SEC Comment Letter for COMMVAULT SYSTEMS INC (CVLT) (CIK 0001169561) (CVLT) — May 9, 2006
COMMVAULT SYSTEMS INC (CVLT) (CIK 0001169561)
Date: May 9, 2006 · CIK: 0001169561 · Accession: 0000000000-06-021902
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-132550
Letter
Room 4561 April 13, 2006 Mr. N. Robert Hammer Chairman of the Board, President and Chief Executive Officer CommVault Systems, Inc. 2 Crescent Place Oceanport, New Jersey 07757
Re: CommVault Systems, Inc. Registration Statement on Form S-1 filed March 17, 2006 File No. 333-132550
Dear Mr. Hammer:
We have reviewed your filing and have the following comments. Where indicated, we think you should revise your document in response to these comments. If you disagree, we will consider your explanation as to why our comment is inapplicable or a revision is unnecessary. Please be as detailed as necessary in your explanation. In some of our comments, we may ask you to provide us with supplemental information so we may better understand your disclosure. After reviewing this information, we may or may not raise additional comments.
Please understand that the purpose of our review process is to assist you in your compliance with the applicable disclosure requirements and to enhance the overall disclosure in your filing. We look forward to working with you in these respects. We welcome any questions you may have about our comments or any other aspect of our review. Feel free to call us at the telephone numbers listed at the end of this letter.
Registration Statement on Form S-1
1. We will process this filing and your amendments without price ranges. Since the price range triggers a number of disclosure matters, we will need sufficient time to process the amendment when it is included. Please understand that its effect on disclosure throughout the document may cause us to raise issues on areas not previously commented upon.
2. We note a number of blank spaces throughout your registration statement for information that you are not entitled to omit under Rule 430A. Examples of omitted information you must provide include the number of shares to be offered and the number of shares to be sold by selling stockholders on the cover. Any preliminary prospectus should fill in all
Mr. N. Robert Hammer CommVault Systems, Inc. April 13, 2006 Page 2 blanks throughout the registration statement except for the specific information that Rule 430A allows you to omit, and should be part of a pre-effective amendment. Please see Section II.A.7 of Release No. 33-6714. Also, c onfirm that you have not circulated copies of the registration statement and will not circulate until you include an estimated price range and maximum number of shares, and all other information except information you may exclude in reliance upon Rule 430A.
3. If the effective date of the registration statement is delayed, update the financial statements pursuant to Rule 3-12 of Regulation S-X.
Inside Front Cover Page
4. We note that your graphic artwork contains extensive narrative text, which in some instances appears to not otherwise be discussed in your prospectus. For example, the term “unified data management software” does not appear to be discussed or explained elsewhere in your prospectus. Please limit your graphic artwork to a pictorial or graphic representation of your products or business and use text only to the extent necessary to explain briefly the visuals in the presentation. The text should not be excessive or overwhelm the visual presentation. Please refer to Section VIII of our March 31, 2001 update to our Current Issues and Rulemaking Projects outline for additional guidance and revise accordingly.
Prospectus Summary, page 1
5. Please provide us support for your statement, in this summary and elsewhere in the prospectus, that you are “a leading global provider of data management software applications and related services.” Additionally, expand your disclosure to state concisely the basis on which the leadership claim is made. In your response tell us how you compare to your competitors in quantitative or qualitative terms and consider appropriate disclosure in this respect.
6. We note your list of customers here and elsewhere in your prospectus. Please disclose the criteria you used to determine which of your customers were to be disclosed in the prospectus.
7. With respect to any third-party statements in your prospectus such as the market information by the International Data Corporation and Gartner presented here, please provide us with support for such statements. To expedite our review, please clearly mark each source to highlight the applicable portion or section containing the statistic and cross-reference it to the appropriate location in your prospectus. Also, tell us whether the source of each statistic is publicly available without cost or at a nominal expense.
Mr. N. Robert Hammer CommVault Systems, Inc. April 13, 2006 Page 3 8. You state here on page 3 and elsewhere that you intend “to introduce new software applications beyond the traditional data and storage management category.” Please provide a concise description here and a materially complete discussion elsewhere, as appropriate, on the markets you are planning to expand into as well as any development you are currently undertaking to facilitate such an expansion.
9. We note that your use of terms such as “storage resource discovery and usage tracking,” “data classification,” “storage arrays,” “tiered storage infrastructures,” and “storage area networks (SANs) and network-attached storage (NAS).” Please keep in mind our plain English principles regarding the use of industry jargon and terms unfamiliar to the average investor. Please refer to Section VIII of our March 31, 2001 update to our Current Issues and Rulemaking Projects outline for additional guidance.
Transactions in Connection With the Offering, page 4
10. Please elaborate here and elsewhere in your prospectus on the basis for the determination of the $47 million to be paid to holders of Series A, B, C, D and E preferred stock in addition to accumulated and unpaid dividends upon the conversion of such preferred stock. Are these payments required under the terms of the preferred stock series in the charter?
11. Please provide us your analysis regarding the exemption from the registration requirements of the Securities Act on which you are relying for the issuance of common stock upon conversion of your currently outst anding preferred stock, particularly your Series A, B, C, D and E preferred stock. Please advise us whether the commitment to effect such conversion was unconditional and binding prior to the filing of your registration statement and whether any additional consideration or negotiation was undertaken to cause the conversion of your preferred stock to occur upon the offering. Please file your current charter and any other applicable agreements with respect to the rights of your preferred stock as exhibits to your registration statement.
12. Please provide us your detailed analysis as to why your concurrent private placement should not be integrated with your public offering. We note that the private placement has not been solely limited to qualified institutional buyers or institutional accredited investors. Please further advise us whether you plan to register any of the shares sold in the concurrent private placement in this registration statement for resale on behalf of any investor.
Risk Factors
13. Please include a discussion regarding the risks related to any conflicts that may exist as a result of Credit Suisse’s interest in you and their role as an underwriter in your offering. The retention of a qualified independent underwriter to establish a maximum price and to
Mr. N. Robert Hammer CommVault Systems, Inc. April 13, 2006 Page 4 conduct due diligence in the offering process does not eliminate the potential conflict. The risk factor should be clear in concisely describing the interest of Credit Suisse as a direct or indirect preferred stock holder as well as the securities and other consideration it will receive (directly and indirectly).
We anticipate that an increasing portion of our revenues will depend…, page 12
14. Please disclose the portion of your revenues that is generated by your arrangements with original equipment manufacturers. We note your disclosure of the portion of your revenues generated by your arrangements with Dell.
15. The agreements governing your relationship with Dell represent 18 percent of your revenues for the nine months ended December 31, 2005. Please file the agreements with Dell and any other customers that represent over 10 percent of your revenues as exhibits or advise why you are not required to file these exhibits. Please see Item 601(b)(10)(ii)(B) of Regulation S-K. Further, please disclose the duration of your relationships with your significant customers here or elsewhere in your prospectus, as appropriate.
We rely on indirect sales channels…, page 14
16. Please identify any resellers that represent over 10 percent of your revenues. As suggested above, it appears you would be substantially dependent upon any agreements with such resellers and that you would need to file those exhibits pursuant to Item 601(b)(10)(ii)(B) of Regulation S-K.
Sales of only a few of our software appli cations make up a substantial portion…, page 14
17. Please elaborate here and elsewhere in your prospectus such as in management’s discussion and analysis and business, as a ppropriate, what software applications are material to your business and the portion of your revenues represented by such applications.
We encounter long sales and implementation cycles…, page 15
18. Please elaborate on the typical or average amount of time involved in your sales and implementation cycles.
Our services revenue produces lower gross margins than our license revenue…, page 16
19. Please detail in this risk factor the gross margin of your services and license revenues in order to provide a context for the risk being discussed.
Mr. N. Robert Hammer CommVault Systems, Inc. April 13, 2006 Page 5 We cannot predict our future capital needs…, page 20
20. Please disclose whether you presently have any plans, proposals or arrangements to acquire a business, technology, product or service. If so, please disclose by including materially complete descriptions of the future acquisition here or elsewhere in your prospectus. If not, please state that you have no such plans, proposals, or arrangements, written or otherwise, at this time.
Approximately % of our outstanding common stock has been deposited…, page 23
21. Please elaborate here and in your later discussion regarding the voting trust on how the trustee determines whether to vote the shares held in trust. Does the voting trustee have a contractual obligation to solicit the views of the holders of beneficial interest in the trust? We note that in certain actions the effect of a non-vote by the trustee would be the equivalent of a vote against the matter.
Management’s Discussion and Analysis of Fi nancial Condition and Results of Operations
Overview, page 35
22. We note your disclosure regarding the management buyout in May 1996 funded by Donaldson, Lufkin & Jenrette Merchant Banking and the Sprout Group. As proceeds from this offering will be used to satisfy obligations from your financing transactions, please include a materially complete discussion of the current financing arrangements and concisely explain how they relate to the borrowings associated with the buyout. Please also provide a summary discussion with respect to these financing transactions in your discussion on page 4 of your summary including disclosure of the amount invested for the Series A, B, C, D and E preferred stock.
23. Management’s discussion and analysis should include disclosure based on currently known trends, events and uncertainties that are reasonably expected to have material effects upon you. In this regard, we note your di scussion in risk factors regarding the risk of increasing services revenue and its effect on your gross margins as well as the fact that a few software applications make up a si gnificant portion of your revenues. Please discuss any known material trends relating to the growth of your services revenue. Please also discuss when the significant software applications are subject to obsolescence and any plans to update such applications, if necessary. Please quantify the expected effects of these and other known, material trends, events and uncertainties on your future results to the extent possible. Please see Section III.B.3 of Release No. 33-8350 for additional guidance.
Mr. N. Robert Hammer CommVault Systems, Inc. April 13, 2006 Page 6 24. Please discuss the portions of your revenues attributable to direct and indirect sales and whether you have any plans to focus growth and development on one as opposed to the other.
Critical Accounting Policies
Revenue Recognition, page 36
25. As presented, the critical accounting policy for revenue recognition is a restatement of the policy in the notes to the financial statements and does not serve as a supplement to the notes of the financial statements. The critical accounting policy for revenue recognition should describe how estimates and related assumptions were derived, how accurate the estimates and assumptions have been in the past, and whether the estimates and assumptions are reasonably likely to change in the future. You should provide quantitative as well as qualitative information when information is reasonably available. See Release No. 33-8350 and revise as appropriate.
Stock-Based Compensation, page 37
26. Please tell us if you considered the guidance provided by the AICPA Practice Aid “Valuation of Privately-Held-Company Equity Securities Issued as Compensation” to determine the fair value of your common stock for all options.
27. We note that you did not obtain a contemporaneous valuation by an unrelated specialist because you believe that your internal valuation was sufficient. We further note that you based the valuation on revenues or earnings multiples of comparable companies and applied a discount. Please revise to address the following:
Discuss each significant factor contributing to the difference between the fair value as of the date of each grant and the estimated offering price; and
Complete your disclosure on the intrinsic value of outstanding vested and unvested options based on the estimated offering price and the options outstanding as of the most recent balance sheet date presented in the registration statement.
Refer to disclosure guidance in paragraphs 180-182 of the AICPA Practice Aid.
Results of Operations, page 39
28. Please quantify the impact of each identified source for material changes from period to period in line items of your financial statements. For example, you attribute the increase in your cost of services revenue and sales and marketing expense for the periods you
Mr. N. Robert Hammer CommVault Systems, Inc. April 13, 2006 Page 7 have compared to various sources without quantifying the impact of each source. As disclosed, your sales and marketing expense for the nine months ended December 31, 2005 increased $5.7 million as a result of “higher headcount and increased commission expense.” To the extent material, discuss how much each source contributed to the $5.7 million increase. Please also detail in quantitative terms any material changes in the prices for software and services over the three-year period and the extent to which price changes as opposed to volume changes affected revenue fluctuations. Please review your disclosure in light of this comment and revise as appropriate.
Nine months ended December 31, 2005…, page 29
29. We note your statement under your software revenue discussion that the increase in such revenue was “primarily the result of [y]our addition of new customers, broader acceptance of [y]our software applications and increased sales through [y]our direct channels and by [y]our resellers and original equipment
Show Raw Text
Room 4561 April 13, 2006 Mr. N. Robert Hammer Chairman of the Board, President and Chief Executive Officer CommVault Systems, Inc. 2 Crescent Place Oceanport, New Jersey 07757 Re: CommVault Systems, Inc. Registration Statement on Form S-1 filed March 17, 2006 File No. 333-132550 Dear Mr. Hammer: We have reviewed your filing and have the following comments. Where indicated, we think you should revise your document in response to these comments. If you disagree, we will consider your explanation as to why our comment is inapplicable or a revision is unnecessary. Please be as detailed as necessary in your explanation. In some of our comments, we may ask you to provide us with supplemental information so we may better understand your disclosure. After reviewing this information, we may or may not raise additional comments. Please understand that the purpose of our review process is to assist you in your compliance with the applicable disclosure requirements and to enhance the overall disclosure in your filing. We look forward to working with you in these respects. We welcome any questions you may have about our comments or any other aspect of our review. Feel free to call us at the telephone numbers listed at the end of this letter. Registration Statement on Form S-1 1. We will process this filing and your amendments without price ranges. Since the price range triggers a number of disclosure matters, we will need sufficient time to process the amendment when it is included. Please understand that its effect on disclosure throughout the document may cause us to raise issues on areas not previously commented upon. 2. We note a number of blank spaces throughout your registration statement for information that you are not entitled to omit under Rule 430A. Examples of omitted information you must provide include the number of shares to be offered and the number of shares to be sold by selling stockholders on the cover. Any preliminary prospectus should fill in all Mr. N. Robert Hammer CommVault Systems, Inc. April 13, 2006 Page 2 blanks throughout the registration statement except for the specific information that Rule 430A allows you to omit, and should be part of a pre-effective amendment. Please see Section II.A.7 of Release No. 33-6714. Also, c onfirm that you have not circulated copies of the registration statement and will not circulate until you include an estimated price range and maximum number of shares, and all other information except information you may exclude in reliance upon Rule 430A. 3. If the effective date of the registration statement is delayed, update the financial statements pursuant to Rule 3-12 of Regulation S-X. Inside Front Cover Page 4. We note that your graphic artwork contains extensive narrative text, which in some instances appears to not otherwise be discussed in your prospectus. For example, the term “unified data management software” does not appear to be discussed or explained elsewhere in your prospectus. Please limit your graphic artwork to a pictorial or graphic representation of your products or business and use text only to the extent necessary to explain briefly the visuals in the presentation. The text should not be excessive or overwhelm the visual presentation. Please refer to Section VIII of our March 31, 2001 update to our Current Issues and Rulemaking Projects outline for additional guidance and revise accordingly. Prospectus Summary, page 1 5. Please provide us support for your statement, in this summary and elsewhere in the prospectus, that you are “a leading global provider of data management software applications and related services.” Additionally, expand your disclosure to state concisely the basis on which the leadership claim is made. In your response tell us how you compare to your competitors in quantitative or qualitative terms and consider appropriate disclosure in this respect. 6. We note your list of customers here and elsewhere in your prospectus. Please disclose the criteria you used to determine which of your customers were to be disclosed in the prospectus. 7. With respect to any third-party statements in your prospectus such as the market information by the International Data Corporation and Gartner presented here, please provide us with support for such statements. To expedite our review, please clearly mark each source to highlight the applicable portion or section containing the statistic and cross-reference it to the appropriate location in your prospectus. Also, tell us whether the source of each statistic is publicly available without cost or at a nominal expense. Mr. N. Robert Hammer CommVault Systems, Inc. April 13, 2006 Page 3 8. You state here on page 3 and elsewhere that you intend “to introduce new software applications beyond the traditional data and storage management category.” Please provide a concise description here and a materially complete discussion elsewhere, as appropriate, on the markets you are planning to expand into as well as any development you are currently undertaking to facilitate such an expansion. 9. We note that your use of terms such as “storage resource discovery and usage tracking,” “data classification,” “storage arrays,” “tiered storage infrastructures,” and “storage area networks (SANs) and network-attached storage (NAS).” Please keep in mind our plain English principles regarding the use of industry jargon and terms unfamiliar to the average investor. Please refer to Section VIII of our March 31, 2001 update to our Current Issues and Rulemaking Projects outline for additional guidance. Transactions in Connection With the Offering, page 4 10. Please elaborate here and elsewhere in your prospectus on the basis for the determination of the $47 million to be paid to holders of Series A, B, C, D and E preferred stock in addition to accumulated and unpaid dividends upon the conversion of such preferred stock. Are these payments required under the terms of the preferred stock series in the charter? 11. Please provide us your analysis regarding the exemption from the registration requirements of the Securities Act on which you are relying for the issuance of common stock upon conversion of your currently outst anding preferred stock, particularly your Series A, B, C, D and E preferred stock. Please advise us whether the commitment to effect such conversion was unconditional and binding prior to the filing of your registration statement and whether any additional consideration or negotiation was undertaken to cause the conversion of your preferred stock to occur upon the offering. Please file your current charter and any other applicable agreements with respect to the rights of your preferred stock as exhibits to your registration statement. 12. Please provide us your detailed analysis as to why your concurrent private placement should not be integrated with your public offering. We note that the private placement has not been solely limited to qualified institutional buyers or institutional accredited investors. Please further advise us whether you plan to register any of the shares sold in the concurrent private placement in this registration statement for resale on behalf of any investor. Risk Factors 13. Please include a discussion regarding the risks related to any conflicts that may exist as a result of Credit Suisse’s interest in you and their role as an underwriter in your offering. The retention of a qualified independent underwriter to establish a maximum price and to Mr. N. Robert Hammer CommVault Systems, Inc. April 13, 2006 Page 4 conduct due diligence in the offering process does not eliminate the potential conflict. The risk factor should be clear in concisely describing the interest of Credit Suisse as a direct or indirect preferred stock holder as well as the securities and other consideration it will receive (directly and indirectly). We anticipate that an increasing portion of our revenues will depend…, page 12 14. Please disclose the portion of your revenues that is generated by your arrangements with original equipment manufacturers. We note your disclosure of the portion of your revenues generated by your arrangements with Dell. 15. The agreements governing your relationship with Dell represent 18 percent of your revenues for the nine months ended December 31, 2005. Please file the agreements with Dell and any other customers that represent over 10 percent of your revenues as exhibits or advise why you are not required to file these exhibits. Please see Item 601(b)(10)(ii)(B) of Regulation S-K. Further, please disclose the duration of your relationships with your significant customers here or elsewhere in your prospectus, as appropriate. We rely on indirect sales channels…, page 14 16. Please identify any resellers that represent over 10 percent of your revenues. As suggested above, it appears you would be substantially dependent upon any agreements with such resellers and that you would need to file those exhibits pursuant to Item 601(b)(10)(ii)(B) of Regulation S-K. Sales of only a few of our software appli cations make up a substantial portion…, page 14 17. Please elaborate here and elsewhere in your prospectus such as in management’s discussion and analysis and business, as a ppropriate, what software applications are material to your business and the portion of your revenues represented by such applications. We encounter long sales and implementation cycles…, page 15 18. Please elaborate on the typical or average amount of time involved in your sales and implementation cycles. Our services revenue produces lower gross margins than our license revenue…, page 16 19. Please detail in this risk factor the gross margin of your services and license revenues in order to provide a context for the risk being discussed. Mr. N. Robert Hammer CommVault Systems, Inc. April 13, 2006 Page 5 We cannot predict our future capital needs…, page 20 20. Please disclose whether you presently have any plans, proposals or arrangements to acquire a business, technology, product or service. If so, please disclose by including materially complete descriptions of the future acquisition here or elsewhere in your prospectus. If not, please state that you have no such plans, proposals, or arrangements, written or otherwise, at this time. Approximately % of our outstanding common stock has been deposited…, page 23 21. Please elaborate here and in your later discussion regarding the voting trust on how the trustee determines whether to vote the shares held in trust. Does the voting trustee have a contractual obligation to solicit the views of the holders of beneficial interest in the trust? We note that in certain actions the effect of a non-vote by the trustee would be the equivalent of a vote against the matter. Management’s Discussion and Analysis of Fi nancial Condition and Results of Operations Overview, page 35 22. We note your disclosure regarding the management buyout in May 1996 funded by Donaldson, Lufkin & Jenrette Merchant Banking and the Sprout Group. As proceeds from this offering will be used to satisfy obligations from your financing transactions, please include a materially complete discussion of the current financing arrangements and concisely explain how they relate to the borrowings associated with the buyout. Please also provide a summary discussion with respect to these financing transactions in your discussion on page 4 of your summary including disclosure of the amount invested for the Series A, B, C, D and E preferred stock. 23. Management’s discussion and analysis should include disclosure based on currently known trends, events and uncertainties that are reasonably expected to have material effects upon you. In this regard, we note your di scussion in risk factors regarding the risk of increasing services revenue and its effect on your gross margins as well as the fact that a few software applications make up a si gnificant portion of your revenues. Please discuss any known material trends relating to the growth of your services revenue. Please also discuss when the significant software applications are subject to obsolescence and any plans to update such applications, if necessary. Please quantify the expected effects of these and other known, material trends, events and uncertainties on your future results to the extent possible. Please see Section III.B.3 of Release No. 33-8350 for additional guidance. Mr. N. Robert Hammer CommVault Systems, Inc. April 13, 2006 Page 6 24. Please discuss the portions of your revenues attributable to direct and indirect sales and whether you have any plans to focus growth and development on one as opposed to the other. Critical Accounting Policies Revenue Recognition, page 36 25. As presented, the critical accounting policy for revenue recognition is a restatement of the policy in the notes to the financial statements and does not serve as a supplement to the notes of the financial statements. The critical accounting policy for revenue recognition should describe how estimates and related assumptions were derived, how accurate the estimates and assumptions have been in the past, and whether the estimates and assumptions are reasonably likely to change in the future. You should provide quantitative as well as qualitative information when information is reasonably available. See Release No. 33-8350 and revise as appropriate. Stock-Based Compensation, page 37 26. Please tell us if you considered the guidance provided by the AICPA Practice Aid “Valuation of Privately-Held-Company Equity Securities Issued as Compensation” to determine the fair value of your common stock for all options. 27. We note that you did not obtain a contemporaneous valuation by an unrelated specialist because you believe that your internal valuation was sufficient. We further note that you based the valuation on revenues or earnings multiples of comparable companies and applied a discount. Please revise to address the following: Discuss each significant factor contributing to the difference between the fair value as of the date of each grant and the estimated offering price; and Complete your disclosure on the intrinsic value of outstanding vested and unvested options based on the estimated offering price and the options outstanding as of the most recent balance sheet date presented in the registration statement. Refer to disclosure guidance in paragraphs 180-182 of the AICPA Practice Aid. Results of Operations, page 39 28. Please quantify the impact of each identified source for material changes from period to period in line items of your financial statements. For example, you attribute the increase in your cost of services revenue and sales and marketing expense for the periods you Mr. N. Robert Hammer CommVault Systems, Inc. April 13, 2006 Page 7 have compared to various sources without quantifying the impact of each source. As disclosed, your sales and marketing expense for the nine months ended December 31, 2005 increased $5.7 million as a result of “higher headcount and increased commission expense.” To the extent material, discuss how much each source contributed to the $5.7 million increase. Please also detail in quantitative terms any material changes in the prices for software and services over the three-year period and the extent to which price changes as opposed to volume changes affected revenue fluctuations. Please review your disclosure in light of this comment and revise as appropriate. Nine months ended December 31, 2005…, page 29 29. We note your statement under your software revenue discussion that the increase in such revenue was “primarily the result of [y]our addition of new customers, broader acceptance of [y]our software applications and increased sales through [y]our direct channels and by [y]our resellers and original equipment