Commvault Systems Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 30, 2024

There are 12 speakers on the call.

Operator

Finally, a reminder that this conference is being recorded. I would now like to turn the conference over to Mike Milnick, Head of Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning, and welcome to

Speaker 2

our earnings conference call. I'm Michael Melnyk, Head of Investor Relations, and I'm joined by Sanjay Murchandani, Commvault's CEO and Gary Merrill, Commvault's CFO. An earnings presentation with key financial and operating metrics is posted on the Investor Relations website for reference. Statements made on today's call will include forward looking statements about Commvault, future expectations, plans and prospects. All such forward looking statements are subject to risks, uncertainties and assumptions.

Speaker 2

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 than those contemplated in the forward looking statements. Commvault does not assume any obligation to update these statements. During this call, Commvault's financial results are presented on a non GAAP basis. A reconciliation between the non GAAP and GAAP measures can be found on our website. Thank you again for joining us.

Speaker 2

Now I'll turn it over to Sanjay for his opening remarks. Sanjay?

Speaker 3

Thank you, Mike. Good morning and thanks for joining us today. Q4 was an outstanding quarter, capping a breakout year for CommVault and setting the stage for fiscal year 2025 and beyond. We ended our fiscal year with continued strong momentum across all primary KPIs. Highlights from Q4 include total revenue increased 10% to 223,000,000 dollars Total ARR rose 15% to $770,000,000 Subscription ARR increased 25% to nearly $600,000,000 SaaS ARR jumped 65 percent to $168,000,000 and we closed the year with over 5,000 SaaS customers and we did this profitably.

Speaker 3

Our Q4 and fiscal year results shine a bright light on the critical role Commvault plays in a world dominated by ransomware attacks and cyber threats. Organizations need to know that when they are hit, they can recover. This is what we empower our customers to do, be resilient and recover. Our financial results speak to the multiyear journey we started 5 years ago. When I joined CommPault, I said the company had great bones with a strong financial foundation and best in class technology, and we had a tremendous opportunity to unlock a new level of growth within the company.

Speaker 3

With that goal in mind, we reinvigorated our brand and go to market motion, strengthened our partner ecosystem and expanded our roots to market, and we doubled down on Commvault's core strength, innovation. To that point, we launched a hypergrowth SaaS offering that is one of the fastest growing of its kind in the industry today, And we transformed our business model from legacy perpetual to modern subscription and SaaS. We did all of this while focusing the company to sustainable and profitable growth with some notable results. Over the past 3 years since fiscal year 2022, total ARR increased at a 15% CAGR, subscription ARR grew at a 31% CAGR and ARR from a hyper growth SaaS offering more than tripled. We consistently delivered profit margins of 20% or better.

Speaker 3

We generated over $500,000,000 of free cash and returned over $600,000,000 of cash to shareholders through stock repurchases. I'm extremely proud of what we've accomplished and would like to thank our customers, partners and employees for their trust and commitment to Commvault. Our journey is only getting more exciting. In November, we shifted our company and everything it represents to cyber resilience. As I alluded to previously, the biggest challenge organizations face today is the unrelenting breadth and scale of cyber attacks.

Speaker 3

We're talking automated, intelligent and state sponsored attacks. These attacks put immense pressure on CISOs, the C suite and the Board to rapidly recover and be resilient. This is exactly what we enable with our Commvault Cloud Cyber Resilience Platform. Through Commvault Cloud, we offer autonomous recovery so that customers can recover their environments at scale. Customers can proactively perform health checks and detect anomalies and threats.

Speaker 3

They can utilize our AI technology to enhance the recovery process and they can secure and recover their data across any workload, any infrastructure and from any location to any location, all at the lowest possible TCO. 1 of our marquee clients this quarter is Albertsons Companies, a Fortune 100 grocer that migrated all their apps and infrastructure into the cloud. The retailer wanted to strengthen their cyber resiliency and implemented Commvault's unique and differentiated platform to provide additional security, recovery, workload protection and cloud integration. Last year was a particularly difficult year for hospital systems as cyber and ransomware attacks nearly doubled. With the risk of an attack top of mind, a large network of hospitals in Latin America was concerned about their ability to recover from a cyber attack.

Speaker 3

With Commvault, they have peace of mind that they can easily and quickly recover if hit. With one platform, they can manage their on prem remote and cloud data and we protect an immutable copy of the data, which is critical for recovery. These are just 2 examples of why we're winning in the market and are frequently chosen over competitive offerings. But we're not stopping there. We're taking recovery even further with Commvault Clean Room Recovery.

Speaker 3

Yesterday, we announced how this new and unique offering empowers organizations to be ready to recover by providing a clean, isolated and on demand recovery location in the cloud. They can spin up as many workloads as they need. Clean Room Recovery also enables users to proactively test their response plans so they can quickly recover when bad actors strike. Building on these unrivaled capabilities, 2 weeks ago, we closed on the acquisition of Aparadix. With this technology, customers will be able to rapidly discover, rebuild and get their critical cloud applications and production infrastructure fully operational after an outage or cyber attack.

Speaker 3

With the panics and Cobalt clouds, this rebuild will take minutes or hours rather than days or weeks. After all, in the unfortunate event of an attack, time is money. By marrying Commvault's extensive risk readiness and recovery capabilities with Apranix's cloud native rebuild capabilities, we help customers shorten recovery times after an attack. This takes cyber resilience to a whole new level. In closing, I believe we are the best company with the best people and by far the best platform for cyber resilience in the industry.

Speaker 3

With ComboCloud, we believe that we can offer the most comprehensive AI enabled platform for CISOs and CIOs to work together. It was engineered with a hybrid enterprise in mind to enable customers to manage their resilience across any workload, environment or location. It's available as software, SaaS or both. That way, if our customers suffer an attack, we help them to confidently and quickly recover their business and stay resilient. We believe fiscal year 2025 will be the year for CommVault to continue accelerating our growth.

Speaker 3

With that, I'll turn it over to Gary to discuss the numbers and provide more insights on our forward outlook. Gary?

Speaker 4

Thank you, Sanjay. As Sanjay mentioned, we closed the fiscal year with strong momentum with all of our key primary metrics coming in ahead of expectations. Our cyber resilience platform and related messaging is resonating in the market and our team executed in the field driving another quarter of double digit revenue growth. I'll recap Q4 and the full fiscal year 2024 results before discussing our outlook for fiscal year 2025. As a reminder, all growth rates are on a year over year basis unless otherwise noted.

Speaker 4

Total revenue grew 10% to $223,000,000 driven by a 27% increase in subscription revenue, which now exceeds 50% of total revenue. Subscription revenue growth was fueled by increased contributions from our SaaS portfolio and solid double digit growth in term software licenses. Our software revenue growth reflected a healthy balance between renewals and our strongest land and expand quarter of the fiscal year. Once again, we saw improved close rates and revenue from term software transactions over $100,000 increased 13% as we closed an accelerated volume of larger deals. From a geographic perspective, both the Americas and international regions had strong performance with both regions posting double digit term software growth.

Speaker 4

Our Americas region delivered its best new customer acquisition quarter of the year as our cyber resiliency platform gained additional traction in the enterprise market. Q4 perpetual license revenue was flat sequentially at $15,000,000 as perpetual licenses are generally sold in limited verticals and geographies. We expect the headwinds for perpetual license sales to diminish in fiscal year 2025 and beyond. Q4 customer support revenue, which includes support for both our term based and perpetual software licenses, was $77,000,000 flat sequentially and year over year. For the full year, customer support revenue from term software and related arrangements accelerated to 47% of total customer support.

Speaker 4

This compares to just 40% in fiscal year 2023 and we expect customer support revenue from term based software licenses to become the majority of our customer support revenue in fiscal year 2025, driven by the attach on term software license growth. Now I'll discuss ARR. Q4 total ARR was $770,000,000 an increase of 15% year over year, which reflects the underlying strength of our business when our revenue was presented on an annualized basis. Subscription ARR, including term based licenses and SaaS contracts, grew 25% year over year to $597,000,000 This includes $168,000,000 of SaaS ARR, which jumped 65% from a year ago. On a quarter over quarter basis, Q3 to Q4 SaaS ARR growth was impacted by a few $1,000,000 of foreign exchange headwinds as the U.

Speaker 4

S. Dollar strengthened primarily versus the euro in fiscal Q4. On a constant currency basis, we added approximately $18,000,000 of net new SaaS ARR in both fiscal Q3 and fiscal Q4 as the underlying strength of our SaaS business continues. New SaaS ARR contributed 2 thirds of our total ARR growth for the full fiscal year 2024 and SaaS ARR now represents 22% of total ARR compared to just 15% a year ago. From a customer perspective, existing customer expansion was strong with Q4 SaaS net dollar retention of 123% being benefited by both up sell and cross sell activities.

Speaker 4

Now, I'll discuss expenses and profitability. Fiscal Q4 gross margins were 83.2%, an increase of 30 basis points sequentially, reflecting the healthy mix of term software gross margin leverage and continued SaaS gross margin improvement. Fiscal Q4 operating expenses increased 13% to $139,000,000 reflecting higher year end commissions and bonuses against a record revenue quarter. We ended the quarter with approximately 2,900 employees, which was flat sequentially and an increase of 4% year over year. Non GAAP EBIT for Q4 was $45,000,000 and non GAAP EBIT margins were 20.2%.

Speaker 4

Our Q4 free cash flows grew 18% year over year to $79,000,000 reflecting continued growth in SaaS deferred revenue and strength of our software subscription business, which typically include upfront payment on multiyear contracts. In Q4, we repurchased $50,000,000 of stock under our repurchase program. Now, I'll discuss the full year fiscal 2024 results. Total revenue increased 7% to $839,000,000 driven by double digit growth in the second half of the year. We are pleased with the acceleration in total revenue growth throughout the fiscal year and we expect our business momentum to continue into fiscal year 2025.

Speaker 4

Subscription revenue increased 23 percent to $429,000,000 crossing over 50% of our total revenue. Fiscal year 2024 operating expenses were 61% of total revenue compared to 62% in the prior year, demonstrating operating expense leverage in our responsible growth model. Full year non GAAP EBIT grew 11% to $177,000,000 and non GAAP EBIT margins improved 70 basis points to 21.1%. Moving to some key balance sheet and cash flow metrics. We ended the quarter with no debt and $313,000,000 in cash, with approximately $100,000,000 in the United States.

Speaker 4

Full year fiscal 2024 free cash flows improved 20% year over year, reaching a milestone of $200,000,000 for the full fiscal year. We also returned $184,000,000 to shareholders as part of our share repurchase program, representing 92% of free cash flow. Our average price of shares we repurchased during fiscal year 2024 was $74 Now, I'll discuss our outlook for fiscal Q1 and the full fiscal year 2025. With our subscription software evolution complete, we are now focused on accelerating our total revenue growth rate, while continuing to generate strong free cash flows and provide an attractive capital return to our shareholders. For fiscal Q1, we expect subscription revenue, which includes both the software portion of term based licenses and SaaS to be $116,000,000 to $119,000,000 This represents 21% year over year growth at the midpoint.

Speaker 4

As a result, we expect total revenue to be $213,000,000 to $216,000,000 with growth of 8% at the midpoint. At these revenue levels, we expect Q1 consolidated gross margins to be in the range of 81% to 82%. We expect Q1 non GAAP EBIT margins to be in the range of 18% to 19%. Q1 operating expenses will include approximately 200 basis points of investments related to a live fiscal year sales kickoff that occurred earlier this month and our inaugural appearance at the RSA Conference in May, both of which did not incur in the prior year. Our projected diluted share count for fiscal Q1 is approximately 45,000,000 shares.

Speaker 4

Now, I want to give our initial outlook for the full fiscal year 2025. We expect fiscal year 2025 total ARR growth of 14% year over year. We expect subscription ARR to increase in the range of 21% to 23% year over year. From a revenue perspective, we expect subscription revenue to be in the range of $514,000,000 to $518,000,000 growing 20% year over year at the midpoint with strong contribution from both term software licenses and SaaS. We expect total revenue growth to accelerate and be in the range of $904,000,000 to $914,000,000 an increase of 8% at the midpoint.

Speaker 4

Moving to full year fiscal 2025 margin, EBIT and cash flow outlook. We expect gross margins to be in the range of 81.5% to 82.5%, inclusive of the accelerating contribution of our SaaS business. We also expect non GAAP EBIT margins to be in the range of 20% to 21%, including the Q1 event costs that did not occur in the prior year and certain focused investments to accelerate our revenue momentum. Operating margins should be seasonally stronger in the second half of the fiscal year compared to the first half. We expect full year free cash flows of at least $200,000,000 Our Board of Directors recently increased the authorization on our share repurchase program to $250,000,000 We expect to continue with our existing practice of repurchasing at least 75% of our annual free cash flows.

Speaker 4

In fiscal year 2025, we are also lowering our non GAAP tax rate from 27% down to 24%. We believe that a 24% rate more closely aligns with our effective tax rate expectations over the next few years. Given the current cyber market tailwinds, the predictability of our large and growing subscription revenue base and our execution momentum in the field, I'd like to discuss our next major milestone. Today, I'm excited to share that as we exit fiscal year 2026, we expect to achieve total ARR of $1,000,000,000 with subscription ARR representing 90% of total ARR, including an accelerating SaaS contribution ranging from $310,000,000 to $330,000,000 For additional details and trends on all of our key metrics, please take time to review our investor deck contained in the Investor Relations section of our website. Operator, you can now open the line for questions.

Operator

And your first question comes from the line of Aaron Rakers from Wells Fargo. Please go ahead.

Speaker 5

Yes. Thanks for taking the question and congrats on the solid results. I'm curious as we think about the guidance that you've given for the full year on your ARR, particularly with the subscription side and just the growth in subscription in general, how would I characterize the renewal opportunity relative to kind of the new subscription growth that you're expecting? Any kind of framework of the base of renewals relative to new would be helpful. And I

Speaker 3

do have a follow-up.

Speaker 1

Hey, Erinn, it's Gary. Good morning. Thanks for joining us. I'll start off and take your question. And yes, we're really pleased and excited about the momentum that we have in the business and looking forward to accelerated revenue growth.

Speaker 1

That revenue growth will be driven by subscription revenue. As you know, that contains both our software and SaaS. And with the momentum that we see, we will see a balanced contribution between our land and expand business and our renewal business. We will see incremental renewal tailwinds again in the fiscal year, not to the extent that we necessarily saw in fiscal year 2024, okay. They will start to normalize as we get into 2025 and beyond, especially since our term our average terms are down around about 2 years now.

Speaker 1

So the quantile will go up, but the percentage increase will be less than we saw in FY 2024. And we think that we'll see a nice strong balance between lanes and expand and rentals.

Speaker 5

Yes, very helpful. And then as a quick follow-up, I'm just curious when I unpack the guidance for the full year, in the prepared remarks you talked about kind of a diminishing headwind related to the perpetual business and the mix shift towards subscription component or term within the customer support. However, like when I look at the guidance, it looks like you're implying maybe a 4% or 5% decline in those combined, call it, maturedeclining pieces of revenue over the last year. Is that conservative? What would we expect that to kind of flatten out?

Speaker 5

I'm just curious if just kind of how much conservatism you're baking into those pieces of the revenue guide?

Speaker 1

Yes. The tailwinds we've seen are starting to diminish, I think thinking about somewhere between flat and low single digit decline, Aaron, is kind of what you see and reflected in our guidance. So, I would expect that perpetual business headwind, we're now in that run rate of $12,000,000 to $15,000,000 a quarter. I would expect that customer support line to be that low single digits, probably hovering around roughly say $300,000,000 for the full year. So what you'll see is those tailwinds now have essentially been eliminated and then they're more roughly flattish to slightly down.

Speaker 1

So that's basically what we see and that's what's implied within the guidance.

Speaker 5

Perfect. Thanks, Gary.

Operator

Your next question is from the line of James Fish from Piper Sandler. Please go ahead.

Speaker 6

Hey, guys. Thanks for the questions and great end to the fiscal year. Congrats. How much of the additional investments as we're looking at margins kind of coming down, understanding there's some event stuff here that you guys have historically not participated in that you guys are getting more active in, which I'm sure your CMO your new ish CMO is pleased about. But how much of the additional investments are more on the indirect channel side?

Speaker 6

And how should we think about the percentage of the business coming via indirect sources now?

Speaker 1

Hey, Jeff, it's Gary. I'll jump in and take this one as well. So from a margin perspective, what we've guided to is roughly, say, flattish in the guidance and we continue to see that acceleration on the top line from SaaS. So you'll see the impact from the SaaS business, our metallic business continue to accelerate. And that high growth propels then a slightly different margin profile, which we absorb.

Speaker 1

Then when you move down to OpEx and some of the investments, a good chunk of the investments are what I called out on the prepared remarks, okay. As it relates to some of these events, especially we're excited to attend RSA, just early next month. And when you move past some of that, partners and the ecosystem is a huge focus area for us during the year. Some of the work that we're doing in the ecosystem, especially with the hyperscalers and especially tied to some of the clean room functionality and announcements that we made should really start to propel momentum and ecosystem leverage for us as we go. So it's not only the hyperscalers, but it's also the alliance partners that are out there as well as leveraging security partners and building the integrations with the security partner and the security partner ecosystem.

Speaker 1

So, it's a good call out that you have is that, that investment and focus into the ecosystem is a big driver for us in FY 2025.

Speaker 6

Makes sense. Just a quick homework one. Can you guys go over any contribution from Uplandex in fiscal 2025? And Sanjay, for you, obviously, a big merger occurred towards the end of your fiscal year. What are you guys seeing from that combination at this point from either a customer angle or a partner angle in terms of the impacts to Commvault?

Speaker 1

I'll take off on the Nutranext and then I'll turn it over to Sanjay and he can hit some of the others. So first as it relates to Nutranext, we're actually really excited because it gives us functionality and brings us even further into the world of cyber resiliency, okay. It's a young company, so with not a lot of employees, probably about 25 customers. So, as we start to build through that integration here pretty quickly, we'll start to see contribution probably in fiscal Q2, fiscal Q3. But fundamentally, what it helps us do is really bring in rebuild into the Commvault cloud.

Speaker 1

It's a major competitive differentiation for us because as a customer rebuilds from a ransomware attack, going from recovering your data to rebuilding and recovering your applications is a game changer we think in this environment. Okay. Amit, I'll just turn it over to you the second part.

Speaker 3

Yes. For the merger that I think you're alluding to, it's the day it was announced, we got calls from prospects who are existing incumbents for them and asking us to sort of help them understand it and what the optionality was. Since then, we've converted several of those incumbent customers with the competitors over on to our platform and there's many more in the pipeline. In fact, partners feel alienated on this and have come to us asking us to sort of figure out new ways to work with them and to and with their customers. Tomorrow, we're going to you're going to see a campaign that's going to be quite, I'm going to say, good for customers, between us and a partner, really helping them move away from the competitor.

Speaker 3

So it's all good for us. We see it as an opportunity. There's a lot of uncertainty and uncertainty doesn't make customers safer. And so we're going in with Commvault Cloud and really helping customers see a safer future. Thanks guys.

Operator

Your next question comes from the line of Howard Ma from Guggenheim Securities. Please go ahead.

Speaker 7

Great, thanks. Sanjay, can you talk about how Commvault Cloud, how the portfolio can you talk about the portfolio and demand drivers and how that will continue to evolve as you march towards your fiscal 'twenty six target that you laid out today? In particular, some of your peers in the space seem to prefer a cloud first approach. You compare that with Caball strategy of giving customers more flexibility in terms of where they choose to protect their workloads, whether it's on prem or the cloud? Can you just talk about how important is this hybrid approach to achieving your long term target?

Speaker 7

Thanks.

Speaker 3

Great. Good to hear from you, Howard. So the way we're looking at the next 8 quarters and beyond is about the customer and putting the customer safety first. Our entire capability of the company, which was originally data protection, has pivoted and been enhanced from Commvault Cloud for cyber resilience. And at the heart of cyber resilience is a customer's ability to recover in the face of an attack.

Speaker 3

So we continue to flesh out our capabilities and we don't separate out artificially like some of our competitors do on premise workloads from cloud workloads because eventually in the hybrid world, workloads will move and they will live in different places at different times and in different clouds. We take that to heart and everything we do is with a hybrid capability. So SaaS workloads, on premise workloads, the broadest breadth of workloads that a customer could ever think of, we will cover. Then if you look at the architecture that we have, it decouples storage from the control plane. And that gives customers that additional capability of being able to run anywhere and write anywhere.

Speaker 3

That is what matters. And that gives them more insular more it makes their architecture more insular and more secure. So between the architecture and the amount of innovation putting into the amount of innovation we're putting into our Commvault cloud platform, all of this will keep us in good stead as we move forward. The question about cloud first versus not, everything we do is cloud. We moved over 4 exabytes of data conservatively in the last couple of years into the public cloud.

Speaker 3

Okay. Our ability to do things in the cloud is second to none because we use native capabilities. We don't stage and we don't move things into an appliance before we move into the cloud, like some of our competitors do. So we're very confident on the architecture. To be totally cloud beta.

Speaker 3

And with the acquisition of Apranix, to be totally cloud native. And with the acquisition of Apranix, we take cloud native to the next level with application level rebuild, which makes our resilience portfolio even richer. So probably more than you wanted, Howard, but you see why we're so excited about where we're going with this.

Speaker 7

Thanks, Ajay. I think we always want more. That's our problem. Can you talk a little bit more about the Pranix acquisition you just mentioned? It seems like the ability to rebuild cloud applications and configurations seems pretty unique.

Speaker 7

Can it will Appronics be used I guess, can it be used with the most commonly used third party SaaS applications like the I guess Salesforce, ServiceNow, Workday of the world or is it more for custom apps or is it both and will this be a standalone SKU or just integrated into the platform?

Speaker 3

So it's the latter. The complexity comes in. So our core SaaS metallic platform covers a lot of the ready made, if you would, SaaS apps out there, right. So we know how to do those, whether it's the offices of the world or Dynamics or what have you. So that goes through a more standard ability for us to protect.

Speaker 3

With cloud native apps, as customers migrate more and more of their apps into the cloud, managing those apps and giving them the level of resiliency and ransomware protection that we can give more traditional apps gets harder. And they use cloud native capabilities as they move the workloads into the cloud. What Brandix does is discovers all of those assets that they have that make up an app, tells you very clearly what is and isn't protected, brings it into the fold with a very automated process. And then whether you're doing it for practice or you're doing it for real, allows you to rebuild that application step by step very quickly. It's cloud native apps can be tend to be less persistent and less coupled, if you will, than traditional apps.

Speaker 3

Now where the rubber really hits the road, Howard, is in our experience and we've done this many, many times, when a customer is breached and is trying to recover from an attack, about a third of the time roughly plus minus is on bringing back the data. And once they've got good clean validated data from us, they spend roughly 2 thirds of the time beyond that bringing back apps and verifying apps. And now with this capability with the Pranix, we hopefully can give them an end to end solution on the platform with resilience and the ability to bring back their apps very quickly. Now the way it's going to be delivered to market through the summer, it's going to be as it is and available in it has basically 2 SKUs today. You can either take a basic SKU or you can take an enterprise grade SKU and roll it out.

Speaker 3

It's very simple. It self discovers. It runs and heals. And over the course past the summer, we're going to bring more of the Commvault magic into it and enhance more of the capability. We've got a very rich roadmap in front of us.

Speaker 3

I'm not going to talk about it right now, but rest assured that lifecycle management and policy applications around broad datasets when you're trying to rebuild apps will definitely make its way into the product.

Speaker 7

Great. Thanks so much.

Speaker 3

Welcome.

Operator

Your next question comes from the line of Eric Martinuzzi from Lake Street. Please go ahead.

Speaker 8

Yes. I wanted to better understand the outperformance in your Q4. It sounds like just basically versus what you're expecting for Q4, we had a little bit better performance or maybe execution on the term agreement side of the subscription. Could you narrow that down maybe by geography or vertical, any points to call out there?

Speaker 1

Eric, it's Gary. Nice to talk to you this morning as related to Q4. And as you mentioned, we're really pleased. It was an amazing quarter for us, capped off a really strong year, okay. And we saw immediate benefit from some of the cyber resiliency offerings that we announced.

Speaker 1

Going back to our Shift event that we had just past November, we announced kind of our platform approach with a few different tiers and expecting that some of the benefit from our new cyber resiliency packaging, pricing and functionality and we saw immediate benefit in the quarter. So very pleased with how quickly our customers are adopting that functionality and what it's doing to help drive us predictability and momentum in the business. If you tie that with better execution in the field and execution being in close rates and ability to deliver against numbers and close against a qualified pipeline, ends up in a very strong quarter. From a geographic perspective, we saw performance across both of our regions, both our Americas region as well as our European region. And if I had to call out one thing in specific, the penetration we saw in the Americas on new customer was one of the strongest quarters we've had in quite some time.

Speaker 8

Okay. And then taking that Q4 outperformance and then just looking out at your 2025 outlook, the pipeline, I hesitate to kind of boil it down into a world of Doctor versus cyber resiliency, but what are you seeing in the pipeline as far as maybe cyber resiliency as a percent of mix?

Speaker 3

Eric, this is Sanjay. I don't think we're at this point releasing the mix shift. But the way I like to characterize it is, it's a journey for a customer in really 3 stages. Fundamental protection of their assets, their data assets and even application assets moving that to a highly automated Doctor capability and scale capability to be able to it's not just about bringing back your workloads, it's about bringing them back verified and scale. So you need a ton of automation, AI type capabilities.

Speaker 3

And then extending that all the way to the ultimate sort of capability, which is recovering from a cyber resilience, really building inside the resilience and having full proof recovery. Now that also means that you connect back in on the perimeter with partners on the defense side of things. And so it's a deep integration of security capabilities, AI capabilities and automation and obviously our core, which is about our ability to bring back customers to life through protection. So it's fairly for us, and if you would, in a SKU or product based delivery model, but needless to mention, every customer we speak to want to be on the right hand side of that capability, which is cyber resilience. So our goal with our partners is to move them through that journey just as fast as they're capable of absorbing what it takes.

Speaker 8

Understand. Thank you.

Operator

The next question comes from the line of Jason Ader from William Blair. Please go ahead.

Speaker 9

Yes. Thank you. Good morning, guys. Two quick questions. One is, do you expect term to grow double digits in FY 2025?

Speaker 9

And then the second question is, just on the data security slash cyber resilience branding and I know you guys have pushed this concept as well as Rubrik and others. Are you starting to see more of your technology being sold into the CISO budget versus the CIO budget? In other words, is the branding aligning with the reality of how customers are actually budgeting for your technology? Yes.

Speaker 4

Hey, Jason, it's Gary. I'll hit

Speaker 1

the first one and then I'll pass it to Sanjay to talk about your second part. As it relates to contribution in FY 2025, we've built now a very repeatable business model with a recurring revenue function. And so with that, we'll get contribution from within that subscription line, we will get strong contribution from all three sources. Those sources would be our term renewal business, our land expand business on the term renewals and the highest level of acceleration will be tied to our SaaS business. You'll be able to model it if you just kind of take a look at our SaaS ARR where we ended the year, you'll get a pretty good sense for what our SaaS contribution would be, which will be very strong again, but it will be complemented with good growth from the term software licenses as well.

Speaker 1

And Sanjay, I'll pass it to you on the second part. Thanks.

Speaker 3

Hi, Jason. So the short answer is yes, absolutely. CISOs, we have met more CISOs in the last 6, 7 months than probably the prior 2 years only because the requirements have increased. And it's not just about perimeter security, it is about recovery. And recovery traditionally has lived with IT.

Speaker 3

So our Commvault platform bridges and we think we're very unique in what we do. The need of a classic CSO organization's responsibilities with a classic IT infrastructure organization's responsibility and data protection. We bridge the 2. We also bridge SaaS and non SaaS, which is very important to customers because you can't have separate policies and separate capabilities. You need more unification.

Speaker 3

We also integrate with the perimeter, with the likes of Palo Alto, with the likes of Darktrace. We integrate with their capability so that their intelligence is fed into our capabilities and our intelligence is fed back into theirs. So it is a unifying platform for both the security organization and the IT infrastructure organization in most companies and that is very appealing. So it's not a pivot on one side or the other. Recovery is a team sport when you get hit and time is of essence.

Speaker 3

We believe it's the only platform with the capabilities to get that to get customers back up with the lowest TCO.

Speaker 9

And then just a quick follow-up to you Sanjay. Do you foresee the industry starting to see consolidation between kind of your line of business, this backup and recovery and cyber resilience with more traditional security companies, sort of ALA, the Symantec, Veritas, decade ago concept?

Speaker 3

I don't think I'd follow your question fully. You talked about perimeter security consolidation, are we talking about legacy backup?

Speaker 9

Convergence between security vendors and traditional backup vendors?

Speaker 3

Yes. So there is no resilience without core security. So over the years, we have built all of the required 0 trust type architectures plus, plus, plus into our technology to make the data that we security players. We're in we're not competing with the traditional security players, we're integrating with the traditional security players because that is their forte. But recovery is a team sport.

Speaker 3

Like I said earlier, and you need to have the intelligence to make sure that the data restoring and recovering is actually clean, is actually the way you want it. And so for that, having the threat intelligence, having the risk assessments, having all of that integrated into our capabilities with partnerships and some of it our own, makes the platform more robust than anybody else. And we know what we're really good at and we're going to and we protect customers' data in a difficult world. We said that for many years and we continue to put that at the heart of what we do. That doesn't mean we don't partner.

Speaker 3

Thank you.

Operator

And your next question is from the line of Rudy Kessinger from D. A. Davidson. Please go ahead.

Speaker 2

Hey, guys. Thanks for taking

Speaker 10

my questions and congrats on the strong numbers here. I know it's still early with cyber resilience, but could you talk about maybe the expected ASP uplift that you expect in some of these deals? And when this year should we maybe start to see some material contribution from a new business standpoint from Cyber Resilience?

Speaker 1

Yes. Hey, Rudy, it's Terry. Good morning and thanks for joining us this morning. As Sanjay mentioned, it's still early for So we're not right at the point where we're going to start giving maybe specific contribution in uplift. I will say though that during the quarter, we already saw contribution.

Speaker 1

So our results reflect contribution as well. And some of our results relative to expectations are related to that contribution, okay. We're building pipeline and that's the key point and it's more about building the pipeline and build and taking our customers through that journey from where they are today to ultimate cyber resilience. So it's not just you go from here to there, it's a journey. And we can do that multiple ways.

Speaker 1

They can build that over time. We have other bundling and packaging options that they can go straight there. And with some of the functionality we released with like cleaning room technology today, right, we're giving them the opportunity to build that on through that journey. But maybe Sanjay has to take more.

Speaker 3

Yes. No, I'll just give you an observation, a data point. Customers that have been breached completely gravitate towards this type of resilience message and capabilities, because they know what it takes to recover and it is hard. So our cyber resilience capabilities in the platform, SaaS and non SaaS, are very appealing. Like Gary said, we've already seen some success.

Speaker 3

The pipeline is building. And all the conversations we're having with customers gravitate towards how fast can we get to be really resilient. And that comes with 2 things, our an incredible ability to recover, which we bring to the table and with our unique innovation on cleanroom, it's our capability, as Gary mentioned, your ability to test your readiness as often as you want across all workloads so that you are truly ready for that attack if it happens. So again, it's not yet the packaging is newish, but the desire and customers and understanding of where they need to be isn't and especially when they've been breached.

Operator

And that concludes today's Q and A session. I would like to turn the conference back over to Mike for closing remarks.

Speaker 11

Thanks, Paulie. For those of you who will be out at RSA in San Francisco, we're going to have an exciting booth with exhibits, and we'll have our executive, the management team present as well as a number of our field personnel. So we hope you can join us at RSA next week. As a reminder, a recap of the call, we have a presentation posted on our Investor Relations website, and you can reach out to me with any questions. Thanks for joining today and we look forward to speaking with you soon.

Speaker 11

Thank you.

Operator

This concludes today's conference call. Enjoy the rest of your day. You may now disconnect.

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Key Takeaways

  • Robust Q4 performance: Total revenue grew 10% year-over-year to $223 M, total ARR rose 15% to $770 M, subscription ARR climbed 25% to $597 M, and SaaS ARR jumped 65% to $168 M, all while delivering strong free cash flow and $50 M in share repurchases.
  • Cyber resilience platform: Commvault Cloud Cyber Resilience Platform offers autonomous recovery, proactive health checks, AI-driven restores and hybrid workload protection at the lowest possible TCO, addressing the surge in ransomware and cyber threats.
  • Recovery innovations: Launched Clean Room Recovery for on-demand isolated cloud recovery environments and acquired Apranix to enable rapid cloud-native application rebuilds, cutting downtime from days or weeks to minutes or hours.
  • Subscription and SaaS transformation: Since FY 2022, total ARR has grown at a 15% CAGR, subscription ARR at a 31% CAGR and SaaS ARR has more than tripled to over 5,000 customers, all while sustaining >20% profit margins and returning over $600 M to shareholders.
  • Confident FY 2025 outlook: The company expects 8% total revenue growth to $904–914 M, 20% subscription revenue growth, 14% ARR growth, 20–21% non-GAAP EBIT margins, at least $200 M in free cash flow and a path to $1 B ARR by FY 2026.
A.I. generated. May contain errors.
Earnings Conference Call
Commvault Systems Q4 2024
00:00 / 00:00