Michael Picariello Neil Robert Hammer - Chairman, Chief Executive Officer and President Brian Carolan - Chief Financial Officer and Vice President of Finance Alan G. Bunte - Chief Operating Officer, Executive Vice President and Director

Joel P. Fishbein - Lazard Capital Markets LLC, Research Division Jason Ader - William Blair & Company L.L.C., Research Division Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division Andrew J. Nowinski - Piper Jaffray Companies, Research Division Alex Kurtz - Sterne Agee & Leach Inc., Research Division Eric Martinuzzi - Lake Street Capital Markets, LLC, Research Division Abhey Lamba - Mizuho Securities USA Inc., Research Division Aaron Schwartz - Jefferies LLC, Research Division Gregory Dunham - Goldman Sachs Group Inc., Research Division Michael Turits - Raymond James & Associates, Inc., Research Division Robert P. Breza - RBC Capital Markets, LLC, Research Division Rajesh Ghai - Craig-Hallum Capital Group LLC, Research Division Srini Nandury

Good morning, ladies and gentlemen, and welcome to CommVault's First Fiscal Quarter 2014 Earnings Call. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Michael Picariello, Director of Investor Relations. Please go ahead, sir.

Good morning. Thanks for dialing in today for our fiscal first quarter 2014 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, that relate to future results and projections are forward-looking statements within the meaning 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, which are discussed in our SEC filings and in the cautionary statement contained in our press release and on our website. The company undertakes no responsibility to update this information in this conference call under any circumstance. Our earnings press release was issued over the wire services earlier today, and it has also been furnished to the SEC as an 8-K filing. The press release is also available on our Investor Relations website. On this conference call, we will provide non-GAAP financial results. The reconciliation between the non-GAAP and GAAP measures can be found in Table 4 accompanying the press release and posted on our website. This conference call is also being recorded for replay, and is being webcast. An archive of today's webcast will be available on our website following the call. I will now turn the call over to our CEO and President, Bob Hammer.

Thank you, Mike. Good morning, everyone, and thanks for joining our fiscal first quarter 2014 earnings call. I'm pleased that we had a good start to fiscal 2014 with solid Q1 financial results. Let me briefly summarize our Q1 financial results. For the quarter, total revenues were $134.4 million, up 21% year-over-year and down 3% sequentially. Software revenue was $65.3 million and grew 20% year-over-year and down 9% sequentially. Services revenue was $69.1 million and grew 21% year-over-year and 5% down -- down 5% sequentially. And from an earnings perspective for the quarter, operating income or EBIT, was $31.3 million, up 38% year-over-year and down 1% sequentially. EBIT margins were 23.3%. Diluted earnings per share were $0.40. We generated approximately $24.6 million of cash flow from operations during Q1, exiting the quarter with approximately $459 million of cash and no debt. Let's spend a minute on some key awards and recognition. We had strong third-party validation of CommVault's technology leadership position with Simpana 10 from 2 of the industry's leading analysts, Gartner and Forrester. For the third year in a row, CommVault once again earned the strongest position in the leadership quadrant of the prestigious 2013 Gartner Magic Quadrant for Enterprise Backup and Recovery Software. This validates our leadership position while reinforcing Simpana as the best choice for evolving enterprise data management demands. Gartner states that the industry continues to undergo significant change as organizations embrace new technologies and techniques and as customers showing willingness to augment or switch-out legacy vendors and back-up techniques. According to the report between 2012 and 2016, 1/3 of organizations will change back-up vendors due to frustration over cost, complexity and/or capability. In addition Gartner states that by 2016, at least 20% of large enterprises will abandon backup recovery solutions using a traditional methodology and…

Thanks, Bob, and good morning, everyone. I will now cover some key financial highlights for the first quarter of fiscal year 2014. Total revenues for the quarter were $134.4 million, representing an increase of 21% over the prior year period. We reported software revenue of $65.3 million for the quarter, which was up by 20%, or $11.1 million, over the prior year period. During Q1, our software growth was driven by strong demand for virtualization, source-side de-duplication and snap-based modern data protection solutions. We continue to see strong demand for our capacity-based licensing models, which has a direct correlation to the underlying volume of data under management. Capacity-based license sales represented 74% of our Q1 software revenue, which was up from 73% in Q4 FY '13 and 66% in the prior year period. We anticipate that capacity-based licenses will continue to account for the majority of our software revenue for the foreseeable future. For the quarter, software revenues derived from indirect distribution channels increased 22% over the prior year period and represented 89% of software revenue. Our direct revenue represented the balance and increased 6% over the prior year period. Please remember, most sizable deals are driven by our direct sales force even though they're transacted through the channel. Let me now comment on enterprise deal mix. Software revenue from enterprise deals, which we define as deals over $100,000 in software revenue in a given quarter, increased by 18% over the prior year period, and declined 12% sequentially. Enterprise deals represented approximately 55% of software revenue. The number of enterprise deals increased 27% year-over-year and declined 11% sequentially. Our average enterprise deal size was approximately $268,000 during the current quarter compared to $288,000 in the prior year period and $272,000 in Q4 FY '13. Software revenue from non-enterprise deals increased…

Thank you, Brian. I want to wrap up the call with a brief commentary on the status of Simpana 10. These are very exciting times to be in our industry. We are in a rapidly changing IT environment that is creating lots of opportunity for innovative solutions like CommVault Simpana 10. The core release has been of very high quality and is extremely stable. As a reminder, in Q1, the vast majority of Simpana 10's license revenues has come from our control release to new customers. Existing customer led and channel partner-led upgrades are planned to begin later on this quarter. Simpana 10 was designed to meet the rapidly changing needs of enterprise customers due to massive data growth, changes in IT technology, increasing regulatory requirements and needs for better business information. In addition to the leading market analysts that I mentioned earlier, enterprise customers are also validating that we did an outstanding job with Simpana 10 by developing leading innovative solutions for the top priority current needs and emerging new challenges. These include the tremendous increases in scale in various forms of cloud with scale improvements in the core platform and more comprehensive capabilities for managing virtualized server environments. The rapid emergence of smart bring-your-own-mobile-devices that is driving new needs for instant data access, security and synchronized file sharing. The critical need for large scale secure multi-tenancy capabilities for mobile, file sharing, cloud and managed service providers, the need to easily and cost effectively archive for the index data for compliance, regulatory and business needs, the need to improve operations for better monitoring, analytics and reporting and the need to automate everything to reduce complexity, improve productivity. And lastly, a critical need for better, more timely business understanding through more sophisticated data analysis. We have also validated that a…

Thanks, Bob. Before we open the lines for questions, I would like to highlight that we'll be hosting our Annual Stockholders Meeting on Wednesday, August 21,at 9 a.m. Eastern Time at our headquarters in Oceanport, New Jersey. Details on our live webcast are available on the Investor Relations section of our website. Can we please open up the lines for questions?

[Operator Instructions] Our first question comes from Joel Fishbein from Lazard.

I just have 1 quick question for Brian and 1 for Bob. Brian, based on the strong DSO performance it looks like the quarter had very good linearity. Any comment on that would be helpful.

Yes, so during Q1, we had -- it was 55 days for our DSO. I guess the quarter was impacted. We did have sales kick off with some Version 10 training going on. There was some less available selling days, but we were still able to get those deals done during the third month of the quarter and to achieve the 55 days for our DSO.

All right, great. And then Bob, thanks for the commentary on Simpana 10. It's our understanding that the product's been able to be used to consolidate vendors in the get information management world. I'd love to see if you have any comment on that and see how it's being used by some of your customers to potentially consolidate some of your competitors?

Well, I mean I think what you're referring to is you're going to have products with data management. You can have products for operations management. You can have products from mobile, and you can have products for analytics. So, when you have customers who are, instead of using cloud-based solutions for mobile, heavily committing to CommVault's mobile solution, you eliminate other competitors in the mobile market. On the operations side, Al, who's with me here has worked really hard with the team, not only comprehensive reporting, but enabling the automation of any process with easy deployed workflows. So now we're in a, you can call the operations management side of the business. And on the analytics side, with ContentStore having one virtual repository, we're finding customers able to do things they weren't able to do before. I'll give you an example, I'm not going to say the industry here, but there's a company that had acquired a number of companies and it was very difficult for them to analyze what customers are doing with various products between these organizations. And with ContentStore, they're able to log in and track customer behavior and all the different entities. So again, this is an analytics implementation that we're working on with this particular customer, it's an international customer for sophisticated business analytics. So the premise of Simpana 10, and I guess, in summary is working in all the key areas that we had and target markets that we had focused on. So it's quite gratifying to see this kind of reception from the market.

Our next question comes from Jason Ader from William Blair. Jason Ader - William Blair & Company L.L.C., Research Division: Just wanted to ask 2 quick ones. First, Bob based on the street estimate for Q2, it looks like it's implying about 3% sequential growth in revenue. And I look historically, and the worst you've ever done is 6%. And that's really -- I guess over the last 2 years, it's been 6% before that. It was quite a bit more than that sequentially from Q1 to Q2. So just wondering whether you feel like that is a conservative street estimate for Q2? Just based on historicals, is there anything to suggest why it wouldn't be in that sort of mid- to high-single digit type of range? And then secondly, I'm curious on your comment on competition increasing. I don't remember hearing that before or maybe I just missed that historically. Why do you think the competition is likely to increase, and what kind of impact do you think that will have on the business?

If we look -- let's take the, the first question was on sequential growth. You had Street estimates at 3%, that's historical at 6%. I think what we're saying is that, that Street current consensus, if we consider as reasonable, given the current macro environment and issues that I had mentioned. Can we do better than that? Yes. But I think we always like to give, what I call, a reasonable perspective where we think a quarter could end up, and I think that's reasonable. I also mentioned something else that I mentioned on the call that we focused heavily on increasing our funnel, in particular our megadeal funnel. And we were quite successful in doing that in Q1. But those megadeals have to be converted and had to be converted into revenue. So there's where your risk is, so I would say the Street consensus is reasonable. And if we have a, if we are more successful in our conversion, it could be higher, but I wouldn't plan on that right now. Jason Ader - William Blair & Company L.L.C., Research Division: And then on the competition?

Yes, I mean I think we're dealing with a very different competitive environment, and I'll give you an example. Go back 3 years and when we were basically competing in the backup market against, let's say, Symantec or in EMC. I mean there are a few discrete competitors. And now when you walk into an enterprise, there were outsources, there were various types of cloud environments. You've got different use of delivery systems with different SaaS applications. So the whole environment is quite a bit different, and how we approach these customers and how we achieve value is changing really rapidly towards a more complex competitive environment that we have to effectively deal with. It's not that we don't have the technology, by the way, or the services to do it, it's just that when we train our field sales and our consultants and our field technical people in terms of how to deal with those environments, it's a more complicated equation, and it's likely to continue to get more complex. We just happen to be in an extremely strong position as a company, better than any another company in history to deal with all that, but it is still more complicated. Jason Ader - William Blair & Company L.L.C., Research Division: So you think it's more competitive, but you're in a better position to win. Is that the way to summarize?

CommVault continues on a relative basis to get stronger and stronger. It doesn't make it easier, Jason. It's just means that we're in a position to win, but the complexity of the sale increases. So we've got to do a much more comprehensive job in education and value-prop definition as we work with our customers to create value. And that's our mission in life as a company. So we'll walk into an account and figure out how we create value for that customer. Those dimensions now have increased substantially.

Our next question comes from Aaron Rakers from Stifel. Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division: I also have one question and one quick follow-up. Bob, you had mentioned again, highlighting the fact that we are going into the fiscal year end for the government vertical, albeit some pressures from the sequestration perspective, how would you characterize the current government vertical? How much of that was -- what was the contribution in this most recent quarter, and how would you characterize the current pipeline and funnel?

I'd say the contribution in Q1 was on the weaker side. The pipeline for Q2 looks very strong, but we're not planning for high conversion of that given just our own internal conservatism. So pipeline looks good, but how much of that is really getting funded and how much of that is going to convert is the question. So on our own forecasting, we have been relatively conservative in what we think the outcome will be. The answer is we really don't know. Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division: Okay, fair enough. And then...

We have it covered in other areas because we don't know. Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division: Fair enough. And then the follow-up-for me is when we look at the deferred revenue growth, which was notably strong at 31%, on a sequential basis if you break down the short-term-deferred revenue, was your software piece of that up or down sequentially? Or can you quantify what that piece was?

Yes, it was flat sequentially from a software perspective.

Our next question comes from Andrew Nowinski from Piper Jaffray.

I just had a question on the software revenue first, can I ask you one? It looks like it may have been a bit below normal seasonality. I guess was there anything in the quarter on the software license side that may have caused that to come in mildly lower than normal?

I think that's a good question, Andrew. The answer is yes. We would describe that as slightly below normal seasonality. And the reason for that is what Brian mentioned. We took the field out for a massive amount of time starting in late Q4 right through Q1 on Simpana 10 training, including a week after a very large sales kickoff. So the time out on the field early in the quarter was unusually large and the quarter was a little bit back-end loaded. So that, I would say, is the major reason we were slightly below our, I call it our seasonality trend line. On the flip side, we had a record substantial increase in funnel inflow because we put a lot of focus on that. As we came out of our Simpana 10 trend, it was like, okay, guys, we got to get back to work here and do a better job at funnel inflow. And the team -- sales teams did a really good job on that. So in summary, yes. The license revenues slightly below trend in Q1. In 2, we had a very large funnel build particularly, in what we call the really large deal funnel build in Q1.

Okay, makes sense. And then just one quick follow-up. Despite the concerns in the quarter about Dell cutting commissions, revenue looks like it was near an all-time high. And I understand a majority of that is from maintenance renewals. But is there continued demand through Dell indicative of just their lack of a comparable product?

I'd say yes and no. I mean, clearly, we are in the process of disengaging from Dell. As Brian mentioned, we're disengaged in the mid-markets last year successfully. You can see, we had 24% growth basically, with small participation from Dell. And we're in the process of moving our enterprise focus away from Dell as well. So they do not have a comparable product. I'm not sure what's going to happen there, but certainly, we at CommVault have a business to run. And we are taking proactive steps to make sure we hit our numbers without Dell. Now if Dell -- if that, through all the changes that are occurring at Dell, there is a possibility that we could reengage with Dell and the enterprise. And if that happens, we'll be a good partner and take proactive steps. But we're making sure that we can execute our plan with minimal participation with Dell over the long term.

Our next question comes from Alex Kurtz from Sterne Agee. Alex Kurtz - Sterne Agee & Leach Inc., Research Division: Bob, just a follow-up on that last point you just made. Has Dell actually intimated to you that they may, over time, want to reengage you in the enterprise?

Well, I think the comment that Andrew made was, they don't have any product in the enterprise to compete with. So it's a question of, if they want to compete in the enterprise with a total solution, they have to engage with somebody, because they don't have -- their product line doesn't cover the enterprise right now. So there's always discussions going on whether that's we reengage or not, I am not sure. But it depends on -- what Dell -- we don't know what the strategy is for the enterprise and with whom. Alex Kurtz - Sterne Agee & Leach Inc., Research Division: So Bob, I think, speaking with some investors, I think there's a, the concern is flip from AppAssure to backbone. And maybe my last question here from me would be, maybe you can sort of lay out in a couple of bullet points here why Backbone doesn't have enough, in your opinion, enough horsepower to compete against Simpana? Maybe some quick comparative takes on that, please?

I'm not going to give a comparative take, but on a scale of 1 to 10, they're 1.5. We're a 9.9.

The next question comes from Eric Martinuzzi from Lake Street.

I have a question about the Pro Services business. That was very strong this quarter. In fact, the growth rate year-on-year, that upped 21% versus the software up 20%. I think that's a first time in over 1 year now we've seen the services side grow faster on a year-on-year basis. Curious to know if that is sustainable, was this just kind of a 1-quarter surprise? And then on the margin side for the services, also same question. That was a good gross margin for pro services, is that sustainable?

I'm going to let Al expand on this because it's really important. But in general, I'm really proud of what the team has accomplished in the services side, both in expanding the whole scope of the business and capability of the business and then developing a whole series of new services products. So the key thing is -- in the enterprise, you had to -- again, we're in a value-creation business. You got to understand what's the customer trying to do. You got to define the right solution for them, then you got to implement it right, and you got to support it. That's a very complicated process. And with that, I'm going to turn this over to Al because Al's been driving this, and he's doing an awesome job here. And so Al, why don't you take it from me?

Thanks, Bob. Yes, Eric, good question. As Bob said, we have a lot of new offerings and not a lot of new talent, actually, in the group. We also had to do an estimation to really be an effective competitor in the enterprise space. I think that's where the growth has come, primarily, what you're seeing financially. Whether or not that will continue at a higher rate, that's probably iffy; because as Bob said upfront, you've got a little bit of lumpiness going on here, particularly with big environments. But we think it will continue to be strong, and we really think a lot of our new products. And we think they're a really good fit in there. And we think the next place where it will be used a lot is again, another point Bob tied into, is as we start working with our existing customer base out there and upgrading their platforms. So it isn't just go out and upgrade, I mean let's go out and make sure they're getting the value out of the platform and to continue to get a broader value of the services and solutions going forward. So it should stay strong.

Over time, that business, if you take a look over the next several years, that business will become a stronger and stronger part of our both revenue and value prop.

Okay. And the gross margin part of the question?

Well, that's -- it's a billable ratio kind of function there. And again, especially with our existing base, we're not in this business just totally to generate services dollars. We are a software business. So I don't anticipate it going tremendously higher, but it will probably stay high as we stay fairly efficient here.

And I meant Al, another way of putting it is, our objective here is to strengthen our position in the enterprise from a value-creation standpoint, and make what I would call a reasonable margin on the services business. We're not in, at this point, of our growth trying to maximize our services margin, we're trying to maximize our revenue growth and EBIT growth.

And the value we create.

And the value we create for our customers. But we don't want to lose money, we made a massive investment here. And the point is we are achieving reasonably good margins off of it. But it's on a -- a margin maximization exercise in the services business. It's a revenue, and it's value creation for customers and revenue and profit maximization for CommVault.

Our next question comes from Abhey Lamba from Mizuho Securities.

So, Bob, you highlighted the importance of these in the $500,000 to $1 million range, and growth in the funnel. Can you talk about the environment's impact on your ability to close such deals? Are things stabilizing on that front, or are such deals still difficult to get approved? And also, what are your expectations as we move along in the year?

That's a good question. Clearly, we are able to bring a lot of these deals in the funnel. They are maturing, meaning they're moving down the, our close cycle reasonably well, but they're lumpy. I mean these are relatively large deals. Some of them are greater than $500,000, some of them are in the several million. And closing them has a big impact on the end of results for the quarter. So right now, it looks pretty good. I think at the margin, the macro environment is improving slightly, and we're anticipating that. The only offset I could see that can ever -- I don't think the actions of the Fed will be impact it. If China goes out further and starts impacting the global market, that may have an impact. But right now, we're not forecasting that. So we're assuming a marginally better second half. We are seeing consistent improvements in our make-a-deal funnel inflow. And to your other point, another question is, how well do we convert them, what's our close rate in the current quarter? That's going to determine exactly where do we end up here.

Our next question comes from Aaron Schwartz from Jefferies.

Bob, the first question I have is you made the, a comment that by the end of fiscal '14 you wanted to establish positions in a couple of new key areas. I presume one of those is mobile. But could you sort of just walk through sort of what areas specifically you're aiming for? And then related to that, the investments you're making in sales and go to market. Does that change at all, or you're looking at more of a specialist model? Are you still selling the platform first and foremost?

I'll answer the last one, first. We're definitely going to more and more specialization. I can let Al pick that up in a second. But clearly, when you get in -- whether it's mobile or it's analytics or it's ops management. Any one of these areas requires specialization in the area, and it also requires vertical knowledge. So the major areas for growth for FY '15 are in the mobile operations management analytics. So those are your 3 areas. But when we laid out our $1 billion plan, we outlined it for everybody. What we said was: In '14, we'd come out with Simpana 10. We've strengthened our position in our core business, and that would be the major segment for growth for the company, clearly through FY '14, but it was really important for us to establish positions. So we'd have some incremental revenue growth in these new segments for FY '15, and we're on track to do that. And then when you get into FY '16 and '17, those new segments will become bigger and bigger portions of the business. So we're on track to do that, but it's requiring a massive increase in investment on the product side, on the go-to-market side, on the partnering side. And we've been able to make these big investments and achieve our EBIT growth objectives, which is really difficult. But we've been doing it. We will continue to do it. You'll see it clearly a step-up investment in the September quarter. It will happen this quarter, tied to those initiatives. And the other comment I made is there are other new segments and products that are extensions of what I just described that Mr. Bunte and our dev team and our product teams have been working on that, that are in additions to what we've already announced that are moving very rapidly and have some good potential also. And they'll start going into betas later on this calendar year and be available sometime in the first half of FY '15. So we're feeling really good about that as well.

And if I could just sneak a quick one in for Brian. On the deferred revenue, on a constant currency basis, looked like the strongest Q1 that I've seen you guys put up with. Was there anything specific there? Was there any sort of catch-up maintenance with maybe Simpana 10 or a different sort of billing that goes more to the deferred on any of those modules, or was that just normal maintenance renewals?

I would say it's pretty normal trends at our main supporting goals. I mean it does help with the value story of Simpana 10, but I would say it's pretty normal renewal trends.

Our next question comes from Greg Dunham from Goldman Sachs.

Just a couple of quick ones here. The new customer account number was a little less than historical. How much of that is related to focus on some of these megadeals? And should we expect that number to bounce back to where it's been in the past?

I think it was more related, Greg, to just time out of the field. I mean in -- we took the field out of -- I mean you can pick a number and whether it was 17% of selling days, or 20%, but it was pretty substantial. And I think that number more related to that, but that's one issue. And yes, with more and more focus on these megadeals, there are going to be fewer customers with larger volumes. So it's a combination of the 2, but I think the biggest one was more related to just time and selling.

Okay, okay. And then quickly, Brian. Did I hear you correct, 25 basis points of margin expansion this year, is that what I heard correctly?

That is correct. I said 25 basis points or slightly better.

Our next question comes from Michael Turits from Raymond James. Michael Turits - Raymond James & Associates, Inc., Research Division: Two questions. First, can you just review exactly how Simpana 10 is layering in? First off in terms of customer adoption is it still just new customers versus the base, and then from a revenue perspective as well in terms of impact? And then I have a question on the competitive covenants.

Okay. Michael, Al is going to take this for you.

Hi, Michael. Yes, it's predominately new customers. Bob said that in the script. We haven't turned lose existing customer upgrades quite yet. There are a couple here and there, but we haven't really unleashed that one. So it's predominantly new customers. Michael Turits - Raymond James & Associates, Inc., Research Division: And from a revenue perspective, how is it layering in? What's the revenue impact to Simpana 10? Is it capacity, is it new license? Is there a specific typical revenue uplift?

Yes. It's predominantly capacity based. It's still, again, the guys said, I think it's up 73% of our deals. Simpana 10 is no different from that trend. Michael Turits - Raymond James & Associates, Inc., Research Division: Okay. And then the question on competition. Bob, can you go back to drill down a little bit more then on those comments about increased complexity and increased competition? So when you're going into deals and you say you're seeing different players involved with your customers, is that a big cloud or this private or public cloud model that you're coming across that there are other people providing similar services, especially around backup, and those are new players? If you could be more concrete about that, that would be really helpful because it does sound like a new comment.

Well, it's a very different environment if you look at a typical customer 5 years ago and 100% of their applications were in their data center and managed by them. And now a typical customer, a large part of their -- one of the number of applications has gone up dramatically and a large portion was applications now sitting in the cloud. That's a different dynamic in terms of the data protection and how that data's archived and managed. So that's a dynamic that you got to pay attention to, you can't just ignore it. Who's supplying the services? What are the delivery models? Well, in [indiscernible], it's a cloud delivery model. We are seeing -- because we're playing in bigger and bigger deals in larger and larger enterprises, we're seeing more of the participation from the outsources. So they can be partners or competitors. If we're -- we do a good job of building relationships, they're partners. And if we don't, they're competitors. So it's -- that requires CommVault now to focus on building much stronger relationship with the outsources than we have in the past. We're also doing the same thing with managed service providers. And then if you look at the IT environment itself in terms of conversion, infrastructures, USC, I mean you've got a lot of different technologies coming into those environments that you got to pay attention to. You start to add it all up, it's a lot more complicated. That means technically, we're in awesome shape. But the value prop and how we create value in those environments that all that education has to be transferred. All that knowledge has to be transferred to our sales and systems and services groups and partners, and all that knowledge transfer is a pretty big effort on our part. And we're going through that as a company in terms of making sure that when we walk into an environment like that, we can deal with all those issues. Including what Al mentioned, all our consultants and services capabilities that we're bringing to bear here. So we're-- if you want to think about it, maturing as a company. And we've been enterprise focused, but now we're focused more and more on the top end of that enterprise. And it requires different skills, different competitive environments, different IT environments that we're dealing with. And you can see it in our funnels. I mean our funnels are growing with these kind of accounts, but it is a change for the company in terms of how we compete.

Our next question comes from Robert Breza from RBC Capital Markets.

Bob, just to kind of drill into the Dell relationship. Obviously, Dell continues to play in the headlines of every CNBC or Bloomberg, et cetera. To try to put this into a risk perspective, clearly, your customers will work through Dell, they obviously know the CommVault solution. They know where to get the add-on products, they know how to increase their capacity. So my opinion, even though it's 20% of revenues as you talked in your prepared comments, it seems to be much more mitigated as these customers wouldn't clearly know who's supplying the product. I mean, can you dig a little bit deeper into that and just explain a little bit more?

Yes, I've said in the past, the risk in the aggregate to Dell is quite small relative to our revenue. It's certainly well under $10 million. In the aggregate, if you take all the numbers apart -- because maintenance is a good part of that. Round numbers, that's half of it. And basically, CommVault manages the maintenance stream. Now take another 25% or 30% and that's, to your point, revenue from existing customers that can't be displaced with products that -- or easily displaced with the product that Dell has. So those customers come back, and we're managing our -- we're doing things to manage our existing account base better. And then the balance is enterprise customers, and we had a good relationship with Dell. So many of those, we aren't selling to those customers. So what we're doing -- and so when something changes, instead of bringing those customers -- if Dell brings the customer to us, we stay loyal, and we provide the customer with a Dell CommVault solution. But if it's a CommVault-brought deal, in many cases, we'll bring the deal to another partner today because that relationship with Dell is uncertain and we have a business to run. So in summary, yes, the aggregate risk to our business is mitigated, has been mitigated by actions that we basically take on our own.

Our next question comes from Rajesh Ghai from Craig-Hallum.

One question. There was a broad divergence in the growth rate, sequential growth rates across international and the U.S. The U.S. was up 9.5%, international down 18%. I was just wondering if you could explain the volume divergence?

I wouldn't read too much into that, Rajesh. I mean as we do order enterprise deals and get into that segment in the market, we're going to see some disparity sometimes between U.S. and international. I think that was almost the opposite of what it was last quarter, so I wouldn't read any trends into those numbers.

And one last question, in Simpana 10, following-up on Michael Turits' question about new customers versus the existing customers. I would have thought that the new capabilities in the Simpana 10 with an operational ContentStore or mobile would be an easier sell to the existing installed base rather than new costumers? I was just kind of wondering if you can give us some more color on that.

Well, I think it was a policy of the company, Rajesh. We do what we call controlled releases that are heavily resourced with our internal development people and tech people and make sure that we're not missing something as we release the products, so we don't end up like a lot of companies with issues out there. So the first release, there is no customer-led upgrade. We have not initiated that process yet. It would probably happen before the end of the quarter. So all our new customers, starting at February have gotten Simpana 10 on a controlled release. And certain existing customers who wanted, to your point, certain of those functions, we've done an upgrade process. But the broader upgrade of the market, just figure it won't be something that will be really a -- begin in our Q3 and Q4. It's not that they don't want it, it's just that we are very deliberate in our approach to how we release products here. And it's paid off for us in high quality and high-customer satisfaction.

Our final question comes from Srini Nandury from Summit Research.

I've got a quick question on the comp side of things. One of your comp, Russia seems to be growing leaps and bounds serving a small niche at the virtualization. Do you see these guys show up and computer situations or can you provide some color there, please?

Who are you talking...

Me, I think he's talking to me.

Oh, we're talking about [indiscernible].

Yes, that's right.

Of course, we've seen them, particularly in the lower end of the market. A number of things we did in Simpana 10, by the way, to address that particular -- but yes, we've seen them, and we feel, especially for the lower end of the market, we feel like we have a good strategy and a good plan for...

I can elaborate. On revenue call that I deal with, back at the calls I was on this week, they didn't come up once. It doesn't mean that they're not doing well, but they're at the lower end of the market. And Simpana 10 has -- put it this way, has their functionality, plus a lot more. So it's not something we don't do. It's just, it's not a competitive issue for us from that perspective.

One last question, if I may. Your enterprise deal sizes are growing larger and larger, as they look. Apart from capacity-based pricing, is there any other driver for this deal-size growth?

Well, yes, because you're into larger enterprises that are use more data.

No, apart from that. I mean you said the only trend for that? That's my question.

Well, you've got that, plus we sell our capacity model. It's sold depending on the level of functionality. So if somebody buys a capacity bundle, that includes mobile and analytics and all the other things that we do. They're going to pay a higher price per terabyte than somebody who doesn't. So it's a combination of how much functionality do they buy under that capacity model, and how much capacity do they use?

And that is our final question. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.