Commvault Needs Fundamental Change …

In a SEC filing, Elliott Management wrote a letter to the board of Commvault Systems, Inc.

Here is an abstract:
 
Dear Members of the Board:
 
We are writing to you on behalf of Elliott Associates, L.P. and Elliott International, L.P., which collectively own 10.3% of common stock and economic equivalents of Commvault Systems, Inc., making us one of the largest shareholders of the company.

We are writing to you today to share our thoughts regarding the need for fundamental change at Commvault. We believe Commvault’s current value does not reflect its leadership position in the Data Management software market and that there exists a distinct and significant value opportunity at the company. We want to make clear that we have great respect for what Bob (Hammer) and Al (Bunte) have built over the last two decades. The value creation opportunity present at Commvault today would not be possible without their leadership.

Our letter today lays out the reasons for Commvault’s share-price underperformance, outlines our proposed path forward and introduces the four highly qualified candidates we are nominating to the Commvault Board. We are releasing this letter publicly to make our views clear in conjunction with submitting our nominees for consideration at the upcoming annual meeting. We have deep experience as software investors, and our track record in technology is one of partnering with management teams and boards to find mutually supported paths to value creation. We have spent significant time and resources evaluating Commvault over several years and we hope you find our conclusions well considered.

Next Steps
We want to emphasize that we have done considerable work on Commvault and have great respect for what Bob and his team have built. Additionally, we have enormous appreciation for the hard-working and talented employees at Commvault who have helped build the company into what it is today. We believe the actions proposed in this letter will result in greater innovation, enhanced go-to-market productivity, increased channel enablement and more satisfied customers. We are optimistic that we can work together with the Board to reach a collaborative agreement that will be in the best interests of the company and its shareholders.
 
Elliott has a great deal of experience working constructively with companies that have faced similar issues, and we look forward to commencing our work together to create long-term, sustainable value at Commvault. Thank you for your time and for considering our thoughts.

Best regards,

Jesse Cohn, partner
Jason Genrich, portfolio Manager

Elliott Management added also in the letter:

Consider the following statistics, as described in more detail below:

• Since FY2013, revenue has increased by 37%, but operating income has declined by 37%.
• Today, Commvault spends 77% of revenue on operating expenses (excessive relative to a broad group of relevant technology companies discussed later in the letter), which is greater than the level it spent in FY2006 when it was 1/6th the size;
• Operating margins have declined by over 1,200 basis points since FY2013 despite having revenue that is nearly 40% larger (10% margin today vs. 23% margin five years ago); and
• Inclusive of Commvault’s stock-based compensation, the company has negative profitability today, which represents its lowest profitability on this basis compared to any fiscal year period since the IPO in 2006.

Until five years ago, Commvault offered a clear and appealing value proposition as an up-and-coming vendor taking market share from Veritas, IBM and EMC and growing at a revenue CAGR of more than 20% while delivering expanding operating margins. During that time, Commvault was valued for its revenue growth and earned a premium valuation from investors.

Read also:
Commvault: Fiscal 3Q18 Financial Results
Record revenue, up 7% Q/Q, with biggest loss since several years
2018.01.25 | Press Release | [with our comments]