31, 2006 primarily due to lower software revenue derived from our direct sales force in the United States. In addition, software revenue through our original equipment manufacturers contributed $1.8 million to our overall increase in software revenue primarily due to higher revenue from our arrangements with Dell and Hitachi Data Systems. The overall shift in software revenue generated through indirect distribution channels compared to our direct sales force is more fully discussed above in the~~“Sources of Revenue”section.~~

Software revenue derived from transactions greater than $0.1 million represented approximately 32% of our software revenue in the nine months ended December 31, 2007 and approximately 28% of our software revenue in the nine months ended December 31, 2006. Asbeing a result, software revenue from transactions greater than $0.1 million increased by $8.4 million in the nine months ended December 31, 2007 compared to the nine months ended December 31, 2006. This increase was primarily due to a 38% increase in the number of transactions of this type. In the both the three months ended December 31, 2007 and 2006, the average dollar amount of such transactions was $0.2 million.public company. Movements in foreign exchange rates accounted for approximately ~~$2.2~~$0.5 million ~~or 13%,~~ of the ~~$17.5~~total $2.7 million increase in ~~software revenue.~~

~~Services Revenue.~~Services revenue increased $15.8 million, or 33%, from $48.3 million in the nine months ended December 31, 2006 to $64.1 million in the nine months ended December 31, 2007. Services revenue represented 45% of our total revenues in both the nine months ended December 31, 2007 and 2006. The overall growth in services revenue is due to a higher volume of purchases of our services offerings. Services revenue from

customer support agreements as a result of software sales to new customers and renewal agreements with our installed software base increased $13.6 million in the nine months ended December 31, 2007. Movements in foreign exchange rates accounted for approximately $1.7 million, or 11%, of the $15.8 million increase in services revenue.

~~Cost of Revenues~~

Total cost of revenues increased $3.8 million, or 24%, from $15.7 million in the nine months ended December 31, 2006 to $19.4 million in the nine months ended December 31, 2007. Total cost of revenues represented 14% of our total revenues in both the nine months ended December 31, 2007 and 2006.

~~Cost of Software Revenue.~~Cost of software revenue increased $0.5 million, or 39%, from $1.2 million in the nine months ended December 31, 2006 to $1.7 million in the nine months ended December 31, 2007. Cost of software revenue represented 2% of our total software revenue in both the nine months ended December 31, 2007 and 2006. The increase in cost of software revenue is primarily due to higher distribution and third party media costs related to our CommVault Simpana 7.0 software suite.

~~Cost of Services Revenue.~~Cost of services revenue increased $3.3 million, or 23%, from $14.5 million in the nine months ended December 31, 2006 to $17.8 million in the nine months ended December 31, 2007. Cost of services revenue represented 28% of our services revenue in the nine months ended December 31, 2007 and 30% in the nine months ended December 31, 2006. The increase in cost of services revenue was primarily the result of higher employee compensation and travel expenses totaling $1.6 million resulting from higher headcount, a $0.9 million increase in third party outsourcing costs.

~~Operating Expenses~~

~~Sales and Marketing.~~Sales and marketing expenses increased $18.8 million, or 38%, from $49.0 million in the nine months ended December 31, 2006 to $67.7 million in the nine months ended December 31, 2007. The increase was primarily due to an $11.4 million increase in employee compensation which includes higher headcount costs as well as higher commissions on record revenues, a $2.5 million increase in travel and related expenses due to increased headcount and a $1.5 million increase in advertising and marketing related expenses as we continue to build brand awareness. Movements in foreign exchange rates accounted for approximately $1.9 million, or 10%, of the $18.8 million increase in sales and marketing expenses.

~~Research and Development.~~Research and development expenses increased $2.6 million, or 15%, from $17.4 million in the nine months ended December 31, 2006 to $19.9 million in the nine months ended December 31, 2007. The increase was primarily due to $1.8 million of higher employee compensation resulting from higher headcount and a $0.3 million increase in stock-based compensation costs recorded in accordance with SFAS 123(R).

~~General and Administrative.~~~~General~~general and administrative expenses increased $3.5 million, or 26%, from $13.7 million in the nine months ended December 31, 2006 to $17.3 million in the nine months ended December 31, 2007. The increase was primarily due to a $1.6 million increase in employee compensation and related expenses resulting mainly from higher headcount, a $0.7 million increase in compliance and insurance costs associated with being a public company and a $0.5 million increase in stock-based compensation costs recorded in accordance with SFAS 123(R).expenses.

Depreciation and Amortization.Depreciation expense increased $0.4 million, or ~~21%~~27%, from $1.4 million in the six months ended September 30, 2007 to $1.8 million in the ~~nine~~six months ended ~~December 31, 2006 to $2.2 million in the nine months ended December 31, 2007.~~September 30, 2008. This reflects higher depreciation associated with increased capital expenditures primarily for product development and other computer-related equipment.

Interest Expense

Interest expense was less than $0.1 million in the six months ended September 30, 2008 compared to $0.1 million in the six months ended September 30, 2007.

Interest Income

Interest income ~~increased $0.8~~decreased $0.5 million, from ~~$1.9~~$1.7 million in the ~~nine~~six months ended ~~December 31, 2006~~September 30, 2007 to ~~$2.7~~$1.2 million in the ~~nine~~six months ended ~~December 31, 2007.~~September 30, 2008. The ~~increase was~~decrease is primarily due to lower interest rates, partially offset by higher cash balances in our deposit accounts.

Income Tax Expense

Income tax expense was $5.2 million in the six months ended September 30, 2008 compared to $4.0 million in the six months ended September 30, 2007. The effective tax rate in the six months ended September 30, 2008 was approximately 39% as compared to 38% in the six months ended September 30, 2007. The effective rate in the six

2425

~~Income Tax Benefit (Expen~~~~se)~~

~~Income tax expense increased $2.9 million, from $0.2 million~~months ended September 30, 2008 is higher than the expected federal statutory rate of 35% primarily due to state income taxes and permanent differences in the ~~nine months ended December 31, 2006 to $3.1 million in the nine months ended December 31, 2007.~~United States.

The effective tax rate ~~was approximately 17%~~ in the ~~nine~~six months ended ~~December 31,~~September 30, 2007 ~~and approximately 2% in~~is greater than the nine months ended December 31, 2006. The income tax expense in the nine months ended December 31, 2007 includes a $2.4 million reversal of our deferred income tax valuation allowance. Until the third quarter of fiscal 2008, we recorded a valuation allowance in certain international jurisdictions primarily related to net operating loss carryforwards based on our assessment that the realization of the net deferred tax assets did not meet the “more than likely not” criterion under SFAS No. 109,~~“Accounting for Income Taxes.”~~During the quarter ended December 31, 2007, we modified our transfer pricing policies for software sold to certain of our international subsidiaries. In assessing the need for a valuation allowance against the deferred tax assets in such international jurisdictions, we considered projected future income as part of its analysis. Due to the transfer pricing changes made during the quarter ended December 31, 2007, we project that certain of our international subsidiaries will be in a profitable position for the foreseeable future. Therefore, we no longer believe that a valuation allowance is necessary against the deferred tax assets in these international operations and recorded a tax benefit of $2.4 million related to the reversal of such valuation allowances. In the nine months ended December 31, 2006, the 2% effectiveU.S. federal statutory tax rate ~~was~~of 35% primarily ~~the result of~~due to the full valuation allowance we maintained against our deferred tax assets in certain international jurisdictions at that time. As a result, we did not recognize any tax benefits related to losses incurred during the six months ended September 30, 2007 in such international jurisdictions.

Liquidity and Capital Resources

As of ~~December 31, 2007, we had $95.1 million of~~September 30, 2008, our cash and cash ~~equivalents.~~equivalents balance of $101.3 million primarily consisted of money market funds. In recent fiscal years, our principal sources of liquidity have been cash provided by operations and cash provided from our public offerings of common stock. Historically, our principle source of liquidity had been cash provided by private placements of preferred equity securities and common stock.

In January 2008, our Board of Directors approved a stock repurchase program under which we were authorized to repurchase up to $40.0 million of our common stock. In July 2008, our Board of Directors authorized an additional $40.0 million increase to the existing share repurchase program. In the six months ending September 30, 2008, we repurchased an approximately 1.3 million shares with a total cost of approximately $20.4 million, of which $17.4 million was paid as of September 30, 2008. The average price of the common stock repurchased during the six months ended September 30, 2008 was $15.27 per share. Under our share repurchase program, repurchased shares are constructively retired and returned to unissued status. As of October 29, 2008, we have repurchased approximately $40.2 million under the share repurchase authorization. As a result, we may repurchase an additional $39.8 million of our common stock through July 2009.

In July 2008, we entered into a credit facility in which we can borrow up to $40.0 million over the initial 12 months of the credit facility. Borrowings under the facility are available to repurchase our common stock under the share repurchase program or to provide for working capital and general corporate purposes. The credit facility contains financial covenants that require us to maintain a quick ratio and minimum earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined in the credit agreement. Repayments of amounts borrowed under the credit facility will occur over a 2-year amortization period with a maximum maturity date of July 2011. Borrowings under the credit facility bear interest, at our option, at either a rate equal to LIBOR plus 1.5% or the bank’s base rate, as defined in the credit agreement. The credit facility also contains a quarterly commitment fee based on the unused portion of the credit facility. As of September 30, 2008, we were in compliance with all required covenants, and there were no outstanding balances on the credit facility.

In June 2007, we completed our follow-on public offering in June 2007 in which we sold 300,000 shares and certain of our stockholders sold 7,570,000 shares of common stock to the public at a price of $17.00 per share. After deducting the underwriting discounts, commissions and other offering costs, our net proceeds from the offering were approximately $4.3 million. During ~~the nine months ended December 31, 2007,~~fiscal 2008, we used the net proceeds from our follow-on public offering, together with approximately $3.2 million of our existing cash, to pay approximately $7.5 million in satisfaction of the outstanding principal on our term loan.

In September 2006, we completed our initial public offering and related concurrent private placement and generated net proceeds of approximately $81.7 million. We used the net proceeds, together with net borrowings of $10.0 million under our term loan and $10.1 million of our existing cash and cash equivalents, to pay $101.8 million in satisfaction of amounts due on our Series A, B, C, D and E preferred stock upon its conversions into common stock.

Net cash provided by operating activities was ~~$23.4~~$28.2 million in the ~~nine~~six months ended ~~December 31, 2007~~September 30, 2008 and ~~$22.5~~$10.3 million in the ~~nine~~six months ended ~~December 31, 2006.~~September 30, 2007. In ~~both~~ the ~~nine~~six months ended ~~December 31, 2007 and 2006,~~September 30, 2008, cash generated by operating activities was primarily due to net income adjusted for the impact of ~~noncash~~non-cash charges, an increase in deferred revenue due to higher revenue and a decrease in accounts receivable as a result of strong collection efforts and timing of receipts during fiscal 2009. In the six months ended September 30, 2007, cash generated by operating activities was primarily due to net income adjusted for the impact of non-cash charges and ~~increases~~an increase in deferred services revenue, ~~and accrued liabilities,~~ partially offset by an increase in accounts receivable primarily due to higher ~~revenue.~~revenues. We anticipate that as our revenues continue to grow, our accounts receivable and deferred services revenue balances ~~should continue to grow~~may increase over time as well.

Net cash used in investing activities was ~~$3.1~~$2.7 million in ~~both~~ the ~~nine~~six months ended ~~December 31, 2007~~September 30, 2008, and ~~2006.~~$1.9 million in the six months ended September 30, 2007. Cash used in investing activities in each period was due to purchases of property and equipment related to the growth in our business as we continue to invest in and enhance

primarily due to the cash use of $101.8 million in satisfaction of amounts due on our Series A, B, C, D and E preferred stock upon its conversions into common stock, partially offset by proceeds generated of approximately $82.2 million from our initial public offering and concurrent private placement, net of underwriting fees and offering cost. In addition, we incurred net borrowings of $8.8 million in the nine months ended December 31, 2006 under our term loan in connection with the payments due to the holders of our Series A, B, C, D and E preferred stock upon our initial public offering.

Working capital ~~increased $40.4~~decreased $1.3 million from ~~$34.9~~$77.5 million as of March 31, ~~2007~~2008 to ~~$75.2~~$76.2 million as of ~~December 31, 2007.~~September 30, 2008. The ~~increase~~decrease in working capital is primarily due to a ~~$30.1~~$5.9 million decrease in accounts receivable and a $4.7 million increase in deferred revenue, partially offset by a $9.6 million increase in cash and cash ~~equivalents and an $11.7 million increase in accounts receivable, partially offset by a $10.0 million increase in deferred revenue.~~equivalents. The increase in cash and cash equivalents is primarily due to net income generated during the period ~~adjusted for the impact of noncash charges, cash received from the exercise of stock options~~ and the ~~increase~~decrease in ~~deferred revenue,~~accounts receivables discussed above, partially offset by ~~the net~~ cash used ~~in connection with the transactions associated with~~to repurchase our ~~follow-on public offering and purchases of property and equipment. The increase in accounts receivable is primarily due to the growth in revenue.~~common stock under our share repurchase program.

We believe that our existing cash, cash equivalents and cash from operations will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. We cannot assure you that this will be the case or that our assumptions regarding revenues and expenses underlying this belief will be accurate. 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.

Off-Balance Sheet Arrangements

As of ~~December 31, 2007,~~September 30, 2008, other than our operating leases, we ~~had no~~do not have off-balance sheet ~~arrangements.~~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 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.

~~Recent~~Impact of Recently Issued Accounting ~~Pronouncements~~Standards

In September 2006, the FASB issued ~~SFAS No.~~Statement 157,“Fair Value ~~Measurement”~~Measurement(“~~SFAS~~Statement 157”). ~~SFAS~~Statement 157 defines fair value, establishes a framework for measuring fair value ~~in U.S. GAAP~~ and establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value. Statement 157 also expands financial statement disclosures about fair value measurements. ~~This~~On February 6, 2008, the FASB issued FASB Staff Position (FSP) 157-2, “Effective Date of Statement isNo. 157” which delays the effective date of Statement 157 for one year for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the

financial statements on a recurring basis (at least annually). Statement 157 and FSP 157-2 are effective for financial statements issued for fiscal years beginning after November 15, ~~2007, and interim periods within those fiscal years.~~2007. As of September 30, 2008, we do not have any nonfinancial asset or nonfinancial liabilities that are recognized or disclosed at fair value on a recurring basis. We ~~are currently evaluating the impact of this Statement~~adopted SFAS No. 157 on ~~our financial statements.~~April 1, 2008.

In February 2007, the FASB issued ~~SFAS~~Statement No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities ~~– including an Amendment of SFAS No. 115”~~, (“~~SFAS~~Statement 159”). ~~SFAS~~Statement 159 permits ~~entities~~companies to choose to measure ~~eligible items~~certain financial instruments at fair value that are not currently required to be measured at ~~specified election dates and report unrealized gains and losses on items for which the~~ fair ~~value option has been elected in earnings at each subsequent reporting date. This~~value. Statement is159 was effective for us on April 1, 2008. We have elected not to measure eligible financial ~~statements issued for fiscal years beginning after November 15, 2007,~~assets and ~~interim periods within those fiscal years. We are currently evaluating~~liabilities at fair value. Accordingly, the ~~impact~~adoption of ~~this~~ Statement 159 had no impact on our consolidated financial statements.

~~In December 2007, the Securities and Exchange Commission (“~~~~SEC~~~~”) issued Staff Accounting Bulletin No. 110 (“~~~~SAB 110~~~~”). SAB 110 amends and replaces Question 6 of Section D.2 of Topic 14,~~~~Share-Based Payment~~. SAB 110 expresses the views of the staff regarding the use of the “simplified” method in developing an estimate of expected term of “plain vanilla” share options in accordance with FASB Statement No. 123(R),~~Share Based Payment.~~The use of the “simplified” method was scheduled to expire on December 31, 2007. SAB 110 extends the use of the “simplified” method for “plain vanilla” awards in certain situations. We currently use the “simplified” method to estimate the expected term for share option grants as we do not have enough historical experience to provide a reasonable estimate due to the limited period our equity shares have been publicly traded. We will continue to use the “simplified” method until we have enough historical experience to provide a reasonable estimate of expected term in accordance with SAB 110. SAB 110 is effective for options granted after December 31, 2007.

Item 3.3 — Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

As of ~~December 31, 2007,~~September 30, 2008, our cash and cash equivalents balance consisted primarily of money market funds. Due to the short-term nature of these investments, we are not subject to any material interest rate risk on these balances.

In July 2008, we entered into a credit facility in which we can borrow up to $40.0 million over the initial 12 months of the credit facility. Borrowings under the credit facility bear interest, at our option, at either a rate equal to LIBOR plus 1.5% or the bank’s base rate, as defined in the credit agreement. As of September 30, 2008, there were no outstanding balances on the credit facility. As a result, we are currently not subject to any material interest rate risk on our credit facility.

Foreign Currency Risk

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 ~~36%~~40% of our sales were outside the United States in the ~~nine~~six months ended ~~December 31, 2007~~September 30, 2008 and ~~30%~~36% were outside the United States in fiscal ~~2007.~~2008. 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 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. ~~To date,~~In addition, we generally have not hedged our exposure to changes in foreign currency exchange ~~rates and, as a result, could incur unanticipated gains or losses.~~rates. However, in the future we may enter into foreign currency based hedging contracts to reduce our exposure to fluctuations in currency exchange rates.

We estimate that a 10% change in all foreign exchange rates would impact our reported operating profit by approximately ~~$1.7~~$2.3 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.

Item 4.4 — Controls and Procedures

~~Under the supervision~~Evaluation of Disclosure Controls and Procedures

Our management, with the participation of ~~our management, including our chief executive officer~~the Chief Executive Officer and ~~chief financial officer, we have~~Chief Financial Officer, has evaluated the effectiveness of the ~~design and operation of~~ our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of ~~December 31, 2007 and, based~~the Securities Exchange Act of 1934, as of September 30, 2008. Based on that evaluation, ~~our chief executive officer~~the Chief Executive Officer and ~~chief financial officer have~~Chief Financial Officer concluded that, as of September 30, 2008, our disclosure controls and procedures ~~are effective.~~

~~Disclosure controls and procedures are our controls and other procedures~~were effective, in that ~~are designed to ensure~~they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the ~~Securities~~ Exchange Act ~~of 1934, as amended (the “Securities Exchange Act”),~~ is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Securities Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

2728

Changes in Internal Control over Financial Reporting

There ~~were~~was no ~~changes~~change in our internal control over financial reporting that occurred during the second quarter ~~ended December 31, 2007~~of fiscal year 2009 that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Internal Controls

The Company’s management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosures controls and procedures or our internal controls over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

Item 1. 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 party to any pending legal action that could reasonably be expected to have a material adverse effect on our business or operating results.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, ~~2007,~~2008, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. If any of the risks actually occur, our business, financial conditions or results of operations could be negatively affected. In that case, the trading price of our stock could decline, and our stockholders may lose part or all of their investment.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

~~(a) None~~Purchases of Equity Securities by the Issuer

~~(b) Not applicable~~ On January 30, 2008, our Board of Directors approved a share-repurchase program permitting us to repurchase up to $40.0 million of our common stock. On July 31, 2008, our Board of Directors authorized a $40.0 million increase to our existing share repurchase program. As of September 30, 2008, we have repurchased $35.4 million of common stock out of the $80.0 million in total that is authorized under our share repurchase program.

~~(c) None~~ Set forth below is information regarding our stock repurchases during the three months ended September 30, 2008:


					Total Number
					of Shares		Maximum Dollar
					Purchased as		Amount of Shares
	Total		Average		Part of		That May Yet Be
	Number of		Price		Publicly		Purchased Under
	Shares		Paid per		Announced		the Plan
Period (1)	Purchased		Share		Plan		(In Thousands)
July 1 — July 31, 2008		—	$	—		—	$	—
August 1 — August 31, 2008		—	$	—		—	$	—
September 1 — September 30, 2008		651,221	$	13.74		651,221	$	44,607

Total		651,221	$	13.74		651,221	$	44,607


(1)		Based on trade date, not settlement date

As of October 29, 2008, we have repurchased $40.2 million of common stock out of the $80.0 million in total that is authorized under our share repurchase program. As a result, we may repurchase an additional $39.8 million of common stock through July 2009.

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Securities Holders

~~None~~ On August 27, 2008, we held our fiscal 2008 Annual Meeting of Stockholders, at which our stockholders (i) elected three directors for a term to expire at the fiscal 2011 Annual Meeting of Stockholders and (ii) ratified the appointment of Ernst & Young LLP as our registered independent public accounting firm for the fiscal year ending March 31, 2009. The vote on such matters was as follows:

I. Election of Directors


	Total Vote for Each		Total Vote Withheld
Nominee	Nominee		From Each Nominee
Alan G. Bunte		39,447,508		302,870
Frank J. Fanzilli, Jr.		38,188,297		1,562,081
Daniel Pulver		39,421,258		329,120

There were no abstentions or broker non-votes. The terms of Messrs. N. Robert Hammer, Armando Geday, Keith Geeslin, F. Robert Kurimsky, David F. Walker and Gary B. Smith continued after the meeting.


For		Against		Abstain
	38,788,192		938,294		23,892


	CommVault Systems, Inc.
Dated: ~~February 7,~~November 3, 2008	By:	/s/ N. Robert Hammer
		N. Robert Hammer
		Chairman, President, and Chief Executive Officer


Dated: ~~February 7,~~November 3, 2008	By:	/s/ Louis F. Miceli
		Louis F. Miceli
		Vice President, Chief Financial Officer


Exhibit
No.		Description

10.23 †		Addendum Nine to the Software License Agreement, dated September 1, 2008, by and between Dell Global B.V. and CommVault Systems, Inc.

10.24 †		Addendum Ten to the Software License Agreement, dated October 1, 2008, by and between Dell Global B.V. and CommVault Systems, Inc.

10.25		Direct Supplier Agreement, dated August 2, 2008, by and between CommVault Systems, Inc. and Dell Products L.P.

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


	Page
Part I – FINANCIAL INFORMATION
		~~Page~~
~~Part I — FINANCIAL INFORMATION~~	Item1. Financial Statements and Notes

~~Item 1.~~	~~Financial Statements and Notes~~

	Unaudited Consolidated Balance Sheets as of ~~December 31, 2007~~September 30, 2008 and March 31, ~~2007~~2008		1

	Unaudited Consolidated Statements of ~~Operations~~Income for the three and ~~nine~~six months ended ~~December 31,~~September 30, 2008 and 2007 ~~and 2006~~		2

	Unaudited Consolidated Statement of Stockholders’ Equity for the ~~nine~~six months ended ~~December 31, 2007~~September 30, 2008		3

	Unaudited Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~December 31,~~September 30, 2008 and 2007 ~~and 2006~~		4

Notes to Consolidated Financial Statements (unaudited)	5

	~~Notes to Consolidated Financial Statements~~		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14	15

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		27	28

Item 4. Controls and Procedures	28

~~Item 4.~~	~~Controls and Procedures~~		27

Part II —– OTHER INFORMATION

Item 1. Legal Proceedings	29

Item 1.	~~Legal Proceedings~~1A. Risk Factors		28	29

~~Item 1A.~~	~~Risk Factors~~		28

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds		28	30

Item 3.	Defaults Upon Senior Securities		28	30

Item 4.	Submission of Matters to a Vote of Securities Holders		28	30

Item 5. Other Information	31

Item 5.	~~Other Information~~6. Exhibits		28	31

SIGNATURES	32

~~Item 6.~~	~~Exhibits~~Exhibit Index		28

~~SIGNATURES~~			29

~~Exhibit Index~~			30	33
~~EX-31.1: CERTIFICATION~~EX-10.23
~~EX-31.2: CERTIFICATION~~EX-10.24
~~EX-32.1: CERTIFICATION~~EX-10.25
~~EX-32.2: CERTIFICATION~~EX-31.1
EX-31.2
EX-32.1
EX-32.2


	December 31, 2007		March 31, 2007		September 30, 2008		March 31, 2008
Current:
Deferred software revenue	$	468	$	252	$	161	$	304
Deferred services revenue		45,769		35,962		56,908		52,044

	$	46,237	$	36,214	$	57,069	$	52,348


Non-current:
Deferred services revenue	$	6,130	$	4,284	$	7,289	$	7,210

			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


†		Confidential treatment has been requested for portions of this document. Omitted portions have been filed separately with the SEC.