What CommVault Systems (CVLT) Said on Its Q2 Earnings Call

Key Points

• Strong subscription momentum: Subscription ARR rose 20% year over year to $1.104 billion, while SaaS ARR increased 35% to $454 million. Growth was driven by new customers, multi-product expansion and rising demand for identity resilience and data-security offerings.
• Fiscal 2027 outlook raised: Commvault now expects subscription ARR of $1.205 billion to $1.215 billion, total revenue of $1.30 billion to $1.31 billion, and free cash flow of $255 million to $265 million.
• Profitability and strategic investment improved: Non-GAAP EBIT margin expanded to 21.9%, and quarterly free cash flow reached $71 million. The company plans continued investment in cloud-native products, identity protection and AI recovery capabilities while returning at least 60% of annual free cash flow to shareholders.

CommVault Systems NASDAQ: CVLT raised its fiscal 2027 outlook after reporting second-quarter growth in subscription annual recurring revenue, SaaS ARR, subscription revenue and free cash flow. Management attributed the results to new customer additions, expanding adoption of multiple products and demand for identity resilience and data-security offerings.

Chief Executive Officer Sanjay Mirchandani said enterprises are facing growing data volumes, IT complexity and risks associated with artificial intelligence deployments. He said the company’s platform, which combines data protection, security, identity resilience and recovery, is benefiting from customers’ efforts to consolidate legacy and point solutions.

Subscription and SaaS Growth

Subscription ARR rose 20% year over year to $1.104 billion. On a constant-currency basis, Commvault generated $51 million in net new subscription ARR, including $30 million from SaaS and $21 million from term software.

SaaS ARR increased 35% to $454 million. CFO Gary Merrill said the growth reflected new customer additions, multi-product expansion among existing customers and double-digit growth in average revenue per account. SaaS revenue rose 33% to $106 million.

Subscription revenue increased 21% to $269 million and accounted for 86% of total revenue, compared with 81% a year earlier. Total revenue grew 13% to $312 million. Subscription net dollar retention was 113%, which Merrill said remained within the company’s normal operating range.

The company added more than 500 subscription customers during the quarter, representing 17% year-over-year growth, according to Mirchandani. Merrill added that approximately 40% of SaaS customers in the quarter were new to Commvault, up from roughly 30% a year earlier.

Commvault said 53% of its managed SaaS customers used two or more products as of the end of the quarter, up from approximately 45% a year ago. Management said the fastest-growing customer cohorts are using between three and eight products, with offerings including identity protection, data security, cloud-native protection and application-focused services contributing to cross-sell activity.

Identity, Cloud and AI Focus

Management highlighted identity resilience as a significant growth area. Identity resilience and data-security offerings represented approximately 30% of net new subscription ARR, while Active Directory protection ARR nearly doubled from a year earlier.

Mirchandani said identity compromise is often the entry point for cyberattacks and argued that the expansion of non-human identities through AI and agentic workflows is increasing the importance of identity protection. He said the company’s approach is designed to connect an identity-related incident with its impact on data and business applications, allowing customers to restore systems to a known-good state.

The company also reported rising adoption of cloud-focused products, including Clumio for AWS and Google Cloud, along with protection for applications such as Azure DevOps, Microsoft Dynamics and Google Workspace. Merrill said cloud-centric offerings grew 50% year over year, while the company sees continued opportunity because many cloud workloads still rely on native tools rather than third-party protection.

On AI, Mirchandani said the company is currently seeing an indirect benefit through greater workload volumes and additional types of data requiring protection. He said organizations are becoming more aware of the need to incorporate recovery and resilience into AI initiatives earlier in their deployment cycles, though he described a distinct AI resilience budget as still being in the early stages.

Commvault plans to announce AI-enabled recovery capabilities at its SHIFT conference in Nashville, scheduled for Nov. 10 through Nov. 12. Mirchandani said the planned capabilities will focus on recovery of AI applications as well as data and related discovery functions.

Margins, Cash Flow and Capital Returns

Non-GAAP gross margin improved 110 basis points year over year to 81.6%. SaaS gross margin expanded 650 basis points to 70%, which Merrill attributed to product optimization and strategic agreements with hyperscale partners.

Operating expenses increased 9% to $185 million, while declining as a percentage of revenue to 59% from 61% a year earlier. Non-GAAP EBIT was $68 million, and non-GAAP EBIT margin expanded 330 basis points to 21.9%.

Free cash flow totaled $71 million in the quarter and $122 million for the first half, up 18% year over year. The company repurchased about 808,000 shares for $109 million during the quarter and said it remains on track to return at least 60% of annual free cash flow to shareholders.

Raised Fiscal 2027 Outlook

For the third quarter, Commvault forecast subscription revenue of $293 million to $297 million, or approximately 15% year-over-year growth at the midpoint, and total revenue of about $339 million. It projected non-GAAP EBIT margin of 20.5% to 21.0%, including costs associated with the SHIFT conference.

For the full fiscal year, the company raised its subscription ARR outlook to $1.205 billion to $1.215 billion, implying approximately 19.2% growth at the midpoint and about $195 million in net new subscription ARR. It expects SaaS ARR to exceed $500 million by year-end.

• Subscription revenue guidance was raised to $1.127 billion to $1.133 billion.
• Total revenue guidance was set at $1.30 billion to $1.31 billion.
• Non-GAAP EBIT margin is expected to be 21.0% to 21.5%.
• Free cash flow is projected at $255 million to $265 million.

Merrill said the higher outlook is supported by SaaS momentum, expected cross-sell activity and larger renewals in the seasonally stronger second half. He also said the company plans to continue investing in sales capacity, cloud-native products and its AI recovery roadmap while maintaining cost discipline.

About CommVault Systems (NASDAQ:CVLT)

Commvault Systems, Inc develops data protection and cyber resilience software and services for businesses, government organizations and other institutions. Its platform is designed to help customers back up, recover, manage and secure data across on-premises infrastructure, private and public clouds, software-as-a-service applications and other distributed IT environments.

The company's offerings include backup and recovery, disaster recovery, data security, ransomware protection, cyber-recovery capabilities and data management tools.

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