You should read the following discussion and analysis along with our consolidated financial statements and the related notes included elsewhere in this quarterly report on Form 10-Q. The statements in this discussion regarding our expectations of our future performance, liquidity and capital resources, and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019. Our actual results may differ materially from those contained in or implied by any forward-looking statements. Overview

Commvault is a provider of data and information management software applications and related services. Commvault was incorporated in 1996 as a Delaware corporation. The Commvault software platform is an enterprise level, integrated data and information management solution, built from the ground up on a single platform and unified code base. All software functionality share the same back-end technologies to deliver the benefits of a holistic approach to protecting, managing, and accessing data. The software addresses many aspects of data management in the enterprise, while providing scalability and control of data and information. In fiscal 2018, we also started selling appliances that integrate our software with hardware and address a wide-range of business needs and use cases, ranging from support for remote or branch offices with limited IT staff up to large corporate data centers. We also provide our customers with a broad range of professional services that are delivered by our worldwide support and field operations.

In the third quarter of fiscal 2020 we completed the acquisition of Hedvig, a California-based developer of software-defined storage solutions. The primary reason for the business combination is the complementary nature of Hedvig's technology, compared to our other technology, which will expand our addressable market.



Sources of Revenues
We derive a significant portion of our total revenues from sales of licenses of
our software applications and products. We do not customize our software for a
specific end-user customer. We sell our software applications and products to
end-user customers both directly through our sales force and indirectly through
our global network of value-added reseller partners, systems integrators,
corporate resellers and original equipment manufacturers. Our software and
products revenue was 41% and 43% of our total revenues for the nine months ended
December 31, 2019 and 2018, respectively.
In recent fiscal periods, we have generated approximately three-quarters of our
software and products revenue from our existing customer base and approximately
one-quarter of our software and products revenue from new customers. In
addition, our total software and products revenue in any particular period is,
to a certain extent, dependent upon our ability to generate revenues from large
customer software and products deals, which we refer to as enterprise
transactions. Enterprise transactions (transactions greater than $0.1 million)
represented 64% and 63% of our total software and products revenue in the nine
months ended December 31, 2019 and 2018, respectively.
Software and products revenue generated through indirect distribution channels
was 93% of total software and products revenue in the nine months ended
December 31, 2019 and was 90% of total software revenue in the nine months ended
December 31, 2018. Software and products revenue generated through direct
distribution channels was 7% of total software and products revenue in the nine
months ended December 31, 2019 and was 10% of total software revenue in the nine
months ended December 31, 2018. The dollar value of software and products
revenue generated through indirect distribution channels decreased $13.6 million
in the nine months ended December 31, 2019 compared to the nine months ended
December 31, 2018. The dollar value of software and products revenue generated
through direct distribution channels decreased $6.6 million in the nine months
ended December 31, 2019 compared to the nine months ended December 31, 2018.
Deals initiated by our direct sales force are sometimes transacted through
indirect channels based on end-user customer requirements, which are not always
in our control and can cause this overall percentage split to vary from
period-to-period. As such, there may be fluctuations in the dollars and
percentage of software and products revenue generated through our direct
distribution channels from time-to-time. We believe that the growth of our
software and products revenue, derived from both our indirect channel partners
and direct sales force, are key attributes to our long-term growth strategy. We
will continue to invest in both our channel relationships and direct sales force
in the future, but we continue to expect more revenue to be generated through
indirect distribution channels over the long term. The failure of our indirect
distribution channels or our direct sales force to effectively sell our software
applications could have a material adverse effect on our revenues and results of
operations.
Our primary original equipment manufacturer agreement is with Hitachi Vantara
(formerly Hitachi Data Systems) ("Hitachi") and allows them to market, sell and
support our software applications and services on a stand-alone basis and/or
incorporate our software applications into their own hardware products. Our
original equipment manufacturer partners, including Hitachi, have no obligation
to recommend or offer our software applications exclusively or at all, and they
have no

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minimum sales requirements and can terminate our relationship at any time. Sales
through our original equipment manufacturer agreement, accounted for 11% of our
total revenues for the nine months ended months ended December 31, 2019.
We also have a non-exclusive distribution agreement covering our North American
commercial markets and our U.S. Federal Government market with Arrow Enterprise
Computing Solutions, Inc. ("Arrow"), a subsidiary of Arrow Electronics, Inc.
Pursuant to this distribution agreement, Arrow's primary role is to enable a
more efficient and effective distribution channel for our products and services
by managing our reseller partners and leveraging their own industry experience.
We generated 37% of our total revenues through Arrow in both the nine months
ended December 31, 2019 and 2018. If Arrow were to discontinue or reduce the
sales of our products or if our agreement with Arrow was terminated, and if we
were unable to take back the management of our reseller channel or find another
North American distributor to replace Arrow, then it would have a material
adverse effect on our future business.
Our services revenue was 59% of our total revenues for the nine months ended
December 31, 2019 and 57% of our total revenues for the nine months ended
December 31, 2018. Our services revenue is made up of fees from the delivery of
customer support and other professional services, which are typically sold in
connection with the sale of our software applications. Customer support
agreements provide technical support and unspecified software updates on a
when-and-if-available basis for an annual fee based on licenses purchased and
the level of service subscribed. Other professional services include consulting,
assessment and design services, installation services and customer education.
Most of our customer support agreements are priced as a percentage of the
related net software purchased and are for a one year term. As the end of the
annual period approaches, we pursue the renewal of the agreement with the
customer. Historically, customer support renewals have represented a significant
portion of our total revenue. Because of this characteristic of our business, if
our customers choose not to renew their support agreements with us on beneficial
terms, or at all, our business, operating results and financial condition could
be harmed.
Foreign Currency Exchange Rates' Impact on Results of Operations
Sales outside the United States were 49% of our total revenue for the nine
months ended December 31, 2019 and 47% of our total revenue for the nine months
ended December 31, 2018. The results of our non-U.S. operations are translated
into U.S. dollars at the average exchange rates for each applicable month in a
period. To the extent the U.S. dollar weakens against foreign currencies, the
translation of these foreign currency denominated transactions generally results
in increased revenue, operating expenses and income from operations for our
non-U.S. operations. Similarly, our revenue, operating expenses and net income
will generally decrease for our non-U.S. operations if the U.S. dollar
strengthens against foreign currencies.
Using the average foreign currency exchange rates from the three months ended
December 31, 2018 our software and products revenue would have been higher by
$0.4 million, our services revenue would have been higher by $0.8 million, our
cost of sales would have been higher by $0.2 million and our operating expenses
would have been higher by $0.3 million from non-U.S. operations for the three
months ended December 31, 2019. Using the average foreign currency rates from
the nine months ended December 31, 2018 our software revenue would have been
higher by $3.4 million, our services revenue would have been higher by $4.8
million, our cost of sales would have been higher by $1.2 million and our
operating expenses would have been higher by $4.6 million from non-U.S.
operations for the nine months ended December 31, 2019.
In addition, we are exposed to risks of foreign currency fluctuation primarily
from cash balances, accounts receivables and intercompany accounts denominated
in foreign currencies and are subject to the resulting transaction gains and
losses, which are recorded as a component of general and administrative
expenses. We recognized a net foreign currency transaction loss of $0.1 million
and $0.2 million three and nine months ended December 31, 2019. We recognized
net foreign currency transaction gains of $0.1 million and $0.8 million in the
three and nine months ended December 31, 2018, respectively.

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Critical Accounting Policies
Our condensed consolidated financial statements are prepared in accordance with
U.S. GAAP. The preparation of these condensed consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue, costs and expenses and related disclosures. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. In many instances, we
could have reasonably used different accounting estimates, and in other
instances changes in the accounting estimates are reasonably likely to occur
from period-to-period. Accordingly, actual results could differ significantly
from the estimates made by our management. To the extent that there are material
differences between these estimates and actual results, our future financial
statement presentation, financial condition, results of operations and cash
flows will be affected.
In many cases, the accounting treatment of a particular transaction is
specifically dictated by GAAP and does not require management's judgment in its
application, while in other cases, significant judgment is required in selecting
among available alternative accounting standards that allow different accounting
treatment for similar transactions. We consider these policies requiring
significant management judgment to be critical accounting policies. These
critical accounting policies are:
•Revenue Recognition;
•Accounting for Income Taxes
•Goodwill and Purchased Intangible Assets
As a result of the acquisition of Hedvig, the Company acquired goodwill and
intangible assets. Determining the fair value of intangible assets requires
management to make estimates, which are based on all available information and
in some cases assumptions with respect to the timing and amount of future
revenues and expenses associated with an asset. Refer to Note 4 of Notes to the
Condensed Consolidated Financial Statements included in this Quarterly Report on
Form 10-Q for further information on goodwill and intangible assets.
Other than the addition of goodwill and purchased intangible assets, there have
been no significant changes in our critical accounting policies during the nine
months ended December 31, 2019 as compared to the critical accounting policies
and estimates disclosed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Critical Accounting Policies" included in
our Annual Report on Form 10-K for the year ended March 31, 2019. In addition,
please see Note 2 of Notes to the Condensed Consolidated Financial Statements
included in this Quarterly Report on Form 10-Q and Note 2 of the Notes to
Consolidated Financial Statements included in our fiscal 2019 Annual Report on
Form 10-K filed for a description of our accounting policies.
Results of Operations
Three months ended December 31, 2019 compared to three months ended December 31,
2018
Revenues
Total revenues decreased $7.9 million, or 4%, from $184.3 million in the three
months ended December 31, 2018 to $176.4 million in the three months ended
December 31, 2019.
Software and Products Revenue. Software and products revenue decreased $7.9
million, or 9%, from $84.5 million in the three months ended December 31, 2018
to $76.6 million in the three months ended December 31, 2019. Software and
products revenue represented 43% and 46% of our total revenues in the three
months ended December 31, 2019 and 2018, respectively.
We track software and products revenue on a geographic basis. The geographic
regions that are tracked are the Americas (United States, Canada, Latin
America), EMEA (Europe, Middle East, Africa) and APAC (Australia, New Zealand,
Southeast Asia, China, Japan). Americas, EMEA and APAC represented 53%, 38% and
9% of total software and products revenue, respectively, for the three months
ended December 31, 2019. The year over year decline of software and products
revenue was 4% in the Americas, 6% in EMEA and 38% in APAC.
?      The decrease in Americas software and products revenue was primarily the
       result of a decrease in non-enterprise revenue.


?      EMEA software and products revenue decreased primarily as a result of a
       decrease in enterprise revenue transactions.


?      The decrease in APAC software and products revenue was primarily the
       result of a decrease in enterprise revenue transactions partially offset
       by an increase in the average enterprise selling price.



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Software and products revenue derived from enterprise transactions (transactions
greater than $0.1 million) represented 66% of our software and products revenue
in the three months ended December 31, 2019 and 65% of our software and products
revenue in the three months ended December 31, 2018. Enterprise transaction
revenue decreased by $4.2 million, or 8%, in the three months ended December 31,
2019 compared to the three months ended December 31, 2018. This was driven by an
11% decrease in the number of enterprise transactions. The average dollar amount
of such transactions was approximately $279 thousand in the three months ended
December 31, 2019 and approximately $268 thousand in the three months ended
December 31, 2018.
Services Revenue. Services revenue decreased less than $0.1 million, from $99.8
million in the three months ended December 31, 2018 to $99.7 million the three
months ended December 31, 2019. Services revenue represented 57% of our total
revenues in three months ended December 31, 2019 and 54% in the three months
ended December 31, 2018.
Cost of Software and Products Revenues. Total cost of software and products
revenues increased $2.0 million, from $6.1 million in the three months ended
December 31, 2018 to $8.1 million in the three months ended December 31, 2019.
Cost of software and product revenue represented 11% of software and product
revenue in the three months ended December 31, 2019 compared to 7% in
the three months ended December 31, 2018. The increase in cost of software and
products revenue is related to additional hardware and software royalty costs
associated with our appliance and hyperscale product offerings. As sales of our
appliances and hyperscale products continue to ramp, we expect the cost of
software and products as a percentage of software and products revenue will also
increase.
Cost of Services Revenues. Total cost of services revenues decreased $0.3
million, or 1%, from $22.8 million in the three months ended December 31,
2018 to $22.4 million in the three months ended December 31, 2019. The gross
margin of our services revenue was 77% for both the three months
ended December 31, 2019 and 2018.
Operating Expenses
Sales and Marketing. Sales and marketing expenses decreased $9.8 million, or
10%, from $94.4 million in the three months ended December 31, 2018 to $84.6
million in the three months ended December 31, 2019. The decrease is due to an
$8.8 million decrease in employee compensation and related expenses mainly
attributable to our restructuring and reorganization initiatives. Sales and
marketing expenses as a percentage of total revenues was 48% and 51% in the
three months ended December 31, 2019 and 2018, respectively.
Research and Development. Research and development expenses increased $8.5
million, or 39%, from $22.0 million in the three months ended December 31, 2018
to $30.5 million in the three months ended December 31, 2019. The increase is
primarily due to an increase in employee-related costs resulting from additional
headcount due to the acquisition of Hedvig. Approximately $3.2 million of the
increase in employee-related costs is related to noncash stock-based
compensation. Additionally, certain Hedvig shareholders will receive cash
payments totaling $14,100 over the course of the 30 months following the date of
acquisition, contingent on their continued employment with the Company. While
these payments are proportionate to these shareholders' ownership of Hedvig,
under GAAP they are accounted for as compensation expense over the course of the
30 month service period. Research and development expenses for the three months
ended December 31, 2019 include $1.4 million of expense related to this
arrangement. Research and development expenses as a percentage of total revenues
was 17% and 12% in the three months ended December 31, 2019 and 2018,
respectively.
General and Administrative. General and administrative expenses increased $3.0
million, or 14%, from $20.9 million in the three months ended December 31, 2018
to $23.9 million in the three months ended December 31, 2019. General and
administrative expenses in the three months ended December 31, 2019 includes
$4.4 million of non-routine acquisition costs related to the Company's
acquisition of Hedvig in October 2019. General and administrative expenses as a
percentage of total revenues was 14% and 11% in the three months ended
December 31, 2019 and 2018, respectively.
Restructuring. In fiscal 2019 we initiated a restructuring plan to increase
efficiency in our sales, marketing and distribution functions as well as reduce
costs across all functional areas.  Restructuring expenses were $2.0 million in
the three months ended December 31, 2019. These restructuring charges relate
primarily to severance and related costs associated with headcount reductions as
well as lease abandonment charges related to the closure of two offices. These
charges include $0.7 million of stock-based compensation related to
modifications of existing awards granted to certain employees included in the
restructuring. We cannot guarantee the restructuring program will achieve its
intended result. Risks associated with this restructuring program also include
additional unexpected costs, adverse effects on employee morale and the failure
to meet operational and growth targets due to the loss of key employees, any of
which may impair our ability to achieve anticipated results of operations or
otherwise harm our business.

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Income Tax Expense
Income tax expense was $1.0 million in the three months ended December 31, 2019
compared to a benefit of $1.2 million in the three months ended December 31,
2018. The income tax expense for the three months ended December 31, 2019
relates primarily to current foreign taxes. In fiscal 2018 the Company
determined that it was more likely than not that it will not realize the
benefits of its gross deferred tax assets and therefore recorded a valuation
allowance to reduce the carrying value of these gross deferred tax assets, net
of the impact of the reversal of taxable temporary differences, to zero. The
Company's position remains unchanged as of the period ended December 31, 2019.
Nine months ended December 31, 2019 compared to nine months ended December 31,
2018
Revenues
Total revenues decreased $23.4 million, or 4%, from $529.5 million in the nine
months ended December 31, 2018 to $506.1 million in the nine months ended
December 31, 2019.
Software and Products Revenue. Software and products revenue decreased $20.2
million, or 9%, from $229.1 million in the nine months ended December 31, 2018
to $208.9 million in the nine months ended December 31, 2019. Software and
products revenue represented 41% of our total revenues in the nine months ended
December 31, 2019 and 43% in the nine months ended December 31, 2018.
We track software and products revenue on a geographic basis. The geographic
regions that are tracked are the Americas (United States, Canada, Latin
America), EMEA (Europe, Middle East, Africa) and APAC (Australia, New Zealand,
Southeast Asia, China, Japan). Americas, EMEA and APAC represented 51%, 35% and
14% of total software and products revenue, respectively, for the nine months
ended December 31, 2019. The year over year decline of software and products
revenue was 14% in the Americas and 11% in APAC, while EMEA increased 2%.
?      The decrease in Americas software and products revenue was the result of a
       decrease in enterprise revenue transactions partially offset by an
       increase in the average enterprise transaction selling price.


?      EMEA software and products revenue increased primarily as a result of an
       increase in both the amount and average selling price of enterprise
       revenue transactions.


?      The decrease in APAC software and products revenue was primarily due to a
       decrease in non-enterprise revenue.

Software and products revenue derived from enterprise transactions (transactions greater than $0.1 million) represented 64% of our software and products revenue in the nine months ended December 31, 2019 and 63% of our software and products revenue in the nine months ended December 31, 2018. Enterprise transactions decreased by $10.5 million, or 7%, in the nine months ended December 31, 2019 compared to the nine months ended December 31, 2018. This was driven by an 18% decrease in the number of enterprise transactions. The average dollar amount of such transactions was approximately $299 thousand in the nine months ended December 31, 2019 and $264 thousand in the nine months ended December 31, 2018. Services Revenue. Services revenue decreased $3.2 million, or 1%, from $300.5 million in the nine months ended December 31, 2018 to $297.2 million in the nine months ended December 31, 2019. Services revenue represented 59% of our total revenues in the nine months ended December 31, 2019 and 57% in the nine months ended December 31, 2018. The decrease in services revenue is due to a $4.4 million decrease in training and consulting service revenue partially offset by a $1.2 million increase in revenue from customer support agreements. Cost of Software and Products Revenues. Total cost of software and products revenues increased $7.7 million, from $15.3 million in the nine months ended December 31, 2018 to $22.9 million in the nine months ended December 31, 2019. Cost of software and product revenue represented 11% of software and product revenue in the nine months ended December 31, 2019 compared to 7% in the nine months ended December 31, 2018. The increase in cost of software and products revenue is related to additional hardware and software royalty costs associated with our appliance and hyperscale product offerings. As sales of our appliances and hyperscale products continue to ramp, we expect the cost of software and products as a percentage of software and products revenue will also increase. Cost of Services Revenues. Total cost of services revenues decreased $0.5 million, or 1%, from $68.1 million in the nine months ended December 31, 2018 to $67.5 million in the nine months ended December 31, 2019. The gross margin of our services revenue was 77% for both the nine months ended December 31, 2019 and 2018.



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Operating Expenses
Sales and Marketing. Sales and marketing expenses decreased $28.6 million, or
10%, from $281.5 million in the nine months ended December 31, 2018 to $252.9
million in the nine months ended December 31, 2019. The decrease is due to a
$30.9 million decrease in employee compensation and related expenses mainly
attributable to our restructuring and reorganization initiatives. Sales and
marketing expenses as a percentage of total revenues was 50% and 53% in the nine
months ended December 31, 2019 and 2018, respectively.
Research and Development. Research and development expenses increased $7.6
million, or 11%, from $69.8 million in the nine months ended December 31, 2018
to $77.3 million in the nine months ended December 31, 2019. The increase is an
increase in employee-related costs resulting from additional headcount due to
the acquisition of Hedvig. Approximately $2.7 million of the increase in
employee-related costs is related to noncash stock-based compensation.
Additionally, certain Hedvig shareholders will receive cash payments totaling
$14,100 over the course of the 30 months following the date of acquisition,
contingent on their continued employment with the Company. While these payments
are proportionate to these shareholders' ownership of Hedvig, under GAAP they
are accounted for as compensation expense over the course of the 30 month
service period. Research and development expenses for the nine months ended
December 31, 2019 include $1.4 million of expense related to this arrangement.
Research and development expenses as a percentage of total revenues was 15% and
13% in the nine months ended December 31, 2019 and 2018, respectively.
General and Administrative. General and administrative expenses increased $2.1
million, or 3%, from $69.0 million in the nine months ended December 31, 2018 to
$71.1 million in the nine months ended December 31, 2019. General and
administrative expenses in the nine months ended December 31, 2019 includes $4.4
million of non-routine acquisition costs related to the Company's acquisition of
Hedvig partially offset by a decrease in employee related costs. General and
administrative expenses as a percentage of total revenues was 14% and 13% in the
nine months ended December 31, 2019 and 2018, respectively.
Restructuring. In fiscal 2019 we initiated a restructuring plan to increase
efficiency in our sales, marketing and distribution functions as well as reduce
costs across all functional areas.  Restructuring expenses were $19.0 million in
the nine months ended December 31, 2019. These restructuring charges relate
primarily to severance and related costs associated with headcount reductions as
well as lease abandonment charges related to the closure of five offices. These
charges include $1.7 million of stock-based compensation related to
modifications of existing awards granted to certain employees included in the
restructuring. We cannot guarantee the restructuring program will achieve its
intended result. Risks associated with this restructuring program also include
additional unexpected costs, adverse effects on employee morale and the failure
to meet operational and growth targets due to the loss of key employees, any of
which may impair our ability to achieve anticipated results of operations or
otherwise harm our business.
Income Tax Expense
Income tax expense was $3.5 million in the nine months ended December 31, 2019
compared to expense of $2.7 million in the nine months ended December 31, 2018.
The income tax expense for the nine months ended December 31, 2019 relates
primarily to current foreign taxes. In fiscal 2018 the Company determined that
it was more likely than not that it will not realize the benefits of its gross
deferred tax assets and therefore recorded a valuation allowance to reduce the
carrying value of these gross deferred tax assets, net of the impact of the
reversal of taxable temporary differences, to zero. The Company's position
remains unchanged as of the period ending December 31, 2019.
Liquidity and Capital Resources
As of December 31, 2019, our cash and cash equivalents balance of $272.0 million
primarily consisted of cash and cash equivalents in the form of money market
funds. In addition, as of December 31, 2019 we have restricted cash of $8.0
million held in an escrow account that relates to the Hedvig acquisition and
short-term investments invested in U.S. Treasury Bills totaling $65.0 million.
In recent fiscal years, our principal source of liquidity has been cash provided
by operations.
As of December 31, 2019, the amount of cash and cash equivalents held outside of
the United States by our foreign legal entities was approximately $161.0
million. These balances are dispersed across many international locations around
the world. We believe that such dispersion meets the current and anticipated
future liquidity needs of our foreign legal entities. In the event we needed to
repatriate funds from outside of the United States, such repatriation would
likely be subject to restrictions by local laws and/or tax consequences
including foreign withholding taxes.

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During the nine months ended December 31, 2019, we repurchased $40.0 million of common stock shares under our share repurchase program. Under our stock repurchase program, repurchased shares are constructively retired and returned to unissued status. Our stock repurchase program has been funded by our existing cash and cash equivalent balances as well as cash flows provided by our operations. As of December 31, 2019, $160.0 million remained in the Company's current stock repurchase authorization which expires March 31, 2020. Our future stock repurchase activity is subject to the business judgment of our management and Board of Directors, taking into consideration our historical and projected results of operations, financial condition, cash flows and other anticipated capital requirements or investment alternatives. Our stock repurchase program reduces the dilutive impact on our common shares outstanding associated with stock option exercises and our previous public and private stock offerings through the repurchase of common stock. Our summarized cash flow information is as follows (in thousands):


                                                          Nine Months Ended December 31,
                                                             2019                 2018
Net cash provided by operating activities             $        56,008       $        73,594
Net cash used in investing activities                         (94,056 )              (4,011 )
Net cash used in financing activities                          (9,082 )             (59,854 )
Effects of exchange rate-changes in cash                         (837 )             (13,115 )
Net decrease in cash, cash equivalents and
restricted cash                                       $       (47,967 )     $        (3,386 )


Net cash provided by operating activities was $56.0 million in the nine months
ended December 31, 2019 and $73.6 million in the nine months ended December 31,
2018. In the nine months ended December 31, 2019, cash provided by operating
activities was primarily due to net loss adjusted for the impact of non-cash
charges and collection of accounts receivable, partially offset by decreases in
deferred revenue and accrued expenses.
Net cash used in investing activities was $94.1 million for the nine months
ended December 31, 2019 and net cash used in investing activities was $4.0
million in the nine months ended December 31, 2018. In the nine months ended
December 31, 2019, cash used in investing activities was related to the $157.5
million acquisition of Hedvig and $1.9 million of capital expenditures partially
offset by net proceeds from the maturity of short-term investments of $65.4
million.
Net cash used in financing activities was $9.1 million in the nine months ended
December 31, 2019 and $59.9 million in the nine months ended December 31, 2018.
The cash used in financing activities in the nine months ended December 31, 2019
was the result of $40.0 million of repurchases of common shares partially offset
by $30.9 million of proceeds from the exercise of stock options and purchases
related to our employee stock purchase program.
Working capital decreased $137.0 million from $328.7 million as of March 31,
2019 to $191.6 million as of December 31, 2019. The net decrease in working
capital is due primarily to our use of cash to acquire Hedvig as well as the
repurchase of common shares.
We believe that our existing cash, cash equivalents and our cash from operations
will be sufficient to meet our anticipated cash needs for working capital,
income taxes, capital expenditures and potential stock repurchases for at least
the next twelve months. We may seek additional funding through public or private
financings or other arrangements during this period. Adequate funds may not be
available when needed or may not be available on terms favorable to us, or at
all. If additional funds are raised by issuing equity securities, dilution to
existing stockholders will result. If we raise additional funds by obtaining
loans from third parties, the terms of those financing arrangements may include
negative covenants or other restrictions on our business that could impair our
operational flexibility, and would also require us to fund additional interest
expense. If funding is insufficient at any time in the future, we may be unable
to develop or enhance our products or services, take advantage of business
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on our business, financial condition and results of
operations.
Off-Balance Sheet Arrangements
As of December 31, 2019, we did not have off-balance sheet financing
arrangements, including any relationships with unconsolidated entities or
financial partnerships, such as entities often referred to as structured finance
or special purpose entities.

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Indemnifications

Certain of our software licensing agreements contain certain provisions that indemnify our customers from any claim, suit or proceeding arising from alleged or actual intellectual property infringement. These provisions continue in perpetuity along with our software licensing agreements. We have never incurred a liability relating to one of these indemnification provisions in the past and we believe that the likelihood of any future payout relating to these provisions is remote. Therefore, we have not recorded a liability during any period related to these indemnification provisions. Impact of Recently Issued Accounting Standards



See Note 2 of the unaudited consolidated financial statements for a discussion
of the impact of recently issued accounting standards.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
As of December 31, 2019, our cash and cash equivalents and short-term
investments consisted primarily of money market funds and U.S. Treasury Bills.
Due to the short-term nature of these investments, we are not subject to any
material interest rate risk on these balances.
Foreign Currency Risk
Economic Exposure
As a global company, we face exposure to adverse movements in foreign currency
exchange rates. Our international sales are generally denominated in foreign
currencies and this revenue could be materially affected by currency
fluctuations. Approximately 49% of our sales were outside the United States for
the nine months ended December 31, 2019. Our primary exposures are to
fluctuations in exchange rates for the U.S. dollar versus the Euro, and to a
lesser extent, the Australian dollar, British pound sterling, Canadian dollar,
Chinese yuan, Indian rupee, Korean won and Singapore dollar. Changes in currency
exchange rates could adversely affect our reported revenues and require us to
reduce our prices to remain competitive in foreign markets, which could also
have a material adverse effect on our results of operations. Historically, we
have periodically reviewed and revised the pricing of our products available to
our customers in foreign countries and we have not maintained excess cash
balances in foreign accounts.
Transaction Exposure
Our exposure to foreign currency transaction gains and losses is primarily the
result of certain net receivables due from our foreign subsidiaries and
customers being denominated in currencies other than the functional currency of
the subsidiary. Our foreign subsidiaries conduct their businesses in local
currency and we generally do not maintain excess U.S. dollar cash balances in
foreign accounts.
Foreign currency transaction gains and losses are recorded in "General and
administrative expenses" in the Consolidated Statements of Operations. We
recognized a net foreign currency transaction loss of $0.1 million and $0.2
million in the three and nine months ended December 31, 2019. We recognized net
foreign currency transaction gains of $0.1 million and $0.8 million in the three
and nine months ended December 31, 2018. The net foreign currency transaction
gains and losses recorded in "General and administrative" expenses include
settlement gains and losses on forward contracts disclosed below.
Item 4 - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as of December 31, 2019. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of December 31, 2019.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that
occurred during the third quarter of fiscal 2020 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.

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Inherent Limitations on Internal Controls Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.



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