Commvault Systems Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2023

There are 9 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the CommVault Fiscal 24 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer to ask a question during the session, you will need to press star 1 on your telephone. You will then hear an automated message advising your hand is raised.

Operator

To withdraw your questions, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Melnyk, Head of Investor Relations. Please go ahead.

Speaker 1

Good morning, and welcome to our earnings conference call. I'm Mike Malnik, Head of Investor Relations, and I'm joined by Sanjay Merchandani, Commvault's CEO Gary Merrill, Commvault's CFO. An earnings presentation with key financial and operating metrics is posted on the Investor Relations website for your reference. Statements made on today's call will include forward looking statements about Commvault's future expectations, plans and prospects. All such forward looking statements are subject to risks, uncertainties and assumptions, please refer to the cautionary language in today's earnings release and Commvault's most recent periodic reports filed with the SEC for a discussion of the risks and uncertainties that could cause the company's actual results to be materially different from those contemplated in these forward looking statements.

Speaker 1

Commvault does not assume any obligation to update these statements. During the call, Commvault's financial results are presented on a non GAAP basis. A reconciliation between GAAP and non GAAP can be found on our website. Thank you for joining us. Now I'll turn the call over to Sanjay for his remarks.

Speaker 1

Sanjay?

Speaker 2

Thank you, Mike. Good morning. I'm pleased to report our Q1 results met our expectations and position us well for fiscal year 2024. Let me share some highlights. Total ARR, the metric we use to measure the growth of our recurring revenue streams, increased 15% year over year to $686,000,000 Our subscription ARR grew 32% year over year to 500,000,000 metallic, our hyper growth SaaS platform, grew ARR 72% year over year and now exceeds 4,000 customers.

Speaker 2

All of these showcase the strength of our subscription based recurring revenue model that we've been driving to over the past several years. And we did it while delivering 22 percent EBIT margins and continuing to return cash to shareholders through share repurchases. Our strategic objective is clear, to be the leading cloud first data protection company in the industry. This requires constant innovation, execution excellence and the ability to rapidly evolve with the ever changing data protection market. Our customers have reached an inflection point, driven by 4 major forces that are shifting the data protection demands and expectations of the modern enterprise.

Speaker 2

One, they're experiencing unique and complex challenges on their hybrid cloud journeys. 2, customers shouldn't have to choose between a software and SaaS. At this point, it should be a natural and seamless decision with a modern, unified platform. 3, the world of data protection and data security are converging And require customers to consider a new approach. And lastly, the advancements in artificial intelligence have opened the door to improved customer experiences and increased value.

Speaker 2

Let's discuss each of these. The first and perhaps most important is the industry wide move towards the hypercloud. According to a recent report, 82% of IT leaders say that they have adopted the hypercloud, nearly half of which are embracing multiple public clouds. As a result, data is distributed across multiple environments. It's fragmented and in flight.

Speaker 2

Managing this new reality can become untenable in costs, complexity and security delivered at scale. To manage all of this, today's hybrid enterprises are doing nothing at all or a patchwork of anything from basic cloud native backup to point solutions, some SaaS, some software, each intended to solve a piece of the puzzle. Rather than holistically simplifying and managing everything, this only increases more complexity and cost. This is where Commvault comes in, which leads me to the 2nd major force. Customers crave the power and simplicity of a single as a service solution.

Speaker 2

Today, customers are forced to make unnatural choices that are inefficient and unsustainable. Instead, they need the best of both work, software and SaaS in a single solution. Our cloud based data protection platform does just that, has software or SaaS on the same control plane. Not only do we help customers reduce complexity, our unified platform has the best total cost of ownership and greater value than any solution that we compete against cloud native or software. This is revolutionary for the industry and positions us as the company to beat within the category.

Speaker 2

And both existing and new customers are embracing this technology. I'll discuss three examples. First, we won an M365 deal with NETCare, a publicly traded South African healthcare company. The company cited the simplicity and cost efficiency of our single platform versus the existing cloud native solution as the key decision making criteria. 2nd, TSYS, a SaaS based student learning system chose Commvault to drive 6 figure cost savings versus its cloud native tools.

Speaker 2

3rd, a Fortune 1000 food manufacturer and an existing Commvault software customer expanded with our SaaS solution to protect thousands of Office 365 users. With each of these customers, we were the natural choice given our proven mission critical capabilities, our ability to operate between technologies and workloads, our cost advantages and our capability to accommodate future cloud use cases on our platform. These examples are consistent with the trends we've seen every quarter since the launch of our SaaS platform. 40% of our SaaS customers use another Commvault product And 30% use multiple SaaS offers. Software and SaaS are complementary and accretive to our business, which brings us to the 3rd course.

Speaker 2

As the line between data protection and data security blurs, customers are rethinking their approach to modern cyber resiliency. Ransomware threats are on the rise again in 2023. Data from cryptocurrency trading firm Chainalysis indicate cyber ransom payments more than doubled in the first half of twenty twenty three. And a report by Cybersecurity Ventures note that cybercrime will account for over $10,500,000,000,000 in costs by 2025. Of course, ransomware is only part of the modern era pervasive autonomous threats in conjunction with other malicious data exfiltration and data destruction activities.

Speaker 2

This is increasingly driving the need for a layered security approach that includes predictive threat analytics to defend both backup and production workloads and ironclad cyber resilience in the case of a breach. No amount of preemptive defense can take the place of unfailing rapid recovery and no amount of security is 100% successful. The 2 must operate hand in hand. Building on the early success of our ThreatWise Cyber Deception offering, in June, we offered new security capabilities across our portfolio. These were designed to help customers proactively and reactively secure, defend and recover the production workloads while strengthening their backup infrastructure.

Speaker 2

These advanced security features are managed and delivered through the simplicity of our new cloud command interface, which provides global visibility and smart insights across all workloads, monitoring backup health and security posture. We also expanded our security ecosystem to include product integrations with Microsoft, Palo Alto, Sample 1 and CyberArk. While others in the industry provide limited point solutions, Commvault offers a platform that protects and enables customers to recover both production and backup environments. Finally, the 4th force impacting data protection is the topic that's driving an unprecedented frenzied adoption of AI across every enterprise. The rise of generative AI is ushering in a new era, one that is increasingly automated and autonomous and moving faster than one can imagine.

Speaker 2

We've been using AI and machine learning for years in our technology and our operations. Further leveraging AI driven automation across our platform, we can help customers rapidly recover and also constantly optimize, manage and control every aspect of their data protection capabilities. We're continuing to incorporate AI based roadmaps across our offerings and will take a very considered point of view around the right way to apply this new technology as it matures. Our organization's Secure, Defend and Recover their most precious asset to data is fundamentally changing due to these forces. The bottom line is we can no longer look at each separately.

Speaker 2

The future of our industry depends on our proven ability to offer a seamless automated and cost effective approach to these hard problems. In the fall, we'll be announcing some exciting capabilities and offerings that will further empower customers and redefine the industry. With that, I'll turn it over to Gary to discuss the numbers. Gary?

Speaker 3

Thanks, Sanjay, and good morning, everyone. Coming off a strong finish to fiscal year 2023, we are off to a solid start to fiscal year 2024. As a reminder, we have recast our P and L presentations effective this quarter, which is led by our term license software and SaaS offerings, which are now approaching 50% of total revenue. The revenue from these arrangements is referred to as subscription and combining them in a single line item allows the investment community to have an enhanced understanding of our results. Our fiscal Q1 results were driven by 11% year over year growth from our subscription business, which increased to $97,000,000 as a result of the accelerating contribution of SaaS revenue.

Speaker 3

Q1 perpetual license revenues were $13,000,000 our go to market motion is led by subscription. So perpetual license sales are generally sold in certain verticals and geographies. Q1 customer support revenue was $77,000,000 which includes support for both our term based and perpetual software licenses. The year over year decline was in line with our expectations as a result of the cumulative impact of the strategic conversion of certain perpetual customers to our subscription offerings. Moving from revenue results to ARR now.

Speaker 3

Total ARR in Q1 was $686,000,000 an increase of 15% year over year, outpacing our annual growth expectations. In Q1, subscription ARR, which includes both term based arrangements and SaaS contracts grew 32% year over year to $500,000,000 crossing a major milestone and nearly doubling over the past 8 quarters. As Sanjay noted earlier, SaaS ARR continued its strong growth, up 72% year over year to $113,000,000 SaaS net dollar retention for Q1 was 118% with our SaaS offerings being a primary driver of customer expansion. Now I'll discuss expenses and profitability. Fiscal Q1 gross margins were 82.9% And reflect a 70 basis point year over year impact of our accelerating SaaS revenue, which carries a higher cost of sales than software.

Speaker 3

Fiscal Q1 operating expenses were $119,000,000 down 3% year over year. We ended the quarter with global headcount of approximately 2,800 employees, including additional inside sales reps we onboarded during the quarter to drive our Velocity SaaS motion. We are managing our people, we will continue to evaluate our resource base against our we will continue to evaluate our resource base against the market demand environment. Non GAAP EBIT for Q1 was $44,000,000 and non GAAP EBIT margins were 22%. The strong earnings result was driven by continued operating expense discipline relative to our top line revenue.

Speaker 3

Moving to some key balance sheet and cash flow metrics. We ended the quarter with no debt and $275,000,000 in cash, of which $81,000,000 was in the United States. Our Q1 free cash flow was $38,000,000 up 76% year over year. Key drivers of free cash flow are deferred revenue from SaaS and the strength of our subscription software renewals, which typically include upfront payments on multiyear contracts. In Q1, we repurchased $51,000,000 of stock we are now in our repurchase program, representing 135 percent of Q1 free cash flow.

Speaker 3

Now I'll discuss our outlook for fiscal Q2. We continue to believe that ARR and free cash flow should be viewed as primary KPIs of our underlying business momentum. For fiscal Q2, we expect subscription revenue, which includes both the software portion of term based licenses and SaaS to be 95 to $99,000,000 representing 24% year over year growth at the midpoint. We expect total revenue to be $193,000,000 to $197,000,000 with year over year growth of 4% at the midpoint. At these revenue levels, we expect consolidated gross margin to be approximately 82.5% we have an EBIT margin of approximately 20%.

Speaker 3

As I mentioned on our last earnings call, we are executing some foundational go to market changes, which include amplifying our discrete focus on our land and expand opportunities, we're also scaling our motion to secure our growing subscription renewal base. We continue to hire additional inside sales reps focused solely on the SaaS velocity market as we refine our segmentation model. Some of these investments will continue into fiscal Q2 and we expect that these go to market refinements we should drive enhanced field sales productivity as we exit the fiscal year. Our projected diluted share count for fiscal Q2 it's 45,000,000 shares. As of June 30, we have $205,000,000 remaining on our existing share repurchase authorization, we expect to continue with our existing practice of repurchasing at least 75% of our annual free cash flows.

Speaker 3

Finally, as noted on Page 2 of this morning's earnings press release, we are also reconfirming our existing guidance for all provided metrics for the full year fiscal 2024. We remain confident in our full year outlook given the ongoing momentum in our SaaS business and the seasonally stronger trends we historically see in the second half of the fiscal year, including a larger term software rental opportunity and potential for improved large deal traction. I will now turn the call back to Sanjay for his closing remarks. Sanjay?

Speaker 2

Thank you, Gary. Our customers are facing hard problems as they modernize their data protection approach across a hybrid cloud environment, our ability to offer them a streamlined unified approach that is powered by AI we'll be a welcome change and a true differentiator in our industry. We're the only company with a tested track record, vision and proven execution we'll take your questions.

Speaker 3

And we're ready

Speaker 1

for the to begin Q and A, can we take the first question please?

Operator

Thank you. We will now conduct a question and answer session. Our question comes from Aaron Rakers of Wells Fargo. Please go ahead.

Speaker 4

Yes. Thanks for taking the question. A couple, if I can, real quickly. I'm just curious, guys, congrats on the execution in the quarter. Just given the current macro backdrop and the spending environment that some are concerned about with regard to enterprise, I'm just curious of How you would characterize the linearity through the quarter, deal activity, any kind of deal shrinking in terms of size or any push outs And just kind of overall kind of context of what you're seeing from enterprise customers spend wise right now?

Speaker 3

Hey, Aaron, good morning. It's Gary. I can take this question. So our linearity from a fiscal Q1 perspective is what we typically see in our fiscal Q1, some of the macro trends that other companies have mentioned were obviously also experienced. But we have not seen from a linearity perspective the impact on that.

Speaker 3

I think where we're consistent with some of the recent trends in the market is the deal size value, Okay. We do see some pressure on the ASPs of our larger deals. And Erin, most of that is driven really by term length, Okay. So the quantity of the deals and the volume of the enterprise deals is still strong. It's still actually consistent with even year over year levels.

Speaker 3

What we do see a little bit of downtick in the ASPs, on compression of term. As customers are continuing their journey to the cloud, they continue to focus on optimization of the workloads that they have and being able to make sure that they're ready for their next turn. And with some of that, they take a little bit of a step back and some of the deal size lengths, start to compress a little bit. Our average length Of our term deals in fiscal Q1 was about 2 years.

Speaker 4

And just to give some context that was What was that last quarter? What was that a year ago?

Speaker 3

Yes. We're down our average term on our stripping deals is down about 10% year over year, and it's mid single digits decline sequentially.

Speaker 4

Yes, yes. That's helpful. I appreciate all that color. As a quick follow-up, I'm just curious, one of the things that we've thought about on the Commvault story as we moved into fiscal 2024 was just this base of renewal opportunity setting itself up and really comping relative to what the subscription revenue looked like 3 years ago or so, Can you help us appreciate the cadence of the renewal base of business through this year? And it sounds like a potentially pretty material step up Into the back half of the year, when we look at the metrics you're giving around renewals and net dollar retention, etcetera, just help us frame that.

Speaker 3

Sure. Aaron, I can touch on that also as well. The renewals in our business typically follow The linearity that we typically see across the broad portfolio of our go to market motion, which means that we'll see a higher renewal value In the second half, so that's used for both renewal opportunities and conversion opportunities. We'd expect probably about 60% in the second half versus relatively maybe 40% roughly in the first half. And some of the term length I had on your previous question applies to the rentals, as some of our rentals also see some of that same change in dynamics on term length as well.

Speaker 4

Yes. And then the final question and I'll cede the floor is, you beat operating margin this quarter 22%, I think you guided around 20%. I know you're guiding around 20% this next quarter. So Appreciating that you gave the full year reiterated the full year guidance of up 50 basis points to 100 basis points year on year. I'm just curious about how you're thinking about the flow through of operating margin.

Speaker 4

Is there incremental investments you're making relative to what you thought of coming into this year? Why wouldn't we see some upside to that $50,000,000 to $100,000,000 continue to flow through as we think about the back half of

Speaker 3

the fiscal year as well? Aaron, at this point we're keeping our guidance for the full year for all the reported metrics consistent. There's obviously opportunity For operating margin leverage and expansion, especially as the top line accelerates, which we'd expect some of that to happen as I mentioned more in the So where I'm sitting here today is that fundamentally all the core tenants of our business are consistent And we're confident in where we're at for the first half. And I think maybe revisiting where we're at exiting Q2 for the back half is what we'll look to do. Yes.

Speaker 3

That's very helpful. Thank you, Gary. Sure.

Operator

Thank you. One moment for our next question. Our next question comes from Howard Ma at Guggenheim Partners. Please go ahead.

Speaker 3

Great. Thank you. I have a

Speaker 5

question for Sanjay and also a question for Gary. I guess I'll start with Gary. It's actually it's two questions. I mean, the first is a shorter one. But I guess I'll start with, can you address the reason for the metallic net retention rate dip?

Speaker 5

It's down about 7 percentage points versus last quarter.

Speaker 3

Yes. Hey, Howard, good morning. Thanks for the question. So we don't look into 1 quarter as a trend for the long term for metallic. When you look at the net dollar retention At 118%, we still believe it is a strong result and it's still driving a lot of expansion.

Speaker 3

Typically in the net dollar retention calculation, right, the base gets bigger and bigger and bigger, which also contributes to it. So that's good.

Speaker 1

So we have

Speaker 3

a growing base. So therefore, you'll start to see the calculation kind of moderate in kind of in that 118% or so. But from an actual expansion opportunity, we're really pleased with where we're at to be able to grow all of that. We're now approaching 4,000 metallic customers. So the ability and the opportunity for us to drive that number through that 4,000 customer base is an amazing opportunity that we look forward to kind of driving in

Speaker 2

the second

Speaker 5

half. Okay. That's fair. And my second question is related to what Aaron was asking. Can you just talk about, Gary, the key underlying assumptions that give you confidence in achieving total and subscription ARR guidance this year?

Speaker 5

And as we model out the balance of the year, can you just talk about any notable year over year comps? So you mentioned The back end weighted or the second half weighted renewal cycle in response to Aaron's question, can you also talk about is there anything else we should look out for? For instance, I know fiscal 3Q is probably an easier year over year comp this year, but just anything else with respect to subscription or metallic?

Speaker 3

Yes. A couple of things, Howard, I can touch on. So first, before I get to the second half, even if I look into the current quarter, we're in fiscal Q2, typically that's our seasonally softest quarter, especially in Europe. But as we start to look at the second half of the year, we're still confident in the opportunity and the guidance that we gave for the second half, if you look at that subscription revenue line, each quarter we get a nice tailwind of recognized revenue from SaaS. So the predictability of our subscription revenue starts to firm up every single quarter because a larger portion of that Become SaaS revenue, which is this amortization of the ARR.

Speaker 3

When I take that, Howard, and I tie it to the seasonally stronger especially in the large deal expectations on the term license software that we typically see in the second half. All of that still contemplates all of the kind of macro trends we currently see today, we haven't seen anything substantially worse since I gave guidance roughly 90 days ago. We're still confident in kind of what we see. The only really I'll say notable change that we're seeing some modest change in is the term length, which I already addressed. But despite that, we're still confident in those full year numbers.

Speaker 5

Okay. Thanks, Gary. That's helpful. And for Sanjay, can you just talk about where Commvault is and with respect to The go to market evolution and if investments such as you've filled out a dedicated in size sales force for metallic, you've And partnerships with Salesforce and AWS and not to mention your exclusive relationship with OCI. Are these already starting to benefit metallic or are these

Speaker 2

Little of both. So these are investments. We are fueling up multiple engines of growth For metallic, traditionally our sales force has carried the bag for metallic alongside our partners. We're seeing great progress with The large hyperscalers on go to market across the world actually. And we are also building out our own Velocity Insight sales engine as one of the other engines.

Speaker 2

So they're all we're going to be working together nicely in different stages. And we think over the course of the year, you'll see us share more about how these are working and coming together. So it's a strategy we set, I think, late last year fiscal year and we're rolling it all out as we speak. So we're quite pleased with where we are. Okay.

Speaker 2

Thank you.

Operator

One moment for our next question. Our next question comes from Jim Fish from Piper and Sandler, please go ahead.

Speaker 6

Hey, guys. Thanks for the questions. Gary, for you, with going through the transition, I know we've talked about this at great length, but where are you with perpetual maintenance contribution? And really the crux of my question is when you expect perpetual maintenance to be the minority in the sense of ARR and revenue trends Start to converge as opposed to the large divergence we have this year. And is there any way to think about what you're seeing with perpetual maintenance Renewal rates versus this point last year.

Speaker 3

Yes. Thanks, Jim. Good morning. I can handle that. So a couple of different pieces I'll talk to you first and I'll get to your specific question on revenue.

Speaker 3

But first, if you take a look at ARR We're now up to well over 70%. We're approaching 75% of our ARR from the non perpetual base, so from subscription and fast. So you can see we're making excellent progress there. When I translate that to the P and L And specifically how that gets reflected into that customer support revenue line, okay. A larger portion of that continues to be driven by subscription.

Speaker 3

And if I kind of take a step back and can maybe quantify that for you, About a year ago, I would say about 70% of our customer support revenue was driven from perpetual contracts. That's now down to about 60 a year later. So we're driving a minimum about 10 points change in that balance. So I think where you're going is as we kind of roll that forward a little bit, over the next 1 to 2 years, we'll start to see that subscription to be the primary driver and more than the majority What's driving that? Some of what you're seeing Jim, if you look at kind of the year over year growth of that customer support line, you see it kind of start to moderate, it's kind of in line with the expectations of that customer support line, but starting to moderate with the annual decrease that we're starting to see on a quarterly basis.

Speaker 6

That's very helpful. And Sanjay for you, how the new marketing campaign has gone in terms of Building net new pipeline and is there any concern around the Office 365 competitive environment you have some of your competitors out there being aggressive on price or even Microsoft coming in and just One day kind of bundling it into say like an E5 or E7

Speaker 2

or whatever they want to come up with at that point. Well, Jim, hopefully, you've seen our new marketing campaigns and we're a lot more bold, a lot more direct. It's been having some great impact on the funnel and the we're getting a and it's bringing a lot of hits to our premium sort of SKUs on metallic. It's working the way we want it to and there's a lot more visibility around what we do. So overall in our new approach With marketing, we're very pleased and the impact it's starting to have.

Speaker 2

There's a lot of excitement there. On Office 365 specifically, I think you're referring to Microsoft's recent announcement on some archival capabilities of which we're part. It's more of It legitimizes the need for Office 365 backup, which for the longest time customers were made to believe they didn't need it. And what they really need is a lifecycle of data management on one of the most used apps in most enterprises. So we have we believe we have the best approach to that, the best solution there.

Speaker 2

Competitive pressure has always been there. And It's not a price thing. It's also important for customers to understand where their office data is written to. So you could get a service that looks like ours, but the data is written to some cloud you don't know or to some data center you don't know. Ours is End to end, all the Office 365 is end to end on Azure and everything that comes with that.

Speaker 2

So it's a value proposition. We think we've got a great value proposition. It dovetails wonderfully with our software capabilities, which is important for customers. It's not an island into itself. And we have competitive skews.

Speaker 6

Helpful guys. Thank you very much.

Operator

One moment for our next question. Our next question comes from Eric Martinuzzi from Lake Street Capital Markets. Please go ahead.

Speaker 7

Yes, Sanjay, just curious on the outlook geographically. As we look at Q1, the Americas roughly flat, international up about 1%. Are we looking for any change in that based on the full year guide? Is that would we still see for roughly similar growth rates for the 2 different geographic segments.

Speaker 3

Eric, it's Gary. I can jump in and handle the Question on geographic. Yes, so the performance overall for fiscal Q1 was roughly the same. Americas, as you stated, was roughly flat year over year. International was up 1% year over year.

Speaker 3

Within international relatively though, we're seeing stronger results throughout Europe relative to Asia Pacific. As I think about trends geographically into the second half, I would expect a little more growth out of the Americas as a lot of the renewal opportunities we have, right? We have a much higher renewal in our subscription software business, which gives us some of that transparency into the opportunity in the second half, but much of that is concentrated in the Americas

Speaker 7

okay. And then you talked about continued investment in sales into Q2. You give us some specifics there as far as the number of reps that we currently have and how many more we plan to add in Q2?

Speaker 3

Yes. So Eric, if I think about some of the work that we're doing within go to market, it's really driven around that discrete focus That we're trying to provide in our business and trying to build and enhance new routes to market. So much of what we're doing is reallocation of resources through the business to provide that discrete focus tied to 3 key areas. 1 is driving net new land and expand business. The second is continuing to secure our renewal motion.

Speaker 3

And the third is building out that velocity motion solely dedicated on SaaS. So if we think about where any incremental, I'll say net new investments are primarily coming from it's primarily coming from the 3rd as we build out that inside sales motion to drive that velocity Piece of the market dedicated to SaaS. So all of that is reflected within the guidance. Much of that happened during fiscal Q1 And there's just some final pieces that we'll move towards into fiscal Q2.

Speaker 7

Understand. Thank you.

Operator

One moment for our next question. Our next question comes from Jason Ader at W. B. Please go ahead.

Speaker 8

Yes. Thank you. Hey, Sanjay, can you give us just a quick competitive landscape and market share update both For the enterprise side of the data protection market and also the mid market.

Speaker 2

Yes. So From a competitive point of view, I shared some of the direction that we we're taking where the forces we see in the market and how our portfolio lines up very uniquely where customers are headed and the hard problems they have. Over the course of the past couple of quarters, we've done a few things that are separating us in the short term Very well. So I'll give you an example. We launched a support for data domain boost on data domain, which gives us incredible performance in that installed base and that's a large installed base.

Speaker 2

And we're seeing a lot of good traction, for example, in that, okay. That's just one example. We're also seeing some of our competitors struggle in a tough macro environment, okay. We've always been focused on we'll continue to. We continue to innovate.

Speaker 2

We continue to streamline our go to market. We've amped up our marketing. And we're definitely taking share in SaaS. It's white space. We're growing there.

Speaker 2

And I think as the platform goes, with the new security enhancements that we put out, nobody does what we do. Okay. And now coming in the fall, we've got a whole bunch of new capabilities that we're bringing to market based on customer input. So we feel very well positioned Technically and I'd say over the last couple of quarters, we're definitely taking share from some of the more legacy players.

Speaker 8

Who do you run into the most in the enterprise and then who do you run into most in the mid market today?

Speaker 2

I mean, it's never a pure it's never just nobody else there, it's always competitive. You see the usual suspects. And as in the mid market, we're also starting to Get some good penetration with metallic. And so we're seeing some of the smaller players, niche players there. It's the usual suspects.

Speaker 8

Okay. And then, Gary, for you, just did you provide any guidance on customer support The customer support line for FY 2024?

Speaker 3

Yes, absolutely. The trends that you see from a customer support line will continue into Q2 and Into the back half of the year, I would expect that the customer support line will be down on a year over year basis for full year FY 2024, somewhere in that mid to high single digit range From year over year, which is kind of where we're currently trending now, though I think one of the things that's important and it follows up I think one of the questions that Jim had asked about that customer customer support and not perpetual and currently we're about 60% is perpetual. I think we'll get to close to fifty-fifty by the end of the year or early next fiscal year, which then helps over the longer term actually to moderate that line and some of those declines will start to fade away.

Speaker 8

Okay. So just to clear, when you do a term license, that's a subscription, you separate out the support Apart from the software and that goes into customer support. Is that the right

Speaker 2

way to think about it?

Speaker 3

Confirmed, yes. Okay. Yes.

Speaker 2

Hey, Jason, Sanjay again. I just wanted to add one more thing. One of the things we're getting some lift from is vendor consolidation. As customers sort of look at spend commitments and what they've got in the installed base, they're looking to consolidate and we're a great consolidator in that space. Also as data security spend and data protection spend come together with in this environment the TCO equation, we win.

Speaker 2

And so those are some of the trends we're seeing that are assisting giving us lift as we take share. I mean just one data point, With metallic, we've exceeded 4,000 customers. That's a customer acquisition machine. And so we are taking share and if you think that 60% of those customers are new to Commvault And 40% of those customers very quickly have another Commvault product that is not SaaS. You see The stickiness of what we've got there.

Speaker 8

Got you. So 60% of the 4,000 are net

Speaker 2

new? Roughly net due to yes. All right. Thank you, guys. Good luck.

Speaker 3

Thank you. Thanks.

Operator

Thank you. I am showing no further questions at this time. I would now like to turn the conference back to Sanjay Marchandini, President and CEO for closing remarks.

Speaker 1

Thanks, Amber. This is Mike Belnick, Investor Relations. Thanks for joining today. As a reminder, all our earnings materials are available on the Investor Relations website and feel free to reach out to us for any follow-up. Thanks for joining and we'll speak to you again in the fall.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Key Takeaways

  • Q1 ARR highlights: 15% year-over-year ARR growth to $686 M, subscription ARR up 32% to $500 M, and Metallic ARR up 72% with over 4,000 customers.
  • Commvault delivered 22% non-GAAP EBIT margins, 82.9% gross margin, generated $38 M free cash flow and repurchased $51 M of stock.
  • Commvault is pursuing a clear cloud-first strategy with a unified software and SaaS platform that simplifies hybrid cloud data protection, integrates security and leverages AI.
  • Key customer wins—including NETCare for M365, TSYS for significant cost savings, and a Fortune 1000 food manufacturer’s SaaS expansion—underscore the platform’s cost and complexity advantages.
  • Q2 outlook calls for subscription revenue of $95–99 M (up 24%), total revenue of $193–197 M (up 4%), ~82.5% gross margin and ~20% EBIT margin, with full-year targets reaffirmed.
A.I. generated. May contain errors.
Earnings Conference Call
Commvault Systems Q1 2024
00:00 / 00:00