CommVault 'Well Positioned' for IPO

CommVault Systems Inc., which began talking IPO in 2002, has become the odds-on favorite to be the next storage networking company to go public.

Yes, we've been here before. CommVault has been chatted up by industry analysts and VCs as a prime IPO candidate for months, but now speculation is gathering steam (see Window of Opportunity and SAN Snacks From SNW). "They can do something in the second or third quarter," says Jeff Hinck, general partner of Crescendo Ventures which, incidentally, isn't backing the company. "They probably could've gone already, but they were waiting for profitability to catch up with their revenue growth."

CommVault executives won't confirm or deny the growing IPO talk, perhaps because marketing VP Larry Cormier openly discussed going public in March of 2002 – big talk that amounted to diddly (see CommVault Aims for IPO).

But analysts now treat CommVault's IPO filing as a given – a matter of when, rather than if. "I expect an S-1 (Registration Statement) filing in the near term," says research analyst Brion Tanous of Merriman Curhan Ford & Co. "I would speculate their lawyers are writing it."

Meanwhile, CommVault's Cormier says the Oceansport, N.J.-based company that spun out of Lucent Technologies Inc. (NYSE: LU) in 1996 is adding between 200 and 300 customers a quarter. Figures on Hoover's Online indicate CommVault has grown 28 percent, 30 percent, and 44 percent over the past three years and had revenues of $44.4 million in 2003."They're well positioned," says Crescendo's Hinck. "Overall, the backup market is growing quickly, and from what I hear their Galaxy product seems to be the best out there, particularly on Windows. I've heard nothing negative about them – it's been universally thumbs-up. With most companies, you hear bad things mixed with the good."

This is the same Hinck who took a jaundiced look back in February at recent funding for storage startups and moaned, "There seems to be a lot of crap getting funded" (see It's Raining VC Money).

At least one competitor is playing down CommVault's possible plans: Veritas Software Corp. (Nasdaq: VRTS) CEO Gary Bloom painted CommVault as a blip on the radar screen when asked about it during his company's earnings call this week.

"CommVault represents a little less than two percent of the [backup and recovery] market right now, so given our 45 percent of the market, a 2-percent player isn't terribly visible," Bloom said when asked about CommVault.

Bloom said EMC Corp.'s (NYSE: EMC) purchase of Legato hurt CommVault because EMC had partnerships with both. "So when [EMC] picked up Legato, I have to believe it's a little bit like pulling the rug out from under CommVault," Bloom said.Rug-pulling or not, it's clear that at least a few on Wall Street think CommVault's on its way. Indeed, Bloom got his chance to hold forth on CommVault because Laura Lederman of William Blair Capital Partners says the issue of its IPO is significant enough that she felt she had to ask Bloom about it. "With [CommVault] becoming a public company, it's going to come up more as a topic," she says.

CommVault's Cormier is unfazed by Veritas's disapproval. "As for the Bloom comments, we'll let our execution and results speak for themselves," he says.

If CommVault fulfills expectations, it will be the second company in the storage networking space to file an IPO this year. LSI Logic Storage Systems Inc., a wholly owned subsidiary of LSI Logic Corp. (NYSE: LSI) filed for an IPO in February and could complete it by the end of June (see LSI's Storage Sub Plans IPO). No other storage company has gone public since Seagate Technology Inc. (NYSE: STX) in December 2002 (see Seagate Goes Public With a Whimper).

Despite the chance of two IPOs this year, the storage networking segment is nowhere near supporting many more public offerings any time soon. At least one source says the only other company with a decent shot at going public in the IT storage space is blade server startup Egenera Inc., which offers products that enable storage to run faster in grid and utility computing environments. Egenera has raised $124 million in funding and its executives talk of going public this year (see and Robert M. Dutkowsky, President, CEO & Chairman, Egenera).

— Dave Raffo, Senior Editor, Byte and Switch0