Q3 2024 Commvault Systems Inc Earnings Call

Hello, and welcome to the Commvault Q3 fiscal year 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session and if you would like to ask a question. During this time simply press star one on your telephone keypad.

I'll now turn the conference over to Mike Melnyk head of Investor Relations. Please go ahead.

Good morning, and welcome to our earnings Conference call I'm, Michael Melnyk head of Investor Relations and I'm joined by Sanjay Mirchandani Commvault CEO, Jeremy male Commvault CFO and earnings presentation with key financial and operating metrics posted on the Investor Relations website for reference.

He has 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. Please refer to the cautionary language in today's earnings release Commvault. Most recent periodic reports filed with the SEC for a discussion.

The risks and uncertainties that could cause the company's actual results could be materially different from those contemplated in the forward looking statements commvault.

Commvault does not assume any obligation to update these statements.

During this call Commvault 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.

Thank you again for joining US now I'll turn it over to Sanjay for his opening remarks Sanjay.

Thank you Mike Good morning, and thank you for joining us today.

I am pleased to report, our Q3 results exceeded expectations, including double digit year over year growth across our most important kpis by our own metrics. This was an exceptional quarter. We also set the stage for the future by introducing market leading innovation with.

With Commvault block, our revolutionary platform for cyber resilience.

Some financial highlights include total revenue increased 11% year over year to $217 million.

This was driven by a 31% increase in subscription revenue, which now represents more than half of our total revenue.

Total air are the primary metric, we use to measure underlying growth grew 17% year over year to over three quarters of a billion dollars.

Subscription <unk> grew 29% year over year to 571 million and is now over 75% of total alcohol.

SaaS increased 77% year over year to $152 million.

And we expanded operating margins by 180 basis points year over year, while continuing to repurchase shares.

These results reinforce that commvault products and services are in more demand than ever.

Especially as companies grapple with how to keep their data secure compliant and resilient in a world increasingly under threat of cyber attacks.

For two years now we've discussed how the volume intensity and sophistication of cyber attacks would require a radically different approach to cyber resiliency.

One of the babies when perimeter security alone with device. It's just a matter of time until the bad actor's got it.

Rather than just looking at prevention.

Cio's and T cells, Unlike a putting a heavy emphasis on recovery in Brazil.

This transition has fueled the most important pivot in our 27 year history.

In November we introduced Commvault cloud powered bimetallic AI <unk>.

This platform brings together the best of all worlds industry, leading data protection combined with data security data intelligence and recovery.

Commvault cloud offers the fastest most reliable recovery of any solution in the market today.

With our platform data can be restored from anywhere to anywhere rapidly reliably and at massive scale.

The platform provides AI capabilities, and giving customers automated and predictive recovery threat intelligence and operational efficiencies to deliver true cyber resilience.

No longer below organizations need to make a natural choices between SaaS and other data set of workloads.

With our platform, we support more workloads than any other vendor in our space and we do all of this at the lowest total cost of ownership.

We scaled the platform integrating with major hyperscale as well as leading cyber security and AI companies like Aviva dark place data bricks, Microsoft Sentinel and Palo Alto networks among others.

I am pleased to share that customers partners and industry analysts have been raving about.

For instance, one customer told analysts from enterprise strategy group.

We're a highly regulated industry Commvault cloud was the only solution. We found that gives us the flexibility and assurance that satisfied our auditors.

Because of Commvault cloud I can assure our leadership team that we are protected and we all sleep better at month end quote.

IDC Research Vice President Phil Godman said quote this announcement realized commvault products to meet customer preferences and sets the company on a path to be very competitive in cyber resilience and quotes.

And we continue to introduce major innovations in the platform that stalled critical customer challenges for example, with a clean room recovery offering we are closing the gap that exists between incident response planning and readiness.

A new clean room recovery capabilities enabled customers to thoroughly and cost effectively test the recovery plans. It also provides.

<unk> some of the safe on demand environment to recover.

It is this kind of groundbreaking innovation that sets us apart from the competition and helps us take share and land new business.

In fiscal Q3, we added another 500 subscription customers, bringing our total to almost nine.

Subscription customers now represent well over half of our total active customer base.

A couple of examples include.

A large state agency that detect a security gaps with its incumbent vendor.

This new customer turned to Commvault for immutable, Aercap ransomware protection anomaly detection and unimproved cyber resilience posture.

And we also help the fortune 500 capital equipment company eliminate this patchwork of vendors and move their workloads onto a unified platform.

This allowed them to modernize and improve their cyber resilience posture better protecting them from ramps and lead with a lower total cost of ownership.

To expand our perspective and keeps us at the forefront of innovation.

We also established a cyber resilience council comprised of security visionaries from top cyber cloud and government organizations.

The council would advise on security trends and cyber threats, which will ship product development strategy and partnering opportunities.

It is chaired by Melissa Hathaway, a thought leader in cyber security and digital risk management, who served in two presidential administrations.

With two months away from closing our fiscal year and I couldnt be more excited about our momentum as we approach fiscal year 'twenty five.

With that I'll turn it over to Gary to discuss our results.

Gary.

Thanks, Sanjay and good morning, everyone.

I am pleased to report strong revenue and earnings outperformance in Q3.

Starting with the topline.

Total revenue was $217 million, an increase of 11% year over year and significantly outpaced our Q3 expectations.

Our total revenue growth was highlighted by a 31% year over year increase in conscription revenue to $114 million reflective of both solid double digit growth in term software licenses and an accelerating contribution of SaaS revenue.

Our execution was strong as well.

Large software deal close rates improved sequentially.

And we delivered against our largest term subscription renewal quarter of the fiscal year.

This execution resulted in term software deals over $100000 up 25% year over year.

Driven by increases in both average selling price and deal volume.

Q3, perpetual license revenue was $15 million as deep perpetual licenses are generally sold and limited verticals and geographies.

At the current run rate.

We believe that the headwind to our reported total revenue growth from perpetual license sales are normalizing as we exit the current fiscal year.

Q3 customer support revenue.

Which includes support for both our term based and perpetual software licenses with $77 million down.

Down just 1% year over year.

Q3 and fiscal year 'twenty four.

<unk> to benefit from the continued trend of fewer conversions are perpetual support contracts to term software licenses.

Year to date.

Support revenue from perpetual licenses represents 54% of total customer support.

With the balance coming from term software and related arrangements.

This compares to approximately 60% in fiscal year 'twenty three.

75 per se in fiscal year 2002.

At this trajectory we.

We expect customer support revenue from term based software license.

To become the majority of our customer support revenue next fiscal year.

Moving from revenue results too.

Sure.

Q3, <unk> was $752 million.

<unk>, 17% year over year growth.

And continues to reflect the underlying strength of our business. When our revenue is presented on an annualized basis.

Subscription IRR, which includes term based software arrangements and SaaS contracts Inc.

Increased 29% year over year to $571 million.

Within subscription.

AAM IRR grew 77% year over year to $152 million.

Driven by new customer acquisition and strong expansion with existing customers.

Q3, GAAP net dollar retention rate or <unk> was a healthy 125%.

Now I'll discuss expenses and profitability.

Fiscal Q3 gross margin increased 90 basis points sequentially to 82, 9%.

And includes continued improvement in our SaaS gross margins.

Fiscal Q3 operating expenses were $132 million up 9% year over year.

Reflecting the impact of our planned go to market investments throughout fiscal year 'twenty four.

And higher marketing spend during the quarter <unk>.

Including our shift event in New York City.

Overall operating expenses as a percentage of total revenue was 61%.

Representing 100 basis points of leverage year over year.

Assistant with our objected humana's expenses relative to revenue results.

We ended the quarter, we think global head count of approximately 2900 employees.

Flat sequentially and up 3% year over year.

Our current head count balance includes additional inside sales teams.

<unk> and related customer success teams to support the customer journey and are accelerating velocity sales Miss.

non-GAAP EBIT for Q3 increased 21% year over year to $47 million.

non-GAAP EBIT margin increased 180 basis points each year.

21, 5%.

Moving to some key balance sheet and cash flow metrics.

We ended the quarter with no debt and $284 million in cash of which.

$88 million within the United States.

Our Q3 free cash flow grew 45% year over year to $43 million.

Through the first three quarters of the fiscal year, we generated $121 million of free cash flow, an increase of 20% year on year.

The biggest drivers of free cash flow.

That deferred revenue.

And the strength of our software subscription renewals with typically include upfront payment on multiyear contracts.

In Q3, we repurchased $51 million of stock under our repurchase program.

Resulting in year to date repurchases totaling $134 million.

111% of year to date free cash flow.

Now I'll discuss our outlook for fiscal Q4.

And the full fiscal year 'twenty four.

All of the following guidance metrics are based on current foreign currency exchange rates.

For fiscal Q4, we expect <unk>.

<unk> revenue.

Which includes both the software portion of term based licenses and.

<unk> $111 million to $115 million.

This represents 20% year over year growth at the midpoint.

This Q4 subscription revenue outlook reflects continued momentum in our new customer and expansion business.

But a smaller renewal pool in fiscal Q4 relative to Q3.

As a result.

We expect total revenue to be $210 million to $214 million.

At these revenue levels, we expect Q4 consolidated gross margins.

To be in the range of 81% to 82%.

And EBIT margins in the range of 20% to 21%.

We continue to execute some foundational go to market changes.

Which include amplifying, our discrete focus on our land and expand opportunities.

Handling our motion to secure our growing subscription renewal base.

And investing to capitalize on our fiscal year 'twenty five growth objectives.

These investments are reflected in the range of our Q4 margin guidance.

Our projected diluted share count for fiscal Q4 is approximately 44 5 million shares.

Now I wanted to give an updated outlook on the full fiscal year 'twenty four.

Which includes once again, raising our total revenue and total IRR expectations for the full year.

We expect fiscal year 'twenty, four total AOR growth up 18% year over year.

Which reflects a 100 basis point increase over our prior guidance.

We now expect subscription IRR.

Which includes term based licenses and SaaS.

Increased 25% year over year.

And reflects a similar 100 basis point increase over our prior guidance.

From a revenue perspective.

We now expect subscription revenue to be in the range of $420 million to $424 million.

Growing 21% year over year at the midpoint.

Reflecting the continued momentum in our business.

The $9 million increase at the midpoint compared to our prior guidance.

At these revenue levels subscription revenue will exceed over 50% of our total revenue for the full year.

We expect total revenue.

To be in the range of $826 million to $830 million.

Reflecting an $11 million increase at the midpoint compared to our prior guidance.

Our improved fiscal year 'twenty for total revenue outlook reflects the seasonally stronger subscription software trends that we usually experienced in the second half of the fiscal year.

Combined with the ongoing momentum of our SaaS offerings.

Yeah.

Moving to full year fiscal 'twenty, four margin EBIT and cash flow outlook.

We continue to expect gross margins of 82% to 83%.

And non-GAAP EBIT margin expansion of 50 to 100 basis points year over year.

We are also maintaining our expected full year free cash flows of $170 million.

As of December 31.

We had $122 million remaining on our existing share repurchase authorization.

And we expect to continue with our existing practice of repurchasing at least 75% of our annual free cash flows.

Year to date, we are pacing well ahead of this target and we intend to continue the share repurchase momentum during the current quarter.

For details and trends on all of our key metrics. Please take time to review our investor deck contained on the Investor Relations section of our website.

Operator, you can now open the line for questions.

Thank you, ladies and gentlemen, if you have a question.

Telephones.

Your first question comes from the line of Aaron Rakers of Wells Fargo. Your line is open.

Yes, thanks, guys for taking the question and congrats on the good quarter.

I guess, the first question and I appreciate that Youre, not going to give guidance looking out into fiscal 'twenty five but I'm just curious with the momentum youre seeing in subscription and obviously, the SaaS business as well.

How do you guys start to think about seasonality and in particular thinking about the March quarter.

And I guess I'll layer into that how do we think about the customer support growth.

That starts to that the rate of decline start to ease and maybe we returned to growth as we look into next fiscal year.

Hey, Erin good morning, it's Gary likes to hear from me and I'll start I'll, Yes, a couple of different things and maybe I'll start with the Q4 piece of it. The current March quarter perspective. So Q3 is looking back a quarter. We just finished was a really significant.

Quarter four for us by our own measure that it's one of the best if not the best quarter, we've ever had and we're really starting to see that cyber is changing the way that people are buying so some of some of the trends you saw during that quarter gave us confidence to raise both our Q4 and full year numbers.

As you mentioned about specifically subscription revenue our.

Our guidance reflects about 20% growth year over year at the midpoint and what we're seeing and what we're expecting in fiscal Q4 is continued momentum in that land and expand motion.

Also the SaaS revenue that we're now generating as a tailwind and provides more predictability to our P&L.

All those together, we will see a slightly smaller renewal opportunity in fiscal Q4 relative to Q3. So thats also reflected into our guidance that fiscal Q3 had the largest renewable we've ever we've ever had in our history.

We think those two.

Trends, along with continued execution and some really good acceleration in our partner ecosystem is really going to help us set the foundation for next year.

What's also helping as you mentioned relative to our total revenue is what's happening in the customer support revenue and what you see there is that the declines year over year are starting to get mitigated and now down into the low in the low single digits. Some of that's reflective of your conversions that I mentioned on last call. We continue to see fewer conversions.

That then eliminate some of the headwinds we see in support so some of those headwinds will get mitigated delving into next fiscal year, which would also provide some of that continued momentum allstate.

Yes, Gary I appreciate that let me, maybe kind of double click on that and just ask more specifically do you think the customer support revenue can turn to growth.

We look into next fiscal year.

No I would say as I look into next fiscal year, I would say flat to slightly down is what I would expect on a full year basis. Erin is what I would expect at this point I think by the end of next fiscal year.

Operator: Hello, and welcome to the Commvault Q3 Fiscal Year 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

The term <unk>.

Like the maintenance and support piece from our term licenses will become the majority of that customer support, but I think that will take us.

Operator: After the speaker's remarks, there will be a question and answer session, and if you would like to ask a question during this time, simply press star 1 on your telephone keypad. I will now turn the conference over to Mike Melnyk, Head of Investor Relations.

Into the back half of next year, which means that on a full year basis will slightly be kind of probably low single digits.

Yes, that's helpful. And then the final quick question on the term side can you just talk about what youre seeing from a from a term perspective.

Good morning, and welcome to our earnings conference call. I'm Michael Melnyk, Head of Investor Relations, and I'm joined by Sanjay Mirchandani, Commvault CEO, and Gary Merrill, Commvault CFO. An earnings presentation with key financial and operating metrics will be posted on the Investor Relations website for reference. Statements made on today's call will include forward-looking statements about Commvault. Feature expectations, plans, and prospects. However, all such forward-looking statements are subject to risks, uncertainties, and assumptions. Please refer to the cautionary language in today's earnings release and ComPult's most recent periodic reports filed with the SEC for discussion of the risks and uncertainties that could cause the company's actual results to be materially different from those contemplated in the forward-looking statements. Humboldt does not assume any obligation to update these statements.

And in terms of the term length.

Of the deals you are engaged with it sounds like large deals or improve the macro might have either so just kind of any updated thoughts on what you are seeing any kind of term.

Term links or toward the compression dynamics.

Yeah, absolutely. So what we continue to see now the stabilization in our term length last quarter. We saw I would say that first quarter stabilization. This quarter, we saw another quarter of stabilization on the subscription side. Our average term is still rounding to about two years, but that stabilization.

Which is also demonstrated by good execution, but also demand for our cyber resilient products.

So, giving a little more predictability in there.

The other piece there and that's also critical to this is how we align with the partner ecosystem right.

During this call, Commvault's financial results are presented on a non-GAAP basis. The reconciliation between the non-GAAP and GAAP measures can be found on our website. Thank you again for joining us. Now I'll turn it over to Sanjay for his opening remarks. Okay.

Bigger deals and larger transformational projects are tied with some of the new modern partner ecosystem, whether it be hyperscale are there others and they also provide them some foundational support for keeping that up that's certainly helping.

Thank you, Mike. Good morning, and thank you for joining us today. I am pleased to report our Q3 results exceeded expectations, including double-digit year-over-year growth across our most important KPIs. By our own metrics, this was an exceptional course. We also set the stage for the future by introducing market-leading innovation with ConvoCloud, a revolutionary platform for driverless driving. Some financial highlights include: Total revenue increased 11% year-over-year to $217 million. This was driven by a 31% increase in subscription revenue, which now represents more than half of our total revenue. Total AR, the primary metric we use to measure underlying growth, grew 17% year-over-year to over three-quarters of a billion dollars.

Hey, Aaron it's Sanjay I'll, just add one more point as customers start really moving and pivoting to the hybrid model and hybrid cloud workloads. Our platform allows us to do that mitigation and move their workloads that have the same have the same technology support them both in the cloud and.

David Patrick.

So we're seeing we're seeing that as well.

Thanks, guys.

Your next.

Question comes from the line of Howard MA with Guggenheim Securities. Your line is open.

Great. Thanks, and an impressive result.

I have a question first for Sanjay if.

If you were to dissect the outperformance in the quarter I guess between the general spending environment.

Subscription ARR increased 29% year-over-year to $571 million, and is now over 75% of total AFO. Facts revenue increased 77% year-over-year to 152 million, and re-expanded operating margins by 180 basis points year over year while continuing to repurchase shares. These results reinforce that Compost Products and Services are in more demand than ever, especially as companies grapple with how to keep their data secure, compliant, and resilient in a world increasingly under threat of cyber attacks. For two years now, we've discussed how the volume, intensity, and sophistication of cyberattacks would require a radically different approach to cyber-resilience. Gone are the days when perimeter security alone would suffice. It's just a matter of time until the bad actors get in.

May be improving it looks like it might be in secular tailwind.

Consolidating or increasing infrastructure and security budget.

That versus your own internal execution.

So your product initiatives and go to market execution, and I understand it might be hard to separate.

The internal from external but if you could.

If you were to force the stack rank.

The internal versus external I'm curious, what your thoughts a bit.

Well I would say.

I would say it's.

It's probably 75%.

But this quarter the past 75% internally.

And I would say that because really Howard Gary touched on this our own business transformation moving are moving.

Installed base of customers and new customers into a into a more ratable format as well as the subscription oriented format is actually working on subscription renewal tailwind is kicking in so the stuff that was a headwind for us two or three years ago is actually becoming.

So, rather than just looking at prevention... CIOs and CISOs alike are putting a heavy emphasis on recovery and resilience. This transition has fueled the most important pivot in our 27-year history. In November, we introduced Convo Cloud-powered Planetarlic AI.

A nice a nice nice tailwind.

And just last quarter was testimony to that we've also been.

We've talked about our execution internally really aligning our sales force our marketing campaigns, our demand generation campaigns all of the things that you would expect to avail of the opportunity in front of us are on site.

This platform brings together the best of all: industry-leading data protection combined with data security, data intelligence, and recovery. ConvoCloud offers the fastest, most reliable recovery of any solution on the market today.

Thanks.

<unk> kicking in nicely as well.

Green shoots on some of the some of the demand we're seeing.

With our platform, data can be restored from anywhere to anywhere, rapidly, reliably, and at massive scale. The platform provides AI capabilities, giving customers automated and predictive recovery, threat intelligence, and operational efficiencies to deliver true cyber resilience. No longer will organizations need to make unnatural choices between SAS and other data center work.

On cyber resilience and the third is the new platform.

The platform the actual.

Commvault cloud powered by metallic AI platform that.

We're seeding into customers at this point.

Technologies like that came from recovery are really beginning to get customers' attention. So.

It's not perfect math, but I'd say, 75% of what we're seeing is.

With our platform, we support more workloads than any other vendor in our space, and we do all of this at the lowest total cost of all. We scale the platform, integrating with major hyperscalers, as well as leading cyber security and AI companies like Avira, Darkface, Databricks, Microsoft Sentinel, and Palo Alto Networks, among others. I'm pleased to share that customers, partners, and industry analysts have been rating the ComboCloud. For instance, one customer told Hanlow's firm, Enterprise Strategy Group, who are highly regulated in, "ComboCloud was the only solution we found that gives us the flexibility and assures that satisfied our audit." Because of Commvault Cloud, I can assure our leadership team that we are protected, and we all sleep better at night. IDC Research Vice President Phil Goodwin said, quote, This announcement realigns Commvault's products to meet customer preferences and sets the company on a path to be very competitive inside the region. End quote.

The combination of corporate doing.

And good execution alongside the fact that we're solving.

We were solving a really hard problem for customers.

Cyber cyber threats are real and savings.

They're going to do for them.

Paul.

Yes.

Okay, that's really good color and thank you for quantifying that Sanjay.

I have a follow up for Gary.

Gary with the recent launch of Commvault cloud in these new security bundles can you give us some numbers around initial traction in cross selling the security module is to existing customers as well as adoption by net new logos.

Yes.

Good morning Howard.

This morning.

A couple of things as you know our announcements related to our new platform Commvault cloud just hit the market just a couple of months ago. Okay. So where we're focused now is on demand yet. So we're starting to see some of the early benefits that we start to see it.

Our pipeline and in the funnel that we're creating that is also reflected in our Q4 outlook.

And we continue to introduce major innovations in the platform that solve critical customer challenges. For example, with our prelim recovery offering, we have closed the gap that exists between incident response planning and readiness. A new clean room recovery capability enables customers to thoroughly and cost-effectively test their recovery. It also provides them with a safe, on-demand environment to recover.

What the what this will do is it's going to give us an amazing opportunity for expansion as well.

None of that is reflected in our results for Q3. So our results in Q3, just after its about executing against the pipeline, we had strong close rates that accelerated quarter on quarter and what we're what we're seeing now is building that demand Gen for next fiscal year and the ability to cross sell through our installed base. We finally have.

It is this kind of groundbreaking innovation that sets us apart from the competition and helps us take share and land new business. In fiscal Q3, we added another 500 subscription customers, bringing our total to almost 9,000. So 50 customers now represent well over half of our total package customers. Here are a couple of examples.

Eight platform that makes the buying process for our customers easy between software and SaaS and facilitates that expansion opportunity to go from our foundational model that we have today all the way through to the cyber resilience offering that we've announced.

A large state agency that detects security gaps with its incumbent benefits. This new customer turned to Commvault for immutable air-gap ransomware protection, anomaly detection, and an improved cyber-resilience cost. And we also helped the Fortune 500 Capital Equipment Company eliminate a tax for vendors and move their workloads onto our unified platform. This allowed them to modernize and improve their cyber-resilient posture, better protecting them from ransomware with a lower total cost of ownership. To expand our perspective and keep us at the forefront of innovation, we also established the Cyber Resilience Council, comprised of security visionaries from top cyber, cloud, and government organizations. The Council will advise on security trends and cyber threats, which will shape product development strategies and partnering opportunities. It is chaired by Melissa Hathaway, a thought leader in cybersecurity and digital risk management who served in two presidential administrations.

And Howard.

Quite honestly, it's too early to call.

Five.

In dollar terms the impact but were very very positive about it and what we see as the pipe.

I'll give you so I'll just give you an anecdotal.

Anecdotal.

Point of view the number of conversations I've had with security Ts and CS So since we launched.

On November eight has been unprecedented.

Really deep dives on the fact that.

We call it shift right our ability to really take the customer journey and make sure that protection and that resilience of the core of how to think about.

Cyber recovery.

Is key and we are having deep conversations proof of concepts.

We haven't because we've been able to really bring to life.

The completeness of the bump.

Thanks, guys really exciting stuff. Thanks.

Thanks, Howard Thank you Howard.

Your next question comes from the line of James Fish with Piper Sandler Your line is open.

We're two months away from closing our fiscal year, and I couldn't be more excited about our momentum as we approach fiscal year 20. With that, I'll turn it over to Gary to discuss our results. Carey

Hey, guys great quarter, just building off the last SKU that we've asked around cyber.

The resiliency and strength.

Thanks, Sanjay, and good morning, everyone. I am pleased to report strong revenue and earnings outperformance in Q3. Starting with the top line.

James E. Fish: Look I know it can be hard to really parse out, but what percentage of customers are are buying a cyber.

Filings for cyber security use cases at this point or whats really be exposure to cyber budgets, rather than kind of a traditional backup and recovery how often is.

Total revenue was $217 million, an increase of 11% year-over-year and significantly outpacing our Q3 expectations. Our total revenue growth was highlighted by a 31% year-over-year increase in subscription revenue to $114 million, reflective of both solid double-digit growth in term software licenses and an accelerating contribution of staff revenue. Our execution was strong, as large software deals closed rates improved sequentially, and we delivered against our largest term subscription renewal quarter of the fiscal year. This execution resulted in term software deals for over $100,000.

Our Chief Information Security Officer for example in the room as you guys are in that final pitch.

Hi, Jeff.

Hey, Jay this is Jay.

I just sort of touched on that in the previous question.

A lot of security conversations and by the way. This wasn't the first scoring the security we've got securities and a product for a long time last June we announced a series of innovations and then we followed that up in November and we continue to follow that up now.

<unk>.

Data even in the even before cyber resilience data protection with us.

Information security.

There was nothing there so we have security built into into our overall data protection platform, which we've extended.

About 25% year-over-year, driven by increases in both average selling price and deal volume. Q3 perpetual license revenue was $15 million, as these perpetual licenses are generally sold in limited verticals and geographies. At the current runway, we believe that the headwinds to reported total revenue growth from perpetual license sales are normalizing as we exit the current fiscal year. Q3 – Customer Support Revenue, which includes support for both our term-based and professional software licenses, was $77 million, down just 1% year over year. Q3 and Fiscal Year 24 continue to benefit from the continued trend of fewer conversions of perpetual support contracts to term software licenses.

And to end with our cyber resilience capabilities. Okay. Let me give you let me give you an example.

And I've said this for a long time data protection and data security are emerging and I think especially come together. So if you're if you're recovering from a breach or a threat or an attack.

And Youre recovering data.

You can't just slightly brick data back you have to make sure that your threat scanning that data for any any vulnerability that may have been that may have been added since you backed up okay or new in the environment. So <unk> scanning which was a typical security shift last capability is completely integrated with recovery capability.

So that's what we've been doing it so it's very hard to sort of segregate them Se business security versus this is protection is resilience and we've been doing this for a while.

Yes.

I can't I mean, yes customers may talk to us and say Hey, we want to talk about data protection, but it's really with light of the fact that the threats that they are protected against cyber.

So it's all it's all one platform one capabilities.

Customer support revenue from perpetual licenses represents 54% of total customer support revenue, with the balance coming from term software and related arrangements. This compares to approximately 60% in FY23 and 75% in FY23. At this trajectory,

Makes sense and I appreciate that and then Gary you had mentioned you guys are looking to invest on the go to market side. Just can you elaborate a little bit more on the details there how many heads should we look should we be looking for you guys to add in this upcoming quarter in order to hit those objectives is it going to be mainly.

Inside sales team or looking more kind of field. Thanks, guys.

We expect customer support revenue from term-based software licenses to become the majority of our customer support revenue next fiscal year. Moving from Revenue Results to ARR. Q3 ARR was $752 million, representing 17% year over year growth, and continues to reflect the underlying strength of our business when our revenue is presented on an annualized basis. Subscription revenue, which includes term-based software arrangements and fax contracts, increased 29% year-over-year to $571 million.

Yes.

Thanks, Jim and good morning, Yes, and some of my prepared remarks I at the top of that investment. So I think foundational to what Sanjay and I have always talked about it's about profitable and responsible growth. So that is always that as our foundation, but as I look out into next year. Some of the investments that were started in may is that it.

So really be able to capitalize on the growth opportunity. That's in front of us we're seeing the world of February Islands come together to give us this amazing opportunity to hopefully accelerate growth and with that does required some level of investments.

And it's more about making sure that we continue to generate the demand around cyber resilience make sure that we are targeting the right buyers and the decision makers that can help drive the decisions related to cyber resilience and more and most importantly continue to make sure we have the right resources and campaign.

Within subscription, SAS ARR grew 77% year-over-year to $152 million, driven by new customer acquisition and strong expansion with existing customers. Q3 SAS Net Dollar Retention Rate for NRR was a healthy 125%. Now I'll discuss expenses and profitability. Fiscal Q3 gross margins increased 90 basis points sequentially to 82.9%, and it includes continued improvement in our staff growth margin. Fiscal Q3 operating expenses were $132 million.

Round.

Around accelerating our SaaS, our SaaS model okay.

Some of these investments require is that alignment, especially into the partner ecosystem. Okay. So if I look at the partner ecosystem. There's really three key pieces that will focus on number one is hyper scaler, we're starting to see some great acceleration with hyperscale.

We did the largest amount of <unk>.

Revenue ever through marketplaces, this quarter and we want to capitalize on that momentum is also building out the MSP route, especially with our SaaS focused.

And third is a lot of these large transformational cyber products projects are totally integrated with GSI the lenses. Okay. So if.

Up 90% year-over-year. Reflecting the impact of our planned go-to-market investments throughout fiscal year twenty-four, our entire marketing spend during the quarter, including our fifth event in New York City. Overall, operating expenses as a percentage of total revenue was 61%, representing 100 basis points of leverage year over year consistent with our objective to manage expenses relative to revenue results. We ended the quarter with a global headcount of approximately 2,900 employees, last sequentially in a 3% year-over-year.

We try to think about some of the areas that are important to us to capitalize on the growth. They are the key areas of our focus.

Makes sense great color guys.

Speaker Change: Thank you. Thank you.

Your next question comes from the line of Rudy Kessinger with D. A Davidson your line is open.

Hey, guys. Thanks for taking my questions and I'll add my congrats to what looks like a great quarter. Some really good numbers here.

On SaaS.

Growth re accelerated last quarter, a bit sustained this quarter at 77% SaaS AOR growth in net new SaaS AAR has just really impressive could you talk about just when you look at the growth in metallic.

Our current headcount balance includes additional inside sales teams and related customer success teams to support the customer journey and our accelerating velocity sales motion. Nongap Edict for Q3 increased 21% year-over-year to $47 million. In non-gas exit margins, it increased 180 cases points each year. 41.5% Movies, Jason T. Fallacy, and Cass Lomax. We ended the quarter with no deaths and $284 million in cash, of which $88 million was in the United States.

Quarter over quarter, just what percent of that new SaaS <unk> is coming through cross selling versus new customers.

And also do you have any conversions in there yet or is it still mostly true organic growth.

Growth.

Hey, Rudy it's Gary good morning, and nice to hear from me today.

What are the key things that we look at two related to that is how we look at sequentially from an IRR basis, Okay and hitting the 152 million. There are sequential growth. We had from last quarter. This quarter was an all time high so in a numerical we had the highest sequential increase in SaaS AAR, which just shows the deceleration.

Our Q3 free cash flow grew 45% year-over-year to $43 million. Through the first three quarters of the fiscal year, we generated $121 million of pre-tax flow, an increase of 20% year-on-year. The Biggest Drivers of Free Cash Flow or Fast Deferred Revenue and the strength of our software subscription rules, which typically include upfront payment on multi-year contracts. And, chiefly, we repurchased $51 million of stock under our Repurchase Program.

We're seeing in the <expletive> as a service delivery model.

And it's a combination of two things as you highlighted one is I'll call, our land and expand new business and we are still seeing the majority of that from upsell, okay, upsell, meaning more and more of the same workloads are primary workloads, we're starting to see the cross sell start to commit but its still the realm.

Typically less than the additional workloads of similar functionality now introducing with the new cyber as well as the offerings, we're setting ourselves up for that cross sell opportunity as we get into next into next into next fiscal year. So we look to next fiscal year for that but the key driver on the 125% MLR.

Resulting in year-to-date repurchases totaling $134 million, representing 111% of UterDig's pre-cast flow. Now, I'll discuss our outlook for fiscal T4 and the full fiscal year 2021. All of the following guidance methods are based on current foreign currency exchange rates.

Has has been upset the other key piece, though.

Maturing renewal cycle and driving really strong gross renewal rates. So we're doing a very good job.

Now maturing have a fully mature renewal renewal cycle as well.

Pieces, there helped driving that that momentum.

For Fiscal Q4, we expect... Subscription Review, which includes both the software portion of term-based licenses and FAFSA, to be $111 to $115 million. This represents 20% year-over-year growth at the midpoint. This Q4 Subscription Regular Outlook reflects continued momentum in our new customer and expansion business, but a smaller renewal pool in fiscal Q4 relative to Q3. As a result... We expect total revenue to be $210 to $214 million. At these revenue levels, we expect Q4 consolidated growth margins to be in the range of 81 to 82 percent. An even margin of 20 to 21 percent.

And Rudy Sanjay.

You didn't directly asked the question, but new customers as part of our land on new customer acquisition momentum with our SaaS workloads is growing in the 170 every.

And we attach.

Speaker Change: Cross sell of software with.

SaaS is actually quite something we appreciate and are working on because.

Because our customers, which is also a testimony to our digital platform strategy as customers move to the hybrid cloud.

They start with one workload and then quickly move into a.

Data center based workload, because you may have.

We have product that you want a back up in a different way in the data center. So not only do we look at.

Cross sell within within the SaaS.

But also cross selling between software and SaaS and having a singular platform capabilities.

Capabilities, we have enabled that hybrid journey for customers. So they can start anywhere either in the cloud or on premise and then and then go both ways.

We continue to execute some foundational go-to-market changes, which include amplifying our discreet focus on our land and expand opportunities, hailing our motion to secure a road subscription renewal date, and investing to capitalize on our fiscal year 25 growth objective. These investments are reflected in the range of our Q4 Margin Guidelines. Our projected diluted share count for Fiscal Q4 is approximately 44.5 million shares.

That's a key differentiator for us. So that's all true growth. There is one last piece of your question I wanted to finish on is that.

What we're seeing in metallic is not cannibalizing over from converting our installed base.

You asked that question, specifically and we're not that's not part of the current the current play or what's driving the business. This is all about net new business.

Great. That's all very helpful color I guess, just one quick last one on SaaS again, you mentioned that the record net new SaaS <unk> in Q3, if I look back last year seasonality Youre net new metallic <unk> in Q4 was a good step up from Q3 should we expect this.

Now, I want to give an updated outlook on the full fiscal year 24, which includes, once again, raising our total revenue and total AROL expectations for the full year. We expect fiscal year 24 total AR growth of 15% year-over-year, which represents a 100 basis point increase over our prior guidance. We now expect subscription error, which includes term-based licenses and staff, to increase 25% year-over-year and reflect a similar 100 basis point increase over our prior guidance. From a Brevin perspective.

See that play out again this year I know youre, not guiding specifically to SaaS AAR, but.

Just given you're a month into the quarter.

Should we expect net new SaaS <unk> to come in for the March quarter versus December.

I'll take that Rudy it's Gary again, I think the seasonality you saw last year from fiscal Q3 to Q4, it's fair for something like we would expect for this year I think we saw.

15, or so million sequential growth I think sometimes take that are slightly more what our objective would be to keep that momentum going we have a strong pipeline going into the quarter and we're seeing our close rate continue to improve as well. So we're optimistic about where we're going to land for the fiscal year, we're not calling it but we're trying to get.

We now expect subscription revenue to be in the range of $420 to $424 million, growing 21% year over year at the midpoint. This reflects the continued momentum in our business and is a $9 million increase at the midpoint compared to our prior guidance. At the revenue level, subscription revenue will exceed over 50% of our total revenue for the full year. We expect total revenue to be in the range of $826 to $830 million, reflecting an $11 million increase at the midpoint compared to our prior budget.

Okay, Great. That's it for me. Thanks, Thanks for taking my questions again, and congrats again.

Thank you.

Your next question comes from the line of Eric Martin Newsy with Lake Street. Your line is open.

Yes, I noticed a nice pickup on the Americas region up 16% year on year.

Was that kind of broad based across verticals or was there any particular verticals that stood out for you.

Yes, Hey, Eric Thanks, Gary I'd like to hear from you again this morning, as well our Americas had a really strong quarter from a total perspective, our Americas business was up 16% year over year really driven by that subscription revenue as well.

Our Improved Fiscal Year 24 Total Revenue Atlas reflects the seasonally stronger subscription software trends that we usually experience in the second half of the fiscal year, combined with the ongoing momentum of our fast-offering. Moving to full year fiscal 24 margins, EBIT, and cash flow outlays. We continue to expect gross margins of 82 to 83 percent, and a non-gap even margin expansion of 50 to 100 basis points year over year. We are also maintaining our expected full-year re-taxed loans of $170 million. As of December 31st, we had $122 million remaining on our existing share purchase authorization.

The total subscription revenue in the Americas was up 43% year over year and what we're seeing is really strong traction on some of the larger on the larger deals the larger deals on renewals as well as kind of larger lands and land and expand deals.

Our new <unk>.

Alright are big deal. So when we say kind of those term software deals over $100000 were up almost 50% year over year. So it's all tied to driving the cyber resilience message.

Speaker Change: And making sure that we are helping our customers solve those difficult problems.

What vertical specific last quarter, we talked a lot about this.

This quarter it was more broad based across Bert across the vertical stream tied to executing against the renewal stream and the larger deals.

And we expect to continue with our existing practice of repurchasing at least 75% of our annual free cash flows. Year-to-date, we are pacing well ahead of this target, and we intend to continue to share this purchase momentum during the current quarter. For details and trends, see all of our e-mails. 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.

Got it.

And then the.

The buyback program I know you haven't given us a view for FY 'twenty five.

<unk> been relatively consistent over the past couple of years about this.

75% of the annual free cash flow is that the intent going forward here or are you going to revisit that when you set the current plan.

Yes.

Our current guidance will continue to hold we believe right now that our buybacks are a key part of our responsible growth strategy.

Our publicly facing stated guidance of at least 75% of free cash flow is a good modeling trend as you can kind of tell through the nine months were well ahead of that we're north of 100% of free.

Yeah, thanks guys for taking the question and congrats on a good quarter. I guess the first question, and I appreciate that you're not going to give guidance looking out into fiscal 25, but I'm just curious, with the momentum you're seeing in subscriptions and obviously the fast business as well, how do you guys start to think about seasonality, and, you know, in particular, thinking about the March quarter? And I guess I'll layer into that, how do we think about customer support growth as that starts to, the rate of decline starts to ease, and maybe we return to growth as we look into next fiscal year? Hey, Aaron. Good morning. It's Gary.

Free cash flow because we're opportunistic also in the market and we see the value that we have as a company and our ability to continue to drive shareholder value.

Got it thanks for taking my questions.

Your next question comes from the line of Jason Ader with William Blair. Your line is open.

Thank you good morning, guys.

Just wanted to ask about.

The revenue growth outlook.

I know you've talked about I think 6% to 7%.

It's nice to hear from you. And I'll start off. You asked me a couple of different things.

Growth CAGR from the 2021 analyst day, I'm not sure maybe maybe you've updated that but.

Maybe I'll start with the Q4 piece of it, the current March quarter perspective. So Q3, just looking back at the quarter we just finished, was a really significant quarter for us. By our own measure, it was one of the best, if not the best, quarters we've ever had.

Just wanted to get a sense of whether you are reiterating that you think it could be higher.

And then more specifically as we think about 2025 FY 'twenty five.

And we're really starting to see that cyber is changing the way that people are buying. So some of the trends we saw during that quarter gave us the confidence to raise both our Q4 and full-year numbers. And as you mentioned specifically subscription revenue, our value is less than about 20% growth year-over-year at the midpoint. And what we're seeing and what we're expecting in fiscal Q4 is continuum momentum in that length and accelerating motion. Also, the cash revenue that we're now generating is a tailwind and provides more predictability for P&L. Those together will see a slightly smaller renewal opportunity in fiscal Q4 relative to Q3.

Without pinning you down on guidance right now do you think the growth.

Could be higher.

Revenues could be higher than 25% and 24.

Hey, Jason This is Gary good morning, I'll hit it.

All of these points so first.

Revenue growth for US is ultimately an output of what we're seeing from an IRR perspective. So let me start let me start there and we're seeing really strong growth. If you look at our <unk> growth of 17% this quarter.

It's really strong and we're seeing that across all of our core businesses.

Speaker Change: Our Q4 guidance implies that we will end up this fiscal year on the top line rate roughly in that 6% revenue growth we have.

So that's also reflected in our guidance, as fiscal Q3 had the largest renewal pool we've ever had in our history. So we think those trends, along with continued execution and some really good acceleration in our partners, is really going to help us set the foundation for next year. What's also helping, as you mentioned, relative to our total revenue, is what's happening in customer support revenue. And what you see there is that the decline year-over-year is starting to get mitigated, and now it's down into the low single digits.

An amazing opportunity to accelerate as we move forward. Obviously, we have we have not we have not given guidance, perhaps FY 'twenty by yet clearly our expectation that FY 'twenty growth will be higher than FY 'twenty four right and as we start to get.

Work towards our next call next quarter, we will give a little more clarity on full year FY 'twenty actual results.

But most importantly is we see the opportunity in the market that Keith So as we see the opportunity in the market. We can continue to build on momentum from the quarter. We just had and clearly we're expectation is that our growth next year will be higher than this year on the topline.

Some of that's reflective of fewer conversions that I mentioned on last call. We continue to see fewer conversions that then eliminate some of the headwinds we've seen in support. So some of those headwinds will get mitigated during the next fiscal year, which would also provide some of that continued flexibility. Yeah, Gary, I appreciate that.

Gotcha, Okay, great and then.

Another one for you Gary.

Can you give us a sense of how much revenue in a given quarter is actually.

Effectively let's call. It in the bag that took pity on kind of day, one of the quarter in terms of and that would include renewals, let's just assume you're going to get the renewal. There I know you don't always get 100%, but let's just assume you're going to get to renewal and then committed contracts, which I guess would be.

Let me maybe kind of double-click on that and just ask more specifically, do you think the customer support revenue can turn to growth as we look at the next fiscal year? No, I would say, as I look at the next fiscal year, I would say flat to slightly down is what I would expect on a full year basis, Aaron. That is what I would expect at this point. I would say, I think by the end of next fiscal year, the term component, like the maintenance and support fees from our term licenses, will become the majority of that customer support. But I think that will take us into the back half of next year, which means that on a full year basis, we'll probably be slightly down in the low single digits. Yeah, that's helpful.

Support and SaaS. So those two things combined how much of your revenue in a given quarter was actually coming from those sources today, yes.

So just.

We don't quantify specific delays, Brian I'll say, what's the what's the contractual revenue we have in the bag of Q1.

Day, one day, one of the quarter.

Though as you look at a couple of key pieces, we disclose our fast IRR. So you can figure out that they are in divided by roughly four and you could almost guaranteed you get that piece and the other pieces customer support right.

And then the final quick question, you know, on the term side, can you just talk about what you're seeing from a term perspective, you know, in terms of terms, you know, the term length of the deals you're engaged with, it sounds like large deals have improved the macro might have used. So just kind of any updated thoughts on what you're seeing in terms of, you know, term length or term compression dynamics. Yeah, absolutely. So what we continue to see now is stabilization in term length. Last quarter, we saw, I'd say, the first quarter stabilization.

Very predictable so when you look at just those two pieces SaaS and customer support you have a very strong starting point for the quarter is how we see the renewal piece, then which drive leverage in the Incrementals that goes over our land business.

I think were all closed is that on a relative basis.

Speaker Change: Each quarter becomes more and more predictable than the previous with some of the foundational pieces and thats, what we kind of focuses on.

This quarter, we saw another quarter of stabilization. On the subscription side, our average term is still rounding to about two years, but that stabilization, which is also demonstrated by good execution but also demand for our cyber-resilient products, is also giving a little more predictability there. The other piece, Aaron, that's also critical to this is how we align with the partner ecosystem, right? So those bigger deals and larger transformational projects are tied to some of the new modern partner ecosystem, whether it be hyperscalers or others, and they also provide some foundational support for keeping that term length healthy. Hey, Aaron and Sanjay, I'll just add one more point.

Increasing protein predictability sequentially as each quarter goes.

Let me Okay. Let me just ask this in a slightly different we I don't know if youre going to answer it but I'm going to try.

Uh huh.

Hi.

Of your $100000 plus deals.

Today, how much are actual renewals versus new basically new business or upsell business.

Both are healthy contribution.

Yes.

We can't get into specific yes, we're not going to get into those specifics, but then both.

With very healthy contributions.

And it's obviously a lot higher today than it was a couple of hours ago.

As customers start really moving and pivoting to hybrid models and hybrid cloud workloads, our platform allows them to do that mitigation and move their workloads and have the same technology support them both in the cloud and on air. So we've seen that as well. Glad to have you here today.

Yes, that's correct alright, thank you guys.

Yes.

Your next question comes from the line of Tom Blakey with Keybanc capital markets. Your line is open.

Tom Blakey: Hey, good morning, guys.

Great execution here solid results congratulations.

Operator: Thank you. Your next question comes from the line of Howard Ma with Guggenheim Securities. Your line is open.

Just wanted to maybe piggyback on Jason there on the potential middle of January we're pretty clear about saying that fiscal <unk>. Just passed was a very large opportunity for the company I think one of the largest I think Gary said in that fiscal <unk> would be.

Great. Thanks. And an impressive result. I have a question first for Sanjay.

Sanjay, if you were to dissect the outperformance in the quarter, I guess between the general spending environment may be improving, it looks like it might be, and you set your tailwind of a consolidating or increasing infrastructure and security budget, that versus your own internal institutions, your product initiatives, and go-to-market execution, and I understand it might be hard to separate the internal from the external, but if you were to force the staff rank Well, I think... I would say it's probably 75%, for this quarter, and the past 75% in terms of... And I would say that, really, Howard, and Gary touched on this, our own business transformation, moving our installed data customers and our new customers into a more routable format, as well as a subscription-oriented format, is actually working. Our subscription renewal panel is kicking in. So the stuff that was a headwind for us two, three years ago is actually becoming a nice build. And this last quarter was testimony to that.

Lower.

Maybe Jason literally just assets.

Will the renewal opportunity that it seems like you have a solid grasp around the total renewal opportunity in fiscal 'twenty five the bigger.

The same as fiscal 'twenty four.

Got it so.

Hey, Thomas Gary and I will jump in and give a little maybe.

Foundational pieces that will help notified by 'twenty five.

Q3 to play our largest because it's tied to all of the calendar year end deals we've done over cohort period.

Fiscal Q4 will be will be modestly lower so not significantly but lower okay. So that means that the seasonality of the second half is always stronger than the first half of any fiscal year and that trend as I look into next year, we will continue.

On an overall basis I would expect the renewal population next year to be larger than the general population this year, but not by the same amount that we saw this year. This year had a larger sequential year over year next will be larger but to lead to a much lesser extent.

Much less from fiscal 'twenty to 'twenty, sorry for the relevant fiscal 'twenty four.

But higher fiscal 'twenty that's helpful.

We've also been talking about our execution internally, really aligning our sales force, our marketing campaign, our demand generation campaigns, all the things that you'd expect to take advantage of the opportunity in front of a drone fighter. So that's kicking in nicely as well and reshoots on some of the demand we're seeing on cyber resilience. And the third is the new platform, you know, the platform, the actual..., and Abhey Nandury. You know, cyber threats are real, and what we're able to prove to them is meaningful. Okay, that's really good color.

Thank you, Gary and maybe it sounds like from a context.

Context.

The expanding opportunity set that you have here with regard to cyber resilience.

We agree with you in terms of.

The convergence of data recovery and data security last couple of years here.

Talk to us about like maybe incentives.

And the capacity that you have internally to have commvault in terms of attacking the opportunities as you climb up to the CSO kind of suite there.

Sorry, what was the last part of your question.

So in terms of in addition to incentives what kind of capacity do you have or need to be continued build out.

Sure approach the <unk> suite disc.

A discussion okay.

I mean.

Incentives.

We continue to fine tune that as needed obviously within the within the.

The comp plans, but really whats was.

And thank you for quantifying that, Sanjay. I have a follow-up for Jerry. Gary, with the recent launch of Commvault Cloud and these new security bundles, can you give us some numbers around initial traction in cross-selling new security modules to existing customers and as well as adoption by Netgear logos? Thanks. Yeah. Morning, Howard. Nice to have you again this morning.

More important is the investment and focus we put around enabling our sales force and our ecosystem.

Our new capabilities around cyber resilience.

Unprecedented how much time and effort, we've put cost we've put into getting that getting that right and that's an ongoing journey.

We've also brought in some really really seasoned securities.

So a couple of things. As you know, our announcements related to our new platform, Commvault Cloud, just hit the market a couple of months ago. Okay? So where we're focused now is on demand gen. So, starting to see some of the early benefits that we started to see in our pipeline and in the funnel that we're creating, that's also reflected in our Q4 outlook, okay? What this will do is it will give us an amazing opportunity for expansion as well. None of that is reflected in our results for Q3.

We call them <unk>.

We will enable our customer conversations alongside our.

Our field, we've got some specialists as well that understand security inside and out.

<unk>.

We have also announced recently in cyber or cyber resilience board.

<unk> has which is a board of absolute luminaries in the.

Fuel to cyber security.

Headed by Melissa Hathaway, who was an adviser and part of two presidential administrations on security and cyber cyber security. So we really amping.

So our results in Q3, as Andy said, were about equity being in the pipeline. We had strong close rates that accelerated quarter on quarter. And what we're seeing now is building that demand generation for next fiscal year and the ability to cross that through our install base. We finally have a platform that makes our defined process for our customers easy between software and the cloud. And facilitates that expansion opportunity to go from our foundational model that we have today all the way through this type of resilience offering that we've announced. And Howard, something is here.

Not just the product, but also the capabilities the thought leadership around it and enablement.

Within that so there's a lot of work going on and yes.

I'd be.

Are we wrong for me to forget we are also as part of the platform. It's a subtlety, but it's an important piece, which is we've actually begun we've shifted left in other words, we have integrated and continue to integrate and continue to increase the ecosystem of connections into what we call. The identifying defend the perimeter security cost and making sure that the technology or customer.

You know, it's quite honestly still early to quantify in dollar terms the impact, but we're very positive about it from what we've seen as the pipeline goes. I'll give you some; I'll just give you an anecdotal point of view. The number of conversations I've had with security teams and CCOs since we launched on November 8th has been unprecedented. We think, you know, really deep dive on the fact that what we call shift right, our ability to really take the customer journey and make sure that protection and then resilience are at the core of how they think about cyber recovery is key. And we're having deep conversations, proof of concept, more than we ever have because, you know, we've been able to really bring The Completeness of the Body to light.

As used to.

To defend the perimeter and and manage it as something we integrate what because it makes both sides.

The recovery in resilient side, which we do and the defendant identify sites that our partners do.

Working together, we make the customer safer and.

So there's a lot of work that we've been at now we announced at all in November but we've been at this for a long long time.

And lots to do upgrade lots to do.

To do everybody would be higher if we try and bring in with the security backup quite simple.

As Elisa test.

Okay.

The follow up there would just be with regarding to the security.

Budgets at firms have had an.

And ever expanding probably for the last decade or more.

Thanks guys. Really exciting stuff. Thanks.

Do you envision that this is.

Operator: Thanks Howard. Thank you, Howard. Your next question comes from the line of James Fish with Piper Sandler. Your line is open. Hey guys, Rick Porter.

Your initial conversations are along those lines you mentioned <unk> in your preamble is this a commvault kind of like taking wallet share in consolidating vendors or is this more of a an overdose or is this more ISO continue expansion.

James E. Fish: Just building off the last few that we've asked around cyber resiliency strength. Look, I know it can be hard to really parse out, but what percentage of customers are buying cyber security use cases at this point, or what's really the exposure to cyber budgets rather than kind of the traditional backup and recovery? How often is a chief information security officer, for example, in the room as you guys are in that final pitch? I just sort of touched on that in the previous question.

I think you know.

Tom I think the fact that the two pieces that are traditionally been separate upcoming together from a solution point of view our platform.

C customers at the table with the ICD organization, the infrastructure team as well as the security and they are working together rightfully so to solve the complex issue a hard problem and I think they are quite we are seeing the budgets.

We're seeing a lot of security conversations. And by the way, this wasn't our first foray into security. We've had security in our product for a long time. Last June, we announced a series of innovations, and then we followed it up in November, and we continue to follow it up now. You know, data, even before cyber resilience, data protection without information security was pointless. There was nothing there.

Together and many customers to se.

This is not just.

But data protection fees on our data security piece it has to be together.

I think we're actually seeing.

Deficiencies for customers with the approach we're taking.

It does make it easier because youre not you don't have internal.

Internal sort of picture.

Inside our customer okay.

Yes, that's helpful and just one very quick one sorry to ask four questions there, but from a gross margin guidance was impressive Gary just maybe talk about the moving pieces there.

So we have security built into our overall data protection platform, which we've extended, you know, end-to-end with our cyber resilience capabilities. Okay, let me give you an example. And I've said this for a long time.

Pacifically with regard to metallic and the cloud us scaling there that'd be helpful. Thank.

Data protection and data security are merging, and I think they've officially come together. So if you're recovering from a breach or a threat or an attack, and you're recovering data, you can't just blindly bring data back. You have to make sure that you're threat scanning that data for any vulnerability that may have been, that may have been added since you backed up, okay?

Thank you guys.

Sure I can wrap up with that question with you. So from a gross margin perspective getting stability in the gross margin is important and there's two pieces. One is when you see acceleration in our subscription and <unk>.

A chunk of that driven by subscription term software. They are very high gross margins. So when we get when we get good renewal in goodland explain growth, we're going to see gross margin momentum the key piece, though to our gross margin is getting stability and leverage on our SaaS gross margins. Okay. We're working very.

Or you and the environment. So, threat scanning, which was a typical security chip-less capability, is completely integrated with recovery capability. So that's what we've been doing, and so it's very hard to sort of segregate and say this is security versus this is protection, it is resilience, and we've been doing this for a while. And I can't, I mean, yes, customers may talk to us and say, hey, we want to talk about data protection, but it's really with light of the fact that the threat that they're protecting against So, it's all on one platform, one cable.

Clearly towards our goal of getting into that 70% plus range of gross margins.

Year ago, we were in the NIM.

And we're now well on our way towards that objective over time of getting to 70% plus and youre starting to see the leverage that we're getting right now on driving improvements in the gross margin on that.

Great Thanks, guys great quarter.

Makes sense, Sanjay, I appreciate that. And Gary, you had mentioned you guys are looking to invest in the go-to-market side. Just can you elaborate a little bit more on the details there? You know, how many heads should we be looking for you guys to add in this upcoming quarter in order to hit those objectives? Is it going to be mainly on the inside sales team or looking more at kind of fields like that? Yeah. Thanks, Jim, and good morning.

Thank you everyone.

My apologies. Your next question comes from the line of Aaron Rakers of Wells Fargo. Your line is open.

Yes. Thanks, guys. Thanks for the quick follow up I'll be brief here.

Obviously, a lot of momentum around the cyber security and resilience attributes of the business I'm just curious like architecturally as we think about the data center and whats evolving overall around AI are you starting to see any engagements with customers that you can distinctly se that AI is actually driving this kind of.

In some of my prepared remarks, I should talk about investment. So, I think foundational to what Sanjay and I have always talked about is profitable and responsible growth. So that's always added to our foundation. But as I look out into the next year, some of the investments that we're starting to make are to really be able to capitalize on the growth opportunities that are in front of us. We're seeing the world of federal unions come together to give us this amazing opportunity to hopefully accelerate growth, and that does require some level of investment.

<unk> of sentiment or investment cycle for your business as enterprises kind of scrubbed through and think about their data and how theyre going to leverage that more.

From an AI perspective going forward.

I mean, the answer the short answer is you can't have a conversation without AI coming up that's just a fact now we've done this.

And it's more about making sure that we continue to generate demand for cyber resilience, make sure that we are targeting the right buyers and the decision makers that can help drive the decisions related to cyber resilience, and, more importantly, continue to make sure we have the right resources and campaigns around accelerating our SaaS model. What some of these investments require is that alignment, especially in the partner ecosystem. So if I look at the partner ecosystem, there are really three key pieces that we're focused on. Number one is hyperscalers.

And we've kind of I.

I will turn to your question on its head a little bit and what we've done is look at what we can do for customers that makes their lives better.

Because of.

We've had AI technology for many years, but mostly mostly in machine learning type in automation type scenarios with the newer generation of AI, our first foray into really delivering value not just AI, Washington that technology, but truly delivering value falls into three primary buckets one is <unk>.

Operational scale, and Brazilians, giving them the ability to really work with large volumes of data with deep degrees of automation.

We're starting to see some great acceleration with hyperscalers, which is the largest amount of revenue ever through your marketplace in this quarter. And we want to capitalize on that momentum. It's also building out the MSP group, especially with our SaaS-focused product. And third, a lot of these large transformational cyber projects are tightly integrated with your side. Okay, look, it's different.

Okay, and so the operational AI enables that and thats in the product today.

I think thats really a threat and risk management an assessment so.

A number of risks the threats and the volume of data that has been written and restored.

I can do a wonderful job, helping customers really to be anomaly detection really do the cyber.

Get real cyber resilience. So we built a lot of that into the product and the one that I think is getting great traction, which I think has immense value is predicted recovery.

We try to think about some of the areas that are important to us and capitalize on the growth. They're just the areas we're focused on.

The complexity of recovering data with <unk>.

Absolutely solid clean backups for a customer who's just been breached is very complex because of the sophistication of the breaches.

Operator: Thank you. Thank you. Your next question comes from the line of Rudy Kessinger with D.A. Davidson.

Your line is open. Hey guys, thanks for taking my questions and I'll add my congratulations to what looks like a great quarter; some really good numbers here. On SAS, you know, growth rates accelerated last quarter a bit, and 77% of SAS AR growth was sustained this quarter. The net new SAS AR is just really impressive. Could you talk about just when you look at the growth in Metallic, you know, quarter of the quarter, just what percent of that new SAS AR is coming from process versus new customers? And also, do you have any conversions in there yet, or is it still mostly true organic error? Hey Rudy, it's Aaron.

The time span between entry and payload.

So we're using AI to help customers really get a great starting point and then and then applying AI across our clean room recovery scenario can really help customers.

Being resilient and recover at the end of the that's what matters and so these are the three I'm oversimplifying. It but these are the three big buckets under which we've applied AI enough in the first off the top of our technology and its continuing we have a very rich and robust roadmap and everything I've talked about exists. So theres no theres no AI.

Watching it.

There's a lot going on right now and.

And we have to be we have to be very.

We take a very conservative approach around this because at the end of the day. It's mission critical data that we're working with our customers.

Good morning, and nice to hear from you today. One of the key things that we look at pre-related to that is how we look at it sequentially from an ARR basis. And getting the $152 million ARR, the sequential growth we had from last quarter to this quarter was not tied up. So, in a numerical sense, we had the highest sequential increase with that ARR, which just shows the deceleration we're seeing in the as-a-service delivery model. And it's a combination of two things, as you highlighted.

Okay.

Thank you.

Eric.

This concludes the question and answer session I will turn the call over to Mike Melnyk for closing remarks.

Thanks, everyone for joining this morning as a reminder.

Investor Relations website as a presentation summarizing our key kpis feel free to reach out to me during the quarter with any questions. Thanks very much. Thank you.

One is a polar language and new business, and we're still seeing the majority of that from up-sell. Up-sell means more of the same workloads, our primary workloads. We're starting to see cross-sell start to come in, but it's still relatively less than the additional workloads of similar functionality. Now, introducing the E5 Resiliency Offering, we're setting ourselves up for that cross-sell opportunity as we get into next fiscal year. So we look to next fiscal year for that. But the key driver of the 125% NRR has been up-sell.

This concludes today's conference call. We thank you for joining you may now disconnect your lines.

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Okay.

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The other key piece, though, is the maturing original cycle and driving to really strong growth moments. We're doing a very good job of now maturing, and we have a fully mature renewal cycle as well. So those pieces are helping drive that momentum.

And really, Sanjay, I know you didn't directly ask the question, but as part of our land, our new customer acquisition momentum with our SaaS workload is growing in the hundreds every quarter. And the process of software with SaaS is actually quite something we appreciate and are working on. Because as customers, as a result of the test of many co-options of platform strategy, as customers move to the hybrid cloud, they start with one workload and then quickly move into a data center-based workload, because you may have products that you want to back up in a different way in the data center.

So not only do we look at cross-selling within the SaaS offers, but also cross-selling between software and SaaS. And having a singular platform with the capabilities we have enables that hybrid journey for customers. So they can start anywhere, either in the cloud or on-premises, and then go both ways.

And that's a key differentiator. So Rudy, that's all screw growth. There's one last piece of your question I wanted to finish on is that what we're seeing in the pallet is not cannibalizing from converting or insulbates. Do you have that specific... You asked that question specifically, and we're not, that's not part of the current play, or we're striving for the business. Great, that's all very helpful, Cutler. I guess just one quick last one on SAS.

Again, you mentioned the record net new SAS ARR in Q3. But, you know, if I look back last year at seasonality, your net new Metallic ARR in Q4 was a good step up from Q3. Should we expect to see that play out again this year?

I know you're not guiding specifically the SAS ARR, but, Give me a month into the quarter. How should we expect net new air fat they are to come in for the March quarter versus December? I'll take that Rudy's scare again.

I think the seasonality called last year from fiscal Q3 to Q4 is fair for something like we would expect for this year. I think we called, you know, roughly 15 or so million to climb the rope. I think sometimes being bad or slightly more is what our objective would be, to keep that momentum going. We have strong pipelines going into the quarter, and we're seeing our close rates continue to improve as well. So we're optimistic about where we're going to land for the fiscal year. We're not calling it, but we're trying to get it. Okay, great. That's it for me.

Eric Martinuzzi: Thanks. Thanks for taking my questions again, and congrats, Kevin. Thank you. Your next question comes from the line of Eric Martinuzzi with Lake Street. Your line is open. Yeah, I noticed a nice pickup in the Americas region, up 16% year on year. Was that kind of a broad base across verticals? Or was there any particular verticals that stood out for you?

Yeah. Hey Eric, it's Gary. I'd like to hear from you again this morning as well. Our Americas had a really strong quarter. From a total perspective, our Americas business was up 16% year-over-year, really driven by that subscription revenue as well. Just the total subscription revenue in Americas was up 43% year-over-year.

And what we're seeing is really strong fractional on the larger deals. The larger deals on renewals, as well as kind of larger land and land and expand deals. Our new, sorry, our big deal, so when we say kind of the current software deals over $100,000, we're up almost 50% year-over-year. So it's all tied to driving the cyber resilience message and making sure that we are helping our customers solve those difficult problems. Not vertical specific; last quarter, we talked a lot about Fed. This quarter, it was more broad-based across the vertical stream, tied to exceeding the renewal stream and the larger deals. I got it.

And then the buyback program, I know you haven't given us a view for FY25, but you've been relatively consistent, at least the past couple of years, about Grote and 75% of the annual free cash flow. Is that the intent going forward here, or are you going to revisit that when you've exhausted the current plan? Yes.

So, our current guidance will continue to hold. And we believe right now that our buyback growth is a key part of our responsible growth strategy. And, you know, our publicly facing stated guidance of at least 75% of free cash flow is a good modeling trend. As you can kind of tell, three to nine months, we're well ahead of that. We're north of 100% of free cash flow because we're opportunistic in the market, and we see the value that we have as a company and our ability to continue to drive shareholder value. Thanks for taking my question. Your next question comes from the line of Jason Ader with William Blair. Your line is open. Thank you. Good morning, guys.

Jason Ader: I just wanted to ask about revenue growth outlook. I know you've talked about, I think, what, 6% to 7%? Growth Kager from 2021 Analyst Day. I'm not sure, maybe you've updated that, but just wanted to get a sense of whether you are reiterating that, you think it could be higher, and then more specifically, as we think about 2025, that's why 25 is, Without pinning you down on guidance right now, do you think the growth could be higher in, revenue growth could be higher in 2025 than in 24? Hey Jason, it's Gary.

Good morning. I'll hit a couple of these points. First, revenue growth for us is ultimately an output of what we're seeing from an advertising perspective. So, let me start, let me start there.

And we're seeing really strong growth. If you look at our AR growth of 17% this quarter, it's really strong, and we're seeing that across all of our corporate businesses.

Our Q4 guidance implies that we'll end up this fiscal year on the top line, right? Roughly in that 6% revenue growth. We have an amazing opportunity to accelerate as we move forward. Obviously, we have not given guidance for FY25 yet.

Clearly, our expectation that FY25 growth will be higher than FY24, right? And as we start to work towards our next call next quarter, we'll give a little more clarity on four-year FY20 actual results. But most importantly, we see the opportunity in the market. That's key.

So as you see the opportunity in the market, we can continue to build on the mezzanine from the quarter we just had. And clearly, our expectation is that our growth next year will be higher than this year on the top line. Okay, great. And then, Gary, I have one more for you.

Can you give us a sense of how much revenue in a given quarter is actually... Let's call it in the bag, you know, on kind of day one of the quarter in terms of, and that would include renewals. Let's just assume you're going to get the renewal there. I know you don't always get 100%, but let's just assume you're going to get the renewal and then committed contracts, which I guess... So those two things combined, how much of your revenue in the giving court is actually coming from those sources?

We don't quantify specifically, but I'll say with the contractual revenue we have in the bag for Q1, or day one of the quarter, though, as you look at a couple of key pieces, you know, we disclosed our FAFSA ARR. You can take our FAFSA ARR and divide it by roughly four, and that's almost guaranteed to get that piece, and the other piece is customer support, right? That's very predictable.

So, when you look at just those two pieces, FAFSA and customer support, you have a very strong starting point for the quarter. That's how we see it. The renewal piece, then, we describe levers and the incremental that goes into our landscape business. I think where I'll close is that, on a relative basis, each quarter becomes more and more predictable with some of these foundational pieces. And that's what we kind of focus on, increasing predictability sequentially as each quarter goes on. All right, let me just ask this in a slightly different way.

I don't know if you're going to answer it, but I'm going to try. Of your $100,000 plus deal, today, you know how much are actual renewals versus basically new business or upscale business? Both of those are healthy contributions. Yeah. No one else?

We can get them. Yeah, but we're not getting those specific person votes.

They're both fair and healthy contributions. Okay. And it's obviously a lot higher today than it was a couple years ago.

Jason Ader: All right. Thank you, guys. Your next question comes from the line of Tom Blakey with T-Bank Capital Markets. Your line is open.

Tom Blakey: Hey, good morning, guys, and great execution here with solid results from graduation. I just want to piggyback on Jason there on the potential renewal opportunity. You were pretty clear about saying that fiscal 3Q, which has passed, was a very large opportunity for the company. I think one of the largest, I think Gary said, in fiscal 4Q would be... Bower, maybe Jason Berner just asked this, but will the renewal opportunity that it seems like you have, you know, a solid, you know, grasp around this, will the renewal opportunity in fiscal 25 be bigger? Or, of course, either of the same.

Got it. So, my name is Gary, and I'll jump in and give you a little, maybe just, Foundational pieces I will help melt, spread by 25. Fiscal Q3, fiscally our largest because it ties with all of the accounting that you're in, right? Deals we've done over a corporate period. And Fiscal Q4 will be modestly lower, right? So not significantly, but lower, okay?

So that means that the significance of the second half is always stronger than the first half of any fiscal year. And that trend, as I look into next year, will continue. On an overall basis, I would expect the rural population next year to be larger than the rural population this year, but not by the same amount that we saw this year, right? This year had a larger sequential year here; next one will be larger, but to a much lesser effect. Much less than fiscal 22 than fiscal 24, but higher than fiscal 24, nonetheless.

That's how. Thank you, Gary. You know, the expanding opportunities that you have here with regard to cyber resilience, you know, we agree with you in terms of the convergence of data recovery and data security over the last couple of years here. Talk to us about any incentives and the capacity that you have internally to have a com vault in terms of attacking the opportunities to climb up to the CISO kind. Okay, what was the last part of your question? You know, so in terms of, in addition to incentives, what kind of capacity do you have or need to continue to build out to kind of, you know, approach the CISO suite in terms of discussion? Okay.

So, I mean, in census, we continue to fine-tune that as needed, obviously, within the comp plan. But really, what's more important is the investment and focus we've put on enabling us, Health Force, and our ecosystem with our new capabilities around category 3. It's kind of unprecedented how much time, effort, and cost we've put into getting that right, and that's an ongoing journey. We've also brought in some really seasoned security experts, we call them field CTOs, to really enable our customer conversations alongside our fields. We've got some specialists as well that understand security inside and out, practitioners. We've also recently announced our Cyber Resilience Board, which is a board of absolute luminaries in the field of cybersecurity, headed by Melissa Hathaway, who was an advisor as part of two presidential administrations on security and cyber.

So we're really answering... Not just the product, but also the capabilities, the thought industry around it, and enablement within that. So there's a lot of work going on, and yet, as we want to be able to get, we've also, as part of the platform, it's a subtle thing, but it's an important team, which is, we've actually gone, we've shifted left. In other words, we have integrated and continue to integrate and continue to increase the ecosystem of connections into what we call the Identify and Defend, the perimeter security box. And making sure that the technology our customers use to defend the perimeter and manage it is something we integrate with, because it brings both sides together, the recovery and resilience side, which we do, and the Defend and Identify side that our partners do, and working together, we make the customer safer. And so, there's a lot of work that we've been doing. We announced it all in November, but we've been at this thing for a long time. And lots to do. And lots to do.

You know, lots to do. Everybody we hire, we try and bring in with a security backup. Quite simple. As simple as that, as a listener.

Thank you. The follow-up there would just be with regard to security budgets at firms that have been ever-expanding, probably for the last decade or more. Do you anticipate that this is – your initial complications are along those lines, you mentioned TCO and your preamble. Is this a clumb-bulk kind of like taking wallet share and consolidating vendors, or is this more of a – and who would those vendors be, or is this more of just a constant? I think, you know, Tom, I think the fact that the two pieces that have traditionally been separate are coming together from Just, you know, we've seen customers at the table with the IT organization, the infrastructure team, as well as security. And they're working together, rightfully so, to solve a complex issue, a hard problem. And I think they're quite, you know, we're seeing the budgets sort of munch together in many customers. This is not just a data protection piece or a data security piece. It has to be together.

So I think we're actually seeing... Deficiencies for customers with the authority they're taking, it does make it easier because you don't have internal subscription. Okay. Yeah, that's helpful. And just one very quick one.

Sorry to have four questions here, but the gross margin guidance was impressive, Gary. Just maybe talk about the moving pieces there, specifically with regard to McAlaryck and McLeod, and your scaling here. That'd be helpful.

Yeah. Yes, for sure. And I can wrap up with that question. So from a gross margin perspective, hitting stability in the gross margin is important, and there are two... One is, when you see exploration in our subscription and in terms of that group by subscription term software, they're very high growth margins. So when we get good renewal and good length-of-contract growth, we're going to see growth margin momentum. The key to our growth margin is getting stability and leverage on our staff growth margin. We're working very clearly towards our goal of getting into that fluctuating 70% growth margin. A year ago, we were in the 50s, and we're now well on our way to that objective over time of getting to 70% plus.

Aaron Rakers: And you're starting to see the leverage that we're getting right now on driving improvements in the growth margin on staff. Thanks guys, great quarter. Thank you. My apologies. Your next question comes from the line of Aaron Rakers of Wells Fargo. Your line is open.

Aaron Rakers: Yeah, thanks guys. Thanks for the quick follow up. I'll be brief here.

You know, obviously, a lot of momentum around cybersecurity and resilience attributes for the business. I'm just curious, like architecturally, as we think about the data center and what's evolving, you know, overall around AI, are you starting to see any engagement with customers that you can distinctly say that AI is actually driving this kind of change in sentiment or investment cycle for your business as enterprises kind of scrub through and think about their data and how they're going to leverage that more, you know, you know, from an AI perspective going forward? I mean, the answer, the short answer is you can't have a conversation without AI coming up. That's a fact.

Now, what we've done is, you know, Aaron, I'm turning your question on its head a little bit. And what we've done is look at what we can do for customers that makes their life better because of AI. Now, we've had AI in our technology for many years, but mostly in machine learning type and automation type scenarios. Now, with the newer generation of AI, our first foray into really delivering value, not just AI watching our technology, but truly delivering value, falls into three primary buckets. One is operational scale and resilience, giving them the ability to really work with large volumes of data with deep degrees of automation. Okay, and so the operational AI just enables that, and that's in the product. The second is really stress and risk management and attachment.

So with the number of risks, the stress, and the volume of data that's been written and stored, AI can do a wonderful job helping customers really do the anomaly detection, really do the cyber... get real cyber into it. So we've built a lot of that into the product. And the one that I think is getting great traction, which I think has immense value, is predictive recovery. The complexity of recovering data with absolutely solid clean backups for a customer who's just been breached is very complex because of the sophistication of the breach. And the time span between entry and payload.

And so, we're using AI to help customers really get a great starting point and then applying AI across a two-room-to-two-room recovery scenario to really help customers. Truly, humans will never recover. At the end of the day, that's what matters. And so, these are the three, I'm oversimplifying them, but these are the three big pockets under which we've applied AI to us in the first hour of our technology, and it's continuing to have a very rich and robust roadmap, and everything I've talked about exists. So there's no AI washing it, of which there's a lot going on right now.

And we have to be, you know, we have to be very, we take a very conservative approach around this, because at the end of the day, it's mission-critical data that we're working with for our customers. Thank you. Thank you, Aaron. This concludes the question and answer session. I will turn the call over to Mike Melnyk for closing remarks. Thank you, everyone, for joining us this morning. As a reminder, on the Investor Relations website, there is a presentation summarizing our key KPIs.

Feel free to reach out to me during the quarter with any questions. Thanks very much. Thank you. This concludes today's conference call. We thank you for joining us. You may now disconnect your lines.