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Hammer falls on Commvault CEO, company seeks 'Advance'

Commvault has begun a search for a new CEO. Commvault Advance is also underway, as the data protection vendor seeks to cut costs and improve products.

Commvault CEO Bob Hammer is stepping down from the position he has held for 20 years, as the data protection vendor embarks on a new strategic plan.

That plan includes laying off 4% of the company's workforce and additional cost reductions, plus new and easier-to-use products and improved partnerships.

The moves come just one month after activist investor Elliott Management disclosed its stake in Commvault and published a letter to the company's directors highlighting the need for fundamental changes.

"Our dialogue with Elliott shows that we are closely aligned on many matters and believe it will enable us to deliver increased value creation for our stockholders and customers alike," Hammer said during Commvault's quarterly earnings call on Tuesday.

Hammer will continue as Commvault CEO, president and chairman until the company finds its new leader. He is expected to remain chairman of the board after the new CEO starts.

A 'remarkable achievement' for Commvault CEO

Commvault CEO Bob HammerBob Hammer

Hammer started as Commvault CEO in March 1998. He led the company through its intial public offering (IPO) in September 2006 and helped take it from startup to one of the data protection market's leaders. The company's stock has risen from $14.50 at the time of the IPO to $67.45 as of May 1. Commvault claims 30,000 customers -- a number that includes service providers.

On the product front, the company released its first integrated appliance, Commvault HyperScale, in 2017, after resisting the idea of selling hardware.

"He deserves a lot of credit for what he's built," said analyst Phil Goodwin, research director for storage systems and software at IDC.

In the tech industry, for anyone to be a CEO for 20 years is a "remarkable achievement," said Bill Wohl, chief communications officer at Commvault, which is based in Tinton Falls, N.J.

It's a testament to [Hammer's] drive, vision and leadership to be CEO that long.
Bill Wohlchief communications officer, Commvault

"It's a testament to [Hammer's] drive, vision and leadership to be CEO that long," Wohl said.

Goodwin said he met Hammer in 2000 and remembered looking at Commvault for the first time, thinking, "These guys get it. They really understood client-server backup better than the traditional competitors at that time."

This is a key moment for Commvault, and Hammer and the board feel it's a good time for a new direction, Wohl said.

Data protection companies have to move quickly, and Goodwin said Commvault didn't move fast enough when the marketplace experienced a shift to virtual infrastructure. But a lot of vendors were slow in that area, he noted.

"That opened the competitive door that Veeam really took advantage of," Goodwin said.

Wohl said Hammer saw a few years ago that data workloads were moving into the cloud, and Commvault was on top of that trend.

"Anticipating these turns and how to get ready for them is one of the biggest challenges," Wohl said.

He praised Hammer for helping to build Commvault almost entirely on organic growth, rather than through mergers and acquisitions.

"Commvault's premise from the very beginning was to build its business organically," Wohl said.

Wohl said the new Commvault CEO will come from outside the company, and the search will likely take months.

Cost cuts and more changes ahead

Commvault had 2,800 employees, but planned to cut 110 this week, according to Wohl.

"That's a tough decision for us to make," he said.

Commvault is eyeing further cost-cutting moves, which include an examination of the use of contracted employees, third-party expenses and travel.

Commvault's growth slipped over the last couple of years, with the vendor often reporting quarterly losses, while failing to meet financial analysts' expectations. Its latest earnings report released on Tuesday was another disappointment.

Commvault's total revenue for the fourth quarter of its fiscal 2018, which ended March 31, was $184.9 million -- an increase of 11% year over year, but more than $2 million below Wall Street expectations. Full fiscal year revenue of $699.4 million increased 8% from fiscal 2017.

For the fourth quarter of fiscal 2018, Commvault reported a net loss of $1.7 million. For the full fiscal year, the company reported a net loss of $61.9 million.

"We have been making good progress across all aspects of the company by strengthening our competitive technology position, broadening our product line, expanding distribution, reorganizing sales and marketing, and driving cost reductions and efficiencies," Hammer said on Tuesday's earnings call. "Although we are making progress, we are not satisfied with how long it has taken to get all these things in place to drive better financial performance."

In its letter a month ago, Elliott Management criticized Commvault's performance over the past five years and called for a complete review of Commvault management.

"Unfortunately, Commvault has not been a success story as a public-company investment," the letter said.

The Commvault board has formed an Operations Committee that will work with the company’s management team on a comprehensive review of Commvault’s business. 

The company on Tuesday unveiled Commvault Advance, a transformation initiative of actions completed over the past year, underway and still to come. Getting Commvault back to sustainable growth in operating margins is one of the core goals of the initiative. The actions include the following:

  • Making changes over the past year to products so they are simpler for customers to implement and use, including a web-based user interface;
  • Strengthening its partnerships -- for example, in recent collaborations with Cisco, Hewlett Packard Enterprise, Microsoft and Amazon Web Services;
  • Launching the Commvault HyperScale software and appliance.

"Our growth for fiscal year 2019 is primarily based upon success of our Commvault HyperScale appliance and software solutions, cloud migration and management, success with the Commvault Data Platform to gain share in large enterprise accounts with the journey to the cloud, and solutions to help customers mitigate and recover from a cyberattack," Hammer said on the earnings call.

Moving forward

Elliott Management has been involved in discussions on a wide range of issues. Discussions resulted in a cooperation agreement between Commvault and Elliott.

"We have a good plan to move Commvault forward in cooperation with Elliott," Wohl said. "This is not a contentious relationship."

There's already been a dramatic shift of the company's focus to indirect business, Wohl said, which includes alliance relationships and service providers. Customers will also have a direct sales option.

Wohl said his company gives credit to newcomers like Cohesity and Rubrik, which offered integrated appliances a couple of years before Commvault.

"They had their moment in the sun," but Commvault provides a broader set of products, Wohl said.

IDC research shows Commvault has a large, loyal customer base, Goodwin said. The company is fifth in market share for data protection and recovery software, according to IDC numbers.

Commvault plans to roll out new products and services in the coming months.

In this quarter, Commvault plans to unveil data protection that incorporates machine learning for threat detection and mitigation, as well as high-volume disaster recovery, according to Hammer. Next quarter, the Commvault CEO said, will see the company using machine learning and AI for the European Union's General Data Protection Regulation.

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