Michael Picariello - Director, IR Bob Hammer - Chairman, President and CEO Al Bunte - COO Brian Carolan - CFO.

Aaron Rakers - Stifel Jason Ader - William Blair Srini Nandury - WR Hambrecht Abhey Lamba - Mizuho Securities Andrew Nowinski - Piper Jaffray Greg McDowell - JMP Securities Brad Zelnick - Jefferies Michael Turits - Raymond James Rajesh Ghai - Macquarie Eric Martinuzzi - Lake Street Capital Siti Panigrahi - Credit Suisse.

Welcome to the Q4 2015 CommVault Earnings Conference Call. My name is John. I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. Now, I will turn the call over to Michael Picariello..

Good morning. Thanks for dialing in today for our fiscal fourth quarter 2015 and fiscal 2016 earnings call. With me on the call are Bob Hammer, Chairman, President, and Chief Executive Officer; Al Bunte, Chief Operating Officer; and Brian Carolan, Chief Financial Officer.

Before we begin, I'd like to remind everyone that statements made during this call, including in the question-and-answer session at the end of the call may include forward-looking statements including statements regarding financial projections and future performance.

All of these statements that relate to our beliefs, plans, expectations, or intentions regarding the future are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 and are based on our current expectations.

Actual results may differ materially due to a number of risks and uncertainties such as competitive factors, difficulties, and delays inherent in the development, manufacturing, marketing, and sale of software products and related services, and general economic conditions.

For a discussion of these and other risks and uncertainties affecting our business, please see the risk factors contained in our annual report in Form 10-K and our most recent quarterly report on Form 10-Q and in our other SEC filings, and in the cautionary statement contained in our press release and on our Web site.

The company undertakes no responsibility to update the information in this conference call under any circumstance. In addition, the development and timing of any product release as well as any of its features or functionality remain at our sole discretion.

Our earnings press release was issued over the wire services earlier today and also has been furnished to the SEC as an 8-K Filing. The press release is also available on our investor relation's Web site. On this conference call, we will provide non-GAAP financial results.

A reconciliation between the non-GAAP and GAAP measure can be found in table four accompanying the press release posted on our Web site. This conference call is also being recorded for replay and is being webcast. An archive of today's webcast will be available on our Web site following the call.

I will now turn the call over to our CEO and President, Bob Hammer..

Thanks, Mike. Good morning everyone, and thanks for joining our fiscal fourth quarter and FY'15 year end earnings call. I want to begin the call by describing the progress on our business transformation, and then I will provide an overview of our Q4 results and the outlook for FY'16.

Brian will follow that with a detailed discussion of our financial results, including additional color on our FY'16 outlook. I will then conclude the call with an overview of the industry, our products and technology, and plans to improve sales productivity.

Regarding our business transformation, we've made significant progress towards our business transformation and operational performance objectives. We've been describing this business transformation, which we call, "Commvault Next to You," over the past several quarters.

This transformation was in response to significant technological changes in the industry, and in more complex competitive landscape. Importantly, the key foundational elements to reposition and strengthen CommVault's position in the market are now in place.

Over the past quarter we have introduced new leading products, including products that separate our core solution sets from the platform, as well as new packaging and pricing models. These introductions were led by our new business units' structure.

In addition, we have significantly enhanced our core data protection platform functionality and pricing, increased distribution leverage via new and existing distribution partners and channels, added key leaders and new capabilities in critical functions.

We initiated the beta program for our next-generation platform, and reinvigorated our overall marketing approach, which includes implementing new digital and outbound marketing lead generation capabilities that are driving our pipeline, and re-branding the company, including the introduction of a new brand and logo, unveiled yesterday at Microsoft's Ignite conference, which you can experience firsthand on our Web site.

These transformation initiatives better align us with the fundamental changes in the market, and are enabling us to improve productivity over our sales teams.

While the progress we have made has definitely improved our confidence and success with making our transition, we continue to believe will take us into the second half of FY'16 for the key elements of repositioning to have a positive impact on our financial performance.

Turning to the fourth quarter, a good sequential improvement in the Americas was offset by a weak result in EMEA and APAC operations, which are exacerbated by the negative impact of FX. The strengthening of the U.S.

dollar had a significant negative impact on our international results in the quarter, impacting revenues by 4.7 million, and operating earnings by 2 million on a sequential constant currency basis. Total reported revenue was down 1% sequentially, but up 2% on a sequential constant currency basis.

Recorded non-GAAP EPS was $0.27, but was $0.30 on a sequential constant currency basis. Later on in the call, Brian will elaborate on both the constant currency and as-reported results. This information can also be found in our press release. We generated 36 million of cash flow from operations during Q4, and approximately 124 million for the year.

We finished FY'15 with a strong balance sheet of approximately 388 million of cash and short-term investments, and no debt.

Turning to our FY'16 outlook, we expect that our FY'16 growth will be driven by our ability to sell into new and existing key market segments, including a large enterprise account and the mid-market, continuing accelerating growth in the cloud market, and a targeted focus on the healthcare market.

More specifically, our ability to penetrate more or large enterprise in mid-market accounts will be driven by updated and expanded solutions in pricing, increased distribution leverage, improved marketing and lead generation, expanded strategic alliances, and added enterprise sales capacity.

We have an updated, much more focused, and competitive product line as evidenced by market traction with the recently introduced standalone products as evidenced by the 500 customers who purchased our new virtualization product, half of whom are new.

Continuous strength in our core business of data management, data protection, disaster recovery, and archiving, increased traction in mobile solutions, operations management, and intelligence business analytics and healthcare, and our new pricing structure.

This has enabled us to more effectively address the customers' buying preferences as well as the sales and distribution needs of CommVault partners. We have also developed and are launching comprehensive services by consulting approach to the enterprise market.

In addition, we have launched a proactive support service utilizing CommVault's embedded predictive analytics capability. I will now address our FY'16 financial outlook. We believe the current FY'16 street consensus growth rates for total revenue is reasonable.

For FY'16, we believe we can achieve solid double-digit software revenue growth in the second half of the year. We would like you to keep in mind that our fiscal Q1 is historically our most challenging quarter. And Brian will discuss operating margins later on in the call.

In summary, massive technological shifts in the industry, and new competition, combined with our own execution issues have slowed our revenue growth. I investments we are making to address these challenges and build a strong foundation for the future are negatively impacting near term earnings.

We have confidence in our transformation, as evident by our early solid customer purchases of our new functionality and solution sets, combined with positive partner response to our new pricing and packaging model.

Short and long-term game plans have been implemented to provide the required foundation to bring the company back to a strong, sustainable revenue and earnings growth. We remain pleased with our progress and our transformation. Our team is competent, highly energized, and committed to the transformation of CommVault.

I will now turn the call over to Brian..

Thanks, Bob, and good morning everyone. I will now cover some key financial highlights for both the fourth quarter, and full fiscal year 2015. The strengthening of the U.S. dollar compared to foreign currency has had a significant impact on the results for the quarter.

On a constant currency basis for the quarter, total revenues were up 2% sequentially, and year-over-year. Software revenues were up 1% sequentially, and down 5% year-over-year. From an earnings perspective, on a sequential constant currency basis for the quarter, EBIT margin was 14.4%, and EPS was $0.30.

For the full fiscal year, on a constant currency basis, total revenues were up 6% year-over-year, software revenues were down 1% year-over-year. EBIT margin was 17.8%, and EPS was $1.48.

Now, moving on to as-reported revenue results that have not been adjusted for FX movements; on an as reported basis, Q4 total revenues were $150.7 million, representing a decrease of 4% over the prior year period, and 1% sequentially.

For the full fiscal year, total reported revenues were $607.5 million, representing an increase of 4% over fiscal 2014. For a quarter, we reported software revenue of $70.1 million, which was down by 11% from the prior year period, and down 2% sequentially.

Revenue from enterprise deals, which we define as deals over $100,000 in software revenue in a given quarter, decreased by 12% from the prior year period, and was up 8% sequentially. The number of enterprise deals decreased 13% year-over-year, an increased 8% sequentially.

Our average enterprise deal size was approximately $250,000 during the current quarter, compared to $248,000 in the prior quarter, and $245,000 in the prior year period. Americas, EMEA, and APAC represented 64%, 25%, and 11% of total software revenue respectively for the quarter.

The sequential increase in Americas' software revenue was 11%, while EMEA declined 21%, and APAC declined 17%. On a sequential constant currency basis, EMEA software revenue declined 14%, and APAC software revenue declined 13%.

For the quarter software revenues derived from indirect distribution channels decreased 9% over the prior year period, and represented 84% of software revenue. Our direct software revenue decreased 22% year-over-year, and represented the balance.

As a reminder, most sizable deals are driven by our direct sales force, even though they're often transacted through the channel. The revenue mix for the quarter was split 46% software, and 54% services. Fiscal year revenues were split 47% software, and 53% services.

Please remember, services revenue is a combination of both maintenance and support revenue, and professional services revenue. Services revenue for Q4 was $80.7 million, an increase of 4% year-over-year, and a decrease of 1% sequentially. Services revenue for fiscal year 2015 was approximately $324.3 million, an increase of 11% year-over-year.

We added approximately 350 new customers in the quarter. Our historical customer account now totals over 21,000 customers. Arrow, our largest distributor, continues to be a key partner for CommVault. For the quarter, revenue transacted through Arrow was approximately 38% of total revenue, growing 12% year-over-year, and 3% sequentially.

Our resellers and distribution partners are very important to our growth and market reach. We have various programs in place with our resellers, systems integrators, storage partners, managed service provider, and cloud service providers, and will continue to invest in such programs.

We made investments in sales resources, and marketing to build brand awareness and relevancy with our key velocity partner.

As a result, we are gaining better access, mindshare, and strategic programmatic commitment from these partners to significantly grow CommVault's business Improved collaboration with these key partners will play an important role in our ongoing transformation. Let me provide you an update on our new pricing model.

Our software licenses typically provide for perpetual rights to use our software and are typically sold on a per terabyte capacity basis, on a per copy basis, or as a solution set. When the quarter ended, March 31, 2015, approximately 81% of software license revenue was sold on a per terabyte capacity basis.

These capacity-based license sales also represented 81% of our full year software revenue, up from 80% in FY'14. Capacity-based software licenses provide our customers with licenses with specified software products based on a defined level of terabytes of data under management.

We anticipate that capacity-based licenses will continue to account for the majority of our software license revenue for the foreseeable future. However, we expect that our capacity-based license sales, as a percentage of total license revenue, will decline as our new solution sets continue to ramp.

Our solution sets are generally sold on a per unit basis, and can be individually deployed or combined as part of a comprehensive data protection and information management solution. Some of our products are being sold as term or subscription-based pricing model.

We expect that there will continue to be a gradual shift to more subscription-based revenue. During Q4, our demand was driven by data protection for virtualized environments, source-side de-duplication, archiving, and snap-based [ph] modern data protection solutions.

We continue to have strong market response to our stand-alone virtualization solution set, which includes VM backup recovery, and cloud management solutions. As Bob mentioned, since its launch two quarters ago, we have had over 500 customers purchase this product, with more than half of these being sales to new customers.

The aggregate deal value from such customers was more than 2x the revenue from this solution set alone, and are close to our overall AFC [ph]. This early success reflects the overall transformation work we have been doing in pricing and packaging, new solution offering, enhanced marketing and demand generation, and our new business unit structure.

Now, moving on to your gross margins, operating expenses, and EBIT margins; gross margins were 86.6% for the quarter, and 87% for the year. Total operating expenses were $107.8 million for the quarter, up approximately 13% year-over-year, and 1% sequentially.

Sales and marketing expenses as a percentage of total revenue increased to 53% in the current quarter, which was up from 44% in the prior year period. Non-GAAP operating margins were 13.5% for the quarter, resulting in operating income or EBIT of $20.3 million.

Q4 EBIT margins decreased by 300 basis points sequentially, FX had a negative sequential impact on EBIT by $2 million or 90 basis points. Net income for the quarter was $12.8 million, and EPS was $0.27 based on a diluted weighted average share count of approximately 46.6 million shares. FX had a negative quarter-on-quarter impact on EPS by $0.03.

For the year, net income was $66 million, and EPS was $1.40 per share based on a diluted weighted average share count of approximately 47.2 million shares. FX had a negative impact on the full-year EPS by $0.08. Interest expenses on the revolving credit facility was nominal in the quarter.

While there have been no borrowings on our credit facility we do incur interest expense related to the commitment fee. We anticipate that we will have no net interest income in FY'16. I would now like to spend a few minutes discussing our anticipated revenue, and EBIT margin outlook.

We continue to have declining operating margins in Q4, mainly due to weaker than expected top line results, investments we made in the first half of FY'15, and the impact of foreign exchange rates. We added 41 net employees in fiscal Q4, down from 51 in Q3, and ended the quarter with 2,287 employees.

For the full-year, we added 314 net employees versus 233 in FY'14. We remain cautious of FX headwinds, and our revenue and margin outlook assumes current FX exchange rates. Despite the significant impact of FX on year-over-year results, we believe the current street consensus total revenue growth rate for FY'16 are reasonable.

Our objective is to return our software license revenue growth to historical levels in the second half of FY'16, at historical software revenue growth rates we need prior to FY'15.

We expect the growth in services revenue to be less than the growth in software revenue in FY'16 as a result of declining software revenue growth in FY'15 in tact with FX rates, particularly in the first half of the year, and an anticipated realignment of our maintenance pricing due to competitive market trends.

But we believe the current street consensus revenue growth rates for FY'15 are reasonable. We would like you to keep in mind that our fiscal Q1 is usually our most challenging quarter. Typically our Q1 revenues are flat, but slightly down sequentially. We also remain cautious of current FX challenges particularly on a year-over-year basis.

We expect fiscal 2016 annual operating margins to decline by approximately 100 to 150 basis points through fiscal 2015. Fiscal Q1 EBIT margins will likely decline from Q4 '15 levels, but then improve sequentially as the year progresses, especially as the top line growth rate increases.

Our operating margin expectations for FY'16 are slightly lower than originally expected, future FX headwinds, suppressed services revenue growth rates and ongoing investments we're making for software growth in the second half for the fiscal year.

These investments include but are not limited to increased field resources, enablement, channel programs, our new business unit structure, re-branding and market awareness, services led selling and development of our next-gen solution.

While our rate of hiring has slowed in recent quarters, we will continue to make strategic and prudent investments prior to achieving our second half of FY'16 and FY'17 revenue and earnings growth objectives. We are also focused on improving the productivity of our existing resources through sales employed enablement, retention, and redeployment.

Let me now comment on tax rates and share counts. Our GAAP tax rate for fiscal 2015 was 34% and our cash tax rate was approximately 26%. We expect our cash tax rate to remain lower than our GAAP tax rate for fiscal 2016, and to be in the 32% to 35% range based on the passage of expected legislations.

We continue to estimate that our cash tax rate will align with our long-term GAAP tax rate over the next two fiscal years. We will continue to use a pro forma tax rate of 37% for FY'16 which is the same pro forma rate used for fiscal 2015.

For fiscal 2016, we anticipate that our annual diluted weighted average share count will be approximately 47 to 48 million shares. Please note that certain senior executives and board members have approximately 486,000 outstanding stock options that will reach the end of their tenure lives and will therefore expire in the next six months.

We expect that all of these stock options will be exercised prior to their expiration. Now, moving onto our balance sheet and cash flows; as of March 31, our cash and short-term investments balance was approximately $387.6 million.

Free cash flow, which we defined as cash flow from operations less capital expenditures not related to the new headquarters was $33.9 million, which is down 13% year-over-year. For the full fiscal year, we achieved a record free cash flow of $118.1 million, which is up 3% over fiscal 2014.

As of March 31, 2015, our deferred revenue balance was approximately $229.7 million, which is an increase of $20.2 million or 10% over the prior year period, and up 7.4% or 3% sequentially. The sequential increase in deferred revenue is primarily due to maintenance and support renewals which is typical in our fiscal fourth quarter.

On a constant currency basis, deferred revenue was up 7% sequentially and 18% year-over-year. Please remember, the vast majority of our deferred revenue is maintenance and support revenue, not software revenue. As of March 31, 2015, our deferred software revenue balance represented less than 1% of total deferred revenue.

For the quarter, our days sales outstanding or DSO was 69 days, which is up from 65 days in both Q4 of '14 and Q3 '15. The change is due to linearity within the quarter. We spent approximately $9 million on construction costs for our new campus headquarters during the fourth fiscal quarter.

Although the vast majority of spending on the new corporate headquarters is complete, we expect approximately $3 million of additional related cash disbursements between two fiscal quarters. The total expected cost of the new headquarters is approximately $134 million, which compares favorably to the prior estimate of $135 million.

As a reminder, our annualized cost of the new headquarters, which we own outright, will be approximately $8.6 million of which approximately $5 million will be reflected as depreciation expense with the remainder being operating expense. That concludes the financial highlights; I will now turn the call back over to Bob.

Bob?.

Thank you, Brian. I will now provide our perspective on the market, and an update on our new product introductions, and on the plan for improving the productivity of the sales organization, particularly in the Americas. The market is undergoing unprecedented rapid changes driven by the cloud and mobile technologies.

These shifts in the market are demanding changes to how applications are developed, and how data is captured, secured, indexed, stored, and protected. These changes are also driving significant transformations of the IT infrastructure, compute network and storage.

Customers are demanding that the data be able to move seamlessly and securely from datacenter or mobile device to the cloud and from the cloud. This necessitates ubiquitous cloud data translation capabilities and new security enhancements for direct user access and multi-tenancy.

It is also driving the change to managing secure objects of data versus volumes of data.

These changes are accelerating the demand from what comprehensive holistic ways for companies to deal with legal and compliance requirements since data now resides in so many separate data repository such as clouds, geographically disbursed data centers, and mobile devices.

These changes require new technologies for disaster recovery and for the test and development of new applications. Customers also want production-ready data copies that are always available, and which should not have to be restored from backup copies. Cost reduction is always the key objective for our customers.

They are reducing costs by deploying private and public clouds and open systems that utilize much more cost commodity storage that has been to agnostic. They are also deploying converged infrastructures and by implementing software defined infrastructure elements.

In addition, as the pace of technological change accelerates, the industry is also seeing the increasing emergence of new point product to solve those specific problems. Most importantly, customers are utilizing many different business analytical techniques to drive more business value from the real-time and storage data.

In all cases, data security is the key requirement. These changes in the market have significantly impacted CommVault and have required fundamental changes to our business.

These include enhancements to our unique core software platform, the addition of leading standalone products and putting appliances in cloud gateways, and new monetization and distribution strategies.

In the second half of FY'15 and Q1 FY'16, we launched a new round of standalone solutions, as well as expanded the capabilities of our current products. Most of these solutions can be deployed on premise, in the cloud, or as a service from the cloud.

These products are differentiated from our competitions if they all can be seen as they plug into our unique singular data and information software platform.

Uniquely all the data we manage is comprehensively indexed with one unified very rich comprehensive index, is much more secure and is stored in one singular virtual object repository with a single metadata index.

Additionally, our platform includes comprehensive operational management capabilities including process automation, alerting an embedded log analytics for both operational and business analytic used cases. Our operations management capabilities are resuming very well with our customers.

These new products and capabilities are designed to strengthen our competitive position, increase our available market, provide significant additional channel leverage, and increase our value and relevancy for our large enterprise accounts.

These product initiatives are gaining traction and include long virtualization and recovery initiatives that was enhanced in Q1'16 as the current quarter. We launched best-in-class data management solutions for virtualized environments, including data management, data protection, and archiving for both on premise and in the cloud.

The virtualization products launched include de-duplication on premise, de-duplication to the cloud, security and native copy capabilities. We have had over 500 customers purchased this product since it released two quarters ago. These early results are very encouraging.

In Q1, we also launched a new CommVault-based appliances and enhancement store appliances. We formally launched our new appliance offices that deliver enterprise class performance, de-duplication, native copy capability, advanced secured data access, automated provisioning, and comprehensive management across appliances.

Appliance cross this for simplified cost-effective scalability. This appliance also incorporates our unique Simpana platform capabilities. In addition, in Q1, this quarter we launched our Cloud Gateway.

This product complements our appliances, and allows customers to efficiently archive a replicate data including de-duplication and secure encryption to all major cloud storage locations.

This package is our native cloud storage integration features, which eliminate the need for additional devices, and allow customers to create hybrid cloud strategies. Number four, we launched our information retention and compliance for SaaS application.

There is an increasing need to manage data from SaaS-based enterprise applications like Office 365 email. In these cases, cloud-based SaaS applications offer protection, and availability as part of the service, but retention, compliance and native discovery challenges persist.

We now offer the ability to archive data from the cloud-based SaaS applications including Office 365 email, and will in the near future include most key enterprise SaaS applications. Disaster recovery manager is also launched in this current quarter. The solution runs in both Microsoft and Azure and Amazon Web Services cloud environment.

It automates the disaster recovery process by using our unique orchestration, data transformation, and cloud provisioning capabilities. Additionally, our new VR solution set meets customers' new requirements to manage data between cloud vendors and locations by offering global management and reporting capabilities.

Number six, enhancement and storage native copy capability. This relates our enhanced ability to offer direct native production data access from a highly efficient content store. As compared to other solutions in the market, CommVault offers a same outcome with one-third the storage needs which is a major competitive differentiator.

Our cloud's DevOps service is also a new solution that targets the top used case in the public cloud compute base. The solution will feature self-service automation for developers to create and use VM workloads in the cloud for development and testing purposes.

Our unique log analytics, workflow, and operations management capabilities are embedded in this solution set. CommVault's development team has pioneered the solution in-house to speed up development time and drive down costs while increasing flexibility and agility. And lastly, real-time secured cloud sharing and collaboration, CommVault Edge.

Our upgraded mobile solution includes new functionality for our CommVault Edge solution. This enhanced Edge solution has a capability to offer real-time secure cloud sharing and collaboration into the content store, eliminating the backup process entirely.

Enterprise users can now implement an enterprise scale inside the firewall highly secured system and manage their mobile workforce. Our Edge eliminates the risk associated with outside firewall third-party providers and seamlessly integrates with CommVault global data and information management capability.

It also includes enhanced secure access capabilities to protect data and emails from outside intrusion. Our mobile solution can be uniquely combined with our virtual secure archive, content store, and a new automated case management product, to enable best-in-class solutions for compliance and legal used cases.

Our enhanced security functionality; over the years we've built into our platform significant security functionality that prevents unauthorized access to data. This is a unique functionality, and has now been recognized by our customers as the key asset to help prevent privacy breaches.

Our security functionality is critically important for end user access, and for self-service and multi-tenant cloud environment. Our mobile solution also enables new data encryption, and secure data wipe features, which can reduce the risk of unauthorized access or data exposure with lost or stolen devices.

I'll now turn to our next major version of our software platform. Our next-generation platform is currently in beta testing. The next version of CommVault software which we expect to release later in FY 2016 is a major upgrade with substantial enhancements.

In the next version, we will be making significant changes to how we index and transport data to make it much easier and less costly to manage data in and out of the cloud and to provide a much stronger platform for business analytic.

These enhancements will also have significant cost performance, scale, access recovery, and added sophisticated security functionality. Backup windows will be eliminated, all data in the platform will be accessible, and highly cost-effective, native production-ready formats.

Our platform open for seamless integration with new open infrastructures, and address customer demand to avoid vendor lock in. It will also enable the implementation of business analytic solutions, some of which are currently in beta.

Please note, the development and timing of any release as well as any of its features or functionality remain at our sole discretion. Now, let me talk about our sales organization. I'll now provide additional details and an update and the plan for improving the productivity of the sales organization in general, and the Americas, in particular.

We've introduced new products, and implemented new pricing and product initiatives to meet the changing dynamics of the market, and customer buying priorities. We've implemented new channel programs and added new channel partners. Under new leadership, we've established and upgraded sales enablement capability for both sales and channel partners.

We've also strengthened the sales management team globally. We hired a new Vice President in Sales in the Americas, Scott Little. Scott comes from Oracle with the extensive sales leadership. Pete Kobs moved into a key role as VP of Global Accounts. We've recently hired a new VP of Channels, Dave Fisher. Dave was formally VP of Sales for Forsythe.

We also hired a new Head of Global Alliances, Brian Allison. Brian was formally at Cisco. We are excited about having this added management capability in place as we execute our transition plan.

In addition, the plan for the Americas has been focused on improving sales productivity by realigning territories to get more effective sales capacity or the existing sales resources, redeploying existing sales overlay resources to better align with our new product initiatives and adding target resources to support our high velocity channel partners as we roll out our new standalone products.

We've also strengthen our programs with our core reseller channel and strategic partners. The next step for the Americas now is to focus on added sales capacity, which we deferred until the territories were optimized.

In closing, we're making substantial changes with company to get out in the front of the dramatic technological changes in our markets, and better align with the current and emerging needs of our customers.

These changes strengthen our competitive position, increase our available market, make it easier for our channel partners to sell, and will enable us to execute our plans to significantly improve revenue and earnings growth. We've industry-leading core fundamental technologies.

We're now delivering an industry-leading compliment of product, services, and support. We're strengthening our enterprise sales force and strengthening our distribution in the enterprise mid-market and the cloud.

We're now focusing on those key elements of our transformation to ensure we achieve objective of improving revenue and earnings performance in the second half of FY'16. I'll now turn the call over to Michael..

Operator, can you please open the lines for questions?.

Thank you. We will not begin the question-and-answer session. [Operator Instructions] And our first question is from Aaron Rakers from Stifel..

Yes, thanks for taking the question. I actually have two, if I can. First of all, Bob, I just want to understand the commentary on a forward basis. I think in the press release you had noted that you'd expect the second half revenue growth to improve substantially on software license. Brian, I think you said a return to historical growth rates.

Substantial seems like a little bit of a down tick relative to the prior commentary of historical. You also say that you're comfortable with where the street fits [ph] which I think is about 13% software license revenue growth.

I'm wondering if you could help us understand a little bit the context of substantial versus historical, and also, are you saying that you're comfortable with the software revenue expectation that currently the street has for the second half of the fiscal year?.

Those are really good questions, Aaron. So I mean, you can see, now number one in this transformation, I just want to reinforce. The market is going through these radical changes, and the cloud and mobile are driving it, and they're driving changes in where value is derived, and how we monetize our products.

We began this transformation going back about 18 months ago, beginning the platform which we had desegregated from a core into standalone solutions, bringing new products to market that better align for our -- I'll call it, high value monetization, align with how you can drive products with the channel, enable our enterprise customers to deal with these critical issues as they transform and bring both cloud, mobile, and business analytics solutions into their enterprises.

We had to make really substantial changes to the company. The key point I made on the call is that most of those are in place now, as far as the products and the organizational structure.

What's going on over the next couple of quarters is really driving distribution of those solutions into the market, because we've gotten really good response from the market in terms of market fit and competitive position.

The odds are really high that we're going to achieve our -- and the third bullet here is that we reorganized the Americas in terms of getting the maximum use of our resources, and enable all sales teams to have really rich territories so they can hit their quarter objectives.

And now, we're adding capacity, so it's product, distribution, and capacity additions that drive revenue growth. The odds are really high that we're going to get strong license revenue growth in the second half as we enable our distribution channels, and position these products in those channels.

The message that's different from prior quarters is the FX, number one; and two, in realigning our pricing models to the market, we're going to see some negative impact on our maintenance stream [ph].

License revenue outlook looks good for the second half, and the growth rate on services revenue is going to be lighter because of our low license revenue growth in FY'15, and realigning our maintenance pricing models with the market.

So in summary, the second half should be strong, particularly in the license revenue side, offset by a weaker than prior forecast on the services line. That was [indiscernible] and the second question was? Sorry..

I think when we also look at -- you made the comment on sales capacity. One thing that we've recently has been some uptick in your open job listing. It looks like your sales and marketing expense were about 18% in fiscal '15.

I'm just curious, are you still facing any challenges within the organization around churn? How do we think about the growth of sales and marketing expense relative to revenue this year, and I keep going back to the comment that this is more about productivity expansion, but we're still seeing the hiring be a necessity in the model.

So I'm just trying to understand the trajectory of that hiring, whether or not you got any challenges internally in terms of the churn?.

Well, the bulk of the hiring in marketing is behind us, there will be some incremental, but not a lot. In sales, we did almost no hiring in the Americas, net hiring in the fourth quarter, as Ron Miller and the team realign those -- the structure in sales territories. We differed that hiring, actually, for more than a quarter.

Probably for four or five months, not that we didn't do any, but we cut it way back, and now we are hiring, and particularly in the Americas, but also internationally to set us up for the second half of FY'16 and FY'17, so that's going on.

On a relative basis, relative to FY'16, the increase of marketing expense will be lower, and the increase in sales expense net-net would be, I think, similar..

Okay, thank you..

Our next question is from Jason Ader from William Blair..

Thanks, hi, guys. Obviously, a massive amount of change going on at the company, and I think, Bob, you framed it that way. Good to hear about the VM products doing well.

Can you give us any more evidence of the turnaround in real concrete terms, some of it could be anecdotal, any specific products, things that are going on inside the company that point to the early signs that things are turning around. Then maybe some color on the funnel, and to the sales force morale..

Okay, that's a bunch of questions, but I think the keys here are on the -- from a product standpoint, getting our profit [ph] position, we've gotten extremely strong response from our channel and strategic partners, and these are the high velocity partners in the channel.

This is from their CEOs on down [ph] who have committed substantially to complement [ph] growth in this going forward; that wasn't there before, there are new programs. We've gotten significant uptake from some of the big strategic partners out there, particularly in the cloud, the big cloud providers.

We've have initiated combo programs that are -- where there are mutual programs tied to their channel partners themselves and ourselves to drive new cloud-based solutions into the market. It's a good response from the channel.

In general, good response from strategic, and what we're seeing from the customers is a pretty significant shift in what they're looking for in terms of their data protection technologies, particularly in the areas of compliance, and legal, and business analytic.

As these infrastructures get a lot more complicated, the company is having real difficulty automating their processes tied to nothing like core data protection, but now legal and compliance, and Always, may want to jump in here and expand on this, because we're seeing this as a trend that's accelerating right now..

Yes, in fact, I was just going to interrupt you, but thank you.

Yes, I was going to say, Jason, particularly taking with a number of accounts, and this is myself and Bob talked probably a couple of dozen accounts just during the last couple of months, but the prevailing need especially an enterprise coming in, as Bob said, is one, RTO or recovery time objectives, and two, really in scale and size and as he indicated [ph] complexity of the operation.

Our full suite, all the investments we've made in the operational side, be it through our cloud offering, through our managed service provider offering, our enterprise account is all really, really resonated. It feels like it's bright on the money particularly for enterprise. It tends to also be very unique there from a competitive standpoint.

We don't see anybody doing like functionality in size, so to speak, in a lot of these capabilities.

And then, as Bob said, if you take it beyond recovery capabilities in the cloud solutions, be at dev [ph] test or DR; take into compliance of archive capabilities, again, the automation and the ease of going from one new space to another just form a policy perspective tends to really resonate..

That functionality resonates extremely well with both Microsoft and Amazon as well, Amazon AWS, as we bring these solutions to market. I think one way I would summarize it, in the fall of 2013, and I keep repeating this but it's a fact, we said we had fundamentally changed our products pricing and distribution.

We had changed the fundamentals of the company going forward. And that was a concept, and now it's a reality, and now we've disaggregated the platform, and that was not easy.

So we separated a lot of the high value functionality from the core platform, and basically changed the pricing of that platform along with that and then we had to change distribution as we shifted from Dell and we had to move to the cloud, we had to make massive changes to our whole distribution network. And we've got that in place.

The objective now, Jason, is to take all of this and now drive this into revenue and earnings.

And what I said on the call, our confidence is way up, because all the pieces are now in the hand, but it will take us about two more quarters, and then we think that we can build -- you were asking about funnels, we are building funnels, but it's going to take us about until the end of September to get the funnels with these new products, and then just to fusion [ph] models to the levels we want to drive substantial software license revenue growth.

That is all in motion now, and it's not theoretical..

Thank you..

And our next question is from Srini Nandury from WR Hambrecht..

All right. Bob, Brian, thank you for taking my call, I really appreciate it.

Actually hopping out to the same question from Jason; can you talk about your business visibility, now you have your prime products and you have personal product and how do you look -- when you come up with a guidance, are you in assemblance [ph] of guidance as you just did on the call, and how should we be looking at it?.

Well, I think what I've said is that all the stuff is in place but as we looked out, I've been pretty clear our visibility for the next two quarters and -- Brian, did flat it down for a Q1, that's where it is.

But the way we're building momentum underneath that, the odds are highly likely now that we can achieve our objectives and have a -- put this business on a -- what I call a new sustainable model. But it's not there yet, I mean, but the pieces are there.

But the funnel, the cadence, the predictability of that new model, it's coming together, it's not where we want it where I can say with assurance, hey, we're going to hit 20% license, we're having a growth like we did in our prior model, and we can predict it quarter-to-quarter, and we had 10 years of that predictability. It's not there yet.

Are the odds that will be there? Yes, we are internally -- you can probably get the idea from the call, our confidence keeps going up because we put the pieces together, but we are not at this stage yet where we can say confident to you that, hey, we've got the funnel.

We know what the conversion rate looks like, and we can tell you what the numbers are going to be two to three quarters after this we can. But there's a lot of momentum happening underneath that. But until we translate that into high revenue growth and earnings [indiscernible], but their heads are pretty good right now.

And I'm not making a big deal about our next-generation platform, but there's a substantial -- well, we'll get a substantial uptick in the second half in that as well. And that's coming because that's in beta and that's doing well. So, this is kind of where we are..

All right, thank you so much, gentlemen..

Yes, okay..

Our next question is from Abhey Lamba from Mizuho Securities..

Yes, thanks. Well, Bob as you pointed out, it's been more than a year since we started seeing these issues, and you highlighted a lot of things that you've done internally that could help in second half. And they all make sense.

Can you talk about what are the general factors in terms of what you're seeing from customers, partners, and competitors that gives you confidence that all the things that you're lining up will actually yield results in the field?.

Yes, I think I haven't named these partners, but they're programmed in place now by the major high velocity channel partners in the field. And we have people in there, there are programs, and probably, again, I'm not going to name the partner, but the largest high velocity partner.

We've got people, programs, and they are committed to substantial growth. I mean that's happening as we speak. The second one is basically a partnership with them, one of the major cloud providers and ourselves to drive solutions into the marketplace as if the third.

We've got an increase in the step-up from the -- I'll call it the more independent cloud providers, and we have -- without all the enablement in place, the channel, a number of those 500 accounts that are new, come from our standard reseller channel. And there's an area where we've got lot more work to do.

So I would say in terms of hard data, the high velocity channel partners, for sure. The enterprise sales teams and the solutions are in place and will drive -- those will drive including some of our new strategic partners.

On cloud provider, we continue to build and expand our partnerships in the cloud with some major strategic partners who have recently committed to CommVault, and now we strengthen our channel organization globally, so we can get more leverage from the channel, and we've got the product to do that.

So I mean it's -- the financial results in are pretty and we don't hike them. So internally we're feeling pretty good about the business.

I mean fundamentally, probably a strong -- what we're building now is going to be stronger and more sustainable than what we've built before, but it's on a different model and substantially different from the way we've built the company over the past 15 years.

And these are -- I'm not messing around with it either, I mean you can tell from my voice and from what we've done, we're here to play to win and make sure this company has a really strong position in the market, and we're not kidding around with it either. And we've got the weapons in our hand to do it, so watch out. That's my attitude on it.

So we're feeling pretty good about it right now..

Yes, that's very helpful, Bob. My last point is on EMEA and APAC, what is making transition a bit slower over there and what specific steps have you taken on those regions that should help improve performance in the second half? That's it from me, thank you..

Yes. Certainly EMEA is a really good solid team over there, and they had a relatively weak quarter in general, and it was exacerbated by FX. I think you'll start to see [ph] the funnel is coming back, and I think that on a relative basis they'll start improving right now. I think we did some things that -- again, same things, strengthening channel.

They've already had a good solid core -- the enterprise teams are now given expanded product and services that drive revenue there. The appliance program we're in EMEA is off the ground. So I think they're in pretty good shape and are making some additional changes in APAC over the next month or so. That's in motion right now.

And we should have with one of our strategic partners in APAC a new agreement signed that's pretty substantial. So on balance, I think we'll do okay. I think we've set ourselves in a pretty good position.

Aaron asked a question, the one area that we've got to step-up right now is hiring in Americas, because we deferred that for over a quarter, and now we got to bring out that sales capacity up to speed. That's our next area of major focus; almost everything else is basically in place..

Our next question is from Andrew Nowinski from Piper Jaffray..

Oh, great.

So just a few questions on distributions, I know a number of large channel partners are now engaging with CommVault due to your expanding relationship with Microsoft, so just wondering if you could update us on the traction you're having with Microsoft, and then remind us what percentage of your license revenue is attributable to call providers in general..

Yes. I'll be a little careful here, Andrew, but I will say this, that our relationship with Microsoft has become substantially stronger. It's a really good alignment between our technology and what they're doing with Azure. They are engaging with us globally in the field and with their partners.

They are doing a lot of work with us internally, and that partnership is just getting stronger, and that's really good both near-term and long-term alignment there. And yes, and they have brought us into some of the major channel partners as well.

So that partnership is strong and getting stronger, and that's I think will play a major role going forward in terms of strengthening our distribution position in the market. I'll also mention, if not as developed, that we are also getting good traction with the team we are at Amazon and AWS..

And we have a question from Greg McDowell from JMP Securities..

Great, thank you very much. I wanted to ask about the strategic realignment in maintenance pricing, I was hoping you could just give us a little more detail.

For example, will existing customers who don't add any new combo products, will they be potentially renewing at lower rates, or is this more sort of maintenance rates as a percentage of new product revenue maybe being lower because of the repackaging and re-pricing? Thank you..

I'll take that. This is Brian. Just like we have to get creative with the re-pricing of our solutions steps and it's been from early success from that we need to evaluate our overall maintenance pricing models both for existing and new customers, and really align them with the reality with what's going on in the market.

We believe the changes will not only drive increased customer retention and loyalty. And we have some early examples of that based on a beta program we've done, but also enable us to increase our win rate of new customers.

Our goal going into this is to remain cash-neutral as possible, and give our customers more for the same dollar spent the more value, but if not, without risk certainly. So these changes will likely result in a lowering of our maintenance support [ph] prices for existing and new customers in relation to the dollar spent on software.

And that's been factored into our outlook for FY'16..

Our next question is from Brad Zelnick from Jefferies..

Thank you very much for taking my question.

Can you talk a little bit about the factors that will have you finishing this year with more or less term and subscription in the mix and what is your mix assumption baked into your comments for double-digit license growth in the second half?.

Yes. I think at the margin you will see a shift to more term and subscription, but to be frank, we're managing that internally to make sure from -- as a public company that we achieve our license revenue's growth objectives as reported.

In other words, we are not being as aggressive as we could be in that transition and the near-term can make sure we get our revenue or earnings growth in line. There was no question over time that we're doing some very aggressive things on the flipside of that internally to move a lot of our value into the market as a service.

And you will see that also begin accelerate in the second half of FY'16.

Right now I'd call that an adder to our growth, but my friend, Al Bunte, sitting right next to me here and his team being extremely aggressive in coming up with some very unique service capabilities, and before the end of this calendar year those new capabilities will be in the marketplace.

So in summary, we have forecasted some marginal increase in subscription or term for FY'16. By going forward beyond that you will see that whole area accelerate as we go forward..

Our next question is from Michael Turits from Raymond James..

Hey, Michael Turits, thank you.

Guys, just trying to get some detail on FX, can you just be a little bit more specific in terms of the quarter in revenues, how much of the shortfall relative to consensus from the change in FX compared to where you were when you announced last quarter, versus how much was fundamental issue, and what those fundamental issues were? And same question on the margin guide for next year, which is below the previous?.

Hi, Michael, this is Brian. Yes, since the last call, most of our shortfall was related to other issues besides FX. So it is really the mix [ph] on the top line that was driving the bulk of that since the last earnings call..

So what really were those fundamental factors relative to what you saw at that point?.

Just weaker than expected results particularly in EMEA and APAC..

Okay.

And then how about looking into next year since you guided revenues, same growth rate as the street, overall it basically puts the street revenues for next year, but you went from guidance of margins flat to slightly up to 100 to 150 bips down, obviously, again some of that's going to be currency, but how much is currency and then how much of that change the fundamentals, and what are they?.

Yes. So the majority is a combination of currency and also the lower services revenue growth rates that we are anticipating for next year, that's going to have a dampening effect on overall revenue. So that has accelerated since the last call in terms of our move to new pricing models from a maintenance perspective.

But our goal is to still get back during the second half of our historical software revenue growth rates prior to FY'16..

Our next question is from Rajesh Ghai from Macquarie..

Hi, thanks for taking my questions. Bob, you talked about a more complicated competitive landscape, I was wondering if you could comment on the potential impact of the launch of these enterprise products in November last year.

Secondly, on VDPA, which is I believe [indiscernible], and the trend that we are seeing at the EMC World this year, which is that EMC seems to be getting a lot of backup of data services functionality into the storage arrays and saying that essentially all creates the need for backup software? Thank you..

Okay. Clearly it means it had an impact in the market, in the mid market and through that mid market distributors, they have gotten from an admin standpoint they have gotten themselves positioned in the enterprise, not big scale, but position there and they are viable competitor in the market, and they have done pretty well.

On the EMC side, in terms of our ability to compete and the things that they're doing in terms of including backup as part of their converged solutions set; I think I have a different perspective on that, I mean clearly your data protection market is being commoditized and being substituted with this base [ph] replication or things like that.

But from a customer standpoint and the way this market is going to move and what you need to do with the data, I think that's only a part of the story, and I think we believe that at the end of the day, how data is captured, indexed, and managed is not going to be done through this base replication over the long-term.

Mid-term, yes; longer term, I think the technology we are developing and managing -- maybe I can put it this way, you're dealing with massive scale and you can't just be putting data inside, at a box inside an array, because data is moving, you're going to have massive data moving into the cloud, you got data in array, you got data mobile devices, and doing a backup or doing a replication.

If you think about a long-term it's just not going to work. It is a key technology for today, but I think if you look at what we're doing with our H-drive which we just launched this quarter is a pretty good indication of that in terms of a new and different way of managing data like our next-generation platform which I just talked about.

It's got a much different way of managing data.

So I think -- those are good things what EMC is doing for their customers, but I think we have a different view on how this market is going to evolve and the fundamental technologies that we've built to more align with a big scale cloud environment, which makes things lot more complicated because you got your data center, you got your private cloud, you got your public cloud, you have virtualization, and you got containerization coming in.

so you got a lot of technologies that need to be dealt with seamlessly and holistically, but if it's for a relatively small enterprise or a large enterprise, and I think -- we have a -- let's just break this way, a different view on how data should be managed in those new emerging types of environment..

Our next question is from Eric Martinuzzi from Lake Street Capital..

Yes, [indiscernible] for the coming year, it looks like you did not -- there were no repurchases in Q4, what your thoughts are?.

A good question.

So as we have gained more confidence in this transition, another major initiative here is healthcare and business analytics, and what we're doing today and with the new technologies we're going to bring them out to market later this calendar year, it's pretty clear to us that as we go forward that we see more and more opportunity in the business analytics area, and the unique things we can do with the platform we've developed which is unique in the market.

This is clearly going to open up opportunities. We've always been a company, by the way that's developed -- 100% of our growth has been organic. And it looks like with the new technologies that we have developed here, we're going to have opportunities in selected areas of business analytics, and then may be some acquisition opportunities.

And as we think about creating shareholder value, we think it would be prudent and smart on our part to keep our powder dry, because the odds as they're opening up as we can move to this year are high.

And we think that would be a better use of creating value than share repurchase business, it doesn't mean we won't do share repurchases by the way, but I think our point of emphasis and priority is going to be more on building the company for longer term growth, and some of that will be in unique, I'll call it, business value-added solutions in the business analytics area is likely over time..

So some more tech [indiscernible] or more kind of a bigger footprint?.

No, I think it's -- no, I think this would be selective niche acquisitions that we can add to our platform in certain markets, and healthcare is certainly one of them, and we -- I've mentioned it on the call, but we have launched our healthcare platform, and we're going to be expanding that as we move through this year.

We're getting good traction on that, and that's going to become a number one as our third largest vertical today. We're making a big investment there and we're expanding partnerships there. And there's big opportunity in that market, and we've got a good leader driving it for us.

So I think there would be some good opportunity for us to tuck in some analytics capability in that market and some others as we move forward..

Thank you..

We have a question from Philip Winslow from Credit Suisse..

Hi, this is Siti Panigrahi for Phil.

Bob, I wanted to ask about overall market, I mean you talked about some of your internal challenges that's impacting CommVault's growth, but if the market is doing well in terms of demand, who is winning, I mean gaining share in the market in your vision?.

Well, gaining share, you've got -- none of our large competitors are gaining share. You had just a massive shift in this market on the core data protection market, some of it have gone to dis-replication, some has gone to [indiscernible], some has gone to converge.

But that -- some of it's gone to -- yes, as I mentioned, some of it's gone to the cloud. This is what we are talking about a year and a half ago, I mean you can see the shift, and these are substantial changes.

I just went through this on the call, it wasn't -- these were not tweaks of the business, this was substantial changes to our technology monetization models, pricing, distribution tied to these shifts.

So yes, there are a number of competitors, smaller ones, cloud that are gaining share in the core, but the market is, I won't say completely wide open, but pretty wide open for these other area, whether it's healthcare, or it's compliance, or it's legal, or I call it inside the firewall mobile applications. So I think you got to look beyond the core.

If you talk to a CIO, they are going to tell you that in a big enterprise they want their data protected. So data protection is still important, and in the big companies -- these big deals, they still like to do that on a holistic global basis, the big banks, we had two of the large banks in here recently that wanted all tied together.

So data protection -- they need that locked down, but they need compliance, they need legal, they need business analytics, they need all their operations with these more complex environments automated. I mean this whole process automation managed service space becomes more important.

So it's a significant shift in the landscape of where the value is going in the market and how do you monetize that to maximize your revenue and earnings growth. I mean it's different. It's taken us a while to put all this together, but we're getting pretty close, but it's a substantial change..

Thank you..

Maybe not exciting at your end, but pretty exciting at this end because we got that foundation right there [ph] to build a pretty interesting company going forward, but it's -- and companies that aren't making these mass radical changes end up where we are right now, where you spill out your revenue and earnings growth, but the market has got massive potential in front of us here if you position yourself to take advantage of it..

Thank you. We have no further questions at this time. Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect..