Q3 2025 Commvault Systems Inc Earnings Call
Desiree: Ladies and gentlemen, thank you for standing by. My name is Desiree and I will be your conference operator today. At this time, I would like to welcome everyone to the Commvault 3rd Quarter Fiscal Year 2025 Earnings Conference Call.
Desiree: All lines have been placed on mute to prevent any background noise.
Desiree: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.
Speaker Change: If you would like to withdraw your question again, press the star 1. I would now like to turn the conference over to Michael Melnyk, Head of Investor Relations. You may begin.
Speaker Change: All such forward-looking statements are subject to risks, uncertainties, and assumptions.
Speaker Change: Please refer to the cautionary language in today's earnings release and Commvault's most recent periodic reports filed with the SEC for a discussion of the risks and uncertainties that could cause the company's actual results to be materially different from those contemplated in these forward-looking statements. Commvault does not assume any obligation to update these statements.
Speaker Change: During this call, Commvault's financial results are presented on a non-GAAP basis. A reconciliation between the non-GAAP and GAAP measures can be found on our website.
Speaker Change: Thank you again for joining us. And now I'll turn it over to our CEO, Sanjay Mirchandani, for his opening remarks. Sanjay.
Sanjay Mirchandani: Thanks, Mike. Good morning, and thank you for joining today's call. Q3 was another record-breaking quarter for Commvault.
Total revenue increased 21% to $263 million.
Subscription revenue grew 39% to $158 million.
Sanjay Mirchandani: Total ARR improved 21% in constant currency. SAS ARR jumped 75% in constant currency. And we did this profitably, recording non-gap even margins of 20.8%.
Sanjay Mirchandani: At a time where cyber resilience and data security could not be more top of mind for CISOs and IT leaders, we saw a strong uptick in transaction volume,
Sanjay Mirchandani: Impressive growth in our land and expand business and an acceleration in our organic growth rate.
Sanjay Mirchandani: As we look to the future, we believe that Commvault is strategically positioned to succeed and win.
This is bolstered by three fundamental growth drivers.
Sanjay Mirchandani: First, the cyber resilience market has never been more dynamic or full of promise.
We are uniquely positioned to capitalize on this.
Today, customers face unrelenting cyberattacks.
Speaker Change: A Shifting Regulatory Landscape, and the Exponential Growth of Data from Cloud Native and AI Generated Applications.
Speaker Change: To deal with this, enterprises need a unified resilience platform that spans their hybrid multi-cloud environment.
Speaker Change: This is where Commvault thrives. Our Commvault Cloud Platform is enterprise-grade and enables customers to easily protect and secure vast amounts of data, including AI and ML datasets, across clouds.
Speaker Change: And given most customers are utilizing multiple clouds, we're innovating across all major providers.
Speaker Change: During the quarter, we announced that Commvault Cloud Platform will be available to AWS customers. We also introduced advanced cloud backup and site recovery capabilities for Google Workspace.
Speaker Change: This builds on what we already do today with Microsoft Azure and Oracle Cloud.
Speaker Change: With respect to cloud, we're also innovating in unique ways to address critical recovery challenges.
For example.
Speaker Change: One of the most complex and time-consuming steps to recover a business after a cyber attack is rebuilding and validating mission-critical cloud-native applications.
Previously, this could take weeks or months.
Speaker Change: Today, with Cloud Rewind, which includes technologies from our Acranix acquisition, customers can do this in a fraction of the time.
Speaker Change: ARR, associated with this offering, has more than doubled since we acquired Aprionics a few months ago.
Speaker Change: Cloud Rewind has become a highly differentiated capability within our platform.
Speaker Change: Which brings us to the second fundamental growth driver, the need for our game-changing driver resilience offerings. They're unlike anything on the market and they make our industry-leading platform even stronger.
Speaker Change: That's what our next generation offerings do. Security is built in, not bolted on.
We're out innovating the competition on every level.
Let me give you an example.
Speaker Change: To be truly resilient, you need a predictable recovery plan that can be automated and used at a moment's notice.
Speaker Change: And you must be able to practice that recovery in good times so that you can be ready for the bad times.
Speaker Change: This is what we uniquely provide with Threadscan and clean room recovery.
Both are core offerings on our Commvault cloud platform.
Speaker Change: With Cleanroom, customers love the sense of security it provides. Emerson Electric commented.
Speaker Change: Clean Room Recovery not only enables organizations to test their recovery plans often,
But know that if they're hit, they can be resilient."
Speaker Change: In terms of addressing the latest threats, we've just announced that we will be offering customers with a full and automated recovery of Microsoft Active Directory.
This is absolutely critical.
Speaker Change: Active Directory controls authentication and access to critical business systems for hundreds of millions of users worldwide.
Speaker Change: Because it is so essential, it's also become a primary target for cyberattacks. In fact, research shows it is the target in 9 out of 10 cyberattacks. If hit, your business will come to a halt.
Speaker Change: Starting this spring, we plan to address this threat in transformative ways, making it super simple for organizations to recover their entire Active Directory systems.
Speaker Change: And even better, customers will be able to do this with Commvault Cloud, the same platform that today protects more workloads than any other vendor. Nobody else offers this capability on one platform.
Speaker Change: Customers are thrilled. A spokesperson for the Nevada Department of Transportation said, quote, Commvault's innovation with Active Directory will provide us with the confidence and peace of mind that not only can we recover our Active Directory data,
But we'll be able to do so quickly and accurately."
Speaker Change: Many companies are storing AI and ML datasets in S3, so having the ability to recover that data is paramount.
Speaker Change: We unveiled new automation that can rapidly revert billions of objects to a specific version at a specific point in time.
Speaker Change: Nobody else does this. We just announced BackTrack at AWS reInvent and look forward to sharing more in the coming quarters.
Speaker Change: These cyber resilience offerings bring even more depth and breadth to our platform.
Speaker Change: This brings us to our third growth driver, a strong go-to-market motion combined with an incredible partner ecosystem to scale our business globally.
Speaker Change: The strategy that we put in place to segment and refine our go-to-market motion over the last several quarters are paying dividends.
Speaker Change: Our cyber resilience marketing message is resonating with customers, and we're seeing record inflows and pipeline growth. And in Q3, we saw increased transaction volumes, strong close rates, accelerating customer numbers, and robust expansion activity.
Speaker Change: These contributions were balanced across geographies, verticals, and market segments, from seven-figure software transactions to a record number of velocity-based fast wins. The result was another double-digit increase in Salesforce productivity in Q3.
Speaker Change: These advances are further augmented by our enhanced and growing partner ecosystem, which enables us to extend outreach globally.
Speaker Change: In Q3, we saw solid contributions from alliance partners like Hitachi, HPE, Kindle, and Dell.
Speaker Change: This included a large enterprise win with a healthcare provider that combined Commvault's Hyperscale X on Dell hardware with our AirGap Protect offering for immutable protection of the customer's most critical data.
Speaker Change: We also saw improved momentum with the hyperscalers as the number of marketplace transactions more than doubled.
Speaker Change: With compliance in mind, we offer a new partnership with PURE.
Speaker Change: and we're actively working to strengthen integrations with leading AI providers like Databricks.
Speaker Change: With respect to AI, we've prioritized investments in critical AI capabilities that can proactively identify anomalies, detect threats, and identify ideal recovery points to bounce back after an attack.
These capabilities are pivotal to recovery and resilience.
Speaker Change: Let me take a moment to summarize the growth drivers that position us for ongoing financial success.
First, cyber resilience has shaped the addressable market opportunity.
Speaker Change: and the emergence of new use cases has increased the size and accelerated the growth potential of the market.
second
Speaker Change: In this more complex and dynamic hybrid cloud world, point products don't cut it. Our Commvault Cloud Platform offers customers depth of coverage and breadth of offerings, with exceptional choice and flexible consumption.
Speaker Change: Third, maintaining a relentless focus on execution is critical to our success. This flows through all layers within our organization and extends across our growing partner ecosystem.
Speaker Change: Our year-to-date financial performance proves that now more than ever, we need to continue these investments to further accelerate our growth profile.
In closing,
It's no longer enough to just recover your data.
Speaker Change: Today, it's all about enabling continuous business for our customers, from how they prepare for the inevitable disruption, to how quickly they get their business up and running following an attack. This is what matters most for a modern hybrid and multi-cloud enterprise, and it is what we enable today.
Speaker Change: Now, I'll turn it over to our Chief Financial Officer, Jen DiRico, to discuss our results. Jen?
Jen DiRico: Thanks Sanjay. As Sanjay noted, Q3 was another excellent quarter driven by strong execution and record close rates.
Jen DiRico: Our investments in growth-oriented initiatives and new product innovations are yielding positive results.
Jen DiRico: as demonstrated by the acceleration in our customer additions and our organic growth rate. I want to thank all the Vultures that contributed to the fantastic results this quarter and year to date.
Now I'll discuss our Q3 results and operating metrics.
Jen DiRico: Followed by an update on our improved guidance for Q4 and FY25.
Jen DiRico: Please note that all growth rates are compared on a year-over-year basis unless otherwise specified.
Jen DiRico: Total revenue increased 21% to $263 million, driven by a robust 39% increase in subscription revenue.
Jen DiRico: The growth in subscription revenue resulted from continued SaaS momentum and significant improvement in the volume of both term software and SaaS transactions compared to the prior year.
Jen DiRico: Revenue from term software transactions over $100,000 increased by 18%, benefiting from a 30% rise in volume.
This included more than a dozen wins over $1 million.
Jen DiRico: In addition, we saw robust growth in landing new large enterprise customers this quarter, including Equinix, AXA, Vanderbilt University Medical Center, and Denise Bank Financial Services.
Jen DiRico: Given the breadth and depth of offerings across our platform, we are the vendor of choice to serve large, complex enterprises that have mission-critical data sitting in on-premise, hybrid, and cloud environments.
Jen DiRico: I also want to note that our investments around our velocity motion continue to bear fruit.
Jen DiRico: We added a record number of SAS customers this quarter. We're pleased with this increase in volume with the small and medium-sized enterprises, as we welcome the opportunity to grow with customers on their hybrid cloud journeys.
Jen DiRico: Now, turning to ARR. Q3 total ARR grew 18% to $890 million.
on a constant currency basis.
Jen DiRico: Total ARR accelerated 21% to $911 million, reflecting an acceleration in our organic growth rate, as well as incremental contributions from Clumio, which contributed $24 million.
Jen DiRico: Please refer to the appendix of our quarterly earnings presentation to review the constant currency bridge.
Jen DiRico: Subscription ARR, which includes term-based licenses and SAS contracts, increased by 29%, reaching $734 million, accounting for 83% of total ARR.
Jen DiRico: This includes $259 million in SAS ARR, which grew 71%, continuing its hyper-growth trajectory.
Jen DiRico: On a constant currency basis, Subscription ARR increased 32% and SAS ARR grew 75%.
Jen DiRico: Including Clumio customers, we added over 1,000 new subscription customers, surpassing 11,000 customers worldwide, including over 7,000 SAS customers.
Jen DiRico: We continue to benefit from increased multi-product adoption among both new and existing customers.
Jen DiRico: For example, we closed a seven-figure transaction with a leading global technology infrastructure company that added risk analysis, threat scans, and compliance to bolster their overall cyber resilience posture.
Jen DiRico: A multinational HR and workforce management group chose our AirGaP Protect, Cloud Rewind, and Active Directory to securely accelerate their hybrid cloud journey.
Jen DiRico: And we closed a seven-figure deal with a national partnership of independent insurance brokers that chose AirGap Protect, VMs, and Kubernetes to secure their cloud-first infrastructure.
Jen DiRico: These are just a few examples of customers that are bypassing point solutions and top-grading vendors to utilize the extensive capabilities of our Commvault cloud platform for enhanced cyber resilience in a hybrid cloud world.
Jen DiRico: Existing customer expansion remains healthy with a Q3 SAAS net dollar retention rate steady at 127% driven by both upsell and cross-sell.
Jen DiRico: SAS ARR saw notable growth from new products such as Active Directory, Cloud Rewind, ThreatWise, and other mission-critical offerings.
Jen DiRico: These trends continue to support our competence and further expansion opportunities with the newest products we announced at SHIFT.
Jen DiRico: Now, I'll discuss our consistent profitability and free cash flow, which demonstrates our commitment to a responsible growth philosophy.
and many more. Thank you. Thank you.
Jen DiRico: Q3 growth margins were 82%, reflecting our accelerating mix shift towards SASS, which represented 29% of total ARR, versus just 20% one year ago.
Jen DiRico: Operating expenses of $160 million represented 61% of total revenue, consistent with prior quarter and prior year.
Jen DiRico: Q3 operating expenses included costs associated with shift in London, the onboarded Columbia employees, and our continued investments to accelerate revenue momentum, which include higher commission and bonuses on record sales results.
Jen DiRico: Non-GAAP EBIT grew 17% to $55 million and non-GAAP EBIT margins of 20.8% came in at the high end of our guidance range.
Jen DiRico: Now moving to some key balance sheet and cash flow metrics.
Jen DiRico: We are excited about the progress made towards integrating Clumio. It furthers our ability to go deeper in the cloud and positions us to capitalize on potential AI-related opportunities.
Jen DiRico: As we continue to invest in our future, we remain opportunistic around technologies that further the depth and breadth of our platform.
Jen DiRico: Q3 free cash flow of $30 million was impacted by material foreign exchange headwinds and tax payments made in the quarter tied to higher than projected full year pre-tax income.
Jen DiRico: In Q3, we repurchased $32 million of stock, representing 107% of free cash flow for the quarter.
Jen DiRico: Fiscal year to date through December 31, 2024, we repurchased $135 million of stock, representing 106% of free cash flow.
Jen DiRico: We still plan to repurchase at least 75% of our free cash flow for the full fiscal year.
Jen DiRico: For fiscal Q4, we expect subscription revenue, which includes both the software portion of term-based licenses and SAS, to be in the range of $160 to $164 million.
This represents 35% year-over-year growth at the midpoint.
Jen DiRico: We expect total revenue to be in the range of $260 to $264 million, with growth of 18% at the midpoint.
Jen DiRico: At these revenue levels, we expect Q4 consolidated gross margins to be in the range of 81-82%.
Jen DiRico: We expect Q4 non-GAAP event margins to remain in the range of 20 to 21 percent.
and many more. Thank you. Thank you.
Jen DiRico: Our projected diluted share count for fiscal Q4 is approximately 45 million shares.
Jen DiRico: We are, once again, raising our outlook for the full fiscal year 25.
Jen DiRico: We now expect FY 25 total ARR growth of 19-20% year-over-year. We expect subscription ARR to increase in the range of 28-30% year-over-year.
Jen DiRico: From a full year fiscal 25 revenue perspective, we now expect subscription revenue to be in the range of $575 to $580 million, growing 35% at the midpoint, with strong contribution from both term software licenses and SAS.
Jen DiRico: We now expect total revenue growth to accelerate and be in the range of $980-985 million, an increase of approximately 17% at the midpoint.
Jen DiRico: Moving to our updated full-year fiscal 25 margin, EBIT and cash flow outlook.
Jen DiRico: We continue to expect growth margins to be 81 to 82 percent. We also continue to expect non-GAAP EBIT margins to be in the range of 20 to 21 percent.
Jen DiRico: From a free cash flow perspective, we expect full year free cash flow of $170 to $200 million. Our revised outlook reflects foreign currency headwinds that were more pronounced in Q3 and expected to continue in Q4.
Jen DiRico: As I reflect on FY25, our strong year-to-date financial performance demonstrates that our strategy is working, our cyber resilience message is resonating, our team is executing, and our investments are paying off.
Jen DiRico: Looking forward to FY26, we are currently trending ahead of the financial targets that we originally shared, and we now expect to achieve those targets earlier than our initial plan.
Jen DiRico: As Sanjay noted, we couldn't be more excited about the market and the opportunity in front of us.
Jen DiRico: The revenue-driving investments we are making have positioned us to be the cyber-resilience provider of choice for enterprise businesses and have contributed to our outstanding financial performance year-to-date.
Jen DiRico: We remain committed to investing in these growth-driving initiatives to further accelerate our momentum in FY26. Now, I will turn it back to the operator to open the line for questions.
Speaker Change: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Jen DiRico: If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue.
Thank you. Thank you.
Thank you.
Thank you for joining us. Thank you.
Speaker Change: And our first question comes from the line of Aaron Rakers with Wells Fargo. Your line is open.
Aaron Rakers: Yeah, thanks for taking the questions and congrats on another solid quarter out of you guys. So, I guess, you know, Jen, I'd like to double-click a little bit on the momentum you're seeing in your SaaS customer base. A thousand...
Aaron Rakers: New customers seems like a fairly sharp acceleration from the plus 600 a quarter over these prior two quarters.
Aaron Rakers: Maybe you can unpack that a little bit. How much did Clumio add to that contribution? And then also, can you talk a little bit about how many of your customers have more than one SaaS offering today and how you think about that progression as we look into Fiscal 26?
Speaker Change: Thanks so much for the questionnaire and we're really proud of our overall performance, in particular the fast acceleration in our organic growth rate. If we think about the number of customers we added, about a thousand as you remarked.
Speaker Change: subscription customers. I would say to you that of the, we were running about 600 in the past run rate, I would say another 200 or so plus or minus come from Clumio and the remainder are all organic.
So we're really proud of that.
Speaker Change: And then in addition, as it relates to your second question around a number of products, so first of all, I would say we're really proud of the 127% SAS NRR. It still remains about two-thirds upsell, one-third cross-sell.
Speaker Change: However, I've shared in the past that we're around 30% or so of customers have two or more SAS products.
Speaker Change: But I would point you to the fact that we still have a lot of opportunity, specifically around some of our emerging and new products.
Speaker Change: Active Directory, Cloud Rewind. Cloud Rewind in particular grew 2x from the time of acquisition and so while it's early days for us we are very very excited about the potential and believe it believe we have a lot of opportunity to cross sell into the existing base.
Speaker Change: And then the final question, you mentioned tracking ahead of your Fiscal 26 targets. Can you just remind us what your targets, what you've previously outlined were, and any context of the progression as we look into Fiscal 26?
Speaker Change: Great question. So our previous guidance has been a billion ARR and 330 million SAS ARR by the end of FY26.
Speaker Change: I shared that we were tracking ahead of that. I think the best way to think about our growth is, last quarter I shared that we were on average adding about $30 million in net new ARR a quarter. This past quarter, we added $38 million in net new ARR on an organic basis, excuse me, on a constant currency basis.
Speaker Change: And so I think that's the best way to think about how we're tracking on the future.
Thank you.
Thank you. Thank you.
Speaker Change: Our next question comes from the line of Eric Heath with KeyBank Capital Markets. Your line is open.
Eric Heath: Hey, thanks for taking the question and glad to be on the call with you guys today. So Sanjay, maybe just a big picture question. We'd love to get some of your perspective on this acceleration in the business. Just curious, how much of the acceleration do you think is from external factors that might be happening in the marketplace, whether it's mergers or regulation versus better internal execution?
and many more. Thank you. Thank you.
Eric Heath: So I think, you know, the way we look at it is we do one thing for our customers day in and day out, which is make them more resilient, give them the ability to recover in the face of an attack or any kind of catastrophic situation.
Eric Heath: So we're, you know, ransomware attacks, cyber attacks, are not going down. They're actually increasing. And what we're doing is continuing to build out a platform, Commvault Cloud, that enables customers in a hybrid multi-cloud world to be able to protect any workload.
Eric Heath: anywhere and be able to recover it in a very predictable way. So our innovation in the platform is definitely a tailwind, a driver of the growth we're seeing and we're solving a really hard problem for our customers.
Combine that with
Eric Heath: Over the past three to four quarters, we've been quite open and transparent about
Eric Heath: The way we're aligning our go-to-market resources, driving efficiency, productivity across it, getting closer to our customers with our customer success team, I think all of that is beginning to take great shape and come together well for us. So it's a combination of solving a hard problem with a good platform and executing to the best of our ability.
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Jen DiRico: Thanks for that. And, Jen, a question for you to follow up on some of the NetNew ARR comments. And hopefully this doesn't get too much in the weeds, but I'm curious if there's anything to call out as it relates to the 3Q and 4Q seasonality because
Jen DiRico: When I look at the 3Q net new ARR on a constant currency organic basis, it was similar to the prior two quarters and
Aaron Rakers: The 4Q guidance seems like it implies a similar net new ARR and a constant currency basis as 3Q. So just curious if there's any reason why that seasonality should be the case when I usually think of the second half being a bit stronger with a bigger renewal base. So kind of a lot to maybe unpack there, but just...
Aaron Rakers: Any call or anything to call out, I'd really just use an analogy.
Aaron Rakers: Yeah, absolutely. So I would say overall the second half of the year like you shared is usually historically and seasonally stronger than the first.
Aaron Rakers: Q3 had an additional, a little bit of a higher renewal population. However, on average, as we think about Q4, our guidance focuses on the fact that we have strong pipeline and field execution. We're continuing to see continued momentum in both our land and expand.
Aaron Rakers: And our security offerings are continuing to gain a lot of traction.
Aaron Rakers: And then the last thing I would call out is there's really, from just an organic, it's mostly organic growth, only let's say a point or two from clumio. And I think the best way to look at the overall seasonal nature is to take a look at how our ARR continues to grow because it really helps neutralize any seasonality.
Thank you, and congrats again on the organic acceleration.
Thank you very much.
Thank you. Thank you.
Speaker Change: Next question, from Jason Ader with William Blair, your line is open.
Jason Ader: Yeah, thanks guys. Really impressive revenue growth. I guess my question is, when do you expect to see more operating leverage? And maybe just some of the puts and takes as you think about the outlook for operating margin.
Jason Ader: Thanks for the question. So first of all, I think we've shared in the past that FY25 was absolutely a year of investment to accelerate our revenue growth, and you're absolutely seeing that in our results, five quarters of double-digit growth.
Jason Ader: This quarter, I can walk through a little bit of where the investments went with the increased revenue acceleration. At the first, you're seeing more staff in our revenue profile, and as we've shared before, that has a more diluted margin than overall term stopper license.
Jason Ader: Second of all, we had Plumio in that mix as well and we shared the last quarter that it would be diluted for two to three quarters.
Jason Ader: The third is the fact that we've seen massive overperformance in our revenue results, and that's related to the fact that you'll see additional commission and bonuses in the sales and marketing line.
Jason Ader: And then fourth, ultimately, we're continuing to invest, like I said, but if I zoom out year to date, we're at a rule of 39, this quarter, a rule of 42. So overall, we're really pleased with the performance.
Speaker Change: Okay, thank you. And then one quick follow-up. Did you say what the revenue contribution was from acquisitions? I didn't catch that.
Speaker Change: So, we share that Clumio was $24 million of ARR, and so if you think about that, it's approximately $6 million from a revenue perspective in quarter.
Is there any other impact from acquisitions?
Speaker Change: Thank you for watching. I'm Gary Merrill. I'll see you next time.
was not meaningful at that point.
All right, thank you. Good luck. Yeah, of course.
Speaker Change: Our next question comes from the line of Param Singh with Oppenheimer. Your line is open.
Yeah, hi, thank you and thanks for taking my question.
Speaker Change: I really wanted to kind of dive a little bit more into the SaaS development, particularly with all the cybersecurity offerings that you're putting out now.
Speaker Change: What, you know, percentage of customers or what number of modules are your SaaS customers using? Anything on the security side? Have you seen an acceleration on that front? And I will have a follow-up on that in that regard.
Sanjay Mirchandani: Hey Param, Sanjay. Thanks for the questions. You know, the platform is built to deliver what we call built-in security, not built-in-on security.
Sanjay Mirchandani: And so the platform in itself enhances the customer security profile and resilience greatly. Just as a benchmark, we're also the only provider
Sanjay Mirchandani: that is FedRAMP High certified for, you know, that has gone through the stringent process of FedRAMP High. So the platform in and of itself is a very secure platform for our customers. It just raises their profile. If you look at the capabilities they're building in, in and of itself features like Cleanroom, which is about recovery.
Active Directory, which is about recovery.
Sanjay Mirchandani: Okay, and making you more secure, our AGP, our Air Gap Protect, which is our immutable capabilities on which they can, customers can write.
You know important data and or other things
that they want to keep secure.
Sanjay Mirchandani: So all of those features, as examples, give you more security. The ability to backtrack from your acquisition, to roll back billions of objects.
Sanjay Mirchandani: in S3 and make you, you know, in the advent of an attack, all of this makes you more secure and security from the lens of being able to come back to life, recover.
Sanjay Mirchandani: So, the platform in and of itself is highly secure and certified, and we build great capabilities into the technology, the innovations we do that give customers optionality and more. And I'll close by saying, we just announced a...
Sanjay Mirchandani: integration with CrowdStrike's Falcon platform, which allows us to, for example, take feeds from CrowdStrike, show it in the Convo cloud, and then enable actions automatically, if needed, to either restore or, you know, move data out, do a scan, whatever action the customer wishes to take based on intelligence that we gather from our partners.
Sanjay Mirchandani: So, as you can tell, the platform, you know, we like to think of the platform as being implicitly secure with added dimensions of capabilities that we give customers options on.
and many more. Thank you. Thank you.
Speaker Change: If I were to put that in the context of module expansion and overall SaaS, is there some way to think about it? Are there additional modules that you intend to bring on either organically or potentially with M&A that would be a natural evolution of the platform?
Speaker Change: Did you repeat your question? I'm just trying to unpack it. Yeah, sure. Sorry, there's a little bit too much. I wanted to understand.
and Sanjay Mirchandani.
Speaker Change: I think what we have today is second to none. Honestly, the pickup we're getting on our cleanroom capabilities, which...
Speaker Change: We innovated around Active Directory, which we just announced an enhancement to that I think is going to be amazing for customers to feel more secure in, you know, against cyber attacks.
Speaker Change: Our acquisitions through Pranex with Rewind, we call the product Rewind now, in the ability to bring back to life cloud-native applications, configurations, data, all of it.
Speaker Change: and Backtrack, which I talked about a little earlier, all of these are accretive. All of these are choices customers have in a very logical way in the platform to grow their resilience profile.
Speaker Change: Okay, so it's not about one or the other. It's a natural extension of their ability to be and their desire to be more resilient as they mature in their journey.
Thank you.
Aaron Rakers: Got it. Thanks a lot, Sanjay. I'll get back in line.
Thank you.
Thank you, Barbara.
Speaker Change: Next question comes from the line of Rudy Kessinger with DA Davidson. Your line is open.
Speaker Change: Hey guys, thanks for taking my questions. Again, I'll have my progress in the quarter that the organic air growth accelerations.
Speaker Change: I want to go back to a question I was asked earlier. I know you said I think maybe 30% of your customers have 2 Plus SaaS products. I guess put differently, I'm curious, when you look over your entire subscription customer base,
Speaker Change: Just what percent of the data backup and recovery estate, you know, have you captured at this point? Like how much cross-sell and up-sell room is there, not just on SAS, but on on-term license as well to continue to expand with those existing customers?
Without giving too much away.
Speaker Change: really because this is a competitive space this is a competitive area for us as Jen mentioned
Crosstel is a massive opportunity for us.
Speaker Change: gives us an unprecedented opportunity to go in and very seamlessly give customers access to.
Speaker Change: To all of that, all these new feature sets inside of the platform. So whether the customer is using software predominantly and a little bit of SaaS, or using Landed With Us with SaaS and is looking at some of our more data center capabilities, our platform is designed for hybrid multi-cloud.
Speaker Change: scenarios, and we do it broader and deeper than anyone else. So short answer without giving too much away is everything we're building aligns very well with the way the customer grows their resilience profile with us.
Speaker Change: Okay, on the Commvault Cloud Platform. So if you if you take it apart you'll see how these offers are tightly integrated and quite seamless in the way for customers to embrace and roll out.
Thank you.
Speaker Change: Okay, and then Jen, really appreciate these constant currency disclosures. I guess in your revised fiscal 25 AR growth guidance of 19 to 20 percent, what is that at constant currency?
Thank you.
Speaker Change: So I think the best way to think about overall the ARR acceleration is, if I go back to the $30 million that we said quarter over quarter, is the best way to think about that. And ultimately, the guidance is based off of this quarter's effects.
Okay, got it. Thank you.
Thank you for watching. I'll see you next time.
Speaker Change: Next question comes from the line of Howard Ma with Guggenheim Security. Your line is open.
Thank you.
Speaker Change: Great, thank you and I want to add my congratulations as well on a strong quarter. I've won for Sanjay, won for Jen, so for Sanjay...
Speaker Change: And it's related to, it's like a subset of the prior question. What is your sense of the greenfield opportunity for protecting...
Speaker Change: and they're going to be talking about SaaS apps and cloud-native workloads, so really on the cloud side specifically, that are not already protected by a third-party vendor. And as it relates to Commvault, Commvault continues to expand your breadth of offerings, and it's really been impressive. So Google Workspace, Active Directory, Pranix.
Yes, short answer is yes.
Speaker Change: Howard, I absolutely believe that. We are so focused on being a true...
Speaker Change: hybrid multi-cloud provider for our customers that there's no workload and no cloud left behind. We're doing as much as we can to really broaden our offerings on the cloud and then go as deep as we can with all the clouds. This quarter we announced much deeper partnerships with AWS. The Clumio acquisition furthered our capabilities with S3 on AWS.
Google Workspace more recently on the app side.
Speaker Change: So, and we've always supported Azure at great length alongside OCI.
Speaker Change: So, you know, it's no secret, we believe that the more we have both depth and breadth for cloud-native offerings, cloud-first offerings for our customers, the safer they are. A lot of customers actually...
Speaker Change: Cloud data is the one that's less exposed as customers move to the cloud, get more sophisticated in their offerings, go beyond snapshots. You know, offerings like our Rewind, which was the Pranic's acquisition, and it's hard, really allow customers to not only, in a single click,
Speaker Change: You know, protect the application, the data, the prioritization of the resources, the configuration, and then be able to test and bring it back at will across clouds. So there's a lot we've built and there's a lot we continue to build in there. Backtrack, for example, the ability to bring back billions of objects to a prior version in a fraction of the time it would take you to even fathom what happened.
These are all groundbreaking capabilities, all cloud-first.
and many more. Thank you. Thank you.
Speaker Change: and we'll continue to drive that and make it seamlessly available to the platform to even our software-based customers, the customers that are still primarily in their own data centers, can avail of these...
Speaker Change: These capabilities seamlessly through Compile Cloud and continue to grow with us, whether it be Office 365, AirGaP storage.
Clean Room Capabilities, Active Directory, Seamless.
Sanjay Mirchandani: That's really good color, Sanjay, and it's very encouraging. In our own checks, people have told us that Biopranics and Clumio technologies are pretty unique.
Speaker Change: I said I had a follow-up for Jen, and it's actually...
Speaker Change: It's related to Rudy's second question, too. I promise we did not brainstorm before this.
Speaker Change: I also want to ask the FX, the totally our FX question another way, because if you look at...
Speaker Change: Q2, the Q2 I believe the impact was a, it was a one-point tailwind, right, and then in Q3, you just disclosed it's a three-point headwind, that's like a four-point swing, and is, so is the right, is the right way to think about the total AR guide, the raise, maybe it's more like a four-to-five-point raise instead of, instead of one-to-two reported?
Speaker Change: I don't know if I'm doing the math right or wrong there.
Speaker Change: Yeah, I think you're definitely in the ballpark, but I would just go, I would encourage you to go back to the appendix in the investor relations presentation, where we state, like you said, in a prior quarter, the organic
Speaker Change: On a constant currency basis, net new error was 37, and then this quarter, 38. And so I think overall, the 30 plus or minus is the right way to think about the continued growth.
Thank you.
Speaker Change: Sorry, one last thing, Jen, does that 38, does that include Clumio or is that organic constant currency or is that constant currency? That's truly organic, net new ARR at constant currency. In addition to the 38, we added $24 million from Clumio.
Speaker Change: Okay, got it. Thanks so much for clarifying that. You're very welcome.
Speaker Change: and many more. Thank you for joining us. We hope you have a great day.
Speaker Change: Next question comes from the line of James Fish with Piper Sandler. Your line is open.
Speaker Change: Hey guys, you guys have seen much consolidation and calendar 24 in the space including a few deals yourselves
Speaker Change: Sanjay, for you, how are you thinking about the opportunity for further consolidation? And Jen, on your side, not to, you know, continue to talk about this, but if I take Clumio and given the disclosures around the Pranix and the filings...
Speaker Change: We're getting closer to 17% organic constant currency growth, which is actually similar to the last few quarters.
Thank you for joining us. Thank you.
Speaker Change: Okay, I'll go first. I'll go first, Jim. You know, your question around consolidation, do we think, how do we, how do I think about further consolidation? I mean,
Speaker Change: We're looking forward, and when we look forward on the platform, there are areas that we definitely think, whether it be AI-based data sets, AI application backup, large data lakes.
Speaker Change: They're going to require very different technologies to protect and be resilient with than something we did five years ago, or even three years ago, or something we did with Kubernetes three years ago.
Speaker Change: One size doesn't fit all. And as much as our innovation engine is on fire, you know, there are some good technologies out there like Lumio, like Aquanix that actually make, bring incredible value to our customers very quickly. I also believe that, I also believe that,
Speaker Change: In this business, and we're seeing a lot of focus in our space now, you know, we were the only player in the public markets for a long, long time. And what we learned, if we learned anything, was clearly...
Speaker Change: Single workloads don't win. You need breadth and depth of workloads and environments to really be valuable to customers because that's how you protect. You can't have partial. You need to be completely covered and completely resilient. So we think that, you know, if there's...
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Speaker Change: That's going to be key too. And we're very happy with the acquisitions we've made. The Afranics, in a few months, we've doubled the revenue, the contribution from that. And with Clumio, everything we've seen is great and the pipeline is growing.
Speaker Change: Thanks, Sanjay. And then, Jim, to your second question. First of all, I would highlight the fact that, yes, you're right. Our FY25 results include not only our organics performance and a few points from Clumio. And so we sit at between 17% or 18% on an organics growth rate.
Speaker Change: As you think about going forward, I think 15% ARR growth year over year is not a bad place for you to be as we think about just overall our organic continued contribution.
Speaker Change: We'll have more. That's helpful. And we'll share more in the next quarter.
Thank you.
Speaker Change: Sounds good. Sanjay, just circling back, you know, some concerns. Obviously we're talking about, you know, IP budgets for 25 here.
Speaker Change: but there's some concerns around how Europe looks. So how should we think about the growth in Europe this year versus last, especially in light of a lot of those entities having to go through the DORA regulation?
Speaker Change: I mean, DORA, you know, DORA has been coming for a while. So, you know, we've been working with customers for, you know,
Speaker Change: You're actually had a pretty good quarter for us this last quarter and you know without getting too much into our fiscal year 26 and the rest of calendar year 25 you know we're looking we're not we're not looking at any substantial changes between our assumptions so far.
Speaker Change: Next question comes from the line of Thomas Leahy with Cantor Fitzgerald. Your line is open.
Thank you.
Thomas Leahy: Hey guys, thanks for squeezing me in here. Great quarter. My question is on term license, my first question is on term license. I just wanted to,
Speaker Change: Double click on that. Sanjay, if you could, like, what are you seeing in terms of renewal, you know, conversations, how are those going and specifically want to know about the color related to expansion, you called out expansion, obviously, it's working with on the SAS side, but on the term license side, specifically.
Speaker Change: How is cyber kind of helping with term license renewals? How does the renewal pipeline look and, you know, in the past, like, capacity has been the main driver here, kind of 105, 110% NRR. What can we expect here and what are you kind of seeing in the near term? I have a follow-up.
Speaker Change: So I'll start and just let you know that on a software term license, Q3 was very, very strong for us. We continue to see strong inflows. Q3 has historically been a strong renewal quarter for us, and that continues to be the case.
Speaker Change: And overall, from an NRR perspective, that 105 to 110% is still absolutely the right ballpark.
and more qualitatively.
Speaker Change: What we've done is, this year we've built out a customer success organization that is working very closely with our customer base on making sure that they are resilient, that they have the latest and greatest technology, they're enabled, and that we're working closely with them to make sure that the best of what we have, they have access to.
So that's helping really with the conversations around renewals.
Speaker Change: our newer offerings, especially the ones that give them air gap protect.
Speaker Change: Is there immutable storage gives them active directory protection. These are very accessible
Speaker Change: and we think they're going to be, they're going to continue to be a, you know, a solid, a solid business process.
Thank you.
Speaker Change: I think the best way to think about our overall NRR software is still in the 105 to 110%. What I would point you to is the opportunity to support our both hybrid workloads.
Speaker Change: and our SAS NRR of 127% and the opportunity to continue to push our cross-sell motion.
Thank you.
Speaker Change: That's super impressive and thank you for that, Jen. Follow-up question is on margins, like everybody else has been harping on.
Speaker Change: I just wanted to say, you know, if we kind of look out, first and foremost, what was the Clumio kind of headwind on maybe operating margin here in the current and next quarter, especially the next quarter that we're in now? And if you look out kind of fiscal 26, Jennifer, how are you balancing growth?
Speaker Change: and operating leverage there with all the moving parts there that'd be helpful. And thank you again, great quarter.
Jennifer: Great question. So first I'll answer the question around Clumio. We said it would be diluted for a couple of quarters, two or three quarters. I would say a point or two is the right way to think about dilution on the margin side of things.
Jennifer: But if I zoom out and think about continued investment, you've heard both Sanjay and I talk about the fact that the market is absolutely growing for cyber resiliency products.
Jennifer: The demand for our Commvault Cloud products absolutely resonated, we continue to see robust demand from our customers. And also we see a really strong execution from our own team, increased close rates,
Jennifer: Double-digit productivity. All that to say that when we're in a decision...
Jennifer: We win the majority of the time, and so as we think about FY26 investments, of course we will be balanced, but at the same time, we know that we want to be in incrementally even more decisions.
Jennifer: Because we know the market, it's the right time for us to continue to capture market share. And, you know, at the risk of repeating ourselves, we...
We're clipping the Rule 40 consistently.
Very impressive. Thank you.
Thank you.
Thank you. Thank you.
Operator: And our last question comes from the line of Aaron Rakers with Wells Fargo. Your line is open.
Aaron Rakers: Yeah, thanks for the follow-up. I wanted to go just on a partner ecosystem. You mentioned obviously this last quarter announcing engagement with AWS
Aaron Rakers: with Commvault Cloud Platform. You also referenced Microsoft Active Directory. I'm curious, as you think about
You know, these opportunities.
Sanjay
Speaker Change: Does it take a while to see these start to come to fruition as far as revenue, incremental revenue opportunities? Or do you think that
Speaker Change: You know that that we should be considering that as an incremental driver already starting in this current and you know, maybe into the June quarter. I'm just curious to how.
Speaker Change: How do you think about the ramp of those opportunities? It takes time. It takes time because you build it.
Speaker Change: You've got to make sure that the customer understands it, it fits into their buying cycle. So it does take a little bit of time. Some go faster than others.
We've been very...
Speaker Change: very pleased with Active Directory, as an example. That one, you know, that one has a lot of...
Speaker Change: Quick wins, customers see the value, they're able to put it into play quickly.
It's the right price point.
Speaker Change: It was, you know, it took us a while to get it all done, but Google Workspace also, that's one where I think there's, you know, that was built out of customer demand.
Speaker Change: And so all of this, you know, all of this, I think, has a ramp, nothing happens overnight. It has a ramp. And one of the other things that we're also investing in that sort of...
Speaker Change: That's important because accessibility for customers, ease of use in deploying, you know, marketplaces, hyperscale marketplaces, so whether it's the Microsoft marketplace or the AWS marketplace, supporting those also enables us to be able to get the product into the hands of customers faster.
because it's a natural way for them to acquire.
Speaker Change: And as a quick follow-up, just characterization of the competitive landscape, who do you see the most and who do you see as the kind of opportunity set that you're able to displace?
in a scalable way within a hybrid multi-cloud enterprise.
Yes, sir.
Speaker Change: People who bid parts of that, they don't do everything we do at the scale we do it at, which is why we've been here in the public markets in 2006, very clearly good at what we do. We have 1,100 patents in that space.
Speaker Change: So, we take that innovation and we take the way we bring things to market very seriously. So, Bean Group, Backtrack, you know, these sort of technologies.
Speaker Change: I don't think are available with our competitors. So our job, FedRAMP High, we're the only ones who have that certification. These are the kinds of things that make us very different.
and valuable, I believe, to our customers.
Speaker Change: So we're going to keep going that route. We're going to keep separating ourselves with great innovation. And, you know, we're kind of excited about the future.
Thank you.
Thank you.
Speaker Change: That concludes the question and answer session. I would like to turn the call back over to Mr. Melnyk for closing remarks.
Speaker Change: Thank you, everyone, for joining this morning. As a reminder, you can look at our earnings presentation available on the Investor Relations website to get a constant currency bridge. And we'll be available for questions, and feel free to reach out. Thank you again.
Speaker Change: Ladies and gentlemen, this concludes the conference call. You may now disconnect.