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 - BMO Capital Markets Canada Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division Jason Ader - William Blair & Company L.L.C., Research Division Eric Martinuzzi - Lake Street Capital Markets, LLC, Research Division Andrew J. Nowinski - Piper Jaffray Companies, Research Division Brent A. Bracelin - Pacific Crest Securities, Inc., Research Division Aaron Schwartz - Jefferies LLC, Research Division Srini Nandury - Summit Research Partners, LLC Rajesh Ghai - Macquarie Research Michael Turits - Raymond James & Associates, Inc., Research Division Gregory Dunham - Goldman Sachs Group Inc., Research Division Glenn Hanus - Needham & Company, LLC, Research Division Abhey Lamba - Mizuho Securities USA Inc., Research Division

Good morning, ladies and gentlemen, and welcome to the CommVault's Third Fiscal Quarter 2014 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. Following today's presentation, instructions will be given for the question-and-answer session. 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 third 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 the information in this conference call under any circumstance. Our earnings press release was issued over the Wire services earlier today and 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 be 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.

Good morning, everyone, and thanks for joining our fiscal third quarter 2014 earnings call. Our results for the quarter continued our track record of delivering solid double-digit revenue and non-GAAP operating income growth. We had another strong quarter, setting records for revenues and earnings. In addition, we have good visibility and funnels entering into our Q4. Let me briefly summarize our Q3 FY '14 financial results. For the quarter, total revenues were $153.3 million, up 20% year-over-year and up 8% sequentially. Software revenue was $79.2 million and grew 20% year-over-year and 12% sequentially. Services revenue was $74 million and grew 19% year-over-year and 12% sequentially. We continued in the stated objectives in transitioning away from Dell to other distribution partners. The 20% increase in Q3 '14 total revenue was achieved even though our Dell revenue decreased 28% year-on-year while, for example, our revenue from Arrow grew 31% year-on-year. It is also important to note that the majority of the Q3 Dell revenue was maintenance revenue for -- from our installed base. We expect Dell revenue to continue to decline as a percent of sales. From an earnings perspective, operating income, or EBIT, was $42.5 million, up 42% year-over-year and 12% sequentially. EBIT margins were 27.7%, diluted earnings per share were $0.54. We generated approximately $30.2 million of cash flow from operations during Q3, exiting the quarter with approximately $500.5 million of cash and short-term investments and no debt. Our revenue growth, aided by the continued solid market reception of Simpana 10, increasing penetration in large enterprise accounts and outstanding sales execution in our international operations. Simpana 10 continues to significantly enhance CommVault's leading value proposition in our core business and enables us to begin penetrating other data-related market segments. Let me spend a minute speaking about our business environment. For…

Thanks, Bob, and good morning, everyone. I'll now cover some key financial highlights for the third quarter of fiscal year 2014. Total revenues for the quarter were $153.3 million, representing an increase of 20% over the prior year period and 8% sequentially. We reported software revenue of $79.2 million for the quarter, which was up 20% year-over-year and 12% sequentially. During Q3, our software growth continues to be driven by a strong demand for data protection for virtualized environments, source-side deduplication 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 77% of our Q3 software revenue, which was slightly down from 80% in Q2 FY '14 and up from 72% in the prior year period. We anticipate that capacity-based licenses will continue to account for the majority of our software revenue despite quarter-to-quarter fluctuations. Let me provide you an update on the new pricing models, which Bob touched on during last quarter's earnings call. Please note, these models will be positioned as options to our current capacity-based pricing model. During Q3 FY '14, we began to opportunistically offer term-based pricing structures where customers can rent the software licenses for a period of time as opposed to owning a perpetual license. In addition to term-based pricing options, we have started to also market test a value-layering pricing structure versus our current bundled capacity charge. The value-layering approach allows customers to more easily purchase the specific solution sets they require. Both the term and value-layering pricing models are being well received in market testing. The rollout of these models is being done through a well thought out, deliberate process and we expect customer adoption to be modest…

Thank you, Brian. I want to wrap up the call with a brief commentary about our underlying business growth drivers and an update on our All Things Data strategy that I spoke about last quarter, including an overview of our near-term product pipeline. We just posted the strongest revenue and earnings quarter in CommVault history and have delivered compounded annual revenue growth of 22% and compounded annual EBIT growth of 31% over the past 7 years. The compelling reason why we have been able to deliver consistently strong financial results is that we continually lead the industry in providing unrivaled, innovative solutions for our large enterprise customers. These enterprise customers include large commercial and government enterprises and managed service and cloud providers. We provide solutions for the most critical data-related challenges, which include the need to resolve data, scale and cost issues; improve recovery SLAs and centralized data protection; improve operations by automating everything; deploy a comprehensive operational analytics and real-time historical reporting; deal effectively with issues related to the emergence of private and public clouds; the compliance regulations which mandate companies to keep their data for longer periods of time, which requires advanced archiving and data management capabilities; and lastly, enable mobile users to have secure anytime, anywhere, any device access to their data. The devices need to be managed and the data needs to be automatically governed. Simpana, our singular data information management platform, is unique in the industry. It enables us to deliver solutions that have more functionality, that are more cost effective, more reliable and can be supported across a very broad range of enterprise customer needs. In summary, our ability to consistently provide winning solutions for data-related challenges has enabled us to increase market share in the large enterprise and MSP and cloud-provider segments of…

Before the operator opens up the line for questions, I would like to highlight that Al Bunte and Brian Carolan will be speaking at the Stifel Nicolaus 2014 Annual Technology Conference in San Francisco, California, on February 11 at 1:55 p.m. Eastern time. In addition, Al and Brian will be speaking at the Goldman Sachs 2014 Annual Technology & Internet Conference, also in San Francisco, on February 12 at 12:40 p.m. Eastern time. Details on the live webcast are available on the IR section of our website. Operator, can we please open up the line for questions?

[Operator Instructions] And our first question comes from Joel Fishbein from BMO Capital Markets.

Brian, I have a couple -- or just a couple of clarifications. Number one, stock's down in the pre-market based on the perception around deferred revenue being weak. Can you just -- I know it's a little bit redundant, can you just go through the deferred revenue and talk about the breakup between maintenance and product, and if there were any changes in the product deferred, any meaningful movement there and then just what the maintenance deferreds were?

Sure, Joel. Thanks for the question. So just as noted on prior earnings calls and also just during this call, the vast majority of what's sitting in deferred revenue is maintenance revenue, not software revenue. Typically, any software deals that would go into a deferred category is typically just a timing issue and just a small portion of perpetual deals. So in other words, it's a timing issue of when we receive cash or can bill it versus when it meets our revenue recognition criteria, again, for a small portion of deals. That will fluctuate a bit quarter-to-quarter, but we feel that it's not a good indicator of our license revenue growth, which was up 20% year-over-year, as the majority of it never makes its way into a deferred software category. So as of December 31, our deferred revenue balance, over 99% of it is maintenance and professional services. Whatever's sitting there at the end of September, there was a few deals remaining in there that we did recognize. So going forward, you will see some fluctuations in there again, but it's only a temporary pattern in terms of just larger perpetual deals and timing issues with respect to revenue recognition.

All right. And then just a follow-up. You mentioned a little bit about linearity. Could you just comment about linearity versus previous quarters?

Sure. There's a higher concentration of larger deals, for sure. I think I mentioned the stat of 61% of our license revenue were enterprise deals. We also had an all-time high of international million-dollar deals, which is a good thing for us. So linearity kind of kicked up the DSO a little bit to 58 days for the quarter.

And then final follow-up and I promise I'll turn it over. The -- is there any change to the renewals that -- are more of renewals getting pushed into 4Q as people are adopting Simpana 10? Is that one of the issues that's may be happening?

No, I'd say it's pretty typical for us. Q4 is typically a strong renewals quarter for us, which has always been the case kind of going back in time. So no unusual pattern there.

And our next question comes from Aaron Rakers from Stifel. Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division: Just as a follow-up to the deferred revenue discussion. I know that you had mentioned, obviously, a sharp falloff in the Dell relationship. And you also alluded to that being majority being driven by the maintenance stream of that relationship. Has that or should we expect that to continue or will that weigh on the deferred revenue balance as we go forward? Or rather, are you able to replenish that maintenance stream into that deferred revenue line?

Yes. So -- no, it won't have an impact. I mean, any kind of falloff in Dell revenue, especially Dell maintenance-driven revenue, would just be replaced through alternative distribution channels. So we do not expect a significant falloff in deferred maintenance as a result of a drop in Dell revenue. Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And as a follow-up, I know you kind of gave a little bit more clarity on what you're doing from a pricing perspective with the new -- 2 new programs to kind of modestly roll out here over the coming quarters. If we look at that and kind of the change in pricing on a like-for-like basis, so customer deciding to go with either of these 2 new programs relative to capacity-based licensing, how do we think about that from a revenue perspective, I know albeit moderate in terms of this impact over the near term?

It's Bob. Today, when we priced the capacity model, all our solutions are priced into that model, whether a customer deploys those solutions or not. By enabling a value-based pricing model, we enable customers to pick and choose those solution sets that have the impact tied to their goals, their data-related goals. So basically, we're giving away a lot of value, which customers just do not use. So if you use that as a theory, we would expect that we would price to the customer's needs and net-net, the value to CommVault would go up and the customer would get exactly the value that he's paying for. So I'll let Al take a crack at that, but that's basically what the expectation is.

I think that's clear, Aaron, and as well as the other initiative on some of the term-based pricing scenarios that we're testing and using opportunistically out there. I think the point you need to understand is, this is not a one-to-one replacement for all of our pricing methodology today. It's simply perceived as an option for the customer. We find a different capital budget on the models, different P&L models out there, people want to buy software differently. So again, it's just an option.

So whether you're -- whether you're talking about operations analytics or health care or advanced mobile solutions, those will all be priced to value, so that's a good return for the customer.

And our next question comes from Jason Ader from William Blair. Jason Ader - William Blair & Company L.L.C., Research Division: Bob, just on the software revenue for the March quarter. You've had a couple of quarters now where you've been able to take some things off the balance sheet, which has allowed you to grow very nicely...

That is not true. Let's be really clear. In Q3, that revenue did not come off the balance sheet. The revenue was due to -- on software revenue, was due to license, pure license revenue growth. So that is the misconception out there. Total revenue, yes. It impacts total revenue, but it does not impact or did not impact in Q3 our software revenue significantly. Jason Ader - William Blair & Company L.L.C., Research Division: Okay. So I mean, I guess I'm looking at Brian's comments on...

I'll let Brian take this from here. But to be really clear, we had extremely strong license revenue growth based on million dollar deals. They were at a record and it drove our results. That's what you got to focus on. You guys are all twisted up on deferred, but I think you got -- you're just overstating the impact of deferred to what's driving the growth of this company.

Jason, just to give you a metric. So on the software, deferred software, quarter-on-quarter change in deferred software was $4.1 million. We recognized $79.2 million. So you can kind of look at those stats and make your own informed judgment. Jason Ader - William Blair & Company L.L.C., Research Division: So $4.1 million was the change from Q2 to Q3?

That is correct. Jason Ader - William Blair & Company L.L.C., Research Division: Okay. All right. So my point, Bob, was really just about March quarter and I know that the people are twisted up about this, and what I wanted to try to get a sense from you on is, obviously, it can't help you at all in March, because it's basically 1% or less now of the total deferred, the software side. So on the March quarter software revenue, I know you don't specifically give guidance between software and services, but would you expect kind of a similar growth rate in this -- and we've had about 20% growth for the first 3 quarters of the year in software year-over-year. I mean, is that a reasonable assumption for the March quarter because I think clearly, that would put to bed any concerns on the deferred, helping things out this year on the software side?

I always say, we expect a good solid quarter and this quarter is dependent on achieving our license revenue growth targets.

And our next question comes from Eric Martinuzzi from Lake Street.

The guidance for Q4, I know you kind of addressed it from a fiscal year perspective, but if I could just take it back to where the Street is for Q4, that's $158.5 million of revenue and $0.46 and the implication here is that you're comfortable with that. Is that an accurate statement?

That is correct, Eric.

All right. And then just a question on the new feature adoption for Simpana 10. I know you said when people buy Simpana 10, they're getting access to everything, but I want to take it sort of a layer deeper, is Simpana 10 selling so well because of these additional features? How are you measuring that and how are you doing versus your own internal expectations? Are they buying it for the legacy capability or is it being bought for that plus these additional capabilities?

I'll take it at the top and let Al expand on it. It's really both. I think clearly, we have validated in the market these advanced features in our core data protection business and I'll let Al to expand on it. And secondly, we clearly have validation on our mobile and operations analytics and some of these other new market segment targeted products. So we're really confident about that. Our issue right now is on the execution side and putting the product management and the go-to-market capabilities to drive it in there, but from a market reception, customer reaction, position against competitors, we're feeling really good about it. Al why don't you...

Yes. I agree, Eric. And a couple of other comments. For instance, on the data protection use cases and solution set out there, you know our story there is that we've modernized that over the last few years, focused on virtualized environments, Bob went through what that means in the cloud environment. Those things are extremely popular, those methods, using replication techniques, snapshot techniques, et cetera. And again, we've seen strong growth there. The other side of that equation, and again talking data protection in those environments is all the automation we've done on the operational side, including adding automated workflows, is extremely popular and almost the bigger you are, the more dynamic you are, the more the popularity. So those kind of feature sets and of course are all new with v10 have been really popular. And then as Bob added, now as you move beyond the data protection use cases, the mobile, the operational analytics, our new reporting capabilities and even early on our intelligent archiving is starting to gain a lot of traction. So we feel good about those sides of the equation.

And our next question comes from Andrew Nowinski from Piper Jaffray.

Now just as a follow-up to your pricing commentary, Bob, I guess it appears evident that you continue to add more functionality to your platform. But your installed base gets the new functionality essentially for free, as long as they queue up their maintenance agreements. So I guess do you expect your larger customers within your installed base to adopt the new pricing models?

Well, we've been testing those models with our distribution partners and our customers in terms of their acceptance of that approach versus our current capacity based approach. And by the way, as Al mentioned, this is an adder. It's not an either/or. It's what makes the most sense for the customer. Now for example, if you're not deploying something, they won't have to pay for it, if they don't want to go to that model. As it turns out in a lot of cases the customer is saying, well we prefer to stick with a higher-priced bundle approach, because we may use these features and we want the flexibility and that -- you've seen that in the term pricing as well. You have to go a year, but 3 years from now we don't -- with the hardware guys we have to do a complete refresh and we don't like that. So we're happy that you've given us the alternative, but we'd rather stay with your -- our current perpetual model. So these alternatives give the customer a lot more options and flexibility on how they purchase from us. So we've tested it and we don't see it -- because we're offering as an option, we don't see it as an issue. We see it as a major benefit.

Yes. I mean that makes sense, I guess, certainly it's a benefit for the customers, but I guess how does CommVault capture a bigger share of the wallet given the fact that you continue to add more and more features to the platform.

Let's just take 2 examples. One is operations, automation and analytics. So I have a vendor out there and they're paying that vendor, pick a number, $1 million. They add on value to that customer and we have competitive -- over the next few quarters we'll have a complete set of competitive solution sets in that area. The incremental add for a customer to buy those is relatively small versus what they're paying for a plant level solution out there. That goes same case for mobile or healthcare. So we're actually offering added functionality, better cost savings and better support, higher scalability, and a lot of other things at a lower cost of acquisitions to these customers. So they benefit and we benefit.

Okay. Makes sense.

Because as we open this up to these advanced functions that are going to be new -- we're not going to -- they won't be part -- the normal capacity based model will be there, but as we add these very, very advanced functions, the customers will have to pick and choose their purchasing models.

Okay, that makes sense.

If they want them, they got to pay for them, but if they pay for them, they're going to know exactly what they pay for and we'll give them an ROI and they'll know what their return on that investment is, or what the benefit is.

Okay. Just a clarification with you. In Q2, you defied the [indiscernible] pickup in demand in the Fed. I guess can you just give us an update on what you saw in that sector in Q3 and what you're expecting going forward now that the sequestration issues have been resolved?

We had a very strong third quarter, but it was due to some large deals. I said the underlying Fed business was not strong, but as a result of our ability to garner some -- it's been the large deals and said we had a good solid quarter. And you could expect that to continue. I said the underlying Fed business will improve, but it'll be in our case we offset that with some larger deals, which ends up positively in terms of our Fed business growth.

And our next question comes from Brent Bracelin from Pacific Crest.

One question for Brian and a follow-up for Bob. Brian, I wanted to you talk a little bit about kind of the quarterly trends you saw. Clearly, strong quarter, but could have been stronger, the U.S. region was growing faster. It looks like for the U.S. region you're growing in the low teens. Could you talk a little bit about the headwinds and tailwinds you're seeing in the U.S. right now, and then perhaps some of the levers that could improve growth and then I got a follow-up for Bob?

Sure, Brent. Yes, on a relative basis, international had a stronger quarter than the U.S. A lot of that was driven by some large multimillion dollar deals and international, as I mentioned. So it's a little bit lumpier than we typically have seen. I think if you look at the year-to-date increases, it kind of smooths out a little bit. The U.S. is up 17%, international is up 24%. We're seeing -- we're optimistic about the momentum going into Q4, basically across U.S. and international.

Okay, fair enough. And then, Bob, 1 follow-up for you. Obviously, you talked about Q4 visibility improving versus your visibility last quarter, but if I look at some of the external metrics that we have visibility into DSOs have increased for now 3 straight quarters, obviously deferred revenue didn't increase as much as it seasonally has in the past this quarter. So help us connect the dots why your visibility -- you feel better about visibility going into this quarter than last quarter versus some of the metrics that we see that are a bit contrary to that?

I'm just -- to Brian's point and Jason's point, the impact to our software revenue growth from deferred is small and getting smaller. So the changes in deferred are primarily going to be maintenance related going forward here. The visibility that I talk about, I talk about visibility and I talk about funnel. What visibility is, are deals that we've shipped software, or we have orders for, or we can see that they're going to ship early in the quarter, but we haven't gotten paid or they just don't need our revenue recognition guidelines. So it just says that we have strength, the visibility is going up. On a relative basis, we have strength for early in the quarter revenue that has an extremely high probability of closing early in the quarter. But it doesn't show up in deferred and internally we separate that from -- it's the high potential probability part of our funnel. And then funnel is your total opportunities for the quarter. So right now in Q4, when you have higher visibility than we had going into Q3, and our funnel in Q4 is higher than we had in Q3, so the combination of the 2 says that we have a reasonably good outlook looking into Q4.

And our next question comes from Aaron Schwartz from Jefferies.

I just had another question on some of the program changes that you're contemplating on making on the product side. I guess, for lack of a better term, the way maybe we think about Simpana and the capacity based licenses, some customers may have been forced fed, I guess, modules that they're not using and so you're looking to better monetize, I guess customers in some of the modules to get better uptake for products going forward. Presumably, that may require some different sales specialization around some of the areas you're talking about expanding in. And I guess the question I have for you is, how do you manage or how do you see any potential air pocket around that if the sales hiring has been a little bit below your plan, and it seems like you're putting a lot more onus on your sales force to make sure that customers are adopting and taking up product to where you can get adequately paid for that?

That is a really good question. So let's frame it. If you're going to -- let's take operational analytics as an example. If you're going to frame that value to the customer in a team that really understands the impact of these analytic techniques and the outcomes to the customer. So that means that your product management go-to-market overlay teams have to be in place to articulate that, because trying to educate a worldwide sales force on all the specifics in a discipline like that is difficult. So the challenge is, and we're really clear on this, is to make sure those capabilities are in place in parallel with our implementing these new pricing models in the field, that's why we're going slow. We want to make sure that those capabilities are there, so that when we -- and in the near-term, we're just doing this to our, let's say, from a corporate standpoint and they are not on our price book. And we won't put them in our price book until those capabilities are out there. But the question is -- it's a really good question. And it ties to making sure you have crisp execution on strategy like that.

I guess the question is, it seems like maybe the products, I don't know if you agree or disagree with this statement. It seems like the product in the phase roll out of Simpana 10 for certain modules may be a little bit ahead of what you need to do on the sales capacity side to make sure you monetize that properly and so, is there... .

Let's put it this way. Innovation is ahead of our go-to-market and field execution capability. So we would agree with that.

And so is there sort of any near-term risk in growth because as you stated it takes 9 to 12 months to see productivity there?

Well, let's separate sales capacity from the ability to execute and sell into a new segment of the market. I mean, you need the sales capacity if you're going to grow. As I mentioned, we've been growing 22% over the past 7 years compounded. And over that period, we generally improved sales productivity. So round numbers, to hit those objectives, you're hiring 20% new sales teams every year. If you hire below that, it's going to be more difficult to hit your target revenue, our license revenue objectives. So that's 1 part of the model. The other part of the model is that you need a whole infrastructure to go and penetrate these new markets, product management, field overlay, technical expertise, who -- technical people who understand the technology and can articulate it. So you need both, you need sales capacity and you need the, I'll call it the go-to-market infrastructure, in order to penetrate these new market segments. So technically, we're actually ahead of where we thought we'd be in innovation. And as Brian mentioned, 1 of the major tasks of Jesper Helt who just joined us is to accelerate our hiring both in the field and in our, let's call it our go-to-market capabilities, in order to penetrate these new market segments.

And our next question comes from Srini Nandury from Summit Research.

I have a question on the competitive dynamics out there. Can you talk about the competitive dynamics particularly the pricing trends vis-a-vis some of your largest competitors. Which competitors are you gaining share or displaying the most and how much of your new pricing models are really driven by customers versus competitors?

So that's a good question. So traditionally, in our core market, our major competitors are Symantec, EMC and IBM. And we've consistently taken share from all 3 of those competitors in our core data protection and management business. I said on prior earnings call, there's a lot of price competition in those markets, particularly as hardware solutions, I'll call it are tied at a spindle. So as the price of this goes down, the price solution sets go down. We've been able to counteract that. So our -- we do see pricing pressure, we've mitigated it by selling on value. But there's no question, it's there. And as this prices start hitting down to 0, that pricing pressure is going to increase. So part of what we're doing in our pricing models is tied to being -- giving us more flexibility in dealing with, I'll call it traditional competition, making it easier for our channels and salespeople to deal with that. Secondly, as Al was talking about earlier, we want a price to value, we created a lot of innovation and we just don't want to give that away. So we want to give our customers a high return on that investment, but separate that from, let's say, our core data protection and management solution sets.

And our next question comes from Rajesh Ghai from Macquarie.

I just wanted to follow up on some of the questions asked on Simpana 10. Considering that you've expanded your TAM quite significantly and levered yourself to some of the mega trends out there, whether it's hybrid cloud or mobile or Big Data. I think one of the questions that keeps coming up is, can CommVault provide metrics in terms of what the traction is in these new markets, as well as trend essentially you can give us an idea of whether the strategy of expanding the TAM and going after new market succeeding? Also, could you share data about what the mobile functionality that you have, mobile data management, if that's going to sort of actually helping you getting new deals or expanding your TAM? Thanks.

So firstly, regarding the cloud, as I said earlier on the call, the cloud in enterprise and in MSPs cloud providers is a major, major factor of our growth. I could say it's not 100% of these million dollar deals we do are cloud related, but almost 100% have a major cloud component to it. And I defined that quite clearly on the call. And I'd go through that transcript, because that is driving our business. Million dollar deals drive our business and the cloud is a major component of those million dollar deals. So more than anything else, that is overriding our growth today. Regarding the content related, whether it's archiving, analytics and there's a component of mobile in there. So you've got a core component model of your data protection is what we call our core in it, file access, file sharing, you heard us content related. The content related part of our business is now becoming a key component of our growth. We can see it, we can measure it now, and as we look forward, I can say we don't hit our billion dollar numbers and our $2 billion numbers without extremely high growth in those segments. Growth rates that are, for the sake of argument, several times higher than our core. So to answer your question, those segments are important, they are growing today. Mobile is one of them. We have a lot of large mobile deployments, archiving, as Al mentioned, advanced archiving is another significant area for growth for us. So mobile, we'll continue to expand, archiving we'll continue to expand and that component of archiving, by the way, is compliance. And as we start moving into operations and operations analytics where we really have some compelling technologies, we start rolling that out sometime in the first half of fiscal '15 as we start moving out aggressively into the healthcare market and where we have a foundation, by the way. Those other new market areas will become drivers and we're not overly confident, but we're confident in our ability to execute those strategies.

And our next question comes from Michael Turits from Raymond James. Michael Turits - Raymond James & Associates, Inc., Research Division: Bob, you talked about competition, price competition with the large guys that continues to supply pressure. Anything new on -- versus smaller competitors, [indiscernible] in any of them are there. And also Brian, just wanted a clarification, I think it's obvious, but I just want to make sure I was right. You said that the software deferred revenues were down -- were changed $4.1 million, I assume you mean software deferred was down $4.1 million sequentially, correct?

That is correct, Michael, yes, quarter-on-quarter change is $4.1 million down. Let me clarify something. That is correct. That's what the math is. But when I say visibility is up, you do not see it but we're just -- I'm just telling you, our license revenue and growth, when you take all into consideration, is strong. We just got to keep it that way. So don't get overly focused on deferred, because you're going to get twisted up in your underwear. Michael Turits - Raymond James & Associates, Inc., Research Division: Yes, I hate that. So, visibility, I think, you defined that such as off-balance-sheet backlog, is one way of looking at that, right?

Correct. You could look at it that way. It's not revenue, because it's just not revenue, right, it doesn't meet our criteria and we're very strict on how we -- and as soon as it is revenue, it becomes revenue. We have a very rigorous, consistent revenue record and checklist here. That's where it comes from. So I'm just saying on balance, if you look at Q3, we have -- when you net all the figures out we had a really good solid license revenue growth in the quarter. Michael Turits - Raymond James & Associates, Inc., Research Division: And I was just asking, Bob, about the smaller competitors, any change in the landscape there. People have been brought up to you before like [indiscernible] and anybody on the small side that's either more or less visible?

Well, from our revenue, we see activity out there. It isn't impacting our revenue significantly, but I would view it more as opportunity. We started to -- as we extracted from Dell, we did 2 things. We successfully, and everybody felt we couldn't, in a few quarters now we got our way out of Dell. For all practical purpose we're out and we've moved those accounts and that revenue to other distribution partners. Secondly, we started to build our own, I'll call it mid-market capability, and started to roll out product into that midmarket. And going over the next few quarters, we will continue to expand our capability with, I call it leading products both from a technology and pricing standpoint to address the higher, not the lower end of the SMB, but the mid to higher end of the SMB, mid-market. You will see us move into those sectors a lot more aggressively than we have in the past and we're confident we can succeed in those areas.

And our next question comes from Greg Dunham from Goldman Sachs.

Most of mine have been asked. I do appreciate kind of how you guys describe how the cloud is driving your business and how hybrid cloud is good for business. But maybe drilling a little bit on that, what differentiates you in hybrid cloud versus some of your competitors specifically? And then a follow-up, historically, you have said that the backdrop from a volume perspective has gotten more complex. Has that changed at all this quarter or it is getting any better as you've improved some of the messaging around hybrid cloud?

No. I mean when you talk to customers, most of our large competitors, they're running into massive scale issues. They are running into significant compliance issues, because with our competitors we back up products and archive and compliance are 2 completely separate products. They don't scale very well. They're extremely costly. Secondly, when you start talking about deploying a consistent, universal data protection compliance strategy across the globe in hundreds of locations with many, many petabytes, our competitors don't scale, they don't have the universal console, they have scalability problems, their backup products and archive products are separate. The reporting isn't as complete. They don't have the automation that we do. They don't have the operation analytics capability we do. So when you start to put those things together, we're solving some really big fundamental problems. I was in a -- without naming the company, I was in a very large customer in China a couple of months ago and, a well-known name in China, and he had some of our, I'd say, your typical traditional legacy competitors in there and it's the first time I met the CEO and he said, Bob, you're winning the technical evaluation. I said, can I tell you a little bit more about CommVault? He said, no. He said, I know who you are. I know what's you're ranked, I know what your reputation is. And I know you can solve my problems better than my traditional vendors. I just need you to execute. So these are fundamental issues. Big banks, big insurance companies, big governments as the governments, and one of the reasons we're doing so well in the federal government is the move to consolidated clouds, big governments, Canada is moving to consolidated clouds, state governments are doing the same and that's a sweet spot for us. I spelled out a lot of issues in the call and I'll let Al walk down and explain this a little bit further, because it is a key driver of our growth.

I would just add, Greg, and Bob laid that out really well, the other element, he talked about it in the script, but if the dynamics and the flexibility of our capabilities, our architecture of our solution sets because what's going on out there is people's underlying infrastructure can change dramatically overnight. They can add public file capabilities to their already private cloud capabilities, they can add multiple public cloud capabilities and you have to of course maintain the same management, the same compliance, the same access, the same visibility and of course the same security settings. And it's not so easy to do in practice. So it's that dynamic, it's the flexibility as part of our solution sets that I would add to Bob's comments.

And we're the only ones, by the way, that in massive scale, index all the data. Everybody else fundamentally moves around 1's and 0's. By indexing, it means we know what application it came from, what version of the app it came from, whose data it is, who has access to it, if it's encrypted, who's got the key. And it's offset, so you have a file and it's moving from on-premise to a hybrid cloud to a public cloud. The intelligence moves with the data. And it's captured at the console. So we always know where it is, who has access to it for past recovery, for DR, for whatever and it's unique out there. And those kind of capabilities are driving our business. There's nobody who has built this kind of platform with this kind of functionality and scalability across all these different use cases that these big enterprises require.

And our next question comes from Glenn Hanus from Needham. Glenn Hanus - Needham & Company, LLC, Research Division: Last quarter you gave us a little bit of sense of sales of Simpana into your installed base on the 10. Can you maybe give us an update this quarter on how that rollout is going?

Yes, Glenn, this is Al Bunte. We continued to be pleased with it. Rolling along, I think compared to past releases, we've had greater uptick with our bigger customers this early in the release, they normally wait quite a while for obvious reasons. I believe we are at right around 3,000 sites that we've been deployed with v10. We're running over 100 a week in terms of deployment, both upgrades and new deployments of it. So again, we're feeling quite good about it. We're getting good response from it, good satisfaction levels out there with our customer base.

Our next question comes from Abhey Lamba from Mizuho Securities.

Bob, Just one clarification and then I have a question. On visibility for Q4, thanks for explaining that in detail. How does the visibility this year compare with normal Q4 over last year's Q4?

I don't have a specific answer, because I know we had a very strong Q3 last year. So my guess is relative to a year ago, it's probably down a bit, but it's up quite a bit from last quarter.

Thanks. Go ahead, Bob.

I think that -- I mean I can be really clear about what happened between Q2 and Q3 and I'm pretty sure -- I mean, a year ago, Q3 and Q4, this year versus last year, I'm not as clear. But directionally I think I'm correct.

Got it. And as we look at specific growth drivers for our fiscal '15, now we've got capacity increases at existing customers, new customer signing in the core offering and adoption of market expansionary features of Simpana 10. It seems like migration from region based to capacity based may not be tailwind anymore. So can you help us understand all these drivers and maybe stack rank them for the next year, any quantitative or qualitative color will be helpful?

Yes. I mean, I can clearly, without question, big enterprises, big governments, MSP cloud providers, those big enterprises, cloud based deployments by far, are the drivers. Those are where the million-dollar deals are. In parallel with that, we clearly are confident now about where we are going in these new market segments. We've got it built into our plan. We are basically where I said we would be 2 years ago. I said when we launched Simpana 10, I said we'll launch it, we'd establish credibility in our core and strengthen it. We're clearly there. And that we would validate where we are in our new market segment. We are clearly there. And we'd start to build revenue in '15, which is our current fiscal year coming up. I'm confident we can get those objectives because we're tracking against those. And then those would become a more significant component of our growth in FY '16 and FY '17. That's exactly where we are. The only color I will add to that is we're more confident about that because we have the products out, we're innovating faster than we had planned, and we've gotten a really good market reception. I mean, we're really clear on where the competitive positioning is. The only thing we are behind on is getting our go-to-market engines, what I would call it, getting our field execution capabilities up where they need to be. That's our major focus. So again, biggest driver, large deals, big enterprises, on cloud base solutions.

And I'm showing no further questions at this time. If you have any final remarks?

No. Thanks very much.

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.